==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
----------
X Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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, Oklahoma 73102
(Address of Principal Executive Office)
(405) 232-1158
(Registrant's telephone number, including area code)
Colcord Building
15 North Robinson, Suite 100
Oklahoma City, Oklahoma 73102
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
As of August 1, 1996 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.
==============================================================================
<PAGE>
All-American Bottling Corporation
Browne Bottling Company
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995
(unaudited)
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Changes in Stockholder's
Equity for the six months ended June 30, 1996
and for the year ended December 31, 1995 (unaudited)
Consolidated Statements of Cash Flows for the three
months and six months ended June 30, 1996 and 1995
(unaudited)
Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
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
<PAGE>
PART I
ITEM 1. Financial Statements
<TABLE>
BROWNE BOTTLING COMPANY
Consolidated Balance Sheets (in thousands)
- --------------------------------------------------------------------------------
<CAPTION>
December 31, June 30,
1995 1996
----------- ------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Trade accounts receivable $ 11,944 $ 13,019
Franchise companies receivable 2,605 2,261
Other receivables 1,324 1,362
Allowance for doubtful accounts (515) (539)
Inventories - ingredients and packaging 3,021 3,230
Inventories - finished goods 5,786 5,289
Inventories - other 291 273
Inventories - pallets at deposit value 344 356
Prepaid expenses 862 577
Deferred tax asset 781 781
----------- -----------
Total current assets 26,443 26,609
----------- -----------
Plant and equipment, at cost:
Land 1,335 1,335
Buildings and improvements 6,961 7,112
Machinery and equipment 10,614 11,531
Vehicles 7,947 7,927
Vending equipment 9,525 6,394
Furniture and fixtures 512 434
Computer equipment 1,491 1,583
Returnable containers 2,355 2,338
Construction in progress 519 -
----------- -----------
41,259 38,654
Less - Accumulated depreciation (27,891) (25,321)
----------- -----------
Net plant and equipment 13,368 13,333
----------- -----------
Intangible assets:
Franchises 45,471 38,737
Goodwill 18,104 15,556
Other intangibles 2,877 2,925
----------- -----------
66,452 57,218
Less - Accumulated amortization (13,804) (12,860)
----------- -----------
Net intangible assets 52,648 44,358
----------- -----------
Other assets 828 982
----------- -----------
Total assets $ 93,287 $ 85,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets (in thousands)
- -------------------------------------------------------------------------------
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 2,106 $ 1,868
Current portion of long-term debt 810 2,593
Current portion of obligations under
capital lease 262 237
Current portion of deferred compensation
and non-compete agreements 71 71
Trade accounts payable 12,798 8,811
Accrued compensation and payroll taxes 2,017 1,960
Accrued interest payable 2,326 2,260
Accrued insurance reserves 881 528
Accrued pension liability 599 317
Other liabilities 1,830 2,909
----------- -----------
Total current liabilities 23,700 21,554
----------- -----------
Long-term debt, net of current maturities 57,418 56,395
----------- -----------
Obligations under capital leases, net 939 970
----------- -----------
Deferred compensation and non-compete
agreements, net 613 964
----------- -----------
Other non-current liabilities 44 40
----------- -----------
Deferred tax liability 12,121 10,825
----------- -----------
Stock warrants 856 856
----------- -----------
Stockholders' equity:
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, and 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 (28,948) (32,866)
----------- -----------
Total stockholders' equity (deficit) (2,404) (6,322)
----------- -----------
Total liabilities and stockholders' equity $ 93,287 $ 85,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Operations (in thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues, net of discounts and allowances
($19,414 and $16,952 for the 3 months ended
June 30, 1995 and 1996, respectively) $ 45,873 $ 38,000
Cost of sales 30,516 25,173
----------- -----------
Gross Profit 15,357 12,827
----------- -----------
Operating expenses:
Plant and occupancy 1,317 1,081
Loading and shipping 1,214 908
Transport 280 150
Fleet service 199 176
Selling and delivery 7,137 5,677
Vending 669 517
Advertising 930 557
General and administrative 1,693 1,697
Amortization of intangibles 576 468
----------- -----------
Total operating expenses 14,015 11,231
----------- -----------
Income from operations 1,342 1,596
Gain (loss) on disposals 191 27
Interest expense - cash (1,771) (1,847)
Interest expense - non-cash (340) (31)
Other income 91 242
----------- -----------
Loss before income taxes (487) (13)
Income tax benefit (provision) 304 (27)
----------- -----------
Net loss $ (183) $ (40)
=========== ===========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Net loss $ (.95) $ (.21)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Operations (in thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues, net of discounts and allowances
($35,758 and $31,440 for the 6 months ended
June 30, 1995 and 1996, respectively) $ 83,880 $ 71,533
Cost of sales 55,081 47,459
----------- -----------
Gross Profit 28,799 24,074
----------- -----------
Operating expenses:
Plant and occupancy 2,818 2,624
Loading and shipping 2,289 1,937
Transport 513 377
Fleet service 406 361
Selling and delivery 13,844 11,850
Vending 1,286 1,094
Advertising 1,638 1,074
General and administrative 3,602 3,406
Amortization of intangibles 1,149 1,023
----------- -----------
Total operating expenses 27,545 23,746
----------- -----------
Income from operations 1,254 328
Gain (loss) on disposals (87) (1,899)
Interest expense - cash (3,626) (3,709)
Interest expense - non-cash (675) (61)
Other income 229 256
----------- -----------
Loss before income taxes (2,905) (5,085)
Income tax benefit 900 1,167
----------- -----------
Net loss $ (2,005) $ (3,918)
=========== ===========
Loss per common share and common share
equivalent:
Primary and fully diluted:
Net loss $ (10.43) $ (20.38)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands)
- ----------------------------------------------------------------------------------------------
<CAPTION>
Preferred Additional Retained
Shares, Common Stock Paid-in Earnings
Series B Shares Amount Capital (Deficit) Total
--------- ------- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,000 192,244 $ 2 $26,542 $(29,035) $ (2,491)
Net income 87 87
--------- ------- ------ --------- --------- ---------
Balance, December 31, 1995 1,000 192,244 2 26,542 (28,948) (2,404)
Net loss (unaudited) (3,918) (3,918)
--------- ------- ------ --------- --------- ---------
Balance, June 30, 1996 1,000 192,244 $ 2 $26,542 $(32,866) $ (6,322)
(unaudited) ========= ======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (183) $ (40)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 1,320 1,160
(Gain) loss on disposal of assets and franchises (191) (27)
Deferred compensation 26 61
Deferred taxes (326) 8
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
(Increase) in accounts receivable (2,631) (1,439)
(Increase) decrease in inventories (21) 1,562
(Decrease) increase in accounts payable 561 (5,414)
Increase in accrued interest 1,638 1,446
Increase (decrease) in overdraft 844 (1,046)
Other 491 130
----------- -----------
Net cash provided (used) by operating
activities 1,528 (3,599)
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,246) (598)
Proceeds from sale of fixed assets and
franchises 381 104
Payment for purchase of territories and
related fixed assets, net of cash
acquired - (35)
----------- -----------
Net cash (used) by investing
activities (865) (529)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt 1,782 2,825
Principal payments on debt (1,270) (4,170)
Borrowings on revolver note 46,385 46,902
Payments on revolver note (47,613) (41,429)
---------- -----------
Net cash provided (used) by financing
activities (716) 4,128
---------- -----------
Net decrease in cash (53) -
Cash at beginning of period 53 -
---------- -----------
Cash at end of period $ - $ -
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
<CAPTION>
Six Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,005) $ (3,918)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 2,646 2,445
(Gain) loss on disposal of assets
and franchises 87 1,899
Deferred compensation 49 276
Deferred taxes (945) (1,297)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
(Increase) in accounts receivable (1,257) (915)
(Increase) decrease in inventories 837 (35)
(Decrease) in accounts payable (871) (4,244)
Increase (decrease) in accrued interest 601 (66)
(Decrease) in overdraft (1,341) (239)
Other (189) 322
----------- -----------
Net cash (used) by operating
activities (2,388) (5,772)
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,558) (1,404)
Proceeds from sale of fixed assets and
franchises 4,288 7,289
Payment for purchase of territories and
related fixed assets, net of cash
acquired - (705)
----------- -----------
Net cash provided by investing
activities 2,730 5,180
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt 2,808 5,801
Principal payments on debt (2,057) (5,037)
Borrowings on revolver note 93,253 86,871
Payments on revolver note (94,346) (86,943)
Financing costs paid - (100)
---------- -----------
Net cash provided (used) by financing
activities (342) 592
---------- -----------
Net decrease in cash - -
Cash at beginning of period - -
---------- -----------
Cash at end of period $ - $ -
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
<CAPTION>
Supplemental Disclosures of Cash Flow Information
Three Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash paid during the period for interest $ 456 $ 374
=========== ===========
Cash paid during the period for income
taxes $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
<TABLE>
Unaudited Consolidated Statements of Cash Flows (in thousands)
- -------------------------------------------------------------------------------
<CAPTION>
Supplemental Disclosures of Cash Flow Information
Six Months Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash paid during the period for interest $ 3,666 $ 3,775
=========== ===========
Cash paid during the period for income
taxes $ 67 $ 123
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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,
Clearly Canadian, 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, 1995 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 of BBC for the three and six month periods ended
June 30, 1995 and 1996. 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 of the Company are substantially
equivalent to the assets, liabilities, earnings and equity of BBC on a
consolidated basis and therefore are not considered material.
3. EARNINGS PER SHARE
Primary and fully diluted earnings per common share (EPS) are based upon
the weighted average number of shares of common stock outstanding plus
the common stock equivalents which would arise from the exercise of
warrants, unless such items would be anti-dilutive. Fully diluted
earnings per common share assume the conversion of common stock
equivalents which would arise from the exercise of warrants, unless such
items would be anti-dilutive. Primary and fully diluted earnings per
share are the same for all periods presented.
Weighted average number of shares used in computing loss per common
share and common share equivalent for both primary and fully diluted
were 192,244 for all periods in 1995 and 1996 with the exception of the
adjusted three months ended June 30, 1995 disclosed in Note 5 below.
Weighted average number of shares used for this period was 213,604.
4. ASSET SALES AND PURCHASES
On March 23, 1996, the Company sold assets in St. Paul, Duluth and
Rochester, Minnesota and North and South Dakota to an unrelated party
for proceeds of approximately $5.6 million, resulting in a loss on sale
of approximately $2.9 million. The assets sold included warehouse
inventory in St. Paul, selected warehouse equipment, vendors and
visicoolers, and franchise and distributor agreements. Sale proceeds
included $5.4 million in cash paid at closing which was used to reduce
the balance on the Company's Senior Credit Facility, and a receivable of
$200,000 due September 23, 1996, subject to certain adjustments as
defined in the asset purchase agreement.
During the six months ended June 30, 1996, the Company also sold
franchise and distribution rights in Madison, Wisconsin, Pulaski,
Tennessee and Roanoke, Virginia for combined net sale proceeds of
approximately $2.4 million, and recognized gains totaling approximately
$1.1 million. Sale proceeds included $1.8 million in cash paid at
closing which was used to reduce the balance on the Company's Senior
Credit Facility and a $608,000 note with interest and principal due
monthly.
In January 1996, the Company acquired the franchise and distribution
rights, accounts receivable, inventory, and fixed assets of an unrelated
bottler in LaCrosse, Wisconsin. The purchase price was approximately
$1.0 million and was financed primarily through borrowings under the
Company's Senior Credit Facility.
5. ADJUSTED HISTORICAL RESULTS
During the six months ended June 30, 1996, AABC sold certain assets
constituting its St. Paul, Minnesota, Duluth, Minnesota and Roanoke,
Virginia operations. The following table sets forth a summary of
unaudited selected financial information for the three and six months
ended June 30, 1995 and 1996. For each of these periods, the selected
financial information presented includes actual operating results for
the Company, while "adjusted" information has also been provided for the
three and six months ended June 30, 1995 which eliminates all case sales
data and all revenues and expenses relating to the St. Paul, Duluth and
Roanoke operations. The other territory sales discussed in Note 4 have
not been eliminated due to their immaterial impact on the comparability
of the financial information provided.
<TABLE>
<CAPTION>
Three Months Ended June 30,
Historical Adjusted
1995 1995 1996
------------- -------------- --------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
<S> <C> <C> <C> <C> <C> <C>
DSD sales............... 5,753 4,957 4,713
Distributor sales....... 541 403 364
----- ---- ----- ---- ----- ----
Total franchise. 6,294 89% 5,360 87% 5,077 86%
Contract sales.......... 787 11% 787 13% 839 14%
------ ---- ----- ---- ----- ----
Total case sales. 7,081 100% 6,147 100% 5,916 100%
Produced................ 6,320 89% 5,578 91% 4,919 83%
Purchased............... 784 11% 506 8% 806 14%
Inventory - (inc.)/dec.. (23) - 63 1% 191 3%
----- ---- ----- ---- ----- ----
Total case sales. 7,081 100% 6,147 100% 5,916 100%
</TABLE>
<TABLE>
<CAPTION>
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case and per share date)
<S> <C> <C> <C> <C> <C> <C>
Franchise sales......... $42,001 $6.67 $35,957 $6.71 $34,037 $6.70
Contract sales.......... 3,872 4.92 3,872 4.92 3,963 4.72
------- ------- -------
Net sales....... 45,873 6.48 39,829 6.48 38,000 6.42
Cost of goods sold...... 30,516 4.31 26,363 4.29 25,173 4.25
------- ----- ------- ----- ------- -----
Gross profit.... 15,357 $2.17 13,466 $2.19 12,827 $2.17
Admin., marketing & general 14,015 11,862 11,231
------- ------- -------
Operating income........ 1,342 1,604 1,596
Interest expense........ (2,111) (1,961) (1,878)
Other non-operating
income ................ 282 405 269
------- ------- -------
Net income (loss) before
income taxes........... (487) 48 (13)
Income tax benefit (provision) 304 80 (27)
------- ------- -------
Net income (loss)....... $ (183) $ 128 $ (40)
======= ======= =======
EPS..................... $ (.95) $ .60 $ (.21)
EBITDA (a).............. $ 2,735 $ 2,914 $ 2,974
</TABLE>
Note 5 (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
Historical Adjusted
1995 1995 1996
-------------- -------------- --------------
Cases Percent Cases Percent Cases Percent
----- ------- ----- ------- ----- -------
(In thousands, except percent data)
<S> <C> <C> <C> <C> <C> <C>
DSD sales............... 10,618 9,822 8,877
Distributor sales....... 948 810 830
------ ------ ------
Total franchise.. 11,566 89% 10,632 88% 9,707 87%
Contract sales.......... 1,479 11% 1,479 12% 1,447 13%
------ ---- ------ ---- ----- ----
Total case sales. 13,045 100% 12,111 100% 11,154 100%
Produced................ 11,732 90% 10,990 91% 9,806 88%
Purchased............... 1,341 10% 1,063 9% 1,281 11%
Inventory - (inc.)/dec.. (28) - 58 - 67 1%
------ ---- ------ ---- ------ ----
Total case sales. 13,045 100% 12,111 100% 11,154 100%
</TABLE>
<TABLE>
<CAPTION>
Per Per Per
Aggregate Case Aggregate Case Aggregate Case
--------- ---- --------- ---- --------- ----
(In thousands, except per case and per share date)
<S> <C> <C> <C> <C> <C> <C>
Franchise sales......... $76,778 $6.64 $70,734 $6.65 $64,652 $6.66
Contract sales.......... 7,102 4.80 7,102 4.80 6,881 4.76
------- ------- -------
Net sales....... 83,880 6.43 77,836 6.43 71,533 6.41
Cost of goods sold...... 55,081 4.22 50,928 4.21 47,459 4.25
------- ----- ------- ----- ------- -----
Gross profit..... 28,799 $2.21 26,908 $2.22 24,074 $2.16
Admin., marketing & general 27,545 25,392 23,746
------- ------- -------
Operating income........ 1,254 1,516 328
Interest expense........ (4,301) (4,151) (3,770)
Other non-operating
income (expense)....... 142 265 (1,643)
------- ------- -------
Net loss before income
taxes.................. (2,905) (2,370) (5,085)
Income tax benefit 900 676 1,167
------- ------- -------
Net Loss................ $(2,005) $(1,694) $(3,918)
======= ======= =======
EPS..................... $(10.43) $ (8.81) $(20.38)
EBITDA (a).............. $ 4,058 $ 4,237 $ 3,001
</TABLE>
(a) 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 gains. 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.
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. The Company 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, Clearly Canadian, 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, BBC and the Company completed a recapitalization plan
designed to enhance the Company's financial flexibility. As part of the
recapitalization plan, 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 new senior secured credit facility (the "Senior Credit
Facility") providing 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 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 consists of net income (loss) before
income taxes, interest expense, depreciation, amortization, gain (loss) on
asset sales and other non-cash charges and extraordinary gains. EBITDA should
not be considered as an alternative to, or more meaningful than, operating
income or cash flow, as determined in accordance with generally accepted
accounting principles, as an indicator of the Company's operating performance
or liquidity.
The operating results for the three and six month periods ended June 30,
1996 are not directly comparable to the operating results for the three and
six month periods ended June 30, 1995, as the results for the 1996 periods are
materially affected by the sale of assets in St. Paul, Minnesota, Duluth,
Minnesota and Roanoke, Virginia. The sales of these operations significantly
reduced case sales, net sales, cost of goods sold, gross profit, and
administrative, marketing and general expenses. In order to provide
comparable information, the selected financial information included in Note 5
of the interim financial statements for the three and six months ended June
30, 1995 has been "adjusted" to eliminate these operations. Accordingly, the
following discussion of the results of operations compares the actual results
of operations for the three and six months ended June 30, 1996 with the
actual, as well as "adjusted," results of operations for the corresponding
periods ended June 30, 1995.
RESULTS OF OPERATIONS (UNAUDITED)
The following discussion addresses the results of operations for the
three months ended June 30, 1996 (the "Current Quarter") as compared to the
corresponding period ended June 30, 1995 (the "Prior Quarter") and the
"adjusted" corresponding period ended June 30, 1995 (the "Adjusted Prior
Quarter") and for the six months ended June 30, 1996 (the "Current YTD")as
compared to the corresponding period ended June 30, 1995 (the "Prior YTD") and
the "adjusted" corresponding period ended June 30, 1995 (the "Adjusted Prior
YTD").
THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED JUNE 30, 1995
Net sales for the Current Quarter were $38.0 million compared to $45.9
million for the Prior Quarter, a $7.9 million or 17.2% decrease due to lower
franchise case sales resulting primarily from the sales of the Minnesota,
Pulaski, Tennessee and Roanoke, Virginia territories. Franchise case sales
were 5.1 million cases for the Current Quarter compared to 6.3 million cases
for the Prior Quarter, a decrease of 1.2 million or 19.3%. After the
adjustment for sold operations, net sales decreased $1.8 million or 4.5% for
the Current Quarter as compared to the Adjusted Prior Quarter. Franchise case
sales for the Current Quarter decreased 283,000 cases or 5.3% from the
Adjusted Prior Quarter. This decrease in franchise cases is attributable to
volume losses in Tennessee and Wisconsin. In Wisconsin, franchise case sales
for the Current Quarter were 1.5 million cases as compared to 1.6 million
cases for the Adjusted Prior Quarter, a decrease of 99,000 cases or 6.0%.
This decrease is primarily related to declines in the sales of RC Cola
products due to the sale of the Madison, Wisconsin territory described in Note
4 of the interim financial statements. In Tennessee, franchise case sales for
the Current Quarter were 972,000 cases as compared to 1.1 million cases for
the Prior Quarter, a decrease of 133,000 cases or 12.1%. This decrease is
primarily related to declines in the sales of can packages of RC Cola products
in response to price increases implemented in Tennessee. For the Prior
Quarter, heavy promotional activity in Tennessee resulted in volume increases
at lower average net selling prices compared to the Current Quarter. The
average net selling price for franchise sales for the Company increased to
$6.70 for the Current Quarter as compared to $6.67 for the Prior Quarter and
declined from $6.71 for the Adjusted Prior Quarter.
Contract case sales increased to 839,000 cases for the Current Quarter
from 787,000 cases for the Prior Quarter. This increase was in the Louisville
production facility and is primarily attributable to a production contract
with the purchasers of the Pulaski, Tennessee and Roanoke, Virginia operations
which were sold as described in Note 4 of the interim financial statements.
The average net selling price for contract cases decreased to $4.72 for the
Current Quarter as compared to $4.92 for the Prior Quarter due to these new
production contracts in Louisville.
On a company-wide basis the net selling price for all cases fell from
$6.48 for the Prior Quarter and the Adjusted Prior Quarter to $6.42 for the
Current Quarter due to the higher percentage of sales resulting from contract
cases which are at a lower net selling price as compared to franchise case
sales.
Cost of goods sold decreased $5.3 million or 17.5% for the Current
Quarter as compared to the Prior Quarter. Cost of goods sold decreased $1.2
million or 4.5% for the Current Quarter as compared to the Adjusted Prior
Quarter primarily due to the volume decrease described above. Gross profit
for the Current Quarter was $12.8 million as compared to $15.4 million for the
Prior Quarter, a decrease of $2.5 million or 16.5%. Gross profit decreased
$639,000 or 4.7% for the Current Quarter as compared to the Adjusted Prior
Quarter due to case volume declines. Gross margin (gross profit as a
percentage of sales) remained constant at 33.8% for the Current Quarter as
compared to 33.5% for the Prior Quarter and 33.8% for the Adjusted Prior
Quarter.
Administrative, marketing and general expenses declined $2.8 million or
19.9% for the Current Quarter as compared to the Prior Quarter and by $631,000
or 5.3% as compared to the Adjusted Prior Quarter due to overall decreases in
personnel expenses and utility costs as a result of the decreased volume of
the Company.
Interest expense was $1.9 million for the Current Quarter as compared to
$2.1 million for the Prior Quarter and $2.0 million for the Adjusted Prior
Quarter. Cash interest expense was $1.8 million for both the Current Quarter
and the Prior Quarter as compared to $1.6 million for the Adjusted Prior
Quarter, an increase in the Current Quarter of $226,000 or 13.9% over the
Adjusted Prior Quarter due to higher levels of debt carrying cash interest.
The higher levels of debt carrying cash interest resulted from the July 1995
sale of the Company's Senior Notes which were previously held by a subsidiary
of the Company. Proceeds from the sale were used to retire the Company's
Senior Subordinated Notes which provided for noncash interest payments. As a
result, noncash interest declined.
Other income increased to $242,000 in the Current Quarter as compared to
$91,000 for the Prior Quarter, an increase of $151,000 or 165.9% and as
compared to $228,000 for the Adjusted Prior Quarter, an increase of $14,000 or
4.0%.
Pretax net loss for the Current Quarter was $13,000 as compared to a
pretax net loss for the Prior Quarter of $487,000 and as compared to pretax
net income of $48,000 for the Adjusted Prior Quarter. The decrease in the
Current Quarter pretax net loss as compared to the Prior Quarter results from
the sale of the Minnesota and Roanoke territories as described in Notes 4 and
5 of the interim financial statements.
EBITDA was $3.0 million for the Current Quarter as compared to $2.7
million for the Prior Quarter and as compared to $2.9 million for the Adjusted
Prior Quarter. The increase in EBITDA for the Current Quarter as compared to
the Adjusted Prior Quarter is attributable to reduced cash operating expenses
partially offset by the reduced gross profit.
SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED JUNE 30, 1995
Net sales for the Current YTD were $71.5 million compared to $83.9
million for the Prior YTD, a $12.3 million or 14.7% decrease due to lower
franchise case sales resulting primarily from the sale of the Minnesota,
Pulaski, Tennessee and Roanoke, Virginia territories. Franchise case sales
were 9.7 million cases for the Current YTD compared to 11.6 million cases for
the Prior YTD, a decrease of 1.9 million or 16.1%. After the adjustment for
sold operations, net sales decreased $6.3 million or 8.1% for the Current YTD
as compared to the Adjusted Prior YTD. Franchise case sales for the Current
YTD decreased 925,000 cases or 8.7% from the Adjusted Prior YTD. This
decrease in franchise cases is attributable to volume losses in Wisconsin,
Tennessee and Minnesota. In Wisconsin, franchise case sales for the Current
YTD were 2.9 million cases as compared to 3.2 million cases for the Prior YTD
and as compared to 3.1 million cases for the Adjusted Prior YTD, a decrease of
193,000 cases or 6.2%. This decrease is primarily related to declines in the
sales of RC Cola products due to the territory sales in Madison, Wisconsin
described in Note 4 of the interim financial statements. In Minnesota,
franchise case sales for the Current YTD were 350,000 cases as compared to
562,000 cases for the Adjusted Prior YTD, a decrease of 212,000 cases or
37.7%. This volume decline is attributable to a limited distribution system
in Minnesota in anticipation of the sale of this territory which was completed
on March 23, 1996. In Tennessee, franchise case sales for the Current YTD
were 1.8 million cases as compared to 2.1 million cases for the Prior YTD, a
decrease of 375,000 cases or 17.5%. This decrease is primarily related to
declines in can package case sales in response to price increases implemented
in Tennessee. For the Prior YTD, heavy promotional activity in Tennessee
resulted in volume increases at lower average net selling prices compared to
the Current YTD. The average net selling price for franchise sales for the
Company increased to $6.66 for the Current YTD as compared to $6.64 for the
Prior YTD and $6.65 for the Adjusted Prior YTD.
Contract case sales declined slightly to 1.4 million cases for the
Current YTD from 1.5 million cases for the Prior YTD. The average net selling
price for contract cases decreased to $4.76 for the Current YTD as compared to
$4.80 for the Prior YTD due to new production contracts in Louisville entered
into in connection with the sale of the Pulaski, Tennessee and Roanoke,
Virginia operations.
On a company-wide basis the net selling price for all cases fell from
$6.43 for the Prior YTD and the Adjusted Prior YTD to $6.41 for the Current
YTD due to the higher percentage of sales resulting from contract cases which
are at a lower net selling price as compared to franchise case sales.
Cost of goods sold decreased $7.6 million or 13.8% for the Current YTD
as compared to the Prior YTD. Cost of goods sold decreased $3.5 million or
6.8% for the Current YTD as compared to the Adjusted Prior YTD primarily due
to the volume decrease described above partially offset by an increase in the
price of extracts and purchased finished goods. Gross profit for the Current
YTD was $24.1 million as compared to $28.8 million for the Prior YTD, a
decrease of $4.7 million or 16.4%. Gross profit decreased $2.8 million or
10.5% for the Current YTD as compared to the Adjusted Prior YTD due to case
volume declines and increases in the per case cost of goods. Gross margin was
33.7% for the Current YTD as compared to 34.3% for the Prior YTD and 34.6% for
the Adjusted Prior YTD. The decline in the gross margin percentage is due to
the increased per case cost of goods.
Administrative, marketing and general expenses declined $3.8 million or
13.8% for the Current YTD as compared to the Prior YTD and by $1.6 million or
6.5% as compared to the Adjusted Prior YTD due to overall decreases in
personnel expenses and utility costs as a result of the decreased volume of
the Company.
Interest expense was $3.8 million for the Current YTD as compared to
$4.3 million for the Prior YTD and $4.2 million for the Adjusted Prior YTD.
Cash interest expense was $3.7 million for the Current YTD as compared to $3.6
million for the Prior YTD and as compared to $3.5 million for the Adjusted
Prior YTD, an increase in the Current YTD of $232,000 or 6.7% over the
Adjusted Prior Quarter due to higher levels of debt carrying cash interest.
The higher levels of debt carrying cash interest resulted from the July 1995
sale of the Company's Senior Notes which were previously held by a subsidiary
of the Company. Proceeds from the sale were used to retire the Company's
Senior Subordinated Notes which provided for noncash interest payments. As a
result, noncash interest declined.
Other income increased to $256,000 in the Current YTD as compared to
$229,000 for the Prior YTD, an increase of $27,000 or 11.8%. As compared to
$366,000 for the Adjusted Prior YTD, other income in the Current YTD decreased
$110,000 or 30.1% primarily due to a decline in trade discounts taken in the
Current YTD.
Pretax net loss for the Current YTD was $5.1 million as compared to a
pretax net loss for the Prior YTD of $2.9 million and as compared to a pretax
net loss of $2.4 million for the Adjusted Prior YTD. The increase in the
Current YTD pretax net loss as compared to the Prior YTD and Adjusted Prior
YTD pretax net loss results from the volume declines as discussed above and
from the loss on sale of $1.9 million realized on the sale of the territories
as described in Notes 4 and 5 to the interim financial statements.
EBITDA was $3.0 million for the Current YTD as compared to $4.1 million
for the Prior YTD and as compared to $4.2 million for the Adjusted Prior YTD.
The decrease in EBITDA for the Current YTD as compared to the Adjusted Prior
YTD is attributable to reduced gross profit partially offset by reduced cash
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had working capital (excluding cash, cash
equivalents and the current portion of long-term debt and other obligations)
of $9.8 million compared to $6.0 million at December 31, 1995. The increase
in working capital is due primarily to the decline in trade payables and an
increase in trade receivables partially offset by an increase in other
liabilities. The Company's working capital needs have historically been
funded from operations and, on a seasonal basis, from borrowings under its
Senior Credit Facility.
For the Current Quarter, the Company's operating activities used cash of
$3.6 million as compared to cash provided of $1.5 million for the Prior
Quarter. The net cash used of $3.6 million by operating activities in the
Current Quarter resulted primarily from significant decreases in accounts
payable and cash overdraft and an increase in accounts receivable partially
offset by increases in inventories and accrued interest and $1.2 million cash
provided from operations. The net cash provided of $1.5 million in the Prior
Quarter resulted primarily from cash provided from operations of $646,000 and
increases in accrued interest, accounts payable and cash overdraft partially
offset by increases in accounts receivable.
For the Current YTD, the Company's operating activities used cash of
$5.8 million as compared to cash used of $2.4 million for the Prior YTD. The
net cash used of $5.8 million by operating activities in the Current YTD
resulted primarily from a significant decrease in accounts payable and an
increase in trade receivables and cash used from operations of $595,000. The
cash used of $2.4 million for the Prior YTD resulted primarily from an
increase in trade receivables, decreases in accounts payable and cash
overdraft and by cash used from operations of $168,000, partially offset by a
decrease in inventories and an increase in accrued interest.
During the Current Quarter investing activities used cash of $529,000 as
compared to cash used of $865,000 in the Prior Quarter. The decrease is due
primarily to decreased capital expenditures in the Current Quarter partially
offset by decreased proceeds from sales of fixed assets. For the Prior
Quarter the proceeds from sales resulted from the sale of franchises in three
Ohio counties.
During the Current YTD investing activities provided cash of $5.2
million as compared to cash provided during the Prior YTD of $2.7 million.
The increase is due primarily to the $5.4 million in cash received on the sale
of Minnesota territories as well as the proceeds from the sales of the other
locations as described in Note 4 to the interim financial statements. For the
Prior YTD the proceeds from sales resulted from the sale of the Rockford,
Illinois territory.
Financing activities provided cash of $4.1 million in the Current
Quarter primarily due to increased borrowings on the Senior Credit Facility of
$5.5 million and by proceeds from the issuance of debt of $2.8 million
partially offset by principal payments on debt of $4.2 million. Debt issued
consists primarily of unsecured demand notes issued to Stephen B. Browne and
entities affiliated with him. Principal payments on debt of $4.2 million
included approximately $3.5 million paid on these unsecured demand notes.
Stephen Browne and entities affiliated with him from time to time make
unsecured loans to the Company at the same interest rates charged under the
Company's Senior Credit Facility. At June 30, 1996 such debt had a remaining
balance of $2.1 million. For the Current YTD, financing activities provided
cash of $592,000 primarily due to the issuance of the unsecured demand notes
as described above. At June 30, 1996, the Company's borrowing base under the
Senior Credit Facility was $18.3 million, and the Company had borrowings of
$13.6 million and an additional $198,000 of letters of credit outstanding
leaving $4.5 million of unused credit available.
The Company's earnings before income taxes and fixed charges were
insufficient to cover its fixed charges by $13,000 for the Current Quarter and
by $5.1 million for the Current YTD. EBITDA (as defined) and cash interest
expense for the Current Quarter were $3.0 million and $1.8 million,
respectively. For the Current YTD, EBITDA (as defined) and cash interest
expense were $3.0 million and $3.7 million, respectively. EBITDA is presented
not as an alternative to operating income (as determined in accordance with
generally accepted accounting principles) as an indicator of the Company's
operating performance or to cash flow from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
its liquidity, but rather to provide additional information related to the
debt service ability of the Company. If the Company were to experience a
deterioration in operating results, the Company's ability to generate
sufficient cash to cover its interest expense would be reduced, and the
Company would become unable to meet its interest obligations.
The Company's long-term debt (including current maturities thereof and
amounts payable under non-compete and deferred compensation agreements) was
approximately $61.2 million as of June 30, 1996, and scheduled principal
payments are estimated to be approximately $2.9 million for twelve months
ending June 30, 1997. Of this $2.9 million approximately $2.1 million
represents the unsecured demand notes from Stephen B. Browne and entities
affiliated with him as described above and approximately $546,000 represents
financing of 18 months or less from trade suppliers to finance 1995 capital
expenditures. Repayment of the financing from trade suppliers is based upon a
surcharge for product purchases from these trade suppliers. The Company must
make certain capital expenditures on an annual basis in order to maintain its
business and assets and compete effectively. The Company expects to spend
approximately $2.4 million on capital expenditures during the twelve months
ending December 31, 1996. To the extent that requirements for debt service
and capital expenditures are in excess of cash flow from operations, the
Company will need to finance such requirements with additional indebtedness or
defer capital expenditures.
At June 30, 1996, the Company was not in compliance with the
consolidated interest coverage ratio covenant required in the Senior Credit
Facility. The ratio at June 30, 1996 was .83 to 1 whereas the Senior Credit
Facility requires a ratio of at least .9 to 1. BT Commercial, agent, has
agreed to waive this covenant violation. A future failure to meet this
covenant 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" 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.
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. Exhibit and Reports on Form 8-K
(a) The following exhibit is filed with this Form 10-Q and is identified
by the number indicated:
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during this period:
Form 8-K dated April 10, 1996
Form 8-K dated July 03, 1996
Form 8-K/A dated July 16, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALL-AMERICAN BOTTLING CORPORATION
Date: August 14, 1996 By: STEPHEN B. BROWNE
----------------------------
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: August 14, 1996 By: STEPHEN R. KERR
-------------------------
Stephen R. Kerr
Vice President and Chief
Financial Officer
BROWNE BOTTLING COMPANY
Date: August 14, 1996 By: STEPHEN B. BROWNE
------------------------
Stephen B. Browne
President, Chief Executive
Officer and Chairman
of the Board
Date: August 14, 1996 By: STEPHEN R. KERR
-------------------------
Stephen R. Kerr
Vice President and Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825811
<NAME> ALL AMERICAN BOTTLING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> (1,868)
<SECURITIES> 0
<RECEIVABLES> 13,019
<ALLOWANCES> 539
<INVENTORY> 9,148
<CURRENT-ASSETS> 26,609
<PP&E> 38,654
<DEPRECIATION> 25,321
<TOTAL-ASSETS> 85,282
<CURRENT-LIABILITIES> 21,554
<BONDS> 58,329
0
0
<COMMON> 2
<OTHER-SE> (6,324)
<TOTAL-LIABILITY-AND-EQUITY> 85,282
<SALES> 71,533
<TOTAL-REVENUES> 71,533
<CGS> 47,459
<TOTAL-COSTS> 47,459
<OTHER-EXPENSES> 23,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,770
<INCOME-PRETAX> (5,085)
<INCOME-TAX> 1,167
<INCOME-CONTINUING> (3,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,918)
<EPS-PRIMARY> (20.38)
<EPS-DILUTED> (20.38)
</TABLE>
