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, 1997 ---------------------------------------------- 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 33-69274 -------- THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 75-1494591 ------ ---------- (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 April 1, 1997 was $0.00. As of April 1, 1997, 100,000 shares of the Company's Common Stock, par value $.10 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None PART I FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--MARCH 31, 1997 AND DECEMBER 31, 1996 (Amounts in Thousands, Except Share Data) March 31, December 31, 1997 1996 --------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 2,414 $ 3,182 Receivables- Trade accounts, net of allowance for doubtful accounts of $508 as of March 31, 1997 and $540 as of December 31, 1996 16,138 17,782 Other 10,777 6,818 --------- --------- 26,915 24,600 Inventories 11,140 9,843 Prepaid expenses and other 1,784 2,400 Deferred tax asset 5,905 5,848 --------- --------- Total current assets 48,158 45,873 --------- --------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 5,796 5,796 Buildings and improvements 30,280 28,257 Vending machines, machinery and equipment 72,652 69,444 Furniture and fixtures 3,587 3,859 Transportation equipment 18,018 17,745 --------- --------- 130,333 125,101 Less-Accumulated depreciation and amortization (80,846) (79,424) --------- --------- Property, plant and equipment, net 49,487 45,677 OTHER ASSETS: Franchise rights, net of accumulated amortization of $38,630 as of March 31, 1997 and $37,744 as of December 31, 1996 104,726 105,910 Goodwill, net of accumulated amortization of $1,977 as of March 31, 1997 and $1,874 as of December 31, 1996 13,742 13,558 --------- --------- Franchise rights and goodwill 118,468 119,468 Deferred financing costs, and other assets, net of accumulated amortization of $14,033 as of March 31, 1997 and $13,834 as of December 31, 1996 16,673 16,301 Deferred tax asset 3,300 3,725 --------- --------- Total other assets 138,441 139,494 --------- --------- Total assets $ 236,086 $ 231,044 --------- --------- --------- --------- The accompanying notes are an integral part of these consolidated balance sheets. 2 THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--MARCH 31, 1997 AND DECEMBER 31, 1996 (Amounts in Thousands, Except Share Data) CURRENT LIABILITIES: Accounts payable $19,049 $21,289 Accrued payroll 2,112 2,692 Accrued interest 4,785 1,629 Other accrued liabilities 2,934 1,392 Current maturities of long-term debt 13,008 12,816 -------- -------- Total current liabilities 41,888 39,818 -------- -------- LONG-TERM DEBT, net of current maturities 239,924 238,027 OTHER LIABILITIES 13,510 13,326 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, $.10 par value; 250,000 shares authorized: 100,000 shares issued and outstanding 10 10 Additional paid-in capital 26,223 26,223 Retained deficit (85,469) (86,360) -------- -------- Total stockholder's equity (59,236) (60,127) -------- -------- Total liabilities and stockholder's equity $236,086 $231,044 -------- -------- -------- -------- The accompanying notes are an integral part of these consolidated balance sheets. 3 THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996 (Amounts in Thousands) 1997 1996 ------- ------- NET REVENUES $58,669 $56,795 COSTS AND EXPENSES: Cost of goods sold (exclusive of depreciation shown below) 28,881 29,268 Selling, general and administrative 20,005 17,873 Depreciation and amortization 3,480 3,275 ------- ------- 52,366 50,416 ------- ------- Operating income 6,303 6,379 INTEREST: Interest on debt (5,028) (5,235) Deferred financing cost (146) (155) Interest income 51 50 ------- ------- (5,123) (5,340) Equity in earnings of unconsolidated subsidiary 379 966 ------- ------- Income before income taxes 1,559 2,005 Provision for income taxes (668) (280) ------- ------- Net income 891 1,725 ------- ------- ------- ------- The accompanying notes are an integral part of these consolidated statements. 4 THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 (Amounts in Thousands) 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 891 $ 1,725 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 3,480 3,275 Deferred tax provision 368 155 Amortization of deferred financing costs 146 155 Deferred compensation 398 394 Earnings of unconsolidated subsidiary (379) (966) Change in assets and liabilities: Receivables (2,315) (394) Inventories (1,359) (3,262) Prepaid expenses and other 616 (1,103) Payables (2,240) 2,895 Accrued expenses 4,118 2,244 ------- ------- Net cash provided by operating activities 3,724 5,118 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment, net (6,058) (3,971) Other noncurrent assets aquired (309) (65) ------- ------- Net cash used by investing activities (6,367) (4,036) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving credit facility 5,300 950 Payments on long-term debt (3,425) (2,384) ------- ------- Net cash provided (used) by financing activities 1,875 (1,434) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (768) (352) CASH AND CASH EQUIVALENTS, beginning of period 3,182 3,053 CASH AND CASH EQUIVALENTS, end of period $2,414 $2,701 ------- ------- ------- ------- The accompanying notes are an integral part of these consolidated statements. 5 THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (1) BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements of The Coca-Cola Bottling Group (Southwest) Inc., a Nevada corporation (the "Company") and its wholly owned subsidiaries 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 a fair presentation of financial position, results of operations, and changes in cash flows at March 31, 1997 and for all periods presented. These interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company included in Form 10-K for the fiscal year ended December 31, 1996. The results of operations for the period ended March 31, 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): Mar. 31, Dec. 31, 1997 1996 ------- ------ Raw materials $ 2,752 $1,991 Repair parts and supplies 125 513 Finished goods 8,263 7,339 ------- ------ $11,140 $9,843 ------- ------ ------- ------ 6 (3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY: Summarized financial information for Texas Bottling Group, Inc. ("TBG") as of March 31, 1997 and December 31, 1996, is as follows (in thousands): Mar. 31 Dec. 31 1997 1996 -------- -------- Current assets $ 49,959 $ 45,735 Noncurrent assets 211,739 210,388 Current liabilities 40,971 39,433 Long-term debt 204,750 203,000 Other liabilities 5,308 3,864 Postretirement benefit obligation 6,144 6,157 Stockholders' equity 4,525 3,669 FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996: 1997 1996 -------- -------- Net sales $ 48,847 $ 49,107 Cost of goods sold 25,327 26,150 Net income before income taxes 1,393 2,391 Net income 856 1,961 The Company's equity in 1997 net income resulted in the Company recording income from TBG of $379,000. (4) INCOME TAXES: The Company's provision for income taxes for the periods ended March 31, 1997 and 1996, is as follows (in thousands): 1997 1996 ---- ---- Current $300 $125 Deferred 368 155 ---- ---- $668 $280 ---- ---- 7 (5) COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES: The Company is a member of a soft drink canning cooperative and owns approximately 4% (qualifying shares) at March 31, 1997. The Company had purchases of $1,231,000 and $394,000 for the periods ended March 31, 1997 and 1996 from this cooperative. The Company's transactions with TBG included purchases of approximately $3,003,000 and $3,844,000 and sales of approximately $2,166,000 and $1,639,000 for the periods ended March 31, 1997 and 1996. The Company had purchases from Western Container Corporation, a plastic bottle manufacturer of which the Company's subsidiaries are shareholders, of $1,352,000 and $2,278,000 for the periods ended March 31, 1997 and 1996. 8 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 as capacity permits and does not represent licensed products for the franchised territory. However, all references to net revenues and gross profit include volumes for post-mix and contract sales. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 NET REVENUES. Net Revenues for the Company increased by 3.3% or approximately $1.9 million to $58.7 million in 1997. Soft drink net revenues increased 1.9% primarily as a result of a 2.3% increase in equivalent case sales in 1997 versus 1996. Net revenues for post-mix as a percentage of total net revenues increased to 11.9% in 1997, as compared to 11.4% in 1996. Net revenues for Automated & Custom Food Services, Inc. increased in 1997 by approximately 4.4% over 1996. GROSS PROFIT. Gross Profit increased by 8.2% from $27.5 million to $29.8 million, primarily as a result of the increase in revenues resulting from the increase in equivalent case sales noted above and reductions in raw material costs for PET bottles and sweetener. The reduction in raw material cost accounted for an improvement in gross profit as a percentage of net revenues to 50.8% in 1997 as compared to 48.5% in 1996. SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative expenses increased 11.9% or approximately $2.1 million in 1997. Selling, general and administrative expense as a percentage of net revenues increased to 34.1% in 1997 from 31.5% in 1996. A significant increase in expenditures for marketing related items such as display racks, barrels and point-of-sale materials accounted for the largest portion of the increase. These types of expenditures have historically been expensed as incurred although they may benefit sales results in future periods as well as the current period. Higher labor costs associated with increased hiring for certain key sales positions also contributed to the increase. OPERATING INCOME. As a result of the above, together with a $0.2 million increase in depreciation and amortization, operating income for the period ended March 31, 1997 decreased to $6.3 million, or 10.7% of net revenue, compared to $6.4 million or 11.2% of net revenue for the same period in 1996. 9 INTEREST EXPENSE. Net interest expense decreased by approximately $0.2 million in 1997 due primarily to lower debt levels as a result of scheduled principal payments. EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARY. The Company recognized equity in the income of TBG in 1997 of $0.4 million. TBG recorded net income of approximately $0.9 million in 1997 compared to net income of approximately $2.0 million in 1996. TBG's operating income was 26.9% lower in 1997 compared to 1996. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1997, cash provided by operating activities was $3.7 million, generated primarily by net income plus depreciation and amortization. Investing activities used $6.4 million primarily for additions to property, plant and equipment while financing activities provided $1.9 million primarily from borrowings under the revolving credit facility to support the increased additions to property, plant and equipment. 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 $60 million for four years. The Company has no interest rate exposure under the agreement other than the initial purchase cost of $0.6 million. The Company will continue to evaluate the realizability of its deferred tax asset in relation to future taxable income and adjust the valuation allowance accordingly. At March 31, 1997, the Company recognized provision for income taxes of $0.7 million of which $0.4 million represents deferred taxes. 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 of operating performance is usually lower than the other three quarters due to the winter weather, primarily in the months of January and February. 10 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K (1) A current report on Form 8-K was filed with the Securities and Exchange Commission on April 1, 1997 reporting changes in beneficial ownership of Class A Common Stock of CCBG Corporation, the parent of the Registrant resulting from transactions dated March 21, 1997. (2) A current report on Form 8-K was filed with the Securities and Exchange Commission on April 11, 1997 reporting a change in beneficial ownership of 3800 shares of the Class A Common Stock of CCBG Corporation, the parent of the Registrant, resulting from the change of co-trustees for a trust effective March 21, 1997. 11 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. The Coca-Cola Bottling Group (Southwest), Inc. (Registrant) Date April 25, 1997 By: /s/ Charles F. Stephenson ------------------------------------ Charles F. Stephenson President and Chief Financial Officer (duly authorized officer and Principal Financial Officer) 12