<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter ended September 30, 1997
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File Number: 0-22614
ATLANTIC PREMIUM BRANDS, LTD.
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
DELAWARE 36-3761400
- ---------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 DUNDEE ROAD, SUITE 370
NORTHBROOK, ILLINOIS 60062
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 480-4000
Securities registered pursuant to Section 12(b) of the Act:
NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of September 30, 1997, there were outstanding 7,373,574 shares of Common
Stock, par value $.01 per share, of the Registrant.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,065,314 $ 1,248,963
Accounts receivable, net of allowance for
doubtful accounts of $78,600 and $118,000,
respectively 8,434,313 10,160,891
Inventory 5,073,887 3,629,647
Prepaid expenses and other 1,071,774 404,438
Deferred tax asset 390,500 390,500
------------- ------------
Total current assets 17,035,788 15,834,439
PROPERTY, PLANT AND EQUIPMENT, net 4,962,523 4,820,900
GOODWILL, net 13,175,918 13,175,918
OTHER ASSETS, net 1,088,531 821,834
------------- ------------
Total Assets $36,262,760 $34,653,091
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,506,124 2,672,630
Line of credit 8,500,000 7,255,984
Current portion of long-term debt 1,852,232 2,324,267
Accounts payable 5,235,515 6,120,435
Accrued expenses 1,202,624 1,083,884
Net current liabilities of discontinued operations 350,757 562,283
------------- ------------
Total current liabilities 19,647,252 20,019,483
LONG-TERM DEBT, net of current portion 6,702,668 7,778,934
DEFERRED TAX LIABILITY 250,900 250,900
------------- ------------
Total liabilities 26,600,820 28,049,317
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 7,778,106 and 6,801,142 shares issued
in 1997 and 1996, respectively 77,815 68,045
Additional paid-in capital 12,604,631 10,146,148
Accumulated deficit (2,593,436) (3,183,349)
Less: Treasury stock, at cost, 404,532 shares (427,070) (427,070)
------------- ------------
Total Stockholders' Equity 9,661,940 6,603,774
------------- ------------
Total Liabilities and Stockholders' Equity $36,262,760 $34,653,091
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
1
<PAGE> 3
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $128,234,946 $110,929,668 $44,179,213 $39,703,366
COST OF GOODS SOLD, exclusive of
depreciation shown below 113,121,840 98,805,071 38,968,529 35,218,190
------------ ------------ ----------- -----------
Gross Profit 15,113,106 12,124,597 5,210,684 4,485,176
------------ ------------ ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and benefits 6,437,028 4,975,230 2,282,605 1,775,194
Other operating expenses 6,087,906 5,472,137 2,115,945 1,960,131
Depreciation and amortization 947,666 650,029 356,858 204,325
------------ ------------ ----------- -----------
Total selling, general and
administrative expenses 13,472,600 11,097,396 4,755,408 3,939,650
------------ ------------ ----------- -----------
Income from operations 1,640,506 1,027,201 455,276 545,526
INTEREST EXPENSE (1,276,373) (814,255) (432,498) (273,769)
OTHER INCOME 240,780 458,926 112,830 25,261
------------ ------------ ----------- -----------
Income before income tax provision 604,913 671,872 135,608 297,018
INCOME TAX PROVISIONS (15,000) -- (15,000) --
------------ ------------ ----------- -----------
Net income $ 589,913 $ 671,872 $ 120,608 $ 297,018
============ ============ =========== ===========
INCOME PER COMMON SHARE
DATA:
Net income $ .09 $ .14 $ .02 $ .05
============ ============ =========== ===========
Weighted average common shares
outstanding 6,922,107 4,948,083 7,430,170 5,969,110
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 4
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 589,913 $ 671,872
Adjustments to reconcile net income to cash flows
provided by operating activities, net of non-cash items:
Depreciation and amortization 947,666 650,029
Amortization of debt discount and deferred financing
costs 141,566 59,806
Decrease in accounts receivable, net 1,726,578 261,867
Increase in inventory (1,444,240) (956,967)
Increase in prepaid expense and other (667,336) (367,881)
Increase in other assets (426,008) --
Decrease in accounts payable (884,920) (822,256)
Increase in accrued expenses 118,740 385,399
------------ -----------
Net cash flows from-
Continuing operations 101,959 (118,131)
Discontinued operations (171,526) (518,681)
------------ -----------
Net cash flows from operating activities (69,567) (636,812)
------------ -----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Acquisition of equipment (772,030) (363,932)
Cash paid for acquisitions, including acquisition fees, net
of cash acquired -- (6,740,705)
Decrease in other assets -- 125,409
Purchase of distribution rights (267,885) --
------------ -----------
Net cash flows from investing activities (1,039,915) (6,979,228)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term liabilities (1,579,930) (2,788,979)
Cash paid for financing fees -- (420,343)
Borrowings under line of credit 1,244,016 4,631,691
Borrowings under term loan -- 5,900,000
Decrease in bank overdraft (166,506) (1,346,927)
Proceeds from private placement of common stock, net 2,428,253 2,782,384
------------ -----------
Net cash flows from financing activities 1,925,833 8,757,826
------------ -----------
NET INCREASE IN CASH 816,351 1,141,786
CASH, beginning of period 1,248,963 --
------------ -----------
CASH, end of period $2,065,314 $1,141,786
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 5
ATLANTIC PREMIUM BRANDS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements present the accounts of
Atlantic Premium Brands, LTD. (the "Company") and its wholly-owned
subsidiaries. The Company, together with its subsidiaries, is engaged in the
distribution of specialty beverages in the Baltimore and Washington, D.C.
metropolitan areas and, effective January 1, 1996, engaged in the
manufacturing, marketing and distribution of meat products in Texas, Louisiana,
Kentucky and surrounding states.
The consolidated financial statements included herein for the Company have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. In management's opinion, the
interim financial data presented includes all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation. Certain
information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate
to understand the information presented. The results of operations for the
three months and nine months ended September 30, 1997 are not necessarily
indicative of the operating results expected for the entire year. It is
suggested that these consolidated financial statements be read in conjunction
with the Company's December 31, 1996 consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
Revenue Recognition
The Company records sales when product is delivered to its customers.
Discounts provided, principally volume, are accrued at the time of the sale.
Cash
Cash consists of cash held in various deposit accounts with financial
institutions. As of September 30, 1997, $175,000 was restricted to meet
minimum balance funding requirements.
4
<PAGE> 6
Inventory
Inventory is stated at the lower of cost or market. It is comprised of raw
materials, finished goods and inventory supplies. Cost is determined using the
first-in, first-out method (FIFO). Inventory consisted of the following as of:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials ................................. $ 306,466 $ 100,619
Finished goods................................. 4,214,878 3,077,431
Packaging supplies ............................ 552,543 451,597
------------- -------------
Total inventory ............................... $5,073,887 $3,629,647
============= =============
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of applicable
depreciation. Depreciation is provided using the straight-line method over the
following useful lives.
Buildings and building improvements 5-30 years
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Leasehold improvements 2-5 years
Vehicles 5-10 years
Other Assets
Other assets consist of costs associated with the acquisitions described
and includes distribution and license agreements and deferred financing costs.
Distribution and license agreements are being amortized over 2-3 years using
the straight-line method, while the deferred financing costs are being
amortized over 5 years using the effective interest method.
Goodwill
Goodwill was recorded with the acquisitions of the beverage business,
Prefco, Inc., Carlton Foods, Inc., Grogan Farm, Inc., Grogan's Sausage, Inc.,
Partin's Country Sausage, Inc. and Richard's Cajun Country Food Processors and
is being amortized using the straight-line method over 5 to 40 years.
5
<PAGE> 7
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In February 1997, the FASB issued Statement No. 128 (SFAS 128), "Earnings
Per Share," which establishes new standards for computing and presenting
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
statement requires presentation of basic earnings per share and diluted
earnings per share. The Company's earnings per share for the three months
ended September 30, 1996 and 1997, according to SFAS 128 would be as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------------ ------------------------------------
Weighted- Weighted-
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
stockholders.............. $297,018 5,740,984 $ .05 $120,608 7,207,490 $ .02
======== ========
Effect of Dilutive Securities:
Options $ -- 228,126 $ -- 222,680
-------- --------- -------- ---------
Diluted EPS:
Income available to common
stockholders, plus assumed
conversions............... $297,018 5,969,110 $ .05 $120,608 7,430,170 $ .02
======== ========= ======== ======== ========= ========
</TABLE>
Options to purchase 25,000 shares of common stock at $4 per share were
outstanding during the third quarter of 1997 but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares during the quarter.
6
<PAGE> 8
The Company's earnings per share for the nine months ended September 30, 1996
and 1997, according to SFAS 128 would be as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------- ------------------------------
Weighted- Weighted-
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
-------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
stockholders.............. $671,872 $4,804,561 $ .14 $589,913 6,668,206 $ .09
========= =========
Effect of Dilutive Securities:
Options..................... $ -- 143,522 $ -- 253,901
-------- ---------- --------- ---------
Diluted EPS:
Income available to common
stockholders, plus assumed
conversions............... $671,872 4,948,083 $ .14 $589,913 6,922,107 $ .09
======== ========== ========= ========= ========= =========
</TABLE>
Options to purchase 25,000 shares of common stock at $4 per share were
outstanding during the nine months ended September 30, 1997, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares during those
nine months.
During June 1997, the FASB issued Statement No. 130 (SFAS 130), "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Management has not yet determined whether the
implementation of SFAS 130 will have any impact on the Company's financial
reporting.
During July 1997, the FASB issued Statement No. 131 (SFAS 131), "Disclosures
About Segments of an Enterprise and Related Information," which establishes a
new approach for determining segments within a company and reporting
information on those segments. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined whether
the implementation of SFAS 131 will have any impact on the Company's current
method of disclosing business segment information.
Reclassifications
Certain reclassifications have been made to the prior year amounts in order to
conform with the current year presentation.
2. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:
In December 1995, the Company adopted a plan to dispose of its Flying Fruit
Fantasy division. As a result, the Company recognized a one-time charge in the
fourth quarter of 1995. The net liabilities of the Flying Fruit Fantasy
division have been presented separately in the accompanying consolidated
balance sheets.
7
<PAGE> 9
3. TERMINATION SETTLEMENT:
During the first quarter of 1996, the Company and one of its former suppliers
agreed to terminate their distribution agreement. As part of the settlement,
the former supplier agreed to pay the Company $250,000 in consideration. The
consideration received is included in other income on the consolidated
statements of operations. During 1995, approximately 4% of the total cases
sold represented cases supplied by this former supplier.
4. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse
effect on the Company's financial position or results of operations.
5. DISTRIBUTION AGREEMENTS:
During the first quarter of 1997, the Company signed two exclusive distribution
agreements with suppliers to the specialty beverage distribution division.
During the second quarter of 1997, the Company acquired the rights to
distribute an existing product line of the specialty beverage distribution
division to two new territories within Maryland.
6. PRIVATE PLACEMENT:
During July 1997, the Company raised approximately $2.4 million in cash, net of
expenses, through the private sale of approximately one million shares of its
common stock. These shares are subject to certain restrictions regarding their
resale.
7. ACQUISITIONS:
During August 1997, the Company signed a letter of intent to acquire J. C.
Potter Sausage Company in Durant, Oklahoma.
8. SUBSEQUENT EVENTS:
During October 1997, the Company reached an agreement to settle the remaining
outstanding legal proceedings associated with its discontinued Flying Fruit
Fantasy division. Management believes the liability of discontinued operations
recorded on the balance sheet as of September 30, 1997, will be adequate to
cover the settlement amount and any related expenses.
During November 1997, the Company registered 250,000 shares of its common stock
with the SEC on Form S-8. The shares will be made available for purchase by
employees participating in the Atlantic Premium Brands, Ltd. Employee Stock
Purchase Plan.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In 1996, the Company implemented a new corporate strategy that resulted in
the acquisition of five food businesses. Each of these businesses represents a
preeminent local or regional branded processed meat company. Collectively, they
added approximately $138 million in net sales for 1996 while increasing the
Company's assets from $3 million to $35 million. In addition to increasing the
size of the Company, the newly acquired businesses have created a broader
platform for future growth.
In order to acquire and operate its food businesses, the Company formed
four new subsidiaries during 1996: Prefco Corp., Carlton Foods Corp., Richards
Cajun Foods Corp., and Grogan's Farm, Inc. In connection with its food company
acquisitions, the Company issued approximately four million new shares of its
common stock and borrowed approximately $13 million from LaSalle National Bank.
The Company continues to operate as a distributor of non-alcoholic
beverages in the Baltimore and Washington D.C. metropolitan areas. This
business represents the Company's Beverage Division, while the four
newly-formed subsidiaries collectively represent the Company's Food Division.
RESULTS OF OPERATIONS
All of the acquisitions completed during 1996 were recorded utilizing the
purchase method of accounting. Therefore, results of the acquired businesses
prior to the effective date of such acquisitions are not included in the
Company's Results of Operations.
During the nine months ended September 30, 1996 and September 30, 1997,
the Company's Carlton subsidiary and the Company's Grogan's subsidiary both
sold product to the Company's Prefco subsidiary. The Company's financial
statements do not reflect this activity in net sales, as it is eliminated on a
consolidated basis.
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Net Sales. Net sales increased by approximately $4.5 million or 11.3%
from approximately $39.7 million for the quarter ended September 30, 1996 to
approximately $44.2 million for the quarter ended September 30, 1997. Sales of
the Company's Food Division increased by approximately 9.4%, while sales of the
Company's Beverage Division increased by approximately 11.6%.
The increase in food sales was attributable to increases in the sales of
both the Company's Carlton and Prefco as well as the acquisition of Richards,
which the Company owned for only two months during the third quarter of 1996,
and the acquisition of Grogan's and Partin's, both of which occurred during the
fourth quarter of 1996. The increase in beverage sales reflected the addition
of several new brands, introduced in the first quarter of 1997. Nonetheless,
management believes that beverage sales were negatively impacted by the
transshipment of certain items into the Company's territory in violation of
exclusive distribution rights, a problem that management believes has since
been addressed.
Gross Profit. Gross profit increased by approximately $0.7 million or
16.2% from approximately $4.5 million for the quarter ended September 30, 1996
to approximately $5.2 million for the quarter ended September 30, 1997. This
increase reflects the increase in net sales. As a percentage of net sales,
gross profit increased from 11.3% to 11.8%, reflecting a greater proportion of
branded product sales in 1997. This result, however, was adversely impacted by
unusually high raw material costs.
9
<PAGE> 11
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $0.8 million or 20.7% from
approximately $3.9 million for the quarter ended September 30, 1996 to
approximately $4.7 million for the quarter ended September 30, 1997. This
increase is attributable primarily to the increase in net sales, as well as a
greater proportion of branded products.
As a percentage of net sales, selling, general and administrative expenses
increased from 9.9% to 10.8%. This increase reflected a greater proportion of
branded products, which generally involve higher selling, general and
administrative costs per sales dollar. It also reflected significant sales and
marketing expenses incurred in connection with new product development. These
expenses primarily relate to new branded products that the Company is preparing
to introduce in the fourth quarter of 1997 and the first quarter of 1998.
Income from Operations. Income from operations decreased approximately
$0.1 million from approximately $0.6 million for the quarter ended September
30, 1996 to approximately $0.5 million for the quarter ended September 30,
1997. This decrease is attributable to factors discussed above in Gross Profit
and Selling, General and Administrative Expenses.
Interest Expense. Interest expense increased approximately $0.1 million
from approximately $0.3 million for the quarter ended September 30, 1996 to
approximately $0.4 million for the quarter ended September 30, 1997. This
increase was primarily attributable to debt that the Company incurred (and the
related amortization of deferred financing costs and note discounts) in
connection with the acquisitions of Richard's, Grogan's and Partin's, as well
as the acquisition of the rights to distribute AriZona(TM) beverage products.
Net Income. Net income decreased approximately $0.2 million from
approximately $0.3 million for the quarter ended September 30, 1996 to
approximately $0.1 million for the quarter ended September 30, 1997. This
decrease is attributable primarily to factors discussed above in Gross Profit
and Selling, General and Administrative Expenses.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Net sales increased by approximately $17.3 million or 15.6%
from approximately $110.9 million for the nine months ended September 30, 1996
to approximately $128.2 million for the nine months ended September 30, 1997.
Sales of the Company's Food Division increased by approximately 16.1%, while
sales of the Company's Beverage Division increased by approximately 12.3%. The
increase in food sales was attributable to increases in the sales of both
Carlton and Prefco as well as the acquisition of Richards, which the Company
acquired in August 1996, and Grogan's and Partin's, which the Company acquired
during the fourth quarter of 1996. The increase in beverage sales reflected the
addition of several new brands.
Gross Profit. Gross profit increased by approximately $3.0 million or
24.6% from approximately $12.1 million for the nine months ended September 30,
1996 to approximately $15.1 million for the nine months ended September 30,
1997. This increase reflects the increase in net sales. As a percentage of net
sales, gross profit increased from 10.9 % to 11.8%, reflecting a greater
proportion of branded product sales in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.4 million or 21.4% from
approximately $11.1 million for the nine months ended September 30, 1996 to
approximately $13.5 million for the nine months ended September 30, 1997. This
increase is attributable primarily to the increase in net sales.
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<PAGE> 12
As a percentage of net sales, selling, general and administrative expenses
increased from 10.0% to 10.5%. This increase is attributable primarily to an
increasing proportion of branded product sales, which generally require higher
selling, general and administrative expenses per sales dollar.
Income from Operations. Income from operations increased approximately
$0.6 million from approximately $1.0 million for the nine months ended
September 30, 1996 to approximately $1.6 million for the nine months ended
September 30, 1997. This increase is attributable to factors discussed above in
Net Sales, Gross Profit and Selling, General and Administrative Expenses.
Interest Expense. Interest expense increased approximately $0.5 million
from approximately $0.8 million for the nine months ended September 30, 1996 to
approximately $1.3 million for the nine months ended September 30, 1997. This
increase was primarily attributable to debt that the Company incurred (and the
related amortization of deferred financing costs and note discounts) in
connection with the acquisitions of Richard's, Grogan's and Partin's, as well
as the acquisition of the rights to distribute AriZona(TM) beverage products.
Other Income. Other income decreased approximately $0.3 million from $0.5
million for the nine months ended September 30, 1996 to approximately $0.2
million for the nine months ended September 30, 1997. This decrease was
primarily the result of a one-time settlement payment of approximately $0.3
million that the Company received during the 1996 period from a former beverage
supplier. Other amounts included income generated by the Prefco subsidiary
from product sold at special events during both the 1996 and 1997 periods.
Net Income. Net income decreased approximately $0.1 million from
approximately $0.7 million for the nine months ended September 30, 1996 to
approximately $0.6 million for the nine months ended September 30, 1997. This
decrease is attributable primarily to the decrease in other income.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities for the nine months ended September 30,
1997 was approximately $0.1 million. This amount was principally affected by
net income, the add-back of depreciation, amortization and non-cash interest,
and increases in inventory, prepaid expenses and accrued expenses, and
decreases in accounts receivable and accounts payable. Cash used in investing
activities for the nine months ended September 30, 1997 was approximately $1.0
million and reflected the acquisition of equipment and the purchase of beverage
distribution rights. Cash provided by financing activities was approximately
$1.9 million and was principally affected by the net proceeds of a $2.4 million
private equity placement and an increase in the line of credit balance, offset
by repayment of term debt. Net cash increase during the period was
approximately $0.8 million.
As of September 30, 1997, the Company had outstanding under the LaSalle
Facility approximately $13.0 million in term debt and line-of-credit
borrowings. These amounts are subject to monthly payments of interest and
quarterly payments of term debt principal with a final payment of interest and
principal due March 15, 2001. Interest rates under the LaSalle Facility are
variable, and for the most recent quarter averaged approximately 8.8% on the
line of credit and 9.3% on the term debt.
In October 1997, LaSalle National Bank agreed to amend its existing loan
agreement to provide for lower interest rates on both the Company's term debt
and its line of credit. LaSalle also agreed to increase the Company's line of
credit from $8.5 million to $11.0 million.
As of September 30, 1997 the Company had outstanding approximately $3.0
million of subordinated debt owed to former owners of Prefco, Carlton,
Richard's, Grogan's and Partin's. Principal of $0.3 million is due during 1997
with the remaining approximately $2.7 million of principal due in
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<PAGE> 13
2001. The Company is making payments on the subordinated debt at an average rate
currently of approximately 7.7%.
The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its debt service, working capital
requirements and capital expenditures as currently contemplated for the next
year. The Company's ability to fund its working capital requirements and
capital expenditures will depend in large part on the Company's compliance with
covenants in the LaSalle Facility. No assurance can be given that the Company
will remain in compliance with such covenants throughout the term of the
LaSalle Facility.
The Company's balance sheet as of September 30, 1997 reflected a net
deferred tax asset of approximately $0.1 million. A valuation allowance exists
because, based on the weight of all available evidence, management believes it
is more likely than not that the remaining deferred tax asset will not be fully
realized.
During July 1997, the Company raised approximately $2.4 million in cash
through the private sale of approximately one million shares of its common
stock. These shares are subject to certain restrictions regarding their resale.
The Company, from time to time, reviews the possible acquisition of other
products or businesses. The Company's ability to expand successfully through
acquisition depends on many factors, including the successful identification
and acquisition of products or businesses and the Company's ability to
integrate and operate the acquired products or businesses successfully. There
can be no assurance that the Company will be successful in acquiring or
integrating any such products or businesses.
THE ACQUISITIONS
In the first quarter of 1996, a newly formed, wholly-owned subsidiary of
the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc. ("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is a manufacturer of branded and
private label meat products. The combined purchase price for these entities
was approximately $11 million, which included approximately $3.0 million in
Carlton refinanced and assumed debt. In connection with these transactions and
the financing thereof, the Company incurred transaction costs of approximately
$0.9 million, which were recorded as additional goodwill on the Company's
balance sheet.
In connection with such transactions, the Company (i) issued approximately
650,000 shares of common stock to the former stockholders of Prefco and
Carlton, (ii) issued, at a price of $1.05 per share, approximately 2.7 million
shares of common stock in a private placement to a limited number of
purchasers, (iii) entered into a loan agreement with LaSalle National Bank (the
"LaSalle Facility") which provided a $4.5 million term loan at a variable
annual interest rate of LIBOR + 3.5%, which term loan is due March 15, 2001,
and a $6.5 million revolving line of credit at a variable annual interest rate
which reflects a combination of LIBOR + 3% and Prime +1%, and (iv) issued a
subordinated promissory note to the former shareholders of Prefco in the amount
of $1.4 million (the "Prefco Note"). The Prefco Note bears interest at 9% per
annum and is payable in quarterly installments of interest only, with a single
principal payment due March 15, 2001. The Company incurred transaction costs of
approximately $0.1 million in connection with the private placement. These
costs were reflected as a reduction in the equity proceeds of the private
placement.
12
<PAGE> 14
In August 1996, a newly formed, wholly-owned subsidiary of the Company
acquired certain of the assets of Richard's Cajun Country Food Processors
("Richard's"). Richard's, based in Church Point, Louisiana, is engaged in the
manufacturing, marketing and distribution of Cajun-style processed meat and
specialty food products. The consideration for these assets was $2.5 million
cash and a subordinated promissory note in the amount of $0.875 million (the
"Richard's Note.) The Richard's Note is subject to quarterly payments of
interest only at the annual rate of 6.35%, with a single principal payment due
on July 31, 2001. In funding the cash portion of the Richard's transaction, the
Company used approximately $0.8 million of existing cash balances and
approximately $0.3 million of additional line of credit borrowings under the
LaSalle Facility (the line of credit portion of which was increased by $0.5
million) and obtained additional term debt from LaSalle National Bank in the
amount of $1.4 million, which bears interest at a variable rate of Prime + 1.5%
and is subject to monthly payments of interest and quarterly payments of
principal with a final payment of interest and principal due March 15, 2001. In
connection with these transactions and the financing thereof, the Company
incurred transaction costs of approximately $0.3 million, which were recorded
as additional goodwill on the Company's balance sheet.
In October 1996, Grogan's Farm, Inc. ("GFC"), a newly formed, wholly-owned
subsidiary of the Company, acquired and merged with the distribution and
manufacturing business of Grogan's Sausage, Inc. and Grogan's Farm, Inc.
respectively (collectively "Grogan's"), based in Arlington, Kentucky for total
consideration of $1.9 million cash, $0.2 million in a note (the "Grogan's
Note") and 573,810 shares of common stock of the Company. GFC completed three
transactions: (i) GFC acquired certain assets of Grogan's Sausage, Inc. for
$509,000 cash; (ii) GFC acquired certain real estate from Mr. and Mrs. Grogan
for $1,000,000 cash; and (iii) Grogan's Farm, Inc. was merged with and into GFC
in consideration for $391,000 cash, the Grogan's Note, and 573,810 shares of
common stock of the Company. The Grogan's Note will bear no interest through
September 30, 1998, and, commencing October 1, 1998, will be subject to
quarterly payments of interest only at the annual rate of 8%, with a single
principal payment due on September 30, 2001. In funding the $1.9 million cash
portion of the Grogan's transactions, the Company used $0.35 million in
additional line of credit borrowings under the LaSalle Facility (the line of
credit portion of which was increased by $0.5 million) and obtained additional
term debt from LaSalle National Bank in the amount of $1.55 million, which
bears interest at a variable rate of Prime + 1.5% and is subject to monthly
payments of interest and quarterly payments of principal with a final payment
of interest and principal due March 15, 2001. In connection with these
transactions and the financing thereof, the Company incurred transaction costs
of approximately $0.3 million, which were recorded as additional goodwill on
the Company's balance sheet.
In November 1996, GFC acquired the assets of Partin's Sausage ("Partin's")
in consideration for $0.4 million cash, $0.225 million in a note (the "Partin's
Note"), and 78,310 shares of common stock of the Company. Partin's, based in
Cunningham, Kentucky, is engaged in the manufacturing, marketing and
distribution of pork sausage products. The Partin's Note is subject to
quarterly payments of interest only at the annual rate of 8% with a single
principal payment due on December 31, 2003. In funding the cash portion of the
purchase price, the Company used additional line of credit borrowings under the
LaSalle Facility. Following the acquisition, the operations of Partin's were
consolidated with those of Grogan's at its facility in Arlington, Kentucky.
In 1994, the Company entered into and consummated an agreement to acquire
certain assets and marketing rights from Flying Fruit Fantasy, USA, Inc. for
total consideration of approximately $1.2 million. In December 1995, the
Company adopted a plan to discontinue this division. As a result, in the
fourth quarter of 1995, the Company recognized a one-time charge of
approximately $2.4 million which reflected the write-off of $1.1 million in
equipment and $0.9 million in intangible assets, and costs of approximately
$0.4 million associated with discontinuing the operation.
13
<PAGE> 15
SEASONALITY
Consumer demand for beverage products distributed by the Company tends to
be greater during warmer months. Accordingly, the Company's beverage sales and
profits are generally highest in the second and third calendar quarters.
Management believes that this effect will be mitigated by the results of its
food operations which are less dependent on seasonal factors.
FORWARD LOOKING STATEMENTS
The Company wants to provide stockholders and investors with more
meaningful and useful information. Therefore, this Quarterly Report on Form
10-Q contains forward looking information and describes the Company's belief
concerning future business conditions and the outlook for the Company based on
currently available information. Whenever possible, the Company has identified
these "forward looking" statements by words such as "believes," "estimates,"
"preparing to introduce," and similar expressions. These forward looking
statements are subject to risks and uncertainties which would cause the
Company's actual results or performance to differ materially from those
expressed in these statements. These risks and uncertainties include the
following: risks associated with acquisitions, including integration of
acquired businesses; new product development and other aspects of the Company's
business strategy; uncertainty as to evolving consumer preferences; seasonality
of demand for certain products; customer and supplier concentration; the impact
of competition; and sensitivity to such factors as weather and raw material
costs. Readers are encouraged to review the Company's Annual Report on Form
10-K and its Report on Form 8-K dated June 4, 1997 filed with the Securities
and Exchange Commission for a more complete description of these factors. The
Company assumes no obligation to update the information contained in this
Quarterly Report on Form 10-Q.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During July 1997, the Company issued and sold 976,964 shares of its common
stock, par value $.01 per share, for an aggregate offering price of
approximately $2.5 million to certain individuals and entities pursuant to
Section 4(2) under the Securities Act of 1933, as amended (the "Securities
Act"). The Company did not offer such securities in a public offering and it
relied upon such investors' representations that they are accredited investors
within the definition of Regulation D under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following are annexed as Exhibits:
Exhibit
Number Description
------- -----------
3(i) Certificate of Incorporation of the Company, including all
amendments thereto
3(ii) By-Laws of the Company
11.1 Statement Regarding Computation of Per Share Earnings for the
three months ended September 30, 1997
11.2 Statement Regarding Computation of Per Share Earnings for the
nine months ended September 30, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC PREMIUM BRANDS, LTD.
Date: November 14, 1997 By: /s/ MERRICK M. ELFMAN
----------------------------------
Merrick M. Elfman, Chairman of
the Board (On behalf of Registrant
and as Chief Accounting Officer)
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit Description
Number
- ------- --------------------------------------------------
3(i) Certificate of Incorporation of the Company, including all
amendments thereto. (1)
3(ii) By-Laws of the Company. (1)
11.1 Statement Regarding Computation of Per Share Earnings for the
three months ended September 30, 1997.*
11.2 Statement Regarding Computation of Per Share Earnings for the
nine months ended September 30, 1997.*
27 Financial Data Schedule.*
</TABLE>
- ---------------------
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 and incorporated herein by reference.
* Filed herewith.
17
<PAGE> 1
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit Description
Number
- ------- --------------------------------------------------
3(i) Certificate of Incorporation of the Company, including all
amendments thereto. (1)
3(ii) By-Laws of the Company. (1)
11.1 Statement Regarding Computation of Per Share Earnings for the
three months ended September 30, 1997.*
11.2 Statement Regarding Computation of Per Share Earnings for the
nine months ended September 30, 1997.*
27 Financial Data Schedule.*
</TABLE>
- ---------------------
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 and incorporated herein by reference.
* Filed herewith.
17
<PAGE> 1
EXHIBIT 11.2
ATLANTIC PREMIUM BRANDS, LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the
Nine Months
Ended
September 30,
1997
-------------
<S> <C>
NET INCOME $ 589,913
=============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,922,107
=============
NET INCOME PER COMMON SHARE $ .09
=============
COMPUTATION OF WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Shares outstanding as of December 31, 1996 6,801,142
Less: Treasury stock (404,532)
Impact of 976,964 shares issued through private
placement, outstanding 75 out of 273 days 271,596
Impact of dilutive stock options as of September 30, 1997 253,901
-------------
6,922,107
=============
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,065,314
<SECURITIES> 0
<RECEIVABLES> 8,512,913
<ALLOWANCES> 78,600
<INVENTORY> 8,434,313
<CURRENT-ASSETS> 17,035,788
<PP&E> 6,931,136
<DEPRECIATION> 1,968,613
<TOTAL-ASSETS> 36,262,760
<CURRENT-LIABILITIES> 19,647,252
<BONDS> 0
0
0
<COMMON> 77,815
<OTHER-SE> 9,584,125
<TOTAL-LIABILITY-AND-EQUITY> 36,262,760
<SALES> 44,179,213
<TOTAL-REVENUES> 44,179,213
<CGS> 38,968,529
<TOTAL-COSTS> 4,755,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432,498
<INCOME-PRETAX> 135,608
<INCOME-TAX> 15,000
<INCOME-CONTINUING> 120,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,608
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
