nantucket nectars

Harvard Business School 9-898-171Rev. December 11, 2000

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 administrativesituation.

Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission toreproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go tohttp://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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Nantucket Nectars

Well, we knew we were in an interesting position. We had five companies expressinterest in acquiring a portion of the company. Sometimes you have to laugh about howthings occur. Tropicana (Seagram) and Ocean Spray became interested in us after reading anarticle in Brandweek magazine that erroneously reported that Triarc was in negotiations tobuy us. (See Exhibit 1 for a copy of this article.) At the time, we hadn’t even met withTriarc, although we knew their senior people from industry conferences. We have no idea howthis rumor began. Within weeks Triarc and Pepsi contacted us. We told no one about theseon-going negotiations and held all the meetings away from our offices so that no Nectarsemployee 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 anextended meeting with Ocean Spray, making us late for our second round meeting withPepsi. 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 firethroughout our Nectars experience, but this experience was a new one for us.

—Tom Scott, co-founder of Nantucket Nectars

For the exclusive use of T. Marafee, 2016.

This document is authorized for use only by Tusneem Marafee in BASE taught by Lori Seward, University of Colorado from January 2016 to May 2016.

898-171 Nantucket Nectars

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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 historicalfinancials 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 themthat going public wasn’t a completely positive experience. They wondered whether the company waseven ready to go public. Regardless of their decision about going public, should they continuenegotiating with potential buyers to find out the market value of their company? Ultimately, theyneeded 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 theirrésumés.) During their summers, the two created Allserve, a floating convenience store serving boatsin the Nantucket Harbor. The founders decided to return to Nantucket after graduation to continuethis service business. At the time, they sold ice, beer, soda, cigarettes and newspapers and performedservices such as pumping waste and delivering groceries and laundry for boats in the Harbor. Thefounders did not even sell juice at that time. As First recalled, “we started what was basically afloating 7-Eleven.”1

During the winter of 1990, First recreated a peach fruit juice drink that he had discoveredduring a trip to Spain. The drink inspired the two founders to start a side-business of making freshjuices. In the spring of 1990, the founders decided to hand bottle their new creation and sell them offtheir Allserve boat. “We started by making it in blenders and selling it in cups off the boat. But wealso put it in milk cartons and wine bottles—there was a wine guy on the island—basically anythingthat we could find. 2” Everyone loved the product, prompting the founders to open the AllserveGeneral Store on Nantucket’s Straight Wharf. Soon thereafter, other Nantucket stores startedcarrying 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, inthe company to contract an outside bottler and finance inventory. For the next two years, NantucketNectars 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. Byearly 1993, our few employees hadn’t been paid in a year, never mind that Tom and Ihadn’t paid ourselves in three and a half years. But we worked all sorts of odd jobson the side, especially during the winter. It was especially tough because we couldsee the juice really taking off.

Ultimately, the two founders and Ned Desmond, who would later become the RegionalDirector of Sales and Marketing, persuaded Mike Egan to invest $600,000 in Nantucket Nectars inexchange for 50% of the company. The founders originally met Mike Egan while serving his boat inNantucket Harbor during the early days of Allserve. Mike Egan was the founder and former CEO ofAlamo 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.



Nantucket Nectars 898-171

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concerned about ceding a controlling share to an outsider, they needed the money and had no otheroptions.

Egan performed the function of trusted advisor while not meddling in the day-to-dayoperations of the business. As Egan explained, “I really made the investment because it makes mewake 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, theysecured better, independent bottlers. Given their lack of credit history and Snapple’s fantasticgrowth, which utilized the majority of good bottler capacity, Nantucket Nectars previously haddifficulty finding quality bottlers at an affordable price. Secondly, they built their own distributionarm with the equity capital. The founders needed to decide how to distribute their beverages in theearly days, deciding between three options:

• implement a large advertising campaign to build brand awareness whilemoving their product through an independent distributor channel whichwould 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 aunique 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 makethe brand succeed. The retailers immediately loved our story and enjoyed seeing usstock the shelves ourselves. Becoming our own distributor allowed us to control thepositioning of the product. We often rearranged the shelves to ensure that NantucketNectars was better positioned than Snapple.

In order to speed up their growth, the founders obtained the exclusive rights to distributeArizona Iced Tea in Massachusetts. Boston was one of the top 5 New Age beverage markets in theUnited 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, ArizonaIced 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 IcedTea 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 from2,000 to 30,000 cases sold per month. At the same time, the founders repackaged and reformulatedtheir own product while convincing small stores to carry Nantucket Nectars along side the red-hotArizona Iced Tea. By the end of 1994, revenues surpassed $8 million.

Marketing and the Creation of a Brand

Most New Age3 beverage companies must have clear differentiation because under-capitalization did not allow traditional, expensive advertising strategies and slotting charges forgarnering shelf space. Nantucket Nectars relied on creative packaging, rapid and original productintroductions, word-of-mouth and a memorable story line. Achieving this combination of low-pricedbut effective marketing was extremely difficult. Knowing this difficulty, the founders decided tofocus 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 thecompany on Nantucket. In the early days, Nantucket Nectars focused on creative but mundane waysof 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 ofproduct. 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 topush the Nantucket “story.” The founders described early mishaps in radio ads and placed messagesunderneath their bottle caps in order to attract consumer interest. See Exhibit 5, Exhibit 6 andExhibit 7. For example, an early radio ad described how Ned Desmond, on the first sales trip toBoston, crashed the Nantucket Nectars van on Storrow Drive destroying all the juice. Another radioad explained how early employee Larry Perez accidentally dropped the proceeds from the first saleinto the harbor.

Growth

The early days were extremely frustrating for the two founders. While customers clearlyliked the product, Nantucket Nectars only had three flavors—Cranberry Grapefruit, Lemonade andPeach Orange—and the founders were completely unsure of how to grow the business. Tom Scottexplained: “The frustrations that we dealt with were immense. We didn’t know what point-of-salewas, 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 highquality, all natural juice beverages without regard for the margins; the quality of the product camefirst. This strategy translated into replacing high fructose corn syrup with only pure cane sugar. Thefounders believed that using pure cane sugar would improve the taste without leaving the consumerthirsty like other sweetened beverages. Furthermore, the founders used four times the juice of othermajor brands to improve on their mantra of quality and taste. The founders also differentiated theirproduct by introducing a proprietary 17.5 ounce bottle to complement their existing 12 ounce line ascompared to competitors’ standard 16 ounce bottle. From the original three juice flavors, NantucketNectars 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 beendistributors long before they had been suppliers and marketers of juice. At first, the foundersstructured their in-house distribution arm to target delis, sandwich shops, small markets, gourmetfood shops, convenience stores and food service cafeterias. The Arizona Iced Tea contract and theirown self-confidence lead them to launch a broader distribution business with the hopes of carryingmultiple brands and higher volumes at lower costs into the New England market. This new businessallowed them to penetrate even more of the small outlets and to begin building up a presence in thelarger stores and chains. They learned the "ins and outs" of the distribution business and forgedrelationships with many independent distributors around the country. Unfortunately, they alsolearned that the economics of the distribution business really required one of the "big brands" or youjust could not carry the overhead. Having "made every mistake in the book," the founders gained anew respect for the talent and time it took to scale up a business. In 1995, the founders sold theirdistribution arm after losing $2 million in the previous year. They believed that their brand wasfirmly entrenched on the shelves and were confident that any adverse effects on revenue growthcaused by selling the distribution business would be small. The founders concentrated on marketingtheir own product and developing the Nantucket Nectars brand name. The priority at NantucketNectars 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-housesalesforce and outside distributors. The company granted exclusive rights to sell Nantucket Nectarsproducts within a defined territory while allowing those distributors to carry other beverageproducts as well. The company wrote multi-year agreements with most of its distributors. When anorder was placed at company headquarters from the outside distributor, the company selected anoutside trucking source to pick up the products from the bottler of the beverage to deliver to theappropriate distributors. The distributors then sold and delivered the product to retail outlets fromtheir warehouses using their own salespeople and delivery drivers. The company initiated incentiveprograms aimed at distributors and their salespeople to promote Nantucket Nectars throughstocking, merchandising and retail sales deals. These programs, which were budgeted individuallyby 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 productwas displayed well, “eye to thigh” and also to check the distributor’s work. The strategy was to buildsteadily a sustainable organization through strong relations with either the best distributors orindividual vendors. As Tom Scott explained, “we were not trying to build a house of cards, wewanted solid long-term growth.”

Consumer Tastes and Preferences

Nantucket Nectars was fortunate to have caught a new wave emerging in the beverageindustry, 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 Three Year CAGR (1992-1995)

Ready-to-Drink Teas 24%Water 34%Juices 32%Sports Drinks 12%

Driving this strong growth were trendy young consumers pursuing healthier lifestyles yetfaced 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, acompetitor might simply undercut in pricing to flood the market while also offering a high quality orinnovative product. The second way of competing involved image and brand strength: brandadvertising, packaging, trade and consumer promotions. Lastly, brands competed, especially thelarge players in the beverage industry, by blocking the smaller, less powerful players from the retailershelf space. At Christy’s in Harvard Square, the New Age beverages held over 75% of the chilledbeverage space with the remainder controlled by traditional carbonated beverages. The proliferationof brands and flavors confused and distracted even the most loyal juice drinker. Promotions, newflavors and even new brands tempted the consumer to try new products. See Exhibit 8 for a list ofNew Age beverages at the Harvard Square Christy’s. So far, more than 100 companies fromtraditional beverage companies like Coca Cola to regional start-ups like Arizona launched New Agebeverages 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 regionalcompanies 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 westarted our business, we probably would not have started Nantucket Nectars.However, now that we’re in the business, we think that the odds of someonereplicating what we did are very slim. The industry dynamics and the fast-pacedchanges within the industry really decrease the probabilities of an early entrant’ssuccess.

Many industry analysts believed that competition would increase as New Age beveragesbecame the latest battle ground in the Cola Wars. Coke, Pepsi and Seagrams were all fighting tobecome the best “total beverage company” to serve the masses while also responding to newbeverage trends. New Age beverages were an opportunity to bolster flattening cola and alcoholbusinesses 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 sophisticateddistribution skills. Their access to supermarkets through controlling shelf space, vending machines,convenience stores and fountain distribution channels combined with mass marketing and brandawareness provided them with distinct advantages in developing brands even though theirprocedures and image inhibit their ability to exploit non-traditional, rapidly changing marketopportunities. Furthermore, scale lowered a beverage company’s cost structure by decreasing thecost 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 Agebeverage 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’smargins were among the lowest in the New Age beverage category given the founders’ emphasis onquality. Unfortunately, high sales growth forced the founders to focus on increasing production tomeet high demand, rather than delivering quality at a favorable cost. Their lower margins were aresult of higher quality ingredients in the juices and limited futures contracts in commodityprocurement. All natural juice beverages depended on commodities for their raw inputs, placingtheir margins at risk to the markets. Furthermore, Nantucket Nectars juice cocktails were made withreal cane sugar which was more expensive than the high fructose corn syrup used in mostcompetitive products. The company also used four times more fruit juice in its products instead ofrelying on water and artificial flavorings. Lastly, unlike many competitors, the company offered afull line of 100% unsweetened juices.

The company’s rapid growth and emphasis on quality ingredients accentuated itscompetitive disadvantages in raw material procurement and plant scheduling. Because of difficultyin predicting growth, the founders were unable to institutionalize future contracts on ingredients. Asa consequence, the company was heavily dependent on the harvests as competitors were more likelyto 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. Thiscompetitive disadvantage in procurement had an even greater impact on Nantucket Nectar’s marginsbecause 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, NantucketNectars launched a new line of beverages, called Super Nectars, which were herbally enhanced andpasteurized fruit juices and teas. Four of the six new flavors were made from no less than 80% realfruit juice while the remaining two were naturally steeped from green tea and flavored with real fruitjuice 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; offeredthe 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 nineessential 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 WestIndies and known as a vitamin C powerhouse. Acerola was blended with the juices ofother fruits including strawberries, kiwifruits, and oranges to offer 140% of therecommended daily allowance of vitamin C.

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

Green Angel combined the valued herbs of spirulina, echinacea, wheat grass, and angelica with thejuices of white grapes, bananas, and pineapple. Echinacea was an herb known toenhance 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, aplant native to the Amazon region. Guarana was naturally high in caffeine and avaluable source of energy.

Furthermore, there was evidence to suggest that Nantucket Nectars should maintain theirgrowth 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 1995 2000 CAGR (1991-2000)

Alternative Fruit Drinks $236.8 $857.0 $1,328.8 21.1%Gourmet/Natural Sodas 371.9 627.7 697.5 7.2Flavor-essenced Waters 304.1 329.7 259.2 (1.8)Juice Sparklers 232.9 238.4 231.2 (0.1)

Total $1,145.7 $2,052.8 $2,516.7 9.1%

5 Beverage Industry, March 1997, p. 51.




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Table D Location of All New Age Beverages Sold, 19966

Location Percentage Sold

Supermarkets 55%Convenience Stores and Smaller Mass-Volume Stores 35%Health/Natural Food and Gourmet Stores 10%

Total 100%

As one compares the channel location of all New Age beverages sold with NantucketNectar’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 1%Convenience Chains 6%All Others (delis, educational institutions, etc.) 93%

Total 100%

This apparent growth potential was also demonstrated by the potential geographicexpansion capabilities of the Nantucket Nectars brand. The following table represented the currentgeographic sales of the brand:

Table F Current Geographic Sales Percentages

Location Sales Percentage

Northeast US 38%Mid Atlantic/Southeast US 29%Midwest 9%West 9%International 15%

Total 100%

Based on these growth opportunities, the founders wondered whether a buyer wouldpossibly pay an appropriate price given the negative publicity associated with the Snappletransaction, a previous high growth beverage company.

The founders were also aware that their success to date was accomplished through the morefragmented channels like convenience stores, delis, educational institutions and health and gourmetstores which demanded single-serve product. They also wanted to market their product through thesupermarket 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 October1997, 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 itsdefeat, selling Snapple to Triarc for $300 million, while firing their chief executive officer, WilliamSmithburg. Industry experts blamed Snapple’s decline on Quaker’s problems with Snapple’sdistributors as well as a new marketing strategy. Quaker Oats replaced Howard Stern and “Wendythe Snapple Lady” with the corporate “Threedom is Freedom” advertising campaign. Quaker Oatsalso attempted to take away the most profitable distribution business from the distributors in order toutilize 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 awayfrom them. Ultimately, they decided to stay with the old distribution system. However, the olddistributors by that time had relegated Snapple to secondary status causing Snapple sales to declineprecipitously. Quaker’s strategy to drop their old distribution network became known asSnappleization within the distribution industry: a distributor lost its distribution contract after abeverage company was acquired by a bigger player. The acquirer moved distribution either in-houseor simply to larger distributors after the first distribution network helped build the market for thebeverage.

Corporate Strategy

The founders wondered what to do with the company. They wanted to grow the companybut were worried about the associated risks. Given their growth needs, they needed to decidewhether to sell a part or all of the company, operate under status quo, or undergo an IPO. MarkHellendrung, Nantucket Nectars CFO, described the consensus of senior management: “The decisionwas difficult because we felt comfortable operating our company independently with our currentcapital structure, under an IPO scenario, or with a strategic partner making an investment in ourcompany.”

If they decided to proceed with a sale, they wondered how to handle the negotiations inorder to maximize the price. How could they hold all the meetings so that their employees would notfind out prematurely about the transaction? The founders also worried about whether the ownershipstructure of the company helped or hindered the negotiation process. By the time of the case, MikeEgan, the individual investor, had aggregated 55% of the company due to follow-on investmentswhich permitted early operating losses.

With all these issues, Tom and Tom wondered if they needed advisors to help them with theprocess? If so, should they hire a local investment banker from Boston or a large investment bankfrom New York? Should they organize a full blown auction of Nantucket Nectars? Would there beany adverse effects if, after a high profile auction, the founders decided not to sell? Should they picktwo strategic players and ask them for a preemptive offer for the company? Or should they identifysix or so potential bidders and contact them to assess their interest in entering a bidding process. SeeExhibit 9 for descriptions of major potential bidders. Also, how should the founders handle thebeginning of a negotiation: should they specify a minimum bid or force the buyers to submit theirfirst bids?

Lastly, Tom Scott and Tom First wondered how to structure the potential transaction. Theyboth believed strongly in the upside potential of their company but were also concerned aboutholding the stock of a different company. Should they negotiate the best cash deal possible without along-term management responsibility or should they negotiate for acquirer stock in order toparticipate in the company’s continued upside? How would the chosen strategy affect the valuedemployees 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 assetsand skills within Nantucket Nectars drove their corporate value. The founders decided to holdinternal brainstorming sessions to analyze why Nantucket Nectars succeeded and therefore deserveda 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 addvalue to large player rolling out new single-serve products

• Guerrilla marketing skills

• Ability to exploit small, rapidly changing marketopportunities

• A more appealing story than any other juicebeverage company (great material for a companywith a large marketing budget and moredistribution 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 ownbrand equity

The founders wondered how all these assets were reflected in the pro formas and the actualvaluation of the company. They decided to analyze the valuation in three different ways: discountedcash flow, comparable acquisitions and comparable trading. They wondered if these analysesprepared 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 Nectarsconcerning improved cost structure or increased sales through wider distribution. The difficultquestion is how do we figure out what the value of Nantucket Nectars is to someone else, not justus.” The founders believed that most acquirers would provide scale economies on costs of goodssold decreasing costs approximately 10% to 20% depending on the acquirer. See Exhibit 10 forcomparable trading, Exhibit 11 for comparable operating statistics and Exhibit 12 for comparableacquisitions. 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 thesupermarkets but the company was having difficulty securing shelf space in the larger supermarketchains.

Sales Aftermath

The founders were also very concerned with the outcome after a sale. Nantucket Nectarscurrently has 100 employees of which there were 15 accountants, 20 marketers, 57 salespeople, 5 salesadministrators 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 dependingon whether a transaction was consummated and with whom. Nantucket Nectars still maintained anon-formal dress code; it was very uncommon to see anyone dressed in business attire. Theorganization 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 hasmade the company special is one of my biggest fears. Once you start departmentalizing, you losethat. 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 potentialstrategic partner. Both founders wanted to continue to run the company if possible. Lastly, thefounders did not want to have their effective sales and marketing story negatively affected because ofownership issues. Would consumers continue to enjoy the Nantucket Nectars story if the companywere actually owned by a large public company?




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Exhibit 1 Brandweek Article on Potential Transaction




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Exhibit 2 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

Gross Profit 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

Amortization and Depreciation 0 4 0 104 137 247

EBIT -21 -4 123 -2,199 -45 722

Interest Expense 0 5 7 53 139 301

Earnings before Taxes -21 -9 116 -2,252 -184 421

Income Tax Expense 0 0 0 0 16 52

Net Income (Loss) -21 -9 116 -2,252 -200 369

Exhibit 3 IPO Data from SDC

Company Description IPO DateProceeds(millions)

OfferPrice

SharesOffered

(millions)

MarketValue at

IPO(millions)

FYEaSales in

IPO Year(millions)

FYE EBITin IPOYear

(Millions)

LTMbSales at

IPO(millions)

LTM EBITat IPO

(millions)

CurrentMarketValue

(millions)

Saratoga

Beverage

Bottled

Spring Water

6/23/93 6.00 $5.00 1.20 10.4 6.2 -2.5 NA NA 6.3

Panamerican

Beverages

Bottles

Spring Water

9/21/93 293.3 $25.5

0

11.5 854.6 1110.8 122.0 1060.5 NA 3249.2

Odwalla Juice 12/15/93 6.3 $9.00 .700 13.5 12.6 -.16 17.1 NA 38.3

Redhook Ale

Brewery

Specialty

Beer

8/16/95 38.3 $17.0

0

2.25 114.3 25.9 5.4 19.9 NA 49.0

Pete’s

Brewing

Specialty

Beer

11/06/95 62.1 $18.0

0

3.45 248.9 59.2 2.8 51.5 1.9 52.5

Boston Beer Specialty

Beer

11/20/95 71.3 $20.0

0

3.56 491.5 151.3 10.6 142.1 NA 153.2

Lion Brewery Specialty

Beer

5/02/96 11.3 $6.00 1.88 21.9 26.4 3.1 25.2 NA 14.6

American

Craft Brewing

Specialty

Beer

9/11/96 10.0 $5.50 1.82 18.9 0.43 -.36 .42 -.10 4.6

Independenc

e Brewing

Specialty

Beer

2/11/97 4.5 $5.00 .900 12.1 0.51 -.85 .51 -0.9 1.5

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




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Exhibit 4 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 LandonSchool in Bethesda, MD where he lettered in football, basketball and lacrosse. He continued hiseducation at Brown University in providence, RI. Brown offered Tom the opportunity to pursue hisvarious interests including Varsity Football, theater and outdoor leadership programs. Whilegarnering accomplishments in these areas, Tom also managed to earn a degree in AmericanCivilization 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 inNantucket Harbor; he was soon joined by his current partner, and college friend, Tom First. Fromthis first business, grew their second venture and most notable accomplishment to date, NantucketNectars.

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 andplayed soccer, basketball and baseball. He continued his education at Brown University inprovidence, RI where he met his current partner and close friend, Tom Scott. While earning a degreein American History at Brown, Tom spent some of his time at the neighboring art institute, RhodeIsland School of Design, aspiring to continue on to architecture school. In addition to these academicendeavors, Tom First enjoyed playing lacrosse and sailing for Brown. During the summer betweenhis junior and senior year, Tom First joined Tom Scott in Nantucket and helped get their thenfledgling business, Allserve, up and running. After graduating from Brown in 1989, the two Tomsmoved to Nantucket and concentrated on strengthening their boat business. Tom First is creditedwith the initial Nantucket Nectars inspiration. Driven by a passion for cooking, he was determinedto recreate the taste of a peach nectar that he had sampled during his travels in Spain. After mixingfruits 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 everincreasing sales and national as well as international distribution. Tom resides in Cambridge andNantucket with his wife Kristan and dog, Pete.




14

Exhibit 5 Nantucket Nectar Sales Credo




15

Exhibit 6 Nantucket Nectars Collateral

Exhibit 7 Nantucket Nectars Typical Bottle Cap




16

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 TeaBokuCrystal LightChillers (Very Fine line extension)EvianFruitopiaGatoradeJones SodaLiptonMinute MaidMisticNesteaOcean SprayOranginaPoland SpringsPoweradeSnappleTropicana Season’s BestVery Fine




17

Exhibit 9 List of Potential Buyers and Strategic Match

Potential Bidder Strategic Match

Seagram(Tropicana)

Tropicana maintains the strongest distribution in the grocery segment for juices whichshould provide Nantucket Nectars with a strong platform to expand. Furthermore,Tropicana’s strength in the Northeast US (70% market share) matches NantucketNectar’s business perfectly. Given Tropicana’s strategic push into the single-servebusiness, the company should have interest in exploring an acquisition of NantucketNectars. From Tropicana’s 1996 annual report: “Strategic direction is to continuegrowing its North American market share in chilled juices, broaden its product mix,expand its presence in attractive global markets and diversify into new distributionchannels.”

Tropicana has also made a strong international push with the acquisition of Dole asalmost 20% of revenues come from abroad with increased cheaper productioncapabilities overseas (China). Furthermore, Tropicana has restructured its operationssince its purchase of Dole in 1995. This cost improvement makes Tropicana perhapsthe best platform to wring big savings out of Nantucket Nectars. Tropicana also couldhelp the cost structure of Nantucket Nectars by having the strongest buyer power in thejuice business (e.g. 25% of FLA. orange crop each year).

Ocean Spray The founders knew the Ocean Spray senior management from industry conferences andbelieved that there was a good match of culture. Ocean Spray was private which wouldallow Nantucket Nectars to operate in a similar fashion: less disclosure, less hassle, andless short-term pressure to hit earnings. The founders also knew that Ocean Spraygenerated a good internal cash flow which could be used to fund Nantucket Nectargrowth. They also knew that Nantucket Nectars might be able to exploit Ocean Spray’sloss of Pepsi distribution which might cause them to bid aggressively. Ocean Spray isthe world’s largest purchaser of non-orange fruit juice, especially berries, tropicals andother exotics. Lastly, Ocean Spray maintained a network of five captive bottling plantsplus several long term arrangements with bottlers giving secure, national manufacturingcoverage at advantageous cost and quality control.

The founders were worried by the loss of Pepsi distribution. Industry experts believedthat the distribution agreement would terminate in May, 1998 with 50% of current single-serve 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 distributoror could not distribute effectively themselves. Ocean Spray, however, maintained strongpower 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 takeeffect sometime in early 1998. Many industry insiders believe that Pepsi entered intothis distribution arrangement to learn as much as possible about single serve New Agebeverages before entering the market themselves. Skip Carpenter, a Donaldson, Lufkin& Jenrette equity analyst, described the action as a “move that clearly signals a bold newway 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 Starbuckscoffee 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 thequality 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.




18

Potential Bidder Strategic Match

Triarc (Snappleand Mistic)

The founders believed that Triarc provided the best platform to grow the NantucketNectars business the most over the next two years. Through ownership of Snapple, RCCola and Mistic, Triarc has immediate access to a national single-serve () network topush the Nantucket Nectar product.

One concern was that Triarc would want to replace many of Nantucket Nectar’sdistributors because of redundancy. While the written contracts with the distributorswere favorable concerning termination without too much cost, Nantucket Nectars worriedabout reprise from distributors (similar to what happened to Quaker Oats after theybought Snapple, which created the term “Snappleization”).

Cadbury(SchweppesGinger Ale)

Cadbury owns Schweppes Ginger Ale, 7 Up and Dr. Pepper. The firm has come underpressure in the past two years to improve its management team, set up a successionplan and to reduce its dependence on the Cadbury family. Stagnant sales in thecarbonated soda segments, a vulnerable production structure and perceived lack ofdirection have created takeover rumors. The sheer size of Cadbury makes a takeoverunlikely. The production strategy is to use an assorted group of independent bottlers aswell as long-term agreements with Coke and Pepsi.

While there have been no public indications to date, Cadbury might have plans todiversify its beverage portfolio away from slow-growing carbonated sodas toward thefaster growing New Age beverage segments. While Cadbury has deep pockets tooperate a New Age beverage company appropriately and for strategic reasons mightdecide to bid aggressively for Nantucket, there current company strategy does not createmuch operating improvements or increased distribution strength.

Starbucks Nantucket Nectars had recently consummated an agreement with Starbucks calling forall Starbucks coffee shops to carry the Nantucket Nectar product. While Starbucks wasclearly not in the New Age beverage business, Howard Schultz was considered tounderstand the tastes and trends of the new generation. Throughout the negotiationswith Starbucks, Schultz expressed that he very much liked the Nantucket Nectars brandand that maybe there was something more which could be done between these twocompanies.

Welch’s Welch’s was very similar to Ocean Spray, private with a cooperative of grape farmers asthe 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 newproduct lines in 1997: a shelf-stable concentrate that did not require freezing and a fullcomplement of single-serve, 16-ounce product. Flavors included white grape peach,apple cranberry, guava peach, apple, watermelon strawberry, strawberry kiwi, fruitpunch, pink grapefruit, tropical punch, apple orange pineapple and white graperaspberry.

Concerning product innovation, Welch’s has maintained a strong philosophy of reactingto the marketplace. CEO Dan Dillon described corporate strategy: “The whole industryseemed to be going in one direction, with faddish kinds of products. We have gone in adifferent direction, by giving the consumer products that have got substance to them.With our grape-based items, that means providing a very distinct, robust-tastingproduct.”

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



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-Log

Cab

inA

uror

a F

oods

Inc.

Man

ufac

ture

map

le-f

lavo

red

syru

p22

010

02.

2--

NM

Ave

rage

1.4

x17

.5 x

Med

ian:

1.2

x16

.2 x

Ran

ge:

0.4-

5.1

x7.

0-31

.4 x



898-

171

-

22-

Exh

ibit

13D

isco

unte

dca

shFl

owA

naly

sis

und

erSt

and

alon

eSc

enar

io

1997

1998

1999

2000

2001

2002

Rev

enue

s$5

0,02

6$6

9,71

7$9

3,70

0$1

22,9

81$1

48,4

99$1

74,6

35

Gro

wth

94.1

%30

.0%

28.0

%25

.0%

15.0

%12

.0%

Gro

ss P

rofi

t17

,246

26

,634

35,7

96

46

,982

56,7

30

66

,715

Gro

ss M

argi

n34

.5%

38.2

%38

.2%

38.2

%38

.2%

38.2

%

EB

ITD

A2,

234

4,61

0

7,45

9

11

,344

15,4

61

20

,139

EB

ITD

A M

argi

n4.

5%6.

6%8.

0%9.

2%10

.4%

11.5

%

Val

uati

onV

alua

tion

EB

IT

Dis

coun

t Rat

eE

xit M

ultip

leD

isco

unt R

ate

Ter

min

al G

row

th R

ate

9.0

x10

.0x

11.0

x4.

0%6.

0%8.

0%

Equ

ity V

alue

Equ

ity V

alue

12.0

%$1

06,8

77$1

17,7

67$1

28,6

5812

.0%

$74,

634

$98,

243

$145

,460

14.0

%$9

7,64

6$1

07,6

14$1

17,5

8114

.0%

$56,

094

$69,

291

$91,

286

16.0

%$8

9,32

3$9

8,46

1$1

07,5

9816

.0%

$43,

874

$52,

081

$64,

391

18.0

%$8

1,80

6$9

0,19

5$9

8,58

418

.0%

$35,

255

$40,

730

$48,

394

Sale

s

Dis

coun

t Rat

eE

xit M

ultip

le

1.0

x1.

4x

1.8

Equ

ity V

alue

12.0

%$1

07,9

60$1

53,6

66$1

93,3

0314

.0%

$104

,706

$140

,986

$177

,266

16.0

%$9

6,30

1$1

29,5

59$1

62,8

1818

.0%

$88,

709

$119

,243

$149

,777



898-

171

-

23-

Exh

ibit

13(c

onti

nu

ed)

Inco

me

Stat

emen

t(00

0s)

His

tori

cal F

isca

l Yea

rs E

nded

Dec

embe

r 31

,P

roje

cted

Yea

rs E

ndin

g D

ecem

ber

31,

1994

1995

1996

1997

1998

1999

2000

2001

2002

Tot

al R

even

ue

8,34

5

15

,335

29

,493

50,0

26

69,7

17

93

,700

12

2,98

1

148,

499

17

4,63

5

Cos

t of

Sal

es6,

831

11,0

24

20,5

11

32

,780

43

,083

57,9

04

75,9

99

91,7

69

107,

920

Oth

er E

xpen

ses/

Adj

ustm

ents

-

-

-

-

-

00

00

Tot

al C

ost o

f S

ales

6,83

1

11

,024

20

,511

32,7

80

43,0

83

57

,904

75,9

9991

,769

107,

920

Gro

ss P

rofi

t1,

514

4,31

1

8,

982

17

,246

26

,634

35,7

9646

,982

56,7

3066

,715

Mar

keti

ng &

Adv

erti

sing

320

87

5

2,58

1

5,60

19,

238

11,5

2914

,069

15,8

1917

,345

Gen

eral

& A

dmin

istr

ativ

e3,

290

3,34

4

5,

432

9,

410

12,7

8516

,808

21,5

6925

,450

29,2

31

EB

ITD

A(2

,096

)

91

96

9

2,

234

4,

610

7,

459

11,3

44

15,4

61

20,1

39

Am

orti

zati

on a

nd D

epre

ciat

ion

104

13

7

247

209

33

1

495

71

0

763

94

7

EB

IT(2

,199

)

(45)

72

2

2,

025

4,27

9

6,

964

10,6

3314

,698

19,1

92

Inte

rest

Exp

ense

N

otes

Pay

able

8.5%

00

033

732

332

332

332

332

3

C

urre

nt M

atur

itie

s8.

5%0

00

00

00

00

In

tere

st I

ncom

e (E

xces

s C

ash)

5.0%

00

0(3

4)(9

5)(1

87)

(345

)(6

01)

(996

)

S

ubor

dina

ted

Deb

t9.

0%0

00

102

204

204

204

204

204

Tot

al I

nte

rest

Exp

ense

/(In

com

e)53

139

301

405

432

340

182

(74)

(469

)

Ear

nin

gs B

efor

e T

axes

(2,2

52)

(1

84)

42

1

1,

620

3,

847

6,

624

10

,451

14

,772

19

,661

Inco

me

Tax

Exp

ense

39.6

%-

16

52

641

1,52

32,

623

4,13

95,

850

7,78

6

Net

In

com

e (L

oss)

(2,2

52)

(2

00)

36

9

97

8

2,

324

4,

001

$6

,312

$8,9

22$1

1,87

5



898-

171

-

24-

Exh

ibit

13(c

onti

nu

ed)

Bal

ance

Shee

t(00

0s)

AS

SE

TS

His

tori

cal

Fis

cal

Yea

rs E

nded

Dec

embe

r 31

,P

roje

cted

Fis

cal

Yea

rs E

nded

Dec

embe

r 31

,

Cur

rent

Ass

ets

1994

1995

1996

1997

1998

1999

2000

2001

2002

C

ash

$109

$38

$2$1

00$1

39$1

87$2

46$2

97$3

49

E

xces

s C

ash

(Plu

g)$0

$0$0

$1,3

46$2

,455

$5,0

25$8

,769

$15,

260

$24,

590

I

nven

tori

es1,

139

1,32

84,

754

5,40

96,

032

6,94

89,

120

11,0

1212

,950

A

ccou

nts

Rec

eiva

ble

772

1,35

62,

063

4,38

26,

106

8,20

710

,772

13,0

0715

,296

P

repa

id E

xpen

ses

145

105

145

200

209

281

307

297

349

O

ther

Cur

rent

Ass

ets

7111

533

550

069

793

71,

230

1,48

51,

746

T

otal

Cur

rent

Ass

ets

2,23

52,

942

7,30

011

,937

15,6

3921

,586

30,4

4441

,358

55,2

81

Pro

pert

y, P

lant

& E

quip

men

t, g

ross

322

332

680

1,03

01,

518

2,17

43,

035

4,07

55,

297

Acc

umul

ated

Dep

reci

atio

n(9

9)(1

37)

(204

)(4

10)

(739

)(1

,232

)(1

,940

)(2

,701

)(3

,645

)

Pro

pert

y, P

lant

& E

quip

men

t, n

et22

319

547

762

077

994

31,

096

1,37

41,

652

Oth

er A

sset

s99

4985

100

139

187

123

148

175

Goo

dwil

l &

Int

angi

bles

077

9289

8785

8280

78

$2,5

57$3

,263

$7,9

53$1

2,74

7$1

6,64

4$2

2,80

1$3

1,74

5$4

2,96

1$5

7,18

6

LIA

BIL

ITIE

S &

EQ

UIT

Y

Cur

rent

Lia

bili

ties

N

otes

Pay

able

1,30

31,

438

4,13

03,

800

3,80

03,

800

3,80

03,

800

3,80

0

A

ccou

nts

Pay

able

66

71,

078

2,15

73,

442

4,52

46,

080

7,98

09,

636

11,3

32

A

ccru

ed E

xpen

ses

270

382

428

950

1,32

51,

780

2,33

72,

821

3,31

8

C

urre

nt M

atur

itie

s0

00

00

00

00

C

apit

al L

ease

Obl

igat

ions

016

470

00

00

0

Tot

al C

urre

nt L

iabi

liti

es2,

240

2,91

46,

762

8,19

29,

648

11,6

6014

,116

16,2

5718

,449

Cap

ital

Lea

se O

blig

atio

n51

00

00

00

00

Oth

er D

ebt

00

017

617

617

617

617

617

6

Sub

ordi

nate

d D

ebt

00

02,

094

2,09

42,

094

2,09

42,

094

2,09

4

Tot

al L

ong

Ter

m D

ebt

510

02,

270

2,27

02,

270

2,27

02,

270

2,27

0

Oth

er L

ong

Ter

m L

iabi

liti

es0

2218

430

041

856

273

889

11,

048

Exc

ess

Deb

t (P

lug)

00

00

00

00

0

Tot

al L

iabi

liti

es2,

292

2,93

56,

946

10,7

6212

,336

14,4

9217

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19,4

1721

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Sha

reho

lder

s’ E

quit

y

C

omm

on S

tock

11

11

11

11

1

A

ddit

iona

l P

aid-

In C

apit

al2,

282

2,28

22,

282

2,28

22,

282

2,28

22,

282

2,28

22,

282

R

etai

ned

Ear

ning

s(2

,019

)(1

,956

)(1

,277

)(2

99)

2,02

56,

025

12,3

3821

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33,1

35

Tot

al S

hare

hold

ers’

Equ

ity

265

328

1,00

61,

985

4,30

88,

309

14,6

2223

,544

35,4

19

T

otal

Lia

bili

ties

& E

quit

y$2

,557

$3,2

63$7

,953

$12,

747

$16,

644

$22,

801

$31,

745

$42,

961

$57,

186



898-

171

-

25-

Exh

ibit

13(c

onti

nu

ed)

Stat

emen

tofC

ash

Flow

s(0

00s)

Fis

cal

Yea

r E

nded

P

roje

cted

Yea

rs E

ndin

g D

ecem

ber

31,

1994

1995

1996

1997

1998

1999

2000

2001

2002

Cas

h F

low

fro

m o

per

atin

g ac

tivi

ties

N

et i

ncom

e (l

oss)

(2,2

52)

(2

00)

36

9

978

2,

324

4,00

1

6,

312

8,92

2

11

,875

Adj

ustm

ents

mad

e to

rec

onci

le n

et i

ncom

e (l

oss)

to n

et c

ash

used

by

oper

atin

g ac

tivi

ties

D

epre

ciat

ion

and

amor

tiza

tion

104

13

7

24

7

209

33

1

495

71

0

763

94

7

D

efer

red

Tax

es0

00

00

00

00

Cha

nges

in

oper

atin

g as

sets

and

lia

bili

ties

:

N

et a

sset

s av

aila

ble

for

sale

00

00

00

00

A

ccou

nts

Rec

eiva

ble

(584

)(7

07)

(231

9)(1

725)

(210

1)(2

565)

(223

5)(2

289)

I

nven

tory

(189

)(3

426)

(655

)(6

23)

(917

)(2

171)

(189

2)(1

938)

P

repa

id e

xpen

ses

40(4

1)(5

5)(9

)(7

2)(2

6)10

(52)

O

ther

cur

rent

ass

ets

(45)

(220

)(1

65)

(197

)(2

40)

(293

)(2

55)

(261

)

A

ccou

nts

Pay

able

411

1079

1285

1082

1556

1900

1656

1696

A

ccru

ed E

xpen

ses

112

4652

237

445

655

648

549

7

O

ther

Non

-Cur

rent

Lia

bili

ties

2216

211

611

814

417

615

315

7

N

et c

ash

used

by

oper

atio

ns(2

98)

(249

0)(8

3)16

7533

2245

9976

0710

631

Cas

h f

low

s fr

om i

nve

stin

g ac

tivi

ties

N

et a

ddit

ions

to

prop

erty

and

equ

ipm

ent

(10)

(348

)(3

50)

(488

)(6

56)

(861

)(1

039)

(122

2)

P

roce

eds

from

ext

raor

dina

ry i

tem

s0

00

00

00

0

N

et a

ddit

ions

(pa

ymen

ts)

on c

apit

al l

ease

obl

igat

ions

(36)

31(4

7)0

00

00

N

et a

ddit

ions

on

LT

Ass

ets

51(3

6)(1

5)(3

9)(4

8)64

(26)

(26)

5(3

53)

(412

)(5

27)

(704

)(7

96)

(106

5)(1

249)

Cas

h f

low

s fr

om f

inan

cin

g ac

tivi

ties

I

ncre

ase

in n

otes

pay

able

135

2692

(330

)0

00

00

I

ncre

ase

in w

orki

ng c

apit

al f

acil

ity

00

(0)

00

00

0

I

ncre

ase

in o

ther

deb

t0

017

60

00

00

I

ncre

ase

in s

ubor

dina

ted

debt

00

2094

00

00

0

D

ivid

end

Pay

men

ts0

00

00

00

0

S

tock

Rep

urch

ases

00

00

00

00

P

roce

eds

from

iss

uanc

e of

com

mon

sto

ck87

115

00

00

00

N

et c

ash

(use

d) s

uppl

ied

by f

inan

cing

act

ivit

ies

222

2807

1939

00

00

0

1995

1996

1997

1998

1999

2000

2001

2002

Tot

al c

hang

e in

cas

h(7

1)(3

6)14

4411

4826

1838

0365

4293

82

Cas

h at

the

beg

inin

g of

per

iod

109

382

1446

2594

5213

9015

1555

7

Cas

h at

end

of

peri

od38

214

4625

9452

1390

1515

557

2493

9



898-

171

-

26-

Exh

ibit

13(c

onti

nu

ed)

Dis

coun

ted

Cas

hFl

ows

(000

s)

CA

SH F

LO

W F

OR

EC

AST

SH

isto

rica

lPr

ojec

ted

Yea

rs E

ndin

g

1995

1996

1997

1998

1999

2000

2001

2002

Tot

al R

even

ues

15,3

35$

29,4

93$

50

,026

$

69

,717

$

93

,700

$

12

2,98

1$

148,

499

$

17

4,63

5$

EB

ITA

(45)

722

2,02

54,

279

6,96

410

,633

14,6

9819

,192

Inco

me

Tax

es (

Ben

efit)

on

Unl

ever

ed I

ncom

e(1

8)28

680

21,

695

2,75

84,

211

5,82

07,

600

Unl

ever

ed N

et I

ncom

e (E

BIA

T)

(27)

436

1,22

32,

585

4,20

66,

423

8,87

811

,592

Dep

reci

atio

n13

724

720

933

149

571

076

394

7

Wor

king

Cap

ital R

equi

rem

ents

(185

)(3

,232

)(1

,484

)(1

,137

)(1

,365

)(2

,658

)(2

,283

)(2

,401

)

Cap

ital E

xpen

ditu

res

(295

)(3

15)

(350

)(4

88)

(656

)(8

61)

(1,0

39)

(1,2

22)

Fre

e O

pera

ting

Cas

h F

low

(371

)(2

,864

)(4

02)

1,29

12,

680

3,61

46,

319

8,91

6

Tax

Rat

e39

.6%

39.6

%39

.6%

39.6

%39

.6%

39.6

%39

.6%

39.6

%




28

Exhibit 14 (continued) Boston Globe Article on Nantucket Nectar Culture



nantucket nectars

Documents