SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
<checked-box> QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
<square> 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
incorporation or organization) Identification No.)
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. <square> Yes <checked-box> No
As of May 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.
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<PAGE>
This Report on Form 10-Q/A is being filed to amend and restate in
its entirety, (except for the information contained (i) in Footnote 7 to the
Condensed Consolidated Financial Statements, (ii) under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - BAESA" and (iii) any other information relating to BAESA which is
not being amended by this Report on Form 10-Q/A) the quarterly report on Form
10-Q for the quarterly period ended March 31, 1996 filed by the Company on May
15, 1996.
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PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets (unaudited) at March 31, 1996 and September
30, 1995 4
Condensed Consolidated Statements of Operations (unaudited) for the Six Months
Ended March 31, 1996 and 1995 6
Condensed Consolidated Statements of Operations (unaudited) for the Three Months
Ended March 31, 1996 and 1995 7
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended March 31, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements (unaudited) 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION 17
</TABLE>
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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>
<CAPTION>
March 31, September 30,
1996 1995
------------- ----------------
<S> <C> <C>
ASSETS (unaudited)
Cash and cash equivalents $ 48,348 $ 46,091
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,059 at
March 31, 1996 and $1,458 at September 30, 1995 14,428 16,086
Due from PepsiCo, Inc. and affiliated companies 2,004 2,913
Other 571 341
Inventories 4,666 4,542
Prepaid expenses and other current assets 5,530 2,516
---------- ----------
Total current assets 75,547 72,489
Investment in BAESA 62,601 74,128
Property, plant and equipment, net 47,111 36,445
Intangible assets, net 2,128 2,163
Notes receivable - officers and employees 775 -
Other assets 1,324 441
---------- ----------
Total assets $ 189,486 $ 185,666
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------------- -------------------
<S> <C> <C>
Liabilities: (unaudited)
Current installments of long-term debt $ 1,550 $ 1,550
Current installments of capital lease obligations 253 1,204
Short term borrowings 25,785 4,600
Accounts payable:
Trade 15,295 12,536
Affiliate 1,674 1,181
Income taxes payable 455 123
Deferred income taxes 530 530
Other accrued expenses 5,279 6,477
------- ----------
Total current liabilities 50,821 28,201
Long-term debt, excluding current installments 5,590 6,365
Capital lease obligations, excluding current installments 733 848
Accrued pension cost, long-term 2,871 2,871
Deferred income taxes 15,969 18,732
------- -------
Total liabilities 75,984 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 24,614 39,472
Cumulative translation adjustment (521) (232)
Pension liability adjustment (1,544) (1,544)
---------- ----------
Total shareholders' equity 113,502 128,649
---------- ----------
Total liabilities and shareholders' equity $ 189,486 $ 185,666
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1996 1995
---------------- -----------------
<S> <C> <C>
Net Sales $ 54,502 $ 52,802
Cost of Sales 35,065 30,887
---------- ----------
Gross profit 19,437 21,915
Selling and marketing expenses 20,626 14,705
Administrative expenses 3,323 2,954
---------- ----------
Income/(loss) from operations (4,512) 4,256
----------- ----------
Other income (expenses):
Interest expense (365) (731)
Interest income 1,365 77
Other, net 220 460
---------- ----------
Total other income (expenses) 1,220 (194)
---------- ----------
Income/(loss) before income tax expense and
equity in net earnings/(loss) of BAESA (3,292) 4,062
---------- ----------
Income tax expense 691 637
---------- ----------
Income/(loss) before equity in net earnings/(loss) of
BAESA (3,983) 3,425
Equity in net earnings/(loss) of BAESA, net of income tax
benefit/(expense) of $2,763 and $(1,016) in 1996
and 1995 respectively (5,637) 5,336
----------- ----------
Net income/(loss) $ (9,620) 8,761
=========== ==========
Earnings per common share:
Income/(loss) before equity in net earnings/(loss) of
BAESA $ (0.19) $ 0.19
=========== ==========
Net income/(loss) $ (0.45) $ 0.49
=========== ==========
Weighted average number of shares outstanding 21,500 18,000
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
-------------------- ---------------------
<S> <C> <C>
Net Sales $ 25,085 $ 24,745
Cost of Sales 16,141 14,076
--------------- -------------
Gross profit 8,944 10,669
Selling and marketing expenses 10,754 7,159
Administrative expenses 1,725 1,452
--------------- -------------
Income/(loss) from operations (3,535) 2,058
---------------- -------------
Other income (expenses):
Interest expense (211) (377)
Interest income 680 45
Other, net 91 434
--------------- -------------
Total other income (expenses) 560 102
Income/(loss) before income tax expense and
equity in net earnings/(loss) of BAESA (2,975) 2,160
Income tax expense 425 315
--------------- -------------
Income/(loss) before equity in net earnings/(loss) of
BAESA (3,400) 1,845
Equity in net earnings/(loss) of BAESA, net of income tax
benefit/(expense) of $1,485 and $(530) in 1996
and 1995 respectively (3,014) 2,784
--------------- -------------
Net income/(loss) $ (6,414) $ 4,629
================ =============
Earnings per common share:
Income before equity in net earnings/(loss) of BAESA $ (0.16) $ 0.10
================ =============
Net income/(loss) $ (0.30) $ 0.26
================ =============
Weighted average number of shares outstanding 21,500 18,000
=============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(U.S. DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C> ------------ ----------
Cash flows from operating activities:
Net income/(loss) $ (9,620) $ 8,761
Adjustments to reconcile net earnings/(loss) to net cash
provided by (used in) operating activities:
Gain on disposal of property, plant, and equipment (529) (455)
Depreciation and amortization 2,525 2,420
Equity in net (earnings)/loss of BAESA 5,637 (5,336)
Changes in assets and liabilities:
Accounts receivable 2,337 (546)
Inventories (124) 660
Prepaid expenses and other current assets (3,014) (4,130)
Accounts payable 3,252 4,421
Other liabilities and accrued expenses (1,199) 3,095
Income taxes payable 332 400
Other, net (883) 206
--------- -------
Net cash provided by (used in) operating activities (1,286) 9,496
--------- -------
Cash flows from investing activities:
Proceeds from the sale of property, plant and equipment 1,175 483
Purchases of property, plant and equipment (13,802) (4,801)
Increase in notes receivable - officers and employees (775) -
Dividends received from affiliates 2,839 2,839
-------- -------
Net cash (used in) investing activities (10,563) (1,479)
--------- --------
Cash flows from financing activities:
Proceeds from short term borrowings 21,185 500
Repayment of long-term debt (775) (775)
Repayment of capital lease obligations (1,066) (1,296)
Dividends paid (5,238) (4,696)
--------- --------
Net cash provided by (used in) financing activities 14,106 (6,267)
-------- --------
Net increase in cash and cash equivalents 2,257 1,750
Cash and cash equivalents at beginning of period 46,091 1,347
-------- -------
Cash and cash equivalents at the end of period $ 48,348 $ 3,097
======== =======
Supplemental disclosures:
Cash paid for:
Interest $ 988 $ 731
Income taxes 186 211
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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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
second quarter, necessary for a fair presentation. For additional
information, please refer to page 12 of this Form 10-Q/A. Operating results
for the six months and three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
September 30, 1996.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------- ----------------
<S> <C> <C> <C>
Raw materials $ 1,546 $ 1,247
Finished goods 2,240 2,048
Other 880 1,247
------- -------
$ 4,666 $ 4,542
======= =======
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------- ----------------
<S> <C> <C> <C>
Land and improvements $ 1,159 $ 1,159
Buildings and improvements 5,592 5,592
Machinery, equipment and vehicles 36,511 36,173
Bottles, cases and shells 1,313 1,585
Furniture and fixtures 2,529 1,833
Construction in process 23,956 12,224
--------- ----------
71,060 58,566
Less accumulated depreciation and amortization (23,949) (22,121)
--------- -----------
Property, plant and equipment, net $ 47,111 $ 36,445
======== ==========
</TABLE>
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<PAGE>
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:
<TABLE>
<CAPTION>
March 31,
1996 1995
----------------- ---------------------
<S> <C> <C> <C>
Interest cost capitalized $ 623 $ -
Interest cost charged to income 365 731
------- -------
$ 988 $ 731
======= =======
</TABLE>
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<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) SHAREHOLDERS' EQUITY
The Company declared and paid cash dividends of $5,238 during the six
months ended March 31, 1996 and $4,696 during the six months ended March 31,
1995.
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 to 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 six months ended March 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
March 31,
1996 1995
--------------- -------------------
<S> <C> <C> <C>
Current $691 $637
Deferred - -
----------- --------------
Income tax expense $691 $637
=============== ===================
</TABLE>
Deferred income tax benefit / (expense) of $2,763 and $(1,016) for the six
month period ended March 31, 1996 and 1995, 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 $1,101 and $771 during the six months ended
March 31, 1996 and 1995, respectively, for advertising fees to a firm
controlled by a shareholder of the Company.
The Company paid approximately $232 and $146 during the six months ended
March 31, 1996 and 1995, respectively, for consulting fees to a shareholder and
director of BAESA.
The Company paid approximately $151 during the six months ended March 31,
1996 for construction management services to a shareholder and director of the
Company.
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<PAGE>
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 and six-month periods ended March
31, 1996 which was filed on May 15, 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 December 31,
1995 is being 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 March 31, 1996 of $(3.5) million, rather
than income from operations of $2.2 million which was reported in the
originally filed report on Form 10-Q for its second 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 accountants
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 no restatements for any
prior periods are required.
The following discussion of the financial condition and results of
operations of the Company and of BAESA should be read in conjunction with this
overview and the Condensed Consolidated Financial Statements of the Company and
of BAESA, and the Notes thereto, as of and for the six month periods ended
March 31, 1995 and 1996 (the "1995 six month interim period" and the "1996 six
month interim period," respectively) and as of and for the three month interim
periods ended March 31, 1995 and 1996 (the "1995 three month interim period"
and the "1996 three month 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 exercises 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. See Item 5 "Other Information." 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.
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THE COMPANY
GENERAL
The following table sets forth certain financial information as a
percentage of net sales for the Company for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Six Months Interim Three Months Interim
--------------------------------- -------------------- --------------------
1993 1994 1995 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 59.8 58.2 59.4 58.5 64.3 56.9 64.3
Gross Profit 40.2 41.8 40.6 41.5 35.7 43.1 35.7
Selling and Marketing 28.0 29.3 26.6 27.8 37.8 28.9 42.9
Expenses
Administrative Expenses 11.4 10.1 5.5 5.6 6.1 5.9 6.9
Intangibles and Fixed Asset - 2.8 - - - - -
Write-offs
Income/(Loss) from Operations 0.8 (0.4) 8.5 8.1 (8.3) 8.3 (14.1)
</TABLE>
1996 SIX MONTH INTERIM PERIOD COMPARED TO 1995 SIX MONTH INTERIM PERIOD
NET SALES. Net Sales for the Company increased $1.7 million, or 3.2%,
for the 1996 six month interim period from the 1995 six month interim period to
$54.5 million. This increase was primarily the result of an 11.4% increase in
beverage sales volume partially offset by an increase in discounts provided to
customers in the 1996 six month interim period as compared to the 1995 six
month 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 six month interim period by approximately 7.2%
as compared to the 1995 six month interim period.
COST OF SALES. Cost of sales for the Company increased $4.2 million, or
13.5% for the 1996 six month interim period from the 1995 six month interim
period to $35.0 million. This increase resulted primarily from the increase in
sales volume and the increase in cost of certain raw materials, principally
aluminum cans and resin for the production of plastic bottles and preforms.
GROSS PROFIT. Gross profit for the Company decreased by $2.5 million to
$19.4 million in the 1996 six month interim period from $21.9 million in the
1995 six month interim period. As a percentage of net sales, gross profit
decreased to 35.7% in the 1996 six month interim period from 41.5% in the 1995
six month interim period due primarily to the higher discounts provided to
customers, the lower net sales price and the higher cost of certain raw
materials.
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 $5.9 million, or
40.2%, to $20.6 million for the 1996 six month interim period from the 1995 six
month interim period. This increase is the result of greater marketing
activities during the 1996 six month interim period resulting primarily from a
significant increase in competition, expenses associated with the launch of
Teem, a lemon/lime soft drink, which was launched during October 1995 as well
as other marketing activities undertaken to promote the Company's products.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
increased $0.4 million or 12.5% for the 1996 six month interim period from the
1995 six month interim period to $3.3 million. As a percentage of net sales,
13
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<PAGE>
administrative expenses increased to 6.1% in the 1996 six month interim period
from 5.6% in the 1995 six month interim period.
INCOME FROM OPERATIONS. Income/(loss) from operations for the Company
decreased to ($4.5) million in the 1996 six month interim period, from $4.3
million in the 1995 six month interim period. The decrease is the result of a
lower average net sales price, higher cost of sales from the increased sales
volume and the increase in selling and marketing expenditures.
INCOME TAX EXPENSE. Income tax expense for the Company increased by $0.1
million for the 1996 six month interim period to $0.7 million. The increase in
taxable income during the 1996 six month interim period contributed to the
increase in income tax expense.
EQUITY IN NET EARNINGS/(LOSS) OF BAESA, NET OF INCOME TAX. Equity in net
earnings (loss) of BAESA, net of income tax, amounted to $(5.6) million during
the 1996 six month interim period, compared to $5.3 million during the 1995 six
month 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 losses
incurred in BAESA's Brazilian operations.
NET INCOME/(LOSS). Net income (loss) for the 1996 six month interim
period for the Company was $(9.6) million, compared to $8.8 million during the
1995 six month interim period. Net (loss) in the 1996 six month interim period
primarily reflects equity in net loss of BAESA, net of income tax of $(5.6)
million as compared to equity in net earnings of BAESA of $5.3 million in the
1995 six month interim period. In addition, net loss in the 1996 six month
interim period reflects net loss before equity in net earnings (loss) of Baesa
of $(4.0) million as compared to net income of $3.4 million during the 1995
interim period.
1996 THREE MONTH INTERIM PERIOD COMPARED TO 1995 THREE MONTH INTERIM PERIOD
NET SALES. Net Sales for the Company increased $0.3 million, or 1.4%,
for the 1996 three month interim period from the 1995 three month interim
period to $25.1 million. This increase was primarily the result of a 14.5%
increase in beverage sales volume partially offset by an increase in discounts
provided to customers in the 1996 three month interim period as compared to the
1995 three month interim period. This increase in discounts resulted from
increased competitive activity. The average net sales price on an eight ounce
equivalent basis decreased by 11.5% during the 1996 three month interim period
as compared to the 1995 three month interim period.
COST OF SALES. Cost of sales for the Company increased $2.1 million, or
14.7% for the 1996 three month interim period from the 1995 three month interim
period to $16.1 million. This increase resulted primarily from the increase in
sales volume.
GROSS PROFIT. Gross profit for the Company decreased by $1.7 million to
$9.0 million in the 1996 three month interim period from $10.7 million in the
1995 three month interim period. As a percentage of net sales, gross profit
decreased to 35.7% in the 1996 three month interim period from 43.1% in the
1995 three month interim period due primarily to the higher discounts provided
to customers and the lower average net sales price.
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.
14
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<PAGE>
Selling and marketing expenses for the Company increased $3.6 million, or
50.2%, to $10.7 million for the 1996 three month interim period from the 1995
three month interim period as a result of increased marketing activities
undertaken during the period resulting from a significant increase in
competition.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
increased $0.3 million or 18.8% for the 1996 three month interim period from
the 1995 three month interim period to $1.7 million primarily as a result of
the additional expenses incurred by the Company in connection with its ongoing
reporting requirements with the Commission and The New York Stock Exchange (the
"Exchange") as a result of its listing on the Exchange. As a percentage of net
sales, administrative expenses increased to 6.9% in the 1996 three month
interim period from 5.9% in the 1995 three month interim period.
INCOME FROM OPERATIONS. Income (loss) from operations for the Company
decreased to $(3.5) million in the 1996 three month interim period, from $2.1
million in the 1995 three month interim period. The decrease is the result of
lower average net sales during the 1996 three month interim period, higher
cost of sales from the increased sales volume and increased selling and
marketing expenditures.
INCOME TAX EXPENSE. Income tax expense for the Company increased by $0.1
million for the 1996 three month interim period to $0.4 million primarily
resulting from higher taxable income earned during the 1996 three month interim
period.
EQUITY IN NET EARNINGS/(LOSS) OF BAESA, NET OF INCOME TAX. Equity in net
earnings (loss) of BAESA, net of income tax, amounted to $(3.0) million during
the 1996 three month interim period, compared to $2.8 million during the 1995
three month interim period. The decrease is attributable to losses incurred by
BAESA for the 1996 interim period in connection with continued depressed
economic conditions in Argentina, lower sales volume levels in Argentina
resulting from such economic conditions, and losses incurred in BAESA's
Brazilian operations.
NET INCOME/(LOSS). Net income (loss) for the 1996 three month interim
period for the Company was $(6.4) million, compared to $4.6 million during the
1995 three month interim period. Net (loss) in the 1996 three month interim
period primarily reflects equity in net loss of BAESA, net of income tax of
$(3.0) million as compared to equity in net earnings of BAESA of $2.8 million
in the 1995 three month interim period. In addition, net loss in the 1996
three month interim period reflects net loss before equity in net earnings
(loss) of Baesa of $(3.4) million as compared to net income of $1.8 million
during the 1995 three month interim period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $48.3 million of cash and cash
equivalents, of which $44 million represented proceeds from the Company's
initial public offering of equity securities, and indebtedness for borrowed
money, including short-term borrowings and capital lease obligations, of $33.9
million.
Net cash provided by (used in) operating activities for the Company for
the 1996 six month interim period was $(1.3) million compared to $9.5 million
during the 1995 six month interim period. This decrease was mainly a result
of the net loss of $(9.6) million incurred during the 1996 interim period
compared to net income of $8.8 million earned during the 1995 six month interim
period. As of March 31, 1996, the Company had $24.6 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 used in investing activities for the Company amounted to
$(10.5) million during the 1996 six month interim period, as compared to $(1.5)
million during the 1995 six month interim period. Purchases of property, plant
and equipment, net amounted to $13.8 million during the 1996 six month interim
period compared to $4.8 million during the 1995 six month interim period.
Dividends received from BAESA amounted to $2.8 million for the six month
interim periods 1996 and 1995.
15
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<PAGE>
Cash flows provided by (used in) financing activities for the Company
during the 1996 six month interim period was $14.1 million compared to $(6.3)
million during the 1995 six month interim period. The significant financing
activities for the Company in the 1996 six month interim period were the
payments of dividends and the issuance of notes payable of $21.2 million offset
by the repayment of debt of $1.8 million. The significant financing activities
in the 1995 six month interim period for the Company included the payment of
dividends and the repayment of debt. The Company paid $5.2 million and $4.7
million in the 1996 and 1995 six month 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 March 31, 1996, 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 $6.8 million and non-
revolving loans in an aggregate principal amount of $15.0 million. These loans
mature on March 31, 1997, September 10, 2000 and November 10, 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
March 31, 1996, the 936 Rate was 5.1%.
The weighted average interest rate on such borrowings was 7.1% in the
first six 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 years 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
financial 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.
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 Company's bottling plant in Toa Baja, Puerto
Rico (the "Toa Baja Plant") and the Company's plant in Rio Piedras, Puerto
Rico (the "Rio Piedras Plant") are located.
The Company's franchise arrangements 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 $13.8 million in the 1996
six month interim period and $4.8 million in the 1995 six month 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 to make approximately $6.0 million in additional capital expenditures
during the fiscal year 1996 for the completion of the construction of the Toa
Baja Plant.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In connection with efforts being made to improve the
profitability of BAESA, in which the Company owns approximately a 17%
interest, BAESA, Charles H. Beach (Chairman and Chief Executive Officer
of BAESA and President and Chief Executive Officer of the Company) and
PepsiCo have decided to accelerate the transfer of voting control from
the members of the Charles H. Beach Voting Trust and the Michael
Gerrits Voting Trust (together, the "Essential Shareholders"),
controlled respectively by Charles H. Beach and Michael Gerrits,
to PepsiCo (Phase II of the current agreement with PepsiCo relating to
BAESA voting control) effective July 1, 1996. As a result of this
change, the Company's investment in BAESA most likely will cause
the Company to be an investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). In order to avoid
being required to register as an investment company, which the
Company believes would impose burdensome restrictions on its
future operations, the Company's Board of Directors has expressed its
intention to take steps as soon as is reasonably possible which will
result in the Company not being required to register as an investment
company.
As a result of this action by the Board of Directors, pursuant
to Rule 3a-2 under the Investment Company Act, the Company believes
it will have a period of one year after July 1, 1996 before it
is required to register. During that period the Company will explore a
number of alternatives, including (i) accelerating its program of
expanding its operating businesses, including the possible acquisition
of new bottling franchises, in order to reduce the relative size of
the Company's BAESA investment, and (ii) disposing of, through a sale or
a spin-off transaction, sufficient BAESA shares to avoid the need to
register. The Company will also explore the possibility of applying
for an exemptive order from the Securities and Exchange Commission
which would exempt the Company from registration as an investment
company.
In connection with the transition to Phase II, BAESA agreed to use
its best efforts in the future, at the request of the Company, but
without expense or liability (tax or otherwise) to BAESA, to assist the
Company in effecting transactions which the Company considers
necessary or advisable in order to avoid the requirement that it
register as an investment company. There can be no assurances, however,
that the Company will be successful in finding a way to avoid
registration, or that if the Company is ultimately required to
register, it will not adversely effect the Company's future business
operations. In addition, PepsiCo agreed to support and encourage the
Company's effort to identify and acquire additional PepsiCo franchise
territories in the Caribbean and other appropriate regions.
17
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<PAGE>
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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/S/ RAFAEL NIN Chief Executive Officer October 7, 1996
- -------------------------------------------
Rafael Nin
/S/ DAVID L. VIRGINIA Chief Financial Officer and Chief October 7, 1996
- -------------------------------------------
David L. Virginia Accounting Officer
</TABLE>
18
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000948086
<NAME> PEPSI-COLA PUERTO RICO BOTTLING COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 48,348
<SECURITIES> 0
<RECEIVABLES> 18,062
<ALLOWANCES> 1,059
<INVENTORY> 4,666
<CURRENT-ASSETS> 75,547
<PP&E> 71,060
<DEPRECIATION> (23,949)
<TOTAL-ASSETS> 189,486
<CURRENT-LIABILITIES> 50,821
<BONDS> 6,323
0
0
<COMMON> 215
<OTHER-SE> 115,352
<TOTAL-LIABILITY-AND-EQUITY> 189,486
<SALES> 25,085
<TOTAL-REVENUES> 25,085
<CGS> (16,141)
<TOTAL-COSTS> (28,569)
<OTHER-EXPENSES> 771
<LOSS-PROVISION> (51)
<INTEREST-EXPENSE> (211)
<INCOME-PRETAX> (2,975)
<INCOME-TAX> (425)
<INCOME-CONTINUING> (6,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,414)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
