<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] 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
Incorporation or Organization) Identification Number)
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)
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. Yes [X] No [ ]
As of May 17, 1999, 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.
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TABLE OF CONTENTS
PAGE NO.
--------
PART I
ITEM 1. FINANCIAL STATEMENTS.......................................... 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 12
PART II.
ITEM 1. LEGAL PROCEEDINGS............................................. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 13
<PAGE>
CAUTIONARY STATEMENT UNDER THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in this Report include forward looking statements regarding
possible future events, including estimated capital expenditures, seasonality of
the Company's business and the Company's intentions with respect to dividend
payments. Such forward looking statements may involve factors that could cause
the actual results of the Company to differ materially from historical results
or from any results implied by such forward looking statements. The Company
cautions the public not to place undue reliance on forward looking statements,
which may be based on assumptions and anticipated events that do not
materialize. Factors which could cause the Company's actual results to differ
from forward looking statements include material changes in the relationship
between the Company and PepsiCo, Inc.; inability to achieve additional cost
savings and continued competitive pressures with respect to pricing and volume
in the Puerto Rico market, which could result in continued erosion of market
share; unexpected developments which prevent improved results from the Company's
marketing activities; and other factors, including economic, climatic and
political conditions in Puerto Rico, and the impact of such conditions on
consumer spending.
<PAGE>
PART I
ITEM 1. Financial Statements
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U. S. Dollars in thousands)
March 31, December 31,
1999 1998
(unaudited) (audited)
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,911 $ 19,418
Receivables, net of allowance for doubtful
accounts of $2,566 and $2,402
Trade 14,476 13,043
Due from PepsiCo, Inc. and
affiliated companies 4,662 2,008
Other 2,981 2,248
Inventories 3,062 2,505
Bottles, cases and shells 1,441 1,409
Deferred income taxes 32 49
Prepaid expenses and other current assets 5,186 4,422
-------- --------
Total current assets 37,751 45,102
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 6,893 6,893
Buildings and improvements 14,798 14,779
Machinery, equipment and vehicles 51,285 47,881
Furniture and fixtures 1,809 1,809
Construction in process 2,066 1,250
-------- --------
76,851 72,612
Less accumulated depreciation (30,311) (30,150)
-------- --------
46,540 42,462
-------- --------
OTHER ASSETS:
Deferred income taxes 1,221 1,221
Long-lived assets for sale, principally
land and building 2,615 2,615
Intangible assets, net of accumulated
amortization 967 1,259
Other assets 117 192
-------- --------
4,920 5,287
-------- --------
Total assets $ 89,211 $ 92,851
======== ========
The accompanying notes are an integral part of these financial statements.
2
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(U. S. Dollars in thousands, except share data)
March 31, December 31,
1999 1998
(unaudited) (audited)
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 1,007 $ 1,007
Current installments of capital lease
obligations 37 41
Trade accounts payable 5,108 3,842
Accrued expenses 7,680 9,455
--------- ---------
Total current liabilities 13,832 14,345
--------- ---------
LONG-TERM DEBT, excluding current installments 21,822 22,073
CAPITAL LEASE OBLIGATIONS, excluding current
installments -- 7
ACCRUED PENSION COST 1,805 1,805
STOCKHOLDERS' 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 shares 167 167
Additional paid-in capital 127,516 127,516
Accumulated deficit (73,659) (70,765)
Deferred compensation (432) (457)
Accumulated other comprehensive income
(loss) (1,890) (1,890)
--------- ---------
Total shareholders' equity 51,752 54,621
--------- ---------
Total liabilities and shareholders'
equity $ 89,211 $ 92,851
========= =========
The accompanying notes are an integral part of these financial statements.
3
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31
Unaudited
(U.S. Dollars in thousands, except per share data)
1999 1998
-------- --------
OPERATIONS:
Net sales $ 23,267 $ 22,943
Cost of sales 17,997 16,331
-------- --------
Gross profit 5,270 6,612
Selling general and administrative
expenses 7,703 8,633
Losses on asset impairments 267 --
-------- --------
Loss from operations (2,700) (2,021)
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (442) (629)
Interest income 163 156
Other, net 102 282
-------- --------
(177) (191)
-------- --------
LOSS BEFORE INCOME TAXES (2,877) (2,212)
INCOME TAX BENEFIT (EXPENSE) (17) 1,061
-------- --------
NET LOSS $ (2,894) $ (1,151)
======== ========
COMPREHENSIVE INCOME (LOSS) $ (2,894) $ (1,151)
======== ========
NET LOSS PER COMMON SHARE $ (0.13) $ (0.05)
======== ========
NET LOSS PER COMMON SHARE-ASSUMING
DILUTION $ (0.13) $ (0.05)
======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (IN THOUSANDS) $ 21,690 $ 21,500
======== ========
The accompanying notes are an integral part of these financial statements.
4
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
Unaudited
(U.S. Dollars in thousands)
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,894) $ (1,151)
Adjustments to reconcile net loss to net cash
used in operating activities-
Gain on sales of property and equipment (25) (280)
Losses on asset impairments 267 --
Depreciation and amortization 1,164 1,386
Deferred income taxes 17 --
Amortization of deferred compensation 25 --
Changes in current assets and liabilities:
Receivables (4,820) (1,720)
Inventories (557) (805)
Bottles, cases and shells (32) 29
Prepaid expenses and other current assets (764) 349
Trade accounts payable 1,266 735
Accrued expenses (1,775) 578
Changes in other assets, net 75 (125)
-------- --------
Net cash used in operating activities (8,053) (1,004)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,217) (736)
Proceeds from sales of property and equipments 25 502
-------- --------
Net cash used in investing activities (5,192) (234)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of short-term debt -- (101)
Borrowings (repayments) of long-term debt (251) 794
Repayment of capital lease obligations (11) (315)
-------- --------
Net cash provided by (used in) financing activities (262) 378
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,507) (860)
CASH AND CASH EQUIVALENTS, beginning of period 19,418 13,814
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 5,911 $ 12,954
======== ========
The accompanying notes are an integral part of these financial statements.
5
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars in thousands)
Unaudited
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Pepsi-Cola
Puerto Rico Bottling Company and Subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and, in the opinion of management, include all adjustments
(consisting of normal and recurring adjustments) which are considered necessary
for a fair presentation of financial position, results of operations and cash
flows as of March 31, 1999, and for all interim periods presented. These
condensed interim financial statements do not include all of the financial
information and disclosures required by generally accepted accounting principles
for complete financial statements, and should be read in conjunction with the
Company's audited consolidated financial statements and related notes thereto
for the three-months ended December 31, 1998. Also, the results of operations
for the interim periods presented may not be indicative of the results for the
entire year.
2. RECLASSIFICATIONS:
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. INVENTORIES:
Inventories include the following:
March 31, 1999 December 31, 1998
-------------- -----------------
Raw materials $1,555 $1,074
Finished goods 1,507 1,431
------ ------
$3,062 $2,505
====== ======
4. RESTRUCTURING CHARGE:
In July of 1998 a restructuring charge of $1,728 was established under a plan to
improve the Company's performance. The charge included approximately $679 of
severance and related charges, $224 of accruals for future payments to exit
activities, including canceling lease agreements, and $825 of asset writedowns
related to the elimination of certain product lines and exiting certain other
business strategies. During 1998 severance payments and payments relating to
other exit activities approximated $456 and $224, respectively. Severance
payments during the three-month period ended March 31, 1999 approximated $130.
5. IMPAIRMENT OF LONG-LIVED ASSETS:
During the three months ended December 31, 1998, the Company agreed to sell
substantially all net assets relating to the bottling, sale and distribution of
potable water under the "Cristalia" tradename to Cristalia Acquisition Corp.,
and recorded a $250 non-cash charge for the estimated impairment of the net
assets. The sale was finalized in April 1999 and resulted in an additional
impairment charge of $267. This charge was recorded during the three
6
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months ended March 31, 1999 as a writedown of Cristalia's long lived-assets and
is reflected as an asset impairment loss in the accompanying consolidated
statement of income (loss).
6. INSURANCE PROCEEDS FROM BUSINESS INTERRUPTION LOSSES:
In 1998 the Company incurred business interruption and other losses resulting
from Hurricane Georges. As the collection of a claim filed under the Company's
business interruption insurance policy was probable, the Company recorded $1,655
in anticipated recoveries attributable to business interruption and other
losses. During the three months ended March 31, 1999, the Company collected
approximately $1,655 in insurance recoveries.
7. STOCK OPTION PLANS:
The Company maintains two stock option 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. One of these stock option plans is not a
qualified plan. Stock options under this plan may have an exercise price below
the stock's fair market value at the date of grant ("below market options"). In
accordance with the APB Opinion No. 25, deferred compensation is recorded to
reflect any difference between the exercise price and market value of shares
granted under the plan for below market options, and is expensed over the
vesting period of the options. In 1998 the Company granted below market options
to acquire 452,500 shares of the Company's Class B stock, which vest over five
years. During the three months ended March 31, 1999, deferred compensation
expense of $25 was recorded related to this grant.
8. EARNINGS PER SHARE:
The Company presents basic and diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Accordingly, the Company's net loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding. Net loss per common share-assuming dilution does not include the
Company's potentially dilutive securities because to do so would be
antidilutive.
7
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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 unaudited
Condensed Consolidated Financial Statements of the Company, and the Notes
thereto, as of March 31, 1999 and December 31, 1998, and for the three month
interim periods ended March 31, 1999 and March 31, 1998 (the "1999 three month
interim period" and the "1998 three month interim period," respectively).
Certain prior year balances have been reclassified to conform to the current
year presentation.
CHANGE IN FISCAL YEAR.
During 1998, the Company changed its fiscal year end from September 30 to
December 31. A transition report on Form 10-K was filed for the interim period
from October 1, 1998 through December 31, 1998. This report on Form 10-Q
includes information for the three month interim periods ended March 31, 1999
and March 31, 1998.
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.
RESTRUCTURING CHARGE.
During the fiscal year ended September 30, 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, $0.2 million of accruals for
future payments to exit activities, including canceling lease agreements, and
$0.8 million of asset writedowns related to the elimination of certain product
lines 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 the three month period
ended March 31, 1999 totaled approximately $128 thousand while payments relating
to other exit activities approximated $2 thousand.
8
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SEASONALITY.
The historical results of operations of the Company have not been signficantly
seasonal. However the Company anticipates that its results of operations in the
future may become more seasonal, with higher demand 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.
INTERIM
1999 1998
------ ------
Net Sales 100.0% 100.0%
Cost of Sales 76.9 73.8
Gross Profit 23.1 26.2
Selling & Marketing Expenses 18.3 21.6
Administrative Expenses 15.3 13.5
Special Charges 1.2 --
Income (Loss) from Operations (11.6) (8.8)
===== =====
1999 INTERIM PERIOD COMPARED TO 1998 INTERIM PERIOD
NET SALES. Net sales for the Company increased $0.3 million, or 1.5%, for the
1999 interim period from the 1998 interim period to $23.3 million. Case volume
sales increased 9%, primarily in cans, and average overall pricing increased
6.2% during the 1999 interim period as compared to the 1998 interim period.
However the effect of this increase was reduced by reductions in revenue from
the sale of fountain products and home delivered bulk water. Further, net sales
in the 1998 interim period included $1.5 million received in settlement of
franchise company marketing support claims from prior periods.
COST OF SALES. Cost of sales for the Company increased $1.0 million, or 5.8% for
the 1999 interim period as compared to the 1998 interim period to $17.9 million.
This increase was due primarily to the increased sales volume but also reflected
expenses for repair and maintenance of production lines that were $0.5 million
higher than the 1998 interim period. The effect of those increases in costs were
reduced by the effect of a modest shift in product mix towards cans which have a
lower cost than PET bottles.
GROSS PROFIT. As a result of the above factors, gross profit for the Company
decreased $0.6 million or 10.7% to $8.0 million for the 1999 interim period as
compared to the 1998 interim period.
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 reinbursements from PepsiCo.
Selling and marketing expenses for the Company decreased to $0.7 million, or
13.9% to $4.3 million for the 1999 interim period as compared to the 1998
interim period. The decrease reflects a $0.3 million reduction in fleet costs
achieved through buy-out of a full-service lease for certain delivery vehicles.
In addition, marketing and other operating costs were reduced.
9
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ADMINISTRATIVE EXPENSES. Administrative expenses for the Company increased $0.5
million or 14.8% for the 1999 interim period from the 1998 interim period to
$3.5 million. The Company's provision for bad debt allowance in the 1999 interim
period was $0.7 million higher than the 1998 interim period reflecting a change
in credit policy. This increase was partially offset by a reduction in
administrative staffing and expenditures for outside professional services.
LOSS ON ASSET IMPAIRMENTS. In the 1999 interim period, the Company reduced the
carrying value of assets related to its Cristalia water division by $0.3
million. This adjustment reflects the effect of the sale of this division for
$1.2 million in April 1999.
INCOME (LOSS) FROM OPERATIONS. As a result of the above factors, income (loss)
from operations for the Company decreased to $(2.7) million in the 1999 interim
period, from $(2.0) million in the 1998 interim period.
NET INCOME (LOSS). Net income (loss) decreased to $(2.9) million in the 1999
interim period, from $(1.2) million during the 1998 interim period. This
decrease is the result of lower operating income and an increased income tax
expense. In the 1998 interim period, the Company recognized the effect of a
carryback to prior income tax periods of expenses incurred in settlement of
litigation.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1999, the Company had $5.9 million
of cash and cash equivalents. Indebtedness for borrowed money, including
short-term and long-term borrowings and capital lease obligations at March 31,
1999 totaled $22.8 million, which included $1.0 million of current and
short-term obligations.
Net cash provided by (used in) operating activities for the Company was ($8.1)
million for the 1999 interim period as compared with ($1.0) million for the same
period in 1998. The net cash provided by (used in) operating activities
excluding the portion due to changes in assets and liabilities was ($1.4)
million during the 1999 interim period, and $0.4 million in 1998. The net cash
provided (used in) operating activities that was due to changes in assets and
liabilities was ($6.7) million in the 1999 interim peiod and ($1.0) million in
the 1998 interim period.
Net cash provided by (used in) investing activities for the Company was ($5.2)
million for the 1999 interim, as compared with ($0.2) million for the 1998
interim period. The increase in cash used in investing activities reflects
purchases of equipment to buy-out a full service lease for delivery vehicles, to
acquire additional vehicles to expand the direct servicing of accounts
previously serviced by wholesalers and to place additional marketing equipment.
Cash flows provided by (used in) finacing activities for the Company were ($0.3)
million for the 1999 interim period as compared with ($0.4) for the 1998 interim
period. During the 1998 interim period the Company borrowed an additional $0.8
million on a long term basis.
Additional loans were not incurred in the 1999 interim period.
The Company is required to make monthly payments of principal in annual
escalating monthly payments until
April 1, 2007, when a $11.8 million balloon payment is due. $1.0 million is due
in the twelve months following March 31, 1999. 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 duing the term of the
Second Restated Credit Agreement and (ii) a ratio of operating cash flow to a
total debt service (as defined in the Second Restated Credit Agreement) of 1.30
to 1 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 December 31, 1999, 2000, 2001 and thereafter. The Company may
be forgiven non-compliance with these tests if it maintains with Banco Popular a
minimum cash balance of $5 million, 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
10
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dispositions over $0.25 million per year, insurance recoveries other than for
business interruption not promptly applied toward repair or replacement, and a
portion of excess cash flow (as defined in the Second Restated Credit
Agreement), must be applied toward 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 beccomes immediately due and payable if the
Company violates any of thse 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 March 31, 1999 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.
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 completed 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 completed a
Year 2000 compliance evaluation of these systems. 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 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.
11
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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.
The Company's most likely potential risk with regard to Year 2000 issues is the
temporary inability of suppliers to provide supplies of raw materials to the
Company. The inability of the Company's suppliers to be Year 2000 ready could
result in delays in product manufacturing and delivery, thereby adversely
affecting the business or operations of the Company. The Company believes,
however, that in a worst case scenario any disruption in supply materials can be
minimized by relying on inventories or shifting production to unaffected plants
with some increase in distribution costs.
The Company recognizes the need for Year 2000 contingency plans in the event
that remediation is not fully successful or that the remediation efforts of its
vendors and suppliers are not timely completed. The Company plans to address
contingency planning during calendar 1999. Such plans will include building
inventories of raw materials and finished goods in advance of January 1, 2000 to
protect against supply and production disruptions. To the extent that the
Company's vendors and suppliers are unable to provide sufficient evidence of
Year 2000 readiness by September 30, 1999, the Company will seek to arrange for
their replacement. Additionally, the Company is developing manual processes to
replace electronic applications in the event of their failure.
ITEM 3. QUANTITATIVE AND QUALITATIVE 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. There have
been no significant changes in the Company's exposure to market risk for changes
in interest rates during the three months ended March 31, 1999.
The table below summarizes the principal cash flows of the Company's financial
instruments outstanding at March 31, 1999, categorized by type of instrument and
by year of maturity.
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Value
------- ------ ------ ------ ------ ---------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents --
Deposit and money market accounts $10,418 $ -- $ -- $ -- $ -- $ -- $10,418
Short-term investment (4.5% at March 31,
1999) 9,000 -- -- -- -- -- 9,000
Long-term debt --
Term loan, interest at 2.5% over LIBOR or
at prime (7.2% at March 31, 1999) $ 1,007 $1,157 $1,225 $1,250 $1,437 $16,972 $23,048
</TABLE>
PART II
ITEM 1. 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 effect on the Company's
consolidated financial position, results of operation or liquidity.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company filed a definitive proxy statement dated January 19, 1999, with the
Securities and Exchange Commission in connection with its Annual Meeting of
shareholders held on February 17, 1999. All eight persons nominated by
management for election as directors, as discussed in the definitive proxy
statement, were elected. In addition, shareholders ratified the appointment of
Arthur Andersen LLP as the Company's independent auditors for the fiscal year
ending December 31, 1999, casting ____ votes in favor of the ratification, ____
votes against the ratification and ____ abstentions. There were ____ broker
non-votes.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS OR FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter
for which this report is filed.
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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
Date: May 17, 1999 By: /s/ Robert C. Pohlad
------------ ------------------------------------
Name: Robert C. Pohlad
Title: Chief Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John F. Bierbaum Chief Financial Officer and Vice May 17, 1999
- ------------------------------- President (Principal
John F. Bierbaum Financial Officer)
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,911
<SECURITIES> 0
<RECEIVABLES> 16,853
<ALLOWANCES> 2,377
<INVENTORY> 3,062
<CURRENT-ASSETS> 37,751
<PP&E> 76,851
<DEPRECIATION> 30,311
<TOTAL-ASSETS> 89,211
<CURRENT-LIABILITIES> 13,832
<BONDS> 21,822
0
0
<COMMON> 217
<OTHER-SE> 51,535
<TOTAL-LIABILITY-AND-EQUITY> 89,211
<SALES> 23,267
<TOTAL-REVENUES> 23,267
<CGS> 17,997
<TOTAL-COSTS> 25,967
<OTHER-EXPENSES> 177
<LOSS-PROVISION> 630
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> (2,877)
<INCOME-TAX> 17
<INCOME-CONTINUING> (2,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,894)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
