SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of December, 1999
PANAMERICAN BEVERAGES, INC.
(Translation of registrant's name into English)
Blvd. Manuel Avila Camacho No. 40, 22nd floor,
Col. Lomas de Chapultepec,
Del. Miguel Hidalgo 11000,
Mexico, D.F., Mexico
(Address of principal executive offices)
(Indicate by check mark whether the
registrant files or will file annual
reports under cover of Form 20-F
or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing
the information contained in this form is also thereby
furnishing the information to the Commission pursuant to
Rule 12g3-2 (b) under the Securities Exchange Act of 1934. )
Yes No X
--- ---
<PAGE>
Table of Contents
Page
Condensed Consolidated Balance Sheets (unaudited) as of
December 31, 1998 and June 30, 1999.......................... 3
Condensed Consolidated Statements of Income (unaudited) for
the three-month and six-month periods ended June 30, 1998
and 1999..................................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six-month periods ended June 30, 1998 and 1999....... 5
Notes to Condensed Consolidated Financial Statements (unaudited)...... 6
PANAMCO MEXICO--Selected Income Statement Data (unaudited) for
the three-month and six-month periods ended June 30,
1998 and 1999................................................ 11
PANAMCO BRASIL--Selected Income Statement Data (unaudited) for
the three-month and six-month periods ended June 30,
1998 and 1999................................................ 12
PANAMCO COLOMBIA--Selected Income Statement Data (unaudited)
for the three-month and six-month periods ended June 30,
1998 and 1999................................................ 13
PANAMCO VENEZUELA--Selected Income Statement Data (unaudited)
for the three-month and six-month periods ended
June 30, 1998 and 1999....................................... 14
PANAMCO CENTRAL AMERICA--Selected Income Statement Data
(unaudited) for the three-month and six-month periods
ended June 30, 1998 and 1999................................. 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 16
Signatures............................................................ 30
-2-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
( Stated in thousands of U.S. dollars )
December 31, June 30,
1998 1999
------------ ----------
ASSETS
Current assets:
Cash and equivalents $ 131,152 $ 239,940
Accounts receivable, net 175,008 118,554
Inventories, net 149,387 129,937
Other 30,231 23,683
---------- ----------
Total current assets 485,778 512,114
Investment 43,990 182,926
Property, plant, and equipment, net 1,307,590 1,245,574
Bottles and cases, net 337,609 318,212
Goodwill, net 1,347,446 1,307,426
Other assets, net 125,277 115,063
---------- ----------
$3,647,690 $3,681,315
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Bank loans $ 302,063 $ 163,220
Current portion of long-term debt 55,332 52,785
Accounts payable 207,217 141,630
Other current liabilities 114,076 107,860
---------- ----------
Total current liabilities 678,688 465,495
Long-term liabilities:
Long-term debt 771,267 1,172,712
Other long-term liabilities 193,258 178,169
---------- ----------
Total long-term liabilities 964,525 1,350,881
Minority interest in consolidated
subsidiaries $ 26,243 $ 29,076
Shareholders' equity:
Capital 1,481 1,481
Capital in excess of par value 1,583,758 1,584,623
Retained earnings 677,229 621,135
Accumulated other comprehensive income (234,290) (321,587)
---------- ----------
2,028,178 1,885,652
Less--shares held in treasury, at cost 49,944 49,789
---------- ----------
Total shareholders' equity 1,978,234 1,835,863
---------- ----------
$3,647,690 $3,681,315
========== ==========
The accompanying notes are an integral part of these condensed
consolidated unaudited statements.
-3-
<PAGE>
<TABLE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Stated in thousands of U.S. dollars, except per share amounts)
<CAPTION>
For the three months For the six months
ended ended
June 30, June 30,
------------------------- ------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 691,826 $ 612,372 $1,400,645 $1,175,354
Cost of sales, excluding depreciation and
amortization 351,596 299,680 719,618 585,672
---------- ---------- ---------- ----------
Gross profit 340,230 312,692 681,027 589,682
Operating expenses:
Selling, general and administrative 211,998 209,302 428,507 409,891
Depreciation and amortization, excluding
goodwill 51,764 53,936 102,552 107,655
Amortization of goodwill 8,847 9,168 17,436 18,177
---------- ---------- ---------- ----------
272,609 272,406 548,495 535,723
---------- ---------- ---------- ----------
Operating income 67,621 40,286 132,532 53,959
Interest (expense), net (19,531) (23,661) (37,204) (46,816)
Other income (expense), net 8,121 (2,496) 18,379 (27,079)
---------- ---------- ---------- ----------
Income (loss) before income taxes 56,211 14,129 113,707 (19,936)
Income taxes 16,700 13,730 30,974 19,179
---------- ---------- ---------- ----------
Income (loss) before minority interest 39,511 399 82,733 (39,115)
Minority interest in earnings of subsidiaries 840 860 2,716 1,428
---------- ---------- ---------- ----------
Net income (loss) $ 38,671 $ (461) $ 80,017 $ (40,543)
========== ========== ========== ==========
Cash operating profit $ 128,232 $ 103,390 $ 252,520 $ 179,791
========== ========== ========== ==========
Basic earnings per share $ 0.30 $ (0.00) $ 0.62 $ (0.31)
========== ========== ========== ==========
Basic weighted average shares
outstanding, in thousands 129,524 129,700 129,503 129,676
========== ========== ========== ==========
Diluted earnings per share $ 0.30 $ (0.00) $ 0.61 $ (0.31)
========== ========== ========== ==========
Diluted weighted average shares
outstanding, in thousands 130,787 130,320 130,745 130,044
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated unaudited statements.
-4-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Stated in thousands of U.S. dollars)
For the six months
ended June 30,
----------------------
1998 1999
--------- ---------
Net cash provided by operating activities $ 137,206 $ 126,858
Cash flows from investing activities:
Additions to property, plant and equipment (145,503) (110,792)
Purchases of investments (39,546) (152,212)
Proceeds from sale of investment -- 468
Proceeds from sale of property, plant
and equipment 3,184 14,808
Acquisition of minority interest (28,310) --
Purchases of bottles and cases, net (65,751) (30,429)
Other (3,317) (1,492)
--------- ---------
Net cash used in investing activities (279,243) (279,649)
Cash flows from financing activities:
Payment of bank loans (282,904) (256,365)
Proceeds from bank loans and other
long-term borrowings 238,732 544,221
Payment of dividends to minority interest (496) (641)
Payment of dividends to shareholders (15,549) (15,551)
Issuance of capital stock 1,612 1,018
Acquisition of capital stock (1) --
Other (9,271) 125
--------- ---------
Net cash (used in) provided by
financing activities (67,877) 272,807
Effect of exchange rate changes on cash 6,998 (11,228)
--------- ---------
Net (decrease) increase in cash and equivalents (202,916) 108,788
Cash and equivalents at beginning of period 332,995 131,152
--------- ---------
Cash and equivalents at end of period $ 130,079 $ 239,940
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for -
Interest $ 36,920 $ 51,671
========= =========
Income taxes $ 58,617 $ 16,519
========= =========
The accompanying notes are an integral part of these condensed
consolidated unaudited statements.
-5-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. dollars)
(1) Basis of presentation
The condensed consolidated financial statements as of June 30,
1998 and 1999 included herein have been prepared by Panamerican Beverages,
Inc. (the "Company") without audit, in accordance with the rules and
regulations of the Securities and Exchange Commission (the "SEC"). In the
opinion of management, these unaudited consolidated financial statements
contain all adjustments, which are of a normal recurring nature, necessary
to present fairly the Company's financial position as of June 30, 1999, and
the results of operations for the three-month and six-month periods ended
June 30, 1998 and 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the SEC.
These unaudited financial statements should be read in
conjunction with the audited financial statements and the notes thereto
included in the Company's Annual Report on Form 20-F filed with the SEC on
June 25, 1999. The Company has made no significant changes in accounting
policies from those reflected in the financial statements included in the
Annual Report on Form 20-F.
Panamco acquired its Guatemalan operations on March 25, 1998 and
began overseeing day-to-day management immediately and began consolidating
the results of such operations as of April 1, 1998 under the purchase
accounting method.
On September 17, 1998, Panamco acquired Refrigerante do Oeste,
S.A. (R.O.S.A.) and began overseeing day-to-day management immediately and
began consolidating the results of such operations as of September 1998,
under the purchase accounting method.
The financial statements of the Company's Mexican subsidiaries
for 1998 and its Colombian and Venezuelan subsidiaries for all periods
presented have been remeasured into U.S. dollars, the reporting and
functional currency, in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation" (SFAS 52), as it applies
to highly inflationary economies. Beginning 1999, the functional currency
of the Mexican subsidiaries was changed from the U.S. dollar to the Mexican
peso. Beginning 1998, the functional currency of the Brazilian subsidiaries
was changed from the U.S. dollar to the Brazilian real. The functional
currency of each of the Brazilian, Costa Rican, Nicaraguan and Guatemalan
subsidiaries for the 1998 and 1999 periods is the Brazilian real, Costa
Rican colon, the Nicaraguan cordova and Guatemalan quetzal, respectively.
For the 1999 period, the functional currency of the Mexican subsidiaries is
the Mexican peso. The financial statements of the Brazilian, Costa Rican,
Nicaraguan and Guatemalan subsidiaries for the 1998 and 1999 periods and
the Mexican subsidiaries for the 1999 period, have been translated using
the current rate translation method and the resulting translation
adjustments are included in the accumulated other comprehensive income
which is as a component of shareholders' equity. Foreign currency
translation gains (losses) on monetary assets and liabilities for the
Colombian, Venezuelan and
-6-
<PAGE>
Mexican (for 1998) subsidiaries have been included in the income statement
accounts to which such items relate as shown below (all amounts, except per
share amounts, are in thousands of U.S. dollars):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1999 1998 1999
------- ------- ------- -------
Net sales $ (693) $ 104 $ (652) $ (428)
Cost of sales and
operating expenses (97) (395) 3,674 2,155
Interest and other income
(expenses) (150) (1,863) 740 (1,423)
Provision for income taxes (20) 776 216 1,202
------- ------- ------- -------
Net translation gain $ (960) $(1,378) $ 3,978 $ 1,506
======= ======= ======= =======
(2) Inventories, net
December 31, June 30,
1998 1999
------------ ---------
Bottled beverages and coolers $ 47,309 $ 35,120
Raw materials 51,703 49,755
Spare parts and supplies 51,861 46,600
-------- --------
150,873 131,475
Less--Allowance for obsolete and
slow-moving items 1,486 1,538
-------- --------
$149,387 $129,937
======== ========
(3) Property, plant, equipment, bottles and cases, net
December 31, June 30,
1998 1999
------------ ----------
Property, plant and equipment $2,124,694 $2,059,019
Less--Accumulated depreciation 817,104 813,445
---------- ----------
1,307,590 1,245,574
Bottles and cases, net 337,609 318,212
---------- ----------
$1,645,199 $1,563,786
========== ==========
-7-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. dollars)
(4) Transactions with Related Parties
For the period of three-month and six-month periods ended June
30, 1999, the Company carried out transactions with related parties. A
summary of transactions and balances as of and for the periods of
three-month and six-month ended June 30, 1998 and 1999 with related parties
is as follows:
December 31, June 30,
1998 1999
----------- ----------
Accounts payable:
Subsidiaries of Coca-Cola $ 37,920 $ 44,161
Cervejarias Kaiser 2,464 320
Productos de Vidrio, S.A. 9,847 2,513
Central Azucarero Portuguesa, C.A. 1,628 547
Tapon Corona de Colombia, J.A. 1,936 --
Comptec, J.A. 92 --
--------- ---------
$ 53,887 $ 47,541
========= =========
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income:
Marketing expense support $ 27,817 $ 13,515 $ 38,622 $ 23,043
Capital expenditure grants 8,664 1,035 15,377 3,556
Other -- 472 465 1,296
-------- -------- -------- --------
$ 36,481 $ 15,022 $ 54,464 $ 27,895
======== ======== ======== ========
Expenses:
Purchase of concentrate $ 74,638 $ 78,777 $156,995 $143,890
Purchase of beer 41,396 16,228 92,335 39,490
Purchase of other inventory 9,050 8,213 19,789 14,783
-------- -------- -------- --------
$125,084 $103,218 $269,119 $198,163
======== ======== ======== ========
-8-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. dollars)
(5) Acquisitions and other transactions
Pursuant to an agreement dated as of March 25, 1998, the Company
acquired all the capital stock of Embotelladora Central, S.A. ("Panamco
Guatemala"), which produces, sells and distributes Coca-Cola products in
Guatemala City and surrounding areas. The purchase price for the
acquisition was approximately $38.8 million in cash. In addition, the
Company assumed approximately $23.5 million of debt owned by Panamco
Guatemala.
During 1998, Panamco Guatemala had net sales of $51.4 million on
soft drink sales of 13.6 million unit cases and bottled water sales of 0.6
million-unit cases.
Total audited tangible assets and liabilities of Panamco
Guatemala included in the Company's financial statements at the date of
acquisition recorded under the purchase accounting method, which includes
the consideration of the final amount of goodwill determined of $45.3
million were as follows:
Inventories $ 2,731
Property, plant and equipment, net 20,947
Bottles and cases, net 4,015
Other assets 4,855
Total liabilities (38,479)
--------
$ (5,931)
In September 1998, Panamco acquired Brazilian bottler
Refrigerante do Oeste, S.A. (R.O.S.A.) for $47.9 million in cash. As part
of this transaction, Panamco also acquired R.O.S.A.'s plastic bottle
business, Supripack Industria de Embalages, S.A. (Supripack), for $10.0
million in cash, bringing the total acquisition price to $57.9 million, for
which the Company entered into a $70.0 million financing agreement with
BankBoston, ING Baring and Bank of America. This loan has a rate of LIBOR
plus 1.25% per annum. Panamco began consolidating R.O.S.A.'s results as of
September 1, 1998, and has registered goodwill of $36.0 million in
connection with this acquisition.
On December 22, 1998, the Company entered into an agreement with
The Coca-Cola Financial Corporation (U.S.), as arranger and administrative
agent, to obtain a three-year loan in the amount of $200 million with
quarterly interest payments. The proceeds were used to repay a short-term
bank loan of the Company, the $70.0 loan mentioned above and $125 million
short-term bank loans of the Venezuelan subsidiaries.
On March 18, 1999, the Company entered into an agreement with ING
Baring US Capital, LLC as arranger and administrative agent, for a
three-year loan in the amount of $300 million with quarterly interests
payments. The proceeds were used to repay short-term bank loans of the
Company.
-9-
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. dollars)
(6) Comprehensive income
Beginning 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This standard requires the display of the
comprehensive income and its components in the financial statements. In the
Company's case, comprehensive income includes net income and foreign
currency translation. The comprehensive income for the three-month and
six-month periods ended June 30, 1998 and 1999 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- ---------
Net income (loss) $ 38,671 $ (461) $ 80,017 $ (40,543)
Other comprehensive income (loss):
Initial effect on deferred taxes
relating to the change in the
functional currency in the
Brazilian and Mexican
subsidiaries. -- -- (7,660) (14,928)
Foreign currency translation (18,604) 2,725 (23,576) (72,369)
-------- -------- -------- ---------
$ 20,067 $ 2,264 $(48,781 $(127,840)
======== ======== ======== =========
Income statement and balance sheet data for Panamco Mexico,
Panamco Brasil, Panamco Colombia, Panamco Venezuela, and Panamco Central
America (Costa Rica, Nicaragua and Guatemala) are presented on the
following pages. The data presented as of and for each period have been
derived from the unaudited financial statements of Panamco Mexico, Panamco
Brasil, Panamco Colombia, Panamco Venezuela, and Panamco Central America,
respectively, which financial statements are not included herein.
-10-
<PAGE>
Panamco Mexico
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income statement data:
Net sales $176,676 $211,246 $317,274 $374,255
Cost of sales, excluding
depreciation and amortization 83,092 99,199 152,733 179,802
-------- -------- -------- -------
Gross profit 93,584 112,047 164,541 194,453
Operating expenses:
Selling, general and
administrative 56,870 64,158 105,101 118,693
Depreciation and amortization,
excluding goodwill 8,060 10,027 15,424 17,636
Amortization of goodwill 712 740 1,423 1,443
-------- -------- -------- --------
65,642 74,925 121,948 137,772
-------- -------- -------- --------
Operating income 27,942 37,122 42,593 56,681
Interest (expense) - net (2,079) (2,459) (4,593) (5,026)
Other income - net 3,795 1,260 8,034 5,230
-------- -------- -------- --------
Income before income taxes 29,658 35,923 46,034 56,885
Income taxes 9,969 11,724 15,755 18,566
-------- -------- -------- --------
Income before minority interes 19,689 24,199 30,279 38,319
Minority interest in Panamco
Mexico subsidiaries 548 914 1,143 1,447
-------- -------- -------- --------
Net income attributable to
Panamco Mexico 19,141 23,285 29,136 36,872
Minority interest in Panamco
Mexico 363 433 541 685
-------- -------- -------- --------
Net income attributable to
Panamco $ 18,778 $ 22,852 $ 28,595 $ 36,187
======== ======== ======== ========
Cash operating profit $ 36,714 $ 47,889 $ 59,440 $ 75,760
======== ======== ======== ========
Unit case sales data (in millions):
Soft drinks 67.6 71.4 125.3 133.1
Water 32.4 39.1 54.4 69.3
Other products 0.4 0.6 0.7 1.1
-11-
<PAGE>
Panamco Brasil
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income statement data:
Net sales $200,741 $118,034 $459,043 $251,317
Cost of sales, excluding
depreciation and amortization 121,679 73,474 278,733 156,136
-------- -------- -------- --------
Gross profit 79,062 44,560 180,310 95,181
Operating expenses:
Selling, general and
administrative 60,716 38,751 127,047 77,614
Depreciation and amortization,
excluding goodwill 11,139 7,639 24,060 16,849
Amortization of goodwill 307 574 628 1,025
-------- -------- -------- --------
72,162 46,964 151,735 95,488
-------- -------- -------- --------
Operating income 6,900 (2,404) 28,575 (307)
Interest (expense) - net (4,625) (2,411) (9,621) (6,923)
Other income (expense) - net 940 (1,381) 2,285 (31,061)
-------- --------- -------- --------
Income (loss) before income
taxes 3,215 (6,196) 21,239 (38,291)
Income taxes (2,573) (3,296) (1,255) (10,563)
-------- -------- -------- ---------
Income (loss) before minority
interest 5,788 (2,900) 22,494 (27,728)
Minority interest in Panamco
Brasil 78 (46) 700 (394)
-------- -------- -------- --------
Net income (loss) attributable
to Panamco $ 5,710 $ (2,854) $ 21,794 $(27,334)
======== ======== ======== ========
Cash operating profit $ 18,346 $ 5,809 $ 53,263 $ 17,567
======== ======== ======== ==========
Unit case sales data
(in millions):
Soft drinks 49.0 54.9 108.3 106.8
Water 2.2 2.4 5.2 6.4
Beer 11.7 11.8 27.3 27.4
-12-
<PAGE>
Panamco Colombia
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income statement data:
Net sales $119,990 $ 99,510 $250,553 $205,509
Cost of sales, excluding
depreciation and amortization 55,228 44,339 112,324 90,606
-------- -------- -------- --------
Gross profit 64,762 55,171 138,229 114,903
Operating expenses:
Selling, general and
administrative 36,013 37,926 79,542 77,696
Depreciation and amortization 13,582 14,525 26,915 29,133
-------- -------- -------- --------
49,595 52,45 106,457 106,829
-------- -------- -------- --------
Operating income 15,167 2,720 31,772 8,074
Interest (expense) - net (1,110) (1,370) (1,532) (2,866)
Other income - net 658 123 2,620 1,568
-------- -------- -------- --------
Income before income taxes 14,715 1,473 32,860 6,776
Income taxes 2,847 157 4,891 1,298
-------- -------- -------- --------
Income before minority interest 11,868 1,316 27,969 5,478
Minority interest in Panamco
Colombia subsidiaries (6) 25 33 41
-------- -------- -------- --------
Net income attributable to
Panamco Colombia 11,874 1,291 27,936 5,437
Minority interest in Panamco
Colombia 328 35 770 150
-------- -------- -------- --------
Net income attributable to
Panamco $ 11,546 $ 1,256 $ 27,166 $ 5,287
======== ======== ======== ========
Cash operating profit $ 28,749 $ 17,245 $ 58,687 $ 37,207
======== ======== ======== ========
Unit case sales data (in millions):
Soft drinks 47.0 37.5 98.0 75.3
Water 10.5 10.1 23.6 19.8
-13-
<PAGE>
Panamco Venezuela
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income statement data:
Net sales $141,166 $130,644 $283,033 $237,923
Cost of sales, excluding
depreciation and amortization 67,156 58,112 133,927 109,826
-------- -------- -------- --------
Gross profit 74,010 72,532 149,106 128,097
Operating expenses:
Selling, general and
administrative 42,323 48,870 89,140 97,623
Depreciation and amortization 16,035 17,757 31,000 36,021
-------- -------- -------- --------
58,358 66,627 120,140 133,644
-------- -------- -------- --------
Operating income (loss) 15,652 5,905 28,966 (5,547)
Interest income
(expense) - net (2,357) (4,727) (4,488) (8,027)
Other income - net 2,615 569 5,396 1,877
-------- -------- -------- --------
Income (loss) before income
taxes 15,910 1,747 29,874 (11,697)
Income taxes 3,498 2,124 4,922 3,369
-------- -------- -------- --------
Net income (loss) attributable
to Panamco $ 12,412 $ (377) $ 24,952 $(15,066)
======== ======== ======== ========
Cash operating profit $ 31,687 $ 23,662 $ 59,966 $ 30,474
======== ======== ======== ========
Unit case sales data
(in millions):
Soft drinks 51.0 35.8 101.2 74.1
Water 3.1 4.4 5.1 8.6
Beer -- 0.1 -- 0.1
Other products 1.6 1.8 3.1 2.9
-14-
<PAGE>
Panamco Central America
(Costa Rica, Nicaragua and Guatemala)
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
Income statement data:
Net sales $ 53,254 $ 52,938 $ 90,742 $106,350
Cost of sales, excluding
depreciation and amortization 24,442 24,556 41,901 49,302
-------- -------- -------- --------
Gross profit 28,812 28,382 48,841 57,048
Operating expenses:
Selling, general and
administrative 17,981 17,001 29,062 34,135
Depreciation and amortization,
excluding goodwill 3,238 4,500 5,734 8,926
Amortization of goodwill 73 66 148 133
-------- -------- -------- --------
21,292 21,567 34,944 43,194
-------- -------- -------- --------
Operating income 7,520 6,815 13,897 13,854
Interest (expense) - net (1,056) (417) (1,253) (1,009)
Other income (expense) - net 113 (1,512) 44 (2,458)
-------- -------- -------- --------
Income before income taxes 6,577 4,886 12,688 10,387
Income taxes 1,923 1,405 3,781 3,096
-------- -------- -------- --------
Net income attributable to
Panamco $ 4,654 $ 3,481 $ 8,907 $ 7,291
======== ======== ======== ========
Cash operating profit $ 10,831 $ 11,381 $ 19,779 $ 22,913
======== ======== ======== ========
Unit case sales data (in millions):
Soft drinks 17.3 17.4 29.7 34.4
Water 0.5 0.9 0.9 1.8
Other products 0.2 0.1 0.3 0.3
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion addresses the financial condition and
results of operations of Panamerican Beverages, Inc. and its consolidated
subsidiaries (Panamco or the Company). This discussion should be read in
conjunction with Panamco's unaudited consolidated financial statements as
of June 30, 1999 and for the three-month and six-month periods ended June
30, 1998 and 1999 and the notes thereto which are included herein. Results
for any interim period are not necessarily indicative of results for any
year.
The Company conducts its operations through tiers of subsidiaries
in which, in some cases, minority shareholders hold interests. Over the
years, the Company invited minority shareholder participation in various
subsidiaries to raise capital, facilitate entry into new markets and
develop strategic local relationships. As a result of the net loss at
certain of our subsidiaries for the period ended June 30, 1999, for the
second quarter of 1999, minority shareholdings in the consolidated
subsidiaries of the Company represented an interest in the aggregate of
approximately 200% of consolidated income (loss) before minority interest.
Because the Company has varying percentage ownership interests in its
approximately 100 consolidated subsidiaries, the amount of the minority
interest in income or loss before minority interest during a period depends
upon the revenues and expenses of each of the Company's consolidated
subsidiaries and the percentage of each of such subsidiary's capital stock
owned by minority shareholders during such period.
In September 1998, the Company acquired all the capital stock of
R.O.S.A., which produces, sells and distributes Coca-Cola products in the
western part of Brazil in the state of Matto Grosso do Sul. The Company
began consolidating the results of R.O.S.A. as of September 1, 1998.
Unit case means 192 ounces of finished beverage product (24
eight-ounce servings). Average sales prices per unit case means net sales
in U.S. dollars for the period divided by the number of unit cases sold
during the same period. Cash operating profits means operating profit plus
depreciation and amortization.
Forward-looking statements, contained in this document include,
but are not limited to year 2000 issues, the amount of future capital
expenditures and the possible uses of proceeds from any future borrowings.
The words believes, intends, expects, anticipates, projects, estimates,
predicts and similar expressions are also intended to identify
forward-looking statements. Such statements, estimates, and projections
reflect various assumptions by the Company concerning anticipated results
and are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of
the Company. Factors that could cause results to differ include, but are
not limited to, changes in the soft drink business environment, including
actions of competitors and changes in consumer performance, changes in
governmental laws and regulations, including income taxes, market demand
for new and existing products and raw material prices. Accordingly, the
Company cannot assure you that such
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statements, estimates and projections will be realized. The forecasts and
actual results will likely vary and those variations may be material. The
Company makes no representation or warranty as to the accuracy or
completeness of such statements; estimates or projections contained in this
document or that any forecast contained herein will be achieved.
The Company is aware of the issues associated with programming
codes in existing computer systems as the millennium (year 2000)
approaches. The Company utilized both internal and external resources to
identify, correct or reprogram, and test systems for year-2000 compliance.
All programming efforts were completed by June 30, 1999. Management has
estimated the year-2000 compliance expenses and its potential effect on the
Company's earnings to be approximately $3.0 million. The Company has
completed the inventory, planning stages, execution, testing phases and has
completed a contingency plan.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30,
1998
Consolidated Results of Operations
Consolidated net sales for the second quarter ended June 30,
1999, decreased 11.5% to $612.4 million from $691.8 million in the 1998
second quarter, mainly due to the effect of continued weakness in the
Venezuelan and Brazilian economies. Total consolidated unit case sales
volume in the 1999 second quarter fell 2.1% to 288.3 million, from 294.3
million in the 1998 second quarter, and on a comparable basis (excluding
the new R.O.S.A. franchises) decreased 3.7%. Consolidated soft drink sales
volume for the period was down 6.3%, reflecting declines of 20.3% in
Colombia, and 29.8% in Venezuela, offset by increases of 12.9% in Brazil,
5.8% in Mexico and flat volumes in the Central American Region.
Consolidated soft drink sales volume includes promotional products sold in
Brazil for which Panamco charged lower prices. Consolidated unit case sales
volume of bottled water increased 16.6% to 57.0 million, and unit case
sales volume of beer, sold only in Brazil and, as of February 1999, in
Venezuela, increased slightly to 11.9 million.
Cost of sales as a percentage of net sales decreased to 48.9%
during the 1999 second quarter from 50.8% in the 1998 second quarter,
primarily driven by cost savings in raw materials and packaging in most
countries where the Company operates.
Operating expenses as a percentage of net sales increased to
44.5% during the 1999 second quarter from 39.4% during the 1998 quarter.
Depreciation and amortization expenses, increased 4.1% to $63.1 million, as
a result of: (a) higher depreciation and amortization charges related to
Panamco's ongoing capital expenditure program, including the placement of
cold product equipment in all channels, the expansion of distribution
infrastructure, plant modernization and the introduction of new bottles and
cases into the market; and (b) goodwill charges generated by the
acquisition of the R.O.S.A. franchises, and of minority interests in Brazil
during the second quarter of 1998.
During the 1999 second quarter, Panamco recorded an extraordinary
charge totaling $3.1 million for the closing of one plant in Venezuela, and
layoffs of
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approximately 560 people in Venezuela. The $3.1 million was recorded as
part of second quarter costs and operating expenses.
Operating income decreased 40.4% to $40.3 million or 6.6% of net
sales during second quarter 1999 compared to $67.6 million or 9.8% of net
sales in 1998.
Cash operating profit for the second quarter 1999 was $103.4
million compared to $128.2 million for the same period 1998.
Interest expense, net, increased to $23.7 million during the 1999
second quarter from $19.5 million in the 1998 second quarter, due primarily
to increased long-term debt in Venezuela and Colombia incurred in
connection with capital and short-term operating needs.
Other expense, net, was $2.5 million during the second quarter of
1999 compared to income of $8.1 million during the second quarter of 1998.
The increase in other expense, net, was mainly due a foreign exchange loss
of $ 2.2 million as a result of the effect of a 46.4% devaluation of the
Brazilian real on dollar-denominated bank debt of $76.0 million, a decrease
in contributions from The Coca-Cola Company of $2.7 million slightly offset
by and higher equity in earnings of Cervejarias Kaiser of $1.6 million
compared to a loss in equity of $1.7 million in the same period 1998.
Additionally, during the second quarter of 1999, The Coca-Cola Company
changed its cold equipment capital participation program so that any funds
received by the Company during 1999 and future years will be recognized in
income in installments over a 60 month period. The ability of the Company
to include such amounts in income will also depend on whether the Company
meets certain earnings targets. Prior to the change, such amounts were
included in income in a lump sum, upon receipt, without regard to the
Company's earnings.
There were no changes in the minority interest structure in the
second quarter of 1998 compared to the 1998 period. Minority interest remained
constant at approximately $0.86 million.
The consolidated effective income tax rate increase by 6.75% as a
result of lower income before taxes reported during the second quarter of
1999 compared to the same period in 1998. The increase was due to tax
benefits recorder in the first half of 1998 in Brazil and Colombia, which
were not repeated in 1999, the effect of the asset tax (minimum tax) in
Venezuela and the Company's decision not to recognize the benefit of tax
loss carry-forwards from prior years in Venezuela, because of the Company's
uncertainty that it will have sufficient taxable income in the near term to
offset against such benefits.
As a result of the above the Company had a net loss of $0.5
million compared to a net income of $38.7 million in 1998, a decrease of
101.2%.
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Regional Results
Mexico
Panamco Mexico reported an increase in net sales of 19.6% to
$211.2 million during the second quarter of 1999, compared to the $176.7
million in the 1998 second quarter. Soft drink sales increased 17.6% on
volume growth of 5.8% to 71.4 million unit cases, and a 10.9% price
increase in dollar terms. Water volume grew 20.5% to 39.1 million-unit
cases, mainly due to increased coverage of our franchise territories.
During the quarter, Panamco Mexico increased its soft drink market share
1.9 points to 79.1%.
Cost of sales as a percentage of net sales remained flat at 47.0%
in the 1999 second quarter versus the second quarter of 1998, mainly due to
continued cost savings in raw materials, partially offset by higher packing
expenses related to an increase in the usage of non-returnable packaging.
Operating expenses increased 14.1% in the 1999 second quarter to
$74.9 million from $65.6 million in the comparable period for 1998.
Depreciation and goodwill amortization expenses increased due to Panamco's
continuing capital expenditure program and the purchase of minority
interests. In absolute terms Panamco Mexico reported higher sales
commissions and freight costs related to increased sales volume and higher
administrative wages. In spite of the increase in operating expenses, due
to the 19.6% increase in net sales, operating expenses as a percentage of
net sales decreased to 35.5% in the second quarter of 1999 from 37.2% in
the 1998 quarter.
Cash operating profit increased 30.4% to $47.9 million, or 22.7%
of net sales, from $36.7 million, or 20.8% of net sales, in the 1998 second
quarter. Operating income increased 32.9% to $37.1 million from $27.9
million in the second quarter of 1998. Interest expense, net remained flat
at $2.5 million compared to $2.1 million in the second quarter 1998.
Interest, expense, net,.
Other income decreased to $1.3 million from $3.8 million in the
same period last year mainly due to decreased contributions for capital
expenditures from The Coca-Cola Company, and changes in the cold equipment
capital participation program discussed above.
The effective income tax rate for the period remained flat at
32.6% from 33.6%.
As a result of the above, net income contributed by Panamco
Mexico to the Company increased 21.7% to $22.9 million for the second
quarter of 1999 compared to $18.8 million in the second quarter of 1998.
Beginning in 1999, the Company discontinued classifying Mexico as
a highly inflationary economy. Accordingly the functional currency of the
Mexican operations was changed from the U.S. dollar to the Mexican peso.
Brazil
Panamco Brasil, which operates in the Sao Paulo, Campinas, Santos
and as of September 1998 Matto Grosso do Sul (R.O.S.A.) regions of Brazil,
reported 1999 second
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quarter net sales of $118.0 million, a decrease of 41.2% from the 1998
quarter. Unit case sales volume of soft drinks increased 12.9% to 54.9
million, or 5.1% excluding the 3.8 million unit cases contributed by
R.O.S.A., as a result of favorable effects of Panamco's promotional pricing
strategy. Beer volume remained flat at 11.8 million unit cases; bottled
water volume increased 11.0% to 2.4 million-unit cases. The decrease in
revenue was mainly attributable to a 51.5% devaluation of the real. As a
result of this scenario and strong competition from the B brands, Panamco
Brasil's market share decreased 1.2 points to 54.8%, compared to the same
period in 1998.
Cost of sales as a percentage of net sales increased to 62.2% in
the 1999 second quarter from 60.6% in the 1998 quarter as a result lower
production efficiencies slightly offset by reductions in the cost of raw
materials and increased direct sales to supermarkets by Cervejarias Kaiser
in Panamco Brasil territories.
Operating expenses as a percentage of net sales rose to 39.8%
from 35.9% in the 1998 quarter, mainly due to an increase in marketing and
merchandising activities in connection with Panamco Brasil's promotional
pricing strategy.
Cash operating profit decreased 68.3% to $5.8 million, or 4.9% of
net sales, from $18.3 million, or 9.1% of net sales, in second quarter of
1998. Operating loss increased to $2.4 million from an operating income of
$6.9 million in 1998 second quarter.
Interest expense, net, decreased 47.9% to $2.4 million in second
quarter 1999 from $4.6 million in the 1998 quarter.
Other expense, net, increased to $1.4 million in the 1999 second
quarter from income of $0.9 million in the 1998 quarter due to a foreign
exchange loss of $ 2.2 million as a result of the effect of a 46.4% year to
date devaluation of the Brazilian real on dollar-denominated bank debt of
$45.2 million, lower contributions for capital expenditures from The
Coca-Cola Company, and changes in the cold equipment capital participation
program discussed above, slightly offset by positive equity in income of
$1.6 million from Cervejarias Kaiser.
The effective income tax rate increased to 53.2% in second
quarter 1999 from a negative rate of 80.0% in the 1998 quarter because in
1998 the Company had more income tax credits in connection with its
election under Brazilian tax laws to have its taxable income paid or
credited in connection with capital invested in its subsidiaries to be
deducted from taxable income. Such payments and credits are treated as
dividends for accounting purposes.
As a result of the above, the net income contributed by Panamco
Brasil to the Company decreased 150.0% to a loss of $2.9 million in the
second quarter of 1999 from income of $5.7 million in the 1998 period.
Beginning in 1998, the Company discontinued classifying Brazil as
a highly inflationary economy. Accordingly, the functional currency of the
Brazilian operations was changed from the U.S. dollar to the Brazilian
real.
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<PAGE>
Colombia
Panamco Colombia, which operates throughout Colombia, reported
net sales of $99.5 million for the 1999 second quarter, down 17.1% from the
1998 period. Sales volume of soft drinks and water decreased 20.3% and
4.3%, respectively, to 37.5 million and 10.1 million unit cases, as a
result of the economic recession, a devaluation of the Colombian peso of
19.0% partially offset by a 4.8% price increase in local currency versus
same period 1998, and political turmoil affecting Colombia. Panamco
Colombia strengthened its position in the Colombian market, increasing its
market share to 65.3% by the end of the three month period ended of June
30, 1999, up 4.5 points versus the comparable period in 1998.
Cost of sales as a percentage of net sales decreased slightly to
44.6% during the second quarter of 1999 from 46.0% during the same period
in 1998 as a result of a change in the sales mix, offset by higher costs
associated with increased sales of non-returnable packaging.
Operating expenses increased 5.8% to $52.5 million in 1999
compared to $49.6 million in the prior year period, mainly due to higher
depreciation and amortization expense related to Panamco's ongoing capital
investment programs, partially offset by a decrease in salary expenses due
to a reduction in the size of the workforce and lower general and
administrative expenses, and lower sales and marketing expenses. As a
percentage of net sales, operating expenses increased to 52.7% during the
second quarter of 1999 from 41.3% during same period in 1998.
Cash operating profit decreased 40.0% to $17.2 million, or 17.3%
of net sales, from $28.7 million, or 24.0% of net sales, in the prior year
period, and operating income decreased 82.1% to $2.7 million.
Interest expense, net, increased to $1.4 million compared to $1.1
million in the 1998 second quarter as a result of increased interest rates,
short-term operating needs and effects of a new governmental tax on
financial transactions.
Other income, net, dropped 81.3% to $0.1 million from $0.7
million as a result of lower contributions for capital expenditures from
The Coca-Cola Company, and changes in the cold equipment capital
participation program discussed above.
The effective income tax rate decreased to 10.7% in the 1999
second quarter from 19.3%, in the 1998 quarter as a result of tax planning
strategies employed in 1999.
As a result of the above, net income contributed by Panamco
Colombia to the Company decreased 89.1% to $1.3 million in the 1999 second
quarter compared to $11.5 million in the second quarter of 1998.
Venezuela
For the second quarter of 1999, Panamco Venezuela reported net
sales of $130.6 million, down 7.5% from the 1998 second quarter of $141.2
million. Sales volume decreased 24.9% to 41.9 million unit cases,
reflecting reductions of 29.8% in unit case sales of soft drinks, and 0.8%
in unit case sales of malt, partially offset by a 39.9%
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<PAGE>
increase in unit case sales of bottled water. During the second quarter of
1999, Panamco Venezuela sold 86,000 unit cases of Regional beer, which
Panamco Venezuela began distributing in the first quarter 1999. Panamco
Venezuela continues to maintain a strong market share at 68.9%, although it
represents a decrease of 5.3 points compared to the same period last year.
Cost of sales as a percentage of net sales decreased slightly to
44.5% during the second quarter of 1999 from 47.6% during the same period
in 1998 as a result of lower volume in this quarter, slightly offset by
salary increases and severance payments for 57 people at a total cost of
$.7 million related to a plant closing.
Operating expenses increased 14.2% to $66.6 million in 1999
compared to $58.4 million in the prior year period, mainly due to higher
depreciation expense related to Panamco's ongoing capital investment
program for cooling equipment, partially offset by lower direct marketing
expenses. As a percentage of net sales, operating expenses increased to
51.0% during the second quarter of 1999 from 41.3% during same period in
1998 mainly as a result of increased marketing expenses of $2.4 million and
$4.4 million of operating expenses related to headcount reductions as a
result of plant closings.
Cash operating profit decreased 25.3% to $23.7 million, or 18.1%
of net sales, from $31.7 million, or 22.4% of net sales, in the prior year
period, and operating income decreased 62.3% to $5.9 million from $15.7
million in the second quarter 1998.
Interest expense, net, increased during the second quarter of
1999 to $4.7 million from $2.4 million as a result of an increase in
long-term debt of $45.0 million incurred in connection with capital and
short-term operating needs compared to the same quarter in 1998.
Other income, net, dropped 78.2% to $.6 million from $2.6 million
in the 1998 quarter as a result of lower contributions for capital
expenditures from The Coca-Cola Company, and changes in the cold equipment
capital participation program discussed above.
The effective income tax rate increased to 121.6 from 22.0% in
the prior year period as a result of the Venezuelan asset tax (a minimum
tax), which was applicable to Panamco Venezuela as a result of the $4.7
million loss before income taxes of that franchise and the Company's
decision not to recognize the benefit of tax loss carry-forwards from prior
years in Venezuela, because of the Company's uncertainty that it will have
sufficient taxable income in the near term to offset against such benefits
Net income contributed by Panamco Venezuela to the Company
decreased 103.0% to a net loss of $.4 million in the 1999 second quarter
compared to net income of $12.4 million in the second quarter of 1998.
Central America
Panamco's Central American region includes franchises in Costa
Rica, Nicaragua and, as of April 1, 1998, Guatemala. The region reported
net sales of $52.9 million for the second quarter of 1999, a decrease of
0.8% from $53.3 million in the 1998 quarter. The decrease was mainly due to
a change in the product mix in Costa Rica and a 16.1%
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<PAGE>
devaluation of the Guatemalan Quetzal compared to the same period in 1998,
partially offset by the sales growth in Nicaragua. Volume growth for the
region was 2.1% to 18.5 million-unit cases. Soft drink volume was 17.4
million unit cases, or flat compared to the 1998 second quarter and water
volume grew 77.0% to 0.9 million unit cases. During the 1999 second
quarter, Panamco's market share in the region increased to 89.9% in Costa
Rica, 42.7% in Guatemala and Nicaragua at 80.8%.
Cost of sales as a percentage of net sales increased to 46.4%
during the second quarter of 1999 from 45.9% in the same period of 1998,
due mainly to lower sales price in Guatemala offset by lower raw material
costs in Costa Rica.
Operating expenses as a percentage of net sales increased to
40.7% from 40.0% during the same period last year due to higher
depreciation expenses for Panamco Central America in general due to
Panamco's continued capital expenditure program, partially offset by
continued expense controls.
Cash operating profit increased 5.1% to $11.4 million in 1999, or
21.5% of net sales, from $10.8 million, or 20.3% of net sales, in 1998.
Operating income decreased to $6.8 million, or 12.9% of net sales, in the
second quarter of 1999 from $7.5 million, or 14.1% of net sales, in the
1998 period.
Interest expense, net, decreased 60.5% to $0.4 million in 1999
from $1.1 million in the year ago period as a result of lower rates on
refinanced debt.
Other expense, net, increased to $1.5 million in 1999 from other
income, net, of $0.1 million as a result of a 16.1% devaluation of the
Guatemalan quetzal .
Net income contributed to the Company by the Central American
region decreased 25.2% to $3.5 million, from $4.7 million, during the same
period in 1998.
Six months ended June 30, 1999 compared to the six months ended June 30, 1998.
Consolidated Results of Operations
Consolidated net sales decreased to $1.2 billion during the first
half of 1999 from $1.4 billion during the first half of 1998, a decrease of
16.1%, mainly due to the effect of poor economic conditions in Brazil,
Colombia, and Venezuela, resulting in decreased sales volume in soft drinks
in these countries, partially offset by increased volumes in Mexico and
Central America and increased sales volume of water in all countries except
Colombia. Soft drink sales volumes in the first half of 1999 were up 6.3%
in Mexico and 15.6% in Central America, but lower by 23.2% in Colombia,
1.4% in Brazil and 26.7% in Venezuela, resulting in a net consolidated
sales volume decrease of 8.4%. Beer sales volume, now sold in both Brazil
and Venezuela, remained flat at 27.5 million unit cases (including 0.1
million unit cases from Venezuela). Bottled water volume increased 27.4% in
Mexico, 23.0% in Brazil and 66.7% in Venezuela 92.2% in Central America,
and dropped 16.2% in Colombia, resulting in a net consolidated increase
bottled water volume of 18.6%. Overall volume dropped by 3.7%.
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<PAGE>
Cost of sales as a percentage of net sales decreased to 49.8%
during the fist half of 1999 from 51.4% during the first half of 1998. This
resulted primarily from cost savings in raw materials and packaging costs
in all countries.
Operating expenses as a percentage of net sales increased to
45.6% during the first half of 1999 from 39.2% in the first six months of
1998 as a result of higher sales expenses in all franchises, as well as
increased depreciation and amortization expenses and capital expenditures
of $110.8 million during in the first half of 1999.
Operating income decreased by 59.3% to $54.0 million from $132.5
million in the first six months of 1998. Cash operating profit decreased
28.8% in the first six months of 1999 to $179.8 from $252.5 million during
the first six months of 1998.
Interest expense, net, increased to $46.8 million during the
first half of 1999 from $37.2 million during the first half of 1998 due to
increased indebtedness resulting from $300 million syndicated loan from the
first quarter 1999.
Other expense, net, increased to $27.1 million during the first
six months of 1999 from other income net of $18.4 million during the first
half of 1998, driven primarily by foreign exchange losses in Brazil of
$26.2 million due to a 51.5% devaluation of the real during the period
decreased equity in earnings at Cervejarias Kaiser in Brazil resulting from
poor operating results and lower investment contributions for capital
expenditures from The Coca-Cola Company. Additionally, during the second
quarter of 1999, The Coca-Cola Company changed its cold equipment capital
participation program so that any funds received by the Company during 1999
and future years will be recognized in income in installments over a 60
month period. The ability of the Company to include such amounts in income
will also depend on whether the Company meets certain earnings targets.
Prior to the change, such amounts were included in income in a lump sum,
upon receipt, without regard to the Company's earnings.
The consolidated effective income tax rate increased to 96.2%
during the first six months of 1999 from 27.2% during the first half of
1998. The increase was due to tax benefits recorded in the first half of
1998 in Brazil and Colombia, which were not repeated in 1999, the effect of
the asset tax (minimum tax) in Venezuela and the Company's decision not to
recognize the benefit of tax loss carry-forwards from prior years in
Venezuela, because of the Company's uncertainty that it will have
sufficient taxable income in the near term to offset against such benefits
As a result of the foregoing, net loss for the first six months
of 1999 increased 150.7% to $40.5 million from net income of $80.0 million
in the first six months of 1998, or ($0.31) per share as compared to $0.62
per share. Earnings per share for the first six months of 1999 are based on
129.7 million weighted average shares outstanding. First half 1998 earning
per share are based on 129.5 million weighted average shares outstanding.
Fully diluted earnings per share were ($0.31) and $0.61 for the six months
period ended June 30 1999 and 1998 respectively.
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<PAGE>
Regional Results
Mexico
Net sales increased 18.0% to $374.3 million during the first half
of 1999 from $317.3 million during the first half of 1998 resulting from
increased sales volume in soft drinks and water. Soft drink sales volume
increased 6.3% while bottled water sales volume increased 27.4%. The sales
volume growth in water was mainly due to the increase in water jug volume.
Cost of sales as a percentage of net sales was 48.0% during the
first half of 1999 as compared to 48.1% during the first six months of 1998
as a result of decreased freight and raw material cost, partially offset by
an increase in packaging cost related to the sales of non returnable
presentations.
Operating expenses as a percentage of net sales decreased to
36.8% during the first half of 1999 from 38.4%. Although there was an
increase in net sales, this was offset by higher selling and administrative
costs, mainly attributable to increases in sales commissions and
promotional expenses for new marketing programs and increased depreciation
expenses related to the continued capital expenditure program.
Cash operating profit increased 27.5% to $75.8 million in the
first half of 1999 from $38.4 million in the first half of 1998. Operating
income increased by 33.1% to $56.7 million and as a percentage of net sales
was 15.1% in the first half of 1999 compared to 13.4% in the first half of
1998.
Interest expense, net, during the first half of 1999 increased by
9.4% to $5.0 million from $4.6 million in the first half of 1998 as a
result of increased debt related to the purchase of minority interests.
Other income, net, was $5.2 million for the first half of 1999,
compared to $8.0 million in the first half of 1998, due to a decrease in
contributions for capital expenditures from The Coca-Cola Company, and
changes in the cold equipment capital participation program discussed
above.
The effective income tax rate for the first half of 1999 was
32.6% compared to 34.2% for the same period of 1998.
As a result of the foregoing, net income contributed by Panamco
Mexico to the Company increased 26.6% to $36.2 million during the first
half of 1999 from $28.6 million in the first half of 1998.
Brazil
Net sales decreased by 45.3% to $251.3 million during the first
six months of 1999 from $459.0 during the first half of 1998. Total sales
volumes remained flat at 140.6 million unit cases compared to the first
half of 1998. Beer volume remained flat at 27.4 million unit cases compared
with 27.3 million unit cases in the year ago period.
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<PAGE>
Water sales grew 23.0% to 6.4 million unit cases from 5.2 million unit
cases in the year ago period.
Cost of sales as a percentage of net sales increased to 62.1%
during the first half of 1999 from 60.7% during the first six months of
1998 despite a reduction in raw material costs (mostly cans and plastic
bottles) and production costs.
Operating expenses as a percentage of net sales increased to
38.0% during the first six months of 1999 from 33.1% during the first half
of 1998 as a result of an increase in depreciation and amortization expense
of $6.8 million related to the modernization program of the last several
years, which is part of Panamco's continued capital expenditure program and
expenses associated with the promotional pricing strategy.
Cash operating profit decreased 67.0% to $17.6 million in the
first half of 1999 from $53.3 million in the first half of 1998, and
operating loss increased by 101.1% from income of $28.6 million to a loss
of $0.3 million in the first half of 1999.
Interest expense, net, decreased by 28.0% to $6.9 million in the
first half of 1999 from $9.6 million in the first half of 1998 as a result
of improved financing conditions and lower debt.
Other expense, net, increased to $31.1 million from other income
net of $2.3 million in the first half of 1998 as a result of a $26.2
foreign exchange loss due to the devaluation of the real, lower equity in
earnings of Cervejarias Kaiser, and lower contributions for capital
expenditures from The Coca-Cola Company, and changes in the cold equipment
capital participation program discussed above.
The effective income tax rate increased to 27.6% from (5.9)%
because in 1998 the Company had more income tax credits in connection with
its election under Brazilian tax laws to have its taxable income paid or
credited in connection with capital invested in its subsidiaries to be
deducted from taxable income. Such payments and credits are treated as
dividends for accounting purposes.
As a result of the above, net loss contributed to Panamco by
Panamco Brasil increased 225.4% to $27.3 million during the first half of
1999 from net income of $21.8 million in the first half of 1998.
Colombia
Net sales decreased 18.0% to $205.5 million during the first half
of 1999 from $250.6 million during the first six months of 1998, mainly due
to a 21.8% decrease in total unit case volume resulting from a 23.2%
decrease in soft drink volume and a 16.2% decrease in water volume. In
dollar terms average soft drink prices increased 5.9% versus the same
period last year. The decrease in volume is the result of poor economic and
market conditions.
Cost of sales as a percentage of net sales decreased to 44.1%
during the first half of 1999 from 44.8% during the first six months of
1998, as a result of lower raw material costs slightly offset by higher
costs associated with the increase in sales of non-returnable
presentations.
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Operating expenses as a percentage of net sales increased to
52.0% during the first six months of 1999 from 42.5% during same period
1998, mainly due to higher depreciation expenses related to Panamco's
ongoing capital expenditure program.
Cash operating profit decreased 36.6% to $37.2 million in the
first half of 1999 from $58.7 million in the first half of 1998. Operating
income dropped to $8.1 million in the first half of 1999 from $31.8 million
in the same period of 1998, a decrease of 74.6%.
Interest expense, net, increased to $2.9 million during the first
half of 1999 from $1.5 million in the same period of 1998, due mainly to
higher net debt position, and a new governmental tax on financial
transactions which resulted in expenses during the first half of 1999 $0.5
million.
Other income, net, decreased 81.3% to $1.6 million in the first
half of 1999 from $2.6 million in the same period in 1998.
The effective income tax rate increased to 19.2% in the first
half of 1999 from 14.9% in 1998 primarily due to the recognition of a tax
credits recorded during the first quarter of 1998, which were not available
in 1999. The 1998 tax credits were mainly related to an investment made in
Friomix de Cauca, the Company's cold equipment manufacturer.
As a result of the above, net income contributed by Panamco
Colombia to the Company decreased 80.5% to $5.3 million during the first
half of 1999 from $27.2 million in the first half 1998.
Venezuela
Net sales dropped to $237.9 million during the first half of 1999
from $283.0 million during the first six months of 1998, a decrease of
15.9%. The decrease was mainly due to a decrease in total unit case volume
of 21.7% attributable to a decrease in soft drink volume of 26.7%, which
was partially offset by a 66.7% increase in water volume. Beer, which we
began selling the first quarter of 1999, has contributed 0.1 million Unit
Cases. This significant drop in sales volume is attributable to poor
economic conditions in Venezuela and a highly competitive environment.
Panamco's market share for soft drinks fell 18.8% during the first half of
1999.
Cost of sales as a percentage of net sales decreased to 46.2%
during the first half of 1999 from 47.3% during the first six months of
1998, as a result of drop in volume and cost reduction programs implemented
throughout the first semester 1999. Additionally, cost of sales includes
$1.8 million of costs associated with the plant closing.
Operating expenses as a percentage of net sales increased to
56.2% during the first six months of 1999 from 42.4% during same period
1998. Higher depreciation expenses related to Panamco's ongoing capital
expenditure program, along with increased marketing expenses and $4.4
million of expenses related to severance payments made in connection with
plant closings contributed to the percentage increase.
Cash operating profit decreased 49.2% to $30.5 million in the
first half of 1999 from $60.0 million in the first half of 1998. Operating
loss increased to $5.5 million in
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the first half of 1999 from operating income of $29.0 million in the same
period of 1998, an increase of 119.2%.
Interest expense, net, increased to $8.0 million during the first
half of 1999 from $4.5 million in the same period of 1998, due mainly to
increased debt during the first half of 1999 due to higher interest rates
and short-term operational needs.
Other income, net, decreased 65.2% to $1.9 million from $5.4
million as a result of lower contributions for capital expenditures from
The Coca-Cola Company, and changes in the cold equipment capital
participation program discussed above.
The effective income tax rate increased to 128.9% in the first
half of 1999 from 16.5% in 1998 primarily due to the asset tax (minimum
tax) paid in Venezuela as a result of a net loss position before taxes of
$11.7 million in 1999 and the Company's decision not to recognize the
benefit for tax loss carry-forwards from prior years because of the
Company's uncertainty that it will have sufficient taxable income in the
near term to offset against such benefits.
As a result of the above, net loss attributable to Panamco from
Panamco Venezuela increased 160.4% to $15.1 million during the first half
of 1999 from a net income of $25.0 million in the first half 1998.
Central America
Panamco's Central American region includes franchises in Costa
Rica, Nicaragua and, as of April 1, 1998 Guatemala. The region reported
1999 first half net sales of $106.4 million, a 17.2% increase from $90.7
million in the first half of 1998 resulting primarily from increases in
soft drink and bottled water volumes of 15.6% and 92.2% respectively.
Panamco Guatemala's increase of 118.6% or 5.1 million unit cases of soft
drink volume and 0.4 million unit cases of water volume, accounted for most
of the increase in the region. Soft drinks sales volume in Costa Rica was
down 2.4% to 14.2 million unit cases.
Cost of sales as a percentage of net sales increased to 46.4%
during the first half of 1999 form 46.4% in the first half of 1998, due
mainly to a slight increase in raw material and labor costs.
Operating expenses as a percentage of net sales increased to
40.6% from 38.5% during the same period last year as a result of higher
depreciation expense slightly offset by continued tight expense controls.
Cash operating profit increased 15.8% to $22.9 million in the
first half of 1999, or 21.5% of net sales, from $19.8 million, or 21.8% of
net sales, in the first half of 1998. Panamco Nicaragua contributed $1.7
million of the increase in cash operating profit. Operating income remained
flat at $13.9 million, or 13.0% of net sales, in the first half of 1999.
Interest expense, net, dropped 19.5% to $1.0 million in 1999 from
$1.3 million in the same period last year as a result of lower interest
rates after a debt restructuring.
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Other expense, net, increased to $2.5 million from other income,
net, of $44,000 in the year ago period as a result of the devaluation in
Guatemala.
As a result of the above, net income contributed by Panamco
Central America to the Company decreased 18.1% to $7.3 million in the first
half of 1999 from $8.9 million.
Liquidity and Capital Resources
At June 30, 1999, Panamco had consolidated cash and cash
equivalents of $239.9 million, a 46.0% increase compared to $130.1 million
as of June 30, 1998. Consolidated cash flow provided by operations was
$126.9 million and $137.2 million for the first six months ended June 30,
1999 and 1998, respectively.
Total consolidated indebtedness was $1,388.7 million as of June
30, 1999, primarily as a result of debt incurred for the purchase of
Panamco Guatemala and R.O.S.A. and in connection with the $300 million
syndicated loan Panamco entered into in March 1999.
In March 1998, Panamco completed the acquisition of its
Guatemalan operations. Panamco began overseeing day-to-day management
immediately and began consolidating Panamco Guatemala results as of April
1, 1998. In September 1998, the Company acquired all the capital stock of
R.O.S.A., which produces, sells and distributes Coca-Cola products in the
western part of Brazil in the state of Matto Grosso do Sul. The Company
began consolidating the results of R.O.S.A. as of September 1, 1998. On
March 18,1999 the Company borrowed $300 million from a syndicate of banks
to finance certain capital expenditures at Panamco Venezuela and for
general corporate purposes.
Total capital expenditures for the six months ended June 30, 1999
were $110.8 million compared to $145.5 million for six months ended June
30, 1998.
Capital expenditures were lower in the first half of 1999
compared to the same period in 1998 as a result of reduced cash flow due to
the poor economic conditions in most of the countries in which the Company
operates.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PANAMERICAN BEVERAGES, INC.
By /s/ Paulo J. Sacchi
---------------------------------
Name: Paulo J. Sacchi
Title: Senior Vice President-Finance
and Treasurer
Date: December 30, 1999
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