The Coca-Cola Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2017

Operations, Reportable Information, by Operating Segment

As of December 31, 2017, our organizational structure consisted of the following operating segments: Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Bottling Investments; and Corporate.

Segment Products and Services

The business of our Company is nonalcoholic beverages. Our geographic operating segments (Europe, Middle East and Africa; Latin America; North America; and Asia Pacific) derive a majority of their revenues from the manufacture and sale of beverage concentrates and syrups and, in some cases, the sale of finished beverages. Our Bottling Investments operating segment is composed of our Company-owned or consolidated bottling operations, with the exception of those that are classified as discontinued operations, regardless of the geographic location of the bottler. Our Bottling Investments operating segment also includes equity income from the majority of our equity method investments. Company-owned or consolidated bottling operations derive the majority of their revenues from the sale of finished beverages. Generally, finished product operations produce higher net operating revenues but lower gross profit margins compared to concentrate operations.

The following table sets forth the percentage of total net operating revenues related to concentrate operations and finished product operations:



Year Ended December 31,	2017		2016		2015
Concentrate operations¹	51	%	40	%	37	%
Finished product operations²	49		60		63
Total	100	%	100	%	100	%


¹	Includes concentrates sold by the Company to authorized bottling partners for the manufacture of fountain syrups. The bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers.


²	Includes fountain syrups manufactured by the Company, including consolidated bottling operations, and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers.

Method of Determining Segment Income or Loss

Management evaluates the performance of our operating segments separately to individually monitor the different factors affecting financial performance. Our Company manages income taxes from continuing operations and certain treasury-related items, such as interest income and expense, on a global basis within the Corporate operating segment. We evaluate segment performance based on income or loss from continuing operations before income taxes.

Geographic Data

The following table provides information related to our net operating revenues (in millions):



Year Ended December 31,	2017		2016		2015
United States	$	14,727	$	19,899	$	20,360
International	20,683		21,964		23,934
Net operating revenues	$	35,410	$	41,863	$	44,294

The following table provides information related to our property, plant and equipment — net (in millions):



Year Ended December 31,	2017		2016		2015
United States	$	4,163	$	6,784	$	8,266
International	4,040		3,851		4,305
Property, plant and equipment — net	$	8,203	$	10,635	$	12,571

Information about our Company's continuing operations by operating segment as of and for the years ended December 31, 2017, 2016 and 2015, is as follows (in millions):



	Europe, Middle East & Africa			Latin America			North America			Asia Pacific			Bottling Investments				Corporate			Eliminations			Consolidated
2017
Net operating revenues:
Third party	$	7,332		$	3,956		$	8,651		$	4,767		$	10,524			$	138		$	—		$	35,368
Intersegment	42			73			1,986			409			81				—			(2,549		)	42		⁴
Total net operating revenues	7,374			4,029			10,637			5,176			10,605				138			(2,549		)	35,410
Operating income (loss)	3,646			2,214			2,578			2,163			(1,117		)		(1,983		)	—			7,501
Interest income	—			—			44			—			—				633			—			677
Interest expense	—			—			—			—			—				841			—			841
Depreciation and amortization	91			37			411			65			454				202			—			1,260
Equity income (loss) — net	48			(3		)	(3		)	11			878				140			—			1,071
Income (loss) from continuing operations before income taxes	3,706			2,211			2,307			2,179			(2,345		)		(1,316		)	—			6,742
Identifiable operating assets¹	5,475			1,896			17,619			2,072		²	4,493			²	27,060			—			58,615		⁵
Investments³	1,238			891			112			177			15,998				3,536			—			21,952
Capital expenditures	81			55			541			50			662				286			—			1,675
2016
Net operating revenues:
Third party	$	7,014		$	3,746		$	6,437		$	4,788		$	19,751			$	127		$	—		$	41,863
Intersegment	264			73			3,773			506			134				5			(4,755		)	—
Total net operating revenues	7,278			3,819			10,210			5,294			19,885				132			(4,755		)	41,863
Operating income (loss)	3,676			1,951			2,582			2,224			(137		)		(1,670		)	—			8,626
Interest income	—			—			27			—			—				615			—			642
Interest expense	—			—			—			—			—				733			—			733
Depreciation and amortization	93			35			426			80			1,013				140			—			1,787
Equity income (loss) — net	62			18			(17		)	9			648				115			—			835
Income (loss) from continuing operations before income taxes	3,749			1,966			2,560			2,238			(1,923		)		(454		)	—			8,136
Identifiable operating assets¹	4,067			1,785			16,566			2,024			15,973				29,606			—			70,021
Investments³	1,302			804			109			164			11,456				3,414			—			17,249
Capital expenditures	62			45			438			107			1,329				281			—			2,262
2015
Net operating revenues:
Third party	$	6,966		$	3,999		$	5,581		$	4,707		$	22,885			$	156		$	—		$	44,294
Intersegment	621			75			4,259			545			178				10			(5,688		)	—
Total net operating revenues	7,587			4,074			9,840			5,252			23,063				166			(5,688		)	44,294
Operating income (loss)	3,875			2,169			2,366			2,189			124				(1,995		)	—			8,728
Interest income	—			—			9			—			—				604			—			613
Interest expense	—			—			—			—			—				856			—			856
Depreciation and amortization	103			41			373			85			1,211				157			—			1,970
Equity income (loss) — net	39			(7		)	(18		)	9			426				40			—			489
Income (loss) from continuing operations before income taxes	3,923			2,164			2,356			2,207			(427		)		(618		)	—			9,605
Identifiable operating assets¹	4,156		²	1,627			16,396			1,639			22,688			²	27,702			—			74,208
Investments³	1,138			657			107			158			8,084				5,644			—			15,788
Capital expenditures	54			70			377			81			1,699				272			—			2,553


¹	Principally cash and cash equivalents, short-term investments, marketable securities, trade accounts receivable, inventories, goodwill, trademarks and other intangible assets, and property, plant and equipment — net.

Property, plant and equipment — net in India represented 11 percent of consolidated property, plant and equipment — net in 2017. Property, plant and equipment — net in Germany represented 10 percent of consolidated property, plant and equipment — net in 2015. The 2015 amount includes property, plant and equipment — net classified as held for sale. During the year ended December 31, 2016, the Company deconsolidated our German bottling operations. Refer to Note 2.


³	Principally equity method investments and other investments in bottling companies.


⁴	Intersegment revenues do not eliminate on a consolidated basis in the table above due to intercompany sales to our discontinued operations.


⁵	Identifiable operating assets excludes $7,329 million of assets held for sale — discontinued operations.

During 2017, 2016 and 2015, our operating segments were impacted by acquisition and divestiture activities. Refer to Note 2.

In 2017, the results of our operating segments were impacted by the following items:


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $26 million for Europe, Middle East and Africa, $7 million for Latin America, $241 million for North America, $10 million for Asia Pacific, $57 million for Bottling Investments and $309 million for Corporate due to the Company's productivity and reinvestment program. Refer to Note 18.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $737 million for Bottling Investments and $34 million for Corporate due to asset impairment charges. Refer to Note 1 and Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $419 million for Bottling Investments due to costs incurred to refranchise certain of our bottling operations. Refer to Note 2 and Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $225 million for Corporate as a result of cash contributions to The Coca-Cola Foundation. Refer to Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $67 million for Corporate due to tax litigation expense. Refer to Note 11 and Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $4 million for Europe, Middle East and Africa, $2 million for North America, $70 million for Bottling Investments and $16 million for Corporate due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $2,140 million for Bottling Investments due to the refranchising of certain bottling territories in North America. Refer to Note 2.


•	Income (loss) from continuing operations before income taxes was increased by $445 million for Corporate due to a gain recognized resulting from the merger of CCW and CCEJ. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $313 million for North America primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements. Refer to Note 2.


•	Income (loss) from continuing operations before income taxes was increased by $150 million for Corporate related to the remeasurement of our previously held equity interests in CCBA and its South African subsidiary to fair value. Refer to Note 2.


•	Income (loss) from continuing operations before income taxes was increased by $88 million for Corporate due to a gain recognized upon refranchising our China bottling operations and related cost method investment. Refer to Note 2.


•	Income (loss) from continuing operations before income taxes was reduced by $50 million for Corporate due to an other-than-temporary impairment charge related to one of our international equity method investees. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $38 million for Corporate due to the early extinguishment of long-term debt. Refer to Note 10.


•	Income (loss) from continuing operations before income taxes was reduced by $26 million for Corporate due to a charge related to our former German bottling operations.


•	Income (loss) from continuing operations before income taxes was increased by $25 million for Corporate due to Coca‑Cola FEMSA, an equity method investee, issuing additional shares of its stock during the period at a per share amount greater than the carrying value of the Company's per share investment.

In 2016, the results of our operating segments were impacted by the following items:

•

Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $32 million for Europe, Middle East and Africa, $134 million for North America, $1 million for Asia Pacific, $322 million for Bottling Investments and $105 million for Corporate due to the Company's productivity and reinvestment program as well as other restructuring initiatives. Operating income (loss) and income (loss) from continuing operations before income taxes were increased by $2 million for Latin America due to the refinement of previously established accruals related to the Company's productivity and reinvestment program. Refer to Note 18.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $297 million for Bottling Investments due to costs incurred to refranchise certain of our bottling operations. Refer to Note 2 and Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $200 million for Corporate as a result of cash contributions to The Coca-Cola Foundation. Refer to Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $153 million for Bottling Investments due to impairment charges recorded on certain of the Company's intangible assets. Refer to Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $118 million for Bottling Investments due to pension settlement charges primarily as a result of our refranchising activities. Refer to Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $76 million for Latin America due to the write-down we recorded related to our receivables from our bottling partner in Venezuela due to changes in exchange rates. Refer to Note 1.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $9 million for Bottling Investments and $32 million for Corporate related to noncapitalizable transaction costs associated with pending and closed transactions. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $52 million for Bottling Investments and $9 million for Corporate due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $2,456 million for Bottling Investments primarily due to the refranchising of certain bottling territories in North America. Refer to Note 2 and Note 17.


•	Income (loss) from continuing operations before income taxes was increased by $1,323 million for Corporate as a result of the deconsolidation of our German bottling operations. Refer to Note 2.


•	Income (loss) from continuing operations before income taxes was reduced by $72 million for Corporate as a result of remeasuring our net monetary assets denominated in Egyptian pounds. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $31 million for North America related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements. Refer to Note 2.

In 2015, the results of our operating segments were impacted by the following items:

•

Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $7 million for Latin America, $141 million for North America, $2 million for Asia Pacific, $596 million for Bottling Investments and $246 million for Corporate due to the Company's productivity and reinvestment program as well as other restructuring initiatives. Operating income (loss) and income (loss) from continuing operations before income taxes were increased by $9 million for Europe, Middle East and Africa due to the refinement of previously established accruals, partially offset by additional charges related to the Company's productivity and reinvestment program. Refer to Note 18.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $418 million for Corporate primarily due to an impairment charge primarily related to the discontinuation of the energy products in the glacéau portfolio as a result of the Monster Transaction. Refer to Note 2 and Note 17.


•	Operating income (loss) and income (loss) from continuing operations before income taxes were reduced by $100 million for Corporate as a result of a cash contribution to The Coca-Cola Foundation. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $4 million for Europe, Middle East and Africa and $83 million for Bottling Investments due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 17.


•	Income (loss) from continuing operations before income taxes was increased by $1,403 million for Corporate as a result of the Monster Transaction. Refer to Note 2 and Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $1,006 million for Bottling Investments due to the refranchising of certain bottling territories in North America. Refer to Note 2 and Note 17.


•	Income (loss) from continuing operations before income taxes was reduced by $320 million for Corporate due to charges the Company recognized on the early extinguishment of certain long-term debt. Refer to Note 10 and Note 17.

•

Income (loss) from continuing operations before income taxes was reduced by $33 million for Latin America and $105 million for Corporate due to the remeasurement of the net monetary assets of our local Venezuelan subsidiary into U.S. dollars using the SIMADI exchange rate, an impairment of a Venezuelan trademark, and a write-down the Company recorded on receivables from our bottling partner in Venezuela. Refer to Note 1 and Note 17.