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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 001-02217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at October 24, 1997
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$.25 Par Value 2,473,225,116 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
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 22
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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,
1997 1996
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<S> <C> <C>
CURRENT
Cash and cash equivalents $ 2,110 $ 1,433
Marketable securities 93 225
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2,203 1,658
Trade accounts receivable, less
allowances of $23 at September 30
and $30 at December 31 1,758 1,641
Inventories 1,056 952
Prepaid expenses and other assets 1,662 1,659
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TOTAL CURRENT ASSETS 6,679 5,910
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INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 205 547
Coca-Cola Amatil Limited 1,308 881
Other, principally bottling companies 2,379 2,004
Cost method investments,
principally bottling companies 691 737
Marketable securities and other assets 1,670 1,779
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6,253 5,948
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PROPERTY, PLANT AND EQUIPMENT
Land 191 204
Buildings and improvements 1,554 1,528
Machinery and equipment 3,884 3,649
Containers 183 200
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5,812 5,581
Less allowances for depreciation 2,048 2,031
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3,764 3,550
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GOODWILL AND OTHER INTANGIBLE ASSETS 706 753
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$ 17,402 $ 16,161
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</TABLE>
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THE COCA-COLA COMPANY AND SUBSIDIARIES
LIABILITIES AND SHARE-OWNERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
CURRENT
Accounts payable and accrued expenses $ 3,565 $ 2,972
Loans and notes payable 1,950 3,388
Current maturities of long-term debt 149 9
Accrued income taxes 1,667 1,037
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TOTAL CURRENT LIABILITIES 7,331 7,406
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LONG-TERM DEBT 947 1,116
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OTHER LIABILITIES 1,429 1,182
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DEFERRED INCOME TAXES 414 301
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SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,441,134,537 shares at
September 30; 3,432,956,518 shares
at December 31 860 858
Capital surplus 1,211 1,058
Reinvested earnings 17,396 15,127
Unearned compensation related to
outstanding restricted stock (51) (61)
Foreign currency translation adjustment (1,037) (662)
Unrealized gain on securities
available for sale 179 156
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18,558 16,476
Less treasury stock, at cost
(967,712,685 shares at September 30;
951,963,574 shares at December 31) 11,277 10,320
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7,281 6,156
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$ 17,402 $ 16,161
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<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
NET OPERATING REVENUES $ 4,954 $ 4,687 $ 14,167 $ 14,197
Cost of goods sold 1,659 1,814 4,563 5,250
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GROSS PROFIT 3,295 2,873 9,604 8,947
Selling, administrative
and general expenses 2,052 2,419 5,776 6,078
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OPERATING INCOME 1,243 454 3,828 2,869
Interest income 50 49 150 173
Interest expense 58 67 188 210
Equity income 46 56 152 143
Gains on issuances of
stock by equity
investees - 413 363 431
Other income - net 224 32 566 86
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INCOME BEFORE
INCOME TAXES 1,505 937 4,871 3,492
Income tax expense
(benefit) 494 (30) 1,559 762
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NET INCOME $ 1,011 $ 967 $ 3,312 $ 2,730
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NET INCOME PER SHARE $ .41 $ .39 $ 1.34 $ 1.09
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DIVIDENDS PER SHARE $ .14 $ .125 $ .42 $ .375
========== ========== ========== ==========
AVERAGE SHARES
OUTSTANDING 2,478 2,492 2,479 2,497
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<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
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1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,312 $ 2,730
Depreciation and amortization 450 474
Deferred income taxes (57) 128
Equity income, net of dividends (103) (69)
Gains on issuances of stock by equity investees (363) (431)
Foreign currency adjustments 63 (58)
Other items (588) 288
Net change in operating assets and liabilities 730 (215)
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Net cash provided by operating activities 3,444 2,847
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INVESTING ACTIVITIES
Acquisitions and investments,
principally bottling companies (789) (577)
Purchases of investments and other assets (268) (270)
Proceeds from disposals of investments
and other assets 1,958 1,070
Purchases of property, plant and equipment (776) (682)
Proceeds from disposals of property, plant
and equipment 54 44
Other investing activities 84 (155)
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Net cash provided by (used in) investing
activities 263 (570)
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Net cash provided by operations after
reinvestment 3,707 2,277
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FINANCING ACTIVITIES
Issuances of debt 101 862
Payments of debt (1,493) (576)
Issuances of stock 109 74
Purchases of stock for treasury (957) (952)
Dividends (695) (624)
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Net cash used in financing activities (2,935) (1,216)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (95) (62)
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CASH AND CASH EQUIVALENTS
Net increase during the period 677 999
Balance at beginning of period 1,433 1,167
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Balance at end of period $ 2,110 $ 2,166
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INTEREST PAID $ 192 $ 244
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INCOME TAXES PAID $ 868 $ 952
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<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to consolidated financial
statements included in the Annual Report on Form 10-K of The Coca-Cola
Company (the Company) for the year ended December 31, 1996. 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, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of the Company's soft drink and noncarbonated beverage products
are generally greater in the second and third quarters due to seasonal
factors.
NOTE C - TREASURY STOCK
The Company purchased approximately 9 million shares of its common stock in
the third quarter and approximately 16 million shares for the nine months
ended September 30, 1997.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - BOTTLING TRANSACTIONS
In February 1997, the Company sold its 49 percent interest in Coca-Cola &
Schweppes Beverages Ltd. to Coca-Cola Enterprises. This transaction resulted
in gross proceeds of approximately $1 billion and a one-time after-tax gain of
approximately $.08 per share.
In August 1997, the Company sold its 48 percent interest in Coca-Cola
Beverages, Ltd. of Canada and its 49 percent ownership of The Coca-Cola
Bottling Company of New York, Inc. to Coca-Cola Enterprises in exchange for
aggregate net consideration valued at approximately $456 million in cash.
This transaction resulted in a one-time after-tax gain of approximately $.04
per share.
In July 1996, the Company sold its interest in the French and Belgian
bottling and canning operations to Coca-Cola Enterprises in return for cash
consideration of approximately $936 million.
NOTE E - GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES
In June 1997, the Company and San Miguel Corporation ("San Miguel") agreed
to sell their interests in Coca-Cola Bottlers Philippines, Inc. to Coca-Cola
Amatil Limited ("Coca-Cola Amatil") in exchange for approximately 293 million
shares in Coca-Cola Amatil. In connection with this transaction, Coca-Cola
Amatil issued approximately 210 million shares to San Miguel valued at $2,429
million. The issuance to San Miguel resulted in a one-time noncash pretax
gain for the Company of approximately $343 million. The Company has provided
deferred taxes of approximately $141.5 million related to this gain. This
transaction resulted in the Company's 36 percent interest in Coca-Cola Amatil
being diluted to 33 percent.
In May 1997, the Company and The Cisneros Group of Companies ("The Cisneros
Group") agreed to sell their interests in Coca-Cola y Hit de Venezuela to
Panamerican Beverages, Inc. ("Panamco") in exchange for approximately 30.6
million shares in Panamco. In connection with this transaction, Panamco
issued approximately 13.6 million shares to The Cisneros Group valued at
approximately $402 million. The issuance to The Cisneros Group resulted in a
one-time noncash pretax gain for the Company of approximately $20 million.
The Company has provided deferred taxes of approximately $7.2 million related
to this gain. At the completion of this transaction, the Company's ownership
in Panamco was approximately 23 percent.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES (CONTINUED)
In September 1996, the Company's previously wholly owned subsidiary,
Coca-Cola Erfrischungsgetraenke G.m.b.H. ("CCEG") issued approximately
24.4 million shares of common stock as part of a merger with three
independent German bottlers of the Company's products. The shares were
valued at approximately $925 million, based upon the fair values of the
assets of the three independent bottling companies. In connection with
CCEG's issuance of shares, a new corporation was established, Coca-Cola
Erfrischungsgetraenke AG ("CCEAG"), and the Company's ownership was
reduced to 45 percent in the resulting corporation. As a result, the
Company began accounting for its related investment by the equity method
of accounting prospectively from the date of the transaction. The
transaction resulted in a noncash pretax gain of approximately $283 million
for the Company. The Company's German subsidiary has provided deferred
income taxes of approximately $171 million related to this gain.
In July 1996, Coca-Cola Amatil issued approximately 46 million shares in
exchange for approximately $522 million. The issuance reduced the Company's
ownership percentage in Coca-Cola Amatil from approximately 39 percent to
approximately 36 percent. This transaction resulted in a noncash pretax
gain of approximately $130 million to the Company. The Company has provided
deferred income taxes of approximately $47 million related to this gain.
In 1996, Coca-Cola FEMSA de Buenos Aires, S.A. ("FEMSA Buenos Aires")
issued approximately 19 million shares to Coca-Cola FEMSA, S.A. de C.V.
This issuance reduced the Company's ownership in FEMSA Buenos Aires from
49 percent to approximately 32 percent. The Company recognized a noncash
pretax gain of approximately $18 million as a result of this transaction.
In subsequent transactions, the Company disposed of its remaining interest
in FEMSA Buenos Aires.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which is
required to be adopted on December 31, 1997. In addition to the Company's
current presentation of net income per share, this Statement will require the
Company to present diluted net income per share, which includes the dilutive
effect of stock options. However, the Company does not believe the additional
disclosure of diluted net income per share will materially impact the
financial statements.
NOTE G - NONRECURRING ITEMS
In the second quarter of 1997, the Company recorded a nonrecurring charge of
approximately $60 million in selling, administrative and general expenses
related to enhancing the Company's manufacturing efficiencies.
In September 1996, the Company and the U.S. Internal Revenue Service reached
an agreement in principle settling certain U.S.-related income tax matters,
including issues in litigation related to its Puerto Rico operations, dating
back to the 1981 tax year and extending through 1995. This agreement had the
effect of increasing net income by $320 million as a result of a reversal of
previously accrued income tax liabilities.
In the third quarter of 1996, provisions of approximately $276 million
were recorded in selling, administrative and general expenses related to
the Company's plans for strengthening the Company's worldwide system. Of
this $276 million, approximately $130 million related to the streamlining
of operations, primarily in Greater Europe and Latin America. Management
has taken actions to consolidate certain manufacturing operations and,
as a result, recorded charges to recognize the impairment of certain
manufacturing assets and to recognize the estimated losses on the disposal
of other assets. The remainder of this $276 million provision related to
actions taken by The Minute Maid Company. During the third quarter of 1996,
The Minute Maid Company entered into two significant agreements with
independent parties: (i) a strategic supply alliance with Sucocitrico Cutrale
Ltda., the world's largest grower and processor of oranges, and (ii) a joint
venture agreement with Groupe Danone to produce, distribute and sell premium
refrigerated juices outside of the United States and Canada. With these
agreements, the Company is increasing The Minute Maid Company's focus on
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - NONRECURRING ITEMS (CONTINUED)
managing its brands while seeking arrangements to lower overall manufacturing
costs. In connection with these actions, management recorded $146 million in
third quarter 1996 provisions, comprised primarily of impairment charges to
certain production facilities and reserves for losses on the disposal of other
production facilities.
Also in the third quarter of 1996, the Company launched a strategic
initiative, Project Infinity, to redesign and enhance its information systems
and communications capabilities. In connection with this initiative, the
Company recorded an $80 million impairment charge in selling, administrative
and general expenses to recognize Project Infinity's impact on existing
information systems.
Also in the third quarter of 1996, the Company recorded a charge in selling,
administrative and general expenses for its contribution of $28.5 million to
the corpus of The Coca-Cola Foundation, a not-for-profit charitable
organization.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
VOLUME
BEVERAGES (UNIT CASE VOLUME EXCLUDES THE MINUTE MAID COMPANY): Worldwide
unit case volume increased 11 percent and gallon shipments of concentrates and
syrups grew 14 percent in the third quarter of 1997 when compared to the third
quarter of 1996. Unit case volume increased 9 percent and gallon shipments
grew 10 percent for the first nine months of 1997 versus the comparable period
in 1996.
Unit case volume in the Company's North America Group increased 7 percent in
the third quarter, including an increase of 6 percent, on a comparable days
basis, in the United States. Unit case volume in North America grew 6 percent
for the first nine months of 1997, including 6 percent growth in the United
States. The continuing strong unit case volume gains in the United States
resulted primarily from increases in the Company's core brands and the
introduction of new products such as Surge and Citra. North American gallon
shipments of concentrates and syrups grew 8 percent for the third quarter and
5 percent for the first nine months of 1997. In particular, gallon shipments
grew 8 percent in the United States for the third quarter and 5 percent for
the first nine months of 1997 versus the comparable periods in 1996.
In the Latin America Group, unit case volume increased 14 percent in the
third quarter of 1997. The volume increase included gains of 12 percent in
Chile, 13 percent in Argentina, 14 percent in Mexico, and 19 percent in the
Central America and Caribbean Division. The growth in the Latin America Group
was affected by a 3 percent increase in unit cases in Brazil due to the
continued impact of reduced consumer purchasing power. The unit case volume
gains in Latin America resulted from aggressive system investment in volume
and share-building activities. Gallon shipments in the Latin America Group
grew 12 percent in the third quarter of 1997. For the first nine months of
1997, unit case volume has increased 11 percent and gallon shipments have
grown 9 percent over the comparable prior year period in the Latin America
Group.
In the Africa Group, unit case volume increased 13 percent in the third
quarter of 1997 and gallon shipments grew 24 percent. Third quarter unit case
volume increased 11 percent in the Southern Africa Division and 16 percent in
the Northern Africa Division. For the first nine months of 1997, unit case
volume has risen 10 percent and gallon shipments have grown 22 percent in the
Africa Group as compared to the first nine months of 1996.
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RESULTS OF OPERATIONS (CONTINUED)
Unit case volume in the Middle and Far East Group grew 10 percent in the
third quarter of 1997, as compared to the third quarter of 1996, including
gains of 36 percent in China and 19 percent in India. Unit case volume in
Japan was even in third quarter 1997, as compared to the same period in 1996,
due to disruptions in distribution in many regions of the country caused by
severe weather conditions. Gallon shipments in the Middle and Far East Group
grew 25 percent in the third quarter. For the first nine months of 1997
versus the comparable period in 1996, unit case volume has increased 10
percent and gallon shipments have grown 16 percent in the Middle and Far East
Group.
In the Greater Europe Group, third quarter 1997 unit case volume increased
16 percent. Unit case volume grew 34 percent in the Nordic and North Eurasia
Division, 18 percent in the East Central European Division, and 13 percent in
Italy. Unit case volume in Germany increased 10 percent, although the
difficult economic environment continues. Gallon shipments in the Greater
Europe Group grew 12 percent in the third quarter. For the first nine months
of 1997, unit case volume and gallon shipments in the Greater Europe Group
increased 11 and 12 percent, respectively, versus the comparable period in
1996.
THE MINUTE MAID COMPANY: At The Minute Maid Company, unit volume continued
to be impacted, as expected, by the strategy to exit the not-from-concentrate
juice category during 1996. In the third quarter of 1997, unit volume
declined 8 percent compared to the third quarter of 1996. For the first
nine months of 1997, unit volume for The Minute Maid Company has declined
7 percent, versus the comparable period in 1996.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues increased 6 percent for the three-month and were even
for the nine-month periods ended September 30, 1997, respectively, as compared
to the same periods of the prior year. The 1997 results were primarily
impacted by increased gallon shipments and price increases in certain markets
offset by the sale of previously consolidated bottling operations in France,
Belgium and eastern Germany and a stronger U.S. dollar.
In the third quarter of 1997, the Company's gross margin increased to 66.5
percent from 61.3 percent in the third quarter of 1996. The increase in gross
margin for the third quarter of 1997 was due primarily to the sale in 1996 of
previously consolidated bottling operations, shifting proportionately more
revenues to the higher margin concentrate business.
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RESULTS OF OPERATIONS (CONTINUED)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $1,682 million in the third quarter of 1997, compared
to $1,634 million in the third quarter of 1996. For the first nine months of
the year, selling expenses were $4,639 million, compared to $4,531 million in
the comparable period in 1996. The increase in selling expenses is primarily
due to higher marketing investments in support of the Company's volume growth,
offset by decreased sales and service costs as a result of the sale in 1996 of
previously consolidated bottling operations in France, Belgium and eastern
Germany.
Administrative and general expenses were $370 million in the third quarter
of 1997, compared to $785 million in the third quarter of 1996.
Administrative and general expenses were $1,137 million and $1,547 million for
the first nine months of 1997 and 1996, respectively. In the second quarter
of 1997, the Company recorded a nonrecurring charge of approximately $60
million related to enhancing manufacturing efficiencies. The decrease in the
third quarter and the first nine months of 1997 is primarily a result of
nonrecurring charges totaling $384.5 million recorded in the third quarter of
1996. These 1996 nonrecurring charges, as previously disclosed, are comprised
of the following:
- - Approximately $276 million related to the Company's adoption of
management's plans for strengthening the worldwide system.
- - An $80 million impairment charge related to Project Infinity's impact
on existing information systems.
- - A $28.5 million charge for the contribution to the corpus of The
Coca-Cola Foundation, a not-for-profit charitable organization.
OPERATING INCOME AND OPERATING MARGIN
Operating income for the third quarter of 1997 increased to $1,243 million
from $454 million in the third quarter of 1996. The increase was due
primarily to increased gallon shipments coupled with an increase in gross
profit margins, and the recording of several nonrecurring provisions in the
third quarter of 1996 as discussed above. In addition, the decision to
curtail concentrate shipments to bottlers decreased operating income by an
estimated $290 million in the third quarter of 1996. For the first nine
months of 1997, operating income increased 33 percent, compared to the first
nine months of 1996. The operating margin for the first nine months of 1997
increased to 27 percent compared to 20 percent in the comparable period in
1996.
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RESULTS OF OPERATIONS (CONTINUED)
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $1 million in the third quarter of 1997 and
decreased $23 million in the nine months ended September 30, 1997, relative to
the comparable periods in 1996, due primarily to decreases in international
interest rates. Interest expense decreased $9 million in the third quarter
and $22 million for the nine months ended September 30, 1997, relative to the
comparable periods in 1996, due to lower average commercial paper borrowings.
EQUITY INCOME
Equity income for the third quarter of 1997 totaled $46 million, compared to
$56 million in the third quarter of 1996. For the first nine months of 1997,
equity income totaled $152 million, compared to $143 million for the same
period in 1996. The decrease in the third quarter was due primarily to the
significant amount of structural change in the global bottling system which
was partially offset by solid results at key equity bottlers.
OTHER INCOME - NET
Other income - net was $224 million for the third quarter of 1997 compared
to $32 million for the third quarter of 1996. For the first nine months of
1997, other income - net was $566 million, compared to $86 million in the
comparable period of the prior year. The increase for the first nine months
of 1997 as compared to the same period in 1996 was due to gains on the sales
of the Company's interests in Coca-Cola & Schweppes Beverages Ltd., Coca-Cola
Beverages, Ltd., of Canada, The Coca-Cola Bottling Company of New York, Inc.,
Coca-Cola Rhein-Ruhr and Coca-Cola FEMSA de Buenos Aires, S.A. ("FEMSA Buenos
Aires").
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RESULTS OF OPERATIONS (CONTINUED)
GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES
In June 1997, the Company and San Miguel Corporation ("San Miguel") agreed
to sell their interests in Coca-Cola Bottlers Philippines, Inc. to Coca-Cola
Amatil Limited ("Coca-Cola Amatil") in exchange for approximately 293 million
shares in Coca-Cola Amatil. In connection with this transaction, Coca-Cola
Amatil issued approximately 210 million shares to San Miguel valued at $2,429
million. The issuance to San Miguel resulted in a one-time noncash pretax
gain for the Company of approximately $343 million. This transaction resulted
in the Company's 36 percent interest in Coca-Cola Amatil being diluted to 33
percent.
In May 1997, the Company and The Cisneros Group of Companies ("The Cisneros
Group") agreed to sell their interests in Coca-Cola y Hit de Venezuela to
Panamerican Beverages, Inc. ("Panamco") in exchange for approximately 30.6
million shares in Panamco. In connection with this transaction, Panamco
issued approximately 13.6 million shares to The Cisneros Group valued at
approximately $402 million. The issuance to The Cisneros Group resulted in a
one-time noncash pretax gain for the Company of approximately $20 million.
At the completion of this transaction, the Company's ownership in Panamco
was approximately 23 percent.
In 1996, FEMSA Buenos Aires issued approximately 19 million shares to
Coca-Cola FEMSA, S.A. de C.V. This issuance reduced the Company's ownership
in FEMSA Buenos Aires from 49 percent to approximately 32 percent. The
Company recognized a noncash pretax gain of approximately $18 million as a
result of this transaction. In subsequent transactions, the Company disposed
of its remaining interest in FEMSA Buenos Aires.
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RESULTS OF OPERATIONS (CONTINUED)
In September 1996, our previously wholly owned subsidiary, CCEG, issued
approximately 24.4 million shares of common stock as part of a merger with
three independent German bottlers of the Company's products. The shares were
valued at approximately $925 million, based upon the fair values of the
assets of the three independent bottling companies. In connection with
CCEG's issuance of shares, a new corporation was established, Coca-Cola
Erfrischungsgetraenke AG ("CCEAG"), and the Company's ownership was reduced
to 45 percent in the resulting corporation. As a result, the Company began
accounting for its related investment by the equity method of accounting
prospectively from the date of the transaction. The transaction resulted
in a noncash pretax gain of approximately $283 million for the Company.
In July 1996, Coca-Cola Amatil issued approximately 46 million shares in
exchange for approximately $522 million. The issuance reduced the Company's
ownership percentage in Coca-Cola Amatil from approximately 39 percent to
approximately 36 percent. This transaction resulted in a noncash pretax
gain of approximately $130 million for the Company.
INCOME TAXES
The Company's effective tax rate during the third quarter of 1997 was 32.8
percent. The 32.8 percent 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, partially offset by the tax
impact of gains recognized from previously discussed bottling transactions.
These transactions are generally taxed at rates higher than the Company's
effective rate on operations.
In the third quarter of 1996, the Company reported an income tax benefit due
primarily to a settlement agreement in principle between the Company and the
U.S. Internal Revenue Service. The agreement included issues in litigation
involving Company operations in Puerto Rico. Some of the issues dated back to
the 1981 tax year and extended through 1995. This agreement had the effect of
increasing net income by $320 million in the third quarter of 1996 as a result
of a reversal of previously accrued tax liabilities. The Company's tax rate
for the third quarter and first nine months of 1996 would have been 31
percent, excluding the favorable impact of the IRS settlement.
- 17 -
<PAGE>
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The Company's effective tax rate for the nine months ended September 30,
1997 was 32.0 percent compared to 21.8 percent for the comparable period in
1996, which reflects the favorable settlement with the IRS in 1996.
NET INCOME
Net income per share for the third quarter and the first nine months of 1997
increased at a higher rate than net income due to the Company's share
repurchase program.
- 18 -
<PAGE>
<PAGE>
FINANCIAL CONDITION
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first nine months of 1997, net cash flow after reinvestment totaled
$3,707 million, an increase of $1,430 million over the comparable period in
1996. Net cash provided by operating activities increased $597 million in the
first nine months of 1997 due to higher net income and an increase in accrued
income taxes, included in the changes in operating assets and liabilities, of
$630 million partially offset by a decrease in other items, primarily as a
result of gains on structural change transactions. As previously discussed,
the Company recorded a gain on the sale of its bottling interest in Coca-Cola
& Schweppes Beverages Ltd. in the first quarter of 1997, and gains on the sale
of its interest in Coca-Cola Beverages, Ltd. of Canada and The Coca-Cola
Bottling Company of New York, Inc.
Net cash provided by investing activities increased $833 million in the
first nine months of 1997 as compared to the first nine months of 1996. This
net change included a $888 million increase in proceeds from disposals of
investments and other assets, primarily as a result of the cash proceeds
received from the sale of certain of the Company's bottling interests as
discussed above and increased investments in property, plant and equipment.
The decrease in the Company's investment in Coca-Cola Enterprises in the first
nine months of 1997 is primarily the result of deferred gains related to the
sale of the Company's interest in Coca-Cola & Schweppes Beverages Ltd.,
Coca-Cola Beverages, Ltd. of Canada, and The Coca-Cola Bottling Company of
New York, Inc. The deferred gains result from the Company's ownership in
Coca-Cola Enterprises. The value of the Company's investment in Coca-Cola
Amatil increased during the nine months ended September 30, 1997 primarily
as a result of Coca-Cola Amatil issuing shares to San Miguel Corporation at
a value per share greater than the carrying value per share of the Company's
interest in Coca-Cola Amatil.
- 19 -
<PAGE>
<PAGE>
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 $2,935 million and $1,216 million for the first
nine months of 1997 and 1996, respectively. For the first nine months of
1997, the Company had net repayments of borrowings of $1,392 million, versus
net borrowings of $286 million for the comparable period of 1996. This
reduction in net borrowings in 1997 was funded by proceeds received from the
sale of certain of the Company's bottling interests, as discussed above. The
Company has earned long-term credit ratings of "AA-" from Standard & Poor's
and "Aa3" from Moody's, and the highest credit ratings available for its
commercial paper program.
Cash used for share repurchases was $957 million for the first nine months
of 1997, compared to $952 million for the first nine months of 1996.
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 11 percent stronger during the third quarter of
1997 versus key currencies for the comparable period of the prior year.
However, the Company's foreign currency management program mitigates over time
the impact of exchange on net income and earnings per share.
- 20 -
<PAGE>
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As reported in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, on January 30, 1997, the Brazilian Federal Revenue
Service issued Notices of Assessment to Recofarma Industrias do Amazonas Ltda.
("Recofarma"), an indirect wholly owned subsidiary of the Company, for the
period from January 1, 1992 to February 28, 1994. The assessments allege that
Recofarma should have paid a Brazilian excise tax on intra-company transfers
of product manufactured at its Manaus plant to its warehouse in Rio de
Janeiro. Assessments of tax, interest and penalties total approximately $530
million as of the assessment date and accrue interest from such date. The
transfer of product from the plant to the warehouse, which was discontinued in
February 1994, was the subject of a favorable advance ruling issued by the
Federal Revenue Service on September 24, 1990. In the Company's opinion, the
ruling has continuing effect and Recofarma's operations conformed with the
ruling. On March 3, 1997, Recofarma filed appeals with the Brazilian Federal
Revenue Service contesting the assessments.
On September 30, 1997, the Rio de Janeiro Branch of the Brazilian Federal
Revenue Service dismissed the assessments against Recofarma. This
determination is subject to an automatic ex officio appeal ("recurso ex-
oficio") on the Federal Revenue Service's behalf to the Taxpayers Council in
Brazilia. Although there can be no assurance of this, it is expected that the
Taxpayers Council will review the dismissal of the assessments within the next
six months.
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,
1996, will not have a material adverse effect on the financial condition of
the Company and its subsidiaries taken as a whole.
- 21 -
<PAGE>
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges
27.1 - Restated Financial Data Schedule for the nine months
ended September 30, 1996, submitted to the Securities and
Exchange Commission in electronic format
27.2 - Financial Data Schedule for the nine months ended
September 30, 1997, 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.
- 22 -
<PAGE>
<PAGE>
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 13, 1997 By: /s/ Gary P. Fayard
-------------------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
- 23 -
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges
27.1 - Restated Financial Data Schedule for the nine months
ended September 30, 1996, submitted to the Securities and
Exchange Commission in electronic format
27.2 - Financial Data Schedule for the nine months ended
September 30, 1997, 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,
September 30, ------------------------------------------------
1997 1996 1995 1994 1993 1992
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income before income
taxes and changes in
accounting principles $4,871 $ 4,596 $ 4,328 $ 3,728 $ 3,185 $ 2,746
Fixed charges 224 324 318 236 213 207
Adjustments:
Capitalized
interest, net (12) (7) (9) (5) (16) (10)
Equity income,
net of dividends (103) (89) (25) (4) (35) (30)
------- -------- -------- -------- -------- --------
Adjusted earnings $4,980 $ 4,824 $ 4,612 $ 3,955 $ 3,347 $ 2,913
======= ======== ======== ======== ======== ========
FIXED CHARGES:
Gross interest
incurred $ 200 $ 293 $ 281 $ 204 $ 184 $ 181
Interest portion of
rent expense 24 31 37 32 29 26
------- -------- -------- -------- -------- --------
Total fixed charges $ 224 $ 324 $ 318 $ 236 $ 213 $ 207
======= ======== ======== ======== ======== ========
Ratios of earnings
to fixed charges 22.2 14.9 14.5 16.8 15.7 14.1
======= ======== ======== ======== ======== ========
<FN>
At September 30, 1997, the Company is contingently liable for guarantees of
indebtedness owed by third parties in the amount of $360 million. 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 RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF
THE COCA-COLA COMPANY FOR THE QUARTER ENDED SEPTEMBER 30, 1996, AS SET
FORTH IN ITS FORM 10-Q FOR SUCH QUARTER AND FOR THE QUARTER ENDED
SEPTEMBER 30, 1997, 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-31-1996
<PERIOD-END> SEP-30-1996<F1>
<CASH> 2,166
<SECURITIES> 147
<RECEIVABLES> 1,616
<ALLOWANCES> 30
<INVENTORY> 1,075
<CURRENT-ASSETS> 6,360
<PP&E> 5,723
<DEPRECIATION> 2,132
<TOTAL-ASSETS> 15,874
<CURRENT-LIABILITIES> 7,128
<BONDS> 1,136
0
0
<COMMON> 857
<OTHER-SE> 5,378
<TOTAL-LIABILITY-AND-EQUITY> 15,874
<SALES> 14,197
<TOTAL-REVENUES> 14,197
<CGS> 5,250
<TOTAL-COSTS> 5,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 3,492
<INCOME-TAX> 762
<INCOME-CONTINUING> 2,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,730
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 0
<FN>
<F1> RESTATEMENT REFLECTED HEREIN IS THE RESULT OF RECLASSIFICATION
TO PRIOR PERIOD'S FINANCIAL STATEMENTS TO CONFORM TO THE CURRENT PERIOD
PRESENTATION.
</FN>
</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, 1997, 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,110
<SECURITIES> 93
<RECEIVABLES> 1,781
<ALLOWANCES> 23
<INVENTORY> 1,056
<CURRENT-ASSETS> 6,679
<PP&E> 5,812
<DEPRECIATION> 2,048
<TOTAL-ASSETS> 17,402
<CURRENT-LIABILITIES> 7,331
<BONDS> 947
0
0
<COMMON> 860
<OTHER-SE> 6,421
<TOTAL-LIABILITY-AND-EQUITY> 17,402
<SALES> 14,167
<TOTAL-REVENUES> 14,167
<CGS> 4,563
<TOTAL-COSTS> 4,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 4,871
<INCOME-TAX> 1,559
<INCOME-CONTINUING> 3,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,312
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 0
</TABLE>
