AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 2005
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SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year end December 31, 2002
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Commission file number: 1-14616
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SUPERMERCADOS UNIMARC S.A.
(Exact name of Registrant as specified in its charter)
UNIMARC SUPERMARKETS INC.
(Translation of Registrant's name into English)
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REPUBLIC OF CHILE
(Jurisdiction of incorporation or organization)
AVENIDA PRESIDENTE EDUARDO FREI MONTALVA 1380
SANTIAGO, CHILE
011-56-2-687-7000
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
1,516,685 American Depositary Shares (as evidenced New York Stock Exchange
by American Depositary Receipts), each representing
50 shares of common stock
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
The number of outstanding shares of each class of capital stock of Supermercados
Unimarc S.A., as of December 31, 2002 was: 1,261,849,619 Shares of Common Stock
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 |_| No |X|
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 18 |X| Item 17 |_|
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TABLE OF CONTENTS
Page
PRESENTATION OF INFORMATION....................................................1
FORWARD-LOOKING STATEMENTS.....................................................2
EXCHANGE RATES.................................................................2
PART I
Item 1. Identity of Directors, Senior Management and Advisers..............5
Item 2. Offer Statistics and Expected Timetable............................5
Item 3. Key Information....................................................5
Item 4. Information on the Company........................................17
Item 5. Operating and Financial Review....................................31
Item 6. Directors, Senior Management and Employees........................45
Item 7. Major Shareholders and Related Party Transactions.................49
Item 8. Financial Information.............................................52
Item 9. The Offer and Listing.............................................56
Item 10. Additional Information............................................58
Item 11. Quantitative and Qualitative Disclosures about Market Risk........67
Item 12. Option to purchase securities from registrant or subsidiaries.....70
PART II
Item 13. Defaults, Late Dividends and Delinquencies........................70
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds...................................................72
Item 15. Control and Procedures............................................72
Item 16. (Reserved)........................................................72
PART III
Item 17. Heading 2~Heading 1~Financial statements
Item 18. Financial statements..............................................73
Item 19. Exhibits..........................................................73
-i-
PRESENTATION OF INFORMATION
Supermercados Unimarc S.A., or Unimarc, is a publicly held stock
corporation (SOCIEDAD ANONIMA ABIERTA) organized under the laws of the Republic
of Chile. We completed the initial public offering of American Depositary
Shares, or ADSs, representing our shares of common stock, and registered our
ADSs on the New York Stock Exchange (NYSE) under the symbol "UNR", in 1997.
Pursuant to a written communication furnished to us on March 28, 2003, the NYSE
suspended the listing of our ADSs in the NYSE prior to the opening of the market
on Wednesday April 2, 2003. The NYSE made this decision on the ground that the
average closing price of our ADSs had been less than US$1.00 over a consecutive
30-day trading period and we were unable to cure this non-compliance within the
deadline prescribed by the NYSE. Our shares of common stock are registered with
(1) the Bolsa de Comercio de Santiago, (2) the Bolsa Electronica de Chile and
(3) the Bolsa de Corredores - Bolsa de Valores de Valparaiso. We refer to the
Bolsa de Comercio de Santiago, the Bolsa Electronica de Chile and the Bolsa de
Corredores - Bolsa de Valores de Valparaiso, as the "Chilean stock exchanges".
We are registered with the Superintendencia de Valores y Seguros de Chile. We
are subject to the rules and regulations applicable to publicly held
corporations in Chile and to the rules and regulations of the U.S. Securities
and Exchange Commission, or the Commission. All of our directors and officers
and certain experts named in this annual report reside outside the United
States, principally in Chile and Argentina.
In this annual report (1) references to "U.S. dollars", "US Dollars",
"dollars", "$", U.S.$ or "US$" are to U.S. dollars, the legal currency of the
United States; (2) references to "pesos", "Chilean pesos" or "Ch$" are to
Chilean pesos, the legal currency of Chile; (3) references to "UFs" are to
"Unidades de Fomento", a daily indexed Chilean peso-denominated monetary unit
that takes into account the effect of the Chilean inflation rate for the
previous month; (4) references to "Argentine pesos" or "A$" are to Argentine
pesos, the legal currency of Argentina; (5) references to "euros" are to euros,
the legal currency of the European Union; and (6) references to "DM" are to
German marks, the legal currency of Germany prior to the adoption of the euro.
Certain figures contained in this annual report may not add to totals due to
rounding.
The terms below have the following meanings in this annual report:
o "supermarket" means a retail store that sells different foodstuff and
household items (stock keeping units or "SKUs") and that has three or more
checkout counters. This definition is consistent with the definition of
"supermarket" used by the Chilean INSTITUTO NACIONAL DE ESTADISTICAS, the
"Chilean National Institute of Statistics", or "INE";
o "supermarket chain" means two or more supermarkets that are under the same
ownership; and
o one "meter" equals to 3.2808 feet or 1.0936 yards and one square meter
equals 10.7639 square feet.
Chile is divided into political subdivisions, each referred to as a
"region". Regions are designated using Roman numbers (i.e., I-XII), except for
the region which encompasses the capital of Chile, Santiago, which is known as
the Metropolitan region.
Information contained in this annual report with respect to (1) the
contribution of the supermarket industry to the growth of the gross domestic
product, or GDP, (2) the population per region, (3) the amounts and percentages
of supermarket sales per region, (4) the number of supermarkets per region, and
(5) the number of inhabitants per supermarket was obtained from information made
available by the INE and research of the industry, as well as studies conducted
by A.C. Nielsen Company. We obtained additional data from third parties,
including both governmental and private entities, and from our own
research. We believe our estimates to be reliable, but such estimates have not
been confirmed by independent sources.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning
of Section 27A of the U.S. Securities Act of 1933, or the Securities Act, and
Section 21E of the U.S. Securities Exchange Act of 1934, or the Exchange Act.
These statements are based on the current beliefs of our management, as well as
on assumptions made by our management based on information regularly available
to it. The words "expect", "anticipate", "want", "plan", "may", "believe",
"seek", "estimate" and similar expressions identify some of these
forward-looking statements. Forward-looking statements appear throughout this
annual report, including, without limitation, under "Item 3. Key Information -
Risk Factors", "Item 4. Information on the Company" and "Item 5. Operating and
Financial Review". These forward-looking statements relate, among other things,
to:
o our business model,
o our strategy,
o our plans and timing for the introduction or enhancement of our services
and products,
o our proposed acquisitions, and,
o our plans for entering into strategic relationships as well as other
expectations, intentions and plans other than historical facts.
Forward-looking statements involve inherent risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed by or implicit in such forward-looking statements, including, but not
limited to, changes in technology and changes in the supermarket industry. If
our management's assumptions prove incorrect, actual results may vary both
materially and adversely from those anticipated or projected. Accordingly, we
may not assure you that forward-looking statements will be realized. You are
cautioned not to place undue reliance on forward-looking statements, as they
refer only to their respective dates. We undertake no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
EXCHANGE RATES
Before 1989, Chilean law permitted the purchase and sale of foreign
exchange only in the events specifically authorized by Banco Central de Chile,
or the Central Bank. The "Central Bank Act" of 1989, (LEY ORGANICA
CONSTITUCIONAL DEL BANCO CENTRAL DE CHILE NO. 18,840) liberalized the rules that
govern the ability to buy and sell foreign currencies. Under this Central Bank
Act, the Central Bank may require that certain types of purchases and sales of
foreign currencies, as specified in the law, be carried out in the formal
exchange market (MERCADO CAMBIARIO FORMAL). The Central Bank also determines
which banks or other entities are authorized to engage in currency transactions
in the formal exchange market. The translation of pesos into U.S. dollars of all
payments and distributions by us, with respect to the ADSs, must be transacted
at the "spot" market rate in the formal exchange market.
For purposes of the operation of the formal exchange market, the Central
Bank has set a reference exchange rate, the DOLAR ACUERDO. The reference
exchange rate is (1) monthly reset by the Central Bank, taking into account
internal and external inflation and (2) adjusted on a daily basis to reflect the
variation
2
in parities between the peso and each of the U.S. Dollar, the Japanese Yen and
the euro. The reference exchange rate is determined using the procedure
described below, on the basis of the value of the "CANASTA REFERENCIAL DE
MONEDAS", or the reference currency basket, which is comprised of: (1) U.S.
dollars (80%), (2) euros (15%) and (3) Japanese Yens (5%).
o the value of the reference currency basket is adjusted by 0.008099%, on a
daily basis, during the period from the tenth day of January 2003 through
the ninth day of January 2004, both dates inclusive.
o The reference exchange rate is determined by applying the percentage set
forth in the paragraph above to the reference currency basket, as
published in the Official Gazette, prior to the beginning of each monthly
period.
o The Central Bank determines the daily value of the reference exchange rate
in the applicable monthly period by dividing the daily value of the
reference currency basket by the sum of (i) 0.8 + 0.12493, multiplied by
the Dollar-euro parity in effect in the international markets at 9:30 am
on the relevant day, and (ii) 5.911 divided by the yen-dollar parity in
effect in the international markets at 9:30 am on the relevant day. The
formula below describes the determination of the daily value of the
reference exchange rate.
CRM value
Value of the reference exchange rate = ------------------------------------
(0.8 + 0.12493 x P d/e + 5.911/Py/d)
where:
P d/e = Dollar-euro parity in effect in the international markets at 9:30 AM on
the respective day.
P y/d = Yen-dollar parity in effect in the international markets at 9:30 AM on
the respective day.
Parities in these international markets are those determined by the
Central Bank in its sole discretion based on information furnished to it by
Reuters or Bloomberg, or otherwise through direct consultation with first class
international banks.
The value of the reference exchange rate is published by the Central Bank
before 10:00 AM in each banking day.
The observed dollar exchange rate for a given date is the average exchange
rate for transactions conducted in the formal exchange market during the
immediately preceding banking day, as certified by the Central Bank. Although
the Central Bank is authorized to carry out its transactions at the reference
exchange rate and at the spot exchange rate, it generally carries out its
transactions at the spot exchange rate.
Until September 3, 1999, banks operating in Chile were permitted to carry
out their transactions within a certain band above or below the reference
exchange rate. In order to maintain the average exchange rate within such
limits, the Central Bank started to sell and buy currencies in the formal
exchange market. On September 2, 1999, the Central Bank decided to eliminate the
exchange rate band as an instrument of monetary policy to introduce greater
flexibility into the exchange market. To adopt this measure, the monetary
authority took into consideration several factors, including the international
financial scenario, the domestic inflation rate, the level of external accounts,
and the development of financial instruments in the exchange market. At the same
time, the Central Bank announced that it would interfere in the exchange market
only in special and qualified events.
3
Purchases and sales of currencies which may be effected outside the formal
exchange market, are carried out in the informal exchange market (MERCADO
CAMBIARIO INFORMAl). The informal exchange market and its predecessor, the
"extra-official market", reflect the offer and demand for currencies. There are
no established limits as to the rate of fluctuation of the exchange rate in the
informal exchange market either above or below the reference exchange rate or
the observed exchange rate. On December 31, 2002, the average exchange rate in
the informal market was 1.1% higher than the observed exchange rate, which was
Ch$ 718.61 per U.S. dollar.
The table below shows the highest annual value, the lowest annual value,
the average annual value, and the value at the end of the period for the
observed exchange rate for U.S. dollars, beginning 1998, as reported by the
Central Bank.
YEAR ENDED AS OF DECEMBER 31, HIGH LOW AVERAGE PERIOD END
- ----------------------------- ---- --- ------- ----------
1998 475.41 439.18 460.29 472.41
1999 550.93 468.69 508.78 530.07
2000 580.37 501.04 539.49 573.65
2001 716.62 557.13 634.94 654.79
2002 756.56 641.75 688.94 718.61
February 2003 755.26 733.10 745.21 753.54
March 2003 758.21 725.79 743.28 727.36
April 2003 731.56 705.32 718.25 705.32
May 2003 713.73 694.22 710.12 703.58
June 2003 717.40 697.23 709.18 699.12
July 2003 705.64 695.82 701.14 706.21
4
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The table below shows selected consolidated financial and operating
information as of the dates and for each of the periods indicated. The
information for the years ended December 31, 2000, 2001 and 2002 should be read
in conjunction with and is qualified in its entirety by reference to our audited
consolidated financial statements, included elsewhere in this annual report. Our
audited consolidated financial statements were prepared in accordance with
Chilean generally accepted accounting principles, or Chilean GAAP, which differ
in certain important respects from U.S. generally accepted accounting
principles, also referred as U.S. GAAP. Note 41 to our consolidated financial
statements provides a description of the principal differences between Chilean
GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of net income and total
shareholders' equity reported under Chilean GAAP at December 31, 2001 and 2002.
As required by Chilean GAAP, our financial statements have been restated
to reflect the effect of variations in the purchasing power of the Chilean peso
due to inflation. These changes are based on the Chilean consumer price index,
or CPI, as measured between December 1 and November 30 of each year. The
financial information for the years ended December 31, 1998, 1999, 2000, 2001
and 2002 has been expressed in Chilean pesos as of December 31, 2002. See "Item
5. Operating and Financial Review".
For your convenience, this annual report contains translations of certain
Chilean peso amounts into U.S. dollars at specified exchange rates. Since the
Federal Reserve Bank of New York does not report an exchange rate for the
purchase of Chilean pesos, we made these translations using the observed dollar
exchange rate as reported by the Central Bank at December 31, 2002, which was
Ch$718.61 per U.S. dollar. You should not construe any translations of Chilean
pesos into U.S. dollars included in this annual report as a representation that
the amounts in pesos actually represent the amounts translated into dollars.
Additionally, you should not construe any such translations as a representation
that the amounts in pesos have been, could have been or may be translated into
dollars at that or any other exchange rate. See "Exchange Rates".
5
INCOME STATEMENT DATA:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002(1)
--------- --------- --------- --------- --------- ---------
(IN MILLIONS OF CONSTANT CH$ AND MILLIONS OF US$ AS OF DECEMBER 31, 2002) (2)
CHILEAN GAAP:
Net Sales .......................... 252,907 192,586 168,853 147,944 122,344 170.3
Cost of sales ...................... (191,332) (151,666) (139,151) (113,788) (96,585) (134.4)
Gross profit ....................... 61,575 41,190 29,702 34,155 25,758 35.8
Adm. and selling expenses .......... (54,209) (40,870) (29,473) (32,486) (33,150) (46.1)
Operating income ................... 7,367 319 229 1,669 (7,392) (10.3)
Non-operating income ............... 3,394 15,447 3,296 565 2,518 3.5
Non-operating expense .............. (5,844) (6,932) (5,381) (7,418) (7,121) (9.9)
Price-level restatement ............ 658 919 876 347 4,793 6.7
Income taxes ....................... (607) (747) 1,086 2,736 5,592 7.8
Minority interest .................. (84) (1,299) 4 (0.8) 5 0.0
Net income (loss) .................. 4,889 7,707 111 (2,101) (1,600) (2.2)
Net Income (loss) per share (3) .... 3.87 6.11 0.09 (0.16) (0.13) 0.0
Net Income (loss) per ADS (3) ...... 193.5 305.38 4.40 (8.33) (6.34) 0.0
Dividends per share (Historical) ... 1.05 1.11 0.0026 0 0 0.0
Weighted average shares
outstanding (000s) .............. 1,261,850 1,261,850 1,261,850 1,261,850 1,261,850 1,261,850
U.S. GAAP:
Net sales .......................... 253,627 193,135 168,871 151,338 122,344 170.3
Cost of sales ...................... (191,332) (151,666) (139,151) (113,788) (96,585) (134.4)
Gross profit ....................... 62,295 41,469 29,721 37,550 25,758 35.8
Administrative and selling
expenses ........................ (54,228) (40,814) (29,559) (32,645) (33,246) (46.3)
Operating income ................... 8,068 654 (226) 4,904 (7,487) (10.4)
Non-operating income ............... 406 15,168 598 564 3,547 4.9
Non-operating expense .............. (4,508) (6,058) (4,447) (6,402) (5,907) (8.2)
Price-level restatement ............ 707 931 877 347 4,793 6.7
Income taxes ....................... (1,248) (883) (2,126) 723 4,741 6.6
Minority interest .................. (84) (1,299) 4 (1) 5 0.1
Net income (loss) .................. 3,335 8,513 (622) 136 (309) (0.4)
Net Income (loss) per share ........ 2.57 6.75 (0.49) 0.1 (0.2) 0.0
Net Income (loss) per ADS .......... 128.50 337.50 (24.50) 5.4 (5.0) (0.01)
Weighted average shares
outstanding (000s) .............. 1,261,850 1,261,850 1,261,850 1,261,850 1,261,850 1,261,850
- ----------
(1) Unaudited Chilean peso amounts have been translated into U.S. dollars at the
rate of Ch$ 718.61 per U.S. dollar, the Observed Exchange Rate on December
31, 2002,
(2) Except ratios, shares outstanding, per share, per ADS and operating data.
(3) In pesos and dollars not in millions. We calculated net income per share and
per ADS based on the weighted average number of shares of common stock
outstanding during the relevant period.
6
BALANCE SHEET DATA:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002 (1)
--------- --------- --------- --------- --------- ---------
(IN MILLIONS OF CONSTANT CH$ AND MILLIONS OF US$ AS OF DECEMBER 31, 2002) (2)
CHILEAN GAAP:
Total current assets ............................. 56,774 31,719 33,630 35,483 21,749 30.3
Net property, plant and equipment ................ 130,723 141,781 157,833 160,736 150,711 209.7
Total assets ..................................... 203,847 198,019 214,107 217,581 199,148 277.1
Short-term debt (2) .............................. 26,410 30,631 28,957 31,281 24,610 34.2
Long-term debt ................................... 25,811 7,201 7,831 10,176 8,350 11.6
Total shareholders' equity ....................... 105,410 112,523 109,923 108,271 107,823 150.0
U.S. GAAP:
Total current assets ............................. 54,651 31,896 33,661 34,578 21,794 30.3
Net property, plant and equipment ................ 127,804 130,024 128,992 147,730 143,101 199.1
Total assets ..................................... 187,801 175,550 178,531 197,403 185,667 258.4
Short-term debt (2) .............................. 26,193 30,631 28,957 31,280 24,610 34.3
Long-term debt ................................... 23,239 7,201 7,831 10,176 8,350 11.6
Total shareholders' equity ....................... 91,690 92,127 76,583 87,203 92,665 128.9
OTHER FINANCIAL DATA:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002 (1)
--------- --------- --------- --------- --------- ---------
(IN MILLIONS OF CONSTANT CH$ AND MILLIONS OF US$ AS OF DECEMBER 31, 2002) (2)
OTHER FINANCIAL INFORMATION (CHILEAN GAAP):
Capital expenditures ............................. 46,351 28,714 31,010 17,070 1,244 1.7
Depreciation and amortization .................... 6,144 6,895 6,652 7,100 7,961 11.1
Funds from operations (3) ........................ 12,526 18,041 5,526 6,581 (12,823) (17.8)
FINANCIAL RATIOS (CHILEAN GAAP) UNAUDITED (4):
Gross margin ..................................... 24.3% 21.4% 17.6% 23.1% 21.1% 21.1%
Operating margin ................................. 2.9% 0.16% 0.14% 1.1% (6.0%) (6.0%)
Net margin ....................................... 2.9% 4.0% 0.07% (1.4%) (1.3%) (1.3%)
Current ratio .................................... 86.8% 49.5% 52.3% 52.2% 38.3% 38.3%
Total debt/total shareholders' equity ............ 57.0% 37.0% 33.9% 38.3% 30.6% 30.6%
OPERATING DATA (CHILEAN GAAP) UNAUDITED:
Number of supermarkets (at end of
period) ....................................... 40 32 33 33 37 37
Number of supermarkets remodeled or
expanded (during period) ...................... 0 0 1 1 7 7
Total selling space of supermarkets
(in square meters at period end) ................. 77,658 56,249 62,837 62,837 63,318 63,318
Average selling space per
supermarket(5) ................................ 1,941 1,815 1,745 1,904 1,712 1,712
Average sales per supermarket (6) ................ 6,137 4,886 4,683 3,912 3,221 4.48
Total number of employees (at period
end) .......................................... 3,859 2,012 1,976 1,950 4,092 4,092
Sales (in thousands) per square
meters(7) ..................................... 3,211 2,674 2,682 2,055 1,772 2.47
Sales (in thousands) per employee ................ 63,619 76,800 80,340 66,208 27,419 38.16
- ----------
(1) We translated unaudited Chilean peso amounts (except dividends) into U.S.
dollars at the rate of Ch$ 718.61 per US dollar, the Observed Exchange
Rate at December 31, 2002,
(2) Short-term debt consists of short-term obligations with banks plus the
current portion of long-term liabilities.
(3) Funds from operations are equivalent to working capital provided by
operations and are applicable only under Chilean GAAP. Funds from
operations are not a defined term under U.S. GAAP.
(4) These ratios, which are expressed as percentages, were calculated as
follows: Gross Margin = (Gross Profit) / (Sales); Operating Margin =
(Operating income) / (Sales); Net margin = (Net income) / (Sales); Current
Ratio = (Current Assets) / (Current Liabilities).
(5) Total selling space at the end of each month, divided by the number of
open supermarkets at the end of that month, averaged during the year.
(6) Supermarket net sales for the period divided by the average number of
supermarkets at the end of each month during the period.
(7) Supermarket net sales for the period divided by the average square meters
of selling space at the end of each month during the period.
7
RISK FACTORS
RISKS RELATING TO UNIMARC
WE HAVE SUBSTANTIAL OUTSTANDING LIABILITIES, AND WE ARE IN DEFAULT ON SOME
OF OUR DEBTS OBLIGATIONS.
Our net sales decreased to (1) Ch$122,344 million or 17.7% in 2002, from
Ch$147,944 million in 2001, and (2) Ch$147,944 million, or 12.4% in 2001, from
Ch$168,853 million in 2000. Additionally, as of December 31, 2002 (1) our total
current assets were Ch$21,749 million, while our total current liabilities were
Ch$56,823 million, and (2) our total assets were Ch$199,148 million, while our
total liabilities were Ch$91,325 million. Due to our financial difficulties we
have been unable to repay some of our debt, and we have restructured the payment
terms of our most important current liabilities, as described below. See "Item
5. Operating and Financial Review".
As of December 31, 2002, our long-term debt totaled Ch$8,350 million, or
US$11.6 million, and principally consisted of seven loans granted to us or to
our affiliates by Banco/CorpBanca S.A., or CorpBanca, Banco Kreditanstalt fur
Wiederaufbau, or Banco Kreditanstalt, Banco Societe Generale S.A., or Societe
Generale, Export Import Bank of the United States, or Eximbank, Scotiabank
Sudamericano S.A., Banco Santander Santiago S.A. and Banco Hispanoamericano S.A.
We have incurred payment defaults in connection with the following long-term
loans.
o Banco Kreditanstalt made two loans to us in the aggregate principal amount
of DM45 million in August 2000, with an aggregate outstanding balance,
including both principal and interest, of Ch$5,155 million, or US$7.17
million, as of December 31, 2002. In November 2001, we pledged to Banco
Kreditanstalt a portion of the assets we acquired with the proceeds of
these loans. These assets consist of materials used in the construction
and remodeling of our stores. As of December 31, 2002 the book value of
the pledged assets was US$5.4 million.
Because of payment defaults incurred by Inversiones Errazuriz, Ltda., or
Inverraz, our ultimate parent, with respect to loans that Banco
Kreditanstalt made to Inverraz, Banco Kreditanstalt decided to accelerate
the loans that it made to us. On June 7, 2002, Banco Kreditanstalt filed a
bankruptcy petition against us in the civil court in Santiago to recover a
portion of our loans in the aggregate principal amount of US$2.1 million
represented by a promissory note. The bank has not taken legal action to
recover the remainder of the loans. In July 2002, the court denied Banco
Kreditanstalt's bankruptcy petition as we deposited with the court the
amount claimed by the bank. The court's decision, however, failed to
address the issue of whether the promissory note filed by Banco
Kreditanstalt constituted an instrument legally sufficient to warrant the
recovery of its underlying obligation through an executory proceeding.
Accordingly, we appealed the court's decision to seek a declaration that
such note is legally insufficient to permit its recovery through an
executory process. The civil court granted our appeal before the Appellate
Court of Santiago. We also filed a criminal lawsuit against Banco
Kreditanstalt in the criminal court in Santiago for fraud, as we believed
that Banco Kreditanstalt did not act in good faith in its transactions
with us.
On October 23, 2002, we entered into an agreement and waiver of legal
action whereby we agreed to terminate all our legal proceedings against
Banco Kreditanstalt in Chile, including our appeal before the Appellate
Court of Santiago and our criminal proceedings in Santiago. We filed the
agreement and waiver with the Seventh Civil Court of Santiago, which was
approved by the judge for such court in November 2002. As a result, the
judge ordered the termination of all our legal proceedings in the civil
and criminal courts.
8
Pursuant to the above agreement and waiver, we entered into two
rescheduling agreements, in the aggregate principal amounts of US$5.3
million and US$1.8 million, respectively, which restructured the payment
of the loans to Banco Kreditanstalt as follows: (1) principal will be paid
in twenty semi-annual installments, in March and September of each year
from 2004 through 2013; and (2) interest will be paid semi-annually at
Libor plus 1.05% and Libor plus 2.5%, respectively.
o In July 2000, Societe Generale granted a US$2.1 million loan to
Supermercados Hipermarc S.A., our Argentine subsidiary, or Hipermarc, with
an outstanding balance, including both principal and interest, of Ch$541
million, or US$0.8 million, as of December 31, 2002. Since Hipermarc has
been unable to repay this loan, Hipermarc has proposed that all its
outstanding payment obligations be satisfied through the transfer to the
bank of the buildings that secure the repayment of the loan. The mortgaged
properties include building facilities located at (1) Avda. Rivadavia No.
5751/5/63 and (2) Avda. Rivadavia No. 5765/67/69, in Buenos Aires. These
properties have an aggregate book value of US$2.1 million as of December
31, 2002. On November 28, 2003, Hipermarc and Societe Generale entered
into an agreement that (1) permitted Hipermarc to repay a U.S.$136,052.54
portion of the loan through the assignment (DACION EN PAGO) to Societe
Generale of a piece of real estate located at Partido Vicente Lopez, with
a book value of U.S.$308,200 as of the date of the assignment; (2)
restructured the repayment of U.S.$2,117,258.60 (the remaining outstanding
balance of the loan) in 49 monthly, and consecutive installments,
beginning on December 15, 2003, and ending on December 15, 2017, and (3)
provided for the payment of interest on the outstanding balance of the
loan at a rate equal to BAIBOR, an inter bank rate, as published monthly
by the Central Bank of the Republic of Argentina, plus 10 basis points.
o In August 1998, State Street Bank and Trust Company, or State Street, lent
us the aggregate principal amount of US$808,996, with an outstanding
balance, including both principal and interest, of Ch$233 million, or
US$0.32 million, as of December 31, 2002. The Export-Import Bank of the
United States, or Eximbank, guaranteed the repayment of these loans.
Following our payment default in 2002, State Street refused to restructure
the payment of these loans, and Eximbank paid the outstanding balance of
the loans to State Street. Pursuant to an initial agreement between us and
Eximbank dated August 1, 2002, Eximbank agreed to restructure the
repayment of the loans in eight consecutive principal and interest
installments payable in March, June, September and December of each year
beginning in August 2002 and ending in June 2004.
As a result of covenant defaults, including the above payment defaults,
our other long-term debt lenders could accelerate the payment of loans that they
have made to us. As of December 31, 2002, our long-term debt totaled Ch$8,350
million, or 4.2% of our total consolidated assets.
o As of December 31, 2002, our short-tem debt, including the current portion
of our long-term debt, totaled Ch$24,610 million, or US$34.2 million, and
comprised, among others, a bridge loan payable to Nassau BankBoston, or
BankBoston, with an outstanding balance, including both principal and
interest, of Ch$16,188 million, or US$22.5 million, as of December 31,
2002. In March 2002, BankBoston extended the maturity date of this loan to
May 31, 2002. We negotiated with BankBoston several additional extensions
of the maturity date of the loan because we were unable to complete its
repayment on May 31, 2002. On May 6, 2003 we entered into a further
amendment of the underlying credit agreement to restructure the repayment
terms of the loan. The effectiveness of this amendment was subject to our
compliance with certain conditions, which we had to satisfy no later than
August 4, 2003. We were able to comply with some of the conditions by this
deadline, and the maturity date of the loan was extended through August
18, 2003. By this date, we were able to fully satisfy the remaining
conditions. As a result, the
9
payment of the loan was restructured as follows: (1) principal is payable
in eighteen quarterly installments from August 2003 through November 2007;
and (2) interest is payable quarterly at the rate of 4.04% on the
outstanding principal balance of the loan. The amounts of the principal
installments under the restructured loan are as follows: (1) each of the
two initial installments are equal to U.S.$250,000; (2) each of the 15
installments following the initial two installments are equal to U.S.$1
million; and (3) the final installment is equal to U.S.$6,506,346.
As a result of covenant defaults, including the above payment defaults,
our other short-term debt lenders could accelerate the payment of the loans they
made to us. As of December 31, 2002, our short-term debt represented 12.4% of
our total consolidated assets.
As of December 31, 2002, we had guaranteed the payment of certain debt
incurred by our affiliates, including, among other things, the following:
In 1994 and 1996, a syndicate of financial institutions for whom State
Street acted as agent made a US$50.0 million unsecured loan and a US$65.0
million unsecured loan, respectively, to Inverraz. The payment terms of the 1994
loan were as follows: (1) principal was payable in semi-annual installments of
US$5,555,555, in March and September of every calendar year, beginning on
September 2, 1998 and ending on March 2, 2002; (2) interest was payable
semi-annually at a rate of 9.45% per year; and (3) interest on any overdue
principal and any overdue interest (to the extent permitted by applicable law)
is payable at the rate of 10.45%. The payment terms of the 1996 loan were as
follows: (1) principal was payable in semi-annual installments of US$4,444,445
under the series A tranche of the loan, and semi-annual installments of
US$2,777,778 under the series B tranche of the loan, in March and September of
every calendar year, beginning on March 8, 2000 and ending on March 8, 2004; (2)
interest under the series A tranche was payable semi-annually at the rate of
9.45% per year, and interest under the series B tranche was payable
semi-annually at the rate of 9.45% per year; and (3) interest on any overdue
principal and any overdue interest (to the extent permitted by applicable law)
is payable at the rate of 10.45% under the series A tranche and at the rate of
10.45% under the series B tranche.
We were one of the guarantors under the 1994 loan. We, were also one of
the guarantors under the 1996 loan. As guarantors, we agreed to guarantee the
repayment obligations of Inverraz under the applicable loan (including the
payment of principal, interest, fees, costs and any other charges related to the
applicable credit agreement) in an amount equal to our pro rata share, as
specified in such loan, in accordance with our "attributable liability". In each
loan our "attributable liability" is adjusted from time to time based on the
outstanding balance of such loan. However, if State Street had been unable to
collect the attributable liability of one or more guarantors, or if one or more
guarantors become subject to bankruptcy or similar proceedings or become
affected by one of the events specified in the applicable credit agreement, the
attributable liability of the other guarantors would have been subject to being
increased pro rata by the amount of the attributable liability of the affected
guarantors in the specified limited circumstances set forth in the credit
agreements. The aggregate amount of the attributable liabilities of all
guarantors under each loan is equal to 100% of the outstanding principal amount
of such loan, together with any unpaid scheduled and default interest, and any
other amounts payable by Inverraz under such loan.
In April 2001, following the acceleration of the debt under the loans,
State Street initiated legal proceedings in the U.S. District Court for the
Southern District of New York against Inverraz, the loan guarantors and certain
other entities claimed to be "loan guarantors" (collectively, the "Chilean
Defendants") seeking repayment of the loans.
We maintain that, pursuant to our capped attributable liability under the
credit agreements, we are exposed to liability of $13,688,889 under the 1994
loan and $25,230,328 under the 1996 loan. However,
10
we hope to have the default judgment vacated in connection with our appeal
described in greater detail in "Item 8-- Financial Information-Legal
Proceedings".
WE HAVE INCURRED CERTAIN CONTINGENT LIABILITIES WITH RESPECT TO RELATED
PARTY INDEBTEDNESS
We have guaranteed the repayment of certain debt of related parties, which
exposes us to direct liability if our related party defaults under such debt.
See "Risk Factors Relating to Unimarc and the Supermarket Industry", "Item 7.
Major Shareholders and Related Party Transactions" and "Item 8. Financial
Information--Legal Proceedings".
OUR CONTROLLING SHAREHOLDER HOLDS A SUBSTANTIAL MAJORITY OF OUR CAPITAL
AND EXERCISES SIGNIFICANT INFLUENCE OVER US
Inverraz is our parent company through its 97.2% ownership of Alimentos
Nacionales S.A., which in turn owns 57.16% of our shares of common stock.
Accordingly, Inverraz is in a position to direct our management and to determine
the result of substantially all matters to be decided by vote of the
shareholders, including the election of our board of directors. Additionally, if
the Bank of New York, in its capacity as depositary of the ADSs, or the
Depositary, does not receive instructions from a holder of ADSs with respect to
the shares of common stock underlying the ADSs during or prior to the date
established for such purpose, such holder is deemed, and the Depositary deems it
to have instructed the Depositary to give a discretionary proxy with full power
of substitution to the President of our board of directors, or to a person
designated by the President of our board of directors, to vote such shares of
common stock. See "Item 4. Information on the Company --History and Development
of the Company".
Additionally, a disposition by Inverraz of a significant number of our
shares of common stock, or the perception that such disposition might occur,
could adversely affect the trading price of our shares of common stock in the
Chilean stock exchanges and, consequently, the trading price of the ADSs.
RISKS RELATING TO THE SUPERMARKET INDUSTRY
WE FACE COMPETITION FROM GROWING CHILEAN AND INTERNATIONAL SUPERMARKET
CHAINS AS WELL AS SMALLER RETAILERS IN CHILE
The food retailing industry in Chile is highly competitive and is
characterized by growing competition and increasing pressure on margins. The
number and type of competitors and the degree of competition experienced by
individual stores vary depending on their location. Competition occurs on the
basis of prices, location, quality and product selection, service variety, and
store conditions and brand recognition. We compete with regional and local
supermarket chains and individual supermarkets, independent grocery stores,
convenience stores, open-air markets and international supermarket chains.
International supermarkets arrived in Chile in 1998 when Carrefour (France)
opened its first supermarket. Disco Ahold International Holdings N.V. arrived
through a joint venture with the owners of Disco-Velox. Disco-Velox was the
owner of Santa Isabel S.A., one of our main competitors until 2003, when
Disco-Velox sold its interest in Santa Isabel S.A. to Cencosud S.A., a Chilean
company owned by "Hipermercados Jumbo S.A.", or "Jumbo," another competitor. It
is also likely that certain international chains might elect to participate in
the Chilean market through joint ventures with domestic chains or through the
acquisition of a significant share in domestic supermarket chains.
Additionally, our principal competitors in Chile, including "Distribucion
y Servicios D&S S.A.", or "D&S" and Jumbo have opened new supermarkets and
remodeled existing supermarkets in several regions, including regions where we
operate. In 2002, D&S opened nine supermarkets, and remodeled a significant
number of its existing stores. In addition, in 2002 Jumbo opened two
hypermarkets in the
11
Metropolitan Region, in the boroughs of La Florida and La Reina, and one
hypermarket in the city of Vina del Mar, region V. During 2002, the total number
of square meters of selling space in the Chilean supermarket industry grew by
696, or 6.6%. Some of our competitors in Chile, such as D&S and Jumbo, have
significant financial resources and could use these resources to take steps that
could adversely affect our competitive and financial position. Competition may
require us to (1) adjust our pricing policy, (2) modify our major expenditure
plans, or (3) take other actions that may adversely affect our profitability. We
may not assure you that competition in the future will not materially and
adversely affect our business, our financial condition, operating results, cash
flows or prospects.
OUR RESULTS WILL DEPEND TO A SIGNIFICANT EXTENT ON OUR ABILITY TO CONTINUE
TO OPEN NEW STORES AND REMODEL EXISTING ONES, AS WELL AS TO PLAN AND OPERATE
SUCH STORES ON A PROFITABLE BASIS.
From 2000 through October 2003, we refurbished several stores, including
Las Tranqueras, Vina Libertad, Vina San Martin, Concepcion, Curico, Providencia,
Gran Avenida, Grecia and Irarrazaval, and we opened nine stores, namely Parque
La Florida, Villarrica, Barros Arana, Rodriguez, Panguipulli, Pichilemu,
Pitrufquen, Loncoche and Amunategui. Our ongoing expansion and renovation
program includes the remodeling and opening of additional stores. The successful
completion of our expansion and renovation program depends on several factors,
including zoning, regulatory and other permit issues, the hiring and training of
qualified personnel, and the level of existing and future competition in areas
where new or remodeled stores are to be located and general macroeconomic
conditions. We cannot assure you that we will complete our planned expansion
within the time currently foreseen or that it will successfully manage any
growth in our business. Furthermore, we cannot assure you that new store
openings will not result in diversion of sales from existing stores.
We will need both internal and external sources of financing to complete
our expansion and renovation program on schedule. If we are unable to fund any
required capital resources from internally generated funds and from external
financing, we would need to delay the opening and renovation of certain
supermarkets until funds become available.
THE LESSORS OF THE SUPERMARKETS THAT WE OPERATE COULD TERMINATE THE LEASES
At December 31, 2002, we operated 37 supermarkets in Chile, 9 of which are
owned by entities within the Unimarc group, 13 of which are leased from
subsidiaries of Inverraz, and 15 of which are leased from third parties. Our
lessors, including both affiliates and third party lessors, could terminate our
lease contracts on their expiration date or upon the occurrence of certain
events specified in such contracts. If a substantial number of our lessors
terminate our lease contracts, our supermarket operations in Chile may be
substantially reduced, which may have a material adverse affect on our operating
income and our financial condition. See "Item 4. Information on the Company
- --Description of Property".
RISKS RELATING TO CHILE
OUR GROWTH AND PROFITABILITY DEPEND ON THE LEVEL OF ECONOMIC ACTIVITY IN
CHILE AND IN OTHER EMERGING MARKETS
Our financial condition and operating results may be adversely affected by
changes beyond our control, including:
o the economic policies or other policies of the Chilean government, which
have a substantial influence over many aspects of the private sector;
o other economic developments in or affecting Chile; and
12
o changes in administrative regulations or practices by Chilean authorities.
At December 31, 2002, 71.04% of our total assets were located in Chile,
and we derived 99.47% of our net sales from our operations in Chile. Our
revenues depend on the financial condition of our clients, which are sensitive
to the overall performance of the Chilean economy. Adverse local, regional or
worldwide economic trends affecting the Chilean economy may have a material
adverse effect on our financial condition and operating results. Although the
Chilean economy grew each year between 1984 and 1997, in 1998 this trend changed
significantly. According to information published by the Central Bank, the
Chilean economy grew at a rate of 3.2% in 1998, contracted at a rate of 0.8% in
1999 and grew at rates of 4.2% in 2000, 3.1% in 2001 and 2.1% in 2002.
Additionally, other major Chilean economic indices during 2002 are as follows:
o internal consumption grew 1.4%;
o the unemployment rate reached 9.0%; and
o total supermarket sales in Chile grew at a real rate of 10.1%, and at a
nominal rate of 10.4%.
Our financial condition and operating results also depend to a certain
extent on the level of economic activity in Latin America and other countries,
especially the United States of America and certain countries in Asia. Although
economic conditions differ from country to country, investors' reactions to
developments in one country may affect the securities of issuers in other
countries, including Chile.
CURRENCY FLUCTUATIONS MAY INCREASE OUR BORROWING COSTS AND ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND OPERATING RESULTS AND THE VALUE OF OUR SHARES
AND ADSS
The economic policies of the Chilean government and any future change in
the value of the Chilean peso as compared to the U.S. dollar may affect the
value in dollars of our shares of common stock and of our ADSs. The Chilean peso
has been subject to large nominal devaluation in the past and may be subject to
significant fluctuations in the future. In the period from December 31, 1998
through December 31, 2002, the par value of the peso relative to the U.S. dollar
declined approximately 50.3%, as compared to 17.2% during the period from
December 31, 1994 to December 31, 1998. As of November 30, 2003, the observed
exchange rate was Ch$621.27 per U.S. dollar.
A devaluation of the Chilean peso would negatively affect our operating
results by (1) increasing our cost of borrowing since the peso cost of interest
payments on our US dollar indebtedness would increase, and by (2) generally
increasing the amount of pesos we would need to use to purchase US dollar
currency in order to repay our US dollar-denominated liabilities. Additionally,
Chilean trade in the shares of common stock that underlie our ADSs is conducted
in pesos. The Depositary receives cash distributions with respect to our shares
of common stock in Chilean pesos, who then converts them into US dollars at the
then-prevailing exchange rate for the purpose of making payments in respect of
our ADSs. If the value of the Chilean peso falls relative to the US dollar, the
value of our ADSs and any distributions to be received from the Depositary would
be adversely affected. The Depositary also incurs customary currency conversion
costs (to be borne by the holders of our ADSs) in connection with the conversion
and subsequent distribution of dividends or other payments. We do not engage in
hedging transactions with respect to our currency fluctuation risks. See "Item
11. Quantitative and Qualitative Disclosures about Market Risk".
13
INFLATION COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION, OPERATING
RESULTS AND THE VALUE OF OUR SHARES AND ADSS
Although Chilean inflation has been moderate in recent years, Chile has
experienced high levels of inflation in the past. High levels of inflation in
Chile could adversely affect the Chilean economy and have a significant adverse
effect on our financial condition and operating results. The annual inflation
rates in Chile (as measured by changes in the CPI and as reported by the INE) in
1996, 1997, 1998, 1999, 2000, 2001 and 2002 are 6.6%, 6.0%, 4.7%, 2.3%, 4.5%,
2.6 and 2.8%, respectively. Although we generally transfer our increased costs
resulting from inflation to our clients through an increase in product prices,
we cannot provide assurance whether or to what extent we will be able to pass on
increased costs in the future. Further, we cannot assure you that the
performance of the Chilean economy, our operating results or the value of the
ADSs will not be adversely affected by continuing or increased levels of
inflation or that Chilean inflation will not increase significantly from the
current level.
THE MARKET FOR OUR SHARES COULD BE VOLATILE AND ILLIQUID
The Chilean stock markets are substantially smaller, less liquid and more
volatile than the stock markets in the United States. Companies registered with
the Bolsa de Comercio de Santiago, the principal stock exchange in Chile, had
(1) a market capitalization of approximately Ch$ 34,272,529 million, or US$
47,693 million at December 31, 2002 and (2) an average monthly trading volume of
US$ 280,7 million during 2002. The ten largest companies in terms of market
capitalization at December 31, 2002 represented approximately 47.0% of the
Santiago Stock Exchange's aggregate market capitalization. The daily transaction
volumes on the Bolsa de Comercio de Santiago are on average substantially lower
than those on the principal national securities exchanges in the United States.
During 2002, approximately 18.5% of the registered shares were traded on the
Bolsa de Comercio de Santiago with a presence of 70% or more in business days.
Additionally, shares traded in Chile are affected by developments in other
emerging markets, particularly in other Latin American countries.
ECONOMIC PROBLEMS IN ARGENTINA MAY HAVE AN ADVERSE EFFECT ON THE CHILEAN
ECONOMY AND ON OUR OPERATING RESULTS AND ON THE PRICE OF OUR ADSS AND SHARES
At December 31, 2002, 28.96% of our total assets were in Argentina and
0.53% of our net sales derived from our operations in Argentina. Argentina's
insolvency and recent default on the payment of its public debt, which deepened
the existing financial, economic and political crisis in that country could
adversely affect Chile, our business or the market price of our shares and ADSs.
The devaluation of the Argentine peso had a material adverse effect on Argentina
and threatens to collapse the Argentine financial system, which could also
trigger a major inflation. The Argentine government has prohibited debtors to
serve their external debt without the approval of Banco Central de Argentina,
the Argentine Central Bank. If the Argentine economic environment continues to
deteriorate or does not recover, the Chilean economy could also be affected and
could experience a slower growth than in previous years due to the proximity and
commercial partnership of both countries.
Securities prices of Chilean companies are, to varying degrees, influenced
by economic and market considerations in other emerging market countries and by
the US economy. We cannot assure you that the Argentine economic crisis will not
have an adverse effect on Chile, the price of our shares and ADSs, or our
business.
14
RISKS RELATING TO CHILEAN LAW
CHILE IMPOSES CONTROLS ON FOREIGN INVESTMENT AND ON THE REPATRIATION OF
INVESTMENTS THAN MAY AFFECT INVESTMENT IN, AND EARNINGS FROM, OUR ADSS.
Equity investments in Chile by non-Chilean residents generally are subject
to various exchange control regulations that restrict the repatriation of
related investments and earnings. The ADS facility, however, is the subject of a
contract called the Foreign Investment Contract, among the Depositary, Unimarc
and the Central Bank. The Foreign Investment Contract grants the Depositary and
the holders of the ADSs access to Chile's formal exchange market. Pursuant to
current Chilean law, the Foreign Investment Contract may not be amended
unilaterally by the Central Bank. Additionally, there are judicial precedents
(although not binding on future judicial decisions) indicating that the Foreign
Investment Contract may not be abrogated by future legislative changes. We
cannot assure you, however, that additional Chilean restrictions applicable to
the holders of ADSs, to the disposition of underlying shares of common stock or
to the repatriation of the proceeds from such disposition could not be imposed
in the future, nor can we make any assessment of the duration or implications of
any such restrictions that might be imposed. If, for any reason, including
changes in the Foreign Investment Contract or Chilean law, the Depositary is
unable to convert pesos to US dollars, investors might receive dividends or
other distributions in Chilean pesos. Transferees of shares withdrawn from the
ADS facility will not be entitled to access the formal exchange market unless
the withdrawn shares are redeposited with the Depositary.
Cash and property dividends paid to a foreign person (non-Chilean) with
respect to ADSs are subject to a 35.0% Chilean withholding tax. Stock dividends
are not subject to Chilean taxes.
CHILE HAS DIFFERENT CORPORATE DISCLOSURE, GOVERNANCE AND ACCOUNTING
STANDARDS THAN THOSE YOU MAY BE FAMILIAR WITH IN THE UNITED STATES.
The securities laws of Chile which govern open or publicly held
corporations in Chile, such as us, impose regulatory requirements that are more
limited than those in the United States in certain important respects.
Additionally, although Chilean law imposes restrictions on insider trading and
price manipulation, the Chilean securities markets are not as highly regulated
and supervised as the US securities markets. There are also important
differences between Chilean and US accounting and financial reporting standards.
As a result, Chilean financial statements and reported earnings generally differ
from those reported on the basis of the United States' accounting and reporting
standards. See Note 41 to our consolidated financial statements, which describes
the main differences between the Chilean GAAP and the U.S. GAAP and the
reconciliations to U.S. GAAP of net income and total equity of the shareholders
for the periods and dates indicated.
Pursuant to Chilean Law No. 19,705 (LEY DE OPAS, I.E., LAW OF PUBLIC
OFFERING OF SECURITIES), enacted in December 2000, the controlling shareholders
of an open corporation may only sell their controlling shares by way of an offer
made to all the shareholders in which the bidder would have to buy all the
offered shares up to the percentage determined by it, when the price paid is
substantially higher than the market price (that is, when the price offered is
higher than the average market price of a period starting 90 days before the
proposed transaction and ending 30 days before such proposed transaction, plus
10%). Transitory Article 10 of Law No. 19,705 established a term of three years
during which the controlling shareholders of an open stock corporation would be
authorized to sell their controlling shares directly to a third party without
requiring an offer to all shareholders, provided that such authorization was
granted by an extraordinary shareholders' meeting held within six months after
the approval and enactment of Law No. 19,705. In our shareholders' meeting held
on April 27, 2001, our controlling shareholders decided to invoke this grace
period granted by Transitory Article No. 10 of Law No. 19,705.
15
Minority shareholders have fewer and less defined rights under Chilean law
and under our ESTATUTOS, which function as our Articles of Incorporation and our
bylaws, than they might have as minority shareholders of a corporation
incorporated in a United States jurisdiction.
YOU MAY BE UNABLE TO EXERCISE YOUR PREEMPTIVE RIGHTS
Chilean Corporations Law No. 18,046 (Ley de Sociedades Anonimas No.18,046)
enacted on October 22, 1981, requires a Chilean company to grant preemptive
rights to all of its existing shareholders to purchase a sufficient number of
shares to maintain their existing percentage of ownership of such company
whenever the company issues new shares for cash. Although, any preemptive rights
in connection with any future issuance of shares of common stock for cash will
be offered to the Depositary as the registered owner of the common stock
underlying the ADSs, the holders of ADSs are not entitled to exercise their
preemptive rights unless a registration statement under the Securities Act is
effective with respect to these rights and shares of common stock or an
exemption from the registration requirements of the Securities Act is available.
In addition, a Central Bank ruling published in November 1995 effectively makes
it impracticable for ADS holders to participate in preemptive rights offerings.
In accordance with such ruling, ADS holders may exercise their preemptive rights
and thus convert the newly acquired shares into ADSs being offered through the
preemptive rights offering only if the company issuing such shares has entered
into a new foreign investment contract with the Central Bank in order to cover
the newly issued shares under the benefits of Chapter XXVI of the Compendium of
Foreign Exchange Norms of the Central Bank. See "Item 10. Additional Information
- --Exchange Controls and Other Limitations Affecting Securityholders".
At the time of any preemptive rights offering, we intend to evaluate the
practicability under Chilean law and Central Bank regulations of making such
rights available to the holders of the ADSs, the costs and potential liabilities
associated with registration of such rights and the related shares of common
stock under the Securities Act. No assurance can be given that any registration
would be filed. If no registration statement were filed, and no exemption from
the registration requirements under the Securities Act were available, the
Depositary might attempt to sell holders' preemptive rights and distribute any
net proceeds of any such sale. We cannot assure you that a market would exist
with respect to any such rights.
YOU MAY BE UNABLE TO EXERCISE FULLY YOUR WITHDRAWAL RIGHTS
In accordance with Chilean laws and regulations, any shareholder that
votes against certain actions or does not attend the meeting at which such
actions are approved may withdraw its ownership in us and receive a payment for
its shares according to a pre-established formula, provided that such
shareholder exercises its rights within certain prescribed time periods. Such
actions triggering withdrawal rights include the approval of:
o our transformation into an entity that is not a stock corporation
(sociedad anonima) governed by the Chilean Corporations Law;
o a merger with and/or into another company;
o the sale of 50% or more of our assets, whether or not our liabilities are
included, or the formulation of a business plan contemplating a sale on
those terms;
o the creation of personal securities or asset-backed securities for the
purpose of guaranteeing third-party obligations in excess of 50% of our
assets;
16
o the creation of preemptive rights for a class of shares or an amendment to
those already existing, in which case the right to withdraw only accrues
to the dissenting shareholders of the class or classes of shares adversely
affected;
o the remedy of nullification of our documents of incorporation caused by a
formality or an amendment to such documents resulting in the granting of a
right to such remedy; and
o such other cases as may be established by the bylaws (no such additional
cases are currently specified in our bylaws).
There is no judicial precedent deciding whether a shareholder voting both
for, and against, a proposal (such as might be the case with respect to the
Depositary) may exercise withdrawal rights with respect to those shares voted
against the proposal. Accordingly, we cannot assure you that the holders of ADSs
will be able to exercise withdrawal rights either directly or through the
Depositary.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
We are organized as a "SOCIEDAD ANONIMA ABIERTA" (open stock corporation),
and our operations are governed by Chilean laws. Our headquarters are located at
Avenida Presidente Eduardo Frei Montalva, 1380, Santiago, Chile. Our telephone
number in Santiago is 011-56-2-687-7000. We have been renamed several times as
follows: (1) Supermercados Unimarc S.A. in 1982, (2) Supermercados Unimarc
Ltda. in 1984, (3) Administradora de Inversiones y Supermercados Unimarc S.A.,
in 1987, (4) Comercial e Inmobiliaria Unimarc S.A. in 1988 and (5) Supermercados
Unimarc S.A., or Unimarc, in 1996.
Alimentos Nacionales S.A. owns 57.16% of our shares. Alimentos Nacionales
is a wholly owned subsidiary of Inversiones Errazuriz Ltda., or Inverraz, a
business conglomerate owning several businesses in Chile, Argentina and Peru,
including (1) automobile and machinery distribution businesses, (2) salmon
farming, fishing, forestry and mining businesses, (3) life insurance and general
insurance companies, (4) iodine and fertilizer companies, (5) real estate
businesses, and (6) agro businesses.
Unimarc was founded in 1961 under the name of "Unicoop Limitada", or
"Unicoop". In 1982, Inverraz acquired Unicoop through an affiliate and renamed
it "Unimarc". At the time of the acquisition, Unicoop had 13 stores and net
sales of Ch$ 51,341 million. During the period from 1982 to 1990, Unimarc
undertook a significant expansion program through the addition of 13 new
supermarkets and the introduction of the "Multiahorro" brand. Between 1990 and
1994, we consolidated our operations and developed strategies to improve
operating margins. In 1994 we started to carry out our strategy of expansion
through the application of a new expansion and renovation program.
Through a series of share purchases between 1995 and 1999, we acquired
99.9% of the shares of Supermercados Hipermarc S.A., Hipermarc, our subsidiary
in Argentina. At present, Hipermarc owns (1) three shopping malls with
supermarkets, two of which have an aggregate of 18 movie theaters and food
courts, and (2) another supermarket.
In June 1999, Hipermarc leased four supermarkets to Supermercados Norte
S.A., or Supermercados Norte, for a period of ten years, subject to total lease
payments of Ch$ 7,072 million. In conjunction with this transaction, Hipermarc
(1) transferred all inventories maintained in, and all fixed assets relating to,
such stores to Supermercados Norte, (2) assumed certain commitments including
the obligation to hold Supermercados Norte harmless against any claims from
third parties made prior to and
17
up to 60 months after the date of the lease transaction, and (3) agreed not to
compete against Supermercados Norte in the supermarket business in Argentina for
a 10-year period. Supermercados Norte assumed all the accounts payable that
Hipermarc owed to suppliers through the date of the lease transaction.
Additionally, Unimarc issued two guaranties to Supermercados Norte as follows:
(1) a guaranty in the amount of Ch$ 680 million to protect Supermercados Norte
against any contingent liabilities resulting from disagreements with suppliers
in connection with any accounts payable incurred up to the date of the lease
transaction, and (2) a Ch$ 1,209 million performance guaranty.
Under Chilean laws we are required to inform the Chilean SUPERINTENDENCIA
DE VALORES Y SEGUROS (the Superintendency of Securities and Insurance, or SVS),
about any material developments related to our operations. In compliance with
this requirement, on August 30, 2001, we sent a communication to the SVS
describing the fact that Inverraz was assessing the possibility of entering into
a transaction that could potentially involve the sale of assets or shares in
Unimarc. Inverraz started, but subsequently ceased negotiations preliminary to
the sale. Inverraz has not informed us about any intention to enter into any
broader transaction for the sale of any substantial portion of our shares or
assets. We may not ascertain, however, whether Inverraz will not seek to
undertake such transaction in the future. See "Item 3. Key Information --Risk
Factors Relating to Unimarc and the Supermarket Industry".
PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES
The supermarket business is intensive in capital. In the last five years
we spent approximately US$ 16 million, mainly in expanding the existing
supermarkets and creating new supermarkets in Chile. Between years 2003 and
2004, we expect to invest a total of US$ 0.5 million opened new stores in Chile.
We have already opened six new stores and expanded 13 stores since 1994. Our
projected capital expenditures may vary substantially from the numbers set forth
below due to market competition and the cost and availability of any necessary
resources.
We project capital expenditures of approximately Ch$ 0.4 million or US$
0.6 million, for 2003, to remodel existing stores in Chile, which we expect to
fund from internally generated resources. The table below shows our major
capital expenditures during 2000, 2001 and 2002, and our major projected capital
expenditures for 2003 and 2004:
CAPITAL EXPENDITURES
2000 2001 2002 2003/ 2004
-------- -------- -------- --------
(IN MILLIONS OF CONSTANT CH$ AS OF DECEMBER 31, 2002)
Lands 18,289 1,001 - -
Buildings 4,271 4,623 - -
Equipment 1,963 10,087 733 300
Vehicles 71 91 40 -
Remodeling 5,905 600 471 700
Others 511 668 - 100
-------- -------- -------- --------
Totals 31,010 17,070 1,244 1,100
======== ======== ======== ========
During the last three years, our largest divestitures totaled Ch$ 49,324
million. These divestitures consisted of disposition of land, property, real
estate, equipment, vehicles and investments in certain entities, including among
others, the sale of two supermarkets to affiliate entities and the sale of
certain equipment to Supermercados Norte in connection with the lease of our
four supermarkets in Argentina to this entity. The table below sets forth our
actual divestitures for 2000, 2001 and 2002 and projected divestitures for 2003
and 2004:
18
DIVESTITURES
2000 2001 2002 2003/ 2004
-------- -------- -------- ---------
(IN MILLIONS OF CONSTANT CH$ AS OF DECEMBER 31, 2002)
Lands, buildings, plant and equipment 14,369 15,252 7,591 -
Investments - 32 - -
Others 96 - 687 -
-------- -------- -------- --------
Total 14,465 15,580 8,278 -
======== ======== ======== ========
OVERVIEW OF THE FOOD RETAILING INDUSTRY IN CHILE
The Chilean food retailing industry is characterized by strong regional
competition among supermarket chains. Supermarkets also compete with smaller
grocery stores, convenience stores and open air markets. At present, none of the
supermarket chains in Chile operates in every region.
Accordingly, the level of competition and the identity of competitors vary
from region to region. Supermarket chains in Chile, including us, generally
compete on the basis of location, price, service, product quality and selection,
as well as type and frequency of promotions.
The following tables provide our estimates regarding population and
supermarket industry in Chile as of December 31, 2002, 2001 and 2000,
respectively:
SUPERMARKET NET
PERCENTAGE SALES(IN PERCENTAGE OF NUMBER OF
CONTRIBUTION POPULATION MILLIONS OF TOTAL SUPERMARKET NUMBER OF INHABITANTS PER
REGION TO GDP (1) (2) CH$) (4) NET SALES SUPERMARKETS SUPERMARKET
- ------------ ------------ ---------- ---------------- ----------------- ------------ ---------------
I 3.6% 428,594 62,898 2.3% 16 26,787
II 8.8% 493,984 115,471 4.3% 25 19,759
III 2.6% 254,336 50,851 1.9% 19 13,386
IV 2.7% 603,210 105,789 3.9% 29 20,800
V (3) 8.4% 1,539,852 277,280 10.3% 71 21,688
VI (3) 4.5% 780,627 116,068 4.3% 52 15,012
VII (3) 4.0% 908,097 102,847 3.8% 36 25,225
VIII (3) 8.4% 1,861,562 261,694 9.7% 95 19,595
IX (3) 2.4% 869,535 119,456 4.4% 50 17,391
X (3) 4.3% 1,073,135 168,961 6.3% 47 22,833
XI 0.5% 91,492 15,498 0.6% 5 18,298
XII 2.0% 150,826 44,169 1.6% 15 10,055
Santiago,
M.R. (3) 47.8% 6,061,185 1,251,839 46.5% 196 30,924
Total /
Average 100% 15,116,435 2,693,272 100.0% 656 23,043
- ----------
(1) For the year ended December 31, 1998, the last year for which data is
available.
(2) Population estimated at April 2002.
(3) Regions where we operate.
(4) Chilean pesos at December 31, 2002.
19
SUPERMARKET NET
PERCENTAGE SALES(IN PERCENTAGE OF NUMBER OF
CONTRIBUTION POPULATION MILLIONS OF TOTAL SUPERMARKET NUMBER OF INHABITANTS PER
REGION TO GDP (1) (2) CH$) (4) NET SALES SUPERMARKETS SUPERMARKET
- ------------ ------------ ---------- ---------------- ----------------- ------------ ---------------
I 3.6% 426,351 63,135 2.3% 16 26,647
II 8.8% 492,846 112,639 4.1% 24 20,535
III 2.6% 252,353 52,908 1.9% 20 12,618
IV 2.7% 600,363 107,550 3.9% 31 19,367
V (3) 8.4% 1,542,492 285,971 10.3% 69 22,355
VI (3) 4.5% 773,950 123,559 4.5% 43 17,999
VII (3) 4.0% 904,104 108,254 3.9% 37 24,435
VIII (3) 8.4% 1,853,678 253,073 9.2% 95 19,512
IX (3) 2.4% 864,929 128,031 4.6% 56 15,445
X (3) 4.3% 1,061,735 159,083 5.8% 44 24,130
XI 0.5% 86,697 17,064 0.6% 5 17,339
XII 2.0% 151,869 49,482 1.8% 16 9,492
Santiago,
M.R. (3) 47.8% 6,038,974 1,303,380 47.2% 190 31,784
Total /
Average 100% 15,050,341 2,764,129 100.0% 646 23,298
- ----------
(1) For the year ended December 31, 1998, the last year for which data is
available.
(2) Population estimated at April 2002.
(3) Regions where we operate.
(4) Chilean pesos at December 31, 2001.
SUPERMARKET NET
PERCENTAGE SALES(IN PERCENTAGE OF NUMBER OF
CONTRIBUTION POPULATION MILLIONS OF TOTAL SUPERMARKET NUMBER OF INHABITANTS PER
REGION TO GDP (1) (2) CH$) (4) NET SALES SUPERMARKETS SUPERMARKET
- ------------ ------------ ---------- ---------------- ----------------- ------------ ---------------
I 3.6% 398,947 55,075 2.2% 16 24,934
II 8.8% 468,411 101,244 4.0% 23 20,366
III 2.6% 273,576 47,066 1.8% 20 13,679
IV 2.7% 577,881 98,481 3.8% 32 18,059
V (3) 8.4% 1,516,406 271,067 10.6% 66 23,658
VI (3) 4.5% 788,814 115,840 4.5% 45 17,529
VII (3) 4.0% 915,246 102,250 4.0% 38 24,085
VIII (3) 8.4% 1,936,271 232,948 9.1% 89 21,756
IX (3) 2.4% 874,245 111,987 4.4% 53 16,495
X (3) 4.3% 1,061,496 138,280 5.4% 48 22,115
XI 0.5% 95,035 15,474 0.6% 5 19,007
XII 2.0% 157,769 48,539 1.9% 20 7,888
Santiago,
M.R. (3) 47.8% 6,102,211 1,222,235 47.7% 186 32,808
Total /
Average 100% 15,211,308 2,560,486 100.0 641 262,379
- ----------
(1) For the year ended December 31, 1998, the last year for which data is
available.
(2) Population estimated at April 2002.
(3) Regions where we operate.
(4) Chilean pesos at December 31, 2000.
20
MAJOR INDUSTRY PARTICIPANTS
GENERAL. Based on estimates supplied by the Instituto Nacional de
Estadisticas (INE), as of December 31, 2002, 656 supermarkets operated in Chile,
and the industry's gross sales totaled US$ 5,334 million, or 8.4% of the Chilean
GDP.
The supermarket industry is very concentrated. As of December 31, 2002,
only four supermarket chains accounted for approximately 52% of the sales by all
industry participants in Chile, as follows: (1) Distribucion y Servicios D&S
S.A., or D&S, accounted for 30.0% of the sales; (2) Santa Isabel S.A., or Santa
Isabel, accounted for 9.4% of the sales; (3) Hipermercados Jumbo S.A., or Jumbo,
accounted for 8.9% of the sales; and(4) Unimarc accounted for 4.2% of the sales.
D&S operates a total of 62 supermarkets with an average space of 4,945 square
meters, including Almac, Ekono and Lider. Santa Isabel operates a total of 60
supermarkets with an average space of 1,564 square meters. Santa Isabel owns
small supermarkets throughout the country, but lacks a substantial presence in
the Metropolitan region. Jumbo operates a total of 7 supermarkets with an
average space of approximately 10,565 square meters, four of which are located
in the Metropolitan region and three of which are located in other regions.
As of December 2002, we were the fourth largest chain in the supermarket
industry in Chile, with Ch$112,103 million, or 4.2%, of all supermarket sales
during the year. We operate 37 supermarkets with an average area of 1,733 square
meters. As of September 30, 2003, our sales represented 3.6% of all sales by
Chilean industry participants. Our stores are located in several regions of
Chile, including (1) the Metropolitan region, (2) region V, in Vina del Mar, (3)
region VI, in Rancagua and Pichilemu, (4) region VII, in Curico, (5) region
VIII, in Talcahuano, Concepcion and Chillan, (6) region IX, in Temuco,
Villarrica, Pitrufquen and Loncoche, and (7) Region X, in Panguipulli.
METROPOLITAN REGION. At December 31, 2002 there were 196 supermarkets in
the Metropolitan region, distributed throughout all the cities in this region.
D&S, Jumbo and our company accounted for 62% of all sales by industry
participants in the region, with 66 supermarkets. D&S, accounted for 40.3% of
all sales by industry participants in the Metropolitan region, and operated 37
supermarkets with an average space of 4,548 square meters. Jumbo accounted for
15.7% of all sales by industry participants, and operated 6 supermarkets with an
average space of 10,841 square meters. Unimarc accounted for 5.9% of all sales
by industry participants and operated 24 supermarkets with an average space of
1,774 square meters.
According to market information available from the INE, in 2002 sales in
the Chilean supermarket industry increased by 7.1%, in real terms, as compared
to 2001, showing a higher growth than that experienced by the overall Chilean
economy, which grew by 4.6%, as reported by the Central Bank in its preliminary
figures. The growth in the Chilean supermarket industry was due to the opening
of 46 stores, representing a growth of 7.2% in the supermarket industry.
OUR OPERATIONS
As of December 31, 2002 we operated 37 supermarkets in Chile, 15 of which
are owned by entities within the Unimarc Group, 7 of which are leased from
Inverraz subsidiaries, and 15 of which are leased from third parties. Of the 37
supermarkets we operate in Chile, 24 are located in the Metropolitan region,
which has the highest population density and income of any region in Chile. We
hold a market share of 5.9% in this region. See "Description of Property".
A substantial number of our stores is located in first class locations for
retail sales, where the development of new supermarkets is not feasible due to
the population density, and zoning and
21
environmental restrictions. We believe that our presence in the Metropolitan
region provides us with an advantage in both competitive and strategic terms. We
have established distribution and operation activities linked to a computer
network in the Metropolitan region. This network enables us to communicate with
our networks outside the Metropolitan region in order to control distribution
and costs.
Our total sales space is 62,837 square meters. The size of our supermarket
ranges from 460 square meters to 8,000 square meters. Our largest supermarket
has 8,000 square meters of selling space and stocks approximately 15,000
different SKUs, whereas supermarkets with 1,000 to 2,000 square meters of
selling space stock approximately 12.500 SKUs and supermarkets with less than
1,000 square meters of selling space stock approximately 8,000 SKUs. We sell a
wide range of food items, including fresh products, baked goods, fresh seafood,
fresh meats and poultry, cold cuts, dairy and frozen products, beverages,
prepared foods and other edible goods. Our supermarkets also offer a wide
variety of specialty services including full service bakeries, prepared food
departments, meat and seafood departments and photograph development centers.
Various concessionaires also operate seafood departments, pharmacies, video
centers, bank teller machines and other services in our supermarkets.
The table below shows our net sales and sales per square meter for each of
our supermarkets for the year ended December 31, 2002:
SALES PER SALES PER
REGISTERED SQUARE SQUARE SQUARE
LOCATION TRADEMARK DISTRICT NET SALES METERS METER (1) METER (2)
-------- --------- -------- --------- ------ --------- ---------
(CH$ (ANNUAL, CH$ (MONTHLY,
MILLIONS) THOUSANDS) U.S.$)
SANTIAGO METROPOLITAN REGION:
Vitacura Unimarc Vitacura 3,584 1,474 2,431 282
La Florida (3) Unimarc La Florida 6,296 8,000 787 91
Irarrazabal Unimarc Nunoa 2,604 1,017 2,560 297
A. Vespucio Unimarc Las Condes 4,582 895 5,120 594
Manquehue Unimarc Las Condes 2,339 886 2,640 306
Gran Avenida Unimarc San Miguel 2,926 1,280 2,286 265
Providencia Unimarc Providencia 7,915 2,000 3,958 459
D. Portales Unimarc Santiago 3,707 1,027 3,610 419
Cantagallo Unimarc Las Condes 2,084 1,368 1,523 177
Santa Maria Unimarc Vitacura 4,295 1,180 3,640 422
La Reina Unimarc La Reina 5,556 1,358 4,091 474
Maipu I Unimarc Maipu 2,691 1,750 1,538 178
Los Leones Unimarc Nunoa 5,538 2,734 2,026 235
Maipu II Unimarc Maipu 3,498 2,677 1,307 152
Santa Rosa Unimarc La Granja 976 536 1,821 211
J.A. Rios Unimarc Independencia 2,431 460 5,285 613
Cordillera Unimarc La Florida 3,194 4,246 752 87
Macul (5) Unimarc Nunoa 2,313 2,614 885 103
Tranqueras Unimarc Vitacura 4,382 2,998 1,462 170
Apoquindo Unimarc Las Condes 2,776 1,347 2,061 239
M. Montt Unimarc Providencia 3,486 916 3,806 441
Grecia Unimarc Nunoa 1,890 1,143 1,654 192
Villa Olimpica Unimarc Nunoa 1,695 554 3,060 355
J.M. Caro Unimarc San Miguel 1,418 500 2,836 329
San Ignacio (4) Unimarc Downtown Stgo 382 515 742 86
V REGION:
Libertad Unimarc Vina del Mar 2,203 877 2,512 291
San Martin Unimarc Vina del Mar 2,424 783 3,096 359
VI REGION:
Machali Unimarc Rancagua 1,891 3,000 630 73
Pichilemu Multiahorro Pichilemu 31 700 44 5
VII REGION:
Curico Unimarc Curico 4,174 1,884 2,215 257
VIII REGION:
Club Hipico Unimarc Talcahuano 3,457 3,582 965 112
Concepcion Unimarc Concepcion 5,015 2,720 1,844 214
Chillan Unimarc Chillan 5,644 2,916 1,936 225
IX REGION:
Temuco I Unimarc Temuco 2,686 3,600 746 87
22
Barros Arana Unimarc Temuco 272 633 430 50
Rodriguez Unimarc Temuco 258 483 534 62
Villarrica Unimarc Villarrica 998 600 1,663 193
X REGION:
Panguipulli Unimarc Panguipulli 492 601 819 95
Total/ Average ----- ------ 112,103 65,854 1,702 197
- ----------
(1) Net sales during the year ended December 31, 2002 divided by average
square meters of selling space at the last day of each month during the
period.
(2) Converted to US$ at the observed exchange rate reported by the Central
Bank for December 31, 2002, i.e. Ch$718.61 per US dollar, and divided by
12 to obtain a simple monthly average (adjusted to the average selling
space).
(3) Supermarket opened at the end of November 2000.
(4) Supermarket returned to its owner in March 2002, following expiration of
the related lease.
(5) Supermarket returned to its owner in January 2003, following expiration of
the related lease.
The following table provides additional information regarding our
operations in Chile for the year ended December 31, 2002:
Number of supermarkets...................................... 37
Average selling space throughout the year (1) .............. 65,854
Average selling space per supermarket at 1,733
the end of the year (in square meters) .....................
Number of employees ........................................ 1,460
Sales at net price (millions of Ch$) ....................... 112,103
Income at net price (millions of Ch$) (2)................... (312)
Sales per employee (millions of Ch$) (3).................... 66.2
- ----------
(1) Total stores at the end of each month divided by the number of open
supermarkets at the end that month, averaged during the year.
(2) Supermarket net sales for the period divided by square meter of selling
space at the end of each month during the period.
(3) Sales at net price for the period divided by the average number of
employees at the end of each quarter during the period.
Our supermarkets are open 13 - 15 hours each day, seven days a week,
depending on their location. All of our supermarkets have customer parking.
Cash and check sales accounted for approximately 87% of our sales in Chile
during 2002. Credit sales, primarily third party credit cards, accounted for the
remainder of sales in Chile. We have not suffered any material losses in
connection with our credit sales. Our accounts receivable primarily derives from
credit card sales, which are recovered on average within 30 days.
We seek to provide our customers with convenient, exceptional value by
offering good quality fresh foods, specialized service departments, and a wide
selection of recognized brand names and private label goods at competitive
prices. We have targeted consumers with middle to high-income levels, who place
a premium on product quality and excellent service. We estimate that we are the
largest chain in Chile serving this consumer segment in terms of number of
stores.
Our principal categories of products include (1) perishable products, (2)
edible goods, (3) non-food goods, (4) beverages and (5) health and beauty aid
goods.
We believe that our competitive advantages include:
o a reputation for providing a wide selection of high quality groceries and
perishables at competitive prices;
o optimum store locations in high-density, high-income neighborhoods where
there are limited opportunities for new competitors;
23
o modern information technology systems that permit both corporate and
store-level management to control cost and improve services;
o centralized supply and inventory management;
o an incentive compensation structure that rewards employee productivity;
and
o the strategic location of our supermarkets, with 24 of them in the
Metropolitan region.
Additionally, we believe that our future growth will benefit from:
o a growth in the demand for food in Chile;
o the increase in supermarket penetration (increase in the supermarket space
per capita to levels that are comparable to those of developed countries);
and
o taking market share from small chains and convenience stores.
Our strategy is to concentrate and grow in the market sector for medium to
high income customers, taking advantage of our competitive advantages and recent
changes in consumer spending patterns. We seek to expand our sales and
profitability by:
o increasing selling space through the construction of new stores and
renovation of existing supermarkets;
o customizing store size and product mix through the one retail concept; and
o improving operational systems and controls to increase our operating
margins.
Additionally, we intend to improve customer satisfaction by continuing to
offer conveniently located, clean and competitive supermarkets that offer value
and service and are open extended hours.
PRODUCT SELECTION
Individual store managers tailor the exact product mix at each store
location in order to improve customer service base in each particular community,
in accordance with the customer socioeconomic profile of each neighborhood where
the store operates. In each store, we emphasize the availability of a wide range
of perishable products and the high quality of fresh meat, fruits and
vegetables, cold cuts and dairy products. To respond to changing consumer
spending patterns and changing socioeconomic trends, we upgrade existing
departments with new products and introduce new departments continuously.
We are implementing a new in-store marketing strategy aimed at increasing
gross margins and optimizing product assortment. The key elements of this
strategy are:
o expanding the use of high quality prepared food departments;
o improving the quality of existing in-store bakeries; and
o increasing sales of our brand products.
24
The following table compares sales by category to our total net sales in
Chile and provides the gross margin of the particular product categories for the
period shown. We have classified sales of our products into five main product
categories: perishable goods, groceries, nonfood items, beverages and health and
beauty aids.
PERCENTAGE OF CONTRIBUTION TO THE COMPANY'S NET SALES IN CHILE BY PRODUCT CATEGORY
YEAR ENDED AS OF DECEMBER 31,
-------------------------------------------------------------------------
2000 2001 2002
----------------------- ------------------------ ------------------------
GROSS GROSS GROSS
PRODUCT CATEGORY % IN SALES MARGIN % IN SALES MARGIN % IN SALES MARGIN
- ---------------- -------------------------------------------------------------------------
Perishable goods 45.0% 26.6% 44.5% 27.1% 44.3% 26.9%
Groceries 26.2% 12.5% 27.2% 14.7% 25.4% 15.6%
Non-food items 3.2% 17.0% 3.2% 26.0% 4.6% 21.5%
Beverages 18.6% 16.8% 20.1% 22.1% 20.1% 19.5%
Health and beauty 7.0% 16.1% 5.0% 17.9% 5.5% 17.0%
-------------------------------------------------------------------------
Total 100.0% 20.0% 100.0% 22.2% 100.0% 21.7%
PURCHASES
Although the volume our purchases from suppliers and our product selection
for each store are determined by the store manager at each location, we seek to
take advantage of our purchasing volume by centralizing (1) the selection of the
brand names that we offer on a system-wide basis, and (2) the negotiation of
prices, promotions, discounts and payment terms with individual suppliers. Store
managers typically have a choice of various brand names within each product
category from which to order for their particular location. In the central
purchasing office, line managers are responsible not only for selecting the
products to be purchased, but also for negotiating payment terms, profit
margins, and stocking and selling space assigned to each product.
We buy our products from over 1,900 suppliers. We do not believe that we
are dependent on any supplier or group of suppliers and we have not experienced
any material problems obtaining the quantity and type of products we require. We
maintain good relationships with our suppliers, and strengthen those
relationships through special sales promotions and other sales events designed
in cooperation with our suppliers. We place a special emphasis on maintaining
good relationship with our suppliers.
DISTRIBUTION
We order and distribute products for our supermarkets via two distribution
systems, the centralized and the direct systems. Under the centralized system,
our central purchasing office orders the product from a supplier, the supplier
delivers the product to our centralized distribution center, the product is
delivered to particular supermarkets through our distribution network and the
central purchasing office pays the supplier. Under the direct system, a
particular supermarket orders a product from a supplier; the supplier delivers
the product to the particular supermarket and the central purchasing office
subsequently pays the supplier.
During 2002, we distributed approximately 57% of our products through the
centralized system, and approximately 43% through the direct system. The central
office places orders at each supermarket's request. Additionally, in order to
avoid a shortage of certain high volume items, the purchasing department
utilizes sophisticated management information systems to track "critical" stock
levels, so that it can place orders to meet the anticipated, as well as
immediate, needs of our supermarkets.
25
We operate a central distribution facility with two warehouses. The first
warehouse occupies approximately 10,000 square meters with a storage capacity of
50,000 cubic meters, which is capable of receiving 13,000 SKUs. The other
warehouse is almost exclusively devoted to receiving fruits and vegetables and
has a storage capacity of 20,000 cubic meters. We believe that we have a
reputation for the superior quality of our perishable items, especially fruits
and vegetables. In order to maintain these high levels of quality control, we
receive and process substantially all fruits and vegetables in this second
warehouse and then distribute them through the centralized system, thus allowing
for effective quality control and standardization in the quality of the products
sold in each store.
The central office is responsible for administering the restocking of the
distribution facilities. Currently, we are negotiating certain agreements with
our principal suppliers which will allow us to maximize the utilization of and
return from our storage facilities, while minimizing the use of commercial
properties as storage centers.
Transportes Santa Maria S.A., our 98% owned subsidiary, or Transportes
Santa Maria, provides transportation services from our distribution facility to
our stores in the different regions. Transportes Santa Maria operates a fleet of
28 trucks, 25 refrigerated trailers and 3 regular trailers, to transport more
than 22,000 tons in approximately 1,200 trips per month to our stores. We
believe that Transportes Santa Maria offers the best available service and
price.
MANAGEMENT INFORMATION SYSTEMS
With the arrival of multi-department supermarkets having a broader product
assortment, sophistication in operating systems has become an increasingly
important competitive factor in retailing. We believe that we are one of the
leaders in the Chilean food retail industry in the application of modern
information, telecommunication and operating systems for business management.
Between 1994 and 2002, we invested over US$17 million in new information
technology. At present, we employ sophisticated information technology systems
in all of our stores and distribution operations to improve operating efficiency
and achieve lower costs, particularly in purchasing operations, distribution,
scanning and in-store computing, merchandising and expense management. We
believe that our investments in management information systems provide labor
cost savings, better control of prices and increased checkout speed and accuracy
due to improved product procurement, store delivery schedules, inventory
management and pricing accuracy.
We use scanner-generated information of individual product sales by store
for better merchandising in the supermarkets, tighter inventory control and
better space allocation. Points of sale scanners are installed in all of our
supermarkets in Chile. Transactions recorded by means of laser scanners located
at the checkout aisle permit the reporting of real time information on product
sales. Each laser scanner reads either bar code imprinted on the labels or
inputted by the cashier for all the products sold, including perishables. The
point of sale system enables us to accurately record all transactions and
provides detailed product and stock information for store managers as well as
the central administration. The automatic accounts of the day-to-day sales have
enabled management to increase the accuracy of our estimates for the turnover
time of each product, which minimizes the in-stock period.
MARKETING
Several studies indicate that Chilean consumers associate the Unimarc
brand with high quality perishables and fruits and low prices. We enhance the
strength of our brand image through newspapers, radio and television. Our
advertising strategy is directed primarily at emphasizing our variety of high
quality perishables and our excellent service, at the most competitive prices.
Our marketing campaign emphasizes service, to respond to the market trend of
optimizing efficiency of time spent in the
26
supermarket. The latest research shows that most customers do their shopping
during their free weekend time. In response, we have launched several successful
television and radio advertising campaigns to enhance our customer perception of
efficiency and speed of service at our supermarkets. In connection with our
brand extension strategy, we plan to intensify our marketing of the Unimarc
brand.
OWN BRANDS
Our supermarkets offer several products under our own brand names, which
provide customers quality products at lower prices than similar products bearing
regular trademark brands. During 2002 approximately 6.1% of our net sales
derived from own brand products, as compared to 6.1% and 5.0% during 2001 and
2000, respectively. We believe that the effort of having own-brand products is
an important addition to the variety of goods we offer. These own labels
include: the "Mi Casa" line for canned food, spices, dried fruits, canned fruits
and frozen vegetables, and "Interagro" for frozen vegetables. We introduced the
label "Unimarc" by the end of 1999 with several categories including toilet
paper, diapers, corn and vegetable oil, rice, shampoo, soap, frozen food and
vegetables, ice cream, soft drinks, marmalade and kitchen and bathroom cleaners.
We believe that sales of private label products decrease our costs of goods sold
and increase our gross margin. Exclusive own label goods also increase client
loyalty and enable us to differentiate our products from those of our
competitors.
IMPROVEMENT AREAS
OPTIMIZATION OF DISTRIBUTION SYSTEM
We have developed an advanced information system in our main warehouse
that allows us to control distribution costs and, in collaboration with our
suppliers, to optimize stock periods and warehouse space use, while maintaining
high levels of quality control. Since August 1999, we have used a SAP/R3
technological platform that has allowed us to reduce the cost of goods sold
through price reductions in exchange for a more favorable supply schedule and
lease of storage space to the suppliers.
DECENTRALIZATION OF DECISION MAKING
We have introduced an on-line management information system that: (1)
permits line managers to respond promptly to competitive pressures while
preserving wide operating margins, and (2) enhances the flexibility of store
managers to select the appropriate product mix for each specific location.
MARKETING
Our current marketing is aimed at reinforcing the association of the
"Unimarc" brand with high quality perishables and fruits, and low price.
Additionally, our marketing campaign is geared to promote sales of these and
other high margin products. We seek to take advantage of perceived shifting
consumer purchasing patterns by attracting additional customers who place an
emphasis on convenience rather than price.
SALES OF OWN BRAND PRODUCTS
We currently sell own brand grocery products in all of our stores. Sales
of own brand products increase our gross margin as a result of their lower cost
compared with similar goods bearing other names. We plan to increase the number
of own brand products and increase the selling space devoted to own brand
products due to the positive results obtained.
27
ADMINISTRATIVE RESTRUCTURING
We completed a management-restructuring program. Under the new, more
horizontal, management structure, we have added new line managers at our central
purchasing facility. In addition, we have given our zone managers greater
decision making power. We believe that this new structure will enable us to: (1)
react more effectively to changing market conditions, (2) become more focused on
our customers, and (3) improve our existing purchasing methods with our
suppliers.
ORGANIZATIONAL STRUCTURE
Alimentos Nacionales S.A., is our controlling company, which in turn is
fully controlled by Inversiones Errazuriz Ltda. Alimentos Nacionales, S.A. owns
57.16% of our common stock. A list of other major shareholders is found in Item
7 "Major Shareholders and Related Party Transactions - Main Shareholders".
Our ownership structure is shown in the following chart.
[GRAPHIC OMITTED]
GOVERNMENT REGULATION
GENERAL
Our operations are subject to a full range of governmental regulations and
supervision generally applicable to companies engaged in business in Chile,
including (1) labor laws, (2) social security laws, (3) public health, consumer
protection and environmental laws, (4) securities market laws and (5) anti-trust
laws. These laws include regulations to ensure sanitary and safe conditions in
facilities dedicated to the sale and distribution of food and requirements to
obtain construction permits for any new facilities. Additionally, national
regulations prohibit the sale of alcoholic beverages to persons under 18 years
of age. We believe that we are in compliance in all-material respects with all
applicable laws and administrative regulations with respect to our business in
Chile.
Except for governmental licenses required for the sale of alcoholic
beverages, baked goods, seafood and vegetables, and customary business licenses
required by local governmental authorities, there are no special governmental
licenses or permits required for the sale and distribution of foodstuffs or
other products sold by us. Our supermarkets are subject to inspection by the
SERVICIO NACIONAL DE SALUD, the Chilean National Health Service, which inspects
supermarkets on a regular basis and takes samples for analysis. We regularly
hire a private inspection company to ensure that our facilities meet all Chilean
health standards. Our supermarkets are also subject to inspection by the
SERVICIO AGRICOLA Y GANADERO, the Chilean Agricultural and Livestock Service.
Concessionaires that operate pharmacies within some of our supermarkets are
subject to licensing and inspection by the SERVICIO NACIONAL DE SALUD.
28
ENVIRONMENTAL REGULATION. Our policy is to operate on an environmentally
sound basis consistent with the applicable environmental law. There are no
material legal or administrative proceedings pending against us with respect to
any environmental matter, and we believe that we are in compliance in
all-material respects with all applicable environmental regulations in Chile.
PROPERTY, PLANT AND EQUIPMENT
We own, directly or through other Inverraz subsidiaries, 22 supermarkets,
one distribution center and administrative offices. We also lease 15
supermarkets in Chile.
29
The table below sets forth-certain information concerning our principal
properties and facilities as of December 31, 2002:
- ------------------------------------------------------------------------------------------------------------------
REGISTERED TYPE OF
SUPERMARKET TRADEMARK REGION DISTRICT OPENING DATE SELLING SPACE M2 INTEREST
- ------------------------------------------------------------------------------------------------------------------
J.A. Rios (2) Unimarc M.R. Independencia March 1970 460 Owned
- ------------------------------------------------------------------------------------------------------------------
J.M. Caro (2) Unimarc M.R. San Miguel June 1974 500 Owned
- ------------------------------------------------------------------------------------------------------------------
Santa Rosa (2) Unimarc M.R. La Granja July 1969 536 Owned
- ------------------------------------------------------------------------------------------------------------------
Villa Olimpica (2) Unimarc M.R. Nunoa June 1969 554 Owned
- ------------------------------------------------------------------------------------------------------------------
Manquehue (2) Unimarc M.R. Las Condes September 1983 886 Owned
- ------------------------------------------------------------------------------------------------------------------
Americo Vespucio (1) Unimarc M.R. Las Condes June 1974 895 Leased
- ------------------------------------------------------------------------------------------------------------------
Manuel Montt (2) Unimarc M.R. Providencia December 1984 916 Owned
- ------------------------------------------------------------------------------------------------------------------
Irarrazaval (1) Unimarc M.R. Nunoa June 1972 1,017 Leased
- ------------------------------------------------------------------------------------------------------------------
Diego Portales (2) Unimarc M.R. Santiago June 1977 1,027 Owned
- ------------------------------------------------------------------------------------------------------------------
Grecia (2) Unimarc M.R. Nunoa October 1984 1,143 Owned
- ------------------------------------------------------------------------------------------------------------------
Santa Maria (2) Unimarc M.R. Vitacura November 1988 1,180 Owned
- ------------------------------------------------------------------------------------------------------------------
Gran Avenida (2) Unimarc M.R. San Miguel December 1975 1,280 Owned
- ------------------------------------------------------------------------------------------------------------------
Apoquindo (1) Unimarc M.R. Las Condes July 1978 1,347 Leased
- ------------------------------------------------------------------------------------------------------------------
La Reina (1) Unimarc M.R. La Reina March 1965 1,358 Leased
- ------------------------------------------------------------------------------------------------------------------
Cantagallo (1) Unimarc M.R. Las Condes October 1987 1,368 Leased
- ------------------------------------------------------------------------------------------------------------------
Vitacura (1) Unimarc M.R. Vitacura June 1966 1,474 Leased
- ------------------------------------------------------------------------------------------------------------------
Maipu I (2) Unimarc M.R. Maipu November 1988 1,750 Owned
- ------------------------------------------------------------------------------------------------------------------
Providencia (2) Unimarc M.R. Providencia December 1984 2,000 Owned
- ------------------------------------------------------------------------------------------------------------------
Macul (3) Unimarc M.R. Nunoa September 1975 2,614 Leased
- ------------------------------------------------------------------------------------------------------------------
Maipu II (2) Unimarc M.R. Maipu February 1996 2,677 Owned
- ------------------------------------------------------------------------------------------------------------------
Los Leones (1) Unimarc M.R. Nunoa mayo 1998 2,734 Leased
- ------------------------------------------------------------------------------------------------------------------
Tranqueras (2) Unimarc M.R. Vitacura February 1989 2,998 Owned
- ------------------------------------------------------------------------------------------------------------------
Cordillera (2) Unimarc M.R. La Florida March 1996 4,246 Owned
- ------------------------------------------------------------------------------------------------------------------
La Florida (2) Unimarc M.R. La Florida June 1983 8,000 Owned
- ------------------------------------------------------------------------------------------------------------------
San Martin (2) Unimarc V Vina del Mar March 1986 783 Owned
- ------------------------------------------------------------------------------------------------------------------
Libertad (2) Unimarc V Vina del Mar December 1984 877 Owned
- ------------------------------------------------------------------------------------------------------------------
Curico (1) Unimarc VII Curico August 1994 1. 1,884 Leased
- ------------------------------------------------------------------------------------------------------------------
Concepcion (2) Unimarc VIII Concepcion November 1991 2,720 Owned
- ------------------------------------------------------------------------------------------------------------------
Chillan (2) Unimarc VIII Chillan November 1997 2,916 Owned
- ------------------------------------------------------------------------------------------------------------------
Machali (1) Unimarc VI Rancagua November 1997 3,000 Leased
- ------------------------------------------------------------------------------------------------------------------
Pichilemu Multiahorro VI Pichilemu December 2002 700 Leased
- ------------------------------------------------------------------------------------------------------------------
Club Hipico (2) Unimarc VIII Talcahuano November 1995 3,582 Owned
- ------------------------------------------------------------------------------------------------------------------
Temuco (2) Unimarc IX Temuco August 1997 3,600 Owned
- ------------------------------------------------------------------------------------------------------------------
Villarrica (1) Unimarc IX Temuco June 2002 600 Leased
- ------------------------------------------------------------------------------------------------------------------
Barros Arana (1) Unimarc IX Temuco September 2002 633 Leased
- ------------------------------------------------------------------------------------------------------------------
Rodriguez (1) Unimarc IX Temuco September 2002 483 Leased
- ------------------------------------------------------------------------------------------------------------------
Panguipulli (1) Unimarc X Panguipulli August 2002 601 Leased
- ------------------------------------------------------------------------------------------------------------------
Total ----- ------ ------ ------ 65,339 -----
- ------------------------------------------------------------------------------------------------------------------
Distribution Center ----- M.R. Renca ----- 10,000 Owned
- ------------------------------------------------------------------------------------------------------------------
- ----------
(1) We lease these 15 supermarkets from third parties.
(2) These 22 supermarkets are owned by Unimarc affiliates, 8 of which
consolidate with Supermercados Unimarc S.A., and 14 of which consolidate
with Inversiones Errazuriz Ltda.
(3) Supermarket delivered on January 1, 2003.
Additionally, in April 2003 we opened a new supermarket in Pitrufquen,
region IX, with a selling space of 600 square meters; in June 2003 we opened a
new supermarket in Loncoche, region IX, with a selling space of 277 square
meters; and in August 2003 we opened a new supermarket in Santiago, Metropolitan
region, with a selling space of 360 square meters. We operate these supermarkets
under a sublease with a related company.
30
Our lease contracts generally require the payment of a monthly rent
representing a percentage of our net sales. Our leases define net sales as gross
sales less the related value-added tax. Our leases, however, regularly provide
that these monthly rent payments should not be less than the minimum amount
specified in the lease contract. This amount is expressed in Unidades de Fomento
or restated periodically based on any changes in the Chilean consumer price
index. Our lessors may terminate our contracts if (1) we fail to pay our rent
for two consecutive months, or if we fail to pay three, four or more monthly
rents during any given year, or, under certain leases, if we fail to pay any
monthly rent or delay the payment of any monthly rent; (2) we cause any
significant damages to the leased property; (3) we become insolvent; (4) we use
the leased property for a purpose contrary to public interest; or (5) we fail to
obtain fire insurance with respect to the leased property during the term of the
lease. Usually, our lessors are not responsible for any damages we or any third
parties may suffer as a result of the occurrence of any extraordinary or force
majeur event, such as a fire or flood, affecting the leased property.
Generally, if we make any improvement to a leased property, our lessor
becomes the owner of such improvement unless we are able to remove it without
causing any significant damages to the leased property. Commonly, our leases
require that we submit the resolution of any dispute arising under such leases
to arbitration.
We operate the technological platform SAP, which is a network used in
information management, merchandise control and financial management. We also
implemented the human resources software Meta4. Additionally, each supermarket
operates high technology equipment, including cold storage room, freezers and a
Unisys cash register system. We believe that our facilities are suitable and
adequate for the business we conduct.
We own four shopping malls in Argentina, Caseros, Belgrano, Quilmes and
Federico Lacroze, which have supermarkets with selling space of 6,500 square
meters, 7,500 square meters, 4,500 square meters and 1,508 square meters,
respectively. Additionally, the Belgrano and Quilmes shopping malls have movie
theaters and food courts. In 1999, we leased our four supermarkets in Argentina
to Supermercados Norte for a renewable ten-year period. We have also leased our
food courts to Natural Foods Industrial y Exportadora S.A., for a renewable
5-year period. Finally, we have leased our movie theaters to Nai II
International, Inc. for a renewable 12 -year period.
ITEM 5. OPERATING AND FINANCIAL REVIEW
INTRODUCTION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT.
WE PREPARE OUR FINANCIAL STATEMENTS IN ACCORDANCE WITH CHILEAN GAAP, WHICH
DIFFERS IN SOME IMPORTANT RESPECTS FROM U.S. GAAP. NOTE 41 TO OUR CONSOLIDATED
FINANCIAL STATEMENTS PROVIDES A DESCRIPTION OF THE PRINCIPAL DIFFERENCES BETWEEN
CHILEAN GAAP AND U.S. GAAP AS THEY RELATE TO US, AND A RECONCILIATION TO
U.S. GAAP OF NET INCOME AND TOTAL SHAREHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2000, 2001 AND 2002, RESPECTIVELY. EXCEPT AS OTHERWISE INDICATED,
ALL FINANCIAL INFORMATION ABOUT US FOR THE YEARS ENDED DECEMBER 31,
2000 AND 2001 HAS BEEN RESTATED IN CONSTANT PESOS OF DECEMBER 31, 2002
PURCHASING POWER TO ELIMINATE THE DISTORTING EFFECTS OF CHANGES IN THE
PURCHASING POWER OF THE CHILEAN PESO ON NON-MONETARY ASSETS AND LIABILITIES,
SUCH THAT ALL SUCH INFORMATION IS PRESENTED IN COMPARABLE MONETARY TERMS. THE
GENERAL PRICE-LEVEL GAIN OR LOSS REFLECTED IN OUR INCOME STATEMENTS INDICATES
THE EFFECT OF INFLATION ON OUR NET HOLDINGS OF MONETARY ASSETS AND LIABILITIES.
WE LOSE OR GAIN GENERAL PURCHASING POWER AS A RESULT OF HOLDING THESE ASSETS AND
LIABILITIES
31
DURING A PERIOD OF INFLATION. ASSETS AND LIABILITIES ARE CONSIDERED "MONETARY"
FOR PURPOSES OF GENERAL PRICE-LEVEL ACCOUNTING IF THEIR AMOUNTS ARE FIXED BY
CONTRACT OR OTHERWISE IN TERMS OF NUMBER OF CURRENCY UNITS, REGARDLESS OF
CHANGES IN SPECIFIC PRICES OR IN THE GENERAL PRICE LEVEL. EXAMPLES OF "MONETARY"
ASSETS AND LIABILITIES INCLUDE ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND CASH.
ALTHOUGH CHILEAN INFLATION MODERATED DURING THE PERIODS COVERED BY THE
CONSOLIDATED FINANCIAL STATEMENTS, AS DISCUSSED BELOW, CHILE HAS EXPERIENCED
HIGH LEVELS OF INFLATION IN THE PAST.
SOME OF OUR LIABILITIES ARE DENOMINATED IN UNIDADES DE FOMENTO. AN UNIDAD
DE FOMENTO IS AN INFLATION-INDEXED, PESO-DENOMINATED MONETARY UNIT, WHICH IS SET
DAILY IN ADVANCE, BASED ON CHANGES IN THE CPI IN CHILE OF THE IMMEDIATELY
PRECEDING MONTH. THE ADJUSTMENTS TO THE CLOSING VALUE OF UNIDADES DE
FOMENTO-DENOMINATED ASSETS AND LIABILITIES ARE INCLUDED IN THE PRICE-LEVEL
RESTATEMENT ACCOUNT IN OUR CONSOLIDATED STATEMENT OF INCOME. SEE NOTE 41 TO OUR
CONSOLIDATED FINANCIAL STATEMENTS.
Our recent operating results have been affected by our expansion and
renovation program, which began in 1994. As part of the program, we refurbished
three stores during 1996, five stores during 1997 and seven stores between 2001
and 2002. Although stores being renovated generally do not close entirely for
more than one week, our experience to date is that during the months in which a
particular store is being refurbished, sales decrease in an average of 29%, with
a maximum decrease in sales of approximately 46% during one month. Once a store
refurbishment is complete, sales tend to increase by an average of approximately
15% compared to sales immediately prior to the refurbishment. Additionally, we
typically improve the product mix at renovated stores, which therefore
experience higher sales than prior to the remodeling in high margin prepared
food, perishables and frozen products.
Additionally, our expansion and renovation program entails the addition of
new stores. We have opened six new supermarkets in Chile, one in 1996, three in
1997, one in 1998 and 1999, one in 2000, one in 2001, five in 2002 and one in
2003. In our experience, sales generally decrease through the first six months
of operation and subsequently rise until stabilizing approximately twelve months
after opening.
We have financed our expansion program with funds generated by our
operations as well as financing from both domestic and foreign financial
entities.
Our effective tax rates in Chile in 2000, 2001 and 2002 were lower than
the statutory rate of 15% and 16% respectively, mainly due to:
o tax loss carry-forwards from subsidiaries;
o tax benefits from certain capital lease transactions;
o tax credits arising from certain employee training programs; and
o tax benefits for accelerated depreciation.
During 2002 we received tax credits due to the recognition of accumulated
losses incurred in previous years. We may not be able to avail ourselves of any
of these mechanisms in the future.
SUMMARY OF OPERATIONS
The table below shows financial information as a percentage of net sales
for the periods indicated in accordance with Chilean GAAP. For a summary of the
same information expressed as a percentage of
32
net sales in accordance with the consolidated operating results reconciled to
U.S. GAAP, see "U.S. GAAP Reconciliation".
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
--------- --------- ---------
Net sales ................................. 100.0% 100.0% 100.0%
Cost of sales ............................. (82.4)% (76.9)% (78.9)%
--------- --------- ---------
Gross margin .............................. 17.6% 23.1% 21.1%
Administrative and selling expenses ....... (17.5)% (22.0)% (27.1)%
--------- --------- ---------
Operating income .......................... 0.1% 1.1% (6.0)%
Non-operating income ...................... 1.7% 0.4% 2.1%
Non-operating expenses .................... (2.8)% (5.0)% (5.8)%
Price-level restatement ................... 0.5% 0.2% 3.9%
Non-operating results ..................... (0.6)% (4.4)% 0.2%
Results before taxes ...................... (0.5)% (3.3)% (5.8)%
Minority interest ......................... 0.003% (0.001)% 0.001
Income taxes .............................. 0.6% 1.8% 4.6%
--------- --------- ---------
Net income (loss) ......................... 0.1% (1.4)% (1.3)%
We experience higher sales in December, during the Christmas and New Year
seasons, and lower sales during January and February (summer vacation season) in
the Metropolitan region, but our overall levels of sales are not subject to
other material seasonal variation. Sales of particular types of products may
vary on a seasonal basis.
RESTATEMENT OF FINANCIAL STATEMENTS
Chilean GAAP requires us to record (1) as a current liability during the
relevant fiscal year, any revenue or other income we receive prior to the time
such revenue or other income may be treated as earned, but which we expect to
earn during the immediately following fiscal year, (2) as a long-term liability
during the relevant fiscal year, any revenue or other income we receive prior to
the time such revenue or other income may be treated as earned, but which we
expect to earn in fiscal years after the immediately following fiscal year, and
(3) as income during the relevant fiscal year, any revenue or other income as
earned during such fiscal year, that is, as we provide any underlying services
or perform other related obligations during such fiscal year. In addition,
Chilean GAAP requires that we record as a "non-monetary liability", any
liability we incur in a foreign currency. Pursuant to these rules, in 2001, we
recorded, as non-monetary liabilities, certain lease payments that Hipermarc,
our Argentine subsidiary, received from Supermercados Norte under a ten year
lease because (1) Hipermarc received the lease payments in advance, that is,
prior to providing its services under the lease, and (2) such lease payments
were denominated and payable in U.S. dollars.
On January 6, 2002, the Argentine government issued a Law No. 25,561
mandating that certain types of liabilities denominated in U.S. Dollars payable
by Argentine individuals and corporations be converted to Argentine pesos. This
process is known as the "PESIFICACION". In furtherance of this law, Hipermarc
converted to Argentine pesos, the lease payments it had received from
Supermercados Norte in U.S. dollars. The consolidated financial statements we
filed with the Commission for fiscal year 2001 reflected this conversion.
Pursuant to Ordinances No. 09181 and No. 00154 issued on December 9, 2002
and January 8, 2003, respectively, the Securities and Insurance Superintendency
of Chile ruled that the lease payments Hipermarc received from Supermercados
Norte should have been maintained in U.S. dollars, and should have not been
converted to Argentine pesos. Ordinances No. 09181 and No. 00154 further
required us to
33
restate our consolidated financial statements for fiscal year 2001 and for the
quarterly periods of 2002 prior to the issuance of such Ordinances to reflect
the conversion of the lease payments to U.S. dollars. We appealed the
enforceability of Ordinances No. 09181 and No. 00154 before the Courts of Appeal
in Santiago, and on August 21, 2003, the Seventh Court of the Courts of Appeal
of Santiago upheld the effectiveness of such Ordinances. Accordingly, we
restated our consolidated financial statements as ordered by the Securities and
Insurance Superintendency. This restatement had the general effect of (1)
increasing our long-term monetary liabilities by Ch$2,103,243 and Ch$3,343,761
as of December 31, 2001 and 2002, respectively, (2) increasing our short-term
monetary liabilities by Ch$323,542 and Ch$607,957 as of December 31, 2001 and
2002, respectively, and (3) decreasing our income by Ch$2,498,460 and by
Ch$1,287,826 in fiscal years 2001 and 2002, respectively. The translation of our
non-monetary liabilities from Argentine pesos to U.S. dollars had the effect of
increasing our monetary liabilities in the amounts specified above, reflecting
the impact of the translation of such non-monetary liabilities at an exchange
rate of A$3.39 per U.S. dollar.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
NET SALES
Net sales include:
o product sales;
o payments received from suppliers in exchange for their access to shelf
space, in the form of discounts, special promotions and other marketing
arrangements;
o payments from our lessees in each store; and
o payment of lease rents in connection with the lease of our facilities in
Argentina.
During 2002, our net sales decreased to Ch$122,344 million, or 17.3%, as
compared to Ch$147,944 million during 2001. This decrease was mainly the result
of a decrease in our sales volume and a decrease in the sales price of several
of our principal product categories, which include beauty care products,
clothing and other non-food products as well as food products. During 2002, same
store sales declined to Ch$110,054 million, or 17.2%, as compared to Ch$132,979
million during 2001, while new stores had a better performance than existing
stores. Same store sales include the sale of products in stores existing both in
the current and the immediately prior year, while the remainder of store sales
includes the sale of products in stores that we opened during the relevant
financial year.
COST OF SALES AND GROSS MARGIN. Our cost of sales mainly includes the
purchase cost of products from suppliers, including among others, the cost of
perishable goods, food and non-food products, beverages and liquors. During
2002, our cost of sales decreased to Ch$96,585 million, or 15.1%, as compared to
Ch$113,788 million during 2001. This decrease was due to (1) the decrease in our
sales and (2) the improvement in our marketing margin, attributable to a
reduction in the price of some of the products we purchase from our suppliers
and an increase in our sales of private label products, which have a lower
purchase cost as compared to other brand products. The increase in our marketing
margin was also the result of our efforts to enhance our marketing image. In
2002, our cost of sales accounted for 78.9% of our net sales, as compared to
76.9% in 2001.
Our gross profit decreased to Ch$25,758 million in 2002, or 24.6%, from
Ch$34,155 million in 2001. Our gross profit, as a percentage of our net sales,
decreased to 21.1% in 2002 from 23.1% in 2001.
34
ADMINISTRATIVE AND SELLING EXPENSES. Our administrative and selling
expenses include the payment of salaries, depreciation expenses, lease payments
for the rent of supermarket facilities, and costs of materials, power and
electricity. During 2002, our administrative and selling expenses rose to
Ch$33,150 million, or 2.0%, from Ch$32,486 million during 2001. Of the Ch$33,150
million in administrative and selling expenses:
o Ch$6,702 million was attributable to depreciation expenses, compared to
Ch$5,794 million during 2001. This increase was principally due to an
increase in depreciation expenses from investments in store renovations we
made during 2001 and 2002. During 2002 we refurbished several stores,
including Las Tranqueras, Vina Libertad, Vina San Martin, Concepcion,
Curico, Providencia, Gran Avenida, Grecia and Irarrazaval.
o Ch$26,448 million was attributable to administrative expenses, compared to
Ch$26,692 million during 2001. This decrease was mainly due to lower
marketing costs and administrative expenses incurred during the year.
During 2002 and 2001 administrative and selling expenses represented 27.1%
and 22.0% of our net sales, respectively.
OPERATING INCOME. During 2002, we had an operating loss of Ch$7,391
million, or 542.6%, compared to an operating income of Ch$1,670 million during
2001. Our operating loss was the result of the decrease in our net sales, as
explained above. Our operating loss represented 6.0% of our net sales in 2002
and our operating income represented 1.1% of our net sales in 2001.
NON-OPERATING INCOME. The table below provides non-operating income
information for the years ended December 31, 2001 and 2002:
YEAR ENDED AS OF DECEMBER 31,
-----------------------------
2001 2002
-------- --------
(in millions of Chilean pesos)
Financial income ......................... 62 142
Gain on sale of fixed assets (*) ......... 11 263
Other non-operating income ............... 492 2,113
-------- --------
Total .................................... 565 2,518
======== ========
- ----------
(*) Our consolidated income statement includes income from the sale of fixed
assets in "Other non-operating income".
During 2002, our non-operating income rose to Ch$2,518 million, or 345.8%,
as compared to Ch$565 million during 2001. This increase was mainly due to our
recognition in 2002 of income from a debt forgiveness granted by our parent,
Inverraz, in the amount of Ch$1,877 million.
NON-OPERATING EXPENSES. The table below provides information with respect
to our non-operating expenses for the years ended December 31, 2001 and 2002:
35
YEAR ENDED AS OF DECEMBER 31,
-----------------------------
2001 2002
-------- --------
(in millions of Chilean pesos)
Financial expenses ....................... 5,703 4,774
Amortization of goodwill ................. 1,306 1,264
Loss on sale of assets (*) ............... 6 1,032
-------- --------
Other non-operating expenses ............. 390 50
-------- --------
Total .................................... 7,405 7,120
======== ========
- ----------
(*) Our consolidated financial statements include the loss from the sale of
fixed assets in "Other Non-operating Expenses".
During 2002, our non-operating expenses decreased to Ch$7,120 million, or
3.8%, as compared to Ch$7,405 million in 2001. The decrease in financial
expenses to Ch$4,774 million in 2002 from Ch$5,703 million in 2001 was
attributable to lower interest rates paid on our bank loans.
Under Chilean GAAP, (1) goodwill represents the excess of the purchase
price paid for the stock of a company we have acquired over such stock's net
book value at the time of the stock purchase transaction, and (2) negative
goodwill represents the excess of the net book value of the stock of a company
we have acquired over such stock's purchase price at the time of the stock
purchase transaction. Generally, we amortize goodwill and negative goodwill over
a maximum period of 20 years. During 2001 and 2002, the amortization of goodwill
amounted to Ch$1,306 million and Ch$1,264 million, respectively, resulting from
our purchase of several companies, including among others, the purchase of
Hipermarc and Inmobiliaria de Supermercados S.A. See Note 14 to our financial
statements.
INCOME TAXES. In 2002, we recognized a tax benefit of Ch$5,592 million,
compared to a tax benefit of Ch$2,736 million in 2001. Our tax benefit during
both years was attributable to the recognition of deferred taxes arising from
accumulated tax losses.
NET LOSS. During 2002 and 2001, our net losses were Ch$1,600 million and
Ch$2,101 million, respectively.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
NET SALES. During 2001, our net sales decreased to Ch$147,944 million, or
12.4%, as compared to Ch$168,853 million during 2000. This decrease was mainly
the result of a decrease in our sales volume and a decrease in the sales price
of several of our principal product categories, which include beauty care
products, clothing and other non-food products as well as food products. During
2001, same store sales declined to Ch$132,979 million, or 14.3%, compared to
Ch$155,155 million during 2000, while new stores had a better performance than
existing stores.
COST OF SALES AND GROSS MARGIN. During 2001, our cost of sales decreased
to Ch$113,788 million, or 18.2%, from Ch$139,151 million during 2000. This
decrease was due to (1) the decrease in our sales and (2) an improvement in our
marketing margin resulting from a reduction in the price of some the products we
purchase from our suppliers and an increase in the sales of private label
products, which have a lower purchase cost as compared to other brand products.
In 2001, our cost of sales represented 76.9% of net sales, as compared to 82.4%
in 2000.
Our gross profit increased to Ch$34,156 million in 2001, or 15%, from
Ch$29,702 million in 2000. Our gross margin, as a percentage of our net sales,
increased to 23.1% during 2001 from 17.6% during 2000. This increase was
principally the result of a better marketing margin, which we achieved
36
through the combination of a reduction in the price of products we purchase from
our suppliers and an increase in the product sales price we charge to our
customers.
ADMINISTRATIVE AND SELLING EXPENSES. During 2001, our administrative and
selling expenses rose to Ch$32,486 million, or 10.2%, from Ch$29,473 million
during 2000. Of the Ch$32,486 million in administrative and selling expenses:
o Ch$5,794 million consisted of depreciation expenses, compared to Ch$5,380
million during 2000. This increase was mainly attributable to an increase
in depreciation expenses relating to the start-up of Parque Unimarc La
Florida, a new supermarket we opened in late 2000; and
o Ch$26,692 million consisted of administrative expenses, compared to
Ch$24,094 million during 2000. This increase was mainly due to an increase
in marketing and administrative expenses we incurred for the operation of
Parque Unimarc La Florida.
Administrative and selling expenses represented 22.0% and 17.5% of our net
sales during 2000 and 2001, respectively.
OPERATING INCOME. During 2001, our operating income rose to Ch$1,669
million, or 628.8%, as compared to Ch$229 million during 2000. This increase was
due to (1) a decrease in the price of some of the products we purchase from our
suppliers, which enabled us to reduce our operating costs by approximately 6.7%,
and (2) an increase in the sale of private label products, which have a lower
purchase cost as compared to other brand products. Operating income represented
1.1% and 0.1% net sales in 2001 and 2000, respectively.
NON-OPERATING INCOME. The table below provides non-operating income
information for the years ended December 31, 2000 and 2001:
YEAR ENDED AS OF DECEMBER 31,
-----------------------------
2000 2001
-------- --------
(in millions of Chilean pesos)
Financial income ......................... 266 62
Gain on sale of fixed assets (*) ......... 2,786 11
Other non-operating income ............... 244 492
-------- --------
Total .................................... 3,296 565
======== ========
- ----------
(*) The consolidated income statement includes income from the sale of fixed
assets in "Other non-operating income".
In 2001, our non-operating income decreased to Ch$565 million, or 82.9%,
as compared to Ch$3,296 million in 2000. During 2000, our gain of Ch$2,786
million from the sale of fixed assets was attributable to the sale of several
storage facilities to Renta Nacional Compania de Seguros de Vida S.A.
NON-OPERATING EXPENSES. The table below provides non-operating expense
information for the years ended December 31, 2002 and 2001:
37
YEAR ENDED AS OF DECEMBER 31,
-----------------------------
2000 2001
-------- --------
(in millions of Chilean pesos)
Financial expenses ....................... 3,616 5,703
Amortization of goodwill ................. 1,273 1,306
Loss on sale of assets (*) ............... 369 6
-------- --------
Other non-operating expenses ............. 122 390
-------- --------
Total .................................... 5,380 7,405
======== ========
- ----------
(*) Our consolidated income statements include the loss from the sale of fixed
assets in "Other Non-operating Expenses".
In 2001, our non-operating expenses increased to Ch$7,405 million, or
37.9%, as compared to Ch$5,380 million in 2000. The increase in financial
expenses to Ch$5,703 million in 2001 from Ch$3,616 million in 2000 was mainly
due to expenses we incurred in connection with our lease of Parque Unimarc La
Florida, which we opened in late 2000.
During 2000 and 2001, our goodwill amounted to Ch$1,273 million and
Ch$1,306 million, respectively, resulting from our purchase of several
companies, including, among others, the purchase of Hipermarc and Inmobiliaria
de Supermercados S.A. See Note 14 to our financial statements.
INCOME TAXES. During 2001, we received a tax benefit of Ch$2,736 million,
compared to a tax benefit of Ch$1,086 million in 2000. This tax benefit derived
from the recognition of deferred taxes arising from accumulated tax losses.
NET INCOME. During 2001 we incurred a net loss of Ch$2,101 million, while
in 2000 we had a net income of Ch$111 million.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity consist of cash from operations and cash
available under lines of credit and other financing arrangements. During 2001,
net cash provided by operations was Ch$6,581 million compared to cash provided
by operations of Ch$12,883 million in 2002.
Funds from other sources were Ch$18,821 million in 2001 and Ch$19,722
million in 2002, and derived principally from issuance of stocks, sales of
assets, sale of investments, dividends from related companies and increase in
long-term liabilities. Of the Ch$19,722 million in funds we obtained during
2002, we derived Ch$12,130 million from loans, Ch$7,591 million from the sale of
fixed assets and Ch$0.7 derived from sales of other investments. Historically,
we have financed a portion of our capital needs through a series of
sale/leaseback transactions with related entities. Under these sale/leaseback
transactions, we sell existing supermarkets to related entities, mainly to Renta
Nacional Compania de Seguros de Vida S.A., or Renta Nacional, to finance the
construction and/or remodeling of other supermarkets. We may then repurchase
these supermarkets using funds generated from our operations. We may enter into
additional sales or sale-leaseback transactions with Renta Nacional or other
related entities in order to finance the acquisition of new stores or renovation
of existing stores. Any such transactions will only be entered into on terms no
less favorable than those which could be obtained from non-related third
parties.
The principal uses of funds in 2001 and 2002 were:
38
o payment of costs associated with the construction of Parque Unimarc La
Florida and the renovation and expansion of existing stores;
o payments to personnel and suppliers;
o repayment of bank debt and obligations under capital leases; and
o distribution of dividends in 2001.
Our foreign currency liabilities, including our long-term debt, are
denominated in U.S. dollars and Argentine pesos. As of December 31, 2002, we had
liabilities in the amount of Ch$25,232 million denominated in U.S. dollars and
Ch$665 million denominated in Argentine pesos.
During 2003, we anticipate capital expenditures in the amount of Ch$0.5
million to finance our ongoing supermarket expansion and renovation program,
which we expect to fund from internally generated resources. See "Item 4.
Information on the Company - History and Development of the Company - Principal
Capital Expenditures and Divestitures".
LONG TERM LIABILITIES. As of December 31, 2002 and 2001, our long-term
liabilities amounted to Ch$34,423 million, as compared to Ch$41,192 million as
of December 31, 2001. As of December 31, 2002, our long-term bank debt comprised
(1) two loans denominated in Unidades de Fomento, with an outstanding balance,
including both principal and interest, of Ch$2,984 million, or 35.7% of our
long-term bank debt, (2) two loans denominated in U.S. dollars, with an
outstanding balance, including both principal and interest, of Ch$5,202 million,
or 62.3% of our long-term bank debt, and (3) one loan denominated in another
currency with an outstanding balance, including both principal and interest, of
Ch$164 million, or 2.0% of our long-term bank-debt. The average weighted
maturity of our outstanding long-term liabilities as of December 31, 2002 was
approximately ten years. Our total long-term liabilities at December 31, 2002
also included (1) long-term obligations in the total amount of Ch$1,859 million
under various equipment lease contracts, (2) lease payment obligations in the
total amount of Ch$17,258 million owed to Renta Nacional in connection with the
supermarket we lease from it, and (3) deferred income in the amount of Ch$1,399
million. This deferred income reflects early lease payments we received from
Supermercados Norte for the lease of our supermarkets in Argentina. As of
December 31, 2002, the average weighted maturity of our liabilities under this
lease was approximately 20 years.
The collateral below secures certain of our major loans:
o the loan we received from CorpBanca is secured by mortgages on two of our
supermarkets, Maipu I and Maipu II.
o the loan we received from Banco Scotiabank S.A. (SudAmericano) is secured
by a mortgage on one of our supermarkets, Vina San Martin.
o the loan we received from BankBoston is secured by mortgages over certain
forestry assets owned by the following related parties: Sociedad Ganadera
y Forestal Nacional Ltda., Ganadera y Forestal Nacional S.A. and Forestal
Regional S.A.
SHORT-TERM LIABILITIES. As of December 31, 2002, our short-term debt
amounted to Ch$24,610 million, and included, among others, a bridge loan in the
principal amount of US$22.0 million payable to BankBoston, with an outstanding
balance, including both principal and interest, of Ch$16,188 million, or US$22.5
million, as of December 31, 2002.
39
IMPACT OF INFLATION AND PRICE-LEVEL RESTATEMENT
Under Chilean GAAP we are required to restate non-monetary assets and
liabilities, equity and income and expense accounts to reflect the effect of
variations in the purchasing power of the Chilean peso during each year, thus
reflecting by an indirect method the gain or loss resulting from holding or
owning monetary assets and liabilities. For all the above balances, the
restatement is based on the variation of the official CPI of the INSTITUTO
NACIONAL DE ESTADISTICAS, with the exception of assets and liabilities in
foreign currency, which are adjusted to closing exchange rates.
Certain companies in Chile finance current assets and fixed assets with
short-term and long-term liabilities in foreign currency. Because assets are
generally restated using the CPI and liabilities in foreign currency are
restated to closing exchange rates, the price-level restatement line in the
income statement is affected by the relationship between local inflation and the
U.S. dollar exchange rate of the Chilean peso.
During 1998, Technical Bulletin No. 64 ("BT 64") was issued, which
superseded Technical Bulletin No. 51 under Chilean GAAP for 1999 and subsequent
years. In accordance with BT 64, the financial statements of the Argentine
subsidiary were converted into Chilean pesos at year end rates, and any
difference between the end of the year net equity of the subsidiary and the
corresponding investment account, after price level restatement, of the parent
company was recorded in shareholders' equity as a cumulative conversion
adjustment. Prior to 1999, the financial statements of the Argentine subsidiary
were converted to Chilean pesos using Chilean pesos as the functional currency.
Because of Chile's past history of relatively high inflation, the
financial markets have developed a system of borrowing or lending in Unidades de
Fomento. Most long-term assets and liabilities in pesos are indexed in Unidades
de Fomento and the adjustment to the closing value is reflected in the
price-level adjustment account.
The use of Unidades de Fomento-denominated transactions offsets the effect
of inflation in the preparation of price-level adjusted financial statements.
For example, a company with Unidades de Fomento-denominated obligations will
record both a financing cost, from the adjustment to the value of the Unidades
de Fomento due to the effects of inflation, and a price-level gain, from holding
a liability during a period of inflation, of comparable amounts, excluding the
difference between actual inflation and the inflation rate used for purposes of
the Unidades de Fomento index, which has a lag of one month. In the case of a
Unidades de Fomento-denominated asset, the price-level adjustment, a loss, and
the Unidades de Fomento valuation, a gain, also offset each other, with the
exception of the one-month lag in the Unidades de Fomento index referred to
above.
CRITICAL ACCOUNTING POLICIES
When preparing our consolidated financial statements, in accordance with
Chilean GAAP, we are required to make estimates and judgments that affect the
value of our assets, liabilities, sales and expenses. We continually evaluate
these estimates, including those related to allowances for bad debt,
inventories, useful lives of property, plants and equipment, intangible assets,
contingent liabilities, appraisal of income taxes, severance indemnities and the
fair value of financial instruments. We base our estimates on historical
experience and on other assumptions, which we believe to be reasonable in the
light of the circumstances. These estimates serve as the basis for our judgments
on the value of our assets and liabilities. Actual results could differ from
these estimates under different assumptions and conditions. Below we have
identified the accounting policies that are critical to our financial
statements.
40
NOTES AND ACCOUNTS RECEIVABLE AND SUNDRY DEBTORS
We perform continuous evaluation of credit to our clients and the limits
of credit are restated on the basis of the history of payments and the current
behavior of the client, as determined from our review of such client's currently
available credit information. We continuously supervise collections from, and
payments made by, our clients and we maintain a provision for estimated credit
losses based on the period of nonpayment of balances, which are presented as a
deduction under "Notes receivable" and "Sundry debtors." While such credit
losses have been historically within our estimates and the provisions
established, we may not ascertain that we will continue to experience the same
credit loss rates we have had in the past.
INVENTORIES
Generally, we appraise our inventories at the average acquisition cost,
which does not exceed their net sales price. However, we appraise the frozen
products produced by our affiliate Interagro Comercio y Ganado S.A., at the
average production cost. Products that are obsolete or out of season are sold
during the year. Eventually, we could incur losses due to obsolescence in
connection with these products if not sold during the year. However, our goal is
to sell those products within the year to optimize our inventories.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at price level restated
purchase price. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The preparation of consolidated financial
statements in conformity with Chilean GAAP requires management to make estimates
and assumptions, relating to the useful lives of such assets, that affect the
reported amounts of assets and the disclosure at the date of the consolidated
financial statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
As of December 31, 2002, the useful lives of our property, plant and equipment
were estimated as follows:
o 60 years for buildings;
o 3 - 20 years for machinery and equipment; and
o 10 years for furniture and materials, as well as water, fuel, electricity
and other equipment.
INCOME TAXES
We record valuation allowances, if necessary, to reduce our deferred tax
assets to the amount that we are likely to realize. We consider future taxable
income and tax planning strategies to assess the need for, and the size of, the
valuation allowances. If we determine that we can realize a deferred tax asset
in excess of our net recorded amount, we adjust the deferred tax asset, thereby
increasing income. Conversely, if we determine that we are unable to realize all
or part of our net deferred tax asset, we adjust the deferred tax asset, thereby
decreasing income.
CONTINGENT LIABILITIES
We are party to a number of claims and lawsuits that are related to the
normal course of business activity. Additionally, we are subject to certain
legal proceedings against us filed by creditors of our affiliates, that seek the
repayment of several loans. Although we may not anticipate the amount of the
41
related liabilities, we record provisions when we consider such liabilities as
probable and reasonably estimable. The provisions are based on historical
experience and legal advice are reviewed on a three-month basis, and are updated
based on further developments. Changes in the amount of the provisions affect
our consolidated income statements. As of December 31, 2002, we had recorded
provisions in the total amount of Ch$271 million with respect to labor
proceedings and other contingencies. See "Item 3. Key Information" and "Item 8.
Financial Information --Legal Proceedings".
REVENUE RECOGNITION
We recognize revenues at the point of sale to retail customers, when title
to the goods has transferred to the customer and the customer has paid the price
for such goods. We recognize the discounts we provide to customers at the point
of sale, as well as an allowance for returns as a reduction in sales, as we sell
our products. We recognize income for in-store promotions, or other incentives
from suppliers that are non-refundable credits or payments when the related
activities that the supplier requires are completed, the amount can be fixed or
is variable and determinable, and the collectability is reasonably assured. This
income is generally included as an offset of cost of sales. Funds that are
directly linked to advertising commitments are recognized as a reduction of cost
of sales when the related advertising commitment is satisfied. We also maintain
allowances for possible estimated losses due to bad debts that result from the
inability of our customers to make required payments.
ASSETS IMPAIRMENTS
We monitor the carrying value of long-lived assets for potential
impairment each quarter based on whether certain trigger events have occurred,
such as current period losses combined with a history of losses, or a projection
of continuing losses, or a significant decrease in the market value of an asset.
When a trigger event occurs, we perform an impairment calculation by comparing
(1) projected undiscounted cash flows utilizing current cash flow information
and expected growth rates related to specific stores (2) to the carrying value
for those stores. If impairment is identified for long-lived assets other than
real property, we compare discounted future cash flows to the asset's current
carrying value, and we record impairment when the carrying value exceeds the
discounted cash flow. With respect to owned property and equipment associated
with closed stores, we adjust the value of the property and equipment to reflect
recoverable values based on our previous efforts to dispose of similar assets
and current economic conditions. We recognize impairment for the excess of
carrying value over estimated fair market value, reduced by estimated direct
costs of disposal. We reflect any reductions in the carrying value of assets
resulting from the application of this policy in the income statement as "asset
impairment charges".
GOODWILL
As per the Chilean generally accepted accounting principles, goodwill
rises from the surplus in the purchase value of companies acquired over their
net accounting value. Negative goodwill results when the net accounting value
exceeds the purchase price of the acquired companies. Goodwill and negative
goodwill also rise from the purchase of investments accounted under the equity
method. Goodwill and negative goodwill are regularly amortized over a maximum
period of 20 years, considering the earning period of the investments. Chilean
generally accepted accounting principles also provides that the amortization of
goodwill and negative goodwill may be accelerated if the proportional income or
loss of the company in which the investment is made exceeds the amount of the
respective linear amortization
42
US GAAP RECONCILIATION
The main differences between Chilean GAAP and U.S. GAAP that affected our
results for the years ended December 31, 2000, 2001 and 2002, are:
o the adjustment under U.S. GAAP of excess price paid to shareholders over
the original cost basis for the repurchase of assets.
o the capitalization under U.S. GAAP of interest incurred during the period
that assets are being constructed or prepared for productive use;
o the reversal under U.S. GAAP of the amortization of negative goodwill
under Chilean GAAP
o the reversal under U.S. GAAP of the amortization of goodwill in a business
combination with companies under common control, which combination is
accounted for as a distribution to shareholders and a reduction of
shareholders' equity for U.S. GAAP purposes;
o the reversal of gain and losses from the sale of assets to related
companies.
Under U.S. GAAP, we are required to accumulate a liability for our
obligation to pay a dividend equal to at least 30% of our net income in the
relevant year unless otherwise agreed by our shareholders. Pursuant to Chilean
GAAP, our financial statements also recognize the effects of inflation. The
effect of inflation has not been reversed in reconciliation with U.S. GAAP.
Our gross profit for the year ended December 31, 2002 under U.S. GAAP was
Ch$ 25,759 million, or a 21.1% gross margin, while the amount reported under
Chilean GAAP was Ch$ 25,759 million or a 21.1% gross margin. Gross profit for
the year ended December 31, 2001 under U.S. GAAP was Ch$ 37,550 million, or a
24.8% gross margin, while the amount reported under Chilean GAAP was Ch$ 34,155
million, or a 23.1% gross margin. Our gross profit for the year ended December
31, 2000 under U.S. GAAP was Ch$ 29,721 million, or a 17.6% gross margin, while
the amount reported under Chilean GAAP was Ch$ 29,702 million, or a 17.6% gross
margin.
Our operating income for the year ended December 31, 2002 under U.S. GAAP
was Ch$ 7,487 million, while the amount reported under Chilean GAAP was Ch$
7,391 million. Our operating income for the year ended December 31, 2001 under
U.S. GAAP was Ch$ 4,904 million, while the amount reported under Chilean GAAP
was Ch$ 1,670 million. Our operating income for the year ended December 31, 2000
under U.S. GAAP was Ch$ 162 million, while the amount reported under Chilean
GAAP was Ch$ 229 million.
The following table sets forth certain financial information for Unimarc
as a percentage of net sales for the periods indicated, in accordance with U.S.
GAAP.
YEAR ENDED AS OF DECEMBER 31,
----------------------------------
2000 2001 2002
-------- -------- --------
Net sales .............................. 100% 100% 100%
Cost of sales .......................... (82.4) (75.2) (75.2)
Gross margin ........................... 17.6 24.8 24.8
Administrative and selling expenses .... (17.5) (21.6) (27.2)
Operating Income ....................... 0.1 3.2 (2.4)
Non-operating income ................... 0.4 0.4 2.9
Non-operating expense .................. (2.5) (4.2) (4.8)
43
Price-level restatement ................ 0.5 0.2 3.9
Non-operating results .................. (1.6) (3.6) 2.0
Results before taxes ................... (1.7) (0.4) (0.4)
Income taxes ........................... 1.3 0.5 3.9
Net income (loss) ...................... (0.4) 0.1 (0.3)
Minority interest ...................... 0.0 0.0 0.0
Net income (loss) ...................... (0.4) 0.1 (0.3)
Our net loss for the year ended December 31, 2002 under U.S. GAAP was Ch$
308.67 million, compared to that reported under Chilean GAAP of Ch$ 1,599.8
million. The net loss under Chilean GAAP is higher mainly due to:
o adjustment for business combinations with companies under common control;
and
o gain on sale of fixed assets to related companies
Our net income for the year ended December 31, 2001 under U.S. GAAP was
Ch$ 136 million, compared to our net income reported under Chilean GAAP of Ch$
2,101 million. Net income under U.S. GAAP was higher mainly due to:
o adjustment for business combinations with companies under common control;
and
o gain on sale of fixed assets to related companies
Our net loss for the year ended December 31, 2000 under U.S. GAAP was Ch$
622 million, compared to our net income reported under Chilean GAAP of Ch$ 111
million. The net loss under U.S. GAAP is mainly due to:
o adjustment for business combinations with companies under common control;
o an adjustment for deferred tax provisions; and
o gain on sale of fixed assets to related companies.
Our total shareholders' equity under U.S. GAAP as of December 31, 2002 was
Ch$92,665 million, compared to that reported under Chilean GAAP of Ch$107,823
million. The principal reasons for the difference between total shareholders'
equity under U.S. GAAP and Chilean GAAP in this period are:
o an adjustment of deferred taxes;
o an adjustment for the payment to shareholders for excess purchase price
over book value;
o an adjustment for the payment to shareholders for excess of purchase price
over original cost of repurchased assets;
o an adjustment for tax loss carry forwards;
o the net effect of adjustments for business combination;
o the conversion of Hipermarc to FAS 52; and
44
o capitalized computer software cost
Our total shareholders' equity under U.S. GAAP as of December 31, 2001 was
Ch$ 87,203 million, compared to that reported under Chilean GAAP of Ch$ 108,271
million. The principal reasons for the difference between total shareholders'
equity under U.S. GAAP and Chilean GAAP in this period are:
o an adjustment of deferred taxes;
o an adjustment for payment to shareholders for excess purchase price over
book value;
o an adjustment for the payment to shareholders for excess of purchase price
over original cost of repurchased assets;
o an adjustment for tax loss carry forwards;
o the net effect of adjustments for business combination;
o the conversion of Hipermarc to FAS 52; and
o capitalized computer software cost
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
BOARD OF DIRECTORS
In accordance with our by-laws, our Board of Directors must be comprised
of seven directors who are elected at the annual regular shareholders' meeting.
The entire Board of Directors is elected every three years. The current Board of
Directors was elected in April 2002. If a vacancy occurs, the Board of Directors
will elect a temporary director to fill the vacancy until the next regularly
scheduled meeting of shareholders, at which time the entire Board of Directors
will be elected or re-elected. There are regularly scheduled monthly meetings of
the Board of Directors; extraordinary meetings are convened (1) when called by
the President, (2) when requested by any other director with the assent of the
President or (3) when requested by an absolute majority of the directors. The
directors at December 31, 2002 were as follows:
CURRENT POSITION YEARS WITH UNIMARC OR
NAME POSITION HELD SINCE RELATED ENTITIES
- -----------------------------------------------------------------------------------------------------------
Francisco Javier Errazuriz Ovalle Chairman and Director November 1997 7 years
Elias Errazuriz Errazuriz Director April, 2000 6 years
Victor Cantillano Vergara Director April, 2001 19 years
Eduardo Viada Aretxabala Director April, 2001 6 years
Jorge Indo Vargas Director January 2002 25 years
Ramon Mendez Cifuentes Director April, 2002 4 years
Cristian Rosselot Mora Director April, 2002 2 years
MR. FRANCISCO JAVIER ERRAZURIZ OVALLE is the Chairman and Director of
Unimarc, as well as in several other companies of the Inverraz Group. Mr.
Errazuriz joined the Inverraz Group in 1996. He holds a degree in business
administration from the Universidad de Chile.
45
MR. ELIAS ERRAZURIZ ERRAZURIZ is a Director of Unimarc. Mr. Errazuriz
joined the Inverraz Group in 1997. Mr. Errazuriz held several positions in the
holding Camelio since 1975 to 1986, including the position of Chief Executive
Officer. He has also served as: (1) from 1986 to 1991, Chief Executive Officer
in Pesquera Comtesa S.A., (2) from 1993 until 1996, Operations Manager of
Salmones Aguas Claras S.A., (3) in 1996, Commercial Manager in Pesquera San
Pedro S.A., and (4) from 1997 until 1998, Commercial Manager in Pesquera
Nacional S.A. Mr. Errazuriz is at present, the Chief Executive Officer in
Salmones Unimarc S.A. He holds a degree as Factor de Comercio.
MR. VICTOR CANTILLANO VERGARA is a Director in Unimarc and among others,
Compania de Seguros de Vida y Generales Renta Nacional. Mr. Cantillano joined
the Inverraz Group in 1984, and has held several positions within the Inverraz
Group and Unimarc, including the position of Information Systems Manager,
Assistant Financial Manager in Inverraz and Administration Manager in Companias
de Seguros de Vida y Generales Renta Nacional. Mr. Cantillano at present is the
Administration Manager in Inversiones Errazuriz Ltda. He holds a degree as
Factor de Comercio.
MR. EDUARDO VIADA joined Unimarc in September 1998 as Chief Financial and
Administration Officer. Mr. Viada joined the Inverraz Group in August 1997.
Prior to joining Unimarc, Mr. Viada held office as Chief of Risks and Assistant
Commercial Manager in Banco Sud Americano S.A. and as Chief Financial and
Administration Officer in Papelera Dimar S.A. At present, he is the Financial
Director in Inverraz and Director in Unimarc, and participates in the Boards of
Directors of several companies in the Inverraz Group, among others, in Companias
de Seguros de Vida y Generales Renta Nacional. He holds a degree in business
administration from Universidad Diego Portales.
MR. JORGE INDO VARGAS is a Director of Unimarc. He joined the Inverraz
Group in 1978 and has held several positions within the Inverraz Group,
including the positions as Comptroller of the companies in the Group.
Additionally, he is Director, among other companies, of Companias de Seguros de
Vida y Generales Renta Nacional. He holds a degree in Factor de Comercio.
MR. RAMON MENDEZ CIFUENTES is a Director of Unimarc and joined us in 1998.
He holds a degree as Factor de Comercio.
MR. CRISTIAN ROSSELOT MORA is a Director in Unimarc and joined us in 2002.
He holds a degree in Law from Universidad Gabriela Mistral and a Diplomate in
Litigation from Universidad Diego Portales; and is member of the professor staff
of the Department of Processal Law in Universidad Gabriela Mistral. In the
Supreme Court of Justice, he is the Secretary and Chief of the Staff of the
Justice of the Court of Mr. German Valenzuela Erazo; he is a member of the Board
in Renta Nacional Compania de Seguros de Vida and Compania de Seguros Generales.
46
EXECUTIVE OFFICERS
As of December 31, 2002, our executive officers were:
NAME POSITION
- --------------------------------- ------------------------------------
Francisco Javier Errazuriz Ovalle Principal Executive Officer
Claudia Quezada Romero Chief Commercial & Financial Officer
Juan Miguieles Silva Systems Manager
Olga Melo Vergara Quality and Services Manager
Gabriel Rodriguez Gajardo Operations Manager
Joaquin Abbott Galaz Internal Auditor
Enrique Barriga Ugarte Foreign Trade Manager
MR FRANCISCO JAVIER ERRAZURIZ OVALLE is our Principal Executive Officer.
MRS. CLAUDIA QUEZADA ROMERO, our Chief Commercial & Financial Officer,
joined us in November 1999. Mrs. Quezada joined the Inverraz Group in 1989, and
has held the following positions within Inverraz and Unimarc: (1) Chief of
Budget and Treasury of Cidef S.A. since 1989 until 1996, (2) several positions
in Pesquera Nacional S.A. between 1996 and 1999, including the position of
Administration & Finance Manager, and (3) Finance Manager in Unimarc from 1999
until 2001. She holds a degree in business administration from the Universidad
de Santiago de Chile.
MR. JUAN MIGUIELES SILVA, our Systems Manager, joined us in the month of
December 1999. Mr. Miguieles joined the Inverraz Group in 1986, and held the
position of Systems Manager in Renta Nacional Compania de Seguros Generales S.A.
prior to becoming the Systems manager in Unimarc. He holds a degree in business
administration from the Universidad de Concepcion.
MS. OLGA MELO VERGARA, our Quality & Services Manager joined us in August
1980. Ms. Melo has also held office as supermarket manager and zonal
supermarkets manager. She holds a degree in business administration from
Universidad Catolica de Chile.
MR. GABRIEL RODRIGUEZ GAJARDO, our Operations Manager, joined us in 2001.
Prior to joining Unimarc he held office as Operations Manager in Farmacias Cruz
Verde, Development manger and Manager of the Distribution Center in Socofar. Mr.
Rodriguez holds a degree in Civil Engineering from Universidad de Chile.
MR. JOAQUIN ABBOTT GALAZ, our internal auditor, joined us in June 1982.
Mr. Abbott holds a degree as Auditing Accountant from Universidad de Concepcion.
MR. ENRIQUE BARRIGA UGARTE, our Foreign Trade Manager, joined us in 1998.
Mr. Barriga joined the Inverraz Group in 1979 and has held office as Foreign
Trade Manager in Cidef, Motorcycle Sales Manager and Chief Executive Officer in
Inverraz Trading S.A., Mr. Barriga holds a degree as Business Administrator from
Instituto IPEVE.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the agreement established during the shareholders' ordinary
meeting of Unimarc, no fees have been paid to our Directors.
47
For the year ended December 31, 2002, the aggregate amount of compensation
paid to our executive officers totaled Ch$ 155 million, or US$ 215,700.
We do not disclose to our shareholders or otherwise make available public
information regarding the compensation of our individual executive officers.
Unimarc does not have any pension or retirement programs for its directors
or executive officers.
EMPLOYEES
YEAR ENDED AS OF DECEMBER 31,
--------------------------------------
2000 2001 2002
--------------------------------------
Total Unimarc employees ......... 1,976 1,950 1,460
Total Affiliate employees ....... 3,114 2,650 2,632
-------- -------- --------
Total ........................... 5,090 4,600 4,092
As of December 31, 2002, we had (1) 1,460 directly hired employees, and
(2) an additional 2,632 employees hired under a labor agreement with several
non-related entities. As of December 31, 2002, our employees (including those
hired under agreements with third parties) were geographically located as
follows: (1) 2,793 in the Metropolitan region, (2) 163 in region V, (3) 462 in
region VI, (4) 116 in region VII, (5) 298 in region VIII, (6) 256 in region IX,
and (7) 4 in Argentina. We had collective contract agreements with several
unions as at that same date. Our employees receive (1) salaries established in
accordance with our policies, (2) benefits provided for by law, and (3)
additional benefits provided by us in accordance with applicable collective
bargaining agreements.
In accordance with Chilean law, employees make contributions to a national
health insurance system of government and privately operated facilities. Unimarc
operates a medical facility for assisting employees with medical or dental
emergencies. Additionally, we subsidized a medical program for the benefit of
our employees.
We do not maintain any pension or retirement programs for our employees.
Most workers in Chile are subject to a national pension law, adopted in 1980,
which establishes a system of independent pension plans that are administered by
ADMINISTRADORAS DE FONDOS DE PENSIONES, also called AFP. Substantially all of
our employees belong to this pension plan system.
We do not have any obligations from the execution of any of these pension
plans and no retirement payments are made to our employees. We have no liability
for the performance of any of these pension plans or any pension payments to be
made to our employees. We have never experienced significant work stoppages. We
consider our relations with our employees in Chile to be good.
SHARE OWNERSHIP
The table below shows information regarding our stock held by Directors as
of April 30, 2003:
NUMBER OF SHARES PERCENTAGE OWNED
-------------------- ------------------
Francisco Javier Errazuriz Ovalle 633,950 0.05%
Victor Cantillano Vergara 5,583 0.00044%
48
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
Our only outstanding equity are shares of common stock or ordinary shares.
As of March 27, 2003, we had 1,261,849,619 shares of common stock issued and
paid-in. As of that date, 1,331,585 American Depositary Shares, or ADSs, were
issued, representing a total of 66,579,250 of our shares of common stock. Each
ADS represents 50 shares of our common stock.
The following table sets forth certain information regarding the ownership
of our common stock as of April 30, 2003 with respect to shareholders known to
us and with respect to all of our directors and executive officers as a group.
Such information is derived from our records and reports filed with the
SUPERINTENDENCIA DE VALORES Y SEGUROS and the Chilean stock exchanges:
NUMBER OF SHARES PERCENTAGE OWNERSHIP
SHAREHOLDER OF COMMON STOCK OF COMMON STOCK
- ------------------------------------------------------ -------------------------- -------------------------
Alimentos Nacionales S.A. 721,318,546 57.1%
Renta Nac. Cia. de Seguros de Vida S.A. 189,913,643 15.1%
Deposito Central de Valores 183,454,624 14.5%
Fruticola Nacional S.A. 66,715,441 5.3%
Bancard S.A. 32,451,202 2.6%
Ganadera Las Cruces Ltda. 25,362,359 2.0%
Renta Nac. Cia. de Seguros Generales S.A. 8,850,000 0.7%
Adm. de Mutuos Hipotecarios Mi Casa S.A 2,432,718 0.2%
Larrain Vial S.A. Corredores de Bolsa 2,097,203 0.2%
Inmobiliaria Escorial Ltda. 2,000,000 0.2%
Francisco Javier Errazuriz Talavera 1,579,336 0.1%
Sergio Reiss Greenwood 1,555,000 0.1%
Luis Ambrosio Perez Concha 1,500,000 0.1%
Banchile Corredores de Bolsa S.A. 1,497,113 0.1%
Asturiana de Inversiones Ltda. 1,288,475 0.1%
Comercial Marchigue S.A. 1,254,860 0.1%
Molina Swett y Valdes S.A. 1,128,141 0.1%
Santiago Corredores de Bolsa S.A. 1,009,818 0.1%
Francisco Javier Errazuriz Ovalle 633,950 0.0%
Joaquin Abbott Galaz 9,681 0.0%
Victor Cantillano Vergara 5,583 0.0%
Others 15,791,926 1.3%
- ------------------------------------------------------ -------------------------- -------------------------
Total 1,261,849,619 100.00%
- ------------------------------------------------------ -------------------------- -------------------------
The following table presents the changes in percentage of ownership held
by our shareholders:
FOR THE YEAR ENDED AS OF DECEMBER 31,
---------------------------------------------------------------------------------------
2000 2001 2002
--------------------------- --------------------------- ---------------------------
SHAREHOLDER SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE
- ----------------------------------------------------------------------------------------------------------------------------------
Alimentos Nacionales S.A 714,901,264 56.66% 714,901,264 56.66% 721,318,546 57.16%
Renta Nacional Cia. de Seguros de Vida 135,412,805 10.73% 204,707,286 16.22% 189,913,643 15.05%
Deposito Central de Valores S.A 201,009,150 15.93% 203,784,982 16.15% 183,454,624 14.54%
Fruticola Nacional S.A 66,715,441 5.29%
Bancard S.A 16,274,598 1.29% 1,881,739 0.15% 32,451,202 2.57%
Ganadera Las Cruces S.A 25,362,359 2.01% 25,362,359 2.01% 25,362,359 2.01%
Others 20,789,301 1.65% 21,700,995 1.72% 24,864,687 1.97%
Renta Nacional Cia. de Seguros Generales 17,700,000 1.40% 5,500,000 0.44% 8,850,000 0.70%
Administradora de Mutuos
Hipotecarios Mi Casa S.A - - - 2,432,718 0.19%
49
Larrain Vial S.A. CB - - - - 2,097,203 0.17%
Francisco Javier Errazuriz Talavera 1,579,336 0.13% 1,579,336 0.13% 1,579,336 0.13%
Sergio Reiss Greenwood 1,555,000 0.12% 1,555,000 0.12% 1,555,000 0.12%
Comercial Marchigue S.A - - 1,754,860 0.14% 1,254,860 0.10%
Inversiones Errazuriz Trading 121,216,279 9.61% 51,921,798 4.10% - -
Inversiones Santa Cecilia S.A - 15,000,000 1.19% - -
Frutservice S.A - - 12,200,000 0.97% - -
Inversiones y Asesorias GGF 2,958,791 0.23% - - - -
Banchile Corredores de Bolsa 1,585,018 0.12% - - - -
Celfin Gardewed S.A 1,505,718 0.12% - - - -
Corredores de Bolsa
------------- ---------- ------------- ---------- ------------- ----------
TOTAL SHARES 1,261,849,619 100.0% 1,261,849,619 100.0% 1,261,849,619 100.0%
------------- ---------- ------------- ---------- ------------- ----------
During the years ended December 31, 2002 and 2001, the following
transactions were undertaken with respect of our shares of common stock.
AS OF DECEMBER 31,
------------------------------------------------------------
2002 2001
----------------------------- -----------------------------
COMPANY PURCHASE SALE PURCHASE SALE
- -------------------------------------------------------------------------------------------------------------------
Renta Nacional Cia. de Seguros Generales S.A - - 148,005,315 9,115,500
Inversiones Financieras Ltda 2,432,718 2,432,718 80,488,815 80,448,815
Inverraz Trading S.A 35,638,202 87,560,000 - 71,373,315
Alimentos Nacionales S.A - 2,432,718 9,115,500 76,632,000
Renta Nacional Cia. de Seguros de Vida S.A 87,560,000 102,353,643 - -
Fruticola Nacional S.A 102,353,643 35,638,202 - -
Adm. de Mutuos Hipotecarios Mi Casa S.A 2,432,718 - - -
- -------------------------------------------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
Historically, our transactions with affiliates have included (1)
inter-company loans and guarantees, (2) construction contracts with Inmobiliaria
y Constructora Nacional S.A., a construction company controlled by Inverraz, (3)
sale and leaseback transactions with respect to our supermarket stores, (4) cash
and investment management services, (5) mergers with affiliated companies in
order to utilize available tax losses, (6) acquisition of supermarket stores,
and (7) leases from related parties and other transactions. We discontinued the
cash and investment management services currently provided by affiliated
entities. In connection with our expansion and renovation program, we currently
contemplate that we may engage in transactions with affiliates with respect to
construction and insurance services as well as the purchase and lease of
vehicles.
We have guaranteed the payment of certain debt incurred by our affiliates,
including:
o two loans in the aggregate principal amount of US$109.4 million from a
syndicate of banks to Inverraz in 1994 and 1996. As of November 30, 2003,
the aggregate outstanding balance of the 1994 loan and the 1996 loan
(including only principal) were US$44.4 million and US$65.0 million,
respectively. We were one of the guarantors under the 1994 loan. We were
also one of the guarantors under the 1996 loan. As guarantor, we agreed to
guarantee the repayment
50
obligations of Inverraz under the applicable loan (including the payment
of principal, interest, fees, costs and any other charges related to the
applicable credit agreement) in an amount equal to our pro rata share, as
specified in such loan, in accordance with our "attributable liability".
In each loan our "attributable liability" is adjusted from time to time
based on the outstanding balance of such loan. However, if State Street is
unable to collect the attributable liability of one or more guarantors, or
if one or more guarantors become subject to bankruptcy or similar
proceedings or become affected by any of the events specified in the
applicable credit agreement, the attributable liability of the other
guarantors is subject to being increased pro rata by the amount of the
attributable liability of the affected guarantors in the specified limited
circumstances set forth in the credit agreements. The aggregate amount of
the attributable liabilities of all guarantors under each loan are equal
to 100% of the outstanding principal amount of such loan, together with
any unpaid scheduled and default interest, and any other amounts payable
by Inverraz under such loan.
In April 2001, following the acceleration of the debt under the loans,
State Street initiated legal proceedings in the U.S. District Court for
the Southern District of New York against Inverraz, the loan guarantors
and certain other entities claimed to be "loan guarantors" (collectively,
the "Chilean Defendants") seeking repayment of the loans.
We maintain that, pursuant to our capped attributable liability under the
credit agreements, we are exposed to liability of US$13,688,889 under the
1994 loan and $25,230,328 under the 1996 loan. However, we hope to have
the default judgment vacated in connection with our Consolidated Appeal.
For complete details see "Item 3. Key Information - Risk Factors Relating
to Unimarc and the Supermarket Industry" and "Item 8. Financial
Information - Legal Proceedings".
o a Ch$6,829 million loan granted by Banco Santiago, S.A. and a Ch$3,693
million loan granted by Corp. Banca to Inmobiliaria y Constructora
Nacional, S.A., with aggregate outstanding balances, including both
principal and interest, of Ch$6,445 million and Ch$3,420 million,
respectively, as of December 31, 2002. We mortgaged (1) one of our
supermarkets, Providencia, located in the Santiago metropolitan region,
and (2) real properties located in the city of Concepcion to secure the
repayment of these loans. As of December 31, 2002, the aggregate book
value of the mortgaged properties securing the repayment of these loans
was Ch$13,006 million.
o a US$10.7 million loan granted by Nai International II, Inc. to Hipermarc
in June 1999 for the construction of two movie-theater complexes in the
Belgrano and Quilmes Argentine shopping malls. As of December 31, 2002,
the outstanding balance of this loan, including both principal and
interest, was A$7,300,270. Hipermarc applies the rent received from Nai
International II, Inc., as lessee of the two movie theater complexes, to
the repayment of this loan.
o loan obligations payable by Hipermarc to Jose J. Chediack S.A.I.C.A., with
an aggregate principal amount of A$362,766 as of December 31, 2001.
Additionally, we have granted a security interest over certain assets to
secure the following loans of related entities:
o a Ch$3,042 million loan granted by Banco Bhif to Holandaus NV, with an
outstanding balance, including both principal and interest, of Ch$288
million as of December 31, 2002. This loan is secured by a mortgage over
the building where the Manquehue Sur supermarket operates. This building
is located in the borough of Las Condes and had a book value of Ch$2,878
million as of December 31, 2002. Holandaus N.V. finished repaying this
loan on November 10, 2003.
51
o the payment of any present and future obligations (without any maximum
amount being specified) that Inmobiliaria de Supermercados S.A. may owe to
Inmobiliaria y Constructora Nacional S.A., is secured by mortgages over
the following real estate: Maipu I, Manuel Montt, Cordillera, Concepcion,
Cisterna, and Land Arturo Prat. As of December 31, 2002, there were no
outstanding obligations to Inmobiliaria y Constructora Nacional S.A. As of
December 31, 2002, the aggregate book value of the mortgaged properties
securing these obligations was Ch$11,667 million.
o the payment of any obligations (without any maximum amount being
specified) of Interagro Comercio y Ganado S.A. to Inversiones Culenar
S.A., is secured by a general mortgage over land, buildings and equipment
owned by Interagro Comercio y Ganado S.A. As December 31,2002, the
outstanding balance of these obligations was Ch$2,045 million, and the
aggregate book value of the underlying mortgaged properties was Ch$3,367
million.
ITEM 8. FINANCIAL INFORMATION
See "Item 18. Financial Statements."
LEGAL PROCEEDINGS
PROCEEDINGS IN CONNECTION WITH CREDITS GRANTED TO INVERRAZ
In 1994 and 1996, a syndicate of financial institutions for whom State
Street, acted as agent made a US$50.0 million unsecured loan and a US$65.0
million unsecured loan, respectively, to Inverraz. The payment terms of the 1994
loan were as follows: (1) principal was payable in semi-annual installments of
US$5,555,555, in March and September of every calendar year, beginning on
September 2, 1998 and ending on March 2, 2002; (2) interest was payable
semi-annually at a rate of 9.45% per year; and (3) interest on any overdue
principal and any overdue interest (to the extent permitted by applicable law)
is payable at the rate of 10.45%. The payment terms of the 1996 loan were as
follows: (1) principal was payable in semi-annual installments of US$4,444,445
under the series A tranche of the loan, and semi-annual installments of
US$2,777,778 under the series B tranche of the loan, in March and September of
every calendar year, beginning on March 8, 2000 and ending on March 8, 2004; (2)
interest under the series A tranche was payable semi-annually at the rate of
9.45% per year, and interest under the series B tranche was payable
semi-annually at the rate of 9.45% per year; and (3) interest on any overdue
principal and any overdue interest (to the extent permitted by applicable law)
is payable at the rate of 10.45% under the series A tranche and at the rate of
10.45% under the series B tranche.
We were one of the guarantors under the 1994 loan. We, were also one of
the guarantors under the 1996 loan. As guarantors, we agreed to guarantee the
repayment obligations of Inverraz under the applicable loan (including the
payment of principal, interest, fees, costs and any other charges related to the
applicable loan agreement) in an amount equal to our pro rata share, as
specified in such loan, in accordance with our "attributable liability". In each
loan our "attributable liability" is adjusted from time to time based on the
outstanding balance of such loan. However, if State Street had been unable to
collect the attributable liability of one or more guarantors, or if one or more
guarantors become subject to bankruptcy or similar proceedings or become
affected by any of the events specified in the applicable credit agreement, the
attributable liability of the other guarantors would have been subject to being
increased pro rata by the amount of the attributable liability of the affected
guarantors in the specified limited circumstances set forth in the credit
agreements. The aggregate amount of the attributable
52
liabilities of all guarantors under each loan is equal to 100% of the
outstanding principal amount of such loan, together with any unpaid scheduled
and default interest, and any other amounts payable by Inverraz under such loan.
In April 2001, following the acceleration of the debt under the loans,
State Street initiated legal proceedings in the U.S. District Court for the
Southern District of New York against Inverraz, the loan guarantors and certain
other entities claimed to be "loan guarantors" (collectively, the "Chilean
Defendants") seeking repayment of the loans. Prior counsel to the Chilean
Defendants advised them not to serve an answer with affirmative defenses and
counterclaims, in opposition to the federal action, because counsel advised that
State Street could view such action as counterproductive to a negotiated
resolution.
On or about August 2001, State Street agreed to accept the sum of US$87
million in unencumbered proceeds, in connection with a pending asset sale
involving some of the Chilean Defendants, in reduction of the accelerated debt.
We have maintained that the US$87 million represented the entire unencumbered
portion of a US$140 million asset sale, with the encumbered balance previously
pledged to senior secured creditors with a priority right to payment over State
Street (which is unsecured). However, we have maintained that State Street
ultimately withheld its consent to the asset sale, despite its agreement to
receive the entire unencumbered portion of US$87 million, because the pertinent
Chilean Defendants would not accede to State Street's demand for collateral to
which State Street is not entitled under the unsecured loan agreements. We have
maintained that State Street's refusal to consent to the asset sale, under these
circumstances, constitutes a bad faith breach of State Street's contractual
obligation of good faith and fair dealing and/or tortious interference.
In late September 2001, State Street terminated further discussions over
the US$140 million asset-sale, and filed a motion in the federal action seeking
a default judgment against the Chilean Defendants. On October 11, 2001, prior
counsel advised the Chilean Defendants that it would withdraw and would not
litigate the case. As a result, State Street's motion was granted by default,
and a default judgment of approximately US$140 million, inclusive of accrued
interest, was entered on December 4, 2001 against the Chilean Defendants.
Approximately two weeks later, new counsel for the Chilean Defendants filed
extensive papers in support of a motion seeking to vacate the default judgment.
Extensive proceedings thereafter ensued on an array of issues relating to the
default.
Pursuant to the default judgment entered on December 4, 2001, the District
Court determined that (a) the accelerated debt owed under the unsecured 1994
loan is the liquidated amount of $57,283,874.86, with pre-judgment interest at
the rate of $20,011.63 per day from and including November 1, 2001 and (b) the
accelerated debt owed under the unsecured 1996 loan is the liquidated amount of
$79,180,000.12, with pre-judgment interest at the rate of $21,599.47 per day
from and including November 1, 2001.
We maintain that, pursuant to our capped attributable liability under the
credit agreements, we are exposed to liability of $13,688,889 under the 1994
loan and $25,230,328 under the 1996 loan. However, we hope to have the default
judgment vacated in connection with the pending appeal described below.
By April 2003, proceedings in the federal action before the District Court
on all issues had concluded. The District Court determined that the Chilean
Defendants, in reliance upon their former counsel, had a reasonable excuse
warranting vacatur of the default. However, the District Court sustained the
default judgment on the grounds that the Chilean Defendants had not established
a "meritorious defense" and/or that State Street would be "unduly prejudiced" by
reopening the case for proceedings on the merits. The Chilean Defendants
appealed these determinations to the US Court of Appeals for the Second Circuit
(the "Consolidated Appeal"). State Street did not appeal the determination that
the Chilean Defendants had a reasonable excuse warranting vacatur of the
default.
53
On the Consolidated Appeal, the Chilean Defendants maintained that there
are five independent reasons warranting vacatur of the default judgment under
preexisting law. Moreover, based upon the Second Circuit's decision in an
analogous case, the Chilean Defendants also maintained that the law may have
changed in the context of tortious interference in a manner that may mandate the
vacatur of the default judgment on the Consolidated Appeal on this tortious
interference ground.
On June 15, 2004, a panel of the U.S. Court of Appeals for the Second
Circuit denied the Consolidated Appeal. However, on June 29, 2004, the Chilean
Defendants filed a timely petition for rehearing before the full Second Circuit.
On September 1, 2004, the the Second Circuit denied the petition for rehearing.
On November 30, 2004, the Chilean Defendants filed a timely petition for a writ
of certiorari with the U.S. Supreme Court seeking permission to appeal from the
Second Circuit's denial of their motion to vacate the default judgment. On
February 22, 2005, the U.S. Supreme Court denied the Chilean Defendants'
petition for a writ of certiorari. Pursuant to the conclusion of the appellate
proceedings within the U.S. federal court system, settlement discussions
thereafter resumed between the Chilean Defendants and State Street. However,
those settlement discussions did not result in a mutually acceptable resolution
of the matter. State Street subsequently commenced a legal proceeding before the
Chilean Supreme Court seeking permission to recognize the federal court's
default judgment as the equivalent of an enforceable Chilean judgment, which
proceeding we refer to as the "Recognition Application". The Chilean Defendants
are opposing the Recognition Application on all available legal grounds. Chilean
counsel for the Chilean Defendants believes that the Chilean Defendants will
prevail in defeating the Recognition Application.
On September 8, 2003, we filed a lawsuit against State Street before the
27th Civil Tribunal of Santiago, Chile, seeking a ruling to the effect that: (1)
the provisions of the 1994 and 1996 credit agreements contemplating the
submission of any disputes between the parties to these agreements to New York
laws are invalid because, under Chilean laws, such disputes may only be
submitted for resolution by Chilean courts as the underlying promissory notes
were issued in Chile and in compliance with Chilean issuance requirements, and
all assets subject to restrictive covenants under the agreements are located in
Chile; (2) under Chilean laws, the original obligations underlying the
agreements were novated upon, and by, the issuance of separate notes evidencing
the payment obligations arising out of such agreements; (3) the payment
obligations contained in the promissory notes prescribed because the holders of
such notes did not bring any claims before Chilean courts to obtain their
repayment within one year of their maturity, as required by Chilean laws; and
(4) State Street is not a lender under the promissory notes because after their
issuance, State Street transferred such notes to other persons. In addition,
State Street Bank filed a petition before the 27th Civil Tribunal to have all
proceedings before Chilean courts terminated due to a lack of jurisdiction of
Chilean courts to decide any disputes arising out of the credit agreements. The
Court of Appeals of Santiago had not issued any answer to such petition at the
time of this filing.
PROCEEDING RELATING TO CREDIT FACILITIES GRANTED TO UNIMARC
Because of payment defaults incurred by Inverraz, our ultimate parent,
with respect to loans that Banco Kreditanstalt made to Inverraz, Banco
Kreditanstalt decided to accelerate the loans that it made to us. On June 7,
2002, Banco Kreditanstalt filed a bankruptcy petition against us in the civil
court of Santiago, to recover via an executory process, a portion of our loan in
the aggregate principal amount of US$ 2.1 million represented by a promissory
note. The bank has not taken legal action to recover the remainder of the loans.
In July 2002, the court denied Banco Kreditanstalt's bankruptcy petition as we
deposited with the court the amount claimed by the bank. The court's decision,
however, failed to address the issue of whether the promissory note filed by
Banco Kreditanstalt constituted an instrument legally sufficient to warrant the
recovery of its underlying obligation through an executory proceeding.
Accordingly, we appealed the court's decision to seek a declaration that such
note is legally insufficient to permit its recovery through an executory
process. The civil court granted our appeal before the Appellate Court of
Santiago. We also filed a criminal lawsuit against Banco Kreditanstalt in the
criminal court in Santiago for fraud, as we believed that Banco Kreditanstalt
did not act in good faith in its transactions with us.
On October 23, 2002, we entered into an agreement and waiver of legal
action whereby we agreed to terminate all our legal proceedings against Banco
Kreditanstalt in Chile, including our appeal before the Appellate Court of
Santiago and our criminal proceedings in Santiago. We filed the agreement and
waiver with the Seventh Civil Court of Santiago, which was approved by the judge
for such court in November 2002. As a result, the judge ordered the termination
of all our legal proceedings in the civil and criminal courts.
Pursuant to the above agreement and waiver, we entered into two
rescheduling agreements, in the aggregate principal amounts of US$5.3 million
and US$1.8 million, respectively, which restructured the payment of the loans
payable to Banco Kreditanstalt as follows: (1) principal will be paid in twenty
semi-annual installments, in March and September of each year from 2004 through
2013; and (2) interest will be paid semi-annually at Libor plus 1.05% and Libor
plus 2.5%, respectively.
54
PROCEEDING RELATING TO CREDIT FACILITY GRANTED TO UNIMARC
On January 18, 2001, the 27th civil court in Santiago foreclosed on
mortgaged property securing the repayment of a Ch$183 million credit facility
granted by Banco BBVA, formerly Bhif, following a payment default incurred by
Unimarc in 2000 and a claim filed by Banco Bhif seeking repayment of the
defaulted amounts, which totaled Ch$183 million as of December 31, 2001. As of
December 31, 2003, we had fully repaid all amounts owed to Banco BBVA under the
credit facility.
In addition, there are several legal proceedings between us and our
affiliates, and Banco Bhif, arising from Banco Bhif's purchase of Banco Nacional
S.A., or Banco Nacional, from our affiliates. We are seeking to obtain various
arbitration awards and court judgments against Banco Bhif in Chile to permit the
set-off of our indebtedness to Banco Bhif against the portion of the purchase
price for the stock of Banco Nacional that we believe we failed to receive from
Banco Bhif. In these proceedings, we have argued that the purchase price for the
stock of Banco Nacional should have been adjusted and increased after the
consummation of the stock purchase transaction, as required by the underlying
stock purchase agreement, because Banco Nacional received loan payments from its
customers under credit facilities that existed on the date of the stock purchase
transaction. For more information, see also Note 29 to our consolidated
financial statements.
We are a party to other legal proceedings arising in the normal course of
our business which we believe are routine in nature and incidental to the
operation of our business. We do not believe that the outcome of these other
proceedings will have a materially adverse effect upon our operations or
financial condition.
DIVIDEND POLICY
Our by-laws require that we distribute at least 30% of our net income for
the respective period as a minimum obligatory dividend. According to Chilean law
however, a unanimous vote of the holders of the outstanding voting shares may
agree to distribute a lower percentage of net income as dividends, and a
majority of shareholders may agree to distribute a greater percentage as
dividends.
DIVIDENDS
The table below sets forth the historical peso amount of dividends per
share of common stock and per ADS, each ADS representing 50 shares of common
stock, paid in respect of each of the years indicated.
HISTORICAL CH$ PER SHARE OF
YEAR ENDED DECEMBER 31, COMMON STOCK (1) US$ PER ADSS(1)
- ----------------------- --------------------------- ---------------
1996 Ch$ 4.87 US$ 0,57
1997 Ch$ 2.93 US$ 0,33
1998 Ch$ 1.01897 US$ 0,0020
1999 Ch$ 1.08190 US$ 0.002
2000 Ch$ 0.02480 US$ 0.002
2001 (2) Ch$ 0.0916491 US$ 0.007
2002 (3) Ch$ 0.00 US$ 0.00
- ----------
(1) Based on weighted average number of shares of Common stock outstanding
during the year. Prior to the Combined Offering, our shareholders
unanimously voted, as permitted by the Chilean Companies Act, to
distribute dividends at a rate lower than 30% of our net income for 1995
and higher than 30% for 1994 and 1996.
(2) We declared this dividend before the adjustments by Superintendencia de
Valores y Seguros de Chile so the dividend paid in this year corresponds
to accumulated results.
(3) We generated losses during 2002, therefore we paid no dividends.
55
Holders of ADSs receive dividend payments net of conversion fees and
expenses payable to the Depositary. These dividend payments are subject to
Chilean withholding tax, currently 35%.
Chilean law requires that a shareholder who does not reside in Chile
register as a foreign investor under one of the foreign investment plans
mandated by such law in order to have dividends, sale proceeds or other amounts
with respect to its shares remitted outside Chile through the formal exchange
market. Under the Foreign Investment Contract, however, the Depositary, on
behalf of the ADS holders, has access to the formal exchange market to convert
cash dividends from pesos to U.S. dollars and to pay such U.S. dollars to ADS
holders outside Chile net of taxes, with no separate registration by ADS holders
being required.
ITEM 9. THE OFFER AND LISTING
LISTING DETAILS AND MARKETS
Since April 12, 1993, our shares have been listed on the Chilean stock
exchanges. ADSs, each representing 50 of our shares of common stock, have been
listed and traded on the NYSE since May 8, 1997, under the symbol "UNR". Prior
to the opening of the market on Wednesday April 2, 2003, the NYSE suspended the
listing of our ADSs in the NYSE, pursuant to a written communication furnished
to us on March 28, 2003. The NYSE made this decision on the ground that the
average closing price of our ADSs had been less than US$1.00 over a consecutive
30-day trading period and we were unable to cure this non-compliance within the
time period prescribed by the NYSE.
The Santiago Stock Exchange is Chile's principal exchange. During 2002,
the Santiago Stock Exchange had a monthly average trading volume of US$ 280.8
million. As of December 31, 2002, the Santiago Stock Exchange had a market
capitalization of approximately US$ 47.693 million (Ch$34,272,529 million). The
10 largest companies in terms of market capitalization (Unimarc is not one of
them) represented approximately 44.97% of the total market capitalization in the
Santiago Stock Exchange as of December 31, 2002.
As of December 31, 2002, the closing sales price of a share of common
stock in the Santiago Stock Exchange was Ch$ 13.00 per share, or US$ 0.90 per
ADS. At that date we had 1,331,585 outstanding ADS.
The table below sets forth, for the periods indicated, the annual,
quarterly and monthly low and high daily closing prices of our common stock on
the Santiago Stock Exchange in Chilean pesos, as well as the quarterly low and
high daily closing prices of our common stock on the Santiago Stock Exchange
expressed in dollars, based on the Observed Exchange Rate for the respective
dates of such quotations. Such information reflects actual historical amounts at
the trade dates and has not been restated in constant pesos. The table below
also shows the quarterly low and high daily closing prices of the ADSs
representing our common stock on the NYSE in dollars, as well
as the quarterly trading volume of our common stock on the Santiago Stock
Exchange and the ADSs on the NYSE.
56
HIGH AND LOW ANNUAL SHARE PRICE IN THE SANTIAGO STOCK EXCHANGE AND THE NYSE
ANNUAL PRICES:
SHARE TRADING CH$ PER SHARE OF US$ PER SHARE OF ADS TRADING
VOLUME COMMON STOCK (1) COMMON STOCK (2) VOLUME (3) US$ PER ADS (3)
YEAR ENDED -------------- ---------------- ---------------- ----------- ---------------
DECEMBER 31 (IN MILLIONS) LOW HIGH LOW HIGH (IN MILLIONS) LOW HIGH
----------- ------------- --- ---- --- ---- ------------- --- ----
1996
1997 70.360 105.0 162.0 0.39 0.24 4.98 12.31 18.88
1998 82.026 20.0 110.0 0.25 0.04 142.9 2.00 11.00
1999 99.817 25.0 46.0 0.10 0.05 3.89 2.19 3.81
2000 102.073 17.0 44.0 0.09 0.03 1.89 1.50 3.50
2001 98.605 19.0 29.0 0.03 0.04 1.03 1.45 2.03
2002 125.884 9.5 23.7 0.01 0.03 0.75 0.60 1.85
QUARTERLY PRICES:
SHARE TRADING CH$ PER SHARE OF US$ PER SHARE OF ADS TRADING
VOLUME COMMON STOCK (1) COMMON STOCK (2) VOLUME (3) US$ PER ADS (3)
-------------- ---------------- ---------------- ----------- ---------------
(IN MILLIONS) LOW HIGH LOW HIGH (IN MILLIONS) LOW HIGH
------------- --- ---- --- ---- ------------- --- ----
1st Q 2000 54.8 27.5 44.0 0.05 0.09 1.0 2.81 3.50
2nd Q 2000 10.9 26.4 32.5 0.05 0.06 0.3 2.44 2.63
3rd Q 2000 8.5 23.0 30.0 0.04 0.06 0.3 2.00 2.25
4th Q 2000 27.9 17.0 24.0 0.03 0.04 0.3 1.50 1.88
1st Q 2001 23.0 19.0 28.0 0.03 0.05 0.6 1.80 2.00
2nd Q 2001 32.0 19.0 23.0 0.03 0.04 0.2 1.60 1.85
3rd Q 2001 11.6 19.5 29.0 0.03 0.04 0.1 1.45 2.03
4th Q 2001 31.4 22.0 26.5 0.03 0.04 0.2 1.45 1.65
1st Q 2002 11.9 16.5 22.5 0.02 0.03 0.1 1.10 1.55
2nd Q 2002 39.7 14.0 23.75 0.02 0.04 0.2 0.85 1.60
3rd Q 2002 24.1 9.5 17.0 0.01 0.02 0.1 0.70 1.20
4th Q 2002 47.0 10.0 16.0 0.01 0.02 0.4 0.65 1.15
1st Q 2003 3.7 10.0 16.0 0.01 0.02 0.1 0.36 1.00
2nd Q 2003 6.1 7.0 11.0 0.01 0.01 0.0(4) 0.00(4) 0.00(4)
3rd Q 2003 18.7 7.5 9.2 0.01 0.01 0.0(4) 0.00(4) 0.00(4)
MONTHLY PRICES:
SHARE TRADING CH$ PER SHARE OF US$ PER SHARE OF ADS TRADING
VOLUME COMMON STOCK (1) COMMON STOCK (2) VOLUME (3) US$ PER ADS (3)
-------------- ---------------- ---------------- ----------- ---------------
(IN MILLIONS) LOW HIGH LOW HIGH (IN MILLIONS) LOW HIGH
------------- --- ---- --- ---- ------------- --- ----
January 2002 2.3 18.0 22.5 0.03 0.03 0.01 1.35 1.47
February 2002 7.7 16.5 19.0 0.02 0.03 0.03 1.20 1.55
March 2002 5.0 16.5 17.5 0.02 0.03 0.10 1.10 1.24
April 2002 8.3 15.0 22.5 0.02 0.03 0.04 1.12 1.55
May 2002 24.5 17.5 23.7 0.03 0.04 0.10 1.40 1.80
June 2002 6.9 14.0 19.0 0.02 0.03 0.02 1.20 1.58
July 2002 14.7 9.5 14.0 0.01 0.02 0.02 0.85 1.20
August 2002 3.2 10.5 14.5 0.01 0.02 0.01 0.75 0.90
September 2002 6.2 14.5 17.0 0.02 0.02 0.01 0.70 1.05
October 2002 6.8 11.0 14.0 0.02 0.02 0.09 0.65 0.86
November 2002 4.6 12.0 14.0 0.02 0.02 0.05 0.71 0.90
December 2002 35.7 10.0 16.0 0.01 0.02 0.23 0.65 1.15
January 2003 0.1 12.9 12.9 0.02 0.02 0.02 0.80 1.00
February 2003 1.9 10.0 11.6 0.01 0.02 0.01 0.70 0.85
March 2003 1.7 10.0 16.0 0.01 0.02 0.04 0.36 0.70
April 2003 1.3 9.9 11.0 0.01 0.02 0.00(4) 0.56 0.76
57
May 2003 3.6 8.6 10.0 0.01 0.01 0.00(4) 0.57 0.71
June 2003 1.2 7.0 8.6 0.01 0.01 0.00(4) 0.50 0.60
July 2003 2.3 7.5 9.2 0.01 0.01 0.00(4) 0.50 0.65
August 2003 10.3 7.5 8.2 0.01 0.01 0.00(4) 0.53 0.59
September 2003 5.9 7.9 8.0 0.01 0.01 0.00(4) 0.56 0.61
October 2003 4.7 7.5 9.0 0.01 0.01 0.00(4) 0.55 0.64
- ----------
(1) Our shares of common stock began trading in the Chilean stock exchanges on
April 12, 1993,
(2) Chilean peso equivalents per share of common stock were translated into
U.S. dollars using the Observed Exchange Rate for the respective dates of
each quotation.
(3) Our ADSs began trading on the NYSE on May 8, 1997. Each ADS represents 50
shares of common stock,
(4) Our ADSs stopped trading on the NYSE on April 2, 2003. Prices of the
transactions are reported for The Bank of New York.
Source: Santiago Stock Exchange - Official Quotations Bulletin - and New
York Stock Exchange - Composite Transactions,
As of December 31, 2002, there were 314 holders of record of our shares of
common stock,
ITEM 10. ADDITIONAL INFORMATION
SHARE CAPITAL
As of December 31, 2002, our share capital consisted of 1,261,849,619
shares of common stock, no par value, all of which were subscribed and fully
paid. Chilean law recognizes the right to issue common shares and preferred
shares. To date, we have issued, and are authorized to issue, only common shares
however.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Under Chilean law, our memorandum and articles of association are our
ESTATUTOS, or bylaws. According to Article 4 of our bylaws, our business purpose
comprises (1) the trading in any type of goods for our own account or for the
account of others, as a wholesaler or a retailer, whether in the form of a
purchase, sale, import, export, distribution or consignment with respect to any
type of personal property, particularly through the operation of supermarkets
and pharmacies and (2) the investment in any personal or real property, whether
tangible or intangible, including the investment in bearer securities, such as
stock or bonds, rights in partnerships or any type of real estate.
Article 13 of our by-laws requires that any matter relating to
compensation payable to our directors be determined at meeting of holders of
ordinary shares. Article 14 of our by-laws grants our board of directors the
power and authority (1) to designate and remove managers or other employees,
including senior management, (2) to create any administrative position necessary
to carry out our corporate business as well as determine the scope of authority
attributable to such position and the amount of any related compensation and (3)
to appoint the secretary of the board of directors and determine the amount of
his compensation, or to entrust any of our chief execute officer or our staff
attorneys, with the responsibility to perform the duties of secretary of the
board of directors without any right to further compensation for the exercise of
these additional duties.
MATERIAL CONTRACTS
Our material contracts are described in Note 29 to our consolidated
financial statements.
58
EXCHANGE CONTROLS
The Central Bank is responsible for, among other things, monetary policies
and for exchange controls in Chile. Appropriate registration of a foreign
investment in Chile permits the investor access to the formal exchange market.
See "Exchange Rates". Foreign investments can be registered with the Foreign
Investment Committee under Decree Law No. 600 of 1974 or can be registered with
the Central Bank under the Central Bank Act. The Central Bank Act is an organic
constitutional law requiring a special majority vote of the Chilean Congress to
be modified.
On May 8, 1997, the Central Bank, Unimarc and the Depositary entered into
a foreign investment contract, or the Foreign Investment Contract, pursuant to
Article 47 of the Central Bank Act and to Chapter XXVI of the Compendium of
Foreign Exchange Regulations of the Central Bank, also known as "Chapter XXVI".
This chapter addresses the issuances of ADSs by a Chilean company. Without the
Foreign Investment Contract, under applicable Chilean exchange controls,
investors would not be granted access to the formal exchange market for the
purpose of converting from pesos to dollars and repatriating from Chile amounts
received with respect to deposited common shares withdrawn from deposit on
surrender of ADSs, including any amounts received as cash dividends and proceeds
from the sale in Chile of the underlying common shares and any rights arising
therefrom. The following is a summary of the material provisions contained in
the Foreign Investment Contract. This summary does not purport to be complete
and is qualified in its entirety by reference to Chapter XXVI and the Foreign
Investment Contract.
Under Chapter XXVI and the Foreign Investment Contract, the Central Bank
has agreed to grant to the Depositary, on behalf of ADS holders, and to any
investor not residing or domiciled in Chile, who withdraws common shares upon
delivery of ADSs, access to the formal exchange market to convert pesos to
dollars and remit such dollars outside of Chile. Such common shares are also
referred to as withdrawn shares. This benefit, in respect of common shares
represented by ADSs or withdrawn shares, includes amounts received as:
o cash dividends;
o proceeds from the sale in Chile of withdrawn shares, or from shares
distributed because of the liquidation, merger or consolidation of
Unimarc, subject to receipt by the Central Bank of (1) a certificate from
the holder of these shares, or from an institution authorized by the
Central Bank, that the holder's residence and domicile are outside Chile
and (2) a certificate from a Chilean stock exchange, or from a brokerage
or securities firm established in Chile, that such shares were sold on a
Chilean stock exchange;
o proceeds from the sale in Chile of preemptive rights to subscribe for
additional common shares;
o proceeds from the liquidation, merger or consolidation of Unimarc; and
o other distributions, including without limitation those resulting from any
recapitalization, as a result of holding common shares represented by ADSs
or withdrawn shares.
Transferees of withdrawn shares will not be entitled to any of the
foregoing rights under Chapter XXVI unless the withdrawn shares are redeposited
with the Depositary. Investors receiving withdrawn shares in exchange for ADSs
will have the right to redeposit such shares in exchange for ADSs, provided that
certain conditions of redeposit are satisfied.
59
Chapter XXVI provides that access to the formal exchange market in
connection with dividend payments will be conditioned upon certification by
Unimarc to the Central Bank that a dividend payment has been made and any
applicable tax has been withheld. Chapter XXVI also provides that access to the
formal exchange market in connection with the sale of withdrawn shares or
distributions thereon will be conditioned upon receipt by the Central Bank of
certification by the Depositary that these shares have been withdrawn in
exchange for ADSs, and receipt of a waiver of the benefit of the Foreign
Investment Contract with respect thereto, except in connection with the proposed
sale of common shares, until the withdrawn shares are redeposited.
The Foreign Investment Contract provides that a person who brings certain
types of foreign currency into Chile, including U.S. dollars, to purchase common
shares with the benefit of the Foreign Investment Contract must convert them
into pesos on the same date and has 60 days within which to invest in common
shares in order to receive the benefits of the Foreign Investment Contract. If
within the 60-day period, such person decides not to acquire common shares, he
can access the formal exchange market to reacquire dollars, provided that the
applicable request is presented to the Central Bank within 90 days of the
initial conversion into pesos. However, an amendment to Chapter XXVI in 1996
reduced the above-referenced terms to five and seven days, respectively. Common
shares acquired as described above may be deposited for ADSs and receive the
benefits of the Foreign Investment Contract, subject to receipt by the Central
Bank of a certificate from the Depositary that such deposit has been effected
and that the related ADSs have been issued as well as receipt by the custodian
of a declaration from the person making such deposit waiving the benefits of the
Foreign Investment Contract with respect to the deposited common shares.
Access to the formal exchange market under any of the circumstances
described above is not automatic. Pursuant to Chapter XXVI, this access requires
the approval of the Central Bank based on an application submitted through a
banking institution established in Chile. The Foreign Investment Contract
provides that if the Central Bank has not acted on this request within seven
banking days, the request will be deemed approved.
Under current Chilean law, the Foreign Investment Contract cannot be
changed unilaterally by the Central Bank. No assurance can be given, however,
that additional Chilean restrictions applicable to the holders of ADSs, the
disposition of underlying common shares or the repatriation of the proceeds from
such disposition could not be imposed in the future, nor can there be any
assessment of the duration or impact of such restrictions if imposed.
SHARE CAPITAL
Under Article 12 of the Securities Market Law and Circular 585 of the
Chilean SUPERINTENDENCIA DE VALORES Y SEGUROS, or the "SVS", certain information
regarding transactions in shares of publicly held companies must be reported to
the SVS and the Chilean stock exchanges. Since the ADSs are deemed to represent
the underlying shares, transactions in ADSs will be subject to these reporting
requirements. Shareholders of a publicly held corporation are required to report
the following to the SVS and the Chilean Stock Exchanges:
o any direct or indirect acquisition or sale of shares or options to buy or
sell shares, in any amount, if made by a holder of 10% or more of the
publicly-held corporation's capital;
o any direct or indirect acquisition or sale of shares or options to buy or
sell shares, in any amount, if made by a director, receiver, senior
officer, CEO or manager of such corporation; and
60
o any direct or indirect acquisition of shares resulting in a person
acquiring, directly or indirectly, 10% or more of a publicly-held
corporation's share capital.
A beneficial owner of ADSs representing 10% or more of our share capital
will be subject to these reporting requirements under Chilean law.
Under Article 54 of the Securities Market Law, persons or entities aiming
to acquire direct or indirect control of an open stock corporation are also
required to:
o send a written communication to the target corporation, the entities
controlled by such corporation or the entities that control such
corporation, as well as to the SVS and the Chilean Stock Exchanges, and
o inform the general public, in advance, through notice published in two
Chilean newspapers of national distribution.
This written communication and notice must be published at least ten
business days in advance of the date of the execution of the documents that will
entitle the person to acquire control of the open stock corporation and, in all
cases, concurrently with the commencement of negotiations that include delivery
of information and documentation about the corporation. The content of the
notice and written communication are determined by SVS regulations and include,
among other information, the identification of persons or entities purchasing or
selling, the price as well as the other essential conditions of negotiation.
Title XV of the Securities Market Law sets forth the basis for determining
what constitutes control, a direct holding and a related party, while Title XXV
establishes a special procedure for acquiring control of an open stock
corporation.
The Chilean Companies Act requires Chilean companies to offer existing
shareholders the right to purchase a sufficient number of shares to maintain
their existing ownership percentage of such company whenever such company issues
new shares. U.S. holders of ADSs are not entitled to exercise preemptive rights
unless a registration statement under the Securities Act is effective with
respect to such rights or an exemption from the registration requirement for
such rights is available. At the time of any preemptive rights offering, we
intend to evaluate the costs and potential liabilities associated with any such
registration statement, as well as the indirect benefits to it from enabling the
exercise by the holders of ADSs of such preemptive rights and any other factors
we consider appropriate at the time, and then to make a decision as to whether
to file such a registration statement. No assurance can be given that any
registration statement would be filed. If no registration statement is filed and
no exemption from the registration requirements of the Securities Act is
available, the Depositary will sell such holders' preemptive rights and
distribute the proceeds from the sale of such rights in a secondary market, if a
market for such rights exists and a premium can be recognized over the cost of
such sale. Should the Depositary not be permitted or otherwise be unable to sell
such preemptive rights, the rights may be allowed to lapse with no consideration
received.
DISSENTING SHAREHOLDERS
The Chilean Companies Act provides that, upon the adoption at an
extraordinary meeting of shareholders of any of the resolutions enumerated
below, dissenting shareholders acquire the right to withdraw from a Chilean
issuer and to compel that issuer to repurchase their shares, subject to the
fulfillment of certain terms and conditions described below. In order to
exercise such rights, holders of ADSs must first withdraw the shares represented
by their ADSs pursuant to the terms of the Depositary Agreement. "Dissenting"
shareholders are defined as those who vote against a resolution which results in
61
the withdrawal right, or if absent at such a meeting, those who stated their
opposition to such resolution in writing to the issuer within 30 days of its
adoption. Dissenting shareholders must perfect their withdrawal rights by
tendering their stock to the issuer within 30 days after adoption of the
resolution.
The resolutions that result in a shareholder's right to withdraw are the
following:
o the transformation of the issuer into an entity which is not a stock
corporation governed by the Chilean Companies Act;
o the merger of the issuer with and/or into another company;
o the sale of 50% or more of the assets of the issuer, whether or not its
liabilities are included, or the formulation of a business plan
contemplating a sale on those terms;
o the creation of personal securities or asset-backed securities for the
purpose of guaranteeing third-party obligations in excess of 50% of the
company's assets;
o the creation of preferential rights for a class of shares or an amendment
to those already existing, in which case the right to withdraw only
accrues to the dissenting shareholders of the class or classes of shares
adversely affected;
o the remedy of nullification of an issuer's documents of incorporation
caused by a formality or an amendment to such documents that results in
the granting of a right to such remedy; and
o such other resolutions as may be established by an issuer's bylaws (no
such additional resolutions currently are specified in the bylaws of our
company).
There is no legal precedent as to the issue of whether a shareholder who
has voted both for and against a proposal, such as could be case with respect to
the Depositary, may exercise withdrawal rights with respect to the shares voted
against the proposal. Accordingly, we cannot assure you that the holders of ADSs
will be able to exercise their withdrawal rights either directly or through the
Depositary with respect to the shares represented by ADSs.
Under Article 69 BIS of the Chilean Companies Act, the right to withdraw
is also granted to shareholders, other than the ADMINISTRADORAS DE FONDOS DE
PENSIONES, or "AFPs", subject to certain terms and conditions, if we become
controlled by the Chilean government, directly or through any of its agencies,
and if two independent rating agencies downgrade the rating of our stock from
first class due to certain actions specified in Article 69 BIS and actions
undertaken by us or the Chilean Government that negatively and substantially
affect our earnings. Shareholders must perfect their withdrawal rights by
tendering their stock to us within 30 days of the date of the publication or of
the new rating by two independent rating agencies. If the withdrawal right is
exercised by a shareholder invoking Article 69 BIS, the price paid to the
dissenting shareholder shall be the weighted average of the shares' sales price
as reported on the stock exchanges on which our shares are quoted for the
six-month period preceding the publication of the new rating by independent
rating agencies. If the SVS determines that the shares are not actively traded,
the price shall be book value calculated as described above.
VOTING COMMON SHARES
The Depositary will mail a notice to all holders containing the
information (or a summary thereof) included in any notice of a shareholders
meeting received by the Depositary, a statement that each holder of ADSs at the
close of business on a specified record date will be entitled, subject to
Chilean
62
law or the regulations and provisions governing deposited shares, to instruct
the Depositary as to the exercise of the voting rights, if any, pertaining to
the deposited securities represented by the ADSs evidenced by such holders' ADSs
and a brief statement as to the manner in which each such holder may instruct
the Depositary to exercise voting rights in respect of shares represented by
ADSs held by the holders. Holders on the record date set by the Depositary are
entitled to instruct the Depositary in writing, subject to the terms of Chilean
law, the Bylaws and the Deposit Agreement, as to the exercise of voting rights
attached to the deposited shares, and upon receipt of such instructions, the
Depositary will endeavor, insofar as practicable, to vote or cause to be voted
the shares underlying such holders' ADSs in accordance with such written
instructions.
The Depositary has agreed not to vote the shares evidenced by an ADS other
than in accordance with such written instructions from the holder. The
Depositary may not itself exercise any voting discretion over any shares. If no
instructions are received by the Depositary from any holder with respect to any
of the deposited securities represented by the ADSs evidenced by such holder's
ADSs on or before the date established by the Depositary for such purpose, the
Depositary shall deem such holder to have instructed the Depositary to give a
discretionary proxy to a person designated by us to vote the underlying shares.
DISCLOSURE
Holders of ADSs are subject to certain provisions of the rules and
regulations promulgated under the Exchange Act relating to the disclosure of
interests in the shares. Any holder of ADSs who is or becomes directly or
indirectly interested in 5% (or such other percentage as may be prescribed by
law or regulation) or more of the outstanding shares must notify us, any U.S.
securities exchange on which the ADSs or shares are traded and the Securities
and Exchange Commission (as required by such rules and regulations) within ten
days after becoming so interested and thereafter upon certain changes in such
interests. In addition, holders of ADSs are subject to the reporting
requirements contained in Articles 12 and 54 and Title XV of the Securities
Market Law, which provisions may apply when a holder beneficially owns 10% or
more of the shares or has the intention of taking control of us.
TAXATION
CHILEAN TAX CONSIDERATIONS
The following describes the material Chilean income tax consequences of an
investment in the ADSs or shares of common stock by a Foreign Holder, an
individual who is not domiciled or resident in Chile or a legal entity that is
not organized under the laws of Chile and does not have a permanent
establishment located in Chile. This discussion is based upon Chilean income tax
laws presently in force, including Ruling No. 324 of January 29, 1990, of the
Chilean Internal Revenue Service and other applicable regulations and rulings.
Under Chilean law, provisions contained in statutes such as tax rates
applicable to foreign investors, the computation of taxable income for Chilean
purposes and the manner in which Chilean taxes are imposed and collected may
only be amended by another statute. In addition, the Chilean tax authorities
issue rulings and regulations of either general or specific application and
interpret the provisions of Chilean tax law. Chilean tax may not be assessed
retroactively against taxpayers who act in good faith in reliance on such
rulings, regulations and interpretations, but Chilean tax authorities may change
such rulings, regulations and interpretations prospectively. There is no income
tax treaty in force between Chile and the United States.
63
CASH DIVIDENDS AND OTHER DISTRIBUTIONS
Cash dividends paid by Unimarc with respect to shares, or shares
represented by ADSs, held by a Foreign Holder will be subject to a 35% Chilean
withholding tax, which is withheld and paid over by Unimarc. If Unimarc pays
corporate income tax, also referred as First Category Tax, on the income from
which the dividend is paid, a credit for the First Category Tax effectively
reduces the rate of the withholding tax. When a credit is available, the
withholding tax is computed by applying the 35% rate to the pre-tax amount
needed to fund the dividend and then subtracting from the tentative withholding
tax so determined the amount of First Category Tax actually paid on that pre-tax
income. For purposes of determining the rate at which First Category Tax was
paid, dividends are treated as paid from our oldest retained earnings. The
effective withholding tax rate, after giving effect to the credit for First
Category Tax, generally is:
(Withholding Tax rate) - (First Category Tax effective rate)
------------------------------------------------------------
1 - (First Category Tax effective rate)
The effective rate of withholding tax to be imposed on dividends paid by
us will vary depending upon the amount of First Category Tax paid by Unimarc on
the earnings to which the dividends are attributed. In 1992, 1993, 1994, 1995,
1996, 1997, 1998, 2000 and 2001 we paid First Category Tax at an effective rate
below the 15% statutory rate, in year 2002 at a 16% and in year 2003 at a 16.5%.
The effective rate of withholding tax on dividends paid from income attributable
to those years therefore will be higher.
Dividend distributions made in property would be subject to the same
Chilean tax rules as cash dividends. Stock dividends are not subject to Chilean
taxation. The distribution of preemptive rights relating to shares will not be
subject to Chilean taxation.
CAPITAL GAINS
Gain from the sale or exchange of ADSs, or ADRs evidencing ADSs, outside
Chile will not be subject to Chilean taxation. The deposit and withdrawal of
shares of common stock in exchange for ADSs will not be subject to any Chilean
taxes.
Gain realized on a sale or exchange of shares of common stock, as
distinguished from sales or exchanges of ADSs representing these shares, will be
subject to both First Category Tax and withholding tax, the former being
creditable against the latter if either (1) the Foreign Holder has held the
shares of common stock for less than one year since exchanging ADSs for the
shares of common stock or (2) the Foreign Holder acquired and disposed of the
shares of common stock in the ordinary course of our business or as a regular
trader of shares. In all other cases, gain on the disposition of shares of
common stock will be subject only to a capital gain tax, which is assessed at
the same rate as the First Category Tax.
The tax basis of shares of common stock received in exchange for ADSs will
be the acquisition value of the shares. The valuation procedure set forth in
Section 2.10 of the deposit agreement, which values shares of common stock that
are being exchanged at the highest price at which they trade on the Santiago
Stock Exchange on the date of the exchange, will determine the acquisition value
for this purpose. Consequently, the conversion of ADSs into shares and the
immediate sale of these shares for no more than the value established under the
deposit agreement will not generate a gain subject to Chilean taxation.
64
The exercise of preemptive rights relating to the shares of common stock
will not be subject to Chilean taxation. Any gain on the sale or assignment of
preemptive rights relating to the shares of common stock will be subject to both
the First Category Tax and the Withholding Tax (the former being creditable
against the latter).
OTHER CHILEAN TAXES
No Chilean inheritance, gift or succession taxes apply to the transfer or
disposition of the ADSs by a Foreign Holder, but these taxes generally will
apply to the transfer at death or by gift of shares of common stock by a Foreign
Holder. No Chilean stamp, issue, registration or similar taxes or duties apply
to Foreign Holders of ADSs or shares of common stock.
WITHHOLDING TAX CERTIFICATES
Upon request, we will provide to Foreign Holders appropriate documentation
evidencing the payment of Chilean withholding taxes.
UNITED STATES TAX CONSIDERATIONS
The following is a description of the material U.S. federal income tax
consequences of an investment in the ADSs or common shares. This discussion is
based upon the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S.
Treasury regulations, judicial decisions and published positions of the U.S.
Internal Revenue Service, all as in effect on the date hereof and all of which
may be changed, possibly with a retroactive effect. The discussion is not a full
description of all tax considerations that may be relevant to a holder of ADSs
or common shares. In particular, the discussion is directed only to U.S. holders
that will hold ADSs or common shares as capital assets and that have the U.S.
dollar as their functional currency, and it does not consider the tax treatment
of U.S. holders that are subject to special tax rules, such as banks, securities
dealers, insurance companies, tax-exempt entities, persons that hold ADSs or
common stock as a hedge or as part of a straddle, conversion transaction or
other risk reduction transaction for tax purposes and holders of 10% or more of
the voting shares of Unimarc. Furthermore, the discussion below is based upon
the provisions of the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified, possibly with retroactive effects, so as to result in U.S. federal
income tax consequences different from those discussed below. If a partnership
holds ADSs or common shares, the tax treatment of a partner generally will
depend upon the status of the partner and the activities of the partnership.
Partners in a partnership holding ADSs or common shares should consult their tax
advisors about the federal, state, local and foreign tax consequences to them of
the purchase, ownership and disposition of ADSs or common shares. This summary
does not discuss any state, local or foreign tax consequences to the purchase
and ownership of the ADSs or common shares.
As used herein, "U.S. holder" means a beneficial owner of ADSs or shares
of Common stock that is:
o a United States citizen or resident;
o a United States corporation or partnership;
o a trust (x) if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. fiduciaries have authority to control all substantial decisions of
the trust or (y) that has an election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person; or
65
o an estate, the income of which is subject to United States federal income
taxation regardless of our source.
If the obligations contemplated by the Deposit Agreement are performed in
accordance with our terms, U.S. holders of ADSs, or ADRs evidencing ADSs,
generally will be treated for United States federal income tax purposes as the
owners of the shares of common stock represented by those ADSs.
CASH DIVIDENDS AND OTHER DISTRIBUTIONS
The full amount of any distributions, including the net amount of any
Chilean taxes withheld, distributed out of earnings and profits with respect to
the shares of common stock represented by ADSs generally will be includible in
the gross income of a U.S. holder for United States federal income tax purposes
as ordinary income when the distribution is received by the Depositary.
Dividends will not be eligible for the dividends-received deduction allowed to
corporations or for the reduced rate of tax on dividends enacted by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. To the extent that a distribution
exceeds current and accumulated earnings and profits, it will be treated first
as a return of capital to the extent of a U.S. holder's adjusted federal income
tax basis in our ADSs or shares of common stock, and thereafter as gain from the
sale of a capital asset.
Dividends paid in pesos will be includible in an U.S. holder's gross
income in an U.S. dollar amount based on the exchange rate in effect on the day
of receipt by the Depositary. Any gain or loss recognized upon a subsequent sale
or conversion of the pesos for a different amount of U.S. dollars will be United
States-source ordinary income or loss. Dividends generally will be foreign
source income. The Withholding Tax, net of any credit for the First Category
Tax, paid by or for the account of any U.S. holder, will be eligible for
treatment by this holder as foreign tax paid in computing the holder's foreign
tax credit or in computing a deduction for foreign income taxes paid, if such
holder does not elect to use the foreign tax credit provisions of the Code. For
these purposes, dividends will constitute "passive income" or, in the case of
certain U.S. holders, "financial services income." The Code, however, imposes a
number of limitations on the use of foreign tax credits, which are based on the
particular facts and circumstances of each taxpayer. U.S. holders should consult
their own tax advisors regarding the availability of the foreign tax credit.
Distributions of additional common stock to U.S. holders with respect to
the ADSs held by such holders that are made as part of a pro rata distribution
to all shareholders of Unimarc generally will not be subject to United States
federal income tax. The basis of the shares received generally will be
determined by allocating the U.S. holder's adjusted basis in the ADSs between
the ADSs and the new shares received, based on their relative fair market
values.
CAPITAL GAINS
U.S. holders will not recognize gain or loss on deposits or withdrawals of
shares of common stock in exchange for ADSs pursuant to the deposit agreement.
U.S. holders will recognize capital gain or loss on the sale or other
disposition of ADSs or shares of common stock held by the U.S. holder or by the
Depositary. Any gain or loss recognized by an U.S. holder generally will be
treated as United States source income. Consequently, in the case of a
disposition of shares of common stock at a gain (which, unlike a disposition of
ADSs, will be taxable in Chile), the U.S. holder may not be able to claim the
foreign tax credit for Chilean tax imposed on the gain unless it appropriately
can apply the credit against tax due on income from foreign sources. Capital
losses generally are deductible only against capital gains.
66
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
DIVIDENDS: Payments of dividends by us to a U.S. holder of common stock
will be subject to neither United States information reporting nor backup
withholding. Payments of dividends made to a U.S. holder of either the ADSs or
the common stock that are made by a fiscal paying agent, broker or other
intermediary in the United States will be subject to information reporting but,
under currently effective temporary United States Treasury Regulations, will not
be subject to backup withholding. Under recently-finalized United States
Treasury Regulations effective for payments, such payments, as well as payments
of such dividends made to a United States person outside the United States by a
payer or middleman that is either a United States person or a United
States-related person may be subject to both United States information reporting
requirements and backup withholding unless such holder provides a correct
taxpayer identification number and certain other information in the required
manner. For these purposes, a payment by a middleman that is a United States
person or a United States-related person will be deemed to be made inside the
United States if it is made by wire transfer or mail to an account or address
located within the United States.
PROCEEDS OF DISPOSITION. Under temporary U.S. Treasury Regulations,
payment of the proceeds of the disposition of common stock by a holder to or
through the U.S. office of a broker generally will be subject to information
reporting and backup withholding unless the holder establishes an exemption.
Under such Regulations, the payment of such proceeds through the foreign office
of a U.S. or U.S.-related broker will be subject to information reporting but
not backup withholding.
Under recently-finalized regulations effective for payments made through
the foreign office of a U.S. broker or a U.S.-related broker may be subject to
both United States information reporting and backup withholding. The payment of
proceeds of a disposition of common stock or ADSs effected through the foreign
office of a broker other than a U.S. or U.S.-related broker generally will not
be subject to backup withholding or information reporting pursuant to such
regulations.
DOCUMENTS ON DISPLAY
All the documents which are referred to in this report may be inspected in
our headquarters, located at Avenida Presidente Eduardo Frei Montalva, 1380,
Santiago, Chile. You also may inspect the documents concerning us referred to in
this report at the Securities and Exchange Commission's public reference
facilities at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
their regional offices located at 223 Broadway, New York, New York 10279 and the
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. These are also publicly available through the SEC website at
www.sec.gov.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to foreign currency exchange rate risk and interest risk.
We do not engage in speculative or leveraged transactions, nor do we hold or
issue financial instruments for trading purposes. In addition, we do not engage
in any interest rate or foreign currency exchange rate hedging transactions.
INTEREST RATE VARIATIONS
Our interest expense on short-term debt payable to Chilean banks is
sensitive to changes in the general level of interest rates in Chile as such
debt bears two types of variable interest rates generally ranging from 6.8% to
8.9% per year. As of December 31, 2002 we had Ch$24,610 million, or US$34.2
million, of short-term debt outstanding. During 2002, our short-term debt bore
interest at an average rate of 8.2% per year. During 2002, (1) our Chilean peso
denominated short-term debt bore interest at an
67
average fixed rate of 8.6%; (2) our short-term debt denominated in Unidades de
Fomento bore interest at an average variable rate of 7.3%, and (3) our U.S.
dollar denominated short-term debt bore interest at an average variable rate of
6.5%.
We are subject to the risk of interest rate fluctuations with respect to
our long-term debt because our long-term debt bears fixed and variable interest
rates. As of December 31, 2002 we had outstanding Ch$8,350 million, or US$ 11.6
million, in aggregate principal amount of long-term debt. Our U.S. dollar
denominated long-term debt bears interest at rates ranging from 4.95% to 8.5%
per year. Our Chilean peso long-term denominated debt bears interest at rates
ranging from 8.0% to 9.0% per year. During 2002, (1) our long-term loans
denominated in Unidades de Fomento bore interest at an average fixed rate of
8.3%, (2) our U.S. dollar denominated long-term loans bore interest at an
average variable rate of 6.5% and (3) our Argentine peso denominated long-term
loans bore interest at an average variable rate of 81.3%, as determined based on
BAIBOR. For more information, see also note 18 of our consolidated financial
statements.
FOREIGN EXCHANGE VARIATIONS
We are exposed to currency exchange risks, particularly with respect to
the exchange of the Chilean peso against the US dollar. Our foreign gains or
losses reflect the impact of fluctuations in foreign currency exchange rates on
our assets and liabilities denominated in currencies other than the Chilean peso
as follows:
o A foreign exchange loss arises in our results of operations if a liability
is denominated in a foreign currency, such as the US dollar, that
appreciates relative to the Chilean peso between the time the liability is
incurred and the date it is repaid. This is because the appreciation of
the foreign currency increases the amount of Chilean pesos that we need to
purchase the foreign currency necessary to repay the liability.
o A foreign exchange loss arises in our results of operations if an asset or
revenue is denominated in a foreign currency, such as the Argentine peso,
that depreciates relative to the Chilean peso. This because the
depreciation of the foreign currency results in lower assets or revenues
when converted to Chilean pesos. Chilean exchange regulations require us
to convert all our revenues in foreign currency into Chilean pesos.
During 2002 we recorded a foreign exchange gain of Ch$7,119 million mainly
reflecting the impact of a 8.9% appreciation of the Chilean peso against the
U.S. dollar on our U.S. dollar denominated debt of US$ 32 million.
LACK OF RELATIVE LIQUIDITY AND VOLATILITY OF CHILEAN SECURITIES MARKETS.
The Chilean securities markets are substantially smaller, less liquid and
more volatile than major securities markets in the United States. In addition,
the Chilean securities markets may be affected by developments in other emerging
markets, particularly other countries in Latin America.
CURRENCY FLUCTUATIONS AND CONTROLS; DEVALUATION; HISTORICAL INFLATION
The Chilean government's economic policies and any future changes in the
value of the peso against the U.S. dollar could adversely affect the dollar
value of the ADSs and investors' return on investment. The peso has been subject
to large nominal devaluation in the past and may be subject to significant
fluctuations in the future. In the period from January 1, 1994 to December 31,
2002, the par value of the peso relative to the U.S. dollar declined
approximately 67.5% in nominal terms, based on the
68
Observed Exchange Rate for U.S. dollars on such dates. Chilean trading in the
common stock underlying the ADSs is conducted in pesos. Cash distributions
received by the Depositary in respect of shares of common stock underlying ADSs
will be received in pesos. The Depositary will convert these pesos to U.S.
dollars at the then prevailing exchange rate for the purpose of making dividend
and other distribution payments in respect of ADSs. If the value of the peso
should fall relative to the U.S. dollar, the value of the ADSs and any
distributions to be received from the Depositary would be adversely affected.
The Chilean inflation has been moderated in the last years, which has
allowed to have a low inflation risk. Nevertheless, we can not assure low
inflation in the future that could adversely affect the value of the ADSs. The
annual inflation rates for 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000,
2001 and 2002 were 12.7%, 12.2%, 8.9%, 8.2%, 6.6%, 6.0%, 4.7%, 2.3%, 4.5%, 2.6%
and 2.8% respectively.
In addition, our results and prospects may be indirectly affected if the
rate of Chilean inflation exceeds the rate of inflation experienced in the
United States or other major countries or trading partners of Chile, and the
Chilean peso is not sufficiently devalued relative to the currencies of these
countries.
During the last six years we have generally been able to pass on our
increased costs resulting from inflation to our customers through increases in
the prices of the products we sell. We cannot provide assurance, however,
whether or to what extent we will be able to pass on increased costs in the
future. Further, there can be no assurance that the performance of the Chilean
economy, our operating results or the value of the ADSs will not be adversely
affected by continuing or increased levels of inflation or that Chilean
inflation will not increase significantly from the current level.
TAXATION OF DIVIDENDS
Cash and property dividends that we pay with respect to shares represented
by ADSs held by a foreign (non-Chilean) holder will be subject to a 35% Chilean
withholding tax, which we withhold. Stock dividends are not subject to Chilean
taxation.
CONTROLS ON FOREIGN INVESTMENT AND REPATRIATION OF INVESTMENTS
Equity investments in Chile by non-Chilean residents generally are subject
to various exchange controls regulations that restrict the repatriation of the
investments and earnings therefrom. The ADS facility, however, is the subject of
a contract called the Foreign Investment Contract, entered into by and among the
Depositary, Unimarc and the Central Bank. The Foreign Investment Contract grants
the Depositary and the holders of the ADSs access to Chile's MERCADO CAMBIARIO
FORMAL, the Chilean Formal Exchange Market. Pursuant to current Chilean law, the
Foreign Investment Contract may not be amended unilaterally by the Central Bank.
Additionally, there are judicial precedents indicating that the Foreign
Investment Contract may not be abrogated by future legislative changes. There
can be no assurance, however, that additional Chilean restrictions applicable to
the holders of ADSs, to the disposition of underlying shares of common stock or
to the repatriation of the proceeds from such disposition could not be imposed
in the future, nor can there be any assessment of the duration or implications
of any such restrictions that might be imposed. If for any reason, including
changes in the Foreign Investment Contract or Chilean law, the Depositary is
unable to convert pesos to U.S. dollars, investors might receive dividends or
other distributions in pesos. Transferees of shares withdrawn from the ADS
facility will not be entitled to access to the Formal Exchange Market unless the
withdrawn shares are redeposited with the Depositary.
69
DIFFERING CORPORATE DISCLOSURE, GOVERNANCE AND ACCOUNTING STANDARDS
Chilean disclosure requirements differ from those in the United States in
certain important respects. In addition, although Chilean law imposes
restrictions on insider trading and price manipulation, the Chilean securities
markets are not as highly regulated and supervised as the U.S. securities
markets.
Our minority shareholders have fewer and less defined rights under the
Chilean law and under our ESTATUTOS, or by-laws, which function as our articles
of incorporation and by-laws, than they might have as minority shareholders of a
corporation incorporated in a United States jurisdiction.
There also are important differences between Chilean accounting and
reporting standards and United States standards. As a result, Chilean financial
statements and reported earnings generally differ from those reported based on
U.S. accounting and reporting standards.
POSSIBLE LIMITATION ON WITHDRAWAL RIGHTS OF HOLDERS OF ADSS
In accordance with Chilean laws and regulations, any shareholder that
votes against certain actions or does not attend the meeting at which such
actions are approved may withdraw from Unimarc and receive payment for its
shares according to a prescribed formula, provided that this shareholder
exercises its rights within certain prescribed time periods. See "Item 3. Key
Information --Risks Relating to Chilean Law - You may be unable to exercise
fully your withdrawal rights".
However, because of the absence of legal precedent as to whether a
shareholder that has voted both for and against a proposal, such as the
Depositary, may exercise withdrawal rights with respect to those shares voted
against the proposal, there is doubt as to whether holders of ADSs will be able
to exercise withdrawal rights either directly or through the Depositary with
respect to the shares represented by ADSs.
EMERGING MARKETS
Investing in securities involving emerging market risk, including Chilean
risk, involves a higher degree of risk than investments in securities of issuers
from more developed countries, and such investments are generally considered
speculative in nature. In addition, the markets for securities bearing emerging
market risk, such as Chilean risk, are, to varying degrees, influenced by
economic and securities market conditions in other emerging market countries.
Although economic conditions are different in each country, investors' reactions
to developments in one country can have effects on the securities of issuers in
other countries, including Chile. The crisis, which began in Southeast Asia and
resulted in a substantial decline in value of many emerging market securities
during late October and November 1997, adversely affected most emerging markets,
including Chile, in several ways.
ITEM 12. OPTION TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Not applicable.
PART II
ITEM 13. DEFAULTS, LATE DIVIDENDS AND DELINQUENCIES
In May 2002 we incurred a payment default under a of US$24.9 million loan
we received from BankBoston, which as of November 30, 2003 had an outstanding
balance, including both principal and
70
interest of US$ 21,506,346.09. We negotiated with the bank a series of
extensions of payments of principal. We have timely made principal payments
under the loan, as restructured.
On May 6, 2003, we entered into a further amendment of the underlying
credit agreement to restructure the payment terms of the loan. The effectiveness
of this amendment was subject to certain conditions, which we had to satisfy no
later than August 4, 2003. We were able to comply with certain of these
conditions by this deadline, and the maturity date of the loan was extended
through August 18, 2003. By this date, we were able to fully satisfy the
remaining conditions. As a result, the payment of this loan was restructured as
follows: (1) principal is payable in eighteen quarterly installments, from
August 2003 through November 2007; and (2) interest is payable quarterly at the
rate of 4.04% on the outstanding principal balance of the loan. The amounts of
the principal installments under the restructured loan are as follows: (1) each
of the two initial installments are equal to U.S.$250,000; (2) each of the 15
installments following the initial two installments are equal to U.S.$1 million
; and (3) the final installment is equal to U.S.$6,506,346.
In March 2000, Inverraz, our parent, incurred in a payment default under
two unsecured loans in the aggregate principal amount of US$115 million granted
to it by a syndicate of banks, for whom State Street acted as agent, and as
result, the lenders accelerated the payment of these loans and demanded payment
from Inverraz and the guarantors of the entire outstanding balance of the loans.
As of November 30, 2003, the aggregate outstanding balance due under these loans
totaled US$109.4 million, which amount includes principal, without scheduled and
default interest. As of November 30, 2003, the total outstanding amount of our
attributable liability as guarantors under these loans was US$38,919,217, or
14.0% of our consolidated assets. See "Item 3. Key Information --Risk Factors
- --Risks Relating to Unimarc and the Supermarket Industry", "Item 8. Financial
Information --Legal Proceedings" and "Item 7. Major Shareholders and Related
Party Transactions".
As a result of the above defaults, and the default of other loans
representing no more than 5% of our consolidated assets (described in Item 1 to
this annual report), the lenders of our other long-term debt and short-term debt
could accelerate the payment of the loans they granted to us. As of December 31,
2002:
o the total outstanding principal amount of our long-term debt (1) that had
matured and become payable, and (2) that could become immediately due and
payable if our lenders decide to accelerate payment, amounted to Ch$8,350
million, or 4.2% of our total consolidated assets; and
o the total outstanding principal amount of our short term debt (1) that had
matured and become payable, and (2) that could become immediately due and
payable if our lenders decide to accelerate payment, amounted to Ch$24,610
million, or 12.4% of our total consolidated assets.
As of November 30, 2003, the total principal amount of our long-term debt
(1) that was due and payable, and (2) that could become immediately past due and
payable, amounted to Ch$18,588 million. As of November 30, 2003, the total
principal amount of our short-term debt (1) that was due and payable and (2)
that could become immediately due and payable amounted to Ch$9,258 million. As
of November 30, 2003, the unpaid balance, including both principal and interest,
of the debt of our affiliates (other than Inverraz) that we have guaranteed (1)
that was past due and payable, and (2) that could become immediately due and
payable amounted to Ch$15,187 million. As of November 30, 2003, the total amount
of our guarantees with respect to the two loans obtained by Inverraz from State
Street and other lenders was Ch$24,179 million. If, however, the other
guarantors of these two loans fail to make any payment under their guarantees,
such lenders could seek to recover from us the total principal amount of the
loans guaranteed by them, that is, Ch$68,029 million as of November 30, 2003.
See "Item 8-Financial Information - Legal Proceedings."
71
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable,
ITEM 15. CONTROL AND PROCEDURES
We have carried out an evaluation under the supervision and with the
participation of our management staff, of the effectiveness of the design and
operation of our disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon and as of December 31, 2002, the
Management staff and Chief Financial Officer, concluded that our disclosure
controls and procedures are effective to provide reasonable assurance that
information required to be disclosed in the reports we file and submit under the
Exchange Act is recorded, processed, summarized and reported as and when
required.
ITEM 16. (RESERVED)
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PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable,
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-75.
ITEM 19. EXHIBITS
The following is a list of all exhibits filed as a part of this Annual
Report on Form 20-F:
EXHIBIT
NUMBER EXHIBIT
------ -------
1.1 Articles of Association, or ESTATUTOS, of the Registrant.*
1.2 Articles of Association, or ESTATUTOS, of the Registrant
(English summary translation).*
2.1 Credit agreements dated September 2, 1994 and March 1, 1996
between Inversiones Errazuriz S.A. and State Street Bank and
Trust Company. *
4.1 Lease agreements relating to Registrant's property in Chile.*
4.2 Lease agreements dated June and July 1999 by and between
Supermercados Hipermarc S.A. and Supermercados Norte S.A.*
4.3 Lease agreements dated June and July 1999 by and between
Supermercados Hipermarc S.A. and Supermercados Norte S.A.
(English summary translation)*
4.4 Financial and lease agreements dated June 1, 1999 by and among
Supermercados Hipermarc S.A., Nai International II, Inc
(Sucursal Argentina) and Nai International II, Inc.*
4.5 Financial and lease agreements dated June 1, 1999 by and among
Supermercados Hipermarc S.A., Nai International II, Inc
(Sucursal Argentina) and Nai International II, Inc. (English
summary translation) *
8.1 Significant subsidiaries owned, directly or indirectly, by
Supermercados Unimarc S.A. as of December 31, 2002.
12.1 Certification of Mr. Francisco Javier Errazuriz Ovalle and Mr.
Victor Cantillano Vergara pursuant to Section 302 of the
Sarbanes Oxley Act.
13.1 Certification of Mr. Francisco Javier Errazuriz Ovalle and Mr.
Victor Cantillano Vergara pursuant to Section 906 of the
Sarbanes Oxley Act.
----------
* Previously filed.
73
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report on Form 20-F to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Santiago, Chile on July 15, 2005.
SUPERMERCADOS UNIMARC S.A.
/s/ Francisco Javier Errazuriz Ovalle
-------------------------------------
Francisco Javier Errazuriz Ovalle
Chairman of the Board and Chief Executive Officer
74
SUPERMERCADOS UNIMARC S.A. AND
AFFILIATES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2002 AND FOR THE
YEARS ENDED ON DECEMBER 31, 2000, 2001 AND 2002
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2002 AND FOR THE YEARS ENDED
DECEMBER 31, 2000, 2001 AND 2002
INDEX
PAGE
Report of independent registered public accounting firm
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet as of December 31, 2001 and 2002 F-3
Consolidated statement of operations for the years ended December 31,
2000, 2001 and 2002 F-5
Consolidated Cash flow statement for the years ended December 31,
2000, 2001 and 2002 F-6
Notes to the consolidated financial statements F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SHAREHOLDERS AND DIRECTORS
SUPERMERCADOS UNIMARC S.A.
We have audited the accompanying consolidated balance sheets of Supermercados
Unimarc S.A. and Subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations and cash flows for each of
the three years in the period ended December 31, 2002. These consolidated
financial statements are the responsibility of the management of the Company.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Supermercados Hipermarc S.A., a 99.9% owned Argentine Subsidiary, which
statements reflect total assets of ThCh$57,675,499 and ThCh$55,238,921 as of
December 31, 2002 and 2001, respectively and revenues of ThCh$1,197,288 and
ThCh$4,595,702, for the years ended December 31, 2002 and 2001, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our report, insofar as it relates to the amounts included for
Supermercados Hipermarc S.A. as of December 31, 2002 and 2001, before conversion
to generally accepted accounting principles in Chile and the United States, is
based soley on the report of the other auditors.
Except as discussed in the following paragraph, we conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As more fully described in Note 23 to the financial statements, the Company has
recorded a long-term deferred tax asset of approximately Th Ch $7,333,000 (Th US
$10,200) as of December 31, 2002, as to which the Company has provided no
valuation allowance. We were unable to obtain sufficient competent evidential
matter or satisfy ourselves by means of other auditing procedures as to the
recoverability of such long-term deferred tax asset at its stated amount.
In our opinion, except for the effects of such adjustments if any, as might have
been determined to be necessary had we been able to satisfy ourselves regarding
the matter described in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Supermercados Unimarc S.A. and Subsidiaries as of December
31, 2002 and 2001 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in Chile.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, as of December 31, 2002, the Company was in default of
certain covenants and payments of its term loan and credit agreements. Further,
as of December 31, 2002, the total amount outstanding of the Company's
attributable liability as guaranteed under two unsecured loans, which are in
default, and are owed by its parent to a syndicate of banks was approximately Th
US $38,900, or 14% of consolidated assets. In addition, as of December 31, 2002
the Company's current liabilities exceeded its current assets by ThCh$35,073,931
and for the year ended December 31, 2002, the Company had negative cash flows
from operating activities of ThCh$12,822,645. These issues raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 3 to the Company's financial statements, the
Superintendencia de Valores y Seguros, through an official letter, instructed
the Company to change its accounting for deferred income to treat this account
as non-monetary for purposes of the price-level restatement. Accordingly, the
financial statements for the year ended December 31, 2001 have been restated to
reflect the correct treatment of this matter.
Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected results of operations
for the years ended December 31, 2002 and 2001, and the determination of
shareholders' equity as of December 31, 2002 and 2001, to the extent summarized
in Note 41 to the consolidated financial statements.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
December 18, 2003 except for Note 2 d) fifth
paragraph and Note 30 c.1) fourth paragraph
as to which the date is February 22, 2005.
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
2001 2002 2002
ASSETS THCH$ THCH$ THUS$
(Restated)
CURRENT ASSETS
Cash and cash equivalents 1,040,542 1,722,949 2,398
Time deposits 2,075,107 - -
Marketable securities 700 - -
Trade accounts receivable 1,482,767 1,623,685 2,259
Notes receivable 3,735,331 2,682,501 3,733
Other accounts receivable 391,146 418,649 582
Accounts receivable from related companies 8,833,780 3,431,836 4,776
Inventories 12,956,703 10,395,580 14,466
Recoverable taxes 1,483,340 788,550 1,097
Prepaid expenses 1,525,084 589,960 821
Deferred taxes 1,878,555 - -
Other current assets 79,882 95,272 133
--------------- -------------- --------------
Total current assets 35,482,937 21,748,982 30,265
--------------- -------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Land 49,028,082 45,116,571 62,783
Buildings and infrastructure 66,905,804 64,964,115 90,402
Machinery and equipment 30,638,803 22,214,130 30,913
Other fixed assets 41,846,979 37,272,282 51,867
--------------- -------------- --------------
188,419,668 169,567,098 235,965
Less:
Accumulated depreciation ( 27,683,432 ) ( 18,855,845 ) ( 26,239)
--------------- -------------- --------------
--------------- -------------- --------------
Net property, plant and equipment 160,736,236 150,711,253 209,726
--------------- -------------- --------------
OTHER ASSETS
Goodwill 17,860,421 16,595,679 23,094
Negative goodwill ( 4,703 ) ( 46,324 ) ( 64)
Long-term accounts receivable 203,978 575,040 800
Long-term deferred taxes - 7,332,663 10,204
Intangible assets 11,372 11,680 16
Other non-current assets 3,290,818 2,218,766 3,088
--------------- -------------- --------------
Total other assets 21,361,886 26,687,504 37,138
--------------- -------------- --------------
Total assets 217,581,059 199,147,739 277,129
=============== ============== ==============
The accompanying notes are an integral part of these financial statements
F-3
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
2001 2002 2002
LIABILITIES AND SHAREHOLDERS' EQUITY THCH$ THCH$ THUS$
(Restated)
CURRENT LIABILITIES
Short-term debt 28,602,294 23,530,687 32,745
Current portion of long-term debt 2,678,238 1,079,560 1,502
Accounts payable 27,153,096 24,934,916 34,699
Notes payable 1,295,477 424,933 591
Other accounts payable 3,130,356 1,528,187 2,127
Accounts payable to related companies 2,439,360 2,238,616 3,115
Accrued expenses 925,142 1,348,617 1,877
Withholding taxes payable 768,794 648,544 902
Income taxes payable 231,259 194,997 271
Deferred income 809,320 875,702 1,219
Deferred income taxes - 16,562 23
Other current liabilities - 1,592 2
-------------- ------------- -------------
Total current liabilities 68,033,336 56,822,913 79,073
-------------- ------------- -------------
LONG-TERM LIABILITIES
Long-term debt 10,176,418 8,350,218 11,620
Notes payable 5,597,199 1,340,580 1,866
Other accounts payable 2,219,158 2,730,566 3,800
Accounts payable and lease
obligations with related companies 17,914,362 17,258,386 24,016
Deferred income taxes 24,384 - -
Other long-term liabilities 5,260,798 4,742,824 6,600
-------------- ------------- -------------
Total long-term liabilities 41,192,319 34,422,574 47,902
-------------- -------------
Minority interest 84,243 79,297 110
-------------- ------------- -------------
SHAREHOLDERS' EQUITY
Paid-in capital 55,873,978 55,873,978 77,753
Additional paid-in capital 28,578,841 28,578,842 39,770
Other reserves 1,138,433 2,408,920 3,352
Retained earnings 24,781,313 22,561,023 31,395
(Loss) Profit for the period ( 2,101,404 ) ( 1,599,808 ) ( 2,226)
-------------- ------------- -------------
Total shareholders' equity 108,271,161 107,822,955 150,044
-------------- ------------- -------------
Total liabilities and shareholders' equity 217,581,059 199,147,739 277,129
============== ============= =============
The accompanying notes are an integral part of these financial statements
F-4
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
2000 2001 2002 2002
THCH$ THCH$ THCH$ THUS$
(Restated)
OPERATING INCOME
Net sales 168,852,680 147,943,789 122,343,556 170,250
Cost of sales ( 139,150,540 ) ( 113,788,454 ) ( 96,585,373 ) ( )
134,406
--------------- ---------------- --------------- -------------
Gross profit 29,702,140 34,155,335 25,758,183 35,844
Sales and administrative expenses ( 29,473,126 ) ( 32,485,952 ) ( 33,149,743 ) ( 46,130 )
--------------- ---------------- --------------- -------------
Operating income (loss) 229,014 1,669,383 ( 7,391,560 ) 10,286 )
--------------- ---------------- --------------- -------------
NON-OPERATING INCOME
Income from interest 265,815 61,988 142,009 197
Other non-operating income 3,030,042 502,856 2,375,765 3,306
Loss from investments in related companies - ( 13,088 ) - -
Amortization of goodwill ( 1,272,824 ) ( 1,305,929 ) ( 1,264,371 ) ( 1,759 )
Interest expense ( 3,616,585 ) ( 5,702,922 ) ( 4,773,721 ) ( 6,643 )
Other non-operating expenses ( 491,306 ) ( 396,144 ) ( 1,082,442 ) ( 1,506 )
Price-level restatement 876,414 346,984 4,792,526 6,669
--------------- ---------------- --------------- -------------
Non-operating income (loss) ( 1,208,444 ) ( 6,506,255 ) 189,766 264
--------------- ---------------- --------------- -------------
Income (loss) before taxes, minority interes
and amortization of negative goodwill ( 979,430 ) ( 4,836,872 ) ( 7,201,794 ) ( 10,022 )
Income tax benefit 1,085,702 2,736,217 5,591,750 7,781
--------------- ---------------- --------------- -------------
Income before minority interest and
amortization of negative goodwill 106,272 ( 2,100,655 ) ( 1,610,044 ) ( 2,241 )
Amortization of negative goodwill 49 55 4,741 7
Minority interest 4,451 ( 804 ) 5,495 8
--------------- ---------------- --------------- -------------
Net income (loss) 110,772 ( 2,101,404 ) ( 1,599,808 ) ( 2,226 )
=============== ================ =============== =============
The accompanying notes are an integral part of these financial statements
F-5
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CASH FLOW STATEMENTS
(DIRECT METHOD)
2000 2001 2002 2002
THCH$ THCH$ THCH$ THUS$
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 205,246,880 187,720,713 147,052,449 204,635
Interest received 654,353 1,070,903 559,045 778
Cash received from other sources 1,399,366 5,600,643 1,961,053 2,729
Cash paid to suppliers and employees ( 195,290,720 ) (180,076,375 ) (155,998,892 ) ( 217,084 )
Interest paid ( 3,621,101 ) ( 4,894,505 ) ( 4,693,117 ) ( 6,531 )
Income taxes paid ( 680,832 ) ( 43,486 ) ( 10,449 ) ( 15 )
Other expenses paid ( 2,096,038 ) ( 1,228,304 ) ( 553,343 ) ( 770 )
Value-added and other taxes paid ( 85,393 ) ( 1,568,773 ) ( 1,139,391 ) ( 1,586 )
--------------- ------------ ------------ -------------
Net cash provided by (used in) operating 5,526,515 6,580,816 ( 12,822,645 ) ( 17,844 )
activities --------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Proceeds from sale of property, and equipment 14,369,009 15,252,428 7,591,490 10,5644
Proceeds from permanent investment - 327,647 - -
Proceeds from sales of other investments 95,320 - 687 1
Additions to property, plant and equipment ( 31,009,966 ) (17,070,421 ) ( 1,244,335 ) ( 1,731 )
Additions to long-term investments - ( 54 ) ( 100,396 ) ( 140 )
Other investment activities - ( 73,888 ) - -
--------------- ------------ ------------ -------------
Net cash (used in) provided by investment
activities ( 16,545,637 ) ( 1,564,288 ) 6,247,446 8,694
--------------- ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of shares 190 - - -
Proceeds from bank loans - 3,241,131 - -
Lease obligation with related companies 17,944,219 - 12,129,643 16,879
Payments on bank loans ( 7,540,760 ) - ( 6,538,027 ) ( 9,098 )
Payments on loans - ( 221,839 ) ( 309 )
Payment of loans documents from related parties - ( 6,202,371 ) - -
Dividends paid ( 2,261,439 ) ( 32,878 ) ( 117,960 ) ( 164 )
--------------- ------------ ------------ -------------
Net cash provided by (used in) financing
activities 8,142,210 ( 2,994,118 ) 5,251,817 7,308
--------------- ------------ ------------ -------------
TOTAL CASH FLOWS FOR THE YEAR ( 2,876,912 ) 2,022,410 ( 1,323,382 ) ( 1,842 )
EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS ( 8,493 ) 78,755 ( 69,318 ) ( 96 )
--------------- ----------- ------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 2,885,405 ) 2,101,165 ( 1,392,700 ) ( 1,938 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,899,889 1,014,484 3,115,649 4,336
--------------- ------------ ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,014,484 3,115,649 1,722,949 2,398
=============== ============ ============ =============
The accompanying notes are an integral part of these financial statements
F-6
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
CASH FLOW STATEMENTS
2000 2001 2002 2002
THCH$ THCH$ THCH$ THUS$
RECONCILIATION BETWEEN NET FLOW ORIGINATING IN (Restated)
OPERATING ACTIVITIES AND NET INCOME (LOSS) FOR THE
PERIOD
Net income (loss) 110,772 ( 2,101,404 ) ( 1,599,808 ) ( 2,226 )
RESULT FROM THE SALE OF ASSETS:
(Income) loss from the sale of fixed assets ( 2,417,370 ) ( 11,183 ) 769,212 1,070
Loss from the sale of other assets - 5,689 - -
DEBITS (CREDITS) TO INCOME NOT REPRESENTING CASH FLOWS:
Depreciation for the period 5,379,994 5,794,177 6,701,594 9,326
Amortization and accrued expenses ( 148,808 ) ( 1,735,501 ) ( 6,041,253 ) ( 8,407 )
Loss accrued on investments in related companies - 13,088 - -
Amortization of goodwill 1,272,824 1,305,929 1,264,371 1,759
Amortization of negative goodwill ( 49 ) ( 55 ) ( 4,741 ) ( 7 )
Net price-level restatement ( 876,414 ) ( 346,984 ) ( 4,792,526 ) ( 6,668 )
Other credits not representing cash flows - 534,055 - -
Other debits not representing cash flows ( 271,310 ) ( 151,684 ) ( 1,408,426 ) ( 1,960 )
-
(INCREASE) DECREASE IN CURRENT ASSETS
Trade accounts receivable ( 1,933,048 ) 2,990,844 276,281 384
Inventories 999,283 ( 194,176 ) 2,529,713 3,520
Other current assets 942,624 2,411,304 ( 4,883,706 ) ( 6,796 )
INCREASE (DECREASE) IN CURRENT LIABILITIES
Accounts payable 1,734,196 ( 73,252 ) ( 3,524,282 ) ( 4,904 )
Income taxes payable 352,600 ( 346,160 ) 134,060 187
Accumulated expenses and withholdings payable 1,702,100 ( 2,754,281 ) ( 2,119,944 ) ( 2,950 )
Value-added tax and other taxes payable ( 1,316,428 ) 1,239,606 ( 117,695 ) ( 164 )
Profit (loss) of minority interest ( 4,451 ) 804 ( 5,495 ) ( 8 )
------------ ------------ ------------ -------------
Net cash provided by (used in) operating activities 5,526,515 6,580,816 ( 12,822,645) ( 17,844)
============ ============ ============ =============
The accompanying notes are an integral part of these financial statements
F-7
27
SUPERMERCADOS UNIMARC S.A. AND AFFILIATES
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1- FORMATION AND BUSINESS OF THE COMPANY
Supermercados Unimarc S.A. ("Unimarc" or the "Company") is a
corporation organized under the laws of the Republic of Chile
whose stock is listed on the Chilean Stock Exchange and whose
American Depository Receipts (ADRs) were listed on the New York
Stock Exchange. Prior to the opening of the market on Wednesday,
April 2, 2003, the NYSE suspended the listing of our ADRs on the
NYSE, pursuant to a written communication furnished to us on March
28, 2003. The NYSE made this decision on the ground that the
average closing price of our ADRs had been less than US$1.00 over
a consecutive 30-day trading period and we were unable to cure
this non-compliance within the time period prescribed by the NYSE.
The Company was incorporated under the name Comercial e
Inmobiliaria Unimarc on October 24, 1991 and changed to its
current name on April 26, 1996. It is regulated by the rules and
regulations of the Chilean Superintendencia de Valores y Seguros
(SVS) and the United States Securities and Exchange Commission
(SEC).The Company's main activity is the operation of wholesale
and retail trade supermarkets in Chile, under the commercial name
"Unimarc". The purpose of the Company is the import and export of
all kinds of products for consumption and goods and chattels for
its own account or for third parties, either as a wholesaler or
retailer. The company operates 37 supermarket stores under the
trade name "Unimarc".
NOTE 2- GOING CONCERN MATTERS
a) As of December 31, 2002 and 2001, the Company had a working
capital deficiency of ThCh$ 35,073,931 and ThCh$ 32,550,399
respectively.
b) In December 1998, the Company received from the Nassau
branch of BankBoston ("BankBoston") a transitory loan in
the amount of US$ 24.9 million (the "Loan"). In
connection with the Loan, on December 24 and December
28, 1998, the Company signed two promissory notes (the
"Notes") for US$ 3 million and US$ 21.9 million. The
original maturity of the Notes (June 2000) was 18 months
after the date the Notes were signed. The outstanding
balance, including both principal and interest at
December 31, 2002 was Ch$16,188 million, or US$22.5
million.
In March 2002, BankBoston extended the maturity date of
this loan to May 31, 2002. After that, the Company
negotiated with BankBoston several additional extension of
the maturity of the loan because the Company was unable to
complete its repayment on May 31, 2002. Thus on May 6, 2003
the Company entered into a further amendment of the
underlying credit agreement to restructure the payment
terms of the loan. The effectiveness of this amendment is
subject to certain conditions, which the Company had to
satisfy no later than August 4, 2003. The Company was able
to comply with certain of these conditions by this
deadline, and the payment term of the loan was extended
through August 18, 2003. By this date, the Company was able
to fully satisfy these conditions. As a result, the payment
of the loans was restructured as follows: (1) principal
will be paid in eighteen installments, payable in quarterly
from August of 2003 until November of 2007; and (2)
interest will paid in same quarterly at the rate of 4.04%
on the outstanding principal balance of the loan. The loan
is collateralized by certain forestry assets owned by
related companies through joint ownership.
F-8
NOTE 2- GOING CONCERN MATTERS (CONTINUED)
c) On June 7, 2002, Banco Kreditanstalt filed a bankruptcy
petition against us in the civil court in Santiago to
recover, via an executory process, a portion of our loan in
the aggregate principal amount of US$2.1 million
represented by a promissory note. The bank has not taken
legal action to recover the remainder of the loans. In July
2002, the court denied Banco Kreditanstalt's bankruptcy
petition as the Company deposited with the court the amount
claimed by the bank. The court's decision, however, failed
to address the issue of whether the promissory note filed
by Banco Kreditanstalt constituted an instrument legally
sufficient to warrant the recovery of its underlying
obligation through an executory proceeding. Accordingly,
the Company appealed the court's decision to seek a
declaration that such note is legally insufficient to
permit its recovery through an executory process. The civil
court granted our appeal before the Appellate Court of
Santiago. The Company also filed a criminal lawsuit against
Banco Kreditanstalt in criminal court in Santiago for
fraud, as we believed that Banco Kreditanstalt did not act
in good faith in its transactions with us.
On October 23, 2002, the Company entered into an agreement
and waiver of legal action whereby the Company agreed to
terminate all our legal proceedings against Banco
Kreditanstalt in Chile, including our appeal before the
Appellate Court of Santiago and our criminal proceedings in
Santiago. The Company filed this agreement and waiver with
the Seventh Civil Court of Santiago, which was approved by
the judge for such court in November 2002. As a result,
such judge ordered the termination of all our legal
proceedings in the civil and criminal proceedings.
Pursuant to the above agreement and waiver, the Company
entered into two rescheduling agreements, in the aggregate
principal amount of US$5.3 million and US$1.8 million,
respectively, that restructure the payment of the loans to
Banco Kreditanstalt as follows: (1) principal will be paid
in twenty semi-annually installments, payable on March and
September from 2004 until 2013; and (2) interest will be
paid semi-annually at the rate of Libor plus 1.05% and
Libor plus 2.5%, respectively. The loans are collateralized
by a portion of the assets the Company acquired with the
proceeds of these loans. These assets consist of materials
used in the construction and remodeling of our stores. As
of December 31, 2002 the book value of the pledged assets
was US$5.4 million.
d) Inversiones Errazuriz Ltda. ("Inverraz"), the ultimate
parent company of the Company, is the borrower under two
separate credit agreements entered into in 1994 and 1996
with a group of lenders (the "Lenders") for whom the State
Street Bank acts as agent. The Company is a co-guarantor
under the credit agreements, with a maximum liability of up
to US$13.7 million of the 1994 credit agreement and US$25.2
million of the 1996 credit agreement. Events of default
occurred during 2000 under each of these credit agreements
and the Lenders have (1) accelerated the repayment of the
obligation so that all outstanding amounts are now due and
(2) on March 26, 2001 filed a lawsuit in the United States
against Inverraz and its guarantors (including the Company)
for collection of amounts due. As a result of these events,
the Company is now liable to the lenders under the 1994 and
1996 credit agreements, for the outstanding principal of
US$13.7 million (plus interest and other charges) under the
1994 credit agreement and for the outstanding principal of
US$ 25.2 million (plus interest and other charges) under
the 1996 credit agreement. Inverraz is actively engaged in
discussions with the Lenders to attempt to agree on a
restructuring of these debt obligations but, to date, no
such agreement has been reached.
F-9
NOTE 2- GOING CONCERN MATTERS (CONTINUED)
In April, 2001, the lenders started legal proceedings in
the Federal Court of the United States for the Southern
District of New York against Inverraz and the guarantors of
the loan and in the State's Supreme Court of New York
County against Inverraz in order to attain the repayment of
both loans. Before the defendants designated the legal
counsel in the United States to defend their interests in
these proceedings, the lenders moved for and were granted
default judgements in both proceedings. The defendants
challenged both court cases.
In the process of being heard at the State Court, the
defendant successfully annulled the case for default. Said
process is currently being heard and it is in its
preliminary stage.
In the process of being heard at the Federal Court, the
issue of whether the case should be rendered void due to
default was submitted by the Judge of the Federal District
Court to a Magistrate Judge for reconsideration. The
Magistrate Judge recommended the District Court Tribunal
not to declare void the case for default. The defendants
are going to file an objection to said recommendation.
On June 15, 2004, a panel of the U.S. Court of Appeals for
the Second Circuit denied the Consolidated Appeal. However,
on June 29, 2004, the Chilean Defendants filed a petition
for rehearing by the full U.S. Court of Appeals for the
Second Circuit. On September 1, 2004, the Second Circuit
denied the petition for rehearing. On November 30, 2004,
the Chilean Defendants filed a timely petition for a writ
of certiorari with the U.S. Supreme Court seeking
permission to appeal from the Second Circuit's denial of
their motion to vacate the default judgment. On February
22, 2005, the U.S. Supreme Court denied the Chilean
Defendants' petition for a writ of certiorari. Pursuant to
the conclusion of the appellate proceedings within the U.S.
federal court system, settlement discussions thereafter
resumed between the Chilean Defendants and State Street.
However, those settlement discussions did not result in a
mutually acceptable resolution of the matter. State Street
subsequently commenced a legal proceeding before the
Chilean Supreme Court seeking permission to recognize the
federal court's default judgment as the equivalent of an
enforceable Chilean judgment, which proceeding we refer to
as the "Recognition Application". The Chilean Defendants
are opposing the Recognition Application on all available
legal grounds. Chilean counsel for the Chilean Defendants
believes that the Chilean Defendants will prevail in
defeating the Recognition Application.
On September 8, 2003, we filed a lawsuit against State
Street before the 27th Civil Tribunal of Santiago, Chile,
seeking a ruling to the effect that: (1) the provisions of
the 1994 and 1996 credit agreements contemplating the
submission of any disputes between the parties to these
agreements to New York laws are invalid because, under
Chilean laws, such disputes may only be submitted for
resolution by Chilean courts as the underlying promissory
notes were issued in Chile and in compliance with Chilean
issuance requirements, and all assets subject to
restrictive covenants under the agreements are located in
Chile; (2) under Chilean laws, the original obligations
underlying the agreements were novated upon, and by, the
issuance of separate notes evidencing the payment
obligations arising out of such agreements; (3) the payment
obligations contained in the promissory notes prescribed
because the holders of such notes did not bring any claims
before Chilean courts to obtain their repayment within one
year of their maturity, as required by Chilean laws; and
(4) State Street is not a lender under the promissory notes
because after their issuance, State Street transferred such
notes to other persons. In addition, State Street filed a
petition before the 27th Civil Tribunal to have all
proceedings before Chilean courts terminated due to a lack
of jurisdiction of Chilean courts to decide any disputes
arising out of the credit agreements. The Court of Appeals
of Santiago had not issued any answer to such petition at
the time of this filing.
e) On March 19, 2003, the company paid the outstanding
principal to BBVA Banco BHIF, corresponding to the pending
balance of the credit for UF 55,776 , granted on April 27,
1991, therefore the only pending issues are the payment of
the interest accrued as of that date (see Note 30, a.1).
Although some of the matters described above have been
resolved, as a result of the covenant and payment defaults
described above coupled with unfavorable operating results,
there is no guarantee that our other lenders won't
accelerate the payment of the loans made to us. The company
will continue to work with its lenders to renegotiate its
debt when necessary to be able to meet its commitments and
continue to operate.
The Company's operating results have been affected by its
expansion and renovation programs. Refurbishing of our
stores had a detrimental effect on our sales since a store
under renovations may be closed for a week or more. The
Company expects these efforts will increase sales in the
long run and make the Company more competitive. As a result
of these efforts and others the Company may undertake, the
Company believes operating results will improve in the
future. However, there are no gurantees that the Company's
plans will be successful and operating results will
improve.
F-10
NOTE 3- RESTATEMENT OF 2001CONSOLIDATED FINANCIAL STATEMENT
The financial statements of the Company as of December 31
2002, represent the reissue of the financial statements
that were presented to the SVS according to the current
law, complying with Instruction N(degree) 07981 of the SVS
(Chilean SEC), dated September 29th 2003, due to changes in
the accounting estimation of the account "Income to be
Accrued".
This reissue was done as a result of the application of the
resolution from the Seventh Appeal Court of Santiago, Which
on August 21st 2003 accepted the conclusions from the SVS
formulated by Instruction N(degree) 09181 dated December
9th 2002, cleared and complemented by Instruction
N(degree)00154 dated January 8th 2003, regarding the
treatment of the account "Income to be Accrued",
considering it as a non-monetary liability. The account
described above includes 10 years of rental income paid in
advanced from stores that were sold by Supermercados
Hipermarc, S.A. (Argentinean subsidiary) to Supermercados
Norte S.A. (an Argentinean company).
In the original presentation of these financial statements,
the Company gave a monetary treatment to the mentioned
account according to the accounting and judicial
regulations currently in force in the Republic of
Argentina; an issue that was objected by the SVS, and
finally approved by the Seventh Appeal Court of Santiago.
The reissuance of the Financial Statements which are
referred in Instructions 09181, 00154 and 07981, dated
December 9th 2002, January 8th 2003, and September 29th
2003 respectively, are correspond to the financial
statements from December 2001 to June 2003, including the
quarterly financial statements between both dates, of which
the present one is part of.
The resolution of the Seventh Appeal Court considers this
account as a conditional liability, nonetheless, the
company's administration, maintaining its traditional
conservative policy, agreed to keep a provision over this
conditional liability amounted to Ch$5,618,526 M. But for
the above mentioned provision, the Company's result of
operations would have been increased.
AS REPORTED ADJUSTMENT AS RESTATED
2001 2002 2001 2002 2001 2002
Net income (loss) 397.056 ( 311,982) ( 2,498,460) (1,287,826) (2,101,404) (1,599,808)
Liabilities 106,726,066 87,293,769 2,499,589 3,951,718 109,225,655 91,245,487
Equity 110.769.621 111,772,892 ( 2,498,460) 3,949,937 ( 108,271,161 107,822,955
F-11
NOTE 4- ACCOUNTING CRITERIA APPLIED
A) ACCOUNTING PERIOD
The financial statements of the Company and its
subsidiaries cover the twelve-month periods between January
1 and December 31, 2000, 2001 and 2002.
B) BASIS OF THE PREPARATION
These consolidated financial statements have been prepared
according to generally accepted accounting principles by
the Colegio de Contadores de Chile A.G., also considering
norms and instructions given by the Superintendency of
Securities and Insurance. In the event of any discrepancies
the norms enacted by the Superintendency shall prevail over
the first ones mentioned above.
C) BASIS OF PRESENTATION
For comparative purposes, the financial statements as of
December 31, 2001, are presented updated by 3.0% inflation.
Additionally for an adequate comparison, some of the
figures in said financial statements have been
reclassified, as in the case of the Income Statement, where
the reference to Exchange Differences appears in a net
amount of ThCh$ 6,630,857, amount which used to appear in
the Monetary Correction account.
D) BASIS OF CONSOLIDATION
These consolidated financial statements include the assets,
liabilities, income and cash flow of the Company and its
affiliates. Additionally the inter-company balances and
transactions and their effects on income have been
eliminated. Furthermore, the participation of the minority
shareholders has been recognized.
F-12
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
COMPANIES INCLUDED IN THE CONSOLIDATION
The companies with which the Company consolidated its
participation are the following:
2001 2002
--------------------------- ----------------------------------
DIRECT INDIRECT TOTAL DIRECT INDIRECT TOTAL
Compania Comercializadora Nacional
Ltda. 9.000 91.000 9.0000 100.000 91.0000 100.0000
Interagro, Comercio y Ganado S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora de Supermercados S.A. 0.000 99.936 99.936 0.0000 99.9360 99.9360
Adminis. de Inversiones y Supermercados Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Comercial Supermercado Santiago S.A. 0.000 99.000 99.000 0.0000 99.0000 99.0000
Transportes Santa Maria S.A. 0.000 98.000 98.000 0.0000 98.0000 98.0000
Comercial Supermercado Vina del Mar S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Comercial Supermercado Rancagua S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Supermercado Hipermarc S.A. 0.000 99.999 99.999 0.0000 99.9990 99.9990
Unimarc Organizacion y Servicios S.A. 99.955 0.000 99.955 99.9549 0.0000 99.9549
Administradora y Servicios Talcahuano S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Publicidad y Promociones S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Inmobiliaria de Supermercados S.A. 0.000 99.999 99.999 0.0000 99.9990 99.9990
Administradora y Servicios Temuco S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Chillan S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora de Servicios y Vigilancia Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Las Tranqueras S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Cordillera S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Comercial las Dalias S.A. 0.000 000.000 000.000 0.0000 000.0000 000.000
Inmobiliaria y Constructora S.A. 0.000 51.080 51.080 0.0000 51.0800 51.0800
Administradora y Servicios Rancagua S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Vina del Mar S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Santiago Part Time S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Macul S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora de Supermercados Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Curico S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Concepcion S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Maipu S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Part Time Provincias S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora Las Tranqueras S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Unimarc Abastecimientos S.A. 0.330 99.6700 100.000 0.3300 99.67000 100.0000
Administradora y Servicios Machali S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora y Servicios Oriente S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Servicios Generales S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Servicios Unimarc Sur S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora Unimarc Sur S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Servicios Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
Administradora Unimarc S.A. 0.000 100.000 100.000 0.0000 100.0000 100.0000
E) PRICE-LEVEL RESTATEMENT
The consolidated financial statements are prepared on the
basis of general price-level accounting in order to reflect
the effect of changes in the purchasing power of the
Chilean peso during each year. At the end of each reporting
period, the consolidated financial statements are stated in
terms of the general purchasing power of the Chilean peso
using changes in the Chilean consumer price index (CPI) as
follows:
Non-monetary assets, liabilities and shareholders' equity,
and statement of income accounts are restated in terms of
year-end purchase power.
Monetary items are not restated as such items are, by their
nature, stated in terms of current purchasing power in the
consolidated financial statements.
F-13
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
E) PRICE-LEVEL RESTATEMENT (CONTINUED)
The price-level restatement credit or charge in the
consolidated statement of income represents the monetary
gain or loss in purchasing power from holding monetary
assets and liabilities exposed to the effects of inflation.
Except as indicated, all amounts in the accompanying
consolidated financial statements have been restated in
Chilean pesos of general purchasing power of December 31,
2002 (constant pesos) applied under the "prior month rule",
as described below, to reflect changes in the CPI from the
financial statement dates to December 31, 2002. This
updating does not change the prior years' statements or
information in any way except to update the amounts to
constant pesos of similar purchasing power.
The general price-level restatements are calculated using
the official CPI of the Chilean National Institute of
Statistics and are based on the prior month rule, in which
the inflation adjustments at any balance sheet date are
based on the consumer price index at the close of the
preceding month. The CPI is considered by the business
community, the accounting profession and the Chilean
government to be the index which most closely complies with
the technical requirement to reflect the variation in the
general level of prices in the country, and consequently,
is widely used for financial reporting purposes in Chile.
The changes in CPI used for price-level restatement
purposes are as follows:
YEAR YEAR-END CHANGE IN CPI
%
2000 4.7
2001 3.1
2002 3.0
The price-level adjusted consolidated financial statements
do not purport to represent appraised values, replacement
cost, or any other current value of assets at which
transactions would take place currently and are only
intended to restate all non-monetary financial statement
components in terms of local currency of a single
purchasing power and to include in the Company's results of
operations for each year the gain or loss in purchasing
power arising from the holding of monetary assets and
liabilities exposed to the effects of inflation.
For comparative purposes, the financial statements for 2001
and 2000 and the amounts disclosed in the related notes
have been restated in terms of Chilean pesos of December
31, 2002 purchasing power, as explained above.
F-14
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
E) PRICE-LEVEL RESTATEMENT (CONTINUED)
INFLATION INDEX-LINKED UNITS OF ACCOUNT (UF)
Assets and liabilities that are denominated in inflation
index-linked units of account are stated at the period-end
values of the respective units of account. The principal
inflation index-linked unit used in Chile is the Unidad de
Fomento (UF), which changes daily to reflect changes in
Chile's CPI.
The values for the UF as of December 31 of each year are as
follows, in historical Chilean pesos:
CH$
December 31, 2001 16,262.66
December 31, 2002 16,744.12
F) ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY
The assets and liabilities denominated in foreign currency
have been translated into Chilean pesos at the observed
exchange rates, reported by the Central Bank of Chile, as
follows (in Chilean pesos):
2001 2002
CH$ CH$
US dollar 654.79 718.61
Argentinean peso 385.17 211.98
Transactions denominated in foreign currencies other than
the Chilean peso are translated into the reporting currency
using the aforementioned exchange rates. Any gains or
losses from the translation of foreign currency balances
are recorded in the consolidated statements of income in
the period in which the exchange rate changes.
G) MARKETABLE SECURITIES
Marketable securities are presented at the lowest value
determined from the comparison between monetarily corrected
cost and its stock exchange value.
H) INVENTORIES
Due to their high turnover, the stock of products for sale
in supermarkets are presented valued at their average
acquisition cost. The values determined do not exceed the
respective net realization values.
The stock of frozen products from the affiliate company
Interagro Comercio y Ganado S.A., are presented at their
acquisition costs, which do not exceed their market value
at the closing of each period.
F15
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
I) ESTIMATION OF BAD DEBT
In order to cover any eventual bad debt in accounts
receivable, the companies have set provisions over all
those balances they estimate might not be recovered. As of
December 31, 2002 and 2001 provisions have been set for the
item Notes Receivables for a total amount of ThCh$ 304,765
and ThCh$ 247,217 , respectively.
J) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost plus
price-level restatement, and depreciated on a straight-line
basis over their estimated useful lives.
The estimated average useful life of property, plant and
equipment is as follows:
Buildings : 60 years
Machinery and equipment : 3 to 20 years
Furniture, materials and facilities : 10 years
Assets under capital leases are stated at the present value
of minimum lease payments, and amortized straight line over
the shorter of the lease term or estimated useful life of
the asset.
Financing expenses incurred in the construction of
property, plant and equipment are capitalized as part of
the corresponding asset.
Repair and maintenance costs are charged against income
renewals and betterments are capitalized as additions to
the related assets. Retirements, sales and disposals of
assets are recorded by removing the cost and accumulated
depreciation accounts, with any related gain or loss
reflected in other non-operating income.
K) ASSETS UNDER LEASE
The assets under lease are represented within the item
Other Fixed Assets, at their current value, considering the
specific conditions of each contract. Such assets are not
legally the company's property, therefore, as long as the
purchase option is not exercised, the company may not
freely dispose of them.
L) INVESTMENT IN RELATED COMPANIES
Investments in foreign affiliates, as of December 31, 2002
and 2001, have been valued as per what is provided in the
Technical Bulletin N(degree) 64 of the Colegio de
Contadores de Chile A.G., dealing with the valuation of
investments abroad, considering their valuation as a
controlled affiliate in the source currency. The difference
in conversion when comparing the adjusted investment by the
internal inflation, with the participation of investors
over the affiliate's equity, translated at the closing
exchange rate, is presented in equity under the item Other
Reserves.
F-16
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
L) INVESTMENT IN RELATED COMPANIES (CONTINUED)
Supermercados Unimarc has conducted an analysis of the book
value of its investments in Argentina. This analysis is
supported on the existence of negative circumstances in the
economies of the region. The analysis consisted in
evaluating both the recoverability of the fixed assets, as
well as goodwill recorded by the investor, in accordance to
the Chilean generally accepted accounting principles.
The analysis of recoverability of said company's fixed
assets, was conducted bearing in mind that where there is
evidence that a company's operations shall not, on a
permanent basis, yield sufficient income to cover all the
costs, including the depreciation of the fixed assets taken
as a whole, and where the book value of said assets is
higher than their realization value, these values must be
lowered to the recoverable amounts, charged against results
other than from operation.
The result of this analysis showed that no adjustments
affecting the accounting value of the company's fixed
assets is required.
The investments in domestic related companies, are
presented valued as per the method of the proportional
equity value of the investment, recognizing in income the
proportional profit or accrued by the issuing company.
Since year 1998 and as per what is provided in circular
letter N(degree) 1358 of the Superintendency of Securities
and Insurance, the goodwill generated in the acquisition of
new investments are amortized in a period of 20 years.
M) GOODWILL AND NEGATIVE GOODWILL
As per the Chilean generally accepted accounting
principles, the goodwill rises from the surplus in the
purchase value of companies acquired over their net
accounting value. Negative goodwill appears when the net
accounting value exceeds the purchase price of the acquired
companies. Goodwill and negative goodwill also rise from
the purchase of investments accounted under the equity
method. Goodwill and negative goodwill are regularly
amortized over a maximum period of 20 years, considering
the earning period of the investments. The Chilean
generally accepted accounting principles also provide that
the amortization of goodwill and negative goodwill may be
accelerated if the proportional income or loss of the
company in which the investment is made exceeds the amount
of the respective linear amortization.
N) TRANSLATION OF FOREIGN OPERATIONS
The financial statements of the Argentine subsidiary,
Supermercados Hipermarc S.A., were translated into Chilean
pesos in accordance with the criteria established by
Technical Bulletin 64 (BT 64) issued by the Colegio de
Contadores de Chile A.G. Under BT 64, investments in stable
countries, which are not considered to be an extension of
the Chilean parent's operations, must use the local
currency as the currency of measurement. Differences
arising from comparing the price-level restated value of
the investment, with the amount resulting from translating
the Company's investment at the year-end exchange rate, is
shown within equity under Other Reserves.
F-17
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
O) INCOME TAX AND DEFERRED TAXES
The income tax is computed on the basis of the net income,
determined as per the norms set forth in the Income Tax
Law.
The deferred taxes are recognized as per what is provided
in the Technical Bulletin N(degree) 60 of the Colegio de
Contadores de Chile A.G., and in circular letter N(degree)
1466 of the Superintendency of Securities and Insurance.
The company recognizes assets and liabilities from deferred
taxes for the future estimation of the tax effects
attributable to differences between the accounting values
of the assets and liabilities, and their tax values. Also,
the company recognizes assets from deferred taxes for the
future tax exemption due to tax losses.
The weighting of assets and liabilities from deferred taxes
are made on the basis of the tax rate which, in accordance
with the standing tax legislation, must be applied in the
year in which the assets and liabilities from deferred
taxes are realized or disposed of.
The future effects of changes in the tax law or in the tax
rates are recognized in the deferred taxes as of the date
on which the Law approving such changes is published. The
amount of the assets for deferred taxes is reduced, if
necessary, by the amount of any tax benefit which, on the
basis of the available evidence, is expected not to be
realized.
P) REVENUE RECOGNITION
We recognize revenues at the point of sale to retail
customers, when title to the goods has transferred to the
customer and the customer has paid the price for such
goods. We recognize the discounts we provide to customers
at the point of sale, as well as an allowance for returns
as a reduction in sales, as we sell our products. We
recognize income for in-store promotions, or other
incentives from suppliers that are non-refundable credits
or payments when the related activities that the supplier
requires are completed, the amount can be fixed or is
variable and determinable, and the collectability is
reasonably assured. This income is generally included as an
offset of cost of sales. Funds that are directly linked to
advertising commitments are recognized as a reduction of
cost of sales when the related advertising commitment is
satisfied. We also maintain allowances for possible
estimated losses due to bad debts that result from the
inability of our customers to make required payments.
Q) CASH FLOW STATEMENT
The cash flow statements included herein have been prepared
as per the direct method, and all those short-term
investments made as part of the regular management of the
cash surpluses have been regarded as cash and cash
equivalent.
All those transactions in connection with its line of
business, that is, the purchase, sale and management of
goods to be marketed in supermarkets, have been classified
as operating activities.
F-18
NOTE 4- ACCOUNTING CRITERIA APPLIED (CONTINUED)
R) USE OF ESTIMATES
The Company's Management has used a number of estimates
and assumptions to determine the assets and liabilities
and the disclosure of contingencies in order to prepare
these consolidated financial statements in conformity with
Chilean generally accepted accounting principles. Actual
results could differ from those estimates.
S) TRANSLATION INTO US DOLLARS (UNAUDITED)
The Company maintains its accounting records and prepares
its consolidated financial statements in Chilean pesos.
The United States dollar amounts disclosed in the
consolidated financial statements are presented for
convenience of the reader translated at the observed
exchange rate as of December 31, 2002, of Ch$ 718.61 per
US$ 1.00. This translation should not be construed as
representing that the Chilean pesos amounts actually
represent, have been, or could be, converted into United
States dollars at such rate or at any other rate.
T) COMMITMENTS AND CONTINGENCIES
The liabilities for loss contingencies arising from
claims, assessments, litigation, fines and penalties and
other sources are recorded when it is probable that a
liability has been incurred into and the amount of the
assessment and/or remediation can be reasonably estimated.
NOTE 5- ACCOUNTING CHANGES
During the years 2001 and 2002 there have been no changes in the
application of accounting principles as compared with the previous
periods.
F-19
NOTE 6- PRICE-LEVEL RESTATEMENT
The gain (loss) arising from the price-level restatement process
is comprised of the following:
RESTATING TO REFLECT CHANGES IN CPI:
-------------------------------------------------------------------------------------------------------
ASSETS (CHARGES) / CREDITS ADJUSTMENT INDEX 2000 2001 2002
THCH$ THCH$ THCH$
-------------------------------------------------------------------------------------------------------
Inventories Ch $ - - -
Property, plant and equipment Ch $ 4,114,644 3,007,311 1,987,458
Investment in related companies Ch $ 592,545 577,879 476,085
Minority interest Ch $ 262,290 - 842,740
Other non monetary assets Ch $, UF 805,963 171,664 50,949
Accounts of expenses and costs Ch $ - 35 926,650
-------------------------------------------------------------------
Total (Charges) Credits $ 5,775,442 3,756,889 4,283,882
-------------------------------------------------------------------------------------------------------
LIABILITIES (CHARGES) / CREDITS
-------------------------------------------------------------------------------------------------------
Shareholders' equity Ch $ ( 4,987,125)( 3,305,145) ( 3,150,291)
Obligations with banks Ch $,UF - - ( 27,436)
Minority interest UF, Ch $ ( 1,129,233 ( 409,009) ( 160,970)
Non monetary liabilities $ - 150,450 714,221
Accounts of income Ch $, UF ( 727,521 ( 590,613) ( 1,021,615)
Total (Charges) credits Ch $ ( 371,744 ( 128,646) ( 1,125,447)
--------------------------------------------
Obligations with banks ( 7,215,623) ( 4,282,963) ( 4,771,538)
-------------------------------------------------------------------------------------------------------
(LOSS) PROFIT FROM PRICE LEVEL RESTATEMENT ( 1,440,181 ( 526,074) ( 487,656)
-------------------------------------------------------------------------------------------------------
RESTATING BY US$ AND FOREIGN CURRENCY EXCHANGE RATE CHANGES:
------------------------------------------------------------------------------------------------------
ITEM CURRENCY 2000 2001 2002
THCH$ THCH$ THCH$
------------------------------------------------------------------------------------------------------
ASSETS (CHARGES) / CREDITS
------------------------------------------------------------------------------------------------------
Accounts receivable from Related
companies US$ 3,188,227 2,271,790 -
Other assets US$ 3,492 19,483 82,977
Accounts receivable from Related
companies Argentinean $ - 1,885,062 8,088,943
------------------------------------------------------------------------------------------------------
Total (Charges) Credits 3,191,719 4,176,335 8,171,920
------------------------------------------------------------------------------------------------------
LIABILITIES (CHARGES) / CREDITS
------------------------------------------------------------------------------------------------------
Banking obligations US$ ( 518,455) ( 2,769,438) ( 1,790,497)
Other liabilities US$ ( 356,669) ( 533,839) ( 1,101,241)
------------------------------------------------------------------------------------------------------
Total (Charges) credits ( 875,124) ( 3,303,277) ( 2,891,738)
------------------------------------------------------------------------------------------------------
(LOSS) PROFIT FROM EXCHANGE DIFFERENCE 2,316,595 873,058 5,280,182
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOTAL PRICE - LEVEL RESTATEMENT 876,414 346,984 4,792,526
------------------------------------------------------------------------------------------------------
F-20
NOTE 7- MARKETABLE SECURITIES
This item includes, securities listed in the stock exchange and
others that are considered temporary in nature, as per the
following:
STRUCTURE OF THE BALANCE
----------------------------------------------------------------------------------------------------
INSTRUMENTS ACCOUNTING VALUE
-------------------------------
2001 2002
THCH$ THCH$
----------------------------------------------------------------------------------------------------
Shares 700 -
Bonds - -
Mutual fund quotas - -
Investment fun quotas - -
Public offer promissory notes - -
Mortgage bills - -
----------------------------------------------------------------------------------------------------
Totals 700 -
----------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
STOCK STOCK
EXCHANGE EXCHANGE
TAXPAYER NUMBER OF PERCENTAGE OF VALUE PER INVESTMENT
NUMBER COMPANY NAME SHARES PARTICIPATION UNIT VALUE UPDATED COST
THCH$ THCH$ THCH$
------------------------------------------------------------------------------------------------------
96,524,320-8 Chilectra Metropolitana - - - - -
------------------------------------------------------------------------------------------------------
Investment Portfolio Value
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Adjustment Provision
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Accounting Value of the Investment -
------------------------------------------------------------------------------------------------------
F-21
NOTE 8- TRADE ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE
As of December 31, 2001 and 2002, trade accounts receivable and
notes receivable consist of the following:
------------------------------------------------------------------------------------------------------
A) TRADE ACCOUNTS RECEIVABLE 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------------
Wholesale clients 116,198 63,535
Invoicing clients 195,364 123,691
Exports clients 27,144 -
Domestic clients 1,065,545 1,457,657
Allowance for bad debt - ( 21,198 )
Other clients 78,516 -
------------------------------------------------------------------------------------------------------
Totals 1,482,767 1,623,685
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
B) NOTES RECEIVABLE 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------------
Receivables from sale of businesses in Argentina 630,843 199,159
Credit Cards 1,958,285 1,668,537
Checks on hand 1,051,259 819,219
Allowance for bad debt ( 247,216 ) ( 304,765 )
Others 342,160 300,351
------------------------------------------------------------------------------------------------------
Totals 3,735,331 2,682,501
------------------------------------------------------------------------------------------------------
NOTE 9- OTHER ACCOUNTS RECEIVABLE
As of December 31, 2001 and 2002, other accounts receivable were as follows:
-----------------------------------------------------------------------------------------------------
2001 2002
ITEM THCH$ THCH$
-----------------------------------------------------------------------------------------------------
Miscellaneous accounts receivable 258,048 102,796
Advances to suppliers 28,553 274,251
Others 104,545 41,602
-----------------------------------------------------------------------------------------------------
Totals 391,146 418,649
-----------------------------------------------------------------------------------------------------
F-22
NOTE 10- INVENTORIES
The composition of the inventories as of December 31, 2001 and
2002 is as follows:
-----------------------------------------------------------------------------------------------------
ITEM 2001 2002
THCH$ THCH$
-----------------------------------------------------------------------------------------------------
Merchandise for sale 12,523,763 10,366,430
Imports in transit 432,940 29,150
-----------------------------------------------------------------------------------------------------
Totals 12,956,703 10,395,580
-----------------------------------------------------------------------------------------------------
NOTE 11- PREPAID EXPENSES
As of December 31, 2001 and 2002, prepaid expenses consist of the
following:
----------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
----------------------------------------------------------------------------------------------------
Operating materials 571,814 451,119
Prepaid Advertising 34,782 32,596
Prepaid insurance 261,813 88,609
Other prepaid expenses 656,675 17,636
----------------------------------------------------------------------------------------------------
Totals 1,525,084 589,960
----------------------------------------------------------------------------------------------------
NOTE 12- OTHER CURRENT ASSETS
As of December 31, 2001 and 2002, the following items are shown:
------------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------------
Deferred VAT Leasing and Insurance - 15,945
Others 73,155 56,123
Customs Duties 6,727 23,204
------------------------------------------------------------------------------------------------------
Totals 79,882 95,272
------------------------------------------------------------------------------------------------------
F-23
NOTE 13- PROPERTY, PLANT AND EQUIPMENT
The following items are included under fixed assets, as of
December 31, 2002 and 2001:
-------------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
----------------------------------------------------------------------------------
TOTAL TOTAL
FIXED ASSETS ACCUMULATED FIXED FIXED ASSETS ACCUMULATED FIXED
DEPRECIATION ASSETS (NET) DEPRECIATION ASSETS
(NET) (NET)
-------------------------------------------------------------------------------------------------------
Land 49,028,082 - 49,028,082 45,116,571 - 45,116,571
Buildings and
infrastructure 66,905,804 ( 4,736,434) 62,169,370 64,964,115 ( 5,491,327) 59,472,788
Machinery &
equipment 30,638,803 ( 12,918,079) 17,720,724 22,214,130 ( 6,521,485) 15,692,645
Other fixed assets:
Furniture & supplies 8,578,580 ( 5,229,654) 3,348,926 4,278,438 ( 1,763,394) 2,515,044
Facilities 11,571,222 ( 3,833,675) 7,737,547 11,620,041 ( 3,526,437) 8,093,604
Works in progress 2,233,118 - 2,233,118 1,959,486 - 1,959,486
Assets under lease 19,464,059 ( 965,590) 18,498,469 19,414,317 ( 1,553,202) 17,861,115
-------------------------------------------------------------------------------------------------------
Others 188,419,668 ( 27,683,432) 160,736,236 169,567,098 (18,855,845) 150,711,253
-------------------------------------------------------------------------------------------------------
ASSETS UNDER LEASE
---------------------------------------------------------------------------------------------------
LEASING COMPANIES ASSETS AMOUNT INSTALLMENTSMATURITY INTEREST
THCH$ RATE
---------------------------------------------------------------------------------------------------
6- Jun-
Corp Vida S.A. Sm. La Reina 1,579,697 237 0 18 UF +TIP
Hewlett Packard S.A. Computer equipment 186,657 37 10- Abr-05 US$+TIP
Hewlett Packard S.A. Computer equipment 5,249 35 10- Abr-05 US$+TIP
Hewlett Packard S.A. Computer equipment 7,401 35 10- Abr-05 US$+TIP
Hewlett Packard S.A. Computer equipment 8,681 35 10- Abr-05 US$+TIP
Cit Leasing Chile Ltda. Computer equipment 17,029 48 04- Mar-04 US$+TIP
Rta Nacional Cia. de Seguros
de Vida S.A Sm. Florida 17,452,092 300 05- Dic-25 UF+TIP
Hewlett Packard S.A. Computer equipment 504 35 10- Abr-05 US$+TIP
Hewlett Packard S.A. Computer equipment 69,121 35 10- Abr-05 US$+TIP
Hewlett Packard S.A. Computer equipment 155,595 35 10- Abr-05 US$+TIP
Hipermarc Argentina Computer equipment 139,400 29 30-Mar-03 US$+TIP
HSBC Bank Usa Machinery & Equipament 29,079 36 01-Ene-03 UF+11.04%
Santiago Leasing S.A. Machinery & Equipament 36,537 49 01-Sept-03 UF+10%
Hewlett Packard S.A. Computer equipment 1,508 37 26-Ene-03 US$+9,8%
Deferred lease back profit
Sm.Florida - (1,827,435) - - -
---------------------------------------------------------------------------------------------------
Totals 17,861,115
---------------------------------------------------------------------------------------------------
F-24
NOTE 14- INVESTMENTS IN RELATED COMPANIES
The breakdown of the investments in related companies is the following:
- ------------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF EQUITY INCOME FOR THE
PARTICIPATION COMPANIES PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENCY
TAXPAYER COUNTRY INVESTMENT NUMBER OF 12/31/2002 12/31/2001 12/31/2002 12/31/2001 12/31/2001 12/31/2002
NUMBER COMPANY OF ORIGIN CONTROL SHARES % % THCH$ THCH$ THCH$ THCH$
- ------------------------------------------------------------------------------------------------------------------------------------
96,621,750-2 Smac Ltda Chile Pesos - 0,0000 0,0000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Totals - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNTING
ACCRUED PROFIT VPP NON-REALIZED VALUE OF THE
INCOME INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------
TAXPAYER 12/31/2001 12/31/2002 12/31/2001 12/31/2002 12/31/20001 12/31/2002 12/31/2001 12/31/2002
NUMBER THCH$ THCH$ THCH$ THCH$ THCH$ THCH$ THCH$ THCH$
- ---------------------------------------------------------------------------------------------------------------------------
96,621,750-2 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Totals - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
F-25
NOTE 15- GOODWILL AND NEGATIVE GOODWILL
This item presents greater and lower costs (goodwill) determined
as per what is provided in Technical Bulletin N(degree) 42 of the
Colegio de Contadores de Chile A.G., principally applying an
amortization period of 20 years, by which time the investment is
expected to be recovered in full.
The main accounting balances are generated as follows:
1) Goodwill Supermercados Hipermarc S.A.
On December 20, 1999 a purchase was made from Celimar
International S.A. (minority shareholder in Supermercados
Hipermarc S.A.), of its interest in this company for an
amount of US$ 21,000,000 , corresponding to 16.32675 % of
the company's equity. This operation generated a lower
accounting value (goodwill) of ThCh$ 9,088,538 (historical
figure).
2) Goodwill Inmobiliaria de Supermercados S.A.
In September 16th 1996, Supermercados Unimarc paid
Ch$11,500,977 M (historical figure) for an additional
interest in Inmobiliaria de Supermercados S.A. (ISSA S.A.),
increasing its participation to 99.999%. The net book value
of the net assets acquired exceeded the purchase price
resulting in negative goodwill of Ch$ 7,634,664 M
(historical figure).
3) Goodwill Unimarc Abastecimientos S.A.
This affiliate was purchased in August 1998. At that time,
its corporate name was Inversion Nacional S.A., subsequently
changing to the current Unimarc Abastecimientos S.A.. This
company operates at present as a warehouse for the products
to be sold in the supermarkets.
The breakdown of the investments in related companies is the
following:
GOODWILL
---------------------------------------------------------------------------------------------------
2001 2002
THCH$ THCH$
---------------------------------------------------
AMOUNT GOODWILL AMOUNT GOODWILL
TAXPAYER COMPANY AMORTIZED IN BALANCE AMORTIZED IN BALANCE
NUMBER THE PERIOD THE PERIOD
---------------------------------------------------------------------------------------------------
88,486,800-9 Interagro Comercio y Ganado S.A. 3,791 - - -
96,621,750-2 Supermercado Hipermarc S.A. 707,356 9,448,102 707,301 8,736,447
96,799,180-5 Inmob. de Supermercados S.A. 448,332 6,575,543 448,333 6,127,211
94,146,000-3 Comercial Las Dalias S.A. 5,228 - - -
88,627,400-9 Unimarc Abastecimientos S.A. 84,809 1,399,552 85,307 1,314,444
96,898,490-k Administradora Unimarc S.A. 23,012 437,224 23,034 413,614
96,898,500-0 Servicios Unimarc S.A. 33,391 - - -
96,798,240-7 Administradora Unimarc Sur S.A. 7 - - -
96,797,780-2 Servicios Unimarc Sur S.A. 3 - - -
96,629,940-1 Transportes Santa Maria - - 34 548
96,800,910-9 Publicidad y Promociones Unimarc S.A. - - 27 427
87,678,100-K Comercial Unimarc - - 335 2,988
---------------------------------------------------------------------------------------------------
Totals 1,305,929 17,860,421 1,264,371 16,595,679
---------------------------------------------------------------------------------------------------
F-26
NOTE 15- GOODWILL AND NEGATIVE GOODWILL (CONTINUED)
NEGATIVE GOODWILL
------------------------------------------------------------------------------------------------------
TAXPAYER COMPANY 2001 2002
NUMBER THCH$ THCH$
---------------------------------------------------------
AMOUNT NEGATIVE AMOUNT NEGATIVE
AMORTIZED IN GOODWILL AMORTIZED IN GOODWILL
THE PERIOD BALANCE THE PERIOD BALANCE
------------------------------------------------------------------------------------------------------
97,785,510-3 Inmobiliaria y Constructora S.A. 50 4,703 45 4,372
96,913,160-9 Servicios Generales S.A. 5 - - -
86,360,500-8 Administradora de Supermercados S.A. - - 4,696 41,952
------------------------------------------------------------------------------------------------------
Totals 55 4,703 4,741 46,324
------------------------------------------------------------------------------------------------------
NOTE 16- OTHER NON CURRENT ASSETS
As of December 31, 2001 and 2002, other assets include the
following:
------------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------------
Deposits 687,128 451,101
Computer System Project 1,343,437 1,011,633
VAT and other recoverable taxes from Argentinean subsidiary 964,444 583,107
Other long term assets 295,809 172,925
------------------------------------------------------------------------------------------------------
3,290,818 2,218,766
Totals
------------------------------------------------------------------------------------------------------
NOTE 17- LONG - TERM ACCOUNTS RECEIVABLE
As of December 31, 2001 and 2002, this account consists of the
following:
------------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------------
Receivables from sale of businesses in Argentina - -
Prepaid rent 198,587 178,618
Others 5,391 396,422
------------------------------------------------------------------------------------------------------
Totals 203,978 575,040
------------------------------------------------------------------------------------------------------
F-27
NOTE 18- SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
The breakdown of the obligations with banks and financial
institutions in force as of December 31, 2001 and 2002, is the
following:
-----------------------------------------------------------------------------------------------------------------------
TYPES OF CURRENCY AND ADJUSTMENT INDEX
--------------------------------------------------------------------
TAXPAYER BANK OR FINANCIAL INSTITUTION DOLLARS OTHER UF
NUMBER FOREIGN CURRENCIES
--------------------------------------------------------------------
2001 2002 2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$ THCH$ THCH$
-----------------------------------------------------------------------------------------------------------------------
SHORT TERM
-----------------------------------------------------------------------------------------------------------------------
97,041,000-7 Banco Boston 15,554,361 16,187,886 - - - -
96,621,750-2 Banco Do Brasil - - - - 3,883,596 1,508,700
97,036,000-K Banco de Santiago - - - - 1,157,566 -
97,051,000-1 Banco del Desarrollo 5,049,631 2,885,844 - - 1,393,954
96,621,750-2 Banco Sudameris 168,609 - - 43,904 - -
96,621,750-2 Lloyds Bank 101,165 - - 79,820 - -
97,032,000-8 Bhif - - - - - 256,358
96,621,750-2 Banco One 1,800 - - - - -
96,621,750-2 Santiago Factoring - - - - - -
96,621,750-2 Hispanoamericano - 83,166 - - - -
Others - - - - - -
Totals 20,875,566 19,156,896 - 123,724 6,435,116 1,765,058
Amount of indebted capital 20,442,225 19,129,840 - 78,843 6,333,341 1,687,881
Average annual interest rate 9.0 6.5 6.0 9.0 8.1
-----------------------------------------------------------------------------------------------------------------------
LONG TERM - SHORT TERM
-----------------------------------------------------------------------------------------------------------------------
97,032,000-8 Bhif - - - - 208,974 -
97,032,000-8 Corp Banca - - - - 450,752 476,173
97,015,000-5 Santander - - - - 651,518 -
96,621,750-2 KFW 661,835 32,842 - - - -
90,621,750-2 Hispanoamericano 101,222 - - - - -
96,621,750-2 Export-Import bank (State Street) 176,328 152,921 - - - -
96,621,750-2 Societe Generale 389,277 - - 376,874 - -
97,018,000-1 Scotiabank Sud Americano - - - - 38,332 40,750
Others - - - - - -
Totals 1,328,662 185,763 - 376,874 1,349,576 516,923
Amount of indebted capital 1,188,010 145,392 - 169,583 1,289,077 496,408
Average annual interest rate 6.5 6.5 - 6.0 8.0 8.1
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Percentage of obligations in foreign 80.6 %
currency (%)
-------------------------------------------------------------------
Percentage of obligations in domestic 19.4 %
currency (%)
-------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
TAXPAYER BANK OR FINANCIAL INSTITUTION CH $ NON TOTALS
NUMBER ADJUSTABLE
--------------------------------------------------------------
2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$
----------------------------------------------------------------------------------------------------------------
SHORT TERM
----------------------------------------------------------------------------------------------------------------
97,041,000-7 Banco Boston - - 15,554,361 6,187,886
96,621,750-2 Banco Do Brasil - 735,556 3,883,596 2,244,256
97,036,000-K Banco de Santiago - 1,116,656 1,157,566 1,116,656
97,051,000-1 Banco del Desarrollo - 632,797 6,443,585 3,518,641
96,621,750-2 Banco Sudameris - - 168,609 43,904
96,621,750-2 Lloyds Bank - - 101,165 79,820
97,032,000-8 Bhif - - - 256,358
96,621,750-2 Banco One - - 1,800 -
96,621,750-2 Santiago Factoring 1,291,612 - 1,291,612 -
96,621,750-2 Hispanoamericano - - - 83,166
Others - - - -
Totals 1,291,612 2,485,009 28,602,292 3,530,687
Amount of indebted capital 1,291,615 2,439,389 28,067,182 3,335,953
Average annual interest rate
-------------------------------------------------------------------------------------------------------------------
LONG TERM - SHORT TERM
--------------------------------------------------------------------------------------------------------------------
97,032,000-8 Bhif - - 208,974 -
97,032,000-8 Corp Banca - - 450,752 476,173
97,015,000-5 Santander - - 651,518 -
96,621,750-2 KFW - - 661,835 32,842
90,621,750-2 Hispanoamericano - - 101,222 -
96,621,750-2 Export-Import bank (State Stre - - 176,328 152,921
96,621,750-2 Societe Generale - - 389,277 376,874
97,018,000-1 Scotiabank Sud Americano - - 38,332 40,750
Others - - - -
Totals - - 2,678,238 1,079,560
Amount of indebted capital - - 2,477,087 811,383
Average annual interest rate - -
--------------------------------------------------------------------------------------------------------------------
F-28
NOTE 19- LONG-TERM LIABILITIES/LONG-TERM DEBT
The breakdown of the obligations with banks and financial
institutions in force as of December 31, 2001 and 2002, is the following:
- ----------------------------------------------------------------------------------------------------------------------
MATURITY IN YEARS
-------------------------------------------------------------------------------------
TAXPAYER BANK OR FINANCIAL CURRENCY OF THE MORE THAN MORE THAN MORE THAN MORE THAN 5
NUMBER INSTITUTION ADJUSTMENT INDEX 1 UNTIL 2 2 UNTIL 3 3 UNTIL 5 UNTIL 10 MORE THAN 10 YEARS
----------------------
THCH$ THCH$ THCH$ THCH$ THCH$ TERM
- ----------------------------------------------------------------------------------------------------------------------
97,023,000-9 Corp Banca Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
UF 485,976 517,401 1,137,957 749,423 - -
Ch$ non
adjustable - - - - - -
Other
currencies - - - - - -
97,015,000-5 Santander Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
UF - - - - - -
Ch$ non
adjustable - - - - - -
Other
currencies - - - - - -
96,621,750-2 KFW Dollars 256,087 540,629 1,081,258 2,703,145 540,634 11
Euros - - - - - -
Yens - - - - - -
UF - - - - - -
Ch$ non
adjustable - - - - - -
Hispanoamericano Other
96,621,750-2 currencies - - - - - -
Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
Ch$ non
adjustable - - - - - -
96,621,750-2 Export Import Other 80,484 - - - - -
Bank (State currencies
Street)
Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
- ----------------------------------------------------------------------------------------------------------------------
--------------------------------------------
CLOSING DATE OF THE CLOSING DATE
CURRENT PERIOD OF THE
PREVIOUS PERIOD
---------------------------------------------
TOTAL LONG TOTAL LONG
TAXPAYER TERM AT THE AVERAGE TERM AT THE
NUMBER CLOSING OF THE ANNUAL CLOSING OF THE
FINANCIAL INTEREST FINANCIAL
STATEMENTS RATE STATEMENTS
THCH$ % THCH$
- --------------------------------------------------------------
97,023,000-9 - - -
- - -
- - -
2,890,757 8.5 3,348,377
- - -
- - -
97,015,000-5 - - -
- - -
- - -
- - 331,124
- - -
- - -
96,621,750-2 5,121,753 6.8 5,471,415
- - -
- - -
- - -
- - -
96,621,750-2 - - 75,088
- - -
- - -
- - -
- - -
96,621,750-2 80,484 4.95 109,197
- - -
- - -
- - -
- ---------------------------------------------------------
F-29
NOTE 19- LONG TERM OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS
(CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
MATURITY IN YEARS
------------------------------------------------------------------------------------------------
TAXPAYER BANK OR FINANCIAL CURRENCY OF THE MORE THAN MORE THAN MORE THAN MORE THAN 5
NUMBER INSTITUTION ADJUSTMENT INDEX 1 UNTIL 2 2 UNTIL 3 3 UNTIL 5 UNTIL 10 MORE THAN 10 YEARS
THCH$ THCH$ THCH$ THCH$ THCH$ TERM
- ---------------------------------------------------------------------------------------------------------------------------------
97,018,000-1 Scotiabank
(Sudamericano) Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
UF 40,071 42,881 9,988 - - -
Ch$ non
adjustable - - - - - -
Other
currencies - - - - - -
96.621.750-2 Societe Generale Dollars - - - - - -
Euros - - - - - -
Yens - - - - - -
Ch$ non
adjustable - - - - - -
Other
currencies 89,031 75,253 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Totals 951,649 1,176,164 2,229,203 3,452,568 540,634 -
- ----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------
Percentage of obligations foreign currency (%) 64.3 %
Percentage of obligations domestic currency (%) 35.7 %
------------------------------------------------------------------
--------------------------------------------
CLOSING DATE OF THE CLOSING DATE
CURRENT PERIOD OF THE
PREVIOUS PERIOD
---------------------------------------------
TOTAL LONG TOTAL LONG
TAXPAYER TERM AT THE AVERAGE TERM AT THE
NUMBER CLOSING OF THE ANNUAL CLOSING OF THE
FINANCIAL INTEREST FINANCIAL
STATEMENTS RATE STATEMENTS
THCH$ THCH$
- --------------------------------------------------------------
97,018,000-1
- - -
- - -
- - -
92,940 8.0 133,062
- - -
- - -
96.621.750-2 - - 708,155
- - -
- - -
- - -
164,284 6.0 -
- --------------------------------------------------------------
Totals 8,350,218 - 10,176,418
- --------------------------------------------------------------
F-30
NOTE 20- SHORT-TERM AND LONG-TERM PAYABLES
CURRENT LIABILITIES
- ----------------------------------------------------------------------------------------------------
UP TO 90 DAYS
----------------------------------------------------------
ITEM CURRENCY 12/31/2001 12/31/2002
----------------------------------------------------------
AMOUNT AVG. ANNUAL AMOUNT AVG. ANNUAL
THCH$ INT. RATE THCH$ INT. RATE
- ----------------------------------------------------------------------------------------------------
Obligations with banks UF - - 2,281,982 -
Obligations with banks US$ 15,931,948 - 16,456,815 -
Obligations with banks Argentinean $ - - 125,149 -
Sundry creditors US$. 39,498 - 39,235 -
Sundry creditors US$. 555,914 - 73,872 -
Sundry creditors US$ 51,820 - 4,820 -
Sundry creditors UF 22,729 - 43,535 -
Sundry creditors UF 165,715 - 46,567 -
Sundry creditors UF 55,183 - 50,672 -
Non adjustable
Sundry creditors Ch$ 1,686,595 - 578,768 -
Non adjustable
Accounts payable Ch$ 16,948,117 - 19,678,429 -
Accounts payable Argentinean $ - - 436,712 -
Accounts payable US$ 46,656 - 4,819,775 -
Notes payable Argentinean $ - - 142,428 -
Non adjustable
Notes payable Ch$ 269,296 - 113,713 -
Notes payable US$ 29,181 - 168,792 -
Notes and accounts Non adjustable
payable related parties Ch$ 100,098 - 779,671 -
Notes and accounts
payable related parties US$ 1,999,789 - 758,406 -
Notes and accounts
payable related parties Argentinean $ 96,306 - 389,042 -
Income in advance US$ 202,330 - 215,583 -
Other liabilities Argentinean $ 475,576 - 206,379 -
Non adjustable
Other liabilities Ch$ 1,449,619 - 2,017,303 -
Sundry creditors UF - - 11,384 -
Non adjustable
Obligations with banks Ch$ 2,641,193 - 2,485,008 -
Sundry creditors US$ - - 179,777 -
Notes and accounts
payable related parties UF - - 75,523 -
UF 243,627 - 2,509,663 -
US$ 18,857,136 - 22,717,075 -
Argentinean $ 571,882 - 1,299,710 -
Non adjustable
Ch$ 23,094,918 - 25,652,892 - 1
- ----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BETWEEN 90 DAYS AND 1 YEAR
------------------------------------------------------
ITEM 12/31/2001 12/31/2002
------------------------------------------------------
AMOUNT AVG. ANNUAL AMOUNT AVG. ANNUAL
THCH$ INT. RATE THCH$ INT. RATE
- --------------------------------------------------------------------------------
Obligations with banks 6,435,114 8.00 -
Obligations with banks 6,272,278 8.00 2,885,844 9.0
Obligations with banks - - 375,449 -
Sundry creditors - - 131,765 -
Sundry creditors - - 257,363 -
Sundry creditors 157,566 - - -
Sundry creditors 44,460 - - -
Sundry creditors 188,080 - 77,613 -
Sundry creditors 162,796 - - -
Sundry creditors - - - -
Accounts payable 9,826,861 - - -
Accounts payable 331,464 - - -
Accounts payable - - - -
Notes payable 997,001 - - -
Notes payable - - - -
Notes payable - - - -
Notes and accounts
payable related parties 243,169 - - -
Notes and accounts
payable related parties - - - -
Notes and accounts
payable related parties - - - -
Income in advance 606,900 - 646,749 -
Other liabilities 476,073 - - -
Other liabilities - - - -
Sundry creditors - - 32,816 -
Obligations with banks - - - -
Sundry creditors - - - -
Notes and accounts
payable related parties - - 235,974 -
6,830,450 - 346,403 -
7,036,834 - 3,921,721 -
1,804,538 - 375,449 -
10,070,030 - - -
- --------------------------------------------------------------------------------
F-31
NOTE 20- SHORT-TERM AND LONG-TERM PAYABLES (CONTINUED)
LONG TERM LIABILITIES, PREVIOUS PERIOD 12/31/2001
- ----------------------------------------------------------------------------------------------------------------------
1 - 3 YEARS 3 - 5 YEARS 5 - 10 YEARS
----------------------------------------------------------------------------------
ITEM CURRENCY AVG. ANNUAL AVG. ANNUAL AVG. ANNUAL
AMOUNT $ INTEREST RATE AMOUNT $ INTEREST AMOUNT $ INTEREST RATE
- ----------------------------------------------------------------------------------------------------------------------
Obligations with banks UF 1,353,097 - 1 ,122,,399 - 1,337,068 -
Obligations with banks US$ 2,533,336 - 1,726,054 - 2,104,467 -
Notes payable Other currencies 5,597,200 - - - - -
Sundry creditors UF 203,356 - 213,527 - 689,205 -
Sundry creditors US$ 239,036 - - - - -
Sundry creditors US$ 228,681 - - - - -
Notes and accts.
payable, Related
Parties UF 1,020,759 - 1,266,049 2,173,483
Notes and accts.
payable, Related Non
Parties adjustable Ch$ 338,842 - - - - -
Other Long Term Non
Liabilities adjustable Ch$ 24,598 - - - - -
Other Long Term 1,618,641 2,023,517
Liabilities US$ - 1,618,641 - - -
Sundry creditors Non
adjustable Ch$ 6,319 - - - - -
TOTAL LONG TERM
LIABILITIES
UF 2,577,212 - 2,601,975 - 4,199,756 -
US$ 4,619,694 - 3,344,695 - 4,127,984 -
Other
currencies 5,597,200 - - - - -
Non
adjustable Ch$ 369,759 - - - - -
Argentinean $ - - - - - -
- ------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------
OVER 10 YEARS
---------------------------------
ITEM AVG. ANNUAL
AMOUNT $ INTEREST RATE
- ---------------------------------------------------------
Obligations with bank - -
Obligations with bank - -
Notes payable - -
Sundry creditors 639,036 -
Sundry creditors - -
Sundry creditors - -
Notes and accts.
payable, Related
Parties 13,115,00 -
Notes and accts.
payable, Related
Parties - -
Other Long Term
Liabilities - -
Other Long Term
Liabilities -
Sundry creditors
- -
TOTAL LONG TERM
LIABILITIES
13,754,044 -
- -
- -
- -
- -
- ---------------------------------------------------------
LONG TERM LIABILITIES, CURRENT PERIOD 12/31/2002
- ----------------------------------------------------------------------------------------------------------------------
1 - 3 YEARS 3 - 5 YEARS 5 - 10 YEARS
----------------------------------------------------------------------------------
ITEM CURRENCY AVG. ANNUAL AVG. ANNUAL AVG. ANNUAL
AMOUNT $ INTEREST RATE AMOUNT $ INTEREST AMOUNT $ INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------
Sundry creditors UF 183,451 - 226,630 - 721,415 -
Sundry creditors US$ 207,949 - - - - -
Sundry creditors US$ 348,093 - 96,377 - - -
Sundry creditors US$ 426,891 - - - - -
Non adjustable
Notes payable Ch$ 4,360 - - - - -
Other Notes and -
Accts. Payable
Related Pty UF 1,177,452 - 1,359,740 - 2,390,463 -
Other Long term
liabilities US $ 1 ,724,664 - 1,724,664 - 1,293,496 -
Obligations with
banks UF 1,086,329 - 1,147,945 - 749,423 -
Obligations with
banks Argentinean $ 164,284 - - - - -
Obligations with
banks US$ 877,200 - 1,081,258 - 2,703,145 -
Notes payable Argentinean $ 1,336,220 - - - - -
TOTAL LONG TERM
LIABILITIES
UF 2,447,232 - 2,734,315 - 3,861,301 -
US$ 3,584,797 - 2,902,299 - 3,996,641 -
Non adjustable
Ch$ 4,360 - - - - -
Argentinean $ 1,500,504 - - - - -
- -----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------
OVER 10 YEARS
---------------------------------
ITEM AVG. ANNUAL
AMOUNT $ INTEREST RATE
- ---------------------------------------------------------
Sundry creditors 519,760 -
Sundry creditors - -
Sundry creditors - -
Sundry creditors - -
Notes payable - -
Other Notes and
Accts. Payable 12,330,73
Related Pty - 1
Other Long term
liabilities - -
Obligations with
banks - -
Obligations with
banks - -
Obligations with
banks 540,634 -
Notes payable - -
TOTAL LONG TERM
LIABILITIES 12,850,49
1 -
540,634
-
- -
- ---------------------------------------------------------
F-32
NOTE 21- ACCRUED EXPENSES
As of December 31, 2001 and 2002, the accrued expenses were as
follows:
--------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
--------------------------------------------------------------------------------------------------
Vacation Provision 305,744 438,089
Provisions container Ct. Acct 147,566 151,291
Provision for Litigation (see Note 30, e) 235,252 270,689
Others 236,580 488,548
--------------------------------------------------------------------------------------------------
Totals 925,142 1,348,617
--------------------------------------------------------------------------------------------------
NOTE 22- WITHHOLDING TAXES PAYABLE
As of December 31, 2001 and 2002, this account consists of the
following:
---------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
---------------------------------------------------------------------------------------------------
Healthcare premium and pension withholding payable 425,346 365,536
Withholding taxes payable 329,727 231,873
Others 13,721 51,135
---------------------------------------------------------------------------------------------------
Totals 768,794 648,544
---------------------------------------------------------------------------------------------------
F-33
NOTE 23- DEFERRED TAXES AND INCOME TAX
A) DEFERRED TAXES
The accumulated deferred taxes, calculated in the form explained in Note 41, (2)
(e), amounts to a net asset value of ThCh$ 7,316,101, as of December 31, 2002
(ThCh$ 1,854,171 net assets as of December 31, 2001), and corresponds to the
breakdown included below:
--------------------------------------------------------------------------------------
DECEMBER 31, 2001 (IN THCH$ ) DECEMBER 31, 2002 (IN THCH$ )
--------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
ITEM DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
--------------------------------------------------------------------------------------
SHORT LONG SHORT LONG SHORT LONG SHORT LONG
TERM TERM TERM TERM TERM TERM TERM TERM
- ---------------------------------------------------------------------------------------------------------------------
TEMPORARY DIFFERENCES
Provision for bad debts 5,614 22,456 - - 64,734 41,448 - -
Provision for vacation 53,650 - - - - - - -
Assets under lease 28,163 112,653 - - - 22,068 14,898 -
Depreciation of fixed assets - - 373,483 1,566,741 - - 184,071 776,113
Other events 25,292 2,348 - - 45,080 - - -
Tax loss for the period - 1,903,635 - - 484,854 7,796,729 - -
Profit leaseback diff. 9,990 260,303 - - 133,637 248,531 - -
Anticipated expenses - - 153,163 - - - 78,493 -
Exchange rate difference 2,282,492 - - - - - - -
OTHERS ,,492
Complementary accounts- net
of amortization - - - - - - - -
Valuation provision - ( 759,038 ) - - ( 467,405 ) - - -
- ---------------------------------------------------------------------------------------------------------------------
Totals 2,405,201 1,542,357 526,646 1,566,741 260,900 8,108,776 277,462 776,113
- ---------------------------------------------------------------------------------------------------------------------
B) INCOME TAX
- ----------------------------------------------------------------------------------------------------------------------
ITEMS 2000 2001 2002
THCH$ THCH$ THCH$
- ----------------------------------------------------------------------------------------------------------------------
Current tax expense (tax provision) - - -
Tax expense adjustment (previous period) - - -
Effect from assets or liabilities for the deferred tax of the period 1,085,702 2,736,217 5,591,750
Tax benefit from tax losses - - -
Effect from amortization of complementary accounts of deferred assets
and liabilities - - -
Effect on assets or liabilities from deferred tax for changes in the
provision for valuation - - -
Other changes or credits in the account - - -
- ----------------------------------------------------------------------------------------------------------------------
Totals 1,085,702 2,736,217 5,591,750
- ----------------------------------------------------------------------------------------------------------------------
F-34
NOTE 23- DEFERRED TAXES AND INCOME TAX (CONTINUED)
C) RECOVERABLE TAXES
As of December 31, 2001 and 2002 they were as follows:
------------------------------------------------------------------------------------------------
ITEMS 2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------------
Fiscal tax credit 986,920 280,030
Flour tax credit 60,935 93,354
Accumulated value-added taxes 74,708 250,224
Estimated income tax payments 5,342 312
Monthly estimated income tax payments carried forward 7,195 10,888
Tax credit for training expenses 62,283 54,879
Liquor and alcohol tax 284,310 91,374
Others 1,647 7,489
------------------------------------------------------------------------------------------------
Totals 1,483,340 788,550
------------------------------------------------------------------------------------------------
NOTE 24- OTHER ACCOUNTS PAYABLE, SHORT AND LONG TERM
As of December 31, 2001 and 2002, this item presents the amounts
invested in the acquisition and commissioning of new computer
systems and others as per the following breakdown:
------------------------------------------------------------------------------------------------------
SHORT TERM LONG TERM
ITEMS
-----------------------------------------------------------------
2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$
------------------------------------------------------------------------------------------------------
Creditors from leasing 315,879 267,991 2,033,998 1,859,205
Deposits received 33,720 41,525 - -
Checks drawn and not cashed 754,863 28,016 - -
Financing of computer systems 555,914 231,235 185,160 426,891
Other creditors (insurance,
freight, customs duties) 1,396,628 959,420 - 444,470
Education fund 73,352 - - -
------------------------------------------------------------------------------------------------------
Totals 3,130,356 1,528,187 2,219,158 2,730,566
------------------------------------------------------------------------------------------------------
F-35
NOTE 25- OTHER LONG TERM LIABILITIES (DEFERRED INCOME)
It corresponds to the income (rent) received in advance for the
ten year lease of the Supermarket facilities in Argentina. The
amount to accrue during 2002 is presented under the item income
received in advance from current liabilities.
------------------------------------------------------------------------------------------------------
SHORT TERM LONG TERM
-------------------------------------------------------
ITEM 2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$
------------------------------------------------------------------------------------------------------
Income received in advance (Hipermarc) 809,320 875,702 5,260,798 4,742,824
------------------------------------------------------------------------------------------------------
Totals 809,320 875,702 5,260,798 4,742,824
------------------------------------------------------------------------------------------------------
NOTE 26- MINORITY INTEREST
This item presents the amount of ThCh$ 79,297 and ThCh$ 84,243 as
of December 31, 2002 and 2001 respectively, corresponding to the
recognition of the proportion pertaining to the minority
shareholders equities of the consolidated affiliates, as per the
following breakdown:
------------------------------------------------------------------------------------------------------
COMPANY PERCENTAGE OF PARTICIPATION AMOUNT
-------------------------------------------------------
2001 2002 2001 2002
% % THCH$ THCH$
------------------------------------------------------------------------------------------------------
Administradora de Supermercados S.A. 0.064 0.064 6,578 6,144
Transportes Santa Maria S.A. 2 2 5,153 ( 143)
Comercial Sm Santiago S.A. 1 1 3,296 2,996
Unimarc Organizacion y Servicios S.A. 0.045 0.045 16,084 20,694
Inmobiliaria y Supermercados S.A. 0.00004 0.00004 17 9
Inmobiliaria y Constructora S.A. 48.92 48.92 53,114 49,594
Supermercados Hipermac S.A. 0.00001 0.00001 1 3
------------------------------------------------------------------------------------------------------
Totals 84,243 79,297
------------------------------------------------------------------------------------------------------
F-36
NOTE 27- CHANGES IN SHAREHOLDERS' EQUITY
The changes in equity for the 2000, 2001 and 2002 periods are the
following:
CHANGE IN OTHER RESERVES
This corresponds to the change in equity recorded by subsidiary
company Unimarc Organizacion y Servicios S.A., in the amount of
ThCh$ 1,270,487 , ThCh$ 468,773 (historical figure), as of
December 31, 2002 and 2001 respectively, which adjusted its
investment in a foreign affiliate (Supermercados Hipermarc S.A.),
as per the criteria described in the Technical Bulletin number 64
of the Colegio de Contadores de Chile A.G., on investments made
abroad. This difference is shown when comparing different
correction methods such as the change in the CPI and the dollar.
------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000 (IN THCH$)
---------------------------------------------------------------
ITEMS PAID-IN ADDITIONAL OTHER RETAINED INCOME FOR
CAPITAL PAID-IN RESERVES EARNINGS THE PERIOD
CAPITAL
------------------------------------------------------------------------------------------------------
Opening balance 51,811,196 26,500,905 1,014,552 17,867,647 7,147,053
Distribution of income, previous
period - - - 7,147,053 ( 7,147,053)
Final dividend, previous period - - - - -
Capital increase through issuance of
cash shares 255 - - ( 74) -
Capitalization of reserves and/or
profits - - - - -
Accumulated deficit, development
period - - - - -
Accumulated adjustment, due to
difference in conversion - - (425,735) -
Revaluation of own capital 2,435,130 1,245,543 47,684 1,113,512 -
Income for the period - - - - 107,546
Provisional dividends - - - ( 2,144,113) -
------------------------------------------------------------------------------------------------------
Final Balances 54,246,581 27,746,448 636,501 23,984,025 107,546
------------------------------------------------------------------------------------------------------
Updated Balances 55,873,978 28,578,841 655,596 24,703,546 110,772
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001 (IN THCH$)
---------------------------------------------------------------
ITEMS PAID-IN ADDITIONAL OTHER RETAINED INCOME FOR
CAPITAL PAID-IN RESERVES EARNINGS THE PERIOD
CAPITAL
------------------------------------------------------------------------------------------------------
Opening balance 52,615,500 26,912,171 617,364 23,262,876 104,313
Distribution of income, previous
period - - - 104,313 ( 104,313)
Final dividend, previous period - - - - -
Capital increase through issuance of
cash shares - - - - -
Capitalization of reserves and/or
profits - - - - -
Accumulated deficit, development
period - - - - -
Accumulated adjustment, due to
difference in conversion - - 468,773 - -
Price level restatement 1,631,081 834,277 19,138 724,383 -
Income for the period - - - - ( 2,040,198)
Provisional dividends - - - ( 32,045) -
------------------------------------------------------------------------------------------------------
Final Balances 54,246,581 27,746,448 1,105,275 24,059,527 ( 2,040,198)
------------------------------------------------------------------------------------------------------
55,873,978 28,578,841 1,138,433 24,781,313 ( 2,101,404)
Updated Balances
------------------------------------------------------------------------------------------------------
F-37
NOTE 27- CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
------------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 (IN THCH$)
-----------------------------------------------------------------
ITEMS PAID-IN ADDITIONAL OTHER RETAINED INCOME FOR
CAPITAL PAID-IN RESERVES EARNINGS THE PERIOD
CAPITAL
------------------------------------------------------------------------------------------------------
Opening balance 54,246,581 27,746,448 1,105,275 24,059,527 ( 2,040,198)
Distribution of income, previous
period - - - ( 2,040,198) 2,040,198
Final dividend, previous period - - - - -
Capital increase through issuance
of cash shares - - - - -
Capitalization of reserves and/or
profits - - - - -
Accumulated deficit, development
period - - - - -
Accumulated adjustment, due to
difference in conversion - - 1,270,487 - -
Price level restatement 1,627,397 832,394 33,158 657,342 -
Income for the period - - - - ( 1,599,808)
Provisional dividends - - - ( 115,648) -
------------------------------------------------------------------------------------------------------
Final Balances 55,873,978 28,578,842 2,408,920 22,561,023 (1,599,808)
------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
--------------------------------------------------------------------------------------------------------
SERIES NUMBER OF SHARES SUBSCRIBED NUMBER OF SHARES PAID NUMBER OF SHARES WITH A
RIGHT TO VOTE
--------------------------------------------------------------------------------------------------------
Single 1,261,849,619 1,261,849,619 1,261,849,619
--------------------------------------------------------------------------------------------------------
CAPITAL ( AMOUNT - IN THCH$ )
--------------------------------------------------------------------------------------------------------
SERIES SUBSCRIBED CAPITAL PAID-IN CAPITAL
--------------------------------------------------------------------------------------------------------
Single 55,873,978 55,873,978
--------------------------------------------------------------------------------------------------------
NOTE 28- DIVIDEND DISTRIBUTIONS
a) The Ordinary Shareholders' Meeting held in April 2002, agreed
to distribute a final dividend of ThCh$ 115,648 (historical
amount), equivalent to Ch.$ 0.09164991 per share. This
dividend was paid in May 2002.
b) At the Ordinary Shareholders' Meeting held in April 2001,
shareholders agreed to distribute a final dividend of ThCh$
31,294 (historical amount), equivalent to CH$ 0,0247998 per
share. This dividend was paid in May 2001.
F-38
NOTE 29- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
This item presents balances, transactions and effects on income
with related parties under the following conditions:
1) The balances reflected in the short term are
collected or paid in cash as appropriate.
2) Current accounts between related companies do not generate
interest charges or payments, and they do not contain any
clauses dealing with indexation.
3) Current balances whether receivable or payable with related
companies that are not consolidated, are maintained in UF,
as the means for adjustment.
4) The balances reflected over the long term maintain their
maturity by the second half of 2008 in accounts receivable
and accounts payable. In related leases the maturity is in
year 2025.
The breakdown per amount is the following:
ACCOUNTS RECEIVABLE FROM RELATED COMPANIES
-----------------------------------------------------------------------------------------------------
TAXPAYER COMPANY SHORT TERM LONG TERM
NUMBER
-----------------------------------------------------------------------------------------------------
2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$
-----------------------------------------------------------------------------------------------------
88,541,600-4 Inversiones Errazuriz Ltda. 8,829,464 3,403,287 - -
94,510,000-1 Renta Nacional Cia. Seg. Generales S.A. 4,316 - - -
96,621,750-2 Multideal - 257 - -
96,923,970-1 Corp. De Inv. Y Des. Financ. Cidef S.A. - 28,292 - -
-----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Totals 8,833,780 3,431,836 - -
----------------------------------------------------------------------------------------
ACCOUNTS PAYABLE TO RELATED COMPANIES AND ACCOUNTS PAYABLE AND LEASE OBLIGATIONS TO RELATED
COMPANIES
-------------------------------------------------------------------------------------------------------
SHORT TERM LONG TERM
TAXPAYE -----------------------------------------------------
NUMBER COMPANY 2001 2002 2001 2002
THCH$ THCH$ THCH$ THCH$
-------------------------------------------------------------------------------------------------------
88,541,600-4 Inversiones Errazuriz S.A. (1) - - 338,842 -
96,704,480-6 Automotriz Proton S.A. 40,540 - - -
94,510,000-1 Rta. Nac. Cia. Seg. Grles S.A - 6,334 - -
94,716,000-1 Renta.Nacional.Cia. Seg.de Vida S.A. 59,291 397,565 17,575,520 17,258,386
96,621,750-2 Unitrade Interamericana S.A. 113,482 35,080 - -
96,621,750-2 Cidef Argentina S.A. 1,636,740 848 - -
96,621,750-2 Puerta Grande 2,698 54,945 - -
88,163,300-0 Inversiones Culenar 30,409 593,860 - -
79,809,460-2 Inmobiliaria y Constructora
Nacional S.A. 556,200 425,855 - -
96,621,750-2 Capillitas - 911 - -
96,621,750-2 Tauro - 723,218 - -
-------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Totals 2,439,360 2,238,616 17,914,362 17,258,386
------------------------------------------------------------------------------------------
(1) On October 29, 2002 Inversiones Errazuriz Ltda. forgave the
debt of Supermercados Unimarc S.A. amounting to ThCh
$1,877,558. This debt forgiveness is presented as other non
operating income in the statement of operation (to see Note
31).
F-39
NOTE 29- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
TRANSACTIONS
----------------------------------
2000
- --------------------------------------------------------------------------------------------------------------------------
EFFECT ON
NCOME
NATURE OF THE DESCRIPTION OF THE AMOUNT (CHARGE/
COMPANY TAXPAYER RELATIONSHIP TRANSACTION THCH$ CREDIT)
NUMBER THCH$
- --------------------------------------------------------------------------------------------------------------------------
Inversiones Errazuriz Ltda. 88,541,600-4 Shareholder Ct. Acct. receivable c/p 21,255,350 384,854
Soc. de Inv. Financieras Ltda. 79,902,880-2 Common Mgmt. Ct. Acct. receivable c/p 51,268,817 -
Inconac S.A. 79,809,460-2 Common Mgmt. Ct. Acct. receivable c/p 44,645 270
Gafonac Ltda. 78,776,710-9 Common Mgmt. Ct. Acct. receivable c/p 469,738 -
Salmones y Pesquera Nacional S.A. 96,850,700-1 Common Mgmt. Ct. Acct. receivable c/p 27,755 267
Cominor Ing. y Proyecto S.A. 79,798,670-4 Common Mgmt. Ct. Acct. receivable c/p 15,130 -
Ing. y Computacion Incom S.A. 86,344,500-0 Common Mgmt. Debtors from sales - -
Gafonac Ltda. 78,776,710-9 Common Mgmt. Debtors from sales - -
Corp. de Inv. Des. Financ. Cidef
S.A. 96,923,970-1 Common Mgmt. Debtors from sales - -
Com. Cidef S.A. 96,622,770-2 Common Mgmt. Debtors from sales - -
Com. Cidef S.A 96,622,770-2 Common Mgmt. Ct. Acct. receivable c/p 2,272,364 51,263
Gafonac S.A. 96,591,240-1 Common Mgmt. Ct. Acct. payable c/p 879,910 3,046
Gafonac S.A. 96,591,240-1 Common Mgmt. Ct. Acct. receivable c/p 307,963 -
Gafonac S.A. 96,591,240-1 Common Mgmt. Debtors from sales 530,717 449,761
Gafonac Ltda. 78,776,710-9 Common Mgmt. Ct. Acct. payable c/p 1,163,463 8,006
Inversiones Errazuriz Ltda. 88,541,600-4 Shareholder Ct. Acct. payable c/p 31,091,046 -
Soc. de Inv. Financieras Ltda. 79,902,880-8 Common Mgmt. Ct. Acct. payable c/p 52,368,975 -
Rta. Nac. Cia. de Seg. Vida S.A. 94,716,000-1 Shareholder Ct. Acct. payable c/p 7,816 -
Comercial Quipac S.A. 86,306,300-0 Common Mgmt. Ct. Acct. payable c/p - -
Corp. De Inv. y Des. Finac.
Cidef S.A. 96,923,970-1 Common Mgmt. Ct. Acct. payable c/p - -
Com. Cidef S.A. 96,622,770-2 Common Mgmt. Ct. Acct. payable c/p - -
Inmb. y Const. Nacional S.A. 79,809,460-2 Common Mgmt. Ct. Acct. payable c/p - -
Cidef Argentina S.A. 96,621,750-2 Common Mgmt. Ct. Acct. payable c/p - -
Factoring Contado 96,751,300-8 Common Mgmt. Ct. Acct. payable c/p - -
Unitrade de Interamericana S.A. 96,621,750-2 Common Mgmt. Ct. Acct. payable c/p - -
Fruticola Nacional S.A. 79,804,350-1 Common Mgmt. Ct. Acct. payable c/p 82,160 -
Gafonac Ltda. 78,776,710-9 Common Mgmt. Invoices payable 2,726,855 2,310,894
Mercantil Cidef S.A. 96,680,010-0 Common Mgmt. Invoices payable 41,235 34,945
Corp. De Inv. Y Des. Financiero 96,923,970-1 Common Mgmt. Ct. Acct. receivable c/p - -
Fruticola Nacional S.A. 79,804,350-1 Common Mgmt. Debtors from sales 19,497 16,523
Comercial Maule S.A. 79,780,600-5 Common Mgmt. Invoices payable - -
Soc. Cont. Cosayach 1 Reg. 96,630,310-7 Common Mgmt. Invoices payable - -
Corp. De Inv. y Des. Finac.
Cidef S.A. 96,923,970-1 Common Mgmt. Invoices payable - -
Rta Nacional Seguros Vida S.A. 94,716,000-1 Common Mgmt. Ct. Acct. receivable - -
Ing y computac.incom. S.A. 86,344,500-0 Common Mgmt. Ct. Acct. receivable c/p 22,996 -
Agricola Paredones S.A. 96,630,320-4 Common Mgmt. Ct. Acct. receivable c/p - -
Salmones y Pesqueras Nacional S.A.96,850,700-1 Common Mgmt. Invoices payable - -
Salmones y Pesqueras Nacional S.A.96,850,700-1 Common Mgmt. Debtors from sales 30,259 25,644
Inversiones Culenar S.A. 88,163,300-0 Common Mgmt. Ct. Acct. receivable c/p - -
Mercantil Cidef S.A. 96,680,010-0 Common Mgmt. Ct. Acct. receivable c/p - -
- --------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
2001 2002
- ---------------------------------------------------------------------------------------------
EFFECT ON EFFECT ON
AMOUNT INCOME AMOUNT INCOME
THCH$ (CHARGE/ THCH$ (CHARGE/
COMPANY CREDIT) CREDIT)
THCH$ THCH$
- ---------------------------------------------------------------------------------------------
Inversiones Errazuriz Ltda. 9,217,614 176,538 9,785,188 -
Soc. de Inv. Financieras Ltda. 50,945,946 - 7,335,606 -
Inconac S.A. 113,184 469 603,645 32
Gafonac Ltda. 1,738,560 - 1,319,069 -
Salmones y Pesquera Nacional S.A. 850,590 8 6,589 -
Cominor Ing. y Proyecto S.A. 723,184 2,184 - -
Ing. y Computacion Incom S.A. 3,890 3,296 159 135
Gafonac Ltda. 469,476 389,132 661,882 560,917
Corp. de Inv. Des. Financ. Cidef
S.A. 858,455 727,504 872,047 739,023
Com. Cidef S.A. 97,680 82,780 177,840 150,712
Com. Cidef S.A - - - -
Gafonac S.A. 77,398 - 278,331,883 -
Gafonac S.A. - - - -
Gafonac S.A. - - - -
Gafonac Ltda. 661,913 - 1,084,997 -
Inversiones Errazuriz Ltda. 3,593,444 - 4,911,364 40,104
Soc. de Inv. Financieras Ltda. 51,583,349 15,705 11,751,747 -
Rta. Nac. Cia. de Seg. Vida S.A. 431,940 - 416,794 -
Comercial Quipac S.A. 291,635 - - -
Corp. De Inv. y Des. Finac.
Cidef S.A. 107,111 - 522,889 -
Com. Cidef S.A. 35,312 1,039 34,283 -
Inmb. y Const. Nacional S.A. 587,100 84,786 775,808 -
Cidef Argentina S.A. 1,636,739 - - -
Factoring Contado 332,050 - - -
Unitrade de Interamericana S.A. 113,482 - - -
Fruticola Nacional S.A. 393,473 - 208,334 -
Gafonac Ltda. 895,891 759,230 109,930 93,161
Mercantil Cidef S.A. 682,120 578,068 68,266 57,853
Corp. De Inv. Y Des. Financiero 3,616,828 - 2,451,279 -
Fruticola Nacional S.A. 104,329 88,415 481,733 408,248
Comercial Maule S.A. 111,784 94,733 - -
Soc. Cont. Cosayach 1 Reg. 77,555 65,725 75,876 64,302
Corp. De Inv. y Des. Finac.
Cidef S.A. 698,178 591,676 614,791 521,009
Rta Nacional Seguros Vida S.A. 372,385 11,872 - -
Ing y computac.incom. S.A. 28,846 3,700 3,203 -
Agricola Paredones S.A. 1,011,666 989,916 - -
Salmones y Pesqueras Nacional S.A. 1,697,598 1,438,643 131,595 111,521
Salmones y Pesqueras Nacional S.A. 1,706,489 1,446,177 18,389 15,584
Inversiones Culenar S.A. - - 7,040 -
Mercantil Cidef S.A. - - 38,651 -
- ----------------------------------------------------------------------------------------------
F-40
NOTE 29- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
----------------------------------
2000
- --------------------------------------------------------------------------------------------------------------------------
EFFECT ON
NCOME
NATURE OF THE DESCRIPTION OF THE AMOUNT (CHARGE/
COMPANY TAXPAYER RELATIONSHIP TRANSACTION THCH$ CREDIT)
NUMBER THCH$
- --------------------------------------------------------------------------------------------------------------------------
Vinedos Errazuriz Ovalle S.A. 96,822,650-9 Common Mgmt. Ct. Acct. receivable c/p - -
Servicios y Tecnologias S.A. 96,894,000-7 Common Mgmt. Ct. Acct. receivable c/p - -
Salmones de Chile S.A. 96,914,410-7 Common Mgmt. Ct. Acct. receivable c/p - -
Industrial y Forestal Nacional
S.A. 96,524,230-9 Common Mgmt. Ct. Acct. receivable c/p - -
Gafonac S.A. 96,591,240-1 Common Mgmt. Ct. Acct. receivable c/p - -
Cidef Comercial 79,780,600-5 Common Mgmt. Ct. Acct. receivable c/p - -
UMS 96,509,820-8 Common Mgmt. Ct. Acct. receivable c/p - -
Emp.Nacional de Pesca 96,540,500-3 Common Mgmt. Ct. Acct. receivable c/p - -
Minera Copiapo 96,623,750-3 Common Mgmt. Ct. Acct. receivable c/p - -
Alimentos Nacionales S.A. 96,587,510-7 Common Mgmt. Debtors from sales - -
Pesquera Bahia Coronel S.A. 96,657,460-7 Common Mgmt. Ct. Acct. receivable c/p - -
Agricola Pichilemu Ltda. 78,776,810-5 Common Mgmt. Ct. Acct. payable c/p - -
Inversiones Culenar 88,163,300-0 Common Mgmt. Ct. Acct. payable c/p - -
Salmones y Pesquera Nacional S.A. 96,850,700-1 Common Mgmt. Ct. Acct. payable c/p - -
Impresos Loma Blanca S.A. 96,574,110-0 Common Mgmt. Ct. Acct. payable c/p - -
Scm.cia.de salitre y Yodo 1 region96,630,310-7 Common Mgmt. Ct. Acct. payable c/p - -
Pesquera Bahia Coronel 96,657,460-7 Common Mgmt. Ct. Acct. payable c/p - -
Mercantil Cidef S.A. 96,680,010-0 Common Mgmt Ct. Acct. payable c/p - -
Salmones de Chile S.A. 96,914,410-7 Common Mgmt. Ct. Acct. payable c/p - -
Soc.agricola la Cruces S.A. 78,791,770-4 Common Mgmt Ct. Acct. payable c/p - -
Esparragos Valdivia 79,838,780-4 Common Mgmt. Ct. Acct. payable c/p - -
UMS 96,509,820-8 Common Mgmt. Ct. Acct. payable c/p - -
Agricola Pichilemu Ltda. 78,776,810-5 Common Mgmt. Invoices payable - -
Inmobiliaria Constructora
Nacional Ltda. 79,809,460-2 Common Mgmt Invoices payable - -
Impresos Loma Blanca S.A. 96,574,110-0 Common Mgmt. Invoices payable - -
UMS 96,509,820-8 Common Mgmt. Invoices payable - -
Pesquera Bahia Coronel 96,657,460-7 Common Mgmt. Invoices payable - -
- ----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
2001 2002
- ---------------------------------------------------------------------------------------------
EFFECT ON EFFECT ON
AMOUNT INCOME AMOUNT INCOME
THCH$ (CHARGE/ THCH$ (CHARGE/
COMPANY CREDIT) CREDIT)
THCH$ THCH$
- ---------------------------------------------------------------------------------------------
Vinedos Errazuriz Ovalle S.A. - - 226,262 -
Servicios y Tecnologias S.A. - - 3,267 -
Salmones de Chile S.A. - - 249,226 -
Industrial y Forestal Nacional
S.A. - - 305,424 -
Gafonac S.A. - - 48,488 -
Cidef Comercial - - 1,503,124 -
UMS - - 4,162,820 -
Emp.Nacional de Pesca - - 11,762 -
Minera Copiapo - - 4,663,117 -
Alimentos Nacionales S.A. - - 49,889 42,279
Pesquera Bahia Coronel S.A. - 131,651 -
Agricola Pichilemu Ltda. - - 236,364 -
Inversiones Culenar - - 2,060,271 -
Salmones y Pesquera Nacional S.A. - - 565,631 -
Impresos Loma Blanca S.A. - - 325,129 -
Scm.cia.de salitre y Yodo 1 region - - 75,296 -
Pesquera Bahia Coronel - - 78,000 -
Mercantil Cidef S.A. - - 264,940 -
Salmones de Chile S.A. - - 189,485 -
Soc.agricola la Cruces S.A. - - 177,033 -
Esparragos Valdivia - - 145,717 -
UMS - - 4,977,013 -
Agricola Pichilemu Ltda. - - 66,487 56,345
Inmobiliaria Constructora
Nacional Ltda. - - 512,138 434,015
Impresos Loma Blanca S.A. - - 76,362 64,713
UMS - - 713,192 604,400
Pesquera Bahia Coronel - - 43,832 37,146
- --------------------------------------------------------------------------------------
F-41
75
NOTE 30- COMMITMENTS AND CONTINGENCIES
A) DIRECT COMMITMENTS
A.1 BBVA BANCO BHIF
On January 18, 2001, the Twenty Seventh Civil Court
of Santiago granted the right to attach the
property called Supermercado Manquehue due to
Unimarc's failure to pay in year 2000 and 2001, as
per a lawsuit filed by Banco Bhif, whereby sought
the refund of the amount of Ch$ 256 million as of
December 31, 2002. On March 19, 2003, the company
paid the outstanding capital balance in the amount
of Ch$ 203 million. On September 8, 2003, the
amount of Ch$40.182 million, corresponding to a
portion of accrued interest was paid. Finally, on
November 7, 2003, the amounted of Ch$20.808
million, corresponding to the total outstanding
interest was paid. At the date, the lien currently
affecting Supermercado Manquehue was released.
Additionally, at present there are various court
cases between us, our affiliates, and Banco Bhif,
in connection with the purchase of former Banco
Nacional, which occurred in year 1989, at that time
being owned by our affiliates. We seek to attain
through several arbitrating and legal court cases
filed against Banco Bhif in Chile, indemnities that
would enable us to discharge our debt with said
bank by way of recovering the balance of the price
of the shares in Banco Nacional which in our
opinion we ceased to receive from Banco Bhif. In
these proceedings, we have claimed that the
purchase price of the shares in Banco Nacional
should have been restated after the consummation of
the purchase transaction of the shares, as it had
been established in the share purchase contract,
because Banco Bhif received repayment of loans from
its clients subject to the conditions existing at
the time of the share purchase transaction was
carried out.
The various cases between us, our affiliates, and
Banco Bhif, in connection with the purchase of
former Banco Nacional is discussed below:
(i) Claims being heard at an Arbitrating Venue
At present there are 27 claims - Arbitration
Folders; each one bears the name Folder N(degree)
01 though 27, plus one called Book and another one
called Principal. The 27 arbitration folders and
the principal one, originate in the non-payment of
the price of the shares in former Banco Nacional,
and other defaults on the part of Banco Bhif, in
connection to the sale under contract of purchase
of shared dated July 23, 1989, executed before
Notary public Mr. Andres Rubio Flores. The folder
called "Book" originates in the publication,
editing and distribution by executives and
directors of Banco BBVA Banco Bhif of the Book "Los
secretos de Fra Fra" (The Secrets of Fra Fra), a
book whose editing publication and distribution was
prohibited under a judicial resolution. In this
case, indemnities are sought for the damages caused
by said publication.
F-42
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
(ii) The status or stage of the process in
connection with each folder is the following:
Folder N 1, sentence awarded.
Folder N 2, sentence awarded.
Folder N 3, sentence awarded.
Folder N 4, sentence awarded.
Folder N 5, sentence awarded.
Folder N 6, sentence awarded.
Folder N 7, sentence awarded in the company's
favor.
Folder N 8, awaiting the award of the final
sentence.
Folder N 9, sentence awarded.
Folder N 10, sentence awarded.
Folder N 11, currently in the stage of evidence
analysis.
Folder N 12, sentence awarded.
Folder N 13, currently in the submittal of evidence
stage.
Folder N 14, currently in the submittal of evidence
stage.
Folder N 15, currently in the submittal of evidence
stage.
Folder N 16, awaiting the hearing to award the
sentence.
Folder N 17, sentence awarded.
Folder N 18, currently in the submittal of evidence
stage.
Folder N 19, currently in the submittal of evidence
stage.
Folder N 20, currently in the submittal of evidence
stage.
Folder N 21, currently in the submittal of
evidence stage.
Folder N 22, currently in the stage of discussion.
Folder N 23, currently in the stage of discussion.
Folder N 24, currently in the stage of discussion.
Folder N 25, currently in the stage of discussion.
Folder N 26, currently in the stage of discussion.
Folder N 27, currently in the stage of discussion.
Book Folder, is awaiting the evidence stage.
Principal Folder, it is a pre-judicial measure,
under regular proceedings.
(iii) In connection with the amounts involved.
The lawsuits filed before the Arbitrating Judges,
add up to a total amount of UF 1,240,250, plus
adjustments and interest that would be due the
Company if the Arbitrating Judges rule in the
Company's favor.
F-43
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
A.2 BANCO SCOTIABANK SUDAMERICANO
Loan due Banco Scotiabank Sud Americano amounted to
ThCh$ 133,690 at December 31, 2002.This loan is
collateralized by building and contents of
Supermercado Vina San Martin valued at ThCh$
503,801.
A.3 CORP BANCA
Loan due Banco Corp Banca amounted to ThCh$
3,366,930 at December 31, 2002.This loan is
collateralized by buildings and contents of
Supermercados Maipu I, Maipu II and Manuel Montt,
valued at ThCh$ 1,654,170, ThCh$ 2,737,984 and ThCh$
1,187,211 respectively.
A.4 BANCO DEL DESARROLLO
As of December 31, 2002, the affiliated company
Inmobiliaria de Supermercados S.A., has mortgaged
two pieces of real estate called Concepcion and
Cordillera, in order to guarantee loan due Banco del
Desarrollo currently held or that may be held in the
future by Supermercados Unimarc S.A. or its
affiliates. The accounting value of said real state
is ThCh$ 2,474,247 and ThCh$ 3,386,887 ,
respectively, and the debt's value as of December
31, 2002 amounts to ThCh$ 632,797.
A.5 BANKBOSTON
As of the closing date of these financial
statements, the loan of US$ 22,526,664 is currently
in force and up-to-date in the payment of interest.
In March 2002, BankBoston extended the maturity date
of this loan to May 31, 2002. After that, the
Company negotiated with BankBoston several
additional extension of the maturity of the loan
because the Company was unable to complete its
repayment on May 31, 2002. Thus on May 6, 2003 the
Company entered into a further amendment of the
underlying credit agreement to restructure the
payment terms of the loan. The effectiveness of this
amendment is subject to certain conditions, which
the Company had to satisfy no later than August 4,
2003. The Company was able to comply with certain of
these conditions by this deadline, and the payment
term of the loan was extended through August 18,
2003. By this date, the Company was able to fully
satisfy these conditions. As a result, the payment
of the loans was restructured as follows: (1)
principal will be paid in eighteen installments,
payable in quarterly from August of 2003 until
November of 2007; and (2) interest will paid in same
quarterly at the rate of 4.04% on the outstanding
principal balance of the loan.
In connection with this debt, on December 29, 1998
the company furnished as collateral, certain
forestry assets owned by related companies, through
common ownership, Sociedad Ganadera y Forestal
Nacional Ltda., Ganadera y Forestal Nacional S.A.
and Agricola y Forestal Paredones Limitada.
(formerly Forestal Regional S.A.), guarantees whose
terms were approved in the respective Extraordinary
Shareholders' Meetings of said companies and by
their partners in each case.
F-44
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
A.6 KREDITANSTALT FUR WIEDERAUBAU
On June 7, 2002, Banco Kreditanstalt filed a
bankruptcy petition against us in the civil court
in Santiago to recover, via an executory process, a
portion of our loan in the aggregate principal
amount of US$2.1 million represented by a
promissory note. The bank has not taken legal
action to recover the remainder of the loans. In
July 2002, the court denied Banco Kreditanstalt's
bankruptcy petition as the Company deposited with
the court the amount claimed by the bank. The
court's decision, however, failed to address the
issue of whether the promissory note filed by Banco
Kreditanstalt constituted an instrument legally
sufficient to warrant the recovery of its
underlying obligation through an executory
proceeding. Accordingly, the Company appealed the
court's decision to seek a declaration that such
note is legally insufficient to permit its recovery
through an executory process. The civil court
granted our appeal before the Appellate Court of
Santiago. The Company also filed a criminal lawsuit
against Banco Kreditanstalt in criminal court in
Santiago for fraud, as we believed that Banco
Kreditanstalt did not act in good faith in its
transactions with us.
On October 23, 2002, The Company entered into an
agreement and waiver of legal action whereby the
Company agreed to terminate all our legal
proceedings against Banco Kreditanstalt in Chile,
including our appeal before the Appellate Court of
Santiago and our criminal proceedings in Santiago.
The Company filed this agreement and waiver with
the Seventh Civil Court of Santiago, which was
approved by the judge for such court in November
2002. As a result, such judge ordered the
termination of all our legal proceedings in the
civil and criminal proceedings.
Pursuant to the above agreement and waiver, the
Company entered into two rescheduling agreements,
in the aggregate principal amount of US$5.3 million
and US$1.8 million, respectively, that restructure
the payment of the loans to Banco Kreditanstalt as
follows: (1) principal will be paid in twenty
semi-annually installments, payables on March and
September from 2004 until 2013; and (2) interest
will be paid semi-annually at the rate of Libor
plus 1.05% and Libor plus 2.5%, respectively. The
loans are collateralized by a portion of the assets
the Company acquired with the proceeds of these
loans. These assets consist of materials used in
the construction and remodeling of our stores. As
of December 31, 2002 the book value of the pledged
assets was US$5.4 million.
B) GUARANTIES RECEIVED FROM THIRD PARTIES
B.1 BANCO DO BRASIL
In order to guarantee the loan granted by Banco Do
Brasil, the related companies Inverraz Ltda.,
Salmones y Pesquera Nacional S.A. (formerly
Pesquera Nacional S.A.), Sociedad Contractual
Minera Cosayach I Region, Pesquera Bahia Inglesa
S.A. and Fruticola Viluco Ltda., have mortgaged
assets owned by them. The value of said debt, as
of December 31, 2002, amounts to ThCh$ 2,244,256.
The property recorded as collateral is: Land in
Zapallar; P.A.M. Javier; P.A.M. Matias; P.A.M.
Carolina III; Estacamentos Kerima and La Palma;
and 58 Parcels in Fundo Viluco.
F-45
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
B.2 BBVA BANCO BHIF
Complementing the guarantee granted by the
associated company Transportes Santa Maria S.A.,
the related company Comercial Maule S.A., has
pledged in favor of BBVA Banco BHIF, a group of
pick up trucks as collateral for the debt kept by
Supermercados Unimarc S.A. with said entity.
C) INDIRECT COMMITMENTS
C.1 A personal guaranty granted by the Company in favor
of Inversiones Errazuriz Ltda., for up to
US$13,688,889 to guarantee its obligations with the
State Street Bank and Trust Company.
Likewise, a personal guarantee is lodged on a joint
basis with others related companies, guarantors of
these same obligations, applicable in case of
shortage or unenforceability of the guarantee in
connection with one or more guarantors over
obligations attributable to that or those missing
guarantors whereby Supermercados Unimarc S.A.,
guarantees up to US$25,230,328. If, however, a
particular guarantor is unable to pay its
guaranteed portion of the unsecured loans, then
State Street may seek to collect such portion from
the other guarantors, on a pro rata basis, in the
specified limited circumstances set forth in the
transaction documents.
On March 25, 2001, Inverraz Ltda. has informed that
the creditor has started legal actions in the
United States of America in connection with these
two obligations. Inverraz Ltda.'s lawyers inform
that there are pending appeals to the resolutions
ruled by the Judge hearing the case in the United
States, which are currently under study. As of the
filing date of this report, the lawyers responsible
for this case have informed Inversiones Errazuriz
Ltda. that they appealed the adverse determinations
to the United States Court of Appeals for the
Second Circuit (the "Consolidated Appeal"). It is
anticipated that oral argument will be scheduled at
some point from late November 2003.
On June 15, 2004, a panel of the U.S. Court of
Appeals for the Second Circuit denied the
Consolidated Appeal. However, on June 29, 2004, the
Chilean Defendants filed a petition for rehearing
by the full U.S. Court of Appeals for the Second
Circuit. On September 1, 2004, the Second Circuit
denied the petition for rehearing. On November 30,
2004, the Chilean Defendants filed a timely
petition for a writ of certiorari with the U.S.
Supreme Court seeking permission to appeal from the
Second Circuit's denial of their motion to vacate
the default judgment. On February 22, 2005, the
U.S. Supreme Court denied the Chilean Defendants'
petition for a writ of certiorari. Pursuant to the
conclusion of the appellate proceedings within the
U.S. federal court system, settlement discussions
thereafter resumed between the Chilean Defendants
and State Street. However, those settlement
discussions did not result in a mutually acceptable
resolution of the matter. State Street subsequently
commenced a legal proceeding before the Chilean
Supreme Court seeking permission to recognize the
federal court's default judgment as the equivalent
of an enforceable Chilean judgment, which
proceeding we refer to as the "Recognition
Application". The Chilean Defendants are opposing
the Recognition Application on all available legal
grounds. Chilean counsel for the Chilean Defendants
believes that the Chilean Defendants will prevail
in defeating the Recognition Application.
On September 8, 2003, we filed a lawsuit against
State Street before the 27th Civil Tribunal of
Santiago, Chile, seeking a ruling to the effect
that: (1) the provisions of the 1994 and 1996
credit agreements contemplating the submission of
any disputes between the parties to these
agreements to New York laws are invalid because,
under Chilean laws, such disputes may only be
submitted for resolution by Chilean courts as the
underlying promissory notes were issued in Chile
and in compliance with Chilean issuance
requirements, and all assets subject to restrictive
covenants under the agreements are located in
Chile; (2) under Chilean laws, the original
obligations underlying the agreements were novated
upon, and by, the issuance of separate notes
evidencing the payment obligations arising out of
such agreements; (3) the payment obligations
contained in the promissory notes prescribed
because the holders of such notes did not bring any
claims before Chilean courts to obtain their
repayment within one year of their maturity, as
required by Chilean laws; and (4) State Street is
not a lender under the promissory notes because
after their issuance, State Street transferred such
notes to other persons. In addition, State Street
filed a petition before the 27th Civil Tribunal to
have all proceedings before Chilean courts
terminated due to a lack of jurisdiction of Chilean
courts to decide any disputes arising out of the
credit agreements. The Court of Appeals of Santiago
had not issued any answer to such petition at the
time of this filing.
C.2 On December 31, 1998, the company became joint and
several surety and debtor for the obligations
undertaken by Inmobiliaria y Constructora Nacional
S.A. to guarantee obligations of same with Banco
Santiago, which at December 31, 2002 amount to ThCh$
6,444,908, the purpose of which is to finance the
construction of supermarkets for Supermercados
Unimarc S.A..
F-46
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
C.3 On October 10, 1998 the Company became joint and
several surety and debtor for the obligations
undertaken by Inmobiliaria y Constructora Nacional
S.A. to guarantee obligations with Corp Banca in the
amount of ThCh$ 3,420,177.
C.4 On December 22, 1983, the company became guarantor
of Holandaus NV for debts kept by same with BBVA
Banco BHIF. The collateralized asset is Supermercado
Manquehue, the value of which is ThCh$ 2,877,879 as
of December 31, 2002. The current debt with
Holandaus NV as at that date amounts to ThCh$
288,487.
D) OTHER COMMITMENTS
D.1 In a Board Meeting dated December 15, 1998 it was
agreed to support the obligations that its
affiliate in Argentina, Supermercados Hipermarc
S.A. may have committed or may commit in the future
with the foreign company Jose J. Chediack
S.A.I.C.A. for an amount of up to $ARG 362,766
(Argentinean pesos).
D.2 On June 10, 1999 the affiliate company
Supermercados Hipermarc S.A., entered into a
financing and occupation agreement with Nai
International II, Inc (sucursal Argentina), and
Nai International II Inc., whereby the
construction and operation of two movie-theater
complexes for Multicenter Belgrano and Quilmes
with 10 and 8 rooms, respectively, was agreed. To
this effect, a loan was agreed, which was granted
by Nai International II., Inc for the construction
of same for an amount which at present amounts to
$ARG 7,300,270 (Argentinean pesos), payable during
the term of the 12 year concession. The loan shall
accrue an agreed interest at the Libor rate plus
1.5%. Said loan is guaranteed by Supermercados
Unimarc S.A. until the discharge of the loan. In
September, 2002 a real right of antichresis was
entered into, guaranteeing the occupancy of the
movie theaters for a term of 12 years, from the
grand opening until July, 2012.
D.3 On July 10, 2000, the affiliate company
Supermercados Hipermarc S.A. entered into a loan
agreement with Banco Societe Generale S.A. for an
amount of US$ 753,060.77 as of December 31, 2002,
payable at 5 years. The collateral granted to said
institution corresponds to the following real
estates: Avda. Rivadavia N(degree)5751/5/63, Avda.
Rivadavia N(degree)5765/67/69, Yerbal
N(degree)1144/46, Yerbal N(degree)1160/62 and
Avda. General Roca N(degree)555/57, Vicente Lopez,
Province of Buenos Aires. This debt is currently
being renegotiated with bank Societe Generale
S.A., and Supermercados Hipermarc S.A. has offered
to pay the debt through the transfer to the bank
of a part of the collateral.
Additionally, a Trust contract was entered into
with Sofital S.A.F. e I. in guarantee for the
mortgage loan referred to above, by virtue of
which the collection corresponding to the location
contract entered into with Bowling Billiards
Operation S.A. in Multicenter Belgrano have been
assigned.
F-47
NOTE 30- COMMITMENTS AND CONTINGENCIES (CONTINUED)
D.4 EXPORT IMPORT BANK
In August, 1998, the State Street Bank and Trust
Company, granted financing to suppliers of
Supermercados Unimarc S.A. of US$ 808,997. This
financing had credit insurance granted by the
Export Import Bank (Eximbank) of the United States
of America, which was exercised by the State Street
Bank as said bank could not accept our requests to
restructure the debt. For this reason, Eximbank
paid the debt to the State Street Bank.
Supermercados Unimarc S.A. has successfully
restructured said loan, through an agreement
approved on August 1, 2002 with Eximbank,
confirming said payment plan.
As of December 31, 2002, the outstanding balance,
including principal and interest, amounts to Ch$
233 million.
D.5 BANCO SANTIAGO AND CORP BANCA
We have mortgaged (1) our supermarket Providencia,
located in the Metropolitan Region, and (2) a group
of real estates located in Concepcion to secure the
refund of the loans granted by Banco Santiago and
by CorpBanca to Inmobiliaria y Constructora
Nacional S.A., with an outstanding balance as of
December 31, 2002, including both capital and
interest, of Ch$6,444,908 million and Ch$3,420,177
million, respectively.
D.6 On June 14, 2002, before Notary Public Mr. Enrique
Tornero Figueroa, the affiliates company
Inmobiliaria de Supermercados S.A., pledged as
collateral real estate called Maipu I, Manuel
Montt, Cordillera, Concepcion, Cisterna, and
Terreno Arturo Prat, in order to provide a
guarantee on behalf of Inmobiliaria y Constructora
Nacional S.A., for the exact, full and timely
discharge of any and all obligations kept by
Inmobiliaria de Supermercados S.A., or those it may
keep in the future either directly or indirectly.
D.7 On June 25, 2002 the affiliated company Interagro
Comercio y Ganado S.A. (a related party), pledged
as collateral certain land, building and equipment
to guarantee all debt owed by Inversiones Culenar
S.A.. The amount owed at December 31, 2002 amounted
to MCh$ 2,044,916.
E) LABOR COURT CASES
The parent company and its affiliates have several labor
litigation cases with former workers, in which provisions in
the amount of ThCh$ 270,689, were made, which covers all
disbursements which in the opinion of the legal counsel of
the companies, involve the maximum risk to the companies.
F) DIRECT GUARANTEES
---------------------------------------------------------------------------------------------------------
BALANCES WITH PENDING
PAYMENT AS OF THE
CLOSING DATE OF THE
CREDITOR DEBTOR TYPE OF ASSETS INVOLVED STATEMENTS
--------------------------- GUARANTEE ------------------------------------------------------
NAME RELATIONSHIP TYPE ACCOUNTING 31-12-2001 31-12-2002
THCH$ VALUE THCH$ THCH$
THCH$
----------------------------------------------------------------------------------------------------------
Corp Banca Sm. Unimarc S.A. No Mortgage Real estate 2,727,984 3,799,129 3,366,930
Bhif Sm. Unimarc S.A. No Mortgage Real estate 2,846,847 208,974 256,358
Scotiaban Sm. Unimarc S.A. No Mortgage Real estate 499,803 171,399 133,691
Santiago Sm. Unimarc S.A. No Mortgage Real estate 10,792,725 1,157,566 1,116,656
---------------------------------------------------------------------------------------------------------
F-48
NOTE 31- INCOME OTHER THAN OPERATING
The breakdown in this item as of December 31, 2000, 2001 and 2002,
is structured as follows:
A) OTHER NON-OPERATING INCOME
------------------------------------------------------------------------------------------------
ITEMS 2000 2001 2002
THCH$ THCH$ THCH$
-------------------------------------------------------------------------------------------------
Income Hipermarc - 398,695 145,248
Lease of stores 11,167 - 7,135
Cashier register overage 38,739 32,860 28,831
Profit from sale of other assets 2,786,073 11,201 263,127
Other non-operating income 96,502 60,100 53,866
Other investments 97,561 - -
Restructuring of Inverraz Ltda.(parent)debt - - 1,877,558
------------------------------------------------------------------------------------------------
Totals 3,030,042 502,856 2,375,765
------------------------------------------------------------------------------------------------
NOTE 32- EXPENSES OTHER THAN OPERATING
The breakdown in this item as of December 31, 2000, 2001 and 2002,
is structured as follows:
OTHER NON-OPERATING EXPENSES
------------------------------------------------------------------------------------------------
ITEMS 2000 2001 2002
THCH$ THCH$ THCH$
------------------------------------------------------------------------------------------------
Fines and penalties 103,918 116,263 28,730
Shortage in reconciliations - 25,523 9,353
Loss in the sale of fixed assets 18,685 6,968 1,032,339
Other non-operating expenses 368,703 241,374 4,653
Exchange Differences - 6,016 7,367
------------------------------------------------------------------------------------------------
Totals 491,306 396,144 1,082,442
------------------------------------------------------------------------------------------------
NOTE 33- RESEARCH AND DEVELOPMENT EXPENSES
The Company did not incur any research and development expenses
during the years ended December 31, 2000, 2001, 2002.
NOTE 34- DIRECTORS REMUNERATION
Pursuant to the agreement established during the shareholders
Ordinary Meeting, no fees have been paid to the Company's
Directors.
F-49
NOTE 35- PENALTIES
In years 2000, 2001 and 2002, no fines were imposed on the Company
nor on any of the Board members, or Management.
NOTE 36- DOMESTIC AND FOREIGN CURRENCY
A) ASSETS
------------------------------------------------------------------------------------------
ITEM CURRENCY AMOUNT
------------------------------------------------------------------------------------------
2001 2002
THCH$ THCH$
------------------------------------------------------------------------------------------
Current assets
Cash US$ 10,181 -
Notes receivables US$ 630,843 -
Other current assets Arg$ 518,981 531,160
Other current assets $ 31,927,406 20,895,660
Prepaid expenses US$ 261,813 -
Other current assets UF 22,066 15,945
Notes receivable UF 36,542 21,244
Time deposits US$ 2,075,107 -
Cash US$ - 25,137
Stocks US$ - 138,631
Prepaid expenses UF - 121,205
------------------------------------------------------------------------------------------
Fixed assets
------------------------------------------------------------------------------------------
Fixed assets $ 106,162,329 94,470,434
Fixed assets Arg$ 54,573,909 56,240,819
------------------------------------------------------------------------------------------
Other Assets
------------------------------------------------------------------------------------------
Other assets $ 19,816,908 13,751,657
Other assets UF 184,211 249,215
Other assets Arg$ 1,162,176 743,331
Receivables from related
companies US$ - 11,366,586
Long term debtors US$ - 396,423
Notes receivable UF 198,587 178,618
Other Assets US$ - 1,674
------------------------------------------------------------------------------------------
TOTAL ASSETS
------------------------------------------------------------------------------------------
US$ 2,977,944 11,928,451
UF 441,406 586,227
Arg$ 56,255,066 57,515,310
$ 157,906,643 129,117,751
------------------------------------------------------------------------------------------
F-50
NOTE 36- DOMESTIC AND FOREIGN CURRENCY (CONTINUED)
B) CURRENT LIABILITIES
-----------------------------------------------------------------------------------------------------
ITEMS CURRENCY 2001 2002
THCH THCH
-----------------------------------------------------------------------------------------------------
Obligations with banks UF 6,435,114 2,281,982
Obligations with banks US$ 22,204,226 19,342,659
Obligations with banks Arg$ - 500,598
Obligations with banks Non adjustable Ch$ 2,641,193 2,485,008
Other accounts payable US$, 804,798 686,832
Other accounts payable UF 638,963 262,587
Other accounts payable Non adjustable Ch$ 1,686,595 578,768
Accounts payable Non adjustable Ch$ 26,774,972 19,678,429
Accounts payable Arg$ 331,464 436,712
Accounts payable US$ 46,656 4,819,775
Notes payable Arg$ 997,001 142,428
Notes payable Non adjustable Ch$ 269,296 113,713
Notes payable US$ 29,181 168,792
Notes and accts, payable Non adjustable Ch$ 343,267 779,671
Notes and accts, payable US$ 1,999,789 758,406
Notes and accts, payable Arg$ 96,306 389,042
Notes and accts, payable UF - 311,497
Accrued income US$ 809,320 862,332
Other current Arg$ 475,576 206,379
Other current Non adjustable Ch$ 1,449,619 2,017,303
-----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES
-----------------------------------------------------------------------------------------------------
UF 7,074,077 2,856,066
US$ 25,893,970 26,638,796
Arg$ 1,900,347 1,675,159
Non adjustable Ch$ 33,164,942 25,652,892
-----------------------------------------------------------------------------------------------------
F-51
NOTE 36- DOMESTIC AND FOREIGN CURRENCY (CONTINUED)
C) LONG TERM LIABILITIES
------------------------------------------------------------------------------------------------------
ITEMS CURRENCY 2001 2002
THCH THCH
------------------------------------------------------------------------------------------------------
Sundry creditors UF 1,745,124 1,651,256
Sundry creditors US$ 239,036 207,949
Sundry creditors US$ 228,681 444,470
Sundry creditors US$ - 426,891
Sundry creditors Non adjustable Ch$ -
6,319
Notes payable Non adjustable Ch$ - 4,360
Notes payable Other currencies 5,597,200 -
Other Notes and Accts, Payable Related Pty UF 17,575,299 17,258,386
Notes and accts, payable, Related Parties Non adjustable Ch$ 338,842 -
Other Long term liabilities US$ 5,260,799 4,742,824
Other Long Term Liabilities Non adjustable Ch$ 24,598 -
Obligations with banks UF 3,812,564 2,983,697
Obligations with banks Arg$ - 164,284
Obligations with banks US$ 6,363,857 5,202,237
Notes payable Arg$ - 1,336,220
------------------------------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES
------------------------------------------------------------------------------------------------------
UF 23,132,987 21,893,339
US$ 12,092,373 11,024,371
Arg$ - 1,500,504
No reajust 369,759 4,360
Other currencies 5,597,200 -
------------------------------------------------------------------------------------------------------
NOTE 37- SHARE TRANSACTIONS
In accordance with the Company Share Register, the following share
transactions took place during 2001 and 2002:
--------------------------------------------------------------------------------------------------------
COMPANY 2001 2002
-----------------------------------------------------------
PURCHASE SALE PURCHASE SALE
--------------------------------------------------------------------------------------------------------
Renta Nacional Cia, de Seguros Generales 148,005,315 9,115,500 - -
S,A,
Inversiones Financieras Ltda, 80,488,815 80,448,815 2,432,718 2,432,718
Inverraz Trading - 71,373,315 35,638,202 87,560,000
Alimentos Nacionales S,A, 9,115,500 76,632,000 - 2,432,718
Renta Nacional Cia, de Seguros de Vida S,A, - - 87,560,000 102,353,643
Fruticola Nacional - - 102,353,643 35,638,202
Adm. de Mutuos H, Mi Casa - - 2,432,718 -
--------------------------------------------------------------------------------------------------------
As of December 31, 2002, the total ADRs in the United States was
1,331,585 and the number of registered ADR holders was 412.
F-52
NOTE 38- SHAREHOLDERS
-------------------------------------------------------------------------------------------------------
2001 2002
SHAREHOLDERS
---------------------------------------------------------
% N(0)OF % N(0)OF
SHAREHOLDERS SHAREHOLDERS
-------------------------------------------------------------------------------------------------------
10% or more 89.02 3 86.75 3
Less than 10% with an investment over 200
UF 8,72 5 10.57 4
Less than 10% with an investment equal to or
less than 200 UF 2.26 306 2.68 299
-------------------------------------------------------------------------------------------------------
Total 100.00 314 100.00 306
-------------------------------------------------------------------------------------------------------
MAJORITY SHAREHOLDER
-------------------------------------------------------------------------------------------------------
Alimentos Nacionales S,A, 56.66 1 57.16 1
-------------------------------------------------------------------------------------------------------
NOTE 39- SALE OF BUSINESSES IN ARGENTINA
In June 1999, Supermercados Hipermarc S,A, (Hipermarc), a
subsidiary located in Buenos Aires, Argentina, consummated the
sale of its supermarket operations to Supermercados Norte (Norte)
(the "Transaction"), Under the Transaction, Hipermarc leased all
of its stores to Norte during a 10-year period for a total of
ThCh$ 7,072,241 and transferred of all its inventories and fixed
assets located at the leased stores to Norte.
As part of the payment for the sale, Hipermarc transferred to
Norte its trade accounts payables as of the date of the
Transaction.
Hipermarc committed not to compete with Norte in the Argentinean
supermarket market during the above mentioned ten year period, In
addition, the Company assumed certain commitments such as
indemnifying Norte against any claims arising prior to and up to
sixty months after the date of the Transaction.
As of December 31, 1999, ThCh$ 1,889,643 were deposited in escrow
with a Public Notary in Buenos Aires, of which ThCh$ 680,289 is to
guarantee any opposition which may be presented by the suppliers
whose payable balances were transferred to Norte and ThCh$
1,209,353 will be used to guarantee the operation of the related
sale.
F-53
NOTE 40- SUBSEQUENT EVENTS
a) Argentinean Affiliate
In Argentina, by the end of 2001, as a consequence of the
serious economic crisis, a change in the economic model and
in the Conversion Law was implemented, and new regulations
were enacted by the National Government. This situation
generated, among other things, the following consequences:
devaluation of the Argentinean peso versus the U,S, dollar
and the conversion into pesos of certain assets and
liabilities that said nation used to keep in foreign
currency; conversion into pesos of the rates of public
utilities; introduction of restrictions to the withdrawal
of deposits in financial institutions; restrictions to
certain cash transfers to other countries for the service
of principal and interest of financial loans without the
previous authorization from the Banco Central de la
Republica Argentina,
Bearing in mind the unstable environment described above,
the company has made an assessment of the recoverability of
its investments in the Argentinean company, Supermercados
Hipermarc S,A,, It is the management's opinion that the
evolution of the measures described above shall not evolve
into material adjustments other than those recognized in
these financial statements.
As of the date of issuance of these financial statements,
the exchange rate between the Argentinean peso and the U.S.
dollar was Arg$2.9725 ($244.29 Chilean pesos) per dollar,
that is , a decrease of $1.272 Argentinean pesos per dollar
(Ch$140.88) as of December 31, 2001. This decrease in the
exchange rate has a direct influence on the accounts
receivable kept by the Company with its affiliate
Supermercados Hipermarc S.A.
b) The Superintendencia de Valores y Seguros (SVS), through an
Official Letter N(degree) 00154 dated January 8, 2003,
instructed Supermercados Unimarc S,A, to introduce
adjustments into the financial information corresponding to
the 2001 period, demanding new financial statements,
reasoned analysis and a report of the external auditors,
and also to re-issue the financial information for the
quarterly periods of year 2002.
Through a Board agreement dated January 17, 2003, it was
decided to call to an Extraordinary Shareholders' Meeting
to be held on February 21, 2003, in order to issue an
opinion on The Ordinary Official Letter N(degree) 00154,,
dated January 8, 2003, issued by the SVS.
In said Extraordinary Shareholders' Meeting, the
shareholders agreed, among other things, to reject in all
of its parts, what had been instructed by the SVS, and to
maintain the position adopted by the Company's Board of
Directors, giving said body their full support, in
addition to ratify the claim filed with the Court of
Appeals of Santiago in connection to the appeal filed
against the Ordinary Official Letter N(degree) 00154 dated
January 8, 2003.
This measure was claimed against by the company with the
Court of Appeals of Santiago, which admitted the claim and,
on January 3, 2003, transferred the appeal to the SVS,
therefore the effects of what had been ordered by the SVS
were suspended, pursuant to what is provided in article 4,
letter e), of Decree Law N(degree) 3,538 , Organic Law of
the SVS .
Based on legal reports and also in reports issued by
external auditors in Argentina, which sustain that pursuant
to the Economic Emergency Law enacted by the authority of
the Republic of Argentina as of January 6, 2002 (Law N(0)
25,561 , decree 214/02 and the other related norms), the
deferred income account must be treated as per this decree.
Therefore the Company complied with its provision.
F-54
NOTE 40- SUBSEQUENT EVENTS (CONTINUED)
The controversy rose because the Superintendencia de
Valores y Seguros does not share the criterion of
management and of consulting firms, independent auditors
and law firms of Buenos Aires.
As of August 21st, 2003, The Seventh Appeal Court of
Santiago overruled the appeal presented by the Company on
Instruction N(degree)09181, on December 9th, 2002, cleared
by instruction N(degree)00154 from January 8th, 2003, and
instructed some adjustments to be made to the financial
information presented by the Company at the closing of year
2001. See Note 3.
c) Through a Board agreement dated January 17, 2003, it was
decided to call to an Extraordinary Shareholders' Meeting
to be held on February 21, 2003, in order to issue an
opinion on The Ordinary Official Letter N(degree) 00154,
dated January 8, 2003, issued by the Superintendency of
Securities and Insurance.
In said Extraordinary Shareholders' Meeting, the
shareholders agreed, among other things, to reject in all
of its parts, what had been instructed by the
Superintendency of Securities and Insurance, and to
maintain the position adopted by the Company's Board of
Directors, giving said body their full support, in
addition to ratify the claim filed with the Court of
Appeals of Santiago in connection to the appeal filed
against the Ordinary Official Letter N(degree) 00154 dated
January 8, 2003.
d) On March 19, 2003, the company paid the outstanding
principal to BBVA Banco BHIF, corresponding to the pending
balance of the credit for UF 55,776 , granted on April 27,
1991, therefore the only pending issues are the payment of
the interest accrued as of that date (see Note 30 a,1).
e) On March 28, 2003, the New York Stock Exchange-(NYSE),
announced that it had determined that the American
Depositary Shares (ADRs) of Supermercados Unimarc S,A,
would be suspended prior to the market opening of
Wednesday, April 02, 2003. The company agreed with that
decision and shall not change its position.
The decision was made since the Company's ADRs were traded
at a value of less than US$ 1 (one dollar) for a period of
30 consecutive days of operation of said market, and
therefore they ceased to comply with one of the
requirements to remain being listed.
The Securities and Exchange Commission, on April 29, 2003
accepted the New York Stock Exchange's request for the
removal, listing and registration of the ADRs with the
Stock exchange, pursuant to the Securities Exchange Act of
1934,
f) On Augunst 4th 2003, the Company agreed to an extension of
the promissory notes related to a loan agreement signed on
December 8, 1998 with BankBoston N.A., Nassau branch
(External Credit N(degree)33.169). The promissory notes
where restructured on May 6, 2003. Under this extension
the term of the credit was extended until 2007.
F-55
NOTE 40- SUBSEQUENT EVENTS (CONTINUED)
g) Fine to the society's board of directors
On July 30th 2003, under resolution N(degree) 218, the SVS
applied a fine of UF 300 (aprox. US$ 8,500) to each member
of the Board of Directors, due to omisions and lack of
actions referred to the renegotiation of the loan with
State Bank and Trust Company on August 4, 1998.
On August 13th, 2003 , the company appealed the above
mentioned fine to the Eighteenth Civil Court of Santiago,
which up to the presentation of these financial statements
is still under consideration.
h) As of the closing of these financial statements, no other
subsequent facts have occurred which may materially affect
the figures contained in them, as well as their
interpretation.
F-56
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
In general, generally accepted accounting principles in Chile
("Chilean GAAP") vary in certain important respects from
accounting principles generally accepted in the United States of
America ("US GAAP"), Such differences involve certain methods for
measuring the amounts shown in the consolidated financial
statements, as well as additional disclosures required by US GAAP,
1. DIFFERENCES IN MEASUREMENT METHODS
The principal methods applied in the preparation of the
accompanying consolidated financial statements, which have
resulted in amounts which differ from those that would have
otherwise been determined under US GAAP, are as follows:
A) INFLATION ACCOUNTING
The inflation rate in Chile as measured by the Consumer
Price Index for the years ended on December 31, 2002, 2001
and 2000 was 3.0%, 3.1% and 4.7%, respectively.
Chilean GAAP require that financial statements be restated
to reflect the full effects of the loss in the purchasing
power of the Chilean peso on the financial position and
results of operations of reporting entities. The method,
described in Note 3 above, is based on a model which
calculates net inflation gains or losses caused by holding
monetary assets and liabilities exposed to changes in the
purchasing power of the Chilean peso, by restating all
non-monetary accounts in the balance sheet. The model
prescribes that the historical cost of such accounts be
restated for general price-level changes between the date
of origin of each item and the year-end.
The inclusion of price-level adjustments in the
accompanying consolidated financial statements is
considered appropriate under the prolonged inflationary
conditions which have affected the Chilean economy in the
past. Accordingly, the effect of price-level changes is not
eliminated in the reconciliation to US GAAP. The effects of
price - level restatement under Chilean GAAP are shown in
Note 5.
B) MARKETABLE SECURITIES
In accordance with Chilean GAAP, marketable securities are
stated at the lowest price-level restated cost or at market
value. For US GAAP purposes, the Company's portfolio of
marketable securities is classified as available-for-sale.
Accordingly, the adjustment to market is recorded as
comprehensive income in a separate account within the
equity section of the balance sheet, net of the
corresponding deferred tax impact. The fair value
disclosure required for US GAAP purposes is shown in
paragraph 2.c) The effects on total comprehensive income
(loss) and net shareholders' equity are shown in paragraph
1.n) below.
C) CAPITALIZED INTEREST
Chilean GAAP allow, but do not require, that interest
incurred during the period that assets are being
constructed or prepared for productive use be capitalized.
Interest on construction in progress was capitalized under
Chilean GAAP, beginning in 1998. Under US GAAP, such
interest must be capitalized and included as part of the
cost of qualifying assets under construction. The effects
on 2000, 2001 and 2002 net income of the capitalization and
the related amortization of interest that was capitalized
in prior periods for US GAAP purposes are shown under
paragraph 1.n) below.
F-57
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
D) DEFERRED INCOME TAXES
As discussed in Note 22, effective January 1, 2000 the
Company began applying Technical Bulletin No, 60 (BT 60) of
the Colegio de Contadores de Chile A,G, concerning deferred
income taxes. BT 60 requires the recognition of deferred
income taxes for all temporary differences arising after
January 1, 2000, whether recurring or not, using an asset
and liability approach. For US GAAP purposes, the Company
has applied Statement of Financial Accounting Standards No,
109, "Accounting for Income Taxes", whereby income taxes
are also recognized using the same asset and liability
approach with deferred income tax assets and liabilities
established for temporary differences between the financial
reporting basis and tax basis of the Company's assets and
liabilities based on enacted rates at the dates that the
temporary differences arose.
Additionally, deferred income tax assets under US GAAP
should be reduced by a valuation allowance if based on
available evidence, it is more likely than not that some
portion or all of the deferred income tax assets will not
be realized. Valuation allowances are also required in
these circumstances under Chilean GAAP as from the adoption
of BT 60 in 2000.
Prior to the implementation of BT 60, deferred income taxes
were not always recorded under Chilean GAAP if the related
timing differences were expected to be offset in the year
that they were projected to reverse by new timing
differences of a similar nature.
Deferred income tax amounts determined under Chilean GAAP
and US GAAP differ due to the recognition for US GAAP
purposes of the reversal of deferred income taxes included
in the US GAAP reconciliation in 1999 and previous years,
and the deferred tax effects of other adjustments to
reconcile to US GAAP in 2002 and previous years. The
effects are included under paragraph 1.n) below.
Chilean tax regulations require each separate legal entity
within a consolidated group of companies to file separate
tax returns. Tax benefits and obligations are not freely
transferable between consolidated entities nor may they be
offset between them. The Company has recorded a deferred
tax asset related to the tax loss carryforwards of certain
of its Chilean subsidiaries. To the extent the Company is
uncertain whether the tax loss carryforwards are likely to
be realized, a valuation allowance has been recorded to
reduce the corresponding deferred tax asset.
Tax loss carryforwards of Hipermarc (Argentine subsidiary)
have a five-year limit. In 1998, the Company recorded a
valuation allowance to reduce the proportion of the
deferred tax asset it did not expect to recover, During
1999, the entire tax loss carryforward of the Argentine
subsidiary was realized, mainly due to the gain on the sale
of its Supermarket business. Tax losses arising in 2001
expire in 2005 and the related deferred tax asset as of
December 31, 2002 has been fully reserved.
Deferred tax benefits to be realized or to be realized from
the utilization of tax loss carryforwards of affiliates
under common control, which have been transferred to the
Company, are presented as a capital contribution, as shown
under paragraph 1.j).
F-58
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
E) GOODWILL
In accordance with Chilean GAAP, business combinations,
including those involving companies under common control,
are accounted for as purchases with the excess cost over
the book value of net assets acquired recorded as goodwill
to be amortized over a period not exceeding 20 years.
Under US GAAP, business combinations involving companies
under common control are recorded at historical cost in a
manner similar to a pooling of interests, Accordingly, no
goodwill is recorded.
The effects of reversing the amortization of goodwill
recorded under Chilean GAAP, in excess of that recorded
under US GAAP and the impact on equity under U.S. GAAP are
shown under paragraph 1.n) below.
In addition, under US GAAP, business combinations involving
companies that are not under common control are recorded at
purchase cost with assets and liabilities acquired stated
at their respective fair market values. Deferred tax assets
and liabilities recognized for the tax effects of
differences between the assigned values and the tax bases
of identifiable assets acquired and liabilities assumed
affect the amount of goodwill recognized in the
transaction. To the extent that the purchase price exceeds
the fair market value of the net assets acquired, the
remainder is recorded as goodwill to be amortized over a
period not greater than 40 years. Effective January 1,
2002, in accordance with the provisions at SFAS 142,
goodwill is no longer amortized but rather tested at least
annually for impairment. The Company applied SFAS No. 142
on January 1, 2002 and applied the impairment test on
goodwill resulting from the 1999 acquisition of an
additional interest in its Argentinean subsidiary (under US
GAAP). The impairment testing resulted in no adjustmetent
for impairment.
F) INVESTMENT IN RELATED COMPANIES AND NEGATIVE GOODWILL
Under Chilean GAAP, an excess of book value over cost of a
purchased company is recorded as negative goodwill, which
is then amortized to income over a period not to exceed 20
years.
Under US GAAP, if the book value of net assets acquired is
in excess of cost, the excess should be allocated to
proportionally reduce the fair values assigned to certain
non-monetary non-current assets. The excess of acquired net
assets over cost for business combinations with companies
under common control is treated as a capital contribution.
The effects of reversing the amortization of negative
goodwill and increasing equity for capital contributions
under US GAAP is shown in paragraph 1.n) below.
G) MANDATORY DIVIDEND
As required by the Chilean Companies Act, unless otherwise
decided by the holders of a majority of the shares
represented at the General Shareholders' Meeting, a
publicly traded company must distribute a cash dividend in
an amount equal to at least 30% of the company's net income
for each year as determined in accordance with Chilean
GAAP. Since the payment of the dividend out of each year's
net income is a legal requirement in Chile, an accrual is
made for US GAAP purposes to recognize the dividend
obligation under Chilean law and the related decrease in
Shareholders' equity at December 31, 2002. The payment of
dividends to foreign shareholders is subject to a
withholding tax of 35%, net of corporate income tax paid
(16%).
F-59
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
H) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
For US GAAP purposes, the Company accounts for long-lived
assets in accordance with the provisions of SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets." This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Some of the events and circumstances that may trigger an
impairment review include Recoverability of assets to be
held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair
value less costs to sell.
I) REPURCHASE OF PROPERTY, PLANT AND EQUIPMENT FROM RELATED
COMPANIES
In 2002 and previous years, the Company repurchased certain
property and equipment that had been previously sold to
related companies, at a price higher than the original cost
of the assets,. The adjustment to equity, net of the
related depreciation recorded under Chilean GAAP, to
reverse the excess purchase price and the adjustment to
income to reverse the related depreciation expense are
shown under paragraph 1.n) below.
J) PURCHASE OF TAX LOSS CARRYFORWARDS FROM RELATED PARTIES
In 1996 and previous years, the purchase of deferred tax
benefit from tax loss carryforwards from related parties
was not recognized under Chilean GAAP. For US GAAP
purposes, the deferred tax benefit less the amount paid is
recognized as an increase in capital as shown in paragraph
1.o) below. The reversal of the aforementioned difference
Chilean GAAP and US GAAP, due to the utilization of the tax
loss carryforwards purchased from affiliates, is included
in the "Adjustment for Deferred Taxes" line of the
reconciliation of Shareholders' equity in 1.n).
K) TRANSLATION OF FOREIGN OPERATIONS
Prior to 1998, the Company's investment in its Argentine
subsidiary Hipermarc, was converted to Chilean pesos using
the latter as the functional currency. Under US GAAP
criteria, the functional currency was considered to be the
Argentine peso. Accordingly, under US GAAP. monetary and
non-monetary assets and liabilities were converted to
Chilean pesos at the year end exchange rate. Statement of
income balances were converted under Chilean GAAP purposes
using a method which is similar to the average monthly
exchange rate as required by US GAAP. Although the
Argentine peso was considered the functional currency in
1998 for both US GAAP and Chilean GAAP purposes, the
Chilean GAAP base of non-monetary assets and equity is
different from the US GAAP values due to a change in
accounting principle for the Chilean GAAP balances in 1998.
F-60
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
K) TRANSLATION OF FOREIGN OPERATIONS (CONTINUED)
In the first days of January 2002, a law was enacted by
virtue of which the Argentinean Peso has been devaluated by
approximately 29% (new exchange rate 1 peso = 0.71 dollar)
for commercial operations, with the rest of the
transactions, essentially those of a financial nature,
being subject to a market of free exchange rate. During the
first days of February 2002, the Executive published a
decree whereby it established the conversion into pesos of
all of the obligations involving the payment of money,
regardless of the cause or origin, denominated to US
dollars or other foreign currencies, existing as of the
date of the enactment of the aforementioned rule, and which
had not yet been converted into pesos as a consequence of
the decrees' becoming into force. Concurrently, a single
exchange market was established applicable to all types of
transactions regardless their origin.
For US GAAP purposes the translation difference is
presented in the statement of comprehensive income and in a
separate account in the shareholders' equity section of the
balance sheet.
The 2002 and 2001 adjustments recorded in shareholders'
equity in paragraph 1.n) below adjust the investment
balances for the aforementioned differences.
L) CAPITALIZED COST OF COMPUTER SOFTWARE DEVELOPED FOR
INTERNAL USE
Chilean GAAP do not require that interest cost or salaries
for personnel who were directly involved in the development
of software for internal use be capitalized. Under US GAAP.
such costs must be capitalized and amortized over the
useful life of the asset. The effects of capitalizing such
costs and the related amortization are shown under
paragraph 1.n) below.
M) SALE OF ASSETS TO RELATED COMPANIES
In accordance with Chilean GAAP, gains and losses from the
sale of assets to companies under common control are
recorded within non-operating results at the time of the
transaction. Under U.S. GAAP, such gains and losses are
considered capital contributions and distribution of
dividends, respectively, The effects of reversing the gains
and losses under U,S, GAAP are shown under paragraph 1.n)
below.
F-61
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
N) EFFECTS OF CONFORMING TO US GAAP
The following is a reconciliation of consolidated net income
under Chilean GAAP to the corresponding amount under US GAAP.
2000 2001 2002
THCH$ THCH$ THCH$
(RESTATED)
Net profit (loss) as reported in accordance with Chilean
GAAP 110,772 397,056 ( 1,599,808 )
Adjustment ordered by the Superintendencia de Valores y ( 2,498,460 ) -
Seguros (Chile) ----------- ------------ -----------
Net profit (loss) as restated in accordance with Chilean 110,772 ( 2,101,404 ) ( 1,599,808 )
GAAP adjustment
Capitalized interest, net (paragraph, 1 c) ( 16,089 ) ( 15,030 ) ( 15,024 )
Adjustment for deferred tax provision (loss) 1,040,165 ( 2,012,959 ) ( 850,882 )
Adjustment for business combinations with
companies under common control (Paragraph, 1 e) 831,237 864,341 1,211,008
Reversal of amortization of negative goodwill
(Paragraph, 1 f) ( 49 ) ( 55 ) ( 4,741 )
Reversal of depreciation of fixed assets
purchased from related companies (Paragraph, 1 i) 24,098 18,164 12,466
Reversal of loss (gain) on sale of fixed assets to related
companies under common control (Paragraph, l m) ( 2,593,951 ) 3,394,281 1,016,659
Capitalized computer software costs (Paragraph, l l) ( 11,285 ) ( 11,285 ) ( 11,285 )
Others ( 6,659 ) - ( 67,067 )
----------- ------------ -----------
Net income (loss) in accordance with US GAAP ( 621,761 ) 136,053 ( 308,674 )
----------- ------------ -----------
Other comprehensive income:
Change in unrealized gain/loss of securities available
for sale, net of tax (Paragraph, 1 b) ( 56,980 ) 2,325 -
Translation adjustment (Paragraph, 1 k) ( 494,246 ) 482,836 1,270,487
----------- ------------ -----------
Comprehensive income (loss) in accordance with US GAAP ( 1,172,987 ) 621,214 961,813
=========== ============ ===========
F-62
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(CONTINUED)
N) EFFECTS OF CONFORMING TO US GAAP (CONTINUED)
The following is a reconciliation of shareholders' equity
under Chilean GAAP and the corresponding amount under US
GAAP.
2001 2002
THCH$ THCH$
Shareholders' equity in accordance with Chilean GAAP 110,769,621 107,822,955
Adjustment ordered by the Supervision of Values and ( 2,498,460 ) -
Insurances (Chile) -------------- -------------
Shareholders' equity in accordance with Chilean GAAP
adjustment 108,271,161 107,822,955
Capitalized interest, net (Paragraph, 1 c) 870,665 855,642
Adjustment for deferred taxes (Paragraph,1 d) 2,121,264 1,270,382
Adjustment for business combination with companies under
common control (Paragraph, 1 e) 6,715,106 7,938,580
Reversal of sale of fixed assets
to related companies (Paragraph, 1 m) 4,741,194 10,228,467
Payment to shareholders of excess purchase price
of company over accounting value (Paragraph, 1 e) ( 10,768,240 ) ( 10,768,240 )
Reversal of negative goodwill (Paragraph, 1 f) ( 116,556 ) ( 121,297 )
Additional goodwill on acquisition (Paragraph,1 e) 287,143 287,144
Adjustment for excess of book value of net assets over
purchase price (Paragraph 1 f) 322,956 322,956
Market value adjustment for available-for-sale
securities, net of deferred taxes (Paragraph, 1 b) 1,962 1,962
Payment to shareholders for excess purchase price over
original cost of repurchased assets ( paragraph 1 i) ( 27,477,735 ) ( 27,448,627 )
Minority interest of subsidiaries ( paragraph 1 k) 291,561 291,561
Tax loss carryforward acquired from related parties
(Paragraph, 1 j) 2,338,571 2,338,571
SFAS 52 conversion of Hipermarc (Paragraph, 1 k) ( 389,755 ) ( 389,755 )
Mandatory dividend (Paragraph, 1 g) ( 119,116 ) -
Capitalized computer software cost (Paragraph, 1 l) 112,852 101,567
Others - ( 67,239 )
-------------- -------------
Shareholders' equity in accordance with US GAAP 87,203,033 92,664,629
============== =============
F-63
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
2, ADDITIONAL DISCLOSURE REQUIREMENTS
The following information disclosure is not generally
required for filing in the financial statements under
Chilean accounting principles, but is required under US
GAAP.
A) NATURE OF OPERATIONS AND CONCENTRATIONS OF ECONOMIC RISK
The Company is one of the largest operators of supermarkets
in Chile in terms of net sales. Through 1999, the Company
also owned a supermarket chain in Argentina. In July of
1999, the Company sold its supermarket operations to an
unrelated entity.
The Chilean food retail industry, and specifically the
supermarket industry, experienced significant growth in the
1990's due to the strong economic environment in Chile and
the increased acceptance of supermarkets as a medium to
purchase perishable goods. Despite this, the economies of
Chile and Argentina were affected by the Asian Crisis,
resulting in a prolonged economic slowdown, higher levels
of unemployment and a decrease in consumer consumption
affecting the Chilean supermarket industry.
In the past years the supermarket industry has been
increasingly challenged by more competition (both domestic
and international) and by the incorporation of more selling
points. Price pressures, decreases in personal disposable
income and the Company's decision to remain competitive
forced it to reduce selling prices by 5%.
Although inflation in Chile has remained stable in recent
years, a return to higher levels of inflation and currency
fluctuations could adversely affect the Company's
operations.
As of December 31, 2002, Unimarc is a 56.66% owned
subsidiary of Alimentos Nacionales S.A.
Approximately 11% of the Company's employees are covered by
collective bargaining agreements.
Subsidiary Supermercados Hipermarc S,A
For three years now the economy in Argentina has been
progressively decreasing its level of activity, and this
has become more dramatic during year 2001 causing a
deterioration in the domestic markets. During the second
half of 2001, a dramatic increase was evidenced in the
interest rates required by the investors in debt
instruments of the Argentinean Government, the quotations
of said titles decreased significantly and the financial
system evidenced a decrease in the level of deposits and
the restriction of the access to foreign loans.
In order to revert the above-described situation, the
Government has faced the restructuring of the public
national and provincial debt through the negotiation with
the holders of bonds of a voluntary exchange of debt, which
anticipates a substantial decrease in the interest rate as
a consequence of the furnishing as a guarantee of the
future tax collection. During the course of this process,
the Government has suspended the payments of principal and
interest. In the fist week of December 2001, additional
measures were put into practice on the financial system,
restricting the free availability of the deposits in banks
and transfers overseas. By the end of 2001, the situation
triggered important political changes at the highest levels
of the government.
F-64
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
A) NATURE OF OPERATIONS AND CONCENTRATIONS OF ECONOMIC RISK
(CONTINUED)
In the first days of January 2002, a law was enacted by
virtue of which the Argentinean Peso has been devaluated by
approximately 29% (new exchange rate 1 peso = 0.71 dollar)
for commercial operations, with the rest of the
transactions, essentially those of a financial nature,
being subject to a market of free exchange rate. During the
first days of February 2002, the Executive published a
decree whereby it established the conversion into pesos of
all of the obligations involving the payment of money,
regardless the cause or origin, denominated to US dollars
or other foreign currencies, existing as of the date of the
enactment of the aforementioned rule, and which had not yet
been converted into pesos as a consequence of the decrees'
becoming into force. Concurrently, a single exchange market
was established applicable to all types of transactions
regardless their origin.
As of the date of issuance of these financial statements,
the parity of the Argentinean Peso to the U.S. Dollar
amounts to $ 2.9725 ( $ 244,29 Chilean pesos), which
represents a decrease of $ 1.272 Argentinean pesos per
dollar ( $140.88 ) as of December 31, 2001. This decrease
in the exchange rate has a direct effect over the accounts
receivable kept by the parent company with its affiliate
company Supermercados Hipermarc S.A.
As per what is provided through Circular Official Letter
N(degree) 81 dated January 22, 2002, issued by the
Superintendency of Securities and Insurance of Chile, the
information included in these financial statements and
other related documents, contains the impact derived from
the situation previously described.
B) EARNINGS PER SHARE
2000 2001 2002
THCH$ THCH$ THCH$
Net income (loss) available to
holders of ordinary shares ( 621,761) 136,053 (308,674)
Goodwill amortization under US GAAP 386,856 386,856 -
----------- -------- ----------
Adjusted net income under US GGAP ( 234,905) 522,909 (308,674)
=========== ======== ==========
Basic earnings (loss) per share:
Reported net income (loss) (0.49) 0.11 (0.24)
Add back:
Goodwill amortization 0.30 0.30 -
----------- -------- ----------
Adjusted net income (loss) (0.19) 0.41 (0.24)
----------- -------- ----------
Weighted average number of ordinary shares 1,261,850 1,261,850 1,261,850
outstanding (000's)
The earnings (loss) per share data shown above are
determined by dividing net income for US GAAP purposes by
the weighted average number of common shares outstanding
during each year. The Company's common stock has no par
value.
C) FAIR MARKET VALUE DISCLOSURES
US GAAP requires disclosure of the fair value of financial
instruments owned by the Company, other than investments in
related companies that are accounted for under the equity
method. The estimated fair values of the Company's
financial instruments approximate their carrying amount.
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
o Cash and cash equivalents, trade accounts receivable
and payable, notes receivable, other accounts
receivable, short-term amounts due to/from
affiliates, short-term borrowings, other accounts
payable and investments other than marketable
securities the carrying amounts approximate fair
value because of the short maturity of these
instruments.
o Marketable securities: the fair values of marketable
securities are based on quoted market prices at the
balance sheet date for those or similar investments.
o Long-term debt, notes payable, accounts payable to
related companies and other accounts payable the
fair value of the Company's fixed rate debt is
estimated by discounting the future cash flows of
each instrument at rates currently offered to the
Company for similar debt instruments of comparable
maturities, which approximate the average rate
currently paid by the Company, The carrying amount
of the Company's variable rate debt approximates
their fair value.
The following is the fair value disclosure for available-for-sale
securities
PRICE-LEVEL GROSS GROSS ESTIMATED
RESTATED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
THCH$ THCH$ THCH$ THCH$
DECEMBER 31, 2002
Marketable securities - - - -
DECEMBER 31, 2001
Marketable securities 700 2,325 - 3,025
F-65
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(CONTINUED)
D) STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE
WITH U.S. GAAP
As of December 31, 2001 and 2002, entries in shareholders'
equity under US GAAP consisted of:
2001 2002
THCH$ THCH$
Opening shareholders' equity at January 1, as previously 76,582,603 87,203,035
reported for 2000 and 2001
Adjustment ordered by the Supervision of Values and
Insurances (Chile) ( 2,498,460) -
Adjustment of equity value of Argentine subsidiary (Paragraph, 1 k) 482,836 1,270,487
Payment from shareholders' for excess of purchase
price over historical cost of repurchased assets (Paragraph, 1 i) 8,773,611 29,109
Market value adjustment for available-for-sale
securities (Paragraph, 1, b) 2,325 -
Sale of assets to related companies (Paragraph, 1 m) 1,344,722 4,470,614
Mandatory dividend (Paragraph, 1 g) ( 119,116) -
Net income loss in accordance with
US GAAP (Paragraph, 1 m) 2,634,514 ( 308,616)
-------------- -------------
Closing shareholders' equity
as of December 31, 2001 and 2002 87,203,035 92,664,629
============== =============
E) INCOME TAX
The provision for income tax is calculated on an accrual
basis in accordance with Chilean and Argentine tax
legislation. Each company files a separate tax return. In
Chile, the corporate tax rate is 16% and certain disallowed
expenses not considered essential to the business are taxed
at 35%. In Argentina, the corporate tax rate is 35%.
Under Chilean Tax regulations, tax losses incurred by a
company in any year must first be carried back to recover
taxes previously paid, if any, on a first-in, first-out
basis. Any remaining tax losses can be carried forward
without limitation. As of December 31, 2002, the Company
and its Chilean subsidiaries had tax loss carryforwards
amounting to ThCh$ 30,204,289 which do not have an
expiration date. As of that date, the Company's Argentine
subsidiary had tax loss carryforwards amounting to ThCh$
975,941 , which expire in 2005
F-66
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
E) INCOME TAX (CONTINUED)
Income tax expense (benefit) for the years ended December 31,
2000, 2001 and 2002 were as follows:
2000 2001 2002
THCH$ THCH$ THCH$
Deferred income tax expense (benefit) under
Chilean GAAP ( 1,085,702 ) ( 2,736,217 ) ( 5,591,750 )
Additional deferred income tax expense
(benefit) under U.S. GAAP ( 1,040,165 ) 2,012,959 850,882
------------- ------------ -----------
Deferred income tax expense (benefit) under
U.S. GAAP ( 2,125,867 ) ( 723,258 ) ( 4,740,868 )
Current income tax expense - - -
------------- ------------ -----------
Total income tax expense (benefit)
under US GAAP ( 2,125,867 ) ( 723,258 ) ( 4,740,868 )
============= ============ ===========
Deferred income tax assets (liabilities) under US GAAP are
summarized as follows:
2001 2002
THCH$ THCH$
Depreciation ( 2,277,229) ( 1,287,319)
Capitalized interest ( 143,305) ( 142,918)
Marketable securities at market value ( 350) -
Other assets ( 155,917) ( 81,079)
-------------- --------------
Gross deferred income tax liabilities ( 2,576,801) ( 1,511,316)
-------------- --------------
Accrued vacation 18,510 ( 35,140)
Allowance for bad debt 29,024 120,887
Benefit of tax loss carryforward 1,917,387 8,281,583
Capital leases 144,930 11,284
Labor litigation 764 764
Deferred income 278,831 390,706
Other provisions 2,315,135 50,084
Difference in basis of property, and equipment 2,606,693 1,745,036
-------------- --------------
Gross deferred income tax assets 7,311,274 10,565,204
Valuation allowance ( 759,038) ( 467,405)
-------------- --------------
Subtotal 6,552,236 10,097,799
-------------- --------------
Net deferred income tax assets 3,975,435 8,586,483
============== ==============
Net deferred income tax liabilities under Chilean GAAP 1,854,171 7,316,101
Additional net deferred income tax assets under US GAAP 2,121,264 1,270,382
-------------- --------------
Total net deferred income tax assets as indicated above 3,975,435 8,586,483
============== ==============
F-67
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
E) INCOME TAX (CONTINUED)
The valuation allowance for deferred tax as of December 31,
2002 was ThCh$ 467,405. The net change in the total
valuation allowance for the years ended on December 31,
2001 was an decrease of ThCh$ 291,633.
The increase in the valuation allowance is due to lower
expectations of realizability of tax loss carryforwards
generated by certain Chilean subsidiaries of the Company.
The change in estimate is mainly due to the current
economic environment in Chile, the operating performance of
those subsidiaries, and the enactment of a new law that
imposes additional restrictions to the transfer of tax
losses among entities, related or not. Also, tax losses
generated in 2001 by Hipermac in Argentina have been fully
reserved because the subsidiary is not expected to generate
enough taxable income prior to the expiration of the net
operating loss carryforwards in 2005. In assessing the
realizability of deferred tax assets, management
considerers whether it is more likely than some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the
periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In
order to fully realize deferred tax asset, the Company will
need to generate future taxable income of approximately
ThCh$ 8,281,583 in future years. The net operating loss
carryforwards do not expire in Chile. Based upon the level
of historical taxable income and projections for future
taxable income over the periods which the deferred tax
assets are deductible, management believes it is more
likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation
allowances as of December 31, 2002. The amount of the
deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
F) LEASE COMMITMENTS
CAPITAL LEASES
As explained in paragraph 1 above, the Company has acquired
certain assets, principally buildings, machinery and
equipment, through capital leases.
Future minimum lease payments at December 31, 2002 were as
follows :
THCH$
DECEMBER 31,
2003 2,010,416
2004 1,992,095
2005 1,851,495
2006 1,784,239
2007 1,784,239
Thereafter 30,070,879
----------------
Total future minimum lease payments 39,493,363
Less : Unearned Interest ( 19,796,284)
----------------
Present value of lease payments 19,697,079
================
F-68
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
OPERATING LEASES
The Company leases 11 of its retail outlets in Chile under lease
agreements with remaining terms of 12 to 20 years, substantially
all of which have options for renewal, For the most part, rentals
are determined as a percentage of sales ranging from 1.5% to 2%
with guaranteed minimum lease payments. Minimum future lease
payments are as follows:
THCH$
2003 1,134,275
2004 493,176
2005 394,475
2006 394,475
2007 394,475
Thereafter 2,356,956
---------------
Total 5,167,832
===============
Lease expense was ThCh$ 1,971,685 and ThCh$ 2,225,680 for the
years ended December 31, 2002 and 2001, respectively.
G) ADDITIONAL CASH FLOW DISCLOSURES
Non-monetary transactions amounted to ThCh$ 0, ThCh$
415,640 and ThCh$ 18,166,781 in property and equipment
acquired through capital leases in 2002, 2001 and 2000,
respectively.
Cash paid for income taxes was ThCh$ 0, ThCh$ 43,486 and
ThCh$ 85,393 in 2002, 2001 and 2000, respectively.
H) POST-EMPLOYMENT AND POST-RETIREMENT BENEFITS
The Company has no post-employment or post-retirement
obligations to its employees, and accordingly, has no need
to record any obligations in accordance with either
Statement of Financial Accounting Standard No. 106
Employers' Accounting for Retirement Benefits Other
than Pensions, Statement of Financial Accounting
Standard No. 112 Employers' Accounting for Post
employment Benefits, or Statement of Financial
Accounting Standard No. 132 Employers' Disclosures
about Pensions and Other Postretirement Penefits,
I) SEGMENT INFORMATION
Statement of Financial Accounting Standard No, 131,
"Disclosures about Segments of an Enterprise and Related
Information" requires that segment information be disclosed
using a management approach. Under this pronouncement,
segments are determined using the information that the
chief operating decision makers use to manage the business.
F-69
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
I) SEGMENT INFORMATION (CONTINUED)
In mid-1999, the Company's business was only the operation
of supermarket stores in Chile and Argentina. In July 1999,
the Company sold its supermarket business in Argentina and
entered into agreements with various entities for the lease
of several owned properties. As of December 31, 2002, the
Company operates principally in two segments which comprise
the supermarket business in Chile and the real estate
business in Argentina. The accounting policies of each
segment are the same as those as described in Note 3,
"Summary of Significant Accounting Policies".
Operating income is total revenue less operating expenses,
which include cost of sales and selling and administrative
expenses. In computing operating income, none of the
following items has been added or deducted: net interest
expense, price-level restatement, other income and
expenses, minority interest and income taxes.
Identifiable assets by segment are those that are used in
the operations in each segment, as reported to the chief
operating decision makers of the Company.
Segment information under US GAAP is presented below:
TOTAL
DECEMBER 31, 2002: ARGENTINA CHILE CONSOLIDATED
THCH$ THCH$ THCH$
Net sales 647,363 121,696,193 122,343,556
Rental Income 586,015 - 586,015
Operating loss) (1) ( 1,660,341 ) ( 5,827,155 ) ( 7,487,496 )
Identifiable assets 56,240,819 86,916,983 143,157,802
Depreciation and amortization 1,925,881 4,831,634 6,757,515
Capital expenditures 1,193,178 51,157 1,244,335
TOTAL
DECEMBER 31, 2001: ARGENTINA CHILE CONSOLIDATED
THCH$ THCH$ THCH$
Net sales 4,733,573 146,604,498 151,338,071
Rental Income 1,512,774 - 1,512,774
Operating income (1) 1,200,618 3,703,678 4,904,296
Identifiable assets 54,573,908 93,155,982 147,729,890
Depreciation and amortization 1,787,578 4,165,968 5,953,546
Capital expenditures 2,697,735 11,604,224 14,301,959
F-70
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
I) SEGMENT INFORMATION (CONTINUED)
TOTAL
DECEMBER 31, 2000: ARGENTINA CHILE CONSOLIDATED
THCH$ THCH$ THCH$
Net sales 3,862,613 165,008,024 168,870,637
Rental Income 2,278,545 - 2,278,545
Operating income (loss) (1) ( 810,190 ) 585,000 ( 225,190 )
Identifiable assets 50,728,730 78,263,802 128,992,532
Depreciation and amortization 1,451,598 3,910,957 5,362,555
Capital expenditures 5,905,378 25,104,588 31,009,966
(I) Net sales minus cost of sales and selling, general and
administrative expenses,
J) ADVERTISING COSTS
The Company expenses advertising as incurred. The costs for
the years ended December 31, 2002, 2001 and 2000 were ThCh$
1,974,525 and ThCh$ 1,258,380, and ThCh$ 1,195,544,
respectively.
K) CLASSIFICATION OF INCOME AND EXPENSES
Under Chilean GAAP the following income and expenses
arising during the years 2001 and 2002 are classified as
non-operating income and expenses whereas under U.S. GAAP
they would be classified as operating income and expenses:
2001 2002
THCH$ THCH$
Amortization of goodwill 386,856 -
Rental income 11,167 7,135
Penalties 96,485 28,730
----------- ------------
Total 494,508 35,865
=========== ============
F-71
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
L) PREEMPTIVE RIGHTS
The Chilean Companies Act requires a Chilean company to
grant preemptive rights to all of its existing shareholders
to purchase a sufficient number of shares to maintain their
existing percentage of ownership of such company whenever
the company issues new shares for cash. Under this
requirement any preemptive rights in connection with any
future issuance of shares of common stock for cash will be
offered to the registered owners of the common stock
underlying the ADRs, However, the holders of ADRs are not
entitled to exercise their preemptive rights unless a
registration statement under the United States Securities
Act is effective with respect to these rights and shares of
common stock or an exemption from the registration
requirements thereunder is available. In addition, a
Central Bank ruling issued in 1995 effectively makes it
impracticable for ADR holders to participate in preemptive
rights offerings. In accordance with such ruling, ADR
holders may exercise their preemptive rights and thus
convert the newly acquired shares into ADRs being offered
through the preemptive rights offering only if the company
issuing such shares has entered into a new Foreign
Investment Contract, as defined, with the Central Bank in
order to cover the newly issued shares under the benefits
of Chapter XXVI, also as defined.
The Company's Management intends to evaluate at the time of
any preemptive rights offering the practicability under
Chilean law and Central Bank regulations of making such
rights available to ADR holders, the costs and potential
liabilities associated with registration of such rights and
the related shares of common stock under the Securities
Act. No assurance can be given that any registration
statement would be filed.
M) INTANGIBLES
As of December 2001 and 2002 this account is made up mainly
by trade marks and acquired rights from Hipermarc,
Interagro S.A. and Supermercados Unimarc S.A. (related
companies) which are not amortized.
DETAIL 2002 2001
MCH$ MCH$
Trade marks 7,588 7,159
Goodwill 4,091 4,213
-------------- -------------
Total 11,679 11,372
============== =============
F-72
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
3. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board
(FASB) issued the Statement of Financial Accounting
Standards (SFAS) N(degree). 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS. This statement addresses financial
accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies
to all entities, also to legal obligations associated with
the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain
obligations of lessees. This statement is in force for
financial statements issued for periods starting after June
15, 2002. The Company has not determined the impact that
SFAS 145 will have, if any, on its financial statements.
In April 2002, the FASB issued SFAS No, 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No, 13, and Technical Corrections. SFAS 145 is
effective for fiscal years beginning after May 15, 2002.
The Company has not determined the impact that SFAS 145
will have, if any, on its financial statements.
In July 2002, the FASB issued SFAS No, 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS 146
is effective for exit or disposal activities initiated
after December 31, 2002. The Company does not expect the
adoption of this standard to have any impact on its
financial position or results of operations.
In November 2002 the FASB issued FASB Interpretation No. 45
or FIN 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantee
of Indebtedness of Others. FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation it assumes
under that guarantee. FIN 45's provisions for initial
recognition and measurement should be applied on a
prospective basis to guarantees issued or modified after
December 31, 2002. The guarantor's previous accounting for
guarantees that were issued before the date of FIN 45's
initial application may not be revised or restated to
reflect the effect of the recognition and measurement
provisions of the Interpretation. The disclosure
requirements are effective for financial statements of both
interim and annual periods that end after December 15,
2002. The Company is not a guarantor under any significant
guarantees and thus this interpretation is not expected to
have a significant effect on the Company's financial
position or results of operations. The Company has not
determined the impact that FIN45 will have, if any, on its
financial statements.
On December 31, 2002, the FASB issued SFAS No, 148,
Accounting for Stock-Based Compensation - Transition and
Disclosure - An Amendment of SFAS 123. The standard
provides additional transition guidance for companies that
elect to voluntarily adopt the accounting provisions of
SFAS 123, Accounting for Stock-Based Compensation. SFAS 148
does not change the provisions of SFAS 123 that permits
entities to continue to apply the intrinsic value method of
APB 25, Accounting for Stock Issued to Employees. As the
Company continues to follow APB 25, its accounting for
stock-based compensation will not change as a result of
SFAS 148. SFAS 148 does require certain new disclosures in
both annual and interim financial statements. The Company
has no stock options granted or issued and therefore the
adoption of this standard would not have any effect on the
financial position or results of operations.
F-73
NOTE 41- DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
3. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In January 2003, the Emerging Issues Task Force issued
"Accounting by a Reseller for Certain Considerations from a
Vendor" as EITF 02-16. This EITF clarifies the accounting
by the reseller for certain considerations such as rebates,
discounts, etc. received from a vendor. This EITF also
addresses the clarification if such consideration in the
income statement. This literature is effective for all such
arrangements entered into after December 31, 2002. The
Company believes that certain classifications of our vendor
allowances may be required as the result of this EITF, but
also believe that the impact on our statements of
operations will be zero.
During April 2003, the FASB issued Statement of Financial
Accounting Standards No, 149 (" SFAS 149"), "Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities". SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities under Statement 133. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003.
The guidance should be applied prospectively. The adoption
of SFAS 149 will not have any impact on our operating
results or financial position as the Company does not have
any derivative instruments that are affected by SFAS 149 at
this time.
During May 2003, the FASB issued Statement of Financial
Accounting Standards No, 150 ("SFAS 150"), "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS 150 clarifies the accounting
for certain financial instruments with characteristics of
both liabilities and equity and requires that those
instruments be classified as liabilities in statements of
financial position. Previously, many of those financial
instruments were classified as equity. SFAS 150 is
effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at
the beginning of the first interim period beginning after
June 15, 2003. The Company does not expect the adoption of
this standard to have any impact on its financial position
or results of operations.
F-74