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 September, 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 March 31, 1999.............................2
Condensed Consolidated Statements of Income
(unaudited) for the three-month periods ended
March 31, 1998 and 1999................................................4
Condensed Consolidated Cash Flow Statements
(unaudited) for the three-month periods ended
March 31, 1998 and 1999...........................................5
Notes to Condensed Consolidated Financial
Statements (unaudited).................................................6
PANAMCO MEXICO -- Selected Income Statement Data
(unaudited) for the three-month periods ended
March 31, 1998 and 1999...............................................11
PANAMCO BRASIL -- Selected Income Statement Data
(unaudited) for the three-month periods
ended March 31, 1998 and 1999.........................................12
PANAMCO COLOMBIA -- Selected Income Statement Data
(unaudited) for the three-month periods
ended March 31, 1998 and 1999.........................................13
PANAMCO VENEZUELA -- Selected Income Statement Data
(unaudited) for the three-month periods
ended March 31, 1998 and 1999.........................................14
PANAMCO CENTRAL AMERICA -- Selected Income Statement Data
(unaudited) for the three-month periods
ended March 31, 1998 and 1999.........................................15
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................16
Signatures.................................................................24
1
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS BALANCE SHEETS
( unaudited )
( Stated in thousands of U.S. dollars )
December 31, March 31,
1998 1999
----------- ----------
A S S E T S
Current assets:
Cash and equivalents $ 131,152 $ 252,822
Accounts receivable, net 175,008 132,554
Inventories, net 149,387 135,290
Other 30,231 25,854
------------ -----------
Total current assets 485,778 546,520
Investment 43,990 180,399
Property, plant, and equipment, net 1,307,590 1,244,286
Bottles and cases, net 337,609 324,949
Goodwill, net 1,347,446 1,317,746
Other assets, net 125,277 111,687
------------ -----------
$ 3,647,690 $3,725,587
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans $ 302,063 $ 144,007
Current portion of long-term debt 55,332 52,523
Accounts payable 207,217 187,884
Other current liabilities 114,076 96,242
------------ -----------
Total current liabilities 678,688 480,656
Long-term liabilities:
Long-term debt 771,267 1,201,562
Other long-term liabilities 193,258 175,781
------------ -----------
Total long-term liabilities 964,525 1,377,343
2
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIE
CONDENSED CONSOLIDATED STATEMENTS BALANCE SHEETS
( unaudited )
( Stated in thousands of U.S. dollars )
December 31, March 31,
1998 1999
-------------- ------------
Minority interest in consolidated
subsidiaries $ 26,243 $ 26,983
Shareholders' equity:
Capital 1,481 1,481
Capital in excess of par value 1,583,758 1,583,968
Retained earnings 677,229 629,367
Accumulated other comprehensive income (234,290) (324,312)
--------------- -------------
2,028,178 1,890,504
Less--shares held in treasury, at cost 49,944 49,899
--------------- -------------
Total shareholders' equity 1,978,234 1,840,605
--------------- -------------
$ 3,647,690 $ 3,725,587
=============== =============
The accompanying notes are an integral part of these condensed consolidated
unaudited statements.
3
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Stated in thousands of U.S. dollars, except per share amounts)
For the three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Net sales $ 708,819 $ 562,982
Cost of sales, excluding depreciation and
amortization 368,022 285,992
------------ -----------
Gross profit 340,797 276,990
Operating expenses:
Selling, general and administrative 216,509 200,589
Depreciation and amortization, excluding goodwill 50,789 53,719
Amortization of goodwill 8,588 9,009
------------ -----------
275,886 263,317
------------ -----------
Operating income 64,911 13,673
Interest income (expense), net (17,673) (23,155)
Other income (expense), net 10,258 (24,583)
------------ -----------
Income (loss) before income taxes 57,496 (34,065)
Income taxes 14,274 5,449
------------ -----------
Income (loss) before minority interest 43,222 (39,514)
Minority interest in earnings of subsidiaries 1,876 568
------------ ------------
Net income (loss) $ 41,346 $ (40,082)
============ ============
Cash operating profit $ 124,288 $ 76,401
============ ============
Basic earnings per share $ 0.32 $ (0.31)
============ ============
Basic weighted average shares outstanding,
in thousands 129,482 129,651
============ ============
Dilutive earnings per share $ 0.32 $ (0.31)
============ ============
Dilutive weighted average shares outstanding,
in thousands 130,706 129,826
============ ============
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 three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Net cash provided by operating activities $ 23,499 $ 50,928
Cash flows from investing activities:
Additions to property, plant and equipment (62,999) (62,124)
Purchases of investments (39,031) (154,027)
Proceeds from sale of investments (190) (6)
Proceeds from sale of property, plant and
equipment 2,417 7,042
Acquisition of minority interest (242) --
Purchases of bottles and cases, net (29,320) (16,037)
Other 81 24,216
------------ -----------
Net cash used in investing activities (129,284) (200,936)
Cash flows from financing activities:
Payment of bank loans (271,611) (209,462)
Proceeds from bank loans and other long-term
borrowings 196,989 490,496
Payment of dividends to minority interest (577) --
Payment of dividends to shareholders (7,771) (7,779)
Issuance of capital stock 1,116 224
Acquisition of capital stock (49) --
Other 172 --
------------ -----------
Net cash (used in) provided by financing
activities (81,731) 273,479
Effect of exchange rate changes on cash (2,102) (1,801)
------------- -----------
Net (decrease) increase in cash and
equivalents (189,618) 121,670
Cash and equivalents at beginning of period 332,995 131,152
------------- -----------
Cash and equivalents at end of period 143,377 252,822
============= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for-
Interest $ 19,132 $ 22,746
============= ===========
Income taxes $ 39,877 $ 9,193
============= ===========
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 March 31, 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 March 31, 1999, and the results of
operations for the three-month period ended March 31,1998 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.
The financial statements of all subsidiaries for all periods (except for
the Brazilian, Costa Rican, Nicaraguan and Guatemalan subsidiaries for the
1998 and 1999 periods and the Mexican subsidiaries for the 1999 period) 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 currencies of the Brazilian,
Costa Rican, Nicaraguan and Guatemalan subsidiaries is the Brazilian real,
Costa Rican colon, the Nicaraguan cordova and Guatemalan quetzal, respectively
for the 1998 and 1999 periods and the Mexican peso for the 1999 period
respectively. 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 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 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):
6
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U.S. Dollars)
For the three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Net sales $ 41 $ (532)
Cost of sales, excluding depreciation and
amortization 3,771 2,550
Interest and other income 890 440
Provision for income taxes 236 426
------------ -----------
Net translation gain $ 4,938 $ 2,884
============ ===========
(2) Inventories
December 31, March 31,
1998 1999
------------ -----------
Bottled beverages and coolers $ 47,309 $ 36,221
Raw materials 51,703 51,171
Spare parts and supplies 51,861 49,405
------------ -----------
150,873 136,797
Less -- Allowance for obsolete and slow-moving
items 1,486 1,507
------------ -----------
$ 149,387 $ 135,290
============ ===========
(3) Property, plant, equipment, bottles and cases, net
December 31, March 31,
1998 1999
--------------------------
Property, plant and equipment $2,124,694 $2,036,658
Less -- Accumulated depreciation 817,104 792,372
------------ -----------
1,307,590 1,244,286
Bottles and cases, net 337,609 324,949
------------- -----------
$1,645,199 $1,569,235
============= ===========
7
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. Dollars)
(4) Transaction with Related Parties
For the three months ended March 31, 1999, the Company carried out
transactions with related parties. A summary of transactions and balances as
of December 31, 1998 and March 1999, and for three months ended March 31, 1998
and 1999 with related parties is as follows:
Net sales $ 708,819 $ 562,982
December 31 March 31,
1998 1999
------------ -----------
Accounts receivable:
Subsidiaries of Coca-Cola $ 13,965 $ 9,667
============ ===========
Accounts payable:
Productos de Vidrio, S.A. $ 6,630 $ 1,055
Central Azucarero Portuguesa, C.A. 1,628 --
Tapon Corona de Colombia, S.A. 1,936 1,063
Comptec, S.A. 976 246
$ 11,170 $ 2,364
============ ============
For the three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income:
Marketing expense support $ 10,805 $ 9,528
Capital expenditure grants 6,713 2,521
Other 465 824
------------ -----------
$ 17,983 $ 12,873
============ ===========
Expenses:
Purchase of concentrate $ 82,357 $ 65,113
Purchase of beer 50,939 23,262
Purchase of other inventory 10,739 6,570
------------ -----------
$ 144,035 $ 94,945
============ ===========
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.
For the year ended December 31, 1997, 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
which includes the consideration of the final amount of goodwill determined of
$45.3 million were as follows:
Inventories $ 2,731
Property, plan 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 millions in cash, bringing the total
acquisition price to $57.9 millions, for which the Company entered into a
$70.0 millions financing agreement. Panamco began consolidating R.O.S.A.'s
results as of September 1, 1998, and has registered estimated goodwill of
$36.0 million in connection with this acquisition.
On December 22, 1998, the Company entered into an agreement with
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 short-term bank loans of
the Company and the Venezuelan subsidiaries.
9
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in thousands of U. S. Dollars)
(6) Comprehensive income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued.
Beginning 1998, the Company has adopted this standard which 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
period ended March 31, 1998 and 1999 is as follows:
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Net income $ 41,346 $ (40,082)
Other comprehensive income:
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 (4,972) (75,094)
----------- ----------
$ 28,714 $(130,104)
=========== ==========
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, as applicable, which
financial statements are not included herein.
10
<PAGE>
Panamco Mexico
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income statement data:
Net sales $ 140,598 $ 163,009
Cost of sales 69,641 80,603
------------ -----------
Gross profit 70,957 82,406
Operating expenses:
Selling, general and administrative 48,231 54,535
Depreciation and amortization,
excluding goodwill 7,364 7,609
Amortization of goodwill 711 703
------------ ------------
56,306 62,847
------------ ------------
Operating income 14,651 19,559
Interest income (expense)- net (2,514) (2,567)
Other income (expense)- net 4,239 3,970
------------ ------------
Income before income taxes 16,376 20,962
Income taxes 5,786 6,842
------------ ------------
Income before minority interest 10,590 14,120
Minority interest in Panamco Mexico subsidiaries 595 533
------------ ------------
Net income attributable to Panamco Mexico 9,995 13,587
Minority interest in Panamco Mexico 178 252
------------ ------------
Net income attributable to Panamco $ 9,817 $ 13,335
============ ============
Unit case sales data
(in millions):
Soft drinks 57.7 61.7
Water 22.0 30.2
New products 0.3 0.5
11
<PAGE>
Panamco Brasil
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income statement data:
Net sales $ 258,302 $ 133,283
Cost of sales 157,054 82,662
------------ -----------
Gross profit 101,248 50,621
Operating expenses:
Selling, general and administrative 66,331 38,863
Depreciation and amortization, excluding goodwill 12,921 9,210
Amortization of goodwill 321 451
------------ -----------
79,573 48,524
------------ -----------
Operating income 21,675 2,097
Interest income (expense)- net (4,996) (4,512)
Other income (expense)- net 1,345 (29,680)
------------ -----------
Income (loss) before income taxes 18,024 (32,095)
Income taxes 1,318 (7,267)
------------ -----------
Income (loss) before minority interest 16,706 (24,828)
Minority interest in Panamco Brasil subsidiaries -- --
------------ -----------
Net income (loss) attributable to Panamco Brasil 16,706 (24,828)
Minority interest in Panamco Brasil 622 (348)
------------- -----------
Net income (loss) attributable to Panamco $ 16,084 $ (24,480)
============= ===========
Unit case sales data
(in millions):
Soft drinks 59.6 51.9
Water 3.0 4.0
Beer 15.6 15.6
12
<PAGE>
Panamco Colombia
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income statement data:
Net sales $ 130,563 $ 105,999
Cost of sales 57,096 46,267
------------ -----------
Gross profit 73,467 59,732
Operating expenses:
Selling, general and administrative 43,529 39,770
Depreciation and amortization 13,333 14,608
------------ -----------
56,862 54,378
------------ -----------
Operating income 16,605 5,354
Interest income (expense)- net (422) (1,496)
Other income (expense)- net 1,962 1,445
------------ -----------
Income before income taxes 18,145 5,303
Income taxes 2,044 1,141
------------ -----------
Income before minority interest 16,101 4,162
Minority interest in Panamco
Colombia subsidiaries 39 16
------------ -----------
Net income attributable to Panamco Colombia 16,062 4,146
Minority interest in Panamco Colombia 442 115
------------ -----------
Net income attributable to Panamco $ 15,620 $ 4,031
============ ===========
Unit case sales data
(in millions):
Soft drinks 51.0 37.8
Water 13.1 9.7
13
<PAGE>
Panamco Venezuela
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income statement data:
Net sales $ 141,868 $ 107,279
Cost of sales 66,772 51,714
------------ -----------
Gross profit 75,096 55,565
Operating expenses:
Selling, general and administrative 46,817 48,753
Depreciation and amortization 14,965 18,264
------------ -----------
61,782 67,017
------------ -----------
Operating income (loss) 13,314 (11,452)
Interest income (expense)- net (2,131) (3,300)
Other income (expense)- net 2,781 1,308
------------ -----------
Income (loss) before income taxes 13,964 (13,444)
Income taxes 1,424 1,245
------------ -----------
Net income (loss) attributable to Panamco $ 12,540 $ (14,689)
============ ===========
Unit case sales data
(in millions):
Soft drinks 50.2 38.3
Water 2.0 4.2
New products 1.5 1.2
14
<PAGE>
Panamco Central America
(Costa Rica, Nicaragua and Guatemala)
(Unaudited)
(Stated in thousands of U.S. dollars)
Three months ended
March 31,
--------------------------
1998 1999
------------ -----------
Income statement data:
Net sales $ 37,488 $ 53,412
Cost of sales 17,459 24,746
------------ -----------
Gross profit 20,029 28,666
Operating expenses:
Selling, general and administrative 11,081 17,134
Depreciation and amortization, excluding goodwill 2,496 4,426
Amortization of goodwill 75 67
------------ -----------
13,652 21,627
------------ -----------
Operating income 6,377 7,039
Interest income (expense)- net (197) (592)
Other income (expense)- net (69) (946)
------------ ----------
Income before income taxes 6,111 5,501
Income taxes 1,858 1,691
------------ ----------
Net income attributable to Panamco $ 4,253 $ 3,810
============ ==========
Unit case sales data
(in millions):
Soft drinks 12.4 17.0
Water 0.4 0.9
New products 0.1 0.2
15
<PAGE>
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 March 31,
1999 and for the three-month periods ended March 31, 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. For the first quarter of 1999, minority share holdings in
the consolidated subsidiaries of the Company represented an interest in the
aggregate of approximately 1.4% of 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 March 1998, Panamco completed the acquisition of its Guatemalan
operations. Panamco began overseeing day-to-day management immediately and
began consolidating the results of Panamco Guatemala as of April 1, 1998.
Finally, 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.
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,
16
<PAGE>
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 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 is utilizing 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. By August 31, 1999, the Company
completed the inventory, planning stages, execution and testing phases and the
contingency plan.
Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998
Consolidated Results of Operations
Consolidated net sales for the first quarter ended March 31, 1999,
decreased 20.6% to $563.0 million from $708.8 million in the 1998 first
quarter, mainly due to the effect of weakened economies in Venezuela and
Brazil. Total consolidated unit case sales volume in the 1999 first quarter
fell 5.4% to 273.2 million, from 288.8 million in the 1998 first quarter, and
on a comparable basis (excluding the new Guatemala and R.O.S.A. franchises)
decreased 8.6%. Consolidated soft drink sales volume for the period was down
10.5%, reflecting declines of 13.0% in Brazil, 25.9% in Colombia, and 23.6% in
Venezuela, partially offset by increases of 6.9% in Mexico and 37.7% in the
Central American Region. Consolidated unit case sales volume of bottled water
increased 21.0% to 48.9 million, and unit case sales volume of beer, sold only
in Brazil and, as of February 1999, in Venezuela, remained flat at 15.7
million.
The cost of sales as a percentage of net sales decreased to 50.8% during
the 1999 first quarter from 51.9% in the 1998 first quarter, primarily driven
by cost savings in raw materials and packaging in several countries where the
Company operates.
Operating expenses as a percentage of net sales increased to 46.8% during
the 1999 first quarter from 38.9% during the 1998 quarter. Depreciation and
amortization expenses, increased 5.6% to $62.7 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 bottles and cases into the market; (b)
goodwill charges generated by the acquisition of the Guatemala and R.O.S.A.
franchises, and of minority interests in Brazil during the second quarter of
1998.
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During the 1999 first quarter, Panamco recorded one-time restructuring
expenses totaling $5.6 million for the closing of three plants in Venezuela, a
partial shutdown of a plant in Brazil and layoffs of approximately 1,670
people in Venezuela, Brazil and Colombia. The $5.6 million was recorded as
part of first quarter costs and operating expenses.
Operating income decreased 78.9% to $13.7 million or 2.4% of net sales
during first quarter 1999 compared to $64.9 million or 9.2% of net sales in
1998.
Cash Operating Profit for the first quarter 1999 was $76.4 million
compared to $124.3 million for the same period 1998.
Net interest expense increased to $23.2 million during the 1999 first
quarter from $17.7 million in the 1998 first quarter, due primarily to
increased indebtedness resulting from increased indebtedness in Venezuela and
Colombia.
Other expense, net, was $24.6 million during the first quarter of 1999
compared to income of $10.3 million during the first quarter of 1998. The
increase in other expense, net, was mainly due a foreign exchange loss of $
24.1 million as a result of the effect of a 43.0% devaluation of the Brazilian
Real on dollar-denominated bank debt of $76.0 million, a decrease in grants
received from The Coca Cola Company of $4.9 million and lower equity in Kaiser
of $3.8 million compared to 1998.
Minority interest dropped more than 70% to $0.6 million in the first
quarter 1999 compared to $1.9 million in the first quarter 1998. This resulted
from the increase in loss before minority interest, with no change in the
minority interest structure.
Income taxes decreased by 62.0% as a result of losses reported during the
first quarter of 1999 compared to income during the same period in 1998.
As a result of the above the Company had a net loss of $40.1 million from
income of $41.3 million in 1998, a decrease of 196.9%.
Regional Results
Mexico
Panamco Mexico reported an increase in net sales of 15.9% to $163.0
million during the first quarter of 1999, compared to the 1998 first quarter.
Soft drink sales increased 14.4% on volume growth of 6.9% to 61.7 million unit
cases, and a 7.1% price increase in dollar terms. Water volume grew 37.6% to
30.2 million-unit cases, mainly due to increased coverage of our franchise
territories. During the quarter Panamco Mexico maintained its soft drink
market share of 78.0% compared to 74.4% in the same period in 1998.
The cost of sales as a percentage of net sales remained flat at 49.4% in
the 1999 first quarter versus 49.5% during first 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.
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Operating expenses as a percentage of net sales decreased to 38.6% in the
first quarter of 1999 from 40.0% in the 1998 quarter. This was a result of
increased depreciation and goodwill amortization expenses related to the
purchase of minority interests partially offset by higher sales commissions
and freight costs related to increased sales volume, higher administrative
wages and Panamco's continuing capital expenditure program.
Cash Operating Profit increased 22.6% to $27.9 million, or 17.1% of net
sales, from $22.7 million, or 16.2% of net sales, in the 1998 first quarter.
Operating income increased 33.5% to $19.6 million from $14.7 million in the
first quarter of 1998. Interest Income remained flat at $2.6 million compared
to $2.5 million in the first quarter 1998.
Other income decreased to $4.0 million from $4.2 million last year mainly
due to decreased contributions for capital expenditures from The Coca-Cola
Company.
The effective income tax rate for the period decreased to 32.6% from
35.3% due to tax credits taken in the first quarter of 1999.
As a result of the above, net income contributed by Panamco Mexico to the
Company increased 35.8% to $13.3 million for the first quarter of 1999
compared to $9.8 million in the first 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 first quarter net sales of $133.3 million, a decrease of 48.4%
from the 1998 quarter. Unit case sales volume of soft drinks fell 13.0% to
51.9 million, or 18.1% excluding the 3.1 million unit cases contributed by
R.O.S.A., as a result of adverse economic conditions and unseasonably cool
weather. Beer volume remained flat at 15.6 million unit cases, although
bottled water volume increased 31.8% to 4.0 million-unit cases. The decrease
in revenue was attributable not only to lower volumes, but also to a 43.0%
devaluation of the Real. In spite of this scenario and strong competition from
the "B" brands, Panamco Brasil was able to maintain market share of 52.0%.
The cost of sales as a percentage of net sales increased to 62.8% in the
1999 first quarter from 60.8% 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 36.4% from 30.8%
in the 1998 quarter, mainly due to an increase in marketing and merchandizing
activities, higher selling and distribution expenses and a
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restructuring charge of $2.2 million related to the partial shut down of the
Cosmopolis plant and the termination of approximately 730 employees.
Cash Operating Profit decreased 66.3% to $11.8 million, or 8.8% of net
sales, from $34.9 million, or 13.5% of net sales, in first quarter of 1998.
Operating income decreased to $2.1 million from $21.7 million in 1998 first
quarter.
Interest expenses decreased 9.7% to $4.5 million in first quarter 1999
from $5.0 million in the 1998 quarter.
Other expense, net, increased to $29.7 million in the 1999 first quarter
from income of $1.3 million in the 1998 quarter due to a foreign exchange loss
of $ 24.1 million as a result of the effect of a 43.0% devaluation of the
Brazilian Real on dollar-denominated bank debt of $76.0 million, negative
equity income of $3.7 million from Kaiser and lower contributions for capital
expenditures from The Coca-Cola Company.
The effective income tax rate increased to 22.6% in first quarter 1999
from 7.3% in the 1998 quarter as a result of tax planning strategies employed
in 1998, which were not repeated in this quarter.
As a result of the above, the net income contributed by Panamco Brazil to
the Company decreased 252.2% to a loss of $24.5 million in the first quarter
of 1999 from income of $16.1 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.
Colombia
Panamco Colombia, which operates throughout Colombia, reported net sales
of $106.0 million for the 1999 first quarter, down 18.8% from the 1998 period.
Sales volume of soft drinks and water decreased 25.9% and 25.8%, respectively,
to 37.8 million and 9.7 million unit cases, as a result of the economic
recession and political turmoil affecting Colombia. Panamco Colombia
strengthened its position in the Colombian market, achieving a market share of
63.3% in the month of March 1999.
The cost of sales as a percentage of net sales decreased slightly to
43.6% during the first quarter of 1999 from 43.7% 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 4.4% to $54.4 million in 1999 compared to
$56.9 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 a reduction in the size
of the workforce and lower general and administrative expenses, and sales and
marketing expenses. As a percentage of net sales, operating
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expenses increased to 51.3% during the first quarter of 1999 from 43.6% during
same period in 1998.
As a result of the above, Cash Operating Profit decreased 33.3% to $20.0
million, or 18.8% of net sales, from $29.9 million, or 22.9% of net sales, in
the prior year period, and operating income decreased 67.8% to $5.4 million.
Interest expense decreased to $10 million as a result of an increase in
net debt of $21.6 compared to the 1998 quarter.
Other income dropped 26.4% to $1.4 million from $2.0 million as a result
of lower contributions for capital expenditures from The Coca-Cola Company.
The effective income tax rate increased to 21.5% in the 1999 first
quarter from 11.3%, in the 1998 quarter as a result of tax planning strategies
employed in 1998, which were not repeated in this quarter.
As a result of the above, net income contributed by Panamco Colombia to
the Company decreased 74.2% to $4.0 million in the 1999 first quarter compared
to $15.6 million in the first quarter of 1998.
Venezuela
For the first quarter of 1999, Panamco Venezuela reported net sales of
$107.3 million, down 24.4% from the 1998 first quarter of $141.9 million.
Sales volume decreased 18.4% to 43.8 million unit cases, reflecting reductions
of 23.6% in unit case sales of soft drinks, and 19.6% in unit case sales of
malt, partially offset by a 108.3% increase in unit case sales of bottled
water. During the first quarter of 1999, Panamco Venezuela began distributing
Regional beer and sold 62,000 unit cases.
The cost of sales as a percentage of net sales increased slightly to
48.2% during the first quarter of 1999 from 47.1% during the same period in
1998 as a result of production inefficiencies related to the lower volume in
this quarter.
Operating expenses increased 8.5% to $67.0 million in 1999 compared to
$61.8 million in the prior year period, mainly due to higher depreciation
expense related to Panamco's ongoing capital investment program for cooling
equipment and approximately $3.1 million of restructuring expenses related to
the closing of three plants and the lay-off of approximately 900 employees,
partially offset by lower direct marketing expenses. As a percentage of net
sales, operating expenses increased to 62.5% during the first quarter of 1999
from 43.5% during same period in 1998.
As a result of the above, Cash Operating Profit decreased 75.9% to $6.8
million, or 6.3% of net sales, from $28.3 million, or 19.9% of net sales, in
the prior year period, and operating loss increased 186.0% to $11.5 million.
Interest expenses increased during the first quarter of 1999 to $3.3
million from $2.1 million as a result of an increase in debt of $55.5 million
compared to the same quarter in 1998.
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Other income dropped 53.0% to $1.3 million from $2.8 million as a result
of lower contributions for capital expenditures from The Coca-Cola Company.
In the first quarter of 1999, because Panamco Venezuela had a loss, it
paid no income tax. However, Panamco Venezuela was subject to the Venezuelan
asset tax, which is a minimum tax applicable to companies that do not have net
income and do not pay income tax. As a result of the application of the asset
tax, Panamco Venezuela paid taxes of $1.2 million in the first quarter of 1999
compared to $1.4 million in income taxes in the same period in 1998.
Net income contributed by Panamco Venezuela to the Company decreased
217.1% to a net loss of $14.7 million in the 1999 first quarter compared to
net income of $12.5 million in the first 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 $53.4 million for the first quarter of 1999, an increase of 42.5% from
$37.5 million in the 1998 quarter. This resulted primarily from the addition
of the Guatemala franchise. Excluding Guatemala, volume growth for the region
was 1.2%. The continued placement of beverage coolers and merchandising
activities boosted sales, but the effects of Hurricane Mitch largely offset
these. Our market share in the region remained very strong at 89.6% in Costa
Rica, 81.3% in Nicaragua and 41.0% in Guatemala
The cost of sales as a percentage of net sales decreased to 46.3% during
the first quarter of 1999 from 46.6% in the same period of 1998, due mainly to
lower raw material costs.
Operating expenses as a percentage of net sales increased to 40.5% from
36.4% during the same period last year because 1999 includes Panamco
Guatemala, which the Company began consolidating in April 1998, and 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 28.9% to $11.5 million in 1999, or 21.6%
of net sales, from $8.9 million, or 23.9% of net sales, in 1998. Panamco
Guatemala contributed $1.6 million of the increase in Cash Operating Profit.
Operating income increased to $7.0 million, or 13.2% of net sales, in the
first quarter of 1999 from $6.4 million, or 17.0% of net sales, in the 1998
period.
Net income contributed to the Company by the Central American region
decreased 10.4% to $3.8 million, from $4.3 million, during the same period in
1998.
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Liquidity and Capital Resources
At March 31, 1999, Panamco had consolidated cash and cash equivalents of
$252.8 million, a 76.3% increase compared to $143.4 million as of March 31,
1998. This increase resulted mainly due to the cash received for the $300
million syndicated from the 1999 first quarter. Consolidated cash flow
provided by operations was $23.5 million and $50.9 million for the three
months ended March 31, 1998 and 1999, respectively.
Total consolidated indebtedness was $1,398.1 million as of March 31,
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 quarter ended March 31, 1999 were
$62.1 million compared to $63.0 million for three moths ended March 31, 1998.
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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
Dated: September 24, 1999
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