SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 1999
Commission file number 1-12290
---------------------------
PANAMERICAN BEVERAGES, INC.
(Exact name of Registrant as specified in its charter)
Republic of Panama
(Jurisdiction of incorporation or organization)
---------------------------
c/o Panamco, L.L.C.
701 Waterford Way
Suite 800
Miami, Florida 33126
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act.
Name of each exchange
Title of each class on which registered
------------------- -------------------
Class A Common Stock, $.01 par value per share New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the
Act.
None
__________________
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
__________________
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
Class A Common Stock: 120,381,600
Class B Common Stock: 8,971,555
Series C Preferred Stock: 2
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark which financial statement item the Registrant has
elected to follow.
Item 17 Item 18 X
----- -----
<PAGE>
TABLE OF CONTENTS
Page
Item 1 Description of Business..................................... 1
Item 2 Description of Property..................................... 26
Item 3 Legal Proceedings........................................... 26
Item 4 Control of Registrant....................................... 28
Item 5 Nature of Trading Market.................................... 30
Item 6 Exchange Controls and Other Limitations Affecting Security
Holders................................................. 31
Item 7 Taxation.................................................... 33
Item 8 Selected Financial Data..................................... 38
Item 9 Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................... 40
Item 9A Quantitative and Qualitative Disclosures About Market Risk.. 65
Item 10 Directors and Officers of Registrant........................ 67
Item 11 Compensation of Directors and Officers...................... 71
Item 12 Options to Purchase Securities from Registrant or Subsidiaries.. 73
Item 13 Interest of Management in Certain Transactions.................. 73
Item 15 Defaults upon Senior Securities................................. 73
Item 16 Changes in Securities and Changes in Security for Registered
Securities....................................... 73
Item 17 Financial Statements............................................. 74
Item 18 Financial Statements............................................. 74
Item 19 Financial Statements and Exhibits................................ 74
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Panamerican Beverages, Inc. ("Panamco" or the "Company") is the largest
soft drink bottler in Latin America and one of the world's three largest
bottlers of the soft drink products of The Coca-Cola Company ("The Coca-Cola
Company" or "Coca-Cola"). In 1999, our sales accounted for approximately 6% of
the worldwide unit case volume of soft drink sales of The Coca-Cola Company,
or the equivalent of one bottle in every case. Our 1999 sales represented
approximately 22% of the Latin American unit case volume of The Coca-Cola
Company's soft drink products. Sales of products of The Coca-Cola Company
accounted for more than 88% of our net sales in 1999.
We have a more than 50-year bottling relationship with The Coca-Cola
Company. On November 1, 1995, The Coca-Cola Company designated Panamco an
"anchor bottler", making us one of their strategic partners in The Coca-Cola
Company's worldwide bottling system. The Coca-Cola Company has been a
stockholder of our company since 1993 and today beneficially owns
approximately 24% of our common stock. The Coca-Cola Company has three
representatives on our Board of Directors.
We operate in diverse markets in Latin America. We operate in:
o Mexico
a substantial part of central Mexico (excluding Mexico City),
o Brazil
greater Sao Paulo, Campinas, Santos and part of Mato Grosso do Sul
in Brazil,
o Colombia
most of the Country,
o Costa Rica
all of the Country,
o Venezuela
all of the Country,
o Nicaragua
all of the Country, and
o Guatemala
Guatemala City and surrounding areas.
These territories have an aggregate population of approximately 122
million people, or about 24% of the total population of Latin America. Within
these territories, we have the exclusive right to produce and distribute
substantially all of The Coca-Cola Company's soft drink products. We also
produce and distribute a variety of flavored soft drinks and bottled water
products under licensed and proprietary trademarks in select territories,
including Canada Dry products in Costa Rica and Schweppes products in
Venezuela. We distribute Kaiser and Heineken beers in our franchise
territories in Brazil. We also have the right to
<PAGE>
distribute Regional beer throughout most of Venezuela, which we began
distributing in the northeast of Venezuela in early 1999.
Our business began in 1941, when Albert H. Staton, Sr., and a group of
investors acquired a core of the franchised bottling operations of The
Coca-Cola Company in Mexico. We were incorporated in Panama in 1945 as
successor to a Mexican company through which the business was initially
conducted. By expanding into other Latin American markets, we have been able
to diversify, in part, our business risk. In 1944 and 1945, we expanded our
operations to Colombia and Brazil, respectively. In 1950, we acquired The
Coca-Cola Company's bottling franchise for the Sao Paulo territory. Since
then, our operating units have acquired additional bottling franchises within
their respective countries. We entered the Costa Rican market in 1995, both
the Venezuelan market and the Nicaraguan market in 1997 and the Guatemalan
market in 1998.
At the end of the first quarter of 2000, we moved our principal executive
offices from Mexico City to Miami, Florida.
Corporate Structure
Holding Company Structure
We are a holding company and conduct our operations through tiers of
subsidiaries. The following chart shows our corporate structure and ownership
interest in our country level holding companies and describes their interests
in their bottling subsidiaries as of December 31, 1999:
[GRAPHIC OMITTED]
As a holding company, our ability to pay operating expenses, any debt
service obligations and dividends primarily depends upon receipt of sufficient
funds from our majority-owned subsidiaries, which are in turn dependent upon
receipt of funds from their majority-owned subsidiaries. See "Item
6.--Exchange Controls and Other Limitations Affecting Security Holders" for a
discussion of limitations imposed by exchange control laws on the payment of
dividends. At present, Mexico (since the beginning of 1999) and Costa Rica
2
<PAGE>
impose withholding taxes of approximately 7.6% and 15%, respectively, on
dividends paid to us by domestic subsidiaries. In addition, Brazil imposes a
basic withholding tax of 15% on dividends paid to us by domestic subsidiaries
that are derived from earnings generated prior to January 1, 1996. The payment
of dividends by our subsidiaries is also subject in certain instances to
statutory restrictions or restrictive covenants in debt instruments and is
contingent upon the earnings and cash flow of, and permitted borrowings by,
such subsidiaries. In addition, the minority shareholders in less than wholly
owned subsidiaries receive a pro rata portion of all dividends paid by those
subsidiaries.
Subsidiary Operations
Mexico
We own approximately 98% of the capital stock of Panamco Mexico, S.A. de
C.V. ("Panamco Mexico"), a Mexican corporation that in turn owns interests
ranging from 86% to 99% in five bottling subsidiaries that own and operate
eight soft drink bottling plants and two water bottling plants in Mexico.
Panamco Mexico also owns majority and minority interests in companies that
produce materials and equipment used in the production and distribution of
soft drinks. Panamco Mexico and its consolidated subsidiaries are collectively
referred to herein as "Panamco Mexico".
Brazil
We indirectly own approximately 98% of the capital stock of Refrescos do
Brasil S.A. ("Panamco Brasil"), a Brazilian holding company that through
subsidiaries owns a bottling subsidiary that, in turn, owns and operates two
bottling plants in Brazil, including our state-of-the-art facility in Jundiai
and owns an 11.6% interest in the Kaiser beer brewery. In order to compete
more aggressively with Antarctica and Brahma, in 1983. The Coca-Cola Company,
together with Panamco Brasil, other Brazilian bottlers of products of The
Coca-Cola Company and the Heineken Beer Company, established Cervejarias
Kaiser, S.A. ("Kaiser"). Between 1995 and 1998 Panamco Brasil increased its
interest in Kaiser to 11.6% in connection with its acquisition of all of the
capital stock of Refrigerantes de Santos, S.A. ("Santos") and the shares of
Kaiser owned by Santos. Panamco Brasil also has facilities that produce
equipment used in the distribution of soft drinks. In September 1998, we
acquired all the capital stock of the Brazilian bottler, Refrigerantes do
Oeste S.A. ("R.O.S.A."). R.O.S.A. produces, distributes and sells The
Coca-Cola Company's products in the western central part of Brazil in the
state of Matto Grosso do Sul. Panamco Brasil and its consolidated subsidiaries
are collectively referred to herein as "Panamco Brasil".
Colombia
We own approximately 97% of the capital stock of Panamco Colombia, S.A.
("Panamco Colombia"), a Colombian corporation that owns interests ranging from
65% to 100% in subsidiaries that own and operate an aggregate of 18 bottling
plants and own majority and minority interests in corporations that produce
materials and equipment used in the production and distribution of soft drinks
such as Friomix del Cauca, a cooler building company. Panamco Colombia and its
consolidated subsidiaries are collectively referred to herein as "Panamco
Colombia".
3
<PAGE>
Venezuela
In May 1997, we acquired all the capital stock of Embotelladora Coca-Cola
y Hit de Venezuela S.A. ("Panamco Venezuela") (the "Venezuela Acquisition").
Panamco Venezuela, through its subsidiaries (the "Venezuelan Bottlers"),
produces, distributes and sells products of The Coca-Cola Company and other
soft drink products throughout Venezuela. Panamco Venezuela owns and operates
13 bottling plants. We also acquired the right to distribute Regional beer
throughout Venezuela, which we began distributing in the northeast of
Venezuela in 1999. Panamco Venezuela and the Venezuelan Bottlers are
collectively referred to herein as "Panamco Venezuela".
Central America
Costa Rica. We own all the capital stock of Embotelladora Panamco Costa
Rica, S.A. ("Panamco Costa Rica"). Panamco Costa Rica produces, distributes
and sells The Coca-Cola Company's products and distributes and sells Canada
Dry products in Costa Rica. Panamco Costa Rica owns and operates one bottling
plant. Panamco Costa Rica also owns a plastics business. We acquired these
operations in 1995 and 1996.
Nicaragua. In August 1997, we acquired all the capital stock of
Embotelladora Milca, S.A. ("Panamco Nicaragua"). Panamco Nicaragua produces,
distributes and sells The Coca-Cola Company's products, and other soft drink
products, throughout Nicaragua.
Guatemala. In March 1998, we acquired all the capital of Embotelladora
Central, S.A. ("Panamco Guatemala"). Panamco Guatemala produces, distributes
and sells The Coca-Cola Company's products, and other soft drink products in
Guatemala City and surrounding areas.
Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala are
collectively referred to as "Panamco Central America".
4
<PAGE>
Our Franchise Territories
We have exclusive rights under our bottling agreements with The Coca-Cola
Company to bottle and distribute soft drinks and water in all of the
territories in which we operate. We market all our other soft drink, bottled
water, beer products and other beverages only within our franchise
territories.
The countries where we operate and our franchise territories are shown
below:
[GRAPHIC OMITTED]
Mexico
Our Mexican territories consist of the states of Guanajuato, Puebla,
Tlaxcala, Michoacan and most of Veracruz, an area which has an aggregate
population of more than 18 million people, or about 19% of the total
population of the country.
Brazil
Our Brazilian territories, with a population of approximately 26 million
people or about 16% of the total population of the country, consist of greater
Sao Paulo, the third largest metropolitan area in the world, the contiguous
area of greater Campinas, the adjacent coastal areas of Santos, and Mato
Grosso do Sul.
5
<PAGE>
Colombia
Our Colombian territory covers approximately 92% of the population of
that country with a population of approximately 40 million people, and
includes all major cities.
Venezuela
We are the only company with the right to distribute The Coca-Cola
Company's products in Venezuela, which has a population of about 23 million
people.
Central America
We are the only company that has the right to distribute The Coca-Cola
Company's products in Costa Rica, with a population of approximately 3.8
million people, and in Nicaragua with a population of approximately 4.6
million people. Our Guatemalan territory which has a population of about 5.4
million people covers 47% of the population of that country, which includes
Guatemala City.
Beverages and Packaging
Our Products
We produce or distribute colas, flavored soft drinks, non carbonated
flavored drinks, bottled drinking water and beer. We produce and distribute
Coca-Cola products and our own proprietary brands. In 1999, 88.3% of the
products we produced were products of The Coca-Cola Company.
We distribute two types of bottled water products: purified water and
mineral water. Purified water is prepared in a similar manner to the water
utilized in the soft drink manufacturing process. Mineral water is obtained
from springs and wells. We distribute mineral water under our own proprietary
trademarks Risco in Mexico, Manantial in Colombia, Crystal in Brazil and
Shangri-la in Guatemala, and we distribute purified water under the trademarks
Risco in Mexico, Club K, Santa Clara and Soda Clausen in Colombia, Nevada in
Venezuela, Alpina in Costa Rica and Milca Soda in Nicaragua.
In Brazil we distribute both Kaiser and Heineken beers. In connection
with the acquisition of Panamco Venezuela, we purchased the right to
distribute beer throughout Venezuela under the Regional trademark. In the
second quarter of 1999 we began distributing Regional in the northeast of
Venezuela.
Proprietary Trademarks. We produce and distribute flavored soft drinks
under our own proprietary trademarks, including "Club K", "Club Soda" and
"Premio" in Colombia and "Super 12" in Costa Rica. We produce and distribute
bottled waters under our own proprietary trademarks including "Risco" in
Mexico, "Crystal" in Brazil, "Manantial", "Premio", "Soda Clausen" and "Santa
Clara" in Colombia, "Alpina" in Costa Rica and "Shangri-la" in Guatemala.
6
<PAGE>
The beverage products we produce or distribute and that account for
nearly all of our sales in the period ending December 31, 1999 are listed
below:
<TABLE>
<CAPTION>
Panamco Mexico Panamco Brasil Panamco Colombia Panamco Venezuela Panamco Panamco Panamco
Costa Rica Nicaragua Guatemala
<S> <C> <C> <C> <C> <C> <C>
Coca-Cola Soft Coca-Cola Soft Coca-Cola Soft Coca-Cola Soft Coca-Cola Soft Coca-Cola Soft Coca-Cola Soft
Drink Products: Drink Products: Drink Products: Drink Products: Drink Products: Drink Products: Drink Products:
Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola
Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light
Sprite Sprite Sprite Hit Naranja Sprite Sprite Fanta
Sprite Light Diet Sprite Fanta Hit Pina Fanta Fanta Sprite
Fanta Fanta Quatro Hit Uva Fresca Fresca Lift
Fresca Diet Fanta Lift Hit Manzana Diet Sprite
Lift Simba Frescolita Other Soft Drinks: Bottled Water:
Delaware Punch Tai Other Soft Drinks: Chinotto Canada Dry Bottled Water: Shangri-la*
Diet Tai Roman** Chinotto Light Ginger Ale** Milca Soda**
Bottled Water: Kuat Premio* Super 12* Kinley Soda Other Products:
Risco* Kinley Tonic Water Club Soda* Other Soft Drinks: Hi-C
Kinley Club Soda Soda Schweppes** Bottled Water: Other Products:
Other Products: Fanta Uva Bottled Water: Aguakina Schweppes** Canada Dry Hi-C
Keloco* Manantial* Club Soda**
Bottled Water: Club K* Bottled Water: Canada Dry
Crystal* Soda Clausen* Nevada Quinada**
Santa Clara* Alpina*
Beer: Other Products:
Kaiser** Malta Regional** Other Products:
Kaiser Light** Nestea** Powerade
Kaiser Bock**
Kaiser Gold** Beer:
Kaiser Summer Draft** Regional**
Heineken**
</TABLE>
[FN]
- -----------------------
Unless otherwise indicated, products are proprietary to The Coca-Cola Company.
* Proprietary to Panamco
** Products licensed from third parties
</FN>
The following chart shows the allocation of our net sales during 1999 among
the products described above:
[GRAPHIC OMITTED]
7
<PAGE>
The estimated company annual per capita consumption for 1997, 1998 and
1999 for our soft drinks in each of our franchise territories is as follows:
<TABLE>
<CAPTION>
Panamco Panamco Panamco Panamco Panamco Panamco Panamco
Mexico Brasil Colombia Venezuela Costa Rica Nicaragua Guatemala
<S> <C> <C> <C> <C> <C> <C> <C>
1997.............. 305.7 216.9 117.4 216.5 174.3 95.6 65.5
1998.............. 340.4 213.5 113.0 202.3 186.6 112.1 79.2
1999.............. 349.1 214.3 91.4 153.6 180.8 112.0 87.0
</TABLE>
[FN]
- ----------
Source: We have compiled the share of sales information contained herein based
upon several sources. To determine the portion of a given market represented
by our sales, we utilize, in certain instances, data supplied by A.C. Nielsen,
The Coca-Cola Company and other third-party sources. In certain territories,
we also periodically conduct our own surveys by sampling retail customers'
weekly purchases and inventory levels. The methodologies of different surveys
are not identical and referenced competitors' franchise areas do not exactly
correspond to ours. Although management believes the information obtained in
this fashion is reliable, we make no representation or warranty, express or
implied, as to the accuracy or completeness of the industry sales share data
and volume data, or per capita consumption data contained herein.
</FN>
8
<PAGE>
The following table shows our net sales in thousands of dollars and by
percentage of total net sales by territory and product for the periods
indicated:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -----
Total Percentage Total Percentage Total Percentage
Net of Total Net of Total Net of Total
Sales (1) Net Sales Sales (1) Net Sales Sales (1) Net Sales
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Panamco Mexico
Total products of The Coca-Cola
Company ....................... $ 511,438 20.4% $ 586,964 21.2% $721,269 29.8%
Total other soft drinks........... 3,029 0.1 4,306 0.1 7,482 0.3%
Total bottled water............... 32,305 1.3 47,211 1.7 68,350 2.8%
---------- ----- -------- ----- -------- ------
Total Panamco Mexico........... 546,772 21.8 638,481 23.0 797,101 32.9%
Panamco Brasil(2)
Total products of The Coca-Cola
Company ..................... 644,891 25.7 653,738 23.6 389,446 16.1%
Total bottled water............. 14,795 0.6 19,050 0.7 14,715 0.6%
Total beer...................... 309,408 12.3 225,163 8.1 96,519 4.0%
---------- ----- -------- ----- -------- ------
Total Panamco Brasil......... 969,094 38.6 897,951 32.4 500,680 20.7%
Panamco Colombia
Total products of The Coca-Cola
Company ..................... 460,899 18.4 422,075 15.2 337,333 13.9%
Total other soft drinks......... 33,717 1.3 31,763 1.1 26,224 1.1%
Total bottled water............. 43,371 1.7 41,974 1.5 33,457 1.4%
---------- ----- -------- ----- --------- ------
Total Panamco Colombia....... 537,987 21.4 495,812 17.8 397,014 16.4%
Panamco Venezuela(3)
Total products of The Coca-Cola
Company...................... 338,781 13.5 536,322 19.3 493,671 20.4%
Total other soft drinks......... 10,738 0.4 14,355 0.5 16,054 0.7%
Total beer...................... -- -- -- -- 2,570 0.1%
---------- ----- -------- ----- --------- ------
Total Panamco Venezuela...... 349,519 13.9 550,677 19.8 512,295 21.2%
Panamco Central America(4)
Total products of The Coca-Cola
Company ..................... 92,943 3.7 173,672 6.3 193,104 8.0%
Total other soft drinks......... 9,314 0.4 10,183 0.4 10,573 0.5%
Total bottled water............. 4,581 0.2 6,500 0.2 8,399 0.3%
---------- ----- -------- ----- --------- ------
Total Panamco
Central America............ 106,838 4.3 190,355 6.9 212,076 8.8%
Total consolidated net sales....... $2,510,210 100.0% $2,773,276 100.0% $2,419,166 100.0%
========== ===== ========== ===== ========== ======
</TABLE>
[FN]
- ---------
(1) Net sales are reflected in U.S. dollars translated at the average
official rates of exchange during the periods shown.
(2) Data for 1998 includes four months of operations of R.O.S.A.
(3) Data for 1997 includes eight months of operations of Panamco Venezuela.
(4) Data for 1997 includes only net sales of Panamco Costa Rica and five
months of operations of Panamco Nicaragua. Data for 1998 includes net
sales of Panamco Costa Rica and Panamco Nicaragua and nine months of
operations of Panamco Guatemala.
</FN>
9
<PAGE>
Packaging
A majority of our sales are made in returnable glass or plastic bottles.
Recently, we have increased the distribution of nonreturnable presentations,
particularly in Mexico and Brazil. In 1999, 51.9% of our products were
packaged in non-returnable presentations compared to 44.6% in 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Our beverages are available in returnable presentations in
different package types including returnable PET bottles and glass bottles.
Our nonreturnable presentations include cans, non-returnable glass and plastic
bottles and plastic bags.
Soft Drink Sales Share
Soft drink sales represented 88.1% of our total 1999 sales. Soft drink
products are classified as either colas or other flavored soft drinks. Of our
total soft drink sales in 1999, the cola segment represented approximately
69.1% of our total soft drink sales.
We are a market leader in all our franchise territories in the cola
segment. We also hold a strong share of sales in soft drinks, as shown below:
<TABLE>
<CAPTION>
Estimated Sales Share
Panamco Panamco Panamco Panamco Panamco Panamco Panamco
Mexico Brasil Colombia Venezuela Costa Rica Nicaragua Guatemala
<S> <C> <C> <C> <C> <C> <C> <C>
Colas
1997................ 82.6% 91.2% 86.7% 77.1% 91.9% 80.1% --
1998................ 88.5% 90.7% 85.5% 65.4% 90.7% 82.3% 48.4%
1999................ 89.5% 89.4% 90.5% 67.8% 94.5% 84.3% 49.1%
Flavored Soft Drinks
1997................ 47.9% 31.2% 34.4% 89.2% 87.9% 65.2% --
1998................ 52.5% 27.9% 33.6% 84.2% 83.7% 76.8% 21.3%
1999................ 57.4% 36.0% 40.0% 74.2% 91.2% 84.3% 26.5%
Total Soft Drinks
1997................ 72.6% 56.5% 62.3% 82.1% 90.4% 75.4% --
1998................ 78.0% 54.3% 61.2% 73.0% 87.9% 80.8% 40.9%
1999................ 80.2% 57.4% 66.7% 70.3% 93.3% 84.3% 43.1%
</TABLE>
[FN]
- ----------
Source: We have compiled the share of sales information contained herein based
upon several sources. To determine the portion of a given market represented
by our sales, we utilize, in certain instances, data supplied by A.C. Nielsen,
The Coca-Cola Company and other third-party sources. In certain territories,
we also periodically conduct our own surveys by sampling retail customers'
weekly purchases and inventory levels. The methodologies of different surveys
are not identical and referenced competitors' franchise areas do not exactly
correspond to ours. Although management believes the information obtained in
this fashion is reliable, we make no representation or warranty, express or
implied, as to the accuracy or completeness of the industry sales share data
and volume data, or per capita consumption data contained herein.
</FN>
Data for each year are an average of measurements taken each month in
Mexico and every two months in all other countries.
Sales, Distribution and Marketing
Sales
By selling our beverage products directly to approximately 1,040,350
points of sale, we believe we have one of the largest operations for the
distribution of consumer goods in Latin America. This network serves
traditional small stores (including small grocery stores, kiosks and roadside
stands), supermarkets, restaurants, bars, schools, businesses and
distributors, with a total of 183,600 points of sale in Mexico, 158,000 in
Brazil, 390,600 in Colombia, 195,900 in Venezuela, 36,100 in Costa Rica,
37,250 in Nicaragua and 38,900 in Guatemala as of December 31, 1999. The mix
10
<PAGE>
of sales to these particular types of outlets varies by country and is a
function of the economics, demographics and other characteristics of each
franchise area.
The following table sets forth our sales volume as a percentage of total
sales volume of on- and off-premises consumption in each country where we
operate for the end of 1999.
1999 Percentage
of Total
Sales Volume
Panamco Mexico
Off-premises sales............. 85.7%
On premises sales.............. 14.3%
Total Panamco Mexico........ 100.0%
Panamco Brasil
Off-premises sales............. 75.8%
On premises sales.............. 24.2%
Total Panamco Brasil........ 100.0%
Panamco Colombia
Off-premises sales............. 66.5%
On premises sales.............. 33.5%
Total Panamco Colombia...... 100.0%
Panamco Venezuela
Off-premises sales............. 59.1%
On premises sales.............. 40.9%
Total Panamco Venezuela..... 100.0%
Panamco Costa Rica
Off-premises sales............. 61.6%
On premises sales.............. 38.4%
Total Panamco Costa Rica.... 100.0%
Panamco Nicaragua
Off-premises sales............. 89.0%
On premises sales.............. 11.0%
Total Panamco Nicaragua..... 100.0%
Panamco Guatemala
Off-premises sales............. 78.5%
On premises sales.............. 21.5%
Total Panamco Guatemala..... 100.0%
Most of our sales are made to four types of outlets: Mom and Pop stores,
supermarkets, restaurants and bars as well as schools and offices. At such
outlets we generally sell soft drinks, bottled water and beer (in Brazil and
the northeast of Venezuela) for either on-premises or off-premises
consumption. A majority of the products we sell are sold through traditional
small stores, supermarkets or other types of outlets for off-premises
consumption. Products we sell for on-site consumption at traditional small
stores, restaurants, bars, fast food outlets and similar locations represent
the balance of our sales volume.
Consumers typically prefer soft drinks served cold for on-premises
consumption. In certain cases, particularly in Mexico, consumers prefer to
purchase cold soft drinks for off-premises consumption as well. As described
below, in each of our franchise territories we have programs to place our
beverage coolers, post-mix dispensers and vending machines at points of sale
for our products to make chilled products available to the consumer. We loan
or sell and provide financing for such merchandising equipment. Loaned
equipment must be used exclusively for Panamco products.
11
<PAGE>
In addition to bottled presentations, we sell soft drinks in both pre-mix
and post-mix form. Soft drinks sold in pre-mix form consist of syrup for use
in dispensers at retail outlets that add carbonated water. Soft drinks sold in
post-mix form consist of the final carbonated product in stainless steel and
other pressurized canisters for use in dispensers at retail outlets.
While most sales are on a cash basis, sales to certain customers such as
major supermarkets, fast food restaurants and convenience store chains, are
made on a credit basis with terms generally of 40 days on a consolidated
basis. Credit sales represented 25.4% and 20.1% of total sales in 1998 and
1999, respectively. Credit sales are most significant in Brazil and Costa
Rica, where they represented 50.0% and 33.0%, respectively, of 1999 sales in
each country.
Distribution
We have developed extensive product delivery and container retrieval
systems to maintain sales levels at each of our points of sale. By actively
managing our distribution routes, we seek to ensure that deliveries are made
when our clients (retailers) have the space and funds available to purchase
our beverage products. Distribution is also critical in Latin America because
the majority of soft drink products are sold in returnable bottles. We must
regularly collect empty bottles from retailers and return them to our bottling
plants. Primarily distribution is carried out by our employees and is
supplemented by a network of independent distributors.
We have located and designed our production and distribution facilities
based upon local factors including population concentration, topography,
quality of roads and availability and efficiency of communications. In
territories with large, industrial cities, such as greater Sao Paulo, we
operate a smaller number of large distribution centers and often integrate
distribution and bottling capabilities at the same facility. In rural areas,
such as most of Colombia and Venezuela and parts of Mexico, Costa Rica,
Nicaragua and Guatemala, we use a larger number of small bottling plants and
warehouses.
We use two principal delivery methods depending upon local conditions:
the traditional route truck system and the pre-sell method. In Mexico, most of
Colombia, Venezuela and Nicaragua, the route truck system is widely used, in
which salesmen drive delivery trucks on pre-established routes and make
immediate sales from inventory available on the route truck. For all sales in
Brazil, most of Costa Rica and in certain cities in Colombia, Mexico,
Guatemala and Venezuela, we utilize the pre-sell system, in which a separate
staff of salesmen obtains orders from customers prior to the time of delivery
by route trucks. Use of the pre-sell system enables us to utilize our route
trucks more efficiently, delivering all of their freight capacity and at the
same time providing us real time information about the product and
presentation needs of our clients. The traditional system maximizes sales to
customers with less sophisticated cash management systems. We also employ a
system of bicycles, carts and small trucks for smaller clients to provide
flexible and fast deliveries within urban areas.
In order to more effectively respond to the needs of our clients and to
help us better manage our inventories we have computer systems in place in
each of our franchise territories. We have also equipped our sales force with
handheld computers to provide us with real time information about the product
and presentation needs of our clients.
Marketing
Market segmentation has given rise to preferences on the part of
consumers for a variety of presentations. Income level, substitutes, pricing
and any other factors affect consumer preferences. In all our territories we
attempt to adapt our product presentations and distribution to each market and
to the individual clients and consumers within our territories in terms of the
space available for product display, point-of-sale material, advertising and
delivery methods. In order to maximize sales and per capita consumption of our
products, we continually examine sales data in an effort to develop a mix of
product presentations that will best satisfy consumers and provide our clients
with the most effective product mix. We also employ a variety of marketing
techniques in each of our franchise territories to increase our share of
sales, penetration and per capita consumption. The major programs and policies
in place at each of our subsidiaries are described below.
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Mexico
During 1999, Panamco Mexico continued its cold product equipment
placement program. At December 31, 1999, there were approximately 84.4 units
for every 10,000 people within our franchise territory. Panamco Mexico,
through its merchandizing club, provides training to its clients on its
merchandizing standards and display methods to ensure that our products
receive the best and most appropriate presentation.
Panamco Mexico has continued the roll-out of its "100 Meters Program",
which focuses on nontraditional, immediate consumption channels. Since the
initiation of the program in 1996, Panamco Mexico has increased its share of
sales by 10.2 basis points and has expanded its client base in urban centers.
Per capita consumption has increased 20.3%. As part of the "100 Meters
Program", Panamco Mexico created a number of parallel programs, including the
"Restaurant" plan, the "School" plan and the "Liquor Stores" plan. Under the
Restaurant plan, Panamco Mexico has been placing fountain equipment in local
traditional and fast-food restaurants. This gives our consumers immediate
access to our products. Under the School plan, Panamco Mexico provides our
products to young consumers in the schools creating brand preference at an
early age with innovative packaging. The Liquor Stores plan takes advantage of
the popularity of grapefruit-flavored soft drinks in the liquor stores segment
with strong merchandising and alluring point-of-sale material designed to
create preference for the Fresca brand.
Panamco Mexico continues to develop its marketing through "fondas", or
traditional Mexican small family-run restaurants, by placing coolers, fountain
equipment and tailored point-of-sale materials--menu boards, napkin holders,
place mats and wall mosaics--with The Coca-Cola Company logo to entice
consumers to drink Coca-Cola soft drinks with their meals.
In order to increase volume and perception of value among clients and
consumers, Panamco Mexico selectively provides particular brands, packages and
sizes and applies tailored pricing tactics in each of its channels based on
the preferences of the consumers in the area. Panamco Mexico also sponsors
trade consumer promotions, such as the "Hielocos", "the Novelty Catalogue" and
the "Christmas Campaign" during 1999.
To maintain the quality of its distribution system reliability of its
deliveries, Panamco Mexico continues to modernize its vehicle fleet and
optimize delivery routes.
Brazil
In Brazil our marketing efforts were primarily focused on our "Coolers in
the Market" program and the installation of new coolers, vending machines and
post-mix fountains. The number of units of cold product equipment we have in
the Brazilian market are 35.0 units per 10,000 inhabitants in our franchise
territory.
As part of our "100 Meters Program" in Brazil we have developed the
"At-Hand Consumption" and "Closed Market" programs to stimulate impulse
consumption by maximizing the availability of our cold products everywhere
people gather. In accordance with these programs; Panamco Brasil is developing
new outlets and equipping them with the appropriate cold product equipment,
point-of-sale material and products to maximize sales. The "Closed Market"
program focuses on certain "closed" markets such as schools, clubs and
factories.
Panamco Brasil developed the "Anchor Client" program designed to
establish a baseline group of clients to define new pricing standards for each
of our products and influence neighboring outlets in terms of prices and
merchandising. This program, targeted to traditional channels, involves
installing display equipment and point-of-sale material, and conducting
extensive training on the correct presentation of products, optimum placement
of display equipment, and maintenance of merchandising materials.
During 1999 a special program designed to get closer to the consumer was
put in place. The program was a promotional pricing strategy that alternated
prices of our products every two weeks depending on the channels or on
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the product (colas or flavors) for our 2 liter pet presentation. The program
was successfully received by the consumer, increasing our share of soft drink
sales in 5.2 points to 57.4%.
Colombia
To ensure both traditional and nontraditional outlets are able to provide
cold, ready-to-drink products, Panamco Colombia continues its cold product
equipment placement program. During 1999, Panamco Colombia installed more than
20,000 cold product units, increasing units in the market by almost 10% to
50.2% per 10,000 inhabitants in our franchise territory. Panamco Colombia
currently provides cold products in 48% of its outlets compared to 46% in
1998.
As a result of our cold equipment strategy, our different marketing
promotions such as "Momentos Coca-Cola" or the Sprite NBA, paired with the
launching of two new products Coca-Cola Light and Lift (an apple flavor
product) our share of sales increased to a new record of 66.7% an increase of
5.3 points.
In addition to our marketing programs, Panamco Colombia has a
distribution strategy called the "Mini-Bodegas" (small shopkeepers) program,
designed to supply our products to hard-to-reach areas without increasing
distribution costs. Through this program, Panamco Colombia distributes
products to small shopkeepers who, in turn, deliver products to crowded,
hard-to-reach neighborhoods.
Panamco Colombia's "At-Hand Consumption" program strategically places
ambulatory vendors carrying cold Coca-Cola products everywhere people gather.
The "School" program is geared towards creating brand preference and
increased purchases in schools through innovative packaging and presentations.
Panamco Colombia also trains its clients on how to use and maintain our
merchandizing materials to increase product sales. To ensure merchandizing
quality representatives of Panamco Colombia's sales force regularly visit with
clients and evaluate the effectiveness of their merchandising efforts.
To maximize the efficiency of its distribution network, Panamco Colombia
continues to refine its distribution strategy by increasing the number of
presell and auto-sale clients and by significantly increasing distribution
through small shopkeepers. These measures have reduced the number of trucks
needed for each route and improved client satisfaction as well as truck
utilization. Panamco Colombia also implemented a new plant design that allows
trucks to be unloaded and reloaded 30% more rapidly than before, permitting
more clients to be reached every day.
Venezuela
As one of our newer subsidiaries, Panamco Venezuela continues to focus
its efforts on developing high-volume clients in traditional
channels--supermarkets, grocery stores, liquor stores, bakeries--through
improved merchandising. Panamco Venezuela provides continuous support to these
clients to ensure our products are given the largest spaces, best positions
and appropriate point-of-sale material.
During 1999, Panamco Venezuela continued equipping its existing outlets
with appropriate cold product equipment, increasing the aggregate number of
units of cold product equipment in the market by 18.9% to almost 69.1 units
per 10,000 inhabitants in the franchise territory. Marketing activities during
the year included targeted local advertising, consumer and trade promotions,
and alluring events. At December 31, 1999, the Coca-Cola brand led competing
brands by 15 percentage points.
We continue our programs to develop high-volume clients in traditional
channels, and to equip retailers with cold product equipment. During the year,
we installed 26,000 new cold product units, increasing our coverage of the
market from less than 60 units per 10,000 inhabitants to over 68 units per
10,000 inhabitants.
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Our program to segment various in-country markets led to the development
of a more focused geographic regional targeting program and allocation of
resources, as well as the expansion of new nontraditional channels. In
Venezuela, 80% of the population is concentrated in the lower socioeconomic
strata, and most of the population lives in the neighborhoods surrounding
urban areas. During the year, we developed new channels and increased our cold
product availability in, as well as improved distribution to, these
neighborhoods. As a result, sales to these areas increased significantly. We
also began to service new neighborhoods.
We look forward to continuing to further refine our Venezuela strategy,
as we believe significant opportunities remain in that country.
Central America
We continue the rollout of our core initiatives to boost per capita
consumption in Central America. Efforts to bring Coca-Cola products closer to
the consumer included the introduction of the "100 Meters Program" to the
Guatemalan market and its expanded rollout to all areas of Costa Rica and
Nicaragua.
We continue to focus on increasing take-home consumption by implementing
initiatives to boost sales in mini markets and small grocery stores (the "Mini
Market" project), and continue our development of high-volume clients. In
order to increase sales in these channels, we provide consumer and trade
promotions with aggressive pricing on selected presentations.
We support these initiatives with aggressive strategic cooler placement
and merchandising. We have also been making a concerted effort to upgrade the
presentation of our products in all establishments, both traditional and
nontraditional, by instituting company-wide merchandising standards and
supplying outlets with the appropriate equipment and point-of-sale materials.
In response to the continued shift toward nonreturnable presentations,
Panamco Central America launched a number of new presentations, including a
1.5 liter non returnable presentation in Guatemala and Nicaragua and a 600 ml
presentation in Costa Rica. As a result of our programs in Central America our
market share has increased by 6.2 percentage points in Costa Rica, 2.5
percentage points in Nicaragua and 1.0 percentage point in Guatemala.
With the view of increasing the efficiency of our distribution in the
region and improving service to clients, we began servicing new routes,
introduced mini-warehouses and upgraded the vehicle fleet.
Raw Materials and Supplies
Soft drinks are produced by mixing water, concentrate and sweetener. We
process the water we use in our soft drinks to eliminate mineral salts and
disinfect it with chlorine. We then filter it to eliminate impurities,
chlorine taste, trace metals and odors. We combine the purified water with
processed sugar or high fructose (or artificial sweeteners in the case of diet
soft drinks) and concentrate. To produce carbonation we inject carbon dioxide
gas into the mixture. Immediately following carbonation, we bottle the mixture
in pre-washed labeled bottles. We maintain a quality control laboratory at
each production facility where we test raw materials and analyze samples of
soft drink products. All our sources of supply for raw materials are subject
to the approval of The Coca-Cola Company.
Concentrates. We purchase concentrates from The Coca-Cola Company for all
Coca-Cola products, as well as from other sources for our other products.
Water and sugar. We obtain water from various sources, including springs,
wells, rivers and municipal water systems. Sugar is plentiful in all of our
territories as each of Mexico, Brazil, Colombia, Costa Rica, Venezuela,
Nicaragua and Guatemala is a producer of sugar. We purchase our requirements
from various suppliers in each country.
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Carbon dioxide. We purchase all of our supply of carbon dioxide in
Colombia, Costa Rica and Venezuela and most of our supply for Brazil (the
balance being produced at our bottling plant in Brazil) from Praxair. Panamco
Mexico purchases its supply of carbon dioxide gas from two of the three
suppliers in Mexico. Panamco Nicaragua and Panamco Guatemala purchase their
supply of carbon dioxide from Carbox, a supplier located in Guatemala.
Alternate suppliers are available in all the countries where we operate.
Bottles, caps and other packaging materials. We usually purchase glass
bottles, plastic soft drink containers, plastic bottle caps, cans and general
packaging materials locally in each country from various suppliers. Our
supplies of plastic bottles in all of our territories are generally sourced
from single suppliers of such bottles in each country, although there are
alternative suppliers. Panamco Colombia has facilities to produce a small
portion of its own disposable plastic bottles and owns 20% of Comptec, S.A., a
joint venture with a subsidiary of The Coca-Cola Company and other Andean
bottlers formed to produce returnable and disposable plastic bottles. Panamco
Costa Rica owns a plastics business, which supplies plastic bottles for all of
Panamco Costa Rica's requirements and to other customers in Central America,
including Panamco Nicaragua and Panamco Guatemala.
We purchase metal bottle caps primarily from the Zapata group of
companies, which have manufacturing facilities in Mexico, Brazil and Colombia.
One of the companies in the Zapata group owns 60%, and Panamco Colombia owns
40%, of Tapon Corona, S.A., a Colombian company that manufactures bottle caps
for Panamco Colombia, Panamco Venezuela and other customers. Panamco Cost
Rica, Panamco Nicaragua and Panamco Guatemala currently purchase their bottle
caps from H.C. Industries, a third-party supplier.
We have facilities in Mexico, Brazil, Colombia and Costa Rica, which
produce plastic cases for carrying bottles. The Costa Rican facility supplies
Panamco Nicaragua and Panamco Guatemala. Plastic is purchased locally or
imported when necessary. Plastic cases in Venezuela are purchased mainly from
Gaveras Plasticas Venezolanas, C.A. Other local suppliers are also available.
In addition to its bottling operations, Panamco Brasil also has the
capacity to produce cans for canned soft drinks at its Jundiai plant and to
produce plastic bottles at its bottling facility in Matto Grosso do Sul.
Panamco Mexico owns approximately 14.9% of Industria Envasadora de Queretaro,
S.A. de C.V., a canning cooperative for products of The Coca Cola Company in
Mexico. Panamco Colombia has the capacity to produce cans for canned soft
drinks at one of its Bogota plants, but currently imports cans because of cost
advantages. Panamco Venezuela has the capacity to produce cans for canned soft
drinks at three of its plants. Panamco Central America imports cans from The
Coca-Cola Company bottler in El Salvador, EMBOSALVA S.A.
Other. Many of the raw materials and supplies used in Venezuela are
purchased from companies owned by members of the Cisneros family, the former
owners of Panamco Venezuela. We believe the terms of such arrangements are no
less favorable to us than those that could be obtained from independent third
parties.
Panamco Colombia has its own facilities to manufacture post- and pre-mix
dispensers (for on-premises preparation of soft drinks). Panamco Colombia has
expanded this operation to manufacture its own beverage coolers, which it also
sells to our other operating subsidiaries. In 1999, Panamco Colombia acquired
a minority interest in Ingenio San Carlos, a Colombian sugar producer. In
connection with this acquisition, Panamco Colombia has entered into a
long-term supply agreement with Ingenio San Carlos for sugar.
Panamco Mexico and Panamco Cost Rica manufacture their own racking
systems for their route trucks and freight vehicles.
Production
Our subsidiaries own and operate a total of 48 bottling plants, with 10
in Mexico, three in Brazil, 18 in Colombia, one in Costa Rica, 14 in
Venezuela, 1 in Nicaragua and one in Guatemala. The totals include two plants
in Mexico, one plant in Brazil and one in Colombia, which we use exclusively
to bottle mineral water at the source. The plants have
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over 158 bottling lines with an installed capacity of over 880 million
physical cases a year (assuming 400 production hours per month for 11 months
per year, with one month reserved for maintenance). In order to increase
production efficiency and reduce costs we have implemented cost reduction
plans at all of our subsidiaries.
As part of Panamco Mexico's initiatives to reduce costs, increase
efficiency and maximize product quality, in 1998 Panamco Mexico instituted a
program of continuous audits designed to ensure that manufacturing equipment
and systems, as well as human capital, performed to the highest standards.
Panamco Brasil's Jundiai plant is the largest and one of the most
sophisticated manufacturing complexes in The Coca-Cola Company system. Our
Jundiai plant has annual production capacity of 250 million unit cases and has
obtained ISO 9002 and 14001 certificates for quality, productivity and
environmental safety.
Competition
The beverage business in our franchise territories is highly competitive.
Our principal competitors are bottlers of Pepsi products and bottlers and
distributors of nationally and regionally advertised and marketed soft drinks.
Our principal competitions in each of our franchise territories are set forth
below.
Mexico
Our principal competitors in Mexico are bottlers of Pepsi products, whose
territories overlap, but do not precisely match ours. We compete with Geupec,
Group Regordosa and Embotelladora del Valle, S.A. for share of sales in our
territories.
Brazil
In Brazil our main competitors were Brahma and Antarctica, both of which
were beer bottlers that offered soft drinks as a complement to their beer
businesses. Brahma is also the sole bottler of Pepsi in Brazil. In July 1999,
Brahma and Antarctica announced a merger to form AmBev. In March 2000, AmBev
received the necessary regulatory approval and assumed the bottling businesses
of both Brahma and Antarctica. AmBev is our largest individual competitor in
Brazil. We also compete with "tubainas", which are small, local, lower cost
producers of flavored soft drinks. Tubainas are local shops that produce "no
frills" flavored soft drinks in 2-liter presentations for at home consumption.
They market their products primarily in supermarkets. Tubainas have lower
overhead and we believe that they often do not comply with local tax laws,
which enables them to offer lower cost products.
Colombia
In Colombia our principal competitor is Postobon, a well-established
bottler of both nationally advertised flavored soft drink products and Pepsi.
In response to the decision by Postobon to enter the beer market, Bavaria, a
large beer bottler, entered the Colombian flavored soft drink market in 1994.
The owners of Postobon and Bavaria hold other significant commercial interests
in Colombia, including most of Colombia's television and radio networks and
interests in manufacturers of glass bottles.
Venezuela
The Venezuelan Bottlers until August 1996 were the authorized bottling
companies of products of Pepsi in Venezuela. In August of 1996 the Venezuelan
bottlers entered into a bottling agreement with The Coca-Cola Company and
became their authorized bottler in Venezuela. Subsequently, on November 2,
1996, Pepsi granted the franchise for its territories in Venezuela to Sopresa,
a joint venture formed between Pepsi and Empresas Polar S.A., the leading beer
distributor in Venezuela. Sopresa is our principal competitor in Venezuela.
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Central America
Newport Bottler (Pepsi bottler) is our principal competitor in Costa
Rica, and The Central American Bottling Corporation (Pepsi bottler) is our
principal competitor in Nicaragua and Guatemala.
In addition to competition from other soft drink producers, carbonated
soft drink products compete with other major commercial beverages, such as
coffee, tea, milk, beer and wine, as well as noncarbonated soft drinks, citrus
and noncitrus fruit juices and drinks and other beverages.
Soft drink bottlers also compete for sales share through distribution and
availability of products, pricing, service provided to retail outlets
(including merchandising equipment, maintenance of bottle inventories at
appropriate levels and frequency of visits), product packaging presentations
and consumer promotions. In recent years, price discounting by our competitors
has been a means of obtaining sales share in Brazil, Colombia and, more
recently, Venezuela. See "--Marketing" and "--Distribution".
Our consumer promotions are guided primarily by The Coca-Cola Company and
take the form of contests, television, radio and billboard advertising,
displays, merchandising and sampling.
Employees
At December 31, 1999, we employed approximately 30,700 people (including
temporary workers, but excluding independent distributors). Approximately 35%
of our employees are members of labor unions, most of whom are in Mexico. Most
of the employees in Colombia are covered by non-union collective bargaining
agreements. The collective bargaining agreements for both unionized and non-
unionized employees are negotiated separately for each bottling subsidiary, or
in some instances, for each plant. In Mexico, collective bargaining agreements
are renegotiated annually with respect to wages and biannually with respect to
benefits. In Colombia and Venezuela, all collective bargaining agreements are
negotiated biannually.
Panamco Mexico pays employees amounts usually equal to 10% of its taxable
income, adjusted in accordance with local labor laws. The Mexican government
also requires employers to set aside a percentage of employee wages in
retirement accounts. In addition, both employers and employees in Mexico must
contribute amounts to the national health care system and a workers' housing
fund. In Colombia, Brazil, Costa Rica and Nicaragua, employers and employees
contribute to employee retirement accounts and to their national health care
systems. A profit- sharing program has been implemented in Venezuela pursuant
to which employees are entitled to receive an additional payment equal to at
least 15 days' wages (but not more than four months' wages), and a
profit-sharing program was established in Brazil in 1997. In Mexico and
Nicaragua, employees are entitled to a mandatory Christmas bonus in an amount
equal to 15 days and one month's salary, respectively. If an employee has
worked for a company less than one year, that employee's bonus is reduced in
proportion to the amount of time such employee was not employed. In Guatemala,
employees receive a mandatory bonus in the form of a three-month payment based
upon the salary paid during the preceding six months.
We believe that our relationship with our employees is good. We have
voluntarily instituted and maintained popular benefits for our employees
including housing loans.
The labor laws in each of the seven countries in which we operate require
certain severance payments upon involuntary termination of employment. See
"Item 3.--Legal Proceedings".
Franchise Arrangements
We have the right to sell The Coca-Cola Company's products, certain other
soft drinks and certain bottled water products pursuant to bottling or other
similar agreements described below.
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The Coca-Cola Company's Products. The Coca-Cola Company (or its
subsidiaries) has entered into exclusive bottling agreements (the "Bottling
Agreements") with each of our bottling subsidiaries (the "Bottlers"). The
Bottling Agreements expire on various dates. In 1995, we and The Coca-Cola
Company agreed that all bottling agreements of our Mexican subsidiaries will
have a uniform term ending in 2005, renewable for additional ten-year terms.
In 1999, The Coca-Cola Company entered into a bottling agreement with our
Colombian subsidiary for a five-year term. In general, the Brazilian,
Venezuelan, Nicaraguan, Costa Rican and Guatemalan agreements are for
five-year terms, renewable for additional five-year terms.
The Bottling Agreements regulate the preparation, bottling and
distribution of beverages in the applicable franchise territory. The Bottling
Agreements authorize the Bottlers to use the concentrates purchased from The
Coca-Cola Company to bottle, distribute and sell a variety of beverages under
certain brand names and in certain approved presentations and to utilize the
trademarks of The Coca-Cola Company to promote such products.
The Coca-Cola Company reserves the right to market independently or
license post-mix products, although we believe that The Coca-Cola Company will
not exercise these rights as long as we aggressively pursue the marketing of
their products in our territories. The Bottlers must purchase the concentrate
from The Coca-Cola Company and follow The Coca-Cola Company's exact mixing
instructions. Each Bottler may purchase only the quantities of concentrates
required in connection with its business and must use them exclusively for
preparation of the beverages and for no other purpose. The Bottlers may not
sell concentrate to third parties without The Coca-Cola Company's consent.
In the event of a problem with the quality of a beverage, The Coca-Cola
Company may require the Bottler to take all necessary measures to withdraw the
beverage from the market. The Coca-Cola Company must also approve the types of
container used in bottling and controls the design and decoration of the
bottles, boxes, cartons, stamps and other materials used in production. The
agreements grant The Coca-Cola Company the right to inspect the products.
The prices The Coca-Cola Company may charge us for concentrates are fixed
by The Coca-Cola Company from time to time at its discretion. The Coca-Cola
Company currently charges us a percentage of the weighted average wholesale
price (net of taxes) of each case sold to retailers within each of our
franchise territory. At present, we make payments to The Coca-Cola Company in
U.S. dollars for purchases of concentrates by Panamco Venezuela, Panamco
Nicaragua, Panamco Colombia and Panamco Guatemala. Purchases by Panamco
Mexico, Panamco Brasil and Panamco Cost Rica are made in local currency. We
pay no additional compensation to The Coca-Cola Company under the licenses for
the use of the associated trade names and trademarks. Subject to local law,
The Coca-Cola Company has the right to limit the wholesale prices of The
Coca-Cola Company's products.
As it has in the past, The Coca-Cola Company may, in its discretion,
contribute to our advertising and marketing expenditures as well as undertake
independent advertising and market activities. The Coca-Cola Company has
routinely established annual budgets with us for cooperative advertising and
promotion programs.
The Bottling Agreements require the Bottlers to maintain adequate
production and distribution facilities, quality control standards and sound
financial capacity and to meet certain reporting requirements. The Bottling
Agreements also prohibit the Bottlers from distributing The Coca-Cola
Company's products outside their territories and from producing any other cola
beverages. In addition, the Bottling Agreements require us to obtain The
Coca-Cola Company's approval before we can produce or distribute other
nonalcoholic beverages.
The Bottlers may not assign, transfer or pledge their Bottling
Agreements, or any interest therein, whether voluntarily, involuntarily or by
operation of law, without the prior consent of The Coca-Cola Company.
Moreover, the Bottlers may not enter into any contract or other arrangement to
manage or participate in the management of any other bottler without the prior
consent of The Coca-Cola Company. In addition, we may not sell or otherwise
transfer ownership of any of the Bottlers.
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Either party may terminate a Bottling Agreement in the event of a breach
by the other party which remains uncured after 60 days. If a Bottler fails to
comply with its obligations, The Coca-Cola Company may prohibit the production
of The Coca-Cola Company's products until such noncompliance is corrected.
Other Brands. The Bottlers in Colombia and Costa Rica have agreements
with companies other than The Coca-Cola Company for the sale of locally
recognized soft drink products and mineral water. These agreements contain
provisions governing the production, marketing and sale of the beverages that
are, in most instances, less stringent than the requirements contained in the
Bottling Agreements discussed above. Panamco Cost Rica also has the Canada Dry
franchise from a subsidiary of Cadbury Schweppes PLC for all of Costa Rica.
Panamco Venezuela has an agreement for the sale and distribution of Schweppes
soda and tonic water in Venezuela.
Government Regulation
Controls on Pricing and Promotions. Although there are none currently in
effect, in the last ten years the governments of Mexico, Brazil and Colombia
have imposed formal price controls on soft drinks. Currently in Mexico and
Colombia, for soft drinks as well as for other goods, price increases proposed
by manufacturers are subject to the informal approval of the respective
government. Until recently, the Mexican government also limited the types of
presentations for soft drinks. In Brazil, the government is recommending that
manufacturers maintain price levels in line with a trailing four-month average
of their historic price increases. Each of the governments of the countries in
which we operate regulates some of our promotional activities such as cash
prize contests.
Environmental Regulation. We spent $9 million in 1998 on plant upgrades
designed to meet environmental objectives. In 1999 we spent $12 million for
such purposes. See "Item 9.--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Expenditures". We must comply
with local permit requirements for constructing and expanding facilities,
drilling wells, drawing water from rivers and discharging effluent.
Intellectual Property. The intellectual property laws of the countries in
which we operate require a proprietary owner of trademarks used in the
operation of franchises in the countries to make certain filings with the
government to protect the trademark. We have made all necessary filings to
protect our proprietary trademarks. To the best of our knowledge, The
Coca-Cola Company and the owners of the other trademarks we use have made the
necessary filings to protect their respective trademarks.
See also "Item 6.--Exchange Controls and Other Limitations Affecting
Security Holders".
Political, Economic and Social Conditions in Latin America
In addition to the governmental regulations that have been imposed on our
operations, the Latin American markets in which we operate are characterized
by volatile, and frequently unfavorable, political, economic and social
conditions. See "Risk Factors--Volatile and frequently unfavorable political,
economic and social conditions in the markets in which we operate could
adversely affect our business". High inflation and, with it, high interest
rates are common. In 1999, the per annum inflation rates were approximately
12% in Mexico, 8% in Brazil, 10% in Colombia, 20% in Venezuela, 10% in Costa
Rica, 7% in Nicaragua and 5% in Guatemala. The governments in these countries
have often responded to high inflation by imposing price and wage controls or
similar measures, although currently there are no formal soft drink price
controls in any of the countries. These countries have also experienced
significant currency fluctuations. See "--Currency Devaluations and
Fluctuations".
The political, economic and social conditions in each of these countries
create a challenging environment for businesses, including ours. Our business,
earnings, asset values and prospects may be materially and adversely affected
by developments with respect to inflation, interest rates, currency
fluctuations, government policies, price and wage controls, exchange control
regulations, taxation, expropriation, social instability, and other political,
economic or social conditions or developments in or affecting Latin America.
Although we have been able to operate successfully in Latin
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America for over 50 years, we have no control over these conditions and
developments, and can provide no assurance that such conditions and
developments will not adversely affect our operations.
We can be adversely impacted by inflation in many ways. In particular,
when wages rise more slowly than prices, inflation can erode consumer
purchasing power and thereby adversely affect sales. Margins are diminished if
product prices fail to keep pace with increases in supply and material costs.
While we have been able in most recent years to increase prices in local
currency terms overall at least as much as inflation, net sales in local
currency terms may nevertheless remain flat or decrease if, among other
things, inflation or high unemployment diminishes consumer purchasing power,
as has been the case recently in Colombia and Venezuela. Although we expect
that prices will generally keep pace with inflation in the near term, sales
volume may decline and supply and material costs may rise more rapidly than
prices in the future. See "Item 9.--Management's Discussion and Analysis of
Financial Condition and Results of Operations". See also the discussion under
"--Currency Devaluations and Fluctuations" regarding the impact of
devaluations on net sales in dollars.
The governments in the countries in which we operate have historically
exercised substantial influence over many aspects of their respective
economies. In recent years, these governments have implemented important
measures to improve their economies. The current political climate in these
countries may create significant uncertainty as to future economic, fiscal and
tax policies.
Mexico
In Mexico, the early 1990s were marked by the economic reforms of the
Salinas administration and the passage of the North American Free Trade
Agreement. However, the Mexican government was not able to sustain this
progress, and a series of political and economic events created considerable
economic adversity, political instability and uncertainty. The peso was
devalued substantially in December 1994 and continued to depreciate in 1995.
The exchange rate increased from approximately 3.4 Mexican pesos per U.S.
dollar as of November 30, 1994 to approximately 7.7 Mexican pesos per U.S.
dollar as of December 31, 1995. The devaluation in 1995 was in part prompted
and aggravated by significant outflows of foreign capital, which in turn
resulted in a liquidity crisis for the Mexican government. Political events
also contributed to Mexico's economic problems, and have compounded the
difficulties facing the government in solving these problems. The original
presidential candidate of the ruling Institutional Revolutionary Party (the
"PRI"), Luis Donaldo Colosio, was assassinated on March 23, 1994. The PRI
Secretary General Jose Francisco Ruiz Massieu was assassinated on September
28, 1994. The brother of former President Carlos Salinas de Gortari was
arrested on charges of conspiracy in the assassination of Secretary General
Ruiz Massieu and has been under investigation in other criminal matters.
Controversy surrounded the investigations of such assassinations and the
ensuing legal proceedings and created strains within the PRI, which has
continued to decline in popular support. In July 1997, the PRI, which has
ruled Mexico since 1929, lost its absolute majority in the lower house of the
Mexican Congress. There has been uncertainty regarding the fairness of
elections, and the uprisings in the Chiapas region have contributed further to
Mexico's instability.
In 1995, the United States, the International Monetary Fund and other
entities put together a $52 billion credit package for Mexico, which Mexico
repaid in early January of 1997. In addition, the Mexican government
implemented various emergency measures, including restrictive monetary
policies and fiscal reforms aimed at increasing public revenues and reducing
public sector expenditures. Presidential elections are scheduled to take place
in 2000 in Mexico.
Brazil
In Brazil, the government has had some success in controlling inflation,
although there can be no assurance that this success will continue. In
addition, in recent years there have been allegations of government
improprieties, which have adversely affected its ability to implement a
successful economic program. Midway through 1994, the government of Brazil
launched an economic stabilization program, the Real Plan, which improved
economic conditions in Brazil. Inflation, which had been at double-digit
monthly rates, has decreased, purchasing power improved and the consumption of
goods and services began to increase. However, in January 1999, the Brazilian
government decided to modify its
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exchange policy, discontinuing its band system and allowing the real to trade
freely. As a result, the real has experienced extreme volatility. On January
29, 1999, the real was trading at 2.20 reals per U.S. dollar, which
represented an 80% devaluation in comparison to the December 31, 1998 rate. On
March 31, 1999, the real had revalued from its lowest levels and was trading
at 1.71 reals per U.S. dollar. On December 31, 1999, the real again devalued
to 1.97 reals per dollar. During the first quarter of 1999, the Brazilian
Government sought the support of the International Monetary Fund, which has
authorized the use of previously approved support funds in an aggregate amount
of approximately $6.5 billion for 1999. See "--Currency Devaluations and
Fluctuations". Although the modification of the exchange policy did not
significantly exacerbate inflation during 1999, unemployment increased and
wages in real terms fell. Lower wages in real terms reduced consumer
purchasing power in Brazil, which is reflected in our lower sales for 1999. We
are not able to predict the long-term effects any of these conditions on the
Brazilian real/U.S. dollar exchange rate or the Brazilian economy and
financial markets, in general, or upon us, in particular.
Colombia
In Colombia, Andres Pastrana Arango, leader of the Conservative Party,
was elected to the office of the presidency in July 1998, ending 12 years of
control by the Liberal Party. Mr. Pastrana's pledge to seek peace with
revolutionary guerilla forces, halt traffic in narcotics and improve general
economic conditions has not been successful and guerilla violence escalated in
1999. Violence resulting from guerilla movements and traffic in narcotics
continues. Many businesses, including ours, have been the victims of such
violence on occasion. All such losses suffered by us in 1999 were fully
covered by insurance. On June 29, 1999, in the face of economic pressures, the
Colombian Central Bank lowered the band in which the Colombia peso trades by
9%, which resulted in a significant devaluation. See "--Currency Devaluations
and Fluctuations--Colombia." Currently Colombia is in a recession.
Venezuela
In Venezuela, in February 1992 and November 1992, military officers
unsuccessfully tried to overthrow the government of President Carlos Andres
Perez, and certain constitutional rights and guarantees were temporarily
suspended. In 1993, impeachment proceedings were initiated against President
Perez on charges of embezzlement and misappropriation of government funds, and
Ramon J. Valasquez was elected to serve for the remainder of President Perez's
term. Rafael Caldera was elected President on December 5, 1993, and he assumed
office on February 2, 1994. In 1994, in response to large budget deficits and
a crisis in the banking sector, and pursuant to special authority granted by
the Venezuelan Congress, President Caldera's administration temporarily
imposed controls on foreign exchange transactions and on prices of consumer
goods and services and required mandatory bonus payments be paid to workers to
assist in covering food and transportation costs. In addition, President
Caldera's administration was given full and direct control over the Venezuelan
banking system. In April 1996, the Venezuelan government lifted the controls
on foreign exchange transactions and most of the controls on prices of
consumer goods and services, and in July 1996, the Venezuelan government
lifted the suspension of constitutional rights in all territorial areas except
certain border areas. We do not know if such controls or suspensions will be
reimposed. Venezuela has also experienced significant currency fluctuations.
See "--Currency Devaluations and Fluctuations". The Venezuelan government has
exercised, and continues to exercise, significant influence over many aspects
of the Venezuelan economy.
On December 6, 1998, Hugo Chavez Frias was elected to the office of the
presidency with 56% of the vote (the largest margin in a democratic election
in Venezuela). Mr. Chavez was inaugurated in February 1999. Mr. Chavez's main
reform and action plans include the opening of the Venezuelan economy to
foreign investment, the privatization of certain state-owned utilities, the
reform of the tax system and the implementation of a Constitutional Assembly
in order to rewrite the Venezuelan Constitution.
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The final draft of the new Constitution was completed in November 1999,
and was approved by referendum in December 1999. The new Constitution
provides, among other things:
(a) A new name for the country, to be named the Bolivarian Republic of
Venezuela;
(b) The allowance for military personnel to participate in the election
of public powers;
(c) Presidential term of six (6) years with the option to seek immediate
reelection for one (1) additional term;
(d) The creation of a one (1) chamber congress;
(e) The ratification of the oil industry as a strategic source of
sovereignty and economic policy, allowing joint ventures and private
capital investments in some areas;
(f) The creation of two (2) new public powers besides the executive,
legislative and judicial to be named the electoral power and the
citizens power.
In December of 1999, the northern part of Venezuela was devastated by
severe flooding, causing losses to the company of approximately $3.6 million.
Costa Rica
In Costa Rica, Miguel Angel Rodriguez was elected to the office of the
presidency in 1998 by a narrow margin, and faces considerable opposition in
Congress. Attempts by Mr. Rodriquez and his administration to build support
for their economic liberalization policies have been limited in success.
Although inflation, interest rates and the exchange rate have been relatively
stable, low coffee and banana prices in the international markets have
adversely impacted the Costa Rican economy, which is heavily dependent on
coffee and banana exports. In addition, tourism, an important source of income
in Costa Rica, has declined as a result of relatively high consumer prices,
security problems and competition from other tourist areas.
Nicaragua
In Nicaragua, President Arnoldo Aleman Lacayo, who assumed office in
January 1997, has publicly declared his intentions to work for reconciliation
among the dominant political factions in Nicaragua, but it is unclear whether
he will be able to do so. Mr. Aleman's success has been limited by splits in
his political party, Partido Liberal Constitutucionalista ("PLC"). In
addition, conflicts over the ownership of properties previously confiscated by
the Sandinista government and redistributed during the recent period of
agrarian reform have not been completely resolved. The planned privatization
of certain state-owned utilities, which has been undertaken to satisfy certain
conditions to continued financial aid imposed by the International Monetary
Fund, has been delayed, and Nicaragua continues to face a large fiscal
deficit. The aftermath of Hurricane Mitch in 1998 has also hurt Nicaragua.
Guatemala
In Guatemala, Alfonso Portillo, of the right wing opposition party, won
the December 1999 presidential election. The December election was the first
election in Guatemala since the end of its 36 year civil war. Mr. Portillo's
has indicated that his top priorities will be stabilizing the economy,
combating high crime rates and advancing privatizations, which were begun by
the administration of Alvaro Arzu.
1998 marked the first anniversary of the signing of the final peace
accord between the Guatemalan government and the Unidad Revolucionaria
Nacional Guatemalteca (the "URNG"). Mr. Arzu was successful in demobilizing
the guerrilla forces of the URNG, but made only limited progress in the
important areas of constitutional reforms (particularly reforms designed to
protect the rights of indigenous peoples), settlement of land disputes and
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socio-economic improvements. The Arzu administration and ruling political
party, Partido de Avanzada, faced opposition in Congress in their efforts to
reform the Guatemalan tax system and to increase the tax revenue received by
the Guatemalan government, which are conditions to the disbursement of loans
and donations designated as "peace funds" that have been pledged by the
International Monetary Fund and other donors.
Currency Devaluations and Fluctuations
In December 1994, the Bank of Mexico allowed the Mexican peso to float in
the free market, which resulted in an immediate and significant devaluation of
the peso. The exchange rate increased from approximately 3.4 Mexican pesos per
U.S. dollar as of November 30, 1994 to approximately 7.7 Mexican pesos per
U.S. dollar as of December 31, 1995. As of December 31, 1996, the exchange
rate was approximately 7.8 Mexican pesos per U.S. dollar; as of December 31,
1997, the exchange rate was approximately 8.1 Mexican pesos per U.S. dollar;
as of December 31, 1998, the exchange rate was approximately 9.9 Mexican pesos
per U.S. dollar; and as of December 31, 1999 the exchange rate was
approximately 9.5 Mexican pesos per U.S. dollar.
The devaluation of the Mexican peso in 1995 and the related economic
conditions in Mexico had a significant adverse impact on the results of
operations and financial condition of Panamco Mexico in 1995 and,
consequently, on the results of operations and financial condition of the
Company in 1995. The carrying value of the assets of the Panamco Mexico
subsidiaries in our consolidated accounts was also adversely affected. During
1996, 1997 and 1998, the peso was devalued by 2%, 3% and 22%, respectively,
and during 1999 was revalued by 4%.
In January 1999, the Brazilian government decided to modify its exchange
policy, discontinuing its band system and allowing the real to trade freely.
As a result, the real has experienced extreme volatility. On January 29, 1999,
the real was trading at 2.05 reals per dollar, which represented an 80%
devaluation in comparison to the December 31, 1998 rate. On March 31, 1999,
the real had revalued from its lowest levels and was trading at 1.72 reals per
dollar. The Brazilian real exchange rate as of December 31, 1999 was 1.79
reals per U.S. dollar compared to 1.21 reals per U.S. dollar as of December
31, 1998 representing a 48% devaluation, between average exchange rate of 1999
and 1998 the devaluation was approximately 56%. The devaluation of the
Brazilian real adversely impacted the results of the operations of Panamco
Brasil by approximately $28 million in 1999.
On June 27, 1994, the Venezuelan government established certain foreign
currency exchange controls and soon thereafter fixed the official exchange
rate between the Venezuelan bolivar and the U.S. dollar. Currently, the
Central Bank of Venezuela intervenes in the market to maintain such exchange
rate within a range that is 7.5% above and 7.5% below a reference rate that it
sets. There can be no assurance that the Central Bank of Venezuela will
continue its current exchange rate policy or that the Venezuelan government
will not impose foreign exchange restrictions in the future or that the
bolivar will not continue to decline in value with respect to the U.S. dollar.
Any such imposition or decline could adversely affect our financial condition
and results of operations. In 1999, the currency devaluation rate in Venezuela
was approximately 15%.
On June 29, 1999, in the face of economic pressures, the Columbian
Central Bank lowered the band in which the Colombian peso trades by 9%, which
resulted in significant currency devaluations. On September 30, 1999 the
Columbian peso was trading at 2,017.27 Colombian pesos per dollar, which
represented an 31% devaluation in comparison to the December 31, 1998 rate.
The Colombian peso exchange rate as of December 31, 1999 was 1,873.77
Colombian pesos per U.S. dollar compared to 1,542.11 Colombian pesos per U.S.
dollar as of December 31, 1998 representing a devaluation of approximately
22%.
As a general matter, because our consolidated cash flow from operations
is generated exclusively in the currencies of Mexico, Brazil, Colombia,
Venezuela, Costa Rica, Nicaragua and Guatemala, we are subject to the effects
of fluctuations in the value of these currencies. Each of these countries has
historically experienced significant currency devaluations relative to the
U.S. dollar. Such devaluations alone have generally not adversely affected the
profitability of our subsidiaries, measured in local currencies, as
substantially all costs of sales and expenses are incurred in local
currencies. However, in general, such devaluations are accompanied by high
inflation and declining purchasing power,
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which can adversely affect our sales as well as income. Because our
financial statements are prepared in U.S. dollars, net sales (and other
financial statement accounts, including net income) tend to increase when the
rate of inflation in each country exceeds the rate of devaluation of such
country's currency against the U.S. dollar. Alternatively, net sales (and
other financial statement accounts, including net income) generally are
adversely affected if and to the extent that the rate of devaluation of each
country's currency against the U.S. dollar exceeds the rate of inflation in
such country in any period. In addition, when dividends are distributed to us
by our foreign subsidiaries, the payments are converted from local currencies
to U.S. dollars, and any future devaluations of local currencies relative to
the U.S. dollar could result in a loss of dividend income. For a discussion of
devaluation rates in Mexico, Brazil, Colombia, Venezuela, Costa Rica,
Nicaragua and Guatemala since 1996, see "Item 9.--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Inflation".
In periods of high inflation and high interest rates, borrowings
denominated in local currencies are more costly, while borrowings indexed to
the U.S. dollar or other foreign currencies place the risk of devaluation on
the borrower. In periods of devaluation, U.S. dollar denominated borrowings
can generate income statement losses or charges against shareholders' equity,
as occurred in 1995 as a result of the Mexican peso devaluation. We could be
adversely affected by a devaluation of the Mexican peso, as in 1995, or
similar conditions in other countries, if it becomes necessary to increase
indebtedness in order to finance capital expenditures or for other purposes.
ITEM 2. DESCRIPTION OF PROPERTY
Properties
Our properties consist primarily of bottling, distribution and office
facilities in Mexico, Brazil, Colombia, Venezuela, Costa Rica, Nicaragua and
Guatemala. Panamco Mexico, Panamco Brasil, Panamco Colombia, Panamco
Venezuela, Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala
currently own and operate 10, 3, 18, 14, 1, 1 and 1 bottling plants,
respectively. As of December 31, 1999, the Company owned or leased over 375
warehouse distribution centers in its territories. See "Item 1.--Description
of Business--Production" for additional information regarding our properties.
As of December 31, 1999, the consolidated net book value of all land,
buildings, machinery and equipment owned by the Company was approximately
$1,218.4 million. These assets were subject to liens and mortgages securing
lines of credit and other indebtedness. The aggregate amount of such
indebtedness outstanding was $175.8 million as of December 31, 1999. The total
annual rent paid by the Company in 1999 for its leased distribution and office
facilities was approximately $8.9 million.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings and Claims Associated with the Venezuela Acquisition
In connection with the Venezuela Acquisition, in 1999, we received notice
of certain tax claims asserted by the Venezuelan taxing authorities, which
mostly relate to fiscal periods prior to the Venezuela Acquisition. The claims
are in preliminary stages and current aggregate of approximately $48.2
million. We have certain rights to indemnification from Venbottling (a company
owned by the Cisneros family) and The Coca-Cola Company for a substantial
portion of such claims and intend to defend against them vigorously. Based on
the information currently available, we do not believe that the ultimate
disposition of these cases will have a material adverse affect on us. See
"Items 9.--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-Looking Statements".
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Potential Imposition of Liabilities upon Resolution of Certain Brazilian Tax
Matters
Panamco Brasil has been the subject of administrative proceedings in the
Federal Revenue Office brought by Brazilian tax authorities seeking excise
taxes, interest and fines in an amount equivalent to $34.1 million as of
December 31, 1996. As of December 31, 1999, such amount had been reduced to an
amount equivalent to approximately $3.5 million. Issues raised by the
proceedings included whether freight costs should be included in the Brazilian
Tax on Manufactured Products (the "IPI") and the calculation of the IPI rates
on various beverages. In June 1997, the Brazilian Taxpayers' Council ruled
unanimously in favor of Panamco Brasil with respect to the period from January
1984 to December 1988, and this ruling is no longer subject to appeal. As a
result, only proceedings related to the claim in respect of the six-month
period ended June 30, 1989 remain pending. Because the Company believes it
will ultimately not incur any liability, there is no reserve in the Company's
financial statements in respect of these matters. The remaining proceedings
are ongoing, and there can be no assurance as to the final outcome or, if such
outcome is unfavorable, as to the amount of liability to be borne by the
Company, which could be material. See Note 10 of "Notes to Consolidated
Financial Statements".
In addition, Panamco Brasil is the subject of administrative proceedings
in the Federal Reserve Office brought by Brazilian tax authorities seeking
income taxes, interest with respect to credits taken in current periods and
fines in an amount equivalent to $3.7 million as of December 31, 1999. Issues
raised by the tax authorities include the deductibility of certain
intercompany service payments. The Brazilian tax authorities prevailed at the
initial administrative proceeding in 1991 and at the appellate administrative
level in June 1993. Panamco Brasil has appealed the decision. In April 1998,
the Brazilian Taxpayers' Council ruled unanimously in favor of Panamco Brasil.
The amount in question represents approximately $1.8 million. This ruling is
not subject to appeal. The Brazilian Taxpayers' Council, however, issued a
ruling against a former subsidiary of Panamco Brasil. The amount in question
represents approximately $1.9 million. Panamco Brasil has appealed this
ruling. See Note 10 of "Notes to Consolidated Financial Statements".
Panamco Brasil is also the subject of administrative proceedings in the
Federal Reserve Office brought by Brazilian tax authorities seeking
assessments with respect to tax credits taken during 1995 and 1996 relating to
overpayments of certain value-added taxes in prior years. The assessments
involve an amount approximately equivalent to $32.8 million as of December 31,
1998 and relate to value-added taxes applied to samples, gratuities and credit
sales. The Company has appealed the assessments. See Note 10 of "Notes to
Consolidated Financial Statements".
In 1998, Panamco Brasil reversed an excise tax reserve recorded in prior
years for credits taken on purchases of concentrate from the Amazon region, in
the northern part of Brazil. Those credits had been accrued for the period
between February 1991 and February 1994. Although the Brazilian subsidiaries
do not pay excise taxes on concentrate purchases from the Amazon region
because it is a tax-free zone, the bottlers have claimed that they are
nevertheless entitled to a corresponding credit against excise taxes payable
upon all of the final products. The government disputed the claim and said a
credit should exist only if the materials used in the production of the
concentrate were entirely from the tax-free region. On August 15, 1991, the
Brazilian Coca-Cola bottlers association, of which Panamco Brasil is a member,
obtained a preliminary injunction against the Brazilian tax authorities
permitting the bottlers to take credits against such excise taxes. Based on
the injunction, Panamco Brasil had not been required to make payment of taxes
in an amount equal to such credits, but had accrued a reserve for financial
reporting purposes in the full amount of such credits. The injunction was
lifted in May 1995 and the Brazilian Coca-Cola bottlers association appealed
the decision.
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During November 1999 the Brazilian Coca-Cola bottlers association
obtained a favorable judgment by the highest Brazilian appellate court.
Pursuant to this decision the matters related to excise taxes were resolved in
our favor.
Legal Proceeding Associated with the Solicitation by Certain Independent
Distributors in Venezuela to Form a Distributors Union.
During 1999, a group of independent distributors of Panamco Venezuela
commenced a proceeding to incorporate an union of distributors. If this effort
is successful, these distributors could, among other things, demand on an
individual basis, certain labor and severance rights against Panamco
Venezuela.
Since the incorporation process began, Panamco Venezuela has vigorously
opposed its formation through all available legal channels. On February 2000,
Panamco Venezuela presented a nullity recourse against the union incorporation
solicitation, as well as an injunction request before the Venezuelan Supreme
Court. A decision on the injunction request should be obtained during the
coming weeks and a final decision on the nullity recourse should be issued by
the Supreme Court within the next 12 to 16 months.
At this point, the Company believes that it will obtain a favorable
outcome on the recourses presented to the Supreme Court, and that the ultimate
disposition of this case will not have a material adverse effect on the
Company.
In addition, other legal proceedings are pending against or involve the
Company and its subsidiaries, which are incidental to the conduct of their
businesses. The Company believes the ultimate disposition of such other
proceedings will not have a material adverse effect on its consolidated
financial condition.
ITEM 4. CONTROL OF REGISTRANT
General
We are not directly or indirectly owned or controlled by another
corporation or by any foreign government.
We have two classes of Common Stock and one series of Preferred Stock:
the Class A Common Stock, which currently has no voting rights, the Class B
Common Stock, which is entitled to one vote per share and the Series C
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"),
which currently has voting rights as described in detail below. The holders of
Class B Common Stock have the exclusive power to elect the Board of Directors
and to determine the outcome of all matters to be decided by a vote of the
shareholders. Class A Common Stock will not have voting rights unless certain
events occur which will cause all outstanding shares of Class B Common Stock
to be converted into shares of Class A Common Stock, at which point each share
of Class A Common Stock will carry one vote. Such events, which may never
occur, are specified in the our Articles of Incorporation. Coca-Cola is the
sole holder of the Series C Preferred Stock.
Members of the Board of Directors, the advisory board and the executive
officers of the Company beneficially own 8,181,009 shares of Class B Common
Stock or approximately 91.2% of the outstanding shares of such class as of May
11, 2000, of which 5,155,052 shares are subject to the Voting Trust (as
defined below).
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The following table sets forth beneficial ownership of the Class B Common
Stock as of May 11, 2000 with respect to each person known by the Company to
own beneficially more than 10% of the outstanding shares of Class B Common
Stock:
Shares of Class B Percent of
Owner Common Stock Class
Lt. Gen. Donald Colin Mackenzie,
Mr. James M. Gwynn, Mr. Woods W. Staton
Welten and Mr. Stuart A. Staton in then
capacities as Voting Trustees under the
Voting Trust Agreement*............... 5,155,052 57.5%
Coca-Cola............................... 2,247,113 25.0%
- ---------
* Except as otherwise indicated above, each of the persons named in the
table has sole voting and investment power with respect to the shares
beneficially owned as set forth opposite such person's name.
The holder of the Series C Preferred Stock (the "Holder") is not entitled
to receive any dividends with respect to the Series C Preferred Stock and is
entitled to a preference on the liquidation, dissolution or winding-up of the
Company of $1.00. Pursuant to the Certificate of Designation for the Series C
Preferred Stock, we have agreed not to take certain actions without the
approval of the Holder, including, but not limited to: (i) certain
consolidations, mergers and sales of substantially all of our assets; (ii) any
acquisition or sale of a business (or an equity interest therein) if the
purchase price or sales price thereof, as the case may be, exceeds a material
amount (as defined therein); (iii) entry into any new significant line of
business or termination of any existing significant line of business; (iv)
certain capital expenditures and acquisitions and dispositions of fixed
assets; (v) certain transactions with affiliates (as defined); (vi) certain
changes in our policy with respect to dividends or distributions to
shareholders; and (vii) certain changes to our Articles of Incorporation or
By-laws. These rights are subject to certain exceptions and qualifications and
may be suspended or terminated in certain circumstances.
The Holder has no voting rights except as provided for above and except
for any voting rights provided by law. The Holder is entitled to designate for
election to the Board of Directors a certain number of designees depending on
the percentage of the outstanding capital stock beneficially owned by it.
The Holder of the Series C Preferred Stock has certain rights to purchase
additional shares of common stock issued by the Company to maintain its
proportionate interest, subject to certain exceptions and limitations.
The Series C Preferred Stock may not be transferred to any person other
than Coca-Cola or a corporation 100% of the capital stock of which (other than
directors' qualifying shares or shares held by persons to comply with local
law) is owned, directly or indirectly, by Coca-Cola; provided that if such
subsidiary is a person other than the Coca-Cola Export Corporation ("Export"),
such subsidiary shall have agreed to be bound by the provisions of the
Investment Agreement (as defined below). Upon any transfer in violation of
such restrictions, the Series C Preferred Stock shall convert automatically to
a share of Class A Common Stock.
Pursuant to the investment agreement (the "Investment Agreement") dated
November 1, 1995, between us and Export, a wholly owned subsidiary of
Coca-Cola, for so long as Export is entitled to delegate
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one or more individuals for election to our Board of Directors, in the event
of certain subsequent new issues of Common Stock, Coca-Cola will have the
right to purchase shares of Common Stock from us (on the terms of such new
issue) in order to maintain its economic and voting interest in Panamco. Under
certain circumstances (but not currently), Export has the right to request
that we file a registration statement so as to permit or facilitate the sale
or distribution of shares of Class A Common Stock beneficially owned by
Coca-Cola. In addition, in certain instances (but not currently), when we
propose to register under the Securities Act of 1933 shares of our Common
Stock in connection with an underwritten offer for our own account, we must
offer Export the opportunity to include in such registration statement shares
of Common Stock beneficially owned by Coca-Cola.
Voting Trust
The beneficial owners of 5,155,052 shares of Class B Common Stock, who
are no longer the holders of record of such shares, representing approximately
58% of the shares of such class, have entered into a Voting Trust Agreement,
amended and restated as of April 20, 1993, as amended (the "Voting Trust"),
among such beneficial owners and Lt. Gen. Donald Colin Mackenzie, Mr. James M.
Gwynn, Mr. Woods W. Staton Welten and Mr. Stuart A. Staton, as the voting
trustees (the "Voting Trustees"). The Voting Trust will expire on January 11,
2013. The Voting Trust may be amended at any time by the holders of voting
trust certificates representing 70% of the shares subject to the Voting Trust.
Under the terms of the Voting Trust, the Voting Trustees may vote as they, in
their sole discretion, deem to be in the best interests of the holders of the
voting trust certificates. However, the Voting Trustees are not permitted to
vote on any proposal for a merger, consolidation or certain other significant
transactions involving the Company, except as directed by the individual
holders of the voting trust certificates (or, if no such direction is
received, in accordance with the recommendation of our Board of Directors).
The Voting Trustees also agreed with Coca-Cola and Export (i) to vote for
Coca-Cola's designees for election to our Board of Directors and (ii) not to
take any action or cause us to take any action the effect of which would
circumvent or adversely affect or be inconsistent with any of the terms of the
Series C Preferred Stock. The Voting Trustees have also agreed with
Venbottling to vote for Venbottling's designees for election to our Board of
Directors. The Voting Trustees are directors of the Company. See "Item
10.--Directors and Officers of Registrants".
The Voting Trustees will serve for five-year terms, unless earlier
removed by the holders of voting trust certificates representing 70% of the
shares subject to the Voting Trust. Effective January 11, 1998, Messrs.
Mackenzie, Gwynn and Staton Welten were reelected as Trustees and Mr. Stuart
A. Staton was elected Trustee and also a member of our Board of Directors for
the first time. The Voting Trustees are not permitted to transfer the shares
of Class B Common Stock or any other voting securities which may be held in
the Voting Trust. The Voting Trust is on file at our registered office,
Dresdner Bank, Seventh Floor, 50th Street, City of Panama, Republic of Panama,
and is available on request of the Secretary. No holder of voting trust
certificates issued pursuant to the Voting Trust beneficially owns more than
10% of the Class B Common Stock.
ITEM 5. NATURE OF TRADING MARKET
As of April May 11, 2000, we had approximately 1,562 holders of record of
an aggregate of approximately 119,761,806 shares of Class A Common Stock
outstanding. As of May 11, 2000, there were an estimated 310 U.S. holders of
record of the Class A Common Stock. As of May 11, 2000, to our
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<PAGE>
knowledge approximately 91.4 % of the total outstanding Common Stock was held
of record by persons in the United States.
The Class A Common Stock has been listed and traded on the NYSE under the
symbol "PB" since September 21, 1993. The following table sets forth the range
of high and low closing sale prices of the Class A Common Stock as reported on
the NYSE during the periods shown:
High Low
1998:
First Quarter...................... $40.125 $35.068
Second Quarter..................... $41.375 $31.375
Third Quarter...................... $34.563 $15.000
Fourth Quarter..................... $24.313 $16.500
1999:
First Quarter...................... $21.750 $14.625
Second Quarter..................... $27.063 $17.500
Third Quarter...................... $24.250 $16.563
Fourth Quarter..................... $23.438 $14.813
2000: First Quarter...................... $20.500 $16.063
On May 11, 2000, the closing sale price of the Class A Common Stock on
the NYSE was $17.437 per share.
Certain Restrictions on Transfer. Our Articles of Incorporation prohibit
the transfer of shares of Class A Common Stock if the proposed transferee
would become the beneficial owner of 10% or more of the Class A Common Stock,
unless such transfer is approved by the Board of Directors or the holders of
at least 80% of the shares entitled to vote. Such restriction also applies to
any transfer of shares of Class B Common Stock which are then converted into
Class A Common Stock.
Our Articles of Incorporation also provide that shares of Class B Common
Stock automatically convert into a like number of shares of Class A Common
Stock if transferred to any person who is not a Qualifying Transferee, or an
Additional Qualifying Transferee, as defined therein.
In addition, we are registered with the Panamanian National Securities
Commission and is subject to a Panamanian statute which prohibits acquisitions
of 5% or more of the outstanding voting securities of a Panama corporation
without board of directors' review or shareholder approval.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
None of the countries in which we operate currently restricts the
remittance of dividends paid by subsidiaries to us, although Brazil has laws
in effect that impose limitations on the exchange of local currency for
foreign currency at official rates of exchange. Panama does not restrict the
payment of dividends by us to our shareholders. Mexico, Brazil, Colombia,
Venezuela, Costa Rica, Nicaragua and Guatemala have imposed more restrictive
exchange controls in the past, and no assurance can be given that more
restrictive exchange control policies, which could affect the ability of the
subsidiaries to pay dividends to Panamco, will not be imposed in the future.
The payment of dividends by such subsidiaries is also in certain instances
subject to statutory restrictions and is contingent upon the earnings and cash
flow of and permitted
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<PAGE>
borrowings by such subsidiaries. In addition, payment of dividends by
majority-owned subsidiaries necessitates pro rata dividends to minority
shareholders.
The Mexican Government has not restricted the conversion of the peso into
other currencies to pay dividends except during brief periods. However, other
types of transactions have been subject to exchange controls and less
favorable official rates of exchange as recently as 1991.
Brazil currently restricts the ability of nationals and foreigners to
convert the local currency into dollars or other currencies other than in
connection with certain authorized transactions, which include, among others,
payment of dividends in compliance with foreign investment registration
regulations. In Brazil, all foreign investments must be registered with the
Central Bank, which issues a certificate of registration of the foreign
currency value of such investment. Without such registration, no remittances
of dividends or profits may be made abroad, nor may any part of the original
investment be repatriated in foreign currency. The Central Bank has issued
certificates to the Company and its subsidiaries with respect to its
investment in Panamco Brasil. We must obtain an amendment to our Certificate
of Registration from the Central Bank upon any change in our investment in
Brazil.
In Colombia, there are no restrictions on the remittance of profits to
foreign investors as long as the investment is registered with the Colombian
Central Bank and the proper tax has been withheld. The Central Bank has
registered the Company as a foreign investor in each of the directly owned
Colombian subsidiaries, and these registrations allow Panamco to remit all
dividends received from its Colombian subsidiaries, subject to payment of
applicable taxes. However, under current Colombian law, whenever foreign
reserve levels fall below the equivalent of three months of imports,
repatriation and remittance rights may be temporarily modified.
In April 1994 the Venezuelan government imposed controls on foreign
exchange transactions. These controls were lifted in April 1996; however,
there can be no assurance that such controls or regulations will not be
reimposed.
Since 1996, no substantial restrictions on the foreign exchange system
remain in force in Nicaragua. Although the 1991 Foreign Investment Law, which
was created to guarantee foreign investors the right to remit 100% of profits
through the official exchange market, is still formally in effect, it no
longer has any practical application. Since it is not mandatory, most foreign
investors do not seek registration under the 1991 Foreign Investment Law.
Investors, whether registered under the 1991 Foreign Investment Law or not,
can freely repatriate their profits through the banking system. Profit
repatriation has not been a problem in Nicaragua in recent years.
In Guatemala there are no restrictions on the remittance of profits to
foreign investors. There is no obligation for foreign investors to register
their investments with any governmental office or to solicit any authorization
to participate in local businesses. On February 4, 1998, the Guatemalan
Congress enacted the Foreign Investment Law, which amended or, in some cases,
eliminated, restrictions created in the past that affected foreign investment.
Since that date, the Guatemalan government treats national and foreign
investment under the same rules and conditions. There can be no assurance that
prior restrictions will not be reimposed in the future.
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<PAGE>
ITEM 7. TAXATION
Introduction
The following discussion summarizes the principal U.S. Federal income tax
consequences of acquiring, holding and disposing of the Company's Class A
Common Stock. The following discussion is not intended to be exhaustive and
does not consider the specific circumstances of any owner of Class A Common
Stock.
The discussion is based on currently existing provisions of the United
States Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change (which change could be
retroactive). The discussion is limited to United States Federal income tax
matters and does not address other U.S. Federal taxes (such as estate taxes)
or the state, local or foreign tax aspects of acquiring, holding and disposing
of Class A Common Stock.
The discussion is limited to holders of Class A Common Stock that do not
currently own and have not owned any stock in the Company (or any of its
subsidiaries) other than Class A Common Stock and that hold such shares as a
capital asset (within the meaning of Section 1221 of the Code).
There is no reciprocal tax treaty between Panama and the United States
regarding withholding.
U.S. Federal Income Tax Consequences to U.S. Holders.
The following discussion applies to a holder of Class A Common Stock who
is an individual citizen or resident of the United States, a corporation
created or organized in the United States or any other person subject to U.S.
Federal income taxation on its worldwide income and gain ("U.S. Holders").
Distributions by the Company. Distributions by the Company with respect
to Class A Common Stock will be taxable to U.S. Holders as ordinary dividend
income to the extent of the Company's current and accumulated earnings and
profits. Distributions, if any, in excess of the Company's current and
accumulated earnings and profits will constitute a nontaxable return of
capital to a U.S. Holder to the extent of the U.S. Holder's adjusted tax basis
in the Class A Common Stock and will be applied against and reduce the U.S.
Holder's tax basis in such Class A Common Stock. To the extent that such
distributions are in excess of the U.S. Holder's tax basis in its Class A
Common Stock, the distributions will constitute capital gain. Distributions
with respect to Class A Common Stock generally will not be eligible for the
dividends-received deduction.
Foreign Personal Holding Company. The Company and several of its
subsidiaries may be "foreign personal holding companies" ("FPHC"). A foreign
corporation is classified as an FPHC for a taxable year during which at least
60% of its gross income for the taxable year is "FPHC income" and more than
50% of the voting power or value of all stock in such corporation is owned,
directly or indirectly (including shares owned through attribution), by five
or fewer individuals who are United States persons. FPHC income generally
includes royalties, annuities, proceeds from the sale of stock or securities,
gains from futures transactions in any commodities, rents, income from
personal services, dividends and interest (other than certain dividends and
interest paid by a qualifying related company that is incorporated in the same
country
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<PAGE>
as the recipient corporation). After its initial year as an FPHC, a
corporation may remain an FPHC even if only 50% of its gross income is FPHC
income.
All United States Holders that are shareholders of an FPHC are required
to include in their taxable income a deemed dividend equal to their share of
the corporation's "undistributed FPHC income". In general, a corporation's
undistributed FPHC income is the corporation's total taxable income (which is
gross income minus allowable deductions such as ordinary and necessary
business expenses), with certain adjustments, less dividends paid by the
corporation. Such a deemed dividend is recognized by all U.S. Holders that are
shareholders of an FPHC with undistributed FPHC income, regardless of their
percentage ownership in the corporation, and regardless of whether they
actually receive a dividend from the FPHC.
Because the Company intends to distribute sufficient dividends and to
cause each of its FPHC subsidiaries to distribute sufficient dividends so that
no FPHC will have undistributed FPHC income, it is not expected that U.S.
Holders will receive deemed dividend income as a result of the FPHC rules.
Nevertheless, if the Company or certain of its FPHC subsidiaries have
undistributed FPHC income, U.S. Holders will recognize deemed dividend income
regardless of whether they receive cash distributions from the Company.
Controlled Foreign Corporation. Panamco and its subsidiaries may be
"controlled foreign corporations" ("CFC"). A corporation is a CFC if more than
50% of the shares of the corporation, by vote or value, are owned, directly or
indirectly (including shares owned through attribution, which requires
treating Warrants and Securities convertible into shares actually or
constructively owned by a U.S. Holder as exercised or converted), by "10% CFC
Shareholders". The term CFC Shareholder means a U.S. person (including
citizens and residents of the United States, corporations, partnerships,
associations, trusts, and estates created or organized in the United States)
who owns, or is considered as owning through attribution, 10% or more of the
total combined voting power of all classes of stock entitled to vote of such
foreign corporation. Each 10% CFC Shareholder in a CFC is required to include
in its gross income for a taxable year its pro rata share of the CFC's
earnings and profits for that year attributable to certain types of income or
investments. It should be noted that income recognized by a 10% CFC
Shareholder under the CFC rules would not also be recognized as undistributed
FPHC income.
A U.S. Holder will not be a "10% CFC Shareholder" and will not be subject
to the CFC rules unless in the case of the Company the U.S. Holder owns 10% of
the Class B Common Stock or in the case of any CFC Subsidiary of the Company,
at least 10% of the value of the Company's outstanding shares or at least 10%
of the voting stock in one or more of the Company's CFC subsidiaries), in each
case directly or indirectly (including shares owned through attribution).
Passive Foreign Investment Company. A "passive foreign investment
company" ("PFIC") is defined as any foreign corporation at least 75% of whose
consolidated gross income for the taxable year is passive income, or at least
50% of the value of whose consolidated assets is attributable to assets that
produce or are held for the production of passive income. For this purpose,
passive income generally includes dividends, interest, royalties, rents,
annuities and the excess of gains over losses from the disposition of assets
which produce passive income. However, a corporation that is a CFC shall not
be treated as a PFIC with respect to a shareholder who is a 10% CFC
shareholder.
Neither the Company nor any of its subsidiaries has been or is a PFIC,
and the Company intends to conduct its affairs so as to avoid the
classification of the Company and its subsidiaries as PFICs. However,
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if ever applied to the Company, the PFIC rules could produce significant
adverse tax consequences for a U.S. Holder, including the imposition of the
highest tax rate on income or gains allocated to prior PFIC years and an
interest charge on U.S. Federal income taxes deemed to have been deferred.
Foreign Tax Credits. Dividends received from the Company generally will
be characterized as passive income, and any U.S. tax imposed on these
dividends cannot be offset by excess foreign tax credits that a U.S. Holder
may have from foreign-source income not qualifying as passive income.
Dispositions of Stock. In general, any gain or loss on the sale or
exchange of Class A Common Stock by a U.S. Holder will be capital gain or loss
and will be long-term capital gain or loss if the U.S. Holder has held the
Class A Common Stock for more than 12 months. For noncorporate U.S. Holders,
long-term capital gain generally will be subject to U.S. Federal income tax at
a maximum rate of 20% if the underlying Class A Common Stock has been held for
more than 12 months. There are limits on the deductibility of capital losses.
Information Reporting and Backup Withholding Requirements with Respect to
U.S. Holders. United States information reporting requirements may apply with
respect to the payment of dividends on the Class A Common Stock. Under
Treasury Regulations currently in effect, no backup withholding is generally
required for dividend payments by the Company to U.S. Holders. Under recently
finalized Treasury Regulations, however, noncorporate U.S. Holders may be
subject to backup withholding at the rate of 31% with respect to dividends
paid by the Company after December 31, 2000 when a U.S. Holder (i) fails to
furnish or certify a correct taxpayer identification number to the payor in
the manner required, (ii) is notified by the IRS that it has failed to report
payments of interest or dividends properly or (iii) fails, under certain
circumstances, to certify that it has not been notified by the Internal
Revenue Service that it is subject to backup withholding for failure to report
interest and dividend payments.
Form 5471 Reporting Requirements. U.S. Holders may be required to file
IRS Form 5471 under certain circumstances. A U.S. Holder is not subject to
Form 5471 filing requirements unless (after the application of the relevant
attribution rules) the U.S. Holder: (i) owns 10% or more of the value of the
outstanding stock of the Company or a subsidiary that is an FPHC; (ii) meets
the 10% stock ownership requirements with respect to the Company or one or
more of its subsidiaries when such corporation is "reorganized", acquires
stock in the Company or one of its subsidiaries which, when added to any stock
owned on the date of acquisition, meets the 10% stock ownership requirement,
acquires stock (without regard to stock already owned on the date of
acquisition) that meets the 10% stock ownership requirement, or disposes of
sufficient stock to reduce its ownership interest to less than the 10% stock
ownership requirement; (iii) is a person who owns any shares in a captive
insurance company which is owned 25% or more by U.S. persons; (iv) is a 10%
CFC shareholder of the Company or one or more of its subsidiaries; (v) is an
officer or director of the Company or one or more of its subsidiaries; or (vi)
owns more than 50% of the total combined voting power of all classes of stock
entitled to vote, or more than 50% of the total value of all shares of stock
in the Company or one or more of its subsidiaries. For purposes of section
(ii) above, the term "10% stock ownership requirement" means direct or
indirect ownership of 10% or more of the total value of the corporation's
stock, or 10% or more of the total combined voting power of all classes of
stock with voting rights. A United States person required to file a Form 5471
to report its ownership of Class A Common Stock may also be required to file
one or more Forms 5471 for various subsidiaries of the Company. As long as the
reporting requirements above have been met, no U.S. Income Withholding Tax is
required on dividends paid.
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<PAGE>
Failure to provide the information required by Form 5471 may result in
substantial civil and criminal penalties. Each prospective shareholder should
consult its own tax advisor with respect to the specific requirements for
filing Forms 5471.
U.S. Federal Income Tax Consequences to Non-U.S. Holders.
The following discussion summarizes the U.S. Federal income tax
consequences of acquiring, holding and disposing of Class A Common Stock by a
holder of Class A Common Stock that is not a U.S. Holder (a "Foreign Holder"),
is not engaged in the conduct of a trade or business in the United States and
is not present in the United States for 183 days or more during the taxable
year.
Distributions. Distributions by the Company to a Foreign Holder would be
subject to withholding of U.S. Federal income tax only if 25% or more of the
gross income of the Company (from all sources for the three-year period ending
with the close of the taxable year preceding the declaration of the dividend)
was effectively connected with the conduct of a trade or business in the
United States by the Company. The Company anticipates that it will recognize
income that is effectively connected with the conduct of a trade or business
in the United States. However, the income that is effectively connected with
the conduct of a trade or business in the United States should not represent
25% or more of the gross income of the Company. Accordingly, dividends paid to
Foreign Holders are not expected to be subject to U.S. Federal income or
withholding tax unless the Company's sources of income significantly change.
Dispositions of Shares. A Foreign Holder generally will not be subject to
United States Federal income or withholding tax in respect of gain recognized
on the disposition of Class A Common Stock.
Information Reporting and Backup Withholding Requirements with Respect to
Foreign Holders. Currently, U.S. information reporting requirements and backup
withholding will not apply to dividends on the Class A Common Stock paid to
Foreign Holders at an address outside the United States (provided that the
payor does not have definite knowledge that the payee is a United States
person). After December 31, 2000, Foreign Holders may be required to comply
with certification and identification procedures to prove their exemption from
information reporting and backup withholding requirements. As a general
matter, information reporting and backup withholding will not apply to a
payment of proceeds from a sale of the Class A Common Stock effected outside
the United States by a foreign office of a foreign broker. However,
information reporting requirements (but not backup withholding) will apply to
a payment of the proceeds of a sale effected outside the United States of the
Class A Common Stock through a "U.S. Broker", unless the broker has
documentary evidence in its records that the holder is not a United States
person and has no actual knowledge that such evidence is false, or the Foreign
Holder otherwise establishes an exemption. For purposes of the preceding
sentence, a U.S. Broker is a broker that is a United States person or has
certain other connections to the United States. Payment by a broker of the
proceeds of a sale of the Class A Common Stock effected inside the United
States is subject to both backup withholding and information reporting unless
the Foreign Holder certifies under penalties of perjury that he is not a
United States person and provides his name and address or the Foreign Holder
otherwise establishes an exemption. Any amounts withheld under the backup
withholding rules from a payment to a Foreign Holder will be allowed as a
refund or a credit against such Foreign Holder's United States Federal income
tax, provided that the required information is furnished to the IRS. As long
as the reporting requirements above have been met, no U.S. Income Withholding
Tax is required on dividends paid.
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Panamanian Taxation
The principal Panamanian tax consequences of ownership of Shares are as
follows. The following discussion is based upon advice of the Company's
Panamanian counsel Arias, Fabrega & Fabrega.
General. Panama's income tax is exclusively territorial. Only income
actually earned from sources within Panama is subject to taxation. Income
earned by Panamanian corporations from offshore operations is not taxable in
Panama. The territorial principle of taxation has been in force throughout the
history of the country and is supported by legislation, administrative
regulations and court decisions.
The Company is not subject to taxes in Panama because almost all of its
income arises from the activities of its subsidiaries which are conduced
entirely offshore from Panama. This is the case even though the Company
maintains its registered office and permanently employs administrative
personnel in Panama.
Taxation of Capital Gains. There are no taxes on capital gains realized
by an individual or corporation regardless of its nationality or residency on
the sale or other disposition of Shares since the Company has been registered
with Panama's National Securities Commission ("PNSC"). However, even if the
Company were not registered with the PNSC, any gain arising from the sale or
disposition of shares should not be deemed taxable in Panama on the basis of
the already- mentioned principles of territorial taxation, inasmuch as the
value of such Shares is ultimately determined upon assets and activities which
are held or conducted almost entirely outside of Panama.
Taxation of Distributions. Dividends and similar distributions paid by
the Company in respect to Shares are also exempted from dividend taxes,
otherwise payable by withholding at source on such income, under the
aforementioned territorial principles of taxation since Panamanian dividend
taxes do not arise on dividends and similar distributions of non-Panamanian
source income or on income which is exempt from Panama's income tax.
The preceding summary of certain Panamanian tax matters is based upon the
tax laws of Panama and regulations thereunder currently in effect and is
subject to any subsequent change in Panamanian laws and regulations which may
come into effect.
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ITEM 8. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA(1)
(Amounts in thousands, except per share amounts)
The following table sets forth selected consolidated financial and
operating data for the Company. The selected financial data have been derived
from the consolidated financial statements of the Company. The audited
consolidated financial statements of the Company for the three years ended
December 31, 1999, are included elsewhere herein and have been audited by
Arthur Andersen, independent public accountants, whose audit report is also
included herein. All of the consolidated financial statements referred to
above have been prepared in accordance with U.S. GAAP and are stated in U.S.
dollars. The selected consolidated financial and operating data should be read
in conjunction with "Item 9.--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,(1)
--------------------------
1995(7) 1996(8) 1997(9) 1998(10) 1999
------- ------- ------- -------- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales................................ $1,609,437 $1,993,087 $2,510,210 $2,773,276 $2,415,817
Cost of sales, excluding depre-
ciation and amortization................ 903,763 1,152,021 1,327,443 1,425,246 1,191,883
---------- ----------- ----------- ----------- -----------
Gross profit............................. 705,674 841,066 1,182,767 1,348,030 1,223,934
Operating expenses:
Selling and distribution................ 361,142 425,955 563,917 657,138 572,038
General and administrative.............. 109,393 132,101 193,437 222,327 251,450
Depreciation and amortization,
excluding goodwill(2)(4)............ 74,125 99,114 159,371 253,112 214,539
Amortization of goodwill................ 7,036 6,379 20,121 35,739 36,284
Facilities reorganization
charges(11)......................... - - - - 35,172
----------- ----------- ----------- --------- ---------
Total operating expenses............ 551,696 663,549 936,846 1,168,316 1,109,483
----------- ----------- ----------- --------- ---------
Operating income......................... 153,978 177,517 245,921 179,714 114,451
Interest income ......................... 4,839 20,229 22,006 12,817 28,962
Interest expense......................... (41,792) (43,844) (60,889) (98,152) (129,072)
Other income (expense), net(3)........... 2,798 24,074 44,033 22,136 (39,296)
Nonrecurring income, net(4).............. 11,177 11,646 - 60,486 -
----------- ----------- ----------- --------- ---------
Income (loss) before income taxes........ 131,000 189,622 251,071 177,001 (24,955)
Income taxes (4)......................... 44,999 53,580 57,302 51,374 31,254
----------- ----------- ----------- --------- ---------
Income (loss) before minority
interest................................. 86,001 136,042 193,769 125,627 (56,209)
Minority interest in earnings of
subsidiaries............................ 15,427 18,462 19,934 5,305 3,695
----------- ----------- ----------- ---------- ---------
Net income (loss)........................ $ 70,574 $ 117,580 $ 173,835 $ 120,322 $ (59,905)
=========== =========== =========== ========== ===========
Basic earnings (loss) per share(5)....... $ 0.88 $ 1.22 $ 1.44 $ 0.93 $ (0.46)
=========== =========== =========== ========== ===========
Diluted earnings (loss) per share (5).... $ 0.87 $ 1.21 $ 1.43 $ 0.92 $ (0.46)
=========== =========== =========== ========== ===========
Other Data:
Total product unit case volume........... 675,560 766,485 1,010,960 1,174,035 1,163,117
Dividends per share...................... $ 16 $ 18 $ 21 $ 24 $ 24
Weighted average shares outstanding (basic)(5) 80,726 96,522 120,841 129,538 129,683
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,(1)
--------------------------
1995(7) 1996(8) 1997(9) 1998(10) 1999
------- ------- ------ -------- ----
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding
(diluted)(5)....................... 80,806 97,065 121,969 130,792 130,005
Capital expenditures(6)............. $ 217,843 $ 122,897 $ 208,669 $ 302,215 $ 163,203
Cash Operating Profit............... $ 235,139 $ 283,010 $ 425,413 $ 468,565 $ 385,544
Balance Sheet Data (end of period):
Cash and equivalents................ $ 42,684 $ 251,273 $ 332,995 $ 131,152 $ 152,648
Property, plant and equipment, net.. 633,435 684,050 1,119,515 1,307,590 1,218,383
Total assets........................ 1,397,668 1,705,385 3,587,069 3,647,690 3,613,122
Total long-term obligations......... 322,103 404,533 897,056 964,525 1,437,834
Minority interest................... 67,310 59,734 26,783 26,243 27,974
Shareholders' equity................ 609,079 973,994 1,937,770 1,978,234 1,751,896
</TABLE>
[FN]
------------
(1) The results of the Colombian and Venezuelan subsidiaries for all periods,
the Mexican subsidiaries for 1997 and 1998 and the Brazilian subsidiaries
for 1996 and 1997, have been remeasured in U.S. dollars, the reporting
and functional currency, in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation", as it
applies to highly inflationary economies such as those in which the
subsidiaries operate. See Note 1 of "Notes to Consolidated Financial
Statements".
(2) Includes breakage of bottles and cases and amortization expense related
to new introductions. See Note 1 of "Notes to Consolidated Financial
Statements".
(3) See Note 13 of "Notes to Consolidated Financial Statements".
(4) In the fourth quarter of 1995, a nonrecurring credit of $11.2 million
($6.6 million after taxes and minority interest) was recorded. This
credit consisted of a benefit related to the approval by the Brazilian
government of credits for sales taxes previously paid on product samples.
During 1996, three separate nonrecurring credits of $3.9, $3.2 and $4.5
million were recorded. These credits consisted of the recovery of
previously paid excise taxes on refillable plastic containers purchased
in prior periods, a net credit relating to the credits for previously
paid sales taxes on product samples, and a net credit due to the recovery
of previously paid excise taxes on interest charged to customers,
respectively.
During 1998, Panamco Brasil conducted a study to evaluate the expected
future utilization of returnable product presentations in the Brazilian
market, having observed accelerated demand for, and utilization of,
nonreturnable presentations in the marketplace. The results of this study
show that the use of nonreturnable presentations will continue to
increase in the Brazilian market. Therefore, the Company has adjusted the
carrying value of bottles and cases to reflect their estimated use in the
marketplace by charging $36.5 million to the 1998 operating results,
increasing total depreciation and amortization expense, and reducing the
current year tax provision by $12.1 million. See Note 1 of "Notes to
Consolidated Financial Statements".
Additionally, Panamco Brasil reversed a contingency reserve recorded in
prior years for excise tax credits taken on purchases of concentrate
between February 1991 and February 1994. The Company had previously
accrued this reserve in the full amount of such credits. Panamco Brasil
reversed this reserve in 1998 because during 1998 the Brazilian Supreme
Court resolved similar claims of other bottlers in favor of the bottlers.
The reversal of the excise tax reserve amounted to $60.5 million and was
credited to Nonrecurring income, in the income statement. Income tax
credits recorded in this reserve, amounting to $20.0 million, were also
reversed and charged directly to income in the provision for income tax
in 1998. See Note 10 of "Notes to Consolidated Financial Statements".
(5) Dividends per share reflect the amounts declared and paid during the
applicable period. Earnings per share, dividends per share and shares
outstanding for all periods have been adjusted to give effect to the
two-for-one stock split effected on March 31, 1997.
(6) Does not include purchases of bottles and cases.
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<PAGE>
(7) Includes three months of net sales and net income of $18.4 million and
$2.2 million, respectively, from the acquisition of Panamco Costa Rica in
1995.
(8) Includes six months of net sales and net income of $7.1 million and $0.6
million, respectively, from the acquisition of additional franchises in
Costa Rica in 1996.
(9) Includes eight months of net sales and net income of $349.5 million and
$49.5 million, respectively, from Panamco Venezuela, and five months of
net sales and net income of $18.6 million and $0.7 million, respectively,
from Panamco Nicaragua.
(10) Includes nine months of net sales and net income of $45.1 million and
$2.1 million, respectively, from the Panamco Guatemala, and four months
of net sales and net income of $4.2 million and $0.9 million,
respectively, from R.O.S.A.
(11) Facilities reorganization charges in 1999 are related to a workforce
reduction in Brazil and Venezuela, and write-off of physical assets in
Venezuela and Colombia. See Note 1 of "Notes to Consolidated Financial
Statements".
</FN>
ITEM 9. 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 Panamco and its consolidated subsidiaries. This discussion
should be read in conjunction with our audited consolidated financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999 and the notes thereto included elsewhere
herein.
In March 1998, we completed the acquisition of our Guatemalan subsidiary,
Panamco Guatemala. We began consolidating the results of Panamco Guatemala as
of April 1, 1998. In September 1998, we acquired all the capital stock of
Refrigerantes do Oeste, S.A. ("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. We began consolidating the results of R.O.S.A. as of
September 1, 1998.
In 1998, we created a "Panamco Central America" group, which consists of
Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala. The financial
condition and results of operations of these three companies have been
reported together in the financial statements of Panamco Central America.
In February 1999, we formed the North Latin American Division, which
consists of Panamco Mexico and Panamco Central America. We will continue to
report these results of operations separately.
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 of goodwill and noncash facilities reorganization charges.
Inflation
Effect of Inflation on Financial Information
Our net sales, and almost all operating costs, in each of Mexico, Brazil,
Colombia, Venezuela, Costa Rica, Nicaragua and Guatemala, are denominated in
the currency of such country. In accordance with
40
<PAGE>
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS 52"), the financial statements of our subsidiaries are
remeasured or translated into U.S. dollars for purposes of the preparation of
the consolidated financial statements. (See Note 1 of "Notes to Consolidated
Financial Statements"). Borrowings and purchases of machinery and equipment
are often made in U.S. dollars. During any period when the rate of inflation
in a particular country exceeds the rate of devaluation of the local currency
against the U.S. dollar, all income statement amounts tend to be higher when
translated into U.S. dollars than would be the case in the absence of such an
excess. Conversely, if devaluation exceeds inflation, income statement amounts
tend to be lower when translated into U.S. dollars.
The following table compares the rate of inflation, as measured by
certain national consumer price indices in the seven countries, with the rate
of devaluation for the periods shown:
Year Ended December 31,(1)
-------------------------
1997 1998 1999
------- ------- -------
Mexico
Inflation........................... 16% 19% 12%
Currency Devaluation (Revaluation).. 3% 22% (4%)
Brazil
Inflation........................... 4% 2% 8%
Currency Devaluation................ 7% 8% 48%
Colombia
Inflation........................... 18% 18% 10%
Currency Devaluation................ 29% 19% 22%
Venezuela
Inflation........................... 38% 30% 20%
Currency Devaluation................ 6% 12% 15%
Costa Rica
Inflation........................... 11% 11% 10%
Currency Devaluation................ 11% 11% 10%
Nicaragua
Inflation........................... 8% 18% 7%
Currency Devaluation................ 12% 12% 10%
Guatemala
Inflation........................... - 8% 5%
Currency Devaluation................ - 11% 15%
(1) Inflation figures are based on the applicable Consumer Price Index and
currency devaluation figures are based on official U.S. dollar exchange rates
at year-end.
In addition, the level of inflation has a direct impact on the method
used to translate the financial statements from the local currency to the
reporting currency. SFAS 52 provides that, in a highly inflationary economy
(defined as having cumulative inflation for the three-year period preceding
the balance sheet date of approximately 100% or more), the effect of exchange
rate fluctuations on the translation is included in the determination of net
income for the period and is distributed as gains or losses to the related
income
41
<PAGE>
statement accounts. Such gains and losses do not affect the income statement
of companies operating in economies which are not considered highly
inflationary but are instead included as part of the accumulated other
comprehensive income as a component of shareholders' equity.
Beginning in 1998, we discontinued classifying Brazil as a highly
inflationary economy and accordingly, the functional currency of our Brazilian
operations is the Brazilian real.
Costa Rica, Nicaragua and Guatemala are not classified as highly
inflationary economies and the functional currencies for financial reporting
purposes under accounting principles generally accepted in the United States
are the colon, cordoba and quetzal, respectively.
Colombia and Venezuela are currently classified as highly inflationary
economies and accordingly their financial statements have been remeasured into
U.S. dollars in accordance with SFAS 52. Venezuela was not classified as a
highly inflationary economy in 1997.
In 1997 and 1998 Mexico was classified as a highly inflationary economy.
Since 1999, Mexico has not been classified as a highly inflationary economy
and as a result the functional reporting currency for Mexico since 1999 has
been the Mexican peso.
Effect of Inflation and Changing Prices on Operations
In addition to high inflation, our operations are carried out in
countries which in the past experienced, and may in the future experience,
government price controls. While price controls have been a limiting factor,
we have been generally effective in the recent past in increasing prices in
local currency terms at least at the rate of inflation. All of our costs are
affected by the high rates of inflation in the countries in which we operate.
In general, transactions in these countries are effectively tied to inflation
either through pricing, contract indexing, statute or informal practice.
Although currently there are no formal price controls on soft drinks in
our franchise territories, price and wage controls remain in effect in Mexico
and Brazil for certain other products and services, and price increases for
soft drinks in Mexico and Colombia are subject to the informal approval of the
respective governments.
Our sales also have been, and may in the future be, adversely affected
when wages rise more slowly than the rate of inflation, resulting in a loss of
consumer purchasing power. This has been the case in Brazil, Venezuela, and
Colombia recently as a result of the devaluations as discussed above.
In Mexico, Brazil, Colombia, Venezuela, Costa Rica and Nicaragua, income
taxes are indexed to reflect the effects of inflation; however, the effects of
inflation are calculated differently for purposes of local taxation and
financial reporting.
Seasonality
Soft drink sales are generally higher during the December holidays and
during the hottest and driest periods (with rainfall varying from year to
year). For this reason, we typically experience our best results of operations
in the second and fourth quarters. However, the seasonality effect is tempered
in our case because of the difference in the timing of the summer months in
the countries in which we operate. In
42
<PAGE>
Brazil, summer occurs during November, December and January, while summer
occurs in Mexico, Colombia, Venezuela, Costa Rica, Guatemala and Nicaragua
during the months of June, July and August.
Forward-Looking Statements
The nature of our operations and the environment in which we operate
subject us to changing economic, competitive, regulatory and technological
conditions, risks and uncertainties. In connection with the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, we note
the following facts which, among others, could cause future results to differ
materially from the forward-looking statements, expectations and assumptions
expressed or implied in this document.
Forward-looking statements, contained in this document include 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 our management, concerning
anticipated results and are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. 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, we 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. We make 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.
Consolidated Results of Operations
The following table sets forth our selected consolidated financial data
for the periods indicated, expressed as a percentage of net sales:
Year Ended December 31,
-----------------------------
1997 1998 1999
------ ------ ------
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 52.9 51.4 49.3
------ ------ ------
Gross profit 47.1 48.6 50.7
Operating expenses:
Selling and distribution 22.5 23.7 23.7
General and administrative 7.7 8.0 10.4
Depreciation and amortization,
excluding goodwill 6.3 9.1 8.9
Amortization of goodwill 0.8 1.3 1.5
Facilities reorganization charges - - 1.5
------ ------ ------
Total 37.3 42.1 46.0
------ ------ ------
Operating income 9.8 6.5 4.7
Interest (expense), net (1.5) (3.1) (4.1)
Other income (expense), net 1.8 0.8 (1.6)
Nonrecurring income, net - 2.2 -
------ ------ ------
Income (loss) before income taxes 10.1 6.4 (1.0)
43
<PAGE>
Year Ended December 31,
-----------------------------
1997 1998 1999
------ ------ ------
Income taxes 2.3 1.9 1.3
------ ------ ------
Income (loss) before minority
interest 7.8 4.5 (2.3)
Minority interest 0.9 0.2 0.2
------ ------ ------
Net income (loss) 6.9% 4.3% (2.5)%
====== ====== ======
Minority Interests in Results of Operations
We conduct our operations through tiers of subsidiaries in which, in some
cases, minority shareholders hold interests.
The aggregate minority interest in our income before minority interest
during a fiscal period is a function of the relative levels of income
generated by each of the consolidated subsidiaries and the percentage of each
subsidiary's capital stock owned by minority shareholders. As of December 31,
1999, our ownership interests in our Mexican, Brazilian and Colombian holding
companies were approximately 98%, 98% and 97%, respectively. This includes
acquisitions made in 1997 and 1998 that increased our effective ownership
interest in Panamco Mexico, from 74% to 98% and in Panamco Brasil from 96% to
98%. We own 100% of our operations in Costa Rica, Venezuela, Nicaragua and
Guatemala. Our country level holding companies own interests ranging from 50%
to 100% in our approximately 60 consolidated subsidiaries.
As a result of the net loss at certain of our subsidiaries for the year
ended December 31, 1999, minority shareholdings in our consolidated
subsidiaries represented an interest in the aggregate of approximately 6.6% of
consolidated net loss before minority interest. Because we have varying
percentage ownership interests in our 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 consolidated subsidiaries and the percentage of each of such
subsidiary's capital stock owned by minority shareholders during such period.
Income statement and balance sheet data for our subsidiaries Panamco
Mexico, Panamco Brasil, Panamco Colombia, Panamco Venezuela and Panamco
Central America, are presented on the following pages. The data presented as
of and for each of the three years in the period ended December 31, 1999 have
been derived from the audited consolidated financial statements of Panamco
Mexico, Panamco Colombia, Panamco Venezuela, Panamco Costa Rica, Panamco
Nicaragua and Panamco Guatemala, and the audited combined financial statements
of Panamco Brasil, as the case may be, which financial statements are not
included herein. As set forth in such income statement and balance sheet data,
minority interest in the Panamco Mexico, Panamco Brasil and Panamco Colombia
subsidiaries and net income attributable to the Panamco Mexico, Panamco Brasil
and Panamco Colombia holding companies give effect to minority shareholdings
below the country holding company level. Minority interest in the Panamco
Mexico, Panamco Brasil and Panamco Colombia holding companies refers to the
aggregate minority interest in the net income of the respective country level
holding company. Net income attributable to Panamco gives effect to the
deduction from net income of the minority interests at both the country level
holding company and the subsidiary levels.
44
<PAGE>
<TABLE>
<CAPTION>
Panamco Mexico
(U.S. dollars in thousands, except for unit cases)
Year Ended December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Statements of Operations Data:
<S> <C> <C> <C>
Net sales $ 546,772 $ 638,481 $ 794,812
Cost of sales, excluding depreciation and amortization 267,341 306,124 374,506
Operating expenses 196,260 237,070 287,118
--------- --------- ---------
Operating income 83,171 95,287 133,188
Interest (expense), net (6,846) (9,984) (11,849)
Other income, net 9,569 10,768 7,589
--------- --------- ---------
Income before income taxes 85,894 96,071 128,928
Income taxes 31,187 30,517 41,849
--------- --------- ---------
Income before minority interest 54,707 65,554 87,079
Minority interest in Panamco Mexico subsidiaries 4,083 2,476 3,288
--------- --------- ---------
Net income attributable to Panamco Mexico holding
company 50,624 63,078 83,791
Minority interest in Panamco Mexico holding company 11,423 1,172 1,556
--------- --------- ---------
Net income attributable to Panamco $ 39,201 $ 61,906 $ 82,235
========= ========= =========
Margin Analysis (as a percent of net sales):
Operating income 15.2% 14.9% 16.8%
Income before minority interest 10.0% 10.3% 11.0%
Net income attributable to Panamco Mexico holding
company 9.3% 9.9% 10.5%
Net income attributable to Panamco 7.2% 9.7% 10.3%
Cash Operating Profit 19.3% 20.7% 21.8%
Unit Case Sales Data (in millions):
Soft drinks 230.5 256.7 270.0
Water 73.4 110.6 136.4
Other products 1.1 1.4 2.3
Other Data:
Depreciation and amortization $ 22,254 $ 37,132 $ 40,356
Capital expenditures $ 52,972 $ 64,047 $ 57,919
Cash Operating Profit $ 105,425 $ 132,419 $ 173,544
Year Ended December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Balance Sheet Data:
Cash and equivalents $ 18,903 $ 10,727 $ 38,937
Property, plant and equipment, net 207,851 258,856 299,856
Total assets 412,169 459,778 572,359
Total debt 17,470 15,842 107,418
Total liabilities 209,388 206,486 243,088
Minority interest in Panamco Mexico subsidiaries 72 2,180 5,217
Shareholders' equity 202,709 251,112 324,054
</TABLE>
45
<PAGE>
Panamco Brasil
(U.S. dollars in thousands, except for unit cases)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
-------- --------- --------
Statement of Operations Data:
<S> <C> <C> <C>
Net sales $ 969,094 $ 897,951 500,683
Cost of sales, excluding depreciation and
amortization 608,122 546,289 305,935
Operating expenses, excluding facilities
reorganization charges 293,407 341,222 187,099
Facilities reorganization charges - - 5,142
--------- --------- --------
Operating income 67,565 10,440 2,507
Interest (expense), net (19,303) (21,717) (14,743)
Other income (expense), net 7,513 (10,839) (36,570)
Nonrecurring income, net - 60,486 -
--------- --------- --------
Income (loss) before income taxes 55,775 38,370 (48,806)
Income tax (3,661) 2,693 (31,765)
--------- --------- --------
Income (loss) before minority interest 59,436 35,677 (17,041)
Minority interest in Panamco Brasil holding company 2,219 812 (299)
--------- --------- --------
Net income (loss) attributable to Panamco $ 57,217 $ 34,865 $(16,742)
========= ========= ========
Margin Analysis (as a percent of net sales):
Operating income 7.0% 1.2% 0.5%
Income (loss) before minority interest 6.1% 4.0% (3.4)%
Net income (loss) attributable to Panamco 5.9% 3.9% (3.3)%
Cash Operating Profit 11.9% 10.5% 7.0%
Unit Case Sales Data (in millions):
Soft drinks 213.7 219.4 235.9
Beer 63.9 62.2 63.3
Water 8.8 11.1 12.7
Other Data:
Depreciation and amortization $ 47,828 $ 83,612 $ 32,763
Capital expenditures $ 52,134 $ 62,051 $ 22,686
Cash Operating Profit $ 115,393 $ 94,052 $ 35,270
Year Ended December 31,
-----------------------------------
1997 1998(1) 1999
---------- --------- ---------
Balance Sheet Data:
Cash and equivalents $ 13,919 $ 5,885 $ 8,563
Property, plant and equipment, net 274,988 298,023 195,387
Total assets 673,541 709,176 487,374
Total debt 79,224 119,295 79,279
Total liabilities 273,373 320,400 188,663
Minority interest in Panamco Brasil subsidiaries 15,005 5,038 3,167
Shareholders' equity 385,163 383,738 295,544
</TABLE>
[FN]
- -----------------------
(1) Includes only four months of R.O.S.A.
</FN>
46
<PAGE>
Panamco Colombia
(U.S. dollars in thousands, except for unit cases)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Statement of Operations Data:
<S> <C> <C> <C>
Net sales $ 537,987 $ 495,812 $ 397,014
Cost of sales, excluding depreciation and
amortization 232,271 217,817 175,522
Operating expenses, excluding facilities
reorganization charges 233,719 215,467 207,032
Facilities reorganization charges - - 1,370
--------- -------- --------
Operating income 71,997 62,528 13,090
Interest (expense), net (2,408) (5,328) (6,753)
Other income, net 10,008 5,311 2,824
--------- -------- --------
Income before income taxes 79,597 62,511 9,161
Income taxes 18,385 796 966
--------- -------- --------
Income before minority interest 61,212 61,715 8,195
Minority interest in Panamco Colombia holding
company 515 137 107
--------- -------- --------
Net income attributable to Panamco Colombia
holding company
60,697 61,578 8,088
Minority interest in Panamco Colombia 1,694 1,698 223
--------- -------- --------
Net income attributable to Panamco $ 59,003 $ 59,880 $ 7,865
========= ======== ========
Margin Analysis (as a percent of net sales):
Operating income: 13.4% 12.6% 3.3%
Income before minority interest 11.4% 12.4% 2.1%
Net income attributable to Panamco Colombia
holding company 11.3% 12.4% 2.0%
Net income attributable to Panamco 11.0% 12.1% 2.0%
Cash Operating Profit 22.5% 24.4% 18.5%
Unit Case Sales Data (in millions):
Soft drinks 190.8 186.9 153.9
Water 40.7 44.0 37.2
Other Data:
Depreciation and amortization $ 49,305 $ 58,510 $ 60,548
Capital expenditures $ 62,922 $ 69,216 $ 28,276
Cash Operating Profit $121,302 $121,038 $ 73,638
At December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Balance Sheet Data:
Cash and equivalents $ 46,776 $ 62,886 $ 7,396
Property, plant and equipment, net 254,952 297,874 292,915
Total assets 481,776 576,191 516,327
Total debt 71,616 123,200 87,145
Total liabilities 159,873 211,516 154,852
Minority interest in Panamco Colombia
subsidiaries 1,720 1,548 1,568
Shareholders' equity 320,183 363,127 359,907
</TABLE>
47
<PAGE>
Panamco Venezuela
(U.S. dollars in thousands, except for unit cases)
<TABLE>
<CAPTION>
Eight Months
Ended Year Ended
December 31, December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Statement of Operations Data:
<S> <C> <C> <C>
Net Sales $ 349,519 $ 550,677 $ 512,292
Cost of sales, excluding depreciation and
amortization 170,761 264,187 236,197
Operating expenses, excluding facilities
reorganization charges 143,048 263,168 267,691
Facilities reorganization charges - - 28,660
---------- --------- ---------
Operating income (loss) 35,710 23,322 (20,256)
Interest (expense), net (4,448) (9,801) (18,028)
Other income (expense), net 17,880 17,760 (3,337)
---------- --------- ----------
Income (loss) before income taxes 49,142 31,281 (41,621)
Income taxes (319) 2,930 8,353
---------- --------- ---------
Net income (loss) attributable to Panamco $ 49,461 $ 28,351 $ (49,974)
========== ========= =========
Margin Analysis (as a percent of net sales):
Operating income (loss) 10.2% 4.2% (4.0)%
Net income (loss) attributable to Panamco 14.2% 5.1% (9.8)%
Cash Operating Profit 20.1% 16.1% 13.6%
Unit Cases Sales Data (in millions):
Soft drinks 143.0 195.9 151.7
Water 6.1 14.3 18.4
Beer - - 0.5
Other products 4.3 6.3 6.8
Other Data:
Depreciation and amortization $ 34,606 $ 65,099 $ 71,156
Capital expenditures $ 27,832 $ 68,361 $ 33,183
Cash Operating Profit $ 70,316 $ 88,421 $ 69,800
At December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Balance Sheet Data:
Cash and equivalents $ 28,151 $ 31,211 $ 35,872
Property, plant and equipment, net 321,484 355,054 339,417
Total assets 527,104 589,543 566,371
Total debt 111,558 16,065 188,000
Total liabilities 283,358 330,366 364,259
Shareholders' equity 243,746 259,177 202,112
</TABLE>
48
<PAGE>
Panamco Central America
(Costa Rica, Nicaragua and Guatemala)
(U.S. dollars in thousands, except for unit cases)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997(1) 1998(2) 1999
--------- --------- ---------
Statement of Operations Data:
<S> <C> <C> <C>
Net sales $ 106,838 $ 190,355 $212,074
Cost of sales, excluding depreciation and
amortization 48,948 90,829 100,781
Operating expenses 41,432 76,593 84,261
--------- --------- --------
Operating income 16,458 22,933 27,032
Interest income (expense), net 96 (4,292) (1,843)
Other income (expense), net (937) 2,505 (5,692)
--------- --------- --------
Income before income taxes 15,617 21,146 19,497
Income taxes 3,911 5,661 5,468
--------- --------- --------
Net income attributable to Panamco $ 11,706 $ 15,485 $ 14,029
========= ========= ========
Margin Analysis (as a percent of net sales):
Operating income 15.4% 12.0% 12.7%
Net income attributable to Panamco 11.0% 8.1% 6.6%
Cash Operating Profit 23.1% 19.9% 21.2%
Unit Case Sales Data (in millions):
Soft drinks 33.3 63.0 69.7
Water 1.2 2.2 3.6
Other products 0.2 0.6 0.6
Other Data:
Depreciation and amortization $ 8,186 $ 15,039 $ 17,990
Capital expenditures $ 11,104 $ 38,540 $ 21,139
Cash Operating Profit $ 24,644 $ 37,972 $ 45,022
At December 31,
-----------------------------------
1997 1998 1999
---------- --------- ---------
Balance Sheet Data:
Cash and equivalents $ 13,211 $ 9,603 $ 8,496
Property, plant and equipment, net 68,174 105,925 104,478
Total assets 120,089 174,710 181,255
Total debt 15,269 44,260 16,299
Total liabilities 41,028 86,917 67,861
Shareholders' equity 79,061 87,793 113,394
</TABLE>
[FN]
- ----------------------
(1) Includes only five months of Panamco Nicaragua.
(2) Includes only nine months of Panamco Guatemala.
</FN>
49
<PAGE>
1999 Compared to 1998
Consolidated Results of Operations
Consolidated net sales decreased 12.9% to $2.4 billion in 1999 from $2.8
billion in 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 strategic marketing
initiatives. Unit case volume also increased in Brazil, although sales were
lower compared to 1998 due to Panamco Brasil's promotional pricing strategy
and the devaluation of the Brazilian real. Soft drink sales volumes in 1999
were up 5.2% in Mexico, 7.5% in Brazil and 11.1% in Central America, but 17.7%
and 22.6% lower in Colombia and Venezuela, respectively. As a result, net
consolidated sales volume decreased 4.4%. Beer sales volume, now sold in both
Brazil and Venezuela, increased 2.6% to 63.8 million unit cases (including 0.5
million unit cases from Venezuela). Bottled water volume increased 23.8% in
Mexico, 14.3% in Brazil, 28.6% in Venezuela and 61.0% in Central America, and
dropped 15.4% in Colombia, resulting in a net consolidated increase of bottled
water volume of 14.6%. Overall unit case volume dropped by 0.9%.
The cost of sales as a percentage of net sales decreased to 49.3% in
1999, from 51.4% in 1998. This resulted primarily from cost savings in raw
materials and packaging in several countries due to improved procurement
contracts and production efficiencies.
Operating expenses as a percentage of net sales increased to 45.9% in
1999 from 42.1% in 1998, 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, goodwill charges generated by the acquisition of R.O.S.A.
and of minority interests in Brazil during the second quarter of 1998 and
facilities reorganization charges of $35.2 million related to a workforce
reduction of 3,050 people in Brazil and Venezuela, together with the closing
of five soft drink bottling plants in Venezuela. Facilities reorganization
charges of $20.3 million were noncash items related to the write-off of
physical assets and the remaining $14.9 were cash items related to the
severance payments. During 1999 we spent $163.2 million on our capital
expenditure program, which includes approximately $49.0 million for the
placement of cold equipment in all countries.
Operating income decreased 36.3% to $114.5 million from $179.7 million in
1998. Cash operating profit decreased 17.7% in 1999 to $385.5 from $468.6
million in 1998.
Net interest expense increased to $100.1 million in 1999 from $85.3
million in 1998 due to increased indebtedness resulting from our $300 million
syndicated loan entered into during the first quarter of 1999. Total net debt
increased to $1,011.0 million at December 31, 1999 from $997.5 million at
December 31, 1998.
Other expense, net increased to $39.3 million in 1999 from other income,
net of $22.1 million in 1998, driven primarily by foreign exchange losses in
Brazil of $27.8 million due to a 48.0% devaluation of the Brazilian real
during the year, 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 as income in installments over
a 60-month
50
<PAGE>
period. Our ability to include such amounts as income will also depend on
whether we meet certain conditions in the future. Prior to the change, such
amounts were included as income upon receipt, as no future conditions were
required to be met.
The consolidated effective income tax rate increased to 125.2% in 1999
from 29.0% in 1998. The increase was due to tax benefits recorded in 1998 in
Brazil and Colombia, which were not repeated in the 1999 period, the effect of
the asset tax (minimum tax) in Venezuela and our decision not to recognize the
benefit of tax loss carryforwards from prior years in Venezuela because of our
uncertainty that we will have sufficient taxable income in the near-term to
offset against such benefits.
As a result of the foregoing, net loss in 1999 was $59.9 million compared
to net income of $120.3 million in 1998.
Regarding the year 2000 issue, to date, there have been no adverse
effects on the Company's systems or operations, including the ability of any
significant customer, vendor or service provider to do business with the
Company, and we have complied with all regulatory and contractual
requirements.
The Company does not expect any contingencies regarding this issue.
Mexico
Panamco Mexico, which operates in central Mexico, excluding Mexico City,
reported net sales of $794.8 million in 1999, an increase of 24.5% from $638.5
million in 1998, resulting from increased sales volume in water and soft
drinks due to the continued growth in sales of non returnable presentations.
Soft drink sales volume increased 5.2% representing an increase in share of
sales from 78.2% to 80.2%, and sales volume for bottled water increased 23.8%.
The sales volume growth in water was mainly due to the continued increase in
water jug sales volume due to increased coverage of the Company's franchise
territories.
The cost of sales as a percentage of net sales was 47.1% in 1999 as
compared to 47.9% in 1998 as a result of decreased raw material costs
partially offset by an increase in packaging costs related to the growth in
sales of non returnable presentations.
Operating expenses as a percentage of net sales decreased to 36.1% in
1999 from 37.1%. Although there was an increase in net sales, this was offset
by higher selling and administrative costs, mainly attributable to increases
in sales commissions and distribution and promotional expenses due to
increased competition and increased depreciation expenses related to our
continued capital expenditure program in Mexico. In 1999, we spent $57.9
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 39.8% to $133.2 million and as a percentage
of net sales was 16.8% in 1999 compared to 14.9% in 1998. Cash operating
profit increased 31.0% to $173.5 million in 1999 from $132.4 million in 1998.
Net interest expense in 1999 increased by 18.7% to $11.8 million from
$10.0 million in 1998 due to the issuance of an aggregate of $106 million in
unsecured peso denominated promissory notes in November of
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1999 in a local debt offering. Net debt was $68.5 million at December 31, 1999
compared to $5.1 million at December 31, 1998 primarily as a result of the
local debt offering.
Other income, net was $7.6 million in 1999, compared to $10.8 million in
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 in 1999 was 32.5% compared to 31.8% in
1998.
As a result of the foregoing, net income contributed by Panamco Mexico to
the Company increased 32.8% to $82.2 million during 1999 from $61.9 million in
1998.
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 $500.7 million in
1999, a decrease of 44.2% from $898.0 in 1998, attributable to local currency
devaluation of 48% and price discounting in connection with our promotional
pricing strategy. Total sales volume increased 6.6% to 311.9 million unit
cases, as a result of Panamco's promotional pricing strategy in place during
1999, which was implemented to respond to competition from the "B" brands.
Higher sales volumes were offset by lower per unit prices. Beer volume
increased 1.8% to 63.3 million unit cases from 62.2 million unit cases in the
prior year. Water volume increased 14.3% to 12.7 million unit cases and soft
drink sales volume increased 7.5% to 235.9 million unit cases. Panamco Brasil
increased its share of sales by 5.2 points over 1998 and 7.3 points since
launching its promotional pricing strategy in March of 1999, reaching a total
soft drink share of sales of 57.4% by year-end in its franchise territories.
Cost of sales as a percentage of net sales increased to 61.1% in 1999
from 60.8% in 1998. The increase is primarily attributable to the devaluation
of the Brazilian real discussed above, slightly offset by reductions in the
cost of raw materials and increased direct sales to supermarkets by
Cervejerias Kaiser in Panamco Brasil territories. While Panamco Brasil records
the commissions from the direct sales made by Cervejarias Kaiser to the
supermarkets as net sales, this amount affects the percentage of cost of sales
as a percentage of total sales.
Operating expenses, including facilities reorganization charges, as a
percentage of net sales increased to 38.4% in 1999 from 38.0% in 1998, due to
higher promotional expenses related to the promotional pricing strategy put
into effect during 1999. The facilities reorganization charges were related
mainly to a workforce reduction of approximately 1,400 people due to the
partial shut down of one of our bottling plants during the year, and the
streamlining of our operations.
Operating income decreased by 76.0% to $2.5 million from $10.4 million in
1998 due to lower sales. Cash operating profit decreased 62.5% to $35.3
million in 1999 from $94.1 million in 1998.
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Net interest expense decreased by 32.1% to $14.7 million in 1999 from
$21.7 million in 1998 as a result of improved financing conditions resulting
in lower interest costs and repayment of short-term debt. Net debt was $70.7
million at December 31, 1999 compared to $113.4 million at December 31, 1998.
Other expense, net increased to $36.6 million from $10.8 million in 1998
as a result of a $27.8 million foreign exchange loss due to the devaluation of
the Brazilian 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 decreased to a negative 65.1% from 7.0% in
1998, as a result of tax benefits used in 1999 including the reversal of the
valuation allowance of $14 million provided in 1998 (see nonrecurring items in
the explanation of 1998 vs. 1997) which represented a credit to the statement
of operations of 1999 of $9.5 million at the current exchange rate.
As a result of the above, the net loss contributed to Panamco by Panamco
Brasil increased 148.0% to ($16.7) million in 1999 from net income of $34.9
million in 1998.
Colombia
Panamco Colombia, which operates throughout Colombia, reported net sales
of $397.0 million in 1999, a 19.9% decrease from $495.8 million in 1998. The
decrease is mainly due to lower total unit case volume of 17.2% resulting from
a decrease in soft drink volume of 17.7% and a decrease in water volume of
15.4%. In dollar terms, average soft drink prices decreased 2.8% compared to
1998, as a result of a 21.8% devaluation of the Colombian peso partially
offset by a price increase of 18.0% 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 share of sales for soft drinks increased
5.3 points during 1999 to reach a record high 66.7% in December.
Cost of sales as a percentage of net sales increased to 44.2% in 1999
from 43.9% in 1998, as a result of higher costs associated with the increase
in sales of nonreturnable presentations.
Operating expenses, including facilities reorganization charges, as a
percentage of net sales increased to 52.5% in 1999 from 43.5% in 1998, mainly
due to higher depreciation expenses related to Panamco's ongoing capital
expenditure program, higher selling and distribution expenses due to an
increase in promotional activities and facilities reorganization charges
related with write-off of some fixed assets amounting to $1.4 million.
Operating income dropped to $13.1 million in 1999 from $62.5 million in
1998, a decrease of 79.1%, primarily as a result of lower sales. Cash
operating profit decreased 39.2% to $73.6 million in 1999 from $121.0 million
in 1998.
Net interest expense increased to $6.8 million in 1999 from $5.3 million
in 1998, due mainly to a new governmental tax on financial transactions, which
came into effect in the fourth quarter of 1998. Net debt was $42.2 million at
December 31, 1999 compared to $60.3 million at December 31, 1998.
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Other income, net decreased 46.8% to $2.8 million in 1999 from $5.3
million in 1998 primarily due to lower contributions 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 increased to 10.5% in 1999 from 1.3% 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 86.9% to $7.9 million in 1999 from $59.9 million in
1998.
Venezuela
Panamco Venezuela reported net sales of $512.3 million in 1999, a
decrease of 7.0% from $550.7 million in 1998. The decrease was mainly due to
lower total unit case volume of 18.0% attributable to a decrease in soft drink
volume of 22.6%, which was partially offset by increased water volume of
28.6%. Beer, which we began selling during the second quarter of 1999
contributed 0.5 million unit cases to our total unit case volume. This
significant drop in sales volume is attributable to poor economic conditions
in Venezuela and a highly competitive environment. Panamco's share of sales
for soft drinks increased 1.3 points during 1999 to 70.3%.
Cost of sales as a percentage of net sales decreased to 46.1% in 1999
from 48.0% in 1998, as a result of a 17.0% increase in salaries, offset by
cost-reduction programs implemented throughout the first six months of 1999
and a drop in soft drink volume, which resulted in lower production costs.
Operating expenses, including facilities reorganization charges, as a
percentage of net sales increased to 57.8% in 1999 from 47.8% in 1998, mainly
due to higher depreciation expenses related to Panamco's ongoing capital
expenditure program, along with increased marketing expenses. The facilities
reorganization charges of $28.7 million were related to a workforce reduction
of more than 1,650 people amounting to $9.8 million (cash) resulting from the
closing of five soft drink bottling plants and the write-off of physical
assets of these plants amounting to $18.9 million (noncash) during the year.
Operating loss increased 187.1% to $20.3 million in 1999 from operating
income of $23.3 million in 1998 primarily as a result of decreased sales and
the facilities reorganization charges. Cash operating profit decreased 21.1%
to $69.8 million in 1999 from $88.4 million in 1998.
Net interest expense increased to $18.0 million in 1999 from $9.8 million
in 1998, due mainly to increased net debt position over the twelve months
ended December 31, 1999 as a result of increased short-term working capital
needs. Net debt was $152.1 million at December 31, 1999 compared to $109.9
million at December 31, 1998, which includes $125.0 million of an intercompany
debt that was transferred to Panamco Venezuela in January of 1999.
Other expense, net increased 118.8% to $3.3 million from other income,
net of $17.7 million in 1998 as a result of lower contributions for capital
expenditures from The Coca-Cola Company, changes in The Coca-Cola Company's
cold equipment capital participation program discussed above and a charge of
$3.6 million resulting from asset damage due to severe floods that occurred in
December 1999.
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The effective income tax rate increased to 20.1% in 1999 from 9.4% 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 $38.0 million in 1999 and
our decision not to recognize the benefit of tax loss carryforwards 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 276.3% to $50.0 million in 1999 from net income of
$28.4 million in 1998.
Central America
Panamco's Central American region includes franchises in Costa Rica,
Nicaragua and Guatemala. The region reported net sales of $212.1 million in
1999, a 11.4% increase from $190.4 million in 1998, resulting primarily from
increases in soft drink and bottled water volume of 11.1% and 61.0%,
respectively, partially offset by a 15.1% devaluation of the Guatemalan
quetzal. Panamco Guatemala accounted for almost all of the soft drink volume
increase in the region, which sold 19.5 million unit cases versus 13.3 million
in the prior year period. Sales volume in Nicaragua increased 2.5% to 21.4
million unit cases versus 20.8 million unit cases in the prior year. Soft
drink sales volume in Costa Rica was up 0.7% to 28.7 million unit cases. The
increase in water volume resulted from increases at all franchises. Panamco's
share of sales increased to 93.3% in Costa Rica, 43.1% in Guatemala and 84.3%
in Nicaragua.
Cost of sales as a percentage of net sales decreased to 47.5% in 1999
from 47.7% in 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 decreased to 39.7% from
40.2% in 1998, as a result of the tight expense controls and the increase in
sales, slightly offset by increase in depreciation expenses.
Operating income increased 17.9% to $27.0 million in 1999 from $22.9
million in the 1998, primarily as a result of increased sales. Cash operating
profit increased 18.6% to $45.0 million in 1999 from $38.0 million in 1998.
Net interest expense decreased 57.1% to $1.8 million in 1999 from $4.3
million in 1998, due to a decrease in net debt as a result of payment of
short-term debt with cash contributed by the Company to its Nicaraguan and
Guatemala franchises and improved financing conditions. Net debt was $7.8
million at December 31, 1999 compared to $34.7 million at December 31, 1998.
Other expense, net increased to $5.7 million in 1999 from other income,
net of $2.5 million in 1998. This increase is attributable to the devaluation
of the Guatemalan quetzal of 15.1% and Nicaraguan cordoba of 10.0% that
affected the 1999 financial results by $2.2 million and $1.6 million
respectively, and changes in The Coca-Cola Company's cold equipment capital
participation program discussed above.
Effective income tax rates were 25.9%, 26.4% and 0.0% in 1999 for Panamco
Costa Rica, Nicaragua and Guatemala respectively compared to 27.8%, 45.3% and
1.1% in 1998.
As a result of the above, net income contributed by Panamco Central
America to the Company decreased 9.4% to $14.0 million in 1999 from $15.5
million in 1998.
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1998 Compared to 1997
Net sales increased 10.5% to $2.8 billion from $2.5 billion in 1997 on
consolidated unit case sales volume growth of 16.1% to a record 1.2 billion
cases. By country, sales volume grew 20.7% in Mexico, and 88.6% in Central
America, including 13.8% volume growth in Costa Rica and contributions of 21.1
million and 13.9 million unit cases by Nicaragua and Guatemala, and was flat
in Brazil and Colombia. In Venezuela, volume grew 41.2% during the twelve
months of 1998, compared with eight months of operations in 1997.
The cost of sales as a percentage of net sales decreased to 51.4% in
1998, from 52.9% in 1997, driven by continued cost savings in raw materials
and increased productivity that resulted in higher margins in all countries.
The following discussions are after the recording of nonrecurring items
(explained below).
Operating expenses as a percentage of net sales increased to 42.1% in
1998 from 37.3% in 1997, as a result of a significant increase in goodwill
amortization related to the purchase of Panamco Venezuela and the Company's
continued increase in its investment program which reached $302.2 million
during 1998.
Operating income dropped to $179.7 million in 1998, down 26.9% from
$245.9 million in 1997. Cash operating profit (operating income plus
depreciation and amortization) increased 10.1% to $468.6 million compared to
$425.4 million in 1997.
Net interest expense increased to $85.3 million in 1998 from $38.9
million in 1997, due to increased indebtedness following the offering in July
1997 of $300 million aggregate principal amount of 7 1/4% Senior Notes due
2009, increased debt related to the purchase of minority interests in Panamco
Mexico during December 1997 and increased indebtedness related to the
acquisition of R.O.S.A. Total net debt reached $998 million from $412 million
in 1997.
Other income, net decreased to $22.1 million, from $44.0 million in 1997,
primarily due to lower equity in the earnings of Cervejarias Kaiser in Brazil
and increased exchange losses in Brazil partially offset by higher grants from
Coca-Cola.
Our consolidated effective income tax rate for 1998 increased to 29.0%
from 22.8% in 1997, mainly as tax credits obtained in 1997 in Brazil, Mexico
and Venezuela were not obtained in 1998.
As a result of the above, income before minority interest dropped 35.2%
to $125.6 million, from $193.8 million 1997. Minority interest in income
declined to 4.2% in 1998 from 10.3% in 1997. In December 1997, we increased
our ownership in our Mexican subsidiary, Panamco Mexico, to 98% from 74%, and
in Panamco Mexico's principal subsidiaries to 96% from 93%, paying a total of
$277 million and recognizing $228 million of goodwill for this acquisition. As
a result, we now have a 95% effective interest in its Mexican operations, up
from 69%. This acquisition added $11.8 million to our net income in 1998. In
addition, during 1998 we increased our ownership interest in our Brazilian
subsidiary, Panamco Brasil, to 98% from 96%, paying a total of $28.1 million.
These acquisitions nearly complete a program started five years ago to
purchase minority interest in our subsidiaries in Mexico, Brazil and Colombia.
Panamco Venezuela and Panamco Nicaragua acquired during 1997, and Panamco
Guatemala, acquired in early 1998, contributed $28.4 million, $1.1 million and
$2.1 million, respectively, to net income.
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As a result of the above, 1998 net income was down 30.8% to $120.3
million from $173.8 million in 1997. In 1998, basic earnings per share
("BEPS") was $0.93 based on 129.5 million weighted average shares outstanding
compared to BEPS of $1.44 based on 120.8 million weighted average shares
outstanding in 1997. In 1998, diluted earnings per share ("DEPS") was $0.92
based on 130.8 million weighted average shares outstanding compared to DEPS of
$1.43 based on 122.0 million weighted average shares outstanding in 1997.
Nonrecurring Items - During 1998, Panamco Brasil conducted a study to
evaluate the expected future utilization of returnable product presentations
in the Brazilian market, having observed accelerated demand for, and
utilization of, nonreturnable presentations in the marketplace. The results of
this study show that the use of nonreturnable presentations will continue to
increase in the Brazilian market. Therefore, we have adjusted the carrying
value of bottles and cases to reflect their estimated use in the marketplace
by charging $36.5 million to 1998 operating results, increasing total
depreciation and amortization expense, and reducing the provision for income
tax by $12.1 million.
Additionally, we reversed a contingency reserve recorded in prior years
for excise tax credits (IPI) taken on purchases of raw materials between
February 1991 and February 1994. We have previously accrued this reserve in
the full amount of such credits. We reversed this reserve based on the fact
that, during 1998, the Brazilian Supreme Court resolved similar claims of
other bottlers in favor of the bottlers.
The reversal of the excise tax reserve amounted to $60.5 million and was
credited to other income, in the income statement. Income tax credits recorded
in this reserve, amounting to $20.0 million, were also reversed and charged
directly to income in the provision for income tax.
At the end of 1998, some Brazilian tax rules were changed as part of the
Brazilian government's reform of the tax system. For example, the "Cofins"
tax, which is assessed on sales revenues, was increased from 2.0% to 3.0%.
One-third of the Cofins tax paid may be offset against the social contribution
tax calculated for the year, which is reported together with the provision for
income tax. Amounts not offset during the year may not be carried forward to
future periods. This change reduces significantly the ability of Brazilian
companies, including Panamco Brasil, to fully recover credits deriving from
social contribution tax loss carryforwards. Therefore, we recorded a valuation
allowance on previously recorded deferred income tax credits amounting to
$14.0 million, charging it to income in the provision for income tax in the
fourth quarter of 1998. Management is currently analyzing what actions can be
taken to enable Panamco to recover the deferred income tax credits in the
future.
The net impact of these nonrecurring (noncash) items was an increase in
net income of $2.0 million, or $0.02 per share (basic) and $0.01 per share
(diluted).
Mexico
Panamco Mexico reported 1998 net sales of $638.5 million, 16.8% higher
than the previous year's net sales of $546.8 million. This rise was due
primarily to a year-over-year increase of 20.7% in unit case sales volume,
from 305.1 million unit cases to 368.3 million unit cases, reflecting a 11.3%
increase in soft drink volume and a 50.2% increase in bottled water volume.
The increase in soft drink volume resulted from significant growth in sales of
nonreturnable presentations and the continued rollout of the new 1.5-liter
nonreturnable bottles. Bottled water volume growth was attributable to the
continued success of Risco purified and mineral water in single serving
presentations and the expansion of the 19-liter jugs coverage.
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The cost of sales as a percentage of net sales decreased to 47.9% in 1998
from 48.9% in 1997, primarily due to the continued reduction in raw material
and freight costs, slightly offset by higher costs attributable to increased
sales of nonreturnable presentations.
Operating expenses as a percentage of net sales increased to 37.1% in
1998 from 35.9% in 1997 due to increases in depreciation and amortization
expenses related to the purchase of minority interests in the fourth quarter
of 1997, slightly offset by tight expense controls.
Operating income grew 14.6% to $95.3 million, and as a percentage of net
sales was 14.9% in 1998 compared to 15.2% in 1997. Cash operating profit
increased 25.6% to $132.4 million from $105.4 million in 1997.
Net interest expense increased 45.8% to $10.0 million in 1998 from $6.8
million in 1997, primarily as a result of increased intercompany debt related
to the purchase of minority interests. Other income, net increased slightly to
$10.8 million during 1998 from $9.6 million in 1997. The effective tax rate
decreased to 31.8% in 1998 from 36.3% in 1997.
As a result of the above, income before minority interest increased 19.8%
to $65.6 million in 1998 from $54.7 million. Minority interest as a percent of
sales was reduced to 0.6% in 1998 from 2.8% in 1997, mainly as a result of the
1997 fourth quarter purchase of minority interests totaling $277 million. Net
income attributable to Panamco increased 57.9% to $61.9 million from $39.2
million in 1997.
Brazil
Panamco Brasil reported net sales of $898.0 million in 1998, a decrease
of 7.3% from $969.1 million in 1997. This drop reflects a 9.4% decrease in the
average price per unit case, due mainly to a decline in the effective price of
beer, attributable to increased direct sales to supermarkets by Cervejarias
Kaiser in Panamco Brasil territories. While Panamco Brasil records the entire
volume sold by Kaiser, only the commissions from the sales are posted to net
sales, affecting the calculation of average price per unit case. Also
impacting the average price was the fact that overall sales to supermarkets
increased as a percentage of total sales. The decrease in the average price
per unit case was offset slightly by a 2.2% increase in total unit case sales
volume, from 286.3 million cases in 1997 to 292.7 million cases in 1998,
reflecting the addition of 3.4 million unit cases from the acquisition of
R.O.S.A., which was in turn offset by a 2.3% drop in beer sales volume.
Separately, in November 1998, Panamco Brasil increased soft drink prices by 5%
and was able to maintain its leadership, with a market share of 53.0%.
Cost of sales as a percentage of net sales decreased to 60.8% in 1998
from 62.8% in 1997, due primarily to a continued reduction in raw material and
production costs, which resulted from improved procurement and operating
efficiencies.
Operating expenses as a percentage of net sales increased to 38.0% in
1998 from 30.3% in 1997, primarily as a result of increased depreciation
expense related to capital expenditures of $62.1 million during 1998.
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Operating income decreased 84.5% to $10.4 million in 1998, compared to
$67.6 million in 1997, mainly due to the nonrecurring items previously
discussed. Cash operating profit decreased 18.5% to $94.1 million in 1998 from
$115.4 million in 1997.
Net interest expense increased 12.5% to $21.7 million in 1998 from $19.3
million in 1997, due primarily to higher interest rates on local debt. Other
income, net decreased to a loss of $10.8 million in 1998 from income of $7.5
million in 1997, mainly due to lower equity in the earnings of Cervejarias
Kaiser. The effective tax rate increased to 7.0% in 1998 from a negative 6.6%
in 1997 as a result of the nonrecurring items previously described, slightly
offset by continual tax planning.
As a result of the foregoing, income before minority interest decreased
40.0% to $35.7 million. Net income attributable to Panamco decreased 39.1% to
$34.9 million, or 3.9% of net sales, from $57.2 million, or 5.9% of net sales,
in 1997.
Beginning in 1998, we discontinued classifying Brazil as a highly
inflationary economy. Accordingly, the functional currency of our Brazilian
operations was changed from the U.S. dollar to the Brazilian real. This
resulted in a change in the method of translating the Brazilian financial
statements from the remeasurement process to the current rate translation
method, which, in turn, resulted in a decrease in the deferred income tax
balance and shareholders' equity in the amount of $7.7 million.
In September 1998, we acquired R.O.S.A. for $47.9 million in cash. As
part of this transaction, we also acquired R.O.S.A.'s plastic bottle business,
Supripack Industria de Embalagens, S.A. (Supripack), for $10.0 million in
cash, bringing the total acquisition price to $57.9 million, for which we
entered into a $70.0 million financing agreement. We began consolidating
R.O.S.A.'s results as of September 1, 1998, and registered estimated goodwill
of $37.4 million in connection with this acquisition. In addition, during the
year we increased our ownership interest in Panamco Brasil to 98% from 96%,
paying a total of $28.1 million.
Colombia
Panamco Colombia reported net sales of $496 million in 1998, a 7.8%
decrease from $538 million in 1997. This is due in part to the effect of a 25%
devaluation of the Colombian peso during 1998, which was partially offset by
two price increases effected during the year. The drop in net sales also
reflects a 2.0% decrease in soft drink sales volume from 190.8 million unit
cases in 1997 to 186.9 million in 1998. Bottled water sales volume increased
to 44.0 million unit cases in 1998, from 40.8 million cases in 1997 as a
result of the continued success of Santa Clara brand purified water in the
19-liter jug presentation.
Cost of sales as a percentage of sales increased to 43.9% in 1998 from
43.2% in 1997, as a result of slightly higher costs associated with increased
sales of nonreturnable presentations.
Operating expenses as a percentage of net sales remained flat at 43.5% in
1998 compared with 43.4% in 1997. In absolute terms, operating expenses
decreased 7.8% to $215.5 million in 1998 from $233.7 million in 1997, due to
currency devaluation, offset by higher depreciation and amortization expenses
resulting from the continued capital expenditures program and the introduction
of new bottles, jugs and cases into the marketplace.
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As a result, operating income decreased 13.2% to $62.5 million in 1998,
and as a percentage of net sales was 12.6% in 1998, compared with 13.4% in
1997. Cash operating profit remained flat at $121.0 million in 1998 compared
with $121.3 million in 1997.
Net interest expense was $5.3 million in 1998 compared to net interest
expense of $2.4 million in 1997 as a result of increased net debt of $51.6
million.
Other income, net decreased 46.9% to $5.3 million in 1998 from $10.0
million, mainly due to fewer grants received from The Coca-Cola Company.
The effective tax rate decreased to 1.3% in 1998 from 23.1% in 1997,
primarily due to tax benefits received in December 1998 as a result of
investment in Friomix del Cauca, our Colombian cooler production business.
As a result of the foregoing, income before minority interest increased
0.8% to $61.7 million during 1998. Net income attributable to Panamco
increased 1.5% to $59.9 million in 1998 or 12.1% of net sales, from $59.0
million, or 11.0% of net sales.
Venezuela
Panamco Venezuela reported net sales of $550.7 million for the full year
ended December 31, 1998 on unit case sales volume of 216.5 million, including
195.9, 14.3 and 6.3 million unit cases of soft drinks, water and malt,
respectively.
Cost of sales was $264.2 million or 48.0% of net sales, while operating
expenses were $263.2 million or 47.8% of net sales. Operating expenses
included depreciation and amortization of $65.1 million. Cash operating profit
was $88.4 million, or 16.1% of net sales for 1998.
Interest expense was $9.8 million or 1.8% of net sales. Other income, net
remained flat at $17.8 million but dropped to 3.2% of net sales from 5.1%. The
effective tax rate for the year was 9.4%.
Net income for 1998 was $28.4 million or 5.1% of net sales.
Central America
Costa Rica. Net sales grew 10.8% to $97.7 million in 1998 from $88.2
million in 1997, resulting primarily from an 11.9% increase in unit cases
sales volume of soft drinks and a 48.4% increase in volume of bottled water.
The increase in soft drink volume resulted from growth in sales of the 2-liter
Refillable Pet ("REF-PET") and 6.5-oz. glass returnable presentations, as a
well as promotional events and merchandising programs.
Cost of sales as a percentage of net sales decreased slightly to 44.0% in
1998 compared with 44.4% in 1997, due to production efficiencies and raw
material cost improvements.
Operating expenses as a percentage of net sales increased to 39.2% in
1998 from 38.7% in 1997, due to an increase in depreciation expenses resulting
from our continued capital expenditure program, which in 1998 reached $17.3
million, up from $12.0 million in 1997.
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<PAGE>
Operating income increased to $16.4 million, or 16.8% of net sales in
1998, from $14.9 million in 1997, or 16.9% of net sales in 1997. Cash
operating profit increased 11.5% to $24.2 million in 1998 from $21.7 million
in 1997.
Net interest income was $1.0 million in 1998, flat from $1.1 million in
1997. Other income, net increased by $1.1 million during 1998, mainly driven
by increased grants from The Coca-Cola Company.
Net income increased 12.5% to $12.4 million, or 12.7% of net sales, in
1998 from $11.0 million, or 12.5% of net sales, in 1997.
Nicaragua. Net sales were $47.6 million in 1998 on 21.1 million unit
cases sales. The overall gross margin was 45.8%.
Operating expenses as a percentage of net sales were 39.6%, including
depreciation expenses of $4.2 million, or 22.5% of total operating expenses.
Operating income was $3.0 million, or 6.2% as a percentage of net sales
in 1998 and cash operating profit was $7.2 million, or 15.1% of net sales.
The effective income tax rate for the period was 45.3%. Net income for
the period was $1.1 million, or 2.2% of net sales.
Guatemala. Net sales for the nine months ended December 31, 1998 were
$45.1 million on unit cases sales of 13.9 million. The overall gross margin
was 51.1%.
Operating expenses as a percentage of net sales were 43.1%, including
depreciation expenses amounting to 15.6% of total operating expenses.
Operating income was $3.6 million, or 7.9% as a percentage of net sales.
Cash operating profit was $6.6 million, or 14.6% of net sales.
Net income for the nine months ended December 31, 1998 was $2.1 million
or 4.6% of net sales.
Capital Expenditures
Total capital expenditures were $209 million, $302 million and $163
million in 1997, 1998 and 1999, respectively. During 1999, approximately
35.5%, 13.9%, 17.3%, 3.8%, 20.3%, 3.2% and 6.0% of such expenditures were made
by Panamco Mexico, Panamco Brasil, Panamco Colombia, Panamco Costa Rica,
Panamco Venezuela, Panamco Nicaragua and Panamco Guatemala, respectively. The
principal components of such capital expenditures during 1999 were:
o $24 million for increasing production capacity
o $28 million in Company's fleet of vehicles
o $49 million for coolers, vending and post-mix equipment.
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<PAGE>
o $12 million in environmental expenses.
o $50 million in operational and other purposes.
Our Board of Directors has established various criteria for the
allocation of capital resources. The factors that management must review in
proposing three-year capital budgets include anticipated internal rates of
return, pay-back periods and EVA(R) analysis from various investments,
corresponding plans of The Coca-Cola Company and anticipated levels of
earnings and debt in the country in which such expenditures are proposed to be
made.
During 2000 we estimate that we will have aggregate capital expenditures
of approximately $149 million. Of our estimated total capital expenditures for
2000, we expect to spend approximately:
o $56 million in Mexico to continue our program of strategic placement
of cold storage equipment and to upgrade our operating facilities,
o $14 million in Brazil mainly for production capacity and
distribution fleet,
o $24 million in Colombia mainly for marketing assets and
environmental purposes,
o $29 million in Venezuela to continue our program of strategic
placement of cold storage equipment, and
o $26 million in our Panamco Central American franchises to upgrade
production capacity, fleet and marketing assets.
The foregoing estimates of capital expenditures are based on our current
expectations and are subject to change. Actual costs may exceed estimates or
we may reallocate or alter our capital budget. See "Forward-Looking
Statements".
We intend to fund our capital expenditure program with cash on hand,
consolidated cash flow from operations and borrowings at the subsidiary level.
The Coca-Cola Company from time to time provides incentives for its
bottlers to make particular types of capital expenditures. During 1997, 1998
and 1999, such incentives consisted of grants which are included as other
income in "Other income (expense)" in the consolidated financial statements,
and loans included in the indebtedness referred to above. During the second
quarter of 1999, The Coca-Cola Company changed its cold equipment capital
participation program so that any funds received by us during 1999 and future
years will be recognized as income in installments over a 60-month period. Our
ability to include such amounts as income will also depend on whether we meet
certain conditions in the future. Prior to the change, such amounts were
included as income upon receipt, as no future conditions were required to be
met, without regard to our earnings. See "--1999 Compared to
1998--Consolidated Results of Operations" and Note 13 of "Notes to
Consolidated Financial Statements". The Coca-Cola Company also provides
cooperative advertising support to us.
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<PAGE>
Liquidity and Capital Resources
At December 31, 1999, we had consolidated cash and cash equivalents of
$152.6 million, an increase of 16.5% compared to $131.0 million as of December
31, 1998. This increase is as a result of increased debt from the syndicated
loan issued during the first quarter of 1999. Our total consolidated
indebtedness was $1,348.1 million at December 31, 1999.
Consolidated cash flow provided by operations was $439 million, $270
million and $226 million in 1997, 1998 and 1999, respectively.
Uses of funds for 1997, 1998 and 1999 included purchases of minority
interests, capital expenditures, bottling and packaging expenditures and
payment of shareholder dividends. Purchases of minority interests were $289
million and $28.0 million in 1997 and 1998 respectively. We did not make
purchases of minority interests in 1999. No minority interests were purchased
in 1999. Capital expenditures, as noted above, were $209 million, $302 million
and $163 million in 1997, 1998 and 1999, respectively. In addition, we had
expenditures for bottles and cases, net, of $123 million, $124 million and $75
million in 1997, 1998 and 1999, respectively. We paid dividends of $25.9
million, $31.1 million and $31.1 million during 1997, 1998 and 1999,
respectively. Dividends to minority shareholders in the consolidated
subsidiaries paid during such periods were $4.7 million, $0.7 million and $0.5
million, respectively.
As a holding company, our principal sources of cash are dividends from
our subsidiaries and sales of our securities. The amount of dividends payable
by the subsidiaries to us is subject to general limitations imposed by the
corporate laws of the respective jurisdictions of incorporation of such
subsidiaries. Dividends paid to us and other foreign shareholders by the
subsidiaries are subject to investment registration requirements and
withholding taxes. Withholding tax rates on dividends are currently 7.6% in
Mexico, 7% in Colombia and 15% in Costa Rica. There are no withholding taxes
on dividends paid by Panamco Brasil to the Company out of income earned after
December 31, 1995, and no withholding taxes on dividends paid by Panamco
Venezuela, Panamco Nicaragua and Panamco Guatemala.
Dividends from earnings generated until 1998 are not subject to income
taxes in Mexico, as long as they are paid from "net taxed income" ("UFIN").
Dividends not paid from UFIN are subject to a 35% income tax. Since 1999
dividends paid to individuals or foreign residents are subject to income tax
withholding of an effective tax rate of approximately 7.6%. In addition, if
earnings generated after 1998 for which no corporate tax has been paid are
distributed, the tax must be paid upon distribution of the dividends.
Consequently, we must keep a record of earnings subject to each tax rate.
In the past, we have paid substantially all cash received as dividends
from our subsidiaries, net of holding company expenses, to our shareholders
and have not used such funds to make investments, primarily so as to avoid
having undistributed foreign personal holding company income which would be
includable in the income of our shareholders who are United States persons. We
may, therefore, be substantially dependent in the future on sources of
financing other than dividends from subsidiaries, including external sources,
to finance holding company investments such as acquiring minority interests in
our subsidiaries or acquiring additional bottling enterprises.
Total consolidated indebtedness was $1,348.1 million as of December 31,
1999, consisting of $870.0 million at the holding company level and $478.1
million of subsidiary indebtedness.
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<PAGE>
Substantially all of our total indebtedness is denominated in U.S.
dollars. Our policy is to enter into arrangements to hedge interest and
currency exchange rate exposure where the terms of such arrangements are
reasonable in relation to the exposure risks. During 1999, Panamco Venezuela
entered into hedging contracts for the payment of $12.4 million of interest
related to its financial debt as well as dividends payments to the Company.
Such contracts will end by June 30, 2000. Therefore, we remain subject to
exchange rate fluctuations between the U.S. dollar and the local currencies of
the Latin American countries in which we operate.
In May 1997, in connection with our acquisition of Panamco Venezuela, we
acquired all the capital stock of Panamco Venezuela. The purchase price for
the acquisition was approximately 30.6 million shares of our common stock
(having a market value at such time of $902.7 million) and approximately
$100.3 million in cash. In addition, we assumed approximately $107.7 million
of debt owed by Panamco Venezuela, which was repaid with a portion of the
proceeds of the issuance of $300.0 million of 7-1/4% senior notes due 2009 in
a notes offering in 1997.
In August 1997, in connection with our acquisition of Panamco Nicaragua,
we acquired all the capital stock of three Panamanian companies which own all
the capital stock of Panamco Nicaragua. The purchase price for the acquisition
was approximately 0.4 million shares of our common stock (having a market
value at such time of approximately $13.4 million) and approximately $19.1
million in cash. In addition, we assumed approximately $9.9 million of debt
owed by Panamco Nicaragua.
In December 1997, we increased our ownership in our Mexican subsidiary,
Panamco Mexico, to 98% from 74%, and in Panamco Mexico's subsidiaries to 96%
from 93%, paying a total of $277 million.
In March 1998, we acquired all the capital stock of Panamco Guatemala for
$38.8 million in cash and assumed $23.5 million of debt owed by Panamco
Guatemala. During 1998, we also increased our ownership in Panamco Brasil to
98% from 96%, paying a total of $28 million.
In September 1998, we acquired R.O.S.A. and R.O.S.A.'s plastic bottle
business, Supripack, for a total purchase price in cash of $57.9 million. In
connection with the acquisition, we entered into a $70.0 million financing
agreement. On December 23, 1998, we borrowed $200 million from The Coca-Cola
Financial Corporation ("CCFC"). The proceeds from the loan were used to repay
the $70 million loan borrowed for the acquisition of R.O.S.A., and to pay
maturing debt of Panamco Venezuela, which amounted to $125 million. During
November 1999, $80 million of this loan was repaid prior to the scheduled
repayment date.
On March 18, 1999 we borrowed $300 million from a syndicate of banks to
repay an existing loan for $160 million and for general corporate purposes.
This syndicated loan for a three years term accrues interest at a rate of
LIBOR + 31/8%, 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.
On November 12, 1999, our Mexican subsidiary placed 1 billion pesos
(approximately $106 million) of seven-year Notes in the Mexican capital
markets. The issue is denominated in UDIs, an inflation-linked instrument, and
will pay a coupon of 8.65% over the principal balance, which will be adjusted
periodically for inflation. The proceeds from the debt issue were mainly used
to pay an $80 million intercompany loan with the company and for general
corporate purposes.
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On December 9, 1999, the Board of Directors approved a share repurchase
program for up to $100 million of the company's Class A common stock. The
Company may repurchase shares in the open market as well as in privately
negotiated transactions based on prevailing market conditions. The Company
repurchased 368,584 shares for $7. 6 million during 1999 at an average price
per share of $20.53.
We have investments in bank deposits for $150 million and marketable
bonds amounting to $34.5 million which guarantee bank loans obtained by
subsidiaries and are therefore classified as noncurrent investments.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business exposes us to many different market risks, such as
fluctuations in interest rates, currency exchange rates and commodity prices.
Consequently, we consider risk management as an essential activity in the
course of our business. We utilize hedging strategies to mitigate those risks.
Our hedging strategies may include the use of derivative instruments, such as
forwards, futures and options, generally with terms not exceeding one year.
All financial and hedging instruments held by the Company are for purposes
other than trading.
(1) Interest Rate Risk. Our interest rate exposure generally relates
to our debt obligations. We manage our interest rate exposure by using a
combination of fixed and floating rate debt instruments. Therefore, our
exposure to an increase in interest rates results from our floating rate
debt.
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The following table shows our financial instruments that are
sensitive to changes in interest rates. In this table, the fair value of
long-term debt shown is based on the quoted market prices, as well as on
the present value of future cash flows:
<TABLE>
<CAPTION>
Expected Maturity Date 1999 1998
------------------------------------------------- ----- ------- ----- ----
2000 2001 2002 2003 2004 Thereafter Total F.V.(3) Total F.V.
---- ---- ---- ---- ---- ---------- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Risk
(Amounts in equivalent millions of US
dollars)
Fixed Rate Debt (1)
- In US Dollars.................. $21.3 $39.7 $4.6 $152.9 $0.2 $300.0 $518.7 $504.8 $529.0 $547.9
Weighted Average Interest Rate. 8.8% 9.5% 10.3% 8.2% 0.1% 7.2%
- In Brazilian Reals............. - - - - - - - - $23.5 $24.4
Weighted Average Interest Rate. - - - - - -
- In Costa Rican Colons......... $2.2 - - - - - $2.2 $2.3 $4.4 $4.5
Weighted Average Interest Rate. 20.5% - - - - -
- In Guatemalan Quetzals......... $3.9 $0.9 $0.5 $0.3 $5.6 $6.1 $7.7 $7.9
Weighted Average Interest Rate. 21.2% 23.3% 20.0% 20.0%
Floating Rate Debt (2)
- In US Dollars (4).............. $35.6 $240.6 $367.9 $23.2 $667.3 $716.4 $510.1 $533.8
Weighted Average Interest Rate. 7.8% 10.4% 10.8% 11.0%
- In Colombian Pesos (5)......... $25.3 - $1.6 $26.9 $27.8 $17.0 $17.3
Weighted Average Interest Rate. 18.3% 22.0%
- In Brazilian Reals (5)......... $9.9 $8.7 $1.5 $0.8 $20.9 $19.7 $35.8 $38.1
Weighted Average Interest Rate. 16.7% 16.9% 13.9% 10.1%
- In Venezuelan Bolivars (2)..... - - $1.1 $1.1
Weighted Average Interest Rate.
- In Mexican Pesos (5)........... $106.5 $106.5 $120.0 - -
22.0%
Weighted Average Interest Rate.
======== ======== ======== ========
Total debt................. $1,348.1 $1,397.1 $1,128.6 $1,175.0
======== ======== ======== ========
</TABLE>
- --------------------
[FN]
(1) Fixed interest rates are weighted averages as contracted by us.
(2) Floating interest rates are based on market rates as of December 31,
1999, plus the weighted average spread for us.
(3) F.V. = Fair Value
(4) Market interest rates are based on the U.S. dollar LIBOR curve.
(5) Market rates are based on one year federal funds rate and assume a flat
yield curve.
</FN>
(2) Foreign Exchange Risk. Our currency exchange risk is generally
related to the potential devaluation of the U.S. dollar against the Latin
American currencies used in the countries in which we have operations. In
each country where we operate, our sales are in local currencies, while
our debt is mostly in U.S. dollars. Therefore, foreign currency exchange
exposure relates primarily to our debt obligations in U.S. dollars, which
are shown in the previous interest rate risk table.
To mitigate the impact of currency exchange rates fluctuations, we
may enter into foreign exchange forward contracts with financial
institutions in order to lock in the exchange rates for anticipated
transactions.
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<PAGE>
The table below provides information related to our foreign exchange
forward contracts as of December 31, 1999, aimed to hedge the devaluation
of the Venezuelan bolivar against the U.S. dollar. The contracts expire
over the period from January to June of 2000.
Weighted Average
Notional Amount Contract Rate Fair Value
Foreign Currency Forward
Contracts
(Amounts in US dollars)
Venezuelan Bolivars $12,400,000 683.38 Bs./USD $(385,880)
(3) Commodity Price Risk. Our largest exposure to commodity price
fluctuations is for sugar. As a risk management practice we may utilize
both futures and options contracts to hedge against an increase in the
price of sugar. As of December 31, 1999, we did not hold any hedging
position for sugar.
Because inventories of sugar have a very short term, they are not
included in this market risk disclosure.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Our Board of Directors presently consists of 15 members, whose terms are
divided into three classes as set forth below. Coca-Cola currently has the
contractual right to designate three nominees for election to the Board.
Venbottling presently has contractual rights to designate Gustavo A. Cisneros
and Oswaldo J. Cisneros for election to the Board. All directors are elected
for three-year terms.
The following table sets forth at May 10, 2000, the names and country of
citizenship of the members of our Board, their tenure as directors and the
year in which their next term will expire:
Country of Director Term
Name Citizenship Since Expires
Gustavo A. Cisneros.................. Venezuela 1997 2000
Oswaldo J. Cisneros.................. Venezuela 1997 2000
William G. Cooling................... Canada 1994 2001
Luiz Fernando Furlan................. Brazil 1994 2000
James M. Gwynn....................... U.S.A. 1997 2000
Timothy J. Haas...................... U.S.A. 1996 2002
Alejandro Jimenez.................... Costa Rica 1997 2001
Weldon H. Johnson.................... U.S.A. 1993 2002
Lt. Gen. Donald Colin Mackenzie...... Canada 1989 2001
Wade T. Mitchell..................... U.S.A. 1986 2001
Francisco Sanchez-Loaeza............. Mexico 1992 2002
Houston Staton....................... Colombia 1997 2002
Stuart A. Staton..................... U.S.A. 1997 2001
Woods W. Staton Welten............... Columbia 1982 2000
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The following table sets forth the names, ages and tenures of our
executive officers (and, where noted, certain other members of senior
management):
<TABLE>
<CAPTION>
Years with
Name Age Position Since Panamco
<S> <C> <C> <C> <C>
Albert H. Staton, Jr.......... 77 Chairman of the Board Emeritus 1993 48
Francisco Sanchez-Loaeza...... 54 Chairman of the Board and Chief 1992 19
Executive Officer
Alejandro Jimenez............. 49 President and Chief Operating Officer 1994 9
Paulo J. Sacchi............... 53 Senior Vice President, Chief Financial 1998 10
Officer and Treasurer
Jose Ignacio Huerta Gonzalez.. 46 Vice President--North Latin American 1999 20
Division (Mexico and Central
America) (President of Panamco
Mexico and Panamco Central
America)*
Jorge Giganti................. 56 Vice President--Brailian Operations 1996 4
(President of Panamco Brasil)
Roberto Ortiz................. 44 Vice President--Colombian Operations 1998 6
(President of Panamco Colombia)
Moises Morales................ 40 Vice President--Venezuelan Operations 1999 4
(President of Panamco Venezuela)
Carlos Hernandez-Artigas...... 36 Vice President--Legal and Secretary 1994 7
</TABLE>
Officers are elected by our Board of Directors annually, and serve at the
pleasure of the Board of Directors.
*The North Latin American Division incorporates Mexico, Guatemala, Nicaragua
and Costa Rica operations. It was created in February 1999.
The backgrounds of the directors, the executive officers and such other
members of management of the Company are described below:
Mr. Gustavo A. Cisneros was elected a director of the Company in June
1997. Mr. Cisneros is Chairman and Chief Executive Officer of the Cisneros
Group of Companies, an organization that includes more than 50 companies in
Latin America, Europe and the United States. Companies in the group include
television and radio networks, broadcasting and telecommunications operations
and various consumer product companies, including supermarket chains,
beverages, soft drinks, beer, fast food franchises and music production. Mr.
Cisneros is a founding member of the International Advisory Board of the
Council on Foreign Relations in New York, a former director of the
International Advisory Committee of The Chase Manhattan Bank and a director of
the Chairman's Council of the Americas Society as well as a member of the
International Advisory Council of the United States Information Agency, the
Board of Overseers of the International Center for Economic Growth, the
International Advisory Board of Power Corporation of Canada and the
International Advisory Board of Gulfstream Aerospace Corporation. Mr. Cisneros
sits on the Board of Directors of Georgetown University and the International
Advisory Board of Columbia University and is a Trustee of The Rockefeller
University in New York. Mr. Cisneros is the cousin of Oswaldo J. Cisneros.
Mr. Oswaldo J. Cisneros was elected a director of the Company in June
1997. He is President of Telcel Cellular, C.A., the largest private cellular
communications company in Venezuela, a company that he founded in partnership
with Bellsouth International. He was the Chairman of Panamco Venezuela until
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May 1997. Mr. Cisneros is president and owner of Central Azucarero Portuguesa,
a modern and productive sugar mill, President of Puerto Viejo Marina & Yacht
Club and Director of Produvisa (Glass Manufacturing Co.). Mr. Cisneros is the
cousin of Gustavo A. Cisneros.
Mr. William G. Cooling was elected a director of the Company in January
1994. Mr. Cooling was a Senior Executive Vice President of The
Colgate-Palmolive Company and Chief of Operations, Specialty Marketing and
International Business Development, from 1992 to 1996. For five years prior to
1992, Mr. Cooling served as Executive Vice President and Chief Technological
Officer of The Colgate-Palmolive Company.
Mr. Luiz Fernando Furlan was elected a director of the Company in May
1994. Mr. Furlan has been Chairman of Sadia Concordia S.A. Industria e
Comercio, the largest Brazilian food processing conglomerate, since 1993. For
more than five years prior to 1993, Mr. Furlan served as Executive Vice
President, director and secretary of the board of directors of Sadia Concordia
S.A. Industria e Comercio. He is also the President of the ABEF Brazilian
Chicken Producers and Exporters Association Companies and Vice President and
head of the foreign trade department of the Federation of Industries in the
State of Sao Paulo.
Mr. James M. Gwynn has been associated with the Company through its
Mexican subsidiary, Panamco Mexico, since 1956, having served in management
for over 18 years. In Panamco, he served first as an alternate director, then
as a director of the Company from 1989 to 1993, member of the Advisory Board
of Panamco until 1997 and a director of the Company from 1997 until the
present.
Mr. Timothy J. Haas was elected a director of the Company at the 1996
annual meeting of shareholders. Since July 1995, he has served as Executive
Vice President of Coca-Cola's Latin American Group. Mr. Haas is Senior Vice
President of The Coca-Cola Company and President of its Latin America Group, a
position he assumed on January 1, 1997.
Mr. Alejandro Jimenez was elected President and Chief Operating Officer
of the Company in April 1994. He served as Vice President-Mexican Operations
and President of Panamco Mexico from March 1992 to April 1994. From July 1991
until March 1992, Mr. Jimenez was Vice President of the Company. From June
1990 until June 1991, he was Vice President of the Latin American Division of
Coca-Cola. From June 1989 until May 1990, he was the Marketing Director of the
Latin American Division of Coca-Cola.
Mr. Weldon H. Johnson is retired. Prior to his retirement, Mr. Johnson
served for 10 years as Senior Vice President of Coca-Cola and Group President
of Coca-Cola's Latin American Group.
Lt. General Donald Colin Mackenzie was first elected a director of the
Company in June 1989. From June 1988 to June 1989, he served as an alternate
director of the Company. From February 1987 to September 1988, he was a Senior
Consultant, government relations, with Public Affairs International, a
Canadian company providing consulting services to private industry, located in
Ottawa, Canada. In 1986, he retired from the Canadian Forces Air Element (the
Canadian Air Force) with the rank of Lieutenant General.
Mr. Wade T. Mitchell was first elected a director of the Company in June
1986. Mr. Mitchell is retired. Prior to January 1994, he was an Executive Vice
President of Trust Company Bank, Atlanta, Georgia, for more than five years.
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<PAGE>
Mr. Davis L. Rianhard served as Chairman of the Board from April 1993 to
April 1994 and was first elected a director of the Company in 1981. From June
1990 to June 1992, Mr. Rianhard served as President of Panamco. For more than
three years prior to June 1990, Mr. Rianhard served as President of Panamco
Mexico. He retired as a director of the Company in May 1999 and became a
member of the Advisory Board.
Mr. Francisco Sanchez-Loaeza was elected Chairman of the Board in April
1994. He has served as Chief Executive Officer since June 1992 and served as
President of the Company from June 1992 to April 1994. He was first elected a
director of the Company in 1992. From June 1990 to June 1992, Mr.
Sanchez-Loaeza served as Executive Vice President of Panamco. For more than
three years prior to June 1990, Mr. Sanchez-Loaeza served as Vice
President-Finance of the Company and Panamco Mexico.
Mr. Albert H. Staton, Jr., is Chairman Emeritus of the Board of Directors
and Chairman of the Advisory Board of Panamco. Mr. Staton was first elected a
director of the Company in 1980. He retired as a director of the Company in
1997 and is still an active member of the Advisory Board. Mr. Staton served as
Chairman of the Board from July 1988 to April 1993. He is the father of Stuart
A. Staton and the uncle of Houston Staton and Woods W. Staton Welten.
Mr. Houston Staton was elected a director of the Company in 1997. For
more than four years prior to April 1997, he served on the Advisory Board of
Panamco. He has been a director of 3 Points Technology, Inc. since May 1996.
From 1992 through September 1995, Mr. Staton was an owner-operator of
McDonald's in Caracas, Venezuela. He is the nephew of Albert H. Staton, Jr.,
the brother of Woods W. Staton Welten and the cousin of Stuart A. Staton.
Mr. Stuart A. Staton was elected a director of the Company in 1997. He
has previously served as Vice President-Investor Relations and Executive
Assistant to the President of the Company. In addition, for more than three
years prior to June 1990, Mr. Staton served as Executive Assistant to the
President of Panamco Brasil, and, from 1980 to 1986, he served in various
capacities in Panamco Mexico. He is the son of Albert H. Staton, Jr. and the
cousin of Houston Staton and Woods W. Staton Welten.
Mr. Woods W. Staton Welten was first elected a director of the Company in
1982. Mr. Staton Welten was the Vice President of Marketing for Panamco
Colombia from 1980 to 1982 and has been the President of Arcos Dorados S.A.,
the Argentinean joint venture of McDonald's Corporation, since 1984. He is the
nephew of Albert H. Staton, Jr., the brother of Houston Staton and the cousin
of Stuart A. Staton.
Mr. Paulo J. Sacchi has been with Panamco for over nine years. Before
becoming Chief Financial Officer, he was Vice-President- Operations of Panamco
Brasil. He previously served as Vice President- Strategic Planning and Vice
President-Operations at Panamco's corporate offices in Mexico City.
Mr. Jose Ignacio Huerta Gonzalez was elected Vice President-North Latin
American Division Operations and President of North Latin American Division in
February 1999. From April 1994 to February 1999, he was Vice President-Mexican
Operations and President of Panamco Mexico. From August 1992 to April 1994, he
served as Vice President-Operations of Panamco Mexico. From November 1990 to
July 1992, Mr. Huerta served as Finance Vice President of Panamco Mexico. For
more than three years prior to November 1990, he served as Finance Director of
Panamco Mexico.
Mr. Jorge Giganti was elected Vice President-Brazilian Operations and
President of Panamco Brasil in May of 1996. From April 1995 to April 1996, Mr.
Giganti served as president of the Biagi Group, a
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Brazilian bottler of Coca-Cola. From August 1994 to March 1995, he served as
president of the Rio de la Plata Division (Argentina, Uruguay, and Paraguay)
of Coca-Cola. Prior to August 1994, he served as President of the North-Latin
American Division of Coca-Cola.
Mr. Moises Morales was appointed Vice President-Venezuela Operations and
President of Panamco Venezuela in January 1999. From December 1996 to
September 1998 he was President of Panamco Costa Rica and from September 1998
to January 1999 he was President of Panamco Central America and Vice
President-Central America Operations. He has over 15 years' experience in the
Coca-Cola system in Mexico. Most recently, he was a regional manager in the
Panamco Colombia operations.
Mr. Carlos Hernandez-Artigas was elected Secretary of the Company in
November 1993 and Vice President-Legal in January 1994. From 1992 to October
1993, he was an associate at the law firm Fried, Frank, Harris, Shriver &
Jacobson in New York City.
Mr. Roberto Ortiz was elected Vice President-Colombian Operations and
President of Panamco Colombia in September 1998. From September 1993 until May
1997 he served as Vice President-Operations of Panamco Colombia. Before
joining Panamco Colombia, he served in Coca-Cola de Colombia as Marketing
Operations Manager and Director for more than 15 years.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
Directors' Fees. Directors of the Company who are not employed by us or
our subsidiaries receive directors' fees of $20,000 per year and $1,000 per
diem for attendance at Board of Directors and committee meetings. Committee
chairmen also receive $3,000 per year. We pay equivalent fees to the members
of our advisory board, which, as of April 2000, is composed of two members.
Executive Compensation. During the fiscal year ended December 31, 1999,
we set aside $0.2 million in the aggregate to provide pension, retirement or
similar benefits for our directors and officers pursuant to existing plans
provided or contributed to by the Company. The aggregate amount of
compensation paid by us during 1999 to the directors and executive officers
listed above as a group for services in all capacities was approximately $4.7
million exclusive of options described below.
Restricted Stock Grants. In February 1993, the Board of Directors
established a Trust and Bonus Plan for certain of our employees, which
distributed 3,000 shares of Class A Common Stock free of charge to 3,000
employees of our subsidiaries at a rate of one share each.
Cash Bonus Plan. We have adopted a short-term incentive plan (the "Bonus
Plan"), pursuant to which key executives of the Company and subsidiaries may
receive bonus compensation based on individual and Company performance, as
determined by the Compensation Committee of the Board of Directors (the
"Committee"). The Bonus Plan was implemented for Brazilian executives during
1992 and was extended to Mexican and Colombian as well as the Company
executives during 1993, Panamco Costa Rica in 1996 and Panamco Venezuela, and
Panamco Nicaragua in 1997, and Panamco Guatemala in 1998.
Under the Bonus Plan, each participant is assigned a target award
expressed as a percentage of base salary in varying amounts (which currently
do not exceed 60% of base salary). The actual award will be based on a
composite of individual and Company performance, depending on the
participant's position with
71
<PAGE>
the Company. The individual portion of the participant's award will vary from
0% to 200% of the target award, on the basis of certain objective and
subjective criteria to be established by the Committee. The Company portion of
the participant's award will also vary from 0% to 200% of the target award, on
the basis of the relationship between actual performance of the participant's
"Economic Unit" (that is, the Company or Panamco Mexico, Panamco Colombia,
Panamco Brasil, Panamco Venezuela, Panamco Costa Rica, Panamco Nicaragua and
Panamco Guatemala) and projected performance. For purposes of evaluating
Economic Unit performance, the Committee will compare actual cash operating
profit and market share of the participant's Economic Unit against projected
performance levels. In the case of cash operating profit, the Committee
established minimum performance levels for each Economic Unit for 1999.
Benefits are payable annually.
The Committee has the authority to select participants and to establish
target awards and performance measures. The Committee may amend, suspend or
terminate the Bonus Plan at any time.
Equity Incentive Plan. We have an Equity Incentive Plan (the "Equity
Incentive Plan"), the purpose of which is to further the growth, development
and financial success of the Company by providing incentives to selected
employees. Pursuant to the Equity Incentive Plan, options (including incentive
stock options) to purchase shares of Class A Common Stock and restricted stock
awards with respect to Class A Common Stock may be granted. A total of
9,000,000 shares of Class A Common Stock (subject to adjustment upon certain
events) is available for grant although no individual may receive options to
purchase more than 200,000 shares of Class A Common Stock within any calendar
year. The Equity Incentive Plan is administered by the Committee. The
Committee determines the terms and conditions of all grants, subject to
certain limitations set forth in the plan.
In November 1995, we granted options to purchase 720,000 shares of Class
A Common Stock under the Equity Incentive Plan at an exercise price of $14.375
per share, the closing price on the day prior to the grant. In November 1996,
we granted options to purchase 443,000 shares of Class A Common Stock under
the Equity Incentive Plan, at an exercise price of $23.4375 per share, the
closing price on the day prior to the grant. In November 1997, we granted
options to purchase 720,000 shares of Class A Common Stock under the Equity
Incentive Plan, at an exercise price of $29.9375 per share, the closing price
on the day prior to the grant. In November 1998, we granted options to
purchase 1,379,200 shares of Class A Common Stock under its Equity Incentive
Plan at an exercise price of $21.125 per share, the closing price on the day
prior to the grant. In November 1999, we granted options to purchase 1,560,000
shares of Class A Common Stock under the Equity Incentive Plan at an exercise
price of $15.61 per share.
Options granted under the Equity Incentive Plan in 1995 and 1996 vest
over a period of five years and options granted in 1997, 1998 and 1999 vest
over a period of three years. All options granted under the Equity Incentive
Plan expire ten years from the date of issuance.
Stock Option Plan for Nonemployee Directors. We have a Stock Option Plan
for Nonemployee Directors (the "Stock Option Plan for Nonemployee Directors"),
which was implemented to attract and retain the services of experienced and
knowledgeable nonemployee directors and nonemployee members of the advisory
board of the Company. The Stock Option Plan for Nonemployee Directors provides
each nonemployee director and each nonemployee advisory board member with an
option to purchase a specified number of shares of Class A Common Stock. A
total of 100,000 shares of Class A Common Stock is available for grant. The
Stock Option Plan for Nonemployee Directors is administered by the Board of
Directors or a subcommittee thereof. The Board of Directors has the discretion
to amend, terminate or
72
<PAGE>
suspend the Stock Option Plan for Nonemployee Directors at any time. Pursuant
to the Stock Option Plan for Nonemployee Directors, on April 7, 1995 we
granted to each nonemployee director and nonemployee advisory board member
options to purchase 1,670 shares of Class A Common Stock at an exercise price
of $17.50 per share. On April 19, 1996, we granted to each nonemployee
director and nonemployee advisory board member options to purchase 948 shares
of Class A Common Stock at an exercise price of $19.62 per share. On November
13, 1997, we granted to each nonemployee director and nonemployee advisory
board member (Mr. Gustavo A. Cisneros and Mr. Oswaldo J. Cisneros each
received options to purchase 642 shares at an exercise price of $29.00)
options to purchase 680 shares of Class A Common Stock at an exercise price of
$29.9375 per share. In November 1998, we granted to each nonemployee director
or advisory board member options to purchase 1,616 shares of Class A Common
Stock at an exercise price of $21.125 per share. Options granted under the
Stock Option Plan for Nonemployee Directors in 1995 and 1996 vest over a
period of four years and options granted in 1997 and 1998 vest over a period
of three years. In 1999 the Company did not grant options to its nonemployee
directors or advisory board members. All options granted under the Stock
Option Plan for Nonemployee Directors expire 10 years from the date of
issuance.
As of December 31, 1999, the total number of shares of Class A Common
Stock underlying outstanding options granted under the Equity Incentive Plan
and under the Stock Option Plan for Nonemployee Directors (after giving effect
to the two-for-one stock split effected on March 31, 1997) was 4,104,314
shares.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
See "Item 11.--Compensation of Directors and Officers--Equity Incentive
Plan" and "Item 11.-- Compensation of Directors and Officers--Stock Option
Plan for Nonemployee Directors".
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
73
<PAGE>
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to Item 19(a) for a list of all financial statements
filed as part of this Annual Report.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) List of Financial Statements
Page
Report of Independent Public Accountants............................ F-1
Consolidated Balance Sheets at December 31, 1998 and 1999........... F-2
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1999................. F-3
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1999............. F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999....................... F-6
Notes to Consolidated Financial Statements.......................... F-8
(b) List of Exhibits
10.1 Amendment No. 2 to the $300 Million Credit Agreement
23.1 Consent of Independent Public Accountants
74
<PAGE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Shareholders of
Panamerican Beverages, Inc.:
We have audited the accompanying consolidated balance sheets of
PANAMERICAN BEVERAGES, INC. (a Panamanian corporation) AND SUBSIDIARIES,
stated in U.S. dollars, as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Panamerican
Beverages, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen
Mexico, D.F.
February 1, 2000
F-1
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of U.S. dollars)
December 31,
-------------------------
1998 1999
---------- ----------
ASSETS
Current assets:
Cash and equivalents $ 131,152 $ 152,648
Accounts receivable, net 175,008 133,776
Inventories, net 149,387 122,978
Prepaid expenses 28,993 17,648
---------- ----------
Total current assets 484,540 427,050
Investments 43,990 215,129
Long-term receivables 27,518 17,050
Property, plant and equipment, net 1,307,590 1,218,383
Bottles and cases, net 337,609 310,856
Deferred income taxes 74,653 89,203
Goodwill, net 1,347,446 1,292,414
Other assets 24,344 43,037
---------- ----------
$ 3,647,690 $ 3,613,122
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans $ 302,063 33,529
Current portion of long-term debt 55,332 64,640
Accounts payable 207,217 152,230
Income taxes 9,967 29,626
Deferred income taxes 15,904 22,459
Sales and other taxes payable 40,122 41,435
Current portion of employee severance
payments 5,910 5,586
Employee profit sharing 11,680 11,360
Other accrued liabilities 30,493 34,553
---------- ----------
Total long-term liabilities 678,688 395,418
Long-term liabilities
Long-term 771,267 1,249,972
Pensions and employee severance payments 28,975 28,659
Deferred income taxes 144,349 133,656
Other accrued liabilities 19,934 25,547
---------- ----------
Total long-term liabilities 964,525 1,437,834
Minority interest in consolidated subsidiaries 26,243 27,974
Shareholders' equity:
Common stock 1,481 1,481
Capital in excess of par value 1,583,758 1,584,787
Retained earnings 677,229 586,196
Accumulated other comprehensive loss (234,290) (363,269)
---------- ----------
2,028,178 1,809,195
Treasury shares, at cost (49,944) (57,299)
Total shareholders' equity $ 1,978,234 $ 1,751,896
---------- ----------
$ 3,647,690 $ 3,613,122
========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. dollars, except per share amounts)
Year Ended December 31,
1997 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Net sales $ 2,510,210 $ 2,773,276 $ 2,415,817
Cost of sales, excluding depreciation and amortization 1,327,443 1,425,246 1,191,883
----------- ----------- ---------
Gross profit 1,182,767 1,348,030 1,223,934
Operating expenses:
Selling and distribution 563,917 657,138 572,038
General and administrative 193,437 222,327 251,450
Depreciation and amortization, excluding goodwill 159,371 253,112 214,539
Amortization and goodwill 20,121 35,739 36,284
Facilities reorganization charges - - 35,172
------------ ----------- ---------
936,846 1,168,316 1,109,483
------------ ----------- ---------
Operating income 245,921 179,714 114,451
Other income (expense):
Interest income 22,006 12,817 28,962
Interest expense (60,889) (98,152) (129,072)
Other, net 44,033 22,136 (39,296)
Nonrecurring, net - 60,486 -
------------ ----------- ----------
5,150 (2,713) (139,406)
------------ ----------- ----------
Income (loss) before income taxes 251,071 177,001 (24,955)
Income taxes 57,302 51,374 31,254
------------ ----------- ----------
Income (loss) before minority interest 193,769 125,627 (56,209)
Minority interest in earnings of subsidiaries 19,934 5,305 3,695
------------ ----------- ----------
Net income (loss) $ 173,835 $ 120,322 $ (59,904)
------------ ----------- ----------
Basic earnings (loss) per share $ 0.93 $ 0.93 $ (0.46)
============ =========== ==========
Weighted average shares outstanding,
in thousands 120,841 129,538 129,683
============ =========== ==========
Diluted earnings (loss) per share $ 1.43 $ 0.92 $ (0.46)
============ =========== ===========
Weighted average shares outstanding,
in thousands 121,969 130,792 129,683
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Stated in thousands of U.S. dollars, except share amounts)
Shares Amount
-----------------------------------------------------------------------------------------------
Accumulated
Capital in Other Treasury Total
Common Excess of Retained Comprehensive Shares, Shareholders'
Issued Treasury Stock Par Value Earnings Loss At Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 132,511,864 31,574,200 $1,326 $ 758,430 $440,102 $(171,420) $(54,444) $ 973,994
Comprehensive income:
Net income - - - - 173,835 - - 173,835
Translation adjustments - - - - - (10,510) - (10,510)
Pension Plan - - - - - (49) - (49)
----------
Total comprehensive income 163,276
----------
Compensation expense from
equity incentive plan - - - 546 - - - 546
Share repurchase - 605,112 - - - - (19,487) (19,487)
Stock options exercised - (34,400) - 345 - - 91 436
(15,100,000)
Venezuela acquisition 15,500,000 155 823,027 - - 22,722 845,904
Nicaragua acquisition - (407,236) - 12,696 - - 702 13,398
Increase in the market value
of puttable common stock - 1,928,400 - (14,367) - - - (14,367)
Dividends declared ($0.21 per
share) - - - - (25,930) - - (25,930)
----------- ---------- ------ ---------- -------- --------- -------- ----------
Balance, December 31, 1997 148,011,864 18,566,076 1,481 1,580,677 588,007 (181,979) (50,416) 1,937,770
Comprehensive income:
Net income - - - 120,322 - - 120,322
Initial effect on deferred
taxes relating to the change
in functional currency in
the Brazilian subsidiaries - - - - (7,660) - (7,660)
Translation adjustments
(including $(1,108) from
intercompany balances and
$366 from taxes) - - - - (43,702) - (43,702)
Pension Plan - - - - (949) - (949)
----------
Total comprehensive income 68,011
----------
Comprehensive expense from
equity incentive plan - - - 546 - - - 546
Share repurchase - 4,356 - - - - (81) (81)
Stock options exercised - (203,809) - 2,535 - - 553 3,088
Dividends declared ($0.24 per -
share) - - - (31,100) - - (31,100)
----------- ------------ ------ --------- ------- --------- --------- ----------
Balance, December 31, 1998 148,011,864 18,366,623 1,481 1,583,758 677,229 (234,290) (49,944) 1,978,234
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Stated in thousands of U.S. dollars, except share amounts)
Shares Amount
------------------------------------------------------------------------------------------------
Accumulated
Capital in Other Treasury Total
Common Excess of Retained Comprehensive Shares, Shareholders'
Issued Treasury Stock Par Value Earnings Loss At Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comprehensive loss:
Net loss - - - - (59,904) - - (59,904)
Initial effect on deferred taxes
relating to the change in
functional currency in the
Mexican subsidiaries - - - - - (4,937) - (4,937)
Translation adjustments
(including $(15,527) from
intercompany balances and
$7,005 from taxes) - - - - - (125,566) - (125,566)
Pension Plan - - - - - 1,524 - 1,524
---------
Total comprehensive loss (188,883)
---------
Share repurchase - 368,584 - - - - (7,568) (7,568)
Stock options exercised - (76,500) - 1,029 - - 213 1,242
Dividends declared ($0.24 per -
share) - - - (31,129) - - - (31,129)
----------- ---------- ------ ---------- -------- --------- -------- ----------
Balance, December 31, 1999 148,011,864 18,658,707 $1,481 $1,584,787 $586,196 $(363,269) $(57,299) $1,751,896
=========== ========== ====== ========== ======== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. dollars)
Year Ended December 31,
------------------------------------------------------
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 173,835 $ 120,322 $ (59,904)
Adjustments to reconcile net income (loss) to cash
provided by operating activities--
Depreciation and amortization 179,492 288,851 250,823
Gain on translation from non-operating activities (14,159) (4,607) (14,785)
Minority interest in earnings of subsidiaries 19,934 5,305 3,695
Deferred income taxes (24,012) (5,898) (39,401)
Reserve for contingencies 876 (57,884) 2,295
Pensions 14,968 11,203 5,760
Loss (gain) on property, plant and equipment and
investment disposals 4,523 6,738 (1,714)
Equity in earnings of unconsolidated
companies, net (6,569) 3,550 4,371
Non-cash facilities reorganization charges - - 20,270
Other 546 5,198 12,903
(Increase) decrease in assets--
Accounts receivable 28,814 (60,546) 55,441
Inventories (7,959) (37,673) 24,135
Prepaid expenses (8,877) (9,499) 11,283
Additions to long-term receivables (12,403) (12,712) (2,452)
Collections of long-term receivables 3,242 4,403 1,082
Increase (decrease) in liabilities--
Accounts payable 97,270 28,571 (71,714)
Income taxes and employee profit sharing 20,091 (22,356) 42,563
Sales and other taxes payable 2,569 (6,279) 2,303
Employee severance payments (19,188) (1,245) (3,962)
Other (13,808) 14,818 (16,846)
------------- ------------- ------------
Net cash provided by operating activities 439,185 270,260 226,146
Cash flows from investing activities:
Capital expenditures (208,669) (302,215) (163,203)
Purchases of bottles and cases, net (123,370) (124,438) (74,591)
Purchases of investments (184,864) (97,388) (190,409)
Proceeds from sale of investments 3,220 - -
Proceeds from sale of property, plant and equipment 4,303 5,872 2,760
Acquisition of minority interest (289,365) (28,310) -
Other 10,251 (2,663) (1,739)
-------------- ------------- -------------
Net cash used in investing activities (788,494) (549,142) (427,182)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. dollars)
Year Ended December 31,
------------------------------------------------------
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Payment of bank loans and other (337,515) (495,001) (395,836)
Proceeds from bank loans, other and other long term
borrowings 825,902 606,002 633,706
Issuance of capital stock 436 3,088 1,242
Acquisition of capital stock (19,487) (81) (7,568)
Increase in the market value of puttable common stock (14,367) - -
Payment of dividends to minority interest (4,653) (654) (499)
Payment of dividends to shareholders (25,930) (31,100) (31,129)
Other 6,260 749 (1,657)
---------------- --------------- ----------
Net cash provided by financing activities 430,646 83,003 198,259
Effect of exchange rate changes on cash 385 (5,964) 24,273
---------------- --------------- ----------
Net increase (decrease) in cash and equivalents 81,722 (201,843) 21,496
Cash and equivalents at beginning of year 251,273 332,995 131,152
------------- ------------ ---------
Cash and equivalents at end of year $ 332,995 $ 131,152 $ 152,648
============ ============ ===========
Supplemental cash flow disclosures:
Cash paid during the year for--
Interest $ 49,719 $ 108,827 $ 109,444
============ ============= ===========
Income taxes $ 69,040 $ 80,515 $ 36,880
============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies
Description of operations
The primary activity of the subsidiaries of Panamerican Beverages, Inc.
(the "Company") is the production and sale of Coca-Cola products and
other beverages. The Company operates in Mexico, Brazil, Colombia,
Venezuela and Central America (Costa Rica, Nicaragua and Guatemala).
Bottler agreements with Coca-Cola expire during the years 2000-2005 and
are expected to be renewed upon expiration.
Approximately 88% of the Company's 1999 net sales were derived from the
distribution of Coca-Cola products. Coca-Cola may be able to exercise
influence over the conduct of the Company's business through rights
maintained under bottler agreements with the Company and otherwise.
On November 1, 1995, the Coca-Cola Export Corporation ("Export"), a
wholly owned subsidiary of Coca-Cola, Coca-Cola and the Company entered
into an Amended and Restated Investment Agreement ("Agreement") pursuant
to which Coca-Cola designated the Company as an anchor bottler and agreed
to increase its equity interest in the Company. Coca-Cola also acquired
the right to approve certain major corporate actions taken by the
Company. Subject to satisfaction of certain conditions, the Agreement
calls for Coca-Cola to purchase Company capital stock in amounts equal to
the purchase price of bottling acquisitions to be made by the Company
from time to time, up to a maximum voting interest of 25%. The price per
share in any such acquisition of additional capital stock will be the
average closing price on the New York Stock Exchange during a period
preceding the announcement of the related bottling acquisition. The
Agreement does not obligate the Company to finance an acquisition by
selling stock to Export.
The designation of the Company as an anchor bottler means that the
Company will be one of Coca-Cola's strategic partners in the worldwide
Coca-Cola bottling system. Although it does not guarantee that the
Company will be able to acquire any particular franchise or renew
existing bottler agreements, the Company believes (along with Coca-Cola's
other anchor bottlers) it will be looked upon favorably by Coca-Cola in
these situations.
As of December 31, 1999 Coca-Cola beneficially owned 30,625,692 shares
representing approximately 24% of the Company's shares outstanding.
The significant accounting policies of the Company and its subsidiaries
are as follows:
New Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS-133"), which
revises the accounting and related disclosures for derivative financial
instruments. The Company does not believe the adoption of this standard,
which will be implemented in the first quarter of 2001, will have a
material effect on financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"),
which provides guidance on the accounting for software development costs
and requires the capitalization of certain costs which the Company had
historically expensed. As required, beginning 1999 the Company adopted
SOP 98-1, which did not have a material impact on the Company's financial
position, results of operations or cash flows.
F-8
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
Basis of consolidation
The consolidated financial statements include the accounts and operations
of the Company and its subsidiaries in Mexico, Brazil, Colombia,
Venezuela and Central America. All material intercompany accounts and
transactions have been eliminated in consolidation. Minority interest in
majority owned subsidiaries has been recorded in the Company's
consolidated financial statements representing their share of subsidiary
earnings.
The equity in earnings and the changes in equity of subsidiaries that are
acquired or sold during the period are included in the financial
statements until or from the date of the transaction.
Basis for translation
The accounts of the Company are maintained in U.S. dollars. The accounts
of the subsidiaries are maintained in the currencies of the respective
countries.
The financial statements of the Colombian and Venezuelan subsidiaries for
all periods, the Mexican subsidiaries for 1997 and 1998 and the Brazilian
subsidiaries for 1997, 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 such as those
in which the subsidiaries operate, as follows:
a. Quoted year-end rates of exchange are used to remeasure
monetary assets and liabilities.
b. All other assets and shareholders' equity accounts are
remeasured at the rates of exchange in effect at the time the
items were originally recorded.
c. Revenues and expenses are remeasured on a monthly basis at the
average rates of exchange in effect during the period, except
for depreciation, amortization and materials consumed from
inventories, which are translated at the rates of exchange in
effect when the respective assets were acquired.
d. Translation gains and losses arising from the remeasurement are
included in the determination of net income (loss) in the
period such gains and losses arise and have been distributed to
the related income statement accounts.
F-9
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
Foreign currency translation gains (losses) on monetary assets and
liabilities for Colombia, Venezuela, Mexico (1997 and 1998) and Brazil
(1997) have been included in the income statement accounts to which such
items relate as shown below:
Year Ended December 31,
--------------------------------------------------------
1997 1998 1999
------ ------ ------
Net sales $ (3,211) $ 628 $ (313)
Cost of sales and operating
expenses 9,125 (2,007) 12,152
Interest and other income
(expense) 2,174 1,849 1,446
Provision for income taxes 2,243 (1,441) 1,500
--------- --------- ----------
Net translation gains (losses) $ 10,331 $ (971) $ 14,785
======== ========= ==========
The translation gains (losses) allocated to net sales are attributable to
translation losses on accounts receivable. The translation gains (losses)
allocated to cost of sales and operating expenses are attributable to
translation gains (losses) on accounts payable and certain accrued
liabilities. The translation gains (losses) allocated to other income
(expense) are attributable primarily to accrued excise taxes and certain
other accrued liabilities.
Beginning 1998, the Company discontinued classifying Brazil as a highly
inflationary economy, and accordingly, the functional currency of the
Brazilian operations was changed from the U.S. dollar to the Brazilian
real. This change resulted in a change in the method of translating the
Brazilian financial statements from the remeasurement process to the
current rate translation method and the deferred income tax asset balance
and shareholders' equity each decreased by $7,660, in 1998.
Beginning 1999, the Company discontinued classifying Mexico as a highly
inflationary economy, and, accordingly, the functional currency of the
Mexican operations was changed from the U.S. dollar to the Mexican peso.
The effect of the change represented a decrease in both the deferred
income tax balance and shareholders' equity of $4,937 in 1999.
The current rate translation method is used for the Brazilian (1998 and
1999), Mexican (1999), Costa Rican, Nicaraguan and Guatemalan
subsidiaries, where the functional currency is the Brazilian Real, the
Mexican Peso, the Costa Rican Colon, the Nicaraguan Cordoba and the
Guatemalan Quetzal, respectively. Under this method all assets and
liabilities (except minority interests) are translated on a monthly basis
using the quoted year-end exchange rate, and all revenues and expenses
are translated on a monthly basis at the average rate of exchange in
effect during the period. The resulting translation adjustments are
included in the accumulated and other comprehensive income (loss), which
is a component of shareholders' equity.
Latin America
The Latin American markets in which the Company operates are
characterized by volatile and frequently unfavorable economic, political
and social conditions. High inflation, and with it high interest rates,
are
F-10
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
common. The governments in the countries where the Company operates have
responded in the past to high inflation by imposing price and wage
controls or similar measures, although formal soft drink price controls
in each country have been lifted or phased out. These countries have also
experienced significant currency fluctuations. Since the Company's
consolidated cash flows from operations is generated exclusively in the
currencies of the subsidiaries, the Company is subject to the effect of
fluctuations in the value of those currencies.
During January 1999, the Brazilian Government changed its local currency
exchange policy in relation to the U.S. dollar to be determined by the
market without establishment of a trading band. During 1999, the local
currency decreased in value in relation to the U.S. dollar by 48% and the
related exchange loss amounted to $27,850, which was recorded in other
income (expense). As of December 31, 1999 the Brazilian subsidiaries have
net liabilities denominated in U.S. dollars subject to translation
exchange gain or losses in the amount of $83,260 and net assets subject
to translation effect in the amount of $3,709. At February 1, 2000 the
unaudited foreign exchange position was similar to that at year-end, and
there has been no significant change in the exchange rates.
Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. The most significant estimates with regard to these
financial statements are related to accounts receivable, inventory, taxes
and pensions as discussed in Notes 2, 3, 6 and 8, respectively.
Revenue recognition
Revenues from sales are recorded at the time products are delivered to
trade customers. Net sales reflect units delivered at selling list prices
reduced by known promotion allowances.
Vulnerability due to concentration
The Company's primary raw material supplier is Coca-Cola. Transactions
with Coca-Cola are subject to maintenance provisions under existing
bottler agreements.
The Company's other raw materials are sourced from multiple vendors and
the Company believes additional supply sources exist for all these raw
materials.
Adjustments to conform with accounting principles generally accepted
in the United States
Certain accounting policies applied by the subsidiaries in their accounts
(and in their financial statements prepared for use in the respective
country) conform with the accounting principles generally accepted
F-11
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
in the respective country but do not conform with the accounting
principles generally accepted in the United States. The accompanying
financial statements have been prepared for use primarily in the United
States and reflect certain adjustments required to conform them with the
accounting principles generally accepted in the United States.
Cash and equivalents
Cash and equivalents include cash on hand and in banks and certificates
of deposit stated at cost plus income accrued to the balance sheet date,
which have an original maturity of three months or less.
Inventories
Inventories are stated at the lower of average cost or market.
Investments
The investment in Tapon Corona de Colombia, S.A., equivalent to 40% of
the outstanding shares of that Colombian company, the investment in
Cervejarias Kaiser, S.A., a Brazilian brewery (in which the company
increased its interest from 11.4% to 11.6% in 1998 as a result of the
acquisition of Refrigerantes do Oeste, S.A. ("R.O.S.A.") described in
Note 12) and investments in other companies in which the Company holds at
least 20% of the outstanding shares are accounted for using the equity
method, wherein the Company's participation in the earnings of those
subsidiaries are recorded in income as earned, and dividends received in
cash are applied to reduce the related investment.
The Company has investments in bank deposits and marketable bonds
amounting to $184,500 which guarantee bank loans obtained by subsidiaries
and are therefore classified as noncurrent (see Note 7). Bank deposits
are valued at fair value.
All other investments are valued at cost, which approximates market or
net realizable value. The equity in earnings and the changes in equity of
subsidiaries that are acquired or sold during the period are included in
the financial statements until or from the date of the transaction.
Property, plant and equipment
Property includes the cost of land, buildings, equipment and significant
improvements to existing property. Additions, improvements and
expenditures for repairs and maintenance that significantly add to the
productive capacity or extend the life of an asset are capitalized; other
expenditures for repairs and maintenance are charged to operating results
as incurred.
Interest incurred with respect to long-term capital projects is
capitalized and reflected as a reduction of interest expense. Such amount
was $175, $346 and $73 in 1997, 1998 and 1999, respectively.
F-12
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
When an asset is sold or retired, the cost and related accumulated
depreciation are removed from the respective accounts and any gain or
loss is included in results of operations for that year.
Depreciation is calculated under the straight-line method for all
subsidiaries over the estimated remaining useful lives of the assets.
Bottles and cases
The Company utilizes the lower of FIFO cost or market method for valuing
bottles and cases on hand. Breakage of bottles and cases on hand is
included in depreciation and amortization expense. For the years ended
December 31, 1997, 1998 and 1999, breakage expense amounted to $32,814,
$44,980 and $37,373, respectively.
Bottles and cases, net include the cost of bottles and cases on hand and
the unamortized portion of the capitalized cost of new introductions, net
of any amounts collected for bottles and cases. The cost of new
introductions is amortized over estimated useful lives ranging from three
to six years for bottles and six to ten years for cases, and amortization
expense of $32,865, $49,100 and $57,228 has been recorded in 1997, 1998
and 1999, respectively.
A certain level of bottles and cases are always in circulation in the
marketplace. The Company's practice is to accept returnable bottles and
cases in lieu of deposits on new sales, and, in practice, the Company's
customers generally do not return bottles and cases for refunds.
Accordingly, monies received by the Company from customers for bottles
and cases are netted against the Company's cost of acquiring bottles and
cases.
Goodwill
Goodwill represents the excess of the cost of acquisitions over the fair
value of the net assets acquired, and is being amortized on a
straight-line basis over the estimated periods to be benefited, not to
exceed 40 years.
Impairment
The Company periodically evaluates whether events or circumstances have
occurred indicating that the carrying amount of the long-lived assets,
including goodwill, may not be recoverable. When factors indicate
possible impairment, the Company uses an estimate of undiscounted future
cash flows to determine if any impairment has occurred.
Marketing expense
The Company expenses broadcast advertising costs when invoiced, which
generally coincides with the broadcast of the related advertisement.
Other marketing and advertising costs are expensed as incurred.
F-13
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
Marketing expense, net of Coca-Cola reimbursements in 1997, 1998 and 1999
was $96,299, $119,986 and $90,240, respectively.
Franchisor incentives
Coca-Cola, at its sole discretion, provides the Company with various
benefits and incentives, including capital expenditure incentives,
promotional programs and advertising support. In 1999, Coca-Cola modified
the terms and conditions of its franchisor incentive arrangements. As a
result, reimbursements are now based on meeting certain conditions. Until
1998 there were no conditions required for franchisor incentives.
Prior to 1999, capital expenditure incentives are recorded as other
income when Coca-Cola confirmed its commitment to the related incentive.
Beginning 1999, incentives are recorded as liabilities when received and
are amortized to other income on a straight-line basis over 60 months
beginning the next month after Coca-Cola confirms its commitment to the
related incentive (see Note 13). Payments are related to the increase in
volume of Coca-Cola products that result from such expenditures and are
viewed by the Company as an offset against the costs of concentrates paid
by the Company to Coca-Cola. Advertising and promotional incentives are
treated as reductions of the marketing expense when known.
Employee Profit Sharing
Mexican, Brazilian and Venezuelan laws require the payment to employees
of employee profit sharing. These amounts are treated as compensation
expense and are reflected in the appropriate income statement captions in
the accompanying financial statements. The employee profit sharing
expense was as follows:
Year Ended
December 31,
------------
1997 $ 14,460
1998 $ 20,877
1999 $ 27,078
Pensions and other employee benefits
Pension plans are computed in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions"
("SFAS-87"), determined under the projected unit credit method. The
Mexican, Brazilian, Colombian, Nicaraguan and Guatemalan subsidiaries
have pension plans, which cover all their employees except for the
Mexican plan which covers only nonunion employees. The other subsidiaries
do not have pension plans.
The Mexican and Brazilian pension plans are funded and the contributions
are based on actuarial valuations. In 1998 and 1999 the contributions
amounted to $2,374 and $1,932, respectively. The
F-14
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
Colombian plan is unfunded and shared with a government agency. The
Nicaraguan and Guatemalan plans are unfunded. The labor laws in each of
the countries in which the Company operates require severance payments
upon involuntary termination. The Company accrues for such costs when
known.
The Company has no other post-retirement or post-employment benefits
which would require adjustment under Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-retirement Benefits
other than Pensions" or Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Post-employment Benefits".
Nonrecurring income (expenses)
During 1998, the Brazilian subsidiaries conducted a study to evaluate the
expected future utilization of returnable product presentations in the
Brazilian market, having observed accelerated demand for, and utilization
of, non-returnable presentations in the marketplace. The results of this
study indicated that the use of non-returnable presentations will
continue to increase in the Brazilian market. Therefore, the Company
adjusted the carrying value of bottles and cases to reflect their
estimated use in the marketplace by charging $36,544 to the 1998
operating results, increasing total depreciation and amortization expense
and reducing the provision for income tax by $12,060.
Additionally in 1998 the Brazilian subsidiaries reversed a contingency
reserve recorded in prior years for excise tax credits taken on purchases
of concentrate between February 1991 and February 1994. The Company had
previously accrued this reserve in the full amount of such credits. The
Company reversed this reserve based on the fact that during 1998 the
Brazilian Supreme Court resolved similar claims of other bottlers in
favor of the bottlers (see Note 10).
The reversal of the excise tax reserve amounted to $60,486 and was
credited to other nonrecurring income in the income statement. Income tax
credits related to this reserve, amounting to $19,960, were also reversed
and charged in 1998 directly to income in the provision for income tax.
Facilities reorganization charges
During 1999, the Company recorded $35,172 of charges primarily as a
result of the write-off of non cash items amounting to $20,270 relating
to physical assets in Venezuela and Colombia and $14,902 cash items
relating to severances in Brazil and Venezuela that have been recorded as
facilities reorganization charges.
Income taxes
Deferred income taxes are provided by the balance sheet method for
temporary differences between amounts of assets and liabilities for
financial and tax reporting purposes.
F-15
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(1) Operations and summary of significant accounting policies (Continued)
At December 31, 1999, accumulated undistributed retained earnings subject
to withholding taxes of foreign subsidiaries in Mexico, Colombia and
Costa Rica, amounted to approximately $138,803, $269,573, and $14,101. No
provision for withholding tax is made on foreign earnings because they
are considered by management to be permanently invested in those
subsidiaries and, under the tax laws, are not subject to such taxes until
distributed as dividends. If the earnings were not considered permanently
invested, approximately $10,410, 18,870 and $2,115 of deferred taxes
would have been provided for subsidiaries in Mexico, Colombia and Costa
Rica, respectively, at December 31, 1999. This assumes a withholding tax
rate of 7.5% for Mexico, 7% for Colombia and 15% for Costa Rica (see Note
9). Dividends paid for distribution of earnings in Mexico were not
subject to withholdings taxes until December 31, 1998. Effective January
1, 1999, dividends are subject to withholdings taxes (see Note 9). No
withholding taxes are generally paid for distribution of earnings in
Venezuela, Nicaragua or Guatemala.
Financial instruments
The Company has considered the disclosure provisions of Statement of
Financial Accounting Standards No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentration of Credit Risk," as well as the provisions
of Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments". The Company does not have any
financial instruments which would call for any additional disclosures
under Statements 105 and 107.
The carrying amounts and fair values of the Company's financial
instruments as of December 31, are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
---------------------------------- -----------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Long-term bank investments and marketable
bonds $ - $ - $ 187,500 $ 195,692
========== ========== ========== =========
Bank loans and long-term debt (including $1,128,661 $1,175,000 $1,348,141 $1,397,100
current portion) ========== ========== ========== ==========
</TABLE>
Earnings per share
Basic earnings per share have been calculated based on the weighted
average number of common shares outstanding.
Diluted earnings per share have been calculated similar to the basic
earnings per share, except that the weighted average number of shares
includes the number of additional common shares that would have been
outstanding, if the dilutive potential common shares of the stock option
plans had been issued under the treasury stock method.
F-16
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(2) Accounts receivable
Short-term accounts receivable consist of:
December 31,
------------------------
1998 1999
-------- --------
Customers and distributors $ 103,243 $ 89,637
Employees 8,403 5,501
Subsidiaries of Coca-Cola and related companies 22,570 13,479
Sales and income taxes receivable 20,572 10,606
Other 30,647 26,087
-------- --------
185,435 145,310
Less-Allowance for doubtful accounts 10,427 11,534
-------- --------
$ 175,008 $ 133,776
======== ========
Long-term accounts receivable consist of:
December 31,
-----------------------
1998 1999
------- --------
Judicial deposits $ 1,401 $ 1,401
Notes from distributors 22,849 11,227
Employee housing loan fund 1,749 1,271
Other 1,519 3,151
-------- --------
$ 27,518 $ 17,050
======== ========
The judicial deposits primarily represent amounts deposited by the
Brazilian subsidiaries to cover certain local taxes, all of which have
been accrued. Notes from distributors relate to financing provided by the
Company to distributors to acquire vehicles with maturities ranging from
three to five years.
F-17
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(3) Inventories
Inventories consist of:
December 31,
--------------------------------------------
1998 1999
------- --------
Bottled beverages $ 47,309 $ 32,683
Raw materials 51,703 49,341
Spare parts and supplies 51,861 45,018
-------- --------
150,873 127,042
Less- Allowance for obsolete and slow
moving items 1,486 4,064
-------- --------
$ 149,387 $ 122,978
======== ========
(4) Property, plant and equipment
Property, plant and equipment consist of:
December 31,
-----------------------------------------
Estimated useful
1998 1999 lives
--------- --------- ---------------
Land $ 122,910 $ 114,588 -
Buildings 319,804 303,959 20 to 40 years
Machinery and equipment, furniture
and fixtures 1,245,751 1,180,304 4 to 20 years
Vehicles 384,576 376,481 4 to 10 years
Construction in progress 51,653 59,290 -
--------- ---------
2,124,694 2,034,622
Less-Accumulated depreciation 817,104 816,239
--------- ---------
$1,307,590 $1,218,383
========= =========
F-18
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(5) Related party transactions
The Company had the following significant transactions with related
parties:
Year Ended December 31,
-----------------------------------------------
1997 1998 1999
--------- ------- ------
Income -
Kaiser beer distribution fees $ 9,117 $ 7,850 $ 5,658
Marketing expense support 65,475 81,701 59,279
--------- ------- -------
$ 74,592 $ 89,551 $ 64,937
========= ======= =======
Expenses -
Purchases of concentrate $ 288,708 $ 322,426 $ 266,215
Purchases of beer 254,083 179,457 74,020
Purchases of other inventories 154,579 165,599 106,712
--------- ------- -------
$ 697,370 $ 667,482 $ 446,947
========= ======= =======
Capital expenditure incentives $ 26,780 $ 40,791 $ 9,833
received in cash ========= ======= =======
(6) Income taxes
The Company is exempt from Panamanian income tax, but the operations of
the subsidiaries are subject to income taxes at the applicable local
rates.
Income taxes are computed taking into consideration the taxable and
deductible effects of inflation in each of the countries in which the
Company operates.
The provisions for income taxes have been determined on the basis of the
taxable income of each individual company and not on a consolidated
basis.
During 1997, the Brazilian subsidiaries chose to replace the payment of
dividends for the payment of "interest on shareholders' equity".
According to Brazilian legislation, companies may pay to their
shareholders a calculated interest amount based on the companies'
shareholders' equity, and the Brazilian long-term interest rate. This
interest is limited to half of the companies' net income for the year or
half of the companies' retained earnings, whichever is higher. The
payment of such amounts allows companies the benefit of interest
deductibility in the calculation of the income taxes. The tax benefit due
to the deductibility of this interest for purposes of the computation of
the income taxes, amounting to $11,540, $10,485 and $951, were credited
to income taxes, in the income statement in 1997, 1998 and 1999,
respectively.
At the end of 1998, some of the Brazilian tax rules were changed as part
of the federal government's reform of the tax system. For example, the
"Cofins" tax, which is assessed on sales revenues, was increased from
2.0% to 3.0%, beginning February 1999. One third of the Cofins tax paid
may be offset against the social contribution tax calculated for the
year, which is reported together with the provision for income tax.
Amounts not offset during the year may not be carried forward to future
periods. This change reduces the ability of Brazilian companies to fully
recover credits derived from social contribution tax loss carryforwards,
as in the case of the Brazilian subsidiaries.
F-19
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(6) Income taxes (Continued)
Accordingly, the Company recorded a valuation allowance on previously
recorded deferred income tax assets amounting to $14,072 by charging the
provision for income taxes in the fourth quarter of 1998. As a result of
tax legislative changes during 1999, Cofins can no longer be offset
against social contribution tax. The Company reversed the aforementioned
valuation allowance of $9,507 at the current exchange rate which
corresponds to the $14,072 as of December 31, 1998, and resumed recording
assets corresponding to the social contribution tax loss carryforwards.
As of December 31, 1999, the Company had $127,874 of tax loss
carryforwards available from its subsidiaries to offset future taxable
income. The Company has provided a valuation allowance of $59,510 against
tax loss carryforwards from its subsidiaries.
Mexican and Venezuelan subsidiaries are subject to an asset tax, to the
extent that such exceeds the income tax of the period, at an annual rate
of 1.8% and 1%, respectively. Any required payment of asset taxes is
refundable against the excess of income taxes over asset taxes for the
following ten and three years in the case of Mexico and Venezuela,
respectively.
The income tax expense for the years ended December 31, 1997, 1998 and
1999 consists of the following:
<TABLE>
<CAPTION>
Valuation
Current Deferred Allowance Total
Expense Expense Increase Expense
(Benefit) (Benefit) (Decrease) (Benefit)
1997:
<S> <C> <C> <C> <C>
Mexico $ 11,447 $ 19,740 $ - $ 31,187
Brazil 56,238 (52,944) - 3,294
Colombia 14,409 4,520 - 18,929
Venezuela 2,774 (51,264) 48,171 (319)
Central America 4,083 128 - 4,211
---------- ----------- ----------- ----------
Total $ 88,951 $ (79,820) $ 48,171 $ 57,302
========== =========== =========== ==========
1998:
Mexico $ 17,371 $ 16,661 $ - $ 34,032
Brazil 25,094 (31,311) 14,072 7,855
Colombia (721) 1,617 - 896
Venezuela 10,935 (12,314) 4,309 2,930
Central America 4,593 1,068 - 5,661
---------- ----------- ----------- ----------
Total $ 57,272 $ (24,279) $ 18,381 $ 51,374
========== =========== =========== ==========
1999:
Mexico $ 41,966 $5,063 $ - $ 47,029
Brazil 2,341 (24,158) (9,507) (31,324)
Colombia 11,589 (10,311) - 1,278
Venezuela 9,196 (15,892) 15,049 8,353
Central America 5,563 355 - 5,918
---------- ----------- ----------- -----------
Total $ 70,655 $ (44,943) $ 5,542 $ 31,254
========== ============= =========== ===========
</TABLE>
F-20
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(6) Income taxes (Continued)
The provisions for income taxes computed by applying the local statutory
rates to income before taxes, as reconciled to the actual provisions, are
as follows for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997
Central
Mexico Brazil Colombia Venezuela America Total
<S> <C> <C> <C> <C> <C> <C>
Tax at local country statutory
rate 34% 33% 35% 34% 30% 40%
Add (deduct)--
Tax inflation adjustments, net 2% - (1%) (21%) (1%) (5%)
Indexed tax depreciation (11%) (9%) - (9%) (1%) (8%)
Employee profit sharing 1% - - - - -
Tax credits relating to the
deduction of interest on
shareholders' equity and
other - (31%) - - - (6%)
Other 11% 14% (10%) (4%) (1%) 2%
--- --- --- --- --- ---
Tax at effective tax rate 37% 7% 24% - 27% 23%
=== === === === === ===
1998
Central
Mexico Brazil Colombia Venezuela America Total
------ ------ -------- --------- ------- -------
Tax at local country statutory
rate 34% 33% 35% 34% 29% 48%
Add (deduct)--
Tax inflation adjustments, net 6% - (7%) (10%) - (1%)
Indexed tax depreciation (20%) 3% - (6%) - (12%)
Employee profit sharing 2% - - - - 1%
Prospective change in
statutory rate 2% - - - - 1%
-- - - - - --
Tax credits relating to the
deduction of interest on
shareholders' equity and
other - (56%) (17%) - - (18%)
Provision for valuation
allowance - 37% - - - 8%
Other 8% (10%) (9%) (9%) (2%) 2%
------ ----- ----- ----- ----- ----
Tax at effective tax rate 32% 7% 2% 9% 27% 29%
====== ===== ===== ===== ===== ====
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(6) Income taxes (Continued)
1999
Central
Mexico Brazil Colombia Venezuela America Total
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at local country
statutory rate 35% (33%) 35% (34%) 28% 97%
Add (deduct)--
Tax inflation adjustments, net 3% - (23%) 12% - 6%
Indexed tax depreciation - 1% - (14%) - 2%
Employee profit sharing 3% - - - - 13%
Asset tax - - - 12% - 20%
Tax credits relating to the
deduction of interest on
shareholders' equity and - (10%) - - - (18%)
other
Provision for valuation
allowance - - - 36% - 60%
Reversal of valuation
allowance - (19%) - - - (18%)
Other (9%) ( 4%) (2%) 8% (2%) (37%)
----- ----- ----- ----- ---- -----
Tax at effective tax rate 32% 65% 10% 20% 26% 125%
===== ===== ===== ===== ==== =====
</TABLE>
Beginning in 1999, the income tax rate in Mexico increased from 34% to
35%, with the obligation to pay this tax each year at a rate of 30%
(transitorily 32% in 1999), with the remainder payable upon distribution
of earnings.
The components of the net deferred income tax liability (asset) as of
December 31, 1998 and 1999 are as follows:
December 31,
-------------------
1998 1999
---- ----
Current:
Inventories $ 13,490 $ 16,799
Nondeductible reserves (309) (403)
Other 2,723 6,063
-------- --------
Total current 15,904 22,459
Bottles and cases 45,313 37,047
Property, plant and equipment 103,011 94,473
Nondeductible reserves (12,598) (8,152)
Tax loss carryforwards (120,443) (127,874)
Valuation allowance 57,636 59,510
Other (3,223) (10,551)
--------- ---------
Total long-term, net 69,696 44,453
--------- ---------
Total $ 85,600 $ 66,912
========= =========
F-22
<PAGE>
(6) Income taxes (Continued)
The components of the deferred income tax provision (benefit) for the
years ended December 31, 1997, 1998 and 1999 are as follows:
Year Ended December 31,
-----------------------------------------
1997 1998 1999
----
Inventories $ 2,593 $ 1,863 $ 2,870
Property, plant and equipment 20,777 1,845 (18,688)
Bottles and cases (2,464) (13,092) (7,682)
Investments - (1,115) (4,338)
Nondeductible reserves (8,524) 14,700 (1,906)
Tax loss carryforwards (58,522) (29,340) (24,579)
Valuation allowance 13,329 18,381 5,542
Other 1,162 860 9,380
-------- -------- -------
$(31,649) $ (5,898) $(39,401)
======== ======== ========
(7) Bank loans and long-term debt
At December 31, 1999 the Company and its subsidiaries had direct unsecured
bank loans denominated in U.S. dollars, with between 1- and 8-month
maturities. The average annual interest rate for the majority of the loans
as of December 31, 1999 was LIBOR (6.09) + 1%.
At December 31, 1999 the majority of long-term debt bears fixed interest
rates ranging from 5.75% to 10.75%, and the remaining long-term debt has
variable interest rates ranging from LIBOR + 1.25% to 4.25%, the Mexican
rate for units of real constant value (UDIS) plus 9.75% and the Brazilian
long-term interest rate (TJLP) plus 5.08% to 6.60%. A summary of long-term
debt by country is as follows:
December 31,
1998 1999
----- -----
Corporate $ 650,000 $ 870,000
Mexico 2,042 107,418
Brazil 70,825 76,069
Colombia 63,843 61,542
Venezuela - 188,000
Central America 39,889 11,583
------- ---------
826,599 1,314,612
Less - Current portion of long-term debt 55,332 64,640
------- ---------
Total $ 771,267 $ 1,249,972
======= =========
Maturities of long-term debt at December 31, 1999 are as follows:
2001 $ 289,890
2002 376,182
2003 154,067
2004 23,299
2005 and thereafter 406,534
------------
$1,249,972
F-23
<PAGE>
(7) Bank loans and long-term debt (Continued)
Corporate
In March 1996, the Company issued $150,000 aggregate principal amount of
8-1/8% Senior Notes Due 2003. In addition, in July 1997, the Company
issued $300,000 aggregate principal amount of 7-1/4% Senior Notes Due 2009
(see Note 12).
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 $200,000 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
U.S. Capital, LLC, as arranger and administrative agent, for a three-year
loan in the amount of $300,000 with quarterly interest payments at an
average interest rate of LIBOR + 3.5%. The proceeds were used to repay
short-term bank loans of the Company and guarantee bank loans of the
Venezuelan subsidiaries with investments made by the Company. The loan
agreement establishes certain restrictions including a minimum
consolidated equity of $1,750,000 and other covenants and ratios. During
November 1999, $80,000 of this loan was repaid prior to scheduled
repayment date.
Mexico
On November 12, 1999 the Mexican subsidiaries issued unsecured promissory
notes for 1,001,705,080 Mexican pesos equivalent to 380,000,000 UDI's
(unit of real constant value, in Mexican pesos, whose value is calculated
by Bank of Mexico), payable semiannually with a seven year maturity and
bearing interest ranging from 8.65% to 9.75% (including withholding). As
of December 31, 1999 the amount of this debt is $106,534.
The other Mexican loans of $884 are denominated in U.S. dollars and are
payable in semiannual installments through 2001, guaranteed by the
equipment acquired with the proceeds. The loan agreements establish
certain restrictions including minimum capital stock, acquisition
limitations and dividend restrictions.
Brazil
The Brazilian loans consist of $55,339 denominated in U.S. dollars at a
fixed average rate of 9.8%; and $20,730 denominated in local currency with
the majority bearing variable interest rates ranging from the Brazilian
long-term interest rate plus 5.08% to 6.6%, and the remaining loans have
fixed interest rates at an average of 9.8%. These loans are guaranteed by
mortgages on land, buildings and by the machinery, equipment and vehicles
acquired.
F-24
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(7) Bank loans and long-term debt (Continued)
Colombia
The Colombian loans are basically denominated in U.S. dollars with average
annual interest rates ranging from LIBOR + 1% to 4.25%. The loan
agreements establish certain restrictions including an equity minimum of
U.S. $230,000. One of the loans is guaranteed by Colombian Yankee Bonds
presented as long-term investments in the accompanying 1999 balance sheet,
amounting to $34,500.
Venezuela
The Venezuelan loans consist of bank loans, which are denominated in U.S.
dollars at a rate of LIBOR + 2.00% to 4.00%, with interest payable in
quarterly installments. Loans in the amount of $150,000 are guaranteed by
deposits amounting to $150,000 of the parent company presented as
long-term investments in the accompanying 1999 balance sheet.
Central America
The Costa Rican, and Guatemalan loans are denominated in local currency
and the Nicaraguan loans are denominated in U.S. dollars. Nicaraguan loans
are guaranteed by the equipment acquired with the proceeds.
As of December 31, 1999 the Company and the subsidiaries have complied
with all the terms and conditions established in the loan agreements.
(8) Pensions
The status of the pension plans are presented in accordance with
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits":
<TABLE>
<CAPTION>
December 31,
1998 1999
----------------------------------------------------
Unfunded Funded Unfunded Funded
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 10,159 $ 18,533 $ 12,337 $ 23,281
Service cost 231 1,861 589 1,811
Interest cost, net 2,335 1,767 3,124 2,340
Participants' contributions - 198 - 192
Amendments - 448 - -
Actuarial loss (gain) 2,666 2,641 (1,944) 3,519
Benefit payments (1,184) (375) (2,687) (3,697)
Translation gain (1,870) (1,792) 3,494 (3,988)
---------- ---------- ----------- ---------
Benefit obligation at end of year 12,337 23,281 14,913 23,458
---------- ---------- ----------- ---------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(8) Pensions (Continued)
December 31,
----------------------------------------------------
1988 1999
----------------------------------------------------
Unfunded Funded Unfunded Funded
<S> <C> <C> <C> <C>
Change in plan assets
Fair value of plan assets at beginning of year - 16,463 - 14,961
Actual return on plan assets - (2,283) - 5,020
Employer contributions - 2,434 - 602
Participants' contributions - 198 - 192
Benefit payments - (375) - (3,697)
Translation gain - (1,476) - (4,137)
-------- -------- --------- --------
Fair value of plan assets at end of year - 14,961 - 12,941
-------- -------- --------- --------
Funded status
Benefit obligation in excess of fair value
of plan assets 12,337 8,320 14,913 10,517
Unrecognized net actuarial loss - (6,821) 352 (2,821)
Unrecognized prior service cost (498) (969) (174) (5,172)
Unrecognized net transition Obligation - 419 (6,466) 168
---------- ---------- ---------- ---------
Net amounts recognized $ 11,839 $ 949 $ 8,625 $ 2,692
========= ========== ========== =========
</TABLE>
The net periodic pension cost consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,987 $ 2,092 $ 2,400
Interest cost, net 4,030 4,102 5,464
Expected return on plan assets (1,731) (1,009) (1,333)
Amortization of prior service cost 1,077 316 272
Recognized net actuarial loss 83 111 -
Transition obligation (102) (83) -
--------- ----------- ---------
Net periodic pension costs $ 5,344 $ 5,529 $ 6,803
========= =========== ===========
</TABLE>
The economic assumptions in 1997, 1998 and 1999, net of inflation, which
reflect the local economic conditions and particular circumstances of
each of the subsidiaries, are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Mexico Brazil Colombia
----------------------------------------------------
<S> <C> <C> <C>
Discount rate 4.5% 6% 5%
Expected return on plan assets 6% 6% *
Rate of compensation increase 1% 2% 1%
</TABLE>
F-26
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(8) Pensions (Continued)
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
Mexico Brazil Colombia Guatemala
--------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 4.5% 6% 8% 5%
Expected return on plan assets 6% 6% * *
Rate of compensation increase 1% 2% 4% 2%
1999
--------------------------------------------------------
Mexico Brazil Colombia Guatemala
--------------------------------------------------------
Discount rate 4.5% 6% 7% 8%
Expected return on plan assets 6% 6% * *
Rate of compensation increase 1% 2% 1% 3%
</TABLE>
*Not applicable, as the benefits are not funded.
(9) Retained earnings
Certain of the Company's subsidiaries are required by law to appropriate
a portion of their annual net income to legal reserves until such
reserves equal prescribed percentages of outstanding capital stock. These
legal reserves, which aggregated $32,045 and $33,140 at December 31, 1998
and 1999, respectively, are generally not available for distribution to
shareholders until the liquidation of the individual companies, except in
the form of stock dividends in the Mexican subsidiaries.
The Brazilian companies' statutes require minimum dividend distributions
representing 25% of net income (after deducting reserves provided by law
or by the shareholders) for the year. This dividend requirement may be
waived by the unanimous vote of shareholders at a meeting where a quorum
(consisting of the holders of a majority of the shares) is present.
At present, Colombia and Costa Rica impose withholding taxes of 7% and
15%, respectively, on dividends paid by domestic subsidiaries to the
Company. In addition, Brazil imposes a withholding tax of 15% on
dividends paid by domestic subsidiaries to the Company that are derived
from earnings generated prior to January 1, 1996.
Dividends from earnings generated until 1998 are not subject to income
taxes in Mexico, as long as they are paid from "net taxed income" (UFIN).
Dividends not paid from UFIN are subject to a 35% income tax. During 1999
and 2000, dividends paid to individuals or foreign residents are subject
to income tax withholding of an effective tax rate of approximately 7.5%
and 7.7%, respectively. In addition, if earnings generated after 1998 for
which no corporate tax has been paid are distributed, the tax must be
paid upon distribution of the dividends. Consequently, the Company must
keep a record of earnings subject to each tax rate.
Dividends are not subject to withholding taxes in Venezuela, Nicaragua
and Guatemala.
F-27
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(10) Contingencies
Service Fees
The Company is appealing a decision by the Brazilian tax authorities
imposing income taxes, interest and fines in an amount equivalent to
$5,020 and $3,741 as of December 31, 1998 and 1999, respectively,
relating primarily to the deductibility of certain intercompany service
payments.
Tax Credits
The Brazilian subsidiaries are also being assessed by the tax authorities
for tax credits taken during 1995 and 1996, relating to overpayments of
the value-added tax in previous years. Such overpayments related to
value-added tax applied to samples, products given for free to customers
and to credit sales. These assessments amount to approximately $32,768
and $25,370 as of December 31, 1998 and 1999, respectively, and the
Company has appealed the assessments at the administrative level. The
Company and its legal counsel believe that in view of the legal basis
adopted for the use of such credits, no significant liability should
result from this issue and therefore no provision for this matter has
been recorded in the accompanying financial statements.
Administrative Proceedings
Certain of the Brazilian subsidiaries were subject of administrative
proceedings in the Federal Revenue Office brought by the Brazilian tax
authorities. Issues raised by the tax authorities include whether freight
costs should be included in the Brazilian Tax on Manufactured Products
(the IPI) and the calculation of IPI rates on various beverages. During
1997, the Taxpayers' Counsel decided unanimously in favor of the
Brazilian subsidiaries on this issue relating to the period January 1984
to December 1988. This judgment is no longer subject to any appeal and
the Brazilian subsidiaries together with legal counsel believe that this
decision will be extended to the six-month period ended June 30, 1989,
which contingency amounted to approximately $3,522 and $2,633 as of
December 31, 1998 and 1999, respectively.
Because the Company believes it will ultimately not incur any liability,
there is no reserve in the Company's financial statements with respect to
these service fees, tax credits or administrative proceedings. However,
each such proceeding is ongoing, and there can be no assurance as to its
final outcome or, if such outcome is unfavorable, as to the amount of any
liability, which could be material. Due to the preliminary nature of
these proceedings, the Company does not have adequate information
regarding these matters to reasonably estimate the amount of the
potential loss, if any, it may ultimately incur.
F-28
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(10) Contingencies (Continued)
Amazon Region
In 1998, the Brazilian subsidiaries reversed an excise tax reserve
recorded in prior years for credits taken on purchases of concentrate
from the Amazon region, in the northern part of Brazil. Those credits had
been accrued for the period between February 1991 and February 1994.
Although the Brazilian subsidiaries do not pay excise taxes on
concentrate purchases from the Amazon region because it is a tax free
zone, the bottlers have claimed that they are nevertheless entitled to a
corresponding credit against excise taxes payable upon sale of the final
products. The government disputed the claim and said a credit should
exist only if the materials used in the production of the concentrate
were entirely from the tax-free region. On August 15, 1991, the Brazilian
Coca-Cola bottlers association, of which the Brazilian subsidiaries are
members, obtained a preliminary injunction against the Brazilian tax
authorities permitting the bottlers to take credits against such excise
taxes. Based on the injunction, the Brazilian subsidiaries had not been
required to make payment of taxes in an amount equal to such credits, but
had accrued a reserve for financial reporting purposes in the full amount
of such credits. The injunction was lifted in May 1995 and the Brazilian
Coca-Cola bottlers association appealed the decision, which was later
judged in its favor.
In 1998, the Brazilian subsidiaries reversed such reserve based on the
development during 1998 of similar claims of other bottlers, which were
resolved in their favor by the highest Brazilian courts of appeals.
During 1999, the Brazilian Coca-Cola bottlers association, including
our Brazilian subsidiaries, obtained final favorable decisions on their
claims which no longer can be appealed by the Government.
The reserve for the excise tax contingency amounted to $64,103 as of
December 31, 1997 and the corresponding income tax credit on it, recorded
as deferred income tax assets in the Brazilian subsidiaries balance sheet
as of that date, amounted to $21,154. The reserve and the deferred income
tax credit balances were not monetarily adjusted either for inflation or
for the appreciation of the U.S. dollar in comparison to the Brazilian
currency during 1998. Therefore, the reversal of the excise tax reserve
amounted to $60,486 and was credited to other nonrecurring income, in the
consolidated statement of operations of 1998. Income tax credits recorded
on this reserve, amounting to $19,960, were also reversed and charged
directly to the income tax provision in 1998.
Other Contingencies
The Brazilian subsidiaries are currently claiming payments of value-added
tax of previous years. The Company's outside legal advisors assessment of
this matter indicates that the outcome of these lawsuits is expected to
be favorable to the Company. The Company took credits of this tax in 1999
in the amount of $11,739. Because a decision on these claims is still
pending, the
F-29
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(10) Contingencies (Continued)
Company recorded a reserve for such matter in their financial statements
as of December 31, 1999.
In addition, the Company's subsidiaries are parties to other lawsuits and
administrative proceedings arising in the ordinary course of business
involving environmental, tax, civil and labor matters, for which a
provision of $17,547 and $23,339 have been recorded as other accrued
liabilities in the accompanying financial statements as of December 31,
1998 and 1999, respectively.
(11) Equity incentive plan
The Board of Directors resolved to establish a Stock Option Plan for
Employees (with a maximum of 9,000,000 shares of Class A Common Stock).
Under this plan, the options vest over a five-year period for the options
granted until 1996 and over a three-year period for options granted
beginning in 1997.
On November 17, 1993, when the previous day's closing price of the Class
A Common Stock on the New York Stock Exchange was $17-6/11 per share, the
Company granted the initial 800,000 options under the plan at an exercise
price of $13.75 per share, the closing price of the Class A Common Stock
on the first day of trading on the New York Stock Exchange; therefore,
the Company recognized a compensation expense associated with such
options each month from 1993 to 1998. However, since the following grants
were at an exercise price equal to the market price at the date of grant,
there is no compensation expense related to such options.
Under this plan, the Company has granted 6,404,700 options as of December
31, 1999, 417,700 options had been exercised and 581,400 options had been
cancelled.
The Company also has a Stock Option Plan for Nonemployee Directors, which
was implemented to attract and retain the services of experienced and
knowledgeable nonemployee directors and nonemployee members of the
advisory board of the Company. The Stock Option Plan for Nonemployee
F-30
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(11) Equity incentive plan (Continued)
Directors provides each nonemployee director and each nonemployee
advisory board member with an option to purchase a specified number of
shares of Class A Common Stock. A total of 100,000 shares of Class A
Common Stock is available for grants. The Stock Option Plan for
Nonemployee Directors is administered by the Board of Directors or a
subcommittee thereof. The Board of Directors has the discretion to amend,
terminate or suspend the Stock Option Plan for Nonemployee Directors at
any time. The options vest over a four-year period for the options
granted until 1996 and over a three-year period for the options granted
beginning in 1997. As of December 31, 1999 the Company has granted 76,500
and all options were granted at an exercise price equal to the market
price at the date of grant, and no options had been exercised or
cancelled.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS-123"). This Statement was effective beginning in 1996. Although
the statement encourages entities to adopt the fair value based method of
accounting for employee stock options, the Company continues to measure
compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant dates
for awards under the plans consistent with the method of SFAS-123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below:
December 31,
--------------------------------------------
1997 1998 1999
--------- ---------- ---------
Net income (loss):
As reported $ 173,835 $ 120,322 $ (59,904)
=========== =========== ============
Pro forma $ 170,017 $ 116,305 $ (69,017)
=========== =========== ============
Net income (loss) per share:
As reported:
Basic $ 1.44 $ 0.93 $ (0.46)
============ =========== ============
Diluted $ 1.43 $ 0.92 $ (0.46)
============ =========== ============
Pro forma:
Basic $ 1.41 $ 0.90 $ (0.53)
============ =========== ============
Diluted $ 1.39 $ 0.89 $ (0.53)
============ =========== ============
F-31
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(11) Equity incentive plan (Continued)
The fair value of each option grant is estimated on the date of grant
using a Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants of both plans:
December 31,
----------------------------------------
1997 1998 1999
----------------------------------------
Risk-free interest rate 5.83% 4.55% 5.82%
Dividend yield 0.59% 1.59% 1.11%
Expected volatility 35.90% 52.60% 59.20%
Expected option term lives 3 years 3 years 3 years
(12) Capital and other transactions
At the time of the signing of the agreement mentioned in Note 1, and in
connection with the acquisition of a Costa Rican franchise, Export
acquired additional shares of Class A and B Common Stock and 2 shares of
a new Series C Preferred Stock of the Company. The holder of the Series C
Shares (the "Holder") is not entitled to receive any dividends with
respect to the Series C Stock and is only entitled to a preference on the
liquidation, dissolution or winding up of the Company of $1.00. Pursuant
to the Certificate of Designation for the Series C Shares, the Company
has agreed with the Holder not to take certain actions without the
approval of the Holder, including, but not limited to: (i) certain
consolidations, mergers and sales of substantially all of the Company's
assets; (ii) any acquisition or sale of a business (or an equity interest
therein) if the purchase price or sales price thereof, as the case may
be, exceeds a material amount (as defined therein); (iii) entry into any
new significant line of business or termination of any existing
significant line of business; (iv) certain capital expenditures and
acquisitions and dispositions of fixed assets; (v) certain transactions
with affiliates (as defined); (vi) certain changes in the Company's
policy with respect to dividends or distributions to shareholders and
(vii) certain changes to the Company's Articles or By-laws. These rights
are subject to certain exceptions and qualifications and may be suspended
or terminated in certain circumstances.
Pursuant to an agreement dated as of May 9, 1997 (the "Exchange
Agreement"), the Company acquired all the capital stock of Embotelladora
Coca-Cola y Hit de Venezuela, S.A. ("Coca-Cola y Hit"), which, through
its subsidiaries, produces, sells and distributes Coca-Cola products
throughout Venezuela. The purchase price for the acquisition was
approximately 30.6 million shares of the Company's common stock (having a
market value at such time of $902,700) and approximately $100,300 in
cash. In addition, the Company assumed approximately $107,700 of debt
owed by Coca-Cola y Hit, which was repaid with a portion of the proceeds
of the 1997 Debt Offering (as described below). In addition, pursuant to
a shareholder agreement which the Company entered into at the time of the
Venezuela acquisition, the Cisneros Group received certain registration
and other rights, including the right to require a subsidiary of
Coca-Cola to purchase by November 5, 1997 up to $20.0 million in shares
of Class A Common Stock at the then current market price and, to the
extent not so purchased, to require the Company to purchase up to
2,370,266 shares of Class A Common Stock (less the amount purchased by
the subsidiary of Coca-Cola) and 179,734 shares of Class B Common Stock
(in amounts proportionate to its holdings of each class of stock) at the
then
F-32
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) Capital and other transactions (Continued)
current market price for shares of Class A Common Stock (whether such
shares are shares of Class A Common Stock or shares of Class B Common
Stock). On August 1, 1997, the Cisneros Group exercised its rights and
sold 621,600 shares of Class A Common Stock to a subsidiary of Coca-Cola,
and on October 27, 1997, the Cisneros Group exercised its right to
require the Company to purchase 1,748,666 shares of Class A Common Stock
and 179,734 shares of Class B Common Stock at a price of $36.90 per
share.
Total audited tangible assets and liabilities of Coca-Cola y Hit included
in the Company's statements at the date of acquisition which includes the
consideration of the final amount of goodwill determined of $816.1
million was as follows:
Inventories $ 34,981
Property, plant and equipment, net 314,103
Bottles and cases, net 97,972
Other assets 72,211
Total liabilities (324,982)
--------
$ 194,285
========
On July 8, 1997 the Company issued $300,000 aggregate principal amount of
7-1/4% Senior Notes Due 2009 (the "1997 Debt Offering"). The proceeds to
the Company, net of underwriting discount commissions and expenses, were
approximately $298,000. Substantially all of the proceeds of the 1997
Debt Offering were applied to repay indebtedness assumed in connection
with the Venezuela acquisition and to purchase minority interest in the
Mexican subsidiaries, and the remainder was used for general corporate
purposes.
Pursuant to an agreement dated as of August 14, 1997, the Company
acquired all the capital stock of three Panamanian companies which own
all the capital stock of Embotelladora Milca, S.A. ("Panamco Nicaragua"),
which produces, sells and distributes Coca-Cola products throughout
Nicaragua. The purchase price for the acquisition was 407,236 shares of
the Company's common stock (valued at $13,333) and approximately $19,140
in cash. In addition, the Company assumed approximately $9,863 of debt
owed by the Nicaraguan Company and recorded $22,143 of goodwill.
In 1997 the Company repurchased 605,112 shares at the average market
value of $32.20 per share. In December 1997, the Company increased its
ownership in the Mexican holding subsidiary to 98% from 74% and in the
Mexicans' principal subsidiaries to 96% from 93%, paying a total of
$277,000 and recognizing $228,000 of goodwill for these acquisitions. As
a result, the Company now has a 95% effective interest in its Mexican
operations. During January 1998 the Company paid all the existent
liabilities due to the acquisition to the minority interest.
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
F-33
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) Capital and other transactions (Continued)
was approximately $38,801 in cash. In addition, the Company assumed
approximately $23,499 of debt owned by Panamco Guatemala, and recorded
$45,364 of goodwill.
In 1998, the Brazilian subsidiaries acquired certain shares held by
minority investors in Brazil for an aggregate of $28,068, which increased
the Company's ownership of the capital stock of such entities from 96% to
98%.
In September 1998, the Company expanded its Brazilian presence by
acquiring Brazilian bottler R.O.S.A. for $47,999 in cash (including
shares of Cervejarias Kaiser, S.A.). As part of this transaction, Panamco
also acquired R.O.S.A.'s plastic bottle business, Supripack Industria de
Embalagens, S.A. (Supripack), for $9,900 in cash, bringing the total
acquisition price to $57,900, for which the company entered into a
$70,000 financing agreement. The Company began consolidating R.O.S.A.'s
results as of September 1, 1998, and recorded $37,400 of goodwill in
connection with this acquisition.
On December 9, 1999, the Board of Directors authorized a repurchase
shares program of its Class A Common Stock in an amount not to exceed
$100,000 in the aggregate. The shares could be purchased in the open
market or in privately negotiated transactions, depending on market
conditions and other factors. The Company repurchased 368,584 shares
amounting to $7,568 during 1999.
If the Venezuela acquisition and the 1997 Debt Offering were all given
pro forma effect as if they had occurred on January 1, 1997, the
unaudited pro forma consolidated net sales, net income and earnings per
share for the year ended December 31, 1997 would have been as follows:
1997
---------
Unaudited
---------
Net sales $ 2,633,708
===========
Net income $ 142,526
============
Basic earnings per share $ 1.08
============
Diluted earnings per share $ 1.07
============
F-34
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) Capital and other transactions (Continued)
As of December 31, 1999 the capital stock of the Company is as follows:
Common Stock Series C
-------------------------- Preferred
Class A Class B Stock
----------- ---------- ----------
Authorized 500,000,000 50,000,000 50,000,000
=========== ========== ==========
Issued 136,662,871 11,348,991 2
Less - Treasury 16,281,271 2,377,436 -
----------- ---------- ----------
Outstanding 120,381,600 8,971,555 2
=========== ========== ==========
Par value per share $ 0.01 $ 0.01 $ 0.01
=========== ========== ==========
In general, with the exception of voting rights and certain conversion
rights, the Class A Common Stock and the Class B Common Stock have the
same rights and privileges. Each share of Class B Common Stock entitles
the holder to one vote on all matters as to which the shareholders are
entitled to vote. The Class A Common Stock is non-voting and does not
entitle the holder thereof to vote, on any matter.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS-130"). This statement
establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income, foreign currency
translation adjustments and pension liability adjustments, and is
presented in the Consolidated Statement of Shareholders' Equity. The
adoption of SFAS-130 had no impact on total shareholders' equity. Prior
year financial statements have been reclassified to conform to the
SFAS-130 requirements.
(13) Other income (expense), net
Other income (expense), net for the three years ended December 31, 1997,
1998 and 1999 is as follows:
1997 1998 1999
--------- ---------- ----------
Provision for contingencies $ (2,387) $ (6,885) $ (5,270)
Exchange (losses) gain, net 301 (3,967) (32,701)
Gain (loss) on sale of fixed
assets and investments 4,020 3,932 2,760
Equity in earnings of uncon-
solidated companies, net 6,569 (3,550) (4,371)
Capital expenditure incentives 26,780 40,791 5,115
Operating income from
non-bottling subsidiaries 1,222 643 3,950
Other, net 7,528 (8,828) (8,779)
-------- ---------- ---------
$ 44,033 $ 22,136 $(39,296)
======== ========= =========
F-35
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(14) Segments and related information
Relevant information concerning the geographic areas in which the Company
operates in accordance with Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related
Information" is as follows:
1997
----
<TABLE>
<CAPTION>
Central
Brazil Colombia Mexico Venezuela America Corporate Total
--------- ---------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 969,094 $ 537,987 $ 546,772 $ 349,519 $ 1 06,838 $ - $ 2,510,210
Net sales ========== ========== ========== ========== ========== ============ ===========
Operating income $ 67,565 $ 71,997 $ 83,171 $ 35,710 $ 16,458 $ (28,980) $ 245,921
(loss) ========== ========== ========== ========== ========== ============ ===========
Interest income $ (19,303) $ (2,408) $ (6,846) $ (4,448) $ 96 $ (5,974) $ (38,883)
(expense) net ========== ========== ========== ========== ========== ============ ============
Depreciation and $ 47,828 $ 49,305 $ 22,254 $ 34,606 $ 8,186 $ 17,313 $ 179,492
amortization ========== ========== ========== ========= ========== ============ ===========
$ 52,134 $ 62,922 $ 52,972 $ 27,832 $ 12,809 $ - $ 208,669
Capital expenditures ========== ========== ========== ========== ========== ============ ===========
$ 444,541 $ 398,148 $ 344,289 $ 437,530 $ 89,782 $ 1,150,633 $ 2,864,923
Long-lived assets ========== ========== ========== ========== ========== ============ ===========
$ 673,541 $ 481,776 $ 412,169 $ 527,104 $ 120,089 $ 1,372,390 $ 3,587,069
Total assets ========== ========== ========== ========== ========== ============ ===========
1998
----
Central
Brazil Colombia Mexico Venezuela America Corporate Total
--------- ---------- --------- ---------- ---------- ------------ -----------
$ 897,951 $ 495,812 $ 638,481 $ 550,677 $ 190,355 $ - $ 2,773,276
Net sales ========== ========== ========== ========== =========== ============ ===========
Operating income $ 10,440 $ 62,528 $ 95,287 $ 23,322 $ 22,933 $ (34,796) $ 179,714
(loss) ========== ========== ========== ========== =========== ============ ===========
Interest expense, $ (21,717) $ (5,328) $ (9,984) $ (9,801) $ (4,292) $ (34,213) $ (85,335)
net ========== ========== ========== ========== =========== ============ ============
Depreciation and $ 83,612 $ 58,510 $ 37,132 $ 65,099 $ 15,039 $ 29,459 $ 288,851
amortization ========== ========== ========== ========== =========== ============ ============
$ 62,051 $ 69,216 $ 64,047 $ 68,361 $ 38,540 $ - $ 302,215
Capital expenditures ========== ========== ========== ========== =========== ============ ============
Long-lived assets $ 471,970 $ 437,683 $ 387,394 $ 487,878 $ 137,333 $ 1,166,239 $ 3,088,497
========== ========== ========== ========== =========== ============ ============
Total assets $ 709,176 $ 576,191 $ 459,778 $ 589,543 $ 173,320 $ 1,139,682 $ 3,647,690
========== ========== ========== ========== =========== ============ ============
</TABLE>
F-36
<PAGE>
(14) Segments and related information (Continued)
1999
----
<TABLE>
<CAPTION>
Brazil Colombia Mexico Venezuela America Corporate Total
--------- ---------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 500,683 $ 397,014 $ 794,812 $ 512,292 $ 211,016 $ - $ 2,415,817
========== ========== ========== ========== =========== ============ ============
Operating income $ 2,507 $ 13,090 $ 133,188 $ (20,256) $ 27,032 $ (41,110) $ 114,451
(loss) ========== ========== ========== ========== =========== ============ ============
Interest expense, $ (14,743) $ (6,753) $ (11,849) $ (18,028) $ (1,843) $ (46,894) $ (100,110)
net ========== ========== ========== ========== =========== ============ ============
Depreciation and $ 32,763 $ 59,178 $ 40,356 $ 71,156 $ 17,990 $ 29,380 $ 250,823
amortization ========== ========== ========== ========== =========== ============ ============
Capital expenditures $ 22,686 $ 28,275 $ 57,919 $ 33,184 $ 21,139 $ - $ 163,203
========== ========== ========== ========== =========== ============ ============
Long-lived assets $ 309,441 $ 445,428 $ 448,196 $ 466,846 $ 133,080 $ 1,293,878 $ 3,096,869
========== ========== ========== ========== =========== ============ ============
Total assets $ 486,198 $ 498,005 $ 549,420 $ 556,696 $ 171,174 $ 1,351,629 $ 3,613,122
========== ========== ========== ========== =========== ============ ============
</TABLE>
F-37
<PAGE>
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(15) Valuation and qualifying accounts
The following is an analysis of the valuation and qualifying accounts for
the three years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Additions
-----------------------------------------
Balance at Charged to Charged to Balance at
Beginning Cost and Other Deductions- End of
Description of Year Expenses Accounts Applications Year
----------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1997-
Allowance for doubtful accounts $ 6,075 7,665 1,295 4,442 $ 10,593
Allowance for obsolete and slow-
moving inventory $ 976 311 2,091 2,802 $ 576
1998-
Allowance for doubtful accounts $ 10,593 7,544 1,730 9,440 $ 10,427
Allowance for obsolete and slow-
moving inventory $ 576 472 1,835 1,397 $ 1,486
1999-
Allowance for doubtful accounts $ 10,427 3,049 204 2,146 $ 11,534
Allowance for obsolete and slow-
moving inventory $ 1,486 2,664 - 86 $ 4,064
</TABLE>
F-38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PANAMERICAN BEVERAGES, INC.,
(Registrant)
By
/s/ Paulo J. Sacchi
-----------------------------------------
Name: Paulo J. Sacchi
Title: Senior Vice President, Chief
Financial Officer and Treasurer
Date: May 15, 2000
------------
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description
- ------ -----------
10.1 Amendment No. 2 to the
$300 Million Credit Agreement
23.1 Consent of Independent Public Accountants
EXHIBIT 10.1
AMENDMENT NO. 2 dated as of March 27, 2000 (this
"Amendment"), to the Credit Agreement dated as of March
18, 1999 as amended by Amendment No. 1 dated as of August
30, 1999 (as may be further amended, supplemented or
modified from time to time, the "Credit Agreement"), among
Panamerican Beverages, Inc., a Panamanian corporation (the
"Borrower"), the lenders named therein (the "Lenders"),
ING Baring (U.S.) Capital LLC, as administrative agent (in
such capacity, the "Administrative Agent") for the
Lenders, J.P. Morgan Securities Inc. as syndication agent
(the "Syndication Agent") for the Lenders, and Bank Boston
N.A., as documentation agent (the "Documentation Agent")
for the Lenders.
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrower, and have agreed to extend credit to the Borrower, in
each case pursuant to the terms and subject to the conditions set forth
therein.
B. The Borrower has requested that, pursuant to Section 8.01 of the
Credit Agreement, the Required Lenders agree to amend certain provisions of
the Credit Agreement as provided herein.
C. The Required Lenders are willing so to amend the Credit Agreement
pursuant to the terms and subject to the conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendments. (a) Section 5.04(a) of the Credit Agreement
is hereby amended as follows:
Interest Coverage Ratio. Maintain an Interest Coverage Ratio
(calculated as of the last day of each fiscal quarter or year, as reflected in
the quarterly or annual financial statements for such quarter or year, for the
twelve-month period ending on the relevant date of determination) of not less
than 2.75 to 1.
(b) Section 5.04(b) of the Credit Agreement is hereby amended as
follows:
Debt to EBITDA Ratio. Maintain a ratio of Consolidated Debt to
Consolidated EBITDA (calculated as of the last day of each fiscal quarter or
year hereinafter indicated, as reflected in the quarterly or annual financial
statements for such fiscal quarter or year, for the twelve-month period ending
on the relevant date of determination) of not more than (i) 3.25 to 1 through
the fourth quarter of 2000 and (ii) 3.0 to 1 thereafter.
(c) Section 5.04(c) of the Credit Agreement is hereby amended by
replacing the reference to U.S.$1,750,000,000 with U.S.$1,500,000,000.
SECTION 2. Representations and Warranties. The Borrower represents
and warrants to the Administrative Agent, to the Syndication Agent, the
Documentation Agent and to each of the Lenders that:
<PAGE>
(a) This Amendment has been duly authorized, executed and
delivered by the Borrower and constitutes its legal, valid and
binding obligation, enforceable in accordance with its terms except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(b) Before and after giving effect to this Amendment, the
representations and warranties set forth in Article IV of the Credit
Agreement are true and correct in all material respects with the
same effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) Before and after giving effect to this Amendment No. 2, no
Event of Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Amendment No. 2 shall
become effective when the Administrative Agent shall have received
counterparts of this Amendment No. 2 that, when taken together, bear the
signatures of the Borrower and the Required Lenders.
SECTION 4. Credit Agreement. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance
with the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement
as amended hereby.
SECTION 5. Loan Document. This Amendment No. 2 shall be a Loan
Document for all purposes.
SECTION 6. Effective Time. This Amendment No. 2 shall be effective
as of December 31, 1999.
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. Delivery of an executed counterpart of a
signature page of this Amendment by telecopy shall be effective as delivery of
a manually executed counterpart of this Amendment.
SECTION 9. Expenses. The Borrower agrees to reimburse the
Administrative Agent for its out-of-pocket expenses in connection with this
Amendment, including the reasonable fees, charges and disbursements of Mayer,
Brown & Platt, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and
year first written above.
<PAGE>
PANAMERICAN BEVERAGES, INC.,
by
-------------------------------------
Name:
Title:
ING BARING (U.S.) CAPITAL LLC,
individually and as
Administrative Agent,
by
-------------------------------------
Name:
Title:
J.P. MORGAN SECURITIES INC.,
as Syndication Agent,
by
-------------------------------------
Name:
Title:
BANK BOSTON N.A.,
individually and as Documentation Agent,
by
-------------------------------------
Name:
Title:
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 2
DATED AS OF
March 27, 2000
To Approve the Amendment:
Name of Institution Monumental Life Insurance Company
by
-------------------------------------
Name:
Title:
Name of Institution BancBoston Robertson Stephens, Inc.
by
-------------------------------------
Name:
Title:
Name of Institution Banco Bilbao Vizcaya Argentaria S.A.
by
-------------------------------------
Name:
Title:
Name of Institution The Chase Manhattan Bank
by
-------------------------------------
Name:
Title:
Name of Institution Dresdner Bank Luxembourg S.A.
by
-------------------------------------
Name:
Title:
<PAGE>
Name of Institution Dresdner Bank Lateinamerika AG,
Panama Branch
by
-------------------------------------
Name:
Title:
Name of Institution ING BANK N.V., acting through its Curacao
Branch
by
-------------------------------------
Name:
Title:
Name of Institution Comerica Bank
by
-------------------------------------
Name:
Title:
Name of Institution General Electric Capital Corporation
by
-------------------------------------
Name:
Title:
Name of Institution Banque Nationale de Paris,
Panama Branch
by
-------------------------------------
Name:
Title:
Name of Institution Westdeutsche Landesbank Girozentrale,
New York Branch
by
-------------------------------------
Name:
Title:
<PAGE>
Name of Institution Landesbank Schleswig-Holstein Girozentrale
by
-------------------------------------
Name:
Title:
Name of Institution Allstate Life Insurance Company
by
-------------------------------------
Name:
Title:
Name of Institution Allstate Insurance Company
by
-------------------------------------
Name:
Title:
Name of Institution Citibank Mexico S.A.
by
-------------------------------------
Name:
Title:
Name of Institution Kredietbank S.A. Luxembourgeoise
by
-------------------------------------
Name:
Title:
Name of Institution Hamburgische Landesbank Girozentrale
by
-------------------------------------
Name:
Title:
<PAGE>
Title:
Name of Institution Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch
by
-------------------------------------
Name:
Title:
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 20-F, into the Company's previously filed
Registration Statement File No. 333-9012.
ARTHUR ANDERSEN
Mexico City
May 15, 2000
