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 March, 2000
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
1
<PAGE>
Table of Contents
Page
Condensed Consolidated Balance Sheets (1unaudited)
as of December 31, 1998 and September 30, 1999.......................3
Condensed Consolidated Statements of Income
(unaudited) for the three-month and nine-month periods ended
September 30, 1998 and 1999..........................................4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine-month periods ended
September 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 nine-month periods
ended September 30, 1998 and 1999...................................11
PANAMCO BRASIL--Selected Income Statement Data
(unaudited) for the three-month and nine-month periods
ended September 30, 1998 and 1999...................................12
PANAMCO COLOMBIA--Selected Income Statement Data
(unaudited) for the three-month and nine-month periods
ended September 30, 1998 and 1999..................................13
PANAMCO VENEZUELA--Selected Income Statement Data
(unaudited) for the three-month and nine-month periods
ended September 30, 1998 and 1999...................................14
PANAMCO CENTRAL AMERICA--Selected Income Statement Data
(unaudited) for the three-month and nine-month periods
ended September 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)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 131,152 $ 247,605
Accounts receivable, net 175,008 113,420
Inventories, net 149,387 129,388
Other 30,231 23,035
----------- -----------
Total current assets 485,778 513,448
Investment 43,990 177,770
Property, plant, and equipment, net 1,307,590 1,226,342
Bottles and cases, net 337,609 308,169
Goodwill, net 1,347,446 1,295,058
Other assets, net 125,277 116,629
----------- -----------
$ 3,647,690 $ 3,637,416
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans $ 302,063 $ 124,956
Current portion of long-term debt 55,332 75,251
Accounts payable 207,217 134,313
Other current liabilities 114,076 120,402
----------- -----------
Total current liabilities 678,688 454,922
Long-term liabilities:
Long-term debt 771,267 1,190,147
Other long-term liabilities 193,258 179,502
----------- -----------
Total long-term liabilities 964,525 1,369,649
Minority interest in consolidated
subsidiaries 26,243 29,713
Shareholders' equity:
Capital 1,481 1,481
Capital in excess of par value 1,583,758 1,584,623
Retained earnings 677,229 631,406
Accumulated other comprehensive income
(234,290) (384,584)
----------- -----------
2,028,178 1,832,926
Less-shares held in treasury, at cost 49,944 49,794
----------- -----------
Total shareholders' equity 1,978,234 1,783,132
----------- -----------
$ 3,647,690 $ 3,637,416
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION> For the three months For the nine months
ended September 30 ended September 30
--------------------- ----------------------
1998 1999 1998 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $663,477 $605,118 $2,064,122 $1,780,472
Cost of sales, excluding
depreciation and amortization 334,338 296,239 1,053,956 881,911
--------- -------- ---------- ----------
Gross profit 329,139 308,879 1,010,166 898,561
Operating expenses:
Selling, general and 215,634 203,029 644,141 612,920
administrative
Depreciation and amortization,
excluding goodwill 53,997 53,951 156,549 161,606
Amortization of goodwill 8,871 9,066 26,307 27,243
--------- -------- ----------- ---------
278,502 266,046 826,997 801,769
--------- -------- ----------- ---------
Operating income 50,637 42,833 183,169 96,792
Interest income (expense), net (19,076) (23,089) (56,280) (69,905)
Other income (expense), net (63) (12,975) 18,316 (40,054)
--------- -------- ----------- ----------
Income (loss) before
income taxes 31,498 6,769 145,205 (13,167)
Income taxes 13,415 16,693 44,389 35,872
--------- --------- ----------- ----------
Income (loss) before
minority interest 18,083 (9,924) 100,816 (49,039)
Minority interest in earnings
of subsidiaries 1,103 (1,054) 3,819 2,482
-------- --------- ---------- ---------
Net income (loss) $ 16,980 $ (10,978) $ 96,997 $ (51,521)
========= ========= ========== ==========
Cash operating profit $ 113,505 $ 105,850 $ 366,025 $ 285,641
========= ========= ========== ==========
Basic earnings (loss) per
share $ 0.13 $ (0.08) $ 0.75 $ (0.40)
========= ========== ========== ==========
Basic weighted average
shares outstanding, in
thousands 129,543 129,705 129,516 129,691
========= ========== ========= ==========
Diluted earnings (loss)
per share $ 0.13 $ (0.08) $ 0.74 $ (0.40)
========= ========== ========== ==========
Diluted weighted average
shares outstanding, in
thousands 130,267 130,052 130,580 130,524
========= ========= ========== ==========
</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)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1998 1999
--------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 140,003 $ 170,763
Cash flows from investing activities:
Additions to property, plant and equipment (243,541) (149,098)
Purchases of investments (41,436) (152,935)
Proceeds from sale of investment 206 542
Proceeds from sale of property, plant and
equipment 4,232 22,172
Acquisition of minority interest (28,306) --
Purchases of bottles and cases, net (97,001) (46,318)
Other (5,190) (3,942)
--------- ---------
Net cash used in investing activities (411,036) (329,579)
Cash flows from financing activities:
Payment of bank loans (293,020) (226,007)
Proceeds from bank loans and other
long-term borrowings 380,200 533,172
Payment of dividends to minority interest (309) (765)
Payment of dividends to shareholders (23,588) (23,361)
Issuance of capital stock 2,001 1,018
Acquisition of capital stock (1) --
Other 251 (96)
--------- ---------
Net cash (used in) provided by financing
activities 65,534 283,961
Effect of exchange rate changes on cash (5,059) (8,692)
--------- ---------
Net (decrease) increase in cash and
equivalents (210,558) 116,453
Cash and equivalents at beginning of period 332,995 131,152
--------- ---------
Cash and equivalents at end of period $ 122,437 $ 247,605
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for-
Interest $68,685 $89,369
======= =======
Income taxes $68,413 $25,572
======= =======
</TABLE>
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 September 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 September 30, 1999, and
the results of operations for the three-month and nine-month periods ended
September 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 1, 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 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. 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 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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Net Sales $ (2,563) $ (377) $ (3,215) $ (805)
Cost of sales and operating
expenses 11,790 5,894 15,464 8,049
Interest and other income 4,881 1,532 5,621 109
Provision for income taxes 2,805 589 (2,590) 1,791
-------- -------- -------- --------
Net translation gain $16,913 $ 7,638 $ 15,280 $ 9,144
======== ======== ======== ========
</TABLE>
(2) Inventories
December 31, September 30,
1998 1999
----------- -----------
Bottled beverages and coolers $ 47,309 $ 31,759
Raw materials 52,955 41,786
Spare parts and supplies 50,610 57,526
-------- --------
150,874 131,071
Less-- Allowance for obsolete and slow- 1,487 1,683
-------- --------
moving items
$149,387 $129,388
======== ========
(3) Property, plant, equipment, bottles and cases, net
December 31, September 30,
1998 1999
----------- ------------
Property, plant and equipment $2,124,694 $2,054,798
Less-- Accumulated depreciation 817,104 828,456
---------- ----------
1,307,590 1,226,342
Bottles and cases, net 337,609 308,169
---------- ----------
$1,645,199 $1,534,511
========== ==========
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-month and nine-month periods ended September 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 nine
month ended September 30, 1998 and 1999 with related parties is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ ------------
<S> <C> <C>
Accounts payable:
Subsidiaries of Coca-Cola $37,920 $26,426
Cervejarias Kaiser 2,464 320
Productos de Vidrio, S.A 9,847 1,433
Central Azucarero Portuguesa,
C.A 1,628 1,498
Tapon Corona de Colombia, S.A 1,936 417
Comptec, S.A 92 302
------- ------
$53,887 $30,396
======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1999 1998 1999
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Income:
Marketing expense support $ 14,293 $ 9,149 $ 52,915 $ 32,193
Capital expenditure grants 8,649 (362) 24,027 3,193
Other 811 146 1,276 1,442
-------- -------- -------- --------
$ 23,753 $ 8,933 $ 78,218 $ 36,828
======== ======== ======== ========
Expenses:
Purchase of concentrate $ 80,938 $ 84,656 $240,752 $228,546
Purchase of beer 42,203 16,432 134,538 55,922
Purchase of other inventory 8,103 6,216 27,892 21,000
-------- -------- -------- --------
$131,244 $107,304 $403,182 $305,468
======== ======== ======== ========
</TABLE>
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 Bank of Boston 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 a 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.
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
9
<PAGE>
$300 million with quarterly interest payments. The proceeds were used to repay
short-term bank loans of the Company.
(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 nine-month periods ended
September 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------
1998 1999 1998 1999
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 16,980 $ (10,978) $ 96,997 $ (51,521)
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 (2,047) (33,939) (21,900) (106,308)
-------- --------- -------- ---------
$ 14,933 $(44,917) $ 67,437 $(172,757)
======== ========= ======== =========
</TABLE>
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)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- -------------------
1998 1999 1998 1999
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Income statement data:
Net sales $ 160,289 $ 212,631 $ 477,563 $ 586,886
Cost of sales, excluding
depreciation and amortization 75,408 99,079 228,141 278,881
--------- --------- --------- ---------
Gross profit 84,881 113,552 249,422 308,005
Operating expenses:
Selling, general and
administrative 48,074 62,096 153,175 180,789
Depreciation and amortization,
excluding goodwill 8,954 9,785 24,378 27,421
Amortization of goodwill 711 748 2,134 2,191
--------- --------- --------- ---------
57,739 72,629 179,687 210,401
Operating income 27,142 40,923 69,735 97,604
Interest (expense) - net (3,275) (2,566) (7,868) (7,592)
Other income (expense) - net 830 (27) 8,864 5,203
--------- -------- --------- ---------
Income before income taxes 24,697 38,330 70,731 95,215
Income taxes 8,837 12,513 24,592 31,079
--------- ------- --------- ---------
Income before minority interest 15,860 25,817 46,139 64,136
Minority interest in Panamco 598 975 1,741 2,422
--------- -------- --------- ---------
Mexico subsidiaries
Net income attributable to Panamco 15,262 24,842 44,398 61,714
Mexico
Minority interest in Panamco 282 461 823 1,146
--------- --------- --------- --------
Mexico
Net income attributable to Panamco $14,980 $ 24,381 $ 43,575 60,568
========= ========= ========= =========
Cash operating profit $ 36,807 $ 51,456 $ 96,247 $ 127,216
========= ========= ========= =========
Unit case sales data (in millions):
Soft drinks 66.4 70.0 191.6 203.1
Water 29.0 35.3 83.4 104.6
Other products 0.3 0.7 1.0 1.8
</TABLE>
11
<PAGE>
Panamco Brasil
(Unaudited)
(Stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -----------------
1998 1999 1998 1999
---------- ------- -------- -----
<S> <C> <C> <C> <C>
Income statement data:
Net sales $ 202,379 $ 116,976 $ 661,422 $368,293
Cost of sales, excluding
depreciation and
amortization 119,106 70,173 397,839 226,309
--------- --------- --------- ---------
Gross profit 83,273 46,803 263,583 141,984
Operating expenses:
Selling, general and
administrative 63,330 37,814 190,377 115,428
Depreciation and 10,440 7,190 34,500 24,039
amortization, 304 467 932 1,492
excluding goodwill --------- --------- -------- --------
Amortization of goodwill
74,074 45,471 225,809 140,959
--------- --------- --------- ---------
Operating income 9,199 1,332 37,774 1,025
Interest (expense)-net (2,377) (3,998) (11,998) (10,921)
Other (expense)-net (4,244) (10,194) (1,959) (41,255)
--------- --------- --------- ---------
Income (loss) before income
taxes 2,578 (12,860) 23,817 (51,151)
Income taxes (2,368) (3,684) (3,623) (14,247)
--------- --------- ---------- ---------
Income (loss) before minority
interest 4,946 (9,176) 27,440 (36,904)
Minority interest in Panamco 68 (133) 768 527
Brasil subsidiaries -------- --------- --------- --------
Net income (loss)
attributable to Panamco $ 4,878 $ (9,043) $ 26,672 $ (36,377)
========= ========= ========= =========
Cash operating profit $ 19,943 $ 8,989 $ 73,206 $ 26,556
========= ========= ========= =========
Unit case sales data
(in millions):
Soft drinks 50.2 61.5 158.5 168.3
Water 2.4 2.8 7.6 9.2
Beer 14.6 15.7 41.9 43.1
</TABLE>
12
<PAGE>
Panamco Colombia
(Unaudited)
(Stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -------------------
1998 1999 1998 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Income statement data:
Net sales $ 121,991 $ 90,456 $ 372,544 $ 295,965
Cost of sales, excluding
depreciation and
amortization 52,945 40,996 165,269 131,602
--------- --------- --------- ---------
Gross profit 69,046 49,460 207,275 164,363
Operating expenses:
Selling, general and
Administrative 41,445 31,287 120,987 108,983
Depreciation and 13,791 14,949 40,706 44,082
amortization --------- --------- --------- --------
55,236 46,236 161,693 153,065
--------- --------- --------- ---------
Operating income 13,810 3,224 45,582 11,298
Interest (expense)-net (1,172) (77) (2,704) (2,943)
Other income-net 2,913 217 5,533 1,785
---------- --------- --------- ---------
Income (loss) before income
taxes 15,551 3,364 48,411 10,140
Income taxes 1,489 840 6,380 2,138
--------- --------- --------- ---------
Income before minority 14,062 2,524 42,031 8,002
interest Minority interest 35 28 68 69
in Panamco Colombia ------- --------- --------- ---------
subsidiaries
Net income attributable to 14,027 2,496 41,963 7,933
Panamco Colombia 386 68 1,156 218
Minority interest --------- ------ --------- ---------
in Panamco
Colombia
Net income attributable $ 13,641 $ 2,428 $ 40,807 $ 7,715
to Panamco
======== ========= ========= =========
Cash operating profit $ 27,601 $ 18,173 $ 86,288 $ 55,380
========= ========= ========= =========
Unit case sales data
(in millions): 44.2 38.0 142.2 113.3
Soft drinks 10.4 9.5 34.0 29.3
Water
</TABLE>
13
<PAGE>
<
Panamco Colombia
(Unaudited)
(Stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
1998 1999 1998 1999
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Income statement data:
Net sales $ 129,562 $ 134,290 $ 412,595 $ 372,213
Cost of sales, excluding
depreciation and
amortization 62,574 61,727 196,501 171,553
--------- --------- --------- --------
Gross profit 66,988 72,563 216,094 200,660
Operating expenses:
Selling, general and 44,932 52,253 134,072 149,876
administrative
Depreciation and
amortization 16,329 18,028 47,329 54,049
--------- -------- --------- --------
61,261 70,281 181,401 203,925
--------- --------- -------- --------
Operating income (loss) 5,727 2,282 34,693 (3,265)
Interest (expense)- net (2,420) (4,747) (6,908) (12,774)
Other income-net 2,394 329 7,790 2,206
--------- --------- -------- --------
Income (loss) before income 5,701 (2,136) 35,575 (13,833)
Tax
Income taxes 1,429 4,209 6,351 7,578
--------- --------- --------- --------
Net income (loss) $ 4,272 $ (6,345) $ 29,224 $ (21,411)
attributablle to Panamco ========= ========= ========= =========
Cash operating profit $ 22,056 $ 20,310 $ 82,022 $ 50,784
========= ========= ========= =========
Unit case sales data
(in millions):
Soft drinks 46.7 36.4 147.9 110.5
Water 4.4 4.7 9.5 13.3
Beer -- 0.2 -- 0.3
Other products 1.4 1.9 4.6 4.8
</TABLE>
14
<PAGE>
Panamco Central America
(Costa Rica, Guatemala and Nicaragua)
(Unaudited)
(Stated in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ----------------
1998 1999 1998 1999
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Income statement data:
Net sales $ 49,256 $ 50,765 $ 139,998 157,115
Cost of sales excluding
depreciation and
amortization 24,305 24,264 66,206 73,566
--------- --------- --------- -------
Gross profit 24,951 26,501 73,792 83,549
Operating expenses:
Selling, general and
administrative 15,446 16,071 44,508 50,206
Depreciation and 4,773 4,406 10,507 13,332
amortization,excluding
goodwil
Amortization of goodwill 71 63 219 196
--------- --------- --------- --------
20,290 20,540 55,234 63,734
--------- --------- --------- ---------
Operating income 4,661 5,961 18,558 19,815
Interest (expense)-net (853) (455) (2,106) (1,464)
Other income (expense)-net 325 (2,186) 369 (4,644)
-------- --------- --------- ---------
Income before income taxes 4,133 3,320 16,821 13,707
Income taxes 1,039 1,049 4,820 4,145
--------- --------- --------- --------
Net income attributable
to Panamco $ 3,094 $ 2,271 $ 12,001 $ 9,562
========= ========= ========= =========
Cash operating profit $ 9,505 $ 10,430 $ 29,284 $ 33,343
========= ========= ========= =========
Unit case sales data
(in millions):
Soft drinks 16.0 16.8 45.8 51.2
Water 0.6 0.9 1.5 2.7
Other products 0.2 0.1 0.4 0.4
</TABLE>
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
September 30, 1999 and for the three-month and nine-month periods ended
September 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 September 30, 1999, for the third quarter of
1999, minority shareholdings in the consolidated subsidiaries of the Company
represented an interest in the aggregate of approximately (10.6%) 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 profit means operating income 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
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.
16
<PAGE>
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 September 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 September 30, 1999 Compared to Three
Months Ended September 30, 1998
Consolidated Results of Operations
Consolidated net sales for the third quarter ended September 30,
1999, decreased 8.8% to $605.1 million from $663.5 million in the 1998 third
quarter, mainly due to the effect of continued weakness in the Colombian and
Brazilian economies. Total consolidated unit case sales volume in the 1999
third quarter increased 2.7% to 294.6 million, from 286.8 million in the 1998
third quarter, and on a comparable basis (excluding the new R.O.S.A.
franchises) increased 1.2%. Consolidated soft drink sales volume for the
period was flat, reflecting declines of 14.0% in Colombia, and 22.2% in
Venezuela, offset by increases of 22.5% in Brazil, 5.5% in Mexico and 4.8% in
the Central American Region. The increases in sales volume in Brazil is
primarily attributable to Panamco's promotional pricing strategy. Consolidated
unit case sales volume of bottled water increased 14.2% to 53.4 million, and
unit case sales volume of beer, sold in Brazil and, as of February 1999, in
Venezuela, increased to 15.9 million.
Cost of sales as a percentage of net sales decreased to 49.0% during
the 1999 third quarter from 50.4% in the 1998 third 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 44.0%
during the 1999 third quarter from 42.0% during the 1998 quarter mainly driven
by higher general and administrative expenses. Depreciation and amortization
expenses, increased 0.2% to $63.0 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 [and the
absence of recognition of the benefit for the tax loss carry-forward of 1999
because of the uncertainty that they will be amortized.
Operating income decreased 15.4% to $42.8 million or 7.1% of net
sales during third quarter 1999 compared to $50.6 million or 7.6% of net sales
in 1998.
Cash operating profit for the third quarter 1999 was $105.9 million
compared to $113.5 million for the same period 1998.
Interest expense, net, increased to $23.1 million during the 1999
third quarter from $19.1 million in the 1998 third quarter, due primarily to
increased debt in Venezuela and Colombia incurred in order to fund short term
operating needs.
Other expense, net, was $13.0 million during the third quarter of
1999 compared to income of $.1 million during the third quarter of 1998. The
increase in other expense, net, was
17
<PAGE>
mainly due to a foreign exchange loss of $7.0 million resulting from the
devaluation of the Brazilian Real. 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 to 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
third quarter of 1999 compared to the 1998 period. Minority interest remained
constant at $1.1 million.
The consolidated effective income tax rate increased to 246.6% in
the 1999 third quarter from 42.6% in the third quarter of 1998 as a result of
the asset tax (minimum tax) paid by Panamco Venezuela where the Company
reported a loss before income taxes during the third quarter of 1999 of $2.1
million compared to net income before income taxes of $5.7 million during the
same period in 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 above, the Company's net income decreased 164.7%
to a net loss of $11.0 million for the third quarter of 1999 compared to net
income of $17.0 million in 1998 third quarter.
Regional Results
Mexico
Panamco Mexico reported an increase in net sales of 32.7% to $212.6
million during the third quarter of 1999, compared to $160.3 million in the
1998 third quarter. Soft drink sales increased 30.1% on volume growth of 5.5%
to 70.0 million unit and a 23.4% price increase in dollar terms. Water volume
grew 21.8% to 35.3 million-unit cases, mainly due to increased coverage of our
franchise territories. During the quarter, Panamco Mexico increased its soft
drink market share 0.3 points to 79.6%.
Cost of sales as a percentage of net sales dropped to 46.6% in the
1999 third quarter versus 47.0% during third quarter of 1998, mainly due to
continued cost savings in raw materials, partially offset by higher packaging
expenses related to an increase in the usage of nonreturnable packaging.
Operating expenses increased 25.8% in the 1999 third quarter to
$72.6 million from $57.7 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.
Additionally, selling, general and administrative expenses increased as a
result of 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 32.7% increase in net sales, operating expenses
as a percentage of net sales decreased to 34.2% in the third quarter of 1999
from 36.0% in the 1998 quarter.
18
<PAGE>
Cash operating profit increased 39.8% to $51.5 million, or 24.2% of
net sales, from $36.8 million, or 23.0% of net sales, in the 1998 third
quarter. Operating income increased 50.8% to $40.9 million from $27.1 million
in the third quarter of 1998.
Interest expense, net, dropped 21.6% to $2.6 million compared to
$3.3 million in the third quarter 1998 as a result of a higher net debt position
resulting from short- term capital needs.
Other expense, net, increased to $0.03 million from other income,
net, of $0.9 million 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 dropped to 32.6% from
35.8% in the year ago period as a result of different tax strategies employed
in 1999.
As a result of the above, net income contributed by Panamco Mexico
to the Company increased 62.8% to $24.4 million for the third quarter of 1999
compared to $15.0 million in the third 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 third quarter net sales of $117.0 million, a decrease of 42.2%
from the 1998 quarter. Unit case sales volume of soft drinks increased 22.5%
to 61.5 million, or 15.5% excluding the 3.1 million unit cases contributed by
R.O.S.A., as a result of Panamco's promotional pricing strategy. Beer volume
grew 7.6% to 15.7 million-unit cases and bottled water volume increased 16.6%
to 2.8 million-unit cases. The decrease in revenue was mainly attributable to
a 63.4% devaluation of the real. Despite this scenario and strong competition
from B brands, Panamco Brasil was able to increase its market share 4.4 points
to 58.6% compared to the same period in 1998.
Cost of sales as a percentage of net sales increased to 60.0% in the
1999 third quarter from 58.9% in the 1998 quarter as a result lower production
efficiencies, and the effects of the devaluation, 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 38.9% from
36.6% in the 1998 quarter, mainly due to an increase in marketing and
merchandising activities increased in connection with Panamco Brasil's
promotional pricing strategy.
Cash operating profit decreased 54.9% to $9.0 million, or 7.7% of
net sales, from $19.9 million, or 9.9% of net sales, in third quarter of 1998.
Operating income decreased to $1.3 million from $9.2 million in the 1998 third
quarter.
Interest expense, net, increased 3.4% to $4.0 million in third
quarter 1999 from $2.4 million in the 1998 quarter as a result of net the
incurrence of additional debt to fund short-term operating needs.
19
<PAGE>
Other expense, net, decreased to $10.2 million in the 1999 third
quarter $4.2 million in the 1998 quarter, mainly due to a foreign exchange
loss of $ 7.0 million as a result of the effect of a 63.4% year to date
devaluation of the Brazilian real, lower contributions for capital
expenditures from The Coca-Cola Company, and Changes in cold Equipment capital
participation program discussed above, and an equity loss of $1.4 in
Cervejarias Kaiser.
The effective income tax rate increased to 28.6% in third quarter
1999 from a negative rate of 91.9% 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
Brasil to the Company decreased 285.5% to a loss of $9.2 million in the third
quarter of 1999 from income of $4.9 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 $90.5 million for the 1999 third quarter, down 25.9% from the 1998
period. Sales volume of soft drinks and water decreased 14.0% and 8.0%,
respectively, to 38.0 million and 9.5 million unit cases, as a result of the
economic recession in Columbia, a 12-month devaluation of the Colombian peso
of 32.2%, partially offset by a 13.7% price increase in local currency versus
the same period in 1998, and political turmoil affecting Colombia. Panamco
Colombia strengthened its position in the Colombian market, increasing its
market share to 65.4% by the end of the three-month period ended September 30,
1999, up 4.7 points compared to the same period last year.
Cost of sales as a percentage of net sales decreased slightly to
45.3% during the third quarter of 1999 from 43.4% 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 nonreturnable packaging.
Operating expenses decreased 16.3% to $46.2 million in 1999 compared
to $55.2 million in the prior year period, mainly due to a decrease in salary
expenses as a result of a reduction in the size of the workforce, lower
general and administrative expenses, and lower sales and marketing expenses,
partially offset by higher depreciation and amortization expense related to
Panamco's ongoing capital expenditure program. As a percentage of net sales,
operating expenses increased to 51.1% during the third quarter of 1999 from
45.3% during same period in 1998.
Cash operating profit decreased 34.2% to $18.2 million, or 20.1% of
net sales, from $27.6 million, or 22.6% of net sales, in the prior year
period, and operating income decreased 76.7% to $3.2 million.
Interest expense, net, increased to $0.7 million compared to $1.2
million in the 1998 third quarter as a result of the incurrence of additional
debt to fund short- term operating needs.
Other income, net, dropped 92.6% to $0.2 million from $2.9 million
as a result of lower contributions for capital expenditures from The Coca-Cola
Company, and Changes in cold Equipment capital participation program discussed
above.
21
<PAGE>
The effective income tax rate increased to 25.0% in the 1999 third
quarter from 9.6% in the 1998 quarter as a result of tax planning strategies
employed in 1998, which were not repeated in 1999.
As a result of the above, net income contributed by Panamco Colombia
to the Company decreased 82.1% to $2.4 million in the 1999 third quarter
compared to $13.6 million in the third quarter of 1998.
Venezuela
For the third quarter of 1999, Panamco Venezuela reported net sales
of $134.3 million, up 3.6% from $129.6 million in the 1998 third quarter.
Sales volume decreased 17.8% to 43.1 million unit cases, reflecting reductions
of 22.2% in unit case sales of soft drinks, and 9.4% in unit case sales of
malt, partially offset by a 33.9% increase in unit case sales of bottled
water. During the third quarter of 1999, Panamco Venezuela sold 0.2 million
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 69.5%
Cost of sales as a percentage of net sales decreased to 46.0% during
the third quarter of 1999 from 48.3% during the same period in 1998 as a
result of the lower volume during this quarter, slightly offset by salary
increases and higher cost of concentrate.
Operating expenses increased 14.7% to $70.3 million in 1999 compared
to $61.3 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 52.3% during the
third quarter of 1999 from 47.3% during same period in 1998 mainly as a result
of increased selling and distribution expenses of $7.2 million and a 17.0%
salary increase during the second quarter which affected this quarter results
by $5.2 million.
Cash operating profit decreased 7.9% to $20.3 million, or 15.1% of
net sales, from $22.1 million, or 17.0% of net sales, in the prior year
period, and operating income decreased 60.2% to $2.3 million from $5.7 million
in the third quarter 1998.
Interest expense, net, increased during the third quarter of 1999 to
$4.7 million from $2.4 million as a result of an increase in debt in the third
quarter of $55.5 million incurred in connection with short-term operational
needs.
Other income, net, dropped 86.3% to $0.3 million from $2.4 million
in the 1998 quarter as a result of lower contributions for capital
expenditures from The Coca-Cola Company.
The effective income tax rate increased to 197.1% from 25.1% 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 $2.1 million loss
before income taxes of that franchise.
Net income contributed by Panamco Venezuela to the Company decreased
248.5% to a net loss of $6.3 million in the 1999 third quarter compared to net
income of $4.3 million in the third quarter of 1998.
21
<PAGE>
Central America
Panamco's Central American region includes franchises in Costa Rica,
Nicaragua and Guatemala. The region reported net sales of $50.8 million for
the third quarter of 1999, an increase of 3.1 % from $49.3 million in the 1998
quarter. Volume for the region grew 6.6% to 17.8 million unit cases. Soft
drink volume was 16.8 million unit cases, or a 4.8% increase compared to the
1998 third quarter and water volume grew 62.9% to 0.9 million unit cases.
During the 1999 third quarter, Panamco's market share in the region increased
to 92.1 % in Costa Rica from 87.4%, 42.7% in Guatemala from 42.6% and 81.9% in
Nicaragua from 80.6%.
Cost of sales as a percentage of net sales decreased to 47.8% during
the third quarter of 1999 from 49.3% in the same period of 1998, due mainly to
lower raw material costs, and lower other cost in all countries.
Operating expenses as a percentage of net sales decreased to 40.5%
from 41.2% during the same period last year due to continued expense controls,
partially offset by higher depreciation expenses for Panamco Central America
in general due to Panamco's continued capital expenditure program.
Cash operating profit increased 9.7% to $10.4 million in 1999, or
20.5% of net sales, from $9.5 million, or 19.3% of net sales, in 1998.
Operating income increased 27.9% to $6.0 million, or 11.7% of net sales, in
the 1999 third quarter from $4.7 million, or 9.5% of net sales, in the 1998
period.
Interest expense, net, increased 46.7% in the 1999 third quarter to
$0.5 from $0.9 million in the 1998 quarter due to increased debt in Guatemala
incurred to finance capital investments.
Other expense, net, increased to $2.2 million during the third
quarter 1999, from other income, net, of $.3 million, mainly attributable to
an exchange loss of $1.2 million in Guatemala as a result of a 6.3%
devaluation of the Guatemalan quetzal.
Net income contributed to the Company by the Central American region
decreased 26.6% to $2.3 million, from $3.1 million, during the same period in
1998.
Nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998.
Consolidated Results of Operations
Consolidated net sales decreased 13.7% to $1.8 billion during the
first nine months of 1999 from $2.1 billion during the first nine months of
1998, mainly due to the effect of the poor economies in Brazil, Colombia, and
Venezuela, resulting in decreased sales volume in soft drinks in Colombia and
Venezuela, offset by increased volumes in Mexico and Central America and
increased sales volume of water in all countries except Colombia. Increased
sales volumes in these countries were due to Marketing Strategic Initiatives.
Unit case volume increased in Brazil, although sales were lower compared to
the 1998 period due to Panamco Brasil's promotional pricing strategy. Soft
drink sales volumes in the first nine months of 1999 were up 6.0% in Mexico,
6.2% in Brazil and 11.8% in Central America, but 20.3% and 25.3% lower in
Colombia and Venezuela, respectively. As a result, net consolidated sales
volume decreased 5.8%. Beer sales volume, now sold in both Brazil and
Venezuela, increased 3.5% to 43.4 million unit cases (including .3 million
unit cases from Venezuela). Bottled water volume increased 25.4% in Mexico,
20.9% in Brazil, 40.3% in Venezuela and 81.2% in Central
22
<PAGE>
America, and dropped 13.7% in Colombia, resulting in a net consolidated
increase of bottled water volume of 17.1%. Overall unit case volume dropped by
1.6%.
Cost of sales as a percentage of net sales decreased to 49.5% during
the first half of 1999 from 51.1% during the first nine months of 1998. This
resulted primarily from cost savings in raw materials and packaging in all
countries due to improved procurement contracts and Production efficiencies.
Operating expenses as a percentage of net sales increased to 45.0%
during the first nine months of 1999 from 40.1% in the same period in the
prior year as a result of higher sales expenses in all franchises due to
increased sales promotion activities, as well as increased depreciation and
amortization expenses due to Panamco's continued capital expenditure program
and goodwill charges generated by the acquisition of R.O.S.A. and of minority
interests in Brazil during the 1998 second quarter. During the first nine
months of 1999 we spent $149.1 million on our capital expenditure program,
which has included the placement of cold product equipment in all channels,
the expansion of distribution infrastructure, plant modernization in Mexico
and the introduction of new bottles and cases into the market.
Operating income decreased 47.2% to $96.7 million from $183.2
million in the first nine months of 1998. Cash operating profit decreased
22.0% in the first nine months of 1999 to $285.6 from $366.0 million during
the first nine months of 1998.
Net interest expense increased to $69.9 million during the first
nine months of 1999 from $56.3 million during the first nine months of 1998
due to increased indebtedness resulting from $300 million syndicated loan
entered into during the first quarter of 1999. With a term of three years, the
loan acrrues interest at a rate of LIBOR plus 3- 1/8%, plus or minus the
average change in the J.P. Morgan Latin Euro Index in the previous quarter,
with a cap of plus 162.5 basis points and a floor of minus 75 basis points.
The proceeds of this loan were used to refinance existing debt of the Company
of $160 million and for general corporate purposes to long term debt. Total
net debt increased to $1.1 million at September 30, 1999 from $1.0 million at
September 30, 1998.
Other expense, net, increased to $40.1 million during the first nine
months of 1999 from other income, net, of $18.3 million during the first nine
months of 1998, driven primarily by foreign exchange losses in Brazil of $33.2
million due to a 59.0% devaluation of the real during the period, decreased
equity in earnings at Cervejarias Kaiser in Brazil and lower contributions for
capital expenditures from The Coca-Cola Company. Additionally, during the
second quarter of 1999, Coca-Cola changed its cold equipment capital
participation program so that any funds received by us during 1999 and future
years will be recognized in income in installments over a 60-month period.
Our ability to include such amounts in income will also depend on whether we
meet certain earnings targets. Prior to the change, such amounts were included
in income in a lump sum, upon receipt, without regard to our earnings.
The consolidated effective income tax rate increased 272.4% to
172.4%% during the first nine months of 1999 from 30.6% during the first nine
months of 1998. The increase was due to tax benefits recorded in the first
nine months of 1998 in Brazil and Colombia, which were not repeated in the
1999 period, 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 our uncertainty that it will have
sufficient taxable income in the near-term to offset against such benefits.
23
<PAGE>
As a result of the foregoing, net loss for the first nine months of
1999 increased 153.1% to $51.5 million from net income of $97.0 million in the
first nine months of 1998.
Regional Results
Mexico
Panamco Mexico, which operates in central Mexico, excluding Mexico
City, reported net sales of $586.9 million during the first nine months of
1999, a decrease of 22.9% from $477.6 million during the first nine months of
1998, resulting from increased sales volume in water and soft drinks due to
Marketing Strategic Initiatives. Soft drink sales volume increased 6.0%
representing an increase in market share from 79.3 to 79.6, and sales volume
for bottled water increased 25.4%. The sales volume growth in water was mainly
due to the continued increase in water jug volume due to consumer demand for
larger size presentations.
Cost of sales as a percentage of net sales was 47.5% during the
first nine months of 1999 as compared to 47.8% during the first nine 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 35.9%
during the first nine months of 1999 from 37.6%. Although there was an
increase in net sales, this was offset by higher selling and administrative
costs, mainly attributable to increases in sales commissions, distribution,
promotional expenses [due to increased competition] and increased depreciation
expense related to our continued capital expenditure program in Mexico. In
1999, we spent $29.2 million related mainly to Strategic Programs. Higher
selling and administrative costs were due to the continued expansion of our
100 meter program and cold equipment placement program.
Operating income increased by 40.0% to $97.6 million and as a
percentage of net sales was 16.6% in the first nine months of 1999 compared to
14.6% in the first nine months of 1998. Cash operating profit increased 32.2%
to $127.2 million in the first nine months of 1999 from $96.2 million in the
first nine months of 1998.
Net interest expense during the first nine months of 1999 decreased
by 3.5% to $7.6 million from $7.9 million in the first nine months of 1998 due
to a decrease in net debt at the end of the third quarter 1999 as a result of
payment of short-term debt and improved financing conditions. Net debt was
negative $32.7 million at September 30, 1999 compared to $11.4 million at
September 30, 1998.
Other income, net, was $5.2 million for the first nine months of
1999, compared to $8.9 million in the first nine months of 1998, due to a
decrease in contributions received from The Coca-Cola Company for capital
expenditures and changes in The Coca-Cola Company's cold equipment capital
participation program discussed above.
The effective income tax rate for the first nine months of 1999 was
32.6% compared to 34.8% for the same period of 1998.
As a result of the foregoing, net income contributed by Panamco
Mexico to the Company increased 39.0% to $60.6 million during the first nine
months of 1999 from $43.6 million in the first nine months of 1998.
24
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Beginning in 1999, we discontinued classifying Mexico as a highly
inflationary economy. Accordingly, the functional currency of our 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 Matto Grosso do Sul regions of Brazil, reported net sales of $368.3
million during the first nine months of 1999, a decrease of 44.3% from $661.4
during the first nine months of 1998. Total sales volume increased 6.0% to
220.6 million unit cases, as a result of Panamco's promotional pricing
strategy in place during the first nine months of 1999 due to competition from
the "B" brands. Higher sales volumes were offset by lower per unit prices.
Beer volume increased 2.9% to 43.1 million unit cases from 41.9 million unit
cases in the comparable period in the prior year. Water volume increased 6.2%
to 168.3 million unit cases and soft drink sales.
Cost of sales as a percentage of net sales increased to 61.4% during
the first nine months of 1999 from 60.1% during the first nine months of 1998.
The increase is attributable to higher labor costs, partially offset by a
reduction raw material costs (mostly cans and plastic bottles) and production
cost efficiencies.
Operating expenses as a percentage of net sales increased to 38.3%
during the first nine months of 1999 from 34.1% during the first nine months
of 1998, as a result of an increase in depreciation and amortization expense
of $9.9 million related to the modernization program initiatives pursuant to
our continued capital expenditure program and higher promotional expenses
related to the promotional pricing strategy put into effect during 1999.
Operating income decreased by 97.3% to $1.0 million from $37.8
million in the first nine months of 1998 due to lower sales. Cash operating
profit decreased 63.7% to $26.6 million in the first nine months of 1999 from
$73.2 million in the first nine months of 1998.
Net interest expense decreased by 9.0% to $10.9 million in the first
nine months of 1999 from $12.0 million in the first nine months of 1998 as a
result of improved financing conditions resulting in lower interest costs and
repayment of short-term debt. Net debt was $68.7 million at September 30, 1999
compared to $98.2 million at September 30, 1998.
Other expense, net, increased to $41.3 million from $1.9 million in
the first nine months of 1998 as a result of a $33.2 million foreign exchange
loss due to the devaluation of the real, lower equity in earnings of
Cervejarias Kaiser, lower contributions for capital expenditures from The
Coca- Cola Company and changes in The Coca-Cola Company's cold equipment
capital participation program discussed above.
The effective income tax rate increased to 27.9% from (15.2)% as a
result of tax benefits used in 1998, which were not available in 1999.
As a result of the above, net loss contributed to Panamco by Panamco
Brasil increased 236.4% to $36.4 million during the first nine months of 1999
from net income of $26.7 million in the first nine months of 1998.
Colombia
Panamco Colombia, which serves more than 92% of the population of
Colombia, reported net sales of $296.0 million during the first nine months of
1999, a 20.6% decrease from
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$372.5 million during the first nine months of
1998. The decrease is mainly due to lower total unit case volume of 19.0%
resulting from a decrease in soft drink volume of 20.3% and a decrease in
water volume of 13.7%. In dollar terms, average soft drink prices decreased
0.8% compared to the same period last year as a result of a 22.7% devaluation
of the Colombian peso and an inflation rate of 7.8% in local currency. The
decrease in sales volume is due to the devaluation of the Colombian peso,
economic recession and political turmoil. Panamco Colombia's total market
share was 65.4 compared to 60.7 in the same period in 1998.
Cost of sales as a percentage of net sales remained fairly constant
at 44.5% during the first nine months of 1999 compared to 44.4% during the
first nine months of 1998, as a result of lower raw material costs, slightly
offset by higher costs associated with the increase in sales of nonreturnable
presentations.
Operating expenses as a percentage of net sales increased to 51.7%
during the first nine months of 1999 from 43.4% during same period 1998,
mainly due to higher depreciation expenses related to Panamco's ongoing
capital expenditure program, and higher selling and distribution expenses.
Operating income dropped to $11.3 million in the first nine months
of 1999 from $45.6 million in the same period of 1998, a decrease of 75.2%,
primarily as a result of lower sales. Cash operating profit decreased 35.8% to
$55.4 million in the first nine months of 1999 from $86.3 million in the first
nine months of 1998.
Net interest expense increased to $2.9 million during the first nine
months of 1999 from $2.7 million in the same period of 1998, due mainly to a
higher net debt position during the quarter ended September 30, 1999, and a
new governmental tax on financial transactions, which came into effect in the
fourth quarter of 1998. Net debt was $42.9 million at September 30, 1999
compared to $50.6 million at September 30, 1998.
Other income, net, decreased 67.7% to $1.8 million in the first nine
months of 1999 from $5.5 million in the same period 1998 primarily due to
lower contributions from Coca Cola for capital expenditures and changes in The
Coca-Cola Company's cold equipment capital participation program discussed
above.
The effective income tax rate increased to 21.1% in the first nine
months of 1999 from 13.2% in 1998 primarily due to the recognition of tax
credits recorded during the first quarter of 1998, which were not available in
1999.
As a result of the above, net income contributed by Panamco Colombia
to the Company decreased 81.1% to $7.7 million during the first nine months of
1999 from $40.8 million in the first nine months 1998.
Venezuela
Panamco Venezuela, which began operations on May 1, 1997, and covers
all of Venezuela, reported net sales of $372.2 million during the first nine
months of 1999, a decrease of 9.8% from $412.6 million during the first nine
months of 1998. The decrease was mainly due to lower total unit case volume of
20.4% attributable to a decrease in soft drink volume of 25.3%, which was
partially offset by increased water volume of 40.3%. Beer, which we began
selling during the second quarter of 1999 contributed 0.3 million unit cases
to our sales volume. This significant drop in sales volume is attributable to
poor economic conditions in Venezuela
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and a highly competitive environment. Panamco's market share for soft drinks
fell by 5.3 points during the first nine months of 1999 to 69.5.
Cost of sales as a percentage of net sales decrease to 46.1% during
the first nine months of 1999 from 47.6% during the first nine months of 1998,
as a result of a 17% increase in salaries, offset by cost reduction programs
implemented throughout the first six months of 1999 and a drop in volume,
which resulted in lower production costs. Additionally, cost of sales includes
$1.8 million of costs associated with plant closings.
Operating expenses as a percentage of net sales increased to 54.8%
during the first nine months of 1999 from 44.0% 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.
Operating loss increased 109.4% to $3.3 million in the first nine
months of 1999 from operating income of $34.7 million in the same period of
1998 primarily as a result of decreased sales. Cash operating profit decreased
38.1% to $50.8 million in the first nine months of 1999 from $82.0 million in
the first nine months of 1998.
Net interest expense increased to $12.8 million during the first
nine months of 1999 from $6.9 million in the same period of 1998, due mainly
to increased net debt position over the nine months ended September 30, 1999
as a result of increased short-term working capital needs. Net debt was $154.6
million at September 30, 1999 compared to $118.1 million at September 30,
1998.
Other income, net, decreased 71.7% to $2.2 million from $7.8 million
as a result of lower contributions for capital expenditures from The Coca-Cola
Company and changes in The Coca-Cola Company's cold equipment capital
participation program discussed above.
The effective income tax rate increased to 54.8% in the first nine
months of 1999 from 17.9% in 1998 primarily due to the asset tax or minimum
tax paid in Venezuela as a result of a net loss position before income taxes
of $13.8 million in 1999 and our decision not to recognize the benefit of tax
loss carry-forwards from prior years, because of our uncertainty that we will
generate sufficient taxable income in the near term to offset against such
benefits.
As a result of the above, net loss attributable to the Company from
Panamco Venezuela increased 173.3% to $21.4 million during the first nine
months of 1999 from net income of $29.2 million in the first nine months 1998.
Central America
Panamco's Central American region includes franchises in Costa Rica,
Nicaragua and Guatemala. The region reported net sales for the first nine
months of 1999 of $157.1 million, a 12.2% increase from $140.0 million in the
first nine months of 1998, resulting primarily from increases in soft drink
and bottled water volume of 11.8% and 81.2%, respectively. Panamco Guatemala
accounted for almost all of the soft drink volume increase in the region,
which sold 14.5 million unit cases versus 8.9 million in the prior year
period. Sales volume in Nicaragua decreased 1.0% to 15.6 million unit cases
versus 15.8 million unit cases in the year ago period. Soft drink sales volume
in Costa Rica was down 0.5% to 21.0 million unit cases.
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Cost of sales as a percentage of net sales decreased to 46.8% during
the first nine months of 1999 from 47.3% in the first nine months of 1998, due
mainly to cost efficiencies in the region, slightly offset by an increase in
raw material and labor costs.
Operating expenses as a percentage of net sales increased to 40.6%
from 39.5% during the same period last year as a result of higher depreciation
expense attributable to Panamco's continued capital expenditure program,
slightly offset by continued tight expense controls.
Operating income increased 6.8% to $19.8 million or 12.6% of net
sales in the first nine months of 1999 from $18.6 million in the 1998 period
or 13.3% of net sale primarily as a result of increased sales. Cash operating
profit increased 13.9% to $33.3 million in the first nine months of 1999 or
21.2% of net sales from $29.3 million or 20.9% net sales in the first nine
months of 1998. Panamco Nicaragua contributed 6.8% of the increase in cash
operating profit.
Net interest expense decreased 30.5% to $1.5 million from $2.1
million in the first nine months of 1999 compared to the first nine months of
1998, as a result of increased debt in Guatemala incurred to finance capital
investments. Net debt was $(6.0), $12.4 and $21.1 at September 30, 1999 for
each of Panamco Cost Rica, Panamco Nicaragua and Panamco Guatemala,
respectively, compared to $(4.1), $15.6 and $21.0, respectively, at September
30, 1998.
Other expense, net, increased to $4.6 million in the first nine
months of 1999 from other income, net, of $0.4 million in the comparable 1998
period. This increase is attributable to the devaluation of the Guatemalan
quetzal of 12.4% that affected the year to date results by $2.4 million and
changes in The Coca-Cola Company's cold equipment capital participation
program discussed above.
Effective income tax rates were 26.5%, 29.9%, 4.0% during 1999 for
Panamco Costa Rica, Nicaragua and Guatemala respectively compared to 28.3%,
41.8%, 16.4% in the 1998 year to date period.
As a result of the above, net income contributed by Panamco Central
America to the Company decreased 20.3% to $9.6 million for the first nine
months of 1999 from $12.0 million in the comparable 1998 period.
Liquidity and Capital Resources
At September 30, 1999, we had consolidated cash and cash equivalents
of $247.6 million, an increase compared to $122.4 million as of September 30,
1998. This increase is as a result of increased debt from the syndicated loan
issued during the first quarter. Consolidated cash flow provided by operations
was $140.0 million and $170.8 million for the first nine months ended
September 30, 1998 and 1999, respectively.
Total consolidated indebtedness was $1,390.4 million as of September
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.
Consolidated cash flow provided by operations was $140.0 million and
$170.8 million for the first nine months ended September 30, 1998 and 1999,
respectively.
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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 nine months ended September 30,
1999, were $149.1 million compared to $243.5 million for nine months ended
September 30, 1998. The decrease resulted primarily from Capital Spending
Rationalization in all countries. As of September 30, 1999, Mexico had spent
$29.2 million, Venezuela $37.6 million, Brazil $4.4 million, Columbia $9.4
million and Central America $17.9 million.
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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.
Dated: March 13, 2000 PANAMERICAN BEVERAGES, INC.
By /s/Paulo J. Sacchi
--------------------------------
Name: Paulo J. Sacchi
Title: Senior Vice
President-Finance and
Treasurer
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