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MANAGEMENT DISCUSSION & ANALYSIS
OVERVIEW
By the fiscal year end, construction of Big Rock's new
brewery is well advanced. Over the course of the year, the
Company restructured administration, information systems,
internal reporting and controls. Since year end, the Company
has increased its distribution system in Canada to a total
of five provinces, including Ontario, and in the U.S., to
twenty-one (21) states. With cans, the Company plans to
export to more distant markets.
Gross Revenue
Revenues for the year were flat. Our Canadian markets
grew, while export sales to the U.S. decreased by over 30%.
The export system in the U.S. was changed from several
importers to a single importer with established national
distribution capabilities. The new importer is currently
establishing new distribution arrangements for Big Rock and
obtaining additional state approvals.
In December of 1995, Big Rock followed an industry-wide
Alberta price increase, which has improved margins and gross
revenues starting in the fourth quarter.
Government Commissions and Taxes
The higher excise tax paid during the fiscal year
reflects a higher proportion of Canadian sales over U.S.
sales, compared with previous years.In Alberta, the
government decreased the provincial mark-up by approximately
3%. While not a substantial amount, it is the first time
provincial taxes have been reduced for many years and we
believe it marks a significant political change.
Cost of Sales
During the year, cost of sales as a percentage of gross
sales increased to 31.04% from 27.67% (and as a percentage
of net sales increased to 49.80% from 44.30%). This increase
relates mainly to the rising cost of glass, paper products
and raw materials.Due to flat sales in the 1996 fiscal year,
the Company was unable to offset cost increases in materials
with the efficiencies of increased production.
Selling, General and Administrative
Selling and administrative costs were $3.9 million for
both 1996 and 1995 fiscal years, maintaining the percentage
of net sales at 29% for both years.
Pursuant to new freight on board (FOB) distribution
agreements, Big Rock no longer pays commissions to
provincial distributors or U.S. importers. The cost savings
experienced from this change were offset by increased
salaries and a bad debt expense related to the amount unpaid
by diverse U.S. importers.
In preparation for growth, the Company has restructured
staffing and several staff were hired for selling and
administrative responsibilities.
Interest expense increased by $65,000, which is a direct
result of the loans relating to the new brewery and the
equipment purchased in fiscal 1995. Other selling expenses
have remained consistent with prior years.
Capital Expenditures
As at March 31, 1996, total expenditures relating to the
new brewery were $10.5 million. Other expenditures result
from the purchase of new computers, office equipment, kegs
and production equipment for the existing brewery.
Bank Financing
During the year the Company entered into a financing
agreement with the Royal Bank of Canada. The agreement was
to finance the new brewery with a term loan of $15 million
and a revolving line of $1.5 million. As at March 31, 1996,
the bank debt outstanding for the new brewery was $8.7
million. The interest rate for the operating line is a
floating prime rate plus a margin which relates to an
interest debt coverage ratio (as at March 31, 1996 the
margin was nil). The company entered into market swaps for
the term loan which will keep the effective rate at
approximately 7.5% over 5 years. Proceeds from the sale of
the existing brewery buildings are expected to be
approximately $2.5 million, all of which will be applied to
reduce the credit facility.The Company has a revolving
operating line to a maximum of $1 million. This operating
line is maintained for operating activities.Big Rock also
has $952,000 outstanding from an existing term loan for new
equipment purchased in fiscal 1995.
This Annual Report
Financial
Highlights | Report to
Shareholders
Management Discussion
and Analysis | Auditors'
Report
Financial
Statements and Notes |
Corporate
Information

Big Rock Brewery
5555 76th Ave S.E., Calgary, Alberta,
Canada, Phone: 403-720-3239, Fax: 403-236-7523
ale@bigrockbeer.com
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