RA_AmBev_2006_ING:AmBev Final 02.05.07 11:51 Page 1
We are the largest private consumer goods company in Brazil and Latin
America's largest brewer, with operations in 14 countries in the three
Americas. Our results have been mounting, with solid improvements
in profits and cash generation based upon management practices that
ensure the efficiency and sustainability of our businesses.
Although we are a relatively young Company, created in 1999, nevertheless
we have over a century of experience through the merger of the Brahma
and Antarctica breweries, which joined together to grow and expand their
frontiers of operation. We also have been active in Canada since 2004,
where we acquired control of the Labatt brewing company. And in 2006,
we concluded the control of Quinsa, which has operations in the South
American Southern Cone region, a deal initiated in 2002 when we first
took an ownership stake in the company.
We have Brazil’s largest beverages portfolio, containing winning brands
in the beer (such as Skol, Brahma, Antarctica and Bohemia) and soft drinks
(notably Guaraná Antarctica, produced from fruit grown in the Amazon
Region, Pepsi-Cola and H2OH!) segments, as well as the Gatorade isotonic
beverage and Fratelli Vita water. We also are market leaders in Argentina
with Quilmes Cristal, in Bolivia (Paceña), in Paraguay (Brahma) and Uruguay
(Patrícia). In 2006, 30.8% of our EBITDA was obtained through our Hispanic
Latin American (HILA) and North American operations.
4. Highlights
6. Message to shareholders
10. Map of Operations
12. Brands
16. Innovation
20. Beer Brazil
24. Soft Drinks and Nanc Brazil
28. Hispanic Latin America (HILA)
32. North America
36. Strategic LeversExecution
Distribution
Cost Efficiencies
Financial Discipline
Culture
46. AmBev People
52. Social Responsibility
60. Environmental Responsibility
64. Corporate Governance
69. Shares as an Investment
70. Recognition and Awards
72. Our Team 2006
74. Financial Statements
Table of Contents
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2002 2003 2004 2005 2006
7,325
8,684
12,007
15,95917,614
0
5
10
15
20
0,0
0,5
1,0
1,5
2,0
2002 2003 2004 2005 2006
1,5101,412
1,162
1,546
2,806
37.0%35.4%
37.8%
39.5%
42.3%
2002
EBITDA (R$ million)
Margin EBITDA
2003 2004 2005 20060
1
2
3
4
5
6
7
8
2,7103,072
4,537
6,305
7,445
Beer Brazil51.3%
North America22.1%
HILA (2)15.7%
Soft drinksBrazil
10.3%Maltand by-products
Brazil 0.6%
Annual Report 2006 54 Highlights
2002 2003 2004 2005 2006 Change %
2006x2005
Income Statement
Net Revenues (R$ million) 7,325 8,684 12,007 15,959 17,614 10.4%
Gross Earnings (R$ million) 3,984 4,640 7,226 10,216 11,665 14.2%
General and Administrative Expenses (R$ million) 1,933 2,334 3,611 5,174 5,409 4.5%
EBIT (R$ million) 2,051 2,306 3,615 5,043 6,256 24.1%
Net Earnings (R$ million) 1,510 1,412 1,162 1,546 2,806 81.5%
Balance sheet
Total Assets (R$ million) 12,381 14,830 33,017 33,493 35,645 6.4%
Cash and cash equivalents (R$ million) 3,505 2,534 1,505 1,096 1,539 40.4%
Total Debt (R$ million) 4,487 5,980 7,811 7,204 9,567 32.8%
Net Equity (R$ million) 4,130 4,363 16,976 19,867 19,268 -3.0%
Cash Flow and Profitability
EBITDA (R$ million) 2,710 3,072 4,537 6,305 7,445 18.1%
EBITDA Margin (%) 37.0% 35.4% 37.8% 39.5% 42.3% 2.8 p.p.
Capital Expenditures (R$ million) 545 862 1,274 1,370 1,425 4.0%
Return on Equity (%) 36.6% 32.7% 10.8% 7.8% 14.6% 6.8 p.p.
Share Information (R$/thousand shares)
Book Value (*) 107.94 115.07 258.97 304.03 302.39 -0.5%
Earnings per share (*) 39.48 37.23 17.72 23.65 44.04 86.2%
Dividends (ON) 12.40 23.14 20.86 23.07 19.76 -14.3%
Dividends (PN) 13.64 25.45 22.95 25.38 21.59 -14.9%
Payout of Dividends 35.01% 71% 114.0% 109.0% 54.5% -58 p.p.
Capitalization
Market Capitalization (R$ million) 19,686 26,392 40,424 53,646 64,109 19.5%
Net Debt (R$ million) 982 3,447 6,305 6,107 7,802 27.8%
Minority Stakes (R$ million) 79 196 219 123 223 81.6%
Shares in Circulation (thou.) (*) 38,258 37,913 65,553 65,346 63,719 -2.5%
Equivalent ADRs (thou.) (*) 382.6 379.1 655.5 653.5 637.2 -2.5%
Net revenues (R$ million)
HighlightsMAIN INDICATORS
(*)Values adjusted for the share bonus issued on May 31, 2005
Net earnings (R$ million) EBITDA and margin Breakdown of net revenues
Navegantes malt plant - Rio Grande do Sul
RA_AmBev_2006_ING:AmBev Final 8/8/07 6:21 PM Page 4
Continuous and Sustainable Growth
We posted solid results in 2006. The performance for the year
demonstrated our capacity to grow in a sustainable manner in distinct
market situations and achieve efficiencies in competitive environments,
complying with our vocation of truly being a Company of the Americas.
Our consolidated net revenues totaled R$ 17,613.7 million, 10.4% higher
than the previous year, while the EBITDA and net earnings rose at an even
quicker pace: 18.1% and 81.5%, to R$ 7.444.6 million and R$ 2,806.3
million, respectively.
Message toshareholders
1 - Carlos Brito
Co-Chairman of the Board of Directors
2 - Victorio Carlos De Marchi
Co-Chairman of the Board of Directors
1 2
The combination of our growth
levers explains the success of 2006’s
performance. We took advantage
of market opportunities, supported
by innovation and the reinforcement
of our brands, a passion for execution,
cost efficiencies, financial discipline
and people motivated to permanently
exceed results
81.5%Net earnings growth
6 Message to shareholders
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:37 Page 6
Carlos Brito
Co-Chairman of the Board of Directors
Victorio Carlos De Marchi
Co-Chairman of the Board of Directors
We are committed todedicating the effortand creativitynecessary to ensurethe sustained growthof our businesses andthe creation of valuefor shareholders,because we knowthat being well offtoday means we willbe around in thefuture
18.1%EBITDA growth
Annual Report 2006 98 Message to shareholders
Our main operations posted excellent results: 20.0% more EBITDA by Beer
Brazil, a 7.4% rise in North America, in Canadian dollars, and a 23.6%
at Quinsa, in American dollars, excluding the effect of the higher stake
of AmBev in Quinsa. The Brazil Soft drinks and Nanc (Non-Alcoholic and
Non-Carbonated) division was another highlight, with an EBITDA margin
of 33.6%, as were the sales of Quinsa’s soft drinks, with 25.5% higher
volumes. During the year, indirect taxes generated by the Company in
Brazil totaled R$ 8.1 billion.
The combination of growth levers explains the success we obtained during
the year. The reinforcement of our brands, rigorous execution of marketing,
sales and distribution plans, investments in innovation, cost efficiencies,
financial discipline and the motivation of our people were fundamental
to all operations.
In Brazil, our largest unit, we transformed the football World Cup into
a second summer and increased volumes. We took advantage of this
opportunity to capitalize on new consumption occasions during the
games, reinforcing our brands and intensifying the relationship with
the points of sales and the consumers and promoting the responsible
consumption of our products. This plan was developed during the year
prior to the World Cup competition, merging marketing, sales and
industrial strategies coupled with a deep market intelligence effort.
Focusing actions, we invested in the launch of limited editions of
innovative products – such as Brahma Bier and Guaraná Seleção –
and in creative campaigns and promotions, also emphasizing our position
as the Brazilian National Team’s official sponsor.
We likewise concentrated on innovations in the premium segment.
Examples included Chopp Brahma Black, along with technologies added
to Skol Geladona and a heat-sensitive label, as ways of opening up new
spaces and adding value to our brands. In the mainstream segment, the
highlight was Skol Lemon — part of a strategy to boost per capita
consumption. In the soft drinks segment, we launched H2OH!, a product
that achieved the greatest success of the past 15 years in Brazil and which
combines flavor, thirst-quenching and health elements.
In Canada, strict control of costs and application of best manufacturing
production practices led to a significant increase in the generation of cash
and profitability. Among the brands, particularly notable was the success
of Brahma’s launch, complementing our product portfolio in the region.
The operation’s challenge remains unchanged: the combination of a mature
industry and intense price competition requires great cost control discipline
to let us make heavier investments in the brands and obtain long-term
sustainable growth.
The good economic condition of the Quinsa region countries drove
consumption and we knew how to take advantage of this opportunity,
through gains in efficiency. During the year, we completed our acquisition
of control of the company, an action foreseen in the agreement signed
in 2002, raising our stake in the brewery’s capital stock from 56.72%
to 91.18%. The amount of the payment, totaling R$ 2.6 billion, was
partially covered by our record generation of cash and partly through the
local issue of non-convertible debentures in the amount of R$ 2.1 billion.
Our operations in the northern region of Latin America, which we call
HILA-ex, reported higher volumes. However, the results still are not
satisfactory. We have made major investments in the region over the past
three years, which are still in a phase of maturing, and we are building a
solid base for achieving higher profitability.
The year’s results confirmed that careful planning and disciplined
execution have definitively made a difference in our business. Thus,
we are reinforcing the commitment to dedicate our efforts and creativity
to ensure that AmBev’s capacity to grow and to create value for its
shareholders and other stakeholders will be continuous and sustainable.
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Brazil
Uruguay
Chile
Bolivia
Peru
Argentina
Ecuador
Venezuela
Canada
Paraguay
Dominican Republic
GuatemalaEL SalvadorNicaragua
Brazil – comprises (i) Cerveja Brasil; (ii)
Soft Drinks and Nanc (Non-Alcoholic and
Non-Carbonated) and (iii) the sale of Malt
and By-products
Net revenues: R$ 10,963 million
EBITDA: R$ 5,154 million
EBITDA Margin: 47.0 %
Beer market: 103.6 million HL
Total beer sales: 65.7 million HL
Total soft drink sales: 22.1 million HL
Hispanic Latin America (HILA) –
consists of (i) AmBev’s stake in Quilmes
Industrial, Quinsa, S.A. (“Quinsa”) and (ii) the
Hila-ex operations (breweries controlled by
AmBev in the North of Latin America)
Net revenues: R$ 2,762 million
EBITDA: R$ 791 million
EBITDA Margin: 28.6 %
Beer market: 68.3 million HL
Total beer sales: 21.4 million HL
Total soft drink sales: 14.3 million HL
North America – represents the
operations of Canada’s Labatt Brewing
Company Limited (“Labatt”)
Net revenues: R$ 3,888 million
EBITDA: R$ 1,500 million
EBITDA Margin: 38.6 %
Beer market in Canada: 22.5 million HL
Total beer sales in the domestic market:
9.1.0 million HL
Exports to the U.S.: 1.8 million HL
Map ofoperations
ArgentinaBeer market (mm HL) 15.9Per capita consumption (liters) 41.8Installed capacity Beer (in m HL) 14.1Installed capacity Soft Drinks (in m HL) 18.3
BoliviaBeer market (m HL) 2.7Per capita consumption (liters) 29.0Installed capacity Beer(in m HL) 3.6
BrazilBeer market (m HL) 103.6Per capita consumption (liters) 56.4Installed capacity Beer (in m HL) 100.6Installed capacity Soft Drinks (in m HL) 39.8
CanadaBeer market (m HL) 22.5Per capita consumption (liters) 69.3Installed capacity Beer (in m HL) 13.1
ChileBeer market (m HL) 5.4Per capita consumption (liters) 32.9Installed capacity Beer (in m HL) 1.1
EcuadorBeer market (m HL) 4.1Per capita consumption (liters) 30.8Installed capacity Beer(in m HL) 1.0
El SalvadorBeer market (m HL) 0.9Per capita consumption (liters) 12.9Installed capacity (in m HL) -
GuatemalaBeer market (m HL) 2.0Per capita consumption (liters) 15.3Installed capacity Beer (in m HL) 1.4
Nicaragua Beer market (m HL) 0.6Per capita consumption (liters) 10.6Installed capacity (in m HL) -
ParaguayBeer market (m HL) 2.1Per capita consumption (liters) 33.4Installed capacity Beer (in m HL) 2.4
PeruBeer market (m HL) 6.9Per capita consumption (liters) 24.4Installed capacity Beer (in m HL) 1.0Installed capacity Soft Drinks (in m HL) 3.5
Dominican Republic Beer market (m HL) 3.1Per capita consumption (liters) 34.3Installed capacity Beer (in m HL) 1.0Installed capacity Soft Drinks (in m HL) 3.2
UruguayBeer market (m HL) 0.7Per capita consumption (liters) 21.3Installed capacity Beer (in m HL) 1.3Installed capacity Soft Drinks (in m HL) 0.7
Venezuela Beer market (m HL) 23.9Per capita consumption (liters) 89.1Installed capacity Beer (in m HL) 3.2
Source: AmBev (capacities) and Euromonitor(market estimates and per capita consumption).
Annual Report 2006 1110 Map of operations
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Annual Report 2006 1312 Brands
Brands
A large and diversified portfolio, supported by permanent innovation,
allows us to offer products for different consumer profiles and
consumption occasions. We have beers, soft drinks, ready-to-drink teas
and mineral water to satisfy all preferences. We also invest in the
continuous development of our brands through creative and intriguing
campaigns, striving to keep them always fresh in the minds of consumers.
We seek consistent growth through positions that reinforce our ties with
consumers and strengthen the value of our brands.
Three of our beers are market leaders in Brazil and figure among the
world’s best-selling brands: Skol, in third place; Brahma, in fifth; and
Antarctica, which is 20th. Quilmes is Argentina’s most-consumed beer
and Labatt Blue is the Canadian beer with the greatest international
penetration. Moreover, we have the Guaraná Antarctica soft drink, a
refreshing and light beverage produced from an Amazonian fruit. With its
unique flavor, this beverage has won a place among the most consumed
soft drinks in the world. By category, our main brands are:
Beers
SKOL – The Brazilian market leader, a light beer identified with a young adult public, with innovation being one of its
main features. It was the first beer in the country to be packaged in a can, it launched the long neck concept and
introduced many novel ideas during 2006, such as Skol Geladona (a package that conserves the liquid at a colder
temperature for a longer period of time) and Skol Lemon, inaugurating a beer category containing fruit components.
BRAHMA – A brand that is synonymous with friends, identified with football and with Carnival, it has been produced
since 1888. Besides Brazil, it also is present in Paraguay as the main brand in that country, and also in more than 30
countries in the Americas and Europe. In 2006, it was produced in a special version for the football World Cup,
known as Brahma Bier, a type of helles based on a German recipe, while also innovating with Chopp Brahma Black,
extra creamy and cascading when poured into a glass.
ANTARCTICA – A classic pilsen beer, produced since 1885. It combines tradition and quality, being notable for its
aroma, taste and slight bitterness. It consolidated its position in the Brazilian market through the BOA Club (Official
Antarctica Drinkers Club), which has a large number of participants.
BOHEMIA – Brazil’s first beer, produced since 1853. It is the premium segment leader. Besides the pilsen type, there
are wheat (Bohemia Weiss), schwarzbier (Bohemia Escura) and abbey (Bohemia Confraria) versions.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:38 Page 12
We seek consistentgrowth, with positionsthat reinforce ties to consumers andstrengthen the valueof our brands
Annual Report 2006 1514 Brands
ORIGINAL – A beverage with a pronounced flavor, sold in the premium
segment. Created in 1906, its formula has been maintained until today
along with the original monolucid paper label. It is produced in small
quantities, earmarked for people who appreciate and value a traditional
tasting, superior quality beer.
SERRAMALTE AND POLAR – Brands distributed mainly in the south of
Brazil. These are beers with smooth aromas, flavors and a slightly bitter
taste that have won over faithful consumers in regional markets.
LIBER AND KRONENBIER – Non-alcoholic beers increase consumption
occasions. Liber is produced through technology that is new to Latin
America, which includes the use of special equipment to fully extract
alcohol from the beverage.
CARACU – A black, beer that is a type of stout that originated in Ireland.
It has been produced since 1899 and is known for its full-bodied taste
and energy. Because it is not filtered, it is more nutritious and contains
yeast and proteins.
QUILMES – Argentina’s most-sold beer, produced in more than 15 versions,
with Quilmes Cristal being particularly notable. Launched in 1888, the brand
name honors the location’s old indigenous name where the brewery was built.
PILSEN AND PATRÍCIA – Benchmark beers in the Uruguayan market. They
are full-bodied, strong and have a slightly bitter flavor.
BRAHVA – Sold in Central American countries, it maintains the same flavor,
shine, transparency and purity of Brahma. The brand name was decided on
after market surveys of consumers in the region.
LABATT BLUE – The most-sold Canadian beer in the world. Launched in
1951 with Labatt Pilsener, it was baptized as “Blue” by fans of the
Winnipeg Blue Bombers football team.
KOKANEE – A brand with a strong presence in British Columbia (Canada).
It is produced in the Kootenays Mountains. With a mixture of Pacific
Northwest hops, Kokanee delivers a smooth, clean and lightly hopped taste.
ALEXANDER KEITH’S – The most popular beer in Nova Scotia (Canada). It
uses balanced North American flavor and bittering hops to create a unique
malty flavor. Keith’s is smooth with a slightly floral hop character with a
sweet flavor delivery.
STELLA ARTOIS – An InBev international brand, a superpremium beer first
created in Belgium in 1366, and produced also in Brazil and Argentina.
It is made with very high quality of ingredients, and has a balanced and
strong taste.
Soft Drinks
GUARANÁ ANTARCTICA – The second best selling soft drink in Brazil, with
the unique flavor of the guaraná fruit that is grown in the Amazon Region.
PEPSI-COLA – We are the second largest PepsiCo bottler in the world. We
produce and distribute soft drinks in a number of companies in Latin and
Central America with a product line that includes the traditional Pepsi-Cola,
Pepsi-Twist, with its cola and lemon taste, Pepsi X, the first energetic soft
drink in the world, and Pepsi Max, with maximum taste and no sugar
H2OH! – Launched in Brazil in 2006, the beverage already was a success
in Argentina. It has a light taste of lemon, is slightly carbonated and contains
no sugar. It was developed in partnership with PepsiCo.
We also produce Sukita, an orange drink, Soda Limonada and Tônica
Antarctica.
Isotonics
GATORADE – The best selling isotonic sports beverage in the world, also
part of our alliance with PepsiCo.
Teas
LIPTON ICED TEA – Ready-to-drink tea segment world leader, produced
under franchise license in Brazil.
Water
FRATELLI VITA – Lightness is one of its main qualities, due to the low level
of dissolved salts.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:38 Page 14
16 Innovation
Innovation is one of the underpinnings of our business. It allows us to
deliver novelties to consumers, address as yet unsatisfied needs, increase
occasions for consumption and add value to our portfolio of products.
As part of this process, in 2006 we applied new technologies as well as
utilized the access to the know-how of our PepsiCo partnership. As a
result, we introduced new products to the Brazilian market, achieving
some of our main objectives: adding value to our brands, addressing the
premium segment and developing new consumption segments (increase in
per capita consumption).
We base our businesses on
innovation, leading us to always
offer novelties that satisfy consumers,
increase occasions for consumption,
develop other market segments,
address as yet unsatisfied needs and,
at the same time, add value to
our brands
Innovation
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Annual Report 2006 1918 Innovation
SKOL LEMON – Inaugurated a new beer category in Brazil, containing fruit
components. It is both refreshing and light, attributes that are appreciated
by consumers, especially during daytime consumption occasions. It follows
a strong worldwide trend as the first permanent initiative in decades for
mainstream segment diversification.
SKOL GELADONA – A can that keeps beer cold much longer thanks to heat
insulation technology new to Brazil that inhibits the passage of external
heat to the liquid. It uses the Cool2Go™* technology developed and
patented by DuPont.
CHOPP BRAHMA BLACK – A dark lager beer with novel characteristics:
extra creamy and a cascading visual effect when poured into a glass. The
effect is the result of a special manufacturing process in which carbon
dioxide and nitrogen are added to the liquid. Based upon two years of
research, its introduction into the superpremium market was accompanied
by technical adaptations to the draft beer equipment at points of sale and
the production of exclusive glasses, whose distinctive geometry emphasizes
the cascade effect and keeps the liquid at the ideal temperature.
BRAHMA BIER – A type of helles beer, developed from German recipes,
launched in a limited edition during the World Cup period. It has slightly
extra body and a more golden hue, developed to maintain the
characteristics of German beers while satisfying Brazilian taste standards.
The beer was produced from high quality hops grown in Germany and the
Czech Republic, as well as yeast imported especially from Germany.
BOHEMIA CONFRARIA – A limited edition of the first abbey-type beer in
Brazil, inspired in the historical recipes and records of Belgian monasteries.
The bottles are almost hand-made, offering a ceramic-like visual effect,
making each unit exclusive. The first edition was produced in 2005 and
was repeated in 2006 to satisfy the requests of consumers.
H2OH! – A lemon-flavored, sugarless and slightly gaseous beverage that
was launched in partnership with Pepsi. It takes advantage of a worldwide
trend toward healthy drinks, with consumption indicated for any time and
in any location. It also is an option for people who are following eating
control programs or seek correct and enjoyable daily hydration.
PEPSI MAX – Launched in Argentina, Uruguay and the state of Rio Grande
do Sul, this is a version of the traditional cola drink with maximum taste
and zero calories. It is aimed at young consumers who want a sugar-free
product that is not classified as a light beverage.
HEAT-SENSITIVE LABEL – A Skol novelty for the summer featuring a label
containing a transparent arrow that turns blue as of 4° C and shows
when the beer is at an ideal temperature for consumption.
PACKAGING – Besides the new products, innovative packaging also was
developed. One example in 2006 was Skol Redondaço, a pack
containing 28 cans and a carrying strap, placed in the market
especially for the World Cup and perfect for fans who wanted to
watch the games together with friends. The Skol Big Neck, a
bottle with the widest mouth and a screw-on top, originally
launched in São Paulo, was extended to other regions of
Brazil. For soft drinks, we introduced 1.5-liter PET bottles and
extended the 2.5-liter bottle to a number of regions.
Limited editions ofnew products markedour activities duringthe football WorldCup tournament.Innovative productsand packagingemphasized ouridentity as the officialsponsor of theBrazilian NationalTeam.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:38 Page 18
With estimated consumption at 103.6 million hectoliters of beer in 2006,
Brazil is the third largest beer market in the world in volume1. During the
year, our beer operation in Brazil contributed 51.4% of consolidated Net
Revenues and 60.2% of consolidated EBITDA, which totaled R$ 4,478.6
million, an increase of 20.0% compared to 2005.
We are the market leader, with a 69.3% share in December 2006 and an
average annual share of 68.8%, according to the ACNielsen survey. In an
increasingly more competitive environment, we were agile in ensuring a
greater market share, supported by consistent market intelligence. Yet
again, we posted solid results for the year, growing sales volumes by 5.1%
to 65.7 million hectoliters. This increase reflected the good performance
of our mainstream and premium brands, driven by strong investments in
innovation, integrated planning between the marketing and commercial
areas and understanding of the market’s regional characteristics.
In Brazil – our main operation – we
maintained our leadership position,
with a 68.8% average market share
in 2006. This performance, among
other reasons, was mainly due to our
speed of action in competitive
environments and a consistent and
continuous business intelligence
effort, reflected in our solid results
during the year.
51.3%Percentage of the Beer Brazil unit in TotalNet Revenues
20 Beer Brazil
BeerBrazil
1 Source: Euromonitor
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 20
0
10
20
30
40
50
60
70
80
6
26
60
80
2003 2004 2005 2006
Growth of the Brahma Chopp Kiosk
network (in units)
Annual Report 2006 2322 Beer Brazil
Our efforts on behalf of our brands had two main moments during the
year: the World Cup, during the first half of the year, and the emphasis
on premium brands, in the second half.
We transformed the World Cup in Germany into our second summer,
involving the entire AmBev team in the planning actions a year prior to
the beginning of competition. We combined innovation, communication,
trade marketing and promotions. Our launches included Brahma Bier, a
limited edition of a helles type beer based on German recipes, and Skol
Redondaço, a 28-can pack for fans who wanted to watch the World Cup
games with friends. Communication containing important and interesting
messages, backed by a meticulous media plan, ensured that Brahma was
the brand most tied in to the World Cup, according to a Datafolha survey.
Moreover, together with Skol and our Guaraná Antarctica soft drink,
Brahma also was one of the Top 3 in the preferred campaign. As a
promotion, we launched collectible Brahma Chopp glasses. Ronaldo, one
of Brazil’s main football players, headed up our campaign for responsible
consumption in advance of the World Cup.
We also strengthened client relationships by further highlighting occasions
related to the games. This ranged from decoration and support of TV set
purchases for watching the games to active telemarketing to prevent a
breakdown in stock control.
We invested in developing the premium segment, currently representing
approximately 6% of our Brazilian beer sales volume, which has grown at
a two digit annual clip over the past two years. Our brands are the best
sellers in the category, notably Bohemia and Original. Besides the new
products, with the second edition of Bohemia Confraria (an abbey-type
beer inspired in the recipes of Belgian monasteries), launched in ten
states, and the Brahma Black draft beer (creamier and with a special visual
effect when poured into a glass), we expanded the distribution of Stella
Artois to new regions of the country.
Other actions included the Boteco Bohemia, where consumers elect the
best appetizer served in the bars of São Paulo to accompany beer, and the
Circuito Original, consisting of a series of pocket shows promoting the
brand in São Paulo and Rio de Janeiro bars. We maintained our winning
strategies designed to boost per capita consumption at new consumption
occasions. Examples are the Brahma Chopp kiosk network – a franchise
for locations such as corridors at shopping centers, airports and bus
stations, which reached 80 units by the end of the year – and Chopp
Brahma Express, a draft beer product and equipment home delivery
service, now with seven shops around Brazil.
Another action front involved brand exposure strategies using large-scale
promotions such as Skol Beats, the largest electronic music event in Latin
America, and the Brahma Box at the Rio de Janeiro Carnival Parade, with
national and international celebrities in attendance. We made the WorldCup our secondsummer. Actionswere planned a yearin advance of thecompetition inGermany andinvolved productinnovations,campaigns andpromotions, assuringhigher sales andconsumer preference.
RA_AmBev_2006_ING:AmBev Final 8/8/07 6:28 PM Page 22
24 Soft drinks and Nanc Brazil
Soft Drinks and NANC volume growth
The combination of an improvement in point of sales execution field
work, innovation and reinforced brand communication led to another year
of growth for our Soft Drinks and Nanc (non-alcoholic and non-
carbonated) beverages in Brazil. Volumes rose by 9.0%, reaching a 17.0%
share of the Brazilian soft drinks market in 2006, according to an estimate
by AC Nielsen. And we confirmed AmBev as the most efficient soft drinks
operation in the world, with a 33.6% EBITDA Margin (31.4% in 2005).
Soft drinks andNanc Brazil
Our soft drinks operations once again
posted growth, reaching 17.0%
average domestic market share in
2006, according to AC Nielsen. One
highlight during the year was the
launch of H2OH!, a healthy and
refreshing alternative that won over
consumers
9%
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 24
Annual Report 2006 2726 Soft drinks and Nanc Brazil
33.6%EBITDA Margin of thesegment
22.6%Increase in volume ofGatorade
One of the year’s highlights was the launch of H2OH!, a lightly
carbonated, sugarless beverage that is a source of vitamin B and natural
lemon juice; in just four months, the drink achieved important market
share in the regions where it is sold. We considered this to be the greatest
success of the past 15 years in Brazil, the result of correct market positioning
aimed at consumers who seek healthy and refreshing beverage alternatives.
The product was developed in partnership with Pepsi and introduced in
Brazil in September 2006.
Another 2006 launch was Guaraná Antarctica Seleção, with a limited
edition for the World Cup. The brand, which was the official sponsor of
the Brazilian national football team, combined the flavor of the Amazon
fruit with a dash of other fruits, likewise distinctive for its pink hue. The
packaging also took on the World Cup spirit, displaying a special design
and strong and vibrant colors. The drawings printed on the cans and
labels were in Brazil’s national colors, while the 2-liter PET bottle was
produced in pearly green.
The World Cup also motivated two promotional campaigns, called Vista a
Camisa (Wear the Jersey) and Amor a Camisa (Love the Jersey). In the
former, the consumer exchanged bottle tops plus an amount of money for
exclusive Guaraná Antarctica shirts alluding to the World Cup or for
special stickers to customize them. The latter promotion involved
football jerseys inspired in the uniforms of the Brazilian
national teams of 1958, 1962, 1970, 1994 and 2002.
Each action was reinforced by advertising campaigns that
placed Guaraná Antarctica among the top three brands in
terms of consumer recall, according to a survey by
Datafolha (the other two also were AmBev brands: Brahma
and Skol beers).
Yet another highlight of the year was Gatorade, with novel flavors and a
new plastic package – which facilitates consumption in a greater number
of locations. One example is Gatorade Cool Blue, with a raspberry taste,
blue packaging and a graffiti-like visual treatment of the bottle. Isotonic
volumes rose 22.6% during the year, also a reflection of the new brand
communication, identifying new consumption opportunities for anybody
involved in physical activities, independent of their intensity. The beverage
also entered the World Cup climate through the launch of a special
colored bottle and label with the image of two Brazilian footballers,
Ronaldinho Gaúcho and Roberto Carlos.
With Pepsi, the second best selling cola in the country, we guaranteed the
brand’s good performance through an 11.4% increase in volume. We
wagered on the slogan, Risk More, Live More, summarizing the positioning
of innovative products that are aimed at younger consumers.
We are increasingly taking advantage of distribution and execution
synergies with our beer operations, and we are constantly seeking
opportunities to grow sales volumes and strengthen our brands.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 26
28 Hispanic Latin America (Hila)
6.2%Increase in revenues perhectoliter by Quinsa
We are active in 12 countries in South America, Central America and the
Caribbean through two operations: Quinsa, which covers five Southern
Cone countries – Argentina, Uruguay, Paraguay, Bolivia and Chile – and
HILA-ex, with Venezuela, Peru, Ecuador, Guatemala, the Dominican
Republic, Nicaragua and El Salvador.
In 2006, HILA revenues totaled R$ 2,762 million, 32.8% higher than the
previous year, combining strong Quinsa growth and a HILA-ex decline,
influenced by an extremely competitive environment. Quinsa registered a
rise in volumes (9.8% in beer and 25.5% in soft drinks) and 23.6% in
EBITDA in dollars, which excludes the increase of AmBev’s stake in Quinsa,
with a dollar increase in revenues per hectoliter of 6.2% over 2005. At
HILA-ex, despite a 3.2% volume increase, revenues fell 2.9%.
Hispanic LatinAmerica (HILA)
Net Revenues from Quinsa’s and
HILA-ex’s operations totaled R$
2,762 billion for the year, 32.8%
more than during the previous
period. At Quinsa, through which we
are active in five Southern Cone
countries, we expanded beer
production volume by 9.8% and
posted a 25.5% increase in soft
drinks volumes.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 28
Annual Report 2006 3130 Hispanic Latin America (Hila)
Northern LatinAmerica (HILA-ex)saw a 3.2% volumeincrease over theprevious period. Oneof the highlights wasthe sale of beer inPeru, reinforcedthrough the launchof products such asBrahma Beats
Quinsa
We recorded important growth in the Quinsa region, with higher volumes,
revenues and cash generation. The performance reflects the good economic
moment these countries currently are undergoing and the exchange of AmBev’s
best practices, which led to a high level of efficiency. Marketing and innovation
efforts, both for beer and soft drinks, also helped Quinsa expand volumes and
guarantee an 11.5% participation division in the consolidated EBITDA.
Soft drinks were the year’s biggest success story, with higher volumes in Uruguay
and Argentina, where we are PepsiCo franchisers. The performance was driven
by the launch of products such as Pepsi Max – a soft drink with an intense flavor
and zero calories – and 7UP Free, involving a concentrated effort at positioning
brands, new packaging and distribution efficiencies. It furthermore reflects the
acceptance of H2OH!, carbonated water with a lemon taste, launched the
previous year, and Gatorade, an isotonic beverage which counts Argentina as
one of its main world markets.
BOLIVIA was another highlight of the year. We had a solid, market leading
brand in Paceña, a premium beer, as well as Huari and strong regional
brands that reflect a local characteristic: habits and preferences differ
according to the altitude where the country’s cities are located (400
meters, 2,200 meters and 3,000-4,000 meters). Each region’s consumers
have a different preferred brand, with Paceña being a national benchmark.
The efforts on behalf of the brands constituted the main factor
responsible for driving sales during the year.
In ARGENTINA, , while Quilmes Cristal continued to be the absolute market
leader, Stella Artois carved out an important superpremium market
segment share after a launch that was consolidated over the course
of the year. And we also made gains with the launch of Quilmes Stout.
In CHILE, the launch of Brahma helped improve our second place position
in the local market. The brand was introduced without affecting the
performance of the other beers we sell in the country, such as Baltica
and Becker.
Brahma also turned in excellent results in PARAGUAY, where it has the
highest market share recorded in any country in the world.
In URUGUAY, our growth was assured through the Pilsen and
Patrícia brands.
The principle capital expenditures during the year were concentrated in
Argentina. We duplicated the capacity of our malt plant there and
expanded breweries to compensate the spin-off of the Luján facility as
part of a commitment assumed with the regulatory agency upon signing
an agreement acquiring our ownership stake in Quinsa.
HILA-ex
With the support of product launches, northern Latin American operations
(HILA-ex) recorded a 3.2% rise in volumes over 2005, with beer sales in
Peru and soft drinks in the Dominican Republic as highlights. However,
these countries still represent a challenge in terms of increasing margins
and earnings.
In Peru, where we began to operate in 2005, products new to the local
market such as Brahma Beats contributed to the performance. Containing
5.2% alcohol, the beer stood out because of its strong flavor and distinctive
packaging, with an exclusive design and transparent glass. The same bottle,
inspired by the Brazilian Skol Beats, also is used for Brahva Beats, our main
brand in Guatemala, launched in that country during the year.
Our operations in the region are quite recent. With the exception of
Venezuela, where we have been present since 1994, we only began our
activities in these countries as of 2003. That year we acquired soft drink
bottlers and initiated the construction of a brewery in Peru, we announced
a partnership with CabCorp – the main Central American Pepsi bottling
company – to build a brewery in Guatemala, and we purchased Cerveceria
SurAmericana in Ecuador. The following year we entered into association
with Embotelladora Dominicana for operations in the Dominican Republic
and Nicaragua.
In 2006 we reinforced the introduction of the best practices that constitute
our levers for growth, such as revenue and expense management, point
of sale distribution and execution and financial discipline.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 30
32 North America
Gains in the efficiency of our plants and execution at points of sale,
coupled with cost discipline, allowed the Labatt operation in Canada to
exceed all of the year’s cost, sales volume and cash generation targets.
Sales rose 0.7%, a substantial percentage in a mature and competitive
market, while the EBITDA ended the year at R$ 1,499.6 million, 4.6%
higher than in 2005 (in Canadian dollars, the EBITDA grew by 7.4%),
with a 38.6% margin.
This performance only was possible due to adoption of best practices,
with aggressive targets in all areas, financial discipline, cost awareness
and management of routines.
NorthAmerica
The Labatt operation in Canada
exceeded all of the year’s targets for
costs, volumes and cash generation.
This performance was due to gains
in efficiency, with the adoption of
best practices, financial discipline,
appropriate management of routines
and the maintenance of leaders who
remained focused on results
Rise in sales volumes
0.7%
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 32
34 North America
At the end of the year we introduced a commercial program that organizes
the sales process in a systematic manner. Furthermore, our five plants
were certified under the manufacturing excellence system, which was
key to obtaining 2006’s results. Thanks to AmBev’s economies of scale,
we also achieved efficiencies in the purchase of raw materials and inputs
and reduced general and administrative expenses through the support of
a Shared Services Center.
The introduction of Brahma was quite positive with sales higher than
initially planned. The brand complements our portfolio of products with
a beer in transparent packaging.
The second case of success was Bud Light, produced under license from
Anheuser-Bush. We concentrated our efforts on the brand, which
sponsors the professional hockey league, the most popular sport in
Canada, and our volumes grew by more than 40% over the previous year.
Hockey sponsorship also is part of the strategy of Labatt Blue, the most
traditional brand on the market, which supports amateur leagues
throughout the country and runs competitions on frozen lakes.
Regionally, we made significant gains in market share in Alberta province,
taking advantage of large local market growth driven by oil price increases.
Our strategy in North America is to increase efficiency gains and to
strengthen the brands, of which Budweiser, Bud Light, Kokanee, Keith’s,
Labatt Blue, Brahma and the global InBev brand, Stella Artois, are
highlights. We identified opportunities, especially in the light, premium
and imported segments. This is a strong and stable market, with strong
cash generation and major potential for value creation.
The cost per hectoliterof beer, in Canadiandollars, was reducedby 5.9%, thanks togains in manufacturingefficiencies and rawmaterials purchases
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:39 Page 34
36 Strategic Levers
Our focus on results is expressed in
all stages of work, beginning with
integrated planning between
marketing and sales that emphasizes
actions that are aligned with the
reality of each market. With the
involvement of all our professionals,
we create value, we satisfy consumers
and we assure our perpetuity
We support the sustainable growth of our business through a process that
combines the best brands, management practices and people. This
translates into financial discipline, cost awareness, passion for execution
and portfolio management. Our focus is on results, which are expressed
best in the creation of value as well as in consumer satisfaction, which
assures the Company’s perpetuity.
StrategicLevers
80%of the Company’semployees go out intothe streets as part of thePeople Who Sell program.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 36
Annual Report 2006 3938 Strategic Levers
ExecutionWe are passionate about our business and we demonstrate this in all
stages of our work. Through strict discipline and our own management
tools, we act in a manner that ensures that our products win over consumers
at the points of sale. Our marketing and sales planning is integrated to
enable us to act according to each market’s reality, and execution involves
the entire Company. Once a year, 80% of all employees, including directors,
participate in the People Who Sell program, going out into the streets to
observe the effort involved in selling our brands and to promote the
responsible consumption of our products. In 2006, small posters were
distributed to help raise awareness of the population regarding the risks
of drinking and driving.
Our sales teams begin each working day with a motivational meeting to
stimulate them and for the discussion of a detailed plan of work. There is
a regular routine to be followed at each point of sale, which is visited on
average one and a half times per week. The sales staff must check product
exposure and organization, advertising posters and other publicity materials,
etc. Using palmtop devices, they have access to a database on each
customer (order history, types of packaging, average prices, etc.), which
allows them to present customized proposals. Moreover, in some points
of sale we have installed specially developed refrigerators designed to
keep beer at the ideal consumption temperature (-5ºC).
Our objective is to maintain a close and solid relationship with our customers
and support the development of their businesses.
The points of sale also count on communications media such as magazines
and television programs aimed directly at bar owners and employees,
offering services such as training tips, guidance and practices for
increasing sales and winning over consumers.
DistributionOur growth also is the result of efficient distribution, with gains in
economies of scale and costs. In the regions where we operate we maintain
a structure for both direct distribution as well as an outsourced network,
using exclusive resellers.
Normally, the Direct Distribution Centers are active in the large cities and
supply the self-service networks, offering a complete beers and soft drinks
portfolio with, as a consequence, gains in cost reductions and execution.
Regarding resellers, we receive support from companies with deep
understanding of local markets, allowing us to place our brands in the
most distant locations of each country.
Through discipline andgood managementpractices, wemotivate our teamsto ensure ourproducts win overconsumers
The ExcellenceProgram stimulatesthe improvement ofthe distributors andawards the title ofambassador to thosethat are standoutsthree years in a row
Ambassadors - AmBev Excellence Program 2006Ambassadors - AmBev Excellence Program 2006
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 38
Annual report 2006 4140 Strategic Levers
We also encourage constant development of our resellers through the
AmBev Excellence Program that establishes performance standards and
stimulates exchange of best practices information. Distributors who
achieve excellence three years in a row receive the title of Ambassador.
These efforts are supported by a logistics system designed to quickly and
efficiently service each market. We use different transportation modes —
highways, railroads and waterways — and count on an exclusive routing
system that speeds up sales and delivery processes.
Cost efficienciesCost management is a true obsession for us. All units have adopted the
Zero Base Budget (ZBB), designed to encourage commitment to the control
of expenses and costs. Each year, challenging targets are established that
have no relationship with the expenses incurred in previous periods. Each
team is responsible for its own budget and each cost center has an owner;
meeting the targets is rewarded through a variable compensation system.
The cost management spirit is disseminated throughout the Company. The
Manufacturing Excellence Program identifies, disseminates and rewards the
best practices at all of the units. As a result, we have been able to improve
productivity and reduce raw materials consumption and waste.
Thus, we have become a world cost efficiencies benchmark. For example,
each year we reduce the consumption of water per unit produced. From
5.36 liters in 2002, we reached 4.30 liters in 2006. At many plants the
proportion is less than the industry benchmark (3.75 liters), totaling 3.49
liters at the Curitiba (PR) plant. We also are increasingly reutilizing solid
wastes generated by our industrial processes, attaining 98.1% a year. By-
products such as malt spent grains, residual yeast from beer production,
pulp from bottle labels, etc, are becoming a business. In 2006, industrial
waste sales totaled R$ 59.3 million.
Both lower water consumption as well as the utilization of alternative fuels
such as biomass (rice husks, sawdust and wood) and biogas demonstrate
our commitment to intensify efforts on behalf of the environment.
Our units arecommitted tocontrolling costs and expenses, andare rewarded for their efforts through a variablecompensation system
98.1%Reutilization of wastesduring the year
Our strategy also includes production of some of the inputs that we
consume. We own five malt plants (two in Argentina, two in Uruguay and
one in Brazil); a metallic bottle top factory and a pre-molded PET bottle
unit, both in Manaus, Brazil; a glass bottle factory in Paraguay, and four
solid aggregates units (corn grits in Guarulhos and Cuiabá, corn flakes in
Sergipe and degerminated corn in Corrientes, Argentina). We also have
plans to build a glass factory in Brazil in 2007.
We have captured substantial savings through the purchase of raw
materials and inputs, taking advantage of global negotiations, and in
general and administrative costs, using the AmBev Shared Services Center,
which centralizes macro-processes (such as accounting and accounts
payable and receivable). Today, we maintain two structures with several
employees fluent in at least two languages, which service all of our
operations: one, in Ontario, Canada, and the other in Jaguariúna, Brazil.
Reutilization of industrial wastes
94.9 95.8 96.5 96.8 98.1
20062005200420032002
0
20
40
60
80
100
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 40
Annual Report 2006 4342 Strategic Levers
We invested ingrowth while at thesame time presentedsustainable results,distributing attractivedividends toshareholders
By also focusing our attention on the Company’s cashflow, we achievedrecord cashgeneration in 2006
Financial disciplineOur main financial management focus in 2006 was the Company’s cash
flow, which began to receive the same level of attention as that given to
cost controls. We transferred all ZBB learning, such as the package
ownership, visibility and cost monitoring concepts, to cash management,
with much greater detailing of accounts receivable, accounts payable and
stocks. This priority also was important for the HILA-ex division after three
years of expansion, with more competitive plant construction and loan
refinancing rates in 2005.
As a result of this strategy, we also were able to enhance the value of our
shares traded on the stock exchanges as a Company that invests in
growth while, at the same time, delivers earnings and pays attractive
dividends. All available cash that is not invested back into the business is
returned to shareholders in the form of dividends (including Interest on
Own Capital) and share repurchases.
Thanks to this focus, we delivered another year of record cash generation,
making it possible to distribute R$ 3.6 billion to shareholders – R$ 1.8
billion in share repurchases, approximately R$ 400 million in dividends
referring to the 2005 fiscal year (paid in 2006) and R$ 1.4 billion in
dividends referring to the 2006 fiscal year.
In order to pay off the second stage of the acquisition of control of
Quinsa, we issued non-convertible debentures amounting to R$ 2.1
billion. It was the first time we conducted this type of operation, taking
advantage of a good moment for obtaining funds through the local
capital market. The issue was divided into two series, maturing in three
and six years and with quarterly compensation. The first series will mature
on July 1, 2009 with quarterly remuneration of 101.75% of the variation
of the CDI. The second series, maturing on July 1, 2012, will pay 102.5%
of the CDI on a quarterly basis.
The conditions of this operation reflect our solid capital structure. Our
Company is recognized by the Standard & Poors and Fitch rating agencies
in the Investment Grade category, making it possible to obtain funds on
the local and international capital markets at competitive costs.
CultureWe have our own unique culture that reflects how we do things and our
way of being. It is the sum-total of our aspirations, values, beliefs,
practices and management principles, and it guides our actions and our
behavior. This culture is present in the day-to-day running of the
businesses and is what distinguishes AmBev People.
Our Mission is to create enduring bonds with consumers through brands
and experiences that bring people together. We want to be recognized as
the best beverage company in the world. Thus, we understand that
sustainable and profitable growth depends upon our capacity to earn the
loyalty of our brands’ consumers.
We believe that our opportunities are as big as our dreams. And our
dream is to be the Best. This means be the most efficient, to have the
best brands and the best products, to be our customers’ best partner
and to have the world market’s most committed and capable people.
Our Values represent our guiding principles:
Our consumers come first – Consumers are the reason for everything we
do and we are partners with our clients and resellers in order to provide
them with superior quality service.
Our People make the difference – We attract, develop and maintain the
best people, we invest in our People, we support their continuous training
and we reward success.
We make things happen – We dream big dreams. We select challenging
targets and pursue major performances. We are focused on results. We
work hard and enthusiastically. We use our reserve tanks. We act like and
are recognized as owners.
We lead the way – We lead through personal example. We want to win,
but always respecting ethical practices. We adopt a zero tolerance policy
with regard to keeping our culture alive and we believe that our diversity
constitutes a fortress. We are present where things happen together with
our People, our clients and our consumers. We use up shoe leather to get
to know the details of our business.
62%
43%
71%
114%
2000
Dividends (R$ million)
(*) Value referring to the 2006 fiscal year, paid in 2007
Payout (% lucro líquido)
2001 2002 2003 2004 2005 20060
1000
2000
3000
4000
109%
0%
20%
40%
60%
80%
100%
120%
32%
55%
502998
1,327
1,692
1,408122*
292337
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 42
We think and act like owners – We must demonstrate passion and
responsibility, taking decisions and acting in the company’s long-term
interest as if it were ours. We act to ensure that our investment – our
Company – has growing and sustainable value.
We demonstrate leadership and we develop the best people – We must
lead our Company in the midst of changes that are occurring in order to
achieve extraordinary results and also to identify and develop our future
leaders. Having the right people in the right places doing the right things
will make a big difference in our journey from Biggest to the Best.
Annual Report 2006 4544 Strategic Levers
Our Competencies reflect our capacity to comply with our Mission and Vision:
We challenge ourselves to achieve extraordinary results – We must be
courageous, propose challenging targets, continuously seek to paths to
take, make our business grow and achieve exceptional success — without
compromising quality and our integrity.
We have in-depth knowledge of our business – We apply our knowledge
about our businesses, the industry and the company to create value for
our investors.
We build strong relationships and teams – Our capacity for teamwork and
the fact that we mutually trust and respect each other and maximize all
the resources available to us represent the key to our success.
We meet our targets the AmBev way: simply, focused and disciplined –
We will be rewarded for simplifying our business, for focusing our energy
and our resources on the Company’s biggest priorities and for building a
culture of discipline.
Our businesses andour behavior areguided by a culturethat emphasizesmanagement beliefsand principles anddemonstratesappreciation of our People
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 44
Our effort to train the best people
and compensate them in proportion
with their results creates a team that
is committed to its work and to the
business. Our professionals share our
desire to be recognized as the
world’s best beverages company
35,090total number of employees
Our People make the difference — because at AmBev people work and
defend the work that they do. They are pro-active, entrepreneurial
decision-makers and assume responsibilities. Through our ownership
culture, we encourage our professionals to give the best of themselves
and we work to train the best people, who grow at the speed their talent
permits and are compensated in the same proportion. Thus, we concentrate
on recruiting, training, motivating and maintaining the best professionals
in the market.
AmBevPeople
46 Ambev People
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 46
Annual Report 2006 4948 Ambev People
AmBev People (thousand employees)
Brazil 20.1
HILA-ex 4.6
Quinsa 7.3
North America 3.1
TOTAL 35.1
We encourage thebelief that there areno limits to growth,providing an informalenvironment thatleads to the constant exchange of information
Luiz FernandoEdmond, generaldirector for LatinAmerica, was in thefirst group oftrainees at AmBev,going through theprogram created in 1990
Our People make the difference — because at AmBev people work and
defend the work that they do. They are pro-active, entrepreneurial
decision-makers and assume responsibilities. Through our ownership
culture, we encourage our professionals to give the best of themselves
and we work to train the best people, who grow at the speed their talent
permits and are compensated in the same proportion. Thus, we
concentrate on recruiting, training, motivating and maintaining the best
professionals in the market.
At the end of 2006, we had approximately 35,000 people, with 20,000 in
Brazil alone. The average age of our people is 32 years old; yet, at the
same time, we have a group of more than 3,000 professionals who have
been with AmBev for more than 10 years, having previously worked at
Brahma or Antarctica and who have grown and developed with us, today
occupying important positions in the Company.
We are people who are identified with our culture and responsible for
maintaining and disseminating it, cultivating an informal manner of relating
with each other. No walls separate the AmBev departments into different
rooms, encouraging an exchange of information in the widest sense.
Each one of us understands that there are no limits to professional
growth. As befits a company with international operations, we offer
career opportunities in different areas and different countries.
The career path at AmBev is very fast, quicker than the market average.
For example, a trainee can reach a managerial position shortly after
completing a 10-month training period. For the internal people, we run
a Successors Program, designed to identify growth potential in a number
of areas. And it is each employee’s responsibility to train and qualify his
or her successor.
Recognition for meeting targets and goals is through variable
compensation for all employees, through a system that stimulates
operational excellence, collaboration and teamwork. In 2006, more
than 20% of our professionals in Brazil received promotions. High-
potential professionals with exceptional performances earn access to
a Stock Option Acquisition Plan.
Development
For us, learning is a continuous process. We conduct evaluations every six
months, followed up with a development plan to help our professionals
grow, identifying competencies that need to be supplemented. Investment
in training and instruction totaled R$ 18 million in 2006, involving some
5,800 employees just in Brazil.
The AmBev University coordinates this process, running special courses for
different job positions and functions, with undergraduate and post-
graduate scholarships offered by the Antonio and Helena Zerrenner
Foundation (FAHZ), one of the Company’s controlling shareholders. We
also operate TV AmBev, transmitted by satellite, combining the functions
of a communication channel and a tool for the transmission of knowledge.
Moreover, we offer the MBA AmBev course, designed to offer a systemic
vision of the Company’s businesses and its markets, which already has
graduated 274 professionals since 1995, when the former Brahma created it.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 48
We promote goodhealth and a betterquality of life for ourprofessionals becausewe understand thattheir well-being isdirectly linked to their motivation
Annual Report 2006 5150 Ambev People
Trainee and Talents Program
More than 500 people have already undergone the Trainee Program that
was created in 1990 by Brahma and is a main gateway into the Company.
Nearly 80% of the participants today occupy management posts, of which
28% have senior positions and 16 are directors — such as Luiz Fernando
Edmond, general director for Latin America, who was in the first group of
trainees. The program lasts ten months, without a specific number of
vacancies to fill — we hire all candidates who have an appropriate profile.
In 2006, we received about 30,000 trainee applications in Latin America,
selecting 31 young people to enter the program.
For those who apply as trainees and participated in the final stages of the
process but were not selected, we created the Talents Program. Lasting
three months, it represents an opportunity to polish these young professionals
and identify growth potential. During the year, we selected 60 talents,
who joined AmBev in January 2007.
People with disabilities
We introduced a program for hiring people with disabilities, which has
filled a number of job vacancies in the Company. In each one of our units,
the process is accompanied by professional training and preparation of
the professionals and the raising of awareness of the work teams to
encourage diversity and social inclusion. At the time of selection, the
candidates with disabilities receive treatment that is identical to all other
candidates, because the decisive criterion is to satisfy the specific
requirements of the position to be occupied.
Great Life Program
We believe that motivation goes together with good health. So we have
intensified the number of actions designed to foster the well-being and
improvement in the quality of life of AmBev People and family members.
The tool for this is the Great Life (“Vida Legal”) Program, which focuses
on promoting good health, preventing disease and following through on
the treatment of employees and family members affected by chronic illnesses.
The program is maintained by the Antonio and Helena Zerrenner Foundation,
which earmarked R$ 1.4 million for it in 2006.
All of the actions propose interactivity with the users and are supported
by a specific publication, the Mais Vida Legal newspaper. Articles are
accompanied by questionnaires and those who respond earn gifts through
the program, such as backpacks, shirts and tee-shirts. The program also
rewards professionals who meet monitoring targets, such as blood pressure,
sugar levels, weight loss, etc.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 50
52 Social Responsibility
We seamlessly merge striving for
profitability with social actions whose
main guideline is the responsible
consumption of our products,
and we implement environmental
practices that reduce the impact
of our operations. Thus, we reaffirm
a commitment to sustainability and
are contributing to improving the
quality of life in the regions in
which we operate
How to speak about the use of alcohol with yourchildren, subject of the People who Care program.
20,000Number of breathanalyzers donated sincethe program began
Our commitment to sustainability – of our businesses, of the regions in
which our units operate, of society in general – is revealed through
balanced economic, social and environmental actions. We permanently
strive for profitability through transparent and effective management that
assures competitive costs and great market penetration. At the same time,
we invest in projects and actions that encourage responsible consumption
of our products and are focused on education. Furthermore, we have
implemented an environmental control system that seeks to reduce the
impact of our actions, using eco-efficiency indicators that must be pursued
by all areas of the Company.
Social Responsibility
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 52
Annual Report 2006 5554 Social Responsibility
We promote anumber of initiativesthat make it possiblefor residents of theAmazon Region tofortify their economicactivities andenhance incomeand self-esteem
These practices led to the recognition of AmBev in 2006 as a model
company by Exame’s Guide to Good Corporate Citizenship (Guia Exame de
Boa Cidadania Corporativa) in Brazil, while in Peru we received the 2006
National Prize for Cleanest Production and Eco-Efficiency (“A la Producción
más Limpia y a la Ecoeficiencia 2006”), awarded by the Peruvian
government with the World Bank’s support.
Responsible Consumption
In tune with our core business activities, we have been running the
AmBev Responsible Consumption Program — a pioneering effort in Brazil,
Ecuador and Peru — since 2001 and have significantly contributed to
raising the awareness of society regarding the risks of combining drinking
alcoholic beverages and driving and of the necessity to comply with the law
that prohibits the sale of these beverages to minors. In 2006, we conducted
a number of activities in these fields.
During the Carnival period, we donated 2,500 disposable breath analyzers
to the São Paulo municipal government and 2,500 to the South/Southeast
Traffic Accident Reduction Program (PARE) in Rio de Janeiro. Through
2006, the Company has donated more than 20,000 disposable breath
analyzers in the states of São Paulo, Rio de Janeiro, Rio Grande do Sul
and the Federal District. Furthermore, we widely publicize responsible
consumption tips to users of the São Paulo, Rio de Janeiro, Salvador (BA)
and Recife (PE) airports. In the capital of Pernambuco, as well as in Olinda
(PE), we also made use of interactive memory games, such as “It’s more
fun to go and come back” and “I’m getting a lift.” In Salvador, Carnival
merrymakers were given temporary tattoos in the form of a boomerang
— the campaign’s symbol — to remind them to drink with moderation.
We also transmitted responsible consumption messages in all of the
events that we promoted or sponsored — including major regional ones
such as the large rodeo week at Barretos (SP). In some events we included
tests to enable consumers to evaluate whether they are within safe driving
limits, offering collective transportation to subway stations and urban bus
terminals as an alternative. Moreover, in a number of cases we signed
agreements with taxi cooperatives to ensure safe transportation home
for consumers.
Our concern regarding responsible consumption was apparent at Skol
Beats, the largest electronic music event in the world, with the
participation of some 60,000 persons during 2006’s edition. Besides
having promotors on hand to to orient the public on the subject and to
suggest alternative transportation, the Company also organized a virtual
educational game for consumers to be aware of the risks of drinking and
driving and we reinforced vigilance of the venue, ensuring that minors did
not gain entry into the event.
The points of sale also are involved in the initiatives. Nearly 350,000
establishments participated in the “Ask for their ID” campaign that
encourages owners and employees to check the ages of consumers before
selling them alcoholic beverages.
The Maués Project
By 2013, we will have invested more than R$ 61 million to support the
economic, social, cultural and environmental development of the Amazon
Region. These funds are being used both for increasing the productivity of
guaraná crops as well as to promote programs that create supplemental
income for farmers in the region. The Maués Project is the anchor
program, involving the renovation and expansion of guaraná plant
cultivation, the supply of seedlings and alternative income for farmers,
such as the planting of other fruits, sugarcane and manioc, as well as
poultry, sheep and beekeeping activities.
These actions were reinforced in 2003 with AmBev’s joining the state
government’s Green Free Zone Project. Among other initiatives, we
supported the creation of a seamstress cooperative and a textile factory
and we financed 1,300 public housing units in the rural district.
Furthermore, we took on the responsibility of creating and maintaining 12
agricultural production centers to orient farmers about best guaraná plant
growing techniques.
The Company’s Santa Helena Farm, where the world’s largest guaraná
genetic bank is located, conducts some of these initiatives. About one-
half of the property — which contains 1,070 hectares – is set aside for
cultivation of guaraná plants, respecting the region’s flora.
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Annual Report 2006 5756 Social Responsibility
Through partnershipswith stategovernments, we act to combat socialexclusion with literacyprograms and accessto college education
Recycling
Our efforts towards intensifying awareness about environmental
preservation and the search for new work and income producing
opportunities for the communities also have been translated into the
Solidarity Recycling Program - Cooperatives. It consists of the supply
of hydraulic presses and the running of recycling courses and workshops
for waste collectors organized into cooperatives throughout Brazil.
The idea is to minimize the structural problems of the activity, today
exercised in the country by more than 80,000 persons organized into
2,500 cooperatives.
This same concern guides the events sponsored by the Company so
much so that at the end of Skol Beats, 14 tons of recyclable materials
were collected and donated to the Vira Lata recycling cooperative.
AmBev also supported Recicloteca, Latin America’s largest center of
information on recycling and the environment, founded in 1991 by the
Ecomarapendi NGO and sponsored by AmBev since 1993. Located in
Rio de Janeiro, it runs workshops and professional training courses,
using its Recycling Ecospace gallery for exhibiting art produced using
recycled materials. In 2006, it was named a Green Salon by the Ministry
of the Environment, which issues this seal of approval to recognize institutions
that contribute to help make public access to publications and materials
about the environmental more democratic.
Recycling also has been the subject of a number of other campaigns
during the year, many of which involving AmBev People. To commemorate
International Environment Day, we encouraged all of our units to involve
their employees and family members, through the slogan, “You Also
Should Recycle.” The campaigns included lectures, competitions, group
waste pickup efforts, theater performances and recycling workshops,
among others.
Good People
In 2006, AmBev opened the doors of its units to orient employees and
the community regarding the appropriate use of beverages, in an event
known as Good People, held on August 31. Involving 19,000 Company
employees and about 25,000 employees of resellers from around Brazil,
directors of AmBev received representatives of city governments, schools,
NGOs and communities. In all of Brazil, more than 45,000 people watched
a video entitled “How to speak about the use of alcohol with your children,”
based upon a guide of the same name published by the Center for
Information about Health and Alcohol (CISA), an NGO supported by
AmBev. The guide has been distributed in public and private schools in
the state of São Paulo through the business of the organization’s
professionals. Through the Good People event, the Company’s proposal
was to disseminate the content of the guide throughout Brazil. The
representatives of the schools that attended received, along with the
guide itself, a copy of the video.
Education
Since 2004, when the government of the state of Bahia created it, the
University Student Project, maintained by the Antonio and Helena
Zerrener Foundation, has had our support. The objective is to combat
social exclusion by offering scholarships and financial resources that make
it possible for needy youths to have access to college educations. We
annually invest some R$ 600,000 in this initiative, which until now has
enabled 100 young people to enter universities and colleges in Salvador,
Vitória da Conquista, Feira de Santana and another 16 municipalities in
the Bahia hinterland.
Also together with the state government, we participate in the Alfa and
Beto Literacy Program run in Sergipe, where we invested R$ 1 million in
2005 and 2006, making the acquisition of school books and materials
possible for 5,000 grade school students in the public school network.
Moreover, we acquired Christmas cards for the Company from Ação
Comunitária Brasil, an organization that assists the low-income population
in greater São Paulo through social and educational activities.
Handicrafts on display at Espaço Reciclarte, madeout of aluminum cans and PET bottles.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 56
Annual Report 2006 5958 Social Responsibility
The institution also runs the Walter Belian Technical School in São Paulo
for children of AmBev employees and the community, which offers free
grade school, middle school and free vocational courses in the fields of
Graphic Arts, Industrial Information Technology and Industrial Chemical
Analysis in partnership with the SENAI- Zerrenner Foundation School. In
2006, the FAHZ invested R$ 7.3 million in the school, helping it assist
some 1,000 students.
Gol de Letra Foundation
AmBev also supports the Gol de Letra Foundation, a private non-profit
organization that was created by former football players Raí de Oliveira
and Leonardo Nascimento de Araújo, established in the city of São Paulo
in August 1998, in Niterói (RJ) in September 2001 and since 2005 has
been running social and the educational products in the city of Rio de
Janeiro’s Caju neighborhood
The Gol de Letra Foundation is recognized by UNESCO as a worldwide
model for helping needy children. AmBev collaborates with two of the
Foundation’s projects in São Paulo: Our History, and the Training of Library
and Game Mediators and Monitors.
Our History – Runs a series of educational products through
interdisciplinary actions, fostering reading and writing, art and
information technology, and fosters the development of attitudes based
on positive social values, stimulating autonomy to resolve conflicts and
group work. The project helps children from seven to 14 years of age and
involves their families in socio-educational activities, as well.
Community Library and Youth Training Program - It is focused on three
areas of action: to stimulate the habit of reading; to prepare young
people to act as mediators in the library and game room; and to assist
the local population through an educational space located in the
Community Library.
Antônio and Helena Zerrenner Foundation
A national benevolent institution that is part of the AmBev controlling
group, in 2006 the Antonio and Helena Zerrenner Foundation (FAHZ)
invested some R$ 83 million in benefits to the Company’s employees and
their dependents, today a contingent of some 53,000 beneficiaries
throughout the Brazil. This comprises a medical, hospital and dental plan,
supply of school materials for some 12,832 students and the distribution
of 21,059 hampers and 12,899 Christmas toys. It also awarded more than
1,300 scholastic scholarships in 2006 to AmBev employees for undergraduate
and postgraduate college courses, seeking to improve the quality of
AmBev People.
In São Paulo, it operates the 244-bed Santa Helena Hospital, which has 12
operating rooms, 59 emergency care beds and a Medical Center featuring
40 specialties.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:40 Page 58
Our Environmental Policy contains
a number of guidelines that seek
to combine growth with a reduction
in the impact of our operations.
It provides orientation to all units,
which maintain multidisciplinary
commissions to train all professionals
and to apply and follow-up our
eco-efficiency indicators
19.8%Reduction of water used to produce 1 liter of beer, between 2002 and 2006
We have had an environmental policy in place since 1997, which combines
economic growth with a reduction in the environmental impact of our
activities. It encompasses compliance with environmental legislation; the
adoption of technologies, inputs and processes that reduce environmental
interferences; the maintenance of a team concerned about promoting the
continuous improvement of the Company’s environmental performance;
the promotion and support of environmental education initiatives aimed
at customers, suppliers and the community; and the monitoring of each
phase of the production process.
All units have multidisciplinary environmental commissions that are
responsible for training AmBev People and following up the main eco-
efficiency indicators, such as water consumption, the use of renewable
energy sources and the reutilization of by-products. The rational use of
natural resources strengthens our commitment to care for the environment.
EnvironmentalResponsibility
60 Environmental Responsibility
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 60
Annual Report 2006 6362 Environmental Responsibility
2002 2003 2004 2005 2006
Energy consumption per unit produced (kwh/liter) 123.18 113.8 108.7 109.1 107.8Megajoules per hectoliter produced
Consumption of water per unit (beer and soft drinks) 5.36 4.88 4.37 4.21 4.30produced (HL/HL)
Consumption of fossil fuels – CO2 emissions 8.22 7.89 6.85 6.62(kg of CO2 per hectoliter)*
Rate of recycling and reutilization of materials in the process 94.9% 95.8% 96.5% 96.75% 98.1%
Revenues through the sale of solid wastes (R$ million)* 26.1 30.5 41 50.9 59.3
Water consumption
(liter/liter of beer)
0
1
2
3
4
5
6 5.36
4.88
4.37 4.21 4.30
20062005200420032002
Electric energy consumption (KWh/HL)
0
2
4
6
8
10 9.359.13
8.769.10
8.80
20062005200420032002
Reutilization of industrial wastes
94.9 95.8 96.5 96.8 98.1
20062005200420032002
0
20
40
60
80
100
(*) Through 2005, just Brazil; 2006 includes HILA-ex.
In our sales activities, we are concerned about reducing the level of
atmospheric emissions. In the large urban centers, our automobile fleets
have been converted to use natural gas as a fuel, replacing gasoline,
an initiative that merges cost economies with environmental benefits.
Water consumption
All of our plants respect The Water Commandments, an in-company
document that describes the standard procedures regarding sustainable
consumption of this resource, its progressive reduction and re-use,
through initiatives on two separate fronts: training and awareness;
and application of technologies, processes and installations.
Based on The Water Commandments, we have been able to continuously
reduce the use of water in our industrial processes, consequently producing
less sewage output. In 2006, we used an average of 4.30 liters of water
to produce a liter of beer, which was 19.8% lower than in 2002. Gains
were particularly notable at our plants in Curitiba (PR), Brasília (DF),
Camaçari (BA) and Agudos (SP), which, respectively, used 3.49, 3.63, 3.69
and 3.70 liters of water for the production of one liter of beer. With this
consumption, we exceeded the world beer industry benchmark of 3.75 liters.
Renewable energy sources
We have been striving since 2003 to diversify our energy matrix through
a search for renewable sources as a way to reduce the environmental
impacts caused by our activities and carbon dioxide (CO2) emissions.
We have been using eucalyptus and pine sawdust, coconut fibers and
rice husks as biomass to fuel boilers to generate heat at plants in Agudos
(SP), Lages (SC), Teresina (PI) and Cuiabá (MT). In Corrientes, Argentina,
we use sawdust as biomass and in a number of units there natural gas
has become the power source. This has led to savings of 29,500 tons of
oil, which also contributes to a reduction in greenhouse gas emissions.
With the support of new products, in 2006 we were able to record an
additional reduction of about 38,700 tons of carbon dioxide. This result
is in addition to the reduction of 94,146 tons already achieved in 2005,
totaling approximately 130,000 tons over both years.
Another highlight during the year was the substitution of 2 million cubic
meters of gas at our Jacareí (SP), Jaguariúna (SP), Jundiaí (SP), Guarulhos
(SP) and Juatuba (MG) plants by biogas, generated through an effluent
anaerobic treatment process at AmBev’s own facilities.
Reutilization of Wastes
Besides adopting measures to reduce the quantity of solid wastes at the
plants, we also seek to recover them, reutilize them and recycle them.
This allowed us to recover some 98.1% of this material companywide
in the form of by-products during 2006. In 12 plants, 99% of wastes
generated were reutilized.
Each year, we maximize the use of raw materials in the production
process. The objective is to avoid the waste of natural resources and to
improve productivity. Compared with 2002 we have been able to achieve
a 36% reduction in extract — composed of fermentable sugars derived
from cereals adopted in the beer production process — in a clear example
of the fight against waste. Among other actions, we encourage the
appropriate management of these inputs.
Some 95% of our units are fitted with Industrial Effluent Treatment
Stations (IETSs). They have the capacity to treat 200,000 cubic meters
of effluents and an organic load of 324,000 kilos of Chemical Demand
Oxygen (CDO) per day.
Environmental Performance Indicators
(*) Through 2005, just Brazil; 2006 includes HILA-ex.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 62
64 Corporate Governance
Transparent communication with
shareholders, adoption of best
practices for making decisions and a
focus on the alignment of objectives
are values that are embedded in our
corporate governance model. In
2006, the model was additionally
enhanced through conclusion of
processes adjusting them to the
Sarbanes-Oxley Act
Our corporate governance structure follows the highest global standards.
The relationship between the Company and its shareholders is based upon
transparent communication, guaranteeing best practices and management
focused on alignment with objectives.
Toward this end, during 2006 another step was taken in the process for
continuous improvement of internal controls leading the adjustment to
the requirements of the Sarbanes-Oxley Act (SOX).
CorporateGovernance
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 64
We have adoptedrotation of jobs andvariable compensationso that our leadershave experience in all business areas andpursue challengingtargets
Annual Report 2006 6766 Corporate Governance
BOARD OF DIRECTORS — Made up of nine members and two alternates,
each with a term of office through 2008, the Board of Directors defines
the general strategies that assure the success of both long-term objectives
as well as short-term competitiveness. Elected during a General Shareholders
Meeting for a term of three years, with the possibility of re-election, the
members’ attributes include, among others the selection of the executive
directors. One of their most important functions is to guarantee that
AmBev’s values, ethics and culture are practiced and disseminated to all
of the Company’s employees. None of the members of the Board is an
executive officer, in order to guarantee greater independence and autonomy
between the two main AmBev management bodies. Moreover, specific
committees support the Board’s actions, responsible for detailed analyses
of subjects under the Board’s jurisdiction.
The General Shareholders Meeting held April 20, 2006 elected three
members of the Fiscal Committee (FC), of which one was a representative
of minority shareholders. As foreseen legally, the term of office of the
members of the FC is one year, valid until the subsequent General
Shareholders’ Meeting. The Fiscal Committee’s independence, which in
our case also accumulates the function of the Audit Committee, under
the terms of the SOX, is guaranteed by the election of independent
members who have considerable autonomy.
OPERATIONS, PEOPLE AND MANAGEMENT COMMITTEE: Among its
responsibilities are analyzing, proposing and monitoring the Company’s
performance goals and budgets; and the following up of all Company
actions by analyzing results, marketing developments and permanent
internal and outside benchmaking.
COMPLIANCE COMMITTEE: It helps the Board of Directors analyze and
monitor the Company’s internal controls and fiscal profile and ensures
compliance with the legal, and statutory conditions of its operations
with stakeholders.
FINANCE COMMITTEE: Its support of the Board of Directors encompasses
the analysis and monitoring of the Company’s annual investment plan and
opportunities for external growth, as well as the capital structure, cash flow
and management of financial risks and treasury policy.
In tune with the objectives
AmBev’s top executives are experienced professionals who have been with
the Company an average of ten years. Periodically, the Company seeks to
rotate job functions, giving the leaders wider and effective experience in
all of the areas of our business. Variable compensation is another
guarantee that the executives and other employees are aligned with the
expectations of the shareholders. Linked to meeting challenging targets,
all employees are eligible for an annual bonus. Moreover, there also is an
option program for main executives that favors a long-term relationships
and greater commitment to the Company’s interests, targets and values.
Shareholders’ agreement
In December 2006, AmBev’s controlling ownership block comprised of
InBev and the FAHZ, held 89.1% of voting capital and 66.3% of the total
capital. The shares traded in the market represent 10.8% of voting capital
and 32.6 % of the total capital.
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 66
68 Corporate Governance Annual Report 2006 69
Shares as an investment
AmBev Shareholder Composition(1)
SOCIAL CAPITAL: R$5,716,086,764.25 represented by 64,458,212,043 book entry shares, of which 34,501,039,428 are common shares and
29,957,172,615 are preferred shares
OWNER COMMON % PREFERRED % T O T A L %
Interbrew International B.V.(2) 22,290,478,034 64.61 10,091,856,494 33.69 32,382,334,528 50.24
Fundação Antonio 5,522,991,293 16.00 763 0.00 5,522,992,056 8.57e Helena Zerrenner INB
AmBrew S/A(2) 2,910,987,990 8.44 1,601,281,469 5.35 4,512,269,486 7.00
InBev Participações Societárias Ltda(2) 0 0.0000 296,900,000 0.99 296,900,000 0.46
TOTAL CONTROLLING BLOCK 30,724,457,317 89.06 11,990,038,753 40.0 42,714,496,070 66.3
Instituto AmBev de Previdência Privada 1,919,034 0.0056 9,595,170 0.0320 11,514,204 0.0179
Others 1,888,214 0.0055 9,441.075 0.0315 11,329,289 0.018
Market 3,738,080,368 10.83 17,243,972,731 57.56 20,982,053,099 32.55
TOTAL SHARES IN TREASURY 34,694,495 0.10067 704,124,886 2.3505 738.819,381 1,1462
TOTAL 34,501,039,428 100.00 29,957,172,615 100.00 64,458,212.043 100,00
(1)Position on December 31, 2006 (2) Controlled by InBev S.A. / N.V.
19,686
26,392
40,424
53,646
64,109
200620052004200320020
10
20
30
40
50
60
70
80
Market capitalization (R$ million)We operate a numberof channels ofcommunication withinvestors to keepthem informed aboutthe guidelines andfundamentals of our businesses
Our shares are traded on the São Paulo Stock Exchange (ticker symbols
AMBV3 and AMBV4) and, as American Depositary Receipts (ADRs), on
the New York Stock Exchange-NYSE (ticker symbol ABV). Share performance
has shown sustained growth, with a rise in market value of 224.7% over
the past five years, ending 2006 with a market capitalization of R$ 64.1
billion (R$ 53.6 billion in 2005).
On the BOVESPA, preferred shares increased in value by 17.4% in 2006,
while the Ibovespa rose 32.7%, ending the year quoted at R$ 1,053.99.
The Company’s shares were traded during 100% of the exchange’s trading
sessions, with 111,728 total transactions involving 7.6 billion shares and
a financial volume of R$ 7.1billion.
On the NYSE, our ADRs appreciated 28.25% for preferred shares (ABV)
and 34.25% for common shares (ABVc), quoted respectively US$ 48.80
and US$43.90, compared to a 16.29% increase in the Dow Jones Index.
Total trading volume was US$ 6.2 million.
2001 2002 2003 2004 2005 2006
AMBV4 Ibovespa AMBV3350%
150%
50%
250%
-50%
ABV Dow Jones ABVc250%
150%
100%
0%
50%
2001 2002 2003 2004 2005 2006
-50%
Outside audit
Deloitte Touche Tohmatsu Auditores Independentes audited the financial
statements for 2006. The company has been responsible for AmBev’s
audit from 2004 to 2006, in compliance with the regulatory conditions
currently in effect.
Investor Relations
An open and frank relationship with investors is one of the important
elements of our corporate governance structure. We believe that this
dialogue is a significant means for creating shareholder value. Detailed
analyses, reports and quarterly conference calls make it possible for
owners of our shares to have a clear view of our businesses’ guidelines
and fundamentals. The investor relations channel on the Internet
publishes, among other relevant information, our annual reports according
to the rules of the Brazilian Securities Exchange Commission – CVM (IAN)
and the U.S. Securities Exchange Commission (20-F), the minutes
of the Board of Directors’ meetings during 2006 along with those of
the three General and Special Shareholders Meetings.
Stock performance on the Bovespa
Stock performance on the NYSE
RA_AmBev_2006_ING:AmBev Final 8/8/07 6:29 PM Page 68
Annual Report 2006 7170 Recognition And Awards
During the year, we received some awards that represented recognition of
our efforts toward the sustainable development of our businesses.
EXAME GUIDE TO GOOD CORPORATE CITIZENSHIP 2006 – We were
chosen a model company by the Exame Guide to Good Corporate
Citizenship, a publication designed to disseminate and encourage the best
social responsibility practices. The Company was chosen for promoting
responsible consumption of beverages and using eco-efficiency indicators
to guide its activities. AmBev also received the Environmental Highlight
Prize for its Environmental Management system, which is primarily focused
on the recycling of wastes, the use of alternative energy sources and
a reduction in the use of water for producing beverages. We also received
an honorable mention for sponsorship of the Recicloteca NGO and our
Zero Accident Program (PAZ).
EXAME BEST AND BIGGEST PRIZE 2006 – AmBev also was well placed in
the Best and Biggest - 2006 list published by Exame magazine. It was a
highlight among the biggest companies (1st place) – the classification of
companies by gross operating revenues in millions of dollars – in the food,
beverages and cigarette sector; companies that most created wealth (5th
place); that paid the most taxes (5th place); the largest employers (17th
place) and 100 largest publicly traded companies by market capitalization
(5th place).
CUSTOMER SERVICE EXCELLENCE – We won the Customer Service
Excellence Prize awarded by Consumidor Moderno magazine, which is
designed to identify and disseminate the best service practices in Brazil
and to recognize companies that emphasize customer service excellence
and maintain a high level of client satisfaction and loyalty.
CLEANER PRODUCTION AND ECO-EFFICIENCY PRIZE – In Peru, the
National Environmental Council (CONAM), with the support of the World
Bank, recognized our local unit for its outstanding eco-efficiency projects.
AGÊNCIA ESTADO/ ECONOMÁTICA PRIZE – We came in third in the
Companies List – 2005 published by Agência Estado Empresas in
partnership with Economática. The prize was based on an analysis of
seven criteria related to shareholder expectations.
VALOR - LARGE GROUPS – We came in eighth on the list of the Largest
200 business groups in Brazil. The indication was made by Valor Grandes
Grupos, a special publication of Valor Econômico newspaper, which presents
the ownership structure of the largest groups currently active in Brazil.
MOST ADMIRED COMPANIES – We came in 8th in the list prepared by
Carta Capital magazine, based upon interviews with more than 1,000
businessmen and executives, who chose the leading companies in 28
economic sectors. In another prize with the same name, prepared by
the DCI newspaper, we also were elected the Most Admired Company –
2006 in the Beverages category. The Carta Capital award was the result
of a survey of 1,224 executives from 48 sectors of the economy, while
the DCI prize involved 3,865 executives working for Brazil’s main
corporations, through questionnaires that touched on questions such
as investments, foreign trade and advertising.
RecognitionAnd Awards
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 70
Annual Report 2006 7372 2006’s Team
Our Team2006
BOARD OF DIRECTORS
CO-CHAIRMEN AND MEMBERS
1. Victório Carlos De Marchi
2. Carlos Alves de Brito
DIRECTORS
Marcel Herrmann Telles
Carlos Alberto da Veiga Sicupira
José Heitor Attilio Gracioso
Roberto Herbster Gusmão
Vicente Falconi Campos
Luis Felipe Pedreira Dutra Leite
Johan M.J.J. Van Biesbroeck
ALTERNATE DIRECTORS
Jorge Paulo Lemann
Roberto Moses Thompson Motta
FISCAL COMMITTEE
MEMBERS
Alcides Lopes Tápias
Álvaro Antônio Cardoso de Souza
Aloisio Macário Ferreira de Souza
ALTERNATE MEMBERS
Ary Waddington
Emmanuel Sotelino Schifferle
Nilson José Bulgueroni
EXECUTIVE DIRECTORS
3. Luiz Fernando Edmond
Chief Executive Officer for Latin
America
4. Miguel Nuno Patrício
Chief Executive Officer for North
America
5. Jorge Rocha
Executive Officer for Hispanic
Latin America
6. João Castro Neves
Chief Financial and Investor
Relations Executive Officer
7. Bernardo Pinto Paiva
Sales Executive Officer
8. Carlos Eduardo Lisboa
Marketing Executive Officer
9. Cláudio Braz Ferro
Industrial Executive Officer
10. Francisco de Sá Neto
Soft Drinks Executive Officer
11. Milton Seligman
Corporate Affairs Executive Officer
12. Pedro de Abreu Mariani
General Counsel
13. Olivier Lambrecht
People and Management
Executive Officer
14. Jean-Yves Rotte-Geoffroy
IT and Shared Services Executive
Officer
Our People bring together young talentsand professionals with long experience in beer and soft drink markets who are instep with a results-based culture, offeringthe best of themselves to permanentlysurpass targets and assure the sustainablegrowth of our businesses
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3 4 5
6 7 8
9 10 11
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RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 72
76. Management Report
88. Independent Auditor's Report
89. Fiscal Committee Report
90. Balance Sheets
92. Income Statements
93. Statements of Changes in Shareholders' Equity
94. Statements of Changes in Financial Position
96. Supplementary Information - Cash Flow
98. Notes to the Financial Statements
122. Investor Information
ContentsFinancialStatements
RA_AmBev_2006_ING:AmBev Final 11.05.07 20:41 Page 74
76 Financial Statements Annual Report 2006 77
Management Report
OveRview Of COMpanhia de BeBidas das aMéRiCas – aMBevWith operations in 14 countries of the Americas, AmBev is the fifth world’s largest brewer and the leader in Latin America. AmBev’s operations consist of the
production and trading of beer, soft drinks, other non-alcoholic beverages and malt and are divided into three business segments:
• Brazil Operations, represented by sales of (i) beer (“Beer Brazil”); (ii) carbonated soft drinks (“CSD”) and non-alcoholic, non-carbonated (“Nanc”) beverages;
and (iii) malt and by-products;
• Hispanic Latin America (HILA), represented by AmBev’s current stake in Quinsa (Argentina, Bolivia, Chile, Paraguay and Uruguay), as well as the Company’s
operations in Northern Latin America (El Salvador, Equator, Guatemala, Nicaragua, Peru, Dominican Republic and Venezuela); these last operations, grouped, are
designated by HILA-ex (HILA excluding Quinsa); and
• North America represented by Labatt Brewing Company Limited (“Labatt”) operations, including beer domestic sales in Canada and exports to the
United States (“USA”).
Major AmBev’s brands include Skol (the third most consumed beer in the world), Brahma, Antarctica, Bohemia, Original, Quilmes, Labatt Blue, Brahva and Guaraná
Antarctica. In addition, AmBev is PepsiCo’s largest bottling company outside of the USA. Through a franchising agreement, the Company sells and distributes Pepsi
products in Brazil and other Latin American countries, including Pepsi, Lipton Ice Tea and Gatorade.
AmBev’s credit risk as debt issuer in domestic and foreign currency is investment grade according to Standard and Poor’s and Fitch Ratings.
ECONOMIC ENVIRONMENT
The disposable income of consumers has been growing over the last years in Brazil, AmBev’s major market. Such growth is one of the factors which contributes to
the volume growth in Beer Brazil (+5.1%) and CSD & Nanc (+9.0%).
In Canada, AmBev’s second largest market, the economy has also been showing a good performance, especially in the West, where high oil prices have sustained a
strong growth pace in the local market.
In Argentina, AmBev’s third largest market, once more the growth has been strong. The volume of Quinsa, whose main operation is in Argentina, increased by
15.1% in 2006.
INVESTMENTS
In 2006, AmBev invested R$1,425.7 million. The Company invested in the increase of production lines, in circulating assets purchase and in a bottle plant, which is
expected to start its production in the 2nd half of 2007.
INVESTMENTS IN SUBSIDIARIES
In 2006, AmBev increased its stake in Quinsa, from 56.72% to 91.18%. The amount disbursed for this transaction was R$2,738.8 million (equivalent to US$1.25
billion). The operation reinforces AmBev’s commitment to the growth of the markets in Argentina, Uruguay, Paraguay, Bolivia and Chile.
CHIEF FINANCIAL OFFICER AND INVESTOR RELATIONS OFFICER
In 2007, Graham Staley took over the position of chief financial officer and investor relations officer of AmBev, replacing João Castro Neves, which was
appointed Chief Executive Officer of Quinsa. Graham Staley was CFO of Labatt USA from 2000 to 2004 and CFO of Labatt Brewing Company Limited from
2005 to 2006.
ENVIRONMENT
AmBev develops its economic activities in an eco-efficient manner, recycling and removing the minimum from the nature aiming at preserving our natural resources.
At the same time AmBev searches for an increased competitiveness in beverage production, it uses technologies, raw materials and processes to minimize
environmental impact. Thus, the Company establishes eco-efficiency indicators which are systemically monitored. We are a reference in the rational use of water,
with units that in 2006 surpassed the world benchmark of 3.75 liters of water by each liter of beer produced, already ours. The units of Curitiba (PR), Brasília (DF),
Camaçari (BA) and Agudos (SP), which have respectively used 3.49, 3.63, 3.69 and 3.70 liters of water for the production of one liter of beer, must be highlighted.
We sponsor the largest Recycling Center of Latin America and reuse more than 98% of industrial residues as by-products, which generated, in 2006, a revenue of
R$59.3 million.*
As a result of this work, we received the title of Model-Company from Guia Exame de Boa Cidadania Corporativa for promoting the responsible consumption
of beverage and operating with eco-efficiency indicators. Also, the Peruvian government, supported by the World Bank, granted to AmBev’s local unit the “A la
Producción más Limpia y a la Ecoeficiencia 2006” award. *Brasil and Hila-ex figures
HUMAN RESOURCES
AmBev ended 2006 with approximately 35.0 thousand employees: 19.8 thousand in Brazil; 3.3 thousand in Canada, 7.3 thousand in Quinsa’s units and 4.6
thousand in Hila-ex (which includes Ecuador, Peru, Guatemala, Venezuela and Dominican Republic).
AmBev is constantly investing in the development of its human resources. In 2006, AmBev University (AU) carried out specific trainings (technical, behavioral and
foreign language ones) for more than 5,700 employees and distributors, totaling more than 35,000 hours of training. The employees also are benefited from
investments made by Fundação Antonio e Helena Zerrener (FAHZ) in scholarships.
FAHZ also offers the Vida Legal program, which encourage healthy habits, preventive measures and treatment for chronic diseases within its employees and their
families.
In 2006, we posted a significant improvement regarding the index of work accidents resulting in the temporary absence of employees, which were 30% lower
when compared do the ones recorded in 2005, representing a 78% evolution since 2000.
DIVIDENDS AND SHARES
AmBev’s Bylaws provides for a minimum mandatory dividend of 35% of the Company’s annual net income, as set forth in the accounting principles of the Brazilian
Corporate Law, including amounts paid as interest on own capital. In the civil year of 2006, R$1,790.8 billion in dividends were distributed, including Interest on
Own Capital.
In 2006, nearly R$7.1 billion in preferred shares and R$1.3 billion in common shares were traded. At the end of the year, the shares were quoted at R$943.00
(AMBV3) and R$ 1,053.99 (AMBV4).
finanCial highlights 2006The following financial and operational information, unless otherwise stated, is presented on a consolidated basis and in thousands of Reais, pursuant to the
Brazilian Corporate Law. All comparisons, unless otherwise stated, refers to 2005.
• AmBev’s consolidated EBITDA reached R$7,444.6 million in 2005, growing 18.1%.
• According to ACNielsen, AmBev’s market share in Brazilian beer market in 2006 was 68.8% (2005: 68.3%). Beer Brazil segment’s volume grew 5.1% and the
revenue per hectoliter reached R$137.8.
• CSD & Nanc EBITDA margin reached 33.6%, an increase of 230 basis points, which kept AmBev as an industry benchmark. The EBITDA recorded for the segment
was R$607.7 million, 17.4% above 2005.
• HILA Division posted an EBITDA of R$791.2 million, reflecting Quinsa’s strong growth.
• Labatt contributed with an EBITDA of R$1,499.6 million.
78 Financial Statements Annual Report 2006 79
Financial Highlights – AmBev Consolidated %
R$ million 2006 2005 Change
Volume (000 hl) 134,366 125,313 7.2%
Net revenues per Hectoliter (R$/hl) 137.4 139.4 -1.4%
Net revenues per Hectoliter (R$/hl) 17,613.7 15,958.6 10.4%
Gross Profit 11,665.0 10,216.2 14.2%
Gross Profit Margin 66.2% 64.0% 220 bps
EBIT 6,256.3 5,042.6 24.1%
EBIT Margin 35.5% 31.6% 390 bps
EBITDA 7,444.6 6,305.1 18.1%
EBITDA Margin 42.3% 39.5% 280 bps
Net income 2,806.3 1,545.7 81.5%
Net income Margin 15.9% 9.7% 620 bps
No. of shares outstanding (millions) 63,719.4 65,346.2 -2.5%
EPS (R$/000 shares) 44.04 23.65 86.2%
EPS excl. goodwill amortization (R$/000 shares) 64.18 44.21 45.2%
Notes:
(1) Per share calculation is based on outstanding shares (total existing shares excluding shares held in treasury).
(2) Values may not add up due to rounding.
Financial Highlights Brazil HILA North America Total
R$ milhões 2006 2005 % Var. 2006 2005 % Var. 2006 2005 % Var. 2006 2005 % Var.
Volume (‘000 hl) 87,727 82,743 6.0% 35,676 31,679 12.6% 10,963 10,891.6 0.7% 134,366 125,313 7.2%
Net Revenue 10,963.1 9,902.8 10.7% 2,762.4 2,080.3 32.8% 3,888.2 3,975.5 -2.2% 17,613.7 15,958.6 10.4%
COGS (3,492.2) (3,488.9) 0.1% (1,266.2) (953.1) 32.9% (1,190.2) (1,300.3) -8.5% (5,948.7) (5,742.3) 3.6%
Gross Profit 7,470.9 6,413.9 16.5% 1,496.2 1,127.1 32.7% 2,697.9 2,675.2 0.9% 11,665.0 10,216.2 14.2%
Gross Margin 68.1% 64.8% 340 bps 54.2% 54.2% bps 69.4% 67.3% 210 bps 66.2% 64.0% 220 bps
SG&A Total (3,038.3) (2,942.2) 3.3% (955.6) (764.7) 25.0% (1,414.8) (1,466.7) -3.5% (5,408.7) (5,173.7) 4.5%
% of Net Revenue -27.7% -29.7% 200 bps -34.6% -36.8% 220 bps -36.4% -36.9% 50 bps -30.7% -32.4% 170 bps
EBIT 4,432.5 3,471.7 27.7% 540.6 362.4 49.2% 1,283.1 1,208.5 6.2% 6,256.3 5,042.6 24.1%
EBIT Margin 40.4% 35.1% 540 bps 19.6% 17.4% 210 bps 33.0% 30.4% 260 bps 35.5% 31.6% 390 bps
EBITDA 5,153.7 4,319.0 19.3% 791.2 553.0 43.1% 1,499.6 1,433.1 4.6% 7,444.6 6,305.1 18.1%
EBITDA Margin 47.0% 43.6% 340 bps 28.6% 26.6% 210 bps 38.6% 36.0% 250 bps 42.3% 39.5% 280 bps
BRAZILIAN OPERATIONS
Brazil Results Beer CSD & Nanc Malt and By-products Total
R$ million 2006 2005 % Var. 2006 2005 % Var. 2006 2005 % Var. 2006 2005 % Var.
Volume (‘000 hl) 65,655 62,486 5.1% 22,072 20,257 9.0% n.a n.a n.a 87,727 82,743 6.0%
Net Revenue 9,045.0 8,119.1 11.4% 1,806.4 1,648.7 9.6% 111.6 135.0 -17.3% 10,963.1 9,902.8 10.7%
Net Revenue/hl 137.8 129.9 6.0% 81.8 81.4 0.6% n.a n.a n.a 125.0 119.7 4.4%
COGS (2,573.6) (2,575.3) -0.1% (877.8) (851.7) 3.1% (40.8) (61.9) -34.1% (3,492.2) (3,488.9) 0.1%
COGS/hl (39.2) (41.2) -4.9% (39.8) (42.0) -5.4% n.a n.a n.a (39.8) (42.2) -5.6%
Gross Profit 6,471.5 5,543.8 16.7% 928.5 797.0 16.5% 70.9 73.1 -3.1% 7,470.9 6,413.9 16.5%
Gross Margin 71.5% 68.3% 330 bps 51.4% 48.3% 310 bps 63.5% 54.2% 930 bps 68.1% 64.8% 340 bps
SG&A excl. deprec. & amort. (2,126.9) (1,961.3) 8.4% (343.2) (306.3) 12.0% (3.4) (3.1) 10.1% (2,473.5) (2,270.7) 8.9%
SG&A deprec. & amort. (422.8) (507.7) -16.7% (142.1) (163.8) -13.3% 0.0 0.0 n.a. (564.9) (671.6) -15.9%
SG&A Total (2,549.7) (2,469.0) 3.3% (485.2) (470.1) 3.2% (3.4) (3.1) 10.1% (3,038.3) (2,942.2) 3.3%
% of Net Revenue 28.2% 30.4% -220 bps 26.9% 28.5% -170 bps 3.1% 2.3% 80 bps 27.7% 29.7% -200 bps
EBIT 3,921.8 3,074.8 27.5% 443.3 326.8 35.6% 67.4 70.0 -3.7% 4,432.5 3,471.7 27.7%
EBIT Margin 43.4% 37.9% 550 bps 24.5% 19.8% 470 bps 60.4% 51.9% 850 bps 40.4% 35.1% 540 bps
EBITDA 4,478.6 3,731.4 20.0% 607.7 517.6 17.4% 67.4 70.0 -3.7% 5,153.7 4,319.0 19.3%
EBITDA Margin 49.5% 46.0% 360 bps 33.6% 31.4% 230 bps 60.4% 51.9% 850 bps 47.0% 43.6% 340 bps
finanCial highlights By Business segMentThe table below shows the consolidated financial highlights per business segment. The results presented refer to the 12 month-periods ended on December 31,
2006 and 2005.
analysis Of the finanCial peRfORManCe in 2006 NET REVENUES
Net revenues increased 10.4% in 2006, reaching R$17,613.7 million. The table below illustrates the contribution of each business unit to AmBev’s consolidated net
revenues.
Net Revenues 2006 2005 % Change
R$ million % Total R$ million % Total
Brazil 10,963.1 62.2% 9,902.8 62.1% 10.7%
Beer Brazil 9,045.0 51.4% 8,119.1 50.9% 11.4%
CSD & Nanc Brazil 1,806.4 10.3% 1,648.7 10.3% 9.6%
Malt and By-products 111.6 0.6% 135.0 0.8% -17.3%
HILA 2,762.4 15.7% 2,080.3 13.0% 32.8%
Quinsa 2,004.3 11.4% 1,299.9 8.1% 54.2%
Beer 1,471.1 8.4% 971.8 6.1% 51.4%
Soft drinks 533.2 3.0% 328.0 2.1% 62.5%
HILA-ex 758.1 4.3% 780.4 4.9% -2.9%
Beer 458.6 2.6% 469.2 2.9% -2.3%
Soft drinks 299.5 1.7% 311.2 2.0% -3.7%
North America 3,888.2 22.1% 3,975.5 24.9% -2.2%
Consolidated 17,613.7 100.0% 15,958.6 100.0% 10.4%
Brazil Operations
Net revenues generated by AmBev’s main business unit, represented by Beer, CSD and Nanc beverages operations in Brazil, grew 10.7%, reaching R$10,963.1
million. The performance of each operation is demonstrated below.
Beer
Net revenues from beer sales in Brazil climbed 11.4% in 2006, accumulating R$9,045.0 million. Major elements contributing to this growth were:
- A growth of 5.1% in sales volume reflecting (i) AmBev’s higher market share (2006: 68.8%; 2005: 68.3%); and (ii) the market growth.
- A growth of 6.0% in revenues per hectoliter, which reached R$137.8. This increase was a result of (i) broad price repositioning carried out in December 2005;
(ii) growth of the premium segment, with highlight to the Bohemia (+19.7%) and Original (+38.3%) brands; and (iii) sales expansion through AmBev’s direct
distribution structure.
CSD & Non-Alcoholic and Non-Carbonated Beverages (Nanc)
Net revenues generated by CSD & Nanc in 2006 grew 9.6%, reaching R$1,806.4 million. The main elements contributing to this growth were:
- A growth of 9.0% in the sales volume, reflecting (i) maintenance of AmBev’s share in the soft drinks market (2006: 17.0%; 2005: 17.0%); and (ii)
market growth.
- A revenues per hectoliter increase of 0.6%, reaching R$81.8. This increase was positively impacted by the price repositioning implemented during 2006; and (ii)
negatively impacted by the higher share of multi-serve packages.
Malt and By-products
Malt and by-products sales in Brazil presented a reduction of 17.3% in revenues, accumulating R$111.6 million.
Hispanic Latin America (HILA)
AmBev’s operations in the Latin America recorded in 2006 an increase in revenues of 32.8%, reaching R$2,762.4 million. A more detailed analysis of this
performance is shown below.
Quinsa
AmBev’s stake in Quinsa, leading brewer in the Southern Cone, contributed with R$2,004.3 million to the Company’s consolidated revenues, yielding a growth of
54.2%. The main reasons for the increased revenues were:
- Beer and soft drinks volume growth, 9.8% and 25.5%, respectively; the consolidated volume grew 15.1%
- A growth in US dollars of 6.2% in revenues per hectoliter, reaching US$40.5.
80 Financial Statements Annual Report 2006 81
- Higher consolidation of Quinsa in AmBev´s results (Dec/06: 100.0%; Dec/05: 59.2%), due to AmBev’s higher stake in Quinsa (Dec/06: 91.8%; Dec/05: 59.2%).
HILA-ex
AmBev’s operations in Northern Latin America presented a revenue decrease of 2.9% in 2006, accumulating R$758.1 million. The main reasons for the increased
revenue were (i) a 3.2% growth in volume and (ii) a 5.9% decrease of the revenue per hectoliter, resulting from the increase of the market competitiveness and the
appreciation of the Brazilian currency (real) in comparison with the other currencies of Hila-ex operations.
North America
Labatt’s operations in North America contributed with R$3,888.2 million for AmBev’s consolidated revenues, a 2.2% decrease. This result is explained by:
- Labatt’s sales volume increase of 0.6% in the Canadian market,
- Exports of Labatt to the USA increased 0.8%,
- 0.6% increase in the revenue per hectoliter of the domestic sales, in Canadian dollars,
- 4.6% decrease in the revenue per hectoliter in export sales, in Canadian dollars,
- Appreciation of the Real against the Canadian Dollar. In Canadian Dollars, net revenue increased 0.9% to CAD$2,020.1 million.
COST OF GOODS SOLD
AmBev’s cost of goods sold in 2006 grew 3.6%, accumulating R$5,948.7 million. The following table illustrates the contribution of each business unit for AmBev’s
consolidated cost of goods sold.
COGS 2006 2005 % Change
R$ million % Total % Net Rev. R$ million % Total % Net Rev.
Brazil (3,492.2) 58.7% 31.9% (3,488.9) 60.8% 35.2% 0.1%
Beer Brazil (2,573.6) 43.3% 28.5% (2,575.3) 44.8% 31.7% -0.1%
CSD & Nanc Brazil (877.8) 14.8% 48.6% (851.7) 14.8% 51.7% 3.1%
Malt and By-products (40.8) 0.7% 36.5% (61.9) 1.1% 45.8% -34.1%
HILA (1,266.2) 21.3% 45.8% (953.1) 16.6% 45.8% 32.9%
Quinsa (808.8) 13.6% 40.4% (536.7) 9.3% 41.3% 50.7%
Beer (464.5) 7.8% 31.6% (321.4) 5.6% 33.1% 44.5%
Soft drinks (344.3) 5.8% 64.6% (215.3) 3.7% 65.6% 59.9%
HILA-ex (457.4) 7.7% 60.3% (416.4) 7.3% 53.4% 9.8%
Beer (255.2) 4.3% 55.6% (236.0) 4.1% 50.3% 8.1%
Soft drinks (202.2) 3.4% 67.5% (180.5) 3.1% 58.0% 12.1%
North America (1,190.2) 20.0% 30.6% (1,300.3) 22.6% 32.7% -8.5%
Consolidated (5,948.7) 100.0% 33.8% (5,742.3) 100.0% 36.0% 3.6%
Brazil
The cost of goods sold in Brazil business unit accumulated R$3,492.2 million, increasing 0.1%.
Beer
The COGS for the beer sales operations in Brazil decreased 0.1%, reaching R$2,573.6 million. The COGS per hectoliter declined 4.9%, amounting to R$39.2. The
main factors that led to this reduction were (i) lower exchange rate for the acquisition of inputs, resulting from the hedge policy; (ii) a higher dilution of the fixed
costs was possible due to sales volume growth; and (iii) the productivity gains resulting from AmBev’s continuous program of manufacturing industry excellence
yielded the drop observed in the production unit costs.
CSD & Nanc
The COGS for the CSD & Nanc segment in Brazil increased 3.1%, reaching R$877.8 million. The COGS per hectoliter decreased 5.4%, totaling R$39.8. Similarly to
beer operations, factory efficiency gains, as well as a greater dilution of production fixed costs and the hedge gains were the main causes of this result.
Malt and By-products
The sale of malt and by-products in Brazil had a reduction in the cost of goods sold of 34.1%, accumulating R$40.8 million.
Hispanic Latin America (HILA)
The COGS of the HILA business unit increased 32.9%, reaching R$1,266.2 million. A more detailed analysis of this cost is shown below.
Quinsa
The consolidation of Quinsa’s COGS into AmBev accumulated R$808.8 million in 2006, representing a 50.7% growth. The main effects explaining this increase are:
- 15.1% increase in the volume sold, reaching 28,782 million hectoliters.
- Increase of the consolidation of Quinsa’s result (Dec/06: 100.0%; Dec/05: 59.2%), due to AmBev’s higher stake in Quinsa (Dec/06: 91.8%; Dec/05: 59.2%)..
HILA-ex
The COGS in AmBev’s operations in Northern Latin America rose 9.8%, reaching R$457.4 million. The main effect leading to this increase is an 3.2% growth in the
volume sold, reaching 6,894 million hectoliters.
North America
Labatt’s cost of goods sold recorded R$1,190.2 million in 2006. In local currency, COGS decreased 5.3%. The main factor contributing to such reduction was a
5.9% decrease in production costs per unit.
GROSS PROFIT
AmBev’s gross profit was R$11,665.0 million in 2006, representing a 14.2% increase. The table below illustrates the contribution of each business unit to AmBev’s
consolidated gross profit.
Gross Profit 2006 2005 % Change
R$ million % Total % Net Rev. R$ million % Total % Net Rev.
Brazil 7,470.9 64.0% 68.1% 6,413.9 62.8% 64.8% 16.5%
Beer Brazil 6,471.5 55.5% 71.5% 5,543.8 54.3% 68.3% 16.7%
CSD & Nanc Brazil 928.5 8.0% 51.4% 797.0 7.8% 48.3% 16.5%
Malt and By-products 70.9 0.6% 63.5% 73.1 0.7% 54.2% -3.1%
HILA 1,496.2 12.8% 54.2% 1,127.1 11.0% 54.2% 32.7%
Quinsa 1,195.5 10.2% 59.6% 763.2 7.5% 58.7% 56.6%
Beer 1,006.6 8.6% 68.4% 650.4 6.4% 66.9% 54.8%
Soft drinks 188.9 1.6% 35.4% 112.8 1.1% 34.4% 67.5%
HILA-ex 300.7 2.6% 39.7% 364.0 3.6% 46.6% -17.4%
Beer 203.4 1.7% 44.4% 233.2 2.3% 49.7% -12.8%
Soft drinks 97.3 0.8% 32.5% 130.7 1.3% 42.0% -25.6%
North America 2,697.9 23.1% 69.4% 2,675.2 26.2% 67.3% 0.9%
Consolidated 11,665.0 100.0% 66.2% 10,216.2 100.0% 64.0% 14.2%
SALES, GENERAL AND ADMINISTRATIVE ExPENSES
AmBev’s sales, general and administrative expenses amounted to R$5,408.7 million in 2006, a 4.5% increase. The analysis of such expenses at each business unit is
shown below.
Brazil
Sales, general and administrative expenses in Brazil amounted to R$3,038.3 million in 2006, increasing 3.3%.
Beer
Sales, general and administrative expenses reached R$2,549.7 million, climbing 3.3%. The main elements that resulted in the increase in such operating expenses were:
- Higher sales volume of AmBev’s direct distribution structure;
- Increase in AmBev’s billing to some clients, which the Company maintains agreements with, referring to a proportional contribution of funds in trading activities;
- Lower deferred assets amortization expenses, mainly due to the change in the recording criteria of the incorporation of InBev Brazil in 2006.
82 Financial Statements Annual Report 2006 83
CSD & Nanc
Sales, general and administrative expenses for the CSD & Nanc segment accumulated R$485.2 million, an increase of 3.2%. The main elements that generated the
increase of such operating expenses were:
- Higher sales volume through AmBev’s direct distribution structure;
- Lower deferred assets amortization expenses, mainly due to the change in recording criteria of the incorporation of InBev Brasil in 2006.
Malt and By-products
Malt and by-products sales generated sales, general and administrative expenses of R$3.4 million in 2006, increasing 10.1%.
Hispanic Latin America (HILA)
Sales, general and administrative expenses for HILA business unit amounted to R$955.6 million, increasing 25.0%. A more detailed analysis of the development of
these expenses is shown below.
Quinsa
Sales, general and administrative expenses consolidated into AmBev, through its stake in Quinsa, accumulated R$485.0 million, increasing 49.5%. This increase is
mostly explained by the increase of Quinsa’s results consolidation percentage (Dec/06: 100.0%; Dec/05: 59.2%), due to AmBev’s higher stake in Quinsa (Dec/06:
91.8%; Dec/05: 59.2%).
HILA-ex
Sales, general and administrative expenses for AmBev’s operations in Northern Latin America amounted to R$470.6 million, increasing 6.9%.
North America
Labatt’s sales, general and administrative expenses amounted to R$1,414.8 million. In local currency, expenses remained steady, when compared to 2005.
OPERATING RESULT BEFORE FINANCIAL INCOME AND ExPENSES, PROVISIONS AND CONTINGENCIES AND OTHER OPERATING INCOME AND ExPENSES
The Company presented a solid operating performance in 2006, evidencing not only a significant organic growth of its sales, but also additional efficiency gains,
which resulted in margin expansion exceeding Company’s exemplary levels.
In 2006, AmBev posted a 24.1% increase of EBIT1 to R$6,256.3 million. The EBIT margin over net revenues reached 35.5%, 390 basis points higher than 2005.
The Company’s EBITDA2 reached R$7,444.6 million, a 18.1% increase. EBITDA margin over net revenues was 42.3%, 280 basis points higher than 2005.
The following tables show the EBIT and EBITDA figures for each business unit.
EBITDA 2006 2005 % Change
R$ million % Total Margin R$ million % Total Margin
Brazil 5,153.7 69.2% 47.0% 4,319.0 68.5% 43.6% 19.3%
Beer Brazil 4,478.6 60.2% 49.5% 3,731.4 59.2% 46.0% 20.0%
CSD & Nanc Brazil 607.7 8.2% 33.6% 517.6 8.2% 31.4% 17.4%
Malt and By-products 67.4 0.9% 60.4% 70.0 1.1% 51.9% -3.7%
HILA 791.2 10.6% 28.6% 553.0 8.8% 26.6% 43.1%
Quinsa 855.1 11.5% 42.7% 549.4 8.7% 42.3% 55.6%
Beer 768.2 10.3% 52.2% 496.7 7.9% 51.1% 54.7%
Soft drinks 86.9 1.2% 16.3% 52.7 0.8% 16.1% 64.9%
HILA-ex (63.9) -0.9% -8.4% 3.7 0.1% 0.5% n.m.
Beer (55.1) -0.7% -12.0% (2.8) 0.0% -0.6% n.m.
Soft drinks (8.7) -0.1% -2.9% 6.4 0.1% 2.1% n.m.
North America 1,499.6 20.1% 38.6% 1,433.1 22.7% 36.0% 4.6%
Consolidated 7,444.6 100.0% 42.3% 6,305.1 100.0% 39.5% 18.1%
1 Earnings Before Interest and Taxes, equivalent to the operating result before financial income and expenses, provisions and contingencies, and other operating income and expenses.2 Earnings Before Interest, Taxes, Depreciation and Amortization, equivalent to the EBIT before depreciation and amortization expenses.
EBIT 2006 2005 % Change
R$ million % Total Margin R$ million % Total Margin
Brazil 4,432.5 70.8% 40.4% 3,471.7 68.8% 35.1% 27.7%
Beer Brazil 3,921.8 62.7% 43.4% 3,074.8 61.0% 37.9% 27.5%
CSD & Nanc Brazil 443.3 7.1% 24.5% 326.8 6.5% 19.8% 35.6%
Malt and By-products 67.4 1.1% 60.4% 70.0 1.4% 51.9% -3.7%
HILA 540.6 8.6% 19.6% 362.4 7.2% 17.4% 49.2%
Quinsa 710.5 11.4% 35.4% 438.8 8.7% 33.8% 61.9%
Beer 649.2 10.4% 44.1% 404.5 8.0% 41.6% 60.5%
Soft drinks 61.3 1.0% 11.5% 34.3 0.7% 10.5% 78.6%
HILA-ex (169.9) -2.7% -22.4% (76.4) -1.5% -9.8% 122.5%
Beer (121.3) -1.9% -26.5% (46.8) -0.9% -10.0% 159.3%
Soft drinks (48.6) -0.8% -16.2% (29.6) -0.6% -9.5% 64.2%
North America 1,283.1 20.5% 33.0% 1,208.5 24.0% 30.4% 6.2%
Consolidated 6,256.3 100.0% 35.5% 5,042.6 100.0% 31.6% 24.1%
84 Financial Statements Annual Report 2006 85
TAx, LABOR CONTINGENCIES AND OTHERS
Net provisions for contingencies and others recorded a R$111.8 million gain. It is important to point out the reversal of R$316.0 million related to PIS and COFINS
tax claims.
OTHER OPERATING INCOME AND ExPENSES
The net balance of other operating income and expenses in 2006 represented a loss of R$955.1 million, 11.2% lower in relation to the loss recorded in 2005. The
breakdown of the main entries is shown as follows:
- A gain of R$165.4 million referring to capital increase resulting from fiscal incentives granted to AmBev’s subsidiaries in Brazil.
- A gain of R$79.4 million derived from exchange rate variation in subsidiaries abroad.
- A gain of R$39.9 million related to negative goodwill on tax incentive credit (ICMS).
- Gains of R$24.0 million referring to the recovery in Brazil of PIS and COFINS tax credits.
- An expense of R$971.4 million resulting from the goodwill amortization related to AmBev investment in Labatt.
- An expense of R$103.3 million derived from the goodwill amortization related to AmBev investments in Quinsa.
- An expense of R$85.5 million resulting from the goodwill amortization related to Quinsa investments in the Latin America.
- An expense of R$122.7 million resulting from other goodwill amortizations.
FINANCIAL INCOME
The Company’s financial income in 2006 was negative at R$1,078.3 million, compared to a loss in 2005 of R$1,086.7 million. The table below points out the main
entries of Company’s financial results:
Breakdown of Net Financial Result
R$ million 2006 2005
Financial income
Financial income on cash and cash equivalents 111.1 91.4
Foreign exchange gains (losses) on assets (15.5) (36.7)
Interest income on stock ownership plan 10.0 13.3
Interest and Foreign Exchange gains (losses) on intercompany loans 0.1
Interest on taxes, contributions and judicial deposits 29.8 6.6
Other 33.0 20.5
Total 168.4 95.3
Financial expense
Interest expense on local currency debt 191.5 122.4
Interest and Foreign Exchange gains (losses) on intercompany loans 1.8 5.7
Interest expense on foreign currency debt 485.1 456.0
Foreign exchange gains (losses) on debt (254.7) (308.5)
Net losses from derivative instruments 585.1 625.8
Taxes on financial transactions 131.8 141.9
Interest on contingencies and other 59.9 77.6
Other 46.3 61.0
Total 1,246.7 1,182.0
Net Financial Result (1,078.3) (1,086.7)
4Q06 4Q06 4Q06
Debt Breakdown Short Long
R$ million Term Term Total
Local Currency 400,4 3.178,3 3.578,7
Foreign Currency 1.704,2 4.283,7 5.987,9
Consolidated Debt 2.104,6 7.462,0 9.566,6
Cash and Equivalents, and Securities 1.765,0
Net Debt 7.801,6
OTHER NON-OPERATING INCOME AND ExPENSES
The net balance of other non-operating income and expenses resulted in a loss of R$28.8 million in 2006, compared to a loss in 2005 of R$234.3 million.
The main reason for the difference is two entries carried out in 2005, which were not verified in 2006:
- A loss of R$158.2 million related to the provision recorded for Labatt’s brewery shutting down in Toronto. The accrued items are the following: (i) loss of
property, plant and equipment (R$46.7 million); (ii) supplement for the provision of employees benefits (R$69.9 million); and (iii) employees dismissal costs
(R$41.6 million).
- A loss of R$65.6 million related to AmBev’s investment in Quinsa, as a result of buyback of its own shares in the market carried out by Quinsa during 2005.
INCOME TAx AND SOCIAL CONTRIBUTION
In 2006, the net result for income and social contribution taxes was an expense of R$1,315.2 million. At the nominal rate of 34%, the provision for
income and social contribution taxes would have been of R$1,398.4 million. The effective provision reconciliation with the provision at the nominal rate is
shown in the table below:
Income Tax and Social Contribution 2006
R$ million
Net income before taxes and profit sharing 4,307.3
Provision for Profit Sharing & Bonuses (194.4)
Net income before income tax, social contribution and minorities 4,112.8
Income tax and social contribution at nominal tax rate (34%) (1,398.4)
Adjustments to effective rate:
Interest on own capital 500.9
Income from foreign non-taxable subsidiaries 4.2
Equity gains from subsidiaries 62.1
Amortization of non-deductible goodwill (355.0)
Tax Retention (68.3)
Exchange variations over investments (43.8)
Permanent additions/reductions and other (17.1)
Total income taxes and social contribution (1,315.2)
Effective income tax and social contribution rate 32.0%
InBev Brasil Incorporation Fiscal benefit Adjustment
Fiscal benefit for InBev Brasil incorporation 350.8
Total income taxes and social contribution excluding fiscal benefit effect (964.4)
Effective income tax and social contribution rate adjusted for fiscal benefit 25.6%
The Company points out that, in accordance with the accounting practices adopted in Brazil, the liabilities related to swap and derivatives operations must be
accounted by the interest curve set forth in its respective contracts; the assets referring to these same type of operations must be accounted at the lowest value
between the market value and the curve mentioned.
The Company’s total indebtedness decreased R$2,363.0 million compared to 2005 while its cash and cash equivalents increased R$668.8 million.
As a result, there was an increase of R$1,694.3 million in AmBev’s net debt. The Company estimates that the ratio between its net debt and the accumulated
EBITDA over the past 12 months is 1.0x.
The table below details AmBev’s consolidated debt profile:
86 Financial Statements Annual Report 2006 87
EMPLOyEES AND MANAGEMENT PROFIT SHARING
In 2006, expenses derived from the provision for employees and management profit sharing was R$194.4 million. This amount integrates the Company’s variable
compensation policy, according to which approximately more than 20,000 employees have a significant portion of their compensation subject to meeting
aggressive performance targets.
In 2005, Company’s employees and management profit sharing was R$202.8 million.
MINORITy INTEREST
Minority interest in AmBev’s subsidiaries accumulated losses of R$8.7 million in 2006.
NET INCOME
AmBev’s net income was R$2,806.3 million in 2006, an 81.5% increase compared to 2005. The income per lot of 1,000 shares was R$44.04, representing an
86.2% increase.
RECONCILIATION BETWEEN EBITDA AND NET INCOME
Both EBITDA and EBIT are measures utilized by the AmBev’s management to demonstrate the Company’s performance.
EBITDA is calculated excluding from Net income the following effects: (i) Provision for Income Tax and Social Contribution; (ii) Provision for Profit Sharing & Bonuses;
(iii) Minority Interest; (iv) Non-Operating Income (Expenses); (v) Net Financial Result; (vi) Equity income; (vii) Other Operating Income (Expenses); (viii) Provisions, Net;
and (ix) Depreciation & Amortization.
EBITDA and EBIT are not accounting measures utilized in accounting practices in neither in Brazil nor in the United States of America (US GAAP), not meaning the
cash flow for the presented periods and should not be considered as an alternative to Net income as a measure of operational performance nor an alternative to
Cash Flow as a measure of liquidity. EBITDA and EBIT does not have a standard calculation method and our definition of EBITDA and EBIT may not be comparable
to others companies definition of EBITDA and EBIT.
Reconciliation - Net Income to EBITDA 2006 2005
Net income 2,806.3 1,545.7
Provision for Income Tax/Social Contrib. 1,315.3 845.1
Provision for Profit Sharing & Bonuses 194.4 202.8
Minority interest (8.7) (16.8)
Income Before Taxes 4,307.3 2,576.8
Non-operating Income (Expense) 28.8 234.3
Net Financial Result 1,078.3 1,086.7
Equity Income (1.4) (2.0)
Other Operating income (Expenses) 955.1 1,075.3
Provisions, Net (111.8) 71.5
EBIT 6,256.3 5,042.6
Depreciation & Amortization 1,188.4 1,262.6
EBITDA 7,444.6 6,305.1
DIVIDENDS
The allocation of profits to shareholders referring to 2006 results, representing the sum of dividends and interest attributed to shareholders’ equity was R$1,473.1
million. The amount allocated represents 52.5% of the net income reported.
In addition to the profit allocation, the Company returned to its shareholders R$1,762.3 million through its share buyback program, with a total payout of
R$3,235.4 million.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Our policy in relation to our independent auditors when providing services not connected with external audit is based on the principles that preserve the auditor’s
independence.
These principles are defined as follows:
(a) The auditor must not audit his/her own work;
(b) The auditor must not perform managerial functions; and
(c) The auditor must not advocate the interests of clients.
We have adopted pre-approval policies and procedures under which all audit and non-audit services provided by contracted external auditors must be pre-
cleared by the Conselho Fiscal, which performs the duties of an audit committee for the purposes of the Sarbanes-Oxley Act of 2002, in accordance with
Rule 10A-3(c). The Conselho Fiscal adopts a list of services and amount limits for contracting for each external auditor under terms included in a Basic List,
which is in turn approved by the Board of Directors. Any services provided from such List are deemed “pre-approved” for purposes of the Sarbanes-Oxley
Act of 2002. On a quarterly basis, the Board of Directors and the Conselho Fiscal will receive from the Chief Financial Officer a summary report on the
progress of the pre-approved services rendered and the corresponding fees duly authorized. Any services which are not included in the Basic List require
a prior favorable opinion of our Conselho Fiscal and the approval of our Board of Directors. Our policy also contains a list of services which cannot be
rendered by our external auditors.
88 Financial Statements Annual Report 2006 89
independentauditors’ Report
To the Shareholders and Management of
Companhia de Bebidas das Américas – AmBev
São Paulo - SP
1. We have examined the individual (parent company) and consolidated balance sheets of Companhia de Bebidas das Américas – AmBev (“Company”) and
subsidiaries related to the year ended on December 31, 2006 and the respective statements of income, of changes in shareholders’ equity and of changes
in financial position, corresponding to the year ended on that date, prepared under the responsibility of its Management. Our responsibility is to express
an opinion on these financial statements.
2. Our exams have been conducted in compliance with the Brazilian audit standards, including: (a) the planning of the works, considering the relevance
of the balances, the volume of transactions and the accounting and internal control systems of the Companies; (b) the verification, based on tests, of
the evidences and records that support the accounting figures and information disclosed; and (c) the evaluation of the most representative accounting
practices and estimates adopted by the Management of the Company, and of the presentation of the financial statements taken as a whole.
3. In our opinion, the financial statements referred to in paragraph (1) above adequately represent, in all the relevant aspects, the parent company and
consolidated equity and financial position of Companhia de Bebidas das Américas – AmBev and subsidiaries on December 31, 2006, the results of their
operations, the changes in shareholders’ equity and the changes in financial position related to the year ended on that date, pursuant to the accounting
practices adopted in Brazil.
4. Our exams have been performed with the objective of issuing an opinion on the standard financial statements referred to in paragraph one above,
taken as a whole. The consolidated statements of cash flow, presented to afford supplementary information about the Company, are not required as an
integrant part of the standard financial statements, pursuant to the accounting practices adopted in Brazil. The consolidated statements of cash flow
has been submitted to the same audit procedures described in paragraph 2 above and, in our opinion, these supplementary statements are adequately
presented, in all the relevant aspects, in relation to the standard financial statements referring to the years ended on December 31, 2006 and 2005, taken
as a whole.
5. We have previously examined the individual (parent company) and consolidated balance sheets of Companhia de Bebidas das Américas – AmBev
(“Company”) and of its subsidiaries related to the year ended on December 31, 2005 and the respective statements of income, of changes in shareholders’
equity and of changes in financial position, corresponding to the year ended on that date and issued an unqualified opinion dated February 13, 2006.
The financial statements of the subsidiary Labatt Brewing Company Limited, related to the year ended on December 31, 2005, which presents unsecured
liabilities of R$1,217 million, total assets of R$2,459 million, equivalent to 7.3% of the Company’s total assets, net revenue in the amount of R$3,967
million, equivalent to 24.9% of the consolidated sales net revenue and net income in the amount of R$467 million, equivalent to 30.2% of the Company’s
net income, have been examined by other independent auditors and our opinion regarding the assets and liabilities amounts of this subsidiary, as well as
the result generated by it, is based on the opinion of these other auditors.
São Paulo, February 26, 2007
DELOITTE TOUCHE TOHMATSU Altair Tadeu Rossato
Auditores Independentes Accountant
CRC 2 SP 011609/O-8 CRC 1 SP 182515/O-5
The Fiscal Committee of Companhia de Bebidas das Américas - AmBev (“Company”), in compliance with the attributions provided in the Company’s Bylaws and
paragraphs of the Article 163 of Law 6,404/76, examined: (i) the report issued by DELOITTE TOUCHE TOHMATSU AUDITORES INDEPENDENTES, (ii) Company’s
performance report prepared by its Investor Relations Manager, with the presence of the Chief Financial Officer and Investor Relations Officer and the Chief
Executive Officer for Latin America. Based on the documents examined and clarifications made, the Fiscal Committee’s members undersigned hereinbelow,
approved in General Meeting the Management Annual Report and the Financial Statements for the year ended on December 31, 2006.
São Paulo, February 28, 2007.
Alcides Lopes Tápias
Álvaro Antonio Cardoso de Souza
Aloisio Macário Ferreira de Souza
Ary Waddington
(Alternate Member)
Emanuel Sotelino Schifferle
(Alternate Member)
Nilson José Bulgueroni
(Alternate Member)
fiscal Committee Report
90 Financial Statements Annual Report 2006 91
Balance sheetsas of december 31, 2006 and 2005 - (in Millions of Brazilian reais - R$)
Parent Company Consolidated
ASSETS 2006 2005 2006 2005
CURRENT ASSETS
Cash and cash equivalents 601.7 384.4 1,538.9 837.3
Short-term investments - 52.7 226.1 259.0
Marketable securities 848.6 705.1 1,542.7 1,331.8
Trade accounts receivable 589.9 557.5 1,363.9 1,178.1
Inventories 419.2 180.1 687.7 545.5
Recoverable taxes 550.5 502.3 610.0 543.4
Dividends and/or interest on shareholder’s equity 27.6 - 2.7 -
Other assets 431.0 378.7 845.4 779.6
TOTAL CURRENT ASSETS 3,468.5 2,580.7 6,817.4 5,474.7
LONG-TERM RECEIVABLES
Related parties receivables 864.6 857.8 - -
Compulsory and judicial deposits and tax incentives 332.2 321.6 437.2 431.4
Advances to employees for purchase of shares 72.6 114.0 72.8 114.7
Deferred income and social contribution taxes 2,851.1 3,363.9 3,566.7 4,183.5
Property, plant, equipment for sale 82.9 101.3 86.0 104.5
Other assets 308.9 245.7 486.0 376.1
TOTAL LONG-TERM RECEIVABLES 4,512.3 5,004.3 4,648.7 5,210.2
PERMANENT ASSETS
Investments
Investments in associated companies and subsidiaries including goodwill and negative goodwill, net 21,203.7 19,634.0 17,990.4 16,727.1
Other investments 11.4 11.4 35.6 36.5
Property. plant and equipment 2,611.6 2,474.2 5,723.9 5,404.6
Deferred charges 353.4 463.4 429.1 548.7
TOTAL PERMANENT ASSETS 24,180.1 22,583.0 24,179.0 22,716.9
TOTAL NON-CURRENT ASSETS 28,692.4 27,587.3 28,827.7 27,927.1
TOTAL ASSETS 32,160.9 30348.08 35,645 33,402
The accompanying notes are an integral part of these financial statements.
Parent Company Consolidated
LIABILITIES AND SHAREHOLDERS’ EQUITY 2006 2005 2006 2005
CURRENT LIABILITIES
Suppliers 620.4 471.9 1,387.4 1,065.4
Loans and financing 1,239.8 790.0 2,038.7 1,209.4
Debentures 65.9 - 65.9 -
Payroll. profit sharing and related charges 261.0 265.6 480.3 447.7
Dividends payable 106.8 23.1 109.0 25.9
Income tax and social contribution 113.8 1.1 366.3 244.5
Other taxes and contributions to collect 704.2 599.4 1,239.0 1,030.8
Payable to related parties 2,424.5 1,886.1 - -
Unrealized losses on derivatives 379.6 165.0 405.3 129.8
Other liabilities 357.9 376.5 752.5 898.8
TOTAL CURRENT LIABILITIES 6,273.9 4,578.7 6,844.4 5,052.3
NON-CURRENT LIABILITIES
LONG-TERM LIABILITIES
Loans and financings 2,675.5 2,994.5 5,396.9 5,994.2
Debentures 2,065.1 - 2,065.1 -
Sales tax deferrals 405.7 352.6 405.7 352.6
Fiscal Liabilities and Provision for contingencies 504.2 816.1 663.3 1,037.1
Payable to related parties 705.5 1,474.6 - -
Other liabilities 110.6 111.6 629.0 825.8
TOTAL LONG-TERM LIABILITIES 6,466.6 5,749.4 9,160.0 8,209.7
Future year results 152.3 152.7 149.9 149.9
TOTAL NON-CURRENT LIABILITIES 6,618.9 5,902.1 9,309.9 8,359.6
Minority Interest - - 222.7 122.6
SHAREHOLDERS’ EQUITY
Paid-in Capital 5,716.1 5,691.4 5,716.1 5,691.4
Capital reserves 12,870.6 13,889.5 12,870.6 13,889.5
Profit reserves
Legal 208.8 208.8 208.8 208.8
Statutory 1,413.3 471.0 1,413.3 471.0
Treasury shares (940.7) (393.4) (940.7) (393.4)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 19,268.1 19,867.3 19,268.1 19,867.3
32,160.9 30,348.1 35,645.1 33,401.8
The accompanying notes are an integral part of these financial statements.
92 Financial Statements Annual Report 2006 93
income statementsfOR the yeaRs ended deCeMBeR 31, 2006 and 2005(in millions of Brazilian reais, except for earnings per thousand shares - R$)
Parent Company Consolidated
2006 2005 2006 2005
GROSS REVENUE
Gross Sales 22,452.1 12,213.3 32,487.8 28,878.7
SALES DEDUCTIONS
Taxes on Sales, discounts and returns (12,072.8) (6,417.3) (14,874.1) (12,920.1)
NET SALES 10,379.3 5,796.0 17,613.7 15,958.6
Cost of goods sold (3,848.9) (2,371.2) (5,948.7) (5,742.4)
GROSS PROFIT 6,530.4 3,424.8 11,665.0 10,216.2
OPERATING EXPENSES
Sales and marketing (1,775.1) (1,021.8) (3,866.7) (3,499.9)
General and Administrative (459.0) (259.7) (775.5) (802.0)
Provisions for contingencies 92.0 (69.2) 111.8 (71.5)
Management fees 4.2 (19.3) 4.3 (28.6)
Depreciation and amortization (549.5) (312.1) (770.8) (667.9)
Financial income 189.5 98.8 168.4 95.3
Financial expenses (953.5) (992.7) (1,246.7) (1,182.0)
Equity in earnings (losses) of subsidiaries 303.4 828.6 1.4 2.0
Other operating income (expenses), net (61.9) 16.1 (955.1) (1,075.4)
(3,209.9) (1,731.3) (7,328.9) (7,230.0)
OPERATING PROFIT 3,320.5 1,693.5 4,336.1 2,986.2
Non-operating income (expenses), net 6.8 (26.0) (28.8) (234.3)
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 3,327.3 1,667.5 4,307.3 2,751.9
Income tax and social contribution 63.6 - (688.8) (757.1)
Deferred income tax and social contribution (460.4) (6.5) (626.5) (263.1)
INCOME BEFORE PROFIT SHARING AND CONTRIBUTIONS 2,930.5 1,661.0 2,992.0 1,731.7
Profit sharing (124.2) (115.3) (194.4) (202.8)
INCOME BEFORE MINORITY INTEREST 2,806.3 1,545.7 2,797.6 1,528.9
Minority interest - - 8.7 16.8
NET INCOME 2,806.3 1,545.7 2,806.3 1,545.7
Total number of shares (in thousands) 64,458.2 65,876.1
Earnings per lot of thousand shares, including treasury shares - R$ 43.54 23.46
Earnings per lot of thousand shares, excluding treasury shares - R$ 44.04 23.65
The accompanying notes are an integral part of these financial statements.
statements of Changes in shareholders’ equity of the parent CompanyfOR the yeaRs ended deCeMBeR 31, 2006 and 2005 - (in millions of Brazilian reais - R$)
Profit reserves
Subscribed
social Statutory
and paid-in Capital reserves Legal Treasury Retained
capital reserves Investments reserves shares earnings Total
AT DECEMBER 31, 2004 4,742.8 12,859.4 225.0 208.8 (935.0) - 17,101.0
Exercise of stock ownership plan -
Capital increase through stock subscription at incorporation of Labatt 948.6 (948.6) -
InBev merger 2,883.3 2,883.3
Share buyback - (437.3) (437.3)
Incorporation of treasury shares held by the subsidiary CBB - (81.7) (81.7)
Cancellation of treasury shares (868.1) 868.1 -
Transfer of reserves stock ownership plan (94.4) - 192.5 98.1
Subsidy for investments and fiscal incentives 57.9 57.9
Net income for the year 1,545.7 1,545.7
Appropriations of net income for the year -
Statutory Reserves 246.0 (246.0) -
Prepayment of dividends and interest on own capital (744.0) (744.0)
Interim dividends (556.2) (556.2)
Prescribed dividends and interest on own capital 0.5 0.5
AT DECEMBER 31, 2005 5,691.4 13,889.5 471.0 208.8 (393.4) - 19,867.3
Subscription of stock ownership plan 3.4 (3.4) -
Capital increase through captalization of reserves 21.3 (21.3) -
Advance for future capital increase 3.4 3.4
Share Buybacks (1,762.3) (1,762.3)
Cancellation of treasury shares (1,046.2) 1,046.2 -
Transfer of reserves to stock ownership plan (67.2) 168.8 101.6
Subsidy for investments and fiscal incentives 115.8 115.8
Net income for the year 2,806.3 2,806.3
Appropriations of net income for the year -
Statutory Reserves 1,333.2 (1,333.2) -
Prepayment of dividends and interest on own capital (1,473.1) (1,473.1)
Prescribed dividends and interest on capital (390.9) (390.9)
AT DECEMBER 31, 2006 5,716.1 12,870.6 1,413.3 208.8 (940.7) - 19,268.1
The accompanying notes are an integral part of these financial statements.
94 Financial Statements Annual Report 2006 95
statements of Changes in financial positionfOR the yeaRs ended deCeMBeR 31, 2006 and 2005 - (in millions of Brazilian reais - R$)
Parent Company Consolidated
2006 2005 2006 2005
SOURCES OF FUNDS
Operations
Net income for the year 2,806.3 1,545.7 2,806.3 1,545.7
Expenses(income) not affecting working capital
Equity accounting results (303.4) (828.6) (1.4) (2.0)
Deferred income tax and social contribution 460.4 6.5 626.5 263.1
Discount on the settlement of tax incentives (39.9) (28.3) (39.9) (28.3)
Amortization of goodwill, net of negative goodwill 107.5 52.7 1,283.0 1,343.0
Depreciation and amortization 685.6 397.5 1,188.4 1,087.5
Tax. labor and other contingencies (92.0) 69.2 (111.8) 71.5
Financial charges on tax and fiscal contingencies 31.7 25.8 36.7 52.7
Provision for losses on permanent assets (6.3) 19.1 8.7 116.8
Financial charges and variations on the stock ownership plan (9.8) (12.8) (10.0) (13.3)
Exchange rate variation and charges on long-term financings (341.3) (89.7) (470.3) (501.2)
Loss of interest ownership in subsidiaries 0.7 3.3 (6.1) 64.8
Minority interest - - (8.7) (16.8)
Exchange rate variation on foreign subsidiaries 17.9 2.9 (79.4) 289.3
Residual value of property, plant and equipment and divestments 127.6 69.1 288.6 150.4
Capital refund by the subsidiary 297.8 836.8 - -
Dividends received and receivable 1,060.9 693.2 - -
4,803.7 2,762.4 5,510.6 4,423.2
From shareholders
Premium on placement of stock options 51.3 65.6 78.5 73.3
Disposal of treasury shares 105.3 64.3 105.3 132.5
From third parties
Changes in long-term receivables
Prepayment of expenses - - - 12.0
Other recoverable taxes 62.4 666.5 66.6 543.4
Other receivables - 26.9 - 78.5
Changes in long-term liabilities
Debentures 2,065.1 - 2,065.1 -
Financings - 144.9 - 2,233.7
Tax incentives 115.5 105.0 268.4 115.5
Related parties payables - 1,989.4 - -
Other 3.2 5.4 4.3 0.5
TOTAL SOURCES OF FUNDS 7,206.5 5,830.4 8,098.8 7,612.6
Parent Company Consolidated
2006 2005 2006 2005
USES OF FUNDS
Changes in long-term receivables
Compulsory and judicial deposits 46.8 106.8 61.4 72.2
Receivables from related parties - - - 8.2
Other taxes and charges recoverable 31.8 - - 8.3
Prepayment of expenses 20.9 7.9 20.9 -
Other 17.3 - 36.9 4.3
Changes in long-term liabilities
Financings 667.9 - 185.9 -
Deferral of taxes - 1.3 - -
Other accounts payable - - 176.6 30.0
Tax, labor and other contingencies 215.9 267.3 264.3 224.1
Permanent assets
Investments, including goodwill and negative goodwill 2,742.3 - 2,731.0 190.4
Property. plant and equipment 812.9 328.6 1,425.7 1,169.4
Deferred charges 11.9 91.6 18.7 265.4
Capital transactions
Share buyback 1,762.3 438.0 1,762.3 438.0
Proposed and paid dividends 1,864.0 1,299.6 1,864.0 1,299.6
Working capital of acquired subsidiary - 1,480.7 - -
Working capital of acquired parent company - 2.3 - -
Change in the capital of minority shareholders - - 0.5 88.3
TOTAL USES OF FUNDS 8,194.0 4,024.1 8,548.2 3,798.2
REDUCTION IN WORKING CAPITAL (987.5) 1,806.3 (449.4) 3,814.4
CHANGES IN WORKING CAPITAL
Current assets
At the end of the year 3,468.5 2,760.8 6,817.4 5,474.7
At the beginning of the year 2,760.8 783.5 5,474.7 5,379.7
707.7 1,977.3 1,342.7 95.0
Current liabilities
At the end of the year 6,273.9 4,578.7 6,844.4 5,052.3
At the beginning of the year 4,578.7 4,407.7 5,052.3 8,771.7
1,695.2 171.0 1,792.1 (3,719.4)
NET CHANGES IN WORKING CAPITAL (987.5) 1,806.3 (449.4) 3,814.4
The accompanying notes are an integral part of these financial statements.
96 Financial Statements Annual Report 2006 97
supplementary information – Cash flowfOR the yeaRs ended deCeMBeR 31, 2006 and 2005 - (in millions of Brazilian reais - R$)
2006 2005
OPERATING ACTIVITIES
Net income for the year 2,806.3 1,545.7
Expenses (income) not affecting cash and equivalents
Depreciation and amortization 1,188.4 1,087.5
Tax. labor and other contingencies (111.8) 71.5
Financial charges on tax and fiscal contingencies 36.7 52.7
Discount on the settlement of tax incentives (39.9) (28.3)
Provision for losses on inventories and permanent assets 11.8 58.6
Provision for restructuring costs 18.8 114.9
Reversion of provision for losses on investments (22.0) -
Financial charges and variations on taxes and contributions 1.4 5.2
Loss on disposal of permanent assets 163.4 102.5
Financial charges and variations on stock plans (10.0) (13.3)
Exchange rate variation and charges on financings 424.2 281.0
Exchange rate variation and unrealized gains on financial assets 13.4 -
Reduction of deferred income tax and social contribution 626.5 263.1
Exchange rate gains or losses on subsidiaries abroad not affecting cash (116.7) (67.6)
Goodwill amortization, net of realized negative goodwill 1,283.0 1,343.0
Minority interest (8.7) (16.8)
Equity accounting results (1.4) (2.0)
Unrealized losses on derivatives 221.6 (239.5)
Untimely credit recovery (24.0) -
Loss on interest ownership in subsidiaries (5.5) 64.8
Decrease (increase) in assets
Trade accounts receivable (166.2) (246.9)
Taxes Recoverable (14.5) 87.1
Other Receivables (169.3) 106.1
Inventories (142.8) 93.2
Judicial deposits (63.2) (130.0)
Increase (decrease) in liabilities
Suppliers 286.8 1.1
Salaries, profit sharing and social charges 20.7 118.0
Income tax, social contribution and other taxes 36.9 (383.1)
Disbursements linked to contingency provision (268.2) (101.6)
Other taxes and contributions to be paid 93.7 71.1
Other (84.1) (88.4)
CASH GENERATED BY OPERATING ACTIVITIES 5,985.3 4,149.6
2006 2005
INVESTING ACTIVITIES
Marketable securities (maturity over 90 days) 180.6 (52.4)
Securities and collateral 0.1 (15.4)
Disposable of investments - 1.0
Acquisition of investments (2,639.2) (97.3)
Disposal of property, plant and equipment 117.6 49.6
Acquisition of property. plant and equipment (1,425.7) (1,369.5)
Expenses on deferred charges (18.7) (47.8)
Related companies’ sharebuyback - (87.5)
CASH USED IN INVESTING ACTIVITIES (3,785.3) (1,619.3)
FINANCING ACTIVITIES
Financings
Funding obtained 9,344.8 8,917.5
Amortization (7,386.3) (9,361.1)
Changes in the capital of minority shareholders 53.0 (40.7)
Capital increase 3.4 -
Loan to employees for purchase of shares 72.5 53.8
Share buyback (1,765.1) (363.1)
Payment of dividends (1,790.8) (2,272.0)
Share buyback premium - 91.7
CASH USED IN FINANCING ACTIVITIES (1,468.6) (2,973.9)
Effect of exchange rate variations on cash and cash equivalents (29.8) (10.0)
INCREASE IN CASH AND EQUIVALENTS 701.6 (453.7)
Cash and equivalents at the beginning of the year 837.3 1,291.0
Cash and equivalents at the end of the year 1,538.9 837.3
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 701.6 (453.7)
The accompanying notes are an integral part of these financial statements.
98 Financial Statements Annual Report 2006 99
Notes to the Financial Statements(Amounts in millions of reais - R$, unless otherwise stated)
Mergedbalance
Current assets 1,882.4
Long-term assets 2,209.1
Investments 312.9
Property, plant and equipment 2,436.5
Deferred assets 451.0
Totalassets 7,291.9
Current liabilities (3,363.1)
Long term liabilities (3,857.7)
Deferred income (152.8)
Treasury shares 81.7
Totalliabilities (7,291.9)
1. OPERATING ACTIVITIES(a) GeneraL ConsIDeraTIons
Companhia de Bebidas das américas - amBev (referred as “Company” or “amBev” or “Parent Company”), headquartered in são Paulo, produces and sells beer,
draft beer, soft drinks, other non-alcoholic beverages and malt, either directly or by participating in other companies in Brazil and elsewhere in the americas.
The Company maintains a franchising agreement with PepsiCo International, Inc. (“PepsiCo”) to bottle, sell and distribute Pepsi products in Brazil and in other Latin
american countries, including Lipton Ice Tea and Gatorade, the isotonic sports drink.
The Company maintains a licensing agreement with anhenser-Busch, Inc., through its subsidiary Labatt Canada, to produce, bottle, sell and distribute Budweiser
products in Canada. In addition, the Company produces and distributes stella artois under license of Interbrew International B.V. (“InBev”) in Brazil and Canada
and, by means of a license granted to InBev, it distributes Brahma in the United states and in certain countries of europe, asia and africa.
The Company’s shares are traded on the são Paulo stock exchange – BoVesPa and on the new York stock exchange – nYse, as american Depositary
receipts - aDrs.
B) MaIn eVenTs oCCUrreD In 2006 anD 2005
i. Buyout of Quilmes Industrial s.a. (“Quinsa”)
as part of the share purchase agreement of Quinsa entered into in January 2003, the other joint controlling shareholders of Quinsa, Beverage associates Corp.
(“BaC”), had the right to exchange their 373.5 million class a shares of Quinsa for shares of amBev, in periods specified in each year as from april 2003, or at any
moment in which there was a change in the ownership structure of amBev. amBev also had the right to determine the exchange of class a shares of Quinsa for
shares of amBev as from 2010.
on april 13, 2006, the Company entered into an agreement whereby BaC sells the total of its shares in Quinsa to amBev.
on august 8, 2006, the Company closed the transaction with BaC, announced on april 13, 2006, acquiring all the shares of Beverage associates Holding LTD.
(“BaH”), acquired by amBev at the total amount r$2,738.8 equivalent to Us$1.25 billion, resulting in a goodwill at the amount of r$2,331.1. With the closing of
the operation, amBev’s interest in Quinsa’s capital stock increased from 59.77% to 91.18%.
This agreement represents the last stage of the transaction started in May 2002, by means of which amBev acquired an initial interest in Quinsa. In this transaction
both parties agreed that the purchase price would be paid in cash and that the referred options will no longer be exercised.
ii. alliance with romero Group
on March 9, 2006, the Company announced an alliance with the corporate group romero, entered into by means of a sale agreement of 25% of the capital stock
of its indirect subsidiary Compañia Cervecera amBev Perú s.a.C. (“amBev Perú”) to ransa Comercial s.a., a company integrating romero Group. on July 14,
2006, the Company closed the transaction for the amount of r$8.2.
The agreement of purchase and sale of shares set forth that the conclusion of the transaction would be subject to the corporate restructuring of amBev Perú and
to the execution of a shareholders’ agreement. The shareholders’ agreement executed, provided for the granting, by amBev, of an additional call option in favor of
romero Group for 5% of the capital stock of amBev Perú.
on september 22, 2006, the call option of 5% of the capital stock was exercised at the amount of r$1.6, and the interest of romero Group in the capital stock of
amBev Perú increased from 25% to 30%.
iii. Merger of the holding InBev Holding Brasil s.a. (“InBev Brasil”)
on July 28, 2005, at the General extraordinary Meeting, the shareholders of the Company approved the merger transaction of their holding company InBev Brasil,
with the purpose of simplifying the ownership structure of which InBev Brasil, amBev and their subsidiaries are part, providing financial benefits for amBev and as a
consequence to its shareholders and InBev shareholders. The main aspects related to the merger were:
a)The goodwill originally recorded by InBev Brasil and attributed to the expected future results of amBev, in the total amount of r$8,510.1, becomes, following
the Merger, fiscally amortized in up to 10 years by amBev, pursuant to the provisions of the current tax legislation and without impact to its dividends flow.
b)InBev Brasil, pursuant to CVM Instruction no. 349, recorded provision, prior to its merger by amBev, in the amount of r$5,616.7, corresponding to the variation
between the goodwill amount and the tax benefit derived from its amortization, in such a way amBev merged only the assets correspondent to the tax benefit
from goodwill amortization deductible for tax purposes. The said provision is being accrued at the same rate in which goodwill is amortized by amBev, not
affecting, thus, the results of its operations.
c)The special goodwill reserve recorded by amBev, as a result of the merger will be at the end of each fiscal year and to the extent that the tax benefit to be
determined by amBev, as a result of goodwill amortization, represent an effective decrease of taxes paid by the company, object of capitalization by amBev, in
benefit of InBev nV/as, shareholders of InBev Brasil, without prejudice to the right of first refusal ensured to the other shareholders of amBev at the subscription
of the capital increase as a result of said capitalization. However, the InBev Brasil shareholders undertake to capitalize only 70% (seventy per cent) of the special
reserve amount of goodwill entitled to them at the end of each fiscal year. The non capitalized balance of the reserve will be, whenever possible and while
complying with amBev’s interests, distributed to its shareholders, as dividends or interest on own capital.
iv. Merger of the subsidiary Companhia Brasileira de Bebidas (“CBB”)
The shareholders of the Company approved, at the extraordinary General Meeting, held on May 31, 2005, the merger of the subsidiary CBB. The purpose of the
referred merger was the simplification of the ownership structure of which amBev and its subsidiaries are part, in addition to allowing that the amount of r$702.8
of the goodwill originally recorded in amBev, from the acquisition of shares of CBB, attributed to the expected future profitability, becomes, following the merger,
fiscally amortized in up to 10 years, pursuant to the provisions of the tax legislation.
as from July 1, 2005, the result of amBev operations includes the operating activities previously held by and recorded directly in CBB. as CBB’s financial statements
were already consolidated, the referred merger, by amBev, of the assets and liabilities of CBB, valued at book value, didn’t have any effect in the consolidated
financial statements. However, in the individual financial statements, such a merger resulted in significant changes, prejudicing the comparison between the lines of
the result recorded in 2006 and the previous year.
The assets and liabilities merged by amBev on May 31, 2005 are presented below:
The outstanding balance of the net assets of CBB merged by amBev was r$81.6. This amount is comprised by the amount of r$4, related to amBev acquisitions
attributed to minority shareholders of CBB in addition to the amount of r$81.6, related to the preferred shares issued by amBev that were held by CBB and that,
as the result of the merger, were recorded in the Company’s shareholder equity in the item “shares held in treasury”. such a classification is consistent with the
treatment previously waived to these shares in the consolidated financial statements.
2. FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING PRACTICESThe financial statements were prepared and are presented in accordance with the accounting practices adopted in Brazil and with the rules issued by the Brazilian
securities and exchange Commission – CVM. These financial statements included the modifications introduced by the following accounting normative rulings: (i)
accounting rules and Procedures (“nPC”) no. 27 – Presentations and Disclosure, issued by the Brazilian Institute of accountants – Ibracon, on october 3, 2005,
approved by the CVM resolution no. 488, on the same date; and (ii) nPC no. 22 – Provisions, Liabilities, Contingent Liabilities and assets, issued by Ibracon, on
october 3, 2005, approved by the CVM resolution no. 489, on the same date.
100 Financial Statements Annual Report 2006 101
a) aCCoUnTInG esTIMaTes
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of certain assets, liabilities
and other transactions. This includes several estimates relating to the useful life of property, plant and equipment, necessary for contingent liabilities provision,
for the calculation of projections to determine the recovery of property, plant and equipment, deferred and deferred income tax asset balances and for the
determination of income tax provision, which, although they are the best estimate of management, actual values can differ from such estimates.
The Company management reviews periodically these estimates and believes that there should be no significant variations.
B) DeTerMInaTIon of neT InCoMe
revenues and expenses are recognized on an accrual basis. sales revenues and their respective costs are recorded upon delivery of products to customers.
C) CUrrenT anD non-CUrrenT asseTs
Cash and cash equivalents, represented by quick ratio amounts with initial term of up to 90 days, are represented at the cost of acquisition, plus income earned
until the balance sheet date and readjusted, when applicable, at its equivalent market value.
The short-term investment, mainly represented by marketable securities, government bonds and bank deposit certificates, in addition to those denominated in
foreign currency, are presented at cost value, plus, when applicable, income earned “pro rata temporis”; when necessary, the Company records provision for the
reduction to market values. In addition to that, the quotas of investment funds are valued at market value, and when applicable, the Company records provision
with the purpose of deferring the unearned variable income.
The consolidated balance sheet of short-term investments, as of December 31, 2006, includes deposits in current account and financial investments, subject to the
issuance of foreign debt bonds of subsidiaries, in the amount of r$34.6 (r$16.3 only in the Consolidated on December 31, 2005).
The allowance for doubtful accounts is recorded in amount considered enough by management to cover probable losses in the realization of credits and amounts
to r$134.0 in the Company and r$185.6 in the Consolidated on December 31, 2006 (r$125.9 and r$169.7, respectively, on December 31, 2005).
Inventories are stated at average cost of purchases or production, adjusted, when necessary, at the provision for writing down at realizable values.
other current and non-current assets are presented at cost value, including, when applicable, the income earned on the date of the end of the year.
D) PerManenT asseTs
Investments in subsidiaries and in joint subsidiaries are evaluated by the equity accounting method and, during its first evaluation, the accounting practices adopted
are standardized to those adopted by the Company. The book value of these investments includes the breakdown of the acquisition costs in equity value, goodwill
or negative goodwill.
Goodwill in investments, substantiated in the surplus value of the permanent assets, is amortized based on the expected useful life of the permanent asset of the
subsidiary, while goodwill (negative goodwill) attributed to the expected future results is amortized within the term of five to ten years and recorded in item “other
operating expenses”. negative goodwill in investments, attributed to various economic reasons, will only be amortized upon the eventual selling or write off of
investments.
The fixed asset is stated at cost and includes interest from the financing throughout the construction of certain assets thus qualified. Maintenance and repair
expenses, when accrued, are recorded in the item expenses. Losses with bottles and crates during production are included in the cost of goods sold. other losses in
the realization of the property, plant and equipment are evaluated in time by the Company management and, when applicable, it records provision in view of such
risks. Depreciation is calculated by the straight-line method, considering the useful and economic life of the assets, at the annual rates mentioned in note 6.
The deferred charge asset is comprised mainly of expenses recorded throughout the pre-operating phase, goodwill from the acquisition of subsidiaries merged by
the Company and expenses from implementation and expansion (note 7). The amortization of the deferred asset is calculated by the straight-line method, up to 10
years, as from the date the operating activities startup, when related to expenses from the pre-operating phase and as from the following month to the acquisition,
when related to goodwill.
e) Translation of the financial statements from subsidiaries located abroad
Malt operations located in argentina and Uruguay use the Us dollar as their functional currency, for their revenues and cash flows are considerably pegged to such
a currency. The financial statements of subsidiaries located abroad are prepared based on the local currency as functional currency, that is, the main currency of the
economic system in which the company operates.
The assets, liabilities and shareholders’ equity of the subsidiaries located abroad are translated into reais at the exchange rates effective on the date of the financial
statements. In their turn, the income accounts are translated and maintained in reais at the average exchange rates of the period.
The difference between the net income determined at the exchange rates on the date of the financial statements and that ascertained at the average exchange
rates of the period is recorded in “other operating income”.
f) CUrrenT anD LonG-TerM LIaBILITIes
These are stated at known or calculable values, plus, when applicable, the corresponding charges and monetary variations accrued until the date of closure of the
financial statements.
G) oPeraTIons WITH DerIVaTIVes of CUrrenCIes anD InTeresT – fInanCIaL ITeMs
The Company keeps derivatives instruments with the purpose of hedging its consolidated risk exposure of currencies and interest. This way, pursuant to the CVM
rules, operations “not designated for accounting” are gauged at the lowest value between their cost values, accrued based on the agreement conditions between
the Company and third parties (“paper curve”), and their market value, and recorded in the item “Gains on unrealized derivatives” or “Losses on unrealized
derivatives”. for the operations designated as hedge operations, recording is performed based on the amortized cost.
The face values of the forward and swap operations of currencies and interest are not recorded in the balance sheet.
H) oPeraTIons WITH DerIVaTIVes of CUrrenCIes anD CoMMoDITIes – oPeraTInG ITeMs
The Company keeps derivatives instrument with the purpose of hedging its consolidated exposure of costs of raw materials to be acquired and operating expenses
whose prices are pegged to the price variation of currencies and commodities.
The net results of these derivatives instruments, designated for accounting as hedging are gauged at market value, deferred and recorded in the Company’s
balance sheet in the item “other assets and liabilities”, and recognized in the results when the hedging is recorded in the result. raw materials are recorded in the
result when the sale of the product is recorded in the item “Cost of goods sold”; in the case of expenses, the result will be recorded when expenses are recorded in
the item operating expenses in the result.
I) ProVIsIon for ConTInGenCIes anD LIaBILITIes reLaTeD To LeGaL ProCeeDInGs
The provision for contingencies is established by the amounts adjusted for price-level changes, related to labor, tax, civil and commercial issues claimed at the
administrative and judicial levels, based on the estimated losses established by the independent legal counsel of the Company and of its subsidiaries, in the cases in
which such losses are considered probable.
Tax reductions, obtained based on judicial decisions derived from lawsuits filed by the Company and its subsidiaries against the tax authorities are subject to
provisioning until they are ultimately ensured in favor of the Company and its subsidiaries.
J) fIsCaL InCenTIVes
The Company and its subsidiaries have certain state fiscal incentive programs as deferred tax payments, with partial or full reductions of these. In some states the
grace periods and reductions are not conditional.
However, when the conditions exist, they refer to facts under Company control. The benefit related to the reduction of these tax payments is understood as reserve
for fiscal incentives and recorded in the shareholders equity of the subsidiaries, based on the accrual basis of accounting of these taxes, or upon the compliance
by the subsidiaries of the main obligations established by the state programs, in order to receive the benefit granted. In the Company’s consolidated financial
statements, such benefit is recorded in the item “other operating income” and amounted r$165.3 on December 31, 2006 (r$151.8 on December 31, 2005).
k) InCoMe Tax anD soCIaL ConTrIBUTIon on neT InCoMe
The income tax and social contribution on net income are calculated at the rates set forth in the applicable legislation. Charges related to income tax and social
contribution is recorded on the accrual basis of accounting, plus the deferred income tax calculated at timing differences between the accounting and tax basis of
assets and liabilities.
The Company also records the deferred active income tax corresponding to the future tax benefit on tax losses and negative basis of social contribution for the
subsidiaries where these benefits are expected to be realized, within 10 years, based on the future results projection.
L) aCTUarIaL asseTs anD LIaBILITIes reLaTeD To BenefITs To eMPLoYees
The Company and its subsidiaries record the actuarial assets and liabilities related to benefits to employees in accordance with the CVM Instruction no. 371, of
December 13, 2000.
The actuarial gains and losses are recorded at the exceeding amount to the highest amount between (a) 10% of the present value of the actuarial liability and (b)
10% of the fair value of the plan assets, amortized by the future average time of service of the plan participants.
102 Financial Statements Annual Report 2006 103
OnDecember31,2006
Agrega ITB Total
Current assets 1,9 0.4 2.3
Long-term assets - 4.8 4.8
Permanent assets 0.4 0.9 1.3
Current liabilities (2.2) 0.1 (2.1)
Long-term liabilities - (12.0) (12.0)
Totalnetassets(liabilities) 0.1 (5.8) (5.7)
Interest - % 50.0 50.0
OnDecember31,2005
Quinsa Agrega ITB Total
Current assets 523.8 1.4 0.4 525.6
Long-term assets 115.1 - 5.1 120.2
Permanent assets 1,180.0 0.4 0.9 1,181.3
Current liabilities (531.6) (1.8) - (533.4)
Long-term liabilities (477.8) - (11.1) (488.9)
Minority interest (103.7) - - (103.7)
Totalnetassets(liabilities 705.9 - (4.7) 701.1
Interest - % 59.2 50.0 50.0
ParentCompany Consolidated
2006 2005 2006 2005
finished Products 143.6 143.2 319.2 322.2
Products under elaboration 45.6 46.1 69.6 67.8
raw materials 235.9 231.0 618.7 515.1
Production materials 110.4 96.4 235.6 186.6
Warehouse and other supplies 63.9 56.8 136.6 113.7
Provisions for losses (9.5) (16.0) (15.8) (27.3)
589.9 557.5 1,363.9 1,178.1
2006
Balances Transactions
Net
Accounts Accounts Netloan financial
Companies Receivable Payable agreements Netsales result
amBev 791.5 (1,678.2) (1,378.7) 398.3 (76.6)
fratelli 4.0 (6.0) 149.9 21.6 (17.0)
Jalua spain s.L. - - (87.3) - 46.1
Monthiers s.a. 1,437.1 - 1,495.3 - (36.7)
arosuco 8.6 (0.3) 470.5 549.1 0.3
Dunvegan s.a. 131.2 (1.1) (422.1) - 88.6
Cympay 76.8 (0.1) 1.5 98.1 0.2
Maltería Uruguai 33.3 (34.1) - 135.3 -
Malteria Pampa s.a. 12.0 (0.1) 0.4 118.7 -
CrBs s.a 122.7 - (22.3) - -
CaCn 0.3 (14.6) 81.0 74.6 (1.7)
eagle - (868.1) (1.8) - -
aspen - - (143.4) - 0.7
Labatt Canada (i) 1.1 (10.1) - - -
other national 8.0 (6.6) (114.9) 1.5 (1.8)
other international 4.3 (7.6) (24.2) 14.8 (1.0)
TOTAL 2,630.9 (2,626.9) 3.9 1.412.0 1.1
OnDecember31,2006
Quinsa(i) Agrega ITB Total
net revenues 492.6 1.3 - 493.9
Cost of goods and products sold (211.9) - - (211.9)
Grossprofit 280.7 1.3 - 282.0
operating expenses (174.1) (3.4) (1.8) (179.3)
Operatinggain(loss) 106.6 (2.1) (1.8) 102.7
non-operating gain 1.2 - - 1.2
Income tax provision (40.4) 0.6 (39.8)
Minority interest (15.3) - - (15.3)
Netincome(loss)fortheperiod/year 52.1 (2.1) (1.2) 48.8
OnDecember31,2005
Quinsa(i) Agrega ITB Total
net revenues 1,299.9 1.2 - 1,301.1
Cost of goods and products sold (536.7) - - (536.7)
Grossprofit 763.2 1.2 - 764.4
operating expenses (457.7) (3.1) (1.0) (461.8)
Operatinggain(loss) 305.5 (1.9) (1.0) 302.6
non-operating gain (9.0) - - (9.0)
Income tax provision (113.8) - 0.4 (113.4)
Minority interest (59.1) - - (59.1)
Netincome(loss)fortheperiod 123.6 (1.9) (0.6) 121.1
(i) Proportional result consolidated until august 2006 (note 1 (b) (i)).
M) ConsoLIDaTeD fInanCIaL sTaTeMenTs - sUBsIDIarIes
all assets, liabilities and results of the subsidiaries were consolidated, and the interest of minority shareholders in the shareholders’ equity and results of periods is
segregated.
In the consolidation, the investments in subsidiaries and the portion corresponding to their shareholders’ equity, the assets and liabilities balances and revenues and
expenses, from consolidated intercompany transactions were eliminated. additionally, the unrealized results arising from purchases of products of subsidiaries and
associated companies was excluded, incorporated to the inventories at the end of each period, as well as other transactions among all the Company’s subsidiaries.
The consolidated financial statements include the financial statements, prepared on the same dates, of the companies either direct or indirect controlled by the Company.
n) ProPorTIonaLLY ConsoLIDaTeD fInanCIaL sTaTeMenTs
since august 2006, the Company fully consolidates Quinsa’s financial statements which were until then proportionally consolidated (note 1 (b)(i)).
We present the net assets of agrega Inteligência em Compras Ltda. (“agrega”) and of Ice Tea do Brasil Ltda. (ITB”), consolidated proportionally in the Company’s
financial statements, as follows:
The results of Quinsa, agrega and ITB proportionally consolidated in the Company’s financial statements, are as follows:
o) TransaCTIons WITH reLaTeD ParTIes
Transactions with related parties are carried out under usual market conditions and include, among other operations, the buying and selling of raw materials such
as malt, concentrates, labels, corks and various finished products.
Loan agreements among the Company’s subsidiaries in Brazil have undetermined maturity terms and are subject to financial charges, except for some agreements
with subsidiaries, in which the Company holds 100% of the capital stock, which are not subject to financial charges.
agreements involving the Company’s foreign subsidiaries are usually monetarily restated based on the Us dollar variation, plus annual interest up to 10%.
P) reCLassIfICaTIons
In the financial statements related to the year ended on December 31, 2005, and 2004, presented for comparison purposes, the Company performed certain
reclassification for complying with the CVM resolution no. 488 and 489, in addition, the Company performed other reclassifications with the purpose of
improving the presentation of certain amounts and transaction, as well as maintaining the comparability between the periods. The Company made the following
reclassifications: (i) Introduction of the account “noncurrent” in assets and liabilities; (ii) Introduction of the item “Intangible”, classified in the account “noncurrent
assets”; (iii) in note 14 (d) between financial income and expenses; (iv) from Deferred assets, the balance of goodwill on the merger of InBev Brasil and its
respective provision for realization, to “deferred Income and social Contribution Taxes” in short and long terms. In income, from amortizations and depreciations to
the result of the current income and social contribution taxes the portion related to the realization of goodwill and the provision for the merger of InBev Brasil; (v)
reclassification of judicial deposits, previously classified in assets, to liabilities, as contra-asset of the account “provision for contingencies”, where applicable.
3. ESTOQUES
4. TRANSACTIONS WITH RELATED PARTIESThe main transactions with related parties are as follows:
104 Financial Statements Annual Report 2006 105
2005
Balances Transactions
Net
Accounts Accounts Netloan financial
Companies Receivable Payable agreements Netsales result
amBev 804.3 (1,748.0) (1,559.2) 366.7 (324.2)
CBB (iii) - - - 113.8 108.4
fratelli (ii) - (11.2) 133.3 6.7 (6.1)
IBa – sudeste (ii) - - - 44.5 399.0
Jalua spain s.L. - - (40.8) - (51.3)
Monthiers s.a. 1,526.2 - 1.421.9 - (68.6)
arosuco 4.5 - 384.5 511.6 -
Dunvegan s.a. 216.6 - (417.5) - 36.3
Cympay 0.5 - 16.8 98.2 0.4
Malteria Pampa s.a. 8.3 - - 145.5 -
Maltería Uruguai s.a. 1.2 - - 98.0 -
aspen - - (153.1) - 5.7
CaCn - (34.1) 25.7 77.4 0.1
eagle - (868.1) - - -
CrBs s.a. 122.7 - - - -
Labatt Canada (i) - - 0.5 - -
other national 63.4 (9.2) 233.3 1.3 2.9
other international 2.8 (68.1) (60.9) 0.1 (2.9)
TOTAL 2,750.5 (2,738.7) (15.5) 1,463.8 99.7
(i) Labatt Canada maintains a service agreement with InBev , through which the services rendered or incurred expenses are refunded in behalf of the other
party. on December 31, 2006, Labatt Canada maintains accounts receivable at the amount of r$38.1 (r$6.6 on December 31, 2005) and accounts payable
at the amount of r$7.5 (r$3.5 on December 31, 2005).
(ii) on november 30, 2005, fratelli incorporated IBa-sudeste.
(iii) as described in note 1(b)(iv), CBB was incorporated by amBev on May 31, 2005.
names used:
• Indústria de Bebidas antarctica do sudeste s.a. (“IBa sudeste”)
• Compañia Brahma Venezuela s.a. (“CaCn”)
• eagle Distribuidora de Bebidas s/a (“eagle”)
• arosuco aromas e sucos Ltda. (“arosuco”)
• Cervecería y Maltería Paysandú - Cympay (“Cympay”)
• aspen equities Corporation (“aspen”)
• fratelli Vita Bebidas s.a. (“fratelli”)
ParentCompany Consolidated
2006 2005 2006 2005
Currentassets
Deferred income from commodities,
swap and forward operations (note 14(b)(ii)) 37.3 75.6 66.9 75.6
advertising expenses reimbursement 65.2 42.5 88.4 45.6
Prepaid expenses 270.2 233.5 316.8 296.0
advances to suppliers and others 0.3 0.3 22.8 23.1
accounts receivable with related parties - 13.7 185.4 265.4
other accounts receivable 58.0 13.1 165.1 73.9
431.0 378.7 845.4 779.6
Long-termassets
Long-term financial investments - - 1.7 69.4
other taxes and charges recoverable 140.0 108.2 158.9 130.8
Prepaid expenses 132.9 112.0 134.3 126.6
surplus – Instituto amBev (note 11(a)) 17.0 20.0 17.0 20.0
other accounts with related parties - - 97.4 4.7
other accounts receivable 19.0 5.5 76.7 24.6
308.9 245.7 486.0 376.1
Investment Goodwill Total
BalanceonDecember31,2004 19,825.2 234.1 20,059.3
Dividends received and receivable arosuco (531.9) - (531.9)
equity in the results of subsidiaries (v) 828.6 - 828.6
exchange variation in subsidiary abroad (2.9) - (2.9)
Goodwill amortization - (52.7) (52.7)
Direct ownership held by the subsidiary CBB (note 1 (b)(iv)) 477.0 (166.8) 310.2
Provision for losses on investments (8.9) - (8.9)
Capital refund by the subsidiary (iv) (836.8) - (836.8)
Disposal of treasury shares 33.7 - 33.7
Loss of interest in subsidiary (3.3) - (3.3)
Interim dividends IBa sudeste (iii) (161.3) - (161.3)
BalanceonDecember31,2005 19,619.4 14.6 19,634.0
Dividends received and receivable arosuco (350.0) - (350.0)
equity in the results of subsidiaries (v) 303.4 - 303.4
exchange variation in subsidiary abroad (17.9) - (17.9)
Goodwill amortization - (107.5) (107.5)
reversal of provision for losses on investments 12.3 - 12.3
Loss of interest in subsidiary (0.7) - (0.7)
Capital contribution 2.2 - 2.2
Capital reduction (ii) (300.0) - (300.0)
Dividends received (i) (710.9) - (710.9)
acquisition of Investment (note 1 (b)(i)) 407.7 2,331.1 2,738.8
BalanceonDecember31,2006 18,965.5 2,238.2 21,203.7
ParentCompany Consolidated
2006 2005 2006 2005
Futureprofitabilityexpectation:
Labatt Canada - - 16,383.3 16,383.3
QIB - - 93.4 93.4
BaH 2,331.1 - 2,331.1 -
Quinsa - - 1,029.8 1,029.8
Cympay - - 26.6 26.6
embodom - - 224.1 224.1
Malteria Pampa 9.3 9.3 28.1 28.1
Patí do alferes Participações s.a. 3.4 3.4 - -
Indústrias Del atlântico - - 5.1 5.1
Distribuidora Brakl 101.9 101.9 - -
Distribuidora ribeirão Preto 73.5 73.4 - -
Distribuidora Jaguariúna 6.6 6.7 - -
Cervejaria Miranda Corrêa s.a. 5.5 5.5 5.5 5.5
subsidiaries of Labatt Canada (ii) - - 3,033.3 3,323.9
subsidiaries of Quinsa (consolidated) (iii) - - 1,025.8 622.2
Totalgoodwill 2,531.3 200.2 24,186.1 21,742.0
accumulated amortization (i) (293.1) (185.6) (6,174.9) (4,997.2)
Totalgoodwill,netofamortization 2,238.2 14.6 18,011.2 16,744.8
negative goodwill
Cerversursa - - (12.3) (14.4)
Incesa (consolidated) - - (12.7) (8.2)
Totalnegativegoodwill - - (25.0) (22.6)
Netbalance 2,238.2 14.6 17,986.2 16,722.2
5. OTHER ASSETS
6. INVESTMENT IN DIRECT SUBSIDIARIESa) CHanGes In InVesTMenTs In DIreCT sUBsIDIarIes, InCLUDInG GooDWILL anD neGaTIVe GooDWILL
(i) on June 2, 2006, the Company received dividends from its subsidiary Labatt aps relating to accumulated results of its subsidiary Labatt Canada of 2005 and 2004.
(ii) on June 1, 2006, aneP’s management approved a decreased in the capital stock amounting to r$300.00 for deeming it excessive on that date.
(iii) on september 2, 2005, IBa sudeste’s management approved the distribution of dividends as a consequence of the results verified in 1Q05, to be imputed to the minimum mandatory
dividends of 2005 at the amount of r$210.4, the Company being responsible for the amount of r$161.3 and its subsidiary aneP being responsible for the amount of r$ 46.8. The portion of
dividends plus decrease in capital the benefit of which was amBev’s was offset with the balance of net loan agreements receivable witch amBev maintained with IBa sudeste.
(iv) This balance refers to the capital refund by IBa sudeste, approved by its shareholders on June 3, 2005, at the total amount of r$1,100.00, the capital stock decreasing from r$1,302.0 to
r$202.0, without any change to the number of shares issued by the subsidiary, subject to the decrease in capital resolved to the conditions set forth in article 174 of Law 6,404/76. Thus, the
refund amount was recognized in the equity of IBa sudeste on august 31, 2005, date of payment and end of the prescription period for opposition by the creditors.
(v) This result comprises goodwill amortization of Labatt aps na Labatt Canada at the amount of r$969.8 (r$923.5, on December 31, 2005).
B) GooDWILL anD neGaTIVe GooDWILL
(i) The balance of the accumulated amortization referring to the goodwill of Labatt aps in Labatt Canada totals r$2,004.7 (r$1,034.9 on December 31, 2005).
(ii) The balance of the accumulated amortization referring to the goodwill existing in Labatt Canada totals r$3,003.4 on December 31, 2006 (r$3,289.7 on December 31, 2005).
(iii) Increase mainly results from the change from proportional consolidation to integral consolidation (note 1 (b) (i)).
106 Financial Statements Annual Report 2006 107
OnDecember31,2006
Description CRBS Arosuco Agrega Hohneck LabattApS
Numberofshares/quotasheld(inthousands):
Common shares/quotas 765,961 0.3 12,155 602,468 1,000.017
Preferred shares - - - - -
Totalshares/quotas 765,961 0.3 12,155 602,468 1,000.017
Percentage of direct ownership in capital stock
In relation to common shares/quotas 99.65 99.70 50.00 50.69 99.99
In relation to total shares/quotas 99.65 99.70 50.00 50.69 99.99
Informationonfinancialstatementsofdirectsubsidiaries:
adjusted shareholders’ equity 179.1 457.4 0.1 1,085.3 13,279.1
Investment 178.5 424.6 - 550.2 13,278.9
net income (loss) for the period 1.9 294.9 (4.5) (80.1) (142.1)
equity accounting result (i) 1.9 431.0 (2.2) (40.6) (142.0)
OnDecember31,2006
Description Dahlen BSA Pepsi ANEP Fratelli
Numberofshares/quotasheld(inthousands):
Common shares/quotas 480 31,595 77,084 669,019 215
Preferred shares - - - - 130
Totalshares/quotas 480 31,595 77,084 669,019 345
Percentageofdirectownershipincapitalstock
In relation to common shares/quotas 100.0 100.0 99.50 100.0 71.86
In relation to total shares/quotas 100.0 100.0 99.50 100.0 77.84
Informationonfinancialstatementsofdirectsubsidiaries:
adjusted shareholders’ equity 40.2 10.3 240.2 115.3 491.4
Investment 40.2 10.3 239.0 115.3 382.6
adjusted net income (loss) 8.6 - (2.4) 19.8 64.0
equity accounting result (i) 8.6 - (2.4) 19.8 69.7
OnDecember31,2006
Fazendado Maltaria Lambic Miranda
Description BAH Poço Pampa Eagle Holding Correa Skol Total
Numberofshares/quotasheld(inthousands):
Common shares/quotas 373,520 578 1,439.147 278 13,641 37 91
Preferred shares - 389 - - - 35 -
Totalshares/quotas 373,520 967 1,439.147 278 13,641 72 91
Percentageofdirectownershipincapitalstock
In relation to common shares/quotas 100.0 86.4 60.0 99.96 87.10 100.0 99.96
In relation to total shares/quotas 100.0 91.4 60.0 99.96 87.10 100.0 99.96
Informationonfinancialstatements
ofdirectsubsidiaries:
adjusted shareholders’ equity 448.5 0.6 196.5 2,216.3 305.6 43.5 653.7
Investment 448.5 0.6 117.9 2,215.7 266.2 43.5 653.5 18,965.5
adjusted net income (loss) 48.0 (3.2) 43.6 159.8 55.6 32.0 (33.2)
equity accounting result (i) 48.0 (2.9) 26.2 (159.0) 48.5 32.0 (33.2) 303.4
OnDecember31,2005
Description CRBS Arosuco Agrega Hohneck LabattApS
Numberofshares/quotasheld(inthousands):
Common shares/quotas 765,961 0.3 6,510 602,468 1,000.017
Preferred shares - - - - -
Totalshares/quotas 765,961 0.3 6,510 602,468 1,000.017
Percentageofdirectownershipincapitalstock
In relation to preferred shares - - - -
In relation to common shares/quotas 99.65 99.7 50.0 50.7 100.0
In relation to total shares/quotas 99.65 99.7 50.0 50.7 100.0
Informationonfinancialstatementsofdirectsubsidiaries:
adjusted shareholders’ equity 177.3 373.2 0.1 1,165.4 14,132.0
Investment 176.6 343.5 - 590.7 14,131.8
adjusted net income (loss) (7.9) 273.2 (3.8) (80.2) (291.9)
equity accounting result (i) (9.2) 380.4 (1.9) (30.1) (291.9)
OnDecember31,2005
Description Dahlen BSA Pepsi Anep Fratelli
Numberofshares/quotasheld(inthousands):
Common shares/quotas 480 31,595 77,084 669,019 299
Preferred shares - - - - 143
Totalshares/quotas 480 31,595 77,084 669,019 442
Percentageofdirectownershipincapitalstock
In relation to common shares/quotas 100.0 100.0 99.5 100.0 71.9
In relation to total shares/quotas 100.0 100.0 99.5 100.0 77.8
Informationonfinancialstatementsofdirectsubsidiaries:
adjusted shareholders’ equity 31.6 10.3 242.7 395.6 401.7
Investment 31.6 10.3 241.4 395.6 312.6
adjusted net income (loss) 4.7 - 14.5 71.6 28.2
equity accounting result (i) 3.1 - 1.2 22.3 18.7
OnDecember31,2005
Maltaria Lambic Miranda
Description Pampa Eagle Holding Correa Skol Total
Numberofshares/quotasheld(inthousands):
Common shares/quotas 1,439.147 278 13,641 37 91
Preferred shares - - - - -
Totalshares/quotas 1,439.147 278 13,641 37 91
Percentageofdirectownershipincapitalstock
In relation to common shares/quotas 60.0 99.96 87.33 100.0 99.96
In relation to total shares/quotas 60.0 99.96 87.33 100.0 99.96
Informationonfinancialstatementsofdirectsubsidiaries:
adjusted shareholders’ equity 196.9 2,376.1 250.0 11.5 687.0
Investment 102.3 2,375.2 218.4 11.5 686.8 19,628.3
adjusted net income (loss) 23.3 (284.4) (4.8) 6.9 (24.3)
equity accounting result (i) 7.2 (55.8) (5.1) 6.8 (16.6) 29.1
Totalpercentage
ofindirectholding-%
Company 2006 2005
abroad
Quinsa 91.18 59.22
Jalua spain s.L. 100.0 100.0
Monthiers 100.0 100.0
aspen 100.0 100.0
ParentCompany
2006 2005
Annual
Accumulated Carrying Carrying depreciation
Cost depreciation amount amount rates(i)-%
Land 92.0 - 92.0 92.0
Buildings and constructions 1,286.1 (696.3) 589.8 607.5 4.0
Machinery and equipment 3,832.4 (3,255.2) 577.2 584.0 10.0
external use movable assets 1,213.6 (594.2) 619.4 547.1 10.0
other assets and intangible 1,128.9 (767.4) 361.5 481.5 19.9 (ii)
Construction in progress 371.7 - 371.7 162.1
7,924.7 (5,313.1) 2,611.6 2,474.2
C) InforMaTIon on DIreCT sUBsIDIarIes
(i) The equity accounting result recognized by amBev during the quarter ended December 31, 2006, is affected by gains of tax incentives, at the total amount of r$160.0 (r$112.9 on
December 31, 2005).
The balance of investments on December 31, 2006 comprises the provision for unrealized profits in subsidiaries at the amount of r$43.9 (r$44.5 on December 31,
2005).
The equity accounting result recognized by amBev during the year ended on December 31, 2005, comprises the results of r$743.4 and r$56.1 of incorporated
subsidiaries CBB and IBa-sudeste, respectively.
D) MaJor reLeVanT InDIreCT HoLDInGs In sUBsIDIarIes:
7. PROPERTY, PLANT AND EQUIPMENTa) CoMPosITIon of ProPerTY, PLanT anD eQUIPMenT
108 Financial Statements Annual Report 2006 109
Consolidated
2006 2005
Annual
Accumulated Carrying Carrying depreciation
Cost depreciation amount amount rates(i)-%
Land 324.8 - 324.8 309.9
Buildings and constructions 2,815.5 (1,391.1) 1,424.4 1,342.7 4.0
Machinery and equipment 9,081.5 (7,028.5) 2,053.0 1,909.2 10.0
external use movable assets 2,110.7 (1,097.9) 1,012.8 913.7 10.0
other assets and intangible 1,448.3 (1,018.1) 430.2 486.9 19.9 (ii)
Construction in progress 478.7 - 478.7 442.2
16,259.5 (10,535.6) 5,723.9 5,404.6
(i) The rates may increase from 50% to 100%, due to the number of production shifts in which the asset is used.
(ii) Weighted average depreciation rate on December 31, 2006 and 2005.
ParentCompany Consolidated
2006 2005 2006 2005
Cost
Pre-operating expenses 180.7 168.9 250.1 243.2
Implementation and expansion expenses 48.3 48.3 53.5 53.5
Goodwill - future profitability (i) 811.9 811.9 811.9 811.9
other 167.3 167.3 206.7 202.0
Totalcost 1,208.2 1,196.4 1,322.2 1,310.6
accumulated amortization (854.8) (733.0) (893.1) (761.9)
Netdeferredcharges 353.4 463.4 429.1 548.7
(i) The goodwill reclassified for deferred charges (resulting from merged subsidiaries) is based on the future profitability of operations sustaining its
generation.
ParentCompany
Current Long-term
Modalityandpurpose Final Weighted
maturity AverageRate Currency 2006 2005 2006 2005
Inreais
ICMs tax incentives aug/2016 4.55% r$ 102.5 86.2 160.5 228.0
Investments in permanent assets aug/2011 TJLP+3.86% r$ 167.1 104.2 331.7 362.3
Working capital 17.99% r$ - 1.4 - -
269.6 191.8 492.2 590.3
Inforeigncurrency
Working capital 2.90% up to
Jun/2006 4.90% UsD - 541.1 - -
Working capital Mar/2007 3.64% Yen 901.0 - - -
Bond 2011 Dec/2011 10.50% UsD 5.5 6.0 1,069.0 1,170.3
Bond 2013 sep/2013 8.75% UsD 32.4 35.1 1,069.0 1,170.3
Investments in permanent assets Jan/2011 8.75% UMBnDes 31.3 16.0 45.3 63.6
970.2 598.2 2,183.3 2,404.2
Totalloansandfinancings 1,239.8 790.0 2,675.5 2,994.5
Debentures 2009 Jul/2009 101.75% CDI r$ 26.0 - 817.1 -
Debentures 2012 Jul/2012 102.50% CDI r$ 39.9 - 1,248.0 -
Total Debentures 65.9 - 2,065.1 -
TotalIndebtedness 1,305.7 790.0 4,740.6 2,994.5
Consolidated
Current Long-term
Modalityandpurpose Final Weighted
maturity AverageRate Currency 2006 2005 2006 2005
Inreais
ICMs tax incentives aug/2016 4.55% r$ 103.6 89.5 161.9 237.3
Investments in permanent assets aug/2011 TJLP+3.86% r$ 167.1 104.2 331.7 362.3
Working capital / guaranteed account Jun/2011 15.88% r$ 63.8 1.4 619.5 -
334.5 195.1 1.113.1 599.6
Inforeigncurrency
Working capital oct/2011 5.46% UsD 118.2 673.7 94.1 103.0
Working capital Mar/2007 3.64% Yen 901.0 - - -
Working capital oct/2011 Ba+0.45% CaD 16.0 4.8 605.8 1.408.2
Working capital Jan/2007 7.50% ars 37.8 27.9 - -
Working capital May/2007 6.50% UYU 10.9 - - -
Working capital sep/2008 8.94% VeB 57.9 30.8 87.5 117.4
Working capital Jan/2008 10.62% DoP 80.6 51.0 10.0 32.4
Working capital aug/2011 7.40% GTQ 19.5 27.5 44.8 37.8
Working capital oct/2010 6.75% Pen 49.3 28.8 183.9 158.6
Working capital May/2007 7.50% BoB 22.7 - - -
Bond 2011 Dec/2011 10.50% UsD 5.5 6.0 1,069.0 1,170.3
Bond 2013 sep/2013 8.75% UsD 32.4 35.1 1,069.0 1,170.3
Import financing oct/2011 6.03% UsD 41.9 4.6 8.1 58.1
Investments in permanent assets Mar/2012 9.04% UsD 149.5 70.5 379.3 341.3
Investments in permanent assets Dec/2012 10.75% DoP - - 62.0 -
Investments in permanent assets aug/2008 10.64% ars 106.3 - 19.4 -
Investments in permanent assets Jan/2011 8.75% UMBnDes 31.3 16.0 45.4 63.5
notes – series a Jul/2008 6.56% UsD - - 345.1 379.2
notes – series B Jul/2008 6.07% CaD - - 91.8 100.6
senior notes – BrI Dec/2011 7.50% CaD - - 163.0 178.6
others Jun/2008 5.57% UsD 18.9 37.6 0.3 75.3
others aug/2008 9.48% ars 4.5 - 5.3 -
1,704.2 1,014.3 4,283.8 5,394.6
Totalloansandfinancings 2,038.7 1,209.4 5,396.9 5,994.2
Debentures 2009 Jul/2009 101.75% CDI r$ 25.9 - 817.1 -
Debentures 2012 Jul/2012 102.50% CDI r$ 40.0 - 1,248.0 -
65.9 - 2,065.1 -
TotalIndebtedness 2,104.6 1,209.4 7,462.0 5,994.2
abbreviations used:UsD - United states Dollar; CaD- Canadian Dollar; Yen - Japanese Yen; ars - argentine Peso; BoB - Bolivian Peso; VeB - Venezuelan Bolivar; DoP - Dominican Peso; GTQ - Guatemalan Quetzal; Pen - Peruvian novo sol; UYU – Uruguayan Peso; TJLP - Long-Term Interest rate - Corresponding to 7.50% p.a. on 09/30/2006; ICMs - Value-added Tax on sales and services; Ba – Bankers acceptance; CDI - Interbank Deposit Certificate - corresponding to 14.18% p.a. on 09/30/2006; UMBnDes - rate incurring on BnDes financing pegged to Currency Basket
as of December 31, 2006, the Company and its subsidiaries held properties for sale at the carrying amount of r$82.9 in the Parent Company and r$86.0 in the
Consolidated (r$101.3 and r$104.5, respectively, on December 31, 2005), which are classified under long-term assets, net of a provision for potential losses on
realization, at the amount of r$48.2 in the Parent Company and r$50.4 in the Consolidated (r$65.1 and r$66.3, respectively, on December 31, 2005).
B) asseTs WITH resTrICTIon GranTeD as CoLLaTeraL for Loans
Due to bank loans taken by the Company and its subsidiaries, on December 31, 2006 there are assets and property - accounting net balance at the amount of
r$454.3 (r$538.9 on December 31, 2005) - which were granted as guarantee of bank loans. such restriction has no impact on the use of such assets and on the
Company’s operations.
8. DEFERRED CHARGES
9. INDEBTEDNESS
110 Financial Statements Annual Report 2006 111
2008 851.2
2009 992.3
2010 216.4
2011 2,564.0
2012 onwards 2,838.1
7,462.0
ParentCompany Consolidated
2006 2005 2006 2005
Currentliabilities
financings 102.5 86.2 103.6 89.5
sales tax deferrals 16.5 19.4 16.5 19.4
Long-termliabilities
financings 160.5 228.0 161.9 237.3
sales tax deferrals 405.7 352.6 405.7 352.6
ParentCompany Consolidated
2006 2005 2006 2005
Currentliabilities
Deposits for returnable package (i) - - 67.7 79.1
Provision for restructuring (ii) - - 41.0 106.5
Provision for commercial intangible 12.2 48.5 12.2 48.5
Provision for income tax contingency (note 10 (f)) - - 122.4 124.5
Marketing accounts payable 194.2 151.7 204.1 151.7
Deferred net income from commodities swap and forward 9.7 0.3 9.7 41.2
Provision for royalties payment - - 33.5 33.9
repurchase 3.3 74.2 3.3 74.4
other accounts payable 138.5 101.8 258.6 239.0
357.9 376.5 752.5 898.8
Long-termliabilities
Provision for medical assistance benefits and others (note 11(b)) 87.4 84.4 326.6 584.6
Deferred income and social contribution taxes ( note 15 (c)) 22.8 26.7 131.4 94.6
Deferred income of debt swap operations, net - - 88.4 95.9
Provision for restructuring (ii) - - 22.4 -
other accounts payable 0.4 0.5 60.2 50.7
110.6 111.6 629.0 825.8
(i) such deposits are made by points-of-sale in Canada at the time the beer is sold, as a guarantee for the bottles, and reimbursed when the bottles are returned.
(ii) Labatt Canada announced, in 2004 and in 2005, the shutting down of two plants as well as the restructuring of the work force with the purpose of reducing the personnel fixed cost by 20%. as a
consequence of this process, the Company still maintains in its consolidated balance sheet the amount of r$63.4 equivalent to CaD$34.6 (r$106.5 equivalent to CaD$52.9 in December 2005).
Exchange
Acquisition variation/
Balanceon ofinterest Monetary Balanceon
12.31.2006 Accruals Reversals Payments inQuinsa restatement 12.31.2005
PIs and CofIns 394.5 1.1 (316.0) (4.6) - 23.7 98.7
ICMs and IPI 221.4 62.2 (52.2) (54.5) - 11.2 188.1
IrPJ and CsLL 73.1 5.7 (6.6) (5.2) - 0.5 67.5
Labor claims 278.4 114.2 (76.5) (72.9) 4.7 (2.4) 245.5
Distributors and resellers 43.7 28.3 (16.2) (11.5) 3.4 (1.9) 45.8
other 117.1 178.4 (30.2) (119.5) 11.5 (6.3) 151.0
TotalContingencies 1,128.2 389.9 (497.7) (268.2) 19.6 24.8 796.6
Judicial deposits (91.1) (63.7) 32.6 2.1 - (13.2) (133.3)
1,037.1 326.2 (465.1) (266.1) 19.6 11.6 663.3
abbreviations used:
• IrPJ – Corporate Income Tax; • CsLL – social Contribution on net Income; • PIs – social Integration Program; • CofIns – Contribution for social security financing; • IPI – Tax on Processed Products; • ICMs
- Value-added Tax
a) GUaranTees
Loans and financings for expansion, construction of new plants and purchase of equipment are guaranteed by plants real estate mortgage and conditional sale on
equipment (note 6(b))
amBev’s subsidiaries, except for north america operations, hold debt and raw materials purchase agreements secured by amBev’s sureties and guarantees.
B) MaTUrITIes
as of December 31, 2006, long-term financings fall due as follows:
C) ICMs saLes Tax InCenTIVes
financings refer to programs offered by certain Brazilian states, through which a percentage of the ICMs sales tax due, it is financed by the financial agent
associated to the Government, on average for a six-year period as from the original ICMs maturity date.
The amounts related to “sales tax deferrals” result from deferral of ICMs payment due for terms of up to twelve years, as part of incentive programs to the
industry. The deferred percentages may be stated during the program or vary regressively, from 75% in the first year to 40% in the final year. The deferred amounts
are partially indexed by 60% to 80% of a general price index. The sales tax deferral is recorded as current liabilities under the item “other taxes, charges and
contributions payable”.
D) noTes IssUeD on THe InTernaTIonaL MarkeT
The Company issued in september 2003 Us$500 million in foreign securities (Bond 2013). These notes incur 8.75% interest p.a., and will be amortized
semiannually from March 2004, with final maturity in september 2013. on august 10, 2004, the Company filed Bond 2013 with the seC (securities and exchange
Commission) under the U.s. securities act of 1933 and its subsequent amendments. In addition, Bond 2013 was filed at the Luxembourg stock exchange for
settlement through the Depository Trust Company (“DTC”), euroclear and Clearstream.
In December 2001, the Company issued Us$500 million in foreign securities (Bond 2011), incurring 10.5% interest p.a., amortized semiannually from June 2002,
and final maturity in December 2011. The Company filed with the seC the Bond 2011 on october 4, 2002.
e) LaBaTT CanaDa
(i) Working capital
on october 12, 2005 a syndicated loan of CaD1.2 billion was made, of which forward CaD700 million and CaD500 million revolving credit with maturity date
on october 12, 2010, and interest at the bankers acceptance rate, plus applicable margin, the ceiling of which is 0.75% per annum. on December 31, 2006,
the bankers’ acceptance average rate on the debt stood at 4.346% per annum and the applicable margin was 0.45% p.a. (3.106% and 0.35% respectively on
December 31, 2005). on october 5, 2006, the date of the transaction was extended to october 13, 2011.
(ii) senior notes
on July 23, 1998, Labatt Canada entered into a loan agreement at the amount of Us$162 million in series a Bank notes (“notes – series a”) and CaD50 million in
series B Bank notes (“notes – series B”), contracted from a group of institutional investors. The notes are subject to the fixed interest rates at (a) 6.56% p.a., over
the portion in Us dollars and at (b) 6.07% p.a. over the Canadian dollars. The notes mature on July 23, 2008.
on June 15, 2001, Brewers retail Inc (“BrI”), company proportionally consolidated by Labatt Canada, entered into a loan agreement for CaD200 million,
by means of senior notes (“senior notes – BrI”), with a group of institutional investors. The notes are subject to fixed interest rates of 7.5% p.a. and are
due on June 15, 2011.
f) ConTraCTUaL CLaUses
as of December 31, 2006, the Company and its subsidiaries are in compliance with debt and liquidity ratio covenants in connection with obtaining the loans.
G) DeBenTUres
on July 1, 2006, the Company issued two series of simple debentures, non-convertible into shares: the first series (“Debenture 2009) at the equivalent amount
of r$817,050, incurring 101.75% interest of CDI p.a., amortized quarterly as from october 1, 2006, and with final maturity in July 2009 and the second series
(“Debenture 2012”) at the equivalent amount of r$1,248.0, incurring 102.50% interest of CDI p.a., amortized quarterly as from october 1, 2006, and with final
maturity in July 2012.
The funds raised with the issuance of debentures were used to pay the acquisition of BaC’s shares issued by Quinsa, according to note 1 (b)(i).
10. OTHER LIABILITIES
11. CONTINGENCIES - CONSOLIDATED
112 Financial Statements Annual Report 2006 113
2006 2005
assets fair value 857.7 725.5
Present value of the actuarial liability (555.3) (485.2)
Assetsurplus-IAPP 302.4 240.3
Pension Post-retirement
Plan Benefits
Labatt Labatt AmBev Total
Present value of the actuarial liability 2,040.5 248.4 146.1 2.435.0
assets fair value (1,641.5) - - (1,641.5)
Plan’sDeficit 399.0 248.4 146.1 793.5
non-amortized actuarial adjustments (365.1) (89.4) (58.7) (513.2)
Subtotal 33.9 159.0 87.4 280.3
Distributors plan (i) - - - 46.3
Total 33.9 159.0 87.4 326.6
(i) The liability regarding the distributors plan represents the pro rata interest of Labatt Canada on the liabilities of these plans that shall be financed by
Labatt Canada through the allocation of service costs from these associated companies.
AmBev Labatt Total
BalanceonDecember31,2005 84.4 500.2 584.6
financial charges/incurred expenses 13.7 67.4 81.1
exchange rate variation - (43.7) (43.7)
actuarial adjustment - (12.5) (12.5)
Payment of benefits (10.7) (272.2) (282.9)
BalanceonDecember31,2006 87.4 239.2 326.6
BalanceonDecember31,2005 193.6
Incurred financial charges 44.0
Payment of benefits (21.8)
BalanceonDecember31,2006 215.8
as of December 31, 2006, the Company and its subsidiaries had other ongoing lawsuits for which, in the opinion of legal counsel, the risk of loss is possible but
not probable, totaling approximately r$5,877.00 (r$4,557.00 on December 31, 2006), for which the Company’s management, supported by the opinion of its
legal counsel, understands there is no need for accrual.
Throughout 2004 and 2005, the Company and its subsidiaries received tax deficiency notices, related to tax authorities’ understanding about the Brazilian laws
dealing with taxation in Brazil of profits obtained by subsidiaries or affiliated companies organized out of the country.
Based on the opinion of its external consultants, the Company’s management understands that these tax deficiency notices were made based on incorrect analysis
of the laws mentioned above, because among other factors: (i) it considers the assumption of availability, which did not exist in prevailing laws in the period
referring to the tax deficiency notice; (ii) it disregards the existence of a treaty entered into between Brazil and spain to avoid double taxation; and (iii) by mistake in
the ascertainment of amounts supposedly due.
The Company, based on the opinion of its external consultants did not make provisions in relation to these tax deficiency notices, which totaled r$4,131.6.
Considering these factors, as well as the fact that the issue has not been subject-matter of examination yet on highest stage by the Judiciary Branch, the Company,
based on the opinion of its legal consultants, considered that the amount of r$2,804.4 involves a probability of possible loss, while the amount of r$1,327.2
represents a remote loss probability.
on December 31, 2006, the Company and its subsidiaries do not have active nature contingencies whose probability of success is probable to be disclosed.
Main liabilities related to fiscal claims and provisions for contingencies:
a) PIs anD CofIns
The Company and its subsidiaries proposed specific lawsuits with the purpose of ensuring the right to pay PIs and CofIns on billings, exonerating it from the
payment of this contribution on other revenues under the terms provided for by Law 9718/98. some lawsuits were judged definitively by the federal supreme
Court and provisions related to these lawsuits already solved, at the amount of r$316.0 were reverted in 2006.
following the enactment of Law no. 10,637 as of December 31, 2002, which established new rules for calculating PIs, with effects as from December 1, 2002, the
Company and its subsidiaries began to pay such contribution on other revenues, as prescribed by prevailing laws.
following the enactment of Law no. 10,833, as of December 29, 2003, which established the new rules to calculate CofIns, effectively as from february 1, 2004
the Company and its subsidiaries began to pay these taxes, as established by prevailing laws.
B) InCoMe Tax anD soCIaL ConTrIBUTIon on neT InCoMe
These provisions relate substantially to the recognition of the deductibility of interest attributed to shareholders’ equity in the calculation of social contribution tax
on the income of 1996.
C) LaBor CLaIMs
This provision relates to claims from former employees pleading compensation complement. on December 31, 2006, judicial deposits for labor claims (classified
as possible, probable and remote loss) made by the Company and its subsidiaries, monetarily restated according to official indexes, amounted to r$195.9, out of
which r$113.8 refer to claims whose risk of loss is probable (Total debts of r$151.2 on December 31, 2005).
D) DIsTrIBUTors anD reseLLers CLaIMs
This provision relates mainly to contractual terminations with certain distributors.
e) oTHer ProVIsIons
These provisions substantially relate to issues involving the national social security Institute (Inss), products and suppliers.
f) LaBaTT CanaDa
Certain beer and alcoholic beverage producers of the United states, Canada and europe were involved in collective suits for seeking damages over the alleged
marketing of alcoholic beverages to underage consumers. Labatt Canada was involved in three of these lawsuits, and for two of them it was excluded as the
defendant. Labatt will strongly continue to defend these lawsuits and, at this time, it is not possible to estimate the loss probability or estimate its amount.
Labatt was sued by the Canadian Government disputing the interest rate used in certain contracts with related parties existing in the past. The total amount of the
sue may reach CaD200,000, equivalent to r$367.2 on December 31, 2006 (r$402.4 on December 31, 2005).
In the event Labatt is required to pay these amounts, amBev will be fully reimbursed by Labatt’s former parent company, InBev. The balance of the provision
recorded in Labatt is CaD$66.7 equivalent to r$122.4 on December 31, 2006 (CaD$61.9, equivalent to r$124.6 on December 31, 2005), classified as
“contingency provision for income tax”, in other Liabilities. amBev has recorded accounts receivable from InBev at the amount of r$183.2, equivalent to
CaD$88.8 on December 31, 2006 (r$173.0 equivalent to CaD$ 86.00 on December 31, 2005) recorded in the item “other accounts receivable”.
12. SOCIAL PROGRAMSa) IaPP - InsTITUTo aMBeV De PreVIDênCIa PrIVaDa (aMBeV PrIVaTe PensIon PLan InsTITUTe)
amBev and its subsidiaries in Brazil sponsor two types of pension plans: a defined contribution plan (open to new participants) and a defined benefit plan
(closed to new participants since May 1998), with the possibility of migrating from the defined benefit plan to the defined contribution plan. These plans
are funded by the participants and by the sponsor, and managed by the IaPP. The main purpose of these plans is to supplement the retirement benefits of
employees and management. In the fiscal year ended on December 31, 2006, the Company and its subsidiaries made contributions of r$5.7 (r$4,800 on
December 31, 2005) to IaPP.
Based on the independent actuary report, IaPP’s plans position on December 31 is the following:
The surplus of assets of IaPP is recorded by the Company in its consolidated financial statements under “other assets”, at the amount of r$17.0 (r$20.0 on
December 31, 2005), amount estimated as maximum limit of its future utilization, and also considering the legal restrictions that prevent the return of a possible
outstanding asset surplus, in the event of a winding up of the IaPP and for which there was no use by means of payment of pension plan benefits.
B) MeDICaL assIsTanCe BenefITs anD oTHers ProVIDeD DIreCTLY BY THe CoMPanY
The Company and its subsidiaries directly provide medical assistance, reimbursement of medicine expenses and other benefits to retired employees, and such
benefits not being granted to new retirements. on December 31, 2006, the balances of r$87.4 and r$326.6 of the Parent Company and the Consolidated
(r$84.4 and r$584.6, respectively, on December 31, 2005) are recognized in the Company’s financial statements as “other liabilities”, in long-term liabilities in the
following amounts:
Changes in the provision for medical assistance benefits and others, as per the independent actuary report:
C) fUnDação anTônIo e HeLena Zerrenner InsTITUIção naCIonaL De BenefICênCIa (THe Zerrenner foUnDaTIon)
The Zerrenner foundation’s primary objectives are to provide the sponsor’s employees and managers with medical/hospital and dental assistance, to aid in
professional specialization and graduation courses, and to maintain facilities that provide aid and assistance to the elderly, through direct actions or financial aid
agreements with other entities.
Changes in the Zerrenner foundation’s actuarial liabilities, as per the independent actuary report, were as follows:
114 Financial Statements Annual Report 2006 115
Percentageperyear(innominalterms)
AmBev Labatt
2006 2005 2006 2005
Discount rate 10.8 10.8 5.0 5.0
rate of return expected from assets 13.9 14.9 7.4 8.0
Increase of the compensation components 7.1 7.2 3.0 3.0
Increase of medical services costs 6.5 7.2 2.5 -
2006 2005
net income for the period 2,806.256 1,545.728
Legal reserve (5%) (i) - -
Dividendscalculationbasis 2,806.256 1,545.728
Interim dividends - 480.861
Interim dividends as interest attributed to shareholders’ equity 1,473.135 219.821
supplementary dividends 75.379
supplementary dividends as interest attributed to shareholders’ equity - 524.226
subtotal 1,473.135 1,300.287
Withholding income tax on interest attributed to shareholders’ equity (220.970) (111.607)
Totalofproposeddividends–currentyear 1,252.165 1,188.680
supplementary dividends 2006 – 2005 Basis - 390.876
Totalproposeddividends 1,252.165 1,579.554
Percentage of dividends on the calculation basis - % 44.62 102.18
Dividends net of income tax per thousand outstanding shares (excluding treasury shares) at the end of the period – r$
Common (ii) 17.77 23.07
Preferred (ii) 19.54 25.38
(i) The legal reserve was no longer set up, pursuant to the corporate legislation, which establishes that such reserve may stop being constituted when, added to the capital reserves, exceed thirty
per cent (30%) of the Company’s capital stock.
(ii) Dividends per thousand outstanding shares (excluding treasury shares) at the end of the period, before the withholding income tax (Irrf) levy: common – r$20.90 and preferred – r$22.99
(common – r$24.70 and preferred – r$27.17 on December 31, 2005).
Numberofshares–lotsofthousand
Description Preferred Common Total R$
OnDecember31,2005 519.380 10.480 529.860 393.4
share purchase 1,791.076 68.878 1,859.954 1,762.3
annulments (1,425.471) (13.554) (1,439.025) (1,046.2)
Transfers of the plan (180.860) (31.110) (211.970) (168.8)
OnDecember31,2006 704.125 34.694 738.819 940.7
The actuarial liabilities related to the benefits provided by the Zerrenner foundation on December 31, 2006 were fully offset by its assets at the on the same date,
and the excess of balance of assets was not recorded by the Company in its financial statements, due to the possibility of destination of its use for purposes other
than exclusively related to the payment of benefits.
D) aCTUarIaL PreMIses
The medium and long-term premises, adopted by the independent actuary when calculating the actuary liabilities were as follows:
13. SHAREHOLDERS’ EQUITYa) sUBsCrIBeD anD PaID-In CaPITaL sToCk
on December 31, 2006, the Company’s capital stock, at the amount of r$5,716.1 (r$5,691.4 on December 31, 2005), was represented by 64,458,212 thousand
shares (65,876,074 thousand shares on December 31, 2005), 34,501,039 thousand of which are common shares and 29,957,173 thousand are preferred shares
(34,499,423 thousand and 31,376,651 thousand, respectively, on December 31, 2005), all of them non-par registered shares.
on october 11, 2006, the Company increased its capital at the amount of r$1,909, upon the capitalization of the fiscal incentive reserve – reinvestment of Income
Tax, related to calendar-years 1991 and 1992, pursuant to article 19 of Law no. 8167/91, thus increasing the Company’s capital from r$5,714.2 to r$5,716.1.
on august 8, 2006, the Company increased its capital at the amount of r$3.4, upon the issue of 3,655 thousand common shares and 717 thousand preferred
shares, subscribed in cash by minority shareholders.
on June 27, 2006, the Company increased its capital at the amount of 11,515 thousand common shares and 5,275 thousand preferred shares, at the amount
of r$13.5, paid-up upon the partial capitalization of the fiscal benefit earned by the Company through the partial amortization of the special goodwill reserve in
2005.
on april 20, 2006, the Company increased its capital at the amount of r$5.9, corresponding to the capitalization of 30% of the fiscal benefit earned by the
Company, with the partial amortization of the special goodwill reserve in 2005, without the issue of new shares.
B) aPProPrIaTIon of THe InCoMe of THe PerIoD ProfITs for THe Year anD seT UP of sTaTUTorY reserVes
The Company’s Bylaws determines the following appropriation of the net income of the period, after the deductions set forth by law:
i. 35% percentage for the payment of mandatory dividends to all its shareholders. Pursuant to Law, preferred shares shall receive a dividend 10% higher compared
to common shares.
ii. an amount not higher than 68.875% of the net income, to set up the investments reserve, for the purpose of financing the expansion of the activities of the
Company and its controlled companies, even for the subscription of capital increases or creation of new projects. This reserve shall not excel 80% of the capital
stock. should it reach this limit, it shall be incumbent upon the General Meeting to resolve on the balance, thus distributing it to shareholders or increasing the
Company’s capital.
iii. Distribution to the employees of up to 10% of the net income of the period, based on predetermined criteria. To the officers it shall be attributed an amount
equal to the maximum legal limit. The profit sharing is conditioned to reaching group and individual goals previously established by the Board of Directors at the
beginning of the year.
C) ProPoseD DIVIDenDs
Calculation of the percentage of dividends approved by the Board of Directors on net income for the periods ended on December 31:
D) InTeresT aTTrIBUTeD To sHareHoLDers’ eQUITY
Companies legally have the option to distribute to shareholders interest calculated based on TJLP on shareholders’ equity, and such interest, which is tax deductible,
can be considered as part of the mandatory dividends when distributed. although such interest is recorded in the results for tax purposes, it is reclassified to
shareholders’ equity and presented as dividends, to reflect the essence of the transaction.
The interest attributed to shareholders’ equity and dividends not required in 3 years, counted from the payment beginning date, prescribe and are reverted in favor
of the Company (Law 6,404/76, article 287, item II a).
e) sPeCIaL GooDWILL reserVe
as mentioned in note 1 b (iii), due to the merger of the parent company InBev Brasil on July 28, 2005, the Company has set up a special goodwill reserve, in the
amount of r$2,883,273, corresponding to the future benefit of amortization of the merged goodwill. The realization of this reserve will occur as described in note
1 (b)(iii)(b).
f) TreasUrY sHares
Changes in the Company’s treasury shares during the year were as follows:
During the year ended on December 31, 2006, the Company acquired in the market 1,611,089 lots of one thousand shares, at the weighted average price of
r$925.76, with a minimum price of r$805.61 and a maximum price of r$997.75.
additionally, the Company transferred 211,970 lots of thousand treasury shares to employees who exercised their rights to acquire shares under the stock
ownership Plan for an amount of r$101.6. The cost of acquisition for these shares totaled r$168.8, resulting in a loss of r$67.2, which was recorded against the
capital reserve.
In august 2006, the Company launched a new program to acquire common and preferred shares issued by it, up to the amount of r$1,000.0, in conformity with
CVM Instruction no. 10/80 and its subsequent amendments. During the next 360 days the Company may repurchase up to 9.74% of the common shares and
3.79% of the preferred shares outstanding in each class. This program was terminated in november 14, 2006.
In february 2006, the Company launched a new program for the acquisition of common and preferred shares issued by it, at the amount of r$500.0, pursuant
to CVM Instruction no. 10/80 and its subsequent amendments. During the period of 180 days after the data of launching, the Company might repurchase up to
5.47% of the outstanding preferred shares in each class. This program was terminated in august 08, 2006.
116 Financial Statements Annual Report 2006 117
Sharepurchaseoption–lotofonethousandshares
Preferred Common Preferred Common
2006 2005
Balanceofstockownershipoptionsexercisableatthebeginningoftheperiod 365,101 73,020 651,036 -
Movement occurred during the period
exercised (155,553) (31,110) (257,993) (6,389)
Cancelled (41,576) (8,085) (27,942) (1,227)
Granted 69,506 - - -
Bonus shares - - - 80,636
Balanceofstockownershipoptionsexercisableattheendinningoftheperiod 237,478 33,825 365,101 73,020
Asset(Liability)
Description 2006 2005
Currencyhedge
reais/Us$ 3,086.5 3,610.5
argentine Peso/Us$ - 206.0
reais/Yen 622.0 -
Peruvian sol/Us$ 78.3 210.7
CaD/Us$ 249.1 240.5
CaD/r$ 825.4 -
Interestratehedge
CDI x fixed rate (137.5) (186.3)
fixed rate / Canadian Ba 508.4 367.2
Commoditieshedge
aluminum 314.2 119.6
sugar 126.6 31.4
Wheat (76.8) 16.1
Corn 2.2 -
5,598.4 4,615.7
Unrealized
variable
Financialinstruments Bookvalue Market gains
Public bonds 241.6 261.6 20.0
swaps/forwards (218.4) (213.0) 5.4
forward r$ x CaD Labatt Canada 48.7 160.2 111.5
Cross Currency swap Labatt Canada (*) (88.4) (83.5) 4.9
(16.5) 125.3 141.8
(*) swaps for the conversion of the notes issued at fixed interest in Us dollars to fluctuating interest in Canadian dollars.
Description Decrease/(Increase)inthecostofgoodssold
Currency hedge (84.6)
Hedge of aluminum (4.6)
Hedge of sugar (16.4)
Hedge of wheat and corn 0.8
(104.8)
(Loss)
Financialliabilities Bookvalue Marketvalue Difference
series a notes (i) 345.1 350.4 (5.3)
series B notes (ii) 91.8 93.8 (2.0)
senior notes – BrI (iii) 163.0 183.7 (20.7)
International financings (other currencies) (iv) 2,311.1 2,311.1 -
financings in reais 948.8 1,147.3 (198.5)
BnDes/fIneP/eGf (iv) 498.8 498.8 -
resolution 63 / Compror 63 901.0 855.9 45.1
Bond 2011 and Bond 2013 2,175.9 2,575.4 (399.5)
Debentures – 2009 and 2011 2,131.1 2,131.1 -
9,566.6 10,147.5 (580.9)
(i) series a Bank notes entered into by Labatt Canada in Us dollars.
(ii) series B Bank notes entered into by Labatt Canada in Canadian dollars.
(iii) Private Bonds entered into by Brewers retail Inc. (BrI) and proportionally consolidated by Labatt Canada in Canadian dollars.
(iv) Loans for which book value and market value are similar.
14. STOCK OWNERSHIP OPTION PLANamBev maintains a plan of purchase of shares by pre-selected employees, which is aimed at aligning the interests of shareholders and employees. The Plan was
revised at the extraordinary shareholders’ Meeting as of april 20, 2006. The Plan is managed by the Board of Directors. The Board of Directors periodically creates
stock ownership programs, defining the terms and categories of employees to be benefited, and determines the price for which the shares will be purchased.
The options have a vesting period of 5 years and expire 10 years after the grant date. should the existing labor agreement come to and end, the rights to the
stock options expire under certain conditions. regarding the shares purchased by the employees, the Company has the right to buy them back based on the Plan’s
provisions.
The beneficiaries of share purchase rights granted as from 2003 are no longer entitled to advances for the purchase of shares. on December 31, 2006, the
outstanding balance of advances to employees for the purchase of shares referring to the plans granted prior to such date, in the consolidated, amounts to r$72.8.
The loans are guaranteed by the shares purchased.
summary of movements in outstanding share options for the periods ended on December 31, 2006 is as follows:
15. TREASURYa) oVerVIeW
The Company and its subsidiaries hold certain amounts of cash and cash equivalents in foreign currency, and enter into currency, interest rate and commodities
swaps and currency forward contracts to hedge against the effects of exchange rate variations on the consolidated exposure to foreign currency, interest rate
fluctuations, and changes in raw materials prices, particularly aluminum, sugar and wheat.
The instruments mentioned above are contracted for hedge purpose, which does not prevent redemptions may occur at any time, although the Company really
intents to bring them until the end of operation to be protected.
B) DerIVaTIVe InsTrUMenTs
The Company, with the purpose of mitigating the risks of exposure to certain market fluctuation in exchange rates, interest and commodities, contracts derivative
operations. on December 31, 2006, the amounts contracted of derivative financial instruments are as follows:
i. Market value of financial instruments currency and interest rate hedge
as of December 31, 2006, unrealized gains on variable income on derivative operations were limited to the lower value between the “curve” of instruments or
respective market value, in accordance with the Brazilian Corporation Law.
Had the Company recorded its derivative instruments at market value, it would have recorded, for the period ended on December 31, 2006, an additional gain of
r$141.7 (r$44.4 on December 31, 2005), presented as follows:
ii. Commodities and currency hedge
net results of such operations determined at cost value (corresponding to its market value), with a specific purpose of minimizing the Company’s exposure to the
fluctuation of raw material prices denominated in foreign currency to be acquired are deferred and recognized in results, when sale of corresponding product
occurs.
During the period ended on December 31, 2006, the effect relating to the commodities and currency hedge operations recorded in earnings as “Cost of goods
sold” were:
on December 31, 2006 unrealized losses at the amount of r$57.2 were deferred: r$66.9 in other assets and r$9.7 in other liabilities. such loss shall be recognized
at debit of the Company’s result: the amount of r$57.2 in cost of goods sold, when corresponding finished product is sold and the remaining balance at operating
expense, as this is an expenses hedge.
C) fInanCIaL LIaBILITIes
The Company’s financial liabilities, mainly represented by the bond and import financing operations, are recorded at cost value, monetarily restated at initial interest
rates contracted, accrued of monetary and exchange variations, according to closing indexes for each period.
Had the Company been able to use a method where its financial liabilities could be recognized at market value, it would have recognized an additional loss, before
income and social contribution taxes, of r$580.9 on December 31, 2006 (r$523.4 on December 31, 2005), as presented in the chart below:
118 Financial Statements Annual Report 2006 119
PeriodendedonDecember31
ParentCompany Consolidated
2006 2005 2006 2005
Financialincome
exchange variation on financial investments - - (15.5) (36.7)
Interest on cash and cash equivalents 56.1 33.8 111.1 91.5
financial charges on taxes, contributions and judicial deposits 24.9 3.5 29.9 6.6
Interest on advances to employees for purchase of shares 9.8 12.8 10.0 13.3
Interest and exchange variation on loans 76.6 32.2 - 0.1
other 22.1 16.5 32.9 20.5
189.5 98.8 168.4 95.3
Financialexpenses
exchange variation on financings 263.9 16.5 254.7 308.5
net losses on derivative instruments (585.8) (231.4) (585.1) (625.8)
Interest on debts in foreign currency (267.8) (119.9) (485.1) (456.0)
Interest on debts in reais (190.5) (56.7) (191.5) (122.4)
Interest and exchange variation on loans - (464.9) (1.8) (5.7)
Taxes on financial transactions (99.2) (81.3) (131.8) (141.9)
financial charges on contingencies and other (50.2) (37.3) (59.8) (77.6)
other (23.9) (17.7) (46.3) (61.1)
(953.5) (992.7) (1,246.7) (1,182.0)
Financialincome,net (764,0) (893,9) (1.078,3) (1.086,7)
PeriodendedonDecember31,
2006 2005
Consolidated net income before income and social contribution taxes 4,307.3 2,751.9
statutory profit sharing and contributions (194.4) (202.8)
Consolidatednetincomebeforeincomeandsocialcontributiontaxesandminorityinterest 4,112.9 2,549.1
expense with income and social contribution taxes at nominal rates (34%) (1,398.4) (866.7)
adjustments to obtain the effective rate, resulting from permanent differences:
Interest attributed to shareholders’ equity 500.9 253.0
foreign subsidiaries’ income not subject to taxation (iii) 4.2 (174.1)
equity gains in subsidiaries 62.1 51.6
Goodwill amortization, non-deductible portion (i) (355.0) (327.0)
future profitability goodwill – CBB merger (ii) - 103.4
Withholding taxes (iv) (68.3) -
exchange variation on investments (43.7) (44.3)
other permanent additions and exclusions (17.1) (16.1)
Incomeandsocialcontributiontaxesexpensesonincome (1,315.3) (1,020.2)
(i) The non-deductible goodwill amortization includes the goodwill amortization effects of Labatt aps in Labatt Canada, totaling r$969.8 in the period ended on December 31, 2006 (r$923.5 on
December 31, 2005), generating a tax effect as it is not deductible, totaling r$329,748 (r$314.0 on December 31, 2005).
(ii) This amount refers to tax credit resulting from amBev’s future goodwill deductibility in CBB as a result of CBB’s merger by amBev (note 1(b) (iv)).
(iii) Included the tax effect protection on the exchange variation of loans and fixed rate notes contracted abroad. The amount protected is Us$496.6 on December 31, 2006 and the tax gain of
this protection in the period is r$123.9.
(iv) on dividends received by Labatt aps.
(v) Interest attributed to shareholders’ equity is originally recorded in the tax and accounting books as financial revenue, when declared by subsidiaries and associated companies, and as financial
expense, in the occasion of the allocation of the amounts to be paid to shareholders. However, for the purposes of elaboration of these financial statements, the essence of the transaction is
considered and therefore, the interest attributed to shareholders’ equity is considered as dividends received and paid and do not transit in result. as a consequence, in these financial statements,
the previously mentioned entries are reclassified, i.e., the interest attributed to equity received or receivable is credited to the investments account and the interest attributed to equity paid or
payable is registered as debt from accumulated profits (losses).
ParentCompany Consolidated
2006 2005 2006 2005
Curren Current 63.6 - (688.8) (757.1)
Deferred (460.4) (6.5) (626.5) (263.1)
Total (396.8) (6.5) (1.315.3) (1.020.2)
ParentCompany Consolidated
2006 2005 2006 2005
Currentassets
Tax losses carryforwards 69.1 56.4 98.3 46.8
Temporary differences:
Goodwill future profitability – Mergers 350.8 350.8 350.8 350.8
Provision for interests attributed to shareholders’ equity 22.1 - 22.1 -
Provision for restructuring - - 26.8 46.4
Provision for employees profit sharing 54.0 43.5 57.4 47.8
Provision for marketing and sales expenses 54.5 51.6 54.6 51.6
550.5 502.3 610.0 543.4
Long-termassets
Tax losses carryforwards 232.0 301.1 771.0 850.1
Temporary differences:
non-deductible provisions 248.9 342.4 307.0 422.7
Provision for losses on tax incentives (CssL) 3.1 3.1 7.6 7.5
Goodwill future profitability – Mergers 2,115.7 2,466.5 2,115.7 2,466.5
Provision for health care benefits 29.7 28.7 82.2 165.9
Provision for losses on assets held for sale 16.5 22.1 17.2 22.7
Provision for losses on hedge 130.9 116.9 130.9 116.9
allowance for doubtful accounts 10.3 9.8 11.2 10.4
others 63.9 73.3 123.9 120.8
2,851.0 3,363.9 3,566.7 4,183.5
Long-termliabilities
Temporary differences
accelerated depreciation - - 47.8 59.9
others 22.8 26.7 83.6 34.7
22.8 26.7 131.4 94.6
The criterion used to determine the market value of the bonds was based on quotations of investment brokers, on quotations of banks which provide services to
amBev and Labatt Canada and on the secondary market value of bonds on the reference date as of December 31, 2006, approximately 120.75% of face value
for Bond 2011 and 117.13% for Bond 2013 (124.50% and 117.50%, respectively on December 31, 2005) and the series a notes and series B notes of Labatt
Canada, the prices were determined based on the discounted cash flow at present value, by using market rates available for Labatt Canada for similar instruments.
D) fInanCIaL InCoMe anD exPenses
(e) ConCenTraTIon of CreDIT rIsk
a substantial part of the Company’s sales is to distributors, supermarkets and retailers, within a broad distribution network. Credit risk is reduced because of the
large number of customers and control procedures to monitor this risk. Historically, the Company does not record significant losses on receivables from customers.
In order to minimize the credit risk of its investments, the Company has adopted procedures for the allocation of cash and investments, taking into consideration
loan limits and appraisals of financial institutions, not allowing credit concentration, i.e., the credit risk is monitored and minimized for the negotiations are carried
out only with a select group of counterparties highly qualified. at Labatt Canada, compensation agreements are entered into with its counterparties, allowing them
to realize derivative financial assets and liabilities in the event of default.
16. INCOME AND SOCIAL CONTRIBUTION TAXESa) reConCILIaTIon of ConsoLIDaTeD InCoMe anD soCIaL ConTrIBUTIon Taxes exPenses WITH noMInaL raTes
B) BreakDoWn of BenefIT (exPenses) of InCoMe anD soCIaL ConTrIBUTIon Taxes on neT InCoMe.
C) BreakDoWn of DeferreD Taxes
120 Financial Statements Annual Report 2006 121
Innominalamounts
(millionsofreais)
2008 183
2009 291
2010 297
711
ParentCompany Consolidated
2006 2005 2006 2005
Operatingincome
subsidy for subsidiary investments - - 165.3 151.8
exchange variation of subsidiary abroad - - 79.4 74.1
Gain on tax incentive settlement (ICMs) 39.9 28.3 39.9 28.3
reversal of provision for investment loss - - 21.9 -
Tax recovery 24.0 52.2 24.0 52.6
other operating income 10.5 4.7 12.7 3.6
74.4 85.2 343.2 310.4
Operatingexpenses
exchange variation of subsidiary abroad (17.9) (2.9) - -
Goodwill amortization (107.5) (52.7) (1,283.0) (1,343.0)
Taxes on other income (4.4) (3.1) (4.4) (3.5)
other operating expenses (6.5) (10.4) (10.9) (39.3)
(136.3) (69.1) (1,298.3) (1,385.8)
Operatingincome(expenses),net (61.9) 16.1 (955.1) (1,075.4)
ParentCompany Consolidated
2006 2005 2006 2005
Non-operatingincome
Gain from the disposal of investments - - 10.2 -
Gain from interest ownership in investees - - 6.1 -
Gain from the disposal of property, plant and equipment - - 4.8 6.0
other non-operating income 12.8 4.1 5.6 15.5
12.8 4.1 26.7 21.5
Non-operatingexpenses
Provision for losses on permanent assets - (19.0) (17.9) (58.7)
Loss from interest ownership in investees (0.7) (3.3) - (64.8)
Loss in the disposal of property, plant and equipment (4.6) (6.6) - -
Loss in the disposal of real estates for sale (0.3) - (0.3) -
Provision for restructuring (i) - - (18.9) (114.9)
other non-operating expenses (0.4) (1.2) (18.4) (17.4)
(6.0) (30.1) (55.5) (255.8)
Totalnon-operatingincome(expenses),net 6.8 (26.0) (28.8) (234.3)
(i) Provisions arising from the restructuring process described in note 9 (ii).
Based on projections of generation of future taxable income of the parent company and subsidiaries located in Brazil and abroad, the estimate of recovery of
consolidated effective balance of deferred income and social contribution taxes over tax losses is shown as follows:
The asset recorded is limited to the amounts for which offset is supported by taxable income projections, discounted to present value, realized by the Company
until the next 10 years, also considering that tax loss carryforward is limited to 30% of annual taxable income, determined according to Brazilian tax laws.
The balance of deferred income tax assets as of December 31, 2006 includes the total effect of tax losses of Brazilian subsidiaries, which have no expiration dates
and are available for offset against future taxable income. Part of tax benefit corresponding to the tax losses of foreign subsidiaries was not recorded as an asset, as
management cannot determine whether its realization is probable.
It is estimated that the balance of deferred taxes on temporary differences as of December 31, 2006 will be realized until the fiscal year of 2011, however, it is
not possible to accurately estimate when such temporary differences will be realized, because the major part of them depends on legal decisions, over which the
Company has no control nor any means of anticipating exactly when a final decision will be reached.
The projections of future taxable income include various estimates on the performance of the Brazilian and the global economy, the determination of foreign
exchange rates, sales volume, sales prices, tax rates, and other factors that may differ from the data and amounts.
since the income and social contribution taxes derive not only from taxable income, but also depend on the Company’s tax and corporate structure, the existence
of non-taxable income, non-deductible expenses, tax exemptions and incentives, and other variables, there is no relevant correlation between Company’s net
income and the determination of income and social contribution taxes. Therefore, we recommend that the tax loss carryforward should not be taken as an
indicator of the Company’s future profits.
17. COMMITMENTS WITH SUPPLIERSThe Company holds agreements with certain suppliers to acquire certain quantities of materials that are important for the production and packaging processes,
such as plastics for PeT bottles, aluminum, natural gas and property, plant and equipment.
The Company has commitments assumed with suppliers for 2007, 2008 e 2009, already contracted on December 31, 2006, at the approximate amounts of
r$1,051.8, r$458.0 and r$229.0, respectively (r$533.4 for 2007 and r$3.3 for 2008 on December 31, 2005).
18. OPERATING INCOME (EXPENSES), NET
19. NON-OPERATING INCOME (EXPENSES), NET
20. INSURANCEThe Management of the Company believes that on December 31, 2006, the main assets of the Company and its subsidiaries, such as property, plant and
equipment and inventories are insured against fire and other risks, based on their replacement values. Insurance coverage is higher than the book values.
21. SUBSEQUENT EVENTS(a) aGreeMenT for aCQUIsITIon of LakePorT BreWInG InCoMe fUnD
on february 1, 2007, the Company announced that its subsidiary Labatt Canada entered into an agreement (“support agreement”) with Lakeport Brewing Income
fund (“Lakeport”), by means of which Labatt Canada will offer a price of CaD$28.00 per quota (“unit”) of Lakeport, totaling CaD$201.4million.
(B) QUInsa PUBLIC offerInG
on January 25, 2007, the Company announced that the Commission de surveillance du secteur financier (“Cssf”) of Luxemburg approved the public offering
instrument related to the voluntary public offering for acquisition up to 6,872,480 Class a shares and up to 8,661,207 Class B shares (including Class B shares held
as american Depositary shares (“aDs”) issued by its subsidiary Quilmes, which represent outstanding Classes a and B shares (including Class B shares held as aDss)
which are not property of amBev or its subsidiary.
(C) LaBaTT aPs DIVIDenDs
on January 11, 2007, the executive board of Labatt aps approved the distribution of dividends in the amount of r$468.3.
(D) sHare BUYBaCk ProGraM
on february 05, 2007, the members of the Company’s Board of Directors approved a share buyback program, for the repurchase of shares issued by the Company,
for permanence in treasury and/or cancellation and eventual subsequent disposal, during the next three hundred and sixty days (360), with maturity on January 31,
2008, up to the amount of r$1,000.0.
122 Financial Statements Annual Report 2006 123
Investor Information
sHares oUTsTanDInG (12/31/05)
64,458 million shares
644.5 million aDrs equivalents
sToCk exCHanGe
BolsadeValoresdeSãoPaulo(Bovespa)
Ticker symbols: AMBV3 (on), AMBV4 (Pn)
Main indices amBev stock participates:
IBx and IBoVesPa
NewYorkStockExchange(NYSE)
Ticker symbols: ABVc (on), ABV (Pn)
Dividend policy
amBev’s by-laws provide for a minimum mandatory dividend of 35% of the company’s annual net income, as determined by Brazilian Corporate law accounting
principles. The mandatory dividend includes amounts paid as interest attributable to shareholders’ equity.
as per Brazilian Corporate Law, dividend payments to preferred shareholders must be 10% greater than those made to common shareholders.
Cash dividends declared
EarningsGenerated FirstPaymentDate R$per1,000shares ShareType
first half 2002 november 25, 2002 4.37 (preferred)
3.97 (common)
second half 2002 february 28, 2003 9.27 (preferred)
8.43 (common)
first half 2003 october 13, 2003 18.70 (preferred)
17.00 (common)
second half 2003 March 25, 2004 6.75 (preferred)
6.14 (common)
first half 2004 october 8, 2004 5.80 (preferred)
5.28 (common)
second half 2004 february 15, 2005 17.15 (preferred)
15.59 (common)
first half 2005 september 30, 2005 10.69 (preferred)
9.72 (common)
second half 2005 December 29, 2005 8.36 (preferred)
7.60 (common)
March 31, 2006 6.32 (preferred)
5.75 (common)
first half 2006 June 30, 2006 6.08 (preferred)
5.53 (common)
october 30, 2006 6.08 (preferred)
5.53 (common)
second half 2006 December 28, 2006 7.39 (preferred)
6.72 (common)
March 30, 2007 2.04 (preferred)
1.85 (common)
first half 2007 March 30, 2007 5.24 (preferred)
4.76 (common)
share price performance
%Change% Change
31-Dec-2004 31-Dec-2005 31-Dec-2006 05x04 06x05
aMBV4 (Pn) - r$ 740.0 898.0 1,053.99 21.4% 17.4%
aMBV3 (on) - r$ 1,368.0 752.0 943.00 -45% 25.4%
IBoVesPa - r$ 26,196.0 33,455.94 44,473.71 27.7% 32.9%
aBV (Pn) - Us$ 28.3 38.5 48.80 34.5% 28.3%
aBVc (on) - Us$ 52.0 36.25 43.90 -37.1% 34.3%
s&P 500 - Us$ 1,211.9 1,248.29 1,418.30 3.0% 13.6%
ratings
Agency Local Foreign Outlook
Rating Rating
fitch BBB BBB stable
Moody’s Baa1 Ba1 stable/Positive
s&P BBB BBB Positive
note: as of March 2007.
shareholder account assistancefor address changes, dividend checks, account consolidations, direct deposit of dividends, registration changes, lost stock certificates, stock holdings and Dividend and Cash Investment plan, please contact:
RetailshareholdersinBrazilnilson CasemiroPhone: 55 11 2122-1402email: [email protected]
DepositarybankinBrazilBanco ItaúPhone: 55 11 5029-7780
DepositarybankandtransferagentintheUSAThe Bank of new York101 Barclay streetnew York, nY 10286Phone: 1 888 269-2377email: [email protected]
IndependentAuditorsDeloitte Touche Tohmatsurua alexandre Dumas, 1981são Paulo, sP 04717-004BrazilPhone: 55 11 5185-2444
AmBev–Corporateofficesrua Dr. renato Paes de Barros, 1017 – 4th floorsão Paulo, sP 04530-000BrazilPhone: 55 11 2122-1200fax: 55 11 2122-1526
InformationresourcesPlease direct all requests for information to:
AmBev–InvestorRelationsDepartmentrua Dr. renato Paes de Barros, 1017 – 4th floorsão Paulo, sP 04530-000BrazilPhone: 55 11 2122-1414/1415email: [email protected]
Investorwebsiteour investor website has additional company financial and operating information, as well as conference calls transcripts. Investors may also register to automatically receive press releases by email and be notified of company presentations and events.www.ambev-ir.com
PublicationsThe company’s annual report, Proxy statement, form 20-f reports are available free of charge from the Investor relations Department, listed above. If you are receiving duplicate or unwanted copies of our annual report, please contact the Investor relations Department.
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