Table of Contents

 

	Filed by Embotelladora Andina S.A.
	Pursuant to rule 425 under the Securities Act of 1933
	Subject Company: Embotelladoras Coca-Cola Polar S.A.
	Commission File No. 001-13142

 

EMBOTELLADORAS COCA-COLA POLAR S.A.

 

Interim consolidated financial statements

 

March 31, 2012

 

(A free translation from the original in Spanish)

 

CONTENTS

 

Interim consolidated statement of financial position

Interim consolidated statement of income

Interim consolidated statement of comprehensive income

Interim consolidated statement of changes in equity

Interim consolidated statement of cash flows

Notes to the interim consolidated financial statements

 

Ch$	-	Chilean pesos
ThCh$	-	Thousands of Chilean pesos
UF	-	Unidad de Fomento (an official inflation-indexed monetary unit)
US$	-	US Dollar
Arg$	-	Argentine pesos
GS	-	Paraguayan Guarani

 

 

Table of Contents

 

Contents

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Notes				Page
		INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POISITION		1
		INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME		3
		INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY		5
		INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS		6
1	–	Corporate information		7
2	–	Accounting criteria applied		8
3	–	Financial information by operative segment		17
4	–	Inventories		18
5	–	Cash & cash equivalents		19
6	–	Income & deferred taxes		21
7	–	Property, plant & equipment		24
8	–	Revenue & expenses		26
9	–	Employee benefits		29
10	–	Related entities		29
11	–	Investments in associates		31
12	–	Other provisions		32
13	–	Intangible assets other than goodwill		33
14	–	Goodwill		34
15	–	Equity		35
16	–	Financial instruments		38
17	–	Local & foreign currency		50
18	–	Guarantees & commitments		53
19	–	Subsequent events		53
20	–	The environment		53

 

 

Table of Contents

 

EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

As of March 31, 2012 and December 31, 2011

 

				March, 31		December, 31
		Note		2012		2011
				ThCh$		ThCh$
ASSETS
Cash & cash equivalents		(5)		23.133.810		21.655.721
Other non-financial assets				1.751.317		1.445.854
Trade & other accounts receivable		(16.1 a)		30.061.291		30.917.590
Accounts receivable from related entities		(10 a)		3.455.507		4.714.831
Inventories		(4)		21.609.297		23.099.370
Current tax assets				1.470.511		2.217.661
Total Current assets				81.481.733		84.051.027
Other non-financial assets				1.611.066		1.614.484
Investments in associates using the equity method		(11 b)		6.780.283		6.658.180
Intangible assets other than goodwill		(13)		2.586.760		2.660.960
Goodwill		(14)		9.023.552		9.454.266
Property, plant & equipment		(7 a)		161.924.808		167.627.602
Deferred tax assets		(6 b)		6.106.685		6.053.408
Total non-current assets				188.033.154		194.068.900
Total assets				269.514.887		278.119.927

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

as of March 31, 2012 and December 31, 2011

 

				March, 31		December, 31
		Note		2012		2011
				ThCh$		ThCh$
LIABILITIES
Other financial liabilities		(16.2 b)		9.645.370		10.179.516
Trade & other accounts payable		(16.2 b)		34.214.301		43.003.149
Accounts payable to related entities		(10 b)		13.441.757		6.807.547
Other provisions		(12 a)		1.834.743		1.913.943
Tax liabilities				92.537		—
Other non-financial liabilities		(15 e)		29.565.200		3.376.811
Total current liabilities				88.793.908		65.280.966
Other financial liabilities		(16.2 b)		70.107.975		69.590.825
Other accounts payable		(16.2 b)		4.714.193		4.928.209
Deferred tax liabilities		(6 b)		9.624.555		10.125.957
Total non-current liabilities				84.446.723		84.644.991
Paid-in capital				39.685.061		39.685.061
Accumulated earnings				71.056.085		91.212.166
Share premium				182.060		182.060
Other reserves		(15 f)		(16.508.274	)	(4.818.067	)
Total equity attributable to owners of the controller				94.414.932		126.261.220
Non-controlling interest		(15 h)		1.859.324		1.932.750
Total equity				96.274.256		128.193.970
Total liabilities & equity				269.514.887		278.119.927

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the periods of three months ended on march 31, 2012 and 2011

 

				Accumulated to March 31,
		Note		2012		2011
				ThCh$		ThCh$
INTERIM STATEMENT OF INCOME
Ordinary revenues		(8 a)		86.345.178		69.003.494
Cost of sale		(8 b)		(52.869.631	)	(41.515.761	)
Gross margin				33.475.547		27.487.733
Other revenue		(8 a)		47.769		41.301
Distribution costs		(8 b)		(12.940.337	)	(8.924.258	)
Administrative expenses		(8 b)		(3.470.736	)	(3.612.713	)
Other expenses, by function		(8 b)		(8.813.447	)	(6.222.792	)
Other losses		(8 d)		(695.470	)	(746.781	)
Financial income				255.565		310.084
Financial costs		(8 c)		(1.475.673	)	(1.210.495	)
Interest in earnings (loss) of associates recorded by the equity method		(11 d)		122.103		111.143
Exchange differences				344.084		868.270
Indexation adjustments				3.277		146
Earnings before tax				6.852.682		8.101.638
Income tax charge		(6 c)		(737.483	)	(433.608	)
Earnings for the period				6.115.199		7.668.030
Earnings attributable to:
Owners of the controller				6.032.308		7.572.320
Non-controling interest		(15 h)		82.891		95.710
Earnings for the period				6.115.199		7.668.030

 

				Ch$		Ch$
Earnings per share
Earnings per share (basic & diluted)		(15 d)		21,54		27,04

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(continued)

 

For the periods of three months ended on march 31, 2012 and 2011

 

		Accumulated to March, 31
		2012		2011
		ThCh$		ThCh$
Other compressive income
Earnings for period		6.115.199		7.668.030
Foreign currency translation adjustment		(11.846.524	)	13.145.569
Total comprehensive result		(5.731.325	)	20.813.599
Comprehensive income attributable to:
Owners of the controller		(5.657.899	)	20.439.633
Non-controling interest		(73.426	)	373.966
Total comprehensive income		(5.731.325	)	20.813.599

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

As of March 31, 2012 and 2011, and December 31, 2011

 

						Change in other reserves						Total equity
						Various				Accumulated		attributable		Non-
		Paid-in		Share		other		Translation		earnings		to owners of		controling
Detail		capital		premium		reserves		reserves		(loss)		the controller		interest		Total equity
Initial balance at 01.01.2012		39.685.061		182.060		(3.243.316	)	(1.574.751	)	91.212.166		126.261.220		1.932.750		128.193.970
Changes (Presentation)
Comprehensive Income
Earnings		—		—		—		—		6.032.308		6.032.308		82.891		6.115.199
Other Comprehensive Income		—		—		—		(11.690.207	)	—		(11.690.207	)	(156.317	)	(11.846.524	)
Dividends		—		—		—		—		(26.188.389	)	(26.188.389	)	—		(26.188.389	)
Changes in Equity		—		—		—		(11.690.207	)	(20.156.081	)	(31.846.288	)	(73.426	)	(31.919.714	)
Closing balance at 31.03.2012		39.685.061		182.060		(3.243.316	)	(13.264.958	)	71.056.085		94.414.932		1.859.324		96.274.256
Initial balance at 01.01.2011		39.685.061		182.060		(3.243.316	)	(15.484.337	)	86.982.115		108.121.583		1.307.883		109.429.466
Changes (Presentation)
Comprehensive Income
Earnings		—		—		—		—		23.240.036		23.240.036		341.784		23.581.820
Other Comprehensive Income		—		—		—		13.909.586		—		13.909.586		283.083		14.192.669
Dividends		—		—		—		—		(19.009.985	)	(19.009.985	)	—		(19.009.985	)
Changes in Equity		—		—		—		13.909.586		4.230.051		18.139.637		624.867		18.764.504
Closing balance at 31.03.2011		39.685.061		182.060		(3.243.316	)	(1.574.751	)	91.212.166		126.261.220		1.932.750		128.193.970
Initial balance at 01.01.2011		39.685.061		182.060		(3.243.316	)	(15.484.337	)	86.982.115		108.121.583		1.307.883		109.429.466
Comprehensive Income
Earnings		—		—		—		—		7.572.320		7.572.320		95.710		7.668.030
Other Comprehensive Income		—		—		—		12.867.313		—		12.867.313		278.256		13.145.569
Changes in Equity		—		—		—		12.867.313		7.572.320		20.439.633		373.966		20.813.599
Closing balance at 31.03.2011		39.685.061		182.060		(3.243.316	)	(2.617.024	)	94.554.435		128.561.216		1.681.849		130.243.065

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. Y SUBSIDIARIAS

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

 

For the periods of three months ended on March 31, 2012 and 2011

 

				Accumulated to March 31,
Statement of cash flows (direct method)		Note		2012		2011
				ThCh$		ThCh$
Cash flows from (used in) operating activities
Proceeds of sales of goods & provision of services				113.446.908		93.136.761
Payments to suppliers of goods & services				(78.549.803	)	(63.062.712	)
Payment to & on behalf of employees				(11.962.417	)	(10.227.156	)
Other operating activity payments				(8.077.538	)	(6.035.183	)
Income tax paid				(851.179	)	(828.546	)
Other cash inflows (outflows)				(1.541.787	)	(795.732	)
Cash flow from (used in) operating activities				12.464.184		12.187.432
Cash flows from (used in) investment activities
Interest received				165.574		561.485
Purchases of property, plant & equipment				(8.348.918	)	(9.329.978	)
Purchases of intangible assets				(66.508	)	(12.476	)
Cash flows used to purchase non-controller participations				—		(2.364.260	)
Other cash flows from investment activities				—		11.652.690
Cash flow from (used in) investment activities				(8.249.852	)	507.461
Cash flows from (used in) financing activities
Loan repayments				—		(11.767.556	)
Interest paid				(1.027.865	)	(1.465.369	)
Cash flow from (used in) financing activities				(1.027.865	)	(13.232.925	)
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS				3.186.467		(538.032	)
EFFECTS OF EXCHANGE RATE VARIATIONS ON CASH & CASH EQUIVALENTS				(1.708.378	)	1.695.182
CASH & CASH EQUIVALENTS AT START OF THE PERIOD				21.655.721		34.271.600
CASH & CASH EQUIVALENTS AT CLOSE OF THE PERIOD		(5)		23.133.810		35.428.750

 

The accompanying Notes 1 to 20 form an integral part of these interim financial statements.

 

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EMBOTELLADORAS COCA-COLA POLAR S.A. AND SUBSIDIARIES

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE PERIODS OF THREE MONTHS AND A YEAR ENDED

ON MARCH 31, 2012 AND DECEMBER 31, 2011

 

NOTE 1 - CORPORATE INFORMATION

 

1.1                     General

 

Embotelladoras Coca-Cola Polar S.A. (“Coca-Cola Polar” or “the Company”) and Subsidiaries (“the Group”) is the owner of franchised bottlers of The Coca-Cola Company in Chile, Argentina and Paraguay. Each territory has a separate and independent franchising agreement with The Coca-Cola Company covering the production and distribution of the products of the Coca-Cola brand.

 

Coca-Cola Polar operates Coca-Cola franchises in Chile’s II, III, IV, XI and XII Regions.

 

Coca-Cola Polar Argentina S.A. attends the franchises of the provinces of Santa Cruz, Neuquén, El Chubut, Tierra del Fuego, Rio Negro, La Pampa and the western part of the province of Buenos Aires.

 

Paraguay Refrescos S.A. has the franchise for the whole of the Republic of Paraguay.

 

The franchises for these territories operate for renewable periods of 5 years. The next renewal period of these franchises is in 2014.

 

The parent Embotelladoras Coca-Cola Polar S.A. is an open corporation regulated by the Superintendency of Securities and Insurance (“SVS”) and is registered in the Securities Register in Santiago, Chile under No.0388. The Company’s shares are traded in the Chilean stock market.

 

Embotelladoras Coca-Cola Polar S.A. is domiciled at Avenida Nueva Tajamar 481, 4th floor, South Tower, Las Condes, Santiago, Chile and its tax registration number is 93.473.000-3.

 

The board approved the interim consolidated financial statements as of March 31, 2012 at its meeting held on May 30, 2012.

 

1.2                     Merger of the Company

 

According to the information reported to the SVS on March 30, 2012, Embotelladoras Coca Cola Polar S.A. (“Kopolar”), and its controllers, and Embotelladora Andina S.A. (“Andina”), and its controllers, signed a merger agreement whose main provisions were as follows:

 

a)              To merge Kopolar by incorporating in Andina (“Merger”). Kopolar will be dissolved and will therefore transfer to Andina all of its assets and liabilities, and the shareholders of Kopolar receiving as the sole consideration 0.33269 Series A and 0.33269 Series B shares in Andina for each share of Kopolar (“Exchange Ratio”), issuing for this purpose 186,304,194 new shares of Andina, which will represent 19.68% of the total shares into which the capital of Andina will be divided following the Merger (the “Merger Shares”).

 

b)             A public deed of formalization will be signed declaring that the Merger has been completed on the date of such deed. The signing of the Formalization Deed will be subject to compliance or renunciation, as the case may be, with the following Conditions Precedent: (i) that all the permits and authorizations necessary for the completion of the Merger and others required by law, regulations, by—laws and/or contracts signed by Andina or Kopolar are obtained promptly; (ii) that the authorizations of The Coca-Cola Company (“KO”) be obtained promptly to carry out the Merger; (iii) that, except for the Merger Shares, the number of shares in twhich the capital of Andina is divided remains unchanged, as well as their preferences and shares in which the capital of Kopolar is divided; (iv) that there is no official order or legal proceedings brought by third parties in order to obstruct the validity or detain the Merger process which the Parties believe has some possibility of success; and (v) that the right to withdraw that shareholders of Andina and of Kopolar might exercise due to the Merger does not exceed 5% of the total shares issued with voting rights of Andina or Kopolar prior to the Merger, as may be the case.

 

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c)              The Merger Agreement should be completed and the Formalization Deed signed no later than August 31, 2012 provided that, during that term, the Conditions Precedent have been met or renounced, as the case may be.

 

d)             The following will serve as a basis for the Merger: (i) the expert merger report as referred to in article 99 of the Corporations Law 18,046, (ii) balance sheets of Andina and Polar as of March 31, 2012, audited by their respective auditors, and (iii) the merged balance sheet of Kopolar and Andina.

 

e)              The board of Andina will distribute the Merger Shares among the shareholders of Kopolar prorated to the shares each has registered in their name in the shareholders register of 5 days prior to the date from which the Exchange Right can be exercised.

 

f)                Prior to completing the Merger, and subject to the approval of their shareholder meetings, Andina and Kopolar will distribute dividends to their respective shareholders, in addition to those already declared and distributed, of Ch$28,155,862,307 and Ch$29,565,609,857 respectively, which represents Ch$35.27 per A share and Ch$38.80 per B share in the case of Andina and Ch$105.59 per share in the case of Kopolar.

 

g)             The Parties agree to submit to Chilean law and to resolve any matter arising from the Merger Agreement through arbitration (“árbitro mixto”).

 

NOTE 2 - ACCOUNTING CRITERIA APPLIED

 

a)     Accounting Period

 

The interim consolidated financial statements cover the following periods:

 

·	Interim consolidated statements of financial position:		Ended March 31, 2012 compared to December 31, 2011.
·	Interim statement of comprehensive income & statement of cash flows:		For the periods ended March 31, 2012 & 2011
·	Statement of changes in equity:		Balances & movement between January 1 & March 31, 2012 & 2011, and December 31, 2011.

 

b)    Preparation

 

These interim consolidated financial statements of Embotelladoras Coca Cola Polar S.A. have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (“IASB”).

 

The accounting policies have been applied uniformly in all the periods compared in these interim consolidated financial statements.

 

These interim consolidated financial statements have been prepared under the historic cost principle, except for financial assets valued at fair value through profit and loss.

 

The figures included in the accompanying consolidated financial statements are expressed in thousands of Chilean pesos, the Chilean peso being the Company’s functional currency.

 

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c)     Consolidation

 

Subsidiaries are all the entities over which Embotelladoras Coca-Cola Polar S.A. has the power to govern their operative and financial policies. The subsidiaries are consolidated from the date on which control is transferred to the Group and are discontinued from the date on which the control ceases.

 

The group uses the purchase method to book the acquisition of a subsidiary. The cost of an acquisition is determined as the fair value of the assets received, and equity instruments issued and liabilities incurred or assumed on the date of exchange. The identifiable assets acquired, and the liabilities and contingent liabilities assumed in a combination of businesses, are valued initially at their fair values of the date of acquisition, regardless of the size of any minority interest. The excess of the cost over the fair value of the Group’s participation in the net identifiable assets acquired is recorded as goodwill. If the cost is less than the fair value of the net assets of the subsidiary acquired, the difference is recorded immediately in the statement of comprehensive income.

 

Transactions, balances and unrealized gains between Group companies are eliminated. Also eliminated are unrealized losses unless the transaction shows impairment in the value of the asset transferred. The accounting policies of the subsidiaries have been modified as necessary to ensure uniformity with the policies adopted by the Group.

 

The following are the companies included in the consolidation:

 

						Interest Percentage
												December
				Country		March 2012						2011
Tax ID No.		Name		of Origin		Direct		Indirect		Total		Total
96.928.520-7		Transportes Polar S.A.		Chile		99,99		—		99,99		99,99
96.971.280-6		Inversiones Los AndesLtda.		Chile		99,99		—		99,99		99,99
Foreign		Coca-Cola Polar Argentina S.A.		Argentina		5,00		95,00		100,00		100,00
Foreign		Paraguay Refrescos S.A.		Paraguay		0,08		97,75		97,83		98,00
Foreign		Kopolar Refrescos S.A.		Paraguay		—		—		—		100,00
Foreign		Aconcagua Investing S.A.		British Vírgin		0,71		99,29		100,00		100,00
				Islands

 

d)      Foreign currency translation

 

·                  Functional and presentation currency

 

The items included in the financial statements of each of the Group companies are shown in the currency of the primary economic environment in which the Company operates (functional currency). The consolidated financial statements are shown in Chilean pesos which is the functional currency and the parent’s presentation currency.

 

·                  Transactions and balances

 

Foreign currency transactions are translated to the functional currency using the exchange rates on the dates of the transactions.

 

Gains and losses from exchange differences resulting from the payment of such transactions and the translation at each period’s closing exchange rate of monetary assets and liabilities denominated in foreign currency are recorded in the statement of comprehensive income.

 

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The exchange rates and amounts outstanding at the close of each period are the following:

 

Date		Ch$ / US$		Arg$ /US$		GS/ US$		Ch$ / UF
March 31, 2012		487,44		4,38		4.275,00		22.533,51
December 31, 2011		519,20		4,30		4.400,00		22.294,03
March 31, 2011		479,46		4,05		4.070,00		21.578,26

 

·                  Group companies

 

The results and financial position of all the Group entities (none of which operates in a hyper-inflationary economy) which have a functional currency other than the currency of presentation are translated as follows:

 

a)              Assets and liabilities are translated at the exchange rate on the date of closing;

 

b)             Revenues and expenses in each statement of results are translated at the monthly average exchange rate; and

 

c)              All exchange differences resulting from (a) and (b) above are recorded as a separate component of equity.

 

The Group companies having a functional currency other tan the currency of presentation are:

 

Company		Functional Currency
Coca Cola Polar Argentina S.A.			Argentine pesos
Paraguay Refrescos S.A.			Guaranies

 

For the purposes of consolidation, exchange differences that arise from the translation of the net investment in foreign entities, debt and other monetary instruments designated as hedges for such investments, are recorded in equity (other comprensive income).

 

When a foreign investment is realized, such exchange differences are recorded in the statement of comprehensive results in the respective period.

 

Goodwill and adjustments to fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the exchange rate on the date of closing.

 

e)     Investment in Associates

 

Associates are all entities over which the Group exercises significant influence. Investments in associates are recorded using the equity method. The Group’s investment in associates considers the goodwill identified at the time of the acquisition (net of any accumulated loss for impairment).

 

The Group’s interest in the earnings or losses following the acquisition of the associates is recorded in the statement of comprehensive income. Movements in the equity reserves of associates occurring after the acquisition are recorded in the Company’s equity reserves.

 

When the Group’s interest in the losses of an associate is equal to or exceeds its interest in the equity of the associate, including any unsecured account receivable, the group does not book any additional loss unless it has incurred obligations or made payments on behalf of the associate.

 

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Unrealized earnings on transactions between the Group and its associates are eliminated in proportion to the Group’s interest in the associate.  Also eliminated are unrealized losses unless the transaction shows impairment in the value of the asset transferred. The accounting policies of the associates have been modified as necessary to ensure uniformity with the policies adopted by the Group.

 

f)     Goodwill

 

Goodwill represents the excess between the acquisition cost and the Group’s interest in the fair value of the net identifiable assets of a subsidiary or associate on the date of acquisition.

 

In the case of the acquisition of subsidiaries, this excess is treated as goodwill, while in the acquisition of associates it is considered as part of Investments in associates recorded using the equity method.

 

Goodwill is not subject to amortization. Its impairment is tested annually and if it exists it is recorded as a loss in the statement of comprehensive income. To assess its impairment, it is assigned to the cash-generating unit, which represents the Group’s investment in the country where it operates.

 

In the event of the disposal of the investment, the goodwill forms part of the total cost of the investment.

 

g)    Intangible Assets

 

·      Rights

 

These relate to premiums paid by the Argentine subsidiary related to the acquisition of territories and acquisition of rights to market and distribute products of the Benedictino brand made by Embotelladoras Coca-Cola Polar S.A.

 

The rights are recorded at historic cost and are not subject to amortization as their useful lives are indefinite.

 

Their impairment is tested annually and if it exists it is recorded to the statement of comprehensive income. To evaluate its impairment, it is assigned to the cash-generating unit, which represents the Group’s investment in the country where it operates or the specific category that originated it.

 

·      Software

 

Software licenses acquired are capitalized based on the costs incurred in acquiring or placing in use the specific computer program. These costs are amortized over the term of their estimated useful lives.

 

Costs associated with the development or maintenance of computer programs are recorded as an expense in the period in which they are incurred. However, disbursements directly associated with the production of “specific and identifiable” computer programs controlled by the Group, and which will generate economic benefits over and above their costs for more than a year, are recorded as intangible assets. The direct costs include the costs of the employees who develop the computer programs and a portion of the corresponding indirect costs.

 

h)    Property, Plant and Equipment

 

The Company records the property, plant and equipment goods at their historic cost (which includes the attributed cost determined by revaluations made in accordance with IFRS 1, First adoption), less accumulated depreciation. The historic cost includes all disbursements made that are directly attributable to the acquisition of the assets.

 

Financing costs attributable to the construction of property, plant and equipment are capitalized at their cost until the date when they are ready to be used.

 

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Subsequent disbursements related to the maintenance and repair of assets are recorded as expenses in the period in which incurred. However, there are future disbursements (additions or improvements) that are included in the value of the asset or recorded as a separate asset, when the following conditions are met:

 

·                  that these assets will generate future economic benefits for the company; and

·                  that the cost of these assets can be measured reliably.

 

The residual values and remaining useful lives of the assets are reviewed and adjusted if necessary at the end of each period.

 

The depreciation of property, plant and equipment is calculated using the straight-line method over the remaining useful lives of the respective assets. The useful lives determined by types of assets are as follows:

 

Assets		Range years
Buildings		40 - 80
Plant & equipment
Machinery		15 - 20
Transportation equipment		10
Computer equipment		3
Motor vehicles		10
Other property, plant & equipment
Market assets		8
Crates & bottles		4 - 8

 

Gains and losses on sales of property, plant and equipment relate to the difference between the proceeds of the transaction and the book value of the assets, which are shown in the statement of comprehensive income in the period in which they are realized, in other revenue or Other expenses, as the case may be.

 

i)      Impairment of Non-Financial Assets

 

Assets that have an indefinite useful life and are not subject to amortization are tested annually for impairment of their value. Assets subject to amortization are tested for impairment when economic events or changes occur that indicate that their value may not be recoverable. When the book value of an asset exceeds its recoverable value, a loss for impairment is recorded in the statement of income and its amount is reduced to the recoverable value.

 

The recoverable value of an asset is defined as the greater of the net sale price and its value in use. The net sale price is the amount that can be obtained from the sale of an asset in a free market, less the costs of sale. Value in use is the present value of the estimated future cash flows to be generated by the continual use of an asset and by its disposal at the end of its useful life. The present value is determined by using a discount rate that reflects the present value of such cash flows and the specific risks of the asset. Recoverable amounts are estimated for each asset or, if not possible, for the cash generating unit that represents the smallest group of assets that generate independent cash flows.

 

The book values of non-financial assets other than goodwill that have been subject to write-downs for impairment are revised on each reporting date to check for possible reversals of impairment which, if any, are recorded as a gain in the period of such reversal.

 

j)      Financial Assets

 

The Company classifies its investments in the following categories: (a) financial assets at fair value through profit and loss, and (b) loans and accounts receivable. The Company has no financial assets classified as investments held to maturity, nor such assets available for sale. The classification depends on the purpose for which the financial assets are acquired. The management determines the classification of financial assets at the time of their initial recording and re-evaluates this classification on the date of each closing.

 

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·      Financial assets at fair value with changes to results

 

This category comprises financial assets acquired principally for being traded in the short term.

 

The financial assets defined in this category are valued at fair value, recording variations in this value to the statement of income.

 

·      Loans and accounts receivable

 

Loans and accounts receivable are non-derivative financial assets with fixed or determinable payments which are not quoted on an active market. They arise when the Group provides money, goods or services directly to a debtor without the intention to negotiate the account receivable. They are included in current assets, except for those with maturities of over 12 months from the date of the statement of financial position which are classified as non-current assets. Loans and accounts receivable are included in Trade and other accounts receivable in the statement of financial position.

 

The concepts included in this category are valued initially at their fair value. They are later recorded using the amortized-cost method based on the effective interest rate, recording financial income for the period between its recording and its payment. As the accounts receivable have very short maturities, the Company records them at their nominal value.

 

The Company evaluates at the date of each closing whether there is objective evidence that a financial asset or group of financial assets may have suffered losses through impairment. Indicators of possible impairment of accounts receivable include financial difficulties of the debtor, and the probability that the debtor is going to begin bankruptcy proceedings or financial reorganization or default or non-payment.

 

Should they exist, a provision is made to record the losses for impairment. The amount of this provision is the difference between the record value of the asset and the present value of the estimated future cash flows to be recovered, discounted at the effective interest rate. The record value of the asset is reduced through the provision and the amount of the loss is recorded as a charge to the statement of income. The later recovery of amounts previously recorded as impaired, are recorded as a credit to income in the period in which it occurs.

 

k)     Inventories

 

Inventories are recorded at the lower of their cost and net realization value, less an estimate for obsolescence. The net realization value is the estimated sale price in the normal course of business, less applicable variable sales expenses. The cost includes the purchase price plus necessary additional costs until the disposal of the products for sale, and is determined using the weighted average method. The cost of inventories subject to preparation processes includes the cost of raw materials, direct workforce and a general assignment of indirect manufacturing costs (on the basis of the normal operating capacity).

 

The estimate for obsolescence of inventories is made for those items whose realization ceases to be probable and is determined on the basis of an individual evaluation, considering the aging of the items stored and other pertinent information, all according to the judgment and experience of the management. The obsolescence determined is recorded directly in the comprehensive statement of income, with no provisions being made.

 

l)      Trade receivables

 

Trade debtors, as indicated in the accounting policy letter j b), are shown at their nominal value in view of their short term for payment, less the estimate of doubtful debts. The estimate of doubtful debts of trade debtors considers whether there is objective evidence that the Group may not collect all the amounts due according to the original terms of the accounts receivable. The amount of the estimate is recorded in the statement of comprehensive income.

 

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m)    Statement of cash flows

 

·      Cash and cash equivalents

 

The parent company and its subsidiaries have considered as cash and cash equivalents their available cash, time deposits and other short-term and highly-liquid investments with maturities of three months or less.

 

·      Classification of interest and dividends paid

 

Cash flow used in the payment of interest and dividends is shown in Net cash flow from financing activities.

 

n)    Trade payables

 

Trade creditors are initially recorded at their fair value and are later valued at their amortized cost using the effective interest-rate method.

 

o)    Interest-Bearing Loans and Debt Issue Obligations

 

Loans and debt issues are initially recorded at fair value, net of the costs incurred in the transaction. The obligations with third parties are then valued at their amortized cost. Any difference between the proceeds (net of the costs necessary for obtaining them) and the reimbursement value is recorded in the statement of results over the life of the debt according to the effective interest-rate method.

 

p)    Provisions

 

Provisions are recorded when the Company has a present, legal or assumed obligation as a result of past events, and there is a reasonable certainty that funds will be needed to pay the obligation.

 

The provisions are measured at the present value of the disbursements expected to be required to pay the obligation, using an interest rate that reflects current market conditions on the value of the money and specific risks of the obligation. The increase in the provision over the passage of time is recorded to interest expenses.

 

q)    Deposits in guarantee

 

Returnable crates and bottles are recorded in property, plant and equipment. For those that have been delivered to the sales channels for the marketing of its products, a financial liability is recorded to reflect the obligation to reimburse the deposits in guarantee made by customers. This financial liability is valued at amortized cost and is extinguished when the obligation is settled.

 

r)     Income and deferred taxes

 

The parent company and its subsidiaries have recorded their tax rights and obligations based on current legislation.

 

The charge for current tax is recorded in the statement of income and relates to income tax payable calculated on the taxable income for the year through the application of the tax rates current at the date of the statement of financial position, any adjustment to taxes payable of previous years and the effect of variations in deferred tax assets and liabilities.

 

The effects of deferred taxes are recorded for timing differences arising between the assets and liabilities for taxation purposes and their respective amounts shown in the financial statements. Deferred tax assets and liabilities are determined using the tax rates that have been promulgated at the date of the statement of financial position and which are expected to be applicable when the income tax asset is realized or the income tax liability is paid.

 

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However, deferred tax originating from timing differences arising from investments in subsidiaries and associates is not provisioned when the opportunity of the reversal of the timing difference is controlled by the Group and it is probable that the timing difference will not be reversed in the foreseeable future.

 

s)     Employee Benefits

 

·      Profit-sharing and bonuses

 

The Company has no contractual or obligatory incentive plans. However, there are incentives for the senior executives which are defined according to expected returns and individual performance, which form part of remuneration. These benefits are provisioned at the close of the period.

 

t)     Dividend distribution

 

The distribution of dividends to shareholders of the Company is recorded as a liability in the consolidated financial statements.

 

This liability is accrued when the dividends are approved by the shareholders meeting or are established by law (obligatory minimum).

 

u)    Operative segments

 

IFRS 8 requires entities to adopt “the management view” for disclosing information on the results of their operative segments. This is generally the information that management uses internally to evaluate the performance of segments and to decide on the assignment of resources. The following reportable operative segments have therefore been determined:

 

·                  Operation in Chile

·                  Operation in Argentina

·                  Operation in Paraguay

 

v)    Revenue recognition

 

Revenues consist of the fair value of the sale of goods and services, net of taxes and discounts.

 

Prior to revenue recognition, the Company considers the following criteria:

 

·      Sale of products

 

Revenues are recognized when all the significant risks and benefits of title to the goods have been passed to the buyer.

 

·      Interest

 

Revenue deriving from interest is recorded using the effective interest-rate method.

 

w)    Estimates and critical accounting criteria

 

The following shows the principal future assumptions and other relevant sources of uncertainty in the estimates at the date of closing, which might have a significant effect on the financial statements in the future.

 

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i)      Revision of book values of goodwill and provision for impairments

 

The Group annually tests whether goodwill has suffered any loss for impairment of value in accordance with the guidelines stated in IAS 36. The recoverable amounts of the cash-generating units have been determined by calculating their value in use. These calculations require the use of estimates for the preparation of the cash flows that include the projection of the level of the Group’s future operations, projection of economic factors that affect revenues and costs, and the determination of the discount rate to be applied to this flow.

 

ii)     Packaging guarantees

 

As disclosed in Note 2 q), the Company has an obligation to return funds received from customers with respect to packaging (crates and bottles) guarantees. This obligation is written down when it has been declared extinguished. The Company therefore considers that this obligation has been extinguished when a) customers return the packaging requesting the return of the deposit, or b) the packaging ceases to exist or is damaged. The valuation of this liability assumes that, in the absence of the occurrence described in a) above, the obligation will remain to the extent that it cannot be shown, through physical counts and other studies, that the packaging has ceased to exist.

 

x)               New IFRS and Interpretations of the IFRS (CFRS) Interpretations Committee

 

New standards, amendments and interpretations of obligatory application with effect from the financial statements for 2012

 

				Date of obligatory application
		New standards, interpretations & amendments		(financial statements starting in)
NIIF 1		First-time adoption of IFRS		July 1, 2011
NIIF 7		Financial instruments		July 1, 2011

 

These newly-issued standards, amendments and interpretations are not currently important for the Group.

 

New standards, amendments and interpretations issued but not in effect for the financial year starting January 1, 2012, and not adopted in advance.

 

NIC 12		Income tax		January 1, 2012
NIC 1		Presentation of financial statements		July 1, 2012
NIC 19		Employee benefits		January 1, 2013
NIIF 9		Financial instruments		January 1, 2013
NIIF 10		Consolidated financial statements		January 1, 2013
NIIF 11		Joint ventures		January 1, 2013
NIIF 12		Disclosure of participations in other entities		January 1, 2013
NIC 27		Separate financial statements		January 1, 2013
NIC 28		Investments in associates & joint ventures		January 1, 2013
IFRS 13		Measurement of fair value		January 1, 2013
CINIIF 20		Stripping Cost		January 1, 2013

 

The Company’s management believes that the adoption of the above-described standards, amendments and interpretations will have no significant impact on the consolidated financial statements of Embotelladoras Coca-Cola Polar S.A. and subsidiaries.

 

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NOTE 3 - FINANCIAL INFORMATION BY OPERATIVE SEGMENT

 

As indicated in Note 2 u), management has determined the operative segments based on the reports used for taking strategic decisions. Management mainly considers the business from a geographic perspective, the reportable operative segments therefore being:

 

·                  Chilean operation

·                  Argentine operation

·                  Paraguayan operation

 

All the reported operative segments obtain their revenues from the production and commercialization of Coca-Cola products, as mentioned in Note 1.

 

There are no customers that represent more than 10% of the Company’s revenues.

 

The following shows information on the different segments and their reconciliation with the financial statements of Embotelladoras Coca-Cola Polar S.A. and its subsidiaries:

 

		Chilean		Argentine		Paraguayan				Consolidated
		operation		operation		operation		Eliminations		total
		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$
For the period ended March 31, 2011
Ordinary revenue from extrernal customers, total		28.210.771		29.977.542		28.156.865		—		86.345.178
Ordinary revenue between segments, total		397.573		—		—		(397.573	)	—
Interest income, total segments		140.969		—		252.374		(137.778	)	255.565
Interest expense, total segments		(1.397.129	)	(76.166	)	(140.156	)	137.778		(1.475.673	)
Net interest income, total segments		(1.256.160	)	(76.166	)	112.218		—		(1.220.108	)
Depreciations & amortization, total segments		(1.377.331	)	(950.622	)	(1.486.031	)	—		(3.813.984	)
Sum of significant revenue items, total		13.722		2.527		31.520		—		47.769
Sum of significant expense items, total		(24.360.194	)	(28.286.777	)	(22.994.258	)	397.573		(75.243.656	)
Earnings (loss) of the segment which is being reported, total		1.628.381		666.504		3.820.314		—		6.115.199
Participation of the entity in the results of associates recorded under the equity method, total		122.103		—		—		—		122.103
Charge (credit) for income tax, total		(573.986	)	43.122		(206.619	)	—		(737.483	)
Assets of the segments, total		97.973.784		74.975.231		102.199.562		(5.633.690	)	269.514.887
Amount in associates & joint ventures recorded under the equity method, total		6.780.283		—		—		—		6.780.283
Disbursements of non-monetary assets of the segment, total segments		3.684.502		1.406.759		3.953.331		—		9.044.591
Liabilities of the segments, total		135.484.519		29.661.045		13.728.755		(5.633.688	)	173.240.631

 

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