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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 SeptemberJune 30, 20022003
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 by check mark whether the registrantRegistrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 OctoberJuly 25, 20022003
--------------------- -----------------------------------------------------------
$.25 Par Value 2,479,112,7032,457,779,425 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Page Number
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three and ninesix months ended SeptemberJune 30, 20022003 and 20012002 3
Condensed Consolidated Balance Sheets
SeptemberJune 30, 20022003 and December 31, 20012002 5
Condensed Consolidated Statements of Cash Flows
NineSix months ended SeptemberJune 30, 20022003 and 20012002 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2524
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 4039
Item 4. Controls and Procedures 4039
Part II. Other Information
Item 1. Legal Proceedings 41
Item 6. Exhibits and Reports on Form 8-K 4240
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended SeptemberJune 30, NineSix Months Ended SeptemberJune 30,
-------------------------------- ---------------------------------------------------------- -------------------------
2003 2002 20012003 2002
2001
---------- ---------- ---------- ----------------- -------- -------- --------
NET OPERATING REVENUES $ 5,3225,691 $ 4,6955,368 $ 14,76910,189 $ 13,3079,447
Cost of goods sold 2,083 1,692 5,404 4,616
---------- ---------- ---------- ---------2,113 1,927 3,715 3,321
-------- -------- -------- --------
GROSS PROFIT 3,239 3,003 9,365 8,6913,578 3,441 6,474 6,126
Selling, general and
administrative and
general expenses 1,694 1,692 4,915 4,587
---------- ---------- ---------- ---------1,906 1,881 3,567 3,408
Other operating charges 70 - 229 -
-------- -------- -------- --------
OPERATING INCOME 1,545 1,311 4,450 4,1041,602 1,560 2,678 2,718
Interest income 46 68 156 22745 52 101 110
Interest expense 52 66 156 23443 58 88 104
Equity income (loss) - net 113 104 350 167190 176 239 237
Other income (loss) - net (62) 26 (292) 23
Gain on issuances of stock
by equity investee - 91 - 91
---------- ---------- ---------- ---------(44) (55) (57) (230)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,590 1,534 4,508 4,3781,750 1,675 2,873 2,731
Income taxes 429 460 1,256 1,313
---------- ---------- ---------- ---------388 452 676 776
-------- -------- -------- --------
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 1,161 1,074 3,252 3,0651,362 1,223 2,197 1,955
Cumulative effect of
accounting change for SFAS
No. 142, net of income taxes:
Company operations - - - (367) -
Equity investees - - - (559)
-
Cumulative effect of
accounting change for SFAS
No. 133, net of income taxes - - - (10)
---------- ---------- ---------- ----------------- -------- -------- --------
NET INCOME $ 1,1611,362 $ 1,0741,223 $ 2,3262,197 $ 3,055
========== ========== ========== =========1,029
======== ======== ======== ========
BASIC NET INCOME PER SHARE:SHARE (1):
Before accounting change $ .47.55 $ .43.49 $ 1.31.89 $ 1.23.79
Cumulative effect of
accounting change - - - (.37)
-
---------- ---------- ---------- ----------------- -------- -------- --------
$ .47.55 $ .43.49 $ .94.89 $ 1.23
========== ========== ========== =========.41
======== ======== ======== ========
3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended SeptemberJune 30, NineSix Months Ended SeptemberJune 30,
-------------------------------- ---------------------------------------------------------- -------------------------
2003 2002 20012003 2002
2001
---------- ---------- ---------- ----------------- -------- -------- --------
DILUTED NET INCOME PER SHARE:SHARE (1):
Before accounting change $ .47.55 $ .43.49 $ 1.31.89 $ 1.23.79
Cumulative effect of
accounting change - - - (.37)
-
---------- ---------- ---------- ----------------- -------- -------- --------
$ .47.55 $ .43.49 $ .94.89 $ 1.23
========== ========== ========== =========.41
======== ======== ======== ========
DIVIDENDS PER SHARE $ .22 $ .20 $ .18.44 $ .60 $ .54
========== ========== ========== =========.40
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 2,463 2,479 2,488 2,4812,466 2,480
Dilutive effect of
stock options 3 8 3 6
-------- -------- -------- --------
Average Shares Outstanding
Assuming Dilution 2,466 2,487 Effect of dilutive
securities 3 - 2 -
---------- ---------- ---------- ---------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,482 2,488 2,483 2,487
========== ========== ========== =========
2,469 2,486
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
(1) The sum of Basic and Diluted Net Income Per Share Before Accounting Change
and Cumulative Effect of Accounting Change for the six months ended June
30, 2002 does not agree to reported Basic and Diluted Net Income Per Share
due to rounding.
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
September 30, December 31,
2002 2001
------------- ------------
CURRENT
Cash and cash equivalents $ 2,647 $ 1,866
Marketable securities 146 68
---------- ----------
2,793 1,934
Trade accounts receivable, less
allowances of $51 at September 30
and $59 at December 31 2,183 1,882
Inventories 1,287 1,055
Prepaid expenses and other assets 1,985 2,300
---------- ----------
TOTAL CURRENT ASSETS 8,248 7,171
---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 924 788
Coca-Cola Amatil Limited 473 432
Coca-Cola Hellenic Bottling Co SA 854 791
Other, principally bottling companies 2,281 3,117
Cost method investments,
principally bottling companies 250 294
Other assets 3,059 2,792
---------- ----------
7,841 8,214
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 357 217
Buildings and improvements 2,274 1,812
Machinery and equipment 5,712 4,881
Containers 347 195
---------- ----------
8,690 7,105
Less allowances for depreciation 3,003 2,652
---------- ----------
5,687 4,453
---------- ----------
TRADEMARKS AND OTHER INTANGIBLE ASSETS 3,524 2,579
---------- ----------
$ 25,300 $ 22,417June 30, December 31,
2003 2002
---------- ------------
CURRENT
Cash and cash equivalents $ 3,324 $ 2,126
Marketable securities 236 219
---------- ----------
3,560 2,345
Trade accounts receivable, less
allowances of $59 at June 30
and $55 at December 31 2,341 2,097
Inventories 1,458 1,294
Prepaid expenses and other assets 1,866 1,616
---------- ----------
TOTAL CURRENT ASSETS 9,225 7,352
---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 1,084 972
Coca-Cola Hellenic Bottling
Company S.A. 1,066 872
Coca-Cola FEMSA, S.A. de C.V. 849 347
Coca-Cola Amatil Limited 589 492
Other, principally bottling
companies 1,573 2,054
Cost method investments,
principally bottling companies 252 254
Other assets 2,978 2,694
---------- ----------
8,391 7,685
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 422 385
Buildings and improvements 2,559 2,332
Machinery and equipment 6,278 5,888
Containers 399 396
---------- ----------
9,658 9,001
Less allowances for depreciation 3,399 3,090
---------- ----------
6,259 5,911
---------- ----------
TRADEMARKS WITH INDEFINITE LIVES 1,879 1,724
GOODWILL AND OTHER INTANGIBLE ASSETS 2,195 1,829
---------- ----------
TOTAL ASSETS $ 27,949 $ 24,501
========== ==========
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
September 30, December 31,
2002 2001
------------- ------------
CURRENT
Accounts payable and accrued expenses $ 4,311 $ 3,679
Loans and notes payable 2,518 3,743
Current maturities of long-term debt 205 156
Accrued income taxes 1,077 851
---------- ----------
TOTAL CURRENT LIABILITIES 8,111 8,429
---------- ----------
LONG-TERM DEBT 2,835 1,219
---------- ----------
OTHER LIABILITIES 2,199 961
---------- ----------
DEFERRED INCOME TAXES 543 442
---------- ----------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,494,677,095 shares at
September 30; 3,491,465,016 shares
at December 31 874 873
Capital surplus 3,635 3,520
Reinvested earnings 24,279 23,443
Accumulated other comprehensive income
and unearned compensation on restricted
stock (3,020) (2,788)
---------- ----------
25,768 25,048
Less treasury stock, at cost
(1,014,762,225 shares at September 30;
1,005,237,693 shares at December 31) 14,156 13,682
---------- ----------
11,612 11,366
---------- ----------
$ 25,300 $ 22,417June 30, December 31,
2003 2002
---------- ------------
CURRENT
Accounts payable and accrued expenses $ 4,596 $ 3,692
Loans and notes payable 2,801 2,475
Current maturities of long-term debt 485 180
Accrued income taxes 1,199 994
---------- ----------
TOTAL CURRENT LIABILITIES 9,081 7,341
---------- ----------
LONG-TERM DEBT 2,550 2,701
---------- ----------
OTHER LIABILITIES 2,488 2,260
---------- ----------
DEFERRED INCOME TAXES 296 399
---------- ----------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,492,391,383 shares at June 30;
3,490,818,627 shares at December 31 873 873
Capital surplus 4,119 3,857
Reinvested earnings 25,617 24,506
Accumulated other comprehensive
income (loss) (2,199) (3,047)
---------- ----------
28,410 26,189
Less treasury stock, at cost
(1,031,977,112 shares at June 30;
1,019,839,490 shares at December 31) 14,876 14,389
---------- ----------
13,534 11,800
---------- ----------
TOTAL LIABILITIES AND SHARE-OWNERS' EQUITY $ 27,949 $ 24,501
========== ==========
See Notes to Condensed Consolidated Financial Statements.
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Nine Months Ended
September 30,
-----------------------------
2002 2001
-------- --------
OPERATING ACTIVITIES
Net income $ 2,326 $ 3,055
Depreciation and amortization 599 571
Deferred income taxes (56) (45)
Equity income or loss, net of dividends (252) (83)
Foreign currency adjustments (12) (47)
Gain on issuances of stock by equity investee - (91)
Gains on sale of assets, including bottling interests (8) (33)
Cumulative effect of accounting changes 926 10
Other items 274 34
Net change in operating assets and liabilities (392) (318)
-------- --------
Net cash provided by operating activities 3,405 3,053
-------- --------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (415) (308)
Purchases of investments and other assets (115) (365)
Proceeds from disposals of investments
and other assets 277 179
Purchases of property, plant and equipment (582) (528)
Proceeds from disposals of property, plant
and equipment 55 70
Other investing activities 49 112
-------- --------
Net cash used in investing activities (731) (840)
-------- --------
FINANCING ACTIVITIES
Issuances of debt 1,402 2,660
Payments of debt (1,939) (3,225)
Issuances of stock 97 155
Purchases of stock for treasury (478) (219)
Dividends (994) (897)
-------- --------
Net cash used in financing activities (1,912) (1,526)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 19 (11)
-------- --------
CASH AND CASH EQUIVALENTS
Net increase during the period 781 676
Balance at beginning of period 1,866 1,819
-------- --------
Balance at end of period $ 2,647 $ 2,495Six Months Ended
June 30,
-----------------------
2003 2002
-------- --------
OPERATING ACTIVITIES
Net income $ 2,197 $ 1,029
Depreciation and amortization 411 398
Stock-based compensation expense 222 217
Deferred income taxes (219) (196)
Equity income or loss, net of dividends (169) (173)
Foreign currency adjustments (108) 16
Gains on sale of assets, including bottling interests (14) (8)
Cumulative effect of accounting change - 926
Other operating charges 196 -
Other items 167 203
Net change in operating assets and liabilities (553) (256)
-------- --------
Net cash provided by operating activities 2,130 2,156
-------- --------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (205) (267)
Purchases of investments and other assets (55) (62)
Proceeds from disposals of investments
and other assets 130 46
Purchases of property, plant and equipment (398) (374)
Proceeds from disposals of property, plant
and equipment 47 35
Other investing activities 17 36
-------- --------
Net cash used in investing activities (464) (586)
-------- --------
FINANCING ACTIVITIES
Issuances of debt 932 1,189
Payments of debt (614) (1,272)
Issuances of stock 24 85
Purchases of stock for treasury (433) (301)
Dividends (545) (497)
-------- --------
Net cash used in financing activities (636) (796)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 168 31
-------- --------
CASH AND CASH EQUIVALENTS
Net increase during the period 1,198 805
Balance at beginning of period 2,126 1,866
-------- --------
Balance at end of period $ 3,324 $ 2,671
======== ========
See Notes to Condensed Consolidated Financial Statements.
7
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NoteNOTE A - Basis of PresentationBASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in the
United States 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 the consolidated
financial statements included in the Annual Report on Form 10-K of The Coca-Cola
Company (together with its subsidiaries, the Company or our Company) for the year ended December 31, 2001.2002. When used in these notes, the
terms "Company," "we," "us" or "our" mean The Coca-Cola Company and its
divisions and subsidiaries. In the opinion of management, all adjustments
(consisting of(including normal recurring accruals), as well as the accounting change to
adopt Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," considered necessary for a fair
presentation have been included. Operating results for the three and ninesix month
periods ended SeptemberJune 30, 20022003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.2003.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation. Additionally, 2002
results were restated to reflect the Company's adoption of the preferable fair
value recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" under the modified
prospective transition method selected by our Company as described in SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
Refer to Note H.
NOTE B - SeasonalitySEASONALITY
Sales of nonalcoholic beverages are somewhat seasonal, with the second and
third calendar quarters accounting for the highest sales volumes in the Northern
Hemisphere. The volume of sales in the beverages business may be affected by
weather conditions.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NoteNOTE C - COMPREHENSIVE INCOME
Total Comprehensive Income (Loss)
Total comprehensive income for the three months ended SeptemberJune 30, 20022003 and
20012002 was comprised of the following:
For the three months ended September 30,
----------------------------------------
2002 2001
--------- ---------
Net income $ 1,161 $ 1,074
Net foreign currency translation
gain/(loss) (241) 140
Net gain (loss) on derivative financial
instruments 17 (27)
Net change in unrealized gain (loss) on
available-for-sale securities (68) (26)
Minimum pension liability - -For the three months ended June 30,
-----------------------------------
2003 2002
---- ----
Net income $ 1,362 $ 1,223
Net foreign currency translation
gain 603 224
Net loss on derivative financial
instruments (22) (100)
Net change in unrealized gain (loss) on
available-for-sale securities 17 (11)
Net change in minimum pension liability 14 (33)
-------- --------
Total Comprehensive Income $ 869 $ 1,161
======== ========
Total comprehensive income $ 1,974 $ 1,303
======== ========
Total Comprehensive Income for the ninesix months ended SeptemberJune 30, 20022003 and 20012002
was comprised of the following:
For the nine months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Net income $ 2,326 $ 3,055
Net foreign currency translation
gain/(loss) (157) 1
Net gain (loss) on derivative financial
instruments (99) 27
Cumulative effect of adopting
SFAS No. 133, net - 50
Net change in unrealized gain (loss) on
available-for-sale securities (1) (19)
Minimum pension liability (33) -
--------- ---------
Total Comprehensive Income $ 2,036 $ 3,114
========= =========
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note C - Comprehensive Income (Loss) (Continued)For the six months ended June 30,
-----------------------------------
2003 2002
---- ----
Net income $ 2,197 $ 1,029
Net foreign currency translation
gain 870 84
Net loss on derivative financial
instruments (19) (116)
Net change in unrealized gain on
available-for-sale securities 15 67
Net change in minimum pension liability (18) (33)
-------- --------
Total comprehensive income $ 3,045 $ 1,031
======== ========
Net foreign currency translation gain for the three months and ninesix months
ended SeptemberJune 30, 2002 was impacted2003 resulted primarily byfrom the weakening of Latin American
currencies. For the nine months ended September 30, 2002, this impact was
partially offset by strengthening of certain
currencies since December 31, 2001,
including the Japanese yen and the euro, against the U.S. dollar, primarily inparticularly the second quarter of 2002.euro and Japanese yen,
partially offset by weakening Latin American currencies. Net gain (loss)loss on derivative
financial instruments for the three months and ninesix months ended SeptemberJune 30, 2002
was impacted primarily by changesdecreases in the fair value of outstanding hedging
instruments, primarily related to the Japanese yen and the reclassification of net gains into
earnings.yen. Fluctuations in the value of
the hedging instruments are generally offset by changes in the fair value or
cash flows of the underlying exposures being hedged.
109
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NoteNOTE D - Accounting Pronouncements
Effective January 1, 2002, our Company adopted SFAS No. 142. For information
regarding trademarks and other intangible assets and the impact the adoption of
SFAS No. 142 had on our Condensed Consolidated Financial Statements, refer to
Note F.ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, our Company adopted the fair value method
defined in SFAS No. 123, "Accounting for Stock-Based Compensation."123. For information regarding the adoption of the fair
value method defined in SFAS No. 123, refer to Note I.H.
Effective January 1, 2002, our2003, the Company adopted the provisions ofSFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 01-9, "Accounting94-3,
"Liability Recognition for Consideration Given byCertain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a VendorRestructuring)." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
plan be recognized when the liability is incurred. Under SFAS 146, an exit or
disposal plan exists when the following criteria are met:
* Management, having the authority to approve the action, commits to a Customerplan of
termination.
* The plan identifies the number of employees to be terminated, their job
classifications or a Resellerfunctions and their locations, and the expected completion
date.
* The plan establishes the terms of the Vendor's Products."benefit arrangement, including the
benefits that employees will receive upon termination (including but not
limited to cash payments), in sufficient detail to enable employees to
determine the type and amount of benefits they will receive if they are
involuntarily terminated.
* Actions required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be
withdrawn.
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. In cases where employees are required to render
service until they are terminated in order to receive termination benefits, a
liability for termination benefits is recognized ratably over the future service
period. Under EITF Issue No. 01-9 codifies94-3, a liability for the entire amount of the exit
cost was recognized at the date that the entity met the four criteria described
above. For information regarding the impact of adopting SFAS No. 146 and reconciles the
Task Force consensusesimpact of the streamlining initiatives that the Company has undertaken during
the three and six months ended June 30, 2003, refer to Note G.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D - ACCOUNTING PRONOUNCEMENTS (Continued)
In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." This
interpretation elaborates on all or specific
aspects of EITF Issues No. 00-14, "Accounting for Certain Sales Incentives," No.
00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based
Sales Incentives Offers, and Offers for Free Products or Servicesthe disclosures to be Deliveredmade by a guarantor in
interim and annual financial statements about the Future," and No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products"
and identifies other related interpretive issues. The types of sales incentives
provided by our Company to resellers, vendors or customers of our Company's
products principally include participation in sales promotion programs and
volume based incentives.obligations under certain
guarantees. Our Company adopted the disclosure provisions of EITF IssuesFASB Interpretation
No. 00-14 and No. 00-22 on January 1, 2001, resulting in income statement
reclassification45 as of certain sales incentives. Upon adoption, the Company reduced
both net operating revenues and selling, administrative and general expenses by
approximately $142 million for the three months ended September 30, 2001,
approximately $445 million for the nine months ended September 30, 2001 and
approximately $580 million for the year ended December 31, 2001. EITF Issue2002. FASB Interpretation No. 01-9 requires certain selling expenses incurred by the Company, not previously
reclassified, to be classified as deductions from revenue. The adoption of the
remaining items included in EITF Issue No. 01-9 resulted in the Company reducing
both net operating revenues and selling, administrative and general expenses by
approximately $702 million for the three months ended September 30, 2001, and
approximately $1,862 million for the nine months ended September 30, 2001. The
full year amount of the reclassification for 2001 was approximately $2.5
billion. These reclassifications have no impact on operating income.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. The adoption of SFAS No. 133 resulted in the Company recording
transition adjustments45 also clarifies that a
guarantor is required to recognize, its derivative instruments at fair value and
to recognize the ineffective portioninception of a guarantee, a liability
for the change in fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. We do not currently provide significant guarantees on a
routine basis. As a result, this interpretation has not had a material impact on
our financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation addresses the consolidation of
business enterprises (variable interest entities) to which the usual condition
(ownership of a majority voting interest) of consolidation does not apply. This
interpretation focuses on financial interests that indicate control. It
concludes that in the absence of clear control through voting interests, a
company's exposure (variable interest) to the economic risks and potential
rewards from the variable interest entity's assets and activities are the best
evidence of control. Variable interests are rights and obligations that convey
economic gains or losses from changes in the values of the variable interest
entity's assets and liabilities. Variable interests may arise from financial
instruments, service contracts, nonvoting ownership interests and other
arrangements. If an enterprise holds a majority of the variable interests of an
entity, it would be considered the primary beneficiary. The primary beneficiary
would be required to include assets, liabilities and the results of operations
of the variable interest entity in its derivatives. The cumulative effect of these transition adjustments was an
after-tax reductionfinancial statements. This interpretation
applies immediately to net income of approximately $10 million and an after-tax
net increasevariable interest entities that are created after or for
which control is obtained after January 31, 2003. For variable interest entities
created prior to accumulated other comprehensive income of approximately $50
million.February 1, 2003, the provisions would be applied effective
July 1, 2003.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NoteNOTE D - ACCOUNTING PRONOUNCEMENTS (Continued)
Our Company holds variable interests in certain entities, primarily
bottlers, that are currently accounted for under the equity method of
accounting. As a result, these entities may be considered variable interest
entities, and it is reasonably possible that the Company may be required to
consolidate such variable interest entities as of July 1, 2003, the effective
date of FASB Interpretation No. 46. The difference between consolidation and the
equity method impacts certain financial ratios because of the presentation of
the detailed line items reported in the financial statements. However,
consolidated net income for the period and our share-owners' equity at the end
of the period are the same whether the investment in the company is accounted
for under the equity method or the company is consolidated. We do not expect
this interpretation to have a material impact on our financial statements
because the entities that we expect to consolidate are not material to our
financial statements.
NOTE E - Acquisitions
Effective FebruaryACQUISITIONS AND INVESTMENTS
In December 2002, one of the Company's equity method investees, Coca-Cola
FEMSA, S.A. de C.V. (Coca-Cola FEMSA), entered into a merger agreement with
another of the Company's equity method investees, Panamerican Beverages, Inc.
(Panamco). This merger proposal was approved by share owners of Panamco in April
2003, and the merger was consummated effective May 6, 2003. Under the terms of
the merger, the Company received new Coca-Cola FEMSA shares in exchange for all
Panamco shares previously held by the Company. This exchange of shares was
treated as a non-monetary exchange of similar productive assets, and no gain or
loss was recorded by the Company as a result of this merger. The Company's
ownership interest in Coca-Cola FEMSA increased from 30 percent to 39.6 percent
as a result of this merger. As part of this merger, Coca-Cola FEMSA initiated
steps to streamline and integrate the operations. The Company and the major
share owner of Coca-Cola FEMSA have an understanding which will permit this
share owner to purchase from our Company assumed controlan amount of Coca-Cola FEMSA shares
sufficient for this share owner to regain a 51 percent ownership interest in
Coca-Cola FEMSA. Pursuant to this understanding, which is in place until May
2006, this share owner would pay the higher of the prevailing market price per
share at the time of the sale or the sum of approximately $2.22 per share plus
the Company's carrying costs.
In March 2003, our Company acquired a 100 percent ownership interest in
Truesdale Packaging Company LLC (Truesdale) from Coca-Cola Enterprises Inc. for
cash consideration of approximately $60 million. Truesdale owns noncarbonated
beverage production facilities. The purchase price was primarily allocated to
the property, plant and equipment acquired. No amount has been allocated to
intangible assets. The purchase price allocation is subject to refinement.
Truesdale is included in our North America operating segment.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E - ACQUISITIONS AND INVESTMENTS (Continued)
In November 2001, we entered into a Control and Profit and Loss Transfer
Agreement (CPL) with Coca-Cola Erfrischungsgetraenke AG (CCEAG),. Under the largest bottlerterms
of the CPL, our Company acquired management control of CCEAG. In November 2001,
we also entered into a Pooling Agreement with certain share owners of CCEAG that
provided our Company with voting control of CCEAG. Both agreements became
effective in Germany.February 2002, when our Company acquired control of CCEAG, for a
term ending no later than December 31, 2006. CCEAG is included in our Europe,
Eurasia and Middle East operating segment. As a result of acquiring control of
CCEAG, our Company is working to help focus its sales and marketing programs and
assist in developing the business. This transaction was accounted for as a
business combination, and the consolidated
results of CCEAG's operations have been included
in the Company's Condensed
Consolidated Financial Statementsfinancial statements since February 2002. Prior to February
2002, CCEAG wasour Company accounted for by our CompanyCCEAG under the equity method of accounting. OurAs
of December 31, 2002, our Company hashad an approximate 41 percent ownership
interest in the outstanding shares of CCEAG. In accordance with the terms of a Control and Profit and Loss
Transfer Agreement (CPL) with certain share owners of CCEAG, our Company
obtained managementreturn for control of CCEAG,
for a period of uppursuant to five years. In return
for the management control of CCEAG, the CompanyCPL we guaranteed annual payments, in lieu of dividends by
CCEAG, to all other CCEAG share owners. These guaranteed annual payments equal
..76 euro for each CCEAG share outstanding. Additionally, all other CCEAG share
owners entered into either a put or a put/call option agreement with the
Company, exercisable at the end of the term of the CPL agreement at agreed prices. Our
Company entered into either put or put/call agreements for shares representing
an approximate 59 percent interest in CCEAG. The spread in the strike prices of
the put and call options is approximately 3 percent.
As of the date of the transaction, the Company concluded that the exercise
of the put and/or call agreements was a resultvirtual certainty based on the minimal
differences in the strike prices. We concluded that either the holder of assuming controlthe put
option would require the Company to purchase the shares at the agreed-upon put
strike price, or the Company would exercise its call option and require the
share owner to tender its shares at the agreed-upon call strike price. The
holders of the puts or calls may exercise their rights at any time up to the
expiration date, which in this case is in five years. If these rights are
exercised, the actual transfer of shares would not occur until the end of the
term of the CPL. Coupled with the guaranteed payments in lieu of dividends for
the term of the CPL, these instruments represented the financing vehicle for the
transaction. As such, the Company determined that the economic substance of the
transaction resulted in the acquisition of the remaining outstanding shares of
CCEAG ourand required the Company expects to help
focus its salesaccount for the transaction as a business
combination. Furthermore, the terms of the CPL transfer control and marketing programsall of the
economic risks and assist in developingrewards of CCEAG to the business.Company immediately.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E - ACQUISITIONS AND INVESTMENTS (Continued)
The present value of the total amount likely to be paid by our Company to
all other CCEAG share owners, including the put or put/call payments and the
guaranteed annual payments in lieu of dividends, is approximately $700$920 million
at SeptemberJune 30, 2002.2003. This amount has increased from the initial liability of
approximately $600 million due to the accretion of the discounted value to the
ultimate maturity of the liability, described below, as well as approximately $80$250 million of
translation adjustment related to this liability. This liability is included in
the caption "Other Liabilities" in the Condensed Consolidated
Balance Sheet.Other Liabilities. The accretion of thisthe discounted value to its
ultimate maturity value which is recorded in the caption "Other income (loss)Other Income (Loss) - net" in the
Condensed Consolidated Statement of Income,Net,
and this amount was approximately $11$13 million and $27$9 million, respectively, for
the three months ended June 30, 2003 and nineJune 30, 2002, and approximately $25
million and $15 million, respectively, for the six months ended SeptemberJune 30, 2002,
respectively. As a result of this transaction, the Company recorded bottler
franchise rights of approximately $925 million2003
and goodwill of approximately $40
million. These amounts are comprised of approximately 41 percent of the historic
book value of CCEAG's franchise rights and goodwill, and approximately 59
percent of the fair value of CCEAG's franchise rights and goodwill computed at
the acquisition date. Such intangible assets were assigned indefinite lives. The
purchase price allocation is subject to refinement.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note E - Acquisitions (Continued)
In separate transactions during 2002, our Company acquired controlling
interests in CCDA Waters, L.L.C. (CCDA) and Cosmos Bottling Corporation (CBC)
for total combined consideration of approximately $328 million. The Company has
initially allocated approximately $250 million of the purchase price for these
acquisitions to goodwill and other indefinite lived intangible assets, primarily
trademarks, brands and licenses. Additionally, the Company has recorded minority
ownership accruals of approximately $242 million related to these acquisitions
in "Other Liabilities." The purchase price allocations for these acquisitions
are subject to refinement. The details of these acquisitions are described
below.
In July 2002, our Company and Danone Waters of North America, Inc. (DWNA)
formed a new company, CCDA, for the production, marketing and distribution of
DWNA's bottled spring and source water business in the United States. In forming
CCDA, DWNA contributed assets of its retail bottled spring and source water
business in the United States. These assets include five production facilities,
a license for the use of the Dannon and Sparkletts brands, as well as ownership
of several value brands. Our Company made a cash payment to acquire a 51 percent
equity interest in CCDA and is also providing marketing, distribution and
management expertise. This transaction was accounted for as a business
combination, and the consolidated results of CCDA's operations have been
included in the Company's Condensed Consolidated Financial Statements since JulyJune 30, 2002. This business combination expanded our water brands to include a national
offering in all sectors of the water category with purified, spring and source
waters.
In November 2001, our Company and Coca-Cola Bottlers Philippines, Inc.
(CCBPI) entered into a sale and purchase agreement with RFM Corp. to acquire its
83.2approximate 83 percent interest in CBC,Cosmos Bottling Corporation (CBC), a publicly
traded Philippine beverage company. CBC is an established carbonated soft drink
business in the Philippines. As of the date of the agreement, the Company
began supplying concentrate for this operation. The purchase of RFM's interest
was finalized on January 3, 2002. On March 7, 2002, a tender offer was completed
with our Company and CCBPI acquiring all shares of the remaining minority share
owners except for shares representing a one percent interest in CBC. As of September 30, 2002, our Company's direct
ownership interest in CBC is 60.9 percent, and our indirect ownership interest
in CBC is 13.4 percent. This
transaction was accounted for as a business combination, and the results of
CBC's operations have beenwere included in the Company's Consolidated Financial
Statements sincefrom and after January 3, 2002. CBC is an
established carbonated soft drink businessincluded in the Philippines. Our Company's
goal is to leverage our new partnership with San Miguel Corporation in the
Philippines, as well as leverage our sales, marketing and system resources, to
expand CBC volume and profit over time.Asia operating
segment.
The Company and CCBPI have agreed to restructure the ownership of the operations
of CBC, and this restructuring will resulttransaction was completed in April of 2003. This transaction
resulted in the Company owning all the acquired trademarks and CCBPI owning all
the acquired bottling assets. This restructuring is expected to be completedAccordingly, CBC's bottling assets were
deconsolidated by the Company in 2003, and noApril of 2003. No gain or loss is expectedwas recorded by
our Company upon completion of the deconsolidation of the bottling
assets.
Had the results of these businesses been included in operations commencing
with 2001, the reported results would not have been materially affected.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note F - Trademarks and Other Intangible Assets
In accordance with SFAS No. 142, goodwill and indefinite lived intangible
assets will no longer be amortized but will be reviewed annually for impairment.
Intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of SFAS No.
142 apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company began applying the new accounting rules effective January 1, 2002.
The adoption of SFAS No. 142 required the Company to perform an initial
impairment assessment on all goodwill and indefinite lived intangible assetstransaction, as
of January 1, 2002. The Company compared the fair value of trademarks and other
intangiblethe assets
to current carrying value. Fair valuesexchanged were derived using
discountedapproximately equal. Additionally, there was no impact on our
cash flow analyses. The assumptions used in these discounted cash
flow analyses were consistent with our internal planning. Valuations were
completed for intangible assets for both the Company and our equity method
investees. For the Company's intangible assets, the cumulative effect of this
change in accounting principle was an after-tax decrease to net income of
approximately $367 million. For the Company's proportionate share of its equity
method investees, the cumulative effect of this change in accounting principle
was an after-tax decrease to net income of approximately $559 million. The
deferred income tax benefitflows related to the cumulative effect of this change for
the Company's intangible assets was approximately $94 million and for the
Company's proportionate share of its equity method investees was approximately
$123 million.transaction.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
The impairment charges resulting in the after-tax decrease to net income for
the cumulative effect of this change by applicable operating segment as of
January 1, 2002, are as follows (in millions):
The Company:
Europe, Eurasia and Middle East $ 33
Latin America 226
Asia 108
----------
Total $ 367
==========
The Company's Proportionate Share of its Equity
Method Investees:
Africa $ 63
Europe, Eurasia and Middle East 400
Latin America 96
----------
Total $ 559
==========
Of the Company's $226 million impairment for Latin America, approximately
$113 million relates to Company-owned Brazilian bottlers' franchise rights. The
Brazilian macroeconomic conditions, the devaluation of the currency and lower
pricing impacted the valuation of these bottlers' franchise rights. The
remainder of the $226 million primarily relates to a $109 million impairment for
certain trademarks in Latin America. In early 1999, our Company formed a
strategic partnership to market and distribute such trademark brands. The
macroeconomic conditions and lower pricing depressed operating margins for these
trademarks.
Of the $108 million impairment for the Company in Asia, $99 million relates
to bottlers' franchise rights in consolidated bottling operations in our
Southeast and West Asia Division. Difficult economic conditions impacted our
business in Singapore, Sri Lanka, Nepal and Vietnam. As a result, bottlers in
these countries experienced lower than expected volume and operating margins.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
For Europe, Eurasia and Middle East equity method investees, a $400 million
impairment was recorded for the Company's proportionate share related to
bottlers' franchise rights. Of this amount, approximately $301 million related
to CCEAG. This impairment was due to a prolonged difficult economic environment
in Germany resulting in continuing losses for CCEAG in east Germany. The market
for nonalcoholic beverages is currently undergoing a transformation. A changing
competitive landscape, continuing price pressure, and growing demand for new
products and packaging were elements impacting CCEAG. The $400 million
impairment also included a $50 million charge for Middle East bottlers'
franchise rights. In our Africa operating segment, a $63 million charge was
recorded for the Company's proportionate share of impairments related to equity
method investee bottlers' franchise rights. These Middle East and Africa
bottlers have challenges as a result of the political instability, and the
resulting economic instability, in their respective regions, which has adversely
impacted financial performance.
A $96 million impairment was recorded for the Company's proportionate share
related to bottlers' franchise rights of Latin America equity method investees.
In South Latin America, the macroeconomic conditions and devaluation of the
Argentine peso significantly impacted the valuation of bottlers' franchise
rights.
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
As discussed in Note E above, the Company acquired certain intangible assets
in connection with the business combinations of CCEAG, CBC and CCDA. Because
such assets were assigned indefinite lives, no amortization will be recorded.
The following table sets forth the information for intangible assets subject
to amortization and for intangible assets not subject to amortization (in
millions):
September 30, 2002 December 31, 2001
------------------ -----------------
Amortized intangible assets
(various, principally trademarks):
Gross carrying amount $ 168 $ 160
======== ========
Accumulated amortization $ 73 $ 67
======== ========
Unamortized intangible assets:
Trademarks $ 1,727 $ 1,697
Bottlers' franchise rights 1,327 639
Goodwill 282 108
Other 93 42
-------- --------
Total $ 3,429 $ 2,486
======== ========
Aggregate amortization expense:
For the three months ended
September 30, 2002 $ 3
========
For the nine months ended
September 30, 2002 $ 9
========
Estimated amortization expense:
For the year ending December 31, 2002 $ 12
For the year ending December 31, 2003 12
For the year ending December 31, 2004 11
For the year ending December 31, 2005 11
For the year ending December 31, 2006 8
For the year ending December 31, 2007 8
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
The following table summarizes and reconciles net income before cumulative
effect of accounting change for the three and nine months ended September 30,
2002 and 2001, adjusted to exclude amortization expense recognized in such
periods related to trademarks, bottlers' franchise rights, goodwill, other
indefinite lived intangible assets that are no longer amortized and our
proportionate share of equity method intangibles (in millions except per share
amounts):
For the three months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Reported net income before cumulative effect
of accounting change (1) $ 1,161 $ 1,074
Add back after-tax amounts:
Trademark amortization - 7
Bottlers' franchise rights amortization - 2
Goodwill amortization - 1
Other indefinite lived
intangible amortization - 1
Equity method intangibles amortization - 27
--------- ---------
Adjusted net income before cumulative effect
of accounting change $ 1,161 $ 1,112
========= =========
For the three months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Basic net income per share before
accounting change (1):
Reported net income $ .47 $ .43
Trademark amortization - -
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .02
--------- ---------
Adjusted basic net income per share
before accounting change $ .47 $ .45
========= =========
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
For the three months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Diluted net income per share before
accounting change (1):
Reported net income $ .47 $ .43
Trademark amortization - -
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .02
--------- ---------
Adjusted diluted net income per share
before accounting change $ .47 $ .45
========= =========
For the nine months ended September 30,
--------------------------------------
2002 2001
--------- ---------
Reported net income before cumulative effect
of accounting change (1) $ 3,252 $ 3,065
Add back after-tax amounts:
Trademark amortization - 21
Bottlers' franchise rights amortization - 4
Goodwill amortization - 3
Other indefinite lived
intangible amortization - 3
Equity method intangibles amortization - 81
--------- ---------
Adjusted net income before cumulative effect
of accounting change $ 3,252 $ 3,177
========= =========
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - Trademarks and Other Intangible Assets (Continued)
For the nine months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Basic net income per share before
accounting change (1):
Reported net income $ 1.31 $ 1.23
Trademark amortization - .01
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .03
--------- ---------
Adjusted basic net income per share
before accounting change $ 1.31 $ 1.27
========= =========
For the nine months ended September 30,
---------------------------------------
2002 2001
--------- ---------
Diluted net income per share before
accounting change (1):
Reported net income $ 1.31 $ 1.23
Trademark amortization - .01
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .03
--------- ---------
Adjusted diluted net income per share
before accounting change $ 1.31 $ 1.27
========= =========
(1) Basic and diluted net income per share amounts are rounded to the nearest
$.01, and after-tax amounts are rounded to the nearest million; therefore, such
rounding may slightly impact amounts presented.
20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note G - Operating SegmentsOPERATING SEGMENTS
The Company's operating structure includes the following operating
segments: North America (including The Minute Maid Company);America; Africa; Europe, Eurasia and Middle East; Latin America;
Asia; and Corporate. North America includes the United States, Canada and Puerto
Rico. During the first quarter of 2002, the
Egypt Region was relocated from Europe, Eurasia and Middle East to Africa. Prior period amounts have been reclassified to conform to the current
period presentation. Information about our Company's operations as of and for
the three months ended SeptemberJune 30, 20022003 and 2001,2002, by operating segment, is as
follows (in millions):
Europe,
North Eurasia and& Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ------------ --------- ------------------- ------- ------- --------- ------------
20022003
- ----
Net operating
revenues $ 1,713 $ 181 $ 1,809 $ 485 $ 1,444 $ 59 $ 5,691
Operating
income (1) (2) $ 1,706 $ 164 $ 1,518 $ 487 $ 1,400 $ 47 $ 5,322402 51 594 233 486 (164) 1,602
Income before
income taxes and
cumulative effect
of accounting
change (1) 434 69 480 228 504 (125) 1,590411 48 616 258 502 (85) 1,750
Identifiable
operating
assets (3) 5,153 539 4,665 1,032 2,545 6,584 20,5185,292 551 5,649 1,299 2,357 7,388 22,536
Investments (4) 143 79 1,050 1,366 1,144 1,000 4,782
2001106 106 1,342 1,435 1,294 1,130 5,413
2002
- ----
Net operating
revenues $ 1,644 $ 184 $ 1,458 $ 554 $ 1,480 $ 15848 $ 1,206 $ 525 $ 1,295 $ 31 $ 4,6955,368
Operating income 430 53 456 266 556 (201) 1,560
Income before
income taxes and
cumulative effect
of accounting
change (5) 359 64 321 305 528 (43) 1,534438 46 454 311 564 (138) 1,675
Identifiable
operating
assets 4,268 525 2,354 1,641 2,066 5,964 16,8184,991 541 4,800 1,339 2,254 6,558 20,483
Investments 141 226 1,826 1,677 1,067 910 5,847
Intercompany transfers between operating segments are not material.
Refer to Notes on page 22.137 97 986 1,488 1,181 915 4,804
21Intercompany transfers between operating segments are not material.
(1) Operating Income and Income Before Income Taxes and Cumulative Effect of
Accounting Change for the three months ended June 30, 2003 were reduced
by $53 million for North America, $14 million for Europe, Eurasia and
Middle East, and $3 million for Latin America as a result of other
operating charges associated with the streamlining initiatives. Refer to
Note G.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note GNOTE F - Operating SegmentsOPERATING SEGMENTS (Continued)
Information about our Company's operations for the ninesix months ended SeptemberJune
30, 20022003 and 2001,2002, by operating segment, is as follows (in millions):
Europe,
North Eurasia and& Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ------------ --------- ------------------- ------- ------- --------- ------------
20022003
- ----
Net operating
revenues (1)(2) $ 4,7123,149 $ 493356 $ 3,9933,098 $ 1,584968 $ 3,8582,530 $ 12988 $ 14,76910,189
Operating income (1) 656 118 942 475 834 (347) 2,678
Income before
income taxes and
cumulative effect
of accounting
change (1) 1,274 185 1,265 790 1,455 (461) 4,508
2001681 112 945 527 862 (254) 2,873
2002
- ----
Net operating
revenues $ 4,3173,006 $ 450329 $ 3,1042,475 $ 1,6121,097 $ 3,6992,458 $ 12582 $ 13,3079,447
Operating income 768 108 785 537 911 (391) 2,718
Income before
Income taxes and
cumulative effect
of accounting
change (5) 1,109 180 1,113 939 1,383 (346) 4,378
Intercompany transfers between operating segments are not material.
Notes:
- -----
(1) Net operating revenues and income before income taxes and cumulative effect
of accounting change for Latin America were negatively impacted by exchange
and challenging economic conditions, primarily in Argentina, Venezuela and
Brazil.
(2) Net operating revenues for Europe, Eurasia and Middle East were impacted by
the consolidation of CCEAG in 2002.
(3) Identifiable operating assets for North America increased primarily due to
the consolidation of CCDA in 2002 and Odwalla, Inc. in December 2001.
Identifiable operating assets for Europe, Eurasia and Middle East increased
primarily due to the consolidation of CCEAG in 2002. Identifiable operating
assets for Latin America decreased primarily due to the negative impact of
exchange.
(4) Investments for Europe, Eurasia and Middle East decreased primarily due to
the consolidation of CCEAG in 2002.
(5) Income before income taxes and cumulative effect of accounting change for
Corporate was positively impacted by a one-time non-cash gain of
approximately $91 million, described in further detail in Note J.
779 103 758 550 924 (383) 2,731
22Intercompany transfers between operating segments are not material.
(1) Operating Income and Income Before Income Taxes and Cumulative Effect of
Accounting Change for the six months ended June 30, 2003 were reduced by
$134 million for North America, $69 million for Europe, Eurasia and
Middle East, $23 million for Corporate, and $3 million for Latin America
as a result of other operating charges associated with the streamlining
initiatives. Operating Income and Income Before Income Taxes and
Cumulative Effect of Accounting Change for the six months ended June 30,
2003 were increased by $52 million for Corporate as a result of the
Company's receipt of a settlement related to a vitamin antitrust
litigation matter. Refer to Note G.
(2) Income Before Income Taxes and Cumulative Effect of Accounting Change for
Latin America in 2002 was negatively impacted by a charge related to a
write-down of investments in Latin America partially offset by the
Company's share of a gain recorded by one of our investees in
Latin America. Refer to Note G.
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note HNOTE G - Nonrecurring ItemsSIGNIFICANT OPERATING AND NON-OPERATING ITEMS
In the thirdfirst quarter of 2002, our2003, the Company recordedreached a non-cash pretax chargesettlement with certain
defendants in a vitamin antitrust litigation matter. In that litigation, the
Company alleged that certain vitamin manufacturers participated in a global
conspiracy to fix the price of some vitamins, including vitamins used in the
manufacture of some of the Company's products. During the first quarter of 2003,
the Company received a settlement relating to this litigation of approximately
$33$52 million on a pretax basis, or $0.01 per share on an after-tax basis. The
amount was recorded as a reduction to Cost of Goods Sold.
During the first quarter of 2003, the Company initiated steps to streamline
and simplify its operations, primarily in North America and Germany. In North
America, the Company is integrating the operations of our three separate North
American business units - Coca-Cola North America, The Minute Maid Company and
Fountain. In Germany, CCEAG is taking steps to improve efficiency in sales,
distribution and manufacturing. As described in Note D, under SFAS No. 146, a
liability is accrued only when certain criteria are met. Of the Company's total
streamlining initiatives, certain components of these initiatives have met these
criteria as of June 30, 2003. The total cost expected to be incurred for these
components of the streamlining initiatives that, as of June 30, 2003, meet the
criteria described in Note D is approximately $260 million.
Employees separated from the Company as a result of these streamlining
initiatives were offered severance or early retirement packages, as appropriate,
which included both financial and non-financial components. The expenses
recorded during the first six months of 2003 included costs associated with
involuntary terminations and other direct costs associated with implementing
these initiatives. Other direct costs included the relocation of employees;
contract termination costs; costs associated with the development, communication
and administration of these initiatives; and asset write-offs. In the second
quarter of 2003, the Company incurred total pretax expenses related to ourthese
streamlining initiatives of approximately $70 million, or $0.02 per share after
tax. In the first six months of impairment2003, the Company incurred total pretax expenses
related to these streamlining initiatives of approximately $229 million, or
$0.06 per share after tax. These expenses were recorded in Other Operating
Charges. The table below provides more details related to these costs. As of
June 30, 2003, approximately 1,300 associates had been separated pursuant to
these streamlining initiatives.
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - SIGNIFICANT OPERATING AND NON-OPERATING ITEMS (Continued)
The table below summarizes the costs incurred to date, the balance of
accrued streamlining expenses and restructuring charges takenthe movement in that accrual as of and for the
three months ended June 30, 2003 (in millions):
Accrued Accrued
Balance Costs Noncash Balance
March 31, Incurred and June 30,
Cost Summary 2003 April-June Payments Exchange 2003
- ------------ --------- ---------- -------- -------- --------
Severance pay and benefits $ 105 $ 16 $ (31) $ 3 $ 93
Retirement related benefits 33 4 - - 37
Outside services - legal,
outplacement, consulting 5 7 (8) - 4
Other direct costs 9 21 (17) - 13
------- ------- -------- ------- -------
Total $ 152 $ 48 $ (56) $ 3 $ 147
======= ======= ======== ======= =======
Asset impairments $ 22
-------
Total Costs Incurred $ 70
=======
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - SIGNIFICANT OPERATING AND NON-OPERATING ITEMS (Continued)
The table below summarizes the total costs expected to be incurred for the
components of the streamlining initiatives which have met the criteria described
in SFAS No. 146, the costs incurred to date, the balance of accrued streamlining
expenses and the movement in that accrual as of and for the six months ended
June 30, 2003 (in millions):
Total
Costs Accrued
Expected Costs Noncash Balance
to be Incurred and June 30,
Cost Summary Incurred to Date Payments Exchange 2003
- ------------ -------- -------- -------- -------- --------
Severance pay and benefits $ 138 $ 123 $ (33) $ 3 $ 93
Retirement related benefits 53 37 - - 37
Outside services - legal,
outplacement, consulting 18 17 (13) - 4
Other direct costs 29 30 (17) - 13
------- ------- -------- ------- -------
Total $ 238 $ 207 $ (63) $ 3 $ 147
======= ======= ======== ======= =======
Asset impairments $ 22 $ 22
------- -------
Total Costs Incurred $ 260 $ 229
======= =======
The total amount of costs expected to be incurred for the components of the
streamlining initiatives which have met the criteria described in SFAS No. 146
and the costs incurred to date for the six months ended June 30, 2003 by
certain investees inoperating segment is as follows (in millions):
Total
Costs Costs
Expected Incurred
to be Incurred to Date
-------------- --------
North America $ 150 $ 134
Europe, Eurasia and Middle East 80 69
Latin America. This charge
was recorded to "Equity income (loss)America 7 3
Corporate 23 23
------- -------
Total $ 260 $ 229
======= =======
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - net."SIGNIFICANT OPERATING AND NON-OPERATING ITEMS (Continued)
Our Company hashad direct and indirect ownership interests totaling
approximately 18 percent in Cervejarias Kaiser S.A. (Kaiser S.A.). In March
2002, Kaiser S.A. sold its investment in Cervejarias Kaiser Brazil Ltda to
Molson Inc. (Molson) for cash of approximately $485 million and shares of Molson
valued at approximately $150 million. Our Company's pretax share of the gain
related to this sale was approximately $43$51 million, of which approximately $21$28
million was recorded in the caption "Equity income (loss) - net"Equity Income (Loss) and approximately $22$23
million was recorded in the caption "Other income (loss)Other Income (Loss) - net."Net.
In the first quarter of 2002, our Company recorded a non-cash pretax charge
of approximately $157 million (recorded in the caption "Other income (loss)Other Income (Loss) -
net")Net) primarily related to the write-down of our investments in Latin America.
This write-down reduced the carrying value of the investments in Latin America
to fair value. The charge was primarily the result of the economic developments
in Argentina during the first quarter of 2002, including the devaluation of the
Argentine peso and the severity of the unfavorable economic outlook.
Note I20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H - Restricted Stock, Stock OptionsRESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
Our Company currently sponsors stock option plans and Other Stock Plans
Effective January 1,restricted stock
award plans. Prior to 2002, our Company adoptedaccounted for those plans under the
fair value methodrecognition and measurement provisions of recording stock-based compensation contained in SFAS No. 123, "Accounting for
Stock-Based Compensation," which is considered the preferable accounting method
for stock-based employee compensation. Historically, our Company had applied the
intrinsic value method permitted under SFAS No. 123, as defined in Accounting
Principles BoardAPB Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25) and related Interpretations,interpretations. No
stock-based employee compensation expense for stock options was reflected in accountingNet
Income for years prior to 2002, as all stock options granted under those plans
had an exercise price equal to the fair market value of the underlying common
stock on the date of grant. Effective January 1, 2002, our stock-based compensation plans.
Accordingly, noCompany adopted the
preferable fair value recognition provisions of SFAS No. 123. Under the modified
prospective transition method selected by our Company as described in SFAS No.
148, compensation cost hasrecognized for the three and six months ended June 30,
2003 and 2002 is the same as that which would have been recognized for our stock option plans
in the past. All future employee stock option grants and other stock-based
compensation will be expensed to "Selling, administrative and general expenses"
over the vesting period based on the fair value at the date the stock-based
compensation is granted. The Financial Accounting Standards Board has issued an
exposure draft which, if finalized as drafted, would allow companies adoptinghad the fair
value method permitted underof SFAS No. 123 to choosebeen applied from three
alternative transition methods.its original effective date.
The Company will evaluate these alternatives and
select an appropriate transition method after the issuanceimpact of the final
standard, which is expected lateradoption of the fair value method of accounting for
stock-based compensation was an increase to stock-based compensation expense of
approximately $105 million and approximately $92 million, respectively, for the
three month periods ended June 30, 2003 and June 30, 2002. The impact of this
year. The ultimateadoption was an increase to stock-based compensation expense of approximately
$219 million and approximately $187 million, respectively, for the six-month
periods ended June 30, 2003 and June 30, 2002. This stock compensation expense
was recorded in the caption Selling, General and Administrative Expenses. As a
result of adopting SFAS No. 123 and SFAS No. 148, our results for the three
months and six months ended June 30, 2002 were restated to reflect the impact of
the adoption of the fair value method under SFAS 123. For the quarter ended June
30, 2002, the impact of this restatement on Selling, General and Administrative
Expenses was an increase of approximately $92 million; and the impact on our
financial statementsIncome
Taxes was a decrease of approximately $25 million, resulting in a negative
impact to Net Income of approximately $67 million. For the six months ended June
30, 2002, will depend upon the transitionimpact of this restatement on Selling, General and Administrative
Expenses was an increase of approximately $187 million; and the impact on Income
Taxes was a decrease of approximately $51 million, resulting in a negative
impact to Net Income of approximately $136 million. The income per share impact
of this restatement was a reduction of $0.03 per share and $0.06 per share,
respectively, for the three months and six months ended June 30, 2002. In
accordance with the modified prospective method selected.
23of adoption, results for years
prior to 2002 have not been restated.
21
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note JNOTE I - IssuancesCOMMITMENTS AND CONTINGENCIES
In 2003, we have adopted the initial recognition and measurement provisions
of Stock by Equity Investee
In July 2001, Coca-Cola Enterprises Inc. (CCE) completed its acquisitionFASB Interpretation No. 45. Because we do not currently provide significant
guarantees on a routine basis, there has been no material effect to our
financial statements. The initial recognition and measurement provisions of Hondo Incorporated and Herbco Enterprises, Inc., collectively known as Herb
Coca-Cola. The transaction was valued at approximately $1.4 billion, with
approximatelythis
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002.
As of June 30, percent of the transaction funded with the issuance of
approximately 25 million shares of CCE common stock, and the remaining portion
funded through debt and assumed debt. The issuance of shares resulted in a
one-time non-cash pretax gain for our Company of approximately $91 million
during the third quarter of 2001. We provided deferred taxes of approximately
$36 million on this gain. This transaction reduced our ownership in CCE from
approximately 40 percent to approximately 38 percent.
Note K - Commitments and Contingencies
On September 30, 2002,2003, we were contingently liable for guarantees of
indebtedness owed by third parties in the amount of $470 million, of which $16
million$610 million. These
guarantees are related to third-party customers and bottlers and have arisen
through the Company's equity investee bottlers.normal course of business. These guarantees have various terms, and
none of these guarantees are individually significant. We do not consider it
probable that we will be required to satisfy these guarantees. Additionally, the
Company is presently negotiating the extension of a $250 million stand-by line
of credit to Coca-Cola FEMSA. This line of credit contains normal market terms
and is subject to the execution of final agreements.
We believe our exposure to concentrations of credit risk is limited due to
the diverse geographic areas covered by our operations.
In June 2002, our Company announced long-term agreements with the National
Collegiate Athletic Association (NCAA) and CBS, and with the Houston Astros
Baseball Club with a combined value of approximately $650 to $800 million. Our
Company, CBS and the NCAA will participate in an integrated marketing and media
program that includes, for our Company, beverage marketing and media rights to
87 NCAA championships in 22 sports. Additionally, The Minute Maid Company, an
operating unit of our Company, and the Houston Astros Baseball Club will
participate in a long-term marketing and community partnership, including naming
rights for Astros Field, which was renamed "Minute Maid Park." The definitive
agreement with the NCAA and CBS is expected to be finalized during 2002. The
definitive agreement with the Houston Astros Baseball club was completed during
the third quarter of 2002.
The Company is also involved in various legal proceedings and disputes.
Additionally, the Company provides certain indemnifications in relation to the
disposition of previously consolidated subsidiaries. These indemnifications
generally provide a purchaser with reimbursements for out of pocket costs which
arise from events that occurred within the subsidiary prior to the disposition.proceedings. Management
believes that any liability ofto the Company whichthat may arise as a result of
thesecurrently pending legal proceedings, disputes or indemnifications,including those discussed below, will not
have a material adverse effect on the financial condition of the Company taken
as a whole.
24During the period from 1970 to 1981, our Company owned Aqua-Chem, Inc.
(Aqua-Chem). A division of Aqua-Chem manufactured certain boilers that contained
gaskets that Aqua-Chem purchased from outside suppliers. Several years after our
Company sold this entity, Aqua-Chem received its first lawsuit relating to
asbestos, a component of some of the gaskets. Aqua-Chem has notified our Company
that it believes we are obligated to them for certain costs and expenses
associated with the litigation. Aqua-Chem has demanded that our Company
reimburse it for approximately $10 million for out-of-pocket litigation-related
expenses incurred over the last 18 years. Aqua-Chem has also demanded that the
Company acknowledge a continuing obligation to Aqua-Chem for any future
liabilities and expenses that are excluded from coverage under the applicable
insurance or for which there is no insurance. Our Company disputes Aqua-Chem's
claims, and we believe we have no obligation to Aqua-Chem for any of its past,
present or future liabilities, costs or expenses. Furthermore, we believe we
have substantial legal and factual defenses to Aqua-Chem's claims. The parties
have entered into litigation to resolve this dispute. The Company believes
Aqua-Chem has substantial insurance coverage to pay Aqua-Chem's asbestos
claimants. An estimate of possible losses over time, if any, cannot be made at
this time.
22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE I - COMMITMENTS AND CONTINGENCIES (Continued)
The Competition Authority of the European Commission made unannounced
visits to the offices of the Company and our bottling partners in Austria,
Belgium, Denmark, Germany and Great Britain several years ago. Similarly, the
Spanish competition authorities made unannounced visits to our own offices and
those of certain bottlers in Spain in 2000. The European Commission and the
Spanish competition authorities continue their investigations into unspecified
market practices in their respective jurisdictions. The Company believes we have
substantial legal and factual defenses in these matters.
Additionally, at the time of divesting our interest in a consolidated
entity, we sometimes agree to indemnify the buyer for specific liabilities
related to the period we owned the entity. Management believes that any
liability to the Company that may arise as a result of any such indemnification
agreements will not have a material adverse effect on the financial condition of
the Company taken as a whole.
23
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Beverage VolumeBEVERAGE VOLUME
We measure our sales volume in two ways: (1) gallons and (2) unit cases of
finished products. "Gallons" represent our primary business and measure the
volume of concentrates, syrups, beverage bases, finished beverages and other beverage products (expressedpowders
(in all cases, expressed in equivalent gallons of syrup) included by the Company infor all beverage
products which are reportable as unit case volume. Most of our revenues are
based on this measure of primarily wholesale activity, which consists primarilymainly of
our sales to bottlers and customers.
Our Company records revenue
when title to our products passes to our bottling partners or our customers.
Unit cases represent activity at the retail level. Most of our Company's
revenues are not based directly onWe also measure volume in unit case volume. As used in this report,
"unitcases. "Unit case" means a unit of
measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce
servings); and "unit. "Unit case volume" of the
Company means the number of unit cases (or unit case
equivalents) of Company trademark or licensed beverage products directly or
indirectly sold by the Coca-Cola bottling system or by the Company to customers, includingcustomers. Volume primarily consists
of beverage products bearing trademarksCompany trademarks. Also included in unit case
volume are certain products licensed to theour Company and certain key products
(which are not material)or owned by Coca-Cola system bottlers andour bottling
partners, for which theour Company provides marketing support and derives profit
from the sales. Such products licensed to our Company or owned by our bottling
partners account for a minimal portion of total unit case volume. Although most
of our Company's revenues are not based directly on unit case volume, we believe
unit case volume is one of the measures of the underlying strength of the
Coca-Cola system because it measures trends at the consumer level.
In the thirdsecond quarter of 2002,2003, our worldwide unit case volume increased 5
percent compared to the thirdsecond quarter of 2001. The increase in unit case volume
was driven by 4 percent volume growth for international operations and 9 percent
growth for North American operations. This volume growth benefited from several
recent strategic acquisitions and license agreements. The North America volume
growth included a positive impact of 4 percentage points resulting from recent
transactions involving the Danone and Evian water brands and Seagram's mixers.
The introduction of Vanilla Coke and diet Coke with Lemon also helped drive
growth during the third quarter. Third quarter 2002 unit case volume for the
Company's international operating segments included 3 percent growth for Africa;
2 percent growth for Europe, Eurasia and Middle East; 1 percent growth for Latin
America; and 9 percent growth for Asia. In Africa, growth was driven by Southern
Africa, which continued to generate strong growth during the third quarter,
partially offset by the impact of political instability and boycotts against
American brands in Northern Africa. The 2 percent growth in Europe, Eurasia and
Middle East was impacted by the unseasonably cool summer, floods throughout many
parts of Europe and the boycott of American brands in the Middle East. The 1
percent growth in Latin America was due to volume growth in Mexico, partially
offset by continued challenging economic conditions in other Latin American
markets, primarily Argentina, Venezuela and Brazil. The 9 percent growth in Asia
was driven by significant growth in India, China and the Philippines, partially
offset by relatively flat growth in Japan due to extremely poor weather
conditions in the month of July.
25
RESULTS OF OPERATIONS
Beverage Volume (Continued)
The current unstable economic and political conditions and civil unrest in
the Middle East and Northern Africa, as well as in certain regions of Latin
America, have had an adverse impact on our Company's recent business results,
and we believe that these trends could continue in the fourth quarter.
Furthermore, our Company has not yet seen the improvements in overall
macroeconomic conditions that we anticipated at the beginning of 2002. Our
current expectation is that the macroeconomic environment is likely to remain
difficult throughout the remainder of 2002.
Our unit case volume for the first nine months of 2002 increased 5 percent
compared to the first nine months of 2001. The increase in unit case volume
was driven by 5 percent volume growth for international operations and 63 percent
growth for North American operations. The worldwide volume growth was driven by
growth in certain markets and also benefited from several recent strategic
acquisitions and license agreements. The North America volume growth included a
positive impact of 2 percentage points resultingresulted
almost entirely from recent2002 transactions involving the Danone and Evian water
brands and Seagram's mixers. The
introduction ofUnit case volume increases for products such as
diet Vanilla Coke and diet Coke, with Lemon also helped drive growth
foras well as the first nine monthslaunch of 2002. UnitSprite Remix, were
partially offset by a 1 percent decline in Foodservice and Hospitality Division
unit cases, compared to the prior year second quarter, resulting from weak
overall restaurant traffic in the quarter. Second quarter 2003 unit case volume for the first nine months of
2002
for the Company's international operating segments included 3 percent growth for
Africa; 7 percent growth for Europe, Eurasia and Middle East; 5 percent growth
for Latin America; and 4 percent growth for Asia. In Africa, growth was driven
by increased volume in Southern Africa, partially offset by the impact of a
challenging operating environment in parts of North and West Africa due to the
ongoing political and economic instability in those regions. The Company had
increased volume in West Europe, in markets such as Spain, Great Britain,
France, Belgium and Italy, as well as in key markets in Central and Eastern
Europe. In Germany, unit case volume in the second quarter of 2003 was flat
compared to the second quarter of 2002, reflecting improvement from first
quarter trends that were impacted by the implementation of a deposit law on
non-returnable packages. The 5 percent growth in Latin
24
RESULTS OF OPERATIONS (Continued)
BEVERAGE VOLUME (Continued)
America was due to volume growth in Argentina and Mexico. The growth in Mexico
was driven by core brands resulting from packaging innovations and new flavor
introductions as well as growth in the water category primarily through the
introduction of Ciel in additional territories. These positive factors in Latin
America were partially offset by a 12 percent decline in unit case volume in
Brazil as a result of significant price increases that were implemented to
address raw material price increases, devaluation and the overall profitability
of the Company and its bottling partners. The 4 percent growth in Asia was
driven by growth in Australia, India, the Philippines and Thailand, partially
offset by a 3 percent decline in Japan which was impacted by a product recall
surrounding two successful new products, BOCO and Pooh Honey Lemon. The products
have been reformulated and are back in the market.
Our unit case volume for the first six months of 2003 increased 4 percent
compared to the first six months of 2002. This increase in unit case volume was
driven by 5 percent volume growth for international operations and 3 percent
growth for North American operations. Unit case volume for the first six months
of 2003 for the Company's international operating segments included 3 percent
growth for Africa; 4 percent growth for Europe, Eurasia and Middle East; 15
percent growth for Latin America; and 116 percent growth for Asia.
The Company is focused on continuing to broaden its family of brands. In
particular, we are expanding and growing our non-carbonatednoncarbonated offerings to provide
more alternatives to consumers. Carbonated soft drinks and non-carbonated
beverages contributed approximately 2 percentThe Company's unit case volume growth and approximately 27
percent volume growth, respectively, for the first nine months of 2002. As
mentioned above, our Company recently completed2003 as
compared to 2002 has been favorably impacted by several strategic acquisitions
and license agreements involving non-carbonatednoncarbonated brands such as Evian and Danone
waters in North America and Risco, a water brand in Mexico. The Company also
entered into a long-term license agreement involving Seagram's mixers, a
carbonated line of drinks. These brands and other acquired brands acquired during the
past 12 months suchthat have
impacted volume growth for 2003 as Cosmos in the Philippines and Odwalla in the United
Statescompared to 2002, had annual volume in the
year before we acquired them of approximately 500450 million unit cases.
26Gallon sales increased 1 percent and 3 percent, respectively, for the
three-month and six-month periods ended June 30, 2003, as compared to the same
periods in 2002. The growth rates for gallon sales are not in line with the
growth rates for unit case volume due primarily to the timing of shipments. On a
full-year basis the Company expects the growth in gallons to be similar to the
growth in unit case volume.
25
RESULTS OF OPERATIONS (Continued)
NET OPERATING REVENUES AND GROSS MARGIN
Net Operating Revenues and Gross Margin
Net operating revenues were $5,322$5,691 million in the thirdsecond quarter of 2003,
compared to $5,368 million in the second quarter of 2002, compared to $4,695 million in the third quarter of 2001, an increase of $627$323
million or 136 percent. The following table indicates, on a percentage basis, the
estimated impact of key factors resulting in significant increases (decreases)
in Net Operating Revenues:
Three months ended June 30, 2003 vs. 2002
- --------------------------------------------------------------------------------
Increase in gallon shipments, including acquisitions 1%
Favorable impact of the weaker U.S. dollar 5
Price and product/geographic mix 1
Structural changes (1)
- --------------------------------------------------------------------------------
Total percentage increase reflected a 7 percent6%
================================================================================
The increase in gallon shipments includes the favorable impact of
acquisitions, primarily the Danone and Evian water brands and Seagram's mixers.
The unfavorable impact of structural changes that added approximately $450was primarily due to the
deconsolidation of Cosmos Bottling Corporation (CBC) during the second quarter
of 2003. Refer to Note E.
Net Operating Revenues were $10,189 million for the first six months of
2003, compared to net
operating revenues (primarily$9,447 million for the consolidationfirst six months of 2002, an increase
of $742 million or 8 percent. The following table indicates, on a percentage
basis, the estimated impact of key factors resulting in significant increases
(decreases) in Net Operating Revenues:
Six months ended June 30, 2003 vs. 2002
- --------------------------------------------------------------------------------
Increase in gallon shipments, including acquisitions 3%
Favorable impact of the weaker U.S. dollar 4
Price and product/geographic mix 1
- --------------------------------------------------------------------------------
Total percentage increase 8%
================================================================================
The increase in gallon shipments includes the favorable impact of
acquisitions, primarily the Danone and Evian water brands and Seagram's mixers.
Structural changes had a neutral impact on Net Operating Revenues for the first
six months of 2003 as the deconsolidation of CBC during the second quarter of
2003 was offset by the inclusion of one additional month of revenue from our
German bottler, Coca-Cola Erfrischungsgetraenke AG (CCEAG), Cosmos Bottling Corporation (CBC), Odwalla,
Inc. (Odwalla). CCEAG was
consolidated in February 2002, therefore, the first quarter of 2002 contained
only two months of CCEAG revenue versus three months of CCEAG revenue included
in the first quarter of 2003.
26
RESULTS OF OPERATIONS (Continued)
NET OPERATING REVENUES AND GROSS MARGIN (Continued)
The structural change related to CCEAG impacted the Europe, Eurasia and
CCDA Waters, L.L.C. (CCDA),Middle East operating segment and the structural change related to CBC impacted
the Asia operating segment. The impact of acquisitions mentioned above was
primarily related to the 2002 transactions involving the Danone and Evian water
brands and Seagram's mixers which impacted the North America operating segment.
The impact of the weaker U.S. dollar mentioned above was driven primarily by the
stronger euro that favorably impacted the Europe, Eurasia and Middle East
operating segment, the stronger Japanese yen that favorably impacted the Asia
operating segment, partially offset by generally weaker currencies negatively
impacting the deconsolidation of our Russian bottling operations), and price increases in
certain regions including NorthLatin America and Europe. These increases were
partially offset by the shift in the increase in gallon shipments to higher
growth but lower revenue regions such as India and China. For further
information related to the consolidation of CCEAG, CBC and CCDA refer to Note E.
Net operating revenues were $14,769 million in the first nine months of 2002,
compared to $13,307 million in the first nine months of 2001, an increase of
$1,462 million or 11 percent. The increase for the first nine months of 2002
reflected a 5 percent increase in gallon shipments, structural changes that
added approximately $1,050 million to net operating revenues (primarily the
consolidation of CCEAG, CBC, Odwalla and CCDA, partially offset by the
deconsolidation of our Russian bottling operations), and price increases in
selected countries. These positive factors were partially offset by the negative
impact (approximately 2 percentage points) of a stronger U.S. dollar.segment. For further discussion related to
the impact of exchange and expected trends, refer to "Exchange.""Exchange" on page 36 of
this report.
The contribution to Net Operating Revenues from Company operations is as
follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Company Operations, Excluding
Bottling Operations $ 4,874 $ 4,582 $ 8,816 $ 8,237
Company-Owned Bottling Operations 817 786 1,373 1,210
------- ------- -------- -------
Consolidated Net Operating Revenues $ 5,691 $ 5,368 $ 10,189 $ 9,447
======= ======= ======== =======
Our gross profit margin decreased to 60.962.9 percent in the thirdsecond quarter of
20022003 from 64.064.1 percent in the thirdsecond quarter of 2001. For2002. This decrease was
primarily the first nine monthsresult of 2002, our gross profit margin decreased to 63.4 percent from 65.3 percent for
the first nine monthsinclusion of 2001. The decreasethe acquired lower-margin Evian and
Danone results in our gross profit margin for the thirdsecond quarter and the first nine months of 2002 was due primarily to the
consolidation of lower margin operations, primarily CCEAG, CBC, Odwalla and
CCDA,2003, partially offset by structural
change, primarily related to the deconsolidation of our RussianCBC. Generally, bottling
operations. Generally, bottlingoperations and other finished products operations produce higher revenues but
lower gross margins compared to concentrate and syrup operations.
Our gross profit margin decreased to 63.5 percent in the first six months
of 2003 from 64.8 percent for the first six months of 2002. This decrease was
primarily the result of the inclusion of the lower-margin Evian and Danone
results in the first six months of 2003, partially offset by our receipt during
the first quarter of 2003 of a settlement of approximately $52 million from
certain defendants in a vitamin antitrust litigation. Refer to Note G.
27
RESULTS OF OPERATIONS (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative and General Expenses Selling, administrative and general expenses were $1,694$1,906 million in the
thirdsecond quarter of 2003, compared to $1,881 million in the second quarter of
2002, compared to $1,692 million in the third quarter of 2001, an increase of $2 million.$25 million or 1 percent. The increase was due to structural changes (primarily
the consolidation of CCEAG, CBC, Odwalla and CCDA, partially offset by the
deconsolidation of our Russian bottling operations), whichreflected increased
selling,
administrative and general expenses by approximately $160 million, partially
offset by the 2001 strategic one-time marketing initiatives of $94 million
described in more detail below, and a reduction in amortizationstock-based compensation expense of intangible assets of approximately $15$13 million, increased
expenses due to the adoptioninclusion of Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets."
Selling, administrative and general expenses were $4,915 million for the
first nine months of 2002, compared to $4,587 million for the first nine months
of 2001, an increase of $328 million or 7 percent. The increase was due to
structural changes (primarily the consolidation of CCEAG, CBC, Odwalla and CCDA,
partially offset by the deconsolidation of our Russian bottling operations),
which increased selling, administrative and general expenses by approximately
$370 million. This increase was partially offset by the 2001 strategic one-time
marketing initiatives of $180 million described below, a reduction in
amortization expense of intangible assetsacquisitions of approximately $40$25 million due to
the adoption of SFAS No. 142, and
the favorable impact (approximately 24 percentage points) of a strongerweaker U.S. dollar. These
increases were partially offset by effective management of operating expenses in
the current difficult economic environment.
Selling, General and Administrative Expenses were $3,567 million in the
first six months of 2003, compared to $3,408 million in the first six months of
2002, an increase of $159 million or 5 percent. The increase reflected increased
stock-based compensation expense of approximately $32 million, structural
changes which increased expenses by approximately $58 million (primarily
impacted by one additional month of CCEAG expenses included in 2003), increased
expenses due to acquisitions of approximately $45 million and the impact
(approximately 3 percentage points) of a weaker U.S. dollar. These increases
were partially offset by effective management of operating expenses in the
current difficult economic environment.
OTHER OPERATING CHARGES
In 2001,the second quarter of 2003, the Company implemented significant strategic one-time marketing
initiatives to accelerate the Company's business strategies. During the third
quarterrecorded charges of
2001, approximately $94$70 million, or $0.03$0.02 per share after tax, was
expensed onrelated to the
streamlining initiatives, primarily in North America and Germany, announced
during the first quarter of 2003. Of these incremental one-time marketing activities in selected key
markets, specificallycharges, approximately $53 million
impacted the United States, JapanNorth America operating segment, approximately $14 million impacted
the Europe, Eurasia and Germany. Approximately $180Middle East operating segment, and approximately $3
million impacted the Latin America operating segment.
For the first six months of 2003, the Company recorded charges of
approximately $229 million, or $0.05$0.06 per share after tax, was expensed for these incremental
one-time marketing activites forrelated to the
streamlining initiatives, primarily in North America and Germany, announced
during the first nine monthsquarter of 2001.2003. Of these charges, approximately $134 million
impacted the North America operating segment, approximately $69 million impacted
the Europe, Eurasia and Middle East operating segment, approximately $23 million
impacted the Corporate operating segment, and approximately $3 million impacted
the Latin America operating segment. As of June 30, 2003, approximately 1,300
associates had been separated pursuant to these streamlining initiatives.
In North America, the Company is integrating the operations of our three
separate North American business units - Coca-Cola North America, The Minute
Maid Company and Fountain. In Germany, the German division office has been
relocated to Berlin to more closely align with CCEAG, and CCEAG has taken steps
to improve efficiency in sales, distribution and manufacturing.
28
RESULTS OF OPERATIONS (Continued)
OTHER OPERATING CHARGES (Continued)
The above initiatives are expected to result in the separation of a total
of approximately 1,900 associates in 2003, primarily in North America and
Germany. These initiatives are expected to result in a full-year 2003 charge to
earnings of approximately $400 million on a pretax basis. This expected $400
million charge is composed of costs associated with involuntary terminations and
other direct costs, including the relocation of employees; contract termination
costs; costs associated with the development, communication and administration
of these initiatives; and asset write-offs. To the extent not already recorded
in the first six months of 2003, the charge is expected to be recorded
throughout the rest of 2003. As a result of the above initiatives, apart from
the charge to earnings, the Company's financial results are expected to benefit
by at least $50 million (pretax) in 2003 and at least $100 million (pretax) on
an annualized basis beginning in 2004.
OPERATING INCOME AND OPERATING MARGIN
Operating Income and Operating Margin
Operating income was $1,545$1,602 million in the thirdsecond quarter of 2003, compared
to $1,560 million in the second quarter of 2002, compared to
$1,311 million in the third quarter of 2001, an increase of $234$42 million or 183
percent. Our consolidated operating margin for the thirdsecond quarter of 20022003 was
29.028.1 percent, compared to 27.929.1 percent for the comparable period in 2001.2002. The
increase in operating incomeOperating Income for the thirdsecond quarter of 20022003 reflected the
increase in gallon shipments, the effective management of 7 percentoperating expenses,
and price increases in selected
countries,a favorable impact of a weaker U.S. dollar of 3 percentage points, partially
offset by expenses related to the reduction in amortization2003 streamlining initiatives of approximately
$70 million and increased stock-based compensation expense of approximately $15 million
due to the adoption of SFAS No. 142 and the incremental marketing in 2001 of
approximately $94$13
million. These positive factors were partially offset by the
negative impact from the stronger U.S. dollar, which reduced operating income by
approximately 1 percent during the third quarter of 2002. The stronger U.S.
dollar compared to the Argentine peso, the Mexican peso, the Brazilian real, the
Venezuelan bolivar and the South African rand was partially offset by strength
in the euro. The increasedecrease in the Company's operating margin was due primarily to the
negative impact thatexpenses related to the incremental marketing had on2003 streamlining initiatives and inclusion of the
2001 operating
margin, partially offset by structural changes in 2002 (primarily the
consolidation of CCEAG, CBC, Odwallaacquired lower-margin Evian and CCDA,Danone results mentioned above, partially offset
by the deconsolidationeffective management of our Russianoperating expenses. Generally, bottling
operations), which reduced the Company's
operating margin during the third quarter of 2002. Generally, bottlingoperations and other finished products operations produce higher revenues but
lower operating margins compared to concentrate and syrup operations.
Operating incomeIncome was $4,450$2,678 million forin the first ninesix months of 2002,2003,
compared to $4,104$2,718 million forin the first nine monthssecond quarter of 2001, an increase2002, a decrease of $346$40
million or 81 percent. Our consolidated operating margin for the first ninesix months
of 20022003 was 30.126.3 percent, compared to 30.828.8 percent for the comparable period in
2001.2002. The increasedecrease in operating incomeOperating Income for the first ninesix months of 20022003
reflected expenses related to the 2003 streamlining initiatives of approximately
$229 million and increased stock-based compensation expense of approximately $32
million, partially offset by the increase in gallon shipments, the effective
management of 5 percent and price increases
in selected countries, the reduction in amortization expenseoperating expenses, receipt of approximately
$40a $52 million duesettlement related to
the adoptionvitamin litigation in the first quarter of SFAS No. 142,2003, and a favorable impact of a
weaker U.S. dollar of 1 percentage point. The decrease in the incremental marketing
in 2001Company's
operating margin was due primarily to the expenses related to the 2003
streamlining initiatives and inclusion of approximately $180 million. These positive factors werethe acquired lower-margin Evian and
Danone results mentioned above, partially offset by the negative impact from the stronger U.S. dollar, which reducedeffective management of
operating income by approximately 3 percent during the first nine months of
2002. The stronger U.S. dollar compared to the Japanese yen, the Argentine peso,
the Mexican peso, the Brazilian real, the Venezuelan bolivarexpenses. Generally, bottling operations and the South
African rand was partially offset by strength in the euro. Additionally,
structural changes (primarily the consolidation of CCEAG, CBC, Odwalla and CCDA,
partially offset by the deconsolidation of our Russian bottling operations)
contributed to the reduction in operating margin. Generally, bottlingother finished products
operations produce higher revenues but lower operating margins compared to
concentrate and syrup operations.
29
RESULTS OF OPERATIONS (Continued)
INTEREST INCOME AND INTEREST EXPENSE
Interest Income and Interest Expense
Interest income decreased to $46$45 million for the thirdsecond quarter of 2002 and to
$1562003
from $52 million for the nine months ended September 30, 2002, from $68 million and
$227 million, respectively, for the comparable periods in 2001. In both cases, a
majoritysecond quarter of the2002. This slight decrease was
primarily due to lower interest rates earned on short-term investments during 2002.investments.
Nevertheless, the Company continues to benefit from cash invested in locations
outside the United States earning higher interest rates than could be obtained
within the United States. Interest expenseExpense decreased $14$15 million, or 2126 percent,
in the thirdsecond quarter of 20022003 relative to the comparable period in 2001, and by $782002, due
mainly to lower interest rates for commercial paper debt.
Interest Income decreased to $101 million for the first six months of 2003
from $110 million for the first six months of 2002. This decrease was primarily
due to lower interest rates earned on short-term investments. Interest Expense
decreased $16 million, or 3315 percent, forin the ninefirst six months ended September 30, 2002of 2003 relative
to the comparable period in 2001,2002, due mainly to both a decrease in average
commercial paper debt balances and lower interest rates for commercial paper
debt.
The decrease in interest expense for
commercial paper debt was partially offset by increased interest expense on debt
related to the consolidation of CCEAG. Our Company's debt increased
approximately $890 million, of which approximately $810 million is classified as
long-term, as a result of the consolidation of CCEAG. Additionally, long-term
debt increased due to the issuance during 2002 of $750 million of notes due June
1, 2005. The proceeds from this long-term debt issuance were used to reduce
current debt.
Equity Income (Loss)EQUITY INCOME (LOSS) - NetNET
Our Company's share of income from equity method investments for the thirdsecond
quarter of 2003 totaled $190 million, compared to $176 million in the second
quarter of 2002, totaled $113 million, compared to $104 million in the third
quarter of 2001, an increase of $9$14 million or 98 percent. This increase in 2002
wasEquity income for the
majority of our investees increased during the second quarter of 2003 due to the
overall improving health of the Coca-Cola bottling system around the world.
However, our equity method investments in Latin America have been
adversely impacted by ongoing economic difficulties. Specific items with a
positive impact to equity income were the increase in equity income for
Coca-Cola Enterprises Inc. (CCE) due to improving trends in operating and
financial performance of approximately $65 million (which included a $22 million
favorable impact resulting from the adoption of SFAS No. 142) and the increase
in equity income due to the reduction in amortization expenses of approximately
$17 million for investments other than CCE resulting from implementation of SFAS
No. 142. These increases were partially offset by the economic difficulties in
Latin America mentioned above as well as our Company's share of impairment and
restructuring charges taken by equity method investees in Latin America during
the third quarter of 2002. The Company's share of these charges was
approximately $33 million.
30
RESULTS OF OPERATIONS (Continued)
Equity Income (Loss) - Net (Continued)
For the first nine months of 2002, ourOur Company's share of income from equity method investeesinvestments for the first
six months of 2003 totaled $350$239 million, compared to $167$237 million forin the comparable period in 2001,second
quarter of 2002, an increase of $183$2 million or 1101 percent. This
increase in 2002 was due to the overall improving health of the Coca-Cola
bottling system around the world. However, our equity method investments in
Latin America have been adversely impacted by ongoing economic difficulties.
Specific items with a positive impact to equity income were the increase in
equityEquity income for CCE due to improving trends in operating and financial
performance of approximately $160 million (which included a $67 million
favorable impact resulting from the adoption of SFAS No. 142) and the increase
in equity income due to the reduction in amortization expenses of approximately
$51 million for investments other than CCE resulting from implementation of SFAS
No. 142. These increases were partially offset by the economic difficulties in
Latin America mentioned above as well as our Company's share of impairment and
restructuring charges taken by equity method investees in Latin America during
the third quarter of 2002. The Company's share of these charges was
approximately $33 million.
For the
first ninesix months of 2002 benefited from our Company's share of income from equity
method investees was also favorably impacted by a benefit related to our share of the gain on the
sale by Cervejarias Kaiser S.A. (Kaiser S.A.) of its interests in Brazil to
Molson Inc. (refer to Note H)G). Approximately $21$28 million of the pretax gain from
thethis sale by Kaiser S.A. was recorded in equity income with the remaining
portion $22 million,(approximately $23 million) recorded in "OtherOther Income (Loss) - Net.
Equity income (loss)for the majority of our investees increased during the first six
months of 2003 due to the overall improving health of the Coca-Cola bottling
system around the world.
30
RESULTS OF OPERATIONS (Continued)
OTHER INCOME (LOSS) - net."NET
Other Income (Loss) - Net "Other income (loss) - net" was a net loss of $62$44 million for the thirdsecond
quarter of 2003 compared to a net loss of $55 million for the second quarter of
2002, compared to income of $26 million for the third quarter of 2001,
a difference of $88$11 million. The 2002A portion of this difference, approximately
$10 million, is related to the net loss on currency exchange, primarily in Latin
America, which was principally comprisedimpacted by the significant devaluation of the Argentine
peso, and in Africa, in 2002. Other Income (Loss) - Net for the second quarter
of 2003 was composed primarily of foreign currency exchange losses of
approximately $24 million and the accretion of the discounted value of the CCEAG
liability of approximately $11$13 million (refer to Note E), and minority ownership accruals. The losses.
Other Income (Loss) - Net was a net loss of $57 million for the first six
months of 2003 compared to a net loss of $230 million for the first six months
of 2002, a difference of $173 million. A portion of this difference,
approximately $53 million, is related to the net loss on currency exchange,
were
primarily in Latin America, which was impacted by the significant devaluation of
currencies.
"Other income (loss) - net" was a net loss of $292 million for the first nine
months of 2002 compared to income of $23 million for the comparable period in
2001, a difference of $315 million. The 2002 net loss was principally comprised
of foreign currency exchange losses of approximately $110 million, the accretion
of the discounted value of the CCEAG liability of approximately $27 million
(refer to Note E), the nonrecurring items described below,Argentine peso, and minority
ownership accruals. The losses on currency exchange were primarily in Africa, and
Latin America, which were impacted by the significant devaluation of currencies.
31
RESULTS OF OPERATIONS (Continued)in 2002. Additionally, Other Income (Loss) -
Net (Continued)
Additionally, the first nine months of 2002 werewas impacted by nonrecurringtwo other items which were recorded during the first quarter
of 2002. In the first quarter of 2002, our Company recorded a non-cash pretax
charge of approximately $157 million primarily related to the write-down of our
investments in Latin America. The charge was primarily the result of the economic
developments in Argentina during the first quarter of 2002, including the
devaluation of the Argentine peso and the severity of the unfavorable economic
outlook. TheIn the first quarter of 2002, our Company expects
to realizealso recorded in Other Income
Loss) - Net a minimal tax benefit from this write-down. The final impact on
diluted earnings per share was an after-tax reduction of approximately $0.06 per
share. As previously noted, a $22$23 million portion of the pretax gain from the sale by Kaiser S.A. Refer to Note
G. Other Income (Loss) - Net for the first six months of 2003 was recorded in "Other income (loss) - net."
Issuancescomposed
primarily of Stock by Equity Investee
In July 2001, CCE completed its acquisitionforeign currency exchange losses of Hondo Incorporatedapproximately $34 million and
Herbco
Enterprises, Inc., collectively known as Herb Coca-Cola. The transaction was
valued at approximately $1.4 billion, with approximately 30 percentthe accretion of the transaction funded withdiscounted value of the issuanceCCEAG liability of approximately
25$25 million shares(refer to Note E).
INCOME TAXES
Our effective tax rate was 22.2 percent for the second quarter of CCE
common stock,2003
compared to 27.0 percent for the second quarter of 2002. For the second quarter
of 2003, the effective tax rate for the costs related to the streamlining
initiatives was approximately 39 percent and the remaining portion funded through debt and assumed debt.effective tax rate for all
other pretax income was approximately 22.8 percent. The issuance of shares resulteddecrease in a one-time non-cash pretax gainthe
effective tax rate for our
Company of approximately $91 million during the thirdsecond quarter of 2001. We
provided deferred taxes of approximately $36 million2003 is driven by two separate
factors. First, the Company's expected long-term effective tax rate on
this gain. This
transaction reduced our ownership in CCE from approximately 40 percentoperations was lowered to approximately 38 percent.
3225.5 percent due to effective tax
planning and improved earnings from equity method investees. Second, the Company
will benefit from an even lower tax rate in the current year because of stronger
profit contributions from lower-taxed locations where currencies are having a
favorable impact.
31
RESULTS OF OPERATIONS (Continued)
Income Taxes
Our effective tax rate was 27 percent for the third quarter of 2002 compared
to 30 percent for the third quarter of 2001.INCOME TAXES (Continued)
Our effective tax rate for the first ninesix months of 2002ended June 30, 2003 was 2823.5
percent compared to 30 percent forand includes the first
nine months of 2001.following:
* The effective tax rate for the first ninecosts related to the streamlining
initiatives was approximately 36 percent.
* The effective tax rate for the proceeds received related to the vitamin
antitrust litigation matter was approximately 35 percent.
* The effective tax rate for all other pretax income was approximately
24 percent.
Our effective tax rate for the six months ofended June 30, 2002 was impacted by two nonrecurring items:28.4
percent and includes the following:
* The effective tax rate for our Company's share of the gain on the sale
of Kaiser S.A. interests andwas approximately 33 percent.
* The effective tax rate for the write-down of our investments primarily
in Latin America. Excluding the impact of these items, ourAmerica was approximately 4 percent.
* The effective tax rate would have
beenfor all other pretax income was approximately 27
percent for the first nine months of 2002.percent.
For the full year 20022004 and in future years, the Company expects the ongoingCompany's effective tax rate on operations
is expected to be approximately 2725.5 percent instead of the 27.526.5 percent rate
previously estimated by the Company in its AnnualQuarterly Report on Form 10-K10-Q for the
yearthree months ended December 31,
2001. This slight reduction in our estimated effective tax rate is due to a
non-cash benefit related to the adoption of SFAS No. 142 and is expected to
benefit the current year by approximately $0.01 per share.March 30, 2003. Our ongoing effective tax rate reflects tax benefits
derived from significant operations outside the United States, which are taxed
at lower rates than the U.S. statutory rates.
Cumulative Effect of Accounting Change forCUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR SFAS No.NO. 142
For information regarding the requirements of SFAS No. 142 and details of the
Company's adoption of SFAS No. 142, refer to Note F.
The adoption of SFAS No. 142, is"Goodwill and Other Intangible Assets," was a
required change in accounting principle, and theprinciple. The cumulative effect of adopting this
standard as of January 1, 2002 resulted in a non-cash, after-tax decrease to net
income of $367 million for Company operations and $559 million for the Company's
proportionate share of its equity method investees in the first quarter of 2002.
The adoption of this accounting standard is expected to
resultresulted in a pretax reduction in annual
amortization expense of approximately $60 million, and an increase in annual equity
income of approximately $150 million.
33
RESULTS OF OPERATIONS (Continued)
Recent Developments
Effective January 1, 2002, our Company adoptedmillion for the fair value method of
recording stock-based compensation contained in SFAS No. 123, "Accounting for
Stock-Based Compensation," which is considered the preferable accounting method
for stock-based employee compensation. Historically, our Company had applied the
intrinsic value method permitted under SFAS No. 123, as defined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations, in accounting for our stock-based compensation plans.
Accordingly, no compensation cost has been recognized for our stock option plans
in the past. All future employee stock option grants and other stock-based
compensation will be expensed to "Selling, administrative and general expenses"
over the vesting period based on the fair value at the date the stock-based
compensation is granted. The Financial Accounting Standards Board has issued an
exposure draft which, if finalized as drafted, would allow companies adopting
the fair value method permitted under SFAS No. 123 to choose from three
alternative transition methods. The Company will evaluate these alternatives and
select an appropriate transition method after the issuance of the final
standard, which is expected later this year. The ultimate impact on our
financial statements in 2002 and in future years will depend upon the transition
method selected.
34year ended December 31, 2002.
32
FINANCIAL CONDITION
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Cash Flow Provided by Operating Activities Net cash provided by operating activities in the first ninesix months of 20022003
amounted to $3,405$2,130 million versus $3,053$2,156 million for the comparable period in
2001, an increase2002, a decrease of $352$26 million. IncreasedDecreased cash flows from operations for the
first ninesix months of 2003 compared to 2002 primarily were a result of improved worldwide business operating
results along with the
collection of significant tax receivables in 2002 of approximately $280 million
in connection with an Advance Pricing Agreement (APA) reached between the United
States and Japan in 2000.2000, which impacted Net Change in Operating Assets and
Liabilities for 2002. The APA established the level of royalties paid by
Coca-Cola (Japan) Company Limited to our Company for the years 1993 through
2001. These increases wereThe effect of this item was partially offset by pension plan
contributionsoverall improved worldwide
business operating results. Net Cash Provided by Operating Activities for 2003
and 2002 was also impacted by the funding of employee retirement plans:
approximately $145 million was funded in the first six months of 2003, as
compared to approximately $124 million made duringthat was funded in the second quarterfirst six months
of 2002. For additional information related to Other Operating Charges, refer
to Note G. For additional information regarding the 2002 Cumulative Effect of
Accounting Change, refer to the heading "Cumulative Effect of Accounting Change
for SFAS No. 142."
INVESTING ACTIVITIES
Net Cash Used in Investing Activities Net cash used in investing activities totaled $731$464 million for the first
ninesix months of 2002,2003, compared to $840$586 million for the comparable period in 2001,2002,
a decrease of $109$122 million. During the first ninesix months of 2003, cash outlays
for investing activities included purchases of property, plant and equipment of
$398 million, plus acquisitions and investments of approximately $205 million,
including the acquisition of Truesdale Packaging Company LLC from Coca-Cola
Enterprises Inc. for approximately $60 million (refer to Note E), and other
acquisitions, primarily trademarks, of $145 million. Our Company currently
estimates that purchases of property, plant and equipment will total less than
$1 billion for 2003. During the first six months of 2003, proceeds from
disposals of investments and other assets of $130 million resulted primarily
from the disposal of certain investments in short-term marketable equity
securities and the disposal of a portion of the Company's investment in Piedmont
Coca-Cola Bottling Partnership.
Net Cash Used in Investing Activities totaled $586 million for the first
six months of 2002. During the first six months of 2002, cash outlays for
investing activities included purchases of property, plant and equipment of
$582approximately $374 million, plus acquisitions and the acquisitions of CBC and CCDA for total combined considerationinvestments of approximately
$328$267 million (refer to Note E). These items were partially offset
by the receipt of approximately $146 million in 2002primarily related to the 2001 salepurchase of our Company's ownership interests in various Russian bottling operations. Our
Company currently estimates that purchasesshares of property, plant and equipment will
total approximately $800 to $900 million for the full year 2002 and
approximately $1 billion for 2003.
Financing ActivitiesCosmos Bottling
Corporation.
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments, share
issuances and share repurchases. Net cash usedCash Used in financing activitiesFinancing Activities totaled
$1,912$636 million for the first ninesix months of 20022003 compared to $1,526Net Cash Used in
Financing Activities of $796 million for the first ninesix months of 2001, an increase of $386 million.2002.
33
FINANCIAL CONDITION (Continued)
FINANCING ACTIVITIES (Continued)
In the first ninesix months of 2003, the Company had issuances of debt of $932
million and payments of debt of $614 million. The issuances of debt primarily
included $425 million of issuances of commercial paper with maturities of less
than 90 days and $507 million in issuances of commercial paper with maturities
of over 90 days. The payments of debt primarily included $579 million related to
commercial paper with maturities over 90 days.
For the comparable first six months of 2002, the Company had issuances of
debt of $1,402$1,189 million and payments of debt of $1,939$1,272 million. The issuances of
debt primarily included $636$437 million of issuances of commercial paper with
maturities over 90 days and $750 million in issuances of long-term notesdebt due June
1, 2005. The payments of debt primarily included $616$372 million primarily related
to commercial paper with maturities over 90 days, and net payments of $1,275$857
million related to
commercial paper with maturities less than 90 days.
35
FINANCIAL CONDITION (Continued)
Financing Activities (Continued)
For the comparable first nine months of 2001, the Company had issuances of
debt of $2,660 million and payments of debt of $3,225 million. The issuances of
debt primarily included $2,121 million of issuances of commercial paper with
maturities over 90 days and a $500 million issuance of long-term debt. The
payments of debt primarily included $3,128 million related to commercial paper
with maturities over 90 days, and net payments of $72 million related to commercial paper with maturities less than 90 days.
During the first ninesix months of 20022003 and 2001,2002, the Company repurchased
common stock under the stock repurchase plan authorized by our Board of
Directors in October 1996. Cash used to purchase common stock for treasury was $478 million
for the first nine months of 2002 compared to $219 million for the first nine
months of 2001. During the first ninesix months of 2002,2003, the Company
repurchased approximately 9,327,00011.6 million shares of common stock at an average cost
of $49.79$40.38 per share under the 1996 plan. During the first ninesix months of 2001,2002,
the Company repurchased approximately 4,050,0005.9 million shares of common stock at an
average cost of $48.76$50.00 per share under the 1996 plan. The Company currently
estimates that its share repurchases will total approximately $750 million during 2002 and over $1$1.5 billion
during 2003.
Financial Position
The Condensed Consolidated Balance Sheet2003, including the purchases during the first six months of 2003 just
described.
FINANCIAL POSITION
Our balance sheet as of SeptemberJune 30, 2002,2003, as compared to the Condensed Consolidated Balance Sheetour balance sheet as
of December 31, 2001,2002, was significantly impacted by our Company's consolidation of CCEAG. Prior to
consolidation, our investment in CCEAG was recorded as an equity method
investment. Thus, the $836 million decrease in "Equity method investments -
other, principally bottling companies" was primarily driven by the consolidation
of CCEAG. Upon consolidation of CCEAG, the individual balances were included in
the Company's respective balance sheet line items. The consolidation of CCEAG,
CCDA, CBC and Odwalla was the main reason for the following changes in the
Company's balance sheet from December 31, 2001 to September 30, 2002: (1) $301
million increase in "Trade accounts receivable"; (2) $1,234 million increase in
"Property, Plant and Equipment"; (3) $945 million increase in "Trademarks and
Other Intangible Assets"; and (4) $1,238 million increase in "Other
liabilities."following:
* The increase in "CashCash and cash equivalents"Cash Equivalents of $1,198 million was due
primarily to the accumulation of cash for the quarterly dividend
payment and the consolidation of
CCEAG.payment.
* The increase in "Accounts payableEquity Method Investments, Coca-Cola FEMSA, S.A. de C.V.
of $502 million and accrued expenses"the decrease in Equity Method Investments, Other,
principally bottling companies of $481 million were primarily due to the
merger of Coca-Cola FEMSA and Panamerican Beverages, Inc. Refer to Note
E.
* The $706 million increase in Investments and Other Assets is due
primarily to equity income recorded for certain equity method
investments and the impact of a stronger euro on certain investments.
* The increase in Property, Plant and Equipment of $348 million was
primarily related to the impact of a stronger euro.
* The increase in Loans and Notes Payable of $326 million was due to the
issuance of commercial paper during the six months of 2003 to meet
short-term cash needs, including the quarterly dividend payment and
repurchases of common stock.
34
FINANCIAL CONDITION (Continued)
FINANCIAL POSITION (Continued)
* The increase in Accounts Payable and Accrued Expenses of $904 million
was primarily due to dividends payable accrued as of SeptemberJune 30, 2002,2003,
which will be paid during the fourththird quarter of 20022003.
* The increase in Current Maturities of Long-Term Debt of $305 million and
the consolidationdecrease in Long-Term Debt of CCEAG, CCDA$151 million were primarily due to
long-term debt which will mature within the next twelve months.
The overall increase in total assets as of June 30, 2003 compared to
December 31, 2002 was primarily related to the increase in Cash and CBC.
Additionally,Cash
Equivalents mentioned above, which impacted the asset impairments recorded asCorporate operating segment, and
the impact of a resultstronger euro (which impacted the Europe, Eurasia and Middle
East operating segment) and Japanese yen (which impacted the Asia operating
segment), partially offset by the impact of weakening currencies impacting the
Latin America operating segment. This impact of exchange is reflected in the net
foreign currency translation gain for the first six months of 2003 of
approximately $870 million. Refer to Note C.
UPDATE TO APPLICATION OF CRITICAL ACCOUNTING POLICIES
During the first six months of 2003, several events occurred that had an
unfavorable impact on our operations, specifically:
* The unstable situation in Iraq and the continued overall civil and
political unrest in the Middle East had an adverse impact on our
Company's business results and, therefore, could impact the valuation of
our assets in this region.
* Germany's operating results have been impacted by what our Company
believes is a short-term disruption caused by the implementation of a
deposit law on non-returnable packages. The change in the law on January
1, 2003 resulted in major retailers delisting non-returnable packages.
Furthermore, consumers have begun to shift their consumption back to
returnable packages and to other beverage categories that were not
impacted by the deposit law.
In the first six months of 2003, the Company evaluated the impact that
these events could have on our future business results and the carrying value of
our investments and assets in these regions of the adoptionworld. Currently, management
believes these events will only have a temporary unfavorable impact on our
operations, and therefore, resulted in no asset impairment. We plan to closely
monitor these and other conditions in the future and continue to evaluate any
impact they might have on our assets and investments in these regions of SFAS
No. 142, which was effective January 1, 2002, also impacted the
September 30,
2002 Condensed Consolidated Balance Sheet, by reducing the balances in both
"Investments and Other Assets" and "Trademarks and Other Intangible Assets."
36world.
35
FINANCIAL CONDITION (Continued)
Financial Position (Continued)
The $1,616 million increase in the Company's long-term debt was due to both
the consolidation of CCEAG, which had the effect of increasing debt by
approximately $890 million, of which approximately $810 million is classified as
long-term, and the issuance during 2002 of $750 million of notes due June 1,
2005. The proceeds of this $750 million long-term debt issuance were used to
reduce current debt.
ExchangeEXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and government 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.
We use approximately 5950 functional currencies. Due to our global
operations, weaknesses in some of these currencies are often offset by strengths
in others. The U.S. dollar was approximately 19 percent weaker in the thirdsecond
quarter of 2002,2003 compared to the thirdsecond quarter of 2001,2002, based on comparable
weighted averages for our functional currencies. This does not include the
effects of our hedging activities and, therefore, does not reflect the actual
impact of fluctuations in exchange rates on our operating results. Our foreign
currency management program mitigates over time a portion of the impact of
exchange on net income and earnings per share. The effective impact of exchange
to our Company after considering hedging activities was a reductionan increase to operating
income of approximately 13 percent in the thirdsecond quarter of 2003 compared to the
second quarter of 2002, resulting from a strengthening euro partially offset by
less attractive hedge rates on the Japanese yen and of approximately 3
percent for the first nine months of 2002, compared to the same periodsweakness in 2001.Latin American
currencies. The effective impact of exchange to our Company after considering
hedging activities was a negative impactan increase to operating income of $0.01 on net income per share for the third
quarter of 2002, and a negative impact of $0.06 on net income per share forapproximately 1
percent in the first ninesix months of 2002,2003 compared to the same periods in 2001. Based on
currently available information, our Company expects this trend to continue, and
probably worsen somewhat, during the fourth quarterfirst six months of
2002. For the remainder of 2003, the Company expects exchange to have a neutral or slightly
negativepositive impact on its operating results.Operating Income.
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 nearlymore than 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.
3736
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by our Company and subsidiaries or
with the approval of an authorized executive officer of our Company may
constitute "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995, including statements made in this report and
other filings with the Securities and Exchange Commission. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "project," "will" and
similar expressions identify forward-looking statements, which generally are not
historical in nature. 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. Forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from our Company's historical experience and our present expectations
or projections. As and when made, management believes that these forward-looking
statements are reasonable. However, caution should be taken not to place undue
reliance on any such forward-looking statements since such statements speak only
as of the date when made. 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 cause our Company's actual
results to differ materially from the expected results described in or
underlying our Company's forward-looking statements:
* Economic and political conditions, especially in international markets,
including civil unrest, product boycotts, governmental changes and
restrictions on the ability to transfer capital across borders. Without
limiting the preceding sentence, the current unstable economic and
political conditions and civil unrest in the Middle East, Liberia,
Venezuela, North Korea or elsewhere, the unstable situation in Iraq, or
the continuation or escalation of terrorism, could have adverse impacts
on our Company's business results or financial condition.
* Changes in the nonalcoholic beverages business environment. These
include, without limitation, changes in consumer preferences,
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. Factors such as these could impact our earnings, share of
sales and volume growth.
37
FORWARD-LOOKING STATEMENTS (Continued)
* Foreign currency rate fluctuations, interest rate fluctuations and other
capital market conditions. Most of our exposures to capital markets,
including foreign currency and interest rates, 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 capital market exposures.
* Changes in the nonalcoholic beverages business environment. These include,
without limitation, changes in consumer preferences, 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. Factors such as these
could impact our earnings, share of sales and volume growth.
38
FORWARD-LOOKING STATEMENTS (Continued)
* Adverse weather conditions, which could reduce demand for Company
products.
* Economic and political conditions, especially in international markets,
including civil unrest, governmental changes and restrictions on the ability
to transfer capital across borders. Without limiting the preceding sentence,
the current unstable economic and political conditions and civil unrest in
the Middle East, Northern Africa and Brazil could have an adverse impact on
our Company's business results and valuation of assets in those regions.
Moreover, if the conflict between the U.S. and Iraq escalates, our business
results could be negatively impacted.
* Our ability to generate sufficient cash flows to support capital expansion
plans, share repurchase programs and general operating activities.
* Changes in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretations), competition laws and environmental laws in domestic
or foreign jurisdictions.
* The effectiveness of our advertising, marketing and promotional
programs.
* Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and relationships.
* Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are
more profitable than others. There can be no assurance that we will
achieve the projected level or mix of product sales.
* Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations), competition laws and
environmental laws in domestic or foreign jurisdictions.
* 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 uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's Securities and
Exchange Commission filings.
The foregoing list of important factors is not exclusive.
3938
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
Annual Report on Form 10-K for the year ended December 31, 2001.2002.
Item 4. Controls and Procedures
The Company maintainsWe maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's Securities Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, as ours are
designed to do, and management necessarily was required to apply its judgementjudgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Also, the Company has
investments in certain unconsolidated entities. As the Company does not control
or manage these entities, its disclosure controls and procedures with respect to
such entities are necessarily substantially more limited than those it maintains
with respect to its consolidated subsidiaries.
During the 90-day period prior to the date of this report,June 30, 2003, an evaluation was performed under the supervision and
with the participation of our Company's management, including the Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the Company'sour disclosure controls and procedures. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Company'sour disclosure controls and procedures were effective. Subsequenteffective at the
reasonable assurance level referred to in the datepreceding paragraph.
No change in our Company's internal control over financial reporting
occurred during the second quarter of this evaluation, there have been no significant changes in2003 that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls or in other factors that could significantly affect these
controls, and no corrective actions taken with regard to significant
deficiencies or material weaknesses in such controls.
40control over
financial reporting.
39
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, 2001, on October 27, 2000, a class action lawsuit (Carpenter's
Health & Welfare Fund of Philadelphia & Vicinity v. The Coca-Cola Company, et
al.) was filed in the United States District Court for the Northern District of
Georgia alleging that the Company, M. Douglas Ivester, Jack L. Stahl and James
E. Chestnut violated antifraud provisions of the federal securities laws by
making misrepresentations or material omissions relating to the Company's
financial condition and prospects in late 1999 and early 2000. A second, largely
identical lawsuit (Gaetan LaValla v. The Coca-Cola Company, et al.) was filed in
the same court on November 9, 2000. The Complaints allege that the Company and
the individual named officers: (1) forced certain Coca-Cola system bottlers to
accept "excessive, unwanted and unneeded" sales of concentrate during the third
and fourth quarters of 1999, thus creating a misleading sense of improvement in
our Company's performance in those quarters; (2) failed to write down the value
of impaired assets in Russia, Japan and elsewhere on a timely basis, again
resulting in the presentation of misleading interim financial results in the
third and fourth quarters of 1999; and (3) misrepresented the reasons for Mr.
Ivester's departure from the Company and then misleadingly reassured the
financial community that there would be no changes in the Company's core
business strategy or financial outlook following that departure. Damages in an
unspecified amount are sought in both Complaints.
On January 8, 2001, an order was entered by the United States District Court
for the Northern District of Georgia consolidating the two cases for all
purposes. The Court also ordered the plaintiffs to file a Consolidated Amended
Complaint. On July 25, 2001, plaintiffs filed a Consolidated Amended Complaint,
which largely repeated the allegations made in the original Complaints and added
Douglas N. Daft as an additional defendant.
On September 25, 2001, the defendants filed a Motion to Dismiss all counts of
the Consolidated Amended Complaint. On August 20, 2002, the Court granted in
part and denied in part the defendants' Motion to Dismiss. The Court also
granted the plaintiffs' Motion for Leave to Amend the Complaint. On or about
September 5, 2002, the defendants filed a Motion for Partial Reconsideration of
the Court's August 20, 2002 ruling. This latter Motion is currently under
consideration by the Court.
The Company believes it has meritorious legal and factual defenses and
intends to defend the consolidated action vigorously.
The Company is involved in various other legal proceedings. Management of the
Company believes that any liability to the Company which may arise as a result
of these proceedings, including the proceedings specifically discussed above,
will not have a material adverse effect on the financial condition of the
Company and its subsidiaries taken as a whole.
41
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3 - By-Laws of theThe Coca-Cola Company, as amended and restated through
October 17, 2002.
10January 30, 2003.
10.1 - 1989 Restricted Stock AwardAmendment Number One to the Executive Medical Plan as amendedof
The Coca-Cola Company, dated April 15, 2003.
10.2 - Letter Agreement, dated June 19, 2003, between The Coca-Cola Company
and restated through March 1, 2002.Daniel Palumbo.
12 - Computation of Ratios of Earnings to Fixed Charges.
31.1 - Rule 13a-14(a)/15d-14(a) Certification, executed by Douglas N. Daft,
Chairman, Board of Directors, and Chief Executive Officer of
The Coca-Cola Company.
31.2 - Rule 13a-14(a)/15d-14(a) Certification, executed by Gary P. Fayard,
Executive Vice President and Chief Financial Officer of
The Coca-Cola Company.
32 - Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350), executed by Douglas N. Daft, Chairman, Board of
Directors, and Chief Executive Officer of The Coca-Cola Company and
by Gary P. Fayard, Executive Vice President and Chief Financial
Officer of The Coca-Cola Company.
(b) Reports on Form 8-K:
(1) During the third quarter of 2002,six months ended June 30, 2003, the Company filed a report on
Form 8-K dated Auguston February 13, 2002.2003.
Item 7(c). Exhibits. Item 9. Regulation FD Disclosure:
(1) Statements Under Oath of Principal Executive Officer and
Principal Financial Officer Regarding Facts and Circumstances
Relating to Exchange Act Filings.
(2) CertificationsDisclosure. Press release of
the Principal Executive OfficerCompany reporting financial results for the fourth quarter of 2002
and for the Principal Financial Officer,year 2002.
(2) During the six months ended June 30, 2003, the Company filed a report on
Form 8-K on March 26, 2003.
40
Part II. Other Information (Continued)
Item 9. Regulation FD Disclosure. Certifications required pursuant
to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
42(3) During the six months ended June 30, 2003, the Company filed a
report on Form 8-K on April 16, 2003.
Item 7(c) Exhibits. Item 9. Regulation FD Disclosure. (A) Press
release of the Company reporting financial results for the first
quarter of 2003. (B) Supplemental information prepared for use in
connection with the financial results for the first quarter of
2003.
41
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: NovemberAugust 13, 20022003 By: /s/ Connie D. McDaniel
--------------------------------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
4342
CERTIFICATIONS
I,EXHIBIT INDEX
Exhibit Number and Description
(a) Exhibits
3 - By-Laws of The Coca-Cola Company, as amended and restated through
January 30, 2003.
10.1 - Amendment Number One to the Executive Medical Plan of The
Coca-Cola Company, dated April 15, 2003.
10.2 - Letter Agreement, dated June 19, 2003, between
The Coca-Cola Company and Daniel Palumbo.
12 - Computation of Ratios of Earnings to Fixed Charges.
31.1 - Rule 13a-14(a)/15d-14(a) Certification, executed by
Douglas N. Daft, Chairman, Board of Directors, and Chief
Executive Officer of The Coca-Cola Company.
31.2 - Rule 13a-14(a)/15d-14(a) Certification, executed by
Gary P. Fayard, Executive Vice President and Chief Financial
Officer of The Coca-Cola Company.
32 - Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350), executed by Douglas N. Daft, Chairman, Board of
Directors, and Chief Executive Officer of The Coca-Cola Company
certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Coca-Cola Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period coveredand by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
44
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Douglas N. Daft
---------------------------------
Douglas N. Daft
Chairman, Board of Directors, and
Chief Executive Officer
45
I, Gary P. Fayard, SeniorExecutive Vice President and Chief
Financial Officer of The Coca-Cola Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Coca-Cola Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
46
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Gary P. Fayard
--------------------------
Gary P. Fayard
Senior Vice President and
Chief Financial Officer
47
Exhibit Index
Exhibit Number and Description
(a) Exhibits
3 - By-Laws of the Company, as amended and restated through
October 17, 2002.
10 - 1989 Restricted Stock Award Plan, as amended and restated
through March 1, 2002.
12 - Computation of Ratios of Earnings to Fixed Charges.
48
Company.
43