UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-12290
PANAMERICAN BEVERAGES, INC.
(Exact name of registrant as specified in its charter)
Republic of Panama Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Panamco, L.L.C.
701 Waterford Way, Suite 800
Miami, Florida 33126
(Address of principal executive offices) (Zip code)
(305) 929-0800
(Registrant's Telephone Number, including area code)
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 May 10, 2002 were:
Class A Common Stock: 112,524,078
Class B Common Stock: 8,659,863
Class C Preferred Stock: 2
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets (unaudited)
as of March 31, 2002 and December 31, 2001....................... 1
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2002 and 2001............... 3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2002 and 2001............... 4
Notes to Condensed Consolidated Financial
Statements (unaudited)........................................... 5
PANAMCO NOLAD - Selected Statements of Operations Data
(unaudited) for the three months ended March 31, 2002 and 2001... 12
PANAMCO COLOMBIA - Selected Statements of Operations Data
(unaudited) for the three months ended March 31, 2002 and 2001... 13
PANAMCO VENEZUELA -- Selected Statements of Operations Data
(unaudited) for the three months ended March 31, 2002 and 2001... 14
PANAMCO BRAZIL - Selected Statements of Operations Data
(unaudited) for the three months ended March 31, 2002 and 2001... 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 16
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................... 19
PART II OTHER INFORMATION................................................... 19
Item 1. LEGAL PROCEEDINGS................................................... 19
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 19
Item 3. DEFAULTS UPON SENIOR SECURITIES..................................... 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 20
Item 5. OTHER INFORMATION................................................... 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 20
Signatures................................................................... 21
i
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States of America ("U.S.") dollars,
except per share amounts)
(Unaudited)
March 31, 2002 December 31, 2001
---------------------- -------------------------
ASSETS
Current assets:
Cash and equivalents $ 90,404 $ 133,666
Accounts receivable, net 194,169 136,614
Inventories, net 101,496 103,040
Other current assets 25,285 27,466
----------- -----------
Total current assets 411,354 400,786
Investments 34,701 28,522
Property, plant and equipment, net 1,037,164 1,043,870
Bottles and cases, net 207,408 213,908
Cost in excess of net assets acquired, net 864,003 869,056
Other assets 121,361 136,884
----------- -----------
Total assets $ 2,675,991 $ 2,693,026
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 214,113 $ 274,164
Current portion of long-term obligations 75,632 75,439
Bank loans 40,177 35,184
Other accrued liabilities 174,380 184,878
----------- -----------
Total current liabilities 504,302 569,665
----------- -----------
Long-term liabilities:
Long-term obligations, net of current portion 847,954 859,619
Other liabilities 163,384 162,756
----------- -----------
Total long-term liabilities 1,011,338 1,022,375
----------- -----------
Total liabilities 1,515,640 1,592,040
----------- -----------
(Continued)
1
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of U.S. dollars, except per share amounts)
(Unaudited)
(Continued)
March 31, 2002 December 31, 2001
---------------------- -------------------------
Commitments and contingencies
Minority interest in consolidated subsidiaries 28,012 28,541
----------- -----------
SHAREHOLDERS' EQUITY
Class C preferred stock, $0.01 par value;
50,000,000 shares authorized; 2 shares
issued and outstanding at March 31,
2002 and December 31, 2001,
respectively - -
Class A common stock, $0.01 par value;
500,000,000 authorized; 136,974,151
and 136,952,780 shares issued and
112,857,178 and 113,237,031 shares
outstanding at March 31, 2002 and
December 31, 2001, respectively 1,370 1,369
Class B common stock, $0.01 par value;
50,000,000 authorized; 11,037,711 and
11,059,082 shares issued and 8,659,863
and 8,681,245 shares outstanding at
March 31, 2002 and December 31, 2001,
respectively 110 111
Capital in excess of par value 1,592,137 1,591,827
Retained earnings 199,270 138,433
Accumulated other comprehensive loss (452,667) (458,341)
----------- -----------
1,340,220 1,273,399
Less 26,494,821 and 26,093,586 treasury
shares held at March 31, 2002 and
December 31, 2001, respectively, at cost (207,881) (200,954)
----------- -----------
Total shareholders' equity 1,132,339 1,072,445
----------- -----------
Total liabilities and shareholders' equity $ 2,675,991 $ 2,693,026
=========== ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. dollars, except per share amounts)
(Unaudited)
Three Months Ended March 31,
------------------------------------
2002 2001
--------------- ---------------
Net sales $ 624,349 $ 644,845
Cost of sales, excluding depreciation
and amortization 309,388 316,263
---------- ----------
Gross profit 314,961 328,582
---------- ----------
Operating expenses:
General and administrative 201,381 205,682
Depreciation and amortization 44,680 60,236
Nonrecurring items, net 7,802 -
---------- ----------
253,863 265,918
---------- ----------
Operating income 61,098 62,664
---------- ----------
Other income (expense):
Interest income 2,743 9,016
Interest expense (22,621) (32,604)
Other income (expense), net 45,440 (2,176)
---------- ----------
25,562 (25,764)
---------- ----------
Income before provision for
income taxes 86,660 36,900
Provision for income taxes 17,461 14,045
---------- ----------
Income before minority interest 69,199 22,855
Minority interest in earnings of consolidated
subsidiaries 1,017 1,534
---------- ----------
Net income $ 68,182 $ 21,321
========== ==========
Basic earnings per share $ 0.56 $ 0.17
========== ==========
Basic weighted average shares outstanding 121,761 128,308
========== ==========
Diluted earnings per share $ 0.56 $ 0.16
========== ==========
Diluted weighted average shares outstanding $ 122,493 $ 129,528
========== ==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
----------------------------------
2002 2001
----------------------------------
Net cash (used in) provided by operating activities $ (1,020) $ 81,050
Cash flows from investing activities:
Capital expenditures (12,944) (16,128)
Purchases of bottles and cases (8,647) (10,099)
Purchases of investments (18,911) -
Proceeds from sale of investments 68,653 52,620
Proceeds from sale of property, plant and equipment 8,827 4,098
Receivable from sale of Kaiser (55,058) -
Other (892) (1,554)
----------- ----------
Net cash (used in) provided by investing activities (18,972) 28,937
----------- ----------
Cash flows from financing activities:
Payment of bank loans and other (17,299) (153,145)
Proceeds from bank loans and other long-term obligations 9,737 74,720
Issuance of capital and treasury stock 633 131
Share repurchase (7,250) (13,402)
Payment of dividends to minority interest (72) -
Payment of dividends to shareholders (7,345) (7,726)
Other 655 -
----------- ----------
Net cash used in financing activities (20,941) (99,422)
----------- ----------
Effect of exchange rate changes on cash and cash equivalents (2,329) (2,454)
----------- ----------
Net (decrease) increase in cash and equivalents (43,262) 8,111
Cash and equivalents at beginning of period 133,666 191,773
----------- ----------
Cash and equivalents at end of period $ 90,404 $ 199,884
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of capitalized interest) $ 16,346 $ 30,533
========== ==========
Income taxes $ 20,748 $ 17,081
========== ==========
NONCASH ACTIVITIES:
Write-off of property, plant and equipment against
accrued nonrecurring items $ 2,023 $ -
========== ==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by Panamerican Beverages, Inc. (the "Company"), in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "SEC"). In the opinion of management, these unaudited
condensed consolidated financial statements contain all adjustments,
which are of a normal recurring nature, necessary to present fairly the
Company's consolidated financial position as of March 31, 2002 and
December 31, 2001, and the consolidated results of operations for the
three months ended March 31, 2002 and 2001. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. These unaudited financial statements should be
read in conjunction with the audited financial statements and the notes
thereto included in the Company's 2001 Annual Report on Form 10-K filed
with the SEC on April 1, 2002. The Company has made no significant
changes in accounting policies from those reflected in the consolidated
financial statements included in the 2001 Annual Report on Form 10-K.
The financial statements of the Venezuelan subsidiary 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 remaining subsidiaries are
the Mexican peso, Brazilian real, Colombian peso, Costa Rican colon,
Nicaraguan cordova and Guatemalan quetzal, which financial statements
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. As of December 31, 2001, the Company discontinued classifying
Colombia as a highly inflationary economy, and, accordingly, the
functional currency of the Colombian operations was changed from the U.S.
dollar to the Colombian peso. For the three months ended March 31, 2002
and 2001, the Company recorded in its condensed consolidated statements
of operations a net translation gain of $6.5 million and $3.0 million,
respectively.
(2) NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
Reclassifications have been made in the 2001 condensed consolidated
statements of operations to conform to classifications used in the
current year, in accordance with Emerging Issues Task Force ("EITF") No.
00-25, "Vendor Income Statement Characterization of Consideration to a
Purchaser of the Vendor's Products or Services." EITF 00-25 became
effective for the Company beginning January 1, 2002, and requires certain
promotional payments made to customers by the Company, that were
previously classified as selling and distribution expenses, to be
classified as a reduction from net sales. The Company reclassified as a
reduction from net sales approximately $3.2 million of selling expenses,
which were previously classified as selling and distribution expenses in
the condensed consolidated statements of operations for the period ended
March 30, 2001.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires goodwill to be tested for impairment
and written down when impaired, rather than being amortized over useful
lives, as previous standards required. SFAS No. 142 became effective for
the Company beginning January 1, 2002.
5
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
Had the Company adopted SFAS No. 142 on the first day of 2001, first
quarter 2001 amortization expense would have been lowered by $6.6 million
and net income would have increased $6.2 million (or $0.05 per diluted
share) to $27.5 million.
(3) EARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic earnings per
common share calculations are determined by dividing earnings available
to common shareholders by the weighted average number of shares of common
stock. Diluted earnings per share are determined by dividing earnings
available to common shareholders by the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding,
related to outstanding stock options and nonvested stock grants.
Following is a reconciliation of the weighted average number of shares
outstanding with the number of shares used in the computation of diluted
earnings (loss) per share:
Three Months Ended March 31,
---------------------------------
2002 2001
Numerator:
Net income $ 68,182 $ 21,321
======== ========
Denominator (in thousands):
Denominator for basic earnings per share 121,761 128,308
Effect of dilutive securities:
Options to purchase common stock 732 1,220
-------- --------
Denominator for diluted earnings per share 122,493 129,528
======== ========
Earnings per share:
Basic $ 0.56 $ 0.17
======== ========
Diluted $ 0.56 $ 0.16
======== ========
The Company declared and paid cash dividends of $0.06 per share of common
stock for the three months ended March 31, 2002.
(4) REORGANIZATION PROGRAMS
During 2000, the Company implemented company-wide reorganization programs
designed to improve productivity and strengthen the Company's competitive
position in the beverage industry. As of March 31, 2002, approximately
7,700 employees have been terminated by the Company relating to the
reorganization programs implemented during 2000. Balances related to
accrued facilities reorganization costs of $5.3 million and $6.5 million
are reflected in Other accrued liabilities and $6.0 million is reflected
in Other long-term liabilities in the condensed consolidated balance
sheets at March 31, 2002 and December 31, 2001, respectively. The
decrease in accrued facilities reorganization costs during the three
months ended March 31, 2002 is related to the continued implementation of
the reorganization programs.
6
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
(5) NONRECURRING ITEMS
During the first quarter of 2002, the Company recorded a gain on the sale
of its 12.1% equity stake in Cervejarias Kaiser, S.A. ("Kaiser") as part
of a larger transaction in which Molson, Inc. acquired Kaiser and entered
into a partnership with Heineken. The sale generated proceeds which
include approximately $55.1 million reflected within accounts receivable
and $18.9 million in Molson stock recorded as an investment (the Molson
stock received by the Company cannot be sold for a period of two years
pending the resolution of certain tax contingencies in Brazil, which
management is of the opinion that will be resolved in a manner favorable
to the Company), and resulted in a gain of $48.6 million, which is included
as part of Other income (expense), net. The Company will continue to
distribute Kaiser products in its franchise areas in Brazil and the
acquisition of Kaiser will not impact this distribution agreement.
During the first quarter, the Company also had nonrecurring charges, net
of benefits, approximating $16.6 million, of which $11.6 million is
classified as cash charges and $5.0 is classified as noncash charges. The
cash charges primarily relate to severance payments for the termination
of approximately 600 employees in Mexico and Venezuela and to the payment
of excise taxes on soft drink inventories containing high fructose corn
syrup in Mexico. The payment of the excise taxes resulted from a law that
was suspended shortly after it was initiated. The Company has initiated
legal proceedings to seek that the amounts already paid be refunded. The
noncash charges primarily relate to the closure of plants in Venezuela
and to the sale, at a loss, of the corporate airplane to a related party.
The gain on the sale of Kaiser and the total nonrecurring charges, net
benefits, had a combined positive after-tax impact on net income of $35.7
million.
(6) TRANSACTIONS WITH RELATED PARTIES
The Company purchases raw materials from various suppliers, including
related parties, subject to approval of The Coca-Cola Company
("Coca-Cola"). Such transactions are conducted in the ordinary course of
business at negotiated prices comparable to those transactions with other
customers and suppliers. The principal components of related party
transactions were purchases of concentrates, syrups, sugars, returnable
and non-returnable bottles, cans, and caps.
Amounts due from or due to related parties as of March 31, 2002 and
December 31, 2001, respectively, are as follows:
March 31, 2002 December 31, 2001
--------------------------------------------
Accounts receivable:
Subsidiaries of Coca-Cola $ 19,799 $ 14,025
Subsidiaries of Kaiser ** 1,787 2,485
--------- ---------
$ 21,586 $ 16,510
========= =========
Accounts payable:
Subsidiaries of Coca-Cola $ 21,708 $ 21,842
Productos de Vidrio, S.A. 2,034 2,912
Central Azucarero Portuguesa, C.A. 2,853 1,950
Other 1,996 2,331
--------- ---------
$ 28,591 $ 29,035
========= =========
** Excludes $55.1 million related to the sale of the Company's
investment in Kaiser.
7
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
The Company had the following significant transactions with related
parties:
Three Months Ended March 31,
----------------------------------
2002 2001
--------------- --------------
Income:
Marketing expense support from Coca-Cola
(recorded net against marketing expenses) $ 7,068 $ 6,360
Kaiser beer distribution fees 1,056 404
Other 259 92
--------- ---------
$ 8,383 $ 6,856
========= =========
Expenses:
Purchases of concentrate from Coca-Cola $ 57,088 $ 56,814
Purchases of beer 10,474 16,140
Purchases of other inventories 25,020 9,618
--------- ---------
$ 95,582 $ 82,572
========= =========
Capital expenditures received in cash $ 379 $ 678
========= =========
On April 22, 2002, the Company sold its corporate airplane for $10.5
million to a trust affiliated with a director of the Company. In
connection with this transaction, the Company terminated the operating
lease for the airplane by payment to the lending bank of $14.9 million
representing the amount outstanding under the lease. The Company believes
the terms of this transaction were no less favorable to the Company than
could have been obtained from an unaffiliated third party.
(7) INVENTORIES
Inventories consist of: March 31, 2002 December 31, 2001
-------------------- ----------------------
Bottled beverages $ 28,896 $ 28,335
Raw materials 47,380 51,837
Spare parts and supplies 31,924 29,637
--------- ---------
108,200 109,809
Less - Allowance for obsolete and slow moving items 6,704 6,769
--------- ---------
$ 101,496 $ 103,040
========= =========
(8) SHARE REPURCHASE PROGRAM
At December 31, 2001, the Company had completed the $100.0 million share
repurchase program adopted in 1999, increased to a total of $150.0
million by two $25.0 million supplements in 2001 (the "1999 Share
Repurchase Program"). In the first quarter of 2002, the Company adopted a
new program (the "2002 Share Repurchase Program") to repurchase up to
$20.0 million of the Company's Class A Common Stock. During the first
quarter of 2002, the Company repurchased 442,700 shares for a total
amount of $7.3 million under the 2002 Share Repurchase Program.
8
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
(9) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income, foreign currency
translation and unrealized losses on derivative instruments. The
comprehensive income (loss) for the three months ended March 31, 2002 and
2001 is as follows:
2002 2001
------------ -------------
Net income $ 68,182 $ 21,321
Other comprehensive income (loss):
Foreign currency translation (5,151) (20,415)
Unrealized losses on derivative financial instruments (523) (7,419)
--------- ---------
Comprehensive income (loss) $ 62,508 $ (6,513)
========= =========
(10) DERIVATIVE INSTRUMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133," became effective for the Company on January 1, 2001.
The Company had a floating-to-fixed interest rate swap (the "Swap"),
expiring in November 2002, with a total notional amount outstanding at
December 31, 2001 of $250.0 million, which exchanges LIBOR for a fixed
interest rate of 6.437%. Upon adoption of SFAS No. 133, the Company
designated the Swap as a cash flow hedge. During 2001, the Company
determined that it was probable that the original forecasted transaction
would not continue through the expiration of the Swap and, therefore,
discontinued cash flow hedge accounting. During the quarter ended March
31, 2002, the Company recognized an unrealized holding gain, amounting to
$0.2 million, included in Other income (expense), net in the Company's
condensed consolidated statements of operations. As of March 31, 2002,
the fair value of the Swap was $7.5 million recorded in Other accrued
liabilities.
The Company uses currency swap arrangements to hedge exchange rate
exposure arising from the Company's operations in its international
subsidiaries. On December 28, 2001, the Company entered into foreign
currency forward purchase contracts, expiring during the first quarter of
2002, with total notional amounts of approximately $23.5 million, which
exchange Brazilian reales for U.S. dollars. During the first quarter of
2002, the Company realized losses amounting to approximately $0.3 million
recorded in Cost of sales in the Company's condensed consolidated
statements of operations. On February 28, 2002, the Company entered into
foreign currency forward purchase contracts, expiring during the second
quarter of 2002, with total notional amounts of approximately $16.6
million, which exchange Brazilian reales for U.S. dollars. As of March
31, 2002, the fair value of these foreign currency forward purchase
contracts was $0.5 million recorded in Other accrued liabilities with the
change in fair value recorded in Accumulated other comprehensive loss.
9
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Balances in the tables are stated in thousands of U.S. dollars,
except per share amounts)
(Unaudited)
(11) SEGMENTS AND RELATED INFORMATION
The Company operates in the bottling and distribution industries and in
markets throughout Latin America. The basis for determining the Company's
operating segments is the manner in which financial information is used
by the Company in its operations. Management operates and organizes
itself according to business units, which comprise the Company's products
across geographic locations. The Company evaluates performance and
allocates resources based on income or loss from operations. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Long-lived
assets constitute total assets less current assets less long-term
deferred income taxes less long-term receivables from affiliated
companies. Balances reflected in Corporate include eliminating entries
that are used in consolidating the unaudited financial statements.
Relevant information concerning the geographic areas in which the Company
operates in accordance with SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," is as follows:
Three Months Ended March 31, 2002
-------------------------------------------------------------------------------------
NOLAD Colombia Venezuela Brazil Corporate Total
-------- -------- --------- -------- --------- ----------
Net sales $314,140 $ 99,739 $ 105,589 $104,881 $ - $ 624,349
======== ======== ========= ======== ========= ==========
Operating income (loss) $ 45,198 $ 10,963 $ (2,478) $ 8,572 $ (1,157) $ 61,098
======== ======== ========= ======== ========= ==========
Interest income $ 1,030 $ 151 $ 1,422 $ 358 $ (218) $ 2,743
======== ======== ========= ======== ========= ==========
Interest expense $ (7,032) $ (3,209) $ (1,698) $ (952) $ (9,730) $ (22,621)
======== ======== ========= ======== ========= ==========
Depreciation and amortization $ 17,546 $ 12,351 $ 11,147 $ 4,042 $ (406) $ 44,680
======== ======== ========= ======== ========= ==========
Capital expenditures $ 9,829 $ 1,157 $ 210 $ 1,748 $ - $ 12,944
======== ======== ========= ======== ========= ==========
March 31, 2002
-------------------------------------------------------------------------------------
Long-lived assets $692,895 $320,364 $ 328,132 $180,363 $ 650,744 $2,172,498
======== ======== ========= ======== ========= ==========
Total assets $838,344 $377,990 $ 407,354 $393,267 $ 659,036 $2,675,991
======== ======== ========= ======== ========= ==========
Three Months Ended March 31, 2001
-------------------------------------------------------------------------------------
NOLAD Colombia Venezuela Brazil Corporate Total
-------- -------- --------- -------- --------- ----------
Net sales $290,143 $ 94,476 $ 133,857 $126,369 $ - $ 644,845
======== ======== ========= ======== ========= ==========
Operating income (loss) $ 44,817 $ 7,162 $ 9,093 $ 7,203 $ (5,611) $ 62,664
======== ======== ========= ======== ========= ==========
Interest income $ 2,845 $ 2,430 $ 1 $ 350 $ 3,390 $ 9,016
======== ======== ========= ======== ========= ==========
Interest expense $ (5,051) $ (3,162) $ (8,126) $ (510) $ (15,755) $ (32,604)
======== ======== ========= ======== ========= ==========
Depreciation and amortization $ 19,558 $ 14,122 $ 15,332 $ 6,294 $ 4,930 $ 60,236
======== ======== ========= ======== ========= ==========
Capital expenditures $ 10,264 $ 969 $ 2,980 $ 1,915 $ - $ 16,128
======== ======== ========= ======== ========= ==========
December 31, 2001
-------------------------------------------------------------------------------------
Long-lived assets $690,155 $327,059 $ 339,512 $189,279 $ 651,643 $2,197,648
======== ======== ========= ======== ========= ==========
Total assets $853,458 $383,188 $ 419,935 $352,883 $ 683,562 $2,693,026
======== ======== ========= ======== ========= ==========
10
PANAMERICAN BEVERAGES, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
(Stated in thousands of U.S. dollars)
(Unaudited)
The statements of operations data for Panamco NOLAD (Panamco Mexico and
Panamco Central America, which consists of Costa Rica, Nicaragua and
Guatemala), Panamco Colombia, Panamco Venezuela, and Panamco Brazil are
presented on the following pages. The data presented as of and for each
period have been derived from the unaudited financial statements of
Panamco Mexico and Panamco Central America, Panamco Colombia, Panamco
Venezuela, and Panamco Brazil, as applicable, which financial
statements are not included herein. Additionally, the data presented does
not include the unaudited financial data of the Holding company, the
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.
11
PANAMCO NOLAD
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
--------------------------------
2002 2001
--------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 314,140 $ 290,143
Cost of sales, excluding depreciation
and amortization 141,610 127,319
--------- ---------
Gross profit 172,530 162,824
Operating expenses:
Selling, general and administrative 103,684 98,449
Depreciation and amortization 17,546 19,558
Nonrecurring items, net 6,102 -
--------- ---------
127,332 118,007
--------- ---------
Operating income 45,198 44,817
Interest expense, net (6,002) (2,206)
Other income (expense), net (4,424) 941
--------- ---------
Income before provision for income taxes 34,772 43,552
Provision for income taxes 11,707 14,062
--------- ---------
Income before minority interest 23,065 29,490
Minority interest in Panamco
Mexico subsidiaries 652 906
--------- ---------
Net income attributable to Panamco NOLAD 22,413 28,584
Minority interest in Panamco
Mexico holding company 308 429
--------- ---------
Net income attributable to Panamco $ 22,105 $ 28,155
========= =========
Cash operating profit $ 63,086 $ 64,375
========= =========
UNIT CASE SALES VOLUME GROWTH:
Soft drinks 2.8%
Water 3.2%
Other products 58.4%
-------
Total growth 3.3%
=======
12
PANAMCO COLOMBIA
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
------------------------------
2002 2001
--------------- -----------
STATEMENT OF OPERATIONS DATA:
Net sales $ 99,739 $ 94,476
Cost of sales, excluding depreciation
and amortization 46,070 42,847
-------- --------
Gross profit 53,669 51,629
Operating expenses:
Selling, general and administrative 30,355 30,345
Depreciation and amortization 12,351 14,122
-------- --------
42,706 44,467
-------- --------
Operating income 10,963 7,162
Interest expense, net (3,058) (732)
Other income, net 97 196
-------- --------
Income before provision for income taxes 8,002 6,626
Provision for income taxes 2,978 1,955
-------- --------
Income before minority interest 5,024 4,671
Minority interest in Panamco Colombia
subsidiaries holding company 60 50
-------- --------
Net income attributable to Panamco
Colombia holding company 4,964 4,621
Minority interest in Panamco
Colombia 136 127
-------- --------
Net income attributable to Panamco $ 4,828 $ 4,494
======== ========
Cash operating profit $ 23,314 $ 21,284
======== ========
Unit Case Sales Volume Decline:
Soft drinks (1.2%)
Water (19.2%)
Other products 370.9%
--------
Total decline
(4.7%)
========
13
PANAMCO VENEZUELA
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
------------------------------
2002 2001
------------- ------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 105,589 $ 133,857
Cost of sales, excluding depreciation
and amortization 55,773 63,881
--------- ----------
Gross profit 49,816 69,976
Operating expenses:
Selling, general and administrative 37,066 45,551
Depreciation and amortization 11,147 15,332
Nonrecurring items, net 4,081 -
--------- ----------
52,294 60,883
--------- ---------
Operating income (loss) (2,478) 9,093
Interest expense, net (276) (8,125)
Other income, net 3,651 3,561
--------- ---------
Income before benefit from income taxes 897 4,529
Benefit from income taxes (268) (2,273)
--------- ----------
Net income attributable to Panamco $ 1,165 $ 6,802
========= =========
Cash operating profit $ 10,350 $ 24,425
========= =========
UNIT CASE SALES VOLUME DECLINE:
Soft drinks (10.5%)
Water (20.7%)
Beer (23.1%)
Other products 34.2%
-------
Total decline
(10.6%
=======)
14
PANAMCO BRAZIL
(Stated in thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31,
--------------------------------
2002 2001
--------------- -------------
Statement of Operations Data:
Net sales $ 104,881 $ 126,369
Cost of sales, excluding depreciation
and amortization 66,881 82,216
--------- ---------
Gross profit 38,000 44,153
Operating expenses:
Selling, general and administrative 28,767 30,656
Depreciation and amortization 4,042 6,294
Nonrecurring items, net (3,381) -
--------- ---------
29,428 36,950
--------- ---------
Operating income 8,572 7,203
Interest expense, net (594) (160)
Other income (expense), net 48,732 (4,636)
--------- ---------
Income before provision (benefit) for income taxes 56,710 2,407
Provision (benefit) for income taxes 2,387 (246)
--------- ---------
Income before minority interest 54,323 2,653
Minority interest in Panamco
Brazil holding company 87 22
--------- ---------
Net income attributable to Panamco $ 54,236 $ 2,631
========= =========
Cash operating profit $ 12,614 $ 13,497
========= =========
Unit Case Sales Volume Decline:
Soft drinks (12.8%)
Water (6.3%)
Beer (17.3%)
Other 100.0%
--------
Total decline
(13.3%)
========
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion addresses the financial condition and results of
operations of Panamerican Beverages, Inc. ("Panamco" or "we") and its
consolidated subsidiaries. This discussion should be read in conjunction with
our unaudited condensed consolidated financial statements as of March 31, 2002
and December 31, 2001 and for the three months ended March 31, 2002 and 2001
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, the "Panamco Central America" group was created, which consists
of Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala. Prior to the
second quarter of 2001, the financial condition and results of operations of
these three companies were previously reported together in the financial
statements entitled Panamco Central America. In February 1999, the North Latin
American Division ("NOLAD") was created, which consists of Panamco Mexico and
Panamco Central America. The results of operations of Panamco Mexico and
Panamco Central America are reported together as Panamco NOLAD.
Unit case means 192 ounces of finished beverage product (24 eight-ounce
servings). Average sales prices per unit case means net sales in U.S. dollars
for the period divided by the number of unit cases sold during the same
period. Cash operating profit means operating income plus depreciation and
amortization and noncash nonrecurring items.
We have made no significant changes in accounting policies from those
reflected in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
Forward-looking statements, contained in this document include the amount
of future capital expenditures and the possible uses of proceeds from any
future borrowings. The words believes, intends, expects, anticipates,
projects, estimates, predicts, and similar expressions are also intended to
identify forward-looking statements. Such statements, estimates, and
projections reflect various assumptions by our management, concerning
anticipated results and are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. Factors that could cause results to differ include, but are not
limited to, changes in the soft drink business environment, including actions
of competitors and changes in consumer preference, changes in governmental
laws and regulations, including income taxes, market demand for new and
existing products, raw material prices and devaluation of local currencies
against the U.S. dollar. Accordingly, we cannot assure you that such
statements, estimates and projections will be realized. The forecasts and
actual results will likely vary and those variations may be material. We make
no representation or warranty as to the accuracy or completeness of such
statements, estimates or projections contained in this document or that any
forecast contained herein will be achieved. Additional information concerning
such factors is contained in our Registration Statement on Form S-8 as filed
with the Securities Exchange Commission ("SEC") on July 23, 2001, and the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 as
well as other documents filed with the SEC, all of which are available from
the SEC.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net sales for the first quarter ended March 31, 2002 decreased 3.2% to
$624.3 million from $644.8 million in the 2001 first quarter. Net sales were
negatively impacted by a consolidated unit case sales decrease
16
of 4.8% compared to the 2001 period, the devaluation of the Venezuelan bolivar
and the continued deterioration of the economy in that country. In January
2002, we implemented a policy to raise prices in the territories in which we
operate in Brazil. The result was a decline in volumes and an increase in
operating profit margins from the levels achieved in the fourth quarter 2001.
During the 2002 quarter, improved execution resulted in the resumption of net
sales and volume growth in the NOLAD region of 8.3% and 3.3%, respectively.
Cost of sales as a percentage of net sales increased slightly to 49.6%
during the first quarter of 2002 from 49.0% in the 2001 period. This increase
was mainly the result of an increase in the cost of raw materials and
packaging throughout most operations, especially in Venezuela where the
devaluation of the Venezuelan Bolivar resulted in more costly U.S.
dollar-denominated raw materials purchases, as well as a continuous change in
product mix towards non-returnables. At the beginning of 2002, the Mexican
Government introduced an excise tax of 20% on fructose-based soft drinks and
on carbonated water. In March 2002, this tax was suspended until September 30,
2002. The impact of this tax was a nonrecurring nonoperating charge to reflect
the tax paid on the inventory of products containing high fructose. The
reinstatement of this tax, or any increase in the excise or other taxes on the
sale of our products, will adversely affect our sales volumes and
profitability to the extent that we are unable to pass the full amount of any
such increase to consumers.
Gross profit as a percentage of net sales decreased slightly to 50.4%
during the first quarter of 2002 from 51.0% in the first quarter of 2001,
mainly the result of a higher cost of raw materials and packaging.
The following comparison of Panamco's first quarter 2002 and 2001
consolidated results of operations excludes the effect of the sale of Kaiser
and other nonrecurring items during the first quarter of 2002 totalling $35.7
million, net of the related tax benefit of $3.7 million. See "Nonrecurring
Items / Reorganization Programs" and Note 5 of "Notes to Condensed
Consolidated Financial Statements" for further discussion on Panamco's
nonrecurring items.
Operating expenses as a percentage of net sales decreased to 39.4% during
the first quarter of 2002 from 41.2% in the 2001 period, mainly due to lower
goodwill amortization as a result of adopting SFAS No. 142, "Goodwill and
Other Intangible Assets" as well as a 16.7% reduction in depreciation expense,
primarily the result of lower property and equipment balances.
Operating income increased 10.0% to $68.9 million during the first
quarter of 2002 from $62.7 million in the 2001 period, primarily the result of
lower goodwill amortization as a result of adopting SFAS No. 142. Operating
income during the quarter was negatively impacted by the currency devaluation
in Venezuela and by the deteriorating macroeconomic conditions in that
country. Price increases in order to reduce the impact of the devaluation
resulted in loss of market share. The devaluation of the bolivar increases the
relative price of U.S. dollar-denominated raw materials of Panamco Venezuela and
decreases its U.S. dollar-reported net sales (and other financial statement
accounts, including net income). Unit case volumes may be adversely affected
to the extent of a continued slowdown in the Venezuelan economy. Excluding
Venezuela, operating income increased 25.6% from a year ago. Cash operating
profit decreased 7.6% to $113.6 million in 2002 from $122.9 million in the
first quarter of 2001. Excluding Venezuela, cash operating profit for the
quarter increased 2.4% from a year ago. In January 2002, we implemented a
policy to raise prices in the territories in which we operate in Brazil. The
result was a decline in volumes and an increase in operating profit margins
from the levels achieved in the fourth quarter 2001.
Net interest expense decreased 15.7% to $19.9 million during the first
quarter of 2002 from $23.6 million in the 2001 period, mainly resulting from
the combination of a 30.6% reduction in gross interest expense to $22.6
million, which was partially offset by a 69.6% reduction in interest income.
The reduction in interest expense is the result of a $201.9 million reduction
in gross debt on a year over year basis.
Other income increased to $5.6 million during the first quarter of 2002
from an expense of $2.2 million in the 2001 period, primarily the result of a
$0.8 million foreign exchange gain during this quarter compared to a $6.5
million foreign exchange loss, mainly in Brazil, in the same quarter a year
ago.
17
The consolidated effective income tax rate increased slightly to 38.7%
during the first quarter of 2002 from 38.1% in the 2001 period.
As a result of the foregoing, Panamco recorded net income of $32.5
million during the first quarter of 2002, or $0.27 per basic and diluted
share, compared to net income of $21.3 million, or $0.17 per basic share
($0.16 on a diluted basis), during the 2001 period.
NONRECURRING ITEMS / REORGANIZATION PROGRAMS
During the first quarter of 2002, Panamco recorded a gain on the sale of
its 12.1% equity stake in Kaiser as part of a larger transaction in which
Molson, Inc. acquired Kaiser and entered into a partnership with Heineken. The
sale generated proceeds which include approximately $55.1 million reflected
within accounts receivable and $18.9 million in Molson stock recorded as an
investment (the Molson stock received by Panamco cannot be sold for a period
of two years pending the resolution of certain tax contingencies in Brazil,
which management is of the opinion that will be resolved in a manner favorable
to Panamco), and resulted in a gain of $48.6 million, which is included as
part of Other income (expense), net. We will continue to distribute Kaiser
products in our franchise areas in Brazil and the acquisition of Kaiser will
not impact this distribution agreement. During the first quarter, Panamco also
had nonrecurring charges, net of benefits, approximating $16.6 million, of
which $11.6 million is classified as cash charges and $5.0 is classified as
noncash charges. The cash charges primarily relate to severance payments for
the termination of approximately 600 employees in Mexico and Venezuela and to
the payment of excise taxes on soft drink inventories containing high fructose
corn syrup in Mexico. The payment of the excise taxes resulted from a law that
was suspended shortly after it was initiated. Panamco has initiated legal
proceedings to seek that the amounts already paid be refunded. The noncash
charges primarily relate to the closure of plants in Venezuela and to the
sale, at a loss, of the corporate airplane to a related party. The gain on the
sale of Kaiser and the total nonrecurring charges, net benefits, had a
combined positive after-tax impact on net income of $35.7 million.
During 2000, Panamco implemented company-wide reorganization programs
designed to improve productivity and strengthen our competitive position in
the beverage industry. As of March 31, 2002, approximately 7,700 employees
have been terminated by Panamco relating to the reorganization programs
implemented during 2000. Balances related to accrued facilities reorganization
costs of $5.3 million and $6.5 million are reflected in Other accrued
liabilities and $6.0 million is reflected in Other long-term liabilities in
the condensed consolidated balance sheets at March 31, 2002 and December 31,
2001, respectively. The decrease in accrued facilities reorganization costs
during the three months ended March 31, 2002 is related to the continued
implementation of the reorganization programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $43.3 million during the first three
months of 2002 from net cash transactions. Our primary sources of cash for the
first quarter of 2002 were proceeds from bank loans totalling $9.7 million and
proceeds from the sale of property, plant and equipment totalling $8.8 million.
Our primary uses of cash for the first quarter of 2002 were the payment of
bank loans and other long-term obligations totalling $17.3 million, capital
expenditures totalling $12.9 million, purchase of bottles and cases totalling
$8.6 million, payment of shareholder dividends totalling $7.3 million, and
share repurchases totalling $7.3 million. Cash flow used in operating
activities was $1.0 million for the three months ended March 31, 2002 compared
to cash flow provided by operating activities of $81.1 million in the same
quarter a year ago, mainly due to a decrease in accounts payable of $60.1
million. At March 31, 2002, we had negative working capital of $92.9 million,
a 45% improvement compared to a negative working capital of $168.9 million as
of December 31, 2001. A working capital deficit is not unusual for us and does
not indicate a lack of liquidity. We continue to maintain adequate current
assets to satisfy current liabilities when they are due and have sufficient
liquidity and financial resources to manage our day-to-day cash needs.
Total consolidated indebtedness decreased to $963.8 million at March 31,
2002, from $970.2 million at the end of 2001, consisting of $580.0 million at
the holding company level and $383.8 million of subsidiary
18
indebtedness. Of the total debt, 88.0% is long-term. Our U.S. dollar-denominated
debt decreased to 65.8% at March 31, 2002 from 67.5% at the end of 2001.
There has been no significant change in our contractual obligations
during the three months ended March 31, 2002. For a discussion of our
contractual obligations, refer to Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements", contained in our Form 10-K for the year
ended December 31, 2001.
At December 31, 2001, Panamco had completed the $100.0 million share
repurchase program adopted in 1999, increased to a total of $150.0 million by
two $25.0 million supplements in 2001 (the "1999 Share Repurchase Program").
In the first quarter of 2002, we adopted a new program (the "2002 Share
Repurchase Program") to repurchase up to $20.0 million of Panamco's Class A
Common Stock. During the first quarter of 2002, we repurchased 442,700 shares
for a total amount of $7.3 million under the 2002 Share Repurchase Program.
During the first quarter of 2002, Panamco recorded a gain on the sale of
its 12.1% equity stake in Kaiser as part of a larger transaction in which
Molson, Inc. acquired Kaiser and entered into a partnership with Heineken. The
sale generated proceeds which include approximately $55.1 million reflected
within accounts receivable and $18.9 million in Molson stock recorded as an
investment. We will continue to distribute Kaiser products in
our franchise areas in Brazil and the acquisition of Kaiser will not impact
this distribution agreement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposure to market risk
during the three months ended March 31, 2002. For a discussion of our exposure
to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures
about Market Risk, contained in our Form 10-K for the year ended December 31,
2001.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal Proceedings information is addressed in Item 3 of our Form 10-K
for the year ended December 31, 2001. There has been no material change to
that information required to be disclosed in this Quarterly Report on Form
10-Q.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
----------------
None.
(b) Reports on Forms 8-K:
---------------------
The Company did not file any reports on Form 8-K during
the three months ended March 31, 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 14, 2002 PANAMERICAN BEVERAGES, INC.
(REGISTRANT)
By: /s/ Mario Gonzalez Padilla
--------------------------------
Mario Gonzalez Padilla
Vice President, Chief Financial Officer and Treasurer
(On behalf of the Registrant and as Chief Accounting
Officer)