SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
(Amendment No.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 2, 1998
Date of earliest event reported: November 17, 1997
ALL-AMERICAN BOTTLING CORPORATION
BROWNE BOTTLING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 33-69832 73-1317652
73-1311569
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification Number)
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
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 17, 1997, with an effective date of September 28, 1997, All-
American Bottling Corporation (the "Company") purchased 100% of the
outstanding common stock of Full Service Beverage Company ("FSB"), a
Kansas Corporation which is a soft drink bottler with operations in
Kansas and Colorado. FSB was 50% owned by Stephen B. Browne, President
of the Company and its parent, Browne Bottling Company ("BBC"), and
majority stockholder of BBC, and 50% owned by parties unrelated to the
Company. The Company paid the unrelated parties $1.5 million for their
FSB stock, and entered into non-compete agreements with two of the
unrelated parties, one for $1.8 million payable over 10 years and one for
$230,000 payable over three years. Mr. Browne contributed his FSB stock
to the Company without consideration. The purchase price was based on
fair market value determined by historical industry standards. Funds for
the acquisition were provided by a loan to the Company by an entity owned
by the Company's stockholders.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Attached
(b) Pro Forma Financial Information
Attached
(c) Exhibits
The following exhibits are filed herewith:
Exhibit No. Description
----------- ------------
10.23 Purchase Agreement dated as of November 17, 1997 by and
among the Company and John L.D. Frazier, Nancy Frazier,
Lloyd Frazier and the persons identified on Exhibit A
attached to the Purchase Agreement. Incorporated
herein by reference to Exhibit 10.23 filed as a part of
the Company's Form 8-K dated November 17, 1997 (File
No. 33-69832).
10.24 Agreement Not To Compete dated as of November 17, 1997
by and between John L.D. Frazier and the Company.
Incorporated herein by reference to Exhibit 10.24 filed
as a part of the Company's Form 8-K dated November 17,
1997 (File No. 33-69832).
10.25 Agreement Not To Compete dated as of November 17, 1997
by and between Lloyd Frazier and the Company.
Incorporated herein by reference to Exhibit 10.25 filed
as a part of the Company's Form 8-K dated November 17,
1997 (File No. 33-69832).
<PAGE>
BROWNE BOTTLING COMPANY
PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION (UNAUDITED)
The following unaudited pro forma financial statements are derived from
the historical financial statements of Browne Bottling Company ("BBC") and its
wholly-owned subsidiary, All-American Bottling Corporation ("the Company"), as
adjusted to reflect the acquisition of Full Service Beverage Company ("FSB").
The Pro Forma Combined Statements of Operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996 reflect the acquisition
of FSB (accounted for as a purchase) as if the acquisition occurred on January
1, 1996. The Pro Forma Combined Balance Sheet at September 30, 1997 reflects
the acquisition of FSB as if it had occurred on September 30, 1997. The
unaudited pro forma combined financial information should be read in
conjunction with the notes thereto and the historical financial statements BBC,
including the notes thereto, which are contained in its Annual Report on Form
10-K for the year ended December 31, 1996 and its Quarterly Report on Form 10-Q
for the nine months ended September 30, 1997, and the historical financial
statements of FSB for the fiscal year ended September 27, 1997, including the
notes thereto, which are filed with this Form 8-K/A.
The unaudited pro forma combined financial statements do not purport to
be indicative of the results of operations that would have actually occurred if
the transaction described had occurred as presented in such statements. In
addition, future results may vary significantly from the results reflected in
such statements.
The acquisition of FSB will be accounted for using the purchase method.
The purchase price will be allocated to FSB's assets and liabilities based on
their respective fair values. The final allocation of the actual purchase
price is subject to the final valuation of the acquired assets and liabilities,
but that allocation is not expected to differ materially from the preliminary
allocation.
<PAGE>
BROWNE BOTTLING COMPANY
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
BBC FSB Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 21,171 $ 7,912 $ (717)<F1> $ 28,366
Property and equipment, net 11,078 2,544 - 13,622
Intangible assets, net 38,465 10,330 11,007 <F2> 59,802
Other assets 384 6 1,981 <F2> 2,371
--------- --------- ----------- ---------
Total assets $ 71,098 $ 20,792 $12,271 $ 104,161
========= ========= =========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities $ 22,805 $ 16,554 $ (717) <F1> $ 38,832
190 <F3>
Long term debt 44,629 8,198 1,525 <F3> 56,143
1,791 <F3>
Other long term liabilities 717 - - 717
Deferred income taxes 10,986 2,377 3,145 <F4> 16,508
Stock warrants 809 - - 809
Stockholders' deficit (8,848) (6,337) 6,337 <F2> (8,848)
--------- --------- ----------- ---------
Total liabilities and stockholders'
deficit $ 71,098 $ 20,792 $12,271 $ 104,161
========= ========= ========= =========
<FN>
<F1>
To eliminate the historical receivables and payables due to and from the
Company and FSB.
<F2>
To allocate the purchase price paid for FSB.
<F3>
To record the debt incurred by the Company to purchase FSB. This
includes $1.5 million to purchase all the outstanding stock of FSB and
the two non-compete covenants of $1.8 million and $230,000 payable over
10 years and 3 years, respectively.
<F4>
To recognize deferred income taxes on the difference between financial
and tax bases of the net assets acquired using a statutory rate of 40%.
</FN>
</TABLE>
<PAGE>
BROWNE BOTTLING COMPANY
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Dollars in thousands except per share date)
<TABLE>
<CAPTION>
For the nine months ended September 30, 1997
Historical Historical Pro Forma
BBC FSB<F5> Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 94,347 $ 34,289 $ (1,908)<F1> $ 126,728
Cost of goods sold 60,486 24,439 (1,908)<F1> 83,017
--------- --------- ---------- ---------
Gross profit 33,861 9,850 0 43,711
Operating expenses 30,863 13,470 407<F2> 44,740
--------- --------- ---------- ---------
Operating income (loss) 2,998 (3,620) (407) (1,029)
Interest expense (4,923) (997) (228)<F3> (6,148)
Other income (expense) 978 (244) 734
--------- --------- ---------- ---------
Loss before income taxes and
extraordinary item (947) (4,861) (635) (6,445)
Tax benefit 50 482 254<F4> 786
--------- --------- ---------- ---------
Net loss before extraordinary item $ (897) $ (4,379) $ (381) $ (5,657)
========= ========= ========== =========
Loss per share before extraordinary
item - primary and fully diluted ($4.67) ($29.43)
========= =========
Weighted average shares
outstanding, primary and
fully diluted 192,244 192,244
======== ========
<FN>
<F1>
To eliminate sales and cost of goods sold between the Company and FSB.
<F2>
To record additional amortization expense resulting from the allocation
of the purchase price.
<F3>
To record additional interest expense on the new debt incurred.
<F4>
To record the tax effect of the pro Forma adjustments at a statutory rate
of 40%.
<F5>
FSB's fiscal year ended on September 27, 1997. In order to conform with
BBC in reporting financial information for the nine months ended
September 30, 1997, the FSB's audited statement of operations for the
fiscal year ended September 30, 1997 was used and results for the three
months ended December 28, 1996 were subtracted. The following is a
reconciliation of FSB's audited statement of operations to the
historical financial data included in this pro forma information.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Fiscal year Sept. 29 For the nine
ended Sept. through months ended
27, 1997 Dec. 28, 1996 Sept. 27, 1997
<S> <C> <C> <C>
Sales $ 45,799 $ 11,510 $ 34,289
Cost of goods sold 32,110 7,671 24,439
Operating expenses 17,466 3,996 13,470
Non-operating expenses 1,433 192 1,241
Tax benefit 482 - 482
-------- -------- --------
$ (4,728) $ (349) $ (4,379)
======== ======== ========
</TABLE>
<PAGE>
BROWNE BOTTLING COMPANY
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Historical Historical Pro Forma
BBC FSB<F5> Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 139,951 $ 47,673 $ (2,051)<F1> $ 185,573
Cost of goods sold 93,104 33,837 (2,051)<F1> 124,890
---------- ---------- ---------- ----------
Gross profit 46,847 13,836 0 60,683
Operating expenses 46,272 17,118 542<F2> 63,932
--------- ---------- ---------- ----------
Operating income (loss) 575 (3,282) (542) (3,249)
Interest expense (7,433) (1,419) (316)<F3> (9,168)
Other income 1,863 2,152 4,015
--------- ----------- ----------- ----------
Loss before income taxes before
extraordinary item (provision) (4,995) (2,549) (858) (8,402)
Tax benefit (provision) (158) (12) 343<F4> 173
--------- ----------- ----------- ----------
Net loss before extraordinary
item $ (5,153) $ (2,561) $ (515) $ (8,229)
========= =========== =========== ==========
Loss per share before extraordinary
item - primary and fully diluted ($26.80) ($42.80)
========= ==========
Weighted average shares
outstanding, primary and
fully diluted 192,244 192,244
========= =========
<FN>
<F1>
To eliminate sales and cost of goods sold between the Company and FSB.
<F2>
To record additional amortization expense resulting from the allocation
of the purchase price.
<F3>
To record additional interest expense on the new debt incurred.
<F4>
To record the tax effect of the pro forma adjustments at a statutory
rate of 40%.
<F5>
Represents FSB's audited statement of operations for the year ended
September 28, 1996.
</FN>
</TABLE>
<PAGE>
FULL SERVICE BEVERAGE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 27, 1997
<PAGE>
STEAKLEY, GILBERT & BOZALIS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
15 N. ROBINSON, SUITE 701
OKLAHOMA CITY, OKLAHOMA 73102
STEVEN R. STEAKLEY, CPA
GREG P. GILBERT, CPA
DAVID L. BOZALIS, CPA
- ----------------------
JANE A. HRESKO, CPA OFFICE: (405) 235-4400
SCOTT S. MORGAN, CPA FAX: (405) 236-2207
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Full Service Beverage Company:
We have audited the accompanying consolidated balance sheet of FULL SERVICE
BEVERAGE COMPANY (a Kansas corporation) AND SUBSIDIARIES as of September 27,
1997, and the related consolidated statement of operations, common
stockholders' deficit and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Full Service
Beverage Company and Subsidiaries as of September 27, 1997, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
STEAKLEY, GILBERT & BOZALIS
Oklahoma City, Oklahoma
December 5, 1997, except for NOTE 14 dated January 26, 1998.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 3,400
Trade accounts receivable, less allowance for
doubtful accounts of $292,415 3,537,244
Accounts receivable - affiliate 189,270
Franchise, employee and other receivables 971,871
Inventories, net of obsolescence reserve
of $49,457 2,681,744
Prepaid expenses 143,913
Deferred income taxes 385,054
----------
Total Current Assets 7,912,496
----------
PROPERTY AND EQUIPMENT, at cost
Leasehold improvements 58,036
Plant equipment 2,014,868
Transportation equipment 1,702,176
Vending and fountain equipment 1,782,784
Furniture and fixtures 1,030,798
Returnable containers 400,120
---------
6,988,782
Less - Accumulated Depreciation (4,445,196)
---------
Property and equipment, net 2,543,586
---------
FRANCHISES, less accumulated amortization
of $4,172,170 8,923,279
EXCESS OF COST OVER NET ASSETS OF
SUBSIDIARIES ACQUIRED, less accumulated
amortization of $700,666 1,397,848
DEBT ISSUANCE COSTS, less accumulated
amortization of $630,188 9,000
OTHER ASSETS, net 5,999
-----------
$20,792,208
===========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
CURRENT LIABILITIES
Trade accounts payable $ 6,385,518
Accounts payable - affiliates 924,400
Accrued expenses 1,557,674
Current portion of long term debt 4,591,523
Current portion of long term debt to affiliate 3,009,673
Current portion of obligations under capital leases 85,490
----------
Total current liabilities 16,554,278
----------
LONG-TERM DEBT, less current portion 8,014,473
----------
OBLIGATIONS UNDER CAPITAL LEASES, less
current portion 183,991
----------
DEFERRED INCOME TAXES 2,376,476
----------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 9, 12 &13)
COMMON STOCKHOLDERS' DEFICIT:
Common stock, $100 par value per share, 600 shares
authorized and issued, 188 shares outstanding 60,000
Additional paid-in capital 10,576,202
Retained deficit - as restated (Notes 10 & 11) (13,049,670)
------------
(2,413,468)
Less - Treasury stock, 412 shares, at cost (3,923,542)
------------
Total common stockholders' deficit (6,337,010)
------------
$20,792,208
============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED
SEPTEMBER 27, 1997
<TABLE>
<S> <C>
NET SALES (reduced by discounts of $24,158,037) $45,799,404
COST OF GOODS SOLD 32,110,405
-----------
Gross profit 13,688,999
OPERATING EXPENSES:
Distribution, selling and marketing 15,169,511
General and administrative 1,615,875
Amortization Expense 680,938
----------
17,466,324
----------
OPERATING LOSS (3,777,325)
----------
OTHER INCOME (EXPENSE):
Interest Expense (1,421,231)
Gain (loss) on sales of assets (57,196)
Other, net 44,543
----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (5,211,209)
INCOME TAX BENEFIT (482,661)
----------
NET LOSS BEFORE EXTRAORDINARY ITEM (4,728,548)
EXTRAORDINARY ITEM - Gain on early extinguishment
of debt (less applicable income taxes of $0 - Note 12) 1,295,283
----------
NET LOSS $ (3,433,265)
===========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED
SEPTEMBER 27, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,433,265)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 1,472,724
Extraordinary item-gain on early
extinguishment of debt (1,295,283)
Losses on sales of assets 57,196
Allowance for doubtful accounts 148,415
Vending machines received as price support (169,780)
Expired leasehold improvements and
writeoff of returnable containers 746,433
Inventory obsolescence reserve 49,457
Royalty expense payable in installments 50,000
Rebates applied to notes payable (685,669)
Deferred income tax (benefit) provision (482,661)
Changes in assets and liabilities -
Decrease in trade accounts receivable 109,633
Increase in accounts receivable - affiliate (189,270)
Increase in franchise, employee and
other receivables (297,978)
Decrease in inventories 467,252
Decrease in prepaid expenses 97,687
Increase in trade accounts payable 2,149,220
Increase in accounts payable - affiliate 924,400
Increase in accrued expenses 95,697
Decrease in deferred revenue (450,330)
Decrease in income taxes payable (1,279,395)
----------
Net cash used in operating activities (1,915,517)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (450,300)
Additions to franchise/other intangible assets (241,000)
Proceeds from sales of assets 44,250
----------
Net cash used in investing activities (647,050)
----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED
SEPTEMBER 27, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving lines of credit
senior lender $ 452,515
Funds provided by affiliate 3,402,048
Principal payments on long-term debt of -
Trade suppliers (611,000)
Related parties (844,920)
Other 266,609
Principal payments on obligations under capital leases (99,285)
----------
Net cash provided by financing activities 2,565,967
----------
NET INCREASE IN CASH 3,400
CASH, at beginning of year -
----------
CASH, at end of year $ 3,400
==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $1,310,756
==========
Cash paid for income taxes $1,279,393
==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
During fiscal year 1997, the Company issued notes payable totaling
$473,815 to several significant trade suppliers to restructure the
payment terms of trade accounts payable.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEAR ENDED
SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
Total
Common Stock Additional Treasury Stock Common
---------------- Paid-In Retained ---------------- Stockholders'
Shares Amount Capital (Deficit) Shares Amount Deficit
------ ------ ---------- ----------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, September 28, 1996,
as previously reported 600 $60,000 $10,576,202 $(8,063,557) 412 $(3,923,542) $(1,350,897)
Prior period
Adjustment for
Understatement of
Deferred income
Tax liability
(Note 10) (2,344,921) (2,344,921)
Cumulative effect
On prior years of
Retroactive
Restatement for
Accounting change
From LIFO method
Of valuing inventory
(Note 11) 792,073 792,073
Net loss (3,433,265) (3,433,265)
BALANCES, September 27,
1997, as restated 600 $60,000 $10,576,202 $(13,049,670) 412 (3,923,542) $(6,337,010)
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
FULL SERVICE BEVERAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997
(1) ORGANIZATION
Full Service Beverage Company (a Kansas corporation) and subsidiaries (the
"Company") operates as a producer and distributor of soft drinks and other
beverages under the terms of franchise and distribution agreements with
companies having national brand recognition. The franchise and distribution
agreements grant the Company exclusive rights to produce and/or distribute
certain soft drinks and beverages in specified territories in Kansas, Colorado
and other states.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of Full
Service Beverage Company and its subsidiaries. The subsidiaries are Full
Service Beverage Company of Kansas, a Kansas corporation, and Full Service
Beverage Company of Colorado, a Delaware corporation, which are both wholly
owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Inventories
-----------
Inventories consist primarily of raw materials, supplies and manufactured or
purchased products. Inventories of raw materials and finished goods are valued
at the lower of cost, determined by the first-in, first-out ("FIFO") method, or
net realizable value.
Property and Equipment
----------------------
Property and equipment are recorded at their historical cost. Depreciation is
computed by use of the straight-line method over the following estimated useful
lives:
Leasehold improvements 5 to 15 years
Plant equipment 3 to 14 years
Transportation equipment 3 to 7 years
Vending and fountain equipment 7 years
Furniture and fixtures 5 to 7 years
Returnable containers 5 years
The cost and related accumulated depreciation of assets retired or otherwise
disposed of are removed from the accounts, and any resulting gain or loss is
reflected in operations for that period. The cost of maintenance and repairs
is charged to expense as incurred, while significant renewals and betterments
are capitalized.
Franchise Costs, Excess of Cost Over Net Assets of
Subsidiaries Acquired and Debt Issuance Costs
--------------------------------------------------
Franchise costs are being amortized, using the straight-line method, over their
estimated lives of 10 to 40 years.
The excess of the costs of the acquisition of subsidiaries over the fair value
of the net assets acquired (goodwill) at the date of acquisition is being
amortized, using the straight-line method, over their estimated lives of 40
years.
Debt issuance costs are being amortized over the repayment period of the
related debt, as amended, using the straight-line method.
The Company has evaluated the realization of its recorded franchise assets and
related intangibles, and determined that the recorded amounts are recoverable
in the course of the Company's operations. Further, the Company is required to
be in compliance with the provisions of its franchise agreements, which include
provisions regarding the Company's ability to provide distribution in the
territories granted under such agreements.
Fiscal Year
-----------
The Company's fiscal year is composed of 52 week years and an occasional 53
week year, and typically ends on the Saturday prior to September 30. Fiscal
year 1997 was comprised of 52 weeks and ended on September 27, 1997.
Use of Estimates in the Presentation of Financial Statements
------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions 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 revenue and expenses
during the reporting period. Actual results could differ from those estimates.
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 fiscal year
ending September 27, 1997, however, the implementation of this standard did not
have a significant impact on the Company's financial position or results of
operations.
Advertising and Promotion Expense
---------------------------------
Costs of media advertising and other promotion programs are expensed when
incurred. Total advertising expense for the fiscal year ended September 27,
1997 was $583,706.
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.
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.
(3) INVENTORIES
Inventories consist of the following at September 27, 1997.
Finished Goods $1,348,593
Raw Materials 1,382,608
Less: Obsolescence reserve (49,457)
----------
Total inventories $2,681,744
==========
(4) LONG-TERM DEBT
Long-term debt at September 27, 1997 is summarized as follows:
Debt to senior lender -
Term loan, matures on December 15, 1997,
as discussed below $4,380,160
Revolving lines of credit, matures on
December 15, 1997, as discussed below 5,539,636
----------
$9,919,796
==========
Debt to trade suppliers -
Promissory note to a certain trade supplier dated
August 1996; interest accrues at the prime rate
(8.50% at September 27, 1997) and is payable on
July 31, 1998, unless note is paid in full prior to
July 31, 1998 at which time all interest is waived;
monthly principal payments are due in varying
amounts through July 15, 1998 with any final
payment due on July 31, 1998; monthly rebate
credits for certain purchases are applied against
the principal balance; note may be prepaid
without penalty; secured by all accounts receivable
and inventory but junior to the senior debt $ 947,635
Letter agreement with a certain trade supplier
dated July 1996; imputed interest at 10%; monthly
principal payments are due in varying amounts
through November 1998 with any final payment
due at that time; terms are subject to acceleration
at the option of supplier if supplier elects to
discontinue distribution with Company or if
Company violates certain Forbearance
Conditions, as defined; unsecured; payments
on current purchases are guaranteed by a stockholder. 900,000
Promissory note to certain trade supplier dated
August 1996; imputed interest at 10%; monthly
principal payments are due in varying amounts
through August 15, 1998 with any final payment
due at that time; monthly rebate credits for
purchases from the supplier are applied against
the principal balance; unsecured 567,457
----------
$2,415,092
----------
Debt to related parties -
Promissory note to a company owned by a
stockholder dated October 1997; interest payable
monthly at 10% (or the same rate as the
Revolving lines of credit); principal of up to
$4,050,000 is due on demand: unsecured 3,009,673
---------
Other 271,108
---------
15,615,669
Current portion of long-term debt (7,601,196)
----------
Long-term debt, less current portion $8,014,473
==========
The senior lender Agreement originally provided for total borrowing of up to
$17,500,000, consisting of a Senior Term Loan in the amount of $8,500,000 and
Revolving Lines of Credit with a total commitment of up to $9,000,000.
The Senior Term Loan bears interest at the prime rate plus 1.75% (10.25% at
September 27, 1997). Interest is computed on the basis of a 360 day year and
is payable monthly in arrears. Principal originally was payable monthly over
five years, using a seven year amortization, with the remaining balance due on
June 30, 1999.
The Revolving Lines of Credit bear interest at prime plus 1.5% (10% at
September 27, 1997). The amount of borrowings allowed is based on the sum of
(i) 85% of eligible accounts receivable, as defined in the Agreement, and (ii)
the lessor of 70% of eligible inventory, as defined in the Agreement and
amendments, or $4,000,000. The above borrowing base percentages may be
adjusted at the option of the lender in certain circumstances.
Both loans are secured by all equipment, inventory, accounts receivable,
intangibles, real estate and other property. The loans are also secured by a
pledge of the Company's outstanding common stock. The Company's real estate
holdings were sold in April 1996 to a stockholder, however, the stockholder
agreed to the continued securitization of the real estate to the benefit of the
senior lender.
Collateral and borrowing base calculations are based on the specific assets of
the Company's wholly-owned subsidiaries to reflect the fact that the Agreement
has specified provisions and loan arrangements with regard to each subsidiary.
Borrowings under the Company's Revolving Lines of Credit require the Company to
maintain cash accounts controlled by the senior lender whereby customer
receipts are applied to reduce the amount outstanding under the Revolving Lines
of Credit.
The loans may be prepaid under certain circumstances.
The loans originally required the Company to comply with certain financial
covenants, including debt service and limitations on distributions to owners
and capital expenditures. The Agreement also restricts the Company's ability
to pay dividends and contains restrictions on the Company's activities,
additional indebtedness, investments, purchases and sales of assets, and
transactions affecting the Company's capital stock.
(5) OBLIGATIONS UNDER CAPITAL LEASES
During fiscal year 1995, the Company entered into various capital lease
obligations for plant and vending equipment. Future minimum lease payments
required under these capital leases, together with the present value of the net
minimum lease payments, are as follows as of September 27, 1997:
Fiscal year -
1998 $ 97,413
1999 162,447
2000 31,377
--------
Minimum lease payments 291,237
Less: Amount representing interest (21,756)
--------
Present value of net minimum lease payments 269,481
Less: Current portion (85,490)
--------
$183,991
========
(6) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires an asset and liability approach to financial accounting
and reporting for income taxes. The difference between the financial statement
and tax bases of assets, liabilities and carryforwards is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future income tax consequences using the currently enacted tax laws
and rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established, if necessary, to reduce
deferred tax assets to the amount that will, on a more likely than not basis,
be realized. Income tax expense is the current tax payable or refundable for
the period plus or minus the net change in deferred tax assets and liabilities.
The components of the provision for income taxes is as follows:
Current:
Federal $ -
State -
------------
-
------------
Deferred
Federal (400,255)
State (82,406)
------------
(482,661)
------------
Income tax (benefit) $(482,661)
============
The components of the Company's net deferred tax liability at September 27,
1997 are as follows:
September 27,
1997
-------------
Deferred tax assets $ 2,754,452
Valuation allowance (1,030,964)
Deferred tax liabilities (3,714,910)
-------------
Net Deferred Tax Liability $ (1,991,422)
=============
Temporary differences that give rise to significant amounts of deferred taxes
consist of book carrying values of franchises exceeding tax carrying values,
tax depreciation which differs from depreciation for financial reporting
purposes and expenses which are deductible for income tax purposes when paid.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including significant changes in ownership interests. The
Company has determined that its deferred tax asset attributable to net
operating losses does not completely satisfy the realization criteria set forth
in SFAS 109. Recognition of these benefits requires future taxable income, the
attainment of which is uncertain. Accordingly, a valuation allowance in the
amount of $1,030,964 has been recorded against a portion of the cumulative net
operating loss carryforward of $5,779,000. The net operating loss carryforward
expires September 2012.
The income tax provision differs from the amount expected by applying statutory
rates due to nondeductible expenses and the establishment of a valuation
allowance against net operating losses.
(7) EMPLOYEE BENEFIT PLANS
Pension Plan
------------
During fiscal 1993, the Company elected to freeze the accrued benefits of its
defined benefit pension plan covering certain employees of the Company and
terminate this plan at a later date. The Company will continue to make
required fundings, which were not significant at September 27, 1997, until this
plan is fully funded. In fiscal year 1996, the Company received notice from
its actuary that this plan experienced a funding deficiency relating to its
1994 through 1997 plan years. The Company is currently resolving these issues.
401(k) Plan
-----------
The Company has a 401(k) plan for its employees. Under this plan, the Company
contributes an amount equal to 100% of the first $150 and 25% thereafter of
each employee's contribution up to a maximum of 4% of the employee's salary.
The total amount contributed by the Company to the plan during the fiscal year
ended September 27, 1997 was $28,791.
(8) COMMITMENTS
The Company is obligated under various noncancelable operating leases for
warehouse facilities, vehicle maintenance facilities, transportation equipment
and various other equipment. The leases expire at various dates through March
2002.
Future minimum lease payments under such noncancelable operating leases are as
follows:
Fiscal year -
1998 $ 240,013
1999 228,605
2000 224,761
2001 217,943
2002 215,298
-----------
$1,126,620
===========
Total rent expense for operating leases for the fiscal year ended September 27,
1997 was $477,238.
(9) RELATED PARTY TRANSACTION
The Company is committed under certain five year building leases to pay
$260,000 of rent per annum to an affiliated entity.
(10) PRIOR PERIOD ADJUSTMENT - DEFERRED INCOME TAXES
Retained earnings at the beginning of 1996 has been adjusted to correct an
error for not recording deferred income taxes on the difference between book
and tax carrying values of Company-owned franchises. The error had an
immaterial effect on net income for 1996.
(11) PRIOR PERIOD ADJUSTMENT - CHANGE FROM LIFO METHOD
OF VALUING INVENTORY
During 1997, the Company changed its method of determining the cost of
inventory from LIFO to FIFO. The Company believes the new method results in a
closer matching of costs and revenue during periods of fluctuating prices. The
effect of this change on income before extraordinary items and net income for
1997 was not readily determinable, however, management believes that the
effect, if any, is immaterial to the financial statements taken as a whole. The
financial statements for 1996 have been retroactively restated for the change
that resulted in an increase of income before extraordinary items and net
income for 1996 of $344,506. Retained earnings has been adjusted for the
effect of retroactive application of the new method.
(12) EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
During 1997, the Company settled all Internal Revenue Service income tax
liabilities for years ending on or before September 28, 1996. The settlement
resulted in a gain on extinguishment of debt in the amount of $1,295,283. The
Company is required, for a period of five years from the date of settlement, to
timely pay all future federal taxes or the entire extinguishment will become
immediately due and payable.
(13) HEALTH INSURANCE RESERVES
The Company is insured by a third-party insurance company under a policy which
defers payments due until the actual claims are 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 $139,000 at September 27, 1997.
(14) SUBSEQUENT EVENTS
During October 1997, Full Service Beverage Company of Kansas was merged into
Full Service Beverage Company of Colorado.
On November 17, 1997, with an effective date of September 28, 1997, All-
American Bottling Corporation ("AABC"), a company affiliated through common
ownership, purchased 100% of the common stock of the Company. The stockholders
unrelated to AABC were paid $1.5 million for their 50% share of the Company's
stock. The remaining 50% of the Company's stock was contributed to AABC by the
related party without consideration. AABC entered into two non-compete
agreements with two of the unrelated parties, one for $1.8 million payable over
10 years and one for $230,000 payable over three years. The purchase price was
based on fair market value determined by historical industry standards.
During January 1998, the Company restructured the debt to its senior lenders as
follows:
$2,000,000 term loan, dated January 1998, maturing January 2001, bearing
interest at prime +1.50% (10% at inception of note), principal payments of
$25,000, $50,000, and $92,000 due monthly through calendar years ending 1998
through 2000, respectively, collateralized by security interests in the
Company's fixed assets.
$7,500,000 revolving line of credit dated January 1998, maturing January 2001,
bearing interest at prime plus 1/2% (9% at inception of note). The amount of
borrowings allowed is based on the sum of (i) eighty-five (85%) percent of
eligible accounts receivable, as defined in the agreement, and (ii) sixty-five
(65%) percent of the value of eligible inventory as defined in the agreement.
The restructured debt has several restrictive covenants one of which requires
the Company's earnings before interest, taxes, depreciation and amortization
for the fiscal year ending December 31, 1998 to equal or exceed $1,750,000.
The long-term debt and current portion of long-term debt per the accompanying
financial statements reflect the principal repayment terms per the January 1998
restructure.
Maturities of long-term debt for fiscal years ended September 27, giving effect
to the above restructure, are as follows:
1998 $ 7,601,196
1999 1,143,374
2000 1,020,575
2001 5,850,524
------------
$15,615,669
============
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALL-AMERICAN BOTTLING CORPORATION
STEPHEN R. KERR
Date: February 2, 1998 Stephen R. Kerr
Vice President and
Chief Financial Officer
BROWNE BOTTLING COMPANY
Date: February 2, 1998 STEPHEN R. KERR
Stephen R. Kerr
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
10.23 Purchase Agreement dated as of Incorporated herein by
November 17, 1997 by and among reference
the Company and John L.D. Frazier,
Nancy Frazier, Lloyd Frazier and
the persons identified on Exhibit
A attached to the Purchase Agree-
ment.
10.24 Agreement Not to Compete dated Incorporated herein by
as of November 17, 1997 by and reference
between John L.D. Frazier and the
Company.
10.25 Agreement Not to Compete dated Incorporated herein by
as of November 17, 1997 by and reference
between Lloyd Frazier and the
Company.
</TABLE>
