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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Number)
Incorporation or Organization)
CARRETERA 865, KM. 0.4
BARRIO. CANDELARIA ARENAS
TOA BAJA, PUERTO RICO 00949
(Address of Principal Executive Offices, including Zip Code)
(787) 251-2000
(Registrant's Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: .
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Class B Common Stock, Par Value $.01 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
Check 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
proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of December 21, 1998, was approximately
$47,628,261.
As of December 21, 1998, there were 21,690,000 shares of Common Stock
issued and outstanding. This amount includes 5,000,000 shares of Class A Common
Stock and 16,690,000 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the 1999 Proxy Statement of Pepsi-Cola Puerto Rico Bottling
Company are incorporated by reference into Part III of this Form 10-K to the
extent provided herein.
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
---------------------------------------
Index to Annual Report on Form 10-K
Year Ended September 30, 1998
ITEM NO. PAGE NO.
- -------- --------
PART I
Item 1. BUSINESS.....................................................3
Item 2. PROPERTIES..................................................13
Item 3. LEGAL PROCEEDINGS...........................................13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................13
Item 6. SELECTED FINANCIAL DATA.....................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.........................51
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS............................51
Item 11. EXECUTIVE COMPENSATION......................................51
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..............................................51
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............52
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K....................................................52
SIGNATURES..................................................57
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PART I
ITEM 1. BUSINESS
GENERAL
Pepsi-Cola Puerto Rico Bottling Company (the "Company") is a holding
company which, through its manufacturing and distribution subsidiaries,
produces, sells and distributes a variety of soft drink and fruit juice products
and bottled water in the Commonwealth of Puerto Rico ("Puerto Rico"), pursuant
to exclusive franchise arrangements with PepsiCo, Inc. ("PepsiCo") and other
franchise arrangements. The Company also has rights to sell PepsiCo Products to
distributors in the U.S. Virgin Islands. The Company produces, sells and
distributes soft drink products primarily under the Pepsi-Cola, Slice, Wonder
Kola, Teem and Mountain Dew trademarks pursuant to exclusive franchise
arrangements with PepsiCo. In addition, the Company produces, sells and
distributes tonic water, club soda and ginger ale under the Seagram trademark
through an exclusive arrangement with Joseph E. Seagram & Sons, Inc. ("Seagram")
and sells and distributes fruit juice products under the Welch's trademark.
The Company was incorporated and acquired the franchise rights to
produce, sell and distribute PepsiCo soft drink products in Puerto Rico in 1987.
A subsidiary of the Company manufactures plastic bottles and "preforms" (small
molded plastic units which are expanded with air to produce plastic bottles).
For its fiscal year ended September 30, 1998, the Company had a net
loss of $9.6 million (including $3.3 million pre-tax of expenses related to
unusual items), compared to a net loss of $21.4 million during fiscal 1997
(including $13.2 million pre-tax of expenses related to settlement of civil
litigation). This loss from the Company's operations resulted primarily from
intense competitive pressures in Puerto Rico, which produced lower net sales
prices.
This annual report on Form l0-K 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
implement pricing initiatives in a manner that improves the pricing environment
in the marketplace, its ability to generate cost savings through the
consolidation of existing operations, its ability to pay dividends, its expected
future capital expenditures and its ability to restore profitability through
these pricing initiatives and cost savings. These forward looking statements
reflect management's expectations and are based upon currently available data;
however, actual results are subject to future events and uncertainties which
could materially affect actual performance. The Company's future performance
also involves a number of risks and uncertainties. Among the factors that could
cause actual performance to differ materially are: continued competitive
pressures with respect to pricing in the Puerto Rican market; the inability to
achieve cost savings due to unexpected developments; changed plans regarding
capital expenditures; adverse developments with respect to economic, climatic
and political conditions in Puerto Rico; and the impact of such conditions on
consumer spending.
PRINCIPAL MARKET
The principal market for the Company's products is Puerto Rico, a
Commonwealth of the United States with a population of approximately 3.7 million
inhabitants. Currently, approximately 35% of the population of Puerto Rico is
under the age of l8 and 45% of the population is under the age of 25 which the
Company believes is significant because young people are major consumers of soft
drinks.
Although the Company has rights to sell PepsiCo products to
distributors in the U.S. Virgin Islands, it is not required to do so under its
franchise agreements with PepsiCo. During the fiscal year ended September 30,
1998, less than 1% of the Company's sales by volume were to distributors in the
U.S. Virgin Islands.
The Company has received certain rights and preferences for expansion
of its exclusive business with PepsiCo throughout the Caribbean.
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THE BEVERAGE INDUSTRY IN PUERTO RICO
The Puerto Rican soft drink market is characterized by relatively low
per capita consumption as compared to the United States due primarily to modest
per capita income and the stage of industry evolution in Puerto Rico. In
addition, the imposition of the Carbonated Beverage Tax (in effect from 1991 to
1993) had a material adverse effect on per capita consumption of soft drinks in
the years in which it was in effect. The Carbonated Beverage Tax was repealed in
January 1994 but consumption remains low compared to consumption levels in the
United States. In 1995, the annual per capita consumption of soft drink products
in Puerto Rico was approximately 410 eight-ounce servings, as compared with
approximately 816 eight-ounce servings in the United States.
The Company is one of the two largest soft-drink suppliers in Puerto
Rico. From inception it was the market share leader but, since 1996 lost market
share leadership to its principal competitor. In 1996, new ownership at the
competitor instituted unusually aggressive selling tactics including securing
exclusive marketing opportunities at leading supermarkets. The Company belives
that the erosion of market share has been stemmed but the principal competitor
still possesses a share advantage.
BUSINESS STRATEGY
The most important element of the Company's current business strategy
is to restore the profitability of its Puerto Rican bottling operations. The
Company intends to pursue this strategy through the implementation of new
marketing initiatives designed to address the current intense price competition
in the soft drink market in Puerto Rico, and the implementation of cost cutting
measures. In addition, the Company is evaluating the profitability of its
various product lines and methods of distribution. There can be no assurance,
however, that the Company will be successful in achieving its goal of restoring
the profitability of its Puerto Rican bottling operations.
The Company completed, during fiscal year 1996, the construction of the
Toa Baja plant and the consolidation of its operations into this facility during
1997. The Toa Baja plant has three bottling lines and increased the Company's
annual production capacity by 60%. The Company commenced operations at the Toa
Baja plant in the third fiscal quarter of 1996, closed its former plant and
currently holds it for sale. During fiscal 1999 it expects to sell the unused
facility and conclude the sale of its water division as announced in December
1998.
FRANCHISE ARRANGEMENTS
PEPSICO PRODUCTS
The Company has entered into a master franchise commitment letter (the
"Franchise Commitment Letter") with PepsiCo with respect to the sale of PepsiCo
soft drink products in Puerto Rico. The Company has also entered into exclusive
bottling appointment agreements (each an "Exclusive Bottling Appointment" and
collectively, with the Franchise Commitment Letter, the "Franchise
Arrangements") for the relevant trademarks of Pepsi-Cola, Diet Pepsi-Cola,
Pepsi-Cola Free, Diet Pepsi-Cola Free, Lemon-Lime Slice, Diet Lemon-Lime Slice,
Mandarin Orange Slice, Diet Mandarin Orange Slice, Grape Slice, Teem, Diet Teem,
Wonder Kola and Mountain Dew. The Franchise Commitment Letter runs concurrently
with the Exclusive Bottling Appointments and will terminate in the event of the
termination or expiration of the Exclusive Bottling
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Appointments. All of the Franchise Arrangements have the provisions described
below and were renegotiated with the change in ownership control effective July
17, 1998.
The Franchise Arrangements require the Company to purchase its entire
requirements of concentrates and syrups for all of the PepsiCo soft drink
products from certain affiliates of PepsiCo. Pursuant to the Franchise
Commitment Agreement between the company and PepsiCo, PepsiCo charges the
Company the actual price of a unit of concentrate that is paid by bottlers for
the same or similar concentrate in the continental United States on an
equivalent yield basis based upon the then current domestic list price for each
of the respective PepsiCo products.
The Company is obligated under the Franchise Arrangements to use,
handle and process the concentrates purchased from PepsiCo and to bottle, label,
package and distribute the PepsiCo soft drink products, in accordance with
PepsiCo's instructions. The Company must maintain and operate its plants and all
sales and distribution equipment in clean and sanitary conditions in accordance
with PepsiCo's standards and specifications, and otherwise must satisfy
PepsiCo's quality control standards. The Company must comply with all standards
and specifications with respect to the treatment and purification of water used
in manufacturing PepsiCo soft drink products and the maintenance and operation
of water treatment and purifying equipment. The Company must also conduct tests
of the PepsiCo soft drink products and the water used in their manufacture,
maintain records of such testing and permit PepsiCo access to its facilities for
inspection purposes.
The Company is required to test market and introduce new packages,
sizes and products as PepsiCo may direct and promote and advertise the PepsiCo
soft drink products. The Company is also required to make capital expenditures
to maintain a sufficient inventory of bottles, cartons, containers and cases.
The Franchise Arrangements also require the Company to display all
advertising and promotional materials furnished by PepsiCo or its affiliates and
to incur mutually agreed upon marketing, advertising and sales promotion
expenditures. See "- Marketing."
The Exclusive Bottling Appointments have ten-year terms expiring on
July 17, 2008. Thereafter, each agreement is automatically renewed for
additional five-year terms unless either party gives written notice of its
intention not to renew the agreement at least 12 months prior to the date of
expiration of the term. PepsiCo may terminate the Franchise Arrangements if the
Company fails to comply in any material respect with the terms and conditions of
the Franchise Arrangements, subject to a right to cure in certain instances. In
addition, PepsiCo may terminate the Franchise Arrangements if there is a change
of effective control of the Company without PepsiCo's prior written consent
OTHER PRODUCTS
The Company has reached agreement on the terms of a soft drink
trademark license and bottling agreement with Seagram for the exclusive rights
to produce, sell and distribute tonic water, club soda and ginger ale under the
Seagram trademark in Puerto Rico. The Company must purchase concentrate from
Seagram at a price per unit mutually agreed upon by Seagram and the Company. The
Company is obligated to meet specified production levels. The Company may not
produce, sell or distribute any other tonic water, club soda or ginger ale other
than the Seagram trademark. The Company has further agreed to maintain certain
production and quality control standards and to use its best efforts to
advertise and promote the sale, distribution and consumption of the Seagram
products in the franchise territory. The license and bottling agreement with
Seagram is effective through January 31, 2000 and is renewable for successive
ten-year terms thereafter at the option of Seagram. The agreement with Seagram
may be terminated in the event that the Company does not comply with its terms
and, in the case of the Company's bankruptcy, appointment of a receiver or
assignment for the benefit of creditors.
The Company has a sales and distribution agreement with Welch Foods
Inc. ("Welch's") for the rights to sell and distribute non-carbonated fruit
juice beverages under the Welch's trademark in Puerto Rico. The Company must
purchase the product from certain authorized sellers and may not manufacture,
sell or distribute certain
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specified brand names which compete with Welch's products. The Company is
actively negotiating the renewal of this distribution agreement.
FRANCHISE PROTECTION
The Company's Franchise Arrangements with PepsiCo are subject to Act
No. 75 of June 24, 1964 of Puerto Rico, as amended ("Act 75"), which provides
that a company that grants distribution rights to a distributor in Puerto Rico
may not unilaterally terminate, perform any act detrimental to or refuse to
renew its agreement with distributor without just cause, and would be required
to pay damages to the distributor as specified in Act 75 in the event of a
termination, impairment or non-renewal without just cause, which are specific
acts set forth in Act 75 which are attributable to the distribution. Act 75 does
not protect a distributor in the event of a breach by such distributor.
PRODUCTION
Soft drinks are produced by mixing water, concentrate and sweetener and
injecting carbon dioxide gas into the mixture to produce carbonation immediately
prior to bottling. Prior to mixing, the water is processed to eliminate mineral
salts, chlorinated and then passed through purification tanks containing sand
filters, to eliminate remaining impurities, and carbon filters, to eliminate
chlorine taste, copper and odors. The purified water is then combined with
processed sugar and concentrate. Following carbonation the mixture is bottled in
prewashed bottles or aluminum cans. The Company maintains a laboratory area at
its production facility, where raw materials are tested and samples of soft
drink products are analyzed to ensure quality control
The raw materials used by the Company in the production of soft drinks
include concentrate, syrup, water, sugar or high factor corn syrup, carbon
dioxide gas, glass and plastic bottles, aluminum cans and other packaging
material. The Company is obligated under the terms of the Franchise Arrangements
to obtain concentrate for the production of soft drink products from PepsiCo or
its affiliates. The Company obtains water from publicly available supplies (such
as municipal water systems) and from its own drilled wells. The Company obtains
all of its sweetener requirements from a number of independent suppliers and
distributors located in the United States and Puerto Rico. The Company does not
directly purchase low calorie sweetener for use in diet soft drinks because
these sweeteners are already contained in the diet soft drink concentrates
purchased by the Company. The Company purchases its supplies of carbon dioxide
gas from a number of independent suppliers in Puerto Rico and elsewhere. The
Company purchases plastic bottles used in the bottling process principally from
its plastics operation and from other independent suppliers as needed. The
Company also manufactures preforms which are utilized in the bottle
manufacturing process. All bottles used in the bottling process of Cristalia
products are purchased by the Company from a number of independent suppliers.
The Company purchases its aluminum can requirements from Crown Cork & Seal.
None of the raw materials or supplies used by the Company is currently
in short supply, although the available supply of certain materials could be
adversely affected in the future due to reasons outside the Company's control.
The following table sets forth the principal raw materials utilized in
the soft drink production process and the approximate percentage of the
Company's total cost in fiscal year 1998 represented by each of them.
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Percentage of
Fiscal Year
Raw Material 1998 Cost
- ------------ ---------
Packaging................................................. 41%
Concentrate............................................... 38%
Sugar/fructose............................................ 15%
Carbon dioxide gas........................................ 1%
Other..................................................... 5%
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Total................................................ 100%
====
The following chart shows the approximate effective production
capacity, number of shifts and bottling lines, and average fiscal year 1998
capacity utilization for the Toa Baja plant:
Approximate Effective Number of Average 1998
Plant Production Capacity (1) Bottling Lines Capacity Utilization (2)
- ----- ----------------------- -------------- ------------------------
Toa Baja...... 44,350 (2 shifts) 3 68%
- --------------------
(1) Approximate effective production capacity is expressed in thousands of cases
per year, assuming the number of shifts indicated. Effective production capacity
is a plant's theoretical installed capacity, adjusted for seasonal variations in
demand as well as regular maintenance and repair.
(2) Actual production in fiscal year 1998 expressed as a percentage of
approximate effective production capacity.
DISTRIBUTION
Once the bottling process is complete, the Company packages its soft
drink products in cases, tanks and boxes for distribution throughout its
franchise territory. The Company uses three primary methods of distribution for
its soft drink products: conventional routes, bulk presell and route presell
delivery. In the conventional route form of distribution, a truck owned or
leased by the Company is loaded with the Company's beverage products and visits
each of the Company's customers along an assigned distribution route. The
customer places orders and accepts delivery of the amount of the Company's
products needed at that time. The drivers and sales persons which deliver the
Company's products along the conventional route system are employees of the
Company in Puerto Rico. The conventional route form of distribution is the main
form of distribution currently used by the Company in Puerto Rico.
Under the bulk presell method of distribution, the Company's account
representatives and key account salespersons visit customers assigned to their
route and fill out order forms for the Company's products. These orders are
processed at the Company's plant and the products are delivered the next day in
trailer loads by independent truck drivers or in bulk (less than trailer loads)
by the Company's employees in Company-owned or leased trucks. The bulk presell
method is mostly used for wholesalers and large retailers.
The Company intends to emphasize the "route presell" method of
distribution for its conventional routes where feasible to capitalize on its
planned introduction of new products and packaging formats. Under the route
presell method, employees of the Company visit customers assigned to their route
and take orders which are processed at the end of the day. The ordered products
are then delivered the next day by the Company's employees in Company-owned or
leased trucks. The Company believes this method provides better route coverage
in densely populated areas and facilitates the distribution of the Company's
existing products as well as the introduction of new products.
As of September 30, 1998, the Company had approximately 135
distribution routes (conventional, bulk, and presell) and its transportation
fleet consisted of approximately 113 trucks. The Company's products are also
distributed to restaurants and soda fountains in post-mix form.
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In addition, the Company has approximately 1,300 "single service" and
1,800 "full service" vending machines throughout Puerto Rico. In the "single
service" format, the proprietor of the location of the machine purchases a
minimum amount of the Company's products while in the "full service" format, the
Company pays a commission to the proprietor and supplies and retains the profit
from sales from the machines. The Company is responsible for refurbishing and
maintaining the vending machines and there is no charge for installation and
maintenance or rental fees for the vending machines. The Company's bottled water
is distributed to customers in private homes, businesses and government
agencies, some of which have coolers installed by the Company. The Company
receives a rental payment for each cooler installed by the Company.
In the fiscal year 1998, approximately 46% of the Company's volume was
to supermarkets, grocery and convenience stores, 35% was to "cash and carry's"
(small, high-volume wholesalers) and similar businesses, 14% was to restaurants
and soda fountains and 5% was through other distribution channels. The Company
also distributes its products through vending machines and is in the process of
expanding its placement of vending machines throughout Puerto Rico. The
Company's Cristalia brand bottled water is distributed to private homeowners,
businesses and government agencies. Most sales to the Company's customers are on
a credit basis, with payment due approximately 30 days after delivery. Credit
sales and cash sales accounted for approximately 93% and 7% respectively, of the
Company's total net sales in the fiscal year 1998.
MARKETING
The Company has entered into a cooperative advertising and marketing
agreement with affiliates of PepsiCo in Puerto Rico. This arrangement provides
for advertising of Pepsi-Cola and other PepsiCo soft drink products on
television and radio stations, billboards, newspapers and other media. The total
amount spent by the Company on advertising pursuant to this cooperative
arrangement in any year is determined by the Franchise Arrangements.
A primary basis of competition among soft drink bottling companies is
sales promotion activities, including television, radio and billboard
advertising and point of purchase promotional devices, such as display racks and
cases, clocks, neon signs and other merchandise and equipment bearing the Pepsi
logo and placed in retail outlets where the Company's products are sold.
The Company also uses point-of-purchase promotional devices approved by
PepsiCo in marketing its products. These promotional devices consist primarily
of prominent in-store displays such as racks and cases that are delivered to the
Company's customers by distribution trucks along with soft drink deliveries. The
Company shares the cost of these point-of-purchase promotional devices,
excluding design costs, with PepsiCo. PepsiCo reimburses the Company for
PepsiCo's share of its marketing expenditures. PepsiCo may from time to time
during the year pay for marketing expenditures directly, subject to agreement
with the Company, and will be credited for such payments toward PepsiCo's share
of marketing expenditures.
The Company has entered into long-term arrangements to offer discounts
to selected customers, such as the major supermarket chains in Puerto Rico. The
Company has also entered into cooperative marketing agreements with its
customers relating to special displays and promotional campaigns for the
Company's products. The competition with other soft drink companies for these
type of arrangements is intense. There is no certainty that any specific
relationship can be maintained longer than the period of agreement.
The Company frequently uses promotional campaigns such as concerts and
sports events, merchandise giveaways, contests and similar programs to increase
sales of its products. These programs are typically heavily advertised and
frequently result in increased sales and higher per capita consumption of the
Company's products during the time the program is being conducted.
The Company sells its soft drink and water products in a variety of
non-returnable and returnable bottles, both glass and plastic, and in cans, in a
variety of sizes. In order to increase sales and per capita consumption of the
Company's products, the Company
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continually examines sales data and customer preferences in order to develop a
mix of packaging formats which consumers will consider most desirable. All the
packaging formats utilized by the Company for PepsiCo soft drink products are
subject to the approval of PepsiCo.
The Company uses its management information systems in order to
evaluate sales data for purposes of forecasting future sales and establishing
sales quotas and forecasts. Based on the information compiled in the Company's
historical sales records, the Company may initiate one or more of the marketing
programs described above in order to increase sales volume or per capita
consumption of its soft drink products.
COMPETITION
The soft drink industry in Puerto Rico is highly competitive. In
addition, during fiscal years 1998 and 1997, the Company faced intense price
competition resulting in substantially lower net sale prices. The Company's
principal competitors in Puerto Rico are the local bottlers and distributors of
Coca-Cola in the cola market and Seven-Up in the flavored soft drink market. The
Company's other competitors include bottlers and distributors of nationally and
regionally advertised and marketed products, as well as bottlers of smaller
private label soft drinks, which private label soft drinks the Company believes
have historically represented approximately 5% of total soft drink sales in
Puerto Rico. Carbonated soft drink products compete with other major commercial
beverages, such as coffee, milk and beer, as well as non-carbonated soft drinks,
citrus and non-citrus fruit drinks and other beverages.
The principal methods of competition in the soft drink industry in
Puerto Rico are pricing, advertising and product image. In addition, the Company
provides discounts to certain of its large customers such as supermarket chains,
fast food chains and other retail outlets which carry PepsiCo soft drink
products.
GOVERNMENT REGULATION
The Company's operations are subject to the regulatory oversight of the
U.S. Department of Agriculture and Department of Labor, the Food and Drug
Administration, the Occupational Safety and Health Administration, the
Environmental Protection Agency and the Puerto Rico Environmental Quality Board.
The Company is required to obtain municipal licenses for its bottling
plants. The Company is currently in compliance with such requirements.
Additionally, the Company routinely obtains the necessary approvals to operate
certain machinery and equipment, such as boilers, steamers, compressors and
precision instruments, from municipal authorities.
The wastewater from the Tao Baja bottling plant is discharged to a
collection and treatment system owned by the Puerto Rico Aqueduct and Sewer
Authority ("PRASA"). The Company previously entered into a stipulation with
PRASA with respect to the discharge of wastewater in excess of pretreatment
standards and the Company paid a surcharge to cover the excess wastewater
discharges. In 1998, the Company applied to have the permit reissued. On October
29, 1998, PRASA reissued the permit but without the surcharge provision included
in the old permit. The Company intends to negotiate with PRASA regarding the new
permit and required effluent standards. If the new permit cannot be negotiated,
the Company will be required to construct an on-site wastewater treatment
system. The cost of new treatment system may have a material affect on the
Company's future financial performance.
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TAXATION
The Puerto Rican government currently imposes an excise tax on
carbonated beverages of 5% of the "taxable price in Puerto Rico." The "taxable
price in Puerto Rico" for a product manufactured in Puerto Rico is effectively
defined under the Puerto Rico Excise Act as 72% of the manufacturer's sales
price. The Company is thus subject to an excise tax at an effective rate of 3.6%
(or 5% of 72%) of the price at which it sells its soft drink products.
EMPLOYEES
At September 30, 1998, the Company had approximately 550 full-time
employees, approximately 65% of which were represented by a labor union. The
Company believes that its relationship with its employees and their unions is
excellent. The Company has not experienced any strike or work stoppage since the
Company was acquired in 1987. Labor relations are generally governed by labor
agreements entered into from time to time between the Company and its employees.
The Company has entered into three such agreements, with its union employees in
its manufacturing and distributing subsidiaries, its plastics subsidiary and its
bottled water division, respectively. A new agreement relating to the Company's
manufacturing and distributing subsidiaries was signed on November 25, 1997 and
expires on December 31, 2001. This new agreement provides the Company with a
reduction in operating costs as part of its strategy to increase and maintain
operating efficiencies. The agreement relating to its plastics subsidiary
expired on October 1, 1996. The Company currently is in the process of
renegotiating this agreement.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected by the Board of
Directors and serve at its discretion. There is no family relationship among any
of the officers or directors. The following table sets forth certain information
regarding the executive officers of the Company.
Name Age Position
- ---- --- --------
Robert C. Pohlad 44 Chief Executive Officer and Director
John F. Bierbaum 54 Chief Financial Officer, Vice President
Kenneth E. Keiser 47 President and Chief Operating Officer
Bradley J. Braun 44 Vice President, Finance and Assistant Secretary
Jay S. Hulbert 45 Vice President, Operations
Raymond R. Stitle 44 Vice President, Human Resources
A. David Velez 44 Vice President and President Pepsi-Cola Puerto
Rico Distribution Company
The following is a brief description of the business background of each
of the executive officers of the Company.
ROBERT C. POHLAD. Mr. Pohlad has served as director and Chief Executive
Officer of the Company since July 1998. Mr. Pohlad has been and continues as a
director and Chief Executive Officer of Delta Beverage Group, Inc. since 1988.
Since 1987, Mr. Pohlad has also served as President of the Pohlad Companies, a
holding and management services company, which has an ownership interest in and
provides management services to the Company. Prior to 1987, Mr. Pohlad was
Northwest Area Vice President of the Pepsi-Cola Bottling Group. Mr. Pohlad also
currently serves as a director for Mesaba Holdings, Inc. and Grow Biz
International, Inc.
JOHN F. BIERBAUM. Mr. Bierbaum has served as Chief Financial Officer of
the Company since July 1998. Mr. Bierbaum has been and continues as a director
(since 1993) and Chief Financial Officer of Delta Beverage Group, Inc. (since
1988). Mr. Bierbaum is also Chief Financial Officer of the Pohlad Companies, a
holding and management services company, which has an ownership interest in and
provides management services to the Company. Mr. Bierbaum has been associated
with the Pohlad Companies from 1975 to the present in a variety of capacities,
including his current position. From 1986 to 1988, Mr. Bierbaum served as Vice
President of the Pepsi-Cola Bottling Company of Tampa.
KENNETH E. KEISER. Mr. Keiser has served as President and Chief
Operating Officer of the Company since July 1998. Mr. Keiser has been and
continues as President and Chief Operating Officer of Delta Beverage Group, Inc.
since 1990. From 1976 to 1990, he was employed by the Pepsi-Cola Bottling Group
in various capacities, including Division Vice President of the Central Division
from 1989 to 1990, Vice President of the Minneapolis Area from 1986 to 1989,
Director of Corporate Trade Development from 1985 to 1986, Area Vice President
of Philadelphia from 1982 to 1985, and various other capacities from 1976 to
1985.
BRADLEY J. BRAUN. Mr. Braun became Vice President of Finance and
Assistant Secretary for the Company in July 1998. Mr. Braun has been and
continues as Vice President of Finance of Delta Beverage Group, Inc. since 1991.
Prior to joining Delta, Mr. Braun served as Controller of the Dakota Beverage
Company, Inc., a PepsiCo franchise bottler which is a wholly owned subsidiary of
the Pohlad Companies.
11
<PAGE>
JAY S. HULBERT. Mr. Hulbert joined the Company in July 1998 as Vice
President, Operations. Mr. Hulbert has been and continues as Vice President -
Operations for Delta Beverage Group, Inc. since 1988. Prior to joining
Delta, Mr. Hulbert spent seven years working for the Pepsi-Cola Bottling Group
in a variety of capacities.
RAYMOND R. STITLE. Mr. Stitle joined the Company in July 1998 as Vice
President, Human Resources. Mr. Stitle has been and continues as Vice President
of Delta Beverage Group, Inc. since 1988. Prior to joining Delta, Mr. Stitle was
employed by Pepsi-Cola USA.
A. DAVID VELEZ. A. David Velez has been President of Pepsi Cola Puerto
Rico Distribution Co. since July 1998 and has been a Vice President of the
Company since March 1997. He was the General Manager for BAESA's operations in
Rio de Janeiro from October 1995 to February 1997. Prior to that he was the
General Manager for PepsiCo's Miami bottling operations.
12
<PAGE>
ITEM 2. PROPERTIES
PROPERTIES
The properties of the Company primarily consist of bottling, warehouse,
distribution, plastic production and office facilities located in Puerto Rico.
The Company owns the property previously used as a bottling plant in Rio Piedras
and one bottling plant in Toa Baja. Substantially all of the company's real
property, machinery and equipment are pledged pursuant to the terms of a Credit
Agreement among the Company and its subsidiaries and Banco Popular de Puerto
Rico. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - The Company - Liquidity and Capital Resources." The
principal offices of the Company are located in Toa Baja. The Company leases two
warehouse and distribution facilities in Ponce, Sebana Grande and the production
facilities for Cristalia bottled water in Ponce. The remainder of the Company's
properties is held in fee.
At September 30, 1998, the net book value of all land, buildings,
machinery, and equipment owned by the Company in Puerto Rico was approximately
$43.7 million. The total annual rent paid by the Company for the year ended
September 30, 1998 for its leased production, distribution and office facilities
and equipment in Puerto Rico was approximately $0.4 million.
The Company intends to sell its unused Rio Piedras plant and equipment
during fical year 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended September 30, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 21, 1998, there were (i) 5,000,000 shares of Class A
Common Stock, par value $.01 per share (the "Class A Shares"), issued and
outstanding and held by two shareholders of record, and (ii) 16,690,000 shares
of Class B Common Stock, par value $.01 per share (the "Class B Shares"), issued
and outstanding and held by 686 registered shareholders of record. The principal
market for the Company's Class B Shares is the New York Stock Exchange, Inc.
(the "NYSE"). The Class A Shares are not listed for trading on any securities
exchange. The Class A Shares and Class B Shares are collectively referred to
herein as the "Common Stock."
The company's Class B Shares have been listed for trading on the NYSE
since September 20, 1995 under the symbol PPO. The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Class
B Shares on the NYSE as reported in the consolidated transaction reporting
system. The closing
13
<PAGE>
sale price of the Company's Class B Shares on the NYSE on December 21, 1998, as
reported in the consolidated transaction reporting system, was $4.5625
High Low
---------------------
1997
- ----
First Quarter $5.50 $3.875
Second Quarter $5.00 $4.125
Third Quarter $6.50 $4.250
Fourth Quarter $8.0625 $5.875
1998
- ----
First Quarter $7.6875 $6.3125
Second Quarter $8.00 $6.0625
Third Quarter $7.75 $6.625
Fourth Quarter $9.063 $6.00
The Company's Board of Directors from time to time may declare, and the
Company may pay, dividends on its outstanding shares of Common Stock in the
manner and upon the terms and conditions provided by law. Pursuant to the terms
of the Credit Agreement (as defined below), the Company may not pay dividends
without the consent of Banco Popular if an event of default under the Credit
Agreement (including a violation of the financial restrictions) has occurred or
would occur because of the payment of dividends.
The Company does not expect to pay any dividends for the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
PRESENTATION OF FINANCIAL INFORMATION
The following tables present summary consolidated financial information
of the Company and reflect the results of operations of the Company and its
previous equity interest in the net earnings of Buenos Aries Embotelladora S.A.
("BAESA") prior to June 17, 1998. This data has been derived from the
consolidated financial statements of the Company and its subsidiaries and from
information provided to the Company by BAESA. The inclusion in this report of
such information provided by BAESA is for information purposes only and the
Company makes no representation as to the accuracy or completeness of such
information. On June 17, 1998 the Company distributed all shares of BAESA held
by it pro-rata to the Company's Class B shareholders by way of a special
dividend. The consolidated financial statements of the Company for each of the
four years ended September 30, 1997 have been audited by KPMG Peat Marwick LLP,
independent public accountants. The consolidated financial statements of the
Company as of September 30, 1998 and for the year then ended have been audited
by Arthur Andersen LLP, independent public accountants.
14
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (FOR YEAR ENDED):........
Net sales .......................................... $ 104,048 $ 114,301 $ 102,891 $ 99,172 $ 99,405
Cost of sales ...................................... 60,574 67,846 74,956 68,237 70,503
--------- --------- --------- --------- ---------
Gross profit ................................... 43,474 46,455 27,935 30,935 28,902
Selling and marketing expenses ..................... 30,497 30,458 42,456 30,224 30,072
Administrative expenses ............................ 10,528 6,262 9,606 8,424 6,047
Restructuring charges .............................. -- -- 2,700 535 1,728
Litigation settlement expenses ..................... -- -- -- 13,172 --
Provision for legal and environmental reserves ..... -- -- -- -- 760
Loss on asset impairments .......................... -- -- -- -- 800
Insurance proceeds from business interruption losses -- -- -- -- (1,309)
Intangibles and fixed asset write-offs ............. 2,886 -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) from operations .................. (437) 9,735 (26,827) (21,420) (9,196)
Gain on sale by PCPRB of
Class B BAESA shares, net ...................... 15,924 -- -- -- --
Gain on early termination of supply agreement ...... -- -- 2,111 -- --
Interest expense ................................... (1,237) (1,215) (1,523) (2,644) (2,437)
Interest income .................................... 147 207 2,418 1,218 839
Other income, net .................................. (332) 391 (256) 1 206
--------- --------- --------- --------- ---------
Total other income (expenses) .................. 14,502 (617) 2,750 (1,425) (1,392)
--------- --------- --------- --------- ---------
Income (loss) before income tax benefit
(expense) and equity in net earnings
(loss) of BAESA .............................. 14,065 9,118 (24,077) (22,845) (10,588)
Income tax expense/(benefit) ................... 6,243 (297) (1,205) (3,342) (978)
--------- --------- --------- --------- ---------
Income (loss) before equity in net earnings
(loss) of BAESA .............................. 7,822 9,415 (22,872) (19,503) (9,610)
Equity in net earnings (loss) of BAESA, net of
income taxes ................................. 9,753 5,638 (51,458) -- --
--------- --------- --------- --------- ---------
Net income/ (loss) ................................. $ 17,575 $ 15,053 $ (74,330) $ (19,503) $ (9,610)
========= ========= ========= ========= =========
Earnings Per Share (1)
Income (loss) before equity
in net earnings (loss) of BAESA, net
of income taxes ............................. $ 0.43 $ 0.52 $ (1.06) $ (0.91) $ (0.45)
Net income/(loss) .............................. $ 0.98 $ 0.83 $ (3.46) $ (0.91) $ (0.45)
Dividends declared per share
of Common Stock (1) ............................ $ 1.18 $ 0.27 $ 0.24 $ 0.00 $ 0.00
Weighted average number of
shares of Common Stock
outstanding (in thousands) ..................... 18,000 18,105 21,500 21,500 21,516
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):......... (Dollars in Thousands)
Assets:
Cash and cash equivalents ................... $ 1,347 $ 46,091 $ -- $ 19,621 $ 24,720
Short term investment ....................... 0 0 12,904 -- --
Accounts receivable, net .................... 11,881 16,427 14,562 16,897 15,753
Accounts receivable from affiliates and
intercompany advances .................... 3,729 2,913 -- -- --
Inventories ................................. 5,452 4,542 -- 2,802 2,480
Deferred income tax asset ................... -- -- 187 97 224
Other current assets ........................ 1,216 2,516 1,857 2,073 4,743
--------- --------- --------- --------- ---------
Total current assets ..................... 23,625 72,489 52,619 41,490 47,920
Investment in BAESA ......................... 69,870 74,128 -- -- --
Deferred income tax asset, long-term ......... -- -- 2,076 1,619 1,607
Long-lived assets for sale; principally land
and building ............................. -- -- 3,805 3,752 2,615
Property, plant and equipment, net .......... 32,397 36,445 49,936 47,347 43,731
Intangible assets, net ...................... 2,293 2,163 1,459 1,644 1,544
Other assets ................................ 693 441 86 58 15
--------- --------- --------- --------- ---------
Total assets ............................. $ 128,878 $ 185,666 $ 109,981 $ 95,910 $ 97,432
========= ========= ========= ========= =========
Liabilities:
Current installments of long-term debt ...... $ 1,549 $ 1,550 $ 1,550 $ 1,007 $ 1,007
Current installments of capital
lease obligations ........................ 2,537 1,204 341 908 176
Notes payable to bank ....................... 4,250 4,600 25,000 5,430 --
Accounts payable - trade .................... 7,469 12,536 16,619 13,750 10,212
Notes and accounts payable - affiliates ..... 2,078 1,181 50 32 --
Income taxes payable ........................ 229 123 115 199 150
Accrued expenses ............................ 3,678 7,007 8,672 4,830 5,958
--------- --------- --------- --------- ---------
Total current liabilities ................ 21,790 28,201 52,347 26,156 17,503
Long-term debt, excluding current
installments ............................. 7,915 6,365 4,813 23,636 22,355
Capital lease obligations, excluding
current installments ..................... 2,070 848 871 513 8
Deferred income taxes, net .................. 18,273 18,732 -- -- --
Other liabilities ........................... 2,899 2,871 2,593 2,213 3,110
--------- --------- --------- --------- ---------
Total liabilities ........................ 52,947 57,017 60,624 52,518 42,976
--------- --------- --------- --------- ---------
Shareholders' equity:
Class A shares .............................. 50 50 50 50 50
Class B shares .............................. 130 165 165 165 167
Additional paid in capital .................. 47,967 90,738 90,738 103,910 127,009
Retained earnings (accumulated deficit) ..... 29,307 39,472 (40,232) (59,735) (69,345)
Accumulated other comprehensive income ...... (1,523) (1,776) (1,364) (998) (3,425)
--------- --------- --------- --------- ---------
Total shareholders' equity ............... 75,931 128,649 49,357 43,392 54,456
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 128,878 $ 185,666 $ 109,981 $ 95,910 $ 97,432
========= ========= ========= ========= =========
OTHER DATA:
Depreciation and amortization ............... 4,917 4,781 5,589 5,971 5,103
Capital expenditures (2) .................... 3,961 10,418 24,237 4,777 2,795
</TABLE>
(1) Earnings per share of Common Stock and dividends declared per share of
Common Stock are determined by dividing net income by the weighted average
number of common shares outstanding during each period and dividends
declared by the number of shares of Common Stock outstanding at the time of
dividend declaration, respectively. Earnings per share information for
fiscal years 1994 and 1995 has been adjusted to give effect to a stock
split that occurred in fiscal year 1995.
(2) Capital expenditures represent purchases of property, plant and equipment.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
CHANGE IN CONTROL
On July 17, 1998, P-PR Transfer, LLP, a Delaware registered limited
liability partnership (the "Partnership") and V. Suarez & Co., Inc., a Puerto
Rico corporation ("Suarez"), purchased an aggregate of 5,000,000 shares of the
Class A common stock, par value $.01 per share (the "Class A Shares"), and
6,210,429 shares of the Class B common stock, par value $.01 per share (the
"Class B Shares"), of the Company. The Partnership is a joint venture between
Pohlad Companies, a holding company including independent Pepsi-Cola bottlers,
and PepsiCo, Inc. The transactions were previously disclosed by the Company in a
current report on Form 8-K filed with the Securities and Exchange Commission on
July 31, 1998.
In connection with the change in control, the Company issued warrants
to the Partnership and Suarez dated July 17, 1998 for the purchase of 1,360,000
Class B Shares and 340,000 Class B Shares, respectively, exercisable at $6.875
per share at any time during a period of seven years and six months after the
date of the warrants. The warrants may be transferred and give the holders one
demand and unlimited piggyback registration rights.
Also in connection with the change in control, six of the Company's
seven directors resigned on July 17, 1998. Effective July 18, 1998, the size of
the Board of Directors was increased to eight members and seven new directors
were appointed, each of whom were designated by the Partnership. Also effective
July 18, 1998, certain of the Company's officers resigned. The Company's current
officers are described in Item 1 of this Form 10-K.
RESTRUCTURING CHARGE
In the fourth quarter fiscal year 1998, a restructuring charge of
$1.7 million was established under a plan to improve the Company's performance.
The charge includes approximately $0.7 million of severance and related charges
for the elimination of 17 administrative personnel and $1.0 million, including
$0.2 million of cash charges, for costs to exit activities, including the
elimination of certain product lines, canceling lease agreements and exiting
certain other business strategies. Management anticipates the restructuring plan
will provide annual savings of approximately $1.3 million to $1.4 million
beginning in 1999. Severance payments in fiscal year 1998 totaled approximately
$47 thousand, while charges relating to exit activities approximated $0.1
million.
BAESA STOCK DIVIDEND
In addition to conducting its own bottling operations, the Company
previously owned 12,345,347 shares, or approximately 17% of the outstanding
capital stock of BASEA, and, through June 30, 1996, exercised significant
influence over the management of BAESA, subject to the right of PepsiCo, Inc.
and certain of its affiliates to approve certain management decisions. As of
July 1, 1996, PepsiCo assumed operating control of BAESA and the Company no
longer controlled or had significant influence over, the management or
operations of BAESA.
17
<PAGE>
The Company's Board of Directors declared a dividend consisting of the
12,345,347 shares of capital stock of BAESA owned by the Company. The dividend
was distributed on June 17, 1998 to the Company's shareholders of record as of
May 28, 1998. The distribution was made in the form of 6,172,674 BAESA American
Depository Shares (each representing two underlying BAESA shares) on a pro rata
basis to the holders of the Company's 21,500,000 outstanding Class A shares and
Class B shares. The carrying value of the capital stock of BAESA had been
written down to zero at September 30, 1997. The Company's financial information
for fiscal year 1996 and earlier reflects the Company's equity interest in BAESA
during those periods.
SEASONALITY
The historical results of operations of the Company have not been
significantly seasonal.
INCOME TAXES
The Company and its subsidiaries are Delaware corporations subject to
U.S. federal income taxes; however, each has elected the benefit of Section 936
of the U.S. Internal Revenue Code. Section 936 presently allows the Company a
tax credit equal to a portion of the amount of U.S. income taxes attributable to
earnings derived from operations within Puerto Rico and to certain qualified
investments maintained in Puerto Rico, subject to certain limitations. PCPRB and
its subsidiaries have elected to claim the credit under the Economic Activity
Limitation method. The 1996 Small Business Act (the "Act") repealed the Section
936 credit prospectively. However, the Act grandfathered in "existing credit
claimants" during a ten-year transition period. The credit under the Economic
Activity Limitation for Puerto Rico will be calculated under the rules existing
prior to the adoption of the Act for taxable years beginning after 1995 and
before 2002. For taxable years beginning after December 31, 2001, a cap is
placed upon the Puerto Rican source business income eligible for the credit. For
tax years beginning after January 1, 2006, the economic activity credit is
repealed in its entirety.
In order to utilize income tax credits available under Section 936,
each company is required to derive at least 80% of its gross income from sources
within Puerto Rico, and at least 75% of gross income must be from an active
trade or business in Puerto Rico. PCPRB and its subsidaries, were in compliance
with these gross income requirements for the fiscal year ended September 30,
1998. PCPRB's subsidiaries were in compliance with these gross income
requirements for the fiscal years ended September 30, 1997 and 1996; however,
PCPRB did not meet these gross income requirements for the fiscal years ended
September 30, 1997 and 1996.
Effective October 1998, the Company was granted an additional ten-year
Puerto Rican tax incentives exemption for its plastic preforms manufacturing and
sales operation. Under the terms of the grant, BEV received a 90% exemption from
Puerto Rico income tax, a 60% exemption from municipal tax and a 90% exemption
from property tax. In exchange for these tax exemptions, the Company agreed to
manufacture plastic preforms and plastic bottles, employ a minimum number of
persons and maintain equipment and facilities in Puerto Rico.
As of September 30, 1998, the Company and its subsidiaries had
approximately $80.9 million in net operating losses available to offset against
future earnings for purposes of Puerto Rican taxation and $50.2 million in U.S.
net operating losses. The Puerto Rico net operating losses expire through 2005
and the U.S. net operating losses expire through 2018. The net operating losses
belong to the Company and its manufacturing and distributing subsidiaries. For
Puerto Rican and U.S. tax purposes, related entities such as the Company and its
wholly owned subsidiaries may not join in the filing of a consolidated income
tax return. As a result, the net operating losses of one entity may not be
absorbed or utilized to offset the taxable income of any other related
18
<PAGE>
entity. Only the entity that generated losses may use such losses to offset its
own future taxable income. As a result of the change in control transaction in
fiscal year 1998, the Company's utilization of its U.S. federal net operating
loss carryforwards is limited annually. Realization of all these future income
tax benefits is dependent on the existence of future taxable income. Valuation
allowances covering substantially all of the Company's net operating loss
carryforwards have been provided as the Company does not believe that it is
"more likely than not" that the future income tax benefits will be realized. See
Note 13 to the Consolidated Financial Statements of the Company.
THE COMPANY
GENERAL
The following table sets forth certain financial information as a
percentage of net sales for the Company for the periods indicated.
FISCAL YEAR
1997 1998
------- -------
Net Sales.......................................... 100.0% 100.0%
Cost of Sales...................................... 68.8 70.9
Gross Profit....................................... 31.2 29.1
Selling and Marketing Expenses..................... 30.5 30.2
Administrative Expenses............................ 8.5 6.1
Restructuring and Other Charges, net............... 0.5 3.3
Insurance Recoveries............................... - 1.3
Litigation Settlement Expenses..................... 13.3 -
Income (Loss) from Operations...................... (21.6) (9.2)
====== ====
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
NET SALES. Net Sales for the Company increased $0.2 million, or 0.2%,
in fiscal year 1998 from fiscal year 1997 to $99.4 million. This increase was
primarily the result of an increase in sales volume of approximately 3.0% offset
partially by increased discounts provided to customers in 1998 as compared to
1997. The average net sales price decreased during fiscal year 1998 by
approximately 1.8% as compared to fiscal year 1997.
COST OF SALES. Cost of sales for the Company increased $2.3 million, or
3.3% for fiscal year 1998 as compared to fiscal year 1997 to $70.5 million. This
increase was primarily the result of the increase in sales volume.
GROSS PROFIT. Gross profit for the Company decreased by $2.0 million
to $28.9 million in fiscal year 1998 from $30.9 million in 1997. As a percentage
of net sales, gross profit decreased to 29.1% in 1998 from 31.2% in 1997. The
decrease was primarily due to the higher discounts provided to customers (which
resulted in a lower average net sales price).
SELLING AND MARKETING EXPENSES. 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 $0.1 million,
or 0.5%, to $30.1 million for the fiscal year 1998 as compared to the 1997
fiscal year. As a percentage of net sales, selling and marketing expenses
decreased to 30.2% during the fiscal year 1998 from 30.5% in the 1997 fiscal
year.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
decreased $2.4 million or 28.2% for fiscal year 1998 from fiscal year 1997 to
$6.0 million. This decrease was primarily the result of reductions of $0.9
million in the cost of legal services, reductions of $1.0 million in salaries
and wages, and $0.5 million in other
19
<PAGE>
administrative expenses. As a percentage of net sales, administrative expenses
decreased to 6.1% during fiscal year 1998 from 8.5% in fiscal year 1997.
SETTLEMENT OF LITIGATION. The Company's results of operations for
fiscal year 1997 were affected by the incurrence of a non-cash expense of $13.2
million in connection with the Company's settlement of certain civil litigation,
representing the estimated value of 2.5 million Class B shares transferred as
part of the settlement. There was no similar non cash expense that was incurred
during fiscal year 1998.
UNUSUAL ITEMS. The Company's results of operations for fiscal year 1998
were affected by the incurrence of charges for unusual items totaling $3.3
million. The unusual items include costs related to the restructuring plan
initiated by the new management of the Company ($1.7 million), provision for
certain legal and environmental issues ($0.8 million) and provision for
reduction in the estimated market value of the former production facility now
held for resale ($0.8 million). The impact of these unusual items was offset by
the benefit of insurance proceeds of $1.3 million for loss of business from
September 22, 1998 to October 21, 1998 due to Hurricane Georges. Additional
insurance proceeds will be received for damage related to the hurricane.
INCOME (LOSS) FROM OPERATIONS. Loss from operations for the Company
decreased to ($9.2) million in fiscal year 1998 from a loss of ($21.4) million
in fiscal year 1997. This increase is the net result of the decrease in gross
profit of $2.0 million, decreased selling and marketing costs of $0.1 million,
decreased administrative costs of $2.4 million, the absence of the settlement of
litigation charge of $13.2 million, and unusual items of $3.3 million in fiscal
year 1998 versus a restructuring charge of $0.5 million in fiscal year 1997.
INTEREST AND OTHER INCOME/(EXPENSES). Other income/(expenses) in total
remained consistent between fiscal years 1998 and 1997.
INCOME TAX BENEFIT (EXPENSE). Income tax benefit was $1.0 million for
fiscal year 1998 as compared to $3.3 million for fiscal year 1997. The Company's
effective tax rate differs from the statutory rate primarily due to the Puerto
Rico economic activity credit and valuation reserves provided for the Company's
net operating losses.
NET INCOME/(LOSS). Net loss during fiscal year 1998 was $(9.6) million,
compared to $(19.5) million during fiscal year 1997.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
NET SALES. Net sales for the Company decreased $3.7 million, or 3.6%,
for fiscal year 1997 from fiscal year 1996 to $99.2 million. This decrease was
primarily the result of the significant increase in discounts provided to
customers, partially offset by a 4.0% increase in sales volume in fiscal year
1997 as compared to fiscal year 1996. The increase in discounts resulted from
intense competitive activity. The average net sales price on an eight ounce
serving equivalent basis decreased during fiscal year 1997 by approximately 7.3%
as compared to fiscal year 1996.
COST OF SALES. Cost of sales for the Company decreased by $6.7 million,
or 9.0%, to $68.2 million for fiscal year 1997 from fiscal year 1996. This
decrease was primarily the result of lower raw material costs and lower labor
costs, partially offset by a 4.0% increase in sales volume and by higher
depreciation costs for the new manufacturing facility in fiscal year 1997 as
compared to fiscal year 1996.
GROSS PROFIT. Gross profit for the Company increased by $3.0 million to
$30.9 million for fiscal year 1997 from $27.9 million in fiscal year 1996. As a
percentage of net sales, gross profit increased to 3l.2% in fiscal year 1997
from 27.2% in fiscal year 1996. The increase was primarily due to the increased
sales volume of 4.0%, offset in part by lower average net sales price, and the
lower cost of sales which was due to lower raw material costs and labor costs,
partially offset by the increased depreciation costs of the Toa Baja plant.
SELLING AND MARKETING EXPENSES. 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
20
<PAGE>
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 by $12.2
million, or 28.8%, to $30.2 million for fiscal year 1997 from fiscal year 1996.
This decrease was primarily due to reductions in marketing spending of $8.2
million, reductions in labor costs of $1.5 million, reductions in fleet and
other maintenance costs of $1.8 million, a reduction in insurance expense of
$0.5 million and net reductions in security and other expenses of $0.2 million
in fiscal year 1997 as compared to fiscal year 1996. As a percentage of net
sales, selling and marketing expenses decreased to 30.5% during 1997 fiscal year
as compared to 41.3% for fiscal year 1996.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
decreased by $1.2 million, or 12.3%, to $8.4 million, for 1997 fiscal year as
compared to fiscal year 1996. This decrease was primarily the result of lower
professional fees incurred in fiscal year 1997, due in part to the recovery of
$1.5 million from the Company's officers and directors liability insurance
carrier, as compared to fiscal year 1996. As a percentage of net sales,
administrative expenses decreased to 8.5% during fiscal year 1997 from 9.3% in
fiscal year 1996.
SETTLEMENT OF LITIGATION. The Company's results of operations for
fiscal year 1997 were affected by the incurrence of a non-cash expense of $13.2
million in connection with the Company's settlement of certain civil litigation,
representing the estimated value of 2.5 million Class B Shares which were
transferred as part of the settlement. Because these shares were contributed to
the Company by the Company's founding shareholders, and because the Company
received a $4.0 million recovery from its liability insurance carrier, the net
effect on the Company's equity of the settlement transaction was a $1.5 million
gain, which can be viewed as a recovery of previously expensed legal cost. There
was no similar non-cash expense incurred during fiscal year 1996. For further
information regarding the effect on the Company's results of operations of
certain transactions relating to the settlement, see Note 18 to Notes to
Consolidated Financial Statements.
RESTRUCTURING CHARGES. The Company's results of operations for fiscal
year 1997 were affected by the incurrence of a non-recurring restructuring
charge of $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%. During fiscal year 1996, a charge of $2.7 million was
recorded. The 1996 charge was recorded in connection with the fixed asset
write-down of $1.4 million related to the closing of all bottling operations in
the Company's old bottling plant, which is now for sale, and $1.3 million in
pension asset write-offs and costs associated with employee terminations.
INCOME (LOSS) FROM OPERATIONS. Loss from operations for the Company
increased to ($21.4) million during fiscal year 1997, from ($26.8) million for
fiscal year 1996. The increase is the result of (i) a $3 million improvement in
gross profit resulting from higher unit sales volume of 4%, and lower raw
material and labor costs, partially offset by lower net selling prices due to
increased discounts offered to customers and higher depreciation expense, (ii)
lower selling and marketing costs of $12.2 million, (iii) lower administrative
expenses of $1.2 million, (iv) the incidence of non-cash settlement of
litigation costs of $13.2 million, and (v) a decrease in restructuring charges
of $2.2 million.
EQUITY IN NET EARNINGS (LOSS) OF BAESA. Based on information made
public by BAESA, equity in net loss of BAESA, net of income tax, amounted to
($51.5) million for fiscal year 1996. The Company's equity in the loss reported
by BAESA for fiscal year 1996 was such that it reduced the Company's investment
to zero, meaning that no further equity in losses of BAESA would be reported by
the Company and BAESA reported profits sufficient to produce a positive
investment in BAESA on the Company's balance sheet. No such profits were
realized during fiscal year 1997. As a result of withdrawal of partnership
interest in BAESA Shareholder Associates and the liquidation of Argentine
Bottling Associates, an affiliated partnership through which the Company held
its investment in BAESA, the Company will no longer be subject to the accounting
requirements that requires the Company to report the results of operations of
BAESA on an equity basis.
21
<PAGE>
INCOME TAX BENEFIT. Income tax benefit was $3.3 million for fiscal year
1997 as compared to $1.2 million for fiscal year 1996. The increase was
primarily due to income tax benefit arising from the carry back of current year
losses to fiscal year 1994.
NET INCOME (LOSS). Net loss for fiscal year 1997 was ($19.5) million,
compared to ($74.3) million for fiscal year 1996. Net loss during fiscal year
1997 primarily reflects loss before equity in net loss of BAESA of ($19.5)
million, as compared to ($22.9) million for fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $24.7 million of cash and cash
equivalents. Indebtedness for borrowed money, including short-term and long-term
borrowings and capital lease obligations at September 30, 1998 totaled $23.5
million, which included $1.2 million of current and short-term obligations.
Net cash provided by (used in) operating activities for the Company was
($7.7) million for fiscal year 1998 as compared with ($7.4) million for fiscal
year 1997 and ($6.7) million for fiscal year 1996. The net cash provided by
(used in) operating activities excluding the portion due to changes in assets
and liabilities was $(2.2) million during fiscal year 1998, $0.4 million during
fiscal year 1997, and ($19.8) million during fiscal year 1996. The net cash
provided by (used in) operating activities that was due to changes in assets and
liabilities was ($5.5) million during fiscal year 1998, ($7.8) million during
fiscal year 1997, and $13.1 million during fiscal year 1996.
Net cash provided by (used in) investing activities for the Company was
$(2.3) million for fiscal year 1998, as compared with $8.5 million for fiscal
year 1997 and ($33.0) million for fiscal year 1996. Purchases of property, plant
and equipment, net of disposals, amounted to ($2.3) million during fiscal year
1998 as compared with ($4.4) million during fiscal year 1997 and ($22.9)
million during fiscal year 1996. Purchases of short terms investments were
$12.9 during fiscal year 1996 as compared to zero for fiscal year 1997 and
1998. The short term investments in 1996 consisted of short term discount notes
which the Company held until maturity in 1997. Dividends received from BAESA
amounted to zero in fiscal year 1998 as compared with zero in fiscal year 1997
and $2.8 million in fiscal year 1996.
Cash flows provided by (used in) financing activities for the Company
were $15.2 million for fiscal year 1998 as compared with ($0.2) million for
fiscal year 1997 and $12.3 million for fiscal year 1996. The significant
financing activities for the Company in fiscal 1998 was the infusion of equity
related to the common stock sale attendant to the change of control of $23.1
million, net of issuance costs, and repayment of ($7.9) million of short and
long term debt. The significant financing activity for the Company in fiscal
year 1997 was the net repayment of indebtedness of ($0.2) million. The
significant financing activities for the Company in fiscal year 1996 were the
payment of dividends of ($5.4) million and the issuance of notes payable of
$47.9 million, and the repayment of debt of ($30.2) million. In the future, the
payment of dividends will be dependent on the achievement of adequate levels of
profitability in the Company's Puerto Rican operations, and, under certain
conditions, the consent by Banco Popular. The Company does not expect to pay any
dividends for the foreseeable future.
On April 8, 1997, the Company entered into a Second Restated Credit
Agreement (the "Second Restated Credit Agreement") with Banco Popular. The
effect of this new agreement was to restructure existing debt into two
portions, a long term loan of $25.0 million and short term revolving credit
facility of $5.0 million. Both portions bear interest at 2.5% over LIBOR.
22
<PAGE>
Beginning on May 1, 1997, the Company became required to make monthly payments
of principal in the amount of $83 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 (March 1, 2007) when a
$11.8 million balloon payment is due. The Company may prepay certain 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 1.50 to 1 for fiscal
year 1998 and for each fiscal year thereafter during the term of the Second
Restated Credit Agreement and (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; a minimum tangible net worth of (as defined in
the Second Restated Credit Agreement) of $39.5 million on September 30, 1998 and
of $42 million, $44.5 million and $47.0 million respectively, by September 30,
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 $.25 million 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), 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 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 without the consent of Banco Popular under the Second Restated
Credit Agreement.
The Company believes that as of September 30, 1998 it is 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.
Capital expenditures, before the effect of dispositions, for the
Company totaled $2.8 million in fiscal year 1998, $4.8 million in fiscal year
1997 and $24.2 million in fiscal year 1996. 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 ending September 30, 1999 and 2000 will be approximately
$10 million and $5 million respectively.
Disclosures About Market Risk
- -----------------------------
The Company uses financial instruments, primarily variable rate debt, to finance
operations, for capital expenditures and for general corporate purposes. The
Company's exposure to market risk for changes in interest rates relates
primarily to investments, and short- and long-term debt obligations. The Company
places its investments in high-quality securities with major financial
institutions while limiting exposure to any one issuer. The Company does not use
derivative financial instruments or engage in trading activities.
The table below summarizes the principal cash flows of the Company's financial
instruments outstanding at September 30, 1998, categorized by type of instrument
and by year of maturity.
<TABLE>
<CAPTION>
(U.S. Dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Fair Value
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents-
Deposit and money market
accounts $11,120 $ - $ - $ - $ - $ - $11,120
Short-term investment (5% at
September 30, 1998) 13,600 - - - - - 13,600
-------- -------- -------- -------- -------- ---------- -----------
$24,720 $ - $ - $ - $ - $ - $24,720
======== ======== ======== ======== ======== ========== ===========
Long-term debt-
Term loan, interest at 2.5% over
LIBOR or at prime (8.219% at
September 30, 1998) $ 1,007 $ 1,092 $ 1,192 $ 1,250 $ 1,354 $17,435 $23,330
======== ======== ======== ======== ======== ========== ===========
</TABLE>
YEAR 2000 COMPLIANCE
The Year 2000 problem concerns the ability of information systems and
equipment controlled by computer chips and systems to properly recognize and
process date-sensitive information on and beyond January 1, 2000. The risks from
this date change are both internal and external and can potentially affect the
Company's production, distribution and administrative systems and the Company's
customers, suppliers of raw materials, utilities and distribution services. Year
2000 related problems could prevent customers from accepting deliveries from the
Company or processing payments for amounts due to the Company. Suppliers may be
prevented from producing and supplying goods or services essential to the
Company's business.
Delta Beverage Group, Inc. ("DBG"), a company affiliated with P-PR
Transfer, LLP, provides information services to the Company, including the use
of information systems and technology, under an accounting services agreement
executed in fiscal year 1998. The Company expects to complete its transition to
DBG's systems, hardware and software during the first quarter of 1999. Below is
a discussion of the Company's Year 2000 readiness and planning status, which now
includes DBG's Year 2000 planning.
The Company's production facility uses equipment that operates using
computer control systems based upon programmed logic controllers. The Company
plans to complete a Year 2000 compliance evaluation of these systems by March
31, 1999. The Company also uses computer systems to forecast demand, order raw
materials, monitor inventory levels, ship product and record shipments. The
software that runs these processes is a combination of commercially available
software and internally developed applications. The Company's initial assessment
indicates that these applications are Year 2000 compliant, and the Company,
through DBG, plans to complete the testing of these applications by June 30,
1999. The Company relies on a supply chain to produce and distribute its
products from manufacturing facilities to distribution warehouses and finally to
customers. The Company's two distribution centers use a common supply chain
management application that is Year 2000 compliant.
In order to assess the external risks to the Company, DBG plans to
survey the Year 2000 readiness of the Company's suppliers and key customers by
June 30, 1999.
The Company has not incurred material incremental costs associated with
its Year 2000 plan. This is due in part to the recent conversion to systems
provided by DBG. Within the last 18 months, DBG has replaced most software
applications in use before 1993 with systems that are Year 2000 compliant. The
Company believes that the remaining costs associated with addressing Year 2000
compliance issues will not be material.
Certain of the Company's automated processes can be performed manually
and the Company intends to develop additional contingency plans to deal with
possible computer systems failures. The Company can also build inventories of
raw materials and finished goods in advance of the year 2000 to protect against
supply and production disruptions. The Company intends to fully assess its Year
2000 compliance and risks in time to implement any necessary contingency plans.
23
<PAGE>
INFLATION
There was no significant impact on the Company's operations as a result
of inflation during the fiscal year ended September 30, 1998, or during the
fiscal years ended September 30, 1997 or 1996.
IMPACT OF CHANGES IN ACCOUNTING STANDARDS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," in fiscal year 1998 which
requires the presentation of a basic and diluted earnings per share for all
periods presented. Accordingly, the Company's net loss per common share was
computed by dividing the net loss by the weighted average number of common
shares outstanding. Net loss per common share - assuming dilution did not
include the Company's potentially dilutive securities because to do so would
have been antidilutive. The Company also adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income," in fiscal year 1998. This statement
established standards for the reporting and display of comprehensive income and
its components.
In 1997, the Company implemented the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement addresses the timing of recognition and the
measurement of (i) long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and (ii) long-lived assets
and certain identifiable intangibles to be disposed of. This statement requires
that such assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable, and
that such assets be reported at the lower of carrying amount or fair value. The
adoption of this statement did not have a material impact on the Company's
consolidated financial position or results of operations.
24
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is submitted pursuant to the requirements of Item 8.
Page
----
Pepsi-Cola Puerto Rico Bottling Company and Subsidiaries
Report of Independent Public Accountants, dated December 10, 1998.... 26
Independent Auditors' Report, dated December 5, 1997................. 27
Consolidated Balance Sheets as of September 30, 1998 and 1997........ 28
Consolidated Statements of Income/(Loss) for the Years Ended
September 30, 1998, 1997 and 1996................................ 29
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1998, 1997 and 1996................................ 31
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996................................ 32
Notes to Consolidated Financial Statements........................... 33
Schedule II - Valuation and Qualifying Accounts...................... 56
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Pepsi-Cola Puerto Rico Bottling
Company and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Pepsi-Cola Puerto
Rico Bottling Company and Subsidiaries as of September 30, 1998, and the related
consolidated statements of income/(loss), changes in shareholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pepsi-Cola Puerto Rico Bottling
Company and Subsidiaries as of September 30, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
December 10, 1998.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pepsi-Cola Puerto Rico Bottling
Company and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Pepsi-Cola
Puerto Rico Bottling Company and Subsidiaries as of September 30, 1997, and the
related consolidated statements of income/(loss), shareholders' equity and cash
flows for each of the years in the two-year period ended September 30, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pepsi-Cola Puerto
Rico Bottling Company and Subsidiaries as of September 30, 1997, and the results
of their operations and their cash flows for each of the years in the two-year
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
San Juan, Puerto Rico,
December 5, 1997.
Stamp No. 1527391 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
27
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U. S. DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30
-----------------
1998 1997
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $24,720 $19,621
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,265 and
$1,389 in 1998 and 1997, respectively 11,722 11,681
Due from PepsiCo, Inc. and affiliated companies 1,408 943
Other 2,623 4,273
Inventories 2,480 2,802
Deferred income taxes 224 97
Prepaid expenses and other current assets 4,743 2,073
------- -------
Total current assets 47,920 41,490
DEFERRED INCOME TAXES 1,607 1,619
LONG-LIVED ASSETS FOR SALE, principally land and building 2,615 3,752
PROPERTY, PLANT AND EQUIPMENT, net 43,731 47,347
INTANGIBLE ASSETS, net of accumulated amortization 1,544 1,644
OTHER ASSETS 15 58
------- -------
$97,432 $95,910
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(U. S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt $ 1,007 $ 1,007
Current installments of capital lease obligations 176 908
Notes payable to bank -- 5,430
Accounts payable:
Trade 9,623 13,750
Affiliates -- 32
Income taxes payable 150 199
Accrued expenses 5,958 4,830
--------- ---------
Total current liabilities 16,914 26,156
--------- ---------
LONG-TERM DEBT, excluding current installments 22,355 23,636
CAPITAL LEASE OBLIGATIONS, excluding current installments 8 513
ACCRUED PENSION COST 3,110 2,213
--------- ---------
Total liabilities 42,387 52,518
--------- ---------
SHAREHOLDERS' EQUITY:
Class A common shares, $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 16,690,000 and 16,500,000 shares in 1998 and
1997, respectively 167 165
Additional paid-in capital 127,009 103,910
Accumulated deficit (69,345) (59,735)
Accumulated other comprehensive income (loss) (2,836) (998)
--------- ---------
Total shareholders' equity 55,045 43,392
--------- ---------
Total liabilities and shareholders' equity $ 97,432 $ 95,910
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(U.S. Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 99,405 $ 99,172 $ 102,891
Cost of sales 70,503 68,237 74,956
--------- --------- ---------
Gross profit 28,902 30,935 27,935
--------- --------- ---------
Selling and marketing expenses 30,072 30,224 42,456
Administrative expenses 6,047 8,424 9,606
Restructuring charges 1,728 535 2,700
Provision for legal and environmental
reserves 760 -- --
Losses on asset impairments 800 -- --
Insurance proceeds from business
interruption losses (1,309) -- --
Litigation settlement expenses -- 13,172 --
--------- --------- ---------
Loss from operations (9,196) (21,420) (26,827)
--------- --------- ---------
Other income (expense):
Gain on early termination of supply agreement -- -- 2,111
Interest expense (2,437) (2,644) (1,523)
Interest income 839 1,218 2,418
Other, net 206 1 (256)
--------- --------- ---------
Total other income/(expense) (1,392) (1,425) 2,750
--------- --------- ---------
Loss before income tax benefit and
equity in net loss of BAESA (10,588) (22,845) (24,077)
Income tax benefit 978 3,342 1,205
--------- --------- ---------
Loss before equity in net loss of BAESA (9,610) (19,503) (22,872)
Equity in net loss of BAESA, net of income tax
benefit of $20,062 in 1996 -- -- (51,458)
--------- --------- ---------
Net loss $ (9,610) $ (19,503) $ (74,330)
========= ========= =========
Net loss per common share $ (0.45) $ (0.91) $ (3.46)
========= ========= =========
Net loss per common share - assuming dilution $ (0.45) $ (0.91) $ (3.46)
========= ========= =========
Weighted average number of common shares
outstanding (in thousands) 21,516 21,500 21,500
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(U.S. Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Class A Class B Additional Earnings
Common Common Paid-in (Accumulated Treasury
Shares Shares Capital Deficit) Stock
------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1995 $ 50 $ 165 $ 90,738 $ 39,472 $ --
Cash dividends on common shares
declared in December 1995 (per share $0.24) -- -- -- (5,374) --
Minimum pension liability adjustment -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net loss -- -- -- (74,330) --
---- ------- --------- --------- --------
BALANCE, September 30, 1996 50 165 90,738 (40,232) --
Contribution of 2,500,000 Class B
common shares by founding shareholders -- -- 13,172 -- (13,172)
Tendering of 2,500,000 Class B common shares
in partial settlement of litigation -- -- -- -- 13,172
Minimum pension liability adjustment -- -- -- -- --
Net loss -- -- -- (19,503) --
---- ------- --------- --------- --------
BALANCE, September 30, 1997 50 165 103,910 (59,735) --
Sale of 190,000 Class B common shares -- 2 948 -- --
Sale of 5,000,000 Class A common shares, net of
equity issuance costs of $1,599 -- -- 22,151 -- --
Minimum pension liability adjustment -- -- -- -- --
Net loss -- -- (9,610) --
---- ------- --------- --------- --------
BALANCE, September 30, 1998 $ 50 $ 167 $ 127,009 $ (69,345) $ --
==== ======= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Other Total
Comprehensive Shareholders' Comprehensive
Income (Loss) Equity Income(Loss)
--------------- ------------- -------------
<S> <C> <C> <C>
BALANCE, September 30, 1995 $ (1,776) $ 128,649
Cash dividends on common shares
declared in December 1995 (per share $0.24) -- (5,374)
Minimum pension liability adjustment 180 180 $ 180
Foreign currency translation adjustment 232 232 232
Net loss -- (74,330) (74,330)
--------- --------- -------
BALANCE, September 30, 1996 (1,364) 49,357 $ (73,918)
=======
Contribution of 2,500,000 Class B
common shares by founding shareholders -- --
Tendering of 2,500,000 Class B common shares
in partial settlement of litigation -- 13,172
Minimum pension liability adjustment 366 366 366
Net loss -- (19,503) $ (19,503)
--------- --------- -------
BALANCE, September 30, 1997 (998) 43,392 $ (19,137)
=======
Sale of 190,000 Class B common shares -- 950
Sale of 5,000,000 Class A common shares, net of
equity issuance costs of $1,599 (Note 15) -- 22,151
Minimum pension liability adjustment (1,838) (1,838) $ (1,838)
Net loss (9,610) (9,610)
--------- --------- ---------
BALANCE, September 30, 1998 $ (2,836) $ 55,045 $ (11,448)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,610) $(19,503) $(74,330)
Adjustments to reconcile net loss to net cash
used in operating activities-
Gain on early termination of supply agreement -- -- (2,111)
Litigation settlement expenses -- 13,172 --
(Gain)/loss on disposition of property, plant and equipment 80 238 (675)
Losses on asset impairments 800 -- 1,134
Restructuring charges, net of cash payments 1,573 -- --
Provision for legal and environmental reserves 760 -- --
Insurance proceeds from business interruption losses (1,309) -- --
Intangible asset write-off -- -- 624
Depreciation and amortization 5,312 5,971 5,589
Deferred income taxes 190 547 (1,462)
Equity in net loss of BAESA -- -- 51,458
Changes in assets and liabilities -
Accounts receivable 2,453 (2,335) 4,778
Inventories 322 1,627 113
Prepaid expenses and other current assets (2,670) (216) 659
Intangible assets (109) (272) --
Accounts payable (5,562) (2,887) 5,063
Other liabilities and accrued expenses 234 (3,832) 2,195
Income taxes payable (49) 84 (8)
Other, net (154) 16 247
-------- -------- --------
Net cash used in operating activities (7,739) (7,390) (6,726)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 480 406 1,347
Redemption of (investment in) short-term investments -- 12,904 (12,904)
Capital expenditures (2,795) (4,777) (24,237)
Dividends received from affiliate -- -- 2,839
-------- -------- --------
Net cash provided by (used in) investing activities (2,315) 8,533 (32,955)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net of equity issuance costs 23,101 -- --
Proceeds from short-term borrowings 72,784 712 47,900
Repayment of short-term borrowings (78,214) -- (27,500)
Principal payments on long-term debt (1,281) (1,722) (1,552)
Proceeds from capital leases -- 1,793 --
Repayment of capital lease obligations (1,237) (985) (1,204)
Dividends paid -- -- (5,374)
-------- -------- --------
Net cash provided by (used in) financing activities 15,153 (202) 12,270
-------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS 5,099 941 (27,411)
CASH AND CASH EQUIVALENTS, beginning of period 19,621 18,680 46,091
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 24,720 $ 19,621 $ 18,680
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for-
Interest $ 2,437 $ 2,560 $ 2,416
Income taxes 321 258 186
Noncash transactions -
Capital leases reclassified as operating leases -- 599 --
Proceeds from sale of asset, net of underlying debt -- 287 --
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997 AND 1996
(U.S. Dollars in thousands, except per share data)
1. ORGANIZATION AND NATURE OF OPERATIONS:
Pepsi-Cola Puerto Rico Bottling Company ("PCPRB") and its manufacturing and
distribution subsidiaries bottle, sell and distribute beverages sold primarily
under the Pepsi-Cola trademark in the Commonwealth of Puerto Rico. The Company's
division of Cristalia Premium Water ("Cristalia") is engaged in extracting,
processing, bottling and distributing bottled water in Puerto Rico. Beverage
Plastics Company ("BEV"), a wholly owned subsidiary, manufactures plastic
preforms and plastic bottles in Puerto Rico, primarily for use by the Company.
All of the companies operate under exclusive bottling appointments and franchise
agreements with the franchiser, which include operating and marketing
commitments, term limitations and extensions, and conditions for termination.
The Pepsi-Cola exclusive bottling appointments have ten-year terms expiring on
July 17, 2008. Each of the exclusive bottling appointments will automatically be
extended for additional five-year terms, unless either party gives one year's
witten notice.
The consolidated financial statements include the accounts of PCPRB and its
wholly owned subsidiaries (the "Company"). All significant intercompany accounts
and transactions have been eliminated in consolidation. As of September 30, 1997
and 1996, the Company maintained an effective equity interest in Buenos Aires
Embotelladora S. A. ("BAESA") of approximately 17%, which was accounted for
using the equity method until such investment was reduced to zero in fiscal year
1996. Effective June 17, 1998, the Company's remaining ownership in BAESA
was transferred to the Company's existing shareholders (refer to Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include temporary investments in short-term
securities, primarily discount notes, with original maturities of three months
or less.
33
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Income Taxes
- ------------
The Company uses the liability method of accounting for deferred income taxes.
Deferred income taxes reflect the estimated future tax consequences attributable
to operating loss and tax credit carryforwards, and temporary differences
between the Company's assets and liabilities for financial reporting and income
tax purposes, using income tax rates currently in effect. Deferred tax assets
are recognized if management believes, based on available evidence, that it is
"more likely than not" that the future income tax benefits will be realized.
Deferred tax assets or liabilities are classified based upon the current or
long-term classification of the asset or liability giving rise to the temporary
difference or the expected future use of the loss or credit carryforward.
Stock-Based Compensation
- ------------------------
Stock options and other stock-based compensation awards are accounted for using
the intrinsic value method prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
Environmental Remediation Costs
- -------------------------------
Costs associated with environmental remediation obligations are accrued when
such costs are probable and reasonably estimable. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value.
Concentration of Credit Risk
- ----------------------------
Trade receivables subject the Company to concentrations of credit risk as
substantially all of the Company's customers are located in Puerto Rico and two
customers accounted for approximately 16%, 20% and 22% of the Company's net
sales during fiscal years 1998, 1997 and 1996, respectively. However, the
Company's customer base is comprised of a large number of entities and the
Company performs background checks and other reviews before extending credit to
potential customers. In addition, the Company establishes allowances for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Management believes there
are no significant concentrations of credit risk with any individual party or
groups of parties.
Fair Values of Financial Instruments
- ------------------------------------
The estimated fair values of the Company's financial instruments approximate
their carrying values.
Reclassifications
- -----------------
Certain 1997 and 1996 balances have been reclassified to conform to the current
year presentation.
34
<PAGE>
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," in fiscal year 1998 which
requires the presentation of a basic and diluted earnings per share for all
periods presented. Accordingly, the Company's net loss per common share was
computed by dividing the net loss by the weighted average number of common
shares outstanding. Net loss per common share - assuming dilution did not
include the Company's potentially dilutive securities (refer to Note 17) because
to do so would have been antidilutive.
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income," in fiscal year 1998. This statement established standards for the
reporting and display of comprehensive income and its components.
In June 1997, the Financial Accounting Standards Board (the "Board") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires the presentation of segment information on a basis consistent
with that used by management for operating decisions. In February 1998, the
Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" which requires, among other items, additional
disclosures on changes in the Company's benefit obligations and fair values of
plan assets.
The provisions of these statements will be adopted effective October 1, 1998.
35
<PAGE>
4. RESTRUCTURING CHARGE:
In the fourth quarter fiscal year 1998, a restructuring charge of $1,728 was
established under a plan to improve the Company's performance. The charge
includes approximately $679 of severance and related charges for the elimination
of 17 administrative personnel and $1,049, including $224 of accruals for
future payments, for costs to exit activities, including the elimination of
certain product lines, canceling lease agreements and exiting certain other
business strategies. Management anticipates the restructuring plan will provide
annual savings of approximately $1,300 to $1,400 beginning in 1999. Severance
payments in fiscal year 1998 totaled approximately $47, while charges relating
to exit activities approximated $108.
5. IMPAIRMENT OF LONG-LIVED ASSETS:
In fiscal year 1996, the Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This statement addresses the timing of recognition and the
measurement of impairment of (a) long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used, and (b)
long-lived assets and certain identifiable intangibles to be disposed of. This
statement requires that such assets be reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amount may not be
recoverable, and that such assets be reported at the lower of carrying amount or
fair value.
During fiscal year 1996, the Company consolidated its manufacturing activities
in its new manufacturing facility. Based upon a 1996 appraisal of the former
facility, the Company recorded a non-cash charge of $1,400; $800 for the
impairment of the manufacturing plant no longer in operation and being held for
sale, and $600 for certain manufacturing equipment and furniture no longer in
use. During fiscal year 1998, the Company recorded a non-cash charge of $800 for
the additional impairment of the idle manufacturing plant held for sale. This
charge represents management's best estimate of an anticipated loss from the
disposition of the plant in a current transaction between willing parties.
6. INSURANCE PROCEEDS FROM BUSINESS INTERRUPTION LOSSES:
For the period from September 22, 1998 through October 21, 1998, the Company
incurred business interruption losses resulting from Hurricane Georges. In the
opinion of management and pursuant to a preliminary review by the insurer,
collection of a claim filed under the Company's business interruption insurance
policy is probable. As a result, included in the accompanying fiscal year 1998
consolidated statement of income/(loss) are anticipated recoveries of $1,309
attributable to business interruption losses which occurred during fiscal year
1998.
36
<PAGE>
7. INVENTORIES:
Inventories are stated at the lower of cost (first-in first-out method) or
market and included the following at September 30:
1998 1997
------ ------
Raw materials $1,438 $1,070
Finished goods 877 1,254
Spare parts and supplies 117 121
Work-in process 48 357
------ ------
$2,480 $2,802
====== ======
8. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Property and equipment
renewals and betterments are capitalized, while maintenance and repair
expenditures are charged to operations currently. Property and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation and amortization is calculated using the straight-line method over
the estimated useful lives of purchased assets, or the shorter of the lease
terms or the estimated useful lives of assets acquired under capital lease
arrangements. Those lives are as follows:
Years
-----
Building and improvements 40
Machinery, equipment and vehicles 10 - 15
Bottles, cases and shells 4 - 10
Furniture and fixtures 5 - 10
Property, plant and equipment included the following at September 30:
1998 1997
-------- --------
Land and improvements $ 6,893 $ 7,057
Building and improvements 14,790 14,682
Machinery, equipment and vehicles 49,399 48,081
Bottles, cases and shells 3,327 3,422
Furniture and fixtures 1,809 1,580
Construction in process 134 86
-------- --------
76,352 74,908
Less - Accumulated depreciation and amortization (32,621) (27,561)
-------- --------
$ 43,731 $ 47,347
======== ========
37
<PAGE>
9. INTANGIBLE ASSETS:
Goodwill, the cost in excess of the assigned value of businesses acquired, is
being amortized using the straight-line method over its economic life not to
exceed 40 years. Other intangibles are amortized using the straight-line method
over their estimated useful lives. Intangible assets consisted of the following
at September 30:
1998 1997
------ ------
Goodwill $1,277 $1,277
Trademark (14 years) 300 300
Water distribution rights (20 years) 165 165
Deferred costs and other 587 478
------ ------
2,329 2,220
Less - Accumulated amortization (785) (576)
------ ------
$1,544 $1,644
====== ======
The Company periodically evaluates the recoverability of its intangible assets
as well as their amortization periods to determine whether an adjustment to the
carrying value or a revision to the estimated useful lives is appropriate. In
fiscal year 1996, the Company recorded a noncash charge of approximately $600 in
order to write off an intangible asset.
10. ACCRUED EXPENSES:
Accrued expenses consisted of the following at September 30:
1998 1997
------ ------
Accrued payroll and related benefits $1,854 $2,176
Accrued taxes other than income 364 374
Marketing and advertising accruals 1,313 825
Customer deposits 484 436
Accrued trade payables 1,884 891
Other accrued expenses 59 128
------ ------
$5,958 $4,830
====== ======
11. INVESTMENT IN BAESA:
As of September 30, 1997, the Company owned 12,345,348 shares, or approximately
17%, of the outstanding capital stock of BAESA. In May 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. The New York Stock Exchange also
halted trading in BAESA's American Depository Shares.
During fiscal year 1998, BAESA entered into a long-term financial restructuring
plan with its major debt holders in Argentina whereby BAESA's unsecured lenders
exchanged debt for substantially all of the equity in BAESA. The Company did not
exercise its right under a related rights offering to retain its current
proportionate ownership in BAESA, resulting in a dilution of the Company's
equity interest from approximately 17% to approximately 0.34%. Effective
June 17, 1998, the Company's remaining ownership in BAESA was transferred to the
Company's existing shareholders. The Company's recorded investment in BAESA had
already been reduced to zero in fiscal year 1996.
38
<PAGE>
12. NOTES PAYABLE TO BANK AND LONG TERM DEBT:
The Company maintains a credit agreement with Banco Popular which provides for a
term loan of $25,000, payable with 120 principal payments and a balloon
payment at maturity on April 1, 2007 of $11,800. The term loan is
collateralized with a priority lien on substantially all of the Company's real
estate, machinery and equipment. The Company is also required to maintain a
specified cash balance with the bank ($5,000 and $2,500 at September 30, 1998
and 1997, respectively) which is restricted from use by the Company.
The credit agreement also includes a $5,000 revolving credit facility, with
borrowings limited to the sum of stipulated percentages of the Company's
eligible receivables and inventory. There were no borrowings outstanding under
the revolving credit facility as of September 30, 1998, while it was fully drawn
at September 30, 1997.
The term loan and revolving credit facility bear interest at 2.5% over the LIBOR
rate, if Eurodollar funds are available, otherwise at the highest prime rate or
base rate of interest published from time to time in the Wall Street Journal by
principal commercial banks headquartered in New York, NY. The credit agreement
contains various covenants and events of default, including the maintenance of
certain minimum financial ratios and financial requirements and additional debt
restrictions.
Long-term debt consisted of the following as of September 30:
1998 1997
------- -------
Term loan $23,330 $24,583
Other 32 60
------- -------
Total long-term debt 23,362 24,643
Less - current installments (1,007) (1,007)
------- -------
$22,355 $23,636
======= =======
Scheduled maturities of long-term debt for the four years subsequent to fiscal
year 1999 are as follows:
Fiscal
Year Amount
---- ------
2000 $1,092
2001 1,192
2002 1,250
2003 1,354
Thereafter 17,467
-------
$22,355
=======
39
<PAGE>
PCPRB and its subsidiaries are Delaware corporations subject to U.S. federal
income taxes; however, each has elected the benefit of Section 936 of the U.S.
Internal Revenue Code. Section 936 presently allows the Company a tax credit
equal to a portion of the amount of U.S. income taxes attributable to earnings
derived from operations within Puerto Rico and to certain qualified investments
maintained in Puerto Rico, subject to certain limitations. PCPRB and its
subsidiaries have elected to claim the credit under the Economic Activity
Limitation method. The 1996 Small Business Act (the "Act") repealed the Section
936 credit prospectively. However, the Act grandfathered in "existing credit
claimants" during a ten-year transition period. The credit under the Economic
Activity Limitation for Puerto Rico will be calculated under the rules existing
prior to the adoption of the Act for taxable years beginning after 1995 and
before 2002. For taxable years beginning after December 31, 2001, a cap is
placed upon the Puerto Rican source business income eligible for the credit. For
tax years beginning after January 1, 2006, the economic activity credit is
repealed in its entirety.
In order to utilize income tax credits available under Section 936, each company
is required to derive at least 80% of its gross income from sources within
Puerto Rico, and at least 75% of gross income must be from an active trade or
business in Puerto Rico. PCPRB and its subsidiaries were in compliance with
these gross income requirements for the fiscal year ended September 30, 1998.
PCPRB's subsidiaries were in compliance with these gross income requirements for
the fiscal years ended September 30, 1997 and 1996; however, PCPRB did not meet
these gross income requirements for the fiscal years ended September 30, 1997
and 1996.
Effective October 1998, the Company was granted an additional ten-year Puerto
Rican tax incentives exemption for its plastic preforms manufacturing and sales
operation. Under the terms of the grant, BEV received a 90% exemption from
Puerto Rico income tax, a 60% exemption from municipal tax and a 90% exemption
from property tax. In exchange for these tax exemptions, the Company agreed to
manufacture plastic preforms and plastic bottles, employ a minimum number of
persons and maintain equipment and facilities in Puerto Rico.
40
<PAGE>
13. INCOME TAXES (Continued):
For the fiscal years ended September 30, 1998, 1997, and 1996, the combined
income tax expense/(benefit) of PCPRB and its subsidiaries attributable to
income from continuing operations consisted of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
-------------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Current:
U.S $(1,251) $(4,231) $ (150)
Puerto Rico 83 342 185
------- ------- -------
Total current income tax expense/(benefit) (1,168) (3,889) 35
------- ------- -------
Deferred:
U.S 223 -- (326)
Puerto Rico (33) 547 (914)
------- ------- -------
Total deferred income tax expense/(benefit) 190 547 (1,240)
------- ------- -------
Total income tax expense/(benefit) $ (978) $(3,342) $(1,205)
======= ======= =======
</TABLE>
Income tax expense/(benefit) attributable to income/(loss) from continuing
operations for the years ended September 30, 1998, 1997 and 1996 differed from
the amounts computed by applying the U.S. statutory federal tax rate of 35% as a
result of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
-------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Computed statutory federal tax expense $ (3,706) $ (7,984) $ (8,209)
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets 9,799 13,829 17,734
Calculated NOL value of aforementioned loss, as
adjusted, for Puerto Rico income taxes -- (6,437) --
Puerto Rico income taxes (4,959) 342 (9,668)
Puerto Rico economic activity credit (1,304) (2,050) (1,484)
Income tax credit related to prior year's losses -- (745) --
Carryback of U.S. federal net operating losses,
previously reserved (1,251) -- --
Meals and entertainment disallowance 227 -- --
Other, net 216 (297) 422
-------- -------- --------
Total income tax expense/(benefit) $ (978) $ (3,342) $ (1,205)
======== ======== ========
</TABLE>
Income tax benefit of $20,062, in fiscal year 1996 was also provided in
connection with the equity in net loss of BAESA.
41
<PAGE>
13. INCOME TAXES (Continued):
The significant components of deferred income tax expense/(benefit) attributable
to income from continuing operations for the years ended September 30, 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30
------------ ------------ ------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Deferred income tax benefit $ (9,609) $(13,282) $(18,974)
Increase in beginning of the year
balance of the valuation allowance for deferred
tax assets 9,799 13,829 17,734
-------- -------- --------
Total deferred income tax expense/(benefit) $ 190 $ 547 $ (1,240)
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1998
and 1997 are presented below:
1998 1997
------- --------
Property, plant and equipment, principally due to
differences in depreciable lives $ 1,204 $ 496
U.S. federal net operating loss carryforwards 17,567 13,200
Puerto Rico net operating loss carryforwards 31,264 26,986
Accrued expenses 2,415 387
Past service cost for pension plan (114) 426
Inventories principally due to additional costs
inventoried for tax purposes 79 90
Accounts receivable 210 1,005
Other, net 28 149
-------- --------
Total gross deferred tax assets 52,653 42,739
Less - Valuation allowance (50,822) (41,023)
-------- --------
Net deferred tax asset $ 1,831 $ 1,716
======== ========
The subsequent recognition of tax benefits related to the valuation allowance
for deferred tax assets as of September 30, 1998 and 1997 will be allocated to
income from continuing operations.
42
<PAGE>
13. INCOME TAXES (Continued):
At September 30, 1998, the Company had U.S. federal net operating loss
carryforwards approximating $50,200 which expire through 2018 and Puerto Rico
tax net operating loss carryforwards approximating $80,900 which expire through
2005. As a result of the change in control transaction in fiscal year 1998
(refer to Note 15), the Company's utilization of its U.S. federal net operating
loss carryforwards is limited annually. Realization of all of these future
income tax benefits is dependent on the existence of future taxable income.
Valuation allowances covering substantially all of the Company's net operating
loss carryforwards have been provided as the Company does not believe that it is
"more likely than not" that the future income tax benefits will be realized.
14. RELATED PARTY TRANSACTIONS:
In fiscal year 1998, the Company entered into a management agreement with the
controlling partner in P-PR Transfer, LLP (refer to Note 15). For services
performed pursuant to the management agreement, the Company pays that company a
management fee. Management fees of approximately $50 were incurred in fiscal
year 1998. In addition, the Company has entered into an accounting services
agreement with a separate entity in which the same controlling partner in P-PR
Transfer, LLP maintains a controlling interest. For services performed pursuant
to the accounting services agreement, the Company pays this affiliate an
accounting services fee. Accounting services fees of approximately $76 were
incurred with this affiliate in fiscal year 1998.
Certain former members of the Company's Board of Directors and certain of its
former executive officers were also directors and/or officers of BAESA until
approximately mid-1996. During fiscal year 1996, BAESA charged PCPRB management
fees totaling approximately $888. In addition, PCPRB sold $2,235 in preforms to
BAESA pursuant to a long-term supply contract. In management's opinion, the
terms of this contract were reasonable, and at the time of the contract no other
comparable contract from an outside party was available to BAESA. The above
described contract was terminated during the year ended September 30, 1997.
Pursuant to the termination agreement, Company obligations to BAESA of
approximately $2,065 were settled for a cash payment of $50. In addition, the
Company was relieved of obligations relating to certain operating leases. The
resulting gain on early termination of the supply agreement was recorded in
fiscal year 1996.
During fiscal year 1996, the Company paid approximately $151 in construction
management fees to a former shareholder and director of the Company.
43
<PAGE>
14. RELATED PARTY TRANSACTIONS (Continued):
The Company paid approximately $744, $3,671 and $2,105 in fiscal years 1998,
1997 and 1996, respectively, in advertising fees to a firm controlled by a
former shareholder of the Company.
During fiscal year 1996, the Company paid approximately $232 in consulting fees
to a former shareholder of BAESA and a former director of the Company.
The Company paid approximately $241, $411 and $57 in fiscal years 1998, 1997 and
1996, respectively, in legal fees to a firm with a partner who is a relative of
the Company's former president.
15. SHAREHOLDERS' EQUITY:
Pursuant to the terms of ten-year voting trust agreement and related stock
option agreement executed on September 28, 1996, the 5,000,000 authorized and
outstanding Class A shares were placed into a voting trust. The then trustee of
the trust was the president of the Company, who held an unrestricted right to
vote such shares and had the right to purchase such shares, for the benefit of
the Company, through September 28, 1998 at $1 per share. In a transfer agreement
(the "Agreement") effective July 17, 1998, the president assigned to P-PR
Transfer, LLP (the "Partnership") the stock option agreement for the purchase of
the Class A shares. The Partnership paid the Company $23,750 under the Agreement
and simultaneously purchased the 5,000,000 Class A shares for $1 per share.
Payments by the Partnership to the Company pursuant to the Agreement are
recorded as additional shareholders' equity, net of approximately $1,599 in
equity issuance costs.
Also effective July 17, 1998, the Partnership purchased a total of 6,210,429
Class B shares under stock option agreements between the Partnership and the
Class B shareholders. V. Suarez & Co., Inc. ("Suarez") then purchased 1,000,000
Class A shares and 1,242,085 Class B shares from the Partnership. The
combination of these transactions resulted in a change in control of the
Company.
On July 17, 1998, the Company issued a warrant to the Partnership and Suarez for
the purchase of an additional 1,360,000 and 340,000 Class B shares,
respectively, for $6.875 per share, exercisable at any time during the 90 month
period from the date of the warrant.
The Class A shares have a voting preference over the Class B shares.
16. PENSION PLANS:
The Company maintains separate non-contributory salaried and hourly defined
benefit pension plans covering eligible salaried and hourly employees of the
Company. Benefits under the salaried plan are based upon years of service and
average earnings during the last five years of employment, while benefits under
the hourly plan represent a fixed amount times years of credited service. The
Company makes annual contributions to the plans as required by applicable
regulations. Contributions provide benefits for service rendered to date and for
services expected to be performed in the future. The plans are insured by the
Pension Benefit Guaranty Corporation. On April 16, 1997, the Company suspended
future participation in the plans for an indeterminable period. However, at
present management does not intend to terminate the plans.
In accordance with the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," the Company recognized a minimum pension liability, computed as the
excess of the accumulated benefit obligation over the fair value of plan assets,
with an adjustment to shareholders' equity.
44
<PAGE>
16. PENSION PLANS (Continued):
The following table sets forth the funded status of the plans and amounts
recognized in the consolidated balance sheet at September 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $7,570 in 1998 and $7,117 in 1997 $ 7,650 $ 7,195
======= =======
Projected benefit obligation 7,650 7,195
Plan assets at fair value, primarily consisting of common
stocks and time deposits 4,498 4,903
------- -------
Projected benefit obligation in excess of plan assets 3,152 2,292
Unrecognized net loss from past experience different
from that assumed (2,836) (998)
Adjustment to recognize minimum liability 2,836 998
------- -------
Accrued pension cost ($3,110 and $2,213 noncurrent, respectively) $ 3,152 $ 2,292
======= =======
Net periodic pension expense for fiscal years 1998 and 1997
included the following components:
Service cost for benefits earned during the period $ -- $ 108
Interest cost on projected benefit obligation 491 557
Actual return on plan assets 599 (724)
Net amortization and deferral (1,053) 475
------- -------
Net periodic pension cost $ 37 $ 416
======= =======
</TABLE>
In fiscal years 1998 and 1997, the actuarial present value of the projected
benefit obligation was determined using a weighted-average discount rate of 7%
and an expected long-term rate of return on plan assets of 9%. The cost of
retroactive benefits resulting from plan amendments is amortized over the future
work life expectancy of the active participants.
17. STOCK OPTION PLANS:
In fiscal year 1997, the Company adopted two stock option plans (the "plans")
pursuant to which the Company's Board of Directors may grant stock options 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. The plans authorize grants of options to purchase up to 1,000,000
shares of authorized but unissued Class B common stock. At September 30, 1998,
there were 700,000 shares available for grant under these plans. One of these
stock option plans is designed to be qualified for income tax purposes, whereas
the other is not a qualified plan.
45
<PAGE>
17. STOCK OPTION PLANS (Continued):
Stock options under the qualified plan are granted with an exercise price equal
to the stock's fair market value at the date of the grant. All stock options
have ten-year terms and vest and become fully exercisable in accordance with the
terms of their grant.
Also in fiscal year 1997, the Company entered into a stock option agreement with
its former president to acquire 1,516,667 Class B common shares of the Company
at an exercise price of $5.00 per share. These stock options will be exercisable
in whole or in part until exercised in full.
The Company accounts for these plans using the intrinsic value method, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per common share would have
been reduced to the following pro forma amounts:
Fiscal Years Ended September 30,
--------------------------------
1998 1997
---------- ---------
Net loss:
As reported $ (9,610) $(19,503)
Pro forma (10,262) (25,510)
Net loss per common share:
As reported $(0.45) $(0.91)
Pro forma (0.44) (1.19)
The effect on fiscal years 1998 and 1997 pro forma net loss and net loss per
common share of expensing the estimated fair value of stock options is not
necessarily representative of the effect on reported earnings in future years
due to the vesting period of stock options and the potential for issuance of
additional stock options in future years.
The weighted average fair value of options granted in fiscal years 1998 and 1997
were $5.92 and $3.52, respectively. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
Fiscal Years Ended September 30,
--------------------------------
1998 1997
------ ------
Risk-free interest rate 6.0% 6.1%
Price volatility 66.7% 51.5%
Expected dividend yield 0.0% 0.0%
Expected term (in years) 10 10
46
<PAGE>
17. STOCK OPTION PLANS (Continued):
A summary of the Company's stock option plans at September 30, 1998 and 1997,
and changes during the years then ended, is as follows:
No. of Shares Price Range
------------- -----------
Outstanding at September 30, 1996 -- --
Granted 1,706,667 $5.00
Exercised -- --
Lapsed or cancelled -- --
--------- -------------
Outstanding at September 30, 1997 1,706,667 $5.00
Granted 110,000 $6.25 - $8.75
Exercised (190,000) $5.00
Lapsed or cancelled -- --
--------- -------------
Outstanding at September 30, 1998 1,626,667 $5.00 - $8.75
========= =============
At September 30, 1998, the number of options exercisable was 1,626,667. The
weighted average exercise price of those options was $5.17 and the weighted
average remaining contractual life was 8.28 years.
18. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
- -----------------
The Company leases certain office space and other facilities under agreements
expiring through 2006. Total rent expense during fiscal years 1998, 1997 and
1996 was approximately $1,657, $1,661 and $1,387, respectively.
47
<PAGE>
18. COMMITMENTS AND CONTINGENCIES (Continued):
Future minimum rental payments under all noncancellable operating leases with
initial or remaining lease terms of one year or more were as follows at
September 30, 1998:
Total Operating
Year Leases
---- ---------------
1999 $ 2,026
2000 1,869
2001 1,800
2002 1,800
2003 1,800
Future minimum lease payments under capital leases were as follows at September
30, 1998:
Total Operating
Year Leases
---- ---------------
1999 $ 187
2000 10
2001A 7
2002 7
-----
Total minimum lease payments 211
Less - amount representing interest at 10.25% to 12% (27)
-----
Present value of minimum lease payments 184
Less - Current installments (176)
-----
Capital lease obligations, excluding current installments $ 8
=====
48
<PAGE>
18. COMMITMENTS AND CONTINGENCIES (Continued):
Legal and Environmental Reserve
- -------------------------------
In the fourth quarter of fiscal year 1998, the Company recorded a provision of
$760 to increase its legal and environmental reserves, principally to remove
four underground storage tanks and remediate soil contamination at the former
manufacturing facility, to settle two outstanding supplier claims and to
establish legal reserves for various litigation, claims and assessments. The
legal and environmental reserve has been classified as a current liability in
the accompanying consolidated balance sheet as all payments are expected to be
made within one year.
Settlement of Litigation
- ------------------------
The Company was formerly a defendant in nine class actions alleging federal
securities violations by the Company and various former officers and directors
of the Company. These claims were settled as of September 30, 1997. The Company
has recorded the cost of the settlement in fiscal year 1997 as follows:
Cost of 2,500,000 Class B shares effectively contributed
by the founding shareholders, valued using the average
trading price of the stock for a period of trade dates prior
to the date of the settlement $13,172
Cash payments of $2,500, less recovery from insurers -
--------
$13,172
========
As a part of the settlement, the Company was reimbursed $4,000 from its
directors liability insurers, $2,500 of which were deemed a reimbursement of
amounts paid to claimants, with the remainder offset against legal expenses
incurred in connection with the settlement. The contribution of the 2,500,000
Class B shares by the founding shareholders was reflected as a contribution of
capital using the average trading price of the stock referred to above.
The effect of the settlement on the pre-tax results of the Company for the year
ended September 30, 1997, was as follows:
Reduction in administrative expenses $ 1,500
Settlement of the litigation (13,172)
--------
Net effect on net income/(loss) (11,672)
Contribution of Class B shares by founding shareholders 13,172
--------
Net effect on shareholders' equity $ 1,500
========
In addition, the Securities and Exchange Commission (the "Commission") was
pursuing a formal order of investigation in connection with accounting
irregularities discovered in fiscal year 1996. In fiscal year 1998, the Company
settled the Commission's charges with an agreement to cease and desist from
committing any violation or future violation of specified securities laws. The
Company was not required to pay any fines or penalties associated with this
settlement.
General Litigation
- ------------------
The Company is subject to various litigation, claims and assessments arising in
the normal course of business. Management believes that the ultimate resolution
of these matters, either individually or in the
49
<PAGE>
18. COMMITMENTS AND CONTINGENCIES (Continued):
aggregate, will not have a materially adverse effect on the Company's
consolidated financial position or results of operations.
19. SUBSEQUENT EVENTS:
The Company has signed a letter of intent dated November 20, 1998 to sell
substantially all assets relating to the bottling, sale and distribution of
potable water under the "Cristalia" tradename to Cristalia Acquisition Corp., a
corporation whose president is a former executive of the Company. Terms of the
agreement provide for a purchase price equal to the net book value of the assets
of the business, as defined, as of December 31, 1998.
The Company has signed a letter of intent dated October 8, 1998 to acquire a
controlling interest in Pepsi-Cola (Bahamas) Bottling Company, Ltd. Terms of the
agreement are not final. Management anticipates finalizing the acquisition by
December 31, 1998 or in the first quarter of 1999.
Effective January 1, 1999, the Company will change its fiscal year-end from
September 30 to December 31. As a result, the Company will report results for
the three months ended December 31, 1998 and thereafter on a calendar year
basis.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company previously reported a change in independent accountants for
the fiscal year ending September 30, 1998. See the Company's Current Report on
Form 8-K dated September 1, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the Company's Directors is incorporated by
reference to the information contained under the caption "Proposal No. l -
Election of Directors" in the Company's 1999 Proxy Statement (the "Proxy
Statement"), which is to be filed with the Securities and Exchange Commission in
January 1999. Information regarding the Company's Executive Officers is set
forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by
reference to the information contained under the caption "Executive
Compensation" in the Company's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding stock ownership of each person known to the
Company to be the beneficial owner of more than 5% of its outstanding Common
Stock is incorporated by reference to the information contained under the
caption "Security Ownership" in the Company's 1999 Proxy Statement.
51
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Information regarding certain relationships and related transactions
is incorporated by reference to the information contained under the caption
"Certain Relationships and Related Transactions" in the Company's 1999 Proxy
Statement.
With the exception of the information specifically incorporated by
reference, the Company's 1999 Proxy Statement is not to be deemed filed as part
of this report for purposes of this Part III.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) A list of the financial statements filed as part
of this report appears on page 25.
(2) The financial statement schedule required
to be filed as part of this report consists of
Schedule II Valuation and Qualifying Accounts
appearing at the end of this Item.
(3) The following exhibits are filed as part of this
report:
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 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),
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 Amendment No.3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-94620) (the
"S-l Registration Statement")).
10.1 Franchise Commitment Letter between PepsiCo, Inc. and the Company dated
July 17, 1998 (filed herewith).
10.2 Exclusive Bottling Appointment between PepsiCo, Inc. and the Company
dated July 17, 1998 (filed herewith).
10.3 Transfer Agreement among Rafael Nin, P-PR Transfer, LLP and the Company
dated June 15, 1998 (incorporated by reference to Exhibit 2.1 to
Amendment No. 3 to the Company's Registration Statement on Form S-3
(Reg. No. 333-40093).
52
<PAGE>
10.4 Warrant dated as of July 17, 1998, to purchase 1,360,000 shares of
Class B common stock issued to P-PR Transfer, LLP (incorporated by
reference to Exhibit 10.2 to the Company's Form 8-K dated July 31,
1998).
10.5 Warrant dated as of July 17, 1998, to purchase 340,000 shares of Class
B Common stock issued to V. Suarez & Co., Inc. (incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K dated July 31,
1998)
10.6 Accounting Services Agreement between Delta Beverage Group, Inc. and
the Company dated October 16, 1998 (filed herewith).
10.7 Management Agreement between Pohlad Companies and the Company dated
July 20, 1998 (filed herewith).
10.8 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).
10.9 Pepsi-Cola to 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 Scheduled 13D of Rafael Nin dated January
7, 1997).
10.10 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).
10.11 Amendment to October 15, 1996 Stock Option Agreement dated as of June
15, 1998 between Rafael Nin and the Company (filed herewith).
10.12 Second Restated Credit Agreement dated April 8, 1997 among Pepsi-Cola
Puerto Rico Bottling Company, Pepsi-Cola Puerto Rico Manufacturing
Company, Pepsi-Cola Puerto Rico Distributing Company, and Beverage
Plastics Company (incorporated by reference to Exhibit 10.18 to the
Company's quarterly report on Form 10-Q for the quarterly period ended
June 30, 1997).
10.13 Master Lease Agreement dated April 18, 1997 between General Electric
Capital Corporation of Puerto Rico and Pepsi-Cola Puerto Rico Bottling
Company (incorporated by reference to Exhibit 10.19 to the Company's
quarterly report on Form 10-Q for the quarterly period ended June 30,
1997).
10.14 First Amendment to Second Restated Credit Agreement dated December 21,
1998 among Pepsi-Cola Puerto Rico Bottling Company, Pepsi-Cola Puerto
Rico Manufacturing Company, Pepsi-Cola Puerto Rico Distributing
Company, and Beverage Plastics Company (filed herewith).
10.15 First Amendment to Second Restated Credit Agreement and Loan Documents
(filed herewith).
11.1 Computation of Per Share Earnings (filed herewith).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
S-l Registration Statement).
23.1 Consent of Independent Public Accountants, dated December 28, 1998
(filed herewith).
23.2 Independent Auditors' Consent, dated December 28, 1998 (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
(i) On July 31, 1998, the registrant filed a Current Report on Form
8-K relating to the change of control of the Company.
(ii) On August 20, 1998, the registrant filed a Current Report on Form
8-K relating to the change in the Company's fiscal year.
(iii) On August 31, 1998, the registrant filed a Current Report on Form
8-K relating to a change in the Company's certifying accountant.
(iv) On September 28, 1998, the registrant filed a Current Report on
Form 8-K relating to a temporary disruption of the Company's
soft drink production as a result of Hurricane Georges.
(v) On October 7, 1998, the registrant filed a Current Report on Form
8-K relating to the resumption of the Company's soft drink
production following a shut down resulting from Hurricane
Georges.
(c) The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference
(d) The financial statement schedule listed under Item 14(a)(2) is filed
herewith.
53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Pepsi-Cola Puerto Rico Bottling
Company and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Pepsi-Cola Puerto Rico Bottling Company and
Subsidiaries as of and for the year ended September 30, 1998, and have issued
our report thereon dated December 10, 1998. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedule listed
in Item 14(a)2 is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the 1998 financial data required to be set forth in relation
to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
December 10, 1998.
54
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Pepsi-Cola Puerto Rico Bottling
Company and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Pepsi-Cola Puerto Rico Bottling Company and
Subsidiaries as of September 30, 1997, and for each of the years in the two-year
period ended September 30, 1997, and have issued our report thereon dated
December 5, 1997. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed in Item 14(a)2 is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the 1997 and 1996
financial data required to be set forth in relation to the basic financial
statements taken as a whole.
/s/ KPMG Peat Marwick LLP
San Juan, Puerto Rico,
December 5, 1997.
Stamp No. 1527397 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
55
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts
(U.S Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance at ---------------------------------------------
Beginning Charged to Costs Charged to Balance at
of Period and Expenses Other Accounts Deductions End of Period
--------- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended September 30, 1998:
Allowance for Doubtful Accounts $1,389 $ 498 $ - $(622)(1) $1,265
Restructuring Charges 163 1,728 - (1,143)(2) 748
Fiscal Year Ended September 30, 1997:
Allowance for Doubtful Accounts 1,158 355 - (124)(1) 1,389
Restructuring Charges - 535 - (372) 163
Fiscal Year Ended September 30, 1996:
Allowance for Doubtful Accounts 1,458 511 - (811)(1) 1,158
Restructuring Charges - 2,700 - (2,700) -
</TABLE>
(1) Write off of uncollectible receivables.
(2) Comprised of $215 of severance payments and other exit costs, $825 of asset
writedowns and $103 reversed into income.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 25(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
By: /s/ Robert C. Pohlad
--------------------------------------------
Name: Robert C. Pohlad
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert C. Pohlad Chief Executive Officer and December 29, 1998
- ---------------------------- Director (Principal Executive
Robert C. Pohlad Officer)
/s/ John F. Bierbaum Chief Financial Officer December 29, 1998
- ----------------------------
John F. Bierbaum and Vice President
(Principal Accounting
Officer)
/s/ Christopher C. Clouser Director December 29, 1998
- ----------------------------
Christopher C. Clouser
/s/ Philip N. Hughes Director December 29, 1998
- ----------------------------
Philip N. Hughes
/s/ Diego Suarez, Jr. Director December 29, 1998
- ----------------------------
Diego Suarez, Jr.
/s/ Basil K. Vasiliou Director December 29, 1998
- ----------------------------
Basil K. Vasilou
/s/ John F. Woodhead Director December 29, 1998
- ----------------------------
John F. Woodhead
/s/ Raymond W. Zehr, Jr. Director December 29, 1998
- ----------------------------
Raymond W. Zehr, Jr.
57
<PAGE>
EXHIBIT INDEX
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 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),
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 Amendment No.3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-94620) (the
"S-l Registration Statement")).
10.1 Franchise Commitment Letter between PepsiCo, Inc. and the Company dated
July 17, 1998 (filed herewith).
10.2 Exclusive Bottling Appointment between PepsiCo, Inc. and the Company
dated July 17, 1998 (filed herewith).
10.3 Transfer Agreement among Rafael Nin, P-PR Transfer, LLP and the Company
dated June 15, 1998 (incorporated by reference to Exhibit 2.1 to
Amendment No. 3 to the Company's Registration Statement on Form S-3
(Reg. No. 333-40093).
10.4 Warrant dated as of July 17, 1998, to purchase 1,360,000 shares of
Class B common stock issued to P-PR Transfer, LLP (incorporated by
reference to Exhibit 10.2 to the Company's Form 8-K dated July 31,
1998).
10.5 Warrant dated as of July 17, 1998, to purchase 340,000 shares of Class
B Common stock issued to V. Suarez & Co., Inc. (incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K dated July 31,
1998)
10.6 Accounting Services Agreement between Delta Beverage Group, Inc. and
the Company dated October 16, 1998 (filed herewith).
10.7 Management Agreement between Pohlad Companies and the Company dated
July 20, 1998 (filed herewith).
10.8 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).
<PAGE>
10.9 Pepsi-Cola to 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 Scheduled 13D of Rafael Nin dated January
7, 1997).
10.10 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).
10.11 Amendment to October 15, 1996 Stock Option Agreement dated as of June
15, 1998 between Rafael Nin and the Company (filed herewith).
10.12 Second Restated Credit Agreement dated April 8, 1997 among Pepsi-Cola
Puerto Rico Bottling Company, Pepsi-Cola Puerto Rico Manufacturing
Company, Pepsi-Cola Puerto Rico Distributing Company, and Beverage
Plastics Company (incorporated by reference to Exhibit 10.18 to the
Company's quarterly report on Form 10-Q for the quarterly period ended
June 30, 1997).
10.13 Master Lease Agreement dated April 18, 1997 between General Electric
Capital Corporation of Puerto Rico and Pepsi-Cola Puerto Rico Bottling
Company (incorporated by reference to Exhibit 10.19 to the Company's
quarterly report on Form 10-Q for the quarterly period ended June 30,
1997).
10.14 First Amendment to Second Restated Credit Agreement dated December 21,
1998 among Pepsi-Cola Puerto Rico Bottling Company, Pepsi-Cola Puerto
Rico Manufacturing Company, Pepsi-Cola Puerto Rico Distributing
Company, and Beverage Plastics Company (filed herewith).
10.15 First Amendment to Second Restated Credit Agreement and Loan Documents
(filed herewith).
11.1 Computation of Per Share Earnings (filed herewith).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
S-l Registration Statement).
23.1 Consent of Independent Public Accountants, dated December 28, 1998
(filed herewith).
23.2 Independent Auditors' Consent, dated December 28, 1998 (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
<PAGE>
EXHIBIT 10.1
FRANCHISE COMMITMENT LETTER
July 17, 1998
P-PR Transfer, LLP
c/o John Bierbaum
3880 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Pepsi-Cola Puerto Rico Bottling Company
Carretera 865 Km. 0.4
Bo. Candelaria Arenas
Toa Baja, Puerto Rico 00949
Gentlemen:
This letter sets forth the significant terms of our new franchise relationship
for Puerto Rico as a result of the purchase today by P-PR Transfer, LLP, a
Delaware limited liability partnership, of a controlling equity interest in
Pepsi-Cola Puerto Rico Bottling Company (the "Bottler"), the Pepsi-Cola bottler
which produces, sells and distributes Pepsi-Cola, Diet Pepsi-Cola, Pepsi-Cola
Free, Diet Pepsi-Cola Free, Teem, Diet Teem, Mountain Dew, All Sport, Wonder
Kola, Mandarin Orange Slice, Diet Mandarin Orange Slice, Lemon Lime Slice, Diet
Lemon Lime Slice and Grape Slice soft drink products (together the "PCI
Products") in Puerto Rico.
I. ISSUANCE OF EXCLUSIVE BOTTLING APPOINTMENTS
The Bottler and PepsiCo, Inc. (the "Company") hereby terminate the Exclusive
Bottling Appointments currently in effect which authorize the Bottler to
produce, sell and distribute the PCI Products in Puerto Rico, and all other
franchise agreements between the Bottler and the Company, including without
limitation, the Franchise Commitment Letter dated April 27, 1987 and all other
agreements relating to concentrate pricing or marketing funding. Neither party
shall have any liability to the other party as a result of the termination of
said Exclusive Bottling Appointments and related franchise agreements.
Simultaneously with the execution and delivery of this Franchise Commitment
Letter, the Company shall issue to the Bottler new Exclusive Bottling
Appointments (the "Appointments") in the form attached hereto as Exhibit I which
will exclusively authorize the Bottler to produce, sell and distribute the PCI
Products in Puerto Rico upon the terms and conditions set forth therein.
<PAGE>
II. CONCENTRATE PRICING
The Bottler shall purchase concentrate for the PCI Products from the Company or
its subsidiaries at the same standard price per Unit which is in effect for the
Pepsi-Cola bottlers in the United States.
The initial price per concentrate Unit and the basic terms of purchase are set
forth in Exhibit II attached hereto.
III. MARKETING
(a) 1998 and 1999.
During the calendar years 1998 and 1999 the Bottler and Pepsi-Cola International
("PCI"), the Company's international soft drink division, shall spend the
amounts towards cooperative marketing funds to support sales of the PCI Products
which are set forth in Exhibit III attached hereto. As described in Exhibit III,
PCI will be contributing a significantly high percentage of these marketing
funds during 1998 and 1999. For purposes of determining the amount to be spent
over the remaining portion of the 1998 calendar year, the amount spent by the
Bottler and PCI since January 1, 1998 for these marketing purposes shall be
taken into account.
PCI and the Bottler shall change the purposes and amounts for the marketing
funds set forth in Exhibit III only by mutual written agreement.
(b) 2000 and After.
For the year 2000 and all years thereafter during the term of the Appointments,
PCI shall contribute up to 40% of Concentrate Sales (defined below) and the
Bottler will contribute 20% of Concentrate Sales toward cooperative marketing
funds to support sales of the PCI Products in Puerto Rico. The term "Concentrate
Sales" shall be equal to the cash amounts actually received during the
applicable year by the Company (or its subsidiaries) from the Bottler for
concentrate purchases.
The cooperative marketing funds will be spent on brand image building expenses
in order to promote sales of the PCI Products in Puerto Rico. Before December 1
preceding each year during the term of the Appointments, the Bottler and PCI
shall agree on a cooperative marketing agreement in PCI's standard form which
will set forth the budget of the marketing spending programs for the following
year. These spending programs shall be consistent with the Marketing Spending
Categories described in the attached Marketing Support Deck attached as Exhibit
III.
At the end of 1999 PCI and the Bottler will review the business needs and
conditions to determine if marketing funds over the normal levels should be
continued.
2
<PAGE>
IV. BRANDS
The Bottler agrees to produce, sell and distribute in Puerto Rico the full range
of the PCI Products unless otherwise agreed by the Company. New brands of the
Company will be launched by the Bottler and added to the list of the PCI
Products upon the agreement of the Company and the Bottler.
The Bottler agrees that during the term of the Appointments it will not,
directly or indirectly (through any affiliated companies), produce, sell or
distribute in Puerto Rico any beverage products other than the PCI Products and
the following non PepsiCo brands: Welsh's Grape, Cristalia Water and Seagram's
tonic water, club soda and ginger ale. No other brands will be sold by the
Bottler without the prior approval of PCI, or failing agreement of PCI and the
Bottler as to the introduction of new brands, the approval of the Chief
Executive Officer of the Pepsi-Cola Company.
V. PACKAGES
The Bottler agrees to sell the PCI Products in the following packages:
10 oz nonreturnable glass bottles
333 ml cans
16 oz nonreturnable glass bottles
20 oz PET bottles
32 oz PET bottles
1 LT PET bottles
2 LT PET bottles
Bag N Box
Fountain Syrup
Any new package launch or package discontinuation for the PCI Products shall be
subject to PCI's prior written approval.
VI. INVESTMENTS
The Bottler agrees that before the end of 1999 the Bottler will make the
investments for 1998 and 1999 which are described in Exhibit IV.
VII. VIRGIN ISLANDS
The PCI Products are currently sold in the Virgin Islands (United States and
British) through local distributors, West Indies Corp. for the United States
Virgin Islands and Tortolo Importing Company for the British Virgin Islands, and
the PCI Products sold to these distributors are produced at the Company's owned
plant in Miami, Florida. If the rights of these distributors in the United
States Virgin Islands or British Virgin Islands become available during the term
of the Appointments, the Bottler shall have the right of first refusal to
purchase these distribution rights.
3
<PAGE>
VIII. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York, U.S.A.
All disputes arising in connection with this Agreement shall be finally settled
in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators. Arbitration shall take
place in New York, New York, U.S.A. in the English language. The arbitrators
shall decide by majority vote. The arbitrators shall also decide and fix in
their award which party or parties shall bear the arbitration costs. Each party
shall appoint one arbitrator, and these two arbitrators shall appoint the third
arbitrator, who shall be Chairman of the Arbitral Tribunal. If the two
arbitrators are unable to agree upon the nomination of the third arbitrator
within 30 days after their nomination, the third arbitrator shall be appointed
by the President of the International Chamber of Commerce. Judgment upon the
award may be entered in any court with jurisdiction.
If the foregoing is acceptable to you, please indicate your agreement in the
space provided below.
Very truly yours,
PepsiCo, Inc.
By:_________________________
Assistant Secretary
Accepted and Agreed to:
P-PR Transfer, LLP
By:_________________________
Pepsi-Cola Puerto Rico Bottling Company
By:_________________________
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<PAGE>
Exhibit 10.2
PEPSI-COLA EXCLUSIVE BOTTLING APPOINTMENT
DATED July 17, 1998
1. PepsiCo, Inc., a corporation organized under the laws of the State
of North Carolina, with general offices at 700 Anderson Hill Road, Purchase, New
York (herein called the "Company"), hereby appoints Pepsi-Cola Puerto Rico
Bottling Company, located at Carretaria 865 Km. 0.4, Bo. Candelaria Arenas, Tao
Baja, Puerto Rico 00949 (the "Bottler"), its exclusive Bottler to bottle, sell
and distribute the Pepsi-Cola, Diet Pepsi-Cola, Pepsi-Cola Free, Teem, Mountain
Dew, All Sport, Wonder Kola, Mandarin Orange Slice, Diet Mandarin Orange Slice,
Lemon Lime Slice, Diet Lemon Lime Slice and Grape Slice soft drink beverages
(the "Beverages") under the trademarks PEPSI, PEPSI-COLA, DIET PEPSI, DIET
PEPSI-COLA and PEPSI-COLA FREE, DIET PEPSI-COLA FREE, TEEM, DIET TEEM, MOUNTAIN
DEW, ALL SPORT, DIET ALL SPORT, WONDER KOLA, MANDARIN ORANGE SLICE, DIET
MANDARIN ORANGE SLICE, LEMON LIME SLICE, DIET LEMON LIME SLICE and GRAPE SLICE
(the "Trademarks") solely within the United States Commonwealth of Puerto Rico
(the "Territory").
2. The term of this Appointment shall be for ten (10) years commencing
from the date of this Appointment. This Appointment shall be automatically
extended for additional terms of five (5) years each, unless either party shall
give written notice to the other party at least one (1) year in advance of the
expiration of each term of its intention not to renew.
3. The Bottler will:
(a) purchase all units of concentrate ("Units") required for the
Beverages from the seller of concentrate designated by the Company ("Seller") at
the price and on the terms and conditions established in the Franchise
Commitment Letter dated the date hereof (the "Franchise Commitment Letter")
among the Company, P-PR Transfer, LLP and the Bottler;
(b) at its expense, obtain all import licenses and permits for
shipments of any imported machinery, equipment, or other materials (other than
Units) required for the production, selling and distributing of the Beverages;
(c) follow precisely all instructions issued by the Company in the use,
handling and processing of Beverages concentrates, and the production and
handling of the Beverages;
(d) operate a thoroughly clean and sanitary bottling plant at
Carretaria 865 Km. 0.4, Bo. Candelaria Arenas, Tao Baja, Puerto Rico 00949 and
such other bottling plants of the Bottler in the Territory which are approved by
the Company for the production of the Beverages and properly install and
maintain all water treating, purifying and filtering equipment;
(e) permit the Company's agents during working hours to inspect the
Bottler's plant, warehouses, equipment and materials, to check operations and
methods, and to take samples of the Beverages and water, materials and supplies;
<PAGE>
(f) at least once each month furnish to the Company adequate samples of
the Beverages and water used in producing the Beverages;
(g) sell the Beverages only in the size, type and design bottle, can or
other package as the Company approves;
(h) use its best efforts to increase sales and gain market share by
actively promoting and soliciting the sale of the Beverages, by keeping all
accounts fully supplied with Beverages, and by securing full distribution
through all available channels;
(i) fully comply with all applicable laws and regulations;
(j) use only advertising and promotional strategies and materials as
approved by the Company and make the advertising and marketing expenditures as
agreed between the Company and the Bottler;
(k) sell the Beverages to retailers at prevailing competitive market
prices together with competitive case and bottle deposits;
(1) not produce, distribute or sell, directly or indirectly, in the
Territory any beverage other than the Beverages or other beverages not owned by
the Company which are authorized pursuant to the terms of the Franchise
Commitment Letter;
(m) not use any trademark, designation or trade dress which imitates or
can be confused with the Company's Trademarks, designations or trade dress; and
(n) not distribute or sell, directly or indirectly, the Beverage
outside of the Territory except pursuant to exclusive bottling appointments
issued by the Company to the Bottler or otherwise specifically authorized in
writing by the Company.
4. The Bottler agrees to follow precisely the quality standard for the
Beverages published by the Company from time to time relating to raw materials,
production, storage and product rotation. From time to time during the term of
this Appointment the Company shall notify the Bottler of its minimum objectives
pertaining to consumer quality parameters, including, but not limited to, taste,
brix, carbonation and appearance. A market sampling agent shall be appointed by
the Company to determine compliance with these minimum objectives. If the
Bottler fails to achieve any of the minimum objectives, the Bottler agrees that
the Company shall have the right to require the Bottler to cease production of
the Beverages in the relevant bottling plant of the Bottler until the Bottler
demonstrates to the Company its ability to meet such objectives.
5. This Appointment cannot be transferred, assigned, pledged, mortgaged
or otherwise disposed of by the Bottler, in whole or in part, without the
Company's prior written consent. The Company's right to withhold this consent
shall be absolute and unqualified.
6. The Bottler recognizes the Company's ownership of its Trademarks and
will take no action which will prejudice or harm the Trademarks, or the
Company's ownership
<PAGE>
therein. Nothing in this Appointment shall confer upon the Bottler any right in
the Trademarks, trade names, slogans, symbols or other designs used in
connection with the Beverages or the associated goodwill. All use of the
Trademarks is for the Company's benefit and subject to the Company's approval.
7. (a) Upon the happening of any one or more of the following events,
in addition to all other rights and remedies, the Company shall have the right
to immediately terminate this Appointment by written notice to the Bottler:
(i) the failure of the Bottler to perform or comply in any material
respect with any one or more of the terms or conditions of this Appointment or
the Franchise Commitment Letter after the Company has given to the Bottler
notice of such failure and the Bottler has not cured such failure within a cure
period of 30 days;
(ii) any sale, transfer or other disposition, whether by operation of
law or otherwise, of either (x) the shares of stock or other evidence of
ownership of the Bottler which results in P-PR Transfer, LLP, a Delaware limited
liability partnership, owning less than the number of shares of the capital
stock of the Bottler which entitles P-PR Transfer, LLP to cast a majority of the
votes of the shareholders at a shareholders meeting of the Bottler or (y)
substantially all of the assets of the Bottler, in each case without the prior
written consent of the Company which in its absolute and unqualified discretion
may be withheld;
(iii) the insolvency of the Bottler; or the assignment by the Bottler
for the benefit of creditors; or the filing of a voluntary bankruptcy, judicial
liquidation, or reorganization petition by the Bottler; or the failure of the
Bottler to vacate an involuntary bankruptcy or reorganization petition filed
against the Bottler within sixty (60) days from the date of such filing; or the
failure of the Bottler to vacate, set side or have dismissed any insolvency
proceeding involving the Bottler under any applicable law within sixty (60) days
from the date of the commencement of any such proceeding; or the dissolution of
the Bottler for any cause whatsoever. The term "Bottler" in this paragraph shall
include any individual or entity which directly or indirectly controls the
Bottler; or
(iv) the termination of another exclusive bottling appointment between
the Company and the Bottler.
(b) In the event this Appointment is terminated by the Company for any
of the foregoing reasons, the Bottler shall not, for a period of two years
following the effective date of termination, engage in the bottling, sale or
distribution of any cola soft drink products in the Territory.
8. (a) The Bottler recognizes that the Company has granted this
Appointment in reliance upon the character, skills, aptitude and business and
financial capacity of the Bottler and in reliance upon the Bottler's commitment
for the duration of this Appointment. The Company and the Bottler agree that in
the event that the Bottler, for any reason, causes a premature termination of
this Appointment, the Company will suffer irreparable harm entitling it not only
to injunctive relief but to all of the other rights and remedies provided
herein.
<PAGE>
(b) In the event that the Bottler breaches this Appointment by
terminating this Appointment prior to the end of its term or breaches paragraph
7(a)(ii), then, in addition to the Company's rights to terminate this
Appointment or exercise its other remedies specified in paragraph 7, the Company
shall have the right to collect liquidated damages which amount shall be the sum
of (x) an amount determined by multiplying the total number of Units purchased
by the Bottler during the eighteen (18) month period immediately preceding the
date of such occurrence by the price per Unit in effect on the date of such
occurrence (which, if in local currency, will be the equivalent United States
Dollar price per Unit at the prevailing exchange rate then in effect) and (y) an
amount equal to that which the Bottler received from the Company during the
eighteen (18) month period immediately preceding the date of such occurrence for
contributions or assistance for advertising, marketing activities, acquisition
of assets and in general for otherwise promoting the sale of the Beverage
(which, if in local currency, will be the equivalent United States Dollars of
such contributions at the prevailing exchange rate in effect when such
contributions were made).
(c) In the event the Company has the right to collect liquidated
damages pursuant to paragraph (b) and the Bottler (or any of its subsidiaries or
affiliated companies) sells any cola soft drink products in the Territory at any
time during the two year period after termination of this Appointment, the
foregoing liquidated damage calculation shall be doubled.
(d) The provisions of paragraphs 8 (b) and (c) shall in no way be
deemed to be a limitation or in lieu of any other rights and remedies which the
Company may have under this Appointment, including, without limitation, the
rights of the Company to enforce the Bottler's commitment contained in paragraph
7(b).
9. Upon termination of this Appointment the Bottler will have no right
to sell the Beverages in the Territory or use in any way the Trademarks, trade
names, slogans, symbols and other designs of the Company and agrees that the
Company may cancel all trademark user registrations. Further, the Company shall
have the right to elect to purchase all or part of the Bottler's glass bottles,
shells, coolers and vendors containing the Trademarks at the invoice price less
a reasonable allowance for depreciation.
10. Nothing in this Appointment shall create or be deemed to create any
relationship of agency, partnership or joint venture between the Bottler and the
Company. The Bottler will assume full responsibility and liability for, and will
hold the Company harmless from any loss, injury and/or damages resulting from or
claimed to result from any act or omission on the part of the Bottler in the
performance of its obligations under this Appointment. Further, and without
limiting the generality of the foregoing, the Bottler agrees to indemnify and
hold harmless the Company from any and all product liability and damage claims,
howsoever caused, including the legal costs of defending such claims which are
alleged to have arisen as a result of the negligence, breach of contract,
implied or express, of the Bottler and/or any act or omission on the part of the
Bottler. The Company will assume full responsibility and liability for, and will
hold the Bottler harmless from any provable loss, damage or claim resulting from
defective concentrate; such indemnity to arise provided the Bottler has strictly
complied with the Company's instructions for the bottling of the Beverages. In
furtherance of the obligations imposed upon the Bottler within this paragraph,
the Bottler must at all times carry product liability and personal and property
damage insurance in an amount sufficient
<PAGE>
to satisfy in full any claim advanced against the Company and, if requested by
the Company, furnish a Certificate of Insurance or such other reasonable proof
of adequate insurance coverage.
11. Neither party shall be liable for failure to comply with this
Appointment when such failure has been caused solely by fire, strike, war,
insurrection, government restriction, force majeure or other causes beyond the
control of the party involved but best efforts shall be used to cure the default
as quickly as possible.
12. In the event the Bottler uses wholesale distributors to distribute
the Beverages, the Bottler is obligated to insure that all distributors comply
fully with all of the terms and conditions of this Appointment relative to
distribution.
13. This Appointment expresses fully the understanding between the
parties, and all prior understandings whether oral or written are hereby
canceled. This Appointment may be modified only in writing signed by the
parties.
14. In the event any provision of this Appointment becomes
unenforceable or invalid, this shall not affect the validity or enforce ability
of any other provision
15. The failure by the Company to enforce at any time any one or more
of the terms of this Appointment shall not be a waiver of the Company's right
thereafter to enforce each and every term.
16. All notices required under this Appointment shall be hand delivered
or sent by overnight courier to the addresses of the parties set forth in
paragraph 1.
17. This Appointment shall be governed by the laws of the State of New
York, U.S.A. All disputes arising in connection with this Appointment shall be
finally settled in accordance with the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by three arbitrators. Arbitration shall
take place in New York, New York, U.S.A. in the English language. The
arbitrators shall decide by majority vote. The arbitrators shall also decide and
fix in their award which party or parties shall bear the arbitration costs. Each
party shall appoint one arbitrator, and these two arbitrators shall appoint the
third arbitrator, who shall be Chairman of the Arbitral Tribunal. If the two
arbitrators are unable to upon the nomination of the third arbitrator within 30
days after their nomination, the third arbitrator shall be appointed by the
President of the International Chamber of Commerce. Judgment upon the award may
be entered in any court with jurisdiction.
IN WITNESS WHEREOF, the Company and the Bottler have duly executed and delivered
this Appointment as of the date first set forth above.
PepsiCo, Inc.
By:_________________________________
<PAGE>
Assistant Secretary
ACCEPTED AND AGREED TO:
Pepsi-Cola Puerto Rico Bottling Company
By:____________________________________
<PAGE>
EXHIBIT 10.6
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of this 16th day of
October, 1998 by and between Delta Beverage Group, Inc., a Delaware corporation
("Delta Beverage"), and Pepsi-Cola Puerto Rico Bottling Company, a Delaware
corporation (the "Corporation") and is effective as of the 20th of July, 1998.
WHEREAS, the Corporation and its subsidiaries are primarily engaged in
the business of manufacturing, bottling and distributing Pepsi-Cola products and
other beverages and manufacturing beverage containers related thereto; and
WHEREAS, Delta Beverage is primarily engaged in the manufacturing,
bottling and distribution of Pepsi-Cola products and other beverages; and
WHEREAS, Delta Beverage desires to enter into this Agreement for the
purposes of providing the services herein specified to the Corporation;
WHEREAS, the Corporation desires to retain Delta Beverage to perform
the services herein specified; and
WHEREAS, Pohlad Companies, which has entered into a Management
Agreement with the Corporation, owns a majority of the voting common stock of
Delta Beverage and has entered into a management agreement with Delta Beverage
pursuant to which it provides management services to Dakota Beverage.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises of the parties hereto and of other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties agree as
follows:
I. APPOINTMENT. The Corporation hereby appoints Delta Beverage to
render services to the Corporation and to provide oversight to the Corporation
during the term of this Agreement as herein contemplated with regard to the
following matters (the "Support Services"):
(1) Accounting, including (without limitation) accounts
payable, processing of accounts receivable and preparation of financial
statements.
(2) Management information systems ("MIS").
II. SCOPE OF AUTHORITY. The duties and responsibilities of Delta
Beverage shall be limited to those expressly set forth in this Agreement. Delta
Beverage may delegate the authority, duties and obligations conferred under this
Agreement to any individual(s) or
<PAGE>
entities of its choice, without restriction, including but not limited to
employees of the Corporation. Delta Beverage shall perform Support Services in
conformity with (i) such guidelines and limitations as the Board of Directors of
the Corporation may from time to time impose and (ii) conformity with the
provisions of the Articles of Incorporation and Bylaws (the "Governing
Documents") of the Corporation, during the term of this Agreement.
III. CONFLICTS OF INTEREST. The Corporation acknowledges that Delta
Beverage shall devote as much time to providing services to the Corporation and
its businesses and properties under this Agreement as Delta Beverage may deem to
be necessary under the circumstances. The Corporation understands and agrees,
however, that Delta Beverage may engage in other businesses, including (without
limitation) acting as franchisee under franchise agreements providing for the
bottling and distribution of brand name soft drinks or otherwise owning or
operating other soft drink bottling businesses.
IV. EXCULPATION. Delta Beverage shall be exculpated from liability in
connection with the acceptance, performance or nonperformance of its duties,
hereunder to the same extent that directors or officers of a corporation are
entitled to elimination of personal liability under Delaware law and the
Governing Documents other than for gross negligence or willful misconduct. Delta
Beverage shall incur no liability with respect to any action taken by it in
reliance upon any notice, direction, instruction, consent, statement or other
paper or document provided to it by the Corporation, or any of its authorized
representatives. In all matters or questions arising under this Agreement which
Delta Beverage, in its sole discretion and at its own expense, may seek and rely
on the advice of counsel, and such advice and reliance is made and taken in good
faith based on such advice, Delta Beverage shall not be liable to any party,
including the Corporation, or its successors and assigns, for its actions so
taken, whether or not such actions may constitute gross negligence or willful
misconduct.
V. INDEMNIFICATION OF DELTA BEVERAGE.
(1) The Corporation agrees to indemnify and hold harmless
Delta Beverage against and in respect of any and all claims, suits,
actions proceedings (formal or informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, and legal and other
expenses (including legal fees and expenses of counsel chosen by Delta
Beverage) as and when incurred arising out of, in connection with or
based upon any act or omission or alleged act or alleged omission by
Delta Beverage in connection with the acceptance of, or the performance
or nonperformance by Delta Beverage of any of its duties under this
Agreement.
(2) Delta Beverage shall give the Corporation prompt notice of
any claim asserted or threatened against Delta Beverage on the basis of
which Delta Beverage intends
2
<PAGE>
to seek indemnification from the Corporation as herein permitted;
however, the obligations of the Corporation under this Section 5 shall
not be conditioned upon receipt of such notice.
(3) Expenses incurred by Delta Beverage in connection with any
action, suit, proceeding, or appeal thereof, described in Section 5(a)
above, shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding within 20 days following
receipt of a notice from Delta Beverage specifying the amount of such
expenses actually incurred by Delta Beverage in connection with such
action, suit, or proceeding.
(4) The indemnification agreement provided for in this Section
5 shall survive the termination of this Agreement.
(5) Notwithstanding any other provision of this Section 5 to
the contrary, the Corporation shall not be liable to indemnify Delta
Beverage in connection with any claim against Delta Beverage (i) if a
court of competent jurisdiction has rendered a final decision that
indemnification relating to the claim would be unlawful; (ii) if a
final decision by a court of competent jurisdiction shall adjudge the
conduct of Delta Beverage to have been taken not in good faith or not
in a manner reasonably believed to be in or not opposed to the best
interests of the Corporation; and (iii) if the claim is based upon
Delta Beverage deriving an unlawful benefit and a court of competent
jurisdiction adjudges that such benefit was unlawful in a final
decision.
VI. FEES. For services to be performed under this Agreement, the
Corporation shall pay to Delta Beverage the following:
(1) A services fee, payable quarterly in arrears, in an amount
equal to the aggregate accounting and MIS costs and expenses for each
applicable quarter incurred by Delta Beverage (the "Services Fee"), and
allocated by Delta Beverage in its reasonable discretion to such
functions, multiplied by a fraction, the numerator of which shall be
the total case volume of bottle and can units distributed by the
Corporation for the relevant quarter and the denominator of which shall
be the total case volume of bottle and can units distributed by the
Corporation, Delta Beverage and other entities provided support
services by Delta Beverage similar to the Support Services. Such fees
shall be payable by the Corporation upon receipt of a statement for
such fees from Delta Beverage.
(2) The Corporation shall reimburse Delta Beverage for all
reasonable out-of-pocket expenses paid or incurred by Delta Beverage
for the account of the Corporation in performing its duties under this
Agreement (including, without limitation, the fees and expenses of
attorneys, accountants, and other consultants and employees of Delta
Beverage), and the costs of equipment, supplies and other materials,
but excluding general overhead
3
<PAGE>
expenses and compensation of officers, directors and employees of Delta
Beverage except to the extent included in the Services Fee.
VII. SOURCE OF PAYMENT. The Services Fee set forth in Section 6 of this
Agreement shall be payable to Delta Beverage from the general funds of the
Corporation.
VIII. STATUS OF PARTIES. In the performance of its services under this
Agreement, Delta Beverage shall be and is an independent contractor; provided,
however, in the event that Delta Beverage acts on behalf of the Corporation with
respect to other parties, Delta Beverage shall be deemed to do so as an agent of
the Corporation. Based on the foregoing, Delta Beverage shall not and will not
incur contractual or other liability solely because or as a result of its status
as a party hereto. The relationship between Delta Beverage and the Corporation
is and shall solely be contractual.
IX. NON-DISCLOSURE. Delta Beverage hereby covenants and agrees not to
disclose, at any time during or after the term of this Agreement, directly or
indirectly, to any person, firm, corporation, partnership, association or any
other entity, or otherwise directly or indirectly misuse any confidential
information concerning the business affairs or properties of the Corporation,
except that the provisions hereof shall not apply to disclosures made to
employees or directors of the Corporation, or which are made to others for valid
business purposes of the Corporation.
X. TERM. This Agreement may be terminated by either party at any time
after (i) Pohlad Companies, any of its affiliates, or any of its subsidiaries
(wholly-owned or otherwise) cease to hold, directly or indirectly, any common
stock of the Corporation, or their respective successors, or (ii) Pohlad
Companies ceases to be controlled by the Pohlad Group. For purposes of this
Agreement, "affiliate of Pohlad Companies" means any person controlling or
controlled by or under common control with Pohlad Companies, and "control," when
used with respect to Pohlad Companies, means the power to direct the management
and policies of Pohlad Companies, directly or indirectly, whether through the
ownership of voting securities, by contract, or otherwise. For purposes of this
Agreement, "Pohlad Group" means Robert C. Pohlad and his parents, brothers, and
any of their spouses, children, grandchildren, sons-in-law, daughters-in-law,
any corporation or partnership controlled by or affiliated with any of the
foregoing and any employees of such corporations or partnerships, and any trust
or foundation in which any of the foregoing has a substantial beneficial
interest or serves as a trustee or in any similar capacity and retains voting
powers of securities held in the trust or foundation.
In addition, this Agreement may be terminated by either party at the
end of ten years from the date hereof or at any time thereafter upon not less
than one year's prior notice.
4
<PAGE>
XI. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on the
parties hereto, their successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the consent of Board of
Directors of the Corporation.
XII. NO PARTNERSHIP, ETC. Nothing contained in this Agreement shall
constitute or be construed to be or create a partnership or joint venture
between the Corporation and Delta Beverage.
XIII. WAIVER. No waiver by any party to this Agreement of a breach of
any term or condition hereof shall be construed to operate as a waiver of any
other or subsequent breach of the same or of any other term or condition hereof,
unless otherwise expressly provided.
XIV. SOLE AGREEMENT. This Agreement states the entire agreement of the
parties with respect to the subject matter hereof and merges all prior
negotiations, agreements and understandings, if any. The parties agree that in
dealing with third parties no contrary representations will be made.
XV. AMENDMENT. This Agreement may be modified or amended only by an
instrument in writing, duly signed and delivered by the parties hereto.
XVI. COUNTERPARTS. Any number of counterparts of this Agreement may be
executed and each such executed counterpart shall be deemed an original.
XVII. GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the internal laws of the State of Minnesota, and
all actions or claims under this Agreement shall be property venued only in the
County of Hennepin, State of Minnesota.
XVIII. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of each provision
to persons or circumstances, other than those to which it is held invalid, shall
not be affected thereby.
XIX. HEADINGS. All headings contained in this Agreement are intended
for convenience of reference only, and shall not be used to interpret any of the
terms and provisions of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Services Agreement to
be duly executed as of the date first written above.
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY
By:_____________________________________
Its: ________________________________
DELTA BEVERAGE GROUP, INC.
By:_____________________________________
Its:_________________________________
***Services Agreement dated as of October 16, 1998***
<PAGE>
EXHIBIT 10.7
MANAGEMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of this 7th day of
August, 1998 by and between Pohlad Companies, a Minnesota corporation, and
Pepsi-Cola Puerto Rico Bottling Company, a Delaware corporation (the
"Corporation") and is effective as of the 20th of July, 1998.
WHEREAS, the Corporation and its subsidiaries are primarily engaged in
the business of manufacturing, bottling and distributing Pepsi-Cola products and
other beverages and manufacturing beverage containers related thereto; and
WHEREAS, Pohlad Companies has available, directly or indirectly, the
managerial, executive and other personnel necessary to assist in the management
of the Corporation; and
WHEREAS, Pohlad Companies desires to enter into this Agreement for the
purposes of providing the management services herein specified to the
Corporation; and
WHEREAS, the Corporation desires to retain Pohlad Companies to perform
the services herein specified.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises of the parties hereto and of other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties agree as
follows:
I. APPOINTMENT. The Corporation hereby appoints Pohlad Companies to
render services related to the management of the businesses and operations of
the Corporation during the term of this Agreement as herein contemplated.
II. MANAGEMENT SERVICES TO BE PROVIDED. The duties and responsibilities
of Pohlad Companies shall be limited to those expressly set forth in this
Agreement. Pohlad Companies may delegate the authority, duties and obligations
conferred under this Agreement to any individual(s) or entities of its choice,
without restriction, including but not limited to employees of the Corporation.
Subject to (i) such guidelines and limitations as the Board of Directors of the
Corporation may from time to time impose and (ii) conformity with the provisions
of the Articles of Incorporation and Bylaws (the "Governing Documents") of the
Corporation, during the term of this Agreement, Pohlad Companies shall have the
authority to:
(1) Provide executive management to the Corporation in the
form of individuals to occupy the positions of Chief Executive Officer,
President and Chief Financial Officer.
<PAGE>
(2) Manage and provide oversight and supervision to the
Corporation regarding all aspects of its businesses and properties.
(3) Supervise the day-to-day operations of the Corporation and
make recommendations with respect thereto.
(4) Investigate and make recommendations with respect to the
selection and conduct of relations with consultants and technical
advisors including, without limitation, accountants and other similar
advisors, attorneys, corporate fiduciaries, escrow agents,
depositories, custodians, agents for collection, insurers, insurance
agents and banks and persons acting in any other capacity, in
connection with the administration and day-to-day operations of the
Corporation.
(5) Assist in the preparation of all filings with the
Securities Exchange Commission and the information contained in such
filings.
(6) Conduct all negotiations with the franchisors under all
franchise agreements held or to be held by the Corporation and any of
its subsidiaries relating to said franchise agreements.
(7) Coordinate and cause to be produced strategic and annual
operating capital and other plans.
(8) Coordinate all negotiations with regard to potential
acquisitions, mergers, consolidations or the like between the
Corporation and third parties.
(9) Conduct all negotiations with regard to debt financing
provided to, or to be provided to, the Corporation by third parties.
III. CONFLICTS OF INTEREST. The Corporation acknowledges that Pohlad
Companies shall devote as much time to the management of the Corporation and its
businesses and properties as Pohlad Companies may deem to be necessary under the
circumstances. The Corporation understands and agrees, however, that Pohlad
Companies may engage in other businesses, including (without limitation) acting
as franchisee under franchise agreements providing for the bottling and
distribution of brand name soft drinks or otherwise owning or operating other
soft drink bottling businesses.
IV. EXCULPATION. Pohlad Companies shall be exculpated from liability in
connection with the acceptance, performance or nonperformance of its duties,
hereunder to the same extent that directors or officers of a corporation are
entitled to elimination of personal liability under Delaware law and the
Governing Documents other than for gross
2
<PAGE>
negligence or willful misconduct. Pohlad Companies shall incur no liability with
respect to any action taken by it in reliance upon any notice, direction,
instruction, consent, statement or other paper or document provided to it by the
Corporation, or any of its authorized representatives. In all matters or
questions arising under this Agreement which Pohlad Companies, in its sole
discretion and at its own expense, may seek and rely on the advice of counsel,
and such advice and reliance is made and taken in good faith based on such
advice, Pohlad Companies shall not be liable to any party, including the
Corporation, or its successors and assigns, for its actions so taken, whether or
not such actions may constitute gross negligence or willful misconduct.
V. INDEMNIFICATION OF POHLAD COMPANIES.
(1) The Corporation agrees to indemnify and hold harmless
Pohlad Companies against and in respect of any and all claims, suits,
actions proceedings (formal or informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, and legal and other
expenses (including legal fees and expenses of counsel chosen by Pohlad
Companies) as and when incurred arising out of, in connection with or
based upon any act or omission or alleged act or alleged omission by
Pohlad Companies in connection with the acceptance of, or the
performance or nonperformance by Pohlad Companies of any of its duties
under this Agreement.
(2) Pohlad Companies shall give the Corporation prompt notice
of any claim asserted or threatened against Pohlad Companies on the
basis of which Pohlad Companies intends to seek indemnification from
the Corporation as herein permitted; however, the obligations of the
Corporation under this Section 5 shall not be conditioned upon receipt
of such notice.
(3) Expenses incurred by Pohlad Companies in connection with
any action, suit, proceeding, or appeal thereof, described in Section
5(a) above, shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding within 20 days following
receipt of a notice from Pohlad Companies specifying the amount of such
expenses actually incurred by Pohlad Companies in connection with such
action, suit, or proceeding.
(4) The indemnification agreement provided for in this Section
5 shall survive the termination of this Agreement.
(5) Notwithstanding any other provision of this Section 5 to
the contrary, the Corporation shall not be liable to indemnify Pohlad
Companies in connection with any claim against Pohlad Companies (i) if
a court of competent jurisdiction has rendered a final decision that
indemnification relating to the claim would be unlawful; (ii) if a
final decision
3
<PAGE>
by a court of competent jurisdiction shall adjudge the conduct of
Pohlad Companies to have been taken not in good faith or not in a
manner reasonably believed to be in or not opposed to the best
interests of the Corporation; and (iii) if the claim is based upon
Pohlad Companies deriving an unlawful benefit and a court of competent
jurisdiction adjudges that such benefit was unlawful in a final
decision.
VI. FEES. For services to be performed under this Agreement, the
Corporation shall pay to Pohlad Companies the following:
(1) A Management Fee, payable annually in advance at the rate
of $250,000 per year, increased each year by the rate of increase in
the Corporation's gross revenue for the immediately prior year after
the preceding year. If in any immediately prior year, the gross revenue
does not exceed the gross revenue for the prior year, the fee shall
remain the same. The first potential adjustment in the Management Fee
shall occur on January 1, 2000 and will be based on the rate of
increase in gross revenue for the year 1999 over the year 1998.
(2) The Corporation shall reimburse Pohlad Companies for all
reasonable out-of-pocket expenses paid or incurred by Pohlad Companies
for the account of the Corporation in managing the businesses and
properties of the Corporation, assisting in the acquisition of
franchise territories and performing its duties hereunder (including,
without limitation, the fees and expenses of attorneys, accountants,
and other consultants and employees of Pohlad Companies, and the costs
of equipment, supplies and other materials, but excluding general
overhead expenses and compensation of officers, directors and employees
of Pohlad Companies for time which they devote to the management and
supervision of the businesses of the Corporation).
VII. SOURCE OF PAYMENT. The Management Fee set forth in paragraph 6 of
this Agreement shall be payable to Pohlad Companies from the general funds of
the Corporation.
VIII. STATUS OF PARTIES. In the performance of its services under this
Agreement, Pohlad Companies shall be and is an independent contractor; provided,
however, in the event that Pohlad Companies acts on behalf of the Corporation
with respect to other parties, Pohlad Companies shall be deemed to do so as an
agent of the Corporation on behalf of the Corporation. Based on the foregoing,
Pohlad Companies shall not and will not incur contractual or other liability
solely because or as a result of its status as a party hereto. The relationship
between Pohlad Companies and the Corporation is and shall solely be contractual.
IX. NON-DISCLOSURE. Pohlad Companies hereby covenants and agrees not to
disclose, at any time during or after the term of this Agreement, directly or
indirectly, to any
4
<PAGE>
person, firm, corporation, partnership, association or any other entity, or
otherwise directly or indirectly misuse any confidential information concerning
the business affairs or properties of the Corporation, except that the
provisions hereof shall not apply to disclosures made to employees or directors
of the Corporation, or which are made to others for valid business purposes of
the Corporation or as required by law.
X. TERM. This Agreement may be terminated by either party (i) at any
time after Pohlad Companies, any of its affiliates, or any of its subsidiaries
(wholly-owned or otherwise) cease to hold, directly or indirectly, any common
stock of the Corporation, or their respective successors, or (ii) Pohlad
Companies ceases to be controlled by the Pohlad Group. For purposes of this
Agreement, "affiliate of Pohlad Companies" means any person controlling or
controlled by or under common control with Pohlad Companies, and "control," when
used with respect to Pohlad Companies, means the power to direct the management
and policies of Pohlad Companies, directly or indirectly, whether through the
ownership of voting securities, by contract, or otherwise. For purposes of this
Agreement, "Pohlad Group" means Robert C. Pohlad and his parents, brothers, and
any of their spouses, children, grandchildren, sons-in-law, daughters-in-law,
any corporation or partnership controlled by or affiliated with any of the
foregoing and any employees of such corporations or partnerships, and any trust
or foundation in which any of the foregoing has a substantial beneficial
interest or serves as a trustee or in any similar capacity and retains voting
powers of securities held in the trust or foundation.
In addition, this Agreement may be terminated by either party at the
end of ten years from the date hereof or at any time thereafter upon not less
than one year's prior notice.
XI. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on the
parties hereto, their successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the consent of Board of
Directors of the Corporation.
XII. NO PARTNERSHIP, ETC. Nothing contained in this Agreement shall
constitute or be construed to be or create a partnership or joint venture
between the Corporation and Pohlad Companies.
XIII. WAIVER. No waiver by any party to this Agreement of a breach of
any term or condition hereof shall be construed to operate as a waiver of any
other or subsequent breach of the same or of any other term or condition hereof,
unless otherwise expressly provided.
XIV. SOLE AGREEMENT. This Agreement states the entire agreement of the
parties with respect to the subject matter hereof and merges all prior
negotiations, agreements and understandings, if any. The parties agree that in
dealing with third parties no contrary representations will be made.
5
<PAGE>
XV. AMENDMENT. This Agreement may be modified or amended only by an
instrument in writing, duly signed and delivered by the parties hereto.
XVI. COUNTERPARTS. Any number of counterparts of this Agreement may be
executed and each such executed counterpart shall be deemed an original.
XVII. GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the internal laws of the State of Delaware.
XVIII. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of each provision
to persons or circumstances, other than those to which it is held invalid, shall
not be affected thereby.
XIX. HEADINGS. All headings contained in this Agreement are intended
for convenience of reference only, and shall not be used to interpret any of the
terms and provisions of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY
By:_____________________________________
Its: ________________________________
POHLAD COMPANIES
By:_____________________________________
Its:_________________________________
***Executive Services Agreement dated as of August 7, 1998***
<PAGE>
Exhibit 10.11
AMENDMENT TO STOCK OPTION AGREEMENT
THIS AMENDMENT, dated as of June 15, 1998, is made by and between PEPSI-
COLA PUERTO RICO BOTTLING COMPANY, a corporation organized and existing under
the laws of the State of Delaware (hereinafter the "Company"), and RAFAEL NIN
(hereinafter the "Optionee").
W I T N E S S E T H:
WHEREAS, Company granted to Rafael Nin an option to purchase 1,516,667
shares of Class B common stock, par value $.01 per share (the "Nin Option"),
pursuant to that certain Stock Option Agreement dated October 15, 1996 (the "Nin
Stock Option Agreement"); and
WHEREAS, Nin and the Company desire to amend the Nin Stock Option Agreement
pursuant to the terms of this Amendment; and
WHEREAS, Nin acknowledges that P-PR Transfer, LLP (the "Transferee") is
relying on the amendment to the terms of the Nin Stock Option Agreement set
forth herein as a condition of entering into that certain transfer agreement
between the Company, Nin and Transferee, entered into on the date hereof (the
"Transfer Agreement") .
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. SECTION 3.01. Section 3.01 of the Nin Stock Option Agreement is
deleted in its entirety and replaced with the following:
The Option shall terminate and be of no further force and effect after 5:00
p.m. San Juan time on July 30, 2001 (the "Termination Date"). The Option
may be exercised in whole or in part until the Termination Date.
2. SECTION 5.03. Section 5.03 of the Nin Stock Option Agreement is
deleted in its entirety and replaced with the following.
Whenever Optionee shall make a written request to the Company to register
under the Act any Option Shares, the Company within thirty days after such
request is effective shall file a registration statement with respect to
and use its best efforts to register the Option Shares requested by
Optionee to be registered. The Optionee shall have the right to make only
two requests for registration under this Section 5.03.
<PAGE>
3. SECTION 5.04. A new paragraph (xi) shall be added to the end of
Section 5.04 which shall read in its entirety as follows:
(xi) The Company's obligation to register the Option Shares under Sections
5.02 and 5.03 shall be suspended during any period that the resale by the
Optionee of the Option Shares is covered by an effective registration
statement on Form S-8 or a post-effective amendment thereto.
4. AMENDMENTS. This Agreement may not be amended, altered or modified
except by a written instrument executed by both parties hereto and consented to
in writing by Transferee.
5. TERMINATION. This Amendment shall terminate and be of no further
force and effect if the Closing (as defined in the Transfer Agreement) does not
occur on or prior to July 31, 1998.
IN WITNESS WHEREOF, the authorized representatives of the parties hereto
execute this Agreement on the date first above written.
COMPANY PEPSI COLA PUERTO RICO BOTTLING COMPANY
By:_________________________________________
Title:______________________________________
OPTIONEE
____________________________________________
Rafael Nin
2
<PAGE>
EXHIBIT 10.15
FIRST AMENDMENT TO SECOND RESTATED CREDIT AGREEMENT
AND LOAN DOCUMENTS
This FIRST AMENDMENT TO SECOND RESTATED CREDIT AGREEMENT AND LOAN DOCUMENTS
(the "Amendment") is entered into as of this 21st day of December, 1998, among
PEPSI-COLA PUERTO RICO BOTTLING COMPANY ("Pepsi-Cola PR"), PEPSI-COLA PUERTO
RICO DISTRIBUTING COMPANY ("Distributing"), BEVERAGE PLASTICS COMPANY ("Beverage
Plastics") and PEPSI-COLA PUERTO RICO MANUFACTURING COMPANY ("Manufacturing";
Pepsi-Cola PR, Distributing, Beverage Plastics and Manufacturing hereinafter
sometimes referred to individually as a "Borrower" and collectively as the
"Borrowers"), each a corporation organized and existing under the laws of the
State of Delaware; and
BANCO POPULAR DE PUERTO RICO, a banking corporation organized and existing
under the laws of the Commonwealth of Puerto Rico (hereinafter referred to as
the "Bank").
WITNESSETH:
----------
WHEREAS, the Borrowers and the Bank entered into a Second Restated Credit
Agreement dated as of April 8, 1997 (the "Restated Credit Agreement"; all
capitalized terms used herein which are not otherwise defined shall have the
meanings set forth in the Restated Credit Agreement);
<PAGE>
2
WHEREAS, the Borrowers have requested that the Bank amend the terms of the
Restated Credit Agreement as set forth herein;
WHEREAS, the Bank, subject to the terms and conditions hereinafter set
forth, is agreeable to granting the request of the Borrowers;
NOW THEREFORE, the Borrowers and the Bank have agreed to amend the Restated
Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO RESTATED CREDIT AGREEMENT. The Restated Credit
---------------------------------------
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(a) The definition of "Net Available Proceeds" in Section 1.1 is
hereby amended in full to read as follows:
"'NET AVAILABLE PROCEEDS' shall mean, in the case of any Disposition
or BAESA Stock Disposition, the amount of Net Cash Payments received
in connection with such Disposition or BAESA Stock Disposition."
(b) The first sentence of subsection (b) of Section 2.3 is hereby
amended in full to read as follows:
"(b) The Bank agrees, on the terms and conditions hereinafter
set forth, to make revolving credit advances to Borrowers (each
advance made hereunder is hereinafter sometimes referred to
individually as a 'Revolving Credit Advance' and collectively as
'Revolving Credit Advances') from time to time during the period from
the Closing Date up to and including January 31, 1999 (as such date
may be extended pursuant to Section 2.16 hereof, the 'Termination
Date') which shall not
<PAGE>
3
exceed at any time outstanding for the Borrowers in the aggregate
(subject to the provisions of subsection (a) of Section 2.9) the sum
of (i) eighty percent (80%) of the amount of Distributing's Eligible
Receivables, plus (ii) fifty percent (50%) of the net value of
Distributing's Eligible Inventory (calculated based on the cost of
Eligible Inventory); provided, however, that Revolving Credit Advances
to the Borrowers shall not exceed FIVE MILLION DOLLARS ($5,000,000) in
the aggregate at any time (the 'Revolving Credit Commitment')."
(c) Section 2.9(b) is hereby amended in full to read as follows:
"(b)Sale of Assets. Without limiting the obligation of the
--------------
Borrowers, or any of their Restricted Subsidiaries to obtain the
consent of the Bank pursuant to Section 5.02(d) to any Disposition not
otherwise permitted hereunder, in the event that the Net Available
Proceeds of any Disposition (herein, the 'Current Disposition'), and
-------------------
of all prior Dispositions as to which a prepayment has not yet been
made under this paragraph, shall exceed $250,000 during any fiscal
year of the Borrowers then, no later than five Business Days prior to
the occurrence of the Current Disposition, the Borrowers will deliver
to the Bank a statement, certified by the chief financial officer of
the corresponding Borrower, in form and detail satisfactory to the
Bank, of the amount of the Net Available Proceeds of the Current
Disposition and of all such prior Dispositions during the current
fiscal year of the Borrowers and will prepay the Advances, in an
aggregate amount equal to 100% of the Net Available Proceeds of the
Current Disposition and such prior Dispositions during the current
fiscal year of the Borrowers, such prepayment to be effected in each
case in the manner and to the extent specified in clause (g) of this
Section 2.9."
(d) The first sentence of Section 2.16 is hereby amended in full to
read as follows:
"The obligation of the Bank to make the Revolving Credit Advances
shall terminate on
<PAGE>
4
January 31, 1999 (such date, as it may be extended pursuant to the
following sentence, being the "Termination Date"). The Bank, at its
sole discretion, may extend the Termination Date for additional
periods (which may be less than one year) under terms and conditions
(which may differ from those contained in this Agreement) that the
Bank may determine, at its sole discretion, based upon economic
conditions prevailing as of the Termination Date and the Borrowers'
ability to meet their obligations."
(e) Subsection (i) of Section 7.1 is hereby amended in full to read as
follows:
"(i) There is a sale, transfer, change of effective control or
other disposition, whether by operation of law or otherwise (directly
or indirectly), through a merger, consolidation or otherwise, of the
voting stock, shares of interest, options, right to vote or other
evidence of ownership of P-PR-Transfer, LLP or the Pohlad Companies
respectively, so that P-PR-Transfer, LLP or The Pohlad Companies
ceases to control, own or is no longer entitled to vote in the
aggregate at least 51% of the voting rights under the then issued and
outstanding voting stock, shares of interest, options, right to vote
or other evidence of ownership of Pepsi-Cola PR and P-PR-Transfer,
LLP, respectively."
SECTION 2. AMENDMENT OF THE NOTES. Simultaneously with the execution
----------------------
hereof, each of the Notes is being, effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 3 hereof,
amended as set forth in an Allonge substantially in the form of Exhibit A
---------
hereto.
SECTION 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
---------------------------
effective when, and only when, the Bank shall have received all of the following
documents, each document (unless otherwise
<PAGE>
5
indicated) being dated the date hereof, in form and substance satisfactory to
the Bank and its counsel:
(a) Certified copies of (i) the resolutions of the Board of Directors
of each of the Borrowers approving this Amendment and the matters contemplated
herein, and (ii) all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Amendment and the matters
contemplated herein.
(b) the following documents:
(i) an Allonge for each of the Notes executed on the original
Closing Date (collectively, the "Allonges");
(ii) such documents as may be reasonably requested by the Bank
executed by each of the Borrowers in favor of the Bank amending the Collateral
in order to reflect the execution of this Agreement;
(iii) Security Agreements substantially in such form as may be
required by the Bank duly executed by each Borrower. In addition, each Borrower
shall have taken such other action (including delivering to the Bank, for
filing, appropriately completed and duly executed copies of Uniform Commercial
Code financing statements) as the Bank shall have requested in order to perfect
the security interests created pursuant to the Security Agreements.
(c) A favorable opinion of counsel for the Borrowers, to the effect
that this Amendment and each of the documents required
<PAGE>
6
under subsection 3(b)(ii) and (iii) above have been duly authorized, executed
and delivered by the Borrowers and covering such other matters relating to the
Borrowers, this Agreement or the transactions contemplated hereunder as may be
requested by the Bank and its counsel.
SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
---------------------------------------------
(a) Upon the effectiveness of Sections 1, 2 and 3 hereof, on and after
the date hereof each reference in the Restated Credit Agreement and the Exhibits
thereto to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Restated Credit Agreement, and each reference in each of the
Loan Documents to "the Restated Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Restated Credit Agreement, shall mean and
be a reference to the Restated Credit Agreement as amended hereby and each
reference in the Notes to "this Note", "hereunder", "hereof" or words of like
import referring to such Note, and each reference in the other Loan Documents to
"the Notes", "thereunder", "thereof" or words of like import referring to the
Notes, shall mean and be a reference to the Notes, as amended by the Allonges
executed on the date hereof.
(b) Upon the effectiveness of this Agreement, each reference in any of
the Loan Documents to "this Agreement", "hereunder", "hereof" or words of like
import referring to such document, and each reference in the other Loan
Documents to such document, shall mean and be a reference to such document as
amended hereby. Except as specifically amended hereby, the Loan Documents shall
remain in full force and effect and such Loan Documents are hereby in all
respects ratified and confirmed.
<PAGE>
7
SECTION 5. WAIVER. The execution, delivery and effectiveness of this
------
Amendment shall not, except as expressly provided for herein, operate as a
waiver of any right, power or remedy of the Bank under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The Borrowers
-----------------------------------------------
represent and warrant as follows:
(a) The execution, delivery and performance by each of the Borrowers
of this Amendment, the Allonges and all other Loan Documents, as amended, to
which the Borrowers are or will be a party, have been duly authorized by all
necessary corporate action of each of the Borrowers and do not and will not (A)
contravene the charter or by-laws of any of the Borrowers, (B) violate in any
material respect any provision of any applicable law, rule, regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect, (C) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which any of the Borrowers or any
Subsidiary of the Borrowers are a party or by which they or their properties may
be bound or affected, or (D) result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance of any nature (other than as required hereunder) upon or with
respect to any of the properties now owned or hereafter acquired by any of the
Borrowers; neither the Borrowers nor any Subsidiary of the Borrowers is in
default under any such law, rule, regulation, order, writ,
<PAGE>
8
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
(b) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Borrowers of this Amendment or
any of the Loan Documents, as amended hereby, to which they are a party.
(c) There is no pending or threatened action or proceeding affecting
any of the Borrowers or any of their Subsidiaries before any court, governmental
agency or arbitrator, which may have a Material Adverse Effect or which purport
to affect the legality, validity or enforceability of this Amendment or any of
the other Loan Documents, as amended hereby.
(d) This Amendment and each of the other Loan Documents, as amended
hereby, to which the Borrowers are a party constitute and each of the other Loan
Documents to which the Borrowers are to be a party when delivered hereunder will
constitute legal, valid and binding obligations of any of the Borrowers
enforceable against each of the Borrowers in accordance with their respective
terms.
(e) The representations and warranties contained in the Restated
Credit Agreement are correct on and as of the date of this Amendment as though
made on and as of this date.
(f) No event has occurred and is continuing which constitutes an Event
of Default or would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
<PAGE>
9
SECTION 7. NO NOVATION. This Amendment merely reflects the intention of
-----------
the parties hereto to modify and amend certain terms, covenants and conditions
of the Restated Credit Agreement and shall not affect any of the existing
Obligations of the Borrowers thereunder. Therefore, this Amendment shall not in
---------
any way constitute a novation of the Obligations. Except as specifically
amended hereby and by the Allonges, the Restated Credit Agreement, the Loan
Documents and the Notes shall remain in full force and effect.
SECTION 8. COSTS, EXPENSES AND TAXES. The Borrowers agree to pay on
-------------------------
demand all costs and expenses of the Bank in connection with the preparation,
execution, delivery, administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank with respect thereto and with respect to advising the Bank
as to its rights and responsibilities hereunder and under the Restated Credit
Agreement and the Loan Documents. The Borrowers further agree to pay on demand
all costs and expenses, if any (including, without limitation, reasonable
counsel fees an expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Amendment and the other
instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 8. In addition, the Borrowers shall
pay any and all stamp and other taxes payable or reasonably determined by the
Bank to be payable in connection with the execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder, and
agrees to save the Bank harmless from and against any and all liabilities with
respect to or resulting from any delay in paying
<PAGE>
10
or omission to pay such taxes. All obligations of the Borrowers under this
Amendment shall be joint and several ("solidaria").
SECTION 9. GOVERNING LAW. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Puerto Rico.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PEPSI-COLA PUERTO RICO
BOTTLING COMPANY
PEPSI-COLA PUERTO RICO
MANUFACTURING COMPANY
PEPSI-COLA PUERTO RICO
DISTRIBUTING COMPANY
BEVERAGE PLASTICS COMPANY
By:_______________________________
Name:
Title:
BANCO POPULAR DE PUERTO RICO
By:_______________________________
Name:
Title:
<PAGE>
11
State of ______________) ss:
Country of ______________)
Acknowledged and subscribed before me by____________, of legal age,
__________, executive and resident of ____________, Puerto Rico, in his/her
capacity as ________________________________ of each of Pepsi-Cola Puerto Rico
Bottling Company, Pepsi-Cola Puerto Rico Manufacturing Company, Pepsi-Cola
Puerto Rico Distributing Company and Beverage Plastics Company; to me personally
known at ___________, ____________, on this ____ day of ______, 1998.
_________________________________
Notary Public
Affidavit No.: _____
Acknowledged and subscribed before me by____________, of legal age,
__________, banker and resident of _____________, Puerto Rico, in his/her
capacity as_______________ of Banco Popular de Puerto Rico, to me personally
known, at San Juan, Puerto Rico, on this ______ day of ______________, 1998.
________________________________
Notary Public
<PAGE>
EXHIBIT A
---------
ALLONGE
(TERM LOAN NOTE)
(AND REVOLVING CREDIT NOTE)
The terms of that certain [_____________________] Note (the "Note") in the
principal amount of $_________ issued by _________ ______________________ to the
order of BANCO POPULAR DE PUERTO RICO on April 8, 1997 under Affidavit No. ___
before Notary Antonio J. Santos Prats, are hereby amended and modified as of the
date hereof, as follows:
(a) The ______ paragraph of the Note is hereby amended to read as
follows:
"This Note has been issued pursuant to, and is entitled to, the
guarantees, benefits, and security provided for by that certain Second
Restated Credit Agreement among Pepsi-Cola Puerto Rico Distribution
Company, Pepsi-Cola Puerto Rico Bottling Company, Pepsi-Cola Puerto
Rico Manufacturing Company, Beverage Plastics Company and the Bank
dated as of April 8, 1997, as amended by a First Amendment to Second
Restated Credit Agreement and Loan Documents dated as of December 21,
1998 (collectively, the 'Restated Credit Agreement'). All capitalized
terms used herein that are defined in the Restated Credit Agreement
and are not otherwise defined herein shall have the meanings set forth
in the Restated Credit Agreement. This Note is subject to pre-payment
and acceleration, all as provided in the Restated Credit Agreement".
(b) This Allonge merely reflects the intention of the parties hereto
to modify certain covenants and conditions set forth in the Restated Credit
Agreement and shall not affect any of the existing obligations of the Borrowers
thereunder. Therefore, this Allonge shall not in any way constitute a novation
of the indebtedness evidenced by the Note.
Except as amended hereby, all other terms and conditions of the Note shall
remain unchanged and in full force and effect.
<PAGE>
2
Executed in San Juan, Puerto Rico, on this ____ day of _____, 1998.
_______________________________
By:_______________________________
Name:
Title:
Country of __________) ss:
State of ____________)
Acknowledged and subscribed to before me by the following person who is
personally known to me, in ___________, _________, on this ___ day of _______,
1998:
__________________________________
Notary Public
<PAGE>
EXHIBIT 11.1
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(U.S. Dollars in thousands, except per share amounts)
Fiscal Year Ended September 30
--------------------------------
1998 1997 1996
------- -------- --------
Net loss $(9,610) $(19,503) $(74,330)
======= ======== ========
Net loss assuming dilution $(9,610) $(19,503) $(74,330)
======= ======== ========
Weighted average number of common
shares outstanding 21,516 21,500 21,500
Shares assumed to be issued upon
exercise of stock options * * *
Shares assumed to be issued upon
exercise of stock warrant * * *
------- -------- --------
Weighted average number of common
shares outstanding assuming
dilution 21,516 21,500 21,500
======= ======== ========
Net loss per common share $ (0.45) $ (0.91) $ (3.46)
======= ======= =======
Net loss per common share assuming
dilution $ (0.45) $ (0.91) $ (3.46)
======= ======= =======
Note: if an item appears with a *, the security was antidilutive for the
period presented.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports on the consolidated financial statements and financial
statement schedule of the Company as of and for the year ended September 30,
1998 included in this Form 10-K, into the Company's previously filed
registration statement on Form S-8 (File No. 333-40091).
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
December 28, 1998.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
As independent auditors, we hereby consent to the incorporation by reference of
our reports on the consolidated financial statements and financial statement
schedule of the Company as of September 30, 1997 and for the each of the years
in the two-year period ended September 30, 1997 included in this Form 10-K, into
the Company's previously filed registration statement on Form S-8 (File No. 333-
40091).
/s/ KPMG Peat Marwick LLP
San Juan, Puerto Rico,
December 28, 1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> $24,720
<SECURITIES> 0
<RECEIVABLES> 12,987
<ALLOWANCES> 1,265
<INVENTORY> 2,480
<CURRENT-ASSETS> 47,920
<PP&E> 76,352
<DEPRECIATION> 32,621
<TOTAL-ASSETS> 97,432
<CURRENT-LIABILITIES> 16,914
<BONDS> 22,363
0
0
<COMMON> 217
<OTHER-SE> 54,828
<TOTAL-LIABILITY-AND-EQUITY> 97,432
<SALES> 99,405
<TOTAL-REVENUES> 99,405
<CGS> 70,503
<TOTAL-COSTS> 70,503
<OTHER-EXPENSES> 37,053
<LOSS-PROVISION> 498
<INTEREST-EXPENSE> 2,437
<INCOME-PRETAX> (10,588)
<INCOME-TAX> (978)
<INCOME-CONTINUING> (9,610)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,610)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
