SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[Checked Box]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
                                       or
[Square]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 1-13914

                     PEPSI-COLA PUERTO RICO RETAILING COMPANY
             (Exact name of Registrant as specified in its Charter)

                  DELAWARE                             ###-##-####
       (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)

            CARRETERA 865 Km. 0.4
            BO. CANDELARIA ARENAS
            TOA BAJA, PUERTO RICO                           00949
   (Address of principal executive office)               (Zip code)

       Registrant's telephone number, including area code: (787) 251-2000

           Securities registered pursuant to Section 12(b) of the Act:


         TITLE OF EACH CLASS               NAME OF EXCHANGE ON WHICH REGISTERED
Class B Common Stock, Par Value $.01              New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [Checked Box] Yes [Square] No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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. [Square]

     Based upon the closing  price of the Class B Common  Stock on December  19,
1997, as reported on the New York Stock Exchange  Composite Tape (as reported by
THE WALL STREET JOURNAL), the aggregate market value of the Registrant's Class B
Common  Stock  held by  non-affiliates  of the  Registrant  as of such  date was
approximately $111,375,000.

     As of December  19,  1997,  there were  21,500,000  shares of Common  Stock
issued and outstanding.  This amount includes 5,000,000 shares of Class A Common
Stock and 16,500,000 shares of Class B Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Selected  portions of the 1997 Proxy  Statement of  Pepsi-Cola  Puerto Rico
Bottling  Company are  incorporated by reference into Part III of this Form 10-K
to the extent provided herein.



<PAGE>



                     PEPSI-COLA PUERTO RICO BOTTLING COMPANY
                     ---------------------------------------
                       INDEX TO ANNUAL REPORT ON FORM 10-K
                          YEAR ENDED SEPTEMBER 30, 1997
                         


ITEM NO.                                                                PAGE NO.
--------                                                                --------

PART I
    Item 1.  BUSINESS......................................................... 2
    Item 2.  PROPERTIES.......................................................14
    Item 3.  LEGAL PROCEEDINGS................................................14
    Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............14

PART II
    Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS..............................................15
    Item 6.  SELECTED FINANCIAL DATA..........................................16
    Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS........................................19
    Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................26
    Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE.........................................48

PART III
    Item 10. DIRECTORS AND EXECUTIVE OFFICERS.................................49
    Item 11. EXECUTIVE COMPENSATION...........................................49
    Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT.......................................................49
    Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................49

PART IV
    Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
             8-K..............................................................50
             SIGNATURES.......................................................53





                                        1

<PAGE>



                                     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,  isotonics  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 under the Pepsi-Cola,  Diet
Pepsi, Pepsi Free, Slice,  Wonder Kola, On-Tap, Teem and Mountain Dew trademarks
pursuant to exclusive franchise  arrangements with PepsiCo. The Company produces
(through an arrangement with a co-packer), sells and distributes isotonics under
the All Sport  trademark  pursuant to an exclusive  franchise  arrangement  with
PepsiCo. In addition,  the Company produces,  sells and distributes tonic water,
club  soda and  ginger  ale  under  the  Seagram  trademark  under an  exclusive
arrangement  with  Joseph E.  Seagram  & Sons,  Inc.  ("Seagram")  and sells and
distributes  fruit juice  products under the Welch's  trademark and  distributes
bottled water under its own Cristalia trademark.

     The Company was  incorporated and acquired the franchise rights to produce,
sell and distribute PepsiCo soft drink products in Puerto Rico in 1987. In 1989,
the  Company   became  one  of  the  founding   shareholders   of  Buenos  Aires
Embotelladora S.A. ("BAESA"), which was incorporated and commenced operations in
the Buenos Aires metropolitan area in that year.

     A subsidiary  of the Company  manufactures  and sells  plastic  bottles and
"preforms"  (small  molded  plastic units which are expanded with air to produce
plastic bottles).

     For its fiscal year ended  September 30, 1997,  the Company had a loss from
operations  of  ($21.4)  million  (including  ($13.2)  million  related  to  the
settlement of civil litigation), compared to ($26.8) million during fiscal 1996.
This  loss  from  the  Company's  operations  resulted  primarily  from  intense
competitive  pressures  in Puerto Rico which  produced  net lower  sales  prices
reflecting  increased discounts offered to customers,  and cost (including legal
fees)  associated  with the  settlement  of  certain  shareholder  class  action
lawsuits  against  the  Company  and  some  of its  directors  and  the  ongoing
investigation  by the  Securities  and  Exchange  Commission  (the "SEC") of the
circumstances  surrounding certain accounting  irregularities which precipitated
the shareholder lawsuits.

     This annual  report on Form 10-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 the ability to achieve its goal of restoring the
profitability  of its  Puerto  Rico  bottling  operations  as a result  of 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  impact actual  performance.  The Company's  future  performance also
involves a number of risks and  uncertainties.  Among the factors that can cause
actual  performance to differ materially are:  continued  competitive  pressures
with  respect  to  pricing  in  the  Puerto  Rican  market  notwithstanding  the
implementation of the pricing initiatives, the inability to achieve cost savings
due to unexpected  developments  at the  Company's new plant and other  factors,
changed plans regarding capital expenditures,  adverse developments with respect
to economic, climatic and political conditions in Puerto Rico, and the impact of
such conditions on consumer spending.




                                        2

<PAGE>



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 18 and 45% of the  population  is under the age of 25 which  the  Company
believes is significant because young people are major consumers of soft drinks.

     Although the Company has rights to sell PepsiCo products to distributors in
the  U.S.  Virgin  Islands,  it is not  required  to do so under  its  franchise
agreements  with PepsiCo.  During the fiscal year ended September 30, 1997, less
than 1% of the Company's sales by volume were to distributors in the U.S. Virgin
Islands.


THE BERVERAGE INDUSTRY IN PUERTO RICO

     CONSUMPTION AND MARKET TRENDS

     The Puerto Rican soft drink market is  characterized  by relatively low per
capita consumption as compared to the United States. 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.  See "Item 7.  Management's  Discussion and Analysis of Financial
Condition and Results of Operations -- General  Overview  --Carbonated  Beverage
Tax." Consumption  levels have generally  increased since the replacement of the
Carbonated  Beverage Tax in January 1994 but remain 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. Based
on  information  from  Asesores (as defined  below),  the soft drink market grew
approximately 12.8% in the 12 month period ended August 31, 1997.

     MARKET SHARE AND SALES DATA

     This subsection contains information  regarding the Puerto Rican soft drink
industry and the Company's market share thereof.  Certain information  regarding
the Puerto Rican soft drink take-home market segment (retail sales to customers)
has been obtained or derived from data published by Asesores, Inc. ("Asesores"),
an independent  research  company.  Asesores  publishes  bimonthly  estimates of
beverage  consumption  in the  soft  drink  take-home  market  segment  based on
information  obtained  through  weekly  surveys of the  consumption  patterns of
panels of individual  consumers throughout Puerto Rico. The data for the surveys
are  collected in two ways:  product  presence is verified  through an inventory
"pantry check;"  and information on purchases during the prior week is collected
utilizing  personal  interviews.   For  each  product  category,   the  recorded
information includes in-home presence, brand and type, size, quantity purchased,
price and  establishment  where the product is  purchased.  The  universe of the
study is  defined  as "all  family  households  in Puerto  Rico."  The sample is
stratified  and   proportional  by  geographic   area,  urban  and  rural  zone,
socio-economic  levels  and age group.  The  consumption  and sales  information
relating to the take-home market segment may not be  representative  of sales of
the Company's products as a whole.

     The Company plans to report  market share data obtained from A.C.  Nielsen,
an independent  research company. The Company believes that the methodology used
by A.C.  Nielsen  to derive  market  share  data  represents  a more  recognized
measurement  system,  and is consistent  with that  generally used in the United
States to derive  market share data for the soft drink  bottling  business.  The
A.C.  Nielsen  service has only recently  been made  available for use in Puerto
Rico. The data collection for this service began  approximately three years ago.
A.C.  Nielsen  market share data is presented  for  comparison  purposes in this
report.

     As used  throughout  this Form,  the term "soft drink" refers  generally to
carbonated,  nonalcoholic  beverages.  Soft drink  products can be classified as
colas or other  flavored soft drinks.  References to the term "case"  throughout
this report  refer to 192 ounces of finished  beverage  product (24  eight-ounce
servings).

     SOFT DRINK PRODUCTS

     The  following  table shows the  estimated  total sales  volume of the soft
drink  industry in Puerto Rico as well as the  Company's  total soft drink sales
volume.


                
                                        3

<PAGE>



     The cola and flavored soft drinks segments represented  approximately 52.8%
and 13.6%, respectively,  of the soft drink market in Puerto Rico in fiscal year
1997.  The following  chart shows the  Company's  case sales volume of cola soft
drinks for the periods indicated:

                                                            COMPANY COLA
                                                                VOLUME
         CALENDAR YEAR                                 (IN MILLIONS OF CASES)(1)
         -------------                                 -------------------------

         1990.........................................           21.4
         1991.........................................           22.5
         1992.........................................           21.6
         1993.........................................           21.9
         1994.........................................           24.8
         1995 *.......................................           24.9
         1996 *.......................................           25.9
         1997 *.......................................           27.4
         ----------
         (1) SOURCE: Asesores
         *  Represents  cola sales  volume for the twelve  month period ended on
         September 30 of the respective years.

     Sales of cola and flavored soft drinks represented  approximately 82.0% and
6.8%, respectively, of the Company's total soft drink sales volume in the fiscal
year 1997.  Sales of cola and  flavored  soft drinks  represented  approximately
85.4% and 7.1%,  respectively,  of the Company's  total net sales in fiscal year
1997.

     The following chart reflects the Company's share of the soft drink and cola
take-home market segments in Puerto Rico for the periods indicated:


                                      COMPANY SHARE OF         COMPANY SHARE OF
                                    SOFT DRINK TAKE-HOME        COLA TAKE-HOME
CALENDAR YEAR                         MARKET SEGMENT(1)        MARKET SEGMENT(1)
-------------                         -----------------       -----------------

1990 ...............................        47.3%                  58.7%
1991................................        47.8                   60.7
1992................................        53.1                   61.4
1993................................        49.1                   59.5
1994................................        49.3                   56.7
1995 *..............................        49.4                   56.5
1996 *..............................        47.3                   54.2
1997 *..............................        42.6                   47.8
----------
(1)  SOURCE:  Asesores
* For these  years,  the data given in the table is for the twelve  month period
ended on August 31.

     In fiscal year 1997,  approximately  80% of the Company's net sales of cola
soft drinks was to supermarkets,  grocery stores, cash and carry wholesalers and
similar businesses in the take-home segment of the market, and approximately 20%
was to  restaurants  and soda fountains and other  distribution  channels in the
non-take-home market segment.

     Other Products

     The Company's  total sales volume of  non-carbonated  beverages,  including
water,  fruit  juices,   iced  teas  and  isotonics,   was  3.7  million  cases,
representing  approximately 11.7% and 11.2% of the Company's total sales volume,
and approximately 8.1% and 7.5% of the Company's total net sales, in fiscal year
1996 and fiscal year 1997, respectively. The Company estimates that the industry
sales  volume of such  beverages  in Puerto Rico was 34 million  cases in fiscal
year 1997.

Business Strategy

     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 pricing  initiatives  designed to
address the current intense price competition in the soft drink market in Puerto
Rico, the realization of efficiencies and cost savings through the consolidation
of its existing operations in its new bottling facility during fiscal year 1997,
and the  implementation  of  further  cost  cutting  measures.  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.



                
                                        4

<PAGE>



     The Company completed, during the fiscal year 1996, the construction of the
Toa Baja plant and the  consolidation  of its operations in this facility during
1997. The Toa Baja plant has 3 bottling lines and increased the Company's annual
production capacity by 60% (at comparable utilization rates) to approximately 44
million cases per year. The Company  commenced  operations at the Toa Baja plant
in the third fiscal  quarter of 1996 and has closed the Rio Piedras  plant which
is currently for sale. The plastics production facility moved to Toa Baja in the
first quarter of fiscal year 1997.  Several  facilities leased by the Company in
the San Juan area and  elsewhere  in Puerto  Rico were closed as a result of the
completion and  consolidation  of operations in the Toa Baja plant.  The Company
has realized significant savings through its move to the new Toa Baja facility.

     The Company is also expanding its bottled water distribution by introducing
new package formats in twenty-ounce and two liter sizes.

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  Concentrate  Price
Agreement  and the  Cooperative  Advertising  and  Marketing  Agreement  between
PepsiCo (or its affiliates) and the Company,  the "Franchise  Arrangements") for
the relevant trademarks of Pepsi-Cola,  Diet Pepsi, Pepsi Free, Diet Pepsi Free,
Lemon-Lime Slice,  Diet Lemon-Lime  Slice,  Mandarin Orange Slice, Diet Mandarin
Orange Slice, Teem, Diet Teem,  Mirinda,  On-Tap,  Wonder Kola, Mountain Dew and
All Sport.  The Franchise  Arrangements  grant the Company  exclusive  rights to
produce, bottle, sell and distribute PepsiCo soft drink products in Puerto Rico.
The Franchise Arrangements also authorize the Company to supply canned beverages
to the U.S.  Virgin  Islands,  provided  that it remains  competitive  in price,
quality and  quantity.  The  Company has the right of first  refusal to purchase
distribution  rights for PepsiCo  products in the U.S.  Virgin Islands when such
rights become available. If the Company wishes to bottle, sell or distribute any
flavored soft drink or other carbonated beverage other than the products covered
by the Exclusive Bottling  Appointments,  PepsiCo has the right of first refusal
to provide the Company with concentrate for any such soft drink or to supply the
Company with such other  carbonated  beverage at prevailing  market prices.  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.

     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 Concentrate Price
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  Franchise  Commitment  Letter  requires the Company to attain  certain
minimum market share and  distribution  (in terms of sales volume) levels of the
cola market and flavored soft drink and minimum levels of capital  expenditures.
The Exclusive Bottling  Appointments  require the Company to maintain the share,
distribution  and  expenditure  targets for the PepsiCo soft drink  products set
forth in the Franchise  Commitment  Letter. The flavored soft drink market share
level requirements and the capital  expenditure  requirements only apply through
1992 and 1991, respectively.  The Company is required to, at all times, maintain
(i) a  minimum  market  share of 56.7% in the cola  market  as  measured  by the
rolling average of the last six consumer  consumption surveys (each covering two
months)  conducted by Asesores,  and (ii) an annual  growth rate of sales volume
for  bottles,  cans and  post-mix  of soft  drinks in  excess of the soft  drink
industry  annual  average  growth rate for bottles and cans in Puerto  Rico,  as
measured  by  Asesores.  The  Company  has not during the past  fiscal  year met
certain market share and  distribution  requirements  contained in the Franchise
Commitment  Letter.  Based on the market data  provided by Asesores  for the six
consumer surveys in the period ended August 31, 1997, the Company's market share
for cola soft drinks was 49.5%.  The Company's annual sales growth rate for soft
drinks for the twelve month period ended August 31, 1997 was approximately  4.7%
as compared to the industry  average annual growth rate of  approximately  12.8%
for the same period,  as measured by Asesores.  The Company has not received any
notice from PepsiCo  regarding any violations and does not believe that there is
any risk to the  Company  being  adversely  affected  by them.  The  Company and
PepsiCo are working  together to address the issue of the  Company's  failure to
meet the market share and distribution  requirements  contained in the Franchise
Commitment  Letter.  In the event the Company  materially  fails to achieve such
aggregate market share distribution or capital expenditure requirements and such
failure  continues  for a period  of 12 months  following  notice  thereof  from
PepsiCo,  then  PepsiCo  has the right to require  the Company to dispose of the
bottling  business,  plant and operating  assets to a purchaser  satisfactory to
PepsiCo,  or, if such  purchaser is not found,  to terminate the  agreement.  As
required by the Exclusive Bottling Appointments,  the Company has also developed
a postmix  department  with the necessary  infrastructure  to provide  effective
service to the food service channel of distribution.



                
                                        5

<PAGE>



     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  Franchise  Arrangements  require  the Company to not exceed a ratio of
senior debt to subordinated debt to equity of 65 to 25 to 10.

     The  Exclusive  Bottling  Appointments  have  ten-year  terms  expiring  on
November 5, 2003. Each of the Exclusive Bottling Appointments will automatically
be  extended  for an  additional  five-year  term  expiring on November 5, 2008,
provided  the  Company  is not in  breach  of any  provisions  of the  Franchise
Arrangements. 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 18 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.  For
purposes of the  Franchise  Arrangements,  a change of effective  control of the
Company  shall be deemed to have  occurred  if the  Essential  Shareholders  (as
defined below),  directly or indirectly,  cease to own or have the power to vote
in the  aggregate at least a majority of the voting  stock of the  Company.  The
"Essential  Shareholders"  are the members of the Charles H. Beach  Voting Trust
and the Michael J. Gerrits Voting Trust (together, the "Essential Shareholders")
controlled  by Charles  H.  Beach and  Michael  J.  Gerrits,  respectively.  The
Essential  Shareholders  are thus  required  under  the  terms of the  Franchise
Arrangements to retain voting control of the Company.  See "Security  Ownership"
in the Company's Proxy Statement for 1997 incorporated herein by reference.

     In September  1996, in connection  with his continued  service as President
and Chief Executive  Officer,  Mr. Rafael Nin,  requested and was granted by the
Essential  Shareholders and certain other shareholders,  a ten-year voting trust
(the "Voting Trust") which entitles him to vote, but not own,  5,000,000 Class A
Shares  representing a controlling  interest in the Company.  In connection with
the execution of the Voting Trust agreement,  PepsiCo consented to the change of
effective  control of the Company from the  Essential  Shareholders  to Mr. Nin,
acting as voting trustee (the  "Trustee").  The initial term of the Voting Trust
is five years and is  automatically  renewed for an additional  five-year period
unless either PepsiCo or the Trustee  notifies the other party of non-renewal at
least six months prior to the end of the initial  five-year term,  provided that
PepsiCo may not  unreasonably  withhold its consent to the additional  five-year
period.  Under the terms of the Voting  Trust,  Mr. Nin is entitled to resign as
Trustee at any time,  which results in a termination of the Voting Trust. If the
Voting Trust is terminated  because of the  resignation or death of the Trustee,
PepsiCo  has the right for a period of ninety  days  after such  resignation  or
death to appoint a new Trustee to replace Mr. Nin for the remaining  term of the
Voting Trust,  subject to the approval of the beneficial owners of a majority of
the Class A Shares.  Upon the  termination of the Voting Trust at the expiration
of its term, the Class A Shares held in the Voting Trust will be returned to the
Essential Shareholders and the terms of the Franchise Arrangements applicable to
the Essential Shareholders will again become effective.



                
                                        6

<PAGE>



     In connection with the Voting Trust, Mr. Nin was granted a two-year option,
expiring in  September  1998 at $1 per share,  on the Class A Shares held in the
Voting Trust, to be exercised for the exclusive benefit of the Company.

     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.

     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 the 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.

PROPRIETARY TRADEMARKS

     The Company  produces,  sells and  distributes  bottled water under its own
Cristalia  trademark in one-gallon  and  five-gallon  containers.  The Company's
sales of Cristalia  bottled  water  totaled $4.9 million in fiscal year 1997 and
accounted  for 4.9% of the  Company's net sales and 9.4% of sales volume for the
fiscal year 1997.

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


                
                                        7

<PAGE>



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.
Preforms  were also sold to BAESA during the first fiscal  quarter of 1996.  All
bottles used in the bottling process of Cristalia  products are purchased by the
Company  from a number of  independent  suppliers.  The  Company  purchases  its
aluminum can requirements from Crown Cork & Seal.

     None of the raw  materials or supplies  used by the Company is currently in
short  supply,  although  the  available  supply of certain  materials  could be
adversely affected in the future due to reasons outside the Company's control.

     The following table sets forth the principal raw materials  utilized in the
soft drink  production  process and the approximate  percentage of the Company's
total cost in fiscal year 1997 represented by each of them.


                                                             PERCENTAAGE OF
                                                              FISCAL YEAR
      RAW MATERIAL                                              1997 COST
      ------------                                            -----------

       Packaging..............................................    41.5
       Concentrate............................................    36.8
       Sugar/fructose.........................................    15.2
       Carbon dioxide gas.....................................     1.4
       Other..................................................     5.1
                                                                ------
                 Total........................................  100.0%
                                                                ======

     The Company  produces  bottled  water under its  Cristalia  trademark  at a
facility located in Ponce. The water obtained from a spring and several wells is
passed through purification tanks containing sand filters and carbon filters and
subjected  to reverse  osmosis  treatment to filter out  impurities  and certain
minerals.  After the water is passed through an ozonator for further  treatment,
it is bottled in one- and five-gallon containers. The Company currently produces
soft drinks at its plant in Toa Baja and bottled  water at a leased  facility in
Ponce.

     The Company moved its manufacturing operations from Rio Piedras to Toa Baja
during the third  quarter of fiscal  year 1996.  The  following  chart shows the
approximate effective production capacity,  number of shifts and bottling lines,
and average fiscal year 1997 capacity utilization for the Toa Baja plant:

<TABLE>
<CAPTION>


                              APPROXIMATE EFFECTIVE        NUMBER OF            AVERAGE 1997
     PLANT                    PRODUCTION CAPACITY(1)     BOTTLING LINES     CAPACITY UTILIZATION(2)
     -----                    ----------------------     --------------     -----------------------

     <S>                         <C>                          <C>                   <C>
     Toa Baja................    44,347 (2 shifts)            3                     68%
</TABLE>
----------
(1)  Approximate  effective  production  capacity is  expressed  in thousands of
     cases  per  year,  assuming  the  number  of  shifts  indicated.  Effective
     production capacity is a plant's theoretical  installed capacity,  adjusted
     for  seasonal  variations  in demand  as well as  regular  maintenance  and
     repair. 
(2)  Actual  production  in  fiscal  year  1997  expressed  as a  percentage  of
     approximate effective production capacity.

     The Company  produced  all of its products  during  fiscal year 1997 in its
soft  drink  plant in Toa  Baja and in its  water  plant  in Ponce  (the  "Water
Plant").  The remaining volume is purchased from outside  sources.  The Toa Baja
plant is located  approximately 15 miles west of San Juan and the Water Plant is
located on the southern  portion of the island of Puerto  Rico.  The Rio Piedras
plant has been cleared of all producing equipment and is currently on the market
for sale.


                
                                        8

<PAGE>


DISTRIBUTION

     Once the bottling process is complete,  the Company packages its soft drink
products in cases,  tanks and boxes for  distribution  throughout  its franchise
territory.  The Company uses three primary methods of distribution  for its soft
drink products: conventional routes, bulk presell and route presell delivery. In
the  conventional  route form of  distribution,  a truck  owned or leased by the
Company is loaded with the  Company's  beverage  products and visits each of the
Company's  customers along an assigned  distribution  route. The customer places
orders and accepts  delivery of the amount of the Company's  products  needed at
that time.  The drivers and sales persons  which deliver the Company's  products
along the conventional route system are employees of the Company in Puerto Rico.
The  conventional  route form of  distribution  is the main form of distribution
currently used by the Company in Puerto Rico.

     Under  the bulk  presell  method of  distribution,  the  Company's  account
representatives  and key account  salespersons visit customers assigned to their
route and fill out order  forms for the  Company's  products.  These  orders are
processed at the Company's  plant and the products are delivered the next day in
trailer loads by independent  truck drivers or in bulk (less than trailer loads)
by the Company's  employees in Company-owned or leased trucks.  The bulk presell
method is mostly used for wholesalers and large retailers.

     The Company intends to emphasize the "route presell" method of distribution
for  its  conventional  routes  where  feasible  to  capitalize  on its  planned
introduction  of new products and  packaging  formats.  Under the route  presell
method,  employees of the Company  visit  customers  assigned to their route and
take orders which are processed at the end of the day. The ordered  products are
then  delivered  the next day by the  Company's  employees in  Company-owned  or
leased trucks.  The Company  believes this method provides better route coverage
in densely  populated areas and  facilitates  the  distribution of the Company's
existing products as well as the introduction of new products.

     As of September 30, 1997, 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 1,289 "single service" and 1,831
"full service" vending machines  throughout Puerto Rico. In the "single service"
format, the proprietor of the location of the machine purchases a minimum amount
of the Company's products while in the "full service" format, the Company pays a
commission to the proprietor and supplies and retains the profit from sales from
the machines.  The Company is responsible for  refurbishing  and maintaining the
vending  machines and there is no charge for  installation  and  maintenance  or
rental fees for the vending machines. The Company's bottled water is distributed
to customers in private homes,  businesses and government agencies some of which
have coolers installed by the Company. The Company receives a rental payment for
each cooler installed by the Company.

     In the fiscal year 1997,  approximately  48% of the Company's net sales was
to  supermarkets  and  grocery  stores,  34% was to "cash and  carry's"  (small,
high-volume wholesalers) and similar businesses, 13% 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
rapidly expanding its placement of vending machines  throughout Puerto Rico. The
Company's  Cristalia  brand bottled water is distributed to private  homeowners,
businesses and government agencies. Most sales to the Company's customers are on
a credit basis,  with payment due  approximately 30 days after delivery.  Credit
sales and cash sales accounted for  approximately 93% and 7%,  respectively,  of
the Company's total sales in the fiscal year 1997.

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 amount set forth in that  year's
cooperative marketing agreement.



                
                                        9

<PAGE>



     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 products consist primarily of prominent
in-store  displays such as racks and cases.  These products 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.

     During fiscal year 1997, two customers  accounted for  approximately 20% of
the  Company's  sales.  One of these  customers,  the Pueblo  supermarket  chain
("Pueblo")  in Puerto Rico,  accounted for  approximately  6.5% of the Company's
sales  during  fiscal year 1997.  In July 1997,  Pueblo  terminated  a long-term
marketing  arrangement  with the Company  which had been in effect since January
1995,  pursuant to which  Pepsi-Cola  products were given special  prominence in
Pueblo supermarkets in terms of shelf space and special displays.  In connection
with the termination of this arrangement with the Company, Pueblo entered into a
similar  arrangement  with the Coca-Cola  bottling  company in Puerto Rico under
which the same  prominence was given to Coca-Cola  products.  As a result of the
termination of this arrangement with Pueblo,  the Company's sales to Pueblo have
declined  substantially.  Although  the  Company's  sales to  Pueblo  have  been
adversely  affected  by these  circumstances,  the  Company  was  successful  in
consummating  a new  marketing  arrangement  with another  substantial  customer
resulting in increased  sales of the Company's  products to that customer  which
have  substantially  offset the decline in sales to Pueblo.  The second customer
which  accounted for the balance of the 20% of the Company's  sales (referred to
above) was Montalvo, a large "cash and carry" (high volume) wholesaler.

     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.  The Company  currently  sells its  products  in 15  different
packaging  formats.  The Company  continually  examines  sales data and customer
preferences in order to develop a mix of packaging  formats which consumers will
consider most desirable in order to increase sales and per capita consumption of
the Company's  products.  All the packaging  formats utilized by the Company for
PepsiCo soft drink products are subject to the approval of PepsiCo.

     A primary basis of competition in the soft drink industry in Puerto Rico is
the  "image"  that a  particular  soft drink has among  consumers.  The  Company
intends to continue to promote the image of PepsiCo  products among consumers in
Puerto  Rico by means of  advertising  which  depicts  PepsiCo  products  as the
preferred soft drink products among consumers.

     The Company uses its  management  information  systems in order to evaluate
sales data for  purposes of  forecasting  future  sales and  establishing  sales
quotas  and  forecasts.  Based  on the  information  compiled  in the  Company's
historical sales records,  the Company may initiate one or more of the marketing
programs  described  above in order  to  increase  sales  volume  or per  capita
consumption of its soft drink products.

COMPETITION

     The soft drink industry in Puerto Rico is highly competitive.  In addition,
during fiscal year 1997, the Company faced intense price  competition  resulting
in substantially lower net sale prices. The Company's  principal  competitors in
Puerto Rico are the local  bottlers  and  distributors  of Coca-Cola in the cola
market and Seven-Up in the  flavored  soft drink  market.  The  Company's  other
competitors  include  bottlers and  distributors  of nationally  and  regionally
advertised and marketed  products,  as well as bottlers of smaller private label
soft  drinks,  which  private  label  soft  drinks  the  Company  believes  have
historically  represented  approximately  5% of total soft drink sales in Puerto
Rico.  During fiscal year 1996 the  Coca-Cola  franchise was sold to an investor
group headed by a Florida-based businessman and the Seven-Up Company was sold in
part to its  management  group in a  leveraged  buy-out  transaction.  These two
transactions  have  resulted in a  significant  increase in  competition  in the
Puerto Rican soft drink market,  increasing the Company's discount  expenditures
during fiscal year 1997.

     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.


                
                                       10

<PAGE>



     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.  The following  charts  compare the market share of PepsiCo soft drink
products  and  Coca-Cola  soft drink  products  in the  Puerto  Rican soft drink
take-home market at the end of the periods indicated.
<TABLE>
<CAPTION>


                                                                   SOFT DRINK TAKE-HOME MARKET SHARE(1)
                                                                   ------------------------------------
   CALENDAR YEAR                                                   PEPSICO PRODUCTS    COCA-COLA PRODUCTS
   -------------                                                  -------------------  ------------------
<S>                                                                       <C>                 <C>  
   1990..........................................................         47.3%               29.7%
   1991..........................................................         47.8                24.5
   1992..........................................................         53.1                28.7
   1993..........................................................         49.1                33.0
   1994..........................................................         49.3                33.0
   1995 (for the twelve-month period ended August 31, 1995)......         49.4                32.3
   1996 (for the twelve-month period ended August 31, 1996)......         47.3                32.6
   1997 (for the twelve-month period ended August 31, 1997)......         42.6                44.1
   ----------                                                       
(1)  SOURCE: Asesores


<CAPTION>
                                                                  SOFT DRINK TAKE-HOME MARKET SHARE(1)  
                                                                  ------------------------------------  
   CALENDAR YEAR                                                  PEPSICO PRODUCTS    COCA-COLA PRODUCTS
   -------------                                                  ------------------  ------------------
<S>                                                                      <C>                 <C>  
   1995 (for the twelve-month period ended September 30, 1995).....      33.1                28.0
   1996 (for the twelve-month period ended September 30, 1996).....      34.2                30.0
   1997 (for the twelve-month period ended September 30, 1997).....      33.0                40.7
</TABLE>
   ----------
(1)  SOURCE: A.C. Nielsen

PLASTIC PRODUCTS

     Beverage  Plastics Company,  a subsidiary of the Company,  manufactures and
sells non-returnable  plastic bottles and preforms. In 1997, the plastic bottles
manufactured  by that  subsidiary were used entirely in the Company's soft drink
production  and  distribution  business,  and the preforms  were all used in the
manufacture of plastic bottles.

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.

     ENVIRONMENTAL REGULATION

     The Company has entered into a stipulation,  dated  September 11, 1990 (the
"Stipulation")  with the Puerto Rico Aqueduct and Sewer Authority ("PRASA") with
respect  to the  discharge  of waste  water in  excess  of  pretreatment  permit
limitations.  Pursuant  to the terms of the  Stipulation,  PRASA and the Company
agreed  on  a  compliance   plan  by  which  the  Company  would  have  invested
approximately $1.0 million for the construction of a waste water treatment plant
in its bottling facilities and would pay an administrative penalty to PRASA. The
Company also entered into a settlement with PRASA covering surcharges to be paid
by the Company for the  discharge of waste water in excess of surcharge  limits.
Under the terms of the settlement, the Company agreed to pay PRASA the amount of
$60,000 in accord and  satisfaction  for any  surcharges  which  might have been
computed and notified on or before June


                
                                       11

<PAGE>



1, 1991. The settlement provides for surcharges as follows:  (a) $48,000 for the
period from June 1, 1991 to  December  31,  1991;  (b) $10,000 per month for the
period from January 1, 1992 through and until June 30, 1993; and (C) $12,500 per
month for the period  from July 1, 1993  through  and until the waste  treatment
facility  at the Toa  Baja  plant  is  completely  built  and  operational.  The
settlement  also  provides  for  additional  surcharges  if  certain  limits are
exceeded. The Company received a permit from PRASA to operate its Toa Baja plant
until  while a PH  Equalization  Facility  is being  placed in  service  and the
discharge  of waste water is  characterized.  The Company  may, at a later date,
either build the PH  Equalization  Facility or may enter into an agreement  with
the Commonwealth of Puerto Rico with the respect to the discharge of waste water
and the payment of a fee to handle such  discharge  on a permanent  basis.  Such
decision  would be subject to final  approval of PRASA and the  Commonwealth  of
Puerto Rico. The characterization process will provide the information needed to
obtain  a  permanent  permit.   The  Company  hopes  that  the  results  of  the
characterization of the discharge of waste water will permit it to make use of a
municipal  waste treatment  facility,  for which it would pay a monthly fee, and
thereby  avoid the need to  construct  a separate  waste water  treatment  plant
adjacent  to its Toa Baja  manufacturing  facility.  The  Company  places a high
priority on quality  control and  industrial  safety and believes  that it is in
material compliance with all other applicable regulations.  The Company received
the Quality Award from PepsiCo in 1993 and 1994. The International Bottled Water
Association's  Quality Award has been received by the Company's  Water Plant for
1994, 1995, 1996 and 1997.

     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 sales price of its soft drink products.

EMPLOYEES

     At  September  30,  1997,   the  Company  had  568   full-time   employees,
approximately  63% 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 union agreements
entered  into from time to time  between  the  Company  and its  employees.  The
Company has entered into three such agreements,  with its union employees in its
manufacturing  and distributing  subsidiaries,  its plastics  subsidiary and its
bottled water division,  respectively. A new agreement relating to the Company's
manufacturing and distributing  subsidiaries was signed on November 25, 1997 and
expires on December 31,  2001.  This new  agreement  provides the Company with a
reduction  in  operating  costs as part of its strategy to increase and maintain
operating  efficiencies.  The  agreement  relating  to its  plastics  subsidiary
expired  on  October  1,  1996.  The  Company  currently  is in the  process  of
renegotiating  this agreement.  The Company's  agreement relating to the bottled
water  division  became  effective  in January  1995 and expires on December 31,
1998.

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                                      Officer Since
----                          ---     --------                                      -------------
<S>                            <C>    <C>                                               <C> 
Rafael Nin..................   53     President and Chief Executive Officer             1996
C. Leon Timothy.............   62     Senior Vice President -- Investor Relations       1990
A. David Velez..............   43     Vice President --  Chief Operating Officer        1997
Reinaldo Rodriguez..........   52     Vice President --  Human Resources                1996
David Lee Virginia..........   47     Vice President --  Chief Financial Officer        1996
Jose Gonzalez...............   40     Vice President --  Internal Audit                 1996
</TABLE>

     The following is a brief description of the business  background of each of
the executive officers of the Company.


                
                                       12

<PAGE>



     Rafael  Nin has been a  Director  of the  Company  since May  1987.  He was
elected  President  and Chief  Executive  Officer  in June  1996.  He has been a
Director of Bestov  Foods S.A., a Pizza Hut  franchise in Argentina  since 1992,
and is President and Chief Executive Officer of Kana  Development,  Inc., a land
development company, since 1983.

     C. Leon  Timothy has been a Senior  Vice  President  of the  Company  since
February  1990 and a Director  of the  Company  since  December  1992.  He was a
Director of BAESA from April 1990 until July 1996 and a Senior Vice President of
BAESA responsible for shareholder relations until July 1996.

     A.  David  Velez  has been a Vice  President  of the  Company  in charge of
operations 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.

     Reinaldo  Rodriguez  has been Vice  President  of the  Company in charge of
Human  Resources  since  September  1996  and  from  1987 to  1990.  He was Vice
President in charge of Human  Resources for BAESA from 1990 to July 1996, and he
was Personnel Director for Pepsi Cola Metropolitan Bottling Company from 1982 to
1987.

     David Lee  Virginia  has been Vice  President  of the  Company in charge of
Finance  since  September  1996.  He  was  Planning   Director  for  Pepsi  Cola
Engarrafadora  Ltda from 1994 to 1996. He was employed with BAESA in a number of
positions  including  Vice President - Treasurer from 1992 to September 1994 and
he was Vice  President in charge of Finance for Pepsi Cola Puerto Rico  Bottling
Co. from 1987 to 1992.  Mr.  Virginia was also the Vice  President of Finance of
Speciality Frozen Products LP from January 1993 to August 1993.

     Jose  Gonzalez  has been a Vice  President  of the  Company  in  charge  of
Internal  Audit since  September  1996. He was previously  Audit Manager,  since
December 1995. He was  Controller  and  Operations  Manager for The West Company
from 1993 to 1995 and Assistant  Controller and Account Manager for Nypro Puerto
Rico Inc. from 1989 to 1993.  Previous  positions  include Senior Accountant for
Motorola of Puerto Rico and Senior  Auditor for Coopers & Lybrand,  from 1985 to
1992.

INVESTMENT IN BAESA

     In addition to  conducting  its own bottling  operations,  the Company owns
12,345,348  shares,  or  approximately  17% of the outstanding  capital stock of
BAESA  as  of  September  30,  1997,  and,  through  June  30,  1996,  exercised
significant  influence  over the  management  of BAESA,  subject to the right of
PepsiCo and certain of its affiliates (collectively,  "Pepsi Cola International"
or "PCI") to approve certain management  decisions.  As of July 1, 1996, PepsiCo
assumed  operating  control of BAESA and the Company does not  control,  or have
significant influence over, the management or operations of BAESA. The financial
information  relating to the Company set forth below  reflects the operations of
the Company and its equity  interest in the net earnings of BAESA.  The transfer
of operating  control from the Company to PepsiCo,  which had been  scheduled to
take place on December 1, 1999 under a Partnership  Agreement  dated November 1,
1993  between an  affiliate  of the  Company  and PCI  governing  the  corporate
governance of BAESA (the "Partnership Agreement"), resulted from the decision by
Charles  Beach  (who at the time was the  chief  executive  officer  of both the
Company  and  BAESA)  pursuant  to the terms of the  Partnership  Agreement,  to
accelerate  the  transfer  of  operating  control of BAESA to PepsiCo to July 1,
1996.  On May 9, 1997,  the Buenos  Aires Stock  Exchange  suspended  trading of
BAESA's  Class B Shares after its fiscal second  quarter  results for the period
ended  March 31, 1997 showed a negative  net worth  under  Argentine  accounting
principles of $18.7 million.  The New York Stock Exchange also halted trading in
BAESA's  American  Depository  Shares.  On December 5, 1997,  BAESA  announced a
financial  restructuring which would result in the issuance of additional equity
by BAESA in exchange for a portion of its  outstanding  debt,  and would (if the
Company  does not elect to exercise  its  preemptive  rights to purchase its pro
rata share of the additional equity) result in the Company's 17% interest in the
outstanding capital stock of BAESA being diluted to a .34% interest. The company
withdrew its interest in BAESA Shareholder Associates,  and liquidated Argentine
Bottling  Associates,  two  partnerships,  which  previously  held the Company's
interest in BAESA,  during fiscal year 1997.  These actions have resulted in the
Company  holding its BAESA shares  directly,  and eliminates for future periods,
the  accounting  requirement  that the  Company  report on an  equity  basis the
results of operations of BAESA.




                
                                       13

<PAGE>



ITEM 2. PROPERTIES

Properties

     The  properties of the Company  primarily  consist of bottling,  warehouse,
distribution,  plastic production and office facilities, located in Puerto Rico.
The Company owns the property previously used as a bottling plant in Rio Piedras
and one bottling  plant in Toa Baja.  Substantially  all of the  Company's  real
property,  machinery and equipment are pledged pursuant to the terms of a Credit
Agreement  among the Company and its  subsidiaries  and Banco  Popular de Puerto
Rico. See "Item 7. Management's  Discussion and Analysis of Financial  Condition
and Results of Operations  -- The Company -- Liquidity  and Capital  Resources."
The principal offices of the Company are located in Toa Baja. The Company leases
two warehouse and distribution  facilities in Ponce, Mayaguez and the production
facilities for Cristalia  bottled water in Ponce. The remainder of the Company's
properties is held in fee.

     At  September  30,  1997,  the  net  book  value  of all  land,  buildings,
machinery,  and equipment owned by the Company in Puerto Rico was  approximately
$51.1  million.  The total  annual  rent paid by the  Company for the year ended
September 30, 1997 for its leased production, distribution and office facilities
and equipment in Puerto Rico was approximately $1.7 million.

ITEM 3. LEGAL PROCEEDINGS

     In  September  1997,  the Company  settled  eight  putative  class  actions
alleging federal  securities  violations by the Company and various officers and
directors of the Company  based on accounting  irregularities  that required the
Company to restate certain of its reported  financial  results and other alleged
misstatements  and  omissions  in  the  Company's  disclosure   documents.   The
settlement resulted in the payment of $2.5 million and 2.5 million in previously
issued and  outstanding  shares of Class B Common  Stock to the  plaintiffs  and
their  attorneys.  The 2.5 million  Class B Shares were  acquired by the Company
from a number of the Company's  shareholders,  including the original organizers
of the  Company,  in  connection  with the  settlement  of the  litigation.  The
settlement  resulted in the dismissal of all eight actions.  In connection  with
the settlement and their  contribution  of Class B Shares to the Company for use
in  the  settlement,  certain  of  the  Company's  directors  and  the  founding
shareholders  were released by the Company from all possible  claims arising out
of the  circumstances  which  precipitated  the  litigation  and  certain  other
possible claims.  The Company believes that the decision by such shareholders to
contribute  the 2.5 million  Class B Shares was motivated  principally  by their
desire to facilitate the  settlement of the litigation and thereby  preserve and
enhance the value of their  remaining  investment  in the Company.  Based on the
investigation  conducted  by the  Company  and  its  counsel  of the  accounting
irregularities  which  precipitated the litigation,  the Company is not aware of
any factual basis upon which valid and  substantial  claims could have been made
against  any of the  directors  or  shareholders  who were  released  from  such
possible  claims.  The decision by the Company to release such persons from such
possible  claims  was made in  response  to  requests  from such  directors  and
shareholders.

     In addition,  the Securities and Exchange Commission (the "Commission") has
issued  a  formal  order  of   investigation   in  connection   with  accounting
irregularities  uncovered  during 1996. The staff of the Commission is currently
engaged in that investigation and the Company is cooperating fully.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters  submitted to a vote of security  holders  during the
fourth quarter of the fiscal year ended September 30, 1997.


                
                                       14

<PAGE>



                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     As of December 19, 1997,  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 29 shareholders of record  (although all of these shares are held in
a voting  trust for which Rafael Nin, the  Company's  President,  acts as voting
trustee), and (ii) 16,500,000 shares of Class B Common Stock, par value $.01 per
share (the "Class B Shares" and  together  with the Class A Shares,  the "Common
Stock"),  issued and  outstanding  and held by 730  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 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 December 19,
1997, as reported in the consolidated transaction reporting system, was $6.75.

<TABLE>
<CAPTION>
   
1995                                                                            HIGH             LOW
----                                                                            ----             ---
<S>                                                                             <C>             <C>
Fourth Quarter (from September 20)............................................  $14.00          $12.75
1996
----
First Quarter ................................................................  $14.00          $11.00
Second Quarter................................................................  $13.12          $9.00
Third Quarter.................................................................  $10.125         $7.875
Fourth Quarter................................................................  $7.875          $4.50
First Quarter (from October 1, 1996 through December 19, 1996)................  $5.50           $4.25
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
First Quarter (from October 1, 1997 through December 19, 1997)................  $7.6875         $6.6875
</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 described above)
has occurred or would occur because of the payment of dividends.

     The  Company  does not  expect  to pay any  dividends  for the  foreseeable
future.

     The following  table sets forth the cash dividends paid by the Company with
respect to the Common Stock for the dates indicated.  Dividend per share amounts
prior to September  1995 have been  adjusted to give  retroactive  effect to the
stock split on August 14,  1995 and are  calculated  on the basis of  18,000,000
shares  of  Common  Stock  outstanding  on the  date of each  payment.  No stock
dividends  have been paid.  The dividends paid on April 4, 1994 were paid out of
the proceeds received by the Company through its sales of shares of BAESA to the
public in underwritten  secondary  offerings.  The Company  completed an initial
public  offering in September  1995 whereby  3,500,000  Class B shares of Common
Stock were issued.



                                       15

<PAGE>



                                                      DIVIDENDS PAID
          DATE                                           PER SHARE
          ----                                           ---------

          October 1993.............................        $0.28
          April 4, 1994............................        $0.90
          December 14, 1994........................        $0.14
          December 16, 1994........................        $0.11
          December 27, 1995 .......................        $0.24

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 equity
interest  in the net  earnings  of BAESA.  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.  At the  present  time,  the  Company  does  not  control,  or have
significant  influence over, the management or operations of BAESA.  For further
information regarding BAESA,  investors should consult information made publicly
available by BAESA to its shareholders. The Consolidated Financial Statements of
the  Company as of  September  30, 1995 and 1996 and for each of the three years
ended September 30, 1997 have been audited by KPMG Peat Marwick LLP, independent
public  accountants.  The  Consolidated  Financial  Statements  of  BAESA  as of
September  30, 1996 and for each of the two years ended  September 30, 1996 have
been audited by KPMG Finsterbush  Pickenhayn Sibille. Prior to 1992, Puerto Rico
Plastics  ("PRP") and the Company did not have an equity interest in each other.
However,  PRP and the Company were entities under common control since they were
owned by the same group of shareholders in the identical  ownership  percentage.
During 1992, PRP merged with the Company and, accordingly, the financial results
for fiscal year 1992 and thereafter are presented on a consolidated basis.

     On August 14, 1995, the Company approved a stock split (the "Stock Split"),
pursuant to which the Essential  Shareholders  received 5,000,000 Class A Shares
and  5,200,000  Class B  Shares,  and the  Non-Essential  Shareholders  received
7,800,000 Class B Shares,  in exchange for their holdings of Common Stock of the
Company.  The per  share  information  included  through  August  1995  has been
adjusted to give retroactive  effect to the Stock Split and is calculated on the
basis of 18,000,000 shares of Common Stock outstanding. The Company completed an
initial public  offering in September 1995 whereby  3,500,000  Class B Shares of
common stock were issued.



                
                                       16

<PAGE>

<TABLE>  
<CAPTION>
                                                             PEPSI-COLA PUERTO RICO BOTTLING COMPANY

                                                                 FISCAL YEAR ENDED SEPTEMBER 30,
                                          -----------------------------------------------------------------------------
                                            1993              1994             1995             1996             1997
                                          ---------        ---------        ---------        ---------        ---------
<S>                                       <C>               <C>             <C>              <C>              <C>       
INCOME STATEMENT DATA:
Net sales .........................       $  98,010        $ 104,048        $ 114,301        $ 102,891        $  99,172
Cost of sales .....................          58,562           60,574           67,846           74,956           68,237
                                          ---------        ---------        ---------        ---------        ---------
   Gross profit ...................          39,448           43,474           46,455           27,935           30,935
Selling and marketing expenses ....          27,432           30,497           30,458           42,456           30,224
Administrative expenses ...........          11,254           10,528            6,262            9,606            8,424
Restructuring Charges .............            --               --               --              2,700              535
Litigation settlement expenses ....            --               --               --               --             13,172
Intangibles and fixed asset
   write-offs .....................            --              2,886             --               --               --
                                          ---------        ---------        ---------        ---------        --------- 
    Income (loss) from                    
        operations ................             762             (437)           9,735          (26,827)         (21,420)
                                          ---------        ---------        ---------        ---------        ---------
Gain on sale by PCPRB of
   Class B BAESA Shares, net ......          22,746           15,924             --               --               --
Gain on early termination of
   supply agreement ...............            --               --               --              2,111             --
Interest expense ..................          (1,457)          (1,237)          (1,215)          (1,523)          (2,644)
Interest income ...................             402              147              207            2,418            1,218
Other income, net .................              32             (332)             391             (256)               1
                                          ---------        ---------        ---------        ---------        ---------
   Total other income
      (expenses) ..................          21,723           14,502             (617)           2,750           (1,425)
                                          ---------        ---------        ---------        ---------        ---------
   Income (loss) before income
      tax benefit (expense)
      and equity in net earnings
      (loss) of BAESA .............          22,485           14,065            9,118          (24,077)         (22,845)
Income tax expense/(benefit) ......            (880)           6,243             (297)          (1,205)          (3,342)
                                          ---------        ---------        ---------        ---------        ---------
Income (loss) before equity
   in net earnings (loss) of BAESA           23,365            7,822            9,415          (22,872)         (19,503)
Equity in net earnings of
   BAESA, net of income taxes .....           9,414            9,753            5,638          (51,458)            --
                                          ---------        ---------        ---------        ---------        ---------
Net income/(loss) .................       $  32,779        $  17,575        $  15,053        $ (74,330)       $ (19,503)
                                          =========        =========        =========        =========        =========
Earnings Per Share(1)
   Income (loss) before equity
      in net earnings of BAESA, net
      of income taxes .............       $    1.30        $    0.43        $    0.52        $   (1.06)       $   (0.91)
   Net Income .....................       $    1.82        $    0.98        $    0.83        $   (3.46)       $   (0.91)
Dividends declared per share
   of Common Stock(1) .............       $    1.34        $    1.18        $    0.27        $    0.24        $    0.00
Weighted average number of
   shares of Common Stock
   outstanding (in thousands) .....          18,000           18,000           18,105           21,500           21,500
----------
(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.  The number of
     shares of Common Stock outstanding at the time of dividend declaration was 24,000,000 in 1991 and 1992,  18,000,000
     in 1993 and 1994, 18,105,000 in 1995 and 21,500,000 in 1996 and 1997.
</TABLE>


                
                                       17

<PAGE>



                             PEPSI-COLA PUERTO RICO BOTTLING COMPANY

<TABLE>
<CAPTION>
                                                                                         SEPTEMBER 30,
                                                           ------------------------------------------------------------------------
                                                              1993             1994          1995           1996            1997
                                                           -----------     ----------     ----------     ----------       ---------
BALANCE SHEET DATA (AT END OF PERIOD)):                        
Assets:
<S>                                                         <C>            <C>            <C>            <C>              <C>       
   Cash and cash equivalents...........................       $ 7,348        $ 1,347       $ 46,091       $ 18,614        $ 19,447
   Short Term Investment...............................             0              0              0         12,904               0
   Accounts receivable, net............................        13,871         11,881         16,427         14,562          16,897
   Notes receivable....................................           473            --              --            --               --
   Accounts receivable from affiliates and
      intercompany advances............................         9,366          3,729          2,913            --               --
   Inventories.........................................         3,994          5,452          4,542          4,495           3,635
   Deferred Income Taxes...............................           --             --              --            187              97
   Other current assets................................         2,275          1,216          2,516          1,857           1,414
                                                           ----------     ----------     ----------     ----------       ---------
             Total current assets......................        37,327         23,625         72,489         52,619          41,490
   Investment in BAESA.................................        39,892         69,870         74,128            --               --
   Deferred income tax long-term.......................           --             --                          2,076           1,619
   Long-lived assets for sale; principally land
      and building.....................................           --             --             --           3,805           3,805
   Property, plant and equipment, net..................        33,355         32,397         36,445         49,936          47,294
   Notes receivable....................................           --             --             --             --               --
   Intangible assets, net..............................         3,509          2,293          2,163          1,459           1,644
   Other assets........................................         1,067            693            441             86              58
                                                           ----------     ----------     ----------     ----------       ---------
             Total assets..............................     $ 115,150      $ 128,878      $ 185,666      $ 109,981        $ 95,910
                                                           ==========     ==========     ==========     ==========       =========
Liabilities:
   Current installments of long-term debt..............         $ 933        $ 1,549        $ 1,550        $ 1,550         $ 1,007
   Current installments of capital
      lease obligations................................         2,409          2,537          1,204            341             908
   Notes payable to bank...............................            --          4,250          4,600         25,000           5,430
   Accounts payable -- trade...........................         8,472          7,469         12,536         16,619          13,750
   Notes and accounts payable
     -- affiliates.....................................         5,000          2,078          1,181             50              32
   Income taxes payable................................         1,455            229            123            115             199
   Other accrued taxes and expenses....................        12,071          3,678          7,007          8,672           4,830
                                                           ----------     ----------     ----------     ----------       ---------
             Total current liabilities.................        30,340         21,790         28,201         52,347          26,156
   Long-term debt, excluding current installments......         9,595          7,915          6,365          4,813          23,636
   Capital lease obligations, excluding
      current installments.............................         4,999          2,070            848            871             513
   Deferred income taxes, net..........................         7,661         18,273         18,732              0               0
   Other liabilities...................................         2,610          2,899          2,871          2,593           2,213
                                                           ----------     ----------     ----------     ----------       ---------
             Total liabilities.........................        55,205         52,947         57,017         60,624          52,518
                                                           ----------     ----------     ----------     ----------       ---------
Shareholders' equity:
  Class A Shares.......................................            50             50             50             50              50
  Class B Shares.......................................           130            130            165            165             165
  Additional paid in capital...........................        28,033         47,967         90,738         90,738         103,910
  Retained earnings....................................        32,931         29,307         39,472        (40,232)        (59,735)
  Cumulative translation adjustment....................           --              --           (232)             0               0
  Pension liability adjustment.........................        (1,199)        (1,523)        (1,544)        (1,364)           (998)
                                                           ----------     ----------     ----------     ----------       ---------
            Total shareholders' equity.................        59,945         75,931        128,649         49,357          43,392
                                                           ----------     ----------     ----------     ----------       ---------
            Total liabilities and shareholders' equity.     $ 115,150      $ 128,878      $ 185,666      $ 109,981        $ 95,910
                                                           ==========     ==========     ==========     ==========       =========
OTHER DATA:
  Depreciation and amortization........................         4,954          4,917          4,781          5,589           5,971
  Capital expenditures(1)..............................         2,075          3,961         10,418         24,237           4,777
  Case sales volume(2).................................        27,937         28,781         30,684         32,073          33,363
</TABLE>
----------
(1) Capital expenditures  represent purchases of property,  plant and equipment.
(2) Case sales volume information is unaudited.



                
                                       18

<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL OVERVIEW

     The  following  discussion  of  the  financial  condition  and  results  of
operations of the Company should be read in  conjunction  with this overview and
the Consolidated  Financial Statements of the Company, and the Notes thereto, as
of fiscal year ended  September 30, 1997  ("fiscal year 1997"),  the fiscal year
ended  September  30,  1996  ("fiscal  year  1996")  and the  fiscal  year ended
September 30, 1995 ("fiscal year 1995").

     PRESENTATION OF FINANCIAL INFORMATION

     In addition to  conducting  its own bottling  operations,  the Company owns
12,345,348  shares,  or  approximately  17% of the outstanding  capital stock of
BAESA  as  of  September  30,  1997,  and,  through  June  30,  1996,  exercised
significant  influence  over the  management  of BAESA,  subject to the right of
PepsiCo,  Inc. ("PepsiCo") and certain of its affiliates  (collectively,  "Pepsi
Cola  International" or "PCI") to approve certain  management  decisions.  As of
July 1, 1996,  PepsiCo assumed  operating  control of BAESA and the Company does
not control, or have significant influence over, the management or operations of
BAESA.  The  financial  information  relating  to the  Company  set forth  below
reflects  the  operations  of the  Company  and its equity  interest  in the net
earnings of BAESA.  On May 9, 1997,  the Buenos Aires Stock  Exchange  suspended
trading of BAESA's  Class B Shares after its fiscal second  quarter  results for
the period  ended  March 31, 1997  showed a negative  net worth under  Argentine
accounting  principles of $18.7 million. The New York Stock Exchange also halted
trading in BAESA's  American  Depository  Shares.  On  December  5, 1997,  BAESA
announced  a  financial  restructuring  which  would  result in the  issuance of
additional  equity by BAESA in exchange for a portion of its  outstanding  debt,
and would (if the Company  does not elect to exercise its  preemptive  rights to
purchase its PRO RATA share of the  additional  equity)  result in the Company's
17% interest in the  outstanding  capital stock of BAESA being diluted to a .34%
interest. The Company withdrew its interest in BAESA Shareholder Associates, and
liquidated  Argentine Bottling  Associates,  two partnerships,  which previously
held the Company's  interest in BAESA,  during  fiscal year 1997.  These actions
have resulted in the Company holding its BAESA shares  directly,  and eliminates
for future  periods,  the accounting  requirement  that the Company report on an
equity basis the results of operations of BAESA.

     ACCOUNTING IRREGULARITIES

     During 1996, the Company discovered accounting irregularities that required
it to restate  its  financial  results for the first and second  quarters  ended
December  31,  1995 and March  31,  1996.  These  irregularities  resulted  in a
substantial  understatement  of  certain  expenses,  primarily  discounting  and
marketing expenses, and a corresponding  overstatement of operating income. This
restatement resulted in an operating loss in both quarters.  

     After  discovering  the accounting  irregularities,  the Company's Board of
Directors  retained  Rogers  &  Wells  as  independent  counsel  to  conduct  an
investigation of the circumstances which resulted in the irregularities.  Rogers
& Wells, working with the independent accounting firm of Price Waterhouse, which
was   retained   to  assist  with  the   investigation,   conducted  a  thorough
investigation of these  circumstances and made its report to the Company's Board
of Directors.

     The decision to retain Rogers & Wells (working with Price  Waterhouse)  was
made by the  Company's  full  Board of  Directors,  and not a special  committee
composed  entirely  of  disinterested  directors,  because  at the  time of that
decision the Company had only one  disinterested  director and because the Board
felt that it was appropriate, under these circumstances, for that decision to be
made by the full Board of Directors. Prior to the investigation,  Rogers & Wells
had acted as special  securities  counsel for the Company,  including  acting as
counsel in connection  with the Company's  initial public  offering in September
1995. The results of the investigation were communicated orally to the Company's
Board of  Directors  and no written  report  was  issued by Rogers & Wells.  The
decision not to request a written  report from Rogers & Wells,  was based on the
advice of the Company's counsel,  including Rogers & Wells handling  shareholder
litigation which arose out of the accounting  irregularities (which now has been
settled)  that there was a substantial  risk that any such written  report would
not qualify for the protection of the attorney/client privilege and thus that an
oral rather than a written  report to the Board of Directors was  advisable.  In
connection with the  investigation,  Rogers & Wells was given complete access to
all  employees,  officers and  directors of the Company and all of its books and
records.  The core  investigation  took place over a period of approximately two
months  and  included  in  excess of 30  interviews  of the  Company  employees,
officers and directors and review of numerous documents.

     Taking  into  consideration  the  findings  of  the  investigation  and  in
consultation   with  the  Company's   independent   auditors   regarding   their
materiality,  the  Company  concluded  that  the  irregularities  did not have a
material  effect  on any  Company  financial  statements  prior to the first and
second  quarters of fiscal  1996,  and thus that no  restatements  for any prior
periods  were  required.  

     Based  on the  Company's  investigation,  the  Company  believes  that  the
accounting  irregularities  involved a series of entries  made in the  Company's
accounting  records by certain  employees of the Company which had the effect of
improperly  recording  certain  expenses  (primarily  marketing and  discounting
expenses) as  non-chargeable  items,  or of not recording  such expenses at all.
These  entries  resulted  in a  corresponding  overstatement  of  the  Company's
operating income.

     In  consultation  with its auditors,  and with Price  Waterhouse LLP, which
assisted  with  the  independent  counsel   investigation  into  the  accounting
irregularities,  the Company has taken  definitive steps to insure that internal
management   and   accounting    controls   will   prevent   future   accounting
irregularities.  Certain  employees who the Company  believes  were  principally
involved in causing the accounting  irregularities are no longer employed by the
Company or remain  under  strict  supervision.  In  addition,  the  Company  has
replaced the senior officer in charge of the Company's  accounting  records with
an  individual  whose  integrity is not in  question.  The Company has adopted a
comprehensive  series of strict new internal  management and accounting controls
including  implementation  of  strict  control  over  preparation,   review  and
documentation  of all entries to the Company's books of account,  monthly review
of all journal entries by the Company's  independent internal audit function and
adoption of a corporate code of ethics. There is, as well, a heightened level of
awareness on the part of the internal audit  committee.  The chairmanship of the
committee has been assigned to a person very  experienced in the field of public
accounting. Analysis of sensitive and critical accounts is being reviewed at the
highest  levels of  management.  Furthermore,  implementation  of  procedures to
liquidate those accounts  related to credits and discounts  granted to customers
on a timely  basis,  so as to  reduce  the  level  of  uncertainty  inherent  in
estimating the appropriate  balance accrued at the end of each month,  have been
implemented.  Finally,  a process of mutual  reconciliation  with the  Company's
franchisor  in so far as amounts due from and to it at the end of each month has
been implemented.

     SEASONALITY

     The  historical  results  of  operations  of  the  Company  have  not  been
significantly  seasonal.  The Company  believes that this could have been partly
attributable  to existing  capacity  constraints  while operating out of the old
plant which might have  prevented  the Company  from  meeting  increased  demand
during  peak  periods.  However,  the  Company  anticipates  that its results of
operations  in the future may be  somewhat  seasonal  in the summer and  holiday
seasons.

     CARBONATED BEVERAGE TAX

     Prior to May 1991,  carbonated  beverages  were not  subject  to any excise
taxes in Puerto Rico.  From May 24, 1991 through  December 31, 1993,  the Puerto
Rican government imposed the Carbonated  Beverage Tax of 13.5 cents per liter on
all carbonated beverages manufactured in, or imported to, Puerto Rico, including
extracts  or  syrups  used as raw  material  for  the  manufacture  of  finished
products.  The imposition of the Carbonated  Beverage Tax had a material adverse
effect on the  operations,  sales and  profits of soft drink  bottlers in Puerto
Rico,  including the Company, due to the resulting depressed level of demand and
the Company's  inability to pass on the full effect of the tax to its customers.
As of January 1, 1994, the  Carbonated  Beverage Tax was repealed and carbonated
beverages  were  subjected  to the lower  general  excise  tax  imposed  on most
consumer goods in Puerto Rico. The current excise tax on carbonated beverages is
5% of the  "taxable  price  in  Puerto  Rico,"  which is  defined  as 72% of the
manufacturer's sales price for products manufactured in Puerto Rico. The Company
is thus currently  subject to an excise tax at an effective rate of 3.6% (or 72%
of 5%)  of  the  sales  price  of  its  soft  drink  products  which  represents
approximately 1.5 cents per liter.



                
                                       19

<PAGE>



     The amount of excise  taxes paid by the Company on its products is deducted
from the  Company's  gross  sales;  thus the  Company's  net sales  reflect this
deduction. The Company's net sales decreased significantly during the periods in
which the Carbonated  Beverage Tax was in effect.  The amount of excise tax paid
by the Company was $6.0  million in the fiscal  year 1994,  $2.3  million in the
fiscal year 1995,  $2.5 million in the fiscal year 1996, and $2.4 million in the
fiscal year 1997  corresponding to approximately 4%, 2%, 2.4%, and 2.5% of gross
sales, respectively.

     INCOME TAXES

     The Company's income is subject to various methods of taxation.  Certain of
the Company's wholly owned  subsidiaries  qualify and have elected to be treated
as Section 936 Corporations  under the Internal  Revenue Code.  Pursuant to such
election, the majority of income derived from the Puerto Rico operations of such
subsidiaries  is entitled to a tax credit for  purposes of U.S.  Federal  income
taxation. Nevertheless, such operations are subject to Puerto Rican taxation (at
graduated  statutory rates between 22% and 45% through June 30, 1995 and between
22% and 43% for tax years beginning after June 30, 1995).  However,  the Company
has  been  subject  to a  lower  effective  Puerto  Rican  tax  rate  due to the
availability  of net  operating  losses from its Puerto Rican  operations  which
offset  Puerto  Rican  taxable  earnings  and the  availability  of certain  tax
exemptions  granted  by the  Puerto  Rican tax  authority  with  respect  to the
Company's plastics operations.

     In this  connection,  on August 20, 1996, the U.S.  Congress  adopted,  and
President  Clinton  signed into law, the Small Business Job Protection Act which
generally  repealed the Section 936 tax reductions.  A ten year phase out of the
Section 936 tax credit was adopted for existing credit  claimants and the credit
was eliminated  for companies  establishing  new Puerto Rico  operations and for
existing  companies  that add  substantial  new lines of business  within Puerto
Rico.  This Act is effective for tax years  beginning  after  December 31, 1995.
Existing  claimants may elect to utilize  reduced credit bases on the applicable
percentage limitations or utilize the economic activity limitations. The Company
has been  utilizing the economic  activity  limitations  and does not anticipate
changing its election.

     As  of  September  30,  1997,   the  Company  and  its   subsidiaries   had
approximately  $68.9 million in net operating losses available to offset against
future  earnings for purposes of Puerto Rican taxation and $37.7 million in U.S.
net operating  losses.  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.  See Note 7
to the Consolidated Financial Statements of the Company.

THE COMPANY

     GENERAL

     The  following  table  sets  forth  certain  financial   information  as  a
percentage of net sales for the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                                                         FISCAL YEAR
                                                                         ---------------------------------------
                                                                           1997              1996           1995
                                                                           ----              ----           ----
<S>                                                                       <C>              <C>             <C>   
Net Sales...............................................................   100.0%           100.0%          100.0%
Cost of Sales...........................................................    68.8             72.8            59.4
Gross Profit............................................................    31.2             27.2            40.6
Selling and Marketing Expenses..........................................    30.5             41.3            26.6
Administrative Expenses.................................................     8.5              9.3             5.5
Intangibles and Fixed Asset Write-offs and Restructuring Charges........      .5              2.6              --
Settlement expenses.....................................................    13.3               --              --
Income (Loss) from Operations...........................................   (21.6)           (26.1)            8.5
</TABLE>



                
                                       20

<PAGE>



     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
8.9%, to $68.3 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 31.2% 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 $.5
million  and net  reductions  in security  and other  expenses of $.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.

     ADMINSITRATIVE EXPENSES.  Administrative expenses for the Company decreased
by $1.2 million, or 12.3%, to $8.4 million,  for 1997 fiscal year as compared to
fiscal year 1996.  This decrease was primarily the result of lower  professional
fees  incurred in fiscal year 1997,  due in part to the recovery of $1.5 million
from the  Company's  officers and  directors  liability  insurance  carrier,  as
compared  to fiscal  year 1996.  As a  percentage  of net sales,  administrative
expenses  decreased  to 8.5%  during  fiscal  year 1997 from 9.3% in fiscal year
1996.

     SETTLEMENT OF  LITIGATION.  The Company's  results of operations for fiscal
year 1997 were affected by the incurrence of a non-cash expense of $13.2 million
in  connection  with the  Company's  settlement  of  certain  civil  litigation,
representing  the  estimated  value of 2.5  million  Class B Shares  which  were
transferred as part of the settlement.  Because these shares were contributed to
the  Company by the  Company's  founding  shareholders,  and because the Company
received a $4.0 million recovery from its liability  insurance carrier,  the net
effect on the Company's equity of the settlement  transaction was a $1.5 million
gain, which can be viewed as a recovery of previously expensed legal cost. There
was no similar  non-cash  expense  incurred during fiscal year 1996. For further
information  regarding  the effect on the  Company's  results of  operations  of
certain  transactions  relating  to the  settlement,  see  note  12B to Notes to
Consolidated Financial Statements.

     RESTRUCTURING  CHARGES. The Company's results of operations for fiscal year
ended 1997 were  affected by the  incurrence  of a  non-recurring  restructuring
charge of $.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 $2.9  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 $1.5 million in
pension asset write-offs and costs associated with employee terminations.


                
                                       21

<PAGE>



     INCOME  (LOSS)) FROM  OPERATIONS.  Income  (loss) from  operations  for the
Company  increased  to ($21.4)  million  during  fiscal year 1997,  from ($26.8)
million  for fiscal  year 1996.  The  increase is the result of (i) a $3 million
improvement  in gross profit  resulting from higher unit sales volume of 4%, and
lower raw material and labor costs, partially offset by lower net selling prices
due to increased discounts offered to customers and higher depreciation expense,
(ii)  lower  selling  and  marketing   costs  of  $12.2  million,   (iii)  lower
administrative  expenses  of $1.2  million,  (iv)  the  incurrence  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 until 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  requirement  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 of loss before  equity in net loss of
BAESA and equity in net loss of BAESA of ($51.5) million for fiscal year 1996.

     FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

     NET SALES. Net sales for the Company decreased by $11.4 million,  or 10.0%,
for fiscal year 1996 from fiscal year 1995, to $102.9 million. This decrease was
primarily  the result of the  significant  increase  in  discounts  provided  to
customers,  partially  offset by a 4.5%  increase in sales volume in fiscal year
1996 as compared to fiscal year 1995.  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 1996 by  approximately
14.5% as compared to fiscal year 1995.

     COST OF SALES. Cost of sales for the Company increased by $7.1 million,  or
10.5%,  for fiscal  year 1996 from  fiscal  year 1995,  to $75.0  million.  This
increase resulted  primarily from the increase in sales volume,  the increase in
the costs of certain raw materials,  the costs  associated  with the start-up of
the new manufacturing  facility in Toa Baja, and the  inefficiencies  associated
with operating both  manufacturing  facilities,  during the transition period to
the new plant which occurred in the third quarter.

     GROSS  PROFIT.  Gross profit for the Company  decreased by $18.5 million to
$27.9  million for fiscal year 1996 from $46.5 million in fiscal year 1995. As a
percentage  of net sales,  gross  profit  decreased to 27.2% in fiscal year 1996
from  40.6%  in  fiscal  year  1995  due to the  higher  discounts  provided  to
customers, increased sales volume at the corresponding lower average net selling
prices, and the higher cost of sales due to raw material price increases, higher
temporary  costs  of  production   associated  with  the  start-up  of  the  new
manufacturing  plant  in Toa  Baja,  and the  operation  of both the old and new
production  facilities  during  the  start-up  of  the  Toa  Baja  manufacturing
facility.

     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.



                
                                       22

<PAGE>



     Selling and marketing expenses for the Company increased $12.0 million,  or
39.4%,  to $42.5  million  for fiscal  year 1996 from  fiscal  year  1995.  This
increase was  primarily  the result of  increased  marketing  activities  during
fiscal year 1996 resulting primarily from a significant increase in competition,
expenses  associated with the launch of Teem, a lemon/lime soft drink, which was
launched  during  October  1995,  as well  as  additional  marketing  activities
undertaken to promote the Company's  products.  This increase also resulted from
recognizing  in fiscal year 1996 certain  prepaid  marketing  and expense  items
carried over from prior periods.

     ADMINISTRATIVE EXPENSES.  Administrative expenses for the Company increased
by $3.3 million,  or 53.4%,  for fiscal year 1996 from fiscal year 1995, to $9.6
million.  This  increase  was  primarily  a result  of $1.4  million  of cost of
increased  professional  services  associated  with the  Company  being a public
company and the  transition  to the new  management,  $0.9  million of legal and
accounting  costs  associated  with the  restatement of first and second quarter
results and professional fees associated with certain civil  litigation,  a $0.5
million  expense  incurred in  connection  with the  accelerated  transition  of
management control of BAESA to PepsiCo, effective July 1, 1996, and $0.5 million
in expenses  associated  with the  Company's  study of  expansion  opportunities
within Western  Europe.  As a percentage of net sales,  administrative  expenses
increased to 9.3% during fiscal year 1996 from 5.5% in fiscal year 1995.

     RESTRUCTURING  CHARGES. The Company's results of operations for fiscal year
1996 have been affected by the incurrence of several non-recurring restructuring
charges of $2.7 million.  These charges were comprised of the  following:  (i) a
$1.4 million fixed asset write-down  related to closing all bottling  operations
in the Company's old bottling plant, which is now for sale and (ii) $1.3 million
in pension asset write-offs and costs associated with employee terminations.

     INCOME  (LOSS)  FROM  OPERATIONS.  Income  (loss) from  operations  for the
Company  decreased to ($26.8) million during fiscal year 1996, from $9.7 million
for fiscal year 1995.  The decrease  was the result of lower  average net sales,
the increased discounts offered to customers,  a significant increase in selling
and marketing expenditures,  higher professional fees, the restructuring charges
of $2.7 million, and the recognition of certain charges, including marketing and
other expenses, and the write-off prepaid tax carried over from prior periods.

     GAIN ON EARLY TERMINATION OF SUPPLY  AGREEMENT.  This item consists of gain
realized from the  cancellation  of the preform supply  agreement with BAESA and
corresponding  extinguishment  of any  debt  due  to  BAESA.  See  Note 8 to the
Consolidated Financial Statements.

     EQUITY IN NET EARNINGS (LOSS) OF BAESA.  Based on information  disseminated
after  July 1, 1996 by BAESA  (when the  Company  no longer  controlled,  or had
significant  influence  over, the management or operations of BAESA),  equity in
net loss of BAESA, net of income tax,  amounted to ($51.5) million during fiscal
year 1996,  compared  to $5.6  million  in fiscal  year 1995.  The  decrease  is
attributable to the losses incurred by BAESA for fiscal year 1996 as reported in
BAESA's public announcement.  The Company's equity in the loss reported by BAESA
reduced  the  Company's  investment  in BAESA to zero,  meaning  that no further
equity in losses of BAESA would be reported by the Company until BAESA  reported
profits  sufficient  to produce a positive  investment in BAESA on the Company's
balance  sheet.  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  requirement  that
requires the Company to report the results of  operations  of BAESA on an equity
basis.

     NET INCOME  (LOSS).  Net loss during fiscal year 1996 was ($74.3)  million,
compared to income of $15.1  million  during  fiscal year 1995.  Net loss during
fiscal year 1996  primarily  reflects loss before equity in net earnings loss of
BAESA of ($22.9) million,  and equity in net loss of BAESA, net of income tax of
($51.5) million, as compared to income before equity in net earnings of BAESA of
$9.4 million and equity in earnings of BAESA of $5.6  million  during the fiscal
year 1995.



                
                                       23

<PAGE>



     LIQUIDITY AND CAPITAL RESOURCES

     At  September  30,  1997,  the Company  had $19.4  million of cash and cash
equivalents  and  indebtedness  for borrowed  money,  including  short-term  and
long-term  borrowings and capital lease  obligations of $31.5 million,  which in
turn included $7.3 million of current and short-term obligations.

     The  Company  has  announced  that  its  current  priority  is  to  restore
profitability  with respect to its Puerto Rican operations.  In that connection,
the Company  previously made a decision to set aside its expansion  plans. As of
September 30, 1997, the Company has used  approximately  $23.5  million,  net of
interest earnings,  of the cash set aside from its September 1995 initial public
offering to support  these  efforts for the  repayment  of  indebtedness  and by
additions to the  Company's  working  capital which has been and continues to be
affected  as a result of the  Company's  net  operating  losses,  and to cover a
portion of the cost of the offering.  In addition, on April 8, 1997, the Company
completed the  refinancing of its remaining  debt to include a payment  schedule
which more closely matches the life of its production assets.

     Net cash  provided by (used in)  operating  activities  for the Company was
($7.5)  million for fiscal year 1997 as compared with ($6.8)  million for fiscal
year 1996 and $16.5 million for fiscal year 1995. The net cash provided by (used
in)  operating  activities  excluding  the  portion due to changes in assets and
liabilities  was $.4 million  during fiscal year 1997,  ($19.8)  million  during
fiscal  year 1996,  and $13.8  million  during  fiscal  year 1995.  The net cash
provided by (used in) operating activities that was due to changes in assets and
liabilities  was ($7.9)  million  during fiscal year 1997,  $13.0 million during
fiscal year 1996,  and $2.7 million during fiscal year 1995. As of September 30,
1997,  the  Company  had $68.9  million in net  operating  loss  carry  forwards
available to offset  future  Puerto Rican income taxes and $37.7  million in net
operating loss carryforwards available to offset future U.S. taxable income.

     Net cash  provided by (used in)  investing  activities  for the Company was
$8.5 million for fiscal year 1997, as compared  with ($33.0)  million for fiscal
year 1996 and ($5.9) million for fiscal year 1995. Purchases of property,  plant
and equipment,  net of disposals,  amounted to ($4.4) million during fiscal year
1997 as compared with ($22.9) million during fiscal year 1996 and ($8.8) million
during fiscal year 1995.  Purchases of short term  investments  were zero during
fiscal year 1997 as compared to ($12.9) for fiscal year 1996 and zero for fiscal
year 1995.  The short term  investments in 1996 consisted of short term discount
notes which the Company held until maturity in 1997. No such purchases were made
during fiscal year 1997 or 1995.  Dividends received from BAESA amounted to zero
in fiscal year 1997 as compared  with $2.8  million in fiscal year 1996 and $2.8
million in fiscal year 1995. In view of the current financial difficulties being
experienced by BAESA as reported in its recent public announcements, the Company
does not believe that BAESA will be in a position to pay dividends on its shares
in the foreseeable future. In addition,  because the Company exerts no influence
over BAESA, even if BAESA does return to profitability, the Company would not be
able to affect decisions made by BAESA with respect to the payment of dividends.
As a result, the Company is unable to predict whether or when BAESA will pay any
future  dividends.  Also,  if  BAESA  proceeds  with  its  previously  announced
financial  restructuring,  and the  Company  does  not  elect  to  exercise  its
preemptive rights to purchase  additional equity in BAESA, the Company's current
17% equity interest in BAESA will be diluted to a .34% equity interest.

     Cash flows provided by (used in) financing  activities for the Company were
($.2)  million for fiscal year 1997 as  compared  with $12.3  million for fiscal
year 1996 and $34.2  million for fiscal  year 1995.  The  significant  financing
activity  for  the  Company  in  fiscal  year  1997  was the  net  repayment  of
indebtedness  of ($.2) million.  The  significant  financing  activities for the
Company in fiscal year 1996 were the payment of  dividends  and the  issuance of
notes  payable  of  $47.9  million,  offset  by the  repayment  of debt of $30.2
million. The significant financing activities of the Company in fiscal year 1995
were  from the  issuance  of 3.5  million  Class B Common  Shares  in a  primary
offering  in the  Company's  initial  public  offering as well as the payment of
dividends  and the  repayment of debt.  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.

     In November  1994, the Company and its  subsidiaries  entered into a Credit
Agreement  (the "Credit  Agreement")  with Banco Popular.  The Credit  Agreement
provided  for  borrowings  by the  Company  from time to time of $5  million  in
revolving  loans,  $8.8  million in term loans and $15 million in  non-revolving
loans. In December


                
                                       24

<PAGE>



1995,  Banco  Popular  increased  the  amount the  Company  could  borrow  under
revolving  loans.  As of March 31, 1996, the Company had  outstanding  under the
Credit  Agreement  revolving  loans in an  aggregate  principal  amount of $10.0
million,  term  loans in an  aggregate  principal  amount  of $5.3  million  and
non-revolving  loans in an aggregate principal amount of $15.0 million. On April
8, 1997,  the Company  entered  into a Second  Restated  Credit  Agreement  (the
"Second Restated Credit  Agreement") with Banco Popular.  The effect of this new
agreement was to  restructure  the existing debt into two portions,  a long term
loan of  $25.0  million  and a short  term  revolving  credit  facility  of $5.0
million.  Both portions bear  interest at 2.5% over LIBOR.  The Second  Restated
Credit  Agreement was entered into to refinance the debt  outstanding  under the
Credit Agreement which had become due.

     The weighted  average  interest  rate on such  borrowings  was 8.2% for the
fiscal year 1997.  Beginning on May 1, 1997, the Company became required to make
monthly  payments of principal in the amount of $.83 million with respect to the
new term loan for the first two years of the loan with annual escalating monthly
payments  thereafter until the end of the tenth year of the loan (April 1, 2007)
when 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;  (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;  (iii) a minimum  Tangible  Net Worth of (as  defined  in the Second
Restated  Credit  Agreement)  $39.5  million on  September  30,  1998 and of $42
million,  $44.5  million and $47 million,  respectively,  by September 30, 1999,
2000, 2001, and thereafter.  The Company is also required to maintain with Banco
Popular a minimum  cash  balance of $10  million  less  certain  prepayments  of
indebtedness  under the term loan, and under certain  conditions this amount may
be reduced to zero. In addition, under certain circumstances, the Company may be
required to prepay a portion of the debt. Specifically,  net proceeds of capital
asset dispositions over $.25 million per year,  insurance  recoveries other than
for business  interruption not promptly applied toward repair or replacement,  a
portion  of  excess  cash  flow  (as  defined  in  the  Second  Restated  Credit
Agreement),  and a portion of net proceeds  associated  with any sale of Class A
Shares, require early repayment of the amounts outstanding under this agreement.
Certain of the repayment  amounts  offset the minimum cash balance  requirement.
The entire  principal  amount of loans  outstanding  under the  Second  Restated
Credit Agreement  becomes  immediately due and payable,  if the Company violates
any of  these  financial  restrictions.  Furthermore,  the  Company  may not pay
dividends  (other than amounts declared by and received from BAESA as dividends)
without the consent of Banco Popular under the Second Restated Credit Agreement.

     As a result of the Company  initially  providing to Banco Popular incorrect
financial  statements for the first and second  quarters ended December 31, 1995
and  March 31,  1996,  and  certain  other  circumstances,  the  Company  was in
technical  default of the terms of the Credit  Agreement  during  part of fiscal
year 1996.  The Company  has,  however,  received  from Banco  Popular a written
waiver of such  default.  The  Company  believes  that it is  currently  in full
compliance with the terms of the Second Restated Credit Agreement.

     Pursuant to the Second Restated Credit  Agreement,  the Company has granted
Banco  Popular  a  security   interest  in  all  its  machinery  and  equipment,
receivables, inventory and the real property on which the Toa Baja plant and the
Rio Piedras plant are located.

     The Company's  franchise  arrangements with PepsiCo require the Company not
to exceed a ratio of senior debt to  subordinated  debt to equity of 65 to 25 to
10. The Company is currently in compliance with these  covenants.  See "Business
of the Company -- Franchise Arrangements."

     Capital  expenditures  for the Company  totaled $4.8 million in fiscal year
1997,  $24.2  million in fiscal year 1996 and $10.4 million in fiscal year 1995.
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 fiscal years ending  September 30,
1998 and 1999 will be approximately $4 million in each year.

                                       25



<PAGE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following information is submitted pursuant to the requirements of Item
8.

                                                                          PAGE
                                                                          ----
   PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES

          Independent Auditors' Report .................................   27
          Consolidated Balance Sheets at September 30, 1997
            and 1996 ...................................................   28
          Consolidated Statements of Income/(Loss) for the
            Years Ended September 30, 1997, 1996 and 1995 ..............   30
          Consolidated Statements of Shareholders' Equity
            for the Years Ended September 30, 1997, 1996
            and 1995 ...................................................   31
          Consolidated Statements of Cash Flows for the
            Years Ended September 30, 1997, 1996 and 1995 ..............   32
          Notes to Consolidated Financial Statements ...................   33
          Schedule II -- Valuation and Qualifying Accounts .............   52
    


                                       26

<PAGE>



                          INDEPENDENT AUDITOR'S 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 1996,
and the related consolidated  statements of income/(loss),  shareholders' equity
and cash flows for each of the years in the  three-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 1996, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended  September 30, 1997, in conformity  with generally
accepted accounting principles.

                                   /s/ KPMG Peat Marwick LLP


December 5, 1997

Stamp No.1411348 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.


                          
                                       27

<PAGE>



                     PEPSI-COLA PUERTO RICO BOTTLING COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (U.S. DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997            1996
                                                               --------         --------
<S>                                                            <C>              <C>     
ASSETS                                                                         
Current Assets:                                                                
 Cash and cash equivalents                                     $ 19,447         $ 18,614
 Short term investments                                            --             12,904
 Accounts receivable:                                                          
    Trade, less allowance for doubtful accounts of $1,389                      
       and $1,158 in 1997 and 1996, respectively                 11,681           11,262
    Due from PepsiCo, Inc. and affiliated companies                 943              877
    Other                                                         4,273            2,423
 Inventories                                                      3,635            4,495
 Deferred income taxes                                               97              187
 Prepaid expenses and other current assets                        1,414            1,857
                                                               --------         --------
    Total current assets                                         41,490           52,619
Investment in BAESA                                                --               --
Deferred income tax, long-term                                    1,619            2,076
Long-lived assets for sale, principally land and building         3,752            3,805
Property, plant and equipment, net                               47,347           49,936
Intangible assets, net of accumulated amortization                1,644            1,459
Other assets                                                         58               86
                                                               --------         --------
    Total assets                                               $ 95,910         $109,981
                                                               ========         ========
</TABLE>

                                                                             
See accompanying notes to consolidated financial statements.


                          
                                       28

<PAGE>



<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,    SEPTEMBER 30,
                                                                1997               1996
                                                             ---------          ---------
<S>                                                           <C>                <C>      
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
      Current installments of long-term debt                   $ 1,007            $ 1,550
      Current installments of capital lease obligations            908                341
      Notes payable to bank                                      5,430             25,000
      Accounts payable:                                                        
         Trade                                                  13,750             16,619
         Affiliates                                                 32                 50
      Income taxes payable                                         199                115
      Accrued payroll                                            2,176              2,951
      Accrued other taxes                                          374                701
      Other accrued expenses                                     2,280              5,020
                                                             ---------          ---------
         Total current liabilities                              26,156             52,347
Long-term debt, excluding current installments                  23,636              4,813
Capital lease obligations, excluding current installments          513                871
Accrued pension cost, long-term                                  2,213              2,593
                                                             ---------          ---------
         Total liabilities                                      52,518             60,624
                                                             ---------          ---------
Shareholders' equity:                                                          
      Class A common shares, $0.01 par value; authorized,                      
         issued and outstanding 5,000,000 shares                    50                 50
      Class B common shares, $0.01 par value; authorized                       
         35,000,000 shares; issued and outstanding                             
         16,500,000 shares in 1996 and 1995                        165                165
      Additional paid-in capital                               103,910             90,738
      Retained earnings/(deficit)                              (59,735)           (40,232)
      Pension liability adjustment                                (998)            (1,364)
                                                             ---------          ---------
         Total shareholders' equity                             43,392             49,357
                                                             ---------          ---------
         Total liabilities and shareholders' equity          $ 95,910            $109,981
                                                             =========          =========
</TABLE>

                                                                            
See accompanying notes to consolidated financial statements.
                                                                              

                          
                                       29

<PAGE>



                     PEPSI-COLA PUERTO RICO BOTTLING COMPANY
                    CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
                    (U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    FISCAL YEAR ENDED
                                                       ---------------------------------------------
                                                       SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30
                                                           1997            1996            1995
                                                        ---------       ---------       ---------
<S>                                                     <C>             <C>             <C>      
Net sales                                               $  99,172       $ 102,891       $ 114,301
Cost of sales                                              68,237          74,956          67,846
                                                        ---------       ---------       ---------
   Gross profit                                            30,935          27,935          46,455
Selling and marketing expenses                             30,224          42,456          30,458
Administrative expenses                                     8,424           9,606           6,262
Restructuring charges                                         535           2,700            --
Litigation settlement expenses                             13,172            --              --
                                                        ---------       ---------       ---------
   Income/(loss) from operations                          (21,420)        (26,827)          9,735
Other income (expenses):                                                              
   Gain on early termination of supply agreement             --             2,111            --
   Interest expense                                        (2,644)         (1,523)         (1,215)
   Interest income                                          1,218           2,418             207
   Other, net                                                   1            (256)            391
                                                        ---------       ---------       ---------
      Total other income/(expense)                         (1,425)          2,750            (617)
      Income/(loss) before income tax benefit and                                     
         equity in net earnings/(loss) of BAESA           (22,845)        (24,077)          9,118
Income tax benefit                                          3,342           1,205             297
                                                        ---------       ---------       ---------
   Income/(loss) before equity in net earnings/(loss)                                 
         of BAESA                                         (19,503)        (22,872)          9,415
   Equity in net earnings/(loss) of BAESA, net of                                     
         income tax benefit/(expense) of $20,062                                      
         and ($1,657), in 1996 and 1995, respectively        --           (51,458)          5,638
                                                        ---------       ---------       ---------
         Net income/(loss)                              $ (19,503)      $ (74,330)      $  15,053
                                                        =========       =========       =========
Earnings/(loss) per common share:                                                     
   Income/(loss) before equity in net earnings/(loss)                                 
      of BAESA, net of income taxes                     $   (0.91)      $   (1.06)      $    0.52
                                                        ---------       ---------       ---------
   Net income/(loss)                                    $   (0.91)      $   (3.46)      $    0.83
                                                        ---------       ---------       ---------
Weighted average number of shares 
      outstanding (thousands)                              21,500          21,500          18,105

</TABLE>
See accompanying notes to consolidated financial statements.



                          
                                       30

<PAGE>



                     PEPSI-COLA PUERTO RICO BOTTLING COMPANY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                           (U.S. DOLLARS IN THOUSANDS)
              FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                   CLASS A      CLASS B      ADDITIONAL   RETAINED   
                                                   COMMON       COMMON       PAID-IN      EARNINGS   
                                                   SHARES       SHARES       CAPITAL      (DEFICIT)  
                                                  ---------     ---------    ---------    ---------
<S>                                             <C>           <C>          <C>          <C>      
BALANCES AT SEPTEMBER 30, 1994                  $      50     $     130    $  47,967    $  29,307
Cash dividends on common shares declared in                                           
   December 1994 (per share $0.25)                   --            --           --         (4,888)
Equity adjustment to recognize minimum                                                
   pension liability                                 --            --           --           --   
   Class B common shares issuance, net               --              35       42,771         --   
   Translation adjustment                            --            --           --           --   
   Net Income                                        --            --           --         15,053
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1995                  $      50     $     165    $  90,738    $  39,472
Cash dividends on common shares declared in                                           
   December 1995 (per share $0.24)                   --            --           --         (5,374)
Equity adjustment to recognize minimum                                                
   pension liability                                 --            --           --           --   
   Translation adjustment                            --            --           --           --   
   Net Loss                                          --            --           --        (74,330)
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1996                  $      50     $     165    $  90,738    $ (40,232)
Contribution of 2,500,000 Class B                                             
   common shares by founding Shareholders            --            --         13,172         --   
Tendering of 2,500,000 Class B shares of                                              
   stock in partial settlement of litigation         --            --           --           --
Equity adjustment to recognize minimum                                                
   pension liability                                 --            --           --           --   
   Net Loss                                          --            --           --        (19,503)
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1997                  $      50     $     165    $ 103,910    $ (59,735)
                                                =========     =========    =========    =========
                                                                                     
<CAPTION>
                                                             CUMULATIVE    PENSION        TOTAL     
                                                TREASURY     TRANSLATIION  LIABILITY   SHAREHOLDERS' 
                                                  STOCK      ADJUSTMENT    ADJUSTMENT     EQUITY     
                                                ---------     ---------    ---------    ---------
<S>                                             <C>           <C>          <C>          <C>      
BALANCES AT SEPTEMBER 30, 1994                       --            --      $  (1,523)   $  75,931  
Cash dividends on common shares declared in                  
   December 1994 (per share $0.25)                   --            --           --         (4,888)
Equity adjustment to recognize minimum                       
   pension liability                                 --            --            (21)         (21)
   Class B common shares issuance, net               --            --           --         42,806
   Translation adjustment                            --            (232)        --           (232)
   Net Income                                        --            --           --         15,053
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1995                       --       $    (232)   $  (1,544)   $ 128,649
Cash dividends on common shares declared in                  
   December 1995 (per share $0.24)                   --            --           --         (5,374)
Equity adjustment to recognize minimum                       
   pension liability                                 --            --            180          180
   Translation adjustment                            --             232         --            232
   Net Loss                                          --            --           --        (74,330)
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1996                       --            --      $  (1,364)   $  49,357
Contribution of 2,500,000 Class B                            
   common shares by founding Shareholders         $(13,172)        --           --           --
Tendering of 2,500,000 Class B shares of            13,172
   stock in partial settlement of litigation                       --           --         13,172
Equity adjustment to recognize minimum                       
   pension liability                                 --            --            366          366
   Net Loss                                          --            --           --        (19,503)
                                                ---------     ---------    ---------    ---------
BALANCES AT SEPTEMBER 30, 1997                       --            --      $    (998)   $  43,392
                                                =========     =========    =========    =========
</TABLE>
                                                                            
See accompanying notes to consolidated financial statements.


                          
                                       31

<PAGE>



            PEPSI-COLA PUERTO RICO BOTTLING COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (U.S. DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   FISCAL YEAR ENDED
                                                                  ----------------------------------------------------
                                                                  SEPTEMBER 30,       SEPTEMBER 30,      SEPTEMBER 30,
                                                                      1997                1996               1995
                                                                    --------            --------           --------
<S>                                                                 <C>                 <C>                <C>     
Cash flows from operating activities:                               $(19,503)           $(74,330)          $ 15,053
  Net income/(loss)                                                                                       
  Adjustments to reconcile net earnings to                                                                
    net cash provided by (used in) operating activities:                                                   
  Gain on early termination of supply agreement                         --                (2,111)              --
  Litigation settlement expenses                                      13,172                --                 --
  (Gain)/loss on sale of property, plant and equipment                   238                (675)                17
  Impairment on long-lived assets                                       --                 1,134               --
  Intangible asset write-off                                            --                   624               --
  Depreciation and amortization                                        5,971               5,589              4,781
  Deferred income taxes                                                  547              (1,462)              (377)
  Equity in net (earnings)/losses of BAESA                              --                51,458             (5,638)
  Changes in assets and liabilities:                                                                      
    Accounts receivable                                               (2,335)              4,778             (3,730)
    Inventories                                                          860                  47                910
    Prepaid expenses and other current assets                            443                 659             (1,335)
    Intangibles                                                         (272)                --                --
    Accounts payable                                                  (2,887)              5,063              4,170
    Other liabilities and accrued expenses                            (3,832)              2,195              2,594
    Income tax payable                                                    84                  (8)              (106)
    Other, net                                                            16                 247                158
                                                                    --------            --------           --------
  Net cash provided by (used in) operating activities                 (7,498)             (6,792)            16,497
                                                                    --------            --------           --------
Cash flows from investing activities:                                                                     
  Proceed from sale of property, plant and equipment                     406               1,347              1,662
  Proceeds from matured short term investment                         12,904                --                 --
  Purchases of property, plant and equipment                          (4,777)            (24,237)           (10,418)
  Short term investments                                                --               (12,904)              --
  Dividends received from affiliate                                     --                 2,839              2,839
                                                                    --------            --------           --------
  Net cash provided by (used in) investing activities                  8,533             (32,955)            (5,917)
                                                                    --------            --------           --------
Cash flows from financing activities:                                                                     
  Proceeds from issuance of Class B common stock, net                   --                  --               42,806
  Proceeds from short-term borrowings                                    712              47,900                350
  Repayment of short-term borrowings                                    --               (27,500)              --
  Repayment of long-term debt                                         (1,722)             (1,552)            (1,549)
  Proceeds from capital lease                                          1,793                --                 --
  Repayment of capital lease obligations                                (985)             (1,204)            (2,555)
  Dividends paid                                                        --                (5,374)            (4,888)
                                                                    --------            --------           --------
  Net cash provided by (used in) financing activities                   (202)             12,270             34,164
                                                                    --------            --------           --------
                                                                                                          
Net increase in cash and cash equivalents                                833             (27,477)            44,744
Cash and cash equivalents at beginning of period                      18,614              46,091              1,347
                                                                    --------            --------           --------
Cash and cash equivalents at the end of period                      $ 19,447            $ 18,614           $ 46,091
                                                                    ========            ========           ========
Supplemental cash flow disclosures:                                                                       
  Cash paid for:                                                                                         
  Interest                                                          $  2,560            $  2,416           $  1,550
  Income taxes                                                           258                 186                175
  Non-cash transactions:                                                                                    
     Capital leases reclassified as operating leases                     599                --                 --
     Proceeds from sale of asset net of underlying debt                  287                --                 --
</TABLE>                                                                   

See accompanying notes to consolidated financial statements.


                                       32

<PAGE>


                         PEPSI COLA PUERTO RICO BOTTLING
                            COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (U.S. DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
              FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

NOTE 1. DESCRIPTION OF BUSINESS

Pepsi Cola Puerto Rico  Bottling  Company  ("PCPRB" or "the  Company")  bottles,
sells and distributes  beverages sold primarily under the Pepsi Cola ("PepsiCo")
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. 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  Exclusive  Bottling
Appointments  have  ten-year  terms  expiring on  November 5, 2003.  Each of the
Exclusive Bottling Appointments will automatically be extended for an additional
five-year term expiring on November 5, 2008,  provided PCPRB is not in breach of
any provisions of the franchise arrangement.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.   Consolidation and Organization

     The consolidated  financial  statements include the financial statements of
     PCPRB and its wholly  owned  subsidiaries  operating  in Puerto Rico and in
     1996 and 1995, the accounts for Argentine  Bottling  Associates  ("ABA"), a
     general  partnership and BAESA Shareholder  Associates  ("BSA"),  a general
     partnership (collectively,  the "Company"). As of September 30, 1996, PCPRB
     had a 51.93%  interest in ABA, which had a 58.99% interest in BSA, which in
     turn had a 55.06% interest in BAESA. As of September 30, 1995,  PCPRB had a
     51.89%  interest in ABA, which had a 59.24%  interest in BSA, which in turn
     had a 55.40% interest in BAESA. The Company's resulting investment in BAESA
     of approximately  17%, as of September 30, 1997 and 1996, was accounted for
     under the equity method of accounting  until such investment was reduced to
     zero. All balances and transactions  have been eliminated in consolidation,
     including  significant  intercompany  profit on assets remaining within the
     group.  As of September 30, 1997, the Company has withdrawn its interest in
     BSA, and ABA has been liquidated.

     B.   Inventories

     Inventories are stated at the lower of cost (first-in  first-out method) or
     net realizable value.

     C.   Property, Plant and Equipment

     Property,  plant and equipment  are stated at cost.  Property and equipment
     under  capital  leases are  stated at the  present  value of minimum  lease
     payments. Depreciation on property, plant and equipment is calculated using
     the  straight-line  method at rates based on the estimated  useful lives of
     the related  assets.  Plant and  equipment  held under  capital  leases and
     leasehold  improvements  are amortized  using the  straight-line  method of
     depreciation  over the  shorter of the lease term or the  estimated  useful
     life of the assets.




                                       33
<PAGE>



     The estimated useful lives (in years) of the Company's property,  plant and
     equipment are as follows:


                                                       Useful Life
                                                       -----------
     Building and Improvements                             40
     Machinery and Equipment                            10 and 15
     Plastic returnable bottles                             4
     Cases and Shells                                   5 and 10
     Furniture and Fixtures                             5 and 10
                                                    
     The cost of maintenance and repairs is charged to expenses as incurred. The
     cost of  significant  renewals  and  improvements  is added to the carrying
     amount of the respective fixed assets. The carrying amounts and accumulated
     depreciation  for assets sold or retired are eliminated from the respective
     accounts and gains or losses  realized on disposition  are reflected in the
     consolidated statement of income/(loss).

     D.   Intangible Assets

     The cost in excess of fair value of net  assets of  companies  acquired  in
     purchase transactions is being amortized on a straight-line method over its
     economic life not to exceed 40 years.  In 1996, the Company wrote off other
     intangibles  of $624 due to the loss of value of these.  Other  intangibles
     are also amortized on a straight-line  method over their  estimated  useful
     life.  Intangible  assets at September 30, 1997 and 1996 are  summarized as
     follows:

                                                               1997       1996  
                                                             -------    -------
     Goodwill ...........................................    $ 1,277    $ 1,277
     Trademark (14 Years) ...............................        300        300
     Water distribution rights (20 years) ...............        165        165
     Unrecognized prior service cost of pension cost ....       --           23
     Other ..............................................        478        184
                                                             -------    -------
                                                             $ 2,220    $ 1,949
     Less accumulated amortization ......................       (576)      (490)
                                                             -------    -------
                                                             $ 1,644    $ 1,459
                                                             =======    =======

     Amortization  expense for the Company  for the years  ended  September  30,
     1997, 1996 and 1995 is summarized as follows:

     1997.............................................       $    87
     1996.............................................       $    90
     1995.............................................       $    90

     The Company  periodically  reevaluates 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 primary  indicators of  recoverability  are the
     current  and  forecasted   operating  cash  flows  which  pertain  to  that
     particular  asset.  An  entity  that has a  deficit  in its cash  flow from
     operations  for a full fiscal year,  in light of the  surrounding  economic
     environment,  is viewed by the Company as a situation  which could indicate
     an impairment of value. Taking into account the above factors,  the Company
     determines  that an  impairment  loss has been  triggered  when the  future
     projected undiscounted cash flows associated with the intangible asset does
     not exceed its  current  carrying  amount and the amount of the  impairment
     loss to be recorded is the difference  between the current  carrying amount
     and the future projected  undiscounted cash flows. The Company currently is
     generating  negative  cash  flow  from  operations  but  believes  that the
     existing condition is temporary.  Based on the Company's policy, management
     believes that there is no  impairment  of value  related to the  intangible
     assets as of September 30, 1997.




                                       34
<PAGE>


     E.   Investment in BAESA

     Investments  in less than 50% owned  affiliates are accounted for under the
     equity  method.  Under this method of accounting a  proportionate  share of
     profits  or  losses  are  recorded  as an  increase  or  reduction  of  the
     investments. In the case of losses, these are recorded to the extent of the
     amount of the  investment  since the Company does not  guarantee any of the
     debts of the investee  nor is  committed  to provide any further  financial
     support.

     F.   Investment Securities

     Investment  securities at September 30, 1996 consist of short term discount
     notes.  The Company  classifies  its debt and equity  securities  in one of
     three categories: trading, available-for-sale, or held-to-maturity. Trading
     securities are bought and held  principally for the purpose of selling them
     in the near term. Held-to-maturity securities are those securities in which
     the Company has the ability and intent to hold the security until maturity.
     All other  securities  not  included  in  trading or  held-to-maturity  are
     classified as available-for-sale.

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
     Held-to-maturity  securities are recorded at amortized  cost,  adjusted for
     the amortization or accretion of premiums or discounts.  Unrealized holding
     gains and losses on trade  securities are included in earnings.  Unrealized
     holding   gains   and   losses,   net  of  the   related   tax   effect  on
     available-for-sale  securities  are excluded from earnings and are reported
     as a separate  component of shareholders'  equity until realized.  Realized
     gains  and  losses  from  the  sale of  available-for-sale  securities  are
     determined on a specific identification basis.

     A decline in the market value of any available-for-sale or held-to-maturity
     security below cost that is deemed to be other than temporary  results in a
     reduction in carrying  amount to fair value.  The  impairment is charged to
     earnings and a new cost basis for the security is established. Premiums and
     discounts   are  amortized  or  accreted  over  the  life  of  the  related
     held-to-maturity  security as an  adjustment  to yield using the  effective
     interest method. Dividend and interest income are recognized when earned.

     All  of  the  Company's   investment   securities   are  considered  to  be
     held-to-maturity.

     G.   Income Taxes

     The Company  accounts for income taxes under the provisions of Statement of
     Financial  Accounting  Standards 109  ("Statement  109"),  "Accounting  for
     Income  Taxes."  Under the  asset and  liability  method of  Statement  109
     deferred tax assets and liabilities are recognized for the estimated future
     tax  consequences   attributable  to  differences   between  the  financial
     statement  carrying  amounts of existing  assets and  liabilities and their
     respective  tax bases.  Deferred  tax assets and  liabilities  are measured
     using  enacted  tax rates in effect for the year in which  those  temporary
     differences  are expected to be recovered or settled.  Under Statement 109,
     the effect on deferred tax assets and  liabilities of a change in tax rates
     is recognized in income in the period that includes the enactment date.

     H.   Cooperative Marketing Agreement

     The Company and PepsiCo are required  under the  franchise  arrangement  to
     spend a specified  amount,  based on prior  calendar  year  volume,  on the
     marketing  of PepsiCo  beverage  products.  The Company  and  PepsiCo  have
     historically  spent  significantly more on marketing than called for by the
     franchise  arrangement.  Furthermore,  the Company  and  PepsiCo  develop a
     Cooperative Marketing Agreement (CMA) on an annual basis to promote PepsiCo
     beverage products in the Company's  franchise  territory.  The total amount
     spent  by  the  Company  and  PepsiCo  on  advertising   pursuant  to  this
     cooperative  arrangement  in any year is determined by the amount set forth
     in that year's CMA,  which may be adjusted  subject to mutual  agreement by
     the parties.  The CMA provides for, among other things,  marketing  related
     asset investments,  as well as expenditures for advertising and promotions.
     PepsiCo reimburses the Company for PepsiCo's share of the



                                       35
<PAGE>



     marketing  expenditures,  which have been paid directly by the Company. The
     reimbursements   are   reflected   in  the   consolidated   statements   of
     income/(loss) as a reduction of selling and marketing expenses.

     During  1995,  the Company  implemented  Statement  of Position  No.  93-7,
     "Reporting on  Advertising  Costs," ("SOP 93-7"),  issued by the Accounting
     Standards  Executive  Committee.  The  adoption  of SOP 93-7 did not have a
     material  effect  on  the  Company's   financial  position  or  results  of
     operations.  The Company expenses production costs of advertising the first
     time the  advertising  takes place.  All other  advertising and promotional
     costs are expended when incurred.  Advertising  and marketing  expenditures
     reflected in the  accompanying  consolidated  statements  of  income/(loss)
     amount to $3,242, $11,396 and $4,220 in 1997, 1996 and 1995, respectively.

     I.   Issuance of BAESA Shares

     Increases and decreases in the Company's investment in BAESA resulting from
     BAESA's  issuance of newly issued  shares are reflected as  adjustments  to
     additional  paid-in capital to the extent that the proceeds to BAESA exceed
     or are less than the Company's carrying value in the shares.

     J.   Cash Equivalents

     Cash  equivalents  of $16,749  and $17,647 at  September  30, 1997 and 1996
     respectively  consist of discount  notes with an initial  term of less than
     three  months.  For purposes of the  statement  of cash flows,  the Company
     considers all highly liquid debt  instruments  with original  maturities of
     three months or less to be cash equivalents.

     K.   Recapitalization

     In  connection  with the Company's  public  offering  (the  "offering")  of
     7,000,000  Class B common shares in September 1995, the Company changed its
     capital structure to 5,000,000 authorized shares of $0.01 par value Class A
     common shares and 35,000,000  authorized  shares of $0.01 par value Class B
     common shares.

     In connection with the offering,  the Company sold 3,500,000 Class B common
     shares while certain of the principal  shareholders  sold 3,500,000 Class B
     common shares of the Company. The shares were sold at $14.00 per share. The
     Company  did not  receive  any  proceeds  from  the  sale by the  principal
     shareholders.

     On August 14, 1995, the Company's Board of Directors declared a 24,000 to 1
     stock split effective concurrently with the effective date of the Offering.
     The par value of each share is $0.01. A total of $179 was reclassified from
     the Company's  additional  paid-in capital account to the Company's Class A
     and B common  share  accounts.  All share and per share  amounts  have been
     restated to  retroactively  reflect the stock  split.  Earnings/(loss)  per
     common share is  determined by dividing net  income/(loss)  by the weighted
     average number of common shares outstanding during each year.

     L.   Adoption of New Accounting Pronouncement

     Prior to October 1, 1996,  the Company  accounted for its stock option plan
     in accordance  with the provisions of Accounting  Principles  Board ("APB")
     opinion no. 25,  "Accounting  for Stock issued to  Employees,"  and related
     interpretations.  As such,  compensation  expense  would be recorded on the
     date of the grant only if the current market price of the underlying  stock
     exceeded the exercise  price.  On October 1, 1996, the Company adopted SFAS
     No. 123, "Accounting for Stock-Based  Compensation," which permits entities
     to recognize  as expense,  over the vesting  period,  the fair value of all
     stock-based  awards on the date of the grant.  Alternatively,  the SFAS No.
     123 also allows  entities to continue to apply the provisions of APB No. 25
     and  provide  pro  forma  net  income  and pro  forma  earnings  per  share
     disclosures  for employee stock option grants made in 1995 and future years
     as if the fair value based method defined in SFAS No. 123 had been applied.
     The Company has elected to continue to apply the  provisions  of APB No. 25
     and provide the pro forma disclosure provisions of SFAS No. 123.



                                       36
<PAGE>


     During  the  year  ended  September  30,  1996,  the  Company  adopted  the
     provisions of the Financial  Accounting  Standard Board  Statement No. 121,
     "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
     Assets to be Disposed of." The statement  requires that  long-lived  assets
     and certain  identifiable  intangibles  to be held and used by an entity be
     reviewed  for  impairment  whenever  events  or  changes  in  circumstances
     indicate that the carrying amount of an asset may not be  recoverable.  The
     Company deems an asset to be impaired if a forecast of undiscounted  future
     cash flows directly  related to the assets,  including  disposal  value, if
     any, is less than its carrying amount.

     As a result of the  implementation  of SFAS No. 121,  the Company  revalued
     certain of its long-lived  assets and recorded a non-cash charge of $1,400.
     Of  the  total   impairment   loss,   $600   represent  the  impairment  of
     manufacturing  equipment and furniture,  and $800  represent  impairment to
     manufacturing  plant.  Factors leading to the impairment were the Company's
     decision, in mid-1996,  to consolidate its manufacturing  activities in its
     new manufacturing  facility, and anticipated losses from the disposition of
     the former  manufacturing  facility,  and remaining unused  equipment.  The
     amount  of  impairment  was  calculated  using a  recent  appraisal  of the
     estimated value of the property less estimated costs of disposition.

NOTE 3 - INVENTORIES

     Inventories consists of the following:

                                                          1997             1996
                                                         ------           ------
     Raw Materials ................................      $1,070           $1,346
     Finished Goods ...............................       1,428            1,684
     Spare Parts and Supplies .....................         780            1,072
     Work-in Process ..............................         357              393
                                                         ------           ------
                                                         $3,635           $4,495
                                                         ======           ======

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET


                                                           1997          1996
                                                         --------      --------
     Land and improvements ............................  $  7,057      $  7,057
     Building and improvements ........................    14,682        14,301
     Machinery, equipment and vehicles ................    48,081        45,931
     Bottles, cases and shells ........................     1,515         1,401
     Furniture and fixtures ...........................     1,580         1,877
     Construction in process ..........................        86         1,941
                                                         --------      --------
                                                           73,001        72,508
     Less accumulated depreciation and amortization ...   (25,654)      (22,572)
                                                         --------      --------
     Property, plant and equipment, net ...............  $ 47,347      $ 49,936
                                                         ========      ========

NOTE 5 - INVESTMENT IN BAESA

The Company owns 12,345,348  shares,  or  approximately  17% as of September 30,
1997 and 1996, respectively,  of the outstanding capital stock of BAESA. Through
June 30, 1996, the Company exercised  significant  influence over the management
of BAESA,  subject to the right of PepsiCo,  Inc. ("PepsiCo") and certain of its
affiliates to approve certain management decisions.  As of July 1, 1996, PepsiCo
assumed  operating  control of BAESA and the Company does not  control,  or have
significant  influence  over, the  management or operations of BAESA.  On May 9,
1997, The Buenos Aires Stock Exchange  suspended  trading of the BAESA's class B
shares after its fiscal  second  quarter  results for the period ended March 31,
1997 showed a negative net worth under Argentine Accounting Principles.  The New
York Stock Exchange also halted trading in BAESA's American Depository Shares.

On July 29,  1997,  BAESA  announced  an  agreement in principle to enter into a
long-term financial restructuring plan with its major debt holders in Argentina.
Under the terms of the  restructuring  BAESA's  unsecured  lenders in  Argentina
would  exchange debt for at least 98% of the equity in BAESA.  BAESA's  existing
shareholders would



                                       37
<PAGE>



retain  up to 2% of the  equity  and the  right to  purchase  additional  equity
pursuant to a rights  offering,  which would  allow the  stockholders  to retain
their   current   proportionate   ownership.   The  effect  of  this   financial
restructuring  will result in the reduction in ownership by the Company in BAESA
from 17% as of  September  30, 1997 to  approximately  .34%  assuming the rights
offering  is not  exercised  by the  Company.  As of  September  30,  1996,  the
Company's  investment in BAESA has been reduced to zero as a result of the share
of the  losses of BAESA  recorded  by the  Company  under the  equity  method of
accounting.  No  additional  investments  in BAESA have been made by the Company
since September 30, 1996.

The following  condensed audited financial  information  relating to BAESA as of
September 30, 1996,  (in thousands of U.S.  dollars) and for the two year period
ended  September  30,  1996 has been  provided  to the  Company  by  BAESA;  its
inclusion in this report is for  disclosure  purposes only and the Company makes
no representation as to the accuracy or completeness of such information. At the
present time, the Company does not control, or have significant  influence over,
the management or operations of BAESA. For further information  regarding BAESA,
investors  should consult  information  made publicly  available by BAESA to its
shareholders.


                                                                   September 30,
                                                                       1996
                                                                    ---------
ASSETS
Cash and cash equivalents ......................................    $  27,361
Accounts receivable, net .......................................       64,069
Inventories ....................................................       31,077
Deferred income tax, net .......................................        6,681
Other current assets ...........................................        8,469
                                                                    ---------
      Total current assets .....................................      137,657
Property, plant and equipment, net .............................      586,908
Intangible assets, net .........................................       79,092
Investment in joint venture ....................................      106,918
Other assets ...................................................       16,805
                                                                    ---------
      Total assets .............................................    $ 927,380
                                                                    =========

LIABILITIES
Current installments of long-term debt and capital lease
  obligations ..................................................    $ 290,299
Bank loans and overdrafts ......................................      375,788
Accounts payable, income tax payable and accrued expenses ......      190,981
                                                                    ---------
      Total current liabilities ................................    $ 857,068
Long term debt .................................................       87,461
Deferred income taxes ..........................................        7,740
Other long-term liabilities ....................................        8,385
                                                                    ---------
      Total liabilities ........................................      960,654
Total shareholders' equity/(deficit) ...........................      (33,274)
                                                                    ---------
      Total liabilities and shareholders' equity/(deficit) .....    $ 927,380
                                                                    =========




                                       38
<PAGE>



<TABLE>
<CAPTION>
                                                                      Years Ended September 30,
                                                                      1996               1995
                                                                     -----------    -----------
<S>                                                                  <C>            <C>        
Net Sales ........................................................   $   680,236    $   670,449
                                                                     -----------    -----------
Cost and Expenses:
Cost of sales ....................................................      (472,692)      (345,103)
Selling and marketing expenses ...................................      (354,880)      (160,644)
Administrative expenses ..........................................      (192,210)       (93,418)
Start-up costs in Brazil .........................................          --           (3,162)
Restructuring costs ..............................................       (34,782)          --
                                                                     -----------    -----------
                                                                      (1,054,564)      (602,327)
                                                                     -----------    -----------
Income (loss) from operations ....................................      (374,328)        68,122
 Other income (expenses), net ....................................       (75,459)       (30,785)
                                                                     -----------    -----------
      Income/(loss) before income tax (expense) benefit and equity
         in net earnings of affiliate ............................      (449,787)        37,337
Income/(loss) tax (expense) benefit ..............................        (8,191)         3,079
                                                                     -----------    -----------
      Income/(loss) before equity in net earnings of affiliate ...      (457,978)        40,416
Equity in net earnings of affiliate ..............................         5,597          4,359
                                                                     -----------    -----------
      Net income/(loss) ..........................................   $  (452,381)   $    44,775
                                                                     ===========    ===========
</TABLE>

NOTE 6 - NOTES PAYABLE TO BANK AND LONG TERM DEBT

In  November  1994,  the  Company  and its  subsidiaries  entered  into a credit
Agreement with Banco Popular.  The Credit Agreement has been modified,  first in
1995 and most  recently on April 8, 1997.  The Credit  Agreement  provides for a
term loan of $25  million  over a ten year  period,  with a balloon  payment  at
maturity of $11.8 million.  The term loan is collateralized with a priority lien
over  all  real  estate,  machinery  and  equipment,  and any  other  assets  or
properties  of the Company,  acceptable  to the Bank.  The Company has also been
granted a $5 million  revolving  credit facility (all of which is outstanding at
September  30,  1997),  the  principal  amount of which may not  exceed  certain
stipulated  percentages of eligible  receivables  and  inventories,  as defined.
Interest  on these loans  shall be at 2.5% over the LIBOR  rate,  if  Eurodollar
funds  are  available,  otherwise,  at the  highest  of the  rates  of  interest
announced publicly from time to time in the Wall Street Journal by the principal
commercial  banks  in New  York,  New  York as their  prime  or base  rate.  The
Agreement  contains various  covenants and events of default typical of a credit
facility  agreement  of  this  size  and  nature,   including   additional  debt
restrictions and maintaining a minimum level of tangible net worth.

Long-term debt consists of the following at September 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                            1997        1996
                                                                          --------    --------
<S>                                                                       <C>         <C>
Term Loan of $25,000 in 1997 and $6,000 in 1996 to Banco Popular,
payable, in 1997, in 120 monthly payments of $83  excluding interest...   $ 24,583    $  6,026
Others ................................................................         60         337
                                                                          --------    --------
      Total long-term debt ............................................     24,643       6,363
Less current installments .............................................     (1,007)     (1,550)
                                                                          --------    --------
      Long-term debt, excluding current installments ..................   $ 23,636    $  4,813
                                                                          ========    ========
</TABLE>

The aggregate maturities of long-term debt at September 30, 1997 are as follows:


     1998 ...................................................            1,007
     1999 ...................................................            1,032
     2000 ...................................................            1,108
     2001 ...................................................            1,209
     2002 ...................................................            1,259
     Thereafter .............................................           19,028
                                                                       -------
           Total ............................................          $24,643
                                                                       =======



                                       39
<PAGE>


NOTE 7 - INCOME TAXES

PCPRB and its subsidiaries  are subject to U.S.  Federal income taxes;  however,
each has elected the benefit of Section 936 of the U.S.  Internal  Revenue Code.
Section 936 presently  allows the Company a tax credit equal to a portion of the
amount  of U.S.  income  tax  expense  attributable  to  earnings  derived  from
operations within Puerto Rico and to certain qualified investments maintained in
Puerto Rico subject to certain  limitations.  The tax credit against U.S. income
taxes  on  possession  business  income,  as  computed  under  current  law,  is
calculated  under  the  Economic  Activity  Limitation  method.  Such  credit is
presently  limited to 50% of taxable income (and lesser in subsequent years down
to 40% in 1998).  The Small Business Job Protection Act of 1996 repealed Section
936 and provided for a 10-year phaseout period. In addition,  during the taxable
years commencing after December 31, 2001, the Section 936 credit will be subject
to a net income  limitation.  In order to utilize  income tax credits  available
under  Section 936 each  company is required to derive at least 80% of its gross
income from sources within Puerto Rico, and at least 75% of gross income must be
from an active trade or business in Puerto Rico. Distributing, Manufacturing and
BEV were in compliance with these gross income  requirements for the years ended
September  30, 1997 and 1996.  However,  PCPRB did not meet these  gross  income
requirements  for the years ended September 30, 1997 and 1996 and,  therefore is
not allowed the benefit of Section 936 for such years.

The Company was granted,  effective  October  1988, a ten-year tax exemption for
its plastic preforms  manufacturing and sales operations (BEV),  pursuant to the
provisions  of the  Puerto  Rico  Tax  Incentives  Act of 1987 for  certain  net
industrial  development  income.  Under  the  terms of the  grant,  the  Company
received a 90% exemption  from Puerto Rico income tax. The Company also received
a full exemption  from Puerto Rico income and municipal tax on interest,  rents,
dividends and other  investments  and was granted 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.

For the years ended  September 30, 1997,  1996 and 1995, the combined income tax
expense/(benefit)  of PCPRB and its  subsidiaries  attributable  to income  from
continuing operations consisted of the following:


<TABLE>
<CAPTION>
                                                        1997       1996       1995
                                                      -------    -------    -------
<S>                                                   <C>        <C>        <C>     
Current:
      U.S .........................................   $(4,231)   $  (150)   $  (477)
      Puerto Rico .................................       342        185        557
                                                      -------    -------    -------
      Total current income tax expense ............    (3,889)        35         80
                                                      -------    -------    -------
Deferred:
      U.S .........................................      --         (326)       893
      Puerto Rico .................................       547       (914)    (1,270)
                                                      -------    -------    -------
      Total deferred income tax expense/(benefit)..       547     (1,240)      (377)
                                                      -------    -------    -------
      Total income tax expense/(benefit) ..........   $(3,342)   $(1,205)   $  (297)
                                                      =======    =======    =======
</TABLE>



                                       40
<PAGE>


Income tax  expense/(benefit)  attributable  to  income/(loss)  from  continuing
operations for the years ended  September 30, 1997,  1996 and 1995 differed from
the amounts computed by applying the U.S.  statutory tax rate of 35% as a result
of the following:

<TABLE>
<CAPTION>
                                                                   Year Ended       Year Ended      Year Ended
                                                                  September 30,    September 30,   September 30,
                                                                      1997             1996            1995
                                                                 -------------     -------------   -------------
<S>                                                                 <C>              <C>              <C>     
Computed "expected" tax expense                                     $ (7,984)        $ (8,209)        $  3,191
Change in the beginning-of-the-year balance of the valuation                                         
allowance for deferred tax assets                                     13,829           17,734           (2,742)
Calculated NOL value  of aforementioned loss, as adjusted, for                                       
Puerto Rico income taxes                                              (6,437)            --               --
Foreign tax credit, net of gross-up of foreign taxes                    --               --               (222)
Puerto Rico income taxes                                                 342           (9,668)           2,029
Possessions tax credit                                                (2,050)          (1,484)          (2,823)
Income tax credit related to prior year's losses                        (745)            --               --
Other, net                                                              (297)             422              270
                                                                    --------         --------         --------
      Income tax expense/(benefit)                                  $ (3,342)        $ (1,205)        $   (297)
                                                                    ========         ========         ========
</TABLE>
                                                                        

Current and deferred  income tax  expense/(benefit)  of $20,062,  and $1,657 for
1996 and 1995, respectively, has been provided (credited) in connection with the
equity in net earnings/(losses) of BAESA.

The significant components of deferred income tax expense/(benefit) attributable
to income from  continuing  operations  for the years ended  September 30, 1997,
1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                   Year Ended       Year Ended      Year Ended
                                                                  September 30,    September 30,   September 30,
                                                                      1997             1996            1995
                                                                  -------------    -------------   -------------
<S>                                                                 <C>              <C>              <C>     
Deferred tax (benefit)/expense (exclusive of the effects of
other components listed below) ................................     $(13,282)        $(18,974)        $  2,365
Increase/(decrease) in beginning of the year balance of the                                           
valuation allowance for deferred tax assets ...................       13,829           17,734           (2,742)
                                                                    --------         --------         --------
Total deferred income tax expense/(benefit) ..................      $    547         $ (1,240)        $   (377)
                                                                    ========         ========         ========
</TABLE>

                                                      

                                       41
<PAGE>


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1997
and 1996 are presented below:

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                                              --------------------
                                                                                1997        1996
                                                                              --------    --------
<S>                                                                           <C>         <C>     
Deferred Taxes
    Deferred tax assets:
    Property, plant and equipment principally, due to differences
       in depreciable lives                                                   $    496    $    334
    Federal net operating loss carryforwards                                    13,200       8,633
    Puerto Rico net operating loss carryforwards                                26,986      18,703
    Accrued expenses                                                               387         763
    Past service cost for pension plan                                             426         426
    Inventories principally due to additional costs inventoried for
       tax purposes                                                                 90         127
    Accounts receivable, principally due to allowance for doubtful accounts      1,005         405
    Other, net                                                                     149          66
                                                                              --------    --------
        Total gross deferred tax assets                                         42,739      29,457
    Less: valuation allowance                                                  (41,023)    (27,194)
                                                                              --------    --------
        Net deferred tax asset (liabilities)                                  $  1,716    $  2,263
                                                                              ========    ========
</TABLE>

The subsequent  recognition of tax benefits  related to the valuation  allowance
for deferred  tax assets as of September  30, 1997 and 1996 will be allocated to
income from continuing operations.

On December 31, 1993,  PCPRB's  manufacturing  and  distributing  divisions were
contributed to two newly formed  subsidiaries,  Manufacturing  and Distributing.
PCPRB's Puerto Rico tax net operating loss carryforwards followed the respective
assets of the divisions. During the year ended September 30, 1997, Manufacturing
utilized $3,877 of the prior year Puerto Rican net operating loss carryforwards.

Deferred tax benefits  for the federal and Puerto Rican tax net  operating  loss
carryforwards  of PCPRB,  Manufacturing  and  Distributing  have been  partially
reserved because  realization of that benefit for tax purposes is dependent upon
the existence of future taxable income. At September 30, 1997,  Distributing has
net  operating  loss  carryforwards  for federal tax purposes of $37,713,  which
expire in 2004, and for Puerto Rican income tax purposes as follows:


Amount                                                     Year of Expiration
------                                                     ------------------
$  1,152 ................................................         1998
   4,286 ................................................         1999
   2,720 ................................................         2000
  10,917 ................................................         2001
  27,826 ................................................         2003
  22,004 ................................................         2004
--------                                                          
$ 68,905
========

For U.S. income tax purposes, ABA and BSA are considered  partnerships and, as a
result,  do not pay income tax on their  income.  ABA's and BSA's income  gains,
losses,  deductions and credits flow-through and are recognized  proportionately
by their partners on their U.S.  income tax return.  Therefore,  a tax provision
was not computed on ABA's and BSA's income.



                                       42
<PAGE>


NOTE 8 - RELATED PARTY TRANSACTIONS

The  following are  transactions  between PCPRB and BAESA that took place during
the years ended September 30, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                                             1997           1996            1995
                                                                             ----           ----            ----
<S>                                                                          <C>           <C>             <C>   
Sale of preforms to BAESA, including guaranteed payments ................... $ --          $2,235          $4,419
Sale of machinery to unconsolidated affiliate of BAESA .....................   --            --               208
Charges by BAESA to PCPRB for management fee ...............................   --             888             848
</TABLE>

PCPRB sold  preforms  to BAESA  pursuant  to a  long-term  supply  contract.  In
management's   opinion,  the  terms  of  this  long-term  supply  contract  were
reasonable and, at the time such contract was entered into, no other  comparable
long-term supply contract was available to BAESA from an unrelated  interest due
to the hyper-inflationary conditions in Argentina at the time. This contract was
terminated  during the year ended September 30, 1997. As part of the negotiation
which  led to  the  cancellation  of the  long-term  preforms  supply  contract,
outstanding  obligations of the Company to BAESA and its subsidiaries  amounting
to  $2,065,063  were  settled for a cash payment of $50,000.  In  addition,  the
Company was relieved from obligations  related to certain operating leases. This
transaction was accounted for, in 1996, as a gain on the early  termination of a
supply Agreement.

The following are transactions  between PCPRB and  subsidiaries,  including ABA,
with other  related  parties for the years ended  September  30, 1997,  1996 and
1995:

Accounts  receivable  other includes $40 and $80 at September 30, 1996 and 1995,
respectively, due from two partners of ABA.

As of January 1, 1995, the Company  entered into an agreement with a shareholder
and former  director  who was to provide  construction  management  services for
approximately  $200.  During  1996  $151  was  paid  under  this  agreement  (no
additional payments are contemplated).  No amounts were paid as of September 30,
1997 and 1995.

PCPRB paid approximately $3,671,  $2,105, and $2,700 during 1997, 1996 and 1995,
respectively  in advertising  fees to a firm  controlled by a shareholder of the
Company.

PCPRB paid approximately $232 during 1996, respectively for consulting fees to a
shareholder of BAESA and a former director of the Company.

The Company paid approximately  $411 and $57 during 1997 and 1996,  respectively
for legal fees to a firm,  one of whose  partners is a relative of the Company's
President.

Certain members of the Company's Board of Directors and certain of its executive
officers were also directors  and/or officers of BAESA until  approximately  the
end of June 1996.

Pursuant to the terms of a ten-year  Voting Trust  Agreement  (five year initial
term and renewal option for a second  five-year term) and a related Stock Option
Agreement,  the 5,000,000 Class A shares  authorized and outstanding were placed
into a voting  trust,  the  trustee  of which is the  present  President  of the
Company,  who has the unrestricted right to vote such shares for a period of ten
years.  The voting trust provides the President of the Company with an indemnity
and hold  harmless  with  respect to his duties and  functions  as trustee.  The
President  may  terminate  the Voting  Trust at his will.  Pursuant to the Stock
Option  Agreement,  the  President  of the Company has the right to purchase the
aforementioned  5,000,000  Class A  Shares,  for the  exclusive  benefit  of the
Company,  within a period of two years ending on September  28, 1998, at a price
of $1 per share.

NOTE 9 - BUSINESS AND CREDIT CONCENTRATIONS

Financial  instruments,  which subject the company to  concentrations  of credit
risk consist primarily of trade receivables. Most of the Company's customers are
located in Puerto Rico. Two customers  accounted for approximately  20%, 22% and
28% of the Company's  sales during 1997, 1996 and 1995,  respectively.  Although
the



                                       43
<PAGE>


Company's  exposure to credit risk associated  with  nonpayments by customers is
affected by conditions for occurrences  with Puerto Rico, that risk is mitigated
by the large number of entities  comprising  the Company's  customer base. As of
September 30, 1997,  no single  receivable  from a customer  exceeded 15% of the
Company's  trade  receivables  at that date.  The Company  reviews a  customer's
credit history before extending credit. The Company establishes an allowance for
doubtful  accounts  based upon factors  surrounding  the credit risk of specific
customers, historical trend, and other information.

NOTE 10 - PENSION PLANS

The Company has two separate  non-contributory  defined  benefit  pension  plans
covering  eligible  salaried  and  hourly  employees  of  the  Company  and  its
subsidiaries in Puerto Rico. The benefits under the salaried employees' plan are
based on years of service and the employees'  average  earnings  during the last
five years of  employment.  The benefits  under the hourly  employees'  plan are
based on a fixed amount times years/credit service. The Company's funding policy
is to make the annual  contributions  as  required  by  applicable  regulations.
Contributions are intended to provide for benefits attributed to service to date
as well as for those expected to be earned in the future. Both plans are insured
by the Pension  benefit  Guarantee  Corporation.  This  insurance  requires  all
members of the  controlled  group to be  jointly  and  severally  liable for the
unfunded pension obligations.  The only event that may trigger a full payment of
the unfunded  liability is a plan  termination  which  management  believes is a
remote  possibility.  On April 16, 1997 the Company  announced  its  decision to
suspend  its  pension  plans for  periods  not yet  determined.  The Company has
obtained  revised  actuarial  valuations  under  FASB 87 that  reflect  the full
benefits of the freeze of the pension plans. The accrued pension costs have been
adjusted accordingly.

In accordance  with the provisions of Accounting  Standards  Board Statement No.
87,  "Employers  Accounting for Pensions," the Company  recognized an additional
minimum liability,  computed as the excess of the accumulated benefit obligation
over the fair  value of plan  assets of $1,388 at  September  30,  1996,  with a
related  intangible asset (limited to the unrecognized prior service cost of the
related plans) of $23 at September 30, 1996,  with the remainder being reflected
as an adjustment to shareholders'  equity. At September 30, 1997, the additional
minimum  liability  was reduced to $998,  and the  adjustment  to  shareholders'
equity was similarly reduced.

The  following  table  sets  forth the  funded  status of the plans and  amounts
recognized in the balance sheet at September 30, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                             1997       1996
                                                                           -------    -------
<S>                                                                        <C>        <C>    
Actuarial present value of obligations:
    Accumulated benefit obligation, including vested benefits of
       $7,117 in 1997 and $7,290 in 1996                                   $ 7,195    $ 7,356
                                                                           =======    =======
Projected benefit obligations for services rendered to date                  7,195      7,711
Plan assets at fair value, primarily consisting of common stocks and
   time deposits                                                             4,903      4,579
                                                                           -------    -------
Projected benefit obligation in excess of plan assets                        2,292      3,132
Unrecognized net loss from past experience different from that assumed        (998)    (1,721)
Unrecognized prior service cost                                               --          (23)
Adjustment to recognize minimum liability                                      998      1,388
                                                                           -------    -------
Accrued pension cost at September 30, 1997 and 1996 ($2,213 and
   $2,593, respectively, long term)                                        $ 2,292    $ 2,776
                                                                           =======    =======
Net pension expense for 1997 and 1996 included the following components:
   Service cost for benefits earned during the period                      $   108    $   160
   Interest cost on projected benefit obligation                               557        518
   Actual return on plan assets                                               (724)      (533)
   Net amortization and deferral                                               475        442
                                                                           -------    -------
   Net periodic pension cost                                               $   416    $   587
                                                                           =======    =======
</TABLE>



                                       44
<PAGE>


The actuarial present value of the projected  benefit  obligation was determined
using a weighted-average  discount rate of 7% at September 30, 1997 and 1996 and
an expected long-term rate of return on plan assets of 9% for the two years. The
rate of increase in future compensation levels for the salaried plan was 4%. The
cost of retroactive  benefits  resulting from plan  amendments is amortized over
the future work life expectancy of the active participants.

NOTE 11 - STOCK OPTION PLANS

In 1997 the Company  adopted two stock  option plans (the  "plans")  pursuant to
which the  Company's  Board of  Directors  may grant  stock  options  to certain
employees  and  directors of the Company and its  affiliates  who have served in
such capacities for at least one year prior to the date the options are granted.
The plans  authorize  grants of options to purchase up to one million  shares of
authorized but unissued class B common stock. One of these stock option plans is
designed so as to be qualified for income tax purposes, whereas the other is not
a qualified  plan.  Stock options  under the qualified  plan are granted with an
exercise  price equal to the stock's fair market value at the date of the grant.
All stock options have ten year terms and vest and become fully  exercisable  in
accordance with the terms of their grant.

Additionally,  the  Company  entered  into a stock  option  agreement  with  the
President of the Company to acquire 1,516,667 class B shares of the Company,  at
an exercise  price of $5.00 per share.  This stock option will be exercisable in
whole or in part until exercised in full.

At September 30, 1997 there were 810,000  additional  shares available for grant
under the plans.  The per share  weighted-average  estimated fair value of stock
options  granted  during 1997 was $3.52 on the date of the grant using the Black
Scholes  option-pricing  model with the following weighted average  assumptions:
expected dividend yield 0%, risk-free  interest rate of 6.125%,  and an expected
life of 10 years.

The  Company  applies  APB  opinion  No.  25 in  accounting  for its  Plan  and,
accordingly no  compensation  cost has been  recognized for its stock options in
the financial statements. Had the company determined compensation costs based on
the fair value of the grant date for its stock  options  under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts  indicated
below.


                                                             1997
                                                             ----
Net loss                   As Reported                     $19,503
                                                           -------
                           Pro Forma                       $25,510
                                                           -------
Net loss per share                                         $  1.19
                                                           -------

At September 30, 1997, the number of options  exercisable  was 1,706,667 and the
weighted average exercise price of those options was $5.00.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

A.   Operating Leases

     The Company and its  subsidiaries  lease  office and  operating  facilities
     under operating leases with unexpired terms ranging from two to nine years.

     Rent expense under all  noncancelable  operating leases for the Company and
     its  subsidiaries  for the years ended September 30, 1997, 1996 and 1995 is
     summarized as follows:

     1997.........................................................$1,661
     1996......................................................... 1,387
     1995......................................................... 1,287




                                       45
<PAGE>


Following is a summary of future  minimum  lease  payments  under  noncancelable
operating  leases and the present value of future  payments under capital leases
as of September 30, 1997.


                                                          Total Operating Leases
                                                          ----------------------
      1998 .............................................           $2,139
      1999 .............................................            2,026
      2000 .............................................            1,869
      2001 .............................................            1,800
      2002 .............................................            1,800
                                                                   ------
          Total minimum lease payments .................           $9,634
                                                                   ======
      
      
                                                            Total Capital Leases
                                                            --------------------
      1998 .............................................           $  967
      1999 .............................................              547
      2000 .............................................               12
      2001 .............................................                3
                                                                   ------
          Total minimum lease payments .................            1,529
      Less amount representing interest  ...............              108
          at 10.25% to 12%                                         ------
          Present value of lease payments ..............            1,421
      Less current installments ........................              908
                                                                   ------
          Capital lease obligations, 
          excluding currentinstallments ................           $  513
                                                                   ======

In 1991 the Company  entered into an agreement with the Puerto Rico Aqueduct and
Sewer Authority (PRASA) to invest approximately  $15,000 to build a new bottling
facility  and waste  water  treatment  plant.  The  Company is  required  to pay
utilities  surcharges of  approximately  $13 per month until the new facility is
operational.

B.   Legal Proceedings

The Company was a defendant in nine  putative  class  actions  alleging  federal
securities  violations by the Company and various  officers and directors of the
Company.  These claims were settled as of  September  30, 1997.  The Company has
recorded the cost of the settlement of the aforementioned  nine putative actions
as follows:

Cost of  2,500,000  class B  shares  of  stock  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 ($5.269) 

                                                                        $13,172
Cash Payment of $2,500,000 less recovery  from insurers                      --
                                                                        -------
                                                                        $13,172
                                                                        =======
                                                                              
                   
As part of the settlement of these claims, the Company was reimbursed $4,000,000
by its  directors  liability  insurers,  $2,500,000  of which were deemed by the
Company  as a  reimbursement  of the  amounts  paid  to the  claimants  and  the
remaining  balance of the  recovery  were  recorded as a reduction of legal fees
incurred in connection with this matter.

The  contribution of the 2,500,000  class B shares by the founding  shareholders
was recorded as an additional contribution to the Company's capital using as its
basis the average trading price of the stock referred to above.


                                       46
<PAGE>


The effect in the results of  operations  (pre-tax)  of the Company for the year
ended September 30, 1997, of the above mentioned transaction is as follows:

                                                                (In thousands)
o    Reduction in administrative expenses                           $  1,500 
o    Settlement of the litigation                                    (13,172) 
                                                                     ------- 
          Net effect on net income/(loss)                            (11,672) 
o    Contribution of Class B shares by founding shareholders          13,172 
                                                                     ------- 
          Net effect on shareholders' equity                         $ 1,500 
                                                                     ======= 
                                                               

In addition,  the  Securities and Exchange  Commission  (the  "Commission")  has
issued  a  formal  order  of   investigation   in  connection   with  accounting
irregularities  uncovered  during 1996. The Staff of the Commission is currently
engaged in that investigation and the Company is cooperating fully.

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  amounts of cash and cash  equivalents,  short  term  investments,
accounts receivable,  accounts payable,  notes payable to bank, accrued payroll,
taxes and other current liabilities  approximate fair value because of the short
maturity of these instruments.

The fair value of each of the Company's  long-term debt  instruments is based on
the amount of future cash flows associated with each instrument discounted using
the Company's  current  floating  borrowing rate for similar debt instruments of
comparable  maturity.  The carrying amounts approximate the estimated fair value
at September 30, 1997 and 1996.

The Company currently does not hold any derivatives.

Under the equity method,  the Company's  investment in BAESA has been reduced to
zero.

NOTE - 14  INTANGIBLE AND FIXED ASSET WRITE-OFFS

In 1996, the Company recorded a non-cash charge of  approximately  $600 in order
to write off an intangible.


                                       47
<PAGE>


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.



                                       48
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information  regarding the Company's  Directors is  incorporated by reference to
the  information  contained  under the  caption  "Proposal  No. 1 -- Election of
Directors" in the Company's 1997 Proxy Statement (the "Proxy Statement"),  which
is to be filed with the  Securities  and Exchange  Commission in December  1997.
Information regarding the Company's Executive Officers is set forth in Part I of
this Form 10-K pursuant to Instruction G of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated by reference to the
information  contained  under  the  caption  "Executive   Compensation"  in  the
Company's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

Information  regarding stock ownership of each person known to the Company to be
the  beneficial  owner  of  more  than 5% of its  outstanding  Common  Stock  is
incorporated  by  reference  to the  information  contained  under  the  caption
"Security Ownership" in the Company's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information   regarding  certain   relationships  and  related  transactions  is
incorporated  by  reference  to the  information  contained  under  the  caption
"Certain   Relationships  and  Related  Transactions"  in  the  Company's  Proxy
Statement.

With the exception of the  information  specifically  incorporated by reference,
the Company's  Proxy  Statement is not to be deemed filed as part of this report
for purposes of this Part III.


                                       49
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 28.

          (2)  A list of financial  statement  schedules required to be filed as
               part of this report appears on page 28.

          (3)  The following exhibits are filed as part of this report:


EXHIBIT
NUMBER    DESCRIPTION OF EXHIBIT
------    ----------------------

3.1       Amended  and  Restated  Certificate  of  Incorporation  of the Company
          (incorporated  by  reference  to Exhibit 3.1 to the  Company's  Annual
          Report on Form 10-K for the fiscal year ended September 30, 1995).
3.2       Amended and Restated By-Laws of the Company (incorporated by reference
          to Exhibit  3.2 to the  Company's  Annual  Report on Form 10-K for the
          fiscal year ended September 30, 1995).
3.3       Amended and Restated By-Laws of the Company (incorporated by reference
          to Exhibit  3.2 to the  Company's  Annual  Report on Form 10-K for the
          fiscal year ended September 30, 1995).
4.1       Form  of  Specimen  Stock  Certificate  representing  Class  B  Shares
          (incorporated  by reference  to Exhibit 4.1 to Amendment  No. 3 to the
          Company's   Registration  Statement  on  Form  S-1  (Registration  No.
          33-94620) (the "S-1 Registration Statement")).
9.1       Form of Charles H.  Beach  Voting  Trust  Agreement  (incorporated  by
          reference  to Exhibit 9.1 to Amendment  No. 1 to the S-1  Registration
          Statement).
9.2       Michael Gerrits Voting Trust Agreement  (incorporated  by reference to
          Exhibit 9.2 to Amendment No. 1 to the S-1 Registration Statement).
9.3       Form of Amendment  No. 1 to Michael  Gerrits  Voting  Trust  Agreement
          (incorporated  by reference  to Exhibit 9.3 to Amendment  No. 1 to the
          S-1 Registration Statement).
9.4       Charles Krauser Voting Trust Agreement  (incorporated  by reference to
          Exhibit 9.4 to Amendment No. 1 to the S-1 Registration Statement).
9.5       Form of Amendment  No. 1 to Charles  Krauser  Voting  Trust  Agreement
          (incorporated  by reference  to Exhibit 9.5 to Amendment  No. 1 to the
          S-1 Registration Statement).
10.1      Franchise Commitment Letter (incorporated by reference to Exhibit 10.1
          to the S-1 Registration Statement).
10.2      Letter  Agreement  between the Company and PepsiCo  extending  term of
          Exclusive Bottling Appointments  (incorporated by reference to Exhibit
          10.2 to the S-1 Registration Statement).
10.3      Form of Exclusive Bottling  Appointment  (incorporated by reference to
          Exhibit 10.3 to the S-1 Registration Statement).
10.4      Material Differences in Exclusive Bottling Appointments  (incorporated
          by reference to Exhibit 10.4 to the S-1 Registration Statement).
10.5      Concentrate Price Agreement (incorporated by reference to Exhibit 10.5
          to the S-1 Registration Statement).
10.6      Amended  and   Restated   General   Partnership   Agreement   for  BSA
          (incorporated  by reference to Exhibit 10.6 to Amendment  No. 1 to the
          S-1 Registration Statement).
10.7      Shareholders  Agreement  (incorporated by reference to Exhibit 10.7 to
          Amendment No. 1 to the S-1 Registration Statement).
10.8      Amendment No. 1 to Shareholders  Agreement  (incorporated by reference
          to Exhibit 10.8 to Amendment No. 1 to the S-1 Registration Statement).
10.9      Amendment No. 2 to Shareholders  Agreement  (incorporated by reference
          to Exhibit 10.9 to Amendment No. 1 to the S-1 Registration Statement).


                                       50
<PAGE>


10.10     Amendment No. 3 to Shareholders  Agreement  (incorporated by reference
          to Exhibit 10.10 to the  Company's  Annual Report on Form 10-K for the
          fiscal year ended September 30, 1995).
10.11     Stock Option  Agreement  dated as of  September  28, 1996 among Rafael
          Nin,  Pepsi-Cola  Puerto Rico  Bottling  Company and the  Shareholders
          (incorporated  by reference to Exhibit 1 to the Schedule 13D of Rafael
          Nin dated October 9, 1996).
10.12     Voting  Trust  Agreement  dated  September  28, 1996 among Rafael Nin,
          Pepsi-Cola  Puerto Bottling Company and the Grantors  (incorporated by
          reference to Exhibit 2 to the Schedule 13D of Rafael Nin dated October
          9, 1996).  
10.13     Consent of PepsiCo.,  Inc. to the terms of the Voting Trust  Agreement
          referred to under Exhibit No. 10.12 above.  (Incorporated by reference
          to Exhibit 3.2 to the Company's  quarterly report on Form 10-Q for the
          quarterly period ended December 31, 1996).
10.14     Stock Option Agreement dated as of October 15, 1996 between Rafael Nin
          and Pepsi-Cola Puerto Rico Bottling Company (incorporated by reference
          to Exhibit 1 to the  Amendment No. 1 to the Schedule 13D of Rafael Nin
          dated January 7, 1997).
10.15     Pepsi-Cola  Puerto Rico Bottling  Company  Qualified Stock Option Plan
          dated as of December 30, 1996  (incorporated by reference to Exhibit 2
          to the Amendment No. 1 to the Schedule 13D of Rafael Nin dated January
          7, 1997).  
10.16     Pepsi-Cola  Puerto Rico Bottling  Company  Non-Qualified  Stock Option
          Plan dated as of 10.16 December 30, 1996 (incorporated by reference to
          the Company's Proxy Statement dated January 31, 1997).
10.17     Amendment  No.  4  to  the  Shareholders  Agreement  (incorporated  by
          reference to the Exhibit 10.13 to the Company's  Annual Report on Form
          10K/A-1 for the fiscal year ended September 30, 1996).
10.18     Second Restated Credit  Agreement dated April 8, 1997 among Pepsi-Cola
          Puerto Rico Bottling  Company,  Pepsi-Cola  Puerto Rico  Manufacturing
          Company,  Pepsi-Cola Puerto  Distributing  Company,  Beverage Plastics
          Company and Banco Popular de Puerto Rico (incorporated by reference to
          Exhibit 10.18 to the Company's  quarterly  report on Form 10-Q for the
          quarterly period ended June 30, 1997).
10.19     Master Lease Agreement  dated April 18, 1997 between General  Electric
          Capital Corporation of Puerto Rico and Pepsi-Cola Puerto Rico Bottling
          Company  (incorporated  by reference to Exhibit 10.19 to the Company's
          quarterly  report on Form 10-Q for the quarterly period ended June 30,
          1997).
10.20     Amendment No. 5 to Class A  Shareholders  Agreement  (incorporated  by
          reference to Exhibit 10.20 to the Company's  quarterly  report on Form
          10-Q for the quarterly period ended June 30, 1997).
10.21     Trust Agreement dated as of May 14, 1997 among certain shareholders of
          the Company and Rafael Nin, as Trustee  (incorporated  by reference to
          Exhibit 1 to  Amendment  No. 3 to the Schedule 13D of Rafael Nin dated
          August 13, 1997).
10.22     Stock  Option  Agreement  dated  as of  May  14,  1997  among  certain
          grantors, a special committee of the Company's Board of Directors, the
          Company and Rafael Nin  (incorporated by reference to Exhibit No. 2 to
          Amendment  No. 3 to the  Schedule  13D of Rafael Nin dated  August 13,
          1997).
21.1      List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
          S-1 Registration Statement).

     (b)  No reports on Form 8-K were filed during the quarter  ended  September
          30, 1997.

     (c)  The  exhibits  listed  under  Item  14(a)(3)  are  filed  herewith  or
          incorporated herein by reference.

     (d)  The  Consolidated  Financial  Statements  and the financial  statement
          schedules listed under Item 14(a)(2) are filed herewith.


                                       51
<PAGE>


                     PEPSI-COLA PUERTO RICO BOTTLING COMPANY
                                AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        Additions
                                                                         ------------------------------------------
                                                           Balance at    Charged to
                                                          beginning of    costs and     Charged to                    Balance at end
                    Description                              period       expenses    other accounts   Deductions(1)    of period
                    -----------                           ------------   ----------   --------------   -------------  --------------
<S>                                                           <C>            <C>           <C>             <C>          <C>    
Fiscal Year Ended September 30, 1997:
         Allowance for doubtful accounts ..............       1,158          355                           (124)        $ 1,389
Fiscal Year Ended September 30, 1996:
         Allowance for doubtful accounts ..............       1,458          511           --              (811)        $ 1,158
Fiscal Year Ended September 30, 1995
         Allowance for doubtful accounts ..............       1,220          386           --              (148)        $ 1,458
</TABLE>

----------
(1)  Uncollectible receivables.


                                       52
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        PEPSI-COLA PUERTO RICO BOTTLING COMPANY


                                         By: /s/ Rafael Nin
                                             -------------------------------
                                             Name:  Rafael Nin
                                             Title:  Chief Executive Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant in the capacities and on the dates indicated.


    Signatures                    Title                          Date
    ----------                    -----                          ----
                                       
                                       
/s/ Rafael Nin                Director and Chief Executive    December 23, 1997
------------------------      Officer
Rafael Nin                    
                             
                             
/s/ John William Beck         Director                        December 23, 1997
------------------------     
John William Beck            
                             
                             
/s/ Charles R. Krauser        Director                        December 23, 1997
------------------------     
Charles R. Krauser           
                             
                             
/s/ Anton Schedlbauer         Director                        December 23, 1997
------------------------     
Anton Schedlbauer            
                             
                             
/s/ C. Leon Timothy           Director                        December 23, 1997
------------------------     
C. Leon Timothy              
                             
                             
/s/ Richard Reiss Huyke       Director                        December 23, 1997
------------------------     
Richard Reiss Huyke          
                             
                             
/s/ Sutton Keany              Director                        December 23, 1997
------------------------     
Sutton Keany                 
                             
                             
/s/ David L. Virginia         Vice President and              December 23, 1997
------------------------      Chief Financial Officer
David L. Virginia             
                             
                             
/s/ Wanda Rivera Ortiz        Chief Accounting Officer        December 23, 1997
------------------------    
Wanda Rivera Ortiz          
                            

                                       53