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 June 30, 2001
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. 1-2217
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
------ ------
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 July 27, 2001
--------------------- ----------------------------
$.25 Par Value 2,487,596,324 Shares
THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income
Three and six months ended June 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2001 and 2000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 28
Part II. Other Information
Item 1. Legal Proceedings 29
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
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
June 30, December 31,
2001 2000
-------- ------------
CURRENT
Cash and cash equivalents $ 2,599 $ 1,819
Marketable securities 67 73
-------- --------
2,666 1,892
Trade accounts receivable, less
allowances of $44 at June 30
and $62 at December 31 1,857 1,757
Inventories 1,196 1,066
Prepaid expenses and other assets 2,325 1,905
-------- --------
TOTAL CURRENT ASSETS 8,044 6,620
-------- --------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 695 707
Coca-Cola Amatil Ltd 599 617
Coca-Cola HBC S.A. 764 758
Other, principally bottling companies 3,200 3,164
Cost method investments,
principally bottling companies 450 519
Marketable securities and other assets 2,420 2,364
-------- --------
8,128 8,129
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land 223 225
Buildings and improvements 1,660 1,642
Machinery and equipment 4,590 4,547
Containers 210 200
-------- --------
6,683 6,614
Less allowances for depreciation 2,542 2,446
-------- --------
4,141 4,168
-------- --------
GOODWILL AND OTHER INTANGIBLE ASSETS 2,074 1,917
-------- --------
$ 22,387 $ 20,834
======== ========
3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
June 30, December 31,
2001 2000
-------- ------------
CURRENT
Accounts payable and accrued expenses $ 4,051 $ 3,905
Loans and notes payable 4,088 4,795
Current maturities of long-term debt 4 21
Accrued income taxes 1,027 600
-------- --------
TOTAL CURRENT LIABILITIES 9,170 9,321
-------- --------
LONG-TERM DEBT 1,356 835
-------- --------
OTHER LIABILITIES 1,015 1,004
-------- --------
DEFERRED INCOME TAXES 439 358
-------- --------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,489,651,152 shares at June 30;
3,481,882,834 shares at December 31 872 870
Capital surplus 3,436 3,196
Reinvested earnings 22,351 21,265
Accumulated other comprehensive income and
unearned compensation on restricted stock (2,719) (2,722)
-------- --------
23,940 22,609
Less treasury stock, at cost
(1,002,161,539 shares at June 30;
997,121,427 shares at December 31) 13,533 13,293
-------- --------
10,407 9,316
-------- --------
$ 22,387 $ 20,834
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
NET OPERATING REVENUES $ 5,293 $ 5,487 $ 9,772 $ 9,743
Cost of goods sold 1,579 1,677 2,924 3,075
-------- -------- -------- --------
GROSS PROFIT 3,714 3,810 6,848 6,668
Selling, administrative and
general expenses 2,201 2,334 4,055 4,272
Other operating charges - 191 - 871
-------- -------- -------- --------
OPERATING INCOME 1,513 1,285 2,793 1,525
Interest income 78 98 159 165
Interest expense 77 119 168 218
Equity income (loss) 101 71 63 (14)
Other income (loss) - net (18) 7 (3) (19)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,597 1,342 2,844 1,439
Income taxes 479 416 853 571
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 1,118 926 1,991 868
Cumulative effect of
accounting change, net of
income taxes - - (10) -
-------- -------- -------- --------
NET INCOME $ 1,118 $ 926 $ 1,981 $ 868
======== ======== ======== ========
BASIC NET INCOME PER SHARE:
Before accounting change $ .45 $ .37 $ .80 $ .35
Cumulative effect of
accounting change - - - -
-------- -------- -------- --------
$ .45 $ .37 $ .80 $ .35
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
DILUTED NET INCOME PER SHARE:
Before accounting change $ .45 $ .37 $ .80 $ .35
Cumulative effect of
accounting change - - - -
-------- -------- -------- --------
$ .45 $ .37 $ .80 $ .35
======== ======== ======== ========
DIVIDENDS PER SHARE $ .18 $ .17 $ .36 $ .34
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 2,488 2,475 2,487 2,474
======== ======== ======== ========
Dilutive effect of
stock options - 5 - 7
-------- -------- -------- --------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,488 2,480 2,487 2,481
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Six Months Ended
June 30,
--------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income $ 1,981 $ 868
Depreciation and amortization 385 443
Deferred income taxes (84) (75)
Equity income or loss, net of dividends 4 68
Foreign currency adjustments 7 57
Other operating charges - 655
Other items 35 31
Net change in operating assets and liabilities (233) (816)
-------- --------
Net cash provided by operating activities 2,095 1,231
-------- --------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (241) (283)
Purchases of investments and other assets (340) (254)
Proceeds from disposals of investments
and other assets 140 30
Purchases of property, plant and equipment (313) (419)
Proceeds from disposals of property, plant
and equipment 55 11
Other investing activities 104 (4)
-------- --------
Net cash used in investing activities (595) (919)
-------- --------
Net cash provided by operations after reinvestment 1,500 312
-------- --------
FINANCING ACTIVITIES
Issuances of debt 2,307 3,405
Payments of debt (2,523) (2,057)
Issuances of stock 125 150
Purchases of stock for treasury (132) (123)
Dividends (448) (420)
-------- --------
Net cash (used in) provided by financing activities (671) 955
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (49) (35)
-------- --------
CASH AND CASH EQUIVALENTS
Net increase during the period 780 1,232
Balance at beginning of period 1,819 1,611
-------- --------
Balance at end of period $ 2,599 $ 2,843
======== ========
See Notes to Condensed Consolidated Financial Statements.
7
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 accounting principles generally accepted in the
United States 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 (our Company) for the year ended December 31, 2000. In the opinion of
management, all adjustments (consisting of normal recurring accruals), as well
as the accounting change to adopt Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 2001, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
8
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE B - SEASONALITY
Sales of ready-to-drink nonalcoholic beverages are somewhat seasonal, with
the second and third calendar quarters accounting for the highest sales volumes
in the Northern Hemisphere. The volume of sales in the beverages business may be
affected by weather conditions.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the second quarter 2001 was $868 million,
comprising net income of $1,118 million, reclassification of derivative gains
into earnings of approximately $48 million, a net reduction for foreign currency
translation of approximately $209 million and a net increase in the unrealized
gain on available-for-sale securities of approximately $7 million. Total
comprehensive income was $636 million in the second quarter of 2000 reflecting
net income of $926 million, a net reduction for foreign currency translation of
approximately $270 million, and a net decrease in the unrealized gain on
available-for-sale securities of approximately $20 million.
For the first six months of 2001, total comprehensive income was $1,953
million, comprising net income of $1,981 million, accumulated net gains on
derivative financial instruments of approximately $104 million, a net reduction
for foreign currency translation of approximately $139 million and a net
increase in the unrealized gain on available-for-sale securities of
approximately $7 million. Total comprehensive income was $431 million for the
first six months of 2000, reflecting net income of $868 million, a net reduction
for foreign currency translation of approximately $378 million and a net
decrease in the unrealized gain on available-for-sale securities of
approximately $59 million.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE D - ACCOUNTING PRONOUNCEMENTS
SFAS NO. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
- -----------------------------------------------------------------------------
Effective January 1, 2001, the Company adopted SFAS No. 133 as amended by SFAS
No. 137 and SFAS No. 138. These statements require the Company to recognize all
derivative instruments on the balance sheet at fair value. The statements also
establish new accounting rules for hedging instruments, which depend on the
nature of the hedge relationship. A fair value hedge requires that the effective
portion of the change in the fair value of a derivative instrument be offset
against the change in the fair value of the underlying asset, liability, or firm
commitment being hedged through earnings. A cash flow hedge requires that the
effective portion of the change in the fair value of a derivative instrument be
recognized in Other Comprehensive Income (OCI), a component of Share-Owners'
Equity, and reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. Any ineffective portion of a
derivative instrument's change in fair value is immediately recognized in
earnings. The second quarter 2001 unaudited condensed consolidated financial
statements include the provisions required by SFAS No. 133, while the second
quarter 2000 unaudited condensed consolidated financial statements were prepared
in accordance with the applicable professional literature for derivatives and
hedging instruments in effect at that time.
Upon adoption of SFAS No. 133 on January 1, 2001, the Company recorded
transition adjustments to recognize its derivative instruments at fair value and
to recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax reduction to net income of approximately $10 million and an after-tax
net increase to OCI of approximately $50 million.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE D - ACCOUNTING PRONOUNCEMENTS (Continued)
EMERGING ISSUES TASK FORCE (EITF)
- ---------------------------------
Effective January 1, 2001, our Company adopted the provisions of EITF Issue
00-14, "Accounting for Certain Sales Incentives," and Issue 00-22, "Accounting
for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive
Offers, and Offers for Free Products or Services to be Delivered in the Future."
Both of these EITF Issues provide additional guidance relating to the income
statement classification of certain sales incentives. The adoption of these EITF
Issues resulted in the Company reducing both net operating revenues and selling,
administrative and general expenses by approximately $152 million for the second
quarter ended June 30, 2001, and by approximately $303 million for the six
months ended June 30, 2001. For the three and six month periods ending June 30,
2000, the Company reduced both net operating revenues and selling,
administrative and general expenses by approximately $134 million and $269
million, respectively.
In April 2001, the EITF reached a consensus on EITF 00-25 "Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the Vendor's
Products." EITF 00-25, which is effective for the Company beginning January 1,
2002, will require certain selling expenses incurred by the Company to be
classified as deductions from revenue. We are currently assessing the financial
impact EITF 00-25 will have on our Consolidated Financial Statements; however,
we anticipate that a significant amount of our payments to bottlers and
customers which are currently classified within selling, administrative and
general expenses will be reclassified as deductions from revenue in 2002.
SFAS NO. 141 "BUSINESS COMBINATIONS" AND SFAS NO. 142 "GOODWILL AND OTHER
INTANGIBLE ASSETS"
- -----------------------------------------------------------------------------
In June, 2001, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets." Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company will apply the new accounting rules
beginning January 1, 2002. We are currently assessing the financial impact SFAS
No. 141 and No. 142 will have on our Consoldiated Financial Statements.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE E - OPERATING SEGMENTS
The Company's operating structure includes the following operating segments:
the North America Group (including The Minute Maid Company); the Africa Group;
the Europe, Eurasia and Middle East Group; the Latin America Group; the Asia
Group; and Corporate. The North America Group includes the United States, Canada
and Puerto Rico.
Effective January 1, 2001, the Company's operating segments were
geographically reconfigured and/or renamed as follows: Puerto Rico was added to
the North America Group from the Latin America Group. The Middle East Division
was added to the Europe and Eurasia Group, which changed its name to the Europe,
Eurasia and Middle East Group. At the same time the Africa and Middle East
Group, less the relocated Middle East Division, changed its name to the Africa
Group. During the first quarter of 2001, the Asia Pacific Group was renamed the
Asia Group. Prior period amounts have been reclassified to conform to the
current period presentation.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE E - OPERATING SEGMENTS (Continued)
Information about our Company's operations by operating segment, is as
follows:
As of and for the Three Months Ended June 30, 2001 and 2000 (in millions):
Europe,
North Eurasia and Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ------------ --------- -------- --------- ------------
2001
- ----
Net operating
revenues $ 1,961 $ 141 $ 1,168 $ 589 $ 1,387 $ 47 $ 5,293
Operating income 369 53 436 282 511 (138) 1,513
Identifiable
operating
assets 4,414 276 2,094 1,670 2,049 6,176 16,679
Investments 141 90 1,976 1,724 1,005 772 5,708
2000
- ----
Net operating
revenues $ 1,991 $ 135 $ 1,335 $ 513 $ 1,475 $ 38 $ 5,487
Operating income(1) 379 37 403 248 478 (260) 1,285
Identifiable
operating
assets 4,141 275 1,947 1,555 2,414 6,491 16,823
Investments 141 92 2,026 1,945 1,424 807 6,435
Intercompany transfers between operating segments are not material.
(1) Operating income was reduced by $36 million for North America; $3 million
for Africa; $35 million for Europe, Eurasia and Middle East; $4 million for
Latin America; $18 million for Asia; and $95 million for Corporate as a result
of other operating charges associated with the Company's organizational
realignment.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE E - OPERATING SEGMENTS (Continued)
For the Six Months Ended June 30, 2001 and 2000 (in millions):
Europe,
North Eurasia and Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ------------ --------- -------- --------- ------------
2001
- ----
Net operating
revenues $ 3,663 $ 287 $ 2,136 $ 1,121 $ 2,471 $ 94 $ 9,772
Operating income 749 122 833 559 846 (316) 2,793
2000
- ----
Net operating
revenues $ 3,670 $ 262 $ 2,317 $ 1,010 $ 2,434 $ 50 $ 9,743
Operating income(1,2) 651 69 720 471 146 (532) 1,525
Intercompany transfers between operating segments are not material.
(1) Operating income was reduced by $3 million for North America; $397 million
for Asia; and $5 million for Corporate as a result of other operating charges
recorded for asset impairments.
(2) Operating income was reduced by $80 million for North America; $5 million
for Africa; $40 million for Europe, Eurasia and Middle East; $21 million for
Latin America; $108 million for Asia; and $212 million for Corporate as a result
of other operating charges associated with the Company's organizational
realignment.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE F - OTHER OPERATING CHARGES
In the second quarter of 2000, we recorded total charges of approximately
$191 million, related to costs associated with the Company's organizational
realignment (the Realignment). For the first six months of 2000 we recorded
total charges of $871 million. Of this $871 million, approximately $405 million
related to the impairment of certain bottling, manufacturing and intangible
assets, and approximately $466 million related to the Realignment.
In the first quarter of 2000, we recorded charges of approximately $405
million related to the impairment of certain bottling, manufacturing and
intangible assets, primarily within our Indian bottling operations. These
impairment charges were recorded to reduce the carrying value of the identified
assets to fair value. Fair value was derived using cash flow analysis. The
assumptions used in the cash flow analysis were consistent with those used in
our internal planning process. The assumptions included estimates of future
growth in unit cases, estimates of gross margins, estimates of the impact of
exchange rates and estimates of tax rates and tax incentives. The charge was
primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value of
long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In the second quarter of 2000, the Company incurred total pretax Realignment
expenses of approximately $191 million. Under the Realignment, which was
completed during the year ended December 31, 2000, approximately 5,200 employees
were separated from almost all functional areas of the Company's operations, and
certain activities were outsourced to third parties. Employees separated from
the Company as a result of the Realignment were offered severance or early
retirement packages, as appropriate, which included both financial and
non-financial components. The Realignment expenses included costs associated
with involuntary terminations, voluntary retirements and other direct costs
associated with implementing the Realignment. Other direct costs included
repatriating and relocating employees to local markets; asset write-downs; lease
cancellation costs; and costs associated with the development, communication and
administration of the Realignment.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE F - OTHER OPERATING CHARGES (Continued)
The table below summarizes the balance of accrued Realignment expenses and
the movement in that accrual as of and for the three months ended June 30, 2001
(in millions):
Accrued Accrued
Balance Noncash Balance
March 31 and June 30
REALIGNMENT SUMMARY 2001 Payments Exchange 2001
- ------------------- --------- -------- -------- --------
Employees involuntarily separated
Severance pay and benefits $ 71 $ (22) $ - $ 49
Outside services - legal,
outplacement, consulting 6 (6) - -
Other - including asset write-downs 32 (10) (5) 17
--------- -------- -------- --------
$ 109 $ (38) $ (5) $ 66
--------- -------- -------- --------
Employees voluntarily separated
Special retirement pay and benefits $ 162 $ - $ (13) $ 149
Outside services - legal,
outplacement, consulting 3 (1) - 2
--------- -------- -------- --------
$ 165 $ (1) $ (13) $ 151
--------- -------- -------- --------
Other direct costs $ 55 $ (4) $ 5 $ 56
--------- -------- -------- --------
Total Realignment $ 329 $ (43) $ (13) $ 273 (1)
========= ======== ======== ========
(1) Accrued Realignment expenses of approximately $149 million and $124 million
have been included in the Condensed Consolidated Balance Sheet captions Accounts
payable and accrued expenses and Other liabilities, respectively.
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE F - OTHER OPERATING CHARGES (Continued)
The table below summarizes the balance of accrued Realignment expenses and
the movement in that accrual as of and for the six months ended June 30, 2001
(in millions):
Accrued Accrued
Balance Noncash Balance
December 31 and June 30
REALIGNMENT SUMMARY 2000 Payments Exchange 2001
- ------------------- ----------- -------- -------- --------
Employees involuntarily separated
Severance pay and benefits $ 91 $ (42) $ - $ 49
Outside services - legal,
outplacement, consulting 8 (8) - -
Other - including asset write-downs 37 (16) (4) 17
---------- -------- --------- --------
$ 136 $ (66) $ (4) $ 66
---------- -------- --------- --------
Employees voluntarily separated
Special retirement pay and benefits $ 179 $ (19) $ (11) $ 149
Outside services - legal,
outplacement, consulting 3 (1) - 2
---------- -------- --------- --------
$ 182 $ (20) $ (11) $ 151
---------- -------- --------- --------
Other direct costs $ 60 $ (9) $ 5 $ 56
---------- -------- --------- --------
Total Realignment $ 378 $ (95) $ (10) $ 273 (1)
========== ======== ========= ========
(1) Accrued Realignment expenses of approximately $149 million and $124 million
have been included in the Condensed Consolidated Balance Sheet captions Accounts
payable and accrued expenses and Other liabilities, respectively.
17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
BEVERAGE VOLUME
- ---------------
In the second quarter of 2001, our worldwide unit case volume increased more
than 3 percent compared to the second quarter of 2000. Our unit case volume for
the first six months of 2001 increased 4 percent compared to the first six
months of 2000. The increase in unit case volume reflects improved performance
in the United States and international markets, particularly Japan, Spain,
Argentina, Asia and Africa, partially offset by declines in volume recorded by
Germany and our Eurasia Division (including Turkey). Second quarter 2001 unit
case volume growth for the Company's operating segments was 3 percent for the
North America Group; 4 percent for the Latin America Group; 10 percent for the
Africa Group; and 11 percent for the Asia Group. The Europe, Eurasia and Middle
East Group recorded a 2 percent reduction in unit case volume for the second
quarter of 2001 compared to the same period in 2000. Worldwide gallon sales of
concentrates and syrups increased by 2 percent in the second quarter and 5
percent for the first six months of 2001, compared to the same periods in 2000.
The percentage increase in gallon sales for the first six months of 2001 was
higher than the increase in unit case volume due primarily to 2000 gallon
shipments being unfavorably impacted by the reduction of concentrate inventory
by certain bottlers within the Coca-Cola system, the majority of which occurred
during the first three months of 2000.
NET OPERATING REVENUES AND GROSS MARGIN
- ---------------------------------------
Net operating revenues decreased by approximately 4 percent to $5,293 million
in the second quarter of 2001 compared to the second quarter 2000. Net operating
revenues for the first six months of 2001 at $9,772 million were comparable with
net operating revenues recorded for the same period in 2000 of $9,743 million.
The decrease in net operating revenues for the second quarter 2001 was due
primarily to the impact of a stronger U.S. dollar and the deconsolidation in
2001 of our previously owned vending operations in Japan and canning operations
in Germany. The above was partially offset by increased gallon sales, price
increases in selected countries and the consolidation of two recently acquired
Brazilian bottling operations.
Our gross profit margin increased to 70.2 percent in the second quarter of
2001 from 69.4 percent in the second quarter of 2000. For the first six months
of 2001, our gross profit margin increased to 70.1 percent from 68.4 percent for
the first six months of 2000. The increase in our gross profit margin for both
the second quarter and the first six months of 2001 was due primarily to the
impact upon our 2000 gross profit margin from the reduction of concentrate
inventory levels by certain bottlers within the Coca-Cola system and the
deconsolidation in 2001 of our Japan vending and German canning operations. This
increase was partially offset by the consolidation in 2001 of two recently
acquired Brazilian bottling operations.
18
RESULTS OF OPERATIONS (Continued)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
- --------------------------------------------
Selling, administrative and general expenses were approximately $2,201
million in the second quarter of 2001, compared to $2,334 million in the second
quarter of 2000. For the first six months of 2001, selling, administrative and
general expenses were $4,055 million compared to $4,272 million for the same
period in 2000. The decrease during 2001 was due primarily to the combination of
savings in expenses achieved from the Realignment completed during 2000, the
impact of a stronger U.S. dollar and the deconsolidation in 2001 of our Japan
vending and German canning operations. This decrease was partially offset by the
consolidation in 2001 of two recently acquired Brazilian bottling operations.
During the first quarter of 2001, the Company announced plans to implement
significant strategic one-time marketing initiatives in order to accelerate the
Company's business strategies. During calendar year 2001, the Company expects to
make incremental, additional marketing investments totaling approximately $300
million to $400 million in selected key markets, specifically the United States,
Japan and Germany. During the second quarter 2001, approximately $82 million, or
$0.02 per share after tax, was expensed on these incremental marketing
activities and the remaining amounts will be expensed during the third and
fourth quarters of 2001.
OTHER OPERATING CHARGES
- -----------------------
In the second quarter of 2000, we recorded total nonrecurring charges of
approximately $191 million related to costs associated with the Company's
Realignment. For the first six months of 2000 we recorded total charges of $871
million. Of this $871 million, approximately $405 million related to the
impairment of certain bottling, manufacturing and intangible assets, and
approximately $466 million related to the Realignment.
In the first quarter of 2000, we recorded charges of approximately $405
million, or $0.16 per share after tax, related to the impairment of certain
bottling, manufacturing and intangible assets, primarily within our Indian
bottling operations. These impairment charges were recorded to reduce the
carrying value of the identified assets to fair value. Fair value was derived
using cash flow analysis. The assumptions used in the cash flow analysis were
consistent with those used in our internal planning process. The assumptions
included estimates of future growth in unit cases, estimates of gross margins,
estimates of the impact of exchange rates and estimates of tax rates and tax
incentives. The charge was primarily the result of our revised outlook for the
Indian beverage market including the future expected tax environment. The
remaining carrying value of long-lived assets within our Indian bottling
operations, immediately after recording the impairment charge, was approximately
$300 million.
19
RESULTS OF OPERATIONS (Continued)
OTHER OPERATING CHARGES (Continued)
- -----------------------
In the second quarter of 2000, the Company incurred total pretax Realignment
expenses of approximately $191 million, or $0.05 per share after tax. Under the
Realignment, which was completed during the year ended December 31, 2000,
approximately 5,200 employees were separated from almost all functional areas of
the Company's operations, and certain activities were outsourced to third
parties. Employees separated from the Company as a result of the Realignment
were offered severance or early retirement packages, as appropriate, which
included both financial and non-financial components. The Realignment expenses
included costs associated with involuntary terminations, voluntary retirements
and other direct costs associated with implementing the Realignment. Other
direct costs included repatriating and relocating employees to local markets;
asset write-downs; lease cancellation costs; and costs associated with the
development, communication and administration of the Realignment.
OPERATING INCOME AND OPERATING MARGIN
- -------------------------------------
Operating income was $1,513 million in the second quarter of 2001, compared
to $1,285 million in the second quarter of 2000. Our consolidated operating
margin for the second quarter of 2001 was 28.6 percent, compared to 23.4 percent
for the comparable period in 2000. Operating income and operating margin for the
six months ended June 30, 2001 were $2,793 million and 28.6 percent,
respectively, compared to $1,525 million and 15.7 percent for the six months
ended June 30, 2000. The first six months of 2000 results reflect the recording
of approximately $871 million in charges as discussed previously under the
heading, "Other Operating Charges," as well as the effect of the planned
reduction of concentrate inventory by certain bottlers within the Coca-Cola
system. Operating income for the second quarter of 2001 and for the six months
ended June 30, 2001 reflect increased gallon sales as well as savings in
operating expenses as a result of the Realignment, partially offset by the
impact of a stronger U.S. dollar.
20
RESULTS OF OPERATIONS (Continued)
INTEREST INCOME AND INTEREST EXPENSE
- ---------------------------------------
Interest income decreased to $78 million for the second quarter of 2001 and to
$159 million year to date at June 30, 2001, from $98 million and $165 million,
respectively, for the comparable periods in 2000, due primarily to lower
interest rates. Interest expense decreased 35 percent to $77 million in the
second quarter of 2001 relative to the comparable period in 2000, and by
approximately 23 percent to $168 million year to date at June 30, 2001, due to
both a decrease in average commercial paper debt balances and lower interest
rates. Interest income exceeded interest expense for the second quarter of 2001.
Interest income benefited from cash invested in locations outside the United
States earning higher rates of interest than can be obtained within the United
States. Our interest expense is primarily incurred on borrowings within the
United States.
EQUITY INCOME (LOSS)
- -------------------
Our Company's share of income from equity method investments for the second
quarter of 2001 totaled $101 million, compared to $71 million in the second
quarter of 2000. For the first six months of 2001, our Company's share of income
from equity method investments totaled $63 million, compared to an equity loss
of $14 million for the comparable period in 2000. The increase in our Company's
share of income from equity method investments was due primarily to the
continued improvement in operating performance by the majority of our equity
bottlers.
OTHER INCOME (LOSS) - NET
- -------------------------
Other income (loss) - net decreased to $18 million loss for the second
quarter of 2001, compared to $7 million income for the second quarter of 2000.
Other income (loss) - net increased to $3 million loss for the first six months
of 2001 compared to $19 million loss for the comparable period in 2000. The
changes in other income (loss)- net in both periods discussed above were due
primarily to foreign currency gains and losses.
21
RESULTS OF OPERATIONS (Continued)
INCOME TAXES
- ------------
Our effective tax rate was 30 percent for the second quarter of 2001 compared
to 31 percent for the second quarter of 2000. The effective tax rate was 30
percent for the first six months of 2001 compared to 39.7 percent for the first
six months of 2000. The decrease in our effective tax rate for the first six
months of 2001 compared with the first six months of 2000 was due primarily to
the first quarter of 2000 including other operating charges of approximately
$405 million related to asset impairments for which no tax benefit was
recognized. Excluding the impact of these impairment charges, the effective tax
rate on operations for the first six months of 2000 was 31 percent. Our
effective tax rate of 30 percent for the three and six months ended June 30,
2001, 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.
RECENT DEVELOPMENTS
- -------------------
In February 2001, our Company and The Procter & Gamble Company (P&G)
announced plans to create a stand-alone enterprise to develop and market juices
and salted snacks. Based on continuing discussions with P&G, we anticipate that
the nature and terms of any transaction that may result will differ materially
from the transaction originally announced in February 2001. Both parties intend
to continue working together to complete a mutually beneficial transaction. We
undertake no obligation to update or revise the statements made in this
paragraph.
22
FINANCIAL CONDITION
NET CASH PROVIDED BY OPERATIONS AFTER REINVESTMENT
- --------------------------------------------------
In the first six months of 2001, net cash provided by operations after
reinvestment totaled $1,500 million compared to $312 million for the comparable
period in 2000.
Net cash provided by operating activities in the first six months of 2001
amounted to $2,095 million, a $864 million increase compared to the first six
months of 2000. The increase was due primarily to the first six months of 2000
being unfavorably impacted by the previously mentioned planned inventory
reduction by certain bottlers, cash payments made to separated employees under
the Realignment, as well as additional Japanese tax payments made pursuant to
the terms of an Advance Pricing Agreement (APA) entered into by the United
States and Japan taxing authorities, referred to in Note 14 to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
Net cash used in investing activities totaled $595 million for the first six
months of 2001, compared to $919 million for the first six months of 2000. The
decrease was due primarily to a reduction in purchases of property, plant and
equipment combined with the proceeds received from the sale of our vending
operations in Japan and other investing activities.
FINANCING ACTIVITIES
- ---------------------
Our financing activities include net borrowings, dividend payments and share
issuances and repurchases. Net cash used in financing activities totaled $671
million for the first six months of 2001, compared to net cash provided by
financing activities of $955 million for the first six months of 2000. Our
Company reduced its cash borrowings by $216 million in the first six months of
2001 compared to a net increase in cash borrowings of $1,348 million for the
comparable period in 2000. In 2000, the Company increased its borrowings due to
the impact on cash from the reduction of concentrate inventory by certain
bottlers, costs associated with the Realignment and the satisfaction of tax
obligations pursuant to the terms of the APA.
Cash used to purchase common stock for treasury was $132 million for the
first six months of 2001, compared to $123 million for the first six months of
2000. The Company repurchased approximately 2,400,000 shares of common stock
during the first six months of 2001 at an average cost of $48.73 per share.
During the first six months of 2000, our Company did not repurchase any common
stock under the stock repurchase plan. Treasury stock repurchases in 2000 were
due primarily to the repurchase of shares from employees pursuant to the
provisions of the Company's Stock Option and Restricted Stock Award Plans.
23
FINANCIAL CONDITION (Continued)
FINANCIAL POSITION
- ------------------
The increase in current prepaid expenses and other assets during the first
six months of 2001 was due primarily to the change in the carrying value of
derivatives and hedging instruments as reported under SFAS No. 133.
Total current and non-current debt decreased by $203 million during the first
six months of 2001. The increase in non-current debt was due primarily to the
Company's issuance in March 2001 of $500 million in 10-year global notes. This
amount together with cash generated from operations was used to reduce current
debt.
EURO CONVERSION
- ---------------
In January 1999, certain member countries of the European Union established
irrevocable, fixed conversion rates between their existing currencies and the
European Union's common currency (the Euro).
The introduction of the Euro is scheduled to be phased in over a period
ending January 1, 2002, when Euro notes and coins will come into circulation.
The existing currencies are due to be completely removed from circulation on
February 28, 2002. Our Company has been preparing for the introduction of the
Euro for several years. The timing of our phasing out all uses of the existing
currencies will comply with the legal requirements and also be scheduled to
facilitate optimal coordination with the plans of our vendors, distributors and
customers. Our work related to the introduction of the Euro and the phasing out
of the other currencies includes converting information technology systems;
recalculating currency risk; recalibrating derivatives and other financial
instruments; evaluating and taking action, if needed, regarding the continuity
of contracts; and modifying our processes for preparing tax, accounting, payroll
and customer records.
Based on our work to date, we believe the Euro replacing the other currencies
will not have a material impact on our operations or our Consolidated Financial
Statements.
24
FINANCIAL CONDITION (Continued)
EXCHANGE
- --------
Our international operations are subject to certain opportunities and risks,
including currency fluctuations and government actions. We closely monitor our
operations in each country and seek to adopt appropriate strategies that are
responsive to changing economic and political environments and to fluctuations
in foreign currencies.
Due to our global operations, we use approximately 65 functional currencies.
Weaknesses in some of these currencies are often offset by strengths in others.
In the second quarter of 2001, the U.S. dollar was approximately 9 percent
stronger as a weighted average of all of our functional currencies, compared to
the second quarter of 2000. This does not include the effects of our hedging
activities and, therefore, does not reflect the actual impact of fluctuations in
exchange rates on our operating results. Our foreign currency management program
mitigates over time a portion of the impact of exchange on net income and
earnings per share. The impact of a stronger U.S. dollar reduced our operating
income by approximately 5 percent for the second quarter 2001, and by
approximately 7 percent for the first six months of 2001, led by movements in
the Euro and the Brazilian Real.
The Company will continue to manage its foreign currency exposures to
mitigate over time a portion of the impact of exchange on net income and
earnings per share. Our Company conducts business in nearly 200 countries around
the world and we manage foreign currency exposures through the portfolio effect
of the basket of functional currencies in which we do business. The Euro
comprises one significant currency in our portfolio. For the second quarter of
2001 and at the date of this report, our Company has hedged only an immaterial
amount of its 2001 Euro foreign currency exposure.
25
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by our Company and subsidiaries or
with the approval of an authorized executive officer of our Company may
constitute "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995, including statements made in this report and
other filings with the Securities and Exchange Commission. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "project," "will" and
similar expressions identify forward-looking statements, which generally are not
historical in nature. All statements which address operating performance, events
or developments that we expect or anticipate will occur in the future --
including statements relating to volume growth, share of sales and earnings per
share growth and statements expressing general optimism about future operating
results -- are forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from our Company's historical experience and our present
expectations or projections. As and when made, management believes that these
forward-looking statements are reasonable. However, caution should be taken not
to place undue reliance on any such forward-looking statements since such
statements speak only as of the date when made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
The following are some of the factors that could cause our Company's actual
results to differ materially from the expected results described in or
underlying our Company's forward-looking statements:
- Our ability to generate sufficient cash flows to support capital expansion
plans, share repurchase programs and general operating activities.
- Changes in the nonalcoholic beverages business environment. These include,
without limitation, competitive product and pricing pressures and our
ability to gain or maintain share of sales in the global market as a
result of actions by competitors. While we believe our opportunities for
sustained, profitable growth are considerable, factors such as these
could impact our earnings, share of sales and volume growth.
- Changes in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and
revised tax law interpretations) and environmental laws in domestic
or foreign jurisdictions.
- Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships.
26
FORWARD-LOOKING STATEMENTS (Continued)
- Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are
more profitable than others. There can be no assurance that we will
achieve the projected level or mix of product sales.
- Interest rate fluctuations and other capital market conditions, including
foreign currency rate fluctuations. Most of our exposures to capital
markets, including interest and foreign currency, are managed on a
consolidated basis, which allows us to net certain exposures and,
thus, take advantage of any natural offsets. We use derivative
financial instruments to reduce our net exposure to financial risks.
There can be no assurance, however, that our financial risk management
program will be successful in reducing foreign currency exposures.
- Economic and political conditions, especially in international markets,
including civil unrest, governmental changes and restrictions on the
ability to transfer capital across borders.
- Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions, and how well we are
able to acquire or form strategic business alliances with local
bottlers and make necessary infrastructure enhancements to production
facilities, distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets must match the
customers' demand for those products, and due to product price and
cultural differences, there can be no assurance of product acceptance in
any particular market.
- The effectiveness of our advertising, marketing and promotional programs.
- The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in our Company's Securities and Exchange
Commission filings.
- Adverse weather conditions, which could reduce demand for Company products.
The foregoing list of important factors is not exclusive.
27
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We have no material changes to the disclosure on this matter made in our
Annual Report on Form 10-K for the year ended December 31, 2000.
28
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
------------------
On October 27, 2000, a class action lawsuit was filed in the United States
District Court for the Northern District of Georgia alleging that the Company,
M. Douglas Ivester, Jack L. Stahl and James E. Chestnut violated antifraud
provisions of the federal securities laws by making misrepresentations or
material omissions relating to the Company's financial condition and prospects
in late 1999 and early 2000 (the "Carpenters Health & Welfare Fund Action"). A
second, largely identical lawsuit was filed in the same court on November 9,
2000 (the "LaValla Action"). The Complaints allege that the Company and the
individual named officers: (1) forced certain Coca-Cola system bottlers to
accept "excessive, unwanted and unneeded" sales of concentrate during the third
and fourth quarters of 1999, thus creating a misleading sense of improvement in
our Company's performance in those quarters; (2) failed to write down the value
of impaired assets in Russia, Japan and elsewhere on a timely basis, again
resulting in the presentation of misleading interim financial results in the
third and fourth quarters of 1999; and (3) misrepresented the reasons for Mr.
Ivester's departure from the Company and then misleadingly reassured the
financial community that there would be no changes in the Company's core
business strategy or financial outlook following that departure. Damages in an
unspecified amount are sought in both Complaints.
On January 8, 2001, the Court entered an order consolidating the two cases
for all purposes. The Court also ordered the plaintiffs to file a Consolidated
Amended Complaint, which the plaintiffs did on July 25, 2001. The Consolidated
Amended Complaint largely repeats the allegations made in the original
Complaints and adds Douglas N. Daft, Chairman of the Board of Directors and
Chief Executive Officer of the Company, as an additional defendant. The Company
will have 60 days from July 25, 2001, to answer or otherwise plead. The Company
believes it has meritorious legal and factual defenses and intends to defend the
consolidated action vigorously.
The Company is involved in various other legal proceedings. Management of the
Company believes that any liability to the Company which may arise as a result
of these proceedings, including the proceedings specifically discussed above,
will not have a material adverse effect on the financial condition of the
Company and its subsidiaries taken as a whole.
29
Part II. OTHER INFORMATION (continued)
Item 5. OTHER INFORMATION
-----------------
On July 23, 2001, The Coca-Cola Company (the "Company") issued a press
release announcing the appointment of Brian G. Dyson as Vice Chairman and Chief
Operating Officer of the Company. The press release is filed as Exhibit 99.1
hereto and is incorporated herein by reference.
On July 30, 2001, the Company issued a press release announcing the senior
operating team that will report to the Company's Vice Chairman and Chief
Operating Officer, and modifications in some of the roles and lines of reporting
for other members of the Company's senior management team. The press release is
filed as Exhibit 99.2 hereto and is incorporated herein by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
3 - By-Laws of the Company, as amended and restated
through July 19, 2001.
12 - Computation of Ratios of Earnings to Fixed Charges.
99.1 - Press release of the Company dated July 23, 2001:
Coca-Cola Names Brian Dyson Vice Chairman and
Chief Operating Officer.
99.2 - Press release of the Company dated July 30, 2001:
Coca-Cola Names Worldwide Operating Team.
(b) Reports on Form 8-K:
No report on Form 8-K has been filed by the Registrant during the
quarter for which this report is filed.
30
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: August 14, 2001 By: /s/ Connie D. McDaniel
-----------------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
31
EXHIBIT INDEX
Exhibit Number and Description
3 - By-Laws of the Company, as amended and restated through July 19,
2001.
12 - Computation of Ratios of Earnings to Fixed Charges.
99.1 - Press release of the Company dated July 23, 2001:
Coca-Cola Names Brian Dyson Vice Chairman and Chief
Operating Officer.
99.2 - Press release of the Company dated July 30, 2001:
Coca-Cola Names Worldwide Operating Team.