SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1997
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 Identification No.)
incorporation or organization)
CARRETERA #865, KM 0.4
BARRIO CANDELARIA ARENAS
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. <checked-box> Yes <square> No
As of May 9, 1997, 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.
<PAGE>
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements: . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets (unaudited) at March 31, 1997
and September 30, 1996. . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income/(Loss)(unaudited) for the
Six Months Ended March 31, 1997 and 1996. . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Income/(Loss)(unaudited) for the
Three Months Ended March 31, 1997 and 1996. . . . . . . . . . . . . 6
Condensed Consolidated Statements of Income/(Loss)(unaudited) for the
Six Months Ended March 31, 1997 and 1996. . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .14
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .20
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . .20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .20
(a) Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
(b) Reports on Form 8-K during the quarter ended March 31, 1997 . . .21
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
PAGE
<PAGE>
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)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
---------- ------------
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 20,732 $ 18,614
Short-term investments - 12,904
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,263
at March 31, 1997 and $1,158 at September 30, 1996 12,144 11,262
Due from PepsiCo, Inc. and affiliated companies 740 877
Other 887 2,423
Inventories 3,659 4,495
Deferred income taxes 187 187
Prepaid expenses and current assets 1,241 1,857
--------- -----------
Total current assets $ 39,590 $ 52,619
Investment in Buenos Aires Embotelladora S.A. (BAESA) - -
Deferred income tax, long-term 2,076 2,076
Long-lived assets for sale, principally land and building 3,805 3,805
Property, plant and equipment, net 49,476 49,936
Intangible assets, net of accumulated amortization 1,427 1,459
Other assets 62 86
--------- -----------
Total assets $ 96,436 $ 109,981
========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
PAGE
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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,
1997 1996
------------- -------------
<S> <C> <C>
(unaudited) (audited)
Current Liabilities:
Current installments of long-term debt $ 1,551 $ 1,550
Current installments of capital lease obligations 262 341
Short-term borrowings 25,309 25,000
Accounts payable:
Trade 14,837 16,619
Affiliate - 50
Income tax payable 59 115
Other accrued expenses 6,662 8,672
----------- ------------
Total current liabilities 48,680 52,347
Long-term debt, excluding current installments 4,066 4,813
Capital lease obligations, excluding current installments 479 871
Accrued pension cost, long-term 2,593 2,593
----------- ------------
Total liabilities 55,818 60,624
----------- ------------
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/(deficit) (48,971) (40,232)
Pension liability adjustment (1,364) (1,364)
----------- ------------
Total shareholders' equity 40,618 49,357
----------- ------------
Total liabilities and shareholders' equity $ 96,436 $ 109,981
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net Sales $ 46,584 $ 54,502
Cost of Sales 32,663 35,065
------------ ------------
Gross profit 13,921 19,437
Selling and marketing expenses 15,377 20,626
Administrative expenses 6,168 3,323
Restructuring Charges 535 -
------------ ------------
Income/(loss) from operations (8,159) (4,512)
------------ ------------
Other income (expenses):
Interest expense (1,245) (365)
Interest income 699 1,365
Other, net 95 220
------------ ------------
Total other income (expenses) (451) 1,220
------------ ------------
Income/(loss) before income tax expense
and equity in net earnings/(loss) of BAESA (8,610) (3,292)
Income tax expense (129) (691)
Income/(loss) before equity in net ------------ ------------
earnings/(loss) of BAESA (8,739) (3,983)
Equity in net earnings/(loss) of BAESA, net of income
tax benefit of $2,763 in 1996 - (5,637)
------------ ------------
Net Income/(Loss) $ (8,739) $ (9,620)
------------ ------------
Earnings per common share:
Income/(loss) before equity in net earnings of
BAESA, net of taxes $ (0.41) $ (0.19)
============ ============
Net income/(loss) $ (0.41) $ (0.45)
============ ============
Weighted average number of shares outstanding
(in thousands) 21,500 21,500
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
PAGE
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net Sales $ 20,786 $ 25,085
Cost of Sales 14,754 16,141
---------- ----------
Gross profit 6,032 8,944
Selling and marketing expenses 7,159 10,754
Administrative expenses 3,348 1,725
Restructuring Charges 535 -
---------- ----------
Income/(loss) from operations (5,010) (3,535)
---------- ----------
Other income (expenses):
Interest expense (613) (211)
Interest income 291 680
Other, net 69 91
---------- ----------
Total other income (expenses) (253) 560
---------- ----------
Income/(loss) before income tax expense and equity
in net earnings/(loss) of BAESA (5,263) (2,975)
Income tax expense (21) (425)
---------- ----------
Income/(loss) before equity in net earnings/(loss) of BAESA (5,284) (3,400)
Equity in net earnings/(loss) of BAESA, net of income tax
benefit of $1,485 in 1996 - (3,014)
---------- ----------
Net income/(loss) $ (5,284) $ 6,414
========== ==========
Earnings per common share:
Income/(loss) before equity in net earnings of BAESA,
net of taxes $ (0.25) $ (0.16)
========== ==========
Net income/(loss) $ (0.25) $ (0.30)
========== ==========
Weighted average number of shares outstanding (in thousands) 21,500 21,500
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (8,739) $ (9,620)
Adjustments to reconcile net earnings to net cash
provided by/(used in) operating activities:
(Gain)/loss on sale of property, plant, and equipment 30 (529)
Depreciation and amortization 3,278 2,525
Equity in net earnings/(losses) of BAESA - 5,637
Changes in assets and liabilities:
Accounts receivable 791 2,337
Inventories 836 (124)
Prepaid expenses and other current assets 616 (3,014)
Accounts payable (1,832) 3,252
Other accrued expenses (2,010) (1,199)
Income taxes payable (56) 332
Other, net 24 (883)
--------- ----------
Net cash provided by/(used in) operating (7,062) (1,286)
activities
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 152 1,175
Proceeds from matured short-term investment 12,904 -
Purchases of property, plant and equipment (2,968) (13,802)
Increase in Notes Receivable - Officers and employees - (775)
Dividends received from affiliates - 2,839
--------- ----------
Net cash provided by/(used in) investing
activities 10,088 (10,563)
Cash flows from financing activities:
Proceeds from short-term borrowings 309 21,185
Repayment of long-term debt (746) (775)
Repayment of capital lease obligations (471) (1,066)
Dividends paid - (5,238)
--------- ----------
Net cash provided by/(used in) financing activities (908) 14,106
Net increase in cash and cash equivalents 2,118 2,257
Cash and cash equivalents at beginning of period 18,614 46,091
--------- ----------
Cash and cash equivalent at end of period $ 20,732 $ 48,348
========= ==========
Supplemental disclosures:
Cash paid for:
Interest $ 1,217 $ 988
Income taxes $ 185 $ 186
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
PAGE
<PAGE>
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, 1996. In
the opinion of the Company's management, the unaudited condensed consolidated
interim financial statements reflect all adjustments necessary for a fair
presentation. Operating results for the six months and three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 1997.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Raw materials $ 1,449 $ 1,346
Finished goods 1,431 1,684
Other 779 1,465
---------------- --------------
$ 3,659 $ 4,495
================ ==============
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
---------------- ------------------
<S> <C> <C>
Land and improvements $ 7,057 $ 7,057
Buildings and improvements 14,780 14,301
Machinery, equipment and vehicles 48,685 45,931
Bottles, cases and shells 1,446 1,401
Furniture and fixtures 1,519 1,877
Construction in process 942 1,941
------------ ------------
74,429 72,508
Less accumulated depreciation and amortization (24,953) (22,572)
------------ ------------
Property, plant and equipment, net $ 49,476 $ 49,936
============ ============
</TABLE>
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,
1997 1996
------------ ------------
<S> <C> <C>
Interest cost capitalized $ - $ 623
Interest cost charged to income 1,245 365
------------ ------------
$ 1,245 $ 988
============ ============
</TABLE>
8
<PAGE>
(4) ACCOUNTING FOR LONG LIVED ASSETS
During the year ended September 30, 1996, the Company adopted the
provisions of FASB 121 - Accounting for Long Lived Assets. The Company deems
an asset to be impaired if a forecast of undiscounted future cash flows
directly related to the asset, including disposal value, if any, is less than
its carrying amount. Factors leading to the impairment were the Company's
decision, in mid-1996, to consolidate all of its manufacturing activities in
its new manufacturing facility, and anticipated losses from the disposition of
the former manufacturing facility, and remaining unused equipment. The amount
of the impairment was calculated using a recent appraisal of the estimated
value of such property less estimated costs of disposition. At March 31, 1997,
those Long Lived Assets remained at the same value as the value at September
30, 1996.
(5) SHAREHOLDERS' EQUITY
The Company declared and paid no cash dividends during the six month
period ended March 31, 1997 and $5,238 during the six month period ended March
31, 1996.
Earnings per common share are determined by dividing net income by the
weighted average number of common shares outstanding during each period. Stock
options granted to the Company's President have been disregarded in the
computation of earnings per common share as their effect would have been
antidilutive.
(6) INCOME TAX
Income tax expense for the six months ended March 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Current $ 129 $ 691
Deferred - -
------------ ------------
Income tax expense $ 129 $ 691
============ ============
</TABLE>
Deferred income tax benefit of $2,763 for the six month period ended
March 31, 1996 has been provided in connection with the Company's equity in net
earnings / (loss) of BAESA.
(7) RELATED PARTY TRANSACTIONS
The Company paid approximately $1,140 and $1,101 during the six months
ended March 31, 1997 and 1996, respectively, for advertising fees to a firm
controlled by a shareholder of the Company.
The Company paid approximately $232 during the six months ended March 31,
1996 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 former director
of the Company.
9
<PAGE>
8) INVESTMENT IN BAESA
The following condensed unaudited financial information relating to BAESA
as of March 31, 1997 and for the six months and three months ended March 31,
1997 and 1996 and audited balance sheet financial information as of September
30, 1996 (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, 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.
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,021 $ 27,361
Accounts receivable, less allowance for doubtful
accounts 77,643 64,069
Inventories 25,041 31,077
Deferred income tax, net 6,130 6,681
Prepaid expenses and other current assets 9,474 8,469
---------- ----------
Total current assets 125,309 137,657
Property, plant and equipment 569,676 586,908
Intangible assets, net of accumulated amortization 75,705 78,943
Investment in affiliated company 112,011 106,918
Other assets 17,528 16,954
---------- ----------
Total assets $ 900,229 $ 927,380
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current installments of long-term debt $ 322,702 $ 290,299
Bank loans and overdrafts 391,141 367,440
Accounts payable 60,797 72,155
Income tax payable 3,381 3,149
Accrued expenses and other current liabilities 131,718 124,025
---------- ----------
Total current liabilities 909,739 857,068
Long-term debt, excluding current installments 47,166 87,461
Deferred income taxes 7,490 7,740
Other long-term liabilities 8,062 8,385
---------- ----------
Total liabilities 972,457 960,654
Total shareholders' equity/(deficit) (72,228) (33,274)
---------- ----------
Total liabilities and shareholders' equity/deficit $ 900,229 $ 927,380
========== ==========
</TABLE>
10
<PAGE>
(8) INVESTMENT IN BAESA (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
RESULTS OF OPERATIONS 1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 182,800 $ 206,814 $ 399,032 $ 440,107
Cost and expenses:
Cost of sales (95,632) (118,280) (200,045) (236,138)
Selling and marketing expenses (55,538) (80,576) (128,460) (155,399)
Administrative expenses (29,521) (27,499) (61,168) (58,521)
Debt and other restructuring
charges (10,612) - (13,981) (11,540)
----------- ----------- ----------- -----------
Income/(loss) from operations (8,503) (19,541) (4,622) (21,491)
----------- ----------- ----------- -----------
Interest expense (21,967) (19,507) (44,260) (37,310)
Interest income 69 1,437 151 2,152
Foreign exchange gain/(loss) 1,876 (569) 2,737 (1,200)
Other, net (2,201) (3,101) (3,839) (4,150)
----------- ----------- ----------- -----------
(22,223) (21,740) (45,211) (40,508)
----------- ----------- ----------- -----------
Net income/(loss) before tax expense
and equity in net earnings of
affiliate (30,726) (41,281) (49,833) (61,999)
Income tax expense (935) 13,072 (1,223) 8,994
----------- ----------- ----------- -----------
Net income before equity in net
earnings of affiliate (31,661) (28,209) (51,056) (53,005)
Equity in earnings of affiliate 2,525 1,791 5,233 3,680
----------- ----------- ----------- -----------
Net income/(loss) $ (29,136) $ (26,418) $ (45,823) $ (49,325)
=========== =========== =========== ===========
</TABLE>
(9) STOCK OPTION PLANS
The Company has established two Stock Option Plans for the granting of
stock options to purchase Class B Shares to certain employees and directors of
the Company and its affiliates who have served in such capacities for at least
one year prior to the date the options are granted. It is expected that all
officers and directors and other employees of the Company and its affiliates
will be eligible to participate under these stock option plans, as deemed
appropriate by the Company's Board of Directors. One of these stock option
plans is qualified for income tax purposes, whereas the other is not a
qualified plan. Options issued under the stock option plan that is qualified
for income tax purposes will have exercise prices not less than the fair market
value of the Class B Shares at the date of grant; the exercise prices of
options issued under the non-qualified stock option plan may be less than the
fair market value of the Class B shares at the date of grant. On October 15,
1996, the Company granted an option to the President of the Company to acquire
190,000 shares under the qualified plan at an exercise price of $5 per share.
These plans replace a stock option plan that existed and was terminated during
1996.
The Company has granted another stock option to the President of the
Company to acquire 1,516,667 Class B Shares of the Company, at an exercise
price of $5 per share. This stock option is exercisable in whole or in part
until exercised in full. A similar option previously granted to the former
president of the Company was canceled during 1996.
The Company's stock price was below the exercise price established for
the stock options granted as described above, thus no compensation cost is
required to be measured and recognized as of March 31, 1997.
(10) CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a defendant in eight putative class actions (originally
nine) alleging federal securities violations by the Company and various
officers and directors of the Company based on accounting irregularities that
required the Company to restate certain of its reported financial results and
other alleged misstatements and omissions in the Company's disclosure
documents. In the original filings plaintiffs sought unspecified money
damages. In a ninth action, the United States District Court for the District
of Puerto Rico issued an order granting plaintiff's motion for voluntary
11
<PAGE>
dismissal without prejudice. The Company has reached a settlement with the
attorneys for the plaintiffs in seven of these lawsuits. The settlement,
which must be approved by the Court, would result in the payment of $2.5
million and 2.5 million in previously issued and outstanding Class B shares
to the plaintiffs and their attorneys. If the settlement is approved, it will
result in the dismissal of all eight actions. The Company and the other
defendants have reached an agreement with its founding shareholders under
which the founding shareholders will contribute to the Company for use in
connection with the settlement 2.5 million Class B shares owned by them. If
the settlement becomes effective, each of the named defendants will be released
from all claims by the plaintiffs and the class, and certain of the Company's
officers and directors and the founding shareholders will be released by the
Company from all claims arising out of the circumstances which precipitated the
litigation and certain other claims. There is no assurance that the Court
will approve the settlement or that other circumstances will not prevent the
settlement from becoming effective.
In addition, in connection with the accounting irregularities, the
Securities and Exchange Commission (the "Commission") has issued a formal order
of investigation. The Staff of the Commission is currently engaged in that
investigation and the Company is cooperating fully.
In November 1995, the Company obtained directors, officers and entity
liability insurance coverage. The Company has been advised by the insurance
carrier that based on the allegations contained in the complaints relating to
the lawsuits filed against the Company, the insurance carrier (although not
implying that it believes such allegations to be true) now believes that
certain of the claims appear not to be covered by the policies, and that other
claims may also not be covered. The Company has vigorously contested this
interpretation of the policy by the insurance carrier. The Company has
requested the insurance carrier to provide the funds necessary for the above
settlement with the plaintiffs and to provide additional funds to cover costs
of the Company, including legal fees, incurred in connection with the
litigation to date. The insurance carrier has not agreed to provide these
funds on terms acceptable to the Company, and the Company is commencing
litigation against the insurance carrier in the courts of the Commonwealth of
Puerto Rico to enforce its rights. There can be no assurance that the
insurance carrier will provide these funds or that any coverage ultimately
will be available to the Company under the policy with respect to some or
all of the claims under these or any similar lawsuits. If the Company receives
from the insurance carrier funds in excess of the cost to the Company of the
settlement and the amount required to pay the Company's accumulated costs, the
Company has agreed to use such excess to pay the founding shareholders for
the contributed 2.5 million Class B Shares up to the value of those shares.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, bank loans and overdrafts, accrued payroll, taxes and other
current liabilities approximate fair value because of the short maturity of
these instruments.
The fair value of each of the Company's long-term debt instruments is
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The carrying amounts approximate the
estimated fair value at March 31, 1997.
The Company currently does not hold any derivatives.
Under the equity method of accounting, the Company's investment in BAESA
has been reduced to zero. At March 31, 1997, such investment had an estimated
fair value of $13,117 determined using as a basis the New York Stock Exchange
quoted closing price per share of the Company's American Depository Shares on
that date.
On May 9, 1997, the Buenos Aires Stock Exchange suspended trading of
BAESA's Class B shares after its fiscal second quarter results for the period
ended March 31, 1997 showed a negative net worth under Argentine accounting
principles of $18.7 million. The New York Stock Exchange also halted trading
in BAESA's American Depository Shares. BAESA announced that it expects to meet
with both exchanges to discuss the situation.
12
<PAGE>
(12) RESTRUCTURING CHARGES
The Company's results of operations for the six months ended March 31,
1997 have been affected by the incurrance of a non-recurring restructuring
charge totaling $.5 million. This charge was for the costs associated with
employee terminations which resulted in a reduction of the Company's work force
by approximately 5%. There were no such charges during the 1996 six month
interim period.
(13) SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Company refinanced its short term
borrowings with Banco Popular de Puerto Rico. Under the terms of the Second
Restated Credit Agreement, a term loan of $25 million has been granted to the
Company payable in stipulated monthly installments over a ten-year period, with
a balloon payment at maturity of $11.8 million. The term loan is
collateralized with a priority lien over all real estate, machinery and
equipment, and any other assets or properties of the Company, acceptable to the
Bank. The Company has also been granted a $5 million revolving credit
facility, the principal amount of which may not exceed certain stipulated
percentages of eligible receivables and inventories, as defined.
(14) PENSION PLANS
Subsequent to March 31, 1997, the Company announced its intention to
suspend its pension plans for periods not yet determined. The Company does not
have revised actuarial valuations under FASB 87 that reflect the full benefits
of the freeze of the pension plans. As these valuations become available, the
accrued pension costs will be adjusted accordingly.
13
PAGE
<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
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 March 31, 1997 (unaudited) and September 30, 1996 and for the
six month periods ended March 31, 1996 and 1997 (the "1996 six month interim
period" and the "1997 six month interim period," respectively) and for the
three month interim periods ended March 31, 1996 and 1997 (the "1996 three
month interim period" and the "1997 three month interim period," respectively
). The Company's financial results for the six month period ended March 31,
1996 as reported in the Company's quarterly report on Form 10-Q which was
originally filed by the Company on May 15, 1996 were restated as a result of
the discovery of accounting irregularities. The restated results are contained
in an amended quarterly report on Form 10-Q/A filed by the Company on December
23, 1996.
This Report contains forward looking statements of expected future
developments. The Company wishes to insure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. The
forward looking statements in this Report refer to the ability of the Company
to successfully conclude the settlement of its class action lawsuits with the
participation of its liability insurance carrier and to payment of dividends
and estimated capital expenditures for future years. These forward looking
statements reflect Management's expectations and are based upon currently
available data; however, actual payments and expenditures are subject to future
events and uncertainties which could materially impact the Company's
requirements. Among the factors that can cause actual performance to differ
materially are: failure to obtain the Court's approval of the Company's lawsuit
settlement agreement, or other developments regarding the litigation (including
a refusal by either the plaintiffs or one or more of the defendants to proceed
with the settlement or a refusal by the insurance carrier to participate in the
settlement to the extent anticipated by the Company); the availability of cash
in the future which may be used to pay dividends; and changes in plans with
respect to capital expenditures, as well as the availability of resources to
fund those capital expenditures; and other factors, including economic,
climatic and political conditions in Puerto Rico, and the impact of such
conditions on consumer spending.
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 of BAESA, and, through June 30, 1996, 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. As of July
1, 1996, PepsiCo assumed operating control of BAESA and the Company does not
control, or have significant influence over, the management or operations of
BAESA. 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. On May 9, 1997, the Buenos Aires Stock Exchange suspended
trading of BAESA's Class B shares after its fiscal second quarter results for
the period ended March 31, 1997 showed a negative net worth under Argentine
accounting principles of $18.7 million. The New York Stock Exchange also
halted trading in BAESA's American Depository Shares. BAESA announced that it
expects to meet with both exchanges to discuss the situation.
SEASONALITY
The historical results of operations of the Company have not been
significantly seasonal. The Company believes that this could have been partly
attributable to existing capacity constraints while operating out of the old
plant which might have prevented the Company from meeting increased demand
during peak periods. However, the Company anticipates that its results of
operations in the future may be somewhat 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.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS INTERIM THREE MONTHS INTERIM
-------------------------- ------------------------------ --------------------
1994 1995 1996 1996 1997 1996 1997
--------- -------- -------- ------- ------ ------- --------
<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 58.2 59.4 72.8 64.3 70.1 64.3 71.0
Gross Profit 41.8 40.6 27.2 35.7 29.9 35.7 29.0
Selling and Marketing Expenses 29.3 26.6 41.3 37.8 33.0 42.9 34.4
Administrative Expenses 10.1 5.5 9.3 6.1 13.2 6.9 16.1
Intangibles and Fixed Asset Write-offs 2.8 - - - - - -
Restructuring Charges - - 2.6 - 1.1 - 2.6
Income (Loss) from Operations (.4) 8.5 (26.1) (8.3) (17.4) (14.1) (24.1)
===== ===== ===== ===== ===== ===== =====
</TABLE>
1997 SIX MONTH INTERIM PERIOD COMPARED TO 1996 SIX MONTH INTERIM PERIOD
NET SALES. Net Sales for the Company decreased $7.9 million, or 14.5%,
for the 1997 six month interim period from the 1996 six month interim period to
$46.6 million. This decrease was primarily the result of the significant
increase in discounts provided to customers combined with a 3.4% decrease in
sales volume in the 1997 six month interim period as compared to the 1996 six
month interim period. This decrease in sales volume and increase in discounts
resulted from increased competitive activity. The average net sales price on
an eight ounce equivalent basis decreased during the 1997 six month interim
period by approximately 11.5% as compared to the 1996 six month interim period.
COST OF SALES. Cost of sales for the Company decreased $2.4 million, or
6.9% for the 1997 six month interim period as compared to the 1996 six month
interim period to $32.7 million. This decrease was primarily the result of
lower raw material costs and the 3.4% decrease in sales volume offset by
higher depreciation costs for the new manufacturing facility in the 1997 six
month interim period as compared to the 1996 six month interim period.
GROSS PROFIT. Gross profit for the Company decreased by $5.5 million to
$13.9 million in the 1997 six month interim period from $19.4 million in the
1996 six month interim period. As a percentage of net sales, gross profit
decreased to 29.9% in the 1997 six month interim period from 35.7% in the 1996
six month interim period. The decrease was primarily due to higher discounts
provided to customers, the lower average net sales price, decreased volume of
3.4% and increased depreciation on the new manufacturing facility, which were
partially offset by lower raw material costs.
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 decreased $5.2 million, or
25.4%, to $15.4 million for the 1997 six month interim period as compared to
the 1996 six month interim period. This decrease was primarily due to reduced
marketing spending in the 1997 six month interim period as compared to the 1996
six month interim period. As a percentage of net sales, selling and marketing
expenses decreased to 33.0% during the 1997 six month interim period from 37.8%
in the 1996 six month interim period.
15
<PAGE>
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
increased $2.8 million or 85.6% for the 1997 six month interim period from the
1996 six month interim period to $6.2 million. This increase was primarily the
result of the cost of legal services associated with certain civil litigation
and the investigation of the accounting irregularities. As a percentage of net
sales, administrative expenses increased to 13.2% during the 1997 six month
interim period from 6.1% in the 1996 six month interim period.
RESTRUCTURING CHARGES. The Company's results of operations for the six
months ended March 31, 1997 have been affected by the incurrance of a non-
recurring restructuring charge totaling $.5 million. This charge was for the
costs associated with employee terminations which resulted in a reduction of
the Company's work force by approximately 5%. There were no such charges
during the 1996 six month interim period.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the
Company decreased to $(8.2) million in the 1997 six month interim period, from
$(4.5) million in the 1996 six month interim period. This decrease is the
result of lower net sales, reflecting increased discounts offered to customers
and decreased volume of 3.4 %, increased professional fees and restructuring
charges, offset partially by lower raw material costs and reduced levels of
marketing spending for the 1997 six month interim period as compared to the
1996 six month interim period.
OTHER INCOME/(EXPENSES). Other income/(expenses) decreased to $(.5)
million in the 1997 six month interim period, from $1.2 million in the 1996 six
month interim period. This decrease was primarily due to the capitalization of
construction period interest during the 1996 six month interim period for the
new manufacturing facility which was occupied during the third quarter of 1996.
There was no such capitalization during the 1997 six month interim period.
Interest earnings decreased during the 1997 six month interim period as a
result of lower cash balances available for investment as compared to the 1996
six month interim period.
EQUITY IN NET EARNINGS (LOSS) OF BAESA. Based on information
disseminated by BAESA, equity in net earnings (loss) of BAESA, net of income
tax, amounted to $0.0 million during the 1997 six month interim period,
compared to a loss of $(5.6) million for the 1996 six month interim period.
The Company's equity in the loss reported by BAESA for the fiscal year ended
September 30, 1996 was such that it reduced the Company's investment in BAESA
to zero, meaning that no further equity in losses of BAESA will be reported by
the Company until BAESA reports profits sufficient to produce a positive
investment in BAESA on the Company's balance sheet.
NET INCOME/(LOSS). Net income/(loss) during the 1997 six month interim
period was $(8.7) million, compared to $(9.6) million during the 1996 six month
interim period. Net (loss) in the 1997 six month interim period reflects loss
before equity in net earnings (loss) of BAESA of $(8.7) million, as compared to
$(4.0) million of loss before equity in net earnings (loss) of BAESA and equity
in net earnings (loss) of BAESA of $(5.6) million during the 1996 six month
interim period.
1997 THREE MONTH INTERIM PERIOD COMPARED TO 1996 THREE MONTH INTERIM PERIOD
NET SALES. Net Sales for the Company decreased $4.3 million, or 17.1%,
for the 1997 three month interim period from the 1996 three month interim
period to $20.8 million. This decrease was primarily the result of the
significant increase in discounts provided to customers combined with a 9.2%
decrease in sales volume in the 1997 three month interim period as compared to
the 1996 three month interim period. This decrease in sales volume and
increase in discounts resulted from increased competitive activity. The
average net sales price on an eight ounce equivalent basis decreased during the
1997 three month interim period by approximately 8.7% as compared to the 1996
three month interim period.
COST OF SALES. Cost of sales for the Company decreased $1.4 million, or
8.6% for the 1997 three month interim period as compared to the 1996 three
month interim period to $14.8 million. This decrease was primarily the result
of lower raw material costs and the 9.2 % decrease in sales volume partially
offset by higher depreciation costs for the new manufacturing facility in the
1997 three month interim period as compared to the 1996 three month interim
period.
16
<PAGE>
GROSS PROFIT. Gross profit for the Company decreased by $2.9 million to
$6.0 million in the 1997 three month interim period from $8.9 million in the
1996 three month interim period. As a percentage of net sales, gross profit
decreased to 29.0% in the 1997 three month interim period from 35.7% in the
1996 three month interim period. The decrease was primarily due to higher
discounts provided to customers, the lower average net sales price, decreased
volume of 9.2 % and increased depreciation on the new manufacturing facility,
which were partially offset by lower raw material costs.
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 decreased $3.6 million, or
33.4%, to $7.2 million for the 1997 three month interim period as compared to
the 1996 three month interim period. This decrease was primarily due to
reduced marketing spending in the 1997 three month interim period as compared
to the 1996 three month interim period. As a percentage of net sales, selling
and marketing expenses decreased to 34.4% during the 1997 three month interim
period from 42.9% in the 1996 three month interim period.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
increased $1.6 million or 94.1% for the 1997 three month interim period from
the 1996 three month interim period to $3.3 million. This increase is
primarily the result of the cost of legal services associated with certain
civil litigation and the investigation of the accounting irregularities. As a
percentage of net sales, administrative expenses increased to 16.1% during the
1997 three month interim period from 6.9% in the 1996 three month interim
period.
RESTRUCTURING CHARGES. The Company's results of operations for the three
months ended March 31, 1997 have been affected by the incurrance of a non-
recurring restructuring charge totaling $0.5 million. This charge was for the
costs associated with employee terminations which resulted in a reduction of
the Company's work force by approximately 5 %. There were no such charges
during the 1996 three month interim period.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the
Company decreased to $(5.0) million in the 1997 three month interim period,
from $(3.5) million in the 1996 three month interim period. This decrease is
the result of lower net sales, reflecting increased discounts offered to
customers and decreased volume of 9.2 %, increased professional fees and
restructuring charges, offset partially by lower raw material costs and reduced
levels of marketing spending, for the 1997 three month interim period as
compared to the 1996 three month interim period.
OTHER INCOME/(EXPENSES). Other income/(expenses) decreased to $(.3)
million in the 1997 three month interim period, from $0.6 million in the 1996
three month interim period. This decrease was primarily due to the
capitalization of construction period interest during the 1996 three month
interim period for the new manufacturing facility which was occupied during the
third quarter of 1996. There was no such capitalization during the 1997 three
month interim period. Interest earnings decreased during the 1997 three month
interim period as a result of lower cash balances available for investment as
compared to the 1996 three month interim period.
EQUITY IN NET EARNINGS (LOSS) OF BAESA. Based on information
disseminated by BAESA, equity in net earnings (loss) of BAESA, net of income
tax, amounted to $0.0 million during the 1997 three month interim period,
compared to a loss of $(3.0) million for the 1996 three month interim period.
The Company's equity in the loss reported by BAESA for the fiscal year ended
September 30, 1996 was such that it reduced the Company's investment in BAESA
to zero, meaning that no further equity in losses of BAESA will be reported by
the Company until BAESA reports profits sufficient to produce a positive
investment in BAESA on the Company's balance sheet.
NET INCOME/(LOSS). Net income/(loss) during the 1997 three month interim
period was $(5.3) million, compared to $(6.4) million during the 1996 three
month interim period. Net (loss) in the 1997 three month interim period
reflects loss before equity in net earnings (loss) of BAESA of $(5.3) million,
as compared to $(3.4) million of loss before equity in net earnings (loss) in
17
<PAGE>
BAESA and equity in net earnings (loss) of BAESA of $(3.0) million during the
1996 three month interim period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $20.7 million of cash and cash
equivalents, and indebtedness for borrowed money, including short-term
borrowings and capital lease obligations, of $31.7 million.
The Company has announced that its current priority is to restore
profitability with respect to its Puerto Rican operations. In that connection,
the Company has made a decision to set aside its expansion plans temporarily.
Also, as of March 31, 1997, the Company has used approximately $28.3 million of
the cash set aside from its September 1995 initial public offering to support
these efforts through the repayment of indebtedness, by additions to the
Company's working capital, which has been and continues to be affected as a
result of the Company's net operating losses, and to cover a portion of the
cost of the offering. In addition, on April 8, 1997 the Company completed the
refinancing of its remaining debt to include a payment schedule which more
closely matches the life of its production assets.
Net cash provided by (used in) operating activities for the Company for
the 1997 six month interim period was $(7.1) million compared to $(1.3) million
during the 1996 six month interim period. This change was mainly the result of
the net cash loss after depreciation and amortization and equity in net loss of
BAESA of $(5.4) million and changes in assets and liabilities of $(1.7) million
during the 1997 six month interim period, as compared to $(2.0) million and
$0.7 million, respectively, for the 1996 six month interim period. As of March
31, 1997, the Company had $55.2 million in net operating loss carryforwards
available to offset future Puerto Rican income taxes and $35.2 million in net
operating loss carryforwards available to offset future U.S. taxable income.
Net cash provided by (used in) investing activities for the Company was
$10.1 million for the 1997 six month interim period, as compared to $(10.6)
million during the 1996 interim period. Purchases of property, plant and
equipment, net, amounted to $(2.8) million during the 1997 six month interim
period as compared to $(12.6) million during the 1996 six month interim period.
The 1996 six month interim period included significant expenditures incurred in
constructing the new manufacturing facility in Toa Baja. Proceeds from short
term investments provided $12.9 million during the 1997 six month interim
period as compared to zero for the 1996 six month interim period. Dividends
received from BAESA during the 1997 interim period were zero as compared to
$2.8 million during the 1996 interim period. In view of the current financial
difficulties being experienced by BAESA as reported in its recent public
announcements, the Company does not believe that BAESA will be in a position to
pay dividends on its shares in the foreseeable future. In addition, because
the Company exerts no influence over BAESA, even if BAESA does return to
profitability, the Company would not be able to affect decisions made by BAESA
with respect to the payment of dividends. As a result, the Company is unable
to predict whether or when BAESA will pay any future dividends.
Cash flows provided by (used in) financing activities for the Company
during the 1997 six month interim period were $(.9) million compared to $14.1
million during the 1996 six month interim period. The significant financing
activities of the Company during the 1997 interim period were the net repayment
of debt. The significant financing activities during the 1996 interim period
were the net borrowing of $19.3 million and the payment of dividends of $(5.2)
million. In the future, the payment of dividends will be in part dependent on
the receipt of dividends from BAESA, and in part dependent on the achievement
of adequate levels of profitability in the Company's Puerto Rican operations,
and the consent of Banco Popular. The Company does not expect to pay any
dividends on its common stock for the foreseeable future.
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 could borrow under revolving loans.
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 $5.3 million and non-revolving loans in an
18
<PAGE>
aggregate principal amount of $15.0 million. On April 8, 1997, the Company
entered into a Second Restated Credit Agreement with Banco Popular, the holder
of this debt. The effect of this new agreement was to restructure the existing
debt into two portions, a long term loan of $25.0 million and a short term
revolving credit facility of $5.0 million. Both portions will bear interest at
2.5% over LIBOR.
The weighted average interest rate on such borrowings was 7.4% during the
first six months of the fiscal year 1997. Beginning on May 1, 1997, the
Company is required to make monthly payments of principal in the amount of
$83.3 thousand with respect to the new term loan for the first two years of the
loan with annual escalating monthly payments thereafter until the end of the
tenth year of the loan (April 1, 2007) when a $11.8 million balloon payment
is due. The Company may prepay either of the loans subject to the terms and
conditions of the Second Restated Credit Agreement.
Under the terms of the Second Restated Credit Agreement, the Company is
subject to the following financial restrictions: (i) the Company must
maintain a minimum ratio of Total Liabilities to Tangible Net Worth (as defined
in the Second Restated Credit Agreement) of not more than 1.60 to 1 for fiscal
year 1997 and 1.50 to 1 for each fiscal year thereafter during the term of the
Second Restated Credit Agreement; (ii) a ratio of Operating Cash Flow to Total
Debt Service (as defined in the Second Restated Credit Agreement) of 1.00 to 1
through June 30, 1998, 1.30 to 1 from September 30, 1998 through June 30, 1999,
and 1.5 to 1 thereafter; (iii) a minimum Tangible Net Worth of $37 million on
September 30, 1997 and of $39.5 million, $42 million, $44.5 million, and 47
million, respectively, by September 30, 1998, 1999, 2000, 2001, and thereafter.
The Company is also required to maintain with Banco Popular a minimum cash
balance of $10 million less certain prepayments of indebtedness under the term
loan, and under certain conditions this amount may be reduced to zero. In
addition, under certain circumstances, the Company may be required to prepay
a portion of the debt. Specifically, net proceeds of capital asset dispositions
over $250 thousand per year, insurance recoveries other than for business
interruption not promptly applied toward repair or replacement, a portion of
excess cash flow (as defined in the Second Restated Credit Agreement), and a
portion of net proceeds associated with any sale of Class A shares, require
early repayment of the amounts outstanding under this agreement. Certain of
the repayment amounts offset the minimum cash balance requirement. The entire
principal amount of the loans outstanding under the Second Restated Credit
Agreement becomes immediately due and payable 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 under the Second Restated Credit Agreement.
As a result of the Company initially providing to Banco Popular incorrect
financial statements for the first and second quarters ended December 31, 1995
and March 31, 1996, and certain other circumstances, the Company was in
technical default of the terms of the Credit Agreement during part of fiscal
year 1996. The Company has, however, received from Banco Popular a written
waiver of such default. The Company believes that it is currently in full
compliance with the terms of the Second Restated Credit Agreement.
Pursuant to the Second Restated 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 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 $3.0 million in the 1997 six
month interim period as compared to $13.8 million in the 1996 six month interim
period. During fiscal 1996, the Company constructed a new manufacturing
facility at its Toa Baja property and purchased new manufacturing equipment to
increase production capacity and capability in the new plant. In the past, the
Company's capital expenditures have been financed by a combination of
borrowings from third parties and internally generated funds. The Company
estimates that its capital expenditures for the fiscal years 1997 and 1998 may
be approximately $4 million in each year.
19
PAGE
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 10 to Notes to Condensed Consolidated
Financial Statements contained in Part I of this Report is incorporated herein
by reference. Except as described in that Note, there were no material
developments regarding legal proceedings involving the Company during the six
month period ended March 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS. The following exhibits are filed herewith or incorporated
herein:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1995).
3.2 Certificate of Amendment of the Company's Amended and Restated
Certificate of Incorporation. (Incorporated by reference to exhibit 3.2
to the Company's quarterly report on Form 10-Q for the quarterly
period ended December 31, 1996).
3.3 Amended and Restated By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995).
4.1 Form of Specimen Stock Certificate representing Class B Shares
(incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (Registration No. 33-94620)
(the "S-1 Registration Statement").
10.1 Franchise Commitment Letter (incorporated by reference to Exhibit 10.1 to
the S-1 Registration Statement).
10.2 Letter Agreement between the Company and PepsiCo extending term of
Exclusive Bottling Appointments (incorporated by reference to Exhibit
10.2 to the S-1 Registration Statement).
10.3 Form of Exclusive Bottling Appointment (incorporated by reference to
Exhibit 10.3 to the S-1 Registration Statement).
10.4 Material Differences in Exclusive Bottling Appointments (incorporated by
reference to Exhibit 10.4 to the S-1 Registration Statement).
10.5 Concentrate Price Agreement (incorporated by reference to Exhibit 10.5 to
the S-1 Registration Statement).
10.6 Amended and Restated General Partnership Agreement for BSA (incorporated
by reference to Exhibit 10.6 to Amendment No. 1 to the S-1 Registration
Statement).
10.7 Shareholders Agreement (incorporated by reference to Exhibit 10.7 to
Amendment No. 1 to the S-1 Registration Statement).
10.8 Amendment No. 1 to Shareholders Agreement (incorporated by reference to
Exhibit 10.8 to Amendment No. 1 to the S-1 Registration Statement).
10.9 Amendment No. 2 to Shareholders Agreement (incorporated by reference to
Exhibit 10.9 to Amendment No. 1 to the S-1 Registration Statement).
10.10 Amendment No. 3 to Shareholders Agreement (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995).
10.11 Stock Option Agreement dated as of September 28, 1996 among Rafael Nin,
Pepsi-Cola Puerto Rico Bottling Company and the Shareholders
(incorporated by reference to Exhibit 1 to the Schedule 13D of Rafael Nin
dated October 9, 1996).
10.12 Voting Trust Agreement dated September 28, 1996 among Rafael Nin, Pepsi-
Cola Puerto Bottling Company and the Grantors (incorporated by reference
to Exhibit 2 to the Schedule 13D of Rafael Nin dated October 9, 1996).
10.13 Consent of PepsiCo., Inc. to the terms of the Voting Trust Agreement
referred to under Exhibit No. 10.12 above. (Incorporated by reference to
Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the
quarterly period ended December 31, 1996).
10.14 Stock Option Agreement dated as of October 15, 1996 between Rafael Nin
and Pepsi-Cola Puerto Rico Bottling Company (incorporated by reference to
Exhibit 1 to the Amendment No. 1 to the Schedule 13D of Rafael Nin dated
January 7, 1997).
10.15 Pepsi-Cola Puerto Rico Bottling Company Qualified Stock Option Plan dated
as of December 30, 1996 (incorporated by reference to Exhibit 2 to the
Amendment No. 1 to the Schedule 13D of Rafael Nin dated January 7, 1997).
10.16 Pepsi-Cola Puerto Rico Bottling Company Non-Qualified Stock Option Plan
dated as of December 30, 1996 (incorporated by reference to the Company's
Proxy Statement dated January 31, 1997).
10.17 Amendment No. 4 to the Shareholders Agreement (Incorporated by reference
to the Exhibit 10.13 to the Company's Annual Report on Form 10K/A-1 for
the fiscal year ended September 30, 1996)
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the S-
1 Registration Statement).
(b) There were no reports on Form 8-K filed during the quarter ended March 31,
1997
20
PAGE
<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 May 15, 1997
- ------------------------------------
Rafael Nin
/S/ DAVID L. VIRGINIA Chief Financial Officer May 15, 1997
- ------------------------------------
David L. Virginia
/S/ WANDA RIVERA ORTIZ Chief Accounting Officer May 15, 1997
- ------------------------------------
Wanda Rivera Ortiz
</TABLE>
22
<PAGE>
<TABLE> <S> <C>
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<NAME> PEPSI COLA PUERTO RICO BOTTLING CO.
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