<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 March 31, 1998
---------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 33-69275
TEXAS BOTTLING GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2158578
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1999 Bryan Street, Suite 3300, Dallas, Texas 75201
----------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (214) 969-1910
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No _____
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of May 1, 1998 was $0.00.
As of May 1, 1998, 541,916 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:
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEMS 1: FINANCIAL STATEMENTS
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1998 AND DECEMBER 31, 1997
(Amounts in Thousands Except Share Data)
<TABLE>
ASSETS March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,277 $ 475
Receivables-
Trade accounts, net of allowance for doubtful
accounts of $453 as of March 31, 1998 and
$601 as of December 31, 1997 20,210 20,615
Other 4,098 3,097
-------- --------
Total receivables, net 24,308 23,712
Inventories 10,197 9,904
Prepaid expenses and other 2,178 1,840
Deferred tax asset 5,653 8,457
-------- --------
Total current assets 43,613 44,388
-------- --------
PROPERTY PLANT & EQUIPMENT:
Land 4,751 4,751
Buildings and improvements 20,439 20,429
Machinery and equipment 17,320 17,164
Vehicles 18,641 18,641
Vending equipment 35,518 33,578
Furniture and fixtures 6,116 6,034
-------- --------
102,785 100,597
Less- Accumulated depreciation (59,376) (57,287)
-------- --------
Property, plant, and equipment, net 43,409 43,310
-------- --------
OTHER ASSETS:
Franchise rights, net of accumulated amortization
of $40,694 as of March 31, 1998 and $39,783
as of December 31, 1997 104,807 105,718
Goodwill, net of accumulated amortization of $19,615
as of March 31, 1998 and $19,183 as of December 31, 1997 49,517 49,949
-------- --------
Franchise rights and goodwill 154,324 155,667
Deferred financing costs and other assets, net of accumulated
amortization of $1,851 as of March 31, 1998 and $2,670
as of December 31, 1997 7,023 7,066
Deferred tax asset 1,434 -
-------- --------
Total other assets 162,781 162,733
-------- --------
Total assets $249,803 $250,431
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1998 AND DECEMBER 31, 1997
(Amounts in Thousands Except Share Data)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 11,774 $ 15,612
Accrued payroll 1,035 845
Accrued insurance 2,649 2,557
Accrued interest 3,674 1,383
Contribution to employees' benefit plans 2,146 2,026
Current maturities of long-term debt 752 737
-------- --------
Total current liabilities 22,030 23,160
-------- --------
LONG-TERM DEBT, net of current maturities 219,636 214,867
OTHER LIABILITIES 2,157 3,005
DEFERRED TAX LIABILITY - 2,067
POST RETIREMENT BENEFIT OBLIGATION 6,110 6,117
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock Class A, $2 par value; 1,100,249 shares
authorized; 541,916 issued and outstanding as of
March 31, 1998 and December 31, 1997 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding as of March 31, 1998 and
December 31, 1997 (convertible to 558,332 shares of Class A) 457 457
Additional paid-in capital 43,459 43,459
Retained deficit (45,130) (43,785)
-------- --------
Total stockholders' equity (130) 1,215
-------- --------
Total liabilities and stockholders' equity $249,803 $250,431
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
3
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Amounts in Thousands)
<TABLE>
1998 1997
------- -------
<S> <C> <C>
NET REVENUES $52,662 $48,847
COSTS AND EXPENSES:
Cost of goods sold (exclusive of depreciation 28,746 25,327
shown below)
Selling, general and administrative 15,320 14,180
Depreciation and amortization 3,695 3,446
------- -------
47,761 42,953
------- -------
Operating income 4,901 5,894
INTEREST:
Interest on debt (4,499) (4,385)
Deferred financing costs (145) (143)
Interest income 11 23
------- -------
(4,633) (4,505)
------- -------
OTHER INCOME, net -0- -0-
------- -------
Income before taxes and extraordinary item 268 1,393
PROVISION FOR INCOME TAXES (143) (537)
------- -------
Income before extraordinary item 125 856
------- -------
EXTRAORDINARY LOSS, net of income tax benefit of
$790 in 1998 (1,470) -
------- -------
Net income (loss) $(1,345) $ 856
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
4
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Amounts in Thousands)
<TABLE>
1998 1997
--------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (1,345) $ 856
Adjustments to reconcile net income to net
cash provided by operating activities -
Extraordinary item 2,260 -
Depreciation and amortization 3,695 3,446
Deferred tax provision (benefit) (697) 486
Amortization of deferred financing costs 145 143
Deferred compensation 115 333
Change in assets and liabilities:
Receivables (596) 1,930
Inventories (293) (873)
Prepaid expenses (338) (421)
Accounts payable (3,698) (861)
Accrued expenses 2,383 2,404
Contribution to employees' benefit plans 5 119
Taxes payable 50 (125)
Other liabilities (848) -
Postretirement benefit obligation (7) (13)
--------- -------
Net cash provided by operating activities 831 7,424
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (2,284) (4,704)
Other noncurrent assets acquired (400) ( 590)
--------- -------
Net cash used by investing activities (2,684) (5,294)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility - 5,500
Payments on long-term debt (179) (3,750)
Proceeds from issuance of long-term debt, net 116,517 -
Retirements of long-term debt (112,738) -
Premium payments to repurchase debt (945) -
--------- -------
Net cash provided by financing activities 2,655 1,750
--------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 802 3,880
CASH AND CASH EQUIVALENTS, beginning of period 475 636
--------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,277 $ 4,516
--------- -------
--------- -------
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
5
<PAGE>
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 March 31, 1998 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, 1997. The results of operations for the period ended March 31,
1998 are not necessarily indicative of results to be expected for the entire
year ending December 31, 1998.
(2) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
Mar. 31, Dec. 31,
1998 1997
------- -------
<S> <C> <C>
Raw materials $ 3,700 $3,597
Finished goods 4,553 4,852
Repair parts and supplies 1,944 1,455
------- -------
$10,197 $9,904
------- -------
------- -------
</TABLE>
(3) INCOME TAXES
The Company's (benefit) provision for income taxes for the periods ended
March 31, 1998 and 1997, is as follows (in thousands):
<TABLE>
1998 1997
----- ----
<S> <C> <C>
Current $ 50 $ 51
Deferred (697) 486
----- ----
$(647) $537
----- ----
----- ----
</TABLE>
6
<PAGE>
(4) DEBT
On March 11, 1998, the Company entered into a new credit agreement (the
"1998 Bank Credit Agreement") with a group of banks. The 1998 Bank Credit
Agreement provides the Company a revolving credit facility (the "1998
Revolver") under which the Company may borrow up to $230 million. As required
by the 1998 Bank Credit Agreement, the proceeds of the 1998 Revolver shall be
used to refinance existing indebtedness or as allowed under the new credit
agreement.
Interest rates and commitment fees on the 1998 Revolver are subject to
change within a range, depending on the ratio of total debt to earnings, as
defined, at the end of each calendar quarter. The 1998 Revolver shall bear
interest at a rate equal to either LIBOR plus 0.375% to 1.0% or the Alternate
Base Rate, as defined. Interest payments are payable quarterly or as defined on
the 1998 Revolver. The Company must pay a commitment fee of 0.18% to 0.275% of
the average daily unused committed amount of the 1998 Revolver. Additionally,
the Company paid an underwriting fee equal to 0.5% of the entire amount of the
1998 Bank Credit Agreement at closing. This fee was approximately $1.15 million
and will be amortized over the life of the 1998 Bank Credit Agreement.
Under the 1998 Bank Credit Agreement, the group of banks received a first
priority perfected security interest in all of the existing and future capital
stock of Coca-Cola Bottling Company of the Southwest and its subsidiaries.
Upon the fourth consecutive fiscal quarterly determination of total debt to
earnings, as defined, of not greater than 4.5 to 1, the Company may elect to
terminate the security interest in the stock.
The 1998 Bank Credit Agreement is subject to certain restrictive covenants
that among other restrictions require maintenance of minimum ratios of debt to
earnings, as defined, maintenance of earnings to fixed charges, as defined, and
limitations of capital expenditures. The 1998 Bank Credit Agreement permits the
payment of dividends and other distributions to shareholders so long as no
default exists.
In March 1998, the Company used proceeds from the 1998 Bank Credit
Agreement to repay amounts outstanding related to its existing credit facility
with a group of banks and other debt, as well as purchases of its 9% Senior
Subordinated Notes (the "9% Notes") on the open market. This resulted in an
after-tax loss that was recorded as an extraordinary item in the financial
results for the period ended March 31, 1998. The extraordinary charge included
all remaining unamortized costs including the cost of an interest rate cap
purchased in 1995 (approximately $1.1 million) associated with the existing
credit facility and premiums paid in connection with the open market purchase
of $21 million in face value of the 9% Notes, (approximately $.9 million) have
been recorded net of income tax benefit as an extraordinary loss in 1998.
(5) COMMITMENTS AND CONTINGENCIES
The Company paid $175,000 for the periods ended March 31, 1998 and 1997 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 $2,905,000 and $3,003,000 and purchases of
7
<PAGE>
approximately $2,890,000 and $2,166,000 with a subsidiary of CCBG for the
periods ended March 31, 1998 and 1997 respectively.
An officer of the Company serves on the Board of Directors of Western
Container Corporation, a plastic bottle manufacturing cooperative. The Company
had purchases of $2,717,000 and $2,774,000 from Western Container for the
periods ended March 31, 1998 and 1997.
(6) SUBSEQUENT EVENT:
On April 3, 1998 the Company, CCBG Corporation (parent of The Coca-Cola
Bottling Group (Southwest), Inc.), and The Prudential Insurance Company of
America entered into a letter of intent with Coca-Cola Enterprises Inc. whereby
the Company would be acquired through a merger. The acquisition is pending
execution of a definitive agreement and review of the premerger notification and
reports filed with the Federal Trade Commission.
8
<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 are not generally
included in discussions concerning unit sales volume as post-mix sales are
essentially sales of syrup and not of packaged products. All references to net
revenues and gross profit include volumes for post-mix.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET REVENUES. Net revenues for 1998 increased 8.0% or $3.9 million to
$52.7 million compared to $48.8 million for 1997. This increase in net revenues
was due primarily to increases in sales volume offset by a decrease in net
selling price per equivalent case. Equivalent case sales increased 10.5% in
1998 compared to 1997. Net revenues from post-mix as a percentage of total net
revenues increased to 8.5% for 1998 as compared to 8.1% for 1997. Net revenues
from the Company's Snappy Snack Division accounted for 6.1% of total net
revenues in 1998.
GROSS PROFIT. Gross profit for 1998 increased 1.7% or $0.4 million to
$23.9 million compared to $23.5 million for the same period in 1997. This
increase in gross profit was due to sales volume increases partially offset by
higher sweetener costs. Gross profit as a percentage of net revenues decreased
to 45.4% in 1998 compared to 48.1% in 1997, as a result of the higher costs and
the decrease in net selling price noted above.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses for 1998 increased 7.7% to $15.3 million from $14.2 million for the
same period in 1997, resulting from higher labor costs associated with
increased hiring for certain key sales positions.
OPERATING INCOME. As a result of the above, operating income for 1998
decreased $1.0 million. Operating income was 9.3% of net revenue for 1998
compared to 12.1% of net revenue for the same period in 1997.
INTEREST EXPENSE. Net interest expense was $4.6 million in 1998 compared
to $4.5 million in 1997.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, cash provided by operating
activities was $0.8 million which was generated primarily by operating income.
Investing activities used $2.7 million primarily for additions to property,
plant, and equipment, while financing activities generated $2.7 million which
reflects the net of borrowings after refinancing the Company's senior bank debt.
On March 11, 1998, the Company entered into a new credit agreement (the
"1998 Bank Credit Agreement"). The 1998 Bank Credit Agreement provides the
Company with credit facilities with a group of banks under which the Company may
borrow up to $230 million.
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 warmer months. The first quarter operating
performance is usually lower than the other three quarters due to the winter
weather, primarily in the months of January and February.
The Company used proceeds from the 1998 Bank Credit Agreement to purchase
$21 million in face value of the Company's 9% Senior Subordinated Notes in the
open market.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 3, 1998, the Company, CCBG Corporation (parent of The Coca-Cola
Bottling Group (Southwest), Inc.), and The Prudential Insurance Company of
America entered into a letter of intent to merge CCBG Corpration and the Company
with Coca-Cola Enterprises Inc. The letter of intent also contemplates the
acquisition of shares of the Company not owned by The Coca-Cola Bottling Group
(Southwest), Inc. The acquisition is pending execution of a definitive agreement
and review of the premerger notification and reports filed with the Federal
Trade Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31,
1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Texas Bottling Group, Inc.
(Registrant)
Date May 12, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,277
<SECURITIES> 0
<RECEIVABLES> 24,761
<ALLOWANCES> (453)
<INVENTORY> 10,197
<CURRENT-ASSETS> 43,613
<PP&E> 102,785
<DEPRECIATION> (59,376)
<TOTAL-ASSETS> 249,803
<CURRENT-LIABILITIES> 22,030
<BONDS> 227,903
0
0
<COMMON> 1,541
<OTHER-SE> (1,671)
<TOTAL-LIABILITY-AND-EQUITY> 249,803
<SALES> 52,662
<TOTAL-REVENUES> 52,662
<CGS> 28,746
<TOTAL-COSTS> 15,320
<OTHER-EXPENSES> 3,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,633)
<INCOME-PRETAX> 268
<INCOME-TAX> (143)
<INCOME-CONTINUING> 125
<DISCONTINUED> 0
<EXTRAORDINARY> (1,470)
<CHANGES> 0
<NET-INCOME> (1,345)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
