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 September 30, 1994
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, N.W. 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 October 28, 1994
--------------------- -------------------------------
$.25 Par Value 1,285,739,996 Shares
<PAGE> -2-
THE COCA-COLA COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Income
Three and nine months ended September 30,
1994 and 1993 5
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE> -3-
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
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
CURRENT
Cash and cash equivalents $ 1,753 $ 998
Marketable securities 104 80
------------- ------------
1,857 1,078
Trade accounts receivable, less
allowances of $35 at September 30
and $39 at December 31 1,321 1,210
Finance subsidiary receivables 54 33
Inventories 1,116 1,049
Prepaid expenses and other assets 1,244 1,064
------------- ------------
TOTAL CURRENT ASSETS 5,592 4,434
------------- ------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 520 498
Coca-Cola Amatil Limited 659 592
Other affiliated businesses 1,072 1,037
Cost method investments in
affiliated businesses 210 88
Finance subsidiary receivables 268 226
Marketable securities and other assets 971 868
------------- ------------
3,700 3,309
------------- ------------
PROPERTY, PLANT AND EQUIPMENT
Land 213 197
Buildings and improvements 1,804 1,616
Machinery and equipment 3,718 3,380
Containers 378 403
------------- ------------
6,113 5,596
Less allowances for depreciation 2,117 1,867
------------- ------------
3,996 3,729
------------- ------------
GOODWILL AND OTHER INTANGIBLE ASSETS 662 549
------------- ------------
$ 13,950 $ 12,021
============= ============
</TABLE>
<PAGE> -4-
THE COCA-COLA COMPANY AND SUBSIDIARIES
LIABILITIES AND SHARE-OWNERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
CURRENT
Accounts payable and accrued expenses $ 2,784 $ 2,217
Loans and notes payable 1,501 1,409
Finance subsidiary notes payable 289 244
Current maturities of long-term debt 5 19
Accrued taxes 1,364 1,282
------------- ------------
TOTAL CURRENT LIABILITIES 5,943 5,171
------------- ------------
LONG-TERM DEBT 1,482 1,428
------------- ------------
OTHER LIABILITIES 794 725
------------- ------------
DEFERRED INCOME TAXES 126 113
------------- ------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value -
Authorized: 2,800,000,000 shares
Issued: 1,706,682,092 shares at September 30;
1,703,526,299 shares at December 31 427 426
Capital surplus 1,149 1,086
Reinvested earnings 10,688 9,458
Unearned compensation related to
outstanding restricted stock (75) (85)
Foreign currency translation adjustment (220) (420)
Unrealized gain on securities
available-for-sale 60 --
------------- ------------
12,029 10,465
Less treasury stock, at cost
(418,934,783 common shares at September 30;
406,072,817 common shares at December 31) 6,424 5,881
------------- ------------
5,605 4,584
------------- ------------
$ 13,950 $ 12,021
============= ============
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE> -5-
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET OPERATING REVENUES $ 4,461 $ 3,629 $ 12,155 $ 10,584
Cost of goods sold 1,760 1,343 4,669 3,900
---------- ---------- ---------- ----------
GROSS PROFIT 2,701 2,286 7,486 6,684
Selling, administrative
and general expenses 1,701 1,457 4,644 4,219
---------- ---------- ---------- ----------
OPERATING INCOME 1,000 829 2,842 2,465
Interest income 45 38 124 105
Interest expense 51 38 144 124
Equity income 44 24 108 92
Other income
(deductions) - net (5) 17 (30) (32)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES AND CHANGE IN
ACCOUNTING PRINCIPLE 1,033 870 2,900 2,506
Income taxes 325 280 913 784
---------- ---------- ---------- ----------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE 708 590 1,987 1,722
Transition effect of
change in accounting
for postemployment
benefits -- -- -- (12)
---------- ---------- ---------- ----------
NET INCOME $ 708 $ 590 $ 1,987 $ 1,710
========== ========== ========== ==========
INCOME PER SHARE
Before change in
accounting principle $ .55 $ .45 $ 1.54 $ 1.32
Transition effect of
change in accounting
for postemployment
benefits -- -- -- (.01)
---------- ---------- ---------- ----------
NET INCOME PER SHARE $ .55 $ .45 $ 1.54 $ 1.31
========== ========== ========== ==========
DIVIDENDS PER SHARE $ .195 $ .17 $ .585 $ .51
========== ========== ========== ==========
AVERAGE SHARES
OUTSTANDING 1,289 1,300 1,293 1,303
========== ========== ========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE> -6-
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,987 $ 1,710
Transition effect of change
in accounting principle -- 12
Depreciation and amortization 291 263
Deferred income taxes 15 19
Equity income less than (in excess
of) dividends 20 (44)
Foreign currency adjustments (20) (7)
Other noncash items 56 33
Net change in operating assets
and liabilities 40 (108)
----------- -----------
Net cash provided by operating activities 2,389 1,878
----------- -----------
INVESTING ACTIVITIES
Additions to finance subsidiary receivables (79) (157)
Collections of finance subsidiary receivables 23 36
Acquisitions and investments in affiliated
businesses (275) (476)
Purchases of securities (774) (412)
Proceeds from disposals of investments
and other assets 857 922
Purchases of property, plant and equipment (569) (582)
Proceeds from disposals of property, plant
and equipment 40 129
Other investing activities (48) (40)
----------- -----------
Net cash used in investing activities (825) (580)
----------- -----------
Net cash provided by operations after
reinvestment 1,564 1,298
----------- -----------
FINANCING ACTIVITIES
Issuances of debt 246 424
Payments of debt (120) (561)
Issuances of stock 62 138
Purchases of stock for treasury (543) (562)
Dividends (504) (643)
----------- -----------
Net cash used in financing activities (859) (1,204)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 50 (10)
----------- -----------
CASH AND CASH EQUIVALENTS
Net increase during the period 755 84
Balance at beginning of period 998 956
----------- -----------
Balance at end of period $ 1,753 $ 1,040
=========== ===========
INTEREST PAID $ 151 $ 150
=========== ===========
INCOME TAXES PAID $ 747 $ 489
=========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE> -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 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, 1993. 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 nine month period ended September 30, 1994, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1994.
The Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) as
of January 1, 1994. The Company recorded an increase to share-owners' equity
of $60 million from the adoption of SFAS 115.
The Company filed a Form 8-K on January 27, 1994, restating the 1993
quarterly reports for the adoption of Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Postemployment Benefits (SFAS 112)
as of January 1, 1993. Results for the first quarter of 1993 were restated to
include the recognition of a one-time, noncash, after-tax charge of $12 million
which is net of income tax benefits of $8 million. The transition effect
charge consists primarily of health benefits for surviving spouses and disabled
employees. The adoption impact of SFAS 112 on the Company's bottling investees
accounted for by the equity method was immaterial and, therefore, was not
included in the transition effect charge. Net income per share for the first
quarter of 1993 was reduced by $.01 for the adoption of SFAS 112.
Certain amounts in the 1993 condensed consolidated financial statements have
been reclassified to conform to the current year presentation.
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.
<PAGE> -8-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 742 $ 689
Work in process 7 4
Finished goods 367 356
------------- ------------
$ 1,116 $ 1,049
============= ============
</TABLE>
NOTE D - SUMMARIZED INCOME STATEMENT DATA OF COCA-COLA ENTERPRISES INC.
At September 30, 1994 and 1993, the Company owned approximately 43 and 44
percent, respectively, of the outstanding shares of common stock of Coca-Cola
Enterprises Inc. (Coca-Cola Enterprises) and 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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ -------------------------
September 30, October 1, September 30, October 1,
1994 1993 1994 1993
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net operating revenues $ 1,595 $ 1,487 $ 4,524 $ 4,143
Gross profit 601 541 1,744 1,574
Net income (loss) 26 (30) 58 (18)
Net income (loss)
available to common
share owners 25 (30) 56 (18)
</TABLE>
The 1993 net loss reflects a $40 million nonrecurring charge for the
revaluation of Coca-Cola Enterprises' deferred tax liability resulting from
the August, 1993 impact of the Omnibus Budget Reconciliation Act of 1993.
NOTE E - SHARE REPURCHASE PROGRAM
Under its share repurchase program, the Company purchased approximately 3
million shares of its common stock in the third quarter and approximately 13
million shares for the nine months ended September 30, 1994.
<PAGE> -9-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - FINANCIAL INSTRUMENTS
As discussed in Note A, the Company adopted SFAS 115 at January 1, 1994,
changing the method of accounting for certain debt and marketable equity
security investments from a historical cost basis to a fair value approach.
Under SFAS 115, investments in debt and marketable equity securities, other
than investments accounted for by the equity method, are categorized as either
trading securities, securities available-for-sale or securities held-to-
maturity. At January 1, 1994, the Company had no trading securities.
Securities categorized as available-for-sale are stated at fair value, with
unrealized gains and losses, net of deferred taxes, reported in share-owners'
equity. Debt securities categorized as held-to-maturity are stated at
amortized cost. Available-for-sale and held-to-maturity securities, at
January 1, 1994, consisted of the following (in millions):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
securities
Equity securities $ 43 $ 103 $ -- $ 146
Collateralized mortgage
obligations 105 1 -- 106
Other debt securities 36 -- -- 36
---------- ---------- ---------- ----------
Total $ 184 $ 104 $ -- $ 288
========== ========== ========== ==========
Held-to-maturity
securities
Bank and corporate debt $ 1,008 $ -- $ 2 $ 1,006
Other securities 124 -- 1 123
---------- ---------- ---------- ----------
Total $ 1,132 $ -- $ 3 $ 1,129
========== ========== ========== ==========
</TABLE>
These investments were included in the following captions on the condensed
consolidated balance sheet (in millions):
<TABLE>
<CAPTION>
January 1, 1994
-----------------------
Available- Held-to-
for-Sale Maturity
Securities Securities
---------- -----------
<S> <C> <C>
Cash and cash equivalents $ -- $ 777
Marketable securities 93 9
Cost method investments
in affiliated businesses 84 --
Marketable securities and
other assets 111 346
----------- -----------
$ 288 $ 1,132
=========== ===========
</TABLE>
<PAGE> -10-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The contractual maturities of these investments as of January 1, 1994, were
as follows (in millions):
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
Securities Securities
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- --------
<S> <C> <C> <C> <C>
1994 $ 34 $ 34 $ 786 $ 786
1995 - 1998 2 2 326 323
After 1998 -- -- 20 20
-------- -------- --------- ---------
36 36 1,132 1,129
Collateralized
mortgage obligations 105 106 -- --
Equity securities 43 146 -- --
-------- -------- --------- ---------
Total $ 184 $ 288 $ 1,132 $ 1,129
======== ======== ========= =========
</TABLE>
NOTE G - CONTINGENCIES
In March 1994, the Tokyo Regional Taxation Bureau in Japan issued an
assessment alleging that royalties paid by a wholly-owned subsidiary of the
Company were in excess of an arm's length price during fiscal years 1990, 1991
and 1992. The Company strongly disagrees with the assessment. This matter is
being reviewed by the United States and Japanese tax authorities under the
treaty signed by the two nations to prevent double taxation. If upheld, the
assessment would require the Company to pay additional taxes in Japan. The
Company has been granted suspension of enforcement against payment of the tax
while this matter is under consideration by United States and Japanese tax
authorities. This suspension of enforcement is supported by a bank guarantee
by Mitsubishi Bank, Limited. The Company has agreed to indemnify Mitsubishi if
amounts are paid pursuant to the guarantee. Any additional tax liability in
Japan should be offset by tax credits in the United States and would not
adversely affect earnings.
<PAGE> -11-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
VOLUME
SOFT DRINKS: Worldwide unit case volume and gallon shipments of concentrates
and syrups increased 13 percent in the third quarter of 1994 as compared to the
third quarter of 1993. Unit case volume and gallon shipments increased 9
percent for the first nine months of 1994.
Unit case volume in the Company's North American soft drink operation, which
includes the United States and Canada, increased 6 percent in the third
quarter, led by a 6 percent increase in the United States. North American unit
case volume increased 6 percent year-to-date, including 6 percent growth in the
United States. North American gallon shipments of soft drink concentrates and
syrups grew 4 percent in the third quarter, including growth of 4 percent in
the United States and 7 percent year-to-date including a 7 percent year-to-date
increase in the United States. The increased volume performance in the United
States resulted from gains in the Company's core brands, which continue to
benefit from the ongoing reemphasis on the contour package for Coca-Cola
classic and diet Coke, and the successful Sprite advertising campaign.
International unit case volume and gallon shipments grew 17 percent in the
third quarter. For the first nine months of the year, international unit case
volume has grown 10 percent and gallon shipments have increased 9 percent over
the same period in 1993.
International unit case volume in the third quarter was led by a 43 percent
increase in the Northeast Europe/Middle East Group. Unit case volume in that
group's Middle East Division, East Central European Division, and Nordic and
Northern Eurasia Division advanced 34 percent, 35 percent and 32 percent,
respectively. In Egypt, unit case volume grew 69 percent in the third quarter
as a result of increased capacity in the distribution system. Gallon shipments
increased 48 percent in the third quarter in the Northeast Europe/Middle East
Group and for the year to date, unit case volume and gallon shipments have
increased 36 percent and 31 percent, respectively.
Unit case volume in the Pacific Group grew 18 percent in the third quarter,
driven by a 41 percent increase in China and a 26 percent increase in Japan.
In Japan, brand Coca-Cola experienced strong growth due to intense marketing
efforts, the introduction of larger package sizes and the reemphasis on the
contour bottle for Coca-Cola. In the Philippines, unit case volume increased
11 percent in the third quarter due to packaging initiatives and continuing
focus on brand Coca-Cola. Unit case volume in Australia grew 7 percent in the
third quarter, which comes on top of 28 percent growth a year earlier. Gallon
shipments in the Pacific Group
<PAGE> -12-
RESULTS OF OPERATIONS (CONTINUED)
increased 19 percent in the third quarter. For the first nine months of the
year, unit case volume grew 12 percent and gallon shipments increased 13
percent in the Pacific Group.
Unit case volume in the third quarter in the Africa Group was even with the
prior year, due to a difficult economic environment and social unrest in
several key markets. Gallon shipments in the Africa Group for the quarter
increased 4 percent. For the first nine months of the year, unit case volume
decreased 1 percent and gallon shipments declined 3 percent in the Africa
Group.
In the Latin America Group, unit case volume grew 12 percent in the third
quarter, led by gains of 12 percent in Mexico, 16 percent in Argentina and 14
percent in Brazil, which is experiencing a more stable economic environment.
The increases in Latin America resulted from investment in volume-building
activities including new packaging initiatives and focused brand promotions.
Gallon shipments in the Latin America Group increased 11 percent in the third
quarter of 1994. For the year to date, unit case volume has grown 9 percent
and gallon shipments have grown 8 percent in the Latin America Group.
In the European Community Group, unit case volume in the third quarter
advanced 16 percent over the prior year. Unit case volume grew 21 percent in
Great Britain, 14 percent in Germany, 25 percent in France, 17 percent in
Italy and 12 percent in Spain. Gallon shipments in the European Community
Group grew 16 percent in the third quarter versus the prior year. For the year
to date in the European Community Group, unit case volume has increased 6
percent and gallon shipments have grown 4 percent.
FOODS: At Coca-Cola Foods, unit volume in the third quarter was even with
the prior year, following a 16 percent increase in the third quarter of last
year.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues grew 23 percent in the third quarter and 15 percent
for the nine months ended September 30, 1994, primarily due to growth in soft
drink gallon shipments, selected price increases, continued expansion of the
Company's bottling and canning operations and a weaker U.S. dollar versus key
hard currencies.
The Company's gross margin was 61 percent in the third quarter of 1994 versus
63 percent in the third quarter of 1993. The Company's gross margin decreased
to 62 percent in the first nine months of 1994 as compared to 63 percent in the
first nine months of 1993. The decrease in gross margin was due primarily to
the acquisition of bottling and canning operations and higher sweetener costs.
<PAGE> -13-
RESULTS OF OPERATIONS (CONTINUED)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $1.3 billion in the third quarter of 1994, compared to
$1.2 billion in the third quarter of 1993. For the first nine months of the
year, selling expenses were $3.7 billion, 12 percent greater than the same
period in 1993. The increase was primarily due to higher marketing investments
in support of the Company's volume growth.
Administrative and general expenses were $375 million in the third quarter, a
23 percent increase over the prior year. For the first nine months of 1994,
administrative and general expenses were $957 million, a 3 percent increase
over the comparable period of the prior year. The increase for the quarter and
nine months year to date resulted primarily from a general expansion of the
business and costs related to the acquisition of bottler and canning
operations, partially offset by increased efficiencies in the Company's
worldwide operations.
OPERATING INCOME AND OPERATING MARGIN
Operating income for the third quarter of 1994 increased to $1 billion, a 21
percent increase over the third quarter of 1993. For the first nine months of
1994, operating income increased 15 percent, to $2.8 billion. The operating
margin for the first nine months of 1994 increased slightly to 23.4 percent
from 23.3 percent in the comparable period in 1993.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased in the third quarter and for the first nine months
of 1994 relative to the comparable periods in 1993, due primarily to rising
interest rates and higher average outstanding cash equivalents and marketable
securities balances. Interest expense increased in the third quarter and for
the first nine months of 1994 relative to the comparable periods in 1993, due
primarily to rising interest rates.
EQUITY INCOME
Equity income for the third quarter totaled $44 million, compared to $24
million in the third quarter of 1993. For the first nine months of 1994 equity
income totaled $108 million, compared to $92 million for the same period in
1993. The increase was due primarily to increased earnings from Coca-Cola
Enterprises and Coca-Cola & Schweppes Beverages partially offset by lower
earnings from Coca-Cola Amatil Limited.
OTHER INCOME (DEDUCTIONS) - NET
For the third quarter, Other income (deductions) - net was $(5) million for
1994, a $22 million decrease from the third quarter of 1993. The decrease was
due primarily to the gain on sale of certain real estate and bottling
investments realized in the third quarter of 1993. This was partially offset
by the favorable result of foreign currency transactions in the third quarter
and first nine months of 1994 versus the prior year.
<PAGE> -14-
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
The Company's effective tax rate during the third quarter of 1994, when
compared to the third quarter of the prior year, decreased to 31.5 percent from
32.2 percent. In the third quarter of 1993, as a result of the change in U.S.
tax law, the Company was required to record charges for additional taxes and
tax related expenses which reduced net income by approximately $47 million.
The Company's effective tax rate also 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. These benefits are partially
offset by a reduction in the Company's favorable U.S. tax treatment from
manufacturing facilities in Puerto Rico that operate under a negotiated
exemption grant.
TRANSITION EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
As mentioned in Note A, the Company retroactively adopted SFAS 112,
Employers' Accounting for Postemployment Benefits, as of January 1, 1993. SFAS
112 requires employers to accrue the costs of benefits to former or inactive
employees after employment, but before retirement. In the first quarter of
1993 the Company recorded an accumulated obligation of $12 million, which is
net of deferred taxes of $8 million.
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 nine months of 1994, net cash flow after reinvestment totaled
approximately $1.6 billion, a 20 percent increase over the comparable period in
1993. Net cash provided by operating activities increased in 1994 due
primarily to higher net income, increased dividends from equity method
investments and lower investment in operating assets and liabilities. Net cash
used in investing activities increased 42 percent in the first nine months of
1994, from the comparable period in 1993, due primarily to increased purchases
of securities partially offset by decreased acquisitions and investments in
affiliated businesses. Reinvestment in the form of property, plant and
equipment was $569 million for the first nine months of 1994.
<PAGE> -15-
FINANCIAL CONDITION (CONTINUED)
The increase in trade accounts receivable, inventories, accounts payable and
accrued expenses at September 30, 1994 as compared to December 31, 1993 amounts
was due primarily to seasonal factors in the soft drink business. The increase
in current marketable securities is due in part to the Company's adoption of
SFAS 115 and additional investments in securities purchased in accordance with
the negotiated tax exemption grant for the Company's manufacturing facilities
in Puerto Rico.
FINANCING
Financing activities primarily represent the Company's net borrowing
activities, dividend payments and share repurchases. Cash used in financing
activities totaled $859 million for the first nine months of 1994, a 29 percent
decrease from the comparable period of the prior year. Net borrowings
increased $126 million in the first nine months of 1994, compared to a net
reduction in borrowings of $137 million in the first nine months of 1993. Net
borrowings for the first nine months of 1994 were used primarily to finance
share repurchases. Cash used for share repurchases decreased to $543 million,
compared to $562 million in the comparable period in 1993. Cash dividends
decreased due to the timing effects of dividend payments, partially offset by
the increase in dividends per share to $.585 per share for the first nine
months of 1994, compared to $.51 per share for the comparable period in 1993.
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 5 percent weaker during the third quarter of 1994
and 1 percent weaker during the first nine months of 1994 versus key hard
currencies for the comparable period of the prior year.
<PAGE> -16-
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, 1993, on February 26, 1992, a suit was brought against the
Company in Texas state court by The Seven-Up Company, a competitor of the
Company. An amended complaint was filed by The Seven-Up Company on February 8,
1994. The suit alleges that the Company is attempting to dominate the lemon-
lime segment of the soft drink industry by tortious acts designed to induce
certain independent bottlers of the Company's products to terminate existing
contractual relationships with the plaintiff pursuant to which such bottlers
bottle and distribute the plaintiff's lemon-lime soft drink products. The
complaint, as amended, alleges that Coca-Cola/Seven-Up bottlers in several
different territories were illegally induced into initiating Sprite
distribution and discontinuing Seven-Up distribution. The complaint seeks
an injunction prohibiting future allegedly tortious conduct by the Company
and seeks unspecified actual damages and punitive damages in the amount of
at least $500 million. The Company believes it has meritorious legal and
factual defenses and intends to defend this suit vigorously. On July 22,
1992, The Seven-Up Company filed a related suit in federal court in Texas
alleging that the facts and circumstances giving rise to the state court
suit (described above) also constituted a violation of the federal Lanham
Act which, inter alia, proscribes false advertisement and disparagement of
a competitor's goods and services. The suit seeks injunctive relief,
treble damages and attorneys' fees.
Trial of the federal suit commenced on October 3, 1994, and on October
18, 1994, the jury issued a verdict against the Company and awarded the
plaintiff $2.5 million in damages on certain claims. The Company has asked the
court to disregard the jury verdict and enter judgment in its favor, while the
plaintiff has asked the court to treble the jury award and enter an injunction.
On April 22, 1994, Deborah A. Heller, et al., individually and as class
representative, filed a class action lawsuit against the Company and other
sellers of diet soft drink products in the Supreme Court of the State of
New York, County of Kings (Index Number 12982-94), which alleged that the
plaintiff and other members of the purported class had been defrauded by the
defendants by reason of their failure to advise consumers that the sweetness
level of diet soft drinks sweetened with aspartame degrades over time. The
initial complaint did not indicate a specific damage amount in its prayer
for damages. On November 7, 1994, the plaintiffs filed a motion for summary
judgment seeking from the Company damages of at least $1.187 billion based upon
its sales of such diet soft drinks during the period from April, 1988 through
December, 1993. The New York law upon which the plaintiffs' claims are based
allows the Court, at its discretion, to increase up to three times any
damages it awards. The Company believes that the claims lack merit and that
it has substantial legal and factual defenses to the claims in this matter.
<PAGE> -17-
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,
1993, will not have a material adverse effect on the financial condition of the
Company and its subsidiaries taken as a whole.
<PAGE> -18-
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 nine months ended
September 30, 1994, 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.
<PAGE> -19-
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: November 14, 1994 By: /s/ Gary P. Fayard
-------------------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
<PAGE> -20-
EXHIBIT INDEX
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the nine months ended
September 30, 1994, submitted to the Securities and
Exchange Commission in electronic format
Exhibit 12
THE COCA-COLA COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In millions except ratios)
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended December 31,
Sept. 30, ----------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income from
continuing
operations before
income taxes and
changes in
accounting
principles $2,900 $3,185 $2,746 $2,383 $2,014 $1,764
Fixed charges 169 213 207 222 255 326
Less capitalized
interest, net (3) (16) (10) (8) (8) (7)
Equity income
less than
(in excess of)
dividends 20 (35) (30) (16) (94) (55)
------- -------- -------- -------- -------- --------
Adjusted earnings $3,086 $3,347 $2,913 $2,581 $2,167 $2,028
======== ======== ======== ======== ======== ========
FIXED CHARGES:
Gross interest
incurred $ 147 $ 184 $ 181 $ 200 $ 238 $ 315
Interest portion of
rent expense 22 29 26 22 17 11
------- -------- -------- -------- -------- --------
Total fixed charges $ 169 $ 213 $ 207 $ 222 $ 255 $ 326
======== ======== ======== ======== ======== ========
Ratios of earnings
to fixed charges 18.3 15.7 14.1 11.6 8.5 6.2
======== ======== ======== ======== ======== ========
<FN>
The Company is contingently liable for guarantees of indebtedness of
independent bottling companies and others (approximately $175 million at
September 30, 1994). Fixed charges for these contingent liabilities have
not been included in the computations of the above ratios as the amounts are
immaterial and, in the opinion of Management, it is not probable that the
Company will be required to satisfy the guarantees.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF THE COCA-COLA COMPANY FOR THE
QUARTER ENDED SEPTEMBER 30, 1994, AS SET FORTH IN ITS FORM 10-Q
FOR SUCH QUARTER, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,753
<SECURITIES> 104
<RECEIVABLES> 1,321
<ALLOWANCES> 35
<INVENTORY> 1,116
<CURRENT-ASSETS> 5,592
<PP&E> 6,113
<DEPRECIATION> 2,117
<TOTAL-ASSETS> 13,950
<CURRENT-LIABILITIES> 5,943
<BONDS> 1,482
<COMMON> 427
0
0
<OTHER-SE> 5,178
<TOTAL-LIABILITY-AND-EQUITY> 13,950
<SALES> 12,155
<TOTAL-REVENUES> 12,155
<CGS> 4,669
<TOTAL-COSTS> 4,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 2,900
<INCOME-TAX> 913
<INCOME-CONTINUING> 1,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,987
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
