SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
<checked-box> QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
or
<square> TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ to __________
COMMISSION FILE NUMBER 1-13914
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
(Exact name of Registrant as specified in its Charter)
DELAWARE ###-##-####
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CARRETERA #865, KM 0.4
BARRIO CANDELARIA ARENAS
TOA BAJA, PUERTO RICO 00949
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (787) 251-2000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
<checked-box> Yes <square> No
As of February 10, 1997, there were 21,500,000 shares of Common Stock
issued and outstanding. This amount includes 5,000,000 shares of Class A
Common Stock and 16,500,000 shares of Class B Common Stock.
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
PART I FINANCIAL INFORMATION............................................. 3
Item 1. Financial Statements:............................................. 3
Condensed Consolidated Balance Sheets (unaudited) at
December 31, 1997 and September 30, 1997........................ 3
Condensed Consolidated Statements of Income/(Loss)
(unaudited) for the Three Months Ended
December 31, 1997 and 1996...................................... 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
December 31, 1997 and 1996...................................... 6
Notes to Condensed Consolidated Financial Statements
(unaudited)..................................................... 7
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations............................................ 14
PART II OTHER INFORMATION................................................. 19
Item 1. Legal Proceedings................................................. 19
Item 6. Exhibits and Reports on Form 8-K.................................. 19
(a) Exhibits..................................................... 19
(b) Reports on Form 8-K during the quarter ended
December 31, 1997........................................... 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(unaudited) (audited)
___________ ___________
<S> <C> <C>
Cash and cash equivalents $13,814 $19,447
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,493 12,133 11,681
at December 31, 1997 and $1,389 at September 30, 1997
Due from PepsiCo, Inc. and affiliated companies 95 943
Other 4,416 4,273
Inventories 3,144 3,635
Deferred income taxes 97 97
Prepaid expenses and other current assets 1,557 1,414
______ ______
Total current assets 35,256 41,490
Investment in Buenos Aires Embotelladora S.A. (BAESA) -- --
Deferred income tax, long-term 1,554 1,619
Long-lived assets for sale, principally land and building 3,752 3,752
Property, plant and equipment, net 46,466 47,347
Intangible assets, net of accumulated amortization 1,655 1,644
Other assets 9 58
_______ _______
Total assets $88,692 $95,910
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(unaudited) (audited)
_____________ _____________
<S> <C> <C>
Liabilities:
Current installments of long-term debt $1,007 $1,007
Current installments of capital lease obligations 910 908
Short-term borrowings 4,384 5,430
Accounts payable:
Trade 9,446 13,750
Affiliate -- 32
Income tax payable 234 199
Other accrued expenses 5,204 4,830
______ ______
Total current liabilities 21,185 26,156
Long-term debt, excluding current installments 23,371 23,636
Capital lease obligations, excluding current installments 228 513
Accrued pension cost, long-term 1,507 2,213
______ ______
Total liabilities 46,291 52,518
Shareholders' equity:
Class A common shares of $0.01 par value; authorized,
issued and outstanding 5,000,000 shares 50 50
Class B common shares, $0.01 par value; authorized
35,000,000 shares; issued and outstanding 165 165
16,500,000 shares
Additional paid-in capital 103,910 103,910
Retained earnings/(deficit) (60,726) (59,735)
Pension liability adjustment (998) (998)
_______ ______
Total shareholders' equity 42,401 43,392
_______ ______
Total liabilities and shareholders' equity $88,692 $95,910
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
(unaudited) (unaudited)
___________ ___________
<S> <C> <C>
Net Sales $ 25,517 $ 25,798
Cost of Sales 17,199 17,909
___________ __________
Gross profit 8,318 7,889
Selling and marketing expenses 7,413 8,218
Administrative expenses 1,384 2,820
_____ _____
Income/(loss) from operations (479) (3,149)
Other income (expenses):
Interest expense (663) (632)
Interest income 236 408
Other, net 40 26
___________ _________
Total other income (expenses) (387) (198)
___________ _________
Loss before income tax expense (866) (3,347)
Income tax expense (125) (108)
___________ _________
Net income/(loss) $(991) $(3,455)
___________ _________
Basic loss per common share: $(0.05) $(0.16)
___________ _________
Weighted average number of shares outstanding 21,500 21,500
=========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
(unaudited) (unaudited)
____________ ___________
<S> <C> <C>
Net loss $(991) $(3,455)
Adjustments to reconcile net earnings to net cash provided by/
(used in) operating activities:
(Gain)/loss on sale of property, plant and equipment 52 60
Depreciation and amortization 1,335 1,632
Changes in assets and liabilities:
Accounts receivable 253 (655)
Inventories 491 550
Prepaid expenses and other current assets (143) (108)
Accounts payable (4,336) (742)
Other accrued expenses 374 (2,362)
Income taxes payable 35 (77)
Other, net (624) 22
________ _______
Net cash provided by/(used in) operating activities (3,554) (5,135)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 16 137
Proceeds from matured short-term investment -- 12,904
Purchases of property, plant and equipment (501) (1,400)
________ _______
Net cash provided by/(used in) investing activities (485) 11,641
Cash flows from financing activities:
Proceeds from short-term borrowings -- 462
Repayment of long-term debt (1,311) (386)
Repayment of capital lease obligations (283) (147)
________ _______
Net cash provided by/(used in) financing activities (1,594) (71)
Net increase in cash and cash equivalents (5,633) 6,435
Cash and cash equivalents at beginning of period 19,447 18,614
________ _______
Cash and cash equivalents at end of period $13,814 $25,049
======== =======
Supplemental disclosures:
Cash paid for:
Interest $692 $573
Income taxes 25 185
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(1) ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, footnotes,
and discussions should be read in conjunction with the consolidated financial
statements, related footnotes, and discussions contained in the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1997. In
the opinion of the Company's management, the unaudited condensed consolidated
interim financial statements reflect all adjustments necessary for a fair
presentation. Operating results for the three months ended December 31, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 1998.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
____________ ___________
<S> <C> <C>
Raw materials $ 1,166 $ 1,070
Finished goods 1,003 1,428
Other 975 1,137
________ ________
$ 3,144 $ 3,635
======== ========
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
____________ _____________
<S> <C> <C>
Land and improvements $ 7,057 $ 7,057
Buildings and improvements 14,665 14,682
Machinery, equipment and vehicles 48,243 48,081
Bottles, cases and shells 1,370 1,515
Furniture and fixtures 1,580 1,580
Construction in process 506 86
__________ _________
73,421 73,001
Less accumulated depreciation and amortization (26,955) (25,654)
__________ _________
Property, plant and equipment, net $ 46,466 $ 47,347
========== ========
</TABLE>
7
<PAGE>
(4) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
The Company has adopted the provisions of FASB 128 for fiscal year 1998.
Under the provisions of FASB 128 the Company is required to report
earnings/(losses) per share under the following two concepts: (i) basic
earnings/(losses) per share and (ii) diluted earnings/(losses) per share.
Under the diluted earnings/(losses) per share method, the Company must consider
in the computation of earnings/(losses) per share the effect of all dilutive
potential common shares that were outstanding for the period. Nevertheless, if
the effect of considering the potential common shares results in the
computation being antidilutive then the FASB requires that the Company present
basic earnings/(losses) per share only. The Company has reported losses for
both the 1997 and 1998 interim periods, therefore it does not include the
potential common shares in the computation of loss per share since this would
result in an antidilutive computation of such loss per common share. Therefore
the Company's reported basic and diluted earnings/(losses) per share is the
same. Potential common shares outstanding at December 31, 1997 which could,
in the future, enter into the computation of diluted earnings/(losses) per
share amount to 1,706,667.
Prior to October 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
opinion no. 25, "Accounting for Stock issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date
of the grant only if the current market price of the underlying stock exceeded
the exercise price. On October 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation", which permits entities to recognize
as expense, over the vesting period, the fair value of all stock-based awards
on the date of the grant. Alternatively, the SFAS No. 123 also allows entities
to continue to apply the provisions of APB No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair value based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB No. 25 and provide the pro forma disclosure required by
SFAS No. 123.
(5) INCOME TAX
The Company provided a current income tax expense of $125 and $108 for the
three month periods ended December 31, 1997 and 1996, respectively.
(6) NOTES PAYABLE TO BANK AND LONG-TERM DEBT
The Company has, among its credit facilities, a $5 million revolving
credit facility, of which $3,747 was outstanding at December 31, 1997 and the
balance available was fully drawn shortly after December 31, 1997.
(7) RELATED PARTY TRANSACTIONS
The following are transactions between the Company and subsidiaries, and
other related parties for the three months ended December 31, 1997 and 1996,
respectively:
(i) The Company paid approximately $675 and $856 during the three
months ended December 31, 1997 and 1996, respectively, in
advertising fees to a firm controlled by a shareholder of the
Company.
(ii) The Company paid approximately $71 and $50 during the three
month periods ended December 31, 1997 and 1996, respectively for
legal fees to a firm, one of whose partners is a relative of the
Company's President.
8
<PAGE>
(8) INVESTMENT IN BAESA
The Company owns 12,345,348 shares, or approximately 17% as of September
30, 1997 and 1996, respectively, of the outstanding capital stock of BAESA.
Through June 30, 1996, the Company exercised significant influence over the
management of BAESA, subject to the right of PepsiCo, Inc. ("PepsiCo") and
certain of its affiliates to approve certain management decisions. As of July
1, 1996, PepsiCo assumed operating control of BAESA and the Company does not
control, or have significant influence over, the management or operations of
BAESA. On May 9, 1997, The Buenos Aires Stock Exchange suspended trading of
BAESA's class B shares after its fiscal second quarter results for the period
ended March 31, 1997 showed a negative net worth under Argentine Accounting
Principles. The New York Stock Exchange also halted trading in BAESA's
American Depository Shares. On December 5, 1997, BAESA announced a financial
restructuring plan which would result in the issuance of additional equity by
BAESA in exchange for a portion of its outstanding debt, and would (if the
Company does not elect to exercise its preemptive rights to purchase its pro
rata share of the additional equity) result in the Company's 17% interest in
the outstanding capital stock of BAESA being diluted to a .34% interest. On
January 29, 1998, BAESA announced that its shareholders had approved the
restructuring plan. The plan provides for the recapitalization of BAESA and
involves lenders holding 89% of the approximately $700 million of debt being
restructured. This $700 million includes $60 million of 8.5% negotiable
obligations originally issued in the Eurobond market (the "Eurobonds"). The
implementation of the plan is contingent upon the satisfaction of several
conditions including: (i) the tender of a least 92% of the face value of the
Eurobonds in connection with the restructuring; (ii) the settlement of class
action litigation commenced against BAESA in the United States; and (iii)
approvals by Argentine and United States regulatory authorities for the
issuance of new BAESA equity, and by Argentine authorities for the issuance of
new debt, as part of the restructuring. BAESA also announced that, if the
requisite amount of Eurobonds is not tendered, or the class action litigation
is not settled on terms acceptable to BAESA, the parties to the restructuring
plan agreement have agreed to support a prepackaged plan of reorganization of
BAESA under Chapter XI of the United States Bankruptcy Code.
The Company withdrew its interest in BAESA Shareholder Associates ("BSA"),
and liquidated Argentine Bottling Associates, two partnerships, which
previously held the Company's interest in BAESA, during fiscal year 1997.
These actions have resulted in the Company holding its BAESA shares directly,
and eliminates for future periods, the accounting requirement that the Company
report on an equity basis the results of operations of BAESA.
9
<PAGE>
The following condensed audited financial information relating to BAESA as
of September 30, 1996 (in thousands of U.S. dollars), and for the year then
ended has been provided to the Company by BAESA; its inclusion in this report
is for disclosure purposes only and the Company makes no representation as to
the accuracy or completeness of such information. At the present time, the
Company does not control, or have significant influence over, the management or
operations of BAESA. For further information regarding BAESA, investors should
consult information made publicly available by BAESA to its shareholders.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
_____________
<S> <C>
ASSETS
Cash and cash equivalents.................................................................................... $27,361
Accounts receivable, net..................................................................................... 64,069
Inventories.................................................................................................. 31,077
Deferred income tax, net..................................................................................... 6,681
Other current assets......................................................................................... 8,469
_______
Total current assets.................................................................................. 137,657
Property, plant and equipment, net........................................................................... 586,908
Intangible assets, net....................................................................................... 79,092
Investment in joint venture.................................................................................. 106,918
Other assets................................................................................................. 16,805
_______
Total assets.......................................................................................... $927,380
========
LIABILITIES
Current installments of long-term debt and capital lease obligations......................................... $290,299
Bank loans and overdrafts.................................................................................... 375,788
Accounts payable, income tax payable and accrued expenses.................................................... 190,981
________
Total current liabilities............................................................................. $857,068
Long-term debt............................................................................................... 87,461
Deferred income taxes........................................................................................ 7,740
Other long-term liabilities.................................................................................. 8,385
________
Total liabilities..................................................................................... 960,654
Total shareholders' equity/(deficit)......................................................................... (33,274)
________
Total liabilities and shareholders' equity/(deficit).................................................. $927,380
========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1996
_____________
<S> <C>
Net Sales.................................................................................................... $680,236
_________
Cost and Expenses:
Cost of sales................................................................................................ (472,692)
Selling and marketing expenses............................................................................... (354,880)
Administrative expenses...................................................................................... (192,210)
Restructuring costs.......................................................................................... (34,782)
_________
(1,054,564)
_________
Income/(loss) from operations................................................................................ (374,328)
Other income (expenses), net................................................................................. (75,459)
_________
Income/(loss) before income tax (expense) benefit and equity
in net earnings of affiliate.................................................................... (449,787)
Income/(loss) tax (expense) benefit.......................................................................... (8,191)
_________
Income/(loss) before equity in net earnings of affiliate.............................................. (457,978)
Equity in net earnings of affiliate.......................................................................... 5,597
_________
Net income/(loss)..................................................................................... $(452,381)
=========
</TABLE>
11
<PAGE>
(9) STOCK OPTION PLANS
In 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 one million
shares of authorized but unissued class B common stock. One of these stock
option plans is designed so as to be qualified for income tax purposes, whereas
the other is not a qualified plan. 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.
Additionally, the Company entered into a stock option agreement with the
President of the Company which grants him the right to acquire 1,516,667 class
B shares of the Company, at an exercise price of $5.00 per share. This stock
option will be exercisable in whole or in part until exercised in full.
At September 30, 1997, there were 810,000 additional shares available for
grant under the plans. The per share weighted-average estimated fair value of
stock options granted during 1997 was $3.52 on the date of the grant using the
Black Scholes option-pricing model with the following weighted average
assumptions: expected dividend yield 0%, risk-free interest rate of 6.125%,
and an expected life of 10 years.
The Company applies APB opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements.
(10) CONTINGENCIES
LEGAL PROCEEDINGS
The Securities and Exchange Commission (the "Commission") has issued a
formal order of investigation in connection with accounting irregularities
uncovered during 1996. The Staff of the Commission is currently engaged in
that investigation and the Company is cooperating fully.
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.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, bank loans and overdrafts, accrued payroll, taxes and other
current liabilities approximate fair value because of the short maturity of
these instruments.
The fair value of each of the Company's long-term debt instruments is
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The carrying amounts approximate the
estimated fair value at December 31, 1997.
The Company currently does not hold any derivatives.
12
<PAGE>
Under the equity method of accounting, the Company's investment in BAESA
has been reduced to zero.
13
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING
COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL OVERVIEW
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with this overview and
the Condensed Consolidated Financial Statements of the Company, and the Notes
thereto, as of December 31, 1997 and September 30, 1997 and for the three month
periods ended December 31, 1996 and 1997 (the "1997 interim period" and the
"1998 interim period," respectively).
This Report contains forward looking statements of expected future
developments. The Company wishes to insure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. The
forward looking statements in this Report refer to expectations regarding the
payment of dividends and estimated capital expenditures for future years.
These forward looking statements reflect Management's expectations and are
based upon currently available data; however, actual payments and expenditures
are subject to future events and uncertainties which could materially impact
the Company's ability to pay dividends and its ability and need to make capital
expenditures.
PRESENTATION OF FINANCIAL INFORMATION
In addition to conducting its own bottling operations, the Company owns
12,345,348 shares, or approximately 17% of the outstanding capital stock, and,
through June 30, 1996, exercised significant influence over the management of
BAESA, subject to the right of PepsiCo, Inc. ("PepsiCo") and certain of its
affiliates (collectively, "Pepsi Cola International" or "PCI") to approve
certain management decisions. As of July 1, 1996, PepsiCo assumed operating
control of BAESA and the Company does not control, or have significant
influence over, the management or operations of BAESA. The financial
information relating to the Company set forth below reflects the operations of
the Company.
On May 9, 1997, the Buenos Aires Stock Exchange suspended trading of
BAESA's Class B Shares after its fiscal second quarter results for the period
ended March 31, 1997 showed a negative net worth under Argentine accounting
principles of $18.7 million. The New York Stock Exchange also halted trading
in BAESA's American Depository Shares. On December 5, 1997, BAESA announced a
financial restructuring plan which would result in the issuance of additional
equity by BAESA in exchange for a portion of its outstanding debt, and would
(if the Company does not elect to exercise its preemptive rights to purchase
its pro rata share of the additional equity) result in the Company's 17%
interest in the outstanding capital stock of BAESA being diluted to a .34%
interest. On January 29, 1998, BAESA announced that its shareholders had
approved the restructuring plan. The plan provides for the recapitalization of
BAESA and involves lenders holding 89% of the approximately $700 million of
debt being restructured. This $700 million includes $60 million of 8.5%
negotiable obligations originally issued in the Eurobond market (the
"Eurobonds"). The implementation of the plan is contingent upon the
satisfaction of several conditions including: (i) the tender of a least 92% of
the face value of the Eurobonds in connection with the restructuring; (ii) the
settlement of class action litigation commenced against BAESA in the United
States; and (iii) approvals by Argentine and United States regulatory
authorities for the issuance of new BAESA equity, and by Argentine authorities
for the issuance of new debt, as part of the restructuring. BAESA also
announced that, if the requisite amount of Eurobonds is not tendered, or the
class action litigation is not settled on terms acceptable to BAESA, the
14
<PAGE>
parties to the restructuring plan agreement have agreed to support a
prepackaged plan of reorganization of BAESA under Chapter XI of the United
States Bankruptcy Code.
The Company withdrew its interest in BSA, and liquidated Argentine
Bottling Associates, two partnerships, which previously held the Company's
interest in BAESA, during fiscal year 1997. These actions have resulted in the
Company holding its BAESA shares directly, and eliminates for future periods,
the accounting requirement that the Company report on an equity basis the
results of operations of BAESA.
SEASONALITY
The historical results of operations of the Company have not been
significantly seasonal. The Company believes that this could have been partly
attributable to existing capacity constraints while operating out of the old
plant which might have prevented the Company from meeting increased demand
during peak periods. However, the Company anticipates that its results of
operations in the future may be somewhat seasonal in the summer and holiday
seasons.
THE COMPANY
GENERAL
The following table sets forth certain financial information as a
percentage of net sales for the Company for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR INTERIM
__________________________________ __________________
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 59.4 72.8 68.8 69.4 67.4
Gross Profit 40.6 27.2 31.2 30.6 32.6
Selling and Marketing Expenses 26.6 41.3 30.5 31.9 29.1
Administrative Expenses 5.5 9.3 8.5 10.9 5.4
Intangibles and Fixed Asset Write-offs - - .5 - -
Restructuring Charges - 2.6 13.3 - -
Income (Loss) from Operations 8.5 (26.1) (21.6) (12.2) (1.9)
===== ====== ====== ====== =====
</TABLE>
1998 INTERIM PERIOD COMPARED TO 1997 INTERIM PERIOD
NET SALES. Net sales for the Company decreased $.3 million, or 1.1%, for
the 1998 interim period from the 1997 interim period to $25.5 million. This
decrease was primarily the result of the increase in discounts provided to
customers partially offset by a 8.6% increase in unit sales volume in the 1998
interim period as compared to the 1997 interim period. This increase in
discounts resulted from increased competitive activity. The average net sales
price on an eight ounce case equivalent basis decreased during the 1998 interim
period by approximately 8.9% as compared to the 1997 interim period.
COST OF SALES. Cost of sales for the Company decreased $.7 million, or
4.0% for the 1998 interim period as compared to the 1997 interim period to
$17.2 million. This decrease was primarily the result of lower raw material
costs offset, in part, by the 8.6% increase in unit sales volume in the 1998
interim period as compared to the 1997 interim period.
15
<PAGE>
GROSS PROFIT. Gross profit for the Company increased by $.4 million to
$8.3 million in the 1998 interim period from $7.9 million in the 1997 interim
period. As a percentage of net sales, gross profit increased to 32.6% in the
1998 interim period from 30.6% in the 1997 interim period. The increase was
primarily due to lower raw material costs and the increase in unit sales volume
of 8.6%, offset partially by the lower average net selling price per eight
ounce case.
SELLING AND MARKETING EXPENSE. The Company has a number of marketing
arrangements with PepsiCo pursuant to which the Company is required to make
certain investments in marketing, new products, packaging introductions and
certain capital goods. The Company receives reimbursements from PepsiCo for a
portion of such expenditures, which it is able to use to offset traditional
marketing expenses or to acquire fixed assets. The Company's selling and
marketing expenses are shown net of all such reimbursements from PepsiCo.
Selling and marketing expenses for the Company decreased $.8 million, or
9.8%, to $7.4 million for the 1998 interim period as compared to the 1997
interim period. This decrease was primarily due to reduced operating expenses
of $.5 million and lower marketing spending of $.3 million in the 1998 interim
period as compared to the 1997 interim period. The Company has elected to
reduce the level of marketing spending wherever possible to lessen the impact
of the lower average net selling price in the 1998 interim period as compared
to the 1997 interim period.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company
decreased $1.4 million or 50.9% for the 1998 interim period from the 1997
interim period to $1.4 million. This decrease is primarily the result of lower
professional fees of $.9 million which is due to a substantial reduction in
civil litigation related expenses, and lower labor and other operating expenses
of $.5 million. As a percentage of net sales, administrative expenses
decreased to 5.4% during the 1998 interim period from 10.9% in the 1997 interim
period.
INCOME/(LOSS) FROM OPERATIONS. Income/(loss) from operations for the
Company increased to $(.5) million in the 1998 interim period, from $(3.1)
million in the 1997 interim period. This increase is the result of lower cost
of sales of $.7 million, lower selling and marketing expenses of $.8 million,
and lower administrative expenses of $1.4 million, offset in part by lower net
revenue of $(.3) million for the 1998 interim period as compared to the 1997
interim period.
NET INCOME/(LOSS). Net income/(loss) increased to $(1.0) million in the
1998 interim period, from $(3.5) million during the 1997 interim period. This
increase is primarily the result of lower cost of sales of $.7 million, lower
selling and marketing expenses of $.8 million, and lower administrative
expenses of $1.4 million, offset in part by lower net sales of $(.3) million
and lower other income/(expense) of $(.2) million for the 1998 interim period
as compared to the 1997 interim period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $13.8 million of cash and cash
equivalents and indebtedness for borrowed money, including short-term and long-
term borrowings and capital lease obligations, of $29.9 million, which in turn
included $6.3 million of current and short-term obligations.
The Company's current priority is to restore profitability with respect to
its Puerto Rican operations. As of December 31, 1997, the Company has used
approximately $27.7 million, net of interest earnings, of the cash set aside
from its September 1995 initial public offering to support these efforts, for
the repayment of indebtedness, and for additions to the Company's working
capital which has been and continues to be affected as a result of the
Company's net operating losses, and to cover a portion of the cost of the
16
<PAGE>
offering. In addition, on April 8, 1997, the Company completed the refinancing
of its remaining debt to include a payment schedule which more closely matches
the life of its production assets.
Net cash provided by/(used in) operating activities for the Company for
the 1998 interim period was $(3.6) million compared to $(5.1) million during
the 1997 interim period. This change was mainly the result of the net cash
loss after depreciation and amortization of $.4 million and changes in assets
and liabilities of $(4.0) million during the 1998 interim period, as compared
to $(1.8) million and $(3.3) million, respectively, for the 1997 interim
period. As of December 31, 1997, the Company had $70.5 million in net
operating loss carryforwards available to offset future Puerto Rican income
taxes and $39.3 million in net operating loss carryforwards available to offset
future U.S. taxable income.
Net cash provided by/(used in) investing activities for the Company was
$(.5) million for the 1998 interim period, as compared with $11.6 million
during the 1997 interim period. Purchases of property, plant and equipment, net
of disposals, amounted to $(.5) million during the 1998 interim period as
compared to $(1.3) million during the 1997 interim period. Proceeds from
short-term investment were zero during the 1998 interim period as compared to
$12.9 million for the 1997 interim period. No dividends were received from
BAESA by the Company during the 1998 or 1997 interim periods.
Cash flows provided by/(used in) financing activities for the Company
during the 1998 interim period were $(1.6) million compared to $(0.1) million
during the 1997 interim period. The significant financing activities for the
Company during the 1998 interim period were the net repayment of debt. The
significant financing activities during the 1997 interim period were also
the net repayment of debt. The Company did not pay any dividends for either
the 1998 or 1997 interim periods. In the future, the payment of dividends will
be in part dependent on the receipt of dividends from BAESA, and in part
dependent on the achievement of adequate levels of profitability in the
Company's Puerto Rican operations, and, under certain conditions, the consent
by Banco Popular. The Company does not expect to pay any dividends for the
foreseeable future.
In November 1994, the Company and its subsidiaries entered into a Credit
Agreement with Banco Popular. The Credit Agreement provides for borrowings by
the Company from time to time of $5 million in revolving loans, $8.8 million in
term loans and $15 million in non-revolving loans. In December 1995, Banco
Popular increased the amount the Company could borrow under revolving loans.
As of March 31, 1996, the Company had outstanding under the Credit Agreement
revolving loans in an aggregate principal amount of $10.0 million, term loans
in an aggregate principal amount of $5.3 million and non-revolving loans in an
aggregate principal amount of $15.0 million. On April 8, 1997, the Company
entered into a Second Restated Credit Agreement with Banco Popular, the holder
of this debt. The effect of this new agreement was to restructure the existing
debt into two portions, a long-term loan of $25.0 million and a short-term
revolving credit facility of $5.0 million. Both portions bear interest at 2.5%
over LIBOR.
The weighted average interest rate on such borrowings was 8.3% for the
1998 interim period. Beginning on May 1, 1997, the Company is required to make
monthly payments of principal in the amount of $.083 million with respect to
the new term loan for the first two years of the loan with annual escalating
monthly payments thereafter until the end of the tenth year of the loan (April
1, 2007) when an $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
17
<PAGE>
a minimum ratio of Total Liabilities to Tangible Net Worth (as defined in the
Second Restated Credit Agreement) of not more than 1.60 to 1 for fiscal year
1997 and 1.50 to 1 for each fiscal year thereafter during the term of the
Second Restated Credit Agreement; (ii) a ratio of Operating Cash Flow to Total
Debt Service (as defined in the Second Restated Credit Agreement) of 1 to 1
through June 30, 1998, 1.30 to 1 from September 30, 1998 through June 30, 1999,
and 1.5 to 1 thereafter; (iii) a minimum Tangible Net Worth of $37 million on
September 30, 1997 and of $39.5 million, $42 million, $44.5 million and $47
million, respectively, by September 30, 1998, 1999, 2000, 2001, and thereafter.
The Company is also required to maintain with Banco Popular a minimum cash
balance of $10 million less certain prepayments of indebtedness under the term
loan, and under certain conditions this amount may be reduced to zero. In
addition, under certain circumstances, the Company may be required to prepay a
portion of the debt. Specifically, net proceeds of capital asset dispositions
over $.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), and a
portion of net proceeds associated with any sale of Class A shares, require
early repayment of the amounts outstanding under this agreement. Certain of
the repayment amounts offset the minimum cash balance requirement. The entire
principal amount of loans outstanding under the Second Restated Credit
Agreement becomes immediately due and payable, if the Company violates any of
these financial restrictions. Furthermore, the Company may not pay dividends
(other than amounts declared by and received from BAESA as dividends) without
the consent of Banco Popular under the Second Restated Credit Agreement.
The Company believes that it is currently in full compliance with the
terms of the Second Restated Credit Agreement.
Pursuant to the Second Restated Credit Agreement, the Company has granted
Banco Popular a security interest in all its machinery and equipment,
receivables, inventory and the real property on which the Toa Baja plant and
the Rio Piedras plant are located.
The Company's franchise arrangements with PepsiCo require it not to exceed
a ratio of senior debt to subordinated debt to equity of 65 to 25 to 10. The
Company is currently in compliance with these covenants.
Capital expenditures for the Company totaled $.5 million in the 1998
interim period as compared to $1.4 million in the 1997 interim period. 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 Company for the fiscal years
1998 and 1999 may be approximately $3 million in each year.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 10 to Notes to Condensed Consolidated
Financial Statements contained in Part I of this Report is incorporated herein
by reference. Except as described in that Note, there were no material
developments regarding legal proceedings involving the Company during the three
month period ended December 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits are filed herewith or incorporated
herein:
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995).
3.2 Certificate of Amendment of the Company's Amended and Restated
Certificate of Incorporation.
3.3 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995).
4.1 Form of Specimen Stock Certificate representing Class B Shares
(incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
94620) (the "S-1 Registration Statement")).
10.1 Franchise Commitment Letter (incorporated by reference to Exhibit
10.1 to the S-1 Registration Statement).
10.2 Letter Agreement between the Company and PepsiCo extending term of
Exclusive Bottling Appointments (incorporated by reference to Exhibit
10.2 to the S-1 Registration Statement).
10.3 Form of Exclusive Bottling Appointment (incorporated by reference to
Exhibit 10.3 to the S-1 Registration Statement).
10.4 Material Differences in Exclusive Bottling Appointments (incorporated
by reference to Exhibit 10.4 to the S-1 Registration Statement).
10.5 Concentrate Price Agreement (incorporated by reference to Exhibit
10.5 to the S-1 Registration Statement).
10.6 Amended and Restated General Partnership Agreement for BSA
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the
S-1 Registration Statement).
10.7 Shareholders Agreement (incorporated by reference to Exhibit 10.7 to
Amendment No. 1 to the S-1 Registration Statement).
10.8 Amendment No. 1 to Shareholders Agreement (incorporated by reference
to Exhibit 10.8 to Amendment No. 1 to the S-1 Registration
Statement).
10.9 Amendment No. 2 to Shareholders Agreement (incorporated by reference
to Exhibit 10.9 to Amendment No. 1 to the S-1 Registration
Statement).
10.10 Amendment No. 3 to Shareholders Agreement (incorporated by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995).
10.11 Stock Option Agreement dated as of September 28, 1996 among Rafael
Nin, Pepsi-Cola Puerto Rico Bottling Company and the Shareholders
(incorporated by reference to Exhibit 1 to the Schedule 13D of Rafael
Nin dated October 9, 1996).
10.12 Voting Trust Agreement dated September 28, 1996 among Rafael Nin,
Pepsi-Cola Puerto Rico Bottling Company and the Grantors
(incorporated by reference to Exhibit 2 to the Schedule 13D of Rafael
Nin dated October 9, 1996).
10.13 Consent of PepsiCo, Inc. to the terms of the Voting Trust Agreement
referred to under Exhibit No. 10.12 above.
10.14 Stock Option Agreement dated as of October 15, 1996 between Rafael
Nin and Pepsi-Cola Puerto Rico Bottling Company (incorporated by
reference to Exhibit 1 to the Amendment No. 1 to the Schedule 13D of
Rafael Nin dated January 7, 1997).
19
<PAGE>
10.15 Pepsi-Cola Puerto Rico Bottling Company Qualified Stock Option Plan
dated as of December 30, 1996 (incorporated by reference to Exhibit 2
to the Amendment No. 1 to the Schedule 13D of Rafael Nin dated
January 7, 1997).
10.16 Pepsi-Cola Puerto Rico Bottling Company Non-Qualified Stock Option
Plan dated as of December 30, 1996 (incorporated by reference to the
Company's Proxy Statement dated January 31, 1997).
10.17 Amendment No. 4 to the Shareholders Agreement (incorporated by
reference to the Exhibit 10.13 to the Company's Annual Report on Form
10K/A-1 for the fiscal year ended September 30, 1996).
10.18 Second Restated Credit Agreement dated April 8, 1997 among Pepsi-Cola
Puerto Rico Bottling Company, Pepsi-Cola Puerto Rico Manufacturing
Company, Pepsi-Cola Puerto Distributing Company, Beverage Plastics
Company and Banco Popular de Puerto Rico (incorporated by reference
to the Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997).
10.19 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 the Exhibit 10.19 to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997).
10.20 Amendment No. 5 to Class A Shareholders Agreement (incorporated by
reference to the Exhibit 10.20 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997).
10.21 Trust Agreement dated as of May 14, 1997 among certain shareholders
of the Company and Rafael Nin, as Trustee (incorporated by reference
to Exhibit 1 to Amendment No. 3 to the Schedule 13D of Rafael Nin
dated August 13, 1997).
10.22 Stock Option Agreement dated as of May 14, 1997 among certain
grantors, a special committee of the Company's Board of Directors,
the Company and Rafael Nin (incorporated by reference to Exhibit No.
2 to Amendment No. 3 to the Schedule 13D of Rafael Nin dated August
13, 1997).
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
the S-1 Registration Statement).
(b) There were no reports on Form 8-K filed during the quarter ended
December 31, 1997.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
__________ _____ ____
<S> <C> <C>
/S/ RAFAEL NIN Chief Executive Officer February 12, 1998
_____________________________
Rafael Nin
/S/ DAVID L. VIRGINIA Chief Financial Officer and Chief February 12, 1998
_____________________________ Accounting Officer
David L. Virginia
/S/ WANDA RIVERA ORTIZ Chief Accounting Officer February 12, 1998
_____________________________
Wanda Rivera Ortiz
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,814
<SECURITIES> 0
<RECEIVABLES> 18,137
<ALLOWANCES> 1,493
<INVENTORY> 3,144
<CURRENT-ASSETS> 35,256
<PP&E> 73,421
<DEPRECIATION> (26,955)
<TOTAL-ASSETS> 88,692
<CURRENT-LIABILITIES> 21,185
<BONDS> 23,599
0
0
<COMMON> 215
<OTHER-SE> 43,184
<TOTAL-LIABILITY-AND-EQUITY> 88,692
<SALES> 25,517
<TOTAL-REVENUES> 25,517
<CGS> (17,199)
<TOTAL-COSTS> (25,892)
<OTHER-EXPENSES> 276
<LOSS-PROVISION> (104)
<INTEREST-EXPENSE> (663)
<INCOME-PRETAX> (866)
<INCOME-TAX> 125
<INCOME-CONTINUING> (991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (991)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
