<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, 1997
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-69274
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC.
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(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
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(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 November 3, 1997 was $0.00.
As of November 3 1997, 100,000 shares of the Company's Common Stock, par
value $.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands Except Share Data)
<TABLE>
September 30, December 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,023 $ 3,182
Receivables-
Trade accounts, net of allowances
for doubtful accounts of $548 as of
September 30, 1997 and $540 as of December 31, 1996 16,465 17,782
Other 10,729 6,818
-------- --------
27,194 24,600
Inventories 11,017 9,843
Prepaid expenses and other 3,285 2,400
Deferred tax asset 6,428 5,848
-------- --------
Total current assets 52,947 45,873
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 5,655 5,796
Buildings and improvements 28,316 28,257
Vending machines, machinery and equipment 77,810 69,444
Furniture and fixtures 3,594 3,859
Transportation equipment 18,960 17,745
-------- --------
134,335 125,101
Less-Accumulated depreciation and amortization (83,669) (79,424)
-------- --------
Property, plant and equipment, net 50,666 45,677
OTHER ASSETS:
Franchise rights, net of accumulated
amortization of $40,439 as of September 30,
1997 and $37,744 as of December 31, 1996 103,215 105,910
Goodwill, net of accumulated amortization of $2,181
as of September 30, 1997 and $1,874 as of
December 31, 1996 13,250 13,558
-------- --------
116,465 119,468
Deferred financing costs, and other assets,
net of accumulated amortization of $14,423
as of September 30, 1997 and $13,852 as of December 31, 1996 13,787 16,301
Net deferred tax asset 1,368 3,725
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Total other assets 131,620 139,494
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Total assets $235,233 $231,044
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-------- --------
</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, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands Except Share Data)
September 30, December 31,
1997 1996
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 21,802 $ 21,289
Accrued payroll 2,239 2,692
Accrued interest 4,836 1,629
Other accrued liabilities 2,042 1,392
Current maturities of long-term debt 14,083 12,816
-------- --------
Total current liabilities 45,002 39,818
-------- --------
LONG-TERM DEBT, net of current maturities 240,957 238,027
OTHER LIABILITIES 11,413 13,326
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 (88,372) (86,360)
-------- --------
Total stockholder's deficit (62,139) (60,127)
-------- --------
Total liabilities and stockholder's deficit $235,233 $231,044
-------- --------
-------- --------
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, 1997 AND 1996
(Amounts in Thousands)
Three Months Ended Nine Months Ended
------------------ ------------------
1997 1996 1997 1996
------- ------- -------- --------
NET REVENUES $64,387 $63,474 $187,987 $187,433
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 34,767 33,548 97,485 98,616
Selling, general and administrative 19,915 18,073 57,748 53,748
Depreciation and amortization 3,964 3,519 11,298 10,159
------- ------- -------- --------
58,646 55,140 166,531 162,523
------- ------- -------- --------
Operating income 5,741 8,334 21,456 24,910
INTEREST:
Interest on debt (5,163) (5,299) (15,307) (15,795)
Deferred financing cost (146) (146) (438) (447)
Interest income 33 43 123 130
------- ------- -------- --------
(5,276) (5,402) (15,622) (16,112)
Equity in earnings of unconsolidated
subsidiary 799 2,508 2,631 6,090
------- ------- -------- --------
Income before income taxes 1,264 5,440 8,465 14,888
Provision for income taxes (125) (690) (1,977) (1,600)
------- ------- -------- --------
Net income 1,139 4,750 6,488 13,288
------- ------- -------- --------
------- ------- -------- --------
The accompanying notes are an integral part
of these consolidated statements.
4
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in Thousands)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,488 $ 13,288
Ajustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 11,298 10,159
Deferred tax provision 1,777 950
Amortization of deferred financing costs 438 447
Deferred compensation 1,193 1,185
Earnings of unconsolidated subsidiary (2,631) (6,090)
Change in assets and liabilities:
Receivables (2,594) (2,362)
Inventories (1,174) (1,367)
Prepaid expenses and other (885) (1,378)
Payables 1,659 7,383
Accrued expenses (848) 358
-------- --------
Net cash provided by operating activities 14,721 22,573
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (12,519) (10,522)
Other noncurrent assets acquired (688) (2,942)
Dividends received 4,630 4,137
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Net cash used in investing activities (8,577) (9,327)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving
credit facility 6,950 3,300
Issuance of long-term debt 7,064 -
Payments on long-term debt (9,817) (6,983)
Dividends paid (8,500) (6,350)
-------- --------
Net cash used by financing activities (4,303) (10,033)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,841 3,213
CASH AND CASH EQUIVALENTS, beginning of period 3,182 3,053
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 5,023 $ 6,266
-------- --------
-------- --------
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, 1997 AND 1996
(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, 1997 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, 1996. The results of operations for the
period ended September 30, 1997 are not necessarily indicative of results
to be expected for the entire year ending December 31, 1997.
(2) INVENTORIES:
Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1997 1996
--------- --------
Raw materials $ 2,805 $ 1,991
Repair parts and supplies 143 513
Finished goods 8,069 7,339
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$ 11,017 $ 9,843
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6
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(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
Summarized financial information for Texas Bottling Group, Inc.
("TBG") as of September 30, 1997 and December 31, 1996, is as follows (in
thousands):
Sept. 30 Dec. 31
1997 1996
--------- ---------
Current assets $ 50,174 $ 45,735
Noncurrent assets 209,181 210,388
Current liabilities 39,700 39,433
Long-term debt 207,465 203,000
Other liabilities 6,369 3,864
Postretirement benefit obligation 6,124 6,157
Stockholders' equity (deficit) (303) 3,669
FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996:
1997 1996
--------- ---------
Net revenues $ 163,762 $ 169,263
Cost of goods sold 87,540 90,763
Net income before income taxes 8,440 15,065
Net income 5,428 12,365
The Company's equity in 1997 net income resulted in the Company
recording income from TBG of $2.6 million.
(4) INCOME TAXES:
The Company's provision for income taxes for the nine months ended
September 30, 1997 and 1996, is as follows (in thousands):
1997 1996
------- -------
Current $ 200 $ 650
Deferred 1,777 950
------- -------
$ 1,977 $ 1,600
------- -------
7
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(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, 1997. The Company
had purchases of $4,764,000 and $2,020,000 for the periods ended September
30, 1997 and 1996 from this cooperative.
The Company's transactions with TBG included purchases of
approximately $10,166,000 and $11,796,000 and sales of approximately
$10,462,000 and $9,730,000 for the periods ended September 30, 1997 and
1996.
The Company had purchases from Western Container Corporation, a
plastic bottle manufacturer of which the Company's subsidiaries are
shareholders, of $4,698,000 and $6,847,000 for the periods ended September
30, 1997 and 1996.
On August 1, 1997, the Company received a dividend from TBG in the
amount of $4,629,876 million and paid a dividend to the Company's
shareholder in the amount of $8,500,000 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, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET REVENUES. Net revenues for the Company increased by 1.4% or
approximately $0.9 million to $64.4 million in 1997. Soft drink net revenues
decreased 0.1% primarily as a result of a $0.8 million decrease in contract
bottling sales in 1997 versus 1996. The Company ceased all its contract
bottling operations for private label brands in late 1996. Equivalent case
sales increased 5.9% in 1997 however, the net effective selling price per
equivalent case decreased 5.5% in 1997 versus 1996. Net revenues for
post-mix as a percentage of total net revenues increased to 14.0% in 1997, as
compared to 13.0% in 1996. Net revenues for Automated & Custom Food
Services, Inc. increased in 1997 by approximately 7.4% over 1996.
GROSS PROFIT. Gross profit decreased by 1.0% from $29.9 million to $29.6
million, as reductions in raw material costs for PET bottles and sweetener
somewhat offset the lower net effective selling price noted above. Gross
profit as a percentage of net revenues decreased to 46.0% in 1997 as compared
to 47.1% in 1996 due to the lower net effective selling price and the
increased revenues in lower margin items such as post-mix and food service.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 10.2% or approximately $1.8 million in 1997. Selling,
general and administrative expenses as a percentage of net revenues increased
to 30.9% in 1997 from 28.5% in 1996. Higher labor costs associated with
increased hiring for certain key sales positions as well as a significant
increase in marketing expenditures for items such as display racks, barrels
and point-of-sale materials accounted for most of the increase.
OPERATING INCOME. As a result of the above, together with a $0.4 million
increase in depreciation and amortization, operating income for the period
ended September 30, 1997 decreased to $5.7 million, or 8.9% of net revenue,
compared to $8.3 million or 13.1% of net revenue for the same period in 1996.
INTEREST EXPENSE. Net interest expense decreased by approximately $0.1
million in 1997 due primarily to lower debt levels as a result of scheduled
principal payments.
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the income of TBG in 1997 of $0.8 million. TBG recorded net
income of approximately $1.6 million in 1997 compared to net income of
approximately $5.1 million in 1996. TBG's operating income was 34.9% lower in
1997 compared to 1996.
9
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
NET REVENUES. Net Revenues for the Company increased by 0.3% or
approximately $0.6 million to $188.0 million in 1997. Soft drink net
revenues decreased 1.8% primarily as a result of a $3.8 million decrease in
contract bottling sales in 1997 versus 1996. The Company ceased all its
contract bottling operations for private label brands in late 1996.
Equivalent case sales increased 2.4% in 1997 however, the net effective
selling price per equivalent case decreased 2.1% in 1997 versus 1996. Net
revenues for post-mix as a percentage of total net revenues increased to
12.9% in 1997, as compared to 12.3% in 1996. Net revenues for Automated &
Custom Food Services, Inc. increased in 1997 by approximately 5.6% over 1996.
GROSS PROFIT. Gross Profit increased by 1.9% from $88.8 million to $90.5
million, primarily as a result of reductions in raw material costs for PET
bottles and sweetener. The reduction in raw material cost accounted for an
improvement in gross profit as a percentage of net revenues to 48.1% in 1997
as compared to 47.4% in 1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 7.4% or approximately $4.0 million in 1997. Selling,
general and administrative expense as a percentage of net revenues increased
to 30.7% in 1997 from 28.7% in 1996. A significant increase in expenditures
for marketing related items such as display racks, barrels and point-of-sale
materials accounted for the largest portion of the increase. These types of
expenditures have historically been expensed as incurred although they may
benefit sales results in future periods as well as the current period.
Higher labor costs associated with increased hiring for certain key sales
positions also contributed to the increase. These increases were offset by
favorable trends in group health plans and refunds relating to prior years
workers' compensation insurance premiums.
OPERATING INCOME. As a result of the above, together with a $1.1 million
increase in depreciation and amortization, operating income for the period
ended September 30, 1997 decreased to $21.5 million, or 11.4% of net revenue,
compared to $24.9 million or 13.3% of net revenue for the same period in 1996.
INTEREST EXPENSE. Net interest expense decreased by approximately $0.5
million in 1997 due primarily to lower debt levels as a result of scheduled
principal payments.
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the income of TBG in 1997 of $2.6 million. TBG recorded net
income of approximately $5.4 million in 1997 compared to net income of
approximately $12.4 million in 1996. TBG's operating income was 23.6% lower
in 1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, cash provided by operating
activities was $14.7 million, generated primarily by net income plus
depreciation and amortization. Investing activities used $1.5 million
primarily for additions to property, plant and equipment, net of dividend
received from TBG of $4.6 million while financing activities used $11.4
million primarily from payments on long-term debt net of borrowings under the
revolving credit facility as well as a dividend of $8.5 million to the
Company's shareholder. Of total additions to property, plant and equipment
of $12.5 million, $7.1 million were acquired through the issuance of
long-term debt.
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.
10
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At September 30, 1997, the Company recognized provision for income taxes
of $2.0 million of which $1.8 million represents deferred taxes.
On August 1, 1997 the Company received a dividend from TBG in the amount
of $4.6 million and paid a dividend to the Company's sole shareholder in the
amount of $8.5 million.
11
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 30, 1997, the sole shareholder of the Registrant, by written
consent in lieu of the annual meeting, elected Edmund M. Hoffman and Robert
K. Hoffman to serve as Directors of the Registrant. On May 30, 1997, the
holders of the Class A Common Stock of CCBG Corporation elected Edmund M.
Hoffman, Robert K. Hoffman, Robert W. Decherd and Richard Ware II to serve as
Directors of CCBG Corporation, the sole shareholder of the Registrant. This
information amends and corrects Item 4 in the Quarterly Report on Form 10-Q
filed by the Registrant for the quarter ended June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No report on Form 8-K was filed for the quarter ended September 30,
1997.
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 November 12, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,023
<SECURITIES> 0
<RECEIVABLES> 27,742
<ALLOWANCES> (548)
<INVENTORY> 11,017
<CURRENT-ASSETS> 52,947
<PP&E> 134,335
<DEPRECIATION> (83,669)
<TOTAL-ASSETS> 235,233
<CURRENT-LIABILITIES> 45,002
<BONDS> 252,370
0
0
<COMMON> 10
<OTHER-SE> (62,149)
<TOTAL-LIABILITY-AND-EQUITY> 235,233
<SALES> 187,987
<TOTAL-REVENUES> 187,987
<CGS> 97,485
<TOTAL-COSTS> 57,748
<OTHER-EXPENSES> 11,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,622)
<INCOME-PRETAX> 8,465
<INCOME-TAX> (1,977)
<INCOME-CONTINUING> 6,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,488
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
