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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 June 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 August 1, 1996 was $0.00.
As of August 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
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PART 1
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-JUNE 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
<TABLE>
June 30, 1996 December 31, 1995
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,213 $ 5,864
Receivables-
Trade accounts, net of allowance for doubtful
accounts of $581 and $515 in 1996 and 1995 20,657 18,883
Other 2,992 3,810
-------- --------
23,649 22,693
Inventories 13,197 9,118
Prepaid expenses 1,557 641
Net Deferred tax asset 7,538 3,041
-------- --------
Total current assets 51,154 41,357
-------- --------
PROPERTY, PLANT, & EQUIPMENT
Land 4,866 4,869
Buildings and improvements 20,463 20,504
Machinery and equipment 16,480 15,566
Vehicles 15,353 15,187
Vending equipment 25,923 22,582
Furniture and fixtures 4,918 3,616
-------- --------
88,003 82,324
Less-accumulated depreciation (48,032) (44,896)
-------- --------
Property, plant, and equipment, net 39,971 37,428
OTHER ASSETS:
Franchise rights and goodwill, net of accumulated
amortization of $50,910 and $48,224 in 1996 and 1995 163,723 166,408
Deferred financing costs and other assets, net of accumulated
amortization of $1,999 and $1,663 in 1996 and 1995 4,260 4,594
Net Deferred tax asset 3,762 9,759
-------- --------
Total other assets 171,745 180,761
-------- --------
Total assets $262,870 $259,546
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets
2
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-JUNE 30, 1996 AND DECEMBER 31, 1995
(Amounts in Thousands Except Share Data)
<TABLE>
June 30, 1996 December 31, 1995
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 19,636 $ 17,693
Accrued liabilities 5,292 6,811
Contribution to employees' benefit plans 1,886 1,810
Current maturities of long-term debt 13,250 12,000
-------- --------
Total current liabilities 40,064 38,314
-------- --------
LONG-TERM DEBT, net of current maturities 209,250 215,500
OTHER LIABILITIES 3,383 2,922
POST RETIREMENT BENEFIT OBLIGATION 6,123 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
June 30, 1996 and 1995 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding as of June 30, 1996
and 1995 (convertible to 558,332 shares of Class A) 457 457
Additional paid-in-capital 43,459 43,459
Retained deficit (40,950) (48,223)
-------- --------
Total stockholders' equity (deficit) 4,050 (3,223)
-------- --------
Total liabilities and stockholders' equity (deficit) $262,870 $259,546
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets
3
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995
(Amounts in Thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- --------
NET REVENUES $59,963 $57,149 $109,070 $103,866
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 32,074 31,456 58,224 56,147
Selling, general, and
administrative 13,846 12,711 26,867 25,029
Depreciation and amortization 3,083 2,826 6,093 5,597
------- ------- -------- --------
49,003 46,993 91,184 86,773
------- ------- -------- --------
Operating income 10,960 10,156 17,886 17,093
INTEREST:
Interest on debt (4,520) (4,935) (8,987) (10,837)
Deferred financing cost (143) (148) (286) (297)
Interest income 69 93 135 195
------- ------- -------- --------
(4,594) (4,990) (9,138) (10,939)
Other income, net 16 20 25 17
------- ------- -------- --------
Income before income taxes
and extraordinary item 6,382 5,186 8,773 6,171
Benefit (provision) for income
taxes (1,070) 12,761 (1,500) 12,761
------- ------- -------- --------
Income before extraordinary item 5,312 17,947 7,273 18,932
Extraordinary item, net of income
tax benefit of $39 0 (72) 0 (72)
------- ------- -------- --------
Net income $ 5,312 $17,875 $ 7,273 $ 18,860
------- ------- -------- --------
------- ------- -------- --------
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 PERIODS ENDED JUNE 30, 1996 AND 1995
(Amounts in Thousands)
1996 1995
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,273 $ 18,860
Adjustments to reconcile net income to net
cash provided by operating activities -
Extraordinary item - 111
Depreciation and amortization 6,093 5,597
Change in deferred taxes 1,500 (12,800)
Amortization of deferred financing costs 286 297
Deferred compensation 477 450
Change in assets and liabilities, excluding effects
of extraordinary item-
Receivables (956) (2,044)
Inventories (4,079) (1,939)
Prepaid expenses (916) (606)
Accounts payable 1,943 7,155
Accrued expenses (1,519) (2,204)
Contribution to employees' benefit plans (76) (107)
Other liabilities 136 105
Postretirement benefit obligation 90 59
------- ---------
Net cash provided by operating activities 10,252 12,934
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (5,900) (5,418)
Other noncurrent assets (acquired) disposed (3) 59
------- ---------
Net cash used by investing activities (5,903) (5,359)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 2,000 -
Payments on long-term debt (7,000) (2,500)
Retirement of long-term debt - (116,500)
Proceeds from issuance of long-term debt, net - 113,354
------- ---------
Net cash used by financing activities (5,000) (5,646)
------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (651) 1,929
------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 5,864 6,133
------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 5,213 $ 8,062
------- ---------
------- ---------
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
JUNE 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 June 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 June 30, 1996
are not necessarily indicative of results to be expected for the entire year
ending December 31, 1996.
2. INVENTORIES
Inventories consist of the following (in thousands):
June 30, Dec. 31,
1996 1995
-------- --------
Raw materials $ 3,247 $ 2,488
Returnable shells, vending equipment
not in service, and supplies 3,626 2,420
Finished goods 6,324 4,210
-------- --------
$ 13,197 $ 9,118
-------- --------
-------- --------
3. INCOME TAXES
The Company's benefit (provision) for income taxes for the periods ended
June 30, 1996 and 1995, is as follows (in thousands):
1996 1995
--------- ---------
Current $ -0- $ -0-
Deferred (1,500) 12,800
--------- ---------
$ (1,500) $ 12,800
--------- ---------
--------- ---------
6
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4. COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES
The Company paid $350,000 for the periods ended June 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 $8,376,000 and $421,000 and purchases of approximately $5,814,000
and $442,000 with a subsidiary of CCBG for the periods ended June 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 June 30, 1996. CCBSW has purchases of $7,546,000 and
$6,629,000 from Western Container for the periods ended June 30, 1996 and 1995.
In connection with the grant of a Dr Pepper franchise to CCBSW in 1984 and
the acquisition of certain assets for Dr Pepper Bottling Company of San Antonio
by CCBSW, the United States Federal Trade Commission ("FTC") filed a lawsuit
against CCBSW asserting violation of the Federal Trade Commission Act and the
Clayton Antitrust Act. During 1991, an administrative law judge issued his
opinion dismissing the FTC lawsuit. On September 28, 1994, the FTC announced its
decision reversing the administrative law judge and issued an order requiring
CCBSW to divest its Dr Pepper franchise in Bexar County and nine surrounding
counties in Texas within twelve months and to obtain FTC consent before
acquiring any carbonated soft drink business for ten years from the effective
date of the order. CCBSW appealed the FTC decision to the 5th Circuit Court of
Appeals, and on June 10, 1996, the Court of Appeals reversed and vacated the FTC
decision. The Court of Appeals ruled that the FTC had applied the wrong legal
standard and remanded the case to the FTC for further proceedings consistent
with the new standard, noting that CCBSW had made a "strong" argument that the
previous findings already established the legality of CCBSW's receipt of the
licenses. CCBSW will continue to defend its Dr Pepper licenses in the San
Antonio area and related businesses through any further proceedings. Management
of the Company does not believe it has violated any laws and does not believe
that the FTC lawsuit will have a material adverse effect on the Company.
5. SUBSEQUENT EVENT
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 JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
NET REVENUES. Net revenues for 1996 increased 4.9% or $2.8 million (which
includes a $.5 million increase related to post-mix sales and contract bottling)
to $60.0 million compared to $57.1 million for 1995. This increase was due
primarily to a 4.0% increase in net effective selling price per equivalent case.
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.
Equivalent case sales increased 1.9% in 1996 compared to 1995. Net revenues
from post-mix as a percentage of total net revenues increased to 8.0% for 1996
as compared to 7.6% for 1995. Net revenues from the Company's Snappy Snack
Division accounted for 4.5% of net revenue in 1996 and 4.7% in 1995.
GROSS PROFIT. Gross profit for 1996 increased 8.5% or $2.2 million to
$27.9 million compared to $25.7 million for the same period in 1995. This
increase in gross profit was due to the increase in net effective selling price
and decrease in raw material costs. Gross profit as a percentage of net revenues
was 46.5% for 1996 and 45.0% for 1995.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased 8.9% to $13.8 million from $12.7 million for the
same period in 1995, as a result of salary and wage expense.
OPERATING INCOME. As a result of the above, operating income for 1996
increased to $11.0 million or 18.3% of net revenue, compared to $10.2 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 $5.0 million in 1995 as a result of the lower interest rates as well as
the declining principal due to quarterly principal payments.
8
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SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET REVENUES. Net revenues for 1996 increased 5.0% or $5.2 million (which
includes a $.7 million increase related to post-mix sales and contract bottling)
to $109.1 million compared to $103.9 million for 1995. This increase was due
primarily to a 3.7% increase in net effective selling price per equivalent case.
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.
Equivalent case sales increased 2.2% in 1996 compared to 1995. Net revenues
from post-mix as a percentage of total net revenues increased to 7.8% for 1996
as compared to 7.6% for 1995. Net revenues from the Company's Snappy Snack
Division accounted for 4.8% of net revenue in 1996 and in 1995.
GROSS PROFIT. Gross profit for 1996 increased 6.6% or $3.1 million to
$50.8 million compared to $47.7 million for the same period in 1995. This
increase in gross profit was due to the increase in net effective selling price
and lower raw material costs. Gross profit as a percentage of net revenues was
46.6% for 1996 and 45.9% for 1995.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased 7.3% to $26.9 million from $25.0 million for the
same period in 1995, as a result of salary and wage expense.
OPERATING INCOME. As a result of the above, operating income for 1996
increased to $17.9 million or 16.4% of net revenue, compared to $17.1 million or
16.5% of net revenue for the same period in 1995.
INTEREST EXPENSE. Net interest expense for 1996 decreased to $9.1 million
from $10.9 million in 1995 as a result of the lower interest rates as well as
the declining principal due to quarterly principal payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $10.3 million which was generated
primarily by operating income. Investing activities used $5.9 million primarily
for additions to property, plant, and equipment, while financing activities used
$5.0 million to meet quarterly amortization requirements of the Term Loan.
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.
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
9
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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 June 30, 1996, the Company recognized $1.5 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
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 10, 1996, the United States Court of Appeals for the Fifth
Circuit (the "5th Circuit Court") reversed and vacated the September 28, 1994
decision of the Federal Trade Commission ("FTC"), in which the FTC had ordered
the divesture of Dr Pepper licenses for a ten-county area around and including
San Antonio, Texas held by Coca-Cola Bottling Company of the Southwest ("San
Antonio Coke"), a wholly-owned subsidiary of Registrant. The Court of Appeals
ruled that the FTC had applied the wrong legal standard, noting that San Antonio
Coke had made a strong argument that the previous findings already established
the legality of San Antonio Coke's receipt of the licenses. The FTC has not
sought rehearing before the 5th Circuit Court.
San Antonio Coke filed the appeal in 1994 following FTC action reversing an
Administrative Law Judge's dismissal of the FTC complaint filed in 1988. The
FTC had complained about the 1984 transactions in which the Dr Pepper Company
issued franchises to San Antonio Coke to manufacture and distribute Dr Pepper
products in Bexar and nine adjoining Texas counties, alleging anti-competitive
potential and violations of the Clayton Antitrust Act and the Federal Trade
Commission Act.
San Antonio Coke will continue to defend its Dr Pepper licenses in the San
Antonio area and related businesses through any further proceedings required by
the 5th Circuit Court's remanding the case. Additional background information
on this proceeding is set forth in the Registrant's annual report on Form 10-K
for the year ending December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 30, 1996, the sole shareholder of the Class A Common Stock of the
Registrant, by written consent in lieu of the annual meeting, elected Edmund M.
Hoffman, Robert K. Hoffman, and Anthony F. Torre, Jr. to serve as Directors of
the Registrant.
ITEM 5. OTHER INFORMATION.
On August 1, 1996, the Registrant paid dividends in the aggregate amount of
$8.4 million to its shareholders of record on July 19, 1996.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities and
Exchange Commission on June 21, 1996 reporting the June 10, 1996
decision of the Fifth Circuit Court of Appeals vacating and remanding
the prior decision of the Federal Trade Commission against San Antonio
Coke. See Part II, Item 1 above.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Texas Bottling Group, Inc.
(Registrant)
Date August 9, 1996 By: /s/ CHARLES F. STEPHENSON
-----------------------------------
Charles F. Stephenson
Treasurer and Chief Financial
Officer (duly authorized officer
and Principal Financial Officer)
13
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<PAGE>
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<ALLOWANCES> (581)
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0
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