<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER _________
DELTA BEVERAGE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2048317
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2221 DEMOCRAT ROAD, MEMPHIS, TENNESSEE 38132
(Address of Principal Executive Offices, including Zip Code)
(901) 344-7100
(Registrant's Telephone Number, including Area Code)
As of November 15, 1999, the issuer had outstanding: (i) 6,440.17 shares of
Series AA Preferred Stock, $5,000 stated value; (ii) 20,301.87 shares of voting
Common Stock, $0.01 par value; and (iii) 32,949.93 shares of nonvoting Common
Stock, $0.01 par value.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I
ITEM 1. FINANCIAL STATEMENTS ..................................................................... 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................................................... 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................... 14
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................................................... 15
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,693 $ 3,818
Receivables, net of allowance for doubtful
accounts of $1,139 and $597
Trade 27,192 24,201
Marketing and advertising 10,075 7,407
Other 2,770 2,715
Inventories, at cost 19,663 16,149
Shells, tanks and pallets 6,204 6,378
Prepaid expenses and other 4,084 1,783
Deferred income taxes 4,710 4,186
--------- ---------
Total current assets 79,391 66,637
--------- ---------
PROPERTY AND EQUIPMENT:
Land 4,662 4,662
Buildings and improvements 19,730 18,732
Machinery and equipment 102,548 94,621
--------- ---------
126,940 118,015
Less accumulated depreciation (62,216) (56,476)
--------- ---------
64,724 61,539
--------- ---------
OTHER ASSETS:
Cost of franchises in excess of net assets
acquired, net of accumulated amortization
of $57,035 and $54,300 106,257 108,992
Deferred income taxes 19,935 21,071
Deferred financing costs and other 25,699 13,413
--------- ---------
151,891 143,476
--------- ---------
$ 296,006 $ 271,652
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 152 $ 240
Accounts payable 17,191 14,038
Accrued liabilities 25,143 16,274
--------- ---------
Total current liabilities 42,486 30,552
--------- ---------
LONG-TERM DEBT AND OTHER LIABILITIES 193,472 180,490
MINORITY INTEREST 3,453 3,600
SHAREHOLDER'S EQUITY:
Preferred stock:
Series AA, $5,000 stated value, 30,000 shares
authorized, 6,440.17 and 6,158.84 shares
issued and outstanding 32,201 30,794
Common stock:
Voting, $.01 par value, 60,000 shares authorized,
20,301.87 shares issued and outstanding --- ---
Nonvoting, $.01 par value, 35,000 shares authorized,
32,949.93 shares issued and outstanding --- ---
Additional paid-in capital 115,765 115,765
Accumulated deficit (91,371) (89,547)
Deferred compensation --- (2)
--------- ---------
56,595 57,010
--------- ---------
$ 296,006 $ 271,652
--------- ---------
--------- ---------
The accompanying notes are an integral part of these balance sheets.
</TABLE>
3
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ------------------------
1999 1998 1999 1998
-------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net sales $ 97,466 $ 94,129 $ 275,208 $ 265,907
Cost of sales 66,786 65,300 188,765 184,559
--------- --------- --------- ---------
Gross profit 30,680 28,829 86,443 81,348
Selling, general and administrative expenses 24,077 21,751 68,672 65,119
Amortization of franchise costs and other intangibles 912 912 2,736 2,736
--------- --------- --------- ---------
Operating income 5,691 6,166 15,035 13,493
--------- --------- --------- ---------
OTHER EXPENSES:
Interest 4,844 4,715 14,462 14,073
Other, net 47 69 121 126
--------- --------- --------- ---------
4,891 4,784 14,583 14,199
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 800 1,382 452 (706)
Income tax provision (1,161) (1,309) (1,032) (45)
Minority interest, net of taxes 92 2 163 216
--------- --------- --------- ---------
NET INCOME (LOSS) $ (269) $ 75 $ (417) $ (535)
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (417) $ (535)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 11,393 10,130
Non-cash interest on long-term debt 4,741 4,348
Change in deferred income taxes 612 (229)
Minority interest, before taxes (147) (219)
Net expense under deferred compensation plans --- 482
Changes in current assets and liabilities:
Receivables (75) (3,964)
Inventories (3,514) (22)
Shells, tanks and pallets 174 (173)
Prepaid expenses and other (3,613) (1,524)
Accounts payable and accrued liabilities 8,565 6,366
-------- --------
Net cash provided by operating activities 17,719 14,660
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,087) (12,850)
Payments for exclusive beverage pouring rights and other (5,374) (4,527)
Proceeds from sales of property and equipment 90 196
Other (49) (6)
-------- --------
Net cash used in investing activities (15,420) (17,187)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 17,300 12,000
Payments on revolving line of credit (18,500) (8,500)
Principal payments on long-term debt and other liabilities (224) (202)
Cash distribution to minority interest holder --- (608)
-------- --------
Net cash (used in) provided by financing activities (1,424) 2,690
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 875 163
CASH AND CASH EQUIVALENTS, beginning of period 3,818 4,680
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 4,693 $ 4,843
-------- --------
-------- --------
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Unaudited
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Delta
Beverage Group, Inc. (a Delaware corporation) and subsidiary (collectively,
the "Company" or "Delta") have been prepared in accordance with generally
accepted accounting principles for interim financial information and, in the
opinion of management, include all adjustments (consisting of normal and
recurring adjustments) which are considered necessary for a fair presentation
of financial position, results of operations and cash flows as of September
30, 1999, and for all interim periods presented. These condensed interim
financial statements do not include all of the financial information and
disclosures required by generally accepted accounting principles for complete
financial statements, and should be read in conjunction with the Company's
audited consolidated financial statements and related notes thereto for the
year ended December 31, 1998. Also, the results of operations for the interim
periods presented may not be indicative of the results for the entire year.
2. COMBINATION OF INTERESTS:
On June 28, 1999, the shareholders of Delta and Dakota Beverage Company, Inc.
("Dakota") entered into share exchange agreements with a related party
entity, Pepsi-Cola Puerto Rico Bottling Company ("PPR"). On October 1, 1999,
PPR's shareholders approved the issuance of shares as outlined in the
exchange agreements, as well as an amendment to PPR's certificate of
incorporation changing PPR's name to PepsiAmericas, Inc ("PAS"). On October
15, 1999, PAS issued shares of its Class B Common Stock in connection with
the acquisitions of Delta and Dakota pursuant to the exchange agreements,
including 18,310,006 shares to the common shareholders of Delta. Prior to the
issuance of PAS stock to the Delta and Dakota shareholders, PAS, Delta and
Dakota shared common ownership and were under the common control of Pohlad
Companies. Pohlad Companies continues to be a controlling shareholder of PAS.
The combination will be accounted for as a merger of entities under common
control.
3. PREFERRED STOCK:
Authorized preferred stock consists of 30,000 designated Series AA preferred
shares. Series AA preferred shareholders receive cumulative dividends at an
annual rate of 6% based on the $5,000 stated value per share. Dividends are
paid quarterly in cash or in additional shares of Series AA preferred stock.
During the nine months ended September 30, 1999, the Company issued
additional preferred shares as payment-in-kind dividends on preferred stock
of approximately $1.4 million. The additional preferred shares are included
in shareholders' equity as of September 30, 1999.
4. LONG-TERM DEBT AND OTHER LIABILITIES:
The Company maintains subordinated notes payable due in December 2003.
Interest on the subordinated notes is due semi-annually on April 1 and
October 1, and may be paid in cash or, at the option of the Company, by the
issuance of additional subordinated notes ("PIK Notes"). The PIK Notes bear
interest at 11% or 15% depending upon whether the terms of the note agreement
would have permitted the Company to pay any portion of the interest in cash.
During the nine months ended September 30, 1999, the Company issued
additional subordinated notes of approximately $2.7 million. These additional
notes bear interest at 11% and are included in long-term debt and other
liabilities in the accompanying September 30, 1999 consolidated balance sheet.
6
<PAGE>
The Company maintains a $30.0 million bank revolving line of credit which
matures on December 16, 2001. The line of credit includes a swing line
facility of up to $2.5 million. Swing line loans bear interest at either the
base rate (defined below) or an otherwise mutually agreed upon rate of
interest. Interest on remaining amounts outstanding under the line of credit
bear interest, at the Company's option, at LIBOR or a defined margin over the
higher of (1) the bank's prime rate or (2) the federal funds rate plus 0.5%
(the "base rate"). Borrowings are limited to the sum of approximately 80% of
the Company's eligible receivables and approximately 50% of the Company's
eligible inventory. The line of credit also includes a $10.0 million limit
for the issuance of letters of credit. Borrowings under the line are secured
by the Company's accounts receivable and inventory. Borrowings outstanding
under the line of credit approximated $4.4 million as of September 30, 1999,
including $2.5 million under the swing line facility.
In October 1999, subsequent to the share exchange transaction described in
Note 2, PAS entered into a new credit facility on behalf of the combined
group. Delta's subordinated notes, including PIK notes, and its borrowings
under the revolving line of credit were refinanced and retired by the new
credit facility.
5. INVENTORIES:
Inventories included the following (in thousands):
<TABLE>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- --------------
<S> <C> <C>
Raw materials $ 4,830 $ 3,116
Finished goods 14,833 13,033
-------------- --------------
$ 19,663 $ 16,149
-------------- --------------
-------------- --------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS DESCRIBES CERTAIN FACTORS AFFECTING THE
RESULTS OF OPERATIONS OF DELTA BEVERAGE GROUP, INC. (THE "COMPANY" OR
"DELTA") FOR THE FISCAL QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
ITS FINANCIAL CONDITION AS OF SEPTEMBER 30, 1999. THIS DISCUSSION AND
ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
CERTAIN OF THE NON-HISTORICAL STATEMENTS IN THE FOLLOWING DISCUSSION
CONSTITUTE FORWARD-LOOKING STATEMENTS WHICH ARE MADE PURSUANT TO THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
VARIOUS FACTORS MAY CAUSE ACTUAL RESULTS OF OPERATIONS AND FINANCIAL
CONDITION TO VARY SIGNIFICANTLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENT MADE HEREIN OR IN OTHER REPRESENTATIONS MADE BY THE COMPANY'S
MANAGEMENT OR BY OTHERS ON BEHALF OF THE COMPANY. PLEASE REFER TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998 FOR A DESCRIPTION OF THE FACTORS KNOWN TO THE COMPANY THAT MAY CAUSE
ACTUAL RESULTS TO VARY.
GENERAL BUSINESS OVERVIEW
Delta Beverage Group, Inc., a Delaware corporation, has accomplished a number
of business combinations over the last ten years, the most significant of
which have been (i) combining in 1992 its PepsiCo based sales operation in
southern Louisiana with a Seven-UP based sales operation in the same
territory through a joint venture in which the Company is majority owner and
managing venturer and (ii) acquiring in April 1995 the distribution rights
for Miller products in a significant portion of the joint venture territory.
During the third quarter of 1999, the Company announced the entry by its
shareholders into an exchange agreement which would result in the combination
of Delta with two Pepsi-Cola bottlers, PepsiAmericas, Inc. (formerly
Pepsi-Cola Puerto Rico Bottling Company) ("PAS") and Dakota Beverage Company,
Inc. The three companies generated combined revenues in 1998 of approximately
$530 million. Such transactions were consummated during the fourth quarter of
1999 with PAS remaining as the surviving company. PepsiCo, Inc. (NYSE: PEP)
holds a 24% equity interest in the combined company. The combined company is
PepsiCo's third largest anchor bottler. The Company has described this
transaction in detail in its current reports on Form 8-K.
The Company's primary measurement of unit volume is franchise case sales,
which are case-sized quantities of the various packages in which products are
produced. Franchise case sales refers to physical cases of beverages sold.
The Company also sells premix or draft products (ready-to-serve beverages
which are sold in tanks or kegs) and postmix products (fountain syrups to
which carbonated water must be added). Premix and postmix products, while
effectively containing the identical beverages as packaged product, are not
included in case sales measurements as they are not the primary focus of the
Company's selling efforts.
The Company's primary source of revenue is franchise case sales, which are
sales of the Company's branded products directly to retailers whether of
package, premix or postmix configuration. Another source of revenue is
contract sales, which are sales, primarily of products in cans, to
unaffiliated companies that hold soft drink franchises. Contract sales, which
historically represent approximately 10.0% of total net sales, may fluctuate
from year to year, and are made at relatively low prices and gross profit
margins due to the competition for such sales. Contract sales are not a
primary focus of management in determining the Company's business strategy.
As a result, management believes that changes in franchise case sales more
accurately measure growth than changes in total net sales.
8
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Net sales, excluding contract sales, for the three months ended September 30,
1999 increased by 3.9% to $86.0 million compared to $82.8 million for the
same period in 1998. The increase was due to a 5.3% increase in franchise
case sales volume, primarily of the Company's take-home packages of soft
drinks, offset by a decrease in average net sales pricing per franchise case
of approximately 4.3%. The decrease in average net selling price was due to
an increase in the proportion of take-home packages as compared to total
volume and an increase in support given to retailers featuring those
packages. However, the average selling price of single serve packages of soft
drinks increased as the result of continued expanded placement of marketing
equipment. Contract net sales for the three months ended September 30, 1999
increased 2.3%, as compared to the same period in 1998. Contract net sales
represented 11.6% of net sales for the three months ended September 30, 1999,
compared to 11.8% of net sales for the same period in 1998. As a result of
the foregoing, aggregate net sales for the three months ended September 30,
1999 increased 3.6% to $97.5 million compared to $94.1 million for the same
period in 1998.
Cost of sales for the three months ended September 30, 1999 increased to
$66.8 million compared to $65.3 million for the same period in 1998. The rate
of increase was less than the rate of increase in franchise case sales. As a
percentage of net sales, cost of sales for the three months ended September
30, 1999 decreased to 68.5% compared to 69.4% for the same period in 1998.
Gross profit for the three months ended September 30, 1999 was $30.7 million
or 6.4% more than the gross profit of $28.8 million for the same period in
1998. The improvement in gross margin return on sales was due to the effect
of higher volume on manufacturing overhead and the higher margins on
single-serve packages resulting from the increase in average net selling
price for those packages.
Selling, general and administrative expenses for the three months ended
September 30, 1999 increased to $24.1 million compared to $21.8 million for
the same period in 1998. Selling, general and administrative expenses are
comprised of selling, distribution and warehousing expenses, advertising and
marketing expenses, and general and administrative expenses ("G&A"). Expenses
other than G&A grew at a rate less than or equal to volume growth. G&A
increased due primarily to increased litigation costs and a provision for a
potentially uncollectable receivable from a customer that unexpectedly sought
bankruptcy protection. These items were approximately $1.3 million in
aggregate.
As a result of the above factors, income from operations for the three months
ended September 30, 1999 decreased to $5.7 million, or 5.8% of net sales,
compared to $6.2 million, or 6.6% of net sales, for the same period in 1998.
Interest expense for the three months ended September 30, 1999 increased to
$4.8 million from $4.7 million for the same period in 1998. The increase was
due primarily to the additional interest associated with additional PIK Notes
issued by the Company to pay the interest on the Subordinated Notes.
The Company had income before income taxes and minority interest of $0.8
million for the three months ended September 30, 1999 compared to $1.4
million for the same period in 1998.
The Company's effective income tax rate differs from statutory rates due to
several factors. The most significant factors are the non-tax-deductibility
of franchise cost amortization and separate reporting of the income tax
effect of minority interest. For interim periods, income tax expense and
benefit are provided at the effective rate projected for a full fiscal year.
9
<PAGE>
As a result of the foregoing factors, the Company had a net loss of $0.3
million for the three months ended September 30, 1999 compared to net income
of $0.1 million for the same period in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net sales, excluding contract sales, for the nine months ended September 30,
1999 increased by 3.6% to $243.0 million compared to $234.6 million for the
same period in 1998. The increase was due primarily to a 6.7% increase in
soft-drink franchise case sales (primarily of take-home packages of
soft-drinks) less the effect of a 3.0% decrease in average net sales pricing
per franchise case. The decrease in average net selling price was due to an
increase in the proportion of take-home packages as compared to total volume
and an increase in support given to retailers featuring those packages.
However, this impact was partially offset by an increase in the average
selling price of single-serve packages of soft-drinks. Contract net sales for
the nine months ended September 30, 1999 increased 2.8% compared to the same
period in 1998. As a result of the foregoing, aggregate net sales for the
nine months ended September 30, 1999 increased 3.5% to $275.2 million
compared to $265.9 million for the same period in 1998.
Cost of sales for the nine months ended September 30, 1999 increased to
$188.8 million compared to $184.6 million for the same period in 1998. The
rate of increase was less than the rate of increase in franchise case sales.
As a percentage of net sales, cost of sales for the nine months ended
September 30, 1999 decreased to 68.6% compared to 69.4% for the same period
in 1998. Gross profit for the nine months ended September 30, 1999 was $86.4
million or 6.3% greater than the gross profit of $81.3 million for the same
period in 1998. The improvement in gross margin return on sales was due to
the effect of higher volume on manufacturing overhead and the higher margins
on single-serve packages resulting from the increase in average net selling
price for those packages.
Selling, general, and administrative expenses for the nine months ended
September 30, 1999 increased to $68.7 million compared to $65.1 million for
the same period in 1998. Expenses other than G&A grew at a rate less than or
equal to volume growth. G&A increased due primarily to increased litigation
costs and a provision for a potentially uncollectable receivable from a
customer that unexpectedly sought bankruptcy protection. These items were
approximately $1.3 million in aggregate.
As a result of the above factors, income from operations for the nine months
ended September 30, 1999 increased to $15.0 million, or 5.5% of net sales,
from $13.5 million, or 5.1% of net sales, for the same period in 1998. The
Company's operating results are affected by seasonal demand for its products
which generally results in higher sales and operating income in the second
and third quarters of each fiscal year.
Interest expense for the nine months ended September 30, 1999 increased to
$14.5 million from $14.1 million for the same period in 1998. The increase
was due primarily to the additional interest associated with additional PIK
Notes issued by the Company to pay the interest on the Subordinated Notes.
As a result of the above factors, the Company had income before income taxes
and minority interest of $0.5 million for the nine months ended September 30,
1999, compared to a loss before income taxes and minority interest of $0.7
million for the same period in 1998.
The Company's effective income tax rate differs from statutory rates due to
several factors. The most significant factors are the non-tax-deductibility
of franchise cost amortization and separate reporting of
10
<PAGE>
the income tax effect of minority interest. For interim periods, income tax
expense and benefit are provided at the effective rate projected for a full
fiscal year.
As a result of the foregoing factors, the Company had a net loss of $0.4
million for the nine months ended September 30, 1999, compared to a net loss
of $0.5 million for the same period in 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged, although there are no significant reductions
in debt scheduled before December 2003. The Company's principal use of funds
until 2003 will be the payment of interest and investment in capital assets
and strategic acquisitions. It is expected that the Company's primary sources
of funds for its future activities will be funds from operations. While the
Company does not currently anticipate utilizing the funds available under its
credit agreement for other than seasonal working capital requirements, such
funds may be used to augment operating cash flow. Pursuant to the credit
agreement, the Company has a borrowing capacity of up to $30.0 million,
including $10.0 million available for the issuance of letters of credit. At
September 30, 1999, letters of credit of $8.5 million had been issued and
$4.4 million had been drawn on the line of credit for seasonal working
capital requirements. The credit facility will mature in 2001.
In October 1999, subsequent to the share exchange transaction described
above, PAS entered into a new credit facility on behalf of the combined
group. Delta's subordinated notes, including PIK notes, and its borrowings
under the revolving line of credit were refinanced and retired by the new
credit facility.
The Company had cash of $4.7 million and working capital of $32.4 million at
September 30, 1999, compared to cash of $3.8 million and working capital of
$32.5 million at December 31, 1998. Working capital represents current assets
(excluding cash and cash equivalents) less current liabilities (excluding
current maturities of long-term debt and other long-term liabilities).
The $0.9 million increase in cash from December 31, 1998 to September 30,
1999 resulted from net cash provided by operations of $17.7 million, less
$1.4 million used by net financing activities, less cash used by investing
activities of $15.4 million. In the same period in 1998, cash increased by
$0.2 million resulting from net cash provided by operations of $14.7 million
and from net financing activities of $2.7 million less cash used by investing
activities of $17.2 million.
Cash used in investing activities of $15.4 million in the nine months ended
September 30, 1999 represented a $1.8 million decrease from cash used in the
same period of 1998. The higher amount in 1998 was primarily for marketing
equipment related to single-serve packages of soft drinks.
Financing activities in the nine months ended September 30, 1999 used $1.4
million in net cash, which represented a $4.1 million increase over the $2.7
million in net cash provided in the same period of 1998. This increase in net
cash used resulted primarily from net credit agreement payments of
approximately $1.2 million, compared to net credit agreement borrowing of
$3.5 million for the same period in 1998. The lower level of capital
expenditures and greater cash provided by operating activities required less
reliance on the credit agreement in 1999.
Management believes that the Company's production facilities will be
sufficient to meet anticipated unit growth for the next several years.
Accordingly, management anticipates that capital expenditures with respect to
such facilities will consist of expenditures to maintain operating
efficiency. Capital expenditures will be required primarily for the Company's
automobile and truck fleet, vending machines, and routine plant, bottling,
and canning equipment additions or maintenance. During the nine months ended
September 30, 1999 and 1998, capital expenditures totaled $10.1 million and
$12.9 million, respectively. The Company anticipates that capital
expenditures will total approximately $12.5 million for fiscal year 1999.
11
<PAGE>
Based on the Company's anticipated operating results, management does not
expect that the Company's future operating activities will generate
sufficient cash flows to repay in their entirety its Senior Notes payable
(with a balance of $120.0 million at September 30, 1999) at their maturity on
December 15, 2003. While management believes that the Company will be able to
refinance the Senior Notes at or prior to their maturity, or raise sufficient
funds through equity or asset sales to repay such indebtedness, or effect a
combination of the foregoing, there can be no assurance that it will be able
to do so.
YEAR 2000 READINESS DISCLOSURE
The term "Year 2000" is used to describe general problems that may result
from improper processing of dates and date-sensitive calculations by
computers or other machinery as the year 2000 is approached and reached. This
problem stems from the fact that many of the world's computer hardware and
software applications have historically used only the last two digits to
refer to a year. As a result, many of these computer programs do not or will
not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous results.
The risks from this date change are both internal and external and can
potentially affect the Company's production, distribution and administrative
systems and the Company's customers, suppliers of raw materials, utilities
and distribution services. Year 2000 related problems could prevent customers
from accepting deliveries from the Company or processing payments for amounts
due to the Company. Suppliers may be prevented from producing and supplying
goods or services essential to the Company's business.
STATE OF READINESS
PepsiCo distributed to its franchisees its Year 2000 compliance plan, which
the Company used as a framework for the development and implementation of its
own Year 2000 compliance. The Company evaluated its information technology
("IT") systems for Year 2000 compliance. The Company also assessed its non-IT
systems (i.e. embedded technology such as microprocessors in manufacturing
and other equipment). The Company has completed its assessment of the IT and
non-IT systems.
The Company has finished modifying both IT and non-IT systems to make them
Year 2000 compliant. In instances where modifications have been completed or
were not required, the Company has tested the systems to ensure Year 2000
compliance.
The Company uses outside vendors to supply its most significant data
processing software. These vendors have indicated their products are Year
2000 compliant. The Company also relies on third party suppliers for raw
materials. The Company has contacted each of its critical suppliers to assess
their readiness and to
12
<PAGE>
determine the extent to which the Company may be vulnerable to such parties'
failure to resolve their own Year 2000 issues. Based on responses from
critical suppliers to date, the Company believes that they are prepared
for Year 2000.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company does not expect any additional cost relating to Year 2000
compliance issues to be material to its consolidated financial condition or
results of operations. This is due, in part, to the Company's recent
significant upgrades to its data communication network and key data
processing hardware, all of which are Year 2000 compliant.
RISKS OF YEAR 2000 ISSUES
The Company recognizes that Year 2000 issues constitute a material known
uncertainty. The Company also recognizes the importance of ensuring that Year
2000 issues will not adversely affect its operations. The Company believes
that the processes described above will be effective to manage the risks
associated with the problem. However, there can be no assurance that the
remediation will be fully effective. The failure to identify and remediate
Year 2000 issues, or the failure of key vendors, suppliers or other critical
third parties who do business with the Company to timely remediate their Year
2000 issues could cause an interruption in the business operations of the
Company. At this time, however, the Company does not possess information
necessary to estimate the overall potential financial impact of Year 2000
compliance issues.
The Company's worst case scenario would be the temporary inability of
suppliers to provide supplies of raw materials to the Company. The inability
of the Company's suppliers to be Year 2000 ready could result in delays in
product manufacturing and delivery, thereby adversely affecting the business
or operations of the Company. The Company believes, however, that in a worst
case scenario any disruption in supply materials can be minimized by relying
on inventories or shifting production to unaffected plants with some increase
in distribution costs.
CONTINGENCY PLANS
The Company recognizes the need for Year 2000 contingency plans in the event
that remediation is not fully successful or that the remediation efforts of
its vendors and suppliers are not timely completed. The Company has developed
a contingency plan and is deploying it to its locations. Such plans will
include building inventories of raw materials and finished goods in advance
of January 1, 2000 to protect against supply and production disruptions. As
noted above the Company believes critical suppliers and key customers are
acting effectively in their Year 2000 remediation efforts. Finally, the
Company is working with its customers to build customer inventory levels at
year-end as a contingency against company or customer Year 2000 failure.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments, including fixed and variable rate
debt, to finance operations, for capital expenditures and for general
corporate purposes. The Company's exposure to market risk for changes in
interest rates relates primarily to short- and long-term debt obligations.
The Company does not use derivative financial instruments or engage in
trading activities. There have been no significant changes in the Company's
exposure to market risk for changes in interest rates during the nine months
ended September 30, 1999.
14
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company filed the following report on Form 8-K with the SEC during
the quarter for which this report is filed:
1. The Company's Current Report on Form 8-K, filed on July 14, 1999,
relating to the entry by the Company's shareholders into an
exchange agreement with PepsiAmericas, Inc.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 15, 1999.
DELTA BEVERAGE GROUP, INC.
By: /s/ John F. Bierbaum
------------------------
John F. Bierbaum
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------
27.1 Financial Data Schedule
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,693
<SECURITIES> 0
<RECEIVABLES> 28,331
<ALLOWANCES> 1,139
<INVENTORY> 19,663
<CURRENT-ASSETS> 79,391
<PP&E> 126,940
<DEPRECIATION> 62,216
<TOTAL-ASSETS> 296,006
<CURRENT-LIABILITIES> 42,486
<BONDS> 193,624
0
32,201
<COMMON> 0
<OTHER-SE> 24,394
<TOTAL-LIABILITY-AND-EQUITY> 296,006
<SALES> 275,208
<TOTAL-REVENUES> 275,208
<CGS> 188,765
<TOTAL-COSTS> 260,173
<OTHER-EXPENSES> 14,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,462
<INCOME-PRETAX> 452
<INCOME-TAX> (1,032)
<INCOME-CONTINUING> (417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (417)
<EPS-BASIC> (34.25)
<EPS-DILUTED> (34.25)
</TABLE>
