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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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. 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, $.25 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE,
IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY HELD BY NON-
AFFILIATES OF THE REGISTRANT (ASSUMING FOR THESE PURPOSES, BUT
WITHOUT CONCEDING, THAT ALL EXECUTIVE OFFICERS AND DIRECTORS ARE
"AFFILIATES" OF THE REGISTRANT) AS OF FEBRUARY 22, 1999, (BASED
ON THE CLOSING SALE PRICE OF THE REGISTRANT'S COMMON STOCK AS
REPORTED ON THE NEW YORK STOCK EXCHANGE ON SUCH DATE) WAS
$138,062,055,742.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK
AS OF MARCH 15, 1999, WAS 2,467,005,172.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHARE OWNERS FOR THE
YEAR ENDED DECEMBER 31, 1998, ARE INCORPORATED BY REFERENCE IN
PARTS I, II and IV.
PORTIONS OF THE COMPANY'S PROXY STATEMENT FOR THE ANNUAL MEETING
OF SHARE OWNERS TO BE HELD ON APRIL 21, 1999, ARE INCORPORATED BY
REFERENCE IN PART III.
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PART I
ITEM 1. BUSINESS
The Coca-Cola Company (together with its subsidiaries, the
"Company") was incorporated in September 1919 under the laws of
the State of Delaware and succeeded to the business of a Georgia
corporation with the same name that had been organized in 1892.
The Company is the largest manufacturer, distributor and marketer
of soft drink concentrates and syrups in the world. Finished
soft drink products bearing the Company's trademarks, sold in the
United States since 1886, are now sold in nearly 200 countries
and include the leading soft drink products in most of these
countries. The Company also is the world's largest distributor
and marketer of juice and juice-drink products.
The Company is one of numerous competitors in the commercial
beverages market. Of the approximately 48 billion beverage
servings of all types consumed worldwide every day, beverages
bearing the Company's trademarks ("Company Trademark Beverages")
account for more than one billion.
The business of the Company is nonalcoholic beverages --
principally soft drinks but also a variety of noncarbonated
beverages. As used in this report, the term "soft drinks" refers
to nonalcoholic carbonated beverages containing flavorings and
sweeteners, excluding flavored waters and carbonated or
noncarbonated teas, coffees and sports drinks.
The Company's operating structure includes the following
operating segments: the North America Group (including The Minute
Maid Company); the Africa Group; the Greater Europe Group; the
Latin America Group; the Middle & Far East Group; and Corporate.
The North America Group includes the United States and Canada.
Except to the extent that differences between these operating
segments are material to an understanding of the Company's
business taken as a whole, the description of the Company's
business in this report is presented on a consolidated basis.
Of the Company's consolidated net operating revenues and
operating income for each of the past three years, the percentage
represented by each operating segment (excluding Corporate) is as
follows:
North Greater Latin Middle &
America Africa Europe America Far East
------- ------ ------- ------- --------
Net Operating
Revenues
1998 37% 3% 26% 12% 22%
1997 35% 3% 29% 11% 22%
1996 33% 3% 32% 11% 21%
Operating Income
1998 27% 4% 27% 18% 24%
1997 25% 3% 28% 18% 26%
1996 22% 3% 29% 18% 28%
For additional financial information about the Company's
operating segments and geographic areas, see Notes 1, 14 and 16
to the Consolidated Financial Statements, set forth on pages
45-46, 56-57 and 57-58, respectively, of the Company's Annual
Report to Share Owners for the year ended December 31, 1998,
incorporated herein by reference.
The Company manufactures and sells soft drink and
noncarbonated beverage concentrates and syrups, including
fountain syrups, some finished beverages, and certain juice and
juice-drink products. Syrups are composed of sweetener, water
and flavoring concentrate. The concentrates and syrups for
bottled and canned beverages are sold by the Company to
authorized bottling and canning operations. The bottlers or
canners of soft drink products either combine the syrup with
carbonated water or combine the concentrate with sweetener, water
and carbonated water to produce finished soft drinks. The
finished soft drinks are packaged in authorized containers
bearing the Company's trademarks -- cans, refillable and non-
refillable glass and plastic bottles -- for sale to retailers or,
in some cases, wholesalers. Fountain syrups are manufactured and
sold by the Company, principally in
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the United States, to authorized fountain wholesalers and some
fountain retailers. (Outside the United States, fountain syrups
typically are manufactured by authorized bottlers from
concentrates sold to them by the Company.) Authorized fountain
wholesalers (including certain authorized bottlers) sell fountain
syrups to fountain retailers. The fountain retailers use
dispensing equipment to mix the syrup with carbonated or still
water and then sell finished soft drinks or noncarbonated
beverages to consumers in cups and glasses. Finished beverages
manufactured by the Company are sold by it to authorized bottlers
or distributors, who in turn sell these products to retailers or,
in some cases, wholesalers. Both directly and through a network
of business partners that includes certain Coca-Cola bottlers,
juice and juice-drink products are sold by the Company to
retailers and wholesalers in the United States and more than 75
other countries.
The Company's more than 160 beverage products, including
bottled and canned beverages produced by independent and Company-
owned bottling and canning operations, as well as concentrates
and syrups, include Coca-Cola, Coca-Cola classic, caffeine free
Coca-Cola, caffeine free Coca-Cola classic, diet Coke (sold under
the trademark Coca-Cola light in many countries outside the
United States), caffeine free diet Coke, Cherry Coke, diet Cherry
Coke, Fanta brand soft drinks, Sprite, diet Sprite, Mr. PiBB,
Mello Yello, TAB, Fresca, Barq's root beer and other flavors,
Surge, Citra, POWERaDE, Fruitopia, Minute Maid flavors,
Saryusaisai, Aquarius, Bonaqa, Lift, Thums Up, Hit and other
products developed for specific countries, including Georgia
brand ready-to-drink coffees, and numerous other brands. The
Minute Maid Company, with operations primarily in the United
States and Canada, produces, distributes and markets principally
juice and juice-drink products, including Minute Maid brand
products; Five Alive brand refreshment beverages; Bright & Early
brand breakfast beverages; Bacardi brand tropical fruit mixers
(manufactured and marketed under a license from Bacardi & Company
Limited); and Hi-C brand ready-to-serve fruit drinks.
Additionally, Coca-Cola Nestle Refreshments, the Company's joint
venture with Nestle S.A., markets ready-to-drink teas and coffees
in certain countries.
In 1998, concentrates and syrups for beverages bearing the
trademark "Coca-Cola" or including the trademark "Coke" accounted
for approximately 67% of the Company's total gallon sales{1} of
beverage concentrates and syrups. (Physical units of concentrate
have been converted to their equivalents in gallons of syrup in
all cases in this report where reference is made to "gallons" or
"gallon sales" of beverage concentrates and syrups.)
In 1998, gallon sales in the United States ("U.S. gallon
sales") represented approximately 28% of the Company's worldwide
gallon sales of beverage concentrates and syrups. In 1998, the
Company's principal markets outside the United States, based on
gallon sales, were Mexico, Brazil, Japan and Germany, which
together accounted for approximately 26% of the Company's
worldwide gallon sales.
Approximately 65% of the Company's U.S. gallon sales for
1998 was attributable to sales of beverage concentrates and
syrups to approximately 104 authorized bottler ownership groups
in approximately 397 licensed territories. Those bottlers
prepare and sell finished beverages bearing the Company's
trademarks for the food store and vending machine distribution
channels and for other distribution channels supplying home and
immediate consumption. The remaining 35% of 1998 U.S. gallon
sales was attributable to fountain syrups sold to fountain
retailers and to approximately 700 authorized fountain
wholesalers, some of whom are authorized bottlers. These
fountain wholesalers in turn sell the syrups or deliver them on
the Company's behalf to restaurants and other fountain retailers.
Coca-Cola Enterprises Inc. ("Coca-Cola Enterprises") and its
bottling subsidiaries and divisions accounted for approximately
50% of the Company's U.S. gallon sales in 1998. At March 5, 1999
the Company held an ownership interest of approximately 40% in
Coca-Cola Enterprises, which is the world's largest bottler of
Company Trademark Beverages.
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{1} The Company measures sales volume in two ways: (1) gallon
sales of concentrates and syrups and (2) unit cases of finished
products. "Gallon sales" represents the primary business of the
Company and measures the volume of concentrates and syrups sold
by the Company to its bottling partners or customers. Most of
the Company's revenues are based on this measure of "wholesale"
activity. The Company also measures volume in unit cases. As
used in this report, the term "unit case" means a unit of
measurement equal to 192 U.S. fluid ounces of finished beverage
(24 eight-ounce servings); and "unit case volume" of the Company,
which refers to the number of unit cases sold by bottlers of
Company Trademark Beverages to customers, includes Company
products (excluding products distributed by The Minute Maid
Company) reported as gallon sales, and certain other key products
owned by such bottlers. The Company believes unit case volume
more accurately measures the underlying strength of its business
system because it measures trends at the retail level. The
Company includes fountain syrups sold directly to its customers
in both measures.
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In addition to conducting its own independent advertising
and marketing activities, the Company may choose to provide
promotional and marketing services and/or funds and consultation
to its bottlers and to fountain and bottle/can retailers. Also
on a discretionary basis, the Company may develop and introduce
new products, packages and equipment to assist its bottlers,
fountain syrup wholesalers and fountain beverage retailers.
The profitability of the Company's business outside the
United States is subject to many factors, including governmental
trade regulations and monetary policies, economic and political
conditions in the countries in which such business is conducted
and the risk of changes in currency exchange rates and
regulations.
BOTTLER'S AGREEMENTS AND DISTRIBUTION AGREEMENTS
Separate contracts ("Bottler's Agreements") between the
Company and each of its bottlers regarding the manufacture and
sale of soft drinks, subject to specified terms and conditions
and minor variations, generally authorize the bottler to prepare
particular designated Company Trademark Beverages, to package the
same in particular authorized containers, and to distribute and
sell the same in (but generally only in) an identified territory.
The bottler is obligated to purchase its entire requirement of
concentrates or syrups for the designated Company Trademark
Beverages from the Company or Company-authorized suppliers. The
Company typically agrees to refrain from selling or distributing
or from authorizing third parties to sell or distribute the
designated Company Trademark Beverages throughout the identified
territory in the particular authorized containers; however, the
Company typically reserves for itself or its designee the right
(i) to prepare and package such beverages in such containers in
the territory for sale outside the territory and (ii) to prepare,
package, distribute and sell such beverages in the territory in
any other manner or form.
The Bottler's Agreements between the Company and its
authorized bottlers in the United States differ in certain
respects from those in the other countries in which Company
Trademark Beverages are sold. As hereinafter discussed, the
principal differences involve the duration of the agreements; the
inclusion or exclusion of canned beverage production rights; the
inclusion or exclusion of authorizations to manufacture and
distribute fountain syrups; in some cases, the degree of
flexibility on the part of the Company to determine the pricing
of syrups and concentrates; and the extent, if any, of the
Company's obligation to provide marketing support.
OUTSIDE THE UNITED STATES. The Bottler's Agreements between
the Company and its authorized bottlers outside the United States
generally are of stated duration, subject in some cases to
possible extensions or renewals of the term of the contract.
Generally, these contracts are subject to termination by the
Company following the occurrence of certain designated events,
including defined events of default and certain changes in
ownership or control of the bottler.
In certain parts of the world outside the United States, the
Company has not granted canned beverage production rights to the
bottlers. In such instances, the Company or its designee
typically sells canned Company Trademark Beverages to the
bottlers for sale and distribution throughout the designated
territory under can distribution agreements, often on a non-
exclusive basis. A majority of the Bottler's Agreements in force
between the Company and bottlers outside the United States
authorize the bottler to manufacture and distribute fountain
syrups, usually on a non-exclusive basis.
The Company generally has complete flexibility to determine
the price and other terms of sale of concentrates and syrups to
bottlers outside the United States and, although in its
discretion it may determine to do so, the Company typically has
no obligation under such Bottler's Agreements to provide
marketing support to the bottlers.
WITHIN THE UNITED STATES. In the United States, with
certain very limited exceptions, the Company's Bottler's
Agreements for Coca-Cola and other cola-flavored beverages have
no stated expiration date and the contracts for other flavors are
of stated duration, subject to bottler renewal rights. The
Bottler's Agreements in the United States are subject to
termination by the Company for nonperformance or upon the
occurrence of certain defined events of default which may vary
from contract to contract. The hereinafter described "1987
Contract" is terminable by the Company upon the occurrence of
certain events including: (1) the bottler's insolvency,
dissolution, receivership or the like; (2) any disposition by the
bottler or any of its subsidiaries of any voting securities of
any bottler subsidiary without the consent of the Company; (3)
any material breach of any obligation of the bottler under the
1987 Contract; or (4) except in the case of certain bottlers, if
a person or affiliated group acquires or obtains any right to
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acquire beneficial ownership of more than 10% of any class or
series of voting securities of the bottler without authorization
by the Company.
Under the terms of the Bottler's Agreements, bottlers in the
United States are authorized to manufacture and distribute
Company Trademark Beverages in bottles and cans, but generally
are not authorized to manufacture fountain syrups. Rather, the
Company manufactures and sells fountain syrups to approximately
700 authorized fountain wholesalers (including certain authorized
bottlers) and some fountain retailers. The wholesalers in turn
sell the syrups or deliver them on the Company's behalf to
restaurants and other retailers. The wholesaler typically acts
as such pursuant to a non-exclusive letter of appointment which
neither restricts the pricing of fountain syrups by the Company
nor the territory in which the wholesaler may resell in the
United States.
In the United States, the form of Bottler's Agreement for
cola-flavored soft drinks that covers the largest amount of U.S.
volume (the "1987 Contract") gives the Company complete
flexibility to determine the price and other terms of sale of
soft drink concentrates and syrups for cola-flavored Company
Trademark Beverages ("Coca-Cola Trademark Beverages") and other
Company Trademark Beverages. Bottlers operating under the 1987
Contract accounted for approximately 78% of the Company's total
United States gallon sales for bottled and canned beverages ("U.S.
bottle/can gallon sales") in 1998. Certain other forms of the
U.S. Bottler's Agreement, entered into prior to 1987, provide for
soft drink concentrates or syrups for certain Coca-Cola Trademark
Beverages to be priced pursuant to a stated formula. The oldest
such form of contract, applicable to bottlers accounting for
approximately 1% of U.S. bottle/can gallon sales in 1998,
provides for a fixed price for Coca-Cola syrup used in bottles
and cans, subject to quarterly adjustments to reflect changes in
the quoted price of sugar. Bottlers accounting for the remaining
approximately 21% of U.S. bottle/can gallon sales in 1998 have
contracts for certain Coca-Cola Trademark Beverages with pricing
formulas generally providing for a baseline price that may be
adjusted periodically by the Company, up to a maximum indexed
ceiling price, and that is adjusted quarterly based upon changes
in certain sugar or sweetener prices, as applicable.
Standard contracts with bottlers in the United States for
the sale of concentrates and syrups for non-cola-flavored soft
drinks in bottles and cans permit flexible pricing by the Company.
Under the 1987 Contract, the Company has no obligation to
participate with bottlers in expenditures for advertising and
marketing, but may, at its discretion, contribute toward such
expenditures and undertake independent or cooperative advertising
and marketing activities. Some U.S. Bottler's Agreements that
pre-date the 1987 Contract impose certain marketing obligations
on the Company with respect to certain Company Trademark
Beverages.
SIGNIFICANT EQUITY INVESTMENTS AND COMPANY BOTTLING OPERATIONS
The Company has business relationships with three types of
bottlers: (1) independently owned bottlers, in which the Company
has no ownership interest; (2) bottlers in which the Company has
invested and has a noncontrolling ownership interest; and (3)
bottlers in which the Company has invested and has a controlling
ownership interest. In 1998, independently owned bottling
operations produced and distributed approximately 34% of the
Company's worldwide unit case volume; cost or equity method
investee bottlers in which the Company owns a noncontrolling
ownership interest produced and distributed approximately 55% of
such worldwide unit case volume; and controlled and consolidated
bottling and fountain operations produced and distributed
approximately 11% of such worldwide unit case volume.
The Company makes equity investments in selected bottling
operations with the intention of maximizing the strength and
efficiency of the Coca-Cola business system's production,
distribution and marketing systems around the world. These
investments often result in increases in unit case volume, net
revenues and profits at the bottler level, which in turn generate
increased gallon sales for the Company's concentrate business.
When this occurs, both the Company and the bottlers benefit from
long-term growth in volume, improved cash flows and increased
share-owner value.
The level of the Company's investment generally depends on
the bottler's capital structure and its available resources at
the time of the investment. In certain situations, it can
further the Company's business interests to acquire a controlling
interest in a bottling operation. Although not the Company's
primary long-term business strategy, owning a controlling
interest and providing resources may compensate for limited local
resources, help
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focus the bottler's sales and marketing programs, assist in the
development of the bottler's business and information systems,
and assist in the establishment of appropriate capital structures.
In 1998, the Company purchased additional Russian bottling
operations from Inchcape plc and affiliated companies. Also in
1998, as part of the Company's strategy to achieve an integrated
bottling system in India, the Company purchased 16 independent
Indian bottling operations, bringing the total number purchased
since January 1997 to 18. By providing capital and marketing
expertise to newly acquired bottlers, the Company seeks to
strengthen their ability to deliver Company Trademark Beverages
to customers and consumers.
In line with its long-term bottling strategy, the Company
periodically considers options for reducing its ownership
interest in a consolidated bottler. One such option is to
combine the Company's bottling interests with the bottling
interests of others to form strategic business alliances.
Another option is to sell the Company's interest in a
consolidated bottling operation to one of the Company's
noncontrolled equity investee bottlers. In both of these
situations, the Company continues participating in the previously
consolidated bottler's earnings through its portion of the equity
investee's income. In 1998, the Company contributed its wholly
owned bottling interests in Norway and Finland to Coca-Cola
Nordic Beverages ("CCNB"), an anchor bottler which also has
bottling operations in Denmark and Sweden. The Company has an
ownership interest in CCNB of 49%.
In cases where the Company's investments in bottlers
represent noncontrolling interests, the Company's intention is to
provide expertise and resources to strengthen those businesses.
During 1998, the Company increased its interest in Thai Pure
Drinks Limited, a bottler headquartered in Thailand, from
approximately 44% to approximately 49%; increased its interest in
Embotelladoras Coca-Cola Polar S.A., a bottler headquartered in
Chile, from approximately 19% to approximately 29%; and acquired
an initial ownership interest of 20% in Embotelladoras Argos,
S.A., a bottler headquartered in Mexico.
Certain bottling operations in which the Company has a
noncontrolling ownership interest are designated as "anchor
bottlers" due to their level of responsibility and performance.
Anchor bottlers are strongly committed to their own profitable
growth which, in turn, helps the Company meet its strategic goals
and furthers the interests of its worldwide production,
distribution and marketing systems. Anchor bottlers tend to be
large and geographically diverse with strong financial resources
for long-term investment and strong management resources. In
1998, the Company's anchor bottlers produced and distributed
approximately 43% of the Company's worldwide unit case volume.
As of March 15, 1999, ten companies are designated as anchor
bottlers, providing the Company with strong strategic business
partners on every major continent.
Coca-Cola Beverages plc ("CCB"), a publicly traded company
on the London Stock Exchange, was designated as an anchor bottler
in 1998. CCB was formed in 1998 via a spin-off by Coca-Cola
Amatil Limited ("Coca-Cola Amatil") of its European operations.
In June 1998, after the spin-off, the Company sold its bottling
operations in northern and central Italy to CCB in exchange for
consideration (including shares of CCB stock) valued at
approximately U.S.$1 billion. At December 31, 1998, the Company
had an ownership interest in CCB of approximately 50.5%. The
Company's expectation is that its ownership position will reduce
to less than 50% in 1999; therefore, the investment is accounted
for by the equity method of accounting.
The Company has substantial equity positions in
approximately 46 unconsolidated bottling, canning and
distribution operations for its products worldwide, including
bottlers representing approximately 56% of the Company's total
U.S. unit case volume in 1998. Of these, significant investee
bottlers accounted for by the equity method include the
following:
COCA-COLA ENTERPRISES INC. The Company's ownership interest
in Coca-Cola Enterprises was approximately 42% at December 31,
1998 and was approximately 40% as of March 5, 1999. Coca-Cola
Enterprises is the world's largest bottler of the Company's
beverage products. In 1998, net sales of concentrates and syrups
by the Company to Coca-Cola Enterprises were approximately $3.1
billion, or approximately 16% of the Company's net operating
revenues. Coca-Cola Enterprises also purchases high fructose
corn syrup through the Company; however, related collections from
Coca-Cola Enterprises and payments to suppliers are not included
in the Company's consolidated statements of income. Coca-Cola
Enterprises estimates that the territories in which it markets
beverage products to retailers (which include portions of 46
states, the District of Columbia, the U.S. Virgin Islands, Canada,
Great Britain, the Netherlands, France, Luxembourg and Belgium)
contain approximately 69% of the United States population, 94% of
the population of Canada, 98% of the population of Great Britain,
100% of the populations of the Netherlands, Luxembourg and
Belgium and 92% of the population of France.
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In 1998, approximately 63% of the unit case volume of
Coca-Cola Enterprises (excluding products in post-mix (fountain)
form) was Coca-Cola Trademark Beverages, approximately 25% of its
unit case volume was other Company Trademark Beverages, and
approximately 12% of its unit case volume was beverage products
of other companies. Coca-Cola Enterprises' net sales of beverage
products were approximately $13.4 billion in 1998.
COCA-COLA AMATIL LIMITED. In 1998, Coca-Cola Amatil
completed a spin-off of its European operations into a new
publicly traded European bottler, CCB. After the spin-off, the
Company sold its bottling operations in South Korea to Coca-Cola
Amatil in exchange for shares of Coca-Cola Amatil stock. At
December 31, 1998, the Company's ownership interest in Coca-Cola
Amatil was approximately 43%.
Coca-Cola Amatil is the largest bottler of the Company's
beverage products in Australia and also has bottling and
distribution rights, through direct ownership or joint ventures,
in New Zealand, Fiji, Papua New Guinea, Indonesia, the
Philippines and South Korea. Net concentrate sales by the
Company to Coca-Cola Amatil were approximately U.S.$546 million
in 1998. Coca-Cola Amatil estimates that the territories in
which it markets beverage products contain approximately 99% of
the population of Australia, 100% of the populations of New
Zealand, Fiji, South Korea and the Philippines, 83% of the
population of Papua New Guinea and 97% of the population of
Indonesia.
In 1998, Coca-Cola Amatil's net sales of beverage products
were approximately U.S.$2.7 billion. In 1998, approximately 66%
of the unit case volume of Coca-Cola Amatil was Coca-Cola
Trademark Beverages, approximately 25% of its unit case volume
was other Company Trademark Beverages, approximately 4% of its
unit case volume was beverage products of Coca-Cola Amatil and
approximately 5% of its unit case volume was beverage products of
other companies.
PANAMERICAN BEVERAGES, INC. ("PANAMCO"). At December 31,
1998, the Company owned an equity interest of approximately 24%
in Panamco, a Panamanian holding company with bottling
subsidiaries operating in a substantial part of central Mexico
(excluding Mexico City), greater Sao Paulo, Campinas, Santos and
Matto Grosso do Sul, Brazil, central Guatemala, most of Colombia,
and all of Costa Rica, Venezuela and Nicaragua. Panamco
estimates that the territories in which it markets beverage
products contain approximately 19% of the population of Mexico,
15% of the population of Brazil, 98% of the population of
Colombia, 46% of the population of Guatemala and 100% of the
populations of Costa Rica, Venezuela and Nicaragua.
In 1998, Panamco's net sales of beverage products were
approximately U.S.$2.8 billion. In 1998, approximately 55% of
the unit case volume of Panamco was Coca-Cola Trademark
Beverages, approximately 23% of its unit case volume was other
Company Trademark Beverages and approximately 22% of its unit
case volume was beverage products of Panamco or other companies.
COCA-COLA FEMSA, S.A. DE C.V. ("COCA-COLA FEMSA"). At
December 31, 1998, the Company owned a 30% equity interest in
Coca-Cola FEMSA, a Mexican holding company with bottling
subsidiaries in the Valley of Mexico, Mexico's southeastern
region and Buenos Aires, Argentina. Coca-Cola FEMSA estimates
that the territories in which it markets beverage products
contain approximately 24% of the population of Mexico and 35% of
the population of Argentina.
In 1998, Coca-Cola FEMSA's net sales of beverage products
were approximately U.S.$1.3 billion. In 1998, approximately 77%
of the unit case volume of Coca-Cola FEMSA was Coca-Cola
Trademark Beverages, approximately 22% of its unit case volume
was other Company Trademark Beverages, and approximately 1% of
its unit case volume was beverage products of other companies.
OTHER INTERESTS. Under the terms of the Coca-Cola Nestle
Refreshments ("CCNR") joint venture involving the Company, Nestle
S.A. and certain subsidiaries of Nestle S.A., the Company manages
CCNR's ready-to-drink tea business and Nestle S.A. manages CCNR's
ready-to-drink coffee business. The joint venture has sales in
the United States and approximately 33 other countries.
The Minute Maid Company and Groupe Danone are partners in a
joint venture which produces, distributes and sells premium
refrigerated ready-to-serve fruit juice products outside the
United States and Canada, with an initial focus in Europe and
Latin America. The Minute Maid Company has a 50% ownership
interest in the joint venture.
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The joint venture launched Minute Maid Premium juices in France,
Spain, Portugal, Belgium and Luxembourg during 1997 and in
Austria, the United Kingdom and Poland during 1998.
OTHER DEVELOPMENTS
In December 1997, the Company announced its intent to
acquire from beverage company Pernod Ricard its Orangina brands,
three bottling operations and one concentrate plant in France for
approximately 5 billion French francs (approximately U.S.$890
million based on December 1998 exchange rates). This transaction
is subject to approvals from regulatory authorities of the French
government.
In December 1998, the Company signed an agreement with
Cadbury Schweppes plc to purchase beverage brands in countries
around the world (except in the United States, France and South
Africa) and its concentrate plants in Ireland and Spain for
approximately U.S.$1.85 billion. These brands include Schweppes
and Canada Dry mixers, such as tonic water, club soda and ginger
ale; Crush; Dr Pepper; and certain regional brands. These
transactions are subject to certain conditions including
approvals from regulatory authorities in various countries.
In January 1999, Kita Kyushu Coca-Cola Bottling Company, Ltd.
and Sanyo Coca-Cola Bottling Company, Ltd. announced an agreement
to merge. The merger will lead to the creation of Coca-Cola West
Japan Company, Ltd., a publicly traded company in which the
Company plans to hold approximately a 5% ownership interest. The
Company intends to designate the new company as an "anchor
bottler" of the Coca-Cola system. The transaction is subject to
regulatory review and board and share owner approvals.
In February 1999, the Company announced that it plans to
launch its first bottled water brand in North America during the
first half of 1999. The new product, called Dasani, is a
purified, non-carbonated water enhanced with minerals.
Internationally, the Company markets a bottled water brand,
Bonaqa (in some countries, Bonaqua), in about 35 countries.
SEASONALITY
Soft drink and noncarbonated beverage sales are somewhat
seasonal, with the second and third calendar quarters accounting
for the highest sales volumes in the Northern Hemisphere. The
volume of sales in the beverages business may be affected by
weather conditions.
COMPETITION
The Company competes in the nonalcoholic beverages segment
of the commercial beverages industry. That segment is highly
competitive, consisting of numerous firms. These include firms
that compete, like the Company, in multiple geographical areas as
well as firms that are primarily local in operation. Competitive
products include carbonates, packaged water, juices and nectars,
fruit drinks and dilutables (including syrups and powdered
drinks), sports and energy drinks, coffee and tea, still drinks
and other beverages. Nonalcoholic beverages are sold to
consumers in both ready-to-drink and not-ready-to-drink form.
Most of the Company's beverages business currently is in
soft drinks, as that term is defined in this report. The
soft drink business, which is part of the nonalcoholic beverages
segment, is itself highly competitive. The Company is the
leading seller of soft drink concentrates and syrups in the
world. Numerous firms, however, compete in that business. These
consist of a range of firms, from local to international, that
compete against the Company in numerous geographical areas.
In many parts of the world in which the Company does
business, demand for soft drinks is growing at the expense of
other commercial beverages. Competitive factors with respect to
the Company's business include pricing, advertising and sales
promotion programs, product innovation, increased efficiency in
production techniques, the introduction of new packaging, new
vending and dispensing equipment and brand and trademark
development and protection.
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RAW MATERIALS
The principal raw material used by the Company's business in
the United States is high fructose corn syrup, a form of sugar,
which is available from numerous domestic sources and is
historically subject to fluctuations in its market price. The
principal raw material used by the Company's business outside the
United States is sucrose. The Company has a specialized
sweetener procurement staff and has not experienced any
difficulties in obtaining its requirements. In the United States
and certain other countries, the Company has authorized the use
of high fructose corn syrup in syrup for Coca-Cola and other
Company Trademark Beverages for use in both fountain syrup and
finished beverages in bottles and cans.
Generally, raw materials utilized by the Company in its
business are readily available from numerous sources. However,
aspartame, which is usually used alone or in combination with
either saccharin or acesulfame potassium in the Company's low-
calorie soft drink products, is currently purchased by the
Company primarily from The NutraSweet Kelco Company, a subsidiary
of Monsanto Company, and from Holland Sweetener. Acesulfame
potassium is currently purchased from Nutrinova Nutrition
Specialties & Food Ingredients GmbH.
With regard to juice and juice-drink products, the citrus
industry is subject to the variability of weather conditions, in
particular the possibility of freezes in central Florida, which
may result in higher prices and lower consumer demand for orange
juice throughout the industry. Due to the Company's long-
standing relationship with a supplier of high-quality Brazilian
orange juice concentrate, the supply of juice available that
meets the Company's standards is normally adequate to meet demand.
PATENTS, TRADE SECRETS, TRADEMARKS AND COPYRIGHTS
The Company is the owner of numerous patents, copyrights and
trade secrets, as well as substantial know-how and technology
(herein collectively referred to as "technology"), which relate
to its products and the processes for their production, the
packages used for its products, the design and operation of
various processes and equipment used in its business and certain
quality assurance and financial software. Some of the technology
is licensed to suppliers and other parties. The Company's soft
drink and other beverage formulae are among the important trade
secrets of the Company.
The Company owns numerous trademarks which are very
important to its business. Depending upon the jurisdiction,
trademarks are valid as long as they are in use and/or their
registrations are properly maintained and they have not been
found to have become generic. Registrations of trademarks can
generally be renewed indefinitely as long as the trademarks are
in use. The majority of the Company's trademark license
agreements are included in the Company's bottler agreements. The
Company has registered and licenses the right to use its
trademarks in conjunction with certain merchandise other than
soft drinks.
GOVERNMENTAL REGULATION
The production, distribution and sale in the United States
of many of the Company's products are subject to the Federal Food,
Drug and Cosmetic Act; the Occupational Safety and Health Act;
the Lanham Act; various environmental statutes; and various other
federal, state and local statutes regulating the production,
transportation, sale, safety, advertising, labeling and
ingredients of such products.
A California law requires that any person who exposes
another to a carcinogen or a reproductive toxicant must provide a
warning to that effect. Because the law does not broadly define
quantitative thresholds below which a warning is not required,
virtually all food and beverage manufacturers are confronted with
the possibility of having to provide warnings on their food and
beverage products due to the presence of trace amounts of defined
substances. Regulations implementing the law exempt
manufacturers from providing the required warning if it can be
demonstrated that the defined substances occur naturally in the
product or are present in municipal water used to manufacture the
product. The Company has assessed the impact of the law and its
implementing regulations on its products and has concluded that
none currently requires a warning under the law. The Company
cannot predict whether, or to what extent, food and beverage
industry efforts to minimize the law's impact will succeed; nor
can the Company predict what effect, either in terms of direct
costs or diminished sales, imposition of the law will have.
8
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Bottlers of the Company's beverage products presently offer
non-refillable, recyclable containers in all areas of the United
States and Canada. Some such bottlers also offer refillable
containers, which are also recyclable, although overall U.S.
sales in refillable containers are relatively limited. Measures
have been enacted in various localities and states which require
that a deposit be charged for certain non-refillable beverage
containers. The precise requirements imposed by these measures
vary. Deposit proposals have been introduced in other states and
localities and in Congress, and the Company anticipates that
similar legislation may be introduced in the future at both the
state and the federal level.
All of the Company's facilities in the United States are
subject to federal, state and local environmental laws and
regulations. Compliance with these provisions has not had, and
the Company does not expect such compliance to have, any material
adverse effect upon the Company's capital expenditures, net
income or competitive position.
EMPLOYEES
As of December 31, 1998, the Company employed approximately
28,600 persons, down from approximately 29,500 in 1997 primarily
due to sales of certain Company-owned bottling operations.
Approximately 10,000 of these employees are located in the United
States. The Company, through its divisions and subsidiaries, has
entered into numerous collective bargaining agreements, and the
Company has no reason to believe it will not be able to
renegotiate any such agreements on satisfactory terms. The
Company believes that its relations with its employees are
generally satisfactory.
ITEM 2. PROPERTIES
The Company's worldwide headquarters is located on a 35-acre
office complex in Atlanta, Georgia. The complex includes the
approximately 621,000 square foot headquarters building, the
approximately 870,000 square foot Coca-Cola USA building and the
approximately 264,000 square foot Coca-Cola Plaza building. Also
located in the complex are several other buildings, including the
technical and engineering facilities, learning center and the
Company's Reception Center. The Company leases approximately
278,000 square feet of office space at Ten Peachtree Place,
Atlanta, Georgia, owned by a joint venture of which an indirect
subsidiary of the Company is a partner. The Company also leases
approximately 219,000 square feet of office space at One Atlantic
Center, Atlanta, Georgia. The Company has facilities for
administrative operations, manufacturing, processing, packaging,
packing, storage and warehousing throughout the United States.
The Company owns and operates 33 principal beverage
concentrate and/or syrup manufacturing plants located throughout
the world. The Company currently owns or holds a majority
interest in 25 operations with 32 principal beverage bottling and
canning plants located outside the United States.
The Minute Maid Company, whose business headquarters is
located in Houston, Texas, occupies its own office building,
which contains approximately 330,000 square feet. The Minute
Maid Company operates seven production facilities throughout
the United States and Canada and utilizes a system of contract
packers to produce and distribute certain products in areas where
The Minute Maid Company does not have its own manufacturing
centers or during periods when it experiences shortfalls in
manufacturing capacity.
The Company owns or leases additional real estate throughout
the world, including a wholly owned office and retail building at
711 Fifth Avenue in New York, New York. This real estate is used
by the Company as office space, bottling, warehouse or retail
operations or, in the case of some owned property, is leased to
others.
Management believes that the facilities for the production
of its products are suitable and adequate for the business
conducted therein, that they are being appropriately utilized in
line with past experience and that they have sufficient
production capacity for their present intended purposes. The
extent of utilization of such facilities varies based upon the
seasonal demand for product. While it is not possible to measure
with any degree of certainty or uniformity the productive
capacity and extent of utilization of these facilities,
management believes that additional production can be obtained at
the existing facilities by the addition of personnel and capital
equipment and, in some facilities, the addition of shifts of
personnel or expansion of such facilities. The Company
continuously reviews its anticipated requirements for facilities
and, on the basis of that review, may from time to time acquire
additional facilities and/or dispose of existing facilities.
9
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ITEM 3. LEGAL PROCEEDINGS
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-officio") on the Federal Revenue
Service's behalf to the Taxpayers Council in Brazilia. This
appeal is currently pending.
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 proceeding
specifically discussed above, will not have a material adverse
effect on the financial condition of the Company and its subsidiaries taken as a
whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM X. EXECUTIVE OFFICERS OF THE COMPANY
The following are the executive officers of the Company:
M. Douglas Ivester, 52, is Chief Executive Officer and
Chairman of the Board of Directors of the Company. In January
1985, Mr. Ivester was elected Senior Vice President and Chief
Financial Officer of the Company and served in that capacity
until June 1989, when he was appointed President of the European
Community Group of the International Business Sector. He was
appointed President of Coca-Cola USA in August 1990, and was
appointed President of the North America Business Sector in
September 1991. He served in the latter capacity until April
1993 when he was elected Executive Vice President of the Company
and Principal Operating Officer/North America. In July 1994, he
was elected President and Chief Operating Officer and a Director
of the Company. Mr. Ivester was elected to his current positions
in October 1997.
James E. Chestnut, 48, is Senior Vice President and Chief
Financial Officer of the Company. Mr. Chestnut joined the Company
in 1972 in London. In 1984, he was named Finance Manager for the
Philippine Region in Manila and, in 1987, Manager of
International Treasury Services, Pacific Group, in Atlanta. He
was named Finance Manager for the North Pacific Division of the
International Business Sector in 1989 before being elected Vice
President and Controller of the Company in 1993. He was elected
to his current position in July 1994.
Jack L. Stahl, 46, is Senior Vice President of the Company and
President of the North America Group. In March 1985, Mr. Stahl
was named Manager, Planning and Business Development and was
appointed Assistant Vice President in April 1985. He was elected
Vice President and Controller in February 1988 and served in that
capacity until he was elected Senior Vice President and Chief
Financial Officer in June 1989. He was appointed to his current
position in July 1994.
Douglas N. Daft, 56, is Senior Vice President of the Company
and President of the Middle and Far East Group. In November 1984,
Mr. Daft was appointed President of Coca-Cola Central Pacific Ltd.
In October
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1987, he was appointed Senior Vice President of the Pacific Group
of the International Business Sector. In January 1989, he was
named President of Coca-Cola (Japan) Company, Limited and
President of the North Pacific Division of the International
Business Sector. Effective 1991 he was elected Senior Vice
President of the Company and named President of the Pacific Group
of the International Business Sector. He was appointed to his
current position, effective January 1995.
Carl Ware, 55, is Senior Vice President of the Company and
President of the Africa Group. In 1979, Mr. Ware was appointed
Vice President, Special Markets, Coca-Cola USA. In March 1982,
he was appointed Vice President, Urban Affairs, of the Company.
He was elected Senior Vice President and Director, Corporate
External Affairs in 1986 and became Deputy Group President of the
Northeast Europe/Africa Group of the International Business
Sector in July 1991, a position he held until he was named to his
current position, effective January 1993.
Timothy J. Haas, 52, is Senior Vice President of the Company
and President of the Latin America Group. Mr. Haas was appointed
Vice President, Sales, of Coca-Cola Foods in 1983 and Senior Vice
President, Sales, of Coca-Cola Foods in 1985. In March 1991, he
was appointed President and Chief Executive Officer of Coca-Cola
Foods. In April 1991, he was elected Vice President of the
Company. In 1995, he was named Executive Vice President of the
Latin America Group and served in that capacity until he was
appointed President of the Latin America Group, effective
January 1, 1997. He was elected Senior Vice President in February
1997.
Ralph H. Cooper, 59, is Senior Vice President of the Company
and President and Chief Executive Officer of The Minute Maid
Company, formerly known as Coca-Cola Foods. Mr. Cooper was
appointed Senior Vice President of the Europe and Africa Group in
July 1984 and was named Senior Vice President of Coca-Cola
International and President of the Northwest European Division in
January 1989. He was elected Senior Vice President of the
Company and President of the European Community Group of the
International Soft Drink Business Sector in August 1990. In
January 1995, he was named Executive Vice President of Coca-Cola
Foods and served in that capacity until he was appointed
President and Chief Executive Officer in July 1995.
William P. Casey, 58, is Senior Vice President of the Company
and President of the Greater Europe Group. In 1985, Mr. Casey
was appointed Executive Vice President, Bottler Operations,
Coca-Cola USA. In 1992, he was elected President and Chief
Executive Officer of Coca-Cola Beverages Ltd., a Canadian company
in which the Company held an interest. Mr. Casey was elected to
his current position in February 1998.
Joseph R. Gladden, Jr., 56, is Senior Vice President and
General Counsel of the Company. In October 1985, Mr. Gladden was
elected Vice President. He was named Deputy General Counsel in
October 1987 and served in that capacity until he was elected
Vice President and General Counsel in April 1990. He was elected
Senior Vice President in April 1991.
Charles S. Frenette, 46, is Senior Vice President and Chief
Marketing Officer of the Company. Mr. Frenette joined the
Company in 1974. In 1986, he was appointed Senior Vice President
and General Manager of Coca-Cola USA Fountain. In 1992, he was
appointed Executive Vice President, Operations, of Coca-Cola USA.
He was elected Vice President of the Company in 1995 and was
appointed President of the South Africa Division in 1996. He was
elected Senior Vice President in April 1998 and became Chief
Marketing Officer in May 1998.
Anton Amon, 55, is Senior Vice President of the Company and
Manager of the Company's Product Integrity Division. Dr. Amon
was named Senior Vice President of Coca-Cola USA in 1983. In
1988, he joined Coca-Cola Enterprises as Vice President,
Operations. In September 1989, Dr. Amon returned to the Company
as director, Corporate Quality Assurance. He was elected Vice
President in October 1989. He became Manager, Product Integrity
Division, in January 1992 and was elected to his current position
in July 1992.
George Gourlay, 57, is Senior Vice President of the Company
and Manager of the Technical Operations Division. Mr. Gourlay
was named Manager, Corporate Concentrate Operations in 1986,
named Assistant Vice
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President in 1988, and was elected Vice President in 1989. Mr.
Gourlay became head of the Technical Operations Division in
January 1992 and was elected to his current position in July 1992.
Michael W. Walters, 52, is Vice President of the Company and
Vice President of Human Resources. Mr. Walters joined the
Company in 1972. In 1985, he was named Assistant Vice President,
Compensation and Benefits. Mr. Walters was elected to his
current position in April 1990.
All executive officers serve at the pleasure of the Board of
Directors.
There is no family relationship between any of the executive
officers of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHARE-OWNER MATTERS
"Financial Review Incorporating Management's Discussion and
Analysis" on pages 27 through 37, "Selected Financial Data" for
the years 1997 and 1998 on page 38, "Stock Prices" on page 61 and
"Common Stock", "Stock Exchanges" and "Dividends" under the
heading "Share-Owner Information" on page 64 of the Company's
Annual Report to Share Owners for the year ended December 31,
1998 (the "Company's 1998 Annual Report to Share Owners"), are
incorporated herein by reference.
During the fiscal year ended December 31, 1998, no equity
securities of the Company were sold by the Company which were not
registered under the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" for the years 1994 through 1998,
on pages 38 and 39 of the Company's 1998 Annual Report to Share
Owners, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Financial Review Incorporating Management's Discussion and
Analysis" on pages 27 through 37 of the Company's 1998 Annual
Report to Share Owners, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
"Financial Risk Management" on page 30 of the Company's 1998
Annual Report to Share Owners, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the
Company and its subsidiaries, included in the Company's 1998
Annual Report to Share Owners, are incorporated herein by
reference:
Consolidated Balance Sheets -- December 31, 1998 and 1997.
Consolidated Statements of Income -- Years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Share-Owners' Equity -- Years
ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
12
<PAGE>
Report of Independent Auditors.
"Quarterly Data (Unaudited)" on page 61 of the Company's
1998 Annual Report to Share Owners, is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information on Directors of the Company, the subsections
under the heading "Election of Directors" entitled "Board of
Directors" and "Recommendation of the Board of Directors
Concerning the Election of Directors" on pages 2 through 5 and
under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 7 of the Company's Proxy Statement for the
Annual Meeting of Share Owners to be held April 21, 1999 (the
"Company's 1999 Proxy Statement"), is incorporated herein by
reference. See Item X in Part I hereof for information regarding
executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The subsection under the heading "Election of Directors"
entitled "Committees of the Board of Directors; Meetings and
Compensation of Directors" on pages 8 through 10 and the portion
of the section entitled "Executive Compensation" set forth on
pages 11 through 15 and under the subsection "Compensation
Committee Interlocks and Insider Participation" on page 21 of the
Company's 1999 Proxy Statement, are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The subsections under the heading "Election of Directors"
entitled "Ownership of Equity Securities in the Company" on pages
6 and 7 and "Principal Share Owners" on page 8, and the
subsection under the heading "Certain Investee Companies"
entitled "Ownership of Securities in the Investee Companies" on
page 22 of the Company's 1999 Proxy Statement, are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsections under the heading "Election of Directors"
entitled "Committees of the Board of Directors; Meetings and
Compensation of Directors" and "Certain Transactions" on pages 8
through 10, the subsection under the heading "Executive
Compensation" entitled "Compensation Committee Interlocks and
Insider Participation" on page 21 and the section under the
heading "Certain Investee Companies" on pages 21 and 22 of the
Company's 1999 Proxy Statement, are incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of The
Coca-Cola Company and subsidiaries, included in the
Company's 1998 Annual Report to Share Owners, are
incorporated by reference in Part II, Item 8:
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Consolidated Balance Sheets -- December 31, 1998 and 1997.
Consolidated Statements of Income -- Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Share-Owners' Equity -- Years
ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. The following consolidated financial statement schedule
of The Coca-Cola Company and subsidiaries is included in
Item 14(d):
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
3. Exhibits
EXHIBIT NO.
- ----------
2.1 Amended and Restated Purchase Agreement, dated as of
December 11, 1998, among the Company, Atlantic Industries
and Cadbury Schweppes plc.
3.1 Certificate of Incorporation of the Company, including
Amendment of Certificate of Incorporation, effective May
1, 1996 -- incorporated herein by reference to Exhibit 3 of
the Company's Form 10-Q Quarterly Report for the quarter
ended March 31, 1996. (With regard to applicable cross
references in this report, the Company's Current,
Quarterly and Annual Reports are filed with the Securities
and Exchange Commission under File No. 1-2217.)
3.2 By-Laws of the Company, as amended and restated through
December 17, 1997 -- incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10-K Annual Report for
the year ended December 31, 1997.
4.1 The Company agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of any
instrument defining the rights of holders of long-term
debt of the Company and all of its consolidated
subsidiaries and unconsolidated subsidiaries for which
financial statements are required to be filed with the
Securities and Exchange Commission.
10.1 The Key Executive Retirement Plan of the Company, as
amended -- incorporated herein by reference to Exhibit 10.2
of the Company's Form 10-K Annual Report for the year
ended December 31, 1995.*
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EXHIBIT NO.
- -----------
10.2 Supplemental Disability Plan of the Company, as amended
-- incorporated herein by reference to Exhibit 10.3 of
the Company's Form 10-K Annual Report for the year ended
December 31, 1991.*
10.3 Annual Performance Incentive Plan of the Company, as
amended -- incorporated herein by reference to Exhibit 10.4
of the Company's Form 10-K Annual Report for the year
ended December 31, 1995.*
10.4 1987 Stock Option Plan of the Company, as amended through
October 15, 1998 -- incorporated herein by reference to
Exhibit 10.1 of the Company's Form 10-Q Quarterly Report
for the quarter ended September 30, 1998.*
10.5 1991 Stock Option Plan of the Company, as amended through
October 15, 1998 -- incorporated herein by reference to
Exhibit 10.2 of the Company's Form 10-Q Quarterly Report
for the quarter ended September 30, 1998.*
10.6 1983 Restricted Stock Award Plan of the Company, as
amended -- incorporated herein by reference to Exhibit
10.11 of the Company's Form 10-K Annual Report for the
year ended December 31, 1991.*
10.7.1 1989 Restricted Stock Award Plan of the Company, as
amended through October 17, 1996 -- incorporated herein by
reference to Exhibit 10.11.1 of the Company's Form 10-K
Annual Report for the year ended December 31, 1996.*
10.7.2 Resolutions, dated October 17, 1996, adopted by the
Restricted Stock Subcommittee of the Compensation
Committee of the Board of Directors of the Company --
incorporated herein by reference to Exhibit 10.11.2 of
the Company's Form 10-K Annual Report for the year ended
December 31, 1996.*
10.8.1 Compensation Deferral & Investment Program of the Company,
as amended, including Amendment Number Four dated
November 28, 1995 -- incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K Annual Report
for the year ended December 31, 1995.*
10.8.2 Amendment Number 5 to the Compensation Deferral &
Investment Program of the Company, effective as of
January 1, 1998 -- incorporated herein by reference to
Exhibit 10.8.2 of the Company's Form 10-K Annual Report
for the year ended December 31, 1997.*
10.9 Special Medical Insurance Plan of the Company, as amended
-- incorporated herein by reference to Exhibit 10.16 of
the Company's Form 10-K Annual Report for the year ended
December 31, 1995.*
10.10.1 Supplemental Benefit Plan of the Company, as amended --
incorporated herein by reference to Exhibit 10.17 of the
Company's Form 10-K Annual Report for the year ended
December 31, 1993.*
10.10.2 Amendment Number Five to the Supplemental Benefit Plan of
the Company -- incorporated herein by reference to Exhibit
10.17.2 of the Company's Form 10-K Annual Report for the
year ended December 31, 1996.*
10.11 Retirement Plan for the Board of Directors of the Company,
as amended -- incorporated herein by reference to Exhibit
10.22 of the Company's Form 10-K Annual Report for the
year ended December 31, 1991.*
10.12 Deferred Compensation Plan for Non-Employee Directors of
the Company, adopted as of October 16, 1997 --
incorporated herein by reference to Exhibit 10.12 of the
Company's Form 10-K Annual Report for the year ended
December 31, 1997.*
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<PAGE>
EXHIBIT NO.
- -----------
10.13 Deferred Compensation Agreement for Officers or Key
Executives of the Company -- incorporated herein by
reference to Exhibit 10.20 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.14 Long Term Performance Incentive Plan of the Company,
as amended February 16, 1994 -- incorporated herein by
reference to Exhibit 10.21 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.15 Executive Performance Incentive Plan of the Company,
as amended -- incorporated herein by reference to Exhibit
10.22 of the Company's Form 10-K Annual Report for the
year ended December 31, 1994.*
10.16 Form of United States Master Bottle Contract, as amended,
between the Company and Coca-Cola Enterprises Inc.
("Coca-Cola Enterprises") or its subsidiaries --
incorporated herein by reference to Exhibit 10.24 of
Coca-Cola Enterprises' Annual Report on Form 10-K for the
fiscal year ended December 30, 1988 (File No. 01-09300).
12.1 Computation of Ratios of Earnings to Fixed Charges for
the years ended December 31, 1998, 1997, 1996, 1995 and
1994.
13.1 Portions of the Company's 1998 Annual Report to Share
Owners expressly incorporated by reference herein:
Pages 27 through 59, 61, 64 and 65 (definitions of
"Dividend Payout Ratio," "Economic Profit," "Free Cash
Flow," "Net Debt and Net Capital," "Return on Capital,"
"Return on Common Equity," "Total Capital" and "Total
Market Value of Common Stock").
21.1 List of subsidiaries of the Company as of December 31,
1998.
23.1 Consent of Independent Auditors.
24.1 Powers of Attorney of Officers and Directors signing this
report.
27.1 Restated Financial Data Schedule for the year ended
December 31, 1996, submitted to the Securities and
Exchange Commission in electronic format.
27.2 Restated Financial Data Schedule for the year ended
December 31, 1997, submitted to the Securities and
Exchange Commission in electronic format.
27.3 Financial Data Schedule for the year ended December 31,
1998, submitted to the Securities and Exchange Commission
in electronic format.
99.1 Cautionary Statement Relative to Forward-Looking
Statements.
- -------------------
* Management contracts and compensatory plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of this
report.
16
<PAGE>
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on December 15, 1998.
Item 5. Other Events -- On December 11, 1998, the Company and
Cadbury Schweppes plc announced that they signed an
agreement for the Company to acquire beverage brands of
Cadbury Schweppes in countries around the world (except
in the United States, France and South Africa), plus
concentrate plants in Ireland and Spain, for approximately
$1.85 billion.
On December 11, 1998, the Company also announced its
expectations for fourth-quarter worldwide volume and
earnings trends.
Item 7. Financial Statements and Exhibits - Exhibits 99.1
and 99.2: Press releases of the Company issued
December 11, 1998.
(c) Exhibits -- The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedule -- The response to this portion
of Item 14 is submitted as a separate section of this report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ M. DOUGLAS IVESTER
----------------------
M. DOUGLAS IVESTER
Chairman, Board of Directors,
Chief Executive Officer
and a Director
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ M. DOUGLAS IVESTER *
- ---------------------- ----------------------
M. DOUGLAS IVESTER CATHLEEN P. BLACK
Chairman, Board of Directors, Director
Chief Executive
Officer and a Director
(Principal Executive Officer)
March 29, 1999 March 29, 1999
/s/ JAMES E. CHESTNUT *
- ---------------------- ----------------------
JAMES E. CHESTNUT WARREN E. BUFFETT
Senior Vice President and Director
Chief Financial Officer
(Principal Financial Officer)
March 29, 1999 March 29, 1999
/s/ GARY P. FAYARD *
- ---------------------- ----------------------
GARY P. FAYARD SUSAN B. KING
Vice President and Controller Director
(Principal Accounting Officer)
March 29, 1999 March 29, 1999
* *
- ---------------------- ----------------------
HERBERT A. ALLEN DONALD F. MCHENRY
Director Director
March 29, 1999 March 29, 1999
* *
- ---------------------- ----------------------
RONALD W. ALLEN SAM NUNN
Director Director
March 29, 1999 March 29, 1999
18
<PAGE>
* *
- ---------------------- ----------------------
PAUL F. OREFFICE PETER V. UEBERROTH
Director Director
March 29, 1999 March 29, 1999
* *
- ---------------------- ----------------------
JAMES D. ROBINSON III JAMES B. WILLIAMS
Director Director
March 29, 1999 March 29, 1999
* By: /s/ CAROL C. HAYES
------------------
CAROL C. HAYES
Attorney-in-fact
March 29, 1999
19
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1998
THE COCA-COLA COMPANY AND SUBSIDIARIES
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Year ended December 31, 1998
(in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------
Additions
------------------
(1) (2)
Balance at Charged to Charged Balance
Beginning of Costs and to Other Deductions at End
Description Period Expenses Accounts (Note 1) of Period
- ----------- ------------ ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSETS TO WHICH THEY
APPLY
Allowance for losses on:
Trade accounts receivable.. $ 23 $ 3 $ - $ 16 $ 10
Miscellaneous investments
and other assets........... 301 76 - 102 275
Deferred tax assets........ 21 - - 3 18
---- --- --- ---- ----
$ 345 $ 79 $ - $ 121 $ 303
==== === === ==== ====
</TABLE>
- --------------------------
Note 1 - The amounts shown in Column D consist of the following:
<TABLE>
<CAPTION>
Trade Miscellaneous Deferred
Accounts Investments Tax
Receivable and Other Assets Assets Total
---------- ---------------- -------- -----
<S> <C> <C> <C> <C>
Charge off of uncollectible accounts.. $ 6 $ 23 $ - $ 29
Write-off of impaired assets.......... - 70 - 70
Other transactions.................... 10 9 3 22
--- ---- --- ----
$ 16 $ 102 $ 3 $ 121
=== ==== === ====
</TABLE>
F-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Year ended December 31, 1997
(in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------
Additions
-------------------
(1) (2)
Balance at Charged to Charged Balance
Beginning of Costs and to Other Deductions at End
Description Period Expenses Accounts (Note 1) of Period
- ----------- ------------ ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSETS TO WHICH THEY
APPLY
Allowance for losses on:
Trade accounts receivable.. $ 30 $ 4 $ - $ 11 $ 23
Miscellaneous investments
and other assets........... 339 41 - 79 301
Deferred tax assets........ 18 3 - - 21
---- --- --- --- ----
$ 387 $ 48 $ - $ 90 $ 345
==== === === === ====
</TABLE>
- --------------------------
Note 1 - The amounts shown in Column D consist of the following:
<TABLE>
<CAPTION>
Trade Miscellaneous Deferred
Accounts Investments Tax
Receivable and Other Assets Assets Total
---------- ---------------- -------- -----
<S> <C> <C> <C> <C>
Charge off of uncollectible accounts.. $ 4 $ - $ - $ 4
Write-off of impaired assets.......... - 65 - 65
Other transactions.................... 7 14 - 21
--- --- --- ---
$ 11 $ 79 $ - $ 90
=== === === ===
</TABLE>
F-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Year ended December 31, 1996
(in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------
Additions
-------------------
(1) (2)
Balance at Charged to Charged Balance
Beginning of Costs and to Other Deductions at End
Description Period Expenses Accounts (Note 1) of Period
- ----------- ------------ ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSETS TO WHICH THEY
APPLY
Allowance for losses on:
Trade accounts receivable.. $ 34 $ 9 $ - $ 13 $ 30
Miscellaneous investments
and other assets........... 55 287 - 3 339
Deferred tax assets........ 42 - - 24 18
---- ---- --- --- ----
$ 131 $ 296 $ - $ 40 $ 387
==== ==== === === ====
</TABLE>
- --------------------------
Note 1 - The amounts shown in Column D consist of the following:
<TABLE>
<CAPTION>
Trade Miscellaneous Deferred
Accounts Investments Tax
Receivable and Other Assets Assets Total
---------- ---------------- -------- -----
<S> <C> <C> <C> <C>
Charge off of uncollectible accounts.. $ 6 $ - $ - $ 6
Foreign exchange adjustments.......... 1 - - 1
Other transactions.................... 6 3 24 33
--- --- --- ---
$ 13 $ 3 $ 24 $ 40
=== === === ===
</TABLE>
F-3
<PAGE>
EXHIBIT INDEX
DESCRIPTION
EXHIBIT NO.
- -----------
2.1 Amended and Restated Purchase Agreement, dated as of
December 11, 1998, among the Company, Atlantic
Industries and Cadbury Schweppes plc.
3.1 Certificate of Incorporation of the Company, including
Amendment of Certificate of Incorporation, effective
May 1, 1996 -- incorporated herein by reference to
Exhibit 3 of the Company's Form 10-Q Quarterly Report
for the quarter ended March 31, 1996. (With regard to
applicable cross references in this report, the
Company's Current, Quarterly and Annual Reports are
filed with the Securities and Exchange Commission under
File No. 1-2217.)
3.2 By-Laws of the Company, as amended and restated through
December 17, 1997 -- incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10-K Annual Report
for the year ended December 31, 1997.
4.1 The Company agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of any
instrument defining the rights of holders of long-term
debt of the Company and all of its consolidated
subsidiaries and unconsolidated subsidiaries for which
financial statements are required to be filed with the
Securities and Exchange Commission.
10.1 The Key Executive Retirement Plan of the Company, as
amended -- incorporated herein by reference to Exhibit
10.2 of the Company's Form 10-K Annual Report for the
year ended December 31, 1995.*
10.2 Supplemental Disability Plan of the Company, as amended
-- incorporated herein by reference to Exhibit 10.3 of
the Company's Form 10-K Annual Report for the year ended
December 31, 1991.*
10.3 Annual Performance Incentive Plan of the Company, as
amended -- incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-K Annual Report for the
year ended December 31, 1995.*
10.4 1987 Stock Option Plan of the Company, as amended
through October 15, 1998 -- incorporated herein by
reference to Exhibit 10.1 of the Company's Form 10-Q
Quarterly Report for the quarter ended September 30,
1998.*
<PAGE>
EXHIBIT NO.
- -----------
10.5 1991 Stock Option Plan of the Company, as amended
through October 15, 1998 -- incorporated herein by
reference to Exhibit 10.2 of the Company's Form 10-Q
Quarterly Report for the quarter ended September 30,
1998.*
10.6 1983 Restricted Stock Award Plan of the Company, as
amended -- incorporated herein by reference to Exhibit
10.11 of the Company's Form 10-K Annual Report for the
year ended December 31, 1991.*
10.7.1 1989 Restricted Stock Award Plan of the Company, as
amended through October 17, 1996 -- incorporated herein
by reference to Exhibit 10.11.1 of the Company's
Form 10-K Annual Report for the year ended December 31,
1996.*
10.7.2 Resolutions, dated October 17, 1996, adopted by the
Restricted Stock Subcommittee of the Compensation
Committee of the Board of Directors of the Company --
incorporated herein by reference to Exhibit 10.11.2
of the Company's Form 10-K Annual Report for the year
ended December 31, 1996.*
10.8.1 Compensation Deferral & Investment Program of the
Company, as amended, including Amendment Number Four
dated November 28, 1995 -- incorporated herein by
reference to Exhibit 10.13 of the Company's Form 10-K
Annual Report for the year ended December 31, 1995.*
10.8.2 Amendment Number 5 to the Compensation Deferral &
Investment Program of the Company, effective as of
January 1, 1998 -- incorporated herein by reference to
Exhibit 10.8.2 of the Company's Form 10-K Annual Report
for the year ended December 31, 1997.*
10.9 Special Medical Insurance Plan of the Company, as
amended -- incorporated herein by reference to Exhibit
10.16 of the Company's Form 10-K Annual Report for the
year ended December 31, 1995.*
10.10.1 Supplemental Benefit Plan of the Company, as amended --
incorporated herein by reference to Exhibit 10.17 of
the Company's Form 10-K Annual Report for the year
ended December 31, 1993.*
10.10.2 Amendment Number Five to the Supplemental Benefit Plan
of the Company -- incorporated herein by reference to
Exhibit 10.17.2 of the Company's Form 10-K Annual Report
for the year ended December 31, 1996.*
10.11 Retirement Plan for the Board of Directors of the Company,
as amended -- incorporated herein by reference to Exhibit
10.22 of the Company's Form 10-K Annual Report for the
year ended December 31, 1991.*
-2-
<PAGE>
EXHIBIT NO.
- -----------
10.12 Deferred Compensation Plan for Non-Employee Directors
of the Company, adopted as of October 16, 1997 --
incorporated herein by reference to Exhibit 10.12 of
the Company's Form 10-K Annual Report for the year
ended December 31, 1997.*
10.13 Deferred Compensation Agreement for Officers or Key
Executives of the Company -- incorporated herein by
reference to Exhibit 10.20 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.14 Long Term Performance Incentive Plan of the Company,
as amended February 16, 1994 -- incorporated herein by
reference to Exhibit 10.21 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.15 Executive Performance Incentive Plan of the Company,
as amended -- incorporated herein by reference to
Exhibit 10.22 of the Company's Form 10-K Annual
Report for the year ended December 31, 1994.*
10.16 Form of United States Master Bottle Contract, as
amended, between the Company and Coca-Cola Enterprises
Inc. ("Coca-Cola Enterprises") or its subsidiaries --
incorporated herein by reference to Exhibit 10.24 of
Coca-Cola Enterprises' Annual Report on Form 10-K for
the fiscal year ended December 30, 1988
(File No. 01-09300).
12.1 Computation of Ratios of Earnings to Fixed Charges
for the years ended December 31, 1998, 1997, 1996,
1995 and 1994.
13.1 Portions of the Company's 1998 Annual Report to Share
Owners expressly incorporated by reference herein:
Pages 27 through 59, 61, 64 and 65 (definitions of
"Dividend Payout Ratio," "Economic Profit," "Free
Cash Flow," "Net Debt and Net Capital," "Return on
Capital," "Return on Common Equity," "Total Capital"
and "Total Market Value of Common Stock").
21.1 List of subsidiaries of the Company as of December 31,
1998.
23.1 Consent of Independent Auditors.
24.1 Powers of Attorney of Officers and Directors signing
this report.
27.1 Restated Financial Data Schedule for the year ended
December 31, 1996, submitted to the Securities and
Exchange Commission in electronic format.
27.2 Restated Financial Data Schedule for the year ended
December 31, 1997, submitted to the Securities and
Exchange Commission in electronic format.
-3-
<PAGE>
EXHIBIT NO.
- -----------
27.3 Financial Data Schedule for the year ended December
31, 1998, submitted to the Securities and Exchange
Commission in electronic format.
99.1 Cautionary Statement Relative to Forward-Looking
Statements.
- -------------------
* Management contracts and compensatory plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of
this report.
-4-
Exhibit 2.1
______________________________________________________
AMENDED AND RESTATED PURCHASE AGREEMENT
among
THE COCA-COLA COMPANY,
ATLANTIC INDUSTRIES
and
CADBURY SCHWEPPES PLC
______________________________________________________
___________________________
Dated as of December 11, 1998
___________________________
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . 1
1.01 Purchase and Sale . . . . . . . . . . . . . . . . . . 1
1.02 Purchase Price . . . . . . . . . . . . . . . . . . . 6
1.03 Payments at Closings . . . . . . . . . . . . . . . . 8
1.04 Closing Date Financial Statements and
Certificate of Adjustments . . . . . . . . . . . . . 8
1.05 Post-Closing Adjustments . . . . . . . . . . . . . 10
1.06 Assumed Liabilities; Excluded Liabilities . . . . . 10
1.07 Method of Payment. . . . . . . . . . . . . . . . . . 11
1.08 Conveyance Documents . . . . . . . . . . . . . . . . 11
ARTICLE 2 CS REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 11
2.01 Organization, Etc. . . . . . . . . . . . . . . . . . 12
2.02 Authorization; Enforceability. . . . . . . . . . . . 12
2.03 No Conflict. . . . . . . . . . . . . . . . . . . . . 13
2.04 Ownership of the Shares. . . . . . . . . . . . . . . 14
2.05 Authorized and Outstanding Stock . . . . . . . . . . 14
2.06 Transfer Claims. . . . . . . . . . . . . . . . . . . 15
2.07 Financial Statements . . . . . . . . . . . . . . . . 15
2.08 No Undisclosed Liabilities . . . . . . . . . . . . . 17
2.09 No Violation of Law; Licenses and Permits. . . . . . 17
2.10 Property . . . . . . . . . . . . . . . . . . . . . . 18
2.11 Leases . . . . . . . . . . . . . . . . . . . . . . . 19
2.12 Indebtedness for Borrowed Money. . . . . . . . . . . 19
2.13 Intellectual Property. . . . . . . . . . . . . . . . 19
2.14 Litigation and Claims. . . . . . . . . . . . . . . . 21
2.15 Employee Contracts, Union Agreements
and Benefit Plans . . . . . . . . . . . . . . . . . 22
2.16 Labor Relations . . . . . . . . . . . . . . . . . . 22
2.17 Environmental Protection . . . . . . . . . . . . . . 23
2.18 Insurance Policies . . . . . . . . . . . . . . . . . 24
2.19 Major Suppliers and Customers. . . . . . . . . . . . 24
2.20 Contracts and Commitments. . . . . . . . . . . . . . 24
2.21 Agreements in Full Force and Effect. . . . . . . . . 26
2.22 Absence of Certain Changes and Events. . . . . . . . 26
2.23 Tax Matters. . . . . . . . . . . . . . . . . . . . . 28
2.24 Accounts Receivable. . . . . . . . . . . . . . . . . 29
2.25 Product and Service Warranties . . . . . . . . . . . 29
2.26 Brokers' and Finders' Fees . . . . . . . . . . . . . 29
2.27 Transactions With Affiliates . . . . . . . . . . . . 29
2.28 Year 2000. . . . . . . . . . . . . . . . . . . . . . 30
-i-
<PAGE>
2.29 E.U. and U.S. Presence . . . . . . . . . . . . . . . 31
ARTICLE 3 KO REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 31
3.01 Corporate Organization . . . . . . . . . . . . . . . 31
3.02 Authorization, Etc . . . . . . . . . . . . . . . . . 31
3.03 No Conflict. . . . . . . . . . . . . . . . . . . . . 32
3.04 Brokers and Finders. . . . . . . . . . . . . . . . . 32
3.05 Litigation . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 4 COVENANTS OF THE CS PARTIES. . . . . . . . . . . . . 32
4.01 Pre-Closing Operations . . . . . . . . . . . . . . . 32
4.02 Access . . . . . . . . . . . . . . . . . . . . . . . 34
4.03 Financial Statements . . . . . . . . . . . . . . . . 34
4.04 Acquisition Proposals. . . . . . . . . . . . . . . . 34
4.05 Transfer Taxes . . . . . . . . . . . . . . . . . . . 35
4.06 Consultation . . . . . . . . . . . . . . . . . . . . 35
4.07 Transition Support . . . . . . . . . . . . . . . . . 36
4.08 Releases . . . . . . . . . . . . . . . . . . . . . . 36
4.09 Delivery of Updated Schedules and Other Documents. . 36
4.11 Accounts Receivable. . . . . . . . . . . . . . . . . 37
4.12 Collective Bargaining Agreements . . . . . . . . . . 37
4.13 Insurance Policies . . . . . . . . . . . . . . . . . 37
4.14 Transfer of DPBL Shares. . . . . . . . . . . . . . . 38
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . 38
5.01 Approvals of Third Parties; Satisfaction of
Conditions to Closing . . . . . . . . . . . . . . . 38
5.02 Confidentiality. . . . . . . . . . . . . . . . . . . 38
5.03 Trade Secrets, Confidential Information and
Noncompetition Covenants . . . . . . . . . . . . . . 40
5.04 Tax Matters. . . . . . . . . . . . . . . . . . . . . 43
5.05 Other Matters. . . . . . . . . . . . . . . . . . . . 45
5.06 Employee Matters . . . . . . . . . . . . . . . . . . 46
5.07 Bottling Rights. . . . . . . . . . . . . . . . . . . 47
5.08 No Sales to Certain Competitors. . . . . . . . . . . 48
5.09 Right of First Negotiation . . . . . . . . . . . . . 49
5.10 Certain Brand Acquisitions . . . . . . . . . . . . . 49
5.11 Australia. . . . . . . . . . . . . . . . . . . . . . 49
5.12 South Africa . . . . . . . . . . . . . . . . . . . . 50
5.13 Rose's Beverages . . . . . . . . . . . . . . . . . . 50
5.14 Mexican COBO-Tecate Facility . . . . . . . . . . . . 50
5.15 Germany. . . . . . . . . . . . . . . . . . . . . . . 50
-ii-
<PAGE>
5.16 Syria. . . . . . . . . . . . . . . . . . . . . . . . 51
5.17 Zimbabwe . . . . . . . . . . . . . . . . . . . . . . 51
5.18 India. . . . . . . . . . . . . . . . . . . . . . . . 52
5.19 Chinese Joint Venture. . . . . . . . . . . . . . . . 52
5.20 Support Agreements; Concentrate Agreement. . . . . . 52
5.21 Facilitation Payments. . . . . . . . . . . . . . . . 53
5.22 Year 2000 Compliance . . . . . . . . . . . . . . . . 53
5.23 Environmental Compliance . . . . . . . . . . . . . . 54
5.24 Debt . . . . . . . . . . . . . . . . . . . . . . . . 54
5.25 Non-Assignable Contracts, Licenses, etc. . . . . . . 54
5.26 Replacement of CS Guarantees . . . . . . . . . . . . 55
5.27 Schweppes EEIG . . . . . . . . . . . . . . . . . . . 55
5.28 Invoicing of CC&SB for Certain Matters . . . . . . . 55
5.29 Certain Furniture and Equipment. . . . . . . . . . . 55
5.30 Trademark Cooperation . . . . . . . . . . . . . . . 55
5.31 Acquired Receivables . . . . . . . . . . . . . . . . 55
ARTICLE 6 CONDITIONS TO CS'S OBLIGATIONS . . . . . . . . . . . 56
6.01 Conditions to the Threshold Closing. . . . . . . . . 56
6.02 Conditions to Each Subsequent Closing. . . . . . . . 57
6.03 CS Country Conditions. . . . . . . . . . . . . . . . 58
ARTICLE 7 CONDITIONS TO KO'S OBLIGATIONS . . . . . . . . . . . 58
7.01 Conditions to the Threshold Closing. . . . . . . . . 58
7.02 Conditions to the Subsequent Closing . . . . . . . . 59
7.03 KO Country Conditions. . . . . . . . . . . . . . . . 61
7.04 Resolution of Certain Disputes . . . . . . . . . . . 62
ARTICLE 8 CLOSINGS . . . . . . . . . . . . . . . . . . . . . . 62
8.01 Threshold Closing Date . . . . . . . . . . . . . . . 62
8.02 Subsequent Closing Dates . . . . . . . . . . . . . . 62
8.03 Closing Requirements . . . . . . . . . . . . . . . . 62
ARTICLE 9 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 63
9.01 KO Remedies. . . . . . . . . . . . . . . . . . . . . 63
9.02 CS Remedies. . . . . . . . . . . . . . . . . . . . . 67
9.03 Survival of Representation and Warranties. . . . . . 68
9.04 Notice of Claim. . . . . . . . . . . . . . . . . . . 69
9.05 Defense. . . . . . . . . . . . . . . . . . . . . . . 69
-iii-
<PAGE>
ARTICLE 10 TERMINATION PRIOR TO CLOSING. . . . . . . . . . . . 70
10.01 Termination . . . . . . . . . . . . . . . . . . . . 70
10.02 Termination of Obligations . . . . . . . . . . . . . 71
ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 71
11.01 Entire Agreement . . . . . . . . . . . . . . . . . . 71
11.02 Parties Bound by Agreement; Successors
and Assigns . . . . . . . . . . . . . . . . . . . . 71
11.03 Counterparts . . . . . . . . . . . . . . . . . . . . 72
11.04 Amendment, Modification and Waiver . . . . . . . . . 72
11.05 Expenses . . . . . . . . . . . . . . . . . . . . . . 72
11.06 Notices . . . . . . . . . . . . . . . . . . . . . . 72
11.07 Further Cooperation . . . . . . . . . . . . . . . . 72
11.08 Governing Law; Construction . . . . . . . . . . . . 72
11.09 Arbitration . . . . . . . . . . . . . . . . . . . . 73
11.10 Public Announcements . . . . . . . . . . . . . . . . 74
11.11 No Third-Party Beneficiaries . . . . . . . . . . . . 74
11.12 Specific Performance . . . . . . . . . . . . . . . . 74
11.13 Severability . . . . . . . . . . . . . . . . . . . . 74
11.14 Definitions and Rules and Construction . . . . . . . 74
-iv-
<PAGE>
AMENDED AND RESTATED PURCHASE AGREEMENT
THIS AMENDED AND RESTATED PURCHASE AGREEMENT (this
"Agreement"), dated as of December 11, 1998, among THE COCA-COLA
COMPANY, a corporation organized and existing under the laws of
Delaware, U.S.A. ("KO"), ATLANTIC INDUSTRIES, a company organized
and existing under the laws of the Cayman Islands ("AI"), and
CADBURY SCHWEPPES PLC, a company organized and existing under the
laws of England and Wales ("CS");
W I T N E S S E T H:
WHEREAS, CS desires to sell, and to cause the other CS
Parties (as defined in Section 1.01(a)) to sell, to KO or the KO
Buyers (as defined in Section 1.01(a)), and KO desires to buy, or
to cause the KO Buyers to buy, from the CS Parties, the Assets
(as defined in Section 1.01(a)), subject to the assumption by the
KO Parties of certain liabilities as specified herein;
WHEREAS, the parties desire to enter into certain other
transactions and agreements in connection with the foregoing
purchases and sales, all as further described in this Agreement;
WHEREAS, the parties believe that the transactions
contemplated by this Agreement will create mutual benefit by
enhancing the competitiveness and growth of KO- and CS-branded
beverages and the entire commercial beverages market worldwide;
and
WHEREAS, the respective Board of Directors of each party to
this Agreement has authorized such party to execute, deliver and
perform this Agreement;
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements, and upon
the terms and subject to the conditions hereinafter set forth,
the parties do hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.01 PURCHASE AND SALE.
(a) Upon the terms and subject to the conditions of
this Agreement, CS agrees to, and agrees to cause the
subsidiaries of CS which own any of the assets set forth below,
substantially all of which subsidiaries are set forth on Schedule
1.01A (together with CS, the "CS Parties") to, sell at the
Applicable Closing (as defined in Section 1.01(e)), and KO agrees
to buy, or to cause AI or certain other wholly-owned (other than
for nominee shares, director qualifying shares and similar
shares) subsidiaries of KO to be determined by KO (collectively
with AI, the "KO Buyers," and together with KO, the "KO Parties")
to buy, from the CS Parties at the Applicable Closing:
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(i) good, valid and marketable right, title and
interest, free and clear of any Security Interests (as defined
in Section 2.04(a)), in and to all of the issued and outstanding
shares of capital stock (the "Shares") of the company set forth
on Schedule 1.01(a)(i) (the "Purchased Company");
(ii) all right, title and interest of CS and its
Affiliates (as defined below) in and to all of the Owned
Trademarks (as defined in Section 2.13(a)) to the extent not
otherwise acquired pursuant to Section 1.01(a)(i) above (the
"Directly Acquired Trademarks"), including the goodwill
associated with the Directly Acquired Trademarks and all
applications and common law rights related thereto and all rights
to sue and recover from third parties damages for past, present
and future infringements or dilution of or any other damages or
injury to the Directly Acquired Trademarks (the "Related Rights");
(iii) all right, title and interest of CS and its
Affiliates in and to all other assets not included in Sections
1.01(a)(i) and (ii) above, wherever located, used by the CS
Parties in connection with and primarily related to the beverages
business of CS and its Affiliates (outside of the United States,
South Africa, Australia and France) or otherwise used primarily
in connection with the Owned Trademarks, including, without
limitation, all tangible and intangible assets owned by the CS
Parties and currently employed for the production of concentrates
and syrups (including concentrate/juice production plants in Athy,
Ireland (to the extent not otherwise acquired pursuant to Section
1.01(a)(i) above) and Carcagente, Spain and all related assets
and equipment, including billing functions, accounting and
information management functions and other support services (the
concentrate/juice production plants in Athy, Ireland (together
with all related assets and equipment, the "Athy Plant") and
Carcagente, Spain (together with all related assets and equipment,
the "Carcagente Plant") and all such related assets and equipment,
including such billing functions, accounting and information
management functions and other support services being referred to
herein collectively as the "Plants")) in the beverages business
of CS and its Affiliates (outside of the United States, South
Africa, Australia and France) or otherwise primarily used in
connection with the Owned Trademarks; the right to use all Know-
how (as defined below); any and all other intellectual property
or proprietary rights owned by CS or any of its Affiliates
contained in advertising, promotional material, packaging
material or other material used in connection with the sale,
offer of sale or distribution of products bearing or embodying
the Owned Trademarks or Licensed Rights (as defined in Section
2.13(a)) or otherwise used primarily in, or held primarily for
the benefit of, the beverages business of CS and its Affiliates
outside the United States, South Africa, Australia and France;
any trademark(s) owned by the CS Parties, the Purchased Company
or the Subsidiaries (as defined in Section 2.01(b)) that are
identical to or confusingly similar to any Owned Trademark in
the same country and for substantially similar goods as such
Owned Trademark ("Omitted Trademarks"); all Contracts (as defined
in Section 2.20(a)), to the extent assignable, to which CS or any
Affiliate of CS is a party outside of the United States, South
Africa, Australia and France primarily relating to any of the
foregoing or any of the Owned Trademarks, including all bottling
and distribution agreements relating thereto; any other assets
which would reasonably be expected to be included in the
transactions contemplated by this Agreement and the Transaction
Documents; and including without limitation all of the assets and
rights set forth on Schedule 1.01(a)(iii) (collectively, the
"Other Assets"), but specifically excluding the Excluded Assets
(as
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defined below).
The Shares and the assets of the Purchased Company and the
Subsidiaries (as defined in Section 2.01(b)), the Directly
Acquired Trademarks, the Related Rights and the Other Assets are
referred to herein as the "Assets." "Know-how" shall include all
proprietary formulae, ingredient specifications, bottling
formulae, packaging specifications and other proprietary
technical information and knowledge owned by CS or its Affiliates
or the Purchased Company or the Subsidiaries used in connection
with the beverages business of CS and its Affiliates outside of
the United States, South Africa, Australia and France.
Notwithstanding the foregoing, it is expressly understood
that the term "Assets" shall not include the following "Excluded
Assets" except to the extent set forth on Schedules 1.01(a)(i) or
(iii) or Schedule 2.13(a)(i): (1) the technical facilities and
employees of CS located in Trumbull, Connecticut, U.S.A.; (2) all
Know-how in the Excluded Countries (as defined in Section
1.01(d)); (3) any Assets (other than Owned Trademarks) owned by
the Purchased Businesses (as defined in Section 1.06) in any
Excluded Country and not primarily related to the Purchased
Businesses acquired by the KO Buyers, until such time as an
Applicable Closing occurs with respect to such Purchased
Businesses; (4) all trademarks, trademark registrations and
trademark applications in the United States, South Africa and
France and all other assets and properties related to the
beverages business of CS and its Affiliates in the United States,
South Africa, France and Australia (and not primarily related to
the beverages business of CS and its Affiliates outside the
United States, South Africa, Australia and France) other than the
Assumed Lease (as defined in Section 1.06(a)(iii)) with respect
to certain property in Florida, U.S.A.; (5) the company owned
bottling operations of CS in Belgium, Mexico (the "Mexican COBO"),
Spain, Portugal and Zambia and CS's equity interest in a bottling
company in Zimbabwe (the "CS COBO Operations") and the German
Joint Venture (as defined in Section 5.15); (6) all rights to the
"Concentrate Surcharge" as defined under and paid pursuant to
Clause 4.4 of each of the Licensor Agreements (as defined in the
Letter (the "Brands Letter"), dated June 3, 1996, as restated and
re-executed on February 10, 1997, between CS and Coca-Cola
Enterprises Inc.), as such Licensor Agreements may have been
amended; (7) any cash and cash equivalents of the Purchased
Businesses as of the Applicable Closing Date; (8) all trademarks,
trademark registrations and trademark applications owned by the
Purchased Company or the Subsidiaries that are not Owned
Trademarks or Omitted Trademarks and all other intellectual
property or proprietary rights owned by the Purchased Company or
the Subsidiaries contained in advertising, promotional material,
packaging material or other material of the Purchased Company or
the Subsidiaries which does not embody the Owned Trademarks or
Omitted Trademarks; and (9) any assets and properties of the
Purchased Company and the Subsidiaries that are not related to
the beverages business of CS and its Affiliates outside the
United States, South Africa, Australia and France.
KO and CS recognize that trademarks in Australia have not
been included in the Owned Trademarks. After the date of this
Agreement, KO and CS shall negotiate in good faith, in connection
with the negotiations under Section 5.11, (i) which trademarks in
Australia will be included in the Owned Trademarks and
transferred to the KO Parties at the Threshold Closing and (ii)
the representations, warranties and covenants of the parties
relating thereto. Such
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Australian trademarks which are identical or substantially
identical to those registrations and applications included in the
Owned Trademarks shall be transferred to the KO Buyers at the
Threshold Closing, whether or not such an agreement has been
reached.
(b) The parties recognize that the transactions
contemplated by this Agreement and the Transaction Documents (as
defined in Section 3.02) provide for the transfer from the CS
Parties to the KO Buyers of Assets and Assumed Liabilities (as
defined in Section 1.06(a)) in numerous countries throughout the
world and that the conditions to the closing of the transactions
contemplated by this Agreement and the Transaction Documents
specified in Articles 6 and 7 may be satisfied in certain
countries before such conditions are satisfied in other countries.
Accordingly, the parties are prepared, subject to the terms and
conditions set forth in this Section 1.01 and in the remainder of
this Agreement (including the adjustments to the Purchase Price
described in Section 1.02), to consummate the transactions
contemplated by this Agreement and the Transaction Documents with
respect to the Purchased Businesses in certain countries prior to
the consummation of the transactions contemplated by this
Agreement and the Transaction Documents with respect to the
Purchased Businesses in other countries. However, the parties
recognize and understand that the transactions contemplated by
this Agreement and the Transaction Documents in any event must
include the Purchased Businesses in certain countries in order
for KO to receive sufficient benefit from the transactions
contemplated hereby and thereby, even taking into account the
Purchase Price adjustments described in Section 1.02.
Accordingly, it is expressly agreed that none of the transactions
contemplated by this Agreement and the Transaction Documents
shall be consummated unless the conditions to closing specified
in Articles 6 and 7 have been satisfied or waived by the
appropriate parties with respect to the Purchased Businesses in
the countries set forth on Schedule 1.01(b) (the "Threshold
Condition").
(c) If the Threshold Condition is satisfied, then at
the closing of the transactions contemplated by this Agreement
and the Transaction Documents with respect to the Purchased
Businesses in the countries sufficient to satisfy the Threshold
Condition (the "Threshold Closing"), the parties shall consummate
the transactions contemplated by this Agreement and the
Transaction Documents in such countries and shall consummate the
transactions contemplated by this Agreement and the Transaction
Documents with respect to the Purchased Businesses in each other
country with respect to which the conditions to closing specified
in Articles 6 and 7 have been satisfied or waived by the
appropriate parties. The date of the Threshold Closing is
referred to herein as the "Threshold Closing Date."
Notwithstanding anything in this Agreement to the contrary, CS
shall cause the CS Parties to transfer each of the Plants to the
KO Buyers at the Threshold Closing even if the remaining
Purchased Businesses in Ireland and Spain cannot be transferred
at the Threshold Closing because the conditions to closing with
respect thereto have not been satisfied.
(d) If the Threshold Condition is satisfied but not
all of the Purchased Businesses in all countries are transferred
to the KO Buyers at the Threshold Closing, then unless otherwise
prohibited by law, at the Threshold Closing the CS Parties shall
assign, transfer and deliver to the KO Buyers all right, title
and interest of the CS Parties in and to all the Owned Trademarks
in all countries throughout the world (excluding the United
States, South Africa and
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<PAGE>
France) (the countries in which the KO Buyers are unable to
purchase the Purchased Businesses being referred to herein as the
"Excluded Countries"), even if KO is unable to purchase the
Purchased Businesses in any such country. In such event, CS or a
subsidiary of CS and KO or a subsidiary of KO shall enter into an
exclusive royalty-free, freely transferable license agreement (an
"Excluded Country License Agreement"), with a right to sublicense,
in form and substance reasonably satisfactory to the parties
pursuant to which KO or such subsidiary will grant to CS or such
subsidiary (and any transferee of CS or such subsidiary) the
right to use in perpetuity such Owned Trademarks in the Excluded
Countries or until such time as KO purchases the Assets related
to such Owned Trademarks in any such Excluded Country. Such
Excluded Country License Agreement shall include, without
limitation, terms providing CS with brand extension and rights
to new packaging, and brands, trademark, trade name or similar
rights connected or associated with such Owned Trademarks. In
the case of Owned Trademarks owned by the Purchased Company or a
Subsidiary in the Excluded Countries, the Purchased Company or
Subsidiary shall prior to the Threshold Closing (i) if not
prohibited by law, retain such Owned Trademarks, in which case
such Purchased Company or Subsidiary shall enter into an Excluded
Country License Agreement with CS or a wholly owned subsidiary of
CS with respect to such Owned Trademarks or (ii) if the retention
of such Owned Trademarks would be prohibited by law, transfer to
CS or a wholly owned subsidiary of CS for fair market value all
of its right, title and interest in such Owned Trademarks. If
the KO Buyers shall subsequently purchase the Purchased Businesses
in any Excluded Country pursuant to this Article 1 at a Subsequent
Closing, the value of such Purchased Businesses shall be as set
forth on Schedule 1.02(b)-1 as if such businesses continued to own
the Owned Trademarks and related rights in such country.
(e) Following the Threshold Closing and for a period
ending on the last business day of the first quarterly period
(i.e., the last business day on or prior to March 31, June 30,
September 30 or December 31) ending following the fifth
anniversary of the Threshold Closing Date (the "Subsequent
Closing Expiration Date"), as the conditions to the closing of
the transactions contemplated by this Agreement and the
Transaction Documents specified in Articles 6 and 7 with respect
to the Purchased Businesses in a country become capable of being
satisfied (or are waived by the appropriate parties), the parties
shall consummate the transactions contemplated by this Agreement
and the Transaction Documents associated with such Purchased
Businesses in such country on the last business day of the first
quarterly period (i.e., the last business day on or prior to
March 31, June 30, September 30 or December 31) following the
satisfaction of such conditions and such other date as may be
agreed by the parties; provided, however, that, except for any
Applicable Closing on the Subsequent Closing Expiration Date, no
such Applicable Closing shall occur until the passage of at least
thirty days following satisfaction of such conditions. Each such
closing is referred to herein as a "Subsequent Closing," and the
Threshold Closing and each Subsequent Closing are referred to
herein individually, as the context may require, as an
"Applicable Closing." The date of a Subsequent Closing is
referred to herein as a "Subsequent Closing Date," and the date
of an Applicable Closing is referred to herein, as the context
may require, as an "Applicable Closing Date."
(f) Notwithstanding the foregoing, KO shall determine
whether the property listed in item 9 (collectively, the "Malvern
Facility") on Schedule 1.01(a)(iii) will be transferred to KO
(and whether the Assumed Lease on Schedule 1.06(a)(iii) relating
to the Malvern Facility
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<PAGE>
will be assumed by KO) at the Threshold Closing or at a Subsequent
Closing. The parties agree that the properties listed in such
items 9(a) and 9(b) must be transferred to the KO Parties at the
same time.
1.02 PURCHASE PRICE.
(a) Subject to Section 1.02(b), the aggregate purchase
price (the "Purchase Price") for the Purchased Businesses shall
be (i) cash in an amount equal to (A) U.S.$1,720,000,000 minus
(B) the Assumed Debt (as defined in Section 5.24), excluding any
Assumed Debt included in the calculation of the Working Capital
Adjustment, plus (C) the Working Capital Adjustment (which may be
positive or negative), plus (D) cash on hand of the Purchased
Company and the Subsidiaries (collectively, the "Cash Portion"),
and (ii) an interest-free registered note substantially in the
form of Exhibit 1.02 issued by KO, AI or another KO Buyer (which
if so issued by AI or another KO Buyer shall be guaranteed by KO)
to the CS Party designated by CS on the Threshold Closing Date in
the principal amount of U.S.$180,000,000 and payable on the tenth
anniversary of the Threshold Closing Date (the "Note").
(b) If the Threshold Condition is satisfied but not
all of the Purchased Businesses are transferred to the KO Buyers
at the Threshold Closing, then the Purchase Price to be paid at
the Threshold Closing shall be reduced (first by reducing the
Cash Portion of the Purchase Price and then next by reducing the
principal amount of the Note) on a country by country basis as
provided in Schedule 1.02(b)-1 by reducing the Purchase Price by
the amount specified in Schedule 1.02(b)-1 with respect to each
country in respect of which all of the Purchased Businesses are
not transferred. If the Threshold Condition is satisfied but the
conditions to closing specified in Articles 6 and 7 shall not
have been satisfied in any of the countries set forth on Schedule
1.02(b)-2, then the Purchase Price payable at the Threshold
Closing shall be reduced by an amount equal to (i) 130% of the
amount specified in Schedule 1.02(b)-1 as the agreed upon value
of such country in the case of the countries set forth on Schedule
1.02(b)-3 and (ii) 120% of the amount specified in Schedule
1.02(b)-1 as the agreed upon value of such country in the case of
the countries set forth on Schedule 1.02(b)-4.
(c) The amount of the Purchase Price to be paid at a
Subsequent Closing in a given country shall equal (i) (A) the
amounts corresponding to the Purchased Businesses being purchased
at such Subsequent Closing as provided in Schedule 1.02(b)-1,
multiplied by (B) (I) 100%, if the Subsequent Closing occurs on
or prior to the third anniversary of the Threshold Closing, (II)
103%, if the Subsequent Closing occurs following the third
anniversary of the Threshold Closing but on or prior to the
fourth anniversary of the Threshold Closing, or (III) 106% if the
Subsequent Closing occurs following the fourth anniversary of the
Threshold Closing, minus (ii) Assumed Debt, if applicable, with
respect to such Purchased Businesses (except for any Assumed Debt
included in the calculation of the Working Capital Adjustment)
plus (iii) the Working Capital Adjustment with respect to such
Purchased Businesses (which may be either positive or negative),
plus (D) cash and cash equivalents on hand of any of the
Purchased Company or the Subsidiaries, if any, being transferred
at such Subsequent Closing, if the Purchased Company and the
Subsidiaries have not been previously transferred. If there is a
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Subsequent Closing in any of the countries listed on Schedule
1.02(c)-1 the amounts in clause (i) above with respect to such
Purchased Businesses in such country shall equal 30% of the
amount specified in Schedule 1.02(b)-1 as the agreed upon value
of such country plus the amount determined by clause (i) for
such country. Likewise, if there is a Subsequent Closing in any
of the countries listed on Schedule 1.02(c)-2, the amounts in
clause (i) above with respect to such Purchased Businesses in
such country shall equal 20% of the amount specified in Schedule
1.02(b)-1 as the agreed upon value of such country plus the
amount determined by clause (i) for such country. With respect
to any country not listed specifically on Schedule 1.02(b)-1, the
amount corresponding to such country for purposes of the Purchase
Price shall be equal to (x) the total value attributed to the
group in which such country is a member, multiplied by (y) a
fraction, the numerator of which shall be the volume of
carbonated soft drink beverages sold during fiscal year 1997 by
CS in such country, and the denominator of which shall be the
volume of carbonated soft drink beverages sold during fiscal year
1997 by CS with respect to the entire group in which such country
is a member. Schedule 1.02(c)-3 indicates to which group each
country that is not specifically identified on Schedule 1.02(b)-1
belongs.
(d) As used herein, the term "Debt" shall mean the
current and long-term portions of any liabilities or obligations
of the Purchased Businesses or related to the Assets that would
be reflected as indebtedness for borrowed money on a balance
sheet prepared in accordance with United Kingdom generally
accepted accounting principles ("UK GAAP"), including, without
limitation, (i) any obligations for borrowed money of the
Purchased Businesses or relating to any of the Assets, and (ii)
all obligations of the Purchased Businesses or relating to any
of the Assets evidenced by bonds, debentures, notes or other
similar instruments.
(e) As used herein, the phrase "Working Capital
Adjustment" shall mean an amount (converted to U.S. dollars based
on the closing exchange rate on the date of the Applicable
Closing), whether positive or negative, equal to (A) (i) the sum
of the line items "Stocks," "Trade/Other Debtors" and
"Intercompany Current Accounts" (if positive), of the Carcagente
Plant, as defined in accordance with the CS Group Hyperion
Reporting System (the "CS Hyperion Reporting System") in each
case as determined in accordance with UK GAAP on a basis
consistent with past practice, minus (ii) the sum of the line
items "Trade/Other Creditors" and the absolute value of
"Intercompany Current Accounts" (if negative) as defined in
accordance with the CS Hyperion Reporting System, in each case as
determined in accordance with UK GAAP on a basis consistent with
past practice, minus (iii) 2,800,000 British pounds; plus (B) (i) the sum
of the line items "Stocks," "Trade/Other Debtors" and "Intercompany
Current Accounts" (if positive) of the Athy Plant, as defined in
accordance with the CS Hyperion Reporting System, in each case as
determined in accordance with UK GAAP on a basis consistent with
past practice, minus (ii) the sum of "Trade/Other Creditors" and
the absolute value of "Intercompany Current Accounts" (if
negative), in each case as determined in accordance with UK GAAP
on a basis consistent with past practice, minus (iii) 2,000,000
British pounds. For purposes of the foregoing, the working
capital of the Athy Plant shall be determined based upon the
principles applied in the CS Hyperion Reporting System as
reflected in the Plant Balance Sheet relating to the Athy Plant,
and specifically shall not include any working capital of the
Purchased Company and Subsidiaries other than that of the Athy Plant.
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1.03 PAYMENTS AT CLOSINGS.
(a) Upon the terms and subject to the conditions of
this Agreement, on the Applicable Closing Date, KO shall, or
shall cause the KO Buyers to, pay to the CS Parties the
Preliminary Purchase Price (or portion thereof) as determined in
accordance with Section 1.03(b).
(b) Not later than seven business days prior to each
Applicable Closing Date, the CS Parties shall prepare and deliver
to the KO Buyers an estimate of the Assumed Debt, the Working
Capital Adjustment (itemized in reasonable detail on an
obligation by obligation and item by item basis) and cash and
cash equivalents of the Purchased Company and the Subsidiaries as
of the close of business on the Applicable Closing Date, and a
calculation of the estimated Purchase Price (or portion thereof)
(the "Preliminary Purchase Price") to be paid at the Applicable
Closing based on such Assumed Debt, Working Capital Adjustment,
cash and cash equivalents, and the Purchased Businesses being
purchased at such Applicable Closing. The calculations of the
Assumed Debt, Working Capital Adjustment, cash and cash
equivalents and the Preliminary Purchase Price shall be
accompanied by a certificate of the chief financial officer of
each of the CS Parties involved in the Applicable Closing to the
effect that such calculations represent a good faith effort
accurately to determine such items in a manner consistent with
the methods to be used in preparing the Applicable Closing Date
Financial Statements.
1.04 CLOSING DATE FINANCIAL STATEMENTS AND CERTIFICATE OF
ADJUSTMENTS.
(a) As soon as practicable after each Applicable
Closing Date, the KO Buyers will prepare balance sheets of the
Purchased Businesses acquired at such Applicable Closing, which
balance sheets shall be prepared as of the close of business on
the Applicable Closing Date and income statements of the
Purchased Businesses so acquired for the periods from January 4,
1998 through January 2, 1999 and from January 3, 1999 through the
Applicable Closing Date. Such balance sheets and income
statements shall be prepared in accordance with UK GAAP,
consistently applied by the Purchased Businesses so acquired in
relation to the Financial Statements (as defined in Section
2.07(a)), such that such balance sheets and income statements
give a true and fair view of the financial position and results
of operations of the Purchased Businesses so acquired at the date
of such balance sheets and income statements and for the period
then ended in conformity with UK GAAP, consistently applied by
the Purchased Businesses so acquired in relation to the Financial
Statements. Such balance sheets and income statements are
referred to herein respectively as the "Applicable Closing Date
Balance Sheets" and the "Applicable Closing Date Income
Statements" and are referred to herein collectively as the
"Applicable Closing Date Financial Statements."
(b) The Applicable Closing Date Financial Statements
shall be delivered by the KO Buyers and the accountants
designated by the KO Buyers (the "KO Accountants") to the CS
Parties as promptly after such Applicable Closing Date as
practicable but in no event later than 120 days following the
Applicable Closing Date. During the preparation of the
Applicable Closing Date Financial Statements (and during the
period of time contemplated by this Section
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1.04(b) and Section 1.04(c)), KO shall cause KO's Accountants to
keep CS's independent accountants ("CS's Accountants") reasonably
informed of the information being used to prepare the Applicable
Closing Date Financial Statements and shall provide CS's
Accountants with reasonable access to all relevant materials,
including without limitation all work papers of KO's Accountants
and access to the books and documents of the Purchased
Businesses. The Applicable Closing Date Financial Statements
shall be accompanied by a statement signed by the chief financial
officer of KO (the "Certificate of Adjustments") containing a
calculation of the Assumed Debt, the Working Capital Adjustment
and cash and cash equivalents of the Purchased Company and the
Subsidiaries with respect to the Purchased Businesses so acquired
as of the Applicable Closing Date and a calculation of the
Purchase Price based on such Assumed Debt and Working Capital
Adjustment (the "Final Purchase Price"). The determination of
the Assumed Debt, the Working Capital Adjustment and cash and
cash equivalents of the Purchased Company and the Subsidiaries
as of the Applicable Closing Date and the Final Purchase Price as
calculated by the KO Buyers shall be binding on the CS Parties if
CS has not delivered written notice (the "Objection Notice") of
objection to the Applicable Closing Date Financial Statements
and/or the Certificate of Adjustments to the KO Buyers within 30
business days following the receipt by the CS Parties of the
Applicable Closing Date Financial Statements and the Certificate
of Adjustments.
(c) CS shall, and shall cause the CS Parties to,
provide the KO Parties and the KO Accountants with such
management letters, certificates, representations and other
documents as in the reasonable judgment of the KO Parties and
the KO Accountants are necessary in order to make the statements
contained in the Certificate of Adjustments or to permit the KO
Accountants to render an opinion that the Applicable Closing Date
Financial Statements give a true and fair view of the financial
position and results of operations of the Purchased Businesses so
acquired at the date of such balance sheets and for the periods
then ended in conformity with UK GAAP, consistently applied by
the Purchased Businesses in relation to the Financial Statements.
Any Objection Notice shall state in reasonable detail the items
and calculations objected to, and the KO Parties, the CS Parties
and their respective accountants will seek in good faith, for a
period of 30 business days following delivery of any Objection
Notice, to resolve promptly the matters set forth in the
Objection Notice. If the parties are unable to resolve such
differences during such 30 business day period, the parties will
submit the matter for the review of Deloitte & Touche or such
other internationally recognized public accounting firm as may be
mutually agreed to by KO and CS (the "Review Accounting Firm"),
and the review by the Review Accounting Firm shall be limited
solely to such items and calculations as were addressed in the
Objection Notice and have not been resolved by the parties.
The parties shall cause the Review Accounting Firm to review as
promptly as practicable, subject to the limitations of the
previous sentence, the preparation of the Applicable Closing Date
Financial Statements and Certificate of Adjustments and the
calculation of the Final Purchase Price set forth therein and to
make, subject to the limitations of the previous sentence, such
corrections thereto as it deems appropriate consistent with the
terms of this Agreement. The Review Accounting Firm shall issue
a written report of its review, setting forth in reasonable
detail its calculation of the Final Purchase Price. The
determination of the Final Purchase Price as calculated by the
Review Accounting Firm shall be conclusive and binding on the KO
Parties, the CS Parties and the Purchased Businesses.
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(d) The fees and expenses of the accountants to the
CS Parties for the services referred to herein shall be paid for
by the CS Parties. The fees and expenses of the KO Accountants
shall be paid by the KO Parties. If differences are submitted
to the Review Accounting Firm, its fees and expenses shall be
shared equally by the CS Parties, on the one hand, and the KO
Parties, on the other.
1.05 POST-CLOSING ADJUSTMENTS. On or before the date that
is ten business days following the date of the final
determination of the Final Purchase Price in accordance with
Section 1.04:
(a) If the Preliminary Purchase Price is less than the
Final Purchase Price, the KO Buyers shall pay to the CS Parties
an amount in cash equal to the difference, together with interest
on such amount for the period from the Applicable Closing Date to
the date of such payment at a rate equal to the United States Fed
Funds Rate, as from time to time in effect and as calculated
based upon a 360-day year (the "Rate").
(b) If the Preliminary Purchase Price is greater than
the Final Purchase Price, CS shall cause the CS Parties to pay to
the KO Buyers an amount in cash equal to such difference,
together with interest on such amount for the period from the
Applicable Closing Date to the date of such payment at a rate
equal to the Rate.
1.06 ASSUMED LIABILITIES; EXCLUDED LIABILITIES
(a) The KO Buyers shall purchase the Assets (including
the Purchased Company and the Subsidiaries) free and clear of any
liabilities or obligations whatsoever, except for the following
(the "Assumed Liabilities " and, together with the Assets, the
"Purchased Businesses"):
(i) all liabilities relating to the Plants, but
only to the extent such liabilities are both (A) reflected and
adequately reserved against in the balance sheets of the Plants
as of the Threshold Closing as prepared in accordance with
Section 1.04, and (B) have been incurred in the ordinary course
of the business of the Plants and consistent with past practices
and are consistent in all material respects in nature and amount
with the liabilities reflected and adequately reserved against in
the balance sheets of the Plants included as Schedule 1.06(a)(i)
(the "Plant Balance Sheets");
(ii) all liabilities and obligations under (A) the
bottling and distribution agreements set forth on Schedule 2.20(c)
(the "Bottling and Distribution Agreements"), including any
marketing commitments with respect thereto (other than the
Supplemental Contributions (as defined in Section 9.01(a)(ix)),
and (B) any Contracts relating to the Plants, in each case of
clauses (A) and (B) in respect only of periods after the
Applicable Closing, and in addition in the case of marketing
commitments and Contracts relating to the Plants only to the
extent entered into in the ordinary course of business consistent
with past practice or disclosed on Schedule 1.06(a)(ii);
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(iii) all liabilities and obligations in respect
only of periods after the Applicable Closing under the real
property lease agreements set forth on Schedule 1.06(a)(iii)
(the "Assumed Leases");
(iv) any Assumed Debt, to the extent included in
the calculation of the Final Purchase Price;
(v) all liabilities and obligations in respect
only of periods after the Applicable Closing under any furniture
or equipment leases relating to the beverages business of CS and
its Affiliates outside the United States, but only to the extent
KO elects to assume any such liabilities or obligations under
Section 5.29; and
(vi) all liabilities and obligations to the extent
specifically provided to be assumed by KO in Sections 5.06 and
5.31(a).
(b) Except as set forth in Section 1.06(a) or Section
9.02(a)(v), the KO Buyers shall not be liable for or responsible
for any liabilities or obligations whatsoever in respect of any
events, circumstances, conditions or facts prior to the Applicable
Closing Date of any of the Purchased Businesses or relating to any
of the Assets or CS's beverages businesses or other businesses,
whether accrued, absolute, contingent, known, unknown or otherwise
(the "Excluded Liabilities"). CS shall be responsible for, shall
assume and shall retain all such Excluded Liabilities (whether or
not any such Excluded Liabilities are liabilities or obligations
of the Purchased Company or the Subsidiaries).
1.07 METHOD OF PAYMENT. All payments from one party to
another under this Agreement shall be made in U.S. dollars by
wire transfer of immediately available funds to such account as
may be reasonably designated by the party to receive such
payments.
1.08 CONVEYANCE DOCUMENTS. At each Applicable Closing, CS
shall, and shall cause the other CS Parties to, enter into
conveyance documents in such form as may be reasonably requested
by KO and the KO Buyers (the "Conveyance Documents"), which
documents will, among other things, provide for the valid and
effective transfer of title in and to the Assets to the KO Buyers
to be acquired at such Applicable Closing, and the assumption or
retention by the CS Parties of the Excluded Liabilities. In
addition, at each Applicable Closing, KO shall, or shall cause
the other KO Buyers to, enter into assumption documents in such
form as may be reasonably requested by the CS Parties (the
"Assumption Documents"), which documents will provide for the
assumption by the KO Buyers of the Assumed Liabilities.
ARTICLE 2
CS REPRESENTATIONS AND WARRANTIES
CS represents and warrants to KO as of the date hereof and
as of each Applicable Closing Date (with respect to the Purchased
Businesses being transferred as of such Applicable Closing Date)
that:
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2.01 ORGANIZATION, ETC.
(a) Each of the CS Parties and the Purchased Company
is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization. The Purchased
Company has all requisite power and authority, corporate or
otherwise, to carry on and conduct its business in all material
respects and to own or lease its properties and assets, and is
duly qualified and in good standing in each jurisdiction in which
the conduct of its business or the ownership of its properties
and assets requires it to be so qualified.
(b) Schedule 2.01(b) sets forth a correct and complete
list of each corporation, association, subsidiary, partnership,
limited liability company or other entity of which the Purchased
Company owns or controls, directly or indirectly, 20% or more of
the outstanding equity interests (such entities are hereinafter
referred to as "Subsidiaries"). Except as set forth in Schedule
2.01(b), there is no corporation, association, subsidiary,
partnership, limited liability company or other entity of which
the Purchased Company owns or controls, directly or indirectly,
any outstanding equity interests. The Purchased Company owns,
directly or indirectly, all of the equity interests of each
Subsidiary, free and clear of any Security Interests. All of
the outstanding capital stock of each Subsidiary has been duly
authorized and is validly issued, fully paid and nonassessable,
and not subject to any preemptive rights. There are no voting
trusts or other agreements or understandings with respect to the
voting of capital stock or other equity interests of any
Subsidiary. Each Subsidiary is duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, and has the power and authority necessary for it
to own or lease its properties and assets and to carry on its
business in all material respects as it is now being conducted.
Each Subsidiary is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes
such qualification or licensing necessary.
(c) CS has made available to KO complete, true and
correct copies of the charter documents and bylaws of CS, the
Purchased Company and the Subsidiaries. The minutes of directors'
and shareholders' meetings and the stock records of the Purchased
Company and the Subsidiaries that have been made available to KO
are in all material respects the complete, true and correct
records of directors' and shareholders' meetings and stock
issuances through and including the date of this Agreement and
constitute all the minutes and stock records in existence.
(d) The officers and directors of the Purchased
Company and the Subsidiaries as of the date of this Agreement
are listed in Schedule 2.01(d).
2.02 AUTHORIZATION; ENFORCEABILITY. CS has all requisite
corporate power and authority to execute and deliver this
Agreement, and CS and each of the other CS Parties shall, at the
time of execution and delivery of such documents at each
Applicable Closing, have all requisite corporate power and
authority to execute and deliver the other agreements to be
entered into by any of such parties pursuant to this Agreement
(the "Seller Transaction Documents") and to carry out their
respective obligations with respect to the transactions
contemplated hereby and thereby. The execution and delivery of
this Agreement and the Seller Transaction Documents by
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each of the CS Parties which is a party thereto and the
consummation of the transactions contemplated hereby and thereby
have been, or in the case of the CS Parties other than CS will be
at the time of execution and delivery of such documents, duly
authorized by all necessary corporate action on the part of each
such party. This Agreement has been (and the other Seller
Transaction Documents will be at the Threshold Closing or at a
Subsequent Closing, as applicable) duly and validly executed and
delivered by each of the CS Parties which is a party thereto, and
(assuming due authorization, execution and delivery by the KO
Parties of this Agreement and the Transaction Documents to which
they are a party) this Agreement constitutes (and each of the
other Seller Transaction Documents will constitute at the
Threshold Closing or at a Subsequent Closing, as applicable) a
valid and binding agreement of each such party enforceable
against it in accordance with its terms.
2.03 NO CONFLICT.
(a) Except as may be necessary as a result of any
facts or circumstances relating solely to the KO Parties, the
execution and delivery of this Agreement and the Seller
Transaction Documents by each of the CS Parties which is a party
thereto, the consummation of the transactions contemplated hereby
and thereby by each of the CS Parties which is a party thereto,
and the performance of the covenants and agreements of each of
the CS Parties contained herein and therein will not, with or
without the giving of notice or the lapse of time, or both (i)
to the knowledge of the CS Parties and the Purchased Businesses,
require any of the CS Parties or any of the Purchased Businesses
to make any material filing or material registration with, or
obtain any material permit, material authorization, material
consent or material approval of, any Governmental Authority
(as defined in Section 2.03(c)), except for the filings and
consents listed in Schedule 2.03 and except for filings,
notifications or approvals required under any antitrust or
competition laws, (ii) violate or conflict with any of the
provisions of any charter instrument, bylaw or other governing
documents of any of the CS Parties or the Purchased Company or
the Subsidiaries, (iii) except as set forth in Schedule 2.03, in
any material respect, violate, conflict with, result in a breach
or default under, or result in the termination of, or cause the
acceleration of the maturity of any material debt or material
obligation pursuant to any term or condition of, any material
mortgage, material note, material indenture, material contract,
material license, material permit, material instrument or other
material agreement or material document to which the Purchased
Company or Subsidiaries is a party or by which any of the
Purchased Businesses or its properties may be bound (or to which
any of the CS Parties is a party or by which it or its properties
may be bound in any case, if such violation, conflict, breach,
default, termination or acceleration would adversely affect in
any material respect the transactions contemplated by this
Agreement or would result in a material Loss to any KO Party or
any Purchased Business), (iv) to the knowledge of the CS Parties
and the Purchased Businesses, and except for filings,
notifications or approvals required under any antitrust or
competition laws, violate in any material respect any provision
of any material statute or material law, any material judgment,
material decree, material order, material regulation or material
rule of any Governmental Authority or any material arbitration
award to which the Purchased Company or Subsidiaries is a party
or by which any Purchased Businesses or its properties may be
bound (or to which any of the CS Parties is a party or by which
it or its properties may be bound in any case if such violation
would adversely affect in any material respect the
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transactions contemplated by this Agreement or would result in
a material Loss to any KO Party or any Purchased Business), or
(v) result in the creation or imposition of any material Security
Interest upon any material Asset or any other material asset of
the Purchased Company or Subsidiaries.
(b) Except as set forth in Schedule 2.03 and except
for filings, notifications or approvals required under any
antitrust or competition laws, to the knowledge of the CS Parties
and the Purchased Businesses, no material consent or material
approval is required by virtue of the execution of this Agreement
or the consummation of any of the transactions contemplated
hereby to avoid the violation or breach in any material respect
of, or the default in any material respect under, or the creation
of a material lien on any of the material Assets or any of the
material assets of the Purchased Company or Subsidiaries pursuant
to the terms of, any material law, material rule, material
regulation, material order, material decree or material award of
any Governmental Authority or any material mortgage, material
note, material license to manufacture and distribute beverages,
material lease, material contract or any other material
instrument to which the Purchased Company or Subsidiaries is a
party or by which any of the Purchased Businesses or any of its
properties is bound.
(c) As used herein, the phrase "Governmental Authority"
shall mean any governmental or regulatory authority or
instrumentality, or any department or agency thereof, including,
without limitation, any court, administrative agency or
commission.
2.04 OWNERSHIP OF THE SHARES.
(a) Except as set forth on Schedule 2.04, each CS
Party owns good and marketable record title to and all beneficial
interest in all of the Shares specified on Schedule 2.04 opposite
such CS Party's name, which in the aggregate constitute 100% of
the share ownership of the Purchased Company. The Shares (i) are
validly issued, fully paid and nonassessable, and (ii) are owned
by the CS Parties free and clear of any Security Interests, with
no defects of title. As used in this Agreement, "Security
Interest" shall mean any pledge, security interest, lien, charge,
equity, claim, option, right of first refusal or other
restriction on transfer of any nature, or any other encumbrance
of any nature.
(b) Each CS Party has the exclusive right, power and
authority to vote the Shares owned by such CS Party. No CS Party
is party to or bound by any agreement affecting or relating to
such CS Party's right to transfer or vote any Shares. There are
no proxies outstanding or powers of attorney granted by any CS
Party with respect to any Shares.
2.05 AUTHORIZED AND OUTSTANDING STOCK. The authorized
capital stock of the Purchased Company and the Subsidiaries and
the number of issued and outstanding shares thereof is set forth
in Schedule 2.05. The list of the shareholders of the Purchased
Company and the Subsidiaries set forth in Schedule 2.05 is a
true, correct and complete list of the record shareholders of
such Purchased Company and the Subsidiaries and the number of
shares held of record by each such shareholder. None of the
Purchased Company or the Subsidiaries or the CS Parties has
outstanding or is bound by, any subscriptions, options, warrants,
calls, commitments
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or agreements requiring any of such Persons (as hereinafter
defined) to issue or sell or entitling any Person to acquire
any shares of capital stock or any other equity security
(including any right of conversion or exchange under any
outstanding security or other instrument) of the Purchased
Company or Subsidiaries, and none of the Purchased Company or the
Subsidiaries or the CS Parties is obligated to issue or dispose
of any shares of capital stock of the Purchased Company or
Subsidiaries for any purpose. All issuances, transfers,
purchases or redemptions of the capital stock of the Purchased
Company and the Subsidiaries have been in compliance with all
applicable agreements and all applicable laws, and all Taxes
(as defined in Section 2.23) thereon have been paid. There are
no outstanding obligations of the Purchased Company or the
Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding shares of stock of the Purchased Company or the
Subsidiaries. There are no shares of capital stock held in the
treasury of the Purchased Company or the Subsidiaries. As used
in this Agreement, "Person" shall mean an individual, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization or any Governmental Authority or any
other entity.
2.06 TRANSFER CLAIMS. None of the CS Parties, the Purchased
Company or the Subsidiaries has effected any redemption, purchase
or other acquisition from any unaffiliated Person of any capital
stock or other equity interests (including any options, warrants
or debt convertible into stock, options or warrants) of the
Purchased Company or the Subsidiaries (including without
limitation by way of merger or consolidation) during the past
five years which has given or may give rise to any claim or
action by any such Person with respect to any of the foregoing
which is enforceable against any of the Purchased Businesses, the
CS Parties or the KO Parties.
2.07 FINANCIAL STATEMENTS.
(a) Attached as Schedule 2.07 are (i) the audited
balance sheets of the Purchased Company and the Subsidiaries as
at January 3, 1998, and the related audited statements of income
and retained earnings for the periods then ended, together with
the related notes thereto (the "Audited Financial Statements"),
and, (ii) for the Purchased Businesses, (A) the unaudited
management accounts (comprising profit and loss account, balance
sheet and cash flow statement) as of January 3, 1998 and for the
53 weeks then ended, and as at November 6, 1998 and for the 44
weeks then ended (the "Unaudited Management Accounts", and
together with the Audited Financial Statements, the "Financial
Statements"), and (B) unaudited Form 22Bs for the 53 weeks ended
January 3, 1998, derived from the Unaudited Management Accounts,
showing volume and profitability by brand (the "CS GCAM
Statements"). The balance sheets referred to in the Financial
Statements are referred to herein as the "1997 Balance Sheets."
(b) The Audited Financial Statements are based on the
books and records of the Purchased Company and the Subsidiaries
and have been prepared in accordance with the generally accepted
accounting principles applicable in each of the relevant
jurisdictions on a basis consistent with past practices of CS and
the CS Parties and throughout the periods involved. The Audited
Financial Statements present fairly in all material respects the
financial condition and results of operations and retained
earnings of the Purchased Company and the
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Subsidiaries as of such dates or for the periods covered thereby.
(c) The Unaudited Management Accounts (which include
the Plant Balance Sheets and other financial statements relating
to the Plants) have been extracted unadjusted from the CS
Hyperion Reporting System as used throughout the CS Group of
companies (the "CS Group") and presented to the Main Board of CS,
and prepared in accordance with CS Group management accounting
practice. For key reporting lines, the year-end Unaudited
Management Accounts have been reconciled to and are materially
consistent with the audited year-end Group statutory accounts
which are used for external reporting. The Unaudited Management
Accounts are only representative of the businesses being
purchased but are those that most closely match the Purchased
Businesses. Any material differences between the Unaudited
Management Accounts and the individual Purchased Businesses are
clearly identified in the reconciliation of GCAM (as defined in
Section 2.07(d)) following.
(d) The CS GCAM Statements represent an analysis of
volume, net sales, marketing spend and Gross Contribution after
Marketing ("GCAM") of beverage and food brands for each
management entity as identified within the CS Hyperion Reporting
System. The CS GCAM Statements taken as a whole have been
prepared with no material misstatements.
(e) The net revenues and marketing expenditures as
reported in the CS Hyperion Reporting System form the basis for
the CS GCAM Statements (beverages and foods) and on consolidation,
form the basis of CS's audited Group statutory accounts for the
year ended January 3, 1998. The Purchased Businesses do not
include foods or selected brands and countries. The "Purchased
GCAM" can be reconciled to the consolidated GCAM reflected in
CS's Unaudited Management Accounts for the year ended January 3,
1998, and the items below represent all material reconciling
items necessary to perform such a reconciliation.
Total GCAM as per "Unaudited Management Accounts"
and "CS GCAM Statement"
Less: Total foods GCAM
Less: Total non CS - owned brands GCAM
Less: Specific brands - MOTT's
- Clamato
- Mr and Mrs T
- Energade
- Sunboost
- Brookes (Bromor)
- MIAMI (MOTT's)
- Oasis (Italy)
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Less: Specific countries - Puerto Rico (within CSLAMB)
- Australia
- France
- South Africa
Less: General - certain restrictions to
normal concentrate cash flow
arising from minority
holdings in Zimbabwe and
Germany
- 500k British pounds adjustment
reflecting pricing and cost
differentials in GB resulting
from a separate CCE Agreement.
Equals: GCAM of the Purchased Businesses
Notes to reconciliation:
i) For CS COBO operations, the GCAM's represented in the GCAM
statements represent full system GCAM.
ii) The GCAM Statements for Germany and Zimbabwe represent full
company GCAM's (not only CS's shareholdings).
2.08 NO UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 2.08 or as and to the extent reflected and adequately
reserved against in the 1997 Balance Sheets or referred to in
the notes thereto, as of January 3, 1998, none of the Purchased
Businesses had any material liabilities or material obligations,
whether accrued, absolute, contingent, known, unknown or
otherwise. Except as set forth in Schedule 2.08, since January 3,
1998, none of the Purchased Businesses has incurred any material
liabilities or material obligations, except for liabilities and
obligations incurred by the Purchased Businesses in the ordinary
course of business consistent with past practice.
2.09 NO VIOLATION OF LAW; LICENSES AND PERMITS. Except as
set forth on Schedule 2.09, none of the Purchased Businesses is
or, to the knowledge of the CS Parties or the Purchased
Businesses in the past five years has been, in violation in any
material respect of applicable material laws, material ordinances,
material rules, material regulations, material orders or material
decrees, including, without limitation, any antitrust or
competition laws. Each of the Purchased Businesses has all
material licences, material permits or other material
authorizations of Governmental Authorities necessary for the
production and sale of its products, and has all other required
material licenses, material permits or other material
authorizations of Governmental Authorities and has made all
required material filings with any Governmental Authorities
necessary for the conduct of its business.
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2.10 PROPERTY.
(a) Schedule 2.10(a) sets forth a complete and
accurate list and description of all the real property that any
of the Purchased Businesses currently owns or has agreed (or has
an option) to purchase (the "Owned Real Property") or leases for
annual lease payments in excess of U.S.$150,000 (the "Leased Real
Property," and together with the Owned Real Property, the "Real
Property"). Except as set forth in Schedule 2.10(a), (i) none of
the Real Property is subject to any governmental decree or order,
or to the knowledge of the CS Parties or the Purchased Businesses
threatened or proposed order, to be sold or taken by any
Governmental Authority, and (ii) none of the Owned Real Property,
or to the knowledge of the CS Parties or the Purchased Businesses
the Leased Real Property, is subject to any rights of way,
building use restrictions, exceptions, variances, reservations or
limitations (other than any rights of way, building use
restrictions, exceptions, variances, reservations or limitations
which do not affect in any material respect the value of any such
Real Property or the ability to own (in the case of the Owned
Real Property), or to use, operate or conduct business, as
currently used, operated or conducted, on any such Real Property).
The plants and structures owned or leased by the Purchased
Businesses are in reasonable condition.
(b) Except as set forth in Schedule 2.10(b), the Purchased
Businesses (i) own good and marketable title to, or hold valid,
enforceable and subsisting leasehold interests in, all of the
Real Property and have good, valid and marketable title to all
material tangible properties and assets reflected, but not shown
as leased or encumbered, in the 1997 Balance Sheets (except for
inventory and assets sold in the ordinary course of business
consistent with past practice and supplies consumed in the
ordinary course of business consistent with past practice), free
and clear of any and all Security Interests other than Permitted
Liens (as defined in Section 2.10(d)), and (ii) own the Owned
Real Property free and clear of all title defects or Security
Interests other than Permitted Liens.
(c) The rights, properties and other assets presently owned,
leased or licensed by the Purchased Businesses include all
material rights, material properties and other material assets
necessary to permit the Purchased Businesses to conduct their
businesses in all material respects in the same manner as they
have been currently conducted. The Assets include all material
tangible and intangible assets associated with the Owned
Trademarks in each country included in the transactions
contemplated by this Agreement, and include, without limitation,
all material assets, wherever located, used by CS and its
subsidiaries in connection with their international beverages
business (excluding the United States, South Africa, France and
Australia), and all other ancillary activities conducted in
connection with ownership and use of the Owned Trademarks by CS
and its Affiliates.
(d) As used in this Agreement, "Permitted Liens" means the
following Security Interests: (i) Security Interests for Taxes,
assessments or other governmental charges or levies that are not
yet due or payable or that are being contested in good faith by
appropriate proceedings; (ii) statutory Security Interests of
landlords and Security Interests of carriers, warehousemen,
mechanics, materialmen, repairmen and other Security Interests
imposed by statute and on a basis consistent with past practice
for amounts not yet due; (iii) Security
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Interests incurred or deposits made in the ordinary course of the
Purchased Businesses and on a basis consistent with past practice
in connection with worker's compensation, unemployment insurance
or other types of social security; (iv) minor defects of title,
easements, rights-of-way, restrictions and other similar
encumbrances not detracting in any material respect from the
value of any of the Real Property or interfering with the
ordinary conduct of the Purchased Businesses; and (v) Security
Interests incurred in the ordinary course of the Purchased
Businesses and on a basis consistent with past practice securing
obligations or liabilities which are not individually, or in the
aggregate, material to the relevant Real Property.
2.11 LEASES. Schedule 2.11 contains a complete and accurate
list of all leases and lease-purchase arrangements pursuant to
which any of the Purchased Businesses leases real or personal
property from others involving annual payments in excess of
U.S.$150,000. Each such lease is valid, binding and enforceable
in accordance with its terms and is in full force and effect;
there are no existing material defaults with respect thereto by
any of the Purchased Businesses, or to the knowledge of the CS
Parties or the Purchased Businesses any other party thereto; and
no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event)
would constitute a material default thereunder by any of the
Purchased Businesses, or to the knowledge of the CS Parties and
the Purchased Businesses any other party thereto. None of the
Purchased Businesses is subject to any capital leases.
2.12 INDEBTEDNESS FOR BORROWED MONEY. Except as set forth
on Schedule 2.12 and except for indebtedness payable to CS or any
subsidiary of CS, there is no direct or indirect indebtedness for
borrowed money of any of the Purchased Businesses or relating to
any of the Assets in any case either (i) on terms which do not
reflect arms' length terms, or (ii) in excess of U.S. $1,000,000,
including any indebtedness by way of lease-purchase arrangements,
guarantees, undertakings on which others rely in extending credit
and conditional sales contracts, chattel mortgages and other
security arrangements with respect to personal property used or
owned by any of the Purchased Businesses or relating to any of
the Assets. No such indebtedness set forth on Schedule 2.12
provides for any prepayment penalty or premium.
2.13 INTELLECTUAL PROPERTY.
(a) "Owned Trademarks" shall mean the trademarks set
forth on Schedule 2.13(a)(i). "Major Trademarks" shall mean
those registrations included in the Owned Trademarks that
correspond to the brand names, current labels, elements of
current labels, current slogans, and current bottle designs of
the products currently being sold in the countries set forth on
Schedule 2.13(a)(ii). Without limiting the foregoing, and in
addition thereto, any trademark registrations of the Owned
Trademarks which are currently in bona fide commercial use by
the Purchased Businesses shall be considered Major Trademarks and
any trademark registrations of the Owned Trademarks for the
DR. PEPPER trademark, which are currently in use by the Purchased
Businesses, shall be considered Major Trademarks. "Miscellaneous
Trademarks" shall mean all trademark registrations and
applications of the Owned Trademarks not included in the Major
Trademarks. Schedule 2.13(a)(iii) sets forth a complete and
accurate list of all patents and copyrights, including
registrations thereof and applications therefor, and industrial
design registrations, in each case owned by the CS Parties and
material to the
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Purchased Businesses (the "Intellectual Property Rights").
Schedule 2.13(a)(iv) sets forth a complete and accurate list of
all licenses of patents, trademarks, trade names, service marks,
copyrights and applications therefor licensed to any of the CS
Parties that are material to the Purchased Businesses (the
"Licensed Rights"). The consummation of the transactions
contemplated hereby will not result in the termination or
impairment of any of the Major Trademarks.
(b) The CS Parties, the Purchased Company, and the
Subsidiaries hold good, valid and enforceable right, title and
interest in and to the Major Trademarks free and clear of any
Security Interests and at the Applicable Closing the CS Parties
will transfer to the KO Buyers good, valid and enforceable right,
title and interest in and to the Major Trademarks, free and clear
of any Security Interests. The Major Trademarks have not been
adjudged invalid or unenforceable in whole or in part, and any
registrations thereof are in full force and effect.
(c) The CS Parties are not aware of any existing facts
or circumstances that may reasonably be expected to result in the
invalidity or unenforceability of the Major Trademarks. The
validity of the Major Trademarks, and title thereto have not been
successfully challenged in any prior litigation and except as set
forth in Schedule 2.13(b) (i) are not being challenged in any
pending litigation and (ii) to the knowledge of the CS Parties,
are not the subject(s) of any threatened litigation. None of
matters on Schedule 2.13(b) may reasonably be expected to result
in the invalidity or unenforceability of any of the Major
Trademarks.
(d) Except as set forth on Schedule 2.13(b), no Person
is currently engaging in any commercial activity that infringes
upon the Major Trademarks or has engaged in any commercial
activity infringing upon the Major Trademarks that has any
current effect.
(e) Except as set forth on Schedule 2.13(b), to the
knowledge of the CS Parties, no person is engaging in any
commercial activity that infringes upon the Miscellaneous
Trademarks or the Intellectual Property rights in any material
respect. Except as set forth on Schedule 2.13(b), to the
knowledge of the CS Parties, the CS Parties, the Purchased
Company, and/or the Subsidiaries own the Intellectual Property
Rights and the Miscellaneous Trademarks free and clear of any
Security Interests. Except as set forth on Schedule 2.13(b),
to the knowledge of the CS Parties, the Intellectual Property
Rights and the Miscellaneous Trademarks have not been adjudged
invalid or unenforceable in whole or in part, and any
registrations thereof are valid and in full force and effect.
Except as set forth on Schedule 2.13(b), to the knowledge of the
CS Parties, the validity of the Intellectual Property Rights and
the Miscellaneous Trademarks, and title thereto, and the rights
of the CS Parties in the Licensed Rights, (i) have not been
successfully challenged in any prior litigation; (ii) are not
being challenged in any pending litigation and (iii) to the
knowledge of the CS Parties, are not the subject(s) of any
threatened litigation.
(f) Except as set forth on Schedule 2.13(b), the use
of the Major Trademarks and to the knowledge of the CS Parties
the operation of the businesses of the Purchased Businesses and
the use of the Intellectual Property Rights and the Miscellaneous
Trademarks, have not been alleged to infringe upon, and do not
infringe upon, any patents, trademarks, trade
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names, service marks, or copyrights of third parties in any
material respect. Except as set forth on Schedule 2.13(b), to
the knowledge of the CS Parties, the consummation of the
transactions contemplated hereby will not result in the
termination or impairment of the Miscellaneous Trademarks and
the Intellectual Property Rights in any material respect. To
the knowledge of the CS Parties, the patents, trademarks, trade
names, service marks, or copyrights licensed to the CS Parties as
Licensed Rights have not been alleged to infringe upon and do not
infringe upon any patents, trademarks, trade names, service marks,
or copyrights of third parties in any material respect.
(g) The trademarks set forth on Schedule 2.13(a)(i)
and the licenses set forth on Schedule 2.13(a)(iv) include all of
the trademark rights owned by or licensed to the CS Parties
material to, and used in the conduct of, the Purchased Businesses
as currently conducted.
(h) Each license of the Licensed Rights is valid and
binding and is enforceable in accordance with its terms in a
manner that obtains for or imposes upon the parties the primary
material benefits and obligations of such license. As of the
date of this Agreement, to the knowledge of the CS Parties, there
is no material pending or threatened bankruptcy, insolvency, or
similar proceeding with respect to any party to such license, and
no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event)
would constitute a material default by the Purchased Businesses
thereunder or, to the knowledge of the CS Parties, by any other
party to such license. The Purchased Businesses have complied
in all material respects with the provisions of such license.
(i) Except as set forth on Schedule 2.13(b), to the
knowledge of the CS Parties, no advertising, promotional material,
packaging material or other material currently used by the
Purchased Businesses in connection with the sale, offer for sale
or distribution of products in connection with the Purchased
Businesses, has been alleged to infringe upon the patents,
trademarks, trade names, service marks or copyrights of third
parties in any material respect.
(j) KO acknowledges that the representations and
warranties contained in Section 2.10(c) and this Section 2.13 are
the only representations and warranties being made in this
Agreement with respect to the Owned Trademarks, Intellectual
Property Rights and the Licensed Rights.
2.14 LITIGATION AND CLAIMS. Schedule 2.14 sets forth all
pending or, to the knowledge of the CS Parties or the Purchased
Businesses, threatened, litigation, claims, suits, actions,
investigations, indictments, informations or proceedings (except
for Environmental Claims which are addressed in Section 2.17)
involving amounts in excess of U.S.$250,000 to which any of the
Purchased Businesses is or may become a party or is or may be
subject. Except as set forth in Schedule 2.14, there are no
material judgments, material orders, material injunctions,
material decrees, material stipulations or material awards
(whether rendered by a court, administrative agency or by
arbitration) (except for Environmental Claims which are addressed
in Section 2.17) enforceable against or relating to any of the
Purchased Businesses.
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2.15 EMPLOYEE CONTRACTS, UNION AGREEMENTS AND BENEFIT PLANS.
(a) As used in this Agreement, the term "Employee
Benefit Plans" means all material written and enforceable oral
agreements, arrangements, commitments or policies of any kind
which relate to compensation, remuneration or benefits in any way
or which constitute employment, consulting or collective
bargaining contracts, or deferred compensation, pension, multi-
employer, profit sharing, thrift, retirement, stock ownership,
stock appreciation rights, bonus, stock option, stock purchase or
other compensation commitments, benefit plans, arrangements or
plans, including all welfare plans and all union-sponsored plans,
of or pertaining to the present or former employees (including
retirees) or directors (or their dependents, spouses or
beneficiaries) of any of the Purchased Businesses or any
predecessors in interest thereto, that are currently in effect or
as to which any of the Purchased Businesses has any ongoing
liability or obligation whatsoever.
(b) Schedule 2.15(b) contains a complete and accurate
list of each collective bargaining agreement and any Employee
Benefit Plan providing for benefits which either are not
customary or which are outside of the ordinary course of business.
Each Purchased Business and its predecessors in interest have
complied in all material respects with all of their respective
obligations with respect to all Employee Benefit Plans, including
the payment of all material social security and other material
contributions required by law, and the Employee Benefit Plans
have been maintained in compliance in all material respects with
all applicable laws, rules and regulations. No Employee Benefit
Plan (other than union-sponsored plans) is currently under
investigation, audit or review by any Governmental Authority and
to the knowledge of the CS Parties and the Purchased Businesses,
no union-sponsored plan included within the definition of
Employee Benefit Plan is currently under investigation, audit or
review by any Governmental Authority. No Employee Benefit Plan
(other than union-sponsored plans) is liable for any material
amount of Taxes, except in the ordinary course and for current
periods, and to the knowledge of the CS Parties and the Purchased
Businesses, no union-sponsored plan included within the
definition of Employee Benefit Plan is liable for any material
amount of Taxes, except in the ordinary course and for current
periods. There are no material claims pending, or to the
knowledge of the CS Parties or the Purchased Businesses
threatened, by any participant in any of the Employee Benefit
Plans, except for benefits to participants or beneficiaries in
accordance with the terms of the Employee Benefit Plans. There
is no obligation on the part of any of the Purchased Businesses
to pay any bonus to retired or retiring employees or former
employees under any collective bargaining agreement.
(c) There are no material loans or other material
advances made by any of the Purchased Businesses to any present
or former employees (including retirees), directors or
independent contractors (or their dependents, spouses or
beneficiaries) of any of the Purchased Businesses, except in the
ordinary course of business consistent with past practice.
2.16 LABOR RELATIONS. Except as set forth in Schedule 2.16:
(a) Each of the Purchased Businesses is in compliance
in all material respects with all collective bargaining
agreements with respect to employment and employment practices,
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terms and conditions of employment and wages and hours and
occupational safety and health.
(b) There is no material unfair labor practice or
charge or complaint or any other similar matter against or
involving any of the Purchased Businesses pending, or to the
knowledge of the CS Parties or the Purchased Businesses
threatened, before any Governmental Authority. There is no labor
strike, dispute, slowdown or stoppage pending, or to the
knowledge of the CS Parties or the Purchased Businesses
threatened, against any of the Purchased Businesses. No material
grievance proceeding or material arbitration proceeding arising
out of or under any collective bargaining agreement is pending,
or to the knowledge of the CS Parties or the Purchased Company
threatened, against any of the Purchased Businesses. No
collective bargaining agreement in any way prevents any of the
Purchased Businesses from relocating or closing any of its
operations.
(c) There are no material charges, material
proceedings or material formal complaints of discrimination
(including discrimination based upon sex, age, marital status,
race, religion, national origin, sexual preference, handicap or
veteran status) pending, or to the knowledge of the CS Parties or
the Purchased Businesses threatened, by or before any
Governmental Authority with respect to any of the Purchased
Businesses.
2.17 ENVIRONMENTAL PROTECTION. Except as set forth in
Schedule 2.17:
(a) Each of the Purchased Businesses has obtained all
material permits, material licenses and other material
authorizations and filed all material notices which are required
to be obtained or filed by it for the operation of its business
under Environmental Laws. Each of the Purchased Businesses is in
compliance in all material respects with all terms and conditions
of such permits, licenses and authorizations.
(b) Each of the Purchased Businesses is in compliance
in all material respects with all applicable Environmental Laws.
None of the Purchased Businesses has received any communication,
whether from a Governmental Authority, citizens group, employee
or otherwise, that alleges that any of the Purchased Businesses
is not in such compliance. There are no past or present events,
conditions, circumstances, activities, practices, incidents,
actions, failures to act or plans which are reasonably likely to
interfere with or prevent continued compliance in all material
respects with Environmental Laws, or which are reasonably likely
to give rise to any material common law or statutory liability,
or otherwise form the basis of any material Environmental Claim
(as hereinafter defined) against any of the Purchased Businesses
or against any Person whose liability for any Environmental Claim
any of the Purchased Businesses has or may have retained or
assumed either contractually or by operation of law. There are
no material Environmental Claims pending, or to the knowledge of
the CS Parties or the Purchased Businesses threatened, against
any of the Purchased Businesses.
(c) As used herein, the following terms have the
following meanings:
(i) "Environmental Claim" means any notice
received by any of the CS Parties or the Purchased Businesses,
alleging liability (including, without limitation, liability
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for investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damages, personal
injuries, fines, permit or registration fees or penalties), and
any action, suit, proceeding, hearing or investigation involving
or against any of the Purchased Businesses or any of their assets
or properties (or any predecessor in interest) arising out of,
based upon or resulting from (i) the presence in, or release into,
the environment of any Material of Environmental Concern at any
location, or in connection with business operations, whether or
not owned by any of the Purchased Businesses, or (ii)
circumstances forming the basis of any violation or alleged
violation of any Environmental Law.
(ii) "Environmental Laws" means all applicable
laws, rules and regulations in effect on or prior to the
Applicable Closing Date relating to pollution or the protection
of human health and the environment (including, without
limitation, ambient air, surface water, ground water, land
surface or subsurface strata) and similar laws, rules and
regulations relating to the protection of human health,
including, without limitation, laws, rules and regulations
relating to discharge, emissions, releases or threatened releases
of Material of Environmental Concern or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Material of Environmental
Concern.
(iii) "Material of Environmental Concern" means
asbestos, polychlorinated biphenyls ("PCBs"), chemicals,
pollutants, contaminants, wastes, hazardous or toxic substances
or materials, petroleum and petroleum products or any other
materials that are subject to regulation pursuant to
Environmental Laws or are defined as "hazardous substances"
within the meaning of any Environmental Laws.
2.18 INSURANCE POLICIES. The Purchased Businesses are
covered by insurance policies or binders of insurance or programs
of self-insurance of such types and in such amounts as are
reasonable or consistent in all material respects with customary
practices and standards of the beverage industry in the relevant
geographic areas. Each such policy is valid and binding and in
full force and effect, no premiums currently due thereunder have
not been paid, and none of CS, the CS Parties, the Purchased
Company or any Subsidiary has received any notice of material
reduction, cancellation or termination in respect of any such
policy or is in material default thereunder. Except as disclosed
in Schedule 2.18 and except for any CS Policies (as defined in
Section 4.13), such policies will continue in full force and
effect following the Applicable Closing without penalty provided
the premiums are paid.
2.19 MAJOR SUPPLIERS AND CUSTOMERS. None of the Purchased
Businesses is engaged in any material dispute with any of its
material suppliers or material customers.
2.20 CONTRACTS AND COMMITMENTS.
(a) For purposes of this Agreement, "Contract" means
any contract, agreement, promissory note, debt instrument,
commitment, arrangement, undertaking or understanding to which
any of the Purchased Businesses is legally bound or to which it
or its property is subject, whether written or oral and including
without limitation each and every amendment, modification or
supplement to any of them.
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(b) Schedule 2.20(b) lists each Contract (other than
Contracts required to be included on Schedule 2.11, 2.13, 2.15
and 2.20(c)):
(i) for the purchase or rental of materials,
inventory and supplies by any of the Purchased Businesses which
individually exceeds U.S$3,000,000;
(ii) for the sale of goods or products by any of
the Purchased Businesses which individually involves an amount or
value in excess of U.S.$3,000,000;
(iii) for the purchase of services by any of the
Purchased Businesses which individually involves an amount in
excess of U.S.$3,000,000;
(iv) under which any of the Purchased Businesses
acts or has agreed to act as guarantor, surety, co-signer,
endorser, co-maker or indemnitor in respect of the contract or
commitment of any other Person, in each case involving an amount
or value in excess of U.S. $1,000,000;
(v) containing covenants limiting in any material
respect the freedom of any of the Purchased Businesses to compete
in any line of business in any geographic area covered by this
Agreement or providing benefits substantially similar to those
provided by an equity interest; and
(vi) which is material to the Purchased Businesses
taken as a whole or the absence of which would have or would be
reasonably likely to have a Material Adverse Effect.
(c) Except for arms'-length commercial arrangements
entered into by the Purchased Businesses with their respective
bottlers in the ordinary course of business pursuant thereto,
the bottling agreements and distribution agreements provided by
CS to KO and listed on Schedule 2.20(c) are true, correct and
complete and constitute all of the bottling and distribution
agreements to which any of CS or any of its Affiliates is a party.
Except as set forth on Schedule 2.20(c), there are no sublicenses
of any such bottling or distribution agreements or any rights
thereunder. It is CS's practice not to include in its bottling
and distribution agreements change of control provisions with
respect to CS or provisions which would prohibit or limit CS's
ability to assign such agreements. Accordingly, other than for a
small number of agreements, there are no bottling or distribution
agreements containing change of control provisions with respect
to CS or provisions which prohibit or limit CS's ability to assign
such agreements. With respect to each bottling or distribution
agreement which is incomplete, unsigned or in draft form, or as
to which the termination date cannot be determined from the
bottling or distribution agreement as furnished to KO prior to
the date hereof, the actual complete, signed, effective bottling
agreement with regard to such territory, and such termination
date, is not materially (x) different from what was furnished to
KO with respect to that territory (as listed on Schedule 2.20(c)),
or (y) later than the termination date specified in Schedule 2 to
the letter between the parties dated November 25, 1998,
respectively.
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2.21 AGREEMENTS IN FULL FORCE AND EFFECT. Except as set
forth in Schedule 2.21, all Contracts referred to, or required
to be referred to, in Schedules 2.20(b) and 2.20(c) are valid
and binding, and are enforceable in accordance with their terms
in a manner that obtains for or imposes upon the parties the
primary material benefits and obligations of such Contracts.
Except as set forth in Schedule 2.21, to the knowledge of the
CS Parties or the Purchased Businesses there is no material
pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any party to such Contracts, and no
event has occurred which (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would
constitute a material default by the Purchased Businesses
thereunder or, to the knowledge of the CS Parties or the
Purchased Businesses, by any other party to any such Contract.
The Purchased Businesses have complied in all material respects
with the provisions of such Contracts.
2.22 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set
forth in Schedule 2.22, since January 3, 1998, the Purchased
Businesses taken as a whole have been conducted only in the
ordinary course, and the Purchased Businesses have not:
(a) suffered any event or change, which individually
or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect;
(b) made any declaration, setting aside or payment of
any dividend (other than cash dividends) or other distribution of
assets (whether in cash, stock or property) with respect to its
capital stock, or issued or sold any of its capital stock, or
made any change in its issued and outstanding capital stock, or
issued any warrant, option or other right to purchase shares of
its capital stock, or any security convertible into its capital
stock or redeemed, purchased or otherwise acquired (directly or
indirectly) any shares of its capital stock;
(c) acquired any material business or any material
interest in any material business;
(d) suffered any material adverse change in its
relationships with any material suppliers or material customers;
(e) except as required by law and except in the
ordinary course of business consistent with past practice, (i)
increased (or announced any increase of) the compensation payable
or to become payable to any employee or increased any bonus,
insurance, pension or other employee benefit plan, payment or
arrangement for such employees, (ii) entered into or amended any
employment, consulting, severance or similar agreement or (iii)
hired, committed to hire, or terminated any employee whose annual
compensation exceeds U.S.$150,000;
(f) except after the date of this Agreement in the
ordinary course of business consistent with past practice,
incurred, assumed or guaranteed any obligation or liability for
borrowed money in excess of U.S. $1,000,000, or exchanged,
refunded or renewed any outstanding indebtedness in excess of
U.S. $1,000,000;
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(g) except in the ordinary course of business
consistent with past practice, paid, discharged or satisfied any
claim, liability or obligation involving amounts in excess of
U.S. $1,000,000 in the aggregate;
(h) permitted any of its material assets to be
subjected to any Security Interest;
(i) intentionally waived any material claims or rights;
(j) sold, transferred or otherwise disposed of any
material assets, except in the ordinary course of business
consistent with past practice;
(k) made capital expenditures or investments
individually in excess of U.S.$1,000,000;
(l) made any change in any method of accounting, or
any practice or principle of accounting, except for any changes
after the date of this Agreement which are required by UK GAAP;
(m) paid, loaned or advanced any amount or asset to
or sold, transferred or leased any asset to any employee except
for normal compensation involving salary and benefits in the
ordinary course of business consistent with past practice;
(n) written down the value of any inventory in excess
of U.S. $3,000,000 in the aggregate on an annual basis, or
written off as uncollectible or forgiven any notes or accounts
receivable or other debt or increased its allowance for doubtful
accounts by a total of more than U.S. $4,000,000 in the aggregate
on an annual basis;
(o) amended the charter, bylaws or other governing
documents of the Purchased Company or the Subsidiaries;
(p) materially amended or terminated any material
Contract, including any bottling or distribution agreement or any
Employee Benefit Plan, except in the ordinary course of business,
or materially amended or entered into any new collective
bargaining agreement except in the ordinary course of business;
(q) entered into any material commitment or
transaction, other than in the ordinary course of business
consistent with past practice;
(r) knowingly done any act, omitted to do any act, or
permitted any act within its control which would cause a material
breach of any representation, warranty, covenant, agreement or
obligation contained in this Agreement; or
(s) agreed in writing, or otherwise, to take any
action described in this Section 2.22.
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2.23 TAX MATTERS.
(a) For purposes of this Agreement, "Taxes" shall mean
all income, franchise, capital stock, real property, personal
property, tangible, withholding, unemployment compensation,
disability, transfer, sales, use, excise, soft drink, gross
receipts and all other taxes, assessments, charges, duties, fees,
levies or other governmental charges (including interest,
penalties or additions associated therewith) of any kind for
which the Purchased Company or the Subsidiaries may have any
liability imposed by any Governmental Authority or to which any
of the Assets may be subject in the hands of a KO Buyer, whether
disputed or not, and any charges, interest or penalties imposed
by any Governmental Authority as the result of the failure to
file any Tax Return. "Tax Return" shall mean any report, return,
declaration or other information required to be supplied to a
Governmental Authority in connection with Taxes.
(b) Except as otherwise disclosed in Schedule 2.23 and
except in such respects as are not material: (i) all Tax Returns
(as defined in Section 2.23(a)), including estimated returns and reports
of every kind with respect to Taxes, which are due to have been
filed through the date of this Agreement in accordance with any
applicable law or any applicable extensions, have been duly filed
(and all such returns or reports due after the date of this
Agreement and on or prior to the Applicable Closing Date will be
filed prior to the Applicable Closing Date); (ii) all Taxes shown
on such Tax Returns or otherwise required to be paid by any of
the Purchased Businesses (whether or not a Tax Return is required
to be filed in respect thereof) have been paid in full or are
accrued or will be accrued as of the Applicable Closing Date as
liabilities for Taxes on the books and records of the Purchased
Businesses; (iii) the Taxes so paid on or before the date of
this Agreement, together with any amounts accrued as liabilities
for Taxes (including Taxes accrued as currently payable) on the
books of the Purchased Company and the Subsidiaries, will be
adequate based on the applicable tax rates, laws and regulations
to satisfy all liabilities for Taxes of the Purchased Company and
Subsidiaries in any jurisdiction through the Applicable Closing
Date, including Taxes payable with respect to income treated in
accordance with Section 5.04(a) hereof as earned through the
Applicable Closing Date; (iv) there are not now any extensions
of time in effect with respect to the dates on which any Tax
Returns were or are due to be filed; (v) all deficiencies
asserted as a result of any examination of any Tax Return have
been paid in full, accrued on the books of the Purchased Company
or the Subsidiaries, or finally settled, and no issue has been
raised in any such examination which, by application of the same
or similar principles, reasonably could be expected to result in
a proposed deficiency for any other period not so examined; (vi)
no Tax claims have been asserted and no proposals or deficiencies
for any Taxes are being asserted, proposed or threatened, and no
audit or investigation of any Tax Return is currently underway,
pending or threatened; (vii) within the CS Parties' knowledge the
Tax bases for all depreciable assets held by the Purchased
Businesses have been determined in good faith and in accordance
with applicable law; (viii) no Tax Returns relating to taxable
periods ending on or after December 31, 1992 have been examined
or audited by any Governmental Authorities; (ix) there are no
outstanding waivers or agreements by or with respect to any of
the Purchased Businesses for the extension of time for the
assessment of any Taxes or deficiency thereof, nor are there any
requests for rulings, outstanding subpoenas or requests for
information, notice of proposed reassessment of any property
owned or leased by any of the Purchased Businesses pending
between any of the Purchased Businesses and any
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taxing authority; (x) there are no liens for Taxes on any of the
assets of the Purchased Businesses, other than liens for Taxes
which are not yet past due, nor are there any such liens within
the CS Parties' knowledge for Taxes which are pending or
threatened; (xi) since December 31, 1997, there have not been
established on the books, records or financial statements of the
Purchased Businesses any accruals or reserves for Taxes other
than in the ordinary course of business consistent with past
practice; and (xii) none of the Purchased Businesses has any
potential liability to Taxes arising from the use of any form of
group transaction relief.
(c) The Purchased Company and the Subsidiaries have
delivered to KO true and complete copies of all income Tax
returns (together with any revenue agent's reports) relating to
its operations for the three most recent years for which Tax
returns are due to have been filed.
2.24 ACCOUNTS RECEIVABLE. Except as shown in Schedule 2.24,
all of the accounts receivable of the Purchased Businesses in
excess of U.S.$2,000,000 are valid and existing, and as of the
date of this Agreement, there is no material dispute regarding
the collectibility of any such accounts receivable. None of the
accounts receivable of the Purchased Businesses is factored, and
since January 31, 1998, none of the Purchased Businesses has
factored any of its accounts receivable.
2.25 PRODUCT AND SERVICE WARRANTIES. Except in the ordinary
course of business consistent with past practice and except as
set forth on Schedule 2.25, none of the Purchased Businesses
makes any express warranties or guaranties on its own behalf as
to goods sold or services provided by it.
2.26 BROKERS' AND FINDERS' FEES. None of the CS Parties or
the Purchased Businesses or any of their respective Affiliates or
anyone acting on behalf of any of them has done anything to cause
or incur any liability to any party for any brokers' or finders'
fees or the like in connection with this Agreement or any
transaction contemplated hereby.
2.27 TRANSACTIONS WITH AFFILIATES. Except as disclosed in
Schedule 2.27, none of the CS Parties or any Affiliate thereof
(i) is indebted to any of the Purchased Businesses with respect
to any liabilities or obligations which will survive the
Applicable Closing Date with respect to such Purchased
Businesses, (ii) is a party to any Contract with any of the
Purchased Businesses with respect to which any liabilities or
obligations thereunder will survive the Applicable Closing Date,
or (iii) has an ownership interest in any business, corporate or
otherwise, that is a party to, or in any property which is the
subject of, business arrangements or relationships of any kind
with any of the Purchased Businesses with respect to which any
liabilities or obligations thereunder will survive the
Applicable Closing Date (excluding for such purposes the
ownership of less than 5% of the outstanding equity of any
publicly traded corporation of which such Person is neither an
officer or a director). None of the CS Parties or any Affiliate
thereof or any officer or director of any of the CS Parties or
any Affiliate thereof (including any officer or director of any
of the Purchased Businesses) is a party to any Contract with any
of the Purchased Businesses which is not on arms' length terms,
or has an ownership interest in any business, corporate or
otherwise, that is a party to, or in any property which is the
subject of, business
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arrangements or relationships of any kind with any of the
Purchased Businesses which are not on arms' length terms.
2.28 YEAR 2000.
For the purposes of this Section 2.28, the following terms
shall have the meanings set forth below:
"Facilities" means any facilities, processes, equipment or
other assets owned, or to the extent material to the Plants
leased, by any of the Plants in any location, including HVAC
systems, mechanical systems, elevators, security systems, fire
suppression systems, telecommunications systems, fax machines,
copy machines, and equipment.
"Products" means any products currently sold by any of the
Plants.
"Internal MIS Systems" means any computer software and
systems (including hardware, firmware, operating system software,
utilities and applications software) used in the ordinary course
of the business of the Plants (and in the case of such software
and systems licensed from others, which is material to the
operation of the businesses of the Plants), including, where
applicable, their payroll, accounting, billing/receivables,
purchasing/payables, inventory, asset tracking, customer service,
human resources, and E-mail systems.
"Year 2000 Compliant" means that the Facilities, Products
and Internal MIS Systems provide uninterrupted millennium
functionality in that the Facilities, Products and Internal MIS
Systems will record, store, process and present calendar dates
falling on or after January 1, 2000, in the same manner, and with
the same functionality, as the Facilities, Products and Internal
MIS Systems record, store, process and present calendar dates
falling on or before December 31, 1999.
Schedule 2.28 sets forth the plan for each Plant
(collectively, the "Y2K Plan") (i) setting forth the material
steps taken to date, and (ii) the material steps that they intend
to take following the date hereof to remediate any failure of any
of the Facilities, Products and Internal MIS Systems to be Year
2000 Compliant in all material respects (the "Year 2000 Computer
Date Problem"). None of the CS Parties or the Purchased
Businesses is aware of any facts or circumstances that would
prevent the Plants from achieving remediation of the Year 2000
Computer Date Problem in all material respects with respect to
the business of the Plants in accordance with the Y2K Plan. Upon
remediation of the Year 2000 Computer Date Problem in accordance
with the Y2K Plan, the Year 2000 Computer Date Problem will not
affect the conduct of the business of the Plants in any material
respect.
CS represents and warrants that the Plants will not have
expenses after the Threshold Closing in excess of U.S. $200,000
in order to remediate the Year 2000 Computer Date Problem.
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2.29 E.U. AND U.S. PRESENCE
(a) The concentrate turnover and royalty or other
income derived from the ordinary activities (within the meaning
of Council Regulation EEC No. 4064/89) of the Purchased
Businesses (net of V.A.T., other turnover-related taxes and sales
rebates and excluding sales turnover between undertakings within
the Purchased Businesses) but excluding turnover derived from the
Excluded Assets received by the CS Group in its 1997 financial
year and attributable to the Purchased Businesses did not exceed:
(i) Ecu 250 million in the European Union; or
(ii) Ecu 25 million in each of at least three
Member States of the European Union.
(b) Neither the Purchased Company nor the Subsidiaries
is a "United States issuer" and the Assets and the assets owned
by the Purchased Company and the Subsidiaries in each case
located in the United States (i) collectively do not have an
aggregate book value or market value of US $15 million or more
and (ii) collectively did not generate aggregate sales in or into
the United States of US $25 million or more in the most recent
fiscal year, all as defined under 16 CFR Section 801.1 et seq.
ARTICLE 3
KO REPRESENTATIONS AND WARRANTIES
KO represents and warrants to CS that as of the date hereof
and each Applicable Closing Date that:
3.01 CORPORATE ORGANIZATION. Each of the KO Parties is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization.
3.02 AUTHORIZATION, ETC. Each of the KO Parties has, or in
the case of the KO Parties other than KO shall have at the time
of execution and delivery of such documents, all requisite
corporate power and authority to execute and deliver this
Agreement and all documents to be executed and delivered by the
KO Parties contemplated hereby (collectively, the "Buyer
Transaction Documents," and together with the Seller Transaction
Documents, the "Transaction Documents") and to carry out their
respective obligations with respect to the transactions
contemplated hereby and thereby. The execution and delivery of
this Agreement and the Buyer Transaction Documents and the
consummation of the transactions contemplated hereby and thereby
have been, or in the case of the KO Parties other than KO shall
have been at the time of execution and delivery of such documents,
duly authorized by all necessary corporate action on the part of
each of the KO Parties. This Agreement has been (and the other
Buyer Transaction Documents will be at the Threshold Closing or a
Subsequent Closing, as applicable) duly and validly executed and
delivered by each of the KO Parties (assuming due authorization,
execution and delivery by the CS Parties of this Agreement and
the Transaction Documents to
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which it is a party) and this Agreement constitutes (and each of
the other Buyer Transaction Documents will constitute at the
Threshold Closing or a Subsequent Closing, as applicable) a valid
and binding agreement, enforceable against each of the KO Parties,
respectively, in accordance with its terms.
3.03 NO CONFLICT. Except as may be necessary as a result of
any facts or circumstances relating solely to the CS Parties, the
execution and delivery of this Agreement and the Buyer
Transaction Documents by the KO Parties, the consummation of the
transactions contemplated hereby and thereby by the KO Parties,
and the performance of the covenants and agreements of the KO
Parties contained herein and therein will not, with or without
the giving of notice or the lapse of time, or both (i) to the
knowledge of the KO Parties, require the KO Parties to make any
material filing or material registration with, or obtain any
material permit, material authorization, material consent or
material approval of, any Governmental Authority, except as set
forth in Schedule 3.03 and except for filings, notifications or
approvals required under any antitrust or competition laws, (ii)
violate or conflict with any provision of the certificate of
incorporation or bylaws (or similar governing documents) of any
of the KO Parties, (iii) in any material respect violate,
conflict with, or result in a breach or default under, or result
in the termination of, or cause the acceleration of the maturity
of any material debt or material obligation pursuant to, any term
or condition of any material mortgage, material indenture,
material contract, material license, material permit, material
instrument, material document or other material agreement,
material document or material instrument to which any of the KO
Parties is a party or by which any of the KO Parties or any of
their respective properties may be bound, or (iv) to the
knowledge of the KO Parties, except as set forth in Schedule 3.03
and except for filings, notifications or approvals required under
any antitrust or competition laws, violate any provision of any
material law, material judgment, material decree, material order,
material regulation or material rule of any Governmental
Authority or any arbitration award.
3.04 BROKERS AND FINDERS. No KO Party has employed any
broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
3.05 LITIGATION. As of the date hereof, there are no
pending, or to the knowledge of the KO Parties threatened,
litigation, claims, suits, actions, investigations, indictments,
information or proceedings which, if adversely determined, would
be reasonably expected to prevent or materially interfere with
the performance by the KO Parties of their respective obligations
hereunder.
ARTICLE 4
COVENANTS OF THE CS PARTIES
4.01 PRE-CLOSING OPERATIONS. Except to the extent not
reasonably practicable in light of this Agreement and the
transactions contemplated by this Agreement and the Transaction
Documents, CS covenants and agrees (and shall cause the other CS
Parties to comply with this covenant), except as specifically
consented to in writing by KO (which consent shall not be
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unreasonably withheld or delayed), that from the date of this
Agreement to each Applicable Closing Date, the Purchased
Businesses shall be operated and conducted only in the ordinary
course consistent with past practices, and shall carry on their
business in the same manner as currently conducted and not make
or institute any material new methods of manufacture, purchase,
sale, lease, management or operation. By way of illustration and
not in limitation of the foregoing, except to the extent not
reasonably practicable in light of this Agreement and the
transactions contemplated by this Agreement and the Transaction
Documents, CS agrees and shall cause the other CS Parties to
agree that from the date of this Agreement to each Applicable
Closing Date, except as set forth on Schedule 4.01 and except as
consented to in writing by KO (which consent shall not be
unreasonably withheld or delayed) as follows:
(a) Each of the Purchased Businesses shall manage its
working capital, including cash, receivables, other current
assets, trade payables and other current liabilities in a fashion
in all material respects consistent with past practice, including
without limitation by selling inventory and other property in an
orderly and prudent manner and paying outstanding obligations,
trade accounts and other indebtedness as they come due.
(b) Each of the Purchased Businesses shall maintain in
all material respects its assets, and the CS Parties shall
maintain in all material respects the Assets, in their present
state of repair, normal wear and tear excepted.
(c) Each of the Purchased Businesses shall use its
commercially reasonable efforts to keep available in all material
respects the services of its employees and to preserve in all
material respects the goodwill of its business and relationships
with its customers, licensors, suppliers, distributors and
brokers.
(d) Each of the Purchased Businesses shall continue in
all material respects advertising, promotional programs and
incentives in a manner consistent with past practices.
(e) The Purchased Businesses shall not make any
material loans or other material advances to any present or
former employees (including retirees), directors or independent
contractors (or their dependents, spouses or beneficiaries),
except in the ordinary course of business consistent with past
practice.
(f) The bottling agreements, distribution agreements
and other commercial arrangements entered into after the date of
this Agreement (including any amendments to existing agreements)
to which CS or any of its Affiliates or the Purchased
Businesses is a party and with respect to which it derives
revenues and profits from the businesses associated with the
Owned Trademarks in each country shall be on arms' length terms
and on terms which shall provide CS, its Affiliates and the
Purchased Businesses with benefits from such arrangements which
are consistent with the ordinary course of their beverages
business, recognizing that the terms of such agreements may need
to be different in launch markets, developing markets, etc. From
and after the date of this Agreement, none of CS or any of its
Affiliates or the Purchased Businesses will enter into any
agreements or arrangements or any amendments to any agreements or
arrangements pursuant to which the income stream associated
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with any Owned Trademarks in any country is shifted to any other
less than wholly owned entity or country or brand that is not
included in the transactions contemplated by this Agreement.
(g) None of the Purchased Businesses shall take any
action referred to in Section 2.22, and none of CS and the other
CS Parties, shall take any action referred to in Section 2.22
with respect to any of the Purchased Businesses.
4.02 ACCESS. From the date of this Agreement through each
Applicable Closing Date in respect of the relevant Purchased
Businesses, CS shall (and shall cause each of the other CS
Parties and the Purchased Businesses to) (i) provide each of the
KO Parties and its designees with such information as any of the
KO Parties may from time to time reasonably request with respect
to the Purchased Businesses and the transactions contemplated by
this Agreement, (ii) provide each of the KO Parties and its
designees, officers, counsel, accountants and other authorized
representatives reasonable access, upon reasonable notice, to the
books, records, offices, personnel, counsel and accountants of
the Purchased Businesses, as any of the KO Parties or its
designees may from time to time reasonably request, and (iii)
permit each of the KO Parties and its designees to make such
reasonable inspections thereof as any of the KO Parties may
reasonably request. No such investigation shall limit or modify
in any way the obligations of the CS Parties with respect to any
breach of their representations, warranties, covenants or
agreements contained in this Agreement or any of the other
Transaction Documents.
4.03 FINANCIAL STATEMENTS.
(a) Until the Subsequent Closing Expiration Date, as
promptly as practicable after each of CS's quarterly accounting
periods subsequent to September 30, 1998 and prior to the
Applicable Closing in respect of the relevant Purchased
Businesses, CS will cause to be delivered to each of the KO
Parties periodic financial reports relating to the Purchased
Businesses and to that quarter in the form CS customarily
prepares for internal purposes, including, without limitation, a
periodic interim unaudited balance sheet and income statement,
and any audited annual financial statements prepared with respect
to the Purchased Businesses. CS covenants that such financial
statements will be prepared on a basis consistent with prior
periods except for any changes required by applicable generally
accepted accounting principles and will not contain any material
misstatement.
(b) CS shall reasonably cooperate with KO in
connection with the preparation by KO of any financial statements
to be prepared in connection with any filing to be made by KO
with the U.S. Securities and Exchange Commission relating to the
transactions contemplated by this Agreement and the Transaction
Documents.
4.04 ACQUISITION PROPOSALS. Prior to the Threshold Closing
or termination of this Agreement (and after the Threshold Closing
except with respect to a Takeover Proposal), none of the CS
Parties and the Purchased Businesses shall, and the CS Parties
and the Purchased Businesses shall not permit any of their
officers, directors, employees, agents or affiliates to, (a)
solicit, initiate, endorse, entertain, enter into any agreement
with respect to or encourage submission of proposals or offers,
or accept any offers, from any Person relating to any
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acquisition, purchase, transfer, license or assignment of any
interest in the Owned Trademarks, any of the Other Assets or all
or any material amount of the assets of, or any equity interest
in, or any merger, consolidation, share exchange, business
combination or similar transaction with or involving, any of the
Purchased Businesses (an "Acquisition Proposal"), or (b)
participate in any discussions or negotiations regarding, or
furnish to any other Person any information with respect to, or
otherwise cooperate in any way with or assist, facilitate or
encourage any Acquisition Proposal by any other Person; provided
that nothing contained in this sentence shall prohibit the CS
Board of Directors from entering into discussions or negotiations
with any Person that makes an unsolicited bona fide written
proposal regarding (i) the acquisition of all or a majority of
the outstanding capital stock of CS, (ii) the acquisition of all
or substantially all of the assets of CS, or (iii) a merger,
consolidation, share exchange, business combination or other
similar transaction which would result in a change of control of
CS (any of the foregoing in clauses (i), (ii) or (iii), a
"Takeover Proposal") if, and only to the extent that (i) the
Board of Directors of CS determines in good faith, following the
receipt of and consistent with the advice of outside legal
counsel, that such action is required in order for the CS Board
of Directors to comply with its fiduciary duties under applicable
law, and (ii) prior to providing any information or data relating
to the Purchased Businesses to any Person in connection with a
Takeover Proposal by any such Person, such Board of Directors
receives from such Person an executed confidentiality agreement
on customary terms covering the Purchased Businesses. CS agrees
that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties
conducted theretofore with respect to any Acquisition Proposal.
CS agrees that it shall keep KO informed, on a current basis, of
the status and terms of any such proposals or offers (other than
any Takeover Proposal) and the status of any such discussions or
negotiations (other than any Takeover Proposal). Notwithstanding
this Section 4.04, CS may enter into new franchise agreements in
the ordinary course of business consistent with past practice,
subject to Section 5.09.
4.05 TRANSFER TAXES. All transfer taxes, duties and fees,
including, but not limited to, stamp duties, capital duties,
sales taxes, use taxes, stock transfer taxes, document recording
fees, notary fees, real property transfer taxes, and excise taxes,
arising out of or in connection with the consummation of the
transactions contemplated hereby and by the Transaction Documents
shall be paid one-half by the CS Parties on the one hand, and one-
half by the KO Parties on the other hand.
4.06 CONSULTATION. In connection with the continued
operation of the Purchased Businesses and the Assets between the
date of this Agreement and each Applicable Closing Date, CS shall,
and shall cause the CS Parties to, communicate in good faith on a
regular and frequent basis with one or more representatives of KO
with respect to the ongoing operations of the Purchased
Businesses and the Assets. CS acknowledges that the KO Parties
do not and will not waive any rights they may have under this
Agreement as a result of such communications. Without limiting
the generality of the foregoing, until the Applicable Closing
Date, CS shall consult with the KO Parties concerning all
material business and operating decisions affecting any of the
Purchased Businesses. Notwithstanding the foregoing, the CS
Parties shall not be required by this Section 4.06 to disclose
any information to the KO Parties in violation of any applicable
law or regulation.
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4.07 TRANSITION SUPPORT. In order to ensure a smooth
transition of information systems and services and other
functions which are critical to the conduct of the business
operations of the Purchased Businesses for a period of six
months after the Threshold Closing Date, CS agrees to, and shall
cause the other CS Parties to, at KO's expense cooperate with and
provide the KO Parties with all such reasonable assistance as the
KO Parties determine in good faith is necessary to permit them to
receive the full benefit of the Purchased Businesses being
acquired pursuant to this Agreement.
4.08 RELEASES. If an Applicable Closing occurs, then CS
hereby (and CS shall cause the other CS Parties to)
unconditionally, absolutely and irrevocably releases each of the
Purchased Businesses acquired in connection with such Applicable
Closing from any and all claims, rights and causes of action
which such Person may have or may have had against any of such
Purchased Businesses or any predecessor in interest, prior to, or
arising with respect to any acts or omissions occurring or facts
or circumstances existing prior to, the Applicable Closing;
provided, however, that nothing in this Section 4.08 shall
release any rights which the CS Parties may have under this
Agreement or the Transaction Documents other than ordinary course
accounts receivable taken into account in the Working Capital
Adjustment relating to the purchase of concentrate by the CS COBO
Operations.
4.09 DELIVERY OF UPDATED SCHEDULES AND OTHER DOCUMENTS.
(a) Within three to six days prior to the Threshold
Closing and each other Applicable Closing involving a Threshold
Country or otherwise occurring within one year of the Threshold
Closing, CS shall deliver to KO revisions to the Disclosure
Schedules delivered in connection with the execution of this
Agreement to the extent necessary to make such Disclosure
Schedules accurate and complete as of each Applicable Closing.
Delivery of the revisions of the Disclosure Schedules shall be
for informational purposes only and shall not enlarge, limit the
rights or affect the obligations of any party hereunder. Such
revisions to the Disclosure Schedules shall not constitute the
Disclosure Schedules for purposes of this Agreement.
(b) Within thirty days after the date hereof, CS shall
provide KO with the following:
(i) a true, correct and complete list of all
material permits, material licenses and other material
governmental authorizations held by the Purchased Businesses or
relating to the Assets, including all material permits, material
licenses and other material governmental authorizations held by
or relating to the Purchased Businesses pursuant to the
Environmental Laws;
(ii) a true, correct and complete list of all
insurance policies currently in force naming any of the Purchased
Businesses or any employees thereof as an insured or beneficiary
or as a loss payable payee or for which any of the Purchased
Businesses has paid or is obligated to pay all or part of the
premiums;
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(iii) a true, correct and complete list of the ten
largest suppliers of goods or services to the Purchased
Businesses (in terms of amounts billed) and the ten largest
customers of the Purchased Businesses (in terms of liters sold)
during the 12-month period ended December 31, 1998;
(iv) a true, correct and complete list of all
Employee Benefits Plans;
(v) a true, correct and complete list and
description of all the property other than real property with a
book value in excess of U.S. $100,000 per item that the Purchased
Businesses currently own or lease or have agreed (or have an
option) to purchase, sell or lease; and
(vi) true, correct and complete lists of (A) all
on-site and off-site locations where any of the Purchased
Businesses has stored, disposed of or arranged for the disposal
of Material of Environmental Concerns, and (B) all underground
storage tanks, and the capacity and contents of such tanks,
located on property owned or leased by any of the Purchased
Businesses.
(c) At least thirty days prior to each Applicable
Closing, CS shall deliver to KO a list of the officers and
directors of the Purchased Company and Subsidiaries to be
acquired at such Applicable Closing.
(d) Upon the request of KO after the sixtieth day
following the date hereof, CS shall deliver to KO a list setting
forth the names and annual salary and compensation of all
employees of the Purchased Businesses.
4.11 ACCOUNTS RECEIVABLE. CS shall cause all accounts
receivable of the Purchased Businesses owing by CS or any
Affiliate of CS (including those accounts receivable reflected
on the 1997 Balance Sheets and those incurred since the date of
the 1997 Balance Sheets) to be paid in full prior to the
Applicable Closing Date other than ordinary course accounts
receivable taken into account in the Working Capital Adjustment
relating to the purchase of concentrate by the CS COBO Operations.
4.12 COLLECTIVE BARGAINING AGREEMENTS. CS shall, and shall
cause the other CS Parties to, keep KO fully and promptly
informed of any negotiations relating to any collective
bargaining agreement to which any of the Purchased Businesses is
or may become a party, and shall, if KO so requests, consult with
KO regarding such negotiations.
4.13 INSURANCE POLICIES. Subject to the following sentence,
as of each Applicable Closing Date, the Purchased Businesses
transferred on such Applicable Closing Date shall no longer be
covered by any policies of insurance of CS or its Affiliates
(other than policies held expressly in the name of such Purchased
Businesses) (the "CS Policies") and KO shall be required to
arrange any appropriate insurance coverage. Notwithstanding the
foregoing, if KO in its reasonable judgment determines that the
failure to continue any of the CS Policies in respect of such
Purchased Businesses could result in potential Losses to KO which
would not be covered
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by insurance policies which could be put in place by KO after
the Applicable Closing Date, then CS shall, to the extent
possible, cause such CS Policies to be continued at KO's expense
in respect of such Purchased Businesses (including, without
limitation, any future increase (or loss of any future decrease)
to CS in its premiums to the extent related to any losses
incurred in connection with such continuation).
4.14 TRANSFER OF DPBL SHARES. Prior to the Applicable
Closing Date with respect to the Purchased Company, Cadbury
Schweppes Ireland Ltd. ("CSIL") shall transfer to the Purchased
Company good, valid and marketable title to the 20% interest that
CSIL owns in DP Beverages Ltd. ("DPBL"). In addition, prior to
the Applicable Closing Date, CS shall (i) cause Cadbury Beverages
Canada Inc. and the Purchased Company to transfer to the
Purchased Company all legal and beneficial ownership in and to
good, valid and marketable title to all of the outstanding
capital stock of Canada Dry Corporation Limited and (ii) cause
each owner of shares of the Purchased Company and the
Subsidiaries (other than a Purchased Company) to transfer to the
KO Buyers (or one of their nominees) all of such shares.
ARTICLE 5
COVENANTS OF THE PARTIES
KO and CS hereby covenant to and agree with one another as
follows:
5.01 APPROVALS OF THIRD PARTIES; SATISFACTION OF CONDITIONS
TO CLOSING. Subject in the case of KO to KO's existing
commitments as described in Schedule 5.01, KO and CS will use
their respective reasonable best efforts, and will cooperate with
one another, to secure all necessary consents, approvals,
authorizations and exemptions from Governmental Authorities and
other third parties in connection with the transactions
contemplated by this Agreement and the Transaction Documents.
Subject in the case of KO to KO's existing commitments as
described in Schedule 5.01, KO and CS will use their reasonable
best efforts, and the parties shall cooperate in good faith, to
obtain the satisfaction of the conditions specified in Articles
6 and 7, as shall be required in order to enable the parties to
cause the Threshold Closing and each Subsequent Closing to occur
as promptly as practicable after the date of this Agreement. It
is specifically agreed that the obligations set forth in this
Section 5.01 shall include the obligation of the parties to
vigorously seek to avoid the imposition of any prohibition,
injunction, temporary restraining order or other order or
decision ("Negative Decision") in any suit or administrative
proceedings which would otherwise result in the failure of
closing conditions to be satisfied with respect to any country
and to vigorously pursue any available non-frivolous appeals
against any such Negative Decisions (including, without
limitation, to the governmental bodies listed on Exhibit 5.01)
with a view of removing any such impediment to closing.
5.02 CONFIDENTIALITY.
(a) From and after the date of this Agreement, each of
KO and CS shall hold, keep, treat and deal with all Confidential
Information (as defined in Section 5.02(b)) in accordance with
the terms of this Section 5.02.
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(b) For purposes of this Section 5.02, the following
terms shall have the following meanings:
"Business" means the global beverage business of each
of KO and CS.
"Confidential Information" means:
(i) all Information relating directly or
indirectly to the Business of a party that is disclosed by or
obtained directly or indirectly (whether by the receipt of
documents, orally or through observation), separately or
collectively, from KO or CS or any of their respective Affiliates
or agents (collectively, with KO or CS, referred to as the "KO
Group" or "CS Group" or "Groups", as indicated by the context);
(ii) all Information relating to either party
and/or any member of its Group including, without limitation,
Information relating to the assets, business, trading practices,
plans, proposals and/or trading prospects of such party and/or
any member of its Group that is disclosed by or obtained directly
or indirectly (whether by the receipt of documents, orally or
through observation) from that party or any member of its Group;
and
(iii) all Information obtained in any way (whether
directly or indirectly) from any director, officer, employee,
agent, professional advisor or contractor of either party or any
member of such party's Group;
BUT EXCLUDING:
(i) all Information that a party can show by
written records is at the time of receipt by it or comes to be
generally available to the public otherwise than as a consequence
of a breach by such party, its directors, officers, employees,
agents, professional advisers or contractors or any other person
referred to in paragraph (c) below; and
(ii) all Information that is shown by written
records to be properly and lawfully in a party's possession or
available to such party prior to the time that it is disclosed to
or obtained by such party and which was not obtained directly or
indirectly from the other party or any member of its Group nor
from another source bound by a duty of confidentiality to the
party or any member of its Group.
All references to Confidential Information in this Section
5.02 shall be to the whole or any parts thereof as the context
permits.
"Information" means all financial, trading, business,
organizational or legal information of any nature whatsoever in
whatever form, including, without limitation, all data, know-how,
analyses, compilations, studies, collections of data, proposals
and plans whether in writing, conveyed orally or by any telex,
recording, diagram, financial statements, computer program or
other machine-readable medium and shall also include all data,
know-how, analyses, compilations, studies, summaries, collection
of data, proposals and plans containing or otherwise
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reflecting or generated from such information.
(c) Each party shall and shall cause its advisers to:
(i) treat and keep all Confidential Information
as secret and confidential and not (directly or indirectly)
divulge, reveal, publish, communicate or disclose any
Confidential Information to any other Person, except:
(A) with the prior written consent of the
other party; or
(B) as may be required by law (but only
after reasonable consultation with the other party);
(ii) not use any Confidential Information in any
way or for any purpose (including, but not limited to, any
competitive or commercial purpose) other than the implementation
of the transactions contemplated by this Agreement and the
Transaction Documents;
(iii) (A) take all such action as may be
necessary to maintain the secrecy and confidentiality of the
Confidential Information and to ensure that the Confidential
Information is not disclosed by any Person in whole or in part
contrary to any of the terms of this Section 5.02; and
(B) under all circumstances, be responsible
for, and indemnify and keep the other party indemnified from and
held harmless against, any breach of this Section 5.02 by itself,
its directors, officers, employees, agents, professional advisers
or contractor or any Person referred to in paragraph (b)(i) above
or any of its Affiliates.
(d) In the event that this Agreement is terminated in
accordance with its terms, any party may request in writing the
return to such party of all documents (including, without
limitation, diagrams, tapes, computer programs or other machine-
readable materials) which contain, refer to or reflect any
Confidential Information which has been supplied or made
available to the other party or any of its directors, officers,
employees, agents, professional advisers or contractors or any
Person referred to in paragraph (c) above or any Affiliate of the
other party. Promptly after receiving such request, the other
party shall return all requested materials and will certify to
the other party that it has complied in full with the provisions
of this paragraph. Analyses, compilations, studies or other
documents prepared by such party's directors, officers, employees,
agents, professional advisers or contractors in a good faith
effort to evaluate commercial opportunities will be held by such
party or destroyed. Notwithstanding the return or retention of
such documents, the obligations of confidentiality and all other
obligations set out in this Section 5.02 shall remain in full
force and effect.
5.03 TRADE SECRETS, CONFIDENTIAL INFORMATION AND
NONCOMPETITION COVENANTS.
(a) For the purposes of this Section 5.03, the
following definitions shall apply:
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(i) "Competitive Activities" shall mean the manufacture,
distribution and sale of concentrates, essences, beverage bases
and syrups for the production of carbonated soft drinks and the
manufacture, distribution and sale of mineral water, bottled
water and similar water products.
(ii) "Confidential Information" shall mean any confidential
data or confidential information, other than Trade Secrets, which
is valuable to and used by any of the Purchased Businesses and
not generally known to competitors of the Purchased Businesses or
otherwise publicly available.
(iii) "Noncompete Period" shall mean the period beginning on
the Applicable Closing Date and ending on the fourth anniversary
of the Applicable Closing Date.
(iv) "Territory" shall mean any country with respect to
which the Purchased Businesses are transferred by the CS Parties
to the KO Buyers pursuant to this Agreement.
(v) "Trade Secret" shall mean information of or pertaining
to any of the Purchased Businesses, including, but not limited to,
technical or nontechnical data, a formula, pattern, compilation,
program, device, method, technique, drawing, process, financial
data, financial plan, product plan, list of actual or potential
agents or customers, or other information similar to any of the
foregoing, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can derive
economic value from its disclosure or use, and (ii) is the
subject of reasonable efforts by any of the Purchased Businesses
to maintain its secrecy.
(b) From and after the Applicable Closing Date in
respect of a Purchased Business, the CS Parties shall hold in
confidence all Trade Secrets and all Confidential Information in
each Territory, and shall not disclose, publish or make use of
Trade Secrets or Confidential Information in each Territory
without the prior written consent of KO.
(c) The CS Parties agree as follows:
(i) The CS Parties acknowledge that to protect adequately
the interest of the KO Parties it is essential that any
noncompete covenant with respect thereto cover all Competitive
Activities and the entire Territory.
(ii) The CS Parties hereby agree that the CS Parties shall
not, during the Noncompete Period, in any manner, directly or by
assisting others, engage in, have any equity, or profit interest
in, or render services of any executive, administrative,
supervisory, marketing, production or consulting nature to any
Person that conducts any of the Competitive Activities in any
Territory (excluding for such purposes the ownership of less than
5% of the outstanding equity of any publicly traded company with
respect to which none of the CS Parties has any representation on
the board of directors or similar governing body).
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(iii) The CS Parties hereby agree that the CS Parties shall
not, during the Noncompete Period, in any manner, directly or by
assisting others, solicit or accept, or attempt to solicit or
accept, any business from any agent, customer or franchisee of
any of the Purchased Businesses, including actively sought
prospective agents, customers or franchisees, for purposes of
providing products or services that are competitive with those
provided by the Purchased Businesses in any Territory.
(iv) Notwithstanding the foregoing provisions of Section
5.03(c)(i), (ii) and (iii), nothing in this Section 5.03 shall
(A) prevent CS or any of its Affiliates from engaging in any
Competitive Activities outside of any Territory so long as such
activities do not involve in any material respect any Competitive
Activities within the Territory, (B) prevent CS from supplying
products or services to bottlers or distributors located outside
any Territory which are not affiliates of CS which may sell or
distribute products or services in any Territory so long as CS
does not encourage such sale or distribution, provided that CS
shall not be required to prevent or hinder passive parallel trade
or (C) restrict the activities of the Joint Venture in France
with Acqua Minerale San Benedetto spa, the German Joint Venture
or the continuation of the bottled water line and related
distribution arrangements for San Benedetto in CS's Belgian COBO
operations.
(d) Except as set forth in Section 5.06, the CS Parties
hereby agree that the CS Parties shall not in any manner,
directly or by assisting others, (A) on the Applicable Closing
Date in respect of a Purchased Business and during the two years
immediately thereafter, hire or actively solicit for employment
any officer or director of any of the Purchased Businesses or
(B) on the Applicable Closing Date in respect of a Purchased
Business and during the three years immediately thereafter,
actively solicit for employment any other present or former
employee of any of the Purchased Businesses; provided that
nothing in clause (B) shall restrict any general advertisement
by CS which is not directed at any such employees individually or
as a group.
(e) KO hereby agrees that the KO Buyers shall not, in any
manner, directly or by assisting others on the Threshold Closing
Date and during the three years immediately thereafter actively
solicit for employment any officer or director or any other
present or former employee of (i) any of the Purchased Businesses
retained by the CS Parties, or (ii) any of the CS Parties'
carbonated soft drink business in any Excluded Countries;
provided that nothing in this clause (e) shall restrict any
general advertisement by KO which is not directed at any such
employee individually or as a group.
(f) If a judicial or arbitral determination is made that
any of the provisions of this Section 5.03 constitutes an
unreasonable or otherwise unenforceable restriction against the
CS Parties, the provisions of this Section 5.03 shall be rendered
void only to the extent that such judicial or arbitral
determination finds such provisions to be unreasonable or
otherwise unenforceable. In that regard, the parties to this
Agreement hereby agree that any judicial or arbitral authority
construing this Agreement shall be empowered to sever any
prohibited business activity, time period or geographical area
from the coverage of this Section 5.03 and to apply the
provisions of this Section 5.03 to the remaining business
activities and the remaining time period
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not so severed by such judicial or arbitrate authority.
Moreover, notwithstanding the fact that any provision of this
Section 5.03 is determined not to be specifically enforceable,
the KO Parties shall nevertheless be entitled to recover monetary
damages as a result of the breach of such provision by the CS
Parties. The time period during which the prohibitions set forth
in this Section 5.03 shall apply shall be tolled and suspended
for a period equal to the aggregate quantity of time during which
any CS Party violates such prohibitions in any respect.
5.04 TAX MATTERS.
(a) Except as otherwise provided in this Section
5.04, it is expressly understood and agreed that the CS Parties
shall be liable for all Taxes (as defined in Section 2.23) for
any taxable period or portion thereof ending on or before the
Applicable Closing Date. For any period for which the applicable
law does not permit the Purchased Businesses to treat the
Applicable Closing Date as the last day of a taxable period (a
"Straddle Period"), then, for purposes of this Agreement, any
Taxes that are attributable to any of the Purchased Businesses
through the Applicable Closing Date shall be the Tax that would
otherwise be due as if the Applicable Closing Date was the last
day of a taxable period, except that in the case of Taxes such as
property taxes that are imposed on a periodic basis (which, for
the avoidance of doubt, shall in no event include income taxes),
and measured by the level of any item (other than an item that is
required to be determined as of the Applicable Closing Date or
which is clearly determinable as of the Applicable Closing Date),
the Taxes attributable to the Purchased Businesses through the
Applicable Closing Date shall be the amount of such Taxes for the
entire period multiplied by a fraction the numerator of which is
the number of calendar days in the period ending with the
Applicable Closing Date and the denominator of which is the
number of calendar days in the entire period. The KO Buyers
shall be responsible for Taxes solely attributable to any
transactions occurring on the Applicable Closing Date but after
the Applicable Closing that are not in the ordinary course of
business consistent with past practice. Notwithstanding the
foregoing sentence, for purposes of this Section 5.04, any Tax
that arises after the Applicable Closing (whether or not on the
Applicable Closing Date) and that would not have been incurred
but for the existence of a potential liability for Tax arising
from the use of any form of group transaction relief as described
in Section 2.23(b)(xii) that existed on or before the Applicable
Closing Date (whether or not disclosed on Schedule 2.23) shall be
deemed to be Tax for a taxable period or portion thereof ending
on or before the Applicable Closing Date.
(b) The CS Parties shall be responsible for causing
the Purchased Businesses to file all Tax Returns for the taxable
periods of the Purchased Businesses ending on or before the
Applicable Closing Date and which are due (excluding extensions)
before the Applicable Closing Date and for making any required
payments with respect to such returns. In preparing and filing
such Tax Returns of the Purchased Businesses the CS Parties shall
not materially deviate from the manner in which any item of
income or expense of any of the Purchased Businesses was reported
in prior years, except as required by law.
(c) The KO Buyers shall be responsible for filing or
causing the Purchased Businesses to file all Tax Returns not
required to be filed by the CS Parties pursuant to Section
5.04(b), and for making or causing the Purchased Businesses to
make any required payments
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with respect to such returns. In preparing and filing income
Tax Returns of the Purchased Businesses for any Straddle Period,
the KO Buyers shall not materially deviate from the manner in
which any item of income or expense of any of the Purchased
Businesses was reported in prior years, except as required by law.
The KO Buyers shall provide the CS Parties with a draft of the
Tax Return for any Straddle Periods of the Purchased Businesses
together with a statement (with which the KO Buyers will make
available supporting schedules and information) certifying the
amount of Tax shown on such Tax Return that is allocable to the
CS Parties pursuant to Section 5.04(a) hereof at least ten
business days prior to the due date (including any extension
thereof) for the filing of such Tax Return, and the CS Parties
shall have the right to review such Tax Return and statement
prior to the filing of such Tax Return. The CS Parties and the
KO Buyers agree to consult and to attempt in good faith to
resolve any issues arising as a result of the review of any such
Tax Return and statement by the CS Parties. Payment by the CS
Parties of any amounts due under this Section 5.04 in respect of
Taxes shall be made (i) with respect to Straddle Period Taxes, at
least three calendar days before the due date of the applicable
estimated or final Tax Return required to be filed by the
Purchased Business on which is required to be reported income or
other amounts for a Straddle Period, or (ii) with respect to all
other Taxes, within five business days following either an
agreement between the CS Parties and the KO Buyers that an amount
is payable pursuant to this Section 5.04 or the assessment of
such Tax by an applicable taxing authority.
(d) After the Applicable Closing Date, the KO Buyers
shall have the right, subject to the other provisions of this
Section 5.04, to direct the handling of all matters relating to
the Tax liabilities of the Purchased Businesses for periods
ending after the Applicable Closing Date, including, without
limitation, the preparation of all returns, the payment of all
liabilities, the prosecution of all administrative and judicial
remedies, the execution of any closing agreement or any consent
or waiver extending the statute of limitations and the filing of
any claim for refund.
(e) The KO Buyers on the one hand, and the CS Parties
and the Purchased Businesses on the other hand, each shall use
their reasonable best efforts to provide each other with such
assistance as may reasonably be requested by any of them in
connection with Tax matters, including but not limited to,
information with respect to the preparation of any Tax Return,
any judicial or administrative proceeding relating to liability
for Taxes, or any claim arising under this Section 5.04 and each
will retain and provide the other with any records or information
which may be relevant to such Tax Return, audit, examination,
proceedings or determination. Such assistance shall include
making employees available on a mutually convenient basis to
provide additional information or explanation of material
provided hereunder and shall include providing copies of any
relevant Tax Returns and supporting work schedules. The party
requesting assistance hereunder shall reimburse the other for
reasonable out-of-pocket expenses incurred in providing such
assistance. In addition, the KO Buyers and the CS Parties shall
notify the others reasonably in advance of entering into a
closing agreement with any taxing authority that by its terms
would bar the other party from realizing a net Tax benefit.
(f) All transfer tax costs pertaining to the
implementation of the transactions contemplated by this Agreement
shall be paid by the parties as provided in Section 4.05.
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(g) (A) After the Threshold Closing, the Purchased
Businesses shall promptly notify the CS Parties in writing of the
commencement of any Tax audit or administrative or judicial
proceeding or of any demand or claim on a Purchased Business
which, if determined adversely to the taxpayer or after the
lapse of time, would be grounds for indemnification hereunder.
Such notice shall include copies of any notice or other document
received from any taxing authority in respect of any such
asserted Tax liability. If the Purchased Businesses fail to give
the CS Parties prompt notice of an asserted Tax liability as
required by this Section 5.04(g), and if such failure to give
prompt notice results in a material detriment to the CS Parties,
then any amount which the CS Parties are otherwise required to
pay to any Purchased Business or the KO Buyers with respect to
such liability shall be reduced by the amount of such detriment.
(B) The CS Parties may elect to direct, through
counsel of their own choosing and at their own expense, any audit,
claim for refund and administrative or judicial proceeding
involving any asserted liability with respect to which indemnity
for Taxes may be sought under Section 5.04 (any such audits,
claims for refund or proceedings relating to any asserted Tax
liability are referred to herein collectively as a "Contest").
If the CS Parties elect to direct the Contest of an asserted Tax
liability, they shall within ten calendar days of receipt of the
notice of asserted Tax liability notify the affected Purchased
Business of their intent to do so, and the KO Buyers shall
cooperate and shall cause each of the Purchased Businesses or
their successors to cooperate, at the CS Parties' expense, in
each phase of such Contest. If the CS Parties elect not to
direct the Contest, fail to notify the Purchased Business of
their election as herein provided or contest their obligation to
indemnify under Section 5.04, the Purchased Business may pay,
compromise or contest, at its own expense, such asserted
liability. If the CS Parties elect to direct the Contest, the
KO Buyers shall cause the appropriate Purchased Business or its
successor promptly to empower (by power of attorney and such
other documentation as may be appropriate) such representatives
of the CS Parties as they may designate to represent the
Purchased Business in the Contest insofar as the Contest involves
an asserted Tax liability for which the CS Parties would be
liable under this Section 5.04.
(h) The parties agree to treat all payments made under
this Section 5.04, under other indemnity provisions of this
Agreement and for any misrepresentations or breach of warranties
or covenants as adjustments to the purchase price for Tax
purposes.
(i) The provisions of Sections 2.05, 2.15(b), 2.23,
4.05 and 5.04 hereof shall be determinative of the respective
liabilities of the parties hereto with respect to Taxes in the
event that any other provision of this Agreement could otherwise
be interpreted in a manner inconsistent with Sections 2.05,
2.15(b), 2.23, 4.05 or Section 5.04 hereof.
(j) Prior to the Threshold Closing, the parties will
agree in writing upon an allocation of the Purchase Price among
the Purchased Businesses and shall report such allocation for all
tax purposes and in all tax filings.
5.05 OTHER MATTERS. The parties agree to comply with their
obligations set forth in Exhibit 5.05.
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5.06 EMPLOYEE MATTERS.
(a) As of the Applicable Closing Date, the KO Buyers
shall offer employment to (in the case of Persons who are not
employees of the Plants), or continue to employ (in the case of
Persons who are employees of the Plants), each full and part-time
regular employee who is employed by the relevant Purchased
Business immediately prior to such Applicable Closing Date. For
a twelve month period following the Applicable Closing Date those
individuals who are on an authorized leave of absence, short- or
long-term disability leave, workers' compensation leave or
vacation leave and any employee of the Purchased Businesses who
is on secondment to another entity as of the Applicable Closing
Date will be offered employment when they are available and ready
to perform the duties of a regular employee so long as such
employee(s) are ready to perform such duties within said twelve
month period. The foregoing sentences expressly exclude those
individuals that have been agreed upon in good faith by the
parties hereto on or prior to the thirtieth day following the
date hereof in a manner consistent with the discussions between
the parties on this matter through the date hereof and such
employees shall be retained by CS. Notwithstanding the
foregoing, it is expressly acknowledged by the parties hereto
that CS or its Affiliates shall be permitted to retain the
employment of any individual who, pursuant to CS's then existing
internal job filling procedures, on his own and without
solicitation by CS or any of its Affiliates successfully applies
for another position within the CS affiliated group outside of
the Purchased Businesses. If pursuant to the preceding sentence,
in the reasonable judgement of the KO Buyers, key employees of
that portion of the Purchased Businesses would remain employed by
CS or its Affiliates or if in the reasonable judgement of KO
there have been employee departures that exceed customary levels
and that are not consistent with past practice, KO and CS hereby
expressly agree to discuss in good faith how best to address the
implications of the foregoing and its impact on KO. Any employee
who is employed by any of the KO Buyers after the Applicable
Closing Date shall be hereinafter referred to as a "Transferred
Employee." Nothing contained in this Section 5.06 shall be
construed to prevent, limit or restrict in any way KO's right to
terminate any Transferred Employee at any time following the
Applicable Closing Date.
(b) On and after the Applicable Closing Date, KO
agrees to honor those severance obligations (i) with respect to
the Transferred Employees as set forth on Schedule 5.06(b), and
(ii) CS employees in Purchased Businesses who refuse an offer of
employment by KO for a "good reason" as defined in Schedule
5.06(b), in each case subject to the limitations set forth
therein. KO shall have no obligations with respect to severance
or otherwise in the instance in which CS employees refuse an
offer of employment for other than a "good reason."
(c) The CS Parties and the KO Buyers acknowledge that
certain of the Transferred Employees are currently participating
in one or more retirement plans that are sponsored or contributed
to by the CS Parties (the "Pension Plans"). In instances where
the Transferred Employees will become participants in a funded
plan maintained or established prior to the Applicable Closing
Date by the KO Buyers, the KO Buyers will give credit to the
Transferred Employees under such plan for all service with CS and
any of its affiliates and predecessors for all purposes,
including without limitation, for eligibility, vesting and
benefit accrual purposes, to the extent that such credit was
credited under the comparable pension
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programs of CS and its affiliates immediately prior to the
Applicable Closing Date, and to the extent that such crediting is
permissible under applicable local law. In such a case, the CS
Parties agree to transfer sufficient assets to the KO Buyers to
fund such past service obligations so assumed by the KO Buyers,
determined on the basis of reasonable actuarial principles,
provided such transfer is in compliance with appropriate local
law requirements. However, no such credit shall be given for
benefit accrual purposes in cases where a Transferred Employee
has elected to cash out his pension benefit from any of the
Pension Plans of the CS Parties.
(d) KO agrees to use its reasonable best efforts to
provide as of the Applicable Closing Date medical, pension, life
and disability benefits, and cash, incentives and other
remuneration to Transferred Employees that are, in the aggregate,
no less favorable to the Transferred Employees than were the
aggregate benefits, cash and other remuneration provided to such
Transferred Employees by the CS Parties immediately prior to the
Applicable Closing Date.
(e) On and after the Applicable Closing Date, the KO
Buyers shall assume all obligations attendant to any company
automobiles exclusively used in the Purchased Businesses,
including, without limitation, all lease payments, insurance
premiums and maintenance expenses, on terms that are
substantially comparable to the automobile expense reimbursement
policies that apply to such Transferred Employees immediately
prior to the Applicable Closing Date. The obligations herein,
assumed by the KO Buyers, shall continue, as regards to
individual Transferred Employees, for the duration of the
individual lease agreements applicable to automobiles currently
made available to such Transferred Employees. Thereafter, such
Transferred Employees shall be eligible for use of KO automobiles,
to the extent consistent with local KO practice.
(f) CS and KO shall take all reasonable actions to
effect the provisions of this Section 5.06 and to provide one
another and their respective agents with all reasonable and
practicable assistance relating to the matters addressed herein
regarding the establishment, administration and maintenance of
employee benefit plans and programs that apply to the Transferred
Employees. In addition, the parties agree to use their
reasonable best efforts to take all actions necessary to comply
with all applicable local laws regarding notification to and
consultation with the employees of the Purchased Businesses that
may be required by the transactions contemplated by this
Agreement and shall use their reasonable best efforts to take the
results of any such consultation into account in their actions
hereunder.
5.07 BOTTLING RIGHTS. In order to allow KO to realize its
anticipated growth projections for the Owned Trademarks, prior to
the Threshold Closing and to the extent relevant after the
Threshold Closing, CS and KO will discuss in good faith and seek
to agree upon the best manner in which to take advantage of
opportunities as they may arise that will enable CS to transfer
bottling rights and all rights associated with bottling which are
currently held by any party, provided that it is understood that
the parties are not contemplating any transfers from KO bottlers
or the CS COBO Operations.
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5.08 NO SALES TO CERTAIN COMPETITORS.
(a) From and after the Subsequent Closing Expiration
Date (or in the case of a license, from and after the date of
this Agreement), CS agrees (and shall cause the Affiliates of CS
to agree) not to sell, dispose of, license (except as set forth
in Section 5.08(b)), assign or otherwise transfer (whether
through the sale of stock or assets or through any merger,
consolidation, share exchange, business combination or other
transaction involving any CS subsidiary or otherwise), except
pursuant to an agreement in respect of a Takeover Proposal, to
any competitor of KO with a significant global presence and with
annual revenues derived from beverage concentrate sales in excess
of U.S.$1,750,000,000 (a "Major Competitor") any direct or
indirect right, title or interest in (i) any Owned Trademark
which is not included in the Threshold Closing or a Subsequent
Closing and any similar trademark in Australia, South Africa or
France (a "Held Brand"), (ii) any brand, trademark, trade name or
similar right which is a variant of any of the Owned Trademarks
outside the United States, or (iii) any Excluded Country License
Agreement.
(b) If, after completing the process described in
Section 5.07, CS determines that it is not commercially
practicable for it to enter into alternative licensing
arrangements with another bottler and that it should enter into a
bottling agreement in a particular territory with a bottler that
is more than 30% owned by a Major Competitor, CS may enter into
such agreement but only if such agreement is on terms which are
in the ordinary course of business, consistent with past practice
and such agreement has a term no longer than ten years.
(c) From and after the Subsequent Closing Expiration
Date, if the Board of CS recommends a Takeover Proposal involving
a Major Competitor, CS enters into a definitive agreement
providing for a Takeover Proposal involving a Major Competitor or
a Takeover Proposal involving a Major Competitor is consummated,
CS hereby grants to KO a freely assignable option, exercisable
for a period of 120 days after the completion of such transaction
by written notice from KO to CS, to acquire one or more of the
Held Brands and the businesses associated therewith at the fair
market value of such Held Brands and businesses. If the option
is exercised, KO or its assignee will have one year following the
date of exercise to consummate such transaction. Any dispute
regarding such fair market value shall be resolved as follows:
If the parties are unable to reach agreement on the fair
market value within thirty days after the option is exercised,
then the parties shall mutually appoint an independent investment
banking firm of international reputation experienced in valuing
businesses of the kind conducted by the Purchased Businesses;
provided, that if the parties are unable to agree upon such an
independent investment banking firm within 10 business days, then
each party shall promptly retain its own investment banking firm
and the two investment banking firms retained by each party shall
select such independent investment banking firm within 10
business days after expiration of the initial 10 business day
period referred to above (the independent investment banking firm
appointed pursuant to the provisions of this sentence being the
"Independent Appraiser"). The Independent Appraiser shall,
within 30 business days after its appointment, determine the
disputed fair market value. The determination of the Independent
Appraiser shall be final and binding on both parties. The fees
and expenses of the Independent Appraiser shall
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be shared equally by CS and KO.
5.09 RIGHT OF FIRST NEGOTIATION. CS agrees that, if CS
determines to engage in a transaction or if CS receives a bona
fide offer in either case which could result in the direct or
indirect sale, assignment, transfer, disposition or license
(but specifically excluding licensing of Held Brands, subject
to Sections 5.07 and 5.08, if such licensing is on terms which
are in the ordinary course consistent with past practice and for
a duration of no more than ten years) of ownership or control (a
"Disposition") of all or some of the Held Brands, CS will provide
KO with written notice of its intent to engage in a Disposition
of Held Brands (setting forth in such notice the Held Brands
which CS intends to dispose of). KO shall have 20 business days
after delivery by CS to KO of such notice to notify CS that KO
desires to negotiate with CS for the acquisition of the Held
Brands specified in CS's notice to KO. If KO shall fail to
deliver such notice to CS by the expiration of such 20 business
day period, CS's obligations under this Section 5.09 shall expire
with respect to such Held Brands if there is a Disposition of
such Held Brands within 180 days thereafter (provided that if
such Disposition does not occur within such 180-day period, the
provisions of this Section 5.09 shall again apply to such Held
Brands). If KO shall timely provide such notice to CS, KO and CS
shall negotiate diligently and in good faith for a period of up
to 180 days in order to attempt to agree upon a transaction
pursuant to which KO would acquire such Held Brands. If such
negotiations shall fail to result in an agreement between KO and
CS with respect to such Held Brands, upon expiration of such
180-day period, CS's obligations under this Section 5.09 shall
expire with respect to such Held Brands if there is a Disposition
of such Held Brands within 180 days thereafter (provided that if
such Disposition does not occur within such 180-day period, the
provisions of this Section 5.09 shall again apply to such Held
Brands).
5.10 CERTAIN BRAND ACQUISITIONS. Except as set forth on
Schedule 5.10(a), prior to the Threshold Closing Date, KO agrees
not to directly or indirectly acquire any trademarks in any of
the countries set forth on Schedule 5.10(b) if such acquisition
would significantly and adversely affect the ability of KO to
obtain necessary regulatory approvals to achieve the Threshold
Condition.
5.11 AUSTRALIA. Subject to due diligence on the part of KO,
the negotiation of a definitive agreement mutually satisfactory
to KO and CS, Board approval on the part of KO and CS and
regulatory approval, KO and CS intend to enter into a transaction
pursuant to which KO would purchase for a purchase price of
U.S.$250,000,000 all of the tangible and intangible assets
primarily relating to the beverage trademarks of CS and its
Affiliates in Australia (including the Cottees Cordials business),
including all bottling assets, and would assume the ordinary
course working capital liabilities relating thereto. This
intended price reflects the assumption by KO and CS that all
carbonated soft drink brands and all non-carbonated beverage
brands owned by CS and Affiliates in Australia (including the
Cottees Cordials business) would be transferred to KO, and that
CS would make representations and warranties with respect to all
such brands, consistent with the representations and warranties
set forth in Section 2.13 of this Agreement and provide
indemnification with respect to such brands to KO consistent with
Section 9.01 of this Agreement. The parties also intend more
generally that the definitive agreement with respect to such
transaction would be generally consistent with the terms and
conditions of this Agreement,
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taking into account the size and nature of such transaction.
5.12 SOUTH AFRICA. The parties intend to negotiate and
cooperate in good faith in a timely manner to seek to develop a
transaction structure that would permit KO to enter into a
mutually acceptable commercial arrangement with each of Cadbury
Schweppes (South Africa) Ltd. and the owner of the Lemon Twist
trademark in South Africa that would enable KO to acquire for
fair value all tangible and intangible assets relating to the
trademarks used in CS's beverages business in South Africa
(including Lemon Twist) and the entire associated value stream.
5.13 ROSE'S BEVERAGES. At the Threshold Closing, CS or the
relevant Affiliate of CS and KO or the relevant Affiliate of KO
shall enter into an exclusive royalty-free, freely transferable
license agreement (the "Rose's License Agreement"), with a right
to sublicense in form and substance reasonably satisfactory to
the parties and in substantially the same form as the Excluded
Country License Agreement pursuant to which CS will grant to KO
the right to use in perpetuity the trademark "Rose's" for
beverages and any brand, trademark, trade name or similar right
connected or associated therewith for beverages (including any
variants thereof which are developed or created after the date
hereof for beverages) with respect to all countries other than
the United States, South Africa, Canada and France (and other
than Australia, unless the Cottees Cordials are acquired
pursuant to Section 5.11). The Rose's License Agreement shall
include, without limitation, terms providing KO or the relevant
KO Affiliate with brand extensions and rights to new packaging.
If the entering into of the Rose's License Agreement would not be
permitted at the Threshold Closing, the Purchase Price will be
adjusted by the amount attributed to Rose's beverages on Schedule
1.02(b)-1.
5.14 MEXICAN COBO-TECATE FACILITY. If CS sells the Mexican
COBO, CS shall transfer, assign and deliver to the purchaser of
the Mexican COBO at no cost to such purchaser all of CS's right,
title and interest in and to the mineral water rights presently
used with respect to its Tecate, Mexico facility (the "Tecate
Facility"). CS shall also provide to such purchaser the
opportunity to elect to cause CS to fill carbonated soft drink
and mineral water products produced by the Tecate Facility at
CS's cost as determined below. Such purchaser shall have the
right to cancel such filling agreement, subject to reasonable
notice, without cost to such purchaser. In addition, such
purchaser shall not assume any liabilities or obligations
relating to the employees of the Tecate Facility. As used in
this Section 5.14, CS's "cost" means all direct costs and
reasonable overhead and other indirect costs associated with
producing such products.
5.15 GERMANY.
(a) The parties recognize that CS owns 28% of the
equity interests of a German joint venture (the "German Joint
Venture") which licenses the Schweppes Brand and certain other
brands, including DR PEPPER Brand, from CS, which license CS
represents and warrants has a termination date of December 31,
2001 (assuming proper notice of termination is provided, which
notice CS agrees to give at the earliest possible date).
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(b) Following the Applicable Closing Date relating to
Germany, CS shall, or shall cause its appropriate Affiliate to,
make the following payments to KO, subject to the provisions of
this paragraph set forth below, at the times specified below:
September 30, 1999 US$2,400,000
March 31, 2000 US$2,625,000
September 30, 2000 US$2,850,000
March 31, 2001 US$3,075,000
September 30, 2001 US$3,300,000
If the Applicable Closing in Germany shall occur after
a scheduled payment date, CS shall not be required to make the
specified payment for such date. If the German Joint Venture
shall be terminated and the license agreement is terminated
without any objection from either of the joint venture parties
prior to any scheduled payment date, then (i) within 10 business
days after such terminations, CS shall make a payment to KO in an
amount equal to the product of (A) the amount of the next
scheduled payment and (B) a fraction, the numerator of which
shall be the number of days that shall have elapsed from the
scheduled payment date immediately prior to the termination of
the German Joint Venture to, and including, the date of such
terminations and the denominator of which shall be 182.5 and
(ii) no further payments under this paragraph (b) shall be
required.
(c) CS agrees that if KO reaches an agreement to
acquire the license rights to the DR PEPPER Brand (and any
variants thereof) from the German Joint Venture on or prior to
December 31, 2001, then CS will waive and surrender to KO any
rights CS may have to receive, directly or indirectly, any
payment in respect of the price paid by KO to acquire such rights.
(d) CS agrees that at all times prior to January 1,
2002, it will use its commercially reasonable efforts to support,
promote, maintain and enhance the brand value associated with the
DR PEPPER Brand (and any variants thereof) in Germany.
5.16 SYRIA. CS will cooperate with KO in an effort to
permit KO to be able to conduct the Purchased Businesses in Syria
following the Threshold Closing. If prior to the Threshold
Closing, KO in its discretion determines that it will not be able
to conduct the Purchased Businesses in Syria, then (i) the Owned
Trademarks in Syria shall be transferred to the KO Buyers, (ii)
none of the other Assets in Syria shall be transferred to the KO
Buyers (with a corresponding reduction in the Purchase Price as
described in Schedule 1.02(b)-1), (iii) the KO Buyers shall enter
into an Excluded Country License Agreement with respect to Syria,
and (iv) the other Assets shall be transferred by the CS Parties
to the KO Buyers at a Subsequent Closing at such time as the CS
Parties may determine, with the price determined based on the
value as described in Schedule 1.02(b)-1.
5.17 ZIMBABWE.
(a) The parties recognize that CS owns 44.9% of the
equity interests of a company in Zimbabwe (the "Zimbabwe Company")
which licenses certain brands, including
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Schweppes and Mazoe, from CS (the "Zimbabwe License"), which
license CS represents and warrants has a termination date of
December 31, 2001, except with respect to Whisky black, which has
a termination date of December 31, 2004.
(b) Unless otherwise agreed by the parties, on and
after the Applicable Closing in respect of Zimbabwe, CS agrees to
pay to KO promptly all dividends and other distributions or
economic benefits (on an after-tax basis based on CS's applicable
tax rate) which CS may from time to time receive from the
Zimbabwe Company prior to December 31, 2001. In addition, CS
shall indemnify KO for all losses which KO may incur arising out
of, relating to, or in connection with, any action brought by the
other shareholders of the Zimbabwe Company arising out of the
termination by KO of the Zimbabwe License at any time on or after
December 31, 2001.
5.18 INDIA. At KO's option, at the Threshold Closing or, if
KO elects, at any Subsequent Closing specified by KO, the CS
Parties shall assign, transfer and deliver to KO, AI or another
KO Buyer at no cost or expense to the KO Buyers, all of the right,
title and interest of the CS Parties in and to Cadbury Schweppes
Beverages India Private Ltd. (other than any cash or cash
equivalents held by such company, except to the extent that the
exclusion of such cash would reduce the fair market value of such
company below zero).
5.19 CHINESE JOINT VENTURE.
(a) The parties recognize that CS owns 35% of a
company in China (the "Chinese Company") which licenses the Oasis
brand in China.
(b) Prior to the Threshold Closing, CS shall cause the
Chinese Company to be liquidated so that CS (and KO following the
Threshold Closing) will have the unfettered right and title to
the "Oasis" brand in China and the unfettered right to license
such brand.
5.20 SUPPORT AGREEMENTS; CONCENTRATE AGREEMENT.
(a) With respect to any country (other than the United
States) the Purchased Businesses with respect to which are not
purchased by KO pursuant to this Agreement at the Threshold
Closing or a Subsequent Closing, the parties will enter into an
agreement for the provision by KO to CS of specific support
services in such form as the parties may mutually agree. Such
services will include, without limitation, the supply of
concentrates, as well as services related to new products,
packaging and advertising, to the extent necessary to permit CS
to continue its operations in such countries in a manner
comparable to currently conducted operations. The supply of
concentrates shall be at KO's cost as determined below. CS and
KO will negotiate in good faith on an arms-length basis the
amounts of payments to be made by CS to KO in return for such
services to be provided by KO. For purposes of this Section 5.20,
"KO's cost" means all direct costs and reasonable overhead and
other indirect costs associated with the provision of such
supplies and services.
(b) Since KO will not be purchasing the "Oasis"
trademark in all countries at
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the Threshold Closing, the parties will negotiate in good faith
regarding the terms of a supply agreement to be mutually
satisfactory to the parties relating to the supply of fruit-based
concentrate to CS for products bearing the "Oasis" trademark.
5.21 FACILITATION PAYMENTS. In consideration for the
assistance to be provided by CS in connection with closing the
transactions contemplated by this Agreement and the Transaction
Documents, KO or AI shall pay to CS in cash (i) a transition
facilitation payment in the amount of U.S.$30,000,000 on the
later of the Threshold Closing Date and July 1, 1999 (the "First
Payment Date"), and (ii) a transition facilitation payment in the
amount of U.S.$20,000,000 on the date which is seven months after
the First Payment Date. Such payment shall not be subject to
reduction or set-off for any reason.
5.22 YEAR 2000 COMPLIANCE.
(a) Following the date of this Agreement, CS shall
provide KO with such access and information as KO may reasonably
request relating to any issues regarding whether the Plants are
Year 2000 Compliant, and shall permit, at KO's sole cost and
expense, any consultant engaged by KO to have such access and
receive such information as KO may reasonably request in order
to permit such consultant to assess the issues regarding whether
the Plants are Year 2000 Compliant.
(b) If any of KO, the KO Buyers or the Plants:
(i) is required to expend funds in excess of
U.S. $200,000 in order to execute the Y2K Plan; or
(ii) reasonably determines in good faith, prior to
January 1, 2000, that steps additional to those set forth in the
Y2K Plan are required to ensure the Year 2000 Computer Date
Problem will not affect the conduct of the business of the Plants
in any material respect, and that expenditures in excess of
U.S. $200,000 are required to take such additional steps;
then KO shall notify CS, and CS agrees that it shall either:
(A) provide the funds to KO so that KO can execute the Y2K
Plan or take the additional steps required, in which case CS
shall be relieved from any indemnification obligations under
Sections 9.01(a)(vii) in respect of such additional steps
undertaken by KO and the matters addressed by such additional
steps;
(B) implement the additional steps required by KO at CS's
expense, in which case CS shall not be subject to the
indemnification obligations under Section 9.01(a)(vii) with
respect to such additional steps and the matters addressed by
such additional steps, unless CS fails to implement or
negligently implements the required steps identified by KO;
(C) in lieu of the additional steps required by KO, suggest
an alternate plan or steps to be implemented at CS's expense in
which case CS shall be required to indemnify KO in
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accordance with Section 9.01(a)(vii) with respect to such matter
only to the extent that CS's alternate plan or steps fail to
correct the problem identified by KO or cause a Loss; or
(D) take no action, in which case CS shall indemnify KO for
any Loss caused by the identified problem in accordance with
Section 9.01(a)(vii), subject to the limitations set forth in
Section 9.01(c).
5.23 ENVIRONMENTAL COMPLIANCE. If any of KO, the KO Buyers
or the Purchased Businesses reasonably determines in good faith
after any Applicable Closing Date that steps are necessary to
avoid or mitigate a potential Environmental Claim arising from
any conditions, facts, circumstances, events or practices
relating to the Plants, the properties covered by the Assumed
Leases or the Malvern Facility (but specifically excluding
practices to the extent of any continuation of such practices by
KO after the Applicable Closing Date) on or prior to the
Applicable Closing Date, then KO shall notify CS and CS agrees
that it shall either:
(a) provide the funds to KO so that KO can avoid or
mitigate the Losses associated with such Environmental Claim; or
(b) take no action, in which case CS shall indemnify
KO for any Loss associated with any such Environmental Claim
which may arise under Section 9.01(a)(v)(B) or 9.01(a)(vi), in
accordance with and subject to any applicable limitations set
forth in Section 9.01(c), provided that in such event, CS shall
not be entitled to assert mitigation or any similar defense as a
defense to CS's indemnity obligation to any Protected Party (as
defined in Section 9.01(a)) for any such Environmental Claim.
5.24 DEBT. CS shall repay, prior to the Applicable Closing
Date, all Debt of the Purchased Company and the Subsidiaries. If
such Debt cannot be repaid due to restrictions on financial
assistance or similar laws in the relevant jurisdictions, the KO
Buyers shall assume such Debt (such Debt so assumed by the KO
Buyers being the "Assumed Debt") at the Applicable Closing,
subject to an adjustment in the Purchase Price as described in
Section 1.02.
5.25 NON-ASSIGNABLE CONTRACTS, LICENSES, ETC. To the extent
that any Contract for which assignment to the KO Parties is
provided for in this Agreement is not assignable without the
consent of another party, this Agreement shall not constitute an
assignment or an attempted assignment thereof if such assignment
or attempted assignment would constitute a breach thereof. CS
shall, and shall cause the other CS Parties to, use their
reasonable best efforts to obtain the consent of such other party
to the assignment of any such contract to the KO Parties in all
such cases in which such consent is or may be required for such
assignment. If such consent shall not be obtained within a
reasonable period of time prior to the Applicable Closing, CS
shall, and shall cause the CS Parties to, cooperate with the KO
Parties in any reasonable arrangement designed to provide for the
KO Parties the benefits under any such contract. If such consent
is not obtained under the license agreements from Sunkist Growers
to CS, the amount of the Purchase Price shall be reduced at the
Threshold Closing by the amounts assigned to such items on
Schedule 1.02(b)-1. Receipt of such consents from the Sunkist
Growers shall not be a condition to any closing hereunder.
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5.26 REPLACEMENT OF CS GUARANTEES. To the extent any CS
Party is liable or responsible (whether by guarantee, letter of
credit or otherwise) for any Assumed Liability (each, a "CS
Guarantee"), KO shall use its commercially reasonable efforts to
cause such CS Party to be removed from such CS Guarantee and
shall indemnify and hold harmless the CS Parties from against any
and all Losses relating to or arising out of any such CS
Guarantee.
5.27 SCHWEPPES EEIG. As of the Threshold Closing, CS shall
cause the Purchased Company and the Subsidiaries to be removed
from the Schweppes Europe EEIG and, upon such removal, no further
services will be provided thereunder to the Purchased Company and
the Subsidiaries except as otherwise provided by this Agreement.
5.28 INVOICING OF CC&SB FOR CERTAIN MATTERS. KO shall
invoice Coca-Cola & Schweppes Beverages Limited, and shall
promptly provide CS with copies of such invoices, for "Extracts"
supplied to Coca-Cola & Schweppes Beverages Limited pursuant to
the Licensor Agreements. CS shall invoice Coca-Cola & Schweppes
Beverages for the Concentrate Surcharge. If Coca-Cola &
Schweppes Beverages Limited shall remit any portion of the
Concentrate Surcharge to KO or a KO Affiliate, KO shall cause
such amount to be promptly paid over to CS.
5.29 CERTAIN FURNITURE AND EQUIPMENT. Following the date of
this Agreement, KO shall have the opportunity to review and
consider whether it desires to receive the rights under, and
assume the liabilities and obligations under, all or some of the
furniture and equipment leases relating to offices used to
conduct the beverages business of CS and its Affiliates outside
the United States (the "Furniture and Equipment Leases"). KO
shall be entitled to receive the rights under, and assume the
liabilities and obligations under, such Furniture and Equipment
Leases as KO so designates at an Applicable Closing.
5.30 TRADEMARK COOPERATION. From and after the date of this
Agreement, CS shall (i) without limiting KO's rights under
Section 4.02, provide reasonable access, upon reasonable notice,
to KO and KO's representatives to the files in CS's possession or
control relating to the Owned Trademarks as KO or KO's
representatives may reasonably request and (ii) cooperate with KO
and KO's representatives in implementing such steps as KO shall
reasonably request in order to preserve and protect any Owned
Trademarks, including the making of certain filings and the
taking of certain action as previously discussed between KO and
CS. To the extent that such steps would not otherwise be taken
by CS in the ordinary course of its business consistent with past
practices (it being acknowledged that certain filings and actions
as previously discussed by the parties are in the ordinary course
of its business consistent with past practices), such steps shall
be taken at KO's cost and expense using such of KO's personnel
and/or counsel as may reasonably be requested by CS, with such
personnel and/or counsel acting under the direction and control
of CS.
5.31 ACQUIRED RECEIVABLES.
(a) Except with respect to the Carcagente Plant and
the Athy Plant, at each Applicable Closing, the KO Buyers will
acquire from the CS Parties all of the accounts
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receivable of the Purchased Businesses transferred at such
Applicable Closing (as represented on the CS Hyperion Reporting
System as "Debtors") but only to the extent such accounts
receivable were generated in respect of concentrate sales (the
"Acquired Receivables"). The purchase price to be paid by the KO
Buyers to the CS Parties for such accounts receivable shall equal
the face amount of such accounts receivable less reductions for
bad debt reserves, which would be based upon CS's historical
percentage experience with respect to bad debts (the "Bad Debt
Reserve"). It is anticipated that the KO Buyers would also agree
with the CS Parties to assume certain agreed upon accounts
payable under marketing commitments in respect of periods prior
to each such Applicable Closing (as represented on the CS
Hyperion Reporting System as "Customer Rebates"), in which case
the purchase price for the Acquired Receivables shall be reduced
dollar-for-dollar by the amount of any such payables which the KO
Buyers agree to assume.
(b) The KO Buyers shall use their commercially
reasonable efforts to collect the relevant Acquired Receivables
after the date of each Applicable Closing. To the extent any
such Acquired Receivables are not collected within twelve months
of any such Applicable Closing, the CS Parties shall pay to the
KO Buyers on or prior to the thirtieth day after the one year
anniversary of such Applicable Closing an amount equal to the
total face value of any Acquired Receivables not so collected,
minus the total Bad Debt Reserve. If the amount of the Acquired
Receivables so collected exceeds the total face value of the
Acquired Receivables, less the total Bad Debt Reserve, the KO
Buyers shall similarly pay the amount of such excess to the CS
Parties.
(c) Except as set forth in paragraphs (a) and (b)
above, or as specifically set forth in Section 1.06, the CS
Parties shall retain at each Applicable Closing and be
responsible for all payables and other liabilities and
obligations with respect to the Purchased Businesses transferred
at such Applicable Closing.
(d) After each Applicable Closing, any payments made
to CS or any of its Affiliates in respect of Acquired Receivables
or with respect to receivables generated by the Purchased
Businesses transferred at such Applicable Closing in respect of
periods after such Applicable Closing shall be paid forthwith
(and in any event in not less than 30 days after receipt) to the
KO Buyers.
(e) Any disputes with respect to the matters described
in this Section 5.31 shall be referred to and resolved and
determined by the Review Accounting Firm, which determination
shall be binding on the CS Parties and the KO Buyers.
ARTICLE 6
CONDITIONS TO CS'S OBLIGATIONS
6.01 CONDITIONS TO THE THRESHOLD CLOSING. The obligations
of CS to be performed under this Agreement at the Threshold
Closing shall be subject to the satisfaction (or waiver by
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CS) at or prior to the Threshold Closing Date of the following
conditions:
(a) CS Country Conditions (as defined below)
sufficient to satisfy the Threshold Condition shall be satisfied.
(b) The representations and warranties of KO contained
in this Agreement shall be true and correct in all material
respects on and as of the Threshold Closing Date with the same
force and effect as though made on and as of such date; KO shall
have complied in all material respects with its covenants and
agreements set forth in this Agreement to be performed by it on
or before the Threshold Closing Date; and KO shall have delivered
to CS a certificate dated the Threshold Closing Date and signed
on behalf of KO by its duly authorized officer attesting to all
such effects described in this paragraph, which certificate shall
state that such representations and warranties are made as of the
Threshold Closing Date with the same force and effect as if made
in this Agreement as of the date hereof.
(c) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and
no suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened as a result
of, or in connection with, the transactions contemplated by this
Agreement and the Transaction Documents which, in the reasonable
opinion of counsel for CS, would be reasonably likely to result
in the restraint or prohibition of any of the CS Parties from
consummating the transactions contemplated hereby or by the
Transaction Documents, or the obtaining of damages or other
relief from the CS Parties which are material in the context
of the transactions contemplated by this Agreement and the
Transaction Documents.
6.02 CONDITIONS TO EACH SUBSEQUENT CLOSING. The obligations
of CS to be performed under this Agreement at each Subsequent
Closing shall be subject to the satisfaction (or waiver by CS) at
or prior to such Subsequent Closing Date of the following
conditions:
(a) The Threshold Closing shall have occurred.
(b) The representations and warranties of KO contained
in this Agreement shall be true and correct in all material
respects on and as of the Subsequent Closing Date with the same
force and effect as though made on and as of such date; KO shall
have complied in all material respects with its covenants and
agreements set forth in this Agreement to be performed by it on
or before the Subsequent Closing Date; and KO shall have
delivered to CS a certificate dated the Subsequent Closing Date
and signed on behalf of KO by its duly authorized officer
attesting to all such effects described in this paragraph, which
certificate shall state that such representations and warranties
are made as of the Subsequent Closing Date with the same force
and effect as if made in this Agreement as of the date hereof.
(c) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and
no suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened as a result
of, or in connection with, the transactions contemplated by this
Agreement and the Transaction Documents which, in the
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reasonable opinion of counsel for CS, would be reasonably likely
to result in the restraint or prohibition of any of the CS
Parties from consummating the transactions contemplated hereby or
by the Transaction Documents, or the obtaining of damages or
other relief from the CS Parties which are material in the
context of the transactions contemplated by this Agreement and
the Transaction Documents.
6.03 CS COUNTRY CONDITIONS. The obligations of CS to be
performed hereunder with respect to the Assets in a particular
country shall be subject to the satisfaction (or waiver by CS)
of each of the following conditions (the "CS Country Conditions"):
(a) No order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions
contemplated hereby or by the Transaction Documents with respect
to such country shall be in effect. No statute, rule,
regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Authority
which prohibits or makes illegal the consummation of the
transactions contemplated hereby or by the Transaction Documents
with respect to such country.
(b) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and no
suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened which in the
reasonable opinion of counsel for CS would be reasonably likely
to restrain or prohibit the consummation of the transactions
contemplated hereby and by the Transaction Documents with respect
to such country.
(c) All necessary governmental approvals in connection
with the transactions contemplated by this Agreement and the
Transaction Documents with respect to such country shall have
been obtained. All material consents and approvals of third
parties required in connection with the transactions contemplated
by this Agreement and the Transaction Documents with respect to
such country shall have been obtained.
ARTICLE 7
CONDITIONS TO KO'S OBLIGATIONS
7.01 CONDITIONS TO THE THRESHOLD CLOSING. The obligations
of KO to be performed hereunder at the Threshold Closing shall be
subject to the satisfaction (or waiver by KO) on or before the
Threshold Closing Date of each of the following conditions:
(a) KO Country Conditions (as defined below)
sufficient to satisfy the Threshold Condition shall be satisfied.
(b) Each of the representations and warranties of CS
contained in Sections 2.01, 2.02, 2.03, 2.04, 2.05 and 2.06 shall
be true and correct in all material respects as of the date
hereof and as of the Threshold Closing Date with the same effect
as though such representations and warranties had been made as of
the Threshold Closing Date.
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(c) Each of the representations and warranties of the
CS Parties contained in Article 2 (other than the representations
and warranties referred to in Section 7.01(b)) shall be true and
correct in all respects as of the date hereof and as of the
Threshold Closing Date with the same force and effect as though
such representations and warranties had been made as of the
Threshold Closing Date, except (i) representations and warranties
that speak as of a specified date or time other than the
Threshold Closing Date (which need only be true and correct in
all respects as of such date or time), and (ii) where the failure
or failures of such representations and warranties to be true and
correct do not and are not reasonably likely to, either
individually or in the aggregate, have or result in a Material
Adverse Effect (provided, however, that for purposes of this
paragraph, if any such representation or warranty is qualified in
any respect by materiality, by the word "material" or by words of
similar impact, such materiality, material or similar
qualifications or exceptions will in all respects be ignored
solely for purposes of the paragraph).
(d) Each of the CS Parties shall have performed and
complied in all material respects with the obligations,
agreements and conditions contained herein and in the Conveyance
Documents required to be performed or complied with by them prior
to or at the time of the Threshold Closing.
(e) The Purchased Businesses taken as a whole shall
not have suffered any Material Adverse Effect since the date of
this Agreement.
(f) Each of the CS Parties shall have delivered to KO
a certificate dated as of the Threshold Closing Date signed by a
senior officer on its behalf attesting to all of the effects
described in Sections 7.01(b), (c), (d) and (e).
(g) No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced
by any Governmental Authority which prohibits or makes illegal
consummation of the transactions contemplated hereby or by the
Transaction Documents to occur at the Threshold Closing, or,
subject to Section 7.04, would be reasonably likely to result in
damages or other relief having or reasonably likely to have a
Material Adverse Effect or damages or other relief from or with
respect to KO which are material in the context of the
transactions contemplated by this Agreement and the Transaction
Documents taken as a whole.
(h) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and no
suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened as a result of,
or in connection with, the transactions contemplated by this
Agreement and the Transaction Documents which in the reasonable
opinion of counsel for KO would be reasonably likely to result in
damages or other relief having or reasonably likely to have a
Material Adverse Effect or damages or other relief from or with
respect to KO which are material in the context of the
transactions contemplated by this Agreement and the Transaction
Documents taken as a whole.
7.02 CONDITIONS TO THE SUBSEQUENT CLOSING. The obligations
of KO to be performed hereunder at the Subsequent Closing shall
be subject to the satisfaction (or waiver by KO) on or
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before the Subsequent Closing Date of each of the following
conditions:
(a) The Threshold Closing shall have occurred.
(b) Each of the representations and warranties of CS
contained in Sections 2.01, 2.02, 2.03, 2.04, 2.05 and 2.06 shall
be true and correct in all material respects as of the date
hereof and as of the Subsequent Closing Date with the same effect
as though such representations and warranties had been made as of
the Subsequent Closing Date.
(c) Each of the representations and warranties of the
CS Parties contained in Article 2 (other than the representations
and warranties referred to in Section 7.02(b)) shall be true and
correct in all respects as of the date hereof and as of the
Subsequent Closing Date with the same force and effect as though
such representations and warranties had been made as of the
Subsequent Closing Date, except (i) representations and
warranties that speak as of a specified date or time other than
the Subsequent Closing Date (which need only be true and correct
in all respects as of such date or time), and (ii) where the
failure or failures of such representations and warranties to be
true and correct do not and are not reasonably likely to, either
individually or in the aggregate, have or result in a Material
Adverse Effect (provided, however, that for purposes of this
paragraph, if any such representation or warranty is qualified in
any respect by materiality, by the word "material" or by words of
similar impact, such materiality, material or similar
qualifications or exceptions will in all respects be ignored
solely for purposes of the paragraph).
(d) Each of the CS Parties shall have performed and
complied in all material respects with all obligations,
agreements and conditions contained herein and in the Conveyance
Documents required to be performed or complied with by them prior
to or at the time of the Subsequent Closing.
(e) No Material Adverse Effect shall have occurred
since the date of this Agreement.
(f) Each of the CS Parties shall have delivered to KO
a certificate dated as of the Subsequent Closing Date signed by a
senior officer on its behalf attesting to all of the effects
described in Sections 7.02(b), (c), (d) and (e).
(g) No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced
by any Governmental Authority which prohibits or makes illegal
consummation of the transactions contemplated hereby or by the
Transaction Documents to occur at the Threshold Closing or,
subject to Section 7.04, would be reasonably likely to result in
damages or other relief having or reasonably likely to have a
Material Adverse Effect or damages or other relief from or with
respect to KO which are material in the context of the
transactions contemplated by this Agreement and the Transaction
Documents taken as whole.
(h) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and no
suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened as a result of,
or in connection with, the
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transactions contemplated by this Agreement and the Transaction
Documents which in the reasonable opinion of counsel for KO would
be reasonably likely to result in damages or other relief having
or reasonably likely to have a Material Adverse Effect or damages
or other relief from or with respect to KO which are material in
the context of the transactions contemplated by this Agreement
and the Transaction Documents taken as whole.
7.03 KO COUNTRY CONDITIONS. The obligations of KO to be
performed hereunder with respect to the Purchased Businesses in
a particular country shall be subject to the satisfaction (or
waiver by KO) of each of the following conditions (the "KO
Country Conditions"):
(a) No order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions
contemplated hereby or by the Transaction Documents with respect
to such country (including the purchase and sale of the Purchased
Company or any Subsidiary, in each case which owns the Owned
Trademarks with respect to such country) shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits or makes illegal the
consummation of the transactions contemplated hereby or by the
Transaction Documents with respect to such country (including the
purchase and sale of the Purchased Company or any Subsidiary, in
each case which owns the Owned Trademarks with respect to such
country), or, subject to Section 7.04, which restricts in any
significant respect the ability of KO to conduct its businesses
as now conducted in such country.
(b) Subject to Section 7.04, no suit, governmental
investigation, action or other proceeding shall be pending and no
suit, investigation, action or other proceeding by any
Governmental Authority shall be overtly threatened which in the
reasonable opinion of counsel for KO would be reasonably likely
to:
(i) restrain or prohibit the consummation of the
transactions contemplated hereby and by the Transaction Documents
with respect to such country (including the purchase and sale of
the Purchased Company or any Subsidiary, in each case which owns
the Owned Trademarks with respect to such country);
(ii) result in an order or other relief which
restricts in any significant respect the ability of KO to conduct
its businesses as now conducted in such country.
(c) KO shall have received from counsel to CS
reasonably satisfactory to KO, an opinion with respect to such
countries (provided such country is specifically identified by
name on Schedule 1.02(b)-1), dated the Applicable Closing Date,
in the form of Exhibit 7.03(c).
(d) The CS Parties shall have delivered to the KO
Parties the Conveyance Documents with respect to such country.
(e) To the extent requested by KO, all directors of
the Purchased Businesses to be acquired with respect to such
country shall have delivered to the KO Parties their
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resignations as directors.
(f) All necessary governmental approvals in connection
with the transactions contemplated by this Agreement and the
Transaction Documents with respect to such country (including the
purchase and sale of the Purchased Company or any Subsidiary, in
each case which owns the Owned Trademarks with respect to such
country) shall have been obtained. All material consents and
approvals of third parties required in connection with the
transactions contemplated by this Agreement and the Transaction
Documents with respect to such country (including the purchase
and sale of the Purchased Company or any Subsidiary, in each case
which owns the Owned Trademarks with respect to such country)
shall have been obtained, except as would not have a material
adverse effect on the Purchased Businesses being acquired in such
country.
7.04 RESOLUTION OF CERTAIN DISPUTES. If the parties cannot
agree as to whether the condition specified in Sections 6.01(c),
6.02(c), 6.03(b), 7.01(g), 7.01(h), 7.02(g), 7.02(h) or 7.03(b)
is satisfied, then distinguished and reputable competition-law
counsel for each party will jointly agree on the retention of an
independent, distinguished and reputable competition-law expert
not previously retained by either party. Such independent
counsel will be instructed to produce an opinion as to whether or
not such condition is satisfied; and the parties agree to be
bound by such opinion.
ARTICLE 8
CLOSINGS
8.01 THRESHOLD CLOSING DATE. Subject to the satisfaction or
waiver of the conditions set forth in this Agreement, the
Threshold Closing shall take place at 10:00 a.m., local time, on
the third business day following the date on which all of the
conditions to such Threshold Closing have been satisfied or
waived (or are capable of being satisfied concurrently with the
Threshold Closing) at the offices of King & Spalding, counsel to
KO, at 1185 Avenue of the Americas, New York, New York, U.S.A. or
at such other time or place as may be mutually agreed by KO and
CS.
8.02 SUBSEQUENT CLOSING DATES. Subject to the satisfaction
or waiver of the conditions set forth in this Agreement, a
Subsequent Closing shall take place at 10:00 a.m., local time, on
such date and at such place at the offices of King & Spalding,
counsel to KO, at 1185 Avenue of the Americas, New York, New York,
U.S.A., or at such other time or place as may be mutually agreed
by KO and CS.
8.03 CLOSING REQUIREMENTS. At each Applicable Closing, the
following shall occur:
(a) The parties hereto shall exchange and deliver the
certificates and other evidence as to the accuracy of the
representations and warranties contained herein, and the
compliance with the covenants and agreements contained herein,
which are required to be delivered by such party as herein
provided.
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(b) The CS Parties shall deliver and the KO Buyers
shall receive at the Closing certificates evidencing the Shares
at the Applicable Closing, duly endorsed in blank for transfer
or accompanied by duly executed blank stock powers attached and
otherwise in good form for transfer.
(c) The CS Parties shall deliver appropriate transfer
documents, including bills of sale, trademark assignments,
intellectual property assignments and other assignment documents,
as may be necessary in the reasonable judgment of KO to convey to
the KO Buyers in accordance with this Agreement title to all of
the Assets to be acquired by the KO Buyers at the Applicable
Closing.
(d) The KO Buyers shall deliver to the CS Parties all
funds payable at the Applicable Closing as provided in Article 1.
(e) All other opinions, documents, instruments and
writings required to be delivered by a party at or prior to the
Applicable Closing Date pursuant to this Agreement or the
Transaction Documents will be delivered to the party entitled
thereto to the extent not previously delivered.
ARTICLE 9
INDEMNIFICATION
9.01 KO REMEDIES.
(a) CS shall, and shall cause the CS Parties to,
indemnify, defend and hold harmless the KO Parties from and
against any and all Losses (as hereinafter defined) suffered or
incurred by any of the KO Parties or the Purchased Businesses or
any successors or assigns thereof (the "Protected Parties'") as a
result of, or with respect to:
(i) any breach or inaccuracy of any
representation or warranty of CS set forth in this Agreement,
whether such breach or inaccuracy exists or is made on the date
of this Agreement or as of the Applicable Closing Date;
(ii) any breach of or noncompliance by CS with
any covenant or agreement of CS contained in this Agreement;
(iii) except as specifically assumed by the KO
Parties pursuant to Section 5.06, all liabilities and obligations
relating to the Employee Benefit Plans of or relating to the
Purchased Businesses incurred or accrued on or prior to the
Applicable Closing or relating to periods prior to the Applicable
Closing, including but not limited to (A) social security
obligations, (B) pension obligations, (C) severance (statutory or
contractual) obligations, and (D) liabilities for any acts of any
of the Purchased Businesses as an employer, including
discrimination, unlawful termination, terminations for cause, or
violations of any statute or contract or other obligation;
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(iv) any litigation, claims, suits, actions,
investigations, indictments, informations or proceedings
involving claims individually or together with any reasonably
closely related matters in excess of U.S.$250,000 which (A) are
or have been pending on or prior to the date of this Agreement,
(B) are commenced after the date of this Agreement and on or
before the Applicable Closing Date, or (C) are, to the knowledge
of the CS Parties or the Purchased Businesses, threatened on or
before the Applicable Closing Date, in each case to which any of
the Purchased Businesses or any of their properties is or may
become a party or is or may be subject;
(v) (A) any noncompliance with or violation of
any applicable Environmental Law (to the extent such
noncompliance or violation exists on or prior to the Applicable
Closing Date) relating to the Plants, the properties covered by
the Assumed Leases or the Malvern Facility or any Person whose
liability for any such matters any of the Purchased Businesses
has or may have retained or assumed either contractually or by
operation of law (including (i) any failure with respect to any
such Plant or leased property or the Malvern Facility to obtain
and possess all permits, licenses and other authorizations which
are required to be obtained and possessed under Environmental
Laws, (ii) any failure with respect to any such Plant or leased
property or the Malvern Facility to comply with all terms and
conditions of such permits, licenses and authorizations, and
(iii) any failure with respect to any such Plant or leased
property or the Malvern Facility to file all notices which are
required to be filed under Environmental Laws), and (B) any
Environmental Claim alleging noncompliance with or violation of
any applicable Environmental Law (to the extent such
noncompliance or violation exists on or prior to the Applicable
Closing Date) relating to the Plants, the properties covered by
the Assumed Leases or the Malvern Facility or any Person whose
liability for any such Environmental Claim any of the Purchased
Businesses has or may have retained or assumed either
contractually or by operation of law (including (i) any failure
with respect to any such Plant or leased property or the Malvern
Facility to obtain and possess all permits, licenses and other
authorizations which are required to be obtained and possessed
under Environmental Laws, (ii) any failure with respect to any
such Plant or leased property or the Malvern Facility to comply
with all terms and conditions of such permits, licenses and
authorizations, and (iii) any failure with respect to any such
Plant or leased property or the Malvern Facility to file all
notices which are required to be filed under Environmental Laws);
(vi) any Environmental Claim (other than as
specified in clause (v)(B) of this Section 9.01(a)) to the extent
relating to the ownership or operations on or prior to the
Applicable Closing Date of the Plants, the properties covered by
the Assumed Leases or the Malvern Facility or any Person whose
liability for any such Environmental Claim any of the Purchased
Businesses has or may have retained or assumed either
contractually or by operation of law;
(vii) except as specified in Section 5.22, any
Year 2000 Computer Date Problem (provided that for the purposes
of this clause (vii), any reference to "material" in the
definition of Year 2000 Computer Date Problem shall be ignored),
less U.S. $200,000;
(viii) all Excluded Liabilities;
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(ix) any payment of "Supplemental Contributions"
as defined under and required to be paid pursuant to Clause 8.3.5
of the Schweppes Licensor Agreement, dated February 10, 1997,
among Schweppes Limited, Schweppes International Limited, L. Rose
& Co. Limited and Coca-Cola & Schweppes Beverages Limited; and
(x) the inability on the part of the KO Parties
or the Purchased Businesses to terminate any bottling or
distribution agreements relating to any territory in Chile on or
before December 31, 2004 based on contractual arrangements
existing on the Applicable Closing Date.
(b) "Loss" shall mean any loss, damage, liability,
cost or expense including, without limitation, any interest, fine,
penalty, criminal or civil judgment or settlement, court costs,
reasonable attorneys' and expert witnesses' fees, reasonable
accountants' fees, disbursements and expenses, and any
indemnification or similar payments required to be made to
officers, directors, employees or agents under duly enacted
charter provisions or bylaws, board resolutions or undertakings,
commitments or other understandings or under applicable corporate
law, together with interest thereon from the later of the
Applicable Closing Date and the date suffered or incurred at the
Rate; provided that the term "Loss" shall not include any
punitive damages which may be sought by an indemnified party in
an action, suit or proceeding against any indemnifying party. A
Loss suffered or incurred by any of the Purchased Businesses
shall be deemed a Loss suffered or incurred by the KO Parties for
purposes of this Article 9.
(c) Except as provided below, the KO Parties may
assert a claim for indemnification against the CS Parties under
Section 9.01(a) only with respect to individual facts, conditions,
practices, events, circumstances, items or matters (or any
absences thereof) which, together with any other facts,
conditions, practices, events, circumstances, items or matters
(or any absences thereof) which are reasonably closely related,
involve an amount in excess of U.S.$25,000; provided, however,
that the limitations of this sentence shall not be applicable to
any representation or warranty which is qualified by materiality,
the word "material" or words of similar import. Except as
provided below, no amounts of indemnity shall be payable as a
result of any claim made pursuant to Section 9.01(a) unless and
until the Persons making claims thereunder shall have suffered,
incurred, sustained or become subject to indemnifiable Losses in
the aggregate in excess of 1.75% of the Purchase Price (prior to
any adjustment for Assumed Debt and prior to the Working Capital
Adjustment, but taking into account any reduction in the Purchase
Price resulting from the failure to satisfy the conditions to the
Applicable Closing in certain countries subject to an increase
once such originally excluded Purchased Businesses are
transferred), in which case the Indemnified Parties shall be
entitled to recover only such Losses in excess of such amount.
The limitations of the preceding sentences in this Section
9.01(c) shall not apply to any action or claim pursuant to
clauses (ii), (iii), (iv), (v) (except in the case of clause
(v) for matters within the scope of clause (v) which KO has not
identified prior to the Applicable Closing, as to which matters
such limitations shall apply), (viii), (ix) or (x) of Section
9.01(a) or which is based on a breach of the representations and
warranties contained in Sections 2.01(a), 2.01(b), 2.02, 2.04,
2.05, 2.06, 2.13(b), 2.13(c), 2.13(d), 2.26, 2.27 or 2.29 or the
last sentence of Section 2.20(c) or based upon fraud or
intentional misrepresentation; provided, however, that
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(A) in the case of Section 2.13(d) (which representation
and warranty shall be interpreted for purposes of this Section
9.01 as if the Disclosure Schedule to such representation and
warranty does not exist) to the extent an incident relating to a
breach of such representation and warranty is identified by KO
prior to the Threshold Closing, no amounts shall be payable as a
result of any claim with respect thereto unless both:
(I) the incident giving rise to such claim,
involves an amount in excess of U.S. $25,000, in which case,
subject to the following clause (II), CS shall indemnify the
Protected Parties for the sum of (i) two-thirds of the Losses
resulting from such incident between U.S. $25,000 and U.S.
$100,000 and (ii) all Losses resulting from such incident in
excess of U.S. $100,000; and
(II) the Protected Parties shall have suffered,
incurred, sustained or become subject to Losses indemnifiable
under the immediately preceding clause (i) in excess of
U.S. $3,000,000 in the aggregate as a result of a breach or
inaccuracy of the representation and warranty in Section 2.13(d),
in which case the Protected Parties shall be entitled to recover
only such Losses in excess of U.S. $3,000,000;
(B) in the case of Section 2.13(d) (which representation
and warranty shall be interpreted for purposes of this Section
9.01 as if the Disclosure Schedule to such representation and
warranty does not exist) to the extent an incident relating to a
breach of such representation and warranty is not identified by
KO prior to the Threshold Closing, no amounts shall be payable
as a result of any claim with respect thereto unless:
(I) the incident giving rise to such claim
involves an amount in excess of U.S. $25,000, in which case,
subject to the following clause (II), CS shall indemnify the
Protected Parties for the sum of (i) two-thirds of the Losses
resulting from such incident between U.S. $25,000 and
U.S. $100,000 and (ii) all Losses resulting from such incident in
excess of U.S. $100,000; provided that
(II) any such amounts indemnifiable under the
immediately preceding clause (I) shall be subject to the
limitations of the second sentence of Section 9.01(c);
(C) in the case of Sections 2.13(b) and (c) no amounts of
indemnity shall be payable as a result of any claim made with
respect thereto unless and until the Protected Parties making
claims thereunder shall have suffered, incurred, sustained or
become subject to indemnifiable Losses in excess of
U.S. $1,000,000 in the aggregate, in which case the Indemnified
Parties shall be entitled to recover only such Losses in excess
of such amount.
(D) in the case of clause (v) of Section 9.01(a) (to the
extent in the case of clause (v) that KO has identified such
matter prior to the Applicable Closing), no amounts of indemnity
shall be payable as a result of any claim made with respect
thereto unless and until the Persons making claims thereunder
shall have suffered, incurred, sustained or become subject to
indemnifiable Losses in excess of U.S. $1,000,000 under such
clause (v) in the case of clause (v) of Section 9.01(a) (to the
extent in the case of clause (v) that KO has identified such
matter prior to the
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Applicable Closing), in the aggregate, in which case the
Indemnified Parties shall be entitled to recover only such Losses
in excess of such amount.
(E) in the case of the last sentence of Section 2.20(c) no
amounts of indemnity shall be payable as a result of any claim
made with respect thereto unless and until the Protected Parties
making claims thereunder shall have suffered, incurred, sustained
or become subject to indemnifiable Losses in excess of
U.S. $5,000,000 in the aggregate, in which case the Indemnified
Parties shall be entitled to recover only such Losses in excess
of such amount.
(d) In no event shall the amount of indemnification
payable by the CS Parties to the Protected Parties for asserted
claims under Section 9.01(a) exceed 100% of the Purchase Price
(prior to any adjustment for Assumed Debt and prior to the
Working Capital Adjustment, but taking into account any reduction
in the Purchase Price resulting from the failure to satisfy the
conditions to the Applicable Closing in certain countries,
subject to an increase once such originally excluded Purchased
Businesses are transferred).
(e) No Protected Party shall be entitled to recovery
for a particular Loss pursuant to any provision of this Section
9.01 if the specific issue that is the subject of such Loss has
been considered and resolved pursuant to Sections 1.04 and 1.05
or pursuant to another provision of this Section 9.01.
9.02 CS REMEDIES
(a) KO shall, and shall cause the KO Buyers to,
indemnify, defend and hold harmless the CS Parties from and
against any and all Losses suffered or incurred by any of the
CS Parties or any successors or assigns thereof as a result of,
or with respect of:
(i) any breach or inaccuracy of any
representation or warranty of KO set forth in this Agreement,
whether such breach or inaccuracy exists or is made on the date
of this Agreement or as of the Applicable Closing Date;
(ii) any breach of or noncompliance by KO with
any covenant or agreement of KO contained in this Agreement;
(iii) the Assumed Liabilities, except for any
claim or cause of action with respect to which the CS Parties
are obligated to indemnify the Protected Parties under this
Article 9;
(iv) liabilities and obligations in respect of
claims by Transferred Employees after the Applicable Closing
relating to facts, circumstances or events arising after the
Applicable Closing; provided, however, that any payments made in
respect of such claims relating to severance as provided as in
Section 5.06 shall be applied toward the U.S. $50,000,000 cap set
forth therein, and to the extent such cap has been reached, KO
shall have no obligation to indemnify CS in respect of such
claims relating to severance; and
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(v) all liabilities and obligations within the
scope of Sections 9.01(a)(iv), (v) and (vi) to the extent CS or
the CS Parties are not required to indemnify the Protected
Parties due to the limitations of Section 9.01(c); it being
agreed, however, that the amount of all such liabilities and
obligations shall be counted as Losses to KO for purposes of
determining whether the deductibles or thresholds set forth in
Section 9.01(c) have been exceeded.
(b) No CS Party shall be entitled to recovery for a
particular Loss pursuant to any provision of this Section 9.02 if
the specific issue that is the subject of such Loss has been
considered and resolved pursuant to another provision of this
Section 9.02 or pursuant to Sections 1.04 and 1.05.
9.03 SURVIVAL OF REPRESENTATION AND WARRANTIES
(a) The representations and warranties contained in
this Agreement shall not be extinguished by the Applicable
Closing but shall survive for a period of two years following the
Applicable Closing Date in respect of the Purchased Businesses
with respect to such Applicable Closing; provided that:
(i) The representations and warranties contained
in Sections 2.01(a), 2.01(b), 2.02, 2.04, 2.05, 2.06, 2.13(b),
2.26, 2.27, 3.01, 3.02 and 3.03 and the last sentence of Section
2.20(c) shall survive the Applicable Closing Date relating to
such Purchased Businesses without limitation;
(ii) The representations and warranties contained
in Sections 2.17 and the first sentence of Section 2.14 (but not
the second sentence of Section 2.14, which shall survive for a
period of two years relating to such Purchased Businesses after
the Applicable Closing Date relating to such Purchased Businesses)
shall terminate as of the Applicable Closing Date;
(iii) The representations and warranties contained
in Section 2.23 shall terminate ninety days following the
expiration of the applicable statute of limitations with respect
to the assertion of any claim in respect thereof by any
Governmental Authority or other Person in respect of the
Purchased Businesses with respect to such Applicable Closing; and
(iv) The covenants and agreements contained herein
shall survive the Applicable Closing Date relating to such
Purchased Businesses without limitation except for the covenants
in Sections 4.01, 4.02, 4.03, 4.04, 4.06, 4.09, 5.22 and clause
(vii) of Section 9.01(a) which shall survive for a period of two
years following the Applicable Closing Date relating to such
Purchased Businesses.
(b) Any indemnification obligation of any party under
any representation, warranty, covenant or agreement set forth
herein will terminate as of the date set forth in Section 9.03(a)
for the termination of the applicable representation, warranty,
covenant or agreed except for matters as to which notice is given
prior to the end of such period, in which event
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indemnification shall survive as long as necessary to permit the
final resolution of such matter. No investigation or other
examination by any of the CS Parties or the KO Parties or their
designees or representatives shall affect the term of survival of
the representations and warranties set forth above.
9.04 NOTICE OF CLAIM. An indemnified party shall promptly
notify the indemnifying party, in writing, of any claim for
recovery, specifying in reasonable detail the nature of the Loss,
the facts which form the basis of the Loss and, if known, the
amount, or an estimate of the amount, of the liability arising
therefrom. The indemnified party shall provide to the
indemnifying party as promptly as practicable thereafter
information and documentation reasonably requested by the
indemnifying party to support and verify the claim asserted,
unless the indemnified party has been advised by counsel that
there are no reasonable grounds to assert the joint defense
privilege with respect to such information and documentation. A
notice of claim furnished by the indemnified party under this
Section 9.04 shall also be deemed to constitute timely notice by
the indemnified party of any claim that may at any time
thereafter be made by any Person claiming entitlement to
indemnity under any charter, bylaws or other governing documents
or any board resolutions, undertakings, commitments, or other
understandings, with respect to the state of facts or
circumstances which gave rise to the claim by the indemnified
party which is the subject of such notice.
9.05 DEFENSE.
(a) If the facts pertaining to a Loss arise out of the
claim of any third party, or if there is any claim against a
third party available by virtue of the circumstances of the Loss,
the indemnifying party may assume the defense or the prosecution
thereof by written notice to the indemnified party agreeing to
indemnify and defend the indemnified party from and against all
indemnifiable Losses under this Article 9 arising from such claim.
(b) If the indemnifying party agrees to assume the
defense and prosecution of such claim, then the indemnified party
shall have no further obligation with respect to such claim. In
any such case, the indemnified party shall have the right to
employ counsel separate from counsel employed by the indemnifying
in any such action and to participate therein, but the fees and
expenses of such counsel employed by the indemnified party shall
be at the indemnified party's expense. No indemnifying party
shall agree to a settlement of any claim without the indemnified
party's prior written consent, which consent shall not be
unreasonably withheld in light of the indemnified party's
circumstances.
(c) If the indemnifying party shall not assume the
defense and prosecution of any such claim, the indemnified party
shall keep the indemnifying party reasonably informed of the
progress of any proceedings relating to such claim and shall
consult regularly with the indemnifying party with respect
thereto and shall not agree to a settlement of such claim
without the indemnifying party's written consent, which consent
shall not be unreasonably withheld in light of the indemnifying
party's circumstances.
(d) All parties hereto shall cooperate in the defense
or prosecution thereof and
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shall furnish all witnesses and testimony, records, materials
and other information, and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably
requested in connection therewith.
(e) Subject to Section 11.12, the indemnification
provisions of this Article 9 shall be the sole remedy with
respect to any Losses incurred by the Protected Parties or the CS
Parties, except in the case of fraud or intentional
misrepresentation.
ARTICLE 10
TERMINATION PRIOR TO CLOSING
10.01 TERMINATION. This Agreement may be terminated at any
time before the Threshold Closing:
(a) By the mutual written consent of KO and CS;
(b) By CS in writing, without liability, if KO shall
(i) fail to perform in any material respect its agreements
contained in this Agreement required to be performed by it on or
prior to the Threshold Closing Date, or (ii) materially breach
any of its representations, warranties or covenants contained in
this Agreement, in each such case such that the conditions to the
Threshold Closing shall be incapable of being satisfied by
December 31, 1999;
(c) By KO in writing, without liability, if CS shall
(i) fail to perform in any material respect its agreements
contained in this Agreement required to be performed by it on or
prior to the Threshold Closing Date, or (ii) materially breach
any of its representations, warranties or covenants contained in
this Agreement, in each such case such that the conditions to the
Threshold Closing shall be incapable of being satisfied by
December 31, 1999;
(d) By either KO or CS in writing, without liability,
if there shall be any order, writ, injunction or decree of any
Governmental Authority binding on the parties prohibiting the
consummation of the transactions contemplated by this Agreement;
(e) By KO, if the Board of Directors of CS recommends
a Takeover Proposal, CS enters into a definitive agreement
providing for a Takeover Proposal or a Takeover Proposal
involving CS is consummated;
(f) By CS, if the Board of Directors of CS determines
in good faith following the receipt of and consistent with the
advice of outside counsel that their fiduciary obligations under
applicable law require that both (i) the Board of Directors of CS
recommend a Takeover Proposal or CS enter into a definitive
agreement providing for a Takeover Proposal and (ii) the Board of
Directors of CS terminate this Agreement; and concurrently with
and as a condition to such termination, CS pays the termination
fee described in Section 10.02; and
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(g) By either KO or CS in writing, if for any reason
the Threshold Closing has not occurred by December 31, 1999.
10.02 TERMINATION OF OBLIGATIONS. Termination of this
Agreement pursuant to this Article 10 shall terminate all
obligations of the parties hereunder, except for the obligations
under Sections 5.02 and Article 11 and this Section 10.02;
provided, however, that termination pursuant to subparagraphs
(b) or (c) of Section 10.01 shall not relieve a defaulting or
breaching party from any liability to any party hereto. If KO
terminates this Agreement pursuant to subparagraph (e) or if CS
terminates this Agreement pursuant to subparagraph (f) of Section
10.01, CS shall pay to KO in cash U.S.$220,000,000. Such payment
shall be made by CS (i) if KO terminates this Agreement, on the
seventh business day thereafter, and (ii) if CS terminates this
Agreement, concurrently with and as a condition to such
termination and if such payment is not made on such applicable
date as provided in clause (i) or (ii), in addition to the
U.S. $220,000,000 CS shall pay to KO interest on such amount from
the date required to be paid at the Rate, and shall pay KO's
costs (including reasonable attorneys' fees) associated with
collecting such amount.
ARTICLE 11
MISCELLANEOUS
11.01 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits) and the Confidentiality Agreement
constitute the sole understanding of the parties with respect to
the subject matter hereof, except that this provision is not
intended to abrogate any other written agreement between the
parties executed contemporaneously with or after this Agreement.
11.02 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon
the parties to this Agreement and their respective successors and
assigns. Without the prior written consent of KO, none of the CS
Parties may assign its rights, duties or obligations hereunder or
any part thereof to any Person. KO may assign its rights and
duties hereunder in whole or in part (before or after the
Threshold Closing) to one or more Persons so long as (i) such
Person is a direct or indirect wholly owned subsidiary of KO
(except for nominee shares, director qualifying shares or
similar shares) and KO guarantees such Person's obligations
hereunder, or (ii) CS consents to such assignment (which consent,
in the case of assignments to any Person other than Persons which
are not KO bottlers or with respect to which KO has less than a
30% equity interest, shall not be unreasonably withheld or
delayed) and KO guarantees such Person's obligations hereunder;
provided, however, that if the Board of CS recommends a Takeover
Proposal, CS enters into a definitive agreement providing for a
Takeover Proposal or a Takeover Proposal involving CS is
consummated, then thereafter KO's rights under this Agreement
shall be freely assignable. Notwithstanding any assignment by KO
of its rights hereunder, if any CS Party or any Affiliate thereof
is required to make any indemnification payment or otherwise make
whole any assignee of KO (or subsequent assignee) as a result of
any act or omission of any of the CS Parties or the Purchased
Businesses for which KO would be entitled to indemnification from
any CS Party but for the assignment of
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<PAGE>
its rights hereunder, KO shall be fully subrogated to such
assignee and shall be restored to all rights under this Agreement
to obtain indemnification from the CS Parties.
11.03 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original
and all of which shall constitute one and the same agreement.
11.04 AMENDMENT, MODIFICATION AND WAIVER. No amendment,
modification or alteration of the terms or provisions of this
Agreement shall be binding unless the same shall be in writing
and duly executed by the parties hereto. Any of the terms or
conditions of this Agreement may be waived in writing at any
time by the party which is entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provisions hereof
(whether or not similar).
11.05 EXPENSES. Except as otherwise provided in this
Agreement, each of KO and the CS Parties shall pay all costs and
expenses incurred by it or on its behalf in connection with this
Agreement and the transactions contemplated hereby, including
fees and expenses of its own financial consultants, accountants
and counsel. All expenses incurred by the Purchased Businesses
in connection with this Agreement and the transactions
contemplated hereby in respect of periods prior to the Applicable
Closing shall be paid by the CS Parties, and not by any of the KO
Parties.
11.06 NOTICES. Any notice, request, instruction or other
document to be given hereunder by any party hereto to any other
party hereto shall be in writing and delivered personally or by
telecopy transmission or sent by registered or certified mail or
by any express mail service, postage and fees prepaid to the
respective address set forth below such party's signature to this
Agreement or at such other address or number for a party as shall
be specified by like notice. Any notice which is delivered
personally or by telecopy transmission or by mail in the manner
provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by such party.
11.07 FURTHER COOPERATION. From and after each Applicable
Closing Date, the parties will each take all such action and
deliver all such documents as shall be reasonably necessary or
appropriate to confirm and vest in the KO Buyers title in and to
the Assets in accordance with this Agreement and the Transaction
Documents.
11.08 GOVERNING LAW; CONSTRUCTION. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. NO PROVISION
OF THIS AGREEMENT OR ANY RELATED DOCUMENT SHALL BE CONSTRUED
AGAINST OR INTERPRETED TO THE DISADVANTAGE OF ANY PARTY HERETO BY
ANY GOVERNMENTAL AUTHORITY BY REASON OF SUCH PARTY'S HAVING OR
BEING DEEMED TO HAVE STRUCTURED OR DRAFTED SUCH PROVISION.
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<PAGE>
11.09 ARBITRATION
(a) Any dispute, controversy or claim among the
parties hereto arising out of, relating to or in connection with
this Agreement, the Transaction Documents and the transactions
contemplated hereby and thereby, including any question regarding
the existence, validity or termination thereof, shall be
exclusively referred to and finally resolved by arbitration in
accordance with the Rules (the "Rules") of the London Court of
International Arbitration (the "LCIA"), which Rules are deemed to
be incorporated by reference into this Section 11.09. Any such
arbitration shall be (i) brought in New York, New York, (ii)
conducted in English, and (iii) to the maximum extent permitted
by applicable law, final, binding and conclusive upon the parties
thereto. The arbitration and this Section 11.09 shall be subject
to the United States Federal Arbitration Act, 9 U.S.C. Sections 1
et seq.
(b) The arbitration shall be conducted by an arbitral
tribunal consisting of three arbitrators. The party initiating
arbitration ("Claimant") shall nominate an arbitrator in its
request for arbitration ("Request"). The other party
("Respondent") shall nominate an arbitrator within 30 days of
receipt of the Request and shall notify the Claimant of such
nomination in writing. If within 30 days of receipt of the
Request by the Respondent either party has not nominated an
arbitrator, then that arbitrator shall be appointed by the LCIA
Arbitration Court ("Court"). The first two arbitrators nominated
or appointed in accordance with this provision shall nominate a
third arbitrator within 30 days after the Respondent has notified
the Claimant of the nomination of the Respondent's arbitrator or,
in the event of a failure by a party to nominate, within 30 days
after the Court has notified the parties and any arbitrator
already nominated or appointed of the Court's appointment of an
arbitrator on behalf of the party failing to nominate. When the
third arbitrator has accepted the nomination, the two arbitrators
making the nomination shall promptly notify the parties of the
nomination. If the first two arbitrators nominated or appointed
fail to nominate a third arbitrator or so to notify the parties
within the time period described above, then the Court shall
appoint the third arbitrator and shall promptly notify the
parties of the appointment. The third arbitrator shall act as
Chair of the arbitral tribunal.
(c) In addition to the authority conferred on the
arbitral tribunal by the LCIA Rules, the arbitral tribunal shall
have the authority to:
(i) order reasonable discovery, including the
production of documents and depositions; and
(ii) make such orders for interim relief, including
injunctive relief, as it may deem just and
equitable.
(d) The arbitral award shall be in writing, state the
reason for the award and be final and binding on the parties.
The award may grant any remedy which is permissible under the
laws of New York, U.S.A., including without limitation specific
performance and injunctive relief, and may include an award of
costs, including reasonable attorneys' fees and disbursements.
All amounts payable under the award shall be in U.S. dollars and
shall bear interest from the date of the award until the date of
payment at a rate to be fixed by the arbitral
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<PAGE>
tribunal. Judgment upon the award may be entered by any court
having jurisdiction thereof or having jurisdiction over the
parties or their assets.
(e) The parties agree that any arbitration shall be
kept confidential and any element of same (including but not
limited to any pleadings, briefs or other documents submitted or
exchanged, any testimony or other oral submissions, and any
awards) shall not be disclosed beyond the arbitral tribunal, the
Court, the parties, their counsel and any person necessary to the
conduct of the arbitration, except as may be required in order to
satisfy disclosure obligations imposed by law or regulation or by
any regulatory authority in the United Kingdom or the United
States, including the London Stock Exchange, the United States
Securities and Exchange Commission and the New York Stock
Exchange.
11.10 PUBLIC ANNOUNCEMENTS. No party nor any of its agents
or representatives will make any disclosure or public
announcement concerning the transactions contemplated by this
Agreement without the prior approval of the other parties;
provided, however, that a party may make such disclosure or
public announcement if it is advised by counsel that such
disclosure or public announcement is required by law, regulation
or the rules of any national securities exchange, so long as
reasonable prior written notice of such disclosure is given to
the other party and such party attempts in good faith to reach
agreement regarding the content of such disclosure or public
announcement.
11.11 NO THIRD-PARTY BENEFICIARIES. With the exception of
the parties to this Agreement, there shall exist no right of any
Person to claim a beneficial interest in this Agreement or any
rights occurring by virtue of this Agreement.
11.12 SPECIFIC PERFORMANCE. The parties agree that
irreparable damage would occur if any of the provisions of this
Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to equitable relief, including in
the form of injunctions, in order to enforce specifically the
provisions of this Agreement, in addition to any other remedy to
which they are entitled at law or in equity.
11.13 SEVERABILITY. The invalidity or unenforceability of
any provision hereof in any jurisdiction will not affect the
validity or enforceability of the remainder hereof in that
jurisdiction or the validity or enforceability of this Agreement,
including that provision, in any other jurisdiction. To the
extent permitted by applicable law, each party waives any
provision of law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement
is held to be unenforceable for any reason, it shall be adjusted
rather than voided, if possible, in order to achieve the original
intent of the parties to the extent possible.
11.14 DEFINITIONS AND RULES AND CONSTRUCTION.
(a) "United States" means the United States of America
and all of its territories, possessions and commonwealths.
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<PAGE>
(b) "South Africa" means the Republic of South Africa
and the countries of Botswana, Lesotho, Namibia and Swaziland.
(c) "France" means the Republic of France and the
Principality of Monaco.
(d) "Material Adverse Effect " means any event, change,
occurrence, circumstance or effect, that has had or is reasonably
expected to have a material adverse effect on the business,
assets, liabilities, operations, results of operation or the
financial condition of the Purchased Businesses, taken as a whole;
provided, however, that any adverse effect directly resulting
from (i) (A) any changes affecting the carbonated soft drink
industry generally in any country in which the Purchased
Businesses operate, or (B) any changes affecting the economy
generally of any country in which the Purchased Businesses
operate or the global economy generally (in each case other than
any dramatic changes in worldwide economic conditions which
fundamentally impair the benefits to KO associated with the
transactions contemplated by this Agreement) or (ii) the entering
into of this Agreement or the consummation of the transactions
contemplated hereby or the announcement thereof, shall not, in
and of itself, constitute a Material Adverse Effect.
(e) "Affiliate" means, with respect to any specified
Person, any Person controlling, controlled by or under common
control with, such specified Person.
(f) References made to an "Exhibit" or a "Schedule",
unless otherwise specified, refer to one of the Exhibits or
Schedules attached to this Agreement, and references made to an
"Article" or a "Section", unless otherwise specified, refer to
one of the Articles or Sections of this Agreement.
(g) As used herein, the plural form of any noun shall
include the singular and the singular shall include the plural,
unless the context requires otherwise. Each of the masculine,
neuter and feminine forms of any pronoun shall include all such
forms unless the context requires otherwise. Words of inclusion
shall not be construed as terms of limitation herein, so that
references to included matters shall be regarded as non-exclusive,
non-characterizing illustrations.
(h) The Article and Section headings contained in this
Agreement are solely for the purpose of reference and shall not
in any way affect the meaning or interpretation of this Agreement.
(i) To the extent any payment hereunder or under any
Transaction Document is required to be made in the future, any
interest or price appreciation factor shall be compounded on a
daily basis. To the extent that any amount specified herein in a
particular currency is paid in another country in the currency of
that country, the amount paid shall be converted into the
specified currency at the average of the conversion rates for
such currencies as announced by Citicorp, N.A., New York, New
York. For purposes hereof, the "conversion rate" shall be the
average of the buy and sell conversion rates for commercial
transactions at the end of the business day prior to the business
day on which such amount is paid.
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<PAGE>
(j) Whenever the phrase "ordinary course of business
consistent with past practice" is used in this Agreement, it
shall be qualified solely after the date of this Agreement by the
phrase "except to the extent not reasonably practicable in light
of the transactions contemplated by this Agreement."
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed on its behalf as of the date first
above written.
THE COCA-COLA COMPANY
By: /s/ Steve Whaley
----------------
Name: Steve Whaley
Title: Vice President and General
Tax Counsel
Address: One Coca-Cola Plaza
Atlanta, Georgia 30313
Attention: Chief Financial Officer
Telefax: (404) 676-8683
with a copy to:
One Coca-Cola Plaza
Atlanta, Georgia 30313
Attention: General Counsel
Telefax: (404) 676-6792
and a copy to:
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: C. William Baxley
Telefax: (404) 572-5100
CADBURY SCHWEPPES PLC
By: /s/ Henry A. Udow
------------------
Name: Henry A. Udow
Title: Legal Director -
Global Beverages
Address: 25 Berkeley Square
London WIX 6HT
United Kingdom
Attention: The Company Secretary and
Chief Legal Officer
Telefax: 011-44-171-830-5015
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<PAGE>
with a copy to:
25 Berkeley Square
London WIX 6HT
United Kingdom
Attention: Henry A. Udow
Telefax: 011-44-171-830-5037
and a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Creighton O'M. Condon
Telefax: (212) 848-7179
ATLANTIC INDUSTRIES
By: /s/ Steve Whaley
----------------
Name: Steve Whaley
Title: Vice President and
General Tax Counsel
One Coca-Cola Plaza
Atlanta, Georgia 30313
Attention: Chief Financial Officer
Telefax: (404) 676-8683
with a copy to:
One Coca-Cola Plaza
Atlanta, Georgia 30313
Attention: General Counsel
Telefax: (404) 676-6792
and a copy to:
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: C. William Baxley
Telefax: (404) 572-5100
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<PAGE>
LIST OF EXHIBITS
Exhibit 1.02 Form of Registered Note
Exhibit 5.01 Certain Governmental Bodies
Exhibit 5.05 Other Matters
Exhibit 7.03(c) Legal Opinion Matters
-i-
<PAGE>
LIST OF SCHEDULES
Schedule 1.01A List of CS Sellers
Schedule 1.01(a)(i) Purchased Company and Subsidiaries
Schedule 1.01(a)(iii) Non-Exclusive List of Other Assets
Schedule 1.01(b) List of Countries
Schedule 1.02 (b)-1 Adjustments to Purchase Price
Schedule 1.02(b)-2 Certain Countries
Schedule 1.02(b)-3 130% Countries
Schedule 1.02(b)-4 120% Countries
Schedule 1.02(c)-1 30% Countries
Schedule 1.02(c)-2 20% Countries
Schedule 1.02(c)-3 Other Countries Schedule
Schedule 1.06(a)(i) Plant Balance Sheets
Schedule 1.06(a)(ii) Assumed Marketing Commitments
Schedule 1.06 (a)(iii) Assumed Leases
Schedule 2.01(b) Organization, Etc.
Schedule 2.01(d) Officers and Directors of the
Purchased Company and the
Subsidiaries
Schedule 2.03 Certain Conflicts
Schedule 2.04 Ownership of the Shares of the
Purchased Company and the
Subsidiaries
Schedule 2.05 Authorized and Outstanding Capital
Stock of the Purchased Company and
the Subsidiaries
-ii-
<PAGE>
Schedule 2.07 Financial Statements of the
Purchased Company and the
Subsidiaries
Schedule 2.08 Undisclosed Liabilities
Schedule 2.09 No Violation of Law; Licenses and
Permits
Schedule 2.10(a) Real Property
Schedule 2.10(b) Certain Disclosures Concerning Real
Property
Schedule 2.11 Leases
Schedule 2.12 Indebtedness for Borrowed Money
Schedule 2.13(a)(i) Owned Trademarks
Schedule 2.13(a)(ii) Brands in Commercial Use
Schedule 2.13(a)(iii) Intellectual Property Rights
Schedule 2.13(a)(iv) Licensed Rights
Schedule 2.13(b) Certain Disclosures Concerning
Trademarks and Intellectual Property
Schedule 2.14 Litigation and Claims
Schedule 2.15(b) Employee Benefit Plans
Schedule 2.16 Labor Relations
Schedule 2.17 Environmental Protection
Schedule 2.18 Insurance Policies
Schedule 2.20(b) Contracts and Commitments
Schedule 2.20(c) Bottling Agreements
Schedule 2.21 Agreements in Full Force and Effect
Schedule 2.22 Absence of Certain Changes and Events
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<PAGE>
Schedule 2.23 Tax Matters
Schedule 2.24 Accounts Receivable
Schedule 2.25 Product and Service Warranties
Schedule 2.27 Transactions With Affiliates
Schedule 2.28 Y2K Plan
Schedule 3.03 Certain Conflicts
Schedule 4.01 Pre-Closing Operations
Schedule 5.01 Certain Commitments
Schedule 5.06(b) Severance Obligations
Schedule 5.10(a) KO Brand Acquisitions
Schedule 5.10(b) List of Countries
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<PAGE>
The Coca-Cola Company agrees to furnish supplementally to the Securities
and Exchange Commission a copy of any omitted schedule or similar
attachment upon request.
EXHIBIT 12.1
<TABLE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(IN MILLIONS EXCEPT RATIOS)
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before
income taxes and
changes in accounting
principles
$ 5,198 $ 6,055 $ 4,596 $ 4,328 $ 3,728
Fixed charges 320 300 324 318 236
Less: Capitalized
interest, net (17) (17) (7) (9) (5)
Equity (income)
loss, net of
dividends 31 (108) (89) (25) (4)
-----------------------------------------------------
Adjusted earnings $ 5,532 $ 6,230 $ 4,824 $ 4,612 $ 3,955
=====================================================
Fixed charges:
Gross interest incurred $ 294 $ 275 $ 293 $ 281 $ 204
Interest portion of
rent expense 26 25 31 37 32
------------------------------------------------------
Total fixed charges $ 320 $ 300 $ 324 $ 318 $ 236
======================================================
Ratios of earnings
to fixed charges 17.3 20.8 14.9 14.5 16.8
======================================================
The Company is contingently liable for guarantees of indebtedness owed by
third parties in the amount of $391 million, of which $7 million related
to independent bottling licensees. Fixed charges for these contingent
liabilities have not been included in the computation 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>
EXHIBIT 13.1
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Our mission is to maximize share-owner value over time. To
achieve this mission, The Coca-Cola Company and its subsidiaries
(our Company) execute a comprehensive business strategy driven
by four key objectives. We strive to (1) increase volume, (2)
expand our share of nonalcoholic beverage sales worldwide, (3)
maximize our long-term cash flows and (4) create economic value
added by improving economic profit. We achieve these goals by
strategically investing in the high-return beverage business and
by optimizing our cost of capital through appropriate financial
policies.
INVESTMENTS
Our Company believes in strengthening our system through a
process of continuous improvement and reinvestment in the
marketplace.
With a global business system that operates in nearly 200
countries and generates superior cash flows, our Company is
uniquely positioned to capitalize on profitable new investment
opportunities. Our criteria for investment are simple: New
investments must directly enhance our existing operations and
must be expected to provide cash returns that exceed our long-
term, after-tax, weighted-average cost of capital, currently
estimated at approximately 11 percent.
Because it consistently generates high returns, the beverage
business is a particularly attractive investment for us. In
highly developed markets, our expenditures focus primarily on
marketing our Company's brands. In emerging and developing
markets, our main objective is to increase the penetration of
our products. In these markets, we allocate most of our
investments to enhancing infrastructure such as production
facilities, distribution networks, sales equipment and
technology. We make these investments by acquiring or forming
strategic business alliances with local bottlers and by matching
local expertise with our experience, resources and focus.
Our investment strategy focuses on our "six-pack" of business
fundamentals: brands, bottling system, customers, information,
people and a mindset of continuing to enhance and build our
system.
CONSUMER AND BRAND ACTIVITIES - To meet our long-term growth
objectives, we make significant investments in marketing to
support our existing brands and to acquire new brands, when
appropriate. We define marketing as anything we do to create
consumer demand for our brands. We focus on continually finding
new ways to differentiate our products and build value into all
our brands. Marketing investments enhance consumer awareness and
increase consumer preference for our brands. This produces growth
in volume, per capita consumption and our share of worldwide
beverage sales.
We own some of the world's most valuable brands, more than 160
in all. These include soft drinks and noncarbonated beverages
such as sports drinks, juice drinks, water products, teas and
coffees.
We heighten consumer awareness and product appeal for our
brands using integrated marketing programs. Through our bottling
investments and strategic alliances with other bottlers of our
products, we create and implement these programs worldwide. In
developing a global strategy for a Company brand, we conduct
product and packaging research, establish brand positioning,
develop precise consumer communications and solicit consumer
feedback. Our integrated marketing programs include activities
such as advertising, point-of-sale merchandising and product
sampling.
In December 1998, our Company signed an agreement with Cadbury
Schweppes plc to purchase beverage brands in countries around
the world, (except in the United States, France and South Africa),
and its concentrate plants in Ireland and Spain for approximately
$1.85 billion. These brands include Schweppes and Canada Dry
mixers, such as tonic water, club soda and ginger ale; Crush;
Dr Pepper; and certain regional brands. These transactions are
subject to certain conditions including approvals from regulatory
authorities in various countries.
In December 1997, our Company announced its intent to acquire
from beverage company Pernod Ricard, its Orangina brands, three
bottling operations and one concentrate plant in France for
approximately 5 billion French francs (approximately $890 million
based on December 1998 exchange rates). This transaction remains
subject to approvals from regulatory authorities of the French
government.
BOTTLING SYSTEM - Our Company has business relationships with
three types of bottlers: (1) independently owned bottlers, in
which we have no ownership interest; (2) bottlers in which we
have invested and have a noncontrolling ownership interest;
and (3) bottlers in which we have invested and have a
controlling ownership interest.
During 1998, independently owned bottling operations produced
and distributed approximately 34 percent of our worldwide unit
case volume. Bottlers in which we own a noncontrolling ownership
interest produced and distributed approximately 55 percent of
our 1998 worldwide unit case volume. Controlled bottling and
fountain operations produced and distributed approximately 11
percent.
The reason we invest in bottling operations is to maximize the
strength and efficiency of our production, distribution and
marketing systems around the world. These investments often
result in increases in unit case volume, net revenues and
profits at the bottler level, which in turn generate increased
gallon sales for our concentrate business. Thus, both our
Company and the bottlers benefit from long-term growth in
volume, improved cash flows and increased share-owner value.
We designate certain bottling operations in which we have a
noncontrolling ownership interest as "anchor bottlers" due to
their level of responsibility and performance. The strong
commitment of anchor bottlers to their own profitable volume
growth helps us meet our strategic goals and furthers the inter-
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
ests of our worldwide production, distribution and marketing
systems. Anchor bottlers tend to be large and geographically
diverse, with strong financial resources for long-term
investment and strong management resources. In 1998, our anchor
bottlers produced and distributed approximately 43 percent of
our total worldwide unit case volume. Anchor bottlers give us
strong strategic business partners on every major continent. We
enter into anchor bottler partnerships because we expect results
beyond what we could attain alone or with multiple bottlers.
Consistent with our strategy, in January 1999, two Japanese
bottlers, Kita Kyushu Coca-Cola Bottling Company, Ltd. and Sanyo
Coca-Cola Bottling Company, Ltd., announced plans for a merger
to become a new, publicly traded, bottling company, Coca-Cola
West Japan Company, Ltd., Japan's first anchor bottler. The
transaction, valued at approximately $2.2 billion, will create
our 11th anchor bottler. We plan to hold approximately 5 percent
interest in the new anchor bottler.
In 1998, Coca-Cola Amatil Limited (Coca-Cola Amatil) completed
a spin-off of its European operations into a new publicly traded
European bottler, Coca-Cola Beverages plc (Coca-Cola Beverages).
With its formation, Coca-Cola Beverages became our 10th anchor
bottler. At December 31, 1998, we owned approximately 50.5
percent of Coca-Cola Beverages. Our expectation is that our
ownership position will reduce to less than 50 percent in 1999;
therefore, we are accounting for the investment by the equity
method of accounting.
In 1998, our Company contributed its wholly owned bottling
interests in Norway and Finland to Coca-Cola Nordic Beverages
(CCNB), which also has bottling interests in Denmark and Sweden.
CCNB, an anchor bottler, is a joint venture in which Carlsberg
A/S owns a 51 percent interest, and we own a 49 percent interest.
When we make investment decisions about bottling operations,
we consider the bottler's capital structure and its available
resources at the time of our investment. Although it is not our
primary long-term business strategy, in certain situations it
can be advantageous to acquire a controlling interest in a
bottling operation. Owning such a controlling interest allows
us to compensate for limited local resources and enables us to
help focus these bottlers' sales and marketing programs, assist
in developing their business and information systems and
establish appropriate capital structures.
During 1998, we acquired a 100 percent interest in additional
Russian bottling operations from Inchcape plc. Also during 1998,
as part of our strategy to establish an integrated bottling
system in India, we purchased 16 independent Indian bottling
operations, bringing our total purchased since January 1997 to
18.
In line with our long-term bottling strategy, we periodically
consider options for reducing our ownership interest in a
bottler. One option is to combine our bottling interests with
the bottling interests of others to form strategic business
alliances. Another option is to sell our interest in a bottling
operation to one of our equity investee bottlers. In both of
these situations, we continue participating in the bottler's
earnings through our portion of the equity investee's income.
After the spin-off of Coca-Cola Beverages by Coca-Cola Amatil,
we sold our northern and central Italian bottling operations to
Coca-Cola Beverages in exchange for consideration valued at
approximately $1 billion. Additionally, we exchanged our bottling
operations in South Korea with Coca-Cola Amatil for shares of
Coca-Cola Amatil stock.
As stated earlier, our investments in a bottler can represent
either a noncontrolling or a controlling interest. Through
noncontrolling investments in bottling companies, we provide
expertise and resources to strengthen those businesses.
In line with our established investment strategy, our bottling
investments generally have been profitable over time. For
bottling investments accounted for by the equity method, we
measure the profitability of our bottling investments in two
ways - equity income and the excess of the fair values over the
carrying values of our investments. Equity income, included in
our consolidated net income, represents our share of the net
earnings of our investee companies. In 1998, equity income was
$32 million.
The following table illustrates the difference in calculated
fair values, based on quoted closing prices of publicly traded
shares, over our Company's carrying values for selected equity
method investees (in millions):
Fair Carrying
December 31, Value Value Difference
- ------------------------------------------------------------------------
1998
Coca-Cola Enterprises Inc. $ 6,040 $ 584 $ 5,456
Coca-Cola Amatil Limited 1,619 1,255 364
Coca-Cola Beverages plc 949 879 70
Panamerican Beverages, Inc. 668 753 (85)
Coca-Cola FEMSA, S.A. de C.V. 566 105 461
Grupo Continental, S.A. 190 102 88
Coca-Cola Bottling Co.
Consolidated 143 72 71
Embotelladoras Argos 69 105 (36)
Embotelladoras Polar S.A. 50 60 (10)
- ------------------------------------------------------------------------
$ 6,379
========================================================================
The excess of calculated fair values over carrying values for
our investments illustrates the significant increase in the value
of our investments. Although this excess value for equity method
investees is not reflected in our consolidated results of
operations or financial position, it represents a true economic
benefit to us.
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
CUSTOMERS - The Coca-Cola system has over 14 million customers
around the world that sell or serve our products directly to
consumers. We keenly focus on enhancing value for these customers
and providing solutions to grow their beverage businesses. Our
approach includes understanding each customer's business and
needs, whether it is a sophisticated retailer in a developed
market or a kiosk owner in an emerging market.
INFORMATION - In 1996, our Company launched Project Infinity,
a strategic business initiative utilizing technology to integrate
business systems across our global enterprise over the next
several years. In 1997, we began testing a limited version of
Project Infinity software technology. In 1998, we installed
Project Infinity technology at strategic prototype locations and
began process testing.
Project Infinity will enhance our competitiveness by supplying
immediate, detailed information about our financial position and
the marketplace to our management, associates and bottlers
worldwide. By giving our people real-time data, Project Infinity
will increase our ability to recognize opportunities and make
better and faster decisions about operations, marketing and
finance. Project Infinity will require significant capital
expenditures over the next several years. All related costs of
business process reengineering activities are expensed as
incurred.
PEOPLE AND MINDSET - Our continued success depends on recruiting,
training and retaining people who can quickly identify and act on
profitable business opportunities. This means maintaining and
refining a corporate culture that encourages learning, innovation
and value creation on a daily basis. The Coca-Cola Learning
Consortium works with the management of our entire system to
foster learning as a core capability. This group helps build the
culture, systems and processes our people need to develop the
knowledge and skills to take full advantage of new and ongoing
opportunities.
CAPITAL EXPENDITURES - Total capital expenditures for property,
plant and equipment (including our investments in information
technology) and the percentage distribution by operating segment
for 1998, 1997 and 1996 are as follows (in millions):
Year Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------
Capital expenditures $ 863 $ 1,093 $ 990
- ----------------------------------------------------------------
North America{1} 34% 24% 27%
Africa 2% 2% 3%
Greater Europe 25% 30% 38%
Latin America 8% 7% 8%
Middle & Far East 13% 18% 12%
Corporate 18% 19% 12%
================================================================
{1} Includes The Minute Maid Company
FINANCIAL STRATEGIES
Using the following strategies to optimize our cost of capital
increases our ability to maximize share-owner value.
DEBT FINANCING - Our Company maintains prudent debt levels based
on our cash flow, interest coverage and percentage of debt to
capital. We use debt financing to lower our overall cost of
capital, which increases our return on share-owners' equity.
Our capital structure and financial policies have earned long-
term credit ratings of "AA-" from Standard & Poor's and "Aa3"
from Moody's, and the highest credit ratings available for our
commercial paper programs.
Our global presence and strong capital position give us easy
access to key financial markets around the world, enabling us to
raise funds with a low effective cost. This posture, coupled with
the active management of our mix of short-term and long-term
debt, results in a lower overall cost of borrowing. Our debt
management policies, in conjunction with our share repurchase
programs and investment activity, typically result in current
liabilities exceeding current assets.
In managing our use of debt capital, we consider the following
financial measurements and ratios:
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
Net debt (in billions) $ 3.3 $ 2.0 $ 2.8
Net debt-to-net capital 28% 22% 32%
Free cash flow to net debt 39% 172% 85%
Interest coverage 19x 22x 17x
Ratio of earnings to
fixed charges 17.3x 20.8x 14.9x
===============================================================
Net debt is debt in excess of cash, cash equivalents and
marketable securities not required for operations and certain
temporary bottling investments.
SHARE REPURCHASES - Our Company demonstrates confidence in the
long-term growth potential of our business by our consistent use
of share repurchase programs. In October 1996, our Board of
Directors authorized a plan to repurchase up to 206 million
shares of our Company's common stock through the year 2006. In
1998, we repurchased approximately 7 million shares under the
1996 plan and approximately 13 million additional shares to
complete our 1992 share repurchase plan of 200 million shares.
Since the inception of our initial share repurchase program
in 1984, through our current program as of December 31, 1998,
we have repurchased more than 1 billion shares. This represents
32 percent of the shares outstanding as of January 1, 1984, at
an average price per share of $12.46.
DIVIDEND POLICY - At its February 1999 meeting, our Board of
Directors again increased our quarterly dividend, raising it to
$.16 per share. This is equivalent to a full-year dividend of
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
$.64 in 1999, our 37th consecutive annual increase. Our annual
common stock dividend was $.60 per share, $.56 per share and
$.50 per share in 1998, 1997 and 1996, respectively.
In 1998, our dividend payout ratio was approximately 42 percent
of our net income. To free up additional cash for reinvestment in
our high-return beverage business, our Board of Directors intends
to gradually reduce our dividend payout ratio to 30 percent over
time.
FINANCIAL RISK MANAGEMENT
Our Company uses derivative financial instruments primarily to
reduce our exposure to adverse fluctuations in interest rates and
foreign exchange rates and, to a lesser extent, adverse
fluctuations in commodity prices and other market risks. We do
not enter into derivative financial instruments for trading
purposes. As a matter of policy, all our derivative positions
are used to reduce risk by hedging an underlying economic
exposure. Because of the high correlation between the hedging
instrument and the underlying exposure, fluctuations in the
value of the instruments are generally offset by reciprocal
changes in the value of the underlying exposure. The derivatives
we use are straightforward instruments with liquid markets.
Our Company monitors our exposure to financial market risks
using several objective measurement systems, including value-at-
risk models. For the value-at-risk calculations discussed below,
we used a historical simulation model to estimate potential
future losses our Company could incur as a result of adverse
movements in foreign currency and interest rates. We have not
considered the potential impact of favorable movements in
foreign currency and interest rates on our calculations. We
examined historical weekly returns over the previous 10 years
to calculate our value at risk. Our value-at-risk calculations
do not purport to represent actual losses that our Company
expects to incur.
FOREIGN CURRENCY - We manage most of our foreign currency
exposures on a consolidated basis, which allows us to net
certain exposures and take advantage of any natural offsets.
With approximately 74 percent of 1998 operating income generated
outside the United States, over time weakness in one particular
currency is often offset by strengths in others. We use
derivative financial instruments to further reduce our net
exposure to currency fluctuations.
Our Company enters into forward exchange contracts and
purchases currency options (principally European currencies and
Japanese yen) to hedge firm sale commitments denominated in
foreign currencies. We also purchase currency options
(principally European currencies and Japanese yen) to hedge
certain anticipated sales. Premiums paid and realized gains and
losses, including those on any terminated contracts, are included
in prepaid expenses and other assets. These are recognized in
income, along with unrealized gains and losses, in the same
period we realize the hedged transactions. Gains and losses on
derivative financial instruments that are designated and
effective as hedges of net investments in international
operations are included in share-owners' equity as a foreign
currency translation adjustment, a component of other
comprehensive income.
Our value-at-risk calculation estimates foreign currency risk
on our derivatives and other financial instruments. The average
value at risk represents the simple average of quarterly amounts
for the past year. We have not included in our calculation the
effects of currency movements on anticipated foreign currency
denominated sales and other hedged transactions. We performed
calculations to estimate the impact to the fair values of our
derivatives and other financial instruments over a one-week
period resulting from an adverse movement in foreign currency
exchange rates. As a result of our calculations, we estimate,
with 95 percent confidence, that the fair values would decline
by less than $75 million using 1998 average fair values and by
less than $60 million using December 31, 1998, fair values. On
December 31, 1997, we estimated the fair value would decline by
less than $58 million. However, we would expect that any loss in
the fair value of our derivatives and other financial instruments
would generally be offset by an increase in the fair value of our
underlying exposures.
INTEREST RATES - Our Company maintains our percentage of fixed
and variable rate debt within defined parameters. We enter into
interest rate swap agreements that maintain the fixed-to-variable
mix within these parameters. We recognize any differences paid or
received on interest rate swap agreements as adjustments to
interest expense over the life of each swap.
Our value-at-risk calculation estimates interest rate risk on
our derivatives and other financial instruments. The average
value at risk represents the simple average of quarterly amounts
for the past year. According to our calculations, we estimate,
with 95 percent confidence, that any increase in our average and
December 31, 1998, net interest expense due to an adverse move in
interest rates over a one-week period would not have a material
impact on our Consolidated Financial Statements. Our December 31,
1997, estimate also was not material to our Consolidated
Financial Statements.
PERFORMANCE TOOLS
Economic profit provides a framework by which we measure the
value of our actions. We define economic profit as income from
continuing operations, after taxes, excluding interest, in excess
of a computed capital charge for average operating capital
employed. To ensure that our management team stays clearly
focused on the key drivers of our business, economic profit and
unit case volume are used in determining annual and long-term
incentive awards for most eligible employees.
We use value-based management (VBM) as a tool to help improve
our performance in planning and execution. VBM principles assist
us in managing economic profit by clarifying
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
our understanding of what creates value and what destroys it and
encouraging us to manage for increased value. With VBM, we
determine how best to create value in every area of our business.
We believe that by using VBM as a planning and execution tool,
and economic profit as a performance measurement tool, we greatly
enhance our ability to build share-owner value over time.
TOTAL RETURN TO SHARE OWNERS
Our Company has provided share owners with an excellent return
on their investment over the past decade. A $100 investment in
our Company's common stock on December 31, 1988, together with
reinvested dividends, grew in pretax value to approximately
$1,365 on December 31, 1998, an average annual compound return
of 30 percent.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUR BUSINESS
We are the world's leading manufacturer, marketer and
distributor of soft-drink beverage concentrates and syrups as
well as the world's largest marketer and distributor of juice
and juice-drink products. Our Company manufactures beverage
concentrates and syrups and, in certain instances, finished
beverages, which we sell to bottling and canning operations,
authorized fountain wholesalers and some fountain retailers.
In addition, we have ownership interests in numerous bottling
and canning operations.
VOLUME
We measure our sales volume in two ways: (1) gallon sales of
concentrates and syrups and (2) unit cases of finished products.
Gallon sales represent our primary business and measure the
volume of concentrates and syrups we sell to our bottling
partners or customers. Most of our revenues are based on this
measure of "wholesale" activity. We also measure volume in unit
cases, which represent the amount of finished products our
bottling system sells to retail customers. We believe unit case
volume more accurately measures the underlying strength of our
business system because it measures trends at the retail level.
We include fountain syrups sold directly to our customers in
both measures.
Against a challenging economic environment in many of our key
markets, our worldwide unit case volume increased 6 percent in
1998, on top of a 9 percent increase in 1997. Our business
system sold 15.8 billion unit cases in 1998, an increase of
approximately 900 million unit cases over 1997. These results
are the product of years of systematic investment in beverage
brands, bottlers, capital, information systems and people.
OPERATIONS
NET OPERATING REVENUES AND GROSS MARGIN - On a consolidated
basis, our net revenues remained even with 1997, and our gross
profit grew 3 percent in 1998. Net revenues remained even with
1997, primarily due to an increase in gallon sales and price
increases in certain markets, offset by the impact of a stronger
U.S. dollar and the sale of our previously consolidated bottling
and canning operations in Italy.
Our gross profit margin increased to 70 percent in 1998,
primarily due to the sale of previously consolidated bottling and
canning operations. The sale of consolidated bottling operations
shifts a greater portion of our net revenues to the lower
revenue, but higher margin, concentrate business.
On a consolidated basis, our net revenues increased 1 percent,
and our gross profit grew 8 percent in 1997. The growth in
revenues reflects gallon sales increases and price increases in
certain markets, offset by the full-year impact of the sale of
previously consolidated bottling and canning operations in
France, Belgium and eastern Germany in 1996, as well as the
effects of a stronger U.S. dollar. Our gross profit margin
increased to 68 percent in 1997 from 64 percent in 1996,
primarily as a result of the sale in 1996 of previously
consolidated bottling operations.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES - Selling expenses
totaled $6,552 million in 1998, $6,283 million in 1997 and $6,060
million in 1996. The increases in 1998 and 1997 were primarily
due to higher marketing expenditures in support of our Company's
volume growth.
Administrative and general expenses totaled $1,732 million in
1998, $1,569 million in 1997 and $1,960 million in 1996. The
increase in 1998 was mainly due to the expansion of our business
into emerging markets. Offsetting this increase was the impact of
the sale of our bottling operations in northern and central
Italy.
Also in 1998 we recorded nonrecurring provisions primarily
related to the impairment of certain assets in North America of
$25 million and Corporate of $48 million.
The decrease in 1997 was principally due to certain
nonrecurring provisions recorded in 1996, as discussed below,
partially offset by a $60 million nonrecurring provision recorded
in 1997 related to enhancing manufacturing efficiencies in North
America.
In 1996, administrative and general expenses increased due to
certain nonrecurring provisions. In the third quarter of 1996,
we recorded provisions of approximately $276 million in
administrative and general expenses related to our plans for
strengthening our worldwide system. Of this $276 million,
approximately $130 million related to streamlining our
operations, primarily in Greater Europe and Latin America. The
remainder of this $276 million provision was for impairment
charges to certain production facilities and reserves for losses
on the disposal of other production facilities of The Minute Maid
Company.
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Also in 1996, we recorded in Corporate's administrative and
general expenses an $80 million impairment charge to recognize
Project Infinity's impact on existing information systems and a
$28.5 million charge as a result of our decision to make a
contribution to The Coca-Cola Foundation, a not-for-profit
charitable organization.
Administrative and general expenses, as a percentage of net
operating revenues, totaled approximately 9 percent in 1998,
8 percent in 1997 and 10 percent in 1996.
OPERATING INCOME AND OPERATING MARGIN - On a consolidated basis,
our operating income declined less than 1 percent in 1998 to
$4,967 million. This follows a 28 percent increase in 1997 to
$5,001 million. The 1998 results reflect an increase in gallon sales
coupled with an increase in gross profit margins, offset by the
impact of the stronger U.S. dollar and the sales of previously
consolidated bottling operations. The 1997 increase was due to
increased gallon sales coupled with an increase in gross profit
margins, as well as the recording of several nonrecurring
provisions in the third quarter of 1996. Our consolidated
operating margin was 26 percent in 1998 and 27 percent in 1997.
MARGIN ANALYSIS
[bar chart]
1998 1997 1996
- ---------------------------------------------------------
Net Operating Revenues $18.8 $18.9 $18.7
(in billions)
Gross Margin 70% 68% 64%
Operating Margin 26% 27% 21%
- ---------------------------------------------------------
INTEREST INCOME AND INTEREST EXPENSE - In 1998, our interest
income increased 4 percent, primarily due to cash held in
locations outside the United States earning higher interest
rates. In 1997, our interest income decreased 11 percent,
primarily due to decreases in international interest rates.
Interest expense increased 7 percent in 1998 due to higher
average commercial paper borrowings. Average 1998 debt balances
increased from 1997 primarily due to additional investments in
bottling operations. In 1997, we utilized cash proceeds received
from various transactions to reduce short-term indebtedness. In
1997, our interest expense decreased 10 percent, as a result of
the use of proceeds received reducing our commercial paper
borrowings.
EQUITY INCOME - Equity income decreased to $32 million in 1998,
principally due to the weak economic environments around the
world, the impact of a stronger U.S. dollar, continued structural
changes and losses in start-up bottling operations. Equity income
decreased 27 percent to $155 million in 1997, primarily due to
the significant amount of structural change in our global
bottling system, which was partially offset by solid results at
key equity bottlers.
OTHER INCOME-NET - In 1998, other income-net totaled $230 million
and primarily includes gains recorded on the sales of our
bottling operations in northern and central Italy.
In 1997, other income-net increased $496 million and included
gains totaling $508 million on the sales of our interests in
Coca-Cola & Schweppes Beverages Ltd., Coca-Cola Beverages Ltd.
of Canada and The Coca-Cola Bottling Company of New York, Inc.
Gains on other bottling transactions are also included in other
income-net.
GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES - At the time an
equity investee sells its stock to third parties at a price in
excess of our book value, our Company's equity in the underlying
net assets of that investee increases. We generally record an
increase to our investment account and a corresponding gain in
these transactions.
As a result of sales of stock by certain equity investees,
we recorded pretax gains of approximately $27 million in 1998
and approximately $363 million in 1997. These gains represent
the increase in our Company's equity in the underlying net
assets of the related investee. For a more complete description
of these transactions, see Note 3 in our Consolidated Financial
Statements.
INCOME TAXES - Our effective tax rates were 32.0 percent in 1998,
31.8 percent in 1997 and 24.0 percent in 1996. Our 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 35.0 percent, partially offset by the
tax impact of certain gains recognized from previously discussed
bottling transactions. These transactions are generally taxed at
rates higher than our Company's effective tax rate on operations.
In 1996, our Company reached an agreement, in principle with
the U.S. Internal Revenue Service, settling certain U.S.-related
income tax matters. This settlement resulted in a one-time
reduction of $320 million to our 1996 income tax expense. For a
more complete description, see Note 14 in our Consolidated
Financial Statements.
INCOME PER SHARE - Our basic net income per share declined by
14 percent in 1998, compared to a 19 percent growth in 1997 and
1996. Diluted net income per share declined 13 percent in 1998,
compared to a 19 percent and 18 percent growth in 1997 and 1996,
respectively.
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<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
We believe our ability to generate cash from operations to
reinvest in our business is one of our fundamental financial
strengths. We anticipate that our operating activities in 1999
will continue to provide us with cash flows to assist in our
business expansion and meet our financial commitments.
FREE CASH FLOW - Free cash flow is the cash remaining from
operations after we have satisfied our business reinvestment
opportunities. We focus on increasing free cash flow to achieve
our primary objective: maximizing share-owner value over time.
We use free cash flow, along with borrowings, to pay dividends
and repurchase shares. The consolidated statements of our cash
flows are summarized as follows (in millions):
Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------
Cash flows provided by
(used in):
Operations $ 3,433 $ 4,033 $ 3,463
Investment activities (2,161) (500) (1,050)
- -------------------------------------------------------------------
FREE CASH FLOW 1,272 3,533 2,413
Cash flows used in:
Financing
Share repurchases (1,563) (1,262) (1,521)
Other financing activities 230 (1,833) (581)
Exchange (28) (134) (45)
- -------------------------------------------------------------------
Increase (decrease) in cash $ (89) $ 304 $ 266
===================================================================
Cash provided by operations in 1998 amounted to $3.4 billion,
a 15 percent decrease from 1997, primarily due to an increased
use of cash for operating assets and liabilities in 1998. In
1997, cash provided by operations amounted to $4.0 billion, a 16
percent increase from 1996. This change was primarily due to an
increase in net income in 1997.
In 1998, net cash used in investing activities increased
compared to 1997. Investing activities in 1997 included
incremental proceeds of approximately $1 billion, as discussed
below. During 1998, investing activities included additional
investments in territories, such as India and Latin American
countries.
In 1997, net cash used in investing activities decreased,
primarily due to the increase in proceeds from the disposal of
investments and other assets, which included the dispositions of
our interests in Coca-Cola & Schweppes Beverages Ltd., The
Coca-Cola Bottling Company of New York, Inc., and Coca-Cola
Beverages Ltd. of Canada. This growth was partially offset by
increased acquisitions and investments, primarily in bottling
operations, including the South Korean bottlers.
FINANCING ACTIVITIES - Our financing activities include net
borrowings, dividend payments and share repurchases. Net cash
used in financing activities totaled $1.3 billion in 1998,
$3.1 billion in 1997 and $2.1 billion in 1996. The change between
1998 and 1997 was primarily due to net reductions of debt in 1997
compared to net borrowings in 1998.
Cash used to purchase common stock for treasury totaled $1.6
billion in 1998 versus $1.3 billion in 1997.
Commercial paper is our primary source of short-term financing.
On December 31, 1998, we had $4.3 billion outstanding in
commercial paper borrowings compared to $2.6 billion outstanding
in 1997, a $1.7 billion increase in borrowings. The 1998 increase
in loans and notes payable was due to additional commercial paper
borrowings used for additional investments in bottling operations
and share repurchases. The 1997 reduction of debt was due to cash
proceeds received from the sale of bottlers. In addition, at
December 31, 1998, we had $1.6 billion in lines of credit and
other short-term credit facilities available, of which
approximately $89 million was outstanding.
EXCHANGE - Our international operations are subject to certain
opportunities and risks, including currency fluctuations and
government actions. We closely monitor our operations in each
country so we can quickly and decisively respond to changing
economic and political environments and to fluctuations in
foreign currencies.
We use approximately 50 functional currencies. Due to our
global operations, weaknesses in some of these currencies are
often offset by strengths in others. In 1998, 1997 and 1996,
the weighted-average exchange rates for foreign currencies, and
certain individual currencies, strengthened (weakened) against
the U.S. dollar as follows:
Year Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------
All currencies (9)% (10)% (10)%
- ----------------------------------------------------------------
Australian dollar (16)% (6)% 5 %
British pound 2 % 4 % (1)%
Canadian dollar (7)% (1)% Even
French franc (3)% (12)% (4)%
German mark (3)% (13)% (6)%
Japanese yen (6)% (10)% (15)%
================================================================
These percentages do not include the effects of our hedging
activities and, therefore, do not reflect the actual impact of
fluctuations in exchange on our operating results. Our foreign
currency management program mitigates over time a portion of our
exchange risks. The impact of a stronger U.S. dollar reduced our
operating income by approximately 9 percent in 1998.
The change in our foreign currency translation adjustment in
1997 was primarily due to the revaluation of net assets located
in countries where the local currency significantly weakened
against the U.S. dollar. Exchange gains (losses)-net amounted to
$(34) million in 1998, $(56) million in 1997 and $3 million in
1996, and were recorded in other income-net. Exchange gains
(losses)-net includes the remeasurement of certain currencies
into functional currencies and the costs of hedging certain
exposures of our balance sheet.
Additional information concerning our hedging activities is
presented in Note 9 in our Consolidated Financial Statements.
- 33 -
<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL POSITION
The carrying amount of our investment in Coca-Cola Enterprises
increased in 1998 as a result of Coca-Cola Enterprises' issuance
of stock in its acquisitions of various bottling operations. The
carrying value of our investment in Coca-Cola Amatil increased
due to its acquisition of our bottling operations in South Korea,
offset by the spin-off of Coca-Cola Beverages to its share
owners. The increase for Coca-Cola Beverages is primarily a
result of our equity participation in its formation in 1998, as
previously discussed, and the sale to Coca-Cola Beverages of our
bottling operations in northern and central Italy. The increase
in prepaid expenses and other assets is primarily due to
increases in receivables from equity method investees, marketing
prepaids and miscellaneous receivables.
The carrying value of our investment in Coca-Cola Enterprises
decreased in 1997 as a result of deferred gains related to the
sales of our interests in Coca-Cola & Schweppes Beverages Ltd.,
Coca-Cola Beverages Ltd. of Canada and The Coca-Cola Bottling
Company of New York, Inc. to Coca-Cola Enterprises. The deferred
gains resulted from our approximately 44 percent ownership in
Coca-Cola Enterprises. The carrying value of our investment in
Coca-Cola Amatil increased in 1997 due to Coca-Cola Amatil
issuing shares to San Miguel Corporation at a value per share
greater than the carrying value per share of our interest in
Coca-Cola Amatil. Our equity method investments also increased in
1997 due to our change from the cost method to the equity method
of accounting for Panamerican Beverages, Inc. (Panamco) and Grupo
Continental, S.A., and due to increased investments in other
bottling operations. Our cost method investments declined due to
the change in accounting for Panamco and Grupo Continental, S.A.,
partially offset by additional investments in Embotelladoras
Polar S.A. and Embotelladora Andina S.A. Unrealized gain on
available-for-sale securities, a component of share-owners'
equity, is composed of adjustments to report our marketable cost
method investments at fair value. During 1997, unrealized gain
on securities decreased $98 million primarily due to the change
in accounting for Panamco and Grupo Continental, S.A.
YEAR 2000
Certain computer programs written with two digits rather than
four to define the applicable year may experience problems
handling dates near the end of and beyond the year 1999 (Year
2000 failure dates). This may cause computer applications to
fail or to create erroneous results unless corrective measures
are taken. The Year 2000 problem can arise at any point in the
Company's supply, manufacturing, processing, distribution and
financial chains.
Aided by third party service providers, we are implementing a
plan to address the anticipated impacts of the Year 2000 problem
on our information technology (IT) systems and on non-IT systems
involving embedded chip technologies (non-IT systems). We are
also surveying selected third parties to determine the status
of their Year 2000 compliance programs. In addition, we are
developing contingency plans specifying what the Company will do
if it or important third parties experience disruptions as a
result of the Year 2000 problem.
With respect to IT systems, our Year 2000 plan includes
programs relating to (i) computer applications, including those
for mainframes, client server systems, minicomputers and personal
computers (the Applications Program) and (ii) IT infrastructure,
including hardware, software, network technology and voice and
data communications (the Infrastructure Program). In the case of
non-IT systems, our Year 2000 plan includes programs relating to
(i) equipment and processes required to produce and distribute
beverage concentrates and syrups, finished beverages, juices and
juice-drink products (the Manufacturing Program) and (ii)
equipment and systems in buildings not encompassed by the
Manufacturing Program that our Company occupies or leases to
third parties (the Facilities Program).
Each of these programs is being conducted in phases, described
as follows:
INVENTORY PHASE - Identify hardware, software, processes or
devices that use or process date information.
ASSESSMENT PHASE - Identify Year 2000 date processing
deficiencies and related implications.
PLANNING PHASE - Determine for each deficiency an appropriate
solution and budget. Schedule resources and develop testing
plans.
IMPLEMENTATION PHASE - Implement designed solutions. Conduct
appropriate systems testing.
Certain additional testing may be conducted following
completion of the implementation phase. The plan also includes a
control element intended to ensure that changes to IT and non-IT
systems do not introduce additional Year 2000 issues.
Our Year 2000 plan is subject to modification and is revised
periodically as additional information is developed. The Company
currently believes that its Year 2000 plan will be completed in
all material respects prior to the anticipated Year 2000 failure
dates. As of the respective dates indicated below, status reports
regarding the Applications, Infrastructure, Manufacturing and
Facilities Programs are as follows:
APPLICATIONS PROGRAM (AS OF JANUARY 16, 1999) - We have
completed the inventory, assessment and planning phases for all
46 applications considered to be mission-critical, and
implementation phase progress is as follows: 37 are complete and
nine are expected to be completed by June 1999. Of approximately
2,500 other applications we have identified, approximately 2,300
have been assessed and approximately 1,200 of these have been
determined to require Year 2000 planning and implementation phase
work. Remaining assessment phase work is expected to be completed
by March 1999. We have completed the planning and implementation
- 34 -
<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
phases for approximately 1,100 applications, and we estimate
completion of the remainder by July 1999.
INFRASTRUCTURE PROGRAM (AS OF JANUARY 16, 1999) - The inventory
phase is estimated to be approximately 91 percent complete and is
expected to be fully completed by April 1999. Approximately 2,300
"components" have been identified. (We define a component as a
particular type - of which there may be numerous individual
iterations - of software package, computer or telecommunications
hardware, or lab or research equipment, including any supporting
software and utilities.) The assessment, planning and
implementation phases are estimated to be approximately 84
percent, 79 percent and 50 percent complete, respectively, and
are expected to be fully completed by May, May and October 1999,
respectively.
MANUFACTURING PROGRAM (AS OF JANUARY 22, 1999) - We have
identified 102 separate manufacturing operations in which our
Company's ownership interest is 50 percent or greater. Of these,
100 operations have completed the inventory phase, and all are
expected to have done so by January 1999. The assessment phase
is complete in 94 operations and is expected to be fully
completed by February 1999. Planning phase work has been
completed in 76 operations and is expected to be fully completed
by April 1999. Implementation phase work has been completed in
42 operations and is expected to be fully completed by July 1999.
FACILITIES PROGRAM (AS OF JANUARY 25, 1999) - We have
identified 46 non-manufacturing buildings in which our Company's
ownership interest is 50 percent or greater. Of these, status by
phase is as follows:
Not Yet In Total Estimated 100%
Phase Started Progress Complete Buildings Completion Date
- -----------------------------------------------------------------------
Inventory 4 1 41 46 March 1999
Assessment 5 9 32 46 April 1999
Planning 12 21 13 46 May 1999
Implementation 33 6 7 46 October 1999
=======================================================================
Owners of properties leased by our Company are being contacted
in order to assess the Year 2000 readiness of their facilities.
THIRD PARTY YEAR 2000 READINESS - The Company has material
relationships with third parties whose failure to be Year 2000
compliant could have materially adverse impacts on our Company's
business, operations or financial condition in the future. Third
parties that we consider to be in this category for Year 2000
purposes (Key Business Partners) include critically important
bottlers, customers, suppliers, vendors and public entities such
as government regulatory agencies, utilities, financial entities
and others.
BOTTLERS - We derive most of our net operating revenues from
sales of concentrates, syrups and finished products to authorized
third parties, including bottling and canning operations
(Bottlers), that produce, package and distribute beverages
bearing the Company's brands. We have made Year 2000 awareness
information available to all Bottlers and have asked each
Bottler to advise us of the Bottler's plans for reaching Year
2000 readiness with respect to non-IT systems. As of December 31,
1998, unconsolidated Bottlers representing approximately 99
percent of our 1998 worldwide unit case volume from
unconsolidated Bottlers have made their plans available to us,
including all 10 of our anchor bottlers. We have also contacted
the Bottlers to inquire about their state of Year 2000 readiness
with respect to IT systems as well as the actions being taken by
Bottlers with respect to third parties. We may take further
action as we deem it appropriate in particular cases.
CUSTOMERS - We have met and exchanged information with a
limited number of key non-Bottler customers regarding Year 2000
readiness issues. We are now formalizing these contacts into a
program designed to help us assess the Year 2000 readiness of
key non-Bottler customers.
SUPPLIERS AND VENDORS - The Company classifies as "critical"
those suppliers of products or services consumed on an ongoing
basis that, if interrupted, would materially disrupt the
Company's ability to deliver products or conduct operations.
We are conducting on-site reviews of suppliers identified as
critical on a worldwide basis, for purposes of assessing their
Year 2000 plans and their progress toward implementation. We
expect all of these reviews to be completed by April 1999.
Thereafter, additional assessments may occur during the remainder
of the year. In addition, each Company field location is working
to assess the likelihood of supply issues with suppliers
classified as critical on a regional basis.
Suppliers of less critical importance to our business, and
vendors from whom we buy goods expected to be in service beyond
1999, have been sent a questionnaire from us asking about the
status of their Year 2000 plans. Responses are being evaluated,
certain selected goods are being tested, and follow-up action is
being taken by the Company as it deems appropriate.
PUBLIC ENTITIES - We are also in the process of implementing a
Year 2000 program involving interaction with and assessment of
public entities such as government regulatory agencies,
utilities, financial entities and others.
CONTINGENCY PLANS - The Company is preparing contingency plans
relating specifically to identified Year 2000 risks and
developing cost estimates relating to these plans. Contingency
plans may include stockpiling raw and packaging materials,
increasing inventory levels, securing alternate sources of
supply and other appropriate measures. We anticipate completion
of the Year 2000 contingency plans during the first half of 1999.
Once developed, Year 2000 contingency plans and related cost
estimates will be tested in certain respects and continually
refined as additional information becomes available.
- 35 -
<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
YEAR 2000 RISKS - While the Company currently believes that it
will be able to modify or replace its affected systems in time
to minimize any significant detrimental effects on its
operations, failure to do so, or the failure of Key Business
Partners or other third parties to modify or replace their
affected systems, could have materially adverse impacts on the
Company's business, operations or financial condition in the
future. There can be no guarantee that such impacts will not
occur. In particular, because of the interdependent nature of
business systems, the Company could be materially adversely
affected if private businesses, utilities and governmental
entities with which it does business or that provide essential
products or services are not Year 2000 ready. The Company
currently believes that the greatest risk of disruption in its
businesses exists in certain international markets. Reasonably
likely consequences of failure by the Company or third parties
to resolve the Year 2000 problem include, among other things,
temporary slowdowns or cessations of operations at one or more
Company or Bottler facilities, delays in the delivery or
distribution of products, delays in the receipt of supplies,
invoice and collection errors, and inventory and supply
obsolescence. However, the Company believes that its Year 2000
readiness program, including related contingency planning,
should significantly reduce the possibility of significant
interruptions of normal operations.
COSTS - As of December 31, 1998, the Company's total incremental
costs (historical plus estimated future costs) of addressing Year
2000 issues are estimated to be in the range of $130 million to
$160 million, of which approximately $70 million has been
incurred. These costs are being funded through operating cash
flow. These amounts do not include: (i) any costs associated
with the implementation of contingency plans, which are in the
process of being developed, or (ii) costs associated with
replacements of computerized systems or equipment in cases where
replacement was not accelerated due to Year 2000 issues.
Implementation of our Company's Year 2000 plan is an ongoing
process. Consequently, the above described estimates of costs
and completion dates for the various components of the plan are
subject to change.
For further information regarding Year 2000 matters, see the
disclosures under Forward-Looking Statements on page 37.
EURO CONVERSION
In January 1999, certain member countries of the European
Union established permanent, fixed conversion rates between their
existing currencies and the European Union's common currency
(the Euro).
The transition period for the introduction of the Euro is
scheduled to phase in over a period ending January 1, 2002, with
the existing currency being completely removed from circulation
on July 1, 2002. Our Company has been preparing for the
introduction of the Euro for several years. The timing of our
phasing out all uses of the existing currencies will comply
with the legal requirements and also be scheduled to facilitate
optimal coordination with the plans of our vendors, distributors
and customers. Our work related to the introduction of the Euro
and the phasing out of the other currencies includes converting
information technology systems; recalculating currency risk;
recalibrating derivatives and other financial instruments;
evaluating and taking action, if needed, regarding continuity of
contracts; and modifying our processes for preparing tax,
accounting, payroll and customer records.
Based on our work to date, we believe the introduction of the
Euro and the phasing out of the other currencies will not have a
material impact on our Company's Consolidated Financial
Statements.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation affects the way we operate in many markets around
the world. In general, we are able to increase prices to
counteract the inflationary effects of increasing costs and to
generate sufficient cash flows to maintain our productive
capability.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The new
statement requires all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting rules for
hedging instruments. The statement is effective for the Company
in the Year 2000. We are assessing the impact this statement will
have on our Consolidated Financial Statements.
OUTLOOK
While we cannot predict future performance, we believe
considerable opportunities exist for sustained, profitable
growth, not only in the developing population centers of the
world but also in our most established markets, including the
United States.
We firmly believe the strength of our brands, our unparalleled
distribution system, our global presence, our strong financial
condition and the skills of our people give us the flexibility to
capitalize on our growth opportunities as we continue to pursue
our goal of increasing share-owner value over time.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act)
provides a safe harbor for forward-looking statements made by or
on behalf of our Company. Our Company and its representatives may
from time to time make written or verbal forward-looking
statements, including statements contained in this report and
other Company filings with the Securities and Exchange Commission
and in our reports to share owners.
- 36 -
<PAGE>
FINANCIAL REVIEW
INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COCA-COLA COMPANY AND SUBSIDIARIES
All statements which address operating performance, events or
developments that we expect or anticipate will occur in the
future, including statements relating to volume growth, share
of sales and earnings per share growth, statements expressing
general optimism about future operating results and non-
historical Year 2000 information, are forward-looking statements
within the meaning of the Act. The forward-looking statements are
and will be based on management's then current views and
assumptions regarding future events and operating performance.
The following are some of the factors that could affect our
financial performance or could cause actual results to differ
materially from estimates contained in or underlying our
Company's forward-looking statements:
- -- Our ability to generate sufficient cash flows to support
capital expansion plans, share repurchase programs and general
operating activities.
- -- Competitive product and pricing pressures and our ability to
gain or maintain share of sales in the global market as a
result of actions by competitors. While we believe our
opportunities for sustained, profitable growth are
considerable, unanticipated actions of competitors could
impact our earnings, share of sales and volume growth.
- -- Changes in laws and regulations, including changes in
accounting standards, taxation requirements (including tax
rate changes, new tax laws and revised tax law
interpretations) and environmental laws in domestic or foreign
jurisdictions.
- -- Fluctuations in the cost and availability of raw materials and
the ability to maintain favorable supplier arrangements and
relationships.
- -- Our ability to achieve earnings forecasts, which are generated
based on projected volumes and sales of many product types,
some of which are more profitable than others. There can be no
assurance that we will achieve the projected level or mix of
product sales.
- -- Interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations. Most
of our exposures to capital markets, including interest and
foreign currency, are managed on a consolidated basis, which
allows us to net certain exposures and, thus, take advantage
of any natural offsets. We use derivative financial
instruments to reduce our net exposure to financial risks.
There can be no assurance, however, that our financial risk
management program will be successful in reducing foreign
currency exposures.
- -- Economic and political conditions in international markets,
including civil unrest, governmental changes and restrictions
on the ability to transfer capital across borders.
- -- Our ability to penetrate developing and emerging markets,
which also depends on economic and political conditions, and
how well we are able to acquire or form strategic business
alliances with local bottlers and make necessary
infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets must
match the customers' demand for those products, and due to
product price and cultural differences, there can be no
assurance of product acceptance in any particular market.
- -- The effectiveness of our advertising, marketing and
promotional programs.
- -- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's
Securities and Exchange Commission filings.
- -- Adverse weather conditions, which could reduce demand for
Company products.
- -- Our ability and the ability of our Key Business Partners and
other third parties to replace, modify or upgrade computer
systems in ways that adequately address the Year 2000 problem.
Given the numerous and significant uncertainties involved,
there can be no assurance that Year 2000 related estimates and
anticipated results will be achieved, and actual results could
differ materially. Specific factors that might cause such
material differences include, but are not limited to, the
ability to identify and correct all relevant computer codes
and embedded chips, unanticipated difficulties or delays in
the implementation of Year 2000 project plans and the ability
of third parties to adequately address their own Year 2000
issues.
- -- Our ability to timely resolve issues relating to introduction
of the European Union's common currency (the Euro).
The foregoing list of important factors is not exclusive.
ADDITIONAL INFORMATION
For additional information about our operations, cash flows,
liquidity and capital resources, please refer to the information
on pages 40 through 60 of this report. Additional information
concerning our operating segments is presented on pages 57
through 58.
- 37 -
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
Compound
(In millions except per Growth Rates Year Ended December 31,
share data, ratios ------------------ -----------------------------------------------
and growth rates) 5 Years 10 Years 1998{2} 1997{2} 1996{2} 1995{2}
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net operating revenues 6.0% 8.8% $ 18,813 $ 18,868 $ 18,673 $ 18,127
Cost of goods sold 1.5% 5.0% 5,562 6,015 6,738 6,940
- -----------------------------------------------------------------------------------------------
Gross profit 8.4% 11.0% 13,251 12,853 11,935 11,187
Selling, administrative
and general expenses 7.5% 10.5% 8,284 7,852 8,020 7,161
- -----------------------------------------------------------------------------------------------
Operating income 9.9% 12.0% 4,967 5,001 3,915 4,026
Interest income 219 211 238 245
Interest expense 277 258 286 272
Equity income 32 155 211 169
Other income (deductions)-net 230 583 87 86
Gains on issuances of stock by
equity investees 27 363 431 74
- ----------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 10.3% 12.3% 5,198 6,055 4,596 4,328
Income taxes 10.8% 12.0% 1,665 1,926 1,104 1,342
- ----------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles 10.1% 12.5% $ 3,533 $ 4,129 $ 3,492 $ 2,986
===============================================================================================
Net income 10.2% 13.0% $ 3,533 $ 4,129 $ 3,492 $ 2,986
Preferred stock dividends - - - -
- -----------------------------------------------------------------------------------------------
Net income available to
common share owners 10.2% 13.0% $ 3,533 $ 4,129 $ 3,492 $ 2,986
===============================================================================================
Average common shares
outstanding 2,467 2,477 2,494 2,525
Average common shares
outstanding assuming
dilution 2,496 2,515 2,523 2,549
PER COMMON SHARE DATA
Income from continuing
operations before
changes in accounting
principles - basic 11.2% 14.5% $ 1.43 $ 1.67 $ 1.40 $ 1.18
Income from continuing
operations before
changes in accounting
principles - diluted 11.3% 14.4% 1.42 1.64 1.38 1.17
Basic net income 11.2% 14.8% 1.43 1.67 1.40 1.18
Diluted net income 11.3% 15.0% 1.42 1.64 1.38 1.17
Cash dividends 12.0% 14.9% .60 .56 .50 .44
Market price on December 31 24.6% 28.2% 67.00 66.69 52.63 37.13
TOTAL MARKET VALUE OF
COMMON STOCK{1} 23.3% 26.4% $165,190 $164,766 $130,575 $ 92,983
BALANCE SHEET DATA
Cash, cash equivalents and
current marketable
securities $ 1,807 $ 1,843 $ 1,658 $ 1,315
Property, plant and
equipment-net 3,669 3,743 3,550 4,336
Depreciation 381 384 442 421
Capital expenditures 863 1,093 990 937
Total assets 19,145 16,881 16,112 15,004
Long-term debt 687 801 1,116 1,141
Total debt 5,149 3,875 4,513 4,064
Share-owners' equity 8,403 7,274 6,125 5,369
Total capital{1} 13,552 11,149 10,638 9,433
OTHER KEY FINANCIAL MEASURES{1}
Total debt-to-total capital 38.0% 34.8% 42.4% 43.1%
Net debt-to-net capital 28.1% 22.0% 31.6% 32.3%
Return on common equity 45.1% 61.6% 60.8% 56.4%
Return on capital 30.2% 39.5% 36.8% 34.9%
Dividend payout ratio 41.9% 33.6% 35.7% 37.2%
Free cash flow $ 1,272 $ 3,533 $ 2,413 $ 2,102
Economic profit $ 2,480 $ 3,325 $ 2,718 $ 2,291
===============================================================================================
<FN>
{1} See Glossary on page 65.
{2} In 1998, we adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits."
{3} In 1994, we adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
{4} In 1993, we adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits."
{5} In 1992, we adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
</FN>
</TABLE>
- 38 -
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
(In millions except per Year Ended December 31,
share data, ratios --------------------------------------------------------------------------------------
and growth rates) 1994{2,3} 1993{2,4} 1992{2,5,6} 1991{2,6} 1990{2,6} 1989{6} 1988
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net operating revenues $ 16,264 $ 14,030 $ 13,119 $ 11,599 $ 10,261 $ 8,637 $ 8,076
Cost of goods sold 6,168 5,160 5,055 4,649 4,208 3,548 3,429
- -------------------------------------------------------------------------------------------------------------------
Gross profit 10,096 8,870 8,064 6,950 6,053 5,089 4,647
Selling, administrative
and general expenses 6,459 5,771 5,317 4,641 4,103 3,342 3,044
- -------------------------------------------------------------------------------------------------------------------
Operating income 3,637 3,099 2,747 2,309 1,950 1,747 1,603
Interest income 181 144 164 175 170 205 199
Interest expense 199 168 171 192 231 308 230
Equity income 134 91 65 40 110 75 92
Other income (deductions)-
net (25) 7 (59) 51 15 45 (38)
Gains on issuances of stock
by equity investees - 12 - - - - -
- -------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 3,728 3,185 2,746 2,383 2,014 1,764 1,626
Income taxes 1,174 997 863 765 632 553 537
- -------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles $ 2,554 $ 2,188 $ 1,883 $ 1,618 $ 1,382 $ 1,211 $ 1,089
===================================================================================================================
Net income $ 2,554 $ 2,176 $ 1,664 $ 1,618 $ 1,382 $ 1,537 $ 1,045
Preferred stock dividends - - - 1 18 21 7
- -------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners $ 2,554 $ 2,176 $ 1,664 $ 1,617 $ 1,364 $ 1,516{7} $ 1,038
===================================================================================================================
Average common shares
outstanding 2,580 2,603 2,634 2,666 2,674 2,768 2,917
Average common shares
outstanding assuming
dilution 2,599 2,626 2,668 2,695 2,706 2,789 2,929
PER COMMON SHARE DATA
Income from continuing
operations before
changes in accounting
principles - basic $ .99 $ .84 $ .72 $ .61 $ .51 $ .43 $ .37
Income from continuing
operations before
changes in accounting
principles - diluted .98 .83 .71 .60 .50 .43 .37
Basic net income .99 .84 .63 .61 .51 .55{7} .36
Diluted net income .98 .83 .62 .60 .50 .54 .35
Cash dividends .39 .34 .28 .24 .20 .17 .15
Market price on December 31 25.75 22.31 20.94 20.06 11.63 9.66 5.58
TOTAL MARKET VALUE OF
COMMON STOCK{1} $ 65,711 $ 57,905 $ 54,728 $53,325 $ 31,073 $ 26,034 $15,834
BALANCE SHEET DATA
Cash, cash equivalents and
current marketable
securities $ 1,531 $ 1,078 $ 1,063 $ 1,117 $ 1,492 $ 1,182 $ 1,231
Property, plant and
equipment - net 4,080 3,729 3,526 2,890 2,386 2,021 1,759
Depreciation 382 333 310 254 236 181 167
Capital expenditures 878 800 1,083 792 593 462 387
Total assets 13,863 11,998 11,040 10,185 9,245 8,249 7,451
Long-term debt 1,426 1,428 1,120 985 536 549 761
Total debt 3,509 3,100 3,207 2,288 2,537 1,980 2,124
Share-owners' equity 5,228 4,570 3,881 4,236 3,662 3,299 3,345
Total capital{1} 8,737 7,670 7,088 6,524 6,199 5,279 5,469
OTHER KEY FINANCIAL
MEASURES{1}
Total debt-to-total capital 40.2% 40.4% 45.2% 35.1% 40.9% 37.5% 38.8%
Net debt-to-net capital 25.5% 29.0% 33.1% 24.2% 24.6% 15.6% 21.1%
Return on common equity 52.1% 51.8% 46.4% 41.3% 41.4% 39.4% 34.7%
Return on capital 32.8% 31.2% 29.4% 27.5% 26.8% 26.5% 21.3%
Dividend payout ratio 39.4% 40.6% 44.3% 39.5% 39.2% 31.0%{7} 42.1%
Free cash flow $ 2,146 $ 1,623 $ 873 $ 960 $ 844 $ 1,664 $ 1,517
Economic profit $ 1,896 $ 1,549 $ 1,300 $ 1,073 $ 920 $ 859 $ 717
===================================================================================================================
<FN>
{6} In 1992, we adopted SFAS No. 109, "Accounting for Income Taxes," by restating financial statements
beginning in 1989.
{7} Net income available to common share owners in 1989 included after-tax gains of $604 million
($.22 per common share, basic and diluted) from the sales of our equity interest in Columbia
Pictures Entertainment, Inc. and our bottled water business, and the transition effect of
$265 million related to the change in accounting for income taxes. Excluding these nonrecurring
items, our dividend payout ratio in 1989 was 39.9 percent.
<FN>
</TABLE>
- 39 -
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
December 31, 1998 1997
- ------------------------------------------------------------------------------------
(In millions except share data)
ASSETS
<S> <C> <C>
CURRENT
Cash and cash equivalents $ 1,648 $ 1,737
Marketable securities 159 106
- ------------------------------------------------------------------------------------
1,807 1,843
Trade accounts receivable, less allowances
of $10 in 1998 and $23 in 1997 1,666 1,639
Inventories 890 959
Prepaid expenses and other assets 2,017 1,528
- ------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,380 5,969
- ------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 584 184
Coca-Cola Amatil Limited 1,255 1,204
Coca-Cola Beverages plc 879 -
Other, principally bottling companies 3,573 3,049
Cost method investments, principally
bottling companies 395 457
Marketable securities and other assets 1,863 1,607
- -------------------------------------------------------------------------------------
8,549 6,501
- -------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 199 183
Buildings and improvements 1,507 1,535
Machinery and equipment 3,855 3,896
Containers 124 157
- -------------------------------------------------------------------------------------
5,685 5,771
Less allowances for depreciation 2,016 2,028
- -------------------------------------------------------------------------------------
3,669 3,743
- -------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS 547 668
- -------------------------------------------------------------------------------------
$ 19,145 $ 16,881
=====================================================================================
</TABLE>
- 40 -
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------------
LIABILITIES AND SHARE-OWNERS' EQUITY
<C> <C>
CURRENT
Accounts payable and accrued expenses $ 3,141 $ 3,249
Loans and notes payable 4,459 2,677
Current maturities of long-term debt 3 397
Accrued income taxes 1,037 1,056
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,640 7,379
- -------------------------------------------------------------------------------------
LONG-TERM DEBT 687 801
- -------------------------------------------------------------------------------------
OTHER LIABILITIES 991 1,001
- -------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 424 426
- -------------------------------------------------------------------------------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,460,083,686 shares in 1998;
3,443,441,902 shares in 1997 865 861
Capital surplus 2,195 1,527
Reinvested earnings 19,922 17,869
Accumulated other comprehensive income
and unearned compensation on restricted stock (1,434) (1,401)
- -------------------------------------------------------------------------------------
21,548 18,856
Less treasury stock, at cost
(994,566,196 shares in 1998;
972,812,731 shares in 1997) 13,145 11,582
- ------------------------------------------------------------------------------------
8,403 7,274
- ------------------------------------------------------------------------------------
$ 19,145 $ 16,881
====================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- 41 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------
(In millions except per share data)
<S> <C> <C> <C>
NET OPERATING REVENUES $ 18,813 $ 18,868 $ 18,673
Cost of goods sold 5,562 6,015 6,738
- -------------------------------------------------------------------------------------------
GROSS PROFIT 13,251 12,853 11,935
Selling, administrative and general expenses 8,284 7,852 8,020
- -------------------------------------------------------------------------------------------
OPERATING INCOME 4,967 5,001 3,915
Interest income 219 211 238
Interest expense 277 258 286
Equity income 32 155 211
Other income-net 230 583 87
Gains on issuances of stock by equity investees 27 363 431
- -------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,198 6,055 4,596
Income taxes 1,665 1,926 1,104
- -------------------------------------------------------------------------------------------
NET INCOME $ 3,533 $ 4,129 $ 3,492
===========================================================================================
BASIC NET INCOME PER SHARE $ 1.43 $ 1.67 $ 1.40
DILUTED NET INCOME PER SHARE $ 1.42 $ 1.64 $ 1.38
===========================================================================================
AVERAGE SHARES OUTSTANDING 2,467 2,477 2,494
Dilutive effect of stock options 29 38 29
- -------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,496 2,515 2,523
===========================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- 42 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
Year Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,533 $ 4,129 $ 3,492
Depreciation and amortization 645 626 633
Deferred income taxes (38) 380 (145)
Equity income, net of dividends 31 (108) (89)
Foreign currency adjustments 21 37 (60)
Gains on issuances of stock by equity investees (27) (363) (431)
Gains on sales of assets, including
bottling interests (306) (639) (135)
Other items 124 18 316
Net change in operating assets and liabilities (550) (47) (118)
- -----------------------------------------------------------------------------------
Net cash provided by operating activities 3,433 4,033 3,463
- -----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions and investments, principally
bottling companies (1,428) (1,100) (645)
Purchases of investments and other assets (610) (459) (623)
Proceeds from disposals of investments and
other assets 1,036 1,999 1,302
Purchases of property, plant and equipment (863) (1,093) (990)
Proceeds from disposals of property, plant
and equipment 54 71 81
Other investing activities (350) 82 (175)
- -----------------------------------------------------------------------------------
Net cash used in investing activities (2,161) (500) (1,050)
- -----------------------------------------------------------------------------------
Net cash provided by operations
after reinvestment 1,272 3,533 2,413
- -----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuances of debt 1,818 155 1,122
Payments of debt (410) (751) (580)
Issuances of stock 302 150 124
Purchases of stock for treasury (1,563) (1,262) (1,521)
Dividends (1,480) (1,387) (1,247)
- -----------------------------------------------------------------------------------
Net cash used in financing activities (1,333) (3,095) (2,102)
- -----------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (28) (134) (45)
- -----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year (89) 304 266
Balance at beginning of the year 1,737 1,433 1,167
- -----------------------------------------------------------------------------------
Balance at end of year $ 1,648 $ 1,737 $ 1,433
===================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- 43 -
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY
THE COCA-COLA COMPANY AND SUBSIDIARIES
<CAPTION>
Number of Accumulated
Common Outstanding Other
Three Years Ended Shares Common Capital Reinvested Restricted Comprehensive Treasury
December 31, 1998 Outstanding Stock Surplus Earnings Stock Income Stock Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In millions except per share data) |
|
BALANCE DECEMBER 31, 1995 2,505 | $856 $ 863 $12,882 $ (68) $ (365) $ (8,799) $ 5,369
- ---------------------------------------|---------------------------------------------------------------------------
COMPREHENSIVE INCOME: |
Net income - | - - 3,492 - - - 3,492
Translation adjustments - | - - - - (238) - (238)
Net change in unrealized |
gain on securities - | - - - - 74 - 74
Minimum pension liability - | - - - - (8) - (8)
| --------
|
COMPREHENSIVE INCOME | 3,320
Stock issued to employees | --------
exercising stock options 9 | 2 122 - - - - 124
Tax benefit from employees' |
stock option and |
restricted stock plans - | - 63 - - - - 63
Stock issued under restricted |
stock plans, less |
amortization of $15 - | - 10 - 7 - - 17
Purchases of stock for |
treasury (33){1}| - - - - - (1,521) (1,521)
Dividends (per share - $.50) - | - - (1,247) - - - (1,247)
- ---------------------------------------|---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 2,481 | 858 1,058 15,127 (61) (537) (10,320) 6,125
- ---------------------------------------|---------------------------------------------------------------------------
COMPREHENSIVE INCOME: |
Net income - | - - 4,129 - - - 4,129
Translation adjustments - | - - - - (710) - (710)
Net change in unrealized |
gain on securities - | - - - - (98) - (98)
Minimum pension liability - | - - - - (6) - (6)
| --------
|
COMPREHENSIVE INCOME | 3,315
Stock issued to employees | --------
exercising stock options 10 | 3 147 - - - - 150
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 312 - - - - 312
Stock issued under restricted |
stock plans, less |
amortization of $10 - | - 10 - 11 - - 21
Purchases of stock for |
treasury (20){1}| - - - - - (1,262) (1,262)
Dividends (per share - $.56) - | - - (1,387) - - - (1,387)
- ---------------------------------------|---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 2,471 | 861 1,527 17,869 (50) (1,351) (11,582) 7,274
- ---------------------------------------|---------------------------------------------------------------------------
COMPREHENSIVE INCOME: |
Net income - | - - 3,533 - - - 3,533
Translation adjustments - | - - - - 52 - 52
Net change in unrealized |
gain on securities - | - - - - (47) - (47)
Minimum pension liability - | - - - - (4) - (4)
| --------
COMPREHENSIVE INCOME | 3,534
| --------
Stock issued to employees |
exercising stock options 16 | 4 298 - - - - 302
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 97 - - - - 97
Stock issued under restricted |
stock plans, less amortization |
of $5 1 | - 47 - (34) - - 13
Stock issued by an equity |
investee - | - 226 - - - - 226
Purchases of stock for treasury (22){1}| - - - - - (1,563) (1,563)
Dividends (per share - $.60) - | - - (1,480) - - - (1,480)
- ---------------------------------------|---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 2,466 | $865 $2,195 $19,922 $ (84) $(1,350) $(13,145) $ 8,403
===================================================================================================================
{1} Common stock purchased from employees exercising stock options numbered 1.4 million, 1.1 million
and .9 million shares for the years ending December 31, 1998, 1997 and 1996, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
- 44 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTE 1: ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Coca-Cola Company and subsidiaries (our
Company) is predominantly a manufacturer, marketer and
distributor of soft-drink and noncarbonated beverage concentrates
and syrups. Operating in nearly 200 countries worldwide, we
primarily sell our concentrates and syrups to bottling and
canning operations, fountain wholesalers and fountain retailers.
We have significant markets for our products in all the world's
geographic regions. We record revenue when title passes to our
customers.
BASIS OF PRESENTATION - Certain amounts in the prior years'
financial statements have been reclassified to conform to the
current year presentation.
CONSOLIDATION - Our Consolidated Financial Statements include
the accounts of The Coca-Cola Company and all subsidiaries except
where control is temporary or does not rest with our Company. Our
investments in companies in which we have the ability to exercise
significant influence over operating and financial policies,
including certain investments where there is a temporary majority
interest, are accounted for by the equity method. Accordingly,
our Company's share of the net earnings of these companies is
included in consolidated net income. Our investments in other
companies are carried at cost or fair value, as appropriate. All
significant intercompany accounts and transactions are eliminated
upon consolidation.
ISSUANCES OF STOCK BY EQUITY INVESTEES - When one of our equity
investees issues additional shares to third parties, our
percentage ownership interest in the investee decreases. In the
event the issuance price per share is more or less than our
average carrying amount per share, we recognize a noncash gain
or loss on the issuance. This noncash gain or loss, net of any
deferred taxes, is generally recognized in our net income in the
period the change of ownership interest occurs.
If gains have been previously recognized on issuances of an
equity investee's stock and shares of the equity investee are
subsequently repurchased by the equity investee, gain recognition
does not occur on issuances subsequent to the date of a
repurchase until shares have been issued in an amount equivalent
to the number of repurchased shares. This type of transaction is
reflected as an equity transaction and the net effect is
reflected in the accompanying consolidated balance sheets. For
specific transaction details, refer to Note 3.
ADVERTISING COSTS - Our Company expenses production costs of
print, radio and television advertisements as of the first date
the advertisements take place. Advertising expenses included in
selling, administrative and general expenses were $1,597 million
in 1998, $1,576 million in 1997 and $1,441 million in 1996. As of
December 31, 1998 and 1997, advertising costs of approximately
$365 million and $317 million, respectively, were recorded
primarily in prepaid expenses and other assets in the
accompanying consolidated balance sheets.
NET INCOME PER SHARE - Basic net income per share is computed by
dividing net income by the weighted-average number of shares
outstanding. Diluted net income per share includes the dilutive
effect of stock options.
CASH EQUIVALENTS - Marketable securities that are highly liquid
and have maturities of three months or less at the date of
purchase are classified as cash equivalents.
INVENTORIES - Inventories consist primarily of raw materials and
supplies and are valued at the lower of cost or market. In
general, cost is determined on the basis of average cost or
first-in, first-out methods.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost and are depreciated principally by the straight-
line method over the estimated useful lives of the assets.
OTHER ASSETS - Our Company invests in infrastructure programs
with our bottlers which are directed at strengthening our
bottling system and increasing unit case sales. The costs of
these programs are recorded in other assets and are subsequently
amortized over the periods to be directly benefited.
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill and other
intangible assets are stated on the basis of cost and are
amortized, principally on a straight-line basis, over the
estimated future periods to be benefited (not exceeding 40
years). Goodwill and other intangible assets are periodically
reviewed for impairment based on an assessment of future
operations to ensure they are appropriately valued. Accumulated
amortization was approximately $119 million and $105 million on
December 31, 1998 and 1997, respectively.
USE OF ESTIMATES - In conformity with generally accepted
accounting principles, the preparation of our financial
statements requires our management to make estimates and
assumptions that affect the amounts reported in our financial
statements and accompanying notes. Although these estimates are
based on our knowledge of current events and actions we may
undertake in the future, actual results may ultimately differ
from estimates.
NEW ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The new statement requires all derivatives
to be recorded on the balance sheet at fair value and establishes
new accounting rules for hedging
- 45 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
instruments. The statement is effective for years beginning after
June 15, 1999. We are assessing the impact this statement will
have on the Consolidated Financial Statements.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the various types of costs incurred for computer
software developed or obtained for internal use. Also, in June
1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires costs of start-up
activities and organizational costs, as defined, to be expensed
as incurred. We will adopt these SOPs on January 1, 1999, and
they will not materially impact our Company's Consolidated
Financial Statements.
NOTE 2: BOTTLING INVESTMENTS
COCA-COLA ENTERPRISES INC. - Coca-Cola Enterprises is the largest
soft-drink bottler in the world, operating in seven countries,
and is one of our anchor bottlers. At December 31, 1998, our
Company owned approximately 42 percent of the outstanding common
stock of Coca-Cola Enterprises, and accordingly, we account for
our investment by the equity method of accounting. The excess of
our equity in the underlying net assets of Coca-Cola Enterprises
over our investment is primarily amortized on a straight-line
basis over 40 years. The balance of this excess, net of
amortization, was approximately $442 million at December 31,
1998. A summary of financial information for Coca-Cola
Enterprises is as follows (in millions):
December 31, 1998 1997
- -----------------------------------------------------------------
Current assets $ 2,285 $ 1,813
Noncurrent assets 18,847 15,674
- -----------------------------------------------------------------
Total assets $ 21,132 $ 17,487
=================================================================
Current liabilities $ 3,397 $ 3,032
Noncurrent liabilities 15,297 12,673
- -----------------------------------------------------------------
Total liabilities $ 18,694 $ 15,705
=================================================================
Share-owners' equity $ 2,438 $ 1,782
=================================================================
Company equity investment $ 584 $ 184
=================================================================
Year Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
Net operating revenues $ 13,414 $ 11,278 $ 7,921
Cost of goods sold 8,391 7,096 4,896
- -----------------------------------------------------------------
Gross profit $ 5,023 $ 4,182 $ 3,025
=================================================================
Operating income $ 869 $ 720 $ 545
=================================================================
Cash operating profit{1} $ 1,989 $ 1,666 $ 1,172
=================================================================
Net income $ 142 $ 171 $ 114
=================================================================
Net income available
to common share owners $ 141 $ 169 $ 106
=================================================================
Company equity income $ 51 $ 59 $ 53
=================================================================
{1} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other noncash
operating expenses.
Our net concentrate/syrup sales to Coca-Cola Enterprises were
$3.1 billion in 1998, $2.5 billion in 1997 and $1.6 billion in
1996, or approximately 16 percent, 13 percent and 9 percent of
our 1998, 1997 and 1996 net operating revenues. Coca-Cola
Enterprises purchases sweeteners through our Company; however,
related collections from Coca-Cola Enterprises and payments to
suppliers are not included in our consolidated statements of
income. These transactions amounted to $252 million in 1998,
$223 million in 1997 and $247 million in 1996. We also provide
certain administrative and other services to Coca-Cola
Enterprises under negotiated fee arrangements.
Our direct support for certain marketing activities of
Coca-Cola Enterprises and participation with them in cooperative
advertising and other marketing programs amounted to
approximately $899 million in 1998, $604 million in 1997 and $448
million in 1996. Additionally, in 1998 and 1997, we committed
approximately $324 million and $190 million, respectively, to
Coca-Cola Enterprises under a Company program that encourages
bottlers to invest in building and supporting beverage
infrastructure.
If valued at the December 31, 1998, quoted closing price of
publicly traded Coca-Cola Enterprises shares, the calculated
value of our investment in Coca-Cola Enterprises would have
exceeded its carrying value by approximately $5.5 billion.
COCA-COLA AMATIL LIMITED - We own approximately 43 percent of
Coca-Cola Amatil, an Australian-based anchor bottler that
operates in seven countries. Accordingly, we account for our
investment in Coca-Cola Amatil by the equity method. The excess
of our investment over our equity in the underlying net assets
of Coca-Cola Amatil is being amortized on a straight-line basis
over 40 years. The balance of this excess, net of amortization,
was approximately $205 million at December 31, 1998. A summary
of financial information for Coca-Cola Amatil is as follows
(in millions):
December 31, 1998{1} 1997
- -----------------------------------------------------------------
Current assets $ 1,057 $ 1,470
Noncurrent assets 4,002 4,590
- -----------------------------------------------------------------
Total assets $ 5,059 $ 6,060
=================================================================
Current liabilities $ 1,065 $ 1,053
Noncurrent liabilities 1,552 1,552
- -----------------------------------------------------------------
Total liabilities $ 2,617 $ 2,605
=================================================================
Share-owners' equity $ 2,442 $ 3,455
=================================================================
Company equity investment $ 1,255 $ 1,204
=================================================================
Year Ended December 31, 1998{1} 1997 1996
- -----------------------------------------------------------------
Net operating revenues $ 2,731 $ 3,290 $ 2,905
Cost of goods sold 1,567 1,856 1,737
- -----------------------------------------------------------------
Gross profit $ 1,164 $ 1,434 $ 1,168
=================================================================
Operating income $ 237 $ 276 $ 215
=================================================================
Cash operating profit{2} $ 435 $ 505 $ 384
=================================================================
Net income $ 65 $ 89 $ 80
=================================================================
Company equity income $ 15 $ 27 $ 27
=================================================================
{1} 1998 reflects the spin-off of Coca-Cola Amatil's European
operations.
{2} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other noncash
operating expenses.
- 46 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Our net concentrate sales to Coca-Cola Amatil were
approximately $546 million in 1998, $588 million in 1997 and
$450 million in 1996. We also participate in various marketing,
promotional and other activities with Coca-Cola Amatil.
If valued at the December 31, 1998, quoted closing price of
publicly traded Coca-Cola Amatil shares, the calculated value
of our investment in Coca-Cola Amatil would have exceeded its
carrying value by approximately $364 million.
In August 1998, we exchanged our Korean bottling operations
with Coca-Cola Amatil for an additional ownership interest in
Coca-Cola Amatil.
OTHER EQUITY INVESTMENTS - Operating results include our
proportionate share of income from our equity investments. A
summary of financial information for our equity investments in
the aggregate, other than Coca-Cola Enterprises and Coca-Cola
Amatil, is as follows (in millions):
December 31, 1998 1997
- -----------------------------------------------------------------
Current assets $ 4,453 $ 2,946
Noncurrent assets 16,825 11,371
- -----------------------------------------------------------------
Total assets $ 21,278 $ 14,317
=================================================================
Current liabilities $ 4,968 $ 3,545
Noncurrent liabilities 6,731 4,636
- -----------------------------------------------------------------
Total liabilities $ 11,699 $ 8,181
=================================================================
Share-owners' equity $ 9,579 $ 6,136
=================================================================
Company equity investment $ 4,452 $ 3,049
=================================================================
Year Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
Net operating revenues $ 15,244 $ 13,688 $ 11,640
Cost of goods sold 9,555 8,645 8,028
- -----------------------------------------------------------------
Gross profit $ 5,689 $ 5,043 $ 3,612
=================================================================
Operating income $ 668 $ 869 $ 835
=================================================================
Cash operating profit{1} $ 1,563 $ 1,794 $ 1,268
=================================================================
Net income $ 152 $ 405 $ 366
=================================================================
Company equity
income (loss) $ (34) $ 69 $ 131
=================================================================
Equity investments include certain non-bottling investees.
{1} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other noncash
operating expenses.
Net sales to equity investees other than Coca-Cola Enterprises
and Coca-Cola Amatil were $2.1 billion in 1998, $1.5 billion in
1997 and $1.5 billion in 1996. Our direct support for certain
marketing activities with equity investees other than Coca-Cola
Enterprises, the majority of which are located outside the United
States, was approximately $640 million, $528 million and $354
million for 1998, 1997 and 1996, respectively.
In June 1998, we sold our wholly owned Italian bottling
operations in northern and central Italy to Coca-Cola Beverages
plc (Coca-Cola Beverages). This transaction resulted in proceeds
valued at approximately $1 billion and an after-tax gain of
approximately $.03 per share (basic and diluted).
In February 1997, we sold our 49 percent interest in Coca-Cola
& Schweppes Beverages Ltd. to Coca-Cola Enterprises. This
transaction resulted in proceeds for our Company of approximately
$1 billion and an after-tax gain of approximately $.08 per share
(basic and diluted). In August 1997, we sold our 48 percent
interest in Coca-Cola Beverages Ltd. of Canada and our 49 percent
ownership interest in The Coca-Cola Bottling Company of New York,
Inc., to Coca-Cola Enterprises in exchange for aggregate
consideration valued at approximately $456 million. This sale
resulted in an after-tax gain of approximately $.04 per share
(basic and diluted).
If valued at the December 31, 1998, quoted closing prices of
shares actively traded on stock markets, the calculated value
of our equity investments in publicly traded bottlers other than
Coca-Cola Enterprises and Coca-Cola Amatil would have exceeded
our carrying value by approximately $559 million.
NOTE 3: ISSUANCES OF STOCK BY EQUITY INVESTEES
In December 1998, Coca-Cola Enterprises completed its
acquisition of certain independent bottling operations operating
in parts of Texas, New Mexico and Arizona (collectively known as
the Wolslager Group). The transactions were funded primarily
with the issuance of shares of Coca-Cola Enterprises common
stock. The Coca-Cola Enterprises common stock issued in exchange
for these bottlers was valued at an amount greater than the book
value per share of our investment in Coca-Cola Enterprises. As a
result of this transaction, our equity in the underlying net
assets of Coca-Cola Enterprises increased, and we recorded a $116
million increase to our Company's investment basis in Coca-Cola
Enterprises. Due to Coca-Cola Enterprises' share repurchase
program, the increase in our investment in Coca-Cola Enterprises
was recorded as an equity transaction, and no gain was
recognized. We recorded a deferred tax liability of approximately
$46 million on this increase to our investment in Coca-Cola
Enterprises. At the completion of this transaction, our ownership
in Coca-Cola Enterprises was approximately 42 percent.
In September 1998, Coca-Cola Erfrischungsgetraenke AG (CCEAG),
our anchor bottler in Germany, issued new shares valued at
approximately $275 million to effect a merger with Nordwest
Getraenke GmbH & Co. KG, another German bottler. Approximately 7.5
million shares were issued, resulting in a one-time noncash
pretax gain for our Company of approximately $27 million. We
provided deferred taxes of approximately $10 million on this
gain. This issuance reduced our ownership in CCEAG from
approximately 45 percent to approximately 40 percent.
In June 1998, Coca-Cola Enterprises completed its acquisition
of CCBG Corporation and Texas Bottling Group, Inc., (collectively
known as Coke Southwest). The transaction was valued at
approximately $1.1 billion. Approximately 55 percent of the
transaction was funded with the issuance of approximately 17.7
million shares of Coca-Cola Enterprises common stock, and the
remaining portion was
- 47 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
funded through debt and assumed debt. The Coca-Cola Enterprises
common stock issued in exchange for Coke Southwest was valued at
an amount greater than the book value per share of our investment
in Coca-Cola Enterprises. As a result of this transaction, our
equity in the underlying net assets of Coca-Cola Enterprises
increased, and we recorded a $257 million increase to our
Company's investment basis in Coca-Cola Enterprises. Due to
Coca-Cola Enterprises' share repurchase program, the increase in
our investment in Coca-Cola Enterprises was recorded as an equity
transaction, and no gain was recognized. We recorded a deferred
tax liability of approximately $101 million on this increase to
our investment in Coca-Cola Enterprises. At the completion of
this transaction, our ownership in Coca-Cola Enterprises was
approximately 42 percent.
In the second quarter of 1997, our Company and San Miguel
Corporation sold our respective interests in Coca-Cola Bottlers
Philippines, Inc. to Coca-Cola Amatil in exchange for
approximately 293 million shares of Coca-Cola Amatil stock. In
connection with this transaction, Coca-Cola Amatil issued
approximately 210 million shares to San Miguel valued at
approximately $2.4 billion. The issuance to San Miguel resulted
in a one-time noncash pretax gain for our Company of
approximately $343 million. We provided deferred taxes of
approximately $141.5 million on this gain. This transaction
resulted in a dilution of our Company's 36 percent interest in
Coca-Cola Amatil to 33 percent.
Also in the second quarter of 1997, our Company and the
Cisneros Group sold our respective interests in Coca-Cola y Hit
de Venezuela, S.A. to Panamerican Beverages, Inc. (Panamco) in
exchange for approximately 30.6 million shares of Panamco stock.
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 our Company of approximately $20
million. We provided deferred taxes of approximately $7.2 million
on this gain. At the completion of this transaction, our
ownership in Panamco was approximately 23 percent.
In the third quarter of 1996, our 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 our
products. The shares were valued at approximately $925 million,
based on the fair values of the assets of the three acquired
bottling companies. In connection with CCEG's issuance of shares,
a new corporation was established, Coca-Cola Erfrischungsgetraenke
AG, and our ownership was reduced to 45 percent of the resulting
corporation. As a result, we began accounting for our related
investment by the equity method of accounting prospectively from
the transaction date. This transaction resulted in a noncash
pretax gain of $283 million for our Company. We provided deferred
taxes of approximately $171 million related to this gain.
Also in the third quarter of 1996, Coca-Cola Amatil issued
approximately 46 million shares in exchange for approximately
$522 million. This issuance reduced our Company's ownership
interest in Coca-Cola Amatil from approximately 39 percent to
approximately 36 percent. This transaction resulted in a noncash
pretax gain of $130 million for our Company. We provided deferred
taxes of approximately $47 million on this gain.
In 1996, Coca-Cola FEMSA de Buenos Aires, S.A. (CCFBA) issued
approximately 19 million shares to Coca-Cola FEMSA, S.A. de C.V.
This issuance reduced our ownership in CCFBA from 49 percent to
approximately 32 percent. We recognized a noncash pretax gain of
approximately $18 million as a result of this transaction. In
subsequent transactions, we disposed of our remaining interest
in CCFBA.
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following
(in millions):
December 31, 1998 1997
- -----------------------------------------------------------------
Accrued marketing $ 967 $ 992
Container deposits 14 30
Accrued compensation 166 152
Sales, payroll and other taxes 183 173
Accounts payable and
other accrued expenses 1,811 1,902
- -----------------------------------------------------------------
$ 3,141 $ 3,249
=================================================================
NOTE 5: SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Loans and notes payable consist primarily of commercial paper
issued in the United States. On December 31, 1998, we had $4.3
billion outstanding in commercial paper borrowings. In addition,
we had $1.6 billion in lines of credit and other short-term
credit facilities available, under which approximately $89
million was outstanding. Our weighted-average interest rates
for commercial paper were approximately 5.2 and 5.8 percent at
December 31, 1998 and 1997, respectively.
These facilities are subject to normal banking terms and
conditions. Some of the financial arrangements require
compensating balances, none of which is presently significant to
our Company.
- 48 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following (in millions):
December 31, 1998 1997
- ---------------------------------------------------------------
53/4% German mark notes due 1998 $ - $ 141
77/8% U.S. dollar notes due 1998 - 250
6% U.S. dollar notes due 2000 251 251
65/8% U.S. dollar notes due 2002 150 150
6% U.S. dollar notes due 2003 150 150
73/8% U.S. dollar notes due 2093 116 116
Other, due 1999 to 2013 23 140
- ---------------------------------------------------------------
690 1,198
Less current portion 3 397
- ---------------------------------------------------------------
$ 687 $ 801
===============================================================
After giving effect to interest rate management instruments
(see Note 9), the principal amount of our long-term debt that
had fixed and variable interest rates, respectively, was $190
million and $500 million on December 31, 1998, and $480 million
and $718 million on December 31, 1997. The weighted-average
interest rate on our Company's long-term debt was 6.2 percent
for the years ended December 31, 1998 and 1997. Total interest
paid was approximately $298 million, $264 million and $315
million in 1998, 1997 and 1996, respectively.
Maturities of long-term debt for the five years succeeding
December 31, 1998, are as follows (in millions):
1999 2000 2001 2002 2003
- -------------------------------------------------------------
$ 3 $ 254 $ 17 $ 150 $ 150
=============================================================
The above notes include various restrictions, none of which is
presently significant to our Company.
NOTE 7: COMPREHENSIVE INCOME
Accumulated other comprehensive income consists of the following
(in millions):
December 31, 1998 1997
- ------------------------------------------------------------
Foreign currency
translation adjustment $ (1,320) $ (1,372)
Unrealized gain on
available-for-sale securities 11 58
Minimum pension liability (41) (37)
- ------------------------------------------------------------
$ (1,350) $ (1,351)
============================================================
A summary of the components of other comprehensive income for
the years ended December 31, 1998, 1997 and 1996 is as follows
(in millions):
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- -------------------------------------------------------------------
1998
Net change in unrealized gain
(loss) on available-for-sale
securities $ (70) $ 23 $ (47)
Net foreign currency
translation 52 - 52
Minimum pension liability (5) 1 (4)
- -------------------------------------------------------------------
Other comprehensive income $ (23) $ 24 $ 1
===================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- -------------------------------------------------------------------
1997
Net change in unrealized gain
(loss) on available-for-sale
securities $ (163) $ 65 $ (98)
Net foreign currency
translation (710) - (710)
Minimum pension liability (10) 4 (6)
- -------------------------------------------------------------------
Other comprehensive income $ (883) $ 69 $ (814)
===================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- -------------------------------------------------------------------
1996
Net change in unrealized gain
(loss) on available-for-sale
securities $ 107 $ (33) $ 74
Net foreign currency
translation (238) - (238)
Minimum pension liability (13) 5 (8)
- -------------------------------------------------------------------
Other comprehensive income $ (144) $ (28) $ (172)
===================================================================
NOTE 8: FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts
reflected in our consolidated balance sheets for cash, cash
equivalents, marketable equity securities, marketable cost method
investments, receivables, loans and notes payable and long-term
debt approximate their respective fair values. Fair values are
based primarily on quoted prices for those or similar
instruments. A comparison of the carrying value and fair value of
our hedging instruments is included in Note 9.
CERTAIN DEBT AND MARKETABLE EQUITY SECURITIES - Investments in
debt and marketable equity securities, other than investments
accounted for by the equity method, are categorized as either
trading, available for sale or held to maturity. On December 31,
1998 and 1997, we had no trading securities. Securities
categorized as available for sale
- 49 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
are stated at fair value, with unrealized gains and losses, net
of deferred income taxes, reported as a component of accumulated
other comprehensive income. Debt securities categorized as held
to maturity are stated at amortized cost.
On December 31, 1998 and 1997, available-for-sale and held-to-
maturity securities consisted of the following (in millions):
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
- --------------------------------------------------------------------------
1998
Available-for-sale
securities
Equity securities $ 304 $ 67 $ (48) $ 323
Collateralized
mortgage
obligations 89 - (1) 88
Other debt
securities 11 - - 11
- --------------------------------------------------------------------------
$ 404 $ 67 $ (49) $ 422
==========================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,339 $ - $ - $ 1,339
Other debt
securities 92 - - 92
- --------------------------------------------------------------------------
$ 1,431 $ - $ - $ 1,431
==========================================================================
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
- --------------------------------------------------------------------------
1997
Available-for-sale
securities
Equity securities $ 293 $ 93 $ (3) $ 383
Collateralized
mortgage
obligations 132 - (2) 130
Other debt
securities 23 - - 23
- --------------------------------------------------------------------------
$ 448 $ 93 $ (5) $ 536
==========================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,569 $ - $ - $ 1,569
Other debt
securities 22 - - 22
- --------------------------------------------------------------------------
$ 1,591 $ - $ - $ 1,591
==========================================================================
On December 31, 1998 and 1997, these investments were included
in the following captions in our consolidated balance sheets
(in millions):
Available-for-Sale Held-to-Maturity
December 31, Securities Securities
- --------------------------------------------------------------------------
1998
Cash and cash equivalents $ - $ 1,227
Current marketable securities 79 80
Cost method investments,
principally bottling companies 251 -
Marketable securities and
other assets 92 124
- --------------------------------------------------------------------------
$ 422 $ 1,431
==========================================================================
1997
Cash and cash equivalents $ - $ 1,346
Current marketable securities 64 42
Cost method investments,
principally bottling companies 336 -
Marketable securities and
other assets 136 203
- --------------------------------------------------------------------------
$ 536 $ 1,591
==========================================================================
The contractual maturities of these investments as of
December 31, 1998, were as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
------------------ --------------------
Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------
1999 $ 7 $ 7 $ 1,307 $ 1,307
2000-2003 4 4 124 124
Collateralized
mortgage
obligations 89 88 - -
Equity securities 304 323 - -
- -----------------------------------------------------------------------
$ 404 $ 422 $ 1,431 $ 1,431
=======================================================================
For the years ended December 31, 1998 and 1997, gross realized
gains and losses on sales of available-for-sale securities were
not material. The cost of securities sold is based on the
specific identification method.
NOTE 9: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
Our Company uses derivative financial instruments primarily to
reduce our exposure to adverse fluctuations in interest rates and
foreign exchange rates and, to a lesser extent, to reduce our
exposure to adverse fluctuations in commodity prices and other
market risks. When entered into, these financial instruments are
designated as hedges of underlying exposures. Because of the high
correlation between the hedging instrument and the underlying
exposure being hedged, fluctuations in the value of the
instruments are generally offset by changes in the value of the
underlying exposures. Virtually all our derivatives are
- 50 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
"over-the-counter" instruments. Our Company does not enter into
derivative financial instruments for trading purposes.
The estimated fair values of derivatives used to hedge or
modify our risks fluctuate over time. These fair value amounts
should not be viewed in isolation but rather in relation to the
fair values of the underlying hedging transactions and
investments and to the overall reduction in our exposure to
adverse fluctuations in interest rates, foreign exchange rates,
commodity prices and other market risks.
The notional amounts of the derivative financial instruments
do not necessarily represent amounts exchanged by the parties
and, therefore, are not a direct measure of our exposure
through our use of derivatives. The amounts exchanged are
calculated by reference to the notional amounts and by other
terms of the derivatives, such as interest rates, exchange rates
or other financial indices.
We have established strict counterparty credit guidelines and
enter into transactions only with financial institutions of
investment grade or better. We monitor counterparty exposures
daily and any downgrade in credit rating receives immediate
review. If a downgrade in the credit rating of a counterparty
were to occur, we have provisions requiring collateral in the
form of U.S. government securities for substantially all our
transactions. To mitigate presettlement risk, minimum credit
standards become more stringent as the duration of the derivative
financial instrument increases. To minimize the concentration of
credit risk, we enter into derivative transactions with a
portfolio of financial institutions. As a result, we consider the
risk of counterparty default to be minimal.
INTEREST RATE MANAGEMENT - Our Company maintains a percentage of
fixed and variable rate debt within defined parameters. We enter
into interest rate swap agreements that maintain the fixed/
variable mix within these parameters. These contracts had
maturities ranging from one to five years on December 31, 1998.
Variable rates are predominantly linked to the London Interbank
Offered Rate. Any differences paid or received on interest rate
swap agreements are recognized as adjustments to interest expense
over the life of each swap, thereby adjusting the effective
interest rate on the underlying obligation.
FOREIGN CURRENCY MANAGEMENT - The purpose of our foreign currency
hedging activities is to reduce the risk that our eventual dollar
net cash inflows resulting from sales outside the United States
will be adversely affected by changes in exchange rates.
We enter into forward exchange contracts and purchase currency
options (principally European currencies and Japanese yen) to
hedge firm sale commitments denominated in foreign currencies.
We also purchase currency options (principally European
currencies and Japanese yen) to hedge certain anticipated sales.
Premiums paid and realized gains and losses, including those on
any terminated contracts, are included in prepaid expenses and
other assets. These are recognized in income along with
unrealized gains and losses in the same period the hedging
transactions are realized. Approximately $43 million of realized
losses and $52 million of realized gains on settled contracts
entered into as hedges of firmly committed transactions that have
not yet occurred were deferred on December 31, 1998 and 1997,
respectively. Deferred gains/losses from hedging anticipated
transactions were not material on December 31, 1998 or 1997. In
the unlikely event that the underlying transaction terminates or
becomes improbable, the deferred gains or losses on the
associated derivative will be recorded in our income statement.
Gains and losses on derivative financial instruments that are
designated and effective as hedges of net investments in
international operations are included in share-owners' equity as
a foreign currency translation adjustment, a component of
accumulated other comprehensive income.
The following table presents the aggregate notional principal
amounts, carrying values, fair values and maturities of our
derivative financial instruments outstanding on December 31,
1998 and 1997 (in millions):
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------
1998
Interest rate
management
Swap agreements
Assets $ 325 $ 2 $ 19 1999-2003
Liabilities 200 (2) (13) 2000-2003
Foreign currency
management
Forward contracts
Assets 809 6 (54) 1999-2000
Liabilities 1,325 (6) (73) 1999-2000
Swap agreements
Assets 344 4 6 1999-2000
Liabilities 704 - (51) 1999-2002
Purchased options
Assets 232 5 3 1999
Other
Liabilities 243 (25) (26) 1999-2000
- --------------------------------------------------------------------------
$ 4,182 $ (16) $ (189)
==========================================================================
- 51 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------
1997
Interest rate
management
Swap agreements
Assets $ 597 $ 4 $ 15 1998-2003
Liabilities 175 (1) (12) 2000-2003
Foreign currency
management
Forward contracts
Assets 1,286 27 93 1998-1999
Liabilities 465 (6) 18 1998-1999
Swap agreements
Assets 178 1 3 1998
Liabilities 1,026 (4) (28) 1998-2002
Purchased options
Assets 1,051 34 109 1998
Other
Assets 470 2 53 1998
Liabilities 68 (2) - 1998
- --------------------------------------------------------------------------
$ 5,316 $ 55 $ 251
==========================================================================
Maturities of derivative financial instruments held on
December 31, 1998, are as follows (in millions):
1999 2000 2001 2002-2003
- --------------------------------------------------------------------------
$ 3,125 $ 641 $ 204 $ 212
==========================================================================
NOTE 10: COMMITMENTS AND CONTINGENCIES
On December 31, 1998, we were contingently liable for
guarantees of indebtedness owed by third parties in the amount
of $391 million, of which $7 million related to independent
bottling licensees. We do not consider it probable that we will
be required to satisfy these guarantees.
We believe our exposure to concentrations of credit risk is
limited, due to the diverse geographic areas covered by our
operations.
We have committed to make future marketing expenditures of
$722 million payable over the next 13 years. Additionally, under
certain circumstances, we have committed to make future
investments in bottling companies. However, we do not consider
any of these commitments to be individually significant.
In December 1998, our Company signed an agreement with Cadbury
Schweppes plc to purchase beverage brands in countries around the
world, (except in the United States, France and South Africa) and
its concentrate plants in Ireland and Spain for approximately
$1.85 billion. These brands include Schweppes and Canada Dry
mixers, such as tonic water, club soda and ginger ale; Crush;
Dr Pepper; and certain regional brands. These transactions are
subject to certain conditions including approvals from regulatory
authorities in various countries.
In December 1997, our Company announced its intent to acquire
from beverage company Pernod Ricard, its Orangina brands, three
bottling operations and one concentrate plant in France for
approximately 5 billion French francs (approximately $890 million
based on December 1998 exchange rates). This transaction remains
subject to approvals from regulatory authorities of the French
government.
NOTE 11: NET CHANGE IN OPERATING ASSETS AND LIABILITIES
The changes in operating assets and liabilities, net of effects
of acquisitions and divestitures of businesses and unrealized
exchange gains/losses, are as follows (in millions):
1998 1997 1996
- ------------------------------------------------------------------
Increase in trade accounts
receivable $ (237) $ (164) $ (230)
Increase in inventories (12) (43) (33)
Increase in prepaid expenses
and other assets (318) (145) (219)
Increase (decrease) in
accounts payable and
accrued expenses (70) 299 361
Increase (decrease) in
accrued taxes 120 393 (208)
Increase (decrease) in
other liabilities (33) (387) 211
- ------------------------------------------------------------------
$ (550) $ (47) $ (118)
==================================================================
- 52 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTE 12: RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
Our Company currently sponsors restricted stock award plans and
stock option plans. Our Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting
for our plans. Accordingly, no compensation cost has been
recognized for our stock option plans. The compensation cost
charged against income for our restricted stock award plans was
$14 million in 1998, $56 million in 1997 and $63 million in 1996.
For our Incentive Unit Agreements and Performance Unit
Agreements, which were both paid off in 1997, the charge against
income was $31 million in 1997 and $90 million in 1996. Had
compensation cost for the stock option plans been determined
based on the fair value at the grant dates for awards under the
plans, our Company's net income and net income per share (basic
and diluted) would have been as presented in the following table.
The pro forma amounts are indicated below (in millions, except
per share amounts):
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
Net income
As reported $ 3,533 $ 4,129 $ 3,492
Pro forma $ 3,405 $ 4,026 $ 3,412
Basic net income per share
As reported $ 1.43 $ 1.67 $ 1.40
Pro forma $ 1.38 $ 1.63 $ 1.37
Diluted net income per share
As reported $ 1.42 $ 1.64 $ 1.38
Pro forma $ 1.36 $ 1.60 $ 1.35
===============================================================
Under the amended 1989 Restricted Stock Award Plan and the
amended 1983 Restricted Stock Award Plan (the Restricted Stock
Award Plans), 40 million and 24 million shares of restricted
common stock, respectively, may be granted to certain officers
and key employees of our Company.
On December 31, 1998, 33 million shares were available for
grant under the Restricted Stock Award Plans. In 1998 there were
three grants totaling 707,300 shares of restricted stock, granted
at an average price of $67.03. In 1997 and 1996, 162,000 and
210,000 shares of restricted stock were granted at $59.75 and
$48.88, respectively. Participants are entitled to vote and
receive dividends on the shares, and under the 1983 Restricted
Stock Award Plan, participants are reimbursed by our Company for
income taxes imposed on the award, but not for taxes generated by
the reimbursement payment. The shares are subject to certain
transfer restrictions and may be forfeited if a participant
leaves our Company for reasons other than retirement, disability
or death, absent a change in control of our Company.
Under our 1991 Stock Option Plan (the Option Plan), a maximum
of 120 million shares of our common stock was approved to be
issued or transferred to certain officers and employees pursuant
to stock options and stock appreciation rights granted under the
Option Plan. The stock appreciation rights permit the holder,
upon surrendering all or part of the related stock option, to
receive cash, common stock or a combination thereof, in an amount
up to 100 percent of the difference between the market price and
the option price. Options to purchase common stock under the
Option Plan have been granted to Company employees at fair market
value at the date of grant. Generally, stock options become
exercisable over a three-year vesting period and expire 10 years
from the date of grant.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998,
1997 and 1996, respectively: dividend yields of 0.9, 1.0 and 1.0
percent; expected volatility of 24.1, 20.1 and 18.3 percent; risk-
free interest rates of 4.0, 6.0 and 6.2 percent; and expected
lives of four years for all years. The weighted-average fair
value of options granted was $15.41, $13.92 and $11.43 for the
years ended December 31, 1998, 1997 and 1996, respectively.
- 53 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
A summary of stock option activity under all plans is as
follows (shares in millions):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding on
January 1, 80 $ 33.22 78 $ 26.50 74 $ 20.74
Granted 17 65.91 13 59.79 14 48.86
Exercised (16) 18.93 (10) 14.46 (9) 13.72
Forfeited/Expired (1) 55.48 (1) 44.85 (1) 31.62
- -------------------------------------------------------------------------------------------------------------
Outstanding on
December 31, 80 $ 42.77 80 $ 33.22 78 $ 26.50
=============================================================================================================
Exercisable on
December 31, 52 $ 32.41 55 $ 24.62 51 $ 18.69
=============================================================================================================
Shares available
on December 31,
for options that
may be granted 18 34 46
=============================================================================================================
</TABLE>
The following table summarizes information about stock options
at December 31, 1998 (shares in millions):
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
---------------------------------------------- --------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.00 to $ 10.00 4 1.3 years $ 9.71 4 $ 9.71
$ 10.01 to $ 20.00 4 2.5 years $ 14.65 4 $ 14.65
$ 20.01 to $ 30.00 18 5.0 years $ 23.27 18 $ 23.27
$ 30.01 to $ 40.00 13 6.8 years $ 35.63 13 $ 35.63
$ 40.01 to $ 50.00 12 7.8 years $ 48.86 9 $ 48.86
$ 50.01 to $ 60.00 12 8.8 years $ 59.75 4 $ 59.74
$ 60.01 to $ 86.75 17 9.8 years $ 65.91 - $ -
============================================================================================================
$ 4.00 to $ 86.75 80 7.0 years $ 42.77 52 $ 32.41
============================================================================================================
</TABLE>
In 1988, our Company entered into Incentive Unit Agreements
whereby, subject to certain conditions, certain officers were
given the right to receive cash awards based on the market value
of 2.4 million shares of our common stock at the measurement
dates. Under the Incentive Unit Agreements, an employee is
reimbursed by our Company for income taxes imposed when the value
of the units is paid, but not for taxes generated by the
reimbursement payment. At December 31, 1996, approximately 1.6
million units were outstanding. In 1997, all outstanding units
were paid at a price of $58.50 per unit.
In 1985, we entered into Performance Unit Agreements whereby
certain officers were given the right to receive cash awards
based on the difference in the market value of approximately
4.4 million shares of our common stock at the measurement dates
and the base price of $2.58, the market value as of January 2,
1985. At December 31, 1996, approximately 2.9 million units
were outstanding. In 1997, all outstanding units were paid based
on a market price of $58.50 per unit.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS
Our Company sponsors and/or contributes to pension and
postretirement health care and life insurance benefits plans
covering substantially all U.S. employees and certain employees
in international locations. We also sponsor nonqualified,
unfunded defined benefit plans for certain officers and other
employees. In addition, our Company and its subsidiaries have
various pension plans and other forms of postretirement
arrangements outside the United States.
Total pension expense for all benefit plans, including defined
benefit plans and postretirement health care and life insurance
benefit plans, amounted to approximately $119 million in 1998,
$109 million in 1997 and $114 million in 1996. Net periodic cost
for our pension and other benefit plans consists of the following
(in millions):
Pension Benefits
----------------------------------
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------
Service cost $ 56 $ 49 $ 48
Interest cost 105 93 91
Expected return on plan assets (105) (95) (84)
Amortization of prior
service cost 3 7 6
Recognized net actuarial cost 9 14 12
- --------------------------------------------------------------------
Net periodic pension cost $ 68 $ 68 $ 73
====================================================================
Other Benefits
--------------------------------
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------
Service cost $ 14 $ 11 $ 12
Interest cost 25 23 20
Expected return on plan assets (1) (1) (1)
Recognized net actuarial cost - (1) (2)
- --------------------------------------------------------------------
Net periodic cost $ 38 $ 32 $ 29
====================================================================
- 54 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
In addition, we contribute to a Voluntary Employees'
Beneficiary Association trust, which will be used to partially
fund health care benefits for future retirees. In general,
retiree health benefits are paid as covered expenses are
incurred.
The following table sets forth the change in benefit obligation
for our benefit plans (in millions):
Pension Other
Benefits Benefits
------------------- ------------------
December 31, 1998 1997 1998 1997
- ----------------------------------------------------------------------
Benefit obligation
at beginning of
year $ 1,488 $ 1,375 $ 327 $ 279
Service cost 56 49 14 11
Interest cost 105 93 25 23
Foreign currency
exchange rate changes 25 (48) - -
Divestitures - (14) - -
Amendments 8 2 - -
Actuarial (gain) loss 124 104 31 28
Benefits paid (86) (73) (16) (14)
Other (3) - - -
- ----------------------------------------------------------------------
Benefit obligation
at end of year $ 1,717 $ 1,488 $ 381 $ 327
======================================================================
The following table sets forth the change in plan assets for
our benefit plans (in millions):
Pension Other
Benefits Benefits
------------------- ------------------
December 31, 1998 1997 1998 1997
- ----------------------------------------------------------------------
Fair value of{1}
plan assets
at beginning of
year $ 1,408 $ 1,282 $ 40 $ 41
Actual return on
plan assets 129 210 2 2
Employer contribution 25 28 10 10
Foreign currency
exchange rate
changes 18 (38) - -
Divestitures - (12) - -
Benefits paid (68) (62) (16) (13)
Other 4 - - -
- ----------------------------------------------------------------------
Fair value of plan assets
at end of year $ 1,516 $ 1,408 $ 36 $ 40
======================================================================
{1} Pension benefit plan assets primarily consist of listed
stocks, bonds and government securities. Other benefit plan
assets consist of corporate bonds, government securities and
short-term investments.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plans
with accumulated benefit obligations in excess of plan assets
were $536 million, $418 million and $149 million, respectively,
as of December 31, 1998, and $472 million, $370 million and $128
million, respectively, as of December 31, 1997.
The accrued pension and other benefit costs recognized in our
accompanying consolidated balance sheets is computed as follows
(in millions):
Pension Other
Benefits Benefits
------------------- ------------------
December 31, 1998 1997 1998 1997
- ----------------------------------------------------------------------
Funded status $ (201) $ (80) $ (345) $ (287)
Unrecognized net
(asset) liability
at transition - (2) - -
Unrecognized prior
service cost 43 41 4 5
Unrecognized net
(gain) loss (10) (98) 10 (27)
- ----------------------------------------------------------------------
Accrued pension
asset (liability)
included in
consolidated
balance sheets $ (168) $ (139) $ (331) $ (309)
======================================================================
Prepaid benefit cost $ 54 $ 52 $ - $ -
Accrued benefit
liability (303) (267) (331) (309)
Accumulated other
comprehensive
income 64 59 - -
Intangible asset 17 17 - -
- ----------------------------------------------------------------------
Net asset (liability)
recognized $ (168) $ (139) $ (331) $ (309)
======================================================================
The assumptions used in computing the preceding information
are as follows:
Pension Benefits
----------------------------
December 31, 1998 1997 1996
- ------------------------------------------------------
Discount rates 6-1/2% 7% 7-1/4%
Rates of increase in
compensation levels 4-1/2% 4-3/4% 4-3/4%
Expected long-term
rates of return on
assets 8-3/4% 9% 8-1/2%
Other Benefits
----------------------------
December 31, 1998 1997 1996
- ------------------------------------------------------
Discount rates 6-3/4% 7-1/4% 7-3/4%
Rates of increase in
compensation levels 4-1/2% 4-3/4% 5%
Expected long-term
rates of return on
assets 3% 3% 3%
The rate of increase in per capita costs of covered health
care benefits is assumed to be 7 percent in 1999, decreasing
gradually to 43/4 percent by the year 2003.
- 55 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
A one percentage point change in the assumed health care cost
trend rate would have the following effects (in millions):
One Percentage One Percentage
Point Increase Point Decrease
-----------------------------------
Effect on accumulated
postretirement benefit
obligation as of
December 31, 1998 $ 45 $ (36)
Effect on net periodic
postretirement benefit
cost in 1998 $ 6 $ (5)
NOTE 14: INCOME TAXES
Income before income taxes consists of the following
(in millions):
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------
United States $ 1,979 $ 1,515 $ 1,168
International 3,219 4,540 3,428
- --------------------------------------------------------------
$ 5,198 $ 6,055 $ 4,596
==============================================================
Income tax expense (benefit) consists of the following
(in millions):
Year Ended United State &
December 31, States Local International Total
- ------------------------------------------------------------------
1998
Current $ 683 $ 91 $ 929 $ 1,703
Deferred (73) 28 7 (38)
1997
Current $ 240 $ 45 $ 1,261 $ 1,546
Deferred 180 21 179 380
1996
Current $ 256 $ 79 $ 914 $ 1,249
Deferred (264) (29) 148 (145)
==================================================================
We made income tax payments of approximately $1,559 million,
$982 million and $1,242 million in 1998, 1997 and 1996,
respectively.
A reconciliation of the statutory U.S. federal rate and
effective rates is as follows:
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes-net of
federal benefit 1.0 1.0 1.0
Earnings in jurisdictions
taxed at rates different
from the statutory U.S.
federal rate (4.3) (2.6) (3.3)
Equity income - (.6) (1.7)
Tax settlement - - (7.0)
Other-net .3 (1.0) -
- ---------------------------------------------------------------
32.0% 31.8% 24.0%
===============================================================
Our effective tax rate reflects the tax benefit derived from
having significant operations outside the United States that are
taxed at rates lower than the U.S. statutory rate of 35 percent,
partially offset by the tax impact of certain gains recognized
from previously discussed bottling transactions. These
transactions are generally taxed at rates higher than our
Company's effective tax rate on operations.
In 1996, we reached an agreement in principle with the U.S.
Internal Revenue Service settling certain U.S.-related income
tax matters, including issues in litigation related to our
operations in Puerto Rico. This agreement resulted in a one-time
reduction of $320 million to our 1996 income tax expense as a
result of reversing previously accrued contingent income tax
liabilities. Our 1996 effective tax rate would have been 31
percent, excluding the favorable impact of the settlement.
Appropriate U.S. and international taxes have been provided for
earnings of subsidiary companies that are expected to be remitted
to the parent company. Exclusive of amounts that would result in
little or no tax if remitted, the cumulative amount of unremitted
earnings from our international subsidiaries that is expected to
be indefinitely reinvested was approximately $3.6 billion on
December 31, 1998. The taxes that would be paid upon remittance
of these indefinitely reinvested earnings are approximately $1.3
billion, based on current tax laws.
The tax effects of temporary differences and carryforwards that
give rise to deferred tax assets and liabilities consist of the
following (in millions):
December 31, 1998 1997
- ----------------------------------------------------------
Deferred tax assets:
Benefit plans $ 309 $ 268
Liabilities and reserves 166 172
Net operating loss
carryforwards 49 72
Other 176 89
- ----------------------------------------------------------
Gross deferred tax assets 700 601
Valuation allowance (18) (21)
- ----------------------------------------------------------
$ 682 $ 580
- ----------------------------------------------------------
Deferred tax liabilities:
Property, plant and
equipment $ 244 $ 203
Equity investments 219 107
Intangible assets 139 164
Other 320 288
- ----------------------------------------------------------
$ 922 $ 762
==========================================================
Net deferred tax asset
(liability){1} $ (240) $ (182)
==========================================================
{1} Deferred tax assets of $184 million and $244 million have
been included in the consolidated balance sheet caption
"Marketable securities and other assets" at December 31, 1998
and 1997, respectively.
- 56 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
On December 31, 1998 and 1997, we had approximately $171
million and $139 million, respectively, of gross deferred tax
assets located in countries outside the U.S.
On December 31, 1998, we had $196 million of operating loss
carryforwards available to reduce future taxable income of
certain international subsidiaries. Loss carryforwards of $119
million must be utilized within the next five years; $77 million
can be utilized over an indefinite period. A valuation allowance
has been provided for a portion of the deferred tax assets
related to these loss carryforwards.
NOTE 15: NONRECURRING ITEMS
In the second quarter of 1998, we recorded a nonrecurring
charge in selling, administrative and general expenses primarily
related to the impairment of certain assets in North America of
$25 million and Corporate of $48 million.
In the second quarter of 1997, we recorded a nonrecurring
charge of $60 million in selling, administrative and general
expenses related to enhancing manufacturing efficiencies in
North America.
In 1996, we recorded provisions of approximately $276 million
in selling, administrative and general expenses related to our
plans for strengthening our worldwide system. Of this $276
million, approximately $130 million related to streamlining our
operations, primarily in Greater Europe and Latin America.
The remainder, approximately $146 million, related to
impairment charges to certain production facilities and reserves
for losses on the disposal of other production facilities taken
by The Minute Maid Company.
In connection with the launching of Project Infinity, we
recorded an $80 million impairment charge in administrative
and general expenses to recognize Project Infinity's impact on
existing information systems.
Based on management's commitment to certain strategic actions
during the third quarter of 1996, these impairment charges were
recorded to reduce the carrying value of identified assets to
fair value. Fair values were derived using a variety of
methodologies, including cash flow analysis, estimates of sales
proceeds and independent appraisals.
Also in 1996, we recorded a $28.5 million charge in
administrative and general expenses as a result of our decision
to make a contribution to The Coca-Cola Foundation, a not-for-
profit charitable organization.
NOTE 16: OPERATING SEGMENTS
Our Company's operating structure includes operating segments:
the North America Group (including The Minute Maid Company); the
Africa Group; the Greater Europe Group; the Latin America Group;
the Middle & Far East Group; and Corporate. The North America
Group includes the United States and Canada.
SEGMENT PRODUCTS AND SERVICES - The business of our Company is
nonalcoholic beverages, principally soft drinks, but also a
variety of noncarbonated beverages. Our operating segments derive
substantially all their revenues from the manufacture and sale of
beverage concentrates and syrups with the exception of Corporate,
which derives its revenues primarily from the licensing of our
brands in connection with merchandise.
METHOD OF DETERMINING SEGMENT PROFIT OR LOSS - Management
evaluates the performance of its operating segments separately
to individually monitor the different factors affecting financial
performance. Segment profit or loss includes substantially all of
the segment's costs of production, distribution and
administration. Our Company manages income taxes on a global
basis. Thus, we evaluate segment performance based on profit or
loss before income taxes, exclusive of any significant gains or
losses on the disposition of investments or other assets. Our
Company typically manages and evaluates equity investments and
related income on a segment level. However, we manage certain
significant investments, such as our equity interests in
Coca-Cola Enterprises, at the corporate level. We manage
financial costs, such as exchange gains and losses and interest
income and expense, on a global basis at the Corporate segment.
- 57 -
<PAGE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COCA-COLA COMPANY AND SUBSIDIARIES
Information about our Company's operations by operating segment
is as follows (in millions):
<CAPTION>
North Greater Latin Middle &
America Africa Europe America Far East Corporate Consolidated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Net operating revenues $6,915 $603 $4,834 $2,244 $4,040{1} $ 177 $18,813
Operating income 1,460{4} 216 1,473 999 1,299 (480){4} 4,967
Interest income 219 219
Interest expense 277 277
Equity income (1) 3 (40) 68 (70) 72 32
Identifiable operating assets 4,543 381 1,857 1,779 2,105 1,794{2} 12,459
Investments{3} 141 73 2,010 1,629 2,218 615 6,686
Capital expenditures 293 19 216 72 107 156 863
Depreciation and amortization 238 24 92 93 118 80 645
Income before income taxes 1,468 209 1,391 1,075 1,232 (177) 5,198
=================================================================================================================
1997
Net operating revenues $6,443 $582 $5,395 $2,124 $4,110 $ 214 $18,868
Operating income 1,311{5} 165 1,479 957 1,377 (288) 5,001
Interest income 211 211
Interest expense 258 258
Equity income (6) 2 (16) 96 22 57 155
Identifiable operating assets 4,406 418 2,410 1,593 1,625 1,535{2} 11,987
Investments{3} 138 48 1,041 1,461 2,006 200 4,894
Capital expenditures 261 17 327 78 196 214 1,093
Depreciation and amortization 195 22 123 99 106 81 626
Income before income taxes 1,308 158 1,461 1,060 1,380 688 6,055
=================================================================================================================
1996
Net operating revenues $6,050 $482 $5,959 $2,040 $3,964 $ 178 $18,673
Operating income{6} 949 118 1,277 815 1,239 (483) 3,915
Interest income 238 238
Interest expense 286 286
Equity income (16) 1 59 37 73 57 211
Identifiable operating assets 3,796 326 2,896 1,405 1,464 2,056{2} 11,943
Investments{3} 145 20 802 1,234 1,400 568 4,169
Capital expenditures 261 32 379 79 121 118 990
Depreciation and amortization 188 12 190 83 84 76 633
Income before income taxes 919 109 1,326 847 1,290 105 4,596
=================================================================================================================
Intercompany transfers between operating segments are not material.
Certain prior year amounts have been reclassified to conform to the current year presentation.
{1} Japan revenues represent approximately 76 percent of total Middle & Far East operating segment revenues.
{2} Corporate identifiable operating assets are composed principally of marketable securities, finance
subsidiary receivables and fixed assets.
{3} Principally equity investments in bottling companies.
{4} Operating income was reduced by $25 million for North America and $48 million for Corporate for
provisions related to the impairment of certain assets.
{5} Operating income for North America was reduced by $60 million for provisions related to enhancing
manufacturing efficiencies.
{6} Operating income for North America, Africa, Greater Europe, Latin America and the Middle & Far
East was reduced by $153 million, $7 million, $66 million, $32 million and $18 million, respectively,
for provisions related to management's strategic plans to strengthen our worldwide system. Corporate
operating income was reduced by $80 million for Project Infinity's impairment impact to existing systems
and by $28.5 million for our decision to contribute to The Coca-Cola Foundation.
</TABLE>
<TABLE>
<CAPTION>
Compound Growth Rates North Greater Latin Middle &
Ending 1998 America Africa Europe America Far East Consolidated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues
5 years 7% 19% 2% 6% 8% 6%
10 years 7% 15% 10% 15% 8% 9%
=================================================================================================================
Operating income
5 years 13% 7% 7% 12% 6% 10%
10 years 12% 12% 11% 19% 9% 12%
=================================================================================================================
</TABLE>
- 58 -
<PAGE>
NET OPERATING REVENUES BY OPERATING SEGMENT{1}
THE COCA-COLA COMPANY AND SUBSIDIARIES
[pie charts]
Year Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------
Africa 3% 3% 3%
Latin America 12% 11% 11%
Middle & Far East 22% 22% 21%
Greater Europe 26% 29% 32%
North America 37% 35% 33%
OPERATING INCOME BY OPERATING SEGMENT {1}
{1} Charts and percentages are calculated exclusive of Corporate
[pie charts]
Year Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------
Africa 4% 3% 3%
Latin America 18% 18% 18%
Middle & Far East 24% 26% 28%
Greater Europe 27% 28% 29%
North America 27% 25% 22%
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHARE OWNERS
THE COCA-COLA COMPANY
We have audited the accompanying consolidated balance sheets
of The Coca-Cola Company and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income,
share-owners' equity, and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Coca-Cola Company and subsidiaries at
December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG
Atlanta, Georgia
January 25, 1999
- 59 -
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
<TABLE>
QUARTERLY DATA (UNAUDITED)
(In millions except per share data)
<CAPTION>
First Second Third Fourth Full
Year Ended December 31, Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net operating revenues $4,457 $5,151 $4,747 $4,458 $18,813
Gross profit 3,139 3,652 3,301 3,159 13,251
Net income 857 1,191 888 597 3,533
Basic net income per share .35 .48 .36 .24 1.43
Diluted net income per share .34 .48 .36 .24 1.42
================================================================================
1997
Net operating revenues $4,138 $5,075 $4,954 $4,701 $18,868
Gross profit 2,843 3,466 3,295 3,249 12,853
Net income 987 1,314 1,011 817 4,129
Basic net income per share .40 .53 .41 .33 1.67
Diluted net income per share .39 .52 .40 .33 1.64
==============================================================================================
</TABLE>
The second quarter of 1998 includes a gain of approximately $191
million ($.03 per share after income taxes, basic and diluted)
on the sale of our Italian bottling operations in northern and
central Italy to Coca-Cola Beverages. The second quarter of 1998
also includes provisions of $73 million ($.02 per share after
income taxes, basic and diluted) related to the impairment of
certain assets in North America and Corporate.
The third quarter of 1998 includes a noncash gain on the issuance
of stock by CCEAG of approximately $27 million ($.01 per share
after income taxes, basic and diluted).
The first quarter of 1997 includes a gain of approximately $352
million ($.08 per share after income taxes, basic and diluted) on
the sale of our 49 percent interest in Coca-Cola & Schweppes
Beverages Ltd. to Coca-Cola Enterprises.
The second quarter of 1997 includes noncash gains on the issuance
of stock by Coca-Cola Amatil of approximately $343 million
($.08 per share after income taxes, basic and diluted). The
second quarter of 1997 also includes provisions related to
enhancing manufacturing efficiencies in North America of $60
million ($.02 per share after income taxes, basic and diluted).
The third quarter of 1997 includes a gain of approximately
$156 million ($.04 per share after income taxes, basic and
diluted) on the sale of our 48 percent interest in Coca-Cola
Beverages Ltd. of Canada and our 49 percent interest in
The Coca-Cola Bottling Company of New York, Inc., to Coca-Cola
Enterprises.
STOCK PRICES
Below are the New York Stock Exchange high, low and closing
prices of The Coca-Cola Company's stock for each quarter of 1998
and 1997.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
High $ 79.31 $ 86.81 $ 88.94 $ 75.44
Low 62.25 71.88 53.63 55.38
Close 77.44 85.50 57.63 67.00
============================================================================
1997
High $ 63.25 $ 72.63 $ 71.94 $ 67.19
Low 51.13 52.75 55.06 51.94
Close 55.75 68.00 61.00 66.69
============================================================================
</TABLE>
- 61 -
<PAGE>
SHARE-OWNER INFORMATION
COMMON STOCK
Ticker symbol: KO
The Coca-Cola Company is one of 30 companies in the
Dow Jones Industrial Average.
Share owners of record at year end: 388,641
Shares outstanding at year end: 2.47 billion
STOCK EXCHANGES
INSIDE THE UNITED STATES:
Common stock listed and traded: New York Stock Exchange, the
principal market for our common stock.
Common stock traded: Boston, Chicago, Cincinnati, Pacific and
Philadelphia stock exchanges.
OUTSIDE THE UNITED STATES:
Common stock listed and traded: The German exchange in Frankfurt
and the Swiss exchange in Zurich.
DIVIDENDS
At its February 1999 meeting, our Board increased our quarterly
dividend to 16 cents per share, equivalent to an annual dividend
of 64 cents per share. The Company has increased dividends each
of the last 37 years.
The Coca-Cola Company normally pays dividends four times a
year, usually on April 1, July 1, October 1 and December 15. The
Company has paid 311 consecutive quarterly dividends, beginning
in 1920.
SHARE-OWNER ACCOUNT ASSISTANCE
For address changes, dividend checks, direct deposit of
dividends, account consolidation, registration changes, lost
stock certificates, stock holdings and the Dividend and Cash
Investment Plan, please contact:
Registrar and Transfer Agent
First Chicago Trust Co., a division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303-2500
Toll-free: (888) COKESHR (265-3747)
For hearing impaired: (201) 222-4955
E-mail: [email protected]
Internet: www.equiserve.com
DIVIDEND AND CASH INVESTMENT PLAN
The Dividend and Cash Investment Plan permits share owners of
record to reinvest dividends from Company stock in shares of
The Coca-Cola Company. The Plan provides a convenient, economical
and systematic method of acquiring additional shares of our
common stock. All share owners of record are eligible to
participate. Share owners also may purchase Company stock through
voluntary cash investments of up to $125,000 per year.
At year end, 73 percent of the Company's share owners of record
were participants in the Plan. In 1998, share owners invested $41
million in dividends and $98 million in cash in the Plan.
If your shares are held in street name by your broker and you
are interested in participating in the Dividend and Cash
Investment Plan, you may have your broker transfer the shares to
First Chicago Trust Co. electronically through the Direct
Registration System.
For more details on the Dividend and Cash Investment Plan
please contact the Plan Administrator, First Chicago Trust Co.,
or visit the investor section of our Company's Web site,
www.thecoca-colacompany.com, for more information.
SHARE-OWNER INTERNET ACCOUNT ACCESS
Share owners of record may access their accounts via the Internet
to obtain share balance, current market price of shares,
historical stock prices and the total value of their investment.
In addition, they may sell or request issuance of Dividend and
Cash Investment Plan shares.
For information on how to access this secure site, please call
First Chicago Trust Co. toll-free at (877) 843-9327. For share
owners of record outside North America, please call
(201) 536-8071.
ANNUAL MEETING OF SHARE OWNERS
April 21,1999, 9 a.m. local time
The Playhouse Theatre
Du Pont Building
10th and Market Streets
Wilmington, Delaware
CORPORATE OFFICES
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
INSTITUTIONAL INVESTOR INQUIRIES
(404) 676-5766
INFORMATION RESOURCES
PUBLICATIONS
THE COMPANY'S ANNUAL REPORT, PROXY STATEMENT, FORM 10-K AND
FORM 10-Q REPORTS ARE AVAILABLE FREE OF CHARGE UPON REQUEST
FROM OUR INDUSTRY & CONSUMER AFFAIRS DEPARTMENT AT THE COMPANY'S
CORPORATE ADDRESS, LISTED ABOVE.
INTERNET SITE
You can find our stock price, news and earnings releases and
more financial information about our Company on our recently
expanded Web site, www.thecoca-colacompany.com.
HOTLINE
The Company's hotline, (800) INVSTKO (468-7856), offers taped
highlights from the most recent quarter and may be used to
request the most recent quarterly results news release.
AUDIO ANNUAL REPORT
An audiocassette version of this report is available without
charge as a service to the visually impaired. To receive a copy,
please contact our Industry & Consumer Affairs Department at
(800) 571-2653.
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our
publications, please contact First Chicago Trust Co. at
(888) COKESHR (265-3747).
- 64 -
<PAGE>
GLOSSARY
[Following are certain definitions extracted from page 65:]
DIVIDEND PAYOUT RATIO: Calculated by dividing cash dividends on
common stock by net income available to common share owners.
ECONOMIC PROFIT: Income from continuing operations, after taxes,
excluding interest, in excess of a computed capital charge for
average operating capital employed.
FREE CASH FLOW: Cash provided by operations less cash used in
investing activities. The Company uses free cash flow along with
borrowings to pay dividends and make share repurchases.
NET DEBT AND NET CAPITAL: Debt and capital in excess of cash,
cash equivalents and marketable securities not required for
operations and certain temporary bottling investments.
RETURN ON CAPITAL: Calculated by dividing income from continuing
operations - before changes in accounting principles, adjusted
for interest expense - by average total capital.
RETURN ON COMMON EQUITY: Calculated by dividing income from
continuing operations - before changes in accounting principles,
less preferred stock dividends - by average common share-owners'
equity.
TOTAL CAPITAL: Equals share-owners' equity plus interest-bearing
debt.
TOTAL MARKET VALUE OF COMMON STOCK: Stock price at year end
multiplied by the number of shares outstanding at year end.
- 65 -
Exhibit 21.1
<TABLE>
SUBSIDIARIES OF THE COCA-COLA COMPANY
AS OF DECEMBER 31, 1998
<CAPTION>
Organized Percentages
Under of Voting
Laws of: Power
----------- -----------
<S> <C> <C>
The Coca-Cola Company Delaware
Subsidiaries:
Barq's, Inc. Mississippi 100
Bottling Investments Corporation Delaware 100
ACCBC Holding Company Georgia 100
Caribbean International Sales Corporation, Inc. Nevada 100
Caribbean Refrescos, Inc. Delaware 100
CRI Financial Corporation, Inc. Delaware 100
Carolina Coca-Cola Bottling Investments, Inc. Delaware 100
Coca-Cola Financial Corporation Delaware 100
Coca-Cola Interamerican Corporation Delaware 100
Montevideo Refrescos, S.A. Uruguay 55.53
Coca-Cola South Asia Holdings, Inc. Delaware 100
Coca-Cola (Thailand) Limited Thailand 100
CTI Holdings, Inc. Delaware 100
55th & 5th Avenue Corporation New York 100
The Coca-Cola Export Corporation Delaware 100
Atlantic Industries Cayman Islands 100
Shanghai Shen-Mei Beverage and Food Co. Ltd. People's Republic
(Concentrate Division) of China 100
Coca-Cola National Vending Company, Limited Japan 100
Barlan, Inc. Delaware 100
Varoise de Concentres S.A. France 100
Bharat Coca-Cola Bottling South East
Private Limited India 100
Coca-Cola G.m.b.H. Germany 100
Coca-Cola Holdings (Middle East and
North Africa) E.C. Bahrain 100
Hindustan Coca-Cola Bottling North West
Private Limited India 100
S.A. Coca-Cola Financial Services N.V. Belgium 99.20
Beverage Products, Ltd. Delaware 100
Britco Foods Company Limited India 100
Coca-Cola Canners of Southern Africa (Pty) Limited South Africa 51.55
Coca-Cola China Limited Hong Kong 100
Coca-Cola de Argentina S.A. Argentina 100
Coca-Cola de Chile S.A. Chile 100
Coca-Cola Ges.m.b.H. Austria 100
Coca-Cola Industrias Ltda. Brazil 100
Recofarma Industria do Amazonas Ltda. Brazil 100
Coca-Cola Ltd. Canada 100
The Minute Maid Company Canada Inc. Canada 100
Coca-Cola (Japan) Company, Limited Japan 100
Coca-Cola Korea Company, Limited Korea 100
Coca-Cola Nigeria Limited Nigeria 100
Coca-Cola Overseas Parent Limited Delaware 100
Coca-Cola Holdings (Overseas) Limited Delaware & 100
Australia
Coca-Cola Beverages plc Great Britain 50.52
</TABLE>
-1-
<PAGE>
<PAGE>
<TABLE>
SUBSIDIARIES OF THE COCA-COLA COMPANY
AS OF DECEMBER 31, 1998
continued from page 1
- ---------------------
<CAPTION>
Organized Percentages
Under of Voting
Laws of: Power
----------- -----------
<S> <C> <C>
Coca-Cola South Pacific Pty. Limited Australia 100
Coca-Cola Southern Africa (Pty) Limited South Africa 100
Conco Limited Cayman Islands 100
International Beverages Ireland 100
Coca-Cola Refreshments Moscow Russia 100
Minute Maid SA Switzerland 100
Refreshment Product Services, Inc. Delaware 100
Coca-Cola de Colombia, S.A. Colombia 100
Coca-Cola Holdings (Nederland) B.V. Netherlands 100
Coca-Cola Holdings (United Kingdom) Limited England and 100
Wales
Coca-Cola Hungary Services, Ltd. Hungary 90
Refrescos Envasados S.A. Spain 100
The Inmex Corporation Florida 100
Servicios Integrados de Administracion Mexico 100
y Alta Gerencia, S.A. de C.V.
</TABLE>
Other subsidiaries whose combined size is not significant:
Twelve domestic wholly owned subsidiaries consolidated
Eighty-five foreign wholly owned subsidiaries consolidated
Nine foreign majority-owned subsidiaries consolidated
One unconsolidated foreign subsidiary included on the equity method
-2-
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report on Form 10-K of The Coca-Cola Company of our report dated
January 25, 1999, included in the 1998 Annual Report to Share
Owners of The Coca-Cola Company.
Our audits also included the financial statement schedule of
The Coca-Cola Company listed in Item 14(a). This schedule is the
responsibility of The Coca-Cola Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the
registration statements and related prospectuses of The Coca-Cola
Company listed below of our report dated January 25, 1999 with
respect to the consolidated financial statements of The Coca-Cola
Company incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement
schedule included in this Annual Report on Form 10-K for the year
ended December 31, 1998:
1. Registration Statement Number 2-58584 on Form S-8
2. Registration Statement Number 2-79973 on Form S-3
3. Registration Statement Number 2-88085 on Form S-8
4. Registration Statement Number 2-98787 on Form S-3
5. Registration Statement Number 33-21529 on Form S-8
6. Registration Statement Number 33-21530 on Form S-3
7. Registration Statement Number 33-26251 on Form S-8
8. Registration Statement Number 33-39840 on Form S-8
9. Registration Statement Number 33-45763 on Form S-3
10. Registration Statement Number 33-50743 on Form S-3
11. Registration Statement Number 33-61531 on Form S-3
12. Registration Statement Number 333-27607 on Form S-8
ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1999
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, M. DOUGLAS IVESTER,
Chairman of the Board, Chief Executive Officer and a Director
of The Coca-Cola Company (the "Company"), do hereby appoint
JAMES E. CHESTNUT, Senior Vice President and Chief Financial
Officer of the Company, JOSEPH R. GLADDEN, JR., Senior Vice
President and General Counsel of the Company, SUSAN E. SHAW,
Secretary of the Company, and CAROL C. HAYES, Assistant
Secretary of the Company, or any one of them, my true and
lawful attorneys-in-fact for me and in my name for the purpose
of executing on my behalf in any and all capacities the Company's
Annual Report for the year ended December 31, 1998 on Form 10-K,
or any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
16th day of February 1999.
/s/ M. Douglas Ivester
Chairman of the Board,
Chief Executive Officer and Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, JAMES E. CHESTNUT,
Senior Vice President and Chief Financial Officer of
The Coca-Cola Company (the "Company"), do hereby appoint
M. DOUGLAS IVESTER, Chairman of the Board, Chief Executive
Officer and a Director of the Company, JOSEPH R. GLADDEN, JR.,
Senior Vice President and General Counsel of the Company,
SUSAN E. SHAW, Secretary of the Company, and CAROL C. HAYES,
Assistant Secretary of the Company, or any one of them, my true
and lawful attorneys-in-fact for me and in my name for the
purpose of executing on my behalf in any and all capacities
the Company's Annual Report for the year ended December 31, 1998
on Form 10-K, or any amendment or supplement thereto, and
causing such Annual Report or any such amendment or supplement
to be filed with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ James E. Chestnut
Senior Vice President
and Chief Financial Officer
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, GARY P. FAYARD, Vice
President and Controller of The Coca-Cola Company (the
"Company"), do hereby appoint M. DOUGLAS IVESTER, Chairman of
the Board, Chief Executive Officer and a Director of the
Company, JAMES E. CHESTNUT, Senior Vice President and Chief
Financial Officer of the Company, JOSEPH R. GLADDEN, JR.,
Senior Vice President and General Counsel of the Company,
SUSAN E. SHAW, Secretary of the Company, and CAROL C. HAYES,
Assistant Secretary of the Company, or any one of them, my
true and lawful attorneys-in-fact for me and in my name for
the purpose of executing on my behalf in any and all
capacities the Company's Annual Report for the year ended
December 31, 1998 on Form 10-K, or any amendment or supplement
thereto, and causing such Annual Report or any such amendment
or supplement to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934,
as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
15th day of February 1999.
/s/ Gary P. Fayard
Vice President and Controller
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, HERBERT A. ALLEN, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual Report
for the year ended December 31, 1998 on Form 10-K, or any
amendment or supplement thereto, and causing such Annual Report
or any such amendment or supplement to be filed with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Herbert A. Allen
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, RONALD W. ALLEN, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Ronald W. Allen
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, CATHLEEN P. BLACK, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Cathleen P. Black
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, WARREN E. BUFFETT, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Warren E. Buffett
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, SUSAN B. KING, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Susan B. King
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, DONALD F. MCHENRY, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Donald F. McHenry
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, SAM NUNN, a Director
of The Coca-Cola Company (the "Company"), do hereby appoint
M. DOUGLAS IVESTER, Chairman of the Board, Chief Executive
Officer and a Director of the Company, JAMES E. CHESTNUT,
Senior Vice President and Chief Financial Officer of the
Company, JOSEPH R. GLADDEN, JR., Senior Vice President and
General Counsel of the Company, SUSAN E. SHAW, Secretary of
the Company, and CAROL C. HAYES, Assistant Secretary of the
Company, or any one of them, my true and lawful attorneys-in-
fact for me and in my name for the purpose of executing on my
behalf in any and all capacities the Company's Annual Report
for the year ended December 31, 1998 on Form 10-K, or any
amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Sam Nunn
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, PAUL F. OREFFICE, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Paul F. Oreffice
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, JAMES D.
ROBINSON III, a Director of The Coca-Cola Company (the
"Company"), do hereby appoint M. DOUGLAS IVESTER, Chairman of
the Board, Chief Executive Officer and a Director of the
Company, JAMES E. CHESTNUT, Senior Vice President and Chief
Financial Officer of the Company, JOSEPH R. GLADDEN, JR.,
Senior Vice President and General Counsel of the Company,
SUSAN E. SHAW, Secretary of the Company, and CAROL C. HAYES,
Assistant Secretary of the Company, or any one of them, my
true and lawful attorneys-in-fact for me and in my name for
the purpose of executing on my behalf in any and all
capacities the Company's Annual Report for the year ended
December 31, 1998 on Form 10-K, or any amendment or
supplement thereto, and causing such Annual Report or any
such amendment or supplement to be filed with the Securities
and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ James D. Robinson III
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, PETER V. UEBERROTH, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ Peter V. Ueberroth
Director
The Coca-Cola Company
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, JAMES B. WILLIAMS, a
Director of The Coca-Cola Company (the "Company"), do hereby
appoint M. DOUGLAS IVESTER, Chairman of the Board, Chief
Executive Officer and a Director of the Company, JAMES E.
CHESTNUT, Senior Vice President and Chief Financial Officer
of the Company, JOSEPH R. GLADDEN, JR., Senior Vice President
and General Counsel of the Company, SUSAN E. SHAW, Secretary
of the Company, and CAROL C. HAYES, Assistant Secretary of
the Company, or any one of them, my true and lawful attorneys-
in-fact for me and in my name for the purpose of executing on
my behalf in any and all capacities the Company's Annual
Report for the year ended December 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual
Report or any such amendment or supplement to be filed with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this
18th day of February 1999.
/s/ James B. Williams
Director
The Coca-Cola Company
<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 YEAR
ENDED DECEMBER 31, 1996, AS SET FORTH IN ITS FORM 10-K FOR SUCH YEAR AND FOR
THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996<F1>
<CASH> 1,433
<SECURITIES> 225
<RECEIVABLES> 1,671
<ALLOWANCES> 30
<INVENTORY> 952
<CURRENT-ASSETS> 5,910
<PP&E> 5,581
<DEPRECIATION> 2,031
<TOTAL-ASSETS> 16,112
<CURRENT-LIABILITIES> 7,407
<BONDS> 1,116
0
0
<COMMON> 858
<OTHER-SE> 5,267
<TOTAL-LIABILITY-AND-EQUITY> 16,112
<SALES> 18,673
<TOTAL-REVENUES> 18,673
<CGS> 6,738
<TOTAL-COSTS> 6,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 4,596
<INCOME-TAX> 1,104
<INCOME-CONTINUING> 3,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,492
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.38
<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 RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE COCA-COLA COMPANY FOR THE YEAR
ENDED DECEMBER 31, 1997, AS SET FORTH IN ITS FORM 10-K FOR SUCH YEAR AND FOR THE
YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997<F1>
<CASH> 1,737
<SECURITIES> 106
<RECEIVABLES> 1,662
<ALLOWANCES> 23
<INVENTORY> 959
<CURRENT-ASSETS> 5,969
<PP&E> 5,771
<DEPRECIATION> 2,028
<TOTAL-ASSETS> 16,881
<CURRENT-LIABILITIES> 7,379
<BONDS> 801
0
0
<COMMON> 861
<OTHER-SE> 6,413
<TOTAL-LIABILITY-AND-EQUITY> 16,881
<SALES> 18,868
<TOTAL-REVENUES> 18,868
<CGS> 6,015
<TOTAL-COSTS> 6,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 6,055
<INCOME-TAX> 1,926
<INCOME-CONTINUING> 4,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,129
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.64
<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 FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF THE COCA-COLA COMPANY FOR THE YEAR ENDED
DECEMBER 31, 1998, AS SET FORTH IN ITS FORM 10-K FOR SUCH YEAR, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,648
<SECURITIES> 159
<RECEIVABLES> 1,676
<ALLOWANCES> 10
<INVENTORY> 890
<CURRENT-ASSETS> 6,380
<PP&E> 5,685
<DEPRECIATION> 2,016
<TOTAL-ASSETS> 19,145
<CURRENT-LIABILITIES> 8,640
<BONDS> 687
0
0
<COMMON> 865
<OTHER-SE> 7,538
<TOTAL-LIABILITY-AND-EQUITY> 19,145
<SALES> 18,813
<TOTAL-REVENUES> 18,813
<CGS> 5,562
<TOTAL-COSTS> 5,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 5,198
<INCOME-TAX> 1,665
<INCOME-CONTINUING> 3,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,533
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.42
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENT RELATIVE TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the
Act) provides a safe harbor for forward-looking statements
made by or on behalf of the Company. The Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained
in the Company's filings with the Securities and Exchange
Commission and in its reports to share owners. All
statements which address operating performance, events or
developments that the Company expects or anticipates will
occur in the future, including statements relating to volume
growth, share of sales and earnings per share growth,
statements expressing general optimism about future
operating results and non-historical Year 2000 information,
are forward-looking statements within the meaning of the
Act. The forward-looking statements are and will be based
on management's then current views and assumptions regarding
future events and operating performance.
The following are some of the factors that could affect the
Company's financial performance or could cause actual
results to differ materially from estimates contained in or
underlying the Company's forward-looking statements:
- --The Company's ability to generate sufficient cash flows
to support capital expansion plans, share repurchase
programs and general operating activities.
- --Competitive product and pricing pressures and the
Company's ability to gain or maintain share of sales in
the global market as a result of actions by competitors.
While the Company believes its opportunities for
sustained, profitable growth are considerable,
unanticipated actions of competitors could impact its
earnings, share of sales and volume growth.
- --Changes in laws and regulations, including changes in
accounting standards, taxation requirements (including
tax rate changes, new tax laws and revised tax law
interpretations) and environmental laws in domestic or
foreign jurisdictions.
- --Fluctuations in the cost and availability of raw
materials and the ability to maintain favorable supplier
arrangements and relationships.
- --The Company's ability to achieve earnings forecasts,
which are generated based on projected volumes and sales
of many product types, some of which are more profitable
than others. There can be no assurance that the Company
will achieve the projected level or mix of product sales.
<PAGE>
- --Interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations.
Most of the Company's exposures to capital markets,
including interest and foreign currency, are managed on a
consolidated basis, which allows the Company to net
certain exposures and, thus, take advantage of any
natural offsets. The Company uses derivative financial
instruments to reduce its net exposure to financial
risks. There can be no assurance, however, that the
Company's financial risk management program will be
successful in reducing foreign currency exposures.
- --Economic and political conditions in international
markets, including civil unrest, governmental changes and
restrictions on the ability to transfer capital across
borders.
- --The Company's ability to penetrate developing and
emerging markets, which also depends on economic and
political conditions, and how well the Company is able to
acquire or form strategic business alliances with local
bottlers and make necessary infrastructure enhancements
to production facilities, distribution networks, sales
equipment and technology. Moreover, the supply of
products in developing markets must match the customers'
demand for those products, and due to product price and
cultural differences, there can be no assurance of
product acceptance in any particular market.
- --The effectiveness of the Company's advertising, marketing
and promotional programs.
- --The uncertainties of litigation, as well as other risks
and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
- --Adverse weather conditions, which could reduce demand for
Company products.
- --The Company's ability and the ability of its Key Business
Partners (critically important bottlers, customers,
suppliers, vendors and public entities such as government
regulatory agencies, utilities, financial entities and
others) and other third parties to replace, modify or
upgrade computer systems in ways that adequately address
the Year 2000 problem. Given the numerous and
significant uncertainties involved, there can be no
assurance that Year 2000 related estimates and
anticipated results will be achieved, and actual results
could differ materially. Specific factors that might
cause such material differences include, but are not
limited to, the ability to identify and correct all
relevant computer codes and embedded chips, unanticipated
difficulties or delays in the implementation of Year 2000
project plans and the ability of third parties to
adequately address their own Year 2000 issues.
- --The Company's ability to timely resolve issues relating
to introduction of the European Union's common currency
(the Euro).
The foregoing list of important factors is not exclusive.
2
