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Harvard Business School

9-898-171
Rev. December 11, 2000

Nantucket Nectars
Well, we knew we were in an interesting position. We had five companies express interest in acquiring a portion of the company. Sometimes you have to laugh about how things occur. Tropicana (Seagram) and Ocean Spray became interested in us after reading an article in Brandweek magazine that erroneously reported that Triarc was in negotiations to buy us. (See Exhibit 1 for a copy of this article.) At the time, we hadn’t even met with
Triarc, although we knew their senior people from industry conferences. We have no idea how this rumor began. Within weeks Triarc and Pepsi contacted us. We told no one about these on-going negotiations and held all the meetings away from our offices so that no Nectars employee would become concerned. It was quite a frenetic time.
The most memorable day was just a few days ago actually. Firsty and I were in an extended meeting with Ocean Spray, making us late for our second round meeting with
Pepsi. Ultimately, Tom and I split up: Firsty stayed with Ocean Spray and I met with Pepsi.
Ocean Spray never knew about the Pepsi meeting. Tom and I have learned under fire throughout our Nectars experience, but this experience was a new one for us.
—Tom Scott, co-founder of Nantucket Nectars

Research Associate Jon M. Biotti prepared this case under the supervision of Professors Joseph B. Lassiter III and William A.
Sahlman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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It was certainly exciting to have some companies interested in acquiring Nantucket Nectars.
But, should the founders sell at this time? They had originally planned to take the company public.
The company was doing great, better than they had ever imagined. See Exhibit 2 for historical financials and Exhibit 3 for recent valuations of initial public offerings. But, many people, particularly company founders who were running their newly public companies, were telling them that going public wasn’t a completely positive experience. They wondered whether the company was even ready to go public. Regardless of their decision about going public, should they continue negotiating with potential buyers to find out the market value of their company? Ultimately, they needed to decide whether to sell the company or begin the initial public offering process. Of course, operating Nantucket Nectars as a stand alone company was always an option.

Background
Tom Scott and Tom First met while students at Brown University. (See Exhibit 4 for their résumés.) During their summers, the two created Allserve, a floating convenience store serving boats in the Nantucket Harbor. The founders decided to return to Nantucket after graduation to continue this service business. At the time, they sold ice, beer, soda, cigarettes and newspapers and performed services such as pumping waste and delivering groceries and laundry for boats in the Harbor. The founders did not even sell juice at that time. As First recalled, “we started what was basically a floating 7-Eleven.” 1
During the winter of 1990, First recreated a peach fruit juice drink that he had discovered during a trip to Spain. The drink inspired the two founders to start a side-business of making fresh juices. In the spring of 1990, the founders decided to hand bottle their new creation and sell them off their Allserve boat. “We started by making it in blenders and selling it in cups off the boat. But we also put it in milk cartons and wine bottles—there was a wine guy on the island—basically anything that we could find. 2” Everyone loved the product, prompting the founders to open the Allserve
General Store on Nantucket’s Straight Wharf. Soon thereafter, other Nantucket stores started carrying the product. In its first year, Nantucket Allserve sold 8,000 cases of its renamed juice,
Nantucket Nectars, and 20,000 the following year.

Financing
In the first two years, the two founders invested their collective life savings, about $17,000, in the company to contract an outside bottler and finance inventory. For the next two years, Nantucket
Nectars operated in an undercapitalized state on a small bank loan. Tom Scott recalled the situation:
We were scraping along. Everything was going back into the company. By early 1993, our few employees hadn’t been paid in a year, never mind that Tom and I hadn’t paid ourselves in three and a half years. But we worked all sorts of odd jobs on the side, especially during the winter. It was especially tough because we could see the juice really taking off.
Ultimately, the two founders and Ned Desmond, who would later become the Regional
Director of Sales and Marketing, persuaded Mike Egan to invest $600,000 in Nantucket Nectars in exchange for 50% of the company. The founders originally met Mike Egan while serving his boat in
Nantucket Harbor during the early days of Allserve. Mike Egan was the founder and former CEO of
Alamo Car Rentals and still maintained 93% of that company’s stock. While the founders were

1 Beverage Aisle, February 1996.
2 Beverage Aisle, February 1996.

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concerned about ceding a controlling share to an outsider, they needed the money and had no other options. Egan performed the function of trusted advisor while not meddling in the day-to-day operations of the business. As Egan explained, “I really made the investment because it makes me wake up in the morning and feel like I’m twenty-five again, trying to grow another company.”
The founders used the capital to improve distribution and increase inventory. First, they secured better, independent bottlers. Given their lack of credit history and Snapple’s fantastic growth, which utilized the majority of good bottler capacity, Nantucket Nectars previously had difficulty finding quality bottlers at an affordable price. Secondly, they built their own distribution arm with the equity capital. The founders needed to decide how to distribute their beverages in the early days, deciding between three options:




implement a large advertising campaign to build brand awareness while moving their product through an independent distributor channel which would carry multiple brands at the same time; contact retailers directly to create trade promotions; or, distribute the product yourself.

Given that Nantucket Nectars could not afford the first two strategies, the founders created a unique private distribution strategy where they themselves sold, delivered, and stocked the product.
Ned Desmond explained:
We were doing it all. We leased some warehouse space, bought an old van, and went up and down the street selling Nantucket Nectars and our passion to make the brand succeed. The retailers immediately loved our story and enjoyed seeing us stock the shelves ourselves. Becoming our own distributor allowed us to control the positioning of the product. We often rearranged the shelves to ensure that Nantucket
Nectars was better positioned than Snapple.
In order to speed up their growth, the founders obtained the exclusive rights to distribute
Arizona Iced Tea in Massachusetts. Boston was one of the top 5 New Age beverage markets in the
United States and Arizona Ice Tea needed a strong Boston position in its own race with Snapple.
While hoping to harness the "on-the-street, upstart energy" of the Nantucket Nectars team, Arizona
Iced Tea was more than prepared to cancel the contract if Nantucket Nectars did not perform.
The founders wanted to piggyback off the strong brand and higher volumes of Arizona Iced
Tea to build their own distribution arm and to get more outlets for their own products in the market.
Within three months the distribution division grew from seven to one hundred employees and from
2,000 to 30,000 cases sold per month. At the same time, the founders repackaged and reformulated their own product while convincing small stores to carry Nantucket Nectars along side the red-hot
Arizona Iced Tea. By the end of 1994, revenues surpassed $8 million.

Marketing and the Creation of a Brand
Most New Age 3 beverage companies must have clear differentiation because undercapitalization did not allow traditional, expensive advertising strategies and slotting charges for garnering shelf space. Nantucket Nectars relied on creative packaging, rapid and original product introductions, word-of-mouth and a memorable story line. Achieving this combination of low-priced but effective marketing was extremely difficult. Knowing this difficulty, the founders decided to focus on a simple vision without the help of any outside agencies: create a high quality product and

3 Term given to trendy, more healthy beverages such as ready-to-drink teas, sports drinks and juices.

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sell a persona. The result was the creation of a unique brand personality based on the start of the company on Nantucket. In the early days, Nantucket Nectars focused on creative but mundane ways of creating name recognition at a minimal cost. The company set up samplings, giveaways, sponsorship for road races and summer sports leagues which usually required only donation of product. In addition, the company set up publicity stunts including salespeople dressed up as fruits.
With the increased capital raised from Egan, the founders segued into radio ads as a means to push the Nantucket “story.” The founders described early mishaps in radio ads and placed messages underneath their bottle caps in order to attract consumer interest. See Exhibit 5, Exhibit 6 and
Exhibit 7 . For example, an early radio ad described how Ned Desmond, on the first sales trip to
Boston, crashed the Nantucket Nectars van on Storrow Drive destroying all the juice. Another radio ad explained how early employee Larry Perez accidentally dropped the proceeds from the first sale into the harbor.

Growth
The early days were extremely frustrating for the two founders. While customers clearly liked the product, Nantucket Nectars only had three flavors—Cranberry Grapefruit, Lemonade and
Peach Orange—and the founders were completely unsure of how to grow the business. Tom Scott explained: “The frustrations that we dealt with were immense. We didn’t know what point-of-sale was, we didn’t know what promotion was, we didn’t know what margin we should be making.4”
Product development
As a means to differentiate, Nantucket Nectars committed to creating high quality, all natural juice beverages without regard for the margins; the quality of the product came first. This strategy translated into replacing high fructose corn syrup with only pure cane sugar. The founders believed that using pure cane sugar would improve the taste without leaving the consumer thirsty like other sweetened beverages. Furthermore, the founders used four times the juice of other major brands to improve on their mantra of quality and taste. The founders also differentiated their product by introducing a proprietary 17.5 ounce bottle to complement their existing 12 ounce line as compared to competitors’ standard 16 ounce bottle. From the original three juice flavors, Nantucket
Nectars developed 27 flavors across three product lines during the first three years: 100% fruit juices, juice cocktails and ice teas/lemonades.
Sales and distribution Having started out as a "floating 7-Eleven," the founders had been distributors long before they had been suppliers and marketers of juice. At first, the founders structured their in-house distribution arm to target delis, sandwich shops, small markets, gourmet food shops, convenience stores and food service cafeterias. The Arizona Iced Tea contract and their own self-confidence lead them to launch a broader distribution business with the hopes of carrying multiple brands and higher volumes at lower costs into the New England market. This new business allowed them to penetrate even more of the small outlets and to begin building up a presence in the larger stores and chains. They learned the "ins and outs" of the distribution business and forged relationships with many independent distributors around the country. Unfortunately, they also learned that the economics of the distribution business really required one of the "big brands" or you just could not carry the overhead. Having "made every mistake in the book," the founders gained a new respect for the talent and time it took to scale up a business. In 1995, the founders sold their distribution arm after losing $2 million in the previous year. They believed that their brand was firmly entrenched on the shelves and were confident that any adverse effects on revenue growth caused by selling the distribution business would be small. The founders concentrated on marketing their own product and developing the Nantucket Nectars brand name. The priority at Nantucket
Nectars was “moving the juice.”

4 Beverage Aisle, February 1996.

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The company switched the distribution of Nantucket Nectars to a combination of in-house salesforce and outside distributors. The company granted exclusive rights to sell Nantucket Nectars products within a defined territory while allowing those distributors to carry other beverage products as well. The company wrote multi-year agreements with most of its distributors. When an order was placed at company headquarters from the outside distributor, the company selected an outside trucking source to pick up the products from the bottler of the beverage to deliver to the appropriate distributors. The distributors then sold and delivered the product to retail outlets from their warehouses using their own salespeople and delivery drivers. The company initiated incentive programs aimed at distributors and their salespeople to promote Nantucket Nectars through stocking, merchandising and retail sales deals. These programs, which were budgeted individually by territory, were meant to gain shelf space and visibility.
With the direct salesforce, Nantucket Nectars called the store accounts to sell the product.
The salesforce also employed the strategy of visiting all small retailers to make sure that the product was displayed well, “eye to thigh” and also to check the distributor’s work. The strategy was to build steadily a sustainable organization through strong relations with either the best distributors or individual vendors. As Tom Scott explained, “we were not trying to build a house of cards, we wanted solid long-term growth.”

Consumer Tastes and Preferences
Nantucket Nectars was fortunate to have caught a new wave emerging in the beverage industry, the “New Age” segment, including ready-to-drink teas, water, juices and sports drinks.
Tremendous growth occurred in this segment from 1992 through 1995:
Table A

Three Year Compound Annual Growth Rate for New Age Beverage Segments

Category
Ready-to-Drink Teas
Water
Juices
Sports Drinks

Three Year CAGR (1992-1995)
24%
34%
32%
12%

Driving this strong growth were trendy young consumers pursuing healthier lifestyles yet faced with fast-paced lifestyles and shortened lunches. For these reasons, they appreciated large, single-serve packaging of New Age beverages and the “gulpability” of lighter, non-carbonated, natural fruit juices.

Competition
Competition surfaced in three major ways in the New Age beverage world. First, a competitor might simply undercut in pricing to flood the market while also offering a high quality or innovative product. The second way of competing involved image and brand strength: brand advertising, packaging, trade and consumer promotions. Lastly, brands competed, especially the large players in the beverage industry, by blocking the smaller, less powerful players from the retailer shelf space. At Christy’s in Harvard Square, the New Age beverages held over 75% of the chilled beverage space with the remainder controlled by traditional carbonated beverages. The proliferation of brands and flavors confused and distracted even the most loyal juice drinker. Promotions, new flavors and even new brands tempted the consumer to try new products. See Exhibit 8 for a list of
New Age beverages at the Harvard Square Christy’s. So far, more than 100 companies from traditional beverage companies like Coca Cola to regional start-ups like Arizona launched New Age beverages hoping to capture shifting consumer tastes. Product innovation was a critical element of
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competitiveness and created an incredibly fierce battle for shelf space, especially among regional companies focused on differentiating themselves through flavors, packaging and image.
Commenting on this competition, Tom First stated:
If we had known how unattractive the industry dynamics were before we started our business, we probably would not have started Nantucket Nectars.
However, now that we’re in the business, we think that the odds of someone replicating what we did are very slim. The industry dynamics and the fast-paced changes within the industry really decrease the probabilities of an early entrant’s success. Many industry analysts believed that competition would increase as New Age beverages became the latest battle ground in the Cola Wars. Coke, Pepsi and Seagrams were all fighting to become the best “total beverage company” to serve the masses while also responding to new beverage trends. New Age beverages were an opportunity to bolster flattening cola and alcohol businesses with short-term profits, and to improve their competencies at serving niche markets.
These firms supported a portfolio of beverage brands with expensive marketing and sophisticated distribution skills. Their access to supermarkets through controlling shelf space, vending machines, convenience stores and fountain distribution channels combined with mass marketing and brand awareness provided them with distinct advantages in developing brands even though their procedures and image inhibit their ability to exploit non-traditional, rapidly changing market opportunities. Furthermore, scale lowered a beverage company’s cost structure by decreasing the cost of per unit ingredients and distribution.
Meanwhile, the customer clearly had many substitutes from which to choose (water, carbonated sodas, alcoholic beverages, sports drinks, and other fruit juices and ready-to-drink teas) and had no switching costs. Furthermore, some people questioned the sustainability of any New Age beverage brand given the “fad” status of this segment.

Profitability and Cost Management
Fiscal year 1995 represented the first year of profitability for the company. The company’s margins were among the lowest in the New Age beverage category given the founders’ emphasis on quality. Unfortunately, high sales growth forced the founders to focus on increasing production to meet high demand, rather than delivering quality at a favorable cost. Their lower margins were a result of higher quality ingredients in the juices and limited futures contracts in commodity procurement. All natural juice beverages depended on commodities for their raw inputs, placing their margins at risk to the markets. Furthermore, Nantucket Nectars juice cocktails were made with real cane sugar which was more expensive than the high fructose corn syrup used in most competitive products. The company also used four times more fruit juice in its products instead of relying on water and artificial flavorings. Lastly, unlike many competitors, the company offered a full line of 100% unsweetened juices.
The company’s rapid growth and emphasis on quality ingredients accentuated its competitive disadvantages in raw material procurement and plant scheduling. Because of difficulty in predicting growth, the founders were unable to institutionalize future contracts on ingredients. As a consequence, the company was heavily dependent on the harvests as competitors were more likely to secure products if there were a shortage. For example, due to the poor 1995 cranberry harvest,
Nantucket Nectars got no cranberries because Ocean Spray controlled all the supplies. This competitive disadvantage in procurement had an even greater impact on Nantucket Nectar’s margins because of the higher fruit content in their products.

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Nantucket Nectars’ Strategy
In August 1997, responding to the launch of competitors’ new product lines, Nantucket
Nectars launched a new line of beverages, called Super Nectars, which were herbally enhanced and pasteurized fruit juices and teas. Four of the six new flavors were made from no less than 80% real fruit juice while the remaining two were naturally steeped from green tea and flavored with real fruit juice and honey. Each Super Nectar was created with a concern for both great taste and good health.
Table B

List of Super Nectars

Product Name

Description

Chi’I Green Tea

green tea and ginseng mix flavored with white clover honey, lemon, gardenia; offered the health benefits of traditional green tea and the revitalizing powers of ginseng.

Protein Smoothie

combined the power of natural soy protein with the great tasting juices of strawberries, bananas, oranges, and coconuts. Super Nectars Protein Smoothie offered the nine essential amino acids that the body cannot manufacture on its own.

Vital-C

100% real fruit juice made primarily from the acerola berry, a fruit native to the West
Indies and known as a vitamin C powerhouse. Acerola was blended with the juices of other fruits including strawberries, kiwifruits, and oranges to offer 140% of the recommended daily allowance of vitamin C.

Ginkgo Mango

blended with 100% orange and mango juices, offered the health benefits of ginkgo, an ancient Chinese medicinal herb derived from the ginkgo biloba tree. The medicinal uses of ginkgo can be traced back to ancient healing practices where it was valued for its ability to benefit the brain.

Green Angel

combined the valued herbs of spirulina, echinacea, wheat grass, and angelica with the juices of white grapes, bananas, and pineapple. Echinacea was an herb known to enhance the immune system and spirulina was one of nature’s richest protein foods.
Wheat grass was a natural vitamin supplement that offered minerals, amino acids, and enzymes, and angelica was valued for its ability to promote healing and balance.

Red Guarana Tea

an herbal tea mixed with white clover honey, cranberry juice, and guarana nut berry, a plant native to the Amazon region. Guarana was naturally high in caffeine and a valuable source of energy.

Furthermore, there was evidence to suggest that Nantucket Nectars should maintain their growth for at least the next five years:
Table C

Projected U.S. Retail Sales of New Age Beverages, by Product Category from 1991 to 2000
(in millions)5

Category

1991

Alternative Fruit Drinks
Gourmet/Natural Sodas
Flavor-essenced Waters
Juice Sparklers

$236.8
371.9
304.1
232.9

$857.0
627.7
329.7
238.4

$1,328.8
697.5
259.2
231.2

21.1%
7.2
(1.8)
(0.1 )

$1,145.7

$2,052.8

$2,516.7

9.1%

Total

1995

2000

CAGR (1991-2000)

5 Beverage Industry, March 1997, p. 51.

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Table D

Nantucket Nectars

Location of All New Age Beverages Sold, 19966

Location

Percentage Sold

Supermarkets
Convenience Stores and Smaller Mass-Volume Stores
Health/Natural Food and Gourmet Stores

55%
35%
10%

Total

100%

As one compares the channel location of all New Age beverages sold with Nantucket
Nectar’s current sales, one sees the tremendous upside with supermarket distribution:

Table E

Sales Location (Channels) for Nantucket Nectars, 1996

Location

Percentage Sales

Supermarket Channel
Convenience Chains
All Others (delis, educational institutions, etc.)

1%
6%
93%

Total

100%

This apparent growth potential was also demonstrated by the potential geographic expansion capabilities of the Nantucket Nectars brand. The following table represented the current geographic sales of the brand:
Table F

Current Geographic Sales Percentages

Location
Northeast US
Mid Atlantic/Southeast US
Midwest
West
International
Total

Sales Percentage
38%
29%
9%
9%
15%
100%

Based on these growth opportunities, the founders wondered whether a buyer would possibly pay an appropriate price given the negative publicity associated with the Snapple transaction, a previous high growth beverage company.
The founders were also aware that their success to date was accomplished through the more fragmented channels like convenience stores, delis, educational institutions and health and gourmet stores which demanded single-serve product. They also wanted to market their product through the supermarket channel which demanded multi-serve product.

6 Beverage Industry, March 1997, Page 50.

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The Snapple deal Outside of macro-economic conditions and the stock market jitters of October
1997, the Snapple deal profoundly affected the New Age beverage market. In November, 1994,
Quaker Oats purchased Snapple from Thomas Lee for $1.7 billion. By 1997, Quaker Oats conceded its defeat, selling Snapple to Triarc for $300 million, while firing their chief executive officer, William
Smithburg. Industry experts blamed Snapple’s decline on Quaker’s problems with Snapple’s distributors as well as a new marketing strategy. Quaker Oats replaced Howard Stern and “Wendy the Snapple Lady” with the corporate “Threedom is Freedom” advertising campaign. Quaker Oats also attempted to take away the most profitable distribution business from the distributors in order to utilize its own Gatorade distribution arm. Due to expensive legal agreements called “Take or Pay” contracts, Quaker Oats was forced to keep their old distributors or pay exorbitant fees to break away from them. Ultimately, they decided to stay with the old distribution system. However, the old distributors by that time had relegated Snapple to secondary status causing Snapple sales to decline precipitously. Quaker’s strategy to drop their old distribution network became known as
Snappleization within the distribution industry: a distributor lost its distribution contract after a beverage company was acquired by a bigger player. The acquirer moved distribution either in-house or simply to larger distributors after the first distribution network helped build the market for the beverage. Corporate Strategy
The founders wondered what to do with the company. They wanted to grow the company but were worried about the associated risks. Given their growth needs, they needed to decide whether to sell a part or all of the company, operate under status quo, or undergo an IPO. Mark
Hellendrung, Nantucket Nectars CFO, described the consensus of senior management: “The decision was difficult because we felt comfortable operating our company independently with our current capital structure, under an IPO scenario, or with a strategic partner making an investment in our company.” If they decided to proceed with a sale, they wondered how to handle the negotiations in order to maximize the price. How could they hold all the meetings so that their employees would not find out prematurely about the transaction? The founders also worried about whether the ownership structure of the company helped or hindered the negotiation process. By the time of the case, Mike
Egan, the individual investor, had aggregated 55% of the company due to follow-on investments which permitted early operating losses.
With all these issues, Tom and Tom wondered if they needed advisors to help them with the process? If so, should they hire a local investment banker from Boston or a large investment bank from New York? Should they organize a full blown auction of Nantucket Nectars? Would there be any adverse effects if, after a high profile auction, the founders decided not to sell? Should they pick two strategic players and ask them for a preemptive offer for the company? Or should they identify six or so potential bidders and contact them to assess their interest in entering a bidding process. See
Exhibit 9 for descriptions of major potential bidders. Also, how should the founders handle the beginning of a negotiation: should they specify a minimum bid or force the buyers to submit their first bids?
Lastly, Tom Scott and Tom First wondered how to structure the potential transaction. They both believed strongly in the upside potential of their company but were also concerned about holding the stock of a different company. Should they negotiate the best cash deal possible without a long-term management responsibility or should they negotiate for acquirer stock in order to participate in the company’s continued upside? How would the chosen strategy affect the valued employees who had helped build the company? With all these issues swirling around in their minds,
Tom Scott and Tom First turned their attention to the potential valuation of their company.

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Valuation Analysis
Beyond the numbers and the marketplace, the founders wondered what significant assets and skills within Nantucket Nectars drove their corporate value. The founders decided to hold internal brainstorming sessions to analyze why Nantucket Nectars succeeded and therefore deserved a premium for the brand. The founders came up with the following list of value drivers:








Great product: great tasting, all natural product
Current management team
Value of the brand: quirky, eccentric and memorable Geographic expansion capabilities: current sales base and future sales base
Management’s knowledge of and experience with the single-serve business: ability to add value to large player rolling out new singleserve products
Guerrilla marketing skills

• Ability to exploit small, rapidly changing market opportunities • A more appealing story than any other juice beverage company (great material for a company with a large marketing budget and more distribution power);
• A stabilizing cost structure
• Access to 18-34 market
• Last good access to single-serve distribution in the New Age beverage market
• Best vehicle for juice companies to expand into juice cocktail category without risking their own brand equity

The founders wondered how all these assets were reflected in the pro formas and the actual valuation of the company. They decided to analyze the valuation in three different ways: discounted cash flow, comparable acquisitions and comparable trading. They wondered if these analyses prepared them for the potential negotiations with the buyers. As Tom First described the situation,
“this kind of analysis tells us nothing about what certain buyers can do for Nantucket Nectars concerning improved cost structure or increased sales through wider distribution. The difficult question is how do we figure out what the value of Nantucket Nectars is to someone else, not just us.” The founders believed that most acquirers would provide scale economies on costs of goods sold decreasing costs approximately 10% to 20% depending on the acquirer. See Exhibit 10 for comparable trading, Exhibit 11 for comparable operating statistics and Exhibit 12 for comparable acquisitions. Exhibit 13 shows a basic discounted cash flow based on company pro formas.
Furthermore, Nantucket Nectars had rolled out a larger-sized bottle (36 ounce bottle) for the supermarkets but the company was having difficulty securing shelf space in the larger supermarket chains. Sales Aftermath
The founders were also very concerned with the outcome after a sale. Nantucket Nectars currently has 100 employees of which there were 15 accountants, 20 marketers, 57 salespeople, 5 sales administrators and 3 quality control people. Depending on the structure of the potential transaction, what would happen to these people?
Another major concern was that the culture of the firm would change drastically depending on whether a transaction was consummated and with whom. Nantucket Nectars still maintained a non-formal dress code; it was very uncommon to see anyone dressed in business attire. The organization of the firm was still non-hierarchical with all employees able to approach the two Toms.
See Exhibit 14. Tom First described this concern: “Destroying the entrepreneurial spirit that has made the company special is one of my biggest fears. Once you start departmentalizing, you lose that. It is essential that we maintain our culture so that work is still fun.”
The founders were also concerned about the management involvement of any potential strategic partner. Both founders wanted to continue to run the company if possible. Lastly, the founders did not want to have their effective sales and marketing story negatively affected because of ownership issues. Would consumers continue to enjoy the Nantucket Nectars story if the company were actually owned by a large public company?
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Exhibit 1

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Brandweek Article on Potential Transaction

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Exhibit 2

Nantucket Nectars

Historical Financials of Nantucket Nectars ($000s)

December 31 of each year

1991

1992

1993

1994

1995

1996

Total Revenue

$233

$379

$978

$8,345

$15,335

$29,493

Cost of Sales

172

317

765

6,831

11,024

20,511

61

62

213

1,514

4,311

8,982

Marketing and Advertising

0

0

0

320

875

2,581

General and Administrative

82

62

90

3,290

3,344

5,432

Total Expenses

82

62

90

3,610

4,219

8,013

EBITDA

-21

0

123

-2,096

91

969

Gross Profit

Amortization and Depreciation

0

Exhibit 3

247

-45

722

5

7

53

139

301

-9

116

-2,252

-184

421

0

0

0

16

52

-21

Net Income (Loss)

137

-2,199

0

Income Tax Expense

104

123

-21

Earnings before Taxes

0

-4

0

Interest Expense

4

-21

EBIT

-9

116

-2,252

-200

369

IPO Data from SDC

Company

Description

Saratoga

Bottled

Beverage

Bottles

Beverages

Market
Value at
IPO
(millions)

FYE a
Sales in
IPO Year
(millions)

FYE EBIT in IPO
Year
(Millions)

LTMb
Sales at LTM EBIT
IPO
at IPO
(millions) (millions)

Current
Market
Value
(millions)

IPO Date

Proceeds
(millions)

6/23/93

6.00

$5.00

1.20

10.4

6.2

-2.5

NA

NA

6.3

9/21/93

293.3

$25.5

11.5

854.6

1110.8

122.0

1060.5

NA

3249.2

Spring Water

Panamerican

Spring Water

Offer
Price

Shares
Offered
(millions)

0

Odwalla

Juice

12/15/93

6.3

$9.00

.700

13.5

12.6

-.16

17.1

NA

38.3

Redhook Ale

Specialty

8/16/95

38.3

$17.0

2.25

114.3

25.9

5.4

19.9

NA

49.0

Brewery

Beer

Pete’s

Specialty

3.45

248.9

59.2

2.8

51.5

1.9

52.5

Brewing

Beer

3.56

491.5

151.3

10.6

142.1

NA

153.2

Boston Beer

Specialty

0
11/06/95

62.1

0
11/20/95

71.3

Beer
Lion Brewery

Specialty

$18.0

$20.0
0

5/02/96

11.3

$6.00

1.88

21.9

26.4

3.1

25.2

NA

14.6

9/11/96

10.0

$5.50

1.82

18.9

0.43

-.36

.42

-.10

4.6

2/11/97

4.5

$5.00

.900

12.1

0.51

-.85

.51

-0.9

1.5

Beer
American

Specialty

Craft Brewing

Beer

Independenc

Specialty

e Brewing

Beer

aFYE stands for Fiscal Year Ending. bLTM stands for Last Twelve Months.

12

Nantucket Nectars

Exhibit 4

898-171

Résumés of Tom Scott and Tom First

Tom Scott
Born in Alexandria, VA in 1966, Tom spent his childhood in Chevy Chase, MD. He attended Landon
School in Bethesda, MD where he lettered in football, basketball and lacrosse. He continued his education at Brown University in providence, RI. Brown offered Tom the opportunity to pursue his various interests including Varsity Football, theater and outdoor leadership programs. While garnering accomplishments in these areas, Tom also managed to earn a degree in American
Civilization and start a business during his summers on Nantucket Island.
In the summer of 1988, Tom founded Nantucket Allserve, a boat business which serviced boats in
Nantucket Harbor; he was soon joined by his current partner, and college friend, Tom First. From this first business, grew their second venture and most notable accomplishment to date, Nantucket
Nectars.
Tom currently lives in Boston and Nantucket and is accompanied at all times by his dog, Becky.

Tom First
Tom first was born in Boston in 1966 and raised in Weston, MA. He attended Concord Academy and played soccer, basketball and baseball. He continued his education at Brown University in providence, RI where he met his current partner and close friend, Tom Scott. While earning a degree in American History at Brown, Tom spent some of his time at the neighboring art institute, Rhode
Island School of Design, aspiring to continue on to architecture school. In addition to these academic endeavors, Tom First enjoyed playing lacrosse and sailing for Brown. During the summer between his junior and senior year, Tom First joined Tom Scott in Nantucket and helped get their then fledgling business, Allserve, up and running. After graduating from Brown in 1989, the two Toms moved to Nantucket and concentrated on strengthening their boat business. Tom First is credited with the initial Nantucket Nectars inspiration. Driven by a passion for cooking, he was determined to recreate the taste of a peach nectar that he had sampled during his travels in Spain. After mixing fruits in a blender, both Toms were thrilled with the results. With no business experience to speak of, the two embarked on a true adventure which has now developed into a company that boasts ever increasing sales and national as well as international distribution. Tom resides in Cambridge and
Nantucket with his wife Kristan and dog, Pete.

13

898-171

Exhibit 5

14

Nantucket Nectars

Nantucket Nectar Sales Credo

Nantucket Nectars

Exhibit 6

Nantucket Nectars Collateral

Exhibit 7

898-171

Nantucket Nectars Typical Bottle Cap

15

898-171

Nantucket Nectars

Exhibit 8

New Age Beverage Product Selection, Christy's of Harvard Square

Product Selection at Christy’s, New Age Beverages
Apple Quenchers (Very Fine line extension)
Arizona Iced Tea
Boku
Crystal Light
Chillers (Very Fine line extension)
Evian
Fruitopia
Gatorade
Jones Soda
Lipton
Minute Maid
Mistic
Nestea
Ocean Spray
Orangina
Poland Springs
Powerade
Snapple
Tropicana Season’s Best
Very Fine

16

Nantucket Nectars

Exhibit 9

898-171

List of Potential Buyers and Strategic Match

Potential Bidder

Strategic Match

Seagram
(Tropicana)

Tropicana maintains the strongest distribution in the grocery segment for juices which should provide Nantucket Nectars with a strong platform to expand. Furthermore,
Tropicana’s strength in the Northeast US (70% market share) matches Nantucket
Nectar’s business perfectly. Given Tropicana’s strategic push into the single-serve business, the company should have interest in exploring an acquisition of Nantucket
Nectars. From Tropicana’s 1996 annual report: “Strategic direction is to continue growing its North American market share in chilled juices, broaden its product mix, expand its presence in attractive global markets and diversify into new distribution channels.” Tropicana has also made a strong international push with the acquisition of Dole as almost 20% of revenues come from abroad with increased cheaper production capabilities overseas (China). Furthermore, Tropicana has restructured its operations since its purchase of Dole in 1995. This cost improvement makes Tropicana perhaps the best platform to wring big savings out of Nantucket Nectars. Tropicana also could help the cost structure of Nantucket Nectars by having the strongest buyer power in the juice business (e.g. 25% of FLA. orange crop each year).

Ocean Spray

The founders knew the Ocean Spray senior management from industry conferences and believed that there was a good match of culture. Ocean Spray was private which would allow Nantucket Nectars to operate in a similar fashion: less disclosure, less hassle, and less short-term pressure to hit earnings. The founders also knew that Ocean Spray generated a good internal cash flow which could be used to fund Nantucket Nectar growth. They also knew that Nantucket Nectars might be able to exploit Ocean Spray’s loss of Pepsi distribution which might cause them to bid aggressively. Ocean Spray is the world’s largest purchaser of non-orange fruit juice, especially berries, tropicals and other exotics. Lastly, Ocean Spray maintained a network of five captive bottling plants plus several long term arrangements with bottlers giving secure, national manufacturing coverage at advantageous cost and quality control.
The founders were worried by the loss of Pepsi distribution. Industry experts believed that the distribution agreement would terminate in May, 1998 with 50% of current singleserve distribution handled by Pepsi-owned bottlers (approx. $100MM) with another
$100MM handled by Pepsi franchisees. 7 Thus, Ocean Spray could lose as much as
$200 million in sales (from a base of $1.05 billion) if they could not find a good distributor or could not distribute effectively themselves. Ocean Spray, however, maintained strong power on the grocery shelves, especially in the Northeast.

Pepsi

Pepsi seems more prepared to take risks with new products in the New Age segment.
Pepsi recently terminated its distribution arrangement with Ocean Spray which will take effect sometime in early 1998. Many industry insiders believe that Pepsi entered into this distribution arrangement to learn as much as possible about single serve New Age beverages before entering the market themselves. Skip Carpenter, a Donaldson, Lufkin
& Jenrette equity analyst, described the action as a “move that clearly signals a bold new way in which PepsiCo will compete in the juice segment going forward.” 8
In late 1996, Pepsi launched a cold, ready-to-drink sparkling coffee drink with Starbucks coffee called Mazagran. In 1995, Pepsi also launched Aquafina, a bottled water drink.
One major concern for the founders was that Pepsi has a history of downscaling the quality of products, such as Lipton Brisk Tea, in order to achieve higher volume.

7 DLJ Research report, July 14, 1997.
8 Donaldson, Lufkin & Jenrette Beverage Industry Report; Skip Carpenter; July 14, 1997.

17

898-171

Nantucket Nectars

Potential Bidder

Strategic Match

Triarc (Snapple and Mistic)

The founders believed that Triarc provided the best platform to grow the Nantucket
Nectars business the most over the next two years. Through ownership of Snapple, RC
Cola and Mistic, Triarc has immediate access to a national single-serve () network to push the Nantucket Nectar product.
One concern was that Triarc would want to replace many of Nantucket Nectar’s distributors because of redundancy. While the written contracts with the distributors were favorable concerning termination without too much cost, Nantucket Nectars worried about reprise from distributors (similar to what happened to Quaker Oats after they bought Snapple, which created the term “Snappleization”).

Cadbury
(Schweppes
Ginger Ale)

Cadbury owns Schweppes Ginger Ale, 7 Up and Dr. Pepper. The firm has come under pressure in the past two years to improve its management team, set up a succession plan and to reduce its dependence on the Cadbury family. Stagnant sales in the carbonated soda segments, a vulnerable production structure and perceived lack of direction have created takeover rumors. The sheer size of Cadbury makes a takeover unlikely. The production strategy is to use an assorted group of independent bottlers as well as long-term agreements with Coke and Pepsi.
While there have been no public indications to date, Cadbury might have plans to diversify its beverage portfolio away from slow-growing carbonated sodas toward the faster growing New Age beverage segments. While Cadbury has deep pockets to operate a New Age beverage company appropriately and for strategic reasons might decide to bid aggressively for Nantucket, there current company strategy does not create much operating improvements or increased distribution strength.

Starbucks

Nantucket Nectars had recently consummated an agreement with Starbucks calling for all Starbucks coffee shops to carry the Nantucket Nectar product. While Starbucks was clearly not in the New Age beverage business, Howard Schultz was considered to understand the tastes and trends of the new generation. Throughout the negotiations with Starbucks, Schultz expressed that he very much liked the Nantucket Nectars brand and that maybe there was something more which could be done between these two companies. Welch’s

Welch’s was very similar to Ocean Spray, private with a cooperative of grape farmers as the parent. Founded in 1868, the company maintained sales in the $600 million range, with grape frozen concentrate as the company’s main product. Welch’s rolled out new product lines in 1997: a shelf-stable concentrate that did not require freezing and a full complement of single-serve, 16-ounce product. Flavors included white grape peach, apple cranberry, guava peach, apple, watermelon strawberry, strawberry kiwi, fruit punch, pink grapefruit, tropical punch, apple orange pineapple and white grape raspberry. Concerning product innovation, Welch’s has maintained a strong philosophy of reacting to the marketplace. CEO Dan Dillon described corporate strategy: “The whole industry seemed to be going in one direction, with faddish kinds of products. We have gone in a different direction, by giving the consumer products that have got substance to them.
With our grape-based items, that means providing a very distinct, robust-tasting product.” Coca-Cola

18

The Nantucket Nectars founders were uncertain about Coca Cola’s interest in the New
Age beverage market given their lack of success with the Fruitopia product. Coca Cola spent $180 million developing Fruitopia of which $60 million was spent on the 1994 product launch. Coca Cola has demonstrated strong concern in the past about acquiring businesses with smaller margins than their core carbonated soda business.

$12.88

Price per Share

12.00

10.00

21.13

46.75

20.47

18.50

Cott Corp.

Dreyers Ice Cream

Robert Mondavi

Starbucks

Weider Nutrition

Boston Beer

Celestial Seasonings

9.38

Ben & Jerry’s

Mean

8.2

156.7

7.5

26.8

63.9

8.1

16.2

6.4

Shares
Outstanding

As of 7/31/97:

152

3,208

349

566

639

97

152

$ 82

Market
Cap

0.74

0.80

2.02

0.60

0.54

1.44

0.35

$0.50

CY1997E

0.95

1.10

2.36

1.42

0.73

1.65

0.40

$0.65

CY1998E

Earnings per Share

26.9 x

25

51

23

NM

19

17

27

26 x

CY1997E

22.5 x

19

37

20

30

14

15

23

20 x

CY1998E

P/E Multiples

Latest Twelve Months Trading Statistics for Selected Comparable Companies ($MM)

Food and Beverage
Growth Brands

Company

Exhibit 10

25%

28

38

17

NM

35

15

14

30%

(1997-98)
Growth
Rate

0.9 x

0.70

1.00

1.20

NM

0.40

1.00

1.60

0.70 x

1998
P/E to
Growth

1.2 x

0.7

3.9

1.2

0.6

0.6

1.2

0.8

0.5 X

Cap/LTM
Net
Revenue

Market

10.1%

21

8

13

1

13

13

10

2%

ROE

3.8 x

5.7

7.5

3.5

5.8

1.8

2.3

2.9

1.1 X

Cap/
Book
Value

Market

898-171

-19-

3/97

4/97

6/97

6/97

3/97

5/97

3/97

Celestial Seasonings

Cott Corp.

Dreyers Ice Cream

Robert Mondavi

Starbucks

Weider Nutrition

Wholesome and
Hearty Foods

Hambrecht & Quist

6/97

Boston Beer

Source:

6/97

Ben & Jerry’s

40

219

827

301

886

1,015

78

186

$165

Mean:

2

37

117

67

51

95

12

13

$11

EBITDA

1

30

60

55

22

59

10

10

$3

EBIT

1

17

41

28

1

47

6

6

$2

Net

40.4%

49

37

53

45

22

16

62

50

30%

Gross

11.3%

4

17

14

22

6

9

16

7

7%
5

2%

EBIT

7.7

2

14

8

18

2

6

12

Margins
EBITDA

4.4%

2

8

5

9

0

5

7

3

1%

Net

57

508

3,593

912

857

851

101

168

$94

Value

Enterprise

Enterprise Value/LTM

1.7 x

1.43

2.32

4.34

3.03

0.97

0.84

1.29

0.90

0.57 x

Revs.

16.7

37.3

13.7

30.7

13.6

16.9

8.9

8.2

12.7

8.7 x

EBITDA

29.6 x

71.4

17.0

52.3

16.6

39.8

14.4

10.5

17.1

27.6 x

EBIT

A/R

40.6

36

58

9

60

36

45

46

41

34

DSO

Inv.

6.2 x

NA

3.6

5.1

1

15.4

NA

4.2

7.0

6.9 x

Turns

18.9%

0

11

5

24

44

39

7

6

34%

Cap.

Mkt.

Revenue

Twelve

Months

Latest Twelve Months

Debt/

-20-

Latest

Latest Twelve Months Operating Statistics for Selected Comparable Companies ($MM)

Food and Beverage
Growth Brands

Company

Exhibit 11

898-171

Date
Announced
08/11/92
08/31/92
09/17/92
11/16/92
11/23/92
03/08/93
03/25/93
07/26/93
07/23/93
09/08/93
09/28/93
10/08/93
11/01/93
04/18/94
05/23/94
07/19/94
08/29/94
09/12/94
10/18/94
11/02/94
11/28/94
01/01/95
01/04/95
01/06/95
06/27/95
11/22/95
12/01/95
02/15/96
04/08/96
05/06/96
06/05/96
07/29/96
08/14/96
09/19/96
11/18/96
12/04/96
03/27/96
05/02/97
05/07/97
05/12/97

Exhibit 12

Name
Lincoln Snack (Sandoz Nutrition)
Stella D’Oro Biscuit Co.
Famous Amos Chocolate Chip
RJR Nabisco Holdings-Ready-to-Eat
Isaly Klondike Co.
Per Inc.-Whitman’s Chocolates
M. Polaner Inc.
Mother’s Cake & Cookies, 7 Other
Italgel SpA
Kraft General Foods-Ice Cream
Freia Marabou
Hillside Coffee of California
Kraft General Foods-Birds Eye
Universal Foods-Frozen Foods
Gerber Products Co.
Martha White foods (Windmill)
Brock Candy Co.
Borden Inc.
Fantastic Foods Inc.
Snapple Beverage Corp.
Pace Foods
Pet Inc.
Dole Food Co-Juice Business
Continental Baking (Wonder, etc.)
Mistic Beverage Co.
Wine World Estates (Nestle S.A.)
Millstone Coffee Inc.
Earth’s Best Inc.
Koala Springs International
Eagle Snacks Inc.
Sunshine Biscuits
Cascadian Farms
Ralcorp Holdings-Branded Cereal
Hansen Juices Inc.
Lenders Bagel Bakery Inc.
Mother’s Cake & Cookie Co.
Snapple Beverage Corp.
Bumble Bee Seafoods Inc.
Campbell Soup-Marie’s Salad
Kraft Foods-Log Cabin

Acquirer Name
Investor Group
Nabisco Foods Group
President Banking Co.
Kraft General Foods
Thomas J. Lipton Inc.
Russell Stover Candies Inc.
American Home Products Corp.
Specialty Foods (Specialty)
Nestle SA
Unilever U.S. Inc.
Jacobs Suchard (KGF)
Gourmet Coffee of America Inc.
Dean Foods Co.
ConAgra Inc.
Sandoz AG
Pillsbury Co. (Grand Met PLC)
Brach Acquisition Co.
Kohlberg Kravis Roberts & Co.
Trefoil Investors II LP
Quaker Oats Co.
Campbell Soup Co.
Pillsbury Co. (Grand Met PLC)
Seagram Co. Ltd.
Interstate Bakeries
Triarc Cos. Inc.
Investor Group
Procter & Gamble Co.
H.J. Heinz Co.
Nestle Beverage (Nestle USA)
Procter & Gamble Co.
Keebler (United Biscuits PLC)
Trefoil natural Foods
General Mills Inc.
Fresh Juice Co. Inc.
Kellogg Co.
President International Inc.
Triarc Cos. Inc.
International Home Foods Inc.
Dean Foods Co.
Aurora Foods Inc.

Selected Food and Beverage M&A Transactions

Business Description
Produce, whole pre-popped popcorn
Produce breakfast treats
Produce cookies
Ready-to-eat cereal business
Produce ice cream
Produce and whole chocolate
Produce fruit spreads, spices
Produce cookies, cake, bread
Produce ice cream
Produce ice cream
Produce candy and chocolate
Produce coffee
Produce frozen vegetables
Produce frozen foods
Manufacture baby foods and products
Produce flour and cake mixes
Produce candy
Produce dairy prods. snacks
Manufacture instant soups, grain prod.
Produce, wholesale soft drinks
Produce pickled vegetables
Dairy products, canned foods
Produce, wholesale juice beverages
Produce bakery products
Produce soft drinks
Produce wine
Wholesale coffee products
Produce baby food
Produce beverages, spring water
Produce nuts, potato chips
Produce biscuits and snacks
Produce grapes
Produce cereals and snack food
Produce, wholesale juices
Produce, wholesale bagels
Cookies and crackers
Produce, wholesale soft drinks
Manufacture canned seafood products
Produce salad dressings
Manufacture maple-flavored syrup
1.4 x
1.2 x
0.4-5.1 x

Range:

Value/
LTM
Sales
0.4 x
1.5
0.8
2.0
1.5
0.4
1.1
0.5
1.5
0.6
1.5
1.5
0.6
0.8
3.2
1.2
1.0
0.9
NM
2.4
5.1
2.1
0.9
0.5
0.6
1.7
NM
1.4
NM
NM
NM
NM
1.9
0.7
1.7
NM
0.5
NM
NM
2.2
Median:

Net Sales
LTM
($ mil.)
$ 30
65
75
230
101
85
65
2,100
489
500
905
28
250
239
1,203
137
145
4,000
30
700
220
1,573
325
2,000
150
210
90
28
----300
11
275
-550
-35
100
Average

Value of
Transaction
($ mil.)
$ 12
100
61
450
155
35
70
1,100
715
300
1,374
42
140
202
3,823
170
140
3,606
-1,703
1,115
3,225
285
1,021
94
350
-40
----570
8
455
130
300
203
-220

LTM
EBIT
($ mil.)
-----------6
-184
-8
115
-127
42
217
---40
--------------

7.0-31.4 x

16.2 x

17.5 x

Value/
LTM
EBIT
NM x
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
7.0
NM
NM
20.8
NM
17.5
31.4
NM
13.4
26.5
14.9
NM
NM
NM
8.8
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM

898-171

-21-

Exhibit 13

12.0%
14.0%
16.0%
18.0%

Discount Rate

EBITDA
EBITDA Margin

Gross Profit
Gross Margin

Revenues
Growth

$106,877
$97,646
$89,323
$81,806

9.0

12.0%
14.0%
16.0%
18.0%

Discount Rate

$117,767
$107,614
$98,461
$90,195

EBIT
Exit Multiple x 10.0 x Equity Value

Valuation

2,234
4.5%

17,246
34.5%

1997
$50,026
94.1%

11.0

4,610
6.6%

26,634
38.2%

1998
$69,717
30.0%

$107,960
$104,706
$96,301
$88,709

1.0

$128,658
$117,581
$107,598
$98,584

Discounted cash Flow Analysis under Standalone Scenario

12.0%
14.0%
16.0%
18.0%

$153,666
$140,986
$129,559
$119,243

Sales
Exit Multiple x 1.4 x Equity Value

x

Discount Rate

7,459
8.0%

35,796
38.2%

1999
$93,700
28.0%

15,461
10.4%

56,730
38.2%

2001
$148,499
15.0%

20,139
11.5%

66,715
38.2%

2002
$174,635
12.0%

$193,303
$177,266
$162,818
$149,777

1.8

$74,634
$56,094
$43,874
$35,255

$98,243
$69,291
$52,081
$40,730

$145,460
$91,286
$64,391
$48,394

Terminal Growth Rate
4.0%
6.0%
8.0%
Equity Value

Valuation

11,344
9.2%

46,982
38.2%

2000
$122,981
25.0%

898-171

-22-

8.5%

5.0%
9.0%

Interest Income (Excess Cash)

Subordinated Debt

Net Income (Loss)

Income Tax Expense

Earnings Before Taxes

39.6%

Total Interest Expense/(Income)

8.5%

Notes Payable

Current Maturities

Interest Expense

EBIT

Amortization and Depreciation

(200)

(2,252)

(184)

(2,252)
16

139

53

-

0

0

0

0

0

0

0

(45)

(2,199)

0

137

104

91

(2,096)

EBITDA

General & Administrative

875
3,344

320
3,290

Marketing & Advertising

4,311

1,514

Gross Profit

-

11,024

11,024

6,831
6,831

15,335

1995

8,345

1994

369

52

421

301

0

0

0

0

722

247

969

5,432

2,581

8,982

20,511

-

20,511

29,493

1996

Historical Fiscal Years Ended December 31,

Income Statement (000s)

Total Cost of Sales

Other Expenses/Adjustments

Cost of Sales

Total Revenue

Exhibit 13 (continued)

978

641

1,620

405

102

(34)

0

337

2,025

209

2,234

9,410

5,601

17,246

32,780

-

32,780

50,026

1997

2,324

1,523

3,847

432

204

(95)

0

323

4,279

331

4,610

12,785

9,238

26,634

43,083

-

43,083

69,717

1998

Projected Years Ending December 31,

4,001

2,623

6,624

340

204

(187)

0

323

6,964

495

7,459

16,808

11,529

35,796

57,904

0

57,904

93,700

1999

$6,312

4,139

10,451

182

204

(345)

0

323

10,633

710

11,344

21,569

14,069

46,982

75,999

0

75,999

122,981

2000

$8,922

5,850

14,772

(74)

204

(601)

0

323

14,698

763

15,461

25,450

15,819

56,730

91,769

0

91,769

148,499

2001

$11,875

7,786

19,661

(469)

204

(996)

0

323

19,192

947

20,139

29,231

17,345

66,715

107,920

0

107,920

174,635

2002

898-171

-23-

0

0

$2,557

Total Liabilities & Equity

$3,263

328

(1,956)

265

(2,019)

1
2,282

1

2,935

0

22

2,282

Total Shareholders’ Equity

Retained Earnings

Additional Paid-In Capital

Common Stock

Shareholders’ Equity

2,292

Excess Debt (Plug)

Total Liabilities

0

0

0
51

0

0

2,914

16

0

382

1,078

0

Other Long Term Liabilities

Total Long Term Debt

Subordinated Debt

Other Debt

51

0

Capital Lease Obligations

Capital Lease Obligation

0

Current Maturities
2,240

270

Accrued Expenses

Total Current Liabilities

667

1,438

$3,263

$2,557

1,303

77

49

195

(137)

0

Accounts Payable

Notes Payable

Current Liabilities

LIABILITIES & EQUITY

Goodwill & Intangibles

99

223

Property, Plant & Equipment, net

Other Assets

(99)

Accumulated Depreciation

332

2,942

2,235
322

Total Current Assets

Property, Plant & Equipment, gross

115

105

1,356

1,328

$0

$38

1995

71

145

Prepaid Expenses

Other Current Assets

772

1,139

$0

$109

1994

$0

$2

$7,953

1,006

(1,277)

2,282

1

6,946

0

184

0

0

0

0

6,762

47

0

428

2,157

4,130

$7,953

92

85

477

(204)

680

7,300

335

145

2,063

4,754

1996

Historical Fiscal Years Ended December 31,

Balance Sheet (000s)

Accounts Receivable

Inventories

Excess Cash (Plug)

Cash

Current Assets

ASSETS

Exhibit 13 (continued)

$12,747

1,985

(299)

2,282

1

10,762

0

300

2,270

2,094

176

0

8,192

0

0

950

3,442

3,800

$12,747

89

100

620

(410)

1,030

11,937

500

200

4,382

5,409

$1,346

$100

1997

$16,644

4,308

2,025

2,282

1

12,336

0

418

2,270

2,094

176

0

9,648

0

0

1,325

4,524

3,800

$16,644

87

139

779

(739)

1,518

15,639

697

209

6,106

6,032

$2,455

$139

1998

$22,801

8,309

6,025

2,282

1

14,492

0

562

2,270

2,094

176

0

11,660

0

0

1,780

6,080

3,800

$22,801

85

187

943

(1,232)

2,174

21,586

937

281

8,207

6,948

$5,025

$187

1999

$31,745

14,622

12,338

2,282

1

17,124

0

738

2,270

2,094

176

0

14,116

0

0

2,337

7,980

3,800

$31,745

82

123

1,096

(1,940)

3,035

30,444

1,230

307

10,772

9,120

$8,769

$246

2000

$42,961

23,544

21,260

2,282

1

19,417

0

891

2,270

2,094

176

0

16,257

0

0

2,821

9,636

3,800

$42,961

80

148

1,374

(2,701)

4,075

41,358

1,485

297

13,007

11,012

$15,260

$297

2001

Projected Fiscal Years Ended December 31,

$57,186

35,419

33,135

2,282

1

21,767

0

1,048

2,270

2,094

176

0

18,449

0

0

3,318

11,332

3,800

$57,186

78

175

1,652

(3,645)

5,297

55,281

1,746

349

15,296

12,950

$24,590

$349

2002

898-171

-24-

Net income (loss)

Increase in notes payable

Cash at end of period

38

109

Cash at the begining of period

2

38

(36)

1996
(71)

1995

115
2807

87

0
0

222

Total change in cash

Net cash (used) supplied by financing activities

Proceeds from issuance of common stock

0
0

Dividend Payments

Stock Repurchases

0

0

0
0

Increase in other debt

0

2692

0

Increase in subordinated debt

Increase in working capital facility

135

(353)

5

Cash flows from financing activities

(36)

51

Net additions on LT Assets

31

0

(348)

(2490)

162

(36)

0

(10)

(298)

22

Net additions (payments) on capital lease obligations

Proceeds from extraordinary items

Net additions to property and equipment

Cash flows from investing activities

Net cash used by operations

Other Non-Current Liabilities

1079

411
112

Accounts Payable

Accrued Expenses

46

(220)

(45)

Other current assets

(41)

(3426)

40

(189)

(707)

0

0

247

369

1996

Prepaid expenses

Inventory

0

0

137

(200)

(584)

0

104

(2,252)

1995

Accounts Receivable

Net assets available for sale

Changes in operating assets and liabilities:

Deferred Taxes

Depreciation and amortization

to net cash used by operating activities

Adjustments made to reconcile net income (loss)

1994

Statement of Cash Flows (000s)

Cash Flow from operating activities

Fiscal Year Ended

Exhibit 13 (continued)

1446

2

1444

1997

1939

0

0

0

2094

176

(0)

(330)

(412)

(15)

(47)

0

(350)

(83)

116

522

1285

(165)

(55)

(655)

(2319)

0

0

209

978

1997

2594

1446

1148

1998

0

0

0

0

0

0

0

0

(527)

(39)

0

0

(488)

1675

118

374

1082

(197)

(9)

(623)

(1725)

0

0

331

2,324

1998

5213

2594

2618

1999

0

0

0

0

0

0

0

0

(704)

(48)

0

0

(656)

3322

144

456

1556

(240)

(72)

(917)

(2101)

0

0

495

4,001

1999

2000

9015

5213

3803

2000

0

0

0

0

0

0

0

0

(796)

64

0

0

(861)

4599

176

556

1900

(293)

(26)

(2171)

(2565)

0

0

710

6,312

Projected Years Ending December 31,

15557

9015

6542

2001

0

0

0

0

0

0

0

0

(1065)

(26)

0

0

(1039)

7607

153

485

1656

(255)

10

(1892)

(2235)

0

0

763

8,922

2001

24939

15557

9382

2002

0

0

0

0

0

0

0

0

(1249)

(26)

0

0

(1222)

10631

157

497

1696

(261)

(52)

(1938)

(2289)

0

0

947

11,875

2002

898-171

-25-

436

(315)
(2,864)

39.6%

(27)
137
(185)
(295)
(371)

39.6%

Unlevered Net Income (EBIAT)

Depreciation

Working Capital Requirements

Capital Expenditures
Free Operating Cash Flow

Tax Rate

(3,232)

247

286

722

29,493

(18)

$

1996

Income Taxes (Benefit) on Unlevered Income

15,335

Historical

(45)

$

1995

Discounted Cash Flows (000s)

EBITA

Total Revenues

CASH FLOW FORECASTS

Exhibit 13 (continued)

$

39.6%

(350)
(402)

(1,484)

209

1,223

802

2,025

50,026

1997
$

39.6%

(488)
1,291

(1,137)

331

2,585

1,695

4,279

69,717

1998
$

39.6%

(656)
2,680

(1,365)

495

4,206

2,758

6,964

$

39.6%

(861)
3,614

(2,658)

710

6,423

4,211

10,633

122,981

2000
$

Projected Years Ending
93,700

1999

39.6%

(1,039)
6,319

(2,283)

763

8,878

5,820

14,698

148,499

2001
$

39.6%

(1,222)
8,916

(2,401)

947

11,592

7,600

19,192

174,635

2002

898-171

-26-

Nantucket Nectars

Exhibit 14

898-171

Boston Globe Article on Nantucket Nectar Culture

Reprinted courtesy of The Boston Globe, © 1996

27

898-171

Exhibit 14 (continued)

28

Nantucket Nectars

Boston Globe Article on Nantucket Nectar Culture

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