SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-13914
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
(Exact name of Registrant as specified in its Charter)
Delaware ###-##-####
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Carretera #2, Km 19.4
Barrio Candelaria
Toa Baja, Puerto Rico 00949
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (787) 251-2000
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /x/ Yes / / No
As of February 13, 1996, there were 21,500,000 shares of
Common Stock issued and outstanding. This amount includes
5,000,000 shares of Class A Common Stock and 16,500,000 shares of
Class B Common Stock.
This Report on Form 10-Q/A is being filed to amend and
restate in its entirety the quarterly report on Form 10-Q for the
quarterly period ended December 31, 1995 which was originally
filed by the Company on February 14, 1996, and which was amended
on October 8, 1996.
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) at 4
December 31, 1995 and September 30, 1995
Condensed Consolidated Statements of Income / (Loss) 6
(unaudited) for the Three Months Ended December 31,
1995 and 1994
Condensed Consolidated Statements of Cash Flows 7
(Unaudited) for the Three Months Ended December 31,
1995 and 1994
Notes to Condensed Consolidated Financial Statements 8
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
None of the items are applicable.
See accompanying notes to condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
<TABLE>
<C> <S> <S>
December 31, September 30,
1995 1995
(unaudited) (audited)
------------- -------------
Cash and cash equivalents $ 46,703 $ 46,091
Accounts receivable:
Trade, less allowance for doubtful accounts
of $1,027 on December 31, 1995 and $1,458 on
September 30, 1995 17,403 16,086
Due from PepsiCo, Inc. and affiliated companies 2,839 2,913
Other 633 341
Inventories 4,137 4,542
Prepaid expenses and other assets 2,426 2,516
--------- ---------
Total current assets 74,141 72,489
Investment in BAESA 67,157 74,128
Property, plant and equipment, net 40,032 36,445
Intangible assets 2,141 2,163
Other assets 314 441
---------- ---------
Total assets $183,785 $ 185,666
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
December 31, September 30,
1995 1995
(unaudited) (audited)
------------- -------------
Current installments of long-term debt $ 1,550 1,550
Current installments of capital lease obligations 737 1,204
Short term borrowings 14,836 4,600
Accounts payable:
Trade 12,879 12,536
Affiliate 664 1,181
Income taxes payable 891 123
Deferred income taxes 55 530
Other accrued expenses 5,088 6,477
------- -------
Total current liabilities 36,700 28,201
Long-term debt, excluding current installments 5,977 6,365
Capital lease obligations, excluding current
installments 788 848
Accrued pension cost, long-term 2,871 2,871
Deferred income taxes 17,454 18,732
------- -------
Total liabilities 63,790 57,017
Shareholders' equity:
Class A common shares of $0.01 par value;
authorized, issued and outstanding 5,000,000 shares 50 50
Class B common shares, $0.01 par value; authorized
35,000,000 shares; issued and outstanding
16,500,000 shares 165 165
Additional paid-in capital 90,738 90,738
Retained earnings 31,049 39,472
Cumulative translation adjustment (463) (232)
Pension liability adjustment (1,544) (1,544)
------- --------
Total shareholders' equity 119,995 128,649
------- --------
Total liabilities and shareholders' equity $183,785 $185,666
======== ========
See accompanying notes to condensed consolidated financial statements.
5
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(U.S. Dollars in thousands except per share data)
Three Months Ended December 31,
1995 1994
(unaudited) (unaudited)
Net Sales $ 29,417 $ 28,057
Cost of Sales 18,924 16,811
---------- ----------
Gross profit 10,493 11,246
Selling and marketing expenses 9,872 7,546
Administrative expenses 1,598 1,502
---------- ----------
Income/(loss) from operations (977) 2,198
---------- ----------
Other income (expenses):
Interest expense (154) (354)
Interest income 685 32
Other, net 129 26
--------- ----------
Total other income (expenses) 660 (296)
Income/(loss) before income tax
expense and equity in net
earnings/(loss) of BAESA (317) 1,902
Income tax expense 266 322
-------- ----------
Income/(Loss) before equity in net
earnings/(loss) of BAESA (583) 1,580
Equity in net earnings/(loss) of BAESA,
net of income tax benefit/(expense)
of $1,278 and $(486) in 1995
and 1994, respectively (2,623) 2,552
Net income/(loss) $ (3,206) 4,132
Earnings per common share:
Income/(loss) before equity in net
earnings of BAESA $ (0.03) $ 0.09
======== =========
Net income/(loss) $ (0.15) $ 0.23
======== =========
Weighted average number of shares
outstanding 21,500 18,000
======== ========
See accompanying notes to condensed consolidated financial statements.
7
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1995 and 1994
(U.S. Dollars in thousands)
(Unaudited)
1995 1994
Cash flows from operating activities: ----------- ----------
Net income/(loss) $ (3,206) $ 4,132
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Gain on disposal of property, plant, and equipment (279) -
Depreciation and amortization 1,251 1,120
Equity in net earnings/(loss) of BAESA 2,623 (2,552)
Changes in assets and liabilities:
Accounts receivable (1,535) (2,383)
Inventories 405 (311)
Prepaid expenses and other current assets 90 (927)
-----------------------
Accounts payable (174) 3,714
Other liabilities and accrued expenses (1,864) 3,841
Income taxes payable 768 276
Other, net 127 282
-------- -------
Net cash provided by (used in) operating activities (1,794) 7,192
-------- -------
Cash flows from investing activities:
Proceeds from the sale of property,
plant and equipment 538 -
Purchases of property, plant and
equipment (5,075) (2,617)
Dividends received from affiliates 2,839 2,839
-------- -------
Net cash provided by (used in) investing activities (1,698) 222
-------- -------
Cash flows from financing activities:
Proceeds from short term borrowings 10,236 500
Repayment of long-term debt (388) (387)
Repayment of capital lease obligations (527) (630)
Dividends paid (5,217) (4,610)
------- -------
Net cash provided by (used in) financing
activities 4,104 (5,127)
-------- -------
Net increase in cash and cash
equivalents 612 2,287
Cash and cash equivalent at beginnings
of period 46,091 1,347
Cash and cash equivalent at the end of -------- -------
period $ 46,703 $ 3,634
Supplemental disclosures: ======== =======
Cash paid for:
Interest $ 409 $ 354
Income taxes
- -
See accompanying notes to condensed consolidated financial statements.
7
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars in thousands except share and per share data)
(Unaudited)
(1) Accounting Principles and Basis of Presentation
The accompanying condensed consolidated financial statements,
footnotes, and discussions should be read in conjunction with the
consolidated financial statements, related footnotes, and
discussions contained in the Company's annual report on form 10-K
for the fiscal year ended September 30, 1995. In the opinion of
the Company's management, the unaudited consolidated interim
financial statements reflect all adjustments, including those
related to the restatement of the results of operations for the
first quarter, necessary for a fair presentation. For additional
information, please refer to page of this Form 10-Q/A.
Operating results for the three months ended December 31, 1995
are not necessarily indicative of the results that may be
expected for the fiscal year ended September 30, 1996.
This report on Form 10-Q/A is being filed to restate the
Condensed Consolidated Financial Statements of the Company which
were included in the Company's report on Form 10-Q for the three-
month period ended December 31, 1995 which was filed on February
14, 1996. Subsequent to the filing of that report, the Company
discovered accounting irregularities which resulted in a
substantial understatement of certain expenses, primarily
discounting and marketing expenses, and a corresponding
overstatement of income from operations for both the three-month
period ended December 31, 1995, and the three-month period ended
March 31, 1996. As a result of the restatement contained in this
report, the Company is reporting a net loss for the three months
ended December 31, 1995 of $(3.2) million per $(0.15) share,
rather than net income of $0.1 million, or $0.01 per share, which
was reported in its originally filed report on Form 10-Q for its
first fiscal quarter.
(2) Inventories
Inventories consist of the following:
December 31, September 30,
1995 1995
------------ -------------
Raw materials $ 969 $ 1,247
Finished goods 1,931 2,048
Other 1,237 1,247
--------- --------
$ 4,137 $ 4,542
========= ========
(3) Property, Plant and Equipment, Net
Property, plant and equipment consists of the following:
December 31, September 30,
1995 1995
------------ ------------
Land and improvements $ 1,159 $ 1,159
Buildings and improvements 5,592 5,592
Machinery, equipment and vehicles 35,979 36,173
Bottles, cases and shells 1,606 1,585
Furniture and fixtures 2,166 1,833
Construction in process 16,681 12,224
-------- --------
63,184 58,566
Less accumulated depreciation and
amortization (23,152) (22,121)
-------- --------
Property, plant and equipment, net $40,032 $ 36,445
======== ========
8
The Company capitalizes interest cost as a component of the
cost of certain building and improvements, and machinery. The
following is a summary of interest cost incurred:
1995 1994
-------- ----------
Interest cost capitalized $ 255 $ -
Interest cost charged to income 154 354
-------- ----------
$ 409 $ 354
======== ==========
(4) Shareholders' Equity
The Company declared and paid cash dividends of $5,217 during
the three months ended December 31, 1995 and $4,610 during the
three months ended December 31, 1994.
In connection with the Company's September 19, 1995 public
offering (the "Offering") of 7,000,000 Class B common shares, the
Company changed its capital structure to 5,000,000 authorized
shares of $0.01 par value Class A common shares and 35,000,000
authorized shares of $0.01 par value Class B common shares.
On August 14, 1995, the Company's Board of Directors declared
a 24,000 to 1 stock split effective concurrently with the
effective date of the Offering. The par value of each share is
$0.01. A total of $179 was reclassified from the Company's
additional paid-in capital account the Company's Class A and B
common share accounts. All share and per share amounts have been
restated to retroactively reflect the stock split.
Earnings per common share are determined by dividing net
income by the weighted average number of common shares
outstanding during each year.
(5) Income Tax
Income tax expense for the three months ended December 31,
1995 and 1994 consisted of the following:
1995 1994
------------- ----------
Current $ 266 $ 322
Deferred - -
------------ ----------
Income tax expense $ 266 $ 322
============ ==========
Deferred income tax (benefit) / expense of $(1,278) and $486
for the three month period ended December 31, 1995 and 1994,
respectively, have been provided in connection with the Company's
equity in net earnings / (loss) of BAESA.
(6) Related Party Transactions
The Company paid approximately $637 and $422 during the three
months ended December 31, 1995 and 1994, respectively, for
advertising fees to a firm controlled by a shareholder of the
Company.
The Company paid approximately $232 and $73 during the three
months ended December 31, 1995 and 1994, respectively, for
consulting fees to a shareholder and director of BAESA.
The Company paid approximately $150 during the three months
ended December 31, 1995 for construction management services to a
shareholder and director of the Company.
9
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(7) Investment in BAESA
The following condensed unaudited financial information
relating to BAESA as of December 31, 1995 and 1994, and for the
three months then ended and audited balance sheet financial
information as of September 30, 1995 (in thousands of U.S.
dollars) has been provided to the Company by BAESA. Its
inclusion in this report is for information purposes only and the
Company makes no representation as to the accuracy or
completeness of such information. At the time of filing of this
Form 10-Q/A, the Company does not control, or have significant
influence over, the management or operations of BAESA. For
further information regarding BAESA, investors should consult
information made publicly available by BAESA to its shareholders.
December 31, September 30,
1995 1995
(unaudited) (audited)
------------ ------------
ASSETS
Cash and cash equivalents $ 34,693 $ 57,617
Accounts receivable, net 172,428 105,478
Inventories 66,551 56,349
Other current assets 36,076 25,933
-------- ---------
Total current assets 309,748 245,377
Property, plant and equipment, net 678,038 655,414
Intangible assets, net 86,568 88,017
Investment in joint venture 108,639 107,385
Deferred income tax, net 7,412 10,530
Other assets 27,553 21,201
--------- ---------
Total assets $1,217,958 $ 1,127,924
========== ===========
LIABILITIES
Current installments of long-term debt $ 41,835 48,457
Bank loans and overdrafts 270,860 182,672
Accounts payable, income taxes
payable, and accrued expenses 153,209 114,950
--------- ---------
Total current liabilities 465,904 346,079
Long-term debt, excluding current
installments 332,882 323,737
Deferred income taxes 10,266 7,625
Other long-term liabilities 10,077 10,715
--------- ---------
Total liabilities 819,129 688,156
Total shareholders' equity 398,829 439,768
---------- ---------
Total liabilities and
shareholders' equity $1,217,958 $ 1,127,924
========== ===========
10
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Three Months Ended
December 31,
-----------------------
INCOME 1995 1994
(Unaudited) (Unaudited)
----------- -----------
Net sales $ 227,122 $ 168,284
Cost and expenses:
Cost of sales (117,858) (86,193)
Selling and marketing expenses (68,652) (32,423)
Administrative expenses (30,753) (18,698)
Restructuring charges (11,540) -
Start-up costs in Brazil (644) (3,162)
-------- --------
(229,447) (140,476)
-------- --------
Income / (loss) from operations (2,325) 17,808
Other income (expenses), net (18,768) (3,813)
-------- --------
Income / (loss) before
income tax expenses and equity (21,093) 23,995
Income tax expenses $ (4,078) (6,483)
--------- --------
Income / (loss) before equity in
earnings of affiliated company (25,171) 17,512
Equity in earnings of affiliated
company 2,264 1,236
---------- ---------
Net income / (loss) $ (22,907) $ 18,748
========== =========
11
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General Overview
This report on Form 10-Q/A is being filed to restate the
Condensed Consolidated Financial Statements of the Company which
were included in the Company's report on Form 10-Q for the three-
month period ended December 31, 1995 which originally was filed
on February 14, 1996. Subsequent to the filing of that report,
the Company discovered accounting irregularities which resulted
in a substantial understatement of certain expenses, primarily
discounting and marketing expenses, and a corresponding
overstatement of income from operations for both the three-month
period ended December 31, 1995, and the three-month period ended
March 31, 1996. A separate report on Form 10-Q/A amending the
Company's report on Form 10-Q for the three-month period ended
March 31, 1996 was filed simultaneously with this report. As a
result of the restatement contained in this report, the Company
is reporting a loss from operations for the three months ended
December 31, 1995 of $(1.0) million, rather than income from
operations of $2.4 million which was reported in its originally
filed report on Form 10-Q for its first fiscal quarter.
After discovering the accounting irregularities, the
Company's Board of Directors retained Rogers & Wells as
independent counsel to conduct an investigation of the
circumstances which resulted in the irregularities. Rogers &
Wells, working with the independent accounting firm of Price
Waterhouse, which was retained to assist with the investigation,
conducted a thorough investigation of these circumstances and has
made its report to the Company's Board of Directors. Taking into
consideration the findings of the investigation and in
consultation with the Company's independent auditors regarding
their materiality, the Company concluded that the irregularities
did not have a material effect on any Company financial
statements prior to the first and second quarters of fiscal 1996,
and thus that no restatements for any prior periods are required.
Based on the Company's investigation, the Company believes
that the accounting irregularities involved a series of entries
made in the Company's accounting records by certain employees of
the Company which had the effect of improperly recording certain
expenses (primarily marketing and discounting expenses) as non-
chargeable items, or of not recording such expenses at all.
These entries resulted in a corresponding overstatement of the
Company's operating income.
In consultation with its auditors, and with Price Waterhouse,
which assisted with the independent counsel investigation into
the accounting irregularities, the Company has taken definitive
steps to insure that internal management and accounting controls
will prevent future accounting irregularities. Certain employees
who the Company believes were principally involved in causing the
accounting irregularities, are no longer employed by the Company
or remain under strict supervision. In addition, the Company has
replaced the senior officers in charge of the Company's
accounting records with individuals whose integrity is not in
question. The Company has adopted a comprehensive series of
strict new internal management and accounting controls including
implementation of strict control over preparation, review and
documentation of all entries to the Company's books of account,
monthly review of all journal entries by the Company's
12
independent internal audit function and adoption of a corporate
code of ethics. Also, the Company has created the position of
financial account analyst who will be charged with monthly review
of all significant account balances. There is, as well, a
heightened level of awareness on the part of the internal audit
committee. The chairmanship of the committee has been assigned
to a person very experienced in the field of public accounting.
Analysis of the Company's sensitive and critical accounts is
being reviewed at the highest levels of management. Furthermore,
implementation of procedures to liquidate those accounts related
to credits and discounts granted to customers on a timely basis,
so as to reduce the level of uncertainty inherent in estimating
the appropriate balance accrued at the end of each month, have
been implemented. Finally, a process of mutual reconciliation
with the Company's franchisor in so far as amounts due from and
to it at the end of each month has been implemented.
The following discussion of the financial condition and
results of operations of the Company should be read in
conjunction with this overview and the Condensed Consolidated
Financial Statements of the Company, and the Notes thereto, as of
and for the three month period ended December 31, 1994 and 1995
(the "1995 interim period" and the "1996 interim period,"
respectively).
Presentation of Financial Information
In addition to conducting its own bottling operations, the
Company indirectly owns 12,345,347 shares, or approximately 17%
of the outstanding capital stock, and, during the period covered
by this report, exercised significant influence over the
management of BAESA, subject to the right of PepsiCo, Inc.
("PepsiCo") and certain of its affiliates (collectively, "Pepsi
Cola International" or "PCI") to approve certain management
decisions. The financial information relating to the Company
set forth below reflects the operations of the Company and its
equity interest in the net earnings of BAESA.
Seasonality
The historical results of operations of the Company have not
been significantly seasonal. The Company believes that this is
partly attributable to existing capacity constraints in recent
years which prevented the Company from meeting increased demand
during peak periods. However, the Company anticipates that its
results of operations in the future may be increasingly seasonal
in the summer and holiday seasons.
The Company
General
The following table sets forth certain financial information
as a percentage of net sales for the Company for the periods
indicated.
Fiscal Year Interim
------------------------ ----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 59.8 58.2 59.4 59.9 64.3
Gross Profit 40.2 41.8 40.6 40.1 35.7
Selling and Marketing 28.0 29.3 26.6 26.9 33.5
Expenses
Administrative Expenses 11.5 10.1 5.5 5.4 5.4
Intangibles and Fixed
Asset Write-offs - 2.8 - - -
Income (Loss) from
Operations 0.8 (0.4) 8.5 7.8 (3.2)
1996 Interim Period Compared to 1995 Interim Period
Net Sales. Net Sales for the Company increased $ 1.4
million, or 4.9%, for the 1996 interim period from the 1995
interim period to $29.4 million. This increase was primarily the
result of a 9% increase in beverage sales volume partially offset
by an increase in discounts provided to customers in the 1996
interim period as compared to the 1995 interim period. This
increase in discounts resulted from increased competitive
activity. The average net sales price on an eight ounce
equivalent basis decreased during the 1996 interim period by
approximately 3.6% as compared to the 1995 interim period.
13
Cost of Sales. Cost of sales for the Company increased $2.1
million, or 12.6% for the 1996 interim period from the 1995
interim period to $18.9 million. This increase resulted
primarily from the increase in sales volume, a larger percentage
of sales volume in two-liter plastic packages and the increase in
the costs of raw materials, principally aluminum cans and resin
for the production of plastic bottles and preforms, and was
partially offset by a decrease in costs attributable to increased
efficiency principally due to a reduction in overtime costs.
Gross Profit. Gross profit for the Company decreased by
$0.8 million to $10.4 million in the 1996 interim period from
$11.2 million in the 1995 interim period. As a percentage of net
sales, gross profit decreased to 35.7% in the 1996 interim period
from 40.1% in the 1995 interim period due primarily to the higher
raw materials costs and higher discounts offered to customers.
Selling and Marketing Expense. The Company has a number of
marketing arrangements with PepsiCo pursuant to which the Company
is required to make certain investments in marketing, new
products, packaging introductions and certain capital goods. The
Company receives reimbursements from PepsiCo for a portion of
such expenditures, which it is able to use to offset traditional
marketing expenses or to acquire fixed assets. The Company's
selling and marketing expenses are shown net of all such
reimbursements from PepsiCo.
Selling and marketing expenses for the Company increased
$2.3 million, or 30.8%, to $9.9 million for the 1996 interim
period from the 1995 interim period. This increase is the result
of higher marketing activities incurred during the first quarter
of fiscal year 1996 in connection with the launch of Teem, a
lemon/lime soft drink, during October 1995, as well as other
marketing activities undertaken to promote the Company's
products.
Administrative Expenses. Administrative expenses for the
Company increased $0.1 million or 6.4% for the 1996 interim
period from the 1995 interim period to $1.6 million. As a
percentage of net sales, administrative expenses remained at 5.4%
during the 1996 interim period and 1995 interim period.
Income from Operations. Income (loss) from operations for
the Company decreased to ($1.0) million in the 1996 interim
period, from $2.2 million in the 1995 interim period. The
decrease is the result of a lower average net sales price, higher
cost of sales and higher selling and marketing expenses during
the 1996 interim period.
Income Tax Expense. Income tax expense for the Company
decreased by $0.1 million for the 1996 interim period to $0.3
million. In 1995 a larger amount of the Company's net income was
generated by those subsidiaries subject to income taxes than
subsidiaries eligible for income tax exclusions.
Equity in Net Earnings (Loss) of BAESA, Net of Income Tax.
Equity in net earnings (loss) of BAESA, net of income tax,
amounted to $(2.6) million during the 1996 interim period,
compared to $2.6 million during the 1995 interim period. The
decrease is attributable to losses incurred by BAESA for the 1996
interim period resulting from restructuring charges in connection
with continued depressed economic conditions in Argentina, lower
sales volume levels in Argentina resulting from such economic
conditions, and lower profitability achieved in BAESA's Brazilian
operations.
Net Income. Net income/(loss) for the 1996 interim period
for the Company was ($3.2) million, compared to $4.1 million
during the 1995 interim period. Net loss in the 1996 interim
period primarily reflects the loss from operations of $1.0
million and the equity in net loss of BAESA, net of income tax of
$(2.6) million as compared to equity in net earnings of BAESA of
$2.6 million in the 1995 interim period.
Liquidity and Capital Resources
At December 31, 1995, the Company had $46.7 million of cash
and cash equivalents, and indebtedness for borrowed money,
including short-term borrowings and capital lease obligations, of
$23.9 million.
14
Net cash provided by (used in) operations activities for the
Company for the 1996 interim period was $(1.8) million compared
to $7.2 million during the 1995 interim period. As of December
31, 1995, the Company has $25.7 million in net operating loss
carryforwards available to offset future Puerto Rican income
taxes. The Company believes that net cash provided by operating
activities for the Company will be sufficient to meet its
operating requirements for the foreseeable future.
Cash flows provided by (used in) investing activities for
the Company amounted to $(1.7) million during the 1996 interim
period, as compared to $0.2 million during the 1995 interim
period. Purchases of property, plant and equipment, net amounted
to $5.1 million during the 1996 interim period compared to $2.6
million during the 1995 interim period. Dividends received from
BAESA amounted to $2.8 million for the interim periods 1996 and
1995.
Cash flows provided by (used in) financing activities for
the Company during the 1996 interim period was $4.1 million
compared to $(5.1) million during the 1995 interim period. The
significant financing activities for the Company in the 1996 and
1995 interim periods were the payments of dividends and the
repayment of debt. In the 1996 interim period the Company also
received proceeds from the issuance of notes of $10.2 million.
The Company paid $5.2 million and $4.6 million in the 1996 and
1995 interim periods, respectively, in dividends.
In November 1994, the Company and its subsidiaries entered
into a Credit Agreement with Banco Popular. The Credit Agreement
provides for borrowings by the Company from time to time of $5
million in revolving loans, $8.8 million in term loans and $15
million in non-revolving loans. In December 1995 Banco Popular
increased the amount the Company may borrow under revolving loans
to $10.0 million. As of December 31, 1995, the Company had
outstanding under the Credit Agreement revolving loans in an
aggregate principal amount of $10.0 million, term loans in an
aggregate principal amount of $7.2 million and non-revolving
loans in an aggregate principal amount of $4.0 million. These
loans mature on April 30, 1996, December 18, 2000 and September
30, 1996, respectively, and bear interest at a floating rate of
2% over and above the cost to Banco Popular of "936 Funds" (as
defined below) (the "936 Rate"). At December 31, 1995, the 936
Rate was 5.7%.
The weighted average interest rate on such borrowings was
7.7% in the first three months of the fiscal year 1996. "936
Funds" are defined in the Credit Agreement as deposits in U.S.
dollars in immediately available funds by Section 936
Corporations on the first day of the relevant funding period for
a period equal to such funding period and in an amount equal or
comparable to the principal amount of the relevant loan. The
Company is required to make monthly payments of principal in the
amount of $128,205 with respect to the outstanding term loans.
The Company may prepay certain of the loans subject to the terms
and conditions of the Credit Agreement. Prior to the time that
any expansion opportunities may become available the Company may
use a portion of the net proceeds of an initial public offering
completed in September 1995 to repay the current amount
outstanding on the $10.0 million maximum principal amount of
outstanding short-term revolving credit indebtedness under the
Credit Agreement.
Under the terms of the Credit Agreement, the Company is
subject to the following financial restrictions: (i) the
Company must maintain a minimum Operating Cash Flow to total Debt
Service ratio (as defined in the Credit Agreement) of 1.50 to 1
for each fiscal year during the term of the Credit Agreement (ii)
a minimum ratio of current assets to current liabilities of 0.40,
0.60, 0.75 and 1.00 to 1, respectively, and a maximum ratio of
Total Liabilities to Tangible Net Worth of 4.0, 4.0, 3.0 and 2.0
to 1, respectively, for the fiscal year 1996 through 1998 and
thereafter, and (iii) a minimum Tangible Net Worth of $15 million
through the end of the fiscal year 1996 and of $18 million, $21.5
million, $25 million and $30 million for each succeeding fiscal
year thereafter. The Company is currently in compliance with
these financing restrictions. The entire principal amount of
loans outstanding under the Credit Agreement becomes immediately
due and payable, subject to a cure period, if the Company
violates any of these financial restrictions. Furthermore, the
Company may not pay dividends (other than amounts declared by and
received from BAESA as dividends) without the consent of Banco
Popular if an event of default under the Credit Agreement
(including a violation of the financial restrictions described
above) has occurred or would occur because of the payment of
dividends.
15
Pursuant to the Credit Agreement, the Company has granted
Banco Popular a security interest in all its machinery and
equipment, receivables, inventory and the real property on which
the Toa Baja plant and the Rio Piedras plant are located.
The Company's franchise arraignments with PepsiCo require it
not to exceed a ratio of senior debt to subordinated debt to
equity of 65 to 25 to 10. The Company is currently in compliance
with these covenants.
Capital expenditures for the Company totaled $5.1 million in
the 1996 interim period and $2.6 million in the 1995 interim
period. The Company's capital expenditures have been financed by
a combination of borrowings from third parties and internally
generated funds. The Company expects that it will make
significant capital expenditures in the fiscal year 1996
primarily for the completion of the construction of the Toa Baja
plant, as well as for the acquisition of trucks, and related
bottling company investments within Puerto Rico, which will be
financed with a combination of borrowings from third parties and
internally generated funds.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates indicated.
Signatures Title Date
/s/ Rafael Nin Chief Executive December 23, 1996
- ----------------------- Officer
Rafael Nin
/s/ David L. Virginia Chief Financial December 23, 1996
- ------------------------ Officer and Chief
David L. Virginia Accounting Officer
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