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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 Quarter ended March 31, 2001
{ } 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: 1-13747
ATLANTIC PREMIUM BRANDS, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3761400
- --------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 DUNDEE ROAD, SUITE 370
NORTHBROOK, ILLINOIS 60062
- --------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 412-6200
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
As of May 10, 2001, there were outstanding 6,658,863 shares of Common Stock, par
value $.01 per share, of the Registrant.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value)
(Unaudited)
December 31, March 31,
2000 2001
------------ ----------
ASSETS
Current assets:
Cash $ 780 $ 759
Accounts receivable, net of allowance for doubtful accounts
of $206 and $208, respectively 7,791 6,431
Inventory 5,453 5,876
Prepaid expenses and other current assets 1,707 1,656
Income taxes receivable 802 178
Deferred income taxes 375 375
Net assets of discontinued operations 124 124
-------- --------
Total current assets 17,032 15,399
Property, plant and equipment, net 11,293 11,749
Intangible assets, net 12,788 12,697
Deferred income taxes 101 101
Other assets, net 317 284
-------- --------
Total assets $ 41,531 $ 40,230
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 3,167 $ 1,981
Notes payable under line of credit 5,053 5,297
Current maturities of long-term debt 4,882 5,036
Accounts payable 5,645 5,466
Accrued expenses 1,721 1,839
-------- --------
Total current liabilities 20,468 19,619
Long-term debt, net of current maturities 11,365 10,797
Put warrants 1,435 68
-------- --------
Total liabilities 33,268 30,484
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
6,658,863 shares issued and outstanding 67 67
Additional paid-in capital 10,377 10,377
Accumulated deficit (2,181) (698)
-------- --------
Total stockholders' equity 8,263 9,746
-------- --------
Total liabilities and stockholders' equity $ 41,531 $ 40,230
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The accompanying notes are an integral part of these
consolidated financial statements.
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ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------------
2000 2001
----------- -----------
Net sales $ 51,491 $ 31,277
Cost of goods sold 44,928 25,254
----------- -----------
Gross profit 6,563 6,023
----------- -----------
Selling, general and administrative expenses:
Salaries and benefits 2,716 2,474
Other operating expenses 2,331 2,163
Depreciation and amortization 536 501
----------- -----------
Total selling, general and administrative expenses 5,583 5,138
----------- -----------
Income from operations 980 885
Interest expense 626 659
Other income (expense), net 29 (40)
----------- -----------
Income before income taxes and changes
in accounting principles 383 186
Income tax expense 167 105
----------- -----------
Income before changes in accounting principles 216 81
Changes in accounting principles 141 1,402
----------- -----------
Net income $ 357 $ 1,483
=========== ===========
Weighted average common shares:
Basic 6,812,197 6,658,863
=========== ===========
Diluted 7,012,546 6,690,770
=========== ===========
Income per common share:
Basic and diluted:
Income from operations before changes $ .03 $ .01
in accounting principles
Changes in accounting principles .02 .21
----------- -----------
Net income $ .05 $ .22
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
----------------------
2000 2001
------- -------
Cash Flows from Operating Activities:
Net income $ 357 $ 1,483
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 536 501
Amortization of debt discount and
deferred financing costs 62 53
Change in valuation of put warrants - 35
Changes in accounting principles (141) (1,402)
Decrease in accounts receivable, net 755 1,360
Increase in inventory (702) (423)
Decrease (increase) in prepaid expenses and other
current assets (14) 51
Decrease in accounts payable (4,340) (179)
Increase (decrease) in accrued expenses and
other current liabilities (553) 742
------- -------
Net cash provided by (used in) operating activities (4,040) 2,221
------- -------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (430) (822)
------- -------
Net cash used in investing activities (430) (822)
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Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft 597 (1,186)
Repurchase of common stock (233) -
Net borrowings under line of credit 4,244 244
Payments of term debt and notes payable (367) (478)
------- -------
Net cash flows provided by (used in) financing
activities 4,241 (1,420)
------- -------
Net decrease in cash (229) (21)
Cash, beginning of period 1,841 780
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Cash, end of period $ 1,612 $ 759
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These accompanying notes are an integral part of these
consolidated financial statements.
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ATLANTIC PREMIUM BRANDS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 2001
1. BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY:
The accompanying consolidated financial statements present the accounts of
Atlantic Premium Brands, Ltd. and subsidiaries (the "Company"). All significant
intercompany transactions have been eliminated in consolidation.
The Company is engaged in the manufacturing, marketing and distribution of
packaged meat and other food products in Texas, Louisiana, Kentucky, Oklahoma
and surrounding states. The operating results of the Company are impacted by
changes in food commodity markets.
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In management's opinion, the interim financial data
presented includes all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain reclassifications have
been made in the 2000 financial statements to conform to the 2001 presentation.
Certain information and note disclosures normally included in the consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations. However, the Company believes that the
disclosures are adequate to understand the information presented. The results of
operations for interim periods are not necessarily indicative of the operating
results expected for an entire year. It is suggested that these consolidated
financial statements be read in conjunction with the Company's December 31,
2000 consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission on April 17, 2001.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method (FIFO). Inventory consisted of the following as of:
December 31, March 31,
(in thousands) 2000 2001
----------- ---------
Raw materials $ 662 $ 903
Finished goods 2,712 2,921
Packaging supplies 1,582 1,533
Production parts 497 519
------- -------
Total inventory $ 5,453 $ 5,876
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Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of applicable
depreciation. Depreciation is computed using the straight-line method at annual
rates of 3% to 20% for buildings and building improvements, and 10% to 20% for
equipment, furniture and vehicles. Leasehold improvements are amortized over the
lesser of the lease term or asset life. Additions and improvements that
substantially extend the useful life of a particular asset are capitalized.
Repair and maintenance costs are charged to expense. Upon sale, the cost and
related accumulated depreciation are removed from the accounts.
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Other Assets
Other assets consist of deferred acquisition costs, cash surrender value of life
insurance, and deferred financing costs. Deferred financing costs are being
amortized over 5 to 7 years, representing the term of the related debt, using
the effective interest method.
Goodwill
The excess of cost over the fair market value of tangible net assets and
trademarks of acquired businesses is being amortized using the straight-line
method over 10 to 40 years.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Per Common Share
The weighted average shares used to calculate basic and diluted income per
common share for the three-month periods ended March 31, 2000 and 2001, are as
follows:
Three Months Ended
March 31,
---------------------
2000 2001
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Weighted average shares outstanding for basic
income per common share 6,812,197 6,658,863
Dilutive effect of common stock options 200,349 31,907
--------- ---------
Weighted average shares outstanding for dilutive
income per common share 7,012,546 6,690,770
========= =========
Options to purchase 1,465,209 and 1,755,959 shares of common stock at prices
ranging from $1.50 to $6.50 per share were outstanding during the first quarter
of 2000 and 2001, respectively, but were not included in the computation of
diluted income per common share because the options' exercise price was greater
than the average market price of the common shares during the quarter.
Warrants with a put option to purchase up to a maximum of 1,095,700 shares of
common stock, at $3.38 per share were outstanding during the first quarter of
2000 and 2001 but were not included in the computation of diluted income per
common share because the warrants' exercise price was greater than the average
market price of the common shares during the quarter.
2. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages and
no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
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opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
3. DISCONTINUED OPERATIONS:
Net assets of discontinued operations consist of current assets primarily
related to accounts receivable of the beverage division which was disposed of
during the fourth quarter of 1998.
4. DEBT:
The Company's debt consists of an $11 million term note, a $15 million line of
credit and $6.5 million senior subordinated note with detachable warrants with a
put option.
The term debt bears interest at either the bank's prime rate plus 1% or adjusted
LIBOR plus 2.5%, at the Company's option. This loan is due in varying amounts
payable monthly through March 2003 and is secured by substantially all assets of
the Company.
Under the terms of the line of credit agreement, which expires in March 2003,
the Company is permitted to borrow up to $15 million subject to advance formulas
based on accounts receivable, inventory and letter of credit obligations
outstanding. Amounts borrowed are due on demand and bear interest at either the
bank's prime rate plus 1% or adjusted LIBOR plus 2.5%. Interest is payable
monthly and amounts are secured by substantially all the assets of the Company.
The $6.5 million senior subordinated note, maturing on March 31, 2005, bears
interest at 10% per annum. A loan amendment dated April 13, 2001 and effective
January 17, 2001, increased the interest rate by 5% per annum. This incremental
amount of interest is accrued on a periodic basis and will be payable on June
30, 2003. Principal is payable in quarterly installments beginning June 30,
2003. Concurrent with this loan amendment, an entity owned by some of our
directors, officers and 5% stockholders agreed to purchase 10% of the senior
subordinated debt holder's interest in the senior subordinated note and the
related warrants.
The subordinated debt was issued with detachable put warrants to purchase
666,947 shares of nonvoting common stock at $3.38 per share and a contingent
warrant to purchase up to a maximum of 428,753 shares of nonvoting common stock
at $3.38 per share based upon the equity value of the Company on certain dates.
The warrants were recorded at an estimated fair value of $1.435 million and the
related discount on the senior subordinated note was recorded for the same
amount. This discount is being amortized over the seven-year term of the note as
additional interest expense.
The subordinated promissory note to the former shareholders of Prefco due March
2001 ("Junior Creditors") was not paid because such payment would have violated
certain covenants under the term note and senior subordinated note. Payment will
be made on this subordinated note when such payment will not violate these
covenants. Under the terms of an inter-creditor subordination agreement, the
Junior Creditors are prohibited from exercising any remedy with respect to this
debt until the term note and senior subordinated note are paid in full; however,
the interest rate of 9% increases by 2% per annum after its due date until the
principal is paid.
5. CHANGES IN ACCOUNTING PRINCIPLES:
During the year ended December 31, 2000, the Company changed its method of
accounting for production parts inventory from expensing upon purchase to
capitalization upon purchase and expensing upon installation. In prior years,
the Company has had a low level of production parts inventory on hand. However,
as production capacity has increased, as well as the necessity of reducing
down-time, the Company now requires a larger amount of production parts
inventory. Accordingly, the Company believes that the capitalization of
production parts inventory results in a better measurement of operating results
by expensing production parts at the time they are placed into service and start
generating revenue. The $141,000 cumulative effect of the change is included in
the Consolidated Statement of Operations for the three months ended March 31,
2000. The effect of the change on the three months ended March 31, 2000,
excluding the cumulative effect of change in accounting principle, was to
increase net income by $33,000.
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On January 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("the Statement"). On adoption of the Statement, the Company
recorded a cumulative effect of change in accounting principle in the amount of
$1,402,000 (net of zero income taxes). The cumulative effect of change in
accounting principle was recorded to reduce the carrying value of the liability
related to the put warrants to fair value. The fair value of the warrants is
estimated using a Black-Scholes option-valuation model. Subsequent changes in
the fair value of the put warrants are recorded as a component of net income.
During the three months ended March 31, 2001, the value of the put warrants
increased $35,000, resulting in a corresponding increase in other income
(expense), net. The Company does not have any other derivative instruments.
6. SEGMENTS:
The Company's operations have been classified into two business segments: food
processing and food distribution. The food processing segment includes the
processing and sales of sausages and related food products to distributors and
retailers in Louisiana, Texas, Kentucky and other surrounding states. The food
distribution segment includes the purchasing, marketing, and distribution of
packaged meat products to retailers and restaurants, located primarily in Texas.
Summarized financial information, by business segment, for the three months
ended are as follows:
(in thousands)
Three Months Ended
--------------------------------
March 31, 2000 March 31, 2001
-------------- --------------
Net sales to external customers:
Food Processing $ 14,500 $ 14,210
Food Distribution 36,991 17,067
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51,491 31,277
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Interest expense:
Food Processing 37 37
Food Distribution 34 32
Corporate 555 590
-------- --------
626 659
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Depreciation and amortization:
Food Processing
Food Distribution 434 405
Corporate 69 62
33 34
-------- --------
536 501
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Income before income taxes and changes
in accounting principles:
Food Processing 827 909
Food Distribution 660 429
Corporate (1,104) (1,152)
-------- --------
$ 383 $ 186
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In 1996 we implemented a new corporate strategy that resulted in the
acquisition of five food businesses. Each of these businesses represented a
preeminent local or regional branded processed meat company. In addition to
significantly increasing our size, the newly acquired businesses created a
broader platform for future growth.
In order to acquire and operate our food businesses, we formed four new
subsidiaries during 1996: Prefco Corp., Carlton Foods Corp., Richard's Cajun
Foods Corp., and Grogan's Farm, Inc. In 1998, we formed a fifth new subsidiary,
Potter Sausage Company, to acquire the business of J.C. Potter Sausage Company
and affiliates.
In conjunction with the new corporate strategy, during 1998 we also
completed the sale of substantially all the assets of our beverage division,
which operated as a distributor of non-alcoholic beverages in the Baltimore and
Washington D.C. metropolitan areas.
On October 13, 2000, a failed thermostat caused a fire at our processing
plant in Arlington, Kentucky resulting in the total destruction of the facility
and its equipment. As a result of the fire, we shifted the majority of our
production to other facilities in Texas and Oklahoma. We are currently in the
process of evaluating our options to permanently replace the capacity of this
plant, including the possibility of rebuilding it. We maintain replacement cost
property insurance and business interruption insurance. We believe this event
will have an impact on our revenues for the foreseeable future and this event
has resulted in our revising certain financial covenants with our senior and
subordinated lenders. However, largely due to the insurance that we maintained,
we do not anticipate that this event will have a long-term material adverse
impact on our financial position or results of operations. We believe that our
insurance proceeds will exceed the net book value of the destroyed assets,
however, we are unable to predict with certainty at this time what the ultimate
outcome will be.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000
Net Sales. Net sales decreased by $20.2 million or 39.3% from $51.5 million
for the quarter ended March 31, 2000 to $31.3 million for the quarter ended
March 31, 2001. The decrease in net sales during the quarter was primarily due
to the loss of a major customer (Sam's Club) that built and began using its own
warehouse and distribution system in August 2000. Sam's Club accounted for
approximately 36.7% of our total net sales for the quarter ended March 31, 2000.
Gross Profit. Gross profit decreased by $0.6 million or 9.1% from $6.6
million for the quarter ended March 31, 2000 to $6.0 million for the quarter
ended March 31, 2001. Gross profit as a percentage of net sales increased from
12.7% for the quarter ended March 31, 2000 to 19.3% for the quarter ended March
31, 2001. Both the decrease in gross profit dollars and the increase in the
gross profit percentage margin are primarily attributable to the loss of the
Sam's Club distribution business discussed in Net Sales. This business earned a
gross margin percentage significantly lower than our sales to other customers.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.5 million from $5.6 million for the
quarter ended March 31, 2000 to $5.1 million for the quarter ended March 31,
2001. Selling, general and administrative expenses as a percentage of net sales
increased from 10.9% for the quarter ended March 31, 2000 to 16.4% for the
quarter ended March 31, 2001. Both the decrease in selling, general and
administrative expense dollars and the increase in the selling, general and
administrative expenses as a percentage of sales are primarily attributable to
the fact that the Sam's Club distribution business did not incur the same level
of selling, general and administrative expenses per sales dollar as our other
customers.
Income from Operations. Income from operations decreased $0.1 million from
$1.0 million for the quarter ended March 31, 2000 to $0.9 million for the
quarter ended March 31, 2001. This decrease was attributable to the factors
described above.
Interest Expense. Interest expense was $0.6 million for the quarter ended
March 31, 2000 and $0.7 million for the quarter ended March 31, 2001. This
slight increase was due to the increase in the interest rate on the Senior
Subordinated Note beginning on January 17, 2001, which was partially offset by
lower rates on our bank borrowings.
Income tax expense. The effective tax rate differs from the statutory rate
primarily because of state income taxes and the non-deductibility of goodwill.
Changes in Accounting Principles. During the year ended December 31, 2000,
we changed our method of accounting for production parts inventory from
expensing upon purchase to capitalization upon purchase and expensing upon
installation. The $141,000 cumulative effect of the change is included in the
Consolidated Statement of Operations for the three months ended March 31, 2000.
The effect of the change on the three months ended March 31, 2000, excluding the
cumulative effect of change in accounting principle, was to increase net income
by $33,000.
On January 1, 2001, we were required to adopt the provisions of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("the Statement"). On adoption of the
Statement, we recorded a cumulative effect of change in accounting principle of
$1,420,000 (net of zero income taxes) to reduce the carrying value of the
liability related to the put warrants to fair value. Subsequent changes in the
fair value of the put warrants will be recorded as a component of net income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the quarter ended March 31, 2000
was $4.0 million. This amount was principally the result of a decrease in
accounts payable and accrued expenses and other current liabilities, and an
increase in inventory, which was partially offset by net income, depreciation
and amortization, and a decrease in accounts receivable. Cash provided by
operating activities for the quarter ended March 31, 2001 was $2.2 million. The
cash generated from operating activities was primarily the result of net
income, depreciation and amortization, a decrease in accounts receivable and an
increase in accrued expenses, which were partially offset by the non-cash
nature of the change in accounting principle and an increase in inventory.
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Cash used in investing activities for the quarters ended March 31, 2000 and
2001 was $0.4 million and $0.8 million, respectively, which was related to
capital expenditures.
Cash provided by financing activities in the quarter ended March 31, 2000
was $4.2 million, principally affected by borrowings under our line of credit
and an increase in our bank overdraft, which were partially offset by principal
payments under term debt and notes payable and the repurchase of our common
stock. Cash used in financing activities in the quarter ended March 31, 2001 was
$1.4 million, primarily related to a decrease in the our bank overdrafts and
principal payments that were made under term debt and notes payable agreements.
These were partially offset by borrowings under our line of credit.
As of March 31, 2000 and 2001, we had $8.6 million and $6.7 million
outstanding under the term debt and approximately $5.0 million and $5.3 million,
respectively, in line-of-credit borrowings. We owed $6.5 million under the
senior subordinated note, and approximately $2.7 million of junior subordinated
debt. The interest on the senior subordinated note was 10% per annum for the
quarter ended March 31, 2000. Under the terms of an amendment to the senior
subordinated note, effective January 17, 2001, this interest rate was increased
to 15% per annum. This increase is accrued, compounded monthly and will be
payable in full on June 30, 2003. The junior subordinated debt bears
interest at an average rate of approximately 7.7% per annum. The term debt and
line of credit agreement bear annual interest at either the bank's prime rate
plus 1% (8.50% at March 31, 2001) or adjusted LIBOR plus 2.5%, at our option.
Warrants issued in conjunction with the senior subordinated debt provide
that on the occurrence of a Put Trigger Event (defined below), if the average
trading volume of our stock for four consecutive weeks is less than 15% of the
number of shares issuable to the holder of the put warrants, such holders would
have a thirty day right to require us to redeem the warrants for a cash amount
equal to the greater of a cash flow formula (defined in the Warrant Agreement)
or the fair market value of the underlying shares based upon an appraisal, in
each case, net of an exercise price of $3.38 per share. For these purposes, a
"Put Trigger Event" would occur upon the earlier of certain events, including
the fifth anniversary of the warrants, a sale of all or substantially all of
our assets, or a business combination in which we are not the surviving
corporation.
If the holder of the warrants exercises the put option, our ability to
satisfy such obligation will depend on the amount of such obligation and our
ability to raise additional capital. Our ability to secure additional capital
at such time will depend upon our overall operating performance, which will be
subject to general business, financial, competitive and other factors affecting
us and the processed meat distribution industry, certain of which factors are
beyond our control. No assurance can be given that we will be able to raise the
necessary capital on terms acceptable to us, if at all, to satisfy the put
obligation in a timely manner. If we are unable to satisfy such obligation, our
business, financial condition and operations will be materially and adversely
effected.
A junior subordinated note in the principal amount of $1.4 million was due
on March 31, 2001, but was not paid because of restrictions under the credit
facilities. Two additional junior subordinated notes, one in the amount of $0.85
million and another in the amount of $0.2 million, become due on July 31, 2001,
and September 30, 2001, respectively. Payment on each of these notes will be
made when such payment will not violate the covenants under our credit
facilities. Under the terms of an inter-creditor subordination agreement, the
junior subordinated debt holders are prohibited from
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exercising any remedy with respect to this debt until our obligations under our
credit facilities are paid in full; however, the interest rates of 9%, 6.35% and
8%, respectively, on each note increase by 2% per annum after its due date if
the principal is not paid.
We believe that cash generated from operations and bank borrowings will be
sufficient to fund our debt service (subject to the limitations on payments of
the junior subordinated notes as described in the preceding paragraph), working
capital requirements and capital expenditures as currently contemplated for
2001. However, our ability to fund our working capital requirements and capital
expenditures will depend in large part on our ability to continue to comply with
covenants in the credit facilities. Our ability to continue to comply with these
covenants will depend on a number of factors, certain of which are beyond our
control, including but not limited to, implementation of our business strategy,
prevailing economic conditions, uncertainty as to evolving consumer preferences,
sensitivity to such factors as weather and raw material costs, the impact of
competition and the effect of each of these factors on our future operating
performance. No assurance can be given that we will remain in compliance with
such covenants throughout the term of the credit facilities.
We, from time to time, review the possible acquisition of other products
or businesses. Our ability to expand successfully through acquisition depends
on many factors, including the successful identification and acquisition of
products or businesses and our ability to integrate and operate the acquired
products or businesses successfully. There can be no assurance that we will be
successful in acquiring or integrating any such products or businesses.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to certain market risks. These risks relate to commodity
price fluctuations, interest rate changes, fluctuations in the value of the
warrants with the put option, and credit risk.
We are a purchaser of pork and other meat products. We buy pork and other
meat products based upon market prices that are established with the vendors as
part of the purchase process. Our operating results are significantly impacted
by pork prices. We do not use commodity financial instruments to hedge pork and
other meat product prices.
Our exposure to interest rate risk relates primarily to our debt
obligations and temporary cash investments. We do not use, and have not in the
past year used, any derivative financial instruments relating to the risk
associated with changes in interest rates.
We are required to record the liability related to the put warrants at
fair value. Any changes to such value are included as a component of net
income. Furthermore, any changes in fair value would not be deductible in our
federal or state income tax returns and, therefore, would increase or decrease
our effective income tax rate. For purposes of these calculations, the fair
value of the warrants is estimated using a Black-Scholes option-pricing model.
We are exposed to credit risk on certain assets, primarily accounts
receivable. We provide credit to customers in the ordinary course of business
and perform ongoing credit evaluations. We currently believe our allowance for
doubtful accounts is sufficient to cover customer credit risks.
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FORWARD LOOKING STATEMENTS
We want to provide stockholders and investors with more meaningful and
useful information. Therefore, this Quarterly Report on Form 10-Q contains
forward-looking information and describes our belief concerning future business
conditions and the outlook for us based on currently available information.
Whenever possible, we identified these "forward looking" statements by words
such as "believes," "will depend," "to continue to," "anticipates" and similar
expressions. These forward looking statements are subject to risks and
uncertainties which would cause our actual results or performance to differ
materially from those expressed in these statements. These risks and
uncertainties include the following: risks associated with acquisitions,
including integration of acquired businesses; new product development and other
aspects of our business strategy; uncertainty as to evolving consumer
preferences; customer and supplier concentration; the impact of competition; the
impact of change in the valuation of the warrants with the put option on our net
income and effective tax rate; our ability to raise additional capital; our
ability to refinance our senior subordinated debt by December 31, 2001 in
accordance with our covenant to BOCP to use our commercially reasonable efforts
to do so; and sensitivity to such factors as weather and raw material costs.
Readers are encouraged to review the risk factors in our Annual Report on Form
10-K for the year ended December 31, 2000 and our Current Report on Form 8-K
dated June 4, 1997 filed with the Securities and Exchange Commission for a more
complete description of these factors. We assume no obligation to update the
information contained in this Quarterly Report on Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the heading "Quantitative and Qualitative Disclosures About Market
Risk" under Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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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 MATTER TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following are filed as Exhibits to this Quarterly
Report on Form 10-Q:
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company, including
all amendments thereto (1)
3.2 By-Laws of the Company (2)
4.1 Second Amendment to Loan and Security Agreement dated as
of April 13, 2001 among Fleet Capital Corporation, the
Company and certain of its subsidiaries (3)
4.2 Limited Waiver of Covenants Under and Amendment to
Senior Subordinated Note and Warrant Purchase Agreement
dated as of April 13, 2001 among the Company, certain of
its subsidiaries and Banc One (3)
4.3 Note and Warrant Purchase Agreement dated as of April
13, 2001 among the Company, certain of its subsidiaries,
Banc One, Sterling BOCP, LLC ("Sterling") and Fleet
Capital Corporation (3)
4.4 Intercreditor and Collateral Agency Agreement dated
April 13, 2001 among Banc One, Sterling, the Company and
certain of its subsidiaries (3)
4.5 Senior Subordinated Note due March 31, 2005 of the
Company payable to Banc One dated as of April 13, 2001
in the original principal amount of $5,850,000 (3)
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4.6 Senior Subordinated Note due March 31, 2005 of the
Company payable to Sterling dated as of April 13, 2001
in the original principal amount of $650,000 (3)
4.7 Atlantic Premium Brands, Ltd. Warrant Certificate Common
Stock Purchase Warrant of Banc One dated as of April 13,
2001 (3)
4.8 Atlantic Premium Brands, Ltd. Warrant Certificate Common
Stock Purchase Warrant to Sterling dated as of April 13,
2001 (3)
4.9 Atlantic Premium Brands, Ltd. Warrant Certificate
Contingent Common Stock Purchase Warrant of Banc One
dated as of April 13, 2001 (3)
4.10 Atlantic Premium Brands, Ltd. Warrant Certificate
Contingent Common Stock Purchase Warrant of Sterling
dated as of April 13, 2001 (3)
4.11 Amended and Restated Put Option Agreement dated as of
April 13, 2001 among the Company, Banc One and Sterling
(3)
4.12 Amended and Restated Registration Rights Agreement dated
as of April 13, 2001 among the Company, Banc One and
Sterling (3)
4.13 Amended and Restated Shareholders Agreement dated as of
April 13, 2001 among the Company, certain of its
shareholders, Banc One and Sterling (3)
4.14 Amended and Restated Preemptive Rights Agreement dated
as of April 13, 2001 among the Company, Banc One and
Sterling (3)
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(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement No. 33-69438
or the amendments thereto and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 and incorporated herein by reference.
(b) Reports on Form 8-K:
None.
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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.
ATLANTIC PREMIUM BRANDS, LTD.
Dated as of May 14, 2001 By: /s/ Thomas M. Dalton
------------------------------------------
Thomas M. Dalton, Chief Financial Officer,
Chief Operating Officer and Senior Vice
President (On behalf of Registrant and as
Chief Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company, including all
amendments thereto (1)
3.2 By-Laws of the Company (2)
4.1 Second Amendment to Loan and Security Agreement dated as of April
13, 2001 among Fleet Capital Corporation, the Company and certain
of its subsidiaries (3)
4.2 Limited Waiver of Covenants Under and Amendment to Senior
Subordinated Note and Warrant Purchase Agreement dated as of April
13, 2001 among the Company, certain of its subsidiaries and Banc
One (3)
4.3 Note and Warrant Purchase Agreement dated as of April 13, 2001
among the Company, certain of its subsidiaries, Banc One, Sterling
BOCP, LLC ("Sterling") and Fleet Capital Corporation (3)
4.4 Intercreditor and Collateral Agency Agreement dated April 13, 2001
among Banc One, Sterling, the Company and certain of its
subsidiaries (3)
4.5 Senior Subordinated Note due March 31, 2005 of the Company payable
to Banc One dated as of April 13, 2001 in the original principal
amount of $5,850,000 (3)
4.6 Senior Subordinated Note due March 31, 2005 of the Company payable
to Sterling dated as of April 13, 2001 in the original principal
amount of $650,000 (3)
4.7 Atlantic Premium Brands, Ltd. Warrant Certificate Common Stock
Purchase Warrant of Banc One dated as of April 13, 2001 (3)
4.8 Atlantic Premium Brands, Ltd. Warrant Certificate Common Stock
Purchase Warrant to Sterling dated as of April 13, 2001 (3)
4.9 Atlantic Premium Brands, Ltd. Warrant Certificate Contingent
Common Stock Purchase Warrant of Banc One dated as of April 13,
2001 (3)
4.10 Atlantic Premium Brands, Ltd. Warrant Certificate Contingent
Common Stock Purchase Warrant of Sterling dated as of April 13,
2001 (3)
4.11 Amended and Restated Put Option Agreement dated as of April 13,
2001 among the Company, Banc One and Sterling (3)
19
4.12 Amended and Restated Registration Rights Agreement dated as of
April 13, 2001 among the Company, Banc One and Sterling (3)
4.13 Amended and Restated Shareholders Agreement dated as of April 13,
2001 among the Company, certain of its shareholders, Banc One and
Sterling (3)
4.14 Amended and Restated Preemptive Rights Agreement dated as of April
13, 2001 among the Company, Banc One and Sterling (3)
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(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement No. 33-69438
or the amendments thereto and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 and incorporated herein by reference.