Amendment to Annual Report of a Foreign Private Issuer — Form 20-F
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COMPANHIA DE BEBIDAS
DAS AMERICAS - AMBEV
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31,
2003 AND 2002, AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2003
AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
INDEX TO CONSOLIDATED FINANCIAL STATEMENT PAGE
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Changes in Financial Position F-9
Consolidated Statements of Cash Flows F-11
Notes to the Consolidated Financial Statements F-12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Companhia de Bebidas das Americas - AmBev
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in
shareholders' equity, of changes in financial position and of cash flows
present fairly, in all material respects, the financial position of
Companhia de Bebidas das Americas - AmBev and its subsidiaries at
December 31, 2003 and 2002 and the results of their operations and their
changes in financial position for each of the three years in the period
ended December 31, 2003, in conformity with accounting practices adopted
in Brazil. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in Brazil and
the standards of the Public Company Accounting Oversight Board (United
States of America). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
Accounting practices adopted in Brazil vary in certain significant
respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in Note 22. As discussed in Note 22(a)(v), on
January 1, 2002 the Company adopted SFAS No. 141, Business Combinations
and SFAS No. 142, Goodwill and Other Intangible Assets.
Companhia de Bebidas das Americas - Ambev
PricewaterhouseCoopers Sao Paulo, February 12, 2004, except as to
Auditores Independentes Note 21, as to which the dated is March, 1 2004.
F-2
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
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CONSOLIDATED BALANCE SHEETS AT DECEMBER 31
EXPRESSED IN MILLIONS OF REAIS
-----------------------------------------------------------------------------------------------------
ASSETS 2003 2002
----------------- -----------------
Current assets
Cash and cash equivalents 1,196.1 1,131.6
Short-term investments 1,493.9 2,158.4
Unrealized gain on derivatives 102.9 214.9
Trade accounts receivable 725.7 679.0
Taxes recoverable 771.4 410.3
Inventories 954.6 837.4
Other 255.9 139.8
----------------- -----------------
5,500.5 5,571.4
----------------- -----------------
Non-current assets
Deferred income tax 1,831.8 1,558.4
Restricted deposits for legal proceedings 340.5 238.2
Tax incentive investments and deposits 25.4 18.7
Assets held for sale 144.1 121.6
Advances to employees for purchase of shares 234.7 324.8
Other 616.1 444.3
----------------- -----------------
3,192.6 2,706.0
----------------- -----------------
Permanent assets
Investments
Goodwill and negative goodwill 1,687.3 626.9
Other 24.1 10.4
----------------- -----------------
1,711.4 637.3
----------------- -----------------
Property, plant and equipment 4,166.3 3,330.6
Deferred charges 259.3 136.2
----------------- -----------------
6,137.0 4,104.1
----------------- -----------------
Total assets 14,830.1 12,381.5
================= =================
F-3
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31
IN MILLIONS OF REAIS (CONTINUED)
-----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002
----------------- -----------------
Current liabilities
Suppliers 800.3 789.1
Payroll and related charges 94.1 59.7
Loans and financings 1,976.1 607.4
Taxes on income payable 543.2 74.4
Other taxes payable 758.3 619.4
Unrealized loss on derivatives 11.7 3.7
Dividends payable 293.9 345.7
Accounts payable to related parties 0.8 76.8
Other 241.6 257.5
----------------- -----------------
4,720.0 2,833.7
----------------- -----------------
Long-term liabilities
Loans and financings 4,004.3 3,879.3
Accrued liability for contingencies 1,232.9 989.3
Sales tax deferrals 235.2 306.9
Other 133.1 163.6
----------------- -----------------
5,605.5 5,339.1
----------------- -----------------
Minority interest 196.4 79.1
----------------- -----------------
Commitments and contingencies
Shareholders' equity
Subscribed and paid-up capital 3,124.1 3,046.2
Capital reserve 16.6 16.6
Revenue reserves 1,506.0 1,247.4
Treasury stock (338.5) (180.6)
----------------- -----------------
4,308.2 4,129.6
----------------- -----------------
Total liabilities and shareholders' equity 14,830.1 12,381.5
================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
IN MILLIONS OF REAIS
-------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------- -------------- ---------------
GROSS REVENUE 17,143.5 14,279.9 13,131.0
Value-added and other taxes, discounts and returns (8,459.7) (6,954.6) (6,605.4)
--------------- -------------- ---------------
NET SALES 8,683.8 7,325.3 6,525.6
Cost of sales (4.044.2) (3,341.7) (3,366.2)
--------------- -------------- ---------------
GROSS PROFIT 4,639.6 3,983.6 3,159.4
--------------- -------------- ---------------
OPERATING INCOME (EXPENSES)
Selling and marketing (847.1) (687.2) (707.8)
Direct distribution (648.6) (537.4) (467.8)
General and administrative (417.9) (373.5) (351.5)
Depreciation and amortization of deferred charges (420.0) (334.6) (256.5)
Provision for contingencies and other (187.9) (123.7) (33.9)
Financial income (expense), net 93.1 (747.0) (503.1)
Other operating income, net (240.1) 199.4 152.2
Equity in results of affiliates (6.2)
--------------- -------------- ---------------
(2.674.7) (2,604.0) (2,168.4)
--------------- -------------- ---------------
OPERATING INCOME 1,964.9 1,379.6 991.0
NON-OPERATING INCOME (EXPENSES), NET (100.7) (72.2) 2.3
--------------- -------------- ---------------
INCOME BEFORE INCOME TAXES, PROFIT SHARING AND
CONTRIBUTIONS AND MINORITY INTEREST 1,864.2 1,307.4 993.3
--------------- -------------- ---------------
INCOME TAX AND SOCIAL CONTRIBUTION BENEFIT (EXPENSE)
Current (624.4) (123.4) (197.9)
Deferred 198.3 404.0 146.0
--------------- -------------- ---------------
(426.1) 280.6 (51.9)
--------------- -------------- ---------------
INCOME BEFORE PROFIT SHARING, CONTRIBUTIONS AND
MINORITY INTEREST 1,438.1 1,588.0 941.4
--------------- -------------- ---------------
Employee and management profit sharing (23.6) (112.3) (81.3)
Contributions to FAHZ (12.8) (75.8)
--------------- -------------- ---------------
INCOME BEFORE MINORITY INTEREST 1,414.5 1,462.9 784.3
Minority interest (2.9) 47.4 0.3
--------------- -------------- ---------------
NET INCOME 1,411.6 1,510.3 784.6
=============== ============== ===============
Number of shares outstanding at year-end, excluding treasury
shares (thousands) 37,912,634 38,245,915 38,620,925
Earnings per thousand shares at year end (whole reais) - R$ 37.23 39.48 20.31
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN MILLIONS OF REAIS
-----------------------------------------------------------------------------------------------------------------------------------
REVENUE RESERVES
-----------------------------
SUBSCRIBED
AND FUTURE ACCUMULATED
PAID-UP CAPITAL CAPITAL STATUTORY TREASURY RETAINED
CAPITAL RESERVE LEGAL INCREASE INVESTMENTS SHARES EARNINGS TOTAL
---------- -------- ----- -------- ----------- -------- ------------ -------
AT DECEMBER 31, 2000 2,565.2 23.5 485.4 13.3 (10.5) 3,076.9
Prior period adjustment - change in
accounting principle for
pensions and benefits (Note 14(d)) (56.5) (56.5)
Capital increase through
Issue of shares to IBANN minority
shareholders net of repurchases
from dissenting shareholders
(Note 15(a) (i)) 298.3 (242.2) 56.1
Employee stock ownership plan purchases 80.7 80.7
Repurchase of own shares for treasury (246.7) (246.7)
Premium on the placement of options to
repurchase own shares 4.9 4.9
Net income 784.6 784.6
Appropriation of net income
Legal reserve 39.2 (39.2)
Dividends (336.6) (336.6)
Revenue reserves 313.0 39.3 (352.3)
---------- -------- ----- -------- ----------- -------- ------------ -------
AT DECEMBER 31, 2001 2,944.2 4.9 62.7 798.4 52.6 (499.4) 3,363.4
---------- -------- ----- -------- ----------- -------- ------------ -------
Employee stock ownership plan purchases 102.0 102.0
Repurchase of own shares for treasury (355.7) (355.7)
Release from investments reserve (52.6) 52.6
Cancellation of treasury shares (674.5) 674.5
Gain on transfer of treasury shares to
IFC (Note 15(b)(iii)) 11.7 11.7
Net income 1,510.3 1,510.3
Appropriation of net income
Legal reserve 75.4 (75.4)
Interim dividends (160.8) (160.8)
Supplemental dividends (341.3) (341.3)
Revenue reserves 910.0 75.4 (985.4)
---------- -------- ----- -------- ----------- -------- ------------ -------
AT DECEMBER 31, 2002 3,046.2 16.6 138.1 1,033.9 75.4 (180.6) 4,129.6
========== ======== ===== ======== =========== ======== ============ =======
F-6
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN MILLIONS OF REAIS (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
REVENUE RESERVES
-----------------------------
SUBSCRIBED
AND FUTURE ACCUMULATED
PAID-UP CAPITAL CAPITAL STATUTORY TREASURY RETAINED
CAPITAL RESERVE LEGAL INCREASE INVESTMENTS STOCK EARNINGS TOTAL
---------- -------- ----- -------- ----------- -------- ------------ -------
AT DECEMBER 31, 2002 3,046.2 16.6 138.1 1,033.9 75.4 (180.6) 4,129.6
Employee stock ownership plan purchases 77.4 77.4
Subscription of stock warrants 0.5 0.5
Repurchase of own shares for treasury (312.5) (312.5)
Cancellation of treasury shares (154.6) 154.6
Transfer of reserves (853.2) 853.2
Net income 1,411.6 1,411.6
Appropriation of net income
Legal reserve 70.6 (70.6)
Interim dividends (717.7) (717.7)
Supplemental dividends (280.7) (280.7)
Revenue reserve 342.6 (342.6)
---------- -------- ----- -------- ----------- -------- ------------ -------
AT DECEMBER 31, 2003 3,124.1 16.6 208.7 26.1 1,271.2 (338.5) 4,308.2
========== ======== ===== ======== =========== ======== ============ =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31
IN MILLIONS OF REAIS
-------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------- -------------- ---------------
FINANCIAL RESOURCES WERE PROVIDED BY
From operations
Net income for the year 1,411.6 1,510.3 784.6
Expenses (income) not affecting working capital
Equity in results of affiliates 6.2
Deferred income tax and social contribution (198.3) (404.0) (146.0)
Amortization of goodwill and negative goodwill, net 252.4 90.5 94.2
Gain on the settlement of tax incentives (16.6)
Depreciation of property, plant and equipment and
amortization of deferred charges 766.3 659.5 613.9
Accrued liability for contingencies and other 187.9 123.7 33.9
Interest expense on accrued liability for
contingencies 59.8 32.9 13.1
Financial charges on long-term loans, net (496.6) 867.3 (5.2)
Foreign exchange loss (gain) on subsidiaries abroad 367.3 (155.8) (46.2)
Loss (gain) arising from changes in holdings in
subsidiaries 33.3 (16.2)
Minority interest 2.9 (47.4) (0.3)
Book value of disposals of property, plant and
equipment and investments 73.8 159.8 40.7
Interest and charges on advances to employees
for purchase of shares (47.7) (88.1) (33.6)
Provision for losses on permanent assets 58.7 97.5 16.1
--------------- -------------- ---------------
2,461.0 2,846.2 1,349.0
From shareholders
Employee stock ownership plan purchases 77.4 102.0 80.7
Subscription of stock warrants 0.5
Premium on the placement of options to repurchase
own shares 4.9
Changes in the capital of minority shareholders 4.8
Advances to employees for the purchase of shares 91.3
From third parties
Increase in long-term liabilities and decrease in
non-current assets
Loans and financings 295.7 162.6 1,900.7
Sales tax deferrals 57.3
Affiliated companies 35.1
Other accounts receivable 44.1
--------------- -------------- ---------------
TOTAL WORKING CAPITAL FUNDS PROVIDED 3,032.1 3,145.9 3,335.3
--------------- -------------- ---------------
F-8
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31
IN MILLIONS OF REAIS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------- -------------- ---------------
FINANCIAL RESOURCES WERE USED FOR
Increase in non-current assets and decrease in long-term liabilities
Restricted deposits for legal proceedings 84.0 51.3 79.6
Advances to employees for purchase of shares 21.4 16.5
Receivables from companies consolidated proportionally 14.5 30.6
Taxes recoverable 11.5 6.0 27.5
Other assets 9.7 4.3 41.2
Sales tax deferrals 123.0
Accrued liability for contingencies 123.8 32.6 112.9
Other liabilities 98.3 28.3 13.9
Permanent assets
Investments 2,100.6 107.7 220.1
Property, plant and equipment 862.2 544.7 446.8
Deferred charges 91.2 45.7 82.6
Working capital from company merged 27.8
Repurchase of own shares for treasury 311.9 337.1 246.7
Increase of minority interest in subsidiaries 277.6 2.4
Payment of appraisal rights to former IBANN shareholders 242.2
Proposed and declared dividends 1,004.0 502.1 336.6
--------------- -------------- ---------------
TOTAL WORKING CAPITAL FUNDS USED 4,989.3 1,681.2 2,050.4
--------------- -------------- ---------------
INCREASE (DECREASE) IN WORKING CAPITAL (1,957.2) 1,464.7 1,284.9
=============== ============== ===============
CHANGES IN WORKING CAPITAL
CURRENT ASSETS
At end of year 5,500.5 5,571.4 4,685.0
At beginning of year 5,571.4 4,685.0 2,687.7
--------------- -------------- ---------------
(70.9) 886.4 1,997.3
--------------- -------------- ---------------
CURRENT LIABILITIES
At end of year 4,720.0 2,833.7 3,412.0
At beginning of year 2,833.7 3,412.0 2,699.6
--------------- -------------- ---------------
1,886.3 (578.3) 712.4
--------------- -------------- ---------------
INCREASE (DECREASE) IN WORKING CAPITAL (1,957.2) 1,464.7 1,284.9
=============== ============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
SUPPLEMENTAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
IN MILLIONS OF REAIS
-------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year 1,411.6 1,510.3 784.6
Expenses (income) not affecting cash and cash equivalents
Deferred income tax and social contribution (198.3) (404.0) (146.0)
Amortization of goodwill and negative goodwill, net 252.4 90.5 94.2
Depreciation of property, plant and equipment
and amortization of deferred charges 766.3 659.5 613.9
Accrued liabilities for contingencies and other 187.9 123.7 33.9
Interest expense on accrued liability for contingencies 59.8 32.9 13.1
Gain on the settlement of tax incentives (16.6)
Provision for losses on inventories and permanent assets 64.6 113.4 54.0
Interest and charges on advances to employees for
purchase of shares (47.7) (88.1) (33.6)
Interest and charges on taxes and contributions (43.5) (21.4) (33.1)
Interest and foreign exchange losses on loans, net (40.1) 2,120.4 281.7
Unrealized exchange rate variation and gains on financial
assets 183.3 (840.0) (63.9)
(Gain) loss on disposal of property, plant and equipment,
net 41.3 63.3 (1.5)
Loss (gain) arising from changes in holdings in subsidiaries 33.3 (16.2)
Foreign exchange gains on subsidiaries abroad not
affecting cash, net 203.5 (108.7) (14.0)
Minority interest 2.9 (47.4) (0.3)
Equity in results of affiliates 6.2
Decrease (increase) in assets
Trade accounts receivable, net (12.8) 107.9 (91.5)
Taxes recoverable (253.2) (35.6) (81.5)
Inventories (48.6) 37.8 (187.0)
Restricted deposits for legal proceedings (102.9) (51.5) (79.6)
Other (120.5) 25.9 (88.9)
Increase (decrease) in liabilities
Suppliers (14.1) 260.6 (7.7)
Payroll and related charges (86.4) 50.6 25.6
Taxes on income payable 491.3 (195.3) 45.8
Accrued liability for contingencies (104.8) (34.6) (107.5)
Other (87.3) 224.8 12.1
--------------- -------------- ---------------
Net cash provided by operating activities 2,527.6 3,595.0 1,006.6
--------------- -------------- ---------------
F-10
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COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
SUPPLEMENTAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
IN MILLIONS OF REAIS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (maturity over 90 days) 423.1 (808.7) (737.8)
Investments in affiliates and subsidiaries, net of cash acquired (1,745.3) (75.5) (220.1)
Securities and collateral 228.6 (249.3)
Payment of appraisal rights to former IBANN shareholders (242.2)
Acquisitions of property, plant and equipment (862.2) (522.4) (446.8)
Proceeds from disposal of property, plant and equipment 32.4 98.3 42.1
Expenditures on deferred charges (91.3) (45.5) (82.6)
--------------- -------------- ---------------
Net cash used in investing activities (2,014.7) (1,603.1) (1,687.4)
--------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans and financings
Issuances 3,359.2 620.1 3,255.2
Repayments, including interest (2,510.1) (2,925.3) (1,343.9)
Capital subscriptions 4.6 29.0 80.8
Repurchase of own shares for treasury (308.5) (337.1) (246.7)
Premium on the placement of options to repurchase own shares 4.9
Dividends paid (1,026.9) (335.6) (313.4)
Advances to employees for purchase of shares, net of
repayments 130.2 26.2 (16.5)
Other 4.8 10.5 (2.4)
--------------- -------------- ---------------
Net cash provided by (used in) financing activities (346.7) (2,912.2) 1,418.0
--------------- -------------- ---------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (101.7) 639.1 100.2
--------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64.5 (281.2) 837.4
Cash and cash equivalents, at beginning of year 1,131.6 1,412.8 575.4
--------------- -------------- ---------------
Cash and cash equivalents at end of year 1,196.1 1,131.6 1,412.8
=============== ============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest, net of capitalized interest 255.1 559.5 260.5
Taxes on income 251.3 22.4 29.4
Non-cash transactions
Issuance of shares related to the IBANN transaction, net of
repurchases (Note 15(a)(i)) 56.0
Assets contributed in acquisition of Quinsa 300.7
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
1 OUR GROUP AND OPERATIONS
Companhia de Bebidas das Americas (the Company, AmBev or we) is a
publicly held company incorporated under the laws of the Federative
Republic of Brazil. AmBev and its subsidiaries produce, distribute and
sell beer, draft beer, soft drinks, malt and other non-carbonated
beverages, such as isotonic sport drinks, iced tea and water, in Brazil
and other Latin American countries.
On January 31, 2003, the Argentine anti-trust authorities approved the
acquisition by AmBev of a significant interest in Quilmes Industrial S.A.
(Quinsa), an Argentine brewer operating in various Latin American
markets, subject to certain conditions. During 2003, we also continued
the expansion of our international businesses to Central America, the
Caribbean, Peru and Ecuador.
AmBev has licensing agreements with PepsiCo International, Inc. (PepsiCo)
to bottle, sell and distribute Pepsi products in Brazil, including the
isotonic drink Gatorade (the latter still under review by the Brazilian
anti-trust authority) and Lipton Ice Tea. We also have an agreement with
PepsiCo for the bottling, sales and distribution outside Brazil of our
"Guarana Antarctica" brand. The Company has licensing agreements with
Carlsberg A.S. and Miller Brewing Co. for the production of Carlsberg and
Miller beers.
AmBev's shares are traded on the Sao Paulo Stock Exchange (Bovespa), and
the New York Stock Exchange (NYSE), as American Depositary Receipts
(ADRs).
2 SUMMARY OF OUR SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION OF OUR FINANCIAL STATEMENTS
Our financial statements are presented in Brazilian reais and are
prepared in accordance with accounting practices adopted in Brazil, or
Brazilian GAAP, which is based on the Brazilian Corporate Law (Law No.
6,404/76, as amended), the rules and regulations issued by the "Comissao
de Valores Mobiliarios" - CVM, or the Brazilian Securities Commission,
and the accounting standards issued by the IBRACON - "Instituto dos
Auditores Independentes do Brasil", or the Brazilian Institute of
Independent Auditors.
These financial statements differ from our Brazilian GAAP financial
statements due to certain reclassifications and changes in terminology,
and additional explanatory notes added to conform more closely to
reporting practices in the United States. The statement of cash flows
conforms with International Accounting Standard No. 7, Cash Flow and
IBRACON NPC Standard No. 20, Cash Flow Statements.
F-12
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
Certain accounting practices applied by the Company and its subsidiaries
that conform with Brazilian GAAP may not conform with accounting
principles generally accepted in the United States of America (US GAAP)
(Note 22)
(B) CONSOLIDATION PRINCIPLES
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries in which the Company directly or indirectly
controls more than 50% of the voting shares. All significant intercompany
accounts and transactions are eliminated upon consolidation. The
interests of minority shareholders in the consolidated subsidiaries of
the Company are separately disclosed. The consolidated financial
statements also include a proportion of the assets, liabilities, revenues
and costs of affiliates governed by shareholder agreements, which have
been consolidated based on the proportion of the equity interest the
Company holds to the total capital of the jointly-controlled affiliates.
(C) FOREIGN CURRENCY TRANSLATION
The financial statements of our subsidiaries operating outside Brazil are
translated using the year-end exchange rate. Income and expense accounts
are translated and maintained in reais at average exchange rates for the
period. The difference between the net result determined at the exchange
rates at the balance sheet date, and that determined on average exchange
rates for the period, is adjusted under Other operating income. In
addition, the financial statements of the subsidiaries abroad include the
foreign exchange gains or losses on assets and liabilities denominated in
foreign currency.
The financial statements for CCBA S.A. (CCBA) in Argentina and for C.A.
Cevecera Nacional S.A. (CACN) in Venezuela include inflation accounting
adjustments based on local price index variations (Argentina: measured by
the National Statistics and Census Institute of Argentina - INDEC;
Venezuela: measured by Consumer Price Index - IPC) which were recorded in
Other operating income (Note 18).
F-13
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
In the cases of Malteria Pampa S.A. (Malteria Pampa), Malteria Uruguay
S.A. (Malteria Uruguay) and Cerveceria y Malteria Paysandu S.A. (Cympay),
the U.S. dollar is considered to be the currency of their economic
environment, and, therefore, their prices and cash flows are primarily
based on the U.S. dollar. The following translation methodology was
applied for these companies which adopt the U.S. dollar as the functional
currency: (i) inventories, property, plant and equipment, accumulated
depreciation and shareholders' equity accounts were translated into U.S.
dollars at historical exchange rates and translated into reais at current
rates; (ii) monetary assets and liabilities were translated at current
rates; (iii) depreciation was determined based on the U.S. dollar value
of the assets, (iv) other income accounts were converted at the average
exchange rates in the period; and (v) translation gains and losses are
included in income for the period.
(D) CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of time deposits and other short term
investment held through private mutual funds denominated in reais, having
a ready market and an original maturity of 90 days or less, or which have
insignificant early withdrawal penalty clauses. We also invest in money
market instruments and private mutual funds denominated in U.S. dollars
through our off-shore subsidiaries.
(E) SHORT-TERM INVESTMENTS
We buy and sell debt securities with the main objective of mitigating our
consolidated exposure to currency and interest rate risks. These
securities are recorded at cost plus interest at the balance sheet dates.
Provision for losses on these investments are recorded when the carrying
amount of these assets exceed their fair value. These securities
primarily comprise foreign currency debt securities, fixed-term bank
certificates and Brazilian Government bonds held through private funds.
Short-term investments at December 31, 2003 include bank deposits and
financial investments given as guarantee, in connection with the issuance
of bonds in the amount of R$ 29.9 (December 31, 2002 - R$ 292.4).
(F) TRADE ACCOUNTS RECEIVABLE
Accounts receivable are stated at cost. Allowances are provided, when
necessary, in amounts considered by management to be sufficient to meet
probable future losses related to uncollectible accounts.
F-14
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(G) INVENTORIES
Inventories are stated at the average cost of purchases or production,
adjusted by a provision for reduction to realizable (market) values when
necessary.
(H) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, indexed for inflation
through December 31, 1995, and include the interest incurred in financing
the construction of certain qualified assets. Property, plant and
equipment are depreciated using the straight-line method over the annual
rates as described in Note 8.
Expenditures for maintenance and repairs are charged to expense when
incurred. Costs incurred in connection with developing or obtaining
internal-use software are capitalized and depreciated over the useful
lives of the software.
Management reviews long-lived assets, primarily buildings and equipment
to be held and used in the business, for the purpose of determining and
measuring impairment on a recurring basis or when events or changes in
circumstances indicate that the carrying value of an asset or group of
assets may not be recoverable through operating activities. Write-down of
the carrying value of assets or groups of assets is made if and when
appropriate.
Returnable bottles are classified as property, plant and equipment and
are depreciated normally and written-off when breakage occurs as parts of
Cost of sales. We maintain a small number of bottles for sale to
distributors to replace bottles broken in the distribution network. These
bottles are recorded in inventory and are not used during our day-to-day
operations. They are not subject to depreciation.
Assets held for sale include land and buildings and are reported at the
lower of their carrying amounts or their fair values less cost to sell.
(I) DEFERRED CHARGES
The Company defers certain charges related primarily to acquisition and
implementation of software and pre-operation expenses incurred in the
construction or expansion of a new facility until the facility begins
operations. Deferred charges are amortized on a straight line basis over
a period of up to five years from the beginning of operations.
F-15
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(J) GOODWILL AND NEGATIVE GOODWILL
Goodwill or negative goodwill recorded on the acquisition of a company is
computed as the difference between the purchase consideration and the
underlying book value (usually the tax basis) of the investment acquired.
Goodwill is allocated between the write-up of tangible assets at market
value and estimated future profitability; each component is amortized
using the straight-line method, respectively, over the remaining lives of
the tangible assets or the period of the projected profitability,
generally ten years. Negative goodwill is only amortized upon realization
of the related asset through sale or disposal, unless losses are
expected. Generally, goodwill is not tax deductible until the assets are
sold or measures are taken to restructure the assets. Goodwill
amortization is recorded as Other operating expenses in our statement of
operations (Note 18).
(K) PENSION AND OTHER POST-RETIREMENT BENEFITS
The initial effect arising from the adoption of IBRACON NPC Standard No.
26, Accounting for Employee Benefits, was fully recognized in our
shareholders' equity on December 31, 2001.
The cash contributions made by the Company to the pension and employee
welfare foundations (Note 14) prior to December 31, 2001 were determined
by independent actuaries and treated as operating expenses, although the
actuarial obligation was not accrued. Since January 1, 2002 the pension
obligation is recorded on an accrual basis.
Unrealized actuarial gains and losses are deferred and recognized in
income when exceeding the higher of (a) 10% of the present value of the
actuarial liability and (b) 10% of the fair value of the plan's assets,
over the average future working life of the plan's members.
(L) COMPENSATED ABSENCES
The liability for future compensation for employee vacations is fully
accrued as earned.
(M) DEFERRED INCOME TAXES
The tax effects of net operating loss carryforwards expected to be
recovered through offset, are recorded as deferred tax assets on our
balance sheet. Pursuant to CVM Deliberation No. 273/98 and CVM
Instruction No. 371/02 only tax losses which are estimated to be
recovered within a ten-year period based on a discounted cash flow model
are recorded as assets. In the event realization of deferred tax assets
is not considered probable, no such assets are recorded.
F-16
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
A deferred tax liability arises in the case of an excess of net assets
recorded for financial reporting purposes over the tax basis of these net
assets.
Current and non-current deferred tax assets and liabilities are presented
separately.
(N) STOCK OWNERSHIP PLAN AND ADVANCES TO EMPLOYEES FOR PURCHASE OF SHARES
AmBev operates a stock ownership plan. The purchase consideration paid by
employees is recorded as an increase in capital stock. The rights to
acquire AmBev's shares granted to employees, officers or directors under
the stock ownership plans do not generate a charge to income.
(O) WARRANTS AND STOCK OPTION PREMIUMS
The net premium received on the placement of options and warrants was
recognized in a capital reserve in shareholders' equity upon receipt.
(P) TREASURY SHARES
We acquire our own shares to be held in treasury and record them using
the cost method, as a deduction from shareholders' equity. Cancellations
of treasury shares are recorded as a transfer from Treasury shares to
Revenue reserves.
(Q) INTEREST ATTRIBUTED TO SHAREHOLDERS' EQUITY
Interest attributed to shareholders' equity is recorded as a deduction
from unappropriated retained earnings. As required by law, we pay the
related withholding tax on behalf of our shareholders (Note 15(e)).
(R) REVENUES AND EXPENSES
Sales revenues and related cost of sales are recognized in income when
products are delivered to customers. No reserve for expected returns is
recorded, as such amounts are insignificant. Other expenses and costs are
recognized on an accrual basis.
Selling and marketing expenses include costs of advertising and other
marketing activities. Advertising and marketing costs are not deferred at
year-end and are charged to expense ratably in relation to sales over the
year in which they are incurred. Advertising expenses (including
promotional materials) were R$ 253.2, R$ 280.8 and R$ 269.8 for the years
ended December 31, 2003, 2002, and 2001, respectively.
F-17
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
In addition to our third-party distribution networks, we operate a direct
distribution system which distributes our products directly to points of
sale. Direct distribution expenses include product delivery charges and
the cost of sales and delivery personnel required to distribute our
products.
Expenditures relating to ongoing environmental programs are charged to
income as incurred. Ongoing programs are designed to minimize the
environmental impact of our operations and to manage any potential
environmental risks of our activities. Provisions with respect to such
costs are recorded at the time the obligation is considered to be
probable and reasonably estimable.
(S) PROFIT SHARING AND RELATED CHARGES
The year-end provision of our profit-sharing program is an estimate made
by our management. Amounts paid with respect to the program may differ
from the liability accrued.
(T) EARNINGS PER SHARE
Earnings per share were calculated based on the number of shares
outstanding at the end of each year, net of treasury shares.
(U) FINANCIAL INSTRUMENTS AND DERIVATIVES
The Company enters into derivative financial instruments to mitigate its
consolidated exposure to currency, interest rate and commodities risks.
Financial instruments not designated as hedges for accounting purposes
are measured at the lower of cost plus accrued interest or market value.
Certain instruments that do qualify for hedge accounting are recorded at
cost plus accrued interest, deferred and recorded in income upon
realization (Note 16).
(V) TAX INCENTIVES
Certain states in Brazil provide indirect tax incentives in the form of
deferrable tax payments and partial or complete tax rebates in order to
promote investments in their regions (Note 11). The recognition of these
benefits occurs only when the gain is definite and all conditions have
been met and is recognized against Other operating income (Note 18). The
benefits granted are not subject to clawback provisions in the event we
do not meet the program target; however, future benefits may be
withdrawn. Amounts recognized during 2003 totaled R$ 175.9 (2002 - R$
151.9; 2001 - R$ 96.0).
F-18
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(W) ACCRUED LIABILITIES FOR LEGAL PROCEEDINGS
Provisions for contingencies are recorded and updated to current values
for labor, tax, civil and commercial claims being disputed at the
administrative and judicial levels, based on estimates of losses
determined by the Company external legal counsel, for lawsuits in which a
loss is considered probable.
Expected tax savings obtained based on provisional court decisions
resulting from claims filed by the Company against the tax authorities,
if recognized in the statement of operations, are subject to provisioning
until the right is assured through a final legal decision in favor of the
Company.
(X) RELATED PARTY TRANSACTIONS
Transactions with related parties include, among other operations, the
purchase and sale of raw materials such as malt, concentrates, labels,
corks and several finished products, eliminated in the Company's
consolidated financial statements, except for the non-consolidated
portion of operations with jointly-controlled entities (recorded based on
the proportional consolidation method) and related parties.
(Y) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
Brazilian GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are
used for, but not limited to: accounting for allowance for doubtful
accounts, depreciation and amortization, asset impairments, depreciable
lives of assets, useful lives of intangible assets, recognition of
deferred taxes and contingencies.
F-19
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(Z) RECLASSIFICATIONS
In order to further align accounting criteria used in Venezuela with
Brazilian GAAP, R$ 19.3 was reclassified from Deferred charges and R$
22.3 from Inventories to Property, plant and equipment at December 31,
2002.
3 TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable relate primarily to sales to Beer customers.
Credit risk is minimized by the large customer base and control
procedures through which we monitor the creditworthiness of customers.
Changes in the allowance for doubtful accounts were as follows:
[Enlarge/Download Table]
2003 2002 2001
--------------- --------------- ---------------
At beginning of year 139.5 131.6 109.1
New allowances 11.1 12.6 41.9
Recoveries, net of write-offs (10.2) (4.7) (19.4)
Quinsa (proportionally consolidated) 41.9
--------------- --------------- ---------------
At end of year 182.3 139.5 131.6
=============== =============== ===============
4 INVENTORIES
[Download Table]
2003 2002
------------------ ------------------
Finished products 145.6 157.8
Work in process 63.9 50.8
Raw materials 564.2 425.3
Production materials 112.9 119.0
Maintenance materials and others, net 68.0 84.5
------------------ ------------------
954.6 837.4
================== ==================
Provisions for losses on inventory at December 31, 2003 total R$ 33.7
(2002 - R$ 28.7) and are recorded against Maintenance materials and
others.
F-20
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
5 OTHER ASSETS
2003 2002
--------------- ---------------
CURRENT ASSETS
Prepaid expenses 123.3 40.1
Advances to suppliers and others 26.5 10.6
Sundry receivables 106.1 89.1
--------------- ---------------
255.9 139.8
=============== ===============
NON-CURRENT ASSETS
Taxes recoverable (*) 348.4 340.7
Prepaid expenses 119.3 51.1
Investments in debt securities 77.0
Prepaid pension benefit cost 22.0 21.6
Other accounts receivable 49.4 30.9
--------------- ---------------
616.1 444.3
=============== ===============
(*) At December 31, 2003 these consist primarily of zero-rated excise
tax (IPI) credits totaling R$ 228.1 (2002 - R$ 228.1) and
value-added taxes (ICMS) credits totalling R$ 69.2 (2002 - R$ 69.0).
The Company has recorded a provision for the full amount of the IPI
tax asset (Note 12) as our right to recover such amounts is not
recognized by the tax authorities and is subject to a definite
judicial ruling in our favor.
F-21
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
-------------------------------------------------------------------------------
6 INVESTMENTS - SIGNIFICANT DIRECT AND INDIRECT SUBSIDIARIES
[Enlarge/Download Table]
PERCENTAGE INTEREST SHAREHOLDERS' EQUITY NET INCOME (LOSS)
(TOTAL SHARES) (CAPITAL DEFICIENCY)
--------------------- ---------------------------- ---------------------------
FULLY CONSOLIDATED 2003 2002 2001 2003 2002 2001 2003 2002 2001
----------------------------------------------- ------ ----- ------ -------- -------- -------- -------- -------- -------
Arosuco 99.7 99.7 99.7 224.8 102.7 84.7 176.3 153.4 146.6
Aspen 100 100 100 (120.1) (34.2) (8.6) (85.9) (25.6) (7.6)
BSA Bebidas Ltda. (formerly Miller Brewing do
Brasil Ltda.) 100 100 100 10.1 7.9 11.7 2.2 (3.7) 9.4
CACN 50.2 50.2 50.2 17.9 61.8 73.4 (39.4) (37.2) (3.7)
CBB 99.9 99.7 99.7 5,222.2 772.1 2,238.9 2,046.7 (371.2) 615.9
CCBA 70.0 70.0 70.6 74.2 (85.6) (21.7)
Cerveceria Suramericana (Cervesursa) 80.0 145.5 (7.3)
Cervejaria Astra S.A. (Astra) 96.7 243.2 68.0
Cympay 95.4 95.4 95.4 35.3 39.7 23.1 0.4 1.0 (0.2)
Compania Cervecera AmBev Peru A.C. (AmBev Peru) 100 8.7 (5.7)
Companhia Cervejaria Brahma Paraguay (CCBP) 100 100 46.4 35.1 (2.4) 1.1
CRBS S.A. (CRBS) 99.8 99.8 99.8 199.9 193.7 427.3 6.2 (2.6) (57.1)
Eagle Distribuidora de Bebidas S.A (Eagle) 100 100 100 2,684.4 3,217.8 1,290.8 (539.0) 1,484.7 441.7
Hohneck 0.009 100 100 1,315.1 215.5 (147.6) (67.1) 363.0 (28.1)
IBA Sudeste 99.3 98.8 98.8 1,426.7 361.5 358.1 47.5 3.6 2.6
Industria de Bebidas Antarctica Norte-Nordeste
(IBANN) 20.3
Industria de Bebidas Antarctica Polar S.A.
(Polar) 15.1 335.3 13.9 47.7
Industria del Atlantico (Atlantico) 50.0 46.9 5.8
Jalua 100 100 100 3,609.9 4,061.0 2,524.4 (451.2) 1,536.6 500.0
Malteria Pampa 100 100 100 190.7 183.2 91.7 41.5 (31.5) 7.9
Miranda Correa 99.9 99.4 3.9 (15.3) (1.6) (1.8)
Monthiers 100 100 100 3,609.8 3,916.5 2,399.9 (451.1) 1,516.7 (333.9)
Pati dos Alferes S.A. (Pati) 100 100 (0.1) (7.2) (3.4) (0.4)
Pilcomayo Participacoes S.A. (Pilcomayo) 100 100 (1.3) (42.6) (7.1) 27.0
Pepsi-Cola Engarrafadora Ltda. (Pepsi) 100 100 100 223.7 74.8 61.4 140.2 (1.7) 1.5
PROPORTIONALLY CONSOLIDATED COMPANIES (*)
-----------------------------------------------
Agrega 50.0 50.0 50.0 0.6 0.5 0.8 (1.9) (2.0) (1.9)
Astra 65.5 243.2 100.9 68.0 16.1
Ice Tea do Brasil Ltda (ITB) 50.0 50.0 50.0 (3.4) (2.8) (1.1) (0.7) (1.7) (0.5)
Miranda Correa 60.8 (8.0) (1.0)
Quinsa 49.7 818.2 149.7
(*) The pro-rated balances proportionally consolidated and included in the consolidated balance sheet at December 31, 2003 were:
total assets - R$ 1,812.5 (2002 - R$ 9.0); working capital - R$ 130.2 (2002 - R$ 1.1) and cash and cash equivalents of R$ 44.3
(2002 - R$ 1.0). The pro-rated net income from these affiliates included in the consolidated statement of operations totaled R$
147.1 (2002 - R$ 3.7; 2001 - R$ 13.7).
F-22
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
-------------------------------------------------------------------------------
Quinsa's main holdings in subsidiaries, fully consolidated in its financial
statements, and proportionally consolidated in our financial statements, as at
December 31, 2003 are as follows:
ECONOMIC
INTEREST - %
------------------
Cerveceria y Malteria Quilmes S.A.I.C.A. y G. 87.3
Cerveceria Boliviana Nacional La Paz 68.1
Cerveceria Chile S.A. 87.6
Cerveceria Paraguay S.A. 75.2
Fabrica Paraguaya de Vitrios S.A. 67.4
Fabricas Nacionales de Cerveza S.A. 85.8
Quilmes International (Bermuda) Ltd (QIB) 94.7
Salus S.A. (*) 81.2
(*) Only the brewery portion, not including the mineral water operation.
F-23
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
7 GOODWILL AND NEGATIVE GOODWILL
[Enlarge/Download Table]
2003 2002
------------- --------------
Goodwill
CBB - attributed to
Property, plant and equipment fair value excess 144.6 144.6
Expected future profitability 702.7 702.7
------------- --------------
847.3 847.3
Expected future profitability
Astra (ii) 123.3
Atlantico 5.1
Cympay (i) 24.9 34.2
Malteria Pampa 28.1 28.1
Miranda Correa 5.5 5.5
Pilcomayo (ii) 33.9
Pati (ii) 16.9
Quinsa 1,029.9
Salus (i) 19.0
------------- --------------
1,940.8 1,108.2
Quinsa and subsidiaries (proportionally consolidated) 603.7
------------- --------------
2,544.5 1,108.2
Accumulated amortization (680.3) (331.4)
------------- --------------
Total goodwill, net 1,864.2 776.8
------------- --------------
Negative goodwill
Brahma minority conversion (roll-up) (149.9) (149.9)
Cervesursa (18.5)
Incesa (8.5)
------------- --------------
Total negative goodwill (176.9) (149.9)
------------- --------------
Goodwill, net 1,687.3 626.9
============= ==============
(i) Subsidiaries that were part of the total purchase price consideration paid
by the Company in exchange for an interest in Quinsa.
(ii) Goodwill reclassified to deferred charges, following the downstream
mergers of subsidiaries between related parties.
F-24
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
Changes in the goodwill and negative goodwill, net are as follows:
[Enlarge/Download Table]
2003 2002
--------------- -------------
At beginning of year, net 626.9 617.6
Goodwill on new acquisitions 1,035.0 99.8
Negative goodwill on new acquisitions (18.5)
Quinsa and subsidiaries (proportionally consolidated) 442.6
Amortization (252.4) (105.3)
Reclassification to deferred charges, net
(see (ii) above) (146.3)
Negative goodwill realized 14.8
---------------- --------------
At end of year, net 1,687.3 626.9
================ ==============
(A) BRAZILIAN ACQUISITIONS
In August 2002, Polar repurchased all of its outstanding shares,
equivalent to 2.7% of its total shares for the consideration of R$ 6.8
and, as a result, AmBev realized its total negative goodwill on Polar
totaling R$ 14.8.
In July 2002, we acquired 841,966 common shares, 15,488 Class A preferred
shares and 446,587 Class B preferred shares of Miranda Correa, for the
sum of R$ 1.00 (one real), generating goodwill of R$ 5.5 which is based
on future profitability and is to be amortized over ten years. As a
result of this acquisition, we increased our interest in Miranda Correa
from 60.8% to 99.4%, assumed control of the management, which had
previously been held by the other shareholders, and began to fully
consolidate this company's assets and liabilities.
In June and July 2002, we acquired 11,808 common shares and 1,814
preferred shares of Astra, a Brazilian beer producer, for R$ 128.5,
generating goodwill of R$ 94.3 which is based on expected future
profitability and is to be amortized over ten years. As a result of this
acquisition, we increased our interest in Astra from 65.5% to 96.7% and
began to fully consolidate Astra as from January 1, 2002. Previously, we
did not consolidate Astra as the shareholders' agreement precluded us
from exercising control.
During 2001, we acquired 11,328 thousand preferred shares of Astra
increasing our interest by 22.2% to 65.5%, for a total consideration of
R$ 57.9, giving rise to goodwill of R$ 28.9.
F-25
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
In May 2001, we acquired, directly and indirectly (through Pati), 50.0%
of the voting and total capital stock of Pilcomayo, increasing our
interest to 100%. The consideration paid was R$ 30.5, and we recognized
goodwill of R$ 50.8.
In April 2001, we acquired at a public auction an additional 33,728
thousand shares of Polar, a Brazilian beer and soft drink producer. Our
interest was further increased in a series of additional acquisitions
from minority shareholders during 2001, which increased AmBev's direct
and indirect holding to 97.4% of the voting capital and 96.2% of the
total capital of Polar. The total amount paid for these interests
acquired during 2001 was R$ 98.4, generating negative goodwill of R$
14.8.
(B) INTERNATIONAL ACQUISITIONS
In December 2003, the Company acquired 80% of the capital of Cervesursa,
located in Ecuador, generating negative goodwill of R$ 18.5, based on the
expectation of future results, to be amortized in up to ten years.
In October 2003, the Company acquired for R$ 86.7, machinery and
equipment, inventory and the franchise of PepsiCo for the production,
marketing and sale of Pepsi products in Lima and in the Northern region
of Peru. Such assets were contributed to form a new subsidiary, AmBev
Peru.
In September 2003, the Company and the Central American Bottling
Corporation (CarbCorp), launched their operations in the Central American
and Caribbean beer markets, through Atlantico, our wholly-owned
subsidiary located in Guatemala.
In January 2003 we acquired, for R$ 1,729.7 (cash consideration of
R$ 1,429.0 and contribution of assets located in Mercosur, at book
values of R$ 300.7), 230,920,000 class A shares and 26,388,914 class
B shares issued by Quinsa, as well as 8.6% of the capital stock of
QIB, a subsidiary of Quinsa, totaling an aggregate economic interest
of 40.5% in Quinsa. During 2003, we acquired 12,000,000 class B
shares of Quinsa, for the amount of R$ 243.7, in addition, Quinsa
repurchased some of its own shares, thus increasing our economic
interest in Quinsa to 49.66% at December 31, 2003. Our economic
interest Was determined based on our interest in Quinsa and its
interest in QIB as well as our direct interest in QIB. The economic
interest also takes into account that the Class B shares of Quinsa
participate in earnings of QIB and liquidation rights, which are
equal to 10 times the corresponding rights of Class A shares.
Goodwill arising on these transactions, in the amount of R$ 1,029.9
is justified based on expected future profitability, to be amortized
over ten years.
F-26
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
Quinsa's controlling shareholders have the right (a put option) to
exchange their remaining 373.5 million class A shares of Quinsa for AmBev
shares, during April of each year, beginning in 2003. AmBev also has the
right to require (a call option) the exchange of class A shares of Quinsa
for AmBev shares beginning from the end of the 7th year (starting from
April 2003). In both cases, the number of AmBev shares to be issued to
Quinsa's controlling shareholders will be determined based on an adjusted
EBITDA formula of the two companies.
The acquisition of Quinsa was approved with certain restrictions by the
Comision Nacional de Defensa de la Competencia (Argentine National
Commission for the Protection of Competition - "CNDC"). A summary of the
principal restrictions imposed by the CNDC is as follows:
. Quinsa and AmBev are required to dispose of the brands Bieckert,
Palermo, Imperial and Norte, as well as the brewery located in
Lujan, where the Brahma brand was produced, to an independent
brewery, which must be financially sound and which does not produce
beer in the Argentinean market (the "Purchaser");
. Quinsa and AmBev should submit documentation to the CNDC, evidencing
the commitment to allow the independent brewery above for a period
of seven years starting on the date of the sale of the assets above,
to have access to Quinsa's distribution network in Argentina, for
the brands sold to the Purchaser; and
. Quinsa and AmBev shall assume a commitment with the independent
brewery above to produce the Bieckert, Palermo and Imperial brands,
for a two-year period, as from the date on which such assets are
sold.
As a consequence of the legal action filed by a company pertaining to the
Compania Cervecerias Unidas S.A. (CCU) group in April 2003, compliance
with these restrictions has been delayed.
F-27
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
The condensed financial information of Quinsa below, represents our 49.66%
economic interest of Quinsa balances which have been proportionally
consolidated in our financial statements as at and for the period of 11 months
ended December 31, 2003.
BALANCE SHEET
Current assets 427.6
Long-term receivables 218.2
Permanent assets 1,156.3
Current liabilities (385.4)
Long-term liabilities (398.9)
Minority interest (199.6)
------------------
Total net assets 818.2
==================
STATEMENT OF OPERATIONS
Net sales 773.7
Cost of sales (387.3)
------------------
Gross profit 386.4
Operating expenses, net (210.6)
------------------
Operating income 175.8
Non-operating expenses, net (11.3)
Income tax benefit 27.5
Profit sharing (9.3)
Minority interest (33.0)
------------------
Net income for the period 149.7
==================
In February 2001, we exercised our option to acquire 95.4% of the total and
voting capital of Cympay, which produces, markets and distributes malt and
beer in Uruguay, for a total consideration of R$ 56.7, generating goodwill of
R$ 34.2.
F-28
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
8 PROPERTY, PLANT AND EQUIPMENT
[Enlarge/Download Table]
ANNUAL
DEPRECIATION
2003 2002 RATES - %
------------- ------------- ---------------
Cost
Land 244.6 147.2
Buildings 2,090.8 1,865.1 4
Machinery and equipment 5,673.3 4,436.9 10 to 20
Offsite equipment 1,030.4 670.6 10 to 20
Other property and intangible assets 987.0 507.0 4 to 20
Construction in progress 153.7 218.2
------------- -------------
10,179.8 7,845.0
Accumulated depreciation (6,013.5) (4,514.4)
------------- -------------
4,166.3 3,330.6
============= =============
The Company owns certain plants which are no longer operating, the assets of
which, net of accumulated depreciation, amount to R$ 233.2 at December 31,
2003 (2002 - R$ 177.5). These assets, amounting to R$ 144.1 (2002 - R$ 121.6),
net of a provision for loss on the estimated sale of R$ 89.1 (2002 - R$ 55.9),
are accounted for as non-current assets.
During 2003, the Company continued to dispose of assets which were no longer
operational and, upon disposal, recognized losses of R$ 12.7 as Other
non-operating income (expenses) (2002 - R$ 6.5). In addition, at December
31,2003, the provision for potential losses on the sale of property, machinery
and equipment totaled R$ 58.7 (December 31, 2002 - R$ 69.9).
The Company is restricted in relation to the disposal of certain property,
plant and equipment, the residual amount of which totals R$ 909.3 (December
31, 2002 - R$ 963.5) pursuant to loans and lease agreements. Such restrictions
have no impact on the use of such assets and on the Company's operations.
F-29
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
9 DEFERRED CHARGES
2003 2002
------------- -------------
Cost
Pre-operating expenses 190.6 247.3
Implementation and expansion costs 55.7 214.0
Other (i) 217.8 107.1
------------- -------------
464.1 568.4
Accumulated amortization (204.8) (432.2)
------------- -------------
259.3 136.2
============= =============
(i) The 2003 balance includes the balance of goodwill in subsidiaries in the
amount of R$ 146.3, reclassified from "Goodwill and negative goodwill" to
"Deferred charges", arising from the downstream mergers among subsidiaries.
F-30
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
10 LOANS AND FINANCING
[Enlarge/Download Table]
CURRENT LONG-TERM
------------------------------------------------------
ANNUAL FINANCIAL I
CHARGES FINAL MATURITY 2003 2002 2003 2002
-------------------- ----------------- ---------- ---------- ---------- ----------
Reais
ICMS sales tax incentives 5.21% June 2013 34.6 31.4 340.5 310.7
Acquisition of equipment 2.40% above the TJLP December 2008 227.2 237.7 298.6 408.3
Other 2.62% above the TJLP June 2007 0.2 0.4
---------- ---------- ---------- ----------
262.0 269.1 639.5 719.0
---------- ---------- ---------- ----------
Foreign currency
2.4% above quarterly
Syndicated loan LIBOR (i) August 2004 1,063.0 7.1 1,150.8
Bonds 2011 12.3% December 2011 11.6 1,444.6
Bonds 2013 10.3% September 2013 42.1 9.2 1,444.6 1,766.6
Raw materials 4.77% May 2005 183.7 207.6 22.1 81.4
Acquisition of equipment 5.87% January 2009 303.5 51.0 418.4 160.2
Other (ii) 89.57% October 2008 110.2 63.4 35.1 1.3
---------- ---------- ---------- ----------
1,714.1 338.3 3,364.8 3,160.3
---------- ---------- ---------- ----------
1,976.1 607.4 4,004.3 3,879.3
========== ========== ========== ==========
(i) Fixed interest rate of 5.95% per annum on denomination in U.S. dollar
through a swap contract (Note 11(iv)).
(ii) Includes local currency loans (and interest) in Argentina, Ecuador, Peru,
Uruguay and Venezuela
(*) The annualized TJLP (Government nominal long-term interest rate), fixed
quarterly is 11% per annum as from December 31, 2003 (2002 - 10%); LIBOR
- The six-monthly London Interbank Offered Rate - LIBOR at December 31,
2003 is 1.4 % per annum (2002 - 1.3% per annum).
F-31
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(A) PRINCIPAL LOAN CONTRACTS AND PROGRAMS
(I) ICMS TAX INCENTIVE PROGRAMS
The loans relate to programs offered by certain states through which a
percentage of the monthly ICMS - Value-Added Tax on Sales and Services
due is financed by Government related agencies, generally over five years
from the tax due date (Note 11).
(II) ACQUISITION OF EQUIPMENT
In May 2001, we entered into a credit agreement with BNDES for R$ 216.5
of which R$ 168.2 was received in 2001 and the remainder in 2002. The
balance under the credit agreement becomes payable after one year in
monthly installments with final maturity in December 2008.
(III) NOTES ISSUED IN THE INTERNATIONAL MARKET
In September 2003, CBB issued US$ 500 million 8.75% notes due 2013 (Bond
2013), under Regulation 144A and Regulation S, with a full and
unconditional guarantee offered by AmBev. The bond was issued at 99.67%
of face value, and bears annual interest of 10.3% including 15%
withholding tax, payable every six months and final maturity in September
2013. The original contracted interest rate may be increased by 0.5%, if
the bond is not registered with the U.S. Securities and Exchange
Commission - SEC by September 18, 2004.
In December 2001, CBB issued US$ 500 million 10 1/2% notes due 2011 (Bond
2011), under Regulation 144A and Regulation S with a full and
unconditional guarantee offered by AmBev. The bond was issued at 98.56%
of face value, and bears annual interest of 12.3% including 15%
withholding tax, payable every six months and final maturity in December
2011. The Bond 2011 was registered with the SEC on October 4, 2002.
(IV) SYNDICATED LOAN
On August 1, 2001, CBB raised the equivalent on that date of US$ 315.0
through a Japanese Yen-denominated syndicated loan. The loan matures on
August 1, 2004 and bears annual interest of Yen LIBOR plus 2.4%. We have
contracted cross-currency interest rate swaps and forward contracts to
mitigate our currency and interest rate risks, swapping the currency to
the U.S. dollar and fixing our interest rate at 5.95% per annum.
This loan is jointly guaranteed by AmBev and certain subsidiaries and is
subject to covenants including requirements to meet indebtedness and
liquidity ratios.
F-32
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(V) RAW MATERIALS
Raw material import finance terms are normally for payment in a single
installment on the 360th day, and are primarily to finance importations
of malt and hops. The supplier credit financings are mostly obtained
through international financial institutions.
(B) MORTGAGES AND COLLATERAL
Loans and financing for expansion, construction of plants and purchases
of equipment are covered by mortgages on land and buildings and liens on
equipment. Loans for the purchase of raw materials, mainly malt,
syndicated loans and the Bonds are guaranteed by collateral of AmBev and
its subsidiaries, which on December 31, 2003 totaled R$ 199.1.
(C) BREACH OF COVENANT
During 2003, certain subsidiaries of Quinsa in Argentina concluded a debt
renegotiation process, restructuring financing and payment terms. At
December 31, 2003, US$ 4.2 million of the long-term debt that was not in
compliance with certain liquidity ratio covenants was reclassified to
current liabilities.
(D) MATURITIES
At December 31, 2003, the Company's long-term loans, by year of maturity,
are the following:
2005 232.5
2006 390.9
2007 152.8
2008 150.0
2009 20.4
2010 53.2
2011 1,498.1
2012 and 2013 1,506.4
-----------
4,004.3
===========
F-33
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
11 SALES TAX DEFERRALS AND ICMS TAX INCENTIVE PROGRAMS
We currently participate in programs whereby a percentage of payments of
ICMS, due from sales generated by specific production facilities, are
deferrable (financed by a state related financial agent) for periods of
generally five years from their original due date. Percentages deferrable
usually range from 40% to 100% over the life of the program. Amounts
deferrable under these programs are unlimited, except in certain states
with which we have specific agreements. Balances deferred generally
accrue interest and are only partially inflation-indexed.
DESCRIPTION 2003 2002
--------------------------------------------- ------------ -----------
Short-term liabilities
Loans and financings (Note 10) 34.6 31.4
Sales tax deferrals (included in Other
taxes payable) 161.8 154.1
------------ -----------
196.4 185.5
============ ===========
Long-term liabilities
Loans and financings (Note 10) 340.5 310.7
Sales tax deferrals 235.2 306.9
------------ -----------
575.7 617.6
============= ===========
12 COMMITMENTS AND CONTINGENCIES
(A) TAX AND LEGAL CLAIMS
We are contesting the payment of certain taxes and contributions and have
made judicial escrow deposits (Restricted deposits for legal proceedings)
of equivalent or lesser amounts pending final judicial decisions. Our
management believes that the accrued liability for contingencies,
including interest, is sufficient to meet probable and reasonably
estimable losses in the event of unfavorable rulings.
F-34
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
The following probable losses have been identified based on the advice of
outside legal counsel and have been provided as liabilities in our financial
statements:
2003 2002
------------ ------------
Indirect taxes
ICMS and IPI (i) 532.1 458.1
PIS and COFINS (ii) 339.2 260.3
Labor claims (iii) 211.1 131.5
Income tax and social contribution (iv) 50.2 43.2
Claims from distributors (v) 28.6 18.7
Others (vi) 71.7 77.5
------------ ------------
Total accrued liabilities for contingencies 1,232.9 989.3
============ ============
AmBev may be exposed to additional possible risks, based on the opinion of
legal counsel, estimated at R$ 1,266.6 (2002 - R$ 976.0) which have not been
provisioned. Although there can be no assurance that AmBev will prevail in
every case, management does not believe that the ultimate disposition of these
legal contingencies will have a material effect on AmBev's financial condition
or results of operations.
Changes in the accrued liabilities for contingencies are as follows:
2003 2002
------------ ------------
At beginning of year 989.3 815.5
New provisions 172.3 155.7
Payments (15.4) (14.8)
Interest 59.8 32.9
Quinsa and subsidiaries (proportionally
consolidated) 26.9
------------ ------------
At end of year 1,232.9 989.3
============ ============
F-35
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(I) ICMS AND IPI
These legal proceedings relate mainly to tax disputes of presumed
zero-rated IPI credits and to extemporaneous ICMS credits on purchases of
property, plant and equipment prior to 1996. We have filed claims against
the tax authorities to assure we effectively benefit from IPI tax
exemptions on certain inputs. Currently the "exemption" becomes a mere
tax deferral at the time of sale. As these and other claims are
contingent upon obtaining favorable, non-appealable judicial decisions,
the corresponding assets, which might arise in the future, are only
recognized once realization is assured.
(II) PIS AND COFINS
PIS - We obtained an injunction in 1999, granting the right to pay PIS
(up to December 31, 2002) only on billings, without paying these taxes on
other revenues. Following the enactment of Law 10,637 of December 31,
2002, which established new rules for calculating PIS which became
effective as from December 1, 2002, the Company began to pay PIS on other
revenues.
COFINS - We obtained an injunction granting the right to pay COFINS only
on billings, without paying these taxes on other revenues. On December
29, 2002 Law 10,833 was enacted and established new rules for calculating
COFINS and will become effective as from February 1, 2004. The Company
expects to pay COFINS on other revenues upon effectiveness of Law 10,833.
At December 31, 2003, the provision primarily refers to amounts that were
not paid pursuant to the injunctions, and which will be subject to
provisioning until they are assured by a final decision in favor of the
Company.
In common with many Brazilian taxpayers, we have filed claims seeking to
exclude for the period from 1988 to 1995 the indexation for inflation of
certain PIS taxes. In May 2001 a decision of the appellate court ruled in
favor of a plaintiff taxpayer. In the administrative judicial system, the
decisions have been favorable to the taxpayers, and the tax authorities
are no longer issuing new infraction notices regarding this issue.
Although the issue has not yet received a final non-appealable ruling,
the probability of the taxpayers' position not prevailing is considered
to be remote. During 2001, we concluded the determination of the credits
arising in the five-year prescriptive period prior to the date of our
claim. The liability, including interest and charges, totaling R$ 138.7
was reversed to income (Provision for contingencies and other) during
2001. The amounts were recovered by offsetting other Federal taxes due.
F-36
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
We have also filed claims against the tax authorities to support our view
that certain taxes levied are unconstitutional, however because we are
required by law to pay these amounts, we have deposited the amounts into
judicial escrow accounts (Restricted deposits for legal proceedings)
and/or made provisions for amounts legally due.
(III) LABOR CLAIMS
We are involved in approximately 9,500 legal proceedings with former and
current employees, mainly relating to dismissals, severance, health and
safety premiums, supplementary retirement benefits and other matters. We
have established provisions in connection with all proceedings for which
we believe, based on the advice of our outside legal counsel, there is a
probable chance of loss. Judicial escrow deposits, principally for labor
claims, totaled R$ 111.6 at December 31, 2003 (2002 - R$ 74.7). At
December 31, 2003 none of these claims had probable estimated losses
which individually exceeded R$ 2.
(IV) INCOME TAX AND SOCIAL CONTRIBUTION
This provision relates substantially to the recognition of the
deductibility of interest attributed to shareholders' equity in the
calculation of social contribution for the year 1996.
(V) CLAIMS FROM DISTRIBUTORS
We have several claims filed against us by former distributors whose
contracts were terminated due to their failure of distributors to meet
our guidelines and a general restructuring of our distribution network.
We have provisions for probable losses of R$ 28.6, based on advice of
outside legal counsel (2002 - R$ 18.7).
(VI) OTHER PROVISIONS
These provisions relate substantially to issues involving the National
Social Security Institute (INSS), products and suppliers.
F-37
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(B) COMMITMENTS
Commitments for construction under contract at December 31, 2003 are
estimated at R$ 100.0 (2002 - R$ 124.5).
We have contracts with certain key suppliers to buy volumes of key
materials in our production processes, including aluminum, plastics and
natural gas, but without fixed volumes or amounts.
(C) ENVIRONMENTAL ISSUES
We are subject to federal, state and local environmental laws. These laws
generally provide for control of air emissions and require responsible
parties to undertake remediation of hazardous waste disposal sites. Civil
penalties may be imposed for noncompliance.
We provide for remediation costs and penalties when a loss is probable
and the amount is reasonably determinable. It is not presently possible
to estimate the amount of all remediation costs that might be incurred or
penalties that may be imposed. Our management does not presently
anticipate that such costs and penalties, to the extent not previously
provided for, will have a material adverse effect on our consolidated
financial condition, statement of operations or liquidity.
At present we believe there are no unasserted environmental claims or
assessments. We have made substantial capital expenditures to bring
existing facilities into compliance with various environmental laws.
Recent environmental expenditures are as follows:
YEAR ENDED PROPERTY, PLANT WASTE
DECEMBER 31 AND EQUIPMENT TREATMENT TOTAL
--------------- --------------- -------------- ------------
2003 9.3 38.3 47.6
2002 2.8 38.8 41.6
2001 5.1 51.1 56.2
Budgeted environmental expenditures for the five-year period ending
December 31, 2008 total approximately R$ 242.3 (unaudited).
F-38
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
13 OTHER LIABILITIES
2003 2002
------------ -----------
CURRENT LIABILITIES
Employee and management profit sharing program 11.5 134.6
Advances from customers 31.0 9.8
Other accounts payable 199.1 113.1
------------ -----------
241.6 257.5
============ ===========
LONG-TERM LIABILITIES
Post-retirement benefits (Note 14) 72.9 53.4
Deferred income tax and social contribution
(Note 18 (b)) 26.2 25.7
Supplier credits 0.8 29.4
Other accounts payable 33.2 55.1
------------ -----------
133.1 163.6
============ ===========
14 EMPLOYEE BENEFITS
(A) AMBEV PENSION BENEFITS
AmBev sponsors a defined-benefit pension plan (closed to new
participants) and a defined-contribution plan, which supplement benefits
that the Brazilian government's social security system provides to our
employees and those of our Brazilian subsidiaries. Contributions by AmBev
under the plan are determined based on a percentage of participant
salaries.
These plans are administered by the AmBev Pension Fund, Instituto AmBev
de Previdencia Privada (IAPP). In the year ended December 31, 2003, the
Company contributed R$ 4.4 (2002 - R$ 4.2) to IAPP. The IAPP was
established solely for the benefit of our employees, and its assets are
held independently. We nominate the three directors of IAPP.
At December 31, 2003 we had 4,662 participants in our plan (2002 -
4,391), of which 2,778 (2002 - 2,872) participated in the defined-benefit
plan.
F-39
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
Based on the independent actuarial reports, the funded status of AmBev's plans
at December 31, is determined as follows:
2003 2002
--------------- ---------------
Fair value of plan assets 501.4 458.7
Present value of actuarial liability (360.7) (325.5)
Actuarial gain or loss 48.4 22.0
Less valuation allowance over assets (*) (167.1) (133.6)
--------------- ---------------
Funded status 22.0 21.6
=============== ===============
(*) This valuation allowance related to a plan which has been closed to new
participants and was recorded because, under current pension regulation,
any surplus of assets over liabilities cannot be returned to the Company.
The net asset balance was limited to the present value of the estimated
future reduction in contributions. The Company does not expect to recover
this amount at the present time.
(B) HEALTH CARE AND OTHER BENEFITS DIRECTLY PROVIDED BY AMBEV
AmBev directly provides health care benefits, reimbursement of medication
costs and other benefits to retirees from certain subsidiaries, through
CBB.
The provision for these benefits based on the actuarial reports of R$
72.9 at December 31, 2003 (2002 - R$ 53.4) is recorded as Post-retirement
benefits under Other long-term liabilities (Note 13).
At January 1, 2003 53.4
Benefits paid (5.5)
Interest cost 8.5
Actuarial adjustment 16.5
----------------
At December 31, 2003 72.9
================
F-40
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(C) WELFARE FOUNDATION - THE FAHZ
The employees and retirees of the Company receive health care and dental
assistance from the Fundacao Antonio e Helena Zerrenner Instituicao
Nacional de Beneficiencia (FAHZ), one of our shareholders.
The changes in the provision for these benefits of FAHZ, based on
independent actuarial reports, were as follows:
At January 1, 2003 154.1
Interest cost 24.9
Actuarial adjustment 1.2
Benefits paid (16.7)
-------------
At December 31, 2003 163.5
=============
The actuarial liabilities related to the benefits provided by the FAHZ
were fully offset by an equivalent amount of assets held by the FAHZ on
the same date. The surplus assets were not recorded by us in our
financial statements, since under current welfare foundation regulations,
any surplus of assets over liabilities cannot be returned to the Company.
In accordance with NPC No. 26, the Company recognized the actuarial
liability related to the obligation for the benefits provided directly by
AmBev, but not for benefits provided by the FAHZ. The assumption is that
this obligation will not be legally imputed to the Company and will be
covered by the contributions made annually to the FAHZ (up to 10% of the
net income of each year), which are recognized through the statement of
operations. In 2001, an independent actuarial appraisal of the benefit
obligations undertaken by the FAHZ was concluded which determined the
funds required to be provided by the sponsoring companies to make the
FAHZ self-sufficient. Part of the necessary funds, in the amount of R$
12.8, was charged to income under Contributions to the FAHZ (2001 - R$
75.8).
(D) RECOGNITION OF THE EFFECTS OF NPC NO. 26 AT DECEMBER 31, 2001
NPC No. 26 established the mandatory recognition of actuarial
liabilities, as well as certain actuarial assets, relative to benefits
provided to employees (Note 2(k)). As a consequence, the Company charged
directly to shareholders' equity, at December 31, 2001, an amount of R$
56.5.
F-41
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
15 SHAREHOLDERS' EQUITY
(A) CAPITAL AND SHAREHOLDERS' RIGHTS
(I) CAPITAL
The Company's capital stock at December 31, 2003 amounted to R$ 3,124.1
(December 31, 2002 - R$ 3,046.2), represented by 38,537,333 thousand
nominative shares with no-par value (December 31, 2002 - 38,620,730
thousand), comprised of 15,735,878 thousand common shares and 22,801,455
thousand preferred shares (December 31, 2002 - 15,795,903 thousand and
22,824,827 thousand, respectively).
In April 2003, the Company increased capital by R$ 77.4 under the stock
ownership plan upon issuance of 259,007 thousand preferred shares. In
addition, the Company transferred R$ 853.2 from the revenue reserve for
future capital increase to the statutory investment reserve, in
accordance with its by-laws.
During 2002, share capital was increased by R$ 101.9 under the stock
ownership plan upon issuance of 348,075 thousand preferred shares.
In November 2001, the Company issued 96,713 thousand common shares and
429,497 thousand preferred shares to the minority shareholders of IBANN
in the amount of R$ 298.3 based on an independent fair value appraisal.
This transaction generated a gain on change in ownership interest in the
amount of R$ 18.3, recognized in Other non-operating income. Certain
shares issued were repurchased from the minority shareholders. In March
2001, a capital increase was subscribed in the amount of R$ 80.7 under
the stock ownership plan upon the issuance of 569,107 thousand preferred
shares.
(II) WARRANTS
During the period for the exercise of warrants between April 1 and April
30, 2003, 25 thousand common and 489 thousand preferred shares were
subscribed, for the total amount of R$ 0.5. Certain warrant holders have
challenged in court the CVM's and Company's understanding related to the
warrant conversion criteria.
F-42
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(III) SHARE RIGHTS
Our preferred shares are non-voting but have priority in the return of
capital in the event of liquidation. Our common shares have the right to
vote at shareholder meetings. Under our by-laws, we are required to
distribute to shareholders as a mandatory dividend in respect of each
fiscal year ending on December 31 an amount not less than 27.5% of our
net income determined under Brazilian GAAP, as adjusted in accordance
with such law, unless payment of such amount would be incompatible with
AmBev's financial situation. The mandatory dividend includes amounts paid
as interest attributed to shareholders' equity (Note 15(d)). Preferred
shares are entitled to a dividend premium of 10% over that received by
the common shareholders.
(IV) SHARE ACTIVITY (IN THOUSANDS OF SHARES)
[Enlarge/Download Table]
2003 2002 2001
-------------- -------------- -------------
Preferred shares
At beginning of year 22,824,827 23,668,349 22,669,744
Employee stock ownership plan
purchases 259,007 384,075 569,108
IBANN transaction (Note 15(a)(i)) 429,497
Stock warrants 489
Cancellation of shares (282,868) (1,227,597)
-------------- -------------- -------------
At end of year 22,801,455 22,824,827 23,668,349
============== ============== =============
Common shares
At beginning of year 15,795,903 16,073,049 15,976,336
IBANN transaction (Note 15(a)(i)) 96,713
Stock warrants 25
Cancellation of shares (60,050) (277,146)
-------------- -------------- -------------
At end of year 15,735,878 15,795,903 16,073,049
============== ============== =============
F-43
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(B) REVENUE RESERVES
(I) LEGAL
Under Brazilian Corporate Law, AmBev, together with our Brazilian
subsidiaries, are required to appropriate an amount not less than 5% of
net income after absorbing accumulated losses, to a statutory (legal)
reserve. The reserve may be used to increase capital or absorb losses,
but may not be distributed as dividends.
(II) INVESTMENTS
Our by-laws permit that we appropriate an amount not lower than 5% and
not higher than 68.875% of our statutory adjusted net income to a reserve
for investments, in order to finance the expansion of our activities,
including capital increases or the establishment of new enterprises. This
reserve cannot exceed 80% of our capital stock. Should this limit be
reached, a General Meeting of shareholders must deliberate on the
balance, either distributing it to shareholders or increasing capital.
(III) SHAREHOLDER TRANSACTION
During 2002, in connection with our project financing agreement with the
International Finance Corporation - IFC, we transferred to the IFC 53,727
thousand preferred shares as payment of US$ 5 million of our outstanding
debt, upon the exercise by the IFC of its option to convert the balance
of the debt. We recognized a gain of R$ 11.7 on this transaction which
was recorded directly in shareholders' equity as a capital reserve.
(C) TREASURY SHARES
At December 31, 2003 the Company held in treasury 104,546 thousand common
shares and 520,153 thousand preferred shares in the total amount of R$
338.5.
The Board of Directors has successively approved the repurchase of
shares, and the Company is authorized, during renewable periods of up to
90 days, to acquire shares within certain limits.
Additionally as part of our buyback program, in 2001, our Board of
Directors authorized the issue of put options for the repurchase of
188,380 thousand preferred shares of our own stock. The net premium
received on the placement of the options was R$ 4.9, recorded as a
capital reserve in shareholders' equity. In 2002, the put options were
exercised and the Company repurchased 188,380 thousand shares for the
total consideration of R$ 89.1.
F-44
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
Activity in treasury shares during the year was as follows (in thousands):
2003 2002 2001
----------- ------------ ------------
Preferred shares
At beginning of year (273,684) (848,906) (53,727)
Repurchase of shares (529,337) (706,102) (795,179)
Transfer of shares to IFC 53,727
Cancellation of shares 282,868 1,227,597
----------- ------------ ------------
At end of year (520,153) (273,684) (848,906)
=========== ============ ============
Common shares
At beginning of year (101,131) (271,567) (29,495)
Repurchase of shares (63,464) (106,710) (242,072)
Cancellation of shares 60,049 277,146
----------- ------------ ------------
At end of year (104,546) (101,131) (271,567)
=========== ============ ============
(D) DIVIDENDS AND CONTRIBUTIONS
The determination of the dividend approved by the Board of Directors from
net income for the year ended December 31 was as follows:
2003 2002 2001
----------- ------------ -------------
Net income for the year 1,411.6 1,510.3 784.6
Legal reserve (5%) (70.6) (75.4) (39.2)
----------- ------------ -------------
Dividend basis 1,341.0 1,434.9 745.4
=========== ============ =============
Dividends
Prepaid interim distribution
as dividends 495.2 160.8
as interest attributed to
shareholders' equity
222.5 284.6
F-45
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
2003 2002 2001
----------- ------------ -----------
Supplemental dividends
as dividends 54.6 341.3 52.0
as interest attributed to
shareholders' equity 226.1
Withholding tax on interest
attributed to shareholders'
equity (generally 15%) (67.3) (42.7)
----------- ----------- -----------
Total dividends, net of
withholding tax 931.1 502.9 293.9
=========== =========== ===========
Percentage of dividends to
dividend basis 69.4% 35.0% 39.4%
=========== =========== ===========
Dividends per thousand shares
outstanding at year-end, net of
withholding tax
(in whole reais) - R$
Common 23.15(*) 12.40 7.17
=========== =========== ===========
Preferred 25.46(*) 13.64 7.89
=========== =========== ===========
(*) Dividends per thousand shares outstanding (excluding treasury stock) at
year-end - before withholding tax (IRRF): Common - R$ 24.82 and Preferred
- R$ 27.30.
F-46
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, EXCEPT PER SHARE AMOUNTS
--------------------------------------------------------------------------------
(E) INTEREST ATTRIBUTED TO SHAREHOLDERS' EQUITY
Brazilian companies are permitted to pay limited amounts of interest on
capital to shareholders and treat such payments as an expense for
Brazilian income and social contribution tax purposes. This notional
interest distribution is treated for accounting purposes as a deduction
from shareholders' equity in a manner similar to a dividend. A 15% tax is
withheld and paid by AmBev upon credit of the interest. Interest
attributed to shareholders' equity is treated as a dividend for purposes
of the mandatory dividend payable by AmBev.
(F) STOCK OWNERSHIP PLAN
The stock ownership plan for the purchase of Company shares (the Plan) is
administered by a committee that includes non-executive members of our
Board of Directors. This committee periodically creates stock ownership
programs and sets the terms, vesting requirements and employees to be
included and establishes the price at which the preferred and common
shares are to be issued.
The purchase price cannot be less than 90% of the average price of the
shares traded on the Bovespa in the previous three business days, at the
date the award is granted. The number of shares which may be granted each
year under the Plan cannot exceed 5% of the total number of shares
outstanding of each type of share at that date (shares granted
represented 1.0% and 0.03% of total shares outstanding in 2003 and 2002,
respectively).
The Company may opt to issue new shares, or transfer its treasury shares
to the employee. There is no expiration date for the purchase of the
shares. The Company has the right of first refusal on shares issued under
the program if (i) the employee decides to sell the shares or (ii) the
employee ceases to be employed by the Company, automatically forfeiting
the purchase rights. The Company has the right to repurchase any shares
subscribed by the employee at a price equal to: (i) the price paid by the
employee, adjusted by inflation, should the shares be sold within the
first 30 months following the purchase; (ii) 50% at the price paid,
adjusted by inflation, and another 50% at the market price, if the
employee sells the shares after the first 30 months but before the 60th
month following the purchase; or (iii) at market price if sold at least
60 months following the purchase.
Employees who do not apply at least 70% of their annual bonuses, net of
income tax and other charges, to subscribe shares under the stock
ownership plan, will forfeit their purchase rights in the same proportion
of the bonuses not applied, unless the equivalent amount had been
previously subscribed in cash by the employee.
F-47
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
For plans granted prior to 2003, the Company provided advances to
employees for the purchase of shares. Financing arrangements were
normally for periods of no more than four years and accrued 8% interest
per annum above the "Indice Geral de Precos - Mercado" - IGP-M (Note
2(n)).These advances are guaranteed by the shares. On December 31, 2003
these advances totaled R$ 234.7 (2002 - R$ 324.8) and are included in the
balance sheet as non-current assets. For plans granted beginning in 2004,
the Company no longer provides these advances.
The summary of changes in shares included in the Plan for the years ended
December 31, 2003, 2002 and 2001 is the following:
[Enlarge/Download Table]
2003 2002 2001
------------ ------------- ------------
Outstanding (in thousands of shares)
At beginning of year 640,800 1,031,221 1,241,355
Granted 386,000 18,000 499,750
Exercised (259,007) (384,075) (569,108)
Cancelled (34,104) (24,346) (140,776)
------------ ------------- ------------
At year end - outstanding and exercisable 733,689 640,800 1,031,221
------------ ------------- ------------
Shares available at end of each year
that may be granted in the subsequent
year 1,926,867 1,931,037 1,987,070
============ ============= ============
16 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(A) OVERVIEW
A substantial part of our loans and financing are denominated in foreign
currency. We also have assets in Brazil, Argentina and other South and
Central American countries.
We hold cash and cash equivalents denominated in foreign currency, and
enter into cross-currency interest rate and commodity swap transactions
and currency forward contracts in order to mitigate our exposure to
changes in exchange rates on our consolidated currency exposure and
changes in interest rate and commodity prices, particularly aluminum.
F-48
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(B) DERIVATIVE FINANCIAL INSTRUMENTS
Volatility of interest rates, exchange rates and commodity prices are the
principal market risks to which we are exposed and which we manage
through derivative instruments to mitigate exposure to risk.
We monitor and evaluate our derivative positions on a daily basis and
adjust our strategy in response to market conditions. We also
periodically review the credit limits and creditworthiness of our counter
parties in these transactions. In view of our policies and practices
established for derivatives, management considers the occurrence of
non-measurable risk situations as unlikely.
The notional outstanding amounts do not represent amounts exchanged by
the parties and, thus, are not a measure of our exposure through the use
of derivatives. The amounts exchanged during the term of the derivatives
are calculated on the basis of the notional amounts and the other
contractual conditions of the derivatives, which relate to interest rates
and foreign currency exchange rates.
The nominal amounts of our derivative instruments outstanding at December
31, held for purposes other than trading, were as follows:
FINANCIAL INSTRUMENT 2003 2002
------------------------- ---------------- ---------------
FOREIGN CURRENCY
US$/R$ 4,686.5 2,300.0
Yen/US$ 775.7 1,059.7
Argentine Pesos/US$ 152.4
INTEREST RATE
Floating LIBOR/ fixed LIBOR 944.6 1,277.4
CDI (*)/Fixed interest rate (201.8) (42.1)
COMMODITIES
Aluminum 166.4
Sugar 22.3 0.2
---------------- ---------------
6,379.7 4,761.6
================ ===============
The estimated fair value amounts of our derivatives exposures as of December 31,
were as follows:
FINANCIAL INSTRUMENT 2003 2002
------------------------- ---------------- ---------------
FOREIGN CURRENCY
US$/R$ 3,490.8 2,463.8
Yen/US$ 909.7 806.7
Argentine Pesos/US$ 152.4
INTEREST RATE
Floating LIBOR/ fixed LIBOR 944.6 1,277.4
CDI (*)/Fixed interest rate (201.8) (42.1)
COMMODITIES
Aluminum 166.3
Sugar 22.3 0.2
---------------- ---------------
5,318.0 4,672.3
================ ===============
(*) Interbank Deposits Certificate rate.
F-49
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(I) FORWARDS AND CROSS-CURRENCY INTEREST RATE SWAPS
Interest rate risks mainly relate to debt borrowed at floating rates. The
foreign currency debt is largely subject to fluctuations in the LIBOR.
The portion of local currency denominated debt that is subject to
floating rates is linked to the TJLP. We use derivative instruments to
mitigate the effects of volatility of the LIBOR rate.
At December 31, 2003, unrealized gains (losses) on financial instruments,
not designated as hedges for accounting purposes, were recorded at the
lower of cost plus accrued interest and market value, in accordance with
Brazilian GAAP. Had the Company recorded its short-term investments and
financial instruments at market value, it would have recorded an
additional unrealized gain in the amount of R$ 205.9 in earnings for the
year ended December 31, 2003 (December 31, 2002 - R$ 240.3) as presented
in the table below:
UNREALIZED
FINANCIAL INSTRUMENTS BOOK VALUE MARKET VALUE GAIN
------------------------ -------------- ------------- -------------
Government securities 1,493.9 1,544.1 50.2
Swaps/forwards 91.2 246.9 155.7
-------------- ------------- -------------
1,585.1 1,791.0 205.9
============== ============= =============
The fair value of investments are estimated based on quoted market
prices. For investments for which there are no quoted market prices, fair
values are derived from available yield curves for investments of similar
maturity and terms.
(II) CURRENCY AND COMMODITIES
At December 31, 2003, gains totaling R$ 1.2 (2002 - R$ 4.9), arising from
these instruments obtained for the specific purpose of mitigating our
exposure to fluctuations in foreign currencies and the prices of raw
materials to be purchased, were deferred, and will be recognized in
income when realized.
F-50
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
During the years ended December 31, 2003 and 2002, the following effect
arising from such instruments were recorded in earnings under Cost of sales:
GAIN (LOSS) RECORDED IN
COST OF SALES
----------------------------
DESCRIPTION 2003 2002
---------------------- ----------- -----------
Currency (99.0) 352.5
Aluminum 16.7 (6.9)
----------- -----------
(82.3) 345.6
============ ============
(III) FAIR VALUE OF FINANCIAL LIABILITIES
The Company's financial liabilities, represented mainly by Bonds 2013 and
2011, Syndicated Loan and import financings, are stated at cost plus
accrued interest and monetary and exchange variations, based on closing
rates and indices.
Had the Company recorded its financial liabilities at market values, it
would have recorded an additional loss, before income taxes, of
approximately R$ 202.2, on December 31, 2003 (2002 - gain of R$ 461.7),
as presented in the table below:
[Download Table]
UNREALIZED
FINANCIAL LIABILITIES BOOK VALUE MARKET VALUE GAIN (LOSS)
-------------------------- ---------------- ----------------- ----------------
Bonds 2,942.9 3,270.7 (327.8)
Syndicated loan 1,063.0 938.7 124.3
Raw material financing 115.0 113.7 1.3
---------------- ----------------- ----------------
4,120.9 4,323.1 (202.2)
================ ================= ==================
The market values of these financial liabilities were estimated as
follows: (i) Bonds: secondary market value of the Bonds based on the
closing price on December 31, 2003 (approximately 117.0% of face value of
Bond 2011 and 106.5% for Bond 2013); (ii) Syndicated loan: secondary
market value for securities carrying a similar risk (average of 2.14% per
annum) and (iii) Raw material financing: estimated value for negotiating
new operations at December 31, 2003, for instruments with similar
maturity and terms (average 1.76% per annum).
F-51
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------------
(C) CONCENTRATION OF CREDIT RISK
We sell to distributors and directly to customers. Credit risk is
minimized by the large number of distributors, broad customer base and
ongoing control procedures which monitor the creditworthiness of
distributors and customers. Historically, we have not experienced
significant losses on trade receivables. In order to minimize credit risk
from investments, we have adopted policies restricting cash and/or
investments that may be allocated among financial institutions, which
take into consideration monetary limits and financial institution credit
ratings.
(D) FINANCIAL INCOME (EXPENSE)
[Enlarge/Download Table]
2003 2002 2001
----------- ----------- -----------
Financial income
Realized and unrealized gain from derivative
instruments 319.8 1,202.4
Foreign exchange gains (losses) on
investments (97.2) 1,007.2 100.2
Financial income on cash equivalents 233.7 120.5 156.4
Interest on taxes, restricted deposits for legal
proceedings 77.4 34.2 47.3
Other 68.1 166.0 54.5
----------- ----------- -----------
601.8 2,530.3 358.4
Financial expenses
Realized and unrealized losses from derivative
instruments (298.2) (883.6) (194.0)
Foreign exchange rate (losses) gains on loans 524.3 (1,738.8) (188.5)
Interest and charges on loans (474.5) (441.8) (263.7)
Tax on financial transactions (90.9) (95.0) (99.5)
Interest on contingencies and other (95.4) (95.7) (69.6)
Other (74.0) (22.4) (46.2)
----------- ----------- -----------
(508.7) (3,277.3) (861.5)
----------- ----------- -----------
Total 93.1 (747.0) (503.1)
=========== =========== ===========
F-52
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
17 INCOME TAXES
(A) TAX RATES
Income taxes in Brazil comprise federal income tax (25%) and social
contribution (9%) (a federal tax on income) which, combined, provide a
composite statutory rate of 34%. There are no taxes levied by state or
local authorities on income in Brazil. The Company is subject to taxes
from its operations in foreign jurisdictions.
(B) INCOME TAX RECONCILIATION
[Enlarge/Download Table]
2003 2002 2001
---------------- ------------- ----------------
Income before income taxes, profit sharing
and contributions and minority interest 1,864.2 1,307.4 993.3
Deduct: profit sharing and contributions (23.6) (125.1) (157.1)
---------------- ------------- ----------------
Income before taxes on income 1,840.6 1,182.3 836.2
================ ================ ===============
Tax expense at statutory rates - 34% (625.8) (402.0) (284.3)
Adjustments to derive effective benefit (expense)
Benefit from deductibility of interest attributed
to shareholders' equity 152.7 96.8
Tax losses carryforwards from previous years (i) 148.0
Non-taxable gains from tax incentives
in subsidiaries (Note 2(v)) 59.8 51.7 32.6
Realization of goodwill upon merger of subsidiary 37.1
Other non taxable income, net 13.1 35.4
Foreign earnings not subject to tax (182.9) 621.5 151.5
Non-deductible goodwill amortization (21.2) (24.5) (7.4)
Restructuring gains (6.9) (1.5) (41.1)
--------------- ---------------- -------------
Tax benefit (expense) per statement of operations (426.1) 280.6 (51.9)
=============== ================ =============
(i) We acquired Pepsi in October 1997 including net operating tax losses
available for offset. Pursuant to the purchase agreement, in the event we had
used such tax losses within a five-year period from the date of purchase, we
would have been required to reimburse 80% of these amounts to the seller.
Although this clause expired on October 21, 2002, we had not recorded the
remaining 80% of the Pepsi tax asset, totaling R$ 148.0 as management was not
fully confident, that the asset met the probable recoverability test under CVM
Instruction No. 273/98 and 271/02.
F-53
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The major components of the deferred tax asset and liability accounts are as
follows:
[Download Table]
2003 2002
------------------ ------------------
DEFERRED INCOME TAX ASSETS
Tax loss carryforwards, net 1,163.5 1,080.6
Temporary differences
Non-deductible provisions 410.0 350.8
Other 258.3 127.0
------------------ -----------------
1,831.8 1,558.4
================== =================
DEFERRED INCOME TAX LIABILITIES
Accelerated depreciation 17.9 17.9
Other 8.3 7.8
------------------ -----------------
26.2 25.7
================== =================
(C) NET OPERATING LOSS CARRYFORWARDS
Deferred tax assets are limited to the amount for which offset is
supported by profit projections for the next ten years, discounted to
present value, according to CVM Instructions No. 273/98 and 271/02.
Net deferred income tax assets comprise mainly Brazilian net operating
losses, which have no expiration dates, available for offset against
future taxable income. Brazilian carryforward losses are available for
offset of up to 30% of annual income before tax in any year. Tax losses
are not inflation-indexed.
Based on projections of future taxable income, the estimated
recovery of income tax and social contributions loss carryforwards is as
follows:
[Download Table]
2004 178.5
2005 249.6
2006 292.7
2007 308.0
2008 134.7
--------------------
1,163.5
====================
F-54
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The balance of deferred taxes on temporary differences at December
31, 2003 is expected to be realized by 2008. The projections for the
generation of future taxable income include estimates related to the
performance of the Brazilian and global economies, exchange rates, sales
volumes, sales prices and tax rates that may differ from current
estimates. It is not possible to foresee with any reasonable precision
the years in which the losses will be realized, since most of these
temporary differences are subject to judicial interpretation.
Tax losses carryforwards available for offset arising from operations in
Argentina, Venezuela, Uruguay and Paraguay totaling R$ 184.0, expire
through 2007. Recovery of these tax losses is not considered to be
probable based on current estimates at December 31, 2003 and,
accordingly, we have not recorded these assets.
18 OTHER OPERATING INCOME, NET
[Enlarge/Download Table]
2003 2002 2001
--------------- -------------- ---------------
Operating income
Gain on tax incentive programs in subsidiaries 175.9 151.9 96.0
Foreign exchange and inflation accounting gains
on subsidiaries abroad 128.8 35.0
Recovery of taxes and contributions 24.6 26.7 105.0
Gain on the settlement of tax incentives 16.6
Negative goodwill realized upon sale 14.8
Other 23.5 45.4 14.6
--------------- -------------- --------------
240.6 367.6 250.6
--------------- -------------- --------------
Operating expenses
Amortization of goodwill (252.4) (105.3) (94.2)
Foreign exchange and inflation accounting losses
on subsidiaries abroad (142.4)
Taxes on other income (31.2)
Other (54.7) (62.9) (4.2)
---------------- -------------- ---------------
(480.7) (168.2) (98.4)
---------------- -------------- ---------------
Operating income (expenses), net (240.1) 199.4 152.2
=============== ============== ===============
F-55
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
19 NON-OPERATING INCOME (EXPENSES), NET
[Enlarge/Download Table]
2003 2002 2001
--------------- -------------- ---------------
Non-operating income
Gain on disposal of property, plant and
equipment and divestings 38.5
Gain on holdings of investments 31.8 16.1
Other 5.6 4.0 5.1
--------------- ------------- ---------------
44.1 35.8 21.2
--------------- ------------- ---------------
Non-operating expenses
Asset impairments, miscellaneous investment
write-offs and other (58.7) (69.9)
Loss of interest ownership in
subsidiaries (33.3)
Loss on disposal of property, plant and
equipment (25.8) (12.4) (3.6)
Other (27.0) (25.7) (15.3)
--------------- -------------- ---------------
(144.8) (108.0) (18.9)
--------------- -------------- ---------------
Non-operating income (expenses), net (100.7) (72.2) 2.3
=============== ============== ===============
20 INSURANCE
At December 31, 2003, the main assets of the Company and its
subsidiaries, such as property, plant and equipment and inventories, are
insured against fire and other risks, at replacement value. Insurance
coverage is higher than the book values.
21 SUBSEQUENT EVENTS
(A) ACTIVITIES ABROAD IN 2004
On February 12, 2004, the Company announced an alliance with
Embotelladora Dominicana CXA, a PepsiCo bottler in the Dominican
Republic, to produce and market beer and soft drinks.
F-56
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(B) DISTRIBUTION OF DIVIDENDS AND INTEREST ATTRIBUTED TO SHAREHOLDERS' EQUITY
On February 27, 2004, the Company's Board of Directors approved,
based on the accumulated results for the year ended December 31, 2003,
the distribution of supplemental dividends, of R$ 54.6, and the
distribution of interest attributed to shareholders' equity, of R$ 226.1.
(C) SIGNIFICANT EVENT - PRESS RELEASE
The Company released a statement on March 1, 2004 advising that it
is negotiating with Interbrew S.A. in respect of a possible world-wide
transaction. However, at that date, no definitive agreement had been
reached and there can be no assurance that an agreement will be approved
by the shareholders and regulators.
22 SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN
BRAZILIAN GAAP AND US GAAP
(A) DESCRIPTION OF THE GAAP DIFFERENCES
The Company's accounting policies comply with, and its consolidated
financial statements are prepared in accordance with, accounting
principles set forth in Brazilian GAAP. The Company has elected to use
its Brazilian GAAP financial statements as its primary financial
statements.
A summary of the Company's principal accounting policies that differ
significantly from US GAAP is set forth below.
(I) SUPPLEMENTARY INFLATION RESTATEMENT IN 1996
AND 1997 FOR US GAAP
Under Brazilian GAAP, inflation accounting was discontinued
effective January 1, 1996. Prior to that date, Brazilian GAAP statements
included indexation adjustments which partially accounted for the effect
of inflation on property, plant and equipment, investments, deferred
charges (together denominated Permanent assets) and shareholders' equity,
and reported the net charge or credit in the statement of operations.
However, under US GAAP, Brazil ceased to be treated as a highly
inflationary economy only as from January 1, 1998. Therefore the
financial information for purposes of US GAAP for the two-year period
ended December 31, 1997 include additional inflation restatement
adjustments made by applying the IGP-M to permanent assets and
shareholders' equity.
F-57
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
Shareholders' equity under US GAAP was increased by R$ 120.1, R$
130.9 and R$ 149.0, respectively, at December 31, 2003, 2002 and 2001 due
to the additional inflation restatement adjustments, net of depreciation
(II) REVERSAL OF INFLATION RESTATEMENT ADJUSTMENT
ON FOREIGN SUBSIDIARIES
Under Brazilian GAAP, the financial statements of our subsidiaries
operating in Argentina and Venezuela include inflation accounting
adjustments for certain periods. For purposes of US GAAP, neither of
these countries was considered to be highly inflationary for the years
presented and, accordingly, amounts are reported based on nominal local
currency balances translated to reais at the period end exchanges rates
for balance sheet accounts and average rates for the year for statements
of operations and of cash flows.
Shareholders' equity under US GAAP was reduced by R$ 116.0 and R$
105.3 at December 2003 and 2002, due to the reversal of the inflation
restatement adjustments
(III) PROPERTY, PLANT AND EQUIPMENT
.. CAPITALIZED INTEREST
Under Brazilian GAAP, prior to January 1, 1997 there was no accounting
standard requiring capitalization of interest as part of the cost of the
related assets. Under US GAAP, capitalization of the financial costs of
borrowed funds, excluding foreign exchange losses, during construction
of major facilities is recognized as part of the cost of the related
assets.
For purposes of the reconciliation, additional capitalized interest, net
of amortization effects was recorded, amounting to R$ 7.6 in 2003, R$
8.1 in 2002 and R$ 10.5 in 2001.
F-58
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
.. IMPAIRMENT
Under Brazilian GAAP, companies are required to determine if
operating income is sufficient to absorb the depreciation of long-lived
assets in order to assess potential asset impairment. In the event such
operating income is insufficient to recover the depreciation, the assets,
or groups of assets, are written-down to recoverable values, preferably,
based on the projected discounted cash flows of future operations. In the
event of a planned substitution of assets prior to the end of the
original estimated useful life of the asset, depreciation of such asset
is accelerated to ensure that the asset is depreciated according to
estimated net realizable values at the estimated date of substitution.
Under US GAAP, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets, requires companies to evaluate the
carrying value of long-lived assets to be held and used, and for
long-lived assets to be disposed of, when events and circumstances
require such a review. The carrying value of long-lived assets is
considered impaired when the anticipated undiscounted cash flow from
identified asset groups, representing the lowest level for which
identifiable cash flow are largely independent of the cash flows of other
groups of assets, is less than their carrying value. In that event, a
loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the assets or discounted cash flows
generated by the assets.
No differences from impairment provisioning criteria were recorded
for the years presented.
(IV) DEFERRED CHARGES
Brazilian GAAP permits deferral of acquisition and implementation of
software, payments made to distributors (recorded as Other intangible
assets) and pre-operating expenses incurred in the construction or
expansion of a new facility until the facility begins operations.
For US GAAP reconciliation purposes, amounts deferred related to
pre-operating expenses incurred in the construction or expansion of a new
facility, do not meet the conditions established for deferral and
accordingly have been charged to income.
For purposes of the reconciliation, deferred charges expensed under
US GAAP, net of amortization effects, amounted to R$ 138.2 in 2003, R$
174.6 in 2002 and R$ 192.9 in 2001.
F-59
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(V) BUSINESS COMBINATIONS
Under Brazilian GAAP, goodwill arises from the difference between
the amount paid and the Brazilian GAAP book value (normally also the tax
basis) of the net assets acquired. This goodwill is normally attributed
to the difference between the book value and the market value of assets
acquired or justified based on expectation of future profitability and is
amortized over the remaining useful lives of the assets or up to ten
years. Negative goodwill arises under Brazilian GAAP when the book value
of assets acquired exceeds the purchase consideration; negative goodwill
is not generally amortized but is realized upon disposal of the
investment.
Under US GAAP, fair values are assigned to acquired assets and
liabilities in business combinations, including intangible assets and
unallocated goodwill. Upon the adoption of SFAS No. 142, Goodwill and
Other Intangible Assets, as from January 1, 2002 goodwill is no longer
amortized but, instead, is assigned to an entity's reporting units and
tested for impairment at least annually. The differences in relation to
Brazilian GAAP arise principally from the measurement of the
consideration paid under US GAAP using the fair value of shares and put
options issued, and the effects of amortization which is no longer
recorded for US GAAP purposes.
For Brazilian GAAP purposes, the net balance of goodwill at December
31, 2003 was R$ 1,864.2 (2002 - R$ 776.8), which is being amortized to
income over a period of up to 10 years; negative goodwill at December 31,
2003 was R$ 176.9 (2002 - R$ 149.9).
For US GAAP purposes, the net balance of goodwill at December 31,
2003 is R$ 253.5 (2002 - R$ 249.5), excluding goodwill arising from the
acquisition of Quinsa, which is accounted for under the equity method.
Amortization of goodwill balances in the year ended December 31, 2001,
which no longer result in amortization charges as from 2002, had
generated expenses of R$ 35.8.
F-60
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The following significant business combinations have generated
differences in accounting between Brazilian GAAP and US GAAP:
[Enlarge/Download Table]
2003 2002 2001
-------------- ------------- --------------
DIFFERENCES IN NET INCOME
The Quinsa transaction
Amortization of goodwill 84.8
Depreciation of purchase accounting adjustments
allocated to Tangible and intangible assets acquired (35.8)
Cumulative translation adjustment 157.1
Fair value adjustment of put option (135.2)
--------------
70.9
--------------
The Antarctica transaction
Amortization of goodwill 84.7 84.7 80.9
Depreciation of purchase price adjustments (12.2) 43.2 19.2
Amortization/write-off of US GAAP intangibles (64.5) (12.2) (15.0)
-------------- ------------- --------------
8.0 115.7 85.1
-------------- ------------- --------------
The IBANN transaction 4.5 4.5 (18.3)
Other acquisitions (principally reversal of
amortization) 20.0 5.3 10.9
-------------- ------------- --------------
Business combinations adjustments (Note 22 a(v)) 103.5 125.5 77.7
=============== ============= ==============
DIFFERENCES IN SHAREHOLDERS' EQUITY
The Quinsa transaction
Cumulative translation adjustment (6.8)
Goodwill 84.8
Fair value of tangible and intangible assets (35.8)
Fair value of put options (135.2)
---------------
(93.0)
---------------
The Antarctica transaction
Goodwill (440.3) (525.0) (609.7)
Fair value of tangible and intangible assets 108.4 185.0
--------------- ------------- --------------
(331.9) (340.0) (455.7)
-------------- ------------- --------------
Roll-up of Brahma minority shareholders 149.9 149.9 149.9
IBANN transaction (17.6) (22.2) (26.7)
Other acquisitions 37.5 17.5 12.2
--------------- ------------- --------------
Business combinations adjustments (255.1) (194.8) (320.3)
(Note 22(a)(v)) =============== ============= ==============
F-61
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
o THE QUINSA TRANSACTION
Under Brazilian GAAP, the acquisition of Quinsa generated goodwill
of R$ 1,029.9, arising from the difference between total consideration
paid and assets contributed (shares of Linthal S.A.), and the book value
of net assets acquired, which was attributed to expected future
profitability, to be amortized over ten years.
Under US GAAP, we compared the total purchase consideration of R$
2,042.4, comprised of: (i) cash paid totaling R$ 1,672.7; (ii) the fair
value of our assets contributed to Quinsa of R$ 300.7 and (iii) the fair
value of the put option granted to BAC of R$ 69.0 with the fair value of
our interest in the net assets acquired of R$ 830.9 and the fair value of
the call option received from BAC of R$ 68.1, resulting in goodwill of R$
1,143.4. The measurement date of January 31, 2003 was used for purposes
of determining the fair value of assets contributed.
The following fair value adjustments were made to the US GAAP book
value of Quinsa's net assets:
[Download Table]
JANUARY 31,
2003
--------------------
Book value of our interest in Quinsa 585.1
Property, plant and equipment 536.2
Intangible assets not previously recognized 153.6
Reversal of goodwill from previous acquisitions (317.4)
Deferred tax effect on fair value adjustments (126.6)
-------------------
Fair value of Investment in Quinsa 830.9
===================
The put option granted is recognized at fair value in our balance
sheet as a non-current liability with changes in fair value, totaling R$
135.2 in 2003, recognized in earnings as Financial expenses under US
GAAP. The call option is recorded at cost and was tested for impairment
at December 31, 2003. No impairment charge was recognized.
Consistent with Accounting Principles Board Opinion No. 18, "The
Equity Method of Accounting for Investment in Common Stock", the carrying
value of our investments in Quinsa was tested for impairment by comparing
it to the December 31, 2003 market value of Quinsa's ADRs. No impairment
charge was recognized.
F-62
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
o THE ANTARCTICA TRANSACTION
Under Brazilian GAAP, the transaction was treated as a merger
(similar to a pooling-of-interest under US GAAP) whereby the controlling
shareholders of Brahma and Antarctica each contributed their shares at
the Brazilian GAAP book values of their corresponding net assets.
Under Brazilian GAAP, the net assets of Antarctica were adjusted to
be consistent with the accounting principles of Brahma, resulting in
goodwill on the combination. These adjustments totaled R$ 815.6 and
resulted in an adjusted book value of the net assets of Antarctica at the
date of the combination of R$ 586.9. Subsequent hindsight adjustments in
2000 increased the goodwill to R$ 847.3. This goodwill was attributed to
property, plant and equipment (R$ 144.6) and future profitability (R$
671.0) and will be amortized over the useful lives of the property, plant
and equipment, and in the case of future profitability, over 10 years.
Under US GAAP, the combination of Brahma and Antarctica was
accounted for using the purchase method as defined by U.S. Accounting
Principles Board Opinion (APB) No. 16, Business Combinations, in which
Brahma was the accounting acquirer.
The excess purchase consideration over the historical US GAAP book
value of the net assets acquired and liabilities assumed was as follows:
[Download Table]
JULY 1, 1999
------------------
Purchase consideration (represented by the market value of
Brahma shares equivalent to the AmBev's shares issued) 501.9
Less: Antarctica's shareholders' equity under US GAAP (91.2)
------------------
Excess purchase consideration 410.7
==================
F-63
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The excess purchase price was allocated based on independent fair
value appraisals to complement tangible assets (US$ 130.1 million) and
the remainder to trademarks, distribution networks, software and others.
The fair value allocated to tangible assets is being depreciated over an
estimated average useful life of ten years, the fair value allocated to
trademarks is being depreciated over 40 years, the distributors network
over 30 years and the software over five years.
o ROLL-UP OF BRAHMA MINORITIES
At Brahma's Extraordinary Shareholders' meeting on September 14,
2000, Brahma's common shareholders approved the combination by which all
outstanding shares of Brahma not yet exchanged for AmBev shares were
converted (rolled up) into shares of the same type and class of AmBev.
The adjustment of R$ 149.9 to shareholders' equity for all periods
presented relates to the reversal of the negative goodwill under the
Brazilian GAAP.
o IBANN TRANSACTION
Under USGAAP, an adjustment of R$ 27.7 was made to shareholders'
equity at December 31, 2001, to reflect the difference in fair value of
the net assets acquired and consideration paid to minority shareholders'
of IBANN (composed by a capital gain of R$ 18.3 recorded under Brazilian
GAAP and reversed for USGAAP and an additional adjustment of R$ 8.4 for
the difference in fair value of the net assets acquired).
At December 31, 2003 the adjustments to shareholders' equity arising
from the IBANN transaction were R$ 17.6 (2002 - R$ 22.2).
F-64
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
o OTHER ACQUISITIONS
Under Brazilian GAAP we acquired Cervesursa during 2003 with a
negative goodwill of R$ 18.5, based on expectations of future losses, to
be amortized over ten years.
Under US GAAP, we recorded a write-off of Cervesursa's property and
equipment in the amount of R$ 18.5, net of taxes.
A number of acquisitions in prior years were treated differently
under Brazilian GAAP compared to US GAAP. These differences arose
primarily from bases for determining purchase considerations, fair
values, allocation of excess purchase prices, goodwill, amortization
periods and cases of step-acquisition accounting.
For purposes of the US GAAP reconciliation, additional credits of R$
20.0 were recognized in net income under US GAAP in the year ended
December 31, 2003 (2002 - R$ 5.3; 2001 - R$ 10.9).
(VI) CONSOLIDATION OF FAHZ
The FAHZ is a legally distinct entity for the purposes of Brazilian
GAAP. Under Brazilian GAAP, AmBev does not consolidate the assets and
liabilities of the FAHZ within its financial statements.
In addition, as from December 31, 2001, AmBev accounts for benefit
obligations in accordance with NPC Standard No. 26, which applies to all
benefits provided to retirees, including those in relation to the FAHZ.
Prior to that date, AmBev expensed all pension and post-retirement
contributions, including those made to the FAHZ, on a monthly accrual
basis.
Under US GAAP, from October 27, 2000, the fair value of the net
assets, excluding the actuarial liability, detailed below, held by the
FAHZ and its operating expenses from that date, were consolidated in our
US GAAP consolidated balance sheet and statement of operations. The
contribution expense recorded by AmBev in the year ended December 31,
2001 for amounts paid to FAHZ is eliminated on consolidation.
As we have concluded that in substance AmBev exerts significant
influence over our shareholder FAHZ and as we consider that, under SEC
guidance in Topic D-14, and the risks and rewards of the assets lie
directly with AmBev, as it is this vehicle which provides benefits to
AmBev's current and former employees.
F-65
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
As the assets of the FAHZ are not segregated and restricted between
active and retired employees, they are not considered to be plan assets
as defined by SFAS No. 106, Employers' Accounting for Post-retirement
Benefits Other than Pensions , and therefore are consolidated on a gross
basis rather than offsetting AmBev's post-retirement liability. The cash
and cash equivalents of the FAHZ are presented as Restricted cash in the
condensed consolidated US GAAP balance sheet. A substantial part of the
assets are represented by shares in AmBev and have been reflected as
treasury shares, thereby reducing the number of outstanding shares and
affecting the determination of earnings per share.
The consolidated net assets and results of operations, after
elimination adjustments of the FAHZ as at and for the years ended
December 31, 2003 and 2002 were:
[Download Table]
2003 2002
------------------- -------------------
Current assets
Restricted cash 279.5 117.8
Others 11.5 14.2
Property and equipment 76.9 74.3
Other assets 3.8 82.2
Current liabilities (4.3) (8.0)
Non-current liabilities (24.5) (13.6)
------------------- --------------------
Net assets 342.9 266.9
=================== ===================
Operating expenses (79.4) (63.8)
Operating (loss) (72.8) (56.2)
------------------- -------------------
Net loss (16.7) (4.9)
=================== ===================
(VII)PENSION AND OTHER POST-RETIREMENT BENEFITS
In determining the pension and other post-retirement benefit
obligations for Brazilian GAAP purposes, NPC No. 26 is effective for
financial statements ended December 31, 2001. As permitted by the
Standard, the transitional gain or loss (being the difference between the
plan net assets and the projected benefit obligation (PBO) at that date
was fully recognized as a direct credit to retained earnings.
Under US GAAP, SFAS No. 87, Employer's Accounting for Pensions, and
SFAS No. 106 are effective for fiscal years beginning after 1988 and
1992, respectively. As from such dates,
F-66
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
when an initial transition obligation determined based on an
actuarial valuation was booked, actuarial gains and losses, as well as
unexpected variations in plan assets and the PBO and the effects of
amendments, settlements and other events, have been recognized in
accordance with these standards and therefore results in deferral
differences. Through 1997, these amounts were treated as non-monetary and
were indexed for inflation.
Under Brazilian GAAP, the Company does not record the liability
related to medical, dental, educational and social assistance provided by
the FAHZ, as they are considered legally separate entities and under
current welfare foundation regulation, the surplus of assets over
liabilities of FAHZ at December 31, 2003 cannot be returned to the
Company. Under US GAAP those liabilities are consolidated and included as
post-retirement benefits. The FAHZ provides such benefits to current and
retired employees of AmBev and their beneficiaries and covered dependents
approximately 40,000 beneficiaries and dependents at December 31, 2003
and 30,000 at December 31, 2002). Additionally, contributions made by the
Company (up to 10% of Brazilian GAAP net income) to support the FAHZ were
accounted for as an expense or as part of the transitional obligation in
Brazilian GAAP, whereas they were eliminated on the consolidation for US
GAAP purposes.
Plan assets include amounts contributed by AmBev and its employees
and amounts earned from investing the contributions, less benefits paid.
Based on the actuarial review of the defined benefits plan which had been
closed to new participants, the net assets at December 31, 2003 were
considered to be in excess of that required to meet the projected benefit
obligation. Although AmBev will reduce future employer contributions to
the minimum permitted by law, Brazilian pension regulations currently
provide no means for returning this surplus to the sponsor. In view of
this uncertainty, AmBev included in the actuarial determination of the
pension obligation at December 31, 2003 a valuation allowance of R$ 167.1
against the plan assets (2002 - R$ 133.6). This allowance impacts the
determination of the pension charge/benefit.
Under US GAAP, as confirmed by a meeting of the AICPA International
Practices Task Force on November 25, 2002, recording a valuation
allowance against a pension asset is not appropriate. Accordingly, the
valuation allowance was reversed and inlcuded in the actuarial gain or
loss calculation for purposes of the reconciliation to US GAAP.
Based on the report of our independent actuary, the funded status
and amounts recorded in our US GAAP condensed balance sheet and statement
of operations as at and for the years ended December 31, 2003 and 2002
for our pension and welfare obligations to retirees in accordance with
SFAS No. 132, Employer's Disclosures about Pensions and other
Post-retirement Benefits, are as follows:
F-67
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Enlarge/Download Table]
PENSION BENEFITS BENEFITS OTHER THAN PENSION
---------------------------------- ---------------------------------
2003 2002 2003 2002
----------------- ---------------- ---------------- ----------------
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year 325.6 272.8 240.3 211.0
Service cost 3.1 3.3
Interest cost 45.0 21.3 33.5 15.5
Actuarial loss 23.3 50.8 86.8 32.8
Gross benefits paid (36.3) (22.6) (22.2) (19.0)
----------------- ---------------- ---------------- ----------------
Projected benefit obligation at
end of year 360.7 325.6 338.4 240.3
================= ================ ================ ================
Accumulated benefit obligation 343.7 308.1
================= ================
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year 458.7 417.5
Actual return on plan assets 77.3 62.0
Employer contributions 1.0 0.9
Employee contributions 0.9 0.9
Gross benefits paid (36.3) (22.6)
----------------- ----------------
Fair value of plan assets at end of year 501.6 458.7
================= ================
Funded status at end of year 140.9 133.1 (338.4) (240.3)
Unrecognized net
actuarial (gain) loss (82.7) (114.5) 173.8 91.0
Unrecognized prior service cost 29.9 34.8
Unrecognized net transition
obligation 0.2 0.9 14.6 16.1
----------------- ---------------- ---------------- ----------------
Net amount recognized at end of year 88.3 54.3 (150.0) (133.2)
================= ================ ================ ================
Long-term 88.3 54.3 (150.0) (133.2)
F-68
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The charge in the statement of operations is comprised as follows:
[Enlarge/Download Table]
PENSION BENEFITS BENEFITS OTHER THAN PENSION
------------------------------------------------------------------------------
2003 2002 2001 2003 2002 2001
------------ ------------- ------------ ----------- ----------- -----------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost 3.1 3.3 3.1
Interest cost 45.0 21.3 18.5 33.5 15.5 14.6
Expected return on assets (80.1) (33.3) (21.9)
Amortization of
Transition obligation (asset) 0.6 0.6 0.6 1.5 1.5 1.5
Prior service cost 4.9 4.9 4.9
Actuarial (gain) loss (5.6) (8.8) (2.1) 4.1 1.7 1.3
Employee contributions (0.9) (0.9) (1.2)
---------------------------------------------------- ------------ ------------
Total net periodic benefit cost
(benefit) (33.0) (12.9) 1.9 39.1 18.7 17.4
==================================================== ============ ============
Assumed health care cost trend rates have a significant effect on the amounts
reported for the welfare plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (all other
assumptions have been held constant):
[Enlarge/Download Table]
ONE-PERCENTAGE-POINT INCREASE ONE-PERCENTAGE-POINT DECREASE
------------------------------------- ------------------------------------
2003 2002 2001 2003 2002 2001
------------ --------------- ------- ------------------------------------
SENSITIVITY OF RETIREE WELFARE RESULTS
On total service and interest cost
components 4.5 3.2 1.9 (3.8) (2.8) (1.5)
On post-retirement benefit
obligation 35.1 22.3 23.3 (29.7) (19.2) (18.8)
Under US GAAP, we recognized an additional liability related to other
post-retirement benefits totaling R$ 77.1 in 2003 and R$ 79.8 in 2002.
Under US GAAP we recognized an additional pension plan asset of R$ 66.3 in
2003 and R$ 32.8 in 2002.
F-69
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
AmBev pension plan weighted-average assets allocation at December 31, 2003 and
2002, by asset category, are as follows:
2003 2002
----------------------- -----------------------
Debt securities 77.7% 72.7%
Equity securities 22.3% 27.3%
----------------------- -----------------------
Total 100.0% 100.0%
======================= =======================
The Company's investment strategy for its pension plan is to maximize the
long-term rate of return on plan assets within an acceptable level of risk in
order to minimize the cost of providing pension benefits while maintaining
adequate funding levels. The Company's practice is to conduct a strategic
review of its assets allocation strategy every year.
Included within the fair value of the IAPP plan assets as of December 31, 2003
are 9,595 thousand of our preferred shares and 88,665 thousand of our common
shares with a total fair value at December 31, 2003 of R$ 63.4 (2002 - R$
47.0).
Assumptions applied were as follows:
(i) Weighted-average assumptions to determine benefit obligations at December
31:
[Enlarge/Download Table]
PENSION BENEFITS BENEFITS OTHER THAN PENSION
---------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------- -------------- -----------
Discount rate 10.9% 10.6% 10.9% 10.6%
Projected annual inflation rate 4.1% 4.3% 4.1% 4.3%
Rate of compensation increase 7.3% 7.5% 7.3% 7.5%
Health care cost trend on covered charges 7.3% 7.5%
F-70
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(ii) Weighted-average assumptions to determine net periodic benefit cost for
years ended December 31:
[Enlarge/Download Table]
PENSION BENEFITS BENEFITS OTHER THAN PENSION
---------------------------- ----------------------------------
2003 2002 2003 2002
---------------------------- --------------- ------------------
Discount rate 10.6% 8.1% 10.6% 8.1%
Projected annual inflation rate 4.3% 2.0% 4.3% 2.0%
Expected return on plan assets 18.0% 8.1%
Rate of compensation increase 7.5% 5.1% 7.5% 5.1%
Health care cost trend on covered charges 7.5% 7.1%
EXPECTED CASH FLOWS:
Information about the expected benefit payments for the Company's defined
benefit plan is as follows:
2004 29.7
2005 29.6
2006 29.6
2007 29.4
2008 29.1
2009 - 2013 140.2
(VIII) EARNINGS PER SHARE
Under Brazilian GAAP, net income per share is calculated on the
number of shares outstanding at the balance sheet date. Information is
disclosed per lot of one thousand shares, because generally this is the
minimum number of shares that can be traded on the Brazilian stock
exchanges.
Under US GAAP, because the preferred and common shareholders have
different voting and liquidation rights, Basic and Diluted earnings per
share have been calculated using the "two-class" method, pursuant to SFAS
No. 128, Earnings per Share which provides computation, presentation and
disclosure requirements for earnings per share. The "two-class" method is
an earnings allocation formula that determines earnings per share for
preferred and common stock according to the dividends to be paid as
required by the Company's by-laws and participation rights in
undistributed earnings. Basic earnings per common share are computed by
dividing net income by the weighted-average number of common and
preferred shares outstanding during the period.
F-71
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The table below presents the determination of net income available
to common and preferred shareholders and weighted average common and
preferred shares outstanding used to calculate basic and diluted earnings
per share for each of the years presented.
The consolidation of the FAHZ has had the effect of reducing the
number of outstanding shares.
For purposes of computing diluted earnings per share, stock granted
in the stock ownership plan and stock warrants are assumed to be
converted into preferred or common shares as of the date of issuance of
the security using the treasury stock method.
F-72
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
-------------------------------------------------------------------------------
[Download Table]
UNDER US GAAP
AMBEV
------------------------------------
2003
------------------------------------
PREFERRED COMMON TOTAL
----------- ----------- -----------
BASIC NUMERATOR
Actual dividends declared 635.7 313.1 948.8
Basic allocated undistributed earnings 496.2 244.4 740.6
----------- ----------- ------------
Allocated net income available for 1,131.9 557.5 1,689.4
common and preferred shareholders =========== =========== ============
BASIC DENOMINATOR (IN THOUSAND OF SHARES)
Weighted average shares - AmBev 22,371,249 15,652,479 38,023,728
Weighted average shares held by FAHZ/ (419,053) (3,757,548) 4,176,601)
----------- ----------- ------------
Weighted average outstanding shares, net 21,952,196 11,894,931 33,847,127
=========== =========== ============
Basic earnings per thousand
shares - US GAAP (*) (whole reais) - R$ 51.56 46.87
=========== ===========
DILUTED NUMERATOR
Actual dividends declared 638.0 310.8 948.8
Diluted allocated undistributed earnings 498.0 242.6 740.6
----------- ----------- ------------
Allocated net income available for
common and preferred shareholders 1,136.0 553.4 1,689.4
=========== =========== ============
DILUTED DENOMINATOR
Stock ownership plan 250,579 250,579
----------- ----------- ------------
Diluted weighted average shares (in
thousands) 22,202,775 11,894,931 34,097,706
=========== =======================
Diluted earnings per thousand
shares - US GAAP (*) (whole reais) - R$ 51.17 46.52
=========== ===========
[Enlarge/Download Table]
AMBEV
-----------------------------------------------------------------------------
2002 2001
--------------------------------------- --------------------------------------
PREFERRED COMMON TOTAL PREFERRED COMMON TOTAL
----------- ------------ ----------- ------------ ------------ ------------
BASIC NUMERATOR
Actual dividends declared 131.3 64.9 196.2 167.0 83.5 250.5
Basic allocated undistributed earnings 967.6 478.4 1,446.0 393.1 196.5 589.6
----------- ------------- ----------- ------------ ------------ ------------
Allocated net income available for 1,098.9 543.3 1,642.2 560.1 280.0 840.1
common and preferred shareholders =========== =========== =========== ============ ============ ============
BASIC DENOMINATOR (IN THOUSAND OF SHARES)
Weighted average shares - AmBev 22,640,577 15,730,438 38,371,015 22,762,796 15,886,560 38,649,356
Weighted average shares held by FAHZ/ (467,319) (3,668,559) (4,135,878) (471,675) (3,626,607) (4,098,282)
----------- ------------- ----------- ------------ ------------ ------------
Weighted average outstanding shares, net 22,173,258 12,061,879 34,235,137 22,291,121 12,259,953 34,551,074
=========== ============= =========== ============ ============ ============
Basic earnings per thousand
shares - US GAAP (*) (whole reais) - R$ 49.55 45.05 25.13 22.84
=========== ============= ============ ============
DILUTED NUMERATOR
Actual dividends declared 131.8 64.4 196.2 168.1 82.4 250.5
Diluted allocated undistributed earnings 971.4 474.6 1,446.0 395.6 194.0 589.6
----------- ------------- ----------- ------------ ------------ ------------
Allocated net income available for
common and preferred shareholders 1,103.2 539.0 1,642.2 563.7 276.4 840.1
=========== ============= =========== ============ ============ ============
DILUTED DENOMINATOR
Stock ownership plan 268,485 268,485 435,511 435,511
----------- ------------- ----------- ------------ ------------ ------------
Diluted weighted average shares (in
thousands) 22,441,743 12,061,879 34,503,622 22,726,632 12,259,953 34,986,585
=========== ============= =========== ============ ============ ============
Diluted earnings per thousand
shares - US GAAP (*) (whole reais) - R$ 49.16 44.69 24.80 22.55
=========== ============= ============ ============
(*) Preferred shareholders are entitled to receive per share dividends of at
least 10% greater than the per share dividends paid to common
shareholders. Undistributed earnings, therefore, have been allocated to
common and preferred shareholders on a 100 to 110 basis, respectively,
based upon the weighted average number of shares outstanding during the
period to total shares (allocation percentage). Common and preferred
shareholders share equally in undistributed losses.
F-73
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
------------------------------------------------------------------------------
IX) FOREIGN EXCHANGE GAIN (LOSS) FROM TRANSLATION
OF FOREIGN SUBSIDIARIES
Under Brazilian GAAP, gains or losses arising from the translation
of our foreign subsidiaries for purposes of consolidation are recorded in
earnings.
Under US GAAP, we record these gains or losses directly to our
shareholders' equity as cumulative translation adjustments, a component
of other comprehensive income.
(X) INCOME TAXES
Under Brazilian GAAP, the deferred income tax asset represents the
probable estimated amount to be recovered. In addition, deferred income
taxes are presented gross rather than being netted.
Under US GAAP, deferred taxes are accrued on all temporary tax
differences. Valuation allowances are established when it is not more
likely than not that tax losses will be recovered. Deferred tax assets
and liabilities are classified as current or long-term based on the
classification of the asset or liability underlying the temporary
difference. Deferred income tax assets and liabilities are netted rather
than presented gross.
As discussed in Note 17(c), as part of the 1997 Pepsi transaction we
acquired the conditional right to certain tax related assets. As we had
not utilized the assets within the period which expired on October 21,
2002, any future benefit from these assets accrues entirely to AmBev.
We recorded these tax credits during 2003 for purposes of Brazilian GAAP,
under the more stringent probability tests and CVM regulations. Under US
GAAP, we recorded this tax benefit in 2002 as recovery was then
considered to be more likely than not and most intangible had been
amortized.
F-74
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(XI) PROVISION FOR DIVIDENDS AND INTEREST
ATTRIBUTABLE TO OWN CAPITAL
Under Brazilian GAAP, at each year-end, management is required to
propose a dividend distribution from earnings and accrue for this in the
financial statements. Under Brazilian GAAP, companies are permitted to
distribute or capitalize an amount of interest, subject to certain
limitations, calculated based on a government interest rate, on
shareholders' equity. Such amounts are deductible for tax purposes and
are presented as a deduction from shareholders' equity.
Under US GAAP, since proposed dividends may be ratified or modified
at the annual Shareholders' Meeting, such dividends would not be
considered as declared at the balance sheet date and would therefore not
be accrued. However, interim dividends paid or interest credited to
shareholders as capital remuneration under Brazilian legislation would be
considered as declared for US GAAP purposes.
At December 31, 2003 the provision of R$ 280.2 (2002 - R$ 341.4) for
proposed dividends was reversed under US GAAP.
(XII) STOCK OWNERSHIP PLAN
Under Brazilian GAAP, the rights to acquire AmBev's shares granted
to employees, officers and directors under the stock ownership plan do
not result in any expense being recorded. The purchase of the stock by
the employees is recorded as an increase in capital stock for the amount
of the purchase price.
Under US GAAP, in accordance with APB 25, Accounting for Stock
Issued to Employees, the rights to acquire AmBev's shares granted under
the stock ownership plan is deemed to give rise to compensation expense
to the extent of the excess market price of the shares over the purchase
price to employees, officers and directors. Unearned compensation expense
is calculated at the end of each year using the expected number of awards
outstanding.These awards are multiplied by the year-end market price less
the employees' expected share price. The incremental change in
compensation cost is then amortized as a charge to expense over the
periods in which the employees perform the related services; such periods
normally include a vesting period.
F-75
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
In addition, under US GAAP pro forma disclosures of net income and
earnings per share are presented under the fair value method of
accounting. Under this method, fair value is determined using a pricing
model (Black - Scholes) which takes into account the stock price at the
grant date, the purchase price, the expected life of the award, the
volatility of the underlying stock, the expected dividends, and the
risk-free interest rate over the expected life of the award.
For purposes of the reconciliation, additional charges (gain) were
recognized under US GAAP in the amounts of R$ 32.0 in 2003, R$ 17.7 in
2002 and R$ 10.0 in 2001.
(XIII) ADVANCES TO EMPLOYEES FOR PURCHASE OF SHARES
Under Brazilian GAAP, advances to employees for purchase of shares
are recorded as an asset and the interest accrued credited to income.
Under US GAAP, as the advances are collaterized by the stock issued
under the stock ownership plan, the loan is reported as a deduction from
shareholders' equity.
For purposes of the reconciliation, shareholders' equity is reduced
under US GAAP by R$ 234.7 in 2003, R$ 324.8 in 2002 and R$ 215.2 in 2001.
(XIV) ACCOUNTING FOR DERIVATIVE INSTRUMENTS
Under Brazilian GAAP, derivative instruments are recorded at the
lower of cost plus accrued interest and fair market value. Additionally,
unrealized gains or losses arising from transactions, which are
designated as hedge instruments, entered to mitigate risks on purchase of
raw materials, are deferred and recognized in the statement of operations
when realized.
Under US GAAP, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities and
measure those instruments at fair value.
For purposes of the reconciliation, we have recorded unrealized
gains totaling R$ 158.7 in our earnings under US GAAP, arising from the
mark-to-market adjustment on our derivative instruments at December 31,
2003 (2002 - R$ 4.9).
F-76
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(XV) SHORT-TERM INVESTMENTS
Under Brazilian GAAP, our short-term investments are recorded at the
balance sheet dates at the lower of cost plus interest and market value.
For US GAAP purposes, our short-term investments in debt securities
are classified under guidance of SFAS No.115 "Accounting for Certain
Investments in Debt and Equity Securities" as either trading securities
or available for sale securities.
Our securities classified as Trading are measured at fair value at
the balance sheet dates, and unrealized gains (losses) are included in
earnings. During 2003, we recognized through earnings an additional R$
6.5 of unrealized gains from trading securities.
Our securities classified as Available for Sale are measured at fair
value at the balance sheet dates, interest is recorded in income as
incurred and unrealized gains (losses) are included directly in
shareholders' equity as Other comprehensive income (loss). At December
31, 2003, the amount of R$ 47.7 was recorded in Other comprehensive
income as Unrealized gain from available for sale debt securities (2002 -
nil).
Additionally our securities provided as guarantees in connection with the
issuance of bonds in the amount of R$ 28.9 ( December 31, 2002 - R$ 292.4 )
are presented as restricted cash in the condensed consolidated US GAAP
balance sheet.
(XVI) CLASSIFICATION OF STATEMENT OF OPERATIONS LINE ITEMS
Under Brazilian GAAP, in addition to the issues noted above, the
classification of certain income and expense items is presented
differently from US GAAP.
We have recast our statement of operations under the Brazilian GAAP
to present a condensed statement of operations in accordance with US GAAP
(Note 22(d)(ii)). Brazilian listed companies are required to present
annual consolidated financial statement to include the investment in
jointly-controlled associated companies on the proportional consolidation
method. We have eliminated the effects of the proportional consolidation
of our investment in Quinsa and certain other affiliates (Note 7 (b)) and
reflected our interest in the earnings in these affiliates on a single
line item (Equity in earnings (losses) of affiliates) in the recast
statement of operations under US GAAP.
F-77
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The reclassifications are summarized as follows:
.. Interest income and interest expense, together with other financial
charges, are displayed within operating income in the statement of
operations presented in accordance with Brazilian GAAP. Such amounts
have been reclassified to non-operating income and expenses in the
condensed statement of operations in accordance with US GAAP.
.. Under Brazilian GAAP, gains and losses on the disposal or impairment of
permanent assets are classified as non-operating income (expense). Under
US GAAP, gains and losses on the disposal or impairment of property,
plant and equipment are classified as an adjustment to operating income.
.. The net income (loss) differences between Brazilian GAAP and US GAAP
(Note 22 (b)(i)), were incorporated in the statement of operations in
accordance with US GAAP.
.. Employee profit sharing expenses have been classified after
non-operating expenses in the consolidated statement of operations in
accordance with Brazilian GAAP. Such amounts have been reclassified to
operating expenses in the condensed consolidated statement of operations
in accordance with US GAAP.
.. Under Brazilian GAAP, certain credits arising from sales tax are
recorded in operating income. Under US GAAP these are adjusted against
net sales, as a Sales tax deduction.
.. Under Brazilian GAAP, charges arising from provision for contingencies
are presented in a single line item in operating expense. Under US GAAP,
provisions for contingencies are recorded in the statement of operations
based on the type of contingency.
.. Under Brazilian GAAP, jointly controlled entities must be consolidated
using the proportional consolidation method. Proportional consolidation
requires that the share of the assets, liabilities, income and expenses
are combined on a line-by-line basis with similar items in the Company's
financial statements. Under US GAAP, jointly controlled entities are
recorded under the equity method. The prorated accounts of our jointly
controlled affiliates have not been combined in the condensed
consolidated US GAAP balance sheet and statements of operations.
.. Under Brazilian GAAP, shipping and handling costs, representing R$
324.1, R$ 264.2 and R$ 194.9, respectively, for the years ended December
31, 2003, 2002, and 2001, are expensed as incurred and classified as
selling expenses in the income statement. Under US GAAP, pursuant to the
requirements of the Emerging Issues Task Force - EITF Issue No. 00-10,
these expenses were reclassified to cost of sales.
F-78
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
.. In order to obtain more prominent and accessible shelf space for
its products, AmBev pays distributors and retailers to place our products
in premium positions. The Company also pays bonuses and gives discounts
to increase sales, normally processed in the form of cash payments. Under
Brazilian GAAP, these costs are classified as selling and marketing
expenses. Under US GAAP, pursuant to the EITF 01-09 these costs are
reclassified reducing net revenues.
.. Under Brazilian GAAP, unrealized gains or losses arising from foreign
currency and commodities swaps entered to mitigate prices and foreign
exchange risks on purchase of raw material, designated as hedge
instruments are deferred and recognized in the statement of operations
as Cost of sales upon realization. For US GAAP, as these instruments do
not meet the qualifying criteria for hedge accounting under SFAS No.
133, these gains or losses, due to changes in fair value of swaps, are
recorded as Financial income or Financial expense. The total amount
reclassified were R$ 82.3 and R$ 345.6, for the years ended December 31,
2003 and 2002, respectively.
(XVII) CLASSIFICATION OF BALANCE SHEET LINE ITEMS
Under Brazilian GAAP, the classification of certain balance sheet items
is presented differently from US GAAP. We have eliminated the effects of
the proportional consolidation of our investment in Quinsa and certain
other affiliates and reflected our investment in these affiliates on a
single line item (Investment in affiliates) in the recast balance sheet
under US GAAP.
We have recast our consolidated balance sheet under Brazilian GAAP
to present a condensed consolidated balance sheet in accordance with US
GAAP (Note 22 (d)(i)). The reclassifications are summarized as follows:
. Under US GAAP certain deferred charges were reclassified to property,
plant and equipment, accordingly to their nature.
. Under US GAAP certain property, plant and equipment were reclassified to
intangible assets, according to their nature.
. Under Brazilian GAAP, deferred income taxes are not netted and assets
are shown separately from liabilities. For US GAAP purposes, deferred
tax assets and liabilities are netted and classified as current or
non-current based on the classification of the underlying temporary
difference.
F-79
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(B) RECONCILIATION OF THE DIFFERENCES
BETWEEN BRAZILIAN GAAP AND US GAAP
(I) NET INCOME
[Enlarge/Download Table]
REF.
NOTE
22(A) 2003 2002 2001
-------- -------- -------- --------
NET INCOME UNDER BRAZILIAN GAAP 1,411.6 1,510.3 784.6
Depreciation of additional indexation of property
and equipment from 1995 to 1997 (i) (10.8) (18.1) (22.6)
Reversal of inflation restatement adjustment
foreign subsidiaries (ii) (10.7) (105.3)
Capitalized interest, net of amortization (iii) (0.5) (2.4) (2.4)
Deferred charges, net of amortization (iv) 36.4 18.3 (0.4)
Business combination adjustments (v) 103.5 125.5 77.7
Consolidation of FAHZ (vi) (16.7) (4.9) 45.2
Pension plan (vii) 33.5 13.9 2.8
Other post-retirement benefits (vii) 2.6 (1.7) (3.6)
Foreign exchange (loss) gain from translation
of foreign subsidiaries (ix) 52.6 (23.6) (35.0)
Deferred income tax rates not enacted (x) 27.0
Recognition of Pepsi tax assets (x) (148.0) 148.0
Compensation expense from employee stock ownership plan (xii) (32.0) (17.7) (10.0)
Fair value adjustment on derivative instruments (xiv) 153.8 4.9
Fair value adjustment on trading securities (xv) 6.5
Minority interest on adjustments above 4.8 (2.0) (1.0)
Deferred income tax on adjustments above 102.8 (3.0) (22.2)
-------- -------- --------
NET INCOME UNDER US GAAP 1,689.4 1,642.2 840.1
======== ======== ========
F-80
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
----------------------------------------------------------------------
(II) SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
REF.
NOTE
22(A) 2003 2002 2001
-------- -------- -------- --------
SHAREHOLDERS' EQUITY UNDER BRAZILIAN GAAP 4,308.2 4,129.6 3,363.4
Additional indexation of property and equipment
from 1995 to 1997, net (i) 120.1 130.9 149.0
Reversal of inflation restatement adjustment on
on foreign subsidiaries (ii) (116.0) (105.3)
Capitalized interest, net of amortization (iii) 7.6 8.1 10.5
Reversal of deferred charges, (iv) (138.2) (174.6) (192.9)
Business combination adjustments (v) (255.1) (194.8) (320.3)
Consolidation of FAHZ (vi) 342.9 266.9 270.3
Pension plan (vii) 66.3 32.8 18.9
Other post-retirement benefits (vii) (77.1) (79.8) (78.1)
Recognition of Pepsi tax assets (x) 148.0
Reversal of dividends not yet declared (xi) 280.2 341.4 52.0
Advances to employees for purchase of shares (xiii) (234.7) (324.8) (215.2)
Fair value adjustment on derivative instruments (xiv) 158.7 4.9
Unrealized gain on available for sale securities (xv) 43.7
Fair value adjustment on trading securities 6.5
Minority interest on adjustments above (4.8) (2.8)
Deferred income tax on adjustments above (130.2) (217.9) (214.9)
-------- -------- --------
Shareholders' equity under US GAAP 4,382.9 3,960.6 2,839.9
-------- -------- --------
(C) US GAAP SUPPLEMENTARY INFORMATION
(I) PROPERTY, PLANT AND EQUIPMENT
2003 2002
------------- -------------
Property, plant and equipment 7,288.2 7,749.1
Accumulated depreciation (4,635.2) (4,650.9)
------------- -------------
Property, plant and equipment, net 2,653.0 3,098.2
============= =============
F-81
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(II) RECENT US GAAP ACCOUNTING PRONOUNCEMENTS
VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities - an Interpretation of ARB
No. 51" ("FIN 46"), which requires variable interest entities ("VIEs"),
often referred to as special purpose entities ("SPEs"), to be
consolidated if certain criteria are met. FIN 46 was effective upon
issuance for all VIEs created after January 31, 2003. During 2003, the
FASB issued a revision to FIN 46 ("FIN 46R") and delayed the required
implementation date of FIN 46 for entities that are not SPEs until March
31, 2004.
FIN 46 provides that the primary beneficiary of a VIE is required to
consolidate the VIE's operations. In determining if an entity is a VIE,
FIN 46 requires an evaluation as to whether the equity of the entity is
sufficient to absorb its expected losses. This evaluation requires the
consideration of qualitative factors and various assumptions, including
expected future cash flows and funding needs. Even if the entity's equity
is determined to be sufficient to absorb expected losses, the rules
provide that in certain circumstances there needs to be a qualitative
assessment as to whether "substantially all" the benefits of the entity
are for the benefit of one of the variable interest holders. In such
circumstance the entity would be deemed a VIE.
DERIVATIVE INSTRUMENTS
In April 2003, the FASB issued SFAS No.149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". SFAS No.149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, and SFAS No.138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133". This statement is effective for contracts entered
into or modified after June 30, 2003.
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF
BOTH LIABILITIES AND EQUITY
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 requires that an issuer classify certain financial
instruments as a liability because that financial instrument embodies an
obligation of the issuer. The remaining provisions of SFAS No 150 expand
the definition of a liability to encompass certain obligations that a
reporting entity can or must settle by issuing its own equity, depending
on the nature of the relationship between the holder and the issuer.
F-82
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The FASB made this statement effective shortly after issuance for
contracts created or modified after it is issued and, for existing
contracts, at the beginning of the first interim period beginning after
June 15, 2003.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS
In December 2003, the FASB issued SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits". SFAS No.132-R requires additional disclosure regarding certain
aspects of pension plans including, but not limited to, asset and
investment strategy, expected employer contributions and expected benefit
payments. The disclosure requirements of FAS 132-R were effective for
financial statements of periods ending after December 15, 2003;
therefore, the Company has modified its disclosures as required.
Management believes that adoption of these pronouncements did not or will
not, as applicable, have a material impact on the financial position and
results of operations of the Company. Management is evaluating the impact
of implementing FIN46R as from January 1, 2004 with respect to
consolidating variable interest entities.
(III) ADDITIONAL INFORMATION - STOCK OWNERSHIP PLAN
[Enlarge/Download Table]
2003 2002 2001
------------------- ------------------- -------------------
Range of purchase prices for outstanding
awards 70.93 - 494.87 57.49 - 450.19 69.34 to 381.38
=================== =================== ===================
Weighted average market price per share
(based on quoted market value at date
granted) for awards granted during the year 558.57 525.57 417.08
Weighted average exercise price of awards
granted in the year 479.97 450.19 381.38
=================== =================== ===================
Weighted average grant-date intrinsic value of
awards granted during year (difference
between quoted market price and
purchase price) 78.60 75.38 35.70
=================== =================== ===================
WEIGHTED-AVERAGE PURCHASE PRICES
At beginning of year 313.75 273.24 148.19
Granted 479.97 450.19 381.38
Exercised 298.63 265.46 141.93
Forfeited 328.33 228.12 136.64
------------------- ------------------- -------------------
At end of year 421.09 313.75 273.24
=================== =================== ===================
F-83
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
OUTSTANDING AND EXERCISABLE
[Enlarge/Download Table]
NUMBER OF SHARES (THOUSANDS) WEIGHTED - AVERAGE PURCHASE PRICES(*)
------------------------------------------ ------------------------------------------
RANGE OF 2003
PURCHASE PRICES (*) 2003 2002 2001 2003 2002 2001
----------------------- ------------ --------------- ------------- ------------ ------------- --------------
70.93 - 96.18 16,420 3,038 3,482 91.21 57.49 69.34
96.19 - 139.24 8,100 42,061 65,113 139.24 93.73 101.96
139.25 - 196.93 23,997 92,254 153,724 184.62 166.06 150.41
196.94 - 226.74 97,094 140,803 274,150 212.94 226.74 176.90
226.75 - 477.30 194,652 352,144 534,752 474.05 411.65 380.12
477.31 - 494.87 393,426 10,500 480.25 450.19
------------- --------------- ------------- ------------ ------------- --------------
733,689 640,800 1,031,221 421.09 313.75 273.24
============= =============== ============= ============ ============= ==============
(*) Expressed in whole reais.
(IV) PRO FORMA FAIR VALUE EFFECTS OF STOCK OWNERSHIP PLAN
We have calculated the pro forma effects of accounting for the stock
ownership plan in accordance with SFAS No. 123, Accounting for Stock
Based Compensation. Had compensation cost for the Plan been determined
based on the fair value at the grant date in accordance with the
provisions of SFAS No. 123, our US GAAP net income and earnings per
thousand shares would have been as follows:
[Enlarge/Download Table]
2003 2002 2001
--------------- --------------- ---------------
Net income - US GAAP 1,689.4 1,642.2 840.1
(+) Compensation cost under APB 25 32.0 17.7 10.0
(-) Compensation cost under SFAS No. 123 (57.4) (40.8) (27.2)
--------------- --------------- ---------------
1,664.0 1,619.1 822.9
=============== =============== ===============
Earnings per thousand shares - pro forma
(whole reais) - R$
Basic
Preferred 50.79 48.86 24.61
Common 46.17 44.42 22.37
Diluted
Preferred 50.40 48.46 24.30
Common 45.82 44.06 22.09
These pro forma results are not necessarily indicative of future amounts.
F-84
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
The fair value of each award granted was estimated on the date of grant
using the Black - Scholes pricing model with the following weighted
average assumptions used for grants in 2003: dividend yield - 3.0% (2002
- 1.7%; 2001 - 1.6%), expected volatility - 33% (2002 - 43%; 2001 - 49%),
risk-free interest rate-nominal terms - 4.8% (2002 - 4.8%, 2001 - 1.1%)
and expected lives of three years for all periods.
[Enlarge/Download Table]
2003 2002 2001
--------------- --------------- ---------------
Fairvalue of awards granted in the year
using the Black - Scholes pricing model
(R$ per thousand shares) 337.8 335.8 199.6
=============== =============== ===============
Total fair value of awards granted in the year 130.4 3.5 99.8
=============== =============== ===============
(D) US GAAP CONDENSED FINANCIAL INFORMATION
Based on the reconciling items and discussion above, the AmBev
consolidated balance sheet, statement of operations, and statement of
changes in shareholders' equity under US GAAP have been recast in
condensed format as follows:
(I) CONDENSED BALANCE SHEETS UNDER US GAAP
[Download Table]
ASSETS 2003 2002
--------------- ---------------
Current assets
Cash and cash equivalents 1,151.7 1,131.6
Restricted cash 309.4 410.2
Short term investments 1,359.4 1,699.0
Unrealized gain on derivatives 258.7 214.9
Trade accounts receivable, net 671.9 699.9
Taxes recoverable 765.3 411.8
Inventories 829.1 859.4
Other 407.2 349.8
---------------- ---------------
5,752.7 5,776.6
---------------- ---------------
Investments
Investment in affiliates, including goodwill 1,921.6 2.7
Other 16.9 11.1
---------------- ---------------
1,938.5 13.8
---------------- ---------------
Goodwill and intangible assets, net 1,119.7 662.2
---------------- ---------------
F-85
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Download Table]
ASSETS 2003 2002
--------------- ---------------
Property, plant and equipment 2,653.0 3,098.2
Other assets
Deferred income tax 1,359.6 1,414.1
Prepaid pension cost 88.3 54.3
Restricted deposits for legal proceedings 352.9 236.8
Assets held for sale 142.0 121.5
Other 359.3 207.1
---------------- ---------------
Total assets 13,766.0 11,584.6
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Suppliers 657.1 789.6
Payroll and related charges 84.5 193.6
Taxes on income payable 530.5 74.4
Other taxes payable 713.4 615.4
Short-term debt 400.5 305.9
Current portion of long-term debt 1,427.4 292.5
Other 241.0 127.0
---------------- ---------------
4,054.4 2,398.4
---------------- ---------------
Long-term liabilities
Long-term debt 3,664.6 3,879.3
Accrued liability for contingencies 999.6 772.2
Sales tax deferrals 231.8 306.9
Post-retirement benefits 150.0 133.2
Other 203.9 85.7
---------------- ---------------
5,249.9 5,177.3
---------------- ---------------
Minority interest 78.8 48.3
---------------- ---------------
Shareholders' equity 4,382.9 3,960.6
---------------- ---------------
Total liabilities and shareholders' equity 13,766.0 11,584.6
================ ===============
F-86
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(II) CONDENSED STATEMENTS OF OPERATIONS UNDER US GAAP
[Enlarge/Download Table]
2003 2002 2001
---------------- ---------------- ----------------
GROSS SALES 15,972.0 14,215.3 12,865.4
Value-added and other taxes, discounts
and returns (8,042.6) (6,904.9) (6,299.1)
---------------- ---------------- ----------------
NET SALES 7,929.4 7,310.4 6,566.3
Cost of sales (3,997.1) (3,900.2) (3,676.0)
---------------- ---------------- ----------------
GROSS PROFIT 3,932.3 3,410.2 2,890.3
OPERATING INCOME (EXPENSES)
Selling and marketing (989.7) (928.3) (837.7)
General and administrative (790.4) (910.9) (631.8)
Other operating expense, net (114.0) (1.8) (111.8)
---------------- ---------------- ----------------
OPERATING INCOME 2,038.2 1,569.2 1,309.0
---------------- ---------------- ----------------
NON-OPERATING INCOME (EXPENSES)
Financial income 763.9 2,929.6 355.2
Financial expenses (677.1) (3,262.5) (850.5)
Other non-operating expense, net (101.8) (59.3) (5.0)
---------------- ---------------- ----------------
(15.0) (392.2) (500.3)
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAX, EQUITY IN
AFFILIATES AND MINORITY INTEREST 2,023.2 1,177.0 808.7
---------------- ---------------- ----------------
INCOME TAX BENEFIT (EXPENSE)
Current (652.3) (123.4) (197.9)
Deferred 153.1 548.4 224.5
---------------- ---------------- ----------------
(499.2) 425.0 26.6
INCOME BEFORE EQUITY IN AFFILIATES
AND MINORITY INTEREST 1,524.0 1,602.0 835.3
---------------- ---------------- ----------------
Equity in earnings (losses) of affiliates 155.8 (6.5) 15.5
Minority interest 9.6 46.7 (10.7)
---------------- ---------------- ----------------
NET INCOME 1,689.4 1,642.2 840.1
================ ================ ================
F-87
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(III) STATEMENT OF COMPREHENSIVE INCOME
Under Brazilian GAAP, the concept of comprehensive income is not
recognized.
Under US GAAP, SFAS No. 130, Reporting Comprehensive Income, requires the
disclosure of comprehensive income. Comprehensive income is comprised of
net income and other comprehensive income that include charges or credits
directly to equity which are not the result of transactions with owners.
For AmBev, the components of the comprehensive income are (i) the
adjustment related to the gains and losses arising on the translation to
reais of the financial statements of foreign subsidiaries upon
consolidation, and (ii) unrealized gains on available for sale
securities, net of tax.
[Download Table]
2003 2002 2001
------------- ------------- -------------
Net income 1,689.4 1,642.2 840.1
Unrealized gains on available
for sale securities, net of tax 28.8
Foreign exchange gain (loss) from
translation of foreign subsidiaries (187.6) 23.6 35.0
------------- ------------- -------------
Comprehensive income 1,530.6 1,665.8 875.1
============= ============= =============
(IV) CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY UNDER US GAAP
[Enlarge/Download Table]
2003 2002 2001
------------- ------------- -------------
At beginning of the year 3,960.6 2,839.9 2,378.2
Capital increase 77.4 101.9 379.1
Treasury shares acquired (330.7) (370.7) (495.4)
Additional paid-in capital 32.5 17.7 (1.2)
Premium received on sale of options 11.7 4.9
Repayments (advances) to employees for purchase of 90.1 (109.5) (50.0)
shares
Translation adjustment (187.6) 23.6 35.0
Net income 1,689.4 1,642.2 840.1
Dividends and interest attributed to shareholders'
equity declared (948.8) (196.2) (250.8)
------------- ------------- -------------
At end of the year 4.382.9 3,960.6 2,839.9
============= ============= =============
F-88
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
23 SEGMENT REPORTING
Under Brazilian GAAP, no separate segment reporting is required.
Under US GAAP, SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, defines operating segments as components of an
enterprise for which separate financial information is available and
evaluated regularly as a means for assessing segment performance and
allocating resources to segments. A measure of profit or loss, total
assets and other related information are required to be disclosed for
each operating segment. In addition, this standard requires the annual
disclosure of information concerning revenues derived from the
enterprise's products or services, countries in which it earns revenues
or hold assets, and major customers. AmBev's business is comprised of
four main segments: Brazil beer, Brazil Carbonated soft drinks and
non-alcoholic non-carbonated (NANC) beverages, other products and our
international operations. Up to December 31, 2002, our operations were
divided into the following segments: beer Brazil, beer international,
soft drinks and other. We have reclassified prior periods to disclose our
NANC segment together with our Carbonated soft drinks segment.
SFAS No. 131 requires that segment data be presented in the US GAAP
financial statements on the basis of the internal information that is
used by management for making operating decisions, including allocation
of resources among segments, and segment performance. This information is
derived from our statutory accounting records which are maintained in
accordance with Brazilian GAAP. Certain expenses were not allocated to
the segments. These unallocated expenses are corporate overheads,
minority interests, income taxes and financial interest income and
expense. Certain operating units do not separate operational expenses,
total assets, depreciation and amortization. These amounts were allocated
based on gross sales revenue.
F-89
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Enlarge/Download Table]
2003 2002 2001
------------------ ----------------- -----------------
Net sales
Beer 6,114.6 5,546.4 4,824.5
Carbonated soft drinks and NANC 1,332.1 1,228.9 1,030.8
Others 191.0 153.7 255.9
------------------ ----------------- -----------------
AmBev Brazil 7,637.7 6,929.0 6,111.2
International operations 1,046.1 396.3 414.4
------------------ ----------------- -----------------
Total consolidated 8,683.8 7,325.3 6,525.6
------------------ ----------------- -----------------
Cost of sales
Beer (2,503.6) (2,237.1) (2,274.7)
Carbonated soft drinks and NANC (887.3) (809.0) (718.4)
Others (118.6) (81.6) (172.2)
------------------ ----------------- -----------------
AmBev Brazil (3,509.5) (3,127.7) (3,165.3)
International operations (534.7) (214.0) (200.9)
------------------ ----------------- -----------------
Total consolidated (4,044.2) (3,341.7) (3,366.2)
------------------ ----------------- -----------------
Selling and marketing expenses
Beer (534.0) (467.8) (448.3)
Carbonated soft drinks and NANC (93.9) (145.1) (161.5)
Others (15.6) (13.1)
------------------ ----------------- -----------------
AmBev Brazil (627.9) (628.5) (622.9)
International operations (219.2) (58.7) (84.9)
------------------ ----------------- -----------------
Total consolidated (847.1) (687.2) (707.8)
------------------ ----------------- -----------------
Direct distribution expense
Beer (480.4) (363.0) (320.9)
Carbonated soft drinks and NANC (124.8) (109.1) (100.5)
Others (1.6) 0.3
------------------ ----------------- -----------------
AmBev Brazil (605.2) (473.7) (421.1)
International operations (43.4) (63.7) (46.7)
------------------ ----------------- -----------------
Total consolidated (648.6) (537.4) (467.8)
------------------ ----------------- -----------------
F-90
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Enlarge/Download Table]
2003 2002 2001
------------------ ----------------- -----------------
General and administrative expenses
Beer (328.1) (326.8) (292.2)
Carbonated soft drinks and NANC (16.2) (13.1) (17.5)
Others (4.2) (6.5) (7.0)
------------------ ----------------- -----------------
AmBev Brazil (348.5) (346.4) (316.7)
International operations (69.4) (27.1) (34.8)
------------------ ----------------- -----------------
(417.9) (373.5) (351.5)
------------------ ----------------- -----------------
Depreciation and amortization expenses (*)
Beer (339.1) (275.5) (189.3)
Carbonated soft drinks and NANC (16.7) (36.1) (35.4)
Others (4.1) (7.3) (14.7)
------------------ ----------------- -----------------
AmBev Brazil (359.9) (318.9) (239.4)
International operations (60.1) (15.7) (17.1)
------------------ ----------------- -----------------
Total consolidated (420.0) (334.6) (256.5)
------------------ ----------------- -----------------
Less
Provisions for contingencies and other (187.9) (123.7) (33.9)
Other operating income, net (240.1) 199.4 152.2
Financial income (expense), net 93.1 (747.0) (503.1)
Non-operating income (expense), net (100.7) (72.2) 2.3
Income tax benefit (expense), net (426.1) 280.6 (51.9)
Profit sharing and contributions (23.6) (125.1) (157.1)
Minority interest (2.9) 47.4 0.3
Equity in results of Quinsa (proportionally
consolidated) (6.2)
------------------ ----------------- -----------------
NET INCOME 1,411.6 1,510.3 784.6
================== ================= =================
Revenues from no individual customer represented more than 10% of our net sales.
Information on our geographic areas is as follows:
F-91
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Enlarge/Download Table]
2003 2002 2001
------------------ ----------------- -----------------
Total net sales
AmBev Brazil 7,637.7 6,929.0 6,111.2
International operations 1,046.1 396.3 414.4
------------------ ----------------- -----------------
8,683.8 7,325.3 6,525.6
================== ================= =================
Total property, plant and equipment
AmBev Brazil 2,788.7 2,705.8
International operations 1,377.6 624.8
------------------ -----------------
4,166.3 3,330.6
================== ================= =================
2003 2002
----------------- -----------------
Total segment assets
Beer 7,370.0 6,174.2
Carbonated soft drinks and NANC 2,046.2 1,934.4
Others 860.8 1,053.6
International operations 2,000.5 1,172.4
----------------- ------------------
12,277.5 10,334.6
----------------- -----------------
General corporate assets 2,552.6 2,046.9
----------------- -----------------
Total assets 14,830.1 12,381.5
================= =================
Total assets by location
Brazil 12,636.7 11,321.6
International operations 2,193.4 1,059.9
----------------- -----------------
Total assets 14,830.1 12,381.5
================= =================
(*) Relates primarily to administrative assets and amortization of deferred
charges; excludes depreciation of production assets and amortization of
goodwill, included in Other operating income, net.
F-92
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
24 CONSOLIDATING SCHEDULES
In connection with an issuance of bonds by CBB in 2001and 2003 in the
United States and international markets under rule 144-A and Regulation S
(Note 10), we are presenting, pursuant to Rule 3-10 of Regulation S-X of
the SEC, condensed consolidating financial information in Brazilian GAAP,
of certain entities with which we are co-guarantors.
The financial information regarding AmBev Holding is unconsolidated. The
financial information regarding CBB is consolidated.
We believe that the condensed consolidating financial information, as
presented below, provides an appropriate level of financial information
to investors.
F-93
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(A) CONSOLIDATING SCHEDULES FOR THE YEAR
ENDED DECEMBER 31, 2003
(I) CONDENSED CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
ASSETS
Current assets
Cash and cash equivalents 1,196.0 0.1 1,196.1
Short-term investments 1,492.8 1.1 1,493.9
Unrealized gain on derivatives 102.9 102.9
Trade accounts receivable, net 725.1 3.9 (3.3) 725.7
Taxes recoverable 68.9 688.8 13.7 771.4
Inventories 938.9 15.7 954.6
Other 0.4 248.1 8.1 (0.7) 255.9
------------- ------------ ------------- ------------------ ----------------
69.3 5,392.6 42.6 (4.0) 5,500.5
------------- ------------ ------------- ------------------ ----------------
Non-current assets
Receivables from affiliates
companies 1,544.2 246.1 (1,790.3)
Deferred income tax 239.0 1,592.2 0.6 1,831.8
Other taxes recoverable 78.0 270.2 0.2 348.4
Other 225.9 786.4 0.1 1,012.4
------------- ------------ ------------- ------------------ ----------------
542.9 4,193.0 247.0 (1,790.3) 3,192.6
------------- ------------ ------------- ------------------ ----------------
Permanent assets
Investments
CBB 5,222.2 (5,222.2)
Investments in affiliates 224.7 (224.7)
Goodwill and negative goodwill 319.0 1,368.3 1,687.3
Other 16.2 7.9 24.1
------------- ------------ ------------- ------------------ ----------------
5,782.1 1,376.2 (5,446.9) 1,711.4
------------- ------------ ------------- ------------------ ----------------
Property, plant and equipment 4,135.0 31.3 4,166.3
Deferred charges 255.5 3.8 259.3
------------- ------------ ------------- ------------------ ----------------
5,782.1 5,766.7 35.1 (5,446.9) 6,137.0
------------- ------------ ------------- ------------------ ----------------
Total assets 6,394.3 15,352.3 324.7 (7,241.2) 14,830.1
============= ============ ============= ================== ================
F-94
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Suppliers 799.1 4.5 (3.3) 800.3
Payable to affiliates 1,544.1 246.7 0.2 (1,790.2) 0.8
Payroll and related charges 93.7 0.4 94.1
Loans and financing 1,976.1 1,976.1
Taxes on income payable 453.0 90.2 543.2
Dividends payable 290.8 3.1 293.9
Other 0.2 1,008.3 3.8 (0.7) 1,011.6
------------- ------------ ------------- ------------------ ----------------
1,835.1 4,580.0 99.1 (1,794.2) 4,720.0
------------- ------------ ------------- ------------------ ----------------
Long-term liabilities
Loans and financing 4,004.3 4,004.3
Accrued liability for contingencies 146.0 1,086.6 0.3 1,232.9
Sales tax deferrals 235.2 235.2
Other 133.1 133.1
------------- ------------ ------------- ------------------ ----------------
146.0 5,459.2 0.3 5,605.5
------------- ------------ ------------- ------------------ ----------------
Minority interest 195.8 0.6 196.4
------------- ------------ ------------- ------------------ ----------------
Shareholders' equity 4,413.2 5,117.3 225.3 (5,447.6) 4,308.2
------------- ------------ ------------- ------------------ ----------------
Total liabilities and
shareholders' equity 6,394.3 15,352.3 324.7 (7,241.2) 14,830.1
============= ============ ============= ================== ================
F-95
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(II) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 2003
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET SALES 8,677.7 341.1 (335.0) 8,683.8
Cost of sales (4,312.0) (66.6) 334.4 (4,044.2)
------------- ------------ ------------- ------------------ ----------------
GROSS PROFIT 4,365.7 274.5 (0.6) 4,639.6
------------- ------------ ------------- ------------------ ----------------
OPERATING INCOME (EXPENSES)
Selling, general and
administrative (2.9) (1,897.5) (13.8) 0.6 (1,913.6)
Depreciation and amortization
of deferred charges (419.4) (0.6) (420.0)
Financial income (expense), net (30.9) 120.6 3.4 93.1
Other operating income, net (112.2) (314.4) (1.4) (428.0)
Equity in earnings of affiliates 1,665.1 (6.2) (1,665.1) (6.2)
------------- ------------ ------------- ------------------ ----------------
OPERATING INCOME 1,519.1 1,848.8 262.1 (1,665.1) 1,964.9
------------- ------------ ------------- ------------------ ----------------
NON-OPERATING INCOME
(EXPENSE), NET (215.5) 114.8 (100.7)
------------- ------------ ------------- ------------------ ----------------
INCOME BEFORE INCOME TAXES,
PROFIT SHARING AND MINORITY
INTEREST 1,303.6 1,963.6 262.1 (1,665.1) 1,864.2
Income tax benefit (expense) 100.4 (436.7) (89.8) (426.1)
------------- ------------ ------------- ------------------ ----------------
INCOME BEFORE PROFIT
SHARING, CONTRIBUTIONS AND
MINORITY INTEREST 1,404.0 1,526.9 172.3 (1,665.1) 1,438.1
Employee and management
profit sharing 7.6 (33.4) 2.2 (23.6)
------------- ------------ ------------- ------------------ ----------------
INCOME BEFORE MINORITY
INTEREST 1,411.6 1,493.5 174.5 (1,665.1) 1,414.5
Minority interest (2.9) (2.9)
------------- ------------ ------------- ------------------ ----------------
NET INCOME FOR THE YEAR 1,411.6 1,490.6 174.5 (1,665.1) 1,411.6
============= ============ ============= ================== ================
F-96
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(III) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 2003
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,309.6 1,130.3 87.7 2,527.6
------------- ------------ ------------- ------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in affiliates and
subsidiaries, net of cash acquired (1,745.3) (1,745.3)
Short term investments (maturity
over 90 days) 423.3 (0.2) 423.1
Securities and collateral 228.6 228.6
Property, plant and equipment, net (829.8) (829.8)
Expenditures on deferred charges (91.0) (0.3) (91.3)
------------- ------------ ------------- ------------------ ----------------
Net cash used in investing activities (2,014.2) (0.5) (2,014.7)
------------- ------------ ------------- ------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans and financings
Issuance 3,359.2 3,359.2
Repayments, including interest (2,510.1) (2,510.1)
Repurchase of own shares for
treasury (310.0) 1.5 (308.5)
Capital subscriptions 3.7 (1.1) 2.0 4.6
Dividends paid (1,052.2) 114.4 (89.1) (1,026.9)
Advances to employees for purchase
of shares, net of repayments 48.8 81.4 130.2
Other 4.8 4.8
------------- ------------ ------------- ------------------ ----------------
Net cash provided by (used in)
financing activities (1,309.7) 1,050.1 (87.1) (346.7)
------------- ------------ ------------- ------------------ ----------------
Effects of exchange rate changes
on cash and cash equivalents (101.7) (101.7)
------------- ------------ ------------- ------------------ ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (0.1) 64.5 0.1 64.5
Cash and cash equivalents,
at beginning of year 0.1 685.7 445.8 1,131.6
------------- ------------ ------------- ------------------ ----------------
Merger of Eagle into CBB 445.8 (445.8)
------------- ------------ ------------- ------------------ ----------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR 1,196.0 0.1 1,196.1
============= ============ ============= ================== ================
F-97
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(B) CONSOLIDATING SCHEDULES FOR THE YEAR
ENDED DECEMBER 31, 2002
(I) CONDENSED CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
ASSETS
Current assets
Cash and cash equivalents 0.1 685.7 445.8 1,131.6
Short-term investments 443.4 1,715.0 2,158.4
Unrealized gains on derivative
instruments 214.9 214.9
Trade accounts receivable, net 683.0 64.3 (68.3) 679.0
Receivable from affiliates 6.0 872.4 2,627.9 (3,506.3)
Taxes recoverable 47.3 344.0 19.0 410.3
Inventories 744.8 92.6 837.4
Other 0.3 85.3 53.9 0.3 139.8
------------- ------------ ------------- ------------------ ----------------
53.7 4,073.5 5.018.5 (3,574.3) 5.571.4
------------- ------------ ------------- ------------------ ----------------
Non-current assets
Receivables from affiliates
companies 1,669.7 144.8 (1,814.5)
Deferred income tax 139.8 1,367.4 51.2 1,558.4
Other taxes recoverable 78.0 259.7 3.0 340.7
Other 187.0 509.6 110.1 0.2 806.9
------------- ------------ ------------- ------------------ ----------------
404.8 3,806.4 309.1 (1,814.3) 2,706.0
------------- ------------ ------------- ------------------ ----------------
Permanent assets
Investments
CBB 754.5 (754.5)
Goodwill and negative goodwill 403.7 169.4 53.8 626.9
Investments in affiliates 3,431.6 0.1 73.2 (3,504.9)
Other 1.3 8.8 0.3 10.4
------------- ------------ ------------- ------------------ ----------------
4,591.1 178.3 127.3 (4,259.4) 637.3
Property, plant and equipment 2,934.8 395.8 3,330.6
Deferred charges 81.6 54.6 136.2
------------- ------------ ------------- ------------------ ----------------
4,591.1 3,194.7 577.7 (4,259.4) 4,104.1
------------- ------------ ------------- ------------------ ----------------
Total assets 5.049.6 11,074.6 5,905.3 (9,648.0) 12,381.5
============= ============ ============= ================== ================
F-98
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
Condensed consolidated balance sheet (continued)
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Suppliers 0.2 752.6 71.3 (35.0) 789.1
Payable to affiliates 329.6 428.8 849.7 (1,531.3) 76.8
Payroll and related charges 1.2 53.5 5.0 59.7
Loans and financings 554.3 53.1 607.4
Taxes on income payable 0.7 667.9 25.2 693.8
Dividends payable 345.0 1.0 0.1 (0.4) 345.7
Other 15.6 283.2 17.6 (55.2) 261.2
------------- ------------ ------------- ------------------ ----------------
692.3 2,741.3 1,022.0 (1,621.9) 2,833.7
------------- ------------ ------------- ------------------ ----------------
Long-term liabilities
Loans and financings 3,841.9 37.4 3,879.3
Accrued liability for contingencies 125.2 850.6 13.5 989.3
Sales tax deferrals 306.9 306.9
Payable to affiliates 2,479.1 1,268.5 (3,747.6)
Other 111.2 71.1 (18.7) 163.6
------------- ------------ ------------- ------------------ ----------------
125.2 7,589.7 1,390.5 (3,766.3) 5,339.1
------------- ------------ ------------- ------------------ ----------------
Minority interest 89.2 59.1 (69.2) 79.1
------------- ------------ ------------- ------------------ ----------------
Shareholders' equity 4,232.1 654.4 3,433.7 (4,190.6) 4,129.6
------------- ------------ ------------- ------------------ ----------------
Total liabilities and
shareholders' equity 5,049.6 11,074.6 5,905.3 (9,648.0) 12,381.5
============= ============ ============= ================== ================
F-99
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(II) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 2002
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET SALES 6,971.2 542.3 (188.2) 7,325.3
Cost of sales (3,145.0) (347.7) 151.0 (3,341.7)
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GROSS PROFIT 3,826.2 194.6 (37.2) 3,983.6
------------- ------------ ------------- ------------------ ----------------
OPERATING INCOME (EXPENSES)
Selling, general and administrative (13.7) (1,583.3) (157.1) 32.3 (1,721.8)
Depreciation and amortization
of deferred charges (302.9) (31.7) (334.6)
Financial income (expense), net (25.7) (2,416.0) 1,689.8 4.9 (747.0)
Other operating income, net 73.9 75.9 76.9 (27.3) 199.4
Equity in results of affiliates 1,462.3 12.3 (1,474.6)
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OPERATING INCOME (LOSS) 1,496.8 (400.1) 1,784.8 (1,501.9) 1,379.6
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NON-OPERATING INCOME
(EXPENSE), NET (33.6) (15.9) (22.7) (72.2)
------------- ------------ ------------- ------------------ ----------------
INCOME (LOSS)BEFORE INCOME
TAXES, PROFIT SHARING AND
MINORITY INTEREST 1,496.8 (433.7) 1,768.9 (1,524.6) 1,307.4
Income tax benefit 20.4 235.0 25.2 280.6
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INCOME (LOSS) BEFORE PROFIT
SHARING, CONTRIBUTIONS AND
MINORITY INTEREST 1,517.2 (198.7) 1,794.1 (1,524.6) 1,588.0
Employee and management
profit sharing (6.9) (105.4) (112.3)
Contributions to FAHZ (12.8) (12.8)
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INCOME (LOSS) BEFORE MINORITY
INTEREST 1,510.3 (316.9) 1,794.1 (1,524.6) 1,462.9
Minority interest (17.5) 51.6 13.3 47.4
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NET INCOME (LOSS) 1,510.3 (334.4) 1,845.7 (1,511.3) 1,510.3
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F-100
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(III) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 2002
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 496.2 1,714.7 1,513.9 (129.8) 3,595.0
------------- ------------ ------------- ------------------ ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Short-term investments (maturity over
90 days) 609.5 (1,418.2) (808.7)
Securities and collateral (249.3) (249.3)
Investments in affiliates and
subsidiaries, net of cash acquired 88.1 (163.3) (0.3) (75.5)
Property, plant and equipment, net (413.2) (10.9) (424.1)
Expenditures on deferred charges (45.5) (45.5)
------------- ------------ ------------- ------------------ ----------------
Net cash provided by (used in)
investing activities 88.1 (12.5) (1,678.7) (1,603.1)
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CASH FLOWS FROM FINANCING
ACTIVITIES
Loans and financings
Issuance 549.9 44.4 25.8 620.1
Repayments, including interest (0.3) (2,665.8) (259.2) (2,925.3)
Capital subscription 32.8 (447.9) 444.1 29.0
Repurchase of own shares for
treasury (337.1) (337.1)
Capital increase of minority
interests in subsidiaries 10.5 10.5
Dividends paid (290.4) (149.2) 104.0 (335.6)
Advances to employees for
purchase of shares 10.8 15.4 26.2
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Net cash provided by (used in)
financing activities (584.2) (2,687.1) 229.3 129.8 (2,912.2)
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Effects of exchange rate changes
on cash 639.1 639.1
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 0.1 345.8 64.5 281.2
Cash and cash equivalents,
at beginning of year 1,031.5 381.3 1,412.8
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CASH AND CASH EQUIVALENTS AT END
OF YEAR 0.1 685.7 445.8 1,131.6
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F-101
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(C) CONSOLIDATING SCHEDULES FOR THE YEAR
ENDED DECEMBER 31, 2001
(I) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET SALES 6,812.3 511.3 (798.0) 6,525.6
Cost of sales (3,884.0) (276.3) 794.1 (3,366.2)
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GROSS PROFIT 2,928.3 235.0 (3.9) 3,159.4
------------- ------------ ------------- ------------------ ----------------
OPERATING INCOME (EXPENSES)
Selling, general and administrative (25.1) (1,321.2) (180.7) (0.1) (1,527.1)
Depreciation and amortization of
deferred charges (230.4) (26.1) (256.5)
Financial income (expense), net (8.2) (874.2) 379.3 (503.1)
Other operating income, net (86.9) 143.4 (13.7) 75.5 118.3
Equity in results of
affiliates 917.1 (3.2) (913.9)
------------- ------------ ------------- ------------------ ----------------
796.9 (2,282.4) 155.6 (838.5) (2,168.4)
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OPERATING INCOME 796.9 645.9 390.6 (842.4) 991.0
NON-OPERATING INCOME (EXPENSE), NET 1.9 (7.4) (1.7) 9.5 2.3
------------- ------------ ------------- ------------------ ----------------
INCOME BEFORE INCOME TAXES PROFIT
SHARING, CONTRIBUTIONS AND
MINORITY INTEREST 798.8 638.5 388.9 (832.9) 993.3
Income tax benefit (expense) 15.9 (26.8) 12.3 (53.3) (51.9)
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INCOME BEFORE PROFIT SHARING
CONTRIBUTIONS AND MINORITY
INTEREST 814.7 611.7 401.2 (886.2) 941.4
Employee and management profit
sharing (12.8) (68.5) (81.3)
Contributions to FAHZ (17.3) (58.5) (75.8)
------------- ------------ ------------- ------------------ ----------------
INCOME BEFORE MINORITY INTEREST 784.6 484.7 401.2 (886.2) 784.3
Minority interest (31.6) 10.5 21.4 0.3
------------- ------------ ------------- ------------------ ----------------
NET INCOME 784.6 453.1 411.7 (864.8) 784.6
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F-102
COMPANHIA DE BEBIDAS DAS AMERICAS - AMBEV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2003 AND 2002
IN MILLIONS OF REAIS, UNLESS OTHERWISE STATED
--------------------------------------------------------------------------
(II) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
AMBEV CONSOLIDATING
HOLDING CBB OTHER ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------------ ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80.0 (168.6) 858.8 236.4 1,006.6
------------- ------------ ------------- ------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments
(maturity over 90 days (997.0) 259.2 (737.8)
Securities and collateral 183.2 382.3 (423.4) (384.3) (242.2)
Investments in affiliates and subsidiaries,
net of cash acquired (98.4) (62.8) (58.9) (220.1)
Cash acquired on the IBANN transaction 275.1 (275.1)
Property, plant and equipment, net (350.9) (53.8) (404.7)
Expenditures on deferred charges (80.0) (2.6) (82.6)
------------- ------------ ------------- ------------------ ----------------
Net cash provided by (used in)
investing activities 359.9 (1,383.5) (279.5) (384.3) (1,687.4)
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CASH FLOWS FROM FINANCING ACTIVITIES
Loans and financings
Issuance 0.4 3,251.6 3.2 3,255.2
Repayments, including interest (1,157.8) (217.2) 31.1 (1,343.9)
Capital subscription 80.8 80.8
Repurchase of own shares for treasury (155.6) (91.1) (246.7)
Premium received on sale of stock option 4.9 4.9
Dividends paid (315.8) (107.3) 109.7 (313.4)
Advances to employees for
purchase of shares, net of repayments (54.6) 38.1 (16.5)
Other (6.3) 3.9 (2.4)
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Net cash provided by (used in) financing
activities (439.9) 1,927.2 (217.2) 147.9 1,418.0
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Effects of exchange rate changes
on cash and cash equivalents 100.2 100.2
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 475.3 362.1 837.4
Cash and cash equivalents,
at beginning of year 556.2 19.2 575.4
------------- ------------ ------------- ------------------ ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,031.5 381.3 1,412.8
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* * *
F-103
Dates Referenced Herein and Documents Incorporated by Reference
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