SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number: 0-22614
ATLANTIC BEVERAGE COMPANY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 36-3761400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
650 Dundee Road, Suite 370 Northbrook, Illinois 60062
(Address of principal executive offices)
Registrant's telephone number including area code: (847) 480-4000
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Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of class) (Name of each exchange on which registered:)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. |X|Yes |_|No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) 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.|_|
The aggregate market value of Common Stock held by non-affiliates of
Registrant is $17,128,383 (based upon the last sale price of the Common Stock
as reported on the Nasdaq Market on March 26, 1997). The number of shares of
Common Stock outstanding as of March 31, 1997 was 6,396,413.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's proxy statement are incorporated
herein by reference.
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PART I
ITEM 1. BUSINESS.
Atlantic Beverage Company, Inc. (the "Company"), through its operations
in Texas, Louisiana and Kentucky, manufactures, markets and distributes branded
and unbranded food products for customers in a ten state region, and, through
its operations in Maryland, distributes specialty, non-alcoholic beverages to
customers in the Baltimore and Washington, D.C. metropolitan areas.
Through its Prefco subsidiary, the Company is engaged in the marketing
and wholesale distribution of branded and unbranded meats to the retail grocery
trade. The Company markets and distributes its own branded, processed meat
products under the brand name Bum's Favorite Blue Ribbon(R). These products,
which include smoked sausages, bacon and packaged, sliced luncheon meats,
account for approximately 15% of the sales of the Prefco subsidiary and are
manufactured by the Company's Carlton subsidiary as well as by third party
contract manufacturing companies. Blue Ribbon is currently the best selling
brand of bacon and is among the best selling brands of sausage in the Houston
market. In addition to marketing its own branded products, the company is also a
leading regional distributor of unbranded products including boxed beef, pork,
chicken and related items.
Through its Carlton subsidiary, the Company manufactures a variety of
smoked sausage products. Approximately 45% of total volume manufactured reflects
product sold through the Prefco subsidiary under the Blue Ribbon brand name. Of
the balance, approximately 25% of total volume reflects private label
manufacturing for other regional sausage brands and selected chain supermarket
house brands, and approximately 30% of total volume is sold by the Carlton
subsidiary under the brand names Carlton and Country Boy. These branded products
are marketed on a regional basis, principally in south and west Texas.
Through its Richards subsidiary, the Company manufactures, markets and
distributes Cajun-style, cooked, pork sausage products and specialty foods for
customers in Louisiana, under the brand name Richard's.
Through its Grogan's subsidiary, the Company manufactures, markets and
distributes fresh pork sausage products for customers in a six state region.
These products are sold under the brand names Grogan's Farm and Partin's Country
Sausage.
In addition to its food businesses, the Company is a leading
independent wholesale distributor of specialty non-alcoholic beverages to the
retail trade in the greater Baltimore and Washington, D.C. metropolitan area and
surrounding counties. Under agreements that provide exclusive rights to selected
territories, the Company distributes juice drinks, sodas, bottled waters and
ready-to-drink teas. Brand name products distributed by the Company include
Mistic(R) and AriZona(TM). Sales of Mistic products accounted for approximately
58% of the Company's total beverage case sales in 1996.
The Company distributes its specialty beverage products to over 6,000
customers, including independent retail outlets such as independent grocery
stores, delicatessens and restaurants, as well as large grocery and convenience
store chains and their independent franchisees. All of the Company's beverage
customers are located within 75 miles of the Company's warehouse facility in
Jessup, Maryland.
CORPORATE HISTORY
In April 1991, MB Acquisition Corp. ("MB Acquisition"), a corporation
formed by a group of individuals including the Company's Chairman of the Board
and certain of the Company's directors and stockholders, acquired the business
of the Company from a company now known as S&B Ventures, Inc. (the
"Predecessor") for a purchase price of $1,158,000 (the "Acquisition"). In
connection with the Acquisition, MB Acquisition also assumed certain obligations
to pay the owners of the Predecessor $2,000,000 pursuant to a non-compete
agreement and $829,000 pursuant to consulting agreements. MB Acquisition
financed the Acquisition through a bridge loan provided by nine of its current
stockholders, including an officer and certain directors. In September 1991,
Maryland Beverage, L.P. (the "Partnership") was formed with the Company and
Strategic Investment Corporation ("Strategic"), a wholly owned subsidiary of T.
Rowe Price Strategic Partners Fund, L.P., as its sole partners, and MB
Acquisition was merged with and into the Company, and its assets and liabilities
were contributed to the Partnership. In September
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1993 the Company was reincorporated in Delaware and adopted the name
"Atlantic Beverage Company, Inc." In November 1993, in connection with
the Company's initial public offering, Strategic (whose only asset was
its partnership interest in the Partnership) merged with and into the
Company. Subsequently, the Partnership was dissolved and the Company succeeded
to the Partnership's assets and liabilities.
On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. ("FFF") for total consideration of approximately $1.2
million. Under the terms of this agreement, the Company obtained worldwide
marketing and distribution rights to a frozen beverage served through automated
dispensing machines. In December 1995, the Company adopted a plan to discontinue
this division of business. As a result, the Company recognized a one-time charge
of approximately $2.4 million in the fourth quarter of 1995 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.
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 August of 1996, a newly formed, wholly-owned subsidiary of the
Company acquired certain of the assets of Richard's Cajun Country Food
Processors ("Richards"). Richards, 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
"Richards Note".)
In October of 1996, Grogan's Merger Corp. ("GMC"), 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 approximately $3.8 million, consisting of $1.9
million cash, $0.2 million in a note (the "Grogan's Note") and 573,810 shares
(approximately $1.7 million) of common stock of the Company.
In November of 1996, GMC 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.
INDUSTRY
Food Industry
Through its Carlton, Prefco, Richards and Grogan's subsidiaries, the
Company participates in three general segments of the food industry: processing,
distribution, and branded product marketing.
The meat processing segment which includes cooking, slicing, mixing,
grinding and similar functions is generally capital intensive. Unbranded raw
material typically comes from packing companies. In some instances, packing and
processing are vertically integrated. In other instances, as is the case with
the Company, processing and marketing are vertically integrated. The Company's
Carlton subsidiary manufactures the Company's own branded products as well as
those of other branded meat companies and supermarkets on a private label basis.
Because of the cost of transportation and shelf life of product, processing
facilities tend to serve a regional clientele. Large, integrated national meat
companies therefore tend to establish strategically located processing
facilities in different geographic regions.
The meat distribution segment which serves several different classes of
trade including retail, restaurant and institutional customers is generally not
capital intensive but features very low gross margins and is subject to
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intense price competition. Product is invoiced and priced according to
weight. Successful distributors typically distinguish themselves through
customer service and low cost position. Price, product selection, reliability,
in-stock rate, promptness of delivery and weekend delivery options are among the
benefits which are most highly valued. It is not uncommon for a grocery
retailer to have one primary supplier in addition to one or more secondary
suppliers. Meat distribution companies typically serve a local or regional
clientele.
The branded meat product business is generally not capital intensive.
Strong retail brands can exist as local, regional or national phenomena and
include bacon, hot dogs, cooked and uncooked sausage, cooked hams, chicken and
turkey products. Advertising and promotion is generally critical to the
maintenance of brand equity. Companies which market branded meat products can
exist on a stand-alone basis as well as vertically integrated with processing
and / or distribution. The Company reflects, to a limited extent, both forms of
vertical integration.
Beverage Industry
The beverage distribution industry is divided generally into two
different types of distributors: bottler/distributors and independent
distributors. The largest soft drink manufacturers generally have a network of
companies (which include both independent and company-owned businesses) that
serve as bottler/distributors for their products. Smaller beverage companies,
however, typically engage contract bottlers to produce their products, and rely
on independent companies that function solely as distributors to distribute
their products to consumers.
The Company offers suppliers the ability to distribute their products
to over 6,000 actively serviced customers. Both bottler/distributors and
distributors maintain inventory in their own warehouses, sell products using
their own sales force and deliver products using their own trucks. However,
subject to restrictions contained in distribution contracts, independent
distributors like the Company have the flexibility to select a mix of products
to carry without being primarily dedicated to the large, traditional soft drink
brands that bottler/distributors must support.
Specialty beverage products and branded bottled water products have
been well received not only by the consumer but also by the retail trade. In
general, these products sell at a premium to traditional soft drinks, generating
higher gross profits per transaction for the retail trade. By contrast,
traditional soft drinks compete largely on the basis of pricing and promotion
and generate relatively lower unit profits.
Although the domestic beverage distribution industry is characterized
by the relative absence of technological risk and relatively minor initial
capital investment requirements, there exist significant barriers to entry
primarily due to geographic exclusivity agreements with suppliers and
established relationships with customers. In addition, because of the relatively
substantial weight of bottled beverages and resulting expense of transportation,
competition at the distribution level occurs primarily on a regional basis.
STRATEGY
Food Strategy
Operating Strategy. The Company's operating strategy with respect to
its newly acquired food businesses, will be to grow these businesses profitably,
while identifying and exploiting synergy among them. Key elements of this
operating strategy include increasing sales to existing customers, adding new
customers, and identifying opportunities to add new products.
Corporate Growth Strategy. The Company has identified potential
strategies that will use the combination of its food subsidiaries as a platform
for additional corporate growth. These potential strategies may include
acquisitions opportunities that compliment the subsidiaries' businesses.
Beverage Strategy
The Company's success in the beverage distribution business has been
based in large part on its ability to serve independent grocery stores,
delicatessens and restaurants, as well as institutional buyers, such as
cafeterias and universities, which traditionally sell cold, single-serve,
bottled beverages to consumers. These customers represented approximately 60% of
the Company's total beverage sales in 1996. The significant exposure that
results
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from so many smaller customers carrying the Company's line of beverages helps
to create the broad-based demand necessary for larger retail outlets to
consider stocking those beverages.
Operating Strategy. The Company's operating strategy in its current
territory is to continue to focus on the distribution of non-alcoholic
beverages, with primary emphasis on specialty beverages, and to maximize market
penetration for the products it carries. Key elements of the Company's operating
strategy include: (i) increasing distribution to existing customers, in both the
variety of brands carried and the number of cases sold; (ii) adding new
customers each year within the Company's geographic territory; and (iii)
identifying and acquiring exclusive distribution rights to products not
currently distributed by the Company.
PRODUCTS
Through its Prefco subsidiary, the Company distributes a wide variety
of unbranded, boxed meat products. The Company maintains an inventory of over
200 different stock keeping units of unbranded product, which include beef,
turkey, pork and chicken. Product is stored in the Company's two refrigerated
warehouses in Houston and delivered on refrigerated vehicles to several hundred
customers including chain and independent supermarkets and discount clubs. The
Company purchases product from approximately one dozen meat packing companies.
Purchases of the same product may be spread among several suppliers over the
course of a year, and purchasing decisions are frequently driven by price and
availability, both of which are likely to vary. Three suppliers accounted for
approximately 20%, 13% and 10% of the Company's boxed meat purchases during 1996
and 18%, 17% and 13% of such purchases during 1995. No other supplier accounted
for more than 10% of such purchases during either year.
Also through its Prefco subsidiary, the Company markets and distributes
its own branded sausage, bacon and packaged, sliced luncheon meats. These
products are stored in the Company's two refrigerated warehouses. Product is
delivered on the Company's refrigerated trucks, and customers typically include
the same retail establishments that purchase the Company's unbranded meat
products. The majority of Blue Ribbon sausage product is manufactured by the
Company's Carlton and Grogan's subsidiaries. The balance of the sausage product
as well as the bacon and luncheon meats are purchased from four other contract
food processing companies.
In addition to manufacturing product for the Prefco subsidiary, the
Company's Carlton subsidiary manufactures and markets its own branded smoked
sausage products for the retail grocery trade. The Carlton subsidiary
manufactures similar products on a private label for other branded food
companies.
Through its Richards subsidiary the Company manufactures, markets and
distributes Cajun-style, cooked, pork sausage products and specialty foods, for
customers in the state of Louisiana, under the brand name Richards.
Through its Grogan's subsidiary, the Company manufactures, markets and
distributes fresh pork sausage products for customers in a six state region.
These products are sold under the brand names Grogan's and Partin's.
The Company distributes a wide variety of beverages, including
ready-to-drink teas, natural sodas, sparkling waters with juice, fruit juices,
juice drinks, still and sparkling waters and sports drinks. Brand name products
distributed by the Company include Mistic(R), AriZona(TM), Clearly Canadian(R),
Hires(R), Crush(R), Vernor's(R), Elliott's Amazing(TM), Crystal Geyser(R),
Stewart's(R), Jolt Cola(R), and Sunlike Juices. The Company reviews hundreds of
products each year, and continuously evaluates the mix of products it
distributes. The Company actively seeks to acquire distribution rights for
products it believes show strong growth potential. For 1995 and 1996,
approximately 60% and 58%, respectively, of the Company's total beverage case
sales represented Mistic(R) products, and 11% and 7%, respectively, represented
Elliott's(TM) products. None of the Company's other suppliers accounted for more
than 10% of the Company's total beverage case sales during such periods.
SUPPLIER CONTRACTS
The Company does not currently have contracts with any of its food
suppliers. Many of the Company's major beverage brands, however, are distributed
on an exclusive basis under distribution contracts within the Company's
territory. The terms of the contracts, including their lengths, vary by
supplier. The Company has approximately 15 beverage suppliers.
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The Company's contract with Mistic Brands, Inc. ("MBI"), supplier of
Mistic(R), expires on December 31, 2000. The Company has been the exclusive
distributor of Mistic(R) in the greater Baltimore and Washington, D.C.
metropolitan area since the product was first introduced in this territory in
1990. Under the terms of the Mistic(R) contract, the Company is obligated to
distribute Mistic(R) products to 80% of the retail accounts that would carry on
a regular basis cold, single-serve, bottled specialty beverage products,
excluding the restaurant and bar trade. Unless such percentage is obtained by
the Company to MBI's satisfaction, MBI has the right to suspend shipments or
cancel the contract. MBI also retains the right to sell to certain national
buying chains that require servicing by one national vendor. The contract also
provides that, unless MBI agrees in writing to the sale of a product that MBI
considers, in its sole discretion, to be a direct competitor of its products,
the Company cannot, without MBI's consent, sell to anyone within its territory
any product that would, in the sole discretion of MBI, compete with Mistic(R) or
be likely to cause confusion in the minds of the public as to the Mistic(R)
products. The Company specifically cannot sell Snapple(R). The Company believes
that it is in compliance in all material respects with the terms of the
Mistic(R) contract.
Other beverage distribution contracts place similar restrictions and
requirements on the Company. The Company believes that the terms of its
distribution contracts are similar to those employed throughout the industry. In
addition, the Company has oral distribution agreements for other beverage
products.
SALES, MARKETING AND DISTRIBUTION
The Company's Prefco subsidiary distributes unbranded boxed beef, pork,
and poultry to chain and independent retail grocery customers, most of whom are
located in the Houston metropolitan area, and all of whom are within a 400-mile
radius of the Company's distribution facilities. The Company serves several
hundred such customers as either their primary or secondary fresh meat supplier.
Prefco's direct sales force contacts its customers on a daily basis. The Company
delivers product using 16 refrigerated trucks, generally within one to three
days of receiving an order.
The Company's Prefco subsidiary also markets and distributes its own
Blue Ribbon bacon, sausage and sliced luncheon meats to the retail grocery
trade. Orders are received on a pre-sell basis by the direct sales force
mentioned above as well as on a route-sales basis by a separate group of sales
people, each of whom is responsible for a route sales vehicle. The business has
historically engaged in significant radio and television advertising in the
Houston market.
The Company's Carlton subsidiary solicits and receives customer orders
for branded product through two direct sales people as well as through
third-party food brokers and by telephone and facsimile transmission. The
Company engages in a limited amount of advertising for such products, primarily
through weekly chain supermarket flyers. Relationships with private label
customers are generally established at the senior management level, although
recurring orders from such customers are normally received over the telephone or
facsimile machine by clerical staff. Branded and private label orders are
generally filled within one to seven days and are either delivered on one of the
Carlton Subsidiary's three refrigerated vehicles or by common carrier, or are
picked up by customers.
The Company's Richards subsidiary employs a route delivery sale force
of four people. Orders are taken by the route salespeople and filled immediately
from stock on the route sales trucks. The subsidiary engages in promotions,
including in-store sampling, as well as in print advertising. All customers are
located within the state of Louisiana.
The Company's Grogans subsidiary employs a route sale force of 12
people. Orders are taken by the route salespeople and filled immediately from
stock onboard the route sales trucks. In addition the subsidiary sells
approximately 30% of its product to third party distributors. The Company
engages in promotions, including in-store sampling, as well as in print, radio
and television advertising. Customers are located in Kentucky, Illinois,
Indiana, Mississippi, Tennessee, and Arkansas.
One food distribution customer accounted for approximately 40% of the
Company's total food sales during both 1995 and 1996. No other customer
accounted for more than 10% of total food sales during either year.
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The Company has a beverage distribution sales force of approximately 30
persons who service existing customers and pursue new customers. The Company
periodically sets sales quotas for its salespersons, and promotes fulfillment of
these quotas through sales contests and specific monetary incentives. Demand for
the Company's beverage products tends to be greater during warmer months.
Accordingly, sales are generally highest in the second and third calendar
quarters.
Most beverage distribution customers are visited on a weekly or
biweekly basis by a salesperson from the Company. When a customer orders a
product, the salesperson enters all information into a hand-held computer
terminal. At the end of the day the salesperson is responsible for transmitting
this information by telephone to the Company's computer system. Invoicing,
loading and routing are then handled by the warehouse in preparation for
delivery the following day. The Company's computer system generates invoices and
assists in managing the loading and routing functions. The majority of orders
are filled from the Company's warehouse within 24 hours. The Company generally
delivers products directly to the retail outlets, where Company drivers usually
stock displays and collect payments. Deliveries are made by the Company's fleet
of leased vehicles, which includes approximately 30 beverage delivery trucks and
vans.
A variety of methods are used by the Company's beverage suppliers to
promote their products directly to the consumer, including advertising based on
product features such as ingredients, quality and taste as well as a variety of
themes including health, lifestyle, convenience, and physical fitness. Price
promotions, taste tests and event sponsorship are also common. The cost of these
promotional activities is typically shared with the Company's suppliers. In some
instances, under promotional arrangements with suppliers, the Company may place
refrigerated coolers with retail customers to display the Company's product
lines.
Two beverage customers accounted for approximately 6.6% and 5.7% of
total beverage case sales during 1995 and approximately 6.9% and 6.7% in 1996.
No other customer accounted for more than 5% of the Company's beverage sales
during either year.
ASSET MANAGEMENT
Accounts Receivable. Food sales are made almost exclusively on
account, and food accounts receivable typically average 15 to 20 days.
Approximately 40% of the Company's beverage sales are made on a cash
basis. Beverage accounts receivable typically average approximately 20 to 25
days of total sales or 30 to 40 days of sales made on account.
Inventory. The Company maintains its food inventory at the
manufacturing facilities operated by its Carlton subsidiary in New Braunfels,
Texas, by its Richards subsidiary in Church Point, Louisiana, by its Grogan's
facility in Arlington, Kentucky, and at two distribution facilities operated by
its Prefco subsidiary in Houston, Texas. The Company generally maintains an
average of eight to ten days of food inventory on hand which reflects
approximately six to eight days of inventory at its Prefco subsidiary and
approximately 30 days of inventory at its Carlton, Richards and Grogan's
subsidiaries. The Company typically places purchase orders to its suppliers by
telephone and by facsimile on a daily basis. Orders are placed both on an
as-needed basis and on a scheduled basis in anticipation of future demand.
Orders are usually filled within one to ten days, and products are transported
to the Company's warehouse by common carrier.
The Company maintains all of its beverage inventory at the Company's
warehouse in Jessup, Maryland. The Company generally maintains an average of
approximately 20 days of beverage inventory on hand. The Company performs a
physical count of its beverage inventory twice a month. On an annual basis,
cumulative adjustments to such inventory have been less than 1% of total
purchases during each of the last three years. The Company turns its beverage
inventory approximately 18 times per year. The Company typically places purchase
orders to its suppliers by telephone and by facsimile on a daily basis. Once
placed, these orders are usually filled within three to five days for most
brands, and the products are transported to the Company's warehouse by common
carrier.
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COMPETITION
Competition in the Food Business
Boxed Meat Distribution. Through its Prefco subsidiary, the Company
believes that it is the second largest of four major boxed meat distributors in
the Houston market. Although this segment of the food industry is extremely
competitive, the Company has generally succeeded in distinguishing itself
through a high level of customer service.
Branded Meat Products. Through its Prefco, Carlton, Richards and
Grogan's subsidiaries, the Company competes with dozens of branded meat
companies, and its brands compete with a wide variety of both regional and
national trademarks. Among the competitive brands are Decker, J. Bar B.,
Hilshire Farms, Hormel and Bryan. The Company's Carlton and Country Boy brands
of smoked sausage are sold principally in the Dallas, San Antonio and Austin
markets and currently have limited market share. The Company's Blue Ribbon brand
currently represents the best selling brand of bacon and sausage in the Houston
market and a top ten brand for both categories in the San Antonio / Austin
market. The Company's packaged, sliced luncheon meats, also sold under the Blue
Ribbon trademark, were introduced to the Houston market in 1995 and have limited
market share. The Company's Richards, Grogan's and Partin's brands enjoy a
strong regional share within their respective markets.
Private Label Manufacturing. Through its Carlton subsidiary, the
Company manufactures smoked sausage and meat products on a private label basis
for other branded food companies and, on a limited basis, for supermarkets and
restaurants. The Company believes that it enjoys a strong reputation for
innovation and responsiveness in creating original recipes for such customers.
The Company competes with a wide variety of manufacturers, many of whom are
significantly larger and may have greater manufacturing capacity and capital.
Competition in the Beverage Industry
In the greater Baltimore and Washington, D.C. metropolitan area,
beverage suppliers have limited choices in securing distribution of their
products in the entire territory by a single distributor. The two largest
bottler/distributors, Mid Atlantic Coca-Cola Bottling Co., Inc. and Pepsi-Cola
Company, are affiliated with The Coca-Cola Company and PepsiCo Inc.,
respectively, and the Company believes that they do not carry products from
other sources. The other major bottler/distributor, Canada Dry - Potomac
Corporation, distributes a variety of specialty beverage brands and competes
directly with the Company. Mid Atlantic Coca-Cola, Pepsi-Cola and Canada Dry are
larger and have greater financial resources than the Company. The Company also
competes with specialty grocery distributors, beer and wine distributors and
other independent beverage distributors. In general, the major bottlers in the
Company's territory are focused on distributing their own brands, while beer and
wine distributors are fragmented and service fewer non-alcoholic customers.
The Company believes that it is the largest distributor to focus
primarily on specialty beverage products and branded bottled water within its
territory. A principal component of the Company's success is its willingness to
service smaller retailers as well as large customers, which the Company believes
helps develop a broad-based consumer interest in the products it carries. The
Company competes primarily on the basis of its product line and service. The
product line includes highly visible, exclusive, niche products. The principal
methods of competition in the premium beverage industry include product quality
and taste, packaging, brand advertising, trade and consumer promotions, pricing,
and the development of new products, while traditional soft-drink products
compete on the basis of all of the foregoing factors but with a greater emphasis
on pricing and advertising.
Competitors may have a significant competitive advantage over the
Company if consumer choice favors products not distributed by the Company, and
the Company is unable to secure distribution rights to the favored products. A
significant shift in consumer demand away from specialty beverage products
generally would have a material adverse effect on the Company's beverage
business. There can be no assurance that the Company will be able to compete
successfully with other distributors to obtain new product distribution
agreements or that the Company's current distribution agreements will be renewed
on terms acceptable to the Company.
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GOVERNMENT REGULATION
The Company is subject to various federal, state and local statutes,
including federal, Maryland, and Texas occupational safety and health laws.
Furthermore, the Company and its suppliers may be subject to various rules and
regulations including those of the United States Department of Agriculture, the
United States Food and Drug Administration and similar state agencies that
relate to manufacturing, nutritional disclosure, labeling requirements and
product names.
While the Company presently does not sell products in any state that
requires deposits on containers, federal and state proposals for container
deposit laws could significantly affect the Company's operating costs if any
such proposal were to be implemented. Although the Company would seek to pass on
any additional costs to its customers, there can be no assurance that the
Company would be able to do so.
PRODUCT LIABILITY AND INSURANCE
The Company has purchased product liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate. The Company also has
a $10,000,000 umbrella policy. The Company believes that its present insurance
coverage is sufficient for its current level of business operations, although
there is no assurance that the present level of coverage will be available in
the future or at a reasonable cost. Further, there can be no assurance that such
insurance will be available in the future as the Company expands its operations,
that insurance, if available, will be sufficient to cover one or more large
claims, or that the applicable insurer will be solvent at the time of any
covered loss.
EMPLOYEES
The Company currently has approximately 90 full time employees in its
beverage distribution business, approximately 65 full time employees in its
Prefco subsidiary, approximately 60 full time employees in its Carlton
subsidiary, approximately 35 full time employees in its Richards subsidiary and
approximately 50 full time employees in its Grogan's subsidiary. The Company
uses temporary employees from time to time.
The Company believes that its relations with employees are good. The
Company has never suffered a material work stoppage or slow down.
ITEM 2. PROPERTIES.
Beverage Operations. The Company operates from a 70,000 square foot
leased facility in Jessup, Maryland. The Company's lease expires in April,
2002.
Prefco Subsidiary. The Company leases two refrigerated warehouses in
Houston. One warehouse facility, which includes offices and serves as the
subsidiary's headquarters, has a total of 20,000 square feet. The lease for this
facility expires in 2003. The second facility has a total of 25,000 square feet.
The lease for this facility expires in 1998. In addition to the foregoing, the
subsidiary also leases two small offices, with a total of approximately 2,500
square feet of space.
Carlton Subsidiary. The Company leases a 20,000 square foot
manufacturing facility and a 2,000 square foot office facility in New Braunfels,
Texas. The lease on the manufacturing facility expires in September 1, 2000,
with two five-year renewal options, and the lease on the office facility expires
in October 1, 1997 with a two-year renewal option.
Richards Subsidiary. The Company owns a 12,500 square foot
manufacturing facility in Church Point, Louisiana.
Grogans Subsidiary. The Company owns an 11,000 square foot
manufacturing facility in Arlington, Kentucky.
-8-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a lawsuit filed by a former supplier to
its discontinued frozen beverage division. The Company believes that it has
substantial defenses and intends to vigorously defend such claims. In addition,
the Company believes that the resolution of such claims will not have a material
adverse impact on the financial position or results of operations of the
Company. The Comany is not party to any material legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-9-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Atlantic Beverage Company, Inc.'s Common Stock is principally traded on
the NASDAQ Small Cap Market under the symbol ABEV. The following table sets
forth, for the periods indicated, the high and low sale prices of the Company's
Common Stock as reported by NASDAQ.
STOCK PRICES STOCK PRICES
High Low High Low
1995 1996
1st Quarter 3 5/8 2 3/4 1st Quarter 2 1 1/8
2nd Quarter 3 1/4 2 3/8 2nd Quarter 4 1/8 1 5/8
3rd Quarter 2 3/4 1 1/16 3rd Quarter 4 3
4th Quarter 1 7/8 1 1/4 4th Quarter 3 1/2 2 7/8
As of March 19, 1997, there were approximately 110 shareholders of
record of the Company's Common Stock. The Company has not paid any cash
dividends since its initial public offering. The Company anticipates that
earnings, if any, will be retained for use in the business or for other
corporate purposes, and it is not anticipated that any cash dividends on the
common stock will be paid in the foreseeable future.
During fiscal 1996, the Company sold 4,073,187 shares of Common Stock
and issued options to purchase 479,200 shares of Common Stock. All such
issuances were made in reliance on Section 4(2) of the Securities Act of 1933,
as amended.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the Company are based on the
consolidated financial statements of the Company. The amounts provided as
statement of operations data and balance sheet data for the periods prior to the
merger on November 29, 1993 of Strategic Investment Corporation into the Company
(the "Reorganization") have not been adjusted to give effect to the
Reorganization. The Company's financial statements as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996,
including the notes thereto and the related report of Arthur Andersen LLP,
independent public accounts, are included elsewhere herein.
-10-
<PAGE>
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company contained elsewhere
herein.
<TABLE>
<CAPTION>
(In thousands, except per share information)
Years ended December 31,
--------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
============================================================================================================================
<S> <C>
Statement of Operations
Net Sales $ 22,807 $ 26,296 $ 24,152 $ 20,596 $ 153,280
Gross profit, exclusive of 6,027 6,782 6,365 5,853 17,128
depreciation
Income (Loss) from operations 384 1,216 278 (138) 1,638
Interest expense 721 765 8 25 1,197
Other income (expense), net (533) (1,305) (20) 12 476
Income (Loss) before minority
interest, income tax (provision) (870) (853) 249 (152) 918
benefit
Minority interest in income (loss)
before income tax (provision) (217) 108 - - -
benefit
Income (Loss) before income tax
(provision) benefit (653) (961) 249 (152) 918
Income tax (provision) benefit - 350 15 - (22)
Net income (loss) from continuing
operations (653) (611) 264 (152) 896
Loss from discontinued operations - - (302) (528) -
Loss on disposal of discontinued - - - (2,410)
operations -
Net income (loss) $ (653) $ (611) $ (38) $ (3,091) $ 896
Net income (loss) per share (1.18) (.48) (.02) (1.22) .17
============================================================================================================================
Balance Sheet Data
Cash $ 38 $ 1,065 $ 142 $ - $ 1,249
Working capital (deficit) (576) 2,590 963 (758) (4,185)
Total assets 4,410 4,940 5,175 2,921 34,653
Long-term debt 2,630 15 - - 7,779
Deferred compensation 553 - - - -
Other liabilities 932 - - - -
Minority interest 115 - - - -
Accumulated earnings (deficit) (1,017) (934) (979) (4,079) (3,183)
Total stockholders' equity (deficit) $ (1,927) $ 3,886 $ 4,073 $ 562 $ 6,604
============================================================================================================================
</TABLE>
-11-
<PAGE>
ITEM 7. 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 dominant local or regional branded processed meat company. Collectively they
added approximately $133 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.
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.
In August of 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
-12-
<PAGE>
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 of 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 approximately $3.3 million, consisting of $1.9
million cash, $0.2 million in a note (the "Grogan's Note") and 573,810 shares
(approximately $1.2 million) 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 will be reflected as additional goodwill on the Company's balance
sheet.
In November of 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.
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 year ended December 31, 1996, 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.
-13-
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased by approximately $132.7 million or 644%
from approximately $20.6 million for the year ended December 31, 1995 to
approximately $153.3 million for the year ended December 31, 1996. This increase
reflects the acquisition of Carlton, Prefco, Richard's, Grogan's and Partin's.
Gross Profit. Gross profit increased by approximately $11.2 million or
193% from approximately $5.9 million for the year ended December 31, 1995 to
approximately $17.1 million for the year ended December 31, 1996. This increase
reflects the acquisition of Carlton, Prefco, Richard's, Grogan's and Partin's.
Gross profit as a percentage of net sales decreased from 28.4% to 11.2%
reflecting the lower gross profit margin associated with the Company's food
operations. Gross profit from beverage sales did increase, however, from 28.4%
of sales to 30.2% of sales reflecting lower product costs and higher selling
prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $9.5 million or 159% from
approximately $6.0 million for the year ended December 31, 1995 to approximately
$15.5 million for the year ended December 31, 1996. This increase reflects the
acquisition of Carlton, Prefco, Richard's, Grogan's and Partin's. As a
percentage of net sales, selling, general and administrative expenses decreased
from 29.1% to 10.1%. This decrease reflects the fact that expenses as a
percentage of sales are significantly lower in the Company's food operations
than in its beverage operations, in addition to the fact that the Company is
realizing economies through spreading certain administrative expenses over
several business units.
Income from Operations. Income from operations increased approximately
$1.7 million from a loss of approximately $0.1 million for the year ended
December 31, 1995 to approximately $1.6 million for the year ended December 31,
1996. This increase is attributable to income from the Company's newly acquired
food businesses as well as to the improvement in gross margin in the Company's
beverage business.
Interest Expense. Interest expense increased approximately $1.2 million
from approximately $25,000 for the year ended December 31, 1995 to approximately
$1.2 million for the year ended December 31, 1996. This increase was
attributable to debt that the Company incurred (and the related amortization of
deferred financing costs and note discounts) in connection with the acquisitions
of Carlton, Prefco, Richard's, Grogan's and Partin's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.
Other Income. Other income increased approximately $0.5 million from
zero for the year ended December 31, 1995 to approximately $0.5 million for the
year ended December 31, 1996. This increase was primarily the result of a
one-time settlement payment of $0.25 million that the Company received from a
former beverage supplier. Other amounts include approximately $0.1 million of
income generated by the Prefco subsidiary from product sold at special events.
Net Income from Continuing Operations. Net income from continuing
operations increased approximately $1.0 million from a loss of approximately
$0.1 million for the year ended December 31, 1995 to approximately $0.9 million
for the year ended December 31, 1996. This increase reflects factors discussed
above in income from operations, interest expense, and other income.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.5 million from approximately $0.5 million for the
year ended December 31, 1995 to zero for the year ended December 31, 1996. The
loss in 1995 represents the results of the Company's discontinued frozen
beverage division.
-14-
<PAGE>
Net Income (Loss). Net income (loss) increased approximately $4.0
million from a loss of approximately $3.1 million for the year ended December
31, 1995 to income of approximately $0.9 million for the year ended December 31,
1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales decreased by approximately $3.6 million or 14.7%
from approximately $24.2 million for the year ended December 31, 1994 to
approximately $20.6 million for the year ended December 31, 1995. This decrease
reflects a decrease in case sales resulting from increased competition during
the year.
Gross Profit. Gross profit decreased by approximately $0.5 million or
8.0% from approximately $6.4 million for the year ended December 31, 1994 to
approximately $5.9 million for the year ended December 31, 1995, reflecting
lower net sales. Gross profit as a percentage of net sales increased from 26.4%
to 28.4%. This increase was primarily the result of a shift toward higher margin
products and selected price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $0.1 million or 1.6% from
approximately $6.1 million for the year ended December 31, 1994 to approximately
$6.0 million for the year ended December 31, 1995. As a percentage of net sales,
selling, general and administrative expenses increased from 25.2% to 29.1%. This
increase was primarily the result of the decline in net sales.
Income (Loss) from Operations. Income (loss) from operations decreased
approximately $0.4 million from income of approximately $0.3 million for the
year ended December 31, 1994 to a loss of approximately $0.1 million for the
year ended December 31, 1995. This decrease was primarily due to the decline in
net sales.
Net Income (Loss) from Continuing Operations. Net income (loss) from
continuing operations decreased approximately $0.4 million from income of
approximately $0.3 million for the year ended December 31, 1994 to a loss of
approximately $0.1 million for the year ended December 31, 1995. This decrease
was primarily due to the decline in net sales.
Loss from Discontinued Operations. Loss from discontinued operations
increased approximately $0.2 million from approximately $0.3 million for the
year ended December 31, 1994 to approximately $0.5 million for the year ended
December 31, 1995. These losses represent the results of the Company's
discontinued frozen beverage division. The Company operated the division for
approximately eight months in 1994 and for 12 months in 1995.
Loss on Disposal of Discontinued Operations. On December 31, 1995 the
Company recognized a charge of approximately $2.4 million in connection with its
decision to discontinue its frozen beverage division as described above.
Net Loss. Net loss increased approximately $3.1 million from
approximately $38,000 for the year ended December 31, 1994 to approximately $3.1
million for the year ended December 31, 1995. This increase reflects the impact
of the decline in Net Sales as well as the increase in loss from discontinued
operations and the loss on disposal of discontinued operations.
Liquidity and Capital Resources
Cash used in operating activities for the year ended December 31, 1996
was approximately $1.6 million. This amount was principally affected by net
income, the add-back of depreciation, amortization and non-cash interest,
reduction in net liabilities of discontinued operations, and increases in
accounts receivable, inventory, prepaid expenses and accrued expenses. Cash used
in investing activities for the year ended December 31, 1996 was approximately
$10.0 million and primarily reflected the acquisition of Carlton, Prefco,
Richard's, Grogan's and Partin's. Cash provided
-15-
<PAGE>
by financing activities was approximately $12.9 million and was principally
affected by debt incurred and equity raised in connection with the acquisition
of Carlton, Prefco, Richard's, Grogan's and Partin's. Net cash increase
during the period was approximately $1.25 million.
As of December 31, 1996, the Company had outstanding under the LaSalle
Facility approximately $7.3 million in line-of-credit borrowings and
approximately $6.6 million in term debt. 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 the fourth quarter of 1996, the Company obtained an additional
$450,000 short-term loan (the "Bridge Debt") from LaSalle National Bank. The
Bridge Debt is subject to monthly interest payments at the annual rate of Prime
+ 1.5% and is due in the second quarter of 1997.
As of December 31, 1996 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 2001. Interest
rates currently average 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. This is a forward-looking statement and is inherently uncertain. Actual
results may differ materially. 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 December 31, 1996 reflected a net
deferred tax asset of approximately $0.1 million. A valuation allowance exists
as of this date because based on the weight of all available evidence,
management believes that it is more likely than not that the remaining deferred
tax asset will be fully realized.
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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's 1996 Financial Statements and the Report of Independent
Auditors thereon are set forth on pages F-1 through F-18 of this Form 10-K.
Supplementary data regarding quarterly results of operations have been
omitted since it is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
-16-
<PAGE>
None.
-17-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from the Company's proxy statement for its
1997 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Company's proxy statement for its
1997 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Company's proxy statement for its
1997 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the Company's proxy statement for its
1997 annual meeting of stockholders.
-18-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
Atlantic Beverage Company, Inc. has set forth on pages F-1 through
F-18 of this Form 10-K the following financial statements of the Company:
ATLANTIC BEVERAGE COMPANY, INC.: Page(s)
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, F-2
1995 and 1996
Consolidated Statements of Operations For the F-3
Years Ended December 31, 1994, 1995 and 1996
Consolidated Statements of Stockholders' F-4
(Deficit) Equity For the Years Ended December
31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows For The F-5
Years Ended December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements F-8
-19-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Atlantic Beverage Company, Inc.:
We have audited the accompanying consolidated balance sheets of Atlantic
Beverage Company, Inc. (a Delaware corporation), and subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Beverage Company, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Baltimore, Maryland,
February 21, 1997
-F-1-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
--------------- --------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash (Note 2) $ - $ 1,248,963
Accounts receivable, net of allowance for doubtful accounts
of $35,000 and $118,000, respectively 798,385 10,160,891
Inventory (Notes 2 and 3) 630,968 3,629,647
Prepaid expenses and other 171,467 404,438
Deferred tax asset (Note 8) - 390,500
-------------- --------------
Total current assets 1,600,820 15,834,439
PROPERTY, PLANT AND EQUIPMENT, net (Note 2 and 4) 706,518 4,820,900
DEFERRED TAX ASSET, (Note 8) 365,000 -
GOODWILL, net (Notes 2 and 5) 30,666 13,175,918
OTHER ASSETS, net (Notes 2 and 6) 218,143 821,834
-------------- --------------
Total Assets $ 2,921,147 $ 34,653,091
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 297,458 $ 2,672,630
Line of credit (Note 9) 440,000 7,255,984
Current portion of long-term debt (Note 10) 788 2,324,267
Accounts payable 855,846 6,120,435
Accrued expenses 42,528 1,083,884
Net current liabilities of discontinued operations (Note 18) 722,173 562,283
-------------- --------------
Total current liabilities 2,358,793 20,019,483
LONG-TERM DEBT, net of current portion (Note 10) - 7,778,934
DEFERRED TAX LIABILITY - 250,900
-------------- --------------
Total liabilities 2,358,793 28,049,317
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 9, 13 and 20)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized;
2,727,955 and 6,804,451 shares issued in 1995 and 1996,
respectively 27,280 68,045
Additional paid-in capital 5,041,252 10,146,148
Accumulated deficit (4,079,108) (3,183,349)
Less: Treasury stock, at cost, 408,038 shares (Note 14) (427,070) (427,070)
-------------- --------------
Total Stockholders' Equity 562,354 6,603,774
-------------- --------------
Total Liabilities and Stockholders' Equity $ 2,921,147 $ 34,653,091
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-F-2-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1995 1996
--------------- --------------- --------------
<S> <C>
NET SALES $ 24,151,796 $ 20,596,436 $ 153,279,993
COST OF GOODS SOLD, exclusive of depreciation
shown below 17,787,253 14,743,435 136,151,779
-------------- -------------- --------------
Gross profit 6,364,543 5,853,001 17,128,214
-------------- -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and benefits 3,234,935 3,087,421 7,406,525
Other operating expenses 2,457,601 2,515,439 7,089,913
Depreciation and amortization (Notes 2, 4 and 6) 394,261 388,321 993,513
-------------- -------------- --------------
Total selling, general and administrative
expenses 6,086,797 5,991,181 15,489,951
-------------- -------------- --------------
Income (loss) from operations 277,746 (138,180) 1,638,263
INTEREST EXPENSE (Notes 6, 9 and 10) 8,350 25,394 1,196,888
OTHER (EXPENSE) INCOME, net (Note 16) (19,928) 11,654 476,384
--------------- -------------- --------------
Income (loss) before income tax benefit
(provision) 249,468 (151,920) 917,759
INCOME TAX BENEFIT (PROVISION) (Note 8) 15,000 - (22,000)
-------------- -------------- ---------------
Net income (loss) from continuing operations 264,468 (151,920) 895,759
LOSS FROM DISCONTINUED OPERATIONS
(Note 18) (302,203) (528,466) -
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS (Note 18) - (2,410,200) -
-------------- -------------- -------------
NET (LOSS) INCOME $ (37,735) $ (3,090,586) $ 895,759
============== ============== ==============
INCOME (LOSS) PER COMMON SHARE DATA:
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS AFTER ACCRETION OF
PREFERRED STOCK $ .09 $ (.06) $ .17
LOSS FROM DISCONTINUED OPERATIONS,
INCLUDING LOSS ON DISPOSAL (.11) (1.16) -
-------------- -------------- -------------
NET (LOSS) INCOME $ (.02) $ (1.22) $ .17
============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 2,710,950 2,528,532 5,349,539
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-F-3-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Nonvoting
Convertible
Preferred Stock Common Stock Additional
---------------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ --------- ------------
<S> <C>
BALANCE, December 31, 1993 -- $ -- 2,674,878 $26,749 $ 4,793,601 $ (933,878)
Issuance of common stock -- -- 23,077 231 103,623 --
Issuance of preferred stock 1 133,091 -- -- -- --
Accretion of preferred stock -- 7,266 -- -- -- (7,266)
Purchase of treasury stock -- -- -- -- -- --
Other -- -- -- -- (5,672) --
Net loss -- -- -- -- -- (37,735)
------ --------- --------- ------- ----------- -----------
BALANCE, December 31, 1994 1 140,357 2,697,955 26,980 4,891,552 (978,879)
Purchase of treasury stock -- -- -- -- -- --
Accretion of preferred stock -- 9,643 -- -- -- (9,643)
Conversion of preferred stock
to common stock (1) (150,000) 30,000 300 149,700 --
Net loss -- -- -- -- -- (3,090,586)
------ --------- --------- ------- ----------- -----------
BALANCE, December 31, 1995 -- -- 2,727,955 27,280 5,041,252 (4,079,108)
Issuance of common stock
through private placement,
net -- -- 2,765,549 27,656 2,754,727 --
Issuance of common stock in
connection with business
combinations -- -- 1,105,430 11,054 2,043,949 --
Issuance of common stock to
former noteholders -- -- 205,517 2,055 306,220 --
Net income -- -- -- -- -- 895,759
------ --------- --------- ------- ----------- -----------
BALANCE, December 31, 1996 -- $ -- 6,804,451 $68,045 $10,146,148 $(3,183,349)
------ --------- ========= ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
------------------------- Stockholders'
Shares Amount Equity
------ -------- -------------
<S> <C>
BALANCE, December 31, 1993 -- $ -- $3,886,472
Issuance of common stock -- -- 103,854
Issuance of preferred stock -- -- 133,091
Accretion of preferred stock -- -- --
Purchase of treasury stock 2,500 (7,500) (7,500)
Other -- -- (5,672)
Net loss -- -- --
------- --------- ----------
BALANCE, December 31, 1994 2,500 (7,500) 4,072,510
Purchase of treasury stock 405,538 (419,570) (419,570)
Accretion of preferred stock -- -- --
Conversion of preferred stock
to common stock -- -- --
Net loss -- -- (3,090,586)
------- --------- ----------
BALANCE, December 31, 1995 408,038 (427,070) 562,354
Issuance of common stock
through private placement,
net -- -- 2,782,383
Issuance of common stock in
connection with business
combinations -- -- 2,055,003
Issuance of common stock to
former noteholders -- -- 308,275
Net income -- -- 895,759
------- --------- ----------
BALANCE, December 31, 1996 408,038 $(427,070) $6,603,774
======= ========= ==========
The accompanying notes are an integral part of these consolidated statements.
-F-4-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1994 1995 1996
--------------- --------------- -----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (37,735) $ (3,090,586) $ 895,759
Adjustments to reconcile net (loss) income to net
cash flows provided by operating activities, net
of assets and liabilities acquired through
business combinations-
Loss on disposal of discontinued operations - 2,410,200 -
Loss from discontinued operations 302,203 528,466 -
Depreciation and amortization 394,261 388,321 993,513
Amortization of debt discount and deferred
financing cost 3,562 10,120 102,217
Deferred income tax benefit (15,000) - (60,000)
Write-off of consulting agreement 39,800 - -
Decrease (increase) in accounts receivable, net 325,906 201,944 (3,337,143)
Decrease (increase) in inventory 440,226 62,001 (296,724)
(Increase) decrease in prepaid expenses and
other assets (124,252) 57,784 (109,899)
(Decrease) increase in accounts payable (260,579) 197,707 (30,436)
(Decrease) increase in accrued expenses (18,598) (41,184) 414,587
-------------- -------------- --------------
Net cash flows provided by (used in)
operating activities of-
Continuing operations 1,049,794 724,773 (1,428,126)
Discontinued operations (178,157) (597,626) (159,890)
-------------- -------------- --------------
Net cash flows provided by (used in)
operating activities 871,637 127,147 (1,588,016)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (853,131) (493,272) (584,869)
Cash paid in connection with business
combinations, including acquisition fees (795,969) (88,014) (9,417,351)
Purchase of distribution rights (50,000) - (50,000)
-------------- -------------- --------------
Net cash flows used in investing
activities (1,699,100) (581,286) (10,052,220)
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-F-6-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1995 1996
--------------- --------------- ----------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft $ - $ 297,458 $ (708,527)
Net borrowings under line of credit - 440,000 6,815,984
Borrowing under term debt - - 7,900,000
Repayments of notes payable (60,671) (6,144) (3,194,221)
Payments of deferred financing costs (21,374) - (706,420)
Issuance of common stock through private
placement, net - - 2,782,383
Purchase of treasury stock (7,500) (419,570) -
Other (5,665) - -
-------------- -------------- -------------
Net cash flows provided by (used in)
financing activities (95,210) 311,744 12,889,199
-------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH (922,673) (142,395) 1,248,963
CASH, beginning of period 1,065,068 142,395 -
-------------- -------------- -------------
CASH, end of period $ 142,395 $ - $ 1,248,963
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-F-7-
<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY:
The accompanying consolidated financial statements present the accounts
of Atlantic Beverage Company, Inc. and subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in consolidation.
The Company is engaged in the distribution of specialty nonalcoholic
beverages to the retail trade in the Baltimore and Washington, D.C. metropolitan
areas and, as a result of business combinations consummated during 1996, is
engaged in the manufacturing, marketing and distribution of meat products in
Texas, Louisiana, Kentucky and surrounding states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
The Company records sales when product is delivered to the 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 December 31, 1996, $175,000 was restricted to meet minimum
balance funding requirements.
Inventory
Inventory is stated at the lower of cost or market and is comprised of
raw materials, finished goods and packaging supplies. Cost is determined using
the first-in, first-out method.
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, equipment and furniture 5-10 years
Leasehold improvements 2- 5 years
Vehicles 5-10 years
Reclassifications
Certain amounts in the prior years' consolidated financial statements
have been reclassified to conform to the current year's presentation.
Other Assets
Other assets consist of noncompete agreements, 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, representing the term
of the related debt, using the effective interest method.
-F-8-
<PAGE>
Goodwill
Goodwill recorded in connection with business combinations is being
amortized using the straight-line method over 5 to 40 years. Amortization
expense for each of the years ended December 31, 1994, 1995 and 1996 was
$115,699, $115,699 and $290,807, respectively. Accumulated amortization as of
December 31, 1995 and 1996 was $547,829 and $260,141, respectively.
Income Taxes
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," requires deferred income taxes to be recorded under the liability
method and restricts the conditions under which a deferred asset may be
recorded.
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.
Management has not yet determined whether the implementation of SFAS 128 will
have any impact on the Company's earnings per share amounts.
In March 1995, the FASB issued Statement No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. As of December 31, 1996,
management believes there were no indications of impairment that would effect
the carrying values of assets.
In November 1995, the FASB issued Statement No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." Companies have the option of adopting
the new accounting provisions or may elect to provide pro forma disclosures of
net income and earnings per share as if the accounting had been adopted.
Management has elected to continue to account for its stock-based compensation
in accordance with APB Opinion No. 25 and has provided pro forma disclosures
(see Note 12).
Supplemental Cash Flow Information
Cash Paid Cash Paid
for Taxes for Interest
--------- ------------
Year ended December 31, 1994
Related parties $ - $ 5,090
Other 29,500 4,788
Year ended December 31, 1995
Related parties - 4,026
Other - 15,274
Year ended December 31, 1996
Related parties - -
Other - 1,115,949
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
-F-9-
<PAGE>
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INVENTORY:
Inventory consisted of the following as of December 31:
1995 1996
--------------- --------------
Raw materials $ - $ 100,619
Finished goods 630,968 3,077,431
Packaging supplies - 451,597
-------------- --------------
Total $ 630,968 $ 3,629,647
============== ==============
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 31, 1995 and 1996 are
summarized as follows:
1995 1996
---- ----
Land $ - $ 85,000
Buildings and building improvements - 1,567,368
Machinery, equipment and furniture 1,292,589 3,534,307
Leasehold improvements - 498,218
Vehicles 76,421 448,977
------------ ------------
Property, plant and equipment, gross 1,369,010 6,133,870
Less - Accumulated depreciation (662,492) (1,312,970)
------------ ------------
Property, plant and equipment, net $ 706,518 $ 4,820,900
============ ============
Depreciation expense for the years ended December 31, 1994, 1995 and
1996 was $170,869, $224,930 and $655,014, respectively.
5. BUSINESS COMBINATIONS:
As of January 1, 1996, a newly formed wholly-owned subsidiary of the
Company acquired the outstanding common stock of Prefco, Inc. (Prefco). Also as
of January 1, 1996, Carlton Foods, Inc. (Carlton Foods) was merged into another
newly formed, wholly-owned subsidiary of the Company. In addition, as of August
1, 1996, the Company acquired the assets of Richard's Cajun Country Food
Processors (Richard's). As of October 1, 1996, the Company acquired the
outstanding common stock of Grogan's Farm, Inc. and the assets of Grogan's
Sausage, Inc. (collectively referred to as "Grogan's") and certain real property
previously held by the sellers. As of November 15, 1996, the Company obtained
certain operating assets from Partin's Country Sausage (Partin's). In connection
with these business combinations, the Company entered into a loan agreement with
a commercial bank which provided a $7.45 million term loan and a $8.5 million
revolving line of credit (see Notes 9 and 10). The business combinations were
accounted for using the purchase method of accounting, whereby the purchase
price is allocated to the assets acquired and liabilities assumed based upon
fair value. The resulting goodwill was determined as follows:
-F-10-
<PAGE>
Cash paid $ 10,850,728
Issuance of notes to the Sellers, at fair value 2,472,150
Issuance of the Company's common stock 2,055,003
Debt assumed by the Company 2,945,180
Acquisition costs 1,121,799
--------------
Total purchase price 19,444,860
--------------
Current assets acquired 11,364,230
Noncurrent assets acquired 4,086,718
Current liabilities assumed (9,060,539)
Noncurrent liabilities assumed (381,608)
--------------
Net assets acquired 6,008,801
--------------
Goodwill $ 13,436,059
==============
Prefco and Carlton Foods
In connection with the Prefco and Carlton Foods transactions, the
Company paid approximately $3.6 million, net of cash acquired, issued
approximately 650,000 shares of common stock to the former shareholders. The
Company also issued a subordinated promissory note to the former shareholders of
Prefco with a face amount of $1.4 million (see Note 10). In addition, a former
shareholder of Prefco signed an employment agreement with the Company for five
years, with an automatic one-year extension. If, at the end of each of the first
four years, the shareholder is still employed by the Company and Prefco meets
predetermined operating income growth from the previous year, the Company will
grant to the former shareholders, options to acquire additional shares of the
Company's stock. The effect of these contingent options has not been reflected
in the accompanying financial statements.
Richard's
In connection with the Richard's transaction, the Company paid cash in
the amount of $2,500,000 and issued a subordinated promissory note to the former
shareholder with a face amount of $874,786 (see Note 10). In addition, the
former shareholder signed an employment agreement with the Company for three
years. If, at the end of three years, the former shareholder is still employed
by the Company and Richard's meets certain cumulative operating income targets,
the Company will deliver a pre-determined amount of shares to the former
shareholder. The effect of these contingent shares has not been reflected in the
accompanying financial statements.
Grogan's
In connection with the Grogan's transaction, the Company issued 573,810
shares of its common stock to the former shareholders, paid approximately
$1,900,000 in cash and issued a subordinated promissory note to the former
shareholders with a face amount of $200,000 (see Note 10). In addition, the
former shareholder signed an employment agreement with the Company for one year.
Partin's
In connection with the Partin's transaction, the Company issued 81,619
shares of its common stock to the former shareholders, paid $419,891 in cash and
issued a subordinated promissory note to the former shareholders in the amount
of $224,891 (see Note 10).
-F-11-
<PAGE>
6. OTHER ASSETS:
Other assets are comprised of the following as of December 31, 1995 and
1996:
1995 1996
----------- -----------
Noncompete agreement $ 200,000 $ 200,000
Distribution agreements 25,000 50,000
Deferred financing costs 21,374 706,420
Cash surrender value of life insurance - 64,443
Other 88,014 -
----------- -----------
334,388 1,020,863
Less - Accumulated amortization (116,245) (199,029)
----------- -----------
Other assets, net $ 218,143 $ 821,834
=========== ===========
Amortization expense applicable to distribution, license and consulting
agreements for years ended December 31, 1994, 1995 and 1996, was $36,025, $7,692
and $7,692, respectively, and is included within depreciation and amortization
expenses in the accompanying consolidated statements of operations. Amortization
of deferred financing costs of $3,562, $10,120 and $81,466, respectively, has
been included within interest expense in the accompanying consolidated
statements of operations for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company, Sterling Group, Inc. (Sterling Group) and Sterling Group's
principals have entered into a noncompete and nondisclosure agreement, effective
November 29, 1993 (the closing date of the Company's initial public offering),
containing certain noncompetition and confidentiality provisions. The agreement
provides that Sterling Group and its principals agree not to compete with the
Company for a period of five years from the closing date, nor will they solicit
for employment any director, stockholder or certain employees of the Company.
Such agreement also provides that Sterling Group and its principals will not
disclose any confidential information concerning the Company and its business to
any other person or entity except as may be required by law. The Company paid
Sterling Group a fee of $200,000 at closing in consideration of such agreement.
Amortization expense for each of the years ended December 31, 1994, 1995 and
1996, was $40,000. Accumulated amortization as of December 31, 1995 and 1996 was
$84,000 and $124,000, respectively.
7. SIGNIFICANT SUPPLIERS AND CUSTOMERS:
For the year ended December 31, 1994, two suppliers supplied
approximately 60% and 11%, respectively, of the Company's total product
purchases. No single customer accounted for more than 10% of the Company's total
sales.
For the year ended December 31, 1995, two suppliers supplied
approximately 62% and 13%, respectively, of the Company's total product
purchases. No single customer accounted for more than 10% of the Company's total
sales.
For the year ended December 31, 1996, two suppliers supplied
approximately 17% and 11%, respectively, of the Company's total product
purchases. In addition, a single customer accounted for approximately 41% of the
Company's total sales.
During the fourth quarter of 1996, the Company signed an exclusive
distribution agreement with the AriZona beverage brand ("AriZona"). Management
estimates that AriZona will supply approximately 20% of its specialty beverage
distribution business.
-F-12-
<PAGE>
8. INCOME TAXES:
The Company has incurred significant tax losses and has generated
timing differences which would give rise to deferred taxes. Based upon available
evidence, management believes that, it is more likely than not, that a portion
of these losses and future deductions will be realized in future periods and has
recorded a tax benefit and deferred tax asset, net of an applicable valuation
allowance as required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." In connection with the loss on disposal of
discontinued operations, no benefit for income taxes was recorded.
The benefit (provision) from income taxes on continuing operations for
the years ended December 31, 1994, 1995 and 1996, included amounts summarized
as follows:
1994 1995 1996
-------- ---------- ---------
Current:
Federal $ - $ - $ (60,000)
State - - (22,000)
Deferred:
Federal 13,000 180,000 (353,000)
State 2,000 24,000 (47,000)
------- --------- ---------
15,000 204,000 (482,000)
Valuation allowance - (204,000) 460,000
------- --------- ---------
Total tax benefit (provision) $15,000 $ - $ (22,000)
======= ========= =========
In connection with certain business combinations consummated during
1996, the Company recorded a deferred tax liability of $285,400 through the
allocation of the related purchase price. Gross deferred tax assets and
liabilities are comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------------ ----------
<S> <C>
Deferred Tax Assets:
Net operating loss carryforwards $ 817,800 $ 633,800
Net liabilities of discontinued operations 819,500 442,800
Inventory 15,300 59,800
Accrued expenses 3,400 44,100
Accounts receivable 11,900 39,300
Other 30,600 97,200
----------- ----------
1,698,500 1,317,000
Valuation allowance (1,148,500) (688,500)
----------- ----------
Deferred tax assets 550,000 628,500
----------- ----------
Deferred Tax Liabilities:
Property, plant and equipment 60,000 222,200
Other 125,000 266,700
----------- ----------
Deferred tax liabilities 185,000 488,900
----------- ----------
$ 365,000 $ 139,600
=========== ==========
</TABLE>
As of December 31, 1996, the Company has approximately $1.9 million of
net operating loss carryforwards for tax purposes expiring through 2010.
-F-13-
<PAGE>
The statutory federal income tax rate, reconciled to the effective
income tax rate benefit (provision) is as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C>
Statutory federal income tax rate 34.0% (34.0)%
State income taxes, net of federal income tax effect 4.6 (5.0)
Nondeductible amortization of goodwill (75.6) (9.6)
Valuation allowance 37.0 50.1
Other - (3.9)
------ ------
Total - % (2.4)%
====== ======
</TABLE>
9. BORROWINGS UNDER LINE OF CREDIT:
In March 1996, the Company entered into a new line of credit agreement
with a bank through March 2001. Under the terms of the agreement, the Company is
permitted to borrow up to $8,500,000, subject to advance formulas based on
accounts receivable and inventory. Amounts borrowed are due on demand and bear
interest at either the bank's prime rate plus an additional rate of 1% or LIBOR
plus an additional 3%. Amounts borrowed are payable monthly and are secured by
all assets of the Company.
Information related to the line of credit for the years ended December
31, 1994, 1995 and 1996 is as follows:
Weighted Average
--------------------------- Maximum
Month-end Interest Amount
Balance Rate Outstanding
---------- -------- -----------
1994 $ 323,544 7.8% $ 750,922
1995 88,417 8.75 575,000
1996 3,895,000 9.0 7,255,984
As of December 31, 1996, approximately $1,225,000 of standby letters of
credit were outstanding under the line of credit facility.
-F-14-
<PAGE>
10. LONG-TERM DEBT:
Long-term debt as of December 31, 1995 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C>
Note payable, bearing interest at either prime plus 1.5% or LIBOR
plus 3.5%, due in varying amounts monthly through March 2001 $ - $ 7,117,308
Subordinated promissory note, bearing interest at 9% annually,
payable throughout 1997 - 300,000
Subordinated promissory note to former shareholders of Prefco,
bearing interest at 9% annually, payable in quarterly
installments of interest, with all outstanding principal and
interest due March 2001 - 1,400,000
Subordinated promissory note to former shareholder of Richard's,
bearing interest at 6.35% annually, payable in quarterly
installments of interest, with all outstanding principal and
interest due July 2001, net of unamortized discount of $0 and
$168,298 - 874,786
Subordinated promissory note to former shareholders of Grogan's,
effective October 1998, bearing interest at 8% annually, payable
in quarterly installments of interest, with all outstanding
principal and interest due September 2001, net of unamortized
discount of $0 and $38,478
- 200,000
Subordinated promissory note to former shareholders of Partin's,
bearing interest at 8% annually, payable in quarterly
installments, with all outstanding principal and interest due
December 2003 - 224,891
Other 788 192,992
-------------- --------------
Total 788 10,309,977
Less: Current portion (788) (2,324,267)
Unamortized discount - (206,776)
-------------- --------------
Long-term debt, net of current portion and unamortized
debt discount $ - $ 7,778,934
============== ==============
</TABLE>
The future maturities of the notes payable as of December 31, 1996, are
as follows:
1997 $ 2,324,267
1998 1,595,891
1999 1,708,348
2000 1,738,141
2001 2,718,439
2002 and thereafter 224,891
-----------
$10,309,977
In connection with the Company's line of credit (see Note 9) and note
payable, the Company is required to meet certain financial and nonfinancial
covenants.
-F-15-
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheet for cash, accounts
payable and accrued expenses approximate fair value because of the short
maturity of those instruments.
Fair value of the Company's long-term debt is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The aggregate face amounts and fair values of the Company's long-term
debt as of December 31, 1996, were $10,309,977 and $10,103,201, respectively.
The carrying amount of the Company's long-term debt approximated the fair value
as of December 31, 1995.
12. STOCK OPTIONS:
The Company has a non-incentive stock option plan (the Non-Incentive
Plan) and a Director's stock option plan (the Directors' Plan), which authorize
the Company to grant, to eligible individuals, options for the purchase of
shares of the Company's $.01 par value common stock.
Under the terms of the Non-Incentive Plan, the Company may issue up to
1,100,000 options to officers, advisors, full-time employees and other eligible
individuals. In addition, the Company may issue up to 150,000 options to outside
directors. In general, the option exercise price equals the stock's market price
on the date of grant and vest up to three years. Under the terms of the
Directors' Plan, the Company may issue up to 500,000 options to eligible outside
Directors. Each eligible Director was granted an initial option to purchase
10,000 shares of stock. Each eligible Director shall be granted an additional
option to purchase 10,000 shares of stock after each year of service. The option
exercise price equals the stock's market price on the date of grant and vest
after one year. The issuance of options under the Non-Incentive and Directors'
Plans during 1994, 1995 and 1996, had no impact on the accompanying consolidated
financial statements.
In connection with the employment agreement with the new Chief
Executive Officer (see Note 13), the Company issued 250,000 stock options with
an exercise price of $1.50, representing the fair market value at March 15,
1996. The options vest over a five year period and provide for accelerated
vesting if certain financial performance thresholds are met. As of December 31,
1996, 20% of these options had vested.
The Company has elected to account for its stock-based compensation
plans in accordance with APB No. 25, under which no compensation expense has
been recognized. The Company has computed for pro forma disclosure purposes the
value of all options granted during 1995 and 1996, using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 and the following assumptions
used for option grants:
1995 1996
---------------- --------------
Risk-free interest rate (range) 6.91% 5.44% - 6.81%
Expected dividend yield 0.00% 0.00%
Expected lives 6.5 years 5-6 years
Expected volatility 36% 36%
-F-16-
<PAGE>
Adjustments were made for options forfeited prior to vesting. Had
compensation expense for these plans been determined in accordance with SFAS No.
123, the Company's net income and earnings per share reflected on the
accompanying statement of operations would have been reduced to the following
"pro forma" amounts:
1995 1996
-------------- -------------
Net (Loss) Income:
As reported $ (3,090,586) $ 895,760
Pro forma (3,153,437) 715,067
Earnings Per Share:
As reported (1.22) .17
Pro forma (1.25) .13
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of that to be expected in future
years.
<TABLE>
<CAPTION>
1994 1995 1996
------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ --------- ------ --------
<S> <C>
Outstanding, beginning of year 152,586 $ 6.50 170,036 $ 6.31 233,136 $ 5.47
Granted 21,300 4.63 67,700 2.75 464,200 1.76
Exercised - - - - - -
Forfeited (3,850) 4.63 (4,600) 3.49 (4,100) 3.24
Expired - - - - - -
Outstanding, end of year 170,036 6.31 233,136 5.47 693,236 3.00
Exercisable, end of year 70,034 6.50 142,552 5.45 410,044 3.51
Weighted average fair value
of options granted $ 1.40 $ .81
</TABLE>
Options outstanding as of December 31, 1994, were deemed to have no
value in accordance with APB No. 25.
13. COMMITMENTS:
Executive Employment Agreement
Effective March 15, 1996, the Company entered into a five-year
employment agreement with its new Chief Executive Officer which provides for
base compensation and an incentive bonus.
-F-17-
<PAGE>
Operating Leases
The Company leases warehouses, office buildings and most of its
delivery vehicles under operating leases. These leases have remaining terms
ranging from one to five years. Rental expense under these leases for the years
ended December 31, 1994, 1995 and 1996 was $618,543, $594,010 and $1,223,271,
respectively. The delivery vehicle leases include options to cancel up to three
of the leases in the event of an economic slowdown. As of December 31, 1996,
future minimum lease payments under these operating leases are as follows:
1997 $ 890,678
1998 604,134
1999 240,403
2000 180,729
2001 143,052
2002 and thereafter 93,814
-----------
$ 2,152,810
===========
In January 1997, the Company signed a lease for a new warehouse
facility. The term of the new lease is five years, with an option to renew for
an additional five years, and commences in April 1997.
14. REPURCHASE OF COMMON STOCK:
Throughout 1995, the Company repurchased 405,538 shares of its
outstanding common stock at an average per share cost of $1.03. The Company
accounted for these transactions as treasury stock, utilizing the cost method.
15. RELATED PARTY TRANSACTIONS:
The accompanying consolidated statements of operations include interest
related to certain notes payable to related parties (including amortization of
deferred financing costs) and other liabilities to stockholders of approximately
$5,100 for the year ended December 31, 1994.
The Company has a consulting agreement (the Agreement) with Elfman
Venture Partners, Inc. and Sterling Advisors, L.P., a partnership owned by
stockholders of the Company. The term of the Agreement is through December 31,
2001. The Agreement provides that the Company shall pay a base fee of $300,000
per year, which shall increase 5% for each year the Agreement remains in effect.
The Agreement also stipulates adjustments to the base fee for future
acquisitions or sales. The adjusted base fee as of December 31, 1996, is
$350,000. During each year the Agreement is in effect, the Company is also
required to grant options to purchase 25,000 shares of the Company's $.01 par
value common stock. Such options vest on each December 31 at an exercise price
equal to the market price on the preceding January 1 (see Note 12). The Company
also utilizes the consulting services of a shareholder. Under the current
consulting agreement, the shareholder is paid a base monthly fee and is also
granted options to purchase 1,000 shares of the Company's $.01 par value common
stock per month.
The accompanying consolidated statements of operations include
approximately $144,000, $148,000 and $340,000 for the years ended December 31,
1994, 1995 and 1996, respectively, for management and consulting services that
were paid to certain stockholders and to Sterling Advisors.
16. OTHER (EXPENSE) INCOME:
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
-F-18-
<PAGE>
operations. During 1995, approximately 4% of the total cases sold represented
cases supplied by this former supplier.
17. BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into three business
segments: beverage distribution, food processing and food distribution. The
beverage distribution segment includes purchasing, marketing and distribution of
nonalcoholic beverages to the retail trade in the greater Baltimore and
Washington, D.C. metropolitan area and surrounding counties. The food processing
segment includes the processing and sales of sausage and related products to
distributors and retailers in the Louisiana, Texas, Kentucky and other
surrounding states. The food distribution segment includes the purchasing,
marketing and distribution of packaged meat products to retailers and
restaurants, primarily in Texas.
Summarized financial information, by business segment, for continuing
operations in 1994, 1995 and 1996 is as follows (corporate overhead not
specifically associated with a segment has been presented separately):
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C>
Net sales:
Beverage distribution $ 24,151,796 $ 20,596,436 $ 19,401,759
Food processing - - 12,864,437
Food distribution - - 125,610,141
--------------- --------------- ---------------
$ 24,151,796 $ 20,596,436 $ 157,876,337
=============== =============== ===============
Operating income (loss):
Beverage distribution $ 277,746 $ (138,180) $ 631,108
Food processing - - 934,691
Food distribution - - 1,075,395
Corporate - - (972,931)
--------------- --------------- ---------------
$ 277,746 $ (138,180) $ 1,668,263
=============== =============== ===============
Total assets:
Beverage distribution $ 3,286,458 $ 2,921,147 $ 5,700,876
Food processing - - 14,170,199
Food distribution - - 17,317,461
--------------- --------------- ---------------
$ 3,286,458 $ 2,921,147 $ 37,188,536
=============== =============== ===============
Depreciation and amortization:
Beverage distribution $ 394,261 $ 388,321 $ 344,399
Food processing - - 447,651
Food distribution - - 201,463
--------------- --------------- ---------------
$ 394,261 $ 388,321 $ 993,513
=============== =============== ===============
Capital expenditures:
Beverage distribution $ 853,131 $ 493,805 $ 374,235
Food processing - - 76,853
Food distribution - - 133,781
--------------- --------------- ---------------
$ 853,131 $ 493,805 $ 584,869
=============== =============== ===============
</TABLE>
There were no significant intersegment sales or transfers during 1994
and 1995. Intersegment sales and related receivables and payables among the
segments during 1996, for the purpose of this presentation, have not been
eliminated. Operating income, by business segment excludes interest income,
interest expense and net unallocated corporate expenses.
-F-19-
<PAGE>
18. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:
On April 27, 1994, the Company acquired substantially all of the assets
and assumed certain liabilities of Flying Fruit Fantasy, USA, Inc. for
approximately $580,000 in cash and 23,077 shares of common stock of the Company
with a market value of approximately $104,000 at closing, one share of Series A
nonvoting preferred stock convertible into $150,000 worth of common stock on
October 18, 1995, and $5,000 in cash per month for 24 months after closing. The
convertible preferred stock on April 27, 1994, was valued at $133,091 and was
accreted through the conversion date up to the estimated fair value at
conversion. On October 18, 1995, the preferred stock was converted into 30,000
shares of common stock.
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 of
$2,410,200, which was determined as follows:
Write-off of equipment $ 1,085,112
Write-off of goodwill 744,310
Write-off of noncompete agreements and other assets 215,703
Other costs to discontinue operations 365,075
-----------
$ 2,410,200
===========
This net loss has been reflected in the accompanying consolidated
statements of operations under Loss on Disposal of Discontinued Operations.
The results of the Flying Fruit Fantasy division have been reported
separately as discontinued operations in the consolidated statements of
operations for the years ended December 31, 1994 and 1995. Revenues from the
Flying Fruit Fantasy division were $475,478 for the year ended December 31,
1994, and $549,500 for the year ended December 31, 1995. No benefit for income
taxes has been recorded in connection with these losses due to the uncertainty
that the Company will be able to offset the losses against future taxable
income.
The liabilities as of December 31, 1995 and 1996, have been presented
separately in the accompanying consolidated balance sheets.
19. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The unaudited pro forma summary consolidated results of operations for
the years ending December 31, 1995 and 1996, assuming the business combinations
described in Note 5 had been consummated on January 1, 1995, are as follows:
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------
1995 1996
------------- ------------
<S> <C>
Revenues, net $146,982,019 $160,826,913
Operating expenses, net of depreciation and
amortization 144,033,919 157,265,608
Depreciation and amortization 1,520,835 1,340,464
Other expenses, net 1,228,329 946,275
Provision for income taxes 2,884 261,200
------------ ------------
Net income from continuing operations $ 196,052 $ 1,013,366
============ ============
</TABLE>
20. 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
-F-20-
<PAGE>
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.
-F-21-
<PAGE>
(a)(2) Financial Statement Schedules
-21-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Atlantic Beverage Company, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Atlantic Beverage Company, Inc. and
subsidiaries included in this Form 10-K and have issued our reports thereon
dated February 21, 1997. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. This
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated 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 consolidated financial statements taken as a whole.
Baltimore, Maryland,
February 21, 1997
-22-
<PAGE>
SCHEDULE I
ATLANTIC BEVERAGE COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-------------------------------------------------
Reserve
Balance at Established Charged to Charged Balance
Beginning with Business Costs and to Other at End
Classifications of Period Combinations Expenses(1) Accounts(2) Deductions(3) of Period
- ------------------------ ------------- ------------ -------------- -------------- ------------- -------------
<S> <C>
Allowance for doubtful
accounts:
Year ended
December 31, 1996 $ 35,000 $ 69,000 $ 61,000 $ 9,000 $ 56,000 $ 118,000
Year ended
December 31, 1995 71,000 - 83,000 - 119,000 35,000
Year ended
December 31, 1994 10,000 - 77,000 - 16,000 71,000
</TABLE>
(1) Current year provision for doubtful accounts.
(2) Includes recoveries on accounts previously written off.
(3) Accounts written off.
-23-
<PAGE>
(a)(3) Exhibits
The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibits listed below:
Exhibit
Number Description
- ------- -----------
2.01 Agreement and Plan of Merger dated as of September 15, 1993 ("Merger
Agreement") among the Company, Strategic Investment Corporation and
T. Rowe Price Strategic Partners Fund, L.P. ("Strategic Fund") (1)
2.02 Form of Amendment to Merger Agreement (1).
2.03 Stock Purchase Agreement dated as of January 23, 1996, between the
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (2)
2.04 $1.4 Million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauly (2)
2.05 Agreement and Plan of Merger Dated as of January 25, 1996 among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (2)
2.06 Loan and Security Agreement dated as of March 15, 1996 among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as borrowers, and LaSalle National Bank, as the
Lender (2)
2.07 Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement (2)
3.01 Certificate of Incorporation of the Company, including all
amendments thereto (3)
3.02 By-Laws of the Company (3)
3.03 Certificate of Designation of the Series A Non-Voting Convertible
Preferred Stock of the Company (4)
4.01 Specimen Stock Certificate (1)
4.02 Registration Rights Agreement between Strategic Fund and the Company
(1)
4.03 Stock Option Plan (1)
10.01 Distribution Agreement dated as of November 25, 1992 between Joseph
Victori Wines, Inc. and Maryland Beverage, L.P., as amended.(*)(1)
10.02 Letter dated March 21, 1994 from the Company to Ginger Group, Ltd.
(filed as an exhibit to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1993.) (1)
10.03 Distribution Agreement dated April 12, 1991 between Ginger Group,
Ltd. and Castle Food Products Corporation, as amended.(*)(1)
10.04 Non-Compete and Non-Disclosure Agreement dated September 24, 1993
among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric (1)
10.05 Employment Agreement dated September 24, 1993 between the Company
and William E. O'Leary (1)
10.06 Employment Agreement dated September 24, 1993 between the Company
and John F. Izzo (1)
10.07 Warehouse Lease dated August 5, 1988 between Hill Management
Services, Inc. and Maryland Beverage Company, Inc., as amended (1)
10.08 Consulting Agreement dated September 24, 1993 among the Company,
Eric D. Becker and Sterling Group, Inc. (1)
10.08B Consulting Agreement dated March 15, 1996 by and between the
Company, Sterling Advisors, L.P. and Elfman Venture Partners, Inc.
(5)
10.09 Assignment of Consulting Agreement dated December 31, 1993 among the
Company, Sterling Group, Inc. and Sterling Advisors, L.P. (6)
10.10 Form of Tax Indemnification Agreement (1)
-24-
<PAGE>
Exhibit
Number Description
- ------- -----------
10.11 Amendment to Employment Agreement dated September 24, 1993 between
the Company and William E. O'Leary (1)
10.12 Asset Purchase Agreement, dated April 7, 1994, among the Company,
Flying Fruit Fantasy, U.S.A., Inc., Groth Industries, Inc. and
Robert E. Groth and Georgia B. Groth (7)
10.13 Agreement for License, dated as of April 27, 1994, between Groth
Industries, Inc. as the Beverage Company (7)
10.14 Consulting Agreement, dated April 27, 1994, between the Company and
Robert E. Groth (7)
10.15 Stock Purchase Agreement dated as of January 23, 1996, between and
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (2)
10.16 Employment Agreement dated March 15, 1996 between ABEV Acquisition
Corp. and Franklin Roth (2)
10.17 Agreement and Plan of Merger dated as of January 25, 1996, among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (2)
10.18 $1.4 million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauly (2)
10.19 Loan and Security Agreement dated as of March 15, 1996, among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as Borrowers, and LaSalle National Bank, as the
Lender (2)
10.20 Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement (2)
10.21 Employment Agreement between the Company and Alan Sussna (8)
23.01 Consent of Independent Public Accountants (1)
27.01 Financial Data Schedule
99.01 Limited Partnership Agreement of Maryland Beverage L.P. (1)
* Confidential treatment was afforded for certain portions of these
agreements.
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1995.
(2) Filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference.
(3) 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.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 and incorporated herein by reference.
-25-
<PAGE>
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1993.
(7) Filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on July 11, 1994 and incorporated
herein by reference.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. Unless otherwise noted, all other Exhibits have
either been previously filed or incorporated by reference as an exhibit
to the Company's Registration Statement on Form S-1 (No. 33-68522).
(10) 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.
(b) Report on Form 8-K
Atlantic Beverage Company, Inc. Form 8-K filed 05/20/96.
Atlantic Beverage Company, Inc. Form 8-K filed 08/12/96.
Atlantic Beverage Company, Inc. Form 8-KA filed 08/13/96.
Atlantic Beverage Company, Inc. Form 8-K filed 12/31/96.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on March __, 1997.
ATLANTIC BEVERAGE COMPANY, INC.
By: /s/ John Izzo
______________________________________
Principal Accounting Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Eric D. Becker Director March ___, 1997
- -----------------------------
Eric D. Becker
/s/ Anthony Brocato Director March ___, 1997
- -----------------------------
Anthony Brocato
/s/ Merrick Elfman Director March ___, 1997
- -----------------------------
Merrick Elfman
/s/ Bruce Goldman Director March ___, 1997
- -----------------------------
Bruce Goldman
/s/ Rick Inatome Director March ___, 1997
- -----------------------------
Rick Inatome
/s/ G. Cook Jordan, Jr. Director March ___, 1997
- -----------------------------
G. Cook Jordan, Jr.
/s/ John A. Miller Director March ___, 1997
- -----------------------------
John A. Miller
/s/ William O'Leary President Beverage Division and March ___, 1997
- ----------------------------- Director
William O'Leary
/s/ Alan F. Sussna Chief Executive Officer and March ___, 1997
- ----------------------------- Director
Alan F. Sussna
/s/ Steven M. Taslitz Director March ___, 1997
- -----------------------------
Steven M. Taslitz
</TABLE>
-27-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.01 Agreement and Plan of Merger dated as of September 15, 1993 ("Merger
Agreement") among the Company, Strategic Investment Corporation and
T. Rowe Price Strategic Partners Fund, L.P. ("Strategic Fund") (1)
2.02 Form of Amendment to Merger Agreement (1).
2.03 Stock Purchase Agreement dated as of January 23, 1996, between the
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (2)
2.04 $1.4 Million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauly (2)
2.05 Agreement and Plan of Merger Dated as of January 25, 1996 among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (2)
2.06 Loan and Security Agreement dated as of March 15, 1996 among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as borrowers, and LaSalle National Bank, as the
Lender (2)
2.07 Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement (2)
3.01 Certificate of Incorporation of the Company, including all
amendments thereto (3) 3.02 By-Laws of the Company (3)
3.03 Certificate of Designation of the Series A Non-Voting Convertible
Preferred Stock of the Company (4)
4.01 Specimen Stock Certificate (1)
4.02 Registration Rights Agreement between Strategic Fund and the Company
(1)
4.03 Stock Option Plan (1)
10.01 Distribution Agreement dated as of November 25, 1992 between Joseph
Victori Wines, Inc. and Maryland Beverage, L.P., as amended.(*)(1)
10.02 Letter dated March 21, 1994 from the Company to Ginger Group, Ltd.
(filed as an exhibit to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1993.) (1)
10.03 Distribution Agreement dated April 12, 1991 between Ginger Group,
Ltd. and Castle Food Products Corporation, as amended.(*)(1)
10.04 Non-Compete and Non-Disclosure Agreement dated September 24, 1993
among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric (1)
10.05 Employment Agreement dated September 24, 1993 between the Company
and William E. O'Leary (1)
10.06 Employment Agreement dated September 24, 1993 between the Company
and John F. Izzo (1)
10.07 Warehouse Lease dated August 5, 1988 between Hill Management
Services, Inc. and Maryland Beverage Company, Inc., as amended (1)
10.08 Consulting Agreement dated September 24, 1993 among the Company,
Eric D. Becker and Sterling Group, Inc. (1)
10.08B Consulting Agreement dated March 15, 1996 by and between the
Company, Sterling Advisors, L.P. and Elfman Venture Partners, Inc.
(5)
10.09 Assignment of Consulting Agreement dated December 31, 1993 among the
Company, Sterling Group, Inc. and Sterling Advisors, L.P. (6)
10.10 Form of Tax Indemnification Agreement (1)
10.11 Amendment to Employment Agreement dated September 24, 1993 between
the Company and William E. O'Leary (1)
<PAGE>
Exhibit
Number Description
- ------- -----------
10.12 Asset Purchase Agreement, dated April 7, 1994, among the Company,
Flying Fruit Fantasy, U.S.A., Inc., Groth Industries, Inc. and
Robert E. Groth and Georgia B. Groth (7)
10.13 Agreement for License, dated as of April 27, 1994, between Groth
Industries, Inc. as the Beverage Company (7)
10.14 Consulting Agreement, dated April 27, 1994, between the Company and
Robert E. Groth (7)
10.15 Stock Purchase Agreement dated as of January 23, 1996, between and
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (2)
10.16 Employment Agreement dated March 15, 1996 between ABEV Acquisition
Corp. and Franklin Roth (2)
10.17 Agreement and Plan of Merger dated as of January 25, 1996, among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (2)
10.18 $1.4 million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauly (2)
10.19 Loan and Security Agreement dated as of March 15, 1996, among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as Borrowers, and LaSalle National Bank, as the
Lender (2)
10.20 Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement (2)
10.21 Employment Agreement between the Company and Alan Sussna (8)
23.01 Consent of Independent Public Accountants (1)
27.01 Financial Data Schedule
99.01 Limited Partnership Agreement of Maryland Beverage L.P. (1)
* Confidential treatment was afforded for certain portions of these
agreements.
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1995.
(2) Filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference.
(3) 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.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1993.
<PAGE>
(7) Filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on July 11, 1994 and incorporated
herein by reference.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. Unless otherwise noted, all other Exhibits have
either been previously filed or incorporated by reference as an exhibit
to the Company's Registration Statement on Form S-1 (No. 33-68522).
(10) 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,248,963
<SECURITIES> 0
<RECEIVABLES> 10,278,891
<ALLOWANCES> (118,000)
<INVENTORY> 3,629,647
<CURRENT-ASSETS> 15,834,439
<PP&E> 6,133,870
<DEPRECIATION> 1,312,970
<TOTAL-ASSETS> 34,653,091
<CURRENT-LIABILITIES> 20,019,983
<BONDS> 7,778,934
0
0
<COMMON> 68,045
<OTHER-SE> 6,535,729
<TOTAL-LIABILITY-AND-EQUITY> 34,653,091
<SALES> 153,279,993
<TOTAL-REVENUES> 153,279,993
<CGS> 136,151,779
<TOTAL-COSTS> 15,489,951
<OTHER-EXPENSES> (476,384)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,196,888
<INCOME-PRETAX> 917,759
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 895,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895,759
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
