<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 33-69274
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC.
(Exact name of registrant as specified in its charter)
NEVADA 75-1494591
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1999 BRYAN STREET, SUITE 3300, DALLAS, TEXAS 75201
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (214) 969-1910
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of October 1, 1996 was $0.00.
As of October 1, 1996, 100,000 shares of the Company's Common Stock, par
value $.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
<TABLE>
SEP. 30, DEC. 31,
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,266 $ 3,053
Receivables-
Trade accounts, net of allowances
for doubtful accounts of $551 as of
September 30, 1996 and $543 as of December 31, 1995 17,516 17,620
Other 6,900 4,434
-------- --------
24,416 22,054
Inventories 12,620 11,303
Prepaid expenses and other 2,377 999
Net deferred tax asset 2,379 788
-------- --------
Total current assets 48,058 38,197
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 5,796 5,893
Buildings and improvements 29,721 27,181
Vending machines, machinery and equipment 69,171 63,092
Furniture and fixtures 3,836 3,641
Vehicles 16,862 15,235
-------- --------
125,386 115,042
Less-Accumulated depreciation (79,759) (73,909)
-------- --------
Property, plant and equipment, net 45,627 41,133
OTHER ASSETS:
Franchise rights and goodwill, net of accumulated
amortization of $38,609 as of September 30,
1996 and $35,613 as of December 31, 1995 120,469 123,473
Deferred financing costs, covenants not to compete
and other, net of accumulated amortization of $5,447
as of September 30, 1996 and $4,861 as of December 31, 1995 15,205 11,834
Net deferred tax asset 7,471 10,012
-------- --------
Total other assets 143,145 145,319
-------- --------
Total assets $236,830 $224,649
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
SEP. 30, DEC. 31,
1996 1995
------- --------
CURRENT LIABILITIES:
Accounts payable $23,470 $16,087
Accrued payroll 1,160 1,400
Accrued interest 4,847 3,451
Other accrued liabilities 1,294 2,092
Current maturities of long-term debt 12,437 15,264
-------- --------
Total current liabilities 43,208 38,294
-------- --------
LONG-TERM DEBT, net of current maturities 242,205 246,243
OTHER LIABILITIES 13,704 9,337
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, $.10 par value; 250,000 shares
authorized: 100,000 shares issued and outstanding 10 10
Additional paid-in capital 26,223 26,223
Retained deficit (88,520) (95,458)
-------- --------
Total stockholder's deficit (62,287) (69,225)
-------- --------
Total liabilities and stockholder's deficit $236,830 $224,649
-------- --------
-------- --------
The accompanying notes are an integral part
of these consolidated balance sheets.
3
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in Thousands)
<TABLE>
Three Months Ended Nine Months Ended
------------------ ---------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $63,474 $61,957 $187,433 $176,894
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 33,548 33,890 98,616 95,026
Selling, general and administrative 18,073 16,986 53,748 49,430
Depreciation and amortization 3,519 3,163 10,159 9,384
------- ------- -------- --------
55,140 54,039 162,523 153,840
------- ------- -------- --------
Operating income 8,334 7,918 24,910 23,054
INTEREST:
Interest on debt (5,299) (5,536) (15,795) (17,456)
Deferred financing cost (146) (345) (447) (1,004)
Interest income 43 39 130 119
------- ------- -------- --------
(5,402) (5,842) (16,112) (18,341)
Equity in earnings of unconsolidated
subsidiary 2,508 2,786 6,090 3,356
------- ------- -------- --------
Income before income taxes
and extraordinary item 5,440 4,862 14,888 8,069
Benefit (provision) for income taxes (690) - (1,600) 10,377
------- ------- -------- --------
Income before extraordinary item 4,750 4,862 13,288 18,446
Extraordinary item, net of income tax
benefit of $423 - - - (787)
------- ------- -------- --------
Net income 4,750 4,862 13,288 17,659
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
4
<PAGE>
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in Thousands)
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,288 $ 17,659
Ajustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 10,159 9,384
Extraordinary item - 1,210
Change in deferred taxes 950 (10,800)
Amortization of deferred financing costs 447 1,004
Deferred compensation 1,185 1,088
Equity in earnings of unconsolidated subsidiary (6,090) (3,356)
Change in assets and liabilities, excluding effects
of acquisition and extraordinary item:
Receivables (2,362) (1,276)
Inventories (1,367) (669)
Prepaid expenses and other (1,378) (133)
Payables 7,383 (3)
Accrued expenses 358 4,125
--------- --------
Net cash provided by operating activities 22,573 18,233
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (10,522) (6,991)
Other noncurrent assets (acquired) disposed (2,942) 1,062
Dividends received 4,137 3,853
--------- --------
Net cash used in investing activities (9,327) (2,076)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
credit facility 3,300 (2,850)
Retirement of long-term debt - (121,122)
Proceeds from issuance of long-term debt, net - 117,869
Payments on long-term debt (6,983) (4,648)
Purchase of interest rate cap - (588)
Dividends paid (6,350) (4,305)
--------- --------
Net cash (used) by financing activities (10,033) (15,644)
--------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,213 513
CASH AND CASH EQUIVALENTS, beginning of period 3,053 3,076
--------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,266 $ 3,589
--------- --------
--------- --------
The accompanying notes are an integral part of these consolidated statements.
5
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(1) BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of The
Coca-Cola Bottling Group (Southwest), Inc., a Nevada corporation (the
"Company") and its wholly owned subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim
financial information and reflect, in the opinion of management, all
adjustments which are normal and recurring in nature, necessary for a fair
presentation of financial position, results of operations, and changes in
cash flows at September 30, 1996 and for all periods presented. These
interim financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the
consolidated financial statements of the Company included in Form 10-K for
the fiscal year ended December 31, 1995. The results of operations for the
period ended September 30, 1996 are not necessarily indicative of results
to be expected for the entire year ending December 31, 1996.
(2) INVENTORY:
Inventories consist of the following (in thousands):
Sep. 30, Dec. 31,
1996 1995
-------- --------
Raw materials $ 3,015 $ 2,004
Returnable shells, vending equipment
not in service and supplies 249 1,625
Finished goods 9,356 7,674
-------- --------
$ 12,620 $ 11,303
-------- --------
-------- --------
6
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(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
Summarized financial information for Texas Bottling Group, Inc.
("TBG") as of September 30, 1996 and December 31, 1995, is as follows (in
thousands):
Sep. 30 Dec. 31
1996 1995
--------- ---------
Current assets $ 46,356 $ 41,357
Noncurrent assets 212,215 218,189
Current Liabilities 42,951 38,314
Long-term debt 205,050 215,500
Other liabilities 3,674 2,922
Postretirement benefit obligation 6,153 6,003
Stockholders' earnings (deficit) 743 (3,223)
For the nine month periods
ended September 30, 1996 and 1995:
1996 1995
--------- ---------
Net sales 169,263 162,028
Cost of goods sold 90,763 88,531
Net income before income taxes
and extraordinary item 15,065 11,827
Net income 12,365 24,516
The Company's equity in 1996 net income resulted in the Company
recording income from TBG of $6,090,000.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an
order dismissing the complaint filed by the FTC in 1988 against Coca-Cola
Bottling Company of the Southwest ("San Antonio Coke"), a wholly-owned
subsidiary of Texas Bottling Group, Inc., the unconsolidated subsidiary of
the Registrant, bringing to an end the FTC's efforts to force the divesture
of Dr Pepper licenses for a ten-county area around and including San
Antonio, Texas held by San Antonio Coke. This action by the FTC followed
the June 1996 ruling by the Fifth Circuit Court of Appeals reversing and
remanding the FTC's September 1994 divestiture order. Additional
background information on this proceeding is set forth in the Registrant's
quarterly report for the quarter ended June 30, 1996 and the Registrant's
annual report on Form 10-K for the year ending December 31, 1995.
7
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(4) INCOME TAXES:
The Company's benefit (provision) for income taxes, including the
benefit from the extraordinary item, for the periods ended September 30, 1996
and 1995, is as follows (in thousands):
1996 1995
------- -------
Current (650) -
Deferred (950) 10,800
------- -------
$(1,600) $10,800
------- -------
(5) COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company is a member of a soft drink canning cooperative and owns
approximately 4% (qualifying shares) at September 30, 1996. The Company
had purchases of $2,020,000 and $551,000 for the periods ended September
30, 1996 and 1995 from this cooperative.
The Company's transactions with TBG included purchases of
approximately $11,796,000 and $1,371,000 and sales of approximately
$9,730,000 and $875,000 for the periods ended September 30, 1996 and 1995.
The Company had purchases from Western Container Corporation, a
plastic bottle manufacturer of which the Company's subsidiaries are
shareholders, of $6,847,000 and $6,889,000 for the periods ended September
30, 1996 and 1995.
(6) On August 1, 1996, the Company received a dividend from TBG in the
amount of $4.1 million and paid a dividend to the Company's shareholder
in the amount of $6.4 million.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Unit growth of soft drink sales is measured in equivalent case sales which
convert all wholesale bottle, can and pre-mix unit sales into a value of
equivalent cases of 192 ounces each. Unit sales of post-mix and contract
bottling are not generally included in discussions concerning unit sales volume
as post-mix sales are essentially sales of syrup and not of packaged products,
and contract bottling is done as capacity permits and does not represent
licensed products for the franchised territory. However, all references to net
revenues and gross profit include volumes for post-mix and contract sales.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
NET REVENUES. Net Revenues for the Company increased by 2.4% or
approximately $1.5 million to $63.5 million in 1996. Soft drink net revenues
increased 0.7% primarily as a result of a 3.0% increase in equivalent case sales
in 1996 versus 1995. Net revenues for post-mix as a percentage of total net
revenues increased to 12.9% in 1996, as compared to 12.6% in 1995. Net revenues
for Automated & Custom Food Services, Inc. increased in 1996 by approximately
5.2% over 1995.
GROSS PROFIT. Gross Profit increased by 6.6% from $28.1 million to $29.9
million, primarily as a result of the increase in revenues noted above, as well
as reductions in raw material costs for aluminum cans, sweetener and PET
bottles. Gross profit as a percentage of net revenues for the period ended
September 30, 1996 was 47.1% compared to 45.3% for the period ended September
30, 1995.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 6.4% or approximately $1.1 million in 1996. Selling, general
and administrative expense as a percentage of net revenues increased to 28.5% in
1996 from 27.4% in 1995. Higher labor costs accounted for most of the
percentage increase.
OPERATING INCOME. As a result of the above, offset by a $0.4 million
increase in depreciation and amortization, operating income for the period ended
September 30, 1996 increased to $8.3 million, or 13.1% of net revenue, compared
to $7.9 million or 12.8% of net revenue for the same period in 1995.
INTEREST EXPENSE. Net interest expense decreased by approximately $0.4
million in 1996 due primarily to reductions in short term interest rates between
years and lower debt levels as a result of scheduled payments.
9
<PAGE>
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the earnings of TBG in 1996 of $2.5 million as compared to $2.8
million in 1995. TBG recorded net income of approximately $5.1 million in 1996
compared to net income of approximately $5.7 million in 1995. TBG's operating
income was increased by $0.5 million or 5.4% in 1996 over the same period in
1995.
NINE MONTHS ENDED SEPTEMBER 30,1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
NET REVENUES. Net Revenues for the Company increased by 6.0% or
approximately $10.5 million to $187.4 million in 1996. Soft drink net revenues
increased 5.5% primarily as a result of a 6.1% increase in equivalent case sales
in 1996 versus 1995. Net revenues for post-mix as a percentage of total net
revenues increased to 12.3% in 1996, as compared to 11.8% in 1995. Net revenues
for Automated & Custom Food Services, Inc. increased in 1996 by approximately
6.4% over 1995.
GROSS PROFIT. Gross Profit increased by 8.5% from $81.9 million to $88.8
million, primarily as a result of the increase in revenues resulting from the
increase in equivalent case sales noted above. Gross profit as a percentage of
net revenues for the period ended September 30, 1996 was 47.4% compared to 46.3%
for the period ended September 30, 1995. Reductions in raw material costs for
aluminum cans and sweetener accounted for the improved margin percentage in
1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 8.7% or approximately $4.3 million in 1996. Selling, general
and administrative expense as a percentage of net revenues increased to 28.7% in
1996 from 27.9% in 1995. Higher labor costs associated with the increased
equivalent case sales volume, together with labor and expenses associated with a
significant vending machine placement initiative and the cost of several
facility repair projects accounted for most of the percentage increase.
OPERATING INCOME. As a result of the above, offset by a $0.8 million
increase in depreciation and amortization, operating income for the period ended
September 30, 1996 increased to $24.9 million, or 13.3% of net revenue, compared
to $23.1 million or 13.0% of net revenue for the same period in 1995.
INTEREST EXPENSE. Net interest expense decreased by approximately $2.2
million in 1996 due primarily to reductions in borrowing costs associated with
refinancing activities in April 1995 discussed below, lower short term rates and
reductions in debt levels as a result of scheduled payments.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the earnings of TBG in 1996 of $6.1 million as compared to $3.4
million in 1995. TBG recorded net income of approximately $12.4 million in 1996
compared to net income of
10
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approximately $24.5 million in 1995. TBG's operating income was increased by
$1.3 million or 4.9% in 1996 over the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, cash provided by operating
activities was $22.6 million, generated primarily by net income plus
depreciation and amortization. Investing activities used $9.3 million primarily
for additions to property, plant and equipment net of a dividend received from
TBG while financing activities used $10.0 million primarily for payments on
long-term debt as well as a dividend of $6.4 million to the Company's
shareholder.
On May 1, 1996, the Company received consents from its senior bank lenders
which limited the amount of mandatory annual prepayment for the calender year
1995 to a maximum of $2 million and limited the amount of excess cash flow to be
prepaid in 1996 to 75% of the excess cash flow as defined. In addition, a
consent was obtained to change the definition of capital expenditures to allow
the use of certain market development funds received in connection with the
Company's new Sprite franchise to be used for capital expenditures without being
counted as capital expenditures for covenant calculation purposes.
In connection with the 1995 Bank Agreement the Company has entered into an
interest rate cap agreement which caps the three month LIBOR rate at 9% on a
notional principal amount of $60 million for four years. The Company has no
interest rate exposure under the agreement other than the initial purchase cost
of $0.6 million.
The Company will continue to evaluate the realizability of its deferred tax
asset in relation to future taxable income and adjust the valuation allowance
accordingly. At September 30, 1996, the Company recognized provision for income
taxes of $1.6 million of which $1.0 million represents deferred taxes.
On August 1, 1996, the Company received a dividend from TBG in the amount
of $4.1 million and paid a dividend to the Company's shareholder in the amount
of $6.4 million to shareholders of record on July 19, 1996.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an
order dismissing the complaint filed by the FTC in 1988 against Coca-Cola
Bottling Company of the Southwest ("San Antonio Coke"), a wholly-owned
subsidiary of Texas Bottling Group, Inc., the unconsolidated subsidiary of the
Registrant, bringing to an end the FTC's efforts to force the divesture of Dr
Pepper licenses for a ten-county area around and including San Antonio, Texas
held by San Antonio Coke. This action by the FTC followed the June 1996 ruling
by the Fifth Circuit Court of Appeals reversing and remanding the FTC's
September 1994 divestiture order. Additional background information on this
proceeding is set forth in the Registrant's quarterly report for the quarter
ended June 30, 1996 and the Registrant's annual report on Form 10-K for the year
ending December 31, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
------- ----------------------
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Coca-Cola Bottling Group (Southwest), Inc.
(Registrant)
Date October 24, 1996 By: /s/ CHARLES F. STEPHENSON
--------------------- -------------------------------------
Charles F. Stephenson
President and Chief Financial
Officer (duly authorized officer and
Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6266
<SECURITIES> 0
<RECEIVABLES> 24967
<ALLOWANCES> (551)
<INVENTORY> 12620
<CURRENT-ASSETS> 48058
<PP&E> 125386
<DEPRECIATION> (79759)
<TOTAL-ASSETS> 236,830
<CURRENT-LIABILITIES> 43208
<BONDS> 255909
0
0
<COMMON> 10
<OTHER-SE> (62297)
<TOTAL-LIABILITY-AND-EQUITY> 236830
<SALES> 187433
<TOTAL-REVENUES> 187433
<CGS> 98616
<TOTAL-COSTS> 53748
<OTHER-EXPENSES> 10159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16112)
<INCOME-PRETAX> 14888
<INCOME-TAX> (1600)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13288
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
