<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 33-69275
TEXAS BOTTLING GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 75-2158578
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1999 BRYAN STREET, SUITE 3300, DALLAS, TEXAS 75201
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (214) 969-1910
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of October 1, 1996 was $0.00.
As of October 1, 1996, 541,917 shares of the Company's Common Stock Class
A, par value $2.00 per share, and 228,357 shares of the Company's Common Stock
Class B, par value $2.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
<TABLE>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 643 $ 5,864
Receivables-
Trade accounts, net of allowance
for doubtful accounts of $538 as of September 30,
1996 and $515 as of December 31, 1995 20,933 18,883
Other 3,816 3,810
-------- --------
24,749 22,693
Inventories 11,695 9,118
Prepaid expenses and other 1,276 641
Net deferred tax asset 7,993 3,041
-------- --------
Total current assets 46,356 41,357
-------- --------
PROPERTY, PLANT, & EQUIPMENT
Land 4,866 4,869
Buildings and improvements 20,469 20,504
Machinery and equipment 19,356 15,566
Vehicles 15,627 15,187
Vending equipment 27,088 22,582
Furniture and fixtures 4,918 3,616
-------- --------
92,324 82,324
Less-accumulated depreciation (49,763) (44,896)
-------- --------
Property, plant, and equipment, net 42,561 37,428
OTHER ASSETS:
Franchise rights and goodwill, net of accumulated
amortization of $52,253 as of September 30, 1996
and $48,224 as of December 31, 1995 162,380 166,408
Deferred financing costs and other assets, net of accumulated
amortization of $2,167 as of September 30, 1996
and $1,663 as of December 31, 1995 5,167 4,594
Net deferred tax asset 2,107 9,759
-------- --------
Total other assets 169,654 180,761
-------- --------
Total assets $258,571 $259,546
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
2
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
<TABLE>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 19,148 $ 17,693
Accrued liabilities 8,194 6,811
Contribution to employees' benefit plans 1,859 1,810
Current maturities of long-term debt 13,750 12,000
-------- --------
Total current liabilities 42,951 38,314
-------- --------
LONG-TERM DEBT, net of current maturities 205,050 215,500
OTHER LIABILITIES 3,674 2,922
POST RETIREMENT BENEFIT OBLIGATION 6,153 6,033
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock Class A, $2 par value; 1,100,249 shares
authorized; 541,917 issued and outstanding as of
September 30, 1996 and December 31, 1995 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding as of September
30, 1996 and December 31, 1995 (convertible to
558,332 shares of Class A) 457 457
Additional paid-in-capital 43,459 43,459
Retained deficit (44,257) (48,223)
-------- --------
Total stockholders' equity (deficit) 743 (3,223)
-------- --------
Total liabilities and stockholders' equity $258,571 $259,546
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in Thousands)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $60,193 $58,162 $169,263 $162,028
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 32,539 32,223 90,763 88,086
Selling, general, and administrative 13,632 12,687 40,499 38,000
Depreciation and amortization 3,099 2,891 9,192 8,488
------- ------- -------- --------
49,270 47,801 140,454 134,574
------- ------- -------- --------
Operating income 10,923 10,361 28,809 27,454
INTEREST:
Interest on debt (4,539) (4,739) (13,526) (15,576)
Deferred financing cost (143) (144) (429) (441)
Interest income 50 89 186 284
------- ------- -------- --------
(4,632) (4,794) (13,769) (15,733)
Other income, net 0 90 25 107
------- ------- -------- --------
Income before income taxes
and extraordinary item 6,291 5,657 15,065 11,828
Benefit (provision) for income taxes (1,200) 0 (2,700) 12,761
------- ------- -------- --------
Income before
extraordinary item 5,091 5,657 12,365 24,589
Extraordinary item, net of income tax
benefit of $39 0 0 0 (72)
------- ------- -------- --------
Net income $ 5,091 $ 5,657 $ 12,365 $ 24,517
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements
4
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in Thousands)
<TABLE>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,365 $ 24,517
Adjustments to reconcile net income to net
cash provided by operating activities -
Extraordinary item - 111
Depreciation and amortization 9,192 8,488
Change in deferred taxes 2,700 (12,800)
Amortization of deferred financing costs 429 441
Deferred compensation 745 675
Change in assets and liabilities, excluding effects
of extraordinary item-
Receivables (2,056) (491)
Inventories (2,577) (1,312)
Prepaid expenses (635) 218
Accounts payable 1,455 5,366
Accrued expenses 1,383 111
Contribution to employees' benefit plans (159) 160
Other liabilities 215 317
Postretirement benefit obligation 120 378
--------- ----------
Net cash provided by operating activities 23,177 25,504
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (10,220) (6,799)
Other noncurrent assets (acquired) disposed (1,078) 39
--------- ----------
Net cash used by investing activities (11,298) (6,760)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 800 -
Payments on long-term debt (9,500) (5,000)
Retirement of long-term debt - (116,500)
Proceeds from issuance of long-term debt, net - 113,354
Payment of dividends (8,400) (7,823)
--------- ----------
Net cash used by financing activities (17.100) (15,969)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,221) 2,775
CASH AND CASH EQUIVALENTS, beginning of period 5,864 6,133
--------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 643 $ 8,908
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Texas
Bottling Group, Inc., a Nevada corporation, ("TBG" or "the Company") and its
wholly owned subsidiary 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 fair presentation of financial position, results of
operations, and changes in cash flow at September 30, 1996 and for all periods
presented. These interim financial statements do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Company's audited financial statements included in Form 10-K for the year ended
December 31, 1995. The results of operations for the period ended September 30,
1996 are not necessarily indicative of results to be expected for the entire
year ending December 31, 1996. Certain previously reported amounts have been
reclassified to conform with current year presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1996 1995
-------- --------
Raw materials $ 3,441 $ 2,488
Returnable shells, vending equipment
not in service, and supplies 3,043 2,420
Finished goods 5,211 4,210
-------- --------
$ 11,695 $ 9,118
-------- --------
-------- --------
6
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3. INCOME TAXES
The Company's benefit (provision) for income taxes for the periods ended
September 30, 1996 and 1995, is as follows (in thousands):
1996 1995
--------- ---------
Current $ -0- $ -0-
Deferred (2,700) 12,800
--------- ---------
$ (2,700) $ 12,800
--------- ---------
--------- ---------
4. COMMITMENTS AND CONTINGENCIES
The Company paid $525,000 for the periods ended September 30, 1996 and 1995
to The Coca-Cola Bottling Group (Southwest), Inc. ("CCBG"), holder of the
Company's Class A common stock, under a management agreement. The agreement is
for a period of one year and is renewable annually. The Company also had sales
of approximately $11,796,000 and $1,371,000 and purchases of approximately
$9,730,000 and $875,000 with a subsidiary of CCBG for the periods ended
September 30, 1996 and 1995.
An officer of Coca-Cola Bottling Company of the Southwest ("CCBSW"), the
wholly-owned subsidiary of the Company, serves on the Board of Directors of
Western Container Corporation, a plastic bottle manufacturer, of which CCBSW
owns approximately 20% at September 30, 1996. CCBSW has purchases of
$10,348,000 and $10,472,000 from Western Container for the periods ended
September 30, 1996 and 1995.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an order
dismissing the complaint filed by the FTC in 1988 against Coca-Cola Bottling
Company of the Southwest ("San Antonio Coke"), a wholly-owned subsidiary of
Registrant, bringing to an end the FTC's efforts to force the divesture of Dr
Pepper licenses for a ten-county area around and including San Antonio, Texas
held by San Antonio Coke. This action by the FTC followed the June 1996 ruling
by the Fifth Circuit Court of Appeals reversing and remanding the FTC's
September 1994 divestiture order. Additional background information on this
proceeding is set forth in the Registrant's quarterly report for the quarter
ended June 30, 1996 and the Registrant's annual report on Form 10-K for the year
ending December 31, 1995.
On August 1, 1996 the Company paid a $8.4 million dividend to shareholders
of record on July 19, 1996. The dividend amounted to $7.63 per share on Class A
shares and $7.63 per share on the number of Class A shares each Class B share
was convertible into.
7
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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 for other distributors as capacity permits and
does not include licensed products for the franchised territory. All references
to net revenues and gross profit include volumes for post-mix and contract
sales.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
NET REVENUES. Net revenues for 1996 increased 3.5% or $2.0 million to
$60.2 million compared to $58.2 million for 1995. This increase was due
primarily to a 1.9% increase in net effective selling price per equivalent case
and an equivalent case sales increase of 2.8%. The increased selling price was
partially offset by a package mix shift from 6 pack cans to 12 pack cans, which
have a lower net effective selling price. Net revenues from post-mix as a
percentage of total net revenues increased to 8.5% for 1996 as compared to 8.1%
for 1995. Net revenues from the Company's Snappy Snack Division accounted for
4.6% of net revenue in 1996 and 4.8% in 1995.
GROSS PROFIT. Gross profit for 1996 increased 6.9% or $1.8 million to
$27.7 million compared to $25.9 million for the same period in 1995. This
increase in gross profit was due to the increase in net revenues and a decrease
in raw material costs for aluminum cans, sweetner and PET bottles. Gross profit
as a percentage of net revenues was 46.0% for 1996 and 44.5% for 1995.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased 8.8% to $13.6 million from $12.5 million for the
same period in 1995, as a result of salary and wage expense increases.
OPERATING INCOME. As a result of the above, operating income for 1996
increased to $10.9 million or 18.1% of net revenue, compared to $10.4 million or
17.8% of net revenue for the same period in 1995.
INTEREST EXPENSE. Net interest expense for 1996 decreased to $4.6 million
from $4.8 million in 1995 as a result of reductions in short term interest
rates between years and the declining principal due to quarterly principal
payments.
8
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NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
NET REVENUES. Net revenues for 1996 increased 4.5% or $7.2 million (which
includes a $1.0 million increase related to post-mix sales and contract
bottling) to $169.3 million compared to $162.0 million for 1995. This increase
was due primarily to a 3.2% increase in net effective selling price per
equivalent case and an equivalent case sales increase of 2.4%. The increased
selling price was partially offset by a package mix shift from 6 pack cans to 12
pack cans, which have a lower net effective selling price. Net revenues from
post-mix as a percentage of total net revenues increased to 8.1% for 1996 as
compared to 7.8% for 1995. Net revenues from the Company's Snappy Snack
Division accounted for 4.7% of net revenue in 1996 and in 1995.
GROSS PROFIT. Gross profit for 1996 increased 6.2% or $4.6 million to
$78.5 million compared to $73.9 million for the same period in 1995. This
increase in gross profit was due to the increase in net revenues and lower raw
material costs for aluminum cans, sweetener and PET bottles. Gross profit as a
percentage of net revenues was 46.4% for 1996 and 45.6% for 1995.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased 7.8% to $40.5 million from $37.6 million for the
same period in 1995, as a result of salary and wage expense increases.
OPERATING INCOME. As a result of the above, operating income for 1996
increased to $28.8 million or 17.0% of net revenue, compared to $27.5 million or
16.9% of net revenue for the same period in 1995.
INTEREST EXPENSE. Net interest expense for 1996 decreased to $13.8 million
from $15.7 million in 1995 as a result of reductions in borrowing costs
associated with refinancing activities in April 1995, lower short term rates
and the declining principal due to quarterly principal payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $23.2 million which was generated
primarily by operating income. Investing activities used $11.3 million
primarily for additions to property, plant, and equipment, while financing
activities used $17.1 million to meet quarterly amortization requirements of the
Term Loan and to pay a dividend of $8.4 million to the Company's shareholders.
The Term Loan entered into in 1995 provides for mandatory annual prepayment
based on excess cash flow as defined for each calendar year. In accordance with
the 1995 Bank Agreement, the Company made a required $2.0 million prepayment on
May 1, 1996. Based on the Company's anticipated operating results, management
believes the Company's future operating activities will generate sufficient cash
flows to repay borrowings under the 1995 Bank Agreement.
9
<PAGE>
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 $50 million for four years. The Company has no
interest rate exposure under the agreement other than the initial purchase cost
of $0.5 million.
The Company will continue to evaluate the realizability of its deferred tax
asset in relation to future taxable income and adjust the valuation allowance
accordingly. At September 30, 1996, the Company recognized $2.7 million net
deferred tax expense.
On August 1, 1996 the Company paid a $8.4 million dividend to shareholders
of record on July 19, 1996. The dividend amounted to $7.63 per share on Class A
shares and $7.63 per share on the number of Class A shares each Class B share
was convertible into.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an
order dismissing the complaint filed by the FTC in 1988 against Coca-Cola
Bottling Company of the Southwest ("San Antonio Coke"), a wholly-owned
subsidiary of Registrant, bringing to an end the FTC's efforts to force the
divesture of Dr Pepper licenses for a ten-county area around and including San
Antonio, Texas held by San Antonio Coke. This action by the FTC followed the
June 1996 ruling by the Fifth Circuit Court of Appeals reversing and remanding
the FTC's September 1994 divestiture order. Additional background information on
this proceeding is set forth in the Registrant's quarterly report for the
quarter ended June 30, 1996 and the Registrant's annual report on Form 10-K for
the year ending December 31, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ending September 30,
1996.
11
<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.
Texas Bottling Group, Inc.
(Registrant)
Date October 24, 1996 By: /s/ Charles F. Stephenson
--------------------- ---------------------------------
Charles F. Stephenson
Treasurer and Chief Financial
Officer (duly authorized officer
and Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 643
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<RECEIVABLES> 25287
<ALLOWANCES> (538)
<INVENTORY> 11695
<CURRENT-ASSETS> 46356
<PP&E> 92324
<DEPRECIATION> (49763)
<TOTAL-ASSETS> 258571
<CURRENT-LIABILITIES> 42951
<BONDS> 214877
0
0
<COMMON> 1541
<OTHER-SE> 798
<TOTAL-LIABILITY-AND-EQUITY> 258571
<SALES> 169263
<TOTAL-REVENUES> 169263
<CGS> 90763
<TOTAL-COSTS> 40499
<OTHER-EXPENSES> 9192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13769)
<INCOME-PRETAX> 15065
<INCOME-TAX> (2700)
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</TABLE>
