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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 March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission File No. 1-2217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at April 28, 2000
--------------------- -----------------------------
$.25 Par Value 2,475,092,541 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
Three months ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 27
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
March 31, December 31,
2000 1999
---------- -----------
CURRENT
Cash and cash equivalents $ 2,454 $ 1,611
Marketable securities 230 201
----------- -----------
2,684 1,812
Trade accounts receivable, less
allowances of $34 at March 31
and $26 at December 31 1,495 1,798
Inventories 1,223 1,076
Prepaid expenses and other assets 2,023 1,794
----------- -----------
TOTAL CURRENT ASSETS 7,425 6,480
----------- -----------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 704 728
Coca-Cola Amatil Ltd 1,103 1,133
Coca-Cola Beverages plc 753 788
Other, principally bottling companies 3,460 3,793
Cost method investments,
principally bottling companies 340 350
Marketable securities and other assets 2,217 2,124
----------- -----------
8,577 8,916
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 218 215
Buildings and improvements 1,729 1,528
Machinery and equipment 4,498 4,527
Containers 164 201
------------ -----------
6,609 6,471
Less allowances for depreciation 2,347 2,204
------------ -----------
4,262 4,267
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GOODWILL AND OTHER INTANGIBLE ASSETS 1,959 1,960
------------ -----------
$ 22,223 $ 21,623
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3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
March 31, December 31,
2000 1999
---------- -----------
CURRENT
Accounts payable and accrued expenses $ 3,892 $ 3,714
Loans and notes payable 6,252 5,112
Current maturities of long-term debt 260 261
Accrued income taxes 723 769
---------- ----------
TOTAL CURRENT LIABILITIES 11,127 9,856
---------- ----------
LONG-TERM DEBT 853 854
---------- ----------
OTHER LIABILITIES 850 902
---------- ----------
DEFERRED INCOME TAXES 491 498
---------- ----------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,470,546,025 shares at March 31;
3,466,371,904 shares at December 31 868 867
Capital surplus 2,687 2,584
Reinvested earnings 20,295 20,773
Accumulated other comprehensive income and
unearned compensation on restricted stock (1,680) (1,551)
---------- ----------
22,170 22,673
Less treasury stock, at cost
(996,657,866 shares at March 31;
994,796,786 shares at December 31) 13,268 13,160
---------- ----------
8,902 9,513
---------- ----------
$ 22,223 $ 21,623
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<FN>
See Notes to Condensed Consolidated Financial Statements.
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended
March 31,
------------------------
2000 1999
--------- ---------
NET OPERATING REVENUES $ 4,391 $ 4,400
Cost of goods sold 1,398 1,303
--------- ---------
GROSS PROFIT 2,993 3,097
Selling, administrative and general expenses 2,073 1,953
Other operating charges 680 -
--------- ---------
OPERATING INCOME 240 1,144
Interest income 67 64
Interest expense 99 77
Equity income (loss) - net (85) (95)
Other income (loss) - net (26) 46
--------- ---------
INCOME BEFORE INCOME TAXES 97 1,082
Income taxes 155 335
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NET INCOME (LOSS) $ (58) $ 747
========= =========
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) $ .30
========= =========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.02) $ .30
========= =========
DIVIDENDS PER SHARE $ .17 $ .16
========= =========
AVERAGE SHARES OUTSTANDING 2,472 2,466
========= =========
Dilutive effect of stock options - 21
--------- ---------
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,472 2,487
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements.
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (58) $ 747
Depreciation and amortization 217 190
Deferred income taxes (54) (15)
Equity (income) loss, net of dividends 87 99
Foreign currency adjustments 70 52
Other operating charges 616 -
Other items (8) 75
Net change in operating assets and liabilities (701) (811)
--------- ---------
Net cash provided by operating activities 169 337
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INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (73) (275)
Purchases of investments and other assets (137) (85)
Proceeds from disposals of investments
and other assets 24 35
Purchases of property, plant and equipment (227) (228)
Proceeds from disposals of property, plant
and equipment 3 6
Other investing activities 15 35
--------- ---------
Net cash used in investing activities (395) (512)
--------- ---------
Net cash used in operations
after reinvestment (226) (175)
--------- ---------
FINANCING ACTIVITIES
Issuances of debt 3,112 535
Payments of debt (2,014) (15)
Issuances of stock 84 48
Purchases of stock for treasury (108) (5)
Dividends - (338)
--------- ---------
Net cash provided by financing activities 1,074 225
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EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (5) (105)
--------- ---------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the period 843 (55)
Balance at beginning of period 1,611 1,648
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Balance at end of period $ 2,454 $ 1,593
========== =========
<FN>
See Notes to Condensed Consolidated Financial Statements.
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes required
by generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report on Form 10-K of The Coca-Cola Company (our Company) for the
year ended December 31, 1999. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of soft drink and noncarbonated beverage products are generally
greater in the second and third quarters due to seasonal factors.
NOTE C - COMPREHENSIVE INCOME (LOSS)
For the first three months of 2000, total comprehensive loss was $205
million, primarily reflecting a net reduction for foreign currency translation
of approximately $108 million and a net decrease in the unrealized gain on
available-for-sale securities of approximately $39 million. Total comprehensive
income was $285 million for the first three months of 1999, primarily reflecting
a net reduction for foreign currency translation of approximately $476 million.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D - INCOME TAXES
Our effective tax rate was 160 percent for the first quarter of 2000
compared to 31 percent for the first quarter of 1999. The change in our
effective tax rate in 2000 was primarily the result of our current inability to
realize a tax benefit on the $405 million impairment charges, as discussed in
"Note G - Other Operating Charges". Excluding the impact of these impairment
charges, the effective tax rate on operations was 31 percent for the first
quarter of 2000 which reflects tax benefits derived from significant
operations outside the United States, which are taxed at rates lower than the
U.S. statutory rate of 35 percent.
During the first quarter of 2000, the United States and Japanese taxing
authorities entered into an Advance Pricing Agreement (APA) whereby the level of
royalties paid by the Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our
Company has been established for the years 1993 through 2001. Pursuant to the
terms of the APA, our Subsidiary has filed amended returns for the applicable
periods reflecting the negotiated royalty rate. These amended returns resulted
in the payment during the first quarter of additional Japanese taxes, the effect
of which on both our financial performance and our effective tax rate was not
material, due primarily to offsetting tax credits on our U.S. income tax return.
The majority of the offsetting tax credits are expected to be realized within
the next twelve months.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities." The statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes
new accounting rules for hedging instruments. In June 1999, the FASB deferred
the effective date of SFAS No. 133 for one year, making it now applicable for
fiscal years beginning after June 15, 2000. We are assessing the impact SFAS No.
133 will have on our Consolidated Financial Statements.
NOTE F - OPERATING SEGMENTS
Effective January 1, 2000, two of our Company's operating segments were
geographically reconfigured and renamed. The Middle East and North Africa
Division was added to the Africa Group, which changed its name to the Africa and
Middle East Group. At the same time the Middle and Far East Group, less the
relocated Middle East and North Africa Division, changed its name to the Asia
Pacific Group. Prior period amounts have been reclassified to conform to the
current period presentation.
Our Company's operating structure includes the following operating
segments: the North America Group (including The Minute Maid Company); the
Africa and Middle East Group; the Greater Europe Group; the Latin America Group;
the Asia Pacific Group; and Corporate. The North America Group includes the
United States and Canada.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - OPERATING SEGMENTS (Continued)
Information about our Company's operations as of and for the three months
ended March 31, 2000 and 1999, by operating segment, is as follows (in
millions):
Africa
and
North Middle Greater Latin Asia
America East Europe America Pacific Corporate Consolidated
--------- --------- --------- --------- --------- --------- ------------
2000
Net operating
revenues $ 1,797 $ 139 $ 978 $ 505 $ 964 $ 8 $ 4,391
Operating income {1,2} 274 3 348 224 (339) (270) 240
Identifiable
operating
assets 4,308 682 2,029 2,042 2,394 4,408 15,863
Investments 136 337 1,781 1,863 1,477 766 6,360
1999
Net operating
revenues $ 1,677 $ 190 $ 1,089 $ 507 $ 903 $ 34 $ 4,400
Operating income 357 52 384 250 261 (160) 1,144
Identifiable
operating
assets 3,783 578 2,166 1,624 2,411 2,433 12,995
Investments 135 325 1,950 1,667 1,580 830 6,487
Intercompany transfers between operating segments are not material.
<FN>
1 Operating income was reduced by $3 million for North America, $397 million
for Asia Pacific and $5 million for Corporate as a result of other
operating charges recorded for asset impairments.
2 Operating income was reduced by $43 million for North America, $2 million
for Africa and Middle East, $5 million for Greater Europe, $18 million for
Latin America, $90 million for Asia Pacific, and $117 million for Corporate
as a result of other operating charges associated with the Company's
organizational realignment.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - OTHER OPERATING CHARGES
In the first quarter of 2000, we recorded charges of approximately $680
million. Of this $680 million, approximately $405 million related to the
impairment of certain bottling, manufacturing and intangible assets, primarily
within our Indian bottling operations. In January 2000, we announced our plans
to perform a comprehensive review of our India bottling franchise investments
during the first quarter of 2000 with the intention of streamlining the business
and evaluating the carrying value of the long-lived assets. As a result of this
review, we determined that the long-lived assets within our Indian bottling
operations were impaired. Therefore, an impairment charge was recorded to reduce
the carrying value of the identified assets to fair value. Fair value was
derived using cash flow analysis. The charge was primarily the result of our
revised outlook for the Indian beverage market including the future expected tax
environment. The remaining carrying value of long-lived assets within our Indian
bottling operations, as of March 31, 2000, was approximately $300 million.
The remainder of the $680 million charge, approximately $275 million,
related to costs associated with the Company's organizational realignment (the
Realignment). In January 2000, the Company announced that it was undertaking the
Realignment which will reduce our workforce around the world and transfer
responsibilities from our corporate headquarters to local revenue-generating
operating units. The intent of the Realignment is to effectively align our
corporate resources, support systems, and business culture to fully leverage the
local capabilities of our system.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - OTHER OPERATING CHARGES (Continued)
Employees have been separated from almost all functional areas of the
Company's operations including certain activities which have been outsourced to
third parties. The total number of employees separated as of March 31, 2000, was
approximately 2,225. Employees separating from the Company as a result of the
Realignment have been offered severance or early retirement packages, as
appropriate, which include both financial and non-financial components. As
further discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the total workforce reduction under the Realignment
includes employees separated from the Company as well as the elimination of open
positions and contract labor. During the first quarter of 2000, the Company
incurred total Realignment expenses pretax of $275 million. This amount includes
costs associated with involuntary termination, voluntary retirement and other
direct costs associated with implementing the Realignment. Other direct costs
include repatriating and relocating employees to local markets, and costs
associated with the development, communication and administration of the
Realignment.
The accrued Realignment expenses and amounts charged against the accrual as
of March 31, 2000, were as follows (in millions):
Accrued
Charge Payments Non-Cash Balance
---------- --------- --------- ---------
Description
- -----------
Employees Involuntarily Separated
Severance Pay and Benefits $ 68 $ (18) $ - $ 50
Outside services - Legal, Outplacement,
Consulting 12 (3) - 9
Other - primarily asset write-downs 15 - (15) -
Employees Voluntarily Separated
Special Retirement Pay and Benefits 168 (39) - 129
Outside Services - Legal, Outplacement,
Consulting 4 (1) - 3
Other Direct Costs 8 (3) - 5
---------- --------- --------- ---------
$ 275 $ (64) $ (15) $ 196
---------- --------- --------- ---------
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - OTHER OPERATING CHARGES (Continued)
In December of 1999, the Company recorded a $196 million charge related to
the impairment of the distribution and bottling assets of our vending operations
in Japan and our bottling operations in the Baltics. This charge reduced the
carrying value of these assets to their fair value less cost to sell. Management
has committed to a plan to sell the Company's ownership interest in these
operations during the year 2000. No circumstances have arisen during the first
three months of 2000 to alter management's original expectation for the disposal
of these assets. The remaining carrying value of long-lived assets within these
operations and the income from operations on an after-tax basis as of and for
the three month period ending March 31, 2000, were approximately $145 million
and $6 million, respectively.
13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the first quarter of 2000, our worldwide unit case volume increased
3 1/2 percent on a reported basis and 2 percent on a comparable basis in
comparison to the first quarter of 1999. (Reference to "comparable" changes in
volume are computed based on the exclusion of the Schweppes brands acquired
during the third quarter of 1999.) The increase in unit case volume reflects the
strong performance in international markets, such as Mexico, Brazil, Spain and
Japan. Reported gallon sales of concentrates and syrups decreased by 4 percent.
The decrease in gallon shipments was attributable to the planned reduction of
concentrate inventory by selected bottlers within the Coca-Cola system. In
January 2000, we announced the intention of the Coca-Cola system to reduce
concentrate inventory levels at selected bottlers. This was based on a review
performed in conjunction with bottlers around the world in order to determine
the optimum level of bottler concentrate inventories. Management of the
Coca-Cola system determined that opportunities existed to reduce the level of
concentrate inventory carried by bottlers in selected regions of the world. As
such, bottlers in these regions reduced concentrate inventory levels during the
first quarter of 2000. Further reductions of bottler concentrate inventory
levels are anticipated in the second quarter of 2000 in line with the Company's
previously stated expectations.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues declined slightly from the first quarter of 1999.
The decrease was due primarily to the planned inventory reduction by selected
bottlers, partially offset by improved business conditions in our key markets
and price increases in selected countries.
Our gross profit margin decreased to 68.2 percent in the first quarter of
2000 from 70.4 percent in the first quarter of 1999. The decrease in our gross
profit margin for the first quarter of 2000 was due primarily to gallon
shipments for the Asia Pacific Group declining by approximately 16 percent as a
result of the planned reduction of concentrate inventory levels, primarily
by bottlers in Japan.
14
RESULTS OF OPERATIONS (Continued)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were approximately $2,073
million in the first quarter of 2000, compared to $1,953 million in the first
quarter of 1999. This increase was due primarily to higher marketing
expenditures consistent with the Company's unit case volume growth and
structural change, primarily related to the consolidation in 2000 of F&N
Coca-Cola, our recently acquired bottling operation in Southeast Asia.
OTHER OPERATING CHARGES
In the first quarter of 2000, we recorded charges of approximately $680
million. Of this $680 million, approximately $405 million, or $0.16 per share
after tax, related to the impairment of certain bottling, manufacturing and
intangible assets, primarily within our Indian bottling operations. In January
2000, we announced our plans to perform a comprehensive review of our India
bottling franchise investments during the first quarter of 2000 with the
intention of streamlining the business and evaluating the carrying value of the
long-lived assets. As a result of this review, we determined that the long-lived
assets within our Indian bottling operations were impaired. Therefore, an
impairment charge was recorded to reduce the carrying value of the identified
assets to fair value. Fair value was derived using cash flow analysis. The
charge was primarily the result of our revised outlook for the Indian beverage
market including the future expected tax environment. The remaining carrying
value of long-lived assets within our Indian bottling operations, as of March
31, 2000, was approximately $300 million.
The remainder of the $680 million charge, approximately $275 million, or
$0.08 per share after tax, related to costs associated with the Realignment. In
January 2000, the Company announced that it was undertaking the Realignment
which will reduce our workforce around the world and transfer responsibilities
from our corporate headquarters to local revenue-generating operating units. The
intent of the Realignment is to effectively align our corporate resources,
support systems, and business culture to fully leverage the local capabilities
of our system.
15
RESULTS OF OPERATIONS (Continued)
OTHER OPERATING CHARGES (Continued)
Employees have been separated from almost all functional areas of the
Company's operations including certain activities which have been outsourced to
third parties. The total number of employees separated as of March 31, 2000, was
approximately 2,225. Employees separating from the Company as a result of the
Realignment have been offered severance or early retirement packages, as
appropriate, which include both financial and non-financial components. The
total workforce reduction under the Realignment includes employees separated
from the Company as well as the elimination of open positions and contract
labor. During the first quarter of 2000, the Company incurred total Realignment
expenses pretax of $275 million. This amount includes costs associated with
involuntary termination, voluntary retirement and other direct costs associated
with implementing the Realignment. Other direct costs include repatriating and
relocating employees to local markets, and costs associated with the
development, communication and administration of the Realignment.
The Company has revised its initial estimate and now believes approximately
5,200 positions worldwide, including employees of the Company, open positions
and contract labor, will be eliminated during calendar year 2000. We now
estimate that as a result of the Realignment, our Company will incur total costs
pretax of approximately $725 million in calendar year 2000, inclusive of the
$275 million charge incurred during the first quarter.
16
RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income was $240 million in the first quarter of 2000, compared to
$1,144 million in the first quarter of 1999. Our consolidated operating margin
for the first quarter of 2000 was 5.5 percent, compared to 26.0 percent for the
comparable period in 1999. The first quarter 2000 results reflect the recording
of approximately $680 million in charges as discussed under the heading, "Other
Operating Charges", as well as the effect of the previously discussed planned
reduction of concentrate inventory by selected bottlers within the Coca-Cola
system.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased approximately 5 percent to $67 million in the
first quarter of 2000 relative to the comparable period in 1999, due primarily
to higher average cash balances in the first quarter of 2000. Interest expense
increased $22 million in the first quarter of 2000 relative to the comparable
period in 1999, due to both an increase in average commercial paper debt
balances and higher interest rates.
EQUITY INCOME (LOSS) - NET
Our Company's share of losses from equity method investments for the first
quarter of 2000 totaled $85 million, compared to a loss of $95 million in the
first quarter of 1999. The first quarter 2000 and first quarter 1999 losses were
due primarily to the negative impact of difficult economic conditions in certain
worldwide markets as well as the seasonal nature of bottling operations.
OTHER INCOME (LOSS) - NET
Other income (loss) - net decreased to $26 million loss for the first
quarter of 2000 compared to $46 million income for the first quarter of 1999.
The decrease was due primarily to other income in the first quarter of 1999
including a foreign currency gain resulting from effective treasury management
practices for Brazil during a period of significant currency volatility.
17
RESULTS OF OPERATIONS (Continued)
INCOME TAXES
Our effective tax rate was 160 percent for the first quarter of 2000
compared to 31 percent for the first quarter of 1999. The change in our
effective tax rate in 2000 was primarily the result of our current inability to
realize a tax benefit on the $405 million impairment charges, as previously
discussed under the heading "Other Operating Charges". Excluding the impact
of these impairment charges, the effective tax rate on operations was 31 percent
for the first quarter of 2000 which reflects tax benefits derived from
ignificant operations outside the United States, which are taxed at rates
lower than the U.S. statutory rate of 35 percent.
During the first quarter of 2000, the United States and Japanese taxing
authorities entered into an Advance Pricing Agreement (APA) whereby the level of
royalties paid by the Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our
Company has been established for the years 1993 through 2001. Pursuant to the
terms of the APA, our Subsidiary has filed amended returns for the applicable
periods reflecting the negotiated royalty rate. These amended returns resulted
in the payment during the first quarter of additional Japanese taxes, the effect
of which on both our financial performance and our effective tax rate was not
material, due primarily to offsetting tax credits on our U.S. income tax return.
The majority of the offsetting tax credits are expected to be realized within
the next twelve months.
18
FINANCIAL CONDITION
NET CASH FLOW USED IN OPERATIONS AFTER REINVESTMENT
In the first three months of 2000, net cash used in operations after
reinvestment totaled $226 million compared to $175 million for the first three
months of 1999.
Net cash provided by operating activities in the first three months of 2000
amounted to $169 million, a $168 million decrease compared to the first three
months of 1999. The decrease was due primarily to the previously mentioned
planned inventory reduction by selected bottlers, as well as cash payments made
to separated employees under the Realignment as previously discussed under the
heading "Other Operating Charges".
Net cash used in investing activities totaled $395 million for the first
three months of 2000 compared to $512 million in net cash used in investing
activities for the first three months of 1999. The decrease was primarily the
result of a reduction in trademark and bottling company acquisition activity.
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments and
share issuances and repurchases. Net cash provided by financing activities
totaled $1,074 million for the first three months of 2000 compared to $225
million for the first three months of 1999. This increase was due primarily to
additional net borrowings of $1,098 million and timing of the first quarter 2000
dividend payment. The increase in net borrowings was due primarily to the impact
on cash from the planned inventory reduction by selected bottlers, our costs
associated with the Realignment, and the satisfaction of tax obligations
pursuant to the terms of the APA, all of which have been previously discussed
under the headings "Beverage Volume", "Other Operating Charges", and "Income
Taxes" respectively.
Cash used to purchase common stock for treasury was $108 million for the
first three months of 2000, compared to $5 million for the first three months of
1999. The increase in the first quarter of 2000 compared to the first quarter of
1999 was due primarily to the repurchase of shares from employees pursuant to
the provisions of the Company's Stock Option and Restricted Stock Award Plans.
During the first quarter of 2000, our Company did not repurchase any of our
Company's common stock under the stock repurchase plan authorized by our Board
of Directors in October 1996 due to our utilization of cash as explained above.
The Company will reevaluate its cash needs in the second half of 2000.
19
FINANCIAL CONDITION (Continued)
FINANCIAL POSITION
The increase in loans and notes payable was due primarily to additional
funding required as a result of the planned inventory reduction by selected
bottlers, and in order to meet our cash commitments in connection with both the
Realignment and the terms of the APA, all of which have been previously
discussed under the headings "Beverage Volume", "Other Operating Charges", and
"Income Taxes" respectively.
The decrease in our investment in other equity affiliates was due primarily
to the consolidation of F&N Coca-Cola Pte Limited effective January 1, 2000,
previously recorded as an equity investment. In 1999, our Company moved from 25
percent to 100 percent ownership of F&N Coca-Cola Pte Limited.
EURO CONVERSION
In January 1999, certain member countries of the European Union established
permanent, fixed conversion rates between their existing currencies and the
European Union's common currency (the Euro).
The transition period for the introduction of the Euro is scheduled to
phase in over a period ending January 1, 2002, with the existing currency being
completely removed from circulation on July 1, 2002. Our Company has been
preparing for the introduction of the Euro for several years. The timing of our
phasing out all uses of the existing currencies will comply with the legal
requirements and also be scheduled to facilitate optimal coordination with the
plans of our vendors, distributors and customers. Our work related to the
introduction of the Euro and the phasing out of the other currencies includes
converting information technology systems; recalculating currency risk;
recalibrating derivatives and other financial instruments; evaluating and taking
action, if needed, regarding the continuity of contracts; and modifying our
processes for preparing tax, accounting, payroll and customer records.
Based on our work to date, we believe the Euro replacing the other
currencies will not have a material impact on our operations or our Consolidated
Financial Statements.
20
FINANCIAL CONDITION (Continued)
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and governmental actions. We closely
monitor our operations in each country and seek to adopt appropriate strategies
that are responsive to changing economic and political environments and to
fluctuations in foreign currencies. In the first quarter of 2000, the U.S.
dollar was approximately 5 percent stronger versus a weighted average of all of
our functional currencies. This does not include the effects of our hedging
activities. Our foreign currency management program mitigates over time a
portion of the impact of exchange on net income and earnings per share,
and did not have a significant impact in the first quarter of 2000.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides
a safe harbor for forward-looking statements made by or on behalf of our
Company. Our Company and its representatives may from time to time make written
or verbal forward-looking statements, including statements contained in this
report and other Company filings with the Securities and Exchange Commission and
in our reports to share owners. Generally, the words "believe," "expect,"
"intend," "estimate," "anticipate," "will" and similar expressions identify
forward-looking statements. All statements which address operating performance,
events or developments that we expect or anticipate will occur in the future -
including statements relating to volume growth, share of sales and earnings per
share growth and statements expressing general optimism about future operating
results - are forward-looking statements within the meaning of the Act. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events and operating performance, and
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
21
FORWARD-LOOKING STATEMENTS (Continued)
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from estimates
contained in or underlying our Company's forward-looking statements:
- Our ability to generate sufficient cash flows to support capital
expansion plans, share repurchase programs and general operating
activities.
- Competitive product and pricing pressures and our ability to gain
or maintain share of sales in the global market as a result of
actions by competitors. While we believe our opportunities for
sustained, profitable growth are considerable, unanticipated
actions of competitors could impact our earnings, share of sales
and volume growth.
- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new
tax laws and revised tax law interpretations) and environmental
laws in domestic or foreign jurisdictions.
- Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and
relationships.
- Our ability to achieve earnings forecasts, which are generated
based on projected volumes and sales of many product types, some
of which are more profitable than others. There can be no
assurance that we will achieve the projected level or mix of
product sales.
- Interest rate fluctuations and other capital market conditions,
including foreign currency rate fluctuations. Most of our
exposures to capital markets, including interest and foreign
currency, are managed on a consolidated basis, which allows us to
net certain exposures and, thus, take advantage of any natural
offsets. We use derivative financial instruments to reduce our net
exposure to financial risks. There can be no assurance, however,
that our financial risk management program will be successful in
reducing foreign currency exposures.
- Economic and political conditions in international markets,
including civil unrest, governmental changes and restrictions on
the ability to transfer capital across borders.
22
FORWARD-LOOKING STATEMENTS (Continued)
- Our ability to penetrate developing and emerging markets, which
also depends on economic and political conditions, and how well we
are able to acquire or form strategic business alliances with
local bottlers and make necessary infrastructure enhancements to
production facilities, distribution networks, sales equipment and
technology. Moreover, the supply of products in developing markets
must match the customers' demand for those products, and due to
product price and cultural differences, there can be no assurance
of product acceptance in any particular market.
- The effectiveness of our advertising, marketing and promotional
programs.
- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's
Securities and Exchange Commission filings.
- Adverse weather conditions, which could reduce demand for
Company products.
- Our ability to resolve issues relating to introduction of the
European Union's common currency (the Euro) in a timely fashion.
The foregoing list of important factors is not exclusive.
23
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
report on Form 10-K for the year ended December 31, 1999.
24
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Share Owners was held on Wednesday, April 19, 2000,
in Wilmington, Delaware, at which the following matters were submitted to a vote
of the share owners:
(a) Votes regarding the election of five Directors for a term expiring in
2003 and one Director for a term expiring in 2002 were as follows:
Term expiring in 2003
---------------------
FOR WITHHELD
------------- ----------
Ronald W. Allen 2,044,336,646 47,211,028
Donald F. McHenry 2,063,818,129 27,729,545
Sam Nunn 2,042,137,749 49,409,925
Paul F. Oreffice 2,063,506,803 28,040,871
James B. Williams 2,064,719,043 26,828,631
Term expiring in 2002
---------------------
FOR WITHHELD
------------- ----------
Douglas N. Daft 2,067,293,857 24,253,817
Additional Directors, whose terms of office as Directors continued
after the meeting, are as follows:
Term expiring in 2001 Term expiring in 2002
--------------------- ---------------------
Herbert A. Allen Cathleen P. Black
James D. Robinson III Warren E. Buffett
Peter V. Ueberroth Susan B. King
(b) Votes on a share-owner proposal regarding compensation instruments
were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
---------- ------------- -----------
79,796,879 1,598,186,476 413,564,319
25
Submission of Matters to a Vote of Security Holders (Continued)
(c) Votes on a share-owner proposal regarding genetic engineering were as
follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
---------- ------------- -----------
58,470,483 1,582,854,562 450,222,629
(d) Votes on a share-owner proposal regarding refillable containers were
as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
---------- ------------- -----------
63,654,208 1,582,353,366 445,540,100
(e) Votes regarding ratification of the appointment of Ernst & Young LLP
as independent auditors of the Company to serve for the 2000 fiscal
year were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- --------- ----------
2,078,358,754 5,478,060 7,710,860
26
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 - 1999 Stock Option Plan of the Company, as amended
through April 18, 2000.
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the three months ended
March 31, 2000, submitted to the Securities and
Exchange Commission in electronic format.
(b) Reports on Form 8-K:
During the first quarter of 2000, the Company filed a report on
Form 8-K dated January 26, 2000.
Item 5. Other Events - On January 26, 2000, the Company issued
press releases announcing (i) financial results for the
fourth quarter and for the full fiscal year 1999, and
(ii) a major organizational realignment and reduction
in the Company's workforce.
Also during the first quarter of 2000, the Company filed a
report on Form 8-K dated February 17, 2000.
Item 5. Other Events - On February 17, 2000, the Company's
Board of Directors elected Douglas N. Daft as the new
Chairman of the Board of Directors and Chief Executive
Officer of the Company, succeeding M. Douglas Ivester
who retired effective the same date. The Board also
elected Jack L. Stahl as the Company's President and
Chief Operating Officer.
27
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: May 11, 2000 By: /s/ Connie D. McDaniel
--------------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
28
Exhibit Index
Exhibit Number and Description
10 - 1999 Stock Option Plan of the Company, as amended
through April 18, 2000.
12 - Computation of Ratios of Earnings to Fixed Charges.
27 - Financial Data Schedule for the three months ended
March 31, 2000, submitted to the Securities and
Exchange Commission in electronic format.