Filed On 4/2/01 2:58pm ET ˇ SEC File 1-12290 ˇ Accession Number 950157-1-252
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
4/02/01 Panamerican Beverages Inc 10-K 12/31/00 23:631 Cravath Swaine &...01/FA
Document/Exhibit Description Pages Size
1: 10-K Annual Report 141 715K
2: EX-3.2 Restatement of Articles of Incorporation 19 76K
3: EX-3.2 Amended and Restated By-Laws 16 63K
4: EX-10.27 Credit Agreement 44 221K
5: EX-10.28 Credit Agreement 46 242K
6: EX-10.29 Account Opening Agreement 7 35K
7: EX-10.30 Confirmation of Account Opening Agreement 12 50K
8: EX-10.31 Amended and Restated Credit Agreement 121 392K
9: EX-10.32 Joinder Agreement 6 23K
10: EX-10.33 Stock Purchase Agreement 5 21K
11: EX-10.34 Customer's Outsourcing Agreement 20 81K
12: EX-10.35 Customer's Outsourcing Agreement 20 82K
13: EX-10.36 Customer's Outsourcing Agreement 20 80K
14: EX-10.37 Customer's Outsourcing Agreement 20 80K
15: EX-10.38 Customer's Outsourcing Agreement 21 83K
16: EX-10.39 Customer's Outsourcing Agreement 20 83K
17: EX-10.40 Customer's Outsourcing Agreement 20 82K
18: EX-10.41 Customer's Outsourcing Agreement 19 75K
19: EX-10.42 Employment Agreement 21 112K
20: EX-10.43 Employment Agreement 21 112K
21: EX-10.44 Severance Agreement and Mutual Release 9 34K
22: EX-21.1 Subsidiaries of the Registrant 2 13K
23: EX-23.1 Consent of Independent Public Accountants 1 8K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-12290
PANAMERICAN BEVERAGES, INC.
(Exact name of registrant as specified in its charter)
Republic of Panama Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Panamco, L.L.C.
701 Waterford Way, Suite 800
Miami, Florida
(Address of principal executive offices)
33126
(Zip code)
Registrant's Telephone Number, including area code: (305) 856-7100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
-------------------- ---------------------
Class A Common Stock, $0.01 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].
The aggregate market value of the voting and non-voting stock common stock
held by non-affiliates of the registrant was $2,038,757,633 (computed by
reference to the closing price as of March 26, 2001).
The number of shares outstanding of each of the registrant's classes of common
and preferred stock, par value $0.01 per share, as of March 26, 2001 were:
Class A Common Stock: 119,002,164
Class B Common Stock: 8,888,432
Class C Preferred Stock: 2
TABLE OF CONTENTS
Page
Part I
Item 1. Business
o Overview..................................................... 1
o Corporate Structure.......................................... 2
o Our Franchise Territories.................................... 4
o Beverages and Packaging...................................... 5
o Soft Drink Sales Share....................................... 9
o Sales, Distribution and Marketing............................ 9
o Raw Materials and Supplies................................... 13
o Production................................................... 15
o Competition.................................................. 15
o Employees.................................................... 16
o Franchise Arrangements....................................... 17
o Government Regulation........................................ 18
o Political, Economic and Social Conditions in Latin America... 19
o Currency Devaluations and Fluctuations....................... 22
Item 2. Properties....................................................... 23
Item 3. Legal Proceedings................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.............. 25
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 26
Item 6. Selected Financial Data.......................................... 32
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................... 34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 58
Item 8. Financial Statements and Supplementary Data...................... 60
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................... 60
Part III
Item 10. Directors and Executive Officers of the Registrant............... 61
Item 11. Executive Compensation........................................... 66
Item 12. Security Ownership of Certain Beneficial Owners and Management... 71
Item 13. Certain Relationships and Related Transactions................... 75
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..78
Signatures........................................................82
PART I
ITEM 1. BUSINESS
OVERVIEW
Panamerican Beverages, Inc. ("Panamco" or the "Company") is the largest
soft drink bottler in Latin America and one of the world's largest bottlers of
the soft drink products of The Coca-Cola Company ("The Coca-Cola Company" or
"Coca-Cola"). In 2000, our sales accounted for approximately 5% of the
worldwide unit case volume of soft drink sales of The Coca-Cola Company, or
the equivalent of one bottle in every case. Our 2000 sales represented
approximately 21% of the Latin American unit case volume of The Coca-Cola
Company's soft drink products. Sales of products of The Coca-Cola Company
accounted for approximately 89% of our net sales in 2000.
We have almost a 60-year bottling relationship with The Coca-Cola
Company. On November 1, 1995, The Coca-Cola Company designated Panamco an
"anchor bottler", making us one of their strategic partners in The Coca-Cola
Company's worldwide bottling system. The Coca-Cola Company has been a
stockholder of our company since 1993 and today beneficially owns
approximately 24% of our common stock. The Coca-Cola Company has two
representatives on our Board of Directors.
We operate in diverse markets in Latin America. We operate in:
o Mexico
A substantial part of central Mexico (excluding Mexico City),
o Brazil
Greater Sao Paulo, Campinas, Santos and part of Mato Grosso do Sul in
Brazil,
o Colombia
Most of the Country,
o Costa Rica
All of the Country,
o Venezuela
All of the Country,
o Nicaragua
All of the Country, and
o Guatemala
Guatemala City and surrounding areas.
These territories have an aggregate population of approximately 122
million people, or about 24% of the total population of Latin America. Within
these territories, we have the exclusive right to produce and distribute
substantially all of The Coca-Cola Company's soft drink products. We also
produce and distribute a variety of flavored soft drinks and bottled water
products under licensed and proprietary trademarks in select territories,
including Canada Dry products in Costa Rica and Schweppes products in
Venezuela. We distribute Kaiser and Heineken beers in our franchise
territories in Brazil. We also have the right to distribute Regional beer
throughout most of Venezuela, which we began distributing in the northeast of
Venezuela in early 1999.
1
Our business began in 1941, when Albert H. Staton, Sr., and a group of
investors acquired a core of the franchised bottling operations of The
Coca-Cola Company in Mexico. We were incorporated in Panama in 1945 as
successor to a Mexican company through which the business was initially
conducted. By expanding into other Latin American markets, we have been able
to diversify, in part, our business risk. In 1944 and 1945, we expanded our
operations to Colombia and Brazil, respectively. In 1950, we acquired The
Coca-Cola Company's bottling franchise for the Sao Paulo territory. Since
then, our operating units have acquired additional bottling franchises within
their respective countries. We entered the Costa Rican market in 1995, both
the Venezuelan market and the Nicaraguan market in 1997 and the Guatemalan
market in 1998.
At the end of the first quarter of 2000, we moved our principal executive
offices from Mexico City to Miami, Florida.
CORPORATE STRUCTURE
HOLDING COMPANY STRUCTURE
We are a holding company and conduct our operations through tiers of
subsidiaries. The following chart shows our corporate structure and ownership
interest in our country level holding companies and describes their interests
in their bottling subsidiaries as of December 31, 2000:
PANAMCO
[Enlarge/Download Table]
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
98% 98% 97% 100% 70%* 100% 100%
Panamco Panamco Panamco Panamco Panamco Panamco Panamco
Mexico Brasil Colombia Venezuela Costa Rica Nicaragua Guatemala
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
Panamco Mexico
owns between 86% Panamco Panamco
and 99% of its Brasil Colombia owns Panamco Panamco Costa Panamco Panamco
bottling effectively 65% of one and Venezuela owns Rica owns100% Nicaragua Guatemala
subsidiaries and owns100% of its 100% of four of 100% of its of its owns100% of owns100% of
also owns 30% of bottling its bottling bottling bottling its bottling its bottling
Panamco Costa Rica. subsidiary. subsidiaries. subsidiary. subsidiary. subsidiary. subsidiary.
-------------------- ----------------- ----------------- ----------------- ---------------- ---------------- ----------------
---------------------
* Panamco Mexico owns 30% of Panamco Costa Rica.
As a holding company, our ability to pay operating expenses, any debt
service obligations and dividends primarily depends upon receipt of sufficient
funds from our majority-owned subsidiaries, which are in turn dependent upon
receipt of funds from their majority-owned subsidiaries. See "Item 5. --
Market for Registrant's Common Equity and Related Stockholder Matters --
Exchange Controls and Other Limitations Affecting Security Holders" for a
discussion of limitations imposed by exchange control laws on the payment of
dividends. At present, Mexico (since the beginning of 1999) and Costa Rica
impose withholding taxes of approximately 7.6% and 15%, respectively, on
dividends paid to us by domestic subsidiaries. In addition, Brazil imposes a
basic withholding tax of 15% on dividends paid to us by domestic subsidiaries
that are derived from earnings generated prior to January 1, 1996. The payment
of dividends by our subsidiaries is also subject in certain instances to
statutory restrictions or restrictive covenants in debt instruments and is
contingent upon the earnings and cash flow of, and permitted borrowings by,
such subsidiaries. In addition,
2
the minority shareholders in less than wholly owned subsidiaries receive a pro
rata portion of all dividends paid by those subsidiaries.
SUBSIDIARY OPERATIONS
MEXICO
We own approximately 98% of the capital stock of Panamco Mexico, S.A. de
C.V. ("Panamco Mexico"), a Mexican corporation that in turn owns interests
ranging from 86% to 99% in five bottling subsidiaries that own and operate
eight soft drink bottling plants and two water bottling plants in Mexico.
Panamco Mexico also owns majority and minority interests in companies that
produce materials and equipment used in the production and distribution of
soft drinks. Panamco Mexico and its consolidated subsidiaries are collectively
referred to herein as "Panamco Mexico". In December 2000, Panamco Mexico
acquired 29% of the capital stock of Embotelladora Panamco Costa Rica, S.A.
("Panamco Costa Rica"). Panamco Costa Rica produces, distributes and sells The
Coca-Cola Company's products and distributes and sells Canada Dry products in
Costa Rica. Panamco Costa Rica owns and operates one bottling plant. Panamco
Costa Rica also owns a plastics business.
BRAZIL
We indirectly own approximately 98% of the capital stock of Refrescos do
Brasil S.A. ("Panamco Brasil"), a Brazilian holding company that through
subsidiaries owns a bottling subsidiary that, in turn, owns and operates two
bottling plants in Brazil, including our state-of-the-art facility in Jundiai
and owns an 11.6% interest in the Kaiser beer brewery. In order to compete
more aggressively with Antarctica and Brahma, in 1983 The Coca-Cola Company,
together with Panamco Brasil, other Brazilian bottlers of products of The
Coca-Cola Company and the Heineken Beer Company, established Cervejarias
Kaiser, S.A. ("Kaiser"). Between 1995 and 1998 Panamco Brasil increased its
interest in Kaiser to 11.6% in connection with its acquisition of all of the
capital stock of Refrigerantes de Santos, S.A. ("Santos") and the shares of
Kaiser owned by Santos. Panamco Brasil also has facilities that produce
equipment used in the distribution of soft drinks. In September 1998, we
acquired all the capital stock of the Brazilian bottler, Refrigerantes do
Oeste S.A. ("R.O.S.A."). R.O.S.A. produces, distributes and sells The
Coca-Cola Company's products in the western central part of Brazil in the
state of Matto Grosso do Sul. Panamco Brasil and its consolidated subsidiaries
are collectively referred to herein as "Panamco Brasil".
COLOMBIA
We own approximately 97% of the capital stock of Panamco Colombia, S.A.
("Panamco Colombia"), a Colombian corporation that owns interests ranging from
65% to 100% in subsidiaries that own and operate an aggregate of 18 bottling
plants and own majority and minority interests in corporations that produce
materials and equipment used in the production and distribution of soft drinks
such as Friomix del Cauca, a cold equipment building company. Panamco Colombia
and its consolidated subsidiaries are collectively referred to herein as
"Panamco Colombia".
VENEZUELA
In May 1997, we acquired all the capital stock of Embotelladora Coca-Cola
y Hit de Venezuela S.A. ("Panamco Venezuela") (the "Venezuela Acquisition").
Panamco Venezuela, through its subsidiaries (the "Venezuelan Bottlers"),
produces, distributes and sells products of The Coca-Cola Company and other
soft drink products throughout Venezuela. Panamco Venezuela owns and operates
13 bottling plants. We also acquired the right to distribute Regional beer
throughout Venezuela, which we began distributing in the northeast of
Venezuela in 1999. Panamco Venezuela and the Venezuelan Bottlers are
collectively referred to herein as "Panamco Venezuela".
3
CENTRAL AMERICA
Costa Rica. We own all the capital stock (71% directly and 29% indirectly
through Panamco Mexico) of Embotelladora Panamco Costa Rica, S.A. ("Panamco
Costa Rica"). Panamco Costa Rica produces, distributes and sells The Coca-Cola
Company's products and distributes and sells Canada Dry products in Costa
Rica. Panamco Costa Rica owns and operates one bottling plant. Panamco Costa
Rica also owns a plastics business. We acquired these operations in 1995 and
1996.
Nicaragua. In August 1997, we acquired all the capital stock of
Embotelladora Milca, S.A. ("Panamco Nicaragua"). Panamco Nicaragua produces,
distributes and sells The Coca-Cola Company's products, and other soft drink
products, throughout Nicaragua.
Guatemala. In March 1998, we acquired all the capital of Embotelladora
Central, S.A. ("Panamco Guatemala"). Panamco Guatemala produces, distributes
and sells The Coca-Cola Company's products, and other soft drink products in
Guatemala City and surrounding areas.
Panamco Costa Rica, Panamco Nicaragua and Panamco Guatemala are
collectively referred to as "Panamco Central America".
OUR FRANCHISE TERRITORIES
We have exclusive rights under our bottling agreements with The Coca-Cola
Company to bottle and distribute soft drinks and water in all of the
territories in which we operate. We market all our other soft drink, bottled
water, beer products and other beverages only within our franchise
territories. The countries where we operate and our franchise territories are
shown below:
[MAP OMITTED]
4
MEXICO
Our Mexican territories consist of the states of Guanajuato, Puebla,
Tlaxcala, Michoacan and most of Veracruz, an area which has an aggregate
population of more than 19 million people, or about 19% of the total
population of the country.
BRAZIL
Our Brazilian territories, with a population of approximately 27 million
people or about 16% of the total population of the country, consist of greater
Sao Paulo, the third largest metropolitan area in the world, the contiguous
area of greater Campinas, the adjacent coastal areas of Santos, and Mato
Grosso do Sul.
COLOMBIA
Our Colombian territory covers approximately 94% of the population of
that country with a population of approximately 40 million people, and
includes all major cities.
VENEZUELA
We are the only company with the right to distribute The Coca-Cola
Company's products in Venezuela, which has a population of about 23 million
people.
CENTRAL AMERICA
We are the only company that has the right to distribute The Coca-Cola
Company's products in Costa Rica, with a population of approximately 3.8
million people, and in Nicaragua with a population of approximately 4.8
million people. Our Guatemalan territory, which has a population of about 5.4
million people, covers 47% of the population of that country, which includes
Guatemala City.
BEVERAGES AND PACKAGING
OUR PRODUCTS
We produce or distribute colas, flavored soft drinks, non carbonated
flavored drinks, bottled drinking water and beer. We produce and distribute
Coca-Cola products and our own proprietary brands. In 2000, 88.8% of the
products we sold were products of The Coca-Cola Company.
We distribute two types of bottled water products: purified water and
mineral water. Purified water is prepared in a similar manner to the water
utilized in the soft drink manufacturing process. Mineral water is obtained
from springs and wells. We distribute mineral water under our own proprietary
trademarks, which include Risco in Mexico, Manantial in Colombia, Crystal in
Brazil and Shangri-la in Guatemala, and we distribute purified water under the
trademarks Risco in Mexico, Club K, Santa Clara and Soda Clausen in Colombia,
Nevada in Venezuela, Alpina in Costa Rica and Milca Soda in Nicaragua.
In Brazil we distribute both Kaiser and Heineken beers and in Venezuela
the Regional trademark.
Proprietary Trademarks. We produce and distribute flavored soft drinks
under our own proprietary trademarks, including "Club K", "Club Soda" and
"Premio" in Colombia and "Super 12" in Costa Rica. We produce and distribute
bottled waters under our own proprietary trademarks including "Risco" in
Mexico, "Crystal" in Brazil, "Manantial", "Premio", "Soda Clausen" and "Santa
Clara" in Colombia, "Alpina" in Costa Rica and "Shangri-la" in Guatemala.
5
The beverage products we produce or distribute and that accounted for
nearly all of our sales in the period ending December 31, 2000 are listed
below:
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
PANAMCO MEXICO PANAMCO BRASIL PANAMCO COLOMBIA PANAMCO VENEZUELA PANAMCO PANAMCO NICARAGUA PANAMCO
COSTA RICA Guatemala
----------------------------------------------------------------------------------------------------------------------------
COCA-COLA SOFT COCA-COLA SOFT COCA-COLA SOFT COCA-COLA SOFT COCA-COLA SOFT COCA-COLA SOFT COCA-COLA SOFT
DRINK PRODUCTS: DRINK PRODUCTS: DRINK PRODUCTS: DRINK PRODUCTS: DRINK PRODUCTS: DRINK PRODUCTS: DRINK PRODUCTS:
Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola
Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light Coca-Cola Light
Sprite Sprite Sprite Hit Naranja Sprite Sprite Fanta
Sprite Light Diet Sprite Fanta Hit Pina Fanta Fanta Sprite
Fanta Orange Fanta Quatro Hit Uva Fresca Fresca Lift
Fanta Diet Fanta Lift Hit Manzana Lift
Strawberry Simba Hit Kola BOTTLED WATER: BOTTLED WATER:
Fresca Tai OTHER SOFT Hit Parchita OTHER SOFT Kinley Soda Shangri-la*
Lift Diet Tai DRINKS: Grapette Uva DRINKS: Canada Dry
Delaware Punch Kuat Roman** Grapette Kola Canada Dry Club Soda OTHER PRODUCTS:
Kinley Tonic Premio* Grapete Ginger Ale** Alpina Hi-C
BOTTLED WATER: Water Club Soda* Naranja Super 12* Powerade
Risco* Kinley Club Soda Grapete Pina OTHER PRODUCTS:
Fanta Uva BOTTLED WATER: Quatro BOTTLED WATER: Hi-C
OTHER PRODUCTS: Manantial* Frescolita Canada Dry Kapo
Keloco* BOTTLED WATER: Club K* Chinotto Club Soda**
Beat Crystal* Soda Clausen* Chinotto Light Canada Dry
Santa Clara* Quinada**
BEER: OTHER SOFT Alpina*
Kaiser** DRINKS:
Kaiser Light** Soda Schweppes** OTHER PRODUCTS:
Kaiser Bock** Aguakina Powerade
Kaiser Gold** Schweppes**
Kaiser Summer
Draft** BOTTLED WATER:
Heineken** Nevada
OTHER PRODUCTS:
Malta Regional**
Nestea**
BEER:
Regional**
---------------------
Unless otherwise indicated, products are proprietary to The Coca-Cola
Company.
* Proprietary to Panamco
** Products licensed from third parties
6
The following chart shows the allocation of our net sales during 2000 among
the products described above:
--------------------------------
[ ] Coca-Cola 61%
[ ] Other Coca-Cola Products 26%
[ ] Other Soft Drinks 2% [PIE CHART OMITTED]
[ ] Bottled Water 7%
[ ] Beer 3%
[ ] Other Products 1%
--------------------------------
The estimated annual per capita consumption for 2000, 1999 and 1998 for
our soft drinks in each of our franchise territories is as follows:
[Download Table]
PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO PANAMCO
MEXICO BRASIL COLOMBIA VENEZUELA COSTA RICA NICARAGUA GUATEMALA
------ ------ -------- --------- ---------- --------- ---------
2000........ 369.0 207.0 91.0 154.0 174.0 112.0 86.0
1999........ 349.1 214.3 91.4 153.6 180.8 112.0 87.0
1998........ 340.4 213.5 113.0 202.3 186.6 112.1 79.2
-------------------------
Source: We have compiled the share of sales information contained herein based
upon several sources. To determine the portion of a given market represented
by our sales, we utilize, in certain instances, data supplied by A.C. Nielsen,
The Coca-Cola Company and other third-party sources. In certain territories,
we also periodically conduct our own surveys by sampling retail customers'
weekly purchases and inventory levels. The methodologies of different surveys
are not identical and referenced competitors' franchise areas do not exactly
correspond to ours. Although management believes the information obtained in
this fashion is reliable, we make no representation or warranty, express or
implied, as to the accuracy or completeness of the industry sales share data
and volume data, or per capita consumption data contained herein.
The following table shows our net sales in thousands of dollars and by
percentage of total net sales by territory and product for the periods
indicated:
[Enlarge/Download Table]
2000 1999 1998
--------------------------------------------------------------------------------
TOTAL PERCENTAGE TOTAL PERCENTAGE TOTAL PERCENTAGE
NET OF TOTAL NET OF TOTAL NET OF TOTAL
SALES (1) NET SALES SALES (1) NET SALES SALES (1) NET SALES
--------- --------- --------- ---------- --------- ----------
Panamco Mexico
Total products of
The Coca-Cola Company........ $ 872,336 33.6% $ 718,980 29.8% $ 586,964 21.2%
Total other soft drinks........ 10,540 0.4 7,842 0.3 4,306 0.1
Total bottled water............ 91,970 3.5 68,350 2.8 47,211 1.7
--------- ------ --------- ------ --------- -----
Total Panamco Mexico......... 974,846 37.5 794,812 32.9 638,481 23.0
7
[Enlarge/Download Table]
2000 1999 1998
---------------------------------------------------------------------------------
TOTAL PERCENTAGE TOTAL PERCENTAGE TOTAL PERCENTAGE
NET OF TOTAL NET OF TOTAL NET OF TOTAL
SALES (1) NET SALES SALES (1) NET SALES SALES (1) NET SALES
----------- --------- --------- ---------- --------- ----------
Panamco Brasil (2)
Total products of
The Coca-Cola Company...... 403,098 15.5 389,449 16.1 653,738 23.6
Total bottled water........... 16,976 0.7 14,715 0.6 19,050 0.7
Total beer.................... 76,414 2.9 96,519 4.0 225,163 8.1
---------- ---- ---------- ------ ---------- -----
Total Panamco Brasil....... 496,488 19.1 500,683 20.7 897,951 32.4
Panamco Colombia
Total products of
The Coca-Cola Company...... 332,354 12.8 337,333 13.9 422,075 15.2
Total other soft drinks....... 25,051 1.0 26,224 1.1 31,763 1.1
Total bottled water........... 29,315 1.1 33,457 1.4 41,974 1.5
---------- ---- ---------- ----- ---------- -----
Total Panamco Colombia..... 386,720 14.9 397,014 16.4 495,812 17.8
Panamco Venezuela
Total products of
The Coca-Cola Company...... 457,839 17.6 493,671 20.4 536,322 19.3
Total other soft drinks....... 24,340 0.9 16,051 0.7 14,355 0.5
Total beer.................... 33,674 1.3 2,570 0.1 -- --
---------- ---- ---------- ----- ---------- -----
Total Panamco Venezuela 515,853 19.8 512,292 21.2 550,677 19.8
Panamco Central America (3)
Total products of
The Coca-Cola Company...... 203,401 7.8 193,102 8.0 173,672 6.3
Total other soft drinks....... 13,393 0.5 10,573 0.5 10,183 0.4
Total bottled water........... 8,708 0.4 8,399 0.3 6,500 0.2
---------- ---- ---------- ----- ---------- -----
Total Panamco
Central America......... 225,504 8.7 212,074 8.8 190,355 6.9
Total consolidated net sales.. $2,599,411 100.0% $2,415,817 100.0% $2,773,276 100.0%
========== ===== ========== ===== ========== =====
------------------------------------
(1) Net sales are reflected in U.S. dollars translated at the average
official rates of exchange during the periods shown.
(2) Data for 1998 includes four months of operations of R.O.S.A.
(3) Data for 1998 includes net sales of Panamco Costa Rica and Panamco
Nicaragua and nine months of operations of Panamco Guatemala.
PACKAGING
A majority of our sales are made in returnable glass or plastic bottles.
Recently, we have increased the distribution of nonreturnable presentations,
particularly in Mexico and Brazil. In 2000, 48.9% of our products were
packaged in nonreturnable presentations compared to 51.9% in 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Our beverages are available in returnable presentations in
different package types including returnable PET bottles and glass bottles.
Our nonreturnable presentations include cans, nonreturnable glass and plastic
bottles and plastic bags.
8
SOFT DRINK SALES SHARE
Soft drink sales represented 88.5% of our total 2000 sales. Soft drink
products are classified as either colas or other flavored soft drinks. Of our
total soft drink sales in 2000, the cola segment represented approximately
69.4% of our total soft drink sales.
SALES, DISTRIBUTION AND MARKETING
SALES
By selling our beverage products directly to 1,071,166 points of sale, we
believe we have one of the largest operations for the distribution of consumer
goods in Latin America. This network serves traditional small stores
(including small grocery stores, kiosks and roadside stands), supermarkets,
restaurants, bars, schools, businesses and distributors, with a total of
196,993 points of sale in Mexico, 147,562 in Brazil, 392,327 in Colombia,
208,237 in Venezuela, 34,278 in Costa Rica, 42,673 in Nicaragua and 49,096 in
Guatemala as of December 31, 2000. The mix of sales to these particular types
of outlets varies by country and is a function of the economics, demographics
and other characteristics of each franchise area.
The following table sets forth our sales volume as a percentage of
total sales volume of on- and off-premises consumption in each country
where we operate as of the end of 2000.
2000 PERCENTAGE 2000 PERCENTAGE
OF TOTAL OF TOTAL
SALES VOLUME SALES VOLUME
--------------- ---------------
PANAMCO MEXICO PANAMCO COSTA RICA
Off-premises sales....... 78.0% Off-premises sales....... 71.0%
On premises sales........ 22.0% On premises sales........ 29.0%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO BRASIL PANAMCO NICARAGUA
Off-premises sales....... 81.5% Off-premises sales....... 88.9%
On premises sales........ 18.5% On premises sales........ 11.1%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO COLOMBIA PANAMCO GUATEMALA
Off-premises sales....... 47.8% Off-premises sales....... 13.4%
On premises sales........ 52.2% On premises sales........ 86.6%
------ ------
Total................. 100.0% Total................. 100.0%
PANAMCO VENEZUELA
Off-premises sales....... 67.3%
On premises sales........ 32.7%
------
Total................. 100.0%
Most of our sales are made to four types of outlets: Mom and Pop stores,
supermarkets, restaurants and bars as well as schools and offices. At such
outlets we generally sell soft drinks, bottled water and beer (in Brazil and
the northeast of Venezuela) for either on-premises or off-premises
consumption. A majority of the products we sell are sold through traditional
small stores, supermarkets or other types of outlets for off-premises
consumption. Products we sell for on-site consumption at traditional small
stores, restaurants, bars, fast food outlets and similar locations represent
the balance of our sales volume.
9
Consumers typically prefer soft drinks served cold for on-premises
consumption. In certain cases, particularly in Mexico, consumers prefer to
purchase cold soft drinks for off-premises consumption as well. As described
below, in each of our franchise territories we have programs to place our
beverage coolers, post-mix dispensers and vending machines at points of sale
for our products to make chilled products available to the consumer. We loan
or sell and provide financing for such merchandising equipment. Loaned
equipment must be used exclusively for Panamco products.
In addition to bottled presentations, we sell soft drinks in both pre-mix
and post-mix form. Soft drinks sold in pre-mix form consist of syrup for use
in dispensers at retail outlets that add carbonated water. Soft drinks sold in
post-mix form consist of the final carbonated product in stainless steel and
other pressurized canisters for use in dispensers at retail outlets.
While most sales are on a cash basis, sales to certain customers such as
major supermarkets, fast food restaurants and convenience store chains, are
made on a credit basis with terms generally of 40 days on a consolidated
basis. Credit sales represented approximately 20% of total sales in 2000 and
1999. Credit sales are most significant in Brazil and Costa Rica, where they
represented 52.0% and 43.0%, respectively, of 2000 sales in each country.
DISTRIBUTION
We have developed extensive product delivery and container retrieval
systems to maintain sales levels at each of our points of sale. By actively
managing our distribution routes, we seek to ensure that deliveries are made
when our clients (retailers) have the space and funds available to purchase
our beverage products. Distribution is also critical in Latin America because
the majority of soft drink products are sold in returnable bottles. We must
regularly collect empty bottles from retailers and return them to our bottling
plants. Distribution is primarily carried out by our employees and is
supplemented by a network of independent distributors.
We have located and designed our production and distribution facilities
based upon local factors including population concentration, topography,
quality of roads and availability and efficiency of communications. In
territories with large, industrial cities, such as greater Sao Paulo, we
operate a smaller number of large distribution centers and often integrate
distribution and bottling capabilities at the same facility. In rural areas,
such as most of Colombia and Venezuela and parts of Mexico, Costa Rica,
Nicaragua and Guatemala, we use a larger number of small bottling plants and
warehouses.
We use two principal delivery methods depending upon local conditions:
the traditional route truck system and the pre-sell method. In Mexico, most of
Colombia, Venezuela and Nicaragua, the route truck system is widely used, in
which salesmen drive delivery trucks on pre-established routes and make
immediate sales from inventory available on the route truck. For all sales in
Brazil, most of Costa Rica and in certain cities in Colombia, Mexico,
Guatemala and Venezuela, we utilize the pre-sell system, in which a separate
sales force obtains orders from customers prior to the time of delivery by
route trucks. Use of the pre-sell system enables us to utilize our route
trucks more efficiently, delivering all of their freight capacity and at the
same time providing us real time information about the product and
presentation needs of our clients. The traditional system maximizes sales to
customers with less sophisticated cash management systems. We also employ a
system of bicycles, carts and small trucks for smaller clients to provide
flexible and fast deliveries within urban areas.
In order to more effectively respond to the needs of our clients and to
help us better manage our inventories we have computer systems in place in
each of our franchise territories. We have also equipped our sales force with
handheld computers to provide us with real time information about the product
and presentation needs of our clients.
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MARKETING
Market segmentation has given rise to preferences on the part of
consumers for a variety of presentations. Income level, substitutes, pricing
and any other factors affect consumer preferences. In all our territories we
attempt to adapt our product presentations and distribution to each market and
to the individual clients and consumers within our territories in terms of the
space available for product display, point-of-sale material, advertising and
delivery methods. In order to maximize sales and per capita consumption of our
products, we continually examine sales data in an effort to develop a mix of
product presentations that will best satisfy consumers and provide our clients
with the most effective product mix. We also employ a variety of marketing
techniques in each of our franchise territories to increase our share of
sales, penetration and per capita consumption. The major programs and policies
in place at each of our subsidiaries are described below.
MEXICO
During 2000, Panamco Mexico continued its cold product equipment
placement program. At December 31, 2000, there were approximately 66.4 units
for every 10,000 people within our franchise territory. Panamco Mexico,
through its merchandizing club, provides training to its clients on its
merchandizing standards and display methods to ensure that our products
receive the best and most appropriate presentation.
During 2000, Panamco Mexico consolidated its "100 Meters Program", which
focuses on nontraditional, immediate consumption channels. Since the
initiation of the program in 1996, Panamco Mexico has increased its share of
sales by 9.0 basis points and has expanded its client base in urban centers.
Per capita consumption has increased 27.2%. As part of the "100 Meters
Program", Panamco Mexico created a number of parallel programs, including the
"Restaurant" plan, the "School" plan and the "Liquor Stores" plan. Under the
Restaurant plan, Panamco Mexico has been placing fountain equipment in local
traditional and fast-food restaurants. This gives our consumers immediate
access to our products. Under the School plan, Panamco Mexico provides our
products to young consumers in the schools creating brand preference at an
early age with innovative packaging. The Liquor Stores plan takes advantage of
the popularity of grapefruit-flavored soft drinks in the liquor stores segment
with strong merchandising and alluring point-of-sale material designed to
create preference for the Fresca brand.
Panamco Mexico continues to develop its marketing through "fondas", or
traditional Mexican small family-run restaurants, by placing coolers, fountain
equipment and tailored point-of-sale materials--menu boards, napkin holders,
place mats and wall mosaics--with The Coca-Cola Company logo to entice
consumers to drink Coca-Cola soft drinks with their meals.
In order to increase volume and perception of value among clients and
consumers, Panamco Mexico selectively provides particular brands, packages and
sizes and applies tailored pricing tactics in each of its channels based on
the preferences of the consumers in the area.
To maintain the quality of its distribution system reliability of its
deliveries, Panamco Mexico continues to modernize its vehicle fleet and
optimize delivery routes.
BRAZIL
In Brazil our marketing efforts were primarily focused on our "new
packages and presentations" programs that were introduced during the year. The
new presentations were strategically focused on certain trade channels and
points of sale supporting the consumer desire for new packages that appeal to
different
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consumption occasions. The most significant package launches were the 1.5
liter and the 2.5 liter presentations, as well as the multipacks for cans. Cold
equipment continued to support our ready-to drink program. The number of units
of cold product equipment we have in the Brazilian market are 31.7 units per
10,000 inhabitants in our franchise territory.
As part of our "Cold Equipment Program" in Brazil we have developed the
"At-Hand Consumption" and "Closed Market" programs to stimulate impulse
consumption by maximizing the availability of our cold products everywhere
people gather. In accordance with these programs; Panamco Brasil is developing
new outlets and equipping them with the appropriate cold product equipment,
point-of-sale material and products to maximize sales. The "Closed Market"
program focuses on certain "closed" markets such as schools, clubs and
factories.
During the first half of 2000, the Company continued with its promotional
pricing strategy that alternated prices of our products every two weeks
depending on the channels or on the product (colas or flavors) for our 2 liter
PET presentation. The program came to an end in June and since then, thanks to
its packaging and product strategy, the Company has sustained its share of
sales at 55.7% of the soft drink market.
COLOMBIA
To ensure that both traditional and nontraditional outlets are able to
provide cold, ready-to-drink products, Panamco Colombia continues its cold
product equipment program. During 2000, Panamco Colombia reached a total of
45.2 coolers for every 10,000 people in our franchise territory. Panamco
Colombia currently provides cold products in 47% of its outlets.
As a result of our cold equipment strategy, our different marketing
promotions and a strong execution in the market place, our soft drink share of
sales increased to a new record of 68.5%, an increase of 1.8 points.
In addition to our marketing programs, Panamco Colombia has a
distribution strategy called the "Mini-Bodegas" (small shopkeepers) program,
designed to supply our products to hard-to-reach areas without increasing
distribution costs. Through this program, Panamco Colombia distributes
products to small shopkeepers who, in turn, deliver products to crowded,
hard-to-reach neighborhoods.
Panamco Colombia's "At-Hand Consumption" program strategically places
ambulatory vendors carrying cold Coca-Cola products everywhere people gather.
The "School" program is geared towards creating brand preference and
increased purchases in schools through innovative packaging and presentations.
Panamco Colombia also trains its clients on how to use and maintain our
merchandizing materials to increase product sales. To ensure merchandizing
quality, representatives of Panamco Colombia's sales force regularly visits its
clients and evaluates the effectiveness of their merchandising efforts.
To maximize the efficiency of its distribution network, Panamco Colombia
continues to refine its distribution strategy by increasing the number of
presale and auto-sale clients and by significantly increasing distribution
through small shopkeepers. These measures have reduced the number of trucks
needed for each route and improved client satisfaction as well as truck
utilization.
VENEZUELA
As one of our newer subsidiaries, Panamco Venezuela continues to focus
its efforts on developing high-volume clients in traditional
channels--supermarkets, grocery stores, liquor stores and bakeries--through
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improved merchandising. Panamco Venezuela provides continuous support to these
clients to ensure our products are given the largest spaces, best positions
and appropriate point-of-sale material.
During 2000, Panamco Venezuela solidified its cold equipment program
achieving almost 58.0 units per 10,000 inhabitants in its franchise territory.
Marketing activities during the year included targeted local advertising,
consumer and trade promotions, and alluring events.
We continue our programs to develop high-volume clients in traditional
channels, and to provide retailers with cold product equipment. During the
year, we launched two new products, Quatro and Grapette. These products appeal
to the local taste of the Venezuelan consumer resulting in share of sales
gains in our flavor categories.
Our program to segment various in-country markets led to the development
of a more focused geographic regional targeting program and allocation of
resources, as well as the expansion of new nontraditional channels. In
Venezuela, 80% of the population is concentrated in the lower socioeconomic
strata, and most of the population lives in the neighborhoods surrounding
urban areas. During the year, we developed new channels and increased our cold
product availability in, as well as improved distribution to, these
neighborhoods. As a result, sales to these areas increased significantly. We
also began to service new neighborhoods.
CENTRAL AMERICA
We continue the rollout of our core initiatives to boost per capita
consumption in Central America. Efforts to bring Coca-Cola products closer to
the consumer included the roll out of the "100 Meters Program" to the
Guatemalan market and to all areas of Costa Rica and Nicaragua.
We continue to focus on increasing take-home consumption by implementing
initiatives to boost sales in mini markets and small grocery stores (the "Mini
Market" project), and continue our development of high-volume clients. In
order to increase sales in these channels, we provide consumer and trade
promotions with aggressive pricing on selected presentations.
We support these initiatives with aggressive strategic cooler
placement and merchandising. We have also been making a concerted effort to
upgrade the presentation of our products in all establishments, both
traditional and nontraditional, by instituting company-wide merchandising
standards and supplying outlets with the appropriate equipment and
point-of-sale materials.
As a result of our programs in Central America, our share of sales has
increased by 2.3 percentage points in Costa Rica, 3.2 percentage points in
Nicaragua and 1.7 percentage point in Guatemala.
With the view of increasing the efficiency of our distribution in the
region and improving service to clients, we began servicing new routes,
introduced mini-warehouses and upgraded the vehicle fleet.
Raw Materials and Supplies
Soft drinks are produced by mixing water, concentrate and sweetener. We
process the water we use in our soft drinks to eliminate mineral salts and
disinfect it with chlorine. We then filter it to eliminate impurities,
chlorine taste, trace metals and odors. We combine the purified water with
processed sugar or high fructose (or artificial sweeteners in the case of diet
soft drinks) and concentrate. To produce
13
carbonation we inject carbon dioxide gas into the mixture. Immediately
following carbonation, we bottle the mixture in pre-washed labeled bottles. We
maintain a quality control laboratory at each production facility where we
test raw materials and analyze samples of soft drink products. All our sources
of supply for raw materials are subject to the approval of The Coca-Cola
Company.
Concentrates. We purchase concentrates from The Coca-Cola Company for all
Coca-Cola products, as well as from other sources for our other products.
Water and sugar. We obtain water from various sources, including springs,
wells, rivers and municipal water systems. Sugar is plentiful in all of our
territories as each of Mexico, Brazil, Colombia, Costa Rica, Venezuela,
Nicaragua and Guatemala is a producer of sugar. We purchase our requirements
from various suppliers in each country.
Carbon dioxide. We purchase all of our supply of carbon dioxide in
Colombia, Costa Rica and Venezuela from Paxair. All of our supply for Brazil
is being produced at our bottling plant in Brazil. Panamco Mexico purchases
its supply of carbon dioxide gas from Cryoinfra. Panamco Nicaragua and Panamco
Guatemala purchase their supply of carbon dioxide from Carbox, a supplier
located in Guatemala. Alternate suppliers are available in all the countries
where we operate.
Bottles, caps and other packaging materials. We usually purchase glass
bottles, plastic soft drink containers, plastic bottle caps, cans and general
packaging materials locally in each country from various suppliers. Our
supplies of plastic bottles in all of our territories are generally sourced
from single suppliers of such bottles in each country, although there are
alternative suppliers. Panamco Colombia has facilities to produce a small
portion of its own disposable plastic bottles and owns 20% of Comptec, S.A., a
joint venture with a subsidiary of The Coca-Cola Company and other Andean
bottlers formed to produce returnable and disposable plastic bottles. Panamco
Costa Rica owns a plastics business, which supplies plastic bottles for all of
Panamco Costa Rica's requirements and to other customers in Central America,
including Panamco Nicaragua and Panamco Guatemala.
We purchase metal bottle caps primarily from the Zapata group of
companies, which have manufacturing facilities in Mexico, Brazil and Colombia.
One of the companies in the Zapata group owns 60%, and Panamco Colombia owns
40%, of Tapon Corona, S.A., a Colombian company that manufactures bottle caps
for Panamco Colombia, Panamco Venezuela and other customers. Panamco Costa
Rica, Panamco Nicaragua and Panamco Guatemala currently purchase their bottle
caps from Alcoa CSI, a third-party supplier.
We have facilities in Mexico, Brazil, Colombia and Costa Rica, which
produce plastic cases for carrying bottles. The Costa Rican facility supplies
Panamco Nicaragua and Panamco Guatemala. Plastic is purchased locally or
imported when necessary. Plastic cases in Venezuela are purchased mainly from
Gaveras Plasticas Venezolanas, C.A., which are all 100% recycled materials.
Other local suppliers are also available.
In addition to its bottling operations, Panamco Brasil also has the
capacity to produce cans for canned soft drinks at its Jundiai plant and to
produce plastic bottles at its bottling facility in Matto Grosso do Sul.
Panamco Mexico owns approximately 14.9% of Industria Envasadora de Queretaro,
S.A. de C.V., a canning cooperative for products of The Coca-Cola Company in
Mexico. Panamco Colombia has the capacity to produce cans for canned soft
drinks at one of its Bogota plants, but currently imports cans because of cost
advantages. Panamco Venezuela has the capacity to produce cans for canned soft
drinks at three of its plants. Panamco Central America imports cans from The
Coca-Cola Company bottler in El Salvador, EMBOSALVA S.A.
Other. Many of the raw materials and supplies used in Venezuela are
purchased from companies owned by members of the Cisneros family, the former
owners of Panamco Venezuela. We believe the terms
14
of such arrangements are no less favorable to us than those that could be
obtained from independent third parties.
Panamco Colombia has its own facilities to manufacture post- and pre-mix
dispensers (for on-premises preparation of soft drinks). Panamco Colombia has
expanded this operation to manufacture its own beverage coolers, which it also
sells to our other operating subsidiaries. In 1999, Panamco Colombia acquired
a minority interest in Ingenio San Carlos, a Colombian sugar producer. In
connection with this acquisition, Panamco Colombia has entered into a
long-term supply agreement with Ingenio San Carlos for sugar.
Panamco Mexico and Panamco Costa Rica manufacture their own racking
systems for their route trucks and freight vehicles.
PRODUCTION
Our subsidiaries own and operate a total of 47 bottling plants, with 10
in Mexico, 3 in Brazil, 18 in Colombia, 1 in Costa Rica, 13 in Venezuela, 1
in Nicaragua and 1 in Guatemala. The totals include 2 plants in Mexico,
1 plant in Brazil and 1 in Colombia, which we use exclusively to bottle
mineral water at the source. The plants have over 163 bottling lines with an
installed capacity of over 900 million physical cases a year (assuming 400
production hours per month for 11 months per year, with one month reserved for
maintenance). In order to increase production efficiency and reduce costs we
have implemented cost reduction plans at all of our subsidiaries.
Panamco Brasil's Jundiai plant is the largest and one of the most
sophisticated manufacturing complexes in The Coca-Cola Company system. Our
Jundiai plant has annual production capacity of 250 million unit cases and has
obtained ISO 9002 and 14001 certificates for quality, productivity and
environmental safety.
COMPETITION
The beverage business in our franchise territories is highly competitive.
Our principal competitors are bottlers of Pepsi products and bottlers and
distributors of nationally and regionally advertised and marketed soft drinks.
Our principal competitions in each of our franchise territories are set forth
below.
MEXICO
Our principal competitors in Mexico are bottlers of Pepsi products, whose
territories overlap, but do not precisely match ours. We compete with Geupec,
Group Regordosa and Pepsi Gemex for share of sales in our territory.
BRAZIL
In Brazil our main competitors were Brahma and Antarctica, both of which
were beer bottlers that offered soft drinks as a complement to their beer
businesses. Brahma was also the sole bottler of Pepsi in Brazil. In July 1999,
Brahma and Antarctica announced a merger to form AmBev. In March 2000, AmBev
received the necessary regulatory approval and assumed the bottling businesses
of both Brahma and Antarctica. AmBev is our largest individual competitor in
Brazil. We also compete with "tubainas", which are small, local, lower cost
producers of flavored soft drinks. Tubainas are local shops that produce "no
frills" flavored soft drinks in 2-liter presentations for at home consumption.
They market their products primarily in supermarkets. Tubainas have lower
overhead and we believe that they often do not comply with local tax laws,
which enables them to offer lower cost products.
15
COLOMBIA
In Colombia our principal competitor is Postobon, a well-established
bottler of both nationally advertised flavored soft drink products and Pepsi.
The owners of Postobon hold other significant commercial interests in
Colombia.
VENEZUELA
The Venezuelan Bottlers until August 1996 were the authorized bottling
companies of products of Pepsi in Venezuela. In August of 1996 the Venezuelan
bottlers entered into a bottling agreement with The Coca-Cola Company and
became their authorized bottler in Venezuela. Subsequently, on November 2,
1996, Pepsi granted the franchise for its territories in Venezuela to Sopresa,
a joint venture formed between Pepsi and Empresas Polar S.A., the leading beer
distributor in Venezuela. Sopresa is our principal competitor in Venezuela.
Since December 1999, we also compete with the producers of Kola Real, a "B"
brand, in the central part of the country.
CENTRAL AMERICA
Newport Bottler (Pepsi bottler) is our principal competitor in Costa
Rica, and The Central American Bottling Corporation (Pepsi bottler) is our
principal competitor in Nicaragua and Guatemala.
In addition to competition from other soft drink producers, carbonated
soft drink products compete with other major commercial beverages, such as
coffee, tea, milk, beer and wine, as well as noncarbonated soft drinks, citrus
and noncitrus fruit juices and drinks and other beverages.
Soft drink bottlers also compete for sales share through distribution and
availability of products, pricing, service provided to retail outlets
(including merchandising equipment, maintenance of bottle inventories at
appropriate levels and frequency of visits), product packaging presentations
and consumer promotions. In recent years, price discounting by our competitors
has been a means of obtaining sales share in Brazil, Colombia and, more
recently, Venezuela. See "-- Marketing" and "-- Distribution".
Our consumer promotions are guided primarily by The Coca-Cola Company and
take the form of contests, television, radio and billboard advertising,
displays, merchandising and sampling.
EMPLOYEES
At December 31, 2000, we employed approximately 28,300 people (including
temporary workers, but excluding independent distributors). Approximately 35%
of our employees are members of labor unions, most of whom are in Mexico. Most
of the employees in Colombia are covered by non-union collective bargaining
agreements. The collective bargaining agreements for both unionized and non-
unionized employees are negotiated separately for each bottling subsidiary, or
in some instances, for each plant. In Mexico, collective bargaining agreements
are renegotiated annually with respect to wages and biannually with respect to
benefits. In Colombia and Venezuela, all collective bargaining agreements are
negotiated biannually.
Panamco Mexico pays employees amounts usually equal to 10% of its taxable
income, adjusted in accordance with local labor laws. The Mexican government
also requires employers to set aside a percentage of employee wages in
retirement accounts. In addition, both employers and employees in Mexico must
contribute amounts to the national health care system and a workers' housing
fund. In Colombia, Brazil, Costa Rica and Nicaragua, employers and employees
contribute to employee retirement accounts and to their national health care
systems. A profit-sharing program has been implemented in
16
Venezuela pursuant to which employees are entitled to receive an additional
payment equal to at least 15 days' wages (but not more than four months'
wages), and a profit-sharing program was established in Brazil in 1997. In
Mexico and Nicaragua, employees are entitled to a mandatory Christmas bonus in
an amount equal to 15 days and one month's salary, respectively. If an
employee has worked for a company less than one year, that employee's bonus is
reduced in proportion to the amount of time such employee was not employed. In
Guatemala, employees receive a mandatory bonus in the form of a three-month
payment based upon the salary paid during the preceding six months.
We believe that our relationship with our employees is good. We have
voluntarily instituted and maintained popular benefits for our employees
including housing loans.
The labor laws in each of the seven countries in which we operate require
certain severance payments upon involuntary termination of employment. See
"Item 3.--Legal Proceedings".
FRANCHISE ARRANGEMENTS
We have the right to sell The Coca-Cola Company's products, certain other
soft drinks and certain bottled water products pursuant to bottling or other
similar agreements described below.
The Coca-Cola Company's Products. The Coca-Cola Company (or its
subsidiaries) has entered into exclusive bottling agreements (the "Bottling
Agreements") with each of our bottling subsidiaries (the "Bottlers"). The
Bottling Agreements expire on various dates. In 1995, we and The Coca-Cola
Company agreed that all bottling agreements of our Mexican subsidiaries will
have a uniform term ending in 2005, renewable for additional ten-year terms.
In 2000, The Coca-Cola Company entered into a bottling agreement with our
Guatemalan subsidiary for a five-year term. In general, the Brazilian,
Venezuelan, Nicaraguan, Costa Rican and Colombian agreements are for five-year
terms, renewable for additional five-year terms.
The Bottling Agreements regulate the preparation, bottling and
distribution of beverages in the applicable franchise territory. The Bottling
Agreements authorize the Bottlers to use the concentrates purchased from The
Coca-Cola Company to bottle, distribute and sell a variety of beverages under
certain brand names and in certain approved presentations and to utilize the
trademarks of The Coca-Cola Company to promote such products.
The Coca-Cola Company reserves the right to market independently or
license post-mix products, although we believe that The Coca-Cola Company will
not exercise these rights as long as we aggressively pursue the marketing of
their products in our territories. The Bottlers must purchase the concentrate
from The Coca-Cola Company and follow The Coca-Cola Company's exact mixing
instructions. Each Bottler may purchase only the quantities of concentrates
required in connection with its business and must use them exclusively for
preparation of the beverages and for no other purpose. The Bottlers may not
sell concentrate to third parties without The Coca-Cola Company's consent.
In the event of a problem with the quality of a beverage, The Coca-Cola
Company may require the Bottler to take all necessary measures to withdraw the
beverage from the market. The Coca-Cola Company must also approve the types of
container used in bottling and controls the design and decoration of the
bottles, boxes, cartons, stamps and other materials used in production. The
agreements grant The Coca-Cola Company the right to inspect the products.
The prices The Coca-Cola Company may charge us for concentrates are fixed
by The Coca-Cola Company from time to time at its discretion. The Coca-Cola
Company currently charges us a percentage of the weighted average wholesale
price (net of taxes) of each case sold to retailers within each of our
franchise territories. At present, we make payments to The Coca-Cola Company
in U.S. dollars for
17
purchases of concentrates by Panamco Venezuela, Panamco Nicaragua, Panamco
Colombia and Panamco Guatemala. Purchases by Panamco Mexico, Panamco Brasil
and Panamco Costa Rica are made in local currency. We pay no additional
compensation to The Coca-Cola Company under the licenses for the use of the
associated trade names and trademarks. Subject to local law, The Coca-Cola
Company has the right to limit the wholesale prices of its products.
As it has in the past, The Coca-Cola Company may, in its discretion,
contribute to our advertising and marketing expenditures as well as undertake
independent advertising and marketing activities. The Coca-Cola Company has
routinely established annual budgets with us for cooperative advertising and
promotion programs.
The Bottling Agreements require the Bottlers to maintain adequate
production and distribution facilities, quality control standards and sound
financial capacity and to meet certain reporting requirements. The Bottling
Agreements also prohibit the Bottlers from distributing The Coca-Cola
Company's products outside their territories and from producing any other cola
beverages. In addition, the Bottling Agreements require us to obtain The
Coca-Cola Company's approval before we can produce or distribute other
nonalcoholic beverages.
The Bottlers may not assign, transfer or pledge their Bottling
Agreements, or any interest therein, whether voluntarily, involuntarily or by
operation of law, without the prior consent of The Coca-Cola Company.
Moreover, the Bottlers may not enter into any contract or other arrangement to
manage or participate in the management of any other bottler without the prior
consent of The Coca-Cola Company. In addition, we may not sell or otherwise
transfer ownership of any of the Bottlers.
Either party may terminate a Bottling Agreement in the event of a breach
by the other party which remains uncured after 60 days. If a Bottler fails to
comply with its obligations, The Coca-Cola Company may prohibit the production
of The Coca-Cola Company's products until such noncompliance is corrected.
Other Brands. The Bottlers in Colombia and Costa Rica have agreements
with companies other than The Coca-Cola Company for the sale of locally
recognized soft drink products and mineral water. These agreements contain
provisions governing the production, marketing and sale of the beverages that
are, in most instances, less stringent than the requirements contained in the
Bottling Agreements discussed above. Panamco Costa Rica also has the Canada
Dry franchise from a subsidiary of Cadbury Schweppes PLC for all of Costa
Rica. Panamco Venezuela has an agreement for the sale and distribution of
Schweppes soda and tonic water in Venezuela.
GOVERNMENT REGULATION
Controls on Pricing and Promotions. Although there are none currently in
effect, in the last ten years the governments of Mexico, Brazil and Colombia
have imposed formal price controls on soft drinks. Currently in Mexico and
Colombia, for soft drinks as well as for other goods, price increases proposed
by manufacturers are subject to the informal approval of the respective
government. Until recently, the Mexican government also limited the types of
presentations for soft drinks. In Brazil, the government is recommending that
manufacturers maintain price levels in line with a trailing four-month average
of their historic price increases. Each of the governments of the countries in
which we operate regulates some of our promotional activities such as cash
prize contests.
Environmental Regulation. We spent $12 million each in 2000 and 1999 on
plant upgrades designed to meet environmental objectives. See "Item 7. --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures". We must comply with local permit
requirements for constructing and expanding facilities, drilling wells,
drawing water from rivers and discharging effluent.
18
Intellectual Property. The intellectual property laws of the countries in
which we operate require a proprietary owner of trademarks used in the
operation of franchises in the countries to make certain filings with the
government to protect the trademark. We have made all necessary filings to
protect our proprietary trademarks. To the best of our knowledge, The
Coca-Cola Company and the owners of the other trademarks we use have made the
necessary filings to protect their respective trademarks.
See also "Item 5. -- "Market for Registrant's Common Equity and Related
Stockholder Matters -- Exchange Controls and Other Limitations Affecting
Security Holders."
POLITICAL, ECONOMIC AND SOCIAL CONDITIONS IN LATIN AMERICA
In addition to the governmental regulations that have been imposed on our
operations, the Latin American markets in which we operate are characterized
by volatile, and frequently unfavorable, political, economic and social
conditions. High inflation and, with it, high interest rates are common. In
2000, the per annum inflation rates were approximately 9% in Mexico, 10% in
Brazil, 9% in Colombia, 12% in Venezuela, 10% in Costa Rica, 10% in Nicaragua
and 5% in Guatemala. The governments in these countries have often responded
to high inflation by imposing price and wage controls or similar measures,
although currently there are no formal soft drink price controls in any of the
countries. These countries have also experienced significant currency
fluctuations. See "-- Currency Devaluations and Fluctuations".
The political, economic and social conditions in each of these countries
create a challenging environment for businesses, including ours. Our business,
earnings, asset values and prospects may be materially and adversely affected
by developments with respect to inflation, interest rates, currency
fluctuations, government policies, price and wage controls, exchange control
regulations, taxation, expropriation, social instability, and other political,
economic or social conditions or developments in or affecting Latin America.
Although we have been able to operate successfully in Latin America for over
50 years, we have no control over these conditions and developments, and can
provide no assurance that such conditions and developments will not adversely
affect our operations.
We can be adversely impacted by inflation in many ways. In particular,
when wages rise more slowly than prices, inflation can erode consumer
purchasing power and thereby adversely affect sales. Margins are diminished if
product prices fail to keep pace with increases in supply and material costs.
While we have been able in most recent years to increase prices in local
currency terms overall at least as much as inflation, net sales in local
currency terms may nevertheless remain flat or decrease if, among other
things, inflation or high unemployment diminishes consumer purchasing power,
as has been the case recently in Colombia and Venezuela. Although we expect
that prices will generally keep pace with inflation in the near term, sales
volume may decline and supply and material costs may rise more rapidly than
prices in the future. See "Item 7. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations". See also the discussion under
"-- Currency Devaluations and Fluctuations" regarding the impact of
devaluations on net sales in dollars.
The governments in the countries in which we operate have historically
exercised substantial influence over many aspects of their respective
economies. In recent years, these governments have implemented important
measures to improve their economies. The current political climate in these
countries may create significant uncertainty as to future economic, fiscal and
tax policies.
MEXICO
In Mexico, the early 1990s were marked by the economic reforms of the
Salinas administration and the passage of the North American Free Trade
Agreement. However, the Mexican government was not able to sustain this
progress, and a series of political and economic events created considerable
economic
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