<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 33-69275
TEXAS BOTTLING GROUP, INC.
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(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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of November 3, 1997 was $0.00.
As of November 3, 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
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands Except Share Data)
<TABLE>
September 30, 1997 December 31, 1996
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,449 $ 636
Receivables-
Trade accounts, net of allowance for doubtful
accounts of $574 and $544 in 1997 and 1996 19,324 21,349
Other 4,145 3,280
-------- --------
23,469 24,629
Inventories 10,713 9,327
Prepaid expenses and other 1,850 1,498
Deferred tax asset 10,693 9,645
-------- --------
Total current assets 50,174 45,735
-------- --------
PROPERTY, PLANT, & EQUIPMENT
Land 4,854 4,866
Buildings and improvements 20,732 20,819
Machinery and equipment 16,787 16,393
Vehicles 18,883 16,662
Vending equipment 33,726 27,215
Furniture and fixtures 5,791 5,500
-------- --------
100,773 91,455
Less-accumulated depreciation (55,949) (50,312)
-------- --------
Property, plant, and equipment, net 44,824 41,143
-------- --------
OTHER ASSETS:
Franchise rights, net of accumulated amortization
of $38,872 as of September 30, 1997 and $36,140 106,629 109,362
as of December 31, 1996
Goodwill, net of accumulated amortization of $18,751
as of September 30, 1997 and $17,455 as of
December 31, 1996 50,381 51,676
-------- --------
Franchise rights and goodwill 157,010 161,038
Deferred financing costs and other assets, net of accumulated
amortization of $2,340 as of September 30, 1997
and $2,335 as of December 31, 1996 7,347 7,852
Net deferred tax asset - 355
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Total other assets 164,357 169,245
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Total assets $259,355 $256,123
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-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets
2
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands Except Share Data)
<TABLE>
September 30 1997 December 31, 1996
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 13,407 $ 15,496
Accrued payroll 1,301 573
Accrued insurance 2,760 3,342
Accrued interest 4,141 1,364
Contribution to employees' benefit plans 1,864 2,158
Current maturities of long-term debt 16,227 16,500
-------- --------
Total current liabilities 39,700 39,433
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LONG-TERM DEBT, net of current maturities 207,465 203,000
OTHER LIABILITIES 6,369 3,864
POST RETIREMENT BENEFIT OBLIGATION 6,124 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 September 30, 1997 and December 31, 1996 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding as of
September 30, 1997 and December 31, 1996
(convertible to 558,332 shares of Class A) 457 457
Additional paid-in-capital 43,459 43,459
Retained deficit (45,303) (41,331)
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Total stockholders' equity (deficit) (303) 3,669
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Total liabilities and stockholders' equity
(deficit) $259,355 $256,123
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</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in Thousands)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
NET REVENUES $ 58,362 $ 60,193 $ 163,762 $ 169,263
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold (exclusive of depreciation
shown below) 31,685 32,539 87,540 90,763
Selling, general, and administrative 15,911 13,632 43,481 40,499
Depreciation and amortization 3,650 3,099 10,725 9,192
---------- ---------- ---------- ----------
51,246 49,270 141,746 140,454
---------- ---------- ---------- ----------
Operating income 7,116 10,923 22,016 28,809
INTEREST:
Interest on debt (4,471) (4,539) (13,302) (13,526)
Deferred financing cost (143) (143) (429) (429)
Interest income 17 50 40 186
---------- ---------- ---------- ----------
(4,597) (4,632) (13,691) (13,769)
Other income, net 12 -0- 115 25
---------- ---------- ---------- ----------
Income before income taxes 2,531 6,291 8,440 15,065
Provision for income taxes (908) (1,200) (3,012) (2,700)
---------- ---------- ---------- ----------
Net income $ 1,623 $ 5,091 $ 5,428 $ 12,365
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
4
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in Thousands)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,428 $ 12,365
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 10,725 9,192
Deferred tax provision 2,813 2,700
Amortization of deferred financing costs 429 429
Deferred compensation 443 745
Change in assets and liabilities
Receivables 1,160 (2,056)
Inventories (1,386) (2,577)
Prepaid expenses (352) (635)
Accounts payable (1,361) 1,455
Accrued expenses 2,195 1,383
Contribution to employees' benefit plans (294) (159)
Other liabilities (1,443) 215
Postretirement benefit obligation (33) 120
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Net cash provided by operating activities 18,324 23,177
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (9,856) (10,220)
Other noncurrent assets acquired (447) (1,078)
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Net cash used in investing activities (10,303) (11,298)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 9,000 800
Issuance of long-term debt 8,094 -
Payments on long-term debt (12,902) (9,500)
Payments of dividends (9,400) (8,400)
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Net cash used by financing activities (5,208) (17,100)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,813 (5,221)
CASH AND CASH EQUIVALENTS, beginning of period 636 5,864
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CASH AND CASH EQUIVALENTS, end of period $ 3,449 $ 643
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The accompanying notes are an integral part of
these consolidated statements.
5
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TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Texas
Bottling Group, Inc., a Nevada corporation, ("TBG" or "the Company") and its
wholly owned subsidiary have been prepared in accordance with generally
accepted accounting principles for interim financial information and reflect,
in the opinion of management, all adjustments, which are normal and recurring
in nature, necessary for fair presentation of financial position, results of
operations, and changes in cash flow at September 30, 1997 and for all
periods presented. These interim financial statements do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the Company's audited financial statements included in Form
10-K for the year ended December 31, 1996. The results of operations for the
period ended September 30, 1997 are not necessarily indicative of results to
be expected for the entire year ending December 31, 1997.
2. INVENTORIES
Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1997 1996
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Raw materials $ 3,320 $3,351
Finished goods 5,913 4,940
Repair parts and supplies 1,480 1,036
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$10,713 $9,327
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3. INCOME TAXES
The Company's provision for income taxes for the nine months ended
September 30, 1997 and 1996, is as follows (in thousands):
1997 1996
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Current $ 199 $ -0-
Deferred 2,813 2,700
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$3,012 $2,700
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6
<PAGE>
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
The Company paid $525,000 for the periods ended September 30, 1997 and
1996 to The Coca-Cola Bottling Group (Southwest), Inc. ("CCBG"), holder of
the Company's Class A common stock, under a management agreement. The
agreement is for a period of one year and is renewable annually. The Company
also had sales of approximately $10,166,000 and $11,796,000 and purchases of
approximately $10,462,000 and $9,730,000 with a subsidiary of CCBG for the
periods ended September 30, 1997 and 1996.
An officer of Coca-Cola Bottling Company of the Southwest ("CCBSW"), the
wholly-owned subsidiary of the Company, serves on the Board of Directors of
Western Container Corporation ("Western") a plastic bottle manufacturing
cooperative. The Company had purchases of $8,533,000 and $10,348,000 from
Western for the periods ended September 30, 1997 and 1996.
On August 1, 1997 the Company paid a $9.4 million dividend to
shareholders of record on July 18, 1997. The dividend amounted to $8.54 per
share on Class A shares and $8.54 per share on the number of Class A shares
into which each Class B share was convertible.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Unit growth of soft drink sales is measured in equivalent case sales
which convert all wholesale bottle, can and pre-mix unit sales into a value
of equivalent cases of 192 ounces each. Unit sales of post-mix and contract
bottling are not generally included in discussions concerning unit sales
volume as post-mix sales are essentially sales of syrup and not of packaged
products, and contract bottling is done for other distributors as capacity
permits and does not include licensed products for the franchised territory.
All references to net revenues and gross profit include volumes for post-mix
and contract sales.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET REVENUES. Net revenues for 1997 decreased 3.0% or $1.8 million to
$58.4 million compared to $60.2 million for 1996. Net effective selling
price decreased 5.1% per equivalent case. The decrease in net revenues was
due to lower net effective selling prices for high volume packages, including
20 ounce eight-packs, and six and twelve-pack cans, as a result of increased
competition in the market, and to a package mix shift from six-pack cans to
the lower priced twelve-pack cans. Equivalent case sales decreased .1% in
1997 compared to 1996. Net revenues from post-mix as a percentage of total
net revenues increased to 8.9% for 1997 as compared to 8.5% for 1996. Net
revenues from the Company's Snappy Snack Division accounted for 5.5% of net
revenue in 1997 as compared to 4.6% in 1996.
GROSS PROFIT. Gross profit for 1997 decreased 3.6% or $1.0 million to
$26.7 million compared to $27.7 million for the same period in 1996. This
decrease in gross profit was due to lower net effective selling prices offset
by lower raw material costs, primarily sweetener, PET bottles and cans.
Gross profit as a percentage of net revenues was 46.0% for both 1997 and 1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1997 increased 17.6% to $16.0 million from $13.6 million for the
same period in 1996, as a result of increases in labor costs, marketing
expense and expenditures on merchandising equipment.
OPERATING INCOME. As a result of the above, operating income for 1997
decreased to $7.1 million or 12.2% of net revenue compared to $10.9 million
or 18.1% of net revenue for the same period in 1996.
INTEREST EXPENSE. Net interest expense was $4.6 million for both 1997
and 1996.
8
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
NET REVENUES. Net revenues for 1997 decreased 3.2% or $5.5 million to
$163.8 million compared to $169.3 million for 1996. Net effective selling
price decreased 4.6% per equivalent case. The decrease in net revenues was
due to lower net effective selling prices for high volume packages, including
20 ounce eight-packs, and six and twelve-pack cans, as a result of increased
competition in the market, and to a package mix shift from six-pack cans to
the lower priced twelve-pack cans. Equivalent case sales decreased 1.0% in
1997 compared to 1996. Net revenues from post-mix as a percentage of total
net revenues increased to 8.5% for 1997 as compared to 8.1% for 1996. Net
revenues from the Company's Snappy Snack Division accounted for 5.5% of net
revenue in 1997 as compared to 4.7% in 1996.
GROSS PROFIT. Gross profit for 1997 decreased 2.9% or $2.3 million to
$76.2 million compared to $78.5 million for the same period in 1996. This
decrease in gross profit was due to lower net effective selling prices offset
by lower raw material costs, primarily sweetener, PET bottles and cans.
Gross profit as a percentage of net revenues improved to 46.5% for 1997
compared to 46.4% for 1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1997 increased 7.4% to $43.5 million from $40.5 million for the
same period in 1996, as a result of labor expense and marketing expense
increases partially offset by decreases in casualty insurance reserves.
OPERATING INCOME. As a result of the above, operating income for 1997
decreased to $22.0 million or 13.4% of net revenue compared to $28.8 million
or 17.0% of net revenue for the same period in 1996.
INTEREST EXPENSE. Net interest expense for 1997 decreased to $13.7
million from $13.8 million in 1996, as a result of declining principal
balances due to quarterly principal payments offset by interest on the
issuance of long term debt used to acquire property, plant, and equipment.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $18.3 million which was
generated primarily by operating income. Investing activities used $2.2
million primarily for additions to property, plant, and equipment, while
financing activities used $13.3 million which reflects the net of borrowings
under the revolving credit facility and the quarterly amortization
requirements of the Term Loan. Of total additions to the property, plant and
equipment of $9.9 million, $8.1 million were acquired through the issuance of
long term debt.
The Term Loan entered into in 1995 provides for mandatory annual
prepayment based on excess cash flow as defined for each calendar year. In
accordance with the 1995 Bank Agreement, the Company paid $1.5 million
prepayment in April, 1997.
9
<PAGE>
In connection with the 1995 Bank Agreement the Company has entered into
an interest rate cap agreement which caps the three month LIBOR rate at 9% on
a notional principal amount of $50 million for four years. The Company has
no interest rate exposure under the agreement other than the initial purchase
cost of $0.5 million.
At September 30, 1997, the Company recognized $3.0 million net deferred
tax expense of which $2.8 million was deferred.
On August 1, 1997 the Company paid a $9.4 million dividend to
shareholders of record on July 18, 1997. The dividend amounted to $8.54 per
share on Class A shares and $8.54 per share on the number of Class A shares
into which each Class B share was convertible.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No report on Form 8-K was filed for the quarter ended September 30,
1997.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Texas Bottling Group, Inc.
(Registrant)
Date November 12 , 1997 By: /s/ Charles F. Stephenson
-------------------- ----------------------------------
Charles F. Stephenson
Treasurer and Chief Financial
Officer (duly authorized officer
and Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,449
<SECURITIES> 0
<RECEIVABLES> 24,043
<ALLOWANCES> (574)
<INVENTORY> 10,713
<CURRENT-ASSETS> 50,174
<PP&E> 100,773
<DEPRECIATION> (55,949)
<TOTAL-ASSETS> 259,355
<CURRENT-LIABILITIES> 39,700
<BONDS> 219,958
0
0
<COMMON> 1,541
<OTHER-SE> (1,844)
<TOTAL-LIABILITY-AND-EQUITY> 259,355
<SALES> 163,762
<TOTAL-REVENUES> 163,762
<CGS> 87,540
<TOTAL-COSTS> 43,481
<OTHER-EXPENSES> 10,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,691)
<INCOME-PRETAX> 8,440
<INCOME-TAX> (3,012)
<INCOME-CONTINUING> 5,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,428
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
