<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 March 31, 1998
----------------
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
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(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 May 1, 1998 was $0.00.
As of May 1, 1998, 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--MARCH 31, 1998 AND DECEMBER 31, 1997
-----------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
<TABLE>
March 31, December 31,
1998 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,448 $ 3,208
Receivables-
Trade accounts, net of allowance
for doubtful accounts of $507 as of
March 31, 1998 and $523 as of December 31, 1997 15,153 17,431
Other 8,528 7,418
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23,681 24,849
Inventories 10,826 9,461
Prepaid expenses and other 2,357 1,930
Deferred tax asset 1,260 6,883
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Total current assets 41,572 46,331
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 5,655 5,655
Buildings and improvements 28,041 27,818
Vending machines, machinery and equipment 82,080 79,959
Furniture and fixtures 3,325 3,287
Transportation equipment 19,780 19,818
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138,881 136,537
Less-Accumulated depreciation and amortization (87,652) (86,132)
-------- --------
Property, plant and equipment, net 51,229 50,405
OTHER ASSETS:
Franchise rights, net of accumulated
amortization of $42,224 as of March 31,
1998 and $41,328 as of December 31, 1997 101,418 102,317
Goodwill, net of accumulated amortization of $2,331
as of March 31, 1998 and $2,223 as of
December 31, 1997 13,023 13,121
-------- --------
Franchise rights and goodwill 114,441 115,438
Deferred financing costs, and other assets,
net of accumulated amortization of $16,585 as of
March 31, 1998 and $15,098 as of December 31, 1997 13,544 14,141
Deferred tax asset 8,436 2,322
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Total other assets 136,421 131,901
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Total assets $229,222 $228,637
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
---------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS--MARCH 31, 1998 AND DECEMBER 31, 1997
-----------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
<TABLE>
March 31, December 31,
1998 1997
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 19,914 $ 18,090
Accrued payroll 2,753 3,494
Accrued interest 4,760 1,646
Other accrued liabilities 1,248 1,985
Current maturities of long-term debt 1,309 2,015
Net liabilities of discontinued operations 17 17
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Total current liabilities 30,001 27,247
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LONG-TERM DEBT, net of current maturities 253,231 251,529
OTHER LIABILITIES 8,908 11,900
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
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 (89,151) (88,272)
-------- --------
Total stockholder's equity (62,918) (62,039)
-------- --------
Total liabilities and stockholder's equity $229,222 $228,637
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
3
<PAGE>
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Amounts in Thousands)
<TABLE>
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $(879) $891
Adjustments to reconcile net income to net
cash provided by operating activities-
Net loss from discontinued operations - 326
Depreciation and amortization 4,507 3,446
Amortization of deferred financing costs 153 146
Deferred tax (benefit) provision (491) 368
Deferred compensation (93) 398
Earnings of unconsolidated subsidiary 662 (379)
Extraordinary item 1,219 -
Change in assets and liabilities, excluding
effects of extraordinary item:
Receivables 1,168 (2,604)
Inventories (1,365) (1,289)
Prepaid expenses and other (427) 610
Accounts payable 1,824 (2,115)
Accrued expenses 1,636 4,069
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Net cash provided by operating activities 7,914 3,867
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NET CASH USED BY DISCONTINUED OPERATIONS - (101)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (3,718) (6,032)
Other noncurrent assets aquired (2,053) (371)
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Net cash used by investing activities (5,771) (6,403)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
credit facility (658) 5,300
Retirement of long-term debt (108,915) 0
Proceeds from issuance of long-term debt 110,800 0
Payments on long-term debt (3,130) (3,425)
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Net cash provided (used) by financing activities (1,903) 1,875
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 240 (762)
CASH AND CASH EQUIVALENTS, beginning of period 3,208 3,111
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CASH AND CASH EQUIVALENTS, end of period $3,448 $2,349
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</TABLE>
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(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 March 31, 1998 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, 1997. The results of operations for the period
ended March 31, 1998 are not necessarily indicative of results to be
expected for the entire year ending December 31, 1998.
(2) INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
Mar. 31, Dec. 31,
1998 1997
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<S> <C> <C>
Raw materials $ 2,555 $2,307
Finished goods 8,170 6,643
Repair parts and supplies 101 511
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$10,826 $9,461
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</TABLE>
5
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(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
Summarized financial information for Texas Bottling Group, Inc.
("TBG") as of March 31, 1998 and December 31, 1997, is as follows (in
thousands):
<TABLE>
Mar. 31 Dec. 31
1998 1997
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<S> <C> <C>
Current assets $ 43,613 $ 44,388
Noncurrent assets 206,190 206,043
Current liabilities 22,030 23,160
Long-term debt 219,636 214,867
Other liabilities 2,157 5,072
Postretirement benefit obligation 6,110 6,117
Stockholders' equity (deficit) (130) 1,215
</TABLE>
FOR THE THREE MONTH PERIODS
ENDED MARCH 31, 1998 AND 1997:
<TABLE>
1998 1997
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<S> <C> <C>
Net sales $52,662 $48,847
Cost of goods sold 28,746 25,327
Net income before income taxes and
extraordinary item 268 1,393
Net income (loss) (1,345) 856
</TABLE>
The Company's equity in 1998 net income resulted in the Company
recording a loss from TBG of $662,000.
(4) INCOME TAXES:
The Company's (benefit) provision for income taxes for the periods
ended March 31, 1998 and 1997, is as follows (in thousands):
<TABLE>
1998 1997
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<S> <C> <C>
Current $ 0 $476
Deferred (491) 368
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$(491) $844
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</TABLE>
6
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(5) DEBT:
On March 11, 1998, the Company entered into a new credit agreement
(the "1998 Bank Credit Agreement") with a group of banks. The 1998 Bank
Credit Agreement provides the Company with credit facilities, under which
the Company may borrow up to $270 million. The credit facilities include
the following: 1) a 364-day term loan facility (the "1998 Term Loan") under
which the Company may borrow up to $50 million; and 2) a five-year
revolving credit agreement (the "1998 Revolver") under which the Company
may borrow up to $220 million. As required by the 1998 Bank Credit
Agreement, the proceeds from the 1998 Revolver shall be used to refinance
existing indebtedness or as allowed under the 1998 Bank Credit Agreement,
and the proceeds of the 1998 Term Loan shall be used solely for the
repurchase of any remaining amounts of existing indebtedness under the
Company's 9% Senior subordinated Notes due 2003. Advances made under the
1998 Term Loan will be available in a single borrowing and will be subject
to quarterly amortization of principal based on the following schedule
(with final payment due five years from the advance):
<TABLE>
<S> <C>
Years after Advance Amortization
1 $ 4 million
2 $ 6 million
3 $10 million
4 $15 million
5 $15 million
</TABLE>
Interest rates and commitment fees on the 1998 Revolver and the 1998
Term Loan are subject to change within a range of rates, depending on the
ratio of total debt to earnings, as defined, at the end of each calendar
quarter. The 1998 Revolver shall bear interest at a rate equal to either
LIBOR plus 0.375% to 1.75% or the Alternate Base Rate, as defined, plus
0.0% to 0.75%. The 1998 Term Loan shall bear interest at a rate equal to
either LIBOR plus 1.125% to 2.5% or the Alternate Base Rate, as defined,
plus 0.0% to 1.25%. Interest payments are payable quarterly or as defined
on the 1998 Revolver and the 1998 Term Loan. The Company must pay a
commitment fee of 0.18% to 0.5% of the average daily unused committed
amount of the 1998 Revolver and 0.18% to 0.5% of the available 1998 Term
Loan. Additionally, the Company paid an underwriting fee equal to 0.5% of
the entire amount of the 1998 Bank Credit Agreement at closing. This fee
was approximately $1.35 million and will be amortized over the life of the
1998 Bank Credit Agreement.
Under the 1998 Bank Credit Agreement, the group of banks received a
first priority perfected security interest in all of the existing and
future capital stock of the Company and its subsidiaries. Upon the fourth
consecutive fiscal quarterly detemination of total debt to earnings, as
defined, of not greater than 5.0 to 1, the Company may elect to terminate
the security interest in stock of the Company and subsidiaries.
7
<PAGE>
The 1998 Bank Credit Agreement is subject to certain restrictive
covenants that among other restrictions require maintenance of minimum
ratios of debt to earnings, as defined, maintenance of earnings to fixed
charges, as defined, and limitations of capital expenditures. The 1998
Bank Credit Agreement permits the payment of dividends and other
distributions to shareholders so long as no default exists.
In March 1998, the Company used proceeds from the 1998 Bank Credit
Agreement to repay amounts outstanding related to its existing credit
facility with a group of banks and other debt. The remaining unamortized
cost, including the cost of an interest rate cap purchased in 1995
(approximately $1.2 million) associated with the 1995 Bank Agreement has
been recorded net of income tax benefit as an extraordinary loss in 1998.
(6) DISCONTINUED OPERATIONS:
In December 1997, the Company's management adopted a plan to
discontinue operations of The Dani' Group, Inc. ("Dani"). The Company
expects to fully dispose of Dani through sale of its remaining assets in
1998. Accordingly, the operating results of Dani, including provisions for
estimated lease termination costs, employee benefits, and losses incurred
during the phase-out period of approximately $890,000 and a write-off of
receivables, leasehold improvements, and deferred charges of approximately
$554,000, have been segregated from continuing operations and reported as a
separate line item on the statement of income. As of March 31, 1998 there
have been no changes to these estimates.
The Company has restated its prior financial statements to present the
operating results of Dani as a discontinued operation. The assets and
liabilities of such operations at March 31, 1998 and December 31, 1997,
have been reflected as a net current liability based substantially on the
original classification of such assets and liabilities.
(7) COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company is a member of a soft drink canning cooperative and owns
approximately 4% (qualifying shares) at March 31, 1998. The Company had
purchases of $1,522,000 and $1,231,000 for the periods ended March 31, 1998
and 1997 from this cooperative.
The Company's transactions with TBG included purchases of
approximately $2,905,000 and $3,003,000 and sales of approximately
$2,890,000 and $2,166,000 for the periods ended March 31, 1998 and 1997,
respectively.
8
<PAGE>
The Company had purchases from Western Container Corporation, a
plastic bottle manufacturer of which the Company's subsidiaries are
shareholders, of $1,702,000 and $1,352,000 for the periods ended March 31,
1998 and 1997.
(8) SUBSEQUENT EVENTS:
On April 1, 1998 Southwest Coca-Cola Bottling Company, Inc. merged
into the Company.
On April 3, 1998, CCBG Corporation, TBG and The Prudential Insurance
Company of America entered into a letter of intent to merge with Coca-Cola
Enterprises Inc. The letter of intent also contemplates the acquisition by
Coca-Cola Enterprises Inc. of shares of TBG not owned by the Company. The
acquisition is pending execution of a definitive agreement and review of
the premerger notification and reports filed with the Federal Trade
Commission.
9
<PAGE>
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 are not
generally included in discussions concerning unit sales volume as post-mix
sales are essentially sales of syrup and not of packaged products. However,
all references to net revenues and gross profit include volume for post-mix.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
NET REVENUES. Net Revenues for the Company increased by 3.7% or
approximately $2.1 million to $60.1 million in 1998. Soft drink net revenues
increased 1.1% primarily as a result of a 1.2% increase in equivalent case
sales in 1998 versus 1997. Net revenues for post-mix as a percentage of
total net revenues decreased to 11.8% in 1998, as compared to 12.0% in 1997.
Net revenues for Automated & Custom Food Services, Inc. increased in 1998 by
approximately 9.7% over 1997.
GROSS PROFIT. Gross Profit increased by 2.0% from $29.8 million to
$30.4 million, primarily as a result of the increase in revenues noted above
offset by higher sweetener costs. Gross profit as a percentage of net
revenues decreased to 50.7% in 1998 as compared to 51.5% in 1997.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 4.6% or approximately $0.9 million in 1998. Selling,
general and administrative expense as a percentage of net revenues increased
to 34.1% in 1998 from 33.8% in 1997. Higher labor costs associated with
increased hiring for certain key sales positions accounted for most of the
increase.
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 March 31, 1998 decreased to $5.5 million, or 9.1% of net revenue,
compared to $6.8 million or 11.8% of net revenue for the same period in 1997.
INTEREST EXPENSE. Net interest expense decreased by approximately $0.2
million in 1998 due primarily to lower floating interest rates.
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the loss of TBG in 1998 of $0.7 million. TBG recorded net loss
of approximately $1.3 million in 1998 compared to net income of approximately
$0.9 million in 1997. TBG's operating income was 16.9% lower in 1998 compared
to 1997.
10
<PAGE>
DISCONTINUED OPERATIONS. In December 1997, the Company's management
adopted a plan to discontinue operations of The Dani' Group, Inc. ("Dani").
The Company expects to fully dispose of Dani through sale of its remaning
assets in 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, cash provided by operating
activities was $7.9 million, generated primarily by net income plus
depreciation and amortization. Investing activities used $5.8 million
primarily for additions to property, plant and equipment while financing
activities used $1.9 million primarily for payment of long-term debt.
On March 11, 1998, the Company entered into a new credit agreement (the
"1998 Bank Credit Agreement") with a group of banks. The 1998 Bank Credit
Agreement provides the Company with credit facilities, under which the
Company may borrow up to $270 million.
The Company's business is subject to seasonality due to the influence of
weather conditions on consumer demand for soft drinks, which affects working
capital. Sales are stronger in warmer months. The first quarter of
operating performance is usually lower than the other three quarters due to
the winter weather, primarily in the months of January and February.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 3, 1998, CCBG Corporation, the Company's parent, TBG and The
Prudential Insurance Company of America entered into a letter of intent to
merge CCBG Corporation and TBG with Coca-Cola Enterprises Inc. The
acquisition is pending execution of a definitive agreement and review of the
premerger notification and reports filed with the Federal Trade Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31,
1998.
12
<PAGE>
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 MAY 14, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,448
<SECURITIES> 0
<RECEIVABLES> 24,188
<ALLOWANCES> (507)
<INVENTORY> 10,826
<CURRENT-ASSETS> 41,572
<PP&E> 138,881
<DEPRECIATION> (87,652)
<TOTAL-ASSETS> 229,222
<CURRENT-LIABILITIES> 30,001
<BONDS> 262,139
0
0
<COMMON> 10
<OTHER-SE> (62,928)
<TOTAL-LIABILITY-AND-EQUITY> 229,222
<SALES> 60,055
<TOTAL-REVENUES> 60,055
<CGS> 29,627
<TOTAL-COSTS> 20,468
<OTHER-EXPENSES> 4,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,942)
<INCOME-PRETAX> (151)
<INCOME-TAX> 64
<INCOME-CONTINUING> (87)
<DISCONTINUED> 0
<EXTRAORDINARY> (792)
<CHANGES> 0
<NET-INCOME> (879)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
