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 DECEMBER 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 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 February 10, 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
December 31, 1996 and September 30, 1996.................... 3
Condensed Consolidated Statements of Income / (Loss)
(unaudited) for the Three Months Ended December 31,
1996 and 1995............................................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended December 31, 1996 and 1995....... 6
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13
PART II OTHER INFORMATION............................................ 17
Item 1. Legal Proceedings............................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
(a) Exhibits................................................. 17
(b) Reports on Form 8-K during the quarter ended
December 31, 1996........................................ 18
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>
December 31, September 30,
1996 1996
------------ -------------
(unaudited) (audited)
<S> <C> <C>
Cash and cash equivalents $25,049 $18,614
Short term investments -- 12,904
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,309 at December 31, 1996 and $1,158 at
September 30, 1996 13,420 11,262
Due from PepsiCo, Inc. and affiliated companies 398 877
Other 1,399 2,423
Inventories 3,945 4,495
Deferred income taxes 187 187
Prepaid expenses and current assets 1,965 1,857
-------- --------
Total current assets $46,363 $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 49,530 49,936
Intangible assets, net of accumulated amortization 1,436 1,459
Other assets 64 86
-------- --------
Total assets $103,274 $109,981
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(unaudited) (audited)
<S> <C> <C>
Liabilities:
Current installments of long-term debt $1,551 $1,550
Current installments of capital lease
obligations 334 341
Short term borrowings 25,462 25,000
Accounts payable:
Trade 15,927 16,619
Affiliate -- 50
Income tax payable 38 115
Other accrued expenses 6,310 8,672
-------- --------
Total current liabilities 49,622 52,347
Long-term debt, excluding current installments 4,426 4,813
Capital lease obligations, excluding current
installments 731 871
Accrued pension cost, long-term 2,593 2,593
-------- --------
Total liabilities 57,372 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) (43,687) (40,232)
Pension liability adjustment (1,364) (1,364)
________ ________
Total shareholders' equity 45,902 49,357
Total liabilities and shareholders' equity $103,274 $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>
Three Months Ended December 31,
1996 1995
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Net Sales $ 25,798 $ 29,417
Cost of Sales 17,909 18,924
---------- ----------
Gross profit 7,889 10,493
Selling and marketing expenses 8,218 9,872
Administrative expenses 2,820 1,598
---------- ----------
Income/(loss) from operations (3,149) (977)
---------- ----------
Other income (expenses):
Interest expense (632) (154)
Interest income 408 685
Other, net 26 129
---------- ----------
Total other income (expenses) (198) 660
---------- ----------
Income/(loss) before income tax expense and (3,347) (317)
equity in net earnings/(loss) of BAESA
Income tax expense (108) (266)
Income/(loss) before equity in net earnings/(loss) of BAESA (3,455) (583)
Equity in net earnings/(loss) of BAESA, net of income tax -
benefit of $1,278 in 1995 - (2,623)
---------- ----------
Net income/(loss) $ (3,455) $ (3,206)
========== ==========
Earnings per common share:
Income/(loss) before equity in net earnings of BAESA,
net of taxes $ (0.16) $ (0.03)
========== ==========
Net income/(loss) $ (0.16) $ (0.15)
========== ==========
Weighted average number of shares outstanding 21,500 21,500
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended December 31,
<S> <C> <C>
1996 1995
(unaudited) (unaudited)
Cash flows from operating activities:
Net income/(loss) ($3,455) ($3,206)
Adjustments to reconcile net earnings to net cash
provided by/(used in) operating activities:
(Gain)/loss on sale of property, plant, and equipment 60 (279)
Depreciation and amortization 1,632 1,251
Equity in net earnings/(losses) of BAESA -- 2,623
Changes in assets and liabilities:
Accounts receivable (655) (1,535)
Inventories 550 405
Prepaid expenses and other current assets (108) 90
Accounts payable (742) (174)
Other accrued expenses (2,362) (1,864)
Income taxes payable (77) 768
Other, net 22 127
-------- --------
Net cash provided by/(used in) operating activities (5,135) (1,794)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 137 538
Proceeds from matured short-term investment 12,904 --
Purchases of property, plant and equipment (1,400) (5,075)
Dividends received from affiliates -- 2,839
-------- --------
Net cash provided by/(used in) investing activities 11,641 (1,698)
Cash flows from financing activities:
Proceeds from short-term borrowings 462 10,236
Repayment of long-term debt (386) (388)
Repayment of capital lease obligations (147) (527)
Dividends paid -- (5,217)
-------- -------
Net cash provided by/(used in) financing activities (71) 4,104
Net increase in cash and cash equivalents 6,435 612
Cash and cash equivalents at beginning of period 18,614 46,091
--------- -------
Cash and cash equivalent at end of period $ 25,049 $46,703
========= =======
Supplemental disclosures:
Cash paid for:
Interest $573 $409
Income taxes 185 --
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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 three months ended December 31, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 1997.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
----------------- ---------------
<S> <C> <C>
Raw materials $ 1,264 $ 1,346
Finished goods 1,631 1,684
Other 1,050 1,465
------- -------
$ 3,945 $ 4,495
======= =======
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
-------------- ------------
<S> <C> <C>
Land and improvements $ 7,057 $ 7,057
Buildings and improvements 14,780 14,301
Machinery, equipment and vehicles 47,542 45,931
Bottles, cases and shells 1,654 1,401
Furniture and fixtures 1,477 1,877
Construction in process 563 1,941
------- --------
73,073 72,508
Less accumulated depreciation and amortization (23,543) (22,572)
-------- --------
Property, plant and equipment, net $ 49,530 $ 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>
1996 1995
-------------- --------------
<S> <C> <C>
Interest cost capitalized $ -0- $ 255
Interest cost charged to income 632 154
------- --------
$ 632 $ 409
======= ========
</TABLE>
7
PAGE
<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 December 31,
1996 those Long Lived Assets remained at the same value.
(5) SHAREHOLDERS' EQUITY
The Company declared and paid cash dividends of $5,217 during the three
months ended December 31, 1995.
Earnings per common share are determined by dividing net income by the
weighted average number of common shares outstanding during each year.
(6) INCOME TAX
Income tax expense for the three months ended December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- ------------
<S> <C> <C>
Current $108 $266
Deferred -- --
----------- -------------
Income tax expense $108 $266
=========== =============
</TABLE>
Deferred income tax (benefit) / expense of $(1,278) for the three month
period ended December 31, 1995, has been provided in connection with the
Company's equity in net earnings / (loss) of BAESA.
(7) RELATED PARTY TRANSACTIONS
The Company paid approximately $856 and $637 during the three months ended
December 31, 1996 and 1995, respectively, for advertising fees to a firm
controlled by a shareholder of the Company.
The Company paid approximately $232 during the three months ended December
31, 1995 for consulting fees to a shareholder and director of BAESA.
The Company paid approximately $150 during the three months ended December
31, 1995 for construction management services to a shareholder and former
director of the Company.
8
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(8) INVESTMENT IN BAESA
The following condensed unaudited financial information relating to BAESA
as of December 31, 1996 and for the three months ended December 31, 1996 and
1995 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>
December 31, September 30,
1996 1996
(unaudited) (audited)
---------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,750 $ 27,361
Accounts receivable, less allowance for doubtful accounts 109,601 64,069
Inventories 32,350 31,077
Deferred income tax, net 6,138 6,681
Prepaid expenses and other current assets 6,121 8,469
--------- ---------
Total current assets 163,960 137,657
Property, plant and equipment 577,379 586,908
Intangible assets, net of accumulated amortization 77,998 78,943
Investment in affiliated company 108,188 106,918
Other assets 16,359 16,954
--------- ---------
Total assets $ 943,884 $ 927,380
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current installments of long-term debt $ 302,748 $ 290,299
Bank loans and overdrafts 391,304 367,440
Accounts payable 85,703 72,155
Income tax payable 3,175 3,149
Accrued expenses and other current liabilities 125,781 124,025
--------- ---------
Total current liabilities 908,711 857,068
Long-term debt, excluding current installments 71,107 87,461
Deferred income taxes 7,469 7,740
Other long-term liabilities 7,970 8,385
--------- ---------
Total liabilities 995,257 960,654
Total shareholders' equity/(deficit) (51,373) (33,274)
--------- ---------
Total liabilities and shareholders' equity/deficit $ 943,884 $ 927,380
========= =========
</TABLE>
9
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(8) INVESTMENT IN BAESA (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
DECEMBER 31,
---------------------------------------------
<S> <C> <C>
RESULTS OF OPERATIONS 1996 1995
(UNAUDITED) (UNAUDITED)
-------------- -------------
Net sales $ 206,916 $ 227,122
Cost and expenses:
Cost of sales 104,413 117,858
Selling and marketing expenses 63,606 68,652
Administrative expenses 32,021 31,397
Debt and other restructuring charges 3,369 11,540
-------------- -------------
Income/(loss) from operations 3,507 (2,325)
-------------- -------------
Interest expense (22,293) (17,803)
Interest income 82 715
Foreign exchange gain/(loss) 861 (631)
Other, net (1,638) (1,049)
-------------- -------------
(22,988) (18,768)
-------------- -------------
Net income/(loss) before tax expense
and equity in net earnings of affiliate (19,481) (21,093)
Income tax expense $ (288) (4,078)
----------- -----------
Net income before equity in net earnings (19,769) (25,171)
of affiliate
Equity in earnings of affiliate 3,083 2,264
------------- -------------
Net income/(loss) $ (16,686) $ (22,907)
============= =============
</TABLE>
10
PAGE
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
(9) STOCK OPTION PLANS
The Company has established two Stock Option Plans, subject to shareholder
approval, 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 will be qualified for income tax
purposes, whereas the other will not be a qualified plan. Options issued under
the stock option plan that will be 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,
subject to shareholder approval, 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, subject to shareholder approval, 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 will be
exercisable in whole or in part until exercised in full. A similar option
previously granted to the former president of the Company was cancelled 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 December 31, 1996.
(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. Plaintiffs in all actions seek unspecified money damages. In one
case plaintiff and other putative class members also seek rescission of their
purchases of shares in the Company's September 19, 1995 initial public offering
to the extent they continue to own such securities. In a ninth action, the
United States District for the District of Puerto Rico issued an order granting
plaintiff's motion for voluntary dismissal without prejudice.
The Company intends to contest the cases vigorously. No discovery has
been taken in any of the actions. It is not possible at this early stage of
the proceedings to determine the likelihood and amount of the possible loss, if
any.
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.
11
PAGE
<PAGE>
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 intends to vigorously contest this
interpretation of the policy by the insurance carrier, but there can be no
assurance 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.
(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 December 31, 1996.
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 December 31, 1996, such investment has an
estimated fair value of $23,100 determined using as a basis the New York Stock
Exchange quoted closing price per share of the Company's Class B Shares on that
date.
12
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 December 31, 1996 and September 30, 1996 and for the three month
period ended December 31, 1995 and 1996 (the "1996 interim period" and the
"1997 interim period," respectively). The Company's financial results for the
three month period ended December 31, 1995 as reported in the Company's
quarterly report on Form 10-Q which was originally filed by the Company on
February 14, 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 payments 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.
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, 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.
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.
13
PAGE
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Interim
------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 58.2 59.4 72.8 64.3 69.4
Gross Profit 41.8 40.6 27.2 35.7 30.6
Selling and Marketing Expenses 29.3 26.6 41.3 33.5 31.9
Administrative Expenses 10.1 5.5 9.3 5.4 10.9
Intangibles and Fixed Asset Write-offs 2.8 - - - -
Restructuring Charges - - 2.6 - -
Income (Loss) from Operations (.4) 8.5 (26.1) (3.3) (12.2)
========= ======== ========= ======== =========
</TABLE>
1997 INTERIM PERIOD COMPARED TO 1996 INTERIM PERIOD
NET SALES. Net Sales for the Company decreased $3.6 million, or 12.3%,
for the 1997 interim period from the 1996 interim period to $25.8 million.
This decrease was primarily the result of the significant increase in discounts
provided to customers partially offset by a 1.8% increase in sales volume in
the 1997 interim period as compared to the 1996 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 1997
interim period by approximately 13.9% as compared to the 1996 interim period.
COST OF SALES. Cost of sales for the Company decreased $1.0 million, or
5.4% for the 1997 interim period as compared to the 1996 interim period to
$17.9 million. This decrease was primarily the result of lower raw material
costs, offset by higher depreciation costs for the new manufacturing facility
and the 1.8% increase in sales volume in the 1997 interim period as compared to
the 1996 interim period.
GROSS PROFIT. Gross profit for the Company decreased by $2.6 million to
$7.9 million in the 1997 interim period from $10.5 million in the 1996 interim
period. As a percentage of net sales, gross profit decreased to 30.6% in the
1997 interim period from 35.7% in the 1996 interim period. The decrease was
primarily due to higher discounts provided to customers and the lower average
net sales price, which were partially offset by a 1.8% sales volume increase
and 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 $1.7 million, or
16.8%, to $8.2 million for the 1997 interim period as compared to the 1996
interim period. This decrease was primarily due to reduced marketing spending
in the 1997 interim period.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
increased $1.2 million or 76.5% for the 1997 interim period from the 1996
interim period to $2.8 million. This increase is primarily the result of the
cost of legal services associated with certain civil litigation. As a
percentage of net sales, administrative expenses increased to 10.9% during the
1997 interim period from 5.4% in the 1996 interim period.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the
Company decreased to $(3.1) million in the 1997 interim period, from $(1.0)
million in the 1996 interim period. This decrease is the result of lower
average net sales, the increased discounts offered to customers, increased
14
PAGE
<PAGE>
professional fees associated with the civil litigation, offset partially by
lower raw material cots and reduced levels of marketing spending for the 1997
interim period as compared to the 1996 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 interim period, compared to a
loss of $(2.6) million for the 1996 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 interim period was
$(3.4) million, compared to $(3.2) million during the 1996 interim period. Net
(loss) in the 1997 interim period reflects loss before equity in net earnings
(loss) of BAESA of $(3.4) million, as compared to $(.6) million of loss before
equity in net earnings (loss) in BAESA and equity in net earnings (loss) of
BAESA of $(2.6) million during the interim period 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $25.0 million of cash and cash
equivalents, and indebtedness for borrowed money, including short-term
borrowings and capital lease obligations, of $32.5 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 December 31, 1996, the Company has used approximately $22.8 million
of the cash set aside from its September 1995 initial public offering to
support these efforts through the repayment of indebtedness and by additions to
the Company's working capital. In addition, the Company currently is
negotiating the refinancing of its remaining debt to include a payment schedule
which more closely matches the life of its production assets. Banco Popular de
Puerto Rico, holder of the debt, is assisting the Company with this effort.
Net cash provided by (used in) operating activities for the Company for
the 1997 interim period was $(5.1) million compared to $(1.8) million during
the 1996 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
$(1.8) million and changes in assets and liabilities of $(3.3) million during
the 1997 interim period, as compared to $0.4 million and $(2.2) million
respectively for the 1996 interim period. As of December 31, 1996 the Company
had $49.6 million in net operating loss carryforwards available to offset
future Puerto Rican income taxes and $29.5 million in net operating loss
carryforwards available to offset future U.S. taxable income. The Company
believes that its cash position is adequate to meet its operating requirements
for the foreseeable future.
Net cash provided by (used in) investing activities for the Company was
$11.6 million for the 1997 interim period, as compared to $(1.7) million during
the 1996 interim period. Purchases of property, plant and equipment, net,
amounted to $(1.3) million during the 1997 interim period as compared to $(4.5)
million during fiscal 1996. Proceeds from short term investment provided $12.9
million during the 1997 interim period as compared to zero for the 1996 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 interim period were $(0.1) million compared to $4.1 million
during the 1996 interim period. The significant financing activities for the
15
PAGE
<PAGE>
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 $9.3 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, under
certain conditions, 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 may borrow under revolving loans. As
of December 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 $5.6 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 March 30, 1997, 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") or at LIBOR if 936 Funds are not
available. At December 31, 1996, the 936 Rate was 5.5%.
The weighted average interest rate on such borrowings was 7.5% for the
interim period 1997. "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 thousand 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.
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 0.75
and 1.00 to 1, respectively, and a maximum ratio of Total Liabilities to
Tangible Net Worth (as defined in the Credit Agreement) of 3.0 and 2.0 to 1,
respectively, for the fiscal years 1997, 1998 and thereafter, and (iii) a
minimum Tangible Net Worth of $18 million through the end of the fiscal year
1997 and of $21.5 million, $25 million and $30 million, respectively, through
the end of fiscal year 1998, 1999, and 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.
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 Credit Agreement.
Pursuant to the Credit Agreement, the Company has granted Banco Popular a
security interest in all its machinery and equipment, receivables, inventory
and the real property on which the Toa Baja plant and the Rio Piedras plant are
located.
The Company's franchise 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 $1.3 million in the 1997
interim period as compared to $4.5 million in the 1996 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
16
PAGE
<PAGE>
capacity and capability in the new plant. 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.
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 three
month period ended December 31, 1996.
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.*
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).
17
PAGE
<PAGE>
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.*
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).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
the S-1 Registration Statement).
_____________
* Filed herewith.
(b) There were no reports on Form 8-K filed during the quarter ended December
31, 1996.
18
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 February 14, 1997
- --------------------------------------------
Rafael Nin
/S/ DAVID L. VIRGINIA Chief Financial Officer and Chief February 14, 1997
_____________________________________________ Accounting Officer
David L. Virginia
</TABLE>
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000948086
<NAME> PEPSI COLA PUERTO RICO BOTTLING CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,049
<SECURITIES> 0
<RECEIVABLES> 16,526
<ALLOWANCES> 1,309
<INVENTORY> 3,945
<CURRENT-ASSETS> 46,363
<PP&E> 73,073
<DEPRECIATION> (23,543)
<TOTAL-ASSETS> 103,274
<CURRENT-LIABILITIES> 49,622
<BONDS> 5,157
0
0
<COMMON> 215
<OTHER-SE> 47,051
<TOTAL-LIABILITY-AND-EQUITY> 103,274
<SALES> 25,798
<TOTAL-REVENUES> 25,798
<CGS> (17,909)
<TOTAL-COSTS> (28,796)
<OTHER-EXPENSES> 434
<LOSS-PROVISION> (151)
<INTEREST-EXPENSE> (632)
<INCOME-PRETAX> (3,347)
<INCOME-TAX> (108)
<INCOME-CONTINUING> (3,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,455)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
(A DELAWARE CORPORATION)
________________________
UNDER SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
________________________
Pepsi-Cola Puerto Rico Bottling Company, a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: Article NINTH of the Corporation's Amended and Restated
Certificate of Incorporation shall be amended by adding a new paragraph 7
thereto, which shall read as follows:
"7. In furtherance and not in limitation of the rights, powers,
privileges, and discretionary authority granted or conferred by
the General Corporation Law of the State of Delaware or other
statutes or laws of the State of Delaware, the board of Directors
is expressly authorized to adopt, amend or repeal the By-Laws of
the Company, without any action on the part of the shareholders
of the Company, but the shareholders may make additional By-Laws
and may alter, amend or repeal any By-Law whether adopted by them
or otherwise."
PAGE
<PAGE>
SECOND: That said amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Pepsi-Cola Puerto Rico Bottling Company has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be executed and acknowledged by its President and attested to
by its Secretary, as of this 2nd day of February, 1996.
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
(SEAL)
By: /S/ C. LEON TIMOTHY
----------------------------------
C. Leon Timothy
Senior Vice President
Attest:
/S/ LAWRENCE ODELL
- ---------------------------------
Lawrence Odell
Secretary
2
EXHIBIT 10.13
PepsiCo
700 Anderson Hill Road
Purchase, NY 10677-1444
September 24, 1996
Pepsi-Cola Puerto Rico Bottling Company
P.O. Box 1709
Hato Rey, Puerto Rico 00919
Mr. Rafael Nin
Gentlemen:
Reference is made to the Exclusive Bottling Appointments for Pepsi-Cola and
other Pepsi-Cola International products each dated April 27, 1987, as
amended (the "EBA"), between PepsiCo, Inc. (the "Company") and Pepsi-Cola
Puerto Rico Bottling Company (the "Bottler").
1. The Company agrees that the following transactions shall not be deemed
to violate the EBA, including without limitation Section 22(b)(ii) and
Section 23 thereof, or give rise to any liability to the Company on
the part of the Bottler, any Essential Shareholder (as defined in the
EBA) or Mr. Rafael Nin:
(a) The creation of a voting trust (the "Voting Trust") in accordance
with the Voting Trust Agreement and Irrevocable Proxy (the "Trust
Agreement") attached hereto as Exhibit A pursuant to which all 5
million Class A Shares of the Bottler will be transferred to the
Voting Trust where Mr. Rafael Nin, as trustee (the "Trustee"),
will have the right to vote such Class A Shares. The term of the
Voting Trust will be 5 years to be automatically renewed for one
additional 5 year period unless either the Company or the Trustee
notifies the other party of non-renewal at least 6 months prior
to the end of the initial 5 year period; provided, however, that
such non - renewal by the Company shall not be unreasonably
withheld. The terms of the Trust Agreement are acceptable to the
Company subject to the following conditions:
(i) the Trustee will not release Class A Shares from the Voting
Trust during its term (except as a result of termination of
the Voting Trust) if such release will result in the Trustee
not controlling at least a majority of the total votes of
the shareholders of the Bottler (including both Class A and
Class B Shares); and
PAGE
<PAGE>
(ii) any merger or consolidation of the Bottler with another
entity shall be subject to the consent of the Company
pursuant to the EBA unless (i) the Bottler is the surviving
entity and (ii) the Voting Trust does not lose control of a
majority of the total votes of the shareholders of the
Bottler.
(b) The termination of the Voting Trust as provided in the Trust
Agreement, including the resignation or death of the Trustee or
the expiration of the term of the Voting Trust, and the transfer
of the Class A Shares held by the Voting Trust to the beneficial
owners thereof upon such termination subject to the following
conditions:
(i) if the Voting Trust is terminated as a result of the
resignation or death of the Trustee, the Company shall have
the right for a period of 90 days after such resignation or
death, but not the obligation, to appoint a new Trustee to
replace Mr. Rafael Nin for the remaining term of the Voting
Trust, which appointment shall be subject to the approval of
the beneficial owners of a majority of the Class A Shares of
the Bottler; and
(ii) if the Voting Trust is not renewed at the end of the first 5
year period, by the Trustee or the Company, the Company
shall have the right for a period of 90 days after such non-
renewal, but not the obligation, to appoint a new Trustee to
replace Mr. Rafael Nin for the second 5 year period of the
Voting Trust subject to the approval of the beneficial
owners of a majority of the Class A Shares of the Bottler.
During the 90 day period during which the Company shall have the
right to exercise the option to appoint a new Trustee as provided
in clauses (i) and (ii) above, a committee of three members of
the Board of Directors of the Bottler shall control the vote of
the Shares held in the Voting Trust.
(c) The appointment of Mr. Rafael Nin as the President and Chief
Executive Officer of the Bottler.
(d) The grant of an option to the assignee of Mr. Rafael Nin to
purchase all 5 million Class A Shares of the Bottler pursuant to
the Stock Option Agreement (the "Option Agreement") attached
hereto as Exhibit B subject to the condition that, without the
Company's prior written approval which shall not be unreasonably
withheld or delayed, Mr. Rafael Nin will not transfer all or a
part only of his rights under the Option Agreement if such
transfer could result in the Trustee not controlling at least a
majority of the total votes of the shareholders of the Bottler
(including both Class A and Class B Shares). The approval of the
Company described in the preceding sentence shall be as to both
the person or entity to whom the transfer is being made and the
terms of the transfer.
2. So long as any Class A Shares of the Bottler currently owned by any
Essential Shareholder shall be held by the Voting Trust, references in
PAGE
<PAGE>
the EBA to transfers of shares of the Bottler by any such Essential
Shareholder shall be deemed to include references to the transfer of
beneficial interests in the Voting Trust by such Essential
Shareholder.
3. Mr. Rafael Nin agrees to transfer any Class A Shares of the Bottler
held by the Voting Trust to any person without the prior written
consent of the Company, which shall not be unreasonably withheld or
delayed, if such transfer would result in the Trustee not controlling
a majority of the total votes of the shareholders of the Bottler
(including both Class A and Class B Shares). It is understood that
this provision shall not affect Mr. Rafael Nin's right to terminate
the Voting Trust at any time at his sole and absolute discretion and
return the shares subject to the Voting Trust to the beneficial owners
of such Class A Shares.
4. Except as expressly set forth above, the EBA shall remain in full
force and effect in accordance with its terms. Nothing herein shall
make Mr. Nin an Essential Shareholder under the EBA.
5. During the term of the Voting Trust the personal liability of the
Essential Shareholders relating to Section 23(e) shall not apply.
6. This agreement may be executed in counterparts.
If you are in agreement with the above, please sign below, keep one copy
for your records, and return one signed copy to the Company, whereupon this
letter will become a binding agreement between the undersigned.
PepsiCo, Inc.
/S/ ROBERT K. BIGGART
__________________________________
By: Robert K. Biggart
Vice President
Accepted and Agreed by
Mr. Rafael Nin:
/S/ RAFAEL NIN
___________________________
Rafael Nin
