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As filed with the Securities and Exchange Commission on April 25, 2019

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

 

Commission file number 001-13142

 

Embotelladora Andina S.A.

(Exact name of Registrant as specified in its charter)

Andina Bottling Company

(Translation of Registrant’s name into English)

Republic of Chile

(Jurisdiction of incorporation or organization)

Miraflores 9153, 7th Floor Renca - Santiago, Chile

(Address of principal executive offices)

Ignacio Morales, Tel. (56-2) 2338-0520 E-mail: ignacio.morales @koandina.com Miraflores 9153, 7th Floor - Renca - Santiago, Chile

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class		Name of each exchange on which registered
Series A Shares, Series B Shares of Registrant represented by American Depositary Shares		New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

	Series A Shares	473,289,301
	Series B Shares	473,281,303

 

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

x Yes   o No

 

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

o Yes   x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

 

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

x Yes   o No

 

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

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

 

†The term ‘‘new or revised financial accounting standard’’ refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

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

 

 

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

o Item 17   o Item 18

 

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

o Yes   x No

 

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TABLE OF CONTENTS

 

INTRODUCTION		2
PART I		5
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	5
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	5
ITEM 3.	KEY INFORMATION	5
ITEM 4.	INFORMATION ON THE COMPANY	27
ITEM 4A.	UNRESOLVED SECURITIES AND EXCHANGE COMMISSION STAFF COMMENTS	58
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	58
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	82
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	92
ITEM 8.	FINANCIAL INFORMATION	93
ITEM 9.	THE OFFER AND LISTING	95
ITEM 10.	ADDITIONAL INFORMATION	97
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	105
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	107
PART II		109
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	109
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	109
ITEM 15.	CONTROLS AND DISCLOSURE PROCEDURES	109
ITEM 16.	[RESERVED]	110
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	110
ITEM 16B.	CODE OF ETHICS	110
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	110
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	111
ITEM 16E.	PURCHASERS OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	111
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	111
ITEM 16G.	CORPORATE GOVERNANCE	111
ITEM 16H.	MINE SAFETY DISCLOSURE	113
PART III		114
ITEM 17.	FINANCIAL STATEMENTS	114
ITEM 18.	FINANCIAL STATEMENTS	114
ITEM 19.	EXHIBITS	115

 

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INTRODUCTION

 

Certain Definitions

 

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

 

·              the “Company,” “we,” “Andina” and “Coca-Cola Andina” means Embotelladora Andina S.A. and its consolidated subsidiaries;

·              “Andina Argentina” means our subsidiary, Embotelladora del Atlántico S.A., or EDASA;

·              “Andina Brazil” means our subsidiary, Rio de Janeiro Refrescos Ltda. and its subsidiaries;

·              “AEASA” means our subsidiary, Andina Empaques Argentina S.A;

·              “EDASA” means our subsidiary, Embotelladora del Atlántico S.A.;

·              “PARESA” means our subsidiary, Paraguay Refrescos S.A;

·              “Envases CMF” means our affiliate, Envases CMF S.A.;

·              “ECSA” means our affiliate, Envases Central S.A.;

·              “Vital Jugos” means our affiliate, Vital Jugos S.A., previously known as Vital S.A.;

·              “VASA” means our affiliate, Vital Aguas S.A.;

·              “TAR” means our subsidiary, Transportes Andina Refrescos Ltda;

·              “TP” means our subsidiary, Transportes Polar S.A;

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

·              the “Chilean territory” means the regions of Antofagasta, Atacama, Coquimbo, Metropolitan Region of Santiago, Aysén and Magallanes and the provinces of Cachapoal and San Antonio;

·              the “Brazilian territory” means the greater part of the State of Rio de Janeiro, the totality of the State of Espírito Santo and parts of the state of São Paulo and the state of Minas Gerais;

·              the “Argentine territory” means the provinces of Córdoba, Mendoza, San Juan, San Luis, Santa Fe, Entre Rios, La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz, Tierra del Fuego as well as the western part of the province of Buenos Aires; and,

·              the “Paraguayan territory” means the country of Paraguay.

 

Presentation of Financial and Certain Other Information

 

Unless otherwise specified, references herein to “dollars”, “U.S. dollars” or “US$” are to United States dollars; references to “pesos”, “Chilean pesos”, “Ch$” or “ThCh$” are to Chilean pesos; references to “Argentine pesos” or “AR$” are to Argentine pesos; references to “real”, “reais” or “R$” are to Brazilian reais; and references to “guaranies”, “guarani” or “G$” are to Paraguayan guaranies. References to “UF” are to Unidades de Fomento . The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that is adjusted daily to reflect changes in the official consumer price index of the Instituto Nacional de Estadísticas (the “Chilean National Institute of Statistics”). The UF is adjusted in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean consumer price index during the prior calendar month. Certain percentages and amounts contained in this annual report have been rounded for ease of presentation.

 

The Company’s consolidated financial statements for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 were prepared in accordance with International Financial Reporting Standards (hereinafter “IFRS”) issued by the International Accounting Standards Board (hereinafter “IASB”).

 

Our consolidated financial statements are presented in Chilean pesos. Our consolidated financial statements reflect the results of our subsidiaries located in Brazil, Argentina and Paraguay, converted to Chilean pesos (our functional and presentation currency). IFRS requires assets and liabilities to be converted from the functional currency of our subsidiaries outside Chile to our reporting currency (Chilean peso) at the end of period exchange rates and income and expense accounts to be converted at the average monthly exchange rate for the month in which income or expense is recognized for subsidiaries that do not operate in hyperinflationary economies.

 

In the case of our Argentine subsidiaries, which have been operating in an environment that during 2018 was classified as hyperinflationary, the conversion criteria from the functional currency of those subsidiaries to our presentation currency is the following:

 

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·         financial condition (balance sheet): Non-cash items are expressed in the current currency at the balance sheet date and translated to the presentation currency of the closing exchange rate. Losses and gains are included in net earnings (fiscal year income).

 

·         first fiscal year: Losses and gains by correction of current non-monetary items the previous year are recorded in accumulated results as of January 1, 2018.

 

·         statement of income: Income statement items are expressed in the current currency unit at the end of the reporting period, using the variation of the general price index from the date on which the expenses and revenues were accrued, and translated to the presentation currency at closing exchange rate.

 

·         cash flow statement: Cash flow statement items are expressed in the current currency unit at the end of the reporting period and translated to the presentation currency at closing exchange rate.

 

For more information on the effects of the hyperinflationary environment in Argentina in 2018 see note 2.5 of our consolidated financial statements included herein.

 

Unless otherwise specified, our financial data is presented herein in Chilean pesos.

 

Forward-Looking Statements

 

This annual report includes forward looking statements, principally under the captions, “Item 4. Information on the Company—Business Overview,” “Item 3. Key Information—Part D. Risk Factors,” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Examples of such forward-looking statements include:

 

·               statements of our plans, objectives or goals, including those related to anticipated trends, competition or regulation;

·               statements about our future economic performance and that of Chile or other countries in which we operate;

·              statements about our exposure to market risks, including interest rate risks, foreign exchange risk and equity price risk; and

statements of assumptions underlying such statements.

 

Words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “could,” “may,” “seeks,” “aim,” “combined,” “estimates,” “probability,” “risk,” “target,” “goal,” “objective,” “future” or similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements may relate to (i) our asset growth and financing plans, (ii) trends affecting our financial condition or results of operations and (iii) the impact of competition and regulations, but are not limited to such topics. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially and adversely from those described in such forward-looking statements included in this annual report as a result of various factors (including, without limitation, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates and operating and financial risks), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements.

 

You should understand that the following important factors, in addition to those discussed elsewhere in this annual report, could affect our future results and could cause those results or other outcomes to differ materially and adversely from those expressed in our forward-looking statements:

 

·                   changes in general economic, business, political or other conditions in the regions where we operate;

·                   changes in the legal and regulatory framework of the beverage sector in the regions where we operate;

·                   the monetary and interest rate policies of the central banks of the countries in which we operate;

·                   unanticipated movements or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices;

·                   changes in, or our failure to comply with, laws and regulations in the countries where we operate;

·                   changes in taxes;

·                   our inability to hedge certain risks economically;

·                   potential effects of weather conditions, earthquakes, tsunamis or other natural disasters;

·                   the outcome of litigation against us;

·                   the nature and extent of competition in the beverage industry in Latin America and the effect of competition on the prices we are able to charge for our products;

·                   volatility and fluctuations in demand for our products and the effect of such changes on the volume that we are able to sell and the price that we are able to charge for our products;

 

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·                   capital and credit market conditions, including the availability of credit and changes in interest rates;

·                   delays in the development of our projects, changes to our investment plans due to changes in demand, authorizations, expropriations, etc.;

·                   actions of our shareholders;

·                   unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms if at all; and

·                   the factors described under “Risk Factors”.

 

The forward-looking statements contained in this document speak only as of the date of this annual report, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, unless required by law.

 

Market Data

 

We have computed the information contained in this annual report regarding annual volume and per capita growth rates and levels, and market share, product segment, and population data in our bottling territories, based upon accumulated statistics developed by us. Market share information presented with respect to soft drinks, juices, waters and beer is based on data supplied by A.C. Nielsen Company.

 

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PART I

 

ITEM 1.                          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.                          OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.                          KEY INFORMATION

 

A.             Selected Financial Data

 

The following tables present certain summary consolidated and other financial and operating information of Andina at the dates and for the periods indicated. This information should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements.

 

The summary consolidated financial information as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 has been derived from our audited consolidated financial statements included in this annual report. The summary consolidated financial information as of December 31, 2014, 2015 and 2016 and for the years ended December 31, 2014 and 2015 has been derived from our audited consolidated financial statements not included herein.

 

Our consolidated financial statements are prepared in accordance IFRS and presented in Chilean pesos. Our consolidated financial statements reflect the results of our subsidiaries located in Brazil, Argentina and Paraguay, converted to Chilean pesos (our functional and reporting currency). IFRS requires assets and liabilities to be converted from the functional currency of our subsidiaries outside Chile to our reporting currency (Chilean peso) at the end of period exchange rates and income and expense accounts to be converted at the average monthly exchange rate for the month in which income or expense is recognized for subsidiaries that do not operate in hyperinflationary economies.

 

Our Argentine subsidiaries have been operating in an environment that in 2018 was classified as hyperinflationary. For a description of the conversion criteria from the functional currency to the presentation currency, see “Introduction — Presentation of Financial and Certain Other Information” and note 2.5 of our consolidated financial statements included herein.

 

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		For the year ended December 31,
		2014		2015		2016		2017		2018
		(in million Chilean pesos)
INCOME STATEMENT DATA
Net sales		1,797,200		1,877,394		1,777,459		1,848,879		1,672,916
Cost of sales		(1,081,243	)	(1,106,706	)	(1,033,910	)	(1,069,025	)	(968,028	)
Gross profit		715,957		770,688		743,549		779,854		704,888
Other income		3,971		472		1,761		551		859
Distribution expenses		(187,043	)	(202,491	)	(183,677	)	(192,928	)	(165,775	)
Administrative expenses		(342,141	)	(352,601	)	(346,203	)	(348,199	)	(313,743	)
Other expenses		(18,591	)	(21,983	)	(22,765	)	(16,701	)	(14,308	)
Other (expense) income, net		(4,392	)	(6,301	)	(3,387	)	(2,537	)	(2,708	)
Financial income		8,656		10,118		9,662		11,194		3,940
Financial expenses		(65,081	)	(55,669	)	(51,375	)	(55,220	)	(55,015	)
Share of (loss) profit of investments accounted for using the equity method		1,191		(2,328	)	(263	)	(80	)	1,411
Foreign exchange differences		(2,676	)	(2,856	)	(68	)	(1,370	)	(1,449	)
Loss from differences in indexed financial assets and liabilities		(12,463	)	(7,308	)	(6,378	)	(3,763	)	(5,085	)
Net income before income taxes		97,388		129,741		140,856		170,798		153,016
Income tax expense		(45,354	)	(41,643	)	(48,807	)	(51,797	)	(55,565	)
Net income		52,034		88,098		92,049		119,001		97,451
BALANCE SHEET DATA
Assets
Current assets
Cash and cash equivalents		79,514		129,160		141,264		136,242		137,539
Other financial assets		106,577		87,492		60,153		14,138		684
Other non-financial assets		7,787		8,686		8,601		5,612		5,949
Trade and other accounts receivable, net		198,110		176,386		190,524		191,285		174,113
Accounts receivable from related parties		5,994		4,611		5,789		5,370		9,450
Inventories		149,728		133,333		144,709		131,363		151,320
Current tax assets		6,026		7,742		1,702		—		2,532
Total current assets		553,736		547,410		552,742		484,010		481,586
Non-current assets
Other financial assets		51,027		181,491		80,181		74,259		97,362
Other non-financial assets		33,057		18,290		35,247		47,349		34,977
Trade and other receivables		7,098		5,932		3,528		2,396		1,271
Accounts receivable from related parties		25		15		148		156		74
Investments accounted for under the equity method		66,050		54,191		77,198		86,809		102,411
Intangible assets other than goodwill		728,181		665,666		680,996		663,273		668,823
Goodwill		116,924		95,836		102,920		93,598		117,229
Property, plant and equipment		713,075		640,530		666,151		659,750		710,771
Deferred tax assets		—		—		—		3,213		—
Total non-current assets		1,715,437		1,661,951		1,646,367		1,630,849		1,732,918
Total assets		2,269,173		2,209,361		2,199,110		2,114,859		2,214,505
Liabilities
Current liabilities
Other financial liabilities		83,402		62,218		64,801		67,981		56,115
Trade and other accounts payable		228,179		212,526		242,836		257,519		238,110
Accounts payable to related parties		55,967		48,653		44,120		33,961		45,828
Provisions		366		326		683		2,676		3,486
Income taxes payable		2,931		7,495		10,829		3,185		9,339
Employee benefits current provisions		27,747		31,791		35,653		35,956		33,211
Other non-financial liabilities		11,620		17,565		20,613		27,008		33,774
Total current liabilities		410,212		380,574		419,535		428,287		419,862
Non-current liabilities
Other long-term current financial liabilities		726,616		765,299		721,571		675,767		716,564
Trade and other payables		1,216		9,303		9,510		1,133		736
Provisions		77,447		63,976		72,399		62,948		58,967
Deferred income tax liabilities		126,126		130,202		125,609		125,205		145,246
Post-employment benefit liabilities		8,125		8,230		8,158		8,286		9,416
Other non-financial liabilities		433		243		159		—		—
Total non-current liabilities		939,963		977,253		937,405		873,339		930,928
Issued capital		270,738		270,738		270,738		270,738		270,738
Retained earnings		247,818		274,755		295,709		335,523		462,221
Other reserves		378,739		284,982		254,159		185,049		110,854
Equity attributable to equity holders of the parent		897,294		830,474		820,606		791,310		843,813
Non-controlling interests		21,703		21,060		21,564		21,923		19,902
Total equity		918,998		851,534		842,170		813,233		863,715
Total liabilities and equity		2,269,173		2,209,361		2,199,110		2,114,859		2,214,505

 

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		For the year ended December 31,
		2014		2015		2016		2017		2018
		(in million Chilean pesos, except share and per share data and other operating data)
CASH FLOW DATA
Net cash flows generated from operating activities		215,514		264,909		223,447		247,960		235,279
Net cash flows used in investing activities		(166,776	)	(103,131	)	(113,916	)	(168,831	)	(118,086	)
Net cash flows provided by (used in) financing activities		(46,920	)	(98,560	)	(98,225	)	(78,346	)	(114,635	)
Net increase in cash and cash equivalents before exchange differences		1,818		63,218		11,306		783		2,558
Effects of exchange differences on cash and cash equivalents		(2,280	)	(13,571	)	797		(5,805	)	3,574
Effects of inflation on cash and cash equivalents in Argentina		—		—		—		—		(4,836	)
Net increase (decrease) in cash and cash equivalents		(462	)	49,647		12,103		(5,022	)	1,296
Cash and cash equivalents - beginning of year		79,976		79,514		129,161		141,264		136,242
Cash and cash equivalents - end of year		79,514		129,161		141,264		136,242		137,539
OTHER FINANCIAL DATA
Depreciation and amortization		102,967		100,632		97,334		99,164		99,594
Capital expenditures		114,217		112,400		128,217		168,858		121,063
Dividends paid		52,269		53,671		67,585		75,536		85,475
Basic and diluted earnings per share:
Series A(1)		52.19		88.40		91.08		118.56		97.20
Series B(1)		57.41		97.24		100.19		130.42		106.92
Basic and diluted earnings per ADR(2)
Series A(2)		313.16		530.40		546.48		711.36		583.20
Series B(2)		344.48		583.44		601.14		782.52		641.52
Capital Stock
Series A		473,289,301		473,289,301		473,289,301		473,289,301		473,289,301
Series B		473,281,303		473,281,303		473,281,303		473,281,303		473,281,303
Issued Capital		270,738		270,738		270,738		270,738		270,738
Total dividends declared
Total Series A Shares		24,800		29,344		33,130		37,153		40,703
Total Series B Shares		27,283		32,278		36,443		40,868		44,772
OTHER OPERATING DATA (unaudited)
Sales volume
Coca-Cola trade brand soft drinks (millions of UCs)(3)		671.6		653.8		613.2		587.9		579.2
Other beverages (millions of UCs) (3)(4)		159.0		166.1		165.8		168.5		171.3

 

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(1)          Calculation of profits per share considers the average amount of outstanding shares existing at each date.

(2)          Each ADR represents six shares of common stock of the corresponding series of shares.

(3)          UCs or Unit cases refer to 192 ounces of finished beverage product (24 eight-ounce servings) or 5.68 liters.

(4)          Includes waters, juices, beer and other spirits.

Note: Totals may not sum due to rounding .

 

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Exchange Rates

 

Chile

 

Chile has two currency markets, the Mercado Cambiario Formal (the “Formal Exchange Market”) and the Mercado Cambiario Informal (the “Informal Exchange Market”). The Formal Exchange Market is comprised of banks and other entities authorized by the Chilean Central Bank. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Chilean Central Bank is empowered to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. See also “Item 10. Additional Information—D. Exchange Controls— Foreign Investment and Exchange Controls in Chile”.

 

Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Chilean Central Bank be informed of certain transactions and that they be effected through the Formal Exchange Market.

 

The U.S. dollar observed exchange rate ( dólar observado ), which is reported by the Chilean Central Bank and published daily in the Official Gazette ( Diario Oficial ), is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. The Chilean Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the observed exchange rate within a desired range. During the past few years the Chilean Central Bank has attempted to keep the observed exchange rate within a certain range only under special circumstances. Although the Chilean Central Bank is not required to purchase or sell dollars at any specific exchange rate, it generally uses spot rates for its transactions. Other banks generally carry out authorized transactions at spot rates as well.

 

The Informal Exchange Market reflects transactions carried out at the informal exchange rate. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate. In recent years, the variation between the observed exchange rate and the informal exchange rate has not been significant.

 

The following table sets forth the annual low, high, average and period end observed exchange rate for U.S. dollars for the periods presented, as reported by the Chilean Central Bank. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

 

		Exchange rate Ch$ per US$
		High(1)		Low(1)		Average(2)		Period end (3)
Year ended December 31,
2014		621.41		527.53		570.33		606.75
2015		715.66		597.10		654.66		710.16
2016		730.31		645.22		676.69		669.47
2017		679.05		614.75		649.12		614.75
2018		698.56		588.28		641.22		695.69
Month end
October 31, 2018		693.31		656.25		676.84		693.31
November 30, 2018		698.56		667.46		677.61		669.43
December 31, 2018		695.69		666.46		681.99		695.69
January 31, 2019		697.64		666.76		677.06		666.76
February 28, 2019		665.90		649.22		656.30		649.92
March 31, 2019		683.73		651.79		667.68		681.09
April 2018 (through April 17, 2019)		678.53		660.67		666.15		663.98

 

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Source: Chilean Central Bank.

(1)          Exchange rates are the actual low and high, on a daily basis for each period.

(2)          The yearly average exchange rate is calculated as the average of the exchange rates on the last day of each month during the period. Monthly exchange rates correspond to the average monthly exchange rates published by the Chilean Central Bank.

(3)          Each year period ends on December 31, and the respective period-end exchange rate is published by the Chilean Central Bank on the first business day of the following year. Each month period ends on the last calendar day of such month, and the respective period end exchange rate is published by the Chilean Central Bank on the first business day of the following month.

 

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Argentina

 

From April 1, 1991 until the end of 2001, the Convertibility Law No. 23,928 and Regulatory Decree No. 529/91 (together, the “Convertibility Law”) established a fixed exchange rate under which the Central Bank of Argentina was obliged to sell U.S. dollars at a fixed rate of one Argentine peso per U.S. dollar. On January 6, 2002, the Argentine Congress enacted the Public Emergency Law, which suspended certain provisions of the Convertibility Law, including the fixed exchange rate of Ar$1.00 to US$1.00, and granted the executive branch of the Argentine government the power to set the exchange rate between the Argentine peso and foreign currencies and to issue regulations related to the foreign exchange market. Following a brief period during which the Argentine government established a temporary dual exchange rate system, pursuant to the Public Emergency Law, the Argentine peso has been allowed to float freely against other currencies since February 2002. For the last few years the Argentine government has maintained a policy of intervention in foreign exchange markets, conducting periodic transactions for the sale and purchase of U.S. dollars. There is no way to foresee if this could continue in the future.

 

The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Argentine pesos per U.S. dollar and not adjusted for inflation as reported by the Central Bank of Argentina. The Federal Reserve Bank of New York does not report a noon buying rate for Argentine pesos.

 

		Exchange rate Ar$ per US$
		High		Low		Average (1)		Period end
Year ended December 31,
2014		8.556		6.543		8.119		8.552
2015		13.005		8.554		9.269		13.005
2016		16.030		13.200		14.781		15.850
2017		18.830		15.174		16.567		18.774
2018		40.897		18.416		28.094		37.808
Month end
October 31, 2018		40.342		36.197		37.120		36.197
November 30, 2018		38.875		35.488		36.459		38.022
December 31, 2018		38.570		36.890		37.885		37.808
January 31, 2019		37.933		37.035		37.407		37.035
February 29, 2019		40.040		37.197		38.409		38.998
March 31, 2019		43.698		39.445		41.362		43.353
April 2019 (through April 17, 2019)		43.800		41.562		42.808		41.783

 

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Source: Central Bank of Argentina.

(1) Represents the daily average exchange rate during each of the relevant periods.

 

Brazil

 

The Central Bank of Brazil allows the real/U.S. dollar exchange rate to float freely and has intervened occasionally to control unstable fluctuations in foreign exchange rates. We cannot predict whether the Central Bank of Brazil or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise. The Brazilian real may depreciate or appreciate substantially against the U.S. dollar in the future. Exchange rate fluctuations may adversely affect our financial condition.

 

Prior to March 14, 2005, under Brazilian regulations, foreign exchange transactions were carried out on either the commercial rate exchange market or the floating rate exchange market. Rates in the two markets were generally the same. On March 14, 2005, the National Monetary Council of Brazil ( Conselho Monetário Nacional ) unified the two markets.

 

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The following table sets forth the exchange selling rates expressed in Brazilian reais per U.S. dollar for the periods indicated, as reported by the Central Bank of Brazil through the Central Bank System (Sistema do Banco Central) using PTAX 800, option 5.

 

		Exchange rate R$ per US$
		High		Low		Average(1)		Period end
Year ended December 31,
2014		2.7403		2.1974		2.3536		2.6562
2015		4.1949		2.5754		3.3314		3.9048
2016		4.1558		3.1193		3.4901		3.2591
2017		3.3807		3.0510		3.1920		3.3080
2018		4.1879		3.1391		3.6544		3.8748
Month end
October 31, 2018		4.0273		3.6368		3.7584		3.7177
November 30, 2018		3.8925		3.6973		3.7867		3.8633
December 31, 2018		3.9330		3.825		3.8851		3.8748
January 31, 2019		3.8595		3.6519		3.7417		3.6519
February 28, 2019		3.7756		3.6694		3.7236		3.7385
March 31, 2019		3.9682		3.7762		3.8465		3.8967
April 2019 (through April 17, 2019)		3.9225		3.8345		3.8664		3.9225

 

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Source: Central Bank of Brazil.

(1) Represents the daily average exchange rate during each of the relevant periods.

 

Paraguay

 

The price of the U.S. currency in Paraguay is determined by the interaction between the supply and demand of this currency, and the Central Bank of Paraguay (BCP) has the ability to intervene in order to minimize the effects of potential large variations.

 

Standing out among foreign exchange income are exports (including border trade mainly with Brazil), foreign direct investment (FDI), remittances from relatives living abroad (in previous periods this impact was more significant). Imports stand out regarding dollar expenditures.

 

Until 2013, the flow of U.S. dollar income and expenditures was characterized by a large influx (income) of U.S. dollars in the first part of the year due to soybean exports. Currently, due to the various investments made, the influx still exists, but income throughout the year is more balanced.

 

The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Paraguayan guarani per U.S. dollar as reported by the Central Bank of Paraguay.

 

		Exchange rate G$ per US$
		High		Low		Average(1)		Period end
Year ended December 31,
2014		4,689		4,170		4,462		4,636
2015		5,866		4,626		5,205		5,807
2016		5,953		5,494		5,671		5,767
2017		5,785		5,408		5,619		5,590
2018		6,016		5,492		5,732		5,961
Month end
October 31, 2018		6,016		5,894		5,954		5,994
November 30, 2018		5,994		5,896		5,937		5,933
December 31, 2018		5,977		5,900		5,927		5,961
January 31, 2019		6,092		5,980		6,039		6,050
February 28, 2019		6,105		6,017		6,059		6,092
March 31, 2019		6,191		6,072		6,130		6,181
April 2019 (through April 17, 2019)		6,242		6,188		6,209		6,245

 

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Source: Central Bank of Paraguay.

 

B.             CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C.             REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

D.             RISK FACTORS

 

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

 

Risks Relating to Our Company

 

We rely heavily on our relationship with The Coca-Cola Company, which has substantial influence over our business and operations and changes in this relationship may adversely affect our business.

 

The Coca-Cola Company has substantial influence on the conduct of our business. The interests of The Coca-Cola Company may be different from the interests of our other shareholders, which may result in us taking actions contrary to the interests of our other shareholders.

 

70% of net sales for the year ended December 31, 2018 were derived from the distribution of soft drinks under The Coca-Cola Company trademarks and an additional 24% were derived from the distribution of other beverages also bearing trademarks owned by The Coca-Cola Company. We produce, market and distribute Coca-Cola products through standard bottler agreements between our bottler subsidiaries and, in each case, the local subsidiary of The Coca-Cola Company or The Coca-Cola Company, or, in the case of juices and nectars, The Minute Maid Company, a subsidiary of The Coca-Cola Company (hereinafter, the “Bottler Agreements”). The Coca-Cola Company has the ability to exert an important influence on the business of the Company through its rights under the Bottler Agreements. According to the Bottler Agreements, The Coca-Cola Company unilaterally sets the prices for Coca-Cola concentrate and soft drinks (in the case of pre-mixed soft drinks by The Coca-Cola Company) that they sell to us. The Coca-Cola Company also monitors prices and has the right to review and approve our marketing, operating and advertising plans. In addition, The Coca-Cola Company can unilaterally set the prices of concentrate and may in the future increase the price we pay for the concentrate, increasing our costs. These factors may impact our profit margins, which could adversely affect our net income and results of operations.

 

Our marketing campaigns for Coca-Cola products are designed and controlled by The Coca-Cola Company. The Coca-Cola Company also makes significant contributions to our marketing expenses, although it is not required to contribute a particular amount. Accordingly, The Coca-Cola Company may discontinue or reduce such contribution at any time. Pursuant to the Bottler Agreements, we are required to submit a business plan to The Coca-Cola Company for prior approval on a yearly basis. In accordance with our Bottler Agreements, The Coca-Cola Company may, among other things, require that we demonstrate the financial ability to meet our business plan, and if we are not able to demonstrate our financial capacity, The Coca-Cola Company may terminate our rights to produce, market and distribute Coca-Cola soft drinks or other Coca-Cola beverages in territories where we have such approval. Under these Bottler Agreements, we are prohibited from producing, bottling, distributing or selling any products that could be substituted for, be confused with or be considered an imitation of soft drinks or other beverages and products under the trademarks of The Coca-Cola Company.

 

We depend on The Coca-Cola Company to renew our Bottler Agreements, which are subject to termination by The Coca-Cola Company in the event we default or upon expiration of their respective terms. We currently are party to: two agreements for Chile, which expire in 2019 and in 2023, one agreement for Brazil, which expires in 2022, one agreement for Argentina, which expires in 2022, and one agreement for Paraguay, which expires in 2020. We cannot provide any assurance that our Bottler Agreements will be maintained or renewed upon their termination. Even if they are renewed, we cannot provide any assurance that renewal will be granted on the same terms as those currently in effect. Termination, non-extension or non-renewal of any of our Bottler Agreements would prevent us from selling Coca-Cola trademark beverages in the affected territory, which would have a material adverse effect on our business, financial condition and results of operation.

 

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In addition, any acquisition we make of bottlers of Coca-Cola products in other territories may require, among other things, the consent of The Coca-Cola Company under Bottler Agreements to which such other bottlers are subject. We cannot assure you that The Coca-Cola Company will consent to any future geographic expansion of our Coca-Cola beverage business. In addition, we cannot assure you that our relationship with The Coca-Cola Company will not deteriorate or otherwise undergo significant changes in the future. If such changes do occur, our operations and financial results and condition could be materially affected.

 

The non-alcoholic beverage business environment is changing rapidly, as a result of increased obesity and other health concerns, which could have a material adverse effect on demand for our products, and consequently on our financial performance.

 

Consumers, public health officials and government agencies in the majority of our markets, are increasingly concerned with public health consequences associated with obesity, particularly among young people. Additionally, some researchers, health advocates and dietary guidelines are encouraging consumers to reduce consumption of sugar-sweetened beverages and beverages sweetened with nutritive or alternative sweeteners. Increasing public concern about these issues, the possibility of taxes on sugar-sweetened beverages or other sweeteners, additional governmental regulations concerning the marketing, labeling, packaging or sale of our beverages and any negative publicity resulting from actual or threatened legal actions against non-alcoholic beverage companies relating to the marketing, labeling or sale of beverages may reduce demand for our products or increase the cost, which could adversely affect our profitability.

 

In addition, concerns over the environmental impact of plastic may reduce the consumption of our products sold in plastic bottles or result in additional taxes that would adversely affect consumer demand.

 

If we do not address evolving consumer product and shopping preferences, our business could suffer.

 

The non-alcoholic beverage business environment in our territories is dynamic and constantly evolving rapidly as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer preferences and needs; changes in consumer lifestyles; concerns regarding location of origin or source of ingredients and raw materials and the environmental and sustainability impact of the product manufacturing process; consumer emphasis on transparency related to our products and packaging; and competitive product and pricing pressures. In addition, the non-alcoholic beverage retail landscape is dynamic and is constantly evolving, and if we are unable to successfully adapt in this environment, our participation in the sales of non-alcoholic beverages and financial results in general would be negatively affected.

 

Our business is highly competitive, including with respect to price competition, which may adversely affect our net profits and margins.

 

The soft drink and nonalcoholic beverage businesses in general are highly competitive in each of the territories in which we operate. We compete with bottlers of local and regional brands, including low cost beverages and Pepsi products. This competition in each of the regions where we operate is likely to continue, and we cannot assure you that it will not intensify in the future, which could materially and adversely affect our financial condition and results of operations. If we do not continuously strengthen our capabilities in marketing and innovation to maintain our brand loyalty and market share, while we selectively expand into other profitable categories in the non-alcoholic beverage segment of the commercial beverage industry, our business could be negatively affected.

 

Raw material prices may be subject to U.S. dollar/local currency exchange risk and price volatility, which could increase our costs of operations.

 

In addition to water, our most significant raw materials are (1) concentrate, which we acquire from affiliates of The Coca-Cola Company, (2) sweeteners and (3) packaging materials. Our most significant packaging raw material costs arise from the purchase of resin and plastic preforms to make plastic bottles and from the purchase of finished plastic bottles, the prices of which are related to crude oil prices and global resin supply. Prices for concentrate are determined by The Coca-Cola Company and The Coca-Cola Company has unilaterally increased concentrate prices in the past and may do so again in the future. We cannot assure you that The Coca-Cola Company will not increase the price of the concentrate for Coca-Cola trademark beverages or change the manner in which such price will be calculated in the future. We may not be successful in negotiating or implementing measures to mitigate the negative effect this may have in the pricing of our products or our results. The prices for our remaining raw materials are driven by market prices and local availability, the imposition of import duties and restrictions and fluctuations in exchange rates.

 

We purchase our raw materials from both domestic and international suppliers, some of which must be approved by The Coca-Cola Company, which may limit the number of suppliers available to us. Because the prices of the main raw materials are denominated in U.S. dollars, we are subject to local currency risk with respect to each of our operations. If any of the Chilean peso, Brazilian real, Argentine peso, or Paraguayan guaraní were to depreciate significantly against the U.S. dollar, the cost of certain raw materials in our respective territories could rise significantly, which could have an adverse effect on our financial condition and results

 

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of operations. We cannot assure you that these currencies will not lose value against the U.S. dollar in the future. Additionally, some raw material prices are subject to high volatility, which could also have a material adverse effect on our profitability. The supply or cost of specific raw materials could be adversely affected by domestic or global price changes, strikes, weather conditions, taxes, governmental controls or other factors. Any sustained interruption in the supply of these raw materials or any significant increase in their price could have a material adverse effect on our financial performance.

 

Instability in the supply of utility services and oil prices may adversely impact our results of operations.

 

Our operations depend on a stable supply of utilities and fuel in the countries where we operate. Electrical power outages could lead to increased energy prices and possible service interruptions. Interruptions in the supply of water could also generate an increase of our production costs and possible service interruptions. We cannot assure you that in the future we will not experience energy or water supply interruptions that could materially and adversely affect our business. In addition, a significant increase in energy prices would raise our costs, which could materially impact our results of operations. Fluctuations in oil prices have adversely affected our cost of energy and transportation in the regions where we operate, and we expect that they will continue to do so in the future. We cannot assure you that fuel prices will not increase in the future, and that such an increase would not have a significant effect on our financial performance.

 

Water scarcity and poor water quality could adversely impact our production costs and capacity.

 

Water is the main ingredient in substantially all of our products. It is also a limited resource in many parts of the world, subject to changes and unpredictable situations from overexploitation, increasing pollution and poor management. As demand for water continues to increase around the world, and as the quality of available water deteriorates, we may incur increasing production costs or face capacity constraints that could adversely affect our profitability or net operating revenues. We obtain water from various sources in our territories, including springs, wells, rivers and municipal and state water companies pursuant to concessions granted by governments in our various territories. We are also subject to uncertainty regarding the interpretation of the laws of the countries in which we operate, and any ambiguity or uncertainty regarding the interpretation or application of regulations can result in increased production costs or penalties for non-compliance, which are impossible or difficult to predict. We also anticipate discussions on new regulations on ownership and water usage. Water scarcity or changes in governmental regulations aimed at rationing water in the region could affect our water supply.

 

We cannot assure you that water will be available in sufficient quantities to meet our future production needs or will prove sufficient to meet our water supply needs.

 

Significant additional labeling or warning requirements may inhibit sales of our products.

 

The countries in which we operate may adopt significant advertising restrictions as well as additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of certain of our Coca-Cola products or other products. In addition, the Chilean congress passed a law which became effective on June 27, 2016, with respect to labeling of certain consumer products, including soft drinks and bottled juices and waters such as ours. The second phase of the law began on June 27, 2018, which hardened the parameters of information required for the labelling of products offered on the market. Due to the difficulty of determining the future scope and interpretation of the requirements of this law we may be subject to ambiguity or uncertainty with respect to its interpretation and application which could result in non-compliance and associated costs and penalties, which are impossible or difficult to predict. These requirements may adversely affect sales of our products.

 

Our business may be adversely affected if we are unable to maintain brand image and product quality.

 

Our beverage business is highly dependent on maintaining the reputation of our products in the countries where we operate. If we fail to maintain high standards for product quality, our reputation and ability to remain a distributor of The Coca-Cola Company beverages in the countries where we operate could be jeopardized. Negative publicity or incidents related to our products may reduce their demand and could have a material adverse effect on our financial performance. If any of our products is defective or found to contain contaminants, or causes injury or illness, we may be subject to product recalls and/or other liabilities.

 

We take precautions in order to minimize the risk that our beverage products present contaminants and that our packaging materials (such as bottles, crowns, cans and other containers) present defects. Such precautions include quality-control programs for raw materials, the production process and of our final products. Likewise, we have established procedures to correct any problems detected.

 

The existence of contamination or defect in the future may lead to business interruptions, product recalls or liability, which could have an adverse effect on our business, reputation, prospects, financial condition and results of operations.

 

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Although we maintain insurance policies against certain product liability risks, we may not be able to enforce our rights in respect of these policies, and, in the event that a defect occurs, any amounts that we recover may not be sufficient to offset any damage we may suffer, which could adversely impact our business, results of operations and financial condition.

 

Trademark infringement could adversely impact our beverage business.

 

A significant portion of our sales derives from sales of beverages branded with trademarks of The Coca-Cola Company, as well as other trademarks. If other parties attempt to misappropriate trademarks we use, we may be unable to protect these trademarks. The maintenance of the reputation of these brands is essential for the future success of our beverage business. Misappropriation of trademarks we use, or challenges thereto, could have a material adverse effect on our financial performance.

 

Weather conditions or natural disasters may adversely affect our business.

 

Lower temperatures and higher rainfall may negatively impact consumer patterns, which may result in lower per capita consumption of our beverages. Additionally, adverse weather conditions or natural disasters may affect road infrastructure in the countries in which we operate and limit our ability to sell and distribute our products. For example, in February of 2010 our business experienced a temporary interruption in our production as a result of the 8.8 magnitude earthquake in central Chile; and in March 2015, flash floods in the north of Chile interrupted our production and distribution in such territory.

 

Our insurance coverage may not adequately cover losses resulting from the risks for which we are insured.

 

We maintain insurance for our principal facilities and other assets. Our insurance coverage protects us in the event we suffer certain losses resulting from theft, fraud, expropriation, business interruption, natural disasters or other similar events or from business interruptions caused by such events. In addition, we maintain insurance policies for our directors and officers . We cannot assure you that our insurance coverage will be sufficient or will provide adequate compensation for losses that we may incur.

 

If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.

 

We are increasingly dependent on information technology networks and systems, including over the Internet, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for digital marketing activities and electronic communications among us and our clients, suppliers and also among our subsidiaries and facilities. Security breaches or infrastructure flaws can create system disruptions, shutdowns or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or flaws, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information.

 

Cyber threats are rapidly evolving and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Cyber threats and cyber-attackers can be sponsored by countries or sophisticated criminal organizations or be the work of single “hackers” or small groups of “hackers.”

 

We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber-attack. We are continuously installing new and upgrading existing information technology systems. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Nevertheless, as cyber threats evolve, change and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat our or a third-party service provider’s security measures in the future and obtain the personal information of customers or employees. Employee error or other irregularities may also result in a defeat of security measures and a breach of information systems. Moreover, hardware, software or applications we use may have inherent defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. A security breach and loss of information may not be discovered for a significant period of time after it occurs. While we have no knowledge of a material security breach to date, any compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable business data, or a disruption of our business. A security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage to our customer relationships and reputation, and result in fines, fees, or liabilities, which may not be covered by our insurance policies.

 

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Perception of risk in emerging economies may impede our access to international capital markets, hinder our ability to finance our operations and adversely affect our financial performance.

 

International investors, as a general rule, consider the countries in which we operate to be emerging market economies. Consequently, economic conditions and the market for securities of emerging market countries influence investors’ perceptions of Chile, Brazil, Argentina and Paraguay and their evaluation of securities of companies located in these countries.

 

During periods of heightened investor concern regarding emerging market economies, the countries where we operate may experience significant outflows of U.S. dollars.

 

In addition, during these periods companies based in the countries where we operate have faced higher costs for raising funds, both domestically and abroad, as well as limited access to international capital markets, which have negatively affected the prices of the aforementioned countries’ securities. Although economic conditions are different in each of the emerging-market countries, investors’ reactions to developments in one of these countries may affect the securities of issuers in the others. For example, adverse developments in emerging market countries may lead to decreased investor interest in the securities of Chilean companies .

 

Our business may be adversely affected if we fail to renew collective bargaining labor agreements on satisfactory terms or experience strikes or other labor unrest.

 

A substantial portion of our employees is covered by collective bargaining labor agreements. These agreements generally expire every year. Our inability to renegotiate these agreements on satisfactory terms could cause work stoppages and interruptions, which may adversely impact our operations. Amendments to the terms and conditions of existing agreements could also increase our costs or otherwise have an adverse effect on our operational efficiency. We experience periodic strikes and other forms of labor unrest through the ordinary course of business. We cannot assure you labor interruptions or other labor unrest will not occur in the future. If we experience strikes, work stoppages or other forms of labor unrest at any of our production facilities, our ability to supply beverages to customers could be impaired, which would reduce our net operating revenues and could expose us to customer claims.

 

Our business is subject to extensive regulation, which is complex and subject to change.

 

We are subject to local regulations in each of the territories in which we operate. The principal areas in which we are subject to regulation are water, environment, labor, labelling, taxation, health, consumer protection, advertising and antitrust. Regulation could also affect our ability to set prices for our products. The adoption of new laws or regulations or a stricter interpretation or enforcement thereof in the countries in which we operate may increase our operating costs or impose restrictions on our operations which, in turn, may adversely affect our financial condition, business and results. Further changes in current regulations may result in increased compliance costs, which may have an adverse effect on our results or financial condition.

 

In the past, voluntary price restraints or statutory price controls have been imposed in several of the countries in which we operate. Currently there are no such restraints or price controls applicable to our products in any of the territories in which we operate, except in Argentina. However, we cannot assure you that government authorities in any country in which we operate will not impose statutory price controls, or that we will not be requested to impose voluntary price restraints in the future. The imposition of such restraints or price controls be in the future may have an adverse effect on our results and financial condition.

 

We may be required to incur considerable expenses in order to comply with environmental laws and regulations. Such expenses may have a material adverse effect on our results of operations and financial position.

 

We are subject to various environmental laws and regulations that apply to our containers, products and activities. If these environmental laws and regulations are strengthened or newly established in jurisdictions in which we conduct our businesses, we might be forced to incur considerable expenses in order to comply with such laws and regulations. W e are also subject to uncertainty regarding the interpretation of the environmental laws and regulations of the countries in which we operate, and any ambiguity or uncertainty regarding the interpretation or application of regulations can result in increased production costs or penalties for non-compliance, which are impossible or difficult to predict. Such expenses may have a material adverse effect on our results of operations and financial position. To the extent we determine that it is not financially sound for us to continue to comply with such laws and regulations, we may have to curtail or discontinue our activities in the affected business areas.

 

If we were to become subject to adverse judgments or determinations in legal proceedings to which we are, or may become, a party, our future profitability could suffer through a reduction of sales, significant liabilities, increased costs or damage to our reputation.

 

In the ordinary course of our business, we become involved in various claims, lawsuits, investigations and governmental and administrative proceedings, some of which are or may be significant. Adverse judgments or determinations in one or more of these proceedings could require us to change the way we do business or use substantial resources in adhering to the settlements. These could have a material adverse effect on our business, including, among other consequences, by significantly increasing the costs required to operate our business. Ineffective communications during or after these proceedings could amplify the negative effects, if any, of these

 

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proceedings on our reputation and may result in a negative market impact on the price of our securities. Additionally, adverse preliminary decisions in one or more of these proceedings may require the use of substantial financial resources during its review by a higher court. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates.

 

In addition, during recent years, the Company has been subject to judicial proceedings and administrative investigations associated with alleged monopolistic practices. Although these processes and investigations have not resulted in any convictions or penalties for the Company, we cannot assure that this will not occur in the future. Ineffective communications, during or after these procedures or investigations, or possible sanctions in matters of competition, could have an adverse effect on our business.

 

The countries in which we operate may adopt new tax laws or modify existing laws to increase taxes applicable to our business or reduce existing tax incentives.

 

We cannot assure you that any governmental authority in any country where we operate will not impose new taxes or increase the taxes on our products in the future. The imposition of new taxes or increases in taxes may have a material adverse effect on our business, financial condition and results.

 

For example, in Chile on September 29, 2014 Law 20.780 was enacted which was subsequently amended by Law 20.899, on February 8, 2016 (the “Tax Reform”). The Tax Reform provides a “Transitional Regime” for calendar years 2014, 2015 and 2016 and a “Permanent Regime” for calendar years 2017 and thereafter.

 

In the Permanent Regime, for the years 2017 and following, corporations (“ sociedades anónimas ”) are subject to the Semi-Integrated Regime established in article 14(B) of the Chilean Income Law, in accordance with which the Company will be subject to the First Category corporate tax with a rate of 27% on accrued yearly earnings. Dividends paid to shareholders without domicile or residence in Chile are taxed with the additional withholding tax of 35%, maintaining the right to credit against the latter 100% of the First Category Tax (without prejudice to the debit or refund referred to in the subsequent paragraph). Local shareholders who are natural persons remain affected by progressive rates, but with new tranches ranging from 0% to 35%, with the right to credit for First Category tax rate with the limitation indicated below.

 

Notwithstanding the above, local shareholders and shareholders domiciled in countries that have not entered into a treaty to avoid double taxation with Chile, can only credit 65% of corporate income tax, which results in a total tax burden on profits distributed to those shareholders of 44.45%. The credit limitation is made by establishing a debit (restitution) to the shareholder equal to 35% of corporate income tax. This tax debit does not apply to dividends paid to a shareholder resident in a country that has an existing treaty to avoid double taxation with Chile and, until 2021, this exemption also applies to dividends paid in a country where such a treaty has been signed but is not yet in force.

 

The same reform increased the additional tax on non-alcoholic beverages with sugar from 13% to 18% and reduced the additional tax on non-alcoholic beverages without sugar from 13% to 10%.

 

In Argentina in December 2017, a tax reform was passed, which became effective in 2018. The most significant consequence for the Company is the reduction of the former 35% income tax rate to 30% for the 2018 and 2019 fiscal years and from 2020 onwards the rate decreases to 25%. However, this reduction is available only if profits are reinvested, as otherwise a tax is due at the time of the dividend distribution at a rate of 13% for the first two years and of 7% from 2020 onwards.

 

In relation to gross income tax, in 2018 there was a 2% average reduction in the gross income tax rate for industry activity in provinces where Andina Argentina has no productive plants. Municipal rates in 2018 remained unchanged, with few insignificant exceptions.

 

Andina Argentina enjoys the benefit of zero tax rate on gross income in the province of Córdoba until the year 2021 under an industrial promotion.

 

If we do not successfully comply with laws and regulations designed to combat governmental corruption in countries in which we sell our products, we could become subject to fines, penalties or other regulatory sanctions and our sales and profitability could suffer.

 

Although we are committed to conducting business in a legal and ethical manner in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our employees or representatives may take actions

 

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