<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
-------------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994
--------------
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: 33-56292-01 and 33-56292
DR PEPPER BOTTLING HOLDINGS, INC.
DR PEPPER BOTTLING COMPANY OF TEXAS
- - ---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2275754
Texas 75-2008278
- - -------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
2304 Century Center Boulevard, Irving Texas 75062
(214) 579-1024
- - ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
- - ---------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 number of shares outstanding of each of the issuers' classes of common
stock as of March 31, 1994 was as follows: 13,642,168 shares of Class A
Common Stock, par value $.01 per share, of Dr Pepper Bottling Holdings,
Inc., and 100 shares of Common Stock, par value $.01 per share, of Dr
Pepper Bottling Company of Texas.
<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
<PAGE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets
March 31, 1994 and December 31, 1993
(In thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
----------- ------------
<S> <C> <C>
Current assets:
Cash & cash equivalents $17,757 $16,955
Accounts receivable
Trade, less allowance for
doubtful accounts of $401 in
March 1994 and $305 in December
1993 21,484 20,156
Other 3,330 3,109
Inventories 13,224 9,806
Prepaid expenses 5,413 3,421
--------- ---------
Total current assets 61,208 53,447
Property, plant and equipment, net 64,193 64,523
Other assets at amortized cost:
Goodwill and other intangible
assets 115,299 116,668
Debt issuance costs 10,798 11,225
--------- ---------
Total assets $251,498 $245,863
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets
March 31, 1994 and December 31, 1993
(In thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
----------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $28,956 $26,311
Accrued expenses 13,960 13,877
Current maturities of long-term debt
and obligations under capital
leases (note 7) 12,796 12,885
--------- ---------
Total current liabilities 55,712 53,073
Long-term debt and obligations under
capital leases, less current
maturities (note 7) 308,232 306,149
Cumulative redeemable senior
exchangeable preferred stock, $.01
par value. Authorized 2,150
shares; issued and outstanding
1,318 shares in 1994; aggregate
liquidation preference $32,950
(note 10) 30,565 29,635
Stockholders' deficit (notes 3 and
11):
Class A common stock, $.01 par
value. Authorized 20,000 shares;
issued and outstanding 13,642 in
1994 136 136
Additional paid-in capital 14,383 14,383
Consideration to continuing
predecessor shareholders in excess
of book value (33,948) (33,948)
Deficit (123,582) (123,565)
--------- ---------
Total stockholders' deficit (143,011) (142,994)
--------- ---------
Total liabilities and
stockholders' deficit $251,498 $245,863
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Three Months Ended March 31, 1994 and 1993
(In thousands, except per share amounts)
UNAUDITED
March 31, March 31,
1994 1993
-------------- -----------
<TABLE>
<CAPTION>
<S> <C> <C>
Net sales $73,993 $69,876
Cost of sales (note 12) 45,645 42,520
--------- --------
Gross profit 28,348 27,356
Operating expenses:
Marketing expense 1,481 1,563
Administrative and general
expenses 14,994 13,929
Depreciation (note 12) 1,368 1,189
Amortization of intangible
assets 1,369 1,379
--------- --------
Total operating expenses 19,212 18,060
--------- --------
Operating profit 9,136 9,296
Other expense (income):
Interest expense 5,574 6,248
Amortization of deferred debt
issuance costs 428 321
Loss (gain) from disposition
of assets (2) 10
Bond accretion 2,248 963
Other (59) (2,546)
---------- ---------
Total other expense 8,189 4,996
--------- --------
Income before provision of
income taxes 947 4,300
Provision for income taxes (35)
---------- --------
Income before dividends on
subsidiary's preferred stock
and extraordinary item 912 4,300
Dividends on subsidiary's
preferred stock 5,806
--------- --------
Net income (loss) before
extraordinary item 912 (1,506)
Extraordinary item - loss on
recapitalization (32,137)
--------- ---------
Net income (loss) $912 ($33,643)
========= =========
Profit (loss) per common share
before extraordinary item $0.00 ($0.11)
Extraordinary item per share (2.41)
---------- ---------
Profit (loss) per common share $0.00 ($2.52)
(note 14) ========== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Deficit
(In thousands)
UNAUDITED
Consideration
to continuing
Common Stock Predecessor
----------------- Additional stockholderss
paid-in in excess of
Shares Amount Capital Deficit book value Totals
-------- ------ ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 13,642 $136 $14,383 ($123,565) ($33,948) ($142,994)
Accretion of preferred stock (note 10) (47) (47)
Preferred stock dividend (882) (882)
Net profit 912 912
------ ---- ------- ---------- --------- ---------
Balance at March 31, 1994 13,642 $136 $14,383 ($123,582) ($33,948) ($143,011)
====== ==== ======= =========== ========= ==========
</TABLE>
<PAGE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ending March 31, 1994 and 1993
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $912 ($33,643)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on recapitalization 32,137
Depreciation of property, plant and
equipment 2,219 2,030
Amortization of other assets 1,797 1,700
Subsidiary's preferred stock dividends 5,806
Accretion of discount on discount notes 2,248 963
Loss (gain) on sale of assets (2) 10
Changes in assets and liabilities:
Accounts receivable (1,549) (1,878)
Inventories (3,418) (4,158)
Prepaid assets (1,992) (1,124)
Accounts payable 2,645 423
Federal income tax 35
Accrued expenses 48 480
-------- ---------
Total adjustments 2,031 36,389
-------- --------
Net cash provided by operating
activities 2,943 2,746
Cash flows from investing activities:
Additions to property, plant and equipment (1,973) (2,385)
Proceeds from sale of property, plant and
equipment 86 117
-------- ---------
Net cash used in investing activities (1,887) (2,268)
Cash flows from financing activities:
Debt issued 287,798
Deferred debt costs (11,761)
Payment of long-term debt (254) (182,896)
Payment of costs related to
recapitalization (27,484)
Preferred stock issued 27,577
Preferred stock retired (88,147)
Payment of dividends on subsidiary's
preferred stock (2,157)
Warrant issued 2,250
-------- --------
Net cash provided (used) in financing
activities (254) 5,180
Net increase in cash and cash equivalents 802 5,658
Cash and cash equivalents at beginning of
year 16,955 8,008
-------- --------
Cash and cash equivalents at end of period $ 17,757 $ 13,666
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<PAGE>
DR PEPPER BOTTLING COMPANY OF TEXAS
Consolidated Condensed Balance Sheets
March 31, 1994 and December 31, 1993
(In thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
---------------- ---------------
<S> <C> <C>
Current assets:
Cash & cash equivalents $17,732 $16,930
Accounts receivable
Trade, less allowance for doubtful
accounts of $401 in March 1994 and
$305 in December 1993 21,484 20,156
Other 3,634 3,417
Inventories 13,224 9,806
Prepaid expenses 5,413 3,420
-------- --------
Total current assets 61,487 53,729
Property, plant and equipment, net 64,193 64,523
Other assets at amortized cost:
Goodwill and other intangible assets 115,299 116,668
Debt issuance costs 7,909 8,255
-------- --------
Total assets $248,888 $243,175
======== ========
</TABLE>
<PAGE>
DR PEPPER BOTTLING COMPANY OF TEXAS
Consolidated Condensed Balance Sheets
March 31, 1994 and December 31, 1993
(In thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
----------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable $28,956 $26,311
Accrued expenses 13,959 13,876
Current maturities of long-
term debt and obligations
under capital leases 12,796 12,885
---------- ----------
Total current
liabilities 55,711 53,072
Long-term debt and obligations
under capital leases, less
current maturities 227,531 227,696
Stockholders' deficit:
Common stock, $.01 par
value. Authorized 11,000
shares; issued and
outstanding .1 shares 1 1
Additional paid-in capital
(note 2) 110,227 110,227
Consideration to continuing
predecessor shareholders
in excess of book value (33,948) (33,948)
Deficit (110,634) (113,873)
----------- ----------
Total stockholders'
deficit (34,354) (37,593)
----------- ----------
Total liabilities and
stockholders' deficit $248,888 $243,175
=========== ==========
</TABLE>
<PAGE>
DR PEPPER BOTTLING COMPANY OF TEXAS
Statements of Operations
For the Three Months Ended March 31, 1994 and 1993
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
----------- ----------
<S> <C> <C>
Net sales $73,993 $69,876
Cost of sales 45,644 42,520
------- -------
Gross profit 28,349 27,356
Operating expenses:
Marketing expense 1,481 1,563
Administrative and general 14,994 13,929
expenses
Depreciation 1,368 1,189
Amortization of intangible assets 1,369 1,379
------- -------
Total operating expenses 19,212 18,060
------- -------
Operating profit 9,137 9,296
Other expense (income):
Interest expense 5,574 6,242
Amortization of deferred debt
issuance costs 346 294
Loss (gain) from disposition of
assets (2) 10
Other (55) (2,546)
------- -------
Total other expense 5,863 4,000
------- -------
Income before provision of income
taxes 3,274 5,296
Provision for income taxes (35)
------- -------
Income before extraordinary item 3,239 5,296
Extraordinary item - loss on
recapitalization (32,137)
------- -------
Net profit (loss) $3,239 ($26,841)
======= ========
</TABLE>
<PAGE>
DR PEPPER BOTTLING COMPANY OF TEXAS
Statement of Stockholders' Deficit
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Consideration
Predecessor
Common Stock stockholers
---------------------- Additional in excess
paid-in of
Shares Amount Capital Deficit book value Totals
----------- -------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 0.1 $1 $110,227 ($113,873) ($33,948) ($37,593)
Net profit 3,239 3,239
----- ---- -------- --------- -------- -------
Balance at March 31, 1994 0.1 $1 $110,227 $110,634 ($33,948) ($34,354)
===== ===== ========= ======== ========= =========
</TABLE>
<PAGE>
DR PEPPER BOTTLING COMPANY OF TEXAS
Statements of Cash Flows
For the Three Months Ending March 31, 1994 and 1993
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
March 31, March 31,
1994 1993
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $3,239 ($26,841)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on recapitalization 32,137
Depreciation of property, plant and equipment 2,219 2,030
Amortization of other assets 1,715 1,673
Loss (gain) on sale of assets (2) 10
Changes in assets and liabilities:
Accounts receivable (1,545) (1,878)
Inventories (3,418) (4,158)
Prepaid assets (1,993) (1,644)
Accounts payable 2,645 423
Federal income tax 35
Accrued expenses 48 480
-------- --------
Total adjustments (296) 29,073
-------- --------
Net cash provided by operating activities 2,943 2,232
Cash flows from investing activities:
Additions to property, plant and equipment (1,973) (2,385)
Proceeds from sale of property, plant and equipment 86 117
-------- --------
Net cash used in investing activities (1,887) (2,268)
Cash flows from financing activities:
Debt issued 216,685
Deferred debt costs (8,569)
Payment of long-term debt (254) (182,896)
Payment of costs related to recapitalization (27,484)
Payment stock retired (88,147)
Additions to paid-in-capital related to recapitalization 98,237
Payment of preferred stock dividend (2,157)
--------- ----------
Net cash provided (used) in financing
activities (254) 5,669
-------- --------
Net increase in cash and cash equivalents 802 5,633
Cash and cash equivalents at beginning of year 16,930 8,008
-------- --------
Cash and cash equivalents at end of period $17,732 $13,641
======== ========
</TABLE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
Unaudited
March 31, 1994
1. GENERAL
-------
The accompanying consolidated balance sheets of Dr Pepper
Bottling Holdings, Inc. ("Holdings") and its wholly owned
subsidiary, Dr Pepper Bottling Company of Texas (the "Company" or
"Subsidiary"), as of March 31, 1994, the related consolidated
condensed statements of operations for the three months ended
March 31, 1994 and 1993, the related consolidated condensed
statements of stockholders' deficit for the three months ended
March 31, 1994, and the related consolidated condensed statements
of cash flows for the three months ended March 31, 1994 and 1993
are unaudited but, in the opinion of the Company and Holdings,
reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation. Such financial statements are
for interim periods and do not include all detail normally
provided in annual financial statements and should be read in
conjunction with the financial statements of the Company and
Holdings, and notes thereto, included in the Prospectus of the
Company and Holdings, dated April 18, 1994, relating to the
Company's 10 1/4% Senior Notes due 2000 (the "Senior Notes") and
Holdings' 11 5/8% Senior Discount Notes due 2003 (the "Discount
Notes"), filed with the Securities and Exchange Commission (File
Nos. 33-56292 and 33-56292-01, respectively) (the "Prospectus").
Effective October 28, 1988, Holdings acquired all of the
outstanding common stock of the Company (the "Acquisition") in a
business combination accounted for as a purchase. As Holdings is
essentially a holding company whose principal asset is its
investment in the Company, all purchase adjustments have been
recorded on the books of the Company. To the extent that the
Acquisition included new investors, the Company adjusted
property, plant and equipment to their estimated fair values as
of the Acquisition date and retired related accumulated
depreciation.
Holdings, through its subsidiary, is principally engaged in
producing, marketing and distributing carbonated soft drinks in
Dallas/Fort Worth, Houston, Waco, and Galveston. Soft drink
operations are conducted pursuant to franchise
<PAGE>
<PAGE>
agreements with companies owning the rights to soft drink
formulae.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Cash Equivalents
Cash equivalents consist of highly liquid debt instruments with
original maturities of three months or less.
(b) Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. For financial
reporting purposes, depreciation is provided on the
straight-line method over the estimated useful lives of the
assets.
Maintenance and repairs are charged to operations as incurred;
renewals and betterments are capitalized and depreciated. The
cost and accumulated depreciation of assets sold or disposed of
are removed from the accounts. Resultant profit or loss on such
transactions is credited or charged to earnings.
(d) Intangible Assets
Excess of cost over fair market value of net assets of acquired
business and costs of franchises are being amortized on a
straight-line basis over 10 to 40 years.
(e) Other Assets
Debt issuance costs incurred in connection with acquisitions and
the recapitalization plan described below are deferred and will
be amortized by the interest method over the terms of the related
debt agreements (7 to 25 years). Covenants not to compete are
amortized over the terms of the agreements (5 to 10 years).
(f) Marketing Expense
Marketing costs include costs of advertising, marketing and
promotional programs. Prepaid advertising consists of various
marketing, media and advertising prepayments; these
<PAGE>
<PAGE>
assets are expensed in the year used. Marketing costs, other
than prepayments, are expensed in the year incurred.
3. RECAPITALIZATION PLAN
---------------------
During the first quarter of 1993, the Company and Holdings
completed a recapitalization plan (the "Recapitalization Plan")
the purpose of which plan was to reduce the aggregate amount of
interest expense and preferred stock dividend requirements. The
Company recorded an extraordinary loss of approximately $32
million in connection with the early retirement of a total of
$192.2 million principal payment amount of notes and debentures.
The aggregate purchase price (including costs to extinguish the
debt) of such indebtedness was $223.8 million, financed
principally through newly issued debt and preferred stock. The
Recapitalization Plan is described in more detail in notes 5, 6,
8, 9, and 10.
4. BUSINESS ACQUIRED
-----------------
On April 13, 1993, pursuing its operating strategy of acquiring
contiguous bottling territories, the Company acquired all of the
operating assets of Dr Pepper Bottling Company of Galveston, Inc.
for $9 million in cash and $1 million payable over five years
under a non-competition agreement.
5. 1993 BANK CREDIT AGREEMENT
--------------------------
Pursuant to the Recapitalization Plan, on February 18, 1993, the
Company entered into a credit agreement (the "1993 Bank Credit
Agreement") with certain banks providing for (i) a term loan
facility in the aggregate amount of $100 million and (ii) a
revolving line of credit facility in the aggregate amount of $25
million.
On March 22, 1993, as contemplated by the Recapitalization Plan,
the Company borrowed $91.7 million under the term loan facility
of the 1993 Bank Credit Agreement to redeem all of the then
outstanding Senior Exchangeable Preferred Stock of the Company.
As of December 31, 1993, the Company had no balance outstanding
on the revolving line of credit facility of the 1993 Bank Credit
Agreement. The facilities mature June 30, 1999.
The 1993 Bank Credit Agreement contains customary restrictive
covenants and requires the Company, among other things, to
satisfy certain financial ratios and restrict
<PAGE>
<PAGE>
investments, capital expenditures, additional debt and payments
of dividends. Amounts owed under the 1993 Bank Credit Agreement
are the direct obligations of the Company and are unconditionally
guaranteed by Holdings.
6. SALE/LEASEBACK
--------------
As part of the Recapitalization Plan, on February 18, 1993, the
Company entered into an amendment to the lease agreement entered
into by the Company on June 30, 1989, in connection with the
sale/leaseback of its Irving and Houston, Texas production
facilities. The amendment to the lease agreement modified
certain covenants contained therein, increased rent by $500,000
per annum, and eliminated the consumer price index adjustment to
the rent scheduled to be effected on July 1, 1994. In connection
with the amendment, Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ") obtained the right to sell the note (the
"Landlord Note") held by the lender to the landlord under the
lease agreement.
The Landlord Note was sold on October 19, 1993 at a price of
$17,698,500 (the "Sales Price") plus accrued interest of $95,985.
DLJ received a commission of $176,985 in connection with such
sale (1% of the Sales Price) and reimbursement of $94,472 for
expenses incurred in connection with such sale, both of which
were paid out of the proceeds from such sale. The remaining
proceeds from such sale in excess of the principal amount of the
Landlord Note plus accrued interest ($1,227,043) were paid to the
Company and reflected as a reduction of the loss on
recapitalization of debt.
The present value of the increased rent payments was added to
long term debt on the Company's and Holdings' balance sheets.
7. LONG-TERM DEBT
--------------
Long-term debt at March 31, 1994 and December 31, 1993 is
summarized as follows:
(In thousands)
Mar. 31, Dec. 31,
1994 1993
----------- -----------
<TABLE>
<CAPTION>
<S> <C> <C>
Facility borrowing under 1993
Bank Credit Agreement $86,111 $86,111
Sale/leaseback borrowings, due
in monthly installments of
$333,167 through June 2014 27,329 27,475
Capital lease obligations 21 51
Senior notes, due February 15,
2000 125,000 125,000
Discount notes, due
February 15, 2003 80,701 78,453
Covenant not to compete;
liability at present value of
payments 1,866 1,944
--------- ---------
$321,028 $319,034
Less current portion 12,796 12,885
--------- ---------
$308,232 $306,149
</TABLE>
8. SENIOR NOTES
------------
As contemplated by the Recapitalization Plan, on February 18, 1993,
the Company issued and sold $125,000,000 aggregate principal amount
of Senior Notes. The Senior Notes bear interest at a rate of
10 1/4% per annum, payable semi-annually on February 15 and August
15 of each year, commencing August 15, 1993. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any
time on or after February 16, 1998, at 101.708% of the principal
amount thereof, plus accrued interest, if any, if redeemed during
the twelve-month period beginning February 16, 1998, and thereafter
at 100% of the principal amount thereof, plus accrued interest, if
any, until maturity. In the event of a change in control of the
Company or Holdings, the Company will be obligated to make an offer
to purchase all outstanding Senior Notes at a redemption price of
101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase.
Under the terms of the indenture governing the Senior Notes,
dividend payments on capital stock are restricted to the sum of (i)
50% of net income (or in the case of a net loss, 100% of the net
loss) plus (ii) the proceeds from the issuance of capital stock,
warrants or options plus (iii) $7.5 million.
9. DISCOUNT NOTES
--------------
As contemplated by the Recapitalization Plan, on February 18, 1993,
Holdings issued and sold $125,000,000 aggregate principal amount of
Discount Notes. The Discount Notes were issued at a substantial
discount from their principal amount. Commencing
<PAGE>
<PAGE>
February 16, 1998, interest will accrue until maturity on the
Discount Notes at a rate of 11 5/8% per annum. Interest on the
Discount Notes is payable semi-annually on February 15 and August 15
of each year, commencing August 15, 1998. The Discount Notes are
redeemable, in whole or in part, at the option of Holdings, on or
after February 16, 1998, at amounts decreasing from 104.359% of the
principal amount thereof, plus accrued interest, at February 16,
1998 to 100% of the principal amount thereof, plus accrued interest,
at February 16, 2001, until maturity. In the event of a change in
control of Holdings, Holdings will be obligated to make an offer to
purchase all outstanding Discount Notes at a redemption price of
101% of the accreted value thereof on any repurchase date prior to
February 16, 1998, or 101% of the principal amount thereof plus
accrued and unpaid interest to any repurchase date on or after
February 16, 1998.
Under the terms of the indenture governing the Discount Notes,
dividend payments on capital stock are restricted to the sum of (i)
50% of net income (or in the case of a net loss, 100% of the net
loss) plus (ii) the proceeds from the issuance of capital stock,
warrants or options plus (iii) $7.5 million.
10. HOLDINGS PREFERRED STOCK AND WARRANT
------------------------------------
As part of the Recapitalization Plan, Holdings sold, for an
aggregate purchase price of $30 million, 1,200,000 shares of
redeemable senior cumulative exchangeable preferred stock, par value
$.01 per share, of Holdings (the "Preferred Stock") and a warrant to
purchase up to 15% of the common stock of Holdings on a fully
diluted basis. The Company redeemed all of the outstanding Senior
Exchangeable Preferred Stock of the Company, in accordance with the
Recapitalization Plan.
Each share of Preferred Stock has a liquidation preference of $25.00
per share, plus accrued and unpaid dividends. Dividends are payable
quarterly at the rate of $2.75 per annum per share. Dividends on
the Preferred Stock are cumulative and, at the option of Holdings,
may be paid through the issuance of additional shares of Preferred
Stock on each dividend payment date through April 1, 1998. The
Preferred Stock is optionally redeemable, in whole or in part, at
$25.00 per share, plus accrued and unpaid dividends thereon on or
after April 1, 1998, provided that Holdings is also entitled to
optionally redeem Preferred Stock with all or a portion of the
proceeds from an initial offering of Holdings common stock
consummated on or before the third anniversary of the issuance of
the Preferred Stock.
<PAGE>
<PAGE>
On each of April 1, 2005 and 2006, Holdings is required to redeem
25% of the number of shares of Preferred Stock that is outstanding
as of March 31, 2005, at $25.00 per share. On April 1, 2007,
Holdings must redeem the remaining shares of Preferred Stock then
outstanding at $25.00 per share. Shares redeemed by Holdings prior
to the mandatory redemption dates are credited toward the mandatory
redemption requirements on a pro rata basis.
The Preferred Stock is exchangeable, in whole or in part, at the
option of Holdings on any dividend payment date for 11% Junior
Subordinated Exchange Debentures due 2006 of Holdings (the "Holdings
Exchange Debentures"). Each share of Preferred Stock will be
exchanged for $25.00 in principal amount of Holdings Exchange
Debentures in denominations of $1,000 or integral multiples thereof.
Differences between the carrying value of the Preferred Stock and
redemption price ($25.00 per share) will be recognized through
adjustments in the carrying value prior to the mandatory redemption
dates.
Upon the occurrence of a change in control, at the election of the
holders of the Preferred Stock, Holdings will be required to
purchase for cash all shares of Preferred Stock at $25.25 per share,
plus accrued and unpaid dividends to the date of repurchase.
11. HOLDINGS COMMON STOCK
---------------------
On November 1, 1993, pursuant to Holdings' Certificate of
Incorporation, each share of Class B common stock outstanding was
automatically converted to Class A common stock.
12. DEPRECIATION EXPENSES
---------------------
Depreciation expenses included in cost of goods sold and in
administrative and general expenses are as follows:
(In thousands)
Three Mos. Ended
----------------------
Mar. 31, Mar. 31,
1994 1993
-------- --------
<TABLE>
<CAPTION>
<S> <C> <C>
Cost of goods sold $ 851 $ 840
Administrative and general expenses 1,368 1,190
----- -----
Total depreciation $2,219 $2,030
</TABLE>
13. CHANGE IN ACCOUNTING PRINCIPLES - ACCOUNTING FOR INCOME
-------------------------------------------------------
TAXES (DOLLAR AMOUNTS IN THOUSANDS)
------------------------------------
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
Effective January 1, 1993, Holdings adopted Statement 109 and the
cumulative effect of the change in accounting for income taxes was
immaterial.
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 1993 are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 34,431
Obligations under capital leases 8,974
Other 1,961
--------
Total gross deferred tax assets $ 45,366
Less valuation allowance ( 37,904)
Net deferred tax assets ---------
7,462
---------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation ( 3,879)
Intangible assets due to differences in
amortization ( 3,583)
Total gross deferred liabilities ----------
Net deferred tax assets (liabilities) ( 7,462)
----------
$ -
==========
</TABLE>
<PAGE>
<PAGE>
For federal income tax purposes, the predecessor tax basis of assets
and liabilities was retained following the Acquisition.
At December 31, 1993, the Company has net operating loss
carryforwards of approximately $98,000 which are available to offset
future federal taxable income, if any, through 2008. At December
31, 1993, there were approximately $82,000 of net operating loss
carryforwards available to offset future alternative minimum taxable
income for federal income tax purposes. Net operating losses may
not offset more than 90% of the Company's alternative minimum tax
income.
The valuation allowance increased $18,160 at December 31, 1993 as
compared to January 1, 1993 when FAS 109 was adopted by Holdings.
The increase is primarily related to an increase in net operating
loss carryforwards during 1993.
If the Company undergoes a more-than-50% ownership change within the
meaning of section 382(g) of the Internal Revenue Code, then the
Company will be limited in the use of its pre-ownership change net
operating losses to offset future taxable income. A similar
limitation would apply to any pre-ownership change tax credits.
Also, to the extent that the taxable income of the company for any
future year exceeds the sum of any net operating losses arising
after the date of the ownership change plus the amount of the annual
limitation on the pre-ownership change net operating losses, the
Company would be required to pay federal income tax on such excess.
Although a more-than-50% ownership change within the meaning of
section 382(g) of the Internal Revenue Code occurred with respect to
the Company in October of 1988, the Company has determined that the
annual limitation under section 382 of the Code on its pre-October
1988 net operating losses should be adequate to permit the full use
of those net operating losses against future taxable income of the
Company. Furthermore, although there can be no assurance that the
Internal Revenue Service would not take a different position, the
Company believes that a more-than-50% ownership change within the
meaning of section 382(g) of the Internal Revenue Code has not
occurred with respect to the Company after October 1988.
14. LOSS PER COMMON SHARE
---------------------
The net income (loss) per share is computed by dividing net income
(loss), adjusted for dividends on Holdings' preferred stock and
accretion of preferred stock for the difference between the carrying
value and liquidation preference, by the
<PAGE>
<PAGE>
weighted average number of common shares outstanding during each
period.
(In thousands,
except per share amounts)
Three Mos. Ended
------------------------
Mar. 31, Mar. 31,
1994 1993
-------- --------
<TABLE>
<CAPTION>
<S> <C> <C>
Net income (loss) $ 912 $(33,643)
Preferred stock dividends (882)
Accretion of preferred stock ( 47)
---------- ---------
$ ( 17) $(33,643)
13,642 13,334
Common shares outstanding $ .00 $ (2.52)
Profit (loss) per common share ========== =========
</TABLE>
15. NEW ACCOUNTING STANDARDS
------------------------
In December 1990, the Financial Accounting Standards Board issued
Statement 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("Statement 106") which is effective for fiscal
years beginning after
December 15, 1992. The Company and Holdings do not provide
postretirement benefits and, therefore, the provisions of Statement
106 are not applicable.
In November 1992, the Financial Accounting Standards Board issued
Statement 112, "Employers' Accounting for Postemployment Benefits"
("Statement 112") which is effective for fiscal years beginning
after December 15, 1993. The Company and Holdings do not provide
postemployment benefits and, therefore, the provisions of Statement
112 are not applicable.
<PAGE>
<PAGE>
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1994
General
-------
Case sales, the Company's primary measure of unit volume, refers to
physical cases of beverages sold, including both premix
(ready-to-serve products which are sold in tanks and converted to case
sales on the basis of four cases per tank) and post-mix products
(fountain syrups to which water and carbonation must be added and
which are converted to case sales on the basis of one case per
gallon.)
Franchise case sales represent sales to retailers only. Contract case
sales comprise sales, primarily of product in cans, to unaffiliated
bottling companies that hold soft drink franchises and to a wholesaler
of private label branded soft drink products. Contract sales may
fluctuate significantly from year to year, and are made at relatively
low prices and gross profit margins (historically representing
approximately 16% of contract sales revenues) due to the competition
for such sales, and are not a primary focus of management in
determining the Company's business strategy. As a result, management
believes that changes in franchise sales more accurately measure
growth than changes in total net sales.
The primary asset of Holdings is the common stock of the Company.
Holdings conducts no business other than holding the common stock of
the Company. As a result, net sales, cost of sales, operating
expenses and operating profit are the same for the Company and
Holdings.
RESULTS OF OPERATIONS --THREE MONTHS ENDED MARCH 31, 1994
--------------------- ---------------------------------
COMPARED TO THREE MONTHS ENDED
------------------------------
MARCH 31, 1993
--------------
Net sales, excluding contract sales, for the three months ended March
31, 1994 increased to $69.0 million compared to $64.0 million for the
same period in 1993. The increase was due to a 10.6% increase in
franchise case sales, with growth attributable to the acquisition of
the franchise territory of Dr Pepper Bottling Company of Galveston,
Inc. ("Dr Pepper-Galveston") on April 13, 1993 (the "Galveston
Acquisition") and to strong results from Dr Pepper and 7Up brands.
Contract sales revenue for the three months ended March 31, 1994
decreased 15.0% from the same period in 1993 due primarily to the
elimination of contract sales to Dr Pepper-Galveston. As a result of
the
<PAGE>
<PAGE>
foregoing, net sales for the three months ended March 31, 1994
increased 5.9% to $74.0 million compared to $69.9 million for the same
period in 1993.
Cost of sales for the three months ended March 31, 1994 increased to
$45.6 million compared to $42.5 million for the same period in 1993.
The increase was due primarily to an increase in franchise case sales
as well as increases in the prices paid by the Company for certain raw
materials, primarily concentrate and sweetener. Increases in
concentrate costs were partially offset by cost decreases in other
ingredients and materials including P.E.T. bottles and aluminum cans.
As a percentage of net sales, cost of sales for the three months ended
March 31, 1994 increased to 61.7% from 60.9% for the same period in
1993.
Marketing expenses for the three months ended March 31, 1994 decreased
to $1.5 million compared to $1.6 million for the same period in 1993.
Marketing expenses represented approximately 2.0% of net sales in each
period.
Administrative and general expenses for the three months ended
March 31, 1994 increased to $15.0 million compared to $13.9 million
for the same period in 1993. The increase was due primarily to an
increase of $.6 million in labor and employee benefit expenses, an
increase of $.1 million in fleet expenses under a full service lease
arrangement, an increase of $.2 million in full service expenses, and
an increase of $.2 million in other expenses. Depreciation expense
for the three months ended March 31, 1994 was $1.4 million compared to
$1.2 million for the same period in 1993. Amortization of intangible
assets was $1.4 million, unchanged from the same period in 1993.
As a result of the above factors, operating profit for the three
months ended March 31, 1994 decreased to $9.1 million, or 12.3% of net
sales, compared to $9.3 million, or 13.3% of net sales, for the same
period in 1993.
Interest expense for the Company for the three months ended March 31,
1994 decreased to $5.6 million from $6.2 million for the same period
in 1993 due to lower interest rates on indebtedness.
Amortization of the Company's deferred debt issuance costs for the
three months ended March 31, 1994 was $.3 million, unchanged from the
same period in 1993.
Other income for the Company for the three months ended March 31, 1994
was $55,000 compared to $2.5 million for the same period in 1993 due
to the settlement for $2.5 million in 1993 of the Company's 1988
lawsuit against Del Monte Corporation for its
<PAGE>
<PAGE>
refusal to consent to the acquisition of the Company by Holdings and
the subsequent termination of the Company's license to produce and
distribute Hawaiian Punch products.
As a result of the above factors, the Company's income before
extraordinary item for the three months ended March 31, 1994 was $3.3
million compared to an income of $5.3 million for the same period in
1993.
Holdings' amortization of deferred debt issuance costs for the three
months ended March 31, 1994 increased to $.4 million compared to $.3
million for the same period in 1993.
Interest expense (including bond accretion on the Discount Notes) for
Holdings for the three months ended March 31, 1994 increased to $7.8
million from $7.2 million for the same period in 1993. The increase
was due to higher indebtedness as a result of the Recapitalization
Plan, partially offset by lower interest rates on such indebtedness.
As a result of the above factors, Holdings generated income before
dividends on the Company's Senior Exchangeable Preferred Stock (the
"Old Preferred Stock") and extraordinary item of $.9 million for the
three months ended March 31, 1994, compared to income of $4.3 million
for the same period in 1993. The net loss before extraordinary item
for Holdings of $1.5 million for the three months ended March 31, 1993
reflects charges of $5.8 million relating to dividends on the
Company's Old Preferred Stock. The Old Preferred Stock was classified
as a minority interest for purposes of the financial statements of
Holdings. Extraordinary loss for the three months ended March 31,
1993 amounted to $32.1 million, due to transactions contemplated by
the Recapitalization Plan. There was no extraordinary item for the
three months ended March 31, 1994. Holdings generated net income of
$.9 million for the three months ended March 31, 1994, compared to a
net loss of $33.6 million for the same period in 1993.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Holdings conducts business through the Company and has no material
operations of its own. The primary asset of Holdings is the common
stock of the Company. Accordingly, Holdings is dependent on the cash
flow of the Company to meet its obligations. Holdings has no material
obligations other than those under the Discount Notes, the Preferred
Stock and any exchange debentures of Holdings into which such stock
becomes exchangeable, and certain contingent obligations under
Holdings' guarantee of the Company's obligations under the 1993 Bank
Credit Agreement. Holdings, though, is not expected to have any material
need for cash until interest on the Discount Notes becomes payable in
cash beginning August 15, 1998. The Discount Notes will mature in
2003. The 1993 Bank Credit Agreement and the Senior Notes indenture
impose significant restrictions on the payment of dividends and the
making of loans by the Company to Holdings. However, the Senior Notes
indenture allows the Company to pay dividends to Holdings in
accordance with a specified formula if, after giving effect thereto,
no event of default, or an event that with the passage of time or the
giving of notice, or both, would constitute an event of default under
the Senior Notes indenture shall have occurred and be continuing. In
addition, the 1993 Bank Credit Agreement allows the Company to pay
dividends to Holdings in an amount necessary to make cash interest
payments on the Discount Notes, provided that no event of default
exists or would be created under the 1993 Bank Credit Agreement.
The Company remains highly leveraged following the consummation of the
transactions contemplated by the Recapitalization Plan. The Company's
principal use of funds in the future will be the payment of principal
and interest under the 1993 Bank Credit Agreement and the Senior
Notes. As of March 31, 1994, approximately $86.1 million was
outstanding under the term loan facility of the 1993 Bank Credit
Agreement. The Company will be required to repay the principal under
such term loan facility as follows: $12.1 million in 1994, $13.8
million in 1995, $15.5 million in 1996, $17.2 million in each of 1997
and 1998 and $10.3 million in 1999, subject to reduction for
mandatory and optional prepayments. In addition, the Company will be
required to further retire the principal amount outstanding under the
1993 Bank Credit Agreement with Excess Cash Flow (as defined in the
1993 Bank Credit Agreement). It is expected that the Company's
primary sources of financing for its future business activities will
be funds from operations, together with additional borrowings under
the revolving line of credit facility of the 1993 Bank Credit
Agreement. Such revolving line of credit facility provides for
revolving loans in an aggregate amount of up to $25 million with a $5
million sublimit for the issuance of letters of credit. The revolving
line of credit facility of the 1993 Bank Credit Agreement will mature
in 1999.
Because the obligations under the 1993 Bank Credit Agreement bear
interest at floating rates, the Company will be sensitive to changes
in prevailing interest rates. As required by the 1993 Bank Credit
Agreement, the Company entered into interest rate protection
arrangements, expiring June 28, 1996, in an aggregate notional amount
equal to $45 million, subject to reduction by $2 million at the end of
each quarter starting with the quarter ending June 30, 1994.
<PAGE>
<PAGE>
The Company had working capital of $5.5 million at March 31, 1994
compared to working capital of $0.7 million at December 31, 1993.
Based on the Company's anticipated operating results, management
believes that the Company's future operating activities will generate
sufficient cash flows to repay borrowings under the term loan facility
of the 1993 Bank Credit Agreement as they become due and payable.
However, based on such anticipated operating results, management does
not expect that the Company's future operating activities will
generate sufficient cash flows to repay the Senior Notes and the
Discount Notes at their respective maturities. Accordingly, the
Company and Holdings expect that they will be required to refinance
all or substantially all of the Senior Notes and the Discount Notes at
their respective maturities or sell equity or assets to fund the
repayment of all or substantially all of the Senior Notes and the
Discount Notes at their respective maturities, or effect a combination
of the foregoing. While the Company and Holdings believe that they
will be able to refinance the Senior Notes and the Discount Notes at
or prior to their respective maturities, or raise sufficient funds
through equity or asset sales to repay such indebtedness, or effect a
combination of the foregoing, there can be no assurance that such will
be the case.
The 1993 Bank Credit Agreement contains numerous financial and
operating covenants and prohibitions that impose limitations on the
liquidity of the Company, including requirements that the Company
satisfy certain financial ratios and maintain certain specified levels
of net worth, and limitations on the incurrence of additional
indebtedness. The indentures governing the Senior Notes and the
Discount Notes also contain covenants that impose limitations on the
liquidity of the Company and Holdings, including a limitation on the
incurrence of additional indebtedness. The ability of the Company and
Holdings to meet their debt service requirements and to comply with
such covenants will be dependent upon future operating performance and
financial results of the Company, which will be subject to financial,
economic, competitive and other factors affecting the Company, many of
which are beyond its control.
Management believes that its production facilities will be sufficient
to meet anticipated unit growth for the next several years.
Accordingly, management anticipates that capital expenditures in
respect of such facilities will consist of expenditures to maintain
operating efficiency. Capital expenditures will be required primarily
for the Company's automobile and truck fleet, vending machines, and
routine plant,
<PAGE>
<PAGE>
bottling, and canning equipment additions or maintenance. During 1993
capital expenditures net of assets acquired in the Galveston
Acquisition totaled $9.0 million. The Company anticipates that
capital expenditures will total approximately $7.0 million to $7.25
million for each of the years 1994 through 1996.
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
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 three months ended
March 31, 1994.
<PAGE>
<PAGE>
SIGNATURE
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.
DR PEPPER BOTTLING HOLDINGS, INC.
-------------------------------------------
Date: 5/ /94 /s/ Jim L. Turner
-------------------- ------------------------------
J. L. Turner
Chaiamn of the Board/President
Date: 5/ /94 /s/ C. Marvin Montgomery
-------------- ------------------------------
C. Marvin Montgomery
Vice President - Finance and
Chief Financial Officer
<PAGE>
<PAGE>
SIGNATURE
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.
DR PEPPER BOTTLING COMPANY OF TEXAS
Date: 5/16/94 /s/ Jim L. Turner
-------------- ------------------------------
J. L. Turner
Chaiamn of the Board/President
Date: 5/16/94 /s/ C. Marvin Montgomery
-------------- ------------------------------
C. Marvin Montgomery
Vice President - Finance and
Chief Financial Officer
DAFS03...:\65\42265\0001\7379\FRM51294.P50
<PAGE>
