<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 15, 1999
Date of report (Date of earliest event reported)
PepsiAmericas, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13914 ###-##-####
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
3800 Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices, including Zip Code)
(612) 661-3830
(Registrant's Telephone Number, including Area Code)
Pepsi-Cola Puerto Rico Bottling Company
(Former Name)
Carretera 865, Km. 0.4, Barrio Candelaria Arenas, Toa Baja, Puerto Rico 00949
(Former Address)
================================================================================
<PAGE>
ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS
On October 15, 1999, PepsiAmericas, Inc. ("PAS") (formerly known as
Pepsi-Cola Puerto Rico Bottling Company) issued 65,070,006 shares of its
Class B Common Stock in connection with the acquisition of Delta Beverage
Group, Inc. ("Delta") and Dakota Beverage Company, Inc. ("Dakota") pursuant
to exchange agreements, effective June 28, 1999. In the aggregate, these
shares constituted approximately 79.6% of the PAS Class B Common Stock
outstanding immediately after the acquisitions.
Delta is one of the largest soft drink manufacturers and distributors in
the U.S., selling over 27.9 million hard cases of PepsiCo products and 7.3
million hard cases of other soft drinks in 1998. Dakota is a bottler and
distributor of soft drinks under exclusive franchise agreements with
PepsiCo and Cadbury Schweppes plc.
Former Delta shareholders, including Pohlad Companies and PepsiCo, Inc.,
received 18,310,006 shares of PAS Class B Common Stock in exchange for all
the Delta common stock. Dakota's former shareholder, Pohlad Companies,
received 46,760,000 shares of PAS Class B Common Stock in exchange for all
the Dakota stock. These shares were issued in private placements under
Section 4(2) of the Securities Act of 1933, as amended. The former
shareholders of Delta have executed lock-up agreements which prohibit them
from selling shares acquired in the exchange until April 15, 2000. PAS has
agreed to register such shares for resale prior to that date.
A Special Committee of PAS's Board of Directors retained Bear, Stearns &
Co. Inc. to act as its financial advisor in connection with the
acquisitions. PAS's Board of Directors, upon the recommendation of the
Special Committee, determined that the acquisition of Delta and Dakota
through the issuance of PAS Class B Common Stock under the exchange
agreements was fair to, advisable and in the best interests of PAS's
shareholders. The shareholders of PAS approved the issuance of 65,070,006
shares of PAS Class B Common Stock in connection with the acquisitions at a
special meeting of shareholders held on October 1, 1999.
Certain members of PAS's management and PAS's Board of Directors had
interests in the acquisitions that were in addition to the interests of PAS
shareholders generally.
Dakota Holdings, LLC, a Delaware limited liability company, was formed on
October 15, 1999 (the "LLC"). The LLC's members are Pohlad Companies,
Beverages, Foods & Service Industries, Inc., a wholly owned subsidiary of
PepsiCo, Inc., and Pepsi-Cola Metropolitan Bottling Co., Inc., another
wholly owned subsidiary of PepsiCo. The LLC, which holds a controlling
interest in PAS, was formed (a) to accomplish the transactions contemplated
by the exchange agreements and (b) to manage its members' investment in,
and to hold and exercise voting control over, PAS and its affiliates.
The LLC acquired a total of 52,109,930 shares of PAS Class B Common Stock
pursuant to the exchange agreements. The transactions are described more
fully below.
2
<PAGE>
Under the Dakota Exchange Agreement, the LLC transferred all of its
membership interests in a newly formed entity, DakBev, LLC, to PAS in
exchange for 46,760,000 shares of PAS Class B Common Stock. Prior to this
transfer, Dakota, then a wholly owned subsidiary of Pohlad, was merged with
and into DakBev, LLC. Pohlad then contributed all of its membership
interests in DakBev, LLC to the LLC in exchange for a membership interest
in the LLC.
Under the Delta Exchange Agreement, the LLC transferred 15,559.44 shares of
capital stock of Delta to PAS in exchange for 5,349,930 shares of PAS Class
B Common Stock. The shares of capital stock of Delta were contributed to
the LLC by its members.
Prior to the acquisitions, Pohlad Companies held a 33.1% economic interest
in PAS and 52.8% voting power over PAS, 59.3% of Delta's voting common
stock and 100% of Dakota's stock. As a result of the acquisitions, Pohlad
Companies holds a 46.6% economic interest in PAS and 51.9% voting power
over PAS. The issuance of the shares in connection with the acquisitions
did not result in a change in control of PAS.
Prior to the acquisitions, Pohlad Companies also provided management
services to PAS, Delta and Dakota pursuant to management agreements with
each of these entities. In connection with the acquisitions, Pohlad
Companies expects to amend the Delta management agreement, to terminate the
Dakota management agreement and to cause PAS to pay the salaries and
bonuses of certain of PAS's executive officers.
Delta and Dakota both utilize various plants, equipment and other physical
property in the manufacture and distribution of beverage products. PAS
intends to continue such use.
ITEM 5 OTHER EVENTS
On October 15, 1999, PAS filed an amendment to its Certificate of
Incorporation which (i) increased the number of authorized shares of PAS
capital stock to 150,000,000 from 40,000,000, (ii) increased the number of
authorized shares of PAS Class B Common Stock to 145,000,000 from
35,000,000, and (iii) changed its name from Pepsi-Cola Puerto Rico Bottling
Company to PepsiAmericas, Inc.
In connection with its name change, PAS changed its ticker symbol on the
New York Stock Exchange to "PAS" effective October 18, 1999.
Reference is made to the press release issued to the public by PAS on
October 15, 1999, and attached hereto as an exhibit, relating to the
acquisition of Delta and Dakota.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
See Appendix A hereto.
3
<PAGE>
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial
statements give effect to the acquisitions by PAS (formerly known as
Pepsi-Cola Puerto Rico Bottling Company) of Delta and Dakota. The
unaudited pro forma condensed combined statement of earnings for the
year ended September 30, 1998 was prepared based upon PAS's audited
consolidated financial statements for the fiscal year ended September
30, 1998, and Delta's and Dakota's audited consolidated financial
statements for the year ended December 31, 1998. The unaudited pro
forma condensed combined statement of earnings for the three months
ended December 31, 1998 was prepared based upon PAS's audited
consolidated financial statements for the three months ended December
31, 1998, and Delta's and Dakota's unaudited consolidated financial
statements for the three months ended December 31, 1998. The unaudited
pro forma condensed combined statement of earnings for the six months
ended June 30, 1999 was prepared based upon the June 30, 1999
unaudited consolidated financial statements of PAS, Delta and Dakota.
The pro forma adjustments for each of the unaudited pro forma
condensed combined statements of earnings were prepared as if the
acquisitions had occurred at the beginning of PAS's latest full fiscal
year. The unaudited pro forma condensed combined balance sheet was
prepared based upon the June 30, 1999 unaudited consolidated financial
statements of PAS, Delta and Dakota, as if the acquisitions had
occurred on that date. The pro forma financial statements do not
reflect any cost savings or other synergies discussed elsewhere in
this document. The pro forma adjustments are based upon an acquisition
involving entities under common control, with the acquisition of
Delta's minority interests recognized using the "purchase" method of
accounting. All other interests of Pohlad Companies in Delta and
Dakota so acquired are recorded at historical cost. The pro forma
adjustments are also based upon available information and include
particular assumptions that the managements of PAS, Delta and Dakota
believe to be reasonable. The pro forma credit facility adjustments
are based upon PAS obtaining a new credit facility to refinance
certain existing indebtedness of PAS, Delta and Dakota.
The unaudited pro forma condensed combined financial statements and
accompanying notes should be read in conjunction with the audited
historical consolidated financial statements of PAS, Delta and Dakota,
and the related notes thereto.
The unaudited pro forma condensed combined financial statements are
provided for informational purposes only in response to SEC
requirements and do not purport to represent what PAS's financial
position or results of operations would actually have been if the
acquisitions had in fact occurred at such dates or to project PAS's
financial position or results of operations for any future date or
period.
4
<PAGE>
PepsiAmericas, Inc.
Unaudited Pro Forma Condensed Combined Statement of Earnings
Year Ended September 30, 1998
(U.S. dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dakota
Delta Beverage Pro Forma
PepsiAmericas, Beverage Company, Credit
Inc. Group, Inc. Inc. Pro Forma Facility Pro Forma
(Historical) (Historical)r (Historical)r Adjustments Adjustments Combined
-------------- ------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 99,405 $ 352,085 $ 97,360 $ (283) a $ $ 548,567
Cost of sales 70,503 245,683 57,020 (283) a 372,923
----------- ---------- ------------ ---------- -------- ---------
Gross profit 28,902 106,402 40,340 - 175,644
Selling, general and administrative
expenses 35,910 87,019 24,497 (2,077) c 145,349
Amortization of franchise costs and
other intangibles 209 3,648 439 995 b 5,291
Restructuring charges 1,728 - - 1,728
Provision for legal and environmental
reserves 760 - - 760
Losses on asset impairments 800 - - 800
Insurance proceeds from business
interruption and other losses (1,309) - - (1,309)
----------- ---------- ------------ ---------- -------- ---------
Income (loss) from operations (9,196) 15,735 15,404 1,082 23,025
----------- ---------- ------------ ---------- -------- ---------
Other income (expense):
Interest, net (1,598) (18,770) (573) 853 d 1,223 f (18,865)
Other, net 206 (175) 22 53
----------- ---------- ------------ ---------- -------- ---------
(1,392) (18,945) (551) 853 1,223 (18,812)
----------- ---------- ------------ ---------- -------- ---------
Income (loss) before income taxes and
minority interest (10,588) (3,210) 14,853 1,935 1,223 4,213
Minority interest, net of taxes - 335 - (1,068) q (733)
Income tax benefit (expense) 978 (436) - (5,256) e (489)g (5,203)
----------- ---------- ------------ ---------- -------- ---------
Net income (loss) $ (9,610) $ (3,311) $ 14,853 $ (4,389) $ 734 $ (1,723)
=========== ========== ============ ========== ======== =========
Net loss per common share $ (0.45) $ (0.02)
=========== =========
Net loss per common share-
assuming dilution $ (0.45) $ (0.02)
=========== =========
Weighted average number of common
shares outstanding 21,516 86,586
=========== =========
Weighted average number of common
shares outstanding-assuming
dilution 21,516 86,586
=========== =========
</TABLE>
The accompanying notes are an integral part of this Unaudited Pro Forma
Condensed Combined Statement of Earnings.
5
<PAGE>
PepsiAmericas, Inc.
Unaudited Pro Forma Condensed Combined Statement of Earnings
Three Months Ended December 31, 1998
(U.S. dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dakota
Delta Beverage Pro Forma
PepsiAmericas, Beverage Company, Credit
Inc. Group, Inc. Inc. Pro Forma Facility Pro Forma
(Historical) (Historical)r (Historical)r Adjustments Adjustments Combined
-------------- ------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 28,328 $ 86,178 $ 23,343 $ (1,203) a $ $ 136,646
Cost of sales 20,327 61,124 13,840 (1,203) a 94,088
----------- ---------- ------------ ---------- -------- ---------
Gross profit 8,001 25,054 9,503 - - 42,558
Selling, general and administrative
expenses 8,676 21,900 4,858 (519) c 34,915
Amortization of franchise costs and
other intangibles 35 912 110 248 b 1,305
Losses on asset impairments 250 - - 250
Insurance proceeds from business
interruption and other losses (346) - - (346)
----------- ---------- ------------ ---------- -------- ---------
Income (loss) from operations (614) 2,242 4,535 271 - 6,434
----------- ---------- ------------ ---------- -------- ---------
Other expense:
Interest, net (205) (4,697) (103) 208 d 363 f (4,434)
Other, net (7) (49) (733) (789)
----------- ---------- ------------ ---------- -------- ---------
(212) (4,746) (836) 208 363 (5,223)
----------- ---------- ------------ ---------- -------- ---------
Income (loss) before income taxes and
minority interest (826) (2,504) 3,699 479 363 1,211
Minority interest, net of taxes - 119 - (267) q (148)
Income tax benefit (expense) (594) (391) - (1,518) e (145)g (2,648)
----------- ---------- ------------ ---------- -------- ---------
Net income (loss) $ (1,420) $ (2,776) $ 3,699 $ (1,306) $ 218 $ (1,585)
=========== ========== ============ ========== ======== =========
Net loss per common share $ (0.07) $ (0.02)
=========== =========
Net loss per common share-
assuming dilution $ (0.07) $ (0.02)
=========== =========
Weighted average number of common
shares outstanding 21,690 86,760
=========== =========
Weighted average number of common
shares outstanding-assuming
dilution 21,690 86,760
=========== =========
</TABLE>
The accompanying notes are an integral part of this Unaudited Pro Forma
Condensed Combined Statement of Earnings.
6
<PAGE>
PepsiAmericas, Inc.
Unaudited Pro Forma Condensed Combined Statement of Earnings
Six Months Ended June 30, 1999
(U.S. dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dakota
Delta Beverage Pro Forma
PepsiAmericas, Beverage Company, Credit
Inc. Group, Inc. Inc. Pro Forma Facility Pro Forma
(Historical) (Historical) (Historical) Adjustments Adjustments Combined
-------------- ------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 50,075 $ 177,742 $ 48,735 $ (137) a $ $ 276,415
Cost of sales 37,936 121,979 27,791 (137) a 187,569
----------- ---------- ------------ ---------- -------- ---------
Gross profit 12,139 55,763 20,944 - - 88,846
Selling, general and administrative
expenses 15,760 44,595 13,048 (1,079) c 72,324
Amortization of franchise costs and
other intangibles - 1,824 219 497 b 2,540
Fees related to combination of interests 692 - 1,349 (2,041) j - -
Losses on asset impairments 267 - - 267
----------- ---------- ------------ ---------- -------- ---------
Income (loss) from operations (4,580) 9,344 6,328 2,623 - 13,715
----------- ---------- ------------ ---------- -------- ---------
Other income (expense):
Interest, net (643) (9,618) (225) 406 d 718 f (9,362)
Other, net 102 (74) (55) (27)
----------- ---------- ------------ ---------- -------- ---------
(541) (9,692) (280) 406 718 (9,389)
----------- ---------- ------------ ---------- -------- ---------
Income (loss) before income taxes and
minority interest (5,121) (348) 6,048 3,029 718 4,326
Minority interest, net of taxes - 71 - (559) q (488)
Income tax benefit (expense) (69) 129 - (3,530) e (287) g (3,757)
----------- ---------- ------------ ---------- -------- ---------
Net income (loss) $ (5,190) $ (148) $ 6,048 $ (1,060) $ 431 $ 81
=========== ========== ============ ========== ======== =========
Net loss per common share $ (0.24) $ 0.00
=========== =========
Net loss per common share-
assuming dilution $ (0.24) $ 0.00
=========== =========
Weighted average number of common
shares outstanding 21,690 86,760
=========== =========
Weighted average number of common
shares outstanding-assuming
dilution 21,690 90,200
=========== =========
</TABLE>
The accompanying notes are an integral part of this Unaudited Pro Forma
Condensed Combined Statement of Earnings.
7
<PAGE>
PepsiAmericas, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 1999
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Dakota
Delta Beverage Pro Forma
PepsiAmericas, Beverage Company, Credit
Inc. Group, Inc. Inc. Pro Forma Facility Pro Forma
(Historical) (Historical) (Historical) Adjustments Adjustments Combined
-------------- ------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,801 $ 3,976 $ 646 $ 150 j $ $ 12,573
Accounts receivable:
Trade, net 13,351 27,601 9,106 (63) a 49,995
Marketing, advertising and related
parties 2,376 3,862 340 6,578
Other 2,412 2,650 575 (170) a 5,467
Inventories 3,308 19,701 3,143 26,152
Bottles, cases and shells 820 6,216 401 7,437
Deferred income taxes 32 4,628 - 4,660
Prepaid expenses and other assets 4,820 2,936 1,638 9,394
----------- ---------- ------------ --------- -------- ---------
Total current assets 34,920 71,570 15,849 (83) 122,256
PROPERTY AND EQUIPMENT, net 46,113 65,566 19,644 131,323
LONG-LIVED ASSETS HELD FOR SALE 2,615 - - 2,615
DEFERRED INCOME TAXES 1,221 21,169 - (1,605) h 20,785
INTANGIBLE ASSETS, net 1,112 107,169 12,819 49,183 i 2,367 k 172,650
OTHER ASSETS 951 15,134 1,563 (918) j 16,730
----------- ---------- ------------ --------- -------- ---------
Total assets $ 86,932 $ 280,608 $ 49,875 $ 46,577 $ 2,367 $ 466,359
=========== ========== ============ ========= ======== =========
CURRENT LIABILITIES:
Current installments of long-term debt
and other liabilities $ 1,087 $ 149 $ 2,500 $ $ $ 3,736
Accounts payable 6,411 16,087 3,398 (233) a 24,693
(970) j
Accrued expenses 7,571 17,433 6,484 (3,283) j (893) l 27,312
----------- ---------- ------------ --------- -------- ---------
Total current liabilities 15,069 33,669 12,382 (4,486) (893) 55,741
----------- ---------- ------------ --------- -------- ---------
LONG-TERM DEBT AND
OTHER LIABILITIES 20,823 186,513 37,186 1,843 o 4,600 l 256,265
5,300 j
MINORITY INTEREST - 3,563 - 31,725 p 35,288
ACCRUED PENSION COST 1,558 - - 1,558
SHAREHOLDERS' EQUITY:
Preferred stock - 31,725 - (31,725) p -
Common stock 217 - 1 650 m 868
Additional paid-in capital 127,516 115,765 5,011 44,088 m 292,380
Retained earnings (deficit) (75,955) (90,626) 28,695 (818) n (1,340) (140,044)
Note receivable from Pohlad Companies - - (33,400) (33,400)
Deferred compensation (406) (1) - (407)
Accumulated other comprehensive loss (1,890) - - (1,890)
----------- ---------- ------------ --------- -------- ---------
Total shareholders' equity 49,482 56,863 307 12,195 (1,340) 117,507
----------- ---------- ------------ --------- -------- ---------
Total liabilities and
shareholders' equity $ 86,932 $ 280,608 $ 49,875 $ 46,577 $ 2,367 $ 466,359
=========== ========== ============ ========= ======== =========
</TABLE>
The accompanying notes are an integral part of this Unaudited Pro Forma
Condensed Combined Balance Sheet.
8
<PAGE>
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
(a) Represents the elimination of intercompany transactions and balances
between PAS, Delta and Dakota.
(b) Represents additional amortization expense on the excess purchase price
resulting from PAS's acquisition of the non-Pohlad Companies' common equity
interests in Delta. The acquisition of the non-Pohlad Companies' equity
interests in Delta is accounted for using the "purchase" method of
accounting and will be reported at fair value.
(c) Represents a reduction in the management fees charged by Pohlad Companies
to reflect the pro forma management fees on a combined basis.
(d) Delta's senior notes, which will not be repaid by the credit facility, will
be reported at fair value using the "purchase" method of accounting. This
adjustment includes a reduction in the amortization of Delta's existing
deferred financing costs related to its senior notes and amortization of
the adjustment reflecting Delta's senior notes at fair value.
(e) Represents the income tax effect of the combination of PAS, Delta and
Dakota, including (1) the consolidation of PAS's holding company with Delta
and Dakota for U.S. income tax purposes and (2) the tax effect of the pro
forma adjustments.
(f) Represents the net reduction in interest expense resulting from the
replacement of certain existing indebtedness of PAS, Delta and Dakota with
the new credit facility. This adjustment includes a net favorable interest
rate differential, partially offset by incremental amortization of new
deferred financing costs.
PAS intends to use the proceeds (1) to provide to Delta for the purpose of
repaying subordinated debt, (2) to lend to Dakota for the purpose of
repaying senior secured notes (including a $1.8 million prepayment
penalty), (3) to repay PAS's secured term loan, and (4) for working capital
and acquisitions. The effect on income of a 1/8% variance in interest rates
approximated $72 thousand, $20 thousand, and $41 thousand, respectively,
for the year ended September 30, 1998, the three months ended December 31,
1998, and the six months ended June 30, 1999, net of income taxes.
(g) Represents the tax effect of the credit facility adjustments.
(h) Represents the deferred income tax effect of the consolidation of PAS's
holding company with Delta and Dakota for U.S. income tax purposes.
(i) Represents the net incremental goodwill resulting from PAS's acquisition of
the non-Pohlad Companies' equity interests in Delta. Such excess purchase
price will be amortized ratably over 40 years. The acquisition of the
non-Pohlad Companies' common equity interests in Delta is accounted for
using the "purchase" method of accounting and will be reported at fair
value.
9
<PAGE>
The fair value of the consideration exchanged for the non-Pohlad Companies'
common equity interests in Delta, including $2.2 million in acquisition
costs, approximates $61.5 million. As of June 30, 1999, a preliminary
allocation of such purchase price to Delta's tangible and intangible assets
and liabilities was as follows (in millions):
Tangible assets $ 147.8
Intangible assets (goodwill) 129.2
Liabilities and preferred stock (215.5)
-------
Purchase price $ 61.5
=======
(j) The companies expect acquisition-related costs to approximate $5.3 million.
Of this amount, approximately $2.2 million relates to the acquisition of
Delta by PAS and has been included in the Delta purchase price allocation.
The remainder has been reflected in retained earnings in the June 30, 1999
balance sheet and has been tax affected. The combined company will charge
these costs to earnings in the period in which the acquisitions are
consummated. Total expected acquisition-related costs will be funded by the
new credit facility and therefore are reflected as a long-term obligation.
Through June 30, 1999, approximately $3.0 million of acquisition costs had
been incurred, of which approximately $2.1 million had been expensed and
$0.9 million related to the Delta acquisition had been capitalized.
(k) Represents the net incremental deferred financing costs resulting from the
replacement of certain existing indebtedness of PAS, Delta and Dakota with
the new credit facility.
(l) Represents the accrual of estimated financing costs relating to the new
credit facility and a prepayment penalty relating to the early
extinguishment of Dakota's existing senior notes.
(m) Represents the balance sheet effect of the exchange of shares of PAS Class
B Common Stock for all of the outstanding common shares of Delta and
Dakota. The acquisition of the non-Pohlad Companies' common equity
interests in Delta is accounted for using the "purchase" method of
accounting and will be reported at fair value.
(n) Represents the effects of acquisition-related costs, net of taxes, and the
adjustment to deferred income taxes.
(o) Represents the step-up to fair value of Delta's senior notes, related to
the proportionate percentage of Delta represented by the non-Pohlad
Companies common equity interest in Delta being acquired.
(p) Represents the reclassification of Delta's preferred stock as a minority
interest of the combined company.
(q) Represents dividends declared on Delta's preferred stock, net of taxes.
10
<PAGE>
(r) Delta and Dakota have a calendar year-end for accounting purposes. The
unaudited pro-forma condensed combined statement of earnings for the year
ended September 30, 1998 includes PAS's statement of earnings for their
fiscal year ended September 30, 1998 and Delta's and Dakota's statements of
earnings for their calendar years ended December 31, 1998. Effective
January 1, 1999, PAS changed its fiscal year-end from September 30 to
December 31. Delta's and Dakota's results for the three months ended
December 31, 1998 are included again in the unaudited pro forma statement
of earnings for the three months ended December 31, 1998.
(c) Exhibits
10.1 Delta Exchange Agreement, effective June 28, 1999 (incorporated
by reference to the company's Current Report on Form 8-K, filed
with the SEC on July 15, 1999).
10.2 Dakota Exchange Agreement, effective June 28, 1999 (incorporated
by reference to the company's Current Report on Form 8-K, filed
with the SEC on July 15, 1999).
99.1 Press Release, dated October 15, 1999.
11
<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 hereunto duly authorized on October 26, 1999.
PepsiAmericas, Inc.
By: /s/ John F. Bierbaum
----------------------------------
John F. Bierbaum
Chief Financial Officer and
Vice President
12
<PAGE>
APPENDIX A
Report of Independent Public Accountants
To Delta Beverage Group, Inc.:
We have audited the accompanying consolidated balance sheets of Delta Beverage
Group, Inc. (a Delaware corporation) and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1998. 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 audits.
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 audits 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 Delta Beverage Group, Inc. and
subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Memphis, Tennessee,
March 2, 1999.
A-1
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,818 $ 4,680
Receivables, net of allowance for doubtful accounts of
$597 and $562
Trade................................................... 24,201 19,644
Marketing and advertising............................... 7,407 7,228
Other................................................... 2,715 2,924
Inventories, at cost...................................... 16,149 18,153
Shells, tanks and pallets................................. 6,378 6,340
Prepaid expenses and other................................ 1,783 986
Deferred income taxes..................................... 4,186 5,747
-------- --------
Total current assets.................................. 66,637 65,702
-------- --------
PROPERTY AND EQUIPMENT:
Land...................................................... 4,662 4,639
Buildings and improvements................................ 18,732 16,286
Machinery and equipment................................... 94,621 90,211
-------- --------
118,015 111,136
Less accumulated depreciation and amortization............ (56,476) (55,880)
-------- --------
61,539 55,256
-------- --------
OTHER ASSETS:
Cost of franchises in excess of net assets acquired, net
of accumulated
amortization of $54,300 and $50,652...................... 108,992 112,634
Deferred income taxes..................................... 21,071 19,481
Deferred financing costs and other........................ 13,413 7,841
-------- --------
143,476 139,956
-------- --------
$271,652 $260,914
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and other
liabilities.............................................. $ 240 $ 215
Accounts payable.......................................... 14,038 9,530
Accrued liabilities....................................... 16,274 16,088
-------- --------
Total current liabilities............................. 30,552 25,833
-------- --------
LONG-TERM DEBT AND OTHER LIABILITIES....................... 180,490 170,189
MINORITY INTEREST.......................................... 3,600 4,575
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock--
Series AA, $5,000 stated value, 30,000 shares
authorized, 6,158.84 and
5,802.77 shares issued and outstanding................. 30,794 29,014
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....................................... (89,547) (84,456)
Deferred compensation..................................... (2) (6)
-------- --------
57,010 60,317
-------- --------
$271,652 $260,914
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-2
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATIONS:
Net sales...................................... $352,085 $323,221 $312,284
Cost of sales.................................. 245,683 216,560 215,085
-------- -------- --------
Gross profit................................. 106,402 106,661 97,199
Selling, general and administrative expenses... 87,019 83,344 76,883
Amortization of franchise costs and other
intangibles................................... 3,648 3,648 3,664
-------- -------- --------
Operating income............................. 15,735 19,669 16,652
-------- -------- --------
OTHER EXPENSES (INCOME):
Interest....................................... 18,770 17,865 15,094
Other, net..................................... 175 (32) 620
-------- -------- --------
18,945 17,833 15,714
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST AND EXTRAORDINARY ITEM................. (3,210) 1,836 938
Income tax provision........................... (436) (2,040) (1,745)
Minority interest, net of taxes................ 335 65 48
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM................... (3,311) (139) (759)
Extraordinary item--loss on extinguishment of
debt, net of income tax benefit of $953....... -- -- (1,519)
-------- -------- --------
NET LOSS......................................... $ (3,311) $ (139) $ (2,278)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-3
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
Preferred Stock ---------------------------------
Series AA Voting Nonvoting
------------------ ---------------- ---------------- Additional
Number Number of Number of Paid-In Accumulated Deferred
of Shares Amount Shares Amount Shares Amount Capital Deficit Compensation Total
--------- -------- --------- ------ --------- ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1995............ 5,151.18 $ 25,756 20,301.87 $-- 32,949.93 $-- $115,765 $(78,781) $(22) $62,718
Preferred stock
dividends.......... 316.09 1,580 -- -- -- -- -- (1,580) -- --
Recognition of
expense under
deferred
compensation plan.. -- -- -- -- -- -- -- -- 9 9
Net loss............ -- -- -- -- -- -- -- (2,278) -- (2,278)
-------- -------- --------- ---- --------- ---- -------- --------- ---- -------
BALANCE AT DECEMBER
31, 1996............ 5,467.27 27,336 20,301.87 -- 32,949.93 -- 115,765 (82,639) (13) 60,449
Preferred stock
dividends.......... 335.50 1,678 -- -- -- -- -- (1,678) -- --
Recognition of
expense under
deferred
compensation plan.. -- -- -- -- -- -- -- -- 7 7
Net loss............ -- -- -- -- -- -- -- (139) -- (139)
-------- -------- --------- ---- --------- ---- -------- --------- ---- -------
BALANCE AT DECEMBER
31, 1997............ 5,802.77 29,014 20,301.87 -- 32,949.93 -- 115,765 (84,456) (6) 60,317
Preferred stock
dividends.......... 356.07 1,780 -- -- -- -- -- (1,780) -- --
Recognition of
expense under
deferred
compensation plan.. -- -- -- -- -- -- -- -- 4 4
Net loss............ -- -- -- -- -- -- -- (3,311) -- (3,311)
-------- -------- --------- ---- --------- ---- -------- --------- ---- -------
BALANCE AT DECEMBER
31, 1998............ 6,158.84 $ 30,794 20,301.87 $-- 32,949.93 $-- $115,765 $(89,547) $(2) $57,010
======== ======== ========= ==== ========= ==== ======== ========= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-4
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1998 1997 1996
-------- ------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (3,311) $ (139) $ (2,278)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 13,938 11,441 10,314
Noncash interest on long-term debt........... 5,884 5,514 4,891
Write-off of deferred financing fees......... -- -- 2,472
Change in deferred income taxes.............. (29) 1,670 357
Minority interest expense (income), before
taxes....................................... (367) 70 98
Net expense (payments) under deferred
compensation plans.......................... 325 1,812 (3)
Changes in current assets and liabilities:
Receivables................................ (4,527) (5,444) 3,426
Inventories................................ 2,004 (3,781) (692)
Shells, tanks and pallets.................. (38) (671) (147)
Prepaid expenses and other................. (655) (512) 665
Accounts payable and accrued liabilities... 3,822 198 2,606
-------- ------- ---------
Net cash provided by operating activities.. 17,046 10,158 21,709
-------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................... (14,885) (14,988) (8,964)
Payments for exclusive beverage pouring
rights........................................ (7,495) (1,625) (594)
Acquisitions of businesses..................... -- -- (1,130)
Deposit on land lease.......................... (540) -- --
Purchase of franchise rights................... -- -- (1,994)
Proceeds from sales of property and equipment.. 304 388 --
Collections on note receivable................. -- -- 110
Other.......................................... (21) 37 --
-------- ------- ---------
Net cash used in investing activities...... (22,637) (16,188) (12,572)
-------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt....... -- -- 120,000
Retirement of long-term debt................... -- -- (111,250)
Borrowings under revolving line of credit...... 20,500 12,000 --
Payments on revolving line of credit........... (14,900) (12,000) --
Payment of deferred financing costs............ -- (78) (5,946)
Principal payments on long-term debt and other
liabilities................................... (263) (585) (7,703)
Cash distribution to minority interest holder.. (608) (798) --
-------- ------- ---------
Net cash provided by (used in) financing
activities................................ 4,729 (1,461) (4,899)
-------- ------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS.............. (862) (7,491) 4,238
CASH AND CASH EQUIVALENTS, beginning of year..... 4,680 12,171 7,933
-------- ------- ---------
CASH AND CASH EQUIVALENTS, end of year........... $ 3,818 $ 4,680 $ 12,171
======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-5
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ORGANIZATION AND NATURE OF OPERATIONS
Delta Beverage Group, Inc. ("Delta") and the partnership described below
(collectively, the "Company") bottle and distribute beverage products,
principally Pepsi-Cola and Seven-Up products, in the mid-southern United States.
The franchise territories cover portions of Arkansas, Louisiana, Mississippi,
Tennessee and Texas. The partnership also distributes alcoholic malt beverages
in southern Louisiana.
The Company operates under exclusive bottling appointments and franchise
agreements with a number of soft drink concentrate and syrup producers. These
agreements contain provisions regarding the manufacturing, bottling, canning,
distribution and sale of the franchisors' products. The Company also distributes
alcoholic beverages pursuant to distributor agreements that contain provisions
regarding the distribution and sale of alcoholic beverages.
The Pepsi-Cola/Seven-Up Beverage Group of Louisiana (the "Joint Venture") is
a partnership between Delta and Poydras Street Investors, L.L.C. ("Poydras").
Delta's percentage ownership is 62% and Poydras' percentage ownership is 38%.
Beginning January 1, 2000, Delta can purchase the percentage interest of
Poydras at fair market value (as defined).
The Joint Venture's operations and net assets are consolidated with those of
Delta in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation. Poydras' share
of the Joint Venture's income (loss) and net assets is reflected as a minority
interest in the accompanying consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Accounting Estimates
The preparation of 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. The more significant estimates
with regard to these financial statements are disclosed in Note 12.
Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in short-term
securities with original maturities of three months or less. As of December 31,
1998, the Company had bank overdrafts of $2,054. Bank overdrafts are included in
accounts payable in the accompanying consolidated balance sheet.
Property and Equipment
Property and equipment are stated at cost. Property and equipment renewals and
betterments are capitalized, while maintenance and repair expenditures are
charged to operations currently. Depreciation is computed using the
straight-line method over the estimated useful lives of purchased property and
equipment, or the shorter of the lease terms or the estimated useful lives of
assets acquired under capital lease arrangements. Those lives are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements.......................................... 20-40
Machinery and equipment............................................. 2-10
</TABLE>
A-6
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Intangibles and Other Assets
The cost of franchises in excess of net assets acquired is being amortized on
a straight-line basis over 35 to 40 years. The Company, at least annually,
evaluates whether events or circumstances have occurred that may impact the
recoverability of franchise costs. Upon the occurrence of any such event or
circumstance, the Company remeasures the realizable portion of franchise costs
and adjusts the asset to the lesser of its carrying value or fair value.
Costs incurred to obtain long-term financing are deferred and amortized as
adjustments of interest using the effective interest method over the terms of
the related debt.
Amounts paid pursuant to contracts with outside parties providing the Company
with exclusive beverage pouring rights are capitalized as other assets in the
consolidated balance sheets and are amortized over the terms of the related
contracts.
Income Taxes
The Company uses the liability method of accounting for deferred income taxes.
Accordingly, deferred income taxes reflect both the estimated future tax
consequences attributable to operating loss and tax credit carryforwards, and
temporary differences between the Company's assets and liabilities for financial
reporting and income tax purposes, using income tax rates currently in effect.
Supplemental Cash Flow Information
During 1998, 1997 and 1996, the Company issued additional preferred shares as
payment-in-kind dividends on preferred stock of $1,780, $1,678 and $1,580,
respectively (see Note 8).
Interest paid in cash during 1998, 1997 and 1996 was $12,931, $12,281 and
$12,363, respectively. Income taxes of $371, $247 and $177 were paid in 1998,
1997 and 1996, respectively.
Concentration of Credit Risk
The Company's business activities are concentrated within the mid-southern
United States. However, management believes that there are no significant
concentrations of credit risk with any individual party or groups of parties.
Fair Values of Financial Instruments
The estimated fair values of the Company's financial instruments, except for
fixed rate long-term debt, approximate their carrying amounts. For fixed rate
long-term debt, fair value was estimated based on the current rates offered for
similar obligations and maturities. The estimated fair value of total long-term
debt and other liabilities was $187,000 at December 31, 1998 and $178,000 at
December 31, 1997, compared to a recorded value of $180,000 at December 31, 1998
and $170,000 at December 31, 1997.
3. ACQUISITIONS
In April 1996, the Joint Venture acquired substantially all of the assets of
Delta Distributing Company, a wholesale distributor of Miller Brewing Company
alcoholic beverages in Raceland, Louisiana. In May 1996, the Joint Venture
acquired the franchise rights from Heineken USA to distribute Heineken beer
products in the greater New Orleans area. The acquisitions were accounted for as
purchases, and the Company's consolidated results of operations include the
results of the acquisitions since their respective purchase dates. The impact of
the 1996 acquisitions on the Company's consolidated results of operations was
not material.
A-7
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
In connection with the 1996 acquisition of Delta Distributing Company and the
1995 acquisition of the assets of Miller Brands of Greater New Orleans, Inc. and
certain assets of Svoboda Distributing Company, Inc., the Joint Venture entered
into marketing support agreements with Miller Brewing Company's advertising
agency for the general promotion of Miller products in the greater New Orleans
area. The marketing support obligations have been capitalized and are being
amortized over five years.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and included the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Raw materials............................................ $ 3,116 $ 4,988
Finished goods........................................... 13,033 13,165
-------- -------
$ 16,149 $18,153
======== =======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31: 1998
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Payroll and related benefits............................ $ 1,713 $ 2,841
Income and other taxes.................................. 2,970 2,689
Insurance and related costs............................. 4,632 4,203
Interest................................................ 1,858 1,768
Marketing and advertising costs......................... 4,665 4,180
Other................................................... 436 407
-------- -------
$ 16,274 $16,088
======== =======
</TABLE>
6. INCOME TAXES
At December 31, 1998, the Company had federal income tax net operating loss
carryforwards of $27,074 which had been incurred since the predecessor business
was acquired in March 1988. These net operating loss carryforwards expire
through 2007. In addition, as of December 31, 1998 the Company had similar net
operating loss and tax credit carryforwards of $3,803 and $1,187, respectively,
which were incurred prior to March 1988. Effective at that date, the predecessor
business was acquired in a transaction accounted for as a purchase. The Internal
Revenue Code limits the Company's utilization of the acquired net operating loss
and tax credit carryforwards to $3,000 per year. These net operating loss and
tax credit carryforwards may be used through 2003.
The Company has recognized deferred income tax assets for the estimated future
income tax benefits of the pre- and post-acquisition net operating loss and tax
credit carryforwards that are expected to be realized through the reduction of
future taxable income from operations within the carryforward periods.
A-8
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Deferred income taxes were composed of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current deferred income tax assets...................... $ 4,186 $ 5,747
Noncurrent deferred income tax assets................... 27,245 25,109
------- -------
31,431 30,856
Noncurrent deferred income tax liabilities.............. (6,174) (5,628)
------- -------
$25,257 $25,228
======= =======
</TABLE>
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net operating loss and tax credit carryforwards....... $12,398 $14,213
Basis difference in preferred stock and common stock.. 8,020 8,120
Difference in book and tax basis of property and
equipment, deferred financing costs and other
assets............................................... (5,280) (4,590)
Deferred interest on subordinated debt, deferred
compensation, and reserves not currently deductible
for income tax purposes.............................. 10,119 7,485
------- -------
$25,257 $25,228
======= =======
</TABLE>
Income tax provision recorded in the consolidated statements of operations,
net of taxes applicable to minority interest and extraordinary item, was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current........................................ $ (465) $ (235) $ (289)
Deferred....................................... 29 (1,805) (1,456)
------- ------- -------
$ (436) $(2,040) $(1,745)
======= ======= =======
</TABLE>
A reconciliation of the income tax provision to the amount computed by
applying the federal statutory tax rate to income or loss before income taxes
was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ ------
<S> <C> <C> <C>
Statutory federal income
tax rate............... 34.0 % (34.0)% (34.0)%
State income taxes, net
of federal benefit..... (1.1) (4.5) (4.6)
Franchise cost
amortization........... (39.8) (70.4) (138.0)
Change in effective
state tax rate......... (5.0) -- --
Meals and entertainment
disallowance........... (2.6) (4.9) (8.4)
State tax credits....... 1.8 5.2 --
Other, net.............. (0.9) (2.5) (1.0)
----- ------ ------
(13.6)% (111.1)% (186.0)%
===== ====== ======
</TABLE>
A-9
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
7. LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt and other liabilities consisted of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Senior notes payable, 9.75%, due December 16, 2003... $120,000 $120,000
Subordinated notes payable, 11%, due December 23,
2003................................................ 48,573 43,640
Revolving line of credit............................. 5,600 --
Note payable to Poydras, interest at the prime rate
plus 1% (8.75% and 9.50% at December 31, 1998 and
1997, respectively), due December 31, 2007.......... 1,839 1,839
Capital lease obligations, 10.89%, due in monthly
installments through May 1999....................... 96 202
Marketing support obligation, imputed interest at
8.25% to 8.75%, payments due quarterly through June
30, 2000............................................ 331 489
Obligations under deferred compensation plans........ 3,333 3,276
Deferred purchase obligation......................... 900 900
Other long-term debt................................. 58 58
-------- --------
180,730 170,404
Less current maturities.............................. (240) (215)
-------- --------
$180,490 $170,189
======== ========
</TABLE>
In December 1996, the Company placed $120 million of new senior notes and
executed a new $30 million bank revolving line of credit. The net proceeds of
the debt offering were used primarily to retire the Company's prior senior notes
and the amounts outstanding under the Company's prior revolving line of credit.
In a registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933 and declared effective on February 12, 1997,
the Company exchanged the $120 million senior notes for new $120 million senior
notes. The new senior notes retained the same interest rate, maturity date and
ranking as the original senior notes. The Company did not receive any cash
proceeds from this transaction.
The senior notes are general unsecured obligations of the Company and are
senior to all existing and future subordinated indebtedness of the Company.
Interest on the senior notes is payable semi-annually on June 15 and December
15.
The new bank revolving line of credit matures on December 16, 2001 and bears
interest, at Delta'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 80% of Delta's eligible receivables and 50%
of Delta's eligible inventory. 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 or
at an otherwise mutually agreed upon rate of interest. The line of credit also
includes a $10 million limit for the issuance of letters of credit; the letter
of credit facility fee is based on the Eurodollar applicable margin less 0.125%.
The agreement also provides for a fee on the unused commitment ranging from
0.25% to 0.50%. Borrowings under the line of credit are secured by Delta's
accounts receivable and inventory.
Interest and commitment fees are payable quarterly.
As of December 31, 1998, $5,600 was outstanding under the revolving line of
credit, including $2,500 under the swing line facility. The interest rate as of
December 31, 1998 on amounts outstanding under the swing line facility was
6.88%, while the interest rate on remaining amounts outstanding was 8.25%. There
were no borrowings outstanding under the revolving line of credit as of December
31, 1997.
A-10
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
In connection with the debt placement described above, the Company incurred
financing fees of $4,885. These fees have been capitalized and are being
amortized over the terms of the related debt agreements. Deferred financing
costs relating to debt retired in 1996 of $2,472 were written off. This
write-off, less a related income tax benefit of $953, is reported as an
extraordinary item in the 1996 consolidated statement of operations.
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. The Company
issued additional subordinated notes of $4,935 and $4,431 under this provision
in 1998 and 1997, respectively. These additional notes bear interest at 11% and
are included with subordinated notes payable in the preceding table.
Certain of the subordinated debt holders are also preferred and non-voting
common shareholders of the Company.
The Company's long-term debt agreements require, among other things, the
maintenance of certain minimum financial ratios and financial requirements, and
limit additional indebtedness, sales of assets, investments and capital
expenditures. The agreements also restrict the payment of dividends and limit
capital stock transactions.
In 1995, the Company acquired Miller Brands of Greater New Orleans, Inc. The
purchase price included a $900 deferred obligation payable upon the Miller
business achieving an annual $8,000 gross profit.
Scheduled maturities of long-term debt and other liabilities during the four
years subsequent to 1999 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
2000.......................................... $ 154
2001.......................................... 5,634
2002.......................................... --
2003.......................................... 168,573
</TABLE>
8. SHAREHOLDERS' EQUITY
Preferred Stock
Authorized preferred stock consists of 30,000 designated Series AA preferred
shares. The Series AA preferred stock does not contain voting rights. Series AA
preferred shareholders receive cumulative dividends at an annual rate of 6%
based on the $5 thousand stated value per share. The rate will increase 2%
annually beginning October 1, 2004, but is limited to a cumulative increase of
8%. Dividends are payable quarterly in cash or in additional shares of Series AA
preferred stock. The Company is obligated to pay the dividends in cash once the
senior notes are retired. The preferred stock dividends for 1998, 1997 and 1996
were paid with additional preferred shares and are included in shareholders'
equity at December 31, 1998, 1997 and 1996. So long as the Series AA preferred
stock is outstanding, the Company cannot declare or pay dividends on its common
stock.
In the event of a liquidation, Series AA preferred shareholders have a $5
thousand per share liquidation preference.
Voting Common Stock
Voting common stock consists of 60,000 authorized shares.
A-11
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Non-Voting Common Stock
Non-voting common stock consists of 35,000 authorized shares. Should the
Company register its shares in a public offering, the non-voting common stock
may be converted, at the holder's option, into voting common stock. The
conversion rate is one share of non-voting common stock for one share of voting
common stock. The conversion rate is subject to adjustment in certain instances
as defined in the Certificate of Incorporation.
The transfer and sale of shares by and among the shareholders and the Company
are restricted by a Shareholders' Agreement.
9. LEASES
The Company leases certain buildings and other facilities, vehicles and
equipment under agreements expiring through 2010.
Future minimum rental payments under all noncancellable operating leases with
initial or remaining lease terms of one year or more were as follows at December
31, 1998:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1999........................................... $ 3,983
2000........................................... 3,054
2001........................................... 2,459
2002........................................... 1,785
2003........................................... 1,184
Thereafter..................................... 1,643
-------
$14,108
=======
</TABLE>
Total rent expense during 1998, 1997 and 1996 was $5,130, $4,252 and $3,587,
respectively.
10. RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with a company (the
"management company") controlled by three individuals who own shares of the
Company's common stock. For services performed pursuant to the agreement, the
Company pays the management company a management fee and a transaction fee.
Management fees of $550, $551 and $533 were paid during 1998, 1997 and 1996,
respectively. The transaction fee is payable upon the acquisition of additional
franchises and is equal to 1.5% of the acquisition cost of such franchises.
Affiliates of the management company also own common stock of the Company.
In 1998 the Company entered into an accounting services agreement with a
separate entity in which the management company described above owns a
controlling interest. For services performed pursuant to this agreement, the
affiliate pays the Company an accounting services fee. Accounting services fees
of $170 were incurred with this affiliate in 1998. In addition, the Company sold
$5,411 of product at cost to this affiliate in 1998 and as of December 31, 1998
had a receivable from this affiliate of $255.
11. EMPLOYEE BENEFITS
The Company sponsors a defined contribution employee benefit plan which covers
all eligible full-time employees. Prior to April 1, 1997, employees who
participated in the plan could defer up to 10% of their salaries and wages and
receive matching payments by the Company of 50% of those deferrals, limited to
annual employer contributions of $5 hundred per employee. Effective April 1,
1997, the plan was amended to increase the maximum employee deferral percentage
to 15% and maximum annual employer contributions to $1 thousand per employee.
The Company's contributions were $546 for 1998, $581 for 1997 and $257 for 1996.
A-12
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The Company also maintains a nonqualified deferred compensation plan which is
available for certain executives of the Company, as selected by the Company's
board of directors. Executives who participate in the plan may elect to defer a
percentage of their compensation (as defined), subject to limitations imposed by
the Internal Revenue Service and the Company, and are eligible to receive
discretionary contributions from the Company. Employee deferrals and employer
discretionary contributions are held in a trust restricted from the general
assets of the Company. Restricted assets held in trust, included in other assets
in the accompanying consolidated balance sheets, totaled $1,692 and $1,225 at
December 31, 1998 and 1997, respectively.
The Company has a restricted stock bonus plan under which executives and key
employees may be awarded shares of the Company's common stock. All shares
granted contain restrictions on sale or transfer; these restrictions lapse over
an eleven-year period. A maximum of 250 shares of common stock may be awarded
under this plan. At December 31, 1998 and 1997, 22 restricted shares were
outstanding, all of which were held by an officer.
The Company maintains a phantom stock plan available to certain key members of
management. This plan allows eligible executives to participate in the continued
success of the Company based upon the annual appreciation in the equity value of
the Company, as defined. The equivalent of 38,200 shares have been granted under
this plan. Each phantom stock award vests over a three-year period, and is
payable in cash or shares of the Company's common stock upon the earlier of the
participant's death, disability, termination or retirement. Each participant is
subject to a noncompete and nonsolicitation restriction in consideration of the
share equivalent grant. All grants contain restrictions on assignment or
transfer. There was no appreciation in the equity value of the Company, as
defined, in 1996. Effective December 31, 1997, the phantom stock plan was
amended to redefine the beginning equity value upon which appreciation in the
equity value of the Company is determined. As a result, in 1998 and 1997
benefits of $295 and $1,900, respectively, were earned under the amended plan.
12. CERTAIN SIGNIFICANT ESTIMATES
Self Insurance
The Company maintains self insurance reserves for estimated workers'
compensation and product, automobile and general liability claims. These
estimates are based on historical information along with certain assumptions
about future events. Changes in assumptions for items such as medical costs,
environmental hazards and legal actions, as well as changes in actual
experience, could cause these estimates to change in the near term.
As of December 31, 1998 and 1997, the Company had $8,454 and $9,124 in
outstanding letters of credit to secure the obligations to insurance companies
for workers' compensation and product, automobile and general liability claims.
Loss Contingencies
The Company is subject to various litigation, claims and assessments arising
in the normal course of business. Management believes that the ultimate
resolution of these matters, either individually or in the aggregate, will not
have a materially adverse effect on the Company's consolidated financial
position or results of operations.
Deferred Income Tax Assets
The Company has recorded deferred income tax assets reflecting the expected
future benefits of operating loss and tax credit carryforwards which expire in
varying amounts through 2007 (see Note 6). Realization is dependent on
generating sufficient taxable income prior to expiration of these carryforwards.
Although realization is not assured, management believes that it is more likely
than not that all of the deferred income tax assets will be realized. The amount
of the deferred income tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward periods are reduced.
A-13
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,976 $ 3,818
Receivables, net of allowance for doubtful accounts
of $341 and $597
Trade.............................................. 27,601 24,201
Marketing and advertising.......................... 3,862 7,407
Other.............................................. 2,650 2,715
Inventories, at cost................................. 19,701 16,149
Shells, tanks and pallets............................ 6,216 6,378
Prepaid expenses and other........................... 2,936 1,783
Deferred income taxes................................ 4,628 4,186
--------- --------
Total current assets............................... 71,570 66,637
--------- --------
PROPERTY AND EQUIPMENT:
Land................................................. 4,662 4,662
Buildings and improvements........................... 19,562 18,732
Machinery and equipment.............................. 101,532 94,621
--------- --------
125,756 118,015
Less accumulated depreciation........................ (60,190) (56,476)
--------- --------
65,566 61,539
--------- --------
OTHER ASSETS:
Cost of franchises in excess of net assets acquired,
net of accumulated amortization of
$56,123 and $54,300................................. 107,169 108,992
Deferred income taxes................................ 21,169 21,071
Deferred financing costs and other................... 15,134 13,413
--------- --------
143,472 143,476
--------- --------
$280,608 $271,652
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and other
liabilities......................................... $ 149 $ 240
Accounts payable..................................... 16,087 14,038
Accrued liabilities.................................. 17,433 16,274
--------- --------
Total current liabilities.......................... 33,669 30,552
--------- --------
LONG-TERM DEBT AND OTHER LIABILITIES.................. 186,513 180,490
MINORITY INTEREST..................................... 3,563 3,600
SHAREHOLDERS' EQUITY:
Preferred stock:
Series AA, $5,000 stated value, 30,000 shares authorized, 6,344.99 and
6,158.84 shares issued
and outstanding................................... 31,725 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.................................. (90,626) (89,547)
Deferred compensation................................ (1) (2)
--------- --------
56,863 57,010
--------- --------
$ 280,608 $271,652
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-14
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
June 30, June 30,
---------------- ------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATIONS:
Net sales............................. $96,487 $96,045 $177,742 $171,778
Cost of sales......................... 65,677 65,867 121,979 119,259
------- ------- -------- --------
Gross profit........................ 30,810 30,178 55,763 52,519
Selling, general and administrative
expenses............................. 22,739 22,369 44,595 43,368
Amortization of franchise costs and
other intangibles.................... 912 912 1,824 1,824
------- ------- -------- --------
Operating income.................... 7,159 6,897 9,344 7,327
------- ------- -------- --------
OTHER EXPENSES:
Interest.............................. 4,908 4,718 9,618 9,358
Other, net............................ 61 3 74 57
------- ------- -------- --------
4,969 4,721 9,692 9,415
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST...................... 2,190 2,176 (348) (2,088)
Income tax (provision) benefit........ (4,152) (1,430) 129 1,264
Minority interest, net of taxes....... (117) (77) 71 214
------- ------- -------- --------
NET INCOME (LOSS)....................... $(2,079) $ 669 $ (148) $ (610)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-15
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (148) $ (610)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 7,625 6,558
Non-cash interest on long-term debt.................... 3,138 2,879
Change in deferred income taxes........................ (540) (1,076)
Minority interest, before taxes........................ (37) (258)
Net expense under deferred compensation plans.......... 64 529
Changes in current assets and liabilities:
Receivables.......................................... 210 (3,573)
Inventories.......................................... (3,552) 41
Shells, tanks and pallets............................ 162 (50)
Prepaid expenses and other........................... (1,153) (2,058)
Accounts payable and accrued liabilities............. 3,067 5,992
-------- --------
Net cash provided by operating activities............ 8,836 8,374
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (8,630) (10,928)
Payments for exclusive beverage pouring rights........... (3,182) (2,164)
Proceeds from sales of property and equipment............ 41 37
Other.................................................... (26) (21)
-------- --------
Net cash used in investing activities................ (11,797) (13,076)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit................ 13,800 10,000
Payments on revolving line of credit..................... (10,500) (4,500)
Principal payments on long-term debt and other
liabilities............................................. (181) (141)
Cash distribution to minority interest holder............ -- (342)
-------- --------
Net cash provided by financing activities............ 3,119 5,017
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 158 315
CASH AND CASH EQUIVALENTS, beginning of period............. 3,818 4,680
-------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 3,976 $ 4,995
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-16
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited 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 June 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. 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 six months ended June 30, 1999, the Company issued additional preferred
shares as payment-in-kind dividends on preferred stock of approximately $0.9
million. The additional preferred shares are included in shareholders' equity as
of June 30, 1999.
3. 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 six
months ended June 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 June 30,
1999 consolidated balance sheet.
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 $8.9 million as of June 30, 1999, including $2.5 million under the
swing line facility.
4. INVENTORIES
Inventories included the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
Raw materials.................................... $ 4,291 $ 3,116
Finished goods................................... 15,410 13,033
------- -------
$19,701 $16,149
======= =======
</TABLE>
A-17
<PAGE>
Report of Independent Public Accountants
To Dakota Beverage Company, Inc.:
We have audited the accompanying consolidated balance sheets of Dakota
Beverage Company, Inc. (a Minnesota corporation and a wholly owned subsidiary of
Pohlad Companies) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholder's equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
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 audits 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 Dakota Beverage Company, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota, March 5, 1999 (except with respect to the matter
discussed in Note 7, regarding debt covenants, as to which the date is June 25,
1999)
A-18
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 315 $ 7,242
Receivables, net of allowance for doubtful accounts of
$178 and $128--
Trade.................................................. 7,720 7,190
Marketing and advertising.............................. 480 332
Other.................................................. 307 594
Inventories, at cost..................................... 2,471 2,213
Shells, tanks and pallets................................ 313 310
Prepaid expenses and other............................... 1,643 606
-------- --------
Total current assets................................. 13,249 18,487
-------- --------
PROPERTY AND EQUIPMENT:
Land..................................................... 875 1,046
Buildings and improvements............................... 8,515 8,397
Machinery and equipment.................................. 37,692 34,192
-------- --------
47,082 43,635
Less accumulated depreciation............................ (29,741) (27,698)
-------- --------
17,341 15,937
-------- --------
OTHER ASSETS:
Cost of franchises in excess of net assets acquired, net
of accumulated amortization of $4,753 and $4,314........ 12,400 12,704
Investment in affiliated company......................... 1,077 1,083
-------- --------
$ 44,067 $ 48,211
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt and other
liabilities............................................. $ 2,500 $ 2,000
Accounts payable......................................... 2,150 2,431
Accrued liabilities...................................... 4,080 4,284
-------- --------
Total current liabilities............................ 8,730 8,715
-------- --------
LONG-TERM DEBT AND OTHER LIABILITIES....................... 35,750 9,483
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock--$1 par value; 1,000 shares authorized,
issued and outstanding.................................. 1 1
Additional paid-in capital............................... 5,011 5,011
Retained earnings........................................ 27,975 25,001
Note receivable from Parent (Note 9)..................... (33,400) --
-------- --------
Total shareholder's equity (deficit)................. (413) 30,013
-------- --------
$ 44,067 $ 48,211
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-19
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
OPERATIONS:
Net sales......................................... $97,360 $94,899 $89,485
Cost of sales..................................... 57,020 53,949 52,902
------- ------- -------
Gross profit.................................... 40,340 40,950 36,583
Selling, general and administrative expenses...... 24,497 23,968 20,833
Amortization of franchise costs and other
intangibles...................................... 439 438 437
------- ------- -------
Operating income................................ 15,404 16,544 15,313
------- ------- -------
OTHER EXPENSES (INCOME):
Interest.......................................... 573 726 885
Other, net........................................ (22) 69 (81)
------- ------- -------
Total other expenses............................ 551 795 804
------- ------- -------
INCOME BEFORE INCOME TAXES.......................... 14,853 15,749 14,509
Income tax provision (benefit) (Notes 2 and 6)...... -- (2,462) 5,618
------- ------- -------
NET INCOME.......................................... $14,853 $18,211 $ 8,891
======= ======= =======
UNAUDITED PRO FORMA NET INCOME (Notes 2 and 6):
INCOME BEFORE INCOME TAXES........................ $14,853 $15,749 $14,509
PRO FORMA INCOME TAX PROVISION (Note 6)........... 5,592 6,141 5,618
------- ------- -------
PRO FORMA NET INCOME (Note 6)..................... $ 9,261 $ 9,608 $ 8,891
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-20
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Deficit)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------
Additional Note
Number Paid-In Retained Receivable
of Shares Amount Capital Earnings From Parent Total
--------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995................... 1,000 $ 1 $5,011 $13,152 $ -- $ 18,164
Net income............ -- -- -- 8,891 -- 8,891
Dividends............. -- -- -- (4,354) -- (4,354)
----- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31,
1996................... 1,000 1 5,011 17,689 -- 22,701
Net income............ -- -- -- 18,211 -- 18,211
Tax distributions
(Note 9)............. -- -- -- (6,139) -- (6,139)
Dividends............. -- -- -- (4,760) -- (4,760)
----- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31,
1997................... 1,000 1 5,011 25,001 -- 30,013
Net income............ -- -- -- 14,853 -- 14,853
Tax distributions
(Note 9)............. -- -- -- (6,523) -- (6,523)
Dividends............. -- -- -- (5,356) -- (5,356)
Note receivable from
Parent............... -- -- -- -- (33,400) (33,400)
----- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31,
1998................... 1,000 $ 1 $5,011 $27,975 $(33,400) $ (413)
===== === ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-21
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 14,853 $ 18,211 $ 8,891
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation and amortization................. 3,403 3,098 3,093
Change in deferred income taxes............... -- (2,462) (284)
Change in current assets and liabilities:
Receivables................................. (391) (1,027) (201)
Inventories, net............................ (258) (136) 85
Shells, tanks and pallets................... (3) 5 (33)
Prepaid expenses and other assets........... (1,037) (153) (235)
Accounts payable, accrued liabilities and
other liabilities.......................... (718) 1,195 1,390
-------- -------- -------
Net cash provided by operating
activities............................... 15,849 18,731 12,706
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment, net........ (4,544) (5,401) (4,844)
Proceeds from sales of property and equipment... 213 359 421
Acquisition of business......................... (166) (77) --
-------- -------- -------
Net cash used in investing activities..... (4,497) (5,119) (4,423)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of tax distribution..................... (6,523) (6,139) --
Payment of dividends............................ (5,356) (4,760) (3,957)
Repayment of long-term debt and other........... (8,217) (2,000) (2,000)
Borrowing on long-term debt and other........... 35,217 -- --
Note receivable for advances to Parent.......... (33,400) -- --
-------- -------- -------
Net cash used in financing activities..... (18,279) (12,899) (5,957)
-------- -------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... (6,927) 713 2,326
CASH AND CASH EQUIVALENTS, beginning of year...... 7,242 6,529 4,203
-------- -------- -------
CASH AND CASH EQUIVALENTS, end of year............ $ 315 $ 7,242 $ 6,529
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-22
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ORGANIZATION
Organization and Principles of Consolidation
Dakota Beverage Company, Inc. (Dakota or the Company) and Subsidiaries is a
wholly owned subsidiary of Pohlad Companies (the Parent). The Company bottles
and distributes beverage products, principally Pepsi-Cola and Dr.
Pepper/Seven-Up products in the north-central United States. The franchise
territories cover portions of North and South Dakota, Minnesota and Iowa.
Additionally, the Company owns and operates a full-line vending subsidiary in
Sioux Falls, South Dakota.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Accounting Estimates
The preparation of 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. The more significant estimates
with regard to these financial statements are disclosed in Note 11.
Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in short-term
securities with original maturities of three months or less.
Property and Equipment
Property and equipment are stated at cost. Property and equipment renewals and
betterments are capitalized, while maintenance and repair expenditures are
charged to operations currently. Depreciation is computed using the
straight-line method over the estimated useful lives of purchased property and
equipment. Those lives are as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
-----------
<S> <C>
Buildings and improvements.................................... 7-33 years
Machinery and equipment....................................... 3-12 years
</TABLE>
Intangibles and Other Assets
The cost of franchises in excess of net assets acquired is being amortized on
a straight-line basis over 35 to 40 years. The Company, at least annually,
evaluates whether events or circumstances have occurred that may impact the
recoverability of franchise costs. Upon the occurrence of any such event or
circumstance, the Company remeasures the realizable portion of franchise costs
and adjusts the asset to the lesser of its carrying value or fair value.
Costs incurred to obtain long-term financing are deferred and amortized as
adjustments of interest using the effective interest method over the term of the
related debt.
A-23
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Amounts paid pursuant to contracts with outside parties providing the Company
with exclusive beverage pouring rights are capitalized as other assets in the
consolidated balance sheets and are amortized over the terms of the related
contracts.
Income Taxes
Effective January 1, 1997, the Company elected S corporation status under the
applicable Internal Revenue Code and Minnesota Income Tax Act sections, whereby
the taxable income and any available tax credits of the Company are included in
the income tax returns of its shareholder.
Supplemental Cash Flow Information
Interest paid in cash during 1998, 1997 and 1996 was $1,511, $906 and
$1,074, respectively. There were no income taxes paid in 1998 or 1997. Income
taxes of $5,346 were paid in 1996.
Concentration of Credit Risk
The Company's business activities are concentrated within the north-central
United States. However, management believes that there are no significant
concentrations of credit risk with any individual party or groups of parties.
Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments, except for
fixed rate long-term debt, approximate their carrying amounts. For fixed rate
long-term debt, fair value was estimated based on the current rates offered for
similar obligations and maturities. The estimated fair value of total long-term
debt and other liabilities was $38,861 at December 31, 1998 and $11,483 at
December 31, 1997, compared to a recorded value of $38,250 at December 31, 1998
and $11,483 at December 31, 1997.
3. ACQUISITIONS
On March 31, 1999, the Company purchased all of the outstanding stock of S&R
Vending, a full-line vending operation based in Wahpeton, North Dakota. The
transaction has been accounted for under the purchase method of accounting, with
the excess purchase price over the book value of assets being assigned to
goodwill. Pro forma financial information is not presented as the aggregate
impact of the acquisition is immaterial to the Company.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Raw materials.............................................. $ 228 $ 208
Finished goods............................................. 2,243 2,005
------- ------
$ 2,471 $2,213
======= ======
</TABLE>
A-24
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Payroll and related benefits............................... $ 919 $1,400
Income tax dividend........................................ 790 996
Marketing and advertising.................................. 1,428 830
Insurance and other related costs.......................... 186 442
Interest................................................... 368 131
Other...................................................... 389 485
------ ------
$4,080 $4,284
====== ======
</TABLE>
6. INCOME TAXES:
As part of the change in its tax status, the Company has eliminated the effect
of all basis differences as a benefit for income taxes. The effect of those
differences at January 1, 1997 was recorded in the consolidated statements of
operations as a benefit for income taxes. As the Company is no longer required
to pay corporate income taxes, no provision for income taxes has been included
in the accompanying consolidated statements of operations subsequent to January
1, 1997.
Deferred income taxes were composed of the following at December 31, 1996
(prior to the change in tax status):
<TABLE>
<S> <C>
Current deferred income tax assets................................ $ 488
Noncurrent deferred income tax liabilities........................ $3,434
</TABLE>
The income tax provision recorded in the consolidated statements of
operations, was as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Current.................................................. $ -- $5,902
Deferred................................................. (2,462) (284)
------- ------
$(2,462) $5,618
======= ======
</TABLE>
A reconciliation of the income tax provision to the amount computed by
applying the federal statutory tax rate to income or loss before income taxes
was as follows for the period in which the Company was a C Corporation:
<TABLE>
<CAPTION>
1996
-----
<S> <C>
Statutory federal income tax rate................................. (34.0)%
State income taxes, net of federal benefit........................ (6.9)
Franchise cost amortization....................................... 1.4
Other, net........................................................ .8
-----
(38.7)%
=====
</TABLE>
A-25
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The unaudited pro forma income tax expense shown on the statement of
operations is presented assuming the Company had been a C corporation for the
years ended December 31, 1998 and 1997, using effective tax rates of 37.6% and
39.0%, respectively.
7. LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt and other liabilities consisted of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Senior notes payable--
7.39%, due February 2003.............................. $ 8,450 $10,450
6.97%, due August 2008................................ 20,000 --
Term loan, 6.35%, due February 2004..................... 5,000 --
Line of credit.......................................... 4,000 --
Other long-term obligations............................. 800 1,033
Less--Current maturities................................ (2,500) (2,000)
------- -------
$35,750 $ 9,483
======= =======
</TABLE>
In 1993, the Company placed $20,000 in senior secured notes (the 1993 Senior
Notes) which bear interest at 7.39%, payable quarterly. As of December 31, 1998,
the remaining principal balance on the 1993 Senior Notes is due in varying
semiannual installments through February 2003.
On July 15, 1998, the Company entered into a private placement offering for
$20,000 in additional senior secured notes (the 1998 Senior Notes) due
semiannually beginning February 1, 2002, which bear interest at a rate of 6.97%.
Under the terms of the 1993 and 1998 Senior Notes agreements, the Company's
tangible and intangible property is pledged as collateral. Additionally, the
Company is required to comply with certain requirements as defined in each of
the agreements. Effective June 25, 1999, the Company's Senior Notes agreements
were amended to revise certain financial covenants contained in the agreements.
The Company was in compliance with all covenants or had obtained waivers for
events of non-compliance as of December 31, 1998.
On July 15, 1998, the Company entered into an agreement with a bank for $5,000
of term debt which bears interest at a rate of LIBOR plus 1.1% (6.2% at December
31, 1998). The Company also has the option of locking in interest rates for
short periods of time (60 to 90 days), and has exercised this option by locking
into a rate of 6.35% as of December 31, 1998. The Company will make semiannual
payments on the term note commencing August 1, 1999.
The Company has a $25,000 line of credit with a bank. The line of credit bears
interest on outstanding advances, payable monthly, at LIBOR plus 1.1% (6.2% at
December 31, 1998). Additionally, the Company is required to pay a fee of .125%
per year on the unused portion of the line of credit. At December 31, 1998,
there were $4,000 of outstanding borrowings on the line of credit. There were no
outstanding borrowings as of December 31, 1997. Fees of $24 and $25 for 1998 and
1997, respectively, were paid on the unused portion, which is included in
interest expense on the accompanying consolidated statements of operations.
A-26
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Scheduled maturities of the long-term debt and other liabilities at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................... $ 2,500
2000........................................... 3,000
2001........................................... 3,000
2002........................................... 3,700
2003........................................... 3,750
Thereafter..................................... 22,300
-------
$38,250
=======
8. LEASES
The Company is obligated for the following future minimum rentals under
noncancellable operating leases as of December 31, 1998:
1999........................................... $ 517
2000........................................... 501
2001........................................... 426
2002........................................... 364
2003........................................... 265
Thereafter..................................... 352
-------
$ 2,425
=======
</TABLE>
Rent expense was $681, $548 and $582 for 1998, 1997 and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with its Parent. For
services performed pursuant to the agreement, the Company pays the management
company a management fee and a transaction fee. Management fees of $2,577,
$2,343 and $2,130 were paid in 1998, 1997 and 1996, respectively. The management
fee is calculated based on the prior year fees plus an additional 10%.
Affiliates of the management company also own common stock of the Company.
During 1998, the Company advanced $33,400 in cash to its Parent in exchange
for a note receivable. The note receivable is due in annual principal
installments of $500 beginning December 31, 2001, with a balloon payment of
$29,900 due on June 30, 2008. The note receivable bears interest at 7%, and all
interest payments on the note have been made through December 31, 1998. It is
the Parent's intent to have the note forgiven by the Company and, as such, the
note has been reflected as a component of stockholder's equity (deficit) on the
accompanying consolidated balance sheet.
In conjunction with its change in tax status, as discussed in Note 1, the
Company has declared monthly tax distributions in the form of a dividend to its
Parent in amounts equal to the income or other tax liabilities incurred by its
Parent at the highest incremental rate, inclusive of state, local and federal
taxes, totaling $6,523 and $6,139 in 1998 and 1997, respectively. These amounts
are included in tax distributions on the accompanying consolidated statements of
shareholder's equity (deficit). These tax distributions are calculated based on
approximately 45% of net income and are payable monthly.
The Company also declares and pays a quarterly dividend to its Parent for 50%
of net income, net of tax distributions. This dividend is included in the
accompanying consolidated statements of shareholder's equity (deficit).
A-27
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The Company has an interest in Wis-Pak, in which the Company purchases
substantially all of its bottled and canned beverages from Wis-Pak. Amounts
related to unsettled transactions are recorded in the receivable/payable
accounts in the accompanying consolidated balance sheets. The Company's
investment in Wis-Pak is accounted for under the cost method.
10. EMPLOYEE BENEFITS
The Company sponsors a defined contribution employee benefit plan which covers
all eligible full-time employees. Employees who participate in the plan can
defer up to 15% of their salaries and wages and receive matching payments by the
Company of up to 4%, up to a maximum of 50% of the employee's total
contribution. The Company's contributions were $297 for 1998, $267 for 1997 and
$236 for 1996.
The Company maintains a phantom stock plan available to certain key members of
management. This plan allows eligible executives to participate in the continued
success of the Company based upon the annual appreciation in the equity value of
the Company, as defined. The equivalent of 9,796 shares have been granted under
this plan. Each phantom stock award vests over a three-year period, and is
payable in cash or shares of the Company's common stock upon the earlier of the
participant's death, disability, termination or retirement. Each participant is
subject to a noncompete and nonsolicitation restriction in consideration of the
share-equivalent grant. All grants contain restrictions on assignment or
transfer. As of December 31, 1998 and 1997, benefits of $800 and $683,
respectively, were earned under the plan.
11. CERTAIN SIGNIFICANT ESTIMATES
Self-Insurance
The Company maintains self-insurance reserves for estimated workers'
compensation and healthcare. These estimates are based on historical information
along with certain assumptions about future events. Changes in assumptions for
items such as medical costs, environmental hazards and legal actions, as well as
changes in actual experience, could cause these estimates to change in the near
term.
Loss Contingencies
The Company is subject to various litigation, claims and assessments arising
in the normal course of business. Management believes that the ultimate
resolution of these matters, either individually or in the aggregate, will not
have a materially adverse effect on the Company's consolidated financial
position or results of operations.
A-28
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 646 $ 315
Receivables, net of allowance for doubtful accounts
of $92 and $178
Trade............................................. 9,106 7,720
Marketing and advertising......................... 340 480
Other............................................. 575 307
Inventories, at cost................................ 3,143 2,471
Shells, tanks and pallets........................... 401 313
Prepaid expenses and other.......................... 1,638 1,643
------- -------
Total current assets............................ 15,849 13,249
------- -------
PROPERTY AND EQUIPMENT:
Land................................................ 877 875
Buildings and improvements.......................... 8,589 8,515
Machinery and equipment............................. 41,406 37,692
------- -------
50,872 47,082
Less accumulated depreciation....................... (31,228) (29,741)
------- -------
19,644 17,341
------- -------
OTHER ASSETS
Cost of franchises in excess of net assets acquired,
net of accumulated amortization of $4,972 and
$4,753............................................. 12,819 12,400
Investment in affiliated company and other assets... 1,563 1,077
------- -------
$49,875 $44,067
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and other
liabilities........................................ $ 2,500 $ 2,500
Accounts payable.................................... 3,398 2,150
Accrued liabilities................................. 6,484 4,080
------- -------
Total current liabilities....................... 12,382 8,730
------- -------
LONG-TERM DEBT AND OTHER LIABILITIES.................. 37,186 35,750
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock--$1 par value; 1,000 shares authorized,
issued and outstanding............................. 1 1
Additional paid-in capital.......................... 5,011 5,011
Retained earnings................................... 28,695 27,975
Note receivable from parent......................... (33,400) (33,400)
------- -------
Total shareholder's equity (deficit)............ 307 (413)
------- -------
$49,875 $44,067
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-29
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Three Months Ended
Ended June 30, June 30,
--------------- ---------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATIONS:
Net sales.................................... $26,892 $26,439 $48,735 $47,571
Cost of sales................................ 15,341 15,746 27,791 28,085
------- ------- ------- -------
Gross profit............................... 11,551 10,693 20,944 19,486
Selling, general and administrative
expenses.................................... 6,688 5,941 13,048 11,922
Amortization of franchise costs and other
intangibles................................. 109 109 219 219
Fees related to combination of interests..... 1,349 -- 1,349 --
------- ------- ------- -------
Operating income........................... 3,405 4,643 6,328 7,345
------- ------- ------- -------
OTHER EXPENSES:
Interest, net................................ 113 158 225 292
Other, net................................... 24 117 55 190
------- ------- ------- -------
Total other expenses....................... 137 275 280 482
------- ------- ------- -------
INCOME BEFORE INCOME TAXES..................... 3,268 4,368 6,048 6,863
INCOME TAX PROVISION........................... -- -- -- --
------- ------- ------- -------
NET INCOME..................................... $ 3,268 $ 4,368 $ 6,048 $ 6,863
======= ======= ======= =======
UNAUDITED PRO FORMA NET INCOME:
INCOME BEFORE INCOME TAXES................... $ 3,268 $ 4,368 $ 6,048 $ 6,863
PRO FORMA INCOME TAX PROVISION............... 1,300 1,700 2,600 2,700
------- ------- ------- -------
PRO FORMA NET INCOME....................... $ 1,968 $ 2,668 $ 3,448 $ 4,163
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-30
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 6,048 $ 6,863
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization............................ 1,981 1,728
Fees related to combination of interests................. 1,349 --
Changes in current assets and liabilities:
Receivables............................................ (1,514) (1,417)
Inventories, net....................................... (672) (729)
Shells, tanks and pallets.............................. (88) (45)
Prepaid expenses and other assets...................... 5 (86)
Accounts payable, accrued liabilities and other........ 1,813 3
------- -------
Net cash provided by operating activities.............. 8,922 6,317
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment........................ (4,154) (3,853)
Proceeds from sale of property and equipment............... 65 295
Investment in franchise.................................... (610) 18
------- -------
Net cash used in investing activities.................. (4,699) (3,540)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends....................................... (2,000) (3,253)
Payment of tax distribution................................ (3,328) (3,089)
Borrowings under revolving line of credit.................. 6,475 --
Payments on under revolving line of credit................. (4,030) --
Principal payments on long-term debt and other
liabilities............................................... (1,009) (1,000)
------- -------
Net cash used in financing activities.................. (3,892) (7,342)
------- -------
Net increase (decrease) in cash and cash equivalents... 331 (4,565)
CASH AND CASH EQUIVALENTS, beginning of period............... 315 7,242
------- -------
CASH AND CASH EQUIVALENTS, end of period..................... $ 646 $ 2,677
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-31
<PAGE>
DAKOTA BEVERAGE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Dakota
Beverage Company, Inc. (Dakota or the Company), a Minnesota corporation and
subsidiaries 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 June 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. FEES RELATED TO COMBINATION OF INTERESTS
On June 28, 1999, the shareholder(s) of Dakota and Delta Beverage Group, Inc.
("Delta") entered into share exchange agreements with Pepsi-Cola Puerto Rico
Bottling Company ("PPR"). Dakota, Delta and PPR share common ownership and are
under the common control of the Pohlad Companies. Accordingly, the combination
will be accounted for as a merger of entities under common control. The
combination is subject to the approval of PPR's shareholders. During the three
months ended June 30, 1999, Dakota expensed approximately $1.3 million in
professional fees and other related costs attributable to combining the common
equity interests of Dakota, Delta and PPR.
3. ACQUISITION
On March 1, 1999, the Company purchased all of the outstanding stock of S&R
Vending, a full-line vending operation based in Wahpeton, North Dakota. The
transaction has been accounted for under the purchase method of accounting with
the excess purchase price over the book value of assets being assigned to
goodwill. Pro forma financial information is not presented as the aggregate
impact of the acquisition is immaterial to the Company.
4. LONG TERM DEBT AND OTHER LIABILITIES
During the first quarter of 1999, the Company borrowed an additional $2.4
million on the line of credit, which bears interest on outstanding advances,
payable monthly, at LIBOR plus 1.1% (6.75% at June 30, 1999). Borrowings
outstanding on the line of credit approximated $6.5 million as of June 30, 1999.
5. INVENTORIES
Inventories included the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
Raw materials.................................... $ 195 $ 228
Finished goods................................... 2,948 2,243
------ ------
$3,143 $2,471
====== ======
</TABLE>
6. SUBSEQUENT EVENT
On August 31, 1999, the Company purchased all of the assets of C&C Vending
Company, a full-line vending operation based in Aberdeen, South Dakota.
A-32
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Delta Exchange Agreement, effective June 28, 1999 (incorporated
by reference to the company's Current Report on Form 8-K, filed
with the SEC on July 15, 1999).
10.2 Dakota Exchange Agreement, effective June 28, 1999
(incorporated by reference to the company's Current Report on
Form 8-K, filed with the SEC on July 15, 1999).
99.1 Press Release, dated October 15, 1999.
<PAGE>
EXHIBIT 99.1
Pepsi-Cola Puerto Rico Bottling Company Completes Merger
And Changes Name to PepsiAmericas, Inc.
MINNEAPOLIS, Oct. 15 /PRNewswire/ -- Pepsi-Cola Puerto Rico Bottling
Company (NYSE: PPO) announced today that it completed the combination with Delta
Beverage Group, Inc. and Dakota Beverage Company, Inc., as approved by
shareholders on October 1, 1999. The company's stock will begin trading under
the name PepsiAmericas, Inc. and new ticker symbol - PAS - on Monday, October
18, 1999.
In conjunction with the closing of the acquisition, the Company obtained a
$185 million credit facility from a syndicate of banks led by Bank of America,
N.A. The Company will use the credit facility to pay costs related to the
acquisitions, to refinance existing debt, for working capital and to finance
future acquisitions.
"We are pleased that the mergers are completed," noted Robert C. Pohlad,
chairman and CEO of Pepsi-Cola Puerto Rico. "We are proud of our long-standing
relationship with Pepsi-Cola and look forward to expanding our business in the
U.S. and Caribbean regions in our role as a PepsiCo anchor bottler."
PepsiAmericas manufactures, distributes and markets PepsiCo soft drinks and
Cadbury Schweppes products in exclusive franchise territories that include
Puerto Rico and portions of Arkansas, Iowa, Louisiana, Minnesota, Mississippi,
North Dakota, South Dakota, Tennessee and Texas.
