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 ---------------------- 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 November 3, 1997 was $0.00. As of November 3 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--SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (Amounts in Thousands Except Share Data) September 30, December 31, 1997 1996 ------------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 5,023 $ 3,182 Receivables- Trade accounts, net of allowances for doubtful accounts of $548 as of September 30, 1997 and $540 as of December 31, 1996 16,465 17,782 Other 10,729 6,818 -------- -------- 27,194 24,600 Inventories 11,017 9,843 Prepaid expenses and other 3,285 2,400 Deferred tax asset 6,428 5,848 -------- -------- Total current assets 52,947 45,873 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 5,655 5,796 Buildings and improvements 28,316 28,257 Vending machines, machinery and equipment 77,810 69,444 Furniture and fixtures 3,594 3,859 Transportation equipment 18,960 17,745 -------- -------- 134,335 125,101 Less-Accumulated depreciation and amortization (83,669) (79,424) -------- -------- Property, plant and equipment, net 50,666 45,677 OTHER ASSETS: Franchise rights, net of accumulated amortization of $40,439 as of September 30, 1997 and $37,744 as of December 31, 1996 103,215 105,910 Goodwill, net of accumulated amortization of $2,181 as of September 30, 1997 and $1,874 as of December 31, 1996 13,250 13,558 -------- -------- 116,465 119,468 Deferred financing costs, and other assets, net of accumulated amortization of $14,423 as of September 30, 1997 and $13,852 as of December 31, 1996 13,787 16,301 Net deferred tax asset 1,368 3,725 -------- -------- Total other assets 131,620 139,494 -------- -------- Total assets $235,233 $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--SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (Amounts in Thousands Except Share Data) September 30, December 31, 1997 1996 ------------- ------------ CURRENT LIABILITIES: Accounts payable $ 21,802 $ 21,289 Accrued payroll 2,239 2,692 Accrued interest 4,836 1,629 Other accrued liabilities 2,042 1,392 Current maturities of long-term debt 14,083 12,816 -------- -------- Total current liabilities 45,002 39,818 -------- -------- LONG-TERM DEBT, net of current maturities 240,957 238,027 OTHER LIABILITIES 11,413 13,326 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S DEFICIT: 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 (88,372) (86,360) -------- -------- Total stockholder's deficit (62,139) (60,127) -------- -------- Total liabilities and stockholder's deficit $235,233 $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 OPERATIONS FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 (Amounts in Thousands) Three Months Ended Nine Months Ended ------------------ ------------------ 1997 1996 1997 1996 ------- ------- -------- -------- NET REVENUES $64,387 $63,474 $187,987 $187,433 ------- ------- -------- -------- COSTS AND EXPENSES: Cost of goods sold (exclusive of depreciation shown below) 34,767 33,548 97,485 98,616 Selling, general and administrative 19,915 18,073 57,748 53,748 Depreciation and amortization 3,964 3,519 11,298 10,159 ------- ------- -------- -------- 58,646 55,140 166,531 162,523 ------- ------- -------- -------- Operating income 5,741 8,334 21,456 24,910 INTEREST: Interest on debt (5,163) (5,299) (15,307) (15,795) Deferred financing cost (146) (146) (438) (447) Interest income 33 43 123 130 ------- ------- -------- -------- (5,276) (5,402) (15,622) (16,112) Equity in earnings of unconsolidated subsidiary 799 2,508 2,631 6,090 ------- ------- -------- -------- Income before income taxes 1,264 5,440 8,465 14,888 Provision for income taxes (125) (690) (1,977) (1,600) ------- ------- -------- -------- Net income 1,139 4,750 6,488 13,288 ------- ------- -------- -------- ------- ------- -------- -------- 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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 (Amounts in Thousands) 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,488 $ 13,288 Ajustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 11,298 10,159 Deferred tax provision 1,777 950 Amortization of deferred financing costs 438 447 Deferred compensation 1,193 1,185 Earnings of unconsolidated subsidiary (2,631) (6,090) Change in assets and liabilities: Receivables (2,594) (2,362) Inventories (1,174) (1,367) Prepaid expenses and other (885) (1,378) Payables 1,659 7,383 Accrued expenses (848) 358 -------- -------- Net cash provided by operating activities 14,721 22,573 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment, net (12,519) (10,522) Other noncurrent assets acquired (688) (2,942) Dividends received 4,630 4,137 -------- -------- Net cash used in investing activities (8,577) (9,327) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving credit facility 6,950 3,300 Issuance of long-term debt 7,064 - Payments on long-term debt (9,817) (6,983) Dividends paid (8,500) (6,350) -------- -------- Net cash used by financing activities (4,303) (10,033) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,841 3,213 CASH AND CASH EQUIVALENTS, beginning of period 3,182 3,053 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 5,023 $ 6,266 -------- -------- -------- -------- 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 SEPTEMBER 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 September 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 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 --------- -------- Raw materials $ 2,805 $ 1,991 Repair parts and supplies 143 513 Finished goods 8,069 7,339 -------- ------- $ 11,017 $ 9,843 -------- ------- -------- ------- 6 (3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY: Summarized financial information for Texas Bottling Group, Inc. ("TBG") as of September 30, 1997 and December 31, 1996, is as follows (in thousands): Sept. 30 Dec. 31 1997 1996 --------- --------- Current assets $ 50,174 $ 45,735 Noncurrent assets 209,181 210,388 Current liabilities 39,700 39,433 Long-term debt 207,465 203,000 Other liabilities 6,369 3,864 Postretirement benefit obligation 6,124 6,157 Stockholders' equity (deficit) (303) 3,669 FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996: 1997 1996 --------- --------- Net revenues $ 163,762 $ 169,263 Cost of goods sold 87,540 90,763 Net income before income taxes 8,440 15,065 Net income 5,428 12,365 The Company's equity in 1997 net income resulted in the Company recording income from TBG of $2.6 million. (4) 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 ------- ------- Current $ 200 $ 650 Deferred 1,777 950 ------- ------- $ 1,977 $ 1,600 ------- ------- 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 September 30, 1997. The Company had purchases of $4,764,000 and $2,020,000 for the periods ended September 30, 1997 and 1996 from this cooperative. The Company's transactions with TBG included purchases of approximately $10,166,000 and $11,796,000 and sales of approximately $10,462,000 and $9,730,000 for the periods ended September 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 $4,698,000 and $6,847,000 for the periods ended September 30, 1997 and 1996. On August 1, 1997, the Company received a dividend from TBG in the amount of $4,629,876 million and paid a dividend to the Company's shareholder in the amount of $8,500,000 million. 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 SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 NET REVENUES. Net revenues for the Company increased by 1.4% or approximately $0.9 million to $64.4 million in 1997. Soft drink net revenues decreased 0.1% primarily as a result of a $0.8 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 5.9% in 1997 however, the net effective selling price per equivalent case decreased 5.5% in 1997 versus 1996. Net revenues for post-mix as a percentage of total net revenues increased to 14.0% in 1997, as compared to 13.0% in 1996. Net revenues for Automated & Custom Food Services, Inc. increased in 1997 by approximately 7.4% over 1996. GROSS PROFIT. Gross profit decreased by 1.0% from $29.9 million to $29.6 million, as reductions in raw material costs for PET bottles and sweetener somewhat offset the lower net effective selling price noted above. Gross profit as a percentage of net revenues decreased to 46.0% in 1997 as compared to 47.1% in 1996 due to the lower net effective selling price and the increased revenues in lower margin items such as post-mix and food service. SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative expenses increased 10.2% or approximately $1.8 million in 1997. Selling, general and administrative expenses as a percentage of net revenues increased to 30.9% in 1997 from 28.5% in 1996. Higher labor costs associated with increased hiring for certain key sales positions as well as a significant increase in marketing expenditures for items such as display racks, barrels and point-of-sale materials accounted for most of the increase. OPERATING INCOME. As a result of the above, together with a $0.4 million increase in depreciation and amortization, operating income for the period ended September 30, 1997 decreased to $5.7 million, or 8.9% of net revenue, compared to $8.3 million or 13.1% of net revenue for the same period in 1996. 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 $0.8 million. TBG recorded net income of approximately $1.6 million in 1997 compared to net income of approximately $5.1 million in 1996. TBG's operating income was 34.9% lower in 1997 compared to 1996. 9 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 NET REVENUES. Net Revenues for the Company increased by 0.3% or approximately $0.6 million to $188.0 million in 1997. Soft drink net revenues decreased 1.8% primarily as a result of a $3.8 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 2.4% in 1997 however, the net effective selling price per equivalent case decreased 2.1% in 1997 versus 1996. Net revenues for post-mix as a percentage of total net revenues increased to 12.9% in 1997, as compared to 12.3% in 1996. Net revenues for Automated & Custom Food Services, Inc. increased in 1997 by approximately 5.6% over 1996. GROSS PROFIT. Gross Profit increased by 1.9% from $88.8 million to $90.5 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 48.1% in 1997 as compared to 47.4% in 1996. SELLING, GENERAL & ADMINISTRATIVE. Selling, general and administrative expenses increased 7.4% or approximately $4.0 million in 1997. Selling, general and administrative expense as a percentage of net revenues increased to 30.7% in 1997 from 28.7% 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 $1.1 million increase in depreciation and amortization, operating income for the period ended September 30, 1997 decreased to $21.5 million, or 11.4% of net revenue, compared to $24.9 million or 13.3% of net revenue for the same period in 1996. INTEREST EXPENSE. Net interest expense decreased by approximately $0.5 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 $2.6 million. TBG recorded net income of approximately $5.4 million in 1997 compared to net income of approximately $12.4 million in 1996. TBG's operating income was 23.6% lower in 1997 compared to 1996. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1997, cash provided by operating activities was $14.7 million, generated primarily by net income plus depreciation and amortization. Investing activities used $1.5 million primarily for additions to property, plant and equipment, net of dividend received from TBG of $4.6 million while financing activities used $11.4 million primarily from payments on long-term debt net of borrowings under the revolving credit facility as well as a dividend of $8.5 million to the Company's shareholder. Of total additions to property, plant and equipment of $12.5 million, $7.1 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. 10 At September 30, 1997, the Company recognized provision for income taxes of $2.0 million of which $1.8 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. 11 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 30, 1997, the sole shareholder of the Registrant, by written consent in lieu of the annual meeting, elected Edmund M. Hoffman and Robert K. Hoffman to serve as Directors of the Registrant. On May 30, 1997, the holders of the Class A Common Stock of CCBG Corporation elected Edmund M. Hoffman, Robert K. Hoffman, Robert W. Decherd and Richard Ware II to serve as Directors of CCBG Corporation, the sole shareholder of the Registrant. This information amends and corrects Item 4 in the Quarterly Report on Form 10-Q filed by the Registrant for the quarter ended June 30, 1997. 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. 12 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 November 12, 1997 By: /s/ Charles F. Stephenson ------------------- ---------------------------------- Charles F. Stephenson President and Chief Financial Officer (duly authorized officer and Principal Financial Officer) 13