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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 SEPTEMBER 30, 1997
or
Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 33-69832
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 November 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 September 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Changes in Stockholder's
Equity for the nine months ended September 30, 1997
(unaudited) and for the year ended December 31, 1996
Consolidated Statements of Cash Flows for the three
months and nine months ended September 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, September 30,
1996 1997
------------ ------------
ASSETS (unaudited)
Current assets:
Trade accounts receivable $ 10,208 $ 9,578
Franchise companies receivable 1,564 1,864
Other receivables 1,494 720
Allowance for doubtful accounts (462) (468)
Inventories - ingredients and packaging 2,783 3,112
Inventories - finished goods 4,165 5,056
Inventories - other 243 202
Inventories - pallets at deposit value 261 278
Prepaid expenses 399 337
Deferred tax asset 492 492
----------- -----------
Total current assets 21,147 21,171
----------- -----------
Plant and equipment, at cost:
Land 828 828
Buildings and improvements 6,347 6,597
Machinery and equipment 10,903 10,910
Vehicles 7,328 5,745
Vending equipment 5,970 6,207
Furniture and fixtures 354 314
Computer equipment 1,812 1,656
Returnable containers 2,338 2,338
----------- -----------
35,880 34,595
Less - Accumulated depreciation (23,826) (23,517)
----------- -----------
Net plant and equipment 12,054 11,078
----------- -----------
Intangible assets:
Franchises 37,443 35,474
Goodwill 15,007 14,193
Other intangibles 2,657 1,724
----------- -----------
55,107 51,391
Less - Accumulated amortization (13,285) (12,926)
----------- -----------
Net intangible assets 41,822 38,465
----------- -----------
Other assets 1,211 384
----------- -----------
Total assets $ 76,234 $ 71,098
=========== ===========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Consolidated Balance Sheets (in thousands except share and par value amounts)
- -------------------------------------------------------------------------------
December 31, September 30,
1996 1997
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 1,554 $ 1,286
Current portion of debt 12,189 8,162
Current portion of obligations under
capital lease 167 145
Current portion of deferred compensation
and non-compete agreements 106 24
Trade accounts payable 8,832 7,725
Accrued compensation and payroll taxes 1,865 1,706
Accrued interest payable 2,020 513
Accrued insurance reserves 1,059 899
Accrued pension liability 130 178
Other liabilities 2,486 2,167
----------- -----------
Total current liabilities 30,408 22,805
----------- -----------
Long-term debt, net of current maturities 38,668 42,664
----------- -----------
Obligations under capital leases, net 885 783
----------- -----------
Deferred compensation and non-compete
agreements, net 984 1,182
----------- -----------
Other non-current liabilities 839 717
----------- -----------
Deferred tax liability 11,287 10,986
----------- -----------
Stock warrants 815 809
----------- -----------
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) (35,392)
----------- -----------
Total stockholders' deficit (7,652) (8,848)
----------- -----------
Total liabilities and stockholders' deficit $ 76,234 $ 71,098
=========== ===========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Consolidated Statements of Operations (in thousands except share and per share
amounts)
- -------------------------------------------------------------------------------
Three Months Ended September 30,
1996 1997
----------- -----------
(Unaudited)
Revenues, net of discounts and allowances
($17,750 and $14,075 for the 3 months ended
September 30, 1996 and 1997, respectively) $ 38,235 $ 33,387
Cost of sales 25,258 21,612
----------- -----------
Gross Profit 12,977 11,775
----------- -----------
Operating expenses:
Plant and occupancy 1,212 1,275
Loading and shipping 939 922
Transport 180 155
Fleet service 178 157
Selling and delivery 5,923 5,139
Vending and Fountain 508 680
Advertising 486 402
General and administrative 1,392 1,310
Amortization of intangibles 567 380
----------- -----------
Total operating expenses 11,385 10,420
----------- -----------
Income from operations 1,592 1,355
Gain on disposals 50 29
Interest expense (1,894) (1,567)
Other income 157 184
----------- -----------
Income (loss) before income taxes and
extraordinary item (95) 1
Income tax provision (221) (10)
------------ -----------
Net loss before extraordinary item (316) (9)
Extraordinary loss - (174)
------------ -----------
Net loss $ (316) $ (183)
============ ===========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Loss before extraordinary item $ (1.64) $ (.05)
Extraordinary item - (.90)
------------ -----------
Net loss $ (1.64) $ (.95)
=========== ===========
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 Operations (in thousands except share and per share
amounts)
- -------------------------------------------------------------------------------
Nine Months Ended September 30,
1996 1997
------------- -----------
(Unaudited)
Revenues, net of discounts and allowances
($49,190 and $39,994 for the 9 months ended
September 30, 1996 and 1997, respectively) $ 109,768 $ 94,347
Cost of sales 72,717 60,486
----------- -----------
Gross Profit 37,051 33,861
----------- -----------
Operating expenses:
Plant and occupancy 3,836 3,753
Loading and shipping 2,876 2,508
Transport 557 412
Fleet service 539 473
Selling and delivery 17,773 15,421
Vending and Fountain 1,602 1,700
Advertising 1,560 1,155
General and administrative 4,798 4,264
Amortization of intangibles 1,590 1,177
----------- -----------
Total operating expenses 35,131 30,863
----------- -----------
Income from operations 1,920 2,998
Gain (loss) on disposals (1,849) 224
Interest expense (5,664) (4,923)
Other income 413 754
----------- -----------
Loss before income taxes and extraordinary
item (5,180) (947)
Income tax benefit 946 50
----------- -----------
Net loss before extraordinary item (4,234) (897)
Extraordinary loss - (299)
----------- -----------
Net loss $ (4,234) $ (1,196)
=========== ===========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Loss before extraordinary item $ (22.02) $ (4.67)
Extraordinary item - (1.55)
----------- -----------
Net loss $ (22.02) $ (6.22)
=========== ===========
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) (1,196) (1,196)
--------- ------- ------ --------- --------- --------
Balance, September 30, 1997 1,000 192,244 $ 2 $26,542 $(35,392) $ (8,848)
(unaudited) ========= ======= ====== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
BROWNE BOTTLING COMPANY
Consolidated Statements of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
Three Months Ended September 30,
1996 1997
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net loss $ (316) $ (183)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Extraordinary item - 174
Depreciation and amortization 1,260 962
(Gain) loss on disposal of assets and
franchises (50) (29)
Deferred compensation 64 73
Deferred taxes (7) -
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Decrease (increase) in accounts receivable 1,905 2,216
Decrease (increase) in inventories (281) (1,241)
Increase (decrease) in accounts payable 666 (616)
Increase (decrease) in accrued interest (1,416) (1,309)
Other (738) (533)
---------- -----------
Net cash provided (used) by operating
activities 1,087 (486)
---------- -----------
Cash flows from investing activities:
Capital expenditures (507) (168)
Proceeds from sale of fixed assets and
franchises 1,005 50
---------- -----------
Net cash provided (used) by investing
activities 498 (118)
---------- -----------
Cash flows from financing activities:
Increase (decrease) in overdraft (1,385) 573
Proceeds from issuance of debt 18 8,486
Principal payments on debt (1,811) (7,142)
Borrowings on revolver note 45,070 42,536
Payments on revolver note (43,477) (43,695)
Financing costs paid - (154)
--------- -----------
Net cash provided (used) by financing
activities (1,585) 604
--------- -----------
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
Consolidated Statements of Cash Flows (in thousands)
- ---------------------------------------------------------------------------------
Nine Months Ended September 30,
1996 1997
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net loss $ (4,234) $ (1,196)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Extraordinary item - 299
Depreciation and amortization 3,705 3,142
(Gain) loss on disposal of assets and
franchises 1,849 (224)
Deferred compensation 340 207
Deferred taxes (1,304) (118)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Decrease (increase) in accounts receivable 990 1,220
Decrease (increase) in inventories (316) (1,195)
Increase (decrease) in accounts payable (3,578) (1,218)
Increase (decrease) in accrued interest (1,482) (1,507)
Other (416) (154)
----------- -----------
Net cash provided (used) by operating
activities (4,446) (744)
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,911) (907)
Proceeds from sale of fixed assets and
franchises 8,294 2,584
Payment for purchase of territories and
related fixed assets, net of cash
acquired (705) -
----------- -----------
Net cash provided by investing activities 5,678 1,677
----------- -----------
Cash flows from financing activities:
Increase (decrease) in overdraft (1,624) (268)
Proceeds from issuance of debt 5,819 11,159
Principal payments on debt (6,848) (13,115)
Borrowings on revolver note 131,941 113,979
Payments on revolver note (130,420) (112,481)
Financing costs paid (100) (207)
----------- -----------
Net cash provided (used) by financing
activities (1,232) (933)
----------- -----------
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
Consolidated Statements of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Three Months Ended September 30,
1996 1997
----------- -----------
(Unaudited)
Cash paid during the period for interest $ 3,280 $ 2,813
=========== ===========
Cash paid during the period for income
taxes $ 280 $ 267
=========== ===========
Nine Months Ended September 30,
1996 1997
----------- -----------
(Unaudited)
Cash paid during the period for interest $ 7,085 $ 6,241
=========== ===========
Cash paid during the period for income
taxes $ 403 $ 267
=========== ===========
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 as of and for the three and nine month periods ended
September 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 Credit Facility
and to repurchase Senior Notes.
4. EXTRAORDINARY ITEM
The sale proceeds discussed in Note 3 and proceeds from additional
borrowings were used to repurchase $10.8 million principal amount of
Senior Notes. In connection with the repurchase of the Senior Notes,
the Company recognized an extraordinary loss of $299,000, 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 nine months
ended September 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 nine months ended September 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 four months ended September 30, 1996.
This territory was sold May 30, 1997.
Three Months Ended September 30,
Historical Adjusted
1996 1996 1997
--------------- --------------- ---------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
DSD sales 4,818 4,210 4,112
Distributor sales 331 307 281
----- ----- ------ ---- ----- ----
Total franchise 5,149 85% 4,517 84% 4,393 84%
Contract sales 877 15% 877 16% 814 16%
----- ----- ------ ---- ----- ----
Total case sales 6,026 100% 5,394 100% 5,207 100%
===== ===== ====== ==== ===== ====
Produced 5,485 91% 4,861 90% 4,647 89%
Purchased 745 12% 709 13% 758 15%
Inventory - (inc.)/dec. (204) (3)% (176) (3)% (198) (4)%
----- ----- ------ ---- ----- ----
Total case sales 6,026 100% 5,394 100% 5,207 100%
===== ===== ====== ==== ===== ====
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case, share and per share data)
Franchise sales $34,102 $6.62 $ 30,228 $6.69 $29,564 $6.73
Contract sales 4,133 4.71 4,132 4.72 3,823 4.70
------- ----- ------- ---- ------- -----
Net sales 38,235 6.34 34,360 6.37 33,387 6.41
Cost of goods sold 25,258 4.19 22,454 4.16 21,612 4.15
------- ----- ------- ---- ------- -----
Gross profit 12,977 $2.15 11,906 $2.21 11,775 $2.26
Operating expenses 11,385 ===== 10,162 ====== 10,420 =====
------- -------- -------
Operating income 1,592 1,744 1,355
Gain on disposals 50 (6) 29
Interest expense (1,894) (1,807) (1,567)
Other income 157 156 184
------- -------- -------
Net income(loss) before income (95) 87 1
taxes and extraordinary item
Income tax provision (221) (292) (10)
-------- -------- -------
Net income (loss) before
extraordinary item (316) (205) (9)
Extraordinary item - - (174)
-------- -------- -------
Net income (loss) $ (316) $ (205) $ (183)
======== ======== =======
EPS before extraordinary item $ (1.64) $ (1.07) $ (.05)
EPS $ (1.64) $ (1.07) $ (.95)
Weighted average common
shares 192,244 192,244 192,244
EBITDA<F1> $ 2,994 $ 3,057 $ 2,473
<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)
Nine Months Ended September 30,
Historical Adjusted
1996 1996 1997
-------------- -------------- --------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
DSD sales 13,696 11,939 11,632
Distributor sales 1,161 976 817
------ ------ ------
Total franchise 14,857 86% 12,915 85% 12,449 85%
Contract sales 2,323 14% 2,323 15% 2,270 15%
------ ----- ------ ---- ------ ----
Total case sales 17,180 100% 15,238 100% 14,719 100%
====== ===== ====== ==== ====== ====
Produced 15,291 89% 13,547 89% 12,958 88%
Purchased 2,026 12% 1,961 13% 2,008 14%
Inventory - (inc.)/dec. (137) (1)% (270) (2)% (247) (2)%
------ ----- ------ ---- ------ ----
Total case sales 17,180 100% 15,238 100% 14,719 100%
====== ===== ====== ==== ====== ====
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case, share and per share data)
Franchise sales $98,755 $6.65 $86,975 $6.73 $83,709 $6.72
Contract sales 11,013 4.74 11,013 4.74 10,638 4.69
------- ------- -------
Net sales 109,768 6.39 97,988 6.43 94,347 6.41
Cost of goods sold 72,717 4.23 64,057 4.20 60,486 4.11
------- ------ ------- ----- ------- -----
Gross profit 37,051 $2.16 33,931 $2.23 33,861 $2.30
Operating expenses 35,131 ====== 30,848 ===== 30,863 =====
------- ------- -------
Operating income 1,920 3,083 2,998
Gain (loss) on disposals (1,849) 456 224
Interest expense (5,664) (4,926) (4,923)
Other income 413 448 754
------- ------- -------
Net loss before income taxes
and extraordinary item (5,180) (939) (947)
Income tax benefit (provision) 946 (2) 50
------- ------- -------
Net loss before extraordinary
item (4,234) (941) (897)
Extraordinary item - - (299)
------- ------- -------
Net loss $(4,234) $ (941) $ (1,196)
======= ======= ========
EPS before extraordinary item $(22.02) $ (4.89) $ (4.67)
EPS $(22.02) $ (4.89) $ (6.22)
Weighted average common
shares 192,244 192,244 192,244
EBITDA<F1> $ 5,994 $ 6,795 $ 6,806
<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).
7. SUBSEQUENT EVENTS
On October 8, 1997 the Company exercised an option to purchase the real
estate in St. Paul, Minnesota which had been recorded as a capital lease.
On October 24, 1997 the Company sold this real estate for total proceeds
of $2.1 million resulting in a gain of approximately $750,000. The
proceeds included $400,000 in cash and a note of $1.7 million due April
17, 1998. Approximately $140,000 of the gain will be recognized in 1997
with the remainder deferred until April, 1998.
In October, 1997 the Company signed a letter of intent to purchase the
stock of Full Service Beverage Company ("FSB"), a soft drink bottler with
operations in Kansas and Colorado. FSB is 50% owned by Stephen B.
Browne, President and majority stockholder of the Company. The purchase
price includes $1.5 million for all outstanding stock of FSB and two non-
compete covenants for $1.8 million and $230,000 payable over 10 years and
3 years, respectively, and the assumption of all liabilities of FSB. A
Form 8-K with the Securities and Exchange Commission will be filed sub-
sequent to the purchase which is expected to occur in mid November.
Funds for the acquisition will be provided by a loan to the Company by
an entity owned by the Company's stockholders.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earning Per Share
("FAS 128"). FAS 128 will change the computation, presentation and
disclosure requirements for earnings per share. FAS 128 requires
presentation of "basic" and "diluted" earnings per share, as defined, on
the face of the income statement for all entities with complex capital
structures. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement of all
prior period earnings per share amounts. The Company has determined that
FAS 128 will not have a material impact on its earnings per share when
adopted.
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 nine month periods ended
September 30, 1997 are not directly comparable to the operating results for the
three and nine month periods ended September 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 nine months ended September 30,
1996 has been "adjusted" to eliminate these operations. In addition, the 1996
information has been "adjusted" to eliminate the results for Charleston, West
Virginia for the four months ended September 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 nine
months ended September 30, 1997 with the actual, as well as "adjusted", results
of operations for the corresponding periods ended September 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 September 30, 1997 (the "Current Quarter") compared to the
corresponding period ended September 30, 1996 (the "Prior Quarter") and the
"adjusted" corresponding period ended September 30, 1996 (the "Adjusted Prior
Quarter") and for the nine months ended September 30, 1997 (the "Current YTD")
compared to the corresponding period ended September 30, 1996 (the "Prior YTD")
and the "adjusted" corresponding period ended September 30, 1996 (the "Adjusted
Prior YTD").
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
Net sales for the Current Quarter were $33.4 million compared to $38.2
million for the Prior Quarter, a $4.8 million or 12.7% decrease due to lower
franchise case sales resulting primarily from the sales of the West Virginia
territories. Franchise case sales were 4.4 million cases for the Current
Quarter compared to 5.1 million cases for the Prior Quarter, a decrease of
756,000 cases or 14.7%. After the adjustment for sold operations, net sales
decreased $973,000 or 2.8% for the Current Quarter compared to the Adjusted
Prior Quarter due to a decrease in franchise case sales for the Current Quarter
of 124,000 cases or 2.7% from the Adjusted Prior Quarter. This decrease in
franchise cases is primarily attributable to volume declines in Kentucky and
Wisconsin.
The average net selling price per case for franchise sales for the
Company was $6.73 in the Current Quarter compared to $6.62 for the Prior
Quarter and $6.69 for the Adjusted Prior Quarter. The increase in the Current
Quarter compared to the Adjusted Prior Quarter is due to reduced discounting.
Contract case sales were 814,000 cases for the Current Quarter compared
to 877,000 cases for the Prior Quarter. The average net selling price for
contract cases was $4.70 for the Current Quarter compared to $4.71 for the
Prior Quarter.
On a company-wide basis the average net selling price per case for all
cases was $6.41 for the Current Quarter, $6.34 for the Prior Quarter and $6.37
for the Adjusted Prior Quarter. The increase in the Current Quarter compared
to the Adjusted Prior Quarter is due to reduced discounting.
Cost of goods sold decreased $3.6 million or 14.4% for the Current
Quarter compared to the Prior Quarter due to volume declines resulting from the
sold territories. Cost of goods sold decreased $842,000 or 3.7% for the
Current Quarter compared to the Adjusted Prior Quarter primarily due to an
overall volume decrease of 3.5% and partially due to a reduction in sweetener
and plastic bottle costs. Gross profit for the Current Quarter was $11.8
million compared to $13.0 million for the Prior Quarter, a decrease of $1.2
million or 9.3% due to the volume declines resulting from the territory sales.
Gross profit decreased $131,000 or 1.1% for the Current Quarter compared to the
Adjusted Prior Quarter due to an overall volume decrease of 3.5% in the ongoing
territories partially offset by increased franchise company price support and
reduced sweetener and plastic bottle costs. Gross margin (gross profit as a
percentage of sales) improved to 35.3% for the Current Quarter compared to
34.7% for the Adjusted Prior Quarter and 33.9% for the Prior Quarter.
Operating expenses declined $965,000 or 8.5% 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 increased $258,000
or 2.5% in the Current Quarter compared to the Adjusted Prior Quarter primarily
due to higher payroll costs in the Current Quarter and a favorable insurance
accrual adjustment recognized in the Prior Quarter.
Interest expense was $1.6 million for the Current Quarter compared to
$1.9 million for the Prior Quarter. The decrease in interest of $327,000 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
and the repurchase of Senior Notes with proceeds from debt which carry lower
interest rates.
Pretax net income for the Current Quarter was $1,000 compared to a pretax
net loss for the Prior Quarter of $95,000. The reduction in the loss resulted
from reduced interest expense partially offset by reduced operating income.
Compared to the Adjusted Prior Quarter pretax income decreased by $86,000
resulting from reduced operating income partially offset by reduced interest
expense.
The Company recognized an extraordinary loss in the Current Quarter of
$174,000, net of tax, in connection with the repurchase of Senior Notes
primarily due to the write-off of unamortized deferred financing costs.
EBITDA was $2.5 million for the Current Quarter compared to $3.0 million
for the Prior Quarter and $3.1 million for the Adjusted Prior Quarter. The
decline in the Current Quarter compared to the Adjusted Prior Quarter is
attributable to reduced gross profit resulting from the reduced volume and
increased operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
Net sales for the Current YTD were $94.3 million compared to $109.8
million for the Prior YTD, a $15.4 million or 14.0% 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
12.4 million cases for the Current YTD compared to 14.9 million cases for the
Prior YTD, a decrease of 2.4 million cases or 16.2%. After the adjustment for
sold operations, net sales decreased $3.6 million or 3.7% for the Current YTD
compared to the Adjusted Prior YTD due to a decrease in franchise case sales
for the Current YTD of 466,000 cases or 3.6% from the Adjusted Prior YTD. This
decrease in franchise cases is primarily attributable to overall volume
declines, principally in Kentucky and Wisconsin.
The average net selling price per case for franchise sales for the
Company was $6.72 in the Current YTD compared to $6.65 for the Prior YTD and
$6.73 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 2.3 million cases for the Current YTD and for
the Prior YTD. The average net selling price per case for contract cases was
$4.69 for the Current YTD compared to $4.74 for the Prior YTD. The per case
decrease is due to lower contract pricing in lieu of other promotional
allowances.
On a company-wide basis the average net selling price per case for all
cases was $6.41 for the Current YTD, $6.39 for the Prior YTD and $6.43 for the
Adjusted Prior YTD. The decline in the average net selling price in the
Current YTD compared to the Adjusted Prior YTD 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 $12.2 million or 16.8% for the Current YTD
compared to the Prior YTD due to volume declines resulting from the sold
territories. Cost of goods sold decreased $3.6 million or 5.6% 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 $33.9 million compared to $37.1
million for the Prior YTD, a decrease of $3.2 million or 8.6% due to volume
declines resulting from territory sales in 1996 and 1997. Gross profit
decreased $70,000 or .2% for the Current YTD compared to the Adjusted Prior YTD
due to an overall volume decline partially offset by reduced sweetener and
plastic bottle costs. Gross margin (gross profit as a percentage of sales)
improved to 35.9% for the Current YTD compared to 34.6% for the Adjusted Prior
YTD and 33.8% for the Prior YTD.
Operating expenses declined $4.3 million or 12.1% 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 remained constant
increasing only $15,000 in the Current YTD compared to the Adjusted Prior YTD.
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 $224,000
which resulted primarily 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 $4.9 million for the Current YTD compared to $5.7
million for the Prior YTD. The decrease in interest of $741,000 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 and the repurchase of
Senior Notes with proceeds from debt carrying lower interest rates.
Other income was $754,000 in the Current YTD compared to $413,000 for the
Prior YTD and $448,000 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 $947,000 compared to a pretax net
loss for the Prior YTD of $5.2 million. The reduction in the loss resulted
from improved operations in the Current YTD, the reduction in interest expense
in the Current YTD and the loss on sale recognized in the Prior YTD.
Compared to the Adjusted Prior YTD the pretax loss was constant increasing
only $8,000.
The Company recognized an extraordinary loss in the Current YTD of
$299,000, net of tax, in connection with the repurchase of Senior Notes
primarily due to the write-off of unamortized deferred financing costs.
EBITDA was $6.8 million for the Current YTD compared to $6.0 million for
the Prior YTD and $6.8 million for the Adjusted Prior YTD. The improvement in
EBITDA in the Current YTD is attributable to the reduced operating expenses
partially offset by reduced gross profit.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital (excluding cash
overdraft and the current portion of long-term debt and other obligations) of
$8.0 million compared to $4.8 million at December 31, 1996. The increase
is due primarily to an increase in inventory and decreases in trade payables,
accrued compensation and accrued interest partially offset by decreases in
accounts receivable. 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 $53.0 million at September 30, 1997. Scheduled principal
payments are estimated to be approximately $8.3 million for the twelve months
ending September 30, 1998, of which approximately $1.9 million represents
unsecured demand notes which carry the same interest rates charged under the
Company's Senior Credit Facility and $6.0 million represents short-term bank
indebtedness which was incurred to repurchase Senior Notes. The $6.0 million
short-term bank indebtedness, carried by a local Oklahoma bank, is expected to
be refinanced prior to maturity. At September 30, 1997, the Company's
borrowing base under its Senior Credit Facility was $14.2 million, and the
Company had borrowings of $12.3 million, leaving $1.9 million of unused
available credit.
For the Current YTD, the Company's operating activities used cash of
$744,000 compared to cash used of $4.5 million for the Prior YTD. The $744,000
of net cash used by operating activities in the Current YTD resulted primarily
from increases in inventories and decreases in accounts payable and accrued
interest partially offset by decreases in accounts receivable and cash provided
by operations of $2.1 million. The $4.5 million of net cash used in the Prior
YTD resulted primarily from decreases in accounts payable and accrued interest
partially offset by decreases in accounts receivable and cash provided by
operations of $356,000.
During the Current YTD investing activities provided cash of $1.7 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 $5.7 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 $933,000 primarily
due to principal payments on debt of $13.1 million partially offset by
increased borrowings over payments of $1.5 million on the Senior Credit
Facility and additional borrowings of $11.1 million. The principal payments of
$13.1 million included approximately $10.8 million for the repurchase of the
Company's Senior Notes and $1.9 million paid on the unsecured demand notes.
Financing activities used cash of $1.2 million in the Prior YTD due to
principal payments on debt partially offset by increased borrowings.
The Company's earnings before income taxes and fixed charges were
sufficient to cover its fixed charges by $1,000 for the Current Quarter and
were insufficient by $947,000 for the Current YTD. EBITDA and interest expense
were $2.5 million and $1.6 million, respectively, for the Current Quarter and
were $6.8 million and $4.9 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
has budgeted approximately $500,000 for capital expenditures (excluding costs
for acquisitions) during the three 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.
In October, 1997 the Company signed a letter of intent to purchase the
stock of Full Service Beverage Company ("FSB"), a soft drink bottler with
operations in Kansas and Colorado. FSB is 50% owned by Stephen B. Browne,
President and majority stockholder of the Company. The purchase price includes
$1.5 million for all outstanding stock of FSB and two non-compete covenants
for $1.8 million and $230,000 payable over 10 years and 3 years, respectively,
and the assumption of all liabilities of FSB. A form 8-K with the Securities
and Exchange Commission will be filed subsequent to the purchase which is ex-
pected to occur in mid November. Funds for the acquisition will be provided by
a loan to the Company by an entity owned by the Company's stockholders.
At September 30, 1997, the Company was not in compliance with the
covenant in the Senior Credit Facility requiring $100,000 of adjusted pre-tax
net income (as defined) for the quarter ended September 30, 1997. The
Company's adjusted pre-tax net income (as defined) was a loss of $173,000.
Congress Financial Corporation (Central), the lender, has agreed to waive this
covenant violation. A future failure to comply with this or any other cove-
nant under the Senior Credit Facility would constitute a default and there
can be no assurance that the Company will be able to obtain waivers of any
future covenant violation, or amendments to its Senior Credit Facility or
Senior Notes.
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.
-----------
4.2 Loan and Security Agreement by and between
Congress Financial Corporation (Central)
and All-American Bottling Corporation
dated as of August 7, 1997
4.3 Pledge Agreement dated August 7, 1997,
by All-American Bottling Corporation in
favor of Congress Financial Corporation
(Central)
10.2.1 Waiver and Consent dated August 29, 1997
among Browne Bottling Company, All-American
Bottling Corporation, Stephen B. Browne,
Oklahoma Properties Partnership, Tennessee
Properties Partnership, Browne and Browne
Partners, Stephen B. Browne, as Trustee of
the Stephen Virgil Browne Trust, and
Colinvest Bottling Corp.
10.4.2 Supplemental Agreement dated August 29,
1997 among Browne Bottling Company, All-
American Bottling Financial Corp., Stephen
B. Browne, Browne and Browne Partners,
Browne Oklahoma Properties Partnership,
Tennessee Properties Partnership, Stephen
B. Browne, as Trustee of the Stephen Virgil
Browne Trust, and Records Investments,
L.L.C.
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: November 14, 1997 By: STEPHEN B. BROWNE
------------------------
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: November 14, 1997 By: STEPHEN R. KERR
-------------------------
Stephen R. Kerr
Vice President and Chief
Financial Officer
BROWNE BOTTLING COMPANY
Date: November 14, 1997 By: STEPHEN B. BROWNE
------------------------
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: November 14, 1997 By: STEPHEN R. KERR
-------------------------
Stephen R. Kerr
Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
4.2 Loan and Security Agreement Filed herewith electronically
by and among Congress Financial
Corporation (Central) dated
August 7, 1997
4.3 Pledge Agreement dated August 7, Filed herewith electronically
1997 by All-American Bottling
Corporation in favor of Congress
Financial Corporation (Central)
10.2.1 Waiver and Consent dated August Filed herewith electronically
29, 1997 among Browne Bottling
Company, All-American Bottling
Corporation, Stephen B. Browne,
Oklahoma Properties Partnership,
Tennessee Properties Partnership,
Browne and Browne Partners,
Stephen B. Browne, as Trustee of
the Stephen Virgil Browne Trust,
and Colinvest Bottling Corp.
10.4.2 Supplemental Agreement dated Filed herewith electronically
August 29, 1997 among Browne
Bottling Company, All-American
Bottling Financial Corp., Stephen
B. Browne, Browne and Browne
Partners, Browne Oklahoma
Properties Partnership, Tennessee
Properties Partnership, Stephen
B. Browne, as Trustee of the
Stephen Virgil Browne Trust, and
Records Investments, L.L.C.
27 Financial Data Schedule Filed herewith electronically