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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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. 1-2217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 October 13, 2000
--------------------- -------------------------------
$.25 Par Value 2,479,789,741 Shares
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<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 2000
and 1999 5
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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 29
Part II. Other Information
Item 1. Legal Proceedings 30
Item 6. Exhibits and Reports on Form 8-K 31
- 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>
September 30, December 31,
2000 1999
---------------- --------------
<S> <C> <C>
CURRENT
Cash and cash equivalents $ 2,945 $ 1,611
Marketable securities 161 201
--------------- ---------------
3,106 1,812
Trade accounts receivable, less
allowances of $41 at September 30
and $26 at December 31 1,802 1,798
Inventories 1,101 1,076
Prepaid expenses and other assets 1,990 1,794
--------------- ---------------
TOTAL CURRENT ASSETS 7,999 6,480
--------------- ---------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 772 728
Coca-Cola Amatil Ltd 1,020 1,133
Hellenic Bottling Company S.A. 844 788
Other, principally bottling
companies 3,400 3,793
Cost method investments,
principally bottling companies 490 350
Marketable securities and other
assets 2,383 2,124
--------------- ---------------
8,909 8,916
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT
Land 225 215
Buildings and improvements 1,658 1,528
Machinery and equipment 4,714 4,527
Containers 187 201
--------------- ---------------
6,784 6,471
Less allowances for depreciation 2,504 2,204
--------------- ---------------
4,280 4,267
--------------- ---------------
GOODWILL AND OTHER INTANGIBLE ASSETS 1,953 1,960
--------------- ---------------
$ 23,141 $ 21,623
=============== ===============
</TABLE>
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<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- --------------
<S> <C> <C>
CURRENT
Accounts payable and accrued
expenses $ 4,520 $ 3,714
Loans and notes payable 5,642 5,112
Current maturities of long-term
debt 257 261
Accrued income taxes 672 769
--------------- ---------------
TOTAL CURRENT LIABILITIES 11,091 9,856
--------------- ---------------
LONG-TERM DEBT 851 854
--------------- ---------------
OTHER LIABILITIES 895 902
--------------- ---------------
DEFERRED INCOME TAXES 456 498
--------------- ---------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,476,470,269 shares at
September 30; 3,466,371,904
shares at December 31 869 867
Capital surplus 2,882 2,584
Reinvested earnings 21,446 20,773
Accumulated other comprehensive
income and unearned compensation
on restricted stock (2,059) (1,551)
-------------- ---------------
23,138 22,673
Less treasury stock, at cost
(997,077,630 shares at
September 30;
994,796,786 shares at
December 31) 13,290 13,160
--------------- ---------------
9,848 9,513
--------------- ---------------
$ 23,141 $ 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 September 30, Nine Months Ended September 30,
------------------------------------ -----------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<C> <C> <C> <C>
NET OPERATING REVENUES $ 5,543 $ 5,139 $ 15,555 $ 14,874
Cost of goods sold 1,736 1,650 4,811 4,545
------------ ------------ ------------ ------------
GROSS PROFIT 3,807 3,489 10,744 10,329
Selling, administrative and
general expenses 2,386 2,390 6,927 6,696
Other operating charges 94 - 965 -
------------ ------------ ------------ ------------
OPERATING INCOME 1,327 1,099 2,852 3,633
Interest income 92 62 257 190
Interest expense 120 89 338 244
Equity income (loss) - net 63 11 49 (72)
Other income - net 121 58 102 82
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,483 1,141 2,922 3,589
Income taxes 416 354 987 1,113
------------ ------------ ------------ ------------
NET INCOME $ 1,067 $ 787 $ 1,935 $ 2,476
============ ============ ============ ============
BASIC NET INCOME
PER SHARE $ .43 $ .32 $ .78 $ 1.00
============ ============ ============ ============
DILUTED NET INCOME
PER SHARE $ .43 $ .32 $ .78 $ 1.00
============ ============ ============ ============
DIVIDENDS PER SHARE $ .17 $ .16 $ .51 $ .48
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING 2,478 2,469 2,475 2,468
============ ============ ============ ============
Dilutive effect of
stock options 11 16 9 19
------------ ------------ ------------ ------------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,489 2,485 2,484 2,487
============ ============ ============ ============
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE>
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,935 $ 2,476
Depreciation and amortization 572 609
Deferred income taxes (43) 19
Equity income or loss, net of dividends 28 157
Foreign currency adjustments 110 12
Other operating charges 655 -
Other items (78) 93
Net change in operating assets and
liabilities (600) (470)
------------ ------------
Net cash provided by operating activities 2,579 2,896
------------ ------------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (284) (1,789)
Purchases of investments and other assets (271) (366)
Proceeds from disposals of investments
and other assets 111 86
Purchases of property, plant and equipment (571) (788)
Proceeds from disposals of property, plant
and equipment 17 24
Other investing activities 62 (108)
------------ ------------
Net cash used in investing activities (936) (2,941)
------------ ------------
Net cash provided by (used in)
operations after reinvestment 1,643 (45)
------------ ------------
FINANCING ACTIVITIES
Issuances of debt 2,902 1,133
Payments of debt (2,397) (44)
Issuances of stock 243 120
Purchases of stock for treasury (130) (9)
Dividends (841) (1,140)
------------ ------------
Net cash(used in) provided by
financing activities (223) 60
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (86) (161)
------------ ------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the period 1,334 (146)
Balance at beginning of period 1,611 1,648
------------ ------------
Balance at end of period $ 2,945 $ 1,502
============ ============
<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 nine month period
ended September 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 third quarter 2000 was $973 million,
comprising Net Income of $1,067 million, an increase in the unrealized gain on
available-for-sale securities of approximately $3 million, offset by a net
reduction for foreign currency translation of approximately $97 million.
Total comprehensive income was $763 million in the third quarter of 1999.
- 7 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE C - COMPREHENSIVE INCOME (CONTINUED)
For the first nine months of 2000, total comprehensive income was $1,404
million comprising Net Income of $1,935 million offset by a net reduction for
foreign currency translation of approximately $475 million and a net decrease in
the unrealized gain on available-for-sale securities of approximately $56
million. Total comprehensive income was $1,969 million for the first nine months
of 1999, comprising Net Income of $2,476 million, a net increase in the
unrealized gain on available-for-sale securities of approximately $18 million,
offset by a net reduction for foreign currency translation of approximately $525
million.
NOTE D - INCOME TAXES
Our effective tax rate was 28.1 percent for the third quarter of 2000
compared to 31.0 percent for the third quarter of 1999. The reduction in our
effective tax rate for the third quarter of 2000 compared with the third quarter
of 1999 was due primarily to the recognition of a tax free gain of approximately
$118 million upon the merger of Coca-Cola Beverages plc and Hellenic Bottling
Company S.A. This transaction is discussed further in "Note H - Other Income -
Net". The effective tax rate was 33.8 percent for the first nine months of 2000
compared to 31.0 percent for the first nine months of 1999. The change in our
effective tax rate for the first nine months of 2000 compared with the first
nine 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 as discussed further in "Note G - Other Operating Charges",
partially offset by the tax free gain of $118 million referred to above.
Excluding the impact of these two transactions, the effective tax rate on
operations was 30.8 percent for the first nine 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.
- 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 "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, FASB issued Statement of
Financial Accounting Standards No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133." These statements require all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting rules for hedging instruments
and are effective for fiscal years beginning after June 15, 2000. We are
currently implementing new information systems as well as refining existing
information systems to ensure we are in compliance with these statements upon
adoption. We believe that these statements will not have a material financial
impact upon our annual consolidated financial results. However, the requirements
of these Accounting Standards may result in slightly increased volatility in the
Company's future quarterly consolidated financial results.
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 September 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 $ 2,044 $ 199 $ 1,189 $ 560 $ 1,519 $ 32 $ 5,543
Operating income(1) 384 41 353 275 447 (173) 1,327
Identifiable
operating
assets 4,185 629 1,491 1,568 2,216 6,526 16,615
Investments 143 364 1,814 1,957 1,404 844 6,526
1999
----
Net operating
revenues $ 1,954 $ 204 $ 1,141 $ 463 $ 1,303 $ 74 $ 5,139
Operating income 304 43 307 164 396 (115) 1,099
Identifiable
operating
assets 3,641 596 1,874 1,505 2,418 4,680 14,714
Investments 142 361 2,063 1,849 1,783 834 7,032
<FN>
1 Operating income was reduced by $17 million for North America, $5 million
for Africa and Middle East, $29 million for Greater Europe, $7 million for
Latin America, $8 million for Asia Pacific, and $28 million for Corporate
as a result of other operating charges associated with the Company's
organizational realignment (the Realignment).
</FN>
</TABLE>
- 10 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE F - OPERATING SEGMENTS (CONTINUED)
As of and for the Nine Months Ended September 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 $ 5,952 $ 516 $ 3,482 $ 1,586 $ 3,964 $ 55 $ 15,555
Operating income(1,2) 1,037 74 1,134 754 582 (729) 2,852
1999
----
Net operating
revenues $ 5,656 $ 573 $ 3,575 $ 1,445 $ 3,487 $ 138 $ 14,874
Operating income 1,030 125 1,182 622 1,081 (407) 3,633
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 $96 million for North America, $13 million
for Africa and Middle East, $66 million for Greater Europe, $29 million for
Latin America, $116 million for Asia Pacific, and $240 million for
Corporate as a result of other operating charges associated with the
Company's Realignment.
</FN>
</TABLE>
- 11 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES
In the third quarter of 2000, we recorded charges of approximately $94
million related to costs associated with the Company's Realignment. For
the first nine months of 2000, we recorded total charges of approximately
$965 million. Of this $965 million, approximately $405 million related to the
impairment of certain bottling, manufacturing and intangible assets, primarily
within our Indian bottling operations, and approximately $560 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 is reducing our workforce around the world and transferring
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 that have been outsourced to
third parties. The total number of employees separated as of September 30, 2000,
was approximately 4,000, of which approximately 500 occurred in the third
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 September 30, 2000 (in millions):
<TABLE>
<CAPTION>
Accrued Non-Cash Accrued
Balance and Balance
June 30 Charge Payments Exchange September 30
------- ------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Description
-----------
Employees Involuntarily
Separated
Severance Pay and Benefits $ 48 $ 24 $ (29) $ (1) $ 42
Outside Services - legal,
outplacement, consulting 8 5 (4) - 9
Other - including asset
write-downs - 6 (6) - -
------- ------ -------- -------- ---------
Sub-Total Involuntary 56 35 (39) (1) 51
Employees Voluntarily Separated
Special Retirement Pay and
Benefits 160 24 (19) (4) 161
Outside Services - legal,
outplacement, consulting - 1 (1) - -
------- ------ -------- -------- ---------
Sub-Total Voluntary 160 25 (20) (4) 161
Other Direct Costs 13 34 (35) - 12
------- ------ -------- -------- --------
Total Realignment Costs $ 229 $ 94 $ (94) $ (5) $ 224
======= ======= ========= ======== ========
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE G - OTHER OPERATING CHARGES (CONTINUED)
As of and for the nine months ended September 30, 2000 (in millions):
<TABLE>
<CAPTION>
Non-Cash Accrued
and Balance
Charge Payments Exchange September 30
------ -------- -------- ------------
<S> <C> <C> <C> <C>
Description
-----------
Employees Involuntarily Separated
Severance Pay and Benefits $ 131 $ (88) $ (1) $ 42
Outside Services - legal,
outplacement, consulting 20 (11) - 9
Other - including asset write-downs 32 (15) (17) -
-------- -------- -------- -------
Sub-Total Involuntary 183 (114) (18) 51
Employees Voluntarily Separated
Special Retirement Pay and Benefits 305 (142) (2) 161
Outside Services - legal,
outplacement, consulting 5 (5) - -
-------- -------- -------- -------
Sub-Total Voluntary 310 (147) (2) 161
Other Direct Costs 67 (49) (6) 12
-------- -------- -------- --------
Total Realignment Costs $ 560 $ (310) $ (26) $ 224
======== ========= ========= ========
</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
nine 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 September 30, 2000 was $161 million. The income from these
operations on an after-tax basis for the three month and nine month periods
ending September 30, 2000, was approximately $7 million and $17 million,
respectively.
NOTE H - OTHER INCOME -NET
Other income - net was approximately $121 million for the third quarter of
2000 compared to $58 million for the third quarter of 1999. During the third
quarter of 2000 Coca-Cola Beverages plc and Hellenic Bottling Company S.A.
merged, resulting in a decrease of The Coca-Cola Company's equity ownership
interest from approximately 50.5 percent of Coca-Cola Beverages plc to
approximately 24 percent of the combined entity, Hellenic Bottling Company S.A.
As a result of our Company's decreased equity ownership, a tax free non-cash
gain of approximately $118 million was recognized.
NOTE I - 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 third quarter of 2000, our worldwide unit case volume increased 4
percent and gallon sales of concentrates and syrups increased 8 percent in
comparison to the third quarter of 1999. During the quarter, gallon sales were
consistent with unit case shipments. However, percentage changes were impacted
by prior year comparisons. The increase in unit case volume reflects improving
global economic conditions and successful implementation of local marketing
programs. Third quarter 2000 unit case volume was unchanged for North America,
and increased by approximately 3 percent for Africa and Middle East, 5 percent
for Greater Europe, 4 percent for Latin America and 10 percent for Asia Pacific.
Our unit case volume and gallon sales increased 5 percent and 3 percent
respectively, for the first nine months of 2000, compared to even unit case
volume and a decrease of 3 percent for gallon sales for the first nine months of
1999. These results were achieved despite the adverse impact on gallon sales
from the planned reduction of concentrate inventory by selected bottlers within
the Coca-Cola system completed during the first six months of 2000.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues increased 8 percent in the third quarter and 5
percent year to date versus comparable periods in the prior year. These
increases are consistent with the increases in worldwide gallon sales and
reflect improved business conditions and price increases in selected countries,
partially offset by the negative impact of a stronger U.S. dollar and the
planned inventory reduction by selected bottlers.
Our gross profit margin increased to 68.7 percent in the third quarter of
2000 from 67.9 percent in the third quarter of 1999. The increase in gross
profit margin for the third quarter of 2000 was due to increased gallon sales in
higher margin regions. For the first nine months of the year, our gross profit
margin was 69.1 percent compared to 69.4 percent for the same period in 1999.
- 17 -
<PAGE>
RESULTS OF OPERATIONS (Continued)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were approximately $2,386
million in the third quarter of 2000, compared to $2,390 million in the third
quarter of 1999. As a result of the gain recognized in the third quarter of
2000, from the merger of Coca-Cola Beverages plc and Hellenic Bottling Company
S.A., discussed in "Other Income - Net", the Company invested approximately
$30 million or $0.01 per share after tax, in incremental marketing initiatives
in Hellenic Bottling Company S.A. regions. For the first nine months of the
year, selling, administrative and general expenses were $6,927 million compared
to $6,696 million for the same period in 1999. The increase during the first
nine months of 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 third quarter of 2000, we recorded charges of approximately $94
million, or $0.03 per share after tax, related to costs associated with the
Realignment. For the first nine months of 2000, we recorded total charges of
approximately $965 million or $0.32 per share after tax. Of this $965 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 $560 million, or $0.16
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.
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<PAGE>
RESULTS OF OPERATIONS (Continued)
OTHER OPERATING CHARGES (CONTINUED)
In January 2000, the Company announced that it was undertaking the
Realignment, which is reducing our workforce around the world and transferring
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.
Employees have been separated from almost all functional areas of the
Company's operations including certain activities that have been outsourced to
third parties. The total number of employees separated as of September 30, 2000,
was approximately 4,000, of which approximately 500 occurred in the third
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 $560 million charge incurred during the first nine months of 2000.
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<PAGE>
RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income was $1,327 million in the third quarter of 2000, compared
to $1,099 million in the third quarter of 1999. Our consolidated operating
margin for the third quarter of 2000 was 23.9 percent, compared to 21.4 percent
for the comparable period in 1999. The increases in third quarter operating
income and margin were due primarily to the 8 percent increase in net operating
revenues as well as tight control of operating expenses and savings generated
from the Company's Realignment. Operating income and operating margin for the
nine months ended September 30, 2000 were $2,852 million and 18.3 percent,
respectively, compared to $3,633 million and 24.4 percent for the nine
months ended September 30, 1999. The first nine months 2000 results reflect the
recording of approximately $965 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 which was completed in the first half of 2000.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased approximately 48 percent to $92 million in the
third quarter of 2000, and by approximately 35 percent to $257 million year to
date at September 30, 2000, relative to the comparable periods in 1999, due
primarily to higher average cash balances and higher interest rates. Interest
expense increased approximately 35 percent to $120 million in the third quarter
of 2000, and by approximately 39 percent to $338 million year to date at
September 30, 2000, relative to the comparable periods in 1999, 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 third
quarter of 2000 totaled $63 million, compared to $11 million in the third
quarter of 1999. For the first nine months of 2000, our Company's share of
income from equity method investments totaled $49 million, compared to an equity
loss of $72 million for the comparable period in 1999. The increases were due
primarily to an overall improvement in 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 - NET
Other income - net was approximately $121 million for the third quarter of
2000 compared to $58 million for the third quarter of 1999. During the third
quarter of 2000 Coca-Cola Beverages plc and Hellenic Bottling Company S.A.
merged, resulting in a decrease of The Coca-Cola Company's equity ownership
interest from approximately 50.5 percent of Coca-Cola Beverages plc to
approximately 24 percent of the combined entity, Hellenic Bottling Company S.A.
As a result of our Company's decreased equity ownership a tax free non-cash gain
of approximately $118 million or $0.05 per share after tax was recognized. Other
income - net was approximately $102 million for the first nine months of 2000
compared to approximately $82 million for the comparable period in 1999. This
increase was due primarily to the gain of approximately $118 million discussed
above, offset by a foreign currency gain recognized in the third quarter of 1999
attributable to the hedging of our resources in Brazil.
INCOME TAXES
Our effective tax rate was 28.1 percent for the third quarter of 2000
compared to 31.0 percent for the third quarter of 1999. The reduction in our
effective tax rate for the third quarter of 2000 compared with the third quarter
of 1999 was due primarily to the recognition of a tax free gain of approximately
$118 million upon the merger of Coca-Cola Beverages plc and Hellenic Bottling
Company S.A. This transaction has been previously discussed under the heading
"Other Income - Net". The effective tax rate was 33.8 percent for the first nine
months of 2000 compared to 31.0 percent for the first nine months of 1999. The
change in our effective tax rate for the first nine months of 2000 compared with
the first nine 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", partially offset by the tax free gain of $118 million
referred to above. Excluding the impact of these two transactions, the effective
tax rate on operations was 30.8 percent for the first nine 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.
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<PAGE>
RESULTS OF OPERATIONS (Continued)
INCOME TAXES (CONTINUED)
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.
- 22 -
<PAGE>
FINANCIAL CONDITION
NET CASH FLOW USED IN OPERATIONS AFTER REINVESTMENT
In the first nine months of 2000, net cash provided by operations after
reinvestment totaled $1,643 million compared to $45 million in net cash used in
operations after reinvestment for the comparable period in 1999.
Net cash provided by operating activities in the first nine months of 2000
amounted to $2,579 million, a $317 million decrease compared to the first nine
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 $936 million for the first
nine months of 2000 compared to $2,941 million in net cash used in investing
activities for the first nine months of 1999. The decrease was primarily the
result of a reduction in trademark and bottling company acquisition activity. In
the first nine months of 1999, the Company's acquisition and investment
activity, which included the acquisition of beverage brands from Cadbury
Schweppes plc in 156 countries around the world and investments in the
bottling operations of Embotelladora Arica S.A., and Coca-Cola West Japan
Company, Ltd., totaled approximately $1,789 million.
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments and
share issuances and repurchases. Net cash used in financing activities totaled
$223 million for the first nine months of 2000 compared with net cash provided
by financing activities of $60 million during the first nine months of 1999. The
decrease was due primarily to a reduction in net borrowings of $584 million for
the first nine months of 2000 compared with 1999. In 1999, the Company increased
its commercial paper borrowings to facilitate the acquisition of Cadbury
Schweppes brands and carbonated soft drink businesses.
Cash used for payment of dividends was $841 million for the first nine
months of 2000, compared to $1,140 million for the first nine months of 1999.
This decrease is due to the timing of the third quarter 2000 dividend, which was
paid on October 1, 2000.
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<PAGE>
FINANCIAL CONDITION (Continued)
FINANCING ACTIVITIES (CONTINUED)
Cash used to purchase common stock for treasury was $130 million for the
first nine months of 2000, compared to $9 million for the first nine 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 nine 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"). The Company remains committed to the stock repurchase plan. In the
fourth quarter of 2000, we will reevaluate our cash needs and resources for
purposes of determining when to recommence purchases 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 Ltd effective January 1, 2000,
previously recorded as an equity investment. In 1999, our Company increased its
ownership interest in F&N Coca-Cola Pte Ltd from 25 percent to 100 percent.
The increase in accounts payable and accrued expenses is due primarily to
the accrual at September 30, 2000 for both Realignment expenses and the third
quarter 2000 dividend, which was paid on October 1, 2000.
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.
- 24 -
<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. The U.S. dollar was approximately 2 percent
and 4 percent stronger respectively, versus a weighted average of all of our
functional currencies for the three and nine month periods ending September
2000. 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 third quarter of 2000 or the nine months ended September
30, 2000.
- 25 -
<PAGE>
EXCHANGE (CONTINUED)
The Company will continue to manage its foreign currency exposures to
mitigate over time a portion of the impact of exchange on net income and
earnings per share. Our Company conducts business in over 200 countries around
the world and we manage foreign currency exposures through the portfolio
effect of the basket of functional currencies in which we do business. The Euro
comprises one significant currency in our portfolio. For the fourth quarter of
2000, the Company has continued to hedge its foreign currency exposure to
movements in the Euro versus the U.S. dollar. However, at the date of this
report our Company has hedged only an immaterial amount of its 2001 Euro foreign
currency exposure. For so long as this remains the case, fluctuations in
exchange rates for the Euro versus the U.S. dollar will impact the Company's
2001 net income and earnings per share to a greater degree than the fourth
quarter of 2000.
- 26 -
<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.
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<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.
- 28 -
<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.
- 29 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings:
As reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, 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 alleged 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 totaled approximately U.S. $302
million as of the assessment date (based on exchange rates as of February 4,
2000) and accrued interest from the assessment 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
was subject to an automatic ex officio appeal ("recurso ex-officio") on the
Federal Revenue Service's behalf to the Taxpayers Council in Brazilia. On
August 16, 2000, the case was heard by the Taxpayers Council, which unanimously
decided in Recofarma's favor. The period within which the Federal Revenue
Service may appeal the decision expires on November 6, 2000. Since the decision
was unanimous, Recofarma considers an appeal by the Federal Revenue Service as
unlikely.
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.
- 30 -
<PAGE>
Part II. Other Information (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the nine months ended
September 30, 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.
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<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: October 27, 2000 By: /s/ Connie D. McDaniel
-----------------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
- 32 -
<PAGE>
Exhibit Index
Exhibit Number and Description
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the nine months ended
September 30, 2000, submitted to the Securities and
Exchange Commission in electronic format.
<PAGE>
