<PAGE>
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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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
--------------------------
Commission File Number
33-47718
SEVEN-UP/RC BOTTLING COMPANY
OF
SOUTHERN CALIFORNIA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4284699
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3220 East 26th Street
Vernon, California 90023
(Address of principal executive offices) (Zip code)
(213) 268-7779
(Registrant's telephone number, including area code)
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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 31, 1997 there were 5,000,000 shares of Common Stock outstanding and
the aggregate market value of the outstanding shares held by non-affiliates was
approximately $60,000,000 based on the closing price per share reported on the
OTC Bulletin Board on such date.
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<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I
Item 1. Business 2
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 15
PART II
Item 5. Market for Registrants' Common Equity
and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
Item 8. Financial Statements and Supplementary
Data 26
Item 9. Changes of and Disagreements with
Accountants on Accounting and Financial
Disclosure 27
PART III
Item 10. Directors and Executive Officers of the
Registrant 28
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related
Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 36
SIGNATURES............................................. 37
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Seven-Up/RC Bottling Company of Southern California, Inc., a Delaware
corporation ("Seven-Up/RC" or the "Company"), is among the largest beverage
distributors in the United States, and is the largest bottler of Seven-Up in the
United States. Seven-Up/RC manufactures and distributes a broad range of
beverage products in Southern California, Central California, and in portions of
Nevada and New Mexico. Seven-Up/RC has the exclusive right within its
territories to manufacture and/or distribute Seven-Up (lemon-lime), Royal Crown
(cola), A&W (root beer and cream soda), Sunkist (orange and lemonade), Hawaiian
Punch (fruit punch), Schweppes (ginger-ale and mixers), Evian (imported still
water), Perrier (imported mineral water), Welch's (grape, strawberry and
pineapple), Mistic (teas and juices), Yoo-Hoo (chocolate drink) and in its New
Mexico franchise territory, Snapple (teas and juices). Seven-Up/RC's
consolidated net sales in 1996 were $294,491,000, which includes $37,935,000 of
net sales from Seven-Up/RC's wholly-owned subsidiary, Seven-Up/RC Bottling
Company of Puerto Rico, Inc. ("Puerto Rico"), which was divested in June 1996 in
connection with the Plan of Reorganization described below.
Seven-Up/RC competes as an independent bottler on the basis of its large
portfolio of franchised brands, its significant combined market share, its
ability to market, distribute and merchandise its products effectively and
favorable demographics within its territories. Seven-Up/RC's portfolio of
franchised brands consists of highly recognizable trademarks that are in almost
all cases the first ranking brand in their respective beverage flavor
categories. Seven-Up/RC's combined market share of its franchised brands and
products that are produced under contract manufacturing agreements, enables it
to realize purchasing, manufacturing, marketing and delivery efficiencies.
Additionally, Seven-Up/RC's territories have many attributes that contribute to
revenue growth in the beverage industry, including a favorable climate and a
high density of retail outlets in populous areas.
Seven-Up/RC's products are made available to its customers through a
network of distribution facilities that are strategically positioned within
major population areas, and it distributes essentially all of its products
directly to retail outlets through its direct-store-door ("DSD") distribution
system. Through its DSD distribution system, Seven-Up/RC provides efficient,
high-quality service to the more than 35,000 retail outlets that it serves.
These retail outlets include supermarkets, warehouse clubs, convenience stores
and other retail establishments that serve a combined population of over 30
million consumers.
Seven-Up/RC's business strategy is to manufacture and distribute a
franchised portfolio of leading trademarked beverages in each beverage flavor
category and to create an additional source of revenue through contract
manufacturing. In accordance with this strategy, its Liquitrend division
("Liquitrend") engages in contract manufacturing, which utilizes excess
production capacity by manufacturing beverage products for a variety of small,
independent franchisors, retailers selling private label products and
wholesalers that distribute private label products for consumption both inside
and outside of the United States.
On May 13, 1996, Seven-Up/RC and its parent, Beverage Group Acquisition
Corporation, a Delaware corporation ("BGAC"), filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code. BGAC had no independent
operations and was a wholly-owned subsidiary of WB Bottling Corporation ("WB
Bottling"), a privately held Delaware corporation. On May 16, 1996, Seven-Up/RC
and BGAC filed their Joint Plan of Reorganization; subsequently, Seven-Up/RC and
BGAC filed their First Amended Joint Plan of Reorganization dated June 19, 1996
(the "Plan of Reorganization"). The Plan of Reorganization was consummated on
August 15, 1996. Pursuant to the Plan of Reorganization, $140,000,000 aggregate
principal amount of 11.5% Senior Secured Notes Due 1999 of Seven-Up/RC (the
"Senior Secured Notes"), together with the accrued interest thereon, was
discharged. In connection with such discharge, the holders of the Senior
Secured Notes received 98% of the
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<PAGE>
equity of Seven-Up/RC (subject to dilution to the extent certain warrants and
options to be granted by Seven-Up/RC are exercised, and $55 million of proceeds
from the sale of the stock of Puerto Rico. In addition, BGAC was merged into
Seven-Up/RC.
Seven-Up/RC's executive offices are located at 3220 East 26th Street,
Vernon, California 90023. The telephone number at the Vernon location is (213)
268-7779.
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<PAGE>
BEVERAGE INDUSTRY
Soft drinks are the most widely consumed beverage in the United States.
Retail sales for the American soft drink industry in 1995 were estimated to be
approximately $52 billion, of which approximately 58% were cola sales.
Historically, the soft drink industry has been an industry of continual change
and evolution. It is characterized by a relative absence of technological risk,
lack of foreign competition and significant barriers to entry, primarily due to
geographic exclusivity agreements with franchisors. Its 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.
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<PAGE>
TERRITORIES AND PRODUCTS
The warm climate in Seven-Up/RC's territories considerably influences the
trend towards higher per capita consumption of beverages. In addition, the high
density of retail outlets in populous areas of its territories results in lower
distribution costs.
Unlike its principal competitors, Seven-Up/RC does not rely on any one
trademark for a substantial majority of its sales. This diversification results
in each brand receiving significant attention from the Company while providing
the franchisor with the marketing and merchandising benefits of a larger
bottler. Seven-Up/RC is committed to the profitability of its DSD business and
will not seek to gain market share at the expense of profitability. The
following table shows the percentage of DSD case sales for 1996 for each of the
brands distributed in its territories:
<TABLE>
<CAPTION>
Brand %
----- -----
<S> <C>
Seven-Up 45.1
A&W Brands 10.6
Royal Crown 9.6
Sunkist 8.1
Evian 5.7
Hawaiian Punch 5.6
Welch's 3.9
Schweppes 2.9
Perrier 1.4
Other (including fountain) 7.10
-----
100.0
=====
</TABLE>
Liquitrend manufactures a variety of beverage products pursuant to short-
term and long-term contracts. Liquitrend also exports beverage products to
Mexico and the Far East.
Seven-Up/RC's portfolio of franchised brands consists of highly
recognizable trademarks that are market leaders in their respective beverage
flavor categories. Seven-Up/RC believes that it is able to achieve a
competitive number of promotional displays and a competitive amount of shelf
space in retail outlets because of the strength and diversification of the
trademarks in its brand portfolio.
Seven-Up/RC's brand portfolio has a significantly higher combined market
share of the beverages sold in its territories as compared to most other
independent bottlers. However, Coca-Cola and Pepsi-Cola together account for
over 60% of the soft drinks sold in these territories. Seven-Up/RC believes
that it is able to effectively compete in its territories because its combined
market share gives it marketing and merchandising advantages that it would not
otherwise have with a smaller or less diversified portfolio.
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<PAGE>
BOTTLING RIGHTS
Seven-Up/RC has agreements with franchisors pursuant to which it has the
exclusive right to manufacture and/or distribute certain beverage products in
specified territories, and generally has non-exclusive rights to produce,
distribute and market certain soft drink syrups in premix (ready-to-use) and
postmix (concentrated) form for fountain sales.
Syrup concentrates are one of the primary ingredients of beverage products.
Concentrate formulas are highly proprietary and are owned solely by the
respective franchisors. The franchisors manufacture and sell to Seven-Up/RC
concentrates from which the beverage products are produced. The franchisors are
entitled to set the price for their concentrate unilaterally. Under the
franchise agreements, in connection with the marketing and distribution of the
beverage products, Seven-Up/RC has the right to use the trade names and
trademarks and associated patents, copyrights, designs and labels, all of which
are owned by the respective franchisors.
Seven-Up/RC considers its franchise agreements with Cadbury Beverages North
America (trade names of Seven-Up, A&W, Sunkist, Welch's, Schweppes, Canada Dry
and Crystal Light), Royal Crown Cola Co., and Great Brands of Europe, Inc. to be
material to its operations. These and other franchise agreements generally
contain certain affirmative obligations 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 capacity, use of best efforts to promote sales,
submission of annual marketing, management, and advertising plans for approval
(which approval may not be unreasonably withheld) and the submission of reports
as to the implementation of these plans. The agreements generally prohibit
Seven-Up/RC from engaging in specific activities, including, but not limited to,
distributing or selling the beverage products outside the specified franchise
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 or by operation of law, without prior consent. No
franchisor has ever terminated any of Seven-Up/RC's franchise agreements as a
result of the breaching of any provisions thereof and Seven-Up/RC considers its
relationship with each of the franchisors to be satisfactory.
However, on July 28, 1995, the Company received a notice of termination of
the distribution agreement dated September 12, 1990 (the "Distribution
Agreement") with Great Brands of Europe, Inc. ("GBE"). The Distribution
Agreement grants the Company the exclusive right to distribute Evian Water in
Southern California. In its notice of termination, GBE stated its belief that
termination was justified, based on the Company's decision to suspend interest
payments on its Senior Secured Notes. Additionally, the termination notice
stated that the Company would be allowed to distribute Evian Water on an at will
basis. GBE's notice of termination was not effective until the expiration of
the contractually specified cure period. Before the cure period (as extended by
agreement between the parties) expired, the Company and GBE reached a settlement
pursuant to which the termination notice was withdrawn and the Distribution
Agreement was amended. The Distribution Agreement, as amended on January 12,
1996, grants certain termination rights to GBE in the event that certain
execution performance standards are not met.
The franchise agreements are either perpetual or for several years with
automatic renewals. A franchisor may terminate the rights to produce, market
and distribute products upon an event of default by Seven-Up/RC and in certain
other limited circumstances. Events of default include, but are not limited to,
failure to fulfill the affirmative obligations or violations of the prohibited
activities as described above. Seven-Up/RC generally may terminate an agreement
at any time without cause by giving proper notice to the franchisor.
Termination of bottling rights with respect to its principal products would
constitute an event of default under Seven-Up/RC's revolving credit facility and
might have a material adverse effect on the financial position of Seven-Up/RC.
-6-
<PAGE>
MANUFACTURING
Seven-Up/RC produced 34.8 million cases in 1996 in its Vernon and Buena
Park, California, and its Albuquerque, New Mexico manufacturing plants.
Seven-Up/RC's largest manufacturing plant is located in Vernon, California,
which is a combination manufacturing and distribution facility built in 1977.
The Vernon plant operates two bottle lines and two can lines that can produce 42
million cases annually. Seven-Up/RC's Buena Park plant is diversified with four
separate lines that produce cans, bottle, fountain products and pasteurized
products. The Buena Park facility has a 27 million annual case capacity. The
Albuquerque plant is a combined manufacturing and distribution facility that is
capable of producing 3 million cases annually with one can line and one bottle
line.
The manufacturing process consists of receiving, batching, filling and
packaging product. Empty containers are received in bulk and are moved from the
supplier's trailers to de-palletizing equipment, which automatically places the
empty containers on conveyors that carry them to the filling equipment. Treated
water, concentrate, sweetener and additives are combined in large stainless
steel tanks and are mixed, or "batched," with a motorized impeller. Each
respective batch is then carbonated and sent to the filling equipment. At the
same time, containers arrive by conveyor and are rinsed to remove any
particulate matter. At the Vernon and Buena Park facilities, the containers are
"air-rinsed" using ionized air and vacuum to remove dust particles. The filling
equipment fills the air-rinsed containers with batched product at extremely high
speeds. At the Vernon and Buena Park facilities, the containers are filled with
batched product at ambient water temperature. This warm-fill process eliminates
costs associated with refrigeration of the product (to reduce foaming in the
filling process) and its subsequent warming (to reduce packaging damage caused
by condensation). The filled cans and bottles are then automatically scanned or
manually inspected to test filling level and cap or end placement. Cans are
either packaged in multi-pack cartons or in corrugated trays and fastened with
plastic rings. Bottles are usually packaged in returnable plastic shells. Each
packaged case is then automatically transported to a "palletizer" where it is
stacked on a wooden pallet to be stored before distribution.
Seven-Up/RC purchases concentrate for its franchised brands directly from
franchisors in accordance with franchise agreements. Price increases for
concentrate are not limited by such agreements, but are imposed unilaterally by
franchisors and have been historically 3 to 5% annually. The majority of Seven-
Up/RC's other raw materials are purchased through a national cooperative of
"non-Coke/Pepsi" bottlers that meet minimum volume requirements. 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, Seven-Up/RC believes that
its costs for raw materials are comparable to those of its competitors. Key raw
materials and their approximate percentage of material costs for 1996 include:
concentrate (32.3%); aluminum cans (21.9%); purchased finished goods (including
Evian, Snapple, Perrier and Yoo-Hoo) (18.6%); plastic bottles (9.0%); sweetener
(8.4%); glass bottles (2.6%); packaging (1.9%); and other (5.3% including bottle
closures and additives). Seven-Up/RC believes that adequate alternative sources
exist for the majority of its raw materials with the exception of concentrate
and purchased finished goods.
Seven-Up/RC maintains a stringent quality control program. Automatic
quality testing is performed on all of its products prior to and during the
bottling process. A microbiologist and skilled technicians are kept on staff to
test product, containers and packaging.
Seven-Up/RC maintains an inventory management program that minimizes raw
material inventory carrying costs and potential spoilage. In addition, only one
day's supply of certain raw materials are kept on hand, including sweetener,
cans and bottles.
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<PAGE>
SALES AND DISTRIBUTION
Seven-Up/RC's sales methods differ according to its geographic markets and
specific customer segments with sales oriented towards high-volume customers
such as large retail chains, which results in economies of scale in selling and
distribution expenses. Product orders are taken in advance by a salesperson and
are generally delivered and merchandised within 24 hours by other employees.
Seven-Up/RC utilizes its distribution channels to maximize market
penetration with its principal method of distribution being DSD. DSD is the
Company's preferred method of distribution because Seven-Up/RC has greater
control over the sales, marketing and merchandising of its products. Deliveries
are made by Seven-Up/RC's fleet of delivery vehicles located at each of its
distribution facilities.
The scope of Liquitrend's activities may be limited by the terms of Seven-
Up/RC's franchise agreements and excess manufacturing capacity as Liquitrend
utilizes this excess capacity to indirectly participate in other geographic
markets. Liquitrend manufactures products for beverage or retail grocery
companies that lack sufficient volume to justify the capital investment of a
manufacturing plant.
Seven-Up/RC makes cold drinks available to consumers through vending
machines, fountain equipment and visi-coolers (bottler identified refrigerated
cabinets). Vending machines are either sold, leased or loaned to retail outlets
or distributors who are responsible for machine maintenance and product
restocking. Visi-coolers are generally loaned to large retail outlets and
convenience stores. In addition, Seven-Up/RC is involved in full-service
vending. This process requires that the Company fill and service these vending
machines and that a commission on sales is paid to the owner of the
establishment at which the vending machine is placed. Fountain equipment
dispenses products in restaurants, bars, amusement parks, theaters and other
similar locations. Seven-Up/RC 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. However, Seven-Up/RC's fountain
market share is not significant.
During 1996, no single customer accounted for 10% or more of Seven-Up/RC's
sales, and the Company is not dependent on any single customer. A significant
portion of Seven-Up/RC's sales are made to large retail chains. However,
because consumer demand requires these chains to stock Seven-Up/RC's products
and because they are the only distributor of its products within its
territories, Seven-Up/RC does not expect any of these large retail chains to
discontinue its products.
-8-
<PAGE>
MARKETING
The marketing of beverage products is the primary basis of competition
among soft drink bottlers. Successful bottlers must competitively price its
products, creatively advertise in their territories and effectively execute
promotional programs. Seven-Up/RC's marketing efforts are directed towards
brand management, key account management, promotional activities and
merchandising. Seven-Up/RC believes that its marketing program's allow it to
compete effectively in its markets.
Marketing programs for each of Seven-Up/RC's franchised brands are
coordinated with the franchisors by its brand management group. National
advertising campaigns are developed by the franchisors, while Seven-Up/RC brand
managers develop local advertising campaigns, implement brand development
strategies, direct promotional activities on a company-wide basis and monitor
marketing support in accordance with annual marketing agreements with the
franchisors.
Seven-Up/RC's success is closely tied to its on-going relationships with
its key accounts. Key account managers are responsible for coordinating
promotional activities for a select group of accounts. These activities include
placing "feature" newspaper advertisements that coincide with competitive
pricing programs, obtaining authorization from the customer for new products and
packages, and designing customer promotional programs to meet specific customer
needs.
A significant portion of Seven-Up/RC's promotional efforts focus on off-
invoice allowances, newspaper advertising and coupons. The goal of these
activities is to competitively position Seven-Up/RC brands in the marketplace
and to 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.
Seven-Up/RC's merchandising activities seek to maintain high visibility and
availability of its products in large grocery chains. Merchandisers are
responsible for building displays in conjunction with promotional programs and
restocking products on the beverage aisle of grocery stores. Seven-Up/RC
assists its customers in obtaining maximum space utilization of the beverage
aisle by employing a state-of-the-art computer program, which determines the
most efficient use of shelf space based on sales volume and consumer preferences
for product and packaging. This service is provided to its key accounts as a
means of enhancing its relationship with these customers.
Marketing expenditures are incurred by Seven-Up/RC, it's franchisors and by
cooperative arrangements between the two. Retail promotional programs are
Seven-Up/RC's most significant marketing expenditures and are paid for by the
Company and supported through cooperative arrangements with its franchisors.
National media advertising is funded by Seven-Up/RC's franchisors, while local
media advertising is funded by the Company or through cooperative arrangements.
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<PAGE>
COMPETITION
The soft drink industry is highly competitive. Over the past decade, the
bottling industry has undergone significant horizontal consolidation (bottlers
acquiring bottlers) and vertical consolidation (franchisors acquiring
franchisors). Competition among bottlers is dependent on price, volume,
advertising, promotional incentives and franchisor subsidies.
Seven-Up/RC's principal competitors are Coca-Cola Enterprises, Inc. ("CCE")
and the Pepsi-Cola Company ("COBO"), each of which is closely affiliated with
its respective syrup company. Price competition between CCE and COBO has
resulted in a consistent market-wide erosion of earnings over the past ten
years.
Seven-Up/RC competes in its markets by balancing the various elements that
impact market share and profitability, and believes that long-term profitability
is closely tied to market share stability. Additionally, Seven-Up/RC attempts
to remain a "low-cost producer" through selected investments in manufacturing
and distribution technology.
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<PAGE>
EMPLOYEES
Seven-Up/RC employed 1,314 employees as of December 31, 1996. A majority
of these employees (58%) are hourly workers covered by collective bargaining
agreements. Various local chapters of the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America represent employees
at Las Vegas, Santa Maria and San Diego under contracts expiring in 1998, 1999
and 2001, respectively. Seven-Up/RC has not had any strikes or work stoppages
in the past 20 years and considers its relationship with its employees to be
satisfactory.
On February 13, 1997, employees covered by the United Industrial Workers
elected to be represented by the Amalgamated Industrial Workers Union. Seven-
Up/RC does not expect that this event will have a significant impact on its
future financial performance or the relationship with its employees.
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<PAGE>
GOVERNMENT REGULATION
The production, distribution and sale of many of Seven-Up/RC'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.
California imposes a recycling fee on all containers of carbonated
beverages. The fee is $.025 per container holding 24 ounces or less and $.05
per container holding 25 ounces or more, which may automatically be increased if
target recycling rates are not reached. Containers of carbonated beverages must
clearly display specific information, which informs consumers that the fee will
be used exclusively for recycling efforts. Seven-Up/RC is required to pay the
fee, but it is included on the invoice for products and assessed to the consumer
at the retail level. Seven-Up/RC believes that future fee increases will be
minimal because of the success of California's recycling program. However, a
significant increase in the fee could materially decrease consumption of
carbonated beverages in California.
Substantially all of Seven-Up/RC'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 Seven-Up/RC. Costs of compliance with existing and future
environmental laws cannot be predicted with any degree of certainty and may
significantly affect Seven-Up/RC's operations.
Seven-Up/RC does not presently sell products in any state that requires
deposits on bottle or can containers, but operating costs could be significantly
affected if a national container deposit law were to be implemented.
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<PAGE>
ITEM 2. PROPERTIES
Seven-Up/RC's headquarters are located in Vernon, California, and it owns
two combination manufacturing and distribution facilities, located in Vernon,
California and Albuquerque, New Mexico and one manufacturing facility located in
Buena Park, California. Seven-Up/RC has eleven additional distribution
facilities, of which six are owned (located in Bakersfield, Orange, San Diego,
San Fernando and Santa Maria, California and Las Vegas, Nevada) and five are
leased (located in Fresno, El Centro, Oxnard, Redlands and Vernon, California).
The leased facilities are subject to customary commercial leases with terms
expiring between 1997 and 2003. Seven-Up/RC believes that its owned and leased
facilities are sufficient to meet its operating requirements in the foreseeable
future.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Seven-Up/RC is not a party to any legal proceedings other than those that
occur in the normal course of business.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Seven-Up/RC did not submit any matter to a vote of its security holders
during the fourth quarter of 1996.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to September 6, 1996 (on or about such date), there was no
established public trading market for the common stock of Seven-Up/RC (the
"Common Stock"). On or about September 6, 1996, the Common Stock began trading
on the over-the-counter market under the symbol "SURC" and prices were quoted in
the Pink Sheets (the "Pink Sheets") operated by the National Quotation Bureau
Inc. Shortly thereafter, the Common Stock was listed on the OTC Bulletin Board.
The following table sets forth on a per share basis, for the periods indicated,
the high and low sales prices of the Common Stock as reported in the Pink
Sheets and on the OTC Bulletin Board. Such over-the-counter market quotations
in the Pink Sheets and the OTC Bulletin Board reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Price Range
--------------------
High Low
--------------------
<S> <C> <C>
Fiscal 1996:
Third Quarter $ 10.13 $ 9.00
Fourth Quarter 11.88 9.13
Fiscal 1997:
First Quarter (through March 31, 1997) 12.00 9.88
</TABLE>
Since August 15, 1996 (the date on which the Company emerged from
bankruptcy), the Company has not declared or paid cash dividends on the Shares.
As of March 31, 1997, there were approximately 29 record holders of the
Common Stock.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for Seven-Up/RC.
The data for the periods from January 1, 1996 through August 15, 1996 and from
August 16, 1996 through December 31, 1996 and for the years ended December 31,
1995 and 1994, and the data as of December 31, 1995 and 1996, were derived from
the Company's Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K and should be read in conjunction with those
financial statements and notes thereto. The financial statements were audited
by Arthur Andersen LLP, independent public accountants, whose report with
respect thereto appears elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Reorganized
Company /(a)/ Predecessor Company /(a)/
------------- -----------------------------------------------------------------------------
8/16 - 12/31 1/1 - 8/15 Years Ended December 31,
------------- ----------- ---------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- ----------- ------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 91,647 $202,844 $ 396,725 $413,840 $ 371,062 $ 374,460
Cost of goods sold 74,058 164,320 334,942 342,336 299,735 295,481
Administrative, marketing and
general expenses 13,575 27,841 47,935 48,437 47,342 49,876
Depreciation and amortization 3,688 10,399 18,180 17,251 17,983 18,428
Restructure charges - 547 5,015 - - -
-------- -------- --------- -------- --------- ---------
Operating income (loss) 326 (263) (9,347) 5,816 6,002 10,675
Interest expense 838 12,871 23,057 21,626 19,938 21,222
Other income, net /(b)/ 50 34,309 210 95 418 1,236
-------- -------- --------- -------- --------- ---------
(Loss) income before income
taxes, reorganization
expense and extraordinary
items (462) 21,175 (32,194) (15,715) (13,518) (9,311)
Reorganization expense /(c)/ - 13,011 - - - -
Provision for income taxes - 345 - 185 - -
-------- -------- --------- -------- --------- ---------
(Loss) income before
extraordinary items (462) 7,819 (32,194) (15,900) (13,518) (9,311)
Extraordinary (gain) loss /(d)/ - (54,577) - - 826 11,223
-------- -------- --------- -------- --------- ---------
Net (loss) income $ (462) $ 62,396 $ (32,194) $(15,900) $ (14,344) $ (20,534)
======== ======== ========= ======== ========= =========
Loss per common share:
Net loss per common share $ .09 $ - $ - $ - $ - $ -
======== ======== ========= ======== ========= =========
Weighted average common
shares outstanding 5,077 - - - - -
======== ======== ========= ======== ========= =========
Balance Sheet Data:
Working capital, as defined /(e)/ $ 8,153 - $ 16,054 $ 36,238 $ 34,858 $ 38,489
Property, plant and
equipment, net 56,790 - 79,945 87,388 83,447 87,496
Total assets 121,370 - 192,133 243,834 210,198 212,407
Total long-term debt (less
current portion) /(f)/ 21,983 - - 189,442 173,883 168,873
Stockholders' equity (deficit) 52,663 - (61,333) (29,139) (13,239) 1,105
Other Data:
Capital expenditures $ 3,356 $ 5,228 $ 5,208 $ 5,138 $ 5,446 $ 4,742
</TABLE>
-17-
<PAGE>
(a) On May 13, 1996, Seven-Up/RC and its immediate holding company parent,
Beverage Group Acquisition Corporation, filed voluntary petitions for
reorganization relief under Chapter 11 of the Bankruptcy Code in U.S.
Bankruptcy Court for the District of Delaware. On August 15, 1996, the
Plan of Reorganization was consummated and Seven-Up/RC emerged as a
reorganized company from Chapter 11. Due to the reorganization and
implementation of fresh start reporting, the Consolidated Financial
Statements for the new reorganized company (period starting August 16,
1996) are not comparable to those of the predecessor company. The
predecessor company included Seven-Up/RC and Puerto Rico through the date
of disposition, June 30, 1996.
(b) For the period January 1, 1996 through August 15, 1996, the amount consists
of five elements: 1) $31,715,000 related to the gain on the sale of Puerto
Rico; 2) $1,200,000 from Quaker Oats relating to the termination of the
Snapple contract manufacturing agreement; 3) $686,000 from the Plastic
Recycling Corporation of California for prior year overcharges relating to
plastic containers produced in California but shipped out-of-state; 4)
$597,000 gain on the property exchange of the Las Vegas distribution
facility with the Rio Hotel; and 5) $161,000 of income associated with a
Puerto Rican joint venture and gain on sale of fixed assets.
(c) The 1996 reorganization expense consists of three elements: 1) $7,207,000
write-down of goodwill associated with fixed life franchise agreements,
other intangibles, pallets and shells; 2) $4,904,000 of legal and other
professional fees incurred in implementing the Plan of Reorganization; and
3) $900,000 of other reorganization expense including employee severance
and relocation expense of the Carson distribution facility due to the
reorganization related termination of the facility lease.
(d) The 1996 extraordinary gain of $54,577,000 consists of two items: 1)
$55,087,000 of extraordinary gain resulting from the discharge of
indebtedness relating to the old Senior Secured Notes ($140,000,000) and
accrued interest ($24,756,000) offset by the securities principal payment
from the sale of Puerto Rico ($55,000,000), the market value of the Common
Stock exchanged for the old debt ($52,062,000) and the write-off of old
debt issuance costs ($2,607,000); and 2) $510,000 relating to the write-off
of old revolver debt issuance and collateral fees.
The 1993 extraordinary items consist of accrued expenses for a prepayment
premium and the write-off of deferred financing charges related to the
revolving credit facilities replaced in February 1994. The 1992
extraordinary items consist of two transactions in connection with the
recapitalization on August 11, 1992: 1) the write-off of $7,762,000 of
debt issuance costs which was associated with debt which was retired early;
and 2) a prepayment premium to the holder of Seven-Up/RC's senior
subordinated notes of $3,461,000.
(e) Working capital, as defined, represents current assets (excluding cash and
cash equivalents) less current liabilities (excluding current portion of
long-term debt).
(f) All debt of Seven-Up/RC was classified as current at December 31, 1995, the
amount of long-term debt reclassified to the current portion was
$187,445,000.
-18-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Seven-Up/RC's primary measurement of unit volume is DSD cases. DSD case
volume is defined as physical cases of beverage sold, including both ready-to-
serve premix and postmix fountain products that are sold in bulk containers.
Liquitrend's case volume is not combined in Seven-Up/RC's DSD case volume, but
is included in net sales, cost of goods sold, and operating income.
Liquitrend's net sales fluctuate from year to year based on the nature of the
typical contract manufacturing contract which is negotiated on a month-to-month
or quarter-to-quarter basis. Liquitrend's gross margins are significantly less
than the gross margins for DSD because Liquitrend revenue is based solely on a
contract manufacturing fee that is slightly more than the actual cost incurred
for direct labor and indirect plant costs associated with the incremental
Liquitrend case volume. The Liquitrend business is important to Seven-Up/RC's
operating income because the incremental revenue offsets a significant portion
of the fixed costs associated with the excess production capacity that exists
during the non-summer months with cyclically lower DSD case volume.
COMPARISON OF SEVEN-UP/RC'S 1996 RESULTS OF OPERATIONS WITH SEVEN-UP/RC'S 1995
RESULTS OF OPERATIONS
The following table set forth consolidated sales, cost of goods sold,
administrative, marketing and general expenses, interest expense and net income
for the twelve months ended December 31, 1996 and 1995. To facilitate a
meaningful comparison of Seven-Up/RC's operating performance for these periods,
the operations of the predecessor company and the reorganized company have been
combined. Additionally, the Company's Reorganization and recent restructuring
resulted in the elimination and/or downsizing of several product lines,
including the operations of Puerto Rico, Avalon, Snapple DSD, Snapple Liquitrend
and Cott Liquitrend. For purposes of analysis, these product lines have been
eliminated in the following tables to arrive at comparable sales, cost of goods
sold and administrative, marketing and general expenses.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated net sales $202,844 $91,647 $ 294,491 $396,725
Less:
Puerto Rico 37,935 82,256
Avalon 1,542 24,485
Hot-Fill Liquitrend 9,665 25,700
Cott Liquitrend 1,067 4,784
Snapple DSD - 15,620
--------- --------
Comparable sales $ 244,282 $243,880
========= ========
</TABLE>
Consolidated net sales decreased to $294,491,000 in 1996 from $396,725,000
in 1995, or (26%). This decrease of $102,234,000 was due primarily to the
implementation of Seven-Up/RC's Plan of Reorganization which included the
disposition of its Puerto Rico subsidiary ($44,321,000) and the elimination of
the unprofitable businesses of Avalon warehouse distribution ($22,943,000), Hot-
Fill Liquitrend ($16,035,000) and Cott Liquitrend ($3,717,000). Additionally,
Southern California's core DSD net sales were impacted $15,620,000 due to the
termination of the Snapple distribution agreement with the Quaker Oats Company
for the Southern California counties of Orange and San Bernardino during the
fourth quarter of 1995.
-19-
<PAGE>
Comparable net sales increased to $244,282,000 in 1996 from $243,880,000 in
1995. DSD case volume increased 3% (when adjusted to exclude the loss of
Snapple DSD volume) due to the Company's philosophy to become more price
competitive in the major grocery chain segment and the addition of the Mistic
trademark (natural teas and juices) which is owned by Triarc (owner of the Royal
Crown trademark). The higher selling price associated with the Mistic trademark
offset the costs associated with increased promotional activity in the major
grocery chain segment, resulting in net sales increasing slightly in 1996 as
compared to 1995.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated cost of goods sold $74,058 $164,320 $238,378 $334,942
Less:
Puerto Rico 30,857 65,925
Avalon 1,511 22,511
Hot-Fill Liquitrend 10,400 27,654
Cott Liquitrend 984 4,051
Snapple DSD - 14,480
-------- --------
Comparable cost of goods sold $194,626 $200,321
======== ========
</TABLE>
Consolidated cost of goods sold decreased to $238,378,000 in 1996 from
$334,942,000 in 1995, or (29%). This decrease of $96,564,000 was due primarily
to the implementation of Seven-Up/RC's Plan of Reorganization which included the
disposition of its Puerto Rico subsidiary ($35,068,000) and the elimination of
the unprofitable businesses of Avalon warehouse distribution ($21,000,000), Hot-
Fill Liquitrend ($17,254,000) and Cott Liquitrend ($3,067,000). Additionally,
Southern California's DSD cost of goods sold were impacted $14,480,000 due to
the termination of the Snapple distribution agreement with the Quaker Oats
Company for the Southern California counties of Orange and San Bernardino during
the fourth quarter of 1995.
Comparable cost of goods sold decreased to $194,626,000 in 1996 from
$200,321,000 in 1995. This decrease of $5,695,000 reflects the efficiencies
that were realized in the core DSD business from the successful implementation
of the Plan of Reorganization and its direct impact on reducing both direct and
indirect operating expenses.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated administrative,
marketing and general expenses $13,575 $ 27,841 $ 41,416 $ 47,935
Less:
Puerto Rico 2,687 6,312
Avalon 134 1,851
Hot-Fill Liquitrend - -
Cott Liquitrend - 273
Snapple DSD - 120
-------- --------
Comparable administrative,
marketing and general
expenses $ 38,595 $ 39,379
======== ========
</TABLE>
-20-
<PAGE>
Consolidated administrative, marketing and general expenses decreased to
$41,416,000 in 1996 from $47,935,000 in 1995, or (14%). This decrease of
$6,519,000 was due primarily to the implementation of Seven-Up/RC's Plan of
Reorganization which included the disposition of its Puerto Rico facility
($3,625,000) and the elimination of the unprofitable businesses of Avalon
warehouse distribution ($1,717,000) and Cott Liquitrend ($273,000).
Additionally, Southern California's DSD administrative, marketing and general
expenses were impacted $120,000 due to the termination of the Snapple
distribution agreement with the Quaker Oats Company for the Southern California
counties of Orange and San Bernardino during the fourth quarter of 1995.
Comparable administrative, marketing and general expense decreased to
$38,595,000 in 1996 from $39,379,000 in 1995. This decrease of $784,000
represents primarily the reduction of administrative support employees that were
eliminated as part of the downsizing segment of the Plan of Reorganization.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated interest expense $ 838 $ 12,871 $13,709 $23,057
</TABLE>
Consolidated interest expense decreased to $13,709,000 in 1996 from
$23,057,000 in 1995. This reduction of $9,348,000 was due primarily to the
cancellation of the Senior Secured Notes pursuant to the Reorganization.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated other income
(expense) $34,309 $ 50 $ 34,359 $ 210
</TABLE>
Consolidated other income increased to $34,359,000 in 1996 from $210,000 in
1995. This increase of $34,149,000 consists of the following five elements: 1)
$31,715,000 related to the gain on the sale of Puerto Rico; 2) $1,200,000
received from Quaker Oats relating to the termination of the Snapple contract
manufacturing agreement; 3) $686,000 from the Plastic Recycling Corporation of
California for prior year overcharges relating to plastic containers produced in
California but shipped out-of-state; 4) $597,000 gain realized on the property
exchange of the Las Vegas distribution facility with the Rio Hotel; and 5)
$49,000 of decreased other income relating to a Puerto Rican joint venture.
Reorganization expense of $13,011,000 represents those costs incurred with
the implementation of the Plan of Reorganization and consists of the following
three elements: 1) $7,207,000 write-down of goodwill associated with fixed life
franchise agreements, other intangibles, pallets and shells; 2) $4,904,000 of
legal and professional fees incurred in implementing the Plan of Reorganization;
3) $900,000 of other reorganization expense including employee severance and
relocation expense of the Carson distribution branch due to the reorganization
related termination of the facility lease.
Extraordinary gain of $54,577,000 represents the net recognition of income
associated with the cancellation of indebtedness relating to the implementation
of the Plan of Reorganization and consists of the following: $140,000,000 gain
resulting from discharge of indebtedness relating to the Senior
-21-
<PAGE>
Secured Notes and a $24,756,000 gain resulting from the forgiveness of the
accrued interest on the Senior Secured Notes, offset by the $55,000,000
securities principal payment from the sale of Puerto Rico, the $52,062,000
market value of Common Stock exchanged for the Senior Secured Notes, the
$2,607,000 write-off of old deferred financing costs and. a $510,000 write-off
of the old revolver debt issuance and collateral fees.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Consolidated net income
(loss) $ (432) $ 62,396 $ 61,934 $(32,194)
</TABLE>
Consolidated net income increased to $61,934,000 in 1996 from a loss of
$32,194,000 in 1995. This variance of $94,128,000 consists primarily of the
following six elements, as set forth above: 1) $9,410,000 increase in operating
income which includes a $4,468,000 reduction in restructuring expense; 2)
$9,348,000 reduction in interest expense; 3) other income of $34,149,000 which
includes a $31,715,000 gain on the sale of Puerto Rico; 4) reorganization
expense of $13,011,000 relating to the implementation of the Plan of
Reorganization; 5) provision for income taxes of $345,000; and 6) extraordinary
gain of $54,577,000 which represents the net recognition of income associated
with the cancellation of indebtedness relating to the implementation of the Plan
of Reorganization.
COMPARISON OF THE COMPANY'S 1995 RESULTS OF OPERATIONS WITH THE COMPANY'S 1994
RESULTS OF OPERATIONS
Total net sales decreased to $396,725,000 in 1995 from $413,840,000 in
1994, or 4.1%. This decrease was due to a net sales decrease of $29,163,000 at
Southern California that was partially offset by a $12,048,000 net sales
increase at Puerto Rico. Southern California's performance in 1995 was
negatively impacted by a reduction in DSD case volume, reduced hot-fill contract
packing sales and reduced sales of private label products. Puerto Rico's net
sales increase was primarily the result of increased Snapple beverage sales.
Net sales of Southern California's DSD product line decreased to
$235,466,000 in 1995 from $252,961,000 in 1994, or 6.9%, due to a case sales
decrease of 13.0%, which was greater than the market-wide reduction of measured
carbonated soft drink (CSD) sales. This decrease was primarily the result of
(i) Southern California's decision to increase its pricing during 1995 to offset
raw material price increases, (ii) reduced levels of franchisor-supported price
promotions, and (iii) aggressive competitive CSD pricing and promotional
activity in this market. DSD net sales at Puerto Rico increased to $80,625,000
in 1995 from $69,768,000 in 1994, or 15.6%. This net sales increase was
primarily the result of an approximate $12,500,000 increase in New Age and malta
beverage sales, offset by a carbonated DSD soft drink sales decrease of
approximately $1,643,000.
Liquitrend's net sales increased to $56,149,000 in 1995 from $54,075,000 in
1994, or 3.8%. Restated to reflect approximately $13,683,000 of contractual raw
material purchase increases, which had no impact on operating results as cost of
goods sold was increased by a like amount, net sales decreased to $42,466,000 or
21.5%. As part of Seven-Up/RC's restructuring effort, hot-filled products will
be downsized which will reflect lower sales in the future.
Avalon's net sales decreased to $24,485,000 in 1995 from $37,036,000 in
1994, or 33.9%. This decrease was due to Southern California's decision to
discontinue Avalon's DSD operation during the second quarter of 1995 and
significantly lower sales of Southern California's value-priced Royal Island and
Nehi products.
Management believes that the factors that caused Southern California's net
sales to decrease in 1995 are likely to continue in the foreseeable future.
-22-
<PAGE>
Cost of goods sold decreased to $334,942,000 in 1995 from $342,336,000 in
1994, or 2.2%. This decrease was primarily the result of lower direct material
costs, variable transportation and production expenses associated with the net
sales reduction in Southern California's operations, and the fourth quarter
impact of Southern California's permanent work force reduction announced
September 11, 1995. Offsetting this decrease were significant direct material
increases related to Puerto Rico's net sales increase and Liquitrend's
$13,683,000 contractual raw material cost increase offset by its corresponding
sales increase.
Administrative, marketing and general expenses decreased to $47,935,000 in
1995 from $48,437,000 in 1994, or 1.0%. This decrease was primarily the result
of the fourth quarter impact of Southern California's permanent 205 employee
work force reduction announced September 11, 1995. Partially offsetting this
decrease were increased legal and litigation expenses, higher worker's
compensation expense and increased expenses related to customer required
implementation of delivery and invoicing information systems in Southern
California. Puerto Rico's administrative, marketing and general expenses
increased, primarily the result of variable marketing expenses related to its
New Age and malta product sales increase.
Interest expense increased to $23,057,000 in 1995 from $21,626,000 in 1994,
or 6.6%, the result of higher interest rates on Seven-Up/RC's revolving credit
facilities and an increase in the average borrowings outstanding.
For the reasons set forth above, Seven-Up/RC's net loss before
restructuring charges of $5,015,000, increased to $27,179,000 in 1995 from
$15,900,000 in 1994, or 70.9%.
The $5,015,000 restructuring charge includes approximately $2,459,000 of
professional fees and expenses, $906,000 of charges in connection with severance
costs associated with a work force reduction and $1,660,000 of costs related to
certain equipment and real estate lease terminations.
On September 11, 1995, Southern California announced a permanent reduction
in its work force of 205 employees, divided almost equally between salary and
hourly.
-23-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The table below sets forth a consolidated statement of cash flows for the
twelve months ended December 31, 1996 and 1995. To facilitate a meaningful
comparison of Seven-Up/RC's liquidity and capital resources for these periods,
the cash flow for operating activities, investing activities and financing
activities for the predecessor company and reorganized company for 1996 have
been combined.
<TABLE>
<CAPTION>
Predecessor Reorganized
-------------- ----------------
1/1 - 8/15 8/16 - 12/31 Combined
1996 1996 1996 1995
-------------- ---------------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Net cash (used in) provided
by operating activities $ 36,398 $(14,553) $ 21,845 $ 5,767
Net cash (used in) provided
by investing activities 64,354 (3,316) 61,038 (5,091)
Net cash (used in) provided
financing activities (103,825) 18,806 (85,019) (1,709)
--------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH $ (3,073) $ 937 $ (2,136) $ (1,033)
========= ======== ======== ========
</TABLE>
Seven-Up/RC's operating activities provided $21,845,000 of net cash in 1996
as compared to $5,767,000 in 1995. This change of $16,078,000 was due primarily
to $9,348,000 of lower interest expense, resulting from the suspension of
interest accruals following the Company's filing for reorganization relief under
Chapter 11 of the bankruptcy code on May 13, 1996, and non-recurring other
income of $2,483,000 which was due to $1,200,000 from the termination of the
Snapple contract manufacturing agreement, $686,000 from the prior year refund of
plastic recycling fees and $597,000 from the property exchange of the Las Vegas
distribution branch with the Rio Hotel. Additionally, Seven-Up/RC generated a
significant contribution from working capital with the implementation of its
Plan of Reorganization to reduce inventory SKU's and to improve its accounts
receivable days outstanding by changing the timing of its major chain
promotional programs.
Seven-Up/RC's investing activities provided $61,038,000 of net cash in 1996
as compared to a $5,091,000 use of net cash in 1995. This change of $66,129,000
was due primarily to net proceeds of $69,456,000 resulting from the sale of the
Puerto Rico franchise territory as part of the Plan of Reorganization to provide
a payment of principal to the holders of the Senior Secured Notes. Seven-
Up/RC's investing activities in 1996 included $8,584,000 in purchases of
property, plant and equipment as compared to $5,208,000 in 1995.
Seven-Up/RC's financing activities used $85,019,000 of net cash in 1996 as
compared to $1,709,000 of net cash used in 1995. This change of $83,310,000 was
primarily due to the use of proceeds from the sale of the Puerto Rico franchise
territory to pay $55,000,000 to the holders of the Senior Secured Notes,
$8,686,000 to pay down the Southern California revolving loan as an offset to
restructuring and reorganization expenses incurred in 1996 and 1995, and the
$8,563,000 pay off of the Puerto Rico revolving line of credit. Additionally,
net cash provided by operating activities enabled the repayment of $3,793,000 of
the term loan, capital leases and debt issuance costs, and a decrease in its net
borrowings under the revolving credit facilities by $8,977,000. Seven-Up/RC's
unused revolving credit facility was $8,797,000 at December 31, 1996. As of
March 28, 1997, and the printing of this document, Seven-Up/RC's unused
revolving credit facility was $5,998,000. Seven-Up/RC believes that the
continued implementation of its five-year reorganization plan will provide ample
borrowing availability through its revolving credit facility.
-24-
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121. The Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted SFAS No. 121 in the first quarter
of 1996. The adoption did not have an impact on the Company's financial
position or its results of operations.
In November 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This new standard encourages,
but does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments based on a fair-value method
of accounting. Companies that do not choose to adopt the new expense
recognition rules of SFAS No. 123 will continue to apply the existing accounting
rules contained in Accounting Principles Board Opinion (APBO) No. 25, but will
be required to provide pro forma disclosures of the compensation expense
determined under the fair-value provisions of SFAS No. 123, if material. The
Company adopted SFAS No. 123 in the first quarter of 1996 electing to follow the
accounting provisions of APBO No. 25 for stock-based compensation and to furnish
the pro forma disclosures required under SFAS No. 123, if material.
In March, 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure." SFAS No. 128 eliminates several requirements of APBO No.
15, simplifying earnings per share calculations. The Company is required to
adopt SFAS No. 128 in the first quarter of 1997. As of December 31, 1996, the
adoption of SFAS No. 128 would not have a material impact on the Company's
financial position or its results of operations.
SUBSEQUENT EVENTS
On February 28, 1997, Seven-Up/RC entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Dr Pepper Bottling Company of Texas ("Dr
Pepper Bottling") whereby DPB Acquisition Corp., a wholly-owned subsidiary of Dr
Pepper Bottling (the "Purchaser") has made an offer to purchase all the issued
and outstanding shares of the Company for $12.00 per share (the "Offer"). The
Offer is conditioned upon, among other things, (i) there being validly tendered
and not withdrawn prior to the expiration date for the Offer that number of
shares of Common Stock which would represent, on a fully-diluted basis, at least
65% of the outstanding Common Stock, (ii) receipt by the Purchaser of sufficient
funds from its financing sources, and (iii) the receipt of certain identified
consents.
-25-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
on page F-1.
-26-
<PAGE>
ITEM 9. CHANGES OF AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes of or disagreements with Seven-Up/RC's accountants
during 1996.
-27-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, positions and ages of the directors,
executive officers and key employees of Seven-Up/RC as of December 31, 1996.
<TABLE>
<CAPTION>
Age
December 31,
Name 1996 Position(s)
- ---------------------------------------------------------------------------
<S> <C> <C>
Barton S. Brodkin 55 Chairman of the Board,
Chief Executive Officer
and President
Richard D. Ferguson 40 Executive Vice
President/Chief Financial
Officer
Roy S. Breneman 55 Executive Vice
President/Chief Sales and
Marketing Officer
Louis Janicich 59 Senior Vice President of
Administration/Legal
Services, Chief Human
Resources Officer
F. L. Joseph Chalmers Senior Vice President of
Operations
Jack R. Attwood 67 Director
William C. Langley 58 Director
M. L. Lowenkron 65 Director
Daniel D. Villanueva 58 Director
</TABLE>
Barton S. Brodkin began his career in the soft drink industry in 1967 with
the Pepsi-Cola Bottling Company, where he held various sales and marketing
positions, ultimately becoming Group Marketing Manager. He joined
Westinghouse's Beverage Group in 1973 as Vice President of the Western Division
and in 1980 was promoted to Business Unit President and General Manager. He is
a director of and has served as President of the Seven-Up Bottlers Association
and is current Treasurer of the National Soft Drink Association and a director
of the RC Bottlers Association.
Richard D. Ferguson has been with the Company since 1979 and has held
various positions of increasing importance in accounting and finance. He has
held the position of Executive Vice President, Chief Financial Officer since
October 1996 and was previously the Vice President of Financial and Business
Planning.
Roy S. Breneman began his career in the soft drink industry in 1968 as a
merchandising manager with the Pepsi-Cola Company. He served as Vice President,
General Manager for the Dr Pepper bottler in Dallas and was National Sales
Manager for the Country Time ready-to-drink division of General Foods
Corporation. He joined Westinghouse's Beverage Group as Vice President of
Marketing Services and became Senior Vice President of Sales and Marketing in
1986.
Louis Janicich has been involved in human resources in the soft drink
industry since 1967 as Director of Industrial Relations with the Pepsi-Cola
Bottling Company of Los Angeles. He joined Westinghouse's Beverage Group as
Director of Industrial Relations in 1970 and in 1987 assumed his current
position of Senior Vice President of Human Resources.
F.L. Joseph Chalmers joined Westinghouse in 1969 and held various positions
in purchasing and operations. He joined Westinghouse's Beverage Group in 1976
and has held various positions of increasing importance in purchasing, sales and
operations. He assumed his current position as Senior Vice President of
Operations in June 1996.
-28-
<PAGE>
Jack R. Attwood, a director of the Company since 1990, joined the Coca-Cola
Bottling Company of Los Angeles in 1953 and served in various positions until
his retirement in 1986. From 1966 to 1970 he was Vice President of Advertising
and from 1970 to 1971 he was Vice President of Marketing. In 1971, he was named
Senior Vice President and General Manager of the soft drink division. In 1976,
he was appointed Executive Vice President, and in 1981 was appointed President
and Chief Operating Officer. In 1984, he was appointed Corporate Senior Vice
President of the Beverage Group, US Food Segment of Beatrice Companies, Inc. and
became Chairman of the Board of the Coca-Cola Bottling Company of Los Angeles.
He is a director of Sports Chalet, Inc. and several private companies.
William C. Langley became a director of the Company in August 1996. From
1991 to 1996, Mr. Langley was Executive Vice President, Chief Credit and Risk
Policy Officer, Chemical Bank and Chemical Banking Corporation and Executive
Vice President of Chase Manhattan Corporation from April to July 1996. Mr.
Langley is a director of the Chase Preferred Capital Corporation and Morrison
Knudsen Corporation.
M. L. Lowenkron became a director of the Company in August 1996. From 1980
to 1993 Mr. Lowenkron was President and Chief Executive Officer of A&W Brands,
Inc. and from 1995 to June 1996, President and Chief Executive Officer of
Heileman Brewing Co. Inc. Mr. Lowenkron is a director for Hat Brands, Inc.,
Triarc Companies and DePux, Inc.
Daniel D. Villanueva became a director of the Company in August 1996.
Since 1990 Mr. Villanueva has been Chairman and managing Director of Bastion
Capital Corporation and from 1988 to 1990 was General manager of a Los Angeles
Univison affiliate, KMEX-TV.
At present, all Directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal.
There are no family relationships between any of the Directors or executive
officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Name and All other
Principal Position Year Salary Bonus Compensation/(1)/
- -------------------------------------- --------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Barton S. Brodkin 1996 $ 316,098 $ 667,083 $ 9,091
Chairman of the Board 1995 300,000 54,000 7,933
President and Chief 1994 275,580 53,573 12,120
Executive Officer
Roy S. Breneman 1996 $ 127,824 $ 115,325 $ 5,400
Chief Sales and Marketing 1995 138,960 - 14,785
Officer, and Executive Vice 1994 133,920 - 17,740
President
Louis Janicich 1996 $ 129,600 $ 116,856 $ 16,880
Senior Vice President of Human 1995 128,295 - 165,413 /(2)/
Resources and Secretary 1994 123,660 - 22,421
Richard Ferguson 1996 $ 94,271 $ 78,333 $ 6,000
Chief Financial Officer and 1995 77,100 - -
Executive Vice President 1994 75,120 - -
F.L. Joseph Chalmers 1996 $ 117,060 $ 83,465 $ 3,720
Senior Vice President of 1995 110,685 - 3,720
Operations 1994 106,680 - 3,720
</TABLE>
-29-
<PAGE>
(1) Represents amounts paid by the Company for life insurance premiums,
automobile reimbursement and employer matched 401(k) payments. Includes
contributions by the Company to the Company's target benefit defined
contribution plan on behalf of each of the named executives for 1994 and
1995. Contributions by the Company under this plan were suspended for
1996.
(2) Includes funds received from termination of the 401-E program that was
previously reported as bonus for this employee.
DIRECTOR COMPENSATION
Directors who are not employees of Seven-Up/RC receive an annual director's
fee of $20,000 in addition to $1,000 per meeting attended and are reimbursed for
meeting related expenses.
EMPLOYMENT AGREEMENT
At a meeting held on October 31, 1996 of the Personnel & Compensation
Committee of the Board of Directors (the "Compensation Committee"), which
committee is comprised of Jack Attwood and Monroe L. Lowenkron, the Compensation
Committee recommended that the Board of Directors review and evaluate the
employment agreement between the Company and Bart S. Brodkin, the Chief
Executive Officer of the Company. After a series of negotiations between the
Compensation Committee and Mr. Brodkin, on January 22, 1997, the Company entered
into a Second Amended and Restated Management Agreement with Mr. Brodkin (the
"Brodkin Agreement"). The annual compensation payable by the Company to Mr.
Brodkin under the Brodkin Agreement is $400,000. The Brodkin Agreement expires
on December 31, 1999, subject to automatic one-year renewals unless terminated
upon written notice by either party at least 90 days prior to the end of the
year or earlier upon Mr. Brodkin's death, Disability, resignation, retirement,
or removal for Cause (as such capitalized terms are defined in the Brodkin
Agreement). In addition, the Brodkin Agreement provides for severance benefits
to be paid in a lump sum by the Company to Mr. Brodkin upon a Change of Control
(as defined in the Brodkin Agreement).
The Brodkin Agreement was amended by a First Amendment to Management
Agreement, dated as of February 28, 1997 (the "First Amendment"). The First
Amendment shall only become effective immediately prior to the purchase of
Common Stock by the Purchaser in the Offer and shall be of no further force or
effect if the Merger Agreement is terminated. The execution and delivery of the
First Amendment was a condition to the execution and delivery of the Merger
Agreement by Dr Pepper Bottling. The First Amendment, will, among other things,
significantly amend certain of the provisions regarding severance payments to,
and continued fringe benefits for, Mr. Brodkin following the termination of his
employment. In this regard, the special provisions requiring the Company to pay
to Mr. Brodkin an amount equal to three times his base salary and bonus and to
maintain certain benefits for him for 36 months if his employment is terminated
under certain circumstances following a Change of Control (as defined in the
Brodkin Agreement) will be eliminated. In addition, under the First Amendment,
the circumstances constituting Good Reason (as defined in the Brodkin Agreement)
under which Mr. Brodkin may resign and obtain severance benefits will be
significantly narrowed and certain procedural requirements for the benefit of
Mr. Brodkin that would have been applicable if he had been terminated under
certain circumstances constituting Cause (as defined in the Brodkin Agreement)
will be terminated. The First Amendment will also eliminate Mr. Brodkin's right
to receive certain severance payments in the event that he resigns other than
for Good Reason (as defined in the Brodkin Agreement). Pursuant to the First
Amendment, the automatic extension under the Brodkin Agreement is limited to one
additional year, such extension still being subject to neither party giving
contrary notice. The First Amendment will not alter the base salary provided
under the Brodkin Agreement or Mr. Brodkin's rights to participate in the
Company's annual bonus program.
The foregoing is a summary of the Brodkin Agreement and the First
Amendment. Such Summary is qualified in its entirety by reference to the text
of the Brodkin Agreement and the First Amendment, copies of which are filed as
exhibits to this Annual Report on Form 10-K.
-30-
<PAGE>
On February 10, 1997, the Company entered into Management Agreements with
each of Rick Ferguson and Roy Breneman (the "Ferguson Agreement" and the
"Breneman Agreement", respectively). Each of the Ferguson Agreement and the
Breneman Agreement provides for severance benefits to be paid by the Company in
a lump sum to Messrs. Ferguson and Breneman, respectively, upon a Change of
Control (as defined in each of the Ferguson Agreement and the Breneman
Agreement). The Ferguson Agreement was amended by a Termination Agreement dated
as of February 28, 1997 (the "Ferguson Contract Termination Agreement"). The
execution and delivery of the Ferguson Contract Termination Agreement was a
condition to the execution and delivery of the Merger Agreement by Dr Pepper
Bottling. The Ferguson Contract Termination Agreement shall only become
effective immediately prior to the purchase of Shares by the Purchaser in the
Offer and shall be of no further force or effect if the Merger Agreement is
terminated. In the event that the provisions of the Ferguson Contract
Termination Agreement become effective, the Ferguson Agreement will be
terminated and will cease to be of any further force and effect. The foregoing
is a summary of the Ferguson Agreement, as amended by the Ferguson Contract
Termination Agreement, and the Breneman Agreement. Such summary is qualified in
its entirety by reference to the text of the Ferguson Agreement, as amended by
the Ferguson Contract Termination Agreement, and the Breneman Agreement, copies
of which are filed as exhibits to this Annual Report on Form 10-K, and are each
incorporated herein by reference.
STOCK OPTION PLANS
Pursuant to the terms and conditions of the Reorganization Plan, the
Company granted, on February 3, 1997, options to purchase Shares at an exercise
price of $7.30 per Share, to its executive officers (collectively, the
"Management options") as follows: Rick Ferguson, options to purchase 32,000
Shares; Joe Chalmers, options to purchase 22,000 Shares; Lou Janicich, options
to purchase 22,000 Shares; Roy Breneman, options to purchase 22,000 Shares; Tom
Theriault, options to purchase 22,00 Shares; Derrick Snider, options to purchase
13,800 Shares; Tom Holborow, options to Purchase 13,800 Shares; Jose Mejia,
options to purchase 5,500 Shares; Steve Walb, options to purchase 5,500 Shares;
and Bart Brodkin, options to purchase 160,549 Shares.
Upon the exercise of the stock purchase warrant held by WB Bottling
Corporation and pursuant to anti-dilution provisions contained in such stock
purchase warrant, the holders of Management Options shall receive additional
options pursuant to anti-dilution provisions contained in the Management
Options. Such additional options shall be granted as follows: Rick Ferguson,
options to purchase 1,800 Shares; Joe Chalmers, options to purchase 1,250
Shares; Lou Janicich, options to purchase 1,250 Shares; Roy Breneman, options to
purchase 1,250 Shares; Tom Theriault, options to purchase 1,250 Shares; Derrick
Snider, options to purchase 775 Shares; Tom Holborow, options to purchase 775
Shares; Jose Mejia, options to purchase 300 Shares; Steve Walb options to
purchase 300 Shares; and Bart Brodkin, options to purchase 8,980 Shares. The
foregoing is a summary of the Management Options. Such summary is qualified in
its entirety by reference to the text of each Management Option, the form of
which is filed as an exhibit to this Annual report on Form 10-K, and is
incorporated herein by reference.
At a meeting of the Compensation Committee held on October 31, 1996, the
Compensation Committee resolved to recommend to the Board of Directors that a
stock option plan be approved for certain managers and directors of the Company.
On January 30, 1997, the Compensation Committee made their recommendations to
the Board of Directors and the Board of Directors authorized, approved, and
adopted the terms and conditions of the 1996-1997 Stock Option Plan (the "Stock
Option Plan"). Pursuant to the terms and conditions of the Stock Option Plan,
on February 4, 1997, the Company granted options to purchase Shares, at an
exercise price of $8.00 per Share, to its executive officers and directors
(collectively, the "Employee/Director Options" and, together with the Management
Options, the "Options") as follows: Rick Ferguson, options to purchase 13,900
Shares; Joe Chalmers, options to purchase 10,250 Shares; Lou Janicich, options
to purchase 10,250 Shares; Roy Breneman, options to purchase 6,850 Shares; Tom
Theriault, options to purchase 10,250 Shares; Derrick Snider, options to
purchase 8,300 Shares; Tom Holborow, options to purchase 8,300 Shares; Jose
Mejia, options to purchase 2,150 Shares; Steve Walb, options to purchase 2,150
Shares; Bart Brodkin, options to purchase 225,622 Shares; Jack Attwood, options
to purchase 21,000 Shares; Monroe Lowenkron, options to purchase 21,000 Shares;
William
-31-
<PAGE>
Langley, options to purchase 21,000 Shares; and Daniel Villanueva, options to
purchase 21,000 Shares. The foregoing is a summary of the Stock Option Plan and
the Employee/Director Options. Such summary is qualified in its entirety by
reference to the text of the Stock Option Plan, and the Employee/Director
Options, copies of which are filed as exhibits to this Annual Report on Form
10-K, and are each incorporated herein by reference.
-32-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 28,
1997, with respect to the beneficial ownership of Shares by (i) all persons
known by the Company to be the beneficial owners of more than 5% of the
outstanding Shares (as derived solely from the Company's review of Schedules B,
D, and 13G on file with the Securities and Exchange Commission and from
correspondence received from certain stockholders of the Company), (ii) each
director of the Company, (iii) the Chief Financial Officer and the four other
most highly compensated executive officers of the Company as of February 28,
1997, whose total annual compensation for the year ended December 31, 1996,
exceeded $100,000, and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Ownership Percent
Name and Address of of Common of Class
Beneficial Owner Stock /(1)/
- ------------------------------------ --------------- ------------
<S> <C> <C>
Dean Witter Intercapital Inc. /(2)/ 1,854,805 30.91%
2 World Trade Center
New York, NY 10048
Merrill Lynch & Co., Inc. /(3)/ 763,000 12.71%
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10281
Metropolitan Life Insurance 605,500 10.09%
Company /(4)/
One Madison Avenue
New York, NY 10010
Barton S. Brodkin /(5)/ 395,151 /(6)/ 6.58%
Richard D. Ferguson /(5)/ 47,700 /(7)/ *
Louis Janicich /(5)/ 33,500 /(8)/ *
F.L. Joseph Chalmers /(5)/ 33,500 /(9)/ *
Roy S. Breneman /(5)/ 30,100 /(10)/ *
Jack Attwood /(5)/ 21,000 /(11)/ *
William C. Langley /(5)/ 21,000 /(11)/ *
M.L. Lowenkron /(5)/ 21,000 /(11)/ *
Daniel D. Villanueva /(5)/ 21,000 /(11)/ *
All executive officers and 719,101 /(12)/ 11.98%
directors as a group (14
Persons)
</TABLE>
- ----------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all Shares
shown and beneficially owned by them, subject to community property laws,
where applicable.
-33-
<PAGE>
(2) All Shares are owned by the following funds for which Dean Witter
Intercapital Inc. acts as investment advisor: Dean Witter High Yield
Securities (456,055 Shares); Dean Witter High Income Securities (490,000
Shares); High Income Advantage Trust (140,000 Shares); High Income
Advantage Trust II (175,000 Shares); High Income Advantage Trust III
(70,000 Shares); Dean Witter Diversified Income Trust (322,675 Shares);
and Variable Investment Series -- High Yield (201,075 Shares).
(3) All Shares may also be deemed to be beneficially owned by Merrill Lynch
Group, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc.,
Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch Group,
Inc., Fund Asset Management, L.P., a limited partnership of Princeton
Services, Inc. is a general partner, and Merrill Lynch Corporate Bond Fund,
Inc. (High Income Portfolio), a registered investment company advised by
Fund Asset Management, L.P.
(4) All Shares may also be deemed to be beneficially owned by State Street
Research & Management Company, a wholly-owned subsidiary of Metropolitan
Life Insurance Company and a registered investment advisor.
(5) The business address of such person is c/o Seven-Up/RC Bottling Company of
Southern California, Inc. 3220 East 26th Street, Vernon, California 90023.
(6) Represents Shares subject to non-qualified options and includes 8,980
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
(7) Represents Shares subject to non-qualified options and includes 1,800
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
(8) Represents Shares subject to non-qualified options and includes 1,250
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
(9) Represents Shares subject to non-qualified options and includes 1,250
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
(10) Represents Shares subject to non-qualified options and includes 1,250
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
(11) Represents Shares subject to non-qualified options.
(12) Represents Shares subject to non-qualified options and includes 17,930
Shares subject to non-qualified options exercisable pursuant to certain
anti-dilution provisions contained in the stock purchase warrant held by WB
Bottling Corporation and pursuant to certain anti-dilution provisions
contained in the letter agreement evidencing the grant of such non-
qualified options to executive.
-34-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Monroe L. Lowenkron, a director of the Company, serves on the Board of
Directors of the Triarc Companies, the parent company of Royal Crown Cola Co.
and Mistic Brands, Inc. The Company purchases extracts and concentrates (and
finished products) from both such companies pursuant to the franchise
agreements. In 1996, purchases from both such companies totaled approximately
$8,844,000. The Company from time to time incurs trade debt in the ordinary
course of business for purchases of extracts and concentrates (and finished
products) from such companies. Management believes that the terms of such trade
debt are no less favorable to the Company than the terms of trade debt granted
by such companies to other of their respective franchisee companies.
-35-
<PAGE>
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 financial statements and schedule listed in the "Index to
Financial Statements."
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<C> <S>
2.1 First Amended Joint Plan of Reorganization of Seven-Up/RC Bottling
Company of Southern California, Inc. and Beverage Group Acquisition
Corporation, dated as of June 19, 1996.*
3.1 Amended and Restated Certificate of Incorporation of Seven-Up/RC
Bottling Company of Southern California, Inc.*
3.2 By-Laws of Seven-Up/RC Bottling Company of Southern California, Inc.*
10.1 Stock Purchase and Sale Agreement among Seven-Up/RC Acquisition
Corporation, Seven-Up/RC Bottling Company of Southern California, Inc.
and Seven-Up/RC Bottling Company of Puerto Rico, Inc., dated as of May
3, 1996.**
10.2 Agreement and Plan of Merger, dated as of February 28, 1997, by and
among Seven-Up/RC Bottling Company of Southern California, Inc., Dr
Pepper Bottling Company of Texas, and DPB Acquisition Corp.***
10.3 Second Amended and Restated Management Agreement, dated as of January
22, 1997, by and between Seven-Up/RC Bottling Company of Southern
California, Inc. and Bart S. Brodkin, as amended by the First Amendment
to Management Agreement, dated as of February 28, 1997.***
10.4 Management Agreement, dated as of February 10, 1997, by and between
Seven-Up/RC Bottling Company of Southern California, Inc. and Rick
Ferguson, as amended by the Termination Agreement, dated as of February
28, 1997.***
10.5 Management Agreement, dated as of February 10, 1997, by and between
Seven-Up/RC Bottling Company of Southern California, Inc. and Roy
Breneman.***
10.6 Form of Option Agreement, dated as of February 3, 1997, by and between
Seven-Up/RC Bottling company of Southern California, Inc. and certain
executive officers of the Company.***
10.7 1996-1997 Stock Option Plan.***
10.8 Form of Option Agreement, dated as of February 4, 1997, by and between
Seven-Up/RC Bottling Company of Southern California, Inc. and certain
executive officers and directors of the Company.***
10.9 Confidentiality Agreement, dated as of February 26, 1997, by and
between Seven-Up/RC Bottling Company of Southern California, Inc. and
Dr Pepper Bottling Company of Texas.***
10.10 Registration Rights Agreement, dated as of August 15, 1996, among Seven-
Up/RC Bottling Company of Southern California, Inc. and certain holders
of Common Stock.*
10.11 Credit Agreement, dated as of August 2, 1996, among Seven-Up/RC
Bottling Company of Southern California, Inc., General Electric Capital
Corporation, and certain other lenders party thereto.*
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Company's Form S-1, as filed on November
22, 1996.
** Incorporated by reference to the Company's Form 10-Q for the period ended
June 30, 1996.
*** Incorporated by reference to the Company's Schedule 14D-9, dated March 7,
1997.
(b) Reports on Form 8-K:
None.
-36-
<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.
SEVEN-UP/RC BOTTLING COMPANY
OF SOUTHERN CALIFORNIA, INC.
(Registrant)
By /s/ Barton S. Brodkin
---------------------------------------
Barton S. Brodkin
Chairman of the Board
President and Chief Executive Officer
Date April 1, 1997
-------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<S> <C>
By /s/ Barton S. Brodkin Date April 1, 1997
---------------------------------------- ----------------
Barton S. Brodkin
Chairman of the Board
President and Chief Executive Officer
By /s/ Richard D. Ferguson Date April 1, 1997
---------------------------------------- ----------------
Richard D. Ferguson
Executive Vice President,
Chief Financial Officer
By /s/ Jack R. Attwood Date April 1, 1997
---------------------------------------- ----------------
Jack R. Attwood
Director
By /s/ William C. Langley Date April 1, 1997
---------------------------------------- ----------------
William C. Langley
Director
By /s/ M. L. Lowenkron Date April 1, 1997
---------------------------------------- ----------------
M. L. Lowenkron
Director
By /s/ Daniel D. Villanueva Date April 1, 1997
---------------------------------------- ----------------
Daniel D. Villanueva
Director
</TABLE>
-37-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the period from January 1, to August 15, 1996,
the period from August 16, to December 31, 1996, and for the years ended December 31,
1995 and 1994 F-4
Consolidated Statements of Cash Flows for the period from January 1, to August 15, 1996,
the period from August 16, to December 31, 1996, and for the years ended December 31,
1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the period from January 1,
to August 15, 1996, the period from August 16, to December 31, 1996, and for the years
ended December 31, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Schedule supporting the financial statements for the period from January 1, to
August 15, 1996, the period from August 16, to December 31, 1996 and for the
years ended December 31, 1995 and 1994
Schedule II - Valuation and Qualifying Accounts F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Seven-Up/RC Bottling Company of Southern California, Inc.:
We have audited the accompanying consolidated balance sheets of Seven-
Up/RC Bottling Company of Southern California, Inc. (a Delaware corporation) and
its subsidiary (collectively, the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the period from January 1, to August 15, 1996, the
period from August 16, to December 31, 1996, and for the years ended December
31, 1995 and 1994. These consolidated financial statements are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
As more fully described in Notes 1 and 3 to the financial statements, on
August 15, 1996, the Company emerged from protection under Chapter 11 of the
U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed by
the Bankruptcy Court on August 12, 1996. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of August 15, 1996. As a result, the financial statements for the
period subsequent to August 15, 1996, reflect the Reorganized Company's new
basis of accounting and are not comparable to the Predecessor Company's pre-
reorganization consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seven-Up/RC
Bottling Company of Southern California, Inc. and its subsidiary as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
the period from January 1, to August 15, 1996, the period from August 16, to
December 31, 1996, and for the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Security
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 31, 1997
F-2
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------- ----------
as of December 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,813 $ 5,949
Accounts receivable:
Trade, net 25,604 42,261
Other 7,692 9,450
Inventories 19,144 24,947
Prepaid expenses 1,875 2,908
-------- --------
Total current assets 58,128 85,515
-------- --------
Property, plant and equipment, net 56,790 79,945
Other assets:
Intangible and other assets 6,323 22,844
Debt issuance costs 129 3,829
-------- --------
Total assets $121,370 $192,133
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 18,358 $ 26,568
Accrued expenses 27,804 36,944
Current portion of long-term debt and
capital lease obligations 562 189,954
-------- --------
Total current liabilities 46,724 253,466
-------- --------
Long-term debt:
Revolving credit facilities 19,021 -
Term loan 506 -
Capital lease obligations 2,456 -
-------- --------
Total long-term debt 21,983 -
-------- --------
Stockholders' equity (deficit):
Capital stock par value $0.01 a share; authorized 6,000,000
and 1,000 shares, and issued and outstanding 5,000,000 and
1,000 shares, in 1996 and 1995, respectively 50 -
Additional capital 53,075 42,557
Retained deficit (462) (103,890)
-------- --------
Total stockholders' equity (deficit) 52,663 (61,333)
-------- --------
Total liabilities and stockholders' equity (deficit) $121,370 $192,133
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
Consolidated Statements of Operations
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ -------------------------------------------------
8/16 - 12/31 1/1 - 8/15 Years ended December 31,
1996 1996 1995 1994
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net sales $ 91,647 $202,844 $396,725 $413,840
Cost of goods sold 74,058 164,320 334,942 342,336
--------- -------- --------- ---------
Gross profit 17,589 38,524 61,783 71,504
Administrative, marketing 13,575 27,841 47,935 48,437
and general expenses
Depreciation and amortization 3,688 10,399 18,180 17,251
Restructure charges - 547 5,015 -
--------- -------- --------- ---------
Operating income (loss) 326 (263) (9,347) 5,816
Interest expense 838 12,871 23,057 21,626
Other income, net 50 34,309 210 95
--------- -------- --------- ---------
Loss before provision for income
taxes, reorganization expense
and extraordinary items (462) 21,175 (32,194) (15,715)
Reorganization expense - 13,011 - -
Provision for income taxes - 345 - 185
--------- -------- --------- ---------
(Loss) income before
extraordinary items (462) 7,819 (32,194) (15,900)
Extraordinary items - gain - (54,577) - -
--------- -------- --------- ---------
Net (loss) income $ (462) $ 62,396 $ (32,194) $ (15,900)
========= ======== ========= =========
Loss per common share:
Net loss per common share $ .09 $ - $ - $ -
========= ======== ========= =========
Weighted average common shares
outstanding 5,077 - - -
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ --------------------------------------------------
8/16 - 12/31 1/1 - 8/15 Years ended December 31,
------------ ---------- ---------------------------
1996 1996 1995 1994
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before extraordinary items $ (462) $ 7,819 $(32,194) $(15,900)
Adjustments to reconcile income (loss) before
extraordinary items to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,688 10,997 20,048 19,209
Equity in earnings of joint venture - (5) (103) (42)
(Gain) loss on sales of fixed assets (50) (764) (8) 117
Non cash reorganization expense - 7,207 - -
Disposition of capital lease - 548 - -
Provision for doubtful accounts 206 836 715 1,025
Cash dividend from investment in joint venture - - - 225
Gain on sale of Puerto Rico - (31,715) - -
Changes in assets and liabilities:
Accounts receivable 2,197 (1,928) 18,542 (16,616)
Inventories (2,763) 419 19,471 (17,737)
Prepaids and other 286 4,356 (2,904) (370)
Accounts payable (20,114) 20,769 (24,247) 24,345
Accrued expenses 2,459 17,859 6,447 7,414
-------- -------- -------- --------
Net cash (used in) provided by
operating activities (14,553) 36,398 5,767 1,670
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Puerto Rico - 69,456 - -
Proceeds from sales of property, plant and equipment 40 126 117 48
Additions to property, plant and equipment (3,356) (5,228) (5,208) (5,138)
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (3,316) 64,354 (5,091) (5,090)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings of revolving loans, net 19,021 (45,247) (616) 3,687
Payment to Senior Secured Noteholders - (55,000) - -
(Repayments of) proceeds from term loan (25) (2,852) (90) 4,286
Payments of debt issuance costs (41) (88) - -
Repayments of capital leases (149) (638) (1,003) (1,317)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 18,806 (103,825) (1,709) 6,656
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH 937 (3,073) (1,033) 3,236
CASH, beginning of year 2,876 5,949 6,982 3,746
-------- -------- -------- --------
CASH, end of year $ 3,813 $ 2,876 $ 5,949 $ 6,982
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash interest paid $ 616 $ 2,080 $ 13,342 $ 19,811
======== ======== ======== ========
Purchases of property, plant and equipment
through issuance of capital lease obligation $ - $ - $ 555 $ 10,229
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Total
Capital Stock Stockholders'
---------------------- Additional Retained Equity
Shares Amount Capital (Deficit) (Deficit)
-------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
REORGANIZED (Notes 1 & 3)
August 16 to December 31, 1996
Balance, August 16, 1996 5,000 $ 50 $ 53,125 $ - $ 53,125
Net loss for the period - - - (462) (462)
------- ------ -------- --------- --------
Balance, December 31, 1996 5,000 $ 50 $ 53,125 $ (462) $ 52,663
======= ====== ======== ========= ========
PREDECESSOR
January 1 to August 15, 1996
Balance December 31, 1995 1 $ - $ 42,557 $(103,890) $(61,333)
Reorganization (Notes 1 & 3) 99 1 (41,494) 41,494 -
New Issue 4,900 49 52,062 - 52,062
Net income for the period - - - 62,396 62,396
------- ------ -------- --------- --------
Balance, August 15, 1996 5,000 $ 50 $ 53,125 $ - $ 53,125
======= ====== ======== ========= ========
PREDECESSOR
January 1 to December 31, 1995
Balance, December 31, 1994 1 $ - $ 42,557 $ (71,696) $(29,139)
Net loss for the period - - - (32,194) (32,194)
------- ------ -------- --------- --------
Balance, December 31, 1995 1 $ - $ 42,557 $(103,890) $(61,333)
======= ====== ======== ========= ========
PREDECESSOR
January 1 to December 31, 1994
Balance, December 31, 1993 1 $ - $ 42,557 $ (55,796) $(13,239)
Net loss for the period - - - (15,900) (15,900)
------- ------ -------- --------- --------
Balance, December 31, 1994 1 $ - $ 42,557 $ (71,696) $(29,139)
======= ====== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND PRESENTATION OF FINANCIAL INFORMATION
------------------------------------------------------------
GENERAL
-------
Seven-Up/RC Bottling Company of Southern California, Inc., a Delaware
corporation ("Seven-Up/RC"), is among the largest beverage distributors in
the United States, and is the largest bottler of Seven-Up in the United
States. Southern California manufactures and distributes a broad range of
beverage products in Southern California, Central California, portions of
Nevada and New Mexico, and, through its wholly-owned subsidiary Seven-Up/RC
Bottling Company of Puerto Rico, Inc. ("Puerto Rico"), Puerto Rico and the
Virgin Islands. Except as otherwise indicated, Seven-Up/RC and Puerto Rico
are collectively referred to as the "Company". The Company has the
exclusive right within its territories to manufacture and/or distribute
Seven-Up (lemon-lime), Royal Crown (cola), A&W (root beer and cream soda),
Sunkist (orange and citrus), Hawaiian Punch (fruit punch), Schweppes
(ginger-ale and mixers), Evian (imported still water), Perrier (imported
mineral water), Welch's (grape, strawberry and pineapple), Mistic (teas and
juices), Yoo-Hoo (chocolate drink) and Snapple (teas and juices).
The Company's business strategy is to manufacture and distribute a
franchised portfolio of leading trademarked beverages in each beverage
flavor category and to create additional sources of revenue through
contract manufacturing. The Company's Liquitrend division ("Liquitrend")
engages in contract manufacturing, which utilizes the Company's excess
production capacity by manufacturing carbonated soft drink products for a
variety of small, independent franchisors and retailers selling private
label products.
PRESENTATION OF FINANCIAL INFORMATION
-------------------------------------
On May 13, 1996, Seven-Up/RC and its immediate holding company parent,
Beverage Group Acquisition Corporation, filed voluntary petitions for
reorganization relief under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the District of Delaware. On August 15, 1996, a
reorganization was consummated and Seven-Up/RC emerged as a reorganized
company from Chapter 11. Due to the reorganization plan and implementation
of fresh start reporting (See Note 3), the financial statements for the new
company ("Reorganized Company") for the period starting August 16, 1996 are
not comparable to that of the Company prior to August 16 1996,
("Predecessor Company"). Predecessor Company included Seven-Up/RC and
Puerto Rico through June 30, 1996, the date of disposition of Puerto Rico.
Reorganized Company includes the operations of Seven-Up/RC subsequent to
the consummation date.
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
BANKRUPTCY FILINGS
------------------
As a result of severe liquidity problems, on July 31, 1995, Seven-Up/RC
suspended payments of interest on its $140,000,000, 11.5% Senior Secured
Notes due 1999 (the "Senior Secured Notes"). At the end of the second
quarter of 1995 through the first quarter of 1996, Seven-Up/RC was in
violation of certain of its revolving credit facility covenants, including
tangible net-worth, interest coverage and fixed charge coverage. At the
request of Seven-Up/RC, the revolving credit lender executed forbearance
agreements extending through May 15, 1996.
F-7
<PAGE>
On November 9, 1995, Seven-Up/RC announced that it had reached an agreement
in principle on the terms of a restructuring of the Senior Secured Notes
with an unofficial committee of holders of such notes. The agreement
contemplated, among other things, (i) the exchange of the Senior Secured
Notes for approximately 98 percent of the equity of Seven-Up/RC, and (ii)
the sale of Puerto Rico and the payment to the holders of the Senior
Secured Notes of the net proceeds, as defined, from such sale.
On May 13, 1996, Seven-Up/RC and its immediate holding company parent,
Beverage Group Acquisition Corporation ("BGAC"), filed voluntary petitions
for reorganization relief under Chapter 11 of the Bankruptcy Code to
implement the terms of the restructuring agreement with the committee .
On July 1, 1996, Seven-Up/RC sold its wholly owned subsidiary, Puerto Rico,
for approximately $74 million which resulted in a net gain of approximately
$32 million included in Other Income in the accompanying Statement of
Operations. The proceeds from this sale were subsequently used to repay
holders of the Senior Secured Notes and reduce Seven-Up/RC's revolving
credit facility.
On August 2, 1996, the U.S. Bankruptcy Court of the District of Delaware,
confirmed the Company's First Amended Joint Plan of Reorganization (the
"Reorganization"), and on August 15, 1996, the Company emerged from
bankruptcy. Pursuant to the Reorganization, on such date the Senior
Secured Notes were canceled in exchange for approximately $55 million in
cash and equity securities consisting of 4,900,000 million shares of common
stock in Seven-Up/RC. In addition, 100,000 shares of common stock and
warrants to purchase an additional 263,158 shares of common stock were
issued to the prior owner of BGAC.
In the period ended August 15, 1996, Seven-Up/RC wrote off $510,000 of debt
issuance costs related to its previous working capital facility and
realized a gain of $55 million relating to the discharge of the Senior
Secured Notes and related accrued interest in accordance with the
Reorganization, the net of which, are reflected as extraordinary items in
the accompanying financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
PRINCIPLES OF CONSOLIDATION
---------------------------
The financial statements of the Predecessor Company reflect the
consolidated financial statements of Seven-Up/RC Bottling Company of
Southern California, Inc. and, through the date of its disposition (June
30, 1996), its wholly-owned subsidiary, Seven-Up/RC Bottling Company of
Puerto Rico, Inc. The financial statements of the Reorganized Company
include only the financial statements of Seven-Up/RC.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
-------------------------------------------------------
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 reporting period. Actual results could differ from those
estimates.
CASH
----
Included in accounts payable are $3,958,000 and $9,459,000 of checks
outstanding in excess of cash balances at December 31, 1996 and 1995,
respectively.
For purposes of the statement of cash flows, cash and cash equivalents are
defined as cash deposits with original maturities of less than 90 days.
F-8
<PAGE>
TRADE RECEIVABLES, NET
----------------------
Trade receivables, net, include allowances for doubtful accounts of
$1,937,000 and $1,814,000 at December 31, 1996 and 1995, respectively.
OTHER RECEIVABLES
-----------------
Other receivables consist principally of amounts due from franchisors under
the terms of marketing and/or purchasing contracts.
INVENTORIES
-----------
Inventories are recorded at cost, determined on the first-in, first-out
method. Elements of cost include direct materials, direct labor and
bottling overhead.
PROPERTY, PLANT AND EQUIPMENT, NET
----------------------------------
Property, plant and equipment is stated at cost. Depreciation is provided
for under the straight-line method using the following lives:
Building and improvements 31.5 years
Machinery and equipment 7 to 8 years
Equipment held under capital leases 6 to 7 years
Expenditures for additions and improvements are capitalized, and costs for
repairs and maintenance are charged to operations as incurred. The cost and
accumulated depreciation of property, plant and equipment retired or
otherwise disposed of are eliminated and any resulting gain or loss
recognized at the time of disposal.
OTHER ASSETS
------------
Intangible assets include the appraised value of specific intangible assets
acquired, primarily, beverage franchises and trademarks. The intangible
assets are amortized over their useful lives, not to exceed 40 years. The
net balance recorded at December 31, 1996 and 1995, includes accumulated
amortization of $233,000 and $14,820,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets to be Disposed of." (See Note 2 "Recent Accounting
Pronouncements".) The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful
life of its intangible assets my warrant revision or that the remaining
balance of intangible assets may not be recoverable When factors indicate
that intangible assets should be evaluated for possible impairment, the
Company uses an estimate of the its undiscounted cash flows over the
remaining life of the intangible asset in measuring whether the intangible
asset is recoverable.
Additionally, other assets are comprised of debt issuance costs incurred in
connection with the arrangement of various long-term debt facilities.
These costs are amortized over the individual lives of the various debt
facilities using the effective interest method. The net balance includes
accumulated amortization of $3,493,000 at December 31, 1995.
F-9
<PAGE>
INCOME TAXES
------------
The Company accounted for income taxes using the method prescribed by
Statement of Financial Accounting Standard No. 109 (SFAS 109). Under the
asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The measurement of deferred
income tax assets is adjusted by a valuation reserve, if necessary, so that
the net tax assets are recognized only to the extent they are expected to
be realized. The adoption of SFAS 109 had no effect on the Company's
financial position.
RESTRUCTURING CHARGES
---------------------
During 1995, Seven-Up/RC discontinued the operations of its Avalon
division, which distributed lower-volume beverage products and downsized
the hot-fill operations of its Liquitrend division, which primarily bottled
products for companies who did not distribute their products throughout
Seven-Up/RC's distribution system. As a result, Seven-Up/RC terminated 205
employees in September, 1995; a reserve of $906,000 was set up for
severance pay, of which $56,000 and $850,000 was paid during the years
ended December 31, 1996 and 1995, respectively. Also Seven-Up/RC determined
that certain leased facilities and equipment were no longer needed and a
reserve of $1,660,000 was established to reflect the projected cost of
terminating these leases, of which $324,000 was paid by December 31, 1995.
The termination of leases in 1996 resulted in an additional restructuring
charge of $547,000 in the period ended August 15, 1996. All amounts accrued
in connection with lease terminations had been paid by August 15, 1996.
Additionally in 1995, Seven-Up/RC incurred costs of $2,449,000 in relation
to the negotiation of the restructuring of Seven-Up/RC's obligation under
the Senior Secured Notes and the revolving credit facilities; these costs
are included in the restructuring charge in the accompanying 1995
consolidated statement of operations.
NET LOSS PER COMMON SHARE
-------------------------
Net loss per common share is computed on the basis of the weighted average
number of common shares outstanding, plus common stock equivalents related
to dilutive stock warrants. The number of shares used in the computation
of per share data was 5,076,811 in 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121. The Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company adopted SFAS No. 121
in the first quarter of 1996. The adoption did not have an impact on the
Company's financial position or its results of operations.
In November 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This new standard
encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments
based on a fair-value method of accounting.
F-10
<PAGE>
Companies that do not choose to adopt the new expense recognition
provisions of SFAS No. 123 will continue to apply the existing accounting
provisions contained in Accounting Principles Board Opinion (APBO) No. 25,
but will be required to provide pro forma disclosures of the compensation
expense determined under the fair-value provisions of SFAS No. 123, if
material.
The Company adopted SFAS No. 123 in the first quarter of 1996 electing to
follow the accounting provisions of APBO No. 25 for stock-based
compensation and to furnish the pro forma disclosures required under SFAS
No. 123, if material.
In March, 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure." SFAS No. 128 eliminates several requirements of APBO
No. 15, simplifying earnings per share calculations. The Company is
required to adopt SFAS No. 128 in the first quarter of 1997. As of December
31, 1996, the adoption of SFAS No. 128 would not have a material impact on
the Company's financial position or its results of operations.
(3) FRESH START ACCOUNTING
----------------------
As of August 15, 1996, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code," ("SOP 90-7"). Fresh Start
Reporting resulted in material changes to the Consolidated Balance Sheet,
including valuation of real, intangible and other assets and the valuation
of equity based on the appraised reorganization value of the ongoing
business.
The final reorganization equity value was determined to be approximately
$53 million (the approximate fair value) which was established based upon
analysis by an independent valuation firm and considered many factors and
various valuation methods, including discounted cash flows, selected
comparable company multiples, selected acquisition transaction multiples
and other applicable ratios and valuation techniques believed by management
and its financial advisors to be representative of the Company's business
and industry. The Company obtained an independent appraisal of certain
property to support the fair values of such assets.
The Reorganization and adoption of Fresh Start Reporting resulted in the
following adjustments to the Company's Consolidated Balance Sheet for the
period ending August 15, 1996.
<TABLE>
<CAPTION>
Predecessor Reorganized
Company Company
----------- -----------
at Reorganization and at
August 15, Fresh Start Adjustments August 15,
----------- --------------------------- -----------
1996 Debit Credit 1996
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
(Dollar amounts in thousands)
Total current assets $120,644 $ - $63,836 /(f)/ $ 56,808
Property, plant and equipment, net 56,914 - 196 /(a)/ 56,718
Other assets:
Intangible and other assets 14,038 - 7,011 /(b)/ 7,027
Debt issuance costs 2,695 - 2,607 /(c)/ 88
-------- ------- ------- --------
Total assets $194,291 $ - $73,650 $120,641
======== ======= ======= ========
</TABLE>
F-11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 39,486 $ - $ - $ 39,486
Accrued expenses 49,087 24,756 /(d)/ - 24,331
Current portion of long-term debt 544 - - 544
-------- -------- -------- --------
Total current liabilities 89,117 24,756 - 64,361
-------- -------- -------- --------
Long-term debt 151,991 148,836 /(e)/,/(f)/ - 3,155
-------- -------- -------- --------
Stockholders' (deficit) equity:
Additional paid-in capital 42,557 41,494 /(g)/ 52,062 /(g)/ 53,125
Retained deficit (89,374) - 55,087 /(h)/ -
34,287 /(i)/
-------- -------- -------- --------
Total stockholders' (deficit)
equity (46,817) 41,494 141,436 53,125
-------- -------- -------- --------
Total liabilities and
stockholders' equity $194,291 $215,086 $141,436 $120,641
======== ======== ======== ========
</TABLE>
Explanations of adjustment columns of the balance sheet are as follows:
(a) To adjust property, plant and equipment to estimated current market value.
The market value of property, plant and equipment has been primarily
determined by independent third party appraisal.
(b) To primarily reflect the write-off of intangibles and adjust other assets
to current market value.
(c) To write-off remaining debt issuance costs for the Senior Secured Notes.
(d) To reflect the cancellation of accrued interest related to the Senior
Secured Notes.
(e) To reflect the cancellation of the Senior Secured Notes ($140,000,000).
(f) To reflect the paydown of the debtor-in-possession revolving credit
facility ($8,836).
(g) To reflect the issuance of 5,000,000 shares of new common stock (par value
$0.01).
(h) To reflect the extraordinary gain resulting from the discharge of
indebtedness. This extraordinary gain is calculated below:
Historical carrying value of old debt securities $140,000
Historical carrying value of related accrued interest 24,756
Unamortized old debt issuance costs (2,607)
Market Value of consideration exchanged for old debt:
Plan securities (face value $52,062) (52,062)
Senior securities principal payment (55,000)
--------
Extraordinary gain $ 55,087
========
(i) To reflect the elimination of stockholders' equity of the Predecessor
Company.
F-12
<PAGE>
In accordance with SOP 90-7, expenses resulting from the Reorganization
should be reported separately as reorganization items in the Condensed
Consolidated Statements of Operations, and are summarized below:
<TABLE>
<CAPTION>
January 1,
to
August 15, 1996
---------------
<S> <C>
Adjustment of assets to fair
market value $ 7,207
Financial restructuring costs 5,804
-------
Total $13,011
=======
</TABLE>
The following Unaudited Pro Forma Condensed Financial Information for the
years ended December 31, 1996 and 1995, have been prepared giving effect to
the sale of Puerto Rico and the consummation of the Reorganization
including adjustments to interest, depreciation expense and asset
amortization. The Pro Forma financial information was prepared as if the
transactions had occurred on January 1, 1996 and 1995, respectively. This
information does not purport to be indicative of the results which would
have been obtained had such transaction in fact been completed as of the
date hereof and for the periods presented or that may be obtained in the
future.
Unaudited Pro Forma Financial Information (dollar amounts in thousands):
<TABLE>
<CAPTION>
Pro Forma for the Years Ended
-----------------------------
December 31, December 31,
1996 1995
-----------------------------
<S> <C> <C>
Total revenue $256,556 $314,469
Operating costs and expenses 257,266 323,019
-------- --------
Loss before interest, other income, reorganization
expenses and income taxes 710 8,550
Interest, other income, income taxes and reorganization expenses 756 5,463
-------- --------
Net loss $ 1,466 $ 14,013
======== ========
</TABLE>
(4) INVENTORIES
-----------
Inventories at December 31, 1996 and 1995, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 5,034 $ 6,198
Finished goods 14,110 18,749
------- -------
$19,144 $24,947
======= =======
</TABLE>
F-13
<PAGE>
(5) PROPERTY, PLANT AND EQUIPMENT, NET
----------------------------------
Property, plant and equipment, net, at December 31, 1996 and 1995,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Land $21,762 $ 22,477
Buildings and improvements 12,194 23,994
Machinery and equipment 22,586 71,911
Equipment held under capital leases 2,709 12,816
Construction in progress 860 480
------- --------
60,111 131,678
Accumulated depreciation (3,101) (49,246)
Capital lease depreciation (220) (2,487)
------- --------
$56,790 $ 79,945
======= ========
</TABLE>
(6) ACCRUED EXPENSES
----------------
Accrued expenses at December 31, 1996 and 1995, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Accrued marketing programs $ 9,001 $ 4,496
Accrued interest 146 14,994
Other accruals 18,657 17,454
------- -------
$27,804 $36,944
======= =======
</TABLE>
(7) LONG-TERM DEBT
--------------
At December 31, 1996 and 1995, the components of long-term debt were (in
thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Revolving credit facilities $19,021 $ 37,847
Senior Secured Notes - 140,000
Term loan 589 3,571
Capital lease obligations 2,935 8,536
------- ---------
22,545 189,954
Less: current portion (562) (189,954)
------- ---------
Long term debt, net $21,983 $ -
======= =========
</TABLE>
F-14
<PAGE>
REVOLVING CREDIT FACILITIES
---------------------------
Upon consummation of the Reorganization on August 15, 1996, the debtor-in-
position facility was canceled and the Company entered into a new credit
facility (the "Facility") with GE Capital providing for up to $35 million
in working capital and letter of credit commitments. Available borrowings
on this facility are based on a percentage of certain eligible trade and
franchisor receivables and inventory. Interest on the Facility is charged
monthly at the GE Capital commercial paper rate (5.28 percent at December
31, 1996) plus 3 percent. Seven-Up/RC is charged a commitment fee for the
unused portion of the revolving loan commitments, as well as a letter of
credit fee of 2 percent on the face amount of all outstanding letters of
credit. There were $3,057,000 in outstanding letters of credit at December
31, 1996. Seven-Up/RC also pays a $50,000 annual collateral monitoring fee
on the Facility. In addition, the Facility is also subject to a
termination fee of $750,000 if the Facility is terminated prior to the
first anniversary of the Closing Date, as defined in the agreement, or a
$350,000 fee if terminated prior to the second anniversary of that date.
Seven-Up/RC has a lockbox agreement with GE Capital whereby all cash
receipts are used to pay down the revolving loans. Borrowings under this
are secured by substantially all the Company's assets. At December 31,
1996, the Company was in violation of certain of its revolving credit
facility covenants, including interest coverage, fixed charge coverage and
capital expenditures. The Company subsequently received a waiver from GE
Capital related to the covenant violations.
The revolving loans at December 31, 1995, consisted of a $45.0 million
revolving loan commitment for Seven-Up/RC; ($29.2 million outstanding) and
a $10.0 million revolving loan commitment for Puerto Rico ($8.6 million
outstanding). Interest on these revolving loans is charged monthly at the
GE Capital Commercial Paper rate (5.68 percent at December 31, 1995) plus
3.5 percent. The average interest rate on the revolving loans in 1995 was
9.34 percent. The Company was charged a commitment fee for the unused
portion of the revolving loan commitments plus an annual administration fee
and other facility fees. Borrowings under the revolving loan commitments
were based on a percentage of certain eligible trade and franchisor
receivables and inventory. At December 31, 1995, the Company was in
violation of certain of its revolving credit facility covenants, including
tangible net worth, interest coverage and fixed-charge coverage. This
facility was replaced by the Company with a $54 million debtor-in-
possession revolving credit facility upon entering bankruptcy.
SENIOR SECURED NOTES
--------------------
On August 11, 1992, Seven-Up/RC issued its $140,000,000 aggregate principal
amount of 11.5% Senior Secured Notes Due 1999 (the "Senior Secured Notes").
Pursuant to the Reorganization, these notes were canceled in exchange for
approximately $55 million in cash and 4,900,000 shares of common stock of
the Reorganized Company (see Note 1).
TERM LOAN
---------
Seven-Up/RC's secured amortizing term loan is collateralized by certain
specified equipment. The term loan calls for monthly payments of $11,536,
including interest, through July, 2002. Interest on this loan is computed
at 10.14%.
FAIR VALUE OF LONG-TERM DEBT
----------------------------
The fair value of amounts outstanding under the revolving credit facility
at December 31, 1996 approximates the carry amount due to the variable
nature of the interest rates. In addition, there was no material
difference between the fair market value and the carry amount of the
remaining long-term debt at December 31, 1996.
F-15
<PAGE>
(8) EMPLOYEE BENEFIT PLANS
----------------------
The Company sponsors two defined contribution plans for all employees other
than union members, unless specifically negotiated. The Target Benefit Plan
was created effective September 1, 1990, and allows participants to make
contributions of 2 percent of their eligible compensation, as defined. The
Company's annual contribution is determined by an actuary based upon
assumptions of the participant's highest five year average pay, their years
of eligible service with the Company, and their vesting status as of their
termination date. The 401(k) Plan entitles all employees other than union
members, unless specifically negotiated, to participate. The Company
matches one-quarter of each participant's contribution up to 6% of the
participant's eligible compensation. In September of 1995, the Company
suspended its contributions related to the Target Benefit Plan and the
401(k) Plan. In April of 1996, Seven-Up/RC resumed its contributions
related to the 401(k) Plan. The following table summarizes the 1996
estimated contributions, and 1995 and 1994 actual contributions for each
plan for the applicable periods (in thousands):
<TABLE>
<CAPTION>
Target 401(k)
Benefit Plan
--------------------
<S> <C> <C>
Period from January 1, 1996 to August 15, 1996 $ 204 $ 72
Period from August 16, 1996 to December 31, 1996 $ - $ 59
Year ended December 31, 1995 $ 306 $ 160
Year ended December 31, 1994 $ 380 $ 210
</TABLE>
Under labor contracts between the Company and certain of its employee
unions, the Company contributes to multi-employer union benefit plans which
are administered by the applicable unions. The Company has no liability to
these plans in excess of the contractually agreed to contribution, which is
usually equal to a set charge per hour of eligible service by the union
members to the Company. The Company contributed the following amounts to
unions on behalf of its employees during the applicable periods (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Period from January 1, 1996 to August 15, 1996 $ 635
Period from August 16, 1996 to December 31, 1996 $ 282
Year ended December 31, 1995 $ 972
Year ended December 31, 1994 $ 1,017
</TABLE>
PUERTO RICO PENSION PLAN
------------------------
Prior to the sale of Puerto Rico, effective June 30, 1996, the Company
sponsored the Seven-Up/RC Bottling Company of Puerto Rico, Inc. Pension
Plan (the "Puerto Rico Plan"), a contributory defined benefit pension plan
for union employees of Puerto Rico. Employees were eligible to participate
in the Puerto Rico Plan the first year of the Plan year following the date
of employment. Participating employees were required to contribute 3
percent of their compensation in excess of $9,000 in a given calendar year.
The following table indicates the actual net pension expense components for
the years ended December 31, 1995 and 1994, respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Service cost component $ 48 $ 85
Interest cost component 248 268
Expected return on plan assets (184) 82
Net amortization and deferral 34 (226)
------ ------
Net pension expense $ 146 $ 209
====== ======
</TABLE>
F-16
<PAGE>
The assumptions used to develop the components of the above amounts were as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Discount rate 7.50% 8.50%
Rate of increase in compensation levels 4.00% 4.00%
Expected long-term rate of return on plan assets 9.00% 9.00%
</TABLE>
The funded status of the Puerto Rico Plan as of January 1, 1995 and 1994
was as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 2,952 $ 2,504
Non-vested 133 5
------- -------
$ 3,085 $ 2,509
======= =======
Present value of projected benefit obligation $(3,739) $(2,830)
Fair value of plan assets 2,472 2,012
------- -------
Present value of projected benefit obligation
in excess of plan assets (1,267) (818)
Remaining unrecognized net obligation 271 305
Unrecognized net gain 439 74
------- -------
Accrued pension costs $ (557) $ (439)
======= =======
</TABLE>
The Company contributed approximately $25,000 to the Puerto Rico Plan
during 1995 and $23,000 during 1994.
(9) COMMITMENTS
-----------
The Company leases certain office and warehouse facilities, machinery,
vehicles and computer equipment under renewable operating leases, expiring
from 1997 to 2003. Rental expense under operating lease agreements was
approximately $4,434,000, $6,312,000 and $5,027,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company also leases
certain machinery and equipment under capital leases. Following are the
future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year from
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1997 $ 734 $2,638
1998 734 2,432
1999 734 1,752
2000 734 820
2001 735 681
Thereafter - 643
------ ------
$8,966
======
Less -- Amount representing interest (736)
------
Present value of minimum lease payments $2,935
======
</TABLE>
F-17
<PAGE>
(10) LITIGATION
----------
The Company is involved in various lawsuits and claims incidental to its
business. Management believes that any potential liabilities arising from
these matters will not have a material effect on its financial position or
future results of operations.
(11) INCOME TAXES
------------
The Company was included in the consolidated federal and state income tax
returns of WB Bottling through August 15, 1996, the date of bankruptcy
reorganization, when Seven-Up/RC deconsolidated from the WB Bottling group.
Effective September 1, 1990, the Company and WB Bottling entered into a tax
sharing agreement, whereby the Company calculated its tax provision on a
separate member basis through the date of deconsolidation. Effective
August 16, 1996, Seven-Up/RC began filing separate federal and state income
tax returns.
The components of income (loss) from operations before the provision for
income taxes and extraordinary items were as follows (in thousands):
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
----------- ---------------------------------------
8/16-12/31 1/1-8/15 December 31, December 31,
1996 1996 1995 1994
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Domestic $(462) $8,780 $(32,566) $(15,975)
Foreign - (616) 372 260
----- ------ -------- --------
Total $(462) $8,164 $(32,194) $(15,715)
===== ====== ======== ========
</TABLE>
The components of income tax expense after utilization of net operating
loss carryforwards are summarized below (in thousands):
<TABLE>
<CAPTION>
8/16-12/31 1/1-8/15
1996 1996
---------- --------
<S> <C> <C>
Provision for income taxes:
Taxes currently payable
-----------------------
Federal $ - $ 95
State - 25
Foreign - 45
----- -----
Total $ - $ 165
----- -----
Deferred taxes
--------------
Federal $ - $ 180
State - -
----- -----
Total $ - $ 180
----- -----
Total provision $ - $ 345
===== =====
</TABLE>
F-18
<PAGE>
The following is a reconciliation of income taxes calculated at the United
States statutory federal income tax rate to the Company's provision for
income taxes before extraordinary items (in thousands):
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
----------- ------------------------------------------------------
8/16-12/31 1/1-8/15 December 31, December 31,
1996 1996 1995 1994
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. federal income tax provision
(benefit) at statutory rate on
income (loss) from operations $(157) $ 2,776 $(11,072) $(3,765)
Foreign income tax provision - 45 - 185
Nondeductible reorganization expenses - 1,414 - -
Sale of Puerto Rico subsidiary - (5,742) - -
Increase (decrease) in deferred
tax asset valuation allowance 144 1,663 11,072 3,765
Other, net 13 189 - -
----- ------- -------- -------
Provision (benefit) for income taxes $ - $ 345 $ - $ 185
===== ======= ======== =======
</TABLE>
At December 31, 1996 and December 31, 1995, the approximate amounts of
deferred tax assets and deferred tax liabilities resulting from temporary
differences and carryforwards were as follows (in thousands):
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
as of as of
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current deferred tax assets and (liabilities):
Difference in inventory basis $ 1,001 $ 880
Deferred compensation, pension and other arrangements 61 169
Accrued vacation and sick pay 759 814
Accrued expenses 788 811
Reserve for Workers' Compensation 1,362 1,729
Coupon reserve 1,149 221
Capital lease expense (202) (829)
Restructuring charges 363 548
Other 181 579
------- --------
$ 5,462 $ 4,922
Less: Valuation allowance (5,462) (4,922)
------- --------
Net current deferred tax assets and (liabilities) $ - $ -
======= ========
Non-current deferred tax assets and (liabilities):
Net operating loss carryforward $ 4,756 $ 28,415
Accelerated depreciation and amortization 4,378 (410)
Other (including AMT credit carryforwards) 133 (212)
------- --------
$ 9,267 $ 27,793
Less: Valuation allowance (9,267) (27,793)
------- --------
Net non-current deferred tax assets and (liabilities) $ - $ -
======= ========
</TABLE>
F-19
<PAGE>
During 1996, the deferred tax asset decreased by $17,986 resulting
primarily from the tax effect of a reduction in the domestic tax operating
loss carryforwards due to cancellation of indebtedness in connection with
the bankruptcy reorganization and the taxable income for the period ended
August 15, 1996. This decrease was partially offset by the tax effect of
the write-down of property, equipment, intangibles and other assets to
current market value pursuant to SOP 90-7. Due to the uncertainty as to the
realizability of the deferred tax assets, the Company has established
valuation allowances in accordance with SFAS 109 to reduce the asset.
Internal Revenue Code Sections 382 and 383 impose a limitation on the usage
of pre-reorganization domestic tax return net operating loss (NOL)
carryforwards and other tax attributes when there is a change of ownership.
A change of ownership resulted from the bankruptcy reorganization on August
15, 1996. At December 31, 1996, the Company had a pre-reorganization
federal tax return NOL carryforward of approximately $13.5 million
available to offset future taxable income. The usage of this pre-
reorganization NOL carryforward is limited to $3.1 million a year because
of the change of ownership. In addition, the Company had a NOL carryforward
of approximately $0.6 million attributable to the post-reorganization
period that is not subject to limitation. The NOL carryforwards will expire
from 2010 to 2011. The alternative minimum tax credit, although subject to
the change of ownership limitation, has no expiration date.
To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of pre-
reorganization deferred tax assets, the fresh start accounting rules of SOP
90-7 provide for the reporting of such benefits first by reducing
identifiable intangible assets existing at the date of the fresh start and
then, once those assets are reduced to zero, by increasing equity. These
tax benefits will not reduce income tax expense. However, the Company will
realize a cash benefit from utilization of the "pre-reorganization
benefits" against any future tax liabilities.
(12) CAPITAL STOCK
-------------
The certificate of incorporation in Delaware authorizes 6,000,000 shares of
$.01 per value common stock.
Upon Consummation of the Plan, WB Bottling Corporation, a privately held
Delaware corporation and previously the sole shareholder of BGAC, was
granted the right to purchase from the Company (the "Warrant"), 263,158
shares of common stock subject to adjustment as defined, exercisable at an
amount per share based upon a formula, as defined. The Warrants are
exercisable until December 31, 2001.
(13) STOCK COMPENSATION PLANS
------------------------
As part of the Reorganization, options to purchase 319,149 shares of common
stock, subject to adjustment as defined, were authorized to be granted to
certain members of management of the Company. The purchase price per share
is determined based upon a formula defined in the Management Option
Agreement. The non-qualified options expire December 31, 2001. On January
30, 1997, the authorized options were granted to certain members of
management.
On January 30, 1997, the Board of Directors of the Company adopted the
Stock Option Plan (the "Plan"). In January 1997, options to purchase
417,693 shares of common stock were granted under the Option Plan. The
option exercise price per share of common stock is $8.00.
F-20
<PAGE>
(14) SEGMENT DATA
------------
The Company's subsidiaries operate in the beverage production and
distribution business in two separate geographic segments. Information
about the Company's operations in these two geographic segments is
summarized below (in thousands):
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
---------- -----------------------------------------
8/16-12/31 1/1-8/15 December 31, December 31,
1996 1996 1995 1994
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
United States $ 91,647 $164,909 $314,469 $343,632
Puerto Rico - 37,935 82,256 70,208
-------- -------- -------- --------
$ 91,647 $202,844 $396,725 $413,840
======== ======== ======== ========
Operating Profit
United States $ 326 $ (2,051) $(14,339) $ 1,290
Puerto Rico - 1,788 4,992 4,526
-------- -------- -------- --------
$ 326 $ (263) $ (9,347) $ 5,816
======== ======== ======== ========
Identifiable Assets
United States $121,370 $120,641 $140,931 $194,545
Puerto Rico - - 51,202 49,289
-------- -------- -------- --------
$121,370 $120,641 $192,133 $243,834
======== ======== ======== ========
</TABLE>
(15) SUBSEQUENT EVENT
----------------
On February 28, 1997, Seven-Up/RC entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Dr Pepper Bottling Company of Texas
("Dr Pepper Bottling") whereby DPB Acquisition Corp., a wholly-owned
subsidiary of Dr Pepper Bottling (the "Purchaser") has made an offer to
purchase all the issued and outstanding shares of the Company for $12.00
per share (the "Offer"). The Offer is conditioned upon, among other things,
(i) there being validly tendered and not withdrawn prior to the expiration
date for the Offer that number of shares of Common Stock which would
represent, on a fully-diluted basis, at least 65% of the outstanding Common
Stock, (ii) receipt by the Purchaser of sufficient funds from its financing
sources, and (iii) the receipt of certain identified consents.
F-21
<PAGE>
SEVEN-UP/RC BOTTLING COMPANY OF SOUTHERN CALIFORNIA, INC.
Schedule II - Valuation and Qualifying Accounts
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
of Period Additions Deductions Period
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
For the period August 16, through
December 31, 1996 $2,070 $ 245 $ (378) $1,937
====== ====== ======= ======
Allowance for doubtful accounts
For the period January 1, through
August 15, 1996 $1,814 $1,299 $(1,043) $2,070
====== ====== ======= ======
Allowance for doubtful accounts
For the year ended December 31, 1995 $1,428 $ 715 $ (329) $1,814
====== ====== ======= ======
Allowance for doubtful accounts
For the year ended December 31, 1994 $1,192 $1,025 $ (789) $1,428
====== ====== ======= ======
</TABLE>
F-22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 3,813 5,949
<SECURITIES> 0 0
<RECEIVABLES> 33,296 51,711
<ALLOWANCES> (1,937) (1,814)
<INVENTORY> 19,144 24,947
<CURRENT-ASSETS> 58,128 85,515
<PP&E> 56,790 79,945
<DEPRECIATION> (3,321) (51,733)
<TOTAL-ASSETS> 121,370 192,133
<CURRENT-LIABILITIES> 46,724 253,466
<BONDS> 0 0
0 0
0 0
<COMMON> 50 0
<OTHER-SE> 52,613 (61,333)
<TOTAL-LIABILITY-AND-EQUITY> 121,370 192,133
<SALES> 294,491 396,725
<TOTAL-REVENUES> 294,491 396,725
<CGS> 238,378 334,942
<TOTAL-COSTS> 238,378 334,942
<OTHER-EXPENSES> 34,702 70,920
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,709 23,057
<INCOME-PRETAX> 7,702 (32,194)
<INCOME-TAX> 345 0
<INCOME-CONTINUING> 7,357 (32,194)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 54,577 0
<CHANGES> 0 0
<NET-INCOME> 61,934 (32,194)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
