-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, C4TkJCoM93RifWxoesUhCdSpI4WOZrAbjnC0s6jqrGAONzf+Y6qvdWmJWrMo2gI9 f8keI7dhWJiKsJ7fqj3V4g== 0000906234-94-000003.txt : 19940518 0000906234-94-000003.hdr.sgml : 19940518 ACCESSION NUMBER: 0000906234-94-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DR PEPPER BOTTLING COMPANY OF TEXAS CENTRAL INDEX KEY: 0000843397 STANDARD INDUSTRIAL CLASSIFICATION: 2086 IRS NUMBER: 752008278 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-28349 FILM NUMBER: 94528428 BUSINESS ADDRESS: STREET 1: 2304 CENTURY CTR CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2145791024 MAIL ADDRESS: STREET 1: 2304 CENTURY CENTER CITY: IRVING STATE: TX ZIP: 75062 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DR PEPPER BOTTLING HOLDINGS INC CENTRAL INDEX KEY: 0000843396 STANDARD INDUSTRIAL CLASSIFICATION: 2086 IRS NUMBER: 752275754 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-28349-01 FILM NUMBER: 94528429 BUSINESS ADDRESS: STREET 1: 2304 CENTURY CTR CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2145791024 MAIL ADDRESS: STREET 1: 2304 CENTURY CENTER CITY: IRVING STATE: TX ZIP: 75062 10-Q 1 10-Q FIRST QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q ------------- [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 -------------- or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 33-56292-01 and 33-56292 DR PEPPER BOTTLING HOLDINGS, INC. DR PEPPER BOTTLING COMPANY OF TEXAS - - --------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 75-2275754 Texas 75-2008278 - - -------------------------------- -------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) No.) 2304 Century Center Boulevard, Irving Texas 75062 (214) 579-1024 - - --------------------------------------------------------------------------- (Address, Including Zip Code, and Telephone Number, Including Area Code of Registrant's Principal Executive Offices) - - --------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] The number of shares outstanding of each of the issuers' classes of common stock as of March 31, 1994 was as follows: 13,642,168 shares of Class A Common Stock, par value $.01 per share, of Dr Pepper Bottling Holdings, Inc., and 100 shares of Common Stock, par value $.01 per share, of Dr Pepper Bottling Company of Texas. PART I FINANCIAL INFORMATION Page ---- Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Condensed Balance Sheets March 31, 1994 and December 31, 1993 (In thousands) ASSETS
March 31, December 31, 1994 1993 (Unaudited) ----------- ------------ Current assets: Cash & cash equivalents $17,757 $16,955 Accounts receivable Trade, less allowance for doubtful accounts of $401 in March 1994 and $305 in December 1993 21,484 20,156 Other 3,330 3,109 Inventories 13,224 9,806 Prepaid expenses 5,413 3,421 --------- --------- Total current assets 61,208 53,447 Property, plant and equipment, net 64,193 64,523 Other assets at amortized cost: Goodwill and other intangible assets 115,299 116,668 Debt issuance costs 10,798 11,225 --------- --------- Total assets $251,498 $245,863 ======== ========
See accompanying notes to consolidated condensed financial statements. DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Condensed Balance Sheets March 31, 1994 and December 31, 1993 (In thousands, except per share amounts) LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, December 31, 1994 1993 (Unaudited) ----------- ------------ Current liabilities: Accounts payable $28,956 $26,311 Accrued expenses 13,960 13,877 Current maturities of long-term debt and obligations under capital leases (note 7) 12,796 12,885 --------- --------- Total current liabilities 55,712 53,073 Long-term debt and obligations under capital leases, less current maturities (note 7) 308,232 306,149 Cumulative redeemable senior exchangeable preferred stock, $.01 par value. Authorized 2,150 shares; issued and outstanding 1,318 shares in 1994; aggregate liquidation preference $32,950 (note 10) 30,565 29,635 Stockholders' deficit (notes 3 and 11): Class A common stock, $.01 par value. Authorized 20,000 shares; issued and outstanding 13,642 in 1994 136 136 Additional paid-in capital 14,383 14,383 Consideration to continuing predecessor shareholders in excess of book value (33,948) (33,948) Deficit (123,582) (123,565) --------- --------- Total stockholders' deficit (143,011) (142,994) --------- --------- Total liabilities and stockholders' deficit $251,498 $245,863 ======== ========
See accompanying notes to consolidated condensed financial statements. DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Operations For the Three Months Ended March 31, 1994 and 1993 (In thousands, except per share amounts) UNAUDITED March 31, March 31, 1994 1993 -------------- -----------
Net sales $73,993 $69,876 Cost of sales (note 12) 45,645 42,520 --------- -------- Gross profit 28,348 27,356 Operating expenses: Marketing expense 1,481 1,563 Administrative and general expenses 14,994 13,929 Depreciation (note 12) 1,368 1,189 Amortization of intangible assets 1,369 1,379 --------- -------- Total operating expenses 19,212 18,060 --------- -------- Operating profit 9,136 9,296 Other expense (income): Interest expense 5,574 6,248 Amortization of deferred debt issuance costs 428 321 Loss (gain) from disposition of assets (2) 10 Bond accretion 2,248 963 Other (59) (2,546) ---------- --------- Total other expense 8,189 4,996 --------- -------- Income before provision of income taxes 947 4,300 Provision for income taxes (35) ---------- -------- Income before dividends on subsidiary's preferred stock and extraordinary item 912 4,300 Dividends on subsidiary's preferred stock 5,806 --------- -------- Net income (loss) before extraordinary item 912 (1,506) Extraordinary item - loss on recapitalization (32,137) --------- --------- Net income (loss) $912 ($33,643) ========= ========= Profit (loss) per common share before extraordinary item $0.00 ($0.11) Extraordinary item per share (2.41) ---------- --------- Profit (loss) per common share $0.00 ($2.52) (note 14) ========== =========
See accompanying notes to consolidated condensed financial statements.
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Deficit (In thousands) UNAUDITED Consideration to continuing Common Stock Predecessor ----------------- Additional stockholderss paid-in in excess of Shares Amount Capital Deficit book value Totals -------- ------ ----------- ----------- --------------- --------- Balance at December 31, 1993 13,642 $136 $14,383 ($123,565) ($33,948) ($142,994) Accretion of preferred stock (note 10) (47) (47) Preferred stock dividend (882) (882) Net profit 912 912 ------ ---- ------- ---------- --------- --------- Balance at March 31, 1994 13,642 $136 $14,383 ($123,582) ($33,948) ($143,011) ====== ==== ======= =========== ========= ==========
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Three Months Ending March 31, 1994 and 1993 (In thousands) UNAUDITED
March 31, March 31, 1994 1993 -------------- ------------ Cash flows from operating activities: Net profit (loss) $912 ($33,643) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on recapitalization 32,137 Depreciation of property, plant and equipment 2,219 2,030 Amortization of other assets 1,797 1,700 Subsidiary's preferred stock dividends 5,806 Accretion of discount on discount notes 2,248 963 Loss (gain) on sale of assets (2) 10 Changes in assets and liabilities: Accounts receivable (1,549) (1,878) Inventories (3,418) (4,158) Prepaid assets (1,992) (1,124) Accounts payable 2,645 423 Federal income tax 35 Accrued expenses 48 480 -------- --------- Total adjustments 2,031 36,389 -------- -------- Net cash provided by operating activities 2,943 2,746 Cash flows from investing activities: Additions to property, plant and equipment (1,973) (2,385) Proceeds from sale of property, plant and equipment 86 117 -------- --------- Net cash used in investing activities (1,887) (2,268) Cash flows from financing activities: Debt issued 287,798 Deferred debt costs (11,761) Payment of long-term debt (254) (182,896) Payment of costs related to recapitalization (27,484) Preferred stock issued 27,577 Preferred stock retired (88,147) Payment of dividends on subsidiary's preferred stock (2,157) Warrant issued 2,250 -------- -------- Net cash provided (used) in financing activities (254) 5,180 Net increase in cash and cash equivalents 802 5,658 Cash and cash equivalents at beginning of year 16,955 8,008 -------- -------- Cash and cash equivalents at end of period $ 17,757 $ 13,666 ======== ========
See accompanying notes to consolidated condensed financial statements. DR PEPPER BOTTLING COMPANY OF TEXAS Consolidated Condensed Balance Sheets March 31, 1994 and December 31, 1993 (In thousands) ASSETS
March 31, December 31, 1994 1993 (Unaudited) ---------------- --------------- Current assets: Cash & cash equivalents $17,732 $16,930 Accounts receivable Trade, less allowance for doubtful accounts of $401 in March 1994 and $305 in December 1993 21,484 20,156 Other 3,634 3,417 Inventories 13,224 9,806 Prepaid expenses 5,413 3,420 -------- -------- Total current assets 61,487 53,729 Property, plant and equipment, net 64,193 64,523 Other assets at amortized cost: Goodwill and other intangible assets 115,299 116,668 Debt issuance costs 7,909 8,255 -------- -------- Total assets $248,888 $243,175 ======== ========
DR PEPPER BOTTLING COMPANY OF TEXAS Consolidated Condensed Balance Sheets March 31, 1994 and December 31, 1993 (In thousands, except per share amounts) LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, December 31, 1994 1993 (Unaudited) ----------- ---------- Current liabilities: Accounts payable $28,956 $26,311 Accrued expenses 13,959 13,876 Current maturities of long- term debt and obligations under capital leases 12,796 12,885 ---------- ---------- Total current liabilities 55,711 53,072 Long-term debt and obligations under capital leases, less current maturities 227,531 227,696 Stockholders' deficit: Common stock, $.01 par value. Authorized 11,000 shares; issued and outstanding .1 shares 1 1 Additional paid-in capital (note 2) 110,227 110,227 Consideration to continuing predecessor shareholders in excess of book value (33,948) (33,948) Deficit (110,634) (113,873) ----------- ---------- Total stockholders' deficit (34,354) (37,593) ----------- ---------- Total liabilities and stockholders' deficit $248,888 $243,175 =========== ==========
DR PEPPER BOTTLING COMPANY OF TEXAS Statements of Operations For the Three Months Ended March 31, 1994 and 1993 (In thousands) UNAUDITED
March 31, March 31, 1994 1993 ----------- ---------- Net sales $73,993 $69,876 Cost of sales 45,644 42,520 ------- ------- Gross profit 28,349 27,356 Operating expenses: Marketing expense 1,481 1,563 Administrative and general 14,994 13,929 expenses Depreciation 1,368 1,189 Amortization of intangible assets 1,369 1,379 ------- ------- Total operating expenses 19,212 18,060 ------- ------- Operating profit 9,137 9,296 Other expense (income): Interest expense 5,574 6,242 Amortization of deferred debt issuance costs 346 294 Loss (gain) from disposition of assets (2) 10 Other (55) (2,546) ------- ------- Total other expense 5,863 4,000 ------- ------- Income before provision of income taxes 3,274 5,296 Provision for income taxes (35) ------- ------- Income before extraordinary item 3,239 5,296 Extraordinary item - loss on recapitalization (32,137) ------- ------- Net profit (loss) $3,239 ($26,841) ======= ========
DR PEPPER BOTTLING COMPANY OF TEXAS Statement of Stockholders' Deficit (In thousands) UNAUDITED
Consideration Predecessor Common Stock stockholers ---------------------- Additional in excess paid-in of Shares Amount Capital Deficit book value Totals ----------- -------- ------------- ------------ --------------- ----------- Balance at December 31, 1993 0.1 $1 $110,227 ($113,873) ($33,948) ($37,593) Net profit 3,239 3,239 ----- ---- -------- --------- -------- ------- Balance at March 31, 1994 0.1 $1 $110,227 $110,634 ($33,948) ($34,354) ===== ===== ========= ======== ========= =========
DR PEPPER BOTTLING COMPANY OF TEXAS Statements of Cash Flows For the Three Months Ending March 31, 1994 and 1993 (In thousands) UNAUDITED
March 31, March 31, 1994 1993 ----------- ---------- Cash flows from operating activities: Net profit (loss) $3,239 ($26,841) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on recapitalization 32,137 Depreciation of property, plant and equipment 2,219 2,030 Amortization of other assets 1,715 1,673 Loss (gain) on sale of assets (2) 10 Changes in assets and liabilities: Accounts receivable (1,545) (1,878) Inventories (3,418) (4,158) Prepaid assets (1,993) (1,644) Accounts payable 2,645 423 Federal income tax 35 Accrued expenses 48 480 -------- -------- Total adjustments (296) 29,073 -------- -------- Net cash provided by operating activities 2,943 2,232 Cash flows from investing activities: Additions to property, plant and equipment (1,973) (2,385) Proceeds from sale of property, plant and equipment 86 117 -------- -------- Net cash used in investing activities (1,887) (2,268) Cash flows from financing activities: Debt issued 216,685 Deferred debt costs (8,569) Payment of long-term debt (254) (182,896) Payment of costs related to recapitalization (27,484) Payment stock retired (88,147) Additions to paid-in-capital related to recapitalization 98,237 Payment of preferred stock dividend (2,157) --------- ---------- Net cash provided (used) in financing activities (254) 5,669 -------- -------- Net increase in cash and cash equivalents 802 5,633 Cash and cash equivalents at beginning of year 16,930 8,008 -------- -------- Cash and cash equivalents at end of period $17,732 $13,641 ======== ========
DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Condensed Financial Statements Unaudited March 31, 1994 1. GENERAL ------- The accompanying consolidated balance sheets of Dr Pepper Bottling Holdings, Inc. ("Holdings") and its wholly owned subsidiary, Dr Pepper Bottling Company of Texas (the "Company" or "Subsidiary"), as of March 31, 1994, the related consolidated condensed statements of operations for the three months ended March 31, 1994 and 1993, the related consolidated condensed statements of stockholders' deficit for the three months ended March 31, 1994, and the related consolidated condensed statements of cash flows for the three months ended March 31, 1994 and 1993 are unaudited but, in the opinion of the Company and Holdings, reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation. Such financial statements are for interim periods and do not include all detail normally provided in annual financial statements and should be read in conjunction with the financial statements of the Company and Holdings, and notes thereto, included in the Prospectus of the Company and Holdings, dated April 18, 1994, relating to the Company's 10 1/4% Senior Notes due 2000 (the "Senior Notes") and Holdings' 11 5/8% Senior Discount Notes due 2003 (the "Discount Notes"), filed with the Securities and Exchange Commission (File Nos. 33-56292 and 33-56292-01, respectively) (the "Prospectus"). Effective October 28, 1988, Holdings acquired all of the outstanding common stock of the Company (the "Acquisition") in a business combination accounted for as a purchase. As Holdings is essentially a holding company whose principal asset is its investment in the Company, all purchase adjustments have been recorded on the books of the Company. To the extent that the Acquisition included new investors, the Company adjusted property, plant and equipment to their estimated fair values as of the Acquisition date and retired related accumulated depreciation. Holdings, through its subsidiary, is principally engaged in producing, marketing and distributing carbonated soft drinks in Dallas/Fort Worth, Houston, Waco, and Galveston. Soft drink operations are conducted pursuant to franchise agreements with companies owning the rights to soft drink formulae. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ (a) Cash Equivalents Cash equivalents consist of highly liquid debt instruments with original maturities of three months or less. (b) Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market. (c) Property, Plant and Equipment Property, plant and equipment are stated at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized and depreciated. The cost and accumulated depreciation of assets sold or disposed of are removed from the accounts. Resultant profit or loss on such transactions is credited or charged to earnings. (d) Intangible Assets Excess of cost over fair market value of net assets of acquired business and costs of franchises are being amortized on a straight-line basis over 10 to 40 years. (e) Other Assets Debt issuance costs incurred in connection with acquisitions and the recapitalization plan described below are deferred and will be amortized by the interest method over the terms of the related debt agreements (7 to 25 years). Covenants not to compete are amortized over the terms of the agreements (5 to 10 years). (f) Marketing Expense Marketing costs include costs of advertising, marketing and promotional programs. Prepaid advertising consists of various marketing, media and advertising prepayments; these assets are expensed in the year used. Marketing costs, other than prepayments, are expensed in the year incurred. 3. RECAPITALIZATION PLAN --------------------- During the first quarter of 1993, the Company and Holdings completed a recapitalization plan (the "Recapitalization Plan") the purpose of which plan was to reduce the aggregate amount of interest expense and preferred stock dividend requirements. The Company recorded an extraordinary loss of approximately $32 million in connection with the early retirement of a total of $192.2 million principal payment amount of notes and debentures. The aggregate purchase price (including costs to extinguish the debt) of such indebtedness was $223.8 million, financed principally through newly issued debt and preferred stock. The Recapitalization Plan is described in more detail in notes 5, 6, 8, 9, and 10. 4. BUSINESS ACQUIRED ----------------- On April 13, 1993, pursuing its operating strategy of acquiring contiguous bottling territories, the Company acquired all of the operating assets of Dr Pepper Bottling Company of Galveston, Inc. for $9 million in cash and $1 million payable over five years under a non-competition agreement. 5. 1993 BANK CREDIT AGREEMENT -------------------------- Pursuant to the Recapitalization Plan, on February 18, 1993, the Company entered into a credit agreement (the "1993 Bank Credit Agreement") with certain banks providing for (i) a term loan facility in the aggregate amount of $100 million and (ii) a revolving line of credit facility in the aggregate amount of $25 million. On March 22, 1993, as contemplated by the Recapitalization Plan, the Company borrowed $91.7 million under the term loan facility of the 1993 Bank Credit Agreement to redeem all of the then outstanding Senior Exchangeable Preferred Stock of the Company. As of December 31, 1993, the Company had no balance outstanding on the revolving line of credit facility of the 1993 Bank Credit Agreement. The facilities mature June 30, 1999. The 1993 Bank Credit Agreement contains customary restrictive covenants and requires the Company, among other things, to satisfy certain financial ratios and restrict investments, capital expenditures, additional debt and payments of dividends. Amounts owed under the 1993 Bank Credit Agreement are the direct obligations of the Company and are unconditionally guaranteed by Holdings. 6. SALE/LEASEBACK -------------- As part of the Recapitalization Plan, on February 18, 1993, the Company entered into an amendment to the lease agreement entered into by the Company on June 30, 1989, in connection with the sale/leaseback of its Irving and Houston, Texas production facilities. The amendment to the lease agreement modified certain covenants contained therein, increased rent by $500,000 per annum, and eliminated the consumer price index adjustment to the rent scheduled to be effected on July 1, 1994. In connection with the amendment, Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") obtained the right to sell the note (the "Landlord Note") held by the lender to the landlord under the lease agreement. The Landlord Note was sold on October 19, 1993 at a price of $17,698,500 (the "Sales Price") plus accrued interest of $95,985. DLJ received a commission of $176,985 in connection with such sale (1% of the Sales Price) and reimbursement of $94,472 for expenses incurred in connection with such sale, both of which were paid out of the proceeds from such sale. The remaining proceeds from such sale in excess of the principal amount of the Landlord Note plus accrued interest ($1,227,043) were paid to the Company and reflected as a reduction of the loss on recapitalization of debt. The present value of the increased rent payments was added to long term debt on the Company's and Holdings' balance sheets. 7. LONG-TERM DEBT -------------- Long-term debt at March 31, 1994 and December 31, 1993 is summarized as follows: (In thousands) Mar. 31, Dec. 31, 1994 1993 ----------- -----------
Facility borrowing under 1993 Bank Credit Agreement $86,111 $86,111 Sale/leaseback borrowings, due in monthly installments of $333,167 through June 2014 27,329 27,475 Capital lease obligations 21 51 Senior notes, due February 15, 2000 125,000 125,000 Discount notes, due February 15, 2003 80,701 78,453 Covenant not to compete; liability at present value of payments 1,866 1,944 --------- --------- $321,028 $319,034 Less current portion 12,796 12,885 --------- --------- $308,232 $306,149
8. SENIOR NOTES ------------ As contemplated by the Recapitalization Plan, on February 18, 1993, the Company issued and sold $125,000,000 aggregate principal amount of Senior Notes. The Senior Notes bear interest at a rate of 10 1/4% per annum, payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1993. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 16, 1998, at 101.708% of the principal amount thereof, plus accrued interest, if any, if redeemed during the twelve-month period beginning February 16, 1998, and thereafter at 100% of the principal amount thereof, plus accrued interest, if any, until maturity. In the event of a change in control of the Company or Holdings, the Company will be obligated to make an offer to purchase all outstanding Senior Notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Under the terms of the indenture governing the Senior Notes, dividend payments on capital stock are restricted to the sum of (i) 50% of net income (or in the case of a net loss, 100% of the net loss) plus (ii) the proceeds from the issuance of capital stock, warrants or options plus (iii) $7.5 million. 9. DISCOUNT NOTES -------------- As contemplated by the Recapitalization Plan, on February 18, 1993, Holdings issued and sold $125,000,000 aggregate principal amount of Discount Notes. The Discount Notes were issued at a substantial discount from their principal amount. Commencing February 16, 1998, interest will accrue until maturity on the Discount Notes at a rate of 11 5/8% per annum. Interest on the Discount Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1998. The Discount Notes are redeemable, in whole or in part, at the option of Holdings, on or after February 16, 1998, at amounts decreasing from 104.359% of the principal amount thereof, plus accrued interest, at February 16, 1998 to 100% of the principal amount thereof, plus accrued interest, at February 16, 2001, until maturity. In the event of a change in control of Holdings, Holdings will be obligated to make an offer to purchase all outstanding Discount Notes at a redemption price of 101% of the accreted value thereof on any repurchase date prior to February 16, 1998, or 101% of the principal amount thereof plus accrued and unpaid interest to any repurchase date on or after February 16, 1998. Under the terms of the indenture governing the Discount Notes, dividend payments on capital stock are restricted to the sum of (i) 50% of net income (or in the case of a net loss, 100% of the net loss) plus (ii) the proceeds from the issuance of capital stock, warrants or options plus (iii) $7.5 million. 10. HOLDINGS PREFERRED STOCK AND WARRANT ------------------------------------ As part of the Recapitalization Plan, Holdings sold, for an aggregate purchase price of $30 million, 1,200,000 shares of redeemable senior cumulative exchangeable preferred stock, par value $.01 per share, of Holdings (the "Preferred Stock") and a warrant to purchase up to 15% of the common stock of Holdings on a fully diluted basis. The Company redeemed all of the outstanding Senior Exchangeable Preferred Stock of the Company, in accordance with the Recapitalization Plan. Each share of Preferred Stock has a liquidation preference of $25.00 per share, plus accrued and unpaid dividends. Dividends are payable quarterly at the rate of $2.75 per annum per share. Dividends on the Preferred Stock are cumulative and, at the option of Holdings, may be paid through the issuance of additional shares of Preferred Stock on each dividend payment date through April 1, 1998. The Preferred Stock is optionally redeemable, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends thereon on or after April 1, 1998, provided that Holdings is also entitled to optionally redeem Preferred Stock with all or a portion of the proceeds from an initial offering of Holdings common stock consummated on or before the third anniversary of the issuance of the Preferred Stock. On each of April 1, 2005 and 2006, Holdings is required to redeem 25% of the number of shares of Preferred Stock that is outstanding as of March 31, 2005, at $25.00 per share. On April 1, 2007, Holdings must redeem the remaining shares of Preferred Stock then outstanding at $25.00 per share. Shares redeemed by Holdings prior to the mandatory redemption dates are credited toward the mandatory redemption requirements on a pro rata basis. The Preferred Stock is exchangeable, in whole or in part, at the option of Holdings on any dividend payment date for 11% Junior Subordinated Exchange Debentures due 2006 of Holdings (the "Holdings Exchange Debentures"). Each share of Preferred Stock will be exchanged for $25.00 in principal amount of Holdings Exchange Debentures in denominations of $1,000 or integral multiples thereof. Differences between the carrying value of the Preferred Stock and redemption price ($25.00 per share) will be recognized through adjustments in the carrying value prior to the mandatory redemption dates. Upon the occurrence of a change in control, at the election of the holders of the Preferred Stock, Holdings will be required to purchase for cash all shares of Preferred Stock at $25.25 per share, plus accrued and unpaid dividends to the date of repurchase. 11. HOLDINGS COMMON STOCK --------------------- On November 1, 1993, pursuant to Holdings' Certificate of Incorporation, each share of Class B common stock outstanding was automatically converted to Class A common stock. 12. DEPRECIATION EXPENSES --------------------- Depreciation expenses included in cost of goods sold and in administrative and general expenses are as follows: (In thousands) Three Mos. Ended ---------------------- Mar. 31, Mar. 31, 1994 1993 -------- --------
Cost of goods sold $ 851 $ 840 Administrative and general expenses 1,368 1,190 ----- ----- Total depreciation $2,219 $2,030
13. CHANGE IN ACCOUNTING PRINCIPLES - ACCOUNTING FOR INCOME ------------------------------------------------------- TAXES (DOLLAR AMOUNTS IN THOUSANDS) ------------------------------------ In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Statement 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. Effective January 1, 1993, Holdings adopted Statement 109 and the cumulative effect of the change in accounting for income taxes was immaterial. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 1993 are presented below:
Deferred tax assets: Net operating loss carryforwards $ 34,431 Obligations under capital leases 8,974 Other 1,961 -------- Total gross deferred tax assets $ 45,366 Less valuation allowance ( 37,904) Net deferred tax assets --------- 7,462 --------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation ( 3,879) Intangible assets due to differences in amortization ( 3,583) Total gross deferred liabilities ---------- Net deferred tax assets (liabilities) ( 7,462) ---------- $ - ==========
For federal income tax purposes, the predecessor tax basis of assets and liabilities was retained following the Acquisition. At December 31, 1993, the Company has net operating loss carryforwards of approximately $98,000 which are available to offset future federal taxable income, if any, through 2008. At December 31, 1993, there were approximately $82,000 of net operating loss carryforwards available to offset future alternative minimum taxable income for federal income tax purposes. Net operating losses may not offset more than 90% of the Company's alternative minimum tax income. The valuation allowance increased $18,160 at December 31, 1993 as compared to January 1, 1993 when FAS 109 was adopted by Holdings. The increase is primarily related to an increase in net operating loss carryforwards during 1993. If the Company undergoes a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code, then the Company will be limited in the use of its pre-ownership change net operating losses to offset future taxable income. A similar limitation would apply to any pre-ownership change tax credits. Also, to the extent that the taxable income of the company for any future year exceeds the sum of any net operating losses arising after the date of the ownership change plus the amount of the annual limitation on the pre-ownership change net operating losses, the Company would be required to pay federal income tax on such excess. Although a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code occurred with respect to the Company in October of 1988, the Company has determined that the annual limitation under section 382 of the Code on its pre-October 1988 net operating losses should be adequate to permit the full use of those net operating losses against future taxable income of the Company. Furthermore, although there can be no assurance that the Internal Revenue Service would not take a different position, the Company believes that a more-than-50% ownership change within the meaning of section 382(g) of the Internal Revenue Code has not occurred with respect to the Company after October 1988. 14. LOSS PER COMMON SHARE --------------------- The net income (loss) per share is computed by dividing net income (loss), adjusted for dividends on Holdings' preferred stock and accretion of preferred stock for the difference between the carrying value and liquidation preference, by the weighted average number of common shares outstanding during each period. (In thousands, except per share amounts) Three Mos. Ended ------------------------ Mar. 31, Mar. 31, 1994 1993 -------- --------
Net income (loss) $ 912 $(33,643) Preferred stock dividends (882) Accretion of preferred stock ( 47) ---------- --------- $ ( 17) $(33,643) 13,642 13,334 Common shares outstanding $ .00 $ (2.52) Profit (loss) per common share ========== =========
15. NEW ACCOUNTING STANDARDS ------------------------ In December 1990, the Financial Accounting Standards Board issued Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("Statement 106") which is effective for fiscal years beginning after December 15, 1992. The Company and Holdings do not provide postretirement benefits and, therefore, the provisions of Statement 106 are not applicable. In November 1992, the Financial Accounting Standards Board issued Statement 112, "Employers' Accounting for Postemployment Benefits" ("Statement 112") which is effective for fiscal years beginning after December 15, 1993. The Company and Holdings do not provide postemployment benefits and, therefore, the provisions of Statement 112 are not applicable. DR PEPPER BOTTLING HOLDINGS, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 1994 General ------- Case sales, the Company's primary measure of unit volume, refers to physical cases of beverages sold, including both premix (ready-to-serve products which are sold in tanks and converted to case sales on the basis of four cases per tank) and post-mix products (fountain syrups to which water and carbonation must be added and which are converted to case sales on the basis of one case per gallon.) Franchise case sales represent sales to retailers only. Contract case sales comprise sales, primarily of product in cans, to unaffiliated bottling companies that hold soft drink franchises and to a wholesaler of private label branded soft drink products. Contract sales may fluctuate significantly from year to year, and are made at relatively low prices and gross profit margins (historically representing approximately 16% of contract sales revenues) due to the competition for such sales, and are not a primary focus of management in determining the Company's business strategy. As a result, management believes that changes in franchise sales more accurately measure growth than changes in total net sales. The primary asset of Holdings is the common stock of the Company. Holdings conducts no business other than holding the common stock of the Company. As a result, net sales, cost of sales, operating expenses and operating profit are the same for the Company and Holdings. RESULTS OF OPERATIONS --THREE MONTHS ENDED MARCH 31, 1994 --------------------- --------------------------------- COMPARED TO THREE MONTHS ENDED ------------------------------ MARCH 31, 1993 -------------- Net sales, excluding contract sales, for the three months ended March 31, 1994 increased to $69.0 million compared to $64.0 million for the same period in 1993. The increase was due to a 10.6% increase in franchise case sales, with growth attributable to the acquisition of the franchise territory of Dr Pepper Bottling Company of Galveston, Inc. ("Dr Pepper-Galveston") on April 13, 1993 (the "Galveston Acquisition") and to strong results from Dr Pepper and 7Up brands. Contract sales revenue for the three months ended March 31, 1994 decreased 15.0% from the same period in 1993 due primarily to the elimination of contract sales to Dr Pepper-Galveston. As a result of the foregoing, net sales for the three months ended March 31, 1994 increased 5.9% to $74.0 million compared to $69.9 million for the same period in 1993. Cost of sales for the three months ended March 31, 1994 increased to $45.6 million compared to $42.5 million for the same period in 1993. The increase was due primarily to an increase in franchise case sales as well as increases in the prices paid by the Company for certain raw materials, primarily concentrate and sweetener. Increases in concentrate costs were partially offset by cost decreases in other ingredients and materials including P.E.T. bottles and aluminum cans. As a percentage of net sales, cost of sales for the three months ended March 31, 1994 increased to 61.7% from 60.9% for the same period in 1993. Marketing expenses for the three months ended March 31, 1994 decreased to $1.5 million compared to $1.6 million for the same period in 1993. Marketing expenses represented approximately 2.0% of net sales in each period. Administrative and general expenses for the three months ended March 31, 1994 increased to $15.0 million compared to $13.9 million for the same period in 1993. The increase was due primarily to an increase of $.6 million in labor and employee benefit expenses, an increase of $.1 million in fleet expenses under a full service lease arrangement, an increase of $.2 million in full service expenses, and an increase of $.2 million in other expenses. Depreciation expense for the three months ended March 31, 1994 was $1.4 million compared to $1.2 million for the same period in 1993. Amortization of intangible assets was $1.4 million, unchanged from the same period in 1993. As a result of the above factors, operating profit for the three months ended March 31, 1994 decreased to $9.1 million, or 12.3% of net sales, compared to $9.3 million, or 13.3% of net sales, for the same period in 1993. Interest expense for the Company for the three months ended March 31, 1994 decreased to $5.6 million from $6.2 million for the same period in 1993 due to lower interest rates on indebtedness. Amortization of the Company's deferred debt issuance costs for the three months ended March 31, 1994 was $.3 million, unchanged from the same period in 1993. Other income for the Company for the three months ended March 31, 1994 was $55,000 compared to $2.5 million for the same period in 1993 due to the settlement for $2.5 million in 1993 of the Company's 1988 lawsuit against Del Monte Corporation for its refusal to consent to the acquisition of the Company by Holdings and the subsequent termination of the Company's license to produce and distribute Hawaiian Punch products. As a result of the above factors, the Company's income before extraordinary item for the three months ended March 31, 1994 was $3.3 million compared to an income of $5.3 million for the same period in 1993. Holdings' amortization of deferred debt issuance costs for the three months ended March 31, 1994 increased to $.4 million compared to $.3 million for the same period in 1993. Interest expense (including bond accretion on the Discount Notes) for Holdings for the three months ended March 31, 1994 increased to $7.8 million from $7.2 million for the same period in 1993. The increase was due to higher indebtedness as a result of the Recapitalization Plan, partially offset by lower interest rates on such indebtedness. As a result of the above factors, Holdings generated income before dividends on the Company's Senior Exchangeable Preferred Stock (the "Old Preferred Stock") and extraordinary item of $.9 million for the three months ended March 31, 1994, compared to income of $4.3 million for the same period in 1993. The net loss before extraordinary item for Holdings of $1.5 million for the three months ended March 31, 1993 reflects charges of $5.8 million relating to dividends on the Company's Old Preferred Stock. The Old Preferred Stock was classified as a minority interest for purposes of the financial statements of Holdings. Extraordinary loss for the three months ended March 31, 1993 amounted to $32.1 million, due to transactions contemplated by the Recapitalization Plan. There was no extraordinary item for the three months ended March 31, 1994. Holdings generated net income of $.9 million for the three months ended March 31, 1994, compared to a net loss of $33.6 million for the same period in 1993. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Holdings conducts business through the Company and has no material operations of its own. The primary asset of Holdings is the common stock of the Company. Accordingly, Holdings is dependent on the cash flow of the Company to meet its obligations. Holdings has no material obligations other than those under the Discount Notes, the Preferred Stock and any exchange debentures of Holdings into which such stock becomes exchangeable, and certain contingent obligations under Holdings' guarantee of the Company's obligations under the 1993 Bank Credit Agreement. Holdings, though, is not expected to have any material need for cash until interest on the Discount Notes becomes payable in cash beginning August 15, 1998. The Discount Notes will mature in 2003. The 1993 Bank Credit Agreement and the Senior Notes indenture impose significant restrictions on the payment of dividends and the making of loans by the Company to Holdings. However, the Senior Notes indenture allows the Company to pay dividends to Holdings in accordance with a specified formula if, after giving effect thereto, no event of default, or an event that with the passage of time or the giving of notice, or both, would constitute an event of default under the Senior Notes indenture shall have occurred and be continuing. In addition, the 1993 Bank Credit Agreement allows the Company to pay dividends to Holdings in an amount necessary to make cash interest payments on the Discount Notes, provided that no event of default exists or would be created under the 1993 Bank Credit Agreement. The Company remains highly leveraged following the consummation of the transactions contemplated by the Recapitalization Plan. The Company's principal use of funds in the future will be the payment of principal and interest under the 1993 Bank Credit Agreement and the Senior Notes. As of March 31, 1994, approximately $86.1 million was outstanding under the term loan facility of the 1993 Bank Credit Agreement. The Company will be required to repay the principal under such term loan facility as follows: $12.1 million in 1994, $13.8 million in 1995, $15.5 million in 1996, $17.2 million in each of 1997 and 1998 and $10.3 million in 1999, subject to reduction for mandatory and optional prepayments. In addition, the Company will be required to further retire the principal amount outstanding under the 1993 Bank Credit Agreement with Excess Cash Flow (as defined in the 1993 Bank Credit Agreement). It is expected that the Company's primary sources of financing for its future business activities will be funds from operations, together with additional borrowings under the revolving line of credit facility of the 1993 Bank Credit Agreement. Such revolving line of credit facility provides for revolving loans in an aggregate amount of up to $25 million with a $5 million sublimit for the issuance of letters of credit. The revolving line of credit facility of the 1993 Bank Credit Agreement will mature in 1999. Because the obligations under the 1993 Bank Credit Agreement bear interest at floating rates, the Company will be sensitive to changes in prevailing interest rates. As required by the 1993 Bank Credit Agreement, the Company entered into interest rate protection arrangements, expiring June 28, 1996, in an aggregate notional amount equal to $45 million, subject to reduction by $2 million at the end of each quarter starting with the quarter ending June 30, 1994. The Company had working capital of $5.5 million at March 31, 1994 compared to working capital of $0.7 million at December 31, 1993. Based on the Company's anticipated operating results, management believes that the Company's future operating activities will generate sufficient cash flows to repay borrowings under the term loan facility of the 1993 Bank Credit Agreement as they become due and payable. However, based on such anticipated operating results, management does not expect that the Company's future operating activities will generate sufficient cash flows to repay the Senior Notes and the Discount Notes at their respective maturities. Accordingly, the Company and Holdings expect that they will be required to refinance all or substantially all of the Senior Notes and the Discount Notes at their respective maturities or sell equity or assets to fund the repayment of all or substantially all of the Senior Notes and the Discount Notes at their respective maturities, or effect a combination of the foregoing. While the Company and Holdings believe that they will be able to refinance the Senior Notes and the Discount Notes at or prior to their respective maturities, or raise sufficient funds through equity or asset sales to repay such indebtedness, or effect a combination of the foregoing, there can be no assurance that such will be the case. The 1993 Bank Credit Agreement contains numerous financial and operating covenants and prohibitions that impose limitations on the liquidity of the Company, including requirements that the Company satisfy certain financial ratios and maintain certain specified levels of net worth, and limitations on the incurrence of additional indebtedness. The indentures governing the Senior Notes and the Discount Notes also contain covenants that impose limitations on the liquidity of the Company and Holdings, including a limitation on the incurrence of additional indebtedness. The ability of the Company and Holdings to meet their debt service requirements and to comply with such covenants will be dependent upon future operating performance and financial results of the Company, which will be subject to financial, economic, competitive and other factors affecting the Company, many of which are beyond its control. Management believes that its production facilities will be sufficient to meet anticipated unit growth for the next several years. Accordingly, management anticipates that capital expenditures in respect of such facilities will consist of expenditures to maintain operating efficiency. Capital expenditures will be required primarily for the Company's automobile and truck fleet, vending machines, and routine plant, bottling, and canning equipment additions or maintenance. During 1993 capital expenditures net of assets acquired in the Galveston Acquisition totaled $9.0 million. The Company anticipates that capital expenditures will total approximately $7.0 million to $7.25 million for each of the years 1994 through 1996. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits None. (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended March 31, 1994. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DR PEPPER BOTTLING HOLDINGS, INC. ------------------------------------------- Date: 5/ /94 /s/ Jim L. Turner -------------------- ------------------------------ J. L. Turner Chaiamn of the Board/President Date: 5/ /94 /s/ C. Marvin Montgomery -------------- ------------------------------ C. Marvin Montgomery Vice President - Finance and Chief Financial Officer SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DR PEPPER BOTTLING COMPANY OF TEXAS Date: 5/16/94 /s/ Jim L. Turner -------------- ------------------------------ J. L. Turner Chaiamn of the Board/President Date: 5/16/94 /s/ C. Marvin Montgomery -------------- ------------------------------ C. Marvin Montgomery Vice President - Finance and Chief Financial Officer DAFS03...:\65\42265\0001\7379\FRM51294.P50 -----END PRIVACY-ENHANCED MESSAGE-----