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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 2000
|_| 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 14, 2000, 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, $.01 par value, and (iii) 32,949.93 shares of nonvoting Common
Stock, $.01 par value.
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TABLE OF CONTENTS
Page
No.
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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 ....... 12
PART II
ITEM 1. LEGAL PROCEEDINGS ................................................ 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 13
SIGNATURES ................................................................. 14
EXHIBIT INDEX .............................................................. 15
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PART I
ITEM 1. FINANCIAL STATEMENTS
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,002 $ 4,560
Receivables
Trade, net of allowance for doubtful
accounts of $645 and $1,298 28,079 27,267
Marketing and advertising 7,277 6,284
Other 5,293 3,982
Inventories, at cost 20,527 21,410
Shells, tanks and pallets 7,083 6,820
Prepaid expenses and other 7,430 5,167
Deferred income taxes 5,708 5,349
--------- ---------
Total current assets 85,399 80,839
--------- ---------
PROPERTY AND EQUIPMENT:
Land 5,226 5,202
Buildings and improvements 20,228 19,807
Machinery and equipment 115,747 104,292
--------- ---------
141,201 129,301
Less accumulated depreciation (71,394) (64,680)
--------- ---------
Total property and equipment 69,807 64,621
--------- ---------
OTHER ASSETS:
Franchise rights, net of accumulated amortization
of $60,681 and $57,946 102,611 105,346
Deferred income taxes 19,717 19,717
Deferred financing costs, beverage pouring rights and other 23,301 24,447
--------- ---------
Total other assets 145,629 149,510
--------- ---------
$ 300,835 $ 294,970
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
Unaudited
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 96 $ 186
Accounts payable 15,836 21,195
Accrued liabilities 26,094 21,270
--------- ---------
Total current liabilities 42,026 42,651
--------- ---------
LONG-TERM DEBT, excluding current maturities 133,741 127,515
NOTES PAYABLE TO PEPSIAMERICAS, INC 54,392 54,392
OTHER LONG-TERM LIABILITIES 13,343 13,170
MINORITY INTEREST 2,904 3,284
STOCKHOLDERS' EQUITY:
Preferred stock:
Series AA, $5,000 stated value, 30,000 shares authorized,
6,440.17 shares issued and outstanding 32,201 32,201
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 119,502 118,054
Accumulated deficit (97,274) (96,297)
--------- ---------
Total stockholders' equity 54,429 53,958
--------- ---------
$ 300,835 $ 294,970
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net sales $ 99,336 $ 97,466 $ 282,402 $ 275,208
Cost of sales 66,327 66,786 189,147 188,765
--------- --------- --------- ---------
Gross profit 33,009 30,680 93,255 86,443
Selling, general and administrative
expenses 24,765 24,077 73,780 68,672
Amortization of franchise rights 912 912 2,736 2,736
--------- --------- --------- ---------
Operating income 7,332 5,691 16,739 15,035
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net (5,095) (4,844) (15,115) (14,462)
Other, net 5 (47) (18) (121)
--------- --------- --------- ---------
(5,090) (4,891) (15,133) (14,583)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 2,242 800 1,606 452
Income tax provision (1,128) (1,161) (1,135) (1,032)
Minority interest, net of taxes -- 92 -- 163
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,114 $ (269) $ 471 $ (417)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 471 $ (417)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 11,670 11,393
Non-cash interest on long-term debt 557 4,741
Change in deferred income taxes (359) 612
Minority interest, before taxes -- (147)
Net expense under deferred compensation plans (9) --
Changes in current assets and liabilities:
Receivables (2,893) (75)
Inventories 883 (3,514)
Shells, tanks and pallets (263) 174
Prepaid expenses and other (2,033) (3,613)
Accounts payable and accrued liabilities (893) 8,565
-------- --------
Net cash provided by operating activities 7,131 17,719
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,748) (10,087)
Payments for exclusive beverage pouring rights (554) (5,374)
Proceeds from sales of property and equipment 42 90
Other (171) (49)
-------- --------
Net cash used in investing activities (13,431) (15,420)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under revolving line of credit 22,610 17,300
Payments on revolving line of credit (17,000) (18,500)
Proceeds from long-term debt borrowings 1,600 --
Principal payments on long-term debt and other liabilities (1,074) (224)
Additional contributed capital from PepsiAmericas, Inc. 1,448 --
Preferred stock dividends (1,448) --
Payment of deferred financing charges (14) --
Cash distribution to minority interest holder (380) --
-------- --------
Net cash provided by (used in) financing activities 5,742 (1,424)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (558) 875
CASH AND CASH EQUIVALENTS, beginning of period 4,560 3,818
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 4,002 $ 4,693
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of Delta
Beverage Group, Inc. ("Delta," a Delaware corporation) and subsidiary
(collectively, the "Company") 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,
2000, and for all interim periods presented. These interim condensed
consolidated 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 the notes thereto for
the year ended December 31, 1999. Also, the results of operations for the
interim periods presented may not be indicative of the results for the entire
year.
2. COMBINATION OF INTEREST:
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 was
accounted for as a merger of entities under common control.
3. PREFERRED STOCK:
Authorized preferred stock consists of 30,000 designated shares of Series AA
preferred stock, of which 6,440.17 shares were outstanding at September 30,
2000. The Series AA preferred stock does not contain voting rights and is not
convertible into common stock. Series AA preferred stockholders receive
cumulative dividends at an annual rate of 6% based on the $5,000 stated value
per share. The rate will increase 2% annually beginning October 1, 2004, but is
limited to a cumulative increase of 8%. Prior to the combination transaction
described in Note 2, dividends were payable in cash or in additional shares of
Series AA preferred stock. The preferred dividends through October 15, 1999 were
paid with additional shares of preferred stock. Following the combination,
dividends are paid quarterly in cash using contributed capital from PAS. During
the nine months ended September 30, 2000, the Company paid approximately
$1,448,000 of preferred stock dividends using capital contributions from PAS.
4. LONG-TERM DEBT AND OTHER LIABILITIES:
The Company maintains a $30.0 million bank revolving line of credit, which
matures on December 16, 2001. The line of credit also includes a swing line
facility of up to $2.5 million. Swing line loans bear interest at
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either the base rate (defined below) or at 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 of which $7.7 have been issued. The Company's
accounts receivable and inventory secure borrowings under the line. Borrowings
outstanding under the line of credit approximated $10.3 million as of
September 30, 2000.
The Company also maintains subordinated notes ("Notes"), with interest due
semi-annually on April 1 and October 1, that can be paid in cash or, at the
option of the Company, by the issuance of additional subordinated notes. The
Notes bear interest at 11% and mature on December 23, 2003. In connection with
the combination transaction described in Note 2, the subordinated noteholders
sold their Notes to PAS. The Notes are classified as Notes Payable to PAS in the
accompanying condensed consolidated balance sheets.
In June 2000, The Pepsi-Cola/Seven-Up Beverage Group of Louisiana, (the "Joint
Venture"), entered into a credit agreement with Hibernia National Bank, which
provided for a $1.6 million loan. The loan has a fixed interest rate of 9.75%,
and is payable in monthly installments beginning in July 2000. The note is
secured by real estate owned by the Joint Venture and matures in June 2005.
5. INVENTORIES:
Inventories included the following (in thousands):
September 30, December 31,
2000 1999
------------- ------------
Raw materials $ 5,925 $ 7,476
Finished goods 14,602 13,934
------- -------
$20,527 $21,410
======= =======
6. WHITMAN MERGER:
On August 21, 2000, PAS announced an agreement to merge with Whitman
Corporation ("Whitman"). The merger has been approved by both companies'
board of directors and is subject to shareholder approval. The merger is
expected to be completed by the end of 2000.
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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") for the
fiscal quarter and nine months ended September 30, 2000 and its financial
condition as of September 30, 2000. 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, 1999.
Certain of the 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, 1999 for a description of the factors known to the
Company that may cause actual results to vary.
GENERAL OVERVIEW
The Company has accomplished a number of business combinations over the last
decade, including (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 a majority owner and managing
venturer, (ii) acquiring in 1995 the distribution rights for Miller and Heineken
products in a significant portion of the joint venture territory and (iii)
combining with Dakota and Pepsi-Cola Puerto Rico Bottling Company to form PAS
effective October 15, 1999.
On June 28, 1999, the Company announced the entry by its stockholders into the
Delta Exchange Agreement, which resulted in the combination of the Company with
two related-party Pepsi-Cola bottlers: PAS and Dakota. The three companies
generated combined revenues in 1999 of approximately $576 million. Such
transactions were consummated during the fourth quarter of 1999, with both the
Company and Dakota becoming wholly owned subsidiaries of PAS. The combined
company is PepsiCo's third largest U.S. based anchor bottler.
PAS has entered into an agreement and plan of merger pursuant to which PAS will
merge with and into a wholly owned subsidiary of Whitman Corporation. PAS
intends to solicit shareholder approval of the merger at its special meeting of
shareholders on November 30, 2000. The merger is expected to be completed
promptly thereafter.
The Company's primary source of revenue is franchise 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% to 12.0% 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 sales more accurately measure growth than changes in total net
sales.
The Company's primary measurement of unit volume is a franchise case, which is a
case-sized quantity of the various packages in which products are produced and
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
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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.
RESULTS OF OPERATIONS
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Net sales, excluding contract sales, for the three months ended September 30,
2000 increased by 1.0% to $86.8 million compared to $85.9 million for the same
period in 1999. The increase was due to an increase in revenue per franchise
case of approximately 5.4% as a result of higher net pricing, offset by a 4.5%
decrease in franchise case volume. Volume decreased in the take-home market as a
result of increased pricing. However, with continued expanded placement of
marketing equipment, cold bottle sales continued to increase. Contract sales
represented 12.6% of net sales for the three months ended September 30, 2000,
compared to 11.8% of net sales for the same period in 1999. As a result of the
foregoing, aggregate net sales for the three months ended September 30, 2000
increased 1.8% to $99.3 million compared to $97.5 million for the same period in
1999.
Cost of sales for the three months ended September 30, 2000 decreased to $66.3
million compared to $66.8 million for the same period in 1999. The decrease
occurred as a result of decreased volume. As a percentage of net sales, cost of
sales for the three months ended September 30, 2000 decreased to 66.8% compared
to 68.5% for the same period in 1999. The improved margin associated with the
single-serve packages of soft drinks and the increase in soft drink revenue per
franchise case resulted in gross profit for the three months ended September 30,
2000 of $33.0 million or 7.5% more than the gross profit of $30.7 million for
the same period in 1999.
Selling, general and administrative expenses for the three months ended
September 30, 2000 increased to $24.8 million compared to $24.1 million for the
same period in 1999. Selling, general and administrative expenses are comprised
of selling, distribution and warehousing expenses, advertising and marketing
expenses, and general and administrative expenses ("G&A"). G&A increased by $0.3
million due to increased professional and legal costs associated with the
settlement of an antitrust lawsuit filed in Texas plus increased personnel and
insurance costs. As a result of the above factors, income from operations for
the three months ended September 30, 2000 was $7.3 million, or 7.4% of net
sales, compared to $5.7 million, or 5.8% of net sales, for the same period in
1999.
Interest expense for the three months ended September 30, 2000 increased to $5.1
million from $4.8 million for the same period in 1999. The increase was due
primarily to increased borrowing on the revolving credit line for working
capital needs.
The Company had income before income taxes and minority interest of $2.2 million
for the three months ended September 30, 2000 compared to $0.8 for the same
period in 1999.
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 rights 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.
As a result of the foregoing factors, the Company had a net income of $1.1
million for the three months ended September 30, 2000 compared to net loss of
$0.3 million for the same period in 1999.
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Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net sales, excluding contract sales, for the nine months ended September 30,
2000 increased by 1.9% to $247.5 million compared to $243.0 million for the same
period in 1999. Contract net sales for the nine months ended September 30, 2000
increased 8.3% compared to the same period in 1999. As a result of the
foregoing, aggregate net sales for the nine months ended September 30, 2000
increased 2.6% to $282.4 million compared to $275.2 million for the same period
in 1999.
Cost of sales for the nine months ended September 30, 2000 increased to $189.1
million compared to $188.8 million for the same period in 1999. The increase was
due primarily to increased concentrate costs. As a percentage of net sales, cost
of sales for the nine months ended September 30, 2000 decreased to 67.0%
compared to 68.6% for the same period in 1999. The improved margin associated
with single-serve packages of soft drinks resulted in gross profit for the nine
months ended September 30, 2000 of $93.3 million or 8.0% greater than the gross
profit of $86.4 million for the same period in 1999.
Selling, general, and administrative expenses for the nine months ended
September 30, 2000 increased to $73.8 million compared to $68.7 million for the
same period in 1999. Selling and distribution expenses increased by $1.9 million
due to the placement of equipment dedicated to single-serve packages of soft
drinks and increased fuel costs compared to the same period in 1999. G&A
increased due to increased personnel and insurance costs along with increased
professional and legal costs associated with the settlement of an antitrust
lawsuit filed in Texas. The lawsuit was settled in the second quarter of 2000.
As a result of the above factors, income from operations for the nine months
ended September 30, 2000 increased to $16.7 million, or 5.9% of net sales, from
$15.0 million, or 5.5% of net sales, for the same period in 1999. 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, 2000 increased to $15.1
million from $14.5 million for the same period in 1999. The increase was due
primarily to the interest associated with additional borrowing on the revolving
credit line for working capital needs.
As a result of the above factors, the Company had income before income taxes and
minority interest of $1.6 million for the nine months ended September 30, 2000,
compared to income before income taxes and minority interest of $0.5 million for
the same period in 1999.
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.
As a result of the foregoing factors, the Company had a net income of $0.5
million for the nine months ended September 30, 2000, compared to a net loss of
$0.4 million for the same period in 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged and 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
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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, 2000, letters of credit of $7.7 million had been issued and $10.3
million had been drawn on the line of credit for seasonal working capital
requirements. The credit facility will mature in December 2001.
The Company had cash of $4.0 million and working capital of $39.5 million at
September 30, 2000, compared to cash of $4.6 million and working capital of
$33.8 million at December 31, 1999. Working capital represents current assets
(excluding cash and cash equivalents) less current liabilities (excluding
current maturities of long-term debt).
The $0.6 million decrease in cash from December 31, 1999 to September 30, 2000
resulted from net cash provided by operations of $7.1 million, augmented by $5.7
million provided by net financing activities, less cash used in investing
activities of $13.4 million. The cash provided by operations was net of a $5.2
million use of cash which increased working capital. In the same period in 1999,
cash increased by $0.9 million resulting from net cash provided by operations of
$17.7 million, which included $4.7 million of non-cash interest. All interest
previously paid-in-kind in 1999 has been paid in cash in 2000. Cash from
operations were offset by cash used in financing activities of $1.4 million and
investing activities of $15.4 million.
Cash used in investing activities of $13.4 million in the nine months ended
September 30, 2000 represented a $2.0 million decrease from cash used in the
same period of 1999. Capital expenditures were $2.7 million higher in 2000
offset by a reduction in commitments for exclusive beverage pouring rights of
$4.8 million compared to the same period in 1999.
Financing activities in the nine months ended September 30, 2000 provided $5.7
million in net cash, which represented a $7.2 million increase over the $1.4
million in net cash used in the same period of 1999. This increase in net cash
provided resulted primarily from net credit agreement advances of approximately
$5.6 million. The increase was primarily due to the working capital cash
requirements due to the timing of cash payments on current liabilities and
accruals, including interest expense that had been paid in kind in 1999. The
Company also borrowed $1.6 million in June 2000 for a new building.
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.
Management believes that the Company's future operating activities will generate
sufficient cash flows to repay borrowings under the credit agreement as they
become due and payable. However, based on such 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, 2000) 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.
Prior to consummation of the transaction contemplated by the Delta Exchange
Agreement, the Company maintained subordinated notes with interest due
semi-annually on April 1 and October 1, that could be paid in cash or, at the
option of the Company, by the issuance of additional subordinated notes ("PIK
Notes"). The PIK Notes bore 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.
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The subordinated notes mature on December 23, 2003. Prior to the refinancing,
certain of the Company's preferred and non-voting common stockholders were
subordinated debt holders. In connection with the transaction contemplated by
the Delta Exchange Agreement, the subordinated noteholders sold their notes
to PAS.
Series AA preferred stockholders receive cumulative dividends at an annual rate
of 6% based on the $5,000 stated value per share. Prior to the combination
transaction, dividends were payable in cash or in additional shares of Series AA
preferred stock. The preferred dividends through October 15, 1999 were paid with
additional shares of preferred stock. Following the combination, dividends are
paid quarterly in cash using contributed capital from PAS. During the nine
months ended September 30, 2000, the Company paid approximately $1.4 million of
preferred stock dividends using a capital contribution from PAS.
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, 2000.
PART II
ITEM 1. LEGAL PROCEEDINGS
In November and December 1999, the Company was named a defendant in several
class action lawsuits filed in the District Court of the Parish of St. John
the Baptist, Louisiana, by a group of residents near the Company's facility
in Reserve, Louisiana. The residents complained of personal injuries
resulting from noxious fumes emitted from the wastewater pond owned by the
Port of South Louisiana, into which the Company discharges its wastewater.
There are approximately 4,000 potential plaintiffs. No dollar amount has been
demanded as yet. The Company intends to fully defend itself in this action
and does not expect any material consequences to result from this litigation.
On or about August 23, 2000, a lawsuit was filed in the District Court in
Hennepin County, Minnesota, seeking to enjoin the merger of PAS and Whitman,
RANDY COX V. CHRISTOPHER E. CLOUSER, ET AL., No. CT 00-012119 ("COX I"). The
complaint, which was brought by a purported shareholder of PAS, names PAS,
Dakota Holdings, LLC ("Dakota Holdings") and certain directors of PAS as
defendants. The complaint alleges that the consideration to be paid to the
public shareholders of PAS in the merger is unfair and inadequate. The
plaintiff seeks, among other things, class action certification, a
declaration that the merger agreement with Whitman is unenforceable, a
preliminary and permanent injunction against the defendants from proceeding
with or closing the proposed merger unless and until PAS implements a
procedure to obtain the highest price for its shareholders, and an award of
damages, attorneys fees and costs of suit. On September 29, 2000, Judge Allen
Oleisky entered an order staying all proceedings in the COX I action pending
final disposition of the shareholders' litigaiton described more fully below.
On August 31, 2000, a lawsuit was filed in the Court of Chancery in and for
New Castle County, Delaware, GENE KILHAM, V. PEPSIAMERICAS, INC., ET AL., No.
18280 ("KILHAM"), seeking to enjoin the merger of PAS and Whitman. The
Complaint which was filed by a purported shareholder of PAS, names PAS,
Dakota Holdings, Whitman and certain directors of PAS as defendants. The
complaint alleges that the consideration to be paid to the public
shareholders of PAS in the merger is inadequate; that the individual
defendants and Dakota Holdings have committed certain breaches of fiduciary
duties; and that Whitman is knowingly participating in those breaches of
fiduciary duties. The plaintiff seeks, among other things, class action
certification, a preliminary and permanent injunction against the defendants
from proceeding with the proposed merger and an award of damages, attorneys
fees, and costs of suit.
On September 8, 2000, a lawsuit was filed in the Court of Chancery, in and
for New Castle County Delaware, RANDY COX V. PEPSIAMERICAS, INC., ET AL.,
No. 18296 NC ("COX II"), seeking to enjoin the merger of PAS and Whitman. The
complaint, which was filed by a purported shareholder of PAS, names PAS,
Dakota Holdings, Whitman and certain directors of PAS as defendants. The
complaint alleges that the consideration to be paid to the public
shareholders of PAS in the merger is inadequate, that the individual
defendants and Dakota Holdings have committed certain breaches of fiduciary
duties, and that Whitman is knowingly participating in those breaches of
fiduciary dutes. The plaintiff seeks, among other things, class action
certification, a preliminary and permanent injunction against the defendants
from proceeding with the proposed merger and on owed damages, attorneys fees,
and costs of suit.
The KILHAM and COX II cases were consolidated into a single action in the
Court of Chancery in and for New Castle County, Delaware, under the caption
IN RE PEPSIAMERICAS, INC. SHAREHOLDERS' LITIGATION, No. 18280 ("the
Shareholders' Litigation"). On November 1, 2000, plaintiffs filed an Amended
Consolidated Complaint in the Shareholders' Litigation alleging, among other
things, that the consideration for the merger is unfair, that there exist
conflicts of interest involving Dakota Holdings and certain of the individual
defendants, and that the proxy statement/prospectus relating to the proposed
transaction is materially misleading. The Amended Consolidated Complaint
requests an injunction against the proposed merger, an award of damages, an
accounting of all profits and special benefits received by defendants, and an
award of attorneys' fees and costs of suit.
On November 1, 2000, plaintiffs filed a motion for preliminary injunction
against the proposed merger and a motion for expedited proceedings requesting
the Court to schedule a hearing on plaintiffs' motion for preliminary
injunction and expediting discovery prior to the November 30, 2000
shareholder meeting. On November 6, 2000, the Court entered a bench order
denying plaintiffs' motion for expedited proceedings, which was confirmed by
a written order entered on November 8, 2000.
PAS and Whitman believe the allegations contained in the Amended Consolidated
Compliant are without merit and intend to vigorously defend the action.
From time to time, the Company is involved in various other legal proceedings
arising in the ordinary course of business. The Company believes ultimate
resolution of such litigation will not have a material adverse effect on the
Company's business, financial condition or results of operations.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Exhibit 2 - Agreement and Plan of Merger, dated as of August 18,
2000, among Whitman Corporation, Anchor Merger Sub, Inc. and
PepsiAmericas, Inc. (incorporated by reference to the Company's
Current Report on Form 8-K, filed August 24, 2000).
(ii) Exhibit 27 - Financial Data Schedule
(iii) Exhibit 99.1 - Voting Agreement, dated as of August 18, 2000,
between Whitman Corporation and Dakota Holdings, LLC (incorporated
by reference to the Company's Current Report on Form 8-K, filed
August 24, 2000).
(iv) Exhibit 99.2 - Voting Agreement, dated as of August 18, 2000,
between PepsiCo, Inc. and PepsiAmericas, Inc. (incorporated by
reference to the Company's Current Report on Form 8-K, filed
August 24, 2000).
(v) Exhibit 99.3 - Joint Press Release issued by Whitman Corporation and
PepsiAmericas, Inc. on August 21, 2000 (incorporated by reference
to the Company's Current Report on Form 8-K, filed August 24, 2000).
(b) The Company filed the following Current Reports on Form 8-K during the
quarter for which this report is filed:
(i) Current Report on Form 8-K, filed August 24, 2000, relating to the
announcement of the merger agreement between PepsiAmericas, Inc. and
Whitman Corporation.
(ii) Current Report on Form 8-K, filed August 29, 2000, relating to a
purported class action lawsuit filed in Minnesota seeking primarily
to enjoin the merger of PepsiAmericas, In. and Whitman Corporation.
(iii) Current Report on Form 8-K, filed September 7, 2000, relating to a
purported class action lawsuit filed in Delaware seeking primarily
to enjoin the merger of PepsiAmericas, Inc. and Whitman Corporation.
13
<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 14, 2000.
DELTA BEVERAGE GROUP, INC.
By: /s/ John F. Bierbaum
---------------------------
John F. Bierbaum
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2 Agreement and Plan of Merger, dated as of August 18, 2000, among
Whitman Corporation, Anchor Merger Sub, Inc. and PepsiAmericas, Inc.
(incorporated by reference to the Company's Current Report on Form
8-K, filed August 24, 2000).
27 Financial Data Schedule
99.1 Voting Agreement, dated as of August 18, 2000, between Whitman
Corporation and Dakota Holdings, LLC (incorporated by reference to
the Company's Current Report on Form 8-K, filed August 24, 2000).
99.2 Voting Agreement, dated as of August 18, 2000, between PepsiCo, Inc.
and PepsiAmericas, Inc. (incorporated by reference to the Company's
Current Report on Form 8-K, filed August 24, 2000).
99.3 Joint Press Release issued by Whitman Corporation and PepsiAmericas,
Inc. on August 21, 2000 (incorporated by reference to the Company's
Current Report on Form 8-K, filed August 24, 2000).
