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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 001-02217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock as of the latest
practicable date.
Class of Common Stock Outstanding at May 1, 1998
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$.25 Par Value 2,469,342,269 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
- 2 -
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
March 31, December 31,
1998 1997
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CURRENT
Cash and cash equivalents $ 1,888 $ 1,737
Marketable securities 117 106
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2,005 1,843
Trade accounts receivable, less
allowances of $21 at March 31
and $23 at December 31 1,580 1,639
Inventories 949 959
Prepaid expenses and other assets 1,602 1,528
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TOTAL CURRENT ASSETS 6,136 5,969
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INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 152 184
Coca-Cola Amatil Limited 1,231 1,204
Other, principally bottling companies 3,403 3,049
Cost method investments,
principally bottling companies 440 457
Marketable securities and other assets 1,605 1,607
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6,831 6,501
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PROPERTY, PLANT AND EQUIPMENT
Land 182 183
Buildings and improvements 1,511 1,535
Machinery and equipment 3,796 3,896
Containers 134 157
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5,623 5,771
Less allowances for depreciation 2,046 2,028
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3,577 3,743
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GOODWILL AND OTHER INTANGIBLE ASSETS 755 727
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$ 17,299 $ 16,940
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
March 31, December 31,
1998 1997
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CURRENT
Accounts payable and accrued expenses $ 2,713 $ 3,249
Loans and notes payable 3,525 2,677
Current maturities of long-term debt 256 397
Accrued income taxes 1,006 1,056
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TOTAL CURRENT LIABILITIES 7,500 7,379
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LONG-TERM DEBT 689 801
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OTHER LIABILITIES 982 1,001
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DEFERRED INCOME TAXES 489 448
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SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,448,011,223 shares at
March 31; 3,443,441,902 shares
at December 31 862 861
Capital surplus 1,632 1,527
Reinvested earnings 18,356 17,869
Unearned compensation related to
outstanding restricted stock (49) (50)
Accumulated other comprehensive income (1,286) (1,314)
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19,515 18,893
Less treasury stock, at cost
(977,251,640 shares at March 31;
972,812,731 shares at December 31) 11,876 11,582
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7,639 7,311
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$ 17,299 $ 16,940
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See Notes to Condensed Consolidated Financial Statements.
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended
March 31,
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1998 1997
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NET OPERATING REVENUES $ 4,457 $ 4,138
Cost of goods sold 1,318 1,295
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GROSS PROFIT 3,139 2,843
Selling, administrative and general expenses 1,857 1,701
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OPERATING INCOME 1,282 1,142
Interest income 52 49
Interest expense 62 68
Equity income (loss) (24) (28)
Other income (loss) - net (5) 336
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INCOME BEFORE INCOME TAXES 1,243 1,431
Income taxes 386 444
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NET INCOME $ 857 $ 987
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BASIC NET INCOME PER SHARE $ .35 $ .40
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DILUTED NET INCOME PER SHARE $ .34 $ .39
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DIVIDENDS PER SHARE $ .15 $ .14
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AVERAGE SHARES OUTSTANDING 2,471 2,480
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Dilutive effect of stock options 31 39
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AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,502 2,519
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See Notes to Condensed Consolidated Financial Statements.
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Three Months Ended
March 31,
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1998 1997
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OPERATING ACTIVITIES
Net income $ 857 $ 987
Depreciation and amortization 152 132
Deferred income taxes (10) (163)
Equity (income) loss, net of dividends 30 29
Foreign currency adjustments 28 41
Other items 7 (359)
Net change in operating assets and liabilities (553) 237
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Net cash provided by operating activities 511 904
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INVESTING ACTIVITIES
Acquisitions and investments,
principally bottling companies (206) (101)
Purchases of investments and other assets (107) (181)
Proceeds from disposals of investments
and other assets 28 1,052
Purchases of property, plant and equipment (185) (209)
Proceeds from disposals of property, plant
and equipment 6 15
Other investing activities (21) (24)
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Net cash provided by (used in)
investing activities (485) 552
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Net cash provided by operations after
reinvestment 26 1,456
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FINANCING ACTIVITIES
Issuances of debt 881 37
Payments of debt (143) (725)
Issuances of stock 71 35
Purchases of stock for treasury (294) (218)
Dividends (356) -
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Net cash provided by (used in) financing
activities 159 (871)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (34) (83)
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CASH AND CASH EQUIVALENTS
Net increase during the period 151 502
Balance at beginning of period 1,737 1,433
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Balance at end of period $ 1,888 $ 1,935
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See Notes to Condensed Consolidated Financial Statements.
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THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there
has been no material change in the information disclosed in the
notes to consolidated financial statements included in the Annual
Report on Form 10-K of The Coca-Cola Company (the Company) for
the year ended December 31, 1997. In the opinion of Management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31,
1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of the Company's soft drink and noncarbonated
beverage products are generally greater in the second and third
quarters due to seasonal factors.
NOTE C - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). The adoption of this Statement had no impact
on the Company's net income or share-owners' equity. SFAS 130
establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires
foreign currency translation adjustments and unrealized gains or
losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in share-owners'
equity, to be included in other comprehensive income. Amounts in
prior year financial statements have been reclassified to conform
to SFAS 130.
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The components of comprehensive income, net of related tax, for
the three-month periods ended March 31, 1998 and 1997 are as
follows (in millions):
1998 1997
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Net income $ 857 $ 987
Unrealized gain on
available-for-sale securities 16 82
Foreign currency translation
adjustment 12 (121)
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Comprehensive income $ 885 $ 948
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The components of accumulated other comprehensive income, net
of related tax, at March 31, 1998 and December 31, 1997 are as
follows (in millions):
1998 1997
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Unrealized gain on
available-for-sale securities $ 74 $ 58
Foreign currency translation
adjustment (1,360) (1,372)
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Accumulated other comprehensive
income $(1,286) $(1,314)
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NOTE D - BOTTLING TRANSACTIONS
In February 1997, the Company sold its 49 percent interest in
Coca-Cola & Schweppes Beverages Ltd. to Coca-Cola Enterprises.
This transaction resulted in gross proceeds of approximately $1
billion and a one-time after-tax gain of approximately $.08 per
share (basic and diluted).
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information." This
statement, which is effective for the Company's year-end 1998
financial statements, establishes standards for the way
enterprises report information about operating segments in annual
financial statements and requires that enterprises report
selected information about operating segments in interim
financial reports. The Company does not believe the additional
disclosures will have a significant impact on the Company's
financial statements.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the first quarter of 1998, the Company's worldwide unit case
volume (excluding volume of The Minute Maid Company) increased 14
percent and gallon shipments of concentrates and syrups grew 15
percent on top of first quarter 1997 growth rates of 9 percent
and 7 percent, respectively.
The first quarter 1998 increase in volume is a result of the
Company's focus on marketing activities, investments in
infrastructure (including bottlers, capital and information
systems) and extra shipping days when compared to the first
quarter of 1997. The increase in shipping days will be offset by
an equal reduction in shipping days in the fourth quarter of
1998.
Volume increased 4 percent for The Minute Maid Company in the
first quarter of 1998 compared to a decline of 7 percent
experienced in the first quarter of 1997. The 1997 decline was
caused principally by the exit from the not-from-concentrate
juice category in 1996.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues increased 8 percent for the three-month
period ended March 31, 1998, as compared to the same period of
the prior year. The 1998 results were primarily impacted by
increased gallon sales and selective price increases in certain
markets offset significantly by the impact of a stronger U.S. dollar.
In the first quarter of 1998, the Company's gross margin
increased to 70.4 percent from 68.7 percent in the same period of
1997. The increase in gross margin was due primarily to the sale
in 1997 of a previously consolidated bottling operation, shifting
proportionately more revenues to the higher margin concentrate
business, and price increases in certain markets.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $1,484 million in the first quarter of
1998, compared to $1,346 million in the first quarter of 1997.
The increase in selling expenses is primarily due to higher
marketing investments in support of the Company's volume growth.
Administrative and general expenses were $373 million in the
first quarter of 1998, compared to $355 million in the first
quarter of 1997.
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RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income for the first quarter of 1998 increased to
$1,282 million from $1,142 million, a 12 percent increase over
the first quarter of 1997. The increase was due primarily to
increased gallon sales coupled with an increase in gross profit
margins, partially offset by the impact of the stronger
U.S. dollar and increased selling expenses. Overall the
operating income margin increased to 28.8 percent in the first
quarter of 1998 from 27.6 percent in the first quarter of 1997.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $3 million in the first quarter of
1998, relative to the comparable period in 1997. Interest
expense decreased $6 million in the first quarter of 1998,
relative to the comparable period in 1997, due to the timing of
debt financing resulting in lower average commercial paper
borrowings.
EQUITY INCOME (LOSS)
The Company's share of losses from equity method investments
for the first quarter of 1998 totaled $24 million, compared to a
$28 million loss in the first quarter of 1997. The first quarter
1998 loss was due primarily to seasonal factors plus the significant
amount of structural change in the global bottling system.
OTHER INCOME (LOSS) - NET
Other income (loss) - net decreased to a $5 million loss for
the first quarter of 1998 compared to $336 million income for the
first quarter of 1997. The decrease reflects the impact of the
first quarter 1997 gain on the sale of the Company's interest in
Coca-Cola & Schweppes Beverages Ltd.
INCOME TAXES
The Company's effective tax rate was 31.0 percent for the first
quarter of 1998 and 1997. The Company's effective tax rate
reflects tax benefits derived from significant operations outside
the United States which are taxed at rates lower than the U.S.
statutory rate of 35 percent.
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FINANCIAL CONDITION
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first three months of 1998, net cash flow after
reinvestment totaled $26 million, a decrease of $1,430 million
over the comparable period in 1997. Compared to the first
quarter 1997, cash provided by operating activities decreased
$393 million in the first three months of 1998. The decrease
was due to the timing of payments of year-end accruals and
increases in various prepaid expenses, offset by a one-time
non-cash adjustment to 1997 net income related to the gain on
the sale of Coca-Cola & Schweppes Beverages Ltd.
Net cash used in investing activities totaled $485 million for
the first quarter of 1998, a $1,037 million decrease from
comparable period 1997's cash provided by investing activities of
$552 million. As previously discussed, the Company sold its
interest in Coca-Cola & Schweppes Beverages Ltd. in the first
quarter 1997 generating approximately $1 billion in proceeds.
FINANCING
Financing activities primarily represent the Company's net
borrowing activities, dividend payments and share repurchases.
Net cash provided by financing activities totaled $159 million
versus net cash used in financing activities of $871 million for
the first three months of 1998 and 1997, respectively. For the
first three months of 1998, the Company had net borrowings of
$738 million, versus net repayments of $688 million for the
comparable period of 1997. This decrease in net borrowings in
1997 was due primarily to the proceeds received from the sale
of Company bottling interests, as discussed above.
Cash used for share repurchases was $294 million for the first
three months of 1998, compared to $218 million for the first
three months of 1997.
EXCHANGE
International operations are subject to certain opportunities
and risks, including currency fluctuations and governmental
actions. The Company closely monitors its methods of operating
in each country and adopts appropriate strategies responsive to
each environment. On a weighted average basis, the U.S. dollar
was approximately 10 percent stronger during the first quarter of
1998 versus a weighted average basket of foreign currencies for
the comparable period of the prior year. This percentage does
not include the effects of our hedging activities and therefore,
does not reflect the actual impact of fluctuations in exchange on
operating results. The Company's foreign currency management
program mitigates over time the impact of exchange on net income
and earnings per share.
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Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Share Owners was held on Wednesday,
April 15, 1998, in Wilmington, Delaware, at which the following
matters were submitted to a vote of the share owners:
(a) Votes regarding the election of three Directors for a
term expiring in 2001 were as follows:
FOR WITHHELD
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Herbert A. Allen 2,136,709,778 24,579,486
James D. Robinson III 2,118,560,636 42,728,628
Peter V. Ueberroth 2,136,093,026 25,196,238
Additional Directors, whose terms of office as
Directors continued after the meeting, are as follows:
Term expiring in 1999 Term expiring in 2000
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Cathleen P. Black Ronald W. Allen
Warren E. Buffett Donald F. McHenry
M. Douglas Ivester Sam Nunn
Susan B. King Paul F. Oreffice
James B. Williams
(b) Votes regarding Ratification of the appointment of
Ernst & Young LLP as independent auditors of the
Company to serve for the 1998 fiscal year were as
follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
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2,151,708,546 3,600,067 5,980,651 0
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges
27.1 - Restated Financial Data Schedule for the three months
ended March 31, 1997, submitted to the Securities and
Exchange Commission in electronic format
27.2 - Restated Financial Data Schedule for the six months
ended June 30, 1997, submitted to the Securities and
Exchange Commission in electronic format
27.3 - Restated Financial Data Schedule for the nine months
ended September 30, 1997, submitted to the Securities
and Exchange Commission in electronic format
27.4 - Financial Data Schedule for the three months ended
March 31, 1998, submitted to the Securities and
Exchange Commission in electronic format
(b) Reports on Form 8-K:
No report on Form 8-K has been filed during the quarter
for which this report is filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: May 12, 1998 By: /s/ GARY P. FAYARD
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Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant
and as Chief Accounting Officer)
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Exhibit Index
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges
27.1 - Restated Financial Data Schedule for the three months
ended March 31, 1997, submitted to the Securities and
Exchange Commission in electronic format
27.2 - Restated Financial Data Schedule for the six months
ended June 30, 1997, submitted to the Securities and
Exchange Commission in electronic format
27.3 - Restated Financial Data Schedule for the nine months
ended September 30, 1997, submitted to the Securities
and Exchange Commission in electronic format
27.4 - Financial Data Schedule for the three months ended
March 31, 1998, submitted to the Securities and
Exchange Commission in electronic format