EXHIBIT 13.1
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
The Coca-Cola Company exists to benefit and refresh everyone who is touched
by our business. We believe that our success ultimately depends on our ability
to build and nurture relationships with constituents that are essential to our
business: consumers, customers, bottlers, partners, government authorities,
communities, employees and share owners. To this end, our Company has adopted an
overriding strategy of "Think local, act local," applicable to virtually all
aspects of our business. This strategy is designed to put the responsibility and
accountability for ensuring local relevance and maximizing business performance
in the hands of those closest to the market. This enables us to achieve our
objectives of increasing volume, expanding our share of worldwide nonalcoholic
ready-to-drink beverage sales, maximizing our long-term cash flows and creating
economic value added by improving economic profit. We pursue these objectives by
strategically investing in the high-return beverage business and by optimizing
our cost of capital through appropriate financial strategies.
There are over 6 billion people in the world who decide every day whether or
not to buy our products. Each of these people represents a potential consumer of
our Company's products. As we increase consumer demand for our portfolio of
brands, we produce growth throughout the Coca-Cola system. This growth typically
comes in the form of increased finished product purchases by our consumers,
increased finished product sales by our customers, increased case sales by our
bottling partners and increased gallon sales by our Company.
The Coca-Cola system has millions of customers around the world who sell or
serve our products directly to consumers. We keenly focus on enhancing value for
these customers and providing solutions to grow their beverage businesses. Our
approach includes understanding each customers business and needs, whether that
customer is a sophisticated retailer in a developed market or a kiosk owner in
an emerging market.
INVESTMENTS
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With a business system that operates locally in nearly 200 countries and
generates superior cash flows, we consider our Company to be uniquely positioned
to capitalize on profitable investment opportunities. Our criteria for
investment are simple: New investments must directly enhance our existing
operations and must be expected to provide cash returns that exceed our long-
term, after-tax, weighted-average cost of capital, currently estimated at
approximately 11 percent.
Because it consistently generates high returns, the beverage business is a
particularly attractive investment for us. In highly developed markets, our
expenditures focus primarily on marketing our Company's brands. In emerging and
developing markets, our objective is to increase the penetration of our
products. In these markets, we allocate most of our investments to enhancing our
brands and infrastructure such as production facilities, distribution networks,
sales equipment and technology. We make these investments by forming strategic
business alliances with local bottlers and by matching local expertise with our
experience, resources and focus. Our investment strategy focuses on four
fundamental components of our business: people, marketing, brands and our
bottling system.
PEOPLE
To meet our long-term growth objectives, we recruit and actively cultivate a
diverse workforce and establish a culture that fosters learning, innovation and
value creation on a daily basis. This means maintaining and refining a corporate
culture that encourages our people to develop to their fullest potential,
assuring enjoyment and satisfaction in the Coca-Cola work environment. Our
Company values the uniqueness of all employees and the contributions they make.
MARKETING
We make significant investments in marketing to support our brands. Marketing
investments enhance consumer awareness and increase consumer preference for our
brands. This produces long-term growth in volume, per capita consumption and our
share of worldwide nonalcoholic ready-to-drink beverage sales.
We heighten consumer awareness and product appeal for our brands using
integrated marketing programs. Through our relationships with bottling partners
and those who sell our products in the marketplace, we create and implement
these programs locally. In developing a strategy for a Company brand, we conduct
product and packaging research, establish brand positioning, develop precise
consumer communications and solicit consumer feedback. Our integrated global and
local marketing programs include activities such as advertising, point-of-sale
merchandising and sales promotions.
BRANDS
We compete in the nonalcoholic ready-to-drink beverage business. Our
offerings in this category include some of the world's most valuable brands --
239 in all. These include soft drinks and noncarbonated beverages such as sports
drinks, juice and juice drinks, water products, teas and coffees. Ultimately,
consumer demand determines the Company's optimal brand portfolio. Employing the
"Think local, act local" business strategy with a special focus on brand
Coca-Cola, the Company seeks to build its existing brands and, at the same time,
to broaden its historical portfolio of brands. As discussed earlier, to meet our
long-term growth objectives, we make significant investments to support our
brands. This involves investments to support existing brands, to develop new
global or local brands, and to acquire global or local brands, when appropriate.
33
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
BOTTLING SYSTEM
Our Company has business relationships with three types of bottlers: (1)
independently owned bottlers, in which we have no ownership interest; (2)
bottlers in which we have invested and have a noncontrolling ownership interest;
and (3) bottlers in which we have invested and have a controlling ownership
interest.
During 2000, independently owned bottling operations produced and distributed
approximately 25 percent of our worldwide unit case volume. Bottlers in which we
own a noncontrolling ownership interest produced and distributed approximately
59 percent of our 2000 worldwide unit case volume. Controlled bottling and
fountain operations produced and distributed approximately 16 percent.
We view certain bottling operations in which we have a noncontrolling
ownership interest as key or anchor bottlers due to their level of
responsibility and performance. The strong commitment of both key and anchor
bottlers to their own profitable volume growth helps us meet our strategic goals
and furthers the interests of our worldwide production, distribution and
marketing systems. These bottlers tend to be large and geographically diverse,
with strong financial resources for long-term investment and strong management
resources. These bottlers give us strategic business partners on every major
continent.
In 1998, Coca-Cola Amatil Limited (Coca-Cola Amatil) completed a spin-off of
its European operations into a new, publicly traded European anchor bottler,
Coca-Cola Beverages plc (Coca-Cola Beverages). On December 31, 1999, we owned
approximately 50.5 percent of Coca-Cola Beverages. In July 2000, a merger of
Coca-Cola Beverages and Hellenic Bottling Company S.A. was completed to create
Coca-Cola HBC S.A. (CCHBC). This merger resulted in a decrease of our Company's
equity ownership interest from approximately 50.5 percent of Coca-Cola Beverages
to approximately 24 percent of the combined entity, CCHBC. This change in
ownership resulted in the Company recognizing a $118 million tax-free noncash
gain in the third quarter of 2000.
In January 1999, two Japanese bottlers, Kita Kyushu Coca-Cola Bottling
Company Ltd. and Sanyo Coca-Cola Bottling Company Ltd., announced plans for a
merger to become a new, publicly traded bottling company, Coca-Cola West Japan
Company Ltd. The transaction, which was completed in July 1999, created our
first anchor bottler in Japan. We currently own approximately 5 percent of this
bottler.
Historically, in certain situations, we have viewed it to be advantageous for
our Company to acquire a controlling interest in a bottling operation. Owning
such a controlling interest has allowed us to compensate for limited local
resources and has enabled us to help focus the bottler's sales and marketing
programs, assist in developing its business and information systems, and
establish appropriate capital structures.
In separate transactions during the first half of 2000, our Company purchased
two bottlers in Brazil, Companhia Mineira de Refrescos, S.A., and Refrigerantes
Minas Gerais Ltda. In October 2000, the Company purchased a 58 percent interest
in Paraguay Refrescos S.A. (Paresa), a bottler located in Paraguay. In December
2000, the Company made a tender offer for the remaining 42 percent of the shares
in Paresa. In January 2001, we completed the tender offer. We currently own
approximately 95 percent of Paresa.
In July 1999, our Company acquired from Fraser and Neave Limited its 75
percent ownership interest in F&N Coca-Cola Pte Limited (F&N Coca-Cola). Prior
to the acquisition, our Company held a 25 percent equity interest in F&N
Coca-Cola. Acquisition of Fraser and Neave Limited's 75 percent stake gave our
Company full ownership of F&N Coca-Cola. F&N Coca-Cola holds a majority
ownership in bottling operations in Brunei, Cambodia, Nepal, Pakistan, Sri
Lanka, Singapore and Vietnam.
In line with our long-term bottling strategy, we periodically consider
options for reducing our ownership interest in a bottler. One option is to
combine our bottling interests with the bottling interests of others to form
strategic business alliances. Another option is to sell our interest in a
bottling operation to one of our equity investee bottlers. In both of these
situations, we continue participating in the bottler's earnings through our
portion of the equity investee's income.
As stated earlier, our investments in a bottler can represent either a
noncontrolling or a controlling interest. Through noncontrolling investments in
bottling companies, we provide expertise and resources to strengthen those
businesses. During 2000, the Company entered into a joint venture in China with
China National Oils and Foodstuffs Imports/Exports Corporation (COFCO),
completion of which is subject to satisfaction of certain conditions. COFCO is
contributing to the joint venture its minority equity interests in 11 Chinese
bottlers. Our Company is contributing its equity interests in two Chinese
bottlers plus cash in exchange for a 35 percent equity interest in the venture.
In 1999, we increased our interest in Embotelladora Arica S.A. (since
renamed Coca-Cola Embonor S.A.), a bottler headquartered in Chile, from
approximately 17 percent to approximately 45 percent.
Bottlers in which we have a noncontrolling ownership interest are accounted
for under the cost or equity method as appropriate. Equity income or loss,
included in our consolidated net income, represents our share of the net
earnings or losses of our investee companies. In 2000, our Company's share of
losses from equity method investments totaled $289 million.
34
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
The following table illustrates the difference in calculated fair values,
based on quoted closing prices of publicly traded shares, and our Company's
carrying values for selected equity method investees (in millions):
Fair Carrying
December 31, Value Value Difference{1}
- --------------------------------------------------------------------------------
2000
- ----
Coca-Cola Enterprises Inc. $3,210 $707 $2,503
Coca-Cola Amatil Limited 965 617 348
Coca-Cola FEMSA,
S.A. de C.V. 957 152 805
Coca-Cola HBC S.A. 851 758 93
Panamerican
Beverages, Inc. 435 487 (52)
Grupo Continental, S.A. 176 139 37
Embotelladoras Argos S.A. 97 113 (16)
Coca-Cola Bottling Company
Consolidated 94 66 28
Coca-Cola Embonor S.A. 90 227 (137)
Embotelladoras Polar S.A. 27 54 (27)
- --------------------------------------------------------------------------------
$3,582
================================================================================
</FN>
{1} In instances where carrying value exceeds fair value, the decline in
value is considered to be temporary.
</FN>
FINANCIAL STRATEGIES
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The following strategies allow us to optimize our cost of capital,
increasing our ability to maximize share-owner value.
DEBT FINANCING
Our Company maintains debt levels we consider prudent based on our cash flow,
interest coverage and percentage of debt to capital. We use debt financing to
lower our overall cost of capital, which increases our return on share-owner's
equity.
Our capital structure and financial policies have earned long-term credit
ratings of "A+" from Standard & Poor's and "Aa3" from Moody's, and a credit
rating of "A-1" and "P-1" for our commercial paper programs from Standard &
Poor's and Moody's, respectively.
Our global presence and strong capital position give us easy access to key
financial markets around the world, enabling us to raise funds with a low
effective cost. This posture, coupled with the active management of our mix of
short-term and long-term debt, results in a lower overall cost of borrowing. Our
debt management policies, in conjunction with our share repurchase programs and
investment activity, typically result in current liabilities exceeding current
assets.
In managing our use of debt capital, we consider the following financial
measurements and ratios:
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Net debt (in billions) $3.9 $4.5 $3.3
Net debt-to-net capital 29% 32% 28%
Free cash flow to net debt 72% 52% 57%
Interest coverage 12x 14x 19x
Ratio of earnings to
fixed charges 8.7x 11.6x 17.3x
- --------------------------------------------------------------------------------
SHARE REPURCHASES
In October 1996, our Board of Directors authorized a plan to repurchase up to
206 million shares of our Company's common stock through the year 2006. In 2000,
we did not repurchase any shares under the 1996 plan. This was due to our
utilization of cash for an organizational Realignment (the Realignment), as
discussed under the heading "Other Operating Charges," and the impact on cash
from the reduction in concentrate inventory levels by certain bottlers, as
discussed under the heading "Volume." In December 2000, we announced our
intention to reinitiate share repurchases in 2001 under the 1996 plan.
In 1999, we did not repurchase any shares under the 1996 plan due primarily
to our utilization of cash for brand and bottler acquisitions. Since the
inception of our initial share repurchase program in 1984 through our current
program as of December 31, 2000, we have repurchased more than 1 billion shares.
This represents 32 percent of the shares outstanding as of January 1, 1984, at
an average price per share of $12.46.
DIVIDEND POLICY
At its February 2001 meeting, our Board of Directors again increased our
quarterly dividend, raising it to $.18 per share. This is equivalent to a
full-year dividend of $.72 in 2001, our 39th consecutive annual increase. Our
annual common stock dividend was $.68 per share, $.64 per share and $.60 per
share in 2000, 1999 and 1998, respectively.
In 2000, our dividend payout ratio was approximately 77 percent of our net
income, reflecting the impact of other operating charges and nonrecurring items
recorded in 2000 as well as the impact of the reduction in concentrate inventory
levels by certain bottlers during 2000. Detailed discussions of these other
operating charges and nonrecurring items follow under the heading "Other
Operating Charges" and in Note 15, respectively. A discussion of the inventory
reduction appears under the heading "Volume." Our dividend payout ratio would
have been approximately 45 percent excluding these items. To free up additional
cash for reinvestment in our high-return beverage business, our Board of
Directors intends to gradually reduce our dividend payout ratio to 30 percent
over time.
35
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
FINANCIAL RISK MANAGEMENT
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Our Company uses derivative financial instruments primarily to reduce our
exposure to adverse fluctuations in interest rates and foreign exchange rates
and, to a lesser extent, adverse fluctuations in commodity prices and other
market risks. We do not enter into derivative financial instruments for trading
purposes. As a matter of policy, all our derivative positions are used to reduce
risk by hedging an underlying economic exposure. Because of the high correlation
between the hedging instrument and the underlying exposure, fluctuations in the
value of the instruments are generally offset by reciprocal changes in the value
of the underlying exposure. The derivatives we use are straightforward
instruments with liquid markets.
Our Company monitors our exposure to financial market risks using several
objective measurement systems, including value-at-risk models. For the
value-at-risk calculations discussed below, we used a historical simulation
model to estimate potential future losses our Company could incur as a result of
adverse movements in foreign currency and interest rates. We have not considered
the potential impact of favorable movements in foreign currency and interest
rates on our calculations. We examined historical weekly returns over the
previous 10 years to calculate our value at risk. Our value-at-risk calculations
do not represent actual losses that our Company expects to incur.
FOREIGN CURRENCY
We manage most of our foreign currency exposures on a consolidated basis,
which allows us to net certain exposures and take advantage of any natural
offsets. With approximately 72 percent of 2000 operating income generated
outside the United States, weakness in one particular currency is often offset
by strengths in others over time. We use derivative financial instruments to
further reduce our net exposure to currency fluctuations.
Our Company enters into forward exchange contracts and purchases currency
options (principally Euro and Japanese yen) to hedge firm sale commitments
denominated in foreign currencies. We also purchase currency options
(principally Euro and Japanese yen) to hedge certain anticipated sales. Premiums
paid and realized gains and losses, including those on any terminated contracts,
are included in prepaid expenses and other assets. These are recognized in
income, along with unrealized gains and losses, in the same period we realize
the hedged transactions. Gains and losses on derivative financial instruments
that are designated and effective as hedges of net investments in international
operations are included in share-owners' equity as a foreign currency
translation adjustment, a component of other comprehensive income.
Our value-at-risk calculation estimates foreign currency risk on our
derivatives and other financial instruments. The average value at risk
represents the simple average of quarterly amounts for the past year. We have
not included in our calculation the effects of currency movements on anticipated
foreign currency denominated sales and other hedged transactions. We performed
calculations to estimate the impact to the fair values of our derivatives and
other financial instruments over a one-week period resulting from an adverse
movement in foreign currency exchange rates. As a result of our calculations, we
estimate with 95 percent confidence that the fair values would decline by less
than $45 million using 2000 average fair values and by less than $37 million
using December 31, 2000, fair values. On December 31, 1999, we estimated the
fair value would decline by less than $56 million. However, we would expect that
any loss in the fair value of our derivatives and other financial instruments
would generally be offset by an increase in the fair value of our underlying
exposures.
INTEREST RATES
Our Company maintains our percentage of fixed and variable rate debt within
defined parameters. We enter into interest rate swap agreements that maintain
the fixed-to-variable mix within these parameters. We recognize any differences
paid or received on interest rate swap agreements as adjustments to interest
expense over the life of each swap. Our Company also enters into interest rate
cap agreements that may entitle us to receive from a financial institution the
amount, if any, by which our interest payments on our variable rate debt exceed
prespecified interest rates through 2004.
Our value-at-risk calculation estimates interest rate risk on our derivatives
and other financial instruments. The average value at risk represents the simple
average of quarterly amounts for the past year. According to our calculations,
we estimate with 95 percent confidence that any increase in our net interest
expense due to an adverse move in our 2000 average or in our December 31, 2000,
interest rates over a one-week period would not have a material impact on our
Consolidated Financial Statements. Our December 31, 1999, estimate also was not
material to our Consolidated Financial Statements.
PERFORMANCE TOOLS
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Economic profit provides a framework by which we measure the value of our
actions. We define economic profit as income from continuing operations, after
giving effect to taxes and excluding the effects of interest, in excess of a
computed capital charge for average operating capital employed. We seek to
maximize economic profit by strategically investing in the high-return beverage
business and by optimizing our cost of capital through appropriate financial
strategies.
TOTAL RETURN TO SHARE OWNERS
- ----------------------------
Our Company has provided share owners with an excellent return on their
investments over the past decade. A $100 investment in our Company's common
stock on December 31, 1990, together with reinvested dividends, grew in pretax
value to approximately $588 on December 31, 2000, an average annual compound
return of 19 percent.
36
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUR BUSINESS
- ------------
We are the world's leading manufacturer, marketer and distributor of
nonalcoholic beverage concentrates and syrups. Our Company manufactures beverage
concentrates and syrups and, in certain instances, finished beverages, which we
sell to bottling and canning operations, authorized fountain wholesalers and
some fountain retailers. We also market and distribute juice and juice-drink
products. In addition, we have ownership interests in numerous bottling and
canning operations.
VOLUME
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We measure our sales volume in two ways: (1) gallon sales and (2) unit cases
of finished products. Gallon sales represent our primary business and measure
the volume of concentrates and syrups we sell to our bottling partners or
customers, plus the gallon sales equivalent of the juice and juice-drink
products sold by The Minute Maid Company. Most of our revenues are based on this
measure of "wholesale" activity. We also measure volume in unit cases, which
represent the amount of finished products we and our bottling system sell to
customers. We believe unit case volume more accurately measures the underlying
strength of our business system because it measures trends at the retail level.
In both measures we include fountain syrups sold by the Company to customers
directly or through wholesalers or distributors.
Our worldwide unit case volume increased 4 percent in 2000, on top of a
2 percent increase in 1999. The increase in unit case volume reflects improving
global economic conditions and successful implementation of local marketing
programs. Our business system sold 17.1 billion unit cases in 2000.
In 2000, certain bottlers reduced their concentrate inventory levels. This
was based on a joint review performed by the Company and our bottlers around the
world in order to determine the optimum level of bottler concentrate
inventories. The joint review established that opportunities existed to reduce
the level of concentrate inventory carried by bottlers in various regions of the
world. During the first half of 2000, bottlers in these regions reduced
concentrate inventory levels, the majority of which occurred during the first
three months of 2000.
OPERATIONS
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NET OPERATING REVENUES AND GROSS MARGIN
In 2000, on a consolidated basis, our net operating revenues and our gross
profit each grew 3 percent. The growth in net operating revenues was primarily
due to improved business conditions and price increases in selected countries.
This growth was partially offset by the negative impact of a stronger U.S.
dollar and the inventory reduction by certain bottlers. Our gross profit margin
of 69.7 percent remained unchanged in 2000 compared to 1999.
In 1999, on a consolidated basis, our net operating revenues and our gross
profit grew 5 percent and 4 percent, respectively. The growth in net operating
revenues was primarily due to price increases in certain markets, the
consolidation in 1999 of our bottling operations in India and our vending
operations in Japan, partially offset by the impact of a stronger U.S. dollar,
and the sale of our previously consolidated bottling and canning operations in
Italy in June 1998.
Our gross profit margin in 1999 decreased slightly to 69.7 percent from
70.4 percent in 1998. This was primarily due to the consolidation in 1999 of our
bottling operations in India and our vending operations in Japan. Generally, the
consolidation of bottling and vending operations shifts a greater portion of our
net revenues to the higher-revenue, but lower-margin, bottling and vending
operations.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses totaled $7,432 million in 2000, $7,266 million in 1999 and
$6,552 million in 1998. The increase in 2000 was primarily due to higher
marketing expenditures in line with the Company's unit case volume growth and
the consolidation in 2000 of F&N Coca-Cola. Additionally, as a result of the
gain recognized in the third quarter of 2000 from the merger of Coca-Cola
Beverages and Hellenic Bottling Company S.A., discussed in "Other Income-Net,"
the Company invested approximately $30 million in incremental marketing
initiatives in CCHBC regions. The increase in 1999 was primarily due to the
temporary product withdrawal in Belgium and France and marketing expenditures
associated with brand-building activities.
Administrative and general expenses totaled $1,688 million in 2000, $1,735
million in 1999 and $1,659 million in 1998. The decrease in 2000 was primarily a
result of savings realized from the Realignment initiated in 2000, offset by the
consolidation in 2000 of F&N Coca-Cola. See discussion under the heading "Other
Operating Charges" for a more complete description of the Realignment. The
increase in 1999 was primarily related to the consolidation in 1999 of our
bottling operations in India and our vending operations in Japan.
Administrative and general expenses, as a percentage of net operating
revenues, totaled approximately 8 percent in 2000, 9 percent in 1999 and
9 percent in 1998.
OTHER OPERATING CHARGES
During 2000, we recorded total nonrecurring charges of approximately $1,443
million. Of this $1,443 million, approximately $405 million related to the
impairment of certain bottling, manufacturing and intangible assets;
approximately $850 million related to the Realignment; and approximately $188
million related to the settlement terms of a class action discrimination lawsuit
and a donation to The Coca-Cola Foundation.
37
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
In the first quarter of 2000, we recorded charges of approximately $405
million related to the impairment of certain bottling, manufacturing and
intangible assets, primarily within our Indian bottling operations. These
impairment charges were recorded to reduce the carrying value of the identified
assets to fair value. Fair value was derived using cash flow analysis. The
assumptions used in the cash flow analysis were consistent with those used in
our internal planning process. The assumptions included estimates of future
growth in unit cases, estimates of gross margins, estimates of the impact of
exchange rates and estimates of tax rates and tax incentives. The charge was
primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value of
long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In the first quarter of 2000, the Company initiated the Realignment, which
reduced our workforce around the world and transferred responsibilities from our
corporate headquarters to local revenue-generating operating units. The intent
of the Realignment was to effectively align our corporate resources, support
systems and business culture to fully leverage the local capabilities of our
system.
Employees have been separated from almost all functional areas of the
Company's operations, and certain activities have been outsourced to third
parties. The total number of employees separated as of December 31, 2000, was
approximately 5,200. Employees separated from the Company as a result of the
Realignment were offered severance or early retirement packages, as appropriate,
which included both financial and nonfinancial components. The Realignment
expenses included costs associated with involuntary terminations, voluntary
retirements and other direct costs associated with implementing the Realignment.
Other direct costs included repatriating and relocating employees to local
markets; asset write-downs; lease cancellation costs; and costs associated with
the development, communication and administration of the Realignment. We
recorded total charges of approximately $850 million related to the Realignment.
During the year, the Company achieved approximately $150 million in savings from
the Realignment. For a more complete description of the costs related to the
Realignment, refer to Note 16 in our Consolidated Financial Statements.
In the fourth quarter of 2000, we recorded charges of approximately $188
million related to the settlement terms of, and direct costs related to, a class
action discrimination lawsuit. The monetary settlement includes cash payments to
fund back pay, compensatory damages, a promotional achievement fund and
attorneys' fees. In addition, the Company introduced a wide range of training,
monitoring and mentoring programs. Of the $188 million, $50 million was donated
to The Coca-Cola Foundation to continue its broad range of community support
programs. Under the terms of the settlement agreement, the Company has the
option to rescind the agreement if more than 200 potential class members opt out
of the settlement.
In the fourth quarter of 1999, we recorded charges of approximately $813
million. Of this $813 million, approximately $543 million related to the
impairment of certain bottling, manufacturing and intangible assets, primarily
within our Russian and Caribbean bottlers and in the Middle and Far East and in
North America. These impairment charges were recorded to reduce the carrying
value of the identified assets to fair value. Fair values were derived using a
variety of methodologies, including cash flow analysis, estimates of sales
proceeds and independent appraisals. Where cash flow analyses were used to
estimate fair values, key assumptions employed, consistent with those used in
our internal planning process, included our estimates of future growth in unit
case sales, estimates of gross margins and estimates of the impact of inflation
and foreign currency fluctuations. The charges were primarily the result of our
revised outlook in certain markets due to the prolonged severe economic
downturns. The remaining carrying value of these impaired long-lived assets,
immediately after recording the impairment charge, was approximately $140
million.
Of the $813 million, approximately $196 million related to charges associated
with the impairment of the distribution and bottling assets of our vending
operations in Japan and our bottling operations in the Baltics. The charges
reduced the carrying value of these assets to their fair value less the cost to
sell. Consistent with our long-term bottling investment strategy, management has
committed to a plan to sell our ownership interest in these operations to one of
our strategic business partners. 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 12-month period ending December 31, 2000, were
approximately $143 million and $21 million, respectively.
On December 22, 2000, the Company signed a definitive agreement to sell the
assets of our vending operations in Japan. The expected proceeds from the sale
of the assets are equal to the current carrying value of the long-lived assets
less the cost to sell. The sale transaction is expected to close in early 2001.
Management had intended to sell the assets of our bottling operations in the
Baltics to one of our strategic business partners. That partner is currently in
the process of an internal restructuring and no longer plans to purchase the
Baltics bottling operations. At this time another suitable buyer has not been
identified. Therefore, the Company will continue to operate the Baltics bottlers
as consolidated operations until a new buyer is identified.
The remainder of the $813 million charges, approximately $74 million,
primarily related to the change in senior management and charges related to
organizational changes within the Europe and Eurasia, Latin America and
Corporate segments. These charges were incurred during the fourth quarter of
1999.
In the second quarter of 1998, we recorded nonrecurring provisions primarily
related to the impairment of certain assets in North America of $25 million and
Corporate of $48 million.
38
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
OPERATING INCOME AND OPERATING MARGIN
On a consolidated basis, our operating income declined 7 percent in 2000 to
$3,691 million. This follows a decline of 20 percent in 1999 to $3,982 million.
The 2000 results reflect the recording of nonrecurring charges, as previously
discussed under the heading "Other Operating Charges," the impact of the
stronger U.S. dollar, the consolidation of F&N Coca-Cola and the effect of the
previously discussed reduction of concentrate inventory by certain bottlers
within the Coca-Cola system, which was completed in the first half of 2000.
The 1999 results reflect the recording of nonrecurring provisions, as
previously discussed under the heading "Other Operating Charges"; the difficult
economic conditions in many markets throughout the world; the temporary product
withdrawal in Belgium and France; the impact of the stronger U.S. dollar; and
the consolidation in 1999 of our bottling operations in India and vending
operations in Japan. Our consolidated operating margin was 18.0 percent in 2000,
20.1 percent in 1999 and 26.4 percent in 1998.
MARGIN ANALYSIS
- --------------------------------------------------------------------------------
2000 1999 1998
Net Operating Revenues
(in billions) $20.5 $19.8 $18.8
Gross Margin 69.7% 69.7% 70.4%
Operating Margin 18.0% 20.1% 26.4%
- --------------------------------------------------------------------------------
INTEREST INCOME AND INTEREST EXPENSE
In 2000, our interest income increased 33 percent due primarily to higher
average cash balances and higher interest rates. In 1999, our interest income
increased 19 percent primarily due to cash held in locations outside the United
States earning higher interest rates, on a comparative basis. Interest expense
increased 33 percent in 2000 due to both an increase in average commercial paper
balances and higher interest rates throughout the period. Average 2000 debt
balances increased from 1999 primarily due to our utilization of cash for the
Realignment, as discussed under the heading "Other Operating Charges," and the
impact on cash from the reduction in concentrate inventory levels by certain
bottlers, as discussed under the heading "Volume." Interest expense increased 22
percent in 1999 due to higher total borrowings throughout the period. Average
1999 debt balances increased from 1998 primarily due to brand and bottler
acquisitions during the period.
EQUITY INCOME (LOSS)
In 2000, our Company's share of losses from equity method investments totaled
$289 million. This includes a nonrecurring charge of approximately $306 million,
which represents the Company's portion of a charge recorded by Coca-Cola Amatil
to reduce the carrying value of its investment in the Philippines. In addition,
Panamerican Beverages, Inc. (Panamco) wrote down selected assets, including the
impairment of the value of its Venezuelan operating unit. The Company's portion
of this charge was approximately $124 million. Also contributing to the equity
losses were nonrecurring charges recorded by investees in Eurasia and the Middle
East.
These nonrecurring charges were partially offset by overall improvement in
operating performance by our portfolio of bottlers and the positive impact of
lower tax rates on current and deferred taxes at Coca-Cola Erfrischungsgetranke
AG (CCEAG), a bottler in Germany.
In 1999, our Company's share of losses from equity method investments totaled
$184 million, reflecting the negative impact of difficult economic conditions in
many worldwide markets, continued structural change in the bottling system, the
impact of the temporary product withdrawal in Belgium and France, and one-time
charges taken by certain equity investees. Our Company's share of the charges
taken by certain equity investees in countries such as Venezuela and the
Philippines was approximately $22 million. Our Company's share of Coca-Cola
Enterprises Inc's (Coca-Cola Enterprises) nonrecurring product recall costs
resulting from the product withdrawal was approximately $28 million.
OTHER INCOME-NET
In 2000, other income-net was $99 million, primarily reflecting the impact of
a gain related to the merger of Coca-Cola Beverages and Hellenic Bottling
Company S.A. during the third quarter of 2000. This merger resulted in a
decrease of our Company's equity ownership interest from approximately 50.5
percent of Coca-Cola Beverages to approximately 24 percent of the combined
entity, CCHBC. As a result of our Company's decreased equity ownership, a
tax-free noncash gain of approximately $118 million was recognized. This was
partially offset by exchange losses recognized in 2000 versus exchange gains in
1999 attributable to the hedging of our resources in Brazil.
In 1999, other income-net decreased 57 percent to $98 million, primarily
reflecting the impact of the gains recorded on the sales of our bottling and
canning operations in Italy in June 1998, partially offset by an increase in
exchange gains in 1999.
39
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES
At the time an equity investee sells its stock to third parties at a price in
excess of our book value, our Company's equity in the underlying net assets of
that investee increases. We generally record an increase to our investment
account and a corresponding gain in these transactions. No gains on issuances of
stock by equity investees were recorded to the income statement during 2000 or
1999, and pretax gains of approximately $27 million were recorded in 1998. This
gain represents the increase in our Company's equity in the underlying net
assets of the related investee. For a more complete description of these
transactions, refer to Note 3 in our Consolidated Financial Statements.
INCOME TAXES
Our effective tax rates were 36.0 percent in 2000, 36.3 percent in 1999 and
32.0 percent in 1998. The change in our effective tax rate in 2000 was primarily
the result of our current inability to realize a tax benefit associated with the
impairment charges taken in 2000, as previously discussed under the headings
"Other Operating Charges" and "Equity Income (Loss)," partially offset by the
tax-free gain of approximately $118 million, as previously discussed under the
heading "Other Income-Net." Our effective tax rates reflect 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. For a more complete
description of our income taxes, refer to Note 14 in our Consolidated Financial
Statements.
During the first quarter of 2000, the United States and Japan taxing
authorities entered into an Advance Pricing Agreement (APA) whereby the level of
royalties paid by Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our
Company has been established for the years 1993 through 2001. Pursuant to the
terms of the APA, our Subsidiary has filed amended returns for the applicable
periods reflecting the negotiated royalty rate. These amended returns resulted
in the payment during the first and second quarters of 2000 of additional
Japanese taxes, the effect of which on both our financial performance and our
effective tax rate was not material, due primarily to offsetting tax credits on
our U.S. income tax return. The majority of the offsetting tax credits are
expected to be realized within the next 12 months.
INCOME PER SHARE
Our basic net income per share decreased by 10 percent in 2000, compared to a
31 percent decline in 1999. Diluted net income per share decreased by 10 percent
in 2000, compared to a 31 percent decline in 1999.
RECENT DEVELOPMENTS
In January 2001, we announced plans to further develop our existing
partnership with Nestle S.A., Coca-Cola Nestle Refreshments. Under the proposed
restructuring, which is subject to approval by regulatory authorities, the
partnership will be renamed Beverage Partners Worldwide (BPW) and will function
as an entrepreneurial unit dedicated to tapping the growth potential of emerging
beverage segments, particularly ready-to-drink coffees, teas and beverages with
a healthful positioning.
In February 2001, our Company and San Miguel Corporation (SMC) announced an
agreement in principle with Coca-Cola Amatil to purchase Coca-Cola Bottlers
Philippines, Inc. (CCBPI). The consideration for this transaction, comprised of
Coca-Cola Amatil shares, cash and the assumption of debt, is valued at
approximately $1.2 billion. SMC will manage day-to-day operations and own
65 percent of the common equity of CCBPI and our Company will own the remaining
35 percent. The completion of this transaction is subject to Coca-Cola Amatil
share-owner approval and certain other conditions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
We believe our ability to generate cash from operations to reinvest in our
business is one of our fundamental financial strengths. We anticipate that our
operating activities in 2001 will continue to provide us with cash flows to
assist in our business expansion and to meet our financial commitments.
FREE CASH FLOW
Free cash flow is the cash remaining from operations after we have satisfied
our business reinvestment opportunities. We focus on increasing free cash flow
to achieve our objective of maximizing share-owner value over time. We use free
cash flow along with borrowings to pay dividends, make share repurchases and
make acquisitions.
The consolidated statements of our cash flows are summarized as follows (in
millions):
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Cash flows provided by
(used in):
Operations $ 3,585 $ 3,883 $ 3,433
Business reinvestment (779) (1,551) (1,557)
- --------------------------------------------------------------------------------
FREE CASH FLOW 2,806 2,332 1,876
Cash flows (used in)
provided by:
Acquisitions,
net of disposals (386) (1,870) (604)
Share repurchases (133) (15) (1,563)
Dividends (1,685) (1,580) (1,480)
Other financing activities (254) 1,124 1,710
Exchange (140) (28) (28)
- --------------------------------------------------------------------------------
Increase (decrease) in cash $ 208 $ (37) $ (89)
================================================================================
40
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
Cash provided by operations in 2000 amounted to $3.6 billion, an 8 percent
decrease from 1999 due to the utilization of cash for the Realignment, as
discussed under the heading "Other Operating Charges," and the impact on cash
from the reduction in concentrate inventory levels by certain bottlers as
discussed under the heading "Volume." In 1999, cash provided by operations
amounted to $3.9 billion, a 13 percent increase from 1998.
In 2000, net cash used in investing activities decreased by $2.3 billion
compared to 1999. The decrease was primarily the result of brand and bottler
acquisitions during 1999. For a more complete description of these transactions,
refer to Note 17 in our Consolidated Financial Statements.
In 1999, net cash used in investing activities increased by $1.3 billion
compared to 1998. The increase was primarily the result of brand and bottler
acquisitions during 1999 and a decrease in proceeds from disposal of investments
and other assets.
Total capital expenditures for property, plant and equipment (including our
investments in information technology) and the percentage distribution by
operating segment for 2000, 1999 and 1998 are as follows (in millions):
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Capital expenditures $ 733 $ 1,069 $ 863
- --------------------------------------------------------------------------------
North America{1} 35% 25% 32%
Africa and Middle East 2% 2% 3%
Europe and Eurasia 26% 20% 25%
Latin America 2% 6% 8%
Asia Pacific 18% 30% 12%
Corporate 17% 17% 20%
================================================================================
{1}Includes The Minute Maid Company
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments and share
issuances and repurchases. Net cash used in financing activities totaled $2.1
billion in 2000, $.5 billion in 1999 and $1.3 billion in 1998. The change
between 2000 and 1999 was primarily due to the use of excess cash to pay down
outstanding loans. The change between 1999 and 1998 was primarily due to a
decrease in treasury stock repurchases due to our utilization of cash for our
brand and bottler acquisitions during 1999.
Cash used to purchase common stock for treasury under the 1996 share
repurchase plan and employee stock award programs totaled $133 million in 2000,
$15 million in 1999 and $1.6 billion in 1998. In 2000 and in 1999, we did not
repurchase any shares under the 1996 share repurchase plan.
Commercial paper is our primary source of short-term financing. On December
31, 2000, we had $4.5 billion outstanding in commercial paper borrowings
compared to $4.9 billion outstanding at the end of 1999, a $.4 billion decrease
in borrowings. The 2000 decrease in loans and notes payable was due to the use
of excess cash to pay down outstanding loans. The Company's commercial paper
borrowings normally mature less than three months from the date of issuance. In
1999, as part of our Year 2000 plan, we increased the amount of commercial paper
borrowings with maturity dates greater than three months. The gross payments and
receipts of borrowings greater than three months from the date of issuance have
been included in the Consolidated Statements of Cash Flows. In addition, on
December 31, 2000, we had $3.0 billion in lines of credit and other short-term
credit facilities available, of which approximately $246 million was
outstanding.
On December 31, 2000, we had $835 million outstanding in long-term debt,
compared to $854 million outstanding at the end of 1999, a $19 million decrease
in borrowings.
EXCHANGE
Our international operations are subject to certain opportunities and risks,
including currency fluctuations and government actions. We closely monitor our
operations in each country and seek to adopt appropriate strategies that are
responsive to changing economic and political environments and to fluctuations
in foreign currencies.
We use approximately 65 functional currencies. Due to our global operations,
weaknesses in some of these currencies are often offset by strengths in others.
In 2000, 1999 and 1998, the weighted-average exchange rates for foreign
currencies, and for certain individual currencies, strengthened (weakened)
against the U.S. dollar as follows:
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
All currencies (5)% Even (9)%
- --------------------------------------------------------------------------------
Australian dollar (8)% 3% (16)%
British pound (7)% (2)% 2%
Canadian dollar Even Even (7)%
French franc (14)% (2)% (3)%
German mark (14)% (2)% (3)%
Japanese yen 4% 15% (6)%
================================================================================
These percentages do not include the effects of our hedging activities and,
therefore, do not reflect the actual impact of fluctuations in exchange on our
operating results. Our foreign currency management program mitigates over time a
portion of the impact of exchange on net income and earnings per share. The
impact of a stronger U.S. dollar reduced our operating income by approximately
4 percent in 2000 and 1999.
Exchange gains (losses)-net amounted to $(12) million in 2000, $87 million in
1999 and $(34) million in 1998, and were recorded in other income-net. Exchange
gains (losses)-net includes the remeasurement of certain currencies into
functional currencies and the costs of hedging certain exposures of our balance
sheet.
Additional information concerning our hedging activities is presented in Note
9 in our Consolidated Financial Statements.
41
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
FINANCIAL POSITION
- ------------------
In 2000, the carrying value of our investment in Coca-Cola Amatil decreased,
primarily as a result of a nonrecurring charge recorded by Coca-Cola Amatil to
reduce the carrying value of its investment in the Philippines. The Company's
portion of this charge was $306 million. The carrying value of our investment in
CCHBC decreased due to the impact of foreign currency exchange partially offset
by a gain of approximately $118 million related to the merger of Coca-Cola
Beverages and Hellenic Bottling Company S.A. during the third quarter of 2000.
The carrying value of other investments, principally bottling companies,
decreased primarily due to a nonrecurring charge recorded by Panamco to write
down selected assets, including the impairment of the value of the Venezuelan
operating unit. The decrease in the carrying value of other equity investments
was also impacted by the consolidation in 2000 of F&N Coca-Cola, which was
previously recorded as an equity investment. The increase in marketable
securities and other assets is primarily due to an increase in marketing
prepayments. The increase in accounts payable and accrued expenses is due
primarily to the accrual for the Realignment expenses.
The carrying value of our investment in Coca-Cola Enterprises increased in
1999, primarily as a result of Coca-Cola Enterprises' issuance of stock in its
acquisitions of various bottling operations. The carrying value of our
investment in Coca-Cola Amatil decreased, primarily due to the transfer of
approximately 57 million shares of Coca-Cola Amatil to Fraser and Neave Limited
in conjunction with our acquisition of its 75 percent interest in F&N Coca-Cola.
The increase in our property, plant and equipment was primarily due to the
consolidation in 1999 of our bottling operations in India and our vending
operations in Japan. The increase in our goodwill and other intangible assets
was primarily due to our brand and bottler acquisitions during 1999.
EURO CONVERSION
- ---------------
In January 1999, certain member countries of the European Union established
irrevocable, fixed conversion rates between their existing currencies and the
European Union's common currency (the Euro).
The introduction of the Euro is scheduled to be phased in over a period
ending January 1, 2002, when Euro notes and coins will come into circulation.
The existing currencies are due to be completely removed from circulation on
February 28, 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.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
Inflation affects the way we operate in many markets around the world. In
general, we are able to increase prices to counteract the inflationary effects
of increasing costs and to generate sufficient cash flows to maintain our
productive capability.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statements 137 and 138 in
June 1999 and June 2000, respectively. These statements, which were required to
be adopted for fiscal years beginning after June 15, 2000, require the Company
to recognize all derivatives on the balance sheet at fair value. The statements
also established new accounting rules for hedging instruments which, depending
on the nature of the hedge, require that changes in the fair value of
derivatives either be offset against the change in fair value of assets,
liabilities or firm commitments through earnings, or be recognized in other
comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of a derivative's change in fair value must be immediately
recognized in earnings.
We adopted the provisions of SFAS No. 133, as amended, on January 1, 2001,
which resulted in an immaterial impact on our consolidated results of operations
and financial position. Although these statements will not have a material
impact in our consolidated financial results, the requirements of these
statements may result in slightly increased volatility in the Company's future
quarterly consolidated financial results. The Company implemented new
information systems to ensure that we were in compliance with these statements
upon adoption.
OUTLOOK
- -------
While we cannot predict future performance, we believe considerable
opportunities exist for sustained, profitable growth, not only in the developing
population centers of the world, but also in our most established markets.
We firmly believe that the strength of our brands, our unparalleled
distribution system, our global presence, our strong financial condition and the
diversity and skills of our people give us the flexibility to capitalize on
growth opportunities as we continue to pursue our goal of increasing share-
owner value over time.
42
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
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:
- -- Our ability to generate sufficient cash flows to support capital
expansion plans, share repurchase programs and general operating
activities.
- -- Changes in the nonalcoholic beverages business environment. These
include, without limitation, 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,
factors such as these 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, especially in international
markets, including civil unrest, governmental changes and restrictions
on the ability to transfer capital across borders.
- -- Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions, and how well we are
able to acquire or form strategic business alliances with local
bottlers and make necessary infrastructure enhancements to production
facilities, distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets must match the
customers' demand for those products, and due to product price and
cultural differences, there can be no assurance of product acceptance
in any particular market.
- -- The effectiveness of our advertising, marketing and promotional
programs.
- -- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's Securities
and Exchange Commission filings.
- -- Adverse weather conditions, which could reduce demand for Company
products.
The foregoing list of important factors is not exclusive.
ADDITIONAL INFORMATION
- ----------------------
For additional information about our operations, cash flows, liquidity and
capital resources, please refer to the information on pages 46 through 68 of
this report. Additional information concerning our operating segments is
presented on pages 65 through 67.
43
SELECTED FINANCIAL DATA
The Coca-Cola Company and Subsidiaries
Compound Year Ended December 31,
(In millions except per Growth Rates
share data, ratios and ------------------- --------------------------------------------------------------
growth rates) 5 Years 10 Years 2000 1999 1998{2} 1997{2} 1996{2}
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ---------------------
Net operating revenues 2.4% 7.1% $ 20,458 $ 19,805 $ 18,813 $ 18,868 $ 18,673
Cost of goods sold (2.2)% 4.0% 6,204 6,009 5,562 6,015 6.738
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 5.0% 8.9% 14,254 13,796 13,251 12,853 11,935
Selling, administrative
and general expenses 5.2% 8.4% 9,120 9,001 8,211 7,792 7,635
Other operating charges 1,443 813 73 60 385
- -----------------------------------------------------------------------------------------------------------------------
Operating income (1.7)% 6.6% 3,691 3,982 4,967 5,001 3,915
Interest income 345 260 219 211 238
Interest expense 447 337 277 258 286
Equity income (loss) (289) (184) 32 155 211
Other income (deductions)-net 99 98 230 583 87
Gains on issuances of stock
by equity investees - - 27 363 431
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles (4.7)% 5.4% 3,399 3,819 5,198 6,055 4.596
Income taxes (1.9)% 6.8% 1,222 1,388 1,665 1,926 1,104
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles (6.1)% 4.6% $ 2,177 $ 2,431 $ 3,533 $ 4,129 $ 3,492
=======================================================================================================================
Net income (6.1)% 4.6% $ 2,177 $ 2,431 $ 3,533 $ 4,129 $ 3,492
Preferred stock dividends - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners (6.1)% 4.8% $ 2,177 $ 2,431 $ 3,553 $ 4,129 $ 3,492
=======================================================================================================================
Average common shares
outstanding 2,477 2,469 2,467 2,477 2,494
Average common shares
outstanding assuming
dilution 2,487 2,487 2,496 2,515 2,523
PER COMMON SHARE DATA
- ---------------------
Income from continuing
operations before changes
in accounting principles
-- basic (5.7)% 5.6% $ .88 $ .98 $ 1.43 $ 1.67 $ 1.40
Income from continuing
operations before changes
in accounting principles
-- diluted (5.5)% 5.8% .88 .98 1.42 1.64 1.38
Basic net income (5.7)% 5.6% .88 .98 1.43 1.67 1.40
Diluted net income (5.5)% 5.8% .88 .98 1.42 1.64 1.38
Cash dividends 9.1% 13.0% .68 .64 .60 .56 .50
Market price on
December 31, 10.4% 18.0% 60.94 58.25 67.00 66.69 52.63
TOTAL MARKET VALUE OF
COMMON STOCK {1} 10.2% 17.2% $151,421 $143,969 $165,190 $164,766 $130,575
- ---------------------
BALANCE SHEET DATA
- ------------------
Cash, cash equivalents
and current marketable
securities $ 1,892 $ 1,812 $ 1,807 $ 1,843 $ 1,658
Property, plant and
equipment-net 4,168 4,267 3,669 3,743 3,550
Depreciation 465 438 381 384 442
Capital expenditures 733 1,069 863 1,093 990
Total assets 20,834 21,623 19,145 16,881 16,112
Long-term debt 835 854 687 801 1,116
Total debt 5,651 6,227 5,149 3,875 4,513
Share-owners' equity 9,316 9,513 8,403 7,274 6,125
Total capital {1} 14,967 15,740 13,552 11,149 10,638
OTHER KEY FINANCIAL MEASURES {1}
- --------------------------------
Total debt-to-total
capital 37.8% 39.6% 38.0% 34.8% 42.4%
Net debt-to-net capital 29.4% 32.2% 28.1% 22.0% 31.6%
Return on common equity 23.1% 27.1% 45.1% 61.6% 60.8%
Return on capital 16.2% 18.2% 30.2% 39.5% 36.8%
Dividend payout ratio 77.4% 65.0% 41.9% 33.6% 35.7%
Free cash flow {7} $ 2,806 $ 2,332 $ 1,876 $ 2,951 $ 2.215
Economic profit $ 861 $ 1,128 $ 2,480 $ 3,325 $ 2,718
=======================================================================================================================
[FN]
{1} See Glossary on page 73.
{2} In 1998, we adopted SFAS No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits."
{3} In 1994, we adopted SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities."
{4} In 1993, we adopted SFAS No. 112 "Employers' Accounting for Postemployment
Benefits."
</FN>
44
SELECTED FINANCIAL DATA
The Coca-Cola Company and Subsidiaries
Year Ended December 31,
(In millions except per
share data, ratios and ---------------------------------------------------------------------------------------------
growth rates) 1995{2} 1994{2}{3} 1993{2}{4} 1992{2}{5}{6} 1991{2}{6} 1990(2]{6}
- ------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ---------------------
Net operating revenues $ 18,127 $ 16,264 $ 14,030 $ 13,119 $ 11,599 $ 10,261
Cost of goods sold 6,940 6,168 5,160 5,055 4,649 4,208
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 11,187 10,096 8,870 8,064 6,950 6,053
Selling, administrative
and general expenses 7,075 6,459 5,721 5,317 4,628 4,054
Other operating charges 86 - 50 - 13 49
- --------------------------------------------------------------------------------------------------------------------------
Operating income 4,026 3,637 3,099 2,747 2,309 1,950
Interest income 245 181 144 164 175 170
Interest expense 272 199 168 171 192 231
Equity income (loss) 169 134 91 65 40 110
Other income (deductions)-net 86 (25) 7 (59) 51 15
Gains on issuances of stock
by equity investees 74 - 12 - - -
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 4,328 3,728 3,185 2,746 2,383 2,014
Income taxes 1,342 1,174 997 863 765 632
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles $ 2,986 $ 2,554 $ 2,188 $ 1,883 $ 1,618 $ 1,382
=============================================================================================================================
Net income $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,618 $ 1,382
Preferred stock dividends - - - - 1 18
- -----------------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,617 $ 1,364
=============================================================================================================================
Average common shares
outstanding 2,525 2,580 2,603 2,634 2,666 2,674
Average common shares
outstanding assuming
dilution 2,549 2,599 2,626 2,668 2,695 2,706
PER COMMON SHARE DATA
- ---------------------
Income from continuing
operations before changes
in accounting principles
-- basic $ 1.18 $ .99 $ .84 $ .72 $ .61 $ .51
Income from continuing
operations before changes
in accounting principles
-- diluted 1.17 .98 .83 .71 .60 .50
Basic net income 1.18 .99 .84 .63 .61 .51
Diluted net income 1.17 .98 .83 .62 .60 .50
Cash dividends .44 .39 .34 .28 .24 .20
Market price on
December 31, 37.13 25.75 22.31 20.94 20.06 11.63
TOTAL MARKET VALUE OF
COMMON STOCK {1} $ 92,983 $ 65,711 $ 57,905 $ 54,728 $ 53,325 $ 31,073
- ---------------------
BALANCE SHEET DATA
- ------------------
Cash, cash equivalents
and current marketable
securities $ 1,315 $ 1,531 $ 1,078 $ 1,063 $ 1,117 $ 1,492
Property, plant and
equipment-net 4,336 4,080 3,729 3,526 2,890 2,386
Depreciation 421 382 333 310 254 236
Capital expenditures 937 878 800 1,083 792 593
Total assets 15,004 13,863 11,998 11,040 10,185 9,245
Long-term debt 1,141 1,426 1,428 1,120 985 536
Total debt 4,064 3,509 3,100 3,207 2,288 2,537
Share-owners' equity 5,369 5,228 4,570 3,881 4,236 3,662
Total capital {1} 9,433 8,737 7,670 7,088 6,524 6,199
OTHER KEY FINANCIAL MEASURES {1}
Total debt-to-total
capital 43.1% 40.2% 40.4% 45.2% 35.1% 40.9%
Net debt-to-net capital 32.3% 25.5% 29.0% 33.1% 24.2% 24.6%
Return on common equity 56.4% 52.1% 51.8% 46.4% 41.3% 41.4%
Return on capital 34.9% 32.8% 31.2% 29.4% 27.5% 26.8%
Dividend payout ratio 37.2% 39.4% 40.6% 44.3% 39.5% 39.2%
Free cash flow {7} $ 2,460 $ 2,356 $ 1,857 $ 875 $ 881 $ 844
Economic profit $ 2,291 $ 1,896 $ 1,549 $ 1,300 $ 1,073 $ 920
=============================================================================================================================
[FN]
{5} In 1992, we adopted SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
{6} In 1992, we adopted SFAS No. 109 "Accounting for Income Taxes," by restating
financial statements beginning in 1989
{7} All years presented have been restated to exclude net cash flows related to
acquisitions.
</FN>
45
CONSOLIDATED BALANCE SHEETS
The Coca-Cola Company and Subsidiaries
December 31, 2000 1999
- --------------------------------------------------------------------------------
(In millions except share data)
ASSETS
- ------
CURRENT
- -------
Cash and cash equivalents $ 1,819 $ 1,611
Marketable securities 73 201
- --------------------------------------------------------------------------------
1,892 1,812
Trade accounts receivable, less allowances
of $62 in 2000 and $26 in 1999 1,757 1,798
Inventories 1,066 1,076
Prepaid expenses and other assets 1,905 1,794
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,620 6,480
- --------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
- ----------------------------
Equity method investments
Coca-Cola Enterprises Inc. 707 728
Coca-Cola Amatil Limited 617 1,133
Coca-Cola HBC S.A. 758 788
Other, principally bottling companies 3,164 3,793
Cost method investments, principally
bottling companies 519 350
Marketable securities and other assets 2,364 2,124
- --------------------------------------------------------------------------------
8,129 8,916
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Land 225 215
Buildings and improvements 1,642 1,528
Machinery and equipment 4,547 4,527
Containers 200 201
- --------------------------------------------------------------------------------
6,614 6,471
Less allowances for depreciation 2,446 2,204
- --------------------------------------------------------------------------------
4,168 4,267
- --------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS 1,917 1,960
- --------------------------------------------------------------------------------
$20,834 $21,623
================================================================================
46
The Coca-Cola Company and Subsidiaries
December 31, 2000 1999
- --------------------------------------------------------------------------------
LIABILITIES AND SHARE-OWNERS' EQUITY
- ------------------------------------
CURRENT
- -------
Accounts payable and accrued expenses $ 3,905 $ 3,714
Loans and notes payable 4,795 5,112
Current maturities of long-term debt 21 261
Accrued income taxes 600 769
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,321 9,856
- --------------------------------------------------------------------------------
LONG-TERM DEBT 835 854
- --------------------------------------------------------------------------------
OTHER LIABILITIES 1,004 902
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES 358 498
- --------------------------------------------------------------------------------
SHARE-OWNERS' EQUITY
- --------------------
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,481,882,834 shares in 2000;
3,466,371,904 shares in 1999 870 867
Capital surplus 3,196 2,584
Reinvested earnings 21,265 20,773
Accumulated other comprehensive income and
unearned compensation on restricted stock (2,722) (1,551)
- --------------------------------------------------------------------------------
22,609 22,673
Less treasury stock, at cost
(997,121,427 shares in 2000;
994,796,786 shares in 1999) 13,293 13,160
- --------------------------------------------------------------------------------
9,316 9,513
- --------------------------------------------------------------------------------
$20,834 $21,623
===============================================================================
[FN]
See Notes to Consolidated Financial Statements.
</FN>
47
CONSOLIDATED STATEMENTS OF INCOME
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(In millions except per share data)
NET OPERATING REVENUES $20,458 $19,805 $18,813
- ----------------------
Cost of goods sold 6,204 6,009 5,562
- --------------------------------------------------------------------------------
GROSS PROFIT 14,254 13,796 13,251
- ------------
Selling, administrative and general
expenses 9,120 9,001 8,211
Other operating charges 1,443 813 73
- --------------------------------------------------------------------------------
OPERATING INCOME 3,691 3,982 4,967
- ----------------
Interest income 345 260 219
Interest expense 447 337 277
Equity income (loss) (289) (184) 32
Other income-net 99 98 230
Gains on issuances of stock by
equity investees - - 27
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,399 3,819 5,198
- --------------------------
Income taxes 1,222 1,388 1,665
- --------------------------------------------------------------------------------
NET INCOME $ 2,177 $ 2,431 $ 3,533
================================================================================
BASIC NET INCOME PER SHARE $ .88 $ .98 $ 1.43
DILUTED NET INCOME PER SHARE $ .88 $ .98 $ 1.42
================================================================================
AVERAGE SHARES OUTSTANDING 2,477 2,469 2,467
- --------------------------
Dilutive effect of stock options 10 18 29
- --------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,487 2,487 2,496
================================================================================
[FN]
See Notes to Consolidated Financial Statements.
</FN>
48
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(In millions)
OPERATING ACTIVITIES
Net income $ 2,177 $ 2,431 $ 3,533
Depreciation and amortization 773 792 645
Deferred income taxes 3 97 (38)
Equity income or loss, net of dividends 380 292 31
Foreign currency adjustments 196 (41) 21
Gains on issuances of stock by equity
investees - - (27)
Gains on sales of assets, including
bottling interests (127) (49) (306)
Other operating charges 916 799 73
Other items 119 119 51
Net change in operating assets and
liabilities (852) (557) (550)
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 3,585 3,883 3,433
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks
and bottling companies (397) (1,876) (1,428)
Purchases of investments and other
assets (508) (518) (610)
Proceeds from disposals of investments
and other assets 290 176 1,036
Purchases of property, plant and
equipment (733) (1,069) (863)
Proceeds from disposals of property,
plant and equipment 45 45 54
Other investing activities 138 (179) (350)
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,165) (3,421) (2,161)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuances of debt 3,671 3,411 1,818
Payments of debt (4,256) (2,455) (410)
Issuances of stock 331 168 302
Purchases of stock for treasury (133) (15) (1,563)
Dividends (1,685) (1,580) (1,480)
- --------------------------------------------------------------------------------
Net cash used in financing activities (2,072) (471) (1,333)
- --------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (140) (28) (28)
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year 208 (37) (89)
Balance at beginning of the year 1,611 1,648 1,737
- --------------------------------------------------------------------------------
Balance at end of year $ 1,819 $ 1,611 $ 1,648
================================================================================
[FN]
See Notes to Consolidated Financial Statements.
</FN>
49
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY
The Coca-Cola Company and Subsidiaries
Number of | Accumulated
Common | Outstanding Other
Three Years Ended Shares | Common Capital Reinvested Restricted Comprehensive Treasury
December 31, 2000 Outstanding | Stock Surplus Earnings Stock Income Stock Total
- -----------------------------------------|-----------------------------------------------------------------------------------------
|
(In millions except per share data) |
|
BALANCE DECEMBER 31, 1997 2,471 | $ 861 $ 1,527 $ 17,869 $ (50) $ (1,351) $ (11,582) $ 7,274
|
COMPREHENSIVE INCOME: |
Net income - | - - 3,533 - - - 3,533
Translation adjustments - | - - - - 52 - 52
Net change in unrealized |
gain on securities - | - - - - (47) - (47)
Minimum pension liability - | - - - - (4) - (4)
| -------
COMPREHENSIVE INCOME | 3,534
|
Stock issued to employees |
exercising stock options 16 | 4 298 - - - - 302
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 97 - - - - 97
Stock issued under restricted |
stock plans, less amortization |
of $5 1 | - 47 - (34) - - 13
Stock issued by an equity |
investee - | - 226 - - - - 226
Purchases of stock for treasury (22){1}| - - - - - (1,563) (1,563)
Dividends (per share -- $.60) - | - - (1,480) - - - (1,480)
- -----------------------------------------|------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 2,466 | 865 2,195 19,922 (84) (1,350) (13,145) 8,403
|
COMPREHENSIVE INCOME: |
Net income - | - - 2,431 - - - 2,431
Translation adjustments - | - - - - (190) - (190)
Net change in unrealized |
gain on securities - | - - - - 23 - 23
Minimum pension liability - | - - - - 25 - 25
| ------
COMPREHENSIVE INCOME | 2,289
|
Stock issued to employees |
exercising stock options 6 | 2 166 - - - - 168
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 72 - - - - 72
Stock issued under restricted |
stock plans, less amortization |
of $27 - | - 2 - 25 - - 27
Stock issued by an equity |
investee - | - 146 - - - - 146
Stock issued under Directors' |
plan - | - 3 - - - - 3
Purchases of stock for treasury - | - - - - - (15) (15)
Dividends (per share -- $.64) - | - - (1,580) - - - (1,580)
- -----------------------------------------|------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 2,472 | 867 2,584 20,773 (59) (1,492) (13,160) 9,513
|
COMPREHENSIVE INCOME: |
Net income - | - - 2,177 - - - 2,177
Translation adjustments - | - - - - (965) - (965)
Net change in unrealized gain |
on securities - | - - - - (60) - (60)
Minimum pension liability - | - - - - (10) - (10)
| -------
COMPREHENSIVE INCOME | 1,142
|
Stock issued to employees |
exercising stock options 12 | 2 329 - - - - 331
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 116 - - - - 116
Stock issued under restricted |
stock plans, less amortization |
of $24 3 | 1 166 - (136) - - 31
Stock issued under Directors' |
plan - | - 1 - - - - 1
Purchases of stock for treasury (2){1}| - - - - - (133) (133)
Dividends (per share -- $.68) - | - - (1,685) - - - (1,685)
- -----------------------------------------|------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000 2,485 | $870 $ 3,196 $ 21,265 $ (195) $(2,527) $ (13,293) $ 9,316
====================================================================================================================================
[FN]
{1} Common stock purchased from employees exercising stock options numbered 2.2
million, .3 million and 1.4 million shares for the years ended December 31,
2000, 1999 and 1998, respectively.
See Notes to Consolidated Financial Statements.
</FN>
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------
ORGANIZATION
The Coca-Cola Company and subsidiaries (our Company) is predominantly a
manufacturer, marketer and distributor of nonalcoholic beverage concentrates and
syrups. Operating in nearly 200 countries worldwide, we primarily sell our
concentrates and syrups to bottling and canning operations, fountain wholesalers
and fountain retailers. We also market and distribute juice and juice-drink
products. We have significant markets for our products in all the world's
geographic regions. We record revenue when title passes to our customers or our
bottling partners.
BASIS OF PRESENTATION
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
CONSOLIDATION
Our Consolidated Financial Statements include the accounts of The Coca-Cola
Company and all subsidiaries except where control is temporary or does not rest
with our Company. Our investments in companies in which we have the ability to
exercise significant influence over operating and financial policies, including
certain investments where there is a temporary majority interest, are accounted
for by the equity method. Accordingly, our Company's share of the net earnings
of these companies is included in consolidated net income. Our investments in
other companies are carried at cost or fair value, as appropriate. All
significant intercompany accounts and transactions are eliminated upon
consolidation.
ISSUANCES OF STOCK BY EQUITY INVESTEES
When one of our equity investees issues additional shares to third parties,
our percentage ownership interest in the investee decreases. In the event the
issuance price per share is more or less than our average carrying amount per
share, we recognize a noncash gain or loss on the issuance. This noncash gain or
loss, net of any deferred taxes, is generally recognized in our net income in
the period the change of ownership interest occurs.
If gains have been previously recognized on issuances of an equity investee's
stock and shares of the equity investee are subsequently repurchased by the
equity investee, gain recognition does not occur on issuances subsequent to the
date of a repurchase until shares have been issued in an amount equivalent to
the number of repurchased shares. This type of transaction is reflected as an
equity transaction and the net effect is reflected in the accompanying
Consolidated Balance Sheets. For specific transaction details, refer to Note 3.
ADVERTISING COSTS
Our Company expenses production costs of print, radio and television
advertisements as of the first date the advertisements take place. Advertising
expenses included in selling, administrative and general expenses were $1,742
million in 2000, $1,699 million in 1999 and $1,597 million in 1998. As of
December 31, 2000 and 1999, advertising costs of approximately $818 million and
$523 million, respectively, were recorded primarily in prepaid expenses and
other assets and in marketable securities and other assets in the accompanying
Consolidated Balance Sheets.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted net income per share
includes the dilutive effect of stock options.
CASH EQUIVALENTS
Marketable securities that are highly liquid and have maturities of three
months or less at the date of purchase are classified as cash equivalents.
INVENTORIES
Inventories consist primarily of raw materials and supplies and are valued at
the lower of cost or market. In general, cost is determined on the basis of
average cost or first-in, first-out methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
principally by the straight-line method over the estimated useful lives of the
assets.
OTHER ASSETS
Our Company invests in infrastructure programs with our bottlers that are
directed at strengthening our bottling system and increasing unit case sales.
The costs of these programs are recorded in other assets and are subsequently
amortized over the periods to be directly benefited.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are stated on the basis of cost and are
amortized, principally on a straight-line basis, over the estimated future
periods to be benefited (not exceeding 40 years). Goodwill and other intangible
assets are periodically reviewed for impairment to ensure they are appropriately
valued. Conditions that may indicate an impairment issue exists include an
economic downturn in a worldwide market or a change in the assessment of future
operations. In the event that a condition is identified that may indicate an
impairment issue exists, an assessment is performed using a variety of
methodologies, including cash flow analysis, estimates of sales proceeds and
independent appraisals. Where
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
applicable, an appropriate interest rate is utilized, based on location-specific
economic factors. Accumulated amortization was approximately $192 million and
$154 million on December 31, 2000 and 1999, respectively.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, the preparation
of our financial statements requires our management to make estimates and
assumptions that affect the amounts reported in our financial statements and
accompanying notes including our assessment of the carrying value of our
investments in bottling operations. Although these estimates are based on our
knowledge of current events and actions we may undertake in the future, actual
results may ultimately differ from estimates.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statements 137 and 138 in
June 1999 and June 2000, respectively. These statements, which were required to
be adopted for fiscal years beginning after June 15, 2000, require the Company
to recognize all derivatives on the balance sheet at fair value. The statements
also established new accounting rules for hedging instruments which, depending
on the nature of the hedge, require that changes in the fair value of
derivatives either be offset against the change in fair value of assets,
liabilities or firm commitments through earnings, or be recognized in other
comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of a derivative's change in fair value must be immediately
recognized in earnings.
We adopted the provisions of SFAS No. 133, as amended, on January 1, 2001,
which resulted in an immaterial impact on our consolidated results of operations
and financial position. Although these statements will not have a material
impact in our annual consolidated financial results, the requirements of these
statements may result in slightly increased volatility in the Company's future
quarterly consolidated financial results. The Company implemented new
information systems to ensure that we were in compliance with these statements
upon adoption.
NOTE 2: BOTTLING INVESTMENTS
- ----------------------------
COCA-COLA ENTERPRISES INC.
Coca-Cola Enterprises is the largest soft-drink bottler in the world,
operating in eight countries, and is one of our anchor bottlers. On December 31,
2000, our Company owned approximately 40 percent of the outstanding common stock
of Coca-Cola Enterprises, and accordingly, we account for our investment by the
equity method of accounting. The excess of our equity in the underlying net
assets of Coca-Cola Enterprises over our investment is primarily amortized on a
straight-line basis over 40 years. The balance of this excess, net of
amortization, was approximately $438 million on December 31, 2000. A summary of
financial information for Coca-Cola Enterprises is as follows (in millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
Current assets $ 2,631 $ 2,581
Noncurrent assets 19,531 20,149
- --------------------------------------------------------------------------------
Total assets $22,162 $22,730
================================================================================
Current liabilities $ 3,094 $ 3,614
Noncurrent liabilities 16,234 16,192
- --------------------------------------------------------------------------------
Total liabilities $19,328 $19,806
================================================================================
Share-owners' equity $ 2,834 $ 2,924
================================================================================
Company equity investment $ 707 $ 728
================================================================================
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Net operating revenues $14,750 $14,406 $13,414
Cost of goods sold 9,083 9,015 8,391
- --------------------------------------------------------------------------------
Gross profit $ 5,667 $ 5,391 $ 5,023
================================================================================
Operating income $ 1,126 $ 839 $ 869
================================================================================
Cash operating profit{1} $ 2,387 $ 2,187 $ 1,989
================================================================================
Net income $ 236 $ 59 $ 142
================================================================================
Net income available to
common share owners $ 233 $ 56 $ 141
================================================================================
[FN]
{1} Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other noncash operating expenses.
</FN>
Our net concentrate and syrup sales to Coca-Cola Enterprises were $3.5
billion in 2000, $3.3 billion in 1999 and $3.1 billion in 1998, or approximately
17 percent, 17 percent and 16 percent of our 2000, 1999 and 1998 net operating
revenues, respectively. Coca-Cola Enterprises purchases sweeteners through our
Company; however, related collections from Coca-Cola Enterprises and payments to
suppliers are not included in our Consolidated Statements of Income. These
transactions amounted to $298 million in 2000, $308 million in 1999 and $252
million in 1998. We also provide certain administrative and other services to
Coca-Cola Enterprises under negotiated fee arrangements.
Our direct support for certain marketing activities of Coca-Cola Enterprises
and participation with them in cooperative advertising and other marketing
programs amounted to approximately $766 million in 2000, $767 million in 1999
and $899 million in 1998. Pursuant to cooperative advertising and trade
arrangements with Coca-Cola Enterprises, we received approximately $195 million,
$243 million and $173 million in 2000, 1999 and 1998, respectively, from
Coca-Cola Enterprises for local media and marketing program expense
reimbursements. Additionally, we committed approximately $223 million in 2000,
$338 million in 1999 and $324 million in 1998, respectively, to Coca-Cola
Enterprises under a Company program that encourages bottlers to invest in
building and supporting beverage infrastructure.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
If valued at the December 31, 2000, quoted closing price of publicly traded
Coca-Cola Enterprises shares, the calculated value of our investment in
Coca-Cola Enterprises would have exceeded its carrying value by approximately
$2.5 billion.
OTHER EQUITY INVESTMENTS
Operating results include our proportionate share of income (loss) from our
equity investments. A summary of financial information for our equity
investments in the aggregate, other than Coca-Cola Enterprises, is as follows
(in millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
Current assets $ 5,985 $ 6,652
Noncurrent assets 19,030 21,306
- --------------------------------------------------------------------------------
Total assets $25,015 $27,958
================================================================================
Current liabilities $ 5,419 $ 6,550
Noncurrent liabilities 8,357 8,361
- --------------------------------------------------------------------------------
Total liabilities $13,776 $14,911
================================================================================
Share-owners' equity $11,239 $13,047
================================================================================
Company equity investment $ 4,539 $ 5,714
================================================================================
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Net operating revenues $21,666 $19,785 $17,975
Cost of goods sold 13,014 12,085 11,122
- --------------------------------------------------------------------------------
Gross profit $ 8,652 $ 7,700 $ 6,853
================================================================================
Operating income (loss) $ (24) $ 809 $ 905
================================================================================
Cash operating profit{1} $ 2,796 $ 2,474 $ 1,998
================================================================================
Net income (loss) $ (894) $ (134) $ 217
================================================================================
Equity investments include certain nonbottling investees.
[FN]
{1} Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other noncash operating expenses.
</FN>
Net sales to equity investees other than Coca-Cola Enterprises were $3.5
billion in 2000, $3.2 billion in 1999 and $2.6 billion in 1998. Our direct
support for certain marketing activities with equity investees other than
Coca-Cola Enterprises, the majority of which are located outside the United
States, was approximately $663 million, $685 million and $640 million for 2000,
1999 and 1998, respectively.
In July 1999, we acquired from Fraser and Neave Limited its ownership
interest in F&N Coca-Cola as discussed in Note 17. In August 1998, we exchanged
our Korean bottling operations with Coca-Cola Amatil for an additional ownership
interest in Coca-Cola Amatil.
In June 1998, we sold our previously consolidated Italian bottling and
canning operations to Coca-Cola Beverages. This transaction resulted in proceeds
valued at approximately $1.0 billion and an after-tax gain of approximately $.03
per share (basic and diluted).
If valued at the December 31, 2000, quoted closing prices of shares
actively traded on stock markets, the calculated value of our equity investments
in publicly traded bottlers other than Coca-Cola Enterprises would have
exceeded our carrying value by approximately $1.0 billion.
NOTE 3: ISSUANCES OF STOCK BY EQUITY INVESTEES
- ----------------------------------------------
No gains on issuances of stock by equity investees were recorded during 2000.
In the first quarter of 1999, Coca-Cola Enterprises completed its acquisition of
various bottlers. These transactions were funded primarily with shares of
Coca-Cola Enterprises common stock. The Coca- Cola Enterprises common stock
issued was valued in an amount greater than the book value per share of our
investment in Coca-Cola Enterprises. As a result of these transactions, our
equity in the underlying net assets of Coca-Cola Enterprises increased, and we
recorded a $241 million increase to our Company's investment basis in Coca-Cola
Enterprises. Due to Coca-Cola Enterprises' share repurchase program, the
increase in our investment in Coca-Cola Enterprises was recorded as an equity
transaction, and no gain was recognized. We recorded a deferred tax liability of
approximately $95 million on this increase to our investment in Coca-Cola
Enterprises. These transactions reduced our ownership in Coca-Cola Enterprises
from approximately 42 percent to approximately 40 percent.
In December 1998, Coca-Cola Enterprises completed its acquisition of certain
independent bottling operations operating in parts of Texas, New Mexico and
Arizona (collectively known as the Wolslager Group). The transactions were
funded primarily with the issuance of shares of Coca-Cola Enterprises common
stock. The Coca-Cola Enterprises common stock issued in exchange for these
bottlers was valued at an amount greater than the book value per share of our
investment in Coca-Cola Enterprises. As a result of this transaction, our equity
in the underlying net assets of Coca-Cola Enterprises increased, and we recorded
a $116 million increase to our Company's investment basis in Coca-Cola
Enterprises. Due to Coca-Cola Enterprises' share repurchase program the increase
in our investment in Coca-Cola Enterprises was recorded as an equity
transaction, and no gain was recognized. We recorded a deferred tax liability of
approximately $46 million on this increase to our investment in Coca-Cola
Enterprises. At the completion of this transaction, our ownership in Coca- Cola
Enterprises was approximately 42 percent.
In September 1998, CCEAG, our bottler in Germany, issued new shares valued at
approximately $275 million to effect a merger with Nordwest Getranke GmbH & Co.
KG, another German bottler. Approximately 7.5 million shares were issued,
resulting in a one-time noncash pretax gain for our Company of approximately $27
million. We provided deferred taxes of approximately $10 million on this gain.
This issuance reduced our ownership in CCEAG from approximately 45 percent to
approximately 40 percent.
In June 1998, Coca-Cola Enterprises completed its acquisition of CCBG
Corporation and Texas Bottling Group, Inc. (collectively known as Coke
Southwest). The transaction was valued at approximately $1.1 billion.
Approximately 55 percent of the transaction was funded with the issuance of
approximately 17.7 million shares of Coca-Cola Enterprises common stock, and the
remaining portion was funded through debt and assumed debt. The
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Coca-Cola Enterprises common stock issued in exchange for Coke Southwest was
valued at an amount greater than the book value per share of our investment
in Coca-Cola Enterprises. As a result of this transaction, our equity in the
underlying net assets of Coca-Cola Enterprises increased and we recorded a $257
million increase to our Company's investment basis in Coca-Cola Enterprises. Due
to Coca-Cola Enterprises' share repurchase program, the increase in our
investment in Coca-Cola Enterprises was recorded as an equity transaction, and
no gain was recognized. We recorded a deferred tax liability of approximately
$101 million on this increase to our investment in Coca-Cola Enterprises. At the
completion of this transaction, our ownership in Coca-Cola Enterprises was
approximately 42 percent.
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ---------------------------------------------
Accounts payable and accrued expenses consist of the following (in millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
Accrued marketing $ 1,163 $ 1,056
Container deposits 58 53
Accrued compensation 141 164
Sales, payroll and other taxes 166 297
Accrued realignment expenses 254 -
Accounts payable and other accrued expenses 2,123 2,144
- --------------------------------------------------------------------------------
$ 3,905 $ 3,714
================================================================================
NOTE 5: SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
- -----------------------------------------------------
Loans and notes payable consist primarily of commercial paper issued in the
United States. On December 31, 2000, we had $4.5 billion outstanding in
commercial paper borrowings. In addition, we had $3.0 billion in lines of credit
and other short-term credit facilities available, of which approximately $246
million was outstanding. Our weighted-average interest rates for commercial
paper outstanding were approximately 6.7 percent and 6.0 percent at December 31,
2000 and 1999, respectively.
These facilities are subject to normal banking terms and conditions. Some of
the financial arrangements require compensating balances, none of which is
presently significant to our Company.
NOTE 6: LONG-TERM DEBT
- ----------------------
Long-term debt consists of the following (in millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
6% U.S. dollar notes due 2000 $ - $ 250
6 5/8% U.S. dollar notes due 2002 150 150
6% U.S. dollar notes due 2003 150 150
5 3/4% U.S. dollar notes due 2009 399 399
7 3/8% U.S. dollar notes due 2093 116 116
Other, due 2001 to 2013 41 50
- --------------------------------------------------------------------------------
856 1,115
Less current portion 21 261
- --------------------------------------------------------------------------------
$ 835 $ 854
================================================================================
After giving effect to interest rate management instruments, the principal
amount of our long-term debt that had fixed and variable interest rates,
respectively, was $706 million and $150 million on December 31, 2000, and $690
million and $425 million on December 31, 1999. The weighted-average interest
rate on our Company's long-term debt was 5.9 percent and 5.6 percent for the
years ended December 31, 2000 and 1999, respectively. Total interest paid was
approximately $458 million, $314 million and $298 million in 2000, 1999 and
1998, respectively. For a more complete discussion of interest rate management,
refer to Note 9.
Maturities of long-term debt for the five years succeeding December 31, 2000,
are as follows (in millions):
2001 2002 2003 2004 2005
- --------------------------------------------------------------------------------
$ 21 $154 $153 $ 2 $ 1
================================================================================
The above notes include various restrictions, none of which is presently
significant to our Company.
NOTE 7: COMPREHENSIVE INCOME
- ----------------------------
Accumulated other comprehensive income consists of the following (in
millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
Foreign currency
translation adjustment $(2,475) $(1,510)
Unrealized gain on
available-for-sale securities (26) 34
Minimum pension liability (26) (16)
- --------------------------------------------------------------------------------
$(2,527) $(1,492)
================================================================================
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
A summary of the components of other comprehensive income for the years ended
December 31, 2000, 1999 and 1998, is as follows (in millions):
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- --------------------------------------------------------------------------------
2000
Net foreign currency
translation $(1,074) $ 109 $ (965)
Net change in unrealized
gain (loss) on available-
for-sale securities (90) 30 (60)
Minimum pension liability (17) 7 (10)
- --------------------------------------------------------------------------------
Other comprehensive
income (loss) $(1,181) $ 146 $(1,035)
================================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- --------------------------------------------------------------------------------
1999
Net foreign currency
translation $ (249) $ 59 $ (190)
Net change in unrealized
gain (loss) on available-
for-sale securities 37 (14) 23
Minimum pension liability 38 (13) 25
- --------------------------------------------------------------------------------
Other comprehensive
income (loss) $ (174) $ 32 $ (142)
================================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- --------------------------------------------------------------------------------
1998
Net foreign currency
translation $ 52 $ - $ 52
Net change in unrealized
gain (loss) on available-
for-sale securities (70) 23 (47)
Minimum pension liability (5) 1 (4)
- --------------------------------------------------------------------------------
Other comprehensive
income (loss) $ (23) $ 24 $ 1
================================================================================
NOTE 8: FINANCIAL INSTRUMENTS
- -----------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in our Consolidated Balance Sheets for cash,
cash equivalents, marketable equity securities, cost method investments,
receivables, loans and notes payable and long-term debt approximate their
respective fair values. Fair values are based primarily on quoted prices for
those or similar instruments. A comparison of the carrying value and fair value
of our hedging instruments is included in Note 9.
CERTAIN DEBT AND MARKETABLE EQUITY SECURITIES
Investments in debt and marketable equity securities, other than investments
accounted for by the equity method, are categorized as either trading,
available-for-sale or held-to-maturity. On December 31, 2000 and 1999, we had no
trading securities. Securities categorized as available-for-sale are stated at
fair value, with unrealized gains and losses, net of deferred income taxes,
reported as a component of accumulated other comprehensive income. Debt
securities categorized as held-to-maturity are stated at amortized cost.
On December 31, 2000 and 1999, available-for-sale and held-to-maturity
securities consisted of the following (in millions):
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
- --------------------------------------------------------------------------------
2000
Available-for-sale
securities
Equity securities $ 248 $ 57 $ (90) $ 215
Collateralized
mortgage
obligations 25 - (2) 23
Other debt
securities 15 - - 15
- --------------------------------------------------------------------------------
$ 288 $ 57 $ (92) $ 253
================================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,115 $ - $ - $ 1,115
- --------------------------------------------------------------------------------
$ 1,115 $ - $ - $ 1,115
================================================================================
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Gross Gross Estimated
Unrealized nrealized Fair
December 31, Cost Gains Losses Value
- --------------------------------------------------------------------------------
1999
Available-for-sale
securities
Equity securities $ 246 $ 69 $ (13) $ 302
Collateralized
mortgage
obligations 45 - (1) 44
Other debt
securities 8 - - 8
- --------------------------------------------------------------------------------
$ 299 $ 69 $ (14) $ 354
================================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,137 $ - $ - $ 1,137
Other debt
securities 49 - - 49
- --------------------------------------------------------------------------------
$ 1,186 $ - $ - $ 1,186
================================================================================
On December 31, 2000 and 1999, these investments were included in the
following captions in our Consolidated Balance Sheets (in millions):
Available-for-Sale Held-to-Maturity
December 31, Securities Securities
- --------------------------------------------------------------------------------
2000
Cash and cash equivalents $ - $ 1,113
Current marketable securities 71 2
Cost method investments,
principally bottling companies 151 -
Marketable securities and
other assets 31 -
- --------------------------------------------------------------------------------
$ 253 $ 1,115
================================================================================
1999
Cash and cash equivalents $ - $ 1,061
Current marketable securities 76 125
Cost method investments,
principally bottling companies 227 -
Marketable securities and
other assets 51 -
- --------------------------------------------------------------------------------
$ 354 $ 1,186
================================================================================
The contractual maturities of these investments as of December 31, 2000, were
as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
------------------- --------------------
Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------
2001 $ 7 $ 7 $ 1,115 $ 1,115
2002- 2005 8 8 - -
Collateralized
mortgage
obligations 25 23 - -
Equity securities 248 215 - -
- --------------------------------------------------------------------------------
$ 288 $ 253 $ 1,115 $ 1,115
================================================================================
For the years ended December 31, 2000 and 1999, gross realized gains and
losses on sales of available-for-sale securities were not material. The cost of
securities sold is based on the specific identification method.
NOTE 9: HEDGING TRANSACTIONS AND DERIVATIVE
FINANCIAL INSTRUMENTS
- -------------------------------------------
Our Company uses derivative financial instruments primarily to reduce our
exposure to adverse fluctuations in interest rates and foreign exchange rates
and, to a lesser extent, to reduce our exposure to adverse fluctuations in
commodity prices and other market risks. When entered into, these financial
instruments are designated as hedges of underlying exposures. Because of the
high correlation between the hedging instrument and the underlying exposure
being hedged, fluctuations in the value of the instruments are generally offset
by changes in the value of the underlying exposures. Virtually all our
derivatives are "over-the-counter" instruments. Our Company does not enter into
derivative financial instruments for trading purposes.
The estimated fair values of derivatives used to hedge or modify our risks
fluctuate over time. These fair value amounts should not be viewed in isolation,
but rather in relation to the fair values of the underlying hedging transactions
and investments and to the overall reduction in our exposure to adverse
fluctuations in interest rates, foreign exchange rates, commodity prices and
other market risks.
The notional amounts of the derivative financial instruments do not
necessarily represent amounts exchanged by the parties and, therefore, are not a
direct measure of our exposure from our use of derivatives. The amounts
exchanged are calculated by reference to the notional amounts and by other terms
of the derivatives, such as interest rates, exchange rates or other financial
indices.
We have established strict counterparty credit guidelines and enter into
transactions only with financial institutions of investment grade or better. We
monitor counterparty exposures daily and review any downgrade in credit rating
immediately. If a downgrade in the credit rating of a counterparty were to
occur, we have provisions requiring
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
collateral in the form of U.S. government securities for substantially all
our transactions. To mitigate presettlement risk, minimum credit standards
become more stringent as the duration of the derivative financial instrument
increases. To minimize the concentration of credit risk, we enter into
derivative transactions with a portfolio of financial institutions. As a result,
we consider the risk of counterparty default to be minimal.
INTEREST RATE MANAGEMENT
Our Company maintains a percentage of fixed and variable rate debt within
defined parameters. We enter into interest rate swap agreements that maintain
the fixed-to-variable mix within these parameters. These contracts had
maturities ranging from one to four years on December 31, 2000. Variable rates
are predominantly linked to the London Interbank Offered Rate. Any differences
paid or received on interest rate swap agreements are recognized as adjustments
to interest expense over the life of each swap, thereby adjusting the effective
interest rate on the underlying obligation. Additionally, our Company enters
into interest rate cap agreements that may entitle us to receive from a
financial institution the amount, if any, by which our interest payments on our
variable rate debt exceed prespecified interest rates through 2004.
FOREIGN CURRENCY MANAGEMENT
The purpose of our foreign currency hedging activities is to reduce the risk
that our eventual dollar net cash inflows resulting from sales outside the
United States will be adversely affected by changes in exchange rates.
We enter into forward exchange contracts and purchase currency options
(principally Euro and Japanese yen) to hedge firm sale commitments denominated
in foreign currencies. We also purchase currency options (principally Euro and
Japanese yen) to hedge certain anticipated sales. Premiums paid and realized
gains and losses, including those on any terminated contracts, are included in
prepaid expenses and other assets. These are recognized in income, along with
unrealized gains and losses in the same period the hedging transactions are
realized. Approximately $26 million of realized gains and $85 million of
realized losses on settled contracts entered into as hedges of firmly committed
transactions that have not yet occurred were deferred on December 31, 2000 and
1999, respectively. Deferred gains/losses from hedging anticipated transactions
were not material on December 31, 2000 or 1999. In the unlikely event that the
underlying transaction terminates or becomes improbable, the deferred gains or
losses on the associated derivative will be recorded in our income statement.
Gains and losses on derivative financial instruments that are designated and
effective as hedges of net investments in international operations are included
in share-owners' equity as a foreign currency translation adjustment, a
component of accumulated other comprehensive income.
The following tables present the aggregate notional principal amounts,
carrying values, fair values and maturities of our derivative financial
instruments outstanding on December 31, 2000 and 1999 (in millions):
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------------
2000
Interest rate
management
Swap agreements
Assets $ 150 $ 1 $ 8 2003
Liabilities 25 (1) (10) 2001-2003
Interest rate caps
Assets 1,600 8 4 2004
Foreign currency
management
Forward contracts
Assets 1,812 49 74 2001
Swap agreements
Assets 48 2 (3) 2001
Liabilities 359 (2) (19) 2001-2002
Purchased options
Assets 706 18 53 2001-2002
Other
Assets 87 2 3 2001
- --------------------------------------------------------------------------------
$ 4,787 $ 77 $ 110
================================================================================
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------------
1999
Interest rate
management
Swap agreements
Assets $ 250 $ 2 $ 6 2000-2003
Liabilities 200 (1) (8) 2000-2003
Foreign currency
management
Forward contracts
Assets 1,108 57 71 2000-2001
Liabilities 344 (6) (3) 2000-2001
Swap agreements
Assets 102 9 16 2000
Liabilities 412 - (77) 2000-2002
Purchased options
Assets 1,770 47 18 2000
Other
Assets 185 - 2 2000
Liabilities 126 (8) (8) 2000
- --------------------------------------------------------------------------------
$ 4,497 $ 100 $ 17
================================================================================
Maturities of derivative financial instruments held on December 31, 2000, are
as follows (in millions):
2001 2002 2003 2004
- --------------------------------------------------------------------------------
$2,878 $ 234 $ 75 $1,600
================================================================================
NOTE 10: COMMITMENTS AND CONTINGENCIES
- --------------------------------------
On December 31, 2000, we were contingently liable for guarantees of
indebtedness owed by third parties in the amount of $397 million, of which $7
million related to independent bottling licensees. We do not consider it
probable that we will be required to satisfy these guarantees.
We believe our exposure to concentrations of credit risk is limited, due to
the diverse geographic areas covered by our operations.
We have committed to make future marketing expenditures of $772 million, of
which the majority is payable over the next 12 years. Additionally, under
certain circumstances, we have committed to make future investments in bottling
companies. However, we do not consider any of these commitments to be
individually significant.
NOTE 11: NET CHANGE IN OPERATING ASSETS AND LIABILITIES
- -------------------------------------------------------
The changes in operating assets and liabilities, net of effects of
acquisitions and divestitures of businesses and unrealized exchange
gains/losses, are as follows (in millions):
2000 1999 1998
- --------------------------------------------------------------------------------
Increase in trade accounts
receivable $ (39) $ (96) $ (237)
Increase in inventories (2) (163) (12)
Increase in prepaid expenses
and other assets (618) (547) (318)
Increase (decrease) in
accounts payable
and accrued expenses (84) 281 (70)
Increase (decrease) in
accrued taxes (96) (36) 120
Increase (decrease) in
other liabilities (13) 4 (33)
- --------------------------------------------------------------------------------
$ (852) $ (557) $ (550)
================================================================================
NOTE 12: RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
- --------------------------------------------------------------
Our Company currently sponsors restricted stock award plans and stock option
plans. Our Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for our plans. Accordingly, no
compensation cost has been recognized for our stock option plans. The
compensation cost charged against income for our restricted stock award plans
was $6 million in 2000, $39 million in 1999 and $14 million in 1998. In
addition, the Company recorded a charge of $37 million for special termination
benefits as part of the Realignment discussed in Note 16. Had compensation cost
for the stock option plans been determined based on the fair value at the grant
dates for awards under the plans, our Company's net income and net income per
share (basic and diluted) would have been as presented in the following table.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The pro forma amounts are indicated below (in millions, except per share
amounts):
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Net income
As reported $ 2,177 $ 2,431 $ 3,533
Pro forma $ 1,995 $ 2,271 $ 3,405
Basic net income per share
As reported $ .88 $ .98 $ 1.43
Pro forma $ .81 $ .92 $ 1.38
Diluted net income per share
As reported $ .88 $ .98 $ 1.42
Pro forma $ .80 $ .91 $ 1.36
================================================================================
Under the amended 1989 Restricted Stock Award Plan and the amended 1983
Restricted Stock Award Plan (the Restricted Stock Award Plans), 40 million and
24 million shares of restricted common stock, respectively, may be granted to
certain officers and key employees of our Company.
On December 31, 2000, 30 million shares were available for grant under the
Restricted Stock Award Plans. In 2000, there were 546,585 shares of restricted
stock granted at an average price of $58.20. In 1999, there were 32,100 shares
of restricted stock granted at an average price of $53.86. In 1998, 707,300
shares of restricted stock were granted at an average price of $67.03.
Participants are entitled to vote and receive dividends on the shares and, under
the 1983 Restricted Stock Award Plan, participants are reimbursed by our Company
for income taxes imposed on the award, but not for taxes generated by the
reimbursement payment. The shares are subject to certain transfer restrictions
and may be forfeited if a participant leaves our Company for reasons other than
retirement, disability or death, absent a change in control of our Company.
In addition, 270,000 shares of three-year performance-based and 2,025,000
shares of five-year performance-based restricted stock were granted in 2000.
The release of these shares is contingent upon the Company achieving certain
predefined performance targets over the three-year or five-year measurement
periods, respectively. Participants are entitled to vote and receive dividends
on these shares during the measurement period. The Company also promised to
grant 180,000 shares of stock at the end of three years and 200,000 shares of
stock at the end of five years to certain employees if the Company achieves
predefined performance targets over the three-year or five-year periods,
respectively. The Company did not grant any performance-based stock awards in
1999 or 1998.
Under our 1991 Stock Option Plan (the 1991 Option Plan), a maximum of 120
million shares of our common stock was approved to be issued or transferred to
certain officers and employees pursuant to stock options and stock appreciation
rights granted under the 1991 Option Plan. The stock appreciation rights permit
the holder, upon surrendering all or part of the related stock option, to
receive cash, common stock or a combination thereof, in an amount up to 100
percent of the difference between the market price and the option price. Options
to purchase common stock under the 1991 Option Plan have been granted to Company
employees at fair market value at the date of grant.
Our stock option plan (the 1999 Option Plan) was approved by share owners in
April of 1999. Following the approval of the 1999 Option Plan, no grants were
made from the 1991 Option Plan and shares available under the 1991 Option Plan
were no longer available to be granted. Under the 1999 Option Plan, a maximum of
120 million shares of our common stock was approved to be issued or transferred
to certain officers and employees pursuant to stock options granted under the
1999 Option Plan. Options to purchase common stock under the 1999 Option Plan
have been granted to Company employees at fair market value at the date of
grant.
Generally, stock options become exercisable over a four-year vesting period
and expire 15 years from the date of grant. Prior to 1999, generally, stock
options became exercisable over a three-year vesting period and expired 10 years
from the date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend
yields of 1.2, 1.2 and 0.9 percent; expected volatility of 31.7, 27.1 and 24.1
percent; risk-free interest rates of 5.8, 6.2 and 4.0 percent; and expected
lives of five years for 2000 and four years for 1999 and 1998. The
weighted-average fair value of options granted was $19.85, $15.77 and $15.41 for
the years ended December 31, 2000, 1999 and 1998, respectively.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
A summary of stock option activity under all plans is as follows (shares in
millions):
2000 1999 1998
------------------------- -------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding on January 1, 101 $ 46.66 80 $ 42.77 80 $ 33.22
Granted {1} 32 57.35 28 53.53 17 65.91
Exercised (12) 26.00 (6) 26.12 (16) 18.93
Forfeited/Expired {2} (9) 57.51 (1) 60.40 (1) 55.48
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding on December 31, 112 $ 51.23 101 $ 46.66 80 $ 42.77
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable on December 31, 60 $ 46.57 59 $ 39.40 52 $ 32.41
- ----------------------------------------------------------------------------------------------------------------------------------
Shares available on December 31,
for options that may be granted 65 92 18
==================================================================================================================================
[FN]
{1} No grants were made from the 1991 Option Plan during 1999 or 2000.
{2} Shares Forfeited/Expired relate to the 1991 and 1999 Option Plans.
</FN>
The following table summarizes information about stock options at December
31, 2000 (shares in millions):
Outstanding Stock Options Exercisable Stock Options
--------------------------------------------------- -------------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$10.00 to $20.00 2 0.8 years $ 15.37 2 $ 15.37
$20.01 to $30.00 11 3.1 years $ 23.41 11 $ 23.41
$30.01 to $40.00 10 4.8 years $ 35.63 10 $ 35.63
$40.01 to $50.00 10 5.8 years $ 48.86 9 $ 48.86
$50.01 to $60.00 65 8.9 years $ 56.31 17 $ 57.06
$60.01 to $86.75 14 7.8 years $ 65.87 11 $ 65.90
- ------------------------------------------------------------------------------------------------------------------------------------
$10.00 to $86.75 112 7.4 years $ 51.23 60 $ 46.57
====================================================================================================================================
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
- -------------------------------------------------------
Our Company sponsors and/or contributes to pension and postretirement health
care and life insurance benefit plans covering substantially all U.S. employees
and certain employees in international locations. We also sponsor nonqualified,
unfunded defined benefit pension plans for certain officers and other employees.
In addition, our Company and its subsidiaries have various pension plans and
other forms of postretirement arrangements outside the United States.
Total expense for all benefit plans, including defined benefit pension plans,
defined contribution pension plans, and postretirement health care and life
insurance benefit plans, amounted to approximately $116 million in 2000, $108
million in 1999 and $119 million in 1998. In addition, the Company recorded a
charge of $124 million for special retirement benefits as part of the
Realignment discussed in Note 16. Net periodic cost for our pension and other
benefit plans consists of the following (in millions):
Pension Benefits
------------------------------------------
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 54 $ 67 $ 56
Interest cost 119 111 105
Expected return on plan assets (132) (119) (105)
Amortization of prior service cost 4 6 3
Recognized net actuarial (gain) loss (7) 7 9
Settlements and curtailments 1 - -
- --------------------------------------------------------------------------------
Net periodic pension cost $ 39 $ 72 $ 68
================================================================================
Other Benefits
------------------------------------------
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 12 $ 14 $ 14
Interest cost 29 22 25
Expected return on plan assets (1) (1) (1)
Amortization of prior service cost 1 - -
Recognized net actuarial (gain) loss (1) - -
- --------------------------------------------------------------------------------
Net periodic cost $ 40 $ 35 $ 38
================================================================================
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table sets forth the change in benefit obligation for our
benefit plans (in millions):
Pension Benefits Other Benefits
----------------------------- ----------------------------
December 31, 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
Benefit obligation at
beginning of year $ 1,670 $ 1,717 $ 303 $ 381
Service cost 54 67 12 14
Interest cost 119 111 29 22
Foreign currency
exchange rate changes (55) (13) - -
Amendments 57 4 21 -
Actuarial (gain) loss 77 (137) 25 (101)
Benefits paid (146) (84) (17) (14)
Settlements and
curtailments (67) - 13 -
Special retirement
benefits 104 - 20 -
Other 6 5 1 1
- --------------------------------------------------------------------------------------------------
Benefit obligation
at end of year $ 1,819 $ 1,670 $ 407 $ 303
==================================================================================================
The following table sets forth the change in plan assets for our benefit
plans (in millions):
Pension Benefits Other Benefits
----------------------------- ----------------------------
December 31, 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
Fair value of plan assets
at beginning of year {1} $ 1,722 $ 1,516 $ 29 $ 36
Actual return on
plan assets 4 259 2 1
Employer contribution 31 34 - 5
Foreign currency
exchange rate changes (57) (20) - -
Benefits paid (120) (69) (14) (14)
Settlements (38) - - -
Other 13 2 - 1
- --------------------------------------------------------------------------------------------------
Fair value of plan assets
at end of year {1} $ 1,555 $ 1,722 $ 17 $ 29
==================================================================================================
[FN]
{1} Pension benefit plan assets primarily consist of listed stocks including
1,621,050 and 1,584,000 shares of common stock of our Company with a
fair value of $99 million and $92 million as of December 31, 2000 and 1999,
respectively.
</FN>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with benefit obligations in excess of
plan assets were $570 million, $480 million and $152 million, respectively, as
of December 31, 2000, and $556 million, $434 million and $161 million,
respectively, as of December 31, 1999.
The accrued pension and other benefit costs recognized in our accompanying
Consolidated Balance Sheets are computed as follows (in millions):
Pension Benefits Other Benefits
----------------------------- ----------------------------
December 31, 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
Funded status $ (264) $ 52 $ (390) $ (274)
Unrecognized net (asset)
liability at transition (6) 4 - -
Unrecognized prior
service cost 90 54 23 4
Unrecognized net gain (89) (285) (51) (91)
- --------------------------------------------------------------------------------------------------
Net liability recognized $ (269) $ (175) $ (418) $ (361)
- --------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 39 $ 73 $ - $ -
Accrued benefit liability (374) (305) (418) (361)
Accumulated other
comprehensive income 43 26 - -
Intangible asset 23 31 - -
- --------------------------------------------------------------------------------------------------
Net liability recognized $ (269) $ (175) $ (418) $ (361)
==================================================================================================
The weighted-average assumptions used in computing the preceding information
are as follows:
Pension Benefits
------------------------------------------
December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7% 7% 6 1/2%
Rate of increase in
compensation levels 4 1/2% 4 1/2% 4 1/2%
Expected long-term
rate of return on
plan assets 8 1/2% 8 1/2% 8 3/4%
Other Benefits
------------------------------------------
December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7 1/2% 8% 6 3/4%
Rate of increase in
compensation levels 4 3/4% 5% 4 1/2%
Expected long-term
rate of return on
plan assets 3% 3% 3%
The rate of increase in per capita costs of covered health care benefits is
assumed to be 7 percent in 2001, decreasing gradually to 5 1/4 percent by the
year 2005.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
A one percentage point change in the assumed health care cost trend rate
would have the following effects (in millions):
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on accumulated
postretirement benefit
obligation as of
December 31, 2000 $ 55 $ (45)
Effect on net periodic
postretirement benefit
cost in 2000 $ 8 $ (6)
NOTE 14: INCOME TAXES
- ---------------------
Income before income taxes consists of the following (in millions):
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
United States $ 1,497 $ 1,504 $ 1,979
International 1,902 2,315 3,219
- --------------------------------------------------------------------------------
$ 3,399 $ 3,819 $ 5,198
================================================================================
Income tax expense (benefit) consists of the following (in millions):
Year Ended United State &
December 31, States Local International Total
- --------------------------------------------------------------------------------
2000
Current $ 48 $ 16 $ 1,155 $ 1,219
Deferred (9) 46 (34) 3
1999
Current $ 395 $ 67 $ 829 $ 1,291
Deferred 182 11 (96) 97
1998
Current $ 683 $ 91 $ 929 $ 1,703
Deferred (73) 28 7 (38)
================================================================================
We made income tax payments of approximately $1,327 million, $1,404 million
and $1,559 million in 2000, 1999 and 1998, respectively. During the first
quarter of 2000, the United States and Japan taxing authorities entered into an
Advance Pricing Agreement (APA) whereby the level of royalties paid by Coca-Cola
(Japan) Company, Ltd. (our Subsidiary) to our Company has been established for
the years 1993 through 2001. Pursuant to the terms of the APA, our Subsidiary
has filed amended returns for the applicable periods reflecting the negotiated
royalty rate. These amended returns resulted in the payment during the first and
second quarters of 2000 of additional Japanese taxes, the effect of which on
both our financial performance and our effective tax rate was not material, due
primarily to offsetting tax credits on our U.S. income tax return.
A reconciliation of the statutory U.S. federal rate and effective rates is as
follows:
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes-net of
federal benefit .8 1.0 1.0
Earnings in jurisdictions taxed
at rates different from the
statutory U.S. federal rate (4.0) (6.0) (4.3)
Equity income or loss {1} 2.9 1.6 -
Other operating charges {2} 1.9 5.3 -
Other-net (.6) (.6) .3
- --------------------------------------------------------------------------------
36.0% 36.3% 32.0%
================================================================================
[FN]
{1} Includes charges by equity investees. See Note 15.
{2} Includes charges related to certain bottling, manufacturing and intangible
assets. See Note 15.
</FN>
Our effective tax rate reflects the tax benefit derived from having
significant operations outside the United States that are taxed at rates lower
than the U.S. statutory rate of 35 percent.
In 2000, management concluded that it was more likely than not that local tax
benefits would not be realized with respect to principally all of the items
discussed in Note 15, with the exception of approximately $188 million of
charges related to the settlement terms of a class action discrimination
lawsuit. Accordingly, valuation allowances were recorded to offset the future
tax benefit of these nonrecurring items resulting in an increase in our
effective tax rate. Excluding the impact of these nonrecurring items, the
effective tax rate on operations for the year was slightly more than 30 percent.
In 1999, the Company recorded a charge of $813 million, primarily reflecting
the impairment of certain bottling, manufacturing and intangible assets. For
some locations with impaired assets, management concluded that it was more
likely than not that no local tax benefit would be realized. Accordingly, a
valuation allowance was recorded offsetting the future tax benefits for such
locations. This resulted in an increase in our effective tax rate for 1999.
Excluding the impact, the Company's effective tax rate for 1999 would have been
31.0 percent.
We have provided appropriate U.S. and international taxes for earnings of
subsidiary companies that are expected to be remitted to the parent company.
Exclusive of amounts that would result in little or no tax if remitted, the
cumulative amount of unremitted earnings from our international subsidiaries
that is expected to be indefinitely reinvested was approximately $3.7 billion on
December 31, 2000. The taxes that would be paid upon remittance of these
indefinitely reinvested earnings are approximately $1.3 billion, based on
current tax laws.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities consist of the following (in millions):
December 31, 2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Benefit plans $ 261 $ 311
Liabilities and reserves 456 169
Net operating loss carryforwards 375 196
Other operating charges 321 254
Other 126 272
- --------------------------------------------------------------------------------
Gross deferred tax assets 1,539 1,202
Valuation allowance (641) (443)
- --------------------------------------------------------------------------------
$ 898 $ 759
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 425 $ 320
Equity investments 228 397
Intangible assets 224 197
Other 129 99
- --------------------------------------------------------------------------------
$1,006 $1,013
================================================================================
Net deferred tax asset (liability){1} $ (108) $ (254)
================================================================================
[FN]
{1} Deferred tax assets of $250 million and $244 million have been included
in the consolidated balance sheet caption "Marketable securities and other
assets" at December 31, 2000 and 1999, respectively.
</FN>
On December 31, 2000 and 1999, we had approximately $143 million and $233
million, respectively, of gross deferred tax assets, net of valuation
allowances, located in countries outside the United States.
On December 31, 2000, we had $968 million of operating loss carryforwards
available to reduce future taxable income of certain international subsidiaries.
Loss carryforwards of $635 million must be utilized within the next five years;
$333 million can be utilized over an indefinite period. A valuation allowance
has been provided for a portion of the deferred tax assets related to these loss
carryforwards.
NOTE 15: NONRECURRING ITEMS
- ---------------------------
In the first quarter of 2000, we recorded charges of approximately $405
million related to the impairment of certain bottling, manufacturing and
intangible assets, primarily within our Indian bottling operations. These
impairment charges were recorded to reduce the carrying value of the identified
assets to fair value. Fair value was derived using cash flow analysis. The
assumptions used in the cash flow analysis were consistent with those used in
our internal planning process. The assumptions included estimates of future
growth in unit cases, estimates of gross margins, estimates of the impact of
exchange rates and estimates of tax rates and tax incentives. The charge was
primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value of
long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In the third quarter of 2000, we recorded a gain related to the merger of
Coca-Cola Beverages and Hellenic Bottling Company. This merger resulted in a
decrease of our Company's equity ownership interest from approximately 50.5
percent of Coca-Cola Beverages to approximately 24 percent of the combined
entity, CCHBC. As a result of our Company's decreased equity ownership, a
tax-free noncash gain of approximately $118 million was recognized.
In the fourth quarter of 2000, we recorded charges of approximately $188
million related to the settlement terms of, and direct costs related to, a class
action discrimination lawsuit. The monetary settlement includes cash payments to
fund back pay, compensatory damages, a promotional achievement fund and
attorneys' fees. In addition, the Company introduced a wide range of training,
monitoring and mentoring programs. Of the $188 million, $50 million was donated
to The Coca-Cola Foundation to continue its broad range of community support
programs. Under the terms of the settlement agreement, the Company has the
option to rescind the agreement if more than 200 potential class members opt out
of the settlement.
In 2000, the Company also recorded a nonrecurring charge of approximately
$306 million, which represents the Company's portion of a charge recorded by
Coca-Cola Amatil to reduce the carrying value of its investment in the
Philippines. In addition, Panamco wrote down selected assets, including the
impairment of the value of its Venezuelan operating unit. The Company's portion
of this charge was approximately $124 million. Also contributing to the equity
losses were nonrecurring charges recorded by investees in Eurasia and the Middle
East. These nonrecurring charges were partially offset by the impact of lower
tax rates related to current and deferred taxes at CCEAG.
In the fourth quarter of 1999, we recorded charges of approximately $813
million. Of this $813 million, approximately $543 million related to the
impairment of certain bottling, manufacturing and intangible assets, primarily
within our Russian and Caribbean bottlers and in the Middle and Far East and in
North America. These impairment charges were recorded to reduce the carrying
value of the identified assets to fair value. Fair values were derived using a
variety of methodologies, including cash flow analysis, estimates of sales
proceeds and independent appraisals. Where cash flow analyses were used to
estimate fair values, key assumptions employed, consistent with those used in
our internal planning process included our estimates of future growth in unit
case sales, estimates of gross margins and estimates of the impact of inflation
and foreign currency fluctuations. The charges were primarily the result of our
revised outlook in certain markets due to the prolonged severe economic
downturns. The remaining carrying value of these impaired long-lived assets,
immediately after recording the impairment charge, was approximately $140
million.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Of the $813 million, approximately $196 million related to charges associated
with the impairment of the distribution and bottling assets of our vending
operations in Japan and our bottling operations in the Baltics. The charges
reduced the carrying value of these assets to their fair value less the cost to
sell. Consistent with our long-term bottling investment strategy, management has
committed to a plan to sell our ownership interest in these operations to one of
our strategic business partners. 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 12-month period ending December 31, 2000, were
approximately $143 million and $21 million, respectively.
On December 22, 2000, the Company signed a definitive agreement to sell the
assets of our vending operations in Japan. The expected proceeds from the sale
of the assets are equal to the current carrying value of the long-lived assets
less the cost to sell. The sale transaction is expected to close in early 2001.
Management had intended to sell the assets of our bottling operations in the
Baltics to one of our strategic business partners. That partner is currently in
the process of an internal restructuring and no longer plans to purchase the
Baltics bottling operations. At this time another suitable buyer has not been
identified. Therefore, the Company will continue to operate the Baltics bottlers
as consolidated operations until a new buyer is identified.
The remainder of the $813 million charges, approximately $74 million,
primarily related to the change in senior management and charges related to
organizational changes within the Europe and Eurasia, Latin America and
Corporate segments. These charges were incurred during the fourth quarter of
1999.
In the second quarter of 1998, we recorded a nonrecurring charge primarily
related to the impairment of certain assets in North America of $25 million and
Corporate of $48 million.
NOTE 16: REALIGNMENT COSTS
- --------------------------
In January 2000, our Company initiated a major organizational Realignment
intended to put more responsibility, accountability and resources in the hands
of local business units of the Company so as to fully leverage the local
capabilities of our system.
Under the Realignment, employees were separated from almost all functional
areas of the Company's operations, and certain activities have been outsourced
to third parties. The total number of employees separated as of December 31,
2000, was approximately 5,200. Employees separated from the Company as a result
of the Realignment were offered severance or early retirement packages, as
appropriate, which included both financial and nonfinancial components. The
Realignment expenses included costs associated with involuntary terminations,
voluntary retirements and other direct costs associated with implementing the
Realignment. Other direct costs included repatriating and relocating employees
to local markets; asset write-downs; lease cancellation costs; and costs
associated with the development, communication and administration of the
Realignment.
The table below summarizes accrued Realignment expenses and amounts charged
against the accrual as of and for the year ended December 31, 2000 (in
millions):
Noncash Accrued
and Balance
REALIGNMENT SUMMARY Expenses Payments Exchange December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Employees involuntarily separated
Severance pay and benefits $ 216 $ (123) $ (2) $ 91
Outside services - legal,
outplacement, consulting 33 (25) - 8
Other - including asset write-downs 81 (37) (7) 37
- ------------------------------------------------------------------------------------------------------------------------------------
$ 330 $ (185) $ (9) $ 136
- ------------------------------------------------------------------------------------------------------------------------------------
Employees voluntarily separated
Special retirement pay and benefits $ 353 $ (174) $ - $ 179
Outside services - legal,
outplacement, consulting 6 (3) - 3
- ------------------------------------------------------------------------------------------------------------------------------------
$ 359 $ (177) $ - $ 182
- ------------------------------------------------------------------------------------------------------------------------------------
Other direct costs $ 161 $ (92) $ (9) $ 60
- ------------------------------------------------------------------------------------------------------------------------------------
Total Realignment $ 850 $ (454) $ (18) $ 378{1}
====================================================================================================================================
[FN]
{1} Accrued realignment expenses of approximately $254 million and $124 million
have been included in the consolidated balance sheet captions "Accounts
payable and accrued expenses" and "Other liabilities," respectively.
</FN>
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 17: ACQUISITIONS AND INVESTMENTS
- -------------------------------------
In separate transactions during the first half of 2000, our Company purchased
two bottlers in Brazil, Companhia Mineira de Refrescos, S.A., and Refrigerantes
Minas Gerais Ltda. In October 2000, the Company purchased a 58 percent interest
in Paresa, a bottler located in Paraguay. In December 2000, the Company made a
tender offer for the remaining 42 percent of the shares in Paresa. In January
2001, we completed the tender offer. We currently own approximately 95 percent
of Paresa. During 2000, our Company's acquisition and investment activity
totaled approximately $400 million.
During 1999, the Company's acquisition and investment activity, which
included the acquisition of beverage brands from Cadbury Schweppes plc and
investments in the bottling operations of Coca-Cola Embonor S.A., F&N Coca-Cola,
and Coca-Cola West Japan Company, Ltd., totaled $1.9 billion. During 1998, the
Company's acquisition and investment activity totaled $1.4 billion. None of the
acquisitions and investment activity in 1998 was individually significant.
In July 1999, we completed the acquisition of Cadbury Schweppes plc beverage
brands in 155 countries for approximately $700 million. These brands included
Schweppes, Canada Dry, Dr Pepper, Crush and certain regional brands. Among the
countries excluded from this transaction were the United States, South Africa,
Norway, Switzerland and the European Union member nations (other than the United
Kingdom, Ireland and Greece). In September 1999, we completed the acquisition of
Cadbury Schweppes beverage brands in New Zealand for approximately $20 million.
Also in September 1999, in a separate transaction valued at approximately $250
million, we acquired the carbonated soft-drink business of Cadbury Schweppes
(South Africa) Limited in South Africa, Botswana, Namibia, Lesotho and
Swaziland.
The acquisitions and investments have been accounted for by either the
purchase, equity or cost method of accounting, as appropriate. Their results
have been included in the Consolidated Financial Statements from their
respective dates of acquisition using the appropriate method of accounting. Had
the results of these businesses been included in operations commencing with
1998, the reported results would not have been materially affected.
NOTE 18: 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. In the fourth quarter of 2000, the Greater Europe Group was
renamed the Europe and Eurasia 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 Europe and Eurasia Group; the Latin America Group; the
Asia Pacific Group; and Corporate. The North America Group includes the United
States and Canada.
SEGMENT PRODUCTS AND SERVICES
The business of our Company is nonalcoholic ready-to-drink beverages,
principally soft drinks, but also a variety of noncarbonated beverages. Our
operating segments derive substantially all their revenues from the manufacture
and sale of beverage concentrates and syrups with the exception of Corporate,
which derives its revenues primarily from the licensing of our brands in
connection with merchandise.
METHOD OF DETERMINING SEGMENT PROFIT OR LOSS
Management evaluates the performance of its operating segments separately to
individually monitor the different factors affecting financial performance.
Segment profit or loss includes substantially all the segment's costs of
production, distribution and administration. Our Company manages income taxes on
a global basis. Thus, we evaluate segment performance based on profit or loss
before income taxes, exclusive of any significant gains or losses on the
disposition of investments or other assets. Our Company typically manages and
evaluates equity investments and related income on a segment level. However, we
manage certain significant investments, such as our equity interests in
Coca-Cola Enterprises, at the Corporate segment. We manage financial costs, such
as exchange gains and losses and interest income and expense, on a global basis
at the Corporate segment.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Information about our Company's operations by operating segment is as follows
(in millions):
North Africa & Europe Latin Asia
America Middle East & Eurasia America Pacific Corporate Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
2000
Net operating revenues $ 7,870 $ 729 $ 4,377 $ 2,174 $ 5,159 {1} $ 149 $ 20,458
Operating income {2} 1,406 80 1,415 {3} 916 956 (1,082) {4} 3,691
Interest income 345 345
Interest expense 447 447
Equity income (loss) {5} 3 (73) 35 (75) (290) 111 (289)
Identifiable operating assets 4,271 622 1,408 1,545 1,953 5,270 {6} 15,069
Investments {7} 141 338 1,757 1,767 993 769 5,765
Capital expenditures 259 11 194 16 132 121 733
Depreciation and amortization 244 54 64 96 211 104 773
Income before income taxes 1,410 (6) 1,568 {8} 866 651 (1,090) 3,399
====================================================================================================================================
1999
Net operating revenues $ 7,519 $ 792 $ 4,540 $ 1,961 $ 4,828 {1} $ 165 $ 19,805
Operating income {9} 1,436 67 1,068 840 1,194 (623) 3,982
Interest income 260 260
Interest expense 337 337
Equity income (loss) (5) (29) (73) (5) (37) (35) (184)
Identifiable operating assets 3,591 672 1,624 1,653 2,439 4,852 {6} 14,831
Investments {7} 139 333 1,870 1,833 1,837 780 6,792
Capital expenditures 269 22 218 67 317 176 1,069
Depreciation and amortization 263 47 80 96 184 122 792
Income before income taxes 1,432 24 984 846 1,143 (610) 3,819
====================================================================================================================================
1998
Net operating revenues $6,934 $ 780 $ 4,827 $ 2,240 $ 3,856 {1} $ 176 $ 18,813
Operating income 1,383 {10} 223 1,655 1,056 1,343 (693){10} 4,967
Interest income 219 219
Interest expense 277 277
Equity income (loss) (1) (21) (47) 68 (38) 71 32
Identifiable operating assets 3,467 541 1,711 1,364 1,595 3,781 {6} 12,459
Investments {7} 141 312 2,010 1,629 1,979 615 6,686
Capital expenditures 274 22 216 72 104 175 863
Depreciation and amortization 231 40 92 93 101 88 645
Income before income taxes 1,392 192 1,577 1,132 1,289 (384) 5,198
====================================================================================================================================
Intercompany transfers between operating segments are not material.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
[FN]
{1} Japan revenues represent approximately 75 percent of total Asia Pacific
operating segment revenues related to 2000, and 80 percent related to 1999 and
1998.
{2} Operating income was reduced by $3 million for North America, $397
million for Asia Pacific and $5 million for Corporate related to the other
operating charges recorded for asset impairments in the first quarter of 2000.
Operating income was also reduced by $128 million for North America, $64 million
for Africa and Middle East, $174 million for Europe and Eurasia, $63 million for
Latin America, $127 million for Asia Pacific and $294 million for Corporate as a
result of other operating charges associated with the Realignment.
{3} Operating income was reduced by $30 million for Europe and Eurasia due to
incremental marketing expenses in Central Europe.
{4} Operating income was reduced by $188 million for Corporate related to the
settlement terms of a discrimination lawsuit and a donation to The Coca-Cola
Foundation.
{5} Equity income (loss) was reduced by $9 million for Africa and Middle
East, $26 million for Europe and Eurasia, $124 million for Latin America and
$306 million for Asia Pacific, as a result of our Company's portion of
nonrecurring charges recorded by equity investees.
{6} Corporate identifiable operating assets are composed principally of
marketable securities, finance subsidiary receivables, goodwill and other
intangible assets and fixed assets.
{7} Principally equity investments in bottling companies.
{8} Income before taxes was increased by $118 million for Europe and Eurasia
as a result of a gain related to the merger of Coca-Cola Beverages plc and
Hellenic Bottling Company S.A.
{9} Operating income was reduced by $34 million for North America, $79
million for Africa and Middle East, $430 million for Europe and Eurasia, $35
million for Latin America, $176 million for Asia Pacific and $59 million for
Corporate related to the other operating charges recorded in the fourth quarter
of 1999.
{10} Operating income was reduced by $25 million for North America and $48
million for Corporate for provisions related to the impairment of certain
assets.
</FN>
Compound Growth Rates North Africa & Europe & Latin Asia
Ending 2000 America Middle East Eurasia America Pacific Consolidated
- --------------------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 7.3% .1% (6.1)% 2.2% 6.9% 2.4%
10 years 6.4% 11.6% 3.5% 10.2% 11.1% 7.1%
- --------------------------------------------------------------------------------------------------------------------
Operating income
5 years 10.6% (19.4)% .3% 1.6% (5.4)% (1.7)%
10 years 11.4% (3.0)% 6.1% 11.9% 4.2% 6.6%
=====================================================================================================================
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
[pie charts]
NET OPERATING REVENUES BY OPEATING SEGMENT {1}
2000 1999 1998
- ------------------------------------------------------------------------------
North America 39% 38% 37%
Europe & Eurasia 21% 23% 26%
Latin America 11% 10% 12%
Asia Pacific 25% 25% 21%
Africa & Middle East 4% 4% 4%
OPERATING INCOME BY OPERATING SEGMENT {1}
2000 1999 1998
- ------------------------------------------------------------------------------
North America 29% 31% 24%
Europe & Eurasia 30% 23% 29%
Latin America 19% 18% 19%
Asia Pacific 20% 26% 24%
Africa & Middle East 2% 2% 4%
{1} Charts and percentages are calculated excluding Corporate.
================================================================================
Report of Independent Auditors
BOARD OF DIRECTORS AND SHARE OWNERS
The Coca-Cola Company
We have audited the accompanying consolidated balance sheets of The Coca-Cola
Company and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, share-owners' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Coca-Cola
Company and subsidiaries at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 26, 2001
67
The Coca-Cola Company and Subsidiaries
QUARTERLY DATA (UNAUDITED)
(In millions except per
share data) First Second Third Fourth Full
Year Ended December 31, Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
2000
Net operating revenues $ 4,391 $ 5,621 $ 5,543 $ 4,903 $ 20,458
Gross profit 2,993 3,944 3,807 3,510 14,254
Net income (loss) (58) 926 1,067 242 2,177
Basic net income
(loss) per share (.02) .37 .43 .10 .88
Diluted net income
(loss) per share (.02) .37 .43 .10 .88
================================================================================
1999
Net operating revenues $ 4,400 $ 5,335 $ 5,139 $ 4,931 $ 19,805
Gross profit 3,097 3,743 3,489 3,467 13,796
Net income (loss) 747 942 787 (45) 2,431
Basic net income
(loss) per share .30 .38 .32 (.02) .98
Diluted net income
(loss) per share .30 .38 .32 (.02) .98
================================================================================
The first quarter of 2000 includes other operating charges of approximately $405
million ($.16 per share after income taxes, basic and diluted) primarily related
to the impairment of certain bottling, manufacturing and intangible assets. The
first quarter of 2000 also includes other operating charges of approximately
$275 million ($.08 per share after income taxes, basic and diluted) related to
costs associated with the Realignment.
The second quarter of 2000 includes other operating charges of approximately
$191 million ($.05 per share after income taxes, basic and diluted) related to
costs associated with the Realignment.
The third quarter of 2000 includes a gain of $118 million ($.05 per share after
income taxes, basic and diluted) related to the merger of Coca-Cola Beverages
plc and Hellenic Bottling Company S.A. This gain was partially offset by other
operating charges of approximately $94 million ($.03 per share after income
taxes, basic and diluted) related to costs associated with the Realignment and
$30 million ($.01 per share after income taxes, basic and diluted) for
incremental marketing expense in Central Europe.
The fourth quarter of 2000 includes other operating charges of approximately
$290 million ($.08 per share after income taxes, basic and diluted) related to
costs associated with the Realignment. The fourth quarter of 2000 also includes
other operating charges of approximately $188 million ($.05 per share after
income taxes, basic and diluted) related to the settlement terms of a class
action discrimination lawsuit and a donation to The Coca-Cola Foundation. The
fourth quarter of 2000 also includes the Company's share of charges recorded by
investees of approximately $463 million ($.19 per share after income taxes,
basic and diluted).
The fourth quarter of 1999 includes provisions of $813 million ($.31 per share
after income taxes, basic and diluted) recorded in other operating charges,
primarily related to the impairment of certain bottling, manufacturing and
intangible assets.
STOCK PRICES
- ------------
Below are the New York Stock Exchange high, low and closing prices of The
Coca-Cola Company's stock for each quarter of 2000 and 1999.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
2000
High $ 66.88 $ 60.88 $ 64.00 $ 63.38
Low 42.88 44.75 49.19 53.50
Close 46.94 57.44 55.13 60.94
=============================================================================
1999
High $ 70.38 $ 70.88 $ 65.50 $ 69.00
Low 59.56 57.63 47.94 47.31
Close 61.38 62.00 48.25 58.25
=============================================================================
69
SHARE-OWNER INFORMATION
COMMON STOCK
Ticker symbol: KO
The Coca-Cola Company is one of 30 companies in the
Dow Jones Industrial Average.
Share owners of record at year end: 380,581
Shares outstanding at year end: 2.48 billion
STOCK EXCHANGES
INSIDE THE UNITED STATES:
Common stock listed and traded: New York Stock Exchange, the principal
market for our common stock.
Common stock traded: Boston, Chicago, Cincinnati, Pacific and Philadelphia
stock exchanges.
OUTSIDE THE UNITED STATES:
Common stock listed and traded: The German exchange in Frankfurt and the
Swiss exchange in Zurich.
DIVIDENDS
At its February 2001 meeting, our Board increased our quarterly dividend to
18 cents per share, equivalent to an annual dividend of 72 cents per share.
The Company has increased dividends each of the last 39 years.
The Coca-Cola Company normally pays dividends four times a year, usually
on April 1, July 1, October 1 and December 15. The Company has paid 319
consecutive quarterly dividends, beginning in 1920.
SHARE-OWNER ACCOUNT ASSISTANCE
For address changes, dividend checks, direct deposit of dividends,
account consolidation, registration changes, lost stock certificates, stock
holdings and the Dividend and Cash Investment Plan, please contact:
Registrar and Transfer Agent
First Chicago Trust Company, a division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303-2500
Toll-free: (888) COKESHR (265-3747)
For hearing impaired: (201) 222-4955
E-mail: fctc_cocacola@equiserve.com
Internet: www.equiserve.com
DIVIDEND AND CASH INVESTMENT PLAN
The Dividend and Cash Investment Plan permits share owners of record to
reinvest dividends from Company stock in shares of The Coca-Cola Company. The
Plan provides a convenient, economical and systematic method of acquiring
additional shares of our common stock. All share owners of record are eligible
to participate. Share owners also may purchase Company stock through voluntary
cash investments of up to $125,000 per year.
At year end, 75 percent of the Company's share owners of record were
participants in the Plan. In 2000, share owners invested $37 million in
dividends and $42 million in cash in the Plan.
If your shares are held in street name by your broker and you are interested
in participating in the Dividend and Cash Investment Plan, you may have your
broker transfer the shares to First Chicago Trust Company, a division of
EquiServe, electronically through the Direct Registration System.
For more details on the Dividend and Cash Investment Plan, please contact the
Plan Administrator, First Chicago Trust Company, or visit the investor section
of our Company's Web site, www.coca-cola.com, for more information.
SHARE-OWNER INTERNET ACCOUNT ACCESS
Share owners of record may access their accounts via the Internet to obtain
share balance, conduct secure transactions, request printable forms and view
current market value of their investment as well as historical stock prices.
To log on to this secure site and request your initial password, go to
www.equiserve.com and click on "Account Access."
ANNUAL MEETING OF SHARE OWNERS
April 18, 2001, 9:00 a.m., local time
The Playhouse Theatre
Du Pont Building
10th and Market Streets
Wilmington, Delaware
CORPORATE OFFICES
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
INSTITUTIONAL INVESTOR INQUIRIES
(404) 676-5766
INFORMATION RESOURCES
INTERNET SITE
Our Web site, www.coca-cola.com, offers information about our financial
performance, news about the Company, and brand experiences.
PUBLICATIONS
The Company's Annual Report, Proxy Statement, Form 10-K and Form 10-Q reports
are available free of charge upon request from our Industry & Consumer Affairs
Department at the Company's corporate address, listed above.
HOTLINE
The Company's hotline,(800)INVSTKO(468-7856),offers taped highlights from the
most recent quarter and may be used to request the most up-to-date quarterly
results news release.
AUDIO ANNUAL REPORT
An audiocassette version of this report is available without charge as a
service to the visually impaired. To receive a copy, please contact our Industry
& Consumer Affairs Department at (800) 571-2653.
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our Annual Report,
please contact First Chicago Trust Company at (888) COKESHR (265-3747).
GLOSSARY
BOTTLING PARTNER OR BOTTLER: Businesses -- generally, but not always,
independently owned -- that buy concentrates or syrups from the Company, convert
them into finished packaged products and sell them to customers.
THE COCA-COLA SYSTEM: The Company and its bottling partners.
CONCENTRATE OR BEVERAGE BASE: Material manufactured from Company-defined
ingredients and sold to bottlers for use in the preparation of finished
beverages through the addition of sweetener and/or water.
CONSOLIDATED BOTTLING OPERATION (CBO): Bottler in which the Company holds a
controlling interest. The bottler's financial results are consolidated into the
Company's financial statements.
CONSUMER: Person who consumes Company products.
COST OF CAPITAL: Blended cost of equity and borrowed funds used to invest in
operating capital required for business.
CUSTOMER: Retail outlet, restaurant or other operation that sells or serves
Company products directly to consumers.
DERIVATIVES: Contracts or agreements, the value of which is linked to interest
rates, exchange rates, prices of securities, or financial or commodity indices.
The Company uses derivatives to reduce its exposure to adverse fluctuations in
interest and exchange rates and other market risks.
DIVIDEND PAYOUT RATIO: Calculated by dividing cash dividends on common
stock by net income available to common share owners.
ECONOMIC PROFIT: Income from continuing operations, after giving effect to
taxes and excluding the effects of interest, in excess of a computed capital
charge for average operating capital employed.
ECONOMIC VALUE ADDED: Growth in economic profit from year to year.
FOUNTAIN: System used by retail outlets to dispense product into cups or
glasses for immediate consumption.
FREE CASH FLOW: Cash provided by operations less cash used in business
reinvestment. The Company uses free cash flow along with borrowings to pay
dividends, make share repurchases and make acquisitions.
GALLON SALES: Unit of measurement for concentrates (expressed in equivalent
gallons of syrup) and syrups sold by the Company to its bottling partners or
customers.
GROSS MARGIN: Calculated by dividing gross profit by net operating revenues.
INTEREST COVERAGE RATIO: Income before taxes (excluding unusual items) plus
interest expense, divided by the sum of interest expense and capitalized
interest.
KO: The ticker symbol for common stock of The Coca-Cola Company.
MARKET: Geographic area in which the Company and its bottling partners do
business, often defined by national boundaries.
NET CAPITAL: Calculated by adding share-owners' equity to net debt.
NET DEBT: Calculated by subtracting from debt the sum of cash, cash equivalents,
marketable securities and certain temporary bottling investments, less the
amount of cash determined to be necessary for operations.
OPERATING MARGIN: Calculated by dividing operating income by net operating
revenues.
PER CAPITA CONSUMPTION: Average number of 8-ounce servings consumed per
person, per year in a specific market. Per capita consumption of Company
products is calculated by multiplying our unit case volume by 24, and dividing
by the population.
RETURN ON CAPITAL: Calculated by dividing income from continuing operations
- -- before changes in accounting principles, adding back interest expense -- by
average total capital.
RETURN ON COMMON EQUITY: Calculated by dividing income from continuing
operations -- before changes in accounting principles, less preferred stock
dividends -- by average common share-owners' equity.
SERVING: Eight U.S. fluid ounces of a beverage.
SOFT DRINK: Nonalcoholic carbonated beverage containing flavorings and
sweeteners. Excludes flavored waters and carbonated or noncarbonated teas,
coffees and sports drinks.
SYRUP: Concentrate mixed with sweetener and water, sold to bottlers and
customers who add carbonated water to produce finished soft drinks.
TOTAL CAPITAL: Equals share-owners' equity plus interest-bearing debt.
TOTAL MARKET VALUE OF COMMON STOCK: Stock price as of a date multiplied by the
number of shares outstanding as of the same date.
UNIT CASE: Unit of measurement equal to 24 8-U.S.-fluid-ounce servings.
UNIT CASE VOLUME: The sum of (i) the number of unit cases sold by the
Coca-Cola bottling system and by the Company to customers, including fountain
syrups sold by the Company to customers directly or through wholesalers or
distributors, and (ii) the volume of juice and juice-drink products (expressed
in equivalent unit cases) distributed by The Minute Maid Company. Component (i)
above primarily includes unit case equivalents of products reported as gallon
sales and other key products owned by our bottlers.
ENVIRONMENTAL STATEMENT: Our Company's approach to environmental issues is
guided by a simple principle: We will conduct our business in ways that protect
and preserve the environment. Throughout our organization, our employees at all
levels are determined to integrate our Company's environmental management
system, eKOsystem, throughout all business units worldwide. We use the results
of research and new technology to minimize the environmental impact of our
operations, products and packages. And, we seek to cooperate with public,
private and governmental organizations in pursuing solutions to environmental
challenges, directing our Company's skills, energies and resources to activities
and issues where we can make a positive and effective contribution.
EQUAL OPPORTUNITY POLICY: The Coca-Cola Company and its subsidiaries employed
approximately 37,000 employees as of December 31, 2000, relatively flat compared
to the end of 1999. During 2000, approximately 5,200 employees were separated
from the Company as a result of the organizational Realignment, offset by
acquisition of bottlers in Latin America and the final consolidation of our
bottler in Southeast Asia. We maintain a long-standing commitment to equal
opportunity, affirmative action and valuing the diversity of our employees,
share owners, customers and consumers. The Company strives to create a working
environment free of discrimination and harassment with respect to race, sex,
color, national origin, religion, age, sexual orientation, disability, being a
special disabled veteran or being a veteran of the Vietnam era, as well as to
make reasonable accommodations in the employment of qualified individuals with
disabilities. The Company maintains ongoing contact with labor and employee
associations to develop relationships that foster responsive and mutually
beneficial discussions pertaining to labor issues. These associations have
provided a mechanism for positive industrial relations. In addition, we provide
fair marketing opportunities to all suppliers and maintain programs to increase
transactions with firms that are owned and operated by minorities and women.