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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 JUNE 30, 1997
or
Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 33-69832
ALL-AMERICAN BOTTLING CORPORATION
BROWNE BOTTLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-1317652
(State or other jurisdiction 73-1311569
of incorporation or organization) (IRS Employer Identification No.)
Colcord Building
15 North Robinson, Suite 1201
Oklahoma City, OK 73102
(Address of Principal Executive Office)
(405) 232-1158
(Registrant's telephone number, including area code)
(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 each 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 .
As of August 1, 1997 Browne Bottling Company had 192,244 shares of common
stock outstanding for which there is no public market; and All-American
Bottling Corporation had 100,000 shares of common stock outstanding, all of
which are held by Browne Bottling Company.
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All-American Bottling Corporation
Browne Bottling Company
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Changes in Stockholder's
Equity for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996
Consolidated Statements of Cash Flows for the three
months and six months ended June 30, 1997 and 1996
(unaudited)
Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Part II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I
ITEM 1. Financial Statements
BROWNE BOTTLING COMPANY
Consolidated Balance Sheets (in thousands)
- -------------------------------------------------------------------------------
December 31, June 30,
1996 1997
------------ ------------
ASSETS (unaudited)
Current assets:
Trade accounts receivable $ 10,208 $ 11,154
Franchise companies receivable 1,564 2,001
Other receivables 1,494 1,285
Allowance for doubtful accounts (462) (529)
Inventories - ingredients and packaging 2,783 2,653
Inventories - finished goods 4,165 4,346
Inventories - other 243 192
Inventories - pallets at deposit value 261 215
Prepaid expenses 399 594
Deferred tax asset 492 492
----------- -----------
Total current assets 21,147 22,403
----------- -----------
Plant and equipment, at cost:
Land 828 828
Buildings and improvements 6,347 6,503
Machinery and equipment 10,903 10,973
Vehicles 7,328 7,020
Vending equipment 5,970 6,174
Furniture and fixtures 354 372
Computer equipment 1,812 1,803
Returnable containers 2,338 2,329
----------- -----------
35,880 36,002
Less - Accumulated depreciation (23,826) (24,515)
----------- -----------
Net plant and equipment 12,054 11,487
----------- -----------
Intangible assets:
Franchises 37,443 35,474
Goodwill 15,007 14,193
Other intangibles 2,657 2,461
----------- -----------
55,107 52,128
Less - Accumulated amortization (13,285) (13,283)
----------- -----------
Net intangible assets 41,822 38,845
----------- -----------
Other assets 1,211 407
----------- -----------
Total assets $ 76,234 $ 73,142
=========== ===========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Consolidated Balance Sheets (in thousands)
- -------------------------------------------------------------------------------
December 31, June 30,
1996 1997
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 1,554 $ 713
Current portion of long-term debt 12,189 329
Current portion of obligations under
capital lease 167 147
Current portion of deferred compensation
and non-compete agreements 106 24
Trade accounts payable 8,832 8,332
Accrued compensation and payroll taxes 1,865 1,652
Accrued interest payable 2,020 1,822
Accrued insurance reserves 1,059 1,148
Accrued pension liability 130 156
Other liabilities 2,486 2,764
----------- ----------
Total current liabilities 30,408 17,087
----------- ----------
Long-term debt, net of current maturities 38,668 50,135
----------- ----------
Obligations under capital leases, net 885 814
----------- ----------
Deferred compensation and non-compete
agreements, net 984 1,113
----------- ----------
Other non-current liabilities 839 759
----------- ----------
Deferred tax liability 11,287 11,089
----------- ----------
Stock warrants 815 810
----------- ----------
Stockholders' equity (deficit):
Preferred stock - Series B, $.01 par
value, 1,000 shares authorized issued
and outstanding; (liquidation preference
of $1,000 per share) - -
Common stock, $.01 par value, 220,295 shares
authorized, 192,244 shares issued and
outstanding 2 2
Common stock, non-voting, $.01 par value,
5,263 shares authorized, none outstanding - -
Additional paid-in capital 26,542 26,542
Deficit (34,196) (35,209)
----------- ----------
Total stockholders' deficit (7,652) (8,665)
----------- ----------
Total liabilities and stockholders' deficit $ 76,234 $ 73,142
=========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Unaudited Consolidated Statements of Operations (in thousands except share and
per share amount)
- -------------------------------------------------------------------------------
Three Months Ended June 30,
1996 1997
----------- ----------
Revenues, net of discounts and allowances
($16,952 and $13,929 for the 3 months ended
June 30, 1996 and 1997, respectively) $ 38,000 $ 33,007
Cost of sales 25,173 21,235
----------- ----------
Gross Profit 12,827 11,772
----------- ----------
Operating expenses:
Plant and occupancy 1,081 1,215
Loading and shipping 908 808
Transport 150 128
Fleet service 176 158
Selling and delivery 5,677 5,242
Vending and Fountain 517 512
Advertising 557 343
General and administrative 1,697 1,444
Amortization of intangibles 468 394
----------- ----------
Total operating expenses 11,231 10,244
----------- ----------
Income from operations 1,596 1,528
Gain on disposals 27 183
Interest expense (1,878) (1,687)
Other income 242 293
----------- ----------
Income (loss) before income taxes and extraordinary item (13) 317
Income tax provision (27) (396)
----------- ----------
Net loss before extraordinary item (40) (79)
Extraordinary loss - (125)
----------- ----------
Net loss $ (40) $ (204)
============ ==========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Loss before extraordinary item $ (.21) $ (.41)
Extraordinary item - (.65)
----------- ----------
Net loss $ (.21) $ (1.06)
=========== ==========
Weighted average common shares 192,244 192,244
=========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Unaudited Consolidated Statements of Operations (in thousands except share and
per share amount)
- -------------------------------------------------------------------------------
Six Months Ended June 30,
1996 1997
------------- -----------
Revenues, net of discounts and allowances
($31,440 and $25,919 for the 6 months ended
June 30, 1996 and 1997, respectively) $ 71,533 $ 60,960
Cost of sales 47,459 38,874
----------- ----------
Gross Profit 24,074 22,086
----------- ----------
Operating expenses:
Plant and occupancy 2,624 2,478
Loading and shipping 1,937 1,586
Transport 377 257
Fleet service 361 316
Selling and delivery 11,850 10,282
Vending and Fountain 1,094 1,020
Advertising 1,074 753
General and administrative 3,406 2,954
Amortization of intangibles 1,023 797
----------- ----------
Total operating expenses 23,746 20,443
----------- ----------
Income from operations 328 1,643
Gain (loss) on disposals (1,899) 195
Interest expense (3,770) (3,356)
Other income 256 570
----------- ----------
Loss before income taxes and extraordinary item (5,085) (948)
Income tax benefit 1,167 60
----------- ----------
Net loss before extraordinary item (3,918) (888)
Extraordinary loss - (125)
----------- ----------
Net loss $ (3,918) $ (1,013)
=========== ==========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Loss before extraordinary item $ (20.38) $ (4.62)
Extraordinary item - (.65)
----------- ----------
Net loss $ (20.38) $ (5.27)
=========== ==========
Weighted average common shares 192,244 192,244
=========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Consolidated Statements of Changes in Stockholders' Equity (Deficit) (dollars
in thousands)
- -------------------------------------------------------------------------------
Preferred Additional Retained
Shares, Common Stock Paid-in Earnings
Series B Shares Amount Capital (Deficit) Total
--------- ------- ------ --------- --------- ---------
Balance, December 31, 1995 1,000 192,244 $ 2 $26,542 $(28,948) $ (2,404)
Net loss (5,248) (5,248)
--------- ------- ------ --------- --------- ---------
Balance, December 31, 1996 1,000 192,244 2 26,542 (34,196) (7,652)
Net loss (unaudited) (1,013) (1,013)
--------- ------- ------ --------- --------- ---------
Balance, June 30, 1997 1,000 192,244 $ 2 $26,542 $(35,209) $ (8,665)
(unaudited) ========= ======= ====== ========= ======== ========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
Three Months Ended June 30,
1996 1997
----------- ---------
Cash flows from operating activities:
Net loss $ (40) $ (204)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Extraordinary item - 125
Depreciation and amortization 1,160 1,086
(Gain) loss on disposal of assets and franchises (27) (183)
Deferred compensation 61 70
Deferred taxes 8 367
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Decrease (increase) in accounts receivable (1,439) (1,155)
Decrease (increase) in inventories 1,562 741
Increase (decrease) in accounts payable (5,414) (1,629)
Increase (decrease) in accrued interest 1,446 1,057
Other 130 665
----------- ----------
Net cash provided (used) by operating
activities (2,553) 940
----------- ----------
Cash flows from investing activities:
Capital expenditures (598) (375)
Proceeds from sale of fixed assets and
franchises 104 2,522
Payment for purchase of territories and
related fixed assets, net of cash
acquired (35) -
----------- ----------
Net cash provided (used) by investing
activities (529) 2,147
----------- ----------
Cash flows from financing activities:
Increase (decrease) in overdraft (1,046) 56
Proceeds from issuance of debt 2,825 2,315
Principal payments on debt (4,170) (4,970)
Borrowings on revolver note 46,902 36,967
Payments on revolver note (41,429) (37,452)
Financing costs paid (3)
---------- ----------
Net cash provided (used) by financing
activities 3,082 (3,087)
---------- ----------
Net decrease in cash - -
Cash at beginning of period - -
---------- ----------
Cash at end of period $ - $ -
========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
Six Months Ended June 30,
1996 1997
---------- ----------
Cash flows from operating activities:
Net loss $ (3,918) $ (1,013)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Extraordinary item - 125
Depreciation and amortization 2,445 2,180
(Gain) loss on disposal of assets and franchises 1,899 (195)
Deferred compensation 276 134
Deferred taxes (1,297) (118)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Decrease (increase) in accounts receivable (915) (996)
Decrease (increase) in inventories (35) 46
Increase (decrease) in accounts payable (4,244) (602)
Increase (decrease) in accrued interest (66) (198)
Other 322 379
---------- -----------
Net cash provided (used) by operating
activities (5,533) (258)
---------- -----------
Cash flows from investing activities:
Capital expenditures (1,404) (739)
Proceeds from sale of fixed assets and
franchises 7,289 2,534
Payment for purchase of territories and
related fixed assets, net of cash
acquired (705) -
---------- -----------
Net cash provided by investing activities 5,180 1,795
---------- -----------
Cash flows from financing activities:
Increase (decrease) in overdraft (239) (841)
Proceeds from issuance of debt 5,801 2,673
Principal payments on debt (5,037) (5,973)
Borrowings on revolver note 86,871 71,443
Payments on revolver note (86,943) (68,786)
Financing costs paid (100) (53)
---------- -----------
Net cash provided by financing
activities 353 (1,537)
---------- -----------
Net decrease in cash - -
Cash at beginning of period - -
---------- -----------
Cash at end of period $ - $ -
========== ===========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Three Months Ended June 30,
1996 1997
----------- -----------
Cash paid during the period for interest $ 374 $ 565
=========== ===========
Cash paid during the period for income
taxes $ - $ -
=========== ===========
Six Months Ended June 30,
1996 1997
----------- ----------
Cash paid during the period for interest $ 3,775 $ 3,428
=========== ==========
Cash paid during the period for income
taxes $ 123 $ -
=========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Notes to Unaudited Consolidated Financial Statements
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS
All-American Bottling Corporation (the "Company") is a wholly-owned
subsidiary of Browne Bottling Company ("BBC"). BBC has no independent
operations and its only material asset is its investment in the Company.
The Company is an independent bottler and distributor of soft drinks and
other beverage products, including flavored and premium waters, brewed
teas, natural sodas and sparkling juices. The Company's largest markets
in terms of franchise case sales volume are the metropolitan areas of
Milwaukee, Louisville, Nashville and Oklahoma City. The Company has
franchise agreements covering various territories for brands such as RC
Cola, Diet Rite Cola, Seven-Up, Dr Pepper, Sunkist, Canada Dry, Dad's
Root Beer, Crush, A&W Root Beer, Big Red, Sundrop, Snapple, Mistic,
Evian and Yoo-Hoo.
2. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
BBC without audit, pursuant to the rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted pursuant to Commission rules and
regulations; nevertheless, BBC believes that the disclosures are adequate
to make the information presented not misleading. These condensed
financial statements should be read in conjunction with BBC's audited
financial statements and the notes thereto included in BBC's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Commission. In the opinion of management, the accompanying interim
financial statements contain all material adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, the results of operations, cash flows and stockholders' equity
(deficit) of BBC for the three and six month periods ended June 30, 1996
and 1997. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full fiscal
year.
The accompanying financial statements include the accounts of BBC and its
wholly-owned subsidiary, the Company. All significant intercompany
balances and transactions have been eliminated.
In August 1993, the Company issued $45 million principal amount of 13%
Senior Secured Notes (the "Senior Notes"), which indebtedness has been
fully and unconditionally guaranteed by BBC. The separate financial
statements of the Company have not been included because the assets,
liabilities, earnings and equity (deficit) of the Company are
substantially equivalent to the assets, liabilities, earnings and equity
(deficit) of BBC on a consolidated basis and therefore are not considered
material.
3. ASSET SALES AND PURCHASES
In January, 1997, the Company purchased franchise rights and vending
equipment in Cookesville, Tennessee for $50,000.
In January, 1997, the Company purchased the assets of Beverage Service
Corporation, a vending company doing business in Wisconsin owned by
Randall Wissink, the Group President of the Mid-West Division, and Carl
Heiss, the controller of the Mid-West Division, for $182,000. The assets
included receivables, inventory and fixed assets purchased at fair market
value.
On May 30, 1997, the Company sold assets in Charleston, West Virginia to
an unrelated party for proceeds of approximately $2.4 million, resulting
in a loss on sale of approximately $92,000. The assets sold included
selected equipment and franchise and distributor agreements. Sales
proceeds were used to reduce the balance on the Senior Notes and the
Senior Credit Facility.
4. EXTRAORDINARY ITEM
The sale proceeds discussed in Note 3 and proceeds from additional
borrowings were used to repurchase $4.4 million principal amount of
Senior Notes. In connection with the repurchase of the Senior Notes,
the Company recognized an extraordinary loss of $125,000, net of tax,
primarily due to the write-off of unamortized deferred financing costs.
5. ADJUSTED HISTORICAL RESULTS
During 1996 the Company sold certain assets constituting its St. Paul,
Minnesota, Duluth, Minnesota, Roanoke, Virginia and Parkersburg, West
Virginia operations. The following table sets forth a summary of
unaudited selected financial information for the three and six months
ended June 30, 1996 and 1997. For each of these periods, the selected
financial information presented includes actual operating results for the
Company, while "adjusted" information has also been provided for the
three and six months ended June 30, 1996 which eliminates all case sales
data and all revenues and expenses relating to the St. Paul, Duluth,
Roanoke and Parkersburg operations. In addition, the 1996 information
has been "adjusted" to eliminate all results for Charleston, West
Virginia for the one month ended June 30, 1996. This territory was sold
May 30, 1997.
PAGE>
Three Months Ended June 30,
Historical Adjusted
1996 1996 1997
--------------- --------------- ----------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
DSD sales 4,713 4,232 4,039
Distributor sales 364 357 291
------ ---- ------ ---- ------ ----
Total franchise 5,077 86% 4,589 85% 4,330 84%
Contract sales 839 14% 839 15% 837 16%
------ ---- ------ ---- ------ ----
Total case sales 5,916 100% 5,428 100% 5,167 100%
Produced 4,919 83% 4,440 82% 4,509 87%
Purchased 806 14% 862 16% 658 13%
Inventory - (inc.)/dec. 191 3% 126 2% - -
------ ---- ------ ---- ------ ----
Total case sales 5,916 100% 5,428 100% 5,167 100%
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case, share and per share data)
Franchise sales $34,037 $6.70 $31,007 $6.76 $29,071 $6.71
Contract sales 3,963 4.72 3,963 4.72 3,936 4.70
------- ------- -------
Net sales 38,000 6.42 34,970 6.44 33,007 6.39
Cost of goods sold 25,173 4.25 23,006 4.24 21,235 4.11
------- ----- ------- ----- ------- -----
Gross profit 12,827 $2.17 11,964 $2.20 11,772 $2.28
Operating expenses 11,231 10,356 10,244
------- ------- -------
Operating income 1,596 1,608 1,528
Gain on disposals 27 27 183
Interest expense (1,878) (1,544) (1,687)
Other income 242 243 293
------- ------- -------
Net income (loss) before
income taxes and
extraordinary item (13) 334 317
Income tax provision (27) (163) (396)
------- -------- -------
Net income (loss) before
extraordinary item (40) 171 (79)
Extraordinary item - - (125)
-------- -------- -------
Net income (loss) $ (40) $ 171 $ (204)
======== ======== =======
EPS before extraordinary item $ (.21) .80 $ (.41)
EPS $ (.21) .80 $ (1.06)
Weighted average common
shares 192,244 212,455 192,244
EBITDA <F1> $ 2,974 $ 2,935 $ 2,876
<FN>
<F1>
EBITDA consists of net income (loss) before (a) income taxes, (b) interest
expense, (c) depreciation, (d) amortization, (e) gain (loss) on asset sales (f)
other non-cash charges and (g) extraordinary items. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income or
cash flow as an indicator of the Company's operating performance.
</FN>
Note 5 (continued)
Six Months Ended June 30,
Historical Adjusted
1996 1996 1997
--------------- --------------- ---------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
DSD sales 8,877 7,729 7,519
Distributor sales 830 668 536
------ ------ ------
Total franchise 9,707 87% 8,397 85% 8,055 85%
Contract sales 1,447 13% 1,447 15% 1,457 15%
------ ----- ------ ---- ------ ----
Total case sales 11,154 100% 9,844 100% 9,512 100%
Produced 9,806 88% 8,686 88% 8,311 87%
Purchased 1,281 11% 1,252 13% 1,250 13%
Inventory - (inc.)/dec. 67 1% (94) (1)% (49) -
------ ----- ------ ---- ------ ----
Total case sales 11,154 100% 9,844 100% 9,512 100%
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case, share and per share data)
Franchise sales $64,652 $6.66 $ 56,747 $6.76 $ 54,145 $6.72
Contract sales 6,881 4.76 6,881 4.76 6,815 4.68
------- ------- -------
Net sales 71,533 6.41 63,628 6.46 60,960 6.41
Cost of goods sold 47,459 4.25 41,603 4.23 38,874 4.09
------- ------ ------- ----- ------- -----
Gross profit 24,074 $2.16 22,025 $2.23 22,086 $2.32
Operating expenses 23,746 20,686 20,443
------- ------- -------
Operating income 328 1,339 1,643
Gain (loss) on disposals (1,899) 462 195
Interest expense (3,770) (3,119) (3,356)
Other income 256 292 570
------- ------- -------
Net loss before income taxes
and extraordinary item (5,085) (1,026) (948)
Income tax benefit 1,167 290 60
------- ------- -------
Net loss before extraordinary
item (3,918) (736) (888)
Extraordinary item - - (125)
------- ------- -------
Net loss $(3,918) $ (736) $ (1,013)
======= ======= =======
EPS before extraordinary item $(20.38) $ (3.83) $ (4.62)
EPS $(20.38) $ (3.83) $ (5.27)
Weighted average common
shares 192,244 192,244 192,244
EBITDA<F1> $ 3,001 $ 3,738 $ 4,333
<FN>
<F1>
EBITDA consists of net income (loss) before (a) income taxes, (b) interest
expense, (c) depreciation, (d) amortization, (e) gain (loss) on asset sales (f)
other non-cash charges and (g) extraordinary items. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income or
cash flow as an indicator of the Company's operating performance.
</FN>
6. SENIOR CREDIT FACILITY REFINANCING
On August 7, 1997 the Company completed the refinancing of its Senior
Credit Facility with Congress Financial Corporation on terms similar to
the existing credit facility. The new Senior Credit Facility provides
for borrowing availability of up to $20.0 million subject to borrowing
base limitations (65% of eligible inventories and 85% of eligible
accounts receivable). The facility will expire in August, 2000 and
limits the ability of the Company to incur additional liabilities and
liens, to make certain payments on its capital stock and redeem or
repurchase indebtedness (including the Senior Notes), and includes
financial covenants requiring the Company to achieve minimum working
capital and net income before income taxes (as defined). The Senior
Credit Facility is collateralized by the Company's accounts receivable,
inventory, certain real property and equipment at the Company's Oshkosh,
Wisconsin production facility, general intangibles, contract rights,
chattel paper, documents and instruments together with all the proceeds
of the foregoing (but excluding franchise and contract manufacturing
agreements).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
All-American Bottling Corporation (the "Company") is an independent
bottler and distributor of soft drinks and other beverage products operating in
six states and is a wholly-owned subsidiary of Browne Bottling Company ("BBC").
The Company's soft drink product portfolio includes such well-known national
brands as RC Cola, Diet Rite Cola, Seven-Up, Dr Pepper, Sunkist, Canada Dry,
Dad's Root Beer, Crush and A&W Root Beer, as well as leading regional brands
such as Big Red and Sundrop. Other beverages distributed by the Company
include Snapple, Mistic, Evian and other waters and are commonly referred to as
"alternative beverages". The Company's largest markets in terms of franchise
case sales volume are the metropolitan areas of Milwaukee, Louisville,
Nashville and Oklahoma City.
In August 1993 the Company issued $45.0 million principal amount of 13%
Senior Secured Notes due 2001 (the "Senior Notes"), guaranteed by BBC, and
entered into a senior secured credit facility (the "Senior Credit Facility")
providing for borrowing availability of up to $20.0 million, subject to
borrowing base limitations. As discussed in Note 6 to the interim financial
statements, the Company refinanced the Senior Credit Facility in August 1997 on
similar terms.
The Company's primary measurement of unit volume is franchise and
contract case sales. Franchise case sales represent sales of products in the
Company's franchise territories, while contract case sales consist of product
sold under contract manufacturing arrangements to private label or other
bottlers. Produced product consists of product manufactured by the Company in
its own facilities and purchased product is finished product purchased from
other bottlers and suppliers. EBITDA includes net income (loss) before income
taxes, interest expense, depreciation, amortization, gain (loss) on asset
sales, extraordinary items and other non-cash charges. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income or
cash flow (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance or
liquidity.
The operating results for the three and six month periods ended June 30,
1997 are not directly comparable to the operating results for the three and six
month periods ended June 30, 1996, as the results are materially affected by
the 1996 sales of assets in St. Paul and Duluth Minnesota, Roanoke, Virginia
and Parkersburg, West Virginia. The sales of these operations significantly
reduced case sales, net sales, cost of goods sold, gross profit and operating
expenses. In order to provide comparable information, the selected financial
information included in Note 5 of the interim financial statements for the
three and six months ended June 30, 1996 has been "adjusted" to eliminate these
operations. In addition, the 1996 information have been "adjusted" to
eliminate the results for Charleston, West Virginia for the one month ending
June 30, 1996. This territory was sold May 30, 1997. Accordingly, the
following discussion of the results of operations compares the actual results
of operations for the three and six months ended June 30, 1997 with the actual,
as well as "adjusted", results of operations for the corresponding periods
ended June 30, 1996.
During 1996 the Company also sold territories in Madison, Wisconsin and
Pulaski, Tennessee and purchased a territory in LaCrosse, Wisconsin. The
information presented in Note 5 of the interim financial statements has not
been adjusted for these territory sales and acquisitions due to their
immaterial impact on the comparability of financial information.
RESULTS OF OPERATIONS (UNAUDITED)
The following discussion addresses the results of operations for the
three months ended June 30, 1997 (the "Current Quarter") compared to the
corresponding period ended June 30, 1996 (the "Prior Quarter") and the
"adjusted" corresponding period ended June 30, 1996 (the "Adjusted Prior
Quarter") and for the six months ended June 30, 1997 (the "Current YTD")
compared to the corresponding period ended June 30, 1996 (the "Prior YTD") and
the "adjusted" corresponding period ended June 30, 1996 (the "Adjusted Prior
YTD").
THREE MONTHS ENDED JUNE 30, 1997 VS. THREE MONTHS ENDED JUNE 30, 1996
Net sales for the Current Quarter were $33.0 million compared to $38.0
million for the Prior Quarter, a $5.0 million or 13.1% decrease due to lower
franchise case sales resulting primarily from the sales of the Minnesota,
Roanoke, Virginia and West Virginia territories. Franchise case sales were 4.3
million cases for the Current Quarter compared to 5.1 million cases for the
Prior Quarter, a decrease of 747,000 or 14.7%. After the adjustment for sold
operations, net sales decreased $2.0 million or 5.6% for the Current Quarter
compared to the Adjusted Prior Quarter due to a decrease in franchise case
sales for the Current Quarter of 259,000 cases or 5.6% from the Adjusted Prior
Quarter. This decrease in franchise cases is primarily attributable to overall
volume declines, principally in Kentucky and West Virginia.
The average net selling price per case for franchise sales for the
Company was $6.71 in the Current Quarter compared to $6.70 for the Prior
Quarter and $6.76 for the Adjusted Prior Quarter. The decline in the Current
Quarter compared to the Adjusted Prior Quarter is due to industry-wide price
reductions resulting from the reduction in cost of goods described below and to
the Company's increased promotional activity in Wisconsin.
Contract case sales were 837,000 cases for the Current Quarter compared
to 839,000 cases for the Prior Quarter. The average net selling price for
contract cases was $4.70 for the Current Quarter compared to $4.72 for the
Prior Quarter.
On a company-wide basis the average net selling price per case for all
cases was $6.39 for the Current Quarter, $6.42 for the Prior Quarter and $6.44
for the Adjusted Prior Quarter. The decline in the average net selling price
in the Current Quarter compared to the Adjusted Prior Quarter is partially
attributable to a higher percentage of sales resulting from lower priced
contract sales and partially due to a decline in the net selling price to
remain competitive with industry-wide price reductions resulting from the
reduction in cost of goods described below.
Cost of goods sold decreased $3.9 million or 15.6% for the Current
Quarter compared to the Prior Quarter due to volume declines resulting from the
sold territories. Cost of goods sold decreased $1.8 million or 7.7% for the
Current Quarter compared to the Adjusted Prior Quarter partially due to a
reduction in sweetener and plastic bottle costs and partially to an overall
volume decrease of 4.8%. Gross profit for the Current Quarter was $11.8
million compared to $12.8 million for the Prior Quarter, a decrease of $1.1
million or 8.2% due to volume declines resulting from territory sales. Gross
profit decreased $192,000 or 1.6% for the Current Quarter compared to the
Adjusted Prior Quarter due to overall volume declines in the ongoing
territories partially offset by reduced sweetener and plastic bottle costs.
Gross margin (gross profit as a percentage of sales) improved to 35.7% for the
Current Quarter compared to 34.2% for the Adjusted Prior Quarter and 33.8% for
the Prior Quarter.
Operating expenses declined $987,000 or 8.8% for the Current Quarter
compared to the Prior Quarter due to overall decreases in expenses as a result
of the decreased volume of case sales. Operating expenses decreased $112,000
or 1.1% in the Current Quarter compared to the Adjusted Prior Quarter due to
reduced payroll and advertising costs.
In the Current Quarter there was a gain on sale of $183,000 compared to a
gain on sale of $27,000 in the Prior Quarter. The gain in the Current Quarter
resulted from the gain recognized on the cash receipt of a "holdback" from the
purchasers of the Parkersburg, West Virginia territory partially offset by a
loss recognized on the sale of the Charleston, West Virginia territory.
Interest expense was $1.7 million for the Current Quarter compared to
$1.9 million for the Prior Quarter. The decrease in interest of $191,000 in
the Current Quarter compared to the Prior Quarter is due to lower levels of
debt resulting from the application of the sales proceeds from territory sales.
Pretax net income for the Current Quarter was $317,000 compared to a
pretax net loss for the Prior Quarter of $13,000. The reduction in the loss
resulted from the reduced interest expense and increased gains on disposals in
the Current Quarter. Compared to the Adjusted Prior Quarter the pretax loss
remained constant decreasing by only $17,000.
The Company recognized an extraordinary loss in the Current Quarter of
$125,000, net of tax, in connection with the repurchase of Senior Notes
primarily due to the write-off of unamortized deferred financing costs.
EBITDA remained constant at $2.9 million for the Current Quarter compared
to $3.0 million for the Prior Quarter and $2.9 million for the Adjusted Prior
Quarter.
SIX MONTHS ENDED JUNE 30, 1997 VS. SIX MONTHS ENDED JUNE 30, 1996
Net sales for the Current YTD were $61.0 million compared to $71.5
million for the Prior YTD, a $10.6 million or 14.8% decrease due to lower
franchise case sales resulting primarily from the sales of the Minnesota,
Roanoke, Virginia and West Virginia territories. Franchise case sales were 8.1
million cases for the Current YTD compared to 9.7 million cases for the Prior
YTD, a decrease of 1.7 million cases or 17.0%. After the adjustment for sold
operations, net sales decreased $2.7 million or 4.2% for the Current YTD
compared to the Adjusted Prior YTD due to a decrease in franchise case sales
for the Current YTD of 342,000 cases or 4.1% from the Adjusted Prior YTD. This
decrease in franchise cases is primarily attributable to overall volume
declines, principally in Kentucky and West Virginia.
The average net selling price per case for franchise sales for the
Company was $6.72 in the Current YTD compared to $6.66 for the Prior YTD and
$6.76 for the Adjusted Prior YTD. The increase in the selling price in the
Current YTD compared to the Prior YTD is due primarily to the sale of the
Minnesota territories which had an average net selling price of $5.38 for the
Prior YTD.
Contract case sales were 1.5 million cases for the Current YTD and for
the Prior YTD. The average net selling price per case for contract cases was
$4.68 for the Current YTD compared to $4.76 for the Prior YTD.
On a company-wide basis the average net selling price per case for all
cases was $6.41 for the Current YTD and Prior YTD and $6.46 for the Adjusted
Prior YTD. The decline in the average net selling price in the Current Quarter
compared to the Adjusted Prior Quarter is attributable to a decline in the net
selling price to remain competitive with industry-wide price reductions
resulting from the reduction in cost of goods described below.
Cost of goods sold decreased $8.6 million or 18.1% for the Current YTD
compared to the Prior YTD due to volume declines resulting from the sold
territories. Cost of goods sold decreased $2.7 million or 6.6% for the Current
YTD compared to the Adjusted Prior YTD due partially to a reduction in
sweetener and plastic bottle costs and partially to an overall volume decrease
of 3.4%. Gross profit for the Current YTD was $22.1 million compared to $24.1
million for the Prior YTD, a decrease of $2.0 million or 8.3% due to volume
declines resulting from territory sales in 1996 and 1997. Gross profit
increased $61,000 or .3% for the Current YTD compared to the Adjusted Prior YTD
due to reduced sweetener and plastic bottle costs partially offset by overall
volume decline. Gross margin (gross profit as a percentage of sales) improved
to 36.2% for the Current YTD compared to 34.6% for the Adjusted Prior YTD and
33.7% for the Prior YTD.
Operating expenses declined $3.3 million or 13.9% for the Current YTD
compared to the Prior YTD due to overall decreases in expenses as a result of
the decreased volume of case sales. Operating expenses decreased $243,000 or
1.2% in the Current YTD compared to the Adjusted Prior YTD due to reduced
payroll and advertising costs partially offset by an increase in depreciation
expense.
The loss on sale of $1.9 million for the Prior YTD resulted primarily
from the loss on the sale of the Minnesota territories partially offset by
gains on the sales of the Roanoke, Virginia, Madison, Wisconsin and Pulaski,
Tennessee territories. In the Current YTD there was a gain on sale of
$195,000, which resulted from the gain recognized on the cash receipt of a
"holdback" from the purchasers of the Parkersburg, West Virginia territory
partially offset by a loss recognized on the sale of the Charleston, West
Virginia territory.
Interest expense was $3.4 million for the Current YTD compared to $3.8
million for the Prior YTD. The decrease in interest of $414,000 in the Current
YTD compared to the Prior YTD is due to lower levels of debt resulting from the
application of the sales proceeds from territory sales.
Other income was $570,000 in the Current YTD compared to $256,000 for the
Prior YTD and $292,000 for the Adjusted Prior YTD. The increase in the Current
YTD is due to income recognized under long-term supply arrangements with major
suppliers.
Pretax net loss for the Current YTD was $948,000 compared to a pretax net
loss for the Prior YTD of $5.1 million. The reduction in the loss resulted
from improved operations in the Current YTD, the reduction in the interest
expense and the loss on sale recognized in the Prior YTD. Compared to the
Adjusted Prior YTD, the pretax loss decreased by $78,000 primarily due to lower
cost of goods sold.
The Company recognized an extraordinary loss in the Current YTD of
$125,000, net of tax, in connection with the repurchase of Senior Notes
primarily due to the write-off of unamortized deferred financing costs.
EBITDA was $4.3 million for the Current YTD compared to $3.0 million for
the Prior YTD and $3.7 million for the Adjusted Prior YTD. The improvement in
EBITDA is attributable to improved gross margins resulting from the lower cost
of goods sold and reduced operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had working capital (excluding cash
overdraft and the current portion of long-term debt and other obligations) of
$6.5 million compared to $4.8 million at December 31, 1996. The increase in
working capital is due primarily to an increase in accounts receivable and
decreases in trade payables, accrued compensation and accrued interest. The
Company's working capital needs have historically been funded from operations
and from borrowings under its Senior Credit Facility.
The Company's long-term debt (including current maturities and amounts
payable under non-compete and deferred compensation agreements) was
approximately $52.6 million at June 30, 1997. Scheduled principal payments are
estimated to be approximately $500,000 for the twelve months ending June 30,
1998 of which approximately $103,000 represents unsecured demand notes held by
officers of the Company who from time to time make unsecured loans to the
Company at the same interest rates charged under the Company's Senior Credit
Facility. At June 30, 1997 the Company's borrowing base under its Senior
Credit Facility was $16.2 million, and the Company had borrowings of $13.5
million and an additional $138,000 of letters of credit outstanding leaving
$2.6 million of unused available credit.
As discussed in Note 6 to the interim financial statements, the Company
has completed the refinancing of its Senior Credit Facility with a new lender
on terms similar to the existing credit facility. The new Senior Credit
Facility provides for borrowing availability of up to $20.0 million subject to
borrowing base limitations (65% of eligible inventories and 85% of eligible
accounts receivable). The facility will expire in August, 2000 and limits the
ability of the Company to incur additional liabilities and liens, to make
certain payments on its capital stock and redeem or repurchase indebtedness
(including the Senior Notes). At June 30, 1997 the Company was not in
compliance with the consolidated interest coverage ratio covenant required in
the old Senior Credit Facility. The financial covenants contained in the new
Senior Credit Facility require the Company to achieve minimum working capital
and net income before income taxes (as defined) based on agreed levels for 1997
and based on future budgets thereafter. The Company is in compliance with all
financial covenants under the new Senior Credit Facility. The Senior Credit
Facility is collateralized by the Company's accounts receivable, inventory,
certain real property and equipment at the Company's Oshkosh, Wisconsin
production facility, general intangibles, contract rights, chattel paper,
documents and instruments together with all the proceeds of the foregoing (but
excluding franchise and contract manufacturing agreements). Interest is
payable monthly at .5% per anum above the prime rate designated by Congress
Financial Corporation. As a result of this refinancing the balance owed on the
Senior Credit Facility has been reflected as long-term debt in the interim
financial statements as of June 30, 1997.
For the Current YTD, the Company's operating activities used cash of
$258,000 compared to cash used of $5.5 million for the Prior YTD. The $258,000
of net cash used by operating activities in the Current YTD resulted primarily
from increases in accounts receivable and decreases in accounts payable and
accrued interest partially offset by cash provided from operations of $1.1
million. The $5.5 million of net cash used in the Prior YTD resulted primarily
from increases in accounts receivable and decreases in accounts payable and
cash used by operations of $595,000.
During the Current YTD investing activities provided cash of $1.8 million
primarily from the proceeds from the sale of the Charleston, West Virginia
territory partially offset by capital expenditures. In the Prior YTD investing
activities provided cash of $5.2 million due to the sales of the Minnesota,
Roanoke, Virginia, Madison, Wisconsin, and Pulaski, Tennessee territories
partially offset by cash used for capital expenditures and to purchase a
territory in LaCrosse, Wisconsin.
For the Current YTD financing activities used cash of $1.5 million
primarily due to principal payments on debt of $6.0 million partially offset by
increased borrowings over payments of $2.7 million on the Senior Credit
Facility and additional borrowings of $2.7 million. The principal payments of
$6.0 million included approximately $4.5 million for the repurchase of the
Company's Senior Notes and $1.2 million paid on unsecured demand notes held by
the Company's officers and entities affiliated with them. Financing activities
provided cash of $353,000 in the Prior YTD due to increased borrowings
partially offset by principal payments on debt.
The Company's earnings before income taxes and fixed charges were
sufficient to cover its fixed charges by $317,000 for the Current Quarter and
were insufficient by $948,000 for the Current YTD. EBITDA and interest expense
were $2.9 million and $1.7 million, respectively, for the Current Quarter and
were $4.3 million and $3.4 million, respectively, for the Current YTD. If the
Company experiences a deterioration in operating results, its ability to
generate sufficient cash to cover its interest expense would be reduced, and
the Company may be unable to meet its interest obligations.
The Company must make certain capital expenditures on an annual basis in
order to maintain its business and assets and compete effectively. The Company
expects to spend approximately $900,000 on capital expenditures during the six
months ending December 31, 1997. To the extent that requirements for debt
service and capital expenditures exceed cash flow from operations, the Company
will need to finance such requirements with additional indebtedness or defer
capital expenditures.
FORWARD LOOKING STATEMENTS
When used in this document, the words "anticipate", "estimate",
"believe", "expect" and similar expressions are intended to identify forward
looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or projected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit No.
-----------
27 Financial Data Schedule
(b) No reports on form 8-K were filed during the period covered
by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALL-AMERICAN BOTTLING CORPORATION
Date: August 14, 1997 By: STEPHEN B. BROWNE
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: August 14, 1997 By: STEPHEN R. KERR
Stephen R. Kerr
Vice President and Chief
Financial Officer
BROWNE BOTTLING COMPANY
Date: August 14, 1997 By: STEPHEN B. BROWNE
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: August 14, 1997 By: STEPHEN R. KERR
Stephen R. Kerr
Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
27 Financial Data Schedule Filed herewith electronically