Tender-Offer Statement — Third-Party Tender Offer — Schedule TO
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC TO-T Tender Offer Statement 6 41K
2: EX-99.A.1 U.S. Offer to Purchase 88 455K
11: EX-99.A.10 Press Release 2 14K
12: EX-99.A.17 Summary of the Mexican Offer to Purchase 1 8K
3: EX-99.A.2 Form of Gds Letter of Transmittal 13 68K
4: EX-99.A.3 Form of Broker Dealer Letter 3 21K
5: EX-99.A.4 Form of Client Letter 4 19K
6: EX-99.A.5 Notice of Guaranteed Delivery 3 19K
7: EX-99.A.6 W-9 Guidelines 4± 18K
8: EX-99.A.7 Summary Advertisement 6 36K
9: EX-99.A.8 Audited Consolidated Financial Statements 53 296K
10: EX-99.A.9 Gemex 6-K 12 36K
13: EX-99.B.1 Senior Credit Agreement 75 277K
14: EX-99.C.1 Salomon Smith Barney Inc. Fairness Opinion 3 16K
15: EX-99.C.2 Presentation to the Board of Directors HTML 34K
16: EX-99.D.1 Agreement to Tender 21 70K
17: EX-99.D.2 Agreement to Tender 35 111K
18: EX-99.D.3 Escrow Agreement 9 36K
EX-99.A.8 — Audited Consolidated Financial Statements
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Exhibit (a)(8)
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2000 AND 2001,
AND EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001:
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Changes in Financial Position F-7
Notes to Consolidated Financial Statements F-9
CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL SCHEDULE:
Schedule II - Valuation and qualifying accounts F-53
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Pepsi-Gemex, S. A. de C. V.:
We have audited the accompanying consolidated balance sheets of Pepsi-Gemex, S.
A. de C. V. and subsidiaries (the "Company") as of December 31, 2000 and 2001,
and the related consolidated statements of income, changes in shareholders'
equity, changes in financial position and supplemental schedule for each of the
three years in the period ended December 31, 2001, all expressed in thousands of
Mexican pesos of purchasing power of December 31, 2001. These consolidated
financial statements and supplemental schedule 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 Mexico and the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and that they are prepared in
accordance with accounting principles generally accepted in Mexico. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and supplemental schedule. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Pepsi-Gemex, S. A. de C. V. and subsidiaries as of December 31, 2000 and 2001,
and the consolidated results of their operations, changes in their shareholders'
equity and changes in their financial position for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in Mexico. Also, in our opinion, the financial statement
schedule when considered in relation to the consolidated financial statements
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, beginning
January 1, 2000, the Company changed its method of accounting for income tax,
tax on assets and employee statutory profit-sharing to conform with the new
Bulletin D-4 "Accounting Treatment of Income Tax, Tax on Assets and Employee
Statutory Profit-Sharing".
The accompanying financial statements have been translated into English for the
convenience of readers. Our audits also comprehended the translation of Mexican
peso amounts into U.S. dollar amounts as of and for the year ended December 31,
2001 and, in our opinion, such translation has been made in conformity with the
basis stated in Note 1. Such U.S. dollar amounts are presented solely for the
convenience of users.
Accounting principles generally accepted in Mexico vary in certain respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of net income
for each of the three years in the period ended December 31, 2001 and the
determination of shareholders' equity at December 31, 1999, 2000 and 2001 to the
extent summarized in Note 18.
/s/Deloitte & Touche
Deloitte & Touche
Mexico City, Mexico
February 26, 2002
(June 21, 2002 as to Notes 8, 14, 16 and 18)
F-2
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Mexican Pesos of Purchasing Power of December 31, 2001)
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THOUSANDS OF
U.S. DOLLARS
(CONVENIENCE
TRANSLATION)
DECEMBER 31, DECEMBER 31,
ASSETS 2000 2001 2001
CURRENT ASSETS:
Cash and cash equivalents Ps. 226,775 Ps. 99,176 $ 10,827
Accounts receivable - net (Note 2) 1,014,047 980,760 107,070
Inventories (Note 3) 1,056,934 735,859 80,334
Prepaid expenses 38,195 20,653 2,255
---------------- ---------------- --------------
Total current assets 2,335,951 1,836,448 200,486
PROPERTY, PLANT AND EQUIPMENT - Net (Note 4) 7,262,447 7,125,890 777,936
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED - Net of accumulated
amortization of Ps.481,830, Ps.571,941
and $62,439 at December 31, 2000 and 2001,
respectively 1,268,339 1,292,137 141,063
OTHER ASSETS (Note 5) 421,343 324,570 35,433
---------------- ---------------- --------------
TOTAL ASSETS Ps. 11,288,080 Ps. 10,579,045 $ 1,154,918
================ ================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 6) Ps. 879,754 Ps. 346,964 $ 37,878
Current portion of long-term debt (Note 7) 36,803 29,946 3,269
Trade accounts payable 587,862 562,137 61,369
Taxes payable 142,821 234,764 25,629
Accrued expenses and other liabilities 408,129 456,310 49,816
Dividend payable -- 246,931 26,958
Due to affiliates 3,529 -- --
---------------- ---------------- --------------
Total current liabilities 2,058,898 1,877,052 204,919
LONG-TERM DEBT AND OTHER NON-CURRENT
LIABILITIES (Notes 7 and 8) 3,334,101 3,136,474 342,410
DEFERRED INCOME TAX AND EMPLOYEE
STATUTORY PROFIT-SHARING (Note 12) 928,189 899,157 98,161
---------------- ---------------- --------------
Total liabilities 6,321,188 5,912,683 645,490
---------------- ---------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY (Note 9):
Capital share 878,219 878,933 95,953
Additional paid-in capital 4,798,696 4,551,834 496,925
Retained earnings 1,897,569 2,492,757 272,135
Reserves 1,045,969 1,065,014 116,268
Cumulative effect of deferred income tax and
employee statutory profit-sharing (Note 1) (1,300,190) (1,300,190) (141,942)
Shareholders' equity adjustment from labor
obligations upon retirement -- (43,403) (4,738)
Deficiency in restated shareholders' equity (2,353,371) (2,978,583) (325,173)
---------------- ---------------- --------------
Total shareholders' equity 4,966,892 4,666,362 509,428
---------------- ---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Ps. 11,288,080 Ps. 10,579,045 $ 1,154,918
================ ================ ==============
See accompanying notes to consolidated financial statements.
F-3
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Mexican Pesos of Purchasing Power of December 31, 2001, except per
share information)
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THOUSANDS OF
U.S. DOLLARS
EXCEPT EARN-
INGS PER SHARE
(CONVENIENCE
TRANSLATION)
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 2000 2001 2001
REVENUES:
Net sales Ps. 8,140,444 Ps. 9,572,760 Ps. 11,036,212 $ 1,204,827
Other 49,011 87,652 56,997 6,222
------------- ------------- -------------- -----------
8,189,455 9,660,412 11,093,209 1,211,049
------------- ------------- -------------- -----------
COSTS AND EXPENSES (Note 11):
Cost of sales (exclusive of depreciation and
amortization shown separately below) 3,644,016 4,256,900 4,898,743 534,797
Selling expenses (includes amortization of
bottles and cases for Ps.139,535,
Ps.165,275, Ps.121,836 and $13,301
respectively) 2,832,203 3,487,790 3,969,210 433,320
General and administrative expenses 460,423 566,103 651,262 71,098
Depreciation and amortization 308,459 308,890 403,090 44,005
------------- ------------- -------------- -----------
7,245,101 8,619,683 9,922,305 1,083,220
------------- ------------- -------------- -----------
OPERATING INCOME 944,354 1,040,729 1,170,904 127,829
------------- ------------- -------------- -----------
RESTRUCTURING CHARGE (Note 1) -- 568,980 136,866 14,942
INTEGRAL (INCOME) COST OF FINANCING (Note 6):
Interest income (74,454) (14,897) (5,981) (653)
Interest expense 425,718 404,303 399,655 43,630
Foreign exchange loss (gain) - net (137,306) 71,295 (217,594) (23,755)
Monetary position gain (348,083) (426,608) (158,625) (17,317)
------------- ------------- -------------- -----------
(134,125) 34,093 17,455 1,905
------------- ------------- -------------- -----------
OTHER EXPENSE - Net (includes the amortization
of excess of cost over fair value of net
assets acquired for Ps.78,014, Ps.(4,156),
Ps.90,111 and $9,837 respectively) 103,448 31,513 197,396 21,550
------------- ------------- -------------- -----------
INCOME BEFORE PROVISIONS AND EXTRAORDINARY ITEM 975,031 406,143 819,187 89,432
------------- ------------- -------------- -----------
PROVISIONS (BENEFIT) (Note 12):
Income tax and tax on assets 338,228 (174,419) 228,846 24,985
Employee statutory profit-sharing 3,415 64,971 (4,847) (529)
------------- ------------- -------------- -----------
341,643 (109,448) 223,999 24,456
------------- ------------- -------------- -----------
INCOME BEFORE EXTRAORDINARY GAIN 633,388 515,591 595,188 64,976
EXTRAORDINARY GAIN (Note 12):
Benefit from utilization of tax loss
carryforwards and tax on assets paid in
prior years 257,983 -- -- --
------------- ------------- -------------- -----------
CONSOLIDATED NET INCOME Ps. 891,371 Ps. 515,591 Ps. 595,188 $ 64,976
============= ============= ============== ===========
(Continued)
F-4
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THOUSANDS OF
U.S. DOLLARS
EXCEPT EARN-
INGS PER SHARE
(CONVENIENCE
TRANSLATION)
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 2000 2001 2001
Net income of majority interest Ps. 822,845 Ps. 482,522 Ps. 595,188 $ 64,976
Net income of minority interest 68,526 33,069 -- --
--------------- --------------- --------------- --------------
CONSOLIDATED NET INCOME Ps. 891,371 Ps. 515,591 Ps. 595,188 $ 64,976
=============== =============== =============== ==============
Earnings per Series B and L share Ps. 0.61 Ps. 0.34 Ps. 0.36 $ 0.04
=============== =============== =============== ==============
Weighted average Series B and L shares
outstanding (in 000's) 1,020,783 1,011,445 1,129,065
============= =============== ===============
Earnings per Series D share Ps. 0.87 Ps. 0.50 Ps. 0.52 $ 0.06
=============== =============== =============== ==============
Weighted average Series D shares
outstanding (in 000's) 322,281 336,219 375,318
=============== =============== ===============
Earnings per CPO Ps. 2.07 Ps. 1.19 Ps. 1.23 $ 0.13
=============== =============== =============== ==============
Weighted average CPO's outstanding
(in 000's) 322,281 336,219 375,318
=============== =============== ===============
Earnings per GDS Ps. 12.40 Ps. 7.12 Ps. 7.36 $ 0.80
=============== =============== =============== ==============
Weighted average GDS's outstanding
(in 000's) 53,730 56,037 62,553
=============== =============== ===============
(Concluded)
See accompanying notes to consolidated financial statements.
F-5
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Note 9)
(Thousands of Mexican Pesos of Purchasing Power of December 31, 2001)
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CUMULATIVE
EFFECT
OF DEFERRED
INCOME TAX
ADDITIONAL AND EMPLOYEE
CAPITAL PAID-IN RETAINED STATUTORY
STOCK CAPITAL EARNINGS RESERVES PROFITSHARING
BALANCE, JANUARY 1, 1999 Ps. 861,981 Ps. 4,414,863 Ps. 607,077 Ps. 1,034,273 Ps. --
Repurchase and sale of capital share - net (2,446) 393 (14,875) 5,756 --
Net comprehensive income -- -- 822,845 -- --
----------- ------------- ------------- ------------- --- ----------
BALANCE, DECEMBER 31, 1999 859,535 4,415,256 1,415,047 1,040,029 --
Repurchase and sale of capital share - net 223 1,357 -- 5,940 --
Acquisition of subsidiaries (Note 1) -- -- -- -- --
Capital share increase 1,942 40,320 -- -- --
Acquisition of minority interest (Note 1) 16,519 341,763 -- -- --
Net comprehensive loss -- -- 482,522 -- (1,300,190)
----------- ------------- ------------- ------------- --- ----------
BALANCE, DECEMBER 31, 2000 878,219 4,798,696 1,897,569 1,045,969 (1,300,190)
Repurchase and sale of capital share - net 714 69 -- 19,045 --
Dividends declared -- (246,931) -- -- --
Net comprehensive loss -- -- 595,188 -- --
----------- ------------- ------------- ------------- --- ----------
BALANCE, DECEMBER 31, 2001 Ps. 878,933 Ps. 4,551,834 Ps. 2,492,757 Ps. 1,065,014 Ps. (1,300,190)
=========== ============= ============= ============= ==============
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SHAREHOLDERS'
EQUITY
ADJUSTMENT
FROM LABOR DEFICIENCY-
OBLIGATIONS IN RESTATED MINORITY TOTAL
UPON SHAREHOLDERS' SHAREHOLDERS' SHAREHOLDERS'
RETIREMENT EQUITY EQUITY EQUITY
BALANCE, JANUARY 1, 1999 Ps. -- Ps. (1,635,679) Ps. -- Ps. 5,282,515
Repurchase and sale of capital share - net -- -- -- (11,172)
Net comprehensive income -- (517,565) 229,349 534,629
----------- -------------- ------------ --------------
BALANCE, DECEMBER 31, 1999 -- (2,153,244) 229,349 5,805,972
Repurchase and sale of capital share - net -- -- -- 7,520
Acquisition of subsidiaries (Note 1) -- -- 117,172 117,172
Capital share increase -- -- -- 42,262
Acquisition of minority interest (Note 1) -- -- (358,282) --
Net comprehensive loss -- (200,127) 11,761 (1,006,034)
----------- -------------- ------------ --------------
BALANCE, DECEMBER 31, 2000 -- (2,353,371) -- 4,966,892
Repurchase and sale of capital share - net -- -- -- 19,828
Dividends declared -- -- -- (246,931)
Net comprehensive loss (43,403) (625,212) -- (73,427)
----------- -------------- ------------ --------------
BALANCE, DECEMBER 31, 2001 Ps. (43,403) Ps. (2,978,583) Ps. -- Ps. 4,666,362
=========== ============== ============ ==============
See accompanying notes to consolidated financial statements
F-6
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Thousands of Mexican Pesos of Purchasing Power of December 31, 2001)
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THOUSANDS OF
U.S. DOLLARS
(CONVENIENCE
TRANSLATION)
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 2000 2001 2001
OPERATING ACTIVITIES:
Income before extraordinary gain Ps. 633,388 Ps. 515,591 Ps. 595,188 Ps. 64,976
Items that did not require (generate) resources:
Depreciation and amortization 526,008 470,009 615,036 67,144
Statutory seniority premiums 10,545 32,367 38,293 4,180
Restructuring charge -- 547,056 83,505 9,116
Equity in earnings of associated companies
(included in other income-net) (1,274) -- -- --
Deferred taxes -- (288,874) (29,032) (3,169)
------------- -------------- ------------ ----------
1,168,667 1,276,149 1,302,990 142,247
Changes in current assets and liabilities, net
of effects from purchases of businesses:
Accounts receivable - net (296,204) (20,834) 33,287 3,634
Inventories 106,677 (197,370) 321,075 35,052
Prepaid expenses (1,330) (2,843) 17,542 1,915
Trade accounts payable 130,137 (21,201) (25,725) (2,808)
Taxes payable, accrued expenses and other
liabilities (142,842) (69,954) 136,595 14,912
------------- -------------- ------------ ----------
Resources provided by operating
activities before extraordinary
gain 965,105 963,947 1,785,764 194,952
Extraordinary gain 257,983 -- --
------------- -------------- ------------ ----------
Net resources provided by operating
activities 1,223,088 963,947 1,785,764 194,952
------------- -------------- ------------ ----------
FINANCING ACTIVITIES:
Net change in notes payable (103,075) (329,497) (532,790) (58,165)
Increase in long-term debt 216,132 1,558,352 64,138 7,002
Payments of long-term debt (583,752) (472,467) (330,573) (36,089)
Capital stock increase -- 42,262 -- --
(Repurchase) and sale of capital stock - net (11,172) 7,520 19,828 2,165
Shareholders' equity adjustment from labor
obligations upon retirement -- -- (43,403) (4,738)
Dividends declared -- -- (246,931) (26,958)
Dividends payable -- -- 246,931 26,958
Shares issued in exchange of minority interest -- 358,282 -- --
Cumulative effect of deferred income tax and
employee statutory profit-sharing:
Increase in liabilities -- 1,300,190 -- --
Decrease in shareholders' equity -- (1,300,190) -- --
------------- -------------- ------------ ----------
Net resources (used in) generated by
financing activities (481,867) 1,164,452 (822,800) (89,825)
------------- -------------- ------------ ----------
(Continued)
F-7
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THOUSANDS OF
U.S. DOLLARS
(CONVENIENCE
TRANSLATION)
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 2000 2001 2001
INVESTING ACTIVITIES:
Acquisition and sale of property, plant
and equipment - net (975,604) (1,031,819) (1,089,243) (118,913)
Increase in other assets (30,039) (1,506) 112,589 12,291
Increase in goodwill -- -- (113,909) (12,435)
Payment for acquisition of subsidiaries,
net of cash received -- (700,942) -- --
Acquisition of minority interest -- (358,282) -- --
Loan to associated company -- (1,591) -- --
------------- -------------- -------------- ----------
Resources used in investing
activities (1,005,643) (2,094,140) (1,090,563) (119,057)
------------- -------------- -------------- ----------
(Decrease) increase in cash and cash
equivalents (264,422) 34,259 (127,599) (13,930)
CASH FOR CONSOLIDATING EFFECTS 51,087 -- -- --
CASH AND CASH EQUIVALENTS:
Beginning of year 405,851 192,516 226,775 24,757
------------- -------------- -------------- ----------
End of year Ps. 192,516 Ps. 226,775 Ps. 99,176 $ 10,827
============= ============== ============== ==========
(Concluded)
See accompanying notes to consolidated financial statements.
F-8
PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(Thousands of Mexican Pesos of Purchasing Power of December 31, 2001, except per
share information)
--------------------------------------------------------------------------------
1. OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
OPERATIONS - Pepsi-Gemex, S. A. de C. V. ("Pepsi-Gemex") and its
subsidiaries (collectively, the "Company") produce and sell bottled soft
drinks, mineral water and purified water under the trade names of
Pepsi-Cola, Pepsi Light, Pepsi Max, Pepsi Limon, Mirinda, Seven-Up, Diet
Seven-Up, Kas, Mountain Dew, Power Punch and Manzanita Sol (collectively
the "Pepsi Products") and Garci-Crespo, San Lorenzo, Tehuacan Bajas
Calorias, Atlantis and Electropura (the "Mineral and Purified Water
Products") and others. The Company also produces and sells non-returnable
plastic bottles and packaging materials used by the Company and third
parties. Pepsi Products sales are principally made to retailers located in
the Mexico City area, including the Federal District, the state of Hidalgo
and portion of the state of Mexico (the "Mexico City Area"); the states of
Guerrero, Morelos and portion of the state of Mexico, which are located in
the Southwest portion of Mexico (the "Southwest Area"); the states of
Campeche, Quintana Roo and Yucatan in the southeast portion of Mexico (the
"Southeast Area"); the central states of Aguascalientes, Durango,
Zacatecas, San Luis Potosi, and portions of the states of Guanajuato,
Queretaro and Jalisco (the "North Central Area") and the states of Nuevo
Leon, Coahuila, Tamaulipas, and portions of Chihuahua and Veracruz in the
northeast of Mexico (the "Northeast Area"). The Company sells and
distributes the mineral water products nationally, including through third
party distributors not affiliated with the Company. In addition, the
Company sells its full line of purified water products in each of its
principal franchise territories and also sells the five-gallon jug
presentation in the city of Puebla and surrounding areas. Pursuant to
franchise and license agreements, the Company has the exclusive right to
produce, sell and distribute a variety of soft drink products in all or a
portion of the Pepsi Products franchised territories.
Effective September 1, 2000, the Company commenced consolidating the
financial position and results of operations of Embotelladores del Valle
de Anahuac, S.A. de C.V. and subsidiaries ("Emvasa"), see Comparability
below.
BASIS OF PRESENTATION -
CONSOLIDATION OF FINANCIAL STATEMENTS - The accompanying
consolidated financial statements, which include the accounts of
Pepsi-Gemex and its subsidiaries, have been prepared in accordance
with accounting principles generally accepted in Mexico ("Mexican
GAAP"). All material intercompany balances and transactions have
been eliminated. Certain reclassifications have been made to prior
period financial statements to conform to classifications adopted in
2001.
TRANSLATION OF FINANCIAL STATEMENTS - The accompanying financial
statements are stated in Mexican pesos, the currency of the country
in which Pepsi-Gemex and its subsidiaries are incorporated and
operate. Translation of Mexican peso amounts into U.S. dollar
amounts are included solely for the convenience of readers and have
been made at the rate of Ps.9.16 per U.S.$1.00, the interbank
exchange rate reported to the Company by Centro de Analisis y
Proyecciones Economicas para Mexico at December 31, 2001. Such
translation should not be construed as a representation that the
Mexican peso amounts shown could be converted into U.S. dollars at
the above or any other rate.
Principal consolidated subsidiaries as of December 31, 2000 and
2001, are as follows:
F-9
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Subsidiary Location
------------------------------------------------------------------- -----------------------------
Embotelladora Metropolitana, S. A. de C. V. Mexico, D. F.
Embotelladores Internacionales de Mexico, S. de R. L. de C. V. Mexico, D. F.
Embotelladores del Valle de Anahuac, S. A. de C. V. (3) Mexico, D. F.
Bebidas Purificadas del Noreste, S. A. de C. V. Mexico, D. F.
Tenedora del Noreste, S. A. de C. V. (1) Monterrey, N.L.
Grupo Embotellador del Noreste, S. A. de C. V. (1) Mexico, D. F.
Purificadora de Agua Los Reyes, S. A. de C. V. Tlalnepantla, Edo. de Mexico.
Embotelladora Agral Regiomontana, S. A. de C. V. (1) and (13) Monterrey, N.L.
Industria de Refrescos del Noreste, S. A. de C. V. (1) Monterrey, N.L.
Embotelladora de Refrescos Mexicanos, S. A. de C. V. (3) Izcalli, Edo. de Mexico
Distribuidora de Aguas, Refrescos y Bebidas Purificadas, S.A. de
C. V. (3) and (4) Izcalli, Edo. de Mexico
Bebidas Purificadas de Acapulco, S. A. de C. V. (9) Acapulco, Gro.
Embotelladores del Bajio, S. A. de C. V (3) Leon, Guanajuato
Embotelladora Moderna, S. A. de C. V. (3) Toluca, Edo. de Mexico
Embotelladora Potosi, S. A. de C. V. San Luis Potosi, S. L. P.
Bebidas Purificadas del Sureste, S. A. de C. V. Merida, Yuc.
Bebidas Purificadas de Quintana Roo, S. A. de C. V. (2) Cancun, Q. Roo
Bebidas Purificadas de Zacatecas, S. A. de C. V. (10) Zacatecas, Zac.
Industria de Refrescos, S. A. de C. V. Cuernavaca, Mor.
Refrescos de Iguala, S. A. de C. V. (9) Iguala, Gro.
Embotelladora San Marcos, S. A. de C. V. (6) Aguascalientes, Ags.
Embotelladora La Isleta, S. A. de C. V. (3) Tampico, Tamaulipas
Embotelladora Campechana, S. A. de C. V. (2) Campeche, Camp.
Embotelladora Garci-Crespo, S. A. de C. V. Tehuacan, Pue.
Distribuidora Garci-Crespo, S. A. de C. V. Tlalnepantla, Edo. de Mexico
Bebidas Veracruzanas, S. A. de C. V. (3) and (5) Poza Rica, Veracruz
Embotelladora Agral de la Laguna, S. A. de C. V. (1) and (13) Durango, Dgo
Bebidas Purificadas de Durango, S. A. de C. V. (7) Durango, Dgo.
Industrias de Refrescos de Gomez Palacios, S. A. de C. V. (1) and
(12) Durango, Dgo.
Procesos Plasticos, S. A. de C. V. Tultitlan, Edo. de Mexico
Equipo para Embotelladoras y Cervecerias, S. A. de C. V. Mexico, D. F.
Bienes Raices Metropolitanos, S. A. de C. V. Mexico, D. F.
Distribuidora de Aguas Envasadas Dek, S. A. de C. V. (8) Mexico, D. F.
Servicios Administrativos Suma, S. A. de C. V. Mexico, D. F.
Comercio Integral Mexicano, S. A. de C. V. (11) Mexico, D. F.
Duingras Holdings B.V. The Netherlands
As of December 31, 2000 and 2001, all of the subsidiaries are 100%
owned by the Company.
----------
(1) As of December 31, 1999, the Company owned 50% of these companies (see
Comparability below) and were consolidated pursuant to an agreement
entered into with PepsiCo. because the Company exercised effective control
of them.
(2) During the third quarter of 2000 these companies were merged into Bebidas
Purificadas del Sureste, S. A. de C. V.
(3) These companies were acquired in a business combination pursuant to a cash
tender offer made during the third quarter of 2000 (see Comparability
below).
(4) On December 31, 2000 this company was merged into Embotelladora de
Refrescos Mexicanos, S. A. de C. V.
(5) On December 31, 2000 this company was merged into Embotelladora La Isleta,
S. A. de C. V.
(6) On December 31, 2000 this company was merged into Embotelladora Potosi, S.
A. de C. V.
(7) On March 31, 2001 this company was merged into Industria de Refrescos
Gomez Palacios, S.A. de C.V.
(8) On May 31, 2001 this company was merged into Bienes Raices Metropolitanos,
S.A. de C.V.
(9) On November 30,2001 these companies were merged into Industria de
Refrescos, S.A. de C.V.
(10) On November 30, 2001 this company was merged into Embotelladora Potosi,
S.A. de C.V.
F-10
(11) On November 30, 2001 this company was merged into Bienes Raices
Metropolitanos, S.A. de C.V.
(12) On December 31, 2001 this company was merged into Industria de Refrescos
del Noreste, S.A. de C.V.
(13) On December 31, 2001 these companies were merged into Grupo Embotellador
del Noreste, S.A. de C.V.
EFFECTS OF INFLATION IN THE FINANCIAL STATEMENTS - The accompanying
consolidated financial statements have been prepared in accordance
with Bulletin B-10 "Recognition of the Effects of Inflation in
Financial Information", and its amendments, issued by the Mexican
Institute of Public Accountants, A. C. ("MIPA"). These documents
require the restatement of all financial statements to constant
Mexican pesos as of the date of the most recent balance sheet
presented for the purpose of comparability. Factors derived from the
National Consumer Price Index ("NCPI"), published by Banco de
Mexico, are applied to restate the consolidated financial statement
data to constant Mexican pesos.
The accompanying consolidated financial statements have been
restated and adjusted as follows:
1. The consolidated balance sheet at December 31, 2000, has been
restated to reflect constant Mexican pesos of purchasing power
of December 31, 2001, by applying the NCPI factor for 2000.
2. The consolidated statements of operations for all periods
presented have been restated to reflect constant pesos of
purchasing power of December 31, 2001, by applying the
respective NCPI factor of the period when the transactions
occurred (revenues and expenses).
3. The consolidated statements of changes in financial position
set forth the source and application of resources representing
the differences between opening and closing balance sheet
balances in constant Mexican pesos of purchasing power of
December 31, 2001, excluding the effects from holding
nonmonetary assets. Exchange gains and losses and monetary
position gains and losses are included in the amount of
resources provided by or applied to operations.
4. Capital stock, paid-in capital, retained earnings, reserves
and cumulative effect of deferred income tax and employee
statutory profit-sharing have been restated by applying the
NCPI factor from the date contributed or generated.
5. Deficiency in restated shareholders' equity primarily results
from the increase in the restated values of nonmonetary assets
below the increase in inflation as measured by the NCPI.
6. Monetary position gain represents the effects of inflation on
the Company's net monetary liability position as measured
using the NCPI.
7. The NCPI factors applied for each period are as follows:
[Download Table]
RATE OF
YEAR ENDED INFLATION FOR NCPI
DECEMBER 31, THE PERIOD FACTOR
1999 12.31% 1.1375
2000 8.96% 1.0440
2001 4.40% 1.0000
COMPREHENSIVE INCOME - In August 2000 the MIPA issued Bulletin B-4,
"Comprehensive Income" ("B-4"), the application of which is
mandatory for the year beginning January 1, 2001. In accordance with
the regulations of B-4, the statement of changes in shareholders'
equity for the year ended December 31, 2000 and 1999 were restated
to present comprehensive income in comparative form with respect to
2001 (see Note 9).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Company's accounting
policies are in accordance with accounting principles generally accepted
in Mexico and are summarized as follows:
COMPARABILITY - The following are the most significant transactions
affecting the comparability of the financial statements:
F-11
ACQUISITION OF SUBSIDIARIES AND MINORITY INTEREST - In July 1997,
Pepsi-Gemex and Pepsi-Cola Mexicana, S. A. de C. V. ("PCM") formed
Tenedora del Noreste, S. A. de C. V. ("Tenedora") with each holding
a 50% equity interest. Tenedora contemporaneously acquired certain
companies that have the exclusive rights to produce, sell and
distribute Pepsi-Cola bottled soft drinks in the northeast part of
Mexico, including the cities of Monterrey, Nuevo Leon and Gomez
Palacio, Durango (Tenedora and its subsidiaries are also identified
as the "Northeast Bottling Group"). The cash purchase price of these
acquired companies was Ps.58,323. At the time of acquisition these
companies were in bankruptcy and liability payments were legally
suspended. The excess of cost over fair value of net assets acquired
was Ps.393,965. At the end of 1998 Tenedora purchased all the
liabilities of the acquired companies which were in bankruptcy or
suspension of payments as above mentioned. Effective January 1,
1999, the Company commenced consolidating Tenedora as a result of an
amendment to the joint venture agreement (entered into with PepsiCo)
governing the financial and operating policies with respect to the
Northeast Bottling Group and the agreement entered into by Tenedora
with its creditors and the expected resolution of its bankruptcy
proceedings. At December 31, 2000 and 2001, all assets and
liabilities of Tenedora are included in the consolidated balance
sheets of the Company. The consolidated statements of income for
each of the three years in the period ended December 31, 2001
include the operations of Tenedora in each individual line item.
On December 19, 2001 the Court of the City of Monterrey, Nuevo Leon,
where the proceedings were held, declared the final adjudication of
the bankruptcy and suspension of payments of the companies that are
subsidiaries of Tenedora.
On September 6, 2000, the Company acquired through Embotelladores
Internacionales de Mexico, S. de R. L. de C. V. and Duingras Holding
B. V., 96.9% of the outstanding shares of Embotelladores del Valle
de Anahuac, S. A. de C. V. and subsidiaries ("Emvasa"), through a
cash tender offer. Subsequently, during the first quarter of 2001,
Pepsi-Gemex acquired an additional 3.0% of the outstanding shares of
Emvasa. For the remaining 0.1% that has not been acquired,
Pepsi-Gemex has recorded a reserve equivalent to the purchase price
set forth in the public tender offer for each of the shares,
pursuant to the terms of the agreement entered into by Pepsi-Gemex
and the National Banking and Securities Commission to cancel the
register of Emvasa as an issuer of securities before the Mexican
Stock Exchange. Emvasa has the exclusive rights to produce, sell and
distribute PepsiCola bottled soft drinks in most of the state of
Mexico, the north portion of the states of San Luis Potosi, Hidalgo
and Veracruz, the states of Tamaulipas and Queretaro, the south part
of the state of Guanajuato and the northeast portion of the state of
Jalisco. The cash purchase price of these acquired companies was
Ps.782,559, which includes the 3.0% acquired during the first
quarter of 2001 and the reserve for the acquisition of shares not
yet being owned. The excess of cost over fair value of net assets
acquired was Ps.315,249. Also, on September 6, 2000, the Company
acquired 2.87% of the shares outstanding of certain subsidiaries of
Emvasa, which represented the shares owned by the former principal
shareholder and his immediate family. The cash purchase price of
these shares was Ps.9,348. The excess of fair value of net assets
over cost of shares acquired of Ps.22,794, is included in the
Ps.315,249 amount above. Condensed consolidated audited financial
information as of the date of the acquisition, expressed in Mexican
pesos of purchasing power of December 31, 2001, is as follows:
[Download Table]
AUGUST 31,
2000
BALANCE SHEET:
Current assets Ps. 261,772
Fixed assets and other assets 910,486
Current liabilities (298,022)
Long-term liabilities (280,405)
Minority shareholders' equity (117,172)
----------------
Majority shareholders' equity Ps. 476,659
================
F-12
[Download Table]
EIGHT MONTHS
ENDED
AUGUST 31,
2000
STATEMENT OF INCOME:
Revenues Ps. 1,269,502
Costs and expenses (1,200,684)
Other income (expense) - net (650,252)
Taxes 234,705
----------------
Net loss of majority interest Ps. (346,729)
================
On December 14, 2000, the Company acquired from PCM, through Bebidas
Purificadas del Noreste, S. A. de C. V. and Emvasa, the minority
interest owned by PCM in Tenedora and Embotelladores Mexicanos de
Pepsi-Cola, S. A. de C. V. ("Empecsa") in exchange for 47,470,002 of
each of Series B, D and L shares of the Company. Such shares were
contributed to a trust in order to deliver to PCM such shares in the
form of CPO's. The above transaction has been accounted for as a
purchase. The difference between the book value of the minority
interest acquired and the market value of the shares issued has been
accounted for as negative goodwill or excess of cost over fair value
of net assets acquired. Such negative goodwill related to the
acquisition of the minority interest in Tenedora has been recognized
as other income because management considered that such subsidiary
has been fully integrated into the operations of the Company. The
excess of cost over fair value of net assets acquired will be
amortized over a period not to exceed twenty years.
During the second half of 2001, management of the Company, together
with its legal and tax counsel, re-evaluated the sufficiency of the
reserves recorded to cover probable tax contingencies identified
during the acquisition process of Emvasa (see Note 14). Also,
management of the Company re-evaluated the sufficiency of the
reserves recorded to cover severance payments to the personnel and
cost and expenses related to the sale of the real estate where the
corporate offices of Emvasa were located. The above gave rise to an
increase in the reserves of approximately Ps.99,000. Such increase
has been accounted for as a prospective modification of the goodwill
originally recognized.
RESTRUCTURING OF OPERATIONS - During December of 2000, management of
the Company initiated a restructuring program of the operations in
certain of its territories. Such program's main objectives were: (i)
to streamline the Company's operation as a result of the recent
acquisition of Emvasa; (ii) to phase out plastic returnable bottles
("PRB") in most of the territories (including those incorporated with
the acquisition of Emvasa); (iii) to continue with the commitment to
increase polyethylene tereftalate ("PET") packaging in the sales mix;
(iv) to increase utilized capacity at some of the plants and (v) to
reduce personnel at the Company in activities that are redundant due
to the acquisition of Emvasa. In order to accomplish the objectives
mentioned above, the Company closed four plants in the first quarter
of 2001, which are located in Mexico City and the states of Morelos,
Veracruz and San Luis Potosi. Production of such plants was shifted
to other locations. Also, the Company wrote-off the recorded value of
all the plastic returnable bottles, except those needed during the
phase-out period, together with their corresponding cases in all of
its territories other than the city of Toluca in the state of Mexico.
In addition, the Company identified machinery and equipment available
for sale due to duplication of facilities arising from the
acquisition of Emvasa and performed an analysis of impairment of
fixed assets in all of the facilities. The restructuring charge
includes Ps.547,056, net of salvage value, for the write down of
assets included in property, plant and equipment as well as the write
down of assets related to the bottling of the Company's products
using PRB packaging. Estimated salvage values are based on estimates
of the proceeds upon sale of certain of the affected assets. As of
December 31, 2000, the effect of the restructuring amounts to
Ps.568,980 (Ps.422,820, net of its corresponding tax effects).
Continuing with the restructuring program that started during 2000,
throughout the year 2001, certain operations were consolidated
through the merger of certain of the subsidiaries (see Operations at
the beginning of this Note), the continued closing of plants, the
phase out of PRB bottles in the city of Toluca and the identification
of additional fixed assets to be sold. An additional restructuring
charge of Ps.136,866 (Ps,88,963, net of its corresponding tax
effects) as a result of these efforts was recorded during the year
ended December 31, 2001.
F-13
The restructuring charges have been determined based on formal plans
approved by the Company's management using the best information
available at the time. The amounts the Company may ultimately incur
could change as the Company integrates the acquisition of Emvasa and
finishes the closure of facilities.
CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid
temporary investments with original maturities of three months or less to
be cash equivalents. Cash and cash equivalents consist primarily of bank
deposits which are stated at cost plus accrued interest.
INVENTORIES AND COST OF SALES - Inventories are valued at the lower of
cost or market value. Inventories of raw materials, work in process and
finished products are valued at average cost, which because of high
inventory turnover approximates replacement value, or market value.
Packaging, other materials and spare parts are recorded at acquisition
cost and are restated by applying a factor derived from the NCPI. Cost of
sales is stated at estimated replacement cost at the time of sale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
initially recorded at acquisition cost and are restated by applying a
price index for their country of origin. For fixed assets of foreign
origin, restated acquisition cost expressed in the currency of the country
of origin is converted into Mexican pesos at the market exchange rate in
effect at the balance sheet date. In accordance with the Fifth Document of
Amendments to Bulletin B-10 (Modified), the acquisition costs used to
restate fixed assets acquired up to December 31, 1996, were those reported
at that date based on net replacement values determined by expert
appraisers.
Returnable cases and bottles, introduced to the market free of charge, are
amortized over their estimated useful life of four years. Cases and
bottles representing working stock in the bottling plants are restated by
applying the NCPI factor. Breakage during production and distribution are
charged to operations of the year.
Depreciation is computed using the straight-line method, based on the
remaining useful lives of the assets, as follows:
[Download Table]
2000 2001
(AVERAGE YEARS)
Buildings 35 33
Leasehold improvements 22 20
Machinery and equipment 20 21
Furniture and fixtures 10 8
Vehicles 7 9
Bottles and cases 4 4
Refrigerated display cases 5 5
Net integral cost of financing related to borrowings specifically obtained
for the construction and installation of property, plant and equipment are
capitalized as part of the cost of these assets. In the absence of
borrowings obtained specifically for the construction or installation of
property, plant and equipment, net financing costs are capitalized as part
of the cost of these assets based on the weighted average financing cost
rate of all debt outstanding during the construction or installation
period. Net integral cost of financing capitalized is restated using the
NCPI. The Company did not capitalize any financing costs during the years
ended December 31, 1999, 2000 and 2001. Unamortized capitalized financing
costs at December 31, 2000 and 2001, were Ps.191,971 and Ps. 171,764,
respectively.
INVESTMENTS IN ASSOCIATED COMPANIES - Investments in associated companies
in which the Company has an ownership interest between 10% and 50%, but
does not have effective control, are accounted for using the equity method
and are included in other assets.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - Excess of cost
over fair value of net assets acquired is amortized using the
straight-line method over 20 years and is restated using the NCPI. In
accordance with practices followed by companies listed on the Mexican
Stock Exchange, beginning in 2001, management of the
F-14
Company began to include as part of other income and expense in the
accompanying statements of income the amortization of the excess of cost
over fair value of net assets acquired, which was previously reported as
an operating cost. Accordingly, the consolidated statements of income of
prior years have been reclassified in order to be consistent with the
presentation utilized in 2001.
LABOR OBLIGATIONS - Severance payments are charged to operations when
incurred. Statutory seniority premiums are determined on the basis of
independent actuarial calculations using the projected unit credit method
and are recognized over estimated employees' years of service.
Unrecognized prior service cost is amortized over the expected remaining
service period of employees, which is 18 years.
OPERATIONS IN FOREIGN CURRENCY - Foreign currency operations are recorded
at the exchange rate applicable at the transaction date. Monetary assets
and liabilities denominated in foreign currency are translated into
Mexican pesos at the applicable exchange rate at the balance sheet date.
Exchange fluctuations are recorded in results of operations, except those
amounts capitalized as a component of construction cost.
USE OF ESTIMATES - The preparation of financial statements in accordance
with accounting principles generally accepted in Mexico requires
management to make estimates and assumptions which affect the amounts
reported in the financial statements and the accompanying notes. Although
these estimates are based on management's best knowledge of current
events, actual results may differ.
INCOME TAX, TAX ON ASSETS AND EMPLOYEE STATUTORY PROFIT-SHARING - The
provisions for income tax ("IT") and employee statutory profit-sharing
("ESPS") are recorded in results of the year in which they are incurred.
Deferred income tax assets and liabilities are recognized for temporary
differences resulting from comparing the book and tax values of assets and
liabilities plus any future benefits from tax loss carryforwards. Deferred
ESPS is recognized for temporary differences resulting from comparing the
book and tax values of assets and liabilities, only when it can be
reasonably assumed that they will generate a liability or benefit, and
there is no indication that this liability will not be paid or benefit
will not be realized.
Tax on assets paid that is expected to be recoverable is recorded as an
advance payment of income tax and is presented with deferred income taxes.
As of January 1, 2000, the Company implemented Bulletin D-4, "Accounting
Treatment of Income Tax, Tax on Assets and Employee Statutory
Profit-sharing" ("D-4"). The initial cumulative effect at that time was
Ps.1,300,190, which is included in the accompanying financial statements
in shareholders' equity.
REVENUE RECOGNITION - Sales are recorded at the time risks and rewards
related to the inventories are transferred to customers, which generally
occurs when products are shipped by the Company to their customers for
delivery in satisfaction of orders.
CARRYING VALUE OF LONG-TERM ASSETS - The Company evaluates the carrying
value of long-term assets based upon current and anticipated discounted
cash flows, and recognizes an impairment when such estimated cash flows
will be less than the carrying value of the asset. Measurement of the
amount of impairment, if any, is based upon the difference between the
carrying value and the fair value.
EARNINGS PER SHARE, PER CPO AND PER GDS - Earnings per Series B and L
share is computed by dividing consolidated net income of majority
interest, after reducing it for earnings attributable to preferred shares
(Series D), by the weighted average number of Series B and L shares
outstanding during each period. Earnings per Series D share is computed by
dividing consolidated net income attributable to Series D share (up to the
tenth anniversary, as defined in the Company's bylaws, the greater of 5%
of the stated value of Series D shares ("fixed preference") or 145% of
earnings attributable to each Series B and L shares ("premium
preference"); after the tenth anniversary the greater of the fixed
preference or the per share earnings available to Series B, D or L shares
after paying to the Series B and L shareholders an amount equal to the
fixed preference) by the weighted average number of Series D shares
outstanding during each period.
F-15
2. ACCOUNTS RECEIVABLE
[Download Table]
2000 2001
Trade Ps. 686,075 Ps. 596,339
Less allowance for doubtful accounts (67,070) (106,828)
---------------- --------------
619,005 489,511
Due from Pepsi-Cola Mexicana, S. A. de C. V. (1) 82,650 25,502
Due from affiliates 47,560 65,924
Recoverable taxes 172,131 311,267
Other 92,701 88,556
---------------- --------------
Ps. 1,014,047 Ps. 980,760
================ ==============
----------
(1) A subsidiary of PepsiCo, a shareholder of Pepsi-Gemex.
3. INVENTORIES
[Download Table]
2000 2001
Finished products Ps. 185,119 Ps. 158,069
Raw materials (1) 725,741 453,251
Packaging materials and spare parts 98,031 69,959
Other 48,043 54,580
---------------- --------------
Ps. 1,056,934 Ps. 735,859
================ ==============
----------
(1) Includes advances to affiliated companies, that are either wholly-owned or
controlled by the Company's largest shareholder, at December 31, 2000 of
Ps.510,231 (See note 11).
4. PROPERTY, PLANT AND EQUIPMENT
[Enlarge/Download Table]
2000 2001
Land Ps. 996,541 Ps. 952,893
Buildings 1,923,318 1,951,279
Leasehold improvements 178,947 309,863
Machinery and equipment 3,280,655 2,960,062
Furniture and fixtures 201,134 260,712
Vehicles 2,140,777 2,241,825
Bottles and cases 461,617 433,026
Refrigerated display cases 915,561 941,901
---------------- --------------
10,098,550 10,051,561
Less accumulated depreciation 3,425,529 3,646,503
---------------- --------------
6,673,021 6,405,058
Machinery and equipment available for sale (see Note 1) 292,320 314,225
Construction in progress 297,106 406,607
---------------- --------------
Ps. 7,262,447 Ps. 7,125,890
================ ==============
5. OTHER ASSETS
[Enlarge/Download Table]
2000 2001
Investments in associated companies Ps. 62,003 Ps. 62,485
Intangible assets from labor obligations upon retirement 39,844 60,795
Other 319,496 201,290
---------------- --------------
Ps. 421,343 Ps. 324,570
================ ==============
F-16
6. NOTES PAYABLE
[Enlarge/Download Table]
2000 2001
U.S. dollar-denominated:
Unsecured lines of credit with Mexican banks at variable interest rates
(8.34% and 3.46% weighted average interest rate at December
31, 2000 and 2001, respectively) Ps. 499,339 Ps. 139,984
Unsecured loans from a foreign bank, bearing interest at a rate
equivalent to LIBOR plus 150 and 165 basis points, respectively, (7.90%
and 3.53% weighted average interest rate at December 31, 2000
and 2001, respectively). 100,746 141,980
Mexican peso-denominated:
Unsecured line of credit with a Mexican Bank, at an interest rate
of 8.50% at December 31 2001. -- 65,000
Unsecured loans with a Mexican bank payable at the equivalent of
Mexican pesos of the investment units borrowed ("UDIS", an investment
unit adjusted for inflation in Mexico) bearing interest at a variable
rate (9.69% weighted average interest rate at December 31, 2000).
279,669 --
------------ -----------
Ps. 879,754 Ps. 346,964
============ ===========
The Company also has available line of credit arrangements with an
aggregate borrowing capacity of Ps.366,400. However there can be no
assurance that the Company will have available sources of borrowings at
the maturity dates of existing debt.
7. LONG-TERM DEBT AND OTHER NON-CURRENT LIABILITIES
[Enlarge/Download Table]
2000 2001
U.S. dollar-denominated:
U.S. $160 million guaranteed senior notes due 2004 Ps. 1,611,936 Ps. 1,465,600
U.S. $150 million guaranteed syndicated loan due 2003 1,511,190 1,374,000
Loans from foreign banks for acquisition of machinery and equipment at
a variable interest rate of LIBOR plus 130 basis points (7.44% and
6.26% at December 31, 2000 and 2001, respectively) with maturities from
2003 to 2007, collateralized by assets with a net book value of
Ps.112,178 and Ps.102,963 at December 31, 2000 and 2001, respectively 93,394 126,308
Loan from Mexican bank for the acquisition of vehicles at a variable
interest rate of LIBOR plus 368 basis points (9.72% and 5.56% at
December 31, 2000 and 2001, respectively), maturing in 2006 14,308 10,531
Other loans from foreign banks for acquisition of machinery and
equipment at 6.0% fixed interest rate, collateralized by assets with
a net book value of Ps.7,881 at December 31, 2000 12,046 --
------------- -------------
F-17
[Download Table]
3,242,874 2,976,439
Less current portion of long-term debt 36,803 29,946
------------- -------------
Long-term debt 3,206,071 2,946,493
Statutory seniority premium (Note 8) 128,030 189,981
Long-term debt and other non-current liabilities
Ps. 3,334,101 Ps. 3,136,474
============= =============
a. Annual maturities of long-term debt at December 31, 2001, are as
follows:
[Download Table]
YEAR AMOUNT
2003 Ps. 1,403,946
2004 1,491,478
2005 25,878
2006 18,015
2007 7,176
---------------
Ps. 2,946,493
===============
b. On April 4, 1997, Pepsi-Gemex issued U.S.$160 million of 9.75%
guaranteed senior notes (the "Guaranteed Notes") maturing in March
2004. Interest on the Guaranteed Notes is payable semiannually on
March 30 and September 30 of each year. The Guaranteed Notes are
guaranteed by all of Pepsi-Gemex's subsidiaries (the "Guarantors")
except Bebidas Purificadas del Noreste, S. A. de C. V. and its
subsidiaries through which the Company owns Tenedora and the
Northeast Bottling Group. The Guaranteed Notes contain limitations
that could restrict the payment of dividends and other payments, as
well as restrict the ability of the Company to incur additional
indebtedness, incur liens, issue loan guarantees, and sell fixed
assets and investments in shares of subsidiaries if certain
financial tests are not met.
c. On September 1, 2000, Pepsi-Gemex entered into a syndicated loan
agreement for an aggregate amount of U.S.$150 million (the
"Syndicated Loan") maturing on February 28, 2002, which proceeds
were used to pay for the purchase of Emvasa and to refinance
existing indebtedness. Interest on the Syndicated Loan is payable
utilizing a LIBOR rate, at the election of the Company,
corresponding to periods ranging from one week and up to six months
plus 175 basis points. Interest is payable at the end of the LIBOR
interest period chosen by Pepsi-Gemex, or in the case of a six-month
interest period, at three-month intervals. The Syndicated Loan is
guaranteed by all of Pepsi-Gemex's material subsidiaries, as defined
in the agreement (the "Subsidiary Guarantors"). The Company has the
right to prepay the loans in whole or in part. The Syndicated Loan
contains limitations that could restrict the payment of dividends
and other payments, as well as restrict the ability of the Company
to incur additional indebtedness, incur liens, issue loan
guarantees, wind up, liquidate, merge or dissolve, sell fixed assets
or make investments in shares of subsidiaries if certain financial
tests are not met.
d. On December 21, 2001, Pepsi-Gemex renewed the syndicated loan
agreement for an aggregate amount of U.S. $150 million (the "Renewed
Syndicated Loan") maturing on December 21, 2003. Interest on the
Renewed Syndicated Loan is payable utilizing a LIBOR rate, at the
election of the company, corresponding to periods ranging from one
week and up to six months plus 162.5 basis points. Interest is
payable at the end of the LIBOR interest period chosen by
Pepsi-Gemex, or in the case of a six-month interest period, at
three-month intervals. The Company has the right to prepay the loans
in whole or in part. The limitations on certain operations agreed to
in the initial Syndicated Loan were not modified. The Renewed
Syndicated Loan has been irrevocably and unconditionally guaranteed
by the following subsidiaries: Embotelladora Metropolitana, S. A. de
C. V., Purificadora de Agua Los Reyes, S. A. de C. V., Industria de
Refrescos del Noreste, S. A. de C. V. y Bebidas Purificadas del
Sureste, S. A. de C. V. Additionally, the agreement establishes that
any subsidiary representing more than 5% of annual consolidated
revenues must guarantee the Renewed Syndicated Loan.
Management believes the Company was in compliance with the covenants of
its loan agreements at December 31, 2001. Also, under the most restrictive
of the above limitations, Ps.1,099,620 was available at December 31, 2001
to pay dividends.
F-18
8. STATUTORY SENIORITY PREMIUMS AND PENSION PLAN
At December 31, 2000 and 2001, the liability for seniority premiums,
included in long-term debt and other noncurrent liabilities, is Ps.128,030
and Ps.189,981, respectively. Net periodic cost was Ps.10,545, Ps.32,367
and Ps.38,293, for the years ended December 31, 1999, 2000 and 2001,
respectively. Since other disclosures required by Mexican GAAP are not
material to the consolidated financial statements, they are not included
herein.
During 2001, the Compensation Committee of the Company approved the
adoption of a pension plan for certain of its executives; this pension
plan was then ratified by the Board of Directors. The pension plan
provides for defined benefits, in excess of those granted by the Mexican
Social Security Institute, to the retirees or their beneficiaries. The
employees are eligible for benefits if they meet certain age and years of
service with the Company and are given credit for years of service prior
to adoption of the pension plan. Pursuant to the bylaws of the pension
plan, the pension plan will become effective January 1, 2002, subject to
the filing of a notice of adoption and approval by the Ministry of Finance
and Public Credit of the deductibility for income tax purposes of cash
contributions to be made to the trust fund set up to manage pension plan
Assets. The notice before the Ministry of Finance and Public Credit was
filed on April 23, 2002.
9. SHAREHOLDERS' EQUITY
a. At December 31, 2000 and 2001 majority shareholders' equity at
historical and restated values consists of the following:
[Enlarge/Download Table]
2000
HISTORICAL RESTATED TOTAL
Capital stock Ps. 166,761 Ps. 711,458 Ps. 878,219
Additional paid-in capital 2,064,240 2,734,456 4,798,696
Retained earnings and reserves 1,061,512 1,882,026 2,943,538
Cumulative effect of deferred income tax and
employee statutory profit-sharing (1,142,981) (157,209) (1,300,190)
Deficiency in restated shareholders' equity -- (2,353,371) (2,353,371)
-------------- -------------- --------------
Ps. 2,149,532 Ps. 2,817,360 Ps. 4,966,892
============== ============== ==============
[Enlarge/Download Table]
2001
HISTORICAL RESTATED TOTAL
Capital stock Ps. 167,510 Ps. 711,423 Ps. 878,933
Additional paid-in capital 1,817,240 2,734,594 4,551,834
Retained earnings and reserves 1,675,794 1,811,977 3,557,771
Cumulative effect of deferred income tax and
employee statutory profit-sharing (1,142,981) (157,209) (1,300,190)
Adjustment to shareholders' equity from labor
obligations upon retirement (43,403) -- (43,403)
Deficiency in restated shareholders' equity -- (2,978,583) (2,978,583)
-------------- -------------- --------------
Ps. 2,474,160 Ps. 2,192,202 Ps. 4,666,362
============== ============== ==============
At December 31, 2000 and 2001 the number of shares of capital stock
consists of the following:
[Enlarge/Download Table]
2000
SERIES B D L TOTAL
Authorized 804,969,954 410,337,945 410,337,945 1,625,645,844
Unissued (18,950,264) (18,950,264) (18,950,264) (56,850,792)
--------------- --------------- ---------------- ---------------
Total shares issued 786,019,690 391,387,681 391,387,681 1,568,795,052
=============== =============== ================ ===============
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[Enlarge/Download Table]
CPO's issued 391,387,681 391,387,681 391,387,681 1,174,163,043
Series B issued 394,632,009 - - 394,632,009
Repurchased shares (29,990,673) (18,818,673) (18,818,673) (67,628,019)
--------------- --------------- ---------------- ---------------
Total outstanding shares 756,029,017 372,569,008 372,569,008 1,501,167,033
=============== =============== ================ ===============
[Enlarge/Download Table]
2001
SERIES B D L TOTAL
Authorized 794,342,786 399,710,777 399,710,777 1,593,764,340
Unissued (8,323,096) (8,323,096) (8,323,096) (24,969,288)
--------------- --------------- ---------------- ---------------
Total shares issued 786,019,690 391,387,681 391,387,681 1,568,795,052
=============== =============== ================ ===============
CPO's issued 391,387,681 391,387,681 391,387,681 1,174,163,043
Series B issued 394,632,009 - - 394,632,009
Repurchased shares (27,848,673) (16,676,673) (16,676,673) (61,202,019)
--------------- --------------- ---------------- ---------------
Total outstanding shares 758,171,017 374,711,008 374,711,008 1,507,593,033
=============== =============== ================ ===============
1. Series B shares (common, ordinary voting stock) must represent a
minimum of 50% plus one share of the Company's total outstanding
capital stock and may never be less than the sum of the outstanding
Series D and Series L shares. Series B shares may be acquired by
Mexican and foreign citizens and by Mexican and foreign enterprises
under the terms provided for in Mexican foreign investment
legislation.
2. Series D shares (limited voting cumulative preferred stock) may not
represent more than 25% less one voting share of the Company's
outstanding capital stock. Series D shares may be acquired by
Mexican and foreign citizens and by Mexican and foreign enterprises.
3. Series L shares (limited voting stock) may not represent more than
25% of the Company's outstanding capital stock and can be acquired
by Mexican and foreign citizens and by Mexican and foreign
enterprises.
The CPO's are certificates of ordinary participation. Each CPO represents
one Series B share, one Series D share and one Series L share.
Under Pepsi-Gemex bylaws and Mexican law, our annual net earnings,
according to our annual financial statements, are applied as follows:
- First, an amount equivalent to at least 5% of net earnings is
segregated to build a legal reserve until such reserve is equal to
20% of our capital stock. Pepsi-Gemex commenced accumulation of this
reserve in 1992 by applying 5% of our net earnings for the year
ended December 31, 1991. As of December 31, 2001, Ps.175.4 million
remained to be allocated to this reserve.
- Second, the holders of B Shares may allocate a percentage of net
profits determined at the annual meeting of shareholders to any
special reserve, including a reserve for open-market purchases of
our outstanding shares of capital stock. From 1992 through 2001, our
shareholders approved a reserve in the total amount of Ps.870.0
million (nominal).
- Third, net profits are allocated as determined by the holders of B
Shares and may be distributed as dividends, subject to the
restrictions referred to above and to the following rights and
preferences:
- During the ten-year term following the date of issuance of the
D Shares, the holders of the D Shares are entitled to the
following rights, in accordance with Article 113 of the
General Law of Commercial Corporations:
- Dividends to the holders of the B and L Shares cannot be
paid unless the holders of the D Shares have previously
received a dividend of Ps.0.00555555555 per share per
annum (the "minimum cumulative dividend"), equivalent to
five percent of the nominal value of the D Shares, or
Ps.0.11111111111 per share. If dividends are not paid in
any fiscal year, or if they
F-20
are less than the mentioned amount, such dividend or the
unpaid balance must be accumulated and shall be paid
with the preference described herein.
- Once the minimum cumulative dividend is paid to the
holders of the D Shares, the shareholders may declare
the payment of additional dividends on a pro rata basis,
however, the holders of the D Shares shall have the
right to receive a dividend in the amount of the
dividend paid to holders of the B and L Shares,
multiplied by 145% (deducting, for purposes of
determining such dividend, the amount that corresponds
to the minimum cumulative dividend).
- At the end of the ten-year term, the holders of the shares
will have the following rights:
A. holders of D Shares will be entitled to receive any
unpaid portion of the minimum cumulative dividend;
B. once the minimum cumulative dividend has been paid to
the holders of the D Shares, the shareholders may
declare the payment of additional dividends, in which
case the holders of the B and L Shares will receive the
same amount that the holders of the D Shares received as
a minimum cumulative dividend up to the amount such that
all shareholders will have received the same amount once
those dividends are paid; and
C. once the dividends referred to in clause B above are
paid, the shareholders may declare additional dividends
on a pro rata basis.
In the event of liquidation of Pepsi-Gemex, holders of Series D
shares will be entitled to a liquidation preference (the
"Liquidation Preference") equal to (i) the accrued but unpaid
Minimum Cumulative Dividend and (ii) 5% of the stated value of
Series D share. Following payment of the Liquidation Preference,
holders of Series B and L shares will be entitled to receive, if
available, an amount equal to the Liquidation Preference per Series
D share. Following payment in full at an amount equal to the
Liquidation Preference per Series D share, Series B, Series L and
Series D share will share equally, on a per share basis, in any
remaining amounts payable.
b. In February 1999, Pepsi-Gemex adopted a revised executive stock
ownership program that provides options to purchase its Series T
Shares to its officers and employees. This program replaced the
program that had previously been in place prior to 1996. Under the
program, the officers and employees have the right to receive, based
on their position in the company, the amount of T Shares specified
in the program for that position, on a yearly basis, or in the case
of the Chairman of the Board and the Chief Operating Officer, every
two years. Only individuals who are currently employed by the
Company can hold the T Shares. The program contemplates the grant of
options after May 1 of each year. Under the program, the exercise
price is determined by reference to the closing price of the CPOs on
the Mexican Stock Exchange on the last trading day prior to May 1 of
each year of the grant. The issuance of the options to be granted
each year is subject to the final approval of the Compensation
Committee of the Board of Directors ("Compensation Committee").
Holders of T Shares will be entitled, for every three T Shares held,
to receive dividends and distributions equal to those paid by
Pepsi-Gemex in respect of one B Share, one L Share and one D Share.
Additionally, holders of T Shares will be entitled to convert T
Shares into B Shares, L Shares and D Shares at a rate of one B
Share, one L Share and one D Share, that is, one CPO, for every
three T Shares converted. The holder of the T Shares must request
conversion into Series B, D and L shares and in turn, into CPOs
within 180 days of the delivery of the T Shares, or within such
other period as our Compensation Committee may determine. T Shares
have no voting rights and do not constitute capital of Pepsi-Gemex.
Pepsi-Gemex has authorized 25,500,000 T Shares which have been
reserved for issuance under the revised option program of which
530,712 have been converted into 176,904 B shares, 176904 D shares
and 176,904 L shares.
Activity for options of the T Shares during each of the years in the
three-year period ended December 31, 2001, is as follows:
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[Download Table]
1999 2000 2001
(In thousands)
Outstanding at the beginning of the year 12,686 16,006 23,054
Granted 3,320 7,048 --
Exercised -- -- --
Forfeited -- -- --
------ ------ ------
Outstanding at the end of the year 16,006 23,054 23,054
====== ====== ======
Weighted average remaining life (in years) 7.10 7.59 6.59
====== ====== ======
Exercisable at the end of the year 4,963 6,382 12,686
====== ====== ======
Weighted average remaining life (in years) 6.3 5.5 5.4
====== ====== ======
Options granted during the years ended December 31, 1999 and 2000
have an exercise price per T share of Ps.5.38 and Ps.2.65 (nominal
pesos), respectively. The weighted average exercise price of options
outstanding at December 31, 1999, 2000 and 2001 was Ps.5.23, Ps.4.44
and Ps.4.44 (nominal pesos), respectively. The weighted average
exercise price of options exercisable at December 31, 2001 was
Ps.5.19 (nominal pesos), respectively.
c. At the Shareholders' Ordinary and Extraordinary General Meetings of
April 27, 2000, the following resolutions were adopted: (i) to
cancel 24,969,288 shares which were deposited in treasury; (ii) to
increase capital share by 216,000,000 shares in the manner decided
by the Board of Directors or the executive committee through the
issuance of 72,000,000 of each of the Series B, D and L shares;
(iii) to increase of the legal reserve in the amount of Ps.36,167.9
(nominal) and; (iv) to rescind the previous authorization to issue
Series B, D, and L shares, other than the 8,323,096 of each that
were subject to conversion pursuant to the Revised Option Plan to
the extent such shares are not issued and paid for before March 31,
2001.
d. At the Shareholders' General Ordinary Meeting of April 30, 2001, the
following resolutions were adopted: (i) to increase the legal
reserve in the amount of Ps.24,693.05 (nominal); (ii) to record a
special reserve of Ps.7.19 for the payment of the purchase price of
the shares of Emvasa not yet owned by the Company and (iii) to
maintain the reserve for the acquisition of Pepsi-Gemex own shares
in the amount of Ps.870,000.
e. At the shareholders' General Ordinary Meeting of December 20, 2001,
the application of Ps.246,930.5 from retained earnings to pay
dividends within the first six months of 2002 as follows was
approved: (i) payment to holders of Series D shares the amount of
Ps.0.2203736309 for each of the 374,711,008 outstanding Series D
shares, this amount includes the preferred dividend corresponding to
each share; (ii) payment to holders of Series B shares the amount of
Ps.0.145075187 for each of the 758,171,017 outstanding Series B
shares; (iii) payment to holders of Series L shares the amount of
Ps.0.145075187 for each of the 374,711,008 outstanding Series L
Shares; (iv) holders of CPO's issued based on one Series B share,
one Series D share and one Series L share, would receive
Ps.0.510526682 for each of the CPO's, this amount includes preferred
dividend of Series D shares as well as Series B and Series L shares
dividend included in the own CPO's.
f. Reserves include a legal reserve and a reserve for the repurchase of
capital stock. At December 31, 2001, the Company had repurchased
61,202,019 shares that represented 3.90% of total shares issued. The
repurchased shares have been deducted from capital stock
outstanding. Reserves at December 31, 2001, include a legal reserve
of Ps.175,351(nominal), which may not be used to pay dividends.
Under Mexican law, this reserve must be increased by 5% of annual
net income until it represents 20% of capital stock.
g. As of December 31, 2001, retained earnings and the deficiency in
restated shareholders' equity include Ps.2,492,757 of retained
earnings that have not been distributed by the subsidiaries and
associates of the Company.
F-22
h. Net comprehensive (loss) income presented in the accompanying
consolidated statements of changes in shareholders' equity
represents the Company's total activity during each year, and
includes the net income of the year, plus other comprehensive items
of the same period, which, in accordance with accounting principles
generally accepted in Mexico, are presented directly in
shareholders' equity without affecting the statement of income. In
2000 and 2001, the other comprehensive (loss) income items consist
of deficiency in restated shareholders' equity. Furthermore, in 2000
and 2001 net comprehensive (loss) income includes the cumulative
effect of deferred income tax and the adjustment to shareholders'
equity from labor obligations upon retirement, respectively.
i. Shareholders' equity, except restated paid-in capital and tax
retained earnings, will be subject to a 35% dividend tax, payable by
the Company, in the event of distribution. Beginning January 1,
2003, such rate will be reduced by one percentage point each year
until reaching 32% in 2005. Any income tax paid on such distribution
may be credited against future income tax payable by the Company in
the three fiscal years following such payment.
Tax balances of shareholders' equity accounts as of December 31,
2001, are as follows:
[Download Table]
Tax restated paid-in capital Ps. 5,416,516
Consolidated tax retained earnings 258,177
Consolidated reinvested tax retained earnings -
---------------
Total Ps. 5,674,693
===============
10. FOREIGN CURRENCY BALANCES AND TRANSACTIONS
a. Monetary position in U.S. dollars at December 31, 2000 and 2001 is
as follows:
[Enlarge/Download Table]
2000 2001
(THOUSANDS OF MEXICAN PESO (THOUSANDS OF MEXICAN PESO
U. S. DOLLARS) EQUIVALENT U.S. DOLLARS) EQUIVALENT
Assets:
Current $ 1,075 Ps. 10,831 $ 3,320 Ps. 30,411
-------------- ------------------ -------------- ------------------
Liabilities:
Current (63,217) (636,888) (34,050) (311,893)
Long-term (318,227) (3,206,012) (321,669) (2,946,493)
-------------- ------------------ --------------- -------------------
Total liabilities (381,444) (3,842,900) (355,719) (3,258,386)
-------------- ------------------ -------------- ------------------
Position-short $ (380,369) Ps. (3,832,069) $ (352,399) Ps. (3,227,975)
============== ================== ============== ==================
b. At December 31, 2001, the Company had machinery and equipment of
foreign origin with an aggregate net book value as follows:
[Download Table]
FOREIGN MEXICAN PESO
CURRENCY EQUIVALENT
U.S. dollars 73,825 Ps. 676,237
Canadian dollars 32,423 197,681
Deutsche marks 35,697 147,955
French francs 327,917 405,262
c. Foreign currency denominated transactions were as follows:
F-23
[Enlarge/Download Table]
2000 2001
(THOUSANDS OF MEXICAN PESO (THOUSANDS OF MEXICAN PESO
U. S. DOLLARS) EQUIVALENT U.S. DOLLARS) EQUIVALENT
Interest expense $ 31,872 Ps. 321,096 $ 30,196 Ps. 292,410
Interest income 93 934 3 29
Resin purchases 61,830 611,544 71,410 664,625
Fixed asset sales 1,287 12,966 -- --
Fixed asset purchases 7,411 73,024 13,065 118,404
Rent expense 29,491 297,111 22,170 213,961
d. Exchange rates quoted at December 31, 2000 and 2001 and on February
26, 2002 were. Ps.9.65, Ps.9.16 and Ps.9.08 (historical values) per
U.S. $1.00, respectively
11. TRANSACTIONS WITH RELATED PARTIES
The Company engages in transactions with affiliated companies that
are either wholly owned or controlled by the Company's largest
shareholder or members of his family. In addition, the Company
purchases concentrate from PCM, who together with its affiliates,
constitutes the Company's second largest shareholder. According to
the Company's bylaws, such transactions must be approved by a
committee of the Board of Directors constituted specifically for the
purpose of reviewing transactions between the Company and
affiliates. The committee is responsible to determine that affiliate
transactions are on terms comparable to terms at which unrelated
parties would consummate such transactions.
Transactions with related parties, carried out in the ordinary
course of business, were as follows:
[Download Table]
1999 2000 2001
Sugar purchases (1) Ps. 721,492 Ps. 798,160 Ps. 944,584
Concentrate purchases 883,515 1,052,217 1,230,220
Administrative services expense 7,317 6,100 4,704
Purchase of fixed assets 17,335 105,789 59,905
----------
(1) In September 2001, the Federal Government expropriated the sugar mills
owned by the principal shareholder of the Company, which was then a
supplier to the Company, Beginning September 2001 the Company purchases
this raw material from non-related parties.
12. INCOME TAX, TAX ON ASSETS, EMPLOYEE STATUTORY PROFIT-SHARING AND
SUBSEQUENT EVENT - 2002 TAX REFORM
Pepsi-Gemex and its subsidiaries, with the exception of Emvasa and its
subsidiaries, file consolidated income tax and tax on assets returns in
the proportion in which Pepsi-Gemex owns the voting stock of its
subsidiaries at the balance sheet date. Emvasa and its subsidiaries file a
separate consolidated income tax and tax on assets returns in the
proportion in which Emvasa owns the voting stock of its subsidiaries at
the balance sheet date. Beginning January 1, 2002, the proportion will be
calculated based on the daily average equity maintained by Pepsi-Gemex and
Emvasa of its subsidiaries during the year, and the tax results of the
subsidiaries are consolidated at 60% of such proportion. Prepayments of
income tax and tax on assets of both the holding company and its
subsidiaries are made as if the holding company did not file a
consolidated tax return.
a. The provisions for income tax, tax on assets and employee statutory
profit-sharing are as follows:
F-24
[Download Table]
YEAR ENDED DECEMBER 31,
1999 2000 2001
Income taxes:
Current Ps. 263,610 Ps. 73,018 Ps. 149,121
Deferred (615) (247,437) 79,725
Tax on assets 75,233 -
-------------- -------------- --------------
Ps. 338,228 Ps. (174,419) Ps. 228,846
============== ============== ==============
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
1999 2000 2001
Employee statutory profit-sharing:
Current Ps. 3,414 Ps. 6,097 Ps. 5,878
Deferred 1 58,874 (10,725)
-------------- -------------- --------------
Ps. 3,415 Ps. 64,971 Ps. (4,847)
============== ============== ==============
b. The Mexican income tax rate is 35%. Beginning January 1, 2003, such
rate will be reduced by one percentage point each year until
reaching 32% in 2005. Reconciliation of the statutory income tax
rate and effective rate as a percentage of income before provisions
for the year ended December 31, 2000 and 2001 is:
[Enlarge/Download Table]
Statutory Tax Rate 35.0% 35.0%
Carryforward of tax losses for which no deferred tax
assets were previously recorded (27.6%) --
Effect arising from assessment of realization of carryforward
tax losses in future years (56.0%) (8.5%)
Effects of inflation (9.1%) 2.4%
Effect arising from assessment of realization of tax benefits
in future years from tax on assets -- (7.9%)
Other permanent differences 14.8% 6.9%
---------- --------
Effective rate (42.9%) 27.9%
========== ========
c. SUBSEQUENT EVENT - Changes to the income tax law were enacted by the
Mexican government on January 1, 2002, included the following:
- In addition to the reduction in the income tax rate and the
new procedure to determine the proportion in which the holding
company owns the shares of its subsidiaries, as mentioned in
preceding paragraph, the Company no longer has the option of
deferring the payment of 5% of taxable income until
distribution of related profits.
- Any income tax paid on distributed dividends may be credited
against future income tax payable by the Company in the three
fiscal years following such payment.
- The obligation to withhold income tax for dividends paid to
individuals or nonresidents is eliminated.
- Profit-sharing paid is no longer deductible against income
taxes.
The effects of these changes on the calculation of deferred taxes
must be recorded as of January 1, 2002, using the tax rate
applicable when the temporary differences are expected to reverse.
The Company has not fully quantified the net effect derived from
these changes.
d. At December 31, the main items comprising the balance of deferred
income tax and employee statutory profit-sharing are as follows:
F-25
[Download Table]
2000 2001
Deferred income tax liabilities:
Property, plant and equipment Ps. 721,288 Ps. 783,995
Inventories 377,176 348,833
Other 55,049 45,871
-------------- --------------
Total 1,153,513 1,178,699
-------------- --------------
Deferred income tax assets:
Tax inventory from 1986 (or 1988) (33,193) (24,937)
Allowance for doubtful accounts (26,090) (37,390)
Effect of tax loss carryforwards (252,623) (115,941)
Effect of recoverable tax on assets - (122,906)
Other (57,008) (104,973)
-------------- --------------
Total (368,914) (406,147)
-------------- --------------
Net non-current liability 784,599 772,552
-------------- --------------
[Enlarge/Download Table]
2000 2001
Deferred employee statutory profit-sharing liabilities:
Property, plant and equipment Ps. 100,263 Ps. 69,101
Inventories 64,016 76,446
Other 10,922 16,420
-------------- --------------
Total 175,201 161,967
-------------- --------------
Deferred employee statutory profit sharing assets:
Tax inventory from 1986 (or 1988) (9,292) (6,674)
Allowance for doubtful accounts (7,090) (3,895)
Effect of tax loss carryforwards - (8,144)
Other (15,229) (16,649)
-------------- --------------
Total (31,611) 35,362
-------------- --------------
Net non-current liability 143,590 126,605
-------------- --------------
Total Ps. 928,189. Ps. 899,157
=============== ==============
e. Due to an improvement in the circumstances used to assess the
recovery of tax on assets paid and the benefits from tax loss
carryforwards, in 2001 Ps.122,906 of allowance for recoverable tax
on assets was cancelled and credited to results.
f. Tax on assets for which the prepaid income tax expense has been
recognized can be recovered subject to certain conditions. Restated
amounts as of December 31, 2001 and expiration dates are as follows:
[Download Table]
YEAR OF
EXPIRATION TAX ON ASSETS
2004 Ps. 4,167
2006 3,915
2008 4,913
2009 36,538
2010 62,845
2011 10,528
--------------
Ps. 122,906
==============
Also, certain subsidiaries have restated tax losses originated before
tax consolidation which may only be used to offset income generated by such
subsidiaries. Expiration dates and restated amounts are as follows:
F-26
[Download Table]
TAX
YEAR OF LOSS
EXPIRATION CARRYFORWARDS
2007 Ps. 29,220
2008 121,907
2009 32,508
2010 38,069
2011 32,112
--------------
Ps. 253,816
==============
As of December 31, 2001, certain subsidiaries have carryforward tax
losses of Ps.77,445, that originated after the tax consolidation,
which may only be used to offset income generated by such
subsidiaries.
g. For the year ended December 31, 1999, the Company amortized
carryforward tax losses that resulted in a benefit of Ps.257,983,
which is reflected as an extraordinary gain in the consolidated
statement of income.
h. For the year ended December 31, 2001 the change in deficiency in
restated shareholders' equity, as shown in the consolidated
statement of changes in shareholders' equity, is presented net of
the effect of Ps.39,119 for the related deferred income tax.
13. FINANCIAL INSTRUMENTS
The estimated fair value amounts presented below have been determined by
using available market information or other valuation methodologies that
require considerable judgment in interpreting market values and estimates.
Consequently, the estimates presented are not necessarily indicative of
the amounts the Company could realize in the market. The use of different
assumptions in market values and other valuation methodologies may have a
material effect on the fair values. Except for that presented in the
following table, the book value of the Company's financial instruments
approximates fair value, given the short-term period for settlement or
payment.
[Enlarge/Download Table]
DECEMBER 31,
--------------------------------------------------------
2000 2001
--------------------------- -------------------------
RECORDED ESTIMATED RECORDED ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
Long-term debt -- variable
interest rates Ps. 1,630,938 Ps. 1,630,938 Ps. 1,510,839 Ps.1,510,839
Long-term debt -- fixed
interest rates 1,611,936 1,699,077 1,465,600 1,506,626
------------ ------------- ------------- ------------
Ps. 3,242,874 Ps. 3,330,015 Ps. 2,976,439 Ps. 3,017,465
============== ============= ============= =============
14. COMMITMENTS AND CONTINGENCIES
a. The Company leases certain facilities, which include bottling
plants, warehouses, distribution centers and office space. In
addition, the Company leases 1,439 trucks, 67,504 in-store
refrigerated displays cases and other machinery and equipment. The
leases are primarily operating leases and are primarily payable in
U.S. dollars.
At December 31, 2001, future minimum commitments under operating
leases are as follows:
F-27
[Download Table]
YEAR ENDING
DECEMBER 31, AMOUNT
2002 $ 151,042
2003 79,400
2004 16,800
2005 9,258
For the years ended December 31, 1999, 2000 and 2001, rent and lease
expenses charged to operations were Ps.337,253, Ps.297,111 and
$213,961, respectively.
b. The Ministry of Finance and Public Credit has asserted that the
interest payments made on the Guaranteed Notes are not eligible for
reduced withholding levels under Mexico's reduced withholding rate
rule based on Pepsi-Gemex's failure to make, on a timely basis,
certain filings containing information relating to the issuance of
the Guaranteed Notes. Pepsi-Gemex has since filed all of the
required information and, accordingly, expects interest payments on
the Guaranteed Notes will qualify for the reduced rate rule. The
Ministry of Finance's initial assertion with respect to the
September 30, 1997 interest payment only, was confirmed by the
Mexican tax court. As a result, the Company is currently contesting
the position of the Ministry of Finance in Mexican Federal Court.
The Ministry of Finance and Public Credit is seeking approximately
Ps.28.0 million (including interest but not including penalties) in
respect of the September 30, 1997 initial interest payment. In 2002,
the Ministry of Finance notified the Company that it was also
seeking approximately Ps.120.0 million (including interest but not
including penalties) in respect of interest payments made between
March 30, 1998 and September 30, 2001. Although the Company has not
received a notice relating to the remaining payments to be made
between 2002 and 2004, the Company estimates the imposition of the
higher withholding rate would result in an incremental obligation of
approximately Ps.62.0 million (excluding interest and penalties)
(above the amount that would be required at the reduced withholding
rate). As a result of the Mexican Tax court ruling described above,
Pepsi-Gemex has recorded a reserve on its balance sheet of Ps.28
million relating to its potential liability in this matter. However,
based on the advice of outside tax counsel, the Company does not
believe that the ultimate resolution of this dispute will have a
material adverse effect on its results of operations of financial
condition. However, it cannot assure that the ultimate extent of its
liability for withholding obligations or associated penalties or
interest will not significantly exceed its expectations or that the
ultimate resolution of this dispute will not materially and
adversely affect its results of operations or financial position.
c. In connection with the acquisition of the Northeast Bottling Group,
a company owned by Pepsi-Gemex acquired all of the outstanding
indebtedness of the companies comprising the Northeast Bottling
Group. Included in this indebtedness was a promissory note that had
been assigned to Sharp Capital Inc., an investment advisory firm,
and a related arbitration award in favor of Sharp Capital, Inc, and
against the companies in the Northeast Bottling Group. The note and
arbitration award were acquired by a subsidiary of Pepsi-Gemex for
value in September 1998 in a transaction notarized in Mexico.
Subsequent to our subsidiary's acquisition of the promissory note
and arbitration award, the assets of Sharp Capital Inc. were placed
under the control of a court-appointed Special Master.
Some of Pepsi-Gemex subsidiaries are currently defendants in a
lawsuit, pending in a U.S. federal court in Texas, brought by
International Transactions Ltd., an entity claiming to be a former
client of Sharp Capital Inc. International Transactions Ltd.
received an assignment in February 2001of all of the Special
Master's rights in Sharp Capital's arbitration award and is seeking
confirmation and enforcement of that award (which totaled $11.4
million) against the companies in the Northeast Bottling Group. In
addition to the award, the plaintiff is seeking post-judgment
interest and costs. The Company is contesting the jurisdictional
basis of this lawsuit, and intend, if necessary, to contest the
substance of the lawsuit in the appropriate forum. Among other
things, Pepsi-Gemex believes that purported assignment by the
Special Master was ineffective because all rights to the note and
the award had been sold to its subsidiary, for value, two and a half
years earlier. The Company believes that the ultimate resolution of
this proceeding will not have a material adverse effect on its
results of operations. However, it cannot assure that the ultimate
extent of its liability for the arbitration award will not
significantly exceed its expectations or that the ultimate
resolution of this dispute will not materially and adversely affect
its results of operations or financial position.
F-28
d. Embotelladora Moderna, S.A. de C.V. and Embotelladora de Refrescos
Mexicanos, S.A. de C.V., subsidiaries of Emvasa, are parties in a
lawsuit against the National Water Commission. These subsidiaries claim
that they made excess payments to the National Water Commission between
1990 and 1996, which resulted in a credit balance at the Commission. As
a result, from 1997 through a portion of 2001, they withheld a portion
of their required payments to the Commission, expecting that the
Commission would draw the payments from their credit balance. However,
the commission did not recognize their excess payments. The demand of
the National Water Commission is Ps.82.8 million. The Company believes
it is probable that this litigation will have an adverse outcome;
therefore, a contingent liability for the entire amount of the demand
has been recorded on its balance sheet.
e. The Company currently possesses warehouse certificates (similar to
negotiable warehouse receipts in the United States) redeemable for
sugar at the official warehouse for sugar which is operated by
Almacenadora Mexico, S.A. The Company has presented these certificates
to Almacenadora but they have refused to honor its certificates. The
certificates are redeemable for approximately 14 tons of sugar, which
on December 31, 2001, was worth approximately Ps.71.0 million at the
then prevailing price per ton of sugar. The Company has made a formal
demand for payment either in sugar or in cash and Almacenadora has not
responded. The Company plans to initiate commercial and criminal
proceedings against Almacenadora if they do not comply with its demand.
The certificates are recorded on the Company's balance sheet at a value
of Ps.71.0, their cost basis to it, as it expects to recover the entire
value of the certificates, either in sugar or in cash.
f. The Company and its subsidiaries are parties to certain legal
proceedings incidental to its business. The Company believes that none
of this proceedings is likely to have a material adverse effect on the
Company.
15. NEW ACCOUNTING PRINCIPLES
In December 2001, the MIPA issued new Bulletin C-9, "Liabilities,
Provisions, Contingent Assets and Liabilities, and Commitments" ("C-9"),
which is effective beginning January 1, 2003, although early application
is encouraged. C-9 supersedes the former Bulletins C-9, "Liabilities" and
C-12, "Contingencies and Commitments", and establishes additional
guidelines clarifying the accounting for liabilities, provisions, and
contingent assets and liabilities, and establishes new standards for the
use of present value techniques to measure liabilities and accounting for
the early settlement of obligations.
On January 2002 the MIPA issued new Bulletin C-8, "Intangible Assets"
("C-8"), whose provisions are mandatory for fiscal years beginning January
1, 2003, although early application is encouraged. C-8 supersedes the
former Bulletin C-8, "Intangibles" and establishes that project
development costs should be capitalized if they fulfill the criteria
established for recognition as assets. Any preoperating costs incurred
after the effective date of this Bulletin should be recorded as an
expense. The unamortized balance of capitalized preoperating costs under
the former Bulletin C-8 will continue to be amortized. C-8 requires
identifying all intangible assets to reduce as much as possible the
goodwill relative to business combinations.
The Company has not fully assessed the effects of adopting these two new
accounting principles in its financial position and results of operations.
However, as the provisions recorded and development expenses incurred are
immaterial, the Company's management believes that adoption of such new
principles will not have a material effect on its financial position and
results of operations.
16. SUBSEQUENT EVENTS
In January of 2002, the Company signed a supply agreement with Reid
Mexico, S.A. de C.V., for the purchase of up to 1.8 million jugs in 2002
and 1.3 million jugs in 2003, at a fixed price per jug..
The executive share ownership program referred to in Note 9 was amended on
February 27, 2002 to extend the term for the exercise period of the
options from three years to seven years from the date of vesting.
Therefore, under the program currently in place, options granted under the
revised option program will vest three years
F-29
after the date of grant by the Compensation Committee, and are exercisable
at any time during a term of seven years thereafter.
At the Shareholders' General Ordinary Meeting of April 30, 2002, it was
resolved that Ps.297,594.0 of Pepsi-Gemex retained earnings will be
applied to make a dividend payment to holders of its shares within the
year of 2002 as follows: (i) Ps.0.25743226 for each of the 374,711,008
shares of Series D Shares outstanding (including the Series D preferred
dividend); (ii) Ps.0.17753949 for each of the 758,171,017 shares of Series
B Shares outstanding; and (iii) Ps.0.17753949 for each of the 374,711,008
shares of Series L Shares outstanding. Holders of CPOs will receive
Ps.0.61251124 for each of their CPOs (which includes their Series D
preferred dividend, their Series B dividend and their Series L dividend).
In May of 2002, The Pepsi Bottling Group, Inc. ("PBG"), announced that it
had entered into non-binding agreements with the Company's two largest
shareholders, regarding a potential transaction to acquire the Company.
Neither PBG nor either the Company's shareholders is obligated to enter or
complete this transaction on the terms agreed upon. If the proposed
transaction is not completed or is completed on less advantageous terms to
the Company's shareholders, the market price of the Company's securities
could be adversely affected.
In June of 2002, the Company entered into a lease with Cocoser, S.A. de
C.V., a company owned and controlled by our major shareholder's brother,
for the rental of two machines to be used in the production of jugs. The
term of this lease is three years and will begin to run in the second half
of 2002. The value of the equipment being leased by the Company is
approximately $2.2 million. The Company will bear all expenses of
installing, operating and maintaining the equipment and will pay a
variable rent based on the Company's level of use of the equipment. The
lease provides for a minimum annual rent of $1.0 million per year, which
corresponds to using the equipment at 70% of its capacity. The Company has
the option to purchase the equipment at fair market value at the end of
the lease.
On 2002, the Compensation Committee took formal action to ratify the grant
and issue 7,047,726 of the options that the Company previously committed
to issue relating to the 2000 fiscal year. As required by the program,
these options will vest in 2003 at an exercise price of Ps.2.6466 per T
Share (or Ps.7.94 per CPO), determined by reference to the closing price
of the CPOs on April 28, 2000.
As a result of the amendments to the Securities Market Law, for the years
2001 and beyond, Pepsi-Gemex is no longer able to issue Series B, D and L
Shares (or the CPOs that would represent them) in addition to those that
were reserved for issuance prior to such amendments. Consequently, the
Company will not be able to support the exercise of the options granted
during 2001 and 2002 as a result of the fact that the Company does not
have the Series B, D and L shares or the corresponding CPOs that would be
issued to executives that request the convertion of Series T shares that
such executives would receive upon the exercise of such options. The
Compensation Committee is in the process of determining alternative ways
to compensate Pepsi-Gemex executives in lieu thereof.
17. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The following are consolidating condensed financial statements which
present, in separate columns, Pepsi-Gemex carrying its investment in
subsidiaries under the equity method, the guarantors of the Guaranteed
Notes on a combined basis and Bebidas Purificadas del Noreste, S.A. de
C.V. and its subsidiaries ("BPN") through which the Company owns the
Northeast Bottling Group, (the only subsidiaries of the Company that are
not guarantors of the Guaranteed Notes), with additional columns
reflecting eliminations and the consolidated totals as of and for the
years ended December 31, 1999, 2000 and 2001.
Pepsi-Gemex is a holding company with no independent operations other than
its investments in its subsidiaries, the guarantors of the Guaranteed
Notes are wholly owned and the guarantors have jointly and severally
guaranteed the Guaranteed Notes on a full and unconditional basis.
There are no restrictions on the Guarantors' ability to pay dividends,
make loans or advances to Pepsi-Gemex.
F-30
CONSOLIDATING CONDENSED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
------------ ------------- ------------- ------------- -------------
REVENUES:
Net sales Ps. 649,927 Ps. 11,316,621 Ps. 1,214,910 Ps. (5,041,014) Ps. 8,140,444
Other 14,385 55,323 19,751 (40,448) 49,011
----------- ----------- ----------- ----------- -----------
664,312 11,371,944 1,234,661 (5,081,462) 8,189,455
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales -- 6,055,986 725,958 (3,137,928) 3,644,016
Selling expenses -- 3,525,473 309,079 (1,002,349) 2,832,203
General and administrative expenses 12,046 645,365 60,182 (257,170) 460,423
Depreciation and amortization -- 278,930 33,532 (4,003) 308,459
----------- ----------- ----------- ----------- -----------
12,046 10,505,754 1,128,751 (4,401,450) 7,245,101
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 652,266 866,190 105,910 (680,012) 944,354
----------- ----------- ----------- ----------- -----------
INTEGRAL (INCOME) COST OF FINANCING - Net:
Interest income (394,716) (178,756) (6,677) 505,695 (74,454)
Interest expense 436,221 429,921 77,513 (517,937) 425,718
Foreign exchange income - net (124,896) (471) (11,939) -- (137,306)
Monetary position gain (167,293) (110,395) (70,395) -- (348,083)
----------- ----------- ----------- ----------- -----------
(250,684) 140,299 (11,498) (12,242) (134,125)
----------- ----------- ----------- ----------- -----------
OTHER EXPENSE - Net (64,516) (13,498) -- (25,434) (103,448)
----------- ----------- ----------- ----------- -----------
INCOME BEFORE PROVISIONS PROVISIONS: 838,434 712,393 117,408 (693,204) 975,031
----------- ----------- ----------- ----------- -----------
PROVISIONS:
Income taxes and asset tax 15,588 20,177 8,126 36,354 80,245
Employee statutory profit-sharing -- 15,911 (7,020) (5,476) 3,415
----------- ----------- ----------- ----------- -----------
15,588 36,088 1,106 30,878 83,660
----------- ----------- ----------- ----------- -----------
CONSOLIDATED NET INCOME Ps.822,846 Ps.676,305 Ps.116,302 Ps.(724,082) Ps.891,371
=========== =========== =========== =========== ===========
F-31
CONSOLIDATING CONDENSED
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 1999
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
------------ ------------- ------------- -------------- -------------
RESOURCES (USED IN) PROVIDED BY
OPERATING ACTIVITIES Ps. (303,912) Ps. 1,472,573 Ps. 54,427 Ps. -- Ps. 1,223,088
------------ ------------- ------------- -------------- -------------
FINANCING ACTIVITIES:
Net change in notes payable (211,139) 108,064 -- -- (103,075)
Net change in long-term debt (267,542) (58,346) (41,732) -- (367,620)
Repurchase of capital stock - net 537,792 (565,142) 27,350 -- --
Dividends paid
Affiliates (11,172) -- -- -- (11,172)
------------ ------------- ------------- -------------- -------------
Resources (used in) generated by
financing activities 47,939 (515,424) (14,382) -- (481,867)
------------ ------------- ------------- -------------- -------------
INVESTING ACTIVITIES:
Acquisition and sale of property, plant
and equipment - net -- (941,141) (34,463) -- (975,604)
Increase in other assets -- (30,039) -- -- (30,039)
Decrease (increase) in bottles and cases -- 42,492 (42,492) -- --
Loan (to) from associated company -- (13,498) 13,498 -- --
------------ ------------- ------------- -------------- -------------
Resources used in investing activities -- (942,186) (63,457) -- (1,005,643)
------------ ------------- ------------- -------------- -------------
Increase (decrease) in cash and cash
equivalents (255,973) 14,963 (23,412) -- (264,422)
CASH AND CASH EQUIVALENTS:
Merging cash 150 (150) -- -- --
Cash for consolidating effects -- 51,087 -- -- 51,087
Beginning of year 288,438 66,258 51,155 -- 405,851
------------ ------------- ------------- -------------- -------------
End of year Ps. 32,615 Ps. 132,158 Ps. 27,743 Ps. -- Ps. 192,516
============ ============= ============= ============= =============
F-32
CONSOLIDATING CONDENSED
BALANCE SHEET
DECEMBER 31, 2000
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
ASSETS Parent Only Combined BPN Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
CURRENT ASSETS:
Cash and cash equivalents Ps. 40,614 Ps. 149,354 Ps. 36,807 Ps. -- Ps. 226,775
Accounts receivable - net 26,503 5,278,228 1,697,530 (5,988,214) 1,014,047
Affiliated companies 4,004,263 -- -- (4,004,263) --
Inventories -- 533,592 76,455 446,887 1,056,934
Prepaid expenses 26,786 27,519 10,676 (26,786) 38,195
-------------- -------------- -------------- -------------- --------------
Total current assets 4,098,166 5,988,693 1,821,468 (9,572,376) 2,335,951
DEFERRED INCOME TAX 104,228 -- -- (104,228) --
PROPERTY, PLANT AND EQUIPMENT - Net -- 6,919,860 272,067 70,520 7,262,447
INVESTMENT IN SUBSIDIARIES AND
ASSOCIATED COMPANIES 5,755,949 15,552 929,786 (6,701,287) --
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED - Net 662,574 103,167 -- 502,598 1,268,339
DEBT ISSUANCE COSTS 25,485 -- -- (25,485) --
OTHER ASSETS -- 708,171 397,804 (684,632) 421,343
-------------- -------------- -------------- -------------- --------------
TOTAL ASSETS Ps. 10,646,402 Ps. 13,735,443 Ps. 3,421,125 Ps. (16,514,890) Ps.11,288,080
============== ============== ============= =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable Ps. 879,754 Ps. 6,915 Ps. -- Ps. (6,915) Ps. 879,754
Current portion of long-term debt 171,322 36,803 -- (171,322) 36,803
Trade accounts payable -- 548,835 36,293 2,734 587,862
Taxes payable, accrued expenses and
other liabilities -- 549,360 250,053 (248,463) 550,950
Due to affiliates 1,505,308 5,428,798 2,471,384 (9,401,961) 3,529
-------------- -------------- -------------- -------------- --------------
Total current liabilities 2,556,385 6,570,711 2,757,730 (9,825,928) 2,058,898
LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES 3,123,126 61,885 57,775 91,315 3,334,101
DEFERRED INCOME TAX AND EMPLOYEE
STATUTORY PROFIT-SHARING -- 2,891,951 87,293 (2,051,055) 928,189
-------------- -------------- -------------- -------------- --------------
Total liabilities 5,679,510 9,524,547 2,902,798 (11,785,667) 6,321,188
-------------- -------------- -------------- -------------- --------------
SHAREHOLDERS' EQUITY:
Capital stock 878,219 6,131,375 1,515,054 (7,646,429) 878,219
Additional paid-in capital 4,798,696 543,263 59,163 (602,426) 4,798,696
Retained earnings 1,897,569 3,603,288 (813,589) (2,789,699) 1,897,569
Reserves 1,045,969 35,473 -- (35,473) 1,045,969
Cumulative effect of deferred income tax and
employee statutory profit-sharing (1,300,190) (1,701,567) (18,925) 1,720,492 (1,300,190)
Deficiency in restated shareholders' equity (2,353,371) (4,400,936) (223,376) 4,624,312 (2,353,371)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity 4,966,892 4,210,896 518,327 (4,729,223) 4,966,892
-------------- -------------- -------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY Ps. 10,646,402 Ps. 13,735,443 Ps. 3,421,125 Ps. (16,514,890) Ps.11,288,080
============== ============== ============== ============== =============
F-33
CONSOLIDATING CONDENSED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
------------- ------------- -------------- ------------- -------------
REVENUES:
Net sales Ps. 323,745 Ps.12,679,287 Ps. 2,423,770 Ps.(5,854,042) Ps.9,572,760
Other 55,352 69,379 12,049 (49,128) 87,652
------------- ------------- -------------- ------------- -------------
379,097 12,748,666 2,435,819 (5,903,170) 9,660,412
------------- ------------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 6,607,235 1,699,627 (4,049,962) 4,256,900
Selling expenses -- 4,065,506 493,483 (1,071,199) 3,487,790
General and administrative expenses 31,535 811,148 106,201 (382,781) 566,103
Depreciation and amortization -- 448,459 32,505 (172,074) 308,890
------------- ------------- -------------- ------------- -------------
31,535 11,932,348 2,331,816 (5,676,016) 8,619,683
------------- ------------- -------------- ------------- -------------
OPERATING INCOME 347,562 816,318 104,003 (227,154) 1,040,729
------------- ------------- -------------- ------------- -------------
RESTRUCTURING CHARGES -- 543,459 25,521 -- 568,980
INTEGRAL (INCOME) COST OF FINANCING - Net:
Interest income (513,194) (226,034) (9,241) 733,572 (14,897)
Interest expense 523,383 495,530 87,891 (702,501) 404,303
Foreign exchange loss - net 45,942 5,630 9,363 10,360 71,295
Monetary position gain (172,786) (68,836) (57,860) (127,126) (426,608)
------------- ------------- -------------- ------------- -------------
(116,655) 206,290 30,153 (85,695) 34,093
------------- ------------- -------------- ------------- -------------
OTHER EXPENSES - NET (62,031) 55,532 (17,173) (7,841) (31,513)
------------- ------------- -------------- ------------- -------------
INCOME BEFORE PROVISIONS 402,187 122,101 31,156 (149,301) 406,143
------------- ------------- -------------- ------------- -------------
PROVISIONS:
Income tax and tax on assets (80,335) 183,342 55,790 (333,216) (174,419)
Employee statutory profit-sharing -- 21,315 14,567 29,089 64,971
------------- ------------- -------------- ------------- -------------
(80,335) 204,657 70,357 (304,127) (109,448)
------------- ------------- -------------- ------------- -------------
CONSOLIDATED NET INCOME Ps. 482,522 Ps. (82,556) Ps. (39,201) Ps. 154,826 Ps. 515,591
============= ============= ============== ============= =============
F-34
CONSOLIDATING CONDENSED
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 2000
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
-------------- -------------- ------------- -------------- -------------
RESOURCES (USED IN) PROVIDED BY
OPERATING ACTIVITIES Ps. 377,531 Ps. 2,705,650 Ps. (36,605) Ps. (2,082,629) Ps. 963,947
-------------- -------------- ------------- -------------- -------------
FINANCING ACTIVITIES:
Net change in notes payable (244,128) 67,025 (146,701) (5,693) (329,497)
Due from subsidiaries and associates (561,217) -- -- (561,217) --
Net change in long-term debt 1,177,941 (92,056) -- -- 1,085,885
Capital stock increase 42,262 -- -- -- 42,262
Sale of capital stock - net 7,520 -- -- -- 7,520
Shares issued in exchange of minority interest 358,282 -- -- -- 358,282
Cumulative effect of deferred income tax
and employee statutory profit-sharing:
Increase in liabilities 1,300,190 1,604,048 -- (1,604,048) 1,300,190
Decrease in shareholders' equity (1,300,190) (1,604,048) -- 1,604,048 (1,300,190)
-------------- -------------- ------------- -------------- -------------
Resources (used in) generated by financing
activities 780,660 (25,031) (146,701) 555,524 1,164,452
-------------- -------------- ------------- -------------- -------------
INVESTING ACTIVITIES:
(Acquisition) and sale of property, plant
and equipment - net -- (1,031,819) -- -- (1,031,819)
Increase in other assets -- (1,506) -- -- (1,506)
Payment for acquisition of subsidiaries,
net of cash received (1,150,193) (1,628,507) 192,371 1,885,387 (700,942)
Acquisition of minority interest -- -- -- (358,282) (358,282)
Loan to associated company -- (1,591) -- -- (1,591)
-------------- -------------- ------------- -------------- -------------
Resources used in investing activities (1,150,193) (2,663,423) 192,371 1,527,105 (2,094,140)
-------------- -------------- ------------- -------------- -------------
Increase in cash and cash equivalents 7,998 17,196 9,065 -- 34,259
CASH AND CASH EQUIVALENTS:
Beginning of year 32,616 132,158 27,742 -- 192,516
-------------- -------------- ------------- -------------- -------------
End of year Ps. 40,614 Ps. 149,354 Ps. 36,807 Ps. -- Ps. 226,775
============== -------------- ------------- ============== =============
F-35
CONSOLIDATING CONDENSED
BALANCE SHEET
DECEMBER 31, 2001
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
ASSETS Parent Only Combined BPN Eliminations Consolidated
-------------- -------------- -------------- --------------- --------------
CURRENT ASSETS:
Cash and cash equivalents Ps. 7,421 Ps. 91,744 Ps. 11 Ps. -- Ps. 99,176
Accounts receivable - net 1,104,808 14,066,226 17,863 (14,208,137) 980,760
Inventories 4,166,612 934,734 178,052 (4,543,539) 735,859
Prepaid expenses 9,765 27,997 -- (17,109) 20,653
-------------- -------------- -------------- --------------- --------------
Total current assets 5,288,606 15,120,701 195,926 (18,768,785) 1,836,448
DEFERRED INCOME TAX 4,052 -- -- (4,052) --
PROPERTY, PLANT AND EQUIPMENT - Net -- 6,922,994 -- 202,896 7,125,890
INVESTMENT IN SUBSIDIARIES AND
ASSOCIATED COMPANIES 4,572,168 643,495 658,722 (5,874,385) --
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED - Net 603,909 359,919 -- 328,309 1,292,137
DEBT ISSUANCE COSTS 17,644 -- -- (17,644) --
OTHER ASSETS -- 426,471 -- (101,901) 324,570
-------------- -------------- -------------- --------------- --------------
TOTAL ASSETS Ps. 10,486,379 Ps. 23,473,580 Ps. 854,648 Ps. (24,235,562) Ps. 10,579,045
============== ============== ============== =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable Ps. 344,380 Ps. 3,591 Ps. - Ps. (1,007) Ps. 346,964
Current portion of long-term debt -- 27,468 -- 2,478 29,946
Trade accounts payable -- 557,328 -- 4,809 562,137
Taxes payable, accrued expenses and
other liabilities 81,913 2,388,800 8,373 (1,788,012) 691,074
Dividend payable 246,931 1,062,871 -- (1,062,871) 246,931
Due to affiliates 2,307,193 12,816,176 729,331 (15,852,700) --
-------------- -------------- -------------- --------------- --------------
Total current liabilities 2,980,417 16,856,234 737,704 (18,697,303) 1,877,052
LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES 2,839,600 196,770 -- 100,104 3,136,474
DEFERRED INCOME TAX AND EMPLOYEE
STATUTORY PROFIT-SHARING -- 1,134,200 -- (235,043) 899,157
-------------- -------------- -------------- --------------- --------------
Total liabilities 5,820,017 18,187,204 737,704 (18,832,242) 5,912,683
-------------- -------------- -------------- --------------- --------------
SHAREHOLDERS' EQUITY:
Capital stock 878,933 7,672,444 82 (7,672,526) 878,933
Additional paid-in capital 4,551,834 602,427 -- (602,427) 4,551,834
Retained earnings 2,492,757 1,467,178 129,466 (1,596,644) 2,492,757
Reserves 1,065,014 111,465 -- (111,465) 1,065,014
Cumulative effect of deferred income tax and
employee statutory profit-sharing (1,300,190) -- 47,797 (47,797) (1,300,190)
Shareholders' equity adjustment from
labor obligations upon retirement (43,403) -- -- --
(43,403)
Deficiency in restated shareholders' equity (2,978,583) (4,567,138) (60,401) 4,627,539 (2,978,583)
-------------- -------------- -------------- --------------- --------------
Total shareholders' equity 4,666,362 5,286,376 116,944 (5,403,320) 4,666,362
-------------- -------------- -------------- --------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Ps. 10,486,379 Ps. 23,473,580 Ps. 854,648 Ps. (24,235,562) Ps. 10,579,045
============== ============== ============== =============== ==============
F-36
CONSOLIDATING CONDENSED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2001
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
----------- ------------- ------------- ------------- -------------
REVENUES:
Net sales Ps. -- Ps.17,588,252 Ps. -- Ps.(6,552,040) Ps.11,036,212
537,169 -- (19) (537,150) --
Other 14,181 443,820 207 (401,211) 56,997
----------- ------------- ------------- ------------- -------------
551,350 18,032,072 188 (7,490,401) 11,093,209
----------- ------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 9,963,251 -- (5,064,508) 4,898,743
Selling expenses -- 4,937,474 -- (968,264) 3,969,210
General and administrative expenses 22,312 1,148,832 2 (519,884) 651,262
Depreciation and amortization 7,841 401,124 -- (5,875) 403,090
----------- ------------- ------------- ------------- -------------
30,153 16,450,681 2 (6,558,531) 9,922,305
----------- ------------- ------------- ------------- -------------
OPERATING INCOME 521,197 1,581,391 186 (931,870) 1,170,904
----------- ------------- ------------- ------------- -------------
RESTRUCTURING CHARGE -- 254,497 -- (117,631) 136,866
INTEGRAL (INCOME) COST OF FINANCING - Net:
Interest income (679,221) (218,609) (28,675) 920,524 (5,981)
Interest expense 524,617 646,555 109,036 (880,553) 399,655
Foreign exchange loss - net (156,394) (38,140) 943 (24,003) (217,594)
Monetary position gain (61,608) (75,755) (21,268) 6 (158,625)
----------- ------------- ------------- ------------- -------------
(372,606) 314,051 60,036 15,974 17,455
----------- ------------- ------------- ------------- -------------
OTHER (EXPENSE) INCOME - Net (71,382) (81,667) -- 350,445 197,396
----------- ------------- ------------- ------------- -------------
INCOME BEFORE PROVISIONS 822,421 931,176 (59,850) (874,561) 819,187
----------- ------------- ------------- ------------- -------------
PROVISIONS:
Income taxes and asset tax 227,233 503,082 -- (501,469) 228,846
Employee statutory profit-sharing 11,206 -- (16,053) (4,847)
----------- ------------- ------------- ------------- -------------
CONSOLIDATED NET INCOME Ps. 595,188 Ps. 416,889 Ps. (59,850) Ps. (357,039) Ps. 595,188
=========== ============= ============= ============= =============
F-37
CONSOLIDATING CONDENSED
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 2001
[Enlarge/Download Table]
Pepsi-Gemex Guarantors Pepsi-Gemex
Parent Only Combined BPN Eliminations Consolidated
------------- ------------- ------------- ------------ -------------
RESOURCES (USED IN) PROVIDED BY OPERATING
ACTIVITIES Ps. (925,992) Ps. 2,806,155 Ps. (94,399) Ps. Ps. 1,785,764
------------- ------------- ------------- ------------ -------------
FINANCING ACTIVITIES:
Net change in notes payable (535,374) 2,584 -- -- (532,790)
Net change in long-term debt (283,526) 17,091 -- -- (266,435)
Loans to (from) affiliates 639,536 (733,912) 94,376 --
Capital stock increase
(Repurchase) and sale of capital stock - net 19,828 -- -- -- 19,828
Shareholders' equity adjustment from labor
obligations upon retirement (43,403) -- -- -- (43,403)
Dividends declared (246,931) -- -- -- (246,931)
Dividends payable 246,931 -- -- -- 246,931
Decrease in shareholders' equity -- 29,246 (29,246) -- --
------------- ------------- ------------- ------------ -------------
Resources (used in) provided by
financing activities (202,939) (684,991) 65,130 -- (822,800)
------------- ------------- ------------- ------------ -------------
INVESTING ACTIVITIES:
(Acquisition) and sale of property, plant
and equipment - net (1,089,243)
(1,089,243)
Increase in other assets 112,589 112,589
Increase in goodwill -- (113,909) -- -- (113,909)
Payment for acquisition of subsidiaries, net of
cash received 1,095,738 (1,124,955) 29,217 -- --
Acquisition of minority interest
Loan to associated company
------------- ------------- ------------- ------------ -------------
Resources (used in) provided by
investing activities 1,095,738 (2,215,518) 29,217 -- (1,090,563)
------------- ------------- ------------- ------------ -------------
Increase in cash and cash equivalents (33,193) (94,354) (52) -- (127,599)
CASH AND CASH EQUIVALENTS:
Beginning of year 40,614 186,098 63 -- 26,775
------------- ------------- ------------- ------------ -------------
End of year Ps. 7,421 Ps. 91,744 Ps. 11 Ps. -- Ps. 99,176
============= ============= ============= ============ =============
F-38
18. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES OF AMERICA ACCOUNTING
PRINCIPLES
The Company's consolidated financial statements are prepared in accordance
with Mexican GAAP, which vary in certain respects from accounting
principles generally accepted in the United States of America ("U.S.
GAAP").
The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10, as amended, whereas
financial statements prepared under U.S. GAAP are presented on an
historical cost basis. The following reconciliations to U.S. GAAP do not
include the reversal of the adjustments required under Bulletin B-10, as
amended, except as discussed in Note 18 (c). The application of Bulletin
B-10, as amended, represents a comprehensive measure of the effects of
price level changes in the Mexican economy and, as such, is considered a
more meaningful presentation than historical cost-based financial
reporting for both Mexican GAAP and U.S. GAAP purposes.
Mexican GAAP also requires the restatement of all financial statements to
constant pesos as of the date of the most recent balance sheet presented.
All material differences, other than inflation accounting, between Mexican
GAAP and U.S. GAAP and the effects on net income and total shareholders'
equity are presented below with an explanation of the adjustments:
[Enlarge/Download Table]
Thousands of
U.S. dollars
(Convenience
Translation)
Year Ended December 31, Year Ended
Reconciliation of net income of ---------------------------------------------- December
majority interest 1999 2000 2001 31, 2001
---------------------------------------------------- ------------- ------------- ------------- --------------
Net income of majority interest reported
under Mexican GAAP Ps. 822,845 Ps. 482,522 Ps. 595,188 $ 64,976
U.S. GAAP adjustments for:
Deferred income taxes (90,833) (250,375) (201,439) (21,991)
Deferred employee statutory profit-sharing 30,033 11,690 18,116 1,978
Restatement of foreign sourced fixed assets (45,780) (53,067) (103,998) (11,354)
Amortization of goodwill 27,865 (9,434) 27,867 3,042
Accrued vacation cost 21,480 (13,311) (12,462) (1,360)
Accrued severance payments -- 16,236 (16,236) (1,772)
Reversal of capitalized exchange losses and monetary
position gains and related depreciation 58,216 23,329 3,315 362
Minority interest applicable to above adjustments (76,899) -- -- --
------------- ------------- ------------- --------------
Net income under U.S. GAAP Ps. 746,927 Ps. 207,590 Ps. 310,351 $ 33,881
============= ============= ============= ==============
F-39
[Enlarge/Download Table]
Thousands of
U.S. dollars
(Convenience
Translation)
Year Ended December 31, Year Ended
Reconciliation of net income of ------------------------------------------------ December
shareholders' equity 1999 2000 2001 31, 2001
----------------------------------------------- ------------- ------------ --------------- --------------
Total shareholders' equity reported under
Mexican GAAP Ps. 5,805,972 Ps.4,966,892 Ps. 4,666,362 $ 509,428
Less minority interest in consolidated
subsidiary included in shareholders'
equity under Mexican GAAP 229,349 -- -- --
------------- ------------ --------------- --------------
5,576,623 4,966,892 4,666,362 509,428
U.S. GAAP adjustments for:
Effect on retained earnings from:
Deferred income taxes (1,248,991) (323,938) (525,377) (57,356)
Deferred employee statutory profit-sharing (167,021) (30,569) (12,453) (1,360)
Restatement of foreign sourced fixed assets (88,856) (141,923) (245,921) (26,847)
Goodwill (345,539) (354,973) (327,106) (35,710)
Accrued vacation cost (3,751) (17,062) (29,524) (3,223)
Accrued severance payments -- 16,236 -- --
Reversal of capitalized exchange losses and
monetary position gains and related depreciation (70,771) (47,442) (44,127) (4,817)
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes 229,037 19,044 21,129 2,307
Deferred employee statutory profit-sharing 6,080 5,441 6,034 659
Restatement of foreign source fixed assets 915,605 1,061,321 1,759,142 192,046
Minority interest applicable to above adjustments (96,476) -- -- --
------------- ------------ --------------- --------------
Shareholders' equity under U.S. GAAP Ps.4,705,940 Ps.5,153,027 Ps. 5,268,159 $ 575,127
============= ============ =============== ==============
The applicable effects of inflation on the above U.S. GAAP adjustments in
the reconciliation of net income that relate to monetary assets or liabilities
have been included in the corresponding adjustments.
F-40
A summary of changes in shareholders' equity giving effect to the U.S. GAAP
adjustments described above is as follows:
[Enlarge/Download Table]
Additional
Capital Paid-in Retained
Stock Capital Earnings
-------------- --------------- ---------------
Balance at January 1, 1999 Ps. 861,981 Ps. 4,414,863 Ps. (1,318,836)
Repurchase and sale of capital stock - net (2,446) 393 (14,875)
Result from holding non-monetary assets -- -- --
Net income -- -- 746,927
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- -- --
Deferred employee statutory profit-sharing -- -- --
Restatement of foreign sourced fixed assets -- -- --
Effect of minority interest on U.S.GAAP
adjustments to shareholders' equity -- -- --
-------------- --------------- ---------------
Balance at December 31, 1999 859,535 4,415,256 (586,784)
Repurchase and sale of common stock - net 223 1,357 --
Result from holding non-monetary assets -- -- --
Net income -- -- 207,590
Capital share increase 1,942 40,320 --
Acquisition of minority interest 16,519 341,763 --
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- -- --
Deferred employee statutory profit-sharing -- -- --
Restatement of foreign sourced fixed assets -- -- --
Effect of minority interest on U.S.GAAP adjustments
to shareholders' equity -- -- --
-------------- --------------- ---------------
Balance at December 31, 2000 878,219 4,798,696 (379,194)
[Enlarge/Download Table]
Accumulated
Other Total
Comprehensive Shareholders'
Reserves Income Equity
--------------- --------------- ---------------
Balance at January 1, 1999 Ps. 1,034,273 Ps. (999,449) Ps. 3,992,832
Repurchase and sale of capital stock - net 5,756 --
(11,172)
Result from holding non-monetary assets --
(517,565) (517,565)
Net income -- -- 746,927
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- 1,954 1,954
Deferred employee statutory profit-sharing -- 559 559
Restatement of foreign sourced fixed assets -- 511,982 511,982
Effect of minority interest on U.S.GAAP
adjustments to shareholders' equity -- (19,577) (19,577)
--------------- --------------- ---------------
Balance at December 31, 1999 1,040,029 (1,022,096) 4,705,940
Repurchase and sale of common stock - net 5,940 -- 7,520
Result from holding non-monetary assets -- (200,127) (200,127)
Net income -- -- 207,590
Capital share increase -- -- 42,262
Acquisition of minority interest -- -- 358,282
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- (209,993) (209,993)
Deferred employee statutory profit-sharing -- (639) (639)
Restatement of foreign sourced fixed assets -- 145,716 145,716
Effect of minority interest on U.S.GAAP adjustments
to shareholders' equity -- 96,476 96,476
--------------- --------------- ---------------
Balance at December 31, 2000 1,045,969 (1,190,663) 5,153,027
F-41
[Enlarge/Download Table]
Additional
Capital Paid - in Retained
Stock Capital Earnings
----------- ------------ -------------
Sale of capital stock - net 714 69 --
Result from holding non-monetary assets -- -- --
Net income -- -- 310,351
Dividends declared -- (246,931) --
Shareholders' equity adjustment for
labor obligations upon retirement -- -- --
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- -- --
Deferred employee statutory profit-sharing -- -- --
Restatement of foreign sourced fixed assets -- --
----------- ------------ -------------
Balance at December 31, 2001 Ps. 878,933 Ps.4,551,834 Ps. (68,843)
=========== ============ =============
[Enlarge/Download Table]
Accumulated
Other Total
Comprehensive Shareholders'
Reserves Income Equity
------------ -------------- -------------
Sale of capital stock - net 19,045 -- 19,828
Result from holding non-monetary assets -- (625,212) (625,212)
Net income -- -- 310,351
Dividends declared -- -- (246,931)
Shareholders' equity adjustment for
labor obligations upon retirement -- (43,403) (43,403)
Effect on deficiency in restated shareholders'
equity related to:
Deferred income taxes -- 2,085 2,085
Deferred employee statutory profit-sharing -- 593 593
Restatement of foreign sourced fixed assets -- 697,821 697,821
------------ -------------- -------------
Balance at December 31, 2001 Ps.1,065,014 Ps. (1,158,779) Ps.,5,268,159
============ ============== =============
F-42
a) DEFERRED INCOME TAXES AND EMPLOYEE STATUTORY PROFIT-SHARING - As
mentioned in Note 1 to the consolidated financial statements, beginning
January 1, 2000, the Company changed its method of accounting for
income tax, tax on assets and employee statutory profit-sharing under
Mexican GAAP to conform with the new Bulletin D-4.
D-4 requires the use of the asset and liability method of accounting
for deferred income tax and employee statutory profit-sharing. Under
such method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between
the financial statement carrying amount and their respective tax bases.
This method also requires the recognition of future tax benefits, such
as those arising from tax loss carryforwards, to the extent the
realization of such benefits is highly likely. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in the tax rates is recognized in income in
the period that includes the enactment date. A deferred tax asset is
also recognized for the unused portion of tax credits, such as tax on
assets, to the extent the realization of such tax credit is highly
likely. When, in accordance with accounting principles generally
accepted in Mexico, items related to temporary differences are recorded
directly to shareholders' equity, without affecting net income, the
deferred effects of such items are also recorded directly to
shareholders' equity. D-4 also requires that when there is a tax regime
that recognizes totally or partially the effects of inflation and this
causes the tax effect of the temporary differences to be restated, the
change in deferred tax arising from the restatement for inflation
should be included in the monetary result of the period.
Through December 31, 1999, deferred income taxes under Mexican GAAP
were provided only for identifiable, nonrecurring timing differences,
which were expected to reverse over a definite period of time.
For U.S. GAAP purposes, the Company applies Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109").
Under SFAS No. 109, deferred income taxes reflect the net tax effect of
(a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes and (b) the benefits of operating loss and tax
credit carryforwards. Under SFAS No. 109, the effect on deferred taxes
of a change in tax rates is recognized as income or expense, as the
case may be, in the period that includes the enactment date.
During the year ended December 31, 2001, the valuation allowance for
income tax purposes associated with certain net operating losses and
tax credits carryforwards increased by $249,270, because the Company
believes it is more likely than not that such deferred tax asset will
not be realized.
The Company calculates a deferred employee statutory profit-sharing
liability for U.S. GAAP purposes based on temporary differences between
the financial reporting basis and the employee statutory profit-sharing
basis of assets and liabilities for those subsidiaries of the Company
which have employees. Through December 31, 1999, under Mexican GAAP,
deferred employee statutory profit-sharing was not recognized in the
financial statements; however, with the adoption of D-4, beginning
January 1, 2000 the Company recognizes deferred statutory
profit-sharing as described above. During the year ended December 31,
2001, the valuation allowance for deferred profit sharing assets
associated with certain tax losses carryforwards increased by $45,932
because the Company believes it is more likely than not that such
deferred tax asset will not be realized.
Under U.S. GAAP the portion of deferred taxes and deferred employee
statutory profit-sharing attributable to the excess (deficiency) in
restated shareholders' equity is reflected as an adjustment to the
excess (deficiency) in restated shareholders' equity.
Under Mexican GAAP, employee statutory profit-sharing expense or
benefit is included in provisions after operating income. Under U.S.
GAAP, employee statutory profit-sharing expense or benefit is treated
as a component of operating expenses.
Under Mexican GAAP deferred tax assets and liabilities are of a
long-term nature, whereas under U.S. GAAP they are classified based on
the nature of the temporary difference.
F-43
Under U.S. GAAP, temporary differences and the resulting deferred tax
assets and liabilities at December 31, 2000 and 2001 are summarized as
follows:
[Enlarge/Download Table]
December 31,
-------------------------------
2000 2001
------------- --------------
Current deferred tax liabilities - Inventories Ps. (343,983) Ps. (344,344)
------------- --------------
Current deferred tax assets:
Accrued expenses and reserves 52,078 103,931
Allowance for doubtful accounts 26,090 34,315
------------- --------------
Total current deferred tax assets 78,168 138,246
------------- --------------
Non-current deferred tax liabilities:
Property, plant and equipment (1,021,252) (1,298,176)
Investments in associated companies (8,920) -
Other (46,129) (45,871)
------------- --------------
Total non-current deferred tax liabilities (1,076,301) (1,344,047)
------------- --------------
Non-current deferred tax assets - Net operating losses and tax credits 524,932 794,923
------------- --------------
Valuation allowance (272,309) (521,579)
------------- --------------
Net deferred tax liability Ps.(1,089,493) Ps (1,276,801)
============= ==============
The components of deferred employee statutory profit-sharing at
December 31, 2000 and 2001 are summarized as follows:
[Enlarge/Download Table]
December 31,
-------------------------------
2000 2001
------------- --------------
Current deferred tax liabilities - Inventories Ps. (54,724) Ps. (69,587)
------------- --------------
Current deferred tax assets:
Accrued expenses and reserves 15,311 19,416
Allowance for doubtful accounts 7,090 3,896
------------- --------------
Total current deferred tax assets 22,401 23,312
------------- --------------
Non-current deferred tax liabilities:
Property, plant and equipment (125,474) (78,471)
Other 10,924 16,421
------------- --------------
(125,474) (94,892)
------------- --------------
Non-current deferred tax assets - Net operating losses -- 54,076
------------- --------------
Valuation allowance -- (45,932)
------------- --------------
Net deferred employee statutory profit - sharing liability Ps. (168,718) Ps. (133,023)
============= ==============
b) MINORITY INTEREST - Under Mexican GAAP, the minority interest in
consolidated subsidiaries is presented as a separate component within
the shareholders' equity section in the consolidated balance sheet. For
U.S. GAAP purposes, the minority interest is not included in
shareholders' equity.
c) RESTATEMENT OF FOREIGN SOURCED FIXED ASSETS - Effective January 1,
1997, the Company adopted the Fifth Amendment to Bulletin B-10 which
allows foreign sourced fixed assets to be restated for inflation using
either of two methodologies. Under the first methodology, foreign
sourced fixed assets are restated by applying Mexican NCPI factors to
the original cost of the asset, denominated in pesos. The alternate
methodology, which is utilized by the Company, restates foreign sourced
fixed assets by applying the inflation factor of the country of origin
to the original cost, denominated in the foreign currency, and then
translating such amounts into pesos at the foreign exchange rate in
effect at the most recent balance sheet date.
F-44
The alternate methodology is not consistent with Regulation S-X, Rule
3-20(e) of the Securities and Exchange Commission. Accordingly, foreign
sourced fixed assets have been restated using the Mexican NCPI applied
to original cost (the balance of the related assets at December 31,
1997 or historical cost if acquired subsequent to 1997), in pesos, for
purposes of the U.S. GAAP reconciliation.
d) GOODWILL - In 1992 and 1995, the Company recorded goodwill in
connection with the acquisition of three entities under common control
in accordance with Mexican GAAP. Under U.S. GAAP, such transactions
would be accounted for in a manner similar to that of a pooling of
interests and, accordingly, the unamortized excess of the amount paid
over the net book value of net assets acquired has been recognized as a
reduction to equity and the amortization expense for Mexican GAAP has
been reversed for U.S. GAAP purposes. Also, in December 2000, the
Company recognized in the results of operations under Mexican GAAP the
negative goodwill that arose from the acquisition of a minority
interest of a consolidated associated company. For U.S. GAAP purposes,
the Company has reversed the negative goodwill recognized into income
and has reduced the recorded value of non-current assets.
As mentioned in Note 1, beginning 2001, the Company began to include as
part of other income and expense in the statements of income prepared
under Mexican GAAP, the amortization of the excess of cost over fair
value of net assets acquired. The consolidated statements of income of
prior years were reclassified in order to conform them with the
presentation utilized in 2001. For U.S. GAAP purposes the amortization
of goodwill should be reported as part of operating income.
Accordingly, Ps.78,014, Ps.(4,156) and Ps.90,111 would have to be
recorded as a decrease (increase) of operating income for the years
ended December 31, 1999, 2000 and 2001, respectively. This difference
does not have an effect in the net income or earnings per share
reported during the years ended December 31, 1999, 2000 and 2001.
e) ACCRUED VACATION - Under Mexican GAAP, the Company does not accrue
liabilities related to employees' rights to receive compensation for
future absences. Statement of Financial Accounting Standards No. 43,
"Accounting for Compensated Absences", requires that vacation benefits
be accrued. For purposes of the U.S. GAAP reconciliation, the Company
has accrued such liability as of December 31, of each year presented
and recognized the related expense.
f) ACCRUED SEVERANCE PAYMENTS - Under Mexican GAAP, the Company has
accrued severance payments to be made to certain of its employees as a
consequence of the restructuring of operations initiated at the end of
2000 as described in Note 1. For U.S. GAAP purposes the Company has
reversed such cost since at the date of the financial statements the
Company had not communicated to the employees the type and amount of
benefits they will receive upon termination.
g) CAPITALIZATION OF INTEGRAL COST (INCOME) OF FINANCING - Under Mexican
GAAP, total integral cost (income) of financing is subject to
capitalization to assets under construction, including foreign exchange
gains and losses, interest income and gains and losses from monetary
position. In accordance with U.S. GAAP, foreign exchange gains and
losses, interest income and monetary position gains and losses are not
capitalizable. Consequently, such amounts capitalized under Mexican
GAAP have been reversed and treated as income or expense, as
appropriate, in the period incurred and current year depreciation has
also been adjusted.
h) OTHER DIFFERENCES AND SUPPLEMENTAL U.S. GAAP DISCLOSURES -
1. Extraordinary Items - Through December 31, 1999, under Mexican
GAAP, the utilization of tax loss carryforwards and assets taxes
paid in prior years was considered to be an extraordinary gain.
Under U.S. GAAP, such amounts would be considered to be a component
of income tax expense. Although this difference does not affect
consolidated net income, it does affect the reported amount of
income tax expense.
2. Cash flows - The Company presents its cash flow information, under
Mexican GAAP, exclusive of the effects of inflation. Such
information for the year ended December 31, 1999, 2000 and 2001 is
presented below:
F-45
[Enlarge/Download Table]
December 31,
--------------------------------------------
1999 2000 2001
---------- ---------- ----------
OPERATING ACTIVITIES:
Consolidated net income-Mexican GAAP Ps.891,371 Ps.515,591 Ps.595,188
Effects of inflation (476,096) (259,059) (218,646)
---------- ---------- ----------
Consolidated net income exclusive of
inflation- Mexican GAAP 415,275 256,532 376,542
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 435,414 428,762 602,837
Statutory seniority premiums 14,505 32,455 43,689
Restructuring charge -- 524,000 83,505
Equity in earnings of associated companies (1,120) -- --
Deferred taxes -- (263,523) (28,456)
Unrealized foreign exchange (gain) loss on
current and long-term debt (96,435) 56,211 (185,225)
Realized foreign exchange (gain) loss on
current and long-term debt (69,924) 12,079 (9,404)
Changes in operating assets and liabilities:
Accounts receivable - net (320,735) (95,041) (9,451)
Inventories (1,956) (252,171) 276,530
Prepaid expenses (4,177) (5,374) 15,932
Trade accounts payable 144,447 59,032 (949)
Taxes payable, accrued expenses and
other liabilities 18,722 (23,259) 163,344
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 534,016 729,703 1,328,894
---------- ---------- ----------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (809,101) (941,269) (1,067,638)
Loan to associated company (94,383) (1,121) --
Other assets 61,385 (29,638) 110,356
Increase in goodwill -- -- (111,650)
Acquisition of subsidiaries, net of cash received -- 77,716 --
Effect on cash of consolidating Tenedora 44,910 -- --
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (797,189) (894,312) (1,068,932)
---------- ---------- ----------
FINANCING ACTIVITIES:
Payments of long-term debt (74,992) (40,760) (282,154)
Proceeds from long-term debt 63,760 768,294 732,772
Payments of notes payable (556,688) (1,056,921) (1,775,772)
Proceeds from notes payable 653,373 479,469 918,166
Repurchase and sale of capital stock - net (9,822) 6,861 19,427
Capital stock increase -- 40,481 --
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 75,631 197,424 (387,561)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (187,542) 32,815 (127,599)
Cash and cash equivalents at beginning of year 317,651 169,239 217,217
Effect of inflation on cash 39,130 24,721 9,558
---------- ---------- ----------
Cash and cash equivalents at end of year Ps.169,239 Ps.226,775 Ps.99,176
========== ========== ==========
Supplemental Cash Flow Information Required by U.S. GAAP - Resources
generated by operating activities in the statements of changes in
financial position reflect cash payments of interest and income taxes
as follows:
F-46
[Download Table]
Year Ended December 31,
-------------------------------------------------
1999 2000 2001
-------------- ------------- --------------
Interest Ps. 389,571 Ps. 399,386 Ps. 396,560
Income taxes -- -- --
In accordance with Mexican GAAP, acquisition of subsidiaries is
shown net of cash received as an investing activity and the
corresponding debt incurred in the acquisition is shown as a
financing activity. Also, when material, acquisition of minority
interest in exchange of own shares is shown as an investing and
financing activity, respectively. Under U.S. GAAP, because such
transactions are non-cash, it is necessary only to disclose
non-cash investing and financing activities. Supplemental
disclosure of non-cash investing and financing activities is as
follows:
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------------
1999 2000 2001
-------------- ------------- --------------
Fair value of net assets acquired Ps. -- Ps. 708,014 Ps. --
Less: liabilities incurred -- 791,907 --
-------------- ------------- --------------
Acquisition of subsidiaries, net of cash acquired Ps. -- Ps. (83,893) Ps. --
============== ============= ==============
Shares issued in exchange of minority interest Ps. -- Ps. 358,282 Ps. --
============== ============= ==============
In accordance with Mexican GAAP, unrealized exchange losses on
current and long-term debt are included as a financing activity in
the statement of changes in financial position. Under U.S. GAAP,
unrealized exchange losses on current and long-term debt would be
reflected as non-cash expenses in operating activities and not as a
financing activity.
Also, under Mexican GAAP dividends declared and not paid are shown
as resources used in and generated by financing activities,
respectively. Under U.S. GAAP dividends declared but not paid are
not included in the statement of cash flows.
3. Statement of Comprehensive Income - Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income",
establishes standards for reporting and display of comprehensive
income and its components. The Company's statements of
comprehensive income for the years ended December 31, 1999, 2000
and 2001, giving effect to the U.S. GAAP adjustments described
above, are set forth below:
F-47
[Enlarge/Download Table]
Thousands of
U.S. dollars
(Convenience
December 31, Translation)
--------------------------------------------- December
1999 2000 2001 31, 2001
------------- ------------- ------------- --------------
Net income under U.S. GAAP Ps. 746,927 Ps. 207,590 Ps. 310,352 $ 33,881
Other comprehensive (loss) income:
Result from holding nonmonetary assets
as reported under Mexican GAAP (517,565) (200,127) (625,212) (68,255)
Adjustment from labor obligations
upon retirement under Mexican GAAP -- -- (43,403) (4,738)
U.S. GAAP adjustments to result from
holding nonmonetary assets 494,918 31,560 700,501 76,474
------------- ------------- ------------- --------------
Total other comprehensive (loss) income (22,647) (168,567) 31,886 3,481
------------- ------------- ------------- --------------
Comprehensive income (loss) under U.S. GAAP Ps. 724,280 Ps. 39,023 Ps. 342,238 $ 37,362
============= ============= ============= ==============
Accumulated other comprehensive loss at December 31, 1999, 2000 and
2001, giving effect to the U.S. GAAP adjustments discussed above,
consists of losses from holding nonmonetary assets of
Ps.(1,022,096), Ps.(1,190,663) and Ps.(1,237,344), respectively.
4. Earnings Per Share in Accordance With U.S. GAAP - Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128") requires the presentation of "basic" earnings per share,
which is calculated by dividing income available to common
shareholders by the weighted average number of shares outstanding
during the period, and diluted earnings per share giving effect to
all potentially dilutive common shares outstanding during the
period.
At December 31, 2000, the Company has not presented diluted
earnings per share because there are no potentially dilutive
securities outstanding. However, as discussed in Note 9, during
1999, the Company established an executive share purchase program.
Under SFAS No. 128, shares granted under this program would
possibly be considered dilutive when and if granted.
Earnings per share for each of the years in the three-year period
ended December 31, 2001 is presented below:
F-48
[Enlarge/Download Table]
Thousands of
U.S. dollars
(Convenience
December 31, Translation)
------------------------------------------------ December
1999 2000 2001 31, 2001
------------- -------------- ------------- --------------
Basic earnings per share:
B Shares Ps. 0.51 Ps. 0.14 Ps. 0.19 $ 0.020
CPOs 1.77 0.48 . 0.64 0.070
GDS 10.64 2.87 3.84 0.419
Weighted average shares outstanding (in 000's):
Total shares 1,343,064 1,347,664 1,504,383
CPOs 322,381 336,219 375,318
GDS 53,730 56,037 62,553
5. Restructuring Charge - In accordance with U.S. GAAP the
restructuring charges should be reported as part of operating
income. This difference does not have an effect in the net income
or earnings per share reported during the year ended December 31,
2001.
6. Impairment of long-lived assets and severance payments - In
accordance with U.S. GAAP the adjustments arising from the
impairment of long-lived assets and severance payments arising from
restructurings or reorganizations which are included in other
expenses for Mexican GAAP purposes should be reported as part of
the operating income. This difference does not have an effect in
the net income or earnings per share reported during the year ended
December 31, 2001.
7 Stock Option Program-- In accordance with the program (see Note 9)
the exercise price is determined to be the closing price on the
last trading day prior to May 1 of each year for the options
granted for the previous year, therefore, there was no compensation
expense recognized in the financial statements, in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), for U.S. GAAP purposes.
APB 25 requires that compensation expense for a stock option plan
be measured using the intrinsic value method whereby compensation
expense for a fixed plan is recognized in an amount equal to the
excess of the market price of the underlying stock over the
exercise price of the option at the grant date.
Under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS No. 123"), the
Company presents the following additional required disclosures to
the financial statements:
F-49
Pro Forma Effect of Stock Compensation Program - SFAS No. 123
requires the disclosure of the Company's net income and net income
per share, as if the Company had accounted for its employee stock
option plan under the fair value method. For purposes of these pro
forma disclosures, the estimated fair value of the options is
amortized over the options' vesting period. Had the Company's stock
option program been accounted for under SFAS No. 123, the net
income for U.S. GAAP at December 31, 1999, 2000 and 2001 would have
been decreased by Ps.17,087, Ps.16,708 and Ps.10,080, respectively.
Earnings per share for each of the years in the three-year period
ended December 31, 2001 is presented below:
[Enlarge/Download Table]
Thousands of
U.S. dollars
(Convenience
December 31, Translation)
------------------------------------------------ December
1999 2000 2001 31, 2001
------------- -------------- ------------- ------------
Basic earnings per share:
B Shares Ps. 0.49 Ps. 0.13 Ps. 0.18 $ 0.020
CPOs 1.69 0.44 0.62 0.068
GDS 10.15 2.64 3.71 0.406
Weighted average shares outstanding (in 000's):
Total shares 1,343,064 1,347,664 1,504,383
CPOs 322,381 336,219 375,318
GDS 53,730 56,037 62,553
The fair value of the options granted used in order to calculate
the pro forma amounts above, have been estimated at the date of
grant using the Black-Scholes option-pricing model with the
following assumptions: i) expected life of 7 years and expected
volatility of 44.0%, ii) risk free rate of 5.32% and 6.36% for
options granted during 1999 and 2000, respectively, and iii) no
expected dividend yield. Based on these assumptions, the weighted
average fair value of employee stock options granted during 1999
and 2000 was Ps.1.94 and Ps.1.55 per share (in nominal pesos),
respectively, and the market price on the grant date was Ps.4.13
and Ps.2.72, respectively
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. The
Company's options have characteristics significantly different from
those of traded options, and changes in the subjective input
assumptions can materially affect the fair value estimate.
8. Recently Issued Accounting Standards - In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 addresses
financial accounting and reporting for business combinations and
requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001.
Under SFAS 142, goodwill and certain other intangible assets with
indefinite useful lives will no longer be systematically amortized,
but instead will be tested for impairment at least annually and
written-down with a charge to operations when the carrying amount
exceeds the estimated fair value. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. The Company's management
has not completed the initial impairment review
F-50
required by SFAS 142. However, management believes that the
adoption of SFAS 142 will reduce substantially the amortization
expense of future years.
In August 2001, the FASB also issued Statement of Financial
Accounting Standards No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" ("SFAS 143").
SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated
asset retirement cost. It provides accounting guidance for legal
obligations associated with the retirement of tangible long-lived
assets. It requires the recognition of the fair value of a
liability for an asset retirement obligation in the period in which
it is incurred if a reasonable estimate of fair value can be made.
SFAS 143 is effective for fiscal years beginning after June 15,
2002, with early adoption permitted. Management is currently
evaluating the effects of adopting SFAS 143, but believes it will
not have a material effect on the Company's results of operations
and financial position. In addition, in October 2001, the FASB
issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 144 establishes a single accounting model for
the impairment or disposal of long-lived assets, including
discontinued operations. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. Management is currently
evaluating the effects of adopting SFAS 144, but believes it will
not have a material effect on the Company's results of operations
or financial position.
In April 2002, the FASB issued SFAS No 145, "Recission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." As a result of this statement, The
Company may no longer classify gains and losses from
extinguishments of debt as extraordinary items unless the debt
meets the criteria of APB 30. The provisions of this statement with
regard to FAS 4 will be effective for fiscal years beginning after
2002. Gains and losses from extinguishments of debt that have been
classified as extraordinary in previous years that do not meet the
criteria of APB 30 will be reclassified.
During 2000 and 2001, the Emerging Issues Task Force ("EITF")
addressed various issues related to the income statement
classification of certain promotional payments. In April 2001, the
EITF reached a consensus on Issue 00-14: "Accounting for Certain
Sales Incentives" which addresses the recognition, measurement, and
income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be
used in, or that are exercisable by a customer as a result of, a
single exchange transaction. Sales incentives have various forms
including discounts, coupons, rebates, and free products or
services. Under the consensus, it is required that if the sales
incentive is a free product delivered at the time of sale, the cost
of the product or service should be classifies as an expense.
However, the reduction in or refund of the selling price of the
products resulting from any cash sales incentives should be
classified as a reduction of revenue. EITF 00-14 should be applied
for annual or interim periods beginning after December 15, 2001. In
January, 2001 the EITF reached a consensus on Issue 00-22:
"Accounting for "Points" and Certain Other Time-Based or
Volume-Based Sales Incentive Offers for Free Products or Services
to be Delivered in the Future". EITF 00-22 requires that cash
rebates or refund obligations should be recognized as a reduction
of revenue based on a systematic and rational allocation of the
cost of honoring them. EITF 00-22 is applied for quarters ended
after February 15, 2001. In April 2001, the EITF reached a
consensus on Issue 00-25: "Vendor Income Statement Characterization
of Consideration Paid to Reseller of the Vendor's Products". EITF
00-25 addresses the income statement classification, other than
that addressed in EITF 00-14, from a vendor to a reseller or
another party that purchases the vendor's products. EITF 00-25
requires that any consideration from a vendor to a reseller of its
products is presumed to be a reduction of the selling price of the
vendor's products and should be characterized as a reduction of
revenue in the vendor's income statement. Such EITF, also
establishes the conditions under which the consideration could be
characterized as a cost incurred. EITF 00-25 should be applied for
annual or interim periods beginning after December 15, 2001. In
November of 2001, EITF codified Issues 00-14, 00-22 and 00-25 as
Issue 01-9: "Accounting for a Consideration Given by a Vendor to a
Reseller of the Vendor's Products". Management is currently
evaluating the effects of adopting EITF 00-14 and 00-25, but
believes it will not have a material effect on the Company's
results of operations or financial position. Adoption of EITF 00-22
did not have a material effect in the results of operation or
financial position.
F-51
The adoption of Statement of Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), as amended by SFAS 138 did not have a material
effect on the results of operations, financial position and cash
flows of the Company on January 1, 2001, the date of adoption. SFAS
No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires an
enterprise to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
these instruments at fair value.
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PEPSI-GEMEX, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL SCHEDULE VALUATION AND QUALIFYING
ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 (Thousands of Mexican
Pesos of Purchasing Power of December 31, 2001)
[Download Table]
BALANCE AT BALANCE AT
THE BEGINNING THE END OF
DESCRIPTION OF THE PERIOD ADDITIONS DEDUCTIONS THE PERIOD
Allowance for Doubtful Accounts:
Year Ended December 31, 1999 30,514 18,551 7,644 41,421
Year Ended December 31, 2000 41,421 31,892 6,243 67,070
Year Ended December 31, 2001 67,070 66,501 26,743 106,828
* * * * * *
F-53
Dates Referenced Herein and Documents Incorporated by Reference
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