<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM OCTOBER 1, 1998 TO
DECEMBER 31, 1998
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
Incorporation or Organization) 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: .
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
New York Stock Exchange
Class B Common Stock, Par Value $.01
Per Share
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-K 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. [X]
The aggregate market value of the voting common equity held by non-affiliates
of the registrant as of March 15, 1999, was approximately $52,398,000.
As of March 15, 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.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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Index to Annual Report on Form 10-K
For the Transition Period from October 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
ITEM NO. PAGE NO.
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<S> <C>
PART I
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 9
Item 3. LEGAL PROCEEDINGS........................................... 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 9
Item 6. SELECTED FINANCIAL DATA..................................... 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 46
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS........................... 47
Item 11. EXECUTIVE COMPENSATION..................................... 49
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 54
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 56
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K........................................................ 58
SIGNATURES...................................................... 64
</TABLE>
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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INTRODUCTORY NOTE
Pepsi-Cola Puerto Rico Bottling Company changed its fiscal year end from
September 30 to December 31. This transition report on Form 10-K includes
information for the period from October 1, 1998 through December 31, 1998. A
separate Form 10-K was filed previously for the fiscal year ended September 30,
1998.
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 the three months ended December 31, 1998, the Company had a net loss of
$1.4 million, compared to a net loss of $1.0 million for the same period in
1997. 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 $19.5 million during fiscal 1997 (including
$13.2 million pre-tax of expenses related to settlement of civil litigation and
$0.5 million related to unusual items). This loss from the Company's operations
resulted primarily from intense competitive pressures in Puerto Rico, which
produced lower net sales prices.
This transition 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; the impact of such conditions
on consumer spending; possible termination of the Company's franchise
agreements; adverse events affecting the popularity of PepsiCo products;
possible termination of the management agreement between the Company and the
Pohlad Companies; adverse effects of government regulations, including
environmental regulations; possible failure to achieve Year 2000 compliance on
a timely basis; possible product liability if any of the Company's products
cause injury, illness or death; and possible product recall of the Company's
products that become contaminated or are damaged or mislabeled.
1
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 three months ended December 31, 1998 and for 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.
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
2
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 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 specified brand names which compete with Welch's products.
The Company is actively negotiating the renewal of this distribution agreement.
3
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 approximate percentage of the Company's
total cost represented by each of the principal raw materials utilized in soft
drink production for the three months ended December 31, 1998 and for the
fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Percentage of Percentage of
December 31, 1998 September 30, 1998
Raw Material Transition Period Cost Fiscal Year Cost
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<S> <C> <C>
Packaging 43% 41%
Concentrate 41% 38%
Sugar/fructose 14% 15%
Carbon dioxide
gas 1% 1%
Other 1% 5%
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Total 100% 100%
================ ==== ===
</TABLE>
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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The following chart shows the approximate effective production capacity, number
of bottling lines, and average capacity utilization for the Toa Baja plant for
the 12 months ended December 31, 1998:
<TABLE>
<CAPTION>
Approximate Effective Number of Average 1998
Plant Production Capacity (1) Bottling Lines Capacity Utilization (2)
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<S> <C> <C> <C>
Toa Baja 44,350 (2 shifts) 3 68%
</TABLE>
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(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) Acual production 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 December 31, 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.
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.
For the twelve months ended December 31, 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,
5
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 of drinking 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 for the 12 months
ended December 31, 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 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. Since 1996, the
Company has faced intense price competition resulting in substantially lower
net sale prices. The Company's principal competitors in Puerto Rico are the
local bottlers and
6
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 adverse effect on
the Company's future financial performance.
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 December 31, 1998, the Company had approximately 550 full-time employees,
approximately 55% 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
entered into on November 25, 1997 and expires on December 31, 2001. This
agreement provides the Company with a reduction in operating costs as part of
its strategy to increase and maintain operating efficiencies.
7
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert C. Pohlad 44 Chairman, 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 45 Vice President, Human Resources
A. David Velez 44 Vice President and President Pepsi-Cola Puerto
Rico Distribution Company
</TABLE>
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 Chairman, Chief Executive Officer
and a director of the Company since July 1998. Mr. Pohlad has been 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 is
currently a director of 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 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 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 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.
JAY S. HULBERT. Mr. Hulbert joined the Company in July 1998 as Vice President,
Operations. Mr. Hulbert has been 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.
8
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RAYMOND R. STITLE. Mr. Stitle joined the Company in July 1998 as Vice
President, Human Resources. Mr. Stitle has been 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.
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 and Sebana
Grande and the production facilities for Cristalia bottled water in Ponce. The
Company owns the remainder of its properties.
At December 31, 1998, the net book value of all land, buildings, machinery, and
equipment owned by the Company in Puerto Rico was approximately $42.5 million.
The total annual rent paid by the Company for the 12 months ended December 31,
1998 for its leased production, distribution and office facilities and
equipment in Puerto Rico was approximately $2.0 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
transition period ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 15, 1999, 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 3,230 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."
9
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 sale price of the Company's Class B Shares on the NYSE on
March 15, 1999, as reported in the consolidated transaction reporting system,
was $5.00.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal 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
Fiscal 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
Quarter Ended
December 31, 1998 $ 6.25 $ 4.625
</TABLE>
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 LLP, independent
public accountants. The consolidated financial statements of the Company as of
December 31, 1998 and for the three months then ended and as of September 30,
1998 and for the year then ended have been audited by Arthur Andersen LLP,
independent public accountants.
10
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30 THREE MONTHS
----------------------------------------------------- ENDED
DECEMBER 31,
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- ------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 104,048 $ 114,301 $ 102,891 $ 99,172 $ 99,405 $28,328
Cost of sales 60,574 67,846 74,956 68,237 70,503 20,327
- ------------------------ --------- --------- --------- --------- -------- -------
Gross profit 43,474 46,455 27,935 30,935 28,902 8,001
Selling and marketing
expenses 30,497 30,458 42,456 30,224 30,072 6,868
Administrative expenses 10,528 6,262 9,606 8,424 6,047 1,843
Restructuring charges -- -- 2,700 535 1,728 --
Litigation settlement
expenses -- -- -- 13,172 -- --
Provision for legal and
environmental reserves -- -- -- -- 760 --
Loss on asset
impairments -- -- -- -- 800 250
Insurance proceeds from
business interruption
and other losses -- -- -- -- (1,309) (346)
Intangibles and fixed
asset write-offs 2,886 -- -- -- -- --
- ------------------------ --------- --------- --------- --------- -------- -------
Income (loss) from
operations (437) 9,735 (26,827) (21,420) (9,196) (614)
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) (475)
Interest income 147 207 2,418 1,218 839 270
Other, net (332) 391 (256) 1 206 (7)
- ------------------------ --------- --------- --------- --------- -------- -------
Total other income
(expenses) 14,502 (617) 2,750 (1,425) (1,392) (212)
- ------------------------ --------- --------- --------- --------- -------- -------
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) (826)
Income tax expense
(benefit) 6,243 (297) (1,205) (3,342) (978) 594
- ------------------------ --------- --------- --------- --------- -------- -------
Income (loss) before
equity in net earnings
(loss) of BAESA 7,822 9,415 (22,872) (19,503) (9,610) (1,420)
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) $(1,420)
======================== ========= ========= ========= ========= ======== =======
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) $ (0.07)
Net income (loss) $ 0.98 $ 0.83 $ (3.46) $ (0.91) $ (0.45) $ (0.07)
Dividends declared per
share of Common
Stock(1) $ 1.18 $ 0.27 $ 0.24 $ 0.00 $ 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 21,690
</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.
11
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30
------------------------------------------------ THREE MONTHS ENDED
1994 1995 1996 1997 1998 DECEMBER 31, 1998
-------- -------- -------- -------- -------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Cash and cash
equivalents $ 1,347 $ 46,091 $ 18,680 $ 19,621 $ 24,720 $19,418
Short term investment 0 0 12,904 -- -- --
Accounts receivable,
net 11,881 16,427 14,562 15,954 14,345 15,291
Accounts receivable
from affiliates and
intercompany advances 3,729 2,913 -- 943 1,408 2,008
Inventories 5,452 4,542 4,429 2,802 2,480 2,505
Bottles, cases and
shells 800 1,629 1,445 1,559 1,357 1,409
Deferred income tax
asset -- -- 187 97 224 49
Other current assets 1,216 2,516 1,857 2,073 4,743 4,422
- ------------------------ -------- -------- -------- -------- -------- -------
Total current assets 24,425 74,118 54,064 43,049 49,277 45,102
Investment in BAESA 69,870 74,128 -- -- -- --
Deferred income tax
asset, long-term -- -- 2,076 1,619 1,607 1,221
Long-lived assets for
sale; principally land
and building -- -- 3,805 3,752 2,615 2,615
Property, plant and
equipment, net 31,597 34,816 48,491 45,788 42,374 42,462
Intangible assets, net 2,293 2,163 1,459 1,644 1,544 1,259
Other assets 693 441 86 58 15 192
- ------------------------ -------- -------- -------- -------- -------- -------
Total assets $128,878 $185,666 $109,981 $ 95,910 $ 97,432 $92,851
======================== ======== ======== ======== ======== ======== =======
Liabilities:
Current installments of
long-term debt $ 1,549 $ 1,550 $ 1,550 $ 1,007 $ 1,007 $ 1,007
Current installments of
capital lease
obligations 2,537 1,204 341 908 176 41
Notes payable to bank 4,250 4,600 25,000 5,430 -- --
Accounts payable--trade 7,469 12,536 16,619 13,587 8,115 3,842
Notes and accounts
payable--affiliates 2,078 1,181 50 32 -- --
Income taxes payable 229 123 115 199 150 237
Accrued expenses 3,678 7,007 8,672 4,993 7,466 9,218
- ------------------------ -------- -------- -------- -------- -------- -------
Total current
liabilities 21,790 28,201 52,347 26,156 16,914 14,345
Long-term debt,
excluding current
installments 7,915 6,365 4,813 23,636 22,355 22,073
Capital lease
obligations, excluding
current installments 2,070 848 871 513 8 7
Deferred income taxes,
net 18,273 18,732 -- -- -- --
Other liabilities 2,899 2,871 2,593 2,213 3,110 1,805
- ------------------------ -------- -------- -------- -------- -------- -------
Total liabilities 52,947 57,017 60,624 52,518 42,387 38,230
- ------------------------ -------- -------- -------- -------- -------- -------
Shareholders' equity:
Class A shares 50 50 50 50 50 50
Class B shares 130 165 165 165 167 167
Additional paid in
capital 47,967 90,738 90,738 103,910 127,009 127,516
Retained earnings
(accumulated deficit) 29,307 39,472 (40,232) (59,735) (69,345) (70,765)
Deferred compensation -- -- -- -- -- (457)
Accumulated other
comprehensive income (1,523) (1,776) (1,364) (998) (2,836) (1,890)
- ------------------------ -------- -------- -------- -------- -------- -------
Total shareholders'
equity 75,931 128,649 49,357 43,392 55,045 54,621
- ------------------------ -------- -------- -------- -------- -------- -------
Total liabilities and
shareholders' equity $128,878 $185,666 $109,981 $ 95,910 $ 97,432 $92,851
======================== ======== ======== ======== ======== ======== =======
OTHER DATA:
Depreciation and
amortization 4,917 4,781 5,589 5,971 5,312 1,127
Capital expenditures(1) 3,961 9,589 24,421 4,663 2,997 1,203
</TABLE>
- -------
(1) Capital expenditures represent purchases of property, plant and equipment.
12
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
CHANGE IN FISCAL YEAR
The Company changed its fiscal year end from September 30 to December 31. This
transition report on Form 10-K includes information for the interim period from
October 1, 1998 through December 31, 1998, which is referred to as the "interim
period" or "1998 interim period."
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
During 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, $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 December 31, 1998 and in fiscal year 1998 totaled approximately $0.4
million and $47 thousand, respectively, while payments relating to other exit
activities approximated $0.1 million and $0.1 million, respectively.
BAESA STOCK DIVIDEND
In addition to conducting its own bottling operations, the Company previously
owned 12,345,348 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.
The Company's Board of Directors declared a dividend consisting of the
12,345,348 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
13
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B shares. The carrying value of the capital stock of BAESA had been
written down to zero at September 30, 1996. 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
PCPRB and its subsidiaries are Delaware corporations subject to U.S. federal
income taxes; however, PCPRB's subsidiaries are eligible for and have elected
the benefit of Section 936 of the U.S. Internal Revenue Code. Section 936
presently allows 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's 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
subsidiary 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's subsidiaries were in compliance with
these gross income requirements for the three months ended December 31, 1998
and the fiscal years ended September 30, 1998, 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 December 31, 1998, the Company and its subsidiaries had approximately
$76.3 million in net operating losses available to offset against future
earnings for purposes of Puerto Rican taxation and $54.2 million in U.S. net
operating losses. The Puerto Rico net operating losses expire through 2006 and
the U.S. net operating losses expire through 2019. 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
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.
14
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
------------------- -------
1996 1997 1998 1998
----- ----- ----- -------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.8 68.8 70.9 71.8
Gross Profit 27.2 31.2 29.1 28.2
Selling & Marketing
Expenses 41.3 30.5 30.3 24.2
Administrative Expenses 9.3 8.5 6.1 6.5
Litigation Settlement
Expenses -- 13.3 -- --
Other Special Charges 2.6 0.5 3.3 0.9
Insurance Proceeds -- -- 1.3 1.2
Income (Loss) from
Operations (26.1) (21.6) (9.3) (2.2)
===== ===== ===== =====
</TABLE>
1998 INTERIM PERIOD COMPARED TO 1997 INTERIM PERIOD
NET SALES. Net sales for the Company increased $2.8 million, or 11%, for the
1998 interim period from the 1997 interim period to $28.3 million. This
increase was primarily the result of the increase in case volume sales, which
increased 14% during the period ended December 31, 1998 compared to the same
period in 1997. The increased volume was in cans and 20 oz. PET bottles; this
was offset by a decrease in average overall pricing of 2.7% and reductions of
price support.
COST OF SALES. Cost of sales for the Company increased $3.1 million, or 18.2%
for the 1998 interim period as compared to the 1997 interim period to $20.3
million. This increase was primarily due to the increased sales volume and
costs of imported products.
GROSS PROFIT. Gross profit for the Company decreased by 3.8% to $8.0 million
compared to the same interim period in 1997. The decrease was primarily due to
the impact of Hurricane Georges in late September 1998, which forced the
Company to halt production for two weeks after the storm and import higher cost
finished goods for an extended 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 reimbursements from PepsiCo.
Selling and marketing expenses for the Company decreased $0.5 million, or 7.4%
to $6.9 million for the 1998 interim period as compared to the 1997 interim
period. This decrease was primarily due to reduced operating expenses of $0.5
million in the 1998 interim period as compared to the 1997 interim period.
ADMINISTRATIVE EXPENSES. Administrative expenses for the Company increased $0.5
million or 33.2% for the 1998 interim period from the 1997 interim period to
$1.8 million. This increase reflects transition costs of implementing the new
management and accounting services agreements.
INCOME (LOSS) FROM OPERATIONS. Income (Loss) from operations for the Company
decreased to $(0.6) million in the 1998 interim period, from $(0.5) million in
the 1997 interim period. This decrease is the result of lower gross profit of
$0.3 million,
15
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
higher administrative expenses of $0.5 million, and an additional reserve for
asset impairment. These were offset in part by the lower selling and marketing
expenses of $0.5 million and proceeds from business interruption insurance
related to the hurricane of $0.3 million.
UNUSUAL ITEMS. The Company's results of operations for the interim period ended
December 31, 1998 were affected by the incurrence of charges for unusual items.
The unusual items include an asset impairment loss relating to the pending sale
of Cristalia ($0.3) million. The impact of this unusual item was offset by the
benefit of additional insurance proceeds of $0.3 million for loss of business
from October 1, 1998 to October 21, 1998 due to Hurricane Georges.
NET INCOME (LOSS). Net income (loss) decreased to $(1.4) million in the 1998
interim period, from $(1.0) million during the 1997 interim period. This
decrease is the result of lower operating income and an increased income tax
expense.
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 $0.2 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 30.3%
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 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.
16
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 $0.2 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 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
17
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 decreased
to ($21.4) million during fiscal year 1997, from ($26.8) million for fiscal
year 1996. The decreased loss resulted from (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.
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 December 31, 1998, the Company had $19.4 million of cash and cash
equivalents. Indebtedness for borrowed money, including short-term and long-
term borrowings and capital lease obligations at December 31, 1998 totaled
$23.1 million, which included $1.0 million of current and short-term
obligations.
Net cash provided by (used in) operating activities for the Company was ($3.7)
million for the interim period ended December 31, 1998 as compared with ($3.6)
million for the same period in 1997. The net cash provided by (used in)
operating activities excluding the portion due to changes in assets and
liabilities was $0.2 million during the interim period 1998, and $0.4 million
in 1997. The net cash provided (used in) operating activities that was due to
changes in assets and
liabilities was ($3.9) million in 1998 and ($4.0) million in the interim period
in 1997. Net cash provided by (used in) operating activities for the Company
was ($7.5) million for fiscal year 1998 as compared with ($7.5) million for
fiscal year
18
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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1997 and ($6.5) 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 $(2.0) 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, ($7.9) million
during fiscal year 1997, and $13.3 million during fiscal year 1996.
Net cash provided by (used in) investing activities for the Company was ($1.2)
million for the interim period ended December 31, 1998, as compared with ($.5)
million for 1997. Purchases of property, plant and equipment net of disposals,
amounted to ($1.2) and ($.5) million for the interim period ended December 31,
1998 and 1997 respectively. Net cash provided by (used in) investing activities
for the Company was ($2.5) million for fiscal year 1998, as compared with $8.6
million for fiscal year 1997 and ($33.1) million for fiscal year 1996.
Purchases of property, plant and equipment, net of disposals, amounted to
($2.5) million during fiscal year 1998 as compared with ($4.3) million during
fiscal year 1997 and ($23.1) million during fiscal year 1996. Purchases of
short-term investments were ($12.9) million 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 $2.8 million in fiscal year 1996.
Cash flows provided by (used in) financing activities for the Company were
($.4) million for the interim period ended December 31, 1998 as compared with
($1.6) for the same period in 1997. The financing activities for the Company
during the 1998 and 1997 interim period was the net repayment of debt. 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 in fiscal 1998 were the sale of common stock, net of equity issuance
costs, of $23.1 million 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 ($30.3) 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.
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 (April 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 $0.25 million per year, insurance recoveries other than for
19
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 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 December 31, 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 $3.0 million in fiscal year 1998, $4.7 million in fiscal year 1997 and
$24.4 million in fiscal year 1996. Capital expenditures, before the effect of
dispositions, for the Company totaled $1.2 million in the interim period for
1998 and $0.5 million in the interim period for 1997. 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 December 31, 1999 and 2000 will be
approximately $10.0 million and $5.0 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 December 31, 1998, categorized by type of instrument
and by year of maturity.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Fair 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 December 31,
1998) 9,000 -- -- -- -- -- 9,000
Long-term debt--
Term loan, interest at
2.5% over LIBOR or at
prime (7.2% at
December 31, 1998) $ 1,007 $1,157 $1,225 $1,250 $1,437 $16,972 $23,048
</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
20
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PEPSI-COLA PUERTO RICO BOTTLING COMPANY
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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 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.
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 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.
INFLATION
There was no significant impact on the Company's operations as a result of
inflation during the three months ended December 31, 1998 or the fiscal years
ended September 30, 1998, 1997 or 1996.
IMPACT OF CHANGES IN ACCOUNTING STANDARDS
Effective October 1, 1998 the Company adopted the provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" which
required, among other items, additional disclosures on changes in the Company's
pension benefit obligations and fair values of plan assets. The Company adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," in fiscal year 1998 which require the presentation of a
basic
21
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is submitted pursuant to the requirements of Item 8.
<TABLE>
<S> <C>
Page
Report of Independent Public Accountants, dated March 11, 1999............ 23
Independent Auditors' Report, dated December 5, 1997...................... 24
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1998
and 1997................................................................. 25
Consolidated Statements of Income (Loss) for the Three Months Ended
December 31, 1998 and the Years Ended September 30, 1998, 1997 and 1996.. 27
Consolidated Statements of Shareholders' Equity for the Three Months Ended
December 31, 1998 and the Years Ended September 30, 1998, 1997 and 1996.. 28
Consolidated Statements of Cash Flows for the Three Months Ended December
31, 1998 and the Years Ended September 30, 1998, 1997 and 1996........... 29
Notes to Consolidated Financial Statements................................ 30
Schedule II--Valuation and Qualifying Accounts............................ 62
</TABLE>
22
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 sheets of Pepsi-Cola
Puerto Rico Bottling Company and Subsidiaries as of December 31, 1998 and
September 30, 1998, and the related consolidated statements of income (loss),
shareholders' equity and cash flows for the three months ended December 31,
1998 and the year ended September 30, 1998. 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 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 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 December 31, 1998 and September 30,
1998, and the results of their operations and their cash flows for the three
months ended December 31, 1998 and the year ended September 30, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 11, 1999.
23
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors' Report
The Board of Directors Pepsi-Cola Puerto Rico Bottling Company and
Subsidiaries:
We have audited the accompanying consolidated balance sheets 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 LLP
San Juan, Puerto Rico,
December 5, 1997.
Stamp No. 1527549 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
24
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U. S. Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30
December 31, ---------------
1998 1998 1997
------------ ------- -------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $19,418 $24,720 $19,621
Accounts receivable:
Trade, less allowance for doubtful accounts of
$637, $1,265 and $1,389 13,043 11,722 11,681
Due from PepsiCo, Inc. and affiliated companies 2,008 1,408 943
Other 2,248 2,623 4,273
Inventories 2,505 2,480 2,802
Bottles, cases and shells 1,409 1,357 1,559
Deferred income taxes 49 224 97
Prepaid expenses and other current assets 4,422 4,743 2,073
------- ------- -------
Total current assets 45,102 49,277 43,049
DEFERRED INCOME TAXES 1,221 1,607 1,619
LONG-LIVED ASSETS FOR SALE, principally land and
building 2,615 2,615 3,752
PROPERTY, PLANT AND EQUIPMENT, net 42,462 42,374 45,788
INTANGIBLE ASSETS, net of accumulated amortization 1,259 1,544 1,644
OTHER ASSETS 192 15 58
------- ------- -------
Total assets $92,851 $97,432 $95,910
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
December 31, ----------------
1998 1998 1997
------------ ------- -------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt $ 1,007 $ 1,007 $ 1,007
Current installments of capital lease
obligations 41 176 908
Notes payable to bank -- -- 5,430
Accounts payable:
Trade 3,842 8,115 13,587
Affiliates -- -- 32
Income taxes payable 237 150 199
Accrued expenses 9,218 7,466 4,993
------- ------- -------
Total current liabilities 14,345 16,914 26,156
LONG-TERM DEBT, excluding current installments 22,073 22,355 23,636
CAPITAL LEASE OBLIGATIONS, excluding current
installments 7 8 513
ACCRUED PENSION COST 1,805 3,110 2,213
------- ------- -------
38,230 42,387 52,518
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS' EQUITY:
Class A common shares, $0.01 par value;
authorized, issued and outstanding 5,000,000
shares 50 50 50
Class B common shares, $0.01 par value;
authorized 35,000,000 shares; issued and
outstanding 16,690,000, 16,690,000 and
16,500,000 shares 167 167 165
Additional paid-in capital 127,516 127,009 103,910
Accumulated deficit (70,765) (69,345) (59,735)
Deferred compensation (457) -- --
Accumulated other comprehensive income (loss) (1,890) (2,836) (998)
------- ------- -------
Total shareholders' equity 54,621 55,045 43,392
------- ------- -------
Total liabilities and shareholders' equity $92,851 $97,432 $95,910
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three
Months Ended Fiscal Years Ended September 30
December 31, ----------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $28,328 $ 99,405 $ 99,172 $ 102,891
Cost of sales 20,327 70,503 68,237 74,956
------- ---------- ---------- ----------
Gross profit 8,001 28,902 30,935 27,935
Selling and marketing expenses 6,868 30,072 30,224 42,456
Administrative expenses 1,843 6,047 8,424 9,606
Restructuring charges -- 1,728 535 2,700
Provision for legal and
environmental reserves -- 760 -- --
Losses on asset impairments 250 800 -- --
Insurance proceeds from business
interruption and other losses (346) (1,309) -- --
Litigation settlement expenses -- -- 13,172 --
------- ---------- ---------- ----------
Loss from operations (614) (9,196) (21,420) (26,827)
------- ---------- ---------- ----------
Other income (expense):
Gain on early termination of
supply agreement -- -- -- 2,111
Interest expense (475) (2,437) (2,644) (1,523)
Interest income 270 839 1,218 2,418
Other, net (7) 206 1 (256)
------- ---------- ---------- ----------
Total other income (expense) (212) (1,392) (1,425) 2,750
------- ---------- ---------- ----------
Loss before income tax benefit
and equity in net loss of BAESA (826) (10,588) (22,845) (24,077)
Income tax benefit (expense) (594) 978 3,342 1,205
------- ---------- ---------- ----------
Loss before equity in net loss
of BAESA (1,420) (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 $(1,420) $ (9,610) $ (19,503) $ (74,330)
======= ========== ========== ==========
Net loss per common share $ (0.07) $ (0.45) $ (0.91) $ (3.46)
======= ========== ========== ==========
Net loss per common share--
assuming dilution $ (0.07) $ (0.45) $ (0.91) $ (3.46)
======= ========== ========== ==========
Weighted average number of
common shares outstanding (in
thousands) 21,690 21,516 21,500 21,500
======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND THE YEARS ENDED SEPTEMBER 30,
1998, 1997 AND 1996
(U.S. Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Class A Class B Additional Earnings Accumulated Other Total
Common Common Paid-in (Accumulated Treasury Deferred Comprehensive Shareholders' Comprehensive
Shares Shares Capital Deficit) Stock Compensation Income (Loss) Equity Income (Loss)
------- ------- ---------- ------------ -------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
September 30,
1995 $50 $165 $ 90,738 $ 39,472 $ -- $ -- $(1,776) $128,649
Cash dividends
on common
shares declared
in December
1995 (per share
$0.24) -- -- -- (5,374) -- -- -- (5,374)
Minimum pension
liability
adjustment -- -- -- -- -- -- 180 180 $ 180
Foreign currency
translation
adjustment -- -- -- -- -- -- 232 232 232
Net loss -- -- -- (74,330) -- -- -- (74,330) (74,330)
--- ---- -------- -------- ------- ----- ------- -------- --------
BALANCE,
September 30,
1996 50 165 90,738 (40,232) -- -- (1,364) 49,357 $(73,918)
========
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 -- -- 13,172
Minimum pension
liability
adjustment -- -- -- -- -- -- 366 366 $ 366
Net loss -- -- -- (19,503) -- -- -- (19,503) (19,503)
--- ---- -------- -------- ------- ----- ------- -------- --------
BALANCE,
September 30,
1997 50 165 103,910 (59,735) -- -- (998) 43,392 $(19,137)
========
Sale of 190,000
Class B common
shares -- 2 948 -- -- -- -- 950
Sale of
5,000,000 Class
A common
shares, net of
equity issuance
costs of $1,599 -- -- 22,151 -- -- -- -- 22,151
Minimum pension
liability
adjustment -- -- -- -- -- -- (1,838) (1,838) $ (1,838)
Net loss -- -- -- (9,610) -- -- -- (9,610) (9,610)
--- ---- -------- -------- ------- ----- ------- -------- --------
BALANCE,
September 30,
1998 50 167 127,009 (69,345) -- -- (2,836) 55,045 $(11,448)
========
Deferred
compensation on
stock options -- -- 507 -- -- (457) -- 50
Minimum pension
liability
adjustment -- -- -- -- -- -- 946 946 $ 946
Net loss -- -- -- (1,420) -- -- -- (1,420) (1,420)
--- ---- -------- -------- ------- ----- ------- -------- --------
BALANCE,
December 31,
1998 $50 $167 $127,516 $(70,765) $ -- $(457) $(1,890) $ 54,621 $ (474)
=== ==== ======== ======== ======= ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
<TABLE>
<CAPTION>
Three
Months Ended Fiscal Years Ended September 30
December 31, ----------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,420) $ (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 11 80 238 (675)
Losses on asset impairments 250 800 -- 1,134
Restructuring charges -- 1,728 -- --
Provision for legal and
environmental reserves -- 760 -- --
Insurance proceeds from
business interruption
losses (346) (1,309) -- --
Intangible asset write-off -- -- -- 624
Depreciation and
amortization 1,127 5,312 5,971 5,589
Deferred compensation
expense 50 -- -- --
Deferred income taxes 561 190 547 (1,462)
Equity in net loss of BAESA -- -- -- 51,458
Changes in assets and
liabilities--
Accounts receivable (1,200) 2,453 (2,335) 4,778
Inventories (25) 322 1,627 113
Bottles, cases and shells (52) 202 (114) 184
Prepaid expenses and other
current assets 321 (2,670) (216) 659
Intangible assets -- (109) (272) --
Accounts payable (4,273) (5,399) (3,050) 5,063
Other liabilities and
accrued expenses 1,393 (84) (3,669) 2,195
Income taxes payable 87 (49) 84 (8)
Other, net (177) (154) 16 247
------- ---------- ---------- ----------
Net cash used in operating
activities (3,693) (7,537) (7,504) (6,542)
------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
property, plant and
equipment 12 480 406 1,347
Redemption of (investment
in) short-term investments -- -- 12,904 (12,904)
Capital expenditures (1,203) (2,997) (4,663) (24,421)
Dividends received from
affiliate -- -- -- 2,839
------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities (1,191) (2,517) 8,647 (33,139)
------- ---------- ---------- ----------
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 (282) (1,281) (1,722) (1,552)
Proceeds from capital leases -- -- 1,793 --
Repayment of capital lease
obligations (136) (1,237) (985) (1,204)
Dividends paid -- -- -- (5,374)
------- ---------- ---------- ----------
Net cash provided by (used
in) financing activities (418) 15,153 (202) 12,270
------- ---------- ---------- ----------
CHANGE IN CASH AND CASH
EQUIVALENTS (5,302) 5,099 941 (27,411)
CASH AND CASH EQUIVALENTS,
beginning of period 24,720 19,621 18,680 46,091
------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $19,418 $ 24,720 $ 19,621 $ 18,680
======= ========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 481 $ 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 --
Deferred compensation on
stock options 507 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 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
written 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.
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.
30
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Earnings Per Share
The Company presents basic and diluted earnings per share in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") 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 (refer to Note 17)
because to do so would be antidilutive.
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 14%, 16%, 20% and 22% of the Company's
net sales during the three month period ended December 31, 1998 and the 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 value of the company's financial instruments approximate
their carrying values.
Reclassifications
Certain fiscal year 1998, 1997 and 1996 balances have been reclassified to
conform to the December 31, 1998 presentation.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Effective October 1, 1998 the Company adopted the provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" which
required, among other items, additional disclosures on changes in the Company's
pension benefit obligations and fair values of plan assets (refer to Note 16).
4. RESTRUCTURING CHARGE:
During the fourth quarter of fiscal year 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 for the
elimination
31
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. RESTRUCTURING CHARGE (Continued):
of 17 administrative personnel, $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. Management anticipates the restructuring plan will provide
annual savings of approximately $1,300 to $1,400 beginning in 1999. Severance
payments in the three month period ended December 31, 1998 and in fiscal year
1998 totaled approximately $409 and $47, respectively, while payments relating
to other exit activities approximated $116 and $108, respectively.
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
into a new manufacturing facility. Based upon a 1996 appraisal of the former
facility, the Company recorded a noncash 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 noncash charge of $800 for
the additional impairment of the idle manufacturing plant held for sale. This
charge represented management's best estimate of an anticipated loss from the
disposition of the plant in a current transaction between willing parties. The
resulting carrying value of the manufacturing plant is consistent with a 1998
appraisal on the facility obtained during the three months ended December 31,
1998.
The Company has 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., a corporation whose president is a
former officer of the Company. The sales price is based upon the net book value
of the net assets of the business as of December 31, 1998, and resulted in a
charge of $250 for the impairment of the net assets. The noncash charge was
recorded in the three month period ended December 31, 1998 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:
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 consolidated
statements of income (loss) are anticipated recoveries of $346 for the three
month period ended December 31, 1998 and $1,309 for fiscal year 1998
attributable to business interruption and other losses.
32
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market and included the following:
<TABLE>
<CAPTION>
September 30
December 31, -------------
1998 1998 1997
------------ ------ ------
<S> <C> <C> <C>
Raw materials $1,074 $1,438 $1,070
Finished goods 1,431 877 1,254
Spare parts and supplies -- 117 121
Work-in process -- 48 357
------ ------ ------
$2,505 $2,480 $2,802
====== ====== ======
</TABLE>
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 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:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Building and improvements 40
Machinery, equipment and vehicles 10--15
Furniture and fixtures 5--10
</TABLE>
Property, plant and equipment included the following:
<TABLE>
<CAPTION>
September 30
December 31, ------------------
1998 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Land and improvements $ 6,893 $ 6,893 $ 7,057
Building and improvements 14,779 14,790 14,682
Machinery, equipment and vehicles 47,881 48,040 46,780
Furniture and fixtures 1,809 1,809 1,580
Construction in process 1,250 134 86
-------- -------- --------
72,612 71,666 70,185
Less--Accumulated depreciation (30,150) (29,292) (24,397)
-------- -------- --------
$ 42,462 $ 42,374 $ 45,788
======== ======== ========
</TABLE>
33
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY 1998 ANNUAL REPORT
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
<TABLE>
<CAPTION>
September 30
December 31, --------------
1998 1998 1997
------------ ------ ------
<S> <C> <C> <C>
Goodwill $1,277 $1,277 $1,277
Trademark (14 years) 300 300 300
Water distribution rights (20 years) 165 165 165
Deferred costs and other 587 587 478
------ ------ ------
2,329 2,329 2,220
Less--Accumulated amortization (1,070) (785) (576)
------ ------ ------
$1,259 $1,544 $1,644
====== ====== ======
</TABLE>
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. The
Company recorded a noncash charge of approximately $600 in fiscal year 1996 in
order to write off intangible assets.
10. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
September 30
December 31, -------------
1998 1998 1997
------------ ------ ------
<S> <C> <C> <C>
Accrued payroll and related benefits $1,449 $1,854 $2,176
Accrued taxes other than income 529 364 374
Marketing and advertising accruals 1,946 1,313 825
Accrued restructuring charges 223 748 163
Legal and environmental reserves 660 760 --
Customer deposits 562 484 436
Accrued trade payables 3,257 1,884 891
Other accrued expenses 592 59 128
------ ------ ------
$9,218 $7,466 $4,993
====== ====== ======
</TABLE>
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.
34
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. INVESTMENT IN BAESA (Continued):
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.
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, receivables and inventory. The Company is also
required to maintain a specified cash balance with the bank ($5,000 at December
31, 1998 and September 30, 1998, and $2,500 at September 30, 1997) 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 December 31, 1998 or 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:
<TABLE>
<CAPTION>
September 30
December 31, ----------------
1998 1998 1997
------------ ------- -------
<S> <C> <C> <C>
Term loan $23,048 $23,330 $24,583
Other 32 32 60
------- ------- -------
23,080 23,362 24,643
Less--current installments (1,007) (1,007) (1,007)
------- ------- -------
$22,073 $22,355 $23,636
======= ======= =======
</TABLE>
35
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. NOTES PAYABLE TO BANK AND LONG TERM DEBT (Continued):
Scheduled maturities of long-term debt for the four years subsequent to 1999
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
2000.......................................................... $ 1,157
2001.......................................................... 1,225
2002.......................................................... 1,250
2003.......................................................... 1,437
Thereafter.................................................... 17,004
-------
$22,073
=======
</TABLE>
13. INCOME TAXES:
PCPRB and its subsidiaries are Delaware corporations subject to U.S. federal
income taxes; however, PCPRB's subsidiaries are eligible for and have elected
the benefit of Section 936 of the U.S. Internal Revenue Code. Section 936
presently allows 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's 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
subsidiary 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's subsidiaries were in compliance with
these gross income requirements for the three months ended December 31, 1998
and the fiscal years ended September 30, 1998, 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.
36
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. INCOME TAXES (Continued):
The combined income tax expense (benefit) of PCPRB and its subsidiaries
attributable to income (loss) from continuing operations consisted of the
following:
<TABLE>
<CAPTION>
Three
Months Ended Fiscal Years Ended September 30
December 31, ----------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
U.S. $ -- $ (1,251) $ (4,231) $ (150)
Puerto Rico 33 83 342 185
---- ---------- ---------- ----------
Total current income
tax expense
(benefit) 33 (1,168) (3,889) 35
---- ---------- ---------- ----------
Deferred:
U.S. 99 223 -- (326)
Puerto Rico 462 (33) 547 (914)
---- ---------- ---------- ----------
Total deferred
income tax expense
(benefit) 561 190 547 (1,240)
---- ---------- ---------- ----------
Total income tax
expense (benefit) $594 $ (978) $ (3,342) $ (1,205)
==== ========== ========== ==========
</TABLE>
Income tax expense (benefit) attributable to income (loss) from continuing
operations differed from the amounts computed by applying the U.S. statutory
federal tax rate (34% for the three months ended December 31, 1998; 35% for
fiscal years 1998, 1997 and 1996) as a result of the following:
<TABLE>
<CAPTION>
Three
Months Ended Fiscal Years Ended September 30
December 31, ----------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Computed statutory
federal tax expense
(benefit) $(281) $ (3,706) $ (7,984) $ (8,209)
Change in the
beginning-of-the-year
balance of the
valuation allowance
for deferred tax
assets (673) 11,234 13,829 17,734
Calculated NOL value
of aforementioned
loss, as adjusted,
for Puerto Rico
income taxes -- -- (6,437) --
Puerto Rico income
taxes 1,503 (6,094) 342 (9,668)
Puerto Rico economic
activity credit (790) (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 196 (1,251) -- --
Tax rate changes 585 -- -- --
Meals and
entertainment
disallowance 51 227 -- --
Other, net 3 (84) (297) 422
----- ---------- ---------- ----------
Total income tax
expense (benefit) $ 594 $ (978) $ (3,342) $ (1,205)
===== ========== ========== ==========
</TABLE>
Current and deferred income tax benefit of $20,062 in fiscal year 1996 was also
provided in connection with the equity in net loss of BAESA.
37
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. INCOME TAXES (Continued):
The significant components of deferred income tax expense (benefit)
attributable to income (loss) from continuing operations are as follows:
<TABLE>
<CAPTION>
Three
Months Ended Fiscal Years Ended September 30
December 31, ----------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred income tax
expense (benefit) $1,234 $ (11,044) $ (13,282) $ (18,974)
Increase (decrease) in
beginning of the year
balance of the
valuation allowance for
deferred tax assets (673) 11,234 13,829 17,734
------ ---------- ---------- ----------
Total deferred income
tax expense (benefit) $ 561 $ 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 are presented below:
<TABLE>
<CAPTION>
September 30
December 31, ------------------
1998 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Property, plant and equipment,
principally due to differences in
depreciable lives $ 2,201 $ 1,204 $ 496
U. S. federal net operating loss
carryforwards 18,412 17,656 13,200
Puerto Rico net operating loss and tax
credit carryforwards 29,897 31,178 26,986
Accrued expenses 1,733 2,373 387
Past service cost for pension plan (107) (110) 426
Inventories, principally due to
additional costs inventoried for tax
purposes 52 73 90
Accounts receivable 593 1,296 1,005
Other, net 73 418 149
-------- -------- --------
Total deferred tax assets 52,854 54,088 42,739
Less--Valuation allowance (51,584) (52,257) (41,023)
-------- -------- --------
Net deferred tax asset $ 1,270 $ 1,831 $ 1,716
======== ======== ========
</TABLE>
The subsequent recognition of tax benefits related to the valuation allowance
for deferred tax assets as of December 31, 1998 and September 30, 1998 and 1997
will be allocated to income from continuing operations.
At December 31, 1998, the Company had U.S. federal net operating loss
carryforwards approximating $54,200 which expire through 2019, and Puerto Rico
tax net operating loss carryforwards approximating $76,300 which expire through
2006. 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 it is
"more likely than not" that the future income tax benefits will be realized.
38
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 $63 and $50 were incurred in
the three-month period ended December 31, 1998 and in fiscal year 1998,
respectively.
Also in fiscal year 1998, the Company 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 $94 and $76
were incurred with this affiliate in the three-month period ended December 31,
1998 and in fiscal year 1998, respectively. During the three months ended
December 31, 1998, the Company purchased approximately $5,411 of beverage
product from this affiliate at cost, and as of December 31, 1998, had a
liability to this affiliate of approximately $255.
During the three months ended December 31, 1998 and in fiscal years 1998, 1997
and 1996 the Company paid approximately $175, $744, $3,671 and $2,105,
respectively, in advertising fees to a firm controlled by a former shareholder
of the Company.
During the three months ended December 31, 1998 and in fiscal years 1998, 1997
and 1996 the Company paid approximately $16, $241, $411 and $57, respectively,
in legal fees to a firm with a partner who is a relative of the Company's
former president.
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.
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.
15. SHAREHOLDERS' EQUITY:
Pursuant to the terms of a 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.
39
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15. SHAREHOLDERS' EQUITY (Continued):
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 six-to-one 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. As a
result, the projected benefit obligation is equal to the accumulated benefit
obligation for each plan. At present management does not intend to terminate
the plans.
The Company recognizes 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.
40
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. PENSION PLANS (Continued):
The following table presents the changes in benefit obligation and plan assets
for the three months ended December 31, 1998 and the fiscal years 1998 and
1997, and the plans' funded status and amounts recognized in the consolidated
balance sheets as of December 31, 1998 and September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Fiscal Years Ended
Months Ended September 30
December 31, --------------------
1998 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Changes in benefit obligation:
Benefit obligation, beginning of period $ 7,650 $ 7,195 $ 7,711
Service cost -- -- 108
Interest cost 131 491 557
Actuarial (gain) loss -- 791 (271)
Benefits paid (119) (827) (910)
------- --------- ---------
Benefit obligation, end of period $ 7,662 $ 7,650 $ 7,195
======= ========= =========
Change in plan assets:
Fair value of plan assets, beginning of
period $ 4,498 $ 4,903 $ 4,579
Actual return on plan assets 1,024 (599) 724
Employer contribution 404 1,021 510
Benefits paid (119) (827) (910)
------- --------- ---------
Fair value of plan assets, end of period $ 5,807 $ 4,498 $ 4,903
======= ========= =========
Funded status $(1,855) $ (3,152) $ (2,292)
Unrecognized actuarial loss 1,890 2,836 998
Unrecognized prior service cost -- -- --
------- --------- ---------
Prepaid (accrued) benefit cost recognized $ 35 $ (316) $ (1,294)
======= ========= =========
Amounts recognized in the consolidated
balance sheets consist of:
Accrued pension cost, including a $50, $42
and $79 current portion $(1,855) $ (3,152) $ (2,292)
Minimum pension liability adjustment
included in accumulated other
comprehensive income 1,890 2,836 998
------- --------- ---------
Net amount recognized $ 35 $ (316) $ (1,294)
======= ========= =========
</TABLE>
41
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. PENSION PLANS (Continued):
Net periodic pension cost for the Company's pension plans comprised the
following:
<TABLE>
<CAPTION>
Three Fiscal Years Ended
Months Ended September 30
December 31, --------------------
1998 1998 1997 1996
------------ ------ ------ ------
<S> <C> <C> <C> <C>
Changes in benefit obligation:
Service cost $ -- $ -- $ 108 $ 160
Interest cost 131 491 557 518
Expected return on plan assets (104) (478) (425) (329)
Amortization of prior service cost -- -- 11 25
Amortization of actuarial loss 23 24 165 213
----- ------ ------ ------
Net periodic pension cost $ 50 $ 37 $ 416 $ 587
===== ====== ====== ======
</TABLE>
Key assumptions used in preparing the December 31, 1998 and September 30, 1998,
1997 and 1996 actuarial valuations include the following:
<TABLE>
<CAPTION>
Three Fiscal Years Ended
Months Ended September 30
December 31, --------------------
1998 1998 1997 1996
------------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount rate 7% 7% 7% 7%
Salary scale for salaried plan N/A N/A 4% 4%
Expected return on plan assets 9% 9% 9% 9%
</TABLE>
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 December 31, 1998,
there were 247,500 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.
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. Stock options under
the nonqualified plan may have an exercise price below the stock's fair market
value at the date of grant ("below market options"). In accordance with APB
Opinion No. 25, deferred compensation is recorded to reflect any difference
between the exercise price and market value of shares granted under the
nonqualified plan for below market options, and is expensed over the vesting
period of the options. During the three months ended December 31, 1998, the
Company granted below market options to acquire 452,500 shares of the Company's
Class B stock, which vest over five years. Accordingly, deferred compensation
expense of $50 was recorded related to this grant. All stock options vest and
become fully exercisable in accordance with the terms of their grant.
42
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17. STOCK OPTION PLANS (Continued):
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. 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:
<TABLE>
<CAPTION>
Fiscal Years
Three Ended September
Months Ended 30
December 31, ------------------
1998 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Net loss:
As reported $(1,420) $ (9,610) $(19,503)
Pro forma (1,646) (10,262) (25,510)
Net loss per common share:
As reported $ (0.07) $ (0.45) $ (0.91)
Pro forma (0.08) (0.47) (1.19)
</TABLE>
The effect on 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 for the three months ended
December 31, 1998 and in fiscal years 1998 and 1997 were $3.06, $4.91 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:
<TABLE>
<CAPTION>
Fiscal
Years
Ended
Three September
Months Ended 30
December 31, ----------
1998 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.0% 6.0% 6.1%
Price volatility 33.7% 66.7% 51.5%
Expected dividend yield 0.0% 0.0% 0.0%
Expected term (in years) 10 10 10
</TABLE>
43
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17. STOCK OPTION PLANS (Continued):
A summary of the Company's stock option plans at December 31, 1998 and
September 30, 1998 and 1997, and changes during the periods then ended, is as
follows:
<TABLE>
<CAPTION>
No. of
Shares Price Range
--------- -----------
<S> <C> <C>
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
Granted 452,500 $ 3.63
Exercised -- --
Lapsed or cancelled -- --
--------- -----------
Outstanding at December 31, 1998 2,079,167 $3.63-$8.75
========= ===========
</TABLE>
At December 31, 1998, the number of options exercisable was 1,626,667. The
weighted average exercise price of all options and options exercisable was
$4.77 and $5.17, respectively, and the weighted average remaining contractual
life of all options and options exercisable was 8.93 years and 8.28 years,
respectively.
18. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company leases certain office space and other facilities under agreements
expiring through 2006. Total rent expense during the three months ended
December 31, 1998 and fiscal years 1998, 1997 and 1996 was approximately $406,
$1,657, $1,661 and $1,387, respectively.
Future minimum rental payments under all noncancellable operating leases with
initial or remaining lease terms of one year or more were as follows at
December 31, 1998:
<TABLE>
<CAPTION>
Total Operating
Year Leases
---- ---------------
<S> <C>
1999 $2,026
2000 1,869
2001 1,800
2002 1,800
2003 1,800
</TABLE>
44
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18. COMMITMENTS AND CONTINGENCIES (Continued):
Future minimum lease payments under capital leases were as follows at December
31, 1998:
<TABLE>
<CAPTION>
Total Capital
Year Leases
---- -------------
<S> <C>
1999 $ 47
2000 7
----
Total minimum lease payments 54
Less--amount representing interest at 10.25% to 12% (6)
----
Present value of minimum lease payments 48
Less--Current installments (41)
----
Capital lease obligations, excluding current installments $ 7
====
</TABLE>
Legal and Environmental Reserve
In 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. All payments related
to this reserve 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:
<TABLE>
<S> <C>
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
=======
</TABLE>
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.
45
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18. COMMITMENTS AND CONTINGENCIES (Continued):
The effect of the settlement on the pre-tax results of the Company for the
fiscal year ended September 30, 1997, was as follows:
<TABLE>
<S> <C>
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
========
</TABLE>
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 aggregate, will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.
19. CHANGE IN YEAR-END:
Effective January 1, 1999, the Company changed its fiscal year-end from
September 30 to December 31. As a result, the Company will hereafter report its
results on a calendar year basis. Summarized financial information for the
three months ended December 31 is as follows:
<TABLE>
<CAPTION>
1997
1998 (Unaudited)
------- -----------
<S> <C> <C>
Net sales $28,328 $25,517
======= =======
Gross profit $ 8,001 $ 8,318
======= =======
Income tax expense $ 594 $ 125
======= =======
Net loss $(1,420) $ (991)
======= =======
Net loss per common share--basic $ (0.07) $ (0.05)
======= =======
Net loss per common share--assuming dilution $ (0.07) $ (0.05)
======= =======
Weighted average number of common shares outstanding
(in thousands) 21,690 21,500
======= =======
</TABLE>
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.
46
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the Company's Executive Officers is set forth in Part I
of this Form 10-K.
The following table sets forth certain information concerning each of the
Company's current directors:
<TABLE>
<CAPTION>
Director
Name Age Position Since
---- --- -------- --------
<S> <C> <C> <C>
Christopher E. Clouser 46 Director 1998
Philip N. Hughes 63 Director 1998
Robert C. Pohlad 44 Director 1998
Diego Suarez, Jr. 44 Director 1998
Basil K. Vasiliou 49 Director 1998
Michael D. White 47 Director 1999
John F. Woodhead 59 Director 1998
Raymond W. Zehr, Jr. 52 Director 1998
</TABLE>
The following is a brief description of the business background of each of the
current directors of the Company.
Christopher E. Clouser has been a Director of the Company since July 1998. Mr.
Clouser has served as Senior Vice President--Administration of Northwest
Airlines, Inc. since September 1996. He joined Northwest in April 1991. Mr.
Clouser has previously held officer positions at Bell Atlantic, Hallmark Cards,
Sprint Corporation and United Telecom. Mr. Clouser is a director of Mesaba
Holdings, Inc.; Delta Beverage Group, Inc.; and Marquette Bancshares, Inc.
Philip N. Hughes has been a Director of the Company since July 1998. Mr. Hughes
is Chairman and CEO of Miller Printing, Inc., a commercial printer, and owner
of Rocket Lube, Inc., a chain of quick-service vehicle lubrication operations.
From 1982 to 1986, Mr. Hughes was a director of MEI Corporation, and from 1983
to 1986 served as Senior Vice President of MEI Corporation. From May 1986 to
December 1986, Mr. Hughes was President, MEI Division, Pepsi-Cola Bottling
Group, a division of PepsiCo, Inc. From 1986 to 1993, Mr. Hughes served as a
director of MEI Diversified, Inc. In February 1993, MEI Diversified Inc. filed
for Chapter 11 bankruptcy protection. A Plan of Reorganization for MEI
Diversified, Inc. was confirmed in October 1994, pursuant to which its assets
and liabilities were liquidated. Mr. Hughes is also a director of Delta
Beverage Group, Inc.
Robert C. Pohlad has served as Chairman, Chief Executive Officer and a Director
of the Company since July 1998. Mr. Pohlad has been a Director and Chief
Executive Officer of Delta Beverage Group, Inc. since 1988. Since 1987, Mr.
Pohlad has also served as President of 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 is currently a
director of Mesaba Holdings, Inc., and Grow Biz International, Inc.
Diego Suarez, Jr. has been a Director of the Company since July 1998. Mr.
Suarez has been Chief Executive Officer of V. Suarez & Co., Inc. since 1995 and
in various other positions with V. Suarez & Co., Inc. since 1984. He is also a
director of V. Suarez & Co., Inc.; Bank Trust, Puerto Rico; Atlantic Pipe
Corporation and Wine & Spirits Wholesalers of America.
47
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS (Continued):
Basil K. Vasiliou has been a Director of the Company since February 1998. He is
currently the Chairman of Vasiliou & Co., Inc., a registered broker-dealer. Mr.
Vasiliou was the general partner of Smith-Vasiliou Special Situations Fund,
L.P., a partnership organized to invest in the financial obligations of
troubled corporations, from 1984 to 1994. Mr. Vasiliou has also been a director
of Costain Group PLC from November 1997 and was a director of Interco Inc. from
1992 to 1995.
Michael D. White has been a director of the Company since February 1999. Mr.
White has been Senior Vice President and Chief Financial Officer of PepsiCo,
Inc. since March 1998, and previously served as Executive Vice President and
CFO of Pepsi-Cola Company beginning in March 1996, Executive Vice President and
CFO of PepsiCo Foods International beginning in February 1994 and CFO of Frito-
Lay North America beginning in February 1993. He joined Frito-Lay in 1990 as
Vice President of Planning.
John F. Woodhead has been a Director of the Company since July 1998. Mr.
Woodhead has provided management consulting services to Dakota Beverage
Company, Inc., a PepsiCo franchise bottler which is a wholly owned subsidiary
of the Pohlad Companies, since 1971. Mr. Woodhead is also currently owner and
President of JFW Inc., a management services company. Since 1992, Mr. Woodhead
has also served as Chairman, President and CEO of Park National Bank. Mr.
Woodhead is currently a director of Delta Beverage Group, Inc.
Raymond W. Zehr, Jr. has been a Director of the Company since July 1998. Mr.
Zehr has been Vice President of Pohlad Companies since 1987 and in various
other capacities with Pohlad Companies since 1971. Mr. Zehr is also Chief
Investment Manager of CRP Holdings, LLC and Vice President of CRP Sports, Inc.,
the managing general Partner of the Minnesota Twins Baseball Club. Mr. Zehr is
currently a director of Mesaba Holdings, Inc.
See Item 13 for a description of certain arrangements pursuant to which the
Directors were selected to serve on the Company's Board.
Compliance with Reporting Requirements of Section 16 of the Exchange Act
Under Section 16(a) of the Exchange Act, the Company's executive officers and
any persons holding 10% or more of the Company's Common Stock are required to
report their ownership of Common Stock and changes in that ownership to the SEC
and to furnish the Company with copies of such reports. The Company is required
to disclose in this Proxy Statement any failure to file on a timely basis by
such persons. During the transition period from October 1, 1998 to December 31,
1998 and for the fiscal year ended September 30, 1998, all reports required to
be filed by the Company's directors, executive officers and 10% shareholders
were timely filed with the SEC.
48
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses the annual and long-term compensation received in
the 12 months ended December 31, 1998 ("Calendar 1998") and for each of the
last three fiscal years ended September 30 by (i) all persons serving in the
capacity of Chief Executive Officer of the Company during Calendar 1998, (ii)
the Company's executive officers serving at the end of Calendar 1998 whose
salary and incentive compensation exceeded $100,000 in Calendar 1998, and (iii)
any executive officer of the Company who resigned during Calendar 1998 whose
salary and incentive compensation exceeded $100,000 in Calendar 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation Compensation
- ------------------ ------------- ---------- --------- ------------ ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Robert C. Pohlad(1) Calendar 1998 $ 0 $ 0 $ 0 $ 0
Chairman and Chief Fiscal 1998 0 0 0 0
Executive Officer
A. David Velez(2) Calendar 1998 $ 141,834 $ 0 $114,857(3) $ 0
Vice President Fiscal 1998 137,596 0 55,993(4) 0
Fiscal 1997 76,558 0 56,000(5) 0
Rafael Nin(6) Calendar 1998 $ 108,858 $ 0 $ 72,017(7) $ 0
Fiscal 1998 163,975 0 171,473(8) 0
Fiscal 1997 291,500 0 100,000(9) 0
Fiscal 1996 92,304 0 0 0
David L. Virginia(10) Calendar 1998 $ 61,399 $ 0 $102,309(11) $85,000(12)
Fiscal 1998 76,500 0 95,397(13) 0
Fiscal 1997 95,146 0 97,000(14) 0
Fiscal 1996 12,096(15) 0 11,695(16) 0
Reinaldo Rodriguez(17) Calendar 1998 $ 93,739 $ 0 $112,632(18) $120,00(12)
Fiscal 1998 120,000 0 125,669(19) 0
Fiscal 1997 81,092 25,000 122,200(20) 1,370(21)
Fiscal 1996 0 0 19,863(16) 0
</TABLE>
- -------
(1) Mr. Pohlad became Chairman and Chief Executive Officer of the Company in
July 1998. Mr. Pohlad receives no compensation from the Company but is
compensated through Pohlad Companies. The Company receives executive
management services from Pohlad Companies pursuant to a Management
Agreement. See "Certain Relationships and Related Transactions."
(2) Mr. Velez became Vice President in March 1997.
(3) Of this amount, $2,857 represents travel and entertainment expenses,
$12,000 represents a car allowance, $10,000 represents a moving allowance
and $90,000 represents dividends on management stock paid by Beverage
Plastics Company, a wholly owned subsidiary of the Company.
(4) Of this amount, $3,493 represents travel and entertainment expenses,
$12,000 represents a car allowance, $18,000 represents a moving allowance
and $22,500 represents dividends on management stock paid by Beverage
Plastics Company, a wholly owned subsidiary of the Company.
(5) Of this amount, $6,000 represents a car allowance and $50,000 represents
dividends on management stock paid by Beverage Plastics Company, a wholly
owned subsidiary of the Company.
49
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION (Continued):
(6) Mr. Nin served as President and Chief Executive Officer of the Company
from June 1996 until his resignation in July 1998.
(7) Of this amount, $67,500 represents dividends on management stock paid by
Beverage Plastics Company, a wholly owned subsidiary of the Company.
(8) Of this amount, $71,473 represents travel and entertainment expenses and
$100,000 represents dividends on management stock paid by Beverage
Plastics Company, a wholly owned subsididary of the Company.
(9) Represents compensation received in the form of dividends on management
stock paid by Beverage Plastics Company, a wholly owned subsidiary of the
Company.
(10) Mr. Virginia served as Vice President and Chief Financial Officer of the
Company from September 1996 until his resignation in July 1998. Mr.
Virginia was hired as a consultant to the Company in July 1996.
(11) Of this amount, $3,809 represents travel and entertainment expenses,
$22,000 represents a car allowance and $76,500 represents dividends on
management stock paid by Beverage Plastics Company, a wholly owned
subsidiary of the Company.
(12) Represents a severance payment made during the interim period ended
December 31, 1998.
(13) Of this amount, $6,897 represents travel and entertainment expenses,
$12,000 represents a car allowance and $76,500 represents dividends on
management stock paid by Beverage Plastics Company, a wholly owned
subsidiary of the Company.
(14) Of this amount, $12,000 represents a car allowance and $85,000 represents
dividends on management stock paid by Beverage Plastics Company, a wholly
owned subsidiary of the Company.
(15) Represents compensation from July to September 1996.
(16) Represents consulting fees.
(17) Mr. Rodriguez served as Vice President--Human Resources and Government
Affairs of the Company from October 1996 until his resignation in July
1998. Mr. Rodriguez was hired as a consultant to the Company in August
1996.
(18) Of this amount, $22,000 represents a car allowance and $90,000 represents
dividends on management stock paid by Beverage Plastics Company, a wholly
owned subsidiary of the Company.
(19) Of this amount, $1,169 represents travel and entertainment expenses,
$12,000 represents a car allowance and $112,500 represents dividends on
management stock paid by Beverage Plastics Company, a wholly owned
subsidiary of the Company.
(20) Of this amount, $12,000 represents a car allowance, $30,000 represents a
consulting fee, $5,200 represents a housing allowance and $75,000
represents dividends on management stock paid by Beverage Plastics
Company, a wholly owned subsidiary of the Company.
(21) Represents a contribution under the Company's Section 165(e) Plan
(equivalent to a Section 401(k) plan).
50
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Option Grants for Calendar 1998
<TABLE>
<CAPTION>
Potential
Realizable Value
at
Assumed
Percent of Annual Rates
Number of Total Options of Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term(1)
Options in Calendar Price Expiration -----------------
Name Granted 1998 Per Share Date 5% 10%
---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
A. David Velez 40,000 7.7% $6.25 3/3/08 $157,224 $398,436
A. David Velez 28,000 5.4% 3.63 12/10/08 -- --
David L. Virginia 20,000 3.8% 6.25 7/17/99 78,612 199,218
Reinaldo Rodriguez 10,000 1.9% 6.25 7/17/99 39,306 99,609
</TABLE>
- -------
(1) These amounts are based on the assumed rates of appreciation as suggested
by the rules of the Securities and Exchange Commission and do not represent
a prediction by the Company of future stock prices. Actual gains, if any,
on stock option exercises are dependent upon the future performance of the
Company's Common Stock.
Aggregated Option Exercises in Calendar 1998 and Calendar 1998 Year-End Option
Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options At Options At
Acquired Value Calendar Calendar
Name On Exercise Realized 1998 Year-End 1998 Year-End
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
A. David Velez None None 40,000 None
Rafael Nin 190,000(1) $380,000(2) None None
Rafael Nin None None 1,516,667(3) $284,375(4)
David L. Virginia None None 20,000 None
Reinaldo Rodriguez None None 10,000 None
</TABLE>
- -------
(1) On September 3, 1998, Rafael Nin exercised options to purchase (a) 190,000
Class B Shares, at an exercise price of $5.00 per share, pursuant to the
Company's Qualified Stock Option Plan.
(2) This value represents the difference between the market value of 190,000
Class B Shares and the exercise price of the option on September 3, 1998.
On September 3, 1998, the market value of 190,000 Class B Shares was
$1,330,000, which is the product of 190,000 Class B Shares and $7.00, the
last reported sale price of Class B Shares on the NYSE on September 3,
1998. The exercise price of the option was $950,000, which is the product
of 190,000 Class B Shares and the exercise price of $5.00 per Share.
(3) On October 15, 1996, the Company granted Rafael Nin an option to purchase
1,516,667 Class B Shares at an exercise price of $5.00 per share. This
option may be exercised in whole or in part and is unlimited in duration
until exercised in full.
(4) This value represents the difference between the market value of the
1,516,667 Class B Shares and the exercise price of the option on December
31, 1998. On December 31, 1998, the market value of 1,516,667 Class B
Shares was $7,867,710, which is the product of 1,516,667 Class B Shares and
$5.1875, the last reported sale price of Class B Shares on the NYSE on
December 31, 1998. The exercise price of the option is $7,583,335, which is
the product of 1,516,667 Class B Shares and the exercise price of $5.00 per
share.
51
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Compensation of Directors
With the exception of Robert C. Pohlad, who receives no compensation for
serving as a director of the Company, each director receives $1,500 per board
meeting attended, $1,000 per committee meeting attended and an annual grant of
options to purchase 1,000 shares of Class B Common Stock. All directors are
reimbursed for travel expenses incurred in attending meetings of the Company.
Employment Agreement
On June 11, 1996, the Company entered into an employment agreement with Rafael
Nin providing for an annual base salary of $300,000, subject to yearly review,
as well as a year-end bonus of 50% of the annual salary, predicated on the
satisfactory completion of established and agreed-upon objectives. The Company
also agreed to give Mr. Nin a management stock dividend from Beverage Plastics
Company, a wholly owned subsidiary of the Company, of $100,000 annually,
payable in four quarterly installments of $25,000. Under the employment
agreement, Mr. Nin was also entitled to receive other benefits including an
automobile with all operating expenses paid, and health and life insurance.
During the fiscal year ended September 30, 1998, Mr. Nin did not receive any
bonus, and his compensation reflected a voluntary salary reduction as of April
1, 1997. Mr. Nin's employment agreement was terminated in July 1998 in
connection with the change in control of the Company.
Employee Benefit Plans
Salaried Employees' Retirement Plan. The formula used to determine retirement
benefits under the Company's salaried employees' retirement plan (the
"Retirement Plan") considers the participant's (i) Highest Average Monthly
Compensation,
(ii) years of service and (iii) normal or early retirement. Highest Average
Monthly Compensation is 1 2/3% of the total compensation (including wages,
salary, commissions and bonuses but excluding contributions to pension or
welfare plans) paid during the employee's five consecutive most highly
compensated calendar years, up to a maximum of $160,000. The Company froze the
Retirement Plan as of May 1, 1997, and no accruals have been, or will be, made
after that date. The Highest Average Monthly Compensation will be based on
compensation received prior to the freeze.
In general, the monthly benefit payable at normal retirement age (age 65) is
equal to (i) the sum of (a) 3% of the participant's Highest Average Monthly
Compensation multiplied by the participant's years of service (and fractions
thereof) up to 10 years, plus (b) 1% of such participant's Highest Average
Monthly Compensation multiplied by the participant's years of service (and
fractions thereof) in excess of 10 years and (ii) reduced by 1 2/3% of the
participant's Primary Social Security Benefit (as defined in the plan)
multiplied by the participant's years of service, up to 30 years. The normal
form of benefit for a married participant is a qualified joint and survivor
annuity and for an unmarried participant is a single life annuity.
52
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION (Continued):
The table below sets forth the estimated annual retirement benefits
(contributory and non-contributory) payable on a straight line annuity basis to
all eligible salaried employees, including employees who are officers, who meet
the credited service requirement for retirement at age 65. Normal retirement
benefits are not subject to deduction for Social Security benefits or other
offset amounts.
<TABLE>
<CAPTION>
Credit Years of Service
Average Yearly ---------------------------------------------------------------------------
Compensation 15 20 25 30 35
- -------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $40,080 $45,107 $50,134 $55,162 $61,412
150,000 48,830 55,107 61,384 67,662 75,162
175,000 52,330 59,107 65,884 72,662 80,662
200,000 52,330 59,107 65,884 72,662 80,662
225,000 52,330 59,107 65,884 72,662 80,662
250,000 52,330 59,107 65,884 72,662 80,662
300,000 52,330 59,107 65,884 72,662 80,662
400,000 52,330 59,107 65,884 72,662 80,662
450,000 52,330 59,107 65,884 72,662 80,662
500,000 52,330 59,107 65,884 72,662 80,662
</TABLE>
As of December 31, 1997, David L. Virginia had accrued an estimated annual
benefit of $1,417 per month for an estimated 12 credited years of service,
payable upon his retirement date, and Reinaldo Rodriguez had accrued an
estimated annual benefit of $2,148 per month for an estimated 12 credited years
of service, payable upon his retirement date. Messrs. Virginia and Rodriguez
are no longer employed by the Company. None of the Company's current executive
officers participate in the Retirement Plan.
Compensation Committee Interlocks and Insider Participation
Other than Robert C. Pohlad, the Company's Chief Executive Officer, no member
of the Compensation Committee of the Board of Directors was an officer, former
officer or employee of the Company during the twelve months ended December 31,
1998. Other than Mr. Pohlad and John F. Bierbaum, no executive officer of the
Company served as a member of the compensation committee or the board of
directors or another entity, one of whose executive officers served on the
Company's Compensation Committee of Board of Directors during the twelve months
ended December 31, 1998. Messers. Pohlad and Bierbaum serve as directors of
Delta Beverage Group, Inc. and Mr. Pohlad serves as Chief Executive Officer and
as a member of that company's compensation committee.
53
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The Company's Common Stock is currently divided into Class A Shares, each of
which is entitled to six votes per share, and Class B Shares, each of which is
entitled to one vote per share. Information with respect to beneficial
ownership of the Company's Common Stock is based on the Company's records, data
supplied to the Company by its shareholders and, with respect to 5% or greater
shareholders, Schedule 13D or Schedule 13G filings with the Securities and
Exchange Commission.
Class A Shares
The following table sets forth information regarding the beneficial ownership
of all of the Class A Shares outstanding as of March 15, 1999.
<TABLE>
<CAPTION>
Percentage
Number of of
Class A Class A
Shares Shares
Directors, Executive Officers Beneficially Beneficially
and 5% Shareholders Owned Owned(1)
----------------------------- ------------ ------------
<S> <C> <C>
Pohlad Companies 4,250,000(2) 85.0%
60 South Sixth Street
Suite 3800
Minneapolis, MN 55402
P-PR Transfer, LLP (3)(4) 4,000,000 80.0
60 South Sixth Street
Suite 3800
Minneapolis, MN 55402
V. Suarez & Co., Inc. (4) 1,000,000 20.0
P.O. Box 364588
San Juan, Puerto Rico 00936-4588
</TABLE>
- -------
(1) Based on 5,000,000 total outstanding Class A Shares on March 15, 1999.
Because the same shares may be deemed to be beneficially owned by more than
one person, the total percentages will exceed 100%.
(2) Pohlad Companies has limited voting control over 4,000,000 of these shares
pursuant to the Partnership Agreement of P-PR Transfer, LLP, of which
Pohlad Companies is a general partner. Such shares are held directly by P-
PR Transfer, LLP. Pohlad Companies has voting control over the remaining
250,000 of these shares pursuant to a Stockholders' Agreement among the
Company, P-PR Transfer, LLP and V. Suarez & Co., Inc. Such 250,000 shares
are held directly by V. Suarez & Co., Inc. See Item 13.
(3) P-PR Transfer, LLP is a Delaware limited liability partnership whose
general partners are Pohlad Companies and Beverage, Foods & Service
Industries, Inc., a wholly owned subsidiary of PepsiCo, Inc. Certain of the
Company's directors and executive officers are also affiliated with Pohlad
Companies. The Company is a franchisee of PepsiCo, Inc. See Item 13.
(4) P-PR Transfer, LLP and V. Suarez & Co., Inc. constitute a "group" for
purposes of Section 13(d) of the Securities Exchange Act and the
regulations thereunder, and have filed a joint Schedule 13D disclosing
their ownership of the Company's Common Stock. Each disclaims beneficial
ownership of the shares of the Company's Common Stock held by the other.
54
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued):
Class B Shares
The following table sets forth information regarding the beneficial ownership
of the Class B Shares outstanding as of March 15, 1999 by (i) each person known
by the Company to be the beneficial owner of more than 5% of the Class B
Shares, (ii) each director and nominee for election as a director, (iii) each
of the executive officers named in the summary compensation table and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated herein, each shareholder has sole voting power and sole dispositive
power with respect to the indicated shares.
<TABLE>
<CAPTION>
Percentage
Number of of
Class B Class B
Shares Shares
Directors, Executive Officers and 5% Beneficially Beneficially
Shareholders Owned Owned(1)
------------------------------------ ------------ ------------
<S> <C> <C>
Pohlad Companies 6,328,844(2) 35.1%
60 South Sixth Street
Suite 3800
Minneapolis, MN 55402
P-PR Transfer, LLP (3)(4) 6,328,344(5) 35.1
60 South Sixth Street
Suite 3800
Minneapolis, MN 55402
Shapiro Capital Management Company, Inc. 3,391,425 20.3
3060 Peachtree Rd. NW
Suite 1555
Atlanta, GA 30305
V. Suarez & Co., Inc. (4) 1,631,685(6) 9.6
P.O. Box 364588
San Juan, Puerto Rico 00936-4588
Rafael Nin 1,516,667(7) 8.3
Basil K. Vasiliou 68,920(8) *
A. David Velez 40,000(7) *
David L. Virginia 38,000(9) *
Reinaldo Rodriguez 10,000(7) *
Diego Suarez, Jr. 6,400(10) *
Christopher E. Clouser 1,000(7) *
Philip N. Hughes 1,000(7) *
John F. Woodhead 1,000(7) *
Raymond W. Zehr, Jr. 1,000(7) *
Robert C. Pohlad 500(11) *
Michael D. White 0 *
All Directors and Executive Officers as a
Group (14) persons 119,820(12) *
</TABLE>
- -------
* Less than 1%
(1) Based on 16,690,000 total outstanding Class B Shares on March 15, 1999.
Because the same shares may be deemed to be beneficially owned by more than
one person, the total percentages will exceed 100%.
55
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued):
(2) Pohlad Companies has limited voting control over 6,328,344 of these shares
(including 1,360,000 shares issuable pursuant to presently exercisable
warrants) pursuant to the Partnership Agreement of P-PR Transfer, LLP, of
which Pohlad Companies is a general partner. Such shares are held directly
by P-PR Transfer, LLP. The remaining 500 of these shares are held directly
by Pohlad Companies. See Item 13
(3) P-PR Transfer, LLP is a Delaware limited liability partnership whose
general partners are Pohlad Companies and Beverage, Foods & Service
Industries, Inc., a wholly owned subsidiary of PepsiCo, Inc. Certain of the
Company's directors and executive officers are also affiliated with Pohlad
Companies. The Company is a franchisee of PepsiCo, Inc. See Item 13.
(4) P-PR Transfer, LLP and V. Suarez & Co., Inc. constitute a "group" for
purposes of Section 13(d) of the Securities Exchange Act and the
regulations thereunder, and have filed a joint Schedule 13D disclosing
their ownership of the Company's Common Stock. Each disclaims beneficial
ownership of the shares of the Company's Common Stock held by the other.
(5) Includes 1,360,000 shares which may be purchased pursuant to a warrant.
(6) Includes 340,000 shares which may be purchased pursuant to a warrant.
(7) Consists of shares which may be purchased pursuant to stock options.
(8) Includes 1,000 shares which may be purchased pursuant to stock options. Mr.
Vasiliou owns 43,500 Class B Shares through two Investment Retirement
Accounts. Mr. Vasiliou's wife, Jane T. Vasiliou, owns 17,000 Class B
Shares, of which Mr. Vasiliou has dispositive power. Pursuant to the Jane
T. Vasiliou Trust, Mr. Vasiliou has dispositive power with respect to 4,000
Class B Shares. Pursuant to the K&S Vasiliou Trust, Mr. Vasiliou has
dispositive power with respect to 3,000 Class B Shares. Mr. Vasiliou also
beneficially owns 420 Class B Shares of the Company as beneficiary of the
Vasiliou & Company, Inc. Retirement Plan.
(9) Includes 20,000 shares which may be purchased pursuant to stock options.
(10) Includes 1,000 shares which may be purchased pursuant to stock options.
Mr. Suarez is Chief Executive Officer and a director of V. Suarez & Co.,
Inc.
(11) Consists of shares held directly by Pohlad Companies. Does not include the
shares of Common Stock over which Pohlad Companies exercises voting
control. Mr. Pohlad is President, a director and a one-third equity owner
of Pohlad Companies, one of the general partners of P-PR Transfer, LLP.
(12) Includes 46,000 shares which may be purchased pursuant to stock options.
Does not include the shares of Common Stock held directly by Pohlad
Companies or the shares of Common Stock over which Pohlad Companies
exercises voting control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Change in Control
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 Partnership is governed by an agreement that provides that the Common Stock
owned by the Partnership will be voted so that one member of the Company's
Board of Directors will be a person designated by BFSI. Pohlad Companies has
the right to designate and vote all of the other Common Stock owned by the
Partnership for all of the other members of the Company's Board of Directors,
subject to the rules of the NYSE requiring the election of two independent
directors.
56
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION (Continued):
Stockholders' Agreement
The Company, the Partnership and Suarez entered into a Stockholders' Agreement
dated as of August 5, 1998 (the "Stockholders' Agreement"). Under the
Stockholders' Agreement, Suarez has granted to Pohlad Companies the right to
vote 250,000 of the Class A Shares held by Suarez (or such lesser number of
shares as Suarez may own), so long as Pohlad Companies or an affiliate owns
directly or indirectly an equity interest in the Partnership. Pohlad Companies'
right to vote such shares applies to all matters except (a) the sale of all or
substantially all of the assets or stock of the Company and (b) a plan of
merger, exchange or consolidation of the Company with another entity in which
transaction the Company is not the surviving entity.
The Stockholders' Agreement includes an agreement by the Company to prepare and
file a registration statement under the Securities Act of 1933, as amended (the
"Act"), covering the 1,242,085 Class B Shares purchased by Suarez on July 17,
1998, and to use its best efforts to cause such registration statement to
become effective on or before August 1, 1999 and to remain effective until
Suarez no longer owns such Class B Shares or until Suarez is eligible to sell
all of its remaining Class B Shares in a single transaction pursuant to Rule
144 under the Act. The registration rights include standard expense and
indemnification provisions.
Franchise Arrangements
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 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 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.
Management Agreement
The Company entered into a Management Agreement with Pohlad Companies effective
July 20, 1998 (the "Management Agreement") which provides for Pohlad Companies
to perform executive management functions for the Company. In return for such
services, the Company must pay Pohlad Companies an annual fee of $250,000,
which will escalate each year with
57
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION (Continued):
increases in the Company's gross revenue. Management fees of approximately
$63,000 and $50,000 were incurred in the three-month period ended December 31,
1998 and in fiscal year 1998, respectively, under the Management Agreement.
Either party may terminate the Management Agreement after ten years. Robert C.
Pohlad, the Company's Chairman and Chief Executive Officer, is a director,
President and Chief Executive Officer of Pohlad Companies.
Accounting Services Agreement
The Company entered into an Accounting Services Agreement with Delta Beverage
Group, Inc. ("Delta Beverage") effective July 20, 1998 (the "Accounting
Services Agreement") which provides for Delta Beverage to perform accounting
and management information systems services for the Company. The Company must
pay Delta Beverage an annual fee for such services in an amount equal to the
aggregate costs and expenses incurred by Delta Beverage and allocated by Delta
Beverage based on case volume of the Company. Accounting services fees of
approximately $94,000 and $76,000 were incurred in the three-month period ended
December 31, 1998 and in fiscal year 1998, respectively, under the Accounting
Services Agreement. Either party may terminate the Accounting Services
Agreement after ten years. Robert C. Pohlad, the Company's Chairman and Chief
Executive Officer, is a director and Chief Executive Officer of Delta Beverage.
Pohlad Companies holds an equity interest in Delta Beverage.
Employment Agreement
See "Item 11. Executive Compensation--Employment Agreement."
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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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")).
</TABLE>
58
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(Continued):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.1 Franchise Commitment Letter between PepsiCo, Inc. and the Company
dated July 17, 1998 (incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998).
10.2 Exclusive Bottling Appointment between PepsiCo, Inc. and the Company
dated July 17, 1998 (incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998).
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 (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998).
10.7 Management Agreement between Pohlad Companies and the Company dated
July 20, 1998 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998).
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 (incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998).
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 (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998).
</TABLE>
59
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(Continued):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.15 First Amendment to Second Restated Credit Agreement and Loan Documents
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1998).
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 March 25, 1999 (filed
herewith).
23.2 Independent Auditors' Consent, dated March 24, 1999 (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K.
(i) The registrant filed a Current Report on Form 8-K dated October 7,
1998 relating to the resumption of 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.
60
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 three month period ended December 31, 1998
and the year ended September 30, 1998, and have issued our report thereon dated
March 11, 1999. 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 December 31, 1998
and September 30, 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,
March 11, 1999.
61
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
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 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 LLP
San Juan, Puerto Rico,
December 5, 1997.
Stamp No. 1527550 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
62
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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>
Three Months Ended
December 31, 1998:
Allowance for Doubtful
Accounts $1,265 $ 174 $-- $ (802)(1) $ 637
Restructuring Charges 748 -- -- (525)(3) 223
Fiscal Year Ended
September 30, 1998:
Allowance for Doubtful
Accounts 1,389 498 -- (622)(1) 1,265
Restructuring Charges 163 903 -- (318)(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 and $103
reversed into income.
(3) Comprised of $525 of severance payments and other exit costs.
63
<PAGE>
PEPSI-COLA PUERTO RICO BOTTLING COMPANY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
/s/ Robert C. Pohlad
By: _______________________________________
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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Robert C. Pohlad Chief Executive Officer March 30, 1999
______________________________________ and Director (Principal
Robert C. Pohlad Executive Officer)
/s/ John F. Bierbaum Chief Financial Officer March 30, 1999
______________________________________ and Vice President
John F. Bierbaum (Principal Accounting
Officer)
/s/ Christopher E. Clouser Director March 30, 1999
______________________________________
Christopher E. Clouser
/s/ Philip N. Hughes Director March 30, 1999
______________________________________
Philip N. Hughes
/s/ Diego Suarez, Jr. Director March 30, 1999
______________________________________
Diego Suarez, Jr.
/s/ Basil K. Vasiliou Director March 30, 1999
______________________________________
Basil K. Vasiliou
/s/ John F. Woodhead Director March 30, 1999
______________________________________
John F. Woodhead
/s/ Raymond W. Zehr, Jr. Director March 30, 1999
______________________________________
Raymond W. Zehr, Jr.
</TABLE>
64
<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 (incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998).
10.2 Exclusive Bottling Appointment between PepsiCo, Inc. and the Company
dated July 17, 1998 (incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
Septebmer 30, 1998).
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 (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998).
10.7 Management Agreement between Pohlad Companies and the Company dated
July 20, 1998 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998).
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 (incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998).
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 (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998).
10.15 First Amendment to Second Restated Credit Agreement and Loan Documents
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1998).
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 March 25, 1999 (filed
herewith).
23.2 Independent Auditors' Consent, dated March 24, 1999 (filed herewith).
27.1 Financial Data Schedule (filed herewith).
<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)
<TABLE>
<CAPTION>
Three Months
Ended Fiscal Years Ended September 30
December 31, ------------------------------
1998 1998 1997 1996
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss $ (1,420) $ (9,610) $ (19,503) $(74,330)
======== ======== ========== ========
Net loss - assuming dilution $ (1,420) $ (9,610) $ (19,503) $(74,330)
======== ======== ========== ========
Weighted average number of common
shares outstanding 21,690 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 21,690 21,516 21,500 21,500
======== ======== ========== ========
Net loss per common share $ (0.07) $ (0.45) $ (0.91) $ (3.46)
======== ======== ========== ========
Net loss per common share - assuming
dilution $ (0.07) $ (0.45) $ (0.91) $ (3.46)
======== ======== ========== ========
</TABLE>
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 report on the consolidated financial statements and financial
statement schedule of the Company as of and for the three month period ended
December 31, 1998 and 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,
March 25, 1999.
<PAGE>
Exhibit 23.2
Independent Auditors' Consent
-----------------------------
As independent auditors, we hereby consent to the incorporation by reference of
our report on the consolidated financial statements and financial statement
schedule of the Company as of September 30, 1997 and for 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 LLP
San Juan, Puerto Rico,
March 24, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FORM 10-K IS A TRANSITION REPORT FOR THE TRANSITION PERIOD FROM OCTOBER 1,
1998 TO DECEMBER 31, 1998, WHICH IS THE COMPANY'S NEW FISCAL YEAR END.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,418
<SECURITIES> 0
<RECEIVABLES> 13,680
<ALLOWANCES> 637
<INVENTORY> 2,505
<CURRENT-ASSETS> 45,102
<PP&E> 72,612
<DEPRECIATION> 30,150
<TOTAL-ASSETS> 92,851
<CURRENT-LIABILITIES> 14,345
<BONDS> 22,080
0
0
<COMMON> 217
<OTHER-SE> 54,404
<TOTAL-LIABILITY-AND-EQUITY> 92,851
<SALES> 28,328
<TOTAL-REVENUES> 28,328
<CGS> 20,327
<TOTAL-COSTS> 28,942
<OTHER-EXPENSES> (212)
<LOSS-PROVISION> 174
<INTEREST-EXPENSE> 475
<INCOME-PRETAX> (826)
<INCOME-TAX> 594
<INCOME-CONTINUING> (1,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,420)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
