UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001MARCH 31, 2002
[ ] 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 Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
Republic of Panama Not Applicable
(State or Other Jurisdictionother jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
incorporation or organization)
c/o Panamco, L.L.C.
701 Waterford Way, Suite 800
Miami, Florida 33126
(Address of Principal Executive Offices)
33126principal executive offices) (Zip Code)
Registrant'scode)
(305) 929-0800
(Registrant's Telephone Number, including area code: (305) 856-7100code)
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
__--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 November 7, 2001May 10, 2002 were:
Class A Common Stock: 113,481,026112,524,078
Class B Common Stock: 8,697,4058,659,863
Class C Preferred Stock: 2
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets (unaudited)
as of September 30, 2001March 31, 2002 and December 31, 2000...................2001....................... 1
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 2001March 31, 2002 and 2000..2001............... 3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the ninethree months ended September 30, 2001March 31, 2002 and 2000............2001............... 4
Notes to Condensed Consolidated Financial
Statements..............Statements (unaudited)........................................... 5
PANAMCO MEXICO AND CENTRAL AMERICANOLAD - Selected Statements of Operations Data
(unaudited) for the three and nine months ended September 30,
2001March 31, 2002 and 2000................................................... 21
PANAMCO BRASIL - Selected Statements of Operations Data
for the three and nine months ended September 30, 2001 and 2000. 232001... 12
PANAMCO COLOMBIA - Selected Statements of Operations Data
(unaudited) for the three and nine months ended September 30, 2001March 31, 2002 and 2000. 242001... 13
PANAMCO VENEZUELA -- Selected Statements of Operations Data
(unaudited) for the three months ended March 31, 2002 and 2001... 14
PANAMCO BRAZIL - Selected Statements of Operations Data
(unaudited) for the three and nine months ended September 30, 2001March 31, 2002 and 2000. 252001... 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 26OPERATIONS.............................. 16
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................................... 33RISK...................................................... 19
PART II OTHER INFORMATIONINFORMATION................................................... 19
Item 1. LEGAL PROCEEDINGS................................................ 33PROCEEDINGS................................................... 19
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 33PROCEEDS........................... 19
Item 3. DEFAULTS UPON SENIOR SECURITIES.................................. 34SECURITIES..................................... 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 34HOLDERS................. 20
Item 5. OTHER INFORMATION................................................ 34INFORMATION................................................... 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 34
Signatures................................................................ 358-K.................................... 20
Signatures................................................................... 21
i
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States of America ("U.S.") dollars)dollars,
except per share amounts)
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Current Assets:
Cash and equivalents $ 104,456 $ 191,773
Accounts receivable, net 108,842 138,473
Inventories, net 91,399 105,439
Other current assets 22,383 30,268
March 31, 2002 December 31, 2001
---------------------- -------------------------
ASSETS
Current assets:
Cash and equivalents $ 90,404 $ 133,666
Accounts receivable, net 194,169 136,614
Inventories, net 101,496 103,040
Other current assets 25,285 27,466
----------- -----------
Total current assets 411,354 400,786
Investments 34,701 28,522
Property, plant and equipment, net 1,037,164 1,043,870
Bottles and cases, net 207,408 213,908
Cost in excess of net assets acquired, net 864,003 869,056
Other assets 121,361 136,884
----------- -----------
Total assets $ 2,675,991 $ 2,693,026
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 214,113 $ 274,164
Current portion of long-term obligations 75,632 75,439
Bank loans 40,177 35,184
Other accrued liabilities 174,380 184,878
----------- -----------
Total current liabilities 504,302 569,665
----------- -----------
Long-term liabilities:
Long-term obligations, net of current portion 847,954 859,619
Other liabilities 163,384 162,756
----------- -----------
Total long-term liabilities 1,011,338 1,022,375
----------- -----------
Total liabilities 1,515,640 1,592,040
----------- -----------
Total Current Assets 327,080 465,953
----------- -----------
Investments 25,350 158,006
Property, plant and equipment, net 1,025,256 1,125,719
Bottles and cases, net 213,677 236,527
Cost in excess of net assets acquired, net 865,238 903,683
Other assets 118,290 136,433
----------- -----------
Total Assets $ 2,574,891 $ 3,026,321
=========== ===========
LIABILITIES
Current Liabilities:
Accounts payable $ 183,157 $ 171,239
Current portion of long-term obligations 38,659 184,889
Bank loans 64,478 40,295
Other accrued liabilities 135,103 241,801
----------- -----------
Total Current Liabilities 421,397 638,224
----------- -----------
Long-term Liabilities:
Long-term obligations, net of current portion 886,571 1,028,575
Other liabilities 173,131 164,406
----------- -----------
Total Long-term Liabilities 1,059,702 1,192,981
----------- -----------
Total Liabilities 1,481,099 1,831,205
----------- -----------
(Continued)
1
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States of America ("U.S.") dollars) dollars, except per share amounts)
(Unaudited)
September 30, December 31,
2001 2000
---------------- --------------
Commitments and contingencies
Minority interest in consolidated subsidiaries 29,044 27,805
--------- ---------
SHAREHOLDERS' EQUITY
Class C preferred stock, $0.01 par value;
50,000 shares authorized; 2 shares issued
and outstanding at September 30, 2001 and
December 31, 2000, respectively - -
Class A common stock, $0.01 par value;
136,936,684 and 136,745,820 shares issued
and 114,706,756 and 119,742,584 shares
outstanding at September 30, 2001 and
December 31, 2000, respectively 1,367 1,367
Class B common stock, $0.01 par value;
11,075,178 and 11,266,042 shares issued
and 8,697,411 and 8,888,435 shares outstanding
at September 30, 2001 and December 31, 2000,
respectively 113 113
Capital in excess of par value 1,591,819 1,585,498
Retained earnings 119,425 50,632
Accumulated other comprehensive loss (470,889) (399,541)
--------- ---------
1,241,835 1,238,069
Less - 24,607,695 and 19,380,843 treasury
shares held at September 30, 2001 and
December 31, 2000, respectively, at cost (177,087) (70,758)
--------- ---------
Total Shareholders' Equity 1,064,748 1,167,311
--------- ---------
Total Liabilities and Shareholders'
Equity $ 2,574,891 $ 3,026,321(Continued)
March 31, 2002 December 31, 2001
---------------------- -------------------------
Commitments and contingencies
Minority interest in consolidated subsidiaries 28,012 28,541
----------- -----------
SHAREHOLDERS' EQUITY
Class C preferred stock, $0.01 par value;
50,000,000 shares authorized; 2 shares
issued and outstanding at March 31,
2002 and December 31, 2001,
respectively - -
Class A common stock, $0.01 par value;
500,000,000 authorized; 136,974,151
and 136,952,780 shares issued and
112,857,178 and 113,237,031 shares
outstanding at March 31, 2002 and
December 31, 2001, respectively 1,370 1,369
Class B common stock, $0.01 par value;
50,000,000 authorized; 11,037,711 and
11,059,082 shares issued and 8,659,863
and 8,681,245 shares outstanding at
March 31, 2002 and December 31, 2001,
respectively 110 111
Capital in excess of par value 1,592,137 1,591,827
Retained earnings 199,270 138,433
Accumulated other comprehensive loss (452,667) (458,341)
----------- -----------
1,340,220 1,273,399
Less 26,494,821 and 26,093,586 treasury
shares held at March 31, 2002 and
December 31, 2001, respectively, at cost (207,881) (200,954)
----------- -----------
Total shareholders' equity 1,132,339 1,072,445
----------- -----------
Total liabilities and shareholders' equity $ 2,675,991 $ 2,693,026
=========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. dollars, except per share amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------Three Months Ended March 31,
------------------------------------
2002 2001
--------------- ---------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Net sales $ 638,642624,349 $ 648,180 $ 1,958,105 $ 1,897,422644,845
Cost of sales, excluding depreciation
and amortization 309,660 304,922 944,123 903,856309,388 316,263
---------- ----------
----------- -----------
Gross profit 328,982 343,258 1,013,982 993,566314,961 328,582
---------- ----------
----------- -----------
Operating expenses:
Selling, generalGeneral and administrative 194,406 221,888 612,404 640,410201,381 205,682
Depreciation and amortization 51,680 56,869 161,166 171,937
Amortization of goodwill 6,556 9,344 19,882 27,543
Facilities reorganization charges44,680 60,236
Nonrecurring items, net 7,802 - - - 79,878
---------- ----------
----------- -----------
252,642 288,101 793,452 919,768253,863 265,918
---------- ----------
----------- -----------
Operating income 76,340 55,157 220,530 73,79861,098 62,664
---------- ---------- ----------- -----------
Other income (expense):
Interest income 4,056 8,027 17,806 23,8222,743 9,016
Interest expense (24,222) (36,122) (85,295) (107,058)(22,621) (32,604)
Other expense,income (expense), net (3,537) (5,738) (7,467) (18,067)45,440 (2,176)
---------- ----------
----------- -----------25,562 (25,764)
---------- ----------
Income (loss) before provision for
income taxes 52,637 21,324 145,574 (27,505)86,660 36,900
Provision for income taxes 20,740 19,663 49,217 29,18517,461 14,045
---------- ----------
----------- -----------
Income (loss) before minority interest 31,897 1,661 96,357 (56,690)69,199 22,855
Minority interest in earnings of consolidated
subsidiaries 1,787 1,197 4,684 2,8241,017 1,534
---------- ----------
----------- -----------
Net income (loss) $ 30,11068,182 $ 464 $ 91,673 $ (59,514)21,321
========== ========== =========== ==========
Basic earnings (loss) per share $ 0.240.56 $ 0.00 $ 0.72 $ (0.46)0.17
========== ========== =========== ==========
Basic weighted average shares outstanding in thousands 124,842 128,733 126,676 128,869121,761 128,308
========== ========== =========== ==========
Diluted earnings (loss) per share $ 0.240.56 $ 0.00 $ 0.72 $ (0.46)0.16
========== ========== =========== ==========
Diluted weighted average shares outstanding in thousands 126,191 129,147 127,878 128,869$ 122,493 $ 129,528
========== ========== =========== ==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2001 2000
------------ ------------
Net cash provided by operating activities $ 240,900 $ 207,938
Cash flows from investing activities:
Capital expenditures (56,163) (96,497)
Purchases of bottles and cases (32,131) (49,062)
Purchases of investments (428) (4,000)
Proceeds from sale of investments 127,720 25,000
Proceeds from sale of property, plant
and equipment 25,711 17,713
Other (454) (36)
--------- ---------
Net cash provided by (used in)
investing activities 64,255 (106,882)
--------- ---------
Cash flows from financing activities:
Payment of bank loans and other long-term
obligations (407,279) (144,192)
Proceeds from bank loans and other
long-term obligations 151,492 75,162
Issuance of capital stock 9,316 412
Share repurchase (109,323) (11,772)
Payment of dividends to minority interest (1,057) (759)
Payment of dividends to shareholders (22,880) (23,178)
--------- ---------
Net cash used in financing activities (379,731) (104,327)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents (12,741) (1,962)
--------- ---------
Net decrease in cash and equivalents (87,317) (5,233)
Cash and equivalents at beginning
of period 191,773 152,648
--------- ---------
Cash and equivalents at end
of period $ 104,456 $ 147,415
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of capitalized interest) $ 81,825 $ 96,868
========= =========
Income taxes $ 72,846 $ 59,850
========= =========
NONCASH ACTIVITIES:
Write-off of property, plant and
equipment against accrued facilities
reorganization charges $ - $ 39,533
========= =========
Three Months Ended March 31,
----------------------------------
2002 2001
----------------------------------
Net cash (used in) provided by operating activities $ (1,020) $ 81,050
Cash flows from investing activities:
Capital expenditures (12,944) (16,128)
Purchases of bottles and cases (8,647) (10,099)
Purchases of investments (18,911) -
Proceeds from sale of investments 68,653 52,620
Proceeds from sale of property, plant and equipment 8,827 4,098
Receivable from sale of Kaiser (55,058) -
Other (892) (1,554)
----------- ----------
Net cash (used in) provided by investing activities (18,972) 28,937
----------- ----------
Cash flows from financing activities:
Payment of bank loans and other (17,299) (153,145)
Proceeds from bank loans and other long-term obligations 9,737 74,720
Issuance of capital and treasury stock 633 131
Share repurchase (7,250) (13,402)
Payment of dividends to minority interest (72) -
Payment of dividends to shareholders (7,345) (7,726)
Other 655 -
----------- ----------
Net cash used in financing activities (20,941) (99,422)
----------- ----------
Effect of exchange rate changes on cash and cash equivalents (2,329) (2,454)
----------- ----------
Net (decrease) increase in cash and equivalents (43,262) 8,111
Cash and equivalents at beginning of period 133,666 191,773
----------- ----------
Cash and equivalents at end of period $ 90,404 $ 199,884
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of capitalized interest) $ 16,346 $ 30,533
========== ==========
Income taxes $ 20,748 $ 17,081
========== ==========
NONCASH ACTIVITIES:
Write-off of property, plant and equipment against
accrued nonrecurring items $ 2,023 $ -
========== ==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables(Balances in the tables are stated in thousands of U.S. dollars)dollars,
except per share amounts)
(Unaudited)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by Panamerican Beverages, Inc. (the "Company"), in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "SEC"). In the opinion of management, these unaudited
condensed consolidated financial statements contain all adjustments,
which are of a normal recurring nature, necessary to present fairly the
Company's consolidated financial position as of September 30, 2001March 31, 2002 and
December 31, 2000,2001, and the consolidated results of operations for the
three and nine months ended September 30, 2001March 31, 2002 and 2000.2001. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. These unaudited financial statements should be
read in conjunction with the audited financial statements and the notes
thereto included in the Company's 20002001 Annual Report on Form 10-K filed
with the SEC on April 2,
2001.1, 2002. The Company has made no significant
changes in accounting policies from those reflected in the consolidated
financial statements included in the 2001 Annual Report on Form 10-K.
The financial statements of the Colombian and Venezuelan subsidiariessubsidiary for all periods
have been remeasured into U.S. dollars, the reporting and functional
currency, in accordance with the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation,"Translation", as it applies to highly inflationary
economies. The functional currencies of the Mexican,
Brazilian, Costa Rican, Nicaraguan and Guatemalanremaining subsidiaries are
the Mexican peso, Brazilian real, Colombian peso, Costa Rican colon,
Nicaraguan cordova and Guatemalan quetzal, respectively. Thewhich financial statements of the
Mexican, Brazilian, Costa Rican, Nicaraguan and Guatemalan subsidiaries
have been translated using the current rate translation method and the
resulting translation adjustments are included in accumulated other
comprehensive income (loss), which is a component of shareholders'
equity. ForeignAs of December 31, 2001, the Company discontinued classifying
Colombia as a highly inflationary economy, and, accordingly, the
functional currency translation gains (losses) on monetary assets
and liabilities forof the Colombian operations was changed from the U.S.
dollar to the Colombian peso. For the three months ended March 31, 2002
and Venezuelan subsidiaries have been
included2001, the Company recorded in theits condensed consolidated statements
of operations captions to which
such items relate as shown below:
5
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(1) BASIS OF PRESENTATION, CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Net sales $ 161 $ (227) $ 275 $ (630)
Cost of sales and
operating expenses 890 1,886 2,456 7,640
Interest and other income
(expense),a net 1,379 727 3,499 1,573
Provision (benefit) for
income taxes (149) 1 (85) 1,508
------- ------- ------- -------
Net translation gain $ 2,281 $ 2,387 $ 6,145 $10,091
======= ======= ======= =======of $6.5 million and $3.0 million,
respectively.
(2) NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting and the pooling-of-interests method
will be prohibited. The remaining provisions of SFAS No. 141 will be
effective for transactions accounted for using the purchase method that are
completed after June 30, 2001. Under SFAS No. 142, goodwill and certain
intangible assets are no longer subject to amortization over its estimated
useful life, but instead will be subject to an impairment test to be
performed at least annually. The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001, and will
therefore be adopted by the Company beginning on January 1, 2002. The
Company is currently reviewing the statements to determine the overall
effect on the Company, but expects that the adoption of SFAS No. 142 will
lower fiscal year 2002 amortization expense by approximately $26.0 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" and Accounting Principles Board Opinion ("APB")
No. 30, "Reporting the Results of Operations - Reporting the Effects of the
Disposal of a Segment Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 establishes a single
accounting model for assets to be disposed of by sale whether previously
held and used or newly acquired. SFAS No. 144 retains the provisions of APB
No. 30 for presentation of discontinued operationsReclassifications have been made in the income statement,
but broadens2001 condensed consolidated
statements of operations to conform to classifications used in the
presentation to include a component of an entity. SFAS 144
is effective for fiscal years beginning after December 15, 2001 and the
interim periods within. The Company does not believe that the adoption of
SFAS No. 144 will have a material impact on its consolidated results of
operations.
6
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables statedcurrent year, in thousands of U.S. dollars)
(Unaudited)
(2) NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS, CONTINUED
In April 2001, theaccordance with Emerging Issues Task Force ("EITF") of the FASB reached
a consensus on Issue No.
00-25, "Vendor Income Statement Characterization of Consideration to a
Purchaser of the Vendor's Products or Services." This
issue addresses the income statement classification of various sales
incentives such as slotting fees, cooperative advertising arrangements and
buydowns. EITF 00-25 became
effective for the Company beginning January 1, 2002, and requires that such customercertain
promotional payments made to customers by the Company, that are currentlywere
previously classified as selling and distribution expenses, to be
classified as a reduction offrom net sales. Had theThe Company applied EITF 00-25 to its
year-to-date fiscal 2001, this would have resulted inreclassified as a
$7.8 million
reclassification betweenreduction from net sales andapproximately $3.2 million of selling expenses,
which were previously classified as selling and distribution expense.
The adoptionexpenses in
the condensed consolidated statements of EITF 00-25 will have no impact on operating income, net
income or earnings per share. The Company will adopt EITF 00-25operations for fiscal
quarters beginning after December 15,the period ended
March 30, 2001.
In September 2000,June 2001, the FASB issued SFAS No. 140, "Accounting142, "Goodwill and Other
Intangible Assets," which requires goodwill to be tested for Transfersimpairment
and Servicing of Financial Assets and Extinguishments of Liabilities - a
Replacement of FASB Statement No. 125."written down when impaired, rather than being amortized over useful
lives, as previous standards required. SFAS No. 140 provides accounting
and reporting standards142 became effective for
transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, de-recognizes financial assets when control
has been surrendered, and de-recognizes liabilities when extinguished. SFAS
No. 140 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The Company adopted SFAS No. 140 on March 31, 2001. The adoption of this
standard did not have a material effect on its financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires the recognition
of all derivatives on the consolidated balance sheet at fair value.
Derivatives that are not designated as part of a hedging relationship must
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, the effective portion of the hedge's
change in fair value is either (1) offset against the change in fair value
of the hedged asset, liability or firm commitment through income or (2)
held in equity until the hedged item is recognized in income immediately.
The ineffective portion of a hedge's change in fair value is recognized in
income. The Company adopted SFAS No. 133, as amended, onbeginning January 1, 2001.
The adoption of SFAS No. 133, on January 1, 2001, resulted in a reduction
in other comprehensive income of approximately $3.0 million. The Company
also recorded an additional reduction of $3.3 million and $8.0 million in
other comprehensive income relating to the change in fair value of the cash
flow hedge for the quarter and nine months ended September 30, 2001,
respectively and an unrealized holding gain of $1.0 million and $0.9
million relating to the change in fair value of the fair value hedge for
the quarter and nine months ended September 30, 2001, respectively.
72002.
5
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables(Balances in the tables are stated in thousands of U.S. dollars)dollars,
except per share amounts)
(Unaudited)
Had the Company adopted SFAS No. 142 on the first day of 2001, first
quarter 2001 amortization expense would have been lowered by $6.6 million
and net income would have increased $6.2 million (or $0.05 per diluted
share) to $27.5 million.
(3) Earnings (Loss) per ShareEARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic earnings per
common share calculations are determined by dividing earnings available
to common shareholders by the weighted average number of shares of common
stock. Diluted earnings per share are determined by dividing earnings
available to common shareholders by the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding,
related to outstanding stock options and nonvested stock grants.
Following is a reconciliation of the weighted average number of shares
outstanding with the number of shares used in the computation of diluted
earnings (loss) per share:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- ---------
Numerator:
Net income (loss) $ 30,110 $ 464 $ 91,673 $ (59,514)
Three Months Ended March 31,
---------------------------------
2002 2001
Numerator:
Net income $ 68,182 $ 21,321
======== ========
Denominator (in thousands):
Denominator for basic earnings per share 121,761 128,308
Effect of dilutive securities:
Options to purchase common stock 732 1,220
-------- --------
Denominator for diluted earnings per share 122,493 129,528
======== ========
Earnings per share:
Basic $ 0.56 $ 0.17
======== ========
Diluted $ 0.56 $ 0.16
======== ========
======== =========
Denominator (in thousands):
Denominator for basic earnings
(loss) per share 124,842 128,733 126,676 128,869
Effect of dilutive securities:
Options to purchase common
stock and restricted stock 1,349 414 1,202 -
-------- -------- -------- ---------
Denominator for diluted earnings
(loss) per share 126,191 129,147 127,878 128,869
======== ======== ======== =========
Earnings (loss) per share:
Basic $ 0.24 $ 0.00 $ 0.72 $ (0.46)
======== ======== ======== =========
Diluted $ 0.24 $ 0.00 $ 0.72 $ (0.46)
======== ======== ======== =========
Anti-dilutive securities not
included in the diluted
earnings (loss) per share
calculation:
Options to purchase common
stock (in thousands) 2,053 2,189 2,053 5,260
Exercise prices: $ 19.25 $ 19.62 $ 19.25 $ 13.75
to to to to
$ 29.94 $ 29.94 $ 29.94 $ 29.94
The Company declared and paid cash dividends of $0.06 and $0.18 per share of common
stock for the three and nine months ended September 30,March 31, 2002.
(4) REORGANIZATION PROGRAMS
During 2000, the Company implemented company-wide reorganization programs
designed to improve productivity and strengthen the Company's competitive
position in the beverage industry. As of March 31, 2002, approximately
7,700 employees have been terminated by the Company relating to the
reorganization programs implemented during 2000. Balances related to
accrued facilities reorganization costs of $5.3 million and $6.5 million
are reflected in Other accrued liabilities and $6.0 million is reflected
in Other long-term liabilities in the condensed consolidated balance
sheets at March 31, 2002 and December 31, 2001, respectively. The
decrease in accrued facilities reorganization costs during the three
months ended March 31, 2002 is related to the continued implementation of
the reorganization programs.
6
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
(5) NONRECURRING ITEMS
During the first quarter of 2002, the Company recorded a gain on the sale
of its 12.1% equity stake in Cervejarias Kaiser, S.A. ("Kaiser") as part
of a larger transaction in which Molson, Inc. acquired Kaiser and 2000.entered
into a partnership with Heineken. The sale generated proceeds which
include approximately $55.1 million reflected within accounts receivable
and $18.9 million in Molson stock recorded as an investment (the Molson
stock received by the Company cannot be sold for a period of two years
pending the resolution of certain tax contingencies in Brazil, which
management is of the opinion that will be resolved in a manner favorable
to the Company), and resulted in a gain of $48.6 million, which is included
as part of Other income (expense), net. The Company will continue to
distribute Kaiser products in its franchise areas in Brazil and the
acquisition of Kaiser will not impact this distribution agreement.
During the first quarter, the Company also had nonrecurring charges, net
of benefits, approximating $16.6 million, of which $11.6 million is
classified as cash charges and $5.0 is classified as noncash charges. The
cash charges primarily relate to severance payments for the termination
of approximately 600 employees in Mexico and Venezuela and to the payment
of excise taxes on soft drink inventories containing high fructose corn
syrup in Mexico. The payment of the excise taxes resulted from a law that
was suspended shortly after it was initiated. The Company has initiated
legal proceedings to seek that the amounts already paid be refunded. The
noncash charges primarily relate to the closure of plants in Venezuela
and to the sale, at a loss, of the corporate airplane to a related party.
The gain on the sale of Kaiser and the total nonrecurring charges, net
benefits, had a combined positive after-tax impact on net income of $35.7
million.
(6) TRANSACTIONS WITH RELATED PARTIES
The Company purchases raw materials from various suppliers, including
related parties, subject to approval of The Coca-Cola Company
("Coca-Cola"). Such transactions are conducted in the ordinary course of
business at negotiated prices comparable to those transactions with other
customers and suppliers. The principal components of related party
transactions were purchases of concentrates, syrups, sugars, returnable
and non-returnable bottles, cans, and caps.
Amounts due from or due to related parties as of March 31, 2002 and
December 31, 2001, respectively, are as follows:
March 31, 2002 December 31, 2001
--------------------------------------------
Accounts receivable:
Subsidiaries of Coca-Cola $ 19,799 $ 14,025
Subsidiaries of Kaiser ** 1,787 2,485
--------- ---------
$ 21,586 $ 16,510
========= =========
Accounts payable:
Subsidiaries of Coca-Cola $ 21,708 $ 21,842
Productos de Vidrio, S.A. 2,034 2,912
Central Azucarero Portuguesa, C.A. 2,853 1,950
Other 1,996 2,331
--------- ---------
$ 28,591 $ 29,035
========= =========
** Excludes $55.1 million related to the sale of the Company's
investment in Kaiser.
7
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
The Company had the following significant transactions with related
parties:
Three Months Ended March 31,
----------------------------------
2002 2001
--------------- --------------
Income:
Marketing expense support from Coca-Cola
(recorded net against marketing expenses) $ 7,068 $ 6,360
Kaiser beer distribution fees 1,056 404
Other 259 92
--------- ---------
$ 8,383 $ 6,856
========= =========
Expenses:
Purchases of concentrate from Coca-Cola $ 57,088 $ 56,814
Purchases of beer 10,474 16,140
Purchases of other inventories 25,020 9,618
--------- ---------
$ 95,582 $ 82,572
========= =========
Capital expenditures received in cash $ 379 $ 678
========= =========
On April 22, 2002, the Company sold its corporate airplane for $10.5
million to a trust affiliated with a director of the Company. In
connection with this transaction, the Company terminated the operating
lease for the airplane by payment to the lending bank of $14.9 million
representing the amount outstanding under the lease. The Company believes
the terms of this transaction were no less favorable to the Company than
could have been obtained from an unaffiliated third party.
(7) INVENTORIES
Inventories consist of: March 31, 2002 December 31, 2001
-------------------- ----------------------
Bottled beverages $ 28,896 $ 28,335
Raw materials 47,380 51,837
Spare parts and supplies 31,924 29,637
--------- ---------
108,200 109,809
Less - Allowance for obsolete and slow moving items 6,704 6,769
--------- ---------
$ 101,496 $ 103,040
========= =========
(8) SHARE REPURCHASE PROGRAM
At December 31, 2001, the Company had completed the $100.0 million share
repurchase program adopted in 1999, increased to a total of $150.0
million by two $25.0 million supplements in 2001 (the "1999 Share
Repurchase Program"). In the first quarter of 2002, the Company adopted a
new program (the "2002 Share Repurchase Program") to repurchase up to
$20.0 million of the Company's Class A Common Stock. During the first
quarter of 2002, the Company repurchased 442,700 shares for a total
amount of $7.3 million under the 2002 Share Repurchase Program.
8
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables(Balances in the tables are stated in thousands of U.S. dollars)dollars,
except per share amounts)
(Unaudited)
(4) REORGANIZATION PROGRAMS
Throughout 2000,(9) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income, foreign currency
translation and unrealized losses on derivative instruments. The
comprehensive income (loss) for the three months ended March 31, 2002 and
2001 is as follows:
2002 2001
------------ -------------
Net income $ 68,182 $ 21,321
Other comprehensive income (loss):
Foreign currency translation (5,151) (20,415)
Unrealized losses on derivative financial instruments (523) (7,419)
--------- ---------
Comprehensive income (loss) $ 62,508 $ (6,513)
========= =========
(10) DERIVATIVE INSTRUMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133," became effective for the Company continuedon January 1, 2001.
The Company had a floating-to-fixed interest rate swap (the "Swap"),
expiring in November 2002, with a total notional amount outstanding at
December 31, 2001 of $250.0 million, which exchanges LIBOR for a fixed
interest rate of 6.437%. Upon adoption of SFAS No. 133, the Company
designated the Swap as a cash flow hedge. During 2001, the Company
determined that it was probable that the original forecasted transaction
would not continue through the expiration of the Swap and, therefore,
discontinued cash flow hedge accounting. During the quarter ended March
31, 2002, the Company recognized an unrealized holding gain, amounting to
$0.2 million, included in Other income (expense), net in the Company's
condensed consolidated statements of operations. As of March 31, 2002,
the fair value of the Swap was $7.5 million recorded in Other accrued
liabilities.
The Company uses currency swap arrangements to hedge exchange rate
exposure arising from the Company's operations in its reorganization programs, which
were initiatedinternational
subsidiaries. On December 28, 2001, the Company entered into foreign
currency forward purchase contracts, expiring during the first quarter of
2000. As a result of these
reorganization programs, during the year ended December 31, 2000, the
Company recorded the following items in its statements of operations:
Facilities Reorganization Charges - During the year ended December 31,
2000, the Company recorded $503.7 million of facilities reorganization
charges, of which $79.9 million was recorded during the first quarter and
$423.8 million was recorded during the fourth quarter. These charges are
primarily the result of the $350.0 million write-down of goodwill,
attributable to Panamco Venezuela; the write-off of noncash items of
property, plant and equipment, obsolete bottles and cases and nonrecurring
charges (related to legal contingencies) amounting to $65.1 million; and
cash items relating primarily to severance payments, job terminations and
reorganization of the distribution system of the Venezuelan and Brazilian
subsidiaries amounting to $88.6 million.
Severance payments recorded during 2000 relate to the termination2002, with total notional amounts of approximately 10,000 employees across all levels and operating units of the
Company. Approximately 7,600 employees had been terminated by the Company
as of September 30, 2001.
Nonoperating Charges -$23.5 million, which
exchange Brazilian reales for U.S. dollars. During the year ended December 31, 2000, the Company
recorded $6.0 million of charges, of which $5.4 million were recorded in
the first quarter and $0.6 million were recorded in the fourth quarter,
related to the disposal of nonoperating assets, including land of some of
the operating plants, which are presented as part of other expense, net.
As a result of the facilities reorganization charges and nonoperating
charges, the Company recorded a tax benefit of $46.5 million, of which
$23.4 million was recorded in the first quarter of
2000 and $23.12002, the Company realized losses amounting to approximately $0.3 million
was
recorded in the fourth quarterCost of fiscal 2000.
The following table shows a summary of the net charges and benefits
recordedsales in the Company's condensed consolidated
statements of operationsoperations. On February 28, 2002, the Company entered into
foreign currency forward purchase contracts, expiring during the second
quarter of 2002, with total notional amounts of approximately $16.6
million, which exchange Brazilian reales for U.S. dollars. As of March
31, 2002, the year ended
December 31, 2000:
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------
CASH NONCASH TOTAL
--------- --------- --------
Restructuring charges $ 86,677 $ 24,814 $111,491
Asset write-offs 1,894 381,637 383,531
Nonrecurring charges - 8,637 8,637
--------- --------- --------
88,571 415,088 503,659
Nonoperating charges - 5,977 5,977
--------- --------- ---------
Gross charges $ 88,571 $421,065 509,636
========= =========
Income tax benefit 46,516
--------
Net charges $463,120
========fair value of these foreign currency forward purchase
contracts was $0.5 million recorded in Other accrued liabilities with the
change in fair value recorded in Accumulated other comprehensive loss.
9
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables(Balances in the tables are stated in thousands of U.S. dollars)
(Unaudited)
(4) REORGANIZATION PROGRAMS, CONTINUED
The following tables show the status of the balance of the reorganization
accrual and asset write-down allowance at September 30, 2001 and December
31, 2000. Balances of $14.8 million and $47.9 million related to accrued
facilities reorganization costs are reflected in other accrued liabilities
and balances of $5.4 million and $7.8 million are reflected in other
long-term liabilities in the condensed consolidated balance sheets at
September 30, 2001 and December 31, 2000, respectively:
SEVERANCE,
OTHER CASH
BALANCE AT PAYMENTS AND BALANCE AT
DECEMBER 31, NONCASH SEPTEMBER 30,
2000 APPLICATIONS 2001
-------------- -------------- --------------
Job termination
and severance
payments $ 44,899 $ 30,286 $ 14,613
Other 10,732 5,218 5,514
---------- ---------- ----------
Total $ 55,631 $ 35,504 $ 20,127
========== ========== ==========
====== CHARGES ====== ============ APPLICATIONS ============
PROPERTY
BALANCE AT SEVERANCE AND BALANCE AT
DECEMBER 31, AND OTHER CASH EQUIPMENT ASSET DECEMBER 31,
1999 CASH NONCASH PAYMENTS SOLD WRITE-OFFS 2000
------------ ------------------- ---------------------------------------- -----------
Write-off of
property and
equipment $ - $ 2,770 $ 54,451 $ - $ 6,112 $ 51,109 $ -
Job termination
and severance
payments - 78,769 - 33,870 - - 44,899
Venezuela
goodwill
impairment - - 350,000 - - 350,000 -
Other - 7,032 10,637 6,937 - - 10,732
------------ --------- -------- --------- --------- ---------- --------
Total $ - $ 88,571 $415,088 $ 40,807 $ 6,112 $ 401,109 $55,631
============ ========= ======== ========= ========= ========== ========
10
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(5) INVENTORIES
Inventories consist of:
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- ---------------
Bottled beverages $ 30,943 $ 31,745
Raw materials 35,879 41,675
Spare parts and supplies 29,428 35,473
----------- -----------
96,250 108,893
Less - Allowance for obsolete
and slow moving items (4,851) (3,454)
----------- -----------
$ 91,399 $ 105,439
=========== ===========
(6) PROPERTY, PLANT, EQUIPMENT, AND BOTTLES AND CASES
Property, plant, equipment, and bottles and cases consist of:
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- ---------------
Property, plant and equipment $ 1,943,432 $ 1,996,820
Less - Accumulated depreciation (918,176) (871,101)
----------- -----------
1,025,256 1,125,719
Bottles and cases, net 213,677 236,527
----------- -----------
$ 1,238,933 $ 1,362,246
=========== ===========
11
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(7) TRANSACTIONS WITH RELATED PARTIES
For the three and nine months ended September 30, 2001, the Company
conducted transactions with related parties. A summary of balances as of
September 30, 2001 and December 31, 2000 and transactions for the three and
nine months ended September 30, 2001 and 2000 with related parties is as
follows:
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Accounts receivable:
Subsidiaries of The Coca-Cola Company $ 8,113 $ 7,934
Subsidiaries of Cervejarias Kaiser, S.A. 1,692 2,532
--------- ----------
$ 9,805 $ 10,466
========= ==========
Accounts payable:
Subsidiaries of The Coca-Cola Company $ 19,373 $ 17,076
Productos de Vidrio, S.A. 1,967 -
Central Azucarero Portuguesa, C.A. 3,126 -
Tapon Corona de Colombia, S.A. 1,396 994
Comptec, S.A. 61 976
Other 194 773
--------- ----------
$ 26,117 $ 19,819
========= ==========
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
2001 2000 2001 2000
-------- -------- --------- --------
Income:
Marketing expense support
(recorded net against
marketing expenses) $ 6,708 $ 8,886 $ 22,393 $ 29,565
Other 929 95 2,241 964
-------- -------- --------- --------
$ 7,637 $ 8,981 $ 24,634 $ 30,529
======== ======== ========= ========
12
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(7) TRANSACTIONS WITH RELATED PARTIES, CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
2001 2000 2001 2000
-------- -------- --------- ---------
Expenses:
Purchase of concentrate $ 85,115 $ 88,040 $ 261,172 $ 232,161
Purchase of beer 12,552 13,679 41,330 42,252
Purchase of other inventories 6,155 5,694 25,304 19,223
-------- -------- --------- ---------
$103,822 $107,413 $ 327,806 $ 293,636
======== ======== ========= =========
Capital expenditure incentives
received in cash $ 544 $ - $ 1,892 $ -
======== ======== ========= =========
(8) OTHER TRANSACTIONS
On February 22, 2001, Panamco de Venezuela, S.A. ("Panamco Venezuela")
entered into an agreement with Chase Manhattan Bank, as arranger and
administrative agent, to obtain a one-year loan in the amount of $25.0
million, guaranteed by the Company. The loan matures on February 21, 2002,
with quarterly interest payments with an average annual interest rate of
three-month LIBOR plus 1.75% and principal balance payable upon maturity.
On March 19, 2001, Panamco Venezuela entered into an agreement with Banco
Bilbao Vizcaya Argentaria ("BBVA") S.A., as administrative agent, and BBVA
Securities Inc. and Wachovia Securities, Inc., as arrangers, to obtain a
loan in the amount of $45.1 million, guaranteed by the Company. The loan
matures and principal balance is payable on July 16, 2004, with semi-annual
interest payments with an average annual interest rate ranging from
six-month LIBOR plus 1.75% for year one and year two to six-month LIBOR
plus 2.0% after year two until maturity.
13
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(8) OTHER TRANSACTIONS, CONTINUED
On April 20, 2001, Spal Industria Brasileira de Bebidas, S.A. (a subsidiary
of the Company in Brazil, "Spal") entered into a credit agreement with
BankBoston, N.A. as lender, to obtain two loans of $30.0 million in the
aggregate, guaranteed by the Company. The first loan amounts to $10.0
million and matures on April 16, 2002, with semi-annual interest payments
with an annual interest rate of 6.65% and principal balance payable upon
maturity. The second loan amounts to $20.0 million, with semi-annual
interest payments with an annual interest rate of 6.65% and principal
balance of $5.0 million payable on April 16, 2002 and principal balance of
$15.0 million payable on April 10, 2003. On the date of the loan, Spal also
entered into four swap agreements with BankBoston, N.A. to exchange the
dollar denominated debt totaling $30.0 million. The terms of the swap
agreements are as follows: R2,109,870 (Brazilian reals) maturing on October
16, 2001; R32,753,046 maturing on April 15, 2002; R994,334 maturing on
October 11, 2002; and R29,788,731 maturing on April 9, 2003. All four swap
agreements have an interest rate of 90% of CDI (the Brazilian borrowing
rate).
On May 30, 2001, Panamco Venezuela entered into a credit agreement with
Comerica Bank as lender, to obtain a two-year loan in the amount of $15.0
million, guaranteed by the Company. The loan matures on May 30, 2003, with
semi-annual interest payments with an average annual interest rate of
six-month LIBOR plus 2.50% and principal balance payable upon maturity. On
September 4, 2001, Panamco Venezuela entered into an amendment agreement
(the "First Amendment to Term Credit Agreement") to the $15.0 million
credit agreement entered with the lender. Pursuant to the First Amendment
to Term Credit Agreement, the lender reduced the average annual interest
rate of six-month LIBOR plus 2.50% to six-month LIBOR plus 1.60% with
interest payable semi-annually.
On June 1, 2001, Spal entered into a credit agreement with Citibank, N.A.
as lender, to obtain a two-year loan in the amount of $15.0 million,
guaranteed by the Company. The loan matures on June 4, 2003, with
semi-annual interest payments with an average annual interest rate of
six-month LIBOR plus 1.15% and principal balance payable upon maturity.
On June 4, 2001, Panamco Venezuela entered into an amendment and waiver
(the "Amendment and Waiver") to the JPY2,163,000,000 credit agreement
entered with Inarco International Bank, N.V. (an indirect wholly owned
subsidiary of Citibank, N.A., "Inarco") dated as of July 18, 2000.
Pursuant to the Amendment and Waiver, Inarco increased the total amount of
the loan to JPY5,948,250,000 and reduced the average annual interest rate
of six-month JPY LIBOR plus 3.24% to six-month JPY LIBOR plus 2.15% with
interest payable semi-annually. This loan is guaranteed by the Company and
matures and principal balance is payable on July 28, 2003.
14
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(8) OTHER TRANSACTIONS, CONTINUED
On June 5, 2001, Panamco Venezuela entered into a credit agreement with
Banco Santander Central Hispano, S.A. as lender, to obtain a one-year loan
in the amount of $10.0 million, guaranteed by the Company. The loan matures
on June 6, 2002, with quarterly interest payments with an average annual
interest rate of three-month LIBOR plus 1.30% and principal balance payable
upon maturity.
On June 27, 2001, Panamco Venezuela entered into an amendment agreement
with BankBoston, N.A. in order to extend the maturity of a $15.0 million
credit agreement until June 27, 2002. The loan is guaranteed by the
Company, with quarterly interest payments at an average annual interest
rate of three-month LIBOR plus 2.0% and principal balance payable upon
maturity.
On September 5, 2001, Panamco Venezuela entered into a financial lease
agreement with Citibank, N.A. as lender, to lease approximately 110
distribution trucks amounting to approximately $5.7 million, guaranteed by
the Company. The lease agreement has a term of five years, with semi-annual
interest payments with an average annual interest rate of 8.86%.
On September 14, 2001, Panamco Nicaragua entered into a credit agreement
with Citibank, N.A. as lender, to obtain a one-year loan in the amount of
$6.5 million, guaranteed by the Company. The loan matures on September 13,
2002, with quarterly interest payments with an average annual interest rate
of three-month LIBOR plus 1.05% and principal balance payable upon
maturity.
On September 24, 2001, the Company entered into a credit agreement with The
Chase Manhattan Bank as lender, to obtain a loan in the amount of $10.0
million. The loan matures on December 19, 2001, with monthly interest
payments with an average annual interest rate of one-month LIBOR plus 0.95%
and principal balance payable upon maturity.
(9) SHARE REPURCHASE PROGRAM
On December 9, 1999, the Board of Directors authorized a $100.0 million
share repurchase program of the Company's Class A Common Stock (the
"Share Repurchase Program") in accordance with the anti-market-
manipulation safe harbor of Rule 10b-18 promulgated under the Securities
Exchange Act of 1934. The Share Repurchase Program was supplemented with
$25.0 million increases on each of July 20, 2001 and September 6, 2001.
In addition to this $150.0 million authority, the Share Repurchase
Program also provides for repurchases of shares from independent brokers
by the Company (currently totalling $4.8 million) made in connection with
employees' stock option exercises. Company shares may be purchased in the
open market or in privately negotiated transactions, depending on market
conditions and other factors.
15
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(9) SHARE REPURCHASE PROGRAM, CONTINUED
The Company has repurchased 5,795,800 shares amounting to $109.6 million
(including brokerage commissions) at an average pricedollars,
except per share of $18.91
during the nine months ended September 30, 2001. From the Share Repurchase
Program's inception on December 9, 1999 to September 30, 2001, the Company
has repurchased 6,949,800 shares for a total amount of $130.8 million
(including brokerage commissions) at an average price per share of $18.83.
(10) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss), foreign currency
translation and unrealized gains (losses) on derivative instruments. The
comprehensive income (loss) for the three and nine months ended September
30, 2001 and 2000 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------------
2001 2000 2001 2000
----------- --------- ----------- ----------
Net income (loss) $ 30,110 $ 464 $ 91,673 $ (59,514)
-------- ------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation (45,408) 3,988 (60,380) (18,903)
Unrealized holding loss on
derivative financial instruments (3,274) - (10,968) -
-------- ------- --------- ---------
$ (18,572) $ 4,452 $ 20,325 $ (78,417)
========= ======= ========= =========
16
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)amounts)
(Unaudited)
(11) SEGMENTS AND RELATED INFORMATION
The Company operates in the bottling and distribution industries and in
markets throughout Latin America. 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. Long-lived
assets constitute total assets less current assets less long-term
deferred income taxes less long-term receivables from affiliated
companies. Balances reflected in Corporate include eliminating entries
that are used in consolidating the unaudited financial statements.
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:
NINE MONTHS ENDED SEPTEMBER 30, 2001Three Months Ended March 31, 2002
-------------------------------------------------------------------------------------
MEXICO AND
CENTRAL
AMERICA BRAZIL COLOMBIA VENEZUELA CORPORATE TOTAL
-------------NOLAD Colombia Venezuela Brazil Corporate Total
-------- -------- --------- ----------- ------------------- --------- -----------
Net sales $ 960,289 $ 309,254 $ 276,811 $ 411,751 $ - $ 1,958,105
============= ========= =========== =========== ========= ===========
Operating income
(loss) $ 176,893 $ 10,882 $ 17,502 $ 28,252 $ (12,999) $ 220,530
============= ========= =========== =========== ========= ===========
Interest income $ 7,055 $ 801 $ 3,393 $ 128 $ 6,429 $ 17,806
============= ========= =========== =========== ========= ===========
Interest expense $ (14,807) $ 309 $ (9,806) $ (15,041) $ (45,950) $ (85,295)
============= ========= =========== =========== ========= ===========
Depreciation and
amortization $ 62,460 $ 15,638 $ 42,379 $ 45,572 $ 14,999 $ 181,048
============= ========= =========== =========== ========= ===========
Capital
expenditures $ 41,286 $ 3,576 $ 4,341 $ 6,932 $ 28 $ 56,163
============= ========= =========== =========== ========= ===========
SEPTEMBER 30, 2001
-------------------------------------------------------------------------------------
MEXICO AND
CENTRAL
AMERICA BRAZIL COLOMBIA VENEZUELA CORPORATE TOTAL
------------- --------- ----------- ----------- --------- -----------
Long-lived assets $ 660,208 $ 167,510 $ 328,642 $ 348,005 $ 660,993 $ 2,165,358
============= ========= =========== =========== ========= ===========
Total assets $ 789,751 $ 320,549 $ 384,005 $ 398,446 $ 682,140 $ 2,574,891
============= ========= =========== =========== ========= ===========
17
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(11) SEGMENTS AND RELATED INFORMATION, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------------------------
MEXICO AND
CENTRAL
AMERICA BRAZIL COLOMBIA VENEZUELA CORPORATE TOTAL
------------- --------- ----------- ----------- --------- ---------------------
Net sales $314,140 $ 891,09099,739 $ 356,273105,589 $104,881 $ 278,850- $ 371,384 $ (175) $ 1,897,422
=============624,349
======== ======== ========= =========== =================== ========= =====================
Operating income (loss) $ 130,95945,198 $ 5,55910,963 $ (2,559)(2,478) $ (27,635)8,572 $ (32,526)(1,157) $ 73,798
=============61,098
======== ======== ========= =========== =================== ========= =====================
Interest income $ 7,4451,030 $ 1,344151 $ 2,8551,422 $ 1358 $ 12,177(218) $ 23,822
=============2,743
======== ======== ========= =========== =================== ========= =====================
Interest expense $ (18,072)(7,032) $ (11,358)(3,209) $ (5,844)(1,698) $ (17,936)(952) $ (53,848)(9,730) $ (107,058)
=============(22,621)
======== ======== ========= =========== =================== ========= =====================
Depreciation and amortization $ 53,65517,546 $ 22,43512,351 $ 45,11411,147 $ 56,4324,042 $ 21,844(406) $ 199,480
=============44,680
======== ======== ========= =========== =================== ========= =====================
Capital expenditures $ 61,9589,829 $ 5,1411,157 $ 6,201210 $ 23,1971,748 $ - $ 96,497
=============12,944
======== ======== ========= =========== =================== ========= ===========
DECEMBER==========
March 31, 20002002
-------------------------------------------------------------------------------------
Long-lived assets $692,895 $320,364 $ 617,516328,132 $180,363 $ 246,149 $ 361,364 $ 385,220 $ 850,954 $ 2,461,203
=============650,744 $2,172,498
======== ======== ========= =========== =================== ========= =====================
Total assets $838,344 $377,990 $ 772,698407,354 $393,267 $ 425,134659,036 $2,675,991
======== ======== ========= ======== ========= ==========
Three Months Ended March 31, 2001
-------------------------------------------------------------------------------------
NOLAD Colombia Venezuela Brazil Corporate Total
-------- -------- --------- -------- --------- ----------
Net sales $290,143 $ 457,10294,476 $ 461,486133,857 $126,369 $ 909,901- $ 3,026,321
=============644,845
======== ======== ========= =========== =================== ========= =====================
Operating income (loss) $ 44,817 $ 7,162 $ 9,093 $ 7,203 $ (5,611) $ 62,664
======== ======== ========= ======== ========= ==========
Interest income $ 2,845 $ 2,430 $ 1 $ 350 $ 3,390 $ 9,016
======== ======== ========= ======== ========= ==========
Interest expense $ (5,051) $ (3,162) $ (8,126) $ (510) $ (15,755) $ (32,604)
======== ======== ========= ======== ========= ==========
Depreciation and amortization $ 19,558 $ 14,122 $ 15,332 $ 6,294 $ 4,930 $ 60,236
======== ======== ========= ======== ========= ==========
Capital expenditures $ 10,264 $ 969 $ 2,980 $ 1,915 $ - $ 16,128
======== ======== ========= ======== ========= ==========
December 31, 2001
-------------------------------------------------------------------------------------
Long-lived assets $690,155 $327,059 $ 339,512 $189,279 $ 651,643 $2,197,648
======== ======== ========= ======== ========= ==========
Total assets $853,458 $383,188 $ 419,935 $352,883 $ 683,562 $2,693,026
======== ======== ========= ======== ========= ==========
(12) COMMITMENTS AND CONTINGENCIES
On July, 2001, a labor union and several individuals from the Republic of
Colombia filed a lawsuit in the U.S. District Court for the Southern
District of Florida against the Company (and certain of its subsidiaries)
as well as The Coca-Cola Company (and certain of its subsidiaries) and
another Coca-Cola bottler in Colombia. In the complaint, the plaintiffs
have alleged that the Company has engaged in wrongful acts against the
labor union and its members in Colombia, including kidnapping, torture,
death threats and intimidation. The complaint alleges claims under the
Alien Tort Claims Act, the Torture Victim Protection Act, RICO and state
tort law and seeks injunctive and declaratory relief and damages of more
than $500.0 million, including treble and punitive damages and the cost of
the suit, including attorney fees. In October, the Company filed a motion
to dismiss the complaint for lack of subject matter and personal
jurisdiction. A ruling on the Company's motion to dismiss the lawsuit is
expected in the first quarter of 2002. The Company believes this lawsuit is
without merit and intends to vigorously defend itself against this lawsuit.
18
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables stated in thousands of U.S. dollars)
(Unaudited)
(12) COMMITMENTS AND CONTINGENCIES, CONTINUED
During 1999, a group of independent distributors of Panamco Venezuela
commenced a proceeding to incorporate a union of distributors. On
September 20, 2001, the Venezuelan Supreme Court rendered its opinion
confirming the incorporation of the union, but withheld granting any
specific labor rights to the members of the union other than the right to
be unionized. In order to obtain specific labor rights, the union (or its
members) will have to request to a court of law (with jurisdiction over
labor law) to determine if the members of such union can be considered
workers pursuant to Venezuelan labor laws, and thereafter claim against
Panamco Venezuela the payment of such benefits and rights including
retroactive payments. To the Company's knowledge, neither the union nor
any of its individual members have initiated any process with the
objective of obtaining a court decision on whether the members of the
union are subject to the rights and benefits of the Venezuelan labor
laws, although certain members of the union have threatened such action.
The Company intends to vigorously defend its rights should this action be
filed.
1910
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
(Stated in thousands of U.S. dollars)
(Unaudited)
The statements of operations data for Panamco NOLAD (Panamco Mexico and
Panamco Central America, (Costawhich consists of Costa Rica, Nicaragua and
Guatemala), Panamco Brasil,Colombia, Panamco Colombia,Venezuela, and Panamco Venezuela,Brazil are
presented on the following pages. The data presented as of and for each
period have been derived from the unaudited financial statements of
Panamco Mexico and Panamco Central America, (Costa Rica,
Nicaragua and Guatemala), Panamco Brasil, Panamco Colombia, Panamco
Venezuela, and Panamco Venezuela,Brazil, as applicable, which financial
statements are not included herein. Additionally, the data presented does
not include the unaudited financial data of the Holding company, the
corporateCorporate offices or some minor entities; nor does it reflect the
eliminating entries that are used in consolidating the unaudited
financial statements of the aforementioned subsidiaries.
2011
PANAMCO MEXICO AND CENTRAL AMERICANOLAD
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- --------- --------- ---------Three Months Ended March 31,
--------------------------------
SELECTED STATEMENTS2002 2001
--------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 328,384314,140 $ 311,462 $ 960,289 $ 891,090290,143
Cost of sales, excluding depreciation
and amortization 144,961 136,185 416,085 398,180
---------- ---------141,610 127,319
--------- ---------
Gross profit 183,423 175,277 544,204 492,910172,530 162,824
Operating expenses:
Selling, general and administrative 103,581 99,429 304,851 288,615103,684 98,449
Depreciation and amortization 18,773 16,826 60,675 51,245
Amortization of goodwill 601 808 1,785 2,410
Facilities reorganization charges17,546 19,558
Nonrecurring items, net 6,102 - - - 19,681
----------
--------- ---------
---------
122,955 117,063 367,311 361,951
---------- ---------127,332 118,007
--------- ---------
Operating income 60,468 58,214 176,893 130,95945,198 44,817
Interest expense, net (2,661) (2,717) (7,752) (10,627)(6,002) (2,206)
Other income (expense), net 952 (1,768) 532 (1,185)
---------- ---------(4,424) 941
--------- ---------
Income before provision for income taxes 58,759 53,729 169,673 119,14734,772 43,552
Provision for income taxes 18,841 17,163 53,512 37,537
---------- ---------11,707 14,062
--------- ---------
Income before minority interest 39,918 36,566 116,161 81,61023,065 29,490
Minority interest in Panamco
Mexico subsidiaries 1,310 1,189 3,729 2,550
---------- ---------652 906
--------- ---------
Net income attributable to Panamco Mexico holding company and
Central America 38,608 35,377 112,432 79,060NOLAD 22,413 28,584
Minority interest in Panamco
Mexico holding company 620 416 1,765 1,060
---------- ---------308 429
--------- ---------
Net income attributable to Panamco $ 37,98822,105 $ 34,961 $ 110,667 $ 78,000
========== =========28,155
========= =========
Cash operating profit $ 79,84263,086 $ 75,848 $ 239,353 $ 195,621
========== ========= =========64,375
========= UNIT CASE SALES DATA (IN THOUSANDS):
Soft drinks 89,641 89,638 261,816 266,508
Water 44,103 44,476 131,447 127,318
Other products 1,509 859 3,559 2,390=========
21
PANAMCO MEXICO AND CENTRAL AMERICA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- --------- --------- ---------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales:
Mexico $ 270,889 $ 255,778 $786,960 $ 725,979
Central America 57,495 55,684 173,329 165,111
UNIT CASE SALES DATA (IN THOUSANDS):
Mexico:
Soft drinks 72,277 72,458 209,919 214,705
Water 43,250 43,812 128,962 125,338
Other products 1,030 718 2,404 1,974
Central America:
Soft drinks 17,364 17,180 51,897 51,803
Water 853 664 2,485 1,980
Other products 479 141 1,155 416
22
PANAMCO BRASIL
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- --------- --------- ---------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 81,821 $ 111,813 $ 309,254 $ 356,273
Cost of sales, excluding depreciation
and amortization 53,917 67,181 200,266 217,292
---------- --------- --------- ---------
Gross profit 27,904 44,632 108,988 138,981
---------- --------- --------- ---------
Operating expenses:
Selling, general and administrative 22,735 32,736 82,468 99,869
Depreciation and amortization 3,860 7,144 13,933 20,874
Amortization of goodwill 504 541 1,705 1,561
Facilities reorganization charges - - - 11,118
---------- --------- --------- ---------
27,099 40,421 98,106 133,422
---------- --------- --------- ---------
Operating income 805 4,211 10,882 5,559
Interest income (expense), net 1,871 (2,794) 1,110 (10,014)
Other expense, net (2,468) (6,759) (8,599) (12,177)
---------- --------- --------- ---------
Income (loss) before income taxes 208 (5,342) 3,393 (16,632)
Benefit from income taxes (435) (2,047) (1,373) (7,906)
---------- --------- --------- ---------
Income (loss) before minority
interest 643 (3,295) 4,766 (8,726)
Minority interest in Panamco
Brasil holding company 4 (42) 35 (105)
---------- --------- --------- ---------
Net income (loss) attributable
to Panamco $ 639 $ (3,253) $ 4,731 $ (8,621)
========== ========= ========= =========
Cash operating profit $ 5,169 $ 11,896 $ 26,520 $ 32,024
========== ========= ========= =========
UNIT CASE SALES DATA (IN THOUSANDS):
Soft drinks 50,842 53,909 175,719 169,063
Water 3,832 3,081 12,370 9,921
Beer 15,575 13,758 48,505 43,854
Other products 190 - 254 -
23UNIT CASE SALES VOLUME GROWTH:
Soft drinks 2.8%
Water 3.2%
Other products 58.4%
-------
Total growth 3.3%
=======
12
PANAMCO COLOMBIA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- --------- --------- ---------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 92,496 $ 93,410 $ 276,811 $ 278,850
Cost of sales, excluding depreciation
and amortization 43,771 40,367 129,798 118,637
---------- --------- --------- ---------
Gross profit 48,725 53,043 147,013 160,213
Operating expenses:
Selling, general and administrative 26,715 31,111 87,132 99,433
Depreciation and amortization 14,291 15,079 42,171 44,907
Amortization of goodwill 69 207 208 207
Facilities reorganization charges - - - 18,225
---------- --------- --------- ---------
41,075 46,397 129,511 162,772
---------- --------- --------- ---------
Operating income (loss) 7,650 6,646 17,502 (2,559)
Interest expense, net (2,218) (1,096) (6,413) (2,989)
Other income (expense), net (94) 193 295 (5,405)
---------- --------- --------- ---------
Income (loss) before income taxes 5,338 5,743 11,384 (10,953)
Provision (benefit) for income taxes 1,729 1,555 3,514 (3,653)
---------- --------- --------- ---------
Income (loss) before minority
interest 3,609 4,188 7,870 (7,300)
Minority interest in Panamco Colombia
subsidiaries holding company 29 55 83 113
---------- --------- --------- ---------
Net income (loss) attributable to
Panamco Colombia holding
company 3,580 4,133 7,787 (7,413)
Minority interest in Panamco
Colombia 97 113 213 (205)
---------- --------- --------- ---------
Net income (loss) attributable to
Panamco $ 3,483 $ 4,020 $ 7,574 $ (7,208)
========== ========= ========= =========
Cash operating profit $ 22,010 $ 21,932 $ 59,881 $ 49,473
========== ========= ========= ==========
UNIT CASE SALES DATA (IN THOUSANDS):
Soft drinks 37,993 38,169 113,398 114,071
Water 7,973 8,810 27,007 25,744
Other products 139 - 481 -
24Three Months Ended March 31,
------------------------------
2002 2001
--------------- -----------
STATEMENT OF OPERATIONS DATA:
Net sales $ 99,739 $ 94,476
Cost of sales, excluding depreciation
and amortization 46,070 42,847
-------- --------
Gross profit 53,669 51,629
Operating expenses:
Selling, general and administrative 30,355 30,345
Depreciation and amortization 12,351 14,122
-------- --------
42,706 44,467
-------- --------
Operating income 10,963 7,162
Interest expense, net (3,058) (732)
Other income, net 97 196
-------- --------
Income before provision for income taxes 8,002 6,626
Provision for income taxes 2,978 1,955
-------- --------
Income before minority interest 5,024 4,671
Minority interest in Panamco Colombia
subsidiaries holding company 60 50
-------- --------
Net income attributable to Panamco
Colombia holding company 4,964 4,621
Minority interest in Panamco
Colombia 136 127
-------- --------
Net income attributable to Panamco $ 4,828 $ 4,494
======== ========
Cash operating profit $ 23,314 $ 21,284
======== ========
Unit Case Sales Volume Decline:
Soft drinks (1.2%)
Water (19.2%)
Other products 370.9%
--------
Total decline
(4.7%)
========
13
PANAMCO VENEZUELA
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
------------------------------
2002 2001
------------- ------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 105,589 $ 133,857
Cost of sales, excluding depreciation
and amortization 55,773 63,881
--------- ----------
Gross profit 49,816 69,976
Operating expenses:
Selling, general and administrative 37,066 45,551
Depreciation and amortization 11,147 15,332
Nonrecurring items, net 4,081 -
--------- ----------
52,294 60,883
--------- ---------
Operating income (loss) (2,478) 9,093
Interest expense, net (276) (8,125)
Other income, net 3,651 3,561
--------- ---------
Income before benefit from income taxes 897 4,529
Benefit from income taxes (268) (2,273)
--------- ----------
Net income attributable to Panamco $ 1,165 $ 6,802
========= =========
Cash operating profit $ 10,350 $ 24,425
========= =========
UNIT CASE SALES VOLUME DECLINE:
Soft drinks (10.5%)
Water (20.7%)
Beer (23.1%)
Other products 34.2%
-------
Total decline
(10.6%
=======)
14
PANAMCO BRAZIL
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- --------- --------- ---------Three Months Ended March 31,
--------------------------------
SELECTED STATEMENTS OF OPERATIONS DATA:2002 2001
--------------- -------------
Statement of Operations Data:
Net sales $ 135,941104,881 $ 131,568 $ 411,751 $ 371,384126,369
Cost of sales, excluding depreciation
and amortization 68,023 61,369 201,317 170,925
---------- ---------- ----------66,881 82,216
--------- ---------
Gross profit 67,918 70,199 210,434 200,45938,000 44,153
Operating expenses:
Selling, general and administrative 44,380 51,919 136,610 140,80828,767 30,656
Depreciation and amortization 15,152 18,365 45,572 56,432
Facilities reorganization charges4,042 6,294
Nonrecurring items, net (3,381) - - - 30,854
---------- ----------
--------- ---------
59,532 70,284 182,182 228,094
---------- ----------29,428 36,950
--------- ---------
Operating income (loss) 8,386 (85) 28,252 (27,635)8,572 7,203
Interest expense, net (2,409) (6,966) (14,913) (17,935)(594) (160)
Other income (expense), net 1,217 3,941 6,539 3,910
---------- ----------48,732 (4,636)
--------- ---------
Income (loss) before provision (benefit) for income taxes 7,194 (3,110) 19,878 (42,380)56,710 2,407
Provision (benefit) for income taxes 35 294 (8,694) (3,620)
---------- ----------2,387 (246)
--------- ---------
Income before minority interest 54,323 2,653
Minority interest in Panamco
Brazil holding company 87 22
--------- ---------
Net income (loss) attributable to Panamco $ 7,15954,236 $ (3,404) $ 28,572 $ (38,760)
========== ========== ==========2,631
========= =========
Cash operating profit $ 23,53812,614 $ 18,280 $ 73,824 $ 46,374
========== ========== ==========13,497
========= UNIT CASE SALES DATA (IN THOUSANDS):
Soft drinks 38,369 39,176 114,856 112,346
Water 6,169 6,046 18,599 16,313
Beer 1,044 530 3,026 1,176
Other products 1,350 1,489 4,473 4,605=========
25Unit Case Sales Volume Decline:
Soft drinks (12.8%)
Water (6.3%)
Beer (17.3%)
Other 100.0%
--------
Total decline
(13.3%)
========
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion addresses the financial condition and results of
operations of Panamerican Beverages, Inc. ("Panamco" or "we") and its
consolidated subsidiaries. This discussion should be read in conjunction with
our unaudited condensed consolidated financial statements as of September 30,
2001March 31, 2002
and December 31, 20002001 and for the three and nine months ended September
30,March 31, 2002 and 2001 and 2000
and the notes thereto included elsewhere herein. Results for any interim
period are not necessarily indicative of results for any full year.
We conduct our operations through tiers of subsidiaries in which, in some
cases, minority shareholders hold interests. Since 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 minority shareholders during such period.
In 1998, we created the "Panamco Central America" group was created, which consists
of Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala. Prior to the
second quarter of 2001, the financial condition and results of operations of
these three companies were previously reported together in the financial
statements entitled Panamco Central America. In February 1999, we
formed the North Latin
American Division ("NOLAD"), was created, which consists of Panamco Mexico and
Panamco Central America. Since the second quarter of 2001, theThe results of operations of Panamco Mexico and
Panamco Central America are reported together in the financial statements entitledas Panamco Mexico and
Central America.NOLAD.
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.nonrecurring items.
We have made no significant changes in accounting policies from those
reflected in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
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. Additional information 26
concerning
such factors is contained in our Registration Statement on Form S-8 as filed
with the Securities Exchange Commission ("SEC") on July 23, 2001, and the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 as
well as other documents filed with the SEC, all of which are available from
the SEC.
THREE MONTHS ENDED SEPTEMBER 30, 2001MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000MARCH 31, 2001
Net sales for the thirdfirst quarter ended September 30, 2001March 31, 2002 decreased 1.5%3.2% to
$638.6$624.3 million from $648.2$644.8 million in the 2000 third quarter, mainly
due to2001 first quarter. Net sales were
negatively impacted by a reduction of 0.4% in consolidated unit case sales volumedecrease
16
of 4.8% compared to the 2001 period, the devaluation of the Venezuelan bolivar
and the continued deterioration of the economy in that country. In January
2002, we implemented a 41%
currency devaluationpolicy to raise prices in the territories in which we
operate in Brazil. Excluding Brazil, consolidatedThe result was a decline in volumes and an increase in
operating profit margins from the levels achieved in the fourth quarter 2001.
During the 2002 quarter, improved execution resulted in the resumption of net
sales increased 3.8%. Total unit case sales decreased to 298.7 million cases from
299.9 million unit casesand volume growth in the 2000 period. The 0.4% total unit case sale
decrease was attributable to total volume decrease of 1.9%, 0.7%, and 0.4% in
Colombia, Venezuela and Brazil, respectively, offset by the NOLAD region where total volume increased 0.2%. Consolidated soft drinkof 8.3% and water volumes
decreased 1.8% and 0.5%3.3%, respectively, whereas consolidated beer volumes
increased 16.3%. During the third quarter, Panamco continued to introduce new
products, successfully launching Powerade in Mexico, Nicaragua and Colombia as
well as Club Kna, a proprietary flavored-water in Colombia and Quatro, a
juice-based beverage in Mexico. Year-to-date, Panamco has introduced twelve
new products, including three in each of Mexico, Central America and Colombia,
two in Venezuela and one in Brazil.respectively.
Cost of sales as a percentage of net sales increased slightly to 48.5%49.6%
during the thirdfirst quarter of 20012002 from 47.0%49.0% in the 20002001 period. This increase
resulted from changeswas mainly the result of an increase in product mix as well as higher coststhe cost of raw materials and
currency movements, offset bypackaging throughout most operations, especially in Venezuela where the
benefits created by our cost
restructuring programs. On September 3, 2001,devaluation of the Venezuelan Bolivar resulted in more costly U.S.
dollar-denominated raw materials purchases, as well as a continuous change in
product mix towards non-returnables. At the beginning of 2002, the Mexican
Government assumedintroduced an excise tax of 20% on fructose-based soft drinks and
on carbonated water. In March 2002, this tax was suspended until September 30,
2002. The impact of this tax was a nonrecurring nonoperating charge to reflect
the operationstax paid on the inventory of 27 failing sugar millsproducts containing high fructose. The
reinstatement of this tax, or any increase in the country. The Government said
it will establish a state company to run the mills, which make up about half
of the 59 mills existing in the country. The partial nationalization of this
industry is expected to have implicationsexcise or other taxes on the
pricesale of sugar for Panamco in
Mexicoour products, will adversely affect our sales volumes and
pricesprofitability to the extent that we are expectedunable to pass the full amount of any
such increase 15.1% by year-end 2001.to consumers.
Gross profit as a percentage of net sales decreased slightly to 51.5%50.4%
during the thirdfirst quarter of 2002 from 51.0% in the first quarter of 2001,
from 53.0% in the third quarter of 2000, primarilymainly the result of a higher cost of raw material pricesmaterials and currency devaluation particularly
in Brazil, where the Brazilian real devalued 41%. This devaluationpackaging.
The following comparison of the
Brazilian real is expected to continue to adversely affect thePanamco's first quarter 2002 and 2001
consolidated results of operations of our Brazilian subsidiary forexcludes the near term and generally until
such time as local currency price increases are sufficient to cover the impacteffect of the devaluation.sale of Kaiser
and other nonrecurring items during the first quarter of 2002 totalling $35.7
million, net of the related tax benefit of $3.7 million. See "Nonrecurring
Items / Reorganization Programs" and Note 5 of "Notes to Condensed
Consolidated Financial Statements" for further discussion on Panamco's
nonrecurring items.
Operating expenses as a percentage of net sales decreased to 39.6%39.4% during
the thirdfirst quarter of 20012002 from 44.4%41.2% in the 20002001 period, mainly due to lower
goodwill amortization as a result of adopting SFAS No. 142, "Goodwill and
Other Intangible Assets" as well as a 16.7% reduction in depreciation expense,
primarily the benefitsresult of the reorganization program.lower property and equipment balances.
Operating income increased 38.4%10.0% to $76.3$68.9 million during the thirdfirst
quarter of 20012002 from $55.2$62.7 million in the 20002001 period, primarily the result of
lower goodwill amortization as a result of a $27.5 million or 12.4% reduction in selling, general and administrative
expenses which were positivelyadopting SFAS No. 142. Operating
income during the quarter was negatively impacted by the benefits createdcurrency devaluation
in Venezuela and by our cost
restructuring programs.the deteriorating macroeconomic conditions in that
country. Price increases in order to reduce the impact of the devaluation
resulted in loss of market share. The devaluation of the bolivar increases the
relative price of U.S. dollar-denominated raw materials of Panamco Venezuela and
decreases its U.S. dollar-reported net sales (and other financial statement
accounts, including net income). Unit case volumes may be adversely affected
to the extent of a continued slowdown in the Venezuelan economy. Excluding
Venezuela, operating income increased 25.6% from a year ago. Cash operating
profit increased 10.9%decreased 7.6% to $134.6$113.6 million in 20012002 from $121.4$122.9 million in the
thirdfirst quarter of 2000.2001. Excluding Venezuela, cash operating profit for the
quarter increased 2.4% from a year ago. In January 2002, we implemented a
policy to raise prices in the territories in which we operate in Brazil. The
result was a decline in volumes and an increase in operating profit margins
from the levels achieved in the fourth quarter 2001.
Net interest expense decreased 15.7% to $20.2$19.9 million during the thirdfirst
quarter of 20012002 from $28.1$23.6 million in the 20002001 period, primarily as a result
of gross debt reduction of $164.2 million during the quarter and $283.6
millionmainly resulting from
the 2000 third quarter.
27
Othercombination of a 30.6% reduction in gross interest expense net decreased to $3.5$22.6
million, during the third quarter
of 2001 from $5.7 millionwhich was partially offset by a 69.6% reduction in the 2000 period, primarily caused by an increaseinterest income.
The reduction in equity earnings of affiliates,interest expense is the result of a change$201.9 million reduction
in gross debt on a year over year basis.
Other income increased to $5.6 million during the first quarter of 2002
from an expense of $2.2 million in the method2001 period, primarily the result of accounting for certain investments, a
$0.8 million foreign exchange gain on sale of fixed assets,during this quarter compared to a $6.5
million foreign exchange loss, mainly land sale in Venezuela, andBrazil, in the same quarter a decrease in miscellaneous costs, offset by an
increase in contingency provisions.year
ago.
17
The consolidated effective income tax rate decreasedincreased slightly to 39.4%38.7%
during the thirdfirst quarter of 20012002 from 92.2%38.1% in the 20002001 period. The effective income
tax rate of 92.2% in the 2000 period is considered unusual and resulted from
the relatively low income during this period and non-deductibility of
significant expenses such as amortization of goodwill.
As a result of the foregoing, wePanamco recorded net income of $30.1$32.5
million during the thirdfirst quarter of 2001,2002, or $0.24$0.27 per share (basicbasic and diluted),diluted
share, compared to net income of $0.5$21.3 million, or $0.00$0.17 per basic share
(basic and
diluted)($0.16 on a diluted basis), during the 20002001 period.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales for the nine months ended September 30, 2001 increased 3.2%
to $1.96 billion from $1.90 billion during the same period in 2000, mainly due
to an increase of 2.5% in consolidated unit case sales volume. Total unit case
sales increased to 915.5 million cases from 893.3 million unit cases in the
2000 period. The 2.5% total unit case sale increase was attributable to total
volume increase of 6.3% and 4.8% and soft drink volume increase of 3.9% and 2.2%
in Brazil and Venezuela, respectively. Colombia reported total volume increase
of 0.8% while soft drink volume declined 0.6%. The NOLAD region had total
volume growth of 0.2% while soft drink volume declined 1.8%. Consolidated
water and beer volumes grew by 5.6% and 14.4%, respectively. During the third
quarter, Panamco continued to introduce new products, successfully launching
Powerade in Mexico, Nicaragua and Colombia as well as Club Kna, a proprietary
flavored-water in Colombia and Quatro, a juice-based beverage in Mexico.
Year-to-date, Panamco has introduced twelve new products, including three in
each of Mexico, Central America and Colombia, two in Venezuela and one in
Brazil.
Cost of sales as a percentage of net sales increased to 48.2% during
nine months ended September 30, 2001 from 47.6% in the 2000 period. This
increase resulted from changes in product mix as well as higher costs of raw
materials and currency movements, offset by the benefits created by our cost
restructuring programs. On September 3, 2001, the Mexican Government assumed
the operations of 27 failing sugar mills in the country. The Government said
it will establish a state company to run the mills, which make up about half
of the 59 mills existing in the country. The partial nationalization of this
industry is expected to have implications on the price of sugar for Panamco in
Mexico and prices are expected to increase 15.1% by year-end 2001.
Gross profit as a percentage of net sales decreased to 51.8% during
the nine months ended September 30, 2001 from 52.4% in the 2000 period,
primarily the result of higher raw material prices and currency devaluation in
Brazil. This devaluation of the Brazilian real is expected to continue to
adversely affect the results of operations of our Brazilian subsidiary for the
near term and generally until such time as local currency price increases are
sufficient to cover the impact of the devaluation.
28
The following discussion of the consolidated results of operations
excludes the recording of facilities reorganization charges, asset write-offs,
and nonoperating charges totalling $60.3 million, net of the related tax
benefit of $24.6 million, during the nine months ended September 30, 2000.
Operating expenses as a percentage of net sales decreased to 40.5%
during the nine months ended September 30, 2001 from 44.3% in the 2000 period,
mainly the result of the benefits obtained from our cost restructuring
programs.
Operating income increased 43.5% to $220.5 million during the nine
months ended September 30, 2001 from $153.7 million in the 2000 period,
primarily the result of increased sales and volume as well as the benefits of
the reorganization program. Cash operating profit increased 13.7% to $401.6
million in 2001 from $353.2 million in the 2000 period.
Net interest expense decreased to $67.5 million during the nine months
ended September 30, 2001 from $83.2 million in the 2000 period, primarily the
result of gross debt reduction of $264.1 million during the nine months of
2001 and $283.6 million from the 2000 period.
Other expense, net decreased to $7.5 million during the nine months
ended September 30, 2001 from $13.1 million in the 2000 period, primarily
caused by an increase in equity earnings of affiliates, the result of a change
in the method of accounting for certain investments, a gain on sale of fixed
assets, mainly land sale in Venezuela, and a decrease in contingency
provisions, offset by an increase in foreign exchange losses mainly in Brazil.
The consolidated effective income tax rate decreased to 33.8% during
the nine months ended September 30, 2001 from 93.8% in the 2000 period. The
effective income tax rate of 93.8% in the 2000 period is considered unusual
and resulted from the relatively low operating income during this period and
non-deductibility of significant expenses such as amortization of goodwill.
As a result of the foregoing, we recorded net income of $91.7 million
during the nine months ended September 30, 2001, or $0.72 per share (basic and
diluted), compared to net income of $0.7 million, or $0.01 per share (basic
and diluted), during the 2000 period.
FACILITIESNONRECURRING ITEMS / REORGANIZATION CHARGESPROGRAMS
During the first quarter of 2002, Panamco recorded a gain on the sale of
its 12.1% equity stake in Kaiser as part of a larger transaction in which
Molson, Inc. acquired Kaiser and entered into a partnership with Heineken. The
sale generated proceeds which include approximately $55.1 million reflected
within accounts receivable and $18.9 million in Molson stock recorded as an
investment (the Molson stock received by Panamco cannot be sold for a period
of two years pending the resolution of certain tax contingencies in Brazil,
which management is of the opinion that will be resolved in a manner favorable
to Panamco), and resulted in a gain of $48.6 million, which is included as
part of Other income (expense), net. We will continue to distribute Kaiser
products in our franchise areas in Brazil and the acquisition of Kaiser will
not impact this distribution agreement. During the first quarter, Panamco also
had nonrecurring charges, net of benefits, approximating $16.6 million, of
which $11.6 million is classified as cash charges and $5.0 is classified as
noncash charges. The cash charges primarily relate to severance payments for
the termination of approximately 600 employees in Mexico and Venezuela and to
the payment of excise taxes on soft drink inventories containing high fructose
corn syrup in Mexico. The payment of the excise taxes resulted from a law that
was suspended shortly after it was initiated. Panamco has initiated legal
proceedings to seek that the amounts already paid be refunded. The noncash
charges primarily relate to the closure of plants in Venezuela and to the
sale, at a loss, of the corporate airplane to a related party. The gain on the
sale of Kaiser and the total nonrecurring charges, net benefits, had a
combined positive after-tax impact on net income of $35.7 million.
During 2000, we began aPanamco implemented company-wide reorganization programprograms
designed to improve productivity and strengthen our competitive position in
the beverage industry. As of March 31, 2002, approximately 7,700 employees
have been terminated by Panamco relating to the reorganization programs
implemented during 2000. Balances related to accrued facilities reorganization
costs of $5.3 million and $6.5 million are reflected in Other accrued
liabilities and $6.0 million is reflected in Other long-term liabilities in
the condensed consolidated balance sheets at March 31, 2002 and December 31,
2001, respectively. The program includes
productivity initiativesdecrease in accrued facilities reorganization costs
during the three months ended March 31, 2002 is related to streamline Panamco's manufacturing infrastructure,
consolidationthe continued
implementation of distribution centersthe reorganization programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and warehouses, andcash equivalents decreased $43.3 million during the terminationfirst three
months of approximately 10,000 jobs across all levels2002 from net cash transactions. Our primary sources of Panamco.
Duringcash for the
fourthfirst quarter of 2000, we performed an analysis of our
growth opportunities, cost structure2002 were proceeds from bank loans totalling $9.7 million and
asset valuation. This resulted in
several new steps to further position Panamco for improved financial
performance and future growth. These steps include additional restructuring ofproceeds from the distribution system in Brazil and Venezuela, plant closings and related
disposalsale of property, plant and equipment write-down of goodwill in the
Venezuelan operating unit, write-off of obsolete property, plant and
equipment, bottles and cases, and asset write-downs related to coolers.
29
During the year ended December 31, 2000, we 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 totalling $111.5 million consist of:
o Cash restructuring charges totalling 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 totalling approximately $24.8
million, which result from plant closings and the related disposal
of property, plant and equipment.
(2) Asset write-offs totalling $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$8.8 million.
Our primary uses of cash charges related tofor the disposalfirst quarter of property,
plant2002 were the payment of
bank loans and equipment.
(3) Nonrecurring chargesother long-term obligations totalling $8.6$17.3 million, related to legal
contingencies mostly pertaining to tax matters.
II. Asset write-downscapital
expenditures totalling $31.1$12.9 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-downpurchase of bottles and cases due to losstotalling
$8.6 million, payment of shareholder dividends totalling $7.3 million, and
share repurchases totalling $7.3 million. Cash flow used in market value.
III. Nonoperating asset charges totalling $6.0operating
activities was $1.0 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, our income for the year 2000 was impacted by
facilities reorganization charges, asset write-downs and nonoperating charges
totalling $494.2 million, net of the related tax benefit of approximately
$46.5 million.
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:
30
YEAR ENDED DECEMBER 31, 2000
--------------------------------------
(STATED IN THOUSANDS OF U.S. DOLLARS) FOURTH FIRST
TOTAL QUARTER QUARTER
--------------------------------------
Depreciation and amortization,
excluding goodwill:
Asset write-downs $ 31,079 $ 31,079 $ -
---------- ----------- ----------
Facilities reorganization charges:
Cash 88,572 48,226 40,346
Noncash 415,087 375,555 39,532
---------- ----------- ----------
503,659 423,781 79,878
Other income (expense), net:
Nonoperating charges 5,976 590 5,386
---------- ----------- ----------
Gross charges 540,714 455,450 85,264
Tax benefit (46,516) (23,111) (23,405)
---------- ----------- ----------
Net charges $ 494,198 $ 432,339 $ 61,859
========== =========== ==========
As of September 30, 2001, we had completed approximately 76% of the
total planned workforce reduction. There has been no material change to the
expected effects on future earnings and cash flows resulting from the
facilities reorganization program, which were previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the ninethree months ended September 30, 2001 and 2000, consolidatedMarch 31, 2002 compared
to cash flow provided by operations was $240.9operating activities of $81.1 million and $207.9 million,
respectively. Cash generated from operations was primarily usedin the same
quarter a year ago, mainly due to pay down
$145.0 million of our syndicated loan, to prepay $100.0 million of the
remaining outstanding debt with The Coca-Cola Company, to pay down nearly
$30.0 million of debt in our Venezuelan operations, and to repurchase $109.3
million of our shares. Cash provided by investing activities included the
release of investments in bank deposits for $125.0 million, which guaranteed
bank loans obtained by subsidiaries and were therefore previously classified
as noncurrent investments, as well as $25.7 million gains on sale of property,
plant and equipment. At September 30, 2001, we had consolidated cash and cash
equivalents of $104.5 million, a decrease in accounts payable of 45.5% compared to $191.8 million
as of December$60.1
million. At March 31, 2000. At September 30, 2001,2002, we had negative working capital of $94.3$92.9 million,
a 45.3%45% improvement compared to a negative working capital of $172.3$168.9 million as
of December 31, 2000.2001. A working capital deficit is not unusual for us and does
not indicate a lack of liquidity. We continue to maintain adequate current
assets to satisfy current liabilities when they are due and have sufficient
liquidity and financial resources to manage our day-to-day cash needs.
Total consolidated indebtedness was $989.7decreased to $963.8 million asat March 31,
2002, from $970.2 million at the end of September 30, 2001, consisting of $590.0$580.0 million at
the holding company level and $399.7$383.8 million of subsidiary
18
indebtedness. As of September 30, 2001, 79.3% ofOf the total debt, is dollar denominated and 89.6%88.0% is long-term. The $164.2 million
reduction in grossOur U.S. dollar-denominated
debt decreased to 65.8% at March 31, 2002 from $1.15 billion67.5% at the end of 2001.
There has been no significant change in our contractual obligations
during the second quarter to
$989.7 million at the end of the third quarter is mainly the result ofthree months ended March 31, 2002. For a combination of a $145.0 million pay downdiscussion of our
syndicated loan, as well as
nearly a $30.0 million reduction in the debt held by our Venezuelan
31
subsidiary. Approximately $100.0 millioncontractual obligations, refer to Item 7, "Management's Discussion and
Analysis of debtFinancial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements", contained in our Mexican operations
carry a Standard & Poor's rating of MX-AA and approximately $62.0 million of
debt in our Colombian operations carry a Duff & Phelps rating of AAA.
OnForm 10-K for the year
ended December 31, 2000, we2001.
At December 31, 2001, Panamco had a loan with The Coca-Cola Financial
Corporation (U.S.), amounting to $100.0 million with an average annual
interest rate of three-month LIBOR plus 3.25%. On February 28, 2001, we
prepaidcompleted the remaining outstanding debt with The Coca-Cola Financial
Corporation (U.S.) in the amount of $100.0 million. There was no prepayment
penalty.
On December 9, 1999, the Board of Directors authorized a $100.0 million share
repurchase program adopted in 1999, increased to a total of $150.0 million by
two $25.0 million supplements in 2001 (the "1999 Share Repurchase Program").
In the Company'sfirst quarter of 2002, we adopted a new program (the "2002 Share
Repurchase Program") to repurchase up to $20.0 million of Panamco's Class A
Common Stock (the
"Share Repurchase Program") in accordance withStock. During the anti-market-manipulation
safe harborfirst quarter of Rule 10b-18 promulgated under the Securities Exchange Act of
1934. The Share Repurchase Program was supplemented with $25.0 million
increases on each of July 20, 2001 and September 6, 2001. In addition to this
$150.0 million authority, the Share Repurchase Program also provides for
repurchases of shares from independent brokers by Panamco (currently totalling
$4.8 million) made in connection with employees' stock option exercises.
Panamco shares may be purchased in the open market or in privately negotiated
transactions, depending on market conditions and other factors. We have2002, we repurchased 5,795,800 shares amounting to $109.6 (including brokerage
commissions) million at an average price per share of $18.91 during the nine
months ended September 30, 2001. From the Share Repurchase Program's inception
on December 9, 1999 to September 30, 2001, we have repurchased 6,949,800442,700 shares
for a total amount of $130.8$7.3 million (including brokerage commissions)
at an average price per shareunder the 2002 Share Repurchase Program.
During the first quarter of $18.83.
Total capital expenditures for2002, Panamco recorded a gain on the nine months ended September 30,
2001 were $56.2 million, showingsale of
its 12.1% equity stake in Kaiser as part of a spending reduction of 41.8%, compared to
$96.5 million for the nine months ended September 30, 2000. For the year 2001,
we expect our capital expenditures to be approximately $86.0 million.
On February 21, 2001, Panamco Colombia issued unsecured, publicly
traded bonds valued at Col$35,000,000,000 Colombian pesos (approximately $15.5
millionlarger transaction in U.S. dollars) with a coupon rate of DTF (the Colombian borrowing
rate) plus 2.75% (15.5% at February 21, 2000)which
Molson, Inc. acquired Kaiser and a maturity date of August 9,
2005. The proceeds from the debt issue were used to pay U.S. dollar
denominated debt.
On November 22, 2000, we entered into a swap agreement where we
receive LIBOR at specified measurement datespartnership with Heineken. The
sale generated proceeds which include approximately $55.1 million reflected
within accounts receivable and pay interest at a fixed rate
of 6.44% on a notional amount of $250.0 million. The swap agreement, which is
classified as a cash flow hedge and was initiated in order to reduce exposure
to adverse fluctuation in interest rates, expires on November 22, 2002.
On April 20, 2001, our Brazilian subsidiary entered into four swap
agreements to exchange dollar denominated debt amounting to $30.0$18.9 million in Molson stock recorded as an
investment. We will continue to distribute Kaiser products in
our franchise areas in Brazil and the aggregate. The termsacquisition of the swap agreements are as follows: R2,109,870
(Brazilian reals) maturing on October 16, 2001; R32,753,046 maturing on April
15, 2002; R994,334 maturing on October 11, 2002; and R29,788,731 maturing on
April 9, 2003. All four swap agreements have an interest rate of 90% of CDI
(the Brazilian borrowing rate). The swap agreements, which are classified as
fair value hedges, were initiated in order to reduce exposure to adverse
currency exchange fluctuations.
32
Kaiser will not impact
this distribution agreement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposure to market risk
during the ninethree months ended September 30, 2001.March 31, 2002. For a discussion of our exposure
to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures
about Market Risk, contained in our Annual Report on Form 10-K for the year ended December 31,
2000.2001.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 2001, a labor union and several individuals from the RepublicLegal Proceedings information is addressed in Item 3 of Colombia filed a lawsuit in the U.S. District Courtour Form 10-K
for the Southern
District of Florida against us (and certain of our subsidiaries) as well as
The Coca-Cola Company (and certain of its subsidiaries) and another Coca-Cola
bottler in Colombia. In the complaint, the plaintiffs have allegedyear ended December 31, 2001. There has been no material change to
that we
have engaged in wrongful acts against the labor union and its members in
Colombia, including kidnapping, torture, death threats and intimidation. The
complaint alleges claims under the Alien Tort Claims Act, the Torture Victim
Protection Act, RICO and state tort law and seeks injunctive and declaratory
relief and damages of more than $500 million, including treble and punitive
damages and the cost of the suit, including attorney fees. In October, we
filed a motioninformation required to dismiss the complaint for lack of subject matter and
personal jurisdiction. A ruling on our motion to dismiss the lawsuit is
expected in the first quarter of 2002. We believe this lawsuit is without
merit and intend to vigorously defend ourselvesbe disclosed in this matter.
During 1999, a group of independent distributors of Panamco Venezuela
commenced a proceeding to incorporate a union of distributors. On September
20, 2001, the Venezuelan Supreme Court rendered its opinion confirming the
incorporation of the union, but withheld granting any specific labor rights to
the members of the union other than the right to be unionized. In order to
obtain specific labor rights, the union (or its members) will have to request
to a court of law (with jurisdiction over labor law) to determine if the
members of such union can be considered workers pursuant to Venezuelan labor
laws, and thereafter claim against Panamco Venezuela the payment of such
benefits and rights including retroactive payments. To our knowledge, neither
the union nor any of its individual members have initiated any process with
the objective of obtaining a court decisionQuarterly Report on whether the members of the
union are subject to the rights and benefits of the Venezuelan labor laws,
although certain members of the union have threatened such action. We intend
to vigorously defend our rights should this action be filed.Form
10-Q.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
33
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
----------------
10.1 - First Amendment to the Term Credit Agreement dated as of
September 4, 2001, by and among Panamco de Venezuela, S.A., as
borrower, Comerica Bank, as lender, and the Company, as
guarantor.
10.2 - Financial Lease Agreement dated as of September 5, 2001, by
and among Panamco de Venezuela, S.A., as borrower, Citibank,
N.A., as lender, and the Company, as guarantor.
10.3 - Promissory Note dated as of September 14, 2001, by and among
Panamco de Nicaragua, S.A., as borrower, Citibank, N.A., as
lender, and the Company, as guarantor.
10.4 - Credit Agreement dated as of September 24, 2001, between the
Company, as borrower, and The Chase Manhattan Bank, as lender.None.
(b) Reports on Forms 8-K - We8-K:
---------------------
The Company did not file any reports on Form 8-K during
the three months ended September 30, 2000.
34March 31, 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NovemberMay 14, 20012002 PANAMERICAN BEVERAGES, INC.
(REGISTRANT)
By: /s/ Paulo J. Sacchi
--------------------------
Paulo J. Sacchi
SeniorMario Gonzalez Padilla
--------------------------------
Mario Gonzalez Padilla
Vice President, Chief Financial Officer and Treasurer
(On behalf of the Registrant and as Chief Accounting
Officer)