SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-12290
PANAMERICAN BEVERAGES, INC.
(Exact name of registrant as specified in its charter)
Republic of Panama Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Panamco, L.L.C.
701 Waterford Way, Suite 800
Miami, Florida
(Address of principal executive offices)
33126
(Zip code)
Registrant's Telephone Number, including area code: (305) 856-7100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
-------------------- ---------------------
Class A Common Stock, $0.01 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].
The aggregate market value of the voting and non-voting stock common stock
held by non-affiliates of the registrant was $2,038,757,633 (computed by
reference to the closing price as of March 26, 2001).
The number of shares outstanding of each of the registrant's classes of common
and preferred stock, par value $0.01 per share, as of March 26, 2001 were:
Class A Common Stock: 119,002,164
Class B Common Stock: 8,888,432
Class C Preferred Stock: 2
TABLE OF CONTENTS
Page
Part I
Item 1. Business
o Overview..................................................... 1
o Corporate Structure.......................................... 2
o Our Franchise Territories.................................... 4
o Beverages and Packaging...................................... 5
o Soft Drink Sales Share....................................... 9
o Sales, Distribution and Marketing............................ 9
o Raw Materials and Supplies................................... 13
o Production................................................... 15
o Competition.................................................. 15
o Employees.................................................... 16
o Franchise Arrangements....................................... 17
o Government Regulation........................................ 18
o Political, Economic and Social Conditions in Latin America... 19
o Currency Devaluations and Fluctuations....................... 22
Item 2. Properties....................................................... 23
Item 3. Legal Proceedings................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.............. 25
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 26
Item 6. Selected Financial Data.......................................... 32
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................... 34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 58
Item 8. Financial Statements and Supplementary Data...................... 60
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................... 60
Part III
Item 10. Directors and Executive Officers of the Registrant............... 61
Item 11. Executive Compensation........................................... 66
Item 12. Security Ownership of Certain Beneficial Owners and Management... 71
Item 13. Certain Relationships and Related Transactions................... 75
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..78
Signatures........................................................82
PART I
ITEM 1. BUSINESS
OVERVIEW
Panamerican Beverages, Inc. ("Panamco" or the "Company") is the largest
soft drink bottler in Latin America and one of the world's largest bottlers of
the soft drink products of The Coca-Cola Company ("The Coca-Cola Company" or
"Coca-Cola"). In 2000, our sales accounted for approximately 5% 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 2000 sales represented
approximately 21% 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 approximately 89% of our net sales in 2000.
We have almost a 60-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 two
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 distribute Regional beer
throughout most of Venezuela, which we began distributing in the northeast of
Venezuela in early 1999.
1
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, 2000:
PANAMCO
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
98% 98% 97% 100% 70%* 100% 100%
Panamco Panamco Panamco Panamco Panamco Panamco Panamco
Mexico Brasil Colombia Venezuela Costa Rica Nicaragua Guatemala
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
Panamco Mexico
owns between 86% Panamco Panamco
and 99% of its Brasil Colombia owns Panamco Panamco Costa Panamco Panamco
bottling effectively 65% of one and Venezuela owns Rica owns100% Nicaragua Guatemala
subsidiaries and owns100% of its 100% of four of 100% of its of its owns100% of owns100% of
also owns 30% of bottling its bottling bottling bottling its bottling its bottling
Panamco Costa Rica. subsidiary. subsidiaries. subsidiary. subsidiary. subsidiary. subsidiary.
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
---------------------
* Panamco Mexico owns 30% of Panamco Costa Rica.
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 5. --
Market for Registrant's Common Equity and Related Stockholder Matters --
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
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,
2
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". In December 2000, Panamco Mexico
acquired 29% of 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.
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 cold equipment building company. Panamco Colombia
and its consolidated subsidiaries are collectively referred to herein as
"Panamco Colombia".
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".
3
CENTRAL AMERICA
Costa Rica. We own all the capital stock (71% directly and 29% indirectly
through Panamco Mexico) 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".
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:
[MAP OMITTED]
4
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 19 million people, or about 19% of the total
population of the country.
BRAZIL
Our Brazilian territories, with a population of approximately 27 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.
COLOMBIA
Our Colombian territory covers approximately 94% 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 4.8
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 2000, 88.8% of the
products we sold 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, which include 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 and in Venezuela
the Regional trademark.
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.
5
The beverage products we produce or distribute and that accounted for
nearly all of our sales in the period ending December 31, 2000 are listed
below:
----------------------------------------------------------------------------------------------------------------------------
PANAMCO MEXICO PANAMCO BRASIL PANAMCO COLOMBIA PANAMCO VENEZUELA PANAMCO PANAMCO NICARAGUA PANAMCO
COSTA RICA Guatemala
----------------------------------------------------------------------------------------------------------------------------
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 Orange Fanta Quatro Hit Uva Fresca Fresca Lift
Fanta Diet Fanta Lift Hit Manzana Lift
Strawberry Simba Hit Kola BOTTLED WATER: BOTTLED WATER:
Fresca Tai OTHER SOFT Hit Parchita OTHER SOFT Kinley Soda Shangri-la*
Lift Diet Tai DRINKS: Grapette Uva DRINKS: Canada Dry
Delaware Punch Kuat Roman** Grapette Kola Canada Dry Club Soda OTHER PRODUCTS:
Kinley Tonic Premio* Grapete Ginger Ale** Alpina Hi-C
BOTTLED WATER: Water Club Soda* Naranja Super 12* Powerade
Risco* Kinley Club Soda Grapete Pina OTHER PRODUCTS:
Fanta Uva BOTTLED WATER: Quatro BOTTLED WATER: Hi-C
OTHER PRODUCTS: Manantial* Frescolita Canada Dry Kapo
Keloco* BOTTLED WATER: Club K* Chinotto Club Soda**
Beat Crystal* Soda Clausen* Chinotto Light Canada Dry
Santa Clara* Quinada**
BEER: OTHER SOFT Alpina*
Kaiser** DRINKS:
Kaiser Light** Soda Schweppes** OTHER PRODUCTS:
Kaiser Bock** Aguakina Powerade
Kaiser Gold** Schweppes**
Kaiser Summer
Draft** BOTTLED WATER:
Heineken** Nevada
OTHER PRODUCTS:
Malta Regional**
Nestea**
BEER:
Regional**
---------------------
Unless otherwise indicated, products are proprietary to The Coca-Cola
Company.
* Proprietary to Panamco
** Products licensed from third parties
6
The following chart shows the allocation of our net sales during 2000 among
the products described above:
--------------------------------
[ ] Coca-Cola 61%
[ ] Other Coca-Cola Products 26%
[ ] Other Soft Drinks 2% [PIE CHART OMITTED]
[ ] Bottled Water 7%
[ ] Beer 3%
[ ] Other Products 1%
--------------------------------
The estimated annual per capita consumption for 2000, 1999 and 1998 for
our soft drinks in each of our franchise territories is as follows:
PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO
MEXICO BRASIL COLOMBIA VENEZUELA COSTA RICA NICARAGUA GUATEMALA
------ ------ -------- --------- ---------- --------- ---------
2000........ 369.0 207.0 91.0 154.0 174.0 112.0 86.0
1999........ 349.1 214.3 91.4 153.6 180.8 112.0 87.0
1998........ 340.4 213.5 113.0 202.3 186.6 112.1 79.2
-------------------------
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.
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:
2000 1999 1998
--------------------------------------------------------------------------------
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
--------- --------- --------- ---------- --------- ----------
Panamco Mexico
Total products of
The Coca-Cola Company........ $ 872,336 33.6% $ 718,980 29.8% $ 586,964 21.2%
Total other soft drinks........ 10,540 0.4 7,842 0.3 4,306 0.1
Total bottled water............ 91,970 3.5 68,350 2.8 47,211 1.7
--------- ------ --------- ------ --------- -----
Total Panamco Mexico......... 974,846 37.5 794,812 32.9 638,481 23.0
7
2000 1999 1998
---------------------------------------------------------------------------------
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
----------- --------- --------- ---------- --------- ----------
Panamco Brasil (2)
Total products of
The Coca-Cola Company...... 403,098 15.5 389,449 16.1 653,738 23.6
Total bottled water........... 16,976 0.7 14,715 0.6 19,050 0.7
Total beer.................... 76,414 2.9 96,519 4.0 225,163 8.1
---------- ---- ---------- ------ ---------- -----
Total Panamco Brasil....... 496,488 19.1 500,683 20.7 897,951 32.4
Panamco Colombia
Total products of
The Coca-Cola Company...... 332,354 12.8 337,333 13.9 422,075 15.2
Total other soft drinks....... 25,051 1.0 26,224 1.1 31,763 1.1
Total bottled water........... 29,315 1.1 33,457 1.4 41,974 1.5
---------- ---- ---------- ----- ---------- -----
Total Panamco Colombia..... 386,720 14.9 397,014 16.4 495,812 17.8
Panamco Venezuela
Total products of
The Coca-Cola Company...... 457,839 17.6 493,671 20.4 536,322 19.3
Total other soft drinks....... 24,340 0.9 16,051 0.7 14,355 0.5
Total beer.................... 33,674 1.3 2,570 0.1 -- --
---------- ---- ---------- ----- ---------- -----
Total Panamco Venezuela 515,853 19.8 512,292 21.2 550,677 19.8
Panamco Central America (3)
Total products of
The Coca-Cola Company...... 203,401 7.8 193,102 8.0 173,672 6.3
Total other soft drinks....... 13,393 0.5 10,573 0.5 10,183 0.4
Total bottled water........... 8,708 0.4 8,399 0.3 6,500 0.2
---------- ---- ---------- ----- ---------- -----
Total Panamco
Central America......... 225,504 8.7 212,074 8.8 190,355 6.9
Total consolidated net sales.. $2,599,411 100.0% $2,415,817 100.0% $2,773,276 100.0%
========== ===== ========== ===== ========== =====
------------------------------------
(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 1998 includes net sales of Panamco Costa Rica and Panamco
Nicaragua and nine months of operations of Panamco Guatemala.
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 2000, 48.9% of our products were
packaged in nonreturnable presentations compared to 51.9% in 1999. 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, nonreturnable glass and plastic
bottles and plastic bags.
8
SOFT DRINK SALES SHARE
Soft drink sales represented 88.5% of our total 2000 sales. Soft drink
products are classified as either colas or other flavored soft drinks. Of our
total soft drink sales in 2000, the cola segment represented approximately
69.4% of our total soft drink sales.
SALES, DISTRIBUTION AND MARKETING
SALES
By selling our beverage products directly to 1,071,166 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
196,993 points of sale in Mexico, 147,562 in Brazil, 392,327 in Colombia,
208,237 in Venezuela, 34,278 in Costa Rica, 42,673 in Nicaragua and 49,096 in
Guatemala as of December 31, 2000. The mix 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 as of the end of 2000.
2000 PERCENTAGE 2000 PERCENTAGE
OF TOTAL OF TOTAL
SALES VOLUME SALES VOLUME
--------------- ---------------
PANAMCO MEXICO PANAMCO COSTA RICA
Off-premises sales....... 78.0% Off-premises sales....... 71.0%
On premises sales........ 22.0% On premises sales........ 29.0%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO BRASIL PANAMCO NICARAGUA
Off-premises sales....... 81.5% Off-premises sales....... 88.9%
On premises sales........ 18.5% On premises sales........ 11.1%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO COLOMBIA PANAMCO GUATEMALA
Off-premises sales....... 47.8% Off-premises sales....... 13.4%
On premises sales........ 52.2% On premises sales........ 86.6%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO VENEZUELA
Off-premises sales....... 67.3%
On premises sales........ 32.7%
------
Total................. 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.
9
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.
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 approximately 20% of total sales in 2000 and
1999. Credit sales are most significant in Brazil and Costa Rica, where they
represented 52.0% and 43.0%, respectively, of 2000 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. Distribution is primarily 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
sales force 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.
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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.
MEXICO
During 2000, Panamco Mexico continued its cold product equipment
placement program. At December 31, 2000, there were approximately 66.4 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.
During 2000, Panamco Mexico consolidated 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 9.0 basis points and has expanded its client base in urban centers.
Per capita consumption has increased 27.2%. 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.
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 "new
packages and presentations" programs that were introduced during the year. The
new presentations were strategically focused on certain trade channels and
points of sale supporting the consumer desire for new packages that appeal to
different
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consumption occasions. The most significant package launches were the 1.5
liter and the 2.5 liter presentations, as well as the multipacks for cans. Cold
equipment continued to support our ready-to drink program. The number of units
of cold product equipment we have in the Brazilian market are 31.7 units per
10,000 inhabitants in our franchise territory.
As part of our "Cold Equipment 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.
During the first half of 2000, the Company continued with its promotional
pricing strategy that alternated prices of our products every two weeks
depending on the channels or on the product (colas or flavors) for our 2 liter
PET presentation. The program came to an end in June and since then, thanks to
its packaging and product strategy, the Company has sustained its share of
sales at 55.7% of the soft drink market.
COLOMBIA
To ensure that both traditional and nontraditional outlets are able to
provide cold, ready-to-drink products, Panamco Colombia continues its cold
product equipment program. During 2000, Panamco Colombia reached a total of
45.2 coolers for every 10,000 people in our franchise territory. Panamco
Colombia currently provides cold products in 47% of its outlets.
As a result of our cold equipment strategy, our different marketing
promotions and a strong execution in the market place, our soft drink share of
sales increased to a new record of 68.5%, an increase of 1.8 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 visits its
clients and evaluates 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
presale 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.
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 and bakeries--through
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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 2000, Panamco Venezuela solidified its cold equipment program
achieving almost 58.0 units per 10,000 inhabitants in its franchise territory.
Marketing activities during the year included targeted local advertising,
consumer and trade promotions, and alluring events.
We continue our programs to develop high-volume clients in traditional
channels, and to provide retailers with cold product equipment. During the
year, we launched two new products, Quatro and Grapette. These products appeal
to the local taste of the Venezuelan consumer resulting in share of sales
gains in our flavor categories.
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.
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 roll out of the "100 Meters Program" to the
Guatemalan market and 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.
As a result of our programs in Central America, our share of sales has
increased by 2.3 percentage points in Costa Rica, 3.2 percentage points in
Nicaragua and 1.7 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
13
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.
Carbon dioxide. We purchase all of our supply of carbon dioxide in
Colombia, Costa Rica and Venezuela from Paxair. All of our supply for Brazil
is being produced at our bottling plant in Brazil. Panamco Mexico purchases
its supply of carbon dioxide gas from Cryoinfra. 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 Costa
Rica, Panamco Nicaragua and Panamco Guatemala currently purchase their bottle
caps from Alcoa CSI, 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., which are all 100% recycled materials.
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
14
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 Costa Rica manufacture their own racking
systems for their route trucks and freight vehicles.
PRODUCTION
Our subsidiaries own and operate a total of 47 bottling plants, with 10
in Mexico, 3 in Brazil, 18 in Colombia, 1 in Costa Rica, 13 in Venezuela, 1
in Nicaragua and 1 in Guatemala. The totals include 2 plants in Mexico,
1 plant in Brazil and 1 in Colombia, which we use exclusively to bottle
mineral water at the source. The plants have over 163 bottling lines with an
installed capacity of over 900 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.
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 Pepsi Gemex for share of sales in our territory.
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 was 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.
15
COLOMBIA
In Colombia our principal competitor is Postobon, a well-established
bottler of both nationally advertised flavored soft drink products and Pepsi.
The owners of Postobon hold other significant commercial interests in
Colombia.
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.
Since December 1999, we also compete with the producers of Kola Real, a "B"
brand, in the central part of the country.
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, 2000, we employed approximately 28,300 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
16
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.
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 2000, The Coca-Cola Company entered into a bottling agreement with our
Guatemalan subsidiary for a five-year term. In general, the Brazilian,
Venezuelan, Nicaraguan, Costa Rican and Colombian 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 territories. At present, we make payments to The Coca-Cola Company
in U.S. dollars for
17
purchases of concentrates by Panamco Venezuela, Panamco Nicaragua, Panamco
Colombia and Panamco Guatemala. Purchases by Panamco Mexico, Panamco Brasil
and Panamco Costa 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 its 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 marketing 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.
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 Costa 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 $12 million each in 2000 and 1999 on
plant upgrades designed to meet environmental objectives. See "Item 7. --
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.
18
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 5. -- "Market for Registrant's Common Equity and Related
Stockholder Matters -- 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. High inflation and, with it, high interest rates are common. In
2000, the per annum inflation rates were approximately 9% in Mexico, 10% in
Brazil, 9% in Colombia, 12% in Venezuela, 10% in Costa Rica, 10% 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 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 7. -- 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
19
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. In July 2000,
the Institutional Revolutionary Party (the "PRI"), which has ruled Mexico
since 1929, lost the presidential election and transferred the presidential
powers to Vicente Fox, the leader of the opposition party "Partido de Accion
Nacional" ("PAN").
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 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. During 2000, the economy started to recover and
disposable income increase was reflected on the Company's revenue growth,
offset by the devaluation of the currency of 9.0%.
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."
During 2000, the Colombian government received an assistance package from
the United States of America in order to fight illegal drug traffic under the
so called "Plan Colombia". This plan, among other things, included programs to
assist farmers and the population in rural areas.
VENEZUELA
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
20
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. The final draft of the new
Constitution was completed in November 1999, and was approved by referendum in
December 1999.
Pursuant to the approval of the new constitution, the President, state
governors and other executive and legislative powers were re-appointed by
public elections in May and December of 2000.
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. Rodriguez 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.
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 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
21
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 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.
The political, economic and social conditions in each of these countries
creates a challenging environment for business, including the Company.
The Company's business, earnings, asset values and prospects may be
materially and adversely affected by developments with respect to inflation,
interest rates, currency fluctuations, government policies, prices 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 the Company has been able
to operate successfully in Latin America for over 50 years, it has no control
over such conditions and developments, and can provide no assurance that such
conditions and developments will not adversely affect the Company's
operations.
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, 2000, the exchange
rate was approximately 9.6 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
2000 and 1998, the peso was devalued by 1% and 22%, respectively, and during
1999 the peso 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. In 2000, the currency devaluation
rate in Brazil was approximately 9%.
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
22
financial condition and results of operations. In 2000, the currency
devaluation rate in Venezuela was approximately 9%.
On June 29, 1999, in the face of economic pressures, the Colombian T
Central Bank lowered the band in which the Colombian peso trades by 9%, which
resulted in significant currency devaluations. On September 30, 1999 the
Colombian peso was trading at 2,017.27 Colombian pesos per dollar, which
represented a 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%. In 2000,
the Colombian peso was devalued by 19%.
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, 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, see "Item 7.--
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. PROPERTIES
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, 13, 1, 1 and 1 bottling plants,
respectively. As of December 31, 2000, the Company owned or leased over 338
warehouse distribution centers in its territories. See "Item 1. -- Business --
Production" for additional information regarding our properties.
As of December 31, 2000, the consolidated net book value of all land,
buildings, machinery and equipment owned by the Company was approximately
$1,125.7 million. These assets were subject to liens
23
and mortgages securing lines of credit and other indebtedness. The aggregate
amount of such indebtedness outstanding was approximately $68.2 million as of
December 31, 2000. The total annual rent paid by the Company in 2000 for its
leased distribution and office facilities was approximately $13.5 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
"Item 7. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Forward-Looking Statements".
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, 2000, 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. During
2000, the Brazilian Taxpayers' Council extended this period to June 30, 1989.
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 proceeding was ruled favorably to Panamco Brasil in
2000 and there is no appeal pending to the proceeding. See Note 12 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, 2000. 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 12 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,
2000 and relate to value-added taxes applied to samples, gratuities and credit
sales. The Company has appealed the assessments. See Note 12 of "Notes to
Consolidated Financial Statements".
24
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 a 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. In 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 at any time 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
2000.
25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
NATURE OF TRADING MARKET
As of March 26, 2001, we had approximately 9,850 holders of record of an
aggregate of approximately 119,002,164 shares of Class A Common Stock
outstanding. As of March 26, 2001, there were an estimated 1,227 holders of
record of the Class B Common Stock. As of March 26, 2001, to our knowledge
approximately 90.6% 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
---- ---
2001:
First Quarter (through March 26) $19.110 $13.563
2000:
First Quarter $20.500 $16.063
Second Quarter $17.688 $14.938
Third Quarter $20.125 $15.063
Fourth Quarter $17.500 $13.138
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
On March 26, 2001, the closing sale price of the Class A Common Stock on
the NYSE was $18.250 per share.
We declared quarterly cash dividends of $0.06 per share of common stock
during each of the years ended December 31, 2000 and 1999.
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
26
Panama corporation without board of directors' review or shareholder
approval.
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 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
27
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.
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 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.
28
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, 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.
29
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
recently finalized Treasury Regulations, effective as of January 1, 2001,
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.
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
30
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. For dividends paid 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.
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 conducted
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 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
31
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.
ITEM 6. 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, 2000, 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 7.--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere herein.
YEAR ENDED DECEMBER 31, (1)
----------------------------------------------------------------------------
2000 1999 1998 (9) 1997 (8) 1996 (7)
---- ---- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $2,599,411 $2,415,817 $2,773,276 $2,510,210 $1,993,087
Cost of sales, excluding depreciation and
amortization............................. 1,243,485 1,191,883 1,425,246 1,327,443 1,152,021
----------- ----------- ----------- ----------- ----------
Gross profit.......................... 1,355,926 1,223,934 1,348,030 1,182,767 841,066
Operating expenses:
Selling and distribution................. 636,739 572,038 657,138 563,917 425,955
General and administrative............... 244,551 251,450 222,327 193,437 132,101
Depreciation and amortization (2)(4)..... 274,046 214,539 253,112 159,371 99,114
Amortization of goodwill................. 35,819 36,284 35,739 20,121 6,379
Facilities reorganization charges (10)... 503,659 35,172 - - -
----------- ----------- ----------- ----------- ----------
Total operating expenses.............. 1,694,814 1,109,483 1,168,316 936,846 663,549
----------- ----------- ----------- ----------- ----------
Operating income........................... (338,888) 114,451 179,714 245,921 177,517
Interest income ........................... 31,933 28,962 12,817 22,006 20,229
Interest expense........................... (142,299) (129,072) (98,152) (60,889) (43,844)
Other income (expense), net (3)............ (31,662) (39,296) 22,136 44,033 24,074
Nonrecurring income, net (4)............... - - 60,486 - 11,646
----------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......... (480,916) (24,955) 177,001 251,071 189,622
Provision for income taxes (4)............. 21,800 31,254 51,374 57,302 53,580
----------- ---------- ---------- ---------- ----------
Income (loss) before minority interest..... (502,716) (56,209) 125,627 193,769 136,042
Minority interest in earnings of
subsidiaries............................. 1,944 3,695 5,305 19,934 18,462
----------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ (504,660) $ (59,905) $ 120,322 $ 173,835 $ 117,580
=========== ========== ========== ========== ==========
Basic earnings (loss) per share (5)........ $ (3.92) $ (0.46) $ 0.93 $ 1.44 $ 1.22
=========== ========== ========== ========== ==========
Diluted earnings (loss) per share (5)...... $ (3.92) $ (0.46) $ 0.92 $ 1.43 $ 1.21
=========== ========== ========== ========== ==========
32
YEAR ENDED DECEMBER 31, (1)
-----------------------------------------------------------------------------
2000 1999 1998 (9) 1997(8) 1996(7)
---- ---- -------- ------- -------
OTHER DATA:
Total product unit case volume............. 1,222,500 1,163,117 1,174,035 1,010,960 766,485
Dividends per share........................ $ 0.24 $ 0.24 $ 0.24 $ 0.21 $ 0.18
Weighted average shares outstanding
(basic) (5)............................. 128,833 129,683 129,538 120,841 96,522
Weighted average shares outstanding
(diluted) (5)........................... 128,833 129,683 130,792 121,969 97,065
Capital expenditures (6)................... $ 123,897 $ 163,203 $ 302,215 $ 208,669 $ 122,897
Cash Operating Profit...................... $ 386,064 $ 385,544 $ 468,565 $ 425,413 $ 283,010
AT DECEMBER 31, (1)
------------------------------------------------------------------------------
2000 1999 1998 (9) 1997(8) 1996(7)
---- ---- -------- ------- -------
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents....................... $ 191,773 $ 152,648 $ 131,152 $ 332,995 $ 251,273
Property, plant and equipment, net ........ 1,125,719 1,218,383 1,307,590 1,119,515 684,050
Total assets .............................. 3,026,321 3,613,122 3,647,690 3,587,069 1,705,385
Total long-term liabilities................ 1,192,981 1,437,834 964,525 897,056 404,533
Minority interest.......................... 27,805 27,974 26,243 26,783 59,734
Shareholders' equity....................... 1,167,311 1,751,896 1,978,234 1,937,770 973,994
------------------------
(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 17 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.
(7) 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.
(8) 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
33
net sales and net income of $18.6 million and $0.7 million, respectively,
from Panamco Nicaragua.
(9) 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.
(10) Facilities reorganization charges in 2000 are related to goodwill
impairment of $350.0 million in Venezuela, write-off of obsolete property,
plant, equipment, bottles and cases, charges related to plant closings and
disposal of property, plant and equipment, job terminations and severance
payments, and nonrecurring charges related to legal contingencies.
Facilities reorganization charges in 1999 are related to job terminations
and severance payments and write-off of obsolete property, plant, and
equipment. See Note 2 of "Notes to Consolidated Financial Statements".
ITEM 7. 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, including the notes to the consolidated financial statements, as
of December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000 and the notes thereto included elsewhere herein.
In 1998, "Panamco Central America" group was created, 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, North Latin American Division was created, 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 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.
34
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)
-------------------------------
2000 1999 1998
---- ---- ----
Mexico
Inflation.............................. 9% 12% 19%
Currency devaluation (revaluation) .... 1% (4%) 22%
Brazil
Inflation.............................. 10% 8% 2%
Currency devaluation................... 9% 48% 8%
Colombia
Inflation.............................. 9% 10% 18%
Currency devaluation................... 19% 22% 19%
Venezuela
Inflation.............................. 12% 20% 30%
Currency devaluation................... 9% 15% 12%
Costa Rica
Inflation.............................. 10% 10% 11%
Currency devaluation................... 7% 10% 11%
Nicaragua
Inflation.............................. 10% 7% 18%
Currency devaluation................... 6% 10% 12%
Guatemala
Inflation.............................. 5% 5% 8%
Currency devaluation (revaluation)..... (1%) 15% 11%
(1) Inflation figures are based on the applicable Consumer Price Index
obtained from official local sources from each respective country and
currency devaluation figures are based on official U.S. dollar exchange
rates at year-end.
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
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.
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 inflation rates in the countries in which we
35
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
All product 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 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 preference, changes in governmental
laws and regulations, including income taxes, market demand for new and
existing products, raw material prices and devaluation of local currencies
against the U.S. dollar. 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.
36
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,
-------------------------------
2000 1999 1998
---- ---- ----
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 47.8 49.3 51.4
----- ----- -----
Gross profit 52.2 50.7 48.6
Operating expenses:
Selling and distribution 24.5 23.7 23.7
General and administrative 9.4 10.4 8.0
Depreciation and amortization 10.5 8.9 9.1
Amortization of goodwill 1.4 1.5 1.3
Facilities reorganization charges 19.4 1.5 -
---- ---- ---
Total 65.2 46.0 42.1
---- ---- ---
Operating income (loss) (13.0) 4.7 6.5
Interest expense, net (4.3) (4.1) (3.1)
Other income (expense), net (1.2) (1.6) 0.8
Nonrecurring income, net - - 2.2
---- ---- ---
Income (loss) before income taxe (18.5) (1.0) 6.4
Income taxes 0.8 1.3 1.9
---- ---- ---
Income (loss) before minority interest (19.3) (2.3) 4.5
Minority interest 0.1 0.2 0.2
---- ---- ---
Net income (loss) (19.4)% (2.5)% 4.3%
===== ===== ====
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,
2000, our ownership interests in our Mexican, Brazilian and Colombian holding
companies were approximately 98%, 98% and 97%, respectively. Our ownership
interests include 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, 2000, minority shareholdings in our consolidated
subsidiaries represented an interest in the aggregate of approximately 0.4% of
consolidated net loss before minority interest. Because we have varying
percentage ownership interests in our approximately 60 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
37
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, 2000 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.
38
PANAMCO MEXICO
(STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR UNIT CASES)
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA:
Net sales $ 974,846 $ 794,812 $ 638,481
Cost of sales, excluding depreciation and amortization 431,138 374,506 306,124
Operating expenses, excluding facilities
reorganization charges 393,599 287,118 237,070
Facilities reorganization charges 30,454 - -
--------- --------- ---------
Operating income 119,655 133,188 95,287
Interest expense, net (12,361) (11,849) (9,984)
Other income, net 967 7,589 10,768
--------- --------- ---------
Income before income taxes 108,261 128,928 96,071
Provision for income tax 41,127 41,849 30,517
--------- --------- ---------
Income before minority interest 67,134 87,079 65,554
Minority interest in Panamco Mexico subsidiaries 2,528 3,288 2,476
--------- --------- ---------
Net income attributable to Panamco Mexico
holding company 64,606 83,791 63,078
Minority interest in Panamco Mexico
holding company 1,202 1,556 1,172
--------- --------- ----------
Net income attributable to Panamco $ 63,404 $ 82,235 $ 61,906
========= ========= ==========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 285.8 270.0 256.7
Water 164.2 136.4 110.6
Other products 2.6 2.3 1.4
OTHER DATA:
Depreciation and amortization $ 71,336 $ 40,356 $ 37,132
Capital expenditures $ 57,296 $ 57,919 $ 64,047
Cash operating profit $ 200,663 $ 173,544 $ 132,419
AT DECEMBER 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
BALANCE SHEET DATA:
Cash and equivalents $ 58,394 $ 38,937 $ 10,727
Property, plant and equipment, net 320,618 299,856 258,856
Total assets 617,281 572,359 459,778
Total debt 120,440 107,418 15,842
Total liabilities 291,020 243,088 206,486
Minority interest in Panamco Mexico subsidiaries 6,682 5,217 2,180
Shareholders' equity 319,579 324,054 251,112
39
PANAMCO BRASIL
(Stated in thousands of U.S. dollars, except for unit cases)
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998(1)
------------ ------------ -----------
STATEMENT OF OPERATIONS DATA:
Net sales $ 496,488 $ 500,683 $ 897,951
Cost of sales, excluding depreciation and amortization 305,967 305,935 546,289
Operating expenses, excluding facilities
reorganization charges 169,711 187,099 341,222
Facilities reorganization charges 23,651 5,142 -
---------- ---------- ----------
Operating income (loss) (2,841) 2,507 10,440
Interest expense, net (12,238) (14,743) (21,717)
Other expense, net (16,565) (36,570) (10,839)
Nonrecurring income, net - - 60,486
---------- ---------- ----------
Income (loss) before income taxes (31,644) (48,806) 38,370
Provision (benefit) for income tax (15,020) (31,765) 2,693
---------- ---------- ----------
Income (loss) before minority interest (16,624) (17,041) 35,677
Minority interest in Panamco Brasil holding company (202) (299) 812
---------- ---------- ----------
Net income (loss) attributable to Panamco $ (16,422) $ (16,742) $ 34,865
========== ========== ==========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 236.9 235.9 219.4
Beer 67.5 63.3 62.2
Water 14.6 12.7 11.1
OTHER DATA:
Depreciation and amortization $ 30,246 $ 32,763 $ 83,612
Capital expenditures $ 7,596 $ 22,686 $ 62,051
Cash operating profit $ 42,243 $ 35,270 $ 94,052
AT DECEMBER 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
BALANCE SHEET DATA:
Cash and equivalents $ 6,323 $ 8,563 $ 5,885
Property, plant and equipment, net 149,110 195,387 298,023
Total assets 424,806 487,374 709,176
Total debt 58,586 79,279 119,295
Total liabilities 178,547 188,663 320,400
Minority interest in Panamco Brasil subsidiaries 2,711 3,167 5,038
Shareholders' equity 243,548 295,544 383,738
------------------------------------
(1) Includes only four months of R.O.S.A.
40
PANAMCO COLOMBIA
(Stated in thousands of U.S. dollars, except for unit cases)
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 386,720 $ 397,014 $ 495,812
Cost of sales, excluding depreciation and amortization 166,110 175,522 217,817
Operating expenses, excluding facilities
reorganization charges 201,040 207,032 215,467
Facilities reorganization charges 40,114 1,370 -
---------- --------- -----------
Operating income (loss) (20,544) 13,090 62,528
Interest expense, net (4,486) (6,753) (5,328)
Other income (expense), net (10,852) 2,824 5,311
----------
Income (loss) before income taxes (35,882) 9,161 62,511
Provision (benefit) for income tax (8,277) 966 796
---------- --------- -----------
Income (loss) before minority interest (27,605) 8,195 61,715
Minority interest in Panamco Colombia
subsidiaries holding company 187 107 137
---------- --------- -----------
Net income (loss) attributable to Panamco Colombia
holding company (27,792) 8,088 61,578
Minority interest in Panamco Colombia (764) 223 1,698
---------- --------- -----------
Net income (loss) attributable to Panamco $ (27,028) $ 7,865 $ 59,880
========== ========== ==========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 155.7 153.9 186.9
Water 34.4 37.2 44.0
OTHER DATA:
Depreciation and amortization $ 64,597 $ 60,548 $ 58,510
Capital expenditures $ 9,104 $ 28,276 $ 69,216
Cash operating profit $ 56,688 $ 73,638 $ 121,038
AT DECEMBER 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
BALANCE SHEET DATA:
Cash and equivalents $ 42,456 $ 7,396 $ 62,886
Property, plant and equipment, net 259,889 292,915 297,874
Total assets 459,409 516,327 576,191
Total debt 53,816 87,145 123,200
Total liabilities 135,249 154,852 211,516
Minority interest in Panamco Colombia subsidiaries 1,668 1,568 1,548
Shareholders' equity 322,492 359,907 363,127
41
PANAMCO VENEZUELA
(Stated in thousands of U.S. dollars, except for unit cases)
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 515,853 $ 512,292 $ 550,677
Cost of sales, excluding depreciation and amortization 240,204 236,197 264,187
Operating expenses, excluding facilities
reorganization charges 292,239 267,691 263,168
Facilities reorganization charges 49,483 28,660 -
---------- --------- ----------
Operating income (loss) (66,073) (20,256) 23,322
Interest expense, net (24,816) (18,028) (9,801)
Other income (expense), net 1,002 (3,337) 17,760
---------- --------- -----------
Income (loss) before income taxes (89,887) (41,621) 31,281
Provision (benefit) for income tax (8,173) 8,353 2,930
---------- --------- -----------
Net income (loss) attributable to Panamco $ (81,714) (49,974) $ 28,351
========== ========= ===========
UNIT CASES SALES DATA (IN MILLIONS):
Soft drinks 156.5 151.7 195.9
Water 22.6 18.4 14.3
Beer 1.9 0.5 -
Other products 6.3 6.8 6.3
OTHER DATA:
Depreciation and amortization $ 96,804 $ 71,156 $ 65,099
Capital expenditures $ 30,408 $ 33,183 $ 68,361
Cash operating profit $ 53,568 $ 69,800 $ 88,421
AT DECEMBER 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
BALANCE SHEET DATA:
Cash and equivalents $ 21,575 $ 35,872 $ 31,211
Property, plant and equipment, net 305,017 339,417 355,054
Total assets 469,278 566,371 589,543
Total debt 182,137 188,000 16,065
Total liabilities 354,129 364,259 330,366
Shareholders' equity 115,149 202,112 259,177
42
PANAMCO CENTRAL AMERICA
(COSTA RICA, NICARAGUA AND GUATEMALA)
(Stated in thousands of U.S. dollars, except for unit cases)
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 225,504 $ 212,074 $ 190,355
Cost of sales, excluding depreciation and amortization 103,069 100,781 90,829
Operating expenses, excluding facilities
reorganization charges 92,804 84,261 76,593
Facilities reorganization charges 6,598 - -
---------- ---------- -----------
Operating income 23,033 27,032 22,933
Interest expense, net (729) (1,843) (4,292)
Other income (expense), net (2,595) (5,692) 2,505
---------- ---------- -----------
Income before income taxes 19,709 19,497 21,146
Provision for income tax 4,021 5,468 5,661
---------- ---------- -----------
Net income attributable to Panamco $ 15,688 $ 14,029 $ 15,485
========== ========== ===========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 70.2 69.7 63.0
Water 2.7 3.6 2.2
Other products 0.6 0.6 0.6
OTHER DATA:
Depreciation and amortization $ 17,652 $ 17,990 $ 15,039
Capital expenditures $ 17,363 $ 21,139 $ 38,540
Cash operating profit $ 43,790 $ 45,022 $ 37,972
AT DECEMBER 31,
---------------------------------------
2000 1999 1998
------------ ------------ -----------
BALANCE SHEET DATA:
Cash and equivalents $ 15,742 $ 8,496 $ 9,603
Property, plant and equipment, net 104,803 104,478 105,925
Total assets 192,628 181,255 174,710
Total debt 13,780 16,299 44,260
Total liabilities 80,683 67,861 86,917
Shareholders' equity 111,945 113,394 87,793
------------------------------
Includes only nine months of Panamco Guatemala.
43
2000 COMPARED TO 1999
CONSOLIDATED RESULTS OF OPERATIONS
Net sales increased 7.6% to $2.6 billion in 2000 from $2.4 billion in
1999, mainly due to an increase of 5.1% in consolidated unit case sales
volume. Total unit cases sales increased to 1,222.5 million cases from 1,163.1
million unit cases in the 1999. Soft drink sales volume for the period
increased by 2.7%, reflecting increases of 5.9% in Mexico, 3.2% in Venezuela,
0.7% in the Central American Region, 1.1% in Colombia and 0.4% in Brazil. Unit
case sales volume of bottled water increased 14.4% to 238.4 million, and beer,
sold in Brazil and Venezuela, increased 8.8% to 69.4 million unit cases.
The cost of sales as a percentage of net sales decreased to 47.8% in
2000, from 49.3% in 1999. This decrease resulted primarily from cost savings
in raw materials and packaging in several countries due to improved
procurement contracts.
The following comments reflect the consolidated results of operations
excluding the recording of facilities reorganization charges, asset
write-downs presented as part of depreciation, and nonoperating charges
totaling $494.2 million ($27.7 million in 1999), net of the related tax
benefit of $46.5 million ($11.9 million in 1999):
Operating expenses as a percentage of net sales increased slightly to
44.6% in 2000 from 44.5% in 1999, mainly as a result of the corporate office
move to Miami and a one-time charge of $4.0 million related to senior
management changes.
Operating income increased 30.9% to $195.9 million from $149.6 million in
1999, primarily as a result of the initial benefits of the reorganization
program. Cash operating profit increased 18.5% to $474.6 million in 2000 from
$400.4 million in 1999.
Net interest expense increased to $110.4 million in 2000 from $100.1
million in 1999, due primarily to an increase in the average variable London
Inter-Bank Offered Rate ("LIBOR") interest rate. Total net debt decreased to
$1,062.0 million at December 31, 2000 from $1,195.5 million at December 31,
1999.
Other expense, net decreased to $25.7 million in 2000 from $34.9 million
in 1999, primarily caused by a $22.5 decrease in foreign exchange losses in
Brazil due to a 48.0% devaluation of the Brazilian real during 1999, partially
offset by a loss in sale of investments of $4.8 million, a $4.7 million
decrease in operating income from non-bottling subsidiaries, and a $3.2
million decrease in capital expenditure incentives from The Coca-Cola Company.
The consolidated effective income tax rate decreased to 114.2% in 2000
from 295.2% in 1999, as a result of the effect of the asset tax (minimum tax)
in Venezuela and our decision to establish a valuation allowance on benefits
of tax loss carry-forwards from prior years in Venezuela because of the
uncertainty that we would have sufficient taxable income in the near term to
offset against such benefits in 1999.
As a result of the foregoing, Panamco had a net loss in 2000 of $10.5
million, or $0.08 per share (basic and diluted), compared to a net loss of
$32.2 million, or $0.25 per share (basic and diluted), during 1999.
44
Facilities reorganization charges
During the first quarter of 2000, Panamco began a company-wide reorganization
program designed to improve productivity and strengthen the Company's
competitive position in the beverage industry. The program includes
productivity initiatives to streamline Panamco's manufacturing infrastructure,
consolidation of distribution centers and warehouses, and the termination of
approximately 10,000 jobs across all levels of the Company.
During the fourth quarter of 2000, Panamco performed an analysis of the
Company's growth opportunities, cost structure and asset valuation. This
resulted in several new steps to further position the Company for improved
financial performance and future growth. These steps include additional
restructuring of the distribution system in Brazil and Venezuela, plant
closings and related disposal of property, plant and equipment, write-down of
goodwill in the Venezuelan operating unit, write-off of obsolete fixed assets,
bottles and cases, and asset write-downs related to coolers.
During the year ended December 31, 2000, Panamco recorded charges of $540.7
million, which was comprised of $503.6 million of facilities reorganization
charges, $31.1 million of asset write-downs presented as part of depreciation
and amortization expenses, and $6.0 million of charges related to the disposal
of nonoperating assets presented in other income (expense). The following is a
detail of the aforementioned items:
I. Facilities reorganization charges of $503.6 million consist of:
1. Restructuring charges totaling $111.5 million consist of:
o Cash restructuring charges totaling approximately $86.7 million,
which include $77.3 million related to job terminations and $9.4
million related to the restructuring of our distribution system in
Brazil and Venezuela; and
o Noncash restructuring charges totaling approximately $24.8 million,
which result from plant closings and the related disposal of
property, plant and equipment.
2. Asset write-offs totaling $383.5 million consist of:
o $350 million write-down of goodwill reflecting the recognition of
impairment of the cost in excess of net assets acquired in the
Venezuelan operating unit;
o $23.8 million of obsolete property, plant and equipment in all
operating units;
o $7.8 million of obsolete bottles and cases, mainly in the Venezuelan
unit's water jug business; and
o $1.9 million of cash charges related to the disposal of property,
plant and equipment.
3. Nonrecurring charges totaling $8.6 million related to legal
contingencies mostly pertaining to tax matters.
II. Asset write-downs totaling $31.1 million presented as part of
depreciation and amortization expenses consist of:
o $11.0 million from an increase in provision related to changing the
useful lives of coolers; and
o $20.1 million resulting from the write-down of bottles and cases due
to loss in market value.
III. Nonoperating asset charges totaling $6.0 million related to the disposal
of nonoperating assets, including the sale of affiliated companies and
land in some of the operating units.
As a result of the above, Panamco's income for the year 2000 was impacted
by facilities reorganization charges, asset write-downs and nonoperating charges
totaling $494.2 million, net of the
45
related tax benefit of approximately $46.5 million, compared to facilities
reorganization charges totaling $27.7 million, net of the related tax benefit
of $11.9 million in 1999.
The following table shows a summary of the net charges and benefits
recorded in the consolidated statements of operations for the year ended
December 31, 2000 and 1999:
2000 1999
---------------------------------- ---------
FOURTH FIRST
TOTAL QUARTER QUARTER TOTAL
---------------------------------- ---------
*Not applicable, as the benefits are not funded.
(12) COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit
risk consist primarily of trade accounts receivables. The Company extends
credit on an unsecured basis to some of its distributors and customers.
Diversification of credit risk is difficult since the Company sells
primarily in the beverage industry. The Company's management recognizes
that extending credit and setting appropriate reserves for accounts
receivable is largely a subjective decision based on knowledge of the
customer. The Company's management and their staff meet regularly to
evaluate credit exposure in the aggregate, and by individual credit.
Management sets and maintains credit standards and ensures the overall
quality of the credit portfolio.
F-39
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation, Claims and Assessments
From time to time, the Company and its subsidiaries are involved in
litigation, claims and assessments incidental to the operation of the
Company's business. The Company vigorously defends all matters in which
the Company or its subsidiaries are named defendants and, for insurable
losses, maintains insurance to protect against adverse judgments, claims
or assessments that may affect the Company. In the opinion of the
Company, although the adequacy of existing insurance coverage or the
outcome of any legal proceedings cannot be predicted with certainty, the
ultimate liability associated with any claims or litigation in which the
Company or its subsidiaries are involved will not materially affect the
Company's financial condition but could be material to the results of
operations or cash flows in any one accounting period.
Self-insurance
As of December 31, 2000, the Company's subsidiaries in Mexico, Colombia,
and Venezuela are partly self-insured through a fully owned subsidiary,
Panamco Insurance Company Limited ("Panamco Insurance"), for various
property risks. The Company maintains insurance coverage for these
subsidiaries for individual claims in excess of $250 and up to $79,500 in
aggregate coverage. Expense related to claims covered by Panamco
Insurance was approximately $557, $773 and $1,213 in 2000, 1999 and 1998,
respectively. While the ultimate amount of claims incurred is dependent
on future developments, in management's opinion, recorded reserves are
adequate to cover the future payment of claims. However, it is reasonably
possible that recorded reserves may not be adequate to cover future
payment of claims. Adjustments, if any, to estimates recorded resulting
from ultimate claim payments will be reflected in operations in the
periods in which such adjustments are known.
Construction Commitments
In the normal course of business, the Company occasionally enters into
commitments for the construction of new production facilities. At
December 31, 2000, the amounts outstanding under these construction
commitments totaled approximately $4,203.
EDS Contract
On December 1, 2000, the Company entered into a five-year outsourcing
contract with EDS to manage its information technology infrastructure
throughout Latin America for approximately $97,616, which will end on
November 30, 2005. During 2000, the Company incurred $3,484 in expense
related to this contract. The future minimum obligations under this
contract are $17,936 in 2001, $21,903 in 2002, $20,962 in 2003, $18,395
in 2004 and $14,936 in 2005.
F-40
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) Commitments and Contingencies (continued)
Service Fees
The Company is appealing a decision by the Brazilian tax authorities
imposing income taxes, interest and fines in an amount equivalent to
$3,465 and $3,741 as of December 31, 2000 and 1999, respectively,
relating primarily to the deductibility of certain inter-company service
payments.
Tax Credits
The Brazilian subsidiaries are also being assessed by the Brazilian 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, free products given to
customers and to credit sales. These assessments amount to approximately
$35,931 and $25,370 as of December 31, 2000 and 1999, respectively, and
the Company has appealed the assessments at the administrative level. The
Company and its outside legal advisors 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 consolidated financial statements.
Administrative Proceedings
Certain of the Brazilian subsidiaries were the subject of
administrative proceedings before 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 Brazilian Taxpayers' Council
decided unanimously in favor of the Brazilian subsidiaries on this
issue relating to the period from January 1984 to December 1988. This
judgment is no longer subject to any appeal and during 2000 the
Brazilian Taxpayers' Council extended this period to June 30, 1989,
which contingency amounted to approximately $2,464 and $2,633 as of
December 31, 2000 and 1999, respectively.
Because the Company believes it will ultimately not incur any liability,
there is no accrual in the Company's consolidated financial statements
with respect to the 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. 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 ultimate potential
loss, if any.
F-41
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Amazon Region
In 1998, the Brazilian subsidiaries reversed an excise tax accrual
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 from February 1991 to 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 made an accrual 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
ruled in its favor.
In 1998, the Brazilian subsidiaries reversed the accrual based on the
development during 1998 of similar claims of other bottlers, which were
resolved in their favor by the highest Brazilian court of appeals. During
1999, the Brazilian Coca-Cola bottlers association, including the
Company's Brazilian subsidiaries, obtained final favorable decisions on
their claims, which no longer can be appealed by the Government.
The accrual for the excise tax contingency amounted to $64,103 as of
December 31, 1997 and the corresponding income tax credit, recorded as
deferred income tax assets in the Brazilian subsidiaries consolidated
balance sheet as of that date, amounted to $21,154. The accrual and the
deferred income tax credit balances were not monetarily adjusted 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
accrual amounted to $60,486 and was credited to other nonrecurring
income, in the 1998 consolidated statement of operations. Income tax
credits recorded relating to this accrual, 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 refunds for previous
years' payments of value-added taxes. The Company's outside legal
advisors' assessment of this matter indicates that the outcome of these
claims is expected to be favorable to the Company. The Company took
credits of this tax in an amount equivalent to $8,232 and $11,739 as of
December 31, 2000 and 1999, respectively on the Company's Brazilian
income tax returns. Because a decision on these claims is still pending,
the Company recorded an allowance for such matter in their financial
statements as of December 31, 2000. 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 provisions of $17,742 and $23,339 have been recorded
as other long-term liabilities in the accompanying financial statements
as of December 31, 2000 and 1999, respectively.
In connection with the Venezuela Acquisition, in 1999 the Company
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. The Company has certain rights to
indemnification from Venbottling (the previous owners) and The Coca-Cola
Company for a substantial portion of such claims and intends to defend
against them vigorously. Based on the information currently available,
the Company does not believe that the ultimate disposition of these cases
will have a material adverse affect on the Company.
F-42
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, 2000. 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.
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, 2000 and relate to value-added taxes applied to
samples, gratuities and credit sales. The Company has appealed the
assessments.
During 1999, a group of independent distributors of Panamco Venezuela
commenced a proceeding to incorporate a 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. In 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 at any time 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.
F-43
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(13) LEASES
The Company leases buildings, machinery and equipment, vehicles, and
office equipment throughout its operations under both operating and
capital leases that expire between 2001 and 2007. The following are the
minimum lease payments for each of the years indicated applicable to
capital and operating leases as of December 31, 2000:
Capital Operating
-------------- ---------------
Fiscal year:
2001 $ 1,944 $ 15,468
2002 1,253 15,252
2003 1,253 13,367
2004 1,253 11,176
2005 1,253 19,908
Thereafter - 1,462
-------------- ---------------
Total minimum lease payment $ 6,956 $ 76,633
Amount representing interest 1,314 ===============
--------------
Present value of minimum lease payments $ 5,642
==============
Rental expense for all operating leases charged against earnings amounted
approximately to $13,495, $8,900, and $12,300 in 2000, 1999, and 1998,
respectively.
(14) EQUITY INCENTIVE PLAN
Stock Option Plans
At December 31, 2000, the Company had two stock option plans. A Stock
Option Plan for Employees (the "Employee Plan"), which has a maximum of
9,000,000 shares of Class A Common Stock available for stock option
grants. Under this plan, the options vest over a five-year period for the
options granted through 1996 and over a three-year period for options
granted beginning in 1997.
The Company also has a Stock Option Plan for Nonemployee Directors (the
"Directors Plan"), 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 Directors
Plan 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 under the Directors Plan, which is administered
by the Board of Directors or a subcommittee thereof. The Board of
Directors has the discretion to amend, terminate or suspend the Directors
Plan at any time. Under the Directors Plan, 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,
2000, no options have been exercised or cancelled under the Directors
Plan.
F-44
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(14) EQUITY INCENTIVE PLAN (CONTINUED)
There were 954,076 shares of common stock reserved for future grants as
of December 31, 2000 under all stock option plans.
On November 17, 1993, when the previous day's closing price of the Class
A Common Stock on the New York Stock Exchange was $17.55 per share, the
Company granted an initial 800,000 options under the Employee Plan at an
exercise price of $13.75 per share, the closing price of the Class A
Common Stock on its first day of trading on the New York Stock Exchange.
Therefore, the Company recognized compensation expense associated with
such options each month from 1993 to 1998. However, since the subsequent
grants of stock options in both plans were at an exercise price equal to
the market price at the date of grant, the Company has not recorded any
additional compensation expense related to such options.
On November 10, 2000, when the closing price of the Class A Common Stock
on the New York Stock Exchange was $14.25 per share, the Company granted
600,000 options to certain executive officers at an exercise price of
$14.25 per share. These options vest 50% upon issuance and 50% after one
year. Since the grant of the stock options was at an exercise price equal
to that of the quoted market price on the date of the grant, no
compensation expense was recorded by the Company related to these
options.
A summary of option transactions is presented below:
2000 1999 1998
------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
------------------------- ------------------------- ---------------------------
Outstanding on
January 1, 5,463,414 $ 19.00 4,129,314 $ 20.45 3,052,499 $ 19.88
Granted 1,750,110 14.54 1,560,000 15.69 1,401,824 21.13
Exercised (25,000) 16.20 (76,500) 16.33 (203,809) 15.06
Forfeited (185,300) 21.89 (149,400) 25.87 (121,200) 22.25
---------- ---------- ---------
Outstanding on
December 31, 7,003,224 $ 17.82 5,463,414 $ 19.00 4,129,314 $ 20.45
========= ========= =========
Options exercisable
at end of year 4,041,840 $ 19.06 2,535,719 $ 19.37 1,687,687 $ 18.01
========= ========= =========
Nonvested stock
at end of year 700,000 $ 14.25 - $ - - $ -
========= ========= =========
F-45
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(14) EQUITY INCENTIVE PLAN (CONTINUED)
The following table sets forth certain information relating to
outstanding and exercisable stock options at December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Weighted average
Number remaining Number
outstanding at Weighted contractual life outstanding at Weighted
December 31, average (in years) December 31, average
2000 exercise price 2000 exercise price
---------------------------------------------------------- ------------------------------------
$13.75 to $15.00 2,742,110 $ 14.37 7.9 1,292,000 $ 14.12
$15.01 to $20.00 2,085,046 16.19 7.7 1,068,713 16.66
$20.01 to $25.00 1,627,624 21.63 7.6 1,132,683 21.71
$25.01 to $29.93 548,444 29.93 7.0 548,444 29.93
--------- ---------
7,003,224 $ 17.82 7.7 4,041,840 $ 19.06
========= =========
The Company accounts for its stock option plans in accordance with the
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly, no
compensation cost has been recognized in the consolidated statements of
operations with respect to stock option grants where the exercise price
is equal to or greater than quoted market value at the date of grant. Had
compensation costs for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
the stock option plans, consistent with the method preferred by SFAS No.
123, the Company's pro forma net earnings (loss) and earnings (loss) per
share would be as follows:
December 31,
--------------------------------------------------
2000 1999 1998
-------------- -------------- ---------------
Net income (loss):
As reported $ (504,660) $ (59,904) $ 120,322
============== ============== =============
Pro forma $ (510,039) $ (69,017) $ 116,305
============== ============== =============
Net income (loss) per share:
As reported:
Basic $ (3.92) $ (0.46) $ 0.93
============== ============== =============
Diluted $ (3.92) $ (0.46) $ 0.92
============== ============== =============
Pro forma:
Basic $ (3.96) $ (0.53) $ 0.90
============== ============== =============
Diluted $ (3.96) $ (0.53) $ 0.89
============== ============== =============
SFAS No. 123 requires pro forma disclosure to include expense from grants
beginning in 1995. As such, for 1999 and 1998, the Company's pro forma
information is not representative of the pro forma effect of the fair
value provisions of SFAS No. 123 on the Company's net income because pro
forma compensation expense related to grants made prior to 1995 was not
taken into consideration.
F-46
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(14) EQUITY INCENTIVE PLAN (CONTINUED)
The weighted-average fair value at date of grant for stock options
granted during 2000, 1999 and 1998 was $6.69, $6.60 and $7.66,
respectively, and was estimated using the Black-Scholes option valuation
model with the following weighted-average assumptions:
December 31,
------------------------------------------
2000 1999 1998
------------------------------------------
Risk-free interest rate 5.78% 5.82% 4.55%
Dividend yield 1.30% 1.11% 1.59%
Expected volatility 42.0% 59.20% 52.60%
Expected option term lives 6.7 years 3 years 3 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
expected stock price volatility. The Company's stock-based compensation
arrangements have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions used in
valuation models can materially affect the fair value estimate. As a
result, the existing models may not necessarily provide a reliable
measure of the fair value of its stock-based compensation.
Nonvested Stock Grant
On November 10, 2000, when the closing price of the Class A Common Stock
on the New York Stock Exchange was $14.25 per share, the Company granted
700,000 shares of nonvested stock to certain executive officers. The
terms of the restricted stock are as follows: one-third of the shares
shall vest in the event that the share price equals or exceeds the grant
date share price by $5.00 or more on or before the second anniversary of
the grant date; two-thirds of the shares (reduced by one-third if shares
already vested) shall vest if the share price exceeds the grant date
share price by $10.00 or more on or before the third anniversary of the
grant date; and all the unvested shares shall vest in the event that the
share price equals or exceeds the grant date share price by $15.00 or
more on or before the fourth anniversary of the grant date. Non-vested
shares shall be forfeited to the extent that they do not vest on or
before the fourth anniversary of the grant date. Due to the uncertainty
of the future market price of the stock, management cannot make a
reasonable estimate as to what the compensation expense may be or if the
restricted stock will vest. As of December 31, 2000, the nonvested stock
granted had not been issued.
F-47
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(15) CAPITAL AND OTHER TRANSACTIONS
At the time of the signing of the Agreement (mentioned in Note 1), and in
connection with the acquisition of the 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 in total.
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 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 the surrounding areas. The purchase price for the acquisition
was approximately $38,801 in cash. In addition, the Company assumed
approximately $23,499 of debt 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 the Brazilian bottler Refrigerantes do Oeste, S.A. ("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. In
connection with these acquisitions and to generate the cash required by
these acquisitions, the Company entered into a $70,000 financing
agreement. The Company began consolidating R.O.S.A.'s results of
operations on September 1, 1998, and recorded $37,400 of goodwill in
connection with these acquisitions.
On December 9, 1999, the Board of Directors authorized a share repurchase
program of its Class A Common Stock in an amount not to exceed $100,000
in the aggregate. The shares may be purchased in the open market or in
privately negotiated transactions, depending on market conditions and
other factors. The Company repurchased 785,295 shares amounting to
$13,675 during 2000, bringing the total shares purchased since December
1999 to 1,153,879, at a total cost of $21,243 as of December 31, 2000.
F-48
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(15) CAPITAL AND OTHER TRANSACTIONS (CONTINUED)
As of December 31, 2000, the capital stock of the Company consists of the
following:
Class A Class B Series C
Common Stock Common Stock Preferred Stock
--------------------------------------------------
Authorized 500,000,000 50,000,000 50,000,000
=========== =========== ===========
Issued 136,745,820 11,266,042 2
Less - Treasury shares 17,003,236 2,377,607 -
----------- ----------- -----------
Outstanding 119,742,584 8,888,435 2
=========== =========== ===========
Par value per share $ 0.01 $ 0.01 $ 0.01
=========== =========== ===========
As of December 31, 1999, the capital stock of the Company consists of the
following:
Class A Class B Series C
Common Stock Common Stock Preferred Stock
--------------------------------------------------
Authorized 500,000,000 50,000,000 50,000,000
=========== ========== ==========
Issued 136,662,871 11,348,991 2
Less - Treasury shares 16,281,271 2,377,436 -
----------- ---------- ----------
Outstanding 120,381,600 8,971,555 2
=========== ========== ==========
Par value per share $ 0.01 $ 0.01 $ 0.01
=========== ========== ==========
As of December 31, 1998, the capital stock of the Company consists of the
following:
Class A Class B Series C
Common Stock Common Stock Preferred Stock
--------------------------------------------------
Authorized 500,000,000 50,000,000 50,000,000
=========== =========== ===========
Issued 136,578,208 11,433,654 2
Less - Treasury shares 15,700,213 2,666,410 -
----------- ----------- -----------
Outstanding 120,877,995 8,767,244 2
=========== =========== ===========
Par value per share $ 0.01 $ 0.01 $ 0.01
=========== =========== ===========
F-49
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(15) CAPITAL AND OTHER TRANSACTIONS (CONTINUED)
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.
The Company declared cash dividends of $0.24 per share of common stock
for each of the years ended December 31, 2000, 1999, and 1998.
(16) 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 $38,394 and $33,140 at December 31, 2000
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. 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 were 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.
As of December 31, 2000, dividends are not subject to withholding taxes
in Venezuela, Nicaragua and Guatemala.
F-50
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(17) OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three years ended December 31, 2000,
1999 and 1998 is as follows:
December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
Provision for contingencies $ (8,418) $ (5,270) $ (6,885)
Exchange losses, net (8,217) (32,701) (3,967)
Gain on sale of property and equipment
and investments (3,642) 2,760 3,932
Equity in losses of unconsolidated
companies, net (1,189) (4,371) (3,550)
Capital expenditure incentives 1,886 5,115 40,791
Operating income (loss) from
non-bottling subsidiaries (741) 3,950 643
Nonoperating charges (5,977) (4,391) -
Other, net (5,364) (4,388) (8,828)
----------- ----------- -----------
$ (31,662) $ (39,296) $ 22,136
=========== =========== ===========
(18) SEGMENTS AND RELATED INFORMATION
The Company operates in the bottling and distribution industries and in
markets throughout the world. The basis for determining the Company's
operating segments is the manner in which financial information is used
by the Company in its operations. Management operates and organizes
itself according to business units which comprise the Company's products
across geographic locations. The Company evaluates performance and
allocates resources based on income or loss from operations. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Relevant
information concerning the geographic areas in which the Company operates
in accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," is as follows:
F-51
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(18) SEGMENTS AND RELATED INFORMATION (CONTINUED)
2000
------------------------------------------------------------------------------------------------------------
Central
Mexico Brazil Colombia Venezuela America Corporate Total
------------------------------------------------------------------------------------------------------------
Net sales $974,846 $496,488 $386,720 $515,853 $225,504 $ - $2,599,411
========= ========= ========== ========== ========== ============ ============
Operating
income (loss) $119,655 $ (2,841) $(20,544) $(66,073) $ 23,033 $ (392,118) $ (338,888)
========= ========= ========== ========== ========== ============ ============
Interest income $ 9,619 $ 1,572 $ 3,135 $ 3 $ 1,775 $ 15,829 $ 31,933
========= ========= ========== ========== ========== ============ ============
Interest expense $(21,980) $(13,810) $ (7,621) $(24,819) $ (2,504) $ (71,565) $ (142,299)
========= ========= ========== ========== ========== ============ ============
Depreciation and
amortization $ 71,336 $ 30,246 $ 64,597 $ 96,804 $ 17,652 $ 29,230 $ 309,865
========= ========= ========== ========== ========== ============ ============
Capital
expenditures $ 57,296 $ 7,596 $ 9,104 $ 30,408 $ 17,363 $ 2,130 $ 123,897
========= ========= ========== ========== ========== ============ ============
Long-lived assets $484,432 $246,149 $361,364 $385,220 $133,084 $ 850,954 $2,461,203
========= ========= ========== ========== ========== ============ ============
Total assets $591,925 $425,134 $457,102 $461,486 $180,773 $ 909,901 $3,026,321
========= ========= ========== ========== ========== ============ ============
1999
------------------------------------------------------------------------------------------------------------
Central
Mexico Brazil Colombia Venezuela America Corporate Total
------------------------------------------------------------------------------------------------------------
Net sales $794,812 $500,683 $397,014 $512,292 $211,016 $ - $2,415,817
========= ========= ========== ========== ========== ============ ============
Operating
income (loss) $133,188 $ 2,507 $ 13,090 $(20,256) $ 27,032 $ (41,110) $ 114,451
========= ========= ========== ========== ========== ============ ============
Interest income $ 1,748 $ 2,933 $ 6,143 $ - $ 2,175 $ 15,963 28,962
========= ========= ========== ========== ========== ============ ============
Interest expense $(13,597) $(17,676) $(12,896) $(18,028) $ (4,018) $ (62,857) $ (129,072)
========= ========= ========== ========== ========== ============ ============
Depreciation and
amortization $ 40,356 $ 32,763 $ 59,178 $ 71,156 $ 17,990 $ 29,380 $ 250,823
========= ========= ========== ========== ========== ============ ============
Capital
expenditures $ 57,919 $ 22,686 $ 28,275 $ 33,184 $ 21,139 $ - $ 163,203
========= ========= ========== ========== ========== ============ ============
Long-lived assets $448,196 $309,441 $445,428 $466,846 $133,080 $1,293,878 $3,096,869
========= ========= ========== ========== ========== ============ ============
Total assets $549,420 $486,198 $498,005 $556,696 $171,174 $1,351,629 $3,613,122
========= ========= ========== ========== ========== ============ ============
F-52
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(18) SEGMENTS AND RELATED INFORMATION (CONTINUED)
1998
------------------------------------------------------------------------------------------------------------
Central
Mexico Brazil Colombia Venezuela America Corporate Total
------------------------------------------------------------------------------------------------------------
Net sales $638,481 $897,951 $495,812 $550,677 $190,355 $ - $2,773,276
========= ========= ========== ========== ========== ============ ============
Operating
income (loss) $ 95,287 $ 10,440 $ 62,528 $ 23,322 $ 22,933 $ (34,796) $ 179,714
========= ========= ========== ========== ========== ============ ============
Interest income $ 1,635 $ - $ 6,925 $ - $ 1,983 $ 2,364 $ 12,817
========= ========= ========== ========== ========== ============ ============
Interest expense $(11,619) $(21,717) $(12,253) $ (9,801) $ (6,185) $ (36,577) $ (98,152)
========= ========= ========== ========== ========== ============ ============
Depreciation and
amortization $ 37,132 $ 83,612 $ 58,510 $ 65,099 $ 15,039 $ 29,459 $ 288,851
========= ========= ========== ========== ========== ============ ============
Capital
expenditures $ 64,047 $ 62,051 $ 69,216 $ 68,361 $ 38,540 $ - $ 302,215
========= ========= ========== ========== ========== ============ ============
Long-lived assets $387,394 $471,970 $437,683 $487,878 $137,333 $1,166,239 $3,088,497
========= ========= ========== ========== ========== ============ ============
Total assets $459,778 $709,176 $576,191 $589,543 $173,320 $1,139,682 $3,647,690
========= ========= ========== ========== ========== ============ ============
(19) QUARTERLY INFORMATION (UNAUDITED)
For the three months ended
--------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------------------------------------------------------
Net sales $ 608,181 $ 641,061 $ 648,180 $ 701,989
=========== ========== ========== ===========
Gross profit $ 309,760 $ 340,548 $ 343,258 $ 362,360
=========== ========== ========== ===========
Net income (loss) $ (71,502) $ 11,524 $ 464 $ (445,146)
=========== ========== ========== ===========
Basic earnings (loss)
per share $ (0.55) $ 0.09 $ 0.00 $ (3.46)
=========== ========== ========== ===========
Diluted earnings (loss)
per share $ (0.55) $ 0.09 $ 0.00 $ (3.46)
=========== ========== ========== ===========
F-53
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars, except for share data)
(19) QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
For the three months ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
Net sales $ 562,982 $ 612,372 $ 605,118 $ 635,345
========== ============ ========== ==========
Gross profit $ 280,601 $ 313,522 $ 308,879 $ 320,932
========== ============ ========== ==========
Net income (loss) $ (40,082) $ (461) $ (10,978) $ (8,383)
=========== ============ ========== ==========
Basic earnings (loss)
per share $ (0.31) $ 0.00 $ (0.08) $ (0.06)
=========== ============ ========== ==========
Diluted earnings (loss)
per share $ (0.31) $ 0.00 $ (0.08) $ (0.06)
=========== ============ ========== ==========
(20) SUBSEQUENT EVENTS
The Company had an obligation to Coca-Cola Financial Corporation (U.S.),
amounting to $100,000 with an average annual interest rate of three-month
LIBOR plus 3.25% (9.65% at December 31, 2000), which was included in the
current portion of long-term obligations at December 31, 2000. On
February 28, 2001, the Company prepaid the remaining outstanding debt
with Coca-Cola Financial Corporation (U.S.) in the amount of $100,000.
There was no prepayment penalty.
On February 21, 2001, the Company's subsidiary in Colombia issued
unsecured, publicly traded bonds valued at Col$35,000,000,000 Colombian
pesos (approximately $15,500 in U.S. dollars) with a coupon rate of DTF
plus 2.75% (15.5% at February 21, 2000) and a maturity date of August 9,
2005.
F-54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Panamerican Beverages, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Panamerican Beverages, Inc.
(the "Company") annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 31, 2001
(except with respect to the matters discussed in Note 20, as to which the date
is February 28, 2001). Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The Financial Statement Schedule
II listed in Item 14 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This financial statement schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Miami, Florida,
January 31, 2001.
F-55
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
The following is an analysis of the valuation and qualifying accounts for
the three years ended December 31, 2000, 1999 and 1998:
Additions
------------------
Balance at Charged to Charged to
beginning costs and other Deductions- Balance at
Description of year expenses accounts applications end of year
----------- --------------------------------------------------------------------
2000:
Allowance for doubtful accounts $ 11,534 585 861 3,106 $ 9,874
Allowance for obsolete and
slow-moving inventory $ 4,064 (1,609) 1,250 251 $ 3,454
Allowance for restructuring $ - 503,659 - 448,028 $ 55,631
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
Allowance for restructuring $ - 35,172 - 35,172 $ -
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
Allowance for restructuring $ - - - - $ -
F-56