COMPANHIA CERVEJARIA BRAHMA (Exact Name of Registrant As Specified in Its Charter)
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US SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 1-14630 COMPANHIA CERVEJARIA BRAHMA (Exact Name of Registrant as Specified in its Charter) Federative Republic of Brazil (Jurisdiction of Incorporation or Organization) Brahma Brewing Company (Translation of Registrant’s name into English) Rua Maria Coelho Aguiar, 215 - Blo co F, 6° andar Santo Amaro, São Paulo - CEP 05804-900 Brazil (Address of principal executive offices) (Zip code) Securities registered pursuant to Section 12(b) of the Exchange Act Title of Each Class Name of Each Exchange in Which Registered Preferred Shares, no par value per share each represented by New York Stock Exchange American Depositary Shares Common Shares, no par value per share each represented by New York Stock Exchange American Depositary Shares Securities registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The total number of issued shares of each class of stock of COMPANHIA CERVEJARIA BRAHMA as of March 31, 1999 was: 2,635,679,468 Common Shares, no par value per share 4,287,944,559 Preferred Shares, no par value per share 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 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 which financial statement item the Registrant has elected to follow Item 17 Item 18 X . TABLE OF CONTENTS Page INTRODUCTION...............................................................................................................................2 PART I...............................................................................................................................................2 ITEM 1. DESCRIPTION OF BUSINESS.............................................................................2 ITEM 2. PROPERTIES....................................................................................................34 ITEM 3. LEGAL PROCEEDINGS....................................................................................36 ITEM 4. CONTROL OF REGISTRANT............................................................................38 ITEM 5. NATURE OF TRADING MARKET .....................................................................39 ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.........................................................45 ITEM 7. TAXATION........................................................................................................47 ITEM 8. SELECTED FINANCIAL DATA .........................................................................56 ITEM 9. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................................66 ITEM 9A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .................................................................................................99 ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT..............................................101 ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS ........................................105 ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES..................................................................................105 ITEM 13. INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS....................106 PART II ..........................................................................................................................................107 ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED...................................107 PART III.........................................................................................................................................108 ITEM 15. DEFAULTS UPON SENIOR SECURITIES.........................................................108 ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES....................................................................108 PART IV.........................................................................................................................................109 ITEM 17. FINANCIAL STATEMENTS..............................................................................109 ITEM 18. FINANCIAL STATEMENTS..............................................................................109 ITEM 19. FINANCIAL STATEMENT AND EXHIBITS......................................................109 INTRODUCTION All references herein (i) to the “Company” or to “Brahma” are references to Companhia Cervejaria Brahma and its consolidated subsidiaries, (ii) to the “Brazilian Government” are references to the federal government of the Federative Republic of Brazil, and (iii) to “Preferred Shares” and “Common Shares” refer to the Company’s authorized and outstanding preferred stock and common stock, designated as ações preferenciais and ações ordinárias, respectively, each without par value. As used herein, one hectoliter equals one hundred liters and one billion equals one thousand million. All references herein to the “real,” “reais” or “R$” are to Brazilian reais, the official currency of Brazil. As of July 1, 1994, the denomination of the Brazilian currency unit was changed to the real from the cruzeiro real (each real being equal to 2,750 cruzeiros reais at such time), which, in turn, was changed as of August 1, 1993 from the cruzeiro (each cruzeiro real being equal to 1,000 cruzeiros at such time). All references to “ US$”, “dollars” or “US dollars” are to United States dollars. _____________ The Company has prepared the consolidated financial statements included herein in conformity with generally accepted accounting principles in the United States (“US GAAP”). ____________ PART I ITEM 1. DESCRIPTION OF BUSINESS General Companhia Cervejaria Brahma, a company incorporated under the laws of the Federative Republic of Brazil, and its consolidated subsidiaries (collectively, “Brahma” or the “Company”), operate in the production and sale of beer , soft drinks and other non-carbonated drinks, such as isotonic sport drinks, teas and mineral waters, in Brazil and other South American countries. Brahma is the largest beer producer in Latin America, the fifth largest beer producer in the world, the second largest soft drink producer in Brazil and the largest Brazilian consumer company listed on the São Paulo Stock Exchange, with total assets of US$3,731.6 million and shareholders’ equity of US$1,100.4 million as of December 31, 1998. For the fiscal years ended December 31, 1998, 1997 and 1996, Brahma had net sales of US$2,669.3 million, US$2,444.1 million and US$2,299.9 million, respectively; operating income of US$310.8 million, US$486.4 million, and US$418.5 million, respectively; and net income of US$238.6 million, US$395.5 million and US$388.6 million, respectively. Net income for the Index to Consolidated Financial Statements Page Report of Independent Accountants F-2 Consolidated Balance Sheet F-3 Consolidated Statement of Operations F-6 Consolidated Statement of Cash Flows F-8 Consolidated Statement of Changes in Shareholders' Equity F-11 Notes to the Consolidated Financial Statements F-17 year ended December 31, 1998 decreased by 39.7% from the year ended December 31, 1997, and net income for the year ended December 31, 1997 increased by 1.8% over net income for the year ended December 31, 1996. Corporate History The Company was founded in 1888 as Villiger & Cia, with an initial capacity of 12,000 liters of beer and 32 employees, and is now one of the oldest brewers in Brazil. The founders of the Company were Joseph Villiger, a Swiss immigrant and engineer, Paul Fritz, a Brazilian national, and Ludwig Mack, a German national. The Brahma brand was registered on September 6, 1888 and in 1904, the Company changed its name to Companhia Cervejaria Brahma. One important source of the Company’s growth throughout its history has been the acquisition of small regional breweries. One of the most significant acquisitions was that of Cervejarias Reunidas Skol - Caracu S.A. in 1980. At the time of its acquisition, Skol products enjoyed a 7% to 9% market share. Since acquiring the Skol brand, the Company has increased Skol’s market share as of December 31, 1998 to 25.3%. The Company entered the soft drink business in 1918 with the launch of its guaraná and lemon sodas. In 1984, the Company entered into an agreement with Pepsi to produce and distribute Pepsi products in most of Brazil. In 1994, Brahma ended its franchise of Pepsi products in order to focus more fully on its own soft drink brands. In October 1997, the Company re-established its relationship with Pepsi by entering into a franchise agreement, allowing the Company to produce, sell and distribute Pepsi products through out Brazil. In 1989, BRACO S.A. (“BRACO”), an investment company controlled by the former controlling shareholders of Banco de Investimentos Garantia (“Garantia”), one of the largest investment banks in Brazil, and Empresa de Consultoria, Administração e Participações