UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-12290
PANAMERICAN BEVERAGES, INC.
(Exact Name of Registrant as Specified in Its Charter)
REPUBLIC OF PANAMA NOT APPLICABLE
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
c/o Panamco, L.L.C.
701 Waterford Way, Suite 800
Miami, Florida
(Address of Principal Executive Offices)
33126
(Zip Code)
Registrant's Telephone Number, including area code: (305) 856-7100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's classes of common
and preferred stock, par value $0.01 per share, as of August 3, 2001 were:
Class A Common Stock: 116,328,480
Class B Common Stock: 8,697,479
Class C Preferred Stock: 2
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
as of June 30, 2001 and December 31, 2000.................... 1
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 2001 and 2000.... 2
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2001 and 2000.............. 3
Notes to Condensed Consolidated Financial
Statements................................................... 4
PANAMCO MEXICO & CENTRAL AMERICA - Selected Statements of
Operations Data for the three and six months ended June 30,
2001 and 2000................................................ 17
PANAMCO BRASIL - Selected Statements of Operations Data
for the three and six months ended June 30, 2001 and 2000.... 19
PANAMCO COLOMBIA - Selected Statements of Operations Data
for the three and six months ended June 30, 2001 and 2000.... 20
PANAMCO VENEZUELA -- Selected Statements of Operations Data
for the three and six months ended June 30, 2001 and 2000.... 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 22
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................................. 29
i
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS............................................... 29
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................... 29
Item 3. DEFAULTS UPON SENIOR SECURITIES................................. 29
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 29
Item 5. OTHER INFORMATION............................................... 30
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 30
Signatures.............................................................. 31
ii
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States of America ("U.S.") dollars)
(Unaudited)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
ASSETS
Current Assets:
Cash and equivalents $ 266,320 $ 191,773
Accounts receivable, net 112,005 138,473
Inventories, net 102,095 105,439
Other current assets 26,815 30,268
----------- -----------
Total Current Assets 507,235 465,953
Investments 27,363 158,006
Property, plant and equipment, net 1,094,530 1,125,719
Bottles and cases, net 221,668 236,527
Cost in excess of net assets acquired, net 883,433 903,683
Other assets 127,879 136,433
----------- -----------
Total Assets $ 2,862,108 $ 3,026,321
=========== ===========
LIABILITIES
Current Liabilities:
Accounts payable $ 178,184 $ 171,239
Current portion of long-term obligations 28,273 184,889
Bank loans 93,184 40,295
Other accrued liabilities 188,383 241,801
----------- -----------
Total Current Liabilities 488,024 638,224
Long-term Liabilities:
Long-term obligations, net of current portion 1,032,404 1,028,575
Other liabilities 177,030 164,406
----------- -----------
Total Long-term Liabilities 1,209,434 1,192,981
Minority interest in consolidated subsidiaries 29,437 27,805
SHAREHOLDERS' EQUITY
Capital 1,480 1,480
Capital in excess of par value 1,591,516 1,585,498
Retained earnings 96,907 50,632
Accumulated other comprehensive loss (422,207) (399,541)
----------- -----------
1,267,696 1,238,069
Less - Treasury shares, at cost (132,483) (70,758)
----------- -----------
Total Shareholders' Equity 1,135,213 1,167,311
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,862,108 $ 3,026,321
=========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
1
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. dollars, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
2001 2000 2001 2000
--------- --------- ---------- ----------
Net sales $ 671,434 $ 641,061 $1,319,463 $1,249,242
Cost of sales, excluding depreciation
and amortization 318,200 300,513 634,463 598,934
--------- --------- ---------- ----------
Gross profit 353,234 340,548 685,000 650,308
--------- --------- ---------- ----------
Operating expenses:
Selling, general and administrative 209,132 211,082 417,998 418,522
Depreciation and amortization 55,860 58,342 109,486 115,068
Amortization of goodwill 6,716 9,095 13,326 18,199
Facilities reorganization charges - - - 79,878
--------- --------- ---------- ----------
271,708 278,519 540,810 631,667
--------- --------- ---------- ----------
Operating income 81,526 62,029 144,190 18,641
--------- --------- ---------- ----------
Other income (expense):
Interest income 4,734 8,057 13,750 15,795
Interest expense (28,469) (33,827) (61,073) (70,936)
Other expense, net (1,754) (4,080) (3,930) (12,329)
--------- --------- ---------- ----------
Income (loss) before income taxes 56,037 32,179 92,937 (48,829)
Provision for income taxes 14,432 18,777 28,477 9,522
--------- --------- ---------- ----------
Income (loss) before minority interest 41,605 13,402 64,460 (58,351)
Minority interest in earnings
of subsidiaries 1,363 1,878 2,897 1,627
--------- --------- ---------- ----------
Net income (loss) $ 40,242 $ 11,524 $ 61,563 $ (59,978)
========= ========= ========== ==========
Basic earnings (loss) per share 0.32 $ 0.09 $ 0.48 $ (0.47)
========= ========= ========== ==========
Basic weighted average shares
outstanding, in thousands 126,917 128,733 127,609 128,938
========= ========= ========== ==========
Diluted earnings (loss) per share $ 0.31 $ 0.09 0.48 $ (0.47)
========= ========= ========== ==========
Diluted weighted average shares
outstanding, in thousands 128,244 128,946 128,748 128,938
========= ========= ========== ==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. dollars)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
2001 2000
----------- -----------
Net cash provided by operating activities $ 187,946 $ 125,452
Cash flows from investing activities:
Capital expenditures (37,938) (66,297)
Purchases of bottles and cases (19,986) (28,511)
Purchases of investments (428) (4,000)
Proceeds from sale of investments 127,720 5,000
Proceeds from sale of property, plant and equipment 4,604 13,644
Other (3,945) 810
---------- ---------
Net cash provided by (used in) investing activities 70,027 (79,354)
---------- ---------
Cash flows from financing activities:
Payment of bank loans and other long-term
obligations (227,473) (41,110)
Proceeds from bank loans and other long-term
obligations 127,305 14,871
Issuance of capital stock 8,777 412
Share repurchase (64,483) (11,768)
Payment of dividends to minority interest (975) (536)
Payment of dividends to shareholders (15,288) (15,454)
Other - 526
---------- ---------
Net cash used in financing activities (172,137) (53,059)
---------- ---------
Effect of exchange rate changes on cash
and cash equivalents (11,289) (689)
---------- ---------
Net increase (decrease) in cash and equivalents 74,547 (7,650)
Cash and equivalents at beginning of period 191,773 152,648
---------- ---------
Cash and equivalents at end of period $ 266,320 $ 144,998
========== =========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest (net of capitalized interest) $ 63,290 $ 67,361
========== =========
Income taxes 38,079 32,525
========== =========
Noncash activities:
Write-off of property, plant and equipment against
accrued facilities reorganization charges - 39,533
========== =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by Panamerican Beverages, Inc. (the "Company"), in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "SEC"). In the opinion of management, these unaudited
condensed consolidated financial statements contain all adjustments,
which are of a normal recurring nature, necessary to present fairly the
Company's consolidated financial position as of June 30, 2001 and
December 31, 2000, and the consolidated results of operations for the
three and six months ended June 30, 2001 and 2000. Certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC.
These unaudited financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the
Company's 2000 Annual Report on Form 10-K filed with the SEC on April 2,
2001. The Company has made no significant changes in accounting policies
from those reflected in the consolidated financial statements included in
the Annual Report on Form 10-K.
The financial statements of the Colombian and Venezuelan subsidiaries for
all periods have been remeasured into U.S. dollars, the reporting and
functional currency, in accordance with the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
(SFAS) No. 52, "Foreign Currency Translation," as it applies to highly
inflationary economies. The functional currencies of the Mexican,
Brazilian, Costa Rican, Nicaraguan and Guatemalan subsidiaries are the
Mexican peso, Brazilian real, Costa Rican colon, Nicaraguan cordova and
Guatemalan quetzal, respectively. The financial statements of the
Mexican, Brazilian, Costa Rican, Nicaraguan and Guatemalan subsidiaries
have been translated using the current rate translation method and the
resulting translation adjustments are included in accumulated other
comprehensive income (loss), which is a component of shareholders'
equity. Foreign currency translation gains (losses) on monetary assets
and liabilities for the Colombian and Venezuelan subsidiaries have been
included in the consolidated statements of operations captions to which
such items relate as shown below:
4
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
2001 2000 2001 2000
------ ------- ------- ----------
Net sales $ 112 (93) $ 114 (403)
Cost of sales and
operating expenses 908 4,538 1,566 5,754
Interest and other income
(expense), net (155) 1,419 2,120 846
Provision for income taxes 18 1,216 64 1,507
------ ------- ------- -------
Net translation gain $ 883 $ 7,080 $ 3,864 $ 7,704
====== ======= ======= =======
(2) NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and the
pooling-of-interest method will be prohibited. The remaining provisions
of SFAS No. 141 will be effective for transactions accounted for using
the purchase method that are completed after June 30, 2001. Under SFAS
No. 142, goodwill and certain intangible assets are no longer subject to
amortization over its estimated useful life, but instead will be subject
to an impairment test to be performed at least annually. The provisions
of SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001, and will therefore be adopted by the Company on
January 1, 2002. The Company is in the process of evaluating the effect
the adoption of these standards will have on its financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a Replacement of FASB Statement No. 125." SFAS No. 140
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Those standards
are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets
it controls and the liabilities it has incurred, de-recognizes financial
assets when control has been surrendered, and de-recognizes liabilities
when extinguished. SFAS No. 140 provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Company adopted SFAS No. 140
on March 31, 2001. The adoption of this standard did not have a material
effect on its financial position or results of operations.
5
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires the
recognition of all derivatives on the consolidated balance sheet at fair
value. Derivatives that are not designated as part of a hedging
relationship must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, the
effective portion of the hedge's change in fair value is either (1)
offset against the change in fair value of the hedged asset, liability or
firm commitment through income or (2) held in equity until the hedged
item is recognized in income immediately. The ineffective portion of a
hedge's change in fair value is recognized in income. The Company adopted
SFAS No. 133, as amended, on January 1, 2001. The adoption of SFAS No.
133, on January 1, 2001, resulted in a reduction in other comprehensive
income of approximately $3,006. The Company also recorded an additional
reduction of $275 and $4,688 in other comprehensive income relating to
the change in fair value of the cash flow hedge for the quarter and six
months ended June 30, 2001, respectively and an unrealized holding loss
of $112 relating to the change in fair value of the fair value hedge for
the quarter ended June 30, 2001.
(3) REORGANIZATION PROGRAMS
Throughout 2000, the Company continued its reorganization programs, which
were initiated during the first quarter of 2000. As a result of these
reorganization programs, during the year ended December 31, 2000, the
Company recorded the following items in its statements of operations:
Facilities Reorganization Charges - During the year ended December 31,
2000, the Company recorded $503,659 of facilities reorganization charges,
of which $79,878 was recorded during the first quarter and $423,781 was
recorded during the fourth quarter. These charges are primarily the
result of the $350,000 write-down of goodwill, attributable to Panamco
Venezuela; the write-off of noncash items of property, plant and
equipment, obsolete bottles and cases and nonrecurring charges (related
to legal contingencies) amounting to $65,088; and cash items relating
primarily to severance payments, job terminations and reorganization of
the distribution system of the Venezuelan and Brazilian subsidiaries
amounting to $88,571.
Severance payments recorded during 2000 relate to the termination of
approximately 10,000 employees across all levels and operating units of
the Company. Approximately 7,100 employees had been terminated by the
Company as of June 30, 2001.
6
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
Nonoperating Charges - During the year ended December 31, 2000, the
Company recorded $5,977 of charges, of which $5,387 were recorded in the
first quarter and $590 were recorded in the fourth quarter, related to
the disposal of nonoperating assets, including land of some of the
operating plants, which are presented as part of other expense, net.
As a result of the facilities reorganization charges and nonoperating
charges, the Company recorded a tax benefit of $46,516, of which $23,405
was recorded in the first quarter of 2000 and $23,111 was recorded in the
fourth quarter of fiscal 2000.
The following table shows a summary of the net charges and benefits
recorded in the consolidated statements of operations for the year ended
December 31, 2000:
YEAR ENDED DECEMBER 31, 2000
--------------------------------
CASH NONCASH TOTAL
--------- --------- ---------
Restructuring charges $ 86,677 $ 24,814 $111,491
Asset write-offs 1,894 381,637 383,531
Nonrecurring charges - 8,637 8,637
--------- --------- --------
88,571 415,088 503,659
Nonoperating charges - 5,977 5,977
--------- --------- --------
Gross charges $ 88,571 $421,065 509,636
========= =========
Income tax benefit 46,516
--------
Net charges $463,120
========
The following tables show the status of the balance of the reorganization
accrual and asset write-down allowance at June 30, 2001 and December 31,
2000. Balances of $32,166 and $47,875 related to accrued facilities
reorganization costs are reflected in other accrued liabilities and
balances of $7,509 and $7,756 are reflected in other long-term
liabilities in the condensed consolidated balance sheets at June 30, 2001
and December 31, 2000, respectively:
7
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
SEVERANCE
BALANCE AT AND OTHER CASH BALANCE AT
DECEMBER 31, PAYMENTS JUNE 30,
2000 APPLIED 2001
------------ ------------ ------------
Job termination
and severance
payments $ 44,899 $ 14,418 $ 30,481
Other 10,732 1,538 9,194
--------- ---------- ---------
Total $ 55,631 $ 15,956 $ 39,675
========= ========== =========
==== CHARGES ==== ========= APPLICATIONS =========
PROPERTY
BALANCE AT SEVERANCE AND BALANCE AT
DECEMBER 31, AND OTHER CASH EQUIPMENT ASSET DECEMBER 31,
1999 CASH NONCASH PAYMENTS SOLD WRITE-OFFS 2000
------------ ------------------------ -------------------------------------------- ------------
Write-off of
property and
equipment $ - $ 2,770 $ 54,451 $ - $ 6,112 $ 51,109 $ -
Job termination
and severance
payments - 78,769 - 33,870 - - 44,899
Venezuela
goodwill
impairment - - 350,000 - - 350,000 -
Other - 7,032 10,637 6,937 - - 10,732
------------ ---------- --------- -------------- --------- ---------- ------------
Total $ - $ 88,571 $415,088 $ 40,807 $ 6,112 $401,109 $ 55,631
============ ========== ========= ============== ========= ========== ============
(4) INVENTORIES
Inventories consist of:
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
Bottled beverages $ 29,219 $ 31,745
Raw materials 42,759 41,675
Spare parts and supplies 33,337 35,473
------------ ------------
105,315 108,893
Less - Allowance for obsolete and slow
moving items 3,220 3,454
------------ ------------
$ 102,095 $ 105,439
============ ============
8
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
(5) PROPERTY, PLANT, EQUIPMENT, AND BOTTLES AND CASES
Property, plant, equipment, and bottles and cases consist of:
JUNE 30, DECEMBER 31,
2001 2000
-------------- --------------
Property, plant and equipment $ 2,016,992 $ 1,996,820
Less - Accumulated depreciation 922,462 871,101
------------- -------------
1,094,530 1,125,719
Bottles and cases, net 221,668 236,527
------------- -------------
$ 1,316,198 $ 1,362,246
============= =============
(6) TRANSACTIONS WITH RELATED PARTIES
For the three and six months ended June 30, 2001, the Company conducted
transactions with related parties. A summary of balances as of June 30,
2001 and December 31, 2000 and transactions for the three and six months
ended June 30, 2001 and 2000 with related parties is as follows:
JUNE 30, DECEMBER 31,
2001 2000
----------- -------------
Accounts receivable:
Subsidiaries of Coca-Cola $ 9,427 $ 7,934
Subsidiaries of Kaiser 1,986 2,532
----------- -------------
$ 11,413 $ 10,466
=========== =============
Accounts payable:
Subsidiaries of Coca-Cola $ 19,783 $ 17,076
Productos de Vidrio, S.A. 2,456 -
Central Azucarero Portuguesa, C.A. 1,110 -
Tapon Corona de Colombia, S.A. 1,151 994
Comptec, S.A. 57 976
Other 213 773
----------- -------------
$ 24,770 $ 19,819
=========== =============
9
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
Income:
Marketing expense support
(netted against marketing
expenses) $ 9,325 $ 10,523 $ 15,685 $ 20,679
Other 816 101 1,312 869
----------- ---------- ---------- ----------
$ 10,141 $ 10,624 $ 16,997 $ 21,548
=========== ========== ========== ==========
Expenses:
Purchase of concentrate $ 119,243 $ 79,189 $ 176,057 $ 144,121
Purchase of beer 12,638 13,986 28,778 28,573
Purchase of other inventories 10,860 5,119 19,149 13,529
------------ ---------- ---------- ----------
$ 142,741 $ 98,294 $ 223,984 $ 186,223
============ ========== ========== ==========
Capital expenditure incentives
received in cash $ 670 $ - $ 1,348 $ -
============ ========== ========== ==========
(7) OTHER TRANSACTIONS
On February 22, 2001, Panamco de Venezuela, S.A. ("Panamco Venezuela")
entered into an agreement with Chase Manhattan Bank, as arranger and
administrative agent, to obtain a one-year loan in the amount of $25,000,
guaranteed by the Company. The loan matures on February 21, 2002, with
quarterly interest payments with an average annual interest rate of
three-month LIBOR plus 1.75% and principal balance payable upon maturity.
On March 19, 2001, Panamco Venezuela entered into an agreement with Banco
Bilbao Vizcaya Argentaria ("BBVA") S.A., as administrative agent, and
BBVA Securities Inc. and Wachovia Securities, Inc., as arrangers, to
obtain a loan in the amount of $45,100, guaranteed by the Company. The
loan matures on July 16, 2004, with semiannual interest payments with an
average annual interest rate ranging from six-month LIBOR plus 1.75% for
year one and year two to six-month LIBOR plus 2.0% after year two until
maturity.
10
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
On April 20, 2001, Spal Industria Brasileira de Bebidas, S.A. (a
subsidiary of the Company in Brazil, "Spal") entered into a credit
agreement with BankBoston, N.A. as lender, to obtain two loans of $30,000
in the aggregate, guaranteed by the Company. The first loan amounts to
$10,000 and matures on April 16, 2002, with semiannual interest payments
with an annual interest rate of 6.65% and principal balance payable upon
maturity. The second loan amounts to $20,000, with semiannual interest
payments with an annual interest rate of 6.65% and principal balance of
$5,000 payable on April 16, 2002 and principal balance of $15,000 payable
on April 10, 2003. On the date of the loan, Spal also entered into four
swap agreements with BankBoston, N.A. to exchange the dollar denominated
debt totaling $30,000. The terms of the swap agreements are as follows:
R2,109,870 (Brazilian reals) maturing on October 16, 2001; R32,753,046
maturing on April 15, 2002; R994,334 maturing on October 11, 2002; and
R29,788,731 maturing on April 9, 2003. All four swap agreements have an
interest rate of 90% of CDI (the Brazilian borrowing rate).
On May 30, 2001, Panamco Venezuela entered into a credit agreement with
Comerica Bank as lender, to obtain a two-year loan in the amount of
$15,000, guaranteed by the Company. The loan matures on May 30, 2003,
with semiannual interest payments with an average annual interest rate of
six-month LIBOR plus 2.50% and principal payable upon maturity.
On June 1, 2001, Spal entered into a credit agreement with Citibank, N.A.
as lender, to obtain a two-year loan in the amount of $15,000, guaranteed
by the Company. The loan matures on June 4, 2003, with semiannual interest
payments with an average annual interest rate of six-month LIBOR plus
1.15% and principal payable upon maturity.
On June 4, 2001, Panamco Venezuela entered into an amendment and waiver
(the "Amendment and Waiver") to the JPY2,163,000,000 credit agreement
entered with Inarco International Bank, N.V. (an indirect wholly owned
subsidiary of Citibank, N.A., the "Bank") dated as of July 18, 2000.
Pursuant to the Amendment and Waiver, the Bank increased the total amount
of the loan to JPY5,948,250,000 and reduced the average annual interest
rate of six-month JPY LIBOR plus 3.24% to six-month JPY LIBOR plus 2.15%.
This loan is being guaranteed by the Company and will mature on July 28,
2003.
On June 5, 2001, Panamco Venezuela entered into a credit agreement with
Banco Santander Central Hispano, S.A. as lender, to obtain a one-year
loan in the amount of $10,000, guaranteed by the Company. The loan
matures on June 6, 2002, with quarterly interest payments with an average
annual interest rate of three-month LIBOR plus 1.30% and principal
payable upon maturity.
11
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
On June 27, 2001, Panamco Venezuela entered into an amendment agreement
with BankBoston, N.A. in order to extend the maturity of a $15,000 credit
agreement until June 27, 2002. The loan is guaranteed by the Company,
with quarterly interest payments at an average annual interest rate of
three-month LIBOR plus 2.0% and principal payable upon maturity.
(8) SHARE REPURCHASE PROGRAM
On December 9, 1999, the Board of Directors authorized a $100,000 share
repurchase program of the Company's Class A Common Stock (the "Share
Repurchase Program"). On July 20, 2001, the Board of Directors authorized
a $25,000 increase to the Share Repurchase Program. The shares may be
purchased in the open market or in privately negotiated transactions,
depending on market conditions and other factors. The Company repurchased
3,405,757 shares amounting to $64,483 at an average price per share of
$18.93 during the first half of 2001. From the beginning of the program
in December 1999 to June 30, 2001, the Company has repurchased 4,559,636
shares for a total amount of $85,726 at an average price per share of
$18.80.
(9) EARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic earnings per
common share calculations are determined by dividing earnings available
to common shareholders by the weighted average number of shares of common
stock. Diluted earnings per share are determined by dividing earnings
available to common shareholders by the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding,
related to outstanding stock options and nonvested stock grants.
Following is a reconciliation of the weighted average number of shares
outstanding with the number of shares used in the computation of diluted
earnings (loss) per share:
12
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Numerator:
Net income (loss) $ 40,242 $ 11,524 $ 61,563 $(59,978)
========= ========= ========= =========
Denominator (in thousands):
Denominator for basic earnings
(loss) per share 126,917 128,733 127,609 128,938
Effect of dilutive securities:
Options to purchase common stock 1,327 213 1,139 -
--------- --------- --------- ---------
Denominator for diluted earnings
(loss) per share 128,244 128,946 128,748 128,938
========= ========= ========= =========
Earnings (loss) per share:
Basic $ 0.32 $ 0.09 $ 0.48 $ (0.47)
========= ========= ========= =========
Diluted $ 0.31 $ 0.09 $ 0.48 $ (0.47)
========= ========= ========= =========
Anti-dilutive securities not included in
the diluted earnings (loss) per
share calculation:
Options to purchase common stock
(in thousands): 2,045 2,764 2,063 5,304
Exercise prices: $ 19.62 $ 17.50 $ 18.30 $ 13.75
to to to to
$ 29.93 $ 29.93 $ 29.93 $ 29.93
(10) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss), foreign currency
translation and unrealized gains (losses) on derivative instruments. The
comprehensive income (loss) for the three and six months ended June 30,
2001 and 2000 is as follows:
13
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
2001 2000 2001 2000
---------- --------- --------- ---------
Net income (loss) $ 40,242 $ 11,524 $ 61,563 $(59,978)
---------- --------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation 5,443 (31,444) (14,972) (22,891)
Unrealized holding loss on
derivative financial instruments (275) - (7,694) -
---------- --------- --------- ---------
$ 45,410 $(19,920) $ 38,897 $(82,869)
========== ========= ========= =========
(11) SEGMENTS AND RELATED INFORMATION
Relevant information concerning the geographic areas in which the Company
operates, is as follows:
SIX MONTHS ENDED JUNE 30, 2001
-------------------------------------------------------------------------------------------------
MEXICO &
CENTRAL
AMERICA BRAZIL COLUMBIA VENEZUELA CORPORATE TOTAL
---------- --------- --------- --------- --------- -----------
Net sales $ 631,905 $ 227,433 $ 184,315 $ 275,810 $ - $ 1,319,463
========== ========= ========= ========= ========= ===========
Operating income
(loss) $ 116,425 $ 10,077 $ 9,852 $ 19,866 $ (12,030) $ 144,190
========== ========= ========= ========= ========= ===========
Interest income $ 5,237 $ 663 $ 2,273 $ 18 $ 5,559 $ 13,750
========== ========= ========= ========= ========= ===========
Interest expense $ (10,328) (1,424) $ (6,468) $ (12,522) $ (30,331) (61,073)
========== ========= ========= ========= ========= ===========
Depreciation and $ 43,086 $ 11,274 $ 28,019 $ 30,420 $ 10,013 $ 122,812
amortization ========== ========= ========= ========= ========= ===========
Capital
expenditures $ 26,353 $ 2,679 $ 3,017 $ 5,007 $ 8 $ 37,064
========== ========= ========= ========= ========= ===========
JUNE 30, 2001
------------------------------------------------------------------------
Long-lived assets $ 687,287 $ 198,959 $ 338,324 $ 368,049 $ 672,277 $ 2,264,896
========== ========= ========= ========= ========= ===========
Total assets $ 846,083 $ 354,106 $ 395,019 $ 427,776 $ 839,124 $ 2,862,108
========== ========= ========= ========= ========= ===========
14
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of U.S. dollars)
(Unaudited)
SIX MONTHS ENDED JUNE 30, 2001
---------------------------------------------------------------------------------------------------------
MEXICO &
CENTRAL
AMERICA BRAZIL COLUMBIA VENEZUELA CORPORATE TOTAL
========== ========== ========== ========== ========== ===========
Net sales $ 579,526 $ 244,460 $ 185,440 $ 239,816 $ - $ 1,249,242
========== ========== ========== ========== ========== ===========
Operating income
(loss) $ 72,745 $ 1,348 $ (9,205) $ (27,550) $ (18,697) $ 18,641
========== ========== ========== ========== ========== ===========
Interest income $ 4,609 $ 973 $ 1,938 $ 1 $ 8,274 $ 15,795
========== ========== ========== ========== ========== ===========
Interest expense $ (12,519) $ (8,193) $ (3,831) $ (10,970) $ (35,423) $ (70,936)
========== ========== ========== ========== ========== ===========
Depreciation and
amortization $ 36,021 $ 14,750 $ 29,828 $ 38,067 $ 14,601 $ 133,267
========== ========== ========== ========== ========== ===========
Capital
expenditures $ 44,571 $ 2,262 $ 3,950 $ 15,514 $ - $ 66,297
========== ========== ========== ========== ========== ===========
December 31, 2000
------------------------------------------------------------------------
Long-lived assets$ 566,724 $ 283,734 $ 428,152 $ 420,992 $1,273,013 $ 2,972,615
========== ========== ========== ========== ========== ===========
Total assets $ 721,712 $ 456,921 $ 479,880 $ 481,082 $1,329,394 $ 3,468,989
========== ========== ========== ========== ========== ===========
(12) SUBSEQUENT EVENT
On July 20, 2001, a labor union and several individuals from the Republic
of Colombia filed a lawsuit in the U.S. District Court for the Southern
District of Florida against the Company (and certain of its subsidiaries)
as well as The Coca-Cola Company (and certain of its subsidiaries) and
another Coca-Cola bottler in Colombia. In the complaint, the plaintiffs
have alleged that the Company has engaged in wrongful acts against the
labor union and its members in Colombia, including kidnapping, torture,
death threats and intimidation. The complaint alleges claims under the
Alien Tort Claims Act, the Torture Victim Protection Act, RICO and state
tort law and seeks injunctive and declaratory relief and damages of more
than $500,000, including treble and punitive damages and the cost of the
suit, including attorney fees. The Company believes this lawsuit is
without merit and intends to vigorously defend itself against this
lawsuit.
15
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
(Stated in thousands of U.S. dollars)
(Unaudited)
The statements of operations data for Panamco Mexico & Central America
(Costa Rica, Nicaragua and Guatemala), Panamco Brasil, Panamco Colombia,
and Panamco Venezuela, are presented on the following pages. The data
presented as of and for each period have been derived from the unaudited
financial statements of Panamco Mexico & Central America (Costa Rica,
Nicaragua and Guatemala), Panamco Brasil, Panamco Colombia, and Panamco
Venezuela, as applicable, which financial statements are not included
herein. Additionally, the data presented does not include the unaudited
financial data of the Holding company, the Corporate offices or some
minor entities; nor does it reflect the eliminating entries that are used
in consolidating the unaudited financial statements of the aforementioned
subsidiaries.
16
PANAMCO MEXICO & CENTRAL AMERICA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ---------- ----------- ----------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 341,335 $ 307,465 $ 631,905 $ 579,628
Cost of sales, excluding depreciation
and amortization 143,805 136,403 271,124 261,995
----------- ---------- ----------- ----------
Gross profit 197,530 171,062 360,781 317,633
Operating expenses:
Selling, general and administrative 102,394 95,967 201,270 189,186
Depreciation and amortization 22,924 17,975 41,902 34,419
Amortization of goodwill 604 794 1,184 1,602
Facilities reorganization charges - - - 19,681
----------- ---------- ----------- -----------
125,922 114,736 244,356 244,888
----------- ---------- ----------- -----------
Operating income 71,608 56,326 116,425 72,745
Interest expense, net (2,885) (3,090) (5,091) (7,910)
Other income (expense), net (1,361) 2,395 (420) 583
----------- ---------- ----------- -----------
Income before income taxes 67,362 55,631 110,914 65,418
Provision for income taxes 20,609 17,814 34,671 20,374
----------- ---------- ----------- -----------
Income before minority interest 46,753 37,817 76,243 45,044
Minority interest in Panamco
Mexico subsidiaries 1,513 1,221 2,419 1,361
----------- ---------- ----------- -----------
Net income attributable to Panamco
Mexico holding company &
Central America 45,240 36,596 73,824 43,683
Minority interest in Panamco Mexico
holding company 716 578 1,145 644
----------- ---------- ----------- -----------
Net income attributable to Panamco $ 44,524 $ 36,018 $ 72,679 $ 43,039
=========== ========== =========== ===========
Cash operating profit $ 95,136 $ 75,095 $ 159,511 $ 119,773
=========== ========== =========== ===========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 90.9 93.0 172.2 176.8
Water 47.3 45.2 87.3 82.8
Other products 1.1 1.0 2.0 1.6
17
PANAMCO MEXICO & CENTRAL AMERICA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- --------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales:
Mexico $ 281,883 $ 251,007 $ 516,071 $ 470,201
Central America 59,452 56,458 115,834 109,427
UNIT CASE SALES DATA (IN MILLIONS):
Mexico:
Soft drinks 72.9 75.3 137.7 142.2
Water 46.5 44.5 85.7 81.5
Other products 0.7 0.8 1.3 1.3
Central America:
Soft drinks 18.0 17.7 34.5 34.6
Water 0.8 0.7 1.6 1.3
Other products 0.4 0.2 0.7 0.3
18
PANAMCO BRASIL
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
2001 2000 2001 2000
---------- ------------ ------------------------------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 98,987 $ 116,743 $ 227,433 $ 244,460
Cost of sales, excluding depreciation
and amortization 64,133 70,482 146,349 150,111
---------- ------------ ------------ ------------
Gross profit 34,854 46,261 81,084 94,349
Operating expenses:
Selling, general and administrative 27,000 34,250 59,733 67,133
Depreciation and amortization 4,418 6,864 10,073 13,730
Amortization of goodwill 562 512 1,201 1,020
Facilities reorganization charges - - - 11,118
---------- ------------ ------------ ------------
31,980 41,626 71,007 93,001
---------- ------------ ------------ ------------
Operating income 2,874 4,635 10,077 1,348
Interest expense, net (601) (3,784) (761) (7,220)
Other expense, net (1,495) (3,653) (6,131) (5,418)
---------- ------------ ------------ ------------
Income (loss) before income taxes 778 (2,802) 3,185 (11,290)
Benefit from income taxes (692) (2,717) (938) (5,859)
---------- ------------ ------------ ------------
Income (loss) before minority
interest 1,470 (85) 4,123 (5,431)
Minority interest in Panamco
Brasil holding company 9 (5) 31 (63)
---------- ------------ ------------ ------------
Net income (loss) attributable
to Panamco $ 1,461 $ (80) $ 4,092 $ (5,368)
========== ============ ============= ============
Cash operating profit $ 7,854 $ 12,011 $ 21,351 $ 20,128
========== ============ ============= ============
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 56.9 54.1 124.9 115.1
Water 3.4 3.0 8.5 6.8
Beer 15.8 13.8 32.9 30.1
Other products 0.1 - 0.1 -
19
PANAMCO COLOMBIA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
2001 2000 2001 2000
---------- ----------- ---------- --------------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 89,415 $ 93,555 $ 184,315 $ 185,440
Cost of sales, excluding depreciation
and amortization 43,180 38,992 86,027 78,270
----------- ----------- ---------- ----------
Gross profit 46,235 54,563 98,288 107,170
Operating expenses:
Selling, general and administrative 29,648 32,557 60,417 68,322
Depreciation and amortization 13,828 15,046 27,880 29,828
Amortization of goodwill 69 - 139 -
Facilities reorganization charges - - - 18,225
----------- ----------- ---------- ----------
43,545 47,603 88,436 116,375
----------- ----------- ---------- ----------
Operating income (loss) 2,690 6,960 9,852 (9,205)
Interest expense, net (3,463) (130) (4,195) (1,893)
Other income (expense), net 193 (3,138) 389 (5,598)
----------- ----------- ---------- ----------
Income (loss) before income taxes (580) 3,692 6,046 (16,696)
Provision (benefit) for income taxes (170) 923 1,785 (5,208)
----------- ----------- ---------- ----------
Income (loss) before minority
interest (410) 2,769 4,261 (11,488)
Minority interest in Panamco Colombia
subsidiaries holding company 4 10 54 58
----------- ----------- ---------- ----------
Net income (loss) attributable to
Panamco Colombia holding
company (414) 2,759 4,207 (11,546)
Minority interest in Panamco
Colombia (11) 74 116 (318)
----------- ----------- ---------- ----------
Net income (loss) attributable to
Panamco $ (403) $ 2,685 $ 4,091 $ (11,228)
=========== =========== ========== ==========
Cash operating profit $ 16,587 $ 22,006 $ 37,871 $ 27,541
=========== =========== ========== ==========
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 37.7 37.0 75.4 75.9
Water 8.7 8.6 19.0 16.9
Other products 0.3 - 0.3 -
20
PANAMCO VENEZUELA
(Stated in thousands of U.S. dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ----------------------------
2001 2000 2001 2000
---------- ---------- ----------- ------------
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 141,697 $123,340 $ 275,810 $ 239,816
Cost of sales, excluding depreciation
and amortization 69,413 55,419 133,294 109,556
---------- ---------- ----------- -------------
Gross profit 72,284 67,921 142,516 130,260
Operating expenses:
Selling, general and administrative 46,423 45,469 92,230 88,889
Depreciation and amortization 15,088 18,948 30,420 38,067
Facilities reorganization charges - - - 30,854
---------- ---------- ----------- -------------
61,511 64,417 122,650 157,810
---------- ---------- ----------- -------------
Operating income (loss) 10,773 3,504 19,866 (27,550)
Interest expense, net (4,379) (5,122) (12,504) (10,969)
Other income (expense), net 1,761 247 5,322 (751)
---------- ---------- ----------- -------------
Income (loss) before income taxes 8,155 (1,371) 12,684 (39,270)
Benefit from income taxes (6,456) (244) (8,729) (3,914)
---------- ---------- ----------- -------------
Net income (loss) attributable
to Panamco $ 14,611 $ (1,127) $ 21,413 $ (35,356)
============ =========== =========== =============
Cash operating profit $ 25,861 $ 22,452 $ 50,286 $ 28,094
============ =========== =========== =============
UNIT CASE SALES DATA (IN MILLIONS):
Soft drinks 38.6 37.2 76.5 73.2
Water 6.4 5.4 12.4 10.3
Beer 1.0 0.3 2.0 0.6
Other products 1.5 1.5 3.1 3.1
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion addresses the financial condition and results of
operations of Panamerican Beverages, Inc. ("Panamco") and its consolidated
subsidiaries. This discussion should be read in conjunction with our unaudited
condensed consolidated financial statements as of June 30, 2001 and December
31, 2000 and for the three and six months ended June 30, 2001 and 2000 and the
notes thereto included elsewhere herein. Results for any interim period are
not necessarily indicative of results for any full year.
We conduct our operations through tiers of subsidiaries in which, in some
cases, minority shareholders hold interests. Since we have varying percentage
ownership interests in our approximately 60 consolidated subsidiaries, the
amount of the minority interest in income or loss before minority interest
during a period depends upon the revenues and expenses of each of the
consolidated subsidiaries and the percentage of each of such subsidiary's
capital stock owned by minority shareholders during such period.
In 1998, we created the "Panamco Central America" group, which consists
of Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala. The financial
condition and results of operations of these three companies were previously
reported together in the financial statements entitled Panamco Central
America.
In February 1999, we formed the North Latin American Division ("NOLAD"),
which consists of Panamco Mexico and Panamco Central America. The results of
operations of Panamco Mexico and Panamco Central America are reported together
in the financial statements entitled Panamco Mexico & Central America.
Unit case means 192 ounces of finished beverage product (24 eight-ounce
servings). Average sales prices per unit case means net sales in U.S. dollars
for the period divided by the number of unit cases sold during the same
period. Cash operating profit means operating income plus depreciation,
amortization of goodwill and noncash facilities reorganization charges.
Forward-looking statements, contained in this document include the amount
of future capital expenditures and the possible uses of proceeds from any
future borrowings. The words believes, intends, expects, anticipates,
projects, estimates, predicts, and similar expressions are also intended to
identify forward-looking statements. Such statements, estimates, and
projections reflect various assumptions by our management, concerning
anticipated results and are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. Factors that could cause results to differ include, but are not
limited to, changes in the soft drink business environment, including actions
of competitors and changes in consumer preference, changes in governmental
laws and regulations, including income taxes, market demand for new and
existing products, raw material prices and devaluation of local currencies
against the U.S. dollar. Accordingly, we cannot assure you that such
statements, estimates and projections
22
will be realized. The forecasts and actual results will likely vary and those
variations may be material. We make no representation or warranty as to the
accuracy or completeness of such statements, estimates or projections
contained in this document or that any forecast contained herein will be
achieved.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net sales for the second quarter ended June 30, 2001 increased 4.7% to
$671.4 million from $641.1 million in the 2000 second quarter, mainly due to
an increase of 3.2% in consolidated unit case sales volume. Total unit case
sales increased to 309.8 million cases from 300.2 million unit cases in the
2000 period. Total volume growth of 3.2% was led by Brazil and Venezuela,
where total volume increased 7.4% and 7.0%, respectively, and soft drink
volume increased 5.1% and 3.7%, respectively. Colombia reported total volume
growth of 2.3% and soft drink volume growth of 1.8%. The NOLAD region had
total volume growth of 0.1% while soft drink volume declined 2.4%.
Consolidated water and beer volumes grew by 5.9% and 18.5%, respectively.
Cost of sales as a percentage of net sales increased to 47.4% during the
second quarter of 2001 from 46.9% in the 2000 period. This increase resulted
from higher costs of raw materials offset by the benefits created by our cost
restructuring programs.
Gross profit as a percentage of net sales decreased to 52.6% during the
second quarter of 2001 from 53.1% in the second quarter of 2000, primarily the
result of higher raw material prices and currency devaluation in Brazil,
Colombia and Venezuela.
Operating expenses as a percentage of net sales decreased to 40.5% during
the second quarter of 2001 from 43.4% in the 2000 period, mainly as a result
of the initial benefits of the reorganization program. Included in operating
expenses for the second quarter of 2001 is a $4.5 million executive
compensation expense resulting from the vesting of restricted stock.
Operating income increased 31.4% to $81.5 million during the second
quarter of 2001 from $62.0 million in the 2000 period, primarily as a result
of increased sales and volume as well as the initial benefits of the
reorganization program. Cash operating profit increased 11.3% to $144.1
million in 2001 from $129.5 million in the second quarter of 2000.
Net interest expense decreased to $23.7 million during the second quarter
of 2001 from $25.8 million in the 2000 period, primarily as a result of net
debt (total indebtedness less cash and equivalents) reduction of $78.2 million
for the quarter and $286.5 million from the 2000 second quarter.
Other expense, net decreased to $1.8 million during the second quarter of
2001 from $4.1 million in the 2000 period, primarily caused by an increase in
equity earnings of affiliates, a decrease in contingency provisions, a gain in
sale of investments, offset by an increase in foreign exchange losses mainly
in Brazil.
23
The consolidated effective income tax rate decreased to 25.8% during the
second quarter of 2001 from 58.4% in the 2000 period. We have certain
expenses, such as amortization of goodwill, which are non-deductible for tax
purposes that, depending on income from operations, may cause significant
variations in the effective income tax rate.
As a result of the foregoing, we recorded net income of $40.2 million
during the second quarter of 2001, or $0.32 per basic share ($0.31 on a
diluted basis), compared to net income of $11.5 million, or $0.09 per share
(basic and diluted), during the 2000 period.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net sales for the six months ended June 30, 2001 increased 5.6% to $1.32
billion from $1.25 billion in the first half of 2000, mainly due to an
increase of 3.9% in consolidated unit case sales volume. Total unit case sales
increased to 616.8 million cases from 593.3 million unit cases in the 2000
period. Total volume growth of 3.9% was led by Brazil and Venezuela, where
total volume increased 9.4% and 7.8%, respectively, and soft drink volume
increased 8.4% and 4.5%, respectively. Colombia reported total volume growth
of 2.1% while soft drink volume declined 0.7%. The NOLAD region had total
volume growth of 0.1% while soft drink volume declined 2.7%. Consolidated
water and beer volumes grew by 9.0% and 13.6%, respectively.
Cost of sales as a percentage of net sales increased to 48.1% during the
first half of 2001 from 47.9% in the 2000 period. This increase resulted from
higher costs of raw materials offset by the benefits created by our cost
restructuring programs.
Gross profit as a percentage of net sales decreased to 51.9% during the
first half of 2001 from 52.1% in the 2000 period, primarily the result of
higher raw material prices and currency devaluation in Brazil, Colombia and
Venezuela.
The following comments reflect the consolidated results of operations
excluding the recording of facilities reorganization charges, asset
write-offs, and nonoperating charges totaling $61.9 million, net of the
related tax benefit of $23.5 million, during the first half of 2000:
Operating expenses as a percentage of net sales decreased to 41.0% during
the first half of 2001 from 44.2% in the 2000 period, mainly the result of the
benefits obtained from our cost restructuring programs. Included in operating
expenses for the second half of 2001 is a $4.5 million executive
compensation expense resulting from the vesting of restricted stock.
Operating income increased 46.4% to $144.2 million during the first half
of 2001 from $98.5 million in the 2000 period, primarily the result of
increased sales and volume as well as the benefits of the reorganization
program. Cash operating profit increased 15.2% to $267.0 million in 2001 from
$231.8 million in the first half of 2000.
Net interest expense decreased to $47.3 million during the first half of
2001 from $55.1 million in the 2000 period, primarily the result of net debt
(total indebtedness less cash and
24
equivalents) reduction of $174.4 million for the six months of 2001 and $286.5
million from the 2000 period.
Other expense, net decreased to $3.9 million during the first half of
2001 from $6.9 million in the 2000 period, primarily caused by a gain in sale
of investments, an increase in equity earnings of affiliates, a decrease in
contingency provisions, offset by an increase in foreign exchange losses
mainly in Brazil.
The consolidated effective income tax rate decreased to 30.6% during the
first half of 2001 from 90.4% in the 2000 period. We have certain expenses,
such as amortization of goodwill, which are non-deductible for tax purposes
that, depending on income from operations, may cause significant variations in
the effective income tax rate.
As a result of the foregoing, we recorded net income of $61.6 million
during the first half of 2001, or $0.48 per share (basic and diluted),
compared to net income of $1.9 million, or $0.01 per share (basic and
diluted), during the 2000 period.
FACILITIES REORGANIZATION CHARGES
During the first quarter of 2000, we began a company-wide reorganization
program designed to improve productivity and strengthen our competitive
position in the beverage industry. The program includes productivity
initiatives to streamline Panamco's manufacturing infrastructure,
consolidation of distribution centers and warehouses, and the termination of
approximately 10,000 jobs across all levels of Panamco.
During the fourth quarter of 2000, we performed an analysis of our growth
opportunities, cost structure and asset valuation. This resulted in several
new steps to further position Panamco for improved financial performance and
future growth. These steps include additional restructuring of the
distribution system in Brazil and Venezuela, plant closings and related
disposal of property, plant and equipment, write-down of goodwill in the
Venezuelan operating unit, write-off of obsolete property, plant and
equipment, bottles and cases, and asset write-downs related to coolers.
During the year ended December 31, 2000, we recorded charges of $540.7
million, which was comprised of $503.6 million of facilities reorganization
charges, $31.1 million of asset write-downs presented as part of depreciation
and amortization expenses, and $6.0 million of charges related to the disposal
of nonoperating assets presented in other income (expense). The following is a
detail of the aforementioned items:
I. Facilities reorganization charges of $503.6 million consist of:
(1) Restructuring charges totaling $111.5 million consist of:
o Cash restructuring charges totaling approximately $86.7 million,
which include $77.3 million related to job terminations and $9.4
million related to the restructuring of our distribution system in
Brazil and Venezuela; and
25
o Noncash restructuring charges totaling approximately $24.8 million,
which result from plant closings and the related disposal of
property, plant and equipment.
(2) Asset write-offs totaling $383.5 million consist of:
o $350 million write-down of goodwill reflecting the recognition of
impairment of the cost in excess of net assets acquired in the
Venezuelan operating unit;
o $23.8 million of obsolete property, plant and equipment in all
operating units;
o $7.8 million of obsolete bottles and cases, mainly in the Venezuelan
unit's water jug business; and
o $1.9 million of cash charges related to the disposal of property,
plant and equipment.
(3) Nonrecurring charges totaling $8.6 million related to legal
contingencies mostly pertaining to tax matters.
II. Asset write-downs totaling $31.1 million presented as part of
depreciation and amortization expenses consist of:
o $11.0 million from an increase in provision related to changing the
useful lives of coolers; and
o $20.1 million resulting from the write-down of bottles and cases due
to loss in market value.
III. Nonoperating asset charges totaling $6.0 million related to the disposal
of nonoperating assets, including the sale of affiliated companies and
land in some of the operating units.
As a result of the above, our income for the year 2000 was impacted by
facilities reorganization charges, asset write-downs and nonoperating charges
totaling $494.2 million, net of the related tax benefit of approximately $46.5
million.
The following table shows a summary of the net charges and benefits
recorded in the consolidated statements of operations for the year ended
December 31, 2000:
YEAR ENDED DECEMBER 31, 2000
------------------------------------
(STATED IN THOUSANDS OF U.S. DOLLARS) FOURTH FIRST
TOTAL QUARTER QUARTER
------------------------------------
Depreciation and amortization,
excluding goodwill:
Asset write-downs $ 31,079 $ 31,079 $ -
---------- ---------- --------
Facilities reorganization charges:
Cash 88,572 48,226 40,346
Noncash 415,087 375,555 39,532
---------- ---------- --------
503,659 423,781 79,878
Other income (expense), net:
Nonoperating charges 5,976 590 5,386
---------- ---------- --------
Gross charges 540,714 455,450 85,264
Tax benefit (46,516) (23,111) (23,405)
---------- ---------- --------
Net charges $ 494,198 $ 432,339 $ 61,859
========== ========== ========
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As of June 30, 2001, we had completed approximately 71% of its total
planned workforce reduction. There has been no material change to the expected
effects on future earnings and cash flows resulting from the facilities
reorganization program, which were previously disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had consolidated cash and cash equivalents of $266.3
million, an increase of 38.9% compared to $191.8 million as of December 31,
2000, mainly as a result of the release of investments in bank deposits for
$125.0 million, which guaranteed bank loans obtained by subsidiaries and were
therefore classified as noncurrent investments.
Consolidated cash flow provided by operations was $187.9 million and
$125.5 million for the six months ended June 30, 2001 and 2000, respectively.
Cash generated by the operations and available is sufficient to meet our
current obligations.
Total consolidated indebtedness was $1,153.9 million as of June 30, 2001,
consisting of $725.0 million at the holding company level and $428.9 million
of subsidiary indebtedness. As of June 30, 2001, 82.2% of the total debt is
dollar denominated and 89.5% is long-term.
On December 31, 2000, we had a loan with The Coca-Cola Financial
Corporation (U.S.), amounting to $100.0 million with an average annual
interest rate of three-month LIBOR plus 3.25%. On February 28, 2001, we
prepaid the remaining outstanding debt with The Coca-Cola Financial
Corporation (U.S.) in the amount of $100.0 million. There was no prepayment
penalty.
On December 9, 1999, the Board of Directors authorized a $100.0 million
share repurchase program of the Company's Class A Common Stock (the "Share
Repurchase Program"). On July 20, 2001, the Board of Directors authorized a
$25.0 million increase to the Share Repurchase Program. The shares may be
purchased in the open market or in privately negotiated transactions,
depending on market conditions and other factors. We repurchased 3,405,757
shares amounting to $64.5 million at an average price per share of $18.93
during the first half of 2001. From the beginning of the program in December
1999 to June 30, 2001, we have repurchased 4,559,636 shares for a total amount
of $85.7 million at an average price per share of $18.80.
Total capital expenditures for the six months ended June 30, 2001 were
$37.9 million, showing a spending reduction of 42.8%, compared to $66.3
million for the six months ended June 30, 2000. For the year 2001, we expect
our capital expenditures to be approximately $90.0 million.
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On February 21, 2001, Panamco Colombia issued unsecured, publicly traded
bonds valued at Col$35,000,000,000 Colombian pesos (approximately $15.5
million in U.S. dollars) with a coupon rate of DTF plus 2.75% (15.5% at
February 21, 2000) and a maturity date of August 9, 2005. The proceeds from
the debt issue were used to pay U.S. dollar denominated debt.
On November 22, 2000, we entered into a swap agreement where we receive
LIBOR at specified measurement dates and pay interest at a fixed rate of 6.44%
on a notional amount of $250.0 million. The swap agreement, which is
classified as a cash flow hedge and was initiated in order to reduce exposure
to adverse fluctuation in interest rates, expires on November 22, 2002.
On April 20, 2001, our Brazilian subsidiary entered into four swap
agreements to exchange dollar denominated debt amounting to $30.0 million in
the aggregate. The terms of the swap agreements are as follows: R2,109,870
(Brazilian reals) maturing on October 16, 2001; R32,753,046 maturing on April
15, 2002; R994,334 maturing on October 11, 2002; and R29,788,731 maturing on
April 9, 2003. All four swap agreements have an interest rate of 90% of CDI
(the Brazilian borrowing rate). The swap agreements, which are classified as
fair value hedges, were initiated in order to reduce exposure to adverse
currency exchange fluctuations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposure to market risk
during the six months ended June 30, 2001. For a discussion of our exposure to
market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about
Market Risk, contained in our Annual Report on Form 10-K for the year ended
December 31, 2000.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 20, 2001, a labor union and several individuals from the Republic
of Colombia filed a lawsuit in the U.S. District Court for the Southern
District of Florida against us (and certain of our subsidiaries) as well as
The Coca-Cola Company (and certain of its subsidiaries) and another Coca-Cola
bottler in Colombia. In the complaint, the plaintiffs have alleged that we
have engaged in wrongful acts against the labor union and its members in
Colombia, including kidnapping, torture, death threats and intimidation. The
complaint alleges claims under the Alien Tort Claims Act, the Torture Victim
Protection Act, RICO and state tort law and seeks injunctive and declaratory
relief and damages of more than $500 million, including treble and punitive
damages and the cost of the suit, including attorney fees. We believe this
lawsuit is without merit and intend to vigorously defend ourselves in this
matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our ordinary shareholders meeting on May 4, 2001. At the meeting,
shareholders representing 8,329,399 Class B common stock $0.01 par value
shares of the Company or 94.8% of the Class B shares: (i) unanimously approved
the election of William G. Cooling, Alejandro Jimenez, Wade T. Mitchell and
Stuart Staton as directors of the Company until 2004, (ii) unanimously
approved the Company's financial statements for the fiscal year 2000, (iii)
unanimously ratified Arthur Andersen L.L.P. as independent auditors of the
Company, and (iv) by the favorable vote of 99.8% of the
29
shares represented at the meeting, approved an increase in the number of
shares available under our Equity Incentive Plan from 9,000,000 to 14,200,000.
ITEM 5. OTHER INFORMATION
Our Equity Incentive Plan, as discussed in our Annual Report on Form 10-K
for the year ended December 31, 2000, includes reference to incentive stock
options and restricted stock issued to Messrs. Cooling and Schimberg. These
incentive stock options and restricted stock were not granted pursuant to our
Equity Incentive Plan but pursuant to their employment agreements. We granted
400,000 and 300,000 restricted stock to Messrs. Cooling and Schimberg,
respectively, and not 350,000 and 250,000 restricted stock as stated in our
Annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 - Term Credit Agreement dated as of May 30, 2001, by and among
Panamco de Venezuela, S.A., as borrower, Comerica Bank, as lender,
and the Company, as guarantor.
10.2 - Credit Agreement dated as of June 1, 2001, by and among Spal
Industria Brasileira de Bebidas, S.A., as borrower, Citibank, N.A.,
as lender, and the Company, as guarantor.
10.3 - Amendment and Waiver No. 2 to the Credit Agreement dated as of
June 4, 2001, by and among Panamco de Venezuela, S.A., as borrower,
Inarco International Bank, N.A., as lender, and the Company, as
guarantor.
10.4 - Guaranteed Promissory Note dated as of June 5, 2001, by and among
Panamco de Venezuela, S.A., as borrower, Banco Santander Hispano,
S.A., as lender, and the Company, as guarantor.
10.5 - Fifth Amendment to Loan Agreement dated as of June 27, 2001, by
and among Panamco de Venezuela, S.A., as borrower, Bank Boston,
N.A., as lender, and the Company, as guarantor.
(b) Reports on Forms 8-K - On June 29, 2001, we filed a current report on
Form 8-K with respect to Regulation FD disclosure under Item 9. The date
of this report was May 21, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 14, 2001 PANAMERICAN BEVERAGES, INC.
(REGISTRANT)
By: /s/ Paulo J. Sacchi
------------------------------------
Paulo J. Sacchi
Senior Vice President
Chief Financial Officer and Treasurer
(On behalf of the Registrant and as
Chief Accounting Officer)
30