SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
------------------------------------------------------
(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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: 9% SENIOR SUBORDINATED NOTES
DUE 2003
(Title of class)
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
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 1, 1998 was $0.00.
As of March 1, 1998, 100,000 shares of the Company's Common Stock, par
value $.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
ITEM 1. BUSINESS
GENERAL
The Coca-Cola Bottling Group (Southwest), Inc. (the "Company"), which is
a wholly-owned subsidiary of CCBG Corporation, a privately-held Nevada
corporation ("Parent"), owns 100% of the capital stock of Southwest Coca-Cola
Bottling Company, Inc. ("Southwest Coke") and The Dani Group, Inc. ("Dani").
Southwest Coke owns all the outstanding capital stock of two Oklahoma
corporations, Woodward Coca-Cola Bottling Company and Alva Coca-Cola Bottling
Co., Inc. The Company also owns 100% of the voting Class A Common Stock,
representing 49% of the equity ownership, of Texas Bottling Group, Inc.
("TBG"), which in turn owns 100% of Coca-Cola Bottling Company of the
Southwest ("San Antonio Coke"). Substantially all of the remaining 51% equity
ownership of TBG, represented by non-voting Class B Common Stock, is owned by
The Prudential Insurance Company of America and its affiliate ("Prudential").
CORPORATE STRUCTURE
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CCBG Corporation
("Parent")
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|
|
|
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The Coco-Cola Bottling Group
(Southwest), Inc
("CCB GROUP")
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|
|
|
|
|
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| 49% Equity |
| 100% Voting |
| ------------------------------
| Texas Bottling Group, Inc.
| (the "Company")
| ------------------------------
|
|
|
|
- ---------------------------- ------------------------------
Southwest Coca-Cola Coca-Cola Bottling Company
Bottling Company, Inc. of
("Southwest Coke") the Southwest
("San Antonio Coke")
- ---------------------------- ------------------------------
_____________ Consolidated
............. Unconsolidated
Southwest Coke and its subsidiaries and San Antonio Coke are principally
engaged in bottling, canning and distributing carbonated soft drinks. Their
soft drink operations are conducted pursuant to franchise agreements with
companies owning the rights to various soft drink formulae and trademarks,
including principally The Coca-Cola Company (an unaffiliated company) and Dr
Pepper Company. These franchises grant to Southwest Coke and San
2
Antonio Coke the exclusive right to manufacture and distribute certain
trademarked soft drink products in specified territories. Territories
franchised to Southwest Coke by The Coca-Cola Company cover regions which had
an aggregate population of 2.3 million in the 1990 Census and encompass
substantial portions of North and West Texas, including the cities of
Amarillo, Lubbock, Abilene, Midland, Odessa and Wichita Falls, substantial
portions of western Oklahoma, the eastern half of New Mexico and adjacent
areas of Colorado and Kansas. The Dr Pepper franchises held by Southwest
Coke include substantially the same territories as the Coca-Cola franchises,
other than the Abilene, Midland-Odessa and Wichita Falls areas.
Both Southwest Coke and San Antonio Coke are franchisees for products of
a number of other companies in various parts of their respective territories.
Other products bottled and/or distributed include Canada Dry mixers, Evian
water, Hershey's, Squirt and Big Red. San Antonio Coke generally produces
and distributes the same brands of soft drinks as Southwest Coke. In May and
June of 1996, Southwest Coke added Sprite, Barq's Root Beer and Minute Maid
flavors in territories where it has previously distributed Seven-Up, A&W and
Welch's products.
Automated & Custom Food Services, Inc. ("ACFS"), an operating division
of the Company, in North and East Texas, and Southwest Coke and San Antonio
Coke in their respective franchise areas, also operate food service
businesses in which soft drinks and food products are sold through vending
machines, cafeterias and catering operations.
On June 25, 1994, Dani acquired the assets of a catering and hospitality
management business in the Dallas, Texas area. The Company plans to either
sell or cease operations at Dani in 1998. Accordingly, results of operations
and costs expected to be incurred in ceasing such operations have been
classified as loss from discontinued operations.
The Company is a Nevada corporation originally organized under Texas law
in 1972. Its executive offices are located at 1999 Bryan Street, Suite 3300,
Dallas, Texas, 75201, and its telephone number is (214) 969-1910.
INDUSTRY OVERVIEW
Carbonated soft drinks are the most consumed beverages in the United
States, ahead of tap and bottled water, coffee and beer. Industry retail
sales volume for 1996 is estimated to have been slightly under $54 billion,
which is believed to be approximately 28.8% of the beverage market based on
consumption. Per capita consumption of soft drinks is estimated to have been
52.5 gallons in 1996, as compared to 41.5 gallons in 1986, representing a
compound annual increase of 2.4% since 1986. The only other segment of the
beverage market in which per capita consumption has shown any significant
increase since 1986 is bottled water, although its share of the beverage
market is estimated to have been only 6.1% in 1996. The following table
shows the per capita consumption in gallons, market share and compound
growth rate for products in the U.S. beverage market since 1986, according to
information recently compiled and revised by an industry trade magazine:
3
Compounded
Rate Change
1986 1996 1986 - 1996
---------------- ----------------- ------------
Gal. per % of Gal. per % of Gal. per
Capita Mkt. Capita Mkt. Capita
-------- ----- -------- ----- --------
Carbonated Soft Drinks 41.5 22.7% 52.5 28.8% 2.4%
Beer 24.2 13.3 22.1 12.1 (0.9)
Coffee 27.1 14.9 20.4 11.2 (2.8)
Milk 19.9 10.9 18.6 10.2 (0.7)
Juices & Powders 13.5 7.4 13.6 7.5 0.1
Tea 7.3 4.0 7.0 3.8 (0.4)
Bottled Water 5.0 2.7 11.1 6.1 8.2
Wine and Distilled Spirits 4.1 2.2 3.0 1.6 (3.1)
All other (including tap 39.9 21.9 34.2 18.7 (1.5)
water)
----- ----- ----- -----
Total 182.5 100.0% 182.5 100.0%
----- ----- ----- -----
----- ----- ----- -----
Factors that appear to be significant contributors to increased
consumption of soft drinks are (i) increased health consciousness coupled
with improvements in the taste of diet soft drinks and the introduction of
caffeine free and low sodium soft drink products; (ii) societal and
governmental pressures to reduce consumption of alcoholic beverages; (iii)
peaking consumption by the baby boom age group; and (iv) heavy promotional
and advertising activity by the soft drink industry to broaden the appeal and
consumer acceptance of soft drinks. As a result, consumers have tended to
maintain or increase their soft drink consumption as they age, and each age
group in the United States population is consuming greater amounts of soft
drinks per capita than its corresponding age group at any time in the past.
During 1996, products of The Coca-Cola Company accounted for 43.1% of
national soft drink sales in the United States, followed by products of
PepsiCo, Inc. with 31.0% of sales. Dr Pepper Company branded products
accounted for 7.5% of national soft drink sales in 1996. Of national sales
of diet soft drinks in 1996, products of The Coca-Cola Company accounted for
49.2%, products of PepsiCo, Inc. accounted for 32.2% and Dr Pepper Company
brands accounted for 4.2%. Supermarkets and other retail "home market"
accounts, including grocery stores, convenience stores, mass-merchandisers,
drug stores, liquor stores and other similar retail outlets, remain the
predominant distribution channels, followed by on-premise consumption
(fountain) volume and "single drink" sales, primarily through vending
machines.
SOFT DRINK PRODUCTS
Carbonated soft drink products of The Coca-Cola Company produced and
distributed by Southwest Coke include Coca-Cola Classic, diet Coke, Cherry
Coke, diet Cherry Coke, TAB, Sprite, diet Sprite, Mr. PiBB, Minute Maid
orange soda, Fresca, Barq's, Surge, Citra and other brands. Non-carbonated
products of The Coca-Cola Company distributed by Southwest Coke include
PowerAde, Nestea, Fruitopia and Minute Maid Juices to Go. Southwest Coke
also produces and distributes products of Dr Pepper Company in most of its
territories other than in and around Abilene, Midland-Odessa and Wichita
Falls, Texas. Various other products, including Canada Dry mixers, Squirt,
Big Red and Evian water, are produced and/or distributed in various parts of
Southwest Coke's territories under franchise agreements with the companies
that own the trademarks and supply the concentrates or finished products for
those beverages. San Antonio Coke generally produces and distributes the
same brands of soft drinks as Southwest Coke. San Antonio Coke also produces
and distributes its own proprietary label products.
4
The following table sets forth Southwest Coke's and San Antonio Coke's
total equivalent case sales of The Coca-Cola Company and Dr Pepper Company
products as a percentage of each company's total soft drink equivalent case
sales:
SOUTHWEST COKE SAN ANTONIO COKE
-------------- ----------------
The The
Coca-Cola Coca-Cola
Year Company Dr Pepper Company Dr Pepper
---- --------- --------- --------- ---------
1995 69% 20% 73% 19%
1996 75% 21% 75% 19%
1997 76% 22% 77% 21%
SOFT DRINK FRANCHISES
Southwest Coke and San Antonio Coke hold franchise and marketing
agreements from The Coca-Cola Company to produce and distribute its soft
drinks in bottles, cans and 4.75-gallon pressurized pre-mix containers, and
to engage in certain other marketing activities. Under the terms of the
franchise agreements, Southwest Coke and San Antonio Coke have the exclusive
right to produce and distribute certain products of The Coca-Cola Company in
their prescribed geographic areas, except for fountain syrup, for which the
rights are non-exclusive. In addition, the franchise agreements specify
minimum levels of marketing expenditures by The Coca-Cola Company in support
of the bottler based upon the volume sold by that bottler. Marketing
expenditures by The Coca-Cola Company in support of the activities of
Southwest Coke and San Antonio Coke have routinely exceeded the minimum
levels. None of the Company, Southwest Coke, TBG or San Antonio Coke, and
none of their affiliates, has any legal relationship with The Coca-Cola
Company or any other franchisor other than pursuant to their respective
franchise and marketing agreements. The Company believes that Southwest
Coke, its subsidiaries and San Antonio Coke are currently in compliance with
all of the terms of their franchise agreements.
The Coca-Cola Company is the sole owner of the secret formulae under
which the primary component (concentrate or syrup) of various cola products
bearing the trademark "Coca-Cola" are manufactured. Each concentrate, when
mixed with water and sweetener, produces syrup, which, when mixed with
carbonated water, produces one of the soft drinks bearing the trademark
"Coca-Cola" or "Coke." In most instances, Southwest Coke and San Antonio
Coke currently produce their own syrup by mixing concentrate purchased from
The Coca-Cola Company with sweeteners purchased from outside sources. Except
to the extent reflected in the price of concentrate or syrup, no royalty or
other compensation is paid under the franchise agreements to The Coca-Cola
Company for the right of Southwest Coke and San Antonio Coke to use the trade
names and trademarks "Coca-Cola" and "Coke" in their territories and the
associated patents, copyrights, designs and labels, all of which are owned by
The Coca-Cola Company.
Under the terms of their franchise agreements with The Coca-Cola Company
(the "Coca-Cola Bottler's Contract"), Southwest Coke and San Antonio Coke are
required to purchase either concentrate or syrup manufactured only by The
Coca-Cola Company for Coca-Cola trademarked cola products. The concentrate
or syrup is sold to Southwest Coke and San Antonio Coke at a base price
established in 1978 and adjusted from time to time to reflect changes in the
Consumer Price Index and, in the case of diet brands, changes in the price of
sweeteners. The Coca-Cola Bottler's Contract will remain in effect for an
unlimited period of time, subject to termination upon due notice by The
Coca-Cola Company that there has been a violation of any of the prescribed
terms thereof and subject to automatic termination if Southwest Coke or San
Antonio Coke is placed in receivership or becomes bankrupt. Franchise
agreements for other products of The Coca-Cola Company are issued either for
ten-year periods renewable on the same terms at the option of Southwest Coke
and San Antonio Coke or in perpetuity subject to certain requirements.
The franchise agreements relating to soft drink products from Dr Pepper
Company and other significant soft drink franchisors are granted in
perpetuity and are otherwise similar to the Coca-Cola Bottler's Contract,
5
except that they contain change of control provisions triggered by the sale
of the stock of the franchisee, certain marketing-related performance
requirements and provisions permitting the franchisor to unilaterally set
from time to time the price of concentrate and syrup. Except for territories
not covered by Dr Pepper franchise agreements, the territories covered by the
franchise agreements for products of other franchisors generally correspond
with the territories covered by the Coca-Cola Bottler's Contract.
The franchise agreements with The Coca-Cola Company permit limited
production of cola products other than those of The Coca-Cola Company, either
as a contract packer or for the bottler's distribution if such products are
not more than 33% of a flavor line that does not exceed 10% of the bottler's
soft drink sales. There are no competitive product restrictions in franchise
agreements for non-cola products of The Coca-Cola Company, such as Sprite,
Mr. PiBB and Fresca, but The Coca-Cola Company prohibits distribution of
products that compete with PowerAde, Nestea, Fruitopia and Minute Maid Juices
To Go, which are distributed under temporary agreements. The franchise
agreements with Dr Pepper Company and most other soft drink franchisors
prohibit the manufacture or sale of similar flavor products that are
competitive with the licensed products.
SOFT DRINK MARKETING
During 1997, approximately 83% of Southwest Coke's and 86% of San
Antonio Coke's total equivalent case sales of soft drink products were sold
to the "home market" through supermarkets, grocery stores, convenience
stores, mass-merchandisers, drug stores, liquor stores and other similar
retail outlets. The remaining soft drink equivalent case sales were made to
the "single drink" market, which consists primarily of sales for immediate
consumption through various types of vending machines owned by Southwest
Coke, San Antonio Coke, retail outlets or third-party vending companies.
Southwest Coke and San Antonio Coke maintain approximately 254 and 261
routes, respectively, for which the route drivers are primarily responsible
for marketing, servicing and delivering products to retail and vending
machine accounts. Advance sales also are made by sales persons who both call
on and make telephone solicitations to accounts, which are then serviced and
delivered by route drivers and merchandisers.
Southwest Coke and San Antonio Coke sell soft drink products in a
variety of returnable glass and non-returnable glass and plastic bottles and
in cans in proportions varying from territory to territory. Within a single
geographic territory, there may be as many as 13 different packages for
Coca-Cola products, in addition to pre-mix containers and post-mix syrup
packages.
Southwest Coke and San Antonio Coke have used competitive techniques,
such as new product introductions, packaging changes and sales promotions, to
compete effectively, while managing discounts and allowances for their
products to maximize net revenues. Some of the more significant strategies
employed in managing discounts and allowances have been the introduction of
new packaging, the adoption of innovative marketing programs and, in some
instances, the development of a proprietary brand to pursue a particular
market niche.
Both Southwest Coke and San Antonio Coke spend substantial amounts on
extensive local sales promotions of their soft drink products. These
advertising and promotional expenses are partially offset by marketing funds
provided by the various franchisors to support an array of marketing
programs. Advertising allowances from the franchisors have historically
increased as Southwest Coke's and San Antonio Coke's sales of the
franchisors' brands have increased. Southwest Coke and San Antonio Coke
benefit from television and radio advertising in the marketing of their soft
drinks, and The Coca-Cola Company and Dr Pepper Company have made substantial
expenditures in cooperative advertising programs with Southwest Coke and/or
San Antonio Coke in their territories.
Southwest Coke's sales and operating income fluctuate with the seasons
of the year, with sales and earnings higher in warm weather months (May
through October) than in colder months (November through April). Sales are
also higher during holiday periods such as Thanksgiving, Christmas, Easter,
Memorial Day, Fourth of July and Labor Day.
6
Approximately 23% of the Company's 1997 net revenues were derived from
its five largest customers, all of which were either chain supermarkets,
chain convenience stores or wholesale clubs. No single customer accounted
for more than 10% of net revenues during 1997.
COMPETITION
The beverage business is highly competitive. Soft drink products, both
carbonated and non-carbonated, are sold in competition with water, coffee,
milk and beer as well as with fruit drinks and fruit juices in a variety of
outlets from supermarkets to restaurants. Competitors in the soft drink
industry include bottlers and distributors of nationally advertised and
marketed products, as well as chain store and private label soft drinks. The
principal methods of competition in the soft drink industry include brand
recognition, price and price promotion, retail space management, service to
the retail trade, new product introductions, packaging changes, distribution
methods and advertising. Management of the Company believes that brand
recognition is the primary factor affecting the competitive positions of
Southwest Coke and San Antonio Coke, which is enhanced by the well-known
trademarks associated with their soft drink products.
The major national-brand competitors of Southwest Coke and San Antonio
Coke are bottlers of Pepsi-Cola products, including Pepsi-Cola Company Owned
Bottling Operations and independent Pepsi-Cola bottlers. San Antonio Coke's
largest competitor is a grocery chain that distributes private label soft
drinks. Reliable, relevant data is not available to measure Southwest Coke's
and San Antonio Coke's total share of sales in the beverage market. However,
information based on sales of national brand soft drink products in
supermarkets and other grocery stores indicates that each of Southwest Coke's
and San Antonio Coke's share of such sales exceeds the share of its
respective Pepsi bottler competitor in all of its territories.
RAW MATERIALS
In addition to concentrates obtained from The Coca-Cola Company and
other franchisors, Southwest Coke and San Antonio Coke also purchase water,
carbon dioxide, fructose, glass and plastic bottles, cans, closures and other
packaging materials for use in soft drink manufacturing. There are multiple
suppliers available for all of these raw materials other than concentrates.
Southwest Coke and San Antonio Coke do not directly purchase low-calorie
sweeteners because they are contained in the beverage concentrate. When
feasible, Southwest Coke and San Antonio Coke coordinate their raw materials
purchases, particularly aluminum cans and sweeteners, to take advantage of
volume discounts and concessions.
Southwest Coke and San Antonio Coke purchase substantially all of their
empty plastic bottles (in sizes ranging from twenty ounces to three liters)
from Western Container Corporation ("Western Container"), a plastic bottle
manufacturing cooperative owned by certain bottlers of Coca-Cola, of which
both Southwest Coke and San Antonio Coke are members and collectively own
42.2%. During 1993, Southwest Coke and San Antonio Coke each entered into
five-year supply agreements with Western Container. The agreements require
Southwest Coke and San Antonio Coke to pay a maximum amount per calendar
quarter of $102,218 and $232,704, respectively, reduced by $10 per 1,000
contour style and sixteen-ounce, twenty-ounce and one-liter generic style
plastic bottles purchased during the same calendar quarter. At the end of
each successive four quarters, the credit due Southwest Coke or San Antonio
Coke is determined on a twelve-month basis, and in the event the quantities
purchased exceed the volume required to eliminate the obligation to make
quarterly payments during the twelve-month period, any payments made under
the contract during such period are refunded. Applicable purchases from
Western Container in 1997 by each of Southwest Coke and San Antonio Coke
exceeded the minimum purchase requirements necessary to eliminate payments
under each respective contract.
7
FOOD SERVICE OPERATIONS
Food service operations are conducted by each of Southwest Coke and San
Antonio Coke in their soft drink franchise territories and, in addition, by
ACFS and Dani in North and East Texas. The food service operations of
Southwest Coke are conducted under the trade name "Refreshments Vending,"
while the food service operations of San Antonio Coke are conducted under the
trade name "Snappy Snack." Food service items are sold primarily through
soft drink and other vending machines, but distribution is also made through
speed lines (limited item self-serve cafeteria format), cafeterias, office
coffee services and catering services. These operations supply a complete
line of hot and cold food products, as well as soft drinks, to a variety of
locations, including industrial plants, offices, hospitals, schools and
government installations.
GOVERNMENT REGULATION
The production, distribution and sale of many of the products of
Southwest Coke and San Antonio Coke are subject to the Federal Food, Drug and
Cosmetic Act; the Occupational Safety and Health Act; the Lanham Act; various
Federal environmental statutes and various other federal and state statutes
regulating the franchising, production, sale, safety, advertising, labeling
and ingredients of such products. Two soft drink product ingredients,
saccharin and aspartame, are regulated by the United States Food and Drug
Administration.
Bills are considered from time to time in various state legislatures
which would prohibit the sale of beverages unless a deposit is made for the
containers. Proposals have been introduced in certain states and localities
that would impose a special tax on beverages sold in non-returnable
containers as a means of encouraging the use of returnable containers. In
addition, various bills have been proposed and are currently under
consideration by Congress and various state legislatures which would require
consumers to make a deposit upon the purchase of beverages sold in
non-returnable containers. No such legislation is currently in effect and,
to the knowledge of management of the Company, none is currently under
consideration in state legislatures in any territories served by Southwest
Coke or San Antonio Coke.
Specific soft drink taxes have been proposed in some states for several
years although none have been adopted and, to the knowledge of management of
the Company, none is currently under consideration in any territories served
by Southwest Coke or San Antonio Coke.
Substantially all of the facilities of Southwest Coke and San Antonio
Coke are subject to federal, state and local statutes and regulations related
to the discharge of materials into the environment. Compliance with these
laws has not had, and management of the Company does not expect such
compliance to have, any material effect upon the capital expenditures, net
income or competitive position of those entities or of the Company.
The business of Southwest Coke and San Antonio Coke, as exclusive
manufacturers and distributors of bottled and canned soft drink products of
The Coca-Cola Company, Dr Pepper Company and other soft drink franchisors
within specified geographic territories, are subject to federal and state
antitrust laws of general applicability. Under the Soft Drink Interbrand
Competition Act of 1980, soft drink bottlers such as Southwest Coke and San
Antonio Coke may exercise an exclusive contractual right to manufacture,
distribute and sell a soft drink product in a geographic territory if the
soft drink product is in substantial and effective competition with other
products of the same class in the same market or markets. Management of the
Company believes that there is substantial and effective competition in each
of the geographic territories in which Southwest Coke and San Antonio Coke
operate.
EMPLOYEES
As of December 31, 1997: (i) the Company had 15 full-time employees,
all of whom were administrative employees; (ii) Southwest Coke had 1,151
full-time employees, of whom 110 were administrative employees, 345 were
8
production, warehouse and transportation employees and 696 were sales,
marketing and distribution employees; (iii) San Antonio Coke had 1,285
full-time employees, of whom 119 were administrative employees, 330 were
production, warehouse and transportation employees and 836 were sales,
marketing and distribution employees; (iv) ACFS had 258 full-time employees,
of whom 23 were administrative employees, 66 were production, warehouse and
transportation employees and 169 were sales, marketing and distribution
employees; and (v) Dani had 87 full-time employees involved in its catering
operations. TBG has no employees, although 15 administrative employees of
the Company provide management services to TBG for which TBG pays a
management fee which in 1997 totaled $0.7 million. None of the employees of
the Company, TBG and their subsidiaries is covered currently by a collective
bargaining agreement. Management of the Company believes that employee
relations are satisfactory.
ITEM 2. PROPERTIES
The principal properties of Southwest Coke, San Antonio Coke and ACFS
include production facilities, sales and distribution centers and
administrative offices. All real properties material to their operations are
owned.
As of December 31, 1997, Southwest Coke operated 23 soft drink
facilities, including one administrative office, one production facility and
21 distribution facilities. One of the facilities of Southwest Coke has been
mortgaged to secure debt of Southwest Coke in the aggregate principal amount,
as of December 31, 1997, of approximately $8,000. One of the distribution
facilities of Southwest Coke is leased and the rest are owned.
As of December 31, 1997, San Antonio Coke operated seven soft drink
facilities, including one production facility, one combination production and
distribution facility and five distribution facilities. Two of the
facilities of San Antonio Coke are leased and the rest are owned.
As of December 31, 1997, ACFS operated four distribution facilities, two
of which were leased, and operated one leased machine service facility, while
Dani operated two leased facilities. The headquarters office of the Company
is in a leased facility.
Management of the Company believes its production and distribution
facilities are all in good condition, are adequate for the Company's
operations as presently conducted, and provide sufficient capacity for
increased manufacturing and distribution in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company, Southwest Coke and its subsidiaries, TBG and San Antonio
Coke are defendants in a number of lawsuits which have arisen from the normal
operations of their businesses and involve alleged injuries from vehicle and
other accidents, work-related accidents, package failure and foreign matter
in bottles or cans, trade credit or employment-related claims. These matters
are defended by various insurance carriers or are otherwise so limited in
exposure that the risk of loss in these matters is not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's Common
Stock. As of March 1, 1998, the Company had outstanding 100,000 shares of
its Common Stock held by one stockholder.
Holders of Common Stock are entitled to share ratably in dividends, if
and when declared by the Company's Board of Directors. The Company's credit
agreement with its principal lenders and the Indenture pursuant to which the
Company issued its 9% Senior Subordinated Notes Due 2003 restrict the amount
of dividends that may be paid.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated income statement and balance sheet
data for the years ended December 31, 1993 through December 31, 1997 have
been derived from the Company's Consolidated Financial Statements. The
information set forth below is qualified by reference to and should be read
in conjunction with the Consolidated Financial Statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this report. In
1997, the Company reached a decision to cease operation of Dani during 1998.
The Company will attempt to sell the remaining Dani assets and accordingly
the information presented below has been restated to reflect the results of
Dani as a discontinued operation for all periods presented.
Years Ended December 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(in thousands)
OPERATING DATA:
Net revenues . . . . . . . . . . . . . . . . . . $200,551 $222,666 $233,395 $243,857 $244,964
Gross profit . . . . . . . . . . . . . . . . . . 96,476 105,622 108,378 117,398 118,535
Operating income . . . . . . . . . . . . . . . . 27,945 30,395 31,656 32,960 28,095
Total interest expense . . . . . . . . . . . . . 29,078 28,925 23,880 21,417 20,968
Equity in earnings of unconsolidated
subsidiary . . . . . . . . . . . . . . . . . . -- -- 5,311 7,531 3,379
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . . (1,133) 1,470 13,087 19,074 10,506
Income (loss) before extraordinary item . . . . (1,133) 1,194 22,770 15,448 6,588
Net income (loss) . . . . . . . . . . . . . . . (7,522) 1,194 21,983 15,448 6,588
OTHER DATA:
EBITDA (a) . . . . . . . . . . . . . . . . . . . 39,410 42,662 44,662 47,547 44,403
Depreciation . . . . . . . . . . . . . . . . . . 6,276 6,775 7,147 8,198 10,350
Amortization of intangible assets . . . . . . . 5,104 5,227 5,300 5,694 5,218
Interest rate swap . . . . . . . . . . . . . . . -- 3,854 -- -- --
Amortization of debt issuance costs . . . . . . 1,355 1,278 1,222 593 583
Capital expenditures . . . . . . . . . . . . . . 7,727 7,742 8,111 12,573 15,553
Cash flows provided by (used for):
Operating activities . . . . . . . . . . . . 9,071 13,285 23,189 28,003 19,401
Investing activities . . . . . . . . . . . . (21,382) (8,113) (4,969) (10,519) (11,831)
Financing activities . . . . . . . . . . . . 13,431 (6,217) (18,249) (17,419) (7,473)
Ratio of earnings to fixed charges . . . . . . . 0.96 1.05 1.33 1.54 1.34
10
At December 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(in thousands)
Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . $ 7,425 $(58,128) $ (1,725) $ 4,869 $ 19,084
Total assets . . . . . . . . . . . . . . . . . . 217,456 214,912 224,444 230,649 228,637
Long-term debt, less current maturities . . . . 271,157 198,753 246,243 238,027 251,529
Stockholder's equity (deficit) . . . . . . . . . (88,097) (86,903) (69,225) (60,127) (62,039)
- --------------
(a) "EBITDA" represents, for any relevant period, income (loss) before
discontinued operations and extraordinary item plus interest,
taxes, depreciation, amortization of intangible assets,
amortization of other assets, gain or loss on sale of assets and
other non-cash expenses. EBITDA should not be construed to be an
alternative to operating income (determined in accordance with
generally accepted accounting principles) as an indicator of the
Company's operating performance. EBITDA is included because it is
one measure used by certain investors to determine the Company's
operating cash flow and historical ability to service its
indebtedness. EBITDA is not intended as an alternative to or a
better indicator of liquidity than cash flow from operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Prior year financial statements have been reclassified for consistency
with the current year. In addition, the discussion presented below reflects
the restatement of financial statements brought about by the treatment of the
results of operations of Dani as discontinued operations.
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 (12.9% of the
Company's net revenues) 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 branded products for the franchised
territory. Net revenues and gross profit for contract bottling are not
significant in relation to overall net revenues and gross profit for the
Company. However, all references to net revenues and gross profit include
volumes for post-mix and contract sales.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET REVENUES. Net revenues for the Company increased 0.4% or $1.1
million to $245.0 million in 1997. Soft drink net revenues decreased 0.4% in
1997 from 1996 primarily as a result of a $4.5 million decrease in contract
bottling. The Company ceased all its contract bottling operations for private
label brands in late 1996. Equivalent case sales increased 3.2% in 1997,
however, the net effective selling price per equivalent case decreased 2.6%
in 1997 from 1996. Net revenues for post-mix as a percentage of total net
revenues increased to 12.9% in 1997, as compared to 12.4% in 1996. Net
revenues for ACFS accounted for approximately 13.1% of total net revenue in
1997.
GROSS PROFIT. Gross profit increased by 1% from $117.4 million to
$118.5 million, primarily as a result of price decreases in PET bottles and
sweetener. The reduction in these raw materials accounted for an improvement
in gross profit as a percentage of net revenues to 48.4% in 1997 as compared
to 48.1% in 1996.
11
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased 6.1%, or approximately $4.3 million, in
1997. Selling, general and administrative expenses increased as a percentage
of net revenues to 30.6% in 1997 from 28.9% in 1996. Higher labor costs
associated with increased hiring for key selling positions accounted for much
of the increase along with an increase in marketing-related expenditures
associated with several marketing initiatives centered around activity in
smaller stores.
OPERATING INCOME. As a result of the foregoing, and a $1.7 million
increase in depreciation and amortization, operating income for 1997
decreased to $28.1 million, or 11.5% of net revenue, compared to $33.0
million, or 13.5% of net revenue for 1996.
INTEREST EXPENSE. Total interest expense decreased by $0.4 million for
1997 due primarily to lower floating rates in effect for much of 1997.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY. TBG recorded net
income of $6.9 million in 1997, as compared to $15.3 million in 1996, of
which the Company's share was $3.4 million and $7.5 million in 1997 and 1996,
respectively. TBG's operating income decreased by $4.9 million or 14.8% in
1997 over 1996.
DISCONTINUED OPERATIONS. In December 1997, the Company decided to
discontinue the operations of Dani in 1998. Accordingly, the operating
results of Dani including provisions for estimated lease termination costs,
employee benefits and losses incurred during the phase-out period of
approximately $0.9 million and a write-off of receivables, leasehold
improvements and deferred charges of approximately $0.6 million have been
segregated from continuing operations and presented as a separate line item
on the statement of income.
The Company has restated its prior period financial statements to
present the operating results of Dani as discontinued operations. The
assets and liabilities of such operations at December 31, 1997, have been
reflected as a net current liability based substantially on the original
classification of such assets and liabilities.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUES. Net revenues for the Company increased 4.5% or $10.5
million to $243.9 million in 1996. Soft drink net revenues increased 4.1% in
1996 over 1995 as a result of a 4.5% increase in equivalent case sales. Net
revenues for post-mix as a percentage of total net revenues increased to
12.4% in 1996 as compared to 11.8% in 1995. Net revenues for ACFS increased
in 1996 by approximately 6.1% due to continued new account placements. Net
revenues for ACFS accounted for approximately 12.3% of total net revenue in
1996.
GROSS PROFIT. Gross profit increased by 8.3% from $108.4 million to
$117.4 million, primarily as a result of the increase in equivalent case
sales noted above as well as improvements resulting from price decreases in
aluminum cans, PET bottles and sweeteners which represent three of the four
principal raw materials used by the Company. Gross profit as a percentage of
net revenues for 1996 was 48.1% compared to 46.4% for 1995. Gross profit for
post-mix as a percentage of total gross profit increased to 4.6% as compared
to 4.5% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased 9.8%, or approximately $6.3 million, in
1996. Selling, general and administrative expenses increased as a percentage
of net revenues to 28.9% in 1996 from 27.5% in 1995. Increased labor costs
associated with the equivalent case sales increase, higher group insurance
costs, labor and other expenses associated with an extensive vending machine
placement initiative and increased media and marketing expenses associated
with new brand introductions accounted for the large category increase.
12
OPERATING INCOME. As a result of the above, and a $1.4 million increase
in depreciation and amortization, operating income for 1996 increased to
$33.0 million, or 13.5% of net revenue, compared to $31.7 million, or 13.6%
of net revenue for 1995.
INTEREST EXPENSE. Total interest expense decreased by $2.5 million for
1996 due primarily to interest rate decreases brought about by the Company's
refinancing activity in 1995, and reductions in outstanding debt due to
principal reduction.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY. TBG recorded net
income of $15.3 million in 1996, as compared to $28.5 million in 1995, of
which the Company's share was $7.5 million and $5.3 million in 1996 and 1995,
respectively. TBG's operating income increased by $0.1 million or 0.3% in
1996 over 1995.
LIQUIDITY AND CAPITAL RESOURCES
On August 1, 1997 the Company received a dividend of $4.6 million from
TBG and paid a dividend of $8.5 million to the Company's sole shareholder.
For the year ended December 31, 1997, cash provided by operating
activities was $17.9 million generated primarily by net income plus
depreciation and amortization. Investing activities used $11.0 million
primarily for additions to property, plant and equipment offset by the
dividend received from TBG noted above. Financing activity used $6.7 million
for payments on long-term debt net of revolver borrowings and financed
capital expenditures and $8.5 million for the payment of the dividend.
Effective March 11, 1998, the Company entered into a new credit
agreement with NationsBank, National Association, as agent for a syndication
of financial institutions (the "1998 Bank Credit Agreement"). The 1998 Bank
Credit Agreement provides the Company with credit facilities, under which the
Company may borrow up to $270 million. The credit facilities include the
following: (i) a 364-day term loan facility (the "1998 Term Loan") under
which the Company may borrow up to $50 million and (ii) a five-year revolving
credit agreement (the "1998 Revolver") under which the Company may borrow up
to $220 million. As required by the 1998 Bank Credit Agreement, the proceeds
of the 1998 Term Loan shall be used solely for the repurchase of any
remaining amounts of the existing 9% Senior Subordinated Debt due 2003 (the
"9% Notes") and the proceeds from the 1998 Revolver shall be used to
refinance existing indebtedness, including the 9% Notes, or as allowed under
the 1998 Bank Credit Agreement. Advances made under the 1998 Term Loan will
be available in a single borrowing and will be subject to quarterly
amortization of principal based on the following schedule (with final payment
due five years from the advance date):
YEAR AFTER ADVANCE AMORTIZATION
------------------ ------------
1st $ 4 million
2nd 6 million
3rd 10 million
4th 15 million
5th 15 million
Interest rates and commitment fees on the 1998 Revolver and the 1998
Term Loan are subject to change, depending on the ratio of total debt to
earnings, as defined, at the end of each calendar quarter. Interest payments
are payable quarterly, or as defined, on the 1998 Revolver and quarterly on
the 1998 Term Loan. The 1998 Revolver bears
13
interest at a rate equal to LIBOR plus 0.375% to 1.75% or the Alternate Base
Rate, as defined, plus 0.0% to 0.75%. The 1998 Term Loan shall bear interest
at a rate equal to LIBOR plus 1.125% to 2.5% or the Alternate Base Rate plus
0.0% to 1.25%. The Company must pay a commitment fee of 0.18% to 0.5% of the
average daily unused committed amount of the 1998 Revolver and 0.18% to 0.5%
of the available 1998 Term Loan. Commitment fees are payable quarterly in
arrears. Additionally, the Company paid an underwriting fee equal to 0.5% of
the entire amount of the 1998 Bank Credit Agreement at closing, which fee was
approximately $1.35 million and will be amortized over the life of the 1998
Bank Credit Agreement.
Under the 1998 Bank Credit Agreement, the lenders received a first
priority perfected security interest in all of the existing and future
capital stock of the Company and its subsidiaries for the 1998 Revolver and
the 1998 Term Loan. Upon the fourth consecutive fiscal quarterly
determination of total debt to earnings of not greater than 5.0 to 1, the
Company may elect to terminate the security interest in its stock and the
stock of its subsidiaries.
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 on capital expenditures. The 1998 Bank Credit
Agreement does permit the payment of dividends and other distributions to
shareholders so long as no default exists.
The Company used proceeds from the 1998 Bank Credit Agreement to repay
borrowings under a loan agreement with Texas Commerce Bank National
Association, as agent for a syndication of financial institutions (the "1995
Bank Agreement"), as well as certain other debt outstanding. The 1995 Bank
Agreement provided for a $120 million term loan (the "1995 Term Loan") of
which $90 million was outstanding at December 31, 1997 and a $30 million
revolving credit facility (the "1995 Revolver") of which $14.7 million was
outstanding at December 31, 1997.
In connection with the repayment of amounts outstanding under the 1995
Bank Agreement, the remaining unamortized cost, including an interest rate
cap purchased in 1995 (approximately $1.2 million) associated with the 1995
Bank Agreement will be recorded net of income tax benefit as an extraordinary
loss in 1998. To the extent the 9% Notes are repurchased in 1998, an
additional extraordinary loss will be recorded for unamortized costs or
premiums paid on the repurchase.
Both the 1995 Term Loan and the 1995 Revolver accrued interest at the
Company's option at either Alternate Base Rate (8.5% as of December 31, 1997)
or Eurodollar Rate (approximately 6% as of December 31, 1997) plus 1.00%. A
commitment fee of 0.25% was charged on the average daily unused portion of
the 1995 Revolver. Interest rates on the 1995 Bank Agreement became subject
to change after March 31, 1996 depending on the ratio of Total Debt to Cash
Flow, as defined, at the end of each calendar quarter. The interest rates
were adjustable quarterly in a range from a maximum of Alternate Base Rate
plus 0.50% or Eurodollar Rate plus 1.75% to a minimum of Alternate Base Rate
or Eurodollar Rate plus 0.50% according to a grid of permitted debt to cash
flow ratios.
Borrowings under the 1995 Bank Agreement were secured by pledges of the
stock of the Company and its subsidiaries and certain intercompany
indebtedness of Southwest Coke to the Company as well as guarantees of Parent
and the Company's subsidiaries.
The Company makes capital expenditures on a recurring basis for fleet,
vending and dispensing equipment. The Company also makes expenditures from
time to time for production equipment and building additions or improvements.
During 1997, the Company expended approximately $15.6 million for capital
expenditures, compared to approximately $12.6 million and $8.1 million in
1996 and 1995, respectively. Capital expenditures in 1997 consisted of
approximately $12.7 million for recurring fleet, vending and dispensing
equipment and $2.9 million for production equipment, other equipment,
additions to facilities and other building improvements. Capital
expenditures in 1996 consisted of approximately $8.7 million for recurring
fleet, vending and dispensing equipment and $3.9 million for production
equipment, other equipment, additions to facilities and other building
improvements. Capital expenditures
14
in 1995 consisted of approximately $5.6 million for recurring fleet, vending
and dispensing equipment and $2.5 million for production equipment, other
equipment, additions to facilities and other building improvements. The
Company believes its current production capacity and existing facilities are
adequate to meet anticipated growth and package shifts for several years.
Management believes that the cash flows generated from operations and the use
of net operating losses are sufficient to sustain operations for the
foreseeable future.
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.
YEAR 2000 ISSUES
The Company uses software and related technologies throughout its
businesses that might be affected by the so-called "Year 2000 problem." This
problem, which is common to most businesses, concerns the inability of
information systems, primarily computer software programs, to properly
recognize and process date-sensitive information as the year 2000 approaches.
The Company is in the process of reviewing and testing the software in its
management information system so that any modification needed for it to be
Year 2000 compliant can be made. The Company believes that it will be able
to modify, if necessary, all such software in time to minimize any
significant detrimental effects on operations. Though it is not possible to
accurately estimate the cost of this work, the Company expects that such
costs will not be material to the Company's financial position or results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its
subsidiaries and the consolidated financial statements of TBG and its
subsidiary which are required by this Item 8 are listed in Part IV Item 14(a)
of this report. Such consolidated financial statements are included herein
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers and directors of the Company and Southwest Coke.
Name Age Position
- ---- --- --------
Edmund M. Hoffman 76 Co-Chairman and Director
Robert K. Hoffman 50 Co-Chairman and Director
Charles F. Stephenson 46 President of the Company and
President of Southwest Coke
Stephanie L. Ertel 51 Senior Vice President - Corporate
Services, General Counsel and
Secretary
E. T. Summers, III 50 Executive Vice President of the
Company
Louis F. Koch 53 Senior Vice President - Human
Resources
Ronnie W. Hill 47 Executive Vice President and
General Manager of Southwest Coke
Gary R. Phy 45 Senior Vice President - Finance of
Southwest Coke
Stephen R. Errico 43 President and General Manager of
ACFS
Edmund M. Hoffman has been Chairman (Co-Chairman since 1995) and a
director of the Company and its corporate predecessor since 1972. He has
been Chairman and a director of Parent and its corporate predecessor since
1985, Chairman (Co-Chairman since 1995) and director of Southwest Coke since
1980 and Chairman (Co-Chairman since 1995) and director of Southwest Coke's
subsidiaries since March, 1990. Mr. Hoffman became Chairman (Co-Chairman
since 1995) and director of TBG and the corporate predecessor of San Antonio
Coke in December, 1986 and continues to hold those positions. Mr. Hoffman
has owned interests in companies that were members of the Coca-Cola Bottlers
Association since 1965, and has served as a member of its Board of Governors.
Additionally, Mr. Hoffman is a director and co-founder of Trinity
Industries, Inc., a publicly held corporation formed in 1957 which is engaged
in the steel fabrication business.
Robert K. Hoffman, son of Edmund M. Hoffman, became Co-Chairman of the
Company and TBG in 1995. He has been a director and officer of the Company
and its corporate predecessor since 1974, President and director of Parent
and its corporate predecessor since 1985, President and director of TBG since
December 1986 and Vice Chairman (Co-Chairman since 1995) and director of San
Antonio Coke and its corporate predecessor since 1986. From 1980 until
January 1994, Mr. Hoffman was President of Southwest Coke and its
subsidiaries. He has been a director
16
of Southwest Coke and each of its subsidiaries since 1980 and served as Vice
Chairman of those entities from January 1994 until elected Co-Chairman in
1995.
Charles F. Stephenson is President of the Company and Southwest Coke and
is also an officer of Parent, the Company's subsidiaries and TBG. Mr.
Stephenson joined the Company's corporate predecessor in February 1986 as
Senior Vice President and Chief Financial Officer. He became Executive Vice
President of the Company's corporate predecessor in 1987 and served as
Executive Vice President of Southwest Coke from 1989 through 1993.
Stephanie L. Ertel is Senior Vice President - Corporate Services,
General Counsel and Secretary of the Company. Ms. Ertel has been the General
Counsel of the Company and its corporate predecessor since July, 1985,
serving as Vice President from 1985 to 1987. She has been the Secretary of
the Company and its corporate predecessor since 1990, and is also an officer
of Parent, the Company's subsidiaries and TBG.
E. T. Summers, III has been Executive Vice President of the Company and
President of TBG since 1995. He has served as President of San Antonio Coke
since 1988, and was Executive Vice President of the corporate predecessors of
San Antonio Coke from 1985 to 1988. Mr. Summers is past president of the
Texas Soft Drink Association, serves on the Board of Governors of the
Coca-Cola Bottlers' Association and on the Financial Review and Cold Drink
Committees of that association. Since 1988, Mr. Summers has been a director
of Western Container Corporation.
Louis F. Koch is Senior Vice President - Human Resources of the Company.
He joined the Company in February, 1996 after serving as Senior Vice
President of Human Resources for McNeil Real Estate Management. Mr. Koch has
over 26 years of experience in human resources and manufacturing management.
Ronnie W. Hill is Executive Vice President and General Manager of
Southwest Coke, a position he has held since July 1995. From 1987 until
being promoted to his current position, Mr. Hill was Senior Vice President -
Sales and Marketing of Southwest Coke. Mr. Hill has over 29 years of
experience in the soft drink business as an employee of Southwest Coke or
companies acquired by Southwest Coke and has held various executive and
management positions during that time.
Gary R. Phy is Senior Vice President - Finance of Southwest Coke and has
held his position since October, 1990. Mr. Phy has over 26 years of
experience in the soft drink and food service businesses and previously held
operational and financial management positions at ACFS (between April 1988
and October 1990).
Stephen R. Errico is President and General Manager of the ACFS division
of the Company. He joined ACFS as Executive Vice President and General
Manager in November, 1992. Mr. Errico served as Controller for Southwest
Coke from 1985 until 1989 and as Vice President of Human Resources for
Southwest Coke from 1989 to 1992.
All executive officers are chosen by the Board of Directors and serve at
the Board's discretion. All directors hold office until the next annual
meeting of the stockholders and until their successors are elected and
qualified.
Edmund M. Hoffman and Robert K. Hoffman, who serve concurrent one-year
terms, constitute the Company's entire Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company does not have any class of equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended.
Therefore, the sole stockholder is not required to file reports pursuant to
Section 16(a) thereof.
17
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's
Chief Executive Officer and its four other most highly compensated executive
officers for services rendered during the last three fiscal years. All of
the persons shown below except Mr. Summers are employees of the Company, and
Mr. Summers is an employee of San Antonio Coke. The compensation shown is
that paid to those persons by their respective employers, unless otherwise
noted.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------
Other Securities
Annual Restricted Under- All Other
Compen- Stock lying LTIP Compen-
sation Award(s) Options/ Payouts sation
Name Year Salary ($) Bonus ($) ($) ($) SARs(#) ($) ($)
---- ---- ---------- --------- ----- ----- ------- ----- -----
Edmund M. Hoffman(1) 1997 $900,000 $440,500 $6,400
1996 800,000 440,500 6,000
1995 775,008 390,500 6,000
Robert K. Hoffman(1) 1997 900,000 421,500 6,400
1996 800,000 421,500 6,000
1995 775,008 371,500 6,000
Charles F. Stephenson(1) 1997 387,500 200,000 300,000(3) 6,400
1996 357,500 200,000 6,000
1995 325,000 190,000 213,223(2) 6,000
E. T. Summers, III 1997 375,000 --- 225,000(4) 6,400
1996 348,076 --- 3,750
1995 324,423 86,800 3,750
Stephanie L. Ertel(1) 1997 260,000 --- 6,400
1996 260,000 --- 6,000
1995 260,000 --- 6,000
(1) Salaries paid by the Company; TBG currently pays a management fee of
$58,333 per month to the Company. See "Certain Relationships and
Related Transactions."
(2) Includes $206,623 as value of stock appreciation rights received in
1995.
(3) Payment under the 1994 Company Management Incentive Plan, as amended.
(4) Includes payments under the 1994 San Antonio Coke and 1994 Company
Management Incentive Plans, as amended.
18
EMPLOYMENT AGREEMENTS
Edmund M. Hoffman and Robert K. Hoffman each entered into an employment
agreement dated December 16, 1985 (each an "Employment Agreement") with the
Company which provides for a monthly salary determined by the Board of
Directors and for certain benefits upon death, retirement or disability.
Each Employment Agreement provides that upon the employee's retirement
(eligibility for retirement at age 65 for Edmund M. Hoffman and at age 55 for
Robert K. Hoffman or at such other age as the Board of Directors may
authorize), the Company will pay to the employee monthly benefits equal to
75% of his average monthly compensation during the 36 months prior to
retirement (including bonuses) for the remainder of the employee's lifetime,
subject to certain conditions. If the employee dies within 120 months after
the month of his retirement, payments in a like amount shall continue to be
paid to the employee's designated beneficiary for the remainder of the
120-month period. Each Employment Agreement also provides that, if the
employee's employment is terminated by death, the Company will pay for 120
months a monthly death benefit to the employee's beneficiary in an amount
equal to 75% of the employee's average monthly compensation during the 36
months prior to death (including bonuses). If termination of the employee's
employment is caused by the employee's disability, each Employment Agreement
provides that the Company will pay a monthly disability benefit for as long
as the employee remains disabled equal to 100% of his average monthly
compensation during the 36 months prior to disability (including bonuses)
less amounts received from certain other sources. Each Employment Agreement
also provides that certain benefits will be paid to the employee's
beneficiary if the employee dies while disabled. The benefits under each
Employment Agreement are not assignable except by will or the laws of descent
and distribution. In addition, each Employment Agreement automatically
terminates upon the employee voluntarily terminating his employment before he
has attained a specified age (age 65 for Edmund M. Hoffman and age 55 for
Robert K. Hoffman). The benefits under each Employment Agreement will be
funded out of the Company's cash flow.
On August 10, 1994, Stephanie L. Ertel entered into an employment
agreement with the Company, effective January 1, 1994, providing for her
employment with the Company as Senior Vice President, Secretary and General
Counsel through January 1, 1999. Pursuant to the employment agreement, Ms.
Ertel is to be paid at the annual rate of $260,000 during the term of the
employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a compensation committee.
Edmund M. Hoffman and his son Robert K. Hoffman are the only two members of
the Company's Board of Directors. Edmund M. Hoffman is the Co-Chairman of
the Company, each of its subsidiaries and TBG, and Robert K. Hoffman is
Co-Chairman of the Company and TBG and is Chairman of Southwest Coke and each
of its subsidiaries.
The Company has entered into a loan agreement with the Edmund M. and
Adelyn Jean Hoffman Trust (the "Trust") pursuant to which the Trust may
borrow up to $2 million from the Company to pay the premiums of a
second-to-die life insurance policy on the lives of Edmund M. Hoffman and his
wife, Adelyn Jean Hoffman. As of December 31, 1997, the Trust had borrowed
$1.55 million from the Company. The beneficiaries of the Trust are Robert K.
Hoffman and his brother, Richard E. Hoffman. The loan is secured by the
proceeds of the life insurance policy and will be repaid from the proceeds of
the policy. Funds borrowed under the loan agreement bear interest at a rate
of 8% per annum. The principal amount of the loan and accrued interest
thereon are payable upon the earlier to occur of receipt of the proceeds of
the life insurance policy and the day 90 days after Edmund M. Hoffman and his
wife no longer directly or indirectly hold any of the outstanding Class A
Common Stock of Parent.
EMPLOYEE BENEFIT PLANS OF THE COMPANY
EXECUTIVE SECURITY PLAN. The Board of Directors of the Company has
adopted the Executive Security Plan for The Coca-Cola Bottling Group
(Southwest), Inc. (the "Plan"), which is administered by the Board of
Directors. The Plan was created to provide specified benefits to a select
group of management and highly compensated employees of
19
the Company who contributed materially to the growth, development and
business success of the Company. There are presently seven participants in
the Plan and participation is no longer being offered to additional employees.
The Plan provides for death benefits for covered employees. The amount
of such benefits and the manner in which the benefits will be distributed are
set forth in the individual employee's Plan Agreement. The covered
compensation for Charles F. Stephenson, the Company's only executive officer
who participates, is $200,000. The amount of death benefits under the Plan
Agreements is 100% of covered compensation for the first year following death
before age 65, then 50% of covered compensation until he would have been age
65 (9 years minimum). In order to receive benefits under the Plan, the Plan
must be in effect and the employee's employment with the Company must not
have been terminated on or before the date of death. The estimated death
benefit payable annually under the Plan is $100,000 for Charles F. Stephenson.
Amounts payable under the Plan are to be paid exclusively from the
general assets of the Company. Although the Company is not obligated to make
investments to provide the means for the payment of benefits which become due
under the Plan, the Company has purchased life insurance policies to fund the
benefits provided.
401(K) PLAN. The Company also maintains The Coca-Cola Bottling Group
(Southwest), Inc. and Affiliates 401(k) Plan (the "401(k) Plan") for
employees of the Company and its affiliates who have completed one year of
service. The 401(k) Plan is a qualified defined contribution plan under
Section 401(k) of the Internal Revenue Code. The Company contributes to each
participant's account maintained under the 401(k) Plan for an employee of the
Company or its wholly-owned subsidiaries an amount equal to 100% of the
participant's contribution under the 401(k) Plan up to 4% of his compensation
for a particular year. The participant can contribute from 1% to 15% of
compensation each year. In addition to the Company's matching contribution,
the Board of Directors of the Company may provide for the contribution of
additional amounts by the Company. The matching contributions by the Company
during 1997 with respect to the individuals employed by the Company and named
in the cash compensation table were as follows: Edmund M. Hoffman, $6,400;
Robert K. Hoffman, $6,400; Stephanie L. Ertel, $6,400; and Charles F.
Stephenson, $6,400. The matching contribution during 1997 with respect to E.
T. Summers, III, who is an employee of San Antonio Coke and named in the cash
compensation table, was $6,400. The portion of the Company's matching
contribution which unconditionally vested during 1997 for each of the
above-named individuals was 100%. No amounts were distributed from the
401(k) Plan during 1997 to any of the Company's executive officers, except
for Edmund M. Hoffman, who received $35,574 in benefits.
All contributions paid by participants or the Company under the 401(k)
Plan are held and invested by Wilmington Trust Company, the trustee of The
Coca-Cola Bottling Group (Southwest), Inc. and Affiliates 401(k) Plan Trust
(the "401(k) Plan Trust"), pursuant to the terms of the 401(k) Plan.
The 401(k) Plan is administered by an administrative committee appointed
by the Board of Directors of the Company. A participant may withdraw from
the 401(k) Plan Trust all of the participant's after-tax contributions (made
prior to January 1, 1989) and any earnings thereon. For extreme hardships,
the participant may also withdraw pre-tax contributions made after December
31, 1988. Participants may also borrow from the 401(k) Plan Trust within the
parameters set by the 401(k) Plan. Each participant's interest in
contributions made by the Company to the 401(k) Plan vests 20% per year for
each year the participant is employed with the Company or an affiliate of the
Company after completing a year of employment.
RETIREMENT PLAN. The Company maintains The Coca-Cola Bottling Group
(Southwest), Inc. and Affiliates Retirement Plan (the "Retirement Plan") for
its employees who are at least 21 years of age and have completed at least
one year of service. The Retirement Plan is a qualified defined benefit plan
and, subject to certain maximum limitations, bases pension benefits on a
percentage of the employee's average annual compensation for the five highest
consecutive calendar years of compensation out of the employee's last ten
years of credited service, multiplied by the employee's years of credited
service. The Retirement Plan provides for a normal and late retirement
pension, an early retirement
20
pension and a disability retirement pension. Generally, a participant's
benefit will vest upon his or her completion of five years of vesting service
(as such term is defined in the Retirement Plan). As of December 31, 1997,
Edmund M. Hoffman, Robert K. Hoffman, Charles F. Stephenson, Stephanie L.
Ertel and E. T. Summers, III had 28, 22, 12, 13 and 1 years of credited
service, respectively. The amount of the contribution with respect to a
specific participant is not calculated separately by the actuaries for the
Retirement Plan. The 1997 minimum required contribution to the Plan, as
calculated by the Plan's actuaries, was equal to approximately 1.7% of the
compensation of the covered group of participants. The term "compensation"
includes the total cash remuneration paid by the Company or an affiliate to
an employee for a calendar year as reported on the employee's Federal income
tax withholding statement excluding, however, deferred compensation, stock
options and other distributions which receive special Federal income tax
treatment. The amount of pension actually accrued under the pension formula
is payable in the form of a life annuity unless an alternative payment form
is elected with an actuarial adjustment.
The following table sets forth the annual retirement benefits payable
under the Retirement Plan at age 65 based on an employee's assumed average
annual compensation for the five-year period preceding retirement and
assuming actual retirement in 1997. In no event may the estimated benefit
exceed the maximum benefit limitation contained under Section 415 of the
Internal Revenue Code. Currently the maximum compensation allowed for
calculation of benefits is $160,000 (on a single life, or qualified joint and
survivor, basis) unless prior to January 1, 1983 a higher benefit had been
accrued under prior law.
Assumed Average Annual Compensation Years of Credited Service with the Company
For Five Highest Consecutive ------------------------------------------
Years of Service in Last Ten 15 20 25 30 35
Years of Credited Service (a) Years Years Years Years Years
------------------------------------- ------- ------- ------- ------- -------
$100,000 . . . . . . . . . . . . . . $20,393 $27,190 $33,988 $40,786 $47,583
$125,000 . . . . . . . . . . . . . . 26,205 34,940 43,676 52,411 61,146
$150,000 . . . . . . . . . . . . . . 32,018 42,690 53,363 64,036 74,708
$175,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$200,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$225,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$250,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$300,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$400,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$450,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
$500,000 . . . . . . . . . . . . . . 34,343 45,790 57,238 68,686 80,133
(a) The maximum compensation allowed for calculation of benefits under IRC
401(a)(17) was $160,000 in 1997.
Prior to December 31, 1996, employees of San Antonio Coke who were 21
years of age and had completed one year of service were participants in the
Retirement Plan for Employees of Coca-Cola Bottling Company of the Southwest
(the "Old Retirement Plan"). The Old Retirement Plan was a qualified defined
benefit plan. The Old Retirement Plan was merged into the Retirement Plan as
of December 31, 1996. Benefits accrued to participants in the Old Retirement
Plan were calculated as of December 31, 1996 by the actuaries for the
Retirement Plan and incorporated into the Retirement Plan to provide for the
plan merger. Benefits attributed to service as an employee of San Antonio
Coke after December 31, 1996 are determined by using the benefit formula of
the Retirement Plan (which is 38% higher than the formula under the Old
Retirement Plan) and counting years of service after December 31, 1996. This
amount is added to the frozen benefit for 1996 and prior years to calculate
the total benefit to be paid to the participant. Generally, a participant's
benefit will vest upon completion of five years of vesting service (as such
term is defined in
21
the Retirement Plan). As of December 31, 1996, E.T. Summers, III had 23
years of credited service under the Old Retirement Plan, which credited
service is reflected in his frozen benefits in the Retirement Plan. The
annual normal form benefit accrued under the Old Retirement Plan based on
retirement at age 65 for E. T. Summers, III is $42,362.
STOCK OPTION PLANS
PARENT NON-STATUTORY STOCK OPTION/STOCK APPRECIATION RIGHTS PLAN. The
Parent's Non-Statutory Stock Option/Stock Appreciation Rights Plan, effective
January 1, 1987 (the "Parent Stock Option Plan"), provides for the granting
of non-qualified stock options and stock appreciation rights to officers and
certain key employees of the Company and its subsidiaries. The Parent Stock
Option Plan provided that options for 6,314 shares of Parent's Class B Common
Stock could be granted prior to the plan's termination in 1997. Options
awarded under the Parent Stock Option Plan have been granted at option prices
which equated to the fair market value (based on contemporary sales of Parent
Common Stock) of the underlying Class B Common Stock at the time of grant.
The options were granted in tandem with Stock Appreciation Rights (SARs)
(equal to the excess of the fair market value per share over the option price
under the stock option agreement) which Parent has the discretion to pay in
Class B Common Stock or cash in lieu of issuing Class B Common Stock when the
optionee exercises the stock option.
OPTION/SAR GRANTS IN LAST FISCAL YEAR. No options or SARs were granted
during 1997 under the Parent Stock Option Plan or otherwise.
TBG STOCK OPTION PLAN. TBG's Non-Statutory Stock Option/Stock
Appreciation Rights Plan, effective January 1, 1988 (the "TBG Stock Option
Plan"), provides for the granting of nonqualified stock options and stock
appreciation rights to officers and certain key employees of TBG and San
Antonio Coke. TBG's Stock Option Plan provides that options for 51,474
shares of TBG's Class A Common Stock may be granted prior to termination of
TBG's Stock Option Plan in 1998. Options awarded under the TBG Stock Option
Plan have been granted at option prices which equated to the fair market
value (based on contemporary sales of TBG's Common Stock) of the underlying
Class A Common Stock at the time of grant, and became exercisable on June 30,
1993. The options were granted in tandem with Stock Appreciation Rights
(SARs) (equal to the excess of the fair market value per share over the
option price under the stock option agreement) which TBG will pay in cash
when the optionee exercises the stock option.
No options or SARs were granted during 1997 under the TBG Stock Option
Plan or otherwise.
OPTION/SAR GRANTS, EXERCISES AND HOLDINGS. The following table provides
information with respect to the named executive officers, concerning the
exercise of options and/or SARs during the last fiscal year and the number of
unexercised options and SARs held as of the end of the fiscal year. Since no
sales of TBG's or Parent's stock occurred in the last six months of 1997, the
fair market value of one share of the Class A Common Stock of TBG or of one
share of the Class B Common Stock of Parent have been determined by using the
cash flow factor of 10.6 established by the Stock Option Committee for each
respective Stock Option Plan based on sales of stock of Coca-Cola bottling
businesses in 1997. Utilizing a formula in which the consolidated cash flow
of Parent is multiplied by 10.6, and the product is reduced by Parent's
consolidated total long-term debt, and divided by the total outstanding
shares of Class A Common Stock of Parent assuming conversion of all
outstanding Class B Common Stock, the fair market value of one share of the
Class B Common Stock of Parent, for purposes of valuing the options, was
$3,388 at December 31, 1997. Applying a similar formula to determine the fair
market value of the Class A Common Stock of TBG results in a value per share
for purposes of valuing the options at December 31, 1997 of $223.03.
22
AGGREGATED OPTION/SAR EXERCISES OF PARENT IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES (1)
Value of
Unexercised
Number of Unexercised In-the-Money Options
Number of Options and SARs at Fiscal and SARs at
Shares Year-End (#) Fiscal Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise # Realized ($) Unexercisable Unexercisable
---- ---------- ------------ ------------- -------------
Stephanie L. Ertel(2) 0 0 210.82/0 $529,791/0
E. T. Summers III(3) 0 0 11,160/0 $2,032,571/0
- --------------------
(1) Includes information with regard to exercises of options issued by the
Parent and TBG.
(2) Options to purchase shares of Class B Common Stock of Parent.
(3) Options for SARs based on shares of Class A Common Stock of TBG.
LONG TERM INCENTIVE PLANS
MANAGEMENT INCENTIVE PLANS OF THE COMPANY. On June 1, 1997, the Board
of Directors amended the Management Incentive Plan of the Company which had
been adopted on June 22, 1994, effective as of January 1, 1994 (the "1994
Company Management Incentive Plan"). The Board of Directors of the Company
administered the 1994 Company Management Incentive Plan and chose key
managers of the Company and of its subsidiaries to participate. Under the
terms of the 1994 Company Management Incentive Plan, as amended, eligible
participants receive a cash bonus based on the aggregate cash flow for the
years 1994 through 1996 as compared to a cash flow target in installments
beginning July 13, 1997 (37.5%) with the remainder payable in equal
installments on March 1, 1998 and March 1, 1999. To qualify to receive a
cash bonus under the 1994 Company Management Incentive Plan, a participant
must have been actively employed by the Company or one of its subsidiaries in
a key management position continuously throughout the period from the date of
participation through the payment date (with certain exceptions upon death or
disability of the participant or change of control of the Company.)
On June 4, 1997, the Board of Directors of the Company adopted,
effective as of January 1, 1997, a new Management Incentive Plan for the
Company (the "1997 Company Management Incentive Plan"). The Incentive Plan
Committee, which is appointed by the Board of Directors, administers the 1997
Company Incentive Plan and chooses key managers of the Company and of its
subsidiaries to participate. Under the terms of the 1997 Company Management
Incentive Plan, eligible participants will receive a cash bonus based upon
the cash flow of Southwest Coke, San Antonio Coke or both, as defined, during
successive periods of three fiscal years. The initial performance period
under the 1997 Company Management Incentive Plan was 1997 through 1999. On
February 16, 1998, the Board of Directors of the Company adopted, effective
as of January 1, 1998, a new three-year performance period with a new cash
flow target for the years 1998 through 2000.
The Board of Directors has established the level of cash flow which
must be achieved and the percentage of the award payable to the participants.
Two-thirds of incentive awards earned is payable on the March 1 immediately
following the three-year performance period with the remaining one-third to
be paid on March 1 two years after the first payment was made. To qualify to
receive a cash bonus under the 1997 Company Management Incentive Plan, a
participant must be actively employed by the Company or one of its
subsidiaries in a key management position continuously from the date of
participation through the payment date (with certain exceptions upon death or
disability of the participant or change of control of the Company).
23
MANAGEMENT INCENTIVE PLAN OF SAN ANTONIO COKE. On June 1, 1997, the
Board of Directors of San Antonio Coke amended the San Antonio Coke
Management Incentive Plan which had been adopted on April 29, 1994, effective
as of January 1, 1994 (the "1994 San Antonio Coke Management Incentive
Plan"). The Board of Directors of San Antonio Coke administered the 1994 San
Antonio Management Incentive Plan and chose key managers of San Antonio Coke
to participate. Under the terms of the 1994 San Antonio Coke Management
Incentive Plan, as amended, eligible participants receive a cash bonus based
on the aggregate cash flow for the years 1994 through 1996 as compared with a
cash flow target in installments, beginning July 13, 1997 (37.5%) with the
remainder payable in equal installments on March 1, 1998 and March 1, 1999.
To qualify to receive a cash bonus under the 1994 San Antonio Coke Management
Incentive Plan, a participant must have been actively employed by San Antonio
Coke in a key management position continuously throughout the period from the
date of participation through the payment date (with certain exceptions upon
death or disability of the participant or change of control of the Company.)
One of the named executive officers of the Company participates in the
1994 San Antonio Coke Management Incentive Plan and two of the named
executive officers of the Company participate in the 1994 Company Management
Incentive Plan and the 1997 Company Management Incentive Plan. The following
table sets forth certain information about the long term incentive awards
that may be awarded to these officers pursuant to the 1994 San Antonio Coke
Management Incentive Plan and the 1994 and 1997 Company Management Incentive
Plans.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts
Number of Performance or under Non-Stock Price-Based Plans
Shares, Units Other Period Until ----------------------------------------
or Other Maturation or Threshold Target Maximum
Name Rights (#) Payout $ $ $
---- ---------- ------ --- --- ---
Charles F. Stephenson (1) 01/01/97-12/31/99 100,000 200,000 300,000
01/01/98-12/31/00 100,000 200,000 300,000
Charles F. Stephenson (2) 01/01/94-12/31/96 500,000 500,000 500,000
E. T. Summers III (3) 01/01/97-12/31/99 100,000 200,000 300,000
01/01/98-12/31/00 100,000 200,000 300,000
E. T. Summers III (4) 01/01/94-12/31/96 250,000 250,000 250,000
E. T. Summers III (5) 01/01/94-12/31/96 125,000 125,000 125,000
(1) Under his 1997 Management Incentive Agreement, Mr. Stephenson is
eligible to receive a $100,000 bonus if the actual cumulative cash flow
for the years 1997 through 1999 is equal to the cash flow threshold. If
the actual cumulative cash flow exceeds the cash flow threshold, Mr.
Stephenson would be eligible to receive an additional bonus of up to a
maximum of $300,000 which would be computed in accordance with the
formula set forth in his 1997 Management Incentive Agreement. Under his
1998 Management Incentive Agreement, Mr. Stephenson is eligible for the
same amounts if the actual cumulative cash flow for the years 1998
through 2000 is equal to the cash flow threshold for those years.
(2) Mr. Stephenson's remaining cash bonus under the 1994 Company Management
Incentive Plan is based on the achievement of an aggregate cash flow
target for Southwest Coke and the Company for the years 1994 through
1996. Mr. Stephenson received $250,000 on March 1, 1998 and will
receive an additional $250,000 on March 1, 1999 if he remains employed
in a key management position as of each payment date (with certain
limited exceptions provided by the 1994 Company Management Incentive
Plan).
(3) Under his 1997 Management Incentive Agreement, Mr. Summers is eligible
to receive a $100,000 bonus if the actual cumulative cash flow for the
years 1997 through 1999 is equal to the cash flow threshold. If the
actual cumulative cash flow exceeds the cash flow threshold, Mr. Summers
would be eligible to receive an additional bonus of up to a maximum of
$300,000 which would be computed in accordance with the formula set
forth in his 1997 Management Incentive Agreement. Under his 1998
Management Incentive Agreement, Mr. Summers is eligible for the same
amounts if the actual cumulative cash flow for the years 1998 through
2000 is equal to the cash flow threshold for those years.
24
(4) Mr. Summers' remaining cash bonus under the 1994 San Antonio Coke
Management Incentive Plan is based on the achievement of an aggregate
cash flow target for San Antonio Coke for the years 1994 through 1996.
Mr. Summers received $125,000 on March 1, 1998 and will receive an
additional $125,000 on March 1, 1999, if he remains employed in a key
management position as of each payment date (with certain limited
exceptions provided by the 1994 San Antonio Coke Management Incentive
Plan).
(5) Mr. Summers' remaining cash bonus under the 1994 Company Management
Incentive Plan is based on the achievement of an aggregate cash flow
target for Southwest Coke and the Company for the years 1994 through
1996. Mr. Summers received $62,500 on March 1, 1998 and will receive an
additional $62,500 on March 1, 1999, if he remains employed in a key
management position as of each payment date (with certain limited
exceptions provided by the 1994 Company Management Incentive Plan).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is 100% owned by Parent. The following table sets forth
certain information concerning the beneficial ownership of Parent's Class A
Common Stock, the only class of outstanding voting securities of Parent, as
of March 1, 1998, by each person known by the Company to own beneficially
more than 5% of the outstanding Class A Common Stock of Parent as of March 1,
1998, by each director of the Company and all officers and directors of the
Company as a group. The Company believes that each of such shareholders has
the sole voting and dispositive power over the shares it holds except as
otherwise indicated.
Class A
Common Stock
After
Conversion of
Class A Class B
Common Stock Common Stock
------------------------------ --------------
Number of Percentage Percentage
Name and Address Shares of Class of Class
---------------- ---------- ---------- --------------
Edmund M. Hoffman . . . . . . . . . . . . . . . . . . . . . 47,500 (1) 62.16% 49.28%
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
Robert K. Hoffman . . . . . . . . . . . . . . . . . . . . . 71,200 (2) 93.18 73.88
1999 Bryan Street
Suite 3300
Dallas, Texas 75201
The Prudential Insurance Company of America . . . . . . . . 14,285 (3) --- 14.82
4 Gateway Center
Newark, New Jersey 07102-4069
All officers and directors of the Company as a group (9
persons) . . . . . . . . . . . . . . . . . . . . . . . . . 75,210.8 (4) 98.43 78.04
- --------------------
(1) Includes 47,500 shares owned by a limited partnership. Edmund M. Hoffman
is a manager of the general partner of such limited partnership, in which
capacity he has voting and investment power.
(2) Includes 47,500 shares owned by a limited partnership. Robert K. Hoffman
is a manager of the general partner of such limited partnership, in which
capacity he has voting and investment power.
(3) Consists of shares issuable upon conversion of Class B Common Stock, 428 of
which are owned by Pruco Life Insurance Company, an affiliate of The
Prudential Insurance Company of America.
(4) Includes 210.8 shares issuable upon conversion of 210.8 shares of Class B
Common Stock issuable upon exercise of stock options held by Stephanie L.
Ertel.
25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is party to a Renewed and Extended Management Agreement with
TBG, whereby the Company provides the advice and consultation of executive
and technical personnel of the Company and their assistants to the management
of TBG. In consideration therefor, TBG pays the Company a management fee of
$58,333 per month, which may be increased by agreement of the parties at any
time, subject to approval by a majority of the holders of the Class B Common
Stock of TBG.
Southwest Coke and San Antonio Coke each supplement the other's
production capacity on an as-needed basis. Pursuant to written agreement,
franchisors of Southwest Coke and San Antonio Coke permit finished franchise
product produced by San Antonio Coke to be distributed in the franchise
territory of Southwest Coke and vice versa. Cross-production occurs
primarily in Bag-in-Box fountain product, lower volume flavor products and 20
ounce non-returnable bottles. Such products are purchased on mutually
beneficial and reciprocal terms. Pursuant to these arrangements, in 1997
Southwest Coke purchased approximately $13.4 million of products from San
Antonio Coke and San Antonio Coke purchased approximately $14.9 million of
products from Southwest Coke.
The Company is a party to a Tax Sharing Agreement which provides that
the Company and Southwest Coke, among others, will file consolidated Federal
income tax returns with Parent. Under the Tax Sharing Agreement, each member
of Parent's consolidated group pays to Parent its share of the consolidated
group's Federal income tax liability based on its share of the total taxable
income of the consolidated group. The Tax Sharing Agreement may have the
effect of benefitting a member of the consolidated group that has taxable
income if any other member of the consolidated group has incurred losses that
are used to offset such taxable income. TBG is not a party to the Tax
Sharing Agreement and files separate tax returns.
Charles F. Stephenson, President of the Company and Southwest Coke,
served as a director and Chairman of the Board of Bottler Systems, Inc., a
computer software firm that is owned and operated by certain bottlers of
Coca-Cola, until October 1993. Gary R. Phy, Senior Vice President-Finance of
Southwest Coke, has served as a director since October 1993 and is currently
Chairman of the Board. Southwest Coke and San Antonio Coke purchase software
from Bottler Systems, Inc. In 1997, such purchases totaled $0.1 million each.
The Company has entered into a loan agreement with the Edmund M. and
Adelyn Jean Hoffman Trust pursuant to which the Trust may borrow up to $2
million from the Company to pay the premiums of a second-to-die insurance
policy on the lives of Edmund M. Hoffman and his wife, Adelyn Jean Hoffman.
As of December 31, 1997, the Trust had borrowed $1.55 million from the
Company. The beneficiaries of the Trust are Robert K. Hoffman, Co-Chairman
of the Company, and his brother, Richard E. Hoffman, Vice President - Human
Resources of the Company. The loan is secured by the proceeds of the life
insurance policy and will be repaid from the proceeds of the policy. Funds
borrowed under the loan agreement bear interest at a rate of 8% per annum.
The principal amount of the loan and accrued interest thereon are payable
upon the earlier to occur of receipt of the proceeds of the life insurance
policy and the day 90 days after Edmund M. Hoffman and his wife no longer
directly or indirectly hold any of the outstanding Class A Common Stock of
Parent.
E. T. Summers, III, Executive Vice President of the Company and
President of San Antonio Coke, is a director of Western Container, a plastic
bottle manufacturing cooperative owned by certain bottlers of Coca-Cola, of
which Southwest Coke and San Antonio Coke are members. Southwest Coke and
San Antonio Coke purchase bottles from Western Container. In 1997, such
purchases totaled approximately $6.3 million for Southwest Coke and $11.2
million for San Antonio Coke. During 1993, Southwest Coke and San Antonio
Coke each entered into five-year agreements with Western Container.
Beginning with the third calendar quarter of 1994, the agreements require
Southwest Coke and San Antonio Coke to pay a maximum amount per calendar
quarter of $102,218 and $232,704, respectively, reduced by $10 per 1,000
contour style and sixteen-ounce, twenty-ounce and one liter generic style
plastic bottles purchased
26
during the same calendar quarter. At the end of each successive four
quarters, the credit due Southwest Coke or San Antonio Coke is determined on
a twelve-month basis, and in the event the quantities purchased exceed the
volume required to eliminate the obligation to make quarterly payments during
the twelve-month period, any payments made under the contract during such
period will be refunded. Applicable purchases from Western Container in 1997
by each of Southwest Coke and San Antonio Coke exceeded the minimum purchase
requirements necessary to eliminate payments under each respective contract.
See "Business--Raw Materials."
In June 1995, the Company loaned $100,000 to Charles F. Stephenson,
President of the Company and Southwest Coke. The loan bears interest at 8%
per annum and is due on the earlier of February 1, 1999 or the 30th day after
his last day of employment as a manager of the Company or one of its
subsidiaries.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The Financial Statements listed below are filed as part of this
Annual Report on Form 10-K.
Financial Statements
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC.
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31,
1996 and 1997.
Consolidated Statements of Income.
Consolidated Statements of Stockholder's Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
TEXAS BOTTLING GROUP, INC.
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31,
1996 and 1997.
Consolidated Statements of Income.
Consolidated Statements of Stockholders' Equity.
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on April 1, 1997 reporting certain
transfers of shares of Parent stock, effective March 21,
1997.
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on April 11, 1997 reporting certain
transfers of shares of Parent stock, effective March 21,
1997.
28
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on December 8, 1997 reporting
certain transfers of shares of Parent stock, effective
December 1, 1997 and December 2, 1997.
(c) Exhibits
3.1 Articles of Incorporation of the Company, as
amended.(1)
3.2 Bylaws of the Company.(1)
4.1 Form of Indenture, dated November 15, 1993, between
the Company and Chemical Bank, N.A. with respect to
the 9% Senior Subordinated Notes Due 2003.(1)
4.2 Form of Specimen Certificate for 9% Senior
Subordinated Notes Due 2003 (included as Exhibit A
to the Indenture in Exhibit 4.1).(1)
4.3 Specimen Certificate for 11.64% Subordinated Notes,
dated as of July 10, 1993.(1)
10.1 First Line Bottlers Contract, dated as of December
26, 1935, between Amarillo Coca-Cola Bottling
Company, Inc. and The Coca-Cola Company.(1)
10.2 Franchise Agreement, dated as of September 1, 1956,
between Coca-Cola Bottling Company of Lubbock and
The Coca-Cola Company.(1)
10.3 Franchise Agreement, dated as of May 22, 1928,
between Texas Coca-Cola Bottling Company and The
Coca-Cola Company.(1)
10.4 Franchise Agreement, dated as of April 21, 1941,
between Pecos Valley Coca-Cola Bottling Company and
The Coca-Cola Company.(1)
10.5 Franchise Agreement, dated as of February 1, 1961,
between Monahans Coca-Cola Bottling Company and The
Coca-Cola Company.(1)
10.6 Franchise Agreement, dated as of March 14, 1934,
between Woodward Coca-Cola Bottling Company and The
Coca-Cola Company.(1)
10.7 Franchise Agreement, dated as of April 1, 1937,
between Alva Coca-Cola Bottling Co., Inc. and The
Coca-Cola Company.(1)
10.8 Franchise Agreement, dated as of September 7, 1921,
between Wichita Falls Coca-Cola Bottling Company and
The Coca-Cola Company.(1)
10.9 Franchise Agreement, dated as of February 6, 1984,
between Wichita Coca-Cola Bottling Company and The
Coca-Cola Company (Clarendon territory).(1)
- ----------------
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-69247) filed on November 5, 1993.
29
10.10 Form of Amendments to Franchise Agreements between
each of the subsidiaries of the Company and The
Coca-Cola Company.(1)
10.11 Form of Franchise Agreements between Dr. Pepper
Company and Southwest Coca-Cola Bottling Company,
Inc. (for various territories).(1)
10.12 Employment Agreement, dated as of December 16, 1985,
between the Company and Edmund M. Hoffman.(1) #
10.13 Employment Agreement, dated as of December 16, 1985,
between the Company and Robert K. Hoffman.(1) #
10.14 Amendment No. 1, dated as of September 9, 1993, to
the Employment Agreement dated as of December 16,
1985, between the Company and Robert K. Hoffman.(1) #
10.15 Executive Security Plan for the Company.(1) #
10.16 The Company's Non-Statutory Stock Option/Stock
Appreciation Rights Plan.(1) #
10.17 Stockholder Agreement, dated as of March 31, 1987,
among Texas Bottling Group, Inc., the Company, The
Prudential Insurance Company of America and Pruco
Life Insurance Company.(1)
10.18 Tax Sharing Agreement, dated as of February 4, 1985,
as amended on March 7, 1986, among Parent, The
Company, and Amarillo Coca-Cola Bottling Company,
Inc., Shoshone Coca-Cola Bottling Company, Automatic
Merchandiser, Inc. of Nevada and Market
Communication Counselors, Inc.(1)
10.19 Tax Sharing Agreement, dated as of October 23, 1993,
but effective as of January 1, 1993, by and among
CCBG Corporation, Southwest Coca-Cola Bottling
Company, Inc., Wichita Coca-Cola Bottling Company,
Alva Coca-Cola Bottling Company, Inc., Woodward
Coca-Cola Bottling Company, Market Communication
Counselors, Inc. and the Company.(1)
10.20 Renewed and Extended Management Agreement with Texas
Bottling Group, Inc., dated as of December 1, 1991,
between the Company and Texas Bottling Group, Inc.(1)
10.21 Loan Agreement, dated as of March 31, 1987, between
the Company and Edmund M. and Adelyn Jean Hoffman
Trust.(1)
10.22 Promissory Note, dated as of March 31, 1987, between
the Company and Edmund M. and Adelyn Jean Hoffman
Trust.(1)
10.23 Amendment to Loan Agreement, dated as of September
1, 1993, between the Company and Edmund M. and
Adelyn Jean Hoffman Trust.(1)
10.24 Equipment Lease, dated as of July 1, 1993, between
the Company and Citicorp Dealer Finance.(1)
# Management Contract or Plan.
30
10.25 Vehicle Lease and Service Agreement, dated as of
February 10, 1993, between Southwest Coca-Cola
Bottling Company, Inc. and C&W Leasing Corporation.(1)
10.26 Amendment to Bottle Contracts, dated as of December
14, 1987, by and between Southwest Coca-Cola
Bottling Company, Inc. and The Coca-Cola Company.(1)
10.27 Amendment to Renewed and Extended Management
Agreement with Texas Bottling Group, Inc., dated as
of April 14, 1994, between the Company and Texas
Bottling Group, Inc.(2)
10.28 Management Incentive Plan of the Company, adopted
June 22, 1994, effective January 1, 1994.(3) #
10.29 Management Incentive Agreement, executed June 23,
1994 and effective January 1, 1994, between the
Company and Charles F. Stephenson.(3)#
10.30 Management Incentive Agreement, executed May 9, 1994
and effective January 1, 1994, between Southwest
Coke and Ronnie Hill.(3) #
10.31 Management Incentive Agreement, executed July 20,
1994 and effective January 1, 1994, between the
Company and E.T. Summers III.(3) #
10.32 Employment Agreement, executed August 10, 1994 and
effective January 1, 1994, between the Company and
Stephanie L. Ertel.(4)#
10.33 Management Incentive Plan for managers of ACFS,
effective January 1, 1995.(5)#
10.34 Relocation Agreement, effective June 15, 1995,
between the Company and Charles F. Stephenson.(5) #
10.35 Loan Agreement ($120,000,000 Term Loan Facility and
$30,000,000 Revolving Loan Facility) (the "1995
Company Loan Agreement"), dated as of April 4, 1995,
among the Company, Texas Commerce Bank National
Association ("TCB"), as Agent and a Lender, First
Bank National Association ("First Bank"), as Agent
and a Lender, and certain other financial
institutions who are parties to the 1995 Company
Loan Agreement.(6)
- ----------------
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1994.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1994.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1995.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1995.
31
10.36 Interest Rate Agreement, dated as of April 4, 1995,
by and among the Company, certain financial
institutions a party thereto, First Bank, as
Collateral Agent, and TCB, as Agent.(6)
10.37 Notice of Entire Agreement, dated as of April 4,
1995, executed by the Company, Parent, Southwest
Coke, Alva Coca-Cola Bottling Co., Inc., Woodward
Coca-Cola Bottling Company, Market Communications
Counselors, Inc. and TCB, as Agent.(6)
10.38 Security Agreement, dated as of April 4, 1995, by
and among the Company, First Bank, as Collateral
Agent, TCB, as Agent, and the financial institutions
who are parties to the 1995 Company Loan Agreement.(6)
10.39 Security Agreement, dated as of April 4, 1995, by
and among Southwest Coke, First Bank, as Collateral
Agent, TCB, as Agent, and the financial institutions
who are parties to the 1995 Company Loan Agreement.(6)
10.40 Security Agreement, dated as of April 4, 1995, by
and among Parent, First Bank, as Collateral Agent,
TCB, as Agent, and the financial institutions who
are parties to the 1995 Company Loan Agreement.(6)
10.41 Form of Term Note issued by the Company pursuant to
the 1995 Company Loan Agreement.(6)
10.42 Form of Revolving Note issued by the Company
pursuant to the 1995 Company Loan Agreement.(6)
10.43 Contribution Agreement, dated as of April 4, 1995,
executed by Parent, the Company, Southwest Coke,
Alva Coca-Cola Bottling Co., Inc., Woodward Coca-Cola
Bottling Company, Market Communications Counselors,
Inc. and The Dani Group, Inc.(6)
10.44 Loan Agreement ($115,000,000 Term Loan Facility and
$25,000,000 Revolving Loan Facility) (the "1995 TBG
Loan Agreement"), dated as of April 4, 1995, among
TBG, TCB, as Agent and a Lender, First Bank, as
Agent and a Lender, and the other financial
institutions who are parties to the 1995 TBG Loan
Agreement.(6)
10.45 Interest Rate Agreement, dated as of April 4, 1995,
by and among TBG, certain financial institutions a
party thereto, First Bank, as Collateral Agent, and
TCB, as Agent.(6)
10.46 Notice of Entire Agreement, dated as of April 4,
1995, executed by TBG, San Antonio Coke and TCB, as
Agent.(6)
10.47 Security Agreement, dated as of April 4, 1995, by
and among TBG, First Bank, as Collateral Agent, TCB,
as Agent, and the financial institutions who are
parties to the 1995 TBG Loan Agreement.(6)
10.48 Form of Term Note issued by TBG pursuant to the 1995
TBG Loan Agreement.(6)
32
10.49 Form of Revolving Note issued by TBG pursuant to the
1995 TBG Loan Agreement.(6)
10.50 Contribution Agreement, dated as of April 4, 1995,
executed by the Company and San Antonio Coke.(6)
10.51 Consent letter dated May 1, 1996 providing for
adjustments to the Loan Agreement dated April 4,
1995, executed by and among The Coca-Cola Bottling
Group (Southwest), Inc., Texas Commerce Bank
National Association, as Agent, First Bank National
Association, as Collateral Agent, and certain other
financial institutions therein listed.(7)
10.52 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.(8) #
10.53 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.(8) #
10.54 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.(8) #
10.55 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.(8) #
10.56 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.(8) #
10.57 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.(8) #
10.58 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.(8) #
- -----------------
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
33
10.59 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.(8) #
10.60 Credit Agreement ($50,000,000 Term Loan Facility and
$220,000,000 Revolving Loan Facility) (the "Company
Credit Agreement") dated March 11, 1998 among the
Company and NationsBank, National Association
("NationsBank"), as Agent and as Lender, and the
lenders party thereto.
10.61 Form of Term Note issued by the Company pursuant to
the Company Credit Agreement.
10.62 Form of Revolving Note issued by the Company
pursuant to the Company Credit Agreement.
10.63 Swing Line Note issued by the Company pursuant to
the Company Credit Agreement.
10.64 Guaranty Agreement, dated March 11, 1998, among
Parent, Dani, Southwest Coke, Woodward Coca-Cola
Bottling Company, Alva Coca Cola Bottling Co., Inc.
and Market Communication Common Counselors, Inc. in
favor of NationsBank, as Agent.
10.65 LC Account Agreement, dated March 11, 1998, between
the Company and NationsBank, as Agent.
10.66 Stock Pledge Agreement, dated March 11, 1998, among
Parent, the Company, Southwest Coke, and
NationsBank, as Agent.
10.67 Credit Agreement ($230,000,000 Revolving Credit
Facility) (the "TBG Credit Agreement"), dated March
11, 1998, among TBG, NationsBank, as Agent and as
Lender, and the lenders party thereto.
10.68 Form of Revolving Note issued by TBG pursuant to the
TBG Credit Agreement.
10.69 Swing Line Note issued by TBG pursuant to the TBG
Credit Agreement.
10.70 Guaranty Agreement, dated March 11, 1998, by
Coca-Cola Bottling Company of the Southwest in favor
of NationsBank, as Agent, pursuant to the TBG Credit
Agreement.
10.71 LC Account Agreement, dated March 11, 1998, between
TBG and NationsBank, as Agent, pursuant to the TBG
Credit Agreement.
10.72 Stock Pledge Agreement, dated March 11, 1998,
between TBG and NationsBank, as Agent, pursuant to
the TBG Credit Agreement.
10.73 The Coca-Cola Bottling Group (Southwest), Inc.
Management Incentive Agreement by and between the
Company and Charles F. Stephenson, effective
January 1, 1998.#
34
10.74 The Coca-Cola Bottling Group (Southwest), Inc.
Management Incentive Agreement by and between the
Company and E. T. Summers, III, effective
January 1, 1998.#
21.1 Subsidiaries of the Company.(9)
27 Financial Data Schedule
- -----------------
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By:/s/ Charles F. Stephenson
----------------------------------------------
Charles F. Stephenson,
President
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Edmund M. Hoffman Co-Chairman and Director March 30, 1998
- -------------------------- (Principal Executive Officer)
Edmund M. Hoffman
/s/ Robert K. Hoffman Co-Chairman and Director March 30, 1998
- --------------------------
Robert K. Hoffman
/s/ Charles F. Stephenson President (Principal Financial March 30, 1998
- -------------------------- and Accounting Officer)
Charles F. Stephenson
INDEX TO FINANCIAL STATEMENTS
Page
----
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC.
Report of Independent Public Accountants. . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholder's Equity . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-9
TEXAS BOTTLING GROUP, INC.
Report of Independent Public Accountants. . . . . . . . . . . . . . . F-21
Consolidated Balance Sheets as of
December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . F-24
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . F-25
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . F-26
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-28
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Coca-Cola Bottling Group (Southwest), Inc.:
We have audited the accompanying consolidated balance sheets of The Coca-Cola
Bottling Group (Southwest), Inc. (a Nevada corporation and a wholly owned
subsidiary of CCBG Corporation, a Nevada corporation) and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of
income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Coca-Cola Bottling Group
(Southwest), Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 12, 1998
F-2
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1997
(Amounts in Thousands, Except Share Data)
ASSETS 1996 1997
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 3,111 $ 3,208
Receivables-
Trade accounts, net of allowance for
doubtful accounts of $537 and $523 in
1996 and 1997 17,053 17,431
Other 6,678 7,418
-------- --------
Total receivables, net 23,731 24,849
Inventories 9,756 9,461
Prepaid expenses and other 1,846 1,930
Deferred tax asset 5,848 6,883
-------- --------
Total current assets 44,292 46,331
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
Land 5,796 5,655
Buildings and improvements 28,238 27,818
Vending machines, machinery, and equipment 69,181 79,959
Furniture and fixtures 3,573 3,287
Transportation equipment 17,670 19,818
-------- --------
124,458 136,537
Less-Accumulated depreciation and
amortization (79,256) (86,132)
-------- --------
Property, plant, and equipment, net 45,202 50,405
-------- --------
OTHER ASSETS:
Franchise rights, net of accumulated
amortization of $37,744 and $41,328 in
1996 and 1997 105,910 102,317
Goodwill, net of accumulated amortization
of $1,828 and $2,223 in 1996 and 1997 13,516 13,121
-------- --------
Franchise rights and goodwill 119,426 115,438
Deferred financing costs and other assets,
net of accumulated amortization of $13,834
and $15,098 in 1996 and 1997 16,298 14,141
Deferred tax asset 3,725 2,322
Net assets of discontinued operations 1,706 -
-------- --------
Total other assets 141,155 131,901
-------- --------
Total assets $230,649 $228,637
-------- --------
-------- --------
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1997
(Amounts in Thousands, Except Share Data)
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1997
------------------------------------ -------- --------
CURRENT LIABILITIES:
Accounts payable $ 20,986 $ 18,090
Accrued payroll 2,656 3,494
Accrued interest 1,629 1,646
Other accrued liabilities 1,336 1,985
Current maturities of long-term debt 12,816 2,015
Net liabilities of discontinued operations - 17
-------- --------
Total current liabilities 39,423 27,247
-------- --------
LONG-TERM DEBT, net of current maturities 238,027 251,529
OTHER LIABILITIES 13,326 11,900
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 (86,360) (88,272)
-------- --------
Total stockholder's equity (60,127) (62,039)
-------- --------
Total liabilities and stockholder's equity $230,649 $228,637
-------- --------
-------- --------
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
1995 1996 1997
-------- -------- --------
NET REVENUES $233,395 $243,857 $244,964
COSTS AND EXPENSES:
Cost of goods sold (exclusive of
depreciation shown below) 125,017 126,459 126,429
Selling, general, and administrative 64,275 70,546 74,872
Depreciation and amortization 12,447 13,892 15,568
-------- -------- --------
Operating income 31,656 32,960 28,095
INTEREST:
Interest on debt (22,899) (21,006) (20,563)
Deferred financing cost (1,222) (593) (583)
Interest income 241 182 178
-------- -------- --------
(23,880) (21,417) (20,968)
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY 5,311 7,531 3,379
-------- -------- --------
Income from operations before income
taxes, discontinued operations and
extraordinary item 13,087 19,074 10,506
INCOME TAX BENEFIT (PROVISION) 10,119 (2,770) (2,110)
-------- -------- --------
Income from operations before
discontinued operations and
extraordinary item 23,206 16,304 8,396
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of
income tax benefit of $234, $461, and $468 in
1995, 1996, and 1997, respectively (436) (856) (869)
Loss on disposal of discontinued operations,
net of income tax benefit of $505 - - (939)
-------- -------- --------
Income from operations before
extraordinary item 22,770 15,448 6,588
EXTRAORDINARY ITEM, net of income tax benefit
of $423 in 1995 (787) - -
-------- -------- --------
Net income $ 21,983 $ 15,448 $ 6,588
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these
consolidated statements.
F-5
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
Common Stock Additional
--------------- Paid-In Retained
Shares Amount Capital Deficit
------ ------ ---------- ---------
BALANCE, December 31, 1994 100 $ 10 $26,223 $(113,136)
Net income - - - 21,983
Dividends paid - - - (4,305)
--- ---- ------- ---------
BALANCE, December 31, 1995 100 10 26,223 (95,458)
Net income - - - 15,448
Dividends paid - - - (6,350)
--- ---- ------- ---------
BALANCE, December 31, 1996 100 10 26,223 (86,360)
Net income - - - 6,588
Dividends paid - - - (8,500)
--- ---- ------- ---------
BALANCE, December 31, 1997 100 $ 10 $26,223 $ (88,272)
--- ---- ------- ---------
--- ---- ------- ---------
The accompanying notes are an integral part of
these consolidated statements.
F-6
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
1995 1996 1997
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,983 $ 15,448 $ 6,588
Adjustments to reconcile net income to net
cash provided by operating activities-
Net loss from discontinued operations 436 856 1,808
Depreciation and amortization 12,447 13,892 15,568
Provision for bad debts 120 68 300
Amortization of deferred financing costs 1,222 593 583
Deferred tax (benefit) provision (10,800) 1,227 368
Deferred compensation 1,598 1,591 (565)
Earnings of unconsolidated subsidiary (5,311) (7,531) (3,379)
Extraordinary item 1,210 - -
Change in assets and liabilities, excluding
effects of extraordinary item:
Receivables (1,251) (2,067) (1,418)
Inventories 1,017 213 295
Prepaid expenses and other (164) (989) (84)
Accounts payable 1,484 5,058 (2,896)
Accrued expenses (537) (911) 1,504
Other liabilities - 2,438 814
--------- -------- --------
Net cash provided by operating
activities 23,454 29,886 19,486
--------- -------- --------
NET CASH USED BY DISCONTINUED OPERATIONS (265) (1,883) (85)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (8,111) (12,573) (15,553)
Other noncurrent assets disposed of (acquired) (711) (2,083) (908)
Dividends received 3,853 4,137 4,630
--------- -------- --------
Net cash used by investing activities (4,969) (10,519) (11,831)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
credit facility (3,500) 2,300 7,850
Payments on long-term debt (7,191) (13,369) (12,473)
Proceeds from issuance of long-term debt, net 118,457 - 5,650
Retirement of long-term debt (121,122) - -
Purchase of interest rate cap (588) - -
Dividends paid (4,305) (6,350) (8,500)
--------- -------- --------
Net cash used by financing activities (18,249) (17,419) (7,473)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (29) 65 97
CASH AND CASH EQUIVALENTS, beginning of year 3,075 3,046 3,111
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 3,046 $ 3,111 $ 3,208
--------- -------- --------
--------- -------- --------
The accompanying notes are an integral part of these
consolidated statements.
F-7
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1995 1996 1997
------- ------- -------
Cash paid during the year for:
Interest $22,097 $23,421 $20,368
Income taxes - 552 350
The accompanying notes are an integral part of these
consolidated statements.
F-8
THE COCA-COLA BOTTLING GROUP (SOUTHWEST), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Coca-Cola
Bottling Group (Southwest), Inc., a Nevada corporation (the "Company," a
wholly owned subsidiary of CCBG Corporation) and its wholly owned
subsidiaries. The major operating subsidiary is Southwest Coca-Cola Bottling
Company, Inc. ("Southwest Coke"). The Company primarily bottles and
distributes soft drinks in its franchise territories (food service operations
are not material) which include a substantial portion of western Texas and
the Texas Panhandle, western Oklahoma, and eastern New Mexico and extend into
portions of Colorado and Kansas. All material intercompany balances and
transactions have been eliminated in consolidation.
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The Company has an interest in Texas Bottling Group, Inc. ("TBG"), an
unconsolidated subsidiary. TBG, through its wholly owned subsidiary,
Coca-Cola Bottling Company of the Southwest ("San Antonio Coke"), primarily
bottles and distributes soft drinks in its franchise territories in central
and southern Texas, including the cities of San Antonio and Corpus Christi.
CERTAIN RISK FACTORS
The Company is highly leveraged and will require substantial amounts of cash
to fund scheduled payments of principal and interest on its outstanding debt
and future capital expenditures. The Company's ability to service its debt
in the future, maintain adequate working capital and make required or planned
capital expenditures will depend on its ability to generate sufficient cash
from operations. Management is of the opinion that the Company will generate
sufficient cash flow to meet its obligations or that alternative financing
will be available.
REVENUE RECOGNITION
Revenue is recognized at the bottling operations when the product is
delivered. Vending operations recognize revenue when cash is collected.
CASH AND CASH EQUIVALENTS
The Company considers investments with original maturities of three months or
less to be cash equivalents.
F-9
INVENTORIES
Inventories include the costs of materials and direct labor and manufacturing
overhead, when applicable, and are valued at the lower of first-in, first-out
cost or market, except for repair parts and supplies, which are valued at
cost. Inventories as of December 31, 1996 and 1997, are summarized as follows
(in thousands):
1996 1997
------ ------
Raw materials $1,991 $2,307
Finished goods 7,252 6,643
Repair parts and supplies 513 511
------ ------
$9,756 $9,461
------ ------
------ ------
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to expense when incurred. The cost of
assets retired or sold, and the related amounts of accumulated depreciation
are removed from the accounts, and any gain or loss is included in income.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets as follows:
Buildings and improvements 4-35 years
Vending machines, machinery, and equipment 4-7 years
Furniture and fixtures 3-7 years
Transportation equipment 3-7 years
RETURNABLE CAN TRAYS AND SHELLS
Returnable can trays and shells are carried in other assets at amortized
cost. The cost of shells in excess of deposit value is amortized on a
straight-line basis over three years.
FRANCHISE RIGHTS AND GOODWILL
Franchise rights and goodwill represent the cost in excess of the fair value
of tangible assets acquired. The Company views franchise rights and goodwill
as a single intangible asset that is being amortized over a period of 40
years. The Company established separate values for franchise rights and for
goodwill. The Company annually evaluates its carrying value and expected
period of benefit of franchise rights and goodwill in relation to its
expected future undiscounted cash flows. If the carrying value were
determined to be in excess of expected future cash flows, franchise rights
and goodwill would be reduced to fair market value. Expected future cash
flows exceeded those amounts recorded in the consolidated financial
statements.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of existing differences between the financial
reporting and tax reporting bases of assets and liabilities and operating
loss and tax credit carryforwards for tax purposes. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount
that will more likely than not be realized.
F-10
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year classification.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were assumed
in preparing the financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting and Standards Board has issued Statement of
Financial Accounting Standard (SFAS) No. 129, "Disclosure of Information
about Capital Structure," SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements become effective during 1998 and are not
expected to have a significant effect on the financial position of the
Company.
2. PARENT COMPANY:
The Company and its subsidiaries are the sole source of funds to satisfy
certain payment obligations of CCBG Corporation (the "Parent").
3. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
The Company owns 541,916 shares of Class A common stock of TBG, which
represents 49% of the ownership of TBG. The Prudential Insurance Company of
America and its affiliate own 226,277 shares of Class B common stock, which
effectively represents 51% of the ownership of TBG, as the Class B common
stock is convertible into 553,247 shares of Class A common stock at the
option of the holder. There are restrictions in the Company's credit
agreements that limit transactions between the Company and TBG to
cross-production, common administrative and operational functions, services
provided under the management agreement with TBG and other transactions, if
the terms are at least as favorable to the Company as the same transaction
would be with a third party. In addition, TBG's credit agreements have
similar provisions. The Company's credit agreements also provide for
restrictions on transfers of cash or other assets from the Company to TBG.
The Company accounts for its investment in TBG under the equity method.
F-11
Summarized financial information for TBG as of December 31, 1996 and 1997, is
as follows (in thousands):
1996 1997
-------- --------
Current assets $ 45,735 $ 44,388
Noncurrent assets 210,388 206,043
Current liabilities 39,433 23,160
Long-term debt 203,000 214,867
Other liabilities 3,864 5,072
Postretirement benefit obligation 6,157 6,117
Stockholders' equity 3,669 1,215
For the years ended December 31, 1995,
1996, and 1997:
1995 1996 1997
-------- -------- --------
Net revenues $215,095 $220,796 $217,508
Cost of goods sold 117,233 119,336 116,258
Income before taxes and extraordinary item 15,883 18,263 10,836
Net income 28,486 15,292 6,946
The Company recognized equity in net income of TBG of $5,311,000 in 1995,
$7,531,000 in 1996, and $3,379,000 in 1997. The Company received dividends
from TBG of $3,853,000 in 1995, $4,137,000 in 1996, and $4,629,500 in 1997.
The Company's investment in the TBG is included in other assets in the
accompanying consolidated financial statements.
The Company has a management agreement with TBG providing for annual
management fees of approximately $700,000. The agreement is for a period of
one year and automatically renews.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an order
dismissing the complaint filed by the FTC in 1988 against San Antonio Coke, a
wholly owned subsidiary of TBG, bringing to an end the FTC's efforts to force
the divestiture of Dr Pepper licenses held by San Antonio Coke for a
ten-county area around and including San Antonio, Texas.
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 with credit facilities, under which the
Company may borrow up to $270 million. The credit facilities include the
following: 1) a 364-day term loan facility (the "1998 Term Loan") under which
the Company may borrow up to $50 million; and 2) a five-year revolving credit
agreement (the "1998 Revolver") under which the Company may borrow up to $220
million. As required by the 1998 Bank Credit Agreement, the proceeds of the
1998 Term Loan shall be used solely for the repurchase of any remaining
amounts of the existing 9% Senior Subordinated Debt and the proceeds from the
1998 Revolver shall be used to refinance existing
F-12
indebtedness or as allowed under the new credit agreement. Advances made
under the 1998 Term Loan will be available in a single borrowing and will be
subject to quarterly amortization of principal based on the following
schedule (with final payment due five years from the advance):
Year after Advance Amortization
1 $ 4 million
2 $ 6 million
3 $10 million
4 $15 million
5 $15 million
The 1998 Revolver shall bear interest at a rate equal to either LIBOR plus
0.375% to 1.75% or the Alternate Base Rate, as defined, plus 0.0% to 0.75%.
The 1998 Term Loan shall bear interest at a rate equal to either LIBOR plus
1.125% to 2.5% or the Alternate Base Rate, as defined, plus 0.0% to 1.25%.
Interest rates and commitment fees on the 1998 Revolver and the 1998 Term
Loan are subject to change, depending on the ratio of total debt to earnings,
as defined, at the end of each calendar quarter. Interest payments are
payable quarterly or as defined on the 1998 Revolver and the 1998 Term Loan.
The Company must pay a commitment fee of 0.18% to 0.5% of the average daily
unused committed amount of the 1998 Revolver and 0.18% to 0.5% of the
available 1998 Term Loan. 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 $1.35 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 the Company and its subsidiaries. Upon the fourth
consecutive fiscal quarterly determination of total debt to earnings, as
defined, of not greater than 5.0 to 1, the Company may elect to terminate the
security interest in stock of the Company and subsidiaries.
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, as described below, related to the Variable
Term Loan, the Revolver and other debt. Additionally, in March 1998, the
Company plans to initiate the repurchase of a portion of its 9% Senior
Subordinated Notes. The Company intends to repurchase the remainder of the
9% Senior Subordinated Notes by December 1998. This will result in an
after-tax loss that will be recorded as an extraordinary item in the
financial results for the year ended December 31, 1998. The extraordinary
charge will include all unamortized costs, including unamortized costs
related to the 1995 interest rate cap agreement (Note 6), of approximately
$1.2 million related to debt repaid during 1998 and any unamortized costs and
premium paid on the early extinguishment of the 9% Senior Subordinated Notes.
F-13
Long-term debt and related collateral consists of the following as of
December 31, 1996 and 1997 (in thousands):
DECEMBER 31,
--------------------
1996 1997
-------- --------
9% Senior Subordinated Notes -- unsecured, due on
November 15, 2003; interest is payable semiannually
on May 15 and November 15 $140,000 $140,000
Variable Term Loan -- due in quarterly installments
through March 31, 2003 102,000 90,000
Other 2,043 8,894
Borrowings under revolving credit facility 6,800 14,650
-------- --------
Total debt 250,843 253,544
Less- Current maturities 12,816 2,015
-------- --------
Total long-term debt $238,027 $251,529
-------- --------
-------- --------
Principal payments for maturities of long-term debt, after giving effect to
the 1998 Bank Credit Agreement, for the next five years are as follows as of
December 31, 1997 (in thousands):
1998 $ 2,015
1999 847
2000 882
2001 952
2002 505
Thereafter 248,343
--------
$253,544
--------
--------
VARIABLE TERM LOAN AND REVOLVER
In April 1995, the Company entered into a loan agreement with Texas Commerce
Bank National Association as agent for a syndicate of financial institutions.
The agreement provided for a $120 million term loan (the "Variable Term
Loan") and a $30 million revolving credit facility (the "Revolver"). The
Variable Term Loan and Revolver were repaid in March 1998. As of December
31, 1997, $14.65 million was outstanding on the Revolver. Borrowings under
the Variable Term Loan and Revolver (collectively, the "1995 Bank Credit
Agreement") were used to replace the Company's 10.05% senior secured notes
and the $75 million 1993 bank credit agreement with Citicorp USA as agent for
a group of banks which resulted in the Company recording a charge of $0.8
million for unamortized deferred financing costs.
Both the Variable Term Loan and Revolver calculated interest at the Company's
option at either Alternate Base Rate (8.5% as of December 31, 1997) or
Eurodollar Rate (5.9% as of December 31, 1997) plus 1.00%. A commitment fee
of 0.25% was charged on the average daily unused portion of the Revolver.
Interest rates on the 1995 Bank Credit Agreement were subject to change,
depending on the ratio of total debt to cash flow, as defined, at the end of
each calendar quarter. The interest rates were adjusted quarterly in a range
from a maximum of Alternate Base Rate plus .50% or Eurodollar Rate plus 1.75%
to a minimum of Alternate Base Rate or Eurodollar Rate plus .50%, according
to a grid of permitted debt to cash flow ratios. Interest on the 1995 Bank
Credit Agreement was due on the last day of each calendar quarter for
F-14
amounts borrowed at the Alternate Base Rate or at the end of each applicable
interest period for amounts borrowed at the Eurodollar Rate. For interest
periods exceeding three months, related interest expense was due on the last
day of each calendar quarter.
Borrowings under the 1995 Bank Credit Agreement were secured by pledges of
the stock of the Company and its subsidiaries and certain intercompany
indebtedness of Southwest Coke to the Company, as well as guarantees of the
Parent and the Company's subsidiaries.
The 1995 Bank Credit Agreement contained several restrictive covenants, the
most significant of which: required maintenance of minimum ratios of cash
flow to interest expense and fixed charges, as defined; limited the ratio of
debt to cash flow, as defined; and restricted the issuance of additional
common stock. The 1995 Bank Credit Agreement did permit the payment of
dividends and other distributions to shareholders as permitted by the
indenture governing the 9% Notes due 2003 and also limited by minimum fixed
charge coverage requirements, so long as no default existed.
Interest expense was approximately $24,121,000, $21,599,000, and $21,146,000
in 1995, 1996, and 1997, respectively. Interest expense in 1995 included
approximately $3,854,000 related to the termination of an interest rate swap
agreement (see Note 6).
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to value each class of
financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
LONG-TERM DEBT
Management believes the Revolver is stated at fair value due to the
short-term nature of this instrument. The Variable Term Loan is stated at
fair value due to its variable interest rate.
Management estimates that the fair value of its 9% Notes as of December 31,
1997, was approximately $144 million based on publicly quoted prices.
6. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS:
In connection with the 1995 Bank Credit Agreement, the Company entered into
an interest rate cap agreement with a bank 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.
F-15
7. INCOME TAXES:
The Company's net deferred tax asset and liability as of December 31, 1996
and 1997, are as follows (in thousands):
1996 1997
-------- -------
Deferred tax assets:
Net operating loss carryforwards $ 34,308 $29,925
Investment in unconsolidated subsidiary 3,344 2,080
Charges for deferred compensation 2,662 2,872
Other deferred tax assets 1,892 2,386
-------- -------
42,206 37,263
Less - Valuation allowance (1,877) -
-------- -------
40,329 37,263
Deferred tax liabilities:
Tax over book depreciation and amortization 29,150 26,487
Book basis over tax basis on assets
of purchased subsidiary 1,225 1,225
Other deferred tax liabilities 381 346
-------- -------
30,756 28,058
-------- -------
Net deferred tax asset $ 9,573 $ 9,205
-------- -------
-------- -------
The Company had net operating loss carryforwards of approximately $98.9 million
and $85.5 million at December 31, 1996 and 1997. These carryforwards expire as
follows:
2003 $11,900
2004 14,800
2005 14,500
2006 14,300
2007 11,300
2008 14,200
2009 1,600
2010 2,900
-------
$85,500
-------
-------
The Company's benefit (provision) for income taxes, including the benefit
from discontinued operations and the extraordinary item, for the periods
ended December 31, 1995, 1996, and 1997, is as follows (in thousands):
1995 1996 1997
-------- -------- --------
Current $ (447) $(1,082) $ (769)
Deferred 10,800 (1,227) (368)
-------- -------- --------
Total benefit (provision) for
income taxes $10,353 $(2,309) $(1,137)
-------- -------- --------
-------- -------- --------
F-16
Reconciliation between the actual benefit (provision) for income taxes and
income taxes computed by applying the federal statutory rate to income before
income taxes, discontinued operations and extraordinary item is as follows
(in thousands):
1995 1996 1997
---- ---- ----
Income tax provision computed at the
statutory rate $ (4,346) $(6,215) $(2,704)
Reduction in valuation allowance 15,030 4,232 1,877
Amortization of goodwill (331) (326) (332)
Other - - 22
-------- ------- -------
$ 10,353 $(2,309) $(1,137)
-------- ------- -------
-------- ------- -------
8. COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company is a member of a soft drink canning cooperative and owned
approximately 4% (qualifying shares) at December 31, 1997. During 1995, 1996,
and 1997, the Company had purchases of $777,000, $3,340,000, and $6,223,000
from this cooperative.
The Company purchased approximately $4,468,000, $14,960,000, and $13,428,000 in
1995, 1996, and 1997, of soft drink products from TBG and had sales to this
entity of approximately $1,657,000, $12,704,000, and $14,857,000 in 1995, 1996,
and 1997, respectively.
At December 31, 1997, the Company owned approximately 23% of Western Container
Corporation ("Western"), a plastic bottle manufacturer. Western was formed by
the Company and other bottlers to provide plastic bottles for their bottling
operations. The Company had purchases of $8,704,000, $8,079,000, and
$6,304,000 from Western in 1995, 1996, and 1997. The Company has a minimum
purchase agreement with Western through 1998. The Company has met its purchase
requirements in 1997 and expects to continue to meet these requirements in the
future.
The Company is self-insured for portions of its casualty insurance and certain
other business risks up to limits of between $150,000 and $250,000. Management
provides for all material open claims plus an estimate for incurred but not
reported claims related to these uninsured risks.
In conjunction with certain insurance policies, the Company has established
irrevocable and unconditional letters of credit, expiring March 22, 1988, July
1, 1998, and August 1, 1998, for $1,381,000, $25,000, and $780,000 in favor of
three insurance companies. The letters of credit protect the insurance
companies in case of nonperformance by the Company. The letters of credit were
not used as of December 31, 1997, and management does not expect to use the
letters of credit through expiration.
The Company also becomes involved in certain legal proceedings in the normal
course of business. Management believes that the outcome of such litigation
will not materially affect the Company's consolidated financial position or
results of operations.
At December 31, 1997, the Company had a loan in the amount of $1,550,000 to the
Edmund M. and Adelyn Jean Hoffman Trust. Funds borrowed under the loan
agreement bear interest at 8% per annum. Edmund M. Hoffman is the Co-Chairman
of the Board of the Company.
As of December 31, 1997, the Company has a loan outstanding to Charles F.
Stephenson, President of the Company and Southwest Coke, in the amount of
$100,000. The loan bears interest at 8% per annum and is due on the earlier of
February 1, 1999, or the 30th day after his last day of employment as a manager
of the Company or one of its subsidiaries.
F-17
9. COMPENSATION AND BENEFIT PLANS:
401(k) PLAN
The Company has a voluntary 401(k) plan available to substantially all
full-time employees with over one year of service. Employees can deposit up
to 15% of total compensation. Company contributions to the 401(k) plan are
at the Board of Directors' discretion and are limited to the lesser of
employee contributions or 4% of the employee's total compensation. The
Company's contributions to the 401(k) plan in 1995, 1996, and 1997 included
in the consolidated statements of income, were approximately $516,000,
$902,000, and $901,000.
Effective June 30, 1996, the San Antonio Coke voluntary 401(k) plan merged
with the Company's 401(k).
PENSION PLAN
The Company has a defined benefit pension plan covering substantially all
full-time employees with over one year of service.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31,
1996 and 1997 (in thousands):
1996 1997
-------- ------
Accumulated benefit obligation-
Vested benefits $(12,680) $(16,360)
Nonvested benefits (358) (580)
-------- ------
(13,038) (16,940)
Effect of projected future compensation levels (3,417) (2,401)
-------- ------
Projected benefit obligation (16,455) (19,341)
Plan assets at fair value 17,725 20,264
-------- ------
Plan assets in excess of projected benefit
obligation 1,270 923
Unrecognized net loss being amortized 429 707
Unrecognized net asset at January 1, 1987,
amortized over 15 years (1,000) (813)
-------- ------
Pension asset $ 699 $ 817
-------- ------
-------- ------
Net periodic pension cost for 1995, 1996, and 1997 included the following
components (in thousands):
1995 1996 1997
------- -------- ------
Service cost - benefits earned $ 627 $ 815 $ 909
Interest cost on projected benefit
obligation 965 1,093 1,207
Actual return on plan assets (3,347) (2,222) (2,673)
Net amortization and deferral 2,144 756 995
------- -------- ------
Net periodic pension cost $ 389 $ 442 $ 438
------- -------- ------
------- -------- ------
F-18
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
was 8.0% and 4.5% in 1995; 7.25% and 5% in 1996 and 1997. The expected
long-term rate of return on assets was 8.5% in 1995, 1996 and 1997. The Plan
assets consist primarily of money market investments, stocks, bonds and an
insurance company's general and growth equity accounts.
Effective December 31, 1996, the San Antonio Coke defined benefit plan merged
with the Company's defined benefit plan. Benefits attributed to service as
an employee of San Antonio Coke after December 31, 1996, will be determined
by using the benefit formula of the Parent's plan (which is 38% higher than
the formula under the old San Antonio Coke plan), then added to the frozen
benefit for 1996 and prior years to calculate the total benefit to be paid to
the participant. Only the pension asset and the net periodic pension cost
attributable to the Company have been presented above.
EXECUTIVE SECURITY PLAN
The Company maintains an executive security plan (the "Plan") covering
certain key executives of the Company. In addition, the Company entered into
employment agreements ("Agreements") with two other key executives. The
Agreements provide for disability, defined retirement, and death benefits to
be paid out of the general assets of the Company, and the Plan provides for
death benefits which will be funded by life insurance policies. Expense for
the Agreements included in the consolidated statements of income was $600,000
in 1995, 1996, and 1997.
MANAGEMENT INCENTIVE PLAN
Effective January 1, 1997, the Company amended its long-term management
incentive agreements (the "old agreements") with certain of its key officers
and managers in effect since January 1, 1994. The amendments shortened the
length of the old agreements from five years to three years, eliminated cash
flow goals for the fourth and fifth years, changed the basis of a lump-sum
end payment from a five-year operating cash flow goal to a three-year
operating cash flow goal, and provided a schedule for remaining payments
under the plan. Expense for the old agreements included in the consolidated
statements of income was $980,000 in 1995, 1996, and 1997.
Effective January 1, 1997, the Company entered into new long-term management
incentive agreements (the "new agreements") with certain of its key officers
and managers. Under the new agreements, a lump-sum payment is made based
upon the attainment of a cumulative, three-year operating cash flow goal for
the combined operations of Southwest Coke and TBG. No expense for the new
agreements is included in the consolidated statements of income for any year
presented.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company does not provide postretirement benefits to its employees, other
than the plans discussed above, except for certain benefits to retirees
associated with a previous acquisition which are not material to the
Company's results of operations or financial position. The Company does not
provide any postemployment benefits other than the plans discussed above and,
therefore, no additional liability has been recorded.
10. DISCONTINUED OPERATIONS:
In December 1997, the Company's management adopted a plan to discontinue
operations of the Dani Group ("Dani"). The Company expects to fully dispose
of Dani through sale of its remaining assets in 1998. Accordingly, the
operating results of Dani, including provisions for estimated lease
termination costs, employee benefits, and losses incurred during the
phase-out period of approximately $890,000 and a write-off of receivables,
leasehold improvements, and deferred charges of approximately $554,000 have
F-19
been segregated from continuing operations and reported as a separate line
item on the statement of income.
The Company has restated its prior financial statements to present the
operating results of Dani as a discontinued operation. The assets and
liabilities of such operations at December 31, 1997, have been reflected as a
net current liability based substantially on the original classification of
such assets and liabilities.
Summarized financial information for the discontinued operations was as
follows (amounts in thousands):
For the years ended December 31 1995 1996 1997
------ ------ -------
Operating revenues $1,958 $3,088 $ 4,296
Loss from discontinued operations,
net of income taxes 436 856 1,808
At December 31 1996 1997
------ -------
Total assets $2,101 $ 1,179
Total liabilities (395) (1,196)
Net assets (liabilities) of discontinued
operations 1,706 (17)
11. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
As of December 31, 1995, 1996, and 1997, the balance for allowance for
doubtful accounts was $537,000, $537,000, and $523,000. The activity for
this account for the three years ended December 31, 1997, was as follows:
Balance at Write-offs, Balance
Beginning Charged to Net of at End
Year of Year Expense Recoveries of Year
---- ---------- ---------- ---------- -------
1995 $537 $120 $(119) $538
1996 538 68 (69) 537
1997 537 300 (314) 523
F-20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texas Bottling Group, Inc.:
We have audited the accompanying consolidated balance sheets of Texas
Bottling Group, Inc. (a Nevada corporation) and subsidiary as of December 31,
1996 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Bottling Group, Inc.
and subsidiary as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 12, 1998
F-21
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1997
(Amounts in Thousands, Except Share Data)
ASSETS 1996 1997
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 636 $ 475
Receivables-
Trade accounts, net of allowance for doubtful
accounts of $544 and $601 in 1996 and 1997 21,349 20,615
Other 3,280 3,097
-------- --------
Total receivables, net 24,629 23,712
Inventories 9,327 9,904
Prepaid expenses and other 1,498 1,840
Deferred tax asset 9,645 8,457
-------- --------
Total current assets 45,735 44,388
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
Land 4,866 4,751
Buildings and improvements 20,819 20,429
Machinery and equipment 16,393 17,164
Vehicles 16,662 18,641
Vending equipment 27,215 33,578
Furniture and fixtures 5,500 6,034
-------- --------
91,455 100,597
Less- Accumulated depreciation and amortization (50,312) (57,287)
-------- --------
Property, plant, and equipment, net 41,143 43,310
-------- --------
OTHER ASSETS:
Franchise rights, net of accumulated amortization
of $36,140 and $39,783 in 1996 and 1997 109,362 105,718
Goodwill, net of accumulated amortization of $17,455
and $19,183 in 1996 and 1997, respectively 51,676 49,949
-------- --------
Franchise rights and goodwill 161,038 155,667
Deferred financing costs and other assets, net of
accumulated amortization of $2,335 and $2,670 in
1996 and 1997 7,852 7,066
Deferred tax asset 355 -
-------- --------
Total other assets 169,245 162,733
-------- --------
Total assets $256,123 $250,431
-------- --------
-------- --------
The accompanying notes are an integral part of
these consolidated balance sheets.
F-22
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1997
(Amounts in Thousands, Except Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 15,276 $ 15,612
Accrued payroll 793 845
Accrued insurance 3,342 2,557
Accrued interest 1,364 1,383
Contribution to employees' benefit plans 2,158 2,026
Current maturities of long-term debt 16,500 737
-------- --------
Total current liabilities 39,433 23,160
-------- --------
LONG-TERM DEBT, net of current maturities 203,000 214,867
OTHER LIABILITIES 3,864 3,005
DEFERRED TAX LIABILITY - 2,067
POSTRETIREMENT BENEFIT OBLIGATION 6,157 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
December 31, 1996 and 1997 1,084 1,084
Common stock Class B, $2 par value; 228,357 shares
authorized, issued and outstanding (convertible to
558,332 shares of Class A) as of December 31, 1996 and 1997 457 457
Additional paid-in capital 43,459 43,459
Retained deficit (41,331) (43,785)
-------- --------
Total stockholders' equity 3,669 1,215
-------- --------
Total liabilities and stockholders' equity $256,123 $250,431
-------- --------
-------- --------
The accompanying notes are an integral part of
these consolidated balance sheets.
F-23
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
1995 1996 1997
--------- -------- --------
NET REVENUES $215,095 $220,796 $217,508
COSTS AND EXPENSES:
Cost of goods sold (exclusive of depreciation
shown below) 117,233 119,336 116,258
Selling, general, and administrative 50,154 52,359 57,840
Depreciation and amortization 11,548 12,816 14,444
-------- -------- --------
Operating income 36,160 36,285 28,966
INTEREST:
Interest on debt (20,250) (18,006) (17,797)
Deferred financing cost (584) (572) (572)
Interest income 372 208 65
-------- -------- --------
(20,462) (18,370) (18,304)
OTHER INCOME, net 185 348 174
-------- -------- --------
Income before taxes and extraordinary item 15,883 18,263 10,836
INCOME TAX BENEFIT (PROVISION) 12,675 (2,971) (3,890)
-------- -------- --------
Income before extraordinary item 28,558 15,292 6,946
EXTRAORDINARY ITEM, net of income tax
benefit of $39 in 1995 (72) - -
-------- -------- --------
Net income $ 28,486 $ 15,292 $ 6,946
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated statements.
F-24
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
Common Stock Additional
------------ Paid-In Retained
Class A Class B Capital Deficit
------- ------- ---------- --------
BALANCE, December 31, 1994 1,084 457 43,459 (68,886)
Net income - - - 28,486
Dividends paid - - - (7,823)
------ ---- ------- --------
BALANCE, December 31, 1995 1,084 457 43,459 (48,223)
Net income - - - 15,292
Dividends paid - - - (8,400)
------ ---- ------- --------
BALANCE, December 31, 1996 1,084 457 43,459 (41,331)
Net income - - - 6,946
Dividends paid - - - (9,400)
------ ---- ------- --------
BALANCE, December 31, 1997 $1,084 $457 $43,459 $(43,785)
------ ---- ------- --------
------ ---- ------- --------
The accompanying notes are an integral part of these consolidated statements.
F-25
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
1995 1996 1997
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,486 $15,292 $ 6,946
Adjustments to reconcile net income to net cash
provided by operating activities-
Extraordinary item 111 - -
Depreciation and amortization 11,548 12,816 14,444
Provision for bad debts 240 240 302
Deferred tax (benefit) provision (12,800) 2,800 3,610
Amortization of deferred financing costs 584 572 572
Deferred compensation 846 1,193 780
Change in assets and liabilities, excluding effects
of extraordinary item:
Receivables (5,477) (2,176) 615
Inventories (1,105) (1,143) (577)
Prepaid expenses 174 (857) (342)
Accounts payable 7,368 (1,625) 336
Accrued expenses (2,536) (2,105) (714)
Contribution to employees' benefit plans 12 (146) (132)
Other liabilities 318 125 (1,639)
Postretirement benefit obligation 30 123 (40)
Other 203 - 0
--------- ------- --------
Net cash provided by operating activities 28,002 25,109 24,161
--------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (9,802) (10,887) (10,530)
Other noncurrent assets acquired - (3,050) (496)
--------- ------- --------
Net cash used by investing activities (9,802) (13,937) (11,026)
--------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit - 4,000 12,604
Payments on long-term debt (7,500) (12,000) (16,500)
Proceeds from issuance of long-term debt, net 113,844 - -
Retirements of long-term debt (116,500) - -
Purchase of interest rate cap (490) - -
Payment of dividends (7,823) (8,400) (9,400)
--------- ------- --------
Net cash used by financing activities (18,469) (16,400) (13,296)
--------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (269) (5,228) (161)
CASH AND CASH EQUIVALENTS, beginning of year 6,133 5,864 636
--------- ------- --------
CASH AND CASH EQUIVALENTS, end of year $ 5,864 $ 636 $ 475
--------- ------- --------
--------- ------- --------
The accompanying notes are an integral part of these consolidated statements.
F-26
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in Thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1995 1996 1997
---- ---- ----
Cash paid during the year for:
Interest $22,276 $19,707 $17,739
Income taxes - - 385
The accompanying notes are an integral part of these consolidated statements.
F-27
TEXAS BOTTLING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Texas Bottling
Group, Inc., a Nevada corporation (the "Company"), and its wholly owned
subsidiary, Coca-Cola Bottling Company of the Southwest, a Nevada corporation
("San Antonio Coke"). The Company primarily bottles and distributes soft
drinks in its franchise territories (food service operations are not
material) in central and southern Texas, including the cities of San Antonio
and Corpus Christi. All material intercompany balances and transactions have
been eliminated in consolidation.
CERTAIN RISK FACTORS
The Company is highly leveraged and will require substantial amounts of cash
to fund scheduled payments of principal and interest on its outstanding debt
and future capital expenditures. The Company's ability to service its debt
in the future, maintain adequate working capital, and make required or
planned capital expenditures will depend on its ability to generate
sufficient cash from operations. Management is of the opinion that the
Company will generate sufficient cash flow to meet its obligations or that
alternative financing will be available.
REVENUE RECOGNITION
Revenue is recognized from bottling operations when the product is delivered.
Vending operations recognize revenue when cash is collected.
CASH AND CASH EQUIVALENTS
The Company considers investments with original maturities of three months or
less to be cash equivalents.
INVENTORIES
Inventories include the costs of materials and direct labor and manufacturing
overhead, when applicable, and are valued at the lower of first-in, first-out
cost or market, except for repair parts and supplies, which are valued at
cost. Inventories as of December 31, 1996 and 1997, are summarized as follows
(in thousands):
1996 1997
------ ------
Raw materials $3,351 $3,597
Finished goods 4,940 4,852
Repair parts and supplies 1,036 1,455
------ ------
$9,327 $9,904
------ ------
------ ------
F-28
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to expense when incurred. The cost of
assets retired or sold, and the related amounts of accumulated depreciation
are removed from the accounts, and any gain or loss is included in other
income. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets as follows:
Buildings and improvements 3 - 25 years
Machinery and equipment 3 - 10 years
Vehicles 3 - 10 years
Vending equipment 2 - 10 years
Furniture and fixtures 2 - 10 years
RETURNABLE CAN TRAYS AND SHELLS
Returnable can trays and shells are carried in other assets at amortized
cost. The cost of can trays and shells in excess of deposit value is
amortized on a straight-line basis over three years.
FRANCHISE RIGHTS AND GOODWILL
Franchise rights and goodwill represent the cost in excess of the fair value
of tangible assets acquired. The Company views franchise rights and goodwill
as a single intangible asset that is being amortized over a period of 40
years. The Company established separate values for franchise rights and for
goodwill. The Company annually evaluates its carrying value and expected
period of benefit of franchise rights and goodwill in relation to its
expected future undiscounted cash flows. If the carrying value were
determined to be in excess of expected future cash flows, franchise rights
and goodwill would be reduced to fair market value. Expected future cash
flows exceeded those amounts recorded in the consolidated financial
statements.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of existing differences between the financial
reporting and tax reporting bases of assets and liabilities and operating
loss and tax credit carryforwards for tax purposes. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount
that will more likely than not be realized.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year presentation.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were assumed
in preparing the financial statements.
F-29
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting and Standards Board has issued Statement of
Financial Accounting Standard (SFAS) No. 129, "Disclosure of Information
About Capital Structure," SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." These statements become effective during 1998 and are not
expected to have a significant effect on the financial position of the
Company.
2. DEBT:
On March 11, 1998, the Company entered into a new credit agreement (the "1998
Senior Credit Facility") with a group of banks. The 1998 Senior Credit
Facility 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 Senior Credit Facility, the proceeds of the 1998
Revolver shall be used to refinance existing indebtedness or as allowed under
the new credit agreement.
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 rates and
commitment fees on the 1998 Revolver are subject to change, depending on the
ratio of total debt to earnings, as defined, at the end of each calendar
quarter. 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 Senior Credit Facility 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 Senior Credit Facility, the group of banks received a first
priority perfected security interest in all of the existing and future
capital stock of the Coca-Cola Bottling Company of the Southwest and its
subsidiaries for the 1998 Revolver. 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 unsecured status.
The 1998 Senior Credit Facility 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 Senior Credit Facility
to repay amounts outstanding, as described below, related to the Variable
Term Loan, the Revolver and other debt. Additionally, in March 1998, the
Company initiated the repurchase of a portion of its 9% Senior Subordinated
Notes. The Company intends to repurchase the remainder of the 9% Senior
Subordinated Notes by December 1998. This will result in an after-tax loss
that will be recorded as an extraordinary item in the financial results for
the year ended December 31, 1998. The extraordinary charge will include all
unamortized costs, including unamortized costs related to the 1995 interest
rate cap agreement (Note 4), of approximately $1.1 million related to debt
repaid during 1998 and any unamortized costs and premium paid on the early
extinguishment of the 9% Senior Subordinated Notes.
F-30
Long-term debt and related collateral consists of the following as of December
31, 1996 and 1997 (in thousands):
December 31,
---------------------
1996 1997
------ ------
9% Senior Subordinated Notes - unsecured, due
November 15, 2003; interest is payable semiannually
on May 15 and November 15 $120,000 $120,000
Variable Term Loan - due in quarterly installments
through March 31, 2003 95,500 79,000
Borrowings under revolving credit facility 4,000 8,000
Other - 8,604
-------- --------
Total debt 219,500 215,604
Less- Current maturities 16,500 737
-------- --------
Total long-term debt $203,000 $214,867
-------- --------
-------- --------
Principal payments for maturities of long-term debt, after giving effect to
the 1998 Senior Credit Facility, for the next five years are as follows as of
December 31, 1997 (in thousands):
1998 $ 737
1999 798
2000 866
2001 937
2002 528
Thereafter 211,738
--------
$215,604
--------
--------
VARIABLE TERM LOAN AND REVOLVER
In April 1995, the Company entered into a loan agreement with Texas Commerce
Bank National Association as agent for a syndicate of financial institutions.
The agreement provided for a $115 million term loan (the "Variable Term
Loan") and a $25 million revolving credit facility (the "Revolver"). The
Variable Term Loan and Revolver were repaid in March 1998. As of December
31, 1997, $8 million was outstanding on the Revolver. Borrowings under the
Variable Term Loan and Revolver (collectively, the "1995 Bank Credit
Agreement") were used to replace the Company's 11% senior notes and to
repurchase $5 million in principal amount of the Company's 9% Senior
Subordinated Notes due 2003. A net extraordinary loss of $72,000 was
recognized for the write-off of deferred financing costs and the gain
associated with the repurchase of principal.
Both the Variable Term Loan and Revolver calculated interest at the Company's
option at either Alternate Base Rate (8.5% as of December 31, 1997) or
Eurodollar Rate (5.9% as of December 31, 1997) plus 1.00%. A commitment fee
of 0.25% was charged on the average daily unused portion of the Revolver.
Interest rates on the 1995 Bank Credit Agreement were subject to change,
depending on the ratio of total debt to cash flow, as defined, at the end of
each calendar quarter. The interest rates was adjusted quarterly for
Alternate Base Rate borrowings from a maximum of Alternate Base Rate plus
.25% to a minimum of Alternate Base Rate and for Eurodollar borrowings from a
maximum of Eurodollar Rate plus 1.50% to a minimum of Eurodollar Rate plus
.50%, according to a grid of permitted debt to cash flow ratios. Interest on
the 1995 Bank Credit Agreement was due on the last day of each calendar
quarter for amounts
F-31
borrowed at the Alternate Base Rate or at the end of each applicable interest
period for amounts borrowed at the Eurodollar Rate. For interest periods
exceeding three months, related interest expense was due on the last day of
each calendar quarter.
Borrowings under the 1995 Bank Credit Agreement were secured by pledges of
the stock of San Antonio Coke.
The Company's credit agreements contained several restrictive covenants, the
most significant of which: required maintenance of minimum ratio of cash
flow to interest expense and fixed charges, as defined; limited the ratio of
debt to cash flow, as defined; and restricted the issuance of additional
common stock. The 1995 Bank Credit Agreement did permit the payment of
dividends and other distributions to shareholders as permitted by the
indenture governing the 9% Notes due 2003, so long as no event of default
existed.
Interest expense was approximately $20,834,000, $18,578,000, and $18,369,000
in 1995, 1996, and 1997.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to value each class of
financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
LONG-TERM DEBT
Management believes the Revolver is stated at fair value due to the
short-term nature of this instrument.
The Variable Term Loan is stated at fair value due to its variable interest
rate.
Management estimates that the fair value of its 9% Notes as of December 31,
1997, was approximately $128 million based on publicly quoted prices.
4. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS:
In connection with the 1995 Bank Credit Agreement, the Company entered into
an interest rate cap agreement with a bank 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.
F-32
5. LEASES:
Total lease expense for the years ended December 31, 1995, 1996, and 1997 was
approximately $2,028,000, $1,583,000, and $1,485,000, respectively. Certain
lease agreements contain renewal clauses at the original rates or purchase
options at fair market value. Minimum future lease payments, relating
principally to vehicles and data processing equipment, under noncancelable
operating leases for the next five years, are (in thousands):
1998 $1,191
1999 1,070
2000 782
2001 603
2002 430
Thereafter 331
------
Total $4,407
------
------
6. INCOME TAXES:
The Company's net deferred tax asset and liability as of December 31, 1996
and 1997, are as follows (in thousands):
1996 1997
------ ------
Deferred tax assets:
Net operating loss carryforwards $55,020 $50,295
Postretirement benefit obligation 2,170 2,141
Deferred employee benefits 1,222 1,342
Other deferred tax assets 1,386 1,579
------- -------
59,798 55,357
Deferred tax liabilities:
Tax over book depreciation and amortization 49,758 48,927
Other deferred tax liabilities 40 40
------- -------
49,798 48,967
------- -------
Net deferred tax asset $10,000 $ 6,390
------- -------
------- -------
The Company had net operating loss carryforwards of approximately $157.2
million and $143.7 million at December 31, 1996 and 1997, respectively.
These carryforwards will expire as follows:
2002 $ 10,400
2003 26,700
2004 23,700
2005 19,900
2006 19,900
2007 13,800
2008 20,400
2009 3,500
2010 5,400
--------
$143,700
--------
--------
F-33
The Company's benefit (provision) for income taxes, including the benefit
from the extraordinary item, for the periods ended December 31, 1995, 1996,
and 1997 is as follows (in thousands):
1995 1996 1997
------- ------- -------
Current $ (125) $ (171) $ (280)
Deferred 12,800 (2,800) (3,610)
------- ------- -------
Total benefit (provision) for
income taxes $12,675 $(2,971) $(3,890)
------- ------- -------
------- ------- -------
Reconciliation between the actual benefit (provision) for income taxes and
income taxes computed by applying the federal statutory rate to income before
taxes and extraordinary item is as follows (in thousands):
1995 1996 1997
------- ------- -------
Income tax (provision) computed at the
statutory rate $(5,559) $(6,392) $(3,793)
Reduction in valuation allowance 18,523 3,652 -
Amortization of goodwill (224) (224) (224)
Other (65) (7) 127
------- ------- -------
$12,675 $(2,971) $(3,890)
------- ------- -------
------- ------- -------
7. COMMITMENTS, CONTINGENCIES, AND RELATED PARTIES:
The Company paid $700,000 annually in 1995, 1996, and 1997 to The Coca-Cola
Bottling Group (Southwest), Inc. ("CCB Group"), 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 automatically. The Company also had sales of
approximately $4,468,000, $14,960,000, and $13,428,000 and purchases of
approximately $1,657,000, $12,704,000, and $14,857,000 in 1995, 1996, and
1997, respectively with a subsidiary of CCB Group.
An officer of the Company serves on the Board of Directors of Western
Container Corporation ("Western"), a plastic bottle manufacturing
cooperative. The Company had purchases of $14,477,000, $12,675,260, and
$11,224,000 from Western in 1995, 1996, and 1997, respectively. The Company
has a minimum purchase agreement with Western through 1998. The Company has
met its purchase requirements in 1997 and expects to continue to meet these
requirements in the future.
On September 9, 1996, the Federal Trade Commission ("FTC") issued an order
dismissing the complaint filed by the FTC in 1988 against San Antonio Coke,
bringing to an end the FTC's efforts to force the divestiture of Dr Pepper
licenses for San Antonio Coke for a ten-county area around and including San
Antonio, Texas.
The Company is self-insured for portions of its casualty insurance, product
liability, and certain other business risks up to limits of between $25,000
and $250,000. Management provides for all material open claims plus an
estimate for incurred but not reported claims related to these uninsured
risks.
In conjunction with certain insurance policies, the Company has established
irrevocable and unconditional letters of credit, expiring March 22, 1998,
August 1, 1998, and February 1, 1999, for $1,515,000, $350,000, and $200,000
in favor of two insurance companies. The letters of credit protect the
insurance companies in case of nonperformance by San Antonio Coke. The
letters of credit were not used as of December 31, 1997, and management does
not expect to use the letters of credit through expiration.
F-34
The Company also becomes involved in certain legal proceedings in the normal
course of business. Management believes that the outcome of such litigation
will not materially affect the Company's consolidated financial position or
results of operations.
8. COMPENSATION AND BENEFIT PLANS:
401(k) PLAN
Through June 30, 1996, San Antonio Coke had a voluntary 401(k) plan (the "San
Antonio 401(k) Plan") available to substantially all full-time employees with
over one year of service. Employees could deposit up to 15% of total
compensation, tax deferred in the San Antonio 401(k) Plan on an annual basis.
Through June 30, 1996, the San Antonio Coke contributions to the San Antonio
401(k) Plan were at the discretion of the Board of Directors and were limited
to 50% of the employees' contributions up to 5% of total compensation.
Effective June 30, 1996, the San Antonio 401(k) Plan merged with the CCB
Group 401(k) plan (the "401(k) Plan"). The 401(k) Plan allows employees to
contribute up to 15% of their annual compensation to the plan and provides
for the Company to match contributions up to 100% of the employees'
contributions up to 4% of total compensation.
San Antonio Coke's contributions to the San Antonio 401(k) Plan and the
401(k) Plan in 1995, 1996, and 1997 included in the consolidated statements
of income, were approximately $355,000, $588,000, and $841,000, respectively.
PENSION PLAN
Prior to January 1, 1997, San Antonio Coke had a defined benefit pension plan
covering substantially all full-time employees with over one year of service.
Effective December 31, 1996, the San Antonio Coke defined benefit plan merged
with the CCB Group defined benefit plan. Benefits attributed to service as
an employee of San Antonio Coke after December 31, 1996, will be determined
by using the benefit formula of the CCB Group plan (which is 38% higher than
the formula under the old San Antonio Coke plan), then added to the frozen
benefit for 1996 and prior years to calculate the total benefit to be paid to
the participant. Only the pension liability and the net periodic pension
cost attributable to San Antonio Coke have been presented below.
F-35
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at December 31, 1996 and
1997 (in thousands):
1996 1997
-------- --------
Accumulated benefit obligation-
Vested benefits $(10,690) $(10,950)
Nonvested benefits (141) (388)
-------- --------
(10,831) (11,338)
Effect of projected future compensation levels (1,911) (1,607)
-------- --------
Projected benefit obligation (12,742) (12,945)
Plan assets at fair value 13,183 14,624
-------- --------
Plan assets in excess of projected benefit obligation 441 1,679
Unrecognized net gain being amortized (2,034) (3,619)
Unrecognized prior service cost 325 297
Unrecognized net asset at January 1, 1987, being
amortized over 17 years (275) (236)
-------- --------
Pension liability $ (1,543) $ (1,879)
-------- --------
-------- --------
Net periodic pension cost for 1995, 1996, and 1997 includes the following
components (in thousands):
1995 1996 1997
------- ------- -------
Service cost - benefits earned $ 358 $ 434 $ 631
Interest cost on projected benefit obligation 780 843 819
Actual return on plan assets (1,766) (1,547) (2,072)
Net amortization and deferral 963 532 958
------- ------- -------
Net periodic pension cost $ 335 $ 262 $ 336
------- ------- -------
------- ------- -------
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
was 7.25% and 5% in 1995, 1996 and 1997. The expected long-term rate of
return on assets was 8.5% in 1995, 1996, and 1997. The plan assets consist
primarily of money market investments, stocks, bonds, and an insurance
company's general and growth equity accounts.
POSTRETIREMENT BENEFIT OBLIGATION
In addition to providing pension benefits, San Antonio Coke sponsors a
postretirement healthcare plan that is limited to the following three groups:
(1) participants in the plan as of January 1, 1992, (2) employees having 20
years of service as of January 1, 1992, or (3) employees who were at least
age 55 with five years of service as of January 1, 1992. Active employees in
groups 2 or 3 are only eligible to receive benefits if they retire on or
after their normal retirement age. The plan pays stated percentages of most
necessary medical expenses incurred after subtracting payments by Medicare
where applicable and after a stated deductible has been met. The plan is
contributory, and the Company does not fund this plan.
F-36
The following table shows the components of the accrued postretirement
healthcare cost liability as reflected on the consolidated balance sheet at
December 31, 1996 and 1997 (in thousands):
1996 1997
------ ------
Retirees $3,224 $3,306
Other active participants 1,040 1,067
Other fully eligible participants 144 148
Unrecognized actuarial gain 1,749 1,596
------ ------
Accrued postretirement healthcare cost liability $6,157 $6,117
------ ------
------ ------
Net postretirement benefit cost included the following components in 1995,
1996, and 1997 (in thousands):
1995 1996 1997
---- ---- ----
Service cost - benefits attributed to service during
the period $ 69 $ 58 $ 49
Interest cost on accumulated postretirement
benefit obligation 393 343 313
Amortization of unrecognized actuarial gain (44) (82) (153)
---- ---- -----
Total postretirement benefit cost $418 $319 $ 209
---- ---- -----
---- ---- -----
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 1995, 1996, and 1997. For
measurement purposes, a 10% annual rate of increase in the per capita cost of
covered healthcare claims was assumed for 1997; the rate was assumed to
ratably decrease 1% each year to 5% in 2003 and remain level thereafter. The
effect of increasing the assumed healthcare cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997, by $340,000 and the aggregate of
the service and interest cost components of net postretirement healthcare
cost for the 1997 fiscal year by $32,000.
NONSTATUTORY STOCK OPTION/STOCK APPRECIATION RIGHTS PLAN
The Company has a Nonstatutory Stock Option/Stock Appreciation Rights Plan
(the "Stock Plan"). The Stock Plan allows the Company to grant stock options
for Class A common stock to key officers and employees based on fair market
value, as defined, at the date of grant. The Company issues a stock
appreciation right corresponding to the excess of fair market value, as
defined, over the option price for each specific stock option granted. In
1995, 1996, and 1997, no stock options or stock appreciation rights were
issued by the Company. As of December 31, 1997, all outstanding stock
appreciation rights (covering 11,160 shares) were vested at an option price
of $40.90 per share and were exercisable.
MANAGEMENT INCENTIVE PLAN
Effective January 1, 1997, the Company amended its long-term management
incentive agreements (the "old agreements") with certain of its key officers
and managers in effect since January 1, 1994. The amendments shortened the
length of the old agreements from five years to three years, eliminated cash
flow goals for the fourth and fifth years, changed the basis of a lump-sum
end payment from a five-year operating cash flow goal to a three-year
operating cash flow goal, and provided a schedule for remaining payments
under the plan. Expense for the old agreements included in the consolidated
statements of income was $650,000 in 1995, $700,000 in 1996, and $700,000 in
1997.
Effective January 1, 1997, the Company entered into new long-term management
incentive agreements (the "new agreements") with certain of its key officers
and managers. Under the new agreements, a lump-
F-37
sum payment is made based upon the attainment of a cumulative, three-year
operating cash flow goal for the combined operations of Southwest Coke and
TBG. No expense for the new agreements is included in the consolidated
statements of income for any year presented.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company does not provide any postretirement or postemployment benefits
other than the plans discussed above and, therefore, no additional liability
has been recorded.
9. MAJOR CUSTOMER:
The Company had one major customer in 1995, 1996, and 1997, which accounted
for approximately 28%, 24%, and 21% of net revenues.
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
As of December 31, 1995, 1996, and 1997 the balance for allowance for doubtful
accounts was $515,000, $544,000, and $601,000, respectively. The activity for
this account for the three years ended December 31, 1997, was as follows (in
thousands):
Balance at Write-offs, Balance
Beginning Charged to Net of at End
Year of Year Expense Recoveries of Year
---- ---------- ---------- ---------- -------
1995 $425 $240 $(150) $515
1996 515 240 (211) 544
1997 544 301 (244) 601
F-38
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
3.1 Articles of Incorporation of the Company, as amended.(1)
3.2 Bylaws of the Company.(1)
4.1 Form of Indenture, dated November 15, 1993, between the Company and Chemical Bank, N.A. with
respect to the 9% Senior Subordinated Notes Due 2003.(1)
4.2 Form of Specimen Certificate for 9% Senior Subordinated Notes Due 2003 (included as Exhibit A to
the Indenture in Exhibit 4.1).(1)
4.3 Specimen Certificate for 11.64% Subordinated Notes, dated as of July 10, 1993.(1)
10.1 First Line Bottlers Contract, dated as of December 26, 1935, between Amarillo Coca-Cola Bottling
Company, Inc. and The Coca-Cola Company.(1)
10.2 Franchise Agreement, dated as of September 1, 1956, between Coca-Cola Bottling Company of
Lubbock and The Coca-Cola Company.(1)
10.3 Franchise Agreement, dated as of May 22, 1928, between Texas Coca-Cola Bottling Company and The
Coca-Cola Company.(1)
10.4 Franchise Agreement, dated as of April 21, 1941, between Pecos Valley Coca-Cola Bottling Company
and The Coca-Cola Company.(1)
10.5 Franchise Agreement, dated as of February 1, 1961, between Monahans Coca-Cola Bottling Company
and The Coca-Cola Company.(1)
10.6 Franchise Agreement, dated as of March 14, 1934, between Woodward Coca-Cola Bottling Company and
The Coca-Cola Company.(1)
10.7 Franchise Agreement, dated as of April 1, 1937, between Alva Coca-Cola Bottling Co., Inc. and
The Coca-Cola Company.(1)
10.8 Franchise Agreement, dated as of September 7, 1921, between Wichita Falls Coca-Cola Bottling
Company and The Coca-Cola Company.(1)
10.9 Franchise Agreement, dated as of February 6, 1984, between Wichita Coca-Cola Bottling Company
and The Coca-Cola Company (Clarendon territory).(1)
10.10 Form of Amendments to Franchise Agreements between each of the subsidiaries of the Company and
The Coca-Cola Company.(1)
10.11 Form of Franchise Agreements between Dr. Pepper Company and Southwest Coca-Cola Bottling
Company, Inc. (for various territories).(1)
10.12 Employment Agreement, dated as of December 16, 1985, between the Company and Edmund M. Hoffman.(1)
#
- ---------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-69247) filed on November 5, 1993.
# Management Contract or Plan.
10.13 Employment Agreement, dated as of December 16, 1985, between the Company and Robert K. Hoffman.(1)
#
10.14 Amendment No. 1, dated as of September 9, 1993, to the Employment Agreement dated as of December
16, 1985, between the Company and Robert K. Hoffman.(1) #
10.15 Executive Security Plan for the Company.(1) #
10.16 The Company's Non-Statutory Stock Option/Stock Appreciation Rights Plan.(1) #
10.17 Stockholder Agreement, dated as of March 31, 1987, among Texas Bottling Group, Inc., the
Company, The Prudential Insurance Company of America and Pruco Life Insurance Company.(1)
10.18 Tax Sharing Agreement, dated as of February 4, 1985, as amended on March 7, 1986, among Parent,
The Company, and Amarillo Coca-Cola Bottling Company, Inc., Shoshone Coca-Cola Bottling Company,
Automatic Merchandiser, Inc. of Nevada and Market Communication Counselors, Inc.(1)
10.19 Tax Sharing Agreement, dated as of October 23, 1993, but effective as of January 1, 1993, by and
among CCBG Corporation, Southwest Coca-Cola Bottling Company, Inc., Wichita Coca-Cola Bottling
Company, Alva Coca-Cola Bottling Company, Inc., Woodward Coca-Cola Bottling Company, Market
Communication Counselors, Inc. and the Company.(1)
10.20 Renewed and Extended Management Agreement with Texas Bottling Group, Inc., dated as of December
1, 1991, between the Company and Texas Bottling Group, Inc.(1)
10.21 Loan Agreement, dated as of March 31, 1987, between the Company and Edmund M. and Adelyn Jean
Hoffman Trust.(1)
10.22 Promissory Note, dated as of March 31, 1987, between the Company and Edmund M. and Adelyn Jean
Hoffman Trust.(1)
10.23 Amendment to Loan Agreement, dated as of September 1, 1993, between the Company and Edmund M.
and Adelyn Jean Hoffman Trust.(1)
10.24 Equipment Lease, dated as of July 1, 1993, between the Company and Citicorp Dealer Finance.(1)
10.25 Vehicle Lease and Service Agreement, dated as of February 10, 1993, between Southwest Coca-Cola
Bottling Company, Inc. and C&W Leasing Corporation.(1)
10.26 Amendment to Bottle Contracts, dated as of December 14, 1987, by and between Southwest Coca-Cola
Bottling Company, Inc. and The Coca-Cola Company.(1)
10.27 Amendment to Renewed and Extended Management Agreement with Texas Bottling Group, Inc., dated as
of April 14, 1994, between the Company and Texas Bottling Group, Inc.(2)
10.28 Management Incentive Plan of the Company, adopted June 22, 1994, effective January 1, 1994.(3) #
- ----------------
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1994.
10.29 Management Incentive Agreement, executed June 23, 1994 and effective January 1, 1994, between
the Company and Charles F. Stephenson.(3)#
10.30 Management Incentive Agreement, executed May 9, 1994 and effective January 1, 1994, between
Southwest Coke and Ronnie Hill.(3) #
10.31 Management Incentive Agreement, executed July 20, 1994 and effective January 1, 1994, between
the Company and E.T. Summers, III.(3) #
10.32 Employment Agreement, executed August 10, 1994 and effective January 1, 1994, between the
Company and Stephanie L. Ertel.(4)#
10.33 Management Incentive Plan for managers of ACFS, effective January 1, 1995.(5)#
10.34 Relocation Agreement, effective June 15, 1995, between the Company and Charles F. Stephenson.(5) #
10.35 Loan Agreement ($120,000,000 Term Loan Facility and $30,000,000 Revolving Loan Facility) (the
"1995 Company Loan Agreement"), dated as of April 4, 1995, among the Company, Texas Commerce
Bank National Association ("TCB"), as Agent and a Lender, First Bank National Association
("First Bank"), as Agent and a Lender, and certain other financial institutions who are parties
to the 1995 Company Loan Agreement.(6)
10.36 Interest Rate Agreement, dated as of April 4, 1995, by and among the Company, certain financial
institutions a party thereto, First Bank, as Collateral Agent, and TCB, as Agent.(6)
10.37 Notice of Entire Agreement, dated as of April 4, 1995, executed by the Company, Parent,
Southwest Coke, Alva Coca-Cola Bottling Co., Inc., Woodward Coca-Cola Bottling Company, Market
Communications Counselors, Inc. and TCB, as Agent.(6)
10.38 Security Agreement, dated as of April 4, 1995, by and among the Company, First Bank, as
Collateral Agent, TCB, as Agent, and the financial institutions who are parties to the 1995
Company Loan Agreement.(6)
10.39 Security Agreement, dated as of April 4, 1995, by and among Southwest Coke, First Bank, as
Collateral Agent, TCB, as Agent, and the financial institutions who are parties to the 1995
Company Loan Agreement.(6)
10.40 Security Agreement, dated as of April 4, 1995, by and among Parent, First Bank, as Collateral
Agent, TCB, as Agent, and the financial institutions who are parties to the 1995 Company Loan
Agreement.(6)
10.41 Form of Term Note issued by the Company pursuant to the 1995 Company Loan Agreement.(6)
- -----------------
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1994.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1994.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1995.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1995.
10.42 Form of Revolving Note issued by the Company pursuant to the 1995 Company Loan Agreement.(6)
10.43 Contribution Agreement, dated as of April 4, 1995, executed by Parent, the Company, Southwest
Coke, Alva Coca-Cola Bottling Co., Inc., Woodward Coca-Cola Bottling Company, Market
Communications Counselors, Inc. and The Dani Group, Inc.(6)
10.44 Loan Agreement ($115,000,000 Term Loan Facility and $25,000,000 Revolving Loan Facility) (the
"1995 TBG Loan Agreement"), dated as of April 4, 1995, among TBG, TCB, as Agent and a Lender,
First Bank, as Agent and a Lender, and the other financial institutions who are parties to the
1995 TBG Loan Agreement.(6)
10.45 Interest Rate Agreement, dated as of April 4, 1995, by and among TBG, certain financial
institutions a party thereto, First Bank, as Collateral Agent, and TCB, as Agent.(6)
10.46 Notice of Entire Agreement, dated as of April 4, 1995, executed by TBG, San Antonio Coke and
TCB, as Agent.(6)
10.47 Security Agreement, dated as of April 4, 1995, by and among TBG, First Bank, as Collateral
Agent, TCB, as Agent, and the financial institutions who are parties to the 1995 TBG Loan
Agreement.(6)
10.48 Form of Term Note issued by TBG pursuant to the 1995 TBG Loan Agreement.(6)
10.49 Form of Revolving Note issued by TBG pursuant to the 1995 TBG Loan Agreement.(6)
10.50 Contribution Agreement, dated as of April 4, 1995, executed by the Company and San Antonio
Coke.(6)
10.51 Consent letter dated May 1, 1996 providing for adjustments to the Loan Agreement dated April 4,
1995, executed by and among The Coca-Cola Bottling Group (Southwest), Inc., Texas Commerce Bank
National Association, as Agent, First Bank National Association, as Collateral Agent, and
certain other financial institutions therein listed.(7)
10.52 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.(8)#
10.53 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.(8) #
10.54 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. 8 #
10.55 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. 8 #
- -----------------
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.56 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. 8 #
10.57 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. 8 #
10.58 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. 8 #
10.59 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. 8 #
10.60 Credit Agreement ($50,000,000 Term Loan Facility and $220,000,000 Revolving Loan Facility) (the
"Company Credit Agreement") dated March 11, 1998 among the Company and NationsBank, National
Association ("NationsBank"), as Agent and as Lender, and the lenders party thereto.
10.61 Form of Term Note issued by the Company pursuant to the Company Credit Agreement.
10.62 Form of Revolving Note issued by the Company pursuant to the Company Credit Agreement.
10.63 Swing Line Note issued by the Company pursuant to the Company Credit Agreement.
10.64 Guaranty Agreement, dated March 11, 1998, among Parent, Dani, Southwest Coke, Woodward Coca-Cola
Bottling Company, Alva Coca Cola Bottling Co., Inc. and Market Communication Common Counselors,
Inc. in favor of NationsBank, as Agent.
10.65 LC Account Agreement, dated March 11, 1998, between the Company and NationsBank, as Agent.
10.66 Stock Pledge Agreement, dated March 11, 1998, among Parent, the Company, Southwest Coke, and
NationsBank, as Agent.
10.67 Credit Agreement ($230,000,000 Revolving Credit Facility) (the "TBG Credit Agreement"), dated
March 11, 1998, among TBG, NationsBank, as Agent and as Lender, and the lenders party thereto.
10.68 Form of Revolving Note issued by TBG pursuant to the TBG Credit Agreement.
10.69 Swing Line Note issued by TBG pursuant to the TBG Credit Agreement.
10.70 Guaranty Agreement, dated March 11, 1998, by Coca-Cola Bottling Company of the Southwest in
favor of NationsBank, as Agent, pursuant to the TBG Credit Agreement.
10.71 LC Account Agreement, dated March 11, 1998, between TBG and NationsBank, as Agent, pursuant to
the TBG Credit Agreement.
10.72 Stock Pledge Agreement, dated March 11, 1998, between TBG and NationsBank, as Agent, pursuant to
the TBG Credit Agreement.
10.73 The Coca-Cola Bottling Group (Southwest), Inc. Management Incentive Agreement by and between the
Company and Charles F. Stephenson, effective January 1, 1998.#
10.74 The Coca-Cola Bottling Group (Southwest), Inc. Management Incentive Agreement by and between the
Company and E. T. Summers, III, effective January 1, 1998.#
21.1 Subsidiaries of the Company.(9)
27 Financial Data Schedule.
- ------------
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.