Exhibit 1
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
Consolidated financial statements
As of December 31, 2000 and 2001 and for each
of the three years in the period ended December 31, 2001
CONTENTS
Report of independent accountants
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of cash flows
Notes to the consolidated financial statements
Ch$ - Chilean pesos
ThCh$ - Thousands of Chilean pesos
US$ - United States dollars
ThUS$ - Thousands of United States dollars
UF - Unidad de Fomento, an inflation-indexed peso-denominated monetary
unit. The UF rate is set daily in advance based on the previous
month's inflation rate
R$ - Brasilian reals
[LOGO of PricewaterhouseCoopers]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Embotelladora Andina S.A.
We have audited the accompanying consolidated balance sheets of Embotelladora
Andina S.A. and its subsidiaries (the "Company") as of December 31, 2000 and
2001, and the related consolidated statements of income and of cash flows for
each of the three years in the period ended December 31, 2001 all expressed in
thousands of constant Chilean pesos of December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with auditing standards generally
accepted in both Chile and in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Embotelladora Andina S.A. and its subsidiaries as of December 31, 2000 and
2001 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in Chile.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting of deferred
income taxes in accordance with Technical Bulletin No.60 of the Chilean
Institute of Accountants.
As described in Note 19, as of December 31, 2001 the Company maintains
investments in Argentina that could be subject to adverse effects from the
political and economic uncertainty in Argentina.
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 the determination
of consolidated net income for each of the three years in the period ended
December 31, 2001 and the determination of consolidated shareholders' equity
as of December 31, 2000 and 2001 to the extent summarized in Note 25 to the
consolidated financial statements.
Santiago, February 15, 2002
F-1
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos of December 31, 2000 and
thousands of U.S. dollars)
At December31,
----------------------------------------------------------------
ASSETS Note 2000 2001 2001
- ------ ---- ------------- -------------- ----------------
ThCh$ ThCh$ ThUS$
(Unaudited Note
1 aa)
CURRENTS ASSETS:
Cash 12,530,835 13,868,565 21,180
Time deposits 3 149,771,469 18,171,362 27,752
Marketable securities 4 15,727,118 25,574,151 39,057
Receivables (net) 5 58,232,614 57,949,011 88,500
Amounts due from related companies 10 d) 25,810 1,412,981 2,158
Inventories 6 24,942,350 17,325,337 26,459
Recoverable taxes 9,381,558 5,473,501 8,359
Deferred income taxes 15 c) 874,854 503,438 769
Other current assets 7 8,536,822 8,191,160 12,510
------------ ------------- -------------
Total current assets 280,023,430 148,469,506 226,744
------------ ------------- -------------
PROPERTY, PLANT AND EQUIPMENT: 9
Land 14,822,116 15,496,623 23,667
Buildings and improvements 91,670,912 96,931,734 148,035
Machinery and equipment 258,799,186 232,401,564 354,925
Other property, plant and equipment 154,821,823 171,308,460 261,624
Technical reappraisal of property, plant and
equipment 1,823,156 1,823,156 2,784
Less: Depreciation (272,301,816) (300,551,003) (459,004)
------------ ------------- -------------
Total property, plant and equipment 249,635,377 217,410,534 332,031
------------ ------------- -------------
OTHER ASSETS:
Investments in related companies 10 a) 7,062,828 18,404,997 28,108
Goodwill (net) 10 b) 108,729,886 111,264,249 169,924
Investments in other companies 10 376,160 671,902 1,026
Long-term receivables 899,635 1,145,606 1,750
Amounts due from related companies 10 d) 147,399 131,340 201
Intangible assets (net of accumulated
amortization of 1,855,506 in 2000 and
2,339,302 in 2001) 1,158,630 975,371 1,490
Deferred income taxes 15 c) 638,382 -- --
Other long-term assets 11 27,877,500 191,241,082 292,065
------------ ------------- -------------
Total other assets 146,890,420 323,834,547 494,564
------------ ------------- -------------
Total assets 676,549,227 689,714,587 1,053,339
============ ============= =============
_________________
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos of December 31, 2001 and
thousands of U.S. dollars)
At December31,
-----------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Note 2000 2001 2001
- ------------------------------------ ---- ------------- -------------- ---------------
ThCh$ ThCh$ ThUS$
(Unaudited Note
1 aa)
CURRENT LIABILITIES:
Short-term bank liabilities 12 a) 14,894,135 14,040,704 21,443
Current portion of long-term bank liabilities 12 b) 1,369,891 7,189,897 10,981
Current portion of bonds payable 13 a) 2,914,379 1,192,439 1,821
Dividends payable 4,042,842 3,911,365 5,974
Trade accounts payable and notes payable 40,227,345 34,776,605 53,111
Other accrued liabilities 14 12,245,137 11,967,077 18,276
Amounts payable to related companies 10 d) 11,246,836 12,133,989 18,531
Income taxes payable 2,231,103 2,513,844 3,839
Other taxes payable 14,662,156 10,862,303 16,589
Other short-term liabilities 129,757 125,855 192
-------------- -------------- --------------
Total current liabilities 103,963,581 98,714,078 150,757
-------------- ============== ==============
LONG-TERM LIABILITIES:
Long-term bank liabilities 12 b) 3,302,371 55,333,408 84,506
Bonds payable 13 a) 159,391,234 146,988,018 224,481
Amounts payable to related companies 10 d) 209,001 -- --
Trade accounts payable and notes payable 491,844 198,747 304
Other accrued liabilities 14 5,330,147 6,208,245 9,481
Deferred income taxes 15 c) -- 1,446,852 2,210
Other long-term liabilities 18 12,918,603 8,687,366 13,268
--------------
Total long-term liabilities 181,643,200 218,862,636 334,250
-------------- -------------- --------------
Minority interest 21 18,736 45,577 70
-------------- -------------- --------------
Contingencies and commitments 19
SHAREHOLDERS' EQUITY: 20
Paid-in capital 179,149,060 179,149,060 273,598
Other reserves 39,315,030 46,252,421 70,637
Retained earnings from previous years 151,984,192 125,211,171 191,223
Net income for the year 32,477,257 33,066,958 50,500
Interim dividends (12,001,829) (11,587,314) (17,696)
-------------- -------------- --------------
Total shareholders' equity 390,923,710 372,092,296 568,262
-------------- -------------- --------------
Total liabilities and shareholders' equity 676,549,227 689,714,587 1,053,339
============== ============== ==============
________________
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos of December 31, 2001 and
thousands of U.S. dollars)
For the years ended December 31,
---------------------------------------------------------------------
Note 1999 2000 2001 2001
---- ------------ ------------- ------------ -------------
ThCh$ ThCh$ ThCh$ ThUS$
(Unaudited
Note 1 aa)
(OPERATING RESULTS
Net sales 416,063,068 458,843,410 481,927,118 736,003
Cost of sales (259,214,226) (277,683,559) (301,613,601) (460,627)
------------ ------------ ------------ ------------
Gross profit 156,848,842 181,159,851 180,313,517 275,376
Administrative and selling expenses (116,991,105) (124,618,842) (124,487,558) (190,118)
------------ ------------ ------------ ------------
Operating income 39,857,737 56,541,009 55,825,959 85,258
------------ ------------ ------------ ------------
NON-OPERATING INCOME AND EXPENSE:
Financial income 14,573,941 24,892,095 32,477,900 49,601
Other non-operating income 22 a) 12,174,682 2,253,236 30,134,104 46,021
Financial expense (18,139,590) (20,772,964) (33,188,219) (50,685)
Other non-operating expense 22 b) (11,917,632) (17,403,049) (26,153,495) (39,942)
Share of income (loss) from
related companies 10 a) 360,618 (1,319,207) (1,365,809) (2,086)
Amortization of goodwill (4,515,483) (6,301,251) (10,713,326) (16,362)
Price-level restatement (1,387,181) (8,456,045) (9,497,577) (14,505)
Exchange gains, net 3,778,766 4,988,338 2,779,743 4,245
------------ ------------ ------------ ------------
Non-operating income (expense) (5,071,879) (22,118,847) (15,526,679) (23,713)
------------ ------------ ------------ ------------
Income before income tax expense and
minority interest 34,785,858 34,422,162 40,299,280 61,545
Less: Income tax expense 15 d) (5,503,255) (1,872,403) (7,211,107) (11,013)
------------ ------------ ------------ ------------
Income before minority interest 29,282,603 32,549,759 33,088,173 50,532
Less: Income attributable to minority
interest 21 71,949 (72,502) (21,215) (32)
------------ ------------ ------------ ------------
Net income 29,354,552 32,477,257 33,066,958 50,500
============ ============ ============ ============
________________
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos of December 31, 2001 and
thousands of U.S. dollars)
For the years ended December 31,
----------------------------------------------------------------
1999 2000 2001 2001
------------- --------------- -------------- --------------
ThCh$ ThCh$ ThCh$ ThUS$
(Unaudited
Note 1 aa)
CASH FLOWS FROM OPERATING ACTIVITIES:
Collection of trade receivables 545,175,210 615,104,710 692,748,550 1,057,971
Financial income received 14,313,753 9,926,006 20,792,360 31,754
Dividends and other distributions received -- 174,436 -- --
Collection of other receivables 19,071,589 37,498,138 24,489,574 37,401
Payments to suppliers and personnel (403,428,670) (456,068,206) (544,189,605) (831,090)
Interest paid (16,486,609) (22,652,059) (23,382,432) (35,710)
Income tax payments (11,363,961) (3,326,596) (2,137,749) (3,265)
Other expenses (3,153,526) (3,433,715) (3,054,820) (4,665)
VAT and other similar items paid (73,517,743) (81,836,887) (75,717,642) (115,637)
------------ ------------ ------------ ------------
Net cash provided by operating activities 70,610,043 95,385,827 89,548,236 136,759
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from banks and others 15,231,136 18,568,472 109,882,299 167,813
Proceeds from issuance of bonds -- -- 111,245,134 169,894
Payment of bond issuance costs -- -- (1,710,381) (2,612)
Other sources of financing, net -- (88,869) (3,257,486) (4,975)
Payment of loans (10,836,228) (13,454,381) (108,578,638) (165,822)
Repayment of bonds -- (37,379,831) (141,599,947) (216,253)
Dividends paid (21,278,920) (72,631,627) (58,550,823) (89,419)
------------ ------------ ------------ ------------
Net cash (used in) provided by financing
activities (16,884,012) (104,986,236) (92,569,842) (141,374)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and
equipment and intangible assets 2,185,975 7,472,113 26,884,247 41,058
Proceeds from sales of other investments 196,990,755 459,393,387 783,626,324 1,196,760
Collection of loans to related companies -- 1,222,809 1,626,369 2,484
Proceeds from other asset sales 12,160,807 549,193 141,899 217
Investments in financial instruments (171,109,473) (379,670,567) (803,840,727) (1,227,631)
Additions to property, plant and equipment (35,802,395) (27,486,611) (22,615,896) (34,539)
Investments in related companies (13,226,252) (47,601,813) (15,962,133) (24,377)
Loans to related companies -- (1,172,982) -- --
------------ ------------ ------------ ------------
Net cash (used in) provided by investing
activities (8,800,583) 12,705,529 (30,139,917) (46,028)
------------ ------------ ------------ ------------
Net cash flows from operating, financing
and investing activities 44,925,448 3,105,120 (33,161,523) (50,643)
PRICE-LEVEL RESTATEMENT OF CASH AND CASH
EQUIVALENTS 4,843,345 (786,109) (7,986,764) (14,696)
------------ ------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 49,768,793 2,319,011 (41,148,287) (65,339)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 46,785,631 96,554,424 98,873,435 153,498
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 96,554,424 98,873,435 57,725,148 88,159
============ ============ ============ ============
________________
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos of December 31, 2001 and
thousands of U.S. dollars)
For the years ended December 31,
---------------------------------------------------------
1999 2000 2001 2001
------------ ----------- ------------- -------------
ThCh$ ThCh$ ThCh$ ThUS$
(Unaudited
Note 1 aa)
RECONCILIATION BETWEEN NET INCOME AND NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES:
Net income 29,354,552 32,477,257 33,066,958 50,500
Income on sales of assets:
Loss (gain) on sales of property, plant and equipment 406,412 144,042 (4,001,920) (6,112)
Loss on sales of investments and other assets 117,431 (102,158) (1,818) (3)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 42,457,418 41,779,491 40,706,602 62,168
Amortization of goodwill 4,515,483 6,301,251 10,713,326 16,362
Amortization of intangibles and deferred issuance
costs 519,601 2,329,138 4,430,520 6,766
Write-offs and provisions 5,250,126 10,910,267 9,851,546 15,045
Share of income (loss) from affiliate companies, net (360,618) 1,319,207 1,365,809 2,086
Price-level restatement 1,387,181 8,456,045 9,497,577 14,505
Exchange gains, net (3,778,766) (4,988,338) (2,779,743) (4,245)
Other credits to income that do not represent cash
flows (11,701,113) (21,157,750) (50,853,356) (77,664)
Other debits to income that do not represent cash
flows 12,955,335 9,652,093 37,606,943 57,434
Income (loss) attributable to minority interest (71,949) 72,502 21,215 32
Change in operating assets / liabilities:
Receivables 5,621,969 (3,039,183) 6,706,919 10,243
Inventories (2,899,809) 655,218 7,524,089 11,491
Other current assets (414,471) 1,974,883 (9,809,406) (14,981)
Trade accounts payable and notes payable relating to
operating activities 1,366,947 3,241,403 (1,964,195) (3,000)
Interest payable 1,133,503 685,555 (4,804,940) (7,338)
Income taxes payable (6,594,868) 486,392 2,678,074 4,090
Trade accounts payable and notes payable relating to
non-operating activities 394,419 247,799 (2,533,130) (3,869)
VAT and other similar taxes (9,048,740) 3,940,713 2,127,166 3,249
----------- ----------- ----------- -----------
Net cash provided by operating activities 70,610,043 95,385,827 89,548,236 136,759
=========== =========== =========== ===========
______________
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2000 AND 2001
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------------------------
Embotelladora Andina S.A. is registered under No. 00124 in the Securities
Registry and is subject to the regulations of the Chilean Superintendency of
Securities and Insurance Companies (the "SVS"):
The primary activity of Embotelladora Andina S.A. ("Andina", and together with
its subsidiaries, the "Company") is the production and sale of Coca-Cola
products and other beverages. The Company has bottling operations in Santiago,
Chile and, through its subsidiaries, in Rio de Janeiro, Espiritu Santo and
Minas Gerais, Brazil, and Mendoza, Cordoba, and Rosario, Argentina. The
Company holds franchises from The Coca-Cola Company covering each of its
Chilean, Brazilian and Argentine operations. The franchise for the Chilean
territory expires in 2003 and may be extended to 2008 at the option of The
Coca-Cola Company. The franchise for the Brazilian territory expires in 2003
and can be extended to 2008 at the option of The Coca-Cola Company. In
Argentina, the Company holds franchises for each of Mendoza, Rosario and
Cordoba, which expire in 2006 and can be extended at the option of The
Coca-Cola Company. Such franchises are expected to be renewed upon expiration.
The repatriation of capital and dividends from the Company's investments in
Brazil is subject to certain restrictions in accordance with local Brazilian
legislation. Earnings may be distributed only out of local currency retained
earnings reported in the tax accounting records. At December 31, 2001, there
are no distributable profits in Argentina or Brazil. There exist US$ 26
million of undistributed profits in Uruguay; it is the intention of the
Company to continue to invest these funds for the foreseeable future.
Legal reorganizations and joint ventures:
On November 22, 2001, Sociedad Andina Bottling Investments Dos S.A. was
incorporated with capital of US$ 100 million, which shall be paid up within a
maximum period of three years from the incorporation date.
On June 29, 2001, Embotelladora Andina S.A. and Cristalerias de Chile S.A.
("Cristalerias") entered into a number of contracts establishing a joint
venture for the PET plastic container business in which these companies were
involved through their respective subsidiaries, Envases Multipack S.A. and
Crowpla Reicolite S.A. This joint venture was undertaken by the Company
through the incorporation of its subsidiary, Andina Inversiones Societarias
S.A., as shareholder of 50% of the shares of Crowpla Reicolite S.A. The
remaining 50% of these shares are owned by Cristalerias. In addition, Crowpla
purchased the necessary assets from Multipack to develop this joint venture.
On October 16, 2001, at the General Extraordinary Shareholders Meeting of
Crowpla, the shareholders agreed to change the Company's name to "ENVASES CMF
S.A." ("CMF"). As a result of the previously described asset purchase, an
unrealized gain of ThCh$1,328,855 was generated, which will be recorded over
the remaining useful life of property, plant and equipment sold to CMF.
On April 1, 2000, the Company terminated the Salucao Pet joint venture entered
into with Continental Pet Technology, which resulted in the spin out of
certain assets and liabilities to Continental Pet Technology, such that
Solucao Pet Ltda. ("Solucao") became 100% owned by Andina Bottling Investment.
F-7
In October, 2000, the subsidiaries in Brazil controlled by the operating
subsidiary, Rio de Janeiro Refrescos Ltda. ("Refrescos"), were transferred and
merged, resulting in the absorption of the companies Solucao and Transportes
Landa Rio Ltda. Subsequently Refrescos merged with Brazilian Copa
Participacoes Ltda., with Refrescos becoming the surviving company.
On November 30, 1999, the Board of Directors of Andina agreed to modify the
organizational structure of the Company, and subsequently, the administration
of foreign subsidiaries in order to take advantage of additional operating and
non-operating efficiencies. The restructuring was implemented in two phases:
The first phase consisted of:
1. The merger of the Company's two Argentine subsidiaries, Inversiones del
Atlantico S.A. ("IASA") and Embotelladora del Atlantico S.A. ("EDASA"),
forming a single entity with the name EDASA;
2. The disolution of the Uruguayan investment subsidiary, Inversora Perlock
S.A.;
3. The receipt of shares in the subsidiary, Complejo Industrial PET S.A.
from IASA to liquidate a receivable due from IASA from a previously
irrevocable capital contribution; and
4. The acquisition of Solucao Brazilian packing operations through the
purchase of 50% of the outstanding shares of Solucao from Andina's
subsidiary, Envases Multipack S.A.
In the second phase, Andina transferred the ownership of the following foreign
subsidiaries to Andina Bottling Investments S.A. (previously EASA Chile S.A.):
1. Andina's majority interest in EDASA and companies in which EDASA was a
shareholder, i.e. Cican S.A. (Argentina);
2. The Brazilian investment company, Brazilian Copa Participacoes Ltda.
("BCP"), and companies in which BCP was a shareholder, i.e. Refrescos and
its subsidiaries;
3. The Uruguayan investment subsidiary, The Sterling Pacific Corp.
("Sterling"); and
4. Andina's majority shareholder interests in overseas bottling operations,
Complejo Industrial Pet S.A. in Argentina and Solucao in Brazil.
The reorganization process was completed in December 1999. The unrealized
gains/(losses) between Andina and its subsidiaries from transactions occurring
during the reorganization have been eliminated from the Company's financial
statements.
Acquisitions:
As discussed in Note 10, in March 2000 the indirect subsidiary Refrescos
purchased through a share exchange a new franchise for the sale of carbonated
drinks, beer, and mineral water throughout the northern territory of the state
of Rio de Janeiro, Espiritu Santo, and the southern part of the state of Minas
Gerais previously owned by Nitvitgov Refrigerantes S.A. ("Nitvitgov") for a
total of US$ 75 million. Subsequently, on May 23, 2000, the shareholders
authorized Refrescos to incorporate Nitvitgov, which in addition owned 25% of
Centralli Refrigerantes S.A. The franchise authorizes the production, sale,
and distribution of products under The Coca-Cola Company trademark in the
above-mentioned territories.
F-8
Accounting policies:
The significant accounting policies of the Company are as follows:
a) General
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Chile ("Chilean
GAAP") and regulations established by the SVS.
The accompanying financial statements reflect the consolidated results of
operations of Andina and its subsidiaries. All significant intercompany
transactions have been eliminated. The Company consolidates the financial
statements of the companies in which it controls a majority of voting shares
or has the ability, direct or indirect, to direct the management and policies
of the company. The Company owns, directly or indirectly in excess of 99.5% of
the shares of all of its subsidiaries.
The preparation of financial statements in conformity with Chilean GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
b) Constant currency restatement
The financial statements of the Company have been price-level restated in
order to reflect the effects of changes in the purchasing power of the Chilean
currency during each year. All non-monetary assets and liabilities and all
income statement accounts have been restated to reflect the changes in the
Chilean consumer price index from the date of acquisition, incurrence or
occurrence to the end of the year.
The restatements were calculated using the official consumer price index of
the National Institute of Statistics (the "CPI") and were based on the "prior
month rule", pursuant to which the inflation adjustments are based on the CPI
at the close of the month preceding the close of the respective period or
transaction. This index is considered by the business community, the
accounting profession and the Chilean government to be the index that 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 values for the CPI used for price-level restatement purposes are as
follows:
Change over
Previous
Index November 30
---------- ------------
%
November 30, 1999 102.04 2.6
November 30, 2000 106.82 4.7
November 30, 2001 110.10 3.1
F-9
By way of comparison, the values for the CPI at each year end are as follows:
Change over
Previous
Index December 31
---------- ------------
%
December 31, 1999 102.31 2.3
December 31, 2000 106.94 4.5
December 31, 2001 109.76 2.6
The above-mentioned price-level restatements do not purport to represent
appraisal or replacement values 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 net result 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.
Assets and liabilities that are denominated in index-linked units of account
are stated at the year-end values of the respective units of account. The
principal index-linked unit used in Chile is the UF that changes daily to
reflect the changes in the CPI. Many of the Company's investments are linked
to the UF unit. As the Company's indexed liabilities exceed its indexed
assets, the increase in the index results in a net loss on the indexation in
2001, (net loss on indexation in 2000 and a net gain on indexation 1999).
Values for the UF are as follows (historical pesos per UF):
Ch$
-----------
December 31, 1999 15,066.96
December 31, 2000 15,769.92
December 31, 2001 16,262.66
All amounts in the financial statements and notes are expressed in Chilean
pesos of December 31, 2001 purchasing power, unless otherwise stated. For
comparative purposes, the 1999 and 2000 financial statements, and the amounts
disclosed in the related footnotes, have been restated in terms of Chilean
pesos of December 31, 2001 purchasing power. This updating does not change the
prior year's statements or information in any way except to update the amounts
to Chilean pesos of similar purchasing power.
c) Assets and liabilities in foreign currency
Assets and liabilities denominated in foreign currencies were translated into
Chilean pesos at the exchange rates reported by the Central Bank of Chile as
follows:
Exchange rates
at December 31,
--------------------------------------
Currency 2000 2001
- ----------------- ---------- ----------
Ch$ Ch$
U.S. dollar 573.65 654.79
Pesos (Argentina) 573.65 385.17
Reales (Brazil) 293.37 282.19
F-10
d) Time deposits and marketable securities
Time deposits are shown at cost plus price-level restatements and accrued
interest, which approximates market value.
Marketable securities relate to units in mutual funds which are stated at
redemption value at the end of each year.
Fixed income securities are valued at purchase cost plus accrued interest and
price-level restatements at year-end.
e) Allowance for doubtful accounts
The allowance for doubtful accounts consists of a general provision determined
on the basis of the aging of debts and additional allowances for specific
customers where collection is doubtful. In the opinion of the Company's
management, the allowances are reasonable and the net balances are
recoverable.
f) Inventories
Inventories are stated at purchase and/or production cost, adjusted for
price-level restatements and are computed under the average cost method.
Provisions are made for obsolescence on the basic of turnover of raw materials
and finished products. The stated values of inventories do not exceed their
estimated net realizable value.
g) Recoverable taxes
Recoverable taxes represent a net account receivable for value-added taxes on
purchases and sales.
h) Income taxes and deferred income taxes
The Company has recognized its current tax obligations in conformity with
current legislation. The effects of deferred income taxes arising from
temporary differences between the basis of assets and liabilities for tax and
financial statement purposes are recorded on the basis of the enacted tax rate
that is in effect and the estimated date of reversal, in conformity with
Technical Bulletin Nos. 60 and 71 issued by the Chilean Institute of
Accountants. Previously unrecorded deferred income taxes at January 1, 2000
are recognized in income as the temporary differences reverse.
Until December 31, 1999, deferred income taxes were recorded on the basis of
timing differences at year end that were not going to be offset by new timing
differences, arising from the same item, between tax and financial results.
i) Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost plus price-level
restatements less accumulated depreciation. Expenditures for significant
improvements, or replacement parts, which extend the useful life of an asset
for more than one year are capitalized, while maintenance and repair costs are
charged to operations as incurred. Gains and losses arising from normal
retirement and disposal of property, plant and equipment are reflected in
"Other non-operating income and expense".
F-11
Property, plant and equipment to be disposed of are valued at the lower of the
net realizable value and book value, based on independent appraisals.
Unrealized losses are reflected in the consolidated statement of income under
"Other non-operating expense".
During 1979, the SVS authorized a technical appraisal of certain property,
plant and equipment, which is shown under the heading "Technical reappraisal
of property, plant and equipment".
Depreciation expense, amounting to ThCh$ 42,457,418, ThCh$ 41,779,491 and
ThCh$ 40,706,602 for 1999, 2000 and 2001, respectively, is determined by the
straight-line method based on the estimated useful lives of the revalued
assets, which are as follows:
Years
--------------
Buildings and improvements 25-60
Machinery and equipment 10
Containers 2-5
Other 1-10
j) Containers
Containers kept at plants and warehouses, as well as bottles and plastic
containers held by third parties, are stated at cost plus price-level
restatements, net of depreciation. Broken bottles or spoiled containers at
warehouses or plants are expensed in each accounting period.
k) Deposits for containers
The liability for deposits for containers in circulation is estimated based on
the number of bottles in circulation and the weighted average deposit value
per bottle.
This liability is presented under "Other long-term liabilities" considering
that the number of new bottles in circulation during a year is higher than the
number of bottles returned during the same period.
l) Computer software
Software currently in use corresponds to computer packages purchased from
third parties and programs developed internally. Software purchased from third
parties is capitalized and amortized over a maximum period of four years.
Disbursements incurred for computer system development and for the use of
Company resources are charged to expense.
m) Investments in related companies
Investments in companies in which the Company's participation exceeds 10% but
is less than 50% are accounted for using the equity method. The Company's
proportionate share in net income and loss of related companies is recognized
in "Other non-operating income and expense" in the consolidated statements of
income, after eliminating any unrealized profits or losses from transactions
between related companies.
Investments in which the participation is below 10% are accounted for at cost
plus price-level restatements.
F-12
n) Intangibles
Intangibles include franchise rights and licenses that are amortized over the
terms of the contracts, not in excess of 20 years.
o) Goodwill
The Company has classified the cost in excess of fair value of the net assets
of companies acquired in purchase transactions as goodwill. Goodwill generated
on acquisitions is amortized on a straight-line basis over 20 years.
Amortization of goodwill amounted to ThCh$ 4,515,483, ThCh$ 6,301,251 and
ThCh$ 10,713,326 for the years ended December 31, 1999, 2000 and 2001,
respectively.
p) Transactions under resale agreements
Purchases of securities under resale agreements are recorded at cost.
Applicable interest is recorded as financial income using the straight-line
method on an accrual basis.
q) Issuance costs
The issuance and placement costs of bonds are shown in "Other current assets"
and "Other long-term assets" and are being amortized on a straight-line basis
over the life of the respective instruments.
Costs include legal, reports on risk classification, printing, and commissions
on issuance and are presented net of accumulated amortization.
r) Claims for recovery
Claims for recovery represent contractual rights for recovery of contingent
losses from one of the former owners of the Company's Brazilian bottling
subsidiary, Refrescos. Such losses pertain to labor, tax and other matters
that are the subject of legal proceedings for which the former owners have
accepted responsibility, including the cost of conducting appropriate legal
defenses. The claims for recovery are recognized in the full amount of the
accrual for losses and contingencies, which is less than the amounts of
guarantees provided by the former owners.
s) Bonds payable
Bonds payable includes placement of Yankee Bonds in the US markets and
placement of bonds in UF in Chile, which are carried at par value. The
difference in the par value and the proceeds received, the purchase discount,
is recorded as a deferred asset. This asset is amortized using the
straight-line method over the term of the respective obligations.
t) Staff severance indemnities
The Company has recorded a liability for long-term service indemnities in
accordance with the collective bargaining agreements entered into with its
employees in Chile. The indemnity is payable to employees at the rate of one
full month's salary for every year of service with the Company. This liability
is shown at the present value of the accrued benefits which was calculated by
applying a real discount rate of 7% per annum to the benefit accrued as of the
end of the year over an average future service period of 15 years.
F-13
u) Sales recognition
The Company records sales revenue based on the physical delivery of finished
products to its clients, in accordance with Technical Bulletin No. 70 issued
by the Chilean Institute of Accountants.
v) Franchise incentives
The Coca-Cola Company, at its sole discretion, provides the Company with
various benefits and incentives, including advertising and promotional
support. The amounts received from The Coca-Cola Company for such support are
included within the captions that compose operating income, depending on the
nature of the support given.
w) Derivative transactions
The Company enters into forward and swap contracts to cover the risk of
exposure to exchange rate differences on liabilities denominated in United
States dollars.
These hedge instruments are recorded at their market values at the closing
date of the financial statements. Unrealized losses are recognized as a charge
to income and gains are deferred and included in other liabilities (current or
long-term) until realized.
Hedge contracts for anticipated transactions are recorded at market value and
their changes in value are accounted for as unrealized gains or losses. Upon
contract expiration, the deferred gains and losses are recorded in income.
x) Translation of financial statements in foreign currencies
The financial statements of the non-Chilean subsidiaries of Andina have been
converted to Chilean pesos in accordance with Technical Bulletin No. 64,
"Accounting for Investments Abroad", of the Chilean Institute of Accountants
for the years ended December 31, 1999, 2000 and 2001. Assets and liabilities
from these investments are translated into Chilean pesos at the year end
exchange rate, except that non-monetary assets and liabilities and
shareholders' equity are first expressed at their equivalent value in
historical US dollars. Income and expense items are first translated into US
dollars at the average exchange rate during the month.
y) Cash flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a remaining maturity of less than
three months at the closing date of the financial statements, including
securities purchased under resale agreements, to be cash equivalents.
Cash flows from operating activities include all business-related cash flows
as well as interest paid, financial income and, in general, all cash flows not
defined as from financing or investing activities. The operating concept used
in this statement is broader than that in the consolidated statement of
income.
z) Reclassifications
Certain balances from prior years have been reclassified to conform with
current year presentation.
F-14
aa) Translation to U.S. dollars (Unaudited)
The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The U.S. dollar amounts disclosed in the
accompanying financial statements are presented solely for the convenience
of the foreign reader at the December 31, 2001 closing exchange rate of Ch$
654.79 per US$ 1.00. No representation is made that the Chilean peso amounts
could have been, or could be, converted into U.S. dollars at that rate or at
any other rate.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES
- -----------------------------------------
Effective January 1, 2000, the Company began applying Technical Bulletin No.
60 of the Chilean Institute of Accounts concerning deferred income taxes. This
bulletin requires the recognition of deferred income taxes for all temporary
differences, whether recurring or not, using an asset and liability approach.
This change resulted in a net credit to income of ThCh$ 3,685,320 during the
year ended December 31, 2000.
The cumulative effect of this accounting change for years prior to 2000
resulted in the recognition of a net deferred tax asset and an offsetting
liability of ThCh$ 1,788,172 at January 1, 2000. The liability and the asset
are being offset over the projected period of reversal of such temporary
differences without affecting net income. However, there will be an effect on
future results arising from the recognition of the reversal of the temporary
differences in the current income tax provisions of such periods.
NOTE 3 - TIME DEPOSITS
- ----------------------
Time deposits, at each year-end were as follows:
At December 31
-----------------------------------------------
2000 2001
----------------- ------------------
ThCh$ ThCh$
Foreign currency deposits 149,771,469 18,171,362
----------- ----------
Total 149,771,469 18,171,362
=========== ==========
NOTE 4 - MARKETABLE SECURITIES
- ------------------------------
Marketable securities at each year-end were as follows:
At December 31
-----------------------------------------------
2000 2001
----------------- ------------------
ThCh$ ThCh$
Units in mutual funds 15,727,118 25,574,151
----------- ----------
Total 15,727,118 25,574,151
=========== ==========
F-15
NOTE 5 - RECEIVABLES
- --------------------
Receivables (net) at each year-end consisted of the following:
At December 31
---------------------------------------
2000 2001
-------------- ----------------
ThCh$ ThCh$
Trade accounts receivables 40,328,312 30,151,179
Notes receivables 16,204,892 14,428,072
Miscellaneous accounts receivables 7,000,876 16,662,107
Allowance for doubtful accounts (5,301,466) (3,352,347)
---------- ----------
Accounts receivable (net) 58,232,614 57,949,011
========== ==========
Notes receivable consisted primarily of post-dated checks. Miscellaneous
accounts receivable consisted primarily of advance payments made to suppliers
and amounts due from employees.
Gross balances oustanding for more than 90 days but less than one year were
ThCh$ 8,279,720 and ThCh$ 5,203,105 at December 31, 2000 and 2001,
respectively.
The Company's bad debt expense totaled ThCh$ 1,458,001 in 1999, ThCh$ 506,163
in 2000, and ThCh$ 1,114,908 in 2001.
NOTE 6 - INVENTORIES
- --------------------
Inventories at each year-end consisted of the following:
At December 31
---------------------------------------
2000 2001
-------------- ----------------
ThCh$ ThCh$
Finished products 10,325,101 9,331,754
Products-in-process 1,396,766 56,889
Raw materials 12,719,308 7,225,199
Raw materials in-transit 501,175 711,495
---------- ----------
Total 24,942,350 17,325,337
========== ==========
Provisions for obsolescence totaled ThCh$ 573,480 and ThCh$ 318,328 at
December 31, 2000 and 2001, respectively.
F-16
NOTE 7 - OTHER CURRENT ASSETS
- -----------------------------
Other current assets at each year-end were as follows:
At December 31
---------------------------------------
2000 2001
-------------- ----------------
ThCh$ ThCh$
Supplies 3,663,608 2,404,680
Financial instruments subject to
repurchase agreements (*) 1,155,968 1,596,065
Prepaid expenses 2,579,112 2,830,587
Other 1,138,134 1,359,828
---------- ----------
Total 8,536,822 8,191,160
========== ==========
______________
(*) Represents interest bearing time deposits with remaining maturities of
less than 30 days.
F-17
NOTE 8 - DERIVATIVES
- --------------------
There were no forward contracts outstanding as of December 31, 2000. The
Company had the following foreign currency forward purchase contracts at
December 31, 2001:
Fair value
at
Purchase Notional Maturity December 31,
Bank date Currency amount date Currency 2001
- ------------------------ --------- -------- ------------- ---------- -------- --------------
ThCh$ ThCh$
Deutsche Bank 11/26/2001 US$ 3,249,216 01/15/2002 Ch$ (106,224)
Deutsche Bank 11/26/2001 US$ 3,384,600 02/14/2002 Ch$ (110,650)
Deutsche Bank 11/27/2001 US$ 4,099,749 03/14/2002 Ch$ (105,530)
Deutsche Bank 11/27/2001 US$ 2,889,987 04/16/2002 Ch$ (74,390)
Deutsche Bank 11/27/2001 US$ 2,688,360 05/15/2002 Ch$ (69,200)
Deutsche Bank 11/27/2001 US$ 2,486,733 06/13/2002 Ch$ (64,010)
Deutsche Bank 12/04/2001 US$ 2,523,807 07/16/2002 Ch$ (101,084)
Deutsche Bank 12/04/2001 US$ 3,205,917 08/13/2002 Ch$ (128,404)
Deutsche Bank 12/04/2001 US$ 2,455,596 09/17/2002 Ch$ (98,352)
Deutsche Bank 12/10/2001 US$ 1,140,088 09/17/2002 Ch$ (26,945)
Pactual Bank 08/03/2001 US$ 1,834,145 01-02-2002 R$ (251,749)
Pactual Bank 08/15/2001 US$ 2,617,067 06/27/2002 R$ (344,656)
Citibank 11/08/2001 US$ 1,086,951 02-01-2002 R$ --
Citibank 11/08/2001 US$ 2,903,339 03-01-2002 R$ --
Santander Bank 11/09/2001 US$ 2,830,002 04-01-2002 R$ (346,282)
Bank Boston 11/19/2001 US$ 2,643,387 05-02-2002 R$ (273,159)
Bradesco Bank 11/19/2001 US$ 2,403,079 06-03-2002 R$ (245,372)
Bradesco Bank 11/19/2001 US$ 2,122,829 07-01-2002 R$ (216,211)
Bradesco Bank 11/27/2001 US$ 1,566,258 08-01-2002 R$ (120,663)
Itau Bank 11/27/2001 US$ 1,666,441 09-02-2002 R$ (136,083)
Itau Bank 12/04/2001 US$ 1,765,314 10-01-2002 R$ (143,507)
Pactual Bank 12/04/2001 US$ 1,890,379 11-01-2002 R$ (103,430)
Citibank 12/04/2001 US$ 1,965,680 12-02-2002 R$ (107,343)
Pactual Bank 12/04/2001 US$ 2,627,017 01-02-2003 R$ (142,887)
Pactual Bank 12/19/2001 US$ 2,823,464 12/27/2002 R$ 32,310
------------ -----------
Total 60,869,405 (3,283,821)
============ ===========
Under Chilean GAAP, in accordance with Technical Bulletin No. 57, "Accounting
for Derivative Contracts", certain of these forward contracts have been
designated as hedges of forecasted transactions. The fair value of these
contracts represent a loss of ThCh$ 884,789 that has been deferred until the
contracts are settled as allowed by Chilean GAAP. The remaining contracts that
are not designated as hedges of forecasted transactions have been valued at
fair value with changes in fair value totaling ThCh$ 2,399,032 being
recognized in the income statement under the "Financial Expense" caption.
F-18
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
a) Land, buildings and improvements and machinery and equipment at each
year-end were as follows:
At December 31
----------------------------------------
2000 2001
ThCh$ ThCh$
Land 14,822,116 15,496,623
Buildings and improvements 91,670,912 96,931,734
Machinery and equipment 258,799,186 232,401,564
----------- -----------
Total 365,292,214 344,829,921
=========== ===========
Accumulated depreciation 156,263,333 164,012,196
=========== ===========
b) Other property, plant and equipment at each year-end were as follows:
At December 31
----------------------------------------
2000 2001
ThCh$ ThCh$
Containers 82,785,139 93,169,224
Furniture, tools and implements 26,079,307 25,503,436
Marketing and displays 33,904,262 38,643,325
Vehicles and other fixed assets 12,053,115 13,992,475
----------- -----------
Total 154,821,823 171,308,460
=========== ===========
Accumulated depreciation 115,536,188 136,027,984
=========== ===========
c) Technical reappraisal of property, plant and equipment:
This item represents the increase in value of property, plant and equipment
resulting from a technical reappraisal made by the Company in 1979 under SVS
regulations. Technical reappraisal at each year-end was as follows:
At December 31
---------------------------------------
2000 2001
ThCh$ ThCh$
Land 1,218,566 1,218,566
Buildings and improvements 168,963 168,963
Machinery and equipment 435,627 435,627
---------- ----------
Total 1,823,156 1,823,156
========== ==========
Accumulated depreciation 502,295 510,823
========== ==========
F-19
NOTE 10 - INVESTMENTS IN RELATED COMPANIES, GOODWILL AND INVESTMENTS IN
OTHER COMPANIES
At December 31
-------------------------------
2000 2001
ThCh$ ThCh$
Investments in equity of related companies 7,062,828 18,404,997
=========== ===========
Goodwill (net) 108,729,886 111,264,249
=========== ===========
Investments in other companies 376,160 671,902
=========== ===========
a) Investments in related companies:
Information concerning investments in related companies was as follows:
Ownership percentage at Investment value at
December 31, December 31, Participation in net income
----------------------- ---------------------- ---------------------------------------
2000 2001 2000 2001 1999 2000 2001
---- ---- ---- ---- ---- ---- ----
% % ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Envases CMF S.A. (1) -- 50.00 -- 12,981,295 -- -- 29,373
Cican S.A. 15.20 15.20 2,734,640 2,728,939 252,458 92,320 (298,648)
Kaik Participacoes S/C Ltda. 11.31 11.31 2,144,532 1,461,808 298,984 (835,753) (489,572)
Envases Central S.A. 48.00 48.00 1,624,152 1,232,955 (190,824) (182,627) (384,414)
Agromax S.A. (2) 48.62 48.62 499,890 -- -- -- (13,783)
Centralli Refrigerante S.A.
(3) 25.00 25.00 59,614 -- -- (328,679) (208,765)
Ruscor Refrigerantes S.A. (4) 50.00 -- -- -- -- (64,468) --
--------- ---------- -------- ---------- ----------
Total 7,062,828 18,404,997 360,618 (1,319,207) (1,365,809)
========= ========== ======== ========== ==========
_______________
(1) As discussed in Note 1), this corresponds to the joint venture between
the Company and Cristalarias de Chile that was formed on June 29, 2001.
(2) At December 31, 1999 and 2000, this investment was shown at cost plus
price-level restatement. The effect of not recognizing the participation
in net income for 1999 and 2000 was considered to be immaterial by the
Company's management. In 2001, the Company was valued using the equity
method. Agromax S.A. had negative equity in 2001.
(3) Centralli Refrigerante S.A. had negative equity in 2001.
(4) On February 29, 2000, Refrescos made a cash investment for 50% of the
shares of Ruscor Refrigerantes S.A., which owned 100% of the shares of
Nitvitgov. On March 30, 2000, 50% of the shares of Ruscor Refrigerante
S.A. owned by Refrescos were exchanged for all of the shares of
Nitvitgov, as a result of which Refrescos became the direct owner of
Nitvitgov. In addition, Nitvitgov has a 25% interest in Centralli
Refrigerante S.A.
F-20
b) Goodwill:
The detail of goodwill at each year-end was as follows:
At December 31
-------------------------------------------
2000 2001
---- ----
ThCh$ ThCh$
Rio de Janeiro Refrescos Ltda. 19,594,691 19,891,378
Complejo Industrial Pet S.A. (1) 1,538,835 --
Nitivitgov Refrigerantes 39,263,015 41,213,938
Embotelladora del Atlantico 47,301,277 48,937,918
Sociedad de Inversiones Libertador Bernardo O'Higgins 1,032,068 1,221,015
------------- -------------
Total 108,729,886 111,264,249
============= =============
________________
(1) In 2001, the total balance of Goodwill generated from the purchase of
Complejo Industrial Pet S.A was charged to income.
As outlined in Note 1, the investment in Envases CMF S.A. generated goodwill
which was fully amortized, considering the income generated by Envases
Multipack S.A. from the sale of property, plant and equipment to the former
company.
Accumulated amortization was ThCh$ 40,345,760 and ThCh$ 51,059,086 at
December 31, 2000 and 2001, respectively.
c) Transactions with related companies:
F-21
Amount of transaction for the
Type of year ended December 31,
Company Relation transaction 1999 2000 2001
- --------------------- --------------------- --------------------- ------------- ------------ ------------
ThCh$ ThCh$ ThCh$
Envases Central S.A. Equity investee Sales
-----
Raw materials 1,627,746 1,232,853 1,062,554
Services and other 3,142 1,896 2,548
Purchases
---------
Finished products 9,276,541 8,650,982 8,371,814
Services and other 2,254 3,901 34,743
Commercial accounts
-------------------
Loans given -- 1,162,865 801,720
Loans received -- 1,165,620 827,218
Interest received -- 57,188 --
Coca-Cola de Chile S.A. Related company
(1) through shareholders Sales
-----
Advertising 4,902,628 4,431,037 2,242,974
Other 395 3,327 --
Purchases
---------
Concentrate 32,219,863 30,769,724 36,651,974
Advertising 975,616 2,796,964 285,322
Coca-Cola de Argentina Related company
S.A. (1) through shareholders Purchases
---------
Concentrate 29,618,664 19,266,972 13,698,844
Advertising 205,474 115,564 --
Coca-Cola Industrias Related company
Ltda. CCIL (Brazil) through shareholders Purchases
---------
Concentrate 13,370,664 18,761,624 --
Advertising -- -- 13,288,400
Recofarma industrias do Related company
Amazonas Ltda. (Brazil) through shareholders Purchases
---------
Concentrate -- -- 25,081,921
Cervejarias Kaiser S.A. Equity investee
(Brazil) Sales
-----
Finished products 2,590,729 4,479,814 4,614,844
Advertising -- -- 1,668,374
Centralli refrigerantes Equity investee
S.A. (Brazil) Purchases
---------
Finished products -- -- 2,638,416
Cican S.A. (Argentina) Equity investee Purchases
---------
Finished products 9,215,075 6,784,494 6,492,260
F-22
Amount of transaction for the
Type of year ended December 31,
Company Relation transaction 1999 2000 2001
- --------------------- --------------------- --------------------- ------------- ------------ ------------
ThCh$ ThCh$ ThCh$
Envases CMF S.A. Equity investee Sales
-----
Services rendered -- -- 264,591
Purchases
---------
Raw materials -- -- 8,456,971
Services received -- -- 170,991
Envases Italprint S.A. Director in common Purchases
---------
Raw materials 701,408 868,373 989,046
Fixed assets -- 2,729 --
Envases del Pacifico S.A Director in common Purchases
---------
Raw materials -- 11,710 --
Labels -- 712,598 301,160
Other -- 722 1,663
Parque Arauco S.A. Director of Andina,
owns 10% or more of Publicity space
the capital rentals 37,706 48,934 34,571
Asesorias e Inversiones Director in common
Rupanco Ltda. Financial adviser 241,866 79,079 --
Claudio Cabrera B. Subsidiary manager Consulting 20,268 18,949
Inversiones Freire Ltda. Majority shareholder Expense reimbursement -- 10,117
F-23
d) Amounts receivable and amounts payable with related companies:
Short Term At December 31, 2000 At December 31, 2000
Company Receivable Payable Receivable Payable
- ------------------------------------ ------------ ------------- ------------- -------------
ThCh$ ThCh$ ThCh$ ThCh$
Coca-Cola de Chile S.A. (1) -- 3,684,497 -- 2,756,520
Inversiones Freire Ltda. 25,810 -- -- --
Envases Central S.A. (2) -- 247,010 -- 709,577
Kaiser (2) -- 166,052 48,524 --
Recofarma Industrias -- -- 720,643 --
Do Amazonas Ltda.(2) -- 2,766,153 -- 2,320,405
Coca-Cola (Argentina) (2) -- 1,541,873 -- 3,724,786
Coca-Cola (Brazil) (2) -- 1,036,788 -- 1,526,442
Centralli Refrigerante S.A. (2) -- 181,827 -- 218,399
Envases del Pacifico S.A. (2) -- 199,972 -- 18,236
Envases Italprint S.A. -- 382,258 -- 273,368
Envases CMF S.A. -- -- 632,928 --
ECPG Net Inc -- -- 10,886 --
Cican S.A. (Argentina) (2) -- 1,040,406 -- 586,256
----------- ----------- ----------- -----------
Total 25,810 11,246,836 1,412,981 12,133,989
=========== =========== =========== ===========
Long Term Company At December 31, 2000 At December 31, 2000
Company Receivable Payable Receivable Payable
- --------------------------------------- ------------ ------------- ------------- -------------
ThCh$ ThCh$ ThCh$ ThCh$
Coca Cola (Chile) 26,415 -- 55,713 --
Centralli Refrigerante S.A. (2) 120,984 -- 75,627 --
Coca Cola (Brazil) (2) -- 209,001 -- --
----------- ----------- ----------- -----------
Total 147,399 209,001 131,340 --
=========== =========== =========== ===========
_______________
(1) Reflects shared advertising expenses with Coca-Cola.
(2) Payable resulting from purchase of finished products.
F-24
NOTE 11 - OTHER LONG-TERM ASSETS:
- --------------------------------
Other assets at each year-end were as follows:
At December 31
-------------------------------------------
2000 2001
-------------- --------------
ThCh$ ThCh$
Yankee bonds:
Endesa 12,191,819 16,864,519
Compania Manufacturera de Papeles y Cartones S.A. -- 6,859,099
Compania de Telefonos de Chile -- 14,725,308
Celulosa Arauco Constitucion -- 16,596,915
Chilgener S.A. -- 16,248,970
Banco Santiago S.A. -- 9,668,491
Enersis S.A. -- 10,085,690
Bundes Bank -- 9,275,668
Banco Sudamericano -- 3,469,427
Petroleos Mexicanos -- 7,182,366
Telefonos de Mexico S.A. -- 3,568,189
Cemex S.A. -- 4,199,679
Bono soberano Argentina -- 667,886
Empresa Electrica Pehuenche S.A. -- 6,730,847
Time deposit - Deutsche Bank AG. -- 53,935,238
Deferred bond issuance costs and bond discounts 3,497,329 4,362,857
Deferred charges 3,040,927 2,377,889
Non-operating fixed assets 2,402,573 1,507,841
VAT (Argentina) 1,572,169 1,217,995
Claims for recovery and others (*) 5,172,683 1,696,208
----------- -------------
Total 27,877,500 191,241,082
=========== =============
_______________
(*) Includes claims for recovery for the acquisition of Refrescos amounting
to ThCh$ 3,105,025 and ThCh$ 834,857 at December 31, 2000 and 2001,
respectively. These claims for recovery relate to the terms of the
purchase of Refrescos by the Company under which the Company has
guarantees in an aggregate amount of approximately US$ 50.0 million
(ThCh$ 32,739,500) from Confab S.A. ("Confab"), one of the prior owners
of Refrescos in connection with the accrual for losses and contingencies
shown in Note 19. At December 31, 2000 and 2001, these guarantees consist
of letters of credit from a major Brazilian commercial bank in the amount
of US$ 6.3 million and US$ 1.3 million, respectively, subject to being
increased up to US$20 million at the request of the Company, and a
mortgage on real estate of Confab valued at approximately US$ 30.0
million by a recognized independent appraiser. As of the date of
acquisition of Refrescos in 1994, the loss accruals for the contingencies
amounted to a total of ThCh$ 12,298,004, all of which were recorded as
claims for recovery under the terms of such purchase. See Note 19.
F-23
NOTE 12 - BANK LIABILITIES
- --------------------------
a) Short-term bank liabilities:
The weighted-average annual interest rates on short-term borrowings (including
short-term lines of credit) outstanding at December 31, 2000 and 2001 were
10.09% and 3.95%, respectively.
At December 31, 2000 and 2001, the Company had approximately Ch$ 115,743
million and Ch$ 102,686 million, respectively, available through short-term
lines of credit. The aggregate used portion of the lines of credit at
December 31, 2000 and 2001 was approximately Ch$ 8,094 million and Ch$ 9,472
million, respectively.
b) Long-term bank liabilities consist of loans in Brazilian reales and U.S.
dollars, the terms of which were as follows:
Terms
-----------------------------
Lenders Various banks
Payments of interest Semiannually in arrears
Weighted average interest rate 6.88% per annum
The long-term bank liabilities outstanding at each year-end were as follows:
At December 31
------------------------------------------
2000 2001
-------------- --------------
ThCh$ ThCh$
Long-term bank loans. 4,672,262 62,523,305
Less: Current portion (1,369,891) (7,189,897)
----------- -------------
Total long-term portion 3,302,371 55,333,408
=========== =============
Scheduled maturities of the long-term bank liabilities at December 31, 2001
were as follows:
Maturing during the year
ending December 31, 2001
- ---------------------------- ----------------
ThCh$
2003 462,173
2004 202,202
2005 1,557,942
2006 53,111,091
-----------
Total 55,333,408
===========
F-26
NOTE 13 - BONDS PAYABLE
- -----------------------
a) At December 31, 2000 and 2001, the balance of bonds payable, amounting to
ThCh$ 162,305,613 and ThCh$ 148,180,457, respectively, was recorded at
par value and was classified as follows:
At December 31
-----------------------------------------
2000 2001
------------- -------------
ThCh$ ThCh$
Current portion of bonds payable:
Bonds payable in foreign countries 2,914,379 598,530
Bonds payable in local market -- 593,909
----------- -------------
Total current portion of bonds payable 2,914,379 1,192,439
=========== =============
Long-term bonds payable:
Bonds payable in foreign countries 159,391,234 33,149,398
Bonds payable in local market -- 113,838,620
----------- -------------
Total long-term bonds payable 159,391,234 146,988,018
=========== =============
Total bonds portion 162,305,613 148,180,457
=========== =============
The deferred bond issuance costs and bond discounts are included in "Other
assets" and are amortized on a straight-line-basis over the life of the
respective bond. Amortization is presented as a financial expense.
Accrued interest amounted to ThCh$ 2,914,379 and ThCh$ 1,192,439 at
December 31, 2000 and 2001 and represents the current portion payable.
b) The terms and conditions of the bonds outstanding at December 31, 2001
were as follows:
Bonds payable in foreign countries
- ----------------------------------
Series A Series B Series C
---------------------- -------------------- ----------------------
Issue date October 3, 1997 October 3, 1997 October 3, 1997
Amount of issuance US$ 150,000,000 US$ 100,000,000 US$ 100,000,000
Basis of readjustment No adjustment No adjustment No adjustment
Amortization term 10 years 30 years 100 years
Principal payments Due October 1, 2027 Due October 1, 2027 Due October 1, 2097
Annual interest rate 7.000% 7.625% 7.875%
Interest payments Semiannually Semiannually Semiannually
Covenants applicable to the
issue None None None
In 2000 and 2001, the indirect subsidiary of Andina located in Uruguay, The
Sterling Pacific Corp S.A., repurchased series C bonds in the market for US$
29,500,000 (US$ 60,500,000 in 2000), series B bonds for US$ 76,000,000 (US$
20,000,000 in 2000) and series A bonds for US$ 113,374,000, which are shown
net of the long-term liabilitiy under Bonds payable.
F-27
As a result of the favorable difference of bond purchase rates, a net
non-operating income was generated of ThCh$ 3,658,988 (ThCh$ 8,168,539 in
2000), net of the proportional issuance expenses amounting to ThCh$ 3,824,215
(US$ 2,061,999 in 2000).
Bonds payable in local market
- -----------------------------
Series A Series B
------------------- ------------------
Issue date June 1, 2001 June 1, 2001
Amount of issuance UF 3,300,000 UF 3,700,000
Basis of readjustment No adjustment No adjustment
Amortization term 7 years 25 years
Principal payments Due June 1, 2008 Due June 1, 2026
Annual interest rate 6.200% 6.500%
Interest payments Semiannually Semiannually
Covenants applicable to the
issue See Note 19 c) See Note 19 c)
NOTE 14 - OTHER ACCRUED LIABILITIES
- -----------------------------------
Other accrued liabilities at each year-end are as follows:
At December 31
----------------------------------
2000 2001
-------------- --------------
ThCh$ ThCh$
Other accrued liabilities-short term:
Accrued obligations at year-end (1) 8,306,944 8,380,711
Publicity contracts 963,685 1,031,910
Vacation accrual 2,538,132 2,152,330
Staff severance indemnities (2) 436,376 402,126
----------- -----------
Total 12,245,137 11,967,077
=========== ===========
Other accrued liabilities-long term:
Staff severance indemnities (2) 1,648,109 2,185,765
Banking taxes 1,096,979 2,072,534
Accrual for labor contingencies 1,704,175 996,344
Others 880,884 953,602
----------- -----------
Total 5,330,147 6,208,245
=========== ===========
_______________
(1) Accrued obligations at year-end include obligations under, bonuses
payable to staff, accruals for project expenses and miscellaneous accrued
expenses.
(2) Amounts charged to the income statements in 1999, 2000 and 2001 were
ThCh$ 1,034,238, ThCh$ 1,029,837 and ThCh$ 792,636, respectively.
F-28
NOTE 15 - INCOME TAXES
- ----------------------
a) Tax obligations
At December 31, 2001, the Company recorded a provision for income taxes in
conformity with current tax regulations amounting to ThCh$ 3,903,459 (ThCh$
6,092,646 in 2000 and ThCh$ 4,077,952 in 1999).
b) Retained profits
The balance of the Company's retained tax profits and respective shareholder
credit at December 31, 2001 was as follows:
Retained profits Tax rate Credit
---------------- -------- ---------
ThCh$ % ThCh$
39,999,525 15 5,999,929
c) Deferred income taxes
Deferred income tax balances at December 31, 2000 and 2001 were as follows:
2000 2001
---------------------------------------------- ---------------------------------------------
Assets Liabilities Assets Liabilities
----------------------- --------------------- ----------------------- --------------------
Short Long- Short- Long- Short- Long- Short- Long-
Temporary differences -term term term term term term term term
- --------------------- ----- ---- ---- ---- ---- ---- ---- ----
Allowance for doubtful
accounts 722,470 51,050 -- -- 253,677 357,921 -- --
Vacation accrual 147,783 -- -- -- 155,811 -- -- --
Amortization of
intangibles -- 108,981 -- -- -- 101,677 -- --
Depreciation of
property, plant and
equipment -- 921,447 281,772 7,230,158 -- 859,685 221,978 6,509,095
Staff severance
indemnities -- -- -- 540,982 -- 766,222 4,597 492,371
Other 91,915 687,757 126,454 -- 458,532 -- 7,884 129,170
Provision for assets
written-off 504,083 1,874,289 -- -- -- 3,506,988 -- --
Provision for labor and
trade lawsuits -- -- -- -- -- 195,122 -- --
Guarantees on bottles (*) -- -- -- 1,671,900 -- -- -- 2,809,168
Tax loss carry-forwards -- 5,215,397 -- -- -- 17,849,811 -- --
Complementary accounts,
net of amortization (183,171) (5,550,372) -- (6,772,873) (130,123) (5,631,558) -- (5,851,538)
Valuation allowance
-- -- -- -- (15,364,454) --
--------- --------- -------- --------- -------- ---------- -------- ---------
Total 1,283,080 3,308,549 408,226 2,670,167 737,897 2,641,414 234,459 4,088,266
========= ========= ======== ========= ======== ========== ======== =========
______________
(*) Corresponds to net income recognized on the amortization of liability for
deposits in guarantee, in accordance with Official Letter No. 06017 dated
October 15, 1999 issued by the SVS.
As described in Note 1 h), the balances of deferred income taxes and related
complementary accounts have been adjusted to record the effect of rate changes
introduced by the tax reform published in September 2001. This adjustment
generated no significant effects on income for the year.
As a result of the amortization charge to income for deposits in guarantee in
1999 of ThCh$ 10,327,699, a deferred tax liability amounting to ThCh$
1,886,507 was also recognized in 1999.
F-29
The unamortized offsetting accounts correspond to the accumulated effect of
deferred income taxes which were not recorded until January 1, 2000 when
Technical Bulletin No. 60 was adopted. These offsetting asset and liability
accounts are amortized over the weighted average terms of reversal of the
corresponding temporary differences, which are estimated at 5 and 18 years,
respectively.
d) Effect on income
Year ended December 31,
--------------------------------------------------------
1999 2000 2001
-------------- -------------- ---------------
ThCh$ ThCh$ ThCh$
Current income tax expense (4,077,952) (6,092,646) (3,903,459)
Deferred income tax (expense) benefit (1,451,859) 3,314,930 12,907,804
Recoverable tax losses 90,674 1,162,472 -
Change in valuation allowance - (15,364,454)
Other (64,118) (257,159) (850,998)
----------- ------------- --------------
Total income tax expense (5,503,255) (1,872,403) (7,211,107)
=========== ============= =============
e) Total income before income taxes and minority interest arising from
different geographic sources is as follows:
The Company
Year ended December 31, Chile and other Brazil Argentina (Consolidated)
- ----------------------- --------------- ------------- -------------- ----------------
ThCh$ ThCh$ ThCh$ ThCh$
1999 42,714,479 (7,548,083) (380,538) 34,785,858
2000 48,630,827 (12,893,103) (1,315,562) 34,422,162
2001 60,820,121 (13,741,203) (6,779,638) 40,299,280
NOTE 16 - DIRECTORS' REMUNERATION
- ---------------------------------
The Board of Directors of the Company received fees of ThCh$ 581,990, ThCh$
504,813 and ThCh$ 523,081 during the years ended December 31, 1999, 2000 and
2001, respectively.
F-30
NOTE 17 - FOREIGN CURRENCY
- --------------------------
At each year-end, the Company had the following assets and liabilities
denominated in US dollars, Brazilian reales, and Argentine pesos, which have
been translated into Chilean pesos in accordance with Note 1 c):
2000 2001
------------------------------------- ---------------------------------------
Brazilian Argentine Brazilian Argentine
Assets US dollars reales pesos US dollars reales pesos
----------- ----------- ---------- ----------- ------------ ------------
(in thousands) (in thousands)
Cash 495 12,519 5,261 704 6,631 15,216
Time deposits 270,321 11,172 -- 27,751 -- --
Marketable securities (net) 22,719 -- -- 26,476 -- --
Receivables (net) 3,700 53,323 26,494 3,374 75,493 20,334
Amounts due from related
companies -- -- -- 17 172 1,871
Inventories 55 17,108 15,518 3,861 21,830 7,856
Other current assets 35,500 22,108 24,475 2,418 7,756 9,490
Property, plant and equipment 260,208 -- -- 228,251 -- --
Investments in related companies -- 7,290 5,469 -- 5,180 7,085
Investments in other companies 672 -- -- 1,026 -- --
Goodwill (net) 176,536 -- -- 165,587 -- --
Other long-term assets 33,886 10,751 6,302 277,510 4,328 10,958
------- ------- ------- ------- ------- -------
Total assets 804,092 134,271 83,519 736,975 121,390 72,810
======= ======= ======= ======= =======
2000 2001
-------------------------------------- ---------------------------------------
Brazilian Argentine Brazilian Argentine
Liabilities US dollars reales pesos US dollars reales pesos
------------ ---------- ---------- ------------ ----------- -----------
(in thousands) (in thousands)
Obligations with banks and
financial institutions 8,757 22,147 3,169 85,498 19,400 27,136
Accounts payable 6,657 38,515 23,790 8,281 40,237 12,559
Provisions 1,135 22,332 8,023 598 26,817 2,410
Bonds 274,428 -- -- 51,540 -- --
Other 5,512 9,392 12,582 3,736 20,289 25,849
-------- -------- -------- -------- -------- --------
Total liabilities 296,489 92,386 47,564 149,653 106,743 67,954
======== ======== ======== ======== ======== ========
Total net assets 507,603 41,885 35,955 587,322 14,647 4,856
======== ======== ======== ======== ======== ========
F-31
NOTE 18 - OTHER LONG-TERM LIABILITIES
- -------------------------------------
Other long-term liabilities are comprised primarily of deposits received for
containers, which are accounted for as described in Note 1 k), and accruals
for losses of Refrescos arising from contingent liabilities. The amounts
outstanding at each year-end were as follows.
At December 31,
-------------------------------------
2000 2001
------------- --------------
ThCh$ ThCh$
Deposits for bottles and cases (a) 8,791,910 7,113,824
Accrual for losses (Refrescos) (b) 3,105,025 834,857
Other long-term liabilities 1,021,668 738,685
----------- ----------
Total 12,918,603 8,687,366
=========== ==========
______________
a) During 1999, the Company changed its estimate of the liability for
guarantees on bottles. Previously, the Company's best estimate of the
liability was represented by the historical value of cash received in
guarantee for the bottles. In 1999 and in future years, the liability for
guarantees on bottles is recorded based on the estimated number of
bottles in circulation, determined by way of regular inventories of
bottles and by applying a weighted average deposit value per bottle. The
revised estimate reflects the reduction in the guarantees corresponding
to bottles destroyed in the market or transferred by clients to third
parties.
The effect of this change was to reduce the liability for guarantees on
bottles and to increase "Other non-operating income" in 1999 by
ThCh$ 10,327,699 and to recognize a deferred income tax charge of
ThCh$ 1,886,507. See Note 22.
b) See Note 19 b)
NOTE 19 - CONTINGENCIES AND COMMITMENTS
- ---------------------------------------
a) Guarantees
Direct guarantees:
- -----------------
Debtor Assets pledged as collateral
--------------------------------------- ----------------------------------------
Balances
pending at
year end
Guarantee creditor Name Relation Guarantee Type Book value 2001
- ------------------ ------------------------- ----------- ------------- ------------- ----------- -----------
Uniao Federal Rio de Janeiro Refrescos Subsidiary Warehouse Warehouse 45,827 77,743
Ltda.
Estado Rio de Rio de Janeiro Refrescos Subsidiary Letter of Letter of -- 1,140,803
Janeiro Ltda. credit credit
Estado Rio de Rio de Janeiro Refrescos Subsidiary Letter of Letter of -- 235,486
Janeiro Ltda. credit credit
Judicial Authority Rio de Janeiro Refrescos Subsidiary Judicial Cash 3,624,256 --
Ltda. deposit
Banco Galicia Embotelladom del Atlantico Subsidiary Letter of Industrial 539,238 539,238
S.A. credit pledge
Scotiabank Sud Embotelladora Andina S.A. Parent Performance -- -- 134,248
Americano Company bond
Scotiabank Sud Embotelladora Andina S.A. Parent Performance -- -- 4,879
Americano Company bond
F-32
Indirect guarantees:
- -------------------
Guarantor Type of Guarantee Amount Currency Transaction
- ----------------------- ----------------- ------------- ---------------- ----------------------------------------
Various clients Mortgage 555,000 Argentine pesos Credit to distributors
Van Derdonkt W. y Cia. Pledge 80,000 Argentine pesos Credit to distributors
Various clients Policy 11,001.30 U.F. Advertising contract
Gebo Producci6n Policy 7,359.84 US$ Change in mechanical work
Unimicro S.A. Policy 28,560.00 US$ Computer Project Contract
Conelse ingenieria
S.A. Policy 102.00 U.F. Electronica work contract
Various clients Mortgage 6,931,000 Brazilian reales Credit to distributors
Transporters Pledge 1,581,000 Brazilian reales Credit to transporters
CONFAB Letter of credit 1,275,000 US$ Purchase of Rio de Janeiro Refrescos Ltda.
CONFAB Mortgage 30,000,000 US$ Purchase of Rio de Janeiro Refrescos Ltda.
Russel W. Coffin Letter of credit 59,000,000 US$ Purchase of Nitvitgov Refrigerantes S.A.
b) Contingencies
Andina and its subsidiaries are not involved in any material judicial or
out-of-court litigation that could result in significant gains or losses.
Andina and its subsidiaries have recorded the necessary provisions for the
likely losses arising from current and potential labor, trade or other
lawsuits. Current lawsuits are described below.
Embotelladora Andina S.A.
- -------------------------
Andina has filed a tax lawsuit for assessments made by the Internal Revenue
Service for the concept of VAT and non-allowable tax expenses amounting to
ThCh$ 57,905, plus price-level restatements and interest. The Tax Court issued
a favorable judgement for a partial amount of ThCh$ 23,609, plus price-level
restatement and interest. The Company presented an appeal to the Court of
Appeal in San Miguel on July 3, 2001.
Refrescos
- ---------
Refrescos is liable for labor lawsuits, government taxes, and other
contingencies incurred by the former owners of the Refrescos, amounting to
ThCh$ 834,857 (ThCh$ 3,105,025 in 2000), however, the Company has received
guarantees to this effect as shown in a) above.
Refrescos was subject to administrative and legal proceedings regarding tax
and other related issues, amounting to ThUS$ 1,521 at December 31, 2001. The
Company has fully accrued this liability.
At December 31, 2001, Refrescos was also subject to administrative and legal
proceedings regarding tax and other related issues, amounting to
ThCh$ 6,794,476 (ThCh$ 5,092,241 in 2000). However no reserve was established
because external legal advisors to Refrescos are of the opinion that the
likelihood of loss is remote.
Refrescos is subject to inspections and potential legal proceedings,
particularly with regard to regulatory requirements governing tax and labor
issues. Until the outcome of inspections, legal and administrative proceedings
is determined, the Company and its legal advisors believe no significant
payments will be made in the resolution of these matters, including those
discussed in the paragraphs above.
Complejo Industrial Pet S.A.
- ----------------------------
The Company was subject to labor lawsuits and other related matters for a
maximum amount of ThUS$ 440. The Company has fully accrued this liability.
F-33
Embotelladora del Atlantico S.A.
- --------------------------------
The Company was subject to labor lawsuits and other related matters for a
maximum amount of ThUS$ 1,513. The Company has fully accrued this liability.
Argentine economic condition
- ----------------------------
At December 31, 2001, assets in Argentina account for 23% of consolidated
assets (22% at December 31, 2000). In addition, investments in Argentina
accounted for 17.8% of equity at December 31, 2001.
It is difficult to forecast the future developments of the Argentine economy
and the consequences on the economic and financial position of Andina's
subsidiaries in that country. Therefore, these financial statements do not
include all the adjustments that could result from such adverse conditions,
and consequently shall be read considering these circumstances.
From the point of view of the Company's management, the consequences of these
uncertainties would not have a significant effect on the financial position of
Embotelladora Andina S.A.
Environmental
- -------------
Andina and its subsidiaries have disbursed ThCh$ 648,414 in 2001 for
improvements to industrial processes, industrial waste flow measurement
equipment, laboratory analysis, environmental impact consulting and other
studies. Future commitments, principally short term commitments, for the same
types of expenditures amount to ThCh$ 104,048.
c) Commitments
Refrescos
- ---------
Refrescos is committed to pay for advertising contracts amounting to
ThCh$ 856,951, expiring between 2002 and 2007.
d) Restrictions
The bond issue and placement in the US market for US$350 million is not
subject to covenants or financial ratios and limit restrictions.
The bond issue and placement in the Chilean market for UF 7,000,000 is subject
to the following restrictions:
o Leverage ratio, defined as the Total debt/shareholders' equity plus
minority interest, should be less than 1.20.
o Consolidated assets are to be free of any pledge, mortgage or other
encumbrance for an amount equal to at least 1.30 times Current
Consolidated Liabilities (as defined) that not guaranteed by the
investee.
F-34
o Andina must retain and, in no way, sell, assign or dispose of to a third
party the geographical zone denominated "Region Metropolitana", as a
franchised territory in Chile of The Coca-Cola Company for the
preparation, production, sale and distribution of the products and brands
in accordance with the respective Bottling, Agreement, renewable from
time to time.
o Andina must retain and, in no way, sell, assign or dispose of to a third
party any other territory in Argentina or Brazil which is currently
franchised to Andina by The Coca-Cola Company for the preparation,
production, sale, and distribution of the products and brands of The
Coca-Cola Company as long as the referred territory represents more than
forty percent of the Company's Consolidated Operating Cash Flows (as
defined).
F-35
NOTE 20 - SHAREHOLDERS' EQUITY
- ------------------------------
The movements in the capital and reserves of the Company during each of the
three years ended December 31, 2001 were as follows:
Retained
Paid-in earnings
capital Other from prior Net income Interim
(1)(2)(3)(4) reserves (7) years for the year dividends Total
-------------- ------------ ------------- ------------- ------------- -------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
At January 1, 1999 161,756,532 7,022,195 151,489,739 44,547,818 (15,476,575) 349,339,709
Prior year income
allocation -- -- 29,071,243 (44,547,818) 15,476,575 --
Dividends paid -- -- (3,831,784) -- (11,495,352) (15,327,136)
Price-level restatement
of equity 4,205,670 170,153 4,629,446 -- (65,139) 8,940,130
Accumulated translation
adjustment of foreign
investments -- 21,764,987 -- -- -- 21,764,987
Net income for the year -- -- -- 27,193,812 -- 27,193,812
----------- ---------- ----------- ---------- ----------- -----------
At December 31,1999 165,962,202 28,957,335 181,358,644 27,193,812 (11,560,491) 391,911,502
=========== ========== =========== ========== =========== ===========
Balance at December 31,
1999 restated in
constant Chilean
pesos of December 31,
2001 179,149,060 31,258,198 195,768,858 29,354,552 (12,479,054) 423,051,614
=========== ========== =========== ========== =========== ===========
At January 1, 2000 165,962,202 28,957,335 181,358,644 27,193,812 (11,560,491) 391,911,502
Prior year income
allocation -- -- 15,633,321 (27,193,812) 11,560,491 --
Dividends paid -- -- (57,476,756) -- (11,495,352) (68,972,108)
Price-level restatement
of equity 7,800,223 1,360,994 7,899,138 -- (145,607) 16,914,748
Accumulated translation
adjustment of foreign
investments -- 7,814,581 -- -- -- 7,814,581
Net income for the year -- -- -- 31,500,734 -- 31,500,734
----------- ---------- ----------- ---------- ----------- -----------
At December 31, 2000 173,762,425 38,132,910 147,414,347 31,500,734 (11,640,959) 379,169,457
=========== ========== =========== ========== =========== ===========
Balance at December 31,
2000 restated in
constant Chilean
pesos of December
31,2001 179,149,060 39,315,030 151,984,192 32,477,257 (12,001,829) 390,923,710
=========== ========== =========== ========== =========== ===========
At January 1, 2001 173,762,425 38,132,910 147,414,347 31,500,734 (11,640,959) 379,169,457
Prior year income
allocation -- -- 19,859,775 (31,500,734) 11,640,959 --
Dividends paid (5)(6) -- -- (46,141,062) -- (11,495,351) (57,636,413)
Price-level restatement
of equity 5,386,635 1,182,120 4,078,111 -- (91,963) 10,554,903
Accumulated translation
adjustment of foreign
investments -- 6,937,391 -- -- -- 6,937,391
Net income for the year -- -- -- 33,066,958 -- 33,066,958
----------- ---------- ----------- ---------- ----------- -----------
At December 31, 2001 179,149,060 46,252,421 125,211,171 33,066,958 (11,587,314) 372,092,296
=========== ========== =========== ========== =========== ===========
__________________
(1) In accordance with Chilean Law No. 18,046, the amount corresponding to
the revaluation of paid-in capital has been incorporated in such capital
at each year-end.
(2) During 1999, 2000 and 2001, no new shares were offered.
(3) As of December 31, 2000 and 2001, significant the shareholders were as
follows:
F-36
2000
---------------------------------------------------------------------
Number of shares Ownership
Series A Series B Total percentage
------------- ----------------- -------------- -------------
Inversiones Freire Ltda. (*) 185,706,603 -- 185,706,603 24.43
Citibank N.A. (1) 77,863,164 85,877,982 163,741,146 21.54
Coca-Cola Interamerican Corp. 40,552,802 40,552,802 81,105,604 10.67
AFPs as a group 23,066,906 17,441,217 40,508,123 5.33
Inversiones Hydra (Chile) Ltda. (*) -- 23,206,484 23,206,484 3.05
Inversiones Santa Virginia Ltda. (*) -- 23,120,484 23,120,484 3.04
Inversiones Multiples Ltda. (*) -- 22,906,484 22,906,484 3.01
Inversiones Maxus Lida. (*) -- 21,394,616 21,394,616 2.81
Inversiones Glouchester Ltda. (*) -- 21,394,616 21,394,616 2.81
Inversiones APM Ltda. (*) -- 21,308,616 21,308,616 2.80
Inversiones Freire Dos Ltda. (*) 14,300,000 -- 14,300,000 1.88
Inversiones Puerto Sofia Ltda. (*) -- 13,601,132 13,601,132 1.79
Inversiones Teval S.A. (*) -- 11,983,646 11,983,646 1.58
Inversiones San Andrds Ltda. (*) -- 8,927,688 8,927,688 1.17
----------- -------------- ----------- -------
Total shares of majority shareholders 341,489,475 311,715,767 653,205,242 85.91
=========== ============== =========== =======
Total number of shareholders 1,240 1,276 1,352
----------- -------------- -----------
Total shares outstanding 380,137,271 380,137,271 760,274,542
----------- -------------- -----------
2001
--------------------------------------------------------------------
Number of shares Ownership
Series A Series B Total percentage
------------- ------------------- ------------- --------------
Inversiones Freire Ltda. (*) 185,706,603 -- 185,706,603 24.43
The Bank of New York (1) 64,853,022 82,947,194 147,800,166 19.44
Coca-Cola Interamerican Corp. 40,552,802 40,552,802 81,105,604 10.67
Inversiones Mar Adentro Ltda. (*) -- 38,978,263 38,978,263 5.13
Genesis Chile Fund Limited 13,035,083 14,328,283 27,363,366 3.60
Inversiones Delfin S.A (*) -- 26,301,100 26,301,100 3.46
Inversiones Caburga S.A. -- 23,349,763 23,349,763 3.07
Inversiones Santa Virginia Ltda. (*) -- 23,120,484 23,120,484 3.04
Inversiones Glouchester Ltda. (*) -- 21,394,616 21,394,616 2.81
AFP Provida S.A 10,542,583 6,328,531 16,871,114 2.22
Inversiones Freire Dos Ltda. (*) 14,300,000 -- 14,300,000 1.88
Inversiones Puerto Sofia Ltda. (*) -- 13,601,132 13,601,132 1.79
----------- -------------- ----------- -------
Total shares of majority shareholders 328,990,093 290,902,118 619,892,211 81.54
=========== ============== =========== =======
Total number of shareholders 1,240 1,276 1,352
----------- -------------- -----------
Total shares outstanding 380,137,271 380,137,271 760,274,542
----------- -------------- -----------
(1) Acting as depository for the ADRs
(*) Company related to controlling shareholder
The preferential rights of each series of shares are as follows:
Series A: The right to elect 6 of the 7 directors and their respective
alternates.
Series B: The right to receive 10% more of all dividend distributions than
Series A shareholders.
F-37
(4) American Depository Receipts
At December 31, 2001, The Bank of New York, in its capacity as the
"Depositary Bank", has been consigned 64,853,022 series A shares and
82,947,144 series B shares in the form of American Depository Receipts
which correspond to investments maintained by foreign investors.
(5) Dividends paid during the year ended December 31, 1999 were as follows:
Number Dividend per Share
------ ------------------
114 Ch$ 4.80 Series A Ch$ 5.28 Series B
115 Ch$ 4.80 Series A Ch$ 5.28 Series B
116 Ch$ 4.80 Series A Ch$ 5.28 Series B
117 Ch$ 4.80 Series A Ch$ 5.28 Series B
Dividends paid during the year ended December 31, 2000 were as
follows:
Number Dividend per Share
------ ------------------
118 Ch$ 4.80 Series A Ch$ 5.28 Series B
119 Ch$ 4.80 Series A Ch$ 5.28 Series B
120 Ch$ 12.20 Series A Ch$ 13.42 Series B
121 Ch$ 55.00 Series A Ch$ 60.50 Series B
122 Ch$ 4.80 Series A Ch$ 5.28 Series B
123 Ch$ 4.80 Series A Ch$ 5.28 Series B
Dividends paid during the year ended December 31, 2001 were as follows:
Number Dividend per Share
------ ------------------
124 Ch$ 4.80 Series A Ch$ 5.28 Series B
125 Ch$ 4.80 Series A Ch$ 5.28 Series B
126 Ch$ 53.00 Series A Ch$ 58.30 Series B
127 Ch$ 4.80 Series A Ch$ 5.28 Series B
128 Ch$ 4.80 Series A Ch$ 5.28 Series B
(6) Dividends declared and scheduled to be paid subsequent to the end of
fiscal year 2001 include the following:
Number Dividend per Share
------ ------------------
129 Ch$ 4.80 Series A Ch$ 5.28 Series B
F-38
(7) The balance of Other reserves amounted to ThCh$ 39,315,030 in 2000 and
ThCh$ 46,252,421 in 2001, and consisted of the following:
1999 2000 2001
------------- -------------- --------------
ThCh$ ThCh$ ThCh$
Cumulative translation adjustment 30,363,564 38,420,396 45,357,787
Reserve for technical reappraisal of property, plant
and equipment 159,322 159,322 159,322
Other reserves 735,312 735,312 735,312
----------- ----------- ----------
Total reserves 31,258,198 39,315,030 46,252,421
=========== =========== ==========
The reserve for cumulative translation adjustment complies with Technical
Bulletin No. 64 of the Chilean Institute of Accountants and Official
Letter No. 5,294 issued by the SVS.
The composition of this reserve was as follows:
Exchange differences
during the period
---------------------------
Balance Transfers of Balance
Subsidiary January 1, 1999 Investment Liability reserve December 31, 1999
---------- --------------- ---------- ---------- ------------ -----------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Rio de Janeiro Refrescos Ltda. 2,614,951 9,553,967 -- -- 12,168,918
Solucao Pet Ltda. 301,812 791,370 -- -- 1,093,182
Embotelladora del Atlantico
S.A. 2,656,035 8,899,717 -- -- 11,555,752
Complejo Industrial Pet S.A. 1,296,398 4,249,314 -- -- 5,545,712
---------- ---------- ---------- ---------- ----------
Total 6,869,196 23,494,368 -- -- 30,363,564
========== ========== ========== ========== ==========
Exchange differences
during the period
---------------------------
Balance Transfers of Balance
Subsidiary January 1, 2000 Investment Liability reserve December 31, 2000
---------- --------------- ---------- ---------- ------------ -----------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Rio de Janeiro Refrescos Ltda. 12,168,918 3,284,920 -- 1,411,760 16,865,598
Solucao Pet Ltda. 1,093,182 318,578 -- (1,411,760) --
Embotelladora del Atlantico
S.A. 11,555,752 3,104,627 -- -- 14,660,379
Complejo Industrial Pet S.A. 5,545,712 1,348,707 -- -- 6,894,419
---------- ---------- ---------- ---------- ----------
Total 30,363,564 8,056,832 -- 38,420,396
========== ========== ========== ========== ==========
Exchange differences
during the period
---------------------------
Balance Transfers of Balance
Subsidiary January 1, 2001 Investment Liability reserve December 31, 2001
---------- --------------- ---------- ---------- ------------ -----------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Rio de Janeiro Refrescos Ltda. 16,865,598 10,813,426 -- -- 27,679,024
Embotelladora del Atlantico
S.A. 14,660,379 14,464,402 -- (17,041,037) 12,083,744
Complejo Industrial Pet S.A. 6,894,419 5,380,972 -- (6,680,372) 5,595,019
---------- ---------- ---------- ----------- ----------
Total 38,420,396 30,658,800 -- (23,721,409) 45,357,787
========== ========== ========== =========== ==========
The reduction in the reserve amounting to ThCh$ 23,721,409 results from
capital decreases in Embotelladora del Atlantico S.A. for US$ 100.0 million
and in Complejo Industrial Pet S.A. for US$ 30.0 million.
F-39
NOTE 21 - MINORITY INTEREST
- ---------------------------
The proportional equity value which corresponds to minority shareholders in
each affiliate for each year-end was as follows:
At December 31,
----------------------------------
2000 2001
---------- -----------
ThCh$ ThCh$
Equity of minority shareholders of:
Andina Inversiones Societarias S.A. 18,736 45,577
------ ------
Total 18,736 45,577
====== ======
The proportional participation in the consolidated results which corresponds
to the minority shareholders was ThCh$ 71,949, ThCh$ (72,502) and ThCh$
(21,215) in 1999, 2000 and 2001, respectively.
NOTE 22 - OTHER NON-OPERATING INCOME AND EXPENSES:
- --------------------------------------------------
Other non-operating income and expenses included the following items:
a) Other non-operating income:
Year end December 31,
---------------------------------------------------
1999 2000 2001
------------- ----------- ------------
ThCh$ ThCh$ ThCh$
Gain on sale of property, plant and equipment to Envases
CMF S.A. -- -- 5,779,626
Gain on sale of North Fulton Bancshares Inc., shares -- 981,805 --
Profit on dissolution of Brazilian package business -- 562,979 --
Realization of reserve for cumulative translation
adjustment (1) -- -- 23,723,781
Change in estimate for guarantees on bottles (2) 10,327,699 -- --
Other miscellaneous income 1,846,983 708,452 630,697
------------ ------------ ------------
Total 12,174,682 2,253,236 30,134,104
============ ============ ============
(1) See Note 20 (Shareholders' equity) for more information.
(2) See Note 18.
b) Other non-operating expense:
Year end December 31,
---------------------------------------------------
1999 2000 2001
------------- ----------- ------------
ThCh$ ThCh$ ThCh$
Impairment of property, plant and equipment (1) 2,857,610 8,272,754 9,841,758
Staff severance indemnities (2) 1,081,434 4,868,900 1,359,220
Write-off of property, plant and equipment 2,073,094 2,046,111 539,657
Loss on sale of property, plant and equipment 406,412 144,042 1,777,706
Litigation -- -- 708,461
Translation adjustment (3) 4,193,313 (428,424) 10,036,107
Liquidation of container business -- -- 328,585
Other miscellaneous expenses 1,305,769 2,499,666 1,562,001
------------ ------------ ------------
Total 11,917,632 17,403,049 26,153,495
============ ============ ============
F-40
(1) In 2001, the indirect subsidiaries, Vital S.A., Envases Mutlipack S.A.,
Complejo Industrial Pet S.A., Refrescos and Embotelladora del Atlantico
S.A., wrote off property, plant and equipment and established provisions
to reflect potential losses on assets held for sale amounting to ThCh$
335,818 and ThCh$ 9,505,940, respectively. In 2000, Refrescos and
Embotelladora del Atlantico S.A. had write-offs and provisions amounting
to ThCh$ 5,814,063 and ThCh$ 2,458,692, respectively.
(2) Corresponds to losses originated from a number of internal
reorganizations by Embotelladora Andina and its subsidiaries abroad.
(3) Corresponds to translation into United States dollars of assets and
liabilities in Argentine pesos and Brazilian reales of the subsidiaries
in Argentina and Brazil using the method outlined under Technical
Bulletin No. 64 issued by the Chilean Institute of Accountants.
NOTE 23 - NON-CASH INVESTING AND FINANCING ACTIVITIES
- -----------------------------------------------------
The following investing and financing activities did not generate cash flows
during the period, but will generate future cash flows.
Expiration Expiration Expiration
Concept 1999 date 2000 date 2001 date
------------ ---------- ------------ ----------- ------------- -------------
ThCh$ ThCh$ ThCh$
Expenses
Yankee bond interest -- -- (7,688,631) 10-01-01 (8,512,270) 10-01-02
Yankee bond interest (7,438,441) 04-01-00 (7,688,631) 04-01-01 (8,512,270) 04-01-02
Dividend payment (4,136,246) 01-26-00 (3,950,570) 01-23-01 (3,831,784) 01-30-02
Fixed asset additions (2,817,844) -- (3,808,421) 02-04-01 (59,045) 01-30-02
Fixed asset additions (262,009) -- -- -- (3,988,645) 03-03-02
Fixed asset additions (187,503) 2000 -- -- -- --
Fixed asset additions (20,940) 2000 -- -- (304,512) 03-28-02
Local bond interest -- -- -- -- (593,909) 06-01-02
----------- ----------- -----------
Total expenses (14,862,983) (23,136,253) (25,802,435)
=========== =========== ===========
Income
Sale of fixed assets 648 02-29-00 59,797 02-04-01 28,814 02-04-02
Income tax 3,251,008 05-31-00 1,859,482 05-31-01 1,496,421 05-31-02
----------- ----------- -----------
Total income 3,251,656 1,919,279 1,525,235
----------- ----------- -----------
Total net (11,611,327) (21,216,974) (24,277,200)
=========== =========== ===========
NOTE 24 - SUBSEQUENT EVENTS
- ---------------------------
On January 30, 2002, interim dividend number 129 was paid in the following
amounts: Ch$ 4.80 per Series A share, and Ch$5.28 per Series B share. The
dividends relate to income for the year 2001.
There have been no other subsequent events between December 31, 2001 and the
date on which these financial statements were issued that could significantly
affect their balances or interpretation.
F-41
NOTE 25 - DIFFERENCE CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
- -----------------------------------------------------------------
Chilean GAAP varies in certain important respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Such
differences involve methods for measuring the amounts shown in the financial
statements as well as additional disclosures required by U.S. GAAP.
The principal methods applied in the preparation of the accompanying financial
statements which have resulted in amounts that differ from those that would
have otherwise been determined under U.S. GAAP are as follows:
I Differences in measurement methods:
a) Inflation accounting
The cumulative inflation rate in Chile as measured by the CPI for the
three-year period ended December 31, 2001 was approximately 10.4%.
Chilean GAAP requires that the 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 1, is based on a model which enables calculation of
net inflation gains or losses caused by monetary assets and liabilities
exposed to changes in the purchasing power of local currency. The model
prescribes that the historical cost of all non-monetary 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 financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Chilean economy even though the cumulative inflation
rate for the last three years does not exceed 100%. Accordingly, the effect of
price-level changes is not eliminated in the reconciliation to U.S. GAAP
included under paragraph (l) below.
The price-level restatement was determined under Chilean GAAP by restating the
following non-monetary assets and liabilities as follows:
Year end December 31
---------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Shareholders' equity (9,650,486) (17,439,105) (10,554,903)
Liabilities (355,119) (5,120,482) (8,385,019)
Property, plant, and equipment 2,890,756 4,234,560 2,736,742
Current assets 473,694 282,126 148,554
Other assets 5,929,886 10,934,764 7,505,226
---------- ---------- ----------
Adjustment of balance sheet accounts (711,269) (7,108,137) (8,549,400)
Adjustment of income statement accounts (675,912) (1,347,908) (948,177)
Foreign exchange gain 3,778,766 4,988,338 2,779,743
---------- ---------- ----------
Price-level restatement income (expense) 2,391,585 (3,467,707) (6,717,834)
========== ========== ==========
F-42
b) Translation of financial statements of non-Chilean operations
In accordance with Technical Bulletin No. 64, the financial statements of
foreign subsidiaries whose activities do not constitute an extension of the
Chilean Company's operations, or which operate in countries that are exposed
to significant risks, restrictions or inflation/exchange fluctuations must be
remeasured into US dollars and translated into Chilean pesos at the year end
exchange rate. Accordingly, the financial statements of the Company's
subsidiaries in Argentina, Brazil and Uruguay were considered to be operating
in countries that are exposed to significant risks, restrictions and exchange
fluctuations and were prepared in accordance with Chilean GAAP, with the
exception of monetary correction, and then were remeasured into U.S. dollars
as follows:
- - Monetary assets and liabilities were translated at year-end rates of
exchange between the U.S. dollar and the local currency.
- - All non-monetary assets and liabilities and shareholders' equity were
translated at historical rates of exchange between the U.S. dollar
and the local currency.
- - Income and expense accounts were translated at average rates of
exchange between the U.S. dollar and the local currency.
- - Any exchange differences were included in the results of operations
for the period.
Price-level restatement based on Chilean inflation is applied to the beginning
investment value in the Company's books and participation in income is
recorded as described above. The Company compared this value to its
participation in the equity of the investee as remeasured into U.S. dollars
and translated into Chilean pesos. The difference is recorded as an adjustment
to the investment balance and a direct adjustment to shareholders' equity to
the account "Accumulated translation adjustment of foreign investments".
Under this standard, the beginning balances were remeasured into U.S. dollars
and translated into Chilean pesos using the exchange rate at the opening of
the period January 1, 1998 (U.S.$ 1.00=Chilean pesos 439.18).
In the opinion of the management of the Company, the Chilean GAAP procedures
described above are part of the comprehensive basis of preparation of
price-level adjusted financial statements required by Chilean GAAP. Inclusion
of inflation and translation effects in the financial statements is considered
appropriate under the inflationary conditions that have historically affected
the Chilean economy and, accordingly, are not eliminated in the reconciliation
to U.S. GAAP.
c) Revaluation of property, plant and equipment
As described in Note 1 i), certain property, plant and equipment has been
reported in the financial statements at amounts determined in accordance with
a technical appraisal. The revaluation of property, plant and equipment is an
accounting principle not generally accepted under U.S. GAAP. The effects of
the reversal of this revaluation as well as the related accumulated
depreciation and depreciation expense for the year is shown below under
paragraph (n).
F-43
d) Income taxes
Under Chilean GAAP, as discussed in Note 2, effective January 1, 2000, the
Company began applying Technical Bulletin No. 60 of the Chilean Institute of
Accountants concerning deferred income taxes. Technical Bulletin No. 60
requires the recognition of deferred income taxes for all temporary
differences, whether recurring or not, using an asset and liability approach.
For U.S. GAAP purposes, in prior years the Company applied SFAS No. 109,
"Accounting for Income Taxes", whereby income taxes are also recognized using
substantially 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 asset and liabilities
at enacted rates expected to be in effect when such amounts will be realized.
Deferred tax assets must be reduced by a valuation allowance when it is more
likely than not such assets will not be realized. After the year ended
December 31, 1999, Chilean GAAP and U.S. GAAP differ due to the recognition
for U.S. GAAP purposes of the reversal of deferred income taxes included in
the U.S. GAAP reconciliation in prior years.
Prior to the implementation of Technical Bulletin No. 60, no deferred income
taxes were recorded 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.
The effect of providing for deferred income taxes for the differences between
the amounts shown for assets and liabilities in the balance sheet and the tax
bases of the those assets and liabilities is included in paragraph (n) below
and certain disclosures required under SFAS No. 109 are set forth under
paragraph II a) below.
e) Accounting for investments in related companies
As shown in Note 10 a), the Company acquired a 15.2% ownership in Cican S.A.
in December 1996. Under Chilean GAAP, this investment has been accounted for
under the equity method. Effective January 1, 1998, the Company also began
accounting for its investment in Cican S.A. on the equity method for U.S. GAAP
purposes. The Company has one of seven board of director positions; is the
second largest shareholder; no single shareholder owns more than 50% of the
Company; and the Company's subsidiary in Argentina transacts a significant
amount of business with Cican S.A. The Company believes that it has the
ability to influence the policies of its investee. The amount of income
recognized under the equity method of accounting for the years ended December
31, 1999, 2000 and 2001, was ThCh$ 252,458, ThCh$ 92,320 and ThCh$ (298,648),
respectively. Prior to 1998, the Company accounted for this investment at cost
less any impairment in value that is other than temporary.
The Company began accounting for its 11.31% interest in Kaik Participacoes S/C
Ltda. under the equity method in 1999 as described in Note 10 a). In prior
years, as appropriate financial information was not available, the Company
accounted for this investment under the cost method. Under U.S. GAAP, as the
Company only holds 11.31% interest and the investee's shares do not trade
on any exchange, the cost method has been applied for all years presented. The
effects are included under paragraph (n) below.
f) Goodwill
i) In accordance with Chilean GAAP, goodwill arising from the
Refrescos acquisition was amortized over a period of 10
years as from July 1, 1994. Beginning in 1999, in accordance
with new rules issued by the SVS, the Company is amortizing
the remaining goodwill balance over an original term of 20
years. Under U.S. GAAP, this amortization was over a period
of 9 years until the year ended December 31, 1997. For the
year ended December 31, 1999, the Company conformed its
goodwill life to the life used for Chilean GAAP. The effects
of differences in goodwill amortization are included under
paragraph (n) below.
F-44
ii) Under Chilean GAAP no deferred tax asset was recognized for
the tax loss carryforward related to the acquisition of the
former subsidiary, Rosario Refrescos S.A. in 1995. Under
U.S. GAAP, a deferred tax asset would be recognized for the
amount of the tax loss carry forward which is
more-likely-than-not to be recoverable. The deferred tax
asset calculated at the date of acquisition would be
accounted for us a reduction of the goodwill calculated
under Chilean GAAP. The effects of the reduced amortization
which has arisen as a result of this adjustment to goodwill
is included in paragraph (n) below.
iii) In accordance with Chilean GAAP, goodwill arising from the
acquisition of Nitvitgov was amortized over a period of 20
years as from April 1, 2000. For U.S. GAAP purposes as
required by SFAS No. 109, the Company evaluated the
recoverabiliy of its deferred tax asset for the net
operating loss carryforwards of Refrescos, which was fully
reserved for U.S. GAAP purposes in prior years, as part of
the allocation of the purchase price paid. The Company
concluded that its planned merger of Nitvitgov into
Refrescos would allow Refrescos to recover the deferred
tax asset and, accordingly, goodwill was reduced by the
amount of the valuation allowance related to the deferred
tax asset that was no longer required. For Chilean GAAP
purposes, no deferred tax asset or valuation allowance was
recorded in prior years. However, a deferred tax asset and
a related complementary account were recognized effective
January 1, 2000 upon adoption of Technical Bulletin No.
60, see Notes 1 h) and 2. The effects of reduced
amortization and recognition of the reversal of the
valuation allowance and recognition of a deferred tax
asset are included under paragraph (n) below.
g) Acquisition through the issuance of shares
In December 1996, the Company acquired 78.7% of the capital stock of Inti S.A.
Industrial y Comercial ("INTI") from a subsidiary of The Coca-Cola Company,
resulting in the ownership of substantially all of INTI's shares, and 100% of
the capital stock of Complejo Industrial PET S.A. ("Cipet"), both of which are
located in Argentina. INTI is the Coca-Cola bottler in the province of
Cordoba, Argentina. Cipet is a packaging company in the city of Buenos Aires
that produces containers for the various Coca-Cola bottlers in Argentina.
These acquisitions were recorded at ThCh$ 62,381,287 and were accounted for in
accordance with the purchase method under Chilean GAAP, resulting in goodwill
of ThCh$ 20,850,049 (in pesos of December 1996). Also, in December, 1996,
24,006,926 shares were offered, in accordance with the capital increase of
Andina approved at the Company's Extraordinary Shareholder's Meeting held
in September 1996; 24,000,000 shares were subscribed and paid up by Bottling
Investment Limited at Ch$ 2,264 (in pesos of December 31, 1996) each,
amounting to ThCh$ 54,336,000 (in pesos of December 1996). Additionally,
Coca-Cola purchased; through its subsidiaries Coca-Cola Interamerican
Corporation and Coca-Cola Argentina S.A., 100% of Bottling Investment Limited,
and consequently, its investment in Andina. The remaining shares were
subscribed and paid for by local investors, for a total investment of ThCh$
15,680 (in pesos of December 31, 1996). Under Chilean GAAP, these transactions
were accounted separately. Under U.S. GAAP, both transactions would be
accounted for as an acquisition through the issuance of shares and recorded as
a purchase under Accounting Principles Board Opinion No. 16 "Business
Combinations", whereby the purchase price of the companies would be determined
based on the market price of the Company's shares. The fair value of the
Company's shares issued to The Coca-Cola Company on the date of the
acquisitions was less than the ThCh$ 64,003,200 recorded by the Company as the
purchase price for INTI and Cipet. Under U.S. GAAP, the difference is
accounted for as a reduction of the goodwill and equity calculated under
Chilean GAAP. The effect is included in paragraph (n) below.
F-45
h) Joint venture accounting
In accordance with Chilean GAAP, the Company recognized a gain of
ThCh$ 5,779,626 on the sale of properly, plant and equipment to CMF upon the
formation of this joint venture with Cristalerias. In addition, the Company
charged off the basis difference of ThCh$ 1,708,729 between its investment in
and its share of the net equity of the joint venture. Accordingly, the Company
recognized a net gain before income taxes of ThCh$ 4,070,897 under Chilean
GAAP.
Under US GAAP, a gain can be recognized only if appreciated assets (excluding
land) are contributed to a venture, cash or near-cash assets are received, and
no other factors exist that could impact realization of the gain (such as
guarantees of debt, puts or calls that may result in acquisition of the
venture, etc.) Additionally, the gain would be limited to the proportion of
the assets deemed sold and any basis difference would be amortized based on
the lives of the assets that gave rise to the difference. Finally, all
contributions of appreciated assets to the venture would generally be recorded
at the venturer's carrying value.
The shareholders' agreement for CMF that establishes joint control of the
venture also contains provisions that could require the Company to purchase
Cristalerias' shares of CMF. Accordingly, the gain recognized for Chilean GAAP
is not considered realized under US GAAP. The effects of reversing the gain
and charge-off of the basis difference in the investment, amortizing the basis
difference in accordance with US GAAP and adjusting the results of CMF for the
Company's share of the amortization of excess value assigned to the assets of
CMF under Chilean GAAP are included in paragraph (n) below.
i) Investment securities
Under Chilean GAAP, debt securities which are not classified as trading
securities are carried at cost plus price-level restatement. Under U.S. GAAP,
debt securities that are not classified as trading securities (nor as
held-to-maturity securities) are reported at fair value, with unrealized gains
and losses excluded from earnings and reported in other comprehensive income.
The effect is included in paragraph (l) below.
j) Staff severance indemnities
Pursuant to collective bargaining agreements between the Company and certain
of its employees, the Company is committed to provide a payment to each of
these employees based upon total years of service. See Note 1 t). Under Chilean
GAAP, the financial statements include a liability which is the current
monthly salary times the years of services at the closing date, discounted at
a 7% annual rate, over the expected remaining years of service for all
employees covered by such agreements.
Under US GAAP, this arrangement is considered to be a pension plan, and the
liability would be measured by projecting future expected severance payments
using an assumed salary progression rate and discounting the resulting amounts
to their present value.
In practice the Company believes that the salary progression rate will not
differ significantly from the general inflation rate. In the opinion of the
management of the Company, the application of US GAAP would not have produced
results materially different from the acceptable method under Chilean GAAP.
F-46
k) Accumulated translation adjustment of foreign investments
As described in Notes 20 and 22 a), the Company recognized a gain upon the
realization of a portion of its Accumulated translation adjustment of foreign
investments account in accordance with Technical Bulletin No. 64. Under
Chilean GAAP, a partial liquidation of an investment in a foreign entity is
deemed to have occurred upon the repatriation of capital or of earnings in
excess of net income for the year. In the case of a partial liquidation, the
proportionate share of the Accumulated translation adjustment of foreign
investments account related to the foreign investment should be reversed and
recorded in the results of the period.
During 2001, the Company repatriated US$ 130 million of capital from its
foreign investments in Argentina representing over 50% of the capital
invested. Accordingly, the Company reversed a proportionate amount of its
Accumulated translation adjustment of foreign investments account and
recognized a gain of ThCh$ 23,723,781 in accordance with Chilean GAAP.
Under US GAAP as set forth in SFAS No. 52, "Foreign Currency Translation", the
Accumulated translation adjustment of foreign investments account is realized
in the results of the period only upon the sale or upon the complete or
substantially complete liquidation of an investment in a foreign entity. The
effect of reversing this gain for US GAAP is included in paragraph (n) below.
l) Derivative financial instruments
At December 31, 2001, the Company has derivative contracts consisting of
forward contracts to purchase US dollars. These forward contracts were
obtained principally to protect the Company from foreign exchange risk with
respect to future purchases of raw materials denominated in US dollars in
Chile and Brazil.
Under Chilean GAAP in accordance with Technical Bulletin No. 57, "Accounting
for Derivative Contracts", certain of these forward contract have been
designated as hedges of forecasted transaction. The fair value of these
contracts represent a loss of ThCh$ 884,789 that has been deferred until the
contracts are settled as allowed by Chilean GAAP. The remaining contracts that
are not designated as hedges of forecasted transactions have been valued at
fair value with changes in fair value totaling ThCh$ 2,399,032, being
recognized in the income statement.
Under US GAAP, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective January 1, 2001. SFAS No. 133
requires that all derivative instruments be recognized on the balance sheet at
fair value and that changes in the fair value be recognized in income when
they occur, the only exception being derivatives that qualify as hedges. To
qualify as the derivative instrument as a hedge the Company must meet strict
hedge effectiveness and contemporaneous documentation requirements at the
initiation of the hedge and assess the hedge effectiveness on an ongoing
(quarterly) basis over the life of the hedge.
Since the Company did not have any derivative instruments at December 31,
2000, there was no impact on the US GAAP results upon adoption of the
standard. At December 31, 2001, the Company has recorded all derivative
instruments on the balance sheet at fair value. However, the Company has not
undertaken to qualify the forward contracts designated as hedges for Chilean
GAAP purposes, as hedges for US GAAP purposes. Accordingly, the losses
deferred under Chilean GAAP of ThCh$ 884,789 represent a difference from US
GAAP that is included in paragraph (n) below.
F-47
m) Comprehensive income
In accordance with U.S. GAAP, the Company is required to report and display
all comprehensive income in a separate financial statement. Comprehensive
income includes net income and other comprehensive income (revenues, expenses,
gains and losses) that are excluded from net income under generally accepted
accounting principles. The effect of this standard is shown in paragraph (n)
below.
n) Effects of conforming to U.S. GAAP
The adjustments to reported net income required to conform with U.S. GAAP are
as follows:
Year end December 31,
-----------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Net income as shown in the Chilean GAAP financial statements 29,354,552 32,477,257 33,066,958
Reversal of additional depreciation on revaluation of
property, plant and equipment (paragraph c) 10,962 8,877 8,528
Adjustment to deferred income tax provision (paragraph d) (2,768,0339) 654,823 2,290,633
Difference in accounting for investments in related
companies (paragraph e) (156,974) 659,575 1,108,755
Amortization of goodwill (paragraph f) 782,253 426,246 1,396,971
Acquisition through the issuance of shares (paragraph g) 757,146 757,146 757,146
Joint venture accounting (paragraph h) -- -- (3,801,019)
Accumulated translation adjustment of foreign investments
(paragraph k) -- -- (23,723,781)
Derivative financial instruments (paragraph 1) -- -- (884,789)
----------- ----------- -----------
Net income in accordance with U.S. GAAP 27,979,900 34,983,924 10,219,402
=========== =========== ===========
Income before extraordinary gain 27,979,900 28,040,666 7,109,262
Extraordinary gain on repurchase of series A, B and C bonds,
net of tax -- 6,943,258 3,110,140
----------- ----------- -----------
Net income 27,979,900 34,983,924 10,219,402
=========== =========== ===========
Components of other comprehensive income:
Accumulated translation adjustment for foreign investments 23,494,367 8,056,833 30,661,172
Unrealized gain on investment securities, net of applicable
income tax of ThCh$ 71,270 in 1999, ThCh$ 41,802 in 2000
and ThCh$ 87,174 in 2001 (paragraph h) 403,863 236,875 493,985
----------- ----------- -----------
Comprehensive income in accordance with U.S. GAAP
(paragraph i) 51,878,130 43,277,632 41,374,559
=========== =========== ===========
F-48
The Company's earnings per share is as follows:
Year end December 31,
---------------------------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Series A Series B Series A Series B Series A Series B
Income before extraordinary gain 34.96 38.46 35.13 38.64 8.91 9.80
Extraordinary gain on repurchase of
Series A, B and C bonds, net of tax -- -- 8.70 9.57 3.90 4.29
------- ------- ------- ------- ------- -------
Net income 34.96 38.46 43.83 48.21 12.81 14.09
======= ======= ======= ======= ======= =======
Weighted average number of common stock
outstanding (thousands of shares) 380,137 380,137 380,137 380,137 380,137 380,137
======= ======= ======= ======= ======= =======
The adjustments required to conform shareholders' equity to U.S. GAAP are as
follows:
At December 31,
---------------
2000 2001
---- ----
ThCh$ ThCh$
Shareholders' equity as shown in the Chilean GAAP financial
statements 390,923,710 372,092,296
Reversal of revaluation of property, plant and equipment
(paragraph c) (1,320,860) (1,312,332)
Adjustment to deferred income taxes (paragraph d) (994,031) 1,209,428
Difference in accounting for investments in related companies
(paragraph e) (207,450) 901,305
Amortization of goodwill (paragraph f) (9,471,334) (8,074,363)
Acquisition through the issuance of shares (paragraph g) (4,542,874) (3,785,728)
Joint venture accounting (paragraph h) -- (3,801,019)
Unrealized (loss) gain on investment securities (paragraph i) (301,992) 279,166
Derivative financial instruments (paragraph 1) -- (884,789)
----------- -----------
Shareholders' equity in accordance with U.S. GAAP 374,085,169 356,623,964
=========== ===========
F-49
The changes in shareholders' equity determined under U.S. GAAP were as follows
(all amounts are expressed in thousands of Chilean pesos at December 31,
2001):
ThCh$
-----
BALANCE AT DECEMBER 31, 1998 368,290,427
Distribution of dividends (16,699,027)
Increase in accumulated translation adjustment of foreign investments 23,494,367
Decrease in net unrealized losses on investment securities 403,863
Net income for the year 27,979,900
-------------
BALANCE AT DECEMBER 31, 1999 403,469,530
Distribution of dividends (72,661,993)
Increase in accumulated translation adjustment of foreign investments 8,056,833
Decrease in net unrealized losses on investment securities 236,875
Net income for the year 34,983,924
-------------
BALANCE AT DECEMBER 31, 2000 374,085,169
Distribution of dividends (58,835,764)
Increase in accumulated translation adjustment of foreign investments 30,661,172
Decrease in net unrealized losses on investment securities 493,985
Net income for the year 10,219,402
-------------
BALANCE AT DECEMBER 31, 2001 356,623,964
=============
F-50
II Additional Disclosure Requirements:
a) Income taxes
The accounting for income taxes under Chilean GAAP and U.S. GAAP differs for
deferred income taxes. Under U.S. GAAP, as set forth in SFAS No. 109,
"Accounting for Income Taxes", all temporary differences arising as a result
of transactions that have different accounting and tax treatments are
recognized as deferred tax assets and liabilities as of the balance sheet
date. A valuation allowance is provided against deferred tax assets that are
not recoverable on a more-likely-than-not basis. Under Chilean GAAP, as
discussed in Note 2, effective January 1, 2000, the Company began applying
Technical Bulletin No. 60 of the Chilean Institute of Accountants concerning
deferred income taxes. Prior to the implementation of Technical Bulletin No.
60, only deferred tax assets and liabilities that were expected to materialize
in the future were recognized in the financial statements.
The provisions for income taxes included in the consolidated statement of
income were as follows:
Year end December 31,
----------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Current tax expense as per tax returns (4,051,396) (5,187,333) (4,754,457)
Deferred tax expense as previously calculated under
Chilean GAAP (1,451,859) 3,314,930 (2,456,650)
------------ ------------ ------------
Charge for the year under Chilean GAAP (5,503,255) (1,872,403) (7,211,107)
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS 109 to Chilean GAAP
results (2,768,039) 654,823 2,290,633
------------ ------------ ------------
Charge for the year under U.S. GAAP (8,271,294) (1,217,580) (4,920,474)
============ ============ ============
The above table can be broken down into geographic sources as follows:
Chilean and The Company
1999 others Brazil Argentina (Consolidated)
- ---- ------ ------ --------- --------------
Current tax expense as per tax return (4,114,989) (3,859) 67,452 (4,051,396)
Deferred tax (expense) benefit as previously
calculated under Chilean GAAP (1,033,743) (436,468) 18,352 (1,451,859)
---------- ---------- ---------- ----------
Charge for the year under Chilean GAAP (5,148,732) (440,327) 85,804 (5,503,255)
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS 109 (1,099,433) -- (1,668,606) (2,768,039)
---------- ---------- ---------- ----------
Charge for the year under U.S. GAAP (6,248,165) (440,327) (1,582,802) (8,271,294)
========== ========== ========== ==========
F-51
Chilean and The Company
2000 others Brazil Argentina (Consolidated)
- ---- ------ ------ --------- --------------
Current tax expense as per tax return (3,045,416) (219,759) (1,922,158) (5,187,333)
Deferred tax (expense) benefit as previously
calculated under Chilean GAAP (1,103,154) 3,016,624 1,401,460 3,314,930
---------- ---------- ---------- ----------
Charge for the year under Chilean GAAP (4,148,570) 2,796,865 (520,698) (1,872,403)
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS 109 84,302 111,073 459,448 654,823
---------- ---------- ---------- ----------
(Charge) benefit for the year under U.S. GAAP (4,064,268) 2,907,938 (61,250) (1,217,580)
========== ========== ========== ==========
Chilean and The Company
2001 others Brazil Argentina (Consolidated)
- ---- ------ ------ --------- --------------
Current tax expense as per tax return (5,083,044) -- 328,587 (4,754,457)
Deferred tax (expense) benefit as previously
calculated under Chilean GAAP (978,028) (2,056,603) 577,981 (2,456,650)
---------- ---------- ---------- ----------
Charge for the year under Chilean GAAP (6,061,072) (2,056,603) 906,568 (7,211,107)
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS 109 2,165,239 142,353 (16,959) 2,290,633
---------- ---------- ----------- ----------
(Charge) benefit for the year under U.S. GAAP (3,895,833) (1,914,250) 889,609 (4,920,474)
========== ========== ========== ==========
F-52
Deferred tax assets (liabilities) as of balance sheet dates are summarized as
follows:
2000 2001
---- ----
ThCh$ ThCh$
Deferred tax assets:
Tax loss carryforwards 5,215,397 17,849,811
Vacation accrual 147,783 155,811
Allowance for doubtful accounts 773,520 611,598
Depreciation 921,447 859,685
Joint venture accounting -- 1,208,442
Provision for assets written-off 2,378,372 3,506,988
Amortization of intangibles 108,981 101,677
Provision for labor and trade lawsuits -- 195,122
Staff severance indemnities -- 766,222
Other 824,971 549,375
Less: Valuation allowance -- (15,364,454)
------------- -------------
Total deferred tax assets 10,370,471 10,440,277
------------- -------------
Deferred tax liabilities:
Depreciation (7,511,930) (6,731,073)
Staff severance indemnities (540,982) (496,968)
Guarantees on bottles (1,671,900) (2,809,168)
Other (126,454) (137,054)
------------- -------------
Total deferred tax liabilities (9,851,266) (10,174,263)
------------- -------------
Net deferred tax (liabilities) assets under U.S. GAAP 519,205 266,014
============= =============
Net deferred tax (liabilities) assets under Chilean GAAP 1,513,236 (943,414)
============= =============
Effect of U.S. GAAP adjustments on deferred income taxes (994,031) 1,209,428
============= =============
F-53
The provision for income taxes differs from amount of income tax determined by
applying the applicable Chilean statutory income tax rate to pretax income
calculated according to U.S. GAAP as a result of the following:
Year end December 31,
------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Income tax provision at statutory Chilean tax rates 5,482,526 5,430,225 2,270,981
Increase (decrease) in provision resulting from:
Tax effects resulting from foreign operations (1,094,748) 290,106 714,394
Permanent differences 1,855,852 (3,748,735) (15,611,501)
Effect of remeasurement to U.S. dollars (Brazil and
Argentina) 1,551,525 (145,664) 3,461,616
Change in valuation allowance 445,759 (465,647) 15,364,454
Adjustments in prior year income taxes -- -- (295,754)
Other 30,380 (142,705) (983,716)
---------- ---------- ----------
Effective tax provision 8,271,294 1,217,580 4,920,474
========== ========== ==========
The Chilean statutory first category (corporate) income tax rate was 15% for
1999, 2000 and 2001. In accordance with Chilean law, Andina and each of its
subsidiaries computes and pays income taxes on a separate basis.
The Brazilian federal statutory income tax rate was approximately 25% for
1999, 2000 and 2001. Ordinarily, an additional surtax of 12% for 1999 and 9%
for 2000 and 9% for 2001 by way of Social Contribution (CS), similar in nature
to income tax, is charged on net income. In view of tax losses for the years
ended December 31, 1999, 2000 and 2001, no such levy was due by the Company
for such periods.
The Argentine income tax rate was 35% for 1999, 2000 and 2001, in accordance
with currently enacted tax legislation.
The Company had net operating tax loss carryforwards related to the Brazilian
subsidiaries of approximately ThCh$ 56,092,151 at December 31, 2001 that can
be carried forward indefinitely. The Chilean tax loss carryforwards, totaling
ThCh$ 54,093,027, can also be carried forward indefinitely.
F-54
b) Statement of cash flows:
For the purpose of the statement of cash flows using U.S. GAAP
classifications, the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents. In
accordance with the Company's policy, certain cash equivalents that are
managed as part of the Company's investment portfolio are excluded from the
amount shown as cash and cash equivalents in the statement of cash flows. The
detail of cash and cash equivalents is as follows:
Year end December 31,
------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Cash 8,255,294 12,530,835 13,868,565
Time deposits 77,182,811 69,564,985 18,171,362
Marketable securities 10,508,543 15,621,647 24,089,156
Repurchase agreements 607,776 1,155,968 1,596,065
------------ ------------ ------------
Total cash and cash equivalents 96,554,424 98,873,435 57,725,148
============ ============ ============
Additional cash flow disclosure required by U.S. GAAP that are shown net in
Chilean GAAP are as follows:
Year end December 31,
-------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Short-term borrowings with bank and financial institutions 14,599,896 17,804,757 57,499,099
Long-term borrowings with banks and financial institutions 631,240 763,715 52,383,200
Repayment of long-term bank borrowings (10,836,228) (13,454,381) (108,578,638)
------------- ------------- -------------
Net bank borrowings 4,394,908 5,114,091 1,303,661
============= ============= =============
c) Segment information
The Company operates principally in three segments which comprise the
production and sales of goods for (i) Coca-Cola soft drinks, (ii) Other
beverages (juices, mineral water and beer), and (iii) Packaging. Total
revenues by segment include sales to unaffiliated customers, as reported in
the Company's consolidated income statement, and intersegment sales, which are
accounted for at invoice price.
The Coca-Cola soft drink segment comprises the production and sales of
Coca-Cola, Sprite, Fanta and other Coca-Cola soft drinks. The Other beverages
segment includes the sales of mineral water, fruit juices and, in Brazil,
beer. The Packaging segment consists of the production of PET containers.
The accounting policies for the segments are the same as those described in
"Nature of operations and summary of significant accounting policies".
Operating income is total revenue less operating expenses under Chilean GAAP.
In computing operating income, none of the following items has been added or
deducted: Financial income, Financial expense, Price-level restatement, Other
non-operating income, Other non-operating expense and Income tax expense.
The Company defines identifiable assets by product segment as receivable
balances less specified payables, plus goodwill and fixed assets. Identifiable
long-lived assets by geographic area include all long-term assets, less
long-term deferred income taxes and claims for recovery in Brazil.
F-55
A summary of the Company's operations by segment calculated under Chilean GAAP
is as follows:
At and for the year end December 31,
---------------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Revenue:
Sales to unaffiliated customers:
Soft drinks 350,666,236 401,333,184 419,088,787
Other beverages 41,161,746 36,792,102 43,921,712
Packaging 24,235,086 20,718,124 18,916,619
------------- ------------- -------------
Subtotal 416,063,068 458,843,410 481,927,118
------------- ------------- -------------
Intersegment sales:
Soft drinks 176,178 394,517 --
Other beverages 17,237,415 17,560,044 15,267,770
Packaging 25,405,979 20,516,086 15,951,883
Eliminations (42,819,572) (38,470,647) (31,219,653)
------------- ------------- -------------
Subtotal -- -- --
------------- ------------- -------------
Total revenue 416,063,068 458,843,410 481,927,118
============= ============= =============
Operating income:
Soft drink 31,525,050 50,007,312 48,995,042
Other beverages 6,231,055 6,042,150 6,394,049
Packaging 2,101,632 491,547 436,868
------------- ------------- -------------
Total operating income 39,857,737 56,541,009 55,825,959
------------- ------------- -------------
Depreciation:
Soft drinks 31,865,178 32,874,675 34,791,462
Other beverages 1,576,560 1,399,423 1,371,181
Packaging 9,015,680 7,505,393 4,543,959
------------- ------------- -------------
Total depreciation 42,457,418 41,779,491 40,706,602
------------- ------------- -------------
Segment assets:
Soft drinks 317,866,856 362,789,074 527,123,383
Other beverages 15,136,689 13,914,809 12,230,824
Packaging 73,406,766 44,339,912 17,472,834
------------- ------------- -------------
Total segment assets 406,410,311 421,043,795 556,827,041
------------- ------------- -------------
Capital expenditures:
Soft drinks 30,933,460 19,935,893 19,512,396
Other beverages 559,154 952,838 863,903
Packaging 3,338,715 1,362,154 1,173,706
------------- ------------- -------------
Total capital expenditures 34,831,329 22,250,885 21,550,005
------------- ------------- -------------
F-56
A geographical summary of the Company's operations by segment calculated under
Chilean GAAP is as follows:
At and for the year end December 31,
---------------------------------------------------------
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Revenue:
Sales to unaffiliated customers:
Chile 194,795,345 193,638,007 190,452,996
Brazil 76,215,259 129,905,577 140,759,266
Argentina 145,052,464 135,299,826 150,714,856
-------------- -------------- --------------
Total revenue 416,063,068 458,843,410 481,927,118
-------------- -------------- --------------
Operating income:
Chile 39,402,540 43,034,859 39,295,704
Brazil (1,555,415) 5,588,145 5,369,127
Argentina 2,010,612 7,918,005 11,161,128
-------------- --------------
Total operating income 39,857,737 56,541,009 55,825,959
-------------- --------------
Identifiable long-lived assets:
Chile 127,726,925 118,926,144 271,390,927
Brazil 111,537,428 138,951,416 141,877,224
Argentina 141,787,813 134,904,829 127,142,073
-------------- -------------- --------------
Total identifiable long-lived assets 381,052,166 392,782,389 540,410,224
-------------- -------------- --------------
A reconciliation of total segment assets by product, and long-lived assets by
country, to total consolidated assets for the years ended December 31, 1999,
2000 and 2001 is as follows:
At December 31,
---------------------------------------------------------
1999 2000 2001
---- ---- ----
Industry ThCh$ ThCh$ ThCh$
--------
Total segment assets 406,410,311 421,043,795 556,827,041
Cash 8,255,294 12,530,835 13,868,565
Financial instruments 247,737,091 165,498,587 43,745,513
Amounts due from related parties 1,878,917 173,209 1,544,321
Recoverable taxes 12,790,538 9,381,558 5,473,501
Deferred income taxes 881,967 1,513,236 503,438
Investments in related companies 7,936,485 7,062,828 18,404,997
Investment in other companies 397,487 376,161 671,902
Intangible assets (net) 1,384,790 1,158,630 975,371
Liabilities deducted from segment assets 57,989,175 57,810,388 47,699,938
-------------- -------------- --------------
Total assets 745,662,055 676,549,227 689,714,587
-------------- -------------- --------------
Identifiable long-lived assets 381,052,166 392,782,389 540,410,224
Current assets 360,627,647 280,023,430 148,469,506
Deferred taxes-long term 377,459 638,383 --
Claims for recovery-Brazil 3,604,783 3,105,025 834,857
-------------- -------------- --------------
Total assets 745,662,055 676,549,227 689,714,587
-------------- -------------- --------------
F-57
d) Derivative financial instruments
Derivative financial instruments are used by the Company principally in the
management of its interest rate and foreign currency exposures. The Company
does not hold or issue derivative financial instruments for trading purposes.
Prior to January 1, 2001, deferral (hedge) accounting was applied only if the
derivative reduced the risk of the underlying hedged item and was designated
at inception as a hedge with respect to the hedged item. Additionally, the
derivative was required to achieve results that were expected to be inversely
correlated to those of the hedged item. If a derivative instrument ceased to
meet the criteria for deferral accounting, any subsequent gains and losses
were currently recognized in income. If a hedging instrument was sold or
terminated prior to maturity, gains and losses continued to be deferred until
the hedged item was recognized in income.
Under US GAAP, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective January 1, 2001. SFAS No. 133
requires that all derivative instruments be recognized on the balance sheet at
fair value and that changes in the fair value be recognized in income when
they occur, the only exception being derivatives that qualify as hedges. To
qualify the derivative instrument as a hedge the Company must meet strict
hedge effectiveness and contemporaneous documentation requirements at the
initiation of the hedge and assess the hedge effectiveness on an ongoing
(quarterly) basis over the life of the hedge.
The Company had no derivative financial instruments outstanding at December
31, 2000. At December 31, 2001 the Company had derivative financial
instruments outstanding consisting of forwards to purchase US dollars with a
notional amount of ThCh$ 60,869,405, all of which mature by the end of 2002.
None of these derivative financial instruments were designed as hedges in
accordance with USGAAP.
During 2000 and 2001 the Company entered into forward contracts in its Chilean
and Brazilian operations to manage its exposure associated with respect to
foreign currency commitments in US dollars, which were primarily for raw
materials purchases.
The financial instruments described above involve elements of market risk and
credit risk. Market risk is the possibility that future changes in foreign
exchange or interest rates may make the financial instruments more or less
valuable. Credit risk is the possibility of default by the counterparties. The
loss that the Company would incur if a counterparty defaulted is significantly
less than the instruments' notional value and the loss exposure is the fair
value of the instrument. The Company does not require collateral or other
security for the instruments.
F-58
e) Operating income
Under Chilean GAAP, the following income and expenses arising during the years
ended 1999, 2000 and 2001 are classified as "Non-operating income and expense"
whereas under US GAAP they would be included within "Operating income":
1999 2000 2001
---- ---- ----
ThCh$ ThCh$ ThCh$
Operating income as reported under Chilean GAAP 39,857,737 56,541,009 55,825,959
Gain on sale of property, plant and equipment to
Envases CMF S.A. -- -- 5,779,626
Impairment of property, plant and equipment (2,857,610) (8,272,754) (9,841,758)
Loss on sale of property, plant and equipment (406,412) (144,042) (1,777,706)
Staff severances indemnities (1,081,434) (4,868,900) (1,359,220)
Litigation -- -- (708,461)
Write-off of property, plant and equipment (2,073,094) (2,046,111) (539,657)
Liquidation of container business -- -- (328,585)
Change in estimate for guarantees on bottles 10,327,699 -- --
Other miscellaneous income 1,043,464 -- --
Profit on dissolution of Brazilian packgage business -- 562,979 --
----------- ----------- -----------
Operating income under US GAAP format 44,810,350 41,772,181 47,050,198
=========== =========== ===========
f) Concentrations of credit risk
The assets of the Company that are potentially subject to significant
concentrations of credit risk are deposits held with banks and financial
institutions and trade accounts receivable.
The Company holds accounts with a variety of banks and does not hold
significant deposits with any single bank. The Company has a wide customer
base and trades with a large number of small customers. Consequently, the
Company does not believe that it has any significant concentrations of credit
risk at December 31, 2001.
g) Disclosures regarding the fair values of financial instruments
The estimated fair values of the Company's financial instruments were as
follows:
At December 31,
------------------------------------------------------------------
2000 2001
---- ----
Carrying Fair Carrying Fair
value value value value
----- ----- ----- -----
ThCh$ ThCh$ ThCh$ ThCh$
Long-term investment in bonds 12,191,819 11,889,827 126,143,054 126,422,220
Bonds payable (162,305,613) (146,321,623) (148,180,457) (144,550,567)
Foreign currency contracts (net) -- -- (2,399,032) (3,283,821)
Long-term investment: The fair value of the investment in bonds was determined
based on quoted market prices.
F-59
Bonds payable: The fair value of bonds payable, including current portion, is
estimated based on the quoted market price of the Company's U.S. dollar
denominated bonds payable.
Foreign currency contracts: The estimated fair values of the forward contracts
are based on quoted market prices at year end.
Management believes that the fair value of the Company's other financial
instruments is not materially different from their respective book values, and
therefore does not believe that the non-disclosure of such information would
have a material effect on a reader's understanding of these financial
statements.
h) Concentrations of other risks
The majority of the Company's net sales are derived from the distribution of
Coca-Cola soft drinks. The Company produces, markets and distributes Coca-Cola
soft drinks through standard bottler agreements between the Company's
individual bottler subsidiaries and The Coca-Cola Company. Under the Bottler
Agreements, The Coca-Cola Company unilaterally sets the prices for Coca-Cola
soft drink concentrates sold to the Company.
The Company is dependent on The Coca-Cola Company to renew such bottler
agreements. The bottler agreements are subject to termination by The Coca-Cola
Company in the event of default by the Company or upon expiration in
accordance with their respective terms. No assurance can be given that the
bottler agreements will be renewed upon their expiration. Termination or
non-renewal of the bottler agreements would have a material adverse effect on
the Company's business.
The soft drink and non-alcoholic beverage business are highly competitive in
each of the Company's franchise territories. In each of its franchise
territories, the Company competes with bottlers of PepsiCo Inc. as well as
bottlers of regional brands. The Company's soft drink products also compete
generally with other non-alcoholic beverages.
i) Recent accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations". SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001; the use of the pooling-of-interests method of accounting is
prohibited after this date. This Statement does not fundamentally change the
guidance for determining the cost of an acquired entity and allocating that
cost to the assets acquired and liabilities assumed. It does establish
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain (instead of being deferred and
amortized). The Company did not complete any significant acquisitions between
July 1, 2001 and December 31, 2001. Accordingly adoption of SFAS No. 141 had
no impact on the US GAAP results at December 31, 2001.
In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 eliminates the amortization of goodwill and
instead requires a periodic review of any goodwill balance for possible
impairment. SFAS No. 142 also requires that goodwill be allocated at the
reporting unit level. SFAS No. 142 is effective for years beginning after
December 15, 2001. The Company has not yet completed the transitional
impairment test required by SFAS No. 142 as of January 1, 2002. The Company is
evaluating the effect of this statement on its financial position and results
of operations
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In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes the
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period and the
capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The Company is evaluating the
effect of this Statement on its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 superseded FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of", and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of
Operations - Reporting on the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
for the disposal of a segment of a business (as previously defined in APB No.
30). The FASB issued SFAS No. 144 to establish a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to
be disposed of by sale. SFAS No. 144 broadens the presentation of discontinued
operations in the income statement to include a component of an entity (rather
than a segment of business). A component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. SFAS No. 144 also requires
that discontinued operations be measured at the lower of the carrying amount
or fair value less cost to sell. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001 and should be applied prospectively. The
Company is evaluating the effect of this Statement on its financial position
and results of operations.
j) Pro Forma Condensed Income Statement
APB No. 16 "Business Combinations", requires the disclosure of certain pro
forma information concerning to results of operations of the Company as though
its acquisition of Nitvitgov Refrigerantes S.A. had occurred as of the
beginning of 1999.
The following unaudited pro forma information has been prepared for
comparative purposes only and does not purpot to be indicative of the results
of operations which actually would have been resulted had the acquisition
occurred on the date indicated, or which may result in the future:
Year end December 31,
---------------------
(In millions of constant pesos) 1999 2000
---- ----
Net sales 460,215 473,288
Chilean GAAP net income 26,428 29,870
Basic and diluted earnings per share Series A under Chilean GAAP (1) 33.11 37.41
Basic and diluted earnings per share Series B under Chilean GAAP (1) 36.42 41.16
<FN>
(1) (In millions of constant pesos)
</FN>
F-61