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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 quarter ended June 30, 1995
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 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 28, 1995
--------------------- ----------------------------
$.25 Par Value 1,261,182,151 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
June 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Income
Three and six months ended June 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994 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 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
-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,
1995 1994
----------- -----------
CURRENT
Cash and cash equivalents $ 1,638 $ 1,386
Marketable securities 162 145
----------- -----------
1,800 1,531
Trade accounts receivable, less
allowances of $33 at June 30
and December 31 1,822 1,470
Finance subsidiary receivables 53 55
Inventories 1,327 1,047
Prepaid expenses and other assets 1,368 1,102
----------- -----------
TOTAL CURRENT ASSETS 6,370 5,205
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INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 545 524
Coca-Cola Amatil Limited 612 694
Other, principally bottling companies 1,047 1,114
Cost method investments,
principally bottling companies 164 178
Finance subsidiary receivables 263 255
Marketable securities and other assets 1,192 1,163
----------- -----------
3,823 3,928
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 232 221
Buildings and improvements 1,958 1,814
Machinery and equipment 3,973 3,776
Containers 367 346
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6,530 6,157
Less allowances for depreciation 2,271 2,077
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4,259 4,080
----------- -----------
GOODWILL AND OTHER INTANGIBLE ASSETS 693 660
----------- -----------
$ 15,145 $ 13,873
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THE COCA-COLA COMPANY AND SUBSIDIARIES
LIABILITIES AND SHARE-OWNERS' EQUITY
June 30, December 31,
1995 1994
----------- -----------
CURRENT
Accounts payable and accrued expenses $ 3,098 $ 2,564
Loans and notes payable 2,231 1,757
Finance subsidiary notes payable 301 291
Current maturities of long-term debt 611 35
Accrued taxes 1,652 1,530
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TOTAL CURRENT LIABILITIES 7,893 6,177
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LONG-TERM DEBT 892 1,426
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OTHER LIABILITIES 918 855
----------- -----------
DEFERRED INCOME TAXES 145 180
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SHARE-OWNERS' EQUITY
Common stock, $.25 par value -
Authorized: 2,800,000,000 shares
Issued: 1,709,676,434 shares at June 30;
1,707,627,955 shares at December 31 427 427
Capital surplus 1,228 1,173
Reinvested earnings 11,994 11,006
Unearned compensation related to
outstanding restricted stock (68) (74)
Foreign currency translation adjustment (363) (272)
Unrealized gain on securities
available-for-sale 54 48
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13,272 12,308
Less treasury stock, at cost
(447,619,336 shares at June 30;
431,694,661 shares at December 31) 7,975 7,073
----------- -----------
5,297 5,235
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$ 15,145 $ 13,873
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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,
--------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
NET OPERATING REVENUES $ 4,936 $ 4,342 $ 8,790 $ 7,694
Cost of goods sold 1,876 1,667 3,321 2,909
---------- ---------- ---------- ----------
GROSS PROFIT 3,060 2,675 5,469 4,785
Selling, administrative
and general expenses 1,802 1,605 3,332 2,943
---------- ---------- ---------- ----------
OPERATING INCOME 1,258 1,070 2,137 1,842
Interest income 62 44 126 79
Interest expense 69 50 126 93
Equity income 70 57 94 64
Other income
(deductions) - net (17) (14) 4 (25)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES 1,304 1,107 2,235 1,867
Income taxes 406 349 699 588
---------- ---------- ---------- ----------
NET INCOME $ 898 $ 758 $ 1,536 $ 1,279
========== ========== ========== ==========
NET INCOME PER SHARE $ .71 $ .59 $ 1.21 $ .99
========== ========== ========== ==========
DIVIDENDS PER SHARE $ .22 $ .195 $ .44 $ .39
========== ========== ========== ==========
AVERAGE SHARES OUTSTANDING 1,265 1,292 1,269 1,294
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
-5-
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Six Months Ended
June 30,
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1995 1994
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OPERATING ACTIVITIES
Net income $ 1,536 $ 1,279
Depreciation and amortization 219 193
Deferred income taxes 4 16
Equity income less than (in
excess of) dividends (8) 59
Foreign currency adjustments (17) (3)
Other noncash items 4 22
Net change in operating assets
and liabilities (652) (310)
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Net cash provided by operating activities 1,086 1,256
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INVESTING ACTIVITIES
Additions to finance subsidiary receivables (27) (59)
Collections of finance subsidiary receivables 22 16
Acquisitions and investments,
principally bottling companies (61) (151)
Purchases of securities (238) (235)
Proceeds from disposals of investments
and other assets 530 225
Purchases of property, plant and equipment (458) (364)
Proceeds from disposals of property, plant
and equipment 27 27
Other investing activities (33) (10)
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Net cash used in investing activities (238) (551)
---------- ----------
Net cash provided by operations after
reinvestment 848 705
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FINANCING ACTIVITIES
Issuances of debt 491 360
Payments of debt (39) (28)
Issuances of stock 48 41
Purchases of stock for treasury (902) (402)
Dividends (280) (470)
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Net cash used in financing activities (682) (499)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 86 17
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CASH AND CASH EQUIVALENTS
Net increase during the period 252 223
Balance at beginning of period 1,386 998
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Balance at end of period $ 1,638 $ 1,221
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INTEREST PAID $ 134 $ 98
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INCOME TAXES PAID $ 516 $ 570
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See Notes to Condensed Consolidated Financial Statements.
-6-
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, 1994. 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 six month period ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of the Company's soft drink products are generally greater in the
second and third quarters due to seasonal factors.
NOTE C - INVENTORIES
Inventories consist of the following (in millions):
June 30, December 31,
1995 1994
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Raw materials and supplies $ 852 $ 728
Work in process 4 4
Finished goods 471 315
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$ 1,327 $ 1,047
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-7-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - SUMMARIZED INCOME STATEMENT DATA OF COCA-COLA ENTERPRISES INC.
At June 30, 1995 and 1994, the Company owned approximately 43 percent of the
outstanding common stock of Coca-Cola Enterprises Inc. (Coca-Cola Enterprises)
and, accordingly, accounted for its related investment therein under the equity
method of accounting. Coca-Cola Enterprises meets the definition of a
significant equity investee as defined by Rule 3-09 of Regulation S-X.
Summarized income statement data for Coca-Cola Enterprises is as follows
(in millions):
Three Months Ended Six Months Ended
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June 30, July 1, June 30, July 1,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Net operating revenues $ 1,827 $ 1,610 $ 3,289 $ 2,929
Gross profit $ 674 $ 623 $ 1,235 $ 1,143
Net income $ 46 $ 38 $ 49 $ 32
Net income available
to common share owners $ 46 $ 38 $ 48 $ 31
Coca-Cola Enterprises' results for the three months and the six months ended
June 30, 1995, include the results of the Wichita Coca-Cola Bottling Company
from the date of acquisition on January 27, 1995. Results for the six months
ended June 30, 1995, also reflect a $5 million after-tax gain on the sale of
Coca-Cola Enterprises' 50 percent ownership interest in The Coca-Cola Bottling
Company of the Mid South.
NOTE E - SHARE REPURCHASE PROGRAM
Under its share repurchase program, the Company purchased approximately 8
million shares of its common stock in the second quarter and approximately 16
million shares for the six months ended June 30, 1995.
NOTE F - SUBSEQUENT EVENT
In July 1995, Coca-Cola Amatil Limited (Coca-Cola Amatil) completed a public
offering in Australia of approximately 97 million shares of common stock. In
connection with the offering, the Company's ownership in Coca-Cola Amatil was
diluted to approximately 40 percent. The transaction resulted in a noncash
pretax gain of approximately $74 million for the Company.
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
VOLUME
SOFT DRINKS: Worldwide unit case volume increased 10 percent and gallon
shipments of concentrates and syrups grew 8 percent in the second quarter of
1995 when compared to the second quarter of 1994. Unit case volume increased 9
percent and gallon shipments grew 10 percent for the first six months of 1995.
Unit case volume in the Company's North American soft drink operation
increased 6 percent in the second quarter, led by an increase of 6 percent in
the United States. Unit case volume in North America grew 5 percent for the
first six months of 1995, including 5 percent growth in the United States. The
continuing strong unit case volume gains in the United States resulted from
increases in the Company's core brands, as well as sales of new products, such
as POWERaDE, Minute Maid Juices To Go and Fruitopia. Continued focus on
programs designed to increase customer volume and profit also contributed to
second quarter results. North American gallon shipments of concentrates and
syrups increased 3 percent for the second quarter and for the first six months
of 1995. In particular, gallon shipments rose 3 percent in the United States
for the second quarter and for the first six months of 1995.
International unit case volume and gallon shipments of concentrates and
syrups grew 11 percent in the second quarter.
In the Latin America Group, unit case volume grew 10 percent in the second
quarter, including gains of 45 percent in Brazil, 15 percent in Chile and 1
percent in Mexico. The unit case volume gains in Latin America resulted from
new packaging initiatives and focused brand promotions. Gallon shipments in
the Latin America Group increased 12 percent in the second quarter of 1995.
For the first six months of the year, unit case volume has increased 13 percent
and gallon shipments have grown 14 percent in the Latin America Group.
In the Africa Group, second quarter unit case volume and gallon shipments
grew 14 percent. Unit case volume has risen 13 percent and gallon shipments
have grown 24 percent in the Africa Group for the first six months of the year.
-9-
RESULTS OF OPERATIONS (CONTINUED)
Unit case volume in the Middle and Far East Group grew 11 percent in the
second quarter, driven by a 37 percent increase in China, a 34 percent increase
in India and a 16 percent increase in the Philippines. Unit case volume in
Japan declined 3 percent, as public safety issues and difficult economic and
weather environments negatively impacted the entire retail sector in that
country. Gallon shipments in the Middle and Far East Group increased 12
percent in the second quarter. For the first six months of the year, unit case
volume has grown 12 percent and gallon shipments have increased 15 percent in
the Middle and Far East Group.
In the Greater Europe Group, second quarter unit case volume increased 12
percent. Unit case volume grew 38 percent in the East Central European
Division, 9 percent in Spain, 6 percent in Germany and 10 percent in Great
Britain. Gallon shipments in the Greater Europe Group grew 9 percent in the
second quarter. For the first six months of the year, unit case volume and
gallon shipments in the Greater Europe Group increased 10 percent.
FOODS: At Coca-Cola Foods, unit volume declined 3 percent for the second
quarter as a strategy was implemented to adjust the balance between price
promotions and brand marketing investments. For the first six months of the
year, unit volume declined 2 percent.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues in the second quarter and the first six months of 1995
increased 14 percent, primarily due to increased soft drink gallon shipments,
selective price increases and a weaker U.S. dollar versus key currencies in the
prior year.
The Company's gross margin increased to 62.0 percent in the second quarter of
1995 from 61.6 percent in the second quarter of 1994. The increase in gross
margin for the second quarter of 1995 was due primarily to the sale of certain
consolidated bottling operations, offset by slight increases in sweetener
costs. The Company's gross margin was 62.2 percent for the first six months of
1995 and 1994.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $1,449 million in the second quarter of 1995, compared
to $1,309 million in the second quarter of 1994. For the first six months of
the year, selling expenses were $2,622 million, compared to $2,361 million in
the same period in 1994. The increase was primarily due to higher marketing
investments in support of the Company's volume growth.
-10-
RESULTS OF OPERATIONS (CONTINUED)
Administrative and general expenses were $353 million in the second quarter
of 1995, compared to $296 million in the second quarter of 1994. For the first
six months of 1995, administrative and general expenses were $710 million,
compared to $582 million in the comparable period of the prior year. The
increase for the quarter and the first six months of the year resulted
primarily from an increase in the costs of stock-related employee benefits.
OPERATING INCOME AND OPERATING MARGIN
Operating income for the second quarter of 1995 increased to $1,258 million,
an 18 percent increase over the second quarter of 1994. For the first six
months of 1995, operating income increased 16 percent, to $2,137 million. The
operating margin for the first six months of 1995 increased to 24.3 percent
from 23.9 percent in the comparable period in 1994.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased in the second quarter and for the first six months
of 1995 relative to the comparable periods in 1994, due primarily to rising
interest rates and higher average invested cash equivalents and marketable
securities balances. Interest expense increased in the second quarter and for
the first six months of 1995 relative to the comparable periods in 1994, due
primarily to rising interest rates and higher average commercial paper
borrowings to fund the accelerated share repurchase program.
EQUITY INCOME
Equity income for the second quarter of 1995 totaled $70 million, compared to
$57 million in the second quarter of 1994. For the first six months of 1995,
equity income totaled $94 million, compared to $64 million for the same period
in 1994. The increase in the first six months of the year was due primarily to
improved results from Coca-Cola Enterprises, Coca-Cola Bottlers Philippines,
Inc. and equity income now being reported from the Company's investment in the
Argentina bottler (previously a wholly-owned consolidated bottling operation),
partially offset by lower operating results from The Coca-Cola Bottling Company
of New York, Inc. and Coca-Cola & Schweppes Beverages Ltd.
OTHER INCOME (DEDUCTIONS) - NET
Other income (deductions) - net was $(17) million for the second quarter of
1995 compared to $(14) million for the second quarter of 1994. For the first
six months of 1995, other income (deductions) - net was $4 million, compared to
$(25) million in the comparable period of the prior year. The increase in the
first six months of 1995 as compared to the first six months of 1994 was due
primarily to the gains on the sales of certain bottling investments, partially
offset by increased foreign currency exchange losses.
-11-
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
The Company's effective tax rate during the second quarter of 1995, when
compared to the second quarter of 1994, decreased to 31.1 percent from 31.5
percent. The effective tax rate was 31.3 percent for the first six months of
1995 compared to 31.5 percent for the first six months of 1994. 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.
NET INCOME
Net income per share increased at a slightly higher rate than net income due
to the Company's share repurchase program.
FINANCIAL CONDITION
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first six months of 1995, net cash flow after reinvestment totaled
$848 million, an increase of $143 million over the comparable period in 1994.
Net cash provided by operating activities declined in the first six months of
1995 as higher net income was offset by increases in operating assets and
liabilities relative to the comparable period in 1994. Net cash used in
investing activities also decreased in the first six months of 1995, from the
first six months of 1994, due primarily to increased proceeds from disposals of
investments and other assets. Reinvestment in the form of property, plant and
equipment, the primary use of cash for investing activities, was $458 million
for the first six months of 1995, an increase of approximately $94 million over
the comparable period in 1994.
The increases in trade accounts receivable, inventories, prepaid expenses,
accounts payable and accrued expenses at June 30, 1995, as compared to December
31, 1994, were due primarily to seasonal factors in the soft drink business.
-12-
FINANCIAL CONDITION (CONTINUED)
FINANCING
Financing activities primarily represent the Company's net borrowing
activities, dividend payments and share repurchases. Net cash used in
financing activities totaled $682 million and $499 million for the first six
months of 1995 and 1994, respectively. Net borrowings were $452 million in the
first six months of 1995, compared to $332 million in the first six months of
1994. Net borrowings were used primarily to finance share repurchases. Cash
used for share repurchases increased to $902 million, compared to $402 million
in the comparable period in 1994. The net increase in cash used in financing
activities caused by these items was partially offset by a decrease in cash
used for dividend payments due to the timing of payments.
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 6 percent weaker during the second quarter of
1995 versus key currencies for the comparable period of the prior year.
-13-
Part II. Other Information
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, Joseph Siegman, as custodian for Gregory and Michelle Siegman, filed
suit in Delaware Chancery Court in December 1987 against the Company, Tri-Star
Pictures, Inc. ("Tri-Star"), CPI Film Holdings, Inc., Home Box Office, Inc. and
the directors of Tri-Star at that time. Plaintiff, a Tri-Star stockholder
acting on behalf of a class of Tri-Star stockholders other than defendants and
their affiliates and derivatively on behalf of Tri-Star, challenged a transfer
agreement, dated October 1, 1987, among the Company, certain of its
subsidiaries and Tri-Star as the product of an alleged self-dealing breach of
fiduciary duty by the Company and the Tri-Star Board of Directors. Plaintiff
also alleged that the proxy statement issued by Tri-Star in connection with the
transaction inadequately disclosed material facts about the transaction.
Pursuant to the transfer agreement, the Company transferred its Entertainment
Business Sector (other than certain retained assets) to Tri-Star in exchange
for approximately 75 million shares of Tri-Star common stock. The complaint
sought judgment imposing a constructive trust upon the Tri-Star shares received
by the Company pursuant to the transfer agreement, rescinding the transfer
agreement and awarding compensatory damages in an unspecified amount.
During 1991 and 1992, the Chancery Court granted defendants' motion to
dismiss the case, and plaintiff appealed. In November 1993, the Delaware
Supreme Court issued an opinion reversing in part the judgment entered by the
Chancery Court and remanding the case for trial on the merits. The Supreme
Court's opinion treated all of the factual allegations in plaintiff's complaint
as true for purposes of the appeal and determined that the complaint was
legally adequate to permit plaintiff an opportunity to prove the complaint
allegations.
In March 1995, an agreement in principle to settle this case was reached
between the class representatives and all of the defendants, including the
Company. On June 21, 1995, the Delaware Chancery Court approved this
settlement and the defendants (including the Company) deposited the amount of
the settlement, which had no material effect on the Company's earnings, in a
trust account for distribution to the members of the plaintiff class. With
this payment, this litigation has been terminated and the Company and each of
the individual defendants has been released from all further liability while
admitting no liability or wrongdoing in connection with the transaction.
The Company is involved in various other legal proceedings. The Company
believes that any liability to the Company which may arise as a result of these
proceedings, including the proceedings specifically discussed above and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, will
not have a material adverse effect on the financial condition of the Company
and its subsidiaries taken as a whole.
-14-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the six months ended
June 30, 1995, 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.
-15-
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 11, 1995 By: /s/ Gary P. Fayard
-------------------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
-16-
EXHIBIT INDEX
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the six months ended
June 30, 1995, submitted to the Securities and
Exchange Commission in electronic format