FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at July 14, 2000
$.25 Par Value 2,476,914,327 Shares
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
Three and six months ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 27
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 28
- 2 -
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT
Cash and cash equivalents $ 2,843 $ 1,611
Marketable securities 226 201
----------- ------------
3,069 1,812
Trade accounts receivable, less
allowances of $33 at June 30
and $26 at December 31 1,752 1,798
Inventories 1,194 1,076
Prepaid expenses and other assets 2,095 1,794
----------- ------------
TOTAL CURRENT ASSETS 8,110 6,480
----------- ------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 747 728
Coca-Cola Amatil Ltd 1,040 1,133
Coca-Cola Beverages plc 742 788
Other, principally bottling
companies 3,432 3,793
Cost method investments,
principally bottling companies 474 350
Marketable securities and other assets 2,478 2,124
----------- ------------
8,913 8,916
----------- ------------
PROPERTY, PLANT AND EQUIPMENT
Land 220 215
Buildings and improvements 1,659 1,528
Machinery and equipment 4,629 4,527
Containers 189 201
----------- ------------
6,697 6,471
Less allowances for depreciation 2,415 2,204
----------- ------------
4,282 4,267
----------- ------------
GOODWILL AND OTHER INTANGIBLE ASSETS 1,953 1,960
----------- ------------
$ 23,258 $ 21,623
=========== ============
</TABLE>
- 3 -
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
CURRENT
Accounts payable and accrued expenses $ 4,329 $ 3,714
Loans and notes payable 6,492 5,112
Current maturities of long-term debt 258 261
Accrued income taxes 758 769
----------- ------------
TOTAL CURRENT LIABILITIES 11,837 9,856
----------- ------------
LONG-TERM DEBT 852 854
----------- ------------
OTHER LIABILITIES 884 902
----------- ------------
DEFERRED INCOME TAXES 501 498
----------- ------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,473,457,600 shares at
June 30; 3,466,371,904 shares
at December 31 868 867
Capital surplus 2,765 2,584
Reinvested earnings 20,799 20,773
Accumulated other comprehensive income and
unearned compensation on restricted stock (1,965) (1,551)
----------- ------------
22,467 22,673
Less treasury stock, at cost
(996,947,461 shares at June 30;
994,796,786 shares at December 31) 13,283 13,160
----------- ------------
9,184 9,513
----------- ------------
$ 23,258 $ 21,623
=========== ============
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
- 4 -
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
NET OPERATING REVENUES $ 5,621 $ 5,335 $ 10,012 $ 9,735
Cost of goods sold 1,677 1,592 3,075 2,895
---------- ---------- ---------- ---------
GROSS PROFIT 3,944 3,743 6,937 6,840
Selling, administrative and
general expenses 2,468 2,353 4,541 4,306
Other operating charges 191 - 871 -
---------- ---------- ---------- ---------
OPERATING INCOME 1,285 1,390 1,525 2,534
Interest income 98 64 165 128
Interest expense 119 78 218 155
Equity income (loss) - net 71 12 (14) (83)
Other income (loss) - net 7 (22) (19) 24
---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES 1,342 1,366 1,439 2,448
Income taxes 416 424 571 759
---------- ---------- ---------- ---------
NET INCOME $ 926 $ 942 $ 868 $ 1,689
========== ========== ========== ==========
BASIC NET INCOME
PER SHARE $ .37 $ .38 $ .35 .68
========== ========== ========= =========
DILUTED NET INCOME
PER SHARE $ .37 $ .38 $ .35 $ .68
========== ========== ========= =========
DIVIDENDS PER SHARE $ .17 $ .16 $ .34 $ .32
========== ========== ========= =========
AVERAGE SHARES OUTSTANDING 2,475 2,468 2,474 2,467
========== ========== ========= =========
Dilutive effect of
stock options 5 20 7 21
---------- ---------- --------- ---------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,480 2,488 2,481 2,488
========== ========== ========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
- 5 -
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 868 $ 1,689
Depreciation and amortization 443 400
Deferred income taxes (75) (45)
Equity (income) loss, net of dividends 68 126
Foreign currency adjustments 57 44
Other operating charges 655 -
Other items 31 174
Net change in operating assets and liabilities (816) (637)
---------- ----------
Net cash provided by operating activities 1,231 1,751
---------- ----------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (283) (797)
Purchases of investments and other assets (254) (191)
Proceeds from disposals of investments
and other assets 30 50
Purchases of property, plant and equipment (419) (532)
Proceeds from disposals of property, plant
and equipment 11 12
Other investing activities (4) (8)
----------- ----------
Net cash used in investing activities (919) (1,466)
----------- ----------
Net cash provided by operations after reinvestment 312 285
----------- ----------
FINANCING ACTIVITIES
Issuances of debt 3,405 1,108
Payments of debt (2,057) (33)
Issuances of stock 150 96
Purchases of stock for treasury (123) (9)
Dividends (420) (752)
----------- ----------
Net cash provided by financing activities 955 410
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (35) (130)
----------- ----------
CASH AND CASH EQUIVALENTS
Net increase during the period 1,232 565
Balance at beginning of period 1,611 1,648
----------- ----------
Balance at end of period $ 2,843 $ 2,213
=========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
- 6 -
<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all
information and notes required by generally accepted accounting principles for
complete financial statements. However, except as disclosed herein, there has
been no material change in the information disclosed in the notes to
consolidated financial statements included in the Annual Report on Form 10-K
of The Coca-Cola Company (our Company) for the year ended December 31, 1999.
In the opinion of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of non-alcoholic ready-to-drink beverage products are
generally greater in the second and third quarters due to seasonal factors.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the second quarter 2000 was $636 million,
due primarily to a net reduction for foreign currency translation of
approximately $270 million and a net decrease in the unrealized gain on
available-for-sale securities of approximately $20 million. Total comprehensive
income was $921 million in the second quarter of 1999 due primarily to a net
reduction for foreign currency translation of approximately $44 million and a
net increase in the unrealized gain on available-for-sale securities of
approximately $23 million.
- 7 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C - COMPREHENSIVE INCOME (CONTINUED)
For the first six months of 2000, total comprehensive income was $431
million, primarily reflecting a net reduction for foreign currency translation
of approximately $378 million and a net decrease in the unrealized gain on
available-for-sale securities of approximately $59 million. Total
comprehensive income was $1,206 million for the first six months of 1999,
primarily reflecting a net reduction for foreign currency translation of
approximately $520 million and a net increase in the unrealized gain on
available-for-sale securities of approximately $37 million.
NOTE D - INCOME TAXES
Our effective tax rate was 31.0 percent for the second quarters of 2000
and 1999. The effective tax rate was 39.7 percent for the first six months of
2000 compared to 31.0 percent for the first six months of 1999. The change in
our effective tax rate for the first six months of 2000 compared with the first
six months of 1999 was primarily the result of our current inability to realize
a tax benefit on the $405 million impairment charges recorded in the first
quarter of 2000 and discussed further in "Note G - Other Operating Charges".
Excluding the impact of these impairment charges, the effective tax rate on
operations was 31.0 percent for the first six months of 2000 which reflects
tax benefits derived from significant operations outside the United States,
which are taxed at rates lower than the U.S. statutory rate of 35 percent.
During the first quarter of 2000, the United States and Japanese taxing
authorities entered into an Advance Pricing Agreement (APA) whereby the level
of royalties paid by Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our
Company has been established for the years 1993 through 2001. Pursuant to the
terms of the APA, our Subsidiary has filed amended returns for the applicable
periods reflecting the negotiated royalty rate. These amended returns resulted
in the payment during the first and second quarters of 2000 of additional
Japanese taxes. The effect on both our financial performance and our effective
tax rate was not material due primarily to offsetting tax credits on our U.S.
income tax return. The majority of the offsetting tax credits are expected to
be realized within the next twelve months.
- 8 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities." The
statement requires all derivatives to be recorded on the balance sheet at
fair value and establishes new accounting rules for hedging instruments.
In June 1999, the FASB deferred the effective date of SFAS No. 133 for one
year, making it now applicable for fiscal years beginning after June 15,
2000. We are currently implementing new information systems as well as
refining existing information systems to ensure compliance with SFAS No.
133 upon adoption. We are currently assessing the financial impact
SFAS No. 133 will have on our Consolidated Financial Statements.
NOTE F - OPERATING SEGMENTS
Effective January 1, 2000, two of our Company's operating segments were
geographically reconfigured and renamed. The Middle East and North Africa
Division was added to the Africa Group, which changed its name to the
Africa and Middle East Group. At the same time the Middle and Far East
Group, less the relocated Middle East and North Africa Division, changed
its name to the Asia Pacific Group. Prior period amounts have been
reclassified to conform to the current period presentation.
Our Company's operating structure includes the following operating
segments: the North America Group (including The Minute Maid Company); the
Africa and Middle East Group; the Greater Europe Group; the Latin America
Group; the Asia Pacific Group; and Corporate. The North America Group
includes the United States and Canada.
- 9 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F - OPERATING SEGMENTS (CONTINUED)
Information about our Company's operations by operating segment, is as
follows:
As of and for the Three Months Ended June 30 (in millions):
<TABLE>
<CAPTION>
Africa
and
North Middle Greater Latin Asia
America East Europe America Pacific Corporate Consolidated
-------- -------- --------- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Net operating
revenues $ 2,111 $ 178 $ 1,315 $ 521 $ 1,481 $ 15 $ 5,621
Operating income(1) 379 30 433 255 474 (286) 1,285
Identifiable
operating
assets 4,851 679 2,027 1,843 2,695 4,728 16,823
Investments 141 372 1,746 1,945 1,424 807 6,435
1999
Net operating
revenues $ 2,025 $ 179 $ 1,345 $ 475 $ 1,281 $ 30 $ 5,335
Operating income 396 30 491 208 424 (159) 1,390
Identifiable
operating
assets 3,966 602 2,144 1,790 2,695 2,992 14,189
Investments 141 351 2,054 1,908 1,754 820 7,028
<FN>
1 Operating income was reduced by $36 million for North America, $6 million for
Africa and Middle East, $32 million for Greater Europe, $4 million for Latin
America, $18 million for Asia Pacific, and $95 million for Corporate as a result
of other operating charges associated with the Company's organizational
realignment.
</FN>
</TABLE>
- 10 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F - OPERATING SEGMENTS (CONTINUED)
As of and for the Six Months Ended June 30 (in millions):
<TABLE>
<CAPTION>
Africa
and
North Middle Greater Latin Asia
America East Europe America Pacific Corporate Consolidated
-------- ------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Net operating
revenues $ 3,908 $ 317 $ 2,293 $ 1,026 $ 2,445 $ 23 $ 10,012
Operating income(1,2) 653 33 781 479 135 (556) 1,525
1999
Net operating
revenues $ 3,702 $ 369 $ 2,434 $ 982 $ 2,184 $ 64 $ 9,735
Operating income 727 82 875 458 685 (293) 2,534
Intercompany transfers between operating segments are not material.
<FN>
1 Operating income was reduced by $3 million for North America, $397 million
for Asia Pacific and $5 million for Corporate as a result of other operating
charges recorded for asset impairments.
2 Operating income was reduced by $79 million for North America, $8 million
for Africa and Middle East, $37 million for Greater Europe, $22 million for
Latin America, $108 million for Asia Pacific, and $212 million for Corporate
as a result of other operating charges associated with the Company's
organizational realignment.
</FN>
</TABLE>
- 11 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES
In the second quarter of 2000, we recorded charges of approximately $191
million related to costs associated with the Company's organizational
Realignment (the Realignment). For the first six months of 2000, we recorded
total charges of approximately $871 million. Of this $871 million,
approximately $405 million related to the impairment of certain bottling,
manufacturing and intangible assets, primarily within our Indian bottling
operations, and approximately $466 million related to the Realignment.
In January 2000, we announced our plans to perform a comprehensive
review of our India bottling franchise investments during the first quarter of
2000 with the intention of streamlining the business and evaluating the carrying
value of the long-lived assets. As a result of this review, we determined
that the long-lived assets within our Indian bottling operations were impaired.
Therefore, an impairment charge of approximately $405 million was recorded in
the first quarter of 2000 to reduce the carrying value of the identified assets
to fair value. Fair value was derived using cash flow analysis. The charge was
primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value
of long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In January 2000, the Company announced that it was undertaking the
Realignment which will reduce our workforce around the world and transfer
responsibilities from our corporate headquarters to local revenue-generating
operating units. The intent of the Realignment is to effectively align our
corporate resources, support systems, and business culture to fully
leverage the local capabilities of our system.
- 12 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES (CONTINUED)
Employees have been separated from almost all functional areas of the
Company's operations including certain activities which have been outsourced
to third parties. The total number of employees separated as of June 30,
2000, was approximately 3,500, of which 1,275 occurred in the second quarter
of 2000. Employees separating from the Company as a result of the Realignment
have been offered severance or early retirement packages, as appropriate, which
include both financial and non-financial components. As further discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the total workforce reduction under the Realignment includes
employees separated from the Company as well as the elimination of open
positions and contract labor. The Realignment expenses include costs
associated with involuntary terminations, voluntary retirements and other direct
costs associated with implementing the Realignment. Other direct costs include
repatriating and relocating employees to local markets, asset write-downs, lease
cancellation costs and costs associated with the development, communication and
administration of the Realignment.
- 13 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES (CONTINUED)
The accrued Realignment expenses and amounts charged against the accrual
were as follows:
As of and for the three months ended June 30 (in millions):
<TABLE>
<CAPTION>
Accrued Non-Cash Accrued
Balance and Balance
March 31 Charge Payments Exchange June 30
-------- ------ -------- -------- -------
DESCRIPTION
-----------
<S> <C> <C> <C> <C> <C>
Employees Involuntarily
Separated
Severance Pay and Benefits $ 50 $ 39 $ (41) $ - $ 48
Outside Services - legal,
outplacement, consulting 9 3 (4) - 8
Other - primarily asset
write-downs - 11 (9) (2) -
--------- ------ -------- -------- -------
Sub-Total Involuntary 59 53 (54) (2) 56
Employees Voluntarily Separated
Special Retirement Pay and
Benefits 129 113 (84) 2 160
Outside Services - legal,
outplacement, consulting 3 - (3) - -
--------- ------ -------- -------- -------
Sub-Total Voluntary 132 113 (87) 2 160
Other Direct Costs 5 25 (11) (6) 13
--------- ------ -------- -------- -------
Total Realignment Costs $ 196 $ 191 $ (152) $ (6) $ 229
========= ======= ======== ======== =======
</TABLE>
- 14-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES (CONTINUED)
As of and for the six months ended June 30 (in millions):
<TABLE>
<CAPTION>
Non-Cash Accrued
and Balance
Charge Payments Exchange June 30
------ -------- -------- -------
DESCRIPTION
-----------
<S> <C> <C> <C> <C>
Employees Involuntarily Separated
Severance Pay and Benefits $ 107 $ (59) $ - $ 48
Outside Services - legal,
outplacement, consulting 15 (7) - 8
Other - primarily asset write-downs 26 (9) (17) -
------ --------- -------- -------
Sub-Total Involuntary 148 (75) (17) 56
Employees Voluntarily Separated
Special Retirement Pay and Benefits 281 (123) 2 160
Outside Services - legal,
outplacement, consulting 4 (4) - -
------ -------- -------- -------
Sub-Total Voluntary 285 (127) 2 160
Other Direct Costs 33 (14) (6) 13
------ -------- -------- -------
Total Realignment Costs $ 466 $ (216) $ (21) $ 229
====== ======== ======== =======
</TABLE>
- 15 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES (CONTINUED)
In December of 1999, the Company recorded a $196 million charge related
to the impairment of the distribution and bottling assets of our vending
operations in Japan and our bottling operations in the Baltics. This charge
reduced the carrying value of these assets to their fair value less cost to
sell. Management has committed to a plan to sell the Company's ownership
interest in these operations during the year 2000. No circumstances have arisen
during the first six months of 2000 to alter management's original expectation
for the disposal of these assets. The remaining carrying value of long-lived
assets within these operations as of June 30, 2000 was $154 million. The income
from these operations on an after-tax basis for the three month and six month
periods ending June 30, 2000, were approximately $4 million and $10 million,
respectively.
NOTE H - CONTINGENT LIABILITIES
In April of 1999, former and current employees who assert that the
Company had systematically discriminated against African Americans in
compensation and promotional practices filed a discrimination lawsuit against
the Company. On June 14, 2000, the Company and the plaintiffs in this
discrimination lawsuit reached an agreement in principle to resolve the case.
The agreement includes additional procedures that will finalize the value of
the case. Until these procedures are complete and the number of class members
who will accept the agreement are known, the Company cannot determine the
ultimate outcome or value of the case. Additionally, court approval of the
final settlement is required.
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the second quarter of 2000, our worldwide unit case volume increased
7 percent on a reported basis and 5 percent on a comparable basis in comparison
to the second quarter of 1999. (Reference to "comparable" changes in unit
case volume are computed based on the exclusion of the Schweppes brands
acquired during the third quarter of 1999.) Our unit case volume for the first
six months of 2000 increased 5 percent on a reported basis and 4 percent on a
comparable basis. The increase in unit case volume reflects improving global
economic conditions and strong growth from brand Coca-Cola. Second quarter
2000 reported unit case volume increased by more than 1 percent for North
America, 5 percent for Africa and Middle East, 13 percent for Greater Europe,
8 percent for Latin America and 8 percent for Asia Pacific. Reported gallon
sales of concentrates and syrups increased by 4 percent in the second quarter
and on a year to date basis to June 30, were consistent with gallon sales
achieved for the same period in 1999. These results were achieved despite
the adverse impact on gallon shipments from the planned reduction of
concentrate inventory by selected bottlers within the Coca-Cola system. In
January 2000, we announced the intention of the Coca-Cola system to reduce
concentrate inventory levels at selected bottlers. This was based on a review
performed in conjunction with bottlers around the world in order to determine
the optimum level of bottler concentrate inventories. Management of the
Coca-Cola system determined that opportunities existed to reduce the level of
concentrate inventory carried by bottlers in selected regions of the world.
As such, bottlers in these regions reduced concentrate inventory levels during
the first six months of 2000, the majority of which occurred during the first
three months. The reduction of concentrate inventory levels by selected
bottlers has been completed.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues increased 5 percent in the second quarter and 3
percent year to date versus comparable periods in the prior year. The increase
reflects improved business conditions, price increases in selected countries and
inclusion of sales revenues from our recently acquired Schweppes brands. The
above was partially offset by the planned inventory reduction by selected
bottlers.
Our gross profit margin for the second quarter of 2000 was 70.2 percent
which was consistent with the gross profit margin recorded for the same
period in 1999. For the first six months of the year, our gross profit margin
was 69.3 percent compared to 70.3 percent for the same period in 1999. The
decrease in our gross profit margin for the first six months of 2000 was due
primarily to a reduced margin from the Asia Pacific Group as a result of the
planned reduction of concentrate inventory levels, primarily by bottlers in
Japan.
- 17 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were approximately $2,468
million in the second quarter of 2000, compared to $2,353 million in the
second quarter of 1999. For the first six months of the year, selling,
administrative and general expenses were $4,541 million compared to $4,306
million for the same period in 1999. The increase during 2000 was due
primarily to higher marketing expenditures in line with the Company's unit
case volume growth and the consolidation in 2000 of F&N Coca-Cola, our
recently acquired bottling operation in Southeast Asia.
OTHER OPERATING CHARGES
In the second quarter of 2000, we recorded charges of approximately
$191 million, or $0.05 per share after tax, related to costs associated with
the Realignment. For the first six months of 2000 we recorded total charges
of approximately $871 million or $0.29 per share after tax. Of this $871
million, approximately $405 million or $0.16 per share after tax, related to
the impairment of certain bottling, manufacturing and intangible assets,
primarily within our Indian bottling operations, and approximately $466
million, or $0.13 per share after tax, related to the Realignment.
In January 2000, we announced our plans to perform a comprehensive
review of our India bottling franchise investments during the first quarter of
2000 with the intention of streamlining the business and evaluating the carrying
value of the long-lived assets. As a result of this review, we determined
that the long-lived assets within our Indian bottling operations were impaired.
Therefore, an impairment charge of approximately $405 million was recorded in
the first quarter of 2000 to reduce the carrying value of the identified assets
to fair value. Fair value was derived using cash flow analysis. The charge
was primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value
of long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In January 2000, the Company announced that it was undertaking the
Realignment which will reduce our workforce around the world and transfer
responsibilities from our corporate headquarters to local revenue-generating
operating units. The intent of the Realignment is to effectively align our
corporate resources, support systems, and business culture to fully
leverage the local capabilities of our system.
- 18 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
OTHER OPERATING CHARGES (CONTINUED)
Employees have been separated from almost all functional areas of the
Company's operations including certain activities which have been outsourced
to third parties. The total number of employees separated as of June 30, 2000,
was approximately 3,500, of which 1,275 occurred in the second quarter of 2000.
Employees separating from the Company as a result of the Realignment have been
offered severance or early retirement packages, as appropriate, which include
both financial and non-financial components. The total workforce reduction
under the Realignment includes employees separated from the Company as well as
the elimination of open positions and contract labor. The Realignment expenses
include costs associated with involuntary terminations, voluntary retirements
and other direct costs associated with implementing the Realignment. Other
direct costs include repatriating and relocating employees to local markets,
asset write-downs, lease cancellation costs and costs associated with the
development, communication and administration of the Realignment.
The organizational Realignment is proceeding as planned and we believe
that approximately 5,200 positions worldwide, including employees of the
Company, open positions and contract labor, will be eliminated during calendar
year 2000. The Company estimates that as a result of the Realignment, we will
incur total costs pretax of approximately $725 million in calendar year 2000,
inclusive of the $466 million charge incurred during the first six months of
2000.
- 19 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
OPERATING INCOME AND OPERATING MARGIN
Operating income was $1,285 million in the second quarter of 2000,
compared to $1,390 million in the second quarter of 1999. Our consolidated
operating margin for the second quarter of 2000 was 22.9 percent, compared to
26.1 percent for the comparable period in 1999. Operating income and operating
margin for the six months ended June 30, 2000 were $1,525 million and 15.2
percent, respectively, compared to $2,534 million and 26.0 percent for the six
months ended June 30, 1999. The first six months 2000 results reflect the
recording of approximately $871 million in charges as discussed under the
heading, "Other Operating Charges", as well as the effect of the previously
discussed planned reduction of concentrate inventory by selected bottlers
within the Coca-Cola system.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased approximately 53 percent to $98 million in
the second quarter of 2000 relative to the comparable period in 1999, and by
approximately 29 percent to $165 million year to date at June 30, 2000, due
primarily to higher average cash balances and higher interest rates.
Interest expense increased approximately 53 percent to $119 million in the
second quarter of 2000 relative to the comparable period in 1999, and by
approximately 41 percent to $218 million year to date at June 30, 2000, due
to both an increase in average commercial paper debt balances and higher
interest rates.
EQUITY INCOME (LOSS) - NET
Our Company's share of income from equity method investments for the
second quarter of 2000 totaled $71 million, compared to $12 million in the
second quarter of 1999. For the first six months of 2000, our Company's
share of losses from equity method investments totaled $14 million, compared
to $83 million for the comparable period in 1999. The increase in our Company's
share of income from equity method investments and the decrease in our Company's
share of losses from equity method investments were due primarily to an overall
improvement in the operating performance by our portfolio of bottlers. In
addition, our Company's 1999 equity income was adversely affected by the
temporary product withdrawal in Belgium and France. Our Company's share of
Coca-Cola Enterprises' nonrecurring product recall costs resulting from the
product withdrawal was approximately $28 million in the second quarter of
1999.
- 20 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME (LOSS) - NET
Other income (loss) - net increased to income of $7 million for the
second quarter of 2000 compared to a $22 million loss for the second quarter of
1999. Other income (loss) - net decreased to a $19 million loss for the first
six months of 2000 compared to $24 million income for the comparable period in
1999. The changes in other income (loss) - net in all periods discussed above
were due primarily to foreign currency gains and losses.
INCOME TAXES
Our effective tax rate was 31.0 percent for the second quarters of 2000
and 1999. The effective tax rate was 39.7 percent for the first six months of
2000 compared to 31.0 percent for the first six months of 1999. The change in
our effective tax rate for the first six months of 2000 compared with the first
six months of 1999 was primarily the result of our current inability to
realize a tax benefit on the $405 million impairment charges recorded in the
first quarter of 2000 and as previously discussed under the heading "Other
Operating Charges". Excluding the impact of these impairment charges, the
effective tax rate on operations was 31.0 percent for the first six months of
2000 which reflects tax benefits derived from significant operations outside
the United States, which are taxed at rates lower than the U.S. statutory rate
of 35 percent.
During the first quarter of 2000, the United States and Japanese taxing
authorities entered into an Advance Pricing Agreement (APA) whereby the level
of royalties paid by Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our
Company has been established for the years 1993 through 2001. Pursuant to the
terms of the APA, our Subsidiary has filed amended returns for the applicable
periods reflecting the negotiated royalty rate. These amended returns resulted
in the payment during the first and second quarters of 2000 of additional
Japanese taxes, the effect of which on both our financial performance and our
effective tax rate was not material, due primarily to offsetting tax credits on
our U.S. income tax return. The majority of the offsetting tax credits are
expected to be realized within the next twelve months.
- 21 -
<PAGE>
FINANCIAL CONDITION
NET CASH FLOW USED IN OPERATIONS AFTER REINVESTMENT
In the first six months of 2000, net cash provided by operations after
reinvestment totaled $312 million compared to $285 million in net cash provided
by operations after reinvestment for the comparable period in 1999.
Net cash provided by operating activities in the first six months of
2000 amounted to $1,231 million, a $520 million decrease compared to the first
six months of 1999. The decrease was due primarily to the previously mentioned
planned inventory reduction by selected bottlers, as well as cash payments
made to separated employees under the Realignment, and additional Japanese
tax payments made pursuant to the terms of the APA, all of which have been
previously discussed under the headings "Beverage Volume", "Other Operating
Charges" and "Income Taxes", respectively.
Net cash used in investing activities totaled $919 million for the first
six months of 2000 compared to $1,466 million in net cash used in investing
activities for the first six months of 1999. The decrease was primarily the
result of a reduction in trademark and bottling company acquisition activity.
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments and
share issuances and repurchases. Net cash provided by financing activities
totaled $955 million for the first six months of 2000 compared to $410 million
for the first six months of 1999. This increase was due primarily to additional
net borrowings and the timing of the second quarter 2000 dividend payment. The
increase in net borrowings was due primarily to the impact on cash from the
planned inventory reduction by selected bottlers, our costs associated with the
Realignment, and the satisfaction of tax obligations pursuant to the terms of
the APA, all of which have been previously discussed under the headings
"Beverage Volume", "Other Operating Charges" and "Income Taxes", respectively.
- 22 -
<PAGE>
FINANCIAL CONDITION (CONTINUED)
FINANCING ACTIVITIES (CONTINUED)
Cash used to purchase common stock for treasury was $123 million for the
first six months of 2000, compared to $9 million for the first six months of
1999. The increase in treasury stock repurchases was due primarily to the
repurchase of shares from employees pursuant to the provisions of the Company's
Stock Option and Restricted Stock Award Plans. During the first six months of
2000, our Company did not repurchase any of our Company's common stock under the
stock repurchase plan authorized by our Board of Directors in October 1996 (the
"1996 Plan") due to our utilization of cash as explained above. The Company
will reevaluate its cash needs in the second half of 2000 for purposes of
determining whether to repurchase any of our Company's common stock pursuant
to the 1996 Plan.
FINANCIAL POSITION
The decrease in our investment in other equity affiliates was due primarily
to the consolidation of F&N Coca-Cola Pte Limited effective January 1, 2000,
previously recorded as an equity investment. In 1999, our Company increased
its ownership interest in F&N Coca-Cola Pte Limited from 25 percent to 100
percent.
The increase in accounts payable and accrued expenses is due primarily
to the accrual at June 30, 2000 for both Realignment expenses and the second
quarter 2000 dividend, which was paid on July 1, 2000.
The increase in loans and notes payable was due primarily to additional
funding required as a result of the planned inventory reduction by selected
bottlers, and in order to meet our cash commitments in connection with both
the Realignment and the terms of the APA, all of which have been previously
discussed under the headings "Beverage Volume", "Other Operating Charges"
and "Income Taxes", respectively.
RECENT DEVELOPMENTS
In April of 1999, former and current employees who assert that the
Company had systematically discriminated against African Americans in
compensation and promotional practices filed a discrimination lawsuit against
the Company. On June 14, 2000, the Company and the plaintiffs in this
discrimination lawsuit reached an agreement in principle to resolve the case.
The agreement includes additional procedures that will finalize the value of
the case. Until these procedures are complete and the number of class members
who will accept the agreement are known, the Company cannot determine the
ultimate outcome or value of the case. Additionally, court approval of the
final settlement is required.
- 23 -
<PAGE>
FINANCIAL CONDITION (CONTINUED)
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 the continuity of contracts; and modifying our
processes for preparing tax, accounting, payroll and customer records.
Based on our work to date, we believe the Euro replacing the other
currencies will not have a material impact on our operations or our Consolidated
Financial Statements.
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and governmental actions. We closely
monitor our operations in each country and seek to adopt appropriate strategies
that are responsive to changing economic and political environments and to
fluctuations in foreign currencies. In the second quarter of 2000, the U.S.
dollar was approximately 3 percent stronger versus a weighted average of all of
our functional currencies. This does not include the effects of our hedging
activities. Our foreign currency management program mitigates over time a
portion of the impact of exchange on net income and earnings per share, and
did not have a significant impact in either the second quarter of 2000 or the
six months ending June 30, 2000.
- 24 -
<PAGE>
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. Generally, the words "believe," "expect,"
"intend," "estimate," "anticipate," "will" and similar expressions identify
forward-looking statements. All statements which address operating performance,
events or developments that we expect or anticipate will occur in the future -
including statements relating to volume growth, share of sales and earnings
per share growth and statements expressing general optimism about future
operating results - are forward-looking statements 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, and speak only as of their dates. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
The following are some of the factors that could 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.
- 25 -
<PAGE>
FORWARD-LOOKING STATEMENTS (CONTINUED)
- Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are more
profitable than others. There can be no assurance that we will achieve the
projected level or mix of product sales.
- Interest rate fluctuations and other capital market conditions, including
foreign currency rate fluctuations. Most of our exposures to capital
markets, including interest and foreign currency, are managed on a
consolidated basis, which allows us to net certain exposures and, thus,
take advantage of any natural offsets. We use derivative financial
instruments to reduce our net exposure to financial risks. There can be
no assurance, however, that our financial risk management program will
be successful in reducing foreign currency exposures.
- Economic and political conditions 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 to resolve issues relating to introduction of the European
Union's common currency (the Euro) in a timely fashion.
The foregoing list of important factors is not exclusive.
- 26 -
<PAGE>
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
report on Form 10-K for the year ended December 31, 1999.
- 27 -
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the six months ended
June 30, 2000, submitted to the Securities and
Exchange Commission in electronic format.
(b) Reports on Form 8-K:
No report on Form 8-K has been filed by the Registrant during the
quarter for which this report is filed.
- 28 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: July 27, 2000 By: /s/ Connie D. McDaniel
--------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
- 29 -
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the six months ended
June 30, 2000, submitted to the Securities and
Exchange Commission in electronic format.
<PAGE>
