SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee Required)
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 of 73-1311569
Incorporation or Organization) (I.R.S. Employer Identification No.)
Colcord Building
15 North Robinson, Suite 1201
Oklahoma City, Oklahoma 73102
(Address of Principal Executive Offices)
(405) 232-1158
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Item 405 of Regulation S-K is inapplicable to the registrant because it has
no class of equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
As of April 10, 1997, Browne Bottling Company had 192,244 shares of common
stock outstanding for which there is no public market; and All-American
Bottling Corporation had 100,000 shares of common stock outstanding, all of
which are held by Browne Bottling Company.
<PAGE>
ALL-AMERICAN BOTTLING CORPORATION
BROWNE BOTTLING COMPANY
TABLE OF CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security-Holders
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS
General
All-American Bottling Corporation (the "Company"), which was incorporated
under the laws of Delaware in 1987, is among the largest independent (not a
franchisee of Coca-Cola or Pepsi-Cola products) bottlers and distributors of
soft drinks and other beverage products in the United States, with sales in
1996 of $140 million. The Company has franchise agreements covering various
territories for 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 regional brands such as Big Red and Sundrop. In 1996, the
Company sold over 1.0 billion eight-ounce servings. At December 31, 1996, the
Company sold to approximately 20,000 retail accounts in market territories in 7
states with a combined population of over approximately 9.1 million people.
The Company's largest markets measured by franchise case sales volume are the
metropolitan areas of Louisville, Nashville, Milwaukee, and Oklahoma City.
With respect to soft drinks, each of the Company's franchise agreements
generally gives the Company the exclusive right, within the territory covered
by the agreement, to manufacture and distribute specified beverage products.
The Company also distributes products in several other bottling categories,
including brewed teas, natural sodas, sparkling juices, and flavored waters
("alternative beverages"). Leading alternative beverages distributed by the
Company under exclusive distribution agreements include Snapple, Mistic and
Crystal Light. Leading juice and water drinks distributed by the Company under
exclusive distribution agreements include Hershey's Chocolate, Yoo-Hoo, Evian
and Blue Falls. The Company also manufactures and distributes its own
alternative beverage brands under the name of Gold Medal and Aqua Splash.
Management believes that the Company is the largest independent bottler
and distributor, with the most extensive brand line-up, in each of its
franchise territories. The Company's strong regional market positions reflect
(i) its portfolio of highly recognizable non-cola franchised brands, primarily
brands franchised by Cadbury Schweppes, which management believes, in the
Company's territories, generally rank first or second in their respective
beverage flavor categories, (ii) the regional strength of the RC Cola, Diet
Rite Cola and Big Red brands which, management believes, generally have local
market shares within the Company's largest markets that are higher than their
respective national market shares and (iii) a comprehensive alternative
beverage line-up. Management believes that the Company's ability to compete
effectively for retail shelf space is due principally to the combined market
share of its broad portfolio of franchised brands. Further, management
believes that the broad geographic diversification of the Company's
territories moderates the impact of regional economic, competitive and weather
conditions on the Company as a whole.
The Company is a wholly-owned subsidiary of Browne Bottling Company
("BBC"), a Delaware corporation. BBC has no independent operations, and BBC's
only asset is its investment in the Company.
In August, 1993, as part of a recapitalization plan (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 three-year senior secured credit facility (the "Senior
Credit Facility"). For additional information concerning the Recapitalization
Plan, see Note 2 to the Company's consolidated financial statements included
herein under Item 8 "Financial Statements and Supplementary Data."
Beverage Industry
Soft drinks represent the most widely consumed beverage in the United
States. The soft drink bottling industry is characterized by the relative
absence of technological risk, lack of foreign competition and significant
barriers to entry primarily due to geographic exclusivity agreements with
franchisors. In addition, there are generally two or three established
national brands which dominate each flavor category. Accordingly, competition
among established brands tends to be price-based to maintain or increase market
share in the soft drink market. The industry's competitive climate requires
bottlers and franchisors to adapt quickly to market challenges, including
changes in consumer tastes and package preferences and continuing developments
in manufacturing and distribution methods.
Soft drinks compete directly with other beverages, including coffee,
beer, milk, tea, juices, bottled water, tap water, wines and distilled spirits.
The following table illustrates the changing tastes in liquid consumption of
Americans from 1983 to 1995 in gallons consumed annually per capita.
<TABLE>
<CAPTION>
1983 1994 1995
---- ---- ----
<S> <C> <C> <C>
Soft Drinks 37.0 49.6 51.2
Coffee 26.1 29.5 29.9
Beer 24.3 22.7 22.4
Milk 19.7 25.0 24.8
Tea 7.2 6.9 6.6
Bottled Water 3.4 10.3 11.0
Juices and Powdered Drinks 14.7 11.7 11.6
Wine and Distilled Spirits 4.1 3.1 3.0
Imputed Water Consumption 46.0 23.7 22.0
Total Gallons Consumed 182.5 182.5 182.5
- -----------------
</TABLE>
Source: Beverage Industry, Annual 1994/1995 and March 1997.
The Company believes that societal concerns about health, including the
quality of tap water and the level of alcohol consumption, have contributed to
the shift in beverage consumption preferences. The growth of cold, sweet
beverages, the largest component of which is soft drinks, appears to have been
at the expense of tap water. The acceptance and success of the bottled water
category also appear to have been at the expense of tap water. Per capita
consumption of certain "traditional" beverages and alcoholic beverages such as
beer, wine and distilled spirits, has declined since 1983.
Management expects that while consumers will maintain their preference
for caffeinated, naturally sweetened soft drinks, future market growth is
likely to be influenced by increased health consciousness. Products such as
bottled waters and juice-added, sodium-free and nutrient-added beverages have
taken advantage of this trend and continue to experience sales growth.
Operating Divisions
Consumption patterns, brand market share, levels of competition and other
conditions in the soft drink bottling industry vary substantially from market
to market. To better respond to these local market conditions, the Company is
organized on a geographic basis into five operating divisions, as shown in the
table below, each of which has day-to-day responsibility for product pricing,
marketing, distribution and production relating to its local market. The
management of the Company's operating divisions is overseen and coordinated by
two group executives located in Oshkosh, Wisconsin and Louisville, Kentucky who
report to the Company's corporate headquarters located in Oklahoma City,
Oklahoma. The Company's manufacturing facilities supply products to the
Company's distribution centers for ultimate sale to customers. Although the
Company purchases some products manufactured by others in certain areas where
it is inefficient for the Company to manufacture, in 1996 more than 87% of the
Company's products sold were manufactured by the Company. The Oshkosh
manufacturing facility supplies products to the Oshkosh division, and the
Louisville manufacturing facility supplies products to the Louisville,
Tennessee and West Virginia distribution facilities. Oklahoma City purchases
finished product from other independent bottlers. The Company has consolidated
divisional accounting functions in Oshkosh and Louisville. All divisions
utilize these centers for daily sales reporting and financial statement
preparation.
<TABLE>
<CAPTION>
Percent of 1996<F1> 1996
Division/Franchise Brand<F2> Case Sales<F3> Sales Case Sales
(In millions) (In millions)
<S> <C> <C> <C>
Oshkosh, WI $ 38.7 6.0
Seven-Up 27%
Diet Rite 13%
Dr Pepper 13%
A&W 8%
Squirt 6%
Louisville, KY 36.7 5.5
Big Red 34%
RC Cola 19%
Diet Rite 12%
Canada Dry 8%
A&W 7%
Nashville, TN 23.5 3.5
RC Cola 31%
Diet Rite 13%
A&W 11%
Canada Dry 9%
Sunkist 6%
Charleston, WV 14.3 2.3
RC Cola 34%
Dr Pepper 19%
Diet Rite 13%
Seven-Up 9%
A&W 6%
Oklahoma City, OK 10.3 1.4
Seven-Up 42%
A&W 16%
RC Cola 14%
Crush 10%
Snapple 4%
Contract and Other Sales<F4> 16.5 3.4
Total Company $ 140.0 22.1
<FN>
<F1>
Column may not total due to rounding.
<F2>
Includes the top five franchise brands in each division.
<F3>
Represents percentage of the Company's total franchise case sales in
the division.
<F4>
Other sales include sales of the St. Paul, Minnesota operations sold in
March, 1996. Net sales for St. Paul were approximately $1.9 million and case
sales were approximately 350,000 cases.
</FN>
</TABLE>
Products
The Company has franchise relationships with over 40 franchisors,
companies that grant exclusive rights for the sale and distribution of
trademarked products ("Franchisors"). The Company's portfolio of non-cola
franchised brands consists of highly recognizable trademarks, primarily Cadbury
Schweppes brands, which management believes, in the Company's markets,
generally rank first or second in their respective beverage flavor categories.
In the cola and diet cola segments, the Company produces RC Cola and Diet Rite
Cola and sells these products in substantially all of its franchise
territories.
In addition to well-known national brands, the Company also produces and
distributes strong regional brands, the most significant of which is Big Red, a
unique bubble-gum flavored soft drink. Management estimates that Big Red
products have approximately a 5.0% market share in the Company's Louisville
market. Sales of Big Red products accounted for approximately 10.5% of the
Company's franchise case sales during 1996.
The Company's portfolio of franchised brands has a significant combined
market share of the non-Coke and non-Pepsi beverages sold in its territories.
Management believes that this significant market share, together with the
Company's broad portfolio of franchised brands, enables the Company to compete
effectively for retail shelf space in its territories. In addition, the
Company's market share and its participation in a national cooperative of the
major independent bottlers also enable it to realize purchasing, manufacturing,
marketing and delivery efficiencies which contribute to its ability to
competitively price its products. See "Materials Management".
Management believes the Company is generally one of the largest bottlers
for each of its major Franchisors' products. The following table sets forth
the approximate percentage of the Company's total franchise case sales in 1996
for the brands distributed by the Company in its territories:
<TABLE>
<CAPTION>
Brand %
<S> <C>
Cadbury Schweppes<F1> 41.7
Royal Crown<F2> 38.9
Big Red 10.5
Alternative Beverages<F3> 4.7
Still/Juice/Water<F4> 1.6
Company Brands<F5> 1.1
Other 1.5
100.0
<FN>
<F1>
Includes Seven-Up (12.7%), A&W (8.4%), Dr. Pepper (6.5%), Canada Dry
(5.0%), Sunkist (3.9%), Crush (2.2%) and Squirt (2.2%).
<F2>
Includes RC Cola (18.2%), Diet Rite Cola (11.6%), Diet Rite Flavors
(4.5%), Kick (2.5%) and Nehi (.9%).
<F3>
Includes Snapple (1.7%), Mistic (1.1%), Crystal Light (.9%) and others.
<F4>
Includes Yoo-Hoo, Evian, Blue Falls and others.
<F5>
Includes Aqua Splash, Gold Medal and Guts.
</FN>
</TABLE>
The Company seeks to increase utilization of its existing distribution
system for franchised soft drink products and has actively sought franchise or
distribution rights for nationally branded soft drinks and alternative
beverages in its existing territories. During 1996, the Company received
franchise rights to A&W Root Beer in substantially all of its markets.
Bottling Rights
The Company has agreements with Franchisors pursuant to which the Company
generally has the exclusive right to manufacture and/or distribute certain
beverage products in specified territories. The Company also generally has
rights in various of its territories to produce, distribute and market certain
soft drink syrups in premix and postmix form for fountain sales.
Concentrates are the primary ingredient of beverage products. Formulas
and production rights for concentrates are highly proprietary and are owned
solely by the respective Franchisors. The Franchisors manufacture and sell
their concentrates to the Company, from which the Company produces its beverage
products. The Franchisors are entitled to set the price for their concentrates
unilaterally. Under the franchise agreements, in connection with the marketing
and distribution of the beverage products, the Company has the right to use the
trade names and trademarks of each Franchisor and associated patents,
copyrights, designs and labels, all of which are owned by the respective
Franchisors.
The Company's franchise agreements generally contain certain affirmative
obligations of the Company that include, but are not limited to, maintenance of
sufficient production and distribution facilities to satisfy fully the demand
for the various beverage products in its territories, maintenance of quality
control standards as prescribed by the Franchisor, maintenance of sound
financial condition, use of best efforts to promote sales, submission of annual
marketing, management, and advertising plans for approval and the provision of
reports as to the implementation of these plans. The agreements generally
prohibit the Company from engaging in specific activities, including, but not
limited to, distributing or selling the beverage products outside the specified
territories, producing or handling competing products or other products or
packages that would imitate, infringe upon or cause confusion with the beverage
products, trade dress, containers or trademarks of the Franchisor and
assigning, transferring or pledging an agreement, or any interest therein,
whether voluntarily, involuntarily, by operation of law or through a change in
control or ownership of the Company or BBC (as set forth in the various
franchise agreements), without prior consent. No Franchisor has ever
terminated any franchise agreement which is material to the Company, and the
Company considers its relationship with each of the Franchisors to be
satisfactory.
Most of the Company's significant franchise agreements are either
perpetual or long-term with renewal options.
A Franchisor generally may terminate the Company's rights to produce,
market and distribute products upon an event of default by the Company and in
certain other circumstances, including a change in control or ownership as set
forth in the various agreements. Events of default by the Company include, but
are not limited to, failure to fulfill its affirmative obligations, including
failure to continue producing or selling the Franchisor's brands, certain
changes in control or ownership, without the Franchisor's consent, bankruptcy
or violations of the prohibited activities. The Company generally may
terminate an agreement at any time without cause by giving proper notice to the
Franchisor.
Recent Acquisitions and Dispositions
In January 1996, Select Beverages, Chicago, Illinois acquired the
Company's franchise territory in Madison, Wisconsin along with certain vending
and visicooler equipment for approximately $1 million cash paid at closing
resulting in a book gain of approximately $489,000. The franchises sold
consisted primarily of Royal Crown and Dad's Root Beer products. Case sales in
1995 for the franchises sold were approximately 296,000 cases.
In January 1996, the Company completed the acquisition of the assets of
Seven-Up Bottling Company of LaCrosse, Inc. (LaCrosse, Wisconsin), a
distributor for the Company, for approximately $1 million. The assets
purchased included accounts receivable, inventory, warehouse and fleet
vehicles, vending and visicooler equipment and franchises for Seven-Up, RC
Cola, Dad's Root Beer, Sundrop, Snapple, Crystal Light and various other
brands. Total case sales in 1995 for the purchased brands were approximately
305,000 cases. This acquisition was financed with borrowings under the Senior
Credit Facility.
In February 1996, the Company sold the franchise rights for certain
products and vendor and visicooler equipment in 9 rural counties of Tennessee
to Sun-Drop Beverage Corporation, Pulaski, Tennessee, a local competitor.
During 1995, these routes generated sales of approximately 100,000 cases. The
sales price was $271,500 paid in cash at closing combined with an agreement to
purchase a minimum number of cases from the Company through year-end 1996. The
resulting book gain was approximately $66,000.
In March 1996, the Company sold its St. Paul division and Duluth,
Minnesota operation to Mid-Continent Bottlers, Inc., Des Moines, Iowa for
approximately $5.6 million resulting in a book loss of approximately $2.9
million. The assets included in the sale were warehouse inventory in St. Paul,
selected warehouse equipment, vendors and visicoolers, franchises and
distributor agreements covering North and South Dakota and Minnesota (including
the Duluth territory). These operations had combined case sales of
approximately 2.9 million cases in 1995.
In March 1996, the Company sold its Roanoke, Virginia operation to a
local competitor, Blue Ridge Beverage Corporation, for approximately $1.1
million resulting in a book gain of approximately $551,000. The assets sold
included franchises, vendors and visicooler equipment, warehouse inventory at
cost and miscellaneous equipment. The purchase price consisted of
approximately $500,000 in cash paid at closing and the remainder with a note of
approximately $608,000 due over 60 months. This operation had case sales of
approximately 293,000 cases in 1995.
In September 1996, the Company sold real estate in Charleston, West
Virginia for cash proceeds of $1.0 million resulting in a book gain of
approximately $65,000.
In November 1996, the Company sold its Parkersburg, West Virginia
operation to Brooks Beverage Management, Inc., a neighboring bottler, for
approximately $5.4 million resulting in a book gain of $3.1 million. The
assets sold included franchises, vendors and visicoolers, warehouse inventory
at cost and miscellaneous equipment. The purchase price included $5.2 million
in cash and a receivable due the Company of $200,000. This operation had case
sales of approximately 1.5 million cases in 1995.
Proceeds for all the above sales were used to reduce the Senior Credit
Facility or purchase Senior Secured Notes.
Acquisitions and dispositions occuring in 1997 are discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Subsequent Events."
Manufacturing
The Company produced 19.3 million cases or 87% of total cases sold in
1996 at its manufacturing facilities located in Louisville, Kentucky and
Oshkosh, Wisconsin. These plants are equipped with high-speed bottle and can
lines with combined annual capacity, assuming two ten-hour shifts per day and
maintenance of the current brand and packaging mix, of approximately 50 million
cases. The Company purchases products manufactured by others in Oklahoma City
where it is inefficient for the Company to ship product from its manufacturing
facilities.
The Louisville manufacturing plant is a combination manufacturing and
distribution facility built in 1974. The Louisville plant operates two bottle
lines and one high-speed can line with a total annual production capacity of
approximately 23 million cases. The Company's Oshkosh plant is a combination
manufacturing and distribution facility which operates two can lines and one
bottle line with annual production capacity of approximately 28 million cases.
Management believes the Company has adequate manufacturing capacity in its two
manufacturing facilities to meet its existing and anticipated future
requirements.
The Company maintains a quality control program. Periodic quality
testing is performed on all of the Company's products prior to bottling.
Additionally, all Franchisors conduct quality control inspections and tests on
a random basis. Skilled technicians are kept on staff to further test product
during packaging and filling.
Materials Management
The Company purchases concentrate for its franchised brands directly from
Franchisors in accordance with franchise agreements. Price increases for
concentrate, which are not limited by such agreements, may be imposed
unilaterally by Franchisors and have historically been 0% to 5.0% annually.
The majority of the Company's other raw materials are purchased through
Beverage Associates Cooperative, Inc., a national cooperative of independent
bottlers of which the Company was a founding member. See Item 13 "Certain
Relationships and Related Transactions -- Stephen B. Browne." The cooperative
leverages the combined purchasing volume of its members in the negotiation of
raw material costs. Most raw material contracts are for a period of one year
or less. As a member of the cooperative, the Company believes that its costs
for raw materials are comparable to those of its competitors. Key raw
materials and their approximate percentage of materials costs for 1996 include:
concentrate (39%); liquid corn sugar (9%); other ingredients (1%); aluminum
cans (31%); plastic bottles (7%); glass bottles (6%); and other packaging
materials (7%). The Company believes that adequate alternative sources exist
for all of its raw materials other than concentrate.
Each of the Company's operating divisions is responsible for purchasing
and inventory management. Materials are requisitioned at the division level
based on purchase agreements negotiated by corporate headquarters through the
cooperative. It is the responsibility of each division to manage its necessary
inventory levels of raw materials and finished goods, with periodic reporting
to the corporate office.
Sales and Distribution
The Company's sales methods vary according to its geographic markets and
specific customer segments. In the larger markets, sales are oriented towards
high-volume customers such as large retail chains, which result in economies of
scale in selling and distribution expenses. In all divisions, products are
generally sold in advance by a salesperson. Orders are then delivered and
merchandised within 24 hours by other Company employees.
The Company utilizes its distribution channels to maximize market
penetration. The Company's principal method of distribution is Direct Store
Door ("DSD") delivery. In 1996 DSD delivery represented approximately 92% of
the Company's franchise case sales. It is also the Company's preferred method
of distribution because the Company has greater control over the sales,
marketing and merchandising of products. Deliveries are made from distribution
facilities by the Company's fleet of trucks. In certain rural territories or
small volume areas where DSD delivery is not cost efficient, an independent
distributor is engaged by the Company to sell its franchise products. In most
situations, the distributor is required to purchase finished product from the
Company.
The Company also manufactures products for other independent bottlers or
private label owners that lack sufficient volume to justify the capital
investment of a manufacturing plant. These contract bottling operations
generate profit margins which are typically less than those generated by DSD
delivery operations, but they allow the Company to utilize its excess
manufacturing capacity at small incremental expense.
The Company makes cold drinks available to consumers through vending
machines, fountain equipment and visicoolers (brand identified refrigerated
cabinets). Vending machines are typically Company-owned and leased to retail
outlets or distributors, although the Company also engages in "full service"
vending arrangements whereby the Company owns and maintains the vending
equipment, is responsible for product restocking and pays a commission based
upon sales for the placement of the machine. Full service vending arrangements
generally yield higher margins per case than leased vending arrangements. A
portion of the costs associated with the purchase of vending equipment is
customarily paid for by Franchisors in connection with the identification of
their products on the outside of the machine. The Company is responsible for
vending machine maintenance and product re-stocking. Visicoolers are generally
loaned or rented to large retail outlets and convenience stores. Fountain
equipment dispenses products in restaurants, bars, amusement parks, theaters
and other similar locations. The Company sells either premix, a ready-to-use
product, or postmix, a concentrated product, to retailers in stainless steel or
disposable containers for use in fountain equipment, which is generally owned
by the Company. The Company's fountain market share is not significant.
During 1996, the Company added approximately 500 vending machines and
visicoolers in its existing franchise territories. The Company is increasing
its placement of visicoolers identified with the Company's soft drink or
alternative beverage brands. These visicooler placements are intended to
increase availability of soft drinks at higher margins and alternative beverage
products.
While high volume vending outlets are actively sought by a number of
competitors, management believes that, given the broad geographic diversity of
the Company's franchise territories, the presence of a cola product in its
brand line-up in all of its markets (together with leading non-cola brands),
and the Company's low historic penetration of the vending marketplace, it will
be able to find a sufficient number of attractive locations for new vending
machines. The Company believes that expanded vending operations can result in
increased market share by increasing its soft drink products' visibility and
brand recognition and by providing a complement to its soft drink products'
home markets. In addition, vending machine case sales through a full service
arrangement are typically sold at full retail prices and are not subject to the
same level of discounting and allowances as are DSD delivery sales and leased
vending arrangements.
Marketing
The marketing of beverage products is the primary basis of competition
among soft drink bottlers. Successful bottlers must competitively price
products, advertise in their territories and effectively execute promotional
programs. The Company's marketing efforts are directed towards brand
management, customer service, promotional activities and merchandising. The
Company believes that its marketing program allows it to compete effectively in
its markets.
The Company's marketing programs vary according to location in order to
be responsive to local conditions and the competitive environment. Certain
characteristics of the Company's marketing efforts are consistent across all
divisions. Substantially all of the Company's franchise case sales volume is
on a "pre-sell" basis, whereby sales are made by a salesman in advance of a
delivery the following day. Some markets, however, are still best served by
traditional route sales. This technique requires that the drivers of the route
trucks perform both a sales and delivery function. Account volume is often the
determining factor in establishing a sales method.
Marketing programs for each of the Company's franchised brands are
coordinated with the Franchisor. National advertising campaigns are developed
by the Franchisors. At the division level, managers develop local advertising
campaigns in their respective market areas in conjunction with their local
Franchisor representatives. Company headquarters personnel develop marketing
support programs jointly with the Franchisors.
A significant portion of the Company's promotional efforts focuses on
price discounting and allowances, newspaper advertising, in-store displays and
coupons. The goal of these activities is to position the Company's brands
competitively in the marketplace and obtain "feature" retail advertisements and
end-aisle displays in high volume retail outlets. End-aisle and secondary
displays are important marketing tools because they are tied to special
promotions and feature advertisements that stimulate sales and encourage
impulse purchases. Company-employed merchandisers are responsible for building
displays in conjunction with promotional programs and re-stocking products on
the beverage aisles of grocery stores.
Marketing expenditures are incurred by the Company, by the Franchisors
and by cooperative arrangements between the two. The Company pays retail
stores under calendar marketing agreements for the right to be included in the
retailer's advertising programs. Retail promotional programs are the Company's
most significant marketing expenditures and are supported through cooperative
arrangements with the Franchisors. National media advertising is funded by the
Franchisors, while local media advertising is funded by the Company or through
cooperative arrangements.
Customers
The Company sells its soft drink and alternative beverage products to
approximately 20,000 retail customers, including chain and independent grocery
stores, convenience stores and mass merchandisers. In addition, the Company
sells its products directly to consumers through vending machines and/or
visicoolers. During 1996, no single customer accounted for 5% or more of the
Company's sales, and the Company is not dependent on any single customer. A
significant portion of the Company's sales is made to large retail chains.
Because these chains seek to stock the Company's products in response to
consumer demand, and because the Company is the only distributor of its
products within its territories, the Company does not anticipate the loss of
these customers.
Competition
The Company's soft drink products compete with other traditional
beverages such as coffee, tea, milk, beer, citrus and non-citrus fruit drinks
and non-carbonated soft drinks. Competitors in the soft drink industry include
other bottlers and distributors of nationally and regionally advertised and
marketed products, as well as chain store brands and other private label soft
drinks and beverages.
The soft drink and alternative beverage markets are highly competitive in
each of the Company's franchise territories. Historically, soft drink bottlers
were independently-owned entities that purchased concentrates from franchisors
and competed against other bottlers in their territory for market share. Over
the past decade, the bottling industry has witnessed significant horizontal and
vertical consolidation. Continued consolidation is likely because
consolidation typically increases cost efficiencies in purchasing,
manufacturing and distribution.
The principal methods of competition among soft drink bottlers and
distributors are brand recognition, price promotion, retail space management,
service to the trade, new product introductions, packaging changes,
availability and advertising. Competition among bottlers is also affected by
promotional incentives and franchisor subsidies. During the past several
years, net retail prices of soft drinks have, in general, marginally decreased
due to increased price promotional allowances and competitive factors in the
industry.
The Company's principal competitors are Coca-Cola Enterprises, Inc.
("CCE") and the company-owned bottling operations of the Pepsi-Cola Company
("COBO"), both of which are affiliated with their respective syrup franchisors.
Management believes that Coca-Cola and Pepsi-Cola products together account for
over 60% of the soft drinks sold in the Company's territories. Price
competition between CCE and COBO has resulted in a market-wide erosion of per
case margins in the soft drink industry. Both CCE and COBO have significantly
greater financial resources than the Company and may be influenced by their
respective syrup franchisors to reduce prices in order to increase the volume
of syrup sales. In addition, both The Coca-Cola Company and PepsiCo, Inc. have
introduced alternative beverage products which compete with certain of the
brands distributed by the Company. The success of such competing brands could
significantly reduce the Company's market share and/or margins associated with
its alternative beverage brands.
The Company believes that long-term profitability is closely tied to its
market share and, therefore, the Company seeks to maintain a constant
competitive pricing posture in the market. This requires efficient execution
of marketing programs and continued investment in production and distribution
facilities to assure a low overhead cost structure. The Company's
relationships with its Franchisors have also been critical in negotiating
additional marketing support during periods of aggressive competitive pricing
so as to reduce the decline in margins necessary to maintain and increase
market share.
Employees
As of December 31, 1996, the Company had approximately 725 full-time and
49 part-time employees. Of these employees, approximately 44% are affiliated
with the International Brotherhood of Teamsters, AFL-CIO, and are covered by
collective bargaining agreements with the Company.
The Company's collective bargaining agreements for Charleston, West
Virginia, Louisville, Kentucky and Seymour, Indiana were successfully
negotiated for three-year terms expiring in March and June 1999. The remainder
of the Company's collective bargaining agreements expire on various dates from
1997 to 1999. The contract covering the Milwaukee, Wisconsin location was
subject to a re-opener for economic issues on September 2, 1996, and
negotiations are continuing. The Company expects to negotiate the re-opener
without significant work stoppages or strikes although there can be no
assurance in this regard.
Government Regulation
The production, distribution and sale of many of the Company's products
are subject to the federal Food, Drug and Cosmetic Act, the Occupational Safety
and Health Act, various federal environmental statutes and various other
federal, state and local statutes regulating the production, sale, safety,
advertising, labeling and franchising of beverages.
A federal labeling law requires mandatory disclosure of specified
nutritional elements. This law encompasses all brands distributed by the
Company and equally affects all other distributors of carbonated soft drinks
and alternative beverages.
Substantially all of the Company's facilities are subject to federal,
state and local laws regulating the environment. Compliance with these laws
has not had any material effect upon the capital expenditures, net income or
competitive position of the Company. Costs of compliance with existing and
future environmental laws cannot be predicted with any degree of certainty and
may significantly affect the Company's operations.
The Company's business could be significantly affected if legislation
requiring mandatory container deposits in the Company's franchise areas were to
be adopted. The Company is not aware of any state legislative proposals which
would require such deposits in any of its other franchise areas.
ITEM 2. PROPERTIES
The Company's headquarters are located in Oklahoma City, Oklahoma. The
Company leases a combination production and distribution facility in
Louisville, Kentucky, pursuant to a lease having 11 years remaining in its
term. The Company owns a production facility in Oshkosh, Wisconsin. At
December 31, 1996, the Company owned four distribution facilities (located in
Nashville, Tennessee, Tomah, Wisconsin, Lexington, Kentucky, and Seymour,
Indiana) and leased an additional 13 distribution or double bottom facilities
(located in Milwaukee, Marshfield, Menomonie, Onalaska and Oshkosh, Wisconsin,
Oklahoma City, Oklahoma, Knoxville, Johnson City and Shelbyville, Tennessee,
Somerset, Corbin and Jackson, Kentucky, and Charleston, West Virginia) at which
no production occurs. The leased distribution facilities are subject to
customary commercial leases with terms expiring between April, 1997 and April,
2007. Several of the leases are subject to renewal or extension at the
Company's option, and management believes that such leases will be renewed or
extended or adequate replacement leases will be negotiated at that time.
Certain of the properties are leased from entities affiliated with Stephen B.
Browne. See Item 13 "Certain Relationships and Related Transactions -- Stephen
B. Browne." The Company's total production floor space is approximately
250,000 square feet, and its total distribution and double bottom floor space
is approximately 360,000 square feet.
In September 1996, the Company sold its Charleston, West Virginia
distribution facility for cash proceeds of $1,000,000, resulting in a book gain
of $65,000. The Company entered into a lease for a smaller facility.
The Company believes its production and distribution facilities are all
in good condition and are adequate for its operations as presently conducted.
The Company believes that the facilities will provide sufficient capacity for
increased sales within the foreseeable future. By operating multiple shifts
and without significant changes in package mix, the Company believes its
current production configuration could produce almost three times its current
volume. The Company believes that an increase in sales, whether through
internal growth or the acquisition of additional franchise brands or
territories, could enable the Company to realize significant economies of
scale.
The Company owns or leases loading equipment, route trucks, tractors,
trailers and general pick-up trucks. Maintenance on this fleet, which numbered
approximately 400 vehicles at December 31, 1996, generally occurs at garages
located at the Company's production and primary distribution centers. The
Company also owns or leases approximately 9,500 vending machines and
visicoolers. See Item 1 "Business -- Sales and Distribution."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. Such claims are generally
covered by insurance. The Company believes that any liability resulting from
existing litigation would not have a material adverse effect on the Company's
business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is a wholly-owned subsidiary of BBC, a privately-held
corporation. There is no active market for common stock of BBC.
ITEM 6. SELECTED FINANCIAL DATA
All financial information of the Company included or referred to in this
Annual Report on Form 10-K is the consolidated financial information of BBC and
its subsidiary unless the context otherwise requires.
The selected historical financial data below should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included elsewhere herein. The selected historical financial data of
the Company as of December 31, 1992, 1993, 1994, 1995 and 1996 and for each of
the five years ended December 31, 1996 have been derived from the Company's
consolidated financial statements which have been audited by the Company's
independent public accountants.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $195,090 $206,812 $195,535 $165,154 $139,951
Cost of goods sold 134,295 140,676 131,639 109,655 93,104
Gross profit 60,795 66,136 63,896 55,499 46,847
Administrative, marketing
and general expenses 59,656 61,156 60,893 53,579 46,272
Gain (loss) on pension plan
settlement - (440) - - -
Operating income 1,139 4,540 3,003 1,920 575
Gain (loss) on asset sales<F1> 52 92 11,367) 99 1,279
Interest expense:
Cash interest expense (4,740) (5,625) (7,830) (7,434) (7,209)
Non-cash interest expense (3,597) (1,998) (1,259) (759) (224)
Other income (expense) 451 241 (1,223) 386 584
Loss before income taxes (6,695) (2,750) (18,676) (5,788) (4,995)
Benefit for income taxes 2,492 618 4,890 1,618 (158)
Net loss before
extraordinary item (4,203) (2,132) (13,786) (4,170) (5,153)
Extraordinary gain (loss)<F2> 7,549 3,826 - 4,257 (95)
Net income (loss) $ 3,346 $ 1,694 $(13,786) $ 87 $ (5,248)
Net income (loss) per
common share $ 16.38 $ 7.55 $ (64.54) $ .41 $ (27.30)
Other Data:
Total case sales<F3> 33,551 36,063 34,075 25,654 22,069
Net cash provided (used) by
operating activities $ 8,796 $ 123 $ (1,944) $ 1,252 $ (1,695)
Net cash provided (used) by
investing activities (199) (1,436) 7,692 1,663 10,095
Net cash provided (used) by
financing activities (7,951) 667 (5,748) (2,915) (8,400)
EBITDA<F4> 9,892 10,069 9,057 7,404 5,871
Capital expenditures 2,603 2,907 2,852 3,114 2,696
Depreciation 5,826 2,134 2,706 2,809 2,716
Amortization of intangibles and
non-compete agreements 2,476 2,714 2,748 2,288 1,996
Ratio of earnings to fixed
charges<F5> - - - - -
Balance Sheet Data:
Working capital<F6> $ 4,100 $9,584 $ 7,403 $ 5,992 $4,755
Property, plant and
equipment, net 14,846 17,576 14,511 13,368 12,054
Total assets 128,278 130,043 105,784 93,287 76,234
Total long-term debt<F7> 72,951 74,519 68,720 59,589 52,092
Mandatorily redeemable preferred
stock 945 - - - -
Warrants - 856 856 856 815
Stockholders' equity
(deficit) 9,676 11,295 (2,491) (2,404) (7,652)
<FN>
<F1>
The gain (loss) on asset sales resulted from sales of property and
equipment, and franchises in the ordinary course of business. The gain on asset
sales in 1993 resulted from the sale of the Company's Chattanooga, Tennessee
franchise territory, offset by the loss on the sale of the Company's New
Orleans division. The loss on asset sales in 1994 resulted from the sale of
the Company's Washington, D.C. division, offset by net gains on other asset
sales. The gain in 1995 resulted from gains on the sale of the Rockford,
Illinois franchise rights, the Milwaukee, Wisconsin distribution facility, the
Fairmont, West Virginia warehouse, franchise rights in three Ohio counties, the
Oklahoma City beer distribution rights, and the franchise rights in two West
Virginia counties, offset by a loss on the disposal of franchise rights in New
Orleans, Louisiana. The gain in 1996 resulted from gains on the sale of
franchise rights in Roanoke, Virginia, Madison, Wisconsin, Pulaski,
Tennessee,and Parkersburg, West Virginia and the distribution facility in
Charleston, West Virginia, partially offset by a loss on the sale of franchise
rights in Minnesota.
<F2>
The Company reported an extraordinary gain of $7.5 million in connection
with certain 1992 transactions, an extraordinary gain of $3.8 million in
connection with the 1993 recapitalization, an extraordinary gain of $4.3
million in connection with a 1995 debt extinguishment (see note 3 to the
Company's consolidated financial statements), and an extraordinary loss
of $95,000 in connection with a 1996 debt extinguishment.
<F3>
Case sales represent the total number of franchise cases of soft drink
and alternative beverage products and cases sold under contract manufacturing
arrangements during the years shown.
<F4>
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, (g) settlement of pension plan
expense, and (h) 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.
<F5>
The ratio of earnings to fixed charges is calculated as follows: income
before benefit for income taxes and extraordinary item plus fixed
charges, divided by fixed charges. Fixed charges consist of interest
incurred plus amortization of debt financing costs plus a portion of rent
considered to represent interest cost (assumed to be one-third). The
Company's earnings were insufficient to cover fixed charges for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996. The coverage
deficiencies in those periods were approximately $6.7 million, $2.8
million, $18.7 million, $5.8 million and $5.0 million, respectively.
<F6>
Working capital represents current assets (excluding cash) less current
liabilities (excluding current portion of long-term debt, non-compete and
deferred compensation agreements associated with acquisitions).
<F7>
Includes current maturities of long-term debt and capitalized lease
obligations, as well as amounts payable under non-compete and deferred
compensation agreements associated with acquisitions.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's primary measurement of unit volume is franchise and
contract case sales. Case sales are defined as physical cases of beverage
sold, including both premix, a ready-to-use product, and postmix, a
concentrated product for use in fountain equipment, that is sold in bulk (tanks
or boxes). Franchise case sales represent sales of franchised brands in the
Company's territories either directly by the Company through direct-store-door
("DSD") delivery or, in certain rural territories or small volume areas, by the
Company's independent distributors. Franchise case sales consist of product
manufactured by the Company in its own facilities and finished product
purchased from other bottlers and suppliers. Contract case sales, which are
cases produced for other franchise or private label bottlers, may fluctuate
significantly from year to year and generally are made at lower net selling
prices and gross margins.
EBITDA (as defined in note (d) to the table appearing in Item 6 "Selected
Financial Data") is presented in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" not as a measure of operating
results or liquidity but, rather, as a measure of the Company's operating cash
flow and debt service ability. Certain restrictive covenants contained in the
Senior Credit Facility and the Indenture are based on this calculation.
EBITDA should not be considered as an alternative to, or more meaningful than,
operating income or cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) as an indicator of
the Company's operating performance or as a measure of its liquidity.
The operating results for the year ended December 31, 1996 are not
directly comparable to the operating results for the year ended December 31,
1995, as the results for the 1996 period are materially affected by the sale of
assets in St. Paul and Duluth, Minnesota, Roanoke, Virginia, and Parkersburg,
West Virginia. The sales of these operations have significantly reduced case
sales, net sales, cost of goods sold, gross profit, and administrative,
marketing and general expenses. In order to provide comparable financial
information, the statement of operations for the year ended December 31, 1995
has been "adjusted" to eliminate these operations. This financial information
is presented in the "adjusted" column in Note 14 to the Company's consolidated
financial statements. Accordingly, the following discussion of the results of
operations for the years ended December 31, 1995 and 1996 compares the actual
results of operations for the year ended December 31, 1996 with the actual, as
well as "adjusted," results of operations for the year ended December 31, 1995.
Results of Operations
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
Net sales for 1996 were $140 million compared to $165.1 million for
1995, a $25.2 million or 15.3% decrease due to lower franchise case sales
resulting primarily from the sale of Minnesota, Pulaski, Tennessee, Roanoke,
Virginia and Parkersburg, West Virginia territories. Franchise case sales were
18.9 million cases in 1996 compared to 22.9 million cases in 1995, a decrease
of 3.9 million cases or 17.1%. After the adjustment for sold operations, net
sales decreased $9.1 million or 6.1% in 1996 compared to 1995, as adjusted.
Franchise case sales for 1996 decreased 1.4 million cases or 6.8% from 1995, as
adjusted. This decrease in franchise cases is attributable to volume losses in
Minnesota, Tennessee and West Virginia. In Minnesota, franchise case sales in
1996 were 350,000 cases compared to 562,000 cases in 1995, as adjusted, a
decrease of 212,000 cases or 37.8%. This volume decline is attributable to a
limited distribution system in Minnesota in anticipation of the sale of this
territory which was completed in March, 1996. In Tennessee, franchise case
sales in 1996 were 3.5 million cases compared to 4.0 million cases in 1995, a
decrease of 548,000 cases or 13.6%. This decrease is primarily related to
declines in can package case sales in response to price increases implemented
in Tennessee. In 1995, heavy promotional activity in Tennessee resulted in
volume increases at lower average net selling prices compared to 1996. The
average net selling price in Tennessee increased to $6.72 in 1996 compared to
$6.39 in 1995. In West Virginia, franchise case sales in 1996 were 2.3 million
cases compared to 2.5 million cases in 1995, as adjusted, a decrease of 228,000
cases or 9.0%. This decrease is due to reduced volume and margin on RC brands
in West Virginia. In Wisconsin, volume declined only slightly due to heavy
promotional activity. However, the promotional activity decreased the average
net selling price for franchise cases to $6.47 in 1996 compared to $6.82 in
1995, as adjusted. Net sales in Wisconsin decreased $3.1 million or 5.7% in
1996 compared to 1995, as adjusted.
Contract case sales increased to 3.1 million cases in 1996 from 2.8
million cases in 1995. The average net selling price for contract cases
decreased to $4.71 in 1996 compared to $4.85 in 1995 due to new production at
the Louisville facility pursuant to agreements entered into in connection with
the sale of the Pulaski, Tennessee and Roanoke, Virginia operations.
On a company-wide basis the average net selling price for all cases fell
from $6.44 in 1995 and from $6.45 in 1995, as adjusted, to $6.34 in 1996 due to
the reduced average net selling price for franchise cases and 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 $16.6 million or 15.1% in 1996 compared to
1995 due to reduced franchise case sales resulting from sold operations. Cost
of goods sold decreased $4.9 million or 5.0% in 1996 compared to 1995, as
adjusted, primarily due to the volume decrease described above. Gross profit
decreased $4.2 million or 8.2% in 1996 compared to 1995, as adjusted, due to
case volume declines and reduced average net selling price occurring primarily
in the Oshkosh division. Gross margin was 33.5% in 1996 compared to 33.6% in
1995 and 34.2% in 1995, as adjusted. The decline in the gross margin
percentage is due to the decreased average net selling price.
Operating expenses declined $7.3 million or 13.6% in 1996 compared to
1995 and by $974,000 or 2.1% compared to 1995, as adjusted, due to overall
decreases in personnel expenses, utility and advertising costs (partially
offset by an increase in insurance costs) as a result of the decreased volume
of case sales.
In 1996, the gain on asset disposal of $1.3 million was the result of
gains realized on the sale of the operations in Parkersburg, West Virginia,
Roanoke, Virginia, Madison, Wisconsin, and Pulaski, Tennessee and from real
estate in Charleston, West Virginia, partially offset by a loss on the sale of
the operations in Minnesota. The gain on asset disposal of $99,000 in 1995 was
the result of gains realized on the sale of the operations in Rockford,
Illinois, warehouse buildings in Milwaukee, Wisconsin and Fairmont, West
Virginia, and the beer distribution rights in Oklahoma City, Oklahoma partially
offset by a loss on the write-off of the Company's remaining franchise and
distribution rights relating to its former New Orleans divisions sold in
November, 1993.
Interest expense was $7.4 million in 1996 compared to $8.2 million in
1995 due to reduced levels of debt after application of sale proceeds from sold
operations and the July, 1995 retirement of the Company's Senior Subordinated
Notes as described in Note 3 to the consolidated financial statements.
Other income increased to $584,000 in 1996 compared to $386,000 in 1995,
an increase of $198,000 or 51.3% due to an increase in sub-lease rental income
primarily due to the rental of the St. Paul facility.
Loss before income tax benefit and extraordinary item in 1996 was $5.0
million compared to $5.8 million in 1995 and compared to $3.2 million in 1995,
as adjusted. The increase in the 1996 pretax net loss, compared to 1995, as
adjusted, results from the volume and margin declines discussed above partially
offset by the gain of $1.3 million realized on the sale of the territories
described in Note 12 to the consolidated financial statements.
The extraordinary gain on debt extinguishment in 1995 is due to the
after-tax extraordinary gain realized on the repurchase of the Company's Senior
Subordinated Notes in July, 1995 described in Note 3 to the consolidated
financial statements. The extraordinary loss on debt extinguishment in 1996 of
$95,000 is due to the after-tax extraordinary loss realized on the repurchase
of a portion of the Company's Senior Notes during 1996 partially offset by an
extraordinary gain realized on the repurchase of a portion of the Company's
stock warrants. The loss primarily occurred due to the write-off of
unamortized finance costs and discount related to the repurchased notes.
EBITDA was $5.9 million in 1996 compared to $7.4 million in 1995 and
compared to $8.9 million in 1995, as adjusted. The decrease in EBITDA in 1996
compared to 1995, as adjusted, is attributable to reduced gross margin
partially offset by reduced cash operating expenses.
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
The operating results for the year ended December 31, 1995 are not directly
comparable to the operating results for the year ended December 31, 1994, as
the results for the 1995 period are materially affected by the sale of assets
in Washington, D.C. (in September 1994) and in Rockford, Illinois (in January
1995), and by reserves and expenses incurred in 1994 resulting from the prior
sale of the New Orleans, Louisiana operations. The sales of these operations
have significantly reduced case sales, net sales, cost of goods sold, gross
profit, and administrative, marketing and general expenses. In order to
provide comparable financial information, the statement of operations for the
year ended December 31, 1994 has been "adjusted" to eliminate these operations.
Accordingly, the following discussion of the results of operations for the
years ended December 31, 1994 and 1995 compares the actual results of
operations for the year ended December 31, 1995 with the actual, as well as
"adjusted", results of operations for the year ended December 31, 1994.
Net sales were $165.2 million in 1995 compared to $195.5 million in 1994,
a decrease of $30.3 million or 15.5% due primarily to the sale of the
Washington, D.C. division in September, 1994 and the Rockford, Illinois
territory in January, 1995. These sold operations accounted for approximately
$25.1 million of net sales in 1994. After elimination of sold operations, net
sales for 1995 decreased approximately $5.2 million or 3.1% compared to net
sales for 1994, as adjusted. This net sales decline, as adjusted, is due
primarily to a reduction of franchise case sales and a reduction in contract
case sales.
Franchise case sales were 22.9 million cases for 1995 compared to 27.7
million cases in 1994, a decrease of 4.9 million cases, or 17.5% due primarily
to the sale of assets in Washington, D.C. and Rockford, Illinois. After
elimination of sold operations, franchise case sales declined 2.0 million cases
or 8.1% due to a significant increase in the price of can packages implemented
by the Company in the first quarter of 1995 in response to a $.50 per case
increase in the Company's cost for aluminum can bodies and ends. Franchise
case sales for can packages for 1995 were approximately 14.0 million cases,
compared to 16.5 million cases in 1994, as adjusted, a decrease of 2.5 million
cases or 14.7%. Contract case sales were down approximately 3.6 million cases
or 56.1% for 1995 as compared to 1994, due to the sale of the Washington, D.C.
division and the Company's decision to discontinue bottling for Cott
Corporation in the Oshkosh, Wisconsin facility. Compared to 1994, as adjusted,
1995 contract sales were 1.4 million cases lower, a reduction of 33.6%.
The average net selling price per case for 1995 was $6.44 compared to
$5.74 in 1994, an increase of approximately $.70 per case. This significant
increase somewhat offset the case volume decline and is the result of the can
price increase instituted at the beginning of 1995 along with a change in sales
mix. Sales of lower priced can packages were reduced, and sales of higher
priced 20 ounce and 2 liter packages increased in 1995. Further, the sale of
the Washington, D.C. operation also improved the average net selling price per
case due to the elimination of a significant volume of lower priced contract
case sales.
Cost of goods sold decreased by 16.7% for 1995 compared to 1994 due to
the case sales decline offset somewhat by increased packaging and sweetener
cost and a shift in production mix to higher cost 20 ounce and 2 liter cases.
Gross profit for 1995 decreased by $8.4 million or 13.2% primarily due to lower
case sales resulting from the Washington, D.C. and Rockford, Illinois asset
sales. After elimination of sold operations, gross profit declined $1.7
million or 3.0% due primarily to the decline in franchise case sales resulting
from the price increase implemented on can packages. Gross profit as a percent
of sales improved to 33.6% in 1995 compared to 32.7% in 1994 due primarily to
the reduction in lower priced contract sales.
Administrative, marketing and general expenses decreased from $60.9
million in 1994 to $53.6 million, a $7.3 million or 12.0% decline due to the
sale of the Washington, D.C. and Rockford operations. After elimination of
sold operations, operating expenses for 1995 were basically flat compared to
operating expenses for 1994, as adjusted.
In 1995, the gain on asset disposal of $99,000 was the result of gains
realized on the sale of the Rockford, Illinois operation, warehouse buildings
in Milwaukee, Wisconsin and Fairmont, West Virginia, franchise rights for small
rural territories in Ohio and West Virginia, and the beer distribution rights
in Oklahoma City, Oklahoma offset by a loss on the write-off of the Company's
remaining franchise and distribution rights relating to its former New Orleans
division sold in November, 1993. The loss on asset disposal in 1994 of $11.4
million was due to the sale of the Washington, D.C. division in September,
1994.
Interest expense was $8.2 million for 1995 compared to $9.1 million in
1994, a decrease of approximately $896,000 due primarily to the repurchase of
the Senior Subordinated Notes from Kidder, Peabody Group, Inc. in July, 1995.
See Note 3 in the consolidated financial statements. Interest expense for
1994, after elimination of sold operations, was $8.1 million compared to $8.2
million in 1995, a decrease of approximately $140,000 due primarily to lower
debt levels.
Other income was $386,000 for 1995 compared to other expense of $1.2
million in 1994, an increase of approximately $1.7 million due primarily to a
reserve established for the consolidation of the St. Paul operation into the
Oshkosh division in 1994.
EBITDA was $7.4 million in 1995 compared to $9.1 million in 1994, a
decrease of $1.7 million or 18.3%. After elimination of sold operations,
EBITDA was $9.1 million for 1994, as adjusted. Compared to 1994, as adjusted,
1995 EBITDA decreased by $1.7 million or 18.9% lower due primarily to the
reduction in gross margin resulting from lower franchise case sales.
The Company experienced a net loss before extraordinary item of $4.2
million in 1995 compared to $13.8 million in 1994. The net loss before
extraordinary item in 1994 was due primarily to the loss on disposal recognized
from the sale of the Washington, D.C. division. After elimination of sold
operations, the net loss before extraordinary gain would have been $3.8 million
for 1994, as adjusted. The 1995 net loss before extraordinary item was
$350,000 or 9.2% higher than the 1994 adjusted amount due to reduced net sales
and gross profit.
The extraordinary gain for 1995 was due to the after-tax gain realized on
the repurchase of Senior Subordinated Notes in July, 1995. See Note 3 in the
consolidated financial statements.
The Company had net income of approximately $87,000 in 1995 due primarily
to the extraordinary gain realized on the repurchase of Senior Subordinated
Notes. In 1994, the Company experienced a net loss of $13.8 million due
primarily to the loss recognized on the disposal of the Washington, D.C.
division.
Liquidity and Capital Resources
The Company has been highly leveraged and capital-constrained since its
acquisition by BBC in 1987. As a result, the Company was forced to rely on
unconventional financing sources, including loans from trade creditors and
various leasing and other transactions with Stephen B. Browne, to fund working
capital, capital expenditures and debt service requirements. Historical
operating performance has been adversely affected by insufficient liquidity,
which has limited the Company's ability to fully invest in distribution
equipment, in particular vending machines and delivery vehicles and to take
advantage of discounts on trade payables.
The Company's long-term debt (including current maturities thereof and
amounts payable under non-compete and deferred compensation agreements) and
warrants were approximately $52.0 million as of December 31, 1996, and
scheduled principal payments (excluding principal due under the Senior Notes,
the Senior Credit Facility and other demand notes) will be $422,000 in 1997,
$318,000 in 1998, $247,000 in 1999, $135,000 in 2000 and $129,000 in 2001.
As part of the Recapitalization Plan, BBC issued its guarantee of the
Senior Notes and pledged the outstanding capital stock of the Company as
security for its guarantee. The Company's capital stock is the only significant
asset of BBC, and dividends on the Company's capital stock are the sole source
of funds available to BBC to meet its obligations under its guarantee of the
Senior Notes. The payment of dividends on the Company's capital stock,
however, is significantly restricted by certain covenants contained in the
Indenture and the Senior Credit Facility and may be restricted by other
agreements entered into by the Company in the future and by applicable law.
With the exception of such covenants, there are no material contractual
restrictions on the ability of the Company to make payments of dividends to BBC
or the ability of BBC to receive dividends from the Company.
The Senior Credit Facility provides for revolving credit borrowings of
up to $20.0 million subject to borrowing base limitations. The Senior Credit
Facility, matures in August 1997 and is secured by the Company's accounts
receivable, inventory, general intangibles, contract rights, chattel paper,
documents and instruments together with all proceeds of the foregoing (but
excluding franchise agreements and contract manufacturing arrangements).
Because the obligations under the Senior Credit Facility bear interest at
floating rates, the Company is sensitive to changes in prevailing interest
rates.
The Company's current borrowing availability under its Senior Credit
Facility is limited to the lesser of (i) $20.0 million and (ii) a Borrowing
Base equal to the sum of 65% of Eligible Finished Goods Inventory and Raw
Materials (up to a maximum of $15 million) and 85% of Eligible Accounts
Receivable (as each such term is defined in the Senior Credit Facility),
subject to a sublimit on issuances of letters of credit of $5.0 million. At
December 31, 1996, the Company's borrowing base was $15.5 million, and the
Company had borrowings of $10.8 million outstanding under the Senior Credit
Facility, with an additional $138,000 of letters of credit issued pursuant
thereto and $4.5 million of unused credit available thereunder. Obligations
under letters of credit reduce availability under the Senior Credit Facility.
In addition, the Senior Credit Facility limits the ability of the Company to
incur additional indebtedness and liens, to make certain payments on its
capital stock and to redeem or repurchase indebtedness (including the Senior
Notes) and includes various financial covenants, including covenants requiring
the Company to achieve a minimum consolidated interest coverage ratio. The
Company's business is somewhat seasonal in nature, with sales peaking during
the spring and summer months. The Company's revolving credit needs tend to
peak in the Company's second and third fiscal quarters in anticipation of these
higher sales.
At December 31, 1996, the Company was not in compliance with the
consolidated interest coverage ratio covenant contained in its Senior Credit
Facility. The ratio (as defined) required by the Senior Credit Facility is
1.25 to 1, and the Company's ratio at December 31, 1996, was .82 to 1. The
Company has made all scheduled principal and interest payments required by the
Senior Credit Facility to date. BT Commercial, agent, and the participating
banks, have agreed to waive the Company's non-compliance with such covenant,
subject to receipt from the Company of a $50,000 fee for such waiver. The
Company has elected not to pay the requested fee, and has again requested BT
Commercial, as agent, and the participating banks for a waiver, but no such
waiver has yet been received by the Company. BT Commercial, as agent, and the
participating banks have not declared a default with respect to the Senior
Credit Facility, nor have they accelerated the maturity of the indebtedness
under the Senior Credit Facility, nor has BT Commercial, as agent, and the
participating banks indicated any intention of declaring an event of default or
an acceleration of maturity of the indebtedness under the Senior Credit
Facility. The Company has executed a letter of intent with another lending
institution for a proposed $20 million credit facility with terms similar to
the Senior Credit Facility.
At December 31, 1996 the Company had a working capital deficit of $9.3
million caused by the classification as current of the $10.8 million balance
outstanding on the Senior Credit Facility. The Company had working capital
(excluding cash overdraft and the current portion of long-term debt and other
obligations) of $4.8 million at December 31, 1996 compared to $6.0 million at
December 31, 1995. The decrease in working capital is due primarily to the
decline in accounts receivable and inventory partially offset by declines in
accounts payable and accrued 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. The Company's financial
flexibility could be adversely affected by the terms of the Senior Credit
Facility and the Indenture which include, among other things, restrictive
covenants that limit the incurrence of additional debt and impose certain other
customary limitations on the Company's operations.
At December 31, 1996 the Company had a stockholders' deficit of $7.7
million. The Company had net losses before extraordinary item of $5.2 and $4.2
million for 1996 and 1995, respectively. Operating cash flow, combined with
cash available pursuant to the Senior Credit Facility, is expected to be
sufficient to fund working capital, capital expenditure and current debt
service requirements. EBITDA (as defined) and cash interest expense in 1996
were $5.9 million and $7.2 million, respectively and in 1995 EBITDA and cash
interest expense were both $7.4 million. The 1996 deficit was financed by the
cash provided from the sale of assets in 1996. Accordingly, no assurance can
be given that operating cash flows will be sufficient to meet the Company's
needs.
In 1996, the Company's operating activities used cash of $1.7 million
compared to cash provided of $1.3 million in 1995. The net cash used of $1.7
million by operating activities in 1996 resulted primarily from cash used from
operations of $1.7 million and a significant decrease in accounts payable and
accrued interest offset by decreases in accounts receivable and inventories.
The cash provided of $1.3 million in 1995 resulted primarily from decreases in
accounts receivable and inventories partially offset by decreases in accounts
payable and by cash used from operations of $551,000.
During 1996 investing activities provided cash of $10.1 million compared
to cash provided during 1995 of $1.7 million. The increase is due primarily to
$5.4 million in cash received on the sale of Minnesota territories and $5.2
million in cash received on the Parkersburg, West Virginia territory as well as
the proceeds from sales of other locations described in Note 12 to the
consolidated financial statements. For 1995, the proceeds from sales resulted
from the sales of Rockford, Illinois territory, real estate in Wisconsin and
West Virginia, and small franchise territories in Ohio and Oklahoma City.
Financing activities used cash of $8.4 million in 1996 primarily due to
principal payments on debt of $12.2 million, the net decrease in the Senior
Credit Facility of $2.9 million and a decrease in the cash overdraft of
$552,000 partially offset by proceeds from issuance of debt of $7.3 million.
Principal payments on debt of $12.2 million included approximately $5.5 million
for the repurchase of the Company's Senior Notes. The net proceeds from asset
sales of $13.5 million were the source of funds for the purchase of the Senior
Notes of $5.5 million, the reduction of the Senior Credit Facility of $2.9
million, the reduction of the trade payables of $4.0 million, with the
remainder used to finance capital expenditures. The remainder of the principal
payments includes $5.6 million paid on unsecured demand notes from Stephen B.
Browne, the Chief Executive Officer of the Company and BBC and BBC's principal
stockholder, and entities affiliated with him. Mr. Browne and affiliated
entities from time to time make unsecured loans to the Company at the same
interest rates charged under the Company's Senior Credit Facility. Proceeds
from issuance of debt of $7.3 million include approximately $6.8 million from
the issuance of these unsecured demand notes. At December 31, 1996 such debt
had a remaining balance of $1.3 million. See further discussion of these notes
under item 13 "Certain Relationsips and Related Transactions".
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 (exclusive of any expenditures in connection with acquisi-
tions) approximately $1.5 million on capital expenditures during 1997 and
approximately $1.0 to $1.5 million in each of the following several years.
During the past three fiscal years, capital expenditures (exclusive of
acquisitions) have averaged approximately $2.9 million per year, with
approximately one-half of the spending for plant and equipment and the balance
for vending and visicooler equipment and fleet. Subject to compliance with the
provisions of its debt agreements, the Company expects to be able to finance
future capital expenditures with cash flow from operations, borrowings and
capital leases. 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. The Company believes that its production and distribution
facilities provide sufficient capacity for increased sales.
Under the terms of the Indenture and the Senior Credit Facility, the Company
must commit to apply the cash proceeds of asset sales described in Note 12 of
the consolidated financial statements net of related expenses and accrued
taxes, within 12 months of receipt (and to actually apply such net cash
proceeds within 18 months of receipt) to (i) investment in property or assets
to be employed in the Company's business or (ii) permanently repay senior
indebtedness of the Company. The Company is required under certain
circumstances to use any net cash proceeds not so applied to make an offer to
repurchase Senior Notes at 100% of the principal amount thereof plus accrued
interest. Following the asset sales described, the Company reinvested the net
cash proceeds in property or assets to be employed in the Company's business or
permanently repaid senior indebtedness of the Company in amounts sufficient to
utilize net cash proceeds generated from these asset sales. Pursuant to the
Senior Credit Facility, the Company has agreed not to repurchase any additional
Senior Notes except pursuant to a required offer or in connection with amounts
deferred under the Nonqualified Deferred Compensation Agreements.
Management anticipates that the reduced financial burden resulting from
the divestitures of certain operations, the finalization of the new credit
facility and cash flow from ongoing operations will enable the Company to
continue its operations, improve its working capital position and provide for
future growth. In the unlikely event refinancing is not successful management
believes the Company would be able to continue its operations by implementing a
plan which would include some or all of the following actions: (a) disposal of
a significant division and/or franchise territories; (b) cost and expense
reduction programs; and (c) reduction of its capital expenditure program.
Subsequent Events
In January, 1997, the Company purchased franchise rights and vending
equipment in Cookesville, Tennessee for $50,000. Annual cases were
approximately 189,000 cases for this territory.
In January, 1997, the Company purchased the assets of Beverage Service
Corporation, a vending company doing business in Wisconsin owned by Randall
Wissink, the Group President of the Mid-West Division, and Carl Heiss, the
controller of the Mid-West Division, for $182,000. The assets included
accounts receivable, inventory and fixed assets purchased at fair market value.
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 certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
BROWNE BOTTLING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Browne Bottling Company
We have audited the accompanying consolidated balance sheet of Browne Bottling
Company (the "Company") as of December 31, 1996 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Oklahoma City, Oklahoma
April 8, 1997
<PAGE>
REPORT TO INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Browne Bottling Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Browne Bottling Company and its subsidiary at December
31, 1995, and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
Oklahoma City, Oklahoma
April 3, 1996
<PAGE>
Browne Bottling Company
Consolidated Balance Sheets (in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Trade accounts receivable $ 10208 $ 11944
Franchise companies receivable 1564 2605
Other receivables 1494 1324
Allowance for doubtful accounts (462) (515)
Inventories - ingredients and packaging 2783 3021
Inventories - finished goods 4165 5786
Inventories - other 243 291
Inventories - pallets at deposit value 261 344
Prepaid expenses 399 862
Deferred tax assets 492 781
------------ ------------
Total current assets 21147 26443
------------ ------------
Plant and equipment, at cost:
Land 828 1335
Buildings and improvements 6347 6961
Machinery and equipment 10903 10614
Vehicles 7328 7947
Vending equipment 5970 9525
Returnable containers 2338 2355
Furniture and fixtures 354 512
Computer equipment 1812 1491
Construction in progress - 519
------------ ------------
35880 41259
LESS - Accumulated depreciation (23826) (27891)
------------ ------------
Net plant and equipment 12054 13368
------------ ------------
Intangible assets:
Franchises 37443 45471
Goodwill 15007 18104
Other intangibles 2657 2877
------------ ------------
55107 66452
LESS - Accumulated amortization (13285) (13804)
------------ ------------
Net intangible assets 41822 52648
------------ ------------
Other assets 1211 828
------------ ------------
Total assets $ 76234 $ 93287
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS), CONTINUED
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 1554 $ 2106
Current portion of long-term debt 12189 810
Current portion of obligations under capital lease 167 262
Current portion of deferred compensation and non-compete 106 71
agreements
Trade accounts payable 8832 12798
Accrued compensation and payroll taxes 1865 2017
Accrued interest payable 2020 2326
Accrued insurance reserves 1059 881
Accrued pension liability 130 599
Other liabilities 2486 1830
------------ ------------
Total current liabilities 30408 23700
------------ ------------
Long-term debt, net of current maturities 38668 57418
------------ ------------
Obligations under capital leases, net 885 939
------------ ------------
Deferred compensation and non-compete agreements, net 984 613
------------ ------------
Other non-current liabilities 839 44
------------ ------------
Deferred tax liability 11287 12121
------------ ------------
Stock warrants 815 856
------------ ------------
Commitments and contingencies (Notes 4, 8 and 9)
Stockholders' equity (deficit):
Preferred stock - Series B $.01 par value, 1,000 shares
authorized, issued and outstanding; (liquidation preference
of $1,000,000 or $1,000 per share) - -
Common stock, $.01 par value, 220,295 shares authorized,
192,244 shares issued and outstanding 2 2
Common stock, non-voting, $.01 par value, 5,263 shares
authorized, none outstanding - -
Additional paid-in capital 26542 26542
Deficit (34196) (28948)
------------ ------------
Total stockholders' deficit (7652) (2404)
------------ ------------
Total liabilities and stockholders' deficit $ 76234 $ 93287
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues, net of discounts and allowances ($64, $71
and $87, in 1996, 1995, 1994 respectively) $ 139951 $ 165154 $ 195535
Cost of sales 93104 109655 131639
------------ ------------ --------
Gross profit 46847 55499 63896
------------ ------------ --------
Operating expenses:
Plant and occupancy 5134 5567 6911
Loading and shipping 3722 4678 5215
Transport 721 943 832
Fleet service 706 768 1101
Selling and delivery 22833 27049 29818
Vending and fountain 2234 2503 2780
Advertising 2057 2804 2560
General and administrative 6869 6979 8928
Amortization of intangibles 1996 2288 2748
------------ ------------ --------
Total operating expenses 46272 53579 60893
------------ ------------ --------
Income from operations 575 1920 3003
Gain (loss) on disposals 1279 99 (11367)
Interest expense (7433) (8193) (9089)
Other income (expense) 584 386 (1223)
------------ ------------ --------
Loss before income taxes and extraordinary items (4995) (5788) (18676)
Income tax (expense) benefit (158) 1618 4890
------------ ------------ --------
Net loss before extraordinary items (5153) (4170) (13786)
Extraordinary gain (loss) (95) 4257 -
------------ ------------ --------
Net income (loss) $ (5248) $ 87 $ (13786)
============ ============ =========
Income (loss) per common share and common share equivalent:
Primary and fully diluted:
Loss before extraordinary items $ (26.80) $ (19.52) $ (64.54)
Extraordinary items (0.50) 19.93 -
------------ ------------ ---------
Net income (loss) per common share $ (27.30) $ .41 $ (64.54)
============ ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
<TABLE>
<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, 1993 1000 192244 $ 2 $ 26542 $ (15249) $ 11295
Net loss - - - - (13786) (13786)
-------- ------- ------- ------- -------- --------
Balance, December 31, 1994 1000 192244 2 26542 (29035) (2491)
Net income - - - - 87 87
-------- ------- ------- ------- -------- --------
Balance, December 31, 1995 1000 192244 $ 2 26542 (28948) (2404)
Net loss - - - - (5248) (5248)
-------- ------- ------- ------- -------- --------
Balance, December 31, 1996 1000 192244 $ 2 $ 26542 $ (34196) $ (7652)
======== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Browne Bottling Company
Consolidated Statements of Cash Flows (in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5248) $ 87 $ (13786)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary (gain) loss 95 (4257) -
Depreciation and amortization 4834 5189 5521
(Gain) loss on disposal of assets and franchises (1279) (99) 11367
Deferred compensation 398 202 -
Deferred taxes (485) (1673) (5024)
Changes in assets and liabilities, net of effect of
acquisitions:
Decrease (increase) in accounts receivable 2682 2951 2204
Decrease (increase) in inventories 1498 2484 (918)
(Decrease) increase in accounts payable (4322) (3147) (747)
(Decrease) increase in accrued interest (305) 809 1192
Other 437 (1294) (1753)
------------- ------------ -----------
Net cash provided (used) by operating activities (1695) (1252) (1944)
------------- ------------ -----------
Cash flows from investing activities:
Capital expenditures (2696) (3114) (2852)
Proceeds from sale of fixed assets and franchises 13496 4807 12360
Payment for purchase of territories, net of cash acquired (705) - (1816)
Payments for organizational costs - (30) -
------------- ------------ ------ -----
Net cash provided by investing activities 10095 1663 7692
Cash flows from financing activities:
(Decrease) increase in overdraft (552) (79) 1567
Proceeds from issuance of long-term debt 7333 6667 2388
Principal payments on long-term debt (12226) (8605) (8213)
Borrowings on revolver note 168833 188643 214013
Payments on revolver note (171688) (189096) (215395)
Financing costs paid (100) (445) (108)
------------- ------------ -----------
Net cash used by financing activities (8400) (2915) (5748)
Net (decrease) increase in cash - - -
Cash at beginning of year - - -
------------- ------------ -----------
Cash at end of year $ - $ - $ -
============= ============ ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest $ 7515 $ 7297 $ 7831
============= ============ ===========
Cash paid during the period for income taxes $ 361 $ 100 $ 279
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental Schedule of Noncash Investing and Financing Activities
In connection with the asset sales in 1996 discussed in Note 12 the Company
received non-cash proceeds of $1,013,000 in notes receivable.
In connection with the debt extinguishments in 1996 and 1995, the Company
reduced the amount of debt owed and recognized an extraordinary gain. See
Note 3.
The Company issued payment-in-kind ("PIK") notes to senior subordinated
noteholders in lieu of cash interest in the amount of $1,192,999 in 1994.
In 1996, the Company recorded a note receivable (included in other assets)
and deferred revenue of $800,000 in connection with an agreement to purchase
packaging materials from a supplier.
The accompanying notes are an integral part of these financial statements.
<PAGE>
BROWNE BOTTLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Browne Bottling Company's (the "BBC") accounting policies reflect industry
practices and conform to generally accepted accounting principles. The
more significant of such policies are briefly described below.
NATURE OF BUSINESS
All-American Bottling Corporation ("AABC") is a wholly-owned sub-
sidiary of BBC. BBC has no independent operations and
its only material asset is its investment in AABC.
AABC is an independent (not a franchisee of Coca-Cola or Pepsi-Cola
products) bottler and distributor of soft drinks and other beverage
products, including flavored and premium waters, brewed teas,
natural sodas and sparkling juices. AABC's largest markets in terms
of franchise case sales volume are the metropolitan areas of Milwaukee,
Louisville, Nashville and Oklahoma City. AABC has franchise agreements
covering various territories for brands such as RC Cola, Diet Rite Cola,
Seven-Up, Dr Pepper, Sunkist, Canada Dry, Dad's Root Beer, Crush,
A&W Root Beer, Big Red, Sundrop, Snapple, Mistic, Evian and
Yoo-Hoo.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BBC
and its wholly-owned subsidiary, AABC (collectively referred to as the
"Company), after elimination of all material intercompany accounts
and transactions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and demand deposits.
CONCENTRATION OF CREDIT RISK
The risk associated with trade receivables is considered limited
due to the wide variety of customers and markets into which the Company's
products are sold, as well as their dispersion across many different
geographic areas. The Company monitors its exposure for credit losses
and maintains allowances for anticipated losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, and debt instruments.
Fair value estimates have been determined by the Company, using
available market information and appropriate valuation methodologies.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment, and therefore cannot be determined with
precision.
The carrying value of cash and cash equivalents, trade receivables and
trade payables are considered to be representative of their respective
fair values, due to the short maturity of these instruments. At December
31, 1996, the carrying value of the Company's Senior Secured Notes
was $38,295,000 compared to their estimated fair value of $39,270,000.
The carrying value of the Company's stock warrants was $815,000 compared
to their estimated fair value of $428,000. The carrying value of all
other debt approximates its fair value.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being deter-
mined on the first-in, first-out method. Pallets are stated at deposit
value in current assets.
PLANT AND EQUIPMENT
Plant and equipment acquired in purchase accounting transactions is
recorded at estimated fair values at acquisition date; other addition are
recorded at cost. Depreciation is computed using the straight-line method
over estimated useful lives of five to thirty years.
FRANCHISES AND GOODWILL
Franchises acquired in purchase accounting transactions are recorded at
estimated fair value at the date of acquisition. Goodwill represents
the excess of purchase price over the fair value of net assets acquired
in purchase transactions. These assets are being amortized on the straight-
line method over 40 years. The Company reviews the recoverability of
goodwill based on estimated undiscounted future cash flows from operating
activities compared with the carrying value of goodwill. Should the ag-
gregate future cash flows be less than the carrying value, a write-down
would be required, measured by the difference between the undiscounted
future cash flows and the carrying value of goodwill.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS
121"). Adoption of SFAS 121 is required for fiscal years beginning after
December 15, 1995. The Company implemented SFAS 121 in the first quarter
of 1996 which did not have a significant impact on the Company's financial
position or results of operations.
DEFERRED FINANCING COSTS
Costs and expenses associated with financing arrangements are capitalized
and amortized over the term of the related debt using the effective interest
method of accounting. Deferred financing costs are included in other
intangibles in the consolidated balance sheet.
ADVERTISING AND PROMOTION EXPENSE
Costs of media advertising and other promotion programs are expensed when
incurred.
INCOME TAXES
Deferred taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
EARNINGS PER SHARE
Primary and fully diluted earnings (loss) per common share ("EPS") are
based upon the weighted average number of shares of common stock outstand-
ing plus the common stock equivalents which would arise from the exercise
of warrants, unless such items would be anti-dilutive. Primary and fully
diluted earnings (loss) per share are the same for all periods presented.
The weighted average number of shares and common share equivalents used in
computing income (loss) per common share, both primary and fully diluted,
were 192,244, 213,604 and 213,604 for 1996, 1995 and 1994, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made for 1994 and 1995 to conform
with 1996 presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("FAS 128"). FAS 128 will change the computation,
presentation and disclosure requirements for earnings per share.
FAS 128 requires presentation of "basic" and "diluted" earning per
share, as defined, on the face of the income statement for all entities
with complex capital structures. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period earnings per share amounts.
The Company has not yet determined the impact that FAS 128 will have on
its earnings per share when adopted.
2. MANAGEMENT'S PLANS AND FINANCING STRATEGY
The Company has been highly leveraged and capital constrained since its
acquisition in 1987. As a result, the Company has been forced to rely on
unconventional financing sources, asset-based lending and high-yield debt
financing to fund working capital, capital expenditures and debt service
requirements. The Company has a history of successfully refinancing
its obligations to provide for working capital, capital expenditures
and debt service requirements.
At December 31, 1996, the Company was not in compliance with the consoli-
dated interest coverage ratio covenant requirement contained in its
senior secured credit facility (the "Senior Credit Facility") which matures
in August 1997 (see Note 3). The Company has a working capital deficit
of $9.3 million at December 31, 1996, caused by the classification as
current of the $10.8 million balance outstanding on the Senior Credit
Facility. The Company has made all scheduled debt payments in 1995 and
1996.
On March 24, 1997, the Company executed a letter of intent with a
financial institution for a total credit facility up to $20 million which
will replace the Senior Credit Facility on terms more favorable to the
Company. Management believes the new credit facility will be in place
by May 1997 and will provide for the Company's ongoing working capital
needs.
Beginning in 1994, and continuing through 1996, management has implemented
a plan to divest the Company of divisions and franchise territories which
have historically underperformed. As a result of the plan, the Company has
sold divisions in Washington D. C., Minnesota and West Virginia, among
others (see Note 12). Cash proceeds from the asset sales have been used
primarily to reduce indebtedness and for working capital purposes.
Management anticipates that the reduced financial burden resulting from
the planned divestitures of certain operations, the finalization of the
new credit facility and cash flow from ongoing operations will enable the
Company to continue its operations, improve its working capital position
and provide for future growth. In the unlikely event refinancing is not
successful management believes the Company would be able to continue its
operations by implementing a plan which would include some or all of the
following actions: (a) disposal of a significant division and/or
franchise territories; (b) cost and expense reduction programs; and
(c) reduction of its capital expenditure program.
3. DEBT AND DEBT REFINANCINGS
On August 23, 1993, the Company issued $45.0 million principal amount of
AABC 13% Senior Secured Notes due 2001 (the "Senior Secured Notes") with
Warrants to acquire 10% of BBC's common stock and executed a new senior
secured credit facility (the "Senior Credit Facility") providing for
borrowing availability of up to $30.0 million (subsequently reduced
to $20 million in connection with refinancings and asset sales); subject
to borrowing base limitations (65% of eligible inventories and 85%
of eligible accounts receivable).
The Senior Secured Notes are fully and unconditionally guaranteed by BBC,
which guarantee is collateralized by a lien on and security interest in
all of the issued and outstanding capital stock of AABC. The separate
financial statements of AABC have not been included because the
assets, liabilities, earnings and equity of AABC are substantially
equivalent to the assets, liabilities, earnings and equity of the
Company on a consolidated basis and therefore are not considered material.
The Senior Credit Facility is collateralized by AABC's accounts receivable,
inventory, certain real property and equipment at the Company's Oshkosh,
Wisconsin production facility, general intangibles, contract rights, chattel
paper, documents and instruments together with all the proceeds of the fore-
going (but excluding franchise and contract manufacturing agreements).
On July 7, 1995, AABC completed the repurchase of a senior subordinated
loan from Kidder, Peabody Group, Inc. (the "Kidder Subordinated Loan").
The Kidder Subordinated Loan, which was purchased for $4,750,000, had a
principal amount (including accrued interest) of approximately $12.3
million. The purchase price was financed in part by selling $3.3
million principal amount of Senior Secured Notes held by All-American
Bottling Financial Corporation ("AABFC"), a wholly-owned subsidiary of
AABC, to an entity affiliated with Stephen B. Browne, at the then market
price of approximately $2.9 million plus accrued interest. The remaining
amount of the purchase price was borrowed under the Senior Credit Facility.
After expenses associated with the transaction, the Company experienced
an extraordinary gain of approximately $4.3 million (a pre-tax extra-
ordinary gain of $7.0 million less taxes of $2.7 million).
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Senior Secured Notes, principal due August 15, 2001. Interest is payable
semi-annually at 13% collateralized by a security interest in the capital
stock of AABC. Balance is net of unamortized discount of $771,000 and
$1,008,000 in 1996 and 1995, respectively. Balance is also net of treasury
bonds of $5,934,000, and $400,000 in 1996 and 1995, respectively, held by
an AABC subsidiary $ 38295 $ 43592
Senior Credit Facility maturing August 1997, up to a maximum of $20,000,000.
Interest payable monthly at 1% above prime (9.25 % at December 31, 1996),
collateralized primarily by receivables, inventory and certain assets at
the Company's Oshkosh facility. 10843 13698
Notes payable due in 1996 with monthly payments based on units of
production and collateralized by certain production equipment - 824
Short-term unsecured demand notes from related parties. Interest
payable monthly at the same rate as the Senior Credit Facility 1294 -
Other notes payable 425 114
--------- ---------
50857 58228
Less - Current portion (12189) (810)
--------- ---------
Long-term portion $ 38668 $ 57418
========= =========
</TABLE>
Maturities of long-term debt for years ended December 31, are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $ 12189
1998 240
1999 114
2000 19
2001 38295
------------
$ 50857
============
</TABLE>
The Senior Secured Notes and/or the Senior Credit Facility limits the
ability of the Company to incur additional indebtedness and liens, to
make certain payments on its capital stock and to redeem or repurchase
indebtedness (including the Senior Secured Notes), restricts capital
expenditures and includes various financial covenants, including
covenants requiring the Company to achieve a minimum consolidated
interest coverage ratio.
At December 31, 1996, the Company was not in compliance with the
consolidated interest coverage ratio covenant contained in its Senior
Credit Facility. The ratio (as defined) required by the Senior Credit
Facility is 1.25 to 1, and the Company's ratio at December 31, 1996, was
.82 to 1. The Company has made all scheduled principal and interest
payments required by the Senior Credit Facility to date. BT Commercial,
agent, and the participating banks, have agreed to waive the Company's
non-compliance with such covenant, subject to receipt from the Company of
a $50,000 fee for such waiver. The Company has elected not to pay the
requested fee, and has again requested BT Commercial, as agent, and the
participating banks for a waiver, but no such waiver has yet been
received by the Company. BT Commercial, as agent, and the participating
banks have not declared a default with respect to the Senior Credit
Facility, nor have they accelerated the maturity of the indebtedness
under the Senior Credit Facility, nor has BT Commercial, as agent, and
the participating banks indicated any intention of declaring an event of
default or an acceleration of maturity of the indebtedness under the
Senior Credit Facility. The Company has executed a letter of intent with
another lending institution for a proposed $20 million credit facility
with terms similar to the Senior Credit Facility.
Amortization of deferred financing costs was $487,000, $447,000 and
$471,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Amortization of the discount on the Senior Secured Notes
was $123,000, $92,000 and $66,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
In 1996, the Company repurchased Senior Secured Notes with a face value
of $5.5 million for their approximate carrying value. In connection with
the repurchase, the Company recognized an extraordinary loss of $107,000,
net of tax, primarily due to the write-off of unamortized deferred
financing costs.
4. LEASES
Assets recorded under capital leases consist substantially of buildings and
improvements in St. Paul, Minnesota, production equipment in Louisville,
Kentucky and computer equipment in Oklahoma City, Oklahoma. At December
31, 1996 and 1995, these assets totaled $1,694,000 and $1,513,000,
respectively, with related accumulated amortization of $771,000 and
$660,000, respectively. Amortization expense of assets under capital
leases is included in depreciation expense.
The Company leases certain vehicles, warehouse facilities and machinery
under cancelable and non-cancelable operating leases. These obligations
have terms of up to ten years and may be renewed by the Company. Rental
expense under such arrangements totaled $2,890,000, $2,733,000 and
$2,226,000 in 1996, 1995 and 1994, respectively.
Future minimum rental commitments under noncancelable operating leases
and future minimum lease payments under capital leases at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
1997 $ 283 $ 2373
1998 243 2172
1999 207 1824
2000 176 1544
2001 176 1218
Thereafter 439 2549
------- -------
$ 11680
=======
Net minimum lease payments under
capital leases 1524
Less interest 472
-------
Present value of net minimum lease
payments under capital leases 1052
Less - Current portion 167
-------
Long-term portion $ 885
=======
</TABLE>
5. DEFERRED COMPENSATION AND NON-COMPETE AGREEMENTS
As a result of certain acquisitions, the Company has incurred long-term
obligations pursuant to deferred compensation and non-compete agreements.
In addition certain key executives have entered into Nonqualified Deferred
Compensation Agreements described below. At December 31, obligations
totaled:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Current $ 106 $ 71
Long term 984 613
---------- ---------
Total obligation $ 1090 $ 684
========== =========
</TABLE>
Certain of the Company's key management executives have entered into
nonqualified deferred compensation agreements with the Company (the
"Nonqualified Deferred Compensation Agreements"). The Nonqualified
Deferred Compensation Agreements permit participants selected by the Board
of Directors to elect to defer up to 100% of their salary to be invested at
the discretion of the Board of Directors. The determination of earnings
and losses which accrue on deferred amounts is made in the discretion of
the Board of Directors and may be (but is not required to be) based upon
the rate of return provided under any securities issued by the Company,
which may include the Senior Secured Notes.
The Company may, in its sole discretion, make matching contributions in an
amount equal to the percentage of salary deferred by the participant or at
such specified dollar amount as is designated by the Company. For 1996,
the Company did not match contributions. For 1995, the Company made
matching contributions equal to 50% of amounts deferred, not to exceed
$5,000 for any participant. All amounts deferred under the Nonqualified
Deferred Compensation Agreements or contributed by the Company will at all
times be subject to the claims of the creditors of the Company.
Executives entering into Nonqualified Deferred Compensation Agreements are
at all times fully vested in their contributions and become fully vested in
any Company contributions made on their behalf after three years of
service. In the event of death or disability or termination of employment
within two years of a "change of control," participants become fully vested
in any Company contributions made on their behalf. Upon termination of
employment, death or disability, a participant's vested account balance is
distributed to the participant (or his beneficiary) in a lump sum if the
account balance is $50,000 or less. If the account balance exceeds
$50,000, payment is made in monthly installments over 10 years. These
terms are subject to change at the Company's option.
At December 31, 1996 and 1995, the Company's obligation under these
agreements was $907,000 and $524,000, respectively.
6. PENSION AND RETIREMENT PLANS
Effective January 1, 1990, the Company implemented the All-American Bottling
Corporation 401(k) Retirement Savings Plan (the "Savings Plan"), a
voluntary, contributory 401(k) savings plan. The Savings Plan currently
permits employees of the Company to commence participation in the Savings
Plan as of the first January 1 or July 1 following the completion of twelve
months of service and the attainment of 21 years of age. Participants may
make tax-deferred contributions from 1% to 15% of their compensation during
each year, subject to statutory limits imposed under Section 401(k) and
other applicable sections of the Internal Revenue Code of 1986, as amended.
The Savings Plan provides for a matching contribution by the Company equal
to 100% of the participant's first 2% of compensation deferred pursuant to
the Savings Plan, and 50% of the next 4% of compensation so deferred.
Participants in the Savings Plan are at all times fully vested in their
contributions and in the earnings attributable to their contributions and
become fully vested in Company contributions made on their behalf after
three years of service. The Savings Plan permits withdrawals during
employment in the event of proven financial hardship. In the case of
termination of employment, disability, or death, a participant's account
balance is distributed to the participant (or his beneficiary) in a lump
sum. The cost recognized in 1996, 1995 and 1994 for the Savings Plan was
$233,000, $446,000 and $513,000, respectively.
Approximately 44% of the Company's employees are covered by a
union-sponsored, collectively bargained, multiemployer, defined benefit
pension plan. With respect to this plan, the Company contributed and
charged to expense $366,000, $407,000 and $464,000 in 1996, 1995 and 1994,
respectively.
7. INCOME TAXES
The income tax benefit (expense) included in the consolidated statement of
operations for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ (286) $ 3 $ (17)
State (357) (58) (118)
Deferred:
Federal 254 1349 4035
State 231 324 990
--------- --------- ----------
$ (158) $ 1618 $ 4890
========= ========= ==========
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
State and local income taxes,
net of federal tax effect (2.5) 3.1 3.0
Goodwill amortization (2.7) (5.2) (2.0)
Goodwill in connection with
territory sales (16.6) (8.3) (16.6)
Change in valuation allowance (20.1) - -
Other, net 4.7 4.4 7.8
-------- -------- --------
Effective income tax rate (3.2 %) 28.0 % 26.2 %
======== ======== ========
</TABLE>
Deferred tax liabilities and assets at December 31, are comprised of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment and related depreciation $ 4622 $ 4316
Intangible assets and related amortization 7994 11039
Other non-current liabilities 880 1209
---------------- --------------
Total deferred tax liabilities 13496 16564
---------------- --------------
Deferred tax assets:
Accrued liabilities 142 368
Receivables allowance 98 119
Inventory costs 252 295
Net operating loss carryforward 982 2500
Tax credit carryforwards 2227 1942
Valuation allowance (1000) -
---------------- --------------
Total deferred tax assets 2701 5224
---------------- --------------
Net deferred tax liability $ 10795 $ 11340
================ ==============
Deferred taxes are reported in the accompanying balance sheet as:
Non-current deferred tax liability 11287 12121
Current deferred tax asset 492 781
---------------- --------------
$ 10795 $ 11340
================ ==============
</TABLE>
7. INCOME TAXES, CONTINUED
In 1996, the Company established a valuation allowance of $1,000,000 to
reflect the estimated amount of tax credit carryforwards which are not
likely to be realized before they expire. The Company's tax credit carry-
forwards begin expiring in 1997 and the utilization of these carryforwards
may be limited due to net operating loss ("NOL") carryforwards and alter-
native minimum tax limitations.
At December 31, 1996, the Company had NOL carryforwards of approximately
$2,500,000 which expire principally in the years 2005 through 2010 and
investment tax credit ("ITC") carryforwards of approximately $1,900,000
which expire principally in the years 1997 through 2001. Utilization of
the ITC carryforwards is restricted due to a change in ownership as defined
by the Internal Revenue Code of 1986. Additionally, the Company has an
alternative minimum tax credit carryforward of approximately $280,000 at
December 31, 1996.
8. CONTINGENCIES AND LITIGATION
The Company had standby letters of credit outstanding at December 31, 1996
of approximately $138,000 which relate primarily to insurance reserves (see
Note 8).
The Company is a defendant in certain litigation arising in the normal
course of business. Management is of the opinion that liabilities, if any,
arising from these actions will not have a material effect on the Company's
financial position and results of operations.
9. INSURANCE RESERVES
Prior to February 1990, the Company was insured by a third-party insurance
company under a policy which deferred the payments due until the actual
claims were paid by the insurance company. The Company then reimburses the
insurance company and pays an administration fee. Management's estimate
for the total claims incurred but not reported, and reported but not paid,
was approximately $200,000 at December 31, 1996. From February, 1990 to
February 1994, the Company was insured under a more traditional insurance
policy in which contract premiums were payable on a monthly basis and
claims are the responsibility of the insurance company.
In February 1994, the Company entered into an insurance policy for casualty
insurance in which the Company prepays to a third-party insurance company
the estimated claim expense, related taxes, and an administration fee for
the claim year. Subsequently, the third-party insurance company will
annually compare actual claims paid to the amounts prepaid by the Company
and will make a retroactive adjustment resulting in amounts owed to or by
the Company. The Company records the aggregate liability for claims
incurred and the retroactive adjustment based upon estimates. Such
estimates utilize certain actuarial assumptions followed in the insurance
industry. The policy has a maximum exposure per claim for auto, general
and product liability of $250,000 and for worker's compensation of $500,000
and a cumulative claim exposure of approximately $2,300,000 per year.
10. TRANSACTIONS WITH RELATED PARTIES
In 1992 the Company completed a sale-lease back of one of its facilities to
Stephen B. Browne, its majority stockholder. Lease terms are for a
triple-net lease with monthly payments of $36,200 for fifteen years. The
Company leases facilities in Oshkosh, Wisconsin, Oklahoma City, Oklahoma
and Louisville, Kentucky and certain equipment from Stephen B. Browne and
entities affiliated with him, through common ownership. The Company paid
rentals in 1996, 1995 and 1994 of $810,600, $920,000 and $903,000,
respectively, under such leases which expire in 2001 through 2002.
Prior to July 1994, the Company distributed product in a franchised
territory owned by entities related through common ownership. The Company
paid a standard distribution fee of fifty cents per case, totaling $51,700
in 1994, for sales made in this territory. In July 1994 the Company
purchased these franchises for $840,000 thus discontinuing the payment of
the standard distribution fee.
In 1995, AABFC sold $3.3 million principal amount of Senior Secured Notes
to an entity affiliated with Stephen B. Browne. See Note 3.
The Company incurred loans during 1996, 1995 and 1994 from related parties,
primarily Stephen B. Browne and affiliates, on which interest of $134,000,
$51,000 and $1,900, respectively, was paid at the same rate as the rate
paid on loans from the Senior Lender. At December 31, 1996 and 1995, the
balances outstanding under such loans was approximately $1,294,000 and
$48,000, respectively.
During 1996, 1995 and 1994, the Company paid financial and consulting fees
of $105,000, $180,000 and $278,000 to a party related through common
ownership and directors. Under the terms of the agreement, which expired
July 15, 1996, the Company paid a monthly consulting fee of $15,000.
In 1994 and 1995, the Company utilized a bank related through common owner-
ship. Fees charged by the bank are similar to those charged to unrelated
parties.
In 1993, an entity controlled by stockholders of the Company purchased from
AABC, the inventory, accounts receivable, vehicles and other non-production
assets associated with AABC's New Orleans division. During 1994, the
Company sold $418,000 in finished products to this entity.
A director of the Company is the Chairman, President and Chief Executive
Officer of Dr. Pepper Bottling Company of Texas, which is one of several
outside suppliers of finished product to the Company's Oklahoma City
division. During 1996, 1995 and 1994 the aggregate amount of purchases by
the Company from such supplier totaled approximately $2,010,000, $46,000
and $482,000, respectively.
A director of the Company is a partner in a law firm utilized by the
Company. In 1996 and 1995, the Company paid approximately $44,000 and
$11,000, respectively, to this law firm.
In April 1996, Stephen B. Browne entered into a management agreement with
Full Service Beverage Company ("FSB"). Subsequent to April 1996, FSB sold
approximately $1,900,000 of finished product to the Company's Oklahoma City
division. Also, during 1996, the Company sold finished goods and raw
materials at cost to FSB aggregating approximately $1,900,000. At December
31, 1996, the Company owed FSB $289,000 and FSB owed the Company $785,000.
11. STOCK WARRANTS
In connection with the issuance of Senior Secured Notes in 1993, the Company
issued warrants to purchase up to 21,360 shares of its common stock at an
exercise price of $.01 per share. The warrants expire on August 15, 2003,
and may be exercised at the earlier of August 15, 1998 or upon the
occurrence of an initial public offering of the common stock of the Company
or AABC, a change of control, or certain other triggering events. During
the three-year period commencing August 15, 1998, the Company and AABC have
the right to repurchase the warrants or the underlying shares of common
stock upon exercise of a call option. On February 15, 2002, the holders
of the warrants or the underlying shares have the right to sell such
securities to the Company and AABC upon exercise of a put option. The
warrants were valued at $856,000 upon issuance. In 1996, the Company
repurchased 1,025 warrants for $22,000. The Company recognized an
extraordinary gain, net of taxes, of $12,000. At December 31, 1996, 20,335
warrants were outstanding with a carrying value of $815,000.
12. ASSET SALES AND PURCHASES
On September 26, 1994, AABC completed the sale of certain assets consti-
tuting its Washington, D.C. division to Canada Dry Potomac Corporation. The
assets sold included the franchise rights, real estate, production
equipment, warehouse inventory and vending and marketing equipment used in
the operation of the Washington, D.C. division. The gross sales proceeds
were $12,056,000 and were paid in cash at closing. The net sales price was
$9,576,000 after giving effect to certain obligations retained by AABC,
expenses associated with the sale, potential future payments to the buyer
and expenses incurred with the liquidation of the remaining assets. The
sale generated a pre-tax loss of approximately $11,600,000. Cash proceeds
from the sale were used to reduce the balance on the Senior Credit Facility
and trade payables, acquire $3,300,000 of Senior Secured Notes, and repay
other long-term debt and non-compete agreements.
During 1995, AABC sold franchises and distribution rights in Rockford,
Illinois, three Ohio counties, Oklahoma City, Oklahoma, and two West
Virginia counties for combined proceeds of approximately $3,345,000 and
recognized gains totaling approximately $418,000. AABC also sold two
distribution facilities in Milwaukee, Wisconsin, and Fairmont, West
Virginia for combined proceeds of approximately $1,383,000 and recognized
gains totaling approximately $153,000. The facilities were no longer
needed due to the implementation of a double bottoming distribution system.
The gains from the asset sales discussed above are recognized in the
statement of operations for the year ended December 31, 1995 and are offset
by the write-off of AABC's remaining franchise and distribution rights of
$486,000 relating to its former New Orleans division. These remaining
franchise and distribution rights have no ongoing value as the operation in
New Orleans has been liquidated by its owners. In October, 1995, AABC
ceased the sale of Sundrop in its Mid-West territories and correspondingly
wrote-off its unamortized franchise balance resulting in a loss of $83,000.
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 $5,600,000, resulting in a loss on sale of
approximately $2,900,000. The assets sold included warehouse inventory in
St. Paul, selected warehouse equipment, vendors and visicoolers, and
franchise and distributor agreements. Sale proceeds included $5,400,000 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 which was paid in
September 1996.
On November 22, 1996, the Company sold assets in Parkersburg, West Virginia
to an unrelated party for proceeds of approximately $5,400,000 resulting
in a gain on sale of approximately $3,100,000. The assets sold included
inventory, vendors and visicoolers, and franchise and distributor
agreements. Sale proceeds included $5,200,000 in cash paid at closing and
a receivable of $200,000. The cash proceeds were used to reduce the
balance on the Company's Senior Credit Facility and to repurchase Senior
Secured Notes.
During 1996, the Company also sold franchise and distribution rights in
Madison, Wisconsin, Pulaski, Tennessee and Roanoke, Virginia and real
estate in Charleston, West Virginia for combined net sale proceeds of
approximately $3,400,000, and recognized gains totaling approximately
$1,200,000. Sale proceeds included $2,800,000 in cash paid at closing
which was used to reduce the balance on the Company's Senior Credit
Facility and to repurchase Senior Secured Notes 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
$1,000,000 and was financed primarily through borrowings under the
Company's Senior Credit Facility.
The following table sets forth the Company's unaudited condensed pro forma
consolidated statement of operations for the year ended December 31, 1996,
assuming the sale of St. Paul, Roanoke, Duluth, and Parkersburg had
occurred at the beginning of the year. The remaining dispositions are
excluded from the pro forma information as they are considered not to have
a significant impact on the consolidated financial statements of the
Company. No pro forma balance sheet is presented as the results of these
dispositions are already reflected in the December 31, 1996 consolidated
balance sheet.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------- ----------
<S> <C> <C> <C>
Net sales $ 139951 $ (10770)<F1> $ 129181
Cost of goods sold 93104 (7986)<F1> 85118
---------- --------- ----------
Gross profit 46847 (2784) 44063
Operating expenses 46272 (3944)<F1> 42328
---------- --------- ----------
Operating Income 575 1160 1735
Gain (loss) on asset sales 1279 (788)<F1> 491
Interest expense (7433) 635<F2> (6798)
Other income (expense) 584 35<F3> 619
---------- --------- ----------
Income (loss) before income taxes and
extraordinary item (4995) 1042 (3953)
Income tax (expense) benefit (158) 475<F4> 317
---------- ---------- ----------
Net income (loss) before
extraordinary item $ (5153) $ 1517 $ (3636)
========== ========== ==========
Income (loss) per common share
and common share equivalent:
Primary and fully diluted $ (26.80) $ (18.91)
========== ==========
<FN>
<F1>
To eliminate the operations of the St. Paul, Duluth, Roanoke and
Parkersburg divisions
<F2>
To record the reduction of interest expense due to the application of
proceeds
<F3>
To record lease income on the retained St. Paul building
<F4>
To record the income tax effect of the pro forma adjustments.
</FN>
</TABLE>
The pro forma information does not purport to be indicative of the results
of operations which would have actually been obtained if the disposition
transactions had been consummated as of the beginning of the year, or which
may be obtained in the future.
13. SUBSEQUENT EVENTS
In January, 1997, the Company purchased franchise rights and vending equip-
ment in Cookesville, Tennessee for $50,000.
In January, 1997, the Company purchased the assets of Beverage Service
Corporation, a vending company doing business in Wisconsin owned by Randall
Wissink, the Group President of the Mid-West Division, and Carl Heiss, the
controller of the Mid-West Division, for $182,000. The assets included
receivables, inventory and fixed assets purchased at fair market value.
14. ADJUSTED HISTORICAL RESULTS (UNAUDITED)
During 1996, AABC sold certain assets constituting its St. Paul, Minnesota,
Duluth, Minnesota Roanoke, Virginia, and Parkersburg, West Virginia
operations. The following table sets forth a summary of unaudited selected
financial information for 1994, 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 1995 which eliminates all case sales data and all revenues and
expenses relating to the St. Paul, Duluth, Roanoke and Parkersburg
operations for the months in which they did not have operations in 1996. The
other territory sales discussed in Note 12 have not been eliminated due to
their immaterial impact on the comparability of the financial information
provided.
<TABLE>
<CAPTION>
For the Year Ended December 31,
Historical Adjustments Adjusted
1994 1995 1995 1995 1996
Cases Percent Cases Percent Cases Percent Cases Percent
--------- -------- --------- -------- ----------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DSD sales 25,520 21,001 (2,233)<F1> 18,768 17,524
Distributor sales 2,177 1,856 (303)<F1> 1,553 1,422
--------- --------- --------- --------- ---------
Total franchise 27,697 81.0% 22,857 89.0% (2,536) 20,321 88.0% 18,946 86.0%
Contract sales 6,378 19.0% 2,797 11.0% - 2,797 12.0% 3,123 14.0%
--------- -------- --------- -------- --------- --------- -------- --------- --------
Total case sales 34,075 100.0% 25,654 100.0% (2,536) 23,118 100.0% 22,069 100.0%
========= ======== ========= ======== ========= ========= ======== ========= ========
Produced 30,996 91.0% 22,931 89.0% (1,918)<F1> 21,013 91.0% 19,305 87.0%
Purchased 3,210 9.0% 2,541 10.0% (526)<F1> 2,015 9.0% 2,537 12.0%
Inventory-(increase) (131) 182 1.0% (92)<F1> 90 - 227 1.0%
decrease
--------- -------- --------- -------- ----------- --------- -------- --------- --------
Total case sales 34,075 100.0% 25,654 100.0% (2,536) 23,118 100.0% 22,069 100.0%
========= ======== ========= ======== =========== ========= ======== ========= ========
Aggregate Per Case Aggregate Per Case Adjustments Aggregate Per Case Aggregate Per Case
--------- -------- --------- -------- ----------- --------- -------- --------- --------
Franchise sales $ 171,262 $ 6.18 $ 151,595 $ 6.63 $ (16,098)<F1> $135,497 $ 6.67 $125,239 $ 6.61
Contract sales 24,273 3.81 13,559 4.85 - 13,559 4.85 14,712 4.71
--------- --------- --------- --------- ---------
Net sales 195,535 5.74 165,154 6.44 (16,098)<F1> 149,056 6.45 139,951 6.34
Cost of goods sold 131,639 3.86 109,655 4.27 (11,640)<F1> 98,015 4.24 93,104 4.22
--------- -------- --------- -------- ----------- --------- --------- --------- --------
Gross profit 63,896 $ 1.88 55,499 $ 2.17 (4,458)<F1> 51,041 $ 2.21 46,847 $ 2.12
Operating expenses 60,893 53,579 (6,333)<F1> 47,246 46,272
--------- --------- --------- --------- ---------
Operating income 3,003 1,920 1,875 3,795 575
Interest expense (9,089) (8,193) 490<F2> (7,703) (7,433)
Other non-operating
income (expense) (12,590) 485 221<F3> 706 1,863
--------- --------- --------- --------- ---------
Loss before income
tax benefit (18,676) (5,788) 2,586 (3,202) (4,995)
Income tax
benefit (provision) 4,890 1,618 (982)<F4> 636 (158)
--------- --------- --------- --------- ---------
Net income (loss)
before extra-
ordinary item (13,786) (4,170) 1,604 (2,566) (5,153)
Extraordinary item - 4,257 - 4,257 (95)
--------- --------- --------- --------- ---------
Net income (loss) $ (13,786) $ 87 $ 1,604 $ 1,691 $ (5,248)
========= ========= ========= ========= =========
EPS before extra-
ordinary item $ (64.54) $ (19.52) $ (12.01) $ (26.80)
EPS $ (64.54) $ 0.41 $ 7.91 $ (27.30)
EBITDA<F5> $ 9,057 $ 7,404 $ 1,475<F1> $ 8,879 $ 5,871
<FN>
<F1>
To eliminate the operations of the St. Paul, Minnesota, Duluth, Minnesota,
Roanoke, Virginia and Parkersburg, Vest Virginia operations.
<F2>
To record the reduction of interest expense due to the applications of the
proceeds from the sale of St. Paul, Minnesota, Duluth, Minnesota, Roanoke,
Virginia and Parkersburg, West Virginia operations.
<F3>
To eliminate the non-operating income (expense) of the St. Paul, Minnesota,
Duluth, Minnesota, Roanoke, Virginia and Parkersburg, West Virginia operations.
<F4>
To record the income tax effect of the pro forma adjustments.
<F5>
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.
</FN>
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective July 1, 1996, Price Waterhouse LLP sold its Oklahoma City practice to
Coopers & Lybrand LLP, and as a result resigned as the independent accountants
of the Company. The reports of Price Waterhouse LLP on the Company's financial
statements for the years ended December 31, 1995 and 1994 contained no adverse
opinion or disclaimer of opinion and were not qualified as to uncertainty,
audit scope or accounting principle. During 1994 and 1995 and through July 1,
1996, there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Price Waterhouse LLP would have caused it to make reference thereto in its
report on the financial statements for such years. During 1994 and 1995 and
through July 1, 1996, there were no reportable events (as defined in Regulation
S-K Item 304 (a)(1)(v)).
The Company engaged Coopers and Lybrand LLP as its new independent accountants
effective as of July 1, 1996. During 1994 and 1995 and through July 1, 1996,
the Company did not consult with Coopers & Lybrand LLP regarding either (1) the
application of accounting principles to a particular transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, and either a written report was provided to
the Company or oral advice was provided that Coopers & Lybrand LLP concluded
was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; (2) any matter that was
either the subject of a disagreement, as that term is defined in Item 304
(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item 304
(a)(1)(v) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information, as of December 31, 1996, with
respect to each person who is an executive officer, director or significant
employee of the Company and/or BBC, as indicated below.
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
Stephen B. Browne 51 Chairman, President and Chief
Executive Officer, BBC and the
Company
Francisco A. Soler 51 Vice Chairman and Director, BBC and the
Company
Stephen R. Kerr 50 Vice President and Chief Financial Officer,
BBC and the Company
Danny R. Perry 52 Group President - Mid-South
Group, the Company
Randall L. Wissink 38 Group President - Mid-West Group, the
Company
Tom King 53 Director, BBC and the Company
Diego Ribadeneira 51 Director, BBC and the Company
Adolfo Salume A. 34 Director, BBC and the Company
Jim L. Turner 51 Director, BBC and the Company
</TABLE>
Each director is elected annually and serves until the next annual
meeting of stockholders or until his successor is duly elected and qualified.
See Item 13 "Certain Relationships and Related Transactions" for a description
of certain arrangements pursuant to which BBC's directors were elected.
Officers of the Company and BBC serve at the discretion of the Board of
Directors of Company and BBC, respectively.
Business Experience
Stephen B. Browne has spent his entire career in the soft drink bottling
industry. His family has been engaged in soft drink bottling since 1914 and
has owned and operated Coca-Cola franchises since 1922. He served as General
Sales Manager of the Coca-Cola Bottling Company of Miami from 1968 to 1972 and
was Vice Chairman of Full Service Beverage Company, an independent bottler
located in Wichita, Kansas, from 1972 to 1990. He has served as President of
Royal Crown Cola Bottlers Association. He has served as Chairman, President
and Chief Executive Officer of the Company and of BBC since 1987. He is a
graduate of the Lawrenceville School and the University of Oklahoma.
Francisco A. Soler has served as a Director of the Company and BBC since
1992 and Vice-Chairman of the Board of Directors of the Company and BBC since
1993. Mr. Soler is the Chairman and major stockholder of The Harbour Club, a
London sports/tennis center. He has served as Chairman of International
Bancorp of Miami, Inc., a bank holding company, since 1986, and as Chairman of
HBS Finance Corporation, an investment banking firm, since 1974. He is a
Director of U.S. Can Corporation and United States Can Company. Mr. Soler has
served as El Salvador's Ambassador to Jamaica since 1991 and, from 1980 to
1989, as its Ambassador to the European Economic Community. He is a graduate
of the Lawrenceville School, Harvard College, and Harvard Business School.
Stephen R. Kerr joined the Company in 1989 as Vice President and Chief
Financial Officer. Mr. Kerr served as a director of each of the Company and
BBC from 1989 to 1992. From 1985 to 1989, he served as President and Chief
Operating Officer of City Bank and Trust Company, an Oklahoma banking
institution, and City Bank Shares, Inc., the holding company of City Bank and
Trust Company. Prior to that time, he served in various lending and management
capacities with the Harris Bank and Trust (Chicago). Mr. Kerr is a graduate of
the University of Oklahoma.
Danny R. Perry has been associated with the Company since 1962. He was
promoted to General Manager of the Louisville Division in 1977 and to President
of the Louisville Division in 1987. Mr. Perry was appointed Vice President and
Chief Operating Officer of the Company in 1990. In 1994, Mr. Perry was
appointed Group President, Mid-South Group, which includes management
responsibility for the Louisville, West Virginia and Tennessee divisions. He
has served as President of Royal Crown Cola Bottlers Association and as
President of Canada Dry Bottlers Association. He is a graduate of the
University of Louisville.
Randall L. Wissink has been employed by the Company since 1977 when he
began seasonal employment in the manufacturing area. He accepted a full-time
sales position in 1981 and was promoted through several positions, including
operations management and Vice President of Marketing. Mr. Wissink was
promoted to President of the Oshkosh Division in 1989. In 1994, Mr. Wissink
was appointed Group President, Mid-West Group, which includes management
responsibility for the Oshkosh and St. Paul divisions. He is a graduate of the
University of Wisconsin.
Tom King has served as a director of the Company and BBC since 1993. Mr.
King has been a member of the law firm of King, Roberts & Beeler of Oklahoma
City, Oklahoma since 1972. He is a graduate of the University of Oklahoma and
the University of Oklahoma Law School.
Diego Ribadeneira has served as a Director of the Company and BBC since
1992. Mr. Ribadeneira has served as President and Chief Executive Officer of
Florida and South America Holdings, Inc., a real estate holding company, since
1983, and as the Chairman of Mecanos S.A.C., a corporation engaged in vehicle
and heavy equipment distribution in Ecuador, since 1983. He is a graduate of
Babson College.
Adolfo Salume A. has served as a Director of the Company and BBC since
1992. Mr. Salume has served as President of American Real Company, Inc., an
investment banking and real estate firm, since 1987. He is a graduate of
Harvard College and Harvard Business School.
Jim L. Turner has served as a Director of the Company and BBC since 1992.
Mr. Turner has served as Chairman of the Board of Dr Pepper Bottling Holdings,
Inc. and Chairman, President and Chief Executive Officer of its subsidiary, Dr
Pepper Bottling Company of Texas, since 1985. He is a director of the
Morningstar Group, Inc. and Baylor Health Care System Board. Mr. Turner is a
graduate of Baylor University.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company and BBC for services rendered during 1994, 1995 and 1996 to (I) the
Company's Chief Executive Officer and (ii) each of the Company's other
executive officers.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Other All
Name and Annual Com- Other Com-
Principal Position Year Salary<F1> Bonus<F1> pensation<F2> pensation<F3>
<S> <C> <C> <C> <C> <C>
Stephen B. Browne 1996 $ 250,000 $ 100,000 - $ 35,874
Chairman, President 1995 $ 250,000 $ 35,489 - $ 29,095
and Chief Executive 1994 $ 250,000 $ 500,000<F4> - $ 6,000
Officer
James J. Harford<F5> 1996 $ 121,875 - - $ 4,641
Vice President and 1995 $ 150,000 $ 50,000 - $ 2,854
Chief Operating
Officer
Danny R. Perry 1996 $ 120,000 - - $ 5,980
Group President-Mid 1995 $ 120,000 $ 19,000 - $ 10,235
South Group 1994 $ 120,000 $ 49,000 - $ 6,000
Stephen R. Kerr 1996 $ 120,000 $100,000 - $ 8,664
Vice President and 1995 $ 120,000 $ 44,700 - $ 11,181
Chief Financial 1994 $ 120,000 $ 40,000 - $ 6,000
Officer
Randall L. Wissink 1996 $ 100,000 - - $ 3,667
Group President- 1995 $ 100,000 - - $ 4,840
Mid-West Group 1994 $ 90,500 $ 21,000 - $ 3,790
<FN>
<F1>
The amounts shown include compensation the receipt of which was deferred
pursuant to the Savings Plan or the named officer's Deferred Compensation
Agreement (as described below under "Executive Compensation Pursuant to Plans").
<F2>
Following the rules of the Securities and Exchange Commission (the "Commis-
sion"), perquisites and other personal benefits, securities or property
which, in the aggregate, do not exceed the lesser of either $50,000 or 10%
of the total of annual salary and bonus reported for a named executive
officer for a fiscal year have been omitted.
<F3>
The 1996 amounts shown include the following: for Mr. Browne, the Company's
matching contribution to his Savings Plan account of $4,015 and above-market
interest earned under his Deferred Compensation Agreement of $31,859; for
Mr. Harford, the Company's matching contribution to his Savings Plan account
of $4,109 and above-market interest earned under his Deferred Compensation
Agreement of $532; for Mr. Perry, the match on his Savings Plan account of
$5,040 and above-market interest earned under his Deferred Compensation
Agreement of $940; for Mr. Kerr, the match on his Savings Plan account of
$5,447 and above-market interest earned under his Deferred Compensation Agree-
ment of $3,217; and for Mr. Wissink, the match on his Savings Plan account of
$3,667.
<F4>
Mr. Browne was awarded a $500,000 bonus in connection with the sale of the
Washington D.C. division in September 1994, half of which was paid
in September 1994. Mr. Browne elected to defer payment of the other
installment of $250,000 pursuant to his Deferred Compensation Agreement.
<F5>
Mr. Harford resigned in October, 1996.
</FN>
</TABLE>
Employment Agreements
BBC and the Company have employment agreements with Danny R. Perry and Stephen
R. Kerr which are automatically extended on a year-to-year basis unless the
employee or either of BBC or the Company terminates the agreement. Each
agreement currently extends until December 31, 1997. Except where the employee
is terminated for Cause (as defined below), or where the employee voluntarily
terminates his employment, upon any termination the Company is obligated to
make a lump-sum severance payment to the employee equal to the greater of (i)
one year's salary or (ii) the total cash compensation received by the employee
for the twelve months preceding such termination, and to permit the employee to
continue to participate in certain benefit plans for one year from the date of
termination. "Cause" is defined to mean fraud, willful misconduct, gross
neglect of duties, gross insubordination, willful failure to perform duties,
and the conviction of a felony. As of December 31, 1996, such severance
amounts would total approximately $126,000 and $235,000 for Messrs. Perry and
Kerr, respectively.
Executive Compensation Pursuant to Plans
BBC and the Company maintain certain compensation plans, programs and
arrangements for their executive officers. Set forth below is a description of
each plan pursuant to which cash or non-cash compensation was paid or
distributed during the years ended December 31, 1994, 1995 and 1996, or is
proposed to be paid or distributed in the future, to the individuals described
in the Summary Compensation Table above. Excluded from the descriptions below
are any group life, health, hospitalization, medical reimbursement or
relocation plans which do not discriminate, in scope, terms or operation, in
favor of officers or directors of BBC and the Company that are available
generally to all salaried employees of such companies.
The Company 401(k) Retirement Savings Plan. Effective January 1, 1990, the
Company implemented the All-American Bottling Corporation 401(k) Retirement
Savings Plan (the "Savings Plan"), a voluntary, contributory 401(k) savings
plan. The Savings Plan currently permits employees of the Company to commence
participation in the Savings Plan as of the first January 1 or July 1 following
the completion of twelve months of service and the attainment of 21 years of
age. Participants may make tax-deferred contributions from 1% to 15% of their
compensation during each year, subject to statutory limits imposed under
Section 401(k) and other applicable sections of the Internal Revenue Code of
1986, as amended. The Savings Plan provides for a matching contribution by the
Company equal to 100% of the participant's first 2% of compensation deferred
pursuant to the Savings Plan, and 50% of the next 4% of compensation so
deferred.
Participants in the Savings Plan are at all times fully vested in their
contributions and in the earnings attributable to their contributions and
become fully vested in Company contributions made on their behalf after three
years of service. The Savings Plan permits withdrawals during employment in
the event of proven financial hardship. In the case of termination of
employment, disability, or death, a participant's account balance is
distributed to the participant (or his beneficiary) in a lump sum.
1996 Incentive Compensation Plan. In December 1995, the Company implemented a
1996 Incentive Compensation Plan (the "1996 Incentive Plan") pursuant to which
approximately 32 key employees of the Company are eligible to receive cash
bonuses based on, among other things, the Company's financial performance.
Amounts paid by the Company under the 1994, 1995 and 1996 Incentive
Compensation Plans (predecessor plans in effect during 1994, 1995 and 1996
which were substantially similar to the 1996 Incentive Plan) to the individuals
named in the Summary Compensation Table above are set forth in the column
labeled "Bonus."
Nonqualified Deferred Compensation Agreements. Certain of the Company's key
management executives have entered into nonqualified deferred compensation
agreements with the Company (the "Nonqualified Deferred Compensation
Agreements"). The Nonqualified Deferred Compensation Agreements permit
participants selected by the Board of Directors to elect to defer up to 100% of
their salary to be invested at the discretion of the Board of Directors. The
determination of earnings and/or losses which accrue on deferred amounts is
made in the discretion of the Board of Directors and may be (but is not
required to be) based upon the rate of return provided under any securities
issued by the Company, which may include the Company's Senior Notes.
The Company may, in its sole discretion, make matching contributions in an
amount equal to the percentage of salary deferred by the participant, or at
such specified dollar amount as is designated by the Company. For 1996, the
Company did not make a matching contribution. All amounts deferred under the
Nonqualified Deferred Compensation Agreements or contributed by the Company
will at all times be subject to the claims of the creditors of the Company.
Executives entering into Nonqualified Deferred Compensation Agreements are at
all times fully vested in their contributions and become fully vested in any
Company contributions made on their behalf after three years of service. In
the event of death or disability or termination of employment within two years
of a "change of control," participants become fully vested in any Company
contributions made on their behalf. Upon termination of employment, death or
disability, a participant's vested account balance is distributed to the
participant (or his beneficiary) in a lump sum if the account balance is
$50,000 or less. If the account balance exceeds $50,000, payment is made in
monthly installments over 10 years. These terms are subject to change at the
Company's option.
As of December 31, 1996, Stephen B. Browne, R. Michael Mowry, Edward Moore,
Danny Perry, David Zittnan and Stephen R. Kerr have entered into Nonqualified
Deferred Compensation Agreements with the Company.
Compensation of Directors
Directors of the Company and BBC do not receive compensation for their service
as a director, other than Jim L. Turner and Tom King, who receive $500 per
meeting attended and $500 per month. All directors are reimbursed for expenses
incurred in attending board meetings.
Compensation Committee Interlocks and Insider Participation
Decisions regarding compensation of executive officers of the Company are made
by the Company's Board of Directors. Mr. Browne participated in deliberations
of the Board of Directors regarding the compensation of executive officers.
Messrs. Ribadeneira, Salume and Soler are directors of International Management
Corp. ("IMC"), which provides financial advisory and consulting services to BBC
and the Company. Pursuant to a letter agreement dated August 3, 1992 (the
"Consulting Agreement"), IMC agreed to provide BBC and the Company such
advisory and consulting services for a monthly fee of $29,000 through July 15,
1994. The Consulting Agreement was amended on July 1, 1994 to extend the term
of IMC's engagement thereunder through July 15, 1996 and to provide for a
monthly fee to IMC of $15,000 during the extension period. A monthly fee was
not paid for the period of July 15, 1996 to December 31, 1996. See Item 13
"Certain Relationships and Related Transactions -- International Management
Corp."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company
The authorized capital stock of the Company consists of 100,000 shares of
common stock, $.01 par value per share, all of which have voting rights and all
of which are presently outstanding and owned by BBC. BBC's only business is
its ownership of the common stock of the Company.
BBC
The authorized capital stock of BBC consists of: (i) 220,295 shares of Common
Stock, $.01 par value per share ("Common Stock"), (ii) 5,263 shares of
Nonvoting Common Stock, $.01 par value per share ("Nonvoting Common Stock"),
and (iii) 1,000 shares of Series B Preferred Stock, $.01 par value per share
("Series B Preferred Stock").
In August 1993, pursuant to the Recapitalization Plan and in connection with
the offering of the Senior Notes, BBC offered and sold 21,360 warrants (the
"Warrants") of BBC, each entitling the holder thereof to purchase one share of
Common Stock, at an exercise price of $.01 per share, subject to certain
anti-dilution adjustments. Upon exercise, the holders of the Warrants are
entitled, in the aggregate, to receive 21,360 shares, subject to certain
anti-dilution adjustments, of Common Stock (the "Warrant Shares"), representing
10% of the shares of Common Stock outstanding, on a fully diluted basis, as of
consummation of the offering. The Warrants expire on August 15, 2003 and are
exercisable on the earlier to occur of (I) August 15, 1998, (ii) an initial
public offering of the Common Stock of BBC or the Company, (iii) a Change of
Control (as defined therein) and (iv) certain other triggering events. The
holders of Warrants are entitled to customary tag-along rights and piggy-back
registration rights, and one demand registration right. Pursuant to a
Warrantholders Agreement by and among BBC, the Company, current stockholders of
BBC and BT Securities Corporation (the "Warrantholders Agreement"), beginning
August 15, 1998 and not later than August 15, 2001, BBC and the Company have
the right to purchase all, but not less than all, of the Warrants and Warrant
Shares upon exercise of a call option. On February 15, 2002, each holder of
the Warrants or Warrant Shares shall have the right to sell the Warrants and/or
Warrant Shares to BBC and the Company upon exercise of a put option. In
December 1996, All-American Bottling Financial Corporation ("Financial"), a
wholly-owned subsidiary of the company, purchased 1,025 of these warrants
resulting in 20,335 warrants outstanding at December 31, 1996. For additional
information relating to the terms of the call and put options, see the
Warrantholders Agreement, a copy of which has been filed with the Commission
and is incorporated by reference as an exhibit to this Annual Report on Form
10-K.
As of December 31, 1996, there were 192,244 shares of Common Stock issued and
outstanding, and 21,360 shares of Common Stock reserved for issuance upon
exercise of the Warrants. There are no shares of Nonvoting Common Stock
outstanding. The Common Stock is the only class of capital stock of BBC which
has voting rights. The Stockholders' Agreement (as defined herein) contains a
requirement that certain significant actions of BBC may be taken only upon the
affirmative vote of the holders of 75% of the outstanding shares of the Common
Stock. See Item 13 "Certain Relationships and Related Transactions --
Stockholders' Agreement."
The Series B Preferred Stock has a liquidation preference of $1,000 per share
and is not entitled to dividends. BBC, at its option, may redeem the Series B
Preferred Stock at any time at a redemption price of $1,000 per share. All
authorized shares of Series B Preferred Stock are presently issued and
outstanding.
The following table sets forth, as of December 31, 1996, the number and
percentage of shares of BBC capital stock beneficially owned by (i) each person
known to the Company to be the beneficial owner of more than 5% of any class of
BBC's equity securities, (ii) each director of the Company or BBC, and (iii)
all directors and executive officers of the Company and BBC as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage of Class
Ownership of BBC<F1> Outstanding
Series B Series B
Common Preferred Common Preferred
Stock Stock Stock<F1> Stock
Name & Address
<S> <C> <C> <C> <C>
Stephen B. Browne<F2><F6> 107,016 500.00 55.7% 50%
Colcord Building
15 N. Robinson
Oklahoma City, OK 73102
Browne Oklahoma Properties
Partnership<F2> 48,269 -- 25.1% --
Colcord Building
15 N. Robinson
Oklahoma City, OK 73102
Adolfo Salume A.<F3><F6> -- -- -- --
c/o Comersal
KM.10 Carretera a La Libertad
San Salvador
El Salvador
Adolfo Miguel Salume<F3> 47,168 280.00 24.5% 28%
c/o Comersal
KM.10 Carretera a La Libertad
San Salvador
El Salvador
Colinvest Bottling Corporation<F3> 28,638 170.00 14.9% 17%
c/o Comersal
KM.10 Carretera a La Libertad
San Salvador
El Salvador
Art Bottling Corporation<F3> 9,265 55.00 4.8% 5.5%
c/o Comersal
KM.10 Carretera a La Libertad
San Salvador
El Salvador
Sol Bottling Corporation<F3> 9,265 55.00 4.8% 5.5%
c/o Comersal
KM.10 Carretera a La Libertad
San Salvador
El Salvador
Diego Ribadeneira<F4><F6> -- -- -- --
c/o Inversiones Aries S.A.
German Aleman 150 y 6 de Diciembre
Quito, Ecuador
Inversiones Aries S.A.<F4> 10,107 60.00 5.3% 6%
German Aleman 150 y 6 de Diciembre
Quito, Ecuador
Francisco A. Soler<F5><F6> 12,701 75.40 6.6% 7.5%
Harbour Club
Watermeadow Lane
London SW6 ZRR
Tom King<F6> 1,000 -- 0.5% --
Colcord Building
15 N. Robinson
Oklahoma City, OK 73102
Jim L. Turner<F6> -- -- -- --
c/o Dr. Pepper Bottling Company of Texas
P.O. Box 655024
Dallas, TX 75265
All directors and executive
officers as a group 120,717 575.40 62.8% 57.5%
<FN>
<F1>
Except as indicated by footnote, the persons named in the table above
have sole voting and investment owner with respect to all shares of
capital stock indicated as beneficially owned by them.
<F2>
Each of Stephen B. Browne and Browne & Browne Partners holds a 50%
interest in Browne Oklahoma Properties Partnership. Stephen B. Browne and
his sister, Deborah Browne-Snell, each own a 50% interest in Browne &
Browne Partners. Accordingly, Mr. Browne may be deemed to be the
beneficial owner of the 48,269 shares held by Browne Oklahoma Properties
Partnership, and such shares are included in the foregoing table as being
beneficially owned by Mr. Browne.
<F3>
Colinvest Bottling Corporation ("Colinvest"), Sol Bottling Corporation
("Sol") and Art Bottling Corporation ("Art") are corporations affiliated
with Adolfo Miguel Salume or certain of his relatives. Adolfo Miguel
Salume and members of his family may be deemed to be the beneficial owners
of all of the shares held by Colinvest, Sol and Art. Adolfo Miguel Salume
is the father of Adolfo Salume A.
<F4>
Inversiones Aries S.A. ("Aries") is a corporation owned by an irrevocable
discretionary trust (pursuant to which Mr. Ribadeneira and certain of his
relatives could benefit). The trustee of the trust, Lloyd's Bank
International (Bahamas), possesses sole voting and investment power with
respect to the shares owned by Aries and, accordingly, Mr. Ribadeneira
disclaims beneficial ownership of such shares.
<F5>
Includes 7,277 shares of Common Stock and 43.2 shares of Series B
Preferred Stock held by Windsor International Corporation ("Windsor") and
5,424 shares of Common Stock and 32.20 shares of Series B Preferred Stock
held by The World Financial Corporation S.A. ("World"), corporations
affiliated with Mr. Soler or certain of his relatives. Mr. Soler may be
deemed the beneficial owner of all 12,701 shares of Common Stock and 75.40
shares of Series B Preferred Stock held by Windsor and World. Mr. Soler
is also one of the three voting members of the Board of Directors of Atlas
World Carriers, S.A. ("Atlas"), which holds 5,458 shares of Common Stock
and 32.40 shares of Series B Preferred Stock. The stock of Atlas is owned
by certain relatives of Mr. Soler, but he may be deemed to be the
beneficial owner of the shares owned by Atlas.
<F6>
The named individuals are directors of the Company and BBC. Executive
officers who do not beneficially own shares of BBC capital stock are not
included in the foregoing table.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stephen B. Browne
In March 1992, Stephen B. Browne purchased from the Company its
Louisville, Kentucky production facility in a sale-leaseback transaction.
Pursuant to such sale-leaseback, the Company leases the facility from Mr.
Browne at a monthly rental of $36,200 under a 15-year operating lease expiring
April 1, 2007, subject to a 10-year renewal option. During 1996, the Company
made aggregate rental payments under this lease to Mr. Browne of $434,600.
The Company leases certain Oklahoma City warehouse space for its Oklahoma City
operations from Browne Oklahoma Properties Partnership (d/b/a Oklahoma
Properties Partnership). Stephen B. Browne and his sister, Deborah
Browne-Snell, each own a 50% interest in Browne Oklahoma Properties
Partnership. The lease provides for monthly lease payments of $10,000 and
expires on September 1, 2002. During 1996, the Company made payments under
this lease aggregating approximately $120,000.
The Company leases office space from Colcord Partners, Ltd. in the Colcord
Building, located in downtown Oklahoma City, to house its corporate
headquarters. Stephen B. Browne is the managing general partner of, and owns a
35% interest in, Colcord Partners, Ltd., and the Company owns an approximate 5%
limited partnership interest in Colcord Partners, Ltd. During 1996, the
Company executed a new lease which provides for monthly rental payments of
approximately $6,000 and expires on August 1, 2001. During 1996, the Company
made payments under all leases aggregating approximately $101,000.
The Company leases space in an Oshkosh warehouse owned by 2900 Jackson
Investments to house the Company's Oshkosh distribution center. Stephen B.
Browne, Randall L. Wissink, the Group President - Mid-West Group of the
Company, and Donald C. Wissink (who is Randall L. Wissink's father) own
interests of 50%, 25% and 25%, respectively, in 2900 Jackson Investments. The
lease provides for lease payments of approximately $155,000 per year through
1997 and expires on January 1, 2002. During 1996, the Company made payments
under this lease aggregating approximately $155,000.
Based upon the costs associated with procuring similar lease arrangements in
the applicable geographic vicinities, the Company believes that the lease
arrangements described in the preceding four paragraphs are on terms no less
favorable to the Company than those which could have been obtained in
comparable arm's length transactions with independent third parties.
Mr. Browne is a director of Beverage Associates Cooperative, Inc. ("BAC"), a
buying cooperative of independent bottlers of which the Company is a member and
through which it purchases certain raw materials. Jim L. Turner, a director of
BBC and the Company, is also a director of BAC, and Dr Pepper Bottling Company
of Texas, of which Mr. Turner is Chairman, President and Chief Executive
Officer, is a member of BAC and purchases products through BAC.
During 1996, Stephen B. Browne, his sister, Deborah Browne-Snell, his
wife, Cheryl Browne, Browne Oklahoma Properties Partnership, Browne & Browne
Partners, a partnership in which Stephen B. Browne and Deborah Browne-Snell,
each own a 50% interest, Tennessee Properties, owned by Stephen B. Browne and
Deborah Browne-Snell, Louisiana Bottling Limited Company, a company owned by
Stephen B. Browne and the New Stockholders (as defined below under
"International Management Corp.") and Stephen R. Kerr from time to time made
unsecured loans to the Company at 9.25%, the same interest rate charged under
the Company's Senior Credit Facility. At December 31, 1996 no amount was owed
Mr. Browne or Louisiana Bottling Limited Company, $602,000 was owed to Mrs.
Browne-Snell, $12,000 was owed to Mrs. Browne, $313,000 was owed to Browne
Oklahoma Properties Partnership, $171,000 was owed to Browne & Browne Partners,
$110,000 was owed to Tennessee Properties, and $86,000 was owed to Mr. Kerr.
During 1996 interest of $134,000 was paid on these loans. The highest amount
outstanding under such loans during 1996, at varying times, was $3,050,000 to
Mr. Browne, $1,300,000 to Mrs. Browne-Snell, $59,000 to Mrs. Browne, $313,000
to Browne Oklahoma Properties Partnership, $171,000 to Browne & Browne
Partners, $110,000 to Tennessee Properties, $27,000 to Louisiana Bottling
Limited Company and $151,000 to Mr. Kerr. In addition, at the request of
certain suppliers, Mr. Browne has from time to time guaranteed the Company's
obligation to pay for certain purchased inventory. No amounts have been paid
by Mr. Browne pursuant to such guarantees, and no such guarantees are presently
outstanding.
In April, 1996, Stephen B. Browne entered into a management agreement with Full
Service Beverage Company ("FSB"). Subsequent to April, 1996, FSB sold
approximately $1,900,000 of finished product to the Oklahoma City Division.
The Company believes that the terms of such purchases are similar to the terms
of other purchases of finished product from FSB by its other bottling company
customers. Also, during 1996, the Company sold finished goods and raw
materials at cost to FSB aggregating approximately $1,900,000. At December 31,
1996, the Company owed FSB $289,000 and FSB owed the Company $785,000.
International Management Corp.
Pursuant to a letter agreement dated August 3, 1992, International
Management Corp. ("IMC") agreed to provide BBC and the Company with financial
advisory and consulting services for a monthly fee of $29,000 through July 15,
1994. The letter agreement was amended to extend the term of IMC's engagement
thereunder through July 15, 1996 and to provide for a monthly fee to IMC of
$15,000 during the extension period. During 1996, the Company paid fees to IMC
thereunder totaling $105,000. Diego Ribadeneira, Adolfo Salume A. and
Francisco A. Soler, who are the directors of IMC, serve as directors of the
Company and BBC. See Item 11 "Executive Compensation -- Compensation Committee
Interlocks and Insider Participation" and "Stockholders' Agreement." Based
upon the financial and business expertise of the principals of IMC, the
services rendered by such individuals to the Company, and the costs associated
with the retention of advisors with comparable expertise, the Company believes
that the terms of the letter agreement were no less favorable to the Company
than those which could have been obtained in a comparable arm's-length
transaction with an independent third party.
Effective December 9, 1992, IMC distributed all shares of BBC stock and
all rights to acquire such stock owned by it to its stockholders (the "New
Stockholders"). Colinvest Bottling Corporation, Art Bottling Corporation, Sol
Bottling Corporation and Inversiones Aries S.A., each of which owns more than
5% of a class of BBC equity securities, are each New Stockholders.
Stockholders' Agreement
Election of Board. Pursuant to a Stockholders' Agreement among the
Stockholders (as defined therein) and BBC, as amended and restated through
August 16, 1993 (the "Stockholders' Agreement"), the New Stockholders and their
permitted transferees are together entitled to nominate three of BBC's seven
directors, and Stephen B. Browne, certain of his affiliates and his permitted
transferees ("Browne"), are together entitled to nominate four of such
directors. Currently, the nominees of the New Stockholders on the BBC board
are Diego Ribadeneira, Adolfo Salume A. and Francisco A. Soler, and Browne's
nominees are Stephen B. Browne, Tom King and Jim L. Turner. Mr. Browne has not
exercised his right under the Stockholders' Agreement to designate another
individual to BBC's Board of Directors. In the event that Franchisors under
those franchise agreements of BBC or the Company which are material to the
business of BBC and the Company consent to the ownership by the New
Stockholders (or any director nominee thereof) of 50% or more of the then
outstanding voting securities of BBC, then the BBC board will be increased to
eight members, and each of Browne and the New Stockholders will be entitled to
nominate four of such directors. The stockholders of BBC who are parties to
the Stockholders' Agreement have agreed to vote in favor of nominees chosen in
accordance with the Stockholders' Agreement.
Unless earlier terminated by the holders of at least 75% of the shares of
Common Stock subject to the Stockholders Agreement, such agreement shall
terminate on July 23, 2007.
Supermajority Voting Provisions. Pursuant to the Stockholders' Agreement, the
affirmative vote of 75% of the combined voting power of the holders of Common
Stock then outstanding is required in order for BBC, among other things, to
commit unconditionally to or to take any of the following actions: (i) to amend
the articles of incorporation or by-laws of BBC; (ii) to enter into any line of
business other than the beverage bottling and distribution business; (iii) to
merge, exchange shares or consolidate with or into another entity (other than a
merger or consolidation of a wholly-owned subsidiary of BBC into BBC); (iv) to
merge or consolidate any subsidiary of, or entity controlled by, BBC with or
into any entity (other than a merger or consolidation of a wholly-owned
subsidiary of BBC into BBC); (v) to adopt any plan or proposal for the
dissolution or liquidation of BBC; (vi) to sell assets (including any capital
stock of any subsidiary) of BBC or any subsidiary of BBC if the aggregate sales
price for such assets exceeds $500,000 in any individual transaction or $1.0
million in the aggregate in any consecutive 12-month period, with certain
exceptions; (vii) the acquisition by BBC or any subsidiary of BBC of assets,
stock or any interest in any entity if the aggregate purchase price (including
assumed liabilities) exceeds $250,000 in any individual transaction or $500,000
in the aggregate in any consecutive 12-month period; (viii) the incurrence by
BBC or any subsidiary of BBC of additional indebtedness for borrowed money,
with certain exceptions; (ix) the filing of, or consent to, by BBC or any of
its subsidiaries of any bankruptcy, custodianship, reorganization or similar
proceeding; (x) to enter into any agreement or transaction between BBC or any
of its subsidiaries and any stockholder or any affiliate of any stockholder of
BBC or any subsidiary; (xi) to amend or enter into any employment-related
agreements with any director, officer or employee of BBC or any of its
subsidiaries, other than ordinary course salary and fringe benefit arrangements
with respect to non-executive employees; (xii) to redeem or purchase, or
otherwise acquire, shares of the capital stock of BBC other than pursuant to a
purchase contemplated by the Stockholders' Agreement; (xiii) to issue any
securities of BBC or any of its subsidiaries; (xiv) to settle outside of the
ordinary course of business any material claim, obligation, debt, demand, suit
or judgment against BBC or any of its subsidiaries; and (xv) to approve the
annual plan and budget (including capital expenditures) of BBC and its
subsidiaries and any material amendment or modification thereto. The foregoing
supermajority voting rights will remain in effect as long as the Stockholders'
Agreement is in effect. On February 21, 1995, the Stockholders' Agreement was
amended to provide that the foregoing 75% shareholder approval requirement will
be satisfied for the purposes of the Stockholders' Agreement if the action is
approved by the Board of Directors with the unanimous approval of Messrs.
Browne, Soler, Ribadeneira and Salume.
Registration Rights. Pursuant to the Stockholders' Agreement, the Stockholders
and their affiliates are entitled to certain rights with respect to the
registration of shares of Common Stock held by them. Mr. Browne and his
affiliates are entitled on two occasions, and the New Stockholders and their
affiliates are entitled on two occasions, to require BBC to register their
shares under the Securities Act of 1933(a "demand" registration). The
Stockholders are also entitled to require BBC to use its best efforts to
include on a pro rata basis their shares of Common Stock in a registered
offering of equity securities by BBC for its own account or for the account of
selling security-holders, subject to marketing restrictions determined by the
managing underwriter (a "piggyback" registration). BBC is required to bear all
registration expenses (other than underwriting discounts and commissions) in
connection with such registrations. The holders of 191,244 shares of Common
Stock are entitled to registration rights under the Stockholders' Agreement.
Other Actions. Pursuant to the Stockholders' Agreement, and subject to
compliance with any franchise agreement or material loan agreement (including
the Indenture relating to the Senior Notes and the Senior Credit Facility) to
which the Company or BBC is a party, BBC, the New Stockholders and Stephen B.
Browne have agreed to take all commercially reasonable actions with respect to
any transaction proposed by the holders of at least 25% of the then outstanding
Common Stock at any time after July 23, 1997, which is intended to result in
the realization of value with respect to the equity interest of the BBC
stockholders. Such transaction may include a recapitalization or
reorganization of BBC, a dividend or other distribution to BBC stockholders, a
sale of assets, or a public or private offering of capital stock of BBC; so
long as (a) the transaction does not render BBC insolvent or require BBC to
incur debts beyond its ability to pay; (b) the transaction will not leave BBC
with unreasonably small capital for its business; (c) the transaction does not
materially impair the long-term viability of BBC; (d) the per share
consideration to be received by, or which is offered to, the BBC stockholders
as a result of such transaction is the same for all such stockholders; and (e)
unless each of Browne and the New Stockholders otherwise consent, each of
Browne and the New Stockholders must hold the same percentage equity interest
in BBC relative to each other after the transaction as each held relative to
each other immediately prior to such transaction.
Noncompetition Agreements
BBC and the Company have entered into Noncompetition Agreements with both
Stephen B. Browne and IMC which require Mr. Browne and IMC, respectively, to
refrain from engaging in any business activity which is in competition with any
business of BBC or the Company in the United States for so long as Mr. Browne
or IMC (or its stockholders) hold at least 10% of the outstanding voting Common
Stock of BBC and for a period of three years thereafter. No amounts are
payable under the Noncompetition Agreements.
Other Transactions
Jim L. Turner, a director of BBC and the Company, is the Chairman, President
and Chief Executive Officer of Dr Pepper Bottling Company of Texas, which is
one of several outside suppliers of finished product to the Company's Oklahoma
City division. During 1996, the aggregate amount of purchases of finished
goods for the Oklahoma City division from such supplier totaled approximately
$2,010,000. The Company believes that the terms of such purchases are no less
favorable to the Company than the terms of other purchases of finished product
from such supplier by such supplier's other bottling company customers.
Tom King is a partner in the law firm of King, Roberts & Beeler which has acted
as counsel to the Company. During 1996, the Company paid legal fees of
approximately $44,000 to King, Roberts & Beeler.
In January, 1997, the Company purchased the assets of Beverage Service
Corporation, a vending company doing business in Wisconsin owned by Randall
Wissink, the Group President of the Mid-West Division, and Carl Heiss, the
controller of the Mid-West Division, for $182,000. The assets included
accounts receivable, inventory and fixed assets purchased at fair market value.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as a part of this report:
1. The following exhibits, including those incorporated by reference.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (incorporated
herein by reference to Exhibit 3.1 filed as part of the Company's
Registration Statement on Form S-4 (File No. 33-69832)).
3.2 Amended and Restated Certificate of Incorporation of BBC (incorporated
herein by reference to Exhibit 3.2 filed as a part of the Company's
Registration Statement on Form S-4 (File No. 33-69832)).
3.3 Amended and Restated By-Laws of the Company (incorporated herein by
reference to Exhibit 3.3 filed as a part of the Company's Registra-
tion Statement on Form S-4 (File No. 33-69832)).
3.4 Amended and Restated By-Laws of BBC (incorporated herein by reference
to Exhibit 3.4 filed as part of the Company's Registration Statement
on Form S-4 (File No. 33-69832)).
4.1 Indenture between the Company, BBC and Bank of Oklahoma, National
Association, as Trustee, dated as of August 15, 1993 (including
specimen certificate of 13% Senior Secured Note due 2001, Series A
and form of 13% Senior Secured Note due 2001, Series B) (incorporated
herein by reference to Exhibit 4.1 filed as a part of the Company's
Registration Statement on Form S-4 (file No. 33-69832)).
4.1.1 First Supplemental Indenture dated as of July 6, 1995 to the Indenture
dated as of August 15, 1993, between the Company, BBC and Bank of
Oklahoma, National Association, as Trustee (incorporated herein by
reference to Exhibit 10.42 filed as part of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995).
4.1.2 Consent Memorandum dated June 30, 1995 (incorporated herein by
reference to Exhibit 10.43 filed as part of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995).
4.2 Credit Agreement by and among the Company, the Lenders parties thereto,
and BT Commercial Corporation, dated as of August 18, 1993
(incorporated herein by reference to Exhibit 10.14 filed as a part of
the Company's Registration Statement on Form S-4 (File No. 33-69832)).
4.2.1 First Amendment and Waiver to Credit Agreement by and among the
Company, the Lenders parties thereto and BT Commercial Credit, dated as
of February 18, 1994 (incorporated herein by reference to Exhibit
10.14(b) filed as part of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
4.2.2 Second Amendment and Waiver to Credit Agreement by and among the
Company, the Lenders parties thereto and BT Commercial Credit, dated as
of November 15, 1994 (incorporated herein by reference to Exhibit 10.38
filed as part of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
4.2.3 Third Amendment and Waiver to Credit Agreement by and among the
Company, the Lenders parties thereto and BT Commercial Credit, dated as
of March 24, 1995 (incorporated herein by reference to Exhibit 10.39
filed as part of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
4.2.4 Fourth Amendment and Waiver to Credit Agreement by and among the
Company, the Lenders parties thereto and BT Commercial Credit, dated as
of July 6, 1995 (incorporated herein by reference to Exhibit 10.44
filed as part of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
4.2.5 Fifth Amendment and Waiver to Credit Agreement by and among the
Company, the Lenders parties thereto and BT Commercial Credit, dated as
of March 15, 1996 (incorporated herein by reference to Exhibit 4.2.5
filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.1 Warrant Agreement by and between BBC and Bank of Oklahoma, National
Association, as Warrant Agent, dated as of August 15, 1993
(incorporated herein by reference to Exhibit 10.1 filed as a part of
the Company's Registration Statement on Form S-4 (File No. 33-69832)).
10.2 Warrantholders Agreement by and among BBC, certain stockholders of BBC
listed on the signature pages thereto, the Company and BT Securities
Corporation, dated as of August 23, 1993 (incorporated herein by
reference to Exhibit 10.2 filed as a part of the Company's Registration
Statement on Form S-4 (File No. 33-69832)).
10.3 Warrant Registration Rights Agreement by and among BBC and BT
Securities Corporation, dated as of August 23, 1993 (incorporated
herein by reference to Exhibit 10.3 filed as a part of the Company's
Registration Statement on Form S-4 (File No. 33-69832)).
10.4 Stockholders' Agreement among BBC, Browne, Browne Oklahoma Properties
Partnership and the New Stockholders (as defined therein), as amended
and restated through August 16, 1993 (incorporated herein by reference
to Exhibit 10.8 filed as a part of the Company's Registration Statement
on Form S-4 (File No. 33-69832)).
10.4.1 Amendment to Stockholders' Agreement among BBC and the stockholders of
BBC parties thereto, dated February 21, 1995 (incorporated herein by
reference to Exhibit 10.41 filed as part of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.5 Noncompetition Agreement among the Company, BBC, IMC and Browne, dated
July 23, 1992 (incorporated herein by reference to Exhibit 10.9 filed
as a part of the Company's Registration Statement on Form S-4 (File No.
33-69832)).
10.6 Noncompetition Agreement among BBC and IMC dated July 23, 1992
(incorporated herein by reference to Exhibit 10.10 filed as a part of
Amendment No. 1 to the Company's Registration Statement on Form S-4
(File No. 33-69832)).
10.7 Letter Consulting Agreement between BBC and IMC, dated August 3, 1992
(incorporated herein by reference to Exhibit 10.13 filed as a part of
the Company's Registration Statement on Form S-4 (File No. 33-69832)).
10.7.1 Letter Agreement between BBC and IMC, dated July 1, 1994, amending the
Letter Consulting Agreement referred to in Exhibit 10.7 (incorporated
herein by reference to Exhibit 10.37 filed as part of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
(File No. 33-69832)).
10.8 Employment Agreement among the Company, BBC and Stephen R. Kerr, dated
as of January 7, 1991 (incorporated herein by reference to Exhibit
10.17 filed as a part of the Company's Registration Statement on Form
S-4 (File No. 33-69832)).<F1>
10.9 Employment Agreement among the Company, BBC and Danny R. Perry, dated
as of January 7, 1991 (incorporated herein by reference to Exhibit
10.18 filed as a part of the Company's Registration Statement on Form
S-4 (File No. 33-69832)).<F1>
10.10 Lease Agreement between Browne and the Company, dated as of March 31,
1992 (incorporated herein by reference to Exhibit 10.28 filed as a part
of the Company's Registration Statement on Form S-4 (File No. 33-
69832)).
10.11 Lease Agreement between 2900 Jackson Investments and the Company,
effective as of August 1, 1988 (incorporated herein by reference to
Exhibit 10.29 filed as a part of the Company's Registration Statement
on Form S-4 (File No. 33-69832)).
10.12 Lease Agreement between Oklahoma Properties Partnership and
All-American Bottling, Royal Crown Cola of Oklahoma City, dated as of
January 31, 1992 (incorporated herein by reference to Exhibit 10.30
filed as a part of the Company's Registration Statement on Form S-4
(File No. 33-69832)).
10.13 Lease Agreement between Colcord Partners, Ltd. and the Company, dated
as of June 21, 1994 (incorporated herein by reference to Exhibit 10.30
filed as a part of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.15 Membership Agreement between the Company and Beverage Cooperative
Associates, Inc., dated as of December 28, 1988 (incorporated herein by
reference to Exhibit 10.34 as part of the Company's Registration
Statement on Form S-4 (File No. 33-69832)).
10.17 Bill of Sale, General Conveyance, Assignment and Transfer with
Covenants and Warranties, dated as of September 23, 1994 between the
Company and Canada Dry Potomac Corporation ("CDPC"), as amended by a
letter agreement between the Company and CDPC dated September 26, 1994
(incorporated herein by reference to Exhibit 10.1 filed as a part of
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
10.19 Form of Non-Qualified Deferred Compensation Agreement (incorporated
herein by reference to Exhibit 10.40 filed as a part of the Company's
Annual Report on Form 10-k for the fiscal year ended December 31
1994)<F1>
10.20 Asset Purchase Agreement dated as of March 22, 1996 by and among the
Company and Mid-Continent Bottlers, Inc. (incorporated herein by
reference to Exhibit 10.20 filed as a part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.21 Noncompetition and Confidentiality Agreement dated as of March 22, 1996
between the Company and Mid-Continent Bottlers, Inc. (incorporated
herein by reference to Exhibit 10.21 filed as a part of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.22 Management Assistance Agreement dated as of March 22, 1996 between the
Company and Mid-Continent Bottlers, Inc. (incorporated herein by
reference to Exhibit 10.22 filed as a part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995)
27 Financial Data Schedule
_______________
<F1>
Management contracts and compensatory plans and arrangements.
The foregoing list omits instruments defining the rights of holders of
long term debt of the Company where the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the Company. The Company
hereby agrees to furnish a copy of each such instrument or agreement to the
Commission upon request.
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the fourth quarter
of fiscal year 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 10th day
of April, 1997.
ALL-AMERICAN BOTTLING CORPORATION
By: STEPHEN B. BROWNE
Stephen B. Browne
President, Chief Executive
Officer and Chairman of
the Board
BROWNE BOTTLING COMPANY
By: STEPHEN B. BROWNE
Stephen B. Browne
President, Chief Executive
Officer and Chairman of
the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated, as of the 10th day of April, 1997.
Signature
STEPHEN B. BROWNE
Stephen B. Browne
President, Chief Executive Officer
and Chairman of the Board of BBC and
the Company (Principal Executive Officer)
STEPHEN R. KERR
Stephen R. Kerr
Chief Financial Officer of BBC and the
Company (Principal Financial Officer)
LYNN ELY
Lynn Ely
Controller of BBC and the Company
(Principal Accounting Officer)
FRANCISCO A. SOLER
Francisco A. Soler
Director of BBC and the Company
TOM KING
Tom King
Director of BBC and the Company
DIEGO RIBADENEIRA
Diego Ribadeneira
Director of BBC and the Company
ADOLFO SALUME A.
Adolfo Salume A.
Director of BBC and the Company
JIM L. TURNER
Jim L. Turner
Director of BBC and the Company
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
No annual report to security holders covering fiscal year 1996 or proxy
material sent to more than 10 of the registrant's security-holders with respect
to any meeting of security-holders has been sent to security-holders of the
registrant.
<PAGE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit
Number Exhibit
<S> <C> <C>
3.1 Certificate of Incorporation of the Incorporated herein by reference
Company, as amended
3.2 Amended and Restated Certificate of Incorporated herein by reference
Incorporation of BBC
3.3 Amended and Restated By-Laws of the Incorporated herein by reference
Company
3.4 Amended and Restated By-Laws of BBC Incorporated herein by reference
4.1 Indenture between the Company, BBC Incorporated herein by reference
and Bank of Oklahoma, National
Association, as Trustee, dated as of
August 15, 1993 (including
specimen certificate of 13% Senior
Secured Note due 2001, Series A and
form of 13% Senior Secured Note due
2001, Series B)
4.1.1 First Supplemental Indenture dated as Incorporated herein by reference
of July 6, 1995 to the Indenture
dated as of August 15, 1993, between
the Company, BBC and Bank of
Oklahoma, National Association, as
Trustee.
4.1.2 Consent Memorandum dated June 30, Incorporated herein by reference
1995
4.2 Credit Agreement by and among the Incorporated herein by reference
Company, the Lenders parties thereto,
and BT Commercial Corporation, dated
as of August 18, 1993
4.2.1 First Amendment and Waiver to Credit Incorporated herein by reference
Agreement by and among the Company,
the Lenders parties thereto and
BT Commercial Credit, dated as
of February 18, 1994
4.2.2 Second Amendment and Waiver to Incorporated herein by reference
Credit Agreement by and among the
Company, the Lenders parties thereto
and BT Commercial Credit, dated as
of November 15, 1994
4.2.3 Third Amendment and Waiver to Credit Incorporated herein by reference
Agreement by and among the Company,
the Lenders parties thereto and
BT Commercial Credit, dated as
of March 24, 1995
4.2.4 Fourth Amendment and Waiver to Incorporated herein by reference
Credit Agreement by and among the
Company, the Lenders parties thereto
and BT Commercial Credit, dated as
of July 6, 1995
4.2.5 Fifth Amendment and Waiver to Credit Incorporated herein by reference
Agreement by and among the Company,
the Lenders parties thereto and
BT Commercial Credit, dated as
of March 15, 1996.
10.1 Warrant Agreement by and between Incorporated herein by reference
BBC and Bank of Oklahoma, National
Association, as Warrant Agent, dated
as of August 15, 1993
10.2 Warrantholders Agreement by and Incorporated herein by reference
among BBC, certain stockholders of BBC
listed on the signature pages thereto,
the Company and BT Securities
Corporation, dated as of August 23, 1993
10.3 Warrant Registration Rights Agreement Incorporated herein by reference
by and among BBC and BT Securities
Corporation, dated as of August 23,
1993
10.4 Stockholders' Agreement among BBC, Incorporated herein by reference
Browne, Browne Oklahoma Properties
Partnership and the New Stockholders (as
defined therein), as amended
and restated through August 16, 1993
10.4.1 Amendment to Stockholders' Agreement Incorporated herein by reference
among BBC and the stockholders of
BBC parties thereto, dated February
21, 1995
10.5 Noncompetition Agreement among the Incorporated herein by reference
Company, BBC, IMC and Browne, dated
July 23, 1992
10.6 Noncompetition Agreement among BBC Incorporated herein by reference
and IMC dated July 23, 1992
10.7 Letter Consulting Agreement between Incorporated herein by reference
BBC and IMC, dated August 3, 1992
10.7.1 Letter Agreement between BBC and Incorporated herein by reference
IMC, dated July 1, 1994, amending the
Letter Consulting Agreement referred
to in Exhibit 10.7
10.8 Employment Agreement among the Incorporated herein by reference
Company, BBC and Stephen R. Kerr,
dated as of January 7, 1991
10.9 Employment Agreement among the Incorporated herein by reference
Company, BBC and Danny R. Perry,
dated as of January 7, 1991
10.10 Lease Agreement between Browne and Incorporated herein by reference
the Company, dated as of March 31,
1992
10.11 Lease Agreement between 2900 Incorporated herein by reference
Jackson Investments and the Company,
effective as of August 1, 1988
10.12 Lease Agreement between Oklahoma Incorporated herein by reference
Properties Partnership and
All-American Bottling, Royal Crown Cola
of Oklahoma City, dated as of
January 31, 1992
10.13 Lease Agreement between Colcord Incorporated herein by reference
Partners, Ltd. and the Company, dated
as of June 21, 1994
10.15 Membership Agreement between the Incorporated herein by reference
Company and Beverage Cooperative
Associates, Inc., dated as of December
28, 1988
10.17 Bill of Sale, General Conveyance, Incorporated herein by reference
Assignment and Transfer with
Covenants and Warranties, dated as of
September 23, 1994 between the
Company and Canada Dry Potomac
Corporation ("CDPC"), as amended by a
letter agreement between the Company
and CDPC dated September 26, 1994
10.19 Form of Non-Qualified Deferred Incorporated herein by reference
Compensation Agreement
10.20 Asset Purchase Agreement dated as of Incorporated herein by reference
March 22, 1996 by and among the
Company and Mid-Continent Bottlers,
Inc.
10.21 Noncompetition and Confidentiality Incorporated herein by reference
Agreement dated as of March 22, 1996
between the Company and Mid-Continent
Bottlers, Inc.
10.22 Management Assistance Agreement Incorporated herein by reference
dated as of March 22, 1996 between the
Company and Mid-Continent Bottlers,
Inc.
27 Financial Data Schedule Filed herewith electronically
</TABLE>
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<FISCAL-YEAR-END> DEC-31-1996
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0
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