<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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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
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (214) 969-1910
Securities registered pursuant to Section 12(b) of the Act: NONE
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<S> <C>
Securities registered pursuant to Section 12(g) of the Act: 9% SENIOR SUBORDINATED NOTES
DUE 2003
----------------------------
(Title of class)
</TABLE>
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 1, 1997 was $0.00.
As of March 1, 1997, 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 I
ITEM 1. BUSINESS
GENERAL
Texas Bottling Group, Inc. (the "Company"), through its wholly-owned
subsidiary, Coca-Cola Bottling Company of the Southwest ("San Antonio Coke"),
is principally engaged in the bottling, canning and distribution of soft
drinks. All of the voting Class A Common Stock of the Company is owned by
The Coca-Cola Bottling Group (Southwest), Inc. ("CCB Group"), while
substantially all of the non-voting Class B Common Stock (convertible into
50.5% of the Class A Common Stock) is owned by The Prudential Insurance
Company of America ("Prudential") and its affiliate, Pruco Life Insurance
Company ("Pruco"). CCB Group is a wholly-owned subsidiary of CCBG
Corporation, a privately held Nevada corporation ("Parent").
CORPORATE STRUCTURE
-------------------
------------------------------------
CCBG Corporation
("Parent")
------------------------------------
------------------------------------
The Coca-Cola Bottling Group
(Southwest), Inc.
("CCB Group")
------------------------------------
49% Equity
100% Voting
----------------------------------
Texas Bottling Group, Inc.
(the "Company")
----------------------------------
--------------------------- ----------------------------------
Southwest Coca-Cola Coca-Cola Bottling Company
Bottling Company, Inc. of
("Southwest Coke") the Southwest
("San Antonio Coke")
--------------------------- ----------------------------------
________________ Consolidated
- ---------------- Unconsolidated
The soft drink operations of the Company are conducted pursuant to
franchise agreements between San Antonio Coke and companies owning the rights
to various soft drink formulae and trademarks, including principally The
Coca-Cola Company (an unaffiliated company) and Dr Pepper Company. Other
products bottled and/or distributed include Canada Dry mixers, Evian water,
Hershey's and Cima Red. San Antonio Coke also operates a food service
business that distributes soft drinks and food products through vending
machines, cafeterias and catering operations. Territories franchised to San
Antonio Coke by The Coca-Cola Company cover regions which
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had an aggregate population of 2.6 million in the 1990 Census and encompass
substantial portions of Central and South Texas.
The Company was incorporated as a Texas corporation in 1986 and
reincorporated in Nevada in July 1995. Its principal executive offices are
located in premises leased by CCB Group at 1999 Bryan Street, Suite 3300,
Dallas, Texas, 75201, telephone number (214) 969-1910. The operations of San
Antonio Coke are headquartered in an owned facility at One Coca-Cola Place,
San Antonio, Texas, 78219, telephone number (210) 225-2601.
INDUSTRY OVERVIEW
Carbonated soft drinks are the most consumed beverages in the United
States, ahead of tap and bottled water, coffee and beer. Industry retail
sales volume for 1995 is estimated to have been in excess of $52 billion,
which is believed to be approximately 28.5% of the beverage market based on
consumption. Per capita consumption of soft drinks is estimated to have been
52.1 gallons in 1995, as compared to 41.0 gallons in 1985, representing a
compound annual increase of 2.4% since 1985. The only other segment of the
beverage market in which per capita consumption has increased since 1985 is
bottled water, although its share of the beverage market is estimated to have
been only 5.4% in 1995. The following table shows the per capita consumption
in gallons, market share and compound growth rate for products in the U.S.
beverage market since 1985, according to information recently compiled and
revised by an industry trade magazine:
<TABLE>
Compounded
Rate Change
1985 1995 1985 - 1995
----------------- ---------------- -----------
Gal. per % of Gal. per % of Gal. per
Capita Mkt. Capita Mkt. Capita
-------- ----- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Carbonated Soft Drinks 41.0 22.5% 52.1 28.5% 2.4%
Beer 23.9 13.1 22.1 12.1 (0.8)
Bottled Water 4.5 2.4 9.9 5.4 8.2
Wine and Distilled Spirits 4.2 2.3 3.0 1.6 (3.3)
All other (including tap water) 108.9 59.7 95.4 52.4 (1.3)
----- ----- ----- -----
Total 182.5 100.0% 182.5 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Factors that appear to be significant contributors to increased
consumption of soft drinks are (i) increased health consciousness coupled
with improvements in the taste of diet soft drinks and the introduction of
caffeine free and low sodium soft drink products; (ii) societal and
governmental pressures to reduce consumption of alcoholic beverages; (iii)
peaking consumption by the baby boom age group; and (iv) heavy promotional
and advertising activity by the soft drink industry to broaden the appeal and
consumer acceptance of soft drinks. As a result, consumers have tended to
maintain or increase their soft drink consumption as they age and each age
group in the United States population is consuming greater amounts of soft
drinks per capita than its corresponding age group at any time in the past.
Based on the latest industry information available, products of The
Coca-Cola Company accounted for 41.9% of national soft drink sales in the
United States, followed by products of PepsiCo, Inc. with 31.0% of sales
during 1995. Products of Dr Pepper Company accounted for 7.2% of national
soft drink sales in 1995. Of national sales of diet soft drinks in 1995,
products of The Coca-Cola Company accounted for 46.2%, products of PepsiCo,
Inc. accounted for 27.1% and products of Dr Pepper Company accounted for 4.4%.
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Supermarkets and other retail "home market" accounts remain the
predominant distribution channel, followed by on-premise consumption
(fountain) volume and "single drink" sales, primarily through vending
machines.
SOFT DRINK PRODUCTS
Carbonated soft drink products of The Coca-Cola Company produced and
distributed by San Antonio Coke include Coca-Cola Classic, diet Coke, Cherry
Coke, diet Cherry Coke, TAB, Sprite, diet Sprite, Mr. PiBB, Minute Maid
orange soda, Fresca, and other brands. Non-carbonated products of The
Coca-Cola Company distributed by San Antonio Coke include PowerAde, Nestea,
Fruitopia and Minute Maid Juices to Go. San Antonio Coke also produces and
distributes products of Dr Pepper Company primarily in the metropolitan areas
in and around San Antonio and Corpus Christi. Various other products,
including Canada Dry mixers, Hershey's and Evian water, are produced and/or
distributed in various parts of San Antonio Coke's territories under
franchise agreements with the companies that own the trademarks and supply
the concentrates or finished products for those beverages.
The following table sets forth San Antonio Coke's total equivalent case
sales of The Coca-Cola Company and Dr Pepper Company products as a percentage
of its total soft drink equivalent case sales:
The
Coca-Cola
Year Company Dr Pepper
---- --------- ---------
1994 71% 20%
1995 73% 19%
1996 75% 19%
SOFT DRINK FRANCHISES
San Antonio Coke holds franchise and marketing agreements from The
Coca-Cola Company to produce and distribute its soft drinks in bottles, cans
and 4.75-gallon pressurized pre-mix containers, and to engage in certain
other marketing activities. Under the terms of the franchise agreements, San
Antonio Coke has the exclusive right to produce and distribute certain
products of The Coca-Cola Company in its prescribed geographic areas, except
for fountain syrup, for which the rights are non-exclusive. In addition, the
franchise agreements specify minimum levels of marketing expenditures by The
Coca-Cola Company in support of the bottler based upon the volume sold by
that bottler. Marketing expenditures by The Coca-Cola Company in support of
the activities of San Antonio Coke have routinely exceeded the minimum
levels. None of the Company, San Antonio Coke, CCB Group or its
subsidiaries, and none of their affiliates, has any legal relationship with
The Coca-Cola Company or any other franchisor other than pursuant to their
respective franchise and marketing agreements. The Company believes that San
Antonio Coke is currently in compliance with all of the terms of its
franchise agreements.
The Coca-Cola Company is the sole owner of the secret formulae under
which the primary component (concentrate or syrup) of various cola products
bearing the trademark "Coca-Cola" are manufactured. Each concentrate, when
mixed with water and sweetener, produces syrup, which, when mixed with
carbonated water, produces one of the soft drinks bearing the trademark
"Coca-Cola" or "Coke." San Antonio Coke currently produces its own syrup by
mixing concentrate purchased from The Coca-Cola Company with sweeteners
purchased from outside sources. Except to the extent reflected in the price
of concentrate or syrup, no royalty or other compensation is paid under the
franchise agreements to The Coca-Cola Company for the right of San Antonio
Coke to use the trade names and trademarks "Coca-Cola" and "Coke" in its
territories and the associated patents, copyrights, designs and labels, all
of which are owned by The Coca-Cola Company.
Under the terms of its franchise agreements with The Coca-Cola Company
(the "Coca-Cola Bottler's Contract"), San Antonio Coke is required to
purchase either concentrate or syrup manufactured only by The Coca-
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Cola Company for Coca-Cola trademarked cola products. The concentrate or
syrup is sold to San Antonio Coke at a base price established in 1978 and
adjusted from time to time to reflect changes in the Consumer Price Index
and, in the case of diet brands, changes in the price of sweeteners. The
Coca-Cola Bottler's Contract will remain in effect for an unlimited period of
time, subject to termination upon due notice by The Coca-Cola Company that
there has been a violation of any of the prescribed terms thereof and subject
to automatic termination if San Antonio Coke is placed in receivership or
becomes bankrupt. Franchise agreements for other products of The Coca-Cola
Company are issued either for ten-year periods renewable on the same terms at
the option of San Antonio Coke or in perpetuity subject to certain
requirements.
The franchise agreements relating to soft drink products from Dr Pepper
Company and other soft drink franchisors are granted in perpetuity and are
otherwise similar to the Coca-Cola Bottler's Contract, except that they
contain change of control provisions triggered by the sale of the stock of
the franchisee, certain marketing-related performance requirements and
provisions permitting the franchisor to unilaterally set from time to time
the price of concentrate and syrup. Except for territories not covered by
San Antonio Coke's Dr Pepper franchises, the territories covered by the
franchise agreements for products of other franchisors generally correspond
with the territories covered by the Coca-Cola Bottler's Contract.
The franchise agreements with The Coca-Cola Company permit limited
production of cola products other than those of The Coca-Cola Company, either
as a contract packer or for the bottler's distribution if such products are
not more than 33% of a flavor line that does not exceed 10% of the bottler's
soft drink sales. There are no competitive product restrictions in franchise
agreements for non-cola products of The Coca-Cola Company such as Sprite, Mr.
PiBB and Fresca, but The Coca-Cola Company prohibits distribution of products
that compete with PowerAde, Nestea, Fruitopia and Minute Maid Juices To Go,
which are distributed under temporary agreements. The franchise agreements
with Dr Pepper Company and most other soft drink franchisors prohibit the
manufacture or sale of similar flavor products that are competitive with the
licensed products.
SOFT DRINK MARKETING
During 1996, approximately 87% of San Antonio Coke's total equivalent
case sales of soft drink products were sold to the "home market" through
supermarkets, grocery stores, convenience stores, mass-merchandisers, drug
stores, liquor stores and other similar retail outlets. The remaining soft
drink equivalent case sales were made to the "single drink" market, which
consists primarily of sales for immediate consumption through various types
of vending machines owned by San Antonio Coke, retail outlets or third-party
vending companies. San Antonio Coke maintains approximately 243 routes for
which the route drivers are primarily responsible for marketing, servicing
and delivering products to retail and vending machine accounts. Advance
sales also are made by sales persons who both call on and make telephone
solicitations to accounts, which are then serviced and delivered by the route
drivers.
San Antonio Coke sells soft drink products in a variety of
non-returnable glass and plastic bottles and in cans in proportions varying
from territory to territory. Within a single geographic territory, there may
be as many as 14 different packages for Coca-Cola products, in addition to
pre-mix containers and post-mix syrup packages.
San Antonio Coke has used competitive techniques, such as new product
introductions, packaging changes and sales promotions, to compete
effectively, while managing discounts and allowances for its products to
maximize net revenues. Some of the more significant strategies employed in
managing discounts and allowances have been the introduction of new
packaging, the adoption of innovative marketing programs and, in some
instances, the development of proprietary brands to pursue a particular
market niche.
San Antonio Coke spends substantial amounts on extensive local sales
promotions of its soft drink products. These advertising and promotional
expenses are partially offset by marketing funds provided by the various
franchisors to support an array of marketing programs. Advertising
allowances from the franchisors have historically
5
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increased as San Antonio Coke's sales of the franchisors' brands have
increased. San Antonio Coke benefits from television and radio advertising
in the marketing of its soft drinks, and The Coca-Cola Company and Dr Pepper
Company have made substantial expenditures in cooperative advertising
programs with San Antonio Coke in its territories.
San Antonio Coke's sales and operating income fluctuate with the seasons
of the year, with sales and earnings higher in warm weather months (May
through October) than in colder months (November through April). Sales are
also higher during holiday periods such as Thanksgiving, Christmas, Easter,
Memorial Day, Fourth of July and Labor Day.
Approximately 39% of San Antonio Coke's 1996 net revenues were derived
from its five largest customers. One customer, H.E. Butt Grocery Company,
accounted for 24% of 1996 net revenues. No other single customer accounted
for more than 10% of net revenues during 1996.
COMPETITION
The beverage business is highly competitive. Soft drink products, both
carbonated and non-carbonated, are sold in competition with water, coffee,
milk and beer as well as with fruit drinks and fruit juices in a variety of
outlets from supermarkets to restaurants. Competitors in the soft drink
industry include bottlers and distributors of nationally advertised and
marketed products, as well as chain store and private label soft drinks. The
principal methods of competition in the soft drink industry include brand
recognition, price and price promotion, retail space management, service to
the retail trade, new product introductions, packaging changes, distribution
methods and advertising. Management of the Company believes that brand
recognition is the primary factor affecting the competitive position of San
Antonio Coke, which is enhanced by the well-known trademarks associated with
its soft drink products.
The major national-brand competitors of San Antonio Coke are bottlers of
Pepsi-Cola products, including Pepsi-Cola Company Owned Bottling Operations
and independent Pepsi-Cola bottlers, and grocery chains which distribute
private label soft drinks. Although reliable, relevant data is not available
to measure San Antonio Coke's total share of sales in the beverage market,
information based on sales of national brand soft drink products in
supermarkets and other grocery stores indicates that San Antonio Coke's share
of such sales exceeds the share of its Pepsi bottler competitor in all of its
territories.
RAW MATERIALS
In addition to concentrates obtained from The Coca-Cola Company and
other franchisors, San Antonio Coke also purchases water, carbon dioxide,
fructose, glass and plastic bottles, cans, closures and other packaging
materials for use in soft drink manufacturing. There are multiple suppliers
available for all of these raw materials other than concentrates. San
Antonio Coke does not directly purchase low-calorie sweeteners because they
are contained in the beverage concentrate. When feasible, San Antonio Coke
and CCB Group's operating subsidiary, Southwest Coca-Cola Bottling Company,
Inc. ("Southwest Coke"), coordinate their raw materials purchases,
particularly aluminum cans and sweeteners, to take advantage of volume
discounts and concessions.
San Antonio Coke purchases substantially all of its empty plastic
bottles (in sizes ranging from twenty ounces to three liters) from Western
Container Corporation ("Western Container"), a plastic bottle manufacturing
cooperative owned by certain bottlers of Coca-Cola, of which both Southwest
Coke and San Antonio Coke are members and collectively own 42.6%. During
1993, San Antonio Coke entered into a five-year supply agreement with Western
Container. The agreement requires San Antonio Coke to pay a maximum amount
per calendar quarter of $232,704 reduced by $10 per 1,000 contour style and
sixteen-ounce, twenty-ounce and one-liter generic style plastic bottles
purchased during the same calendar quarter. At the end of each successive
four quarters, the credit
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due San Antonio Coke is determined on a twelve-month basis, and in the event
the quantities purchased exceed the volume required to eliminate the
obligation to make quarterly payments during the twelve-month period, any
payments made under the contract during such period are refunded. Applicable
purchases from Western Container in 1996 by San Antonio Coke exceeded the
minimum purchase requirements necessary to eliminate payments under the
contract.
FOOD SERVICE OPERATIONS
Food service operations of San Antonio Coke are conducted under the
trade name "Snappy Snack." Food service items are sold primarily through
soft drink and other vending machines, but distribution also is made through
speed lines (limited item self-serve cafeterias), cafeterias, office coffee
services and catering services. These operations supply a complete line of
hot and cold food products, as well as soft drinks, to a variety of
locations, including industrial plants, offices, hospitals, schools and
government installations.
GOVERNMENT REGULATION
The production, distribution and sale of many of the products of San
Antonio Coke are subject to the Federal Food, Drug and Cosmetic Act; the
Occupational Safety and Health Act; the Lanham Act; various Federal
environmental statutes and various other federal and state statutes
regulating the franchising, production, sale, safety, advertising, labeling
and ingredients of such products. Two soft drink product ingredients,
saccharin and aspartame, are regulated by the United States Food and Drug
Administration.
Bills are considered from time to time in various state legislatures
which would prohibit the sale of beverages unless a deposit is made for the
containers. Proposals have been introduced in certain states and localities
that would impose a special tax on beverages sold in non-returnable
containers as a means of encouraging the use of returnable containers. In
addition, various bills have been proposed and are currently under
consideration by Congress and various state legislatures which would require
consumers to make a deposit upon the purchase of beverages sold in
non-returnable containers. No such legislation is currently in effect and,
to the knowledge of management of the Company, none is currently under
consideration in the state legislatures of any territories served by San
Antonio Coke other than a deposit bill introduced in the Texas legislature
which management believes is unlikely to be considered by the legislature in
its 1997 session.
Specific soft drink taxes have been imposed in some states for several
years although none have been adopted and, to the knowledge of management of
the Company, none is currently under consideration in any territories served
by San Antonio Coke.
Substantially all of the facilities of San Antonio Coke are subject to
federal, state and local statutes and regulations related to the discharge of
materials into the environment. Compliance with these laws has not had, and
management of the Company does not expect such compliance to have, any
material effect upon the capital expenditures, net income or competitive
position of San Antonio Coke or of the Company.
The business of San Antonio Coke, as an exclusive manufacturer and
distributor of bottled and canned soft drink products of The Coca-Cola
Company, Dr Pepper Company and other soft drink franchisors within specified
geographic territories, is subject to federal and state antitrust laws of
general applicability. Under the Soft Drink Interbrand Competition Act of
1980, soft drink bottlers such as San Antonio Coke may exercise an exclusive
contractual right to manufacture, distribute and sell a soft drink product in
a geographic territory if the soft drink product is in substantial and
effective competition with other products of the same class in the same
market or markets. Management of the Company believes that there is
substantial and effective competition in the geographic territory in which
San Antonio Coke operates.
7
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EMPLOYEES
As of December 31, 1996, the Company had no employees, although 14
administrative employees of CCB Group provide management services to the
Company for which the Company pays a management fee which in 1996 totaled $0.7
million. San Antonio Coke had 1,227 full-time employees, of whom 128 were
administrative employees, 344 were production, warehouse and transportation
employees and 755 were sales, marketing and distribution employees. None of
the Company's employees is currently covered by a collective bargaining
agreement. Management of the Company believes that employee relations are
satisfactory.
ITEM 2. PROPERTIES
As of December 31, 1996, San Antonio Coke operated six soft drink
facilities, including one production facility, one combination production and
distribution facility and four distribution facilities. One of the facilities
of San Antonio Coke is leased and the rest are owned. The Company's executive
offices are located at 1999 Bryan Street, Suite 3300, Dallas, Texas in
premises leased by CCB Group.
Management of San Antonio Coke believes its production and distribution
facilities are all in good condition and are adequate for San Antonio Coke's
operations as presently conducted and provide sufficient capacity for
increased manufacturing and distribution within the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
San Antonio Coke is a defendant in a number of lawsuits which have arisen
from the normal operation of its business and involve alleged injuries from
vehicles and other accidents, work-related accidents, package failure and
foreign matter in bottles or cans, or employment-related claims. These
matters are defended by various insurance carriers or are otherwise so limited
in exposure that the risk of loss in these matters is not material.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an
order dismissing the complaint filed by the FTC in 1988 against San Antonio
Coke, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 25, 1996, the Board of Directors accepted the resignation of
Anthony F. Torre, Jr. from the Board of Directors, and the sole shareholder of
Class A Common Stock elected R. A. Walker to serve as a director of the
Company.
8
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for either class of
the Company's Common Stock. As of March 1, 1997, the Company had outstanding
541,917 shares of its Class A Common Stock held by one shareholder and 228,357
shares of its Class B Common Stock held by three shareholders.
Holders of Common Stock are entitled to share ratably in dividends, if
and when declared by the Company's Board of Directors. The Company's loan
agreement with its principal lenders and the Indenture pursuant to which the
Company issued its 9% Senior Subordinated Notes Due 2003 restrict the payment
of dividends by the Company.
9
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ITEM 6. SELECTED FINANCIAL DATA
The following selected income statement and balance sheet data for the
years ended December 31, 1992 through December 31, 1996 have been derived from
the Company's Consolidated Financial Statements. The information set forth
below is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
which are included elsewhere in this report.
<TABLE>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................ $180,572 $193,541 $206,987 $215,095 $220,796
Gross profit................................ 83,986 93,817 100,781 97,862 101,460
Operating income............................ 25,041 30,733 35,651 36,160 36,285
Total interest expense...................... 27,154 26,528 32,070 20,462 18,370
Income (loss) before cumulative effect of
changes in accounting principles and
extraordinary items........................ (2,065) 4,395 3,694 15,883 18,263
Net income (loss)........................... (2,065) (14,310) 3,694 28,486 15,292
OTHER DATA:
EBITDA (a).................................. 35,200 40,587 46,335 47,708 49,101
Depreciation................................ 4,693 4,379 5,213 6,077 7,290
Amortization of intangible assets........... 5,466 5,475 5,471 5,471 5,526
Interest rate swap.......................... -- -- 7,829 -- --
Amortization of debt issuance costs......... 339 353 602 584 572
Capital expenditures........................ 5,468 6,424 6,554 9,851 10,906
Cash flows provided by (used for):
Operating activities.................... 5,280 15,104 21,141 28,002 25,109
Investing activities.................... (5,605) (7,161) (6,605) (9,802) (13,937)
Financing activities.................... 103 (8,112) (9,065) (18,469) (16,400)
Ratio of earnings to fixed charges.......... .92 1.17 1.12 1.78 1.99
AT DECEMBER 31,
-------- -------- -------- -------- --------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(In thousands)
BALANCE SHEET DATA:
Working capital............................. $ 10,676 $ 9,532 $ 10,256 $ 1,271 $ 6,302
Total assets................................ 240,621 245,418 241,846 259,546 256,123
Long-term debt, less current maturities..... 238,160 245,300 236,500 215,500 203,000
Stockholders' equity (deficit).............. (13,270) (27,580) (23,886) (3,223) 3,669
</TABLE>
(a) "EBITDA" represents, for any relevant period, net income (loss)
plus interest, taxes, depreciation, amortization of intangible
assets, amortization of other assets, gain or loss on sale of assets
and extraordinary items. EBITDA should not be construed to be
an alternative to operating income (determined in accordance
with generally accepted accounting principles) as an indicator of
the Company's operating performance. EBITDA is included
because it is one measure used by certain investors to determine
the Company's operating cash flow and historical ability to
service its indebtedness. EBITDA is not intended as an
alternative to, or a better indicator of, liquidity than cash flow
from operations.
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Prior year financial statements have been reclassified for consistency
with the current year. By making these reclassifications, the Company has
achieved consistency with the classifications used by a subsidiary of CCB
Group, holder of the Company's Class A common stock.
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 (approximately
8.1% of the Company's net revenues) 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
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUES. Net revenues for the Company increased 2.7% or $5.7
million to $220.8 million compared to $215.1 million for 1995. Net effective
price per equivalent case increased 2.1%. Price increases were achieved on
several existing packages, particularly 20-ounce bottles and 12-ounce six-pack
cans. In addition, new packages were introduced with higher net effective
prices; the most significant of which was the 24-ounce six-pack. Equivalent
case sales increased 1.8% in 1996 compared to 1995. The increase in net
revenues due to the volume increase was offset by a mix shift into 12-ounce
12-pack cans and 20-ounce eight-pack bottles which have lower net effective
selling prices. Net revenues from post-mix as a percentage of total net
revenue increased to 8.1% for 1996 as compared to 7.6% in 1995. Net revenues
from the Company's Snappy Snack division account for 4.8% of total net
revenues for 1996.
GROSS PROFIT. Gross profit for 1996 increased 3.7% or $3.6 million to
$101.5 million compared to $97.9 million for 1995. This increase reflects the
increase in net selling price and lower costs of raw materials, particularly
aluminum cans, sweetner and plastic bottles. Gross profit as a percentage of
net revenue was 46.0% for 1996 and 45.5% for 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased 4.4% to $52.4 million from $50.2 million in 1995.
This increase was due primarily to an increase in salary and wages which was
partially offset by a reduction in casualty insurance expense.
OPERATING INCOME. Operating income for 1996 increased to $36.3 million
or 16.4% of net revenues, compared to $36.2 million or 16.8% of net revenue
for 1995. The operating income increase was a result of the increase in gross
profit which was partially offset by the increase in selling, general and
administrative expense and a $1.3 million increase in depreciation and
amortization.
INTEREST EXPENSE. Total interest expense decreased by $2.1 million for
1996 due primarily to a reduction in the principal of long term debt.
11
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET REVENUES. Net revenues for 1995 increased 3.9% or $8.1 million to
$215.1 million compared to $207.0 million for 1994. This increase was due
primarily to a 4.7% increase in net effective selling price per equivalent
case. The increased selling prices partially offset significant increases in
raw material costs, primarily aluminum cans. Although the Company realized
higher net selling prices for cans and single drink packages, these were
partially offset by a package mix shift to larger packages with lower net
revenues per equivalent case. In addition, the Company achieved lower costs
associated with customer marketing programs resulting from credits related to
the finalization of 1994 customer marketing programs and franchise company
participation. Equivalent case sales increased 3.6% in 1995 compared to 1994
primarily as a result of the package mix shift. Net revenues from post-mix as
a percentage of total net revenues decreased to 7.6% for 1995 as compared to
7.9% for 1994. Net revenues from the Company's Snappy Snack division
accounted for 4.7% of total net revenues in 1995.
GROSS PROFIT. Gross profit for 1995 decreased 3.0% or $2.9 million to
$97.9 million compared to $100.8 million for 1994. This decrease reflects the
impact of the higher cost of goods sold resulting from increased costs of raw
materials, particularly aluminum cans and plastic bottles. Gross profit as a
percentage of net revenue was 45.5% for 1995 and 48.7% for 1994.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1995 decreased 7.9% to $50.2 million from $54.4 million for 1994.
This decrease was due primarily to reductions in casualty insurance,
litigation costs and fleet repair costs.
OPERATING INCOME. As a result of the decrease in selling, general and
administrative expenses and a $0.9 million increase in depreciation and
amortization expense, operating income for 1995 increased to $36.2 million or
16.8% of net revenue, compared to $35.7 million, or 17.2% of net revenue, for
1994.
INTEREST EXPENSE. Total interest expense (exclusive of the amount
recorded in 1994 for the termination of the interest rate swap agreement of
approximately $7.8 million) decreased by $3.8 million for 1995 due primarily
to interest rate decreases brought about by the Company's refinancing activity
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $25.1 million in 1996,
generated primarily by operating income. Investing activities used $13.9
million primarily for additions to property, plant and equipment, while
financing activities used $16.4 million primarily to meet quarterly
amortization requirements of the Term Loan (defined below) and to pay a
dividend of $8.4 million to the Company's shareholders.
Effective April 7, 1995, the Company entered into a loan agreement with
Texas Commerce Bank National Association, as Agent for a syndicate of
financial institutions (the "1995 Bank Agreement"). The 1995 Bank Agreement
provided for $115 million term loan (the "Term Loan") and a $25 million
revolving credit facility (the "Revolver"). Borrowings under the Term Loan
and Revolver were used to replace the Company's 11% Senior Secured Notes and
to repurchase $5 million in principal amount of the Company's 9% Senior
Subordinated Notes due 2003.
Both the Term Loan and the Revolver accrue interest at the Company's
option at either Alternate Base Rate (8.25% as of December 31, 1996) or
Eurodollar Rate (5.7% as of December 31, 1996) plus 1.00%. A commitment fee
of 0.25% is charged on the average daily unused portion of the Revolver.
Interest rates on the 1995 Bank Agreement became subject to change after March
31, 1996 depending on the ratio of total debt to cash flow, as defined, at the
end of each calendar quarter. The interest rates are adjusted quarterly in a
range from a maximum of Alternate Base Rate plus 0.25% or Eurodollar Rate plus
1.50% to a minimum of Alternate Base Rate or
12
<PAGE>
Eurodollar Rate plus 0.50% according to a grid of permitted debt to cash flow
ratios. On January 1, 1997 the spread over the Eurodollar Rate reduced from
1.0% to 0.75%.
The 1995 Bank Agreement contains several restrictive covenants, the most
significant of which: (a) require maintenance of minimum ratios of cash flow
to interest expense and fixed charges, as defined, (b) limit the ratio of debt
to cash flow, as defined, and (c) restrict the issuance of additional common
stock. The 1995 Bank Agreement permits the payment of dividends and other
distributions to shareholders as permitted by the indenture governing the 9%
Senior Subordinated Notes due 2003, so long as no event of default exists.
The maximum Revolver availability reduces to $20 million on January 1,
1999 and $15 million on January 1, 2002. The final maturity of the Revolver
is March 31, 2003. The maximum amount of the Revolver which can be used for
acquisitions and other investments currently is $20 million and reduces to $15
million on January 1, 1999 and $5 million on January 1, 2002.
The Term Loan matures March 31, 2003 and provides for quarterly
amortization beginning June 30, 1995. Total future annual amortization of the
Term Loan for fiscal years is as follows:
1997 $15,000,000
1998 15,000,000
1999 15,000,000
2000 15,000,000
2001 15,000,000
2002 15,000,000
2003 5,500,000
The Term Loan additionally provides for mandatory annual prepayments
based on excess cash flow as defined for each calendar year. The prepayment
for 1996 due in 1997 is approximately $1.5 million.
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.
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 outstanding shares of Class A Common Stock and $7.63 per share on the
number of shares of Class A Common Stock into which outstanding shares of
Class B Common Stock are convertible.
On January 13, 1994, the Company entered into a two-year interest rate
swap agreement covering the notional principal amount of $100 million. Due to
the leveraged nature of the swap agreement, the Company determined that the
swap agreement was not a hedge and that it should be recorded at market value,
which approximated the Company's cost to settle the swap agreement for each
applicable period. Accordingly, a charge of $7.8 million was recorded for the
swap agreement for 1994. After recognizing the costs associated with
unwinding the interest rate swap agreement in October, 1994, the Company has
no further exposure to interest rate volatility from any swap or derivative
type instruments and the Company does not anticipate entering into any future
transactions which would subject it to such exposure.
Prior to 1995 the Company provided a valuation allowance against its
entire net deferred tax asset. The Company concluded that it was more likely
than not that future operations would generate sufficient taxable income to
use net operating losses and reduced the valuation allowance to create a
deferred tax asset of $12.8 million. The
13
<PAGE>
Company will continue to evaluate the realizability of its deferred tax asset
in relation to future taxable income and adjust the valuation allowance
accordingly.
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.
The Company's business is subject to seasonality due to the influence of
weather conditions on consumer demand for soft drinks, which affects working
capital. Sales are stronger in warm weather. The first quarter operating
performance is usually lower than the other three quarters as a result of
winter weather, primarily in the months of January and February.
The Company makes capital expenditures on a recurring basis for fleet,
vending and dispensing equipment. Capital expenditures for production
equipment are required from time to time to reflect changes in the sales
package mix. The Company has historically followed a policy of financing
capital expenditures from operating cash flow. Capital expenditures in 1996
were approximately $10.9 million, of which approximately $7.8 million were for
fleet, vending equipment and dispensing equipment, $1.8 million were for
computerized equipment and $1.3 million were for production equipment and
building improvements. During 1995, the Company made capital expenditures of
approximately $9.9 million, of which approximately $6.8 million were for
fleet, vending equipment and dispensing equipment and $3.1 million were for
production equipment, buildings and improvements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiary
which are required by this Item 8 are listed in Part IV Item 14(a) of this
report. Such consolidated financial statements are included herein beginning
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers and directors of the Company and San Antonio Coke.
Name Age Position
- ---- --- --------
Edmund M. Hoffman 75 Co-Chairman and Director of the Company; Co-
Chairman and Director of San Antonio Coke
Robert K. Hoffman 49 Co-Chairman and Director of the Company; Co-
Chairman and Director of San Antonio Coke
E. T. Summers, III 49 President and Chief Operating Officer of the
Company and San Antonio Coke
Charles F. Stephenson 45 Vice President, Treasurer, Chief Financial
Officer and Chief Accounting Officer of the
Company; Treasurer of San Antonio Coke
David E. Green 40 Vice President of the Company; Vice President-
Operations of San Antonio Coke
Gary R. Phy 44 Vice President-Finance and Chief Accounting
Officer of San Antonio Coke
Stephanie L. Ertel 50 Vice President, General Counsel and Secretary of
the Company and San Antonio Coke
R. A. Walker 40 Director
Edmund M. Hoffman has been Chairman (Co-Chairman since 1995) and a
director of the Company and Chairman (Co-Chairman since 1995) and a director
of San Antonio Coke and their corporate predecessors since 1986. Mr. Hoffman
has been Chairman and a director of Parent and Chairman (Co-Chairman since
1995) and a director of CCB Group (and their corporate predecessors) since
their inception in 1985 and 1972, respectively. Mr. Hoffman is also
Co-Chairman and a director of the subsidiaries of CCB Group. Mr. Hoffman has
owned interests in companies that were members of the Coca-Cola Bottlers
Association since 1965, and has served as a member of its Board of Governors.
Additionally, Mr. Hoffman is a director and co-founder of Trinity
Industries, Inc., a publicly held corporation formed in 1957 which is engaged
in the steel fabrication business.
Robert K. Hoffman, son of Edmund M. Hoffman, became Co-Chairman of the
Company and San Antonio Coke in 1995 after serving as President and Vice
Chairman, respectively, since 1986. He has been a director of the Company
and San Antonio Coke and their corporate predecessors since December 1986.
Mr. Hoffman served as President and director of Southwest Coke and its
subsidiaries from 1980 to January 1994, when he was elected Vice Chairman,
changed to Co-Chairman in 1995, of these entities. He has served as
President and director of Parent and
15
<PAGE>
director of CCB Group and each of their corporate predecessors since 1985 and
1974, respectively. He was elected Co-Chairman of CCB Group in 1995 after
serving as its President since 1974.
E. T. Summers, III has been President of the Company since 1995 and
President and Chief Operating Officer of San Antonio Coke and its corporate
predecessors since 1988. He was a Vice President of the Company from 1988 to
1995 and the Executive Vice President of the corporate predecessors of San
Antonio Coke from 1985 to 1988. Mr. Summers was elected Executive Vice
President of CCB Group in 1995. Mr. Summers is past president of the Texas
Soft Drink Association, serves on the Board of Governors of the Coca-Cola
Bottlers' Association and on the Financial Review and Cold Drink Committees
of that association. Since 1988, Mr. Summers has served as a member of the
Board of Directors of Western Container.
Charles F. Stephenson has been Treasurer and Chief Financial Officer of
the Company and Treasurer of San Antonio Coke and its corporate predecessors
since 1986 and has also been an officer of Parent and CCB Group and their
corporate predecessors, as well as Southwest Coke, since 1986. Mr.
Stephenson became President of Southwest Coke in 1994 and President of CCB
Group in 1995. Mr. Stephenson joined CCB Group in February 1986 and joined
the Company at its inception (December 1986) as Treasurer and Chief Financial
Officer.
David E. Green was elected Vice President of the Company and Vice
President-Operations of San Antonio Coke in 1995. He had been Vice President
and Chief Financial Officer of San Antonio Coke and its corporate
predecessors, and Vice President and Chief Accounting Officer of the Company,
since 1988. He previously had served as Vice President-Controller of the
corporate predecessors of San Antonio Coke since 1984 and as Assistant
Controller since June 1982.
Stephanie L. Ertel has been Vice President and General Counsel for the
Company and San Antonio Coke and its corporate predecessors since 1986 and
has served as Secretary since 1990. She has also been an officer of Parent
and CCB Group and their corporate predecessors, as well as Southwest Coke and
its subsidiaries, since 1985. Ms. Ertel joined CCB Group in July 1985 and
joined the Company at its inception (December 1986) as Vice President and
General Counsel.
Gary R. Phy became Vice President-Finance and principal accounting
officer of San Antonio Coke in 1995. He continues to serve as Senior Vice
President-Finance of Southwest Coke, a position he has held since October,
1990. Mr. Phy has over 25 years of experience in the soft drink and food
service businesses. He held positions at Automated & Custom Food Services,
Inc., a division of CCB Group from April 1988 to October 1990.
R. A. Walker was elected to serve as a director of the Company in
October 1996. Mr. Walker is a Managing Director for Prudential Capital Group
in Dallas, Texas, a position he has held since 1990. Mr. Walker also serves
on the Board of Directors of YPF/Maxus Energy and Seagull Energy.
All executive officers are chosen by the Board of Directors and serve at
the Board's discretion. The Board of Directors consists of three directors,
all of whom serve one-year terms and hold office until the next annual
meeting of the stockholders and until their successors are elected and
qualified.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company does not have any class of equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended.
Therefore, the shareholders are not required to file reports pursuant to
Section 16(a) thereof.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's
Chief Executive Officer and its four other most highly compensated executive
officers for services rendered during the last three fiscal years. All of
the persons shown below except Mr. Summers are employees of CCB Group. Mr.
Summers is an employee of San Antonio Coke. The compensation shown is that
paid to those persons by their respective employers, unless otherwise noted.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
---------------------------------- ----------------------- -------
Other Securities
Annual Restricted Under- All Other
Compen- Stock lying LTIP Compen-
sation Award(s) Options/ Payouts sation
Name Year Salary ($) Bonus ($) ($) ($) SARs(#) ($) ($)
- ---- ---- ---------- --------- ---------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edmund M. Hoffman(1) 1996 $800,000 $440,500 $6,000
1995 775,008 390,500 6,000
1994 750,000 340,500 6,000
Robert K. Hoffman(1) 1996 800,000 421,500 6,000
1995 775,008 371,500 6,000
1994 750,000 321,500 6,000
Charles F. Stephenson(1) 1996 357,500 200,000 6,000
1995 325,000 190,000 213,223(2) 6,000
1994 292,500 120,000 6,000
E. T. Summers, III 1996 348,076 --- 3,750
1995 324,423 86,800 3,750
1994 291,961 79,300 3,750
Stephanie L. Ertel(1) 1996 260,000 --- 6,000
1995 260,000 --- 6,000
1994 229,583 --- 6,000
</TABLE>
(1) Salaries paid by CCB Group; the Company currently pays a management fee of
$58,334 per month to CCB Group. See "Certain Relationships and Related
Transactions."
(2) Includes $206,623 as value of stock appreciation rights received in 1995.
Neither Mr. Torre nor Mr. Walker were compensated for service as a director
and all other directors are also officers and receive the compensation shown
above.
17
<PAGE>
EMPLOYMENT AGREEMENT
Edmund M. Hoffman and Robert K. Hoffman each entered into an employment
agreement dated December 16, 1985 (each an "Employment Agreement") with CCB
Group which provides for a monthly salary determined by the Board of
Directors of CCB Group and for certain benefits upon death, retirement or
disability. Each Employment Agreement provides that upon the employee's
retirement (eligibility for retirement at age 65 for Edmund M. Hoffman and at
age 55 for Robert K. Hoffman or at such other age as the Board of Directors
may authorize), CCB Group will pay to the employee monthly benefits equal to
75% of his average monthly compensation during the 36 months prior to
retirement (including bonuses) for the remainder of the employee's lifetime
subject to certain conditions. If the employee dies within 120 months after
the month of his retirement, payments in a like amount shall continue to be
paid to the employee's designated beneficiary for the remainder of the
120-month period. Each Employment Agreement also provides that, if the
employee's employment is terminated by death, CCB Group will pay for 120
months a monthly death benefit to the employee's beneficiary in an amount
equal to 75% of the employee's average monthly compensation during the 36
months prior to death (including bonuses). If termination of the employee's
employment is caused by the employee's disability, each Employment Agreement
provides that CCB Group will pay a monthly disability benefit for as long as
the employee remains disabled equal to 100% of his average monthly
compensation during the 36 months prior to disability (including bonuses)
less amounts received from certain other sources. Each Employment Agreement
also provides that certain benefits will be paid to the employee's
beneficiary if the employee dies while disabled. The benefits under each
Employment Agreement are not assignable except by will or the laws of descent
and distribution. In addition, each Employment Agreement automatically
terminates upon the employee voluntarily terminating his employment before he
has attained a specified age (age 65 for Edmund M. Hoffman and age 55 for
Robert K. Hoffman). The benefits under each Employment Agreement will be
funded out of CCB Group's cash flow.
On August 20, 1994, Stephanie L. Ertel entered into an employment
agreement with CCB Group, effective as of January 1, 1994, providing for her
employment as Senior Vice President, Secretary and General Counsel of CCB
Group through January 1, 1999. Pursuant to the employment agreement, Ms.
Ertel is to be paid at the annual rate of $260,000 during the term of the
employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION OF THE COMPANY
The Company's Board of Directors does not have a compensation committee.
Edmund M. Hoffman, the Co-Chairman and Director of the Company, is the
Co-Chairman and Director of San Antonio Coke, CCB Group and of each of its
subsidiaries. Robert K. Hoffman, the Co-Chairman and Director of the
Company, is Co-Chairman and Director of CCB Group and San Antonio Coke,
Southwest Coke and each of its subsidiaries.
EMPLOYEE BENEFIT PLANS OF THE COMPANY
401(k) PLAN. Effective June 30, 1996, the Coca-Cola Bottling Company of
the Southwest Security Plus Plan (the "Old 401(k) Plan") for employees of San
Antonio Coke was merged into The Coca-Cola Bottling Group (Southwest), Inc.
and Affiliates Thrift Plan, and the plan was renamed The Coca-Cola Bottling
Group (Southwest), Inc. and Affiliates 401(k) Plan (the "401(k) Plan"). At
the same time, the administration of the 401(k) Plan was changed to daily
valuation. Under the 401(k) Plan, each participant who is employed by San
Antonio Coke can contribute from 1% to 15% of his compensation each year, and
San Antonio Coke will contribute a matching amount equal to 100% of the
participant's contribution, up to 4% of his compensation for each year.
Prior to July 1, 1996, San Antonio Coke had the option of contributing an
amount equal to as much as 50% of the participant's contribution, up to 5% of
his compensation for a particular year. A participant may withdraw his
contribution from the 401(k) Plan Trust (defined below) provided that the
request for withdrawal is based on a hardship which meets the requirement of
the 401(k) Plan, or a participant may borrow from the 401(k) Plan Trust,
within parameters established in the 401(k) Plan. Each participant's
interest in the contributions made by San Antonio Coke to the 401(k) Plan
vest at the rate of 20% per year for each year the participant is employed
with San Antonio Coke. The
18
<PAGE>
matching contribution by San Antonio Coke in 1996 with respect to E.T.
Summers, III was $3,750. The portion of San Antonio Coke's matching
contribution which unconditionally vested during 1996 for Mr. Summers was
100%.
All contributions paid by participants of the Company under the 401(k)
Plan and the Old 401(k) Plan are held by Fleet Bank, N.A., the trustee of The
Coca-Cola Bottling Group (Southwest), Inc. and Affiliates 401(k) Plan Trust
(the "401(k) Plan Trust"), pursuant to the terms of the 401(k) Plan.
The 401(k) Plan is administered by an administrative committee appointed
by the Board of Directors of CCB Group. (See "Employee Benefit Plans of CCB
Group" below).
RETIREMENT PLAN. Effective December 31, 1996, the Retirement Plan for
Employees of Coca-Cola Bottling Company of the Southwest (the "Old Retirement
Plan") was merged into The Coca-Cola Bottling Group (Southwest), Inc. and
Affiliates Retirement Plan (the "Retirement Plan") (See "Employee Benefit
Plans of CCB Group" below). Prior to December 31, 1996, employees of San
Antonio Coke who were 21 years of age and had completed one year of service
were participants in the Old Retirement Plan. The Old Retirement Plan was,
and the Retirement Plan is, a qualified defined benefit plan. Subject to
maximum provisions, the Retirement Plan bases pension benefits on a
percentage of the employee's average annual compensation for the five highest
consecutive calendar years of compensation out of the employee's last 10
years of credited service, multiplied by the employee's years of credited
service. Benefits accrued to participants in the Old Retirement Plan were
calculated as of December 31, 1996 by the actuaries for the Retirement Plan
and incorporated into the Retirement Plan to provide for the plan merger.
Benefits attributed to service as an employee of San Antonio Coke after
December 31, 1996 will be determined by using the benefit formula of the
Retirement Plan (which is 38% higher than the formula under the Old
Retirement Plan) and counting years of service after December 31, 1996. This
amount is added to the frozen benefit for 1996 and prior years to calculate
the total benefit to be paid to the participant. The Retirement Plan
provides for a normal and late retirement pension, an early retirement
pension and a disability retirement pension. Generally, a participant's
benefit will vest upon completion of five years of vesting service (as such
term is defined in the Retirement Plan). As of December 31, 1996, E.T.
Summers, III had 24 years and David E. Green had 15 years of credited service
under the Old Retirement Plan, which credited service is reflected in their
frozen benefits in the Retirement Plan.
The amount of the contribution with respect to any specific participant
is not calculated separately by the actuaries for the Retirement Plan. There
was no minimum required contribution to the Old Retirement Plan in 1996.
Under the terms of the Old Retirement Plan, the amount of pension actually
accrued under the pension formula was payable in the form of a life annuity
unless an alternative payment form was elected with an actuarial adjustment.
Benefits are accrued under the Retirement Plan on the same basis.
The following table sets forth the annual retirement benefits payable
under the Old Retirement Plan for retirement at age 65 based on an employee's
assumed average annual compensation for the five-year period preceding
retirement and assuming actual retirement in 1996. In no event may the
estimated benefit exceed the maximum benefit limitation contained under
Section 415 of the Internal Revenue Code. Currently the maximum compensation
allowable for calculation of benefits is $160,000 (on a single life, or
qualified joint and survivor, basis) unless prior to January 1, 1983 a higher
benefit had been accrued under prior law.
19
<PAGE>
<TABLE>
Assumed Average Annual Compensation Years of Credited Service with the Company
For Five Highest Consecutive -----------------------------------------------
Years of Service in Last Ten 15 20 25 30 35
Years of Credited Service(a) Years Years Years Years Years
- ---------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000..................................... $16,268 $21,691 $27,114 $32,536 $32,536
$125,000..................................... 20,956 27,941 34,926 41,911 41,911
$150,000..................................... 25,643 34,191 42,739 51,286 51,286
$175,000..................................... 25,643 34,191 42,739 51,286 51,286
$200,000..................................... 25,643 34,191 42,739 51,286 51,286
$225,000..................................... 25,643 34,191 42,739 51,286 51,286
$250,000..................................... 25,643 34,191 42,739 51,286 51,286
$300,000..................................... 25,643 34,191 42,739 51,286 51,286
$400,000..................................... 25,643 34,191 42,739 51,286 51,286
$450,000..................................... 25,643 34,191 42,739 51,286 51,286
$500,000..................................... 25,643 34,191 42,739 51,286 51,286
</TABLE>
(a) The maximum compensation allowed for calculation of benefits under
IRC 401(a)(17) was $150,000 in 1996.
EMPLOYEE BENEFIT PLANS OF CCB GROUP
EXECUTIVE SECURITY PLAN. CCB Group maintains an Executive Security Plan
for The Coca-Cola Bottling Group (Southwest), Inc. (the "Plan") under which
two of the executive officers of the Company are compensated and which is
administered by the Board of Directors of CCB Group. The Plan provides
specified benefits to a select group of management and highly compensated
employees of CCB Group who have contributed materially to the growth,
development and business success of CCB Group. There are presently seven
participants in the Plan and participation is no longer being offered to
additional employees.
The Plan provides for death benefits for covered employees. The amount
of such benefits and the manner in which the benefits will be distributed are
set forth in the individual employee's Plan Agreement. The amount of death
benefits under the Plan Agreements is 100% of covered compensation for the
first year following death before age 65, then 50% of covered compensation
until he would have been age 65 (nine years minimum). The covered
compensation for Charles F. Stephenson, the Company's only executive officer
who participates, is $200,000. In order to receive benefits under the Plan,
the Plan must be in effect and the employee's employment with CCB Group must
not have been terminated on or before the date of death. The estimated death
benefit payable annually under the Plan is $100,000 for Charles F. Stephenson.
Amounts payable under the Plan are to be paid exclusively from the
general assets of CCB Group. Although CCB Group is not obligated to make
investments to provide the means for the payment of benefits which become due
under the Plan, CCB Group has purchased life insurance to fund the benefits
provided.
401(k) PLAN. CCB Group also maintains the 401(k) Plan for employees of
CCB Group and the Company who have completed one year of service. Effective
June 30, 1996, San Antonio Coke's Old 401(k) Plan merged into the 401(k)
Plan. Prior to the merger, the 401(k) Plan was known as The Coca-Cola
Bottling Group (Southwest), Inc. and Affiliates Thrift Plan. The 401(k) Plan
is a qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code. CCB Group contributes to each participant's account maintained
under the 401(k) Plan for an employee of CCB Group or its wholly-owned
subsidiaries an amount equal to 100% of the participant's contribution under
the 401(k) Plan up to 4% of his compensation for a particular year. The
participant can contribute from 1% to 15% of compensation each year. In
addition to CCB Group's matching contribution, the Board of Directors of CCB
Group may provide for the contribution of additional amounts by CCB Group.
The matching contributions by CCB Group during 1996 with respect to the
individuals employed by CCB Group and named in the cash compensation table
are as follows: Edmund M. Hoffman, $6,000; Robert K. Hoffman, $6,000;
Stephanie L. Ertel, $6,000; and Charles F. Stephenson, $6,000. The portion
of CCB Group's matching contribution which unconditionally vested during 1996
for each of the above-named individuals was 100% of their contribution. No
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<PAGE>
amounts were distributed from the 401(k) Plan during 1996 to any of the
Company's executive officers, except for Edmund M. Hoffman, who received
$21,044 in benefits.
All contributions paid by participants or CCB Group under the 401(k)
Plan are held and invested by Fleet Bank, N.A., the trustee of the 401(k)
Plan Trust. At the time of the merger with the Old 401(k) Plan, the
administration of the 401(k) Plan was changed to daily valuation.
The 401(k) Plan is administered by an administrative committee appointed
by the Board of Directors of CCB Group. A participant may withdraw from the
401(k) Plan Trust all of the participant's after-tax contributions (made
prior to January 1, 1989) and any earnings thereon. For extreme hardships,
the participant may also withdraw pre-tax contributions made after December
31, 1988. Participants may also borrow from the 401(k) Plan Trust within the
parameters set by the 401(k) Plan. Each participant's interest in
contributions made by CCB Group to the 401(k) Plan vests 20% per year for
each year the participant is employed with CCB Group or an affiliate of CCB
Group.
RETIREMENT PLAN. CCB Group maintains the Retirement Plan for employees
of CCB Group and the Company who are at least 21 years of age and have
completed at least one year of service. The Retirement Plan is a qualified
defined benefit plan and, subject to certain maximum limitations, bases
pension benefits on a percentage of the employee's average annual
compensation for the five highest consecutive calendar years of compensation
out of the employee's last ten years of credited service, multiplied by the
employee's years of credited service. The Retirement Plan provides for a
normal and late retirement pension, an early retirement pension and a
disability retirement pension. Generally, a participant's benefit will vest
upon his or her completion of five years of vesting service (as such term is
defined in the Retirement Plan). As of December 31, 1996, Edmund M. Hoffman,
Robert K. Hoffman, Charles F. Stephenson and Stephanie L. Ertel had 27, 21,
11 and 12 years of credited service, respectively. The amount of the
contribution with respect to a specific participant is not calculated
separately by the actuaries for the Retirement Plan. The 1996 minimum
required contribution to the Plan, as calculated by the Plan's actuaries, was
equal to approximately 1.9% of the compensation of the covered group of
participants. The term "compensation" includes the total cash remuneration
paid by CCB Group or an affiliate to an employee for a calendar year as
reported on the employee's Federal income tax withholding statement
excluding, however, deferred compensation, stock options and other
distributions which receive special Federal income tax treatment. The amount
of pension actually accrued under the pension formula is payable in the form
of a life annuity unless an alternative payment form is elected with an
actuarial adjustment. Effective December 31, 1996, San Antonio Coke's Old
Retirement Plan merged into the Retirement Plan.
The following table sets forth the annual retirement benefits payable
under the Retirement Plan at age 65 based on an employee's assumed average
annual compensation for the five-year period preceding retirement and
assuming actual retirement in 1996. In no event may the estimated benefit
exceed the maximum benefit limitation contained under Section 415 of the
Internal Revenue Code. Currently the maximum compensation allowed for
calculation of benefits is $160,000 (on a single life, or qualified joint and
survivor, basis) unless prior to January 1, 1983 a higher benefit had been
accrued under prior law.
21
<PAGE>
<TABLE>
Assumed Average Annual Compensation Years of Credited Service with the Company
For Five Highest Consecutive -----------------------------------------------
Years of Service in Last Ten 15 20 25 30 35
Years of Credited Service(a) Years Years Years Years Years
- ---------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000..................................... $20,561 $27,415 $34,269 $41,123 $47,976
$125,000..................................... 26,374 35,165 43,956 52,748 61,539
$150,000..................................... 32,186 42,915 53,644 64,373 75,101
$175,000..................................... 32,186 42,915 53,644 64,373 75,101
$200,000..................................... 32,186 42,915 53,644 64,373 75,101
$225,000..................................... 32,186 42,915 53,644 64,373 75,101
$250,000..................................... 32,186 42,915 53,644 64,373 75,101
$300,000..................................... 32,186 42,915 53,644 64,373 75,101
$400,000..................................... 32,186 42,915 53,644 64,373 75,101
$450,000..................................... 32,186 42,915 53,644 64,373 75,101
$500,000..................................... 32,186 42,915 53,644 64,373 75,101
</TABLE>
(a) The maximum compensation allowed for calculation of benefits under
IRC 401(a)(17) was $150,000 in 1996.
STOCK OPTION PLANS
THE COMPANY'S STOCK OPTION PLAN. The Company's Non-Statutory Stock
Option/Stock Appreciation Rights Plan, effective January 1, 1988 (the
"Company's Stock Option Plan"), provides for the granting of nonqualified
stock options and stock appreciation rights to officers and certain key
employees of the Company and San Antonio Coke. The Company's Stock Option
Plan provides that options for 51,474 shares of the Company's Class A Common
Stock may be granted prior to termination of the Company's Stock Option Plan
in 1998. Options awarded under the Company's Stock Option Plan have been
granted at option prices which equated to the fair market value (based on
contemporary sales of the Company's Common Stock) of the underlying Class A
Common Stock at the time of grant, and became exercisable on June 30, 1993.
The options were granted in tandem with Stock Appreciation Rights (SARs)
(equal to the excess of the fair market value per share over the option price
under the stock option agreement) which the Company will pay in cash when the
optionee exercises the stock option.
In 1989, the Company granted SARs for 20,000 shares of its Class A
Common Stock at an option price of $40.90 per share pursuant to a
Non-Statutory Stock Option Agreement with E.T. Summers, III, President of San
Antonio Coke. The number of option shares actually exercisable on the
exercise date is determined by a formula set forth in the Non-Statutory Stock
Option Agreement, which measures the extent to which the Company achieved
certain cash flow goals in each year of operation from 1988 through 1992.
Based on the Company's cash flow from 1988 through 1992, Mr. Summers became
eligible on June 30, 1993 to exercise his option to receive SARs equal to the
fair market value of 11,160 shares of the Company's Class A Common Stock less
$40.90 per share. Mr. Summers's eligibility to exercise his stock options is
also subject to the approval of Prudential, as required by the Stockholders'
Agreement dated March 31, 1987, entered into by Prudential, its affiliate,
the Company and CCB Group.
The Company's Stock Option Plan provides that the fair market value of
the Class A Common Stock of the Company for purposes of determining the value
of the optioned stock and related SARs shall be based on sales of the Class A
Common Stock or the Class B Common Stock within six months period to such
determination, or, if no such sales of stock of the Company have occurred,
the fair market value will be determined by a formula in which the market
price of publicly held Coca-Cola bottlers and the purchase price of privately
held Coca-Cola bottlers sold within the prior 12 month period are converted
to cash flow multiples, and assigned weights of 0.3 and 0.7, respectively.
PARENT STOCK OPTION PLAN. Parent's Non-Statutory Stock Option/Stock
Appreciation Rights Plan, effective January 1, 1987 (the "Parent Stock Option
Plan"), provides for the granting of nonqualified stock options and stock
appreciation rights to officers and certain key employees of CCB Group and
its subsidiaries. The Parent Stock
22
<PAGE>
Option Plan provides that options for 6,314 shares of Parent's Class B Common
Stock may be granted prior to the plan's termination in 1997. Options
awarded under the Parent Stock Option Plan have been granted at option prices
which equated to the fair market value (based on contemporary sales of Parent
Common Stock) of the underlying Class B Common Stock at the time of grant.
The options were granted in tandem with Stock Appreciation Rights (SARs)
(equal to the excess of the fair market value per share over the option price
under the stock option agreement) which Parent has the discretion to pay in
Class B Common Stock or cash in lieu of issuing Class B Common Stock when the
optionee exercises the stock option.
Under the remaining Non-statutory Stock Option Agreements, Ms. Ertel was
eligible, on December 31, 1996, to exercise options to purchase 210.82 shares
of Parent Class B Common Stock based on Parent's cash flow in 1993.
OPTION/SAR GRANTS, EXERCISES AND HOLDINGS. The following table provides
information with respect to the named executive officers, concerning the
exercise of options and/or SARs during the last fiscal year and the number of
unexercised options and SARs held as of the end of the fiscal year. Since no
sales of the Company's or Parent's stock occurred in the last six months of
1996, the fair market value of one share of the Class A Common Stock of the
Company or of one share of the Class B Common Stock of Parent have been
determined by using the cash flow factor of 9.3 established by the Stock
Option Committee for each respective Stock Option Plan based on sales of
stock of Coca-Cola bottling businesses in 1996. Utilizing a formula in which
the cash flow of the Company is multiplied by 9.3, and the product is reduced
by the Company's total long-term debt, and divided by the total outstanding
shares of Class A Common Stock of the Company assuming conversion of all
outstanding Class B Common Stock, the fair market value of one share of the
Class A Common Stock of the Company, for purposes of valuing the options, was
$219.70 at December 31, 1996. Applying a similar formula to determine the
fair market value of the Class B Common Stock of Parent results in a value
per share for purposes of valuing the options at December 31, 1996 of $3,110.
No options or SARs were granted during 1996 under the Stock Option Plans
of Parent or the Company or otherwise.
AGGREGATED OPTION/SAR EXERCISES OF PARENT IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
Value of
Unexercised
Number of Unexercised In-the-Money Options
Number of Options and SARs at and SARs at
Shares Fiscal Year-End (#) Fiscal Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise # Realized ($) Unexercisable Unexercisable
- ---- ----------- ------------ --------------------- --------------------
<S> <C> <C> <C> <C>
Stephanie L. Ertel(2) 0 0 210.82/0 $471,183/0
E. T. Summers III(3) 0 0 11,160/0 $1,995,408/0
</TABLE>
- -------------------------
(1) Includes information with regard to exercises of options issued by the
Company and Parent.
(2) Options to purchase shares of Class B Common Stock of Parent.
(3) Options for SARs based on shares of Class A Common Stock of the Company.
23
<PAGE>
LONG TERM INCENTIVE PLANS
MANAGEMENT INCENTIVE PLAN OF SAN ANTONIO COKE. On April 29, 1994, the
Board of Directors of San Antonio Coke adopted, effective as of January 1,
1994, the Management Incentive Plan of San Antonio Coke (the "San Antonio
Coke Management Incentive Plan"). The Board of Directors of San Antonio Coke
administers the San Antonio Coke Management Incentive Plan and chooses key
managers of San Antonio Coke to participate. Under the terms of the San
Antonio Coke Management Incentive Plan, eligible participants will receive a
cash bonus on February 1, 1999 based upon the cash flow of San Antonio Coke
(a) for each fiscal year from 1994 through 1998 compared to a cash flow
target for each year and (b) for the aggregate cash flow of those years
compared to a cash flow target. The cash flow targets may be adjusted by the
Board of Directors of San Antonio Coke. To qualify to receive a cash bonus
under the San Antonio Coke Management Incentive Plan, a participant must be
actively employed by San Antonio Coke in a key management position
continuously throughout the period from the date of participation through
February 1, 1999 (with certain exceptions upon death or disability of the
participant or change of control of the Company).
MANAGEMENT INCENTIVE PLAN OF CCB GROUP. On June 22, 1994, the Board of
Directors of CCB Group adopted, effective as of January 1, 1994, the
Management Incentive Plan of CCB Group (the "CCB Group Management Incentive
Plan"). The Board of Directors of CCB Group administers the CCB Group
Management Incentive Plan and chooses key managers of CCB Group and of its
subsidiaries to participate. Under the terms of the CCB Group Management
Incentive Plan, eligible participants will receive a cash bonus on February
1, 1999 based upon the cash flow of CCB Group or the relevant subsidiary (a)
for each fiscal year from 1994 through 1998 compared to a cash flow target
for each year and (b) for the aggregate cash flow of those years compared to
a cash flow target. The cash flow targets may be adjusted by the Board of
Directors of CCB Group. To qualify to receive a cash bonus under the CCB
Group Management Incentive Plan, a participant must be actively employed by
CCB Group or one of its subsidiaries in a key management position
continuously throughout the period from the date of participation through
February 1, 1999 (with certain exceptions upon death or disability of the
participant or change of control of CCB Group).
One of the named executive officers of the Company participates in the
San Antonio Coke Management Incentive Plan and two of the named executive
officers of the Company participate in the CCB Group Management Incentive
Plan. The following table sets forth certain information about the long term
incentive awards that may be awarded to these officers pursuant to the San
Antonio Coke Management Incentive Plan and the CCB Group Management Incentive
Plan.
24
<PAGE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
Performance Estimated Future Payouts
Number of or Other Under Non-Stock Price-Based Plans
Shares, Units Period Until ---------------------------------
or Other Maturation or Threshold Target Maximum
Name Rights (#) Payout ($) ($) ($)
- ---- ------------- ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Charles F. Stephenson (1) 01/01/94-12/31/98 200,000 1,000,000 1,000,000
E. T. Summers III (2) 01/01/94-12/31/98 100,000 500,000 500,000
E. T. Summers III (3) 01/01/94-12/31/98 50,000 250,000 250,000
</TABLE>
(1) Mr. Stephenson's cash bonus is based upon the achievement of certain cash
flow targets for Southwest Coke and the Company in each fiscal year from
1994 through 1998 and on achievement of an aggregate cash flow target for
Southwest Coke and the Company for the years 1994 through 1998. Under
his Management Incentive Agreement, on February 1, 1999 Mr. Stephenson is
eligible to receive $100,000 for each year in which actual cash flow is
equal to or greater than the cash flow target, $70,000 for each year in
which actual cash flow is at least 99% but less than 100% of the cash
flow target, $40,000 for each year in which the actual cash flow is at
least 98% but less than 99% of the cash flow target and nothing for each
year in which actual cash flow is less than 98% of the cash flow target.
In addition, on February 1, 1999 Mr. Stephenson is eligible to receive
$500,000 if the actual cumulative total cash flow for the years 1994
through 1998 is equal to or greater than the cumulative total cash flow
target and nothing if the aggregate actual cash flow for the years 1994
through 1998 is less than the cumulative total cash flow target.
(2) Mr. Summers's cash bonus from San Antonio Coke is based upon the
achievement of certain cash flow targets for San Antonio Coke in each
fiscal year from 1994 through 1998 and on achievement of an aggregate
cash flow target for San Antonio Coke for the years 1994 through 1998.
Under his Management Incentive Agreement with San Antonio Coke, on
February 1, 1999 Mr. Summers is eligible to receive $50,000 for each year
in which actual cash flow is equal to or greater than the cash flow
target, $35,000 for each year in which actual cash flow is at least 99%
but less than 100% of the cash flow target, $20,000 for each year in
which the actual cash flow is at least 98% but less than 99% of the cash
flow target and nothing for each year in which actual cash flow is less
than 98% of the cash flow target. In addition, on February 1, 1999 Mr.
Summers is eligible to receive $250,000 if the actual cumulative total
cash flow for the years 1994 through 1998 is equal to or greater than the
cumulative total cash flow target and nothing if the aggregate actual
cash flow for the years 1994 through 1998 is less than the cumulative
total cash flow target.
(3) Mr. Summers's cash bonus from CCB Group is based upon the achievement of
certain cash flow targets by Southwest Coke and the Company in each
fiscal year from 1994 through 1998 and on achievement of an aggregate
cash flow target for Southwest Coke and the Company in the years 1994
through 1998. Under his Management Incentive Agreement with CCB Group,
on February 1, 1999 Mr. Summers is eligible to receive $25,000 for each
year in which actual cash flow is equal to or greater than the cash flow
target, $17,500 for each year in which actual cash flow is at least 99%
but less than 100% of the cash flow target, $10,000 for each year in
which the actual cash flow is at least 98% but less than 99% of the
actual cash flow target and nothing for each year in which actual cash
flow is less than 98% of the cash flow target. In addition, on February
1, 1999 Mr. Summers is eligible to receive $125,000 if the actual
cumulative total cash flow for the years 1994 through 1998 is equal to or
greater than the cumulative total cash flow target and nothing if the
aggregate actual cash flow for the years 1994 through 1998 is less than
the cumulative total cash flow target.
25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Class A and Class B Common Stock, as of
March 1, 1997, by each person known by the Company to own beneficially more
than 5% of such stock as of March 1, 1997 and by each director of the Company
and all officers and directors of the Company as a group. The Company
believes that each of such shareholders has the sole voting and dispositive
power over the shares it holds except as otherwise indicated.
<TABLE>
Class A Common
Stock After
Class A Class B Conversion of Class B
Common Stock Common Stock Common Stock (1)
--------------------- --------------------- ---------------------
Number Percentage Number Percentage Number Percentage
Name and Address of Shares of Class of Shares of Class of Shares of Class
---------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
The Coca-Cola Bottling Group (Southwest), Inc..... 541,916 100.0% -- -- 541,916 49.25%
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
The Prudential Insurance Company of America(2).... -- -- 226,277 99.08% 553,247 50.28%
4 Gateway Center
Newark, New Jersey 07102-4069
Officers and directors of the Company
as a group (9 persons).......................... -- -- -- -- -- --
</TABLE>
___________________
(1) Assumes that all outstanding shares of Class B Common Stock have been
converted at a conversion rate of 2.445 shares of Class A Common Stock
per share of Class B Common Stock.
(2) Consists of 225,427 and 850 shares of Class B Common Stock owned by
Prudential and Pruco respectively. Upon conversion, Prudential and Pruco
will own 551,169 and 2,078 shares of Class A Common Stock, respectively.
Holders of the Class A Common Stock of the Company are entitled to one vote
per share on all matters submitted to shareholders for approval, including the
election of directors. Holders of the Class B Common Stock of the Company are
not entitled to vote, subject to certain exceptions, upon the election of
directors of the Company or upon any other matter submitted to shareholders
unless otherwise required by law. However, each share of the Class B Common
Stock of the Company is convertible at any time into 2.445 shares of its Class
A Common Stock. Accordingly, if Prudential and Pruco converted all of the
shares of Class B Common Stock of the Company owned by them, Prudential and
Pruco would be able to elect all of the directors of the Company and to
approve all other matters submitted to a vote of the Company shareholders
without the concurrence of any other of the Company shareholders, including
CCB Group.
Pursuant to a Stockholders Agreement dated March 31, 1987, between the
Company, CCB Group, Prudential and Pruco (the "Stockholders Agreement"), CCB
Group has agreed to remain the holder of at least 122,250 shares of Class A
Common Stock of the Company as long as Prudential and Pruco hold shares of
Common Stock of the Company representing or convertible into at least 244,500
shares of Class A Common Stock, or until more than 20% of the Class A Common
Stock of the Company (assuming conversion of all Class B Common Stock) has
been sold in a public offering. In addition, each of CCB Group and Prudential
has agreed not to sell its shares of Common Stock of the Company in a private
transaction unless it offers the other party the right to participate in the
sale on a proportionate basis.
CCB Group is a wholly-owned subsidiary of Parent and, accordingly, the
owners of the capital stock of Parent are the ultimate beneficial owners of
the Class A Common Stock of the Company that CCB Group holds. The following
table sets forth certain information concerning the beneficial ownership of
Parent's Class A Common Stock, the only class of outstanding voting securities
of Parent, as of March 1, 1997, by each person known by the
26
<PAGE>
Company to own beneficially more than 5% of the outstanding Class A Common
Stock of Parent, as of March 1, 1997, and by each director of the Company and
all officers and directors of the Company as a group. The Company believes
that each of such shareholders has the sole voting and dispositive power over
the shares it holds except as otherwise indicated.
<TABLE>
Class A
Common Stock After
Conversion of
Class A Class B
Common Stock Common Stock
------------------------- ----------
Number of Percentage Percentage
Name and Address Shares of Class of Class
---------------- --------- ---------- ----------
<S> <C> <C> <C>
Edmund M. Hoffman................ 15,158 (1) 19.89% 15.76%
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
Robert K. Hoffman................ 59,842 (2) 78.53 62.23
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
Richard E. Hoffman............... 36,142 (2) 47.43 37.58
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
The Prudential Insurance Company
of America...................... 14,285 (3) -- 14.85
4 Gateway Center
Newark, New Jersey 07102-4069
All officers and directors of
the Company as a group
(9 persons)..................... 75,210.8 (4) 98.43 78.00
</TABLE>
_____________
(1) Includes 7,579 shares owned by Adelyn J. Hoffman, wife of Edmund M.
Hoffman, and excludes 36,142 shares owned by three trusts of which Edmund
M. Hoffman and/or his spouse are beneficiaries but over which they do not
exercise any voting and investment power.
(2) Includes 36,142 shares owned by three trusts of which Robert K. Hoffman
and Richard E. Hoffman are co-trustees and for which each acting alone
may exercise voting and investment power.
(3) Consists of shares issuable upon conversion of Class B Common Stock, 428
of which are owned by Pruco Life Insurance Company, an affiliate of The
Prudential Insurance Company of America.
(4) Includes 210.8 shares issuable upon conversion of 210.8 shares of Class B
Common Stock issuable upon exercise of stock options held by Stephanie L.
Ertel.
27
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a Renewed and Extended Management Agreement
with CCB Group, which was amended effective as of January 1, 1994, whereby CCB
Group provides the advice and consultation of executive and technical
personnel of CCB Group and their assistants to the management of the Company.
In consideration therefor, the Company pays CCB Group a management fee of
$58,334 per month, which may be increased by agreement of the parties at any
time, subject to approval by a majority of the holders of the Class B Common
Stock of the Company, and to certain restrictions in the agreement pursuant to
which the Senior Notes were issued.
San Antonio Coke and Southwest Coke each supplement the other's
production capacity on an as-needed basis. Pursuant to written agreement,
franchisors of Southwest Coke and San Antonio Coke permit finished franchise
product produced by San Antonio Coke to be distributed in the franchise
territory of Southwest Coke and vice versa. Cross-production occurs primarily
in Bag-in-Box fountain product, lower volume flavor products and 20 ounce
non-returnable bottles. Such products are purchased on mutually beneficial
and reciprocal terms. Pursuant to these arrangements, in 1996 Southwest Coke
purchased approximately $14.9 million of products from San Antonio Coke and
San Antonio Coke purchased approximately $12.7 million of products from
Southwest Coke.
Charles F. Stephenson, Treasurer of the Company, served as a director and
Chairman of the Board of Bottler Systems, Inc., a computer software firm that
is owned and operated by certain bottlers of Coca-Cola, until October 1993.
Gary R. Phy, Vice President-Finance of San Antonio Coke and Senior Vice
President-Finance of Southwest Coke, has served as a director since October
1993. Southwest Coke and San Antonio Coke purchase software from Bottler
Systems, Inc. In 1996, such purchases totaled $0.1 million and $0.2 million,
respectively.
E.T. Summers, III, President of San Antonio Coke, is a director of
Western Container, a plastic bottle manufacturing cooperative owned by certain
bottlers of Coca-Cola, of which Southwest Coke and San Antonio Coke are
members. Southwest Coke and San Antonio Coke purchase bottles from Western
Container. In 1996, such purchases totalled approximately $8.1 million for
Southwest Coke and $12.7 million for San Antonio Coke. During 1993, San
Antonio Coke entered into a five-year agreement with Western Container.
Beginning with the third calendar quarter of 1994, the agreement requires San
Antonio Coke to pay a maximum amount per calendar quarter of $232,704 reduced
by $10 per 1,000 contour style and sixteen-ounce, twenty-ounce and one liter
generic style plastic bottles purchased during the same calendar quarter. At
the end of each successive four quarters, the credit due San Antonio Coke is
determined on a twelve-month basis, and in the event the quantities purchased
exceed the volume required to eliminate the obligation to make quarterly
payments during the twelve-month period, any payments made under the contract
during such period will be refunded. Applicable purchases from Western
Container in 1996 by San Antonio Coke exceeded the minimum purchase
requirements necessary to eliminate payments under each respective contract.
See "Business -- Raw Materials."
In June 1995, CCB Group loaned $100,000 to Charles F. Stephenson, the
Treasurer and Chief Financial Officer of the Company and Treasurer of San
Antonio Coke. The loan bears interest at 8% per annum and is due on the
earlier of February 1, 1999 or the 30th day after his last day of employment
as a manager of CCB Group or one of its subsidiaries.
28
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The Financial Statements listed below are filed as part of this Annual
Report on Form 10-K.
Financial Statements
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Income.
Consolidated Statements of Stockholders' Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
(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.
A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on December 2, 1996 reporting certain transfers
of shares of Parent stock, effective December 1, 1996.
(c) Exhibits
2.1 Amendment and Plan of Merger, dated July 21, 1995, by and between
the Company and Texas Bottling Group, Inc., a Nevada
corporation.(1)
3.1 Articles of Incorporation of the Company.(1)
3.2 Bylaws of the Company.
4.1 Form of Indenture, dated as of November 15, 1993, between Company
and Chemical Bank, N.A. with respect to the 9% Senior
Subordinated Notes Due 2003.(2)
- -------------------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1995.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-69276) filed on November 5, 1993.
29
<PAGE>
4.2 Form of Specimen Certificate for 9% Senior Subordinated Notes Due
2003 (included as Exhibit A to the Indenture in Exhibit 4.1).(2)
4.3 Supplemental Indenture, dated July 31, 1995, between the Company
and Chemical Bank, N.A., as Trustee.(1)
10.1 $15,000,000 Revolving Credit Agreement, dated as of March 31,
1989, between the Company and First Bank National Association
("First Bank").(2)
10.2 Amendment No. 1, dated as of March 31, 1990, to the Revolving
Credit Agreement, dated as of March 31, 1989, between the Company
and First Bank.(2)
10.3 Amendment No. 2, dated as of January 1, 1992, to the Revolving
Credit Agreement, dated as of March 31, 1989, between the Company
and First Bank.(2)
10.4 Amendment No. 3, dated as of June 30, 1993, to the Revolving
Credit Agreement, dated as of March 31, 1989, between the Company
and First Bank.(2)
10.5 Amendment No. 4, dated as of November 8, 1993, to the Revolving
Credit Agreement, dated as of March 31, 1989, between the Company
and First Bank.(2)
10.6 Pledge Agreement, dated as of March 31, 1989, between the Company
and The Connecticut Bank and Trust Company, N.A., Security
Trustee.(2)
10.7 Amendment to Pledge Agreement, dated as of October 15, 1993,
between the Company and State Street Bank and Trust Company, as
Trustee, dated as of March 31, 1989.(2)
10.8 Franchise Agreement, dated as of August 23, 1932, between
American Bottling Company and The Coca-Cola Company.(2)
10.9 Franchise Agreement, dated as of December 13, 1931, between San
Antonio Coca-Cola Bottling Company and The Coca-Cola Company.(2)
10.10 Form of Amendments to Franchise Agreement between the subsidiary
of the Company and The Coca-Cola Company.(2)
10.11 Form of Agreement comprising Franchise Agreement between Coca-
Cola Bottling Company of the Southwest and the Dr Pepper
Company.(2)
10.12 Amended and Restated Executive Security Plan for The Coca-Cola
Bottling Group (Southwest), Inc.(2)
10.13 The Company's Non-Statutory Stock Option/Stock Appreciation
Rights Plan.(2)
10.14 The Coca-Cola Bottling Group (Southwest), Inc. Non-Statutory
Stock Option/Stock Appreciation Rights Plan.(2)
30
<PAGE>
10.15 Stockholders Agreement, dated as of March 31, 1987, among the
Company, The Coca-Cola Bottling Group (Southwest), Inc., The
Prudential Insurance Company of America and Pruco Life Insurance
Company.(2)
10.16 Employment Agreement, dated as of December 16, 1985, between The
Coca-Cola Bottling Group (Southwest), Inc. and Edmund M.
Hoffman.(2)
10.17 Employment Agreement, dated as of December 16, 1985, between The
Coca-Cola Bottling Group (Southwest), Inc. and Robert K.
Hoffman.(2)
10.18 Amendment No. 1, dated as of September 9, 1993, to the Employment
Agreement, dated as of December 16, 1985, between The Coca-Cola
Bottling Group (Southwest), Inc. and Robert K. Hoffman.(2)
10.19 Renewed and Extended Management Agreement with The Coca-Cola
Bottling Group (Southwest), Inc., dated as of December 1, 1991,
between The Coca-Cola Bottling Group (Southwest), Inc. and the
Company.(2)
10.20 Amendment to Renewed and Extended Management with The Coca-Cola
Bottling Group (Southwest), Inc., dated as of April 14, 1994,
between The Coca-Cola Bottling Group (Southwest), Inc. and the
Company.(3)
10.21 Management Incentive Plan of The Coca-Cola Bottling Group
(Southwest), Inc., adopted June 22, 1994, effective as of
January 1, 1994.(4)
10.22 Management Incentive Plan of Coca-Cola Bottling Company of the
Southwest, adopted April 29, 1994, effective as of January 1,
1994.(4)
10.23 Management Incentive Agreement, executed July 20, 1994 and
effective as of January 1, 1994, between The Coca-Cola Bottling
Group (Southwest), Inc. and Charles F. Stephenson.(4)
10.24 Management Incentive Agreement, executed July 20, 1994 and
effective as of January 1, 1994, between Coca-Cola Bottling
Company of the Southwest and E. T. Summers, III.(4)
10.25 Management Incentive Agreement, executed July 20, 1994 and
effective as of January 1, 1994, between The Coca-Cola Bottling
Group (Southwest), Inc. and E.T. Summers, III.(5)
- -------------------
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1994.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1994.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1994.
31
<PAGE>
10.26 Employment Agreement, executed August 10, 1994, and effective as
of January 1, 1994, between The Coca-Cola Bottling Group
(Southwest), Inc. and Stephanie L. Ertel.(5)
10.27 Assumption Agreement, dated July 31, 1995, by and between the
Company and Chemical Bank, N.A., as Trustee.(1)
10.28 Loan Agreement ($115,000,000 Term Loan Facility and $25,000,000
Revolving Loan Facility) (the "Loan Agreement"), dated as of
April 4, 1995, among the Company, Texas Commerce Bank National
Association ("TCB"), as Agent and a Lender, First Bank, as Agent
and a Lender, and the other financial institutions now or
hereafter parties to the Loan Agreement.(6)
10.29 Interest Rate Agreement, dated as of April 4, 1995, among the
Company, certain financial institutions a party thereto, First
Bank, as Collateral Agent, and TCB, as Agent.(6)
10.30 Notice of Entire Agreement, dated as of April 4, 1995, executed
by the Company, San Antonio Coke and TCB, as Agent.(6)
10.31 Security Agreement, dated as of April 4, 1995, among the Company,
First Bank, as Collateral Agent, TCB, as Agent, and the financial
institutions who are parties to the Loan Agreement.(6)
10.32 Form of Term Note issued by the Company pursuant to the Loan
Agreement.(6)
10.33 Form of Revolving Note issued by the Company pursuant to the
Loan Agreement.(6)
10.34 Contribution Agreement, dated as of April 4, 1995, executed by
the Company and San Antonio Coke.(6)
21.1 Subsidiaries of the Company.(2)
- -------------------
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1995.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ CHARLES F. STEPHENSON
-------------------------------
Charles F. Stephenson,
Vice President, Treasurer and
Chief Financial Officer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ EDMUND M. HOFFMAN Co-Chairman and Director March 14, 1997
- ---------------------------- (Principal Executive Officer)
Edmund M. Hoffman
/s/ ROBERT K. HOFFMAN Co-Chairman and Director March 14, 1997
- ----------------------------
Robert K. Hoffman
/s/ CHARLES F. STEPHENSON Vice President, Treasurer and March 14, 1997
- ---------------------------- Chief Financial Officer
Charles F. Stephenson (Principal Financial Officer
and Principal Accounting Officer)
/s/ R.A. WALKER Director March 14, 1997
- ----------------------------
R.A. Walker
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of
December 31, 1995 and 1996. . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income. . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity. . . . . . . . . F-6
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texas Bottling Group, Inc.:
We have audited the accompanying consolidated balance sheets of Texas Bottling
Group, Inc. (a Nevada corporation) and subsidiary as of December 31, 1995 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Bottling Group, Inc. and
subsidiary as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 7, 1997
F-2
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996
(Amounts in Thousands, Except Share Data)
<TABLE>
ASSETS 1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,864 $ 636
Receivables-
Trade accounts, net of allowance for doubtful
accounts of $515 and $544 in 1995 and 1996 18,883 21,349
Other 3,810 3,280
-------- --------
Total receivables, net 22,693 24,629
Inventories 7,346 9,327
Prepaid expenses and other 641 1,498
Deferred tax asset 3,041 9,645
-------- --------
Total current assets 39,585 45,735
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
Land 4,869 4,866
Buildings and improvements 20,504 20,819
Machinery and equipment 15,566 16,393
Vehicles 15,187 16,662
Vending equipment 23,468 27,215
Furniture and fixtures 3,616 5,500
-------- --------
83,210 91,455
Less- Accumulated depreciation and amortization (44,896) (50,312)
-------- --------
Property, plant, and equipment, net 38,314 41,143
-------- --------
OTHER ASSETS:
Franchise rights, net of accumulated amortization
of $32,496 and $36,140 in 1995 and 1996 113,005 109,362
Goodwill, net of accumulated amortization of $15,728 and
and $17,455 in 1995 and 1996 53,403 51,676
-------- --------
Franchise rights and goodwill 166,408 161,038
Deferred financing costs and other assets, net of accumulated
amortization of $1,663 and $2,335 in 1995 and 1996 5,480 7,852
Deferred tax asset 9,759 355
-------- --------
Total other assets 181,647 169,245
-------- --------
Total assets $259,546 $256,123
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996
(Amounts in Thousands, Except Share Data)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 16,308 $ 15,276
Accrued payroll 1,385 793
Accrued insurance 3,746 3,342
Accrued interest 3,065 1,364
Contribution to employees' benefit plans 1,810 2,158
Current maturities of long-term debt 12,000 16,500
-------- --------
Total current liabilities 38,314 39,433
-------- --------
LONG-TERM DEBT, net of current maturities 215,500 203,000
OTHER LIABILITIES 2,922 3,864
POSTRETIREMENT BENEFIT OBLIGATION 6,033 6,157
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock Class A, $2 par value; 1,100,249 shares
authorized; 541,917 issued and outstanding as of
December 31, 1995 and 1996 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding (convertible to
558,332 shares of Class A) as of December 31, 1995 and 1996 457 457
Additional paid-in capital 43,459 43,459
Retained deficit (48,223) (41,331)
-------- --------
Total stockholders' equity (3,223) 3,669
-------- --------
Total liabilities and stockholders' equity $259,546 $256,123
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-4
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(Amounts in Thousands)
<TABLE>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES $206,987 $215,095 $220,796
COSTS AND EXPENSES:
Cost of goods sold (exclusive of depreciation
shown below) 106,206 117,233 119,336
Selling, general and administrative 54,446 50,154 52,359
Depreciation and amortization 10,684 11,548 12,816
-------- -------- --------
Operating income 35,651 36,160 36,285
INTEREST:
Interest on debt (23,716) (20,250) (18,006)
Interest rate swap (7,829) - -
Deferred financing cost (602) (584) (572)
Interest income 77 372 208
-------- -------- --------
(32,070) (20,462) (18,370)
OTHER INCOME, net 113 185 348
-------- -------- --------
Income before taxes and extraordinary item 3,694 15,883 18,263
INCOME TAX BENEFIT (PROVISION) - 12,675 (2,971)
-------- -------- --------
Income before extraordinary item 3,694 28,558 15,292
EXTRAORDINARY ITEM, net of income tax
benefit of $39 in 1995 - (72) -
-------- -------- --------
Net income $ 3,694 $ 28,486 $ 15,292
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-5
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(Amounts in Thousands)
Additional
Common Stock Paid-In Retained
Class A Class B Capital Deficit
------- ------- ---------- --------
BALANCE, December 31, 1993 $ 1,084 $ 457 $43,459 $(72,580)
Net income - - - 3,694
-------- ----- ------- --------
BALANCE, December 31, 1994 1,084 457 43,459 (68,886)
Net income - - - 28,486
Dividends paid - - - (7,823)
-------- ----- ------- --------
BALANCE, December 31, 1995 1,084 457 43,459 (48,223)
Net income - - - 15,292
Dividends paid - - - (8,400)
-------- ----- ------- --------
BALANCE, December 31, 1996 $ 1,084 $ 457 $43,459 $(41,331)
-------- ----- ------- --------
-------- ----- ------- --------
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(Amounts in Thousands)
<TABLE>
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,694 $ 28,486 $ 15,292
Adjustments to reconcile net income to net cash
provided by operating activities-
Extraordinary item - 111 -
Depreciation and amortization 10,684 11,548 12,816
Provision for bad debts 240 240 240
Deferred tax (benefit) provision - (12,800) 2,800
Amortization of deferred financing costs 602 584 572
Deferred compensation 1,061 846 1,193
Change in assets and liabilities, excluding effects
of extraordinary item:
Receivables 2,691 (5,477) (2,176)
Inventories 1,971 (1,105) (1,143)
Prepaid expenses (376) 174 (857)
Accounts payable (5,032) 7,368 (1,625)
Accrued expenses 5,085 (2,536) (2,105)
Contribution to employees' benefit plans 22 12 (146)
Other liabilities 229 318 125
Postretirement benefit obligation 317 30 123
Other (47) 203 -
------- --------- --------
Net cash provided by operating activities 21,141 28,002 25,109
------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (6,605) (9,802) (10,887)
Other noncurrent assets acquired - - (3,050)
------- --------- --------
Net cash used by investing activities (6,605) (9,802) (13,937)
------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (8,800) - 4,000
Payments on long-term debt (265) (7,500) (12,000)
Proceeds from issuance of long-term debt, net - 113,844 -
Retirements of long-term debt - (116,500) -
Purchase of interest rate cap - (490) -
Payment of dividends - (7,823) (8,400)
------- --------- --------
Net cash used by financing activities (9,065) (18,469) (16,400)
------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,471 (269) (5,228)
CASH AND CASH EQUIVALENTS, beginning of year 662 6,133 5,864
------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $ 6,133 $ 5,864 $ 636
------- --------- --------
------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(Amounts in Thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1994 1995 1996
------- ------- -------
Cash paid during the year for:
Interest $28,986 $22,276 $19,707
Income taxes - - -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of certain vending machines, machinery,
equipment, and transportation equipment through
capital leases and issuance of long-term debt $ 64 $ 260 $ -
------- ------- -------
------- ------- -------
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Texas Bottling
Group, Inc., a Nevada corporation (the Company), and its wholly owned
subsidiary, Coca-Cola Bottling Company of the Southwest, a Nevada corporation
(San Antonio Coke). The Company primarily bottles and distributes soft drinks
in its franchise territories (food service operations are not material) in
central and southern Texas, including the cities of San Antonio and Corpus
Christi. All material intercompany balances and transactions have been
eliminated in consolidation.
CERTAIN RISK FACTORS
The Company is highly leveraged and will require substantial amounts of cash to
fund scheduled payments of principal and interest on its outstanding debt and
future capital expenditures. The Company's ability to service its debt in the
future, maintain adequate working capital, and make required or planned capital
expenditures will depend on its ability to generate sufficient cash from
operations. Management is of the opinion that the Company will generate
sufficient cash flow to meet its obligations or that alternative financing will
be available.
REVENUE RECOGNITION
Revenue is recognized from bottling operations when the product is delivered.
Vending operations recognize revenue when cash is collected.
CASH AND CASH EQUIVALENTS
The Company considers investments with original maturities of three months or
less to be cash equivalents.
INVENTORIES
Inventories include the costs of materials and direct labor and manufacturing
overhead, when applicable, and are valued at the lower of first-in, first-out
cost or market, except for repair parts and supplies, which are valued at cost.
Inventories as of December 31, 1995 and 1996, are summarized as follows (in
thousands):
1995 1996
------ ------
Raw materials $2,488 $3,351
Finished goods 4,210 4,940
Repair parts and supplies 648 1,036
------ ------
$7,346 $9,327
------ ------
------ ------
F-9
<PAGE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Expenditures for maintenance
and repairs are charged to expense when incurred. The cost of assets retired or
sold, and the related amounts of accumulated depreciation are removed from the
accounts, and any gain or loss is included in other income. Depreciation is
determined using the straight-line method over the estimated useful lives of the
assets as follows:
Buildings and improvements 3 - 25 years
Machinery and equipment 3 - 10 years
Vehicles 3 - 10 years
Vending equipment 2 - 10 years
Furniture and fixtures 2 - 10 years
RETURNABLE CAN TRAYS AND SHELLS
Returnable can trays and shells are carried in other assets at amortized cost.
The cost of can trays and shells in excess of deposit value is amortized on a
straight-line basis over three years.
FRANCHISE RIGHTS AND GOODWILL
Franchise rights and goodwill represent the cost in excess of the fair value of
tangible assets acquired. The Company views franchise rights and goodwill as a
single intangible asset that is being amortized over a period of 40 years. The
Company established separate values for franchise rights and for goodwill. The
Company annually evaluates its carrying value and expected period of benefit of
franchise rights and goodwill in relation to its expected future undiscounted
cash flows. If the carrying value were determined to be in excess of expected
future cash flows, franchise rights and goodwill would be reduced to fair market
value. Expected future cash flows exceeded those amounts recorded in the
consolidated financial statements.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of existing differences between the financial reporting
and tax reporting bases of assets and liabilities and operating loss and tax
credit carryforwards for tax purposes. Valuation allowances are established, if
necessary, to reduce the deferred tax asset to the amount that will more likely
than not be realized.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
classification.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-10
<PAGE>
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) became effective in 1996. For stock-based
compensation instruments issued subsequent to December 15, 1994, companies are
required to provide additional disclosures or change accounting for compensation
expense. The Company has issued no stock-based compensation subsequent to
December 15, 1994; therefore, the requirements of this statement had no effect
on the Company's 1996 consolidated financial statements.
2. DEBT:
Long-term debt and related collateral consists of the following (in thousands):
<TABLE>
December 31,
1995 1996
-------- --------
<S> <C> <C>
9% Senior Subordinated Notes - unsecured, due November 15,
2003; interest is payable semiannually on May 15 and November 15 $120,000 $120,000
Variable Term Loan - due in quarterly installments through
March 31, 2003 107,500 95,500
Borrowings under revolving credit facility - 4,000
-------- --------
Total debt 227,500 219,500
Less- Current maturities 12,000 16,500
-------- --------
Total long-term debt $215,500 $203,000
-------- --------
-------- --------
</TABLE>
Principal payments for maturities of long-term debt for the next five years are
as follows (in thousands):
1997 $ 16,500
1998 15,000
1999 15,000
2000 15,000
2001 15,000
Thereafter 143,000
--------
$219,500
--------
--------
The Company may be required to make additional annual prepayments on the
Variable Term Loan. The annual prepayment is calculated as the amount of excess
cash flow, as defined, for such fiscal year multiplied by the excess cash flow
percentage, as defined, in effect on the last day of the fiscal year. The
prepayment for 1996 due in 1997 is approximately $1.5 million.
In April 1995, the Company entered into a loan agreement with Texas Commerce
Bank National Association as agent for a syndicate of financial institutions.
The agreement provides for a $115 million term loan (the Variable Term Loan) and
a $25 million revolving credit facility (the Revolver). As of December 31,
1996, $4 million was outstanding on the Revolver. Borrowings under the Variable
Term Loan and Revolver (collectively, the 1995 Bank Credit Agreement) were used
to replace the Company's 11% senior notes and to repurchase $5 million in
principal amount of the Company's 9% Notes due 2003. A net extraordinary loss
of $72,000 was recognized for the write-off of deferred financing costs and the
gain associated with the repurchase of principal.
F-11
<PAGE>
Both the Variable Term Loan and Revolver calculate interest at the Company's
option at either Alternate Base Rate (8.25% as of December 31, 1996) or
Eurodollar Rate (5.7% as of December 31, 1996) plus 1.00%. On January 1, 1997,
the spread over Eurodollar Rate reduced from 1.00% to 0.75%. A commitment fee
of 0.25% is charged on the average daily unused portion of the Revolver.
Interest rates on the 1995 Bank Credit Agreement are subject to change,
depending on the ratio of total debt to cash flow, as defined, at the end of
each calendar quarter. The interest rates will be adjusted quarterly for
Alternate Base Rate borrowings from a maximum of Alternate Base Rate plus .25%
to a minimum of Alternate Base Rate and for Eurodollar borrowings from a maximum
of Eurodollar Rate plus 1.50% to a minimum of Eurodollar Rate plus .50%,
according to a grid of permitted debt to cash flow ratios. Interest on the 1995
Bank Credit Agreement is due on the last day of each calendar quarter for
amounts borrowed at the Alternate Base Rate or at the end of each applicable
interest period for amounts borrowed at the Eurodollar Rate. For interest
periods exceeding three months, related interest expense is due on the last day
of each calendar quarter.
Borrowings under the 1995 Bank Credit Agreement are secured by pledges of the
stock of San Antonio Coke.
The Company's credit agreements contain several restrictive covenants, the most
significant of which: require maintenance of minimum ratio of cash flow to
interest expense and fixed charges, as defined; limit the ratio of debt to cash
flow, as defined; and restrict the issuance of additional common stock. The
1995 Bank Credit Agreement does permit the payment of dividends and other
distributions to shareholders as permitted by the indenture governing the 9%
Notes due 2003, so long as no event of default exists.
The maximum Revolver availability steps down to $20 million on January 1, 1999,
and $15 million on January 1, 2002. The final maturity of the Revolver is March
31, 2003. The maximum amount of the Revolver which can be used for acquisitions
and other investments is currently $20 million and steps down to $15 million on
January 1, 1999, and $5 million on January 1, 2002.
Interest expense was approximately $32,147,000, $20,834,000, and $18,578,000 in
1994, 1995, and 1996. Interest expense in 1994 included approximately
$7.8 million related to the termination of an interest rate swap agreement (see
Note 4).
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to value each class of financial
instruments.
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short-term maturity
of these instruments.
LONG-TERM DEBT
Management believes the Revolver is stated at fair value due to the short-term
nature of this instrument.
The Variable Term Loan is stated at fair value due to its variable interest
rate.
Management estimates that the fair value of its 9% Notes as of December 31,
1996, was approximately $121.1 million based on publicly quoted prices.
F-12
<PAGE>
4. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS:
In January 1994, the Company entered into a two-year interest rate swap
agreement. During 1994, the Company terminated its obligations under this
agreement at a cost of approximately $7.8 million.
In connection with the 1995 Bank Credit Agreement, the Company has entered into
an interest rate cap agreement with a bank 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.
5. LEASES:
Total lease expense for the years ended December 31, 1994, 1995, and 1996, was
approximately $2,457,000, $2,028,000, and $1,583,000. Certain lease agreements
contain renewal clauses at the original rates or purchase options at fair market
value. Minimum future lease payments, relating principally to vehicles and data
processing equipment, under noncancelable operating leases for the next five
years, are (in thousands):
1997 $ 806
1998 487
1999 315
2000 172
2001 125
Thereafter -
------
Total $1,905
------
------
6. INCOME TAXES:
The Company's net deferred tax asset and liability as of December 31, 1995 and
1996, are as follows (in thousands):
1995 1996
------- -------
Deferred tax assets:
Net operating loss carryforwards $57,173 $55,020
Postretirement benefit obligation 2,127 2,170
Deferred employee benefits 627 1,222
Deferred financing costs 25 -
Other deferred tax assets 1,464 1,386
------- -------
61,416 59,798
Less - Valuation allowance (3,586) -
------- -------
57,830 59,798
Deferred tax liabilities:
Tax over book depreciation and amortization 44,990 49,758
Other deferred tax liabilities 40 40
------- -------
45,030 49,798
------- -------
Net deferred tax asset $12,800 $10,000
------- -------
------- -------
F-13
<PAGE>
In 1995, the Company concluded that it was more likely than not that future
operations would generate sufficient taxable income to use net operating
losses and reduced the valuation to create a deferred tax asset of
$12.8 million. The Company will continue to evaluate the realizability of its
deferred tax asset in relation to future taxable income and provide a
valuation allowance if necessary.
The Company had net operating loss carryforwards of approximately $163.3
million and $157.2 million at December 31, 1995 and 1996. These
carryforwards will expire as follows:
2002 $ 23,500
2003 26,700
2004 23,700
2005 19,900
2006 19,900
2007 13,800
2008 20,400
2009 9,300
--------
$157,200
--------
--------
The Company's benefit (provision) for income taxes, including the benefit
from the extraordinary item, for the periods ended December 31, 1994, 1995,
and 1996, is as follows (in thousands):
1994 1995 1996
------- ------- -------
Current $ - $ (125) $ (171)
Deferred - 12,800 (2,800)
------- ------- -------
Total benefit (provision)
for income taxes $ - $12,675 $(2,971)
------- ------- -------
------- ------- -------
Reconciliation between the actual benefit (provision) for income taxes and
income taxes computed by applying the federal statutory rate to income before
taxes and extraordinary item is as follows (in thousands):
1994 1995 1996
------- ------- -------
Income tax (provision) computed at
the statutory rate $(1,293) $(5,559) $(6,392)
Reduction in valuation allowance 1,582 18,523 3,652
Amortization of goodwill (224) (224) (224)
Other (65) (65) (7)
------- ------- -------
$ - $12,675 $(2,971)
------- ------- -------
------- ------- -------
7. COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company paid $700,000 annually in 1994, 1995, and 1996 to The Coca-Cola
Bottling Group (Southwest), Inc. ("CCB Group"), 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 automatically. The Company also had sales of
approximately $1,552,000, $4,468,000, and $14,960,000 and purchases of
approximately $899,000, $1,657,000, and $12,704,000 in 1994, 1995, and 1996,
with a subsidiary of CCB Group.
F-14
<PAGE>
An officer of the Company serves on the Board of Directors of Western
Container Corporation ("Western"), a plastic bottle manufacturing cooperative.
The Company had purchases of $10,050,000, $14,477,000, and $12,675,260 from
Western in 1994, 1995, and 1996. The Company has a minimum purchase
agreement with Western through 1998. The Company has met its purchase
requirements in 1996 and expects to continue to meet these requirements in
the future.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an order
dismissing the complaint filed by the FTC in 1988 against San Antonio Coke,
bringing to an end the FTC's efforts to force the divestiture of Dr Pepper
licenses for a ten-county area around and including San Antonio, Texas held
by the Company.
The Company is self-insured for portions of its casualty insurance, product
liability, and certain other business risks up to limits of between $50,000
and $250,000. Management provides for all material open claims plus an
estimate for incurred but not reported claims related to these uninsured
risks.
In conjunction with certain insurance policies, the Company has established
irrevocable and unconditional letters of credit, expiring August 1, 1997, and
March 22, 1997, for $1,225,000 and $728,000 in favor of two insurance
companies. The letters of credit protect the insurance company in case of
nonperformance by San Antonio Coke. The letters of credit were not used as
of December 31, 1996, and management does not expect to use the letters of
credit through expiration.
The Company also becomes involved in certain legal proceedings in the normal
course of business. Management believes that the outcome of such litigation
will not materially affect the Company's consolidated financial position or
results of operations.
8. COMPENSATION AND BENEFIT PLANS:
THRIFT PLAN
Through June 30, 1996, San Antonio Coke had a voluntary 401(k) plan available
to substantially all full-time employees with over one year of service.
Employees could deposit up to 15% of total compensation, tax deferred in the
401(k) plan on an annual basis. Through June 30, 1996, the San Antonio Coke
contributions to the 401(k) plan were at the discretion of the Board of
Directors and were limited to 50% of the employees' contributions up to 5% of
total compensation. San Antonio Coke's contributions to the 401(k) plan in
1994, 1995, and 1996, included in the consolidated statements of income, were
approximately $350,000, $355,000, and $588,000.
Effective June 30, 1996, the San Antonio Coke voluntary 401(k) plan merged
with the CCB Group 401(k) plan. The new plan allows employees to contribute
up to 15% of their annual compensation to the Plan and provides for the
Company to match contributions up to 100% of the employees' contributions up
to 4% of total compensation.
PENSION PLAN
San Antonio Coke has a defined benefit pension plan covering substantially
all full-time employees with over one year of service.
F-15
<PAGE>
The following table sets forth the plan's funded status and amounts recognized
in the Company's financial statements at December 31, 1995 and 1996 (in
thousands):
1995 1996
-------- --------
Accumulated benefit obligation-
Vested benefits $(10,461) $(10,690)
Nonvested benefits (138) (141)
-------- --------
(10,599) (10,831)
Effect of projected future compensation levels (1,870) (1,911)
-------- --------
Projected benefit obligation (12,469) (12,742)
Plan assets at fair value 11,998 13,183
-------- --------
Plan assets in excess of (less than) projected
benefit obligation (471) 441
Unrecognized net gain being amortized (848) (2,034)
Unrecognized prior service cost 352 325
Unrecognized net asset at January 1, 1987, being
amortized over 17 years (314) (275)
-------- --------
Pension liability $ (1,281) $ (1,543)
-------- --------
-------- --------
Net periodic pension cost for 1994, 1995, and 1996 includes the following
components (in thousands):
1994 1995 1996
----- ------- -------
Service cost - benefits earned $ 385 $ 358 $ 434
Interest cost on projected benefit obligation 733 780 843
Actual return on plan assets (209) (1,766) (1,547)
Net amortization and deferral (556) 963 532
----- ------- -------
Net periodic pension cost $ 353 $ 335 $ 262
----- ------- -------
----- ------- -------
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
was 8.0% and 5.5% in 1994; 7.25% and 5.0% in 1995; and 7.25% and 5% in 1996.
The expected long-term rate of return on assets was 8.5% in 1994, 1995, and
1996. The plan assets consist of investments in an insurance company's
general and growth equity accounts, and several mutual funds.
Effective December 31, 1996, the San Antonio Coke defined benefit plan merged
with the CCB Group defined benefit plan. Benefits attributed to service as
an employee of San Antonio Coke after December 31, 1996, will be determined
by using the benefit formula of the CCB Group plan (which is 38% higher than
the formula under the old San Antonio Coke plan), then added to the frozen
benefit for 1996 and prior years to calculate the total benefit to be paid to
the participant.
Postretirement Benefit Obligation
In addition to providing pension benefits, San Antonio Coke sponsors a
postretirement healthcare plan that is limited to the following three groups:
(1) participants in the plan as of January 1, 1993, (2) employees having 20
years of service as of January 1, 1992, or (3) employees who were at least
age 55 with five years of service as of January 1, 1992. Active employees in
groups 2 or 3 are only eligible to receive benefits if they retire on or
after their normal retirement age. The plan pays stated percentages of most
necessary medical expenses incurred after subtracting payments by Medicare
where applicable and after a stated deductible has been met. The plan is
contributory, and the Company does not fund this plan.
F-16
<PAGE>
The following table shows the components of the accrued postretirement
healthcare cost liability as reflected on the consolidated balance sheet at
December 31, 1995 and 1996 (in thousands):
1995 1996
------ -------
Retirees $3,472 $3,224
Other active participants 1,238 1,040
Other fully eligible participants 119 144
Unrecognized actuarial gain 1,204 1,749
------ ------
Accrued postretirement healthcare cost liability $6,033 $6,157
------ ------
------ ------
Net postretirement benefit cost included the following components in 1994,
1995, and 1996 (in thousands):
1994 1995 1996
---- ---- ----
Service cost - benefits attributed to
service during the period $ 78 $ 58 $ 49
Interest cost on accumulated
postretirement benefit obligation 403 343 313
---- ---- ----
Total postretirement benefit cost $481 $401 $362
---- ---- ----
---- ---- ----
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0%, 7.25%, and 7.25% in 1994, 1995,
and 1996. For measurement purposes, a 10% annual rate of increase in the per
capita cost of covered healthcare claims was assumed for 1996; the rate was
assumed to ratably decrease 1% each year to 5% in 2003 and remain level
thereafter. The effect of increasing the assumed healthcare cost trend rates
by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $340,000 and
the aggregate of the service and interest cost components of net
postretirement healthcare cost for the 1996 fiscal year by $32,000.
NONSTATUTORY STOCK OPTION/STOCK APPRECIATION RIGHTS PLAN
The Company has a Nonstatutory Stock Option/Stock Appreciation Rights Plan
(the "Stock Plan"). The Stock Plan allows the Company to grant stock options
for Class A common stock to key officers and employees based on fair market
value, as defined, at the date of grant. The Company issues a stock
appreciation right corresponding to the excess of fair market value, as
defined, over the option price for each specific stock option granted. In
1994, 1995, and 1996, no stock options or stock appreciation rights were
issued by the Company. As of December 31, 1996, all outstanding stock
appreciation rights (covering 11,160 shares) were vested at an option price
of $40.90 per share and were exercisable.
MANAGEMENT INCENTIVE PLAN
Effective January 1, 1994, the Company entered into long-term management
incentive agreements with certain of its key officers and managers. Under
the plans, a lump-sum payment is made at the end of five years based upon the
attainment of certain operating cash flow goals. Expense for the management
incentive agreements included in the consolidated statements of income was
$650,000 in both 1994 and 1995, and $700,000 in 1996.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company does not provide any postretirement or postemployment benefits
other than the plans discussed above and, therefore, no additional liability
has been recorded.
F-17
<PAGE>
9. MAJOR CUSTOMER:
The Company had one major customer in 1994, 1995, and 1996, which accounted
for approximately 27%, 28%, and 24% of net revenues.
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
As of December 31, 1994, 1995, and 1996, the balance for allowance for
doubtful accounts was $425,000, $515,000, and $544,000. The activity for
this account for the three years ended December 31, 1996, was as follows (in
thousands):
Balance at Write-offs, Balance
Beginning Charged to Net of at End
Year of Year Expense Recoveries of Year
---- ---------- ----------- ---------- -------
1994 516 240 (331) 425
1995 425 240 (150) 515
1996 $515 $240 $(211) $544
F-18
<PAGE>
INDEX TO EXHIBITS
<TABLE>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
2.1 Amendment and Plan of Merger, dated July 21, 1995, by and between the
Company and Texas Bottling Group, Inc., a Nevada corporation.(1)
3.1 Articles of Incorporation of the Company.(1)
3.2 Bylaws of the Company.
4.1 Form of Indenture, dated as of November 15, 1993, between the Company
and Chemical Bank, N.A. with respect to the 9% Senior Subordinated Notes
Due 2003.(2)
4.2 Form of Specimen Certificate for 9% Senior Subordinated Notes Due 2003
(included as Exhibit A to the Indenture in Exhibit 4.1).(2)
4.3 Supplemental Indenture, dated July 31, 1995, between the Company and
Chemical Bank, N.A., as Trustee.(1)
10.1 $15,000,000 Revolving Credit Agreement, dated as of March 31, 1989,
between the Company and First Bank National Association ("First Bank").(2)
10.2 Amendment No. 1, dated as of March 31, 1990, to the Revolving Credit
Agreement, dated as of March 31, 1989, between the Company and First
Bank.(2)
10.3 Amendment No. 2, dated as of January 1, 1992, to the Revolving Credit
Agreement, dated as of March 31, 1989, between the Company and First
Bank.(2)
10.4 Amendment No. 3, dated as of June 30, 1993, to the Revolving Credit
Agreement, dated as of March 31, 1989, between the Company and First
Bank.(2)
10.5 Amendment No. 4, dated as of November 8, 1993, to the Revolving Credit
Agreement, dated as of March 31, 1989, between the Company and First
Bank.(2)
10.6 Pledge Agreement, dated as of March 31, 1989, between the Company and
The Connecticut Bank and Trust Company, N.A., Security Trustee.(2)
10.7 Amendment to Pledge Agreement, dated as of October 15, 1993, between
the Company and State Street Bank and Trust Company, as Trustee, dated
as of March 31, 1989.(2)
10.8 Franchise Agreement, dated as of August 23, 1932, between American
Bottling Company and The Coca-Cola Company.(2)
10.9 Franchise Agreement, dated as of December 13, 1931, between San Antonio
Coca-Cola Bottling Company and The Coca-Cola Company.(2)
- ------------------------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1995
(2) Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-69276)
filed on November 5, 1993.
<PAGE>
10.10 Form of Amendments to Franchise Agreement between the subsidiary of
the Company and The Coca-Cola Company.(2)
10.11 Form of Agreement comprising Franchise Agreement between Coca-Cola
Bottling Company of the Southwest and the Dr Pepper Company.(2)
10.12 Amended and Restated Executive Security Plan for The Coca-Cola
Bottling Group (Southwest), Inc.(2)
10.13 The Company's Non-Statutory Stock Option/Stock Appreciation Rights
Plan.(2)
10.14 The Coca-Cola Bottling Group (Southwest), Inc. Non-Statutory Stock
Option/Stock Appreciation Rights Plan.(2)
10.15 Stockholders Agreement, dated as of March 31, 1987, among the Company,
The Coca-Cola Bottling Group (Southwest), Inc., The Prudential
Insurance Company of America and Pruco Life Insurance Company.(2)
10.16 Employment Agreement, dated as of December 16, 1985, between The
Coca-Cola Bottling Group (Southwest), Inc. and Edmund M. Hoffman.(2)
10.17 Employment Agreement, dated as of December 16, 1985, between The
Coca-Cola Bottling Group (Southwest), Inc. and Robert K. Hoffman.(2)
10.18 Amendment No. 1, dated as of September 9, 1993, to the Employment
Agreement, dated as of December 16, 1985, between The Coca-Cola
Bottling Group (Southwest), Inc. and Robert K. Hoffman.(2)
10.19 Renewed and Extended Management Agreement with The Coca-Cola Bottling
Group (Southwest), Inc., dated as of December 1, 1991, between The
Coca-Cola Bottling Group (Southwest), Inc. and the Registrant.(2)
10.20 Amendment to Renewed and Extended Management with The Coca-Cola
Bottling Group (Southwest), Inc., dated as of April 14, 1994, between
The Coca-Cola Bottling Group (Southwest), Inc. and the Company.(3)
10.21 Management Incentive Plan of The Coca-Cola Bottling Group (Southwest),
Inc., adopted June 22, 1994, effective as of January 1, 1994.(4)
10.22 Management Incentive Plan of Coca-Cola Bottling Company of the
Southwest, adopted April 29, 1994, effective as of January 1, 1994.(4)
10.23 Management Incentive Agreement, executed July 20, 1994 and effective
as of January 1, 1994, between The Coca-Cola Bottling Group (Southwest),
Inc. and Charles F. Stephenson.(4)
10.24 Management Incentive Agreement, executed July 20, 1994 and effective as
of January 1, 1994, between Coca-Cola Bottling Company of the Southwest
and E. T. Summers, III.(4)
- ------------------------
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1994.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1994.
<PAGE>
10.25 Management Incentive Agreement, executed July 20, 1994 and effective
as of January 1, 1994, between The Coca-Cola Bottling Group (Southwest),
Inc. and E.T. Summers, III.(5)
10.26 Employment Agreement, executed August 10, 1994, and effective as of
January 1, 1994, between The Coca-Cola Bottling Group (Southwest), Inc.
and Stephanie L. Ertel.(5)
10.27 Assumption Agreement, dated July 31, 1995, by and between the Company
and Chemical Bank, N.A., as Trustee.(1)
10.28 Loan Agreement ($115,000,000 Term Loan Facility and $25,000,000
Revolving Loan Facility) (the "Loan Agreement"), dated as of April 4,
1995, among the Company, Texas Commerce Bank National Association
("TCB"), as Agent and a Lender, First Bank, as Agent and a Lender,
and the other financial institutions now or hereafter parties to the
Loan Agreement.(6)
10.29 Interest Rate Agreement, dated as of April 4, 1995, among the Company,
certain financial institutions a party thereto, First Bank, as
Collateral Agent, and TCB, as Agent.(6)
10.30 Notice of Entire Agreement, dated as of April 4, 1995, executed by
the Company, San Antonio Coke and TCB, as Agent.(6)
10.31 Security Agreement, dated as of April 4, 1995, among the Company,
First Bank, as Collateral Agent, TCB, as Agent, and the financial
institutions who are parties to the Loan Agreement.(6)
10.32 Form of Term Note issued by the Company pursuant to the Loan Agreement.(6)
10.33 Form of Revolving Note issued by the Company pursuant to the Loan
Agreement.(6)
10.34 Contribution Agreement, dated as of April 4, 1995, executed by the
Company and San Antonio Coke.(6)
21.1 Subsidiaries of the Company.(2)
- -----------------------
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1994.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1995.
</TABLE>
