UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 23, 1998
----------------------------
Dakota Growers Pasta Company
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(Exact name of registrant as specified in its charter)
North Dakota 33-99834 45-0423511
- ---------------------------- ------------ ----------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Pasta Avenue, P.O. Box 21, Carrington, North Dakota 58421
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (701) 652-2855
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Not Applicable
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(Former name or former address, if changed since last report.)
<PAGE>
This Current Report on Form 8-K/A1 amends the Current Report on Form 8-K filed
by Dakota Growers Pasta Company on March 10, 1998 to adjust the final purchase
price based on financial review and to add the financial statements of the
business acquired required by Item 7(a) and the pro forma financial
information required by Item 7(b).
Item 2. Acquisition or Disposition of Assets
On February 23, 1998, Dakota Growers Pasta Company (the "Company")
acquired all of the issued and outstanding shares of common stock of Primo
Piatto, Inc. ("Primo"). As disclosed in the Company's 8-K filed on March 10,
1998, the purchase price was subject to the final determination of "Net Debt"
(determined as the amount by which Primo's long-term debt exceeds its Net
Working Capital as of February 22, 1998). The Company has completed its
review of Primo's balance sheet as of February 22, 1998, and adjusted its
acquisition consideration for the shares of Primo to (i) a cash payment of
$11,000,000 and (ii) the issuance of a total of 23,038 shares of the Company's
convertible preferred stock. (Each such share is convertible into ten (10)
shares of the Company's equity stock.) Pursuant to the terms of the Stock
Purchase Agreement, 4,724 of the preferred shares are being held in escrow
pending the final determination of certain receivable, inventory and payable
items. The Company's board of directors approved the final acquisition cost
and authorized the issuance of the shares on May 21, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The required financial statements of the business acquired are set
forth below.
2<PAGE>
PRIMO PIATTO, INC.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997
AND FOR THE PERIOD FROM MAY 29, 1997 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
3<PAGE>
CONTENTS
Page(s)
Report of Independent Accountants 1
Balance Sheet as of September 30, 1997 2
Statement of Operations for the period from May 29, 1997 (date of
inception) to September 30, 1997 3
Statement of Changes in Stockholders' Equity for the period from
May 29, 1997 (date of inception) to September 30, 1997 4
Statement of Cash Flows for the period from May 29, 1997 (date of
inception) to September 30, 1997 5
Notes to Financial Statements 6-11
4<PAGE>
COOPERS & LYBRAND L.L.P.
A Professional Services Firm
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Primo Piatto, Inc.
We have audited the accompanying balance sheets of Primo Piatto, Inc. as of
September 30, 1997, and the related statements of operations, changes in
stockholders' equity and cash flows for the period from May 29, 1997 (date of
inception) to September 30, 1997. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit 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 Primo Piatto, Inc. as of
September 30, 1997, and the results of its operations and its cash flows for
the period from May 29, 1997 (date of inception) to September 30, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
November 21, 1997, except as to the
information presented in Note 8,
for which the date is January 9, 1998
5<PAGE>
PRIMO PIATTO, INC.
BALANCE SHEET
as of September 30, 1997
ASSETS
Current assets:
Cash $ 1,697,662
Accounts receivable, net 4,785,464
Inventories 2,388,473
Prepaid expenses and other 121,800
Deferred tax asset 28,000
-----------
Total current assets 9,021,399
Property, plant and equipment, net 10,964,210
Deferred financing cost, net 54,345
-----------
Total assets $ 20,039,954
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,876,953
Accounts payable 3,445,435
Accrued expenses 664,558
-----------
Total current liabilities 7,986,946
Long-term debt 11,595,047
Deferred tax liability 48,000
-----------
Total liabilities 19,629,993
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 3,000,000 shares authorized,
None issued
Common stock, no par value, 12,000,000 shares authorized,
4,150,000 shares issued and outstanding 223,601
Retained earnings 186,360
-----------
Total stockholders' equity 409,961
-----------
Total liabilities and stockholders' equity $ 20,039,954
===========
The accompanying notes are an integral part of the financial statements.
6<PAGE>
PRIMO PIATTO, INC.
STATEMENT OF OPERATIONS
For the Period from May 29, 1997 (date of inception) to September 30, 1997
Net sales $ 5,914,571
Cost of sales 4,915,008
-----------
Gross profit 999,563
Selling, general and administrative 555,130
-----------
Operating income 444,433
Other expense:
Interest expense 133,047
Other 2,026
-----------
Total other expense 135,073
-----------
Income before income taxes 309,360
-----------
Income taxes:
Currently payable 103,000
Deferred 20,000
-----------
123,000
-----------
Net income $ 186,360
===========
The accompanying notes are an integral part of the financial statements.
7<PAGE>
PRIMO PIATTO, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 29, 1997 (date of inception) to September 30, 1997
Common Stock
--------------------- Retained
Shares Amount Earnings Total
---------- ---------- ---------- ----------
Balance, May 29, 1997 - $ - $ - $ -
Net cash proceeds from issuance
of common stock 4,000,000 222,851 222,851
Shares issued upon the exercise
of stock options 150,000 750 750
Net income 186,360 186,360
---------- ---------- ---------- ----------
Balance, September 30, 1997 4,150,000 $ 223,601 $ 186,360 $ 409,961
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
8<PAGE>
PRIMO PIATTO, INC.
STATEMENTS OF CASH FLOWS
For the Period from May 29, 1997 (date of inception) to September 30, 1997
Cash flows from operating activities:
Net income $ 186,360
Adjustments to reconcile net income to net cash provided
By operating activities:
Depreciation expense 76,702
Amortization expense 655
Provision for losses on accounts receivable 24,215
Deferred income taxes 20,000
Changes in operating assets and liabilities:
Accounts receivable ( 4,809,679)
Inventories ( 2,388,473)
Prepaid expenses and other ( 121,800)
Accounts payable 3,445,435
Accrued expenses 519,178
----------
Total adjustments ( 3,233,767)
----------
Net cash used in operating activities ( 3,047,407)
----------
Cash flows from investing activities:
Purchases of equipment ( 296,032)
Acquisition of manufacturing facilities (10,599,500)
----------
Net cash used in investing activities (10,895,532)
----------
Cash flows from financing activities:
Proceeds from issuance of stock 223,601
Proceeds from issuance of long-term debt 15,472,000
Deferred financing cost ( 55,000)
----------
Net cash provided by financing activities 15,640,601
----------
Net increase in cash 1,697,662
Cash at beginning of period -
----------
Cash at end of period $ 1,697,662
==========
The accompanying notes are an integral part of the financial statements.
9<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business Description:
Primo Piatto, Inc. (the Company), a Minnesota corporation incorporated on May
29, 1997, manufactures private-label, food-service and industrial pasta
products to customers throughout the Midwest. The Company began its operation
activities on August 18, 1997, at which time closed a purchase agreement for
manufacturing facilities from Borden Foods corporation (Borden)(see Note 3).
Operating activities prior to August 18, 1997, were insignificant.
Cash:
The cash balances are primarily with two banks. Substantially all of the
Company's cash receipts in its lockbox are restricted for payments toward the
revolving line of credit.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Repairs and maintenance
costs which do not significantly extend the lives of the respective assets are
charged to operations as incurred. Depreciation and amortization are computed
using the straight-line method over the estimated useful asset lives. Cost
and related accumulated depreciation of property and equipment retired or
otherwise disposed of are removed from the asset accounts with the resulting
gain or loss included in operations.
Inventories:
Inventories are stated at the lower of cost or market with cost determined
utilizing standard cost which approximates the first-in, first-out basis.
Intangible Assets:
Deferred loan costs included on the balance sheet are being amortized over
five years using the straight-line method, which approximates the interest
method.
Income Taxes:
Deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Use of Estimates:
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
10<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. OTHER FINANCIAL STATEMENT DATA:
The following provides additional information concerning selected balance
sheet accounts at September 30, 1997:
Accounts receivable, net
Trade $ 4,809,679
Less provision for losses ( 24,215)
-----------
$ 4,785,464
===========
Concentrations of credit risk with respect to trade receivables result from
the Company's customer base consisting primarily of one major customer, which
is located in the midwest. This customer accounted for 55% of revenues during
the period from May 29, 1997 (date of inception) to September 30, 1997, and
69% of accounts receivable at September 30, 1997.
Inventories:
Raw material and packaging material $ 1,482,321
Work in process 82,361
Finished goods 823,791
-----------
$ 2,388,473
===========
On August 18, 1997, the Company entered into a subordinated note agreement
(see Note 4) in exchange for raw material (durum wheat and durum flour) from a
vendor. The inventory is being stored by the vendor and delivered to the
Company as needed through December 1997. As part of the contract agreement,
the Company is required to purchase all durum wheat and flour from this vendor
until the subordinated note is paid off or other events occur, as defined in
the contract. As of September 30, 1997, there was $943,536 in inventory
remaining at this vendor included in raw material on the Company's balance
sheet.
Property, plant and equipment, net:
Land and building $ 2,709,337
Machinery and equipment 8,331,575
-----------
11,040,912
Less accumulated depreciation ( 76,702)
-----------
$ 10,964,210
===========
Deferred financing cost, net:
Deferred financing cost $ 55,000
Less amortization ( 655)
-----------
$ 54,345
===========
11<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. OTHER FINANCIAL STATEMENT DATA, continued:
Accrued expenses:
Payroll and payroll taxes $ 174,814
Real estate taxes 197,175
Interest 137,798
Income taxes 103,000
Other 51,771
-----------
$ 664,558
===========
3. ACQUISITION
On August 18, 1997, pursuant to an Assets Purchase agreement and Amendment
thereto (Agreement), the Company acquired certain manufacturing facilities of
Borden. The purchase price was $10,450,000 plus $149,500 in related
acquisition costs and the assumption of real estate taxes totaling $145,380.
The cost of the acquisition was allocated entirely to property, plant and
equipment in accordance with the purchase method of accounting. No other
assets were purchased.
In addition, the Company entered into a contract packaging agreement with
borden to manufacture 20,000,000 pounds of pasta through December 1997, with
the option to extend the agreement for additional pounds through June 1998.
Subsequent to year end, the Company has fulfilled its commitment to Borden and
has extended the agreement for another 20,000,000 pounds.
4. FINANCING ARRANGEMENTS:
At September 30, 1997, the Company's debt included the following:
Term note payable to the lender bank, interest at prime plus
.75%, principal monthly payments of $100,857 plus interest
payable monthly starting in October 1997, with a final principal
payment due August 2004, collateralized by all assets of the
Company, personally guaranteed by certain stockholders of the
Company $ 8,472,000
Term note payable to the lender bank, interest at prime plus
.75%, principal monthly payments of $222,222 plus interest
payable monthly starting in October 1997, with a final principal
payment due March 1999, collateralized by all assets of the
Company, personally guaranteed by certain stockholders of the
Company 4,000,000
Subordinated debt to vendor, interest at prime plus .75%, monthly
Interest payments from November 1997 until November 2000 and
monthly principal and interest payments of $95,748 thereafter
through September 2001, with a balloon payment of $2,169,627 in
October 2001, subordinated to the revolving line of credit and
term notes payable to bank 3,000,000
----------
15,472,000
Less current portion ( 3,876,953)
----------
$ 11,595,047
==========
12<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENT, Continued
4. FINANCING ARRANGEMENT, continued:
The Company has a revolving line of credit agreement with the lender bank
whereby it may borrow a maximum of $6,000,000, limited to 85% of eligible
accounts receivable, as defined, and the lesser of $3,000,000 or the amount of
eligible inventories, as defined. Borrowings under the line of credit bear
interest at prime plus .75% (prime was 8.5% at September 30, 1997). Borrowings
under the line of credit are collateralized by all assets of the Company and
are personally guaranteed by certain stockholders of the Company. The Company
is required to pay a commitment fee of 1/4 of 1% per annum on the unused
portion of the line of credit.
The various term, revolving, and subordinated debt finance agreements contain
covenants including the requirement that the Company maintain tangible net
worth of $3,200,000 through December 31, 1997; cash flow coverage and debt to
tangible net worth ratios as defined in the agreements. In addition, the
agreements place limitations on debt, liens, consolidation and mergers,
stockholder distributions and dividends, and capital expenditures.
The maturities of debt as of September 30, 1997, are as follows:
1998 $ 3,876,953
1999 2,543,620
2000 1,210,284
2001 2,040,657
2002 3,379,911
Thereafter 2,420,575
-----------
$ 15,472,000
===========
5. INCOME TAXES:
The components of the company's net deferred tax (liability) asset at
September 30, 1997 were as follows:
Provision for losses on accounts receivable $ 9,000
Inventories 10,000
Accelerated depreciation ( 48,000)
Accrued liabilities not yet deductible 9,000
-----------
Net deferred tax liability $( 20,000)
===========
The effective tax rate on pretax income differs from the federal statutory
rate primarily due to state income taxes.
6. STOCKHOLDERS' EQUITY
Preferred Stock:
The rights, preferences and privileges of the authorized shares may be
established by the Board of Directors without further action by the holders of
the Company's common stock. As of September 30, 1997, no preferred stock
shares had been issued, nor have any associated rights, preferences or
privileges been established.
13<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Guarantor Incentive Stock Option Plan:
On August 12, 1997, the Board of directors approved a stock option program to
grant stock options to certain stockholders who personally guarnateed the
Company's outstanding debt. A total of 150,000 shares of common stock were
available for purchase under this program. On the same date 150,000 stock
options were granted with an exercise price of $.005 per share. As of
September 30, 1997, all of these options were exercised.
Option activity is summarized below:
Weighted
Options Average Exercise
Outstanding Price Per Share
Balance, May 29, 1997 (date of inception) - -
Granted 150,000 $.005
Exercised (150,000) $.005
---------
Balance, September 30, 1997 -
=========
There were no options outstanding or exercisable at September 30, 1997.
1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN:
On September 5, 1997, the Board of Directors approved the 1997 Employee
Incentive Stock Option Plan, which allows certain employees of the Company to
receive incentive stock options to purchase shares of the Company's common
stock. A total of 400,000 shares of the Company's no par value common stock
were reserved for issuance under the Plan. Each option is granted at fair
market value as determined by the Board of Directors on the date of grant, is
immediately vested, and is exercisable for a period of seven years commencing
on the date of grant. Subsequent to September 30, 1997, 347,650 options were
granted at an exercise price of $4.62. None of the options have been
exercised.
ACCOUNTING FOR STOCK BASED COMPENSATION:
The Company measures compensation cost for its stock option plans using the
intrinsic value based method of accounting.
Had the Company used the fair value-based method of accounting for its
Guarantor Incentive Stock Option Plan for options granted in the period from
May 29, 1997 (date of inception) to September 30, 1997, and charged
compensation cost against income, over the vesting period, based on the fair
value of options at the date of grant, it would not have had a material effect
on the Company's net income for the period from May 29, 1997 (date of
inception) to September 30, 1997.
Risk-free interest rates 5.66%
Expected life 2 months
Expected dividends None
14<PAGE>
PRIMO PIATTO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
7. EMPLOYEE BENEFIT PLANS:
Hourly Pension Plan:
The Company will be required to contribute to a multiemployer pension plan
covering certain hourly employees subject to a collective bargaining
agreement. The plan will not be administered by the Company and contributions
will be determined in accordance with provisions of a negotiated labor
contract. The Company contributed $10,980 for the period from May 29, 1997
(date of inception) to September 30, 1997.
Defined Contribution Plan:
All employees who were previously employed by Borden and new employees hired
by the Company who are at least 21 years of age and have completed six months
of service will be eligible to participate in the Company's 401(k) Retirement
Savings Plan, which was established on August 18, 1997. The Plan provides for
discretionary contributions matching a certain portion of participants'
contributions under IRS Section 401(k) employees at the discretion of the
Board of Directors. There were no contributions as of September 30, 1997.
8. SUBSEQUENT EVENT:
On January 9, 1998, the Company and Dakota Growers Pasta Company (DGPC) signed
a letter of intent for DGPC to acquire 100% of the Company's outstanding
capital stock for $11,000,000 in cash and 30,000 shares of DGPC's convertible
preferred stock. The transaction is subject to the signing of a definitive
purchase agreement and the completion of due diligence investigation, and is
scheduled to close in mid-February 1998.
15<PAGE>
(b) Pro Forma Financial Information
The required pro forma financial information is set forth below.
16<PAGE>
DAKOTA GROWERS PASTA COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET - UNAUDITED
JANUARY 31, 1998
(in thousands)
Dakota Primo Pro Forma Pro Forma
Growers Piatto Adjustments Combined
ASSETS:
Current Assets:
Cash and cash equivalents $ 5 $ 2,989 $ $ 2,994
Accounts receivable 9,843 3,773 ( 942) b 12,674
Inventories 15,370 2,772 18,142
Prepaid expenses and other 2,734 267 3,001
Deferred tax asset - 34 ( 34) c -
------- ------- ------- -------
27,952 9,835 ( 976) 36,811
Property, plant and
equipment, net 50,585 10,500 12,321 a 73,406
Other assets 2,956 - 2,956
------- ------- ------- -------
Total assets $ 81,493 $ 20,335 $ 11,345 $113,173
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable and current
portion of long-term debt $ 8,295 $ 3,877 $ 123 a $ 12,295
Accounts payable 9,159 3,728 ( 942) b 11,945
Accrued expenses 1,218 1,679 2,897
------- ------- ------- -------
18,672 9,284 ( 819) 27,137
Long-term debt 30,878 9,980 10,877 a 51,735
Deferred tax liability - 88 ( 88) c -
------- ------- ------- -------
Total liabilities 49,550 19,352 9,970 78,872
------- ------- ------- -------
Redeemable preferred stock 353 - 2,304 a 2,657
------- ------- ------- -------
Stockholders' Equity:
Membership stock 136 - 136
Equity stock 18,391 - 18,391
Common stock - 224 ( 224) a -
Additional paid in capital 4,100 - 4,100
Retained earnings 8,963 759 ( 759) a 9,017
54 c
------- ------- ------- -------
Total stockholders' equity 31,590 983 ( 929) 31,644
------- ------- ------- -------
Total liabilities and
stockholders' equity $ 81,493 $ 20,335 $ 11,345 $113,173
======= ======= ======= =======
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
17<PAGE>
DAKOTA GROWERS PASTA COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS - UNAUDITED
FOR THE SIX MONTHS ENDED JANUARY 31, 1998
(in thousands, except per share amounts)
Dakota Primo Pro Forma Pro Forma
Growers Piatto Adjustments Combined
Sales, net $ 50,114 $ 19,118 $( 1,864) d $ 67,368
Cost of sales 41,120 15,190 411 e 54,857
( 1,864) d
------- ------- ------- -------
Gross proceeds 8,994 3,928 ( 411) 12,511
Marketing, general and
administrative 1,462 1,609 3,071
------- ------- ------- -------
Operating proceeds 7,532 2,319 ( 411) 9,440
------- ------- ------- -------
Other income (expense):
Interest and other income 52 69 121
Debt restructuring expense - ( 518) 518 f -
Interest expense ( 1,197) ( 558) ( 440)g ( 2,091)
104 h
------- ------- ------- -------
( 1,145) ( 1,007) 182 ( 1,970)
------- ------- ------- -------
Income before income taxes 6,387 1,312 229 7,928
------- ------- ------- -------
Income tax expense:
Current - 450 ( 450)i -
Deferred - 54 ( 54)i -
------- ------- ------- -------
- 504 ( 504) -
------- ------- ------- -------
Net income 6,387 808 733 7,928
Preferred dividends 8 - 69 j 77
------- ------- ------- -------
Net earnings $ 6,379 $ 808 $ 664 $ 8,005
======= ======= ======= =======
Average equity shares
outstanding 7,356 7,356
Basic earnings per share $ .87 $ 1.09
Fully diluted earnings per
Share $ .86 $ 1.06
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
18<PAGE>
DAKOTA GROWERS PASTA COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING
On February 23, 1998, Dakota Growers Pasta Company (the Company) completed the
acquisition of all of the issued and outstanding shares of common stock of
Primo Piatto, Inc. ("Primo").
The pro forma unaudited combined balance sheet gives effect to the acquisition
as if the transaction had taken place on August 1, 1997, and combines Dakota
Growers' unaudited January 31, 1998, balance sheet amounts with Primo's
unaudited February 22, 1998, balance sheet amounts. It assumes the issuance
of 23,038 shares of the Company's convertible preferred stock without regard
to the future disposition of shares held in escrow.
The pro forma unaudited combined statement of operations is presented using
Dakota Growers' unaudited statement of operations for the six months ended
January 31, 1998, combined with Primo's unaudited statement of operations for
the period from May 29, 1997 (date of inception) through February 22, 1998, as
if the transaction had taken place August 1, 1997. Such period for Primo
contains six months of operations (August 18, 1997 through February 22, 1998).
The pro forma unaudited combined statement of operations is not necessarily
indicative of the future results of operations of Dakota Growers or the
results of operations which would have resulted had Dakota Growers and Primo
been combined during the period presented. In addition, the pro forma results
are not intended to be a projection of future results. Such results are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from future results expressed or implied by such
pro forma statements.
2. PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
The accompanying pro forma statements reflect adjustments for the following
items:
(a) Acquisition cost for Primo, including (i) $11,000,000 cash payment funded
by additional debt issued and (ii) 23,038 shares of convertible preferred
stock issued. The acquisition has been recorded as a purchase, with the total
acquisition cost allocated to assets and liabilities based on fair value.
(b) Elimination of Dakota Growers payable to Primo for pasta purchases, and
receivable from Primo for semolina sales.
(c) Eliminate deferred tax assets and liabilities as unrealizable. Because
Dakota Growers' business is conducted on a cooperative basis, it is a non-
exempt cooperative as defined by Section 1381 (a)(2) of the Internal Revenue
Code. Accordingly, net margins from business transacted with member patrons
which are allocated, qualified and paid as prescribed in Section 1382 of the
code will be taxable to the members and not to the Company. This adjustment
assumes such future treatment of business transactions.
(d) Elimination of Dakota Growers' pasta purchases from Primo and semolina
sales to Primo.
(e) Additional depreciation reflecting acquisition cost of long-term assets.
(f) Elimination of non-recurring debt restructuring expense associated with
the acquisition. Primo's loan covenants required the retirement of its debt
upon acquisition.
(g) Interest expense on the $11,000,000 debt issued to fund the cash payment.
19<PAGE>
DAKOTA GROWERS PASTA COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(h) Reduction in interest expense upon restructuring for difference in
interest rates.
(i) Elimination of tax expense for cooperative tax treatment.
(j) Preferred dividends on convertible preferred stock issued.
(c) Exhibits
Exhibit Number Description
-------------- -----------
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dakota Growers Pasta Company
Date: May 26, 1998 /s/ Timothy J. Dodd
---------------- ----------------------------------
Timothy J. Dodd (President and
General Manager, and Principal
Executive Officer)
Date: May 26, 1998 /s/ Thomas P. Friezen
---------------- ----------------------------------
Thomas P. Friezen (Vice President,
Finance and Principal Financial
and Accounting Officer)
20<PAGE>
