SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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
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Commission file number 33-69274
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THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC.
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(Exact name of registrant as specified in its charter)
NEVADA 75-2158578
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organizatio) 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 August 1, 1997 was $0.00.
As of August 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--JUNE 30, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands, Except Share Data)
June 30, December 31,
1997 1996
-------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,308 $ 3,182
Receivables-
Trade accounts, net of allowance
for doubtful accounts of $537 as of
June 30, 1997 and $540 as of December 31, 1996 20,689 17,782
Other 11,602 6,818
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32,291 24,600
Inventories 11,170 9,843
Prepaid expenses and other 2,301 2,400
Deferred tax asset 6,204 5,848
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Total current assets 55,274 45,873
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 5,780 5,796
Buildings and improvements 27,680 28,257
Vending machines, machinery and equipment 74,265 69,444
Furniture and fixtures 3,404 3,859
Transportation equipment 18,550 17,745
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129,679 125,101
Less-Accumulated depreciation and amortization (81,137) (79,424)
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Property, plant and equipment, net 48,542 45,677
OTHER ASSETS:
Franchise rights, net of accumulated
amortization of $39,526 as of June 30,
1997 and $37,744 as of December 31, 1996 103,830 105,910
Goodwill, net of accumulated amortization of $2,079
as of June 30, 1997 and $1,874 as of
December 31, 1996 13,637 13,558
--------- ---------
Franchise rights and goodwill 117,467 119,468
Deferred financing costs, and other assets,
net of accumulated amortization of $5,260
as of June 30, 1997 and $13,834 as of
December 31, 1996 17,701 16,301
Deferred tax asset 1,717 3,725
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Total other assets 136,885 139,494
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Total assets $ 240,701 $ 231,044
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--------- ---------
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--JUNE 30, 1997 AND DECEMBER 31, 1996
(Amounts in Thousands, Except Share Data)
June 30, December 31,
1997 1996
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CURRENT LIABILITIES:
Accounts payable $ 22,532 $ 21,289
Accrued payroll 1,984 2,692
Accrued interest 1,640 1,629
Other accrued liabilities 1,678 1,392
Current maturities of long-term debt 13,672 12,816
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Total current liabilities 41,506 39,818
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LONG-TERM DEBT, net of current maturities 241,597 238,027
OTHER LIABILITIES 12,376 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 (81,011) (86,360)
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Total stockholder's equity (54,778) (60,127)
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Total liabilities and stockholder's equity $240,701 $231,044
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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 JUNE 30, 1997 AND 1996
(Amounts in Thousands)
Three Months Ended Six Months Ended
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1997 1996 1997 1996
------- ------- -------- --------
NET REVENUES $64,931 $67,164 $123,600 $123,959
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 33,837 35,800 62,718 65,068
Selling, general and administrative 17,828 17,802 37,833 35,675
Depreciation and amortization 3,854 3,365 7,334 6,640
------- ------- -------- --------
55,519 56,967 107,885 107,383
------- ------- -------- --------
Operating income 9,412 10,197 15,715 16,576
INTEREST:
Interest on debt (5,116) (5,261) (10,144) (10,496)
Deferred financing cost (146) (146) (292) (301)
Interest income 39 37 90 87
------- ------- -------- --------
(5,223) (5,370) (10,346) (10,710)
Equity in earnings of unconsolidated
subsidiary 1,453 2,616 1,832 3,582
------- ------- -------- --------
Income before income taxes 5,642 7,443 7,201 9,448
Provision for income taxes (1,184) (630) (1,852) (910)
------- ------- -------- --------
Net Income 4,458 6,813 5,349 8,538
------- ------- -------- --------
------- ------- -------- --------
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 SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Amounts in Thousands)
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,349 $ 8,538
Ajustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 7,334 6,640
Deferred tax provision 1,652 660
Amortization of deferred financing costs 292 301
Deferred compensation (520) 790
Earnings of unconsolidated subsidiary (1,832) (3,582)
Change in assets and liabilities:
Receivables (7,691) (6,933)
Inventories (1,565) (3,082)
Prepaid expenses and other 99 (1,468)
Payables 1,243 5,545
Accrued expenses (411) (1,418)
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Net cash provided by operating activities 3,950 5,991
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (3,253) (8,990)
Other noncurrent assets acquired (123) (164)
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Net cash used in investing activities (3,376) (9,154)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving
credit facility 6,350 7,550
Payments on long-term debt (6,798) (4,074)
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Net cash provided (used) by financing activities (448) 3,476
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 126 313
CASH AND CASH EQUIVALENTS, beginning of period 3,182 3,053
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CASH AND CASH EQUIVALENTS, end of period $ 3,308 $ 3,366
------- -------
------- -------
The accompanying notes are an integral part of these consolidated statements.
5
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Amounts in Thousands)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCIAL ACTIVITIES: 1997 1996
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Purchase of certain vending machines, machinery and transportation
equipment through issuance of long-term debt $4,444 $ -
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The accompanying notes are an integral part of these consolidated statements.
6
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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 June 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):
June 30, Dec. 31,
1997 1996
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Raw materials $ 2,733 $ 1,991
Repair parts and supplies 194 513
Finished goods 8,243 7,339
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$ 11,170 $ 9,843
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7
(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
Summarized financial information for Texas Bottling Group, Inc.
("TBG") as of June 30, 1997 and December 31, 1996, is as follows (in
thousands):
June 30 Dec. 31
1997 1996
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Current assets $ 60,091 $ 45,735
Noncurrent assets 209,730 210,388
Current liabilities 46,522 39,433
Long-term debt 204,551 203,000
Other liabilities 5,124 3,864
Postretirement benefit obligation 6,150 6,157
Stockholders' equity 7,474 3,669
FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1997 AND 1996:
1997 1996
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Net revenues $105,400 $109,070
Cost of goods sold 55,855 58,224
Net income before income taxes 5,909 8,773
Net income 3,805 7,273
The Company's equity in 1997 net income resulted in the Company
recording income from TBG of $1,832,000.
(4) INCOME TAXES:
The Company's provision for income taxes for the six months ended
June 30, 1997 and 1996, is as follows (in thousands):
1997 1996
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Current $ 200 $ 250
Deferred 1,652 660
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$1,852 $ 910
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8
(5) COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company is a member of a soft drink canning cooperative and owns
approximately 4% (qualifying shares) at June 30, 1997. The Company had
purchases of $2,944,000 and $540,000 for the periods ended June 30, 1997
and 1996 from this cooperative.
The Company's transactions with TBG included purchases of
approximately $6,367,000 and $8,376,000 and sales of approximately
$6,658,000 and $5,814,000 for the periods ended June 30, 1997 and 1996.
The Company had purchases from Western Container Corporation, a
plastic bottle manufacturer of which the Company's subsidiaries are
shareholders, of $2,921,000 and $4,743,000 for the periods ended June 30,
1997 and 1996.
(6) SUBSEQUENT EVENT:
On August 1, 1997, the Company received a dividend from TBG in the
amount of $4.6 million and paid a dividend to the Company's shareholder in
the amount of $8.5 million.
9
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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
NET REVENUES. Net Revenues for the Company decreased by 3.3% or
approximately $2.2 million to $64.9 million in 1997. Soft drink net revenues
decreased 6.4% primarily as a result of a $1.6 million decrease in contract
bottling sales in 1997 versus 1996. The Company ceased all its contract
bottling operations for private label brands in late 1996. Equivalent case
sales decreased 0.8% in 1997 and the net effective selling price per equivalent
case decreased 2.8% in 1997 versus 1996. Net revenues for post-mix as a
percentage of total net revenues increased to 12.7% in 1997, as compared to
12.4% in 1996. Net revenues for Automated & Custom Food Services, Inc.
increased in 1997 by approximately 5.0% over 1996.
GROSS PROFIT. Gross Profit decreased by 0.9% from $31.4 million to $31.1
million, as reductions in raw material costs for PET bottles and sweetener
offset the lower net effective selling price noted above. The reduction in raw
material cost accounted for an improvement in gross profit as a percentage of
net revenues to 47.9% in 1997 as compared to 46.7% in 1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses were flat in 1997. Selling, general and administrative expense as a
percentage of net revenues increased to 27.5% in 1997 from 26.5% in 1996.
Higher labor costs associated with increased hiring for certain key sales
positions as well as increased marketing expenditures were offset by favorable
trends in group health plans and refunds relating to prior years workers'
compensation insurance premiums.
OPERATING INCOME. As a result of the above, together with a $0.5 million
increase in depreciation and amortization, operating income for the period ended
June 30, 1997 decreased to $9.4 million, or 14.5% of net revenue, compared to
$10.2 million or 15.2% of net revenue for the same period in 1996.
10
INTEREST EXPENSE. Net interest expense decreased by approximately $0.1
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 $1.8 million. TBG recorded net income
of approximately $2.8 million in 1997 compared to net income of approximately
$5.3 million in 1996. TBG's operating income was 17.8% lower in 1997 compared to
1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
NET REVENUES. Net Revenues for the Company decreased by 0.3% or
approximately $0.4 million to $123.6 million in 1997. Soft drink net revenues
decreased 2.6% primarily as a result of a $3.0 million decrease in contract
bottling sales in 1997 versus 1996. The Company ceased all its contract
bottling operations for private label brands in late 1996. Equivalent case
sales increased 0.6% in 1997 and the net effective selling price per equivalent
case decreased 0.3% in 1997 versus 1996. Net revenues for post-mix as a
percentage of total net revenues increased to 12.3% in 1997, as compared to
12.0% in 1996. Net revenues for Automated & Custom Food Services, Inc.
increased in 1997 by approximately 4.7% over 1996.
GROSS PROFIT. Gross Profit increased by 3.4% from $58.9 million to $60.9
million, primarily as a result of 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 49.3% in 1997 as
compared to 47.5% in 1996.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative
expenses increased 6.0% or approximately $2.2 million in 1997. Selling, general
and administrative expense as a percentage of net revenues increased to 30.6% in
1997 from 28.8% 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. These increases were offset by favorable trends in
group health plans and refunds relating to prior years workers' compensation
insurance premiums.
OPERATING INCOME. As a result of the above, together with a $0.7 million
increase in depreciation and amortization, operating income for the period ended
June 30, 1997 decreased to $15.7 million, or 12.7% of net revenue, compared to
$16.6 million or 13.4% of net revenue for the same period in 1996.
INTEREST EXPENSE. Net interest expense decreased by approximately $0.4
million in 1997 due primarily to lower debt levels as a result of scheduled
principal payments.
11
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARY. The Company recognized
equity in the income of TBG in 1997 of $1.8 million. TBG recorded net income
of approximately $3.8 million in 1997 compared to net income of approximately
$7.3 million in 1996. TBG's operating income was 16.7% lower in 1997 compared to
1996.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1997, cash provided by operating
activities was $4.0 million, generated primarily by net income plus depreciation
and amortization. Investing activities used $3.4 million primarily for
additions to property, plant and equipment while financing activities used $0.4
million primarily from payments on long-term debt net of borrowings under the
revolving credit facility. Of total additions to property, plant and equipment
of $7.7 million, $4.4 million were acquired through the issuance of long-term
debt.
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 June 30, 1997, the Company recognized provision for income
taxes of $1.9 million of which $1.7 million represents deferred taxes.
On August 1, 1997 the Company received a dividend from TBG in the amount of
$4.6 million and paid a dividend to the Company's sole shareholder in the amount
of $8.5 million.
12
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 30, 1997, the sole shareholder of the Class A Common Stock of the
Registrant, by written consent in lieu of the annual meeting, elected Edmund M.
Hoffman, Robert K. Hoffman, Robert W. Decherd and Richard Ware II to serve as
Directors of the Registrant.
ITEM 5. OTHER INFORMATION.
DIVIDEND PAYMENT. On August 1, 1997, the Registrant paid dividends in the
aggregate amount of $8.5 million to its shareholders of record on July 18, 1997.
CHANGE OF CONTROL. CCBG Corporation is the sole shareholder of the
Registrant. By an agreement dated August 11, 1997, the Limited Liability
Company Agreement of Hoffman Family Investments, L.L.C. (the "Family L.L.C.")
has been amended effective March 21, 1997 to add Robert K. Hoffman as a Manager
of the Family L.L.C. As a Manager of the Family L.L.C., Robert K. Hoffman has
sole voting power and investment power over 15,158 shares of Class A Common
Stock of CCBG Corporation held by CCBG Stock Management Limited Partnership (the
"Partnership") because the Family L.L.C. is the General Partner of the
Partnership. With the addition of the shares held by the Partnership, Robert K.
Hoffman is the beneficial owner of 71,200 shares of Class A Common Stock of CCBG
Corporation, which is 93.4% of the outstanding voting stock of CCBG Corporation
(73.8% of the voting stock after conversion of the outstanding Class B Common
Stock, including stock which may be issued pursuant to vested incentive stock
options).
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 The Coca-Cola Bottling Group (Southwest), Inc. Management Incentive
Plan approved by the Board of Directors of the Registrant June 4, 1997
effective January 1, 1997.
10.2 Amendment Agreement dated June 1, 1997 related to the Management
Incentive Agreement effective January 1, 1994, by and between the
Registrant and Charles F. Stephenson.
10.3 Management Incentive Agreement executed June 5, 1997, effective
January 1, 1997, by and between The Coca-Cola Bottling Group
(Southwest), Inc. and Charles F. Stephenson.
10.4 Southwest Coca-Cola Bottling Company, Inc. Amendment to Management
Incentive Plan adopted by the Board of Directors of Southwest Coca-Cola
Bottling Company, Inc. effective June 1, 1997.
10.5 Amendment Agreement dated June 1, 1997 related to the Management
Incentive Agreement effective January 1, 1994, entered by and among
Southwest Coca-Cola Bottling Company, Inc. and all managers who were
participants in the 1994 Management Incentive Plan.
10.6 Amendment Agreement dated June 1, 1997 related to the Management
Incentive Agreement effective January 1, 1994 by and between Coca-Cola
Bottling Company of the Southwest and E. T. Summers, III.
10.7 Amendment Agreement dated June 1, 1997 related to the Management
Incentive Agreement effective January 1, 1994 by and between the
Registrant and E. T. Summers, III.
10.8 Management Incentive Agreement executed June 30, 1997, effective
January 1, 1997, entered by and among the Registrant, Texas Bottling
Group, Inc., Coca-Cola Bottling Company of the Southwest and E.T.
Summers, III.
27 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed for the quarter ended June 30, 1997.
14
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 AUGUST 12, 1997 By: /s/ CHARLES F. STEPHENSON
--------------- -----------------------------------
Charles F. Stephenson
President and Chief Financial
Officer (duly authorized officer and
Principal Financial Officer)
15
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.1 The Coca-Cola Bottling Group (Southwest), Inc. Management
Incentive Plan approved by the Board of Directors of the Registrant
June 4, 1997 effective January 1, 1997.
10.2 Amendment Agreement dated June 1, 1997 related to the
Management Incentive Agreement effective January 1, 1994, by and
between the Registrant and Charles F. Stephenson.
10.3 Management Incentive Agreement executed June 5, 1997,
effective January 1, 1997, by and between The Coca-Cola Bottling
Group (Southwest), Inc. and Charles F. Stephenson.
10.4 Southwest Coca-Cola Bottling Company, Inc. Amendment to
Management Incentive Plan adopted by the Board of Directors of
Southwest Coca-Cola Bottling Company, Inc. effective June 1, 1997.
10.5 Amendment Agreement dated June 1, 1997 related to the
Management Incentive Agreement effective January 1, 1994, entered
by and among Southwest Coca-Cola Bottling Company, Inc. and all
managers who were participants in the 1994 Management Incentive
Plan.
10.6 Amendment Agreement dated June 1, 1997 related to the
Management Incentive Agreement effective January 1, 1994 by and
between Coca-Cola Bottling Company of the Southwest and E. T.
Summers, III.
10.7 Amendment Agreement dated June 1, 1997 related to the
Management Incentive Agreement effective January 1, 1994 by and
between the Registrant and E. T. Summers, III.
10.8 Management Incentive Agreement executed June 30, 1997,
effective January 1, 1997, entered by and among the Registrant,
Texas Bottling Group, Inc., Coca-Cola Bottling Company of the
Southwest and E.T. Summers, III.
27 Financial Data Schedule
16