As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/30/12  Andina Bottling Co Inc            20-F       12/31/11   11:6.1M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   3.30M 
 2: EX-1.1      Underwriting Agreement                              HTML     80K 
 3: EX-1.2      Underwriting Agreement                              HTML    113K 
 4: EX-1.3      Underwriting Agreement                              HTML    221K 
 5: EX-1.4      Underwriting Agreement                              HTML    100K 
 6: EX-1.5      Underwriting Agreement                              HTML     95K 
 7: EX-8.1      Opinion re: Tax Matters                             HTML     11K 
 8: EX-12.1     Statement re: Computation of Ratios                 HTML     14K 
 9: EX-12.2     Statement re: Computation of Ratios                 HTML     14K 
10: EX-13.1     Annual or Quarterly Report to Security Holders      HTML     10K 
11: EX-13.2     Annual or Quarterly Report to Security Holders      HTML     10K 

Table of Contents

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

 

7.625% Notes due October 1, 2027

7.875% Notes due October 1, 2097

 

The number of outstanding shares of  the issuer’s stock as of December 31, 2011 was 760,274,542 as follows:

	380,137,271 Series A Shares
	380,137,271 Series B Shares

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   o No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No

 

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.

x Yes   o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes   o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing

 

 

If  Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow

o Item 17   o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

Table of Contents

 

INTRODUCTION

 

References

Unless the context otherwise requires, as used in this annual report the following terms have the meanings set forth below:

·    the “Company” and “we” means Andina and its consolidated subsidiaries;

·    “Andina” means Embotelladora Andina S.A.;

·    “Andina Brazil” means the Company’s subsidiary, Rio de Janeiro Refrescos Ltda. and its subsidiaries;

·    “AESA” means the Company’s subsidiary, Andina Empaques Argentina S.A.

·    “EDASA” means the Company’s subsidiary, Embotelladora del Atlántico S.A.;

·    “CMF” means the Company’s affiliate, Envases CMF S.A.;

·    “ECSA” means the Company’s affiliate, Envases Central S.A.;

·    “Vital Jugos” means the the Company’s affiliate, Vital Jugos S.A., previously known as Vital S.A. ;

·    “VASA” means the Company’s affiliate, Vital Aguas S.A.;

·    “TAR” means the Company’s subsidiary, Transportes Andina Refrescos Ltda.

·    “The Coca-Cola Company” or “TCCC” means The Coca-Cola Company or any of its subsidiaries, including without limitation Coca-Cola de Chile S.A. (“CC Chile”), which operates in Chile, Recofarma Industrias do Amazonas Ltda. (“CC Brazil”), which operates in Brazil and Servicios y Productos para Bebidas Refrescantes S.R.L. (“CC Argentina”), which operates in Argentina.

·    the “Chilean territory” means the Metropolitan Region of Santiago and the neighboring provinces of Cachapoal and San Antonio;

·    the “Brazilian territory” means the majority of the State of Rio de Janeiro, and the totality of the State of Espírito Santo; and

·    the “Argentine territory” means the provinces of Córdoba, Mendoza, San Juan, San Luis, Entre Rios, Buenos Aires (only San Nicolás and Ramallo) and most of Santa Fe.

 

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

 

Unless otherwise specified, references herein to “dollars,” “U.S. dollars” or “US$” are to United States dollars; references to “pesos,” “Chilean pesos”, “Ch$” or “ThCh$” are to Chilean pesos; references to “UF” are to Unidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate during the previous month; references to “Argentine pesos” or “AR$” are to Argentine pesos; and references to “real” or “reais” or “R$” are to Brazilian reais. Certain percentages and amounts contained in this annual report have been rounded for ease of presentation.

 

For the convenience of the reader, this annual report contains translations of certain Chilean peso amounts into U.S. dollars at specified rates. Unless otherwise indicated, U.S. dollar equivalent information for amounts in Chilean pesos is based on the Observed Exchange Rate (as defined under “Item 3. Key Information—Exchange Rates”) reported by the Banco Central de Chile (the Central Bank of Chile), which we refer to as the “Central Bank.” The Federal Reserve Bank of New York does not report a noon buying rate in New York City for Chilean pesos. No representation is made that the peso or U.S. dollar figures presented in this annual report could have been or could be converted into U.S. dollars or pesos, as the case may be, at any particular rate or at all.

 

On August 28, 2007 the Chilean Superintendence of Insurance and Securities announced the adoption of the International Financial Reporting Standards (“IFRS”)in Chile which became mandatory for companies of a certain size beginning 2009 and 2010.  The Company decided to adopt the IFRS as issued by the International Accounting Standards Board (“IASB”) as its accounting and reporting rules beginning January 1, 2010.  Additionally the period between January 1 and December 31, 2009 constituted the transition period towards IFRS and the Financial Statements of the year 2010 were presented comparatively with 2009.

 

Forward-looking information

 

This annual report contains or incorporates by reference statements that constitute “forward-looking statements,” in that they include statements regarding the intent, belief or current expectations of our directors and officers with respect to our future operating performance. Such statements include any forecasts, projections and descriptions of anticipated cost savings or other synergies. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” variations of such words, and similar expressions are intended to identify such forward-looking statements. You should be aware that

 

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any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties, and that actual results may differ from those set forth in the forward-looking statements as a result of various factors (including, without limitations, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates, and operating and financial risks related to managing growth and integrating acquired businesses), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements. You should not place undue reliance on such statements, which speak only as of the date that they were made. Our independent auditors have not examined or compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after filing of this annual report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

Market Data

 

We have computed the information contained in this annual report regarding annual volume and per capita growth rates and levels, and market share, product segment, and population data in bottling and franchise territories, and it is based upon statistics accumulated and certain assumptions we have made. Additional data was obtained from third parties. Market share information presented with respect to soft drinks, juices, waters and beer is based on data supplied by A.C. Nielsen Company (“A.C. Nielsen”) and is believed to be accurate although no assurances to that effect can be given. Certain market data herein (including percentage amounts) may not sum due to rounding.

 

PART I

 

ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not Applicable

 

ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable

 

ITEM 3.          KEY INFORMATION

 

A.    Selected Financial Data

 

The following table presents our selected consolidated and other financial and operating information at the dates and for the periods indicated. The selected financial information at December 31, 2011, 2010 and 2009, and for each of the three years ended December 31, 2011 has been derived from, should be read in conjunction with, and is qualified in its entirety by reference to our Consolidated Financial Statements, included in Item 18 of this annual report, that we refer to in this annual report as the “Consolidated Financial Statements .” Our Consolidated Financial Statements are prepared in accordance with IFRS.  The Securities and Exchange Commission (SEC) eliminated the requirement of preparing reconciliation between IFRS and U.S. GAAP for foreign listed companies that use IFRS as issued by the IASB.

 

Our consolidated financial results include the results of our subsidiaries located in Chile, Brazil and Argentina. Our subsidiaries outside Chile prepare their financial statements in accordance with IFRS and to comply with local regulations in accordance with generally accepted accounting principles of the country in which they operate. The Consolidated Financial Statements reflect the results of the subsidiaries outside of Chile, translated to Chilean pesos (functional and reporting currency of the parent company) and are presented in accordance with IFRS.  The International Financial Reporting Standards requires assets and liabilities to be translated from the functional currency of each entity to the reporting currency (Chilean peso) at end of period exchange rates and income and expense accounts to be translated at the average monthly exchange rate for the month in which income or expense is recognized. Unless otherwise specified, our financial data is presented herein in nominal Chilean pesos and U.S. dollars.

 

The following table presents our selected consolidated financial information. This information should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements, including the notes

 

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thereto in Item 18. The selected financial information contained herein is presented on a consolidated basis, and is not necessarily indicative of our financial position or results of operations at or for any future date or period.

 

		For the period ended December 31,
		2011		2011		2010		2009
		(in million nominal Chilean pesos and million US$, with the exception of those related to debt, shares and sales volume)
		MUS$		MCh$		MCh$		MCh$
Income Statement Data
IFRS :
Net Sales		1,893		982,864		888,714		785,845
Cost of sales		(1,114	)	(578,581	)	(506,882	)	(455,300	)
Administrative, distribution and selling expenses		(504	)	(261,859	)	(232,598	)	(197,422	)
Operating Income		274		142,424		149,234		133,123
Other (expense) income , net [financial results, exchange differences and share in equity investees]		(21	)	(10,712	)	(9,294	)	(5,972	)
Income taxes		(67	)	(34,685	)	(36,340	)	(29,166	)
Net Income		187		97,027		103,600		97,985
Basic and diluted earnings per share
Series A		0.23		121.54		129.78		122.75
Series B		0.26		133.69		142.75		135.02
Basic and diluted earnings per ADR(3)
Series A		1.40		729.24		778.68		736.50
Series B		1.54		802.14		856.50		810.12
Capital Stock
Series A				380,137,271		380,137,271		380,137,271
Series B				380,137,271		380,137,271		380,137,271
Issued Capital		444.71		230,892		230,892		230,892
Total dividends declared
Series A		65		33,809		33,148		29,700
Series B		72		37,190		36,463		32,670
Balance Sheet Data
IFRS:
Total assets		1,429		741,959		688,314		642,692
Current debt that accrues interest(1)		23		12,117		11,996		5,800
Non-current debt that accrues interest		144		74,641		70,449		73,150
Controlling and non-controlling shareholders’ equity		812.7		421,979		394,865		373,558
Other Financial Information
IFRS
Cash flows from operating activities		268		138,950		125,848		131,126
Cash flows from investing activities		(173	)	(89,621	)	(80,504	)	(84,318	)
Cash flows from financing activities		(129	)	(67,159	)	(62,548	)	(67,756	)
Depreciation and amortizations		76		39,498		37,015		36,807
Capital expenditures		244		126,931		95,462		49,483
Ratio of total debt to total capitalization(2)		0.21		0.21		0.21		0.21
Other Operating Data
Sales Volume
Coca-Cola Soft Drinks (million UCs)(5)		447.9		447.9		438.0		419.6
Other beverages (million UCs) (4)(5)(6)		53.3		53.3		51.2		39.0

 

(1) Includes interest bearing liabilities including current bank liabilities, bonds payable discounting issuance expenses and initial discounts that are recognized forming part of the liability and other financial liabilities that accrue short term bank interests and the portion of long—term bank liabilities and bonds payable within 12 months.

(2) Total debt is calculated as the sum of current and non-current financial interest bearing debt. Total capitalization is calculated as the sum of total financial debt, non-controlling interest and shareholders’ equity attributable to the controlling shareholder. Shareholders’ equity has been determined under IFRS.

(3) Each ADR represents six shares of common stock.

(4) Includes waters and juices (in Chile and Argentina) and beer, waters and juices (in Brazil).

(5) Unit cases (“UCs”) refer to 192 ounces of finished beverage product (24 eight-ounce servings) or 5.69 liters.

(6) Volume of waters and juices in Chile includes total sales volume of Vital Jugos and water sales volume sold by Embotelladora Andina.

 

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Exchange Rates

 

The following table sets forth the annual low, high, average and period-end Observed Exchange Rate for U.S. dollars for each year beginning in 2007 and for each month during the six months immediately preceding the month of this annual report, as reported by the Central Bank.

 

		Daily Observed Exchange Rate Ch$ per US$(1)
Year		Low(2)		High(2)		Average(3)		Period End
2007		439.14		548.67		522.55		496.89
2008		431.22		676.75		522.35		636.45
2009		491.09		643.87		559.67		507.10
2010		468.01		549.17		510.22		468.01
2011		455.91		533.74		483.90		519.20
Month
September 2011		460.34		521.85		486.48		521.76
October 2011		490.29		533.74		510.67		490.29
November 2011		494.08		526.83		509.73		517.37
December 2011		508.67		522.62		517.26		519.20
January 2012		485.35		518.20		499.96		488.75
February 2012		475.29		487.73		480.89		476.27
March 2012		480.62		491.57		485.90		487.44

 

Source: Chilean Central Bank.

(1)      Nominal Figures.

(2)      Exchange rates are the actual low and high, on a day-by-day basis for each period.

(3)      With respect to annual periods, the average of the exchange rates on the last day of each month during the year and, with respect to monthly periods, the actual daily exchange rates.

 

The Observed Exchange Rate on April 26, 2011 was Ch$484.88 per US$1.00.

 

B.            Capitalization and Indebtedness

 

Not applicable.

 

C.            Reasons for the offer and use of proceeds

 

Not applicable.

 

D.            Risk Factors

 

The Company is subject to various economic, political, social and competitive conditions. Any of the following risks, if they materialize, could materially and adversely affect our business, results of operations, prospects and financial condition.

 

Risks Related to our Company

 

We rely heavily on our relationship with The Coca-Cola Company (“TCCC”) which has substantial influence over our business and operations

 

Approximately 84% of our net sales in 2011 were derived from the distribution of Coca-Cola soft drinks and 13% from the distribution of other beverages bearing trademarks owned by TCCC. We produce, market and distribute Coca-Cola

 

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investors to effect service of process within the United States upon such persons, or to enforce against them in U.S. courts judgments predicated upon civil liability provisions of the federal securities laws of the United States or otherwise obtained in U.S. courts. Because our assets are located outside of the United States, any judgment obtained in the United States against us may not be fully collectible in the United States.

 

If we experience strikes, work stoppages or labor unrest, our business would suffer.

 

Strikes, work stoppages or other forms of labor unrest at any of our production facilities could impair our ability to supply products to customers, which would reduce our revenues and could expose us to customer claims.

 

Risks Relating to Chile

 

Our growth and profitability depend on economic conditions in Chile

 

Approximately 43% of our assets and 31% of our net sales in 2011 were derived from our operations in Chile. Thus, our financial condition and results of operations depend significantly on economic conditions prevailing in Chile. According to data published by the Central Bank, the Chilean economy grew at a rate of -1.7% in 2009,  5.2 % in 2010 and 6.3% in 2011. Our financial condition and results of operations could also be adversely affected by changes over which we have no control, including, without limitation:

 

·         the economic or other policies of the Chilean government, which has a substantial influence over many aspects of the private sector;

·         other political or economic developments in or affecting Chile;

·         regulatory changes or administrative practices of Chilean authorities;

·         inflation and governmental policies to combat inflation;

·         currency exchange movements; and

·         global and regional economic conditions.

 

Inflation in Chile may disrupt our business and have an adverse effect on our financial condition and results of operations

 

The annual rates of inflation in Chile which in 2009, 2010 and 2011 were  —1.4%,  3.0% and 4.4%, respectively (as measured by changes in the consumer price index and as reported by the Chilean National Institute of Statistics) could adversely affect the Chilean economy and have a material adverse effect on our financial condition and results of operations. We cannot assure you that Chilean inflation will not continue to increase significantly. We cannot assure you that, under competitive pressure, we will be able to realize price increases, which could adversely impact our financial condition and results of operations.

 

The Chilean peso is subject to depreciation and volatility which could adversely affect the value of an investment in our securities

 

The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar, could adversely affect our operations and financial results and the dollar value of an investor’s return. The Chilean peso has been subject to large nominal devaluations in the past and may be subject to significant fluctuations in the future. Based on the Observed Exchange Rates for U.S. dollars in the period from 2008 to 2011 the Chilean peso relative to the U.S. dollar appreciated 7.39% in nominal terms. During 2011 the Chilean peso relative to the U.S. dollar appreciated 5.15% in nominal terms. See “Item 3. Key Information-Exchange Rates.”

 

Our Class A shares and Class B shares are traded in Chilean pesos on the Chilean Stock Exchanges. Cash distributions with respect to the shares will be received in Chilean pesos by the depositary, currently The Bank of New York Mellon Corporation (as depositary for the Series A and Series B shares represented by the Series A and Series B ADRs), which will convert such Chilean pesos to U.S. dollars at the then prevailing exchange rate to make U.S. dollar payments in respect of the ADRs. If the value of the Chilean peso depreciates relative to the U.S. dollar, the value of the ADRs and any distributions to be received from the depositary would be adversely affected. In addition, the depositary will incur costs (to be ultimately borne by the ADR holders) in connection with the foreign currency conversion and subsequent distribution of dividends or other payments with respect to our ADRs.

 

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Although inflation in Brazil has stabilized in recent years, increased inflation may adversely affect the operations of Andina Brazil which could adversely impact our financial condition and results of operations

 

As measured by the Brazilian Índice Nacional de Preços ao Consumidor or INPC, inflation in Brazil was 4.1% 6.5% and 6.1% in 2009, 2010 and 2011, respectively. Increased inflation rates may result in lower consumer purchasing power on behalf of consumers and lower sales volume for Andina Brazil. We cannot assure you that levels of inflation in Brazil will not increase in future years and have a material adverse effect on our business, financial condition or results of operations. Inflationary pressures may lead to further government intervention in the economy, including the introduction of government policies that could adversely affect the results of operations of Andina Brazil and consequently our financial condition and results of operations and the market price of our shares and ADSs.

 

The Brazilian real is subject to depreciation and volatility which could adversely affect our financial condition and results of operations

 

During 2008,  the real depreciated 31.9% due to the world economic crisis and in 2009,  2010 and 2011, it appreciated 25.5% , 4.3% and 4.9% respectively against the U.S. dollar compared to the prior year period. In the event of a devaluation of the real, the financial condition and results of operations of our Brazilian subsidiary could be adversely affected.

 

Depreciation of the real relative to the U.S. dollar may increase the cost of servicing foreign currency-denominated debt that we may incur in the future, which could adversely affect our results of operations and financial condition. In addition, depreciation of the real can create inflationary pressures in Brazil that may negatively affect our results of operations. Depreciation generally curtails access to international capital markets and combined with other macroeconomic aspects, may prompt recessionary government intervention. It also reduces the U.S. dollar value of our revenues, distributions and dividends, and the U.S. dollar equivalent of the market price of our common shares. On the other hand, the appreciation of the real against the U.S. dollar may lead to the deterioration of Brazil’s public accounts and balance of payments, as well as to lower economic growth from exports.

 

The Brazilian government imposes certain restrictions on currency conversions and remittances abroad which could affect the timing and amount of any dividend or other payment we receive

 

Brazilian law guarantees foreign shareholders of Brazilian companies the right to repatriate their invested capital and to receive all dividends in foreign currency provided that their investment is registered with Brazil’s Central Bank. We registered our investment in Andina Brazil with the Brazilian Central Bank on October 19, 1995. Although dividend payments related to profits obtained subsequent to January 1, 1996 are not subject to income tax, after the sum of repatriated capital and invested capital exceeds the investment amount registered with the Brazilian Central Bank, repatriated capital is subject to a capital gains tax of 15%. Under current Chilean tax law, we will realize a tax credit in respect of all Brazilian taxes paid relating to Andina Brazil. There can be no assurance that the Brazilian government will not impose additional restrictions or modify existing regulations that would have an adverse effect on an investor’s ability to repatriate funds from Brazil nor can there be any assurance of the timing or duration of such restrictions, if imposed in the future.

 

Risks Relating to Argentina

 

Our business is dependent to some extent on economic conditions in Argentina

 

Approximately 17% of our assets and 24% of our net sales in 2011 were derived from our operations in Argentina. Because demand for soft drinks and beverage products usually is correlated to economic conditions prevailing in the local market, which in turn is dependent on the macroeconomic condition of the country, the financial condition and results of operations of our franchise in Argentina are, to a considerable extent, dependent upon political and economic conditions prevailing in Argentina.

 

GDP growth in Argentina was 8.3% in 2011 and 9.2% in 2010. Facing the international financial crisis, the public sector did not default and carried out payments using the reserves of Argentina’s Central bank and loans from Banco de la Nación Argentina, generating new and significant macroeconomic policy challenges. Although Argentina managed to roll with the punches of a recessive year and an international crisis without upsetting the main financial variables, we cannot assure that economic conditions in Argentina will continue improving or that our operations will continue experiencing good results.

 

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Political and economic instability may recur which could have a material adverse effect on our Argentine operations and on our financial condition and results of operations.

 

In the period from 1998 through 2003, Argentina experienced acute economic problems that culminated with the restructuring of substantially all of Argentina’s sovereign bond indebtedness. A succession of presidents were inaugurated during this crisis period and various states of emergency were declared that suspended civil liberties and instituted restrictions on transfers of funds abroad and foreign exchange controls, among other measures. Argentina’s GDP contracted 10.9% in 2002. Beginning 2003, Argentine GDP began to recover and from 2004 to 2008 recorded an average rate of growth of 8.4%.  In the political environment, legislative elections carried out in June of 2009 were a misfortune for the government’s political party losing the majority in both houses. This new political scenario in Argentina could make the executive power need to arrive at a consensus with the opposition regarding rules and regulations in order for them to be approved by the legislative power.

 

The macroeconomic condition in Argentina has been characterized by:

 

·                  increased inflation which has been slightly controlled by price control;

·                  deeper state of intervention in the economy;

·                  fiscal deficit ; and

·                  strong salary pressures.

 

The Argentine government continues to face significant exposure to litigation from holders of its defaulted debt that did not participate in the Argentine government’s exchange offer.

 

The Argentine government could impose certain restrictions on currency conversions and remittances abroad which could affect the timing and amount of any dividends or other payment we receive from our Argentine franchise

 

Until December 2001, the Argentine peso was pegged 1-to-1 to the U.S. dollar. From January 1st, 2002, the Argentine peso has been allowed to float freely against the U.S. dollar and other foreign currencies.

 

Since 2003 and following a series of restrictive measures in the money market and fund movements, the Argentine Central Bank removed several of the foreign exchange restrictions, including elimination of the requirement that the Argentine Central Bank approve the repayment of principal of financial indebtedness, extended the term for the repatriation of export proceeds, allowed earlier payments of imports, and starting  2004, increased up to US$2 million, the monthly amount that Argentine-domiciled individuals or corporations are allowed to purchase and transfer abroad.

 

There can be no assurance that the Argentine Central Bank will not once again require its prior authorization for the transfer of funds abroad in the form of dividends or payment of inter-company or third party loans. Any such inability to transfer funds outside of Argentina, in the form of dividends or otherwise, could adversely affect the value of our Argentine operations and the market value of our ADRs.

 

Inflation in Argentina may adversely affect our operations which could adversely impact our financial condition and results of operations

 

Argentina has experienced high levels of inflation in recent decades, resulting in large devaluations of its currency. Argentina’s historically high rates of inflation resulted mainly from its lack of control over fiscal policy and the money supply. The official annual rates of inflation (published by INDEC-Instituto Nacional de Estadísticas y Censos- National Statistics and Census Institute as measured by changes in the consumer price index) between 2009, 2010 and 2011 were, 7.7%, 10.9% and 9.5%, respectively for each year.  High levels of inflation in Argentina could adversely affect the Argentine economy and have a material adverse effect on our financial condition and results of operations.

 

The Argentine peso is subject to depreciation and volatility which could adversely affect our financial condition and results of operations

 

During 2011, the exchange rate in Argentina underwent a depreciation of 5.6%. The Argentine government’s economic policies and any future devaluation of the Argentine peso against the U.S. dollar could adversely affect our financial

 

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Pursuant to Law No. 19,705, enacted in December 2000, the controlling shareholders of an open stock corporation can only sell their controlling shares via a tender offer issued to all shareholders in which the bidder would have to buy all the offered shares up to the percentage determined by it, when the price paid is substantially higher than the market price (that is, when the price paid was higher than the average market price of a period starting 90 days before the proposed transaction and ending 30 days before such proposed transaction, plus 10%).

 

The market for our shares may be volatile and illiquid

 

The Chilean securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The Bolsa de Comercio de Santiago (the “Santiago Stock Exchange”), which is Chile’s principal securities exchange, had a market capitalization of approximately US$269,247  million at December 31, 2011 and an average monthly trading volume of approximately US$4,698 million for 2011. The lack of liquidity owing, in part, to the relatively small size of the Chilean securities markets may have a material adverse effect on the trading prices of our shares. Because the market for our ADRs depends, in part, on investors’ perception of the value of our underlying shares, this lack of liquidity for our shares in Chile may have a significant effect on the trading prices of our ADRs.

 

ITEM 4.                              INFORMATION ON THE COMPANY

 

A.                     History and development of the Company

 

Our legal name is Embotelladora Andina S.A. and our commercial name is Andina. We were incorporated and organized on February 7, 1946 under the Chilean Companies Law as a sociedad anónima (stock corporation). An abstract of our bylaws is registered with the Registro de Comercio de Santiago (Public Registry of Commerce of the City of Santiago) under No. 581 on page 768 of the year 1946. Pursuant to our bylaws, our term of duration is indefinite.

 

Our shares of common stock are listed and traded on the Bolsa de Comercio de Santiago (Santiago Stock Exchange),  on the Bolsa Electrónica de Chile (the Chilean Electronic Stock Exchange) and the Bolsa de Comercio de Valparaiso (the Valparaiso Stock Exchange). Our Series A and Series B ADRs representing our Series A and Series B shares, respectively, are listed on the New York Stock Exchange. Our principal executive offices are located at Avenida El Golf 40, Piso 4, Las Condes, Santiago, Chile. Our telephone number is +56-2-338-0520 and our website is www.embotelladoraandina.com.

 

Our depositary agent for the ADRs in the United States is The Bank of New York Mellon Corporation, located at One Wall Street, New York, New York 10286. Our depositary agent’s telephone number is (212) 815-2296. Our authorized representative in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, United States and their phone number is (302) 738-6680.

 

History

 

In 1941, The Coca-Cola Company licensed a private Chilean company to produce Coca-Cola soft drinks in Chile, and production began in 1943. In 1946, the original licensee withdrew from the license arrangement, and a group of U.S. and Chilean investors formed Andina, which became The Coca-Cola Company’s sole licensee in Chile. Between 1946 and the early 1980s, Andina developed the Chilean market for Coca-Cola soft drinks with a system of production and distribution facilities covering the central and southern regions of Chile. In the early 1980s, Andina sold its Coca-Cola licenses for most areas outside the Santiago metropolitan region and concentrated on the development of its soft drink business in the Santiago area. Although no longer the sole Coca-Cola bottler in Chile, Andina has been the principal manufacturer of Coca-Cola products in Chile for an uninterrupted period of 65 years.

 

In 1985, a majority of Andina’s shares was acquired by four Chilean families who compromise Inversiones Freire Ltda. (“Freire” or “the Controlling Shareholders”). On December 31, 2011, the Controlling Shareholders owned 55.0% of our outstanding Series A shares, which have preferred voting rights and thereby control the Company; and 42.4% of our outstanding Series B shares, consequently the Controlling Shareholders of Andina hold a 48.7% ownership interest in the Company.   Further information regarding our Controlling Shareholders can be found on page 73 of our 2011 Annual Report which is available at our website: www.embotelladoraandina.com.

 

Andina Brazil, our Brazilian subsidiary, began production and distribution of Coca-Cola soft drinks in Rio de Janeiro in 1942. In June 1994, we acquired 100% of the capital stock of Andina Brazil for approximately US$120 million and

 

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Prior to closing the merger, and subject to the approval by of each of the respective shareholders’ meetings, Andina and Polar will each distribute dividends to their shareholders, in addition to those already declared and distributed to date.   Company dividends will amount to Ch$28,155,862,307 and Ch$29,565,609,857, respectively, which represents Ch$35.27 per Series A share and Ch$38.80 per Series B share.

 

Closing of the merger first requires the approval of the Chilean Superintendence of Securities and Insurance, the Boards of Directors and shareholders of both companies, and the Coca-Cola Company.  It also requires registration of new shares to be issued in the exchange.  The merger is scheduled to close before August 31, 2012.

 

Based on the historical results for the year ended December 31, 2011, the merged entity would have a pro-forma net revenues of approximately US$2.643 million, becoming one of the largest Coca-Cola bottlers in Latin America with operations in Argentina, Brazil, Chile and Paraguay.

 

In 1996, our shareholders approved the Reclassification of Capital Stock, which we refer to as the “Reclassification”, of Andina’s common stock into two new series of shares. Pursuant to the Reclassification, each outstanding share of Andina’s common stock was replaced by one newly issued Series A share and one newly issued Series B share. The Series A and Series B shares are principally differentiated by their voting and economic rights: the holders of the Series A shares have full voting power and are entitled to elect six of seven regular and alternate members of the board of directors, and the holders of the Series B shares have no voting rights but for the right to elect one regular and one alternate member of the board of directors. In addition, holders of Series B shares are entitled to a dividend 10% greater than any dividend on Series A shares.

 

After the Reclassificaction, the Superintendence of Pension Fund Managers (Superintendencia de Administradores de Fondos de Pensiones) decreed that Chilean pension funds would not be permitted to acquire Series B Shares due to their limited voting rights. Later, during 2004, the Superintendence approved Series B shares as investment instruments for Chilean Pension funds. Series A shares have always been eligible as investment instruments.

 

Capital Expenditures

 

During 2011 the Company financed its permanent investments exclusively from internal resources.

 

The following table sets forth our capital expenditures by territory and line of business for the periods indicated:

 

		Year ended December 31,
		2011		2010		2009
		MCh$		MCh$		MCh$
Soft Drinks:
Chilean territory		72,669		46,673		21,369
Brazilian territory		28,951		35,607		18,892
Argentine territory		18,801		8,961		7,362
Other Beverages:
Vital Jugos S.A.		—		3,315		1,566
Argentine territory		3,780		—		—
PET Packaging:
Argentine territory		2,730		906		294
Total		126,931		95,462		49,483

 

During 2011, the Company has made disbursements totaling Ch$3,198 million for improvements in industrial processes, equipment to measure industrial waste flows, laboratory analyses, consulting on environmental impacts and other studies.  For further details please refer to Note 27 of our Consolidated Financial Statements filed herewith.

 

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Our total capital expenditures were Ch$126,931million in 2011, Ch$95,462  million in 2010.  In 2011, capital expenditures were principally related to the following:

 

Soft drinks:

 

Chile

·                  Returnable bottles (glass and PET bottles) and bottle cases;

·                  Cooling equipment, post mix and other point of sale equipment;

·                  New equipment to increase efficiency and production capacity;

·                  Implementation of the new Renca bottling facility.

 

Brazil

·                  Returnable glass bottles and bottle cases;

·                  Coolers, post-mix and other point-of-sale equipment;

·                  Equipment to increase efficiency and production capacity; and

·                  Remodeling of the Nova Iguacú distribution center

·                  Industrial projects at Jacarepaguá: cooling, syrup, tanks and “short finish”

 

Argentina

·                  Bottles (glass and PET bottles) and bottle cases;

·                  Coolers and pos tmix equipment;

·                  Returnable PET production line;

·                  Line for waters and sensitive products

·                  Semi-automatic sorting

·                  Injectors (2), one to increase operating capacity and the other one for the waters project.

 

Juices and Waters

 

Juices

 

·                  New SACMI filling line for Pet/glass OW Hot Fill bottles (Line N ° 3);

·                  Dase Seal labelor acquisition for Line N°3 Pet/glass OW;

·                  Automatic mixed system for beverages without pulp;

·                  Remodelling of quality control laboratory;

·                  Adaptation of Line N°2 Pet OW for new Powerade one liter format;

·                  Acquisition of automatic mixing system for beverages without pulp;

·                  Upgrade of central controlling system in formulation room;

·                  Relocation and enlargement of the general warehouse for raw materials; and

·                  Expansion of finished product warehouse.

 

Waters

 

·                  New network of for sanitary air;

·                  Gas boiler

·                  Electric generator bottling plant;

·                  Electric generator fire network;

·                  Electric generator neumatic transport Blowing Plant;

·                  Depalletizor and transportation of line N°1 for the new 330 cc product

·                  Adpatation of Line N°2 for the new 6 lt format

 

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Divestitures

 

In May 2011, EDASA sold the property where the bottling facility was originally located in the Castro Barros area in Córdoba for an amount of US$3.5 million.

 

B.                     Business Overview

 

Andina is among the ten largest Coca-Cola bottlers in the world, servicing franchised territories with 36 million people, delivering over 7.8 million liters of soft drinks, juices, and bottled waters on a daily basis. We are the largest producer of soft drinks in Chile and the second largest soft drink producer in Brazil and in Argentina. Our principal business is the production and distribution of Coca-Cola soft drinks, which accounted for 84.4% of our consolidated net sales in 2011. On 2011, we recorded consolidated net sales of Ch$829,888 million and total sales volume of 447.9 million unit cases of Coca-Cola soft drinks.

 

In addition to the Coca-Cola soft drinks business, through Vital Jugos S.A., we produce and distribute fruit juices and other fruit-flavored beverages in Chile under trademarks owned by TCCC. Through Vital Aguas S.A., we produce and sell mineral water and purified water in Chile under trademarks owned by TCCC.  Through Envases Central S.A. we produce flavored waters and certain formats for soft drinks under trademarks owned by TCCC.  We also manufacture PET bottles primarily for our own use in the packaging of Coca-Cola soft drinks in Chile and Argentina. In Brazil, we also distribute the beer brands Amstel, Bavaria, Birra Moretti, Dos Equis (XX), Edelweiss, Heineken, Kaiser, Murphy´s, Sol and Xingú.

 

Our Products

 

We produce, market and distribute the following Coca-Cola trademark beverages and brands licensed from third parties throughout our franchise territories:

 

Chile: Andina, Andina Light, Aquarius, Benedictino, Burn, Coca-Cola, Coca-Cola Light, Coca-Cola Zero, Dasani Citrus, Dasani Durazno, Dasani Manzana, Dasani Tangerine, Fanta Frutilla, Fanta Limón, Fanta Naranja, Fanta Naranja Zero, Fanta Uva, Hugo, Kapo, Minute Maid 100%, Nestea, Nestea Light, Nordic Mist Ginger Ale, Nordic Mist Tónica, Powerade, Powerade Light, Quatro Guarana, Quatro Light, Sprite, Sprite Zero andVital

 

Brazil: Amstel, Aquarius Fresh, Bavaria, Birra Moretti, Burn, Chá Leão, Coca-Cola, Coca-Cola Light, Coca-Cola Light Plus, Coca-Cola Zero, Crystal, Del Valle, Del Valle Frut, Del Valle Limao & Nada, Del Valle Fruta & Nada, Del Valle Mais, Del Valle Mais Soja, Dos Equis, Edelweiss, Fanta, Fanta Diet, Fanta Zero, Gladiator, Guaraná Leão, Heineken, I9, Kaiser, Kapo, Kapo Chocolate, Kuat, Kuat Eko, Kuat Zero, Leão Ice Tea, Matte Leão, Matte+Guaraná Leão, Murphy’s, Powerade, Schweppes, Schweppes Light, Sol, Sprite, Sprite Diet, Sprite Zero, Xingú.

 

Argentina: Aquarius, Cepita (8 flavors), Cepita Nutri Defense, Cepita 100%, Cepita Naranja Light, Coca-Cola, Coca-Cola Light, Coca-Cola Light Plus, Coca-Cola Zero, Crush Lima-Limón, Crush Naranja, Dasani,  Soda Kin, Fanta Limón, Fanta Pomelo, Fanta Naranja, Fanta Naranja Zero, Powerade Naranja, Powerade Manzana, Powerade Mountain Blast, Powerade Frutas Tropicales (tropical fruits), Powerade Naranja Light, Powerade Citrus, Quatro Liviana  Schweppes Citrus, Schweppes Citrus Light Schweppes Tónica, Sprite and Sprite Zero.

 

We produce, market and distribute Coca-Cola soft drinks in our franchise territories through standard bottler agreements between our bottler subsidiaries and the local subsidiary in each jurisdiction of TCCC (collectively, the “Bottler Agreements”). We consider the enhancement of our relationship with TCCC an integral part of our business strategy.

 

We seek to enhance our business throughout the franchise territories by developing existing markets, penetrating other soft drink, waters and juices markets, forming strategic alliances with retailers to increase consumer demand for our products, increasing productivity, and by further internationalizing our operations.

 

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Chile. As of December 31, 2011, Andina’s sales force consisted of 199 salespeople (158 workers hired indefinitely and 41 hired on a fixed term basis) who call on most customers on average 1.6 times per week. For sales to major supermarkets, we employ 8 key account heads, 14 field supervisors and 522 third party promoters who are on-site supervisors who handle our products, monitor displays and track the pricing and marketing strategies of our competitors. Account executives are also assigned to major fast food outlets to work with the customer to develop sales on a consistent basis. Our distribution system for our soft drink products consisted of a group of 16 exclusive distributors, which are independent businesses that collectively deploy approximately 380 trucks (30 of which are company property), depending on seasonal demand. The 18 distributors collectively service all of our Chilean customers. In most cases, the distributor collects payment from the customer in cash or check. Where applicable, the driver also either collects empty returnable glass or PET bottles of the same type and quantity as the bottles being delivered, or collects cash deposits for the net returnable bottles delivered. This task is particularly significant in the Chilean territory where returnable containers accounted for approximately 61% of total soft drinks volume in 2011. Certain important customers (such as supermarkets), maintain accounts receivables with us, which are settled on average every 45 days after invoices are issued. On average, accounts receivable from all clients are liquidated on a 20-day term.

 

Brazil. As of December 31, 2011, Andina Brazil’s sales force in Brazil consisted of an average of 612 salespeople (402 commercial representatives and 209 supermarket promoters) divided into three major groups responsible for: (i) sales to key accounts and fast food chains (who purchase soft drinks in post-mix dispensers, in cans and bottles), (ii) sales to supermarkets (consisting of bottle and can sales) and (iii) all other traditional customers. Each of these three groups also manages sales of the other beverages (beer, water, juice, energy drinks and ready-to-drink tea) distributed by Andina Brazil. In Brazil, we generally distribute Coca-Cola soft drinks through a distribution system that includes: (i) trucks operated by independent distributors pursuant to exclusive distribution arrangements with us and (ii) trucks operated by independent transport companies on a non-exclusive basis. In 2011, 9.5% were distributed by exclusive distributors, and 90.5% by independent transport companies. Distribution of all of Andina Brazil’s beverages takes place from distribution centers and production facilities. In 2011, approximately 19% of Andina Brazil’ soft drink sales were paid for in cash at the time of delivery, 19% were paid by check to be cashed between one and ten days after delivery and 62% were paid between 10 and 45 days after delivery by invoice.

 

Argentina. As of December 31, 2011, our sales force in Argentina consisted of 416 employees, grouped in salespeople, merchandisers, and Contact Center personnel. In 2011, 71% of Edasa’s Coca-Cola soft drinks were distributed by direct distribution (trucking) and 29% by wholesale distribution. All of the direct distribution is done by a group of independent transport companies (each with three or more trucks). In 2011, approximately 78% of Edasa’s soft drink sales were paid for in cash and 22% were credit sales.

 

Competition

 

We face intense competition throughout the franchise territories principally from bottlers of competing soft drink brands. See “Item 3. Key Information — Risk Factors — Risks Related to our Company — Our business is highly competitive and subject to price competition which may adversely affect our net profits and margins.”

 

Chile. The soft drink segment of the Chilean beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising, ability to deliver product in popular bottle sizes, distribution capacity, and the amount of returnable bottles held by retailers or by consumers. Returnable bottles can be exchanged at the time of new purchases in lieu of paying a bottle deposit, thereby decreasing the purchase price. Our main competitor in the Chilean franchise territory is Embotelladora Chilenas Unidas or ECUSA, a subsidiary of Compañía Cervecerías Unidas S.A. or CCU, the major brewer in Chile. ECUSA produces and distributes Pepsi-Cola products and its own brands (soft drinks and bottled water).

 

Brazil. The soft drink segment of the Brazilian beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising and distribution capacity (including the number and location of sales outlets). According to A.C. Nielsen, our main soft drink competitor in the Brazilian territory is American Beverage Company or Ambev, the largest beer producer and distributor in Brazil and also produces soft drinks, including Pepsi-Cola products.

 

Argentina. The soft drink segment of the Argentine beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising, ability to produce bottles in popular sizes and distribution capacity.

 

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The greatest competitor is Ambev, the Latin American unit of the largest brewery group of the world (Inbev) that produces and commercializes Pepsi-Cola products. As far as B-brands, the most significant are: Talca, Pritty and Naranpol representing over 78% of the volume for B-brands. Productora Alimentaria S.A. is dedicated to the production, commercialization, and distribution of juices, soft drinks, appetizers and mass consumption products; and among others it also commercializes, the Naranpol brand with a strong market presence in the coast of Argentina. Pritty S.A., a company established in the city of Córdoba, is dedicated to the production and sale of beverages without alcohol; it commercializes Pritty, Doble Cola, Saldán, Switty, Rafting, Hook and Magna. O.E.S.A., a preceding Pepsi bottler in the province of Mendoza, produces and commercializes soft drinks and soda water under the brand Talca.

 

Based on reports by A.C. Nielsen, we estimate that in 2011, our average soft drink market share within our franchise territories reached 69.3%, 57.4%, and 57.3% for Chile, Brazil, and Argentina, respectively.

 

The following table presents the market share of our main competitors in Chile, Brazil and Argentina for the periods indicated:

 

Market Share

 

		Year ended December 31,
		2011						2010
		Chile		Brazil		Argentina		Chile		Brazil		Argentina
		(%)
Coca-Cola soft drinks		69		57		57		69		57		55
ECUSA soft drinks		20						20		—		—
Pepsi-Cola and 7 Up products		4		4		21		3		5		21
Pritty products		—				8		—		—		9
Antarctica products		—		12				—		11		—
Brahma products		—		2				—		2		—
Other		7		25		14		8		25		15
Total		100		100		100		100		100		100

 

Source: A.C. Nielsen

 

Seasonality

 

Each of our lines of business is seasonal. Most of our beverage products have their highest sales volumes during the South American summer (October through March), with the exception of nectar products, which have a higher sales volume during the South American winter (April through September). Our Chilean and Argentine operations generally experience higher levels of seasonal price fluctuations than our Brazilian operations.

 

Raw Materials and Supplies(1)

 

The principal raw materials used in the production of Coca-Cola soft drinks are concentrate, sweetener, water and carbon dioxide gas. Production also requires glass and plastic bottles, bottle tops and labels. Water used in soft drink production is treated for impurities and adjusted for taste reasons. All raw materials, especially water, are subjected to continuous quality control.

 

Chile—Raw Materials. We purchase concentrate at prices established by TCCC. We mainly purchase sugar from Industria Azucarera Nacional S.A., IANSA, the only producer of sugar in Chile, although we may purchase sugar in the international market when prices are favorable, and have done so on occasion. Chilean sugar prices are subject to a price band established by the Chilean government on an annual basis. We obtain carbon dioxide gas from AGA Chile S.A. Andina’s affiliate Envases CMF, produces returnable PET bottles and non-returnable PET pre-forms which are blown at our San Joaquín plant. We purchase glass bottles principally from Cristalerías de Chile S.A. and Cristalerías Toro S.A.I.C.  Bottle caps are purchased from Closure Systems International, Alucaps Mexicana S.A. de C.V., Inyecal S.A. and other suppliers.

 

(1)  For detailed information please visit our website www.embotelladoraandina.com

 

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During  2011, 77% of the variable cost of sales for softdrinks produced by Andina Chile coprresponded to main raw materials.  The cost of each raw material within the total of main raw materials is the following: concentrate represents 59%; sugar and artificial sweeteners 28%; non-returnable bottles 8%; bottle caps 4% and carbon dioxide 1%. Water does not constitute an important cost as raw material. Additionally, the cost of finished products purchased from third parties (“ECSA”) is included within the cost of sales of soft drinks. These costs represent 21% of the total costs of sales of soft drinks and correspond to cans and some PET bottles.

 

Brazil - Raw Materials. Andina Brazil purchases concentrate in the city of Manaus at prices established by TCCC. Manaus has been designated as a duty-free development zone by the Brazilian government. Andina Brazil purchases sugar from Brazilian suppliers, in particular from Copersucar Ltda. It purchases carbon dioxide gas mainly from Companhia White Martins Gases S.A..  PET pre-forms from Braspla Ltda., and Amcor Ltda. Glass bottles are purchased from Owens-Illinois ; Cans are purchased from Rexam and Latapack Ball;  metal bottle caps from Aro S.A.;  and Plastic bottle caps are purchased from Closure Systems International and Rexam.  Andina Brazil purchases water from the municipality of Rio de Janeiro.

 

During  2011, 98.1% of the variable cost of sales for softdrinks produced by Andina Brazil coprresponded to main raw materials  The cost of each raw material within the total of main raw materials is the following: concentrate (including juice used for some flavors) represents 31.1%; sugar and artificial sweeteners 22.8.%; non-returnable bottles 21.4%; cans 12.2%, bottle caps 3.3%, carbon dioxide 7.3%. Additionally, the cost of soft drinks finished products purchased from third parties is included within the cost of sales of soft drinks. These costs represent 1.89% of the total costs of sales of soft drinks and correspond to some formats of cans, PET and non-returnable glass bottles.

 

Argentina - Raw Materials. Edasa purchases concentrate at prices established by The Coca-Cola Company. Edasa purchases sugar mainly from Ing. y Refinería San Martín de Tabacal S.A., Cía. Azucarera Concepción S.A., and Atanor S.C.A.;  fructose from Productos de Maíz S.A. and Glucovil S.A., and carbon dioxide gas from Praxair S.A. and Air Liquide S.A. Edasa produces non-returnable and returnable PET bottles through its own packaging division, and glass bottles from Cattorini Hermanos S.A. ,Cristalerías de Chile S.A. and Cristalerías Toro de Chile, plastic caps from Alusud S.A. and Inyecal S.A.,  and metal caps from Metalgráfica Cearense S.A. and Aro S.A. in Brazil. Regarding water supply for the production of soft drink, Edasa owns water wells and pays a fee to the Dirección Provincial de Aguas Sanitarias.  Edasa also buys stretch wrap from Manuli Packaging Argentina, Plastiandino S.A., Sanlufilm S.A., Atiles S.A., IPESA Ind. Plast. S.A. and Rio Chico S.A., and carton from Cartocor S.A. and Papeltécica S.A.

 

The cost of each raw material as a percentage of the total cost of raw materials is the following: concentrate 46%; sugar and artificial sweeteners 26%; non-returnable bottles 14%; bottle caps 3% and carbon dioxide 1%, and the remaining 2% correspond to packaging. Water does not represent a significant cost as raw material.  Additionally, the cost of finished products purchased from third parties is included within the cost of sales of soft drinks. These costs represent 2% of the total costs of sales of soft drinks and correspond to can formats, juices and some bottled water products.

 

Argentina PET Packaging - Raw Materials. The principal raw material required for production of PET bottles is PET resin, during 2011 this raw material was mainly from DAK Américas de Argentina S.A. In 2011, the Edasa Packaging Division’s costs for PET resin accounted for 92% of the total variable cost of its sales of PET bottles and preforms.

 

Marketing

 

We and TCCC jointly promote and market Coca-Cola soft drinks in our franchise territories, in accordance with the terms of our respective Bottler Agreements. During 2011, we paid approximately 50% of the advertising and promotional expenses incurred by TCCC  in our franchise territories. Nearly all media advertising and promotional materials for Coca-Cola soft drinks are produced and distributed by TCCC . See “Item 4. Information on the Company —Bottler Agreements.”

 

Channel Marketing. In order to provide more dynamic and specialized marketing of our products, our strategy is to divide our market into distribution channels. Our principal channels are small retailers, “on-premise” consumption such as restaurants and bars, supermarkets and third party distributors. Presence in these channels entails a comprehensive and detailed analysis of the purchasing patterns and preferences of various groups of soft drink consumers in each type of location or distribution channel. In response to this analysis, we seek to tailor our product, price, packaging and distribution strategies to meet the particular needs of and exploit the potential of each channel.

 

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We believe that the implementation of our channel marketing strategy also enables us to respond to competitive initiatives with channel-specific responses as opposed to market-wide responses. This focused response capability isolates the effects of competitive pressure in a specific channel, thereby avoiding costlier market-wide responses. Our channel marketing activities are facilitated by our management information systems. We have invested significantly in creating such systems, including providing hand-held computer and data gathering equipment to support the gathering of product, consumer and delivery information required to implement our channel marketing strategies effectively for most of our sales routes in Chile, Brazil and Argentina. We will continue investing to increase pre-sale coverage in our territories.

 

Our consolidated total advertising expenditures in 2011 were Ch$31,892 million.

 

Advertising

 

We advertise in all major communications media. We focus our advertising efforts on increasing brand recognition by consumers and improving our customer relations. National advertising campaigns are designed and proposed by TCCC ‘s local affiliates, with our input at the local or regional level.

 

2.  Other Beverages

 

Chile. In addition to Coca-Cola soft drinks, through Vital Jugos S.A., we produce and sell juices, other fruit flavored beverages, ready-to-drink tea and sports drinks, and through Vital Aguas S.A. we produce and sell mineral water and purified water. Juices are produced and sold under the brands Andina Frut (fruit juices), Andina Nectar (fruit nectars), Kapo (fantasy drink), Aquarius (flavored water) Nestea (ready-to-drink tea), Hugo (dairy product with fruit juice) and Powerade (isotonic).Waters are produced and sold under the brands Vital (mineral water) in the following versions: with gas, without gas and Soft Gas; Dasani (purified water) in the following versions: with gas, without gas, and flavored; Benedictino (purified water) in the following versions:  with gas and without gas.

 

Brazil. We distribute beer under the Amstel, Birra Moretti, Dos Equis (XX), Edelweiss, Heineken, Kaiser, Murphys, Sol, Xingu and Bavária labels. We also distribute water under the labels Crystal and Aquarius Fresh and sell and distribute ready-to-drink juices under the labels Del Valle Frut, Del Valle Mais, and Kapo; milk and cocoa-based beverages under the Kapo Chocolate brand, energy drinks under the brand names Burn and Gladiator, isotonics under i9 and Powerade brand names and Chá Leão, Leão Ice Tea, Matte Leão, and Guaraná Leão ready-to-drink teas.

 

Argentina. We produce and distribute ready-to-drink juices under the Cepita brand name. We also produce and sell water under the brands Dasani (purified water) and Aquarius (flavored water), as well as Powerade in the isotonic segment.

 

Waters and Juices in Chile

 

Sales. In 2011, net sales of waters and juices in Chile represented 16.2% of our consolidated net sales. On a consolidated basis, sales of waters and juices in Chile were Ch$49,512 million.

 

The following table sets forth for the periods indicated, Vital Jugos’ net sales and sales by volume of unit cases of waters and juices:

 

Waters and Juices Sales by Net Sales and Volume(1)

 

		Year-ended December 31,
		2011				2010
		In million Ch$ and million UCs
		Ch$		UCs		Ch$		UCs
Andina Frut an Andina Néctar		29,222		17		24,637		14.5
Kapo		6,629		4.6		5,578		3.9
Powerade		2,545		1.0		1,713		0.7
Nestea		951		0.5		689		0.3
Fruitopia, Hugo and Aquarius		388		0.2		432		0.2
Dasani (purified and flavored water)		450		0.4		535		0.6
Benedictino (purified water)		2,225		4.0		2,000		3.5
Vital (mineral water)		9,342		14.0		8,150		13.3
Total(2)		51,752		41.6		43,734		37.0

 

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