Date: Thu, 18 Dec 1997 06:30:51 GMT Server: Stronghold/2.0.1 Apache/1.2.0 Connection: close Content-Type: text/html BIG ROCK BREWERY:MANAGEMENT DISCUSSION & ANALYSIS

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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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