To: Board of Directors of Caribbean Brewers Inc.
From: Comptroller, Caribbean Brewers Inc.

Subject: Production Costs, Performance Management System, & Income Tax Audit Risks
Date:

Background

In 2005, the Gera International conglomerate purchased 75 percent of the common shares of an Antiguan brewery, the producer of “Tigua” beer. The Antiguan brewery was renamed Caribbean Brewers Inc. Three years later, the production facilities at the brewery were expanded, and the production capacity doubled. In 2009 and 2010, sales volumes of Gera beers increased dramatically. Although production systems and processes have not changed since the acquisition, Caribbean Brewers’ costs of production have also increased significantly. As a result there has been growing dissatisfaction amongst production employees, especially those whose compensation is linked to the supposed production inefficiencies and rising costs.

In addition, Caribbean Brewers Inc. has received a letter from the Inland Revenue Department of Antigua informing us that our tax filings for the years ended December 31, 2008, 2009 and 2010 will be audited at the end of the month.
Purpose
The purpose of this report is to: • Assess production costs to determine if they have been properly allocated, • Analyze the current performance measurement system, • Determine if Caribbean Brewers Inc. has been compliant with Antiguan tax laws, and • Recommend solutions to overcome declining employee morale, improve performance measurement and compensation systems, and ensure compliance/mitigate risks.
Rising Cost of Production

From 2007 to 2010 production costs at CBI appear to have increased from approx $35M to $65M. This is an increase of 86% while sales have only increased at a rate of 39%. This appears as if costs have been increasing at a greater rate than that of sales,