EXHIBIT 13.1
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
The Coca-Cola Company, together with its subsidiaries, (the Company or our
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. In order to serve and create value for these
constituents, The Coca-Cola Company executes a business strategy to drive growth
focused on the following priorities: (1) accelerate carbonated soft-drink
growth, led by Coca-Cola; (2) selectively broaden our family of beverage brands
to drive profitable growth; (3) grow system profitability and capability
together with our bottling partners; (4) serve customers with creativity and
consistency to generate growth across all channels; (5) direct investments to
highest potential areas across markets; and (6) drive efficiency and
cost-effectiveness everywhere. Underlying these priorities are our objectives of
increasing revenue by volume growth, expanding our share of worldwide
nonalcoholic ready-to-drink beverage sales, maximizing our long-term cash flows
and 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.
INVESTMENTS
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
between 10 and 11 percent.
Because it has consistently generated high returns, we consider the beverage
business to be 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.
We pursue our strategic investment priorities in a way that capitalizes on
the combination of our most fundamental and enduring attributes -- our brands,
our people and our bottling partners. There are over 6 billion people in the
world who represent potential consumers of our Company's products. As we
increase consumer demand for our family of brands, we produce growth throughout
the Coca-Cola system.
Our 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 -- nearly 300
in all. These include carbonated 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 offerings.
Employing our localized business strategy with a special focus on brand
Coca-Cola, the Company seeks to build its existing brands and, at the same time,
to profitably broaden its historical family of brands. To meet our long-term
growth objectives, we make significant investments to support our brands. This
process involves investments to support existing brands, to develop new global
or local brands, and to acquire global or local brands, when appropriate.
Our Company introduced a variety of new brands in 2001, including diet Coke
with lemon, Simply Orange, Minute Maid Lemonade, Minute Maid Fruit Punch,
Marocha Green Tea in Japan, Senzao in Mexico, and a reformulated POWERade. Our
Company acquired brands during 2001 such as Odwalla, Planet Java and Mad River.
We also introduced existing brands in additional markets, such as the
introduction of Qoo in Korea and Singapore.
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.
Our People
Our people -- the employees of The Coca-Cola Company who work with our bottling
partners and other key constituents -- are essential to our success. 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
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
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 Company's work environment. Our Company values the
uniqueness of all employees and the contributions they make, and we put the
responsibility and accountability for ensuring local relevance and maximizing
business performance in the hands of those closest to the market. Additionally,
we have made innovation an explicit priority for all of our associates. Our
associates work together with bottling partners to understand markets and what
consumers want. Then we meet that need by delivering product through our
unparalleled system.
Our Bottling Partners
The financial health and success of our bottling partners are critical
components of the Company's ability to deliver leading brands. Our people work
with our bottling partners to continuously look for ways to improve system
economics. 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 non-controlling ownership
interest; and (3) bottlers in which we have invested and have a controlling
ownership interest.
The independently owned bottling operations and the bottlers in which we own
a non-controlling interest generally have significant funding from majority
owners and other financing sources that are otherwise unrelated to our Company.
The terms of sales to these bottling partners are arms-length transactions.
During 2001, independently owned bottling operations produced and distributed
approximately 23 percent of our worldwide unit case volume. Bottlers in which we
own a non-controlling ownership interest produced and distributed approximately
61 percent of our 2001 worldwide unit case volume. Controlled bottling, fountain
operations and The Minute Maid Company produced and distributed approximately 16
percent.
In July 2001, our Company and San Miguel Corporation (San Miguel) acquired
Coca-Cola Bottlers Philippines, Inc. (CCBPI) from Coca-Cola Amatil Limited
(Coca-Cola Amatil). Upon completion of this transaction, our Company owned 35
percent of the common shares and 100 percent of the Preferred B shares, and San
Miguel owned 65 percent of the common shares of CCBPI. Additionally, as a result
of this transaction, our Company's interest in Coca-Cola Amatil was reduced from
approximately 38 percent to approximately 35 percent.
During 2000, the Company entered into a joint venture in China with China
National Oils and Foodstuffs Imports/Exports Corporation (COFCO), completion of
which occurred in 2001. COFCO contributed to the joint venture its minority
equity interests in 11 Chinese bottlers. Our Company contributed its equity
interests in two Chinese bottlers plus cash in exchange for a 35 percent equity
interest in the venture.
On December 31, 1999, we owned approximately 50.5 percent of Coca-Cola
Beverages plc (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 non-cash gain in the
third quarter of 2000.
In 1999, two Japanese bottlers, Kita Kyushu Coca-Cola Bottling Company Ltd.
and Sanyo Coca-Cola Bottling Company Ltd., merged to become a new, publicly
traded bottling company, Coca-Cola West Japan Company Ltd. We own approximately
5 percent of this bottler.
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 non-controlling 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 equity investee companies. In 2001, our Company's
share of income from equity method investments totaled $152 million.
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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)
- --------------------------------------------------------------------------------
2001
Coca-Cola Enterprises Inc. $ 3,200 $ 788 $ 2,412
Coca-Cola Amatil Limited 748 432 316
Coca-Cola HBC S.A. 811 791 20
Coca-Cola FEMSA,
S.A. de C.V. 858 316 542
Panamerican Beverages, Inc. 455 484 (29)
Grupo Continental, S.A. 231 160 71
Coca-Cola Bottling
Company Consolidated 94 62 32
Coca-Cola Embonor S.A. 114 187 (73)
Embotelladoras Polar S.A. 33 51 (18)
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$ 3,273
================================================================================
<FN>
(1) In instances where carrying value exceeds fair value, the decline in value
is considered to be temporary.
</FN>
Historically, in certain situations, we have viewed it to be advantageous for
our Company to acquire a controlling interest in a bottling operation, often on
a temporary basis. 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 February 2001, our Company reached agreement with Carlsberg A/S
(Carlsberg) for the dissolution of Coca-Cola Nordic Beverages (CCNB), a joint
venture in which our Company had a 49 percent ownership. At that time, CCNB had
bottling operations in Sweden, Norway, Denmark, Finland and Iceland. Under this
agreement with Carlsberg, our Company acquired CCNB's Sweden and Norway bottling
operations in June 2001, increasing our Company's ownership in those bottlers to
100 percent. Carlsberg acquired CCNB's Denmark and Finland bottling operations,
increasing Carlsberg's ownership in those bottlers to 100 percent. Pursuant to
the agreement, CCNB sold its Iceland bottling operations to a third-party group
of investors in May 2001.
In 2001, our Company concluded negotiations regarding the terms of a Control
and Profit and Loss (CPL) agreement with certain other share owners of Coca-Cola
Erfrischungsgetraenke AG (CCEAG), the largest bottler in Germany, in which the
Company has an approximate 41 percent ownership interest. Under the terms of the
CPL agreement, the Company obtained management control of CCEAG for a period of
up to five years. In return for the management control of CCEAG, the Company
guaranteed annual payments in lieu of dividends by CCEAG to all other CCEAG
share owners. Additionally, all other CCEAG share owners entered into either a
put or a put/call option agreement with the Company, exercisable at the end of
the term of the CPL agreement at agreed prices. In early 2002, the Company
assumed control of CCEAG. This transaction will be accounted for as a business
combination. The present value of the total amount likely to be paid by our
Company to all other CCEAG share owners, including the put or put/call payments
and the guaranteed annual payments in lieu of dividends, is approximately $600
million. In 2001, CCEAG's revenues were approximately $1.7 billion.
Additionally, our Company's debt will increase between $700 million and $800
million once this business combination is completed.
During the first half of 2001, in separate transactions, our Company
purchased two bottlers in Brazil: Refrescos Guararapes Ltda. and Sucovalle Sucos
e Concentrados do Vale S.A. In separate transactions during the first half of
2000, our Company purchased two other 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, following
the completion of the tender offer, we owned 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 consider alternatives for
reducing our ownership interest in a bottler. One alternative is to combine our
bottling interests with the bottling interests of others to form
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
strategic business alliances. Another alternative is to sell our interest in a
bottling operation to one of our equity investee bottlers. In both of these
situations, we continue to participate in the bottler's results of operations
through our share of the equity investee's earnings or losses.
In November 2001, our Company sold nearly all of its ownership interests in
various Russian bottling operations to CCHBC for approximately $170 million in
cash and notes receivable, of which $146 million in notes receivable remained
outstanding as of December 31, 2001. These interests consisted of the Company's
40 percent ownership interest in a joint venture with CCHBC that operates
bottling territories in Siberia and parts of Western Russia, together with our
Company's nearly 100 percent interests in bottling operations with territories
covering the remainder of Russia.
For additional information about transactions with our bottling partners,
refer to Notes 2, 17 and 18 in our Consolidated Financial Statements.
FINANCIAL STRATEGIES
The following strategies are intended 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-owners'
equity.
As of December 31, 2001, our long-term debt was rated "A+" by Standard &
Poor's and "Aa3" by Moody's, and our commercial paper program was rated "A-1"
and "P-1" by Standard & Poor's and Moody's, respectively. In assessing our
credit strength, both Standard & Poor's and Moody's consider our capital
structure and financial policies as well as aggregated balance sheet and other
financial information for the Company and certain bottlers including Coca-Cola
Enterprises Inc. (Coca-Cola Enterprises) and CCHBC. While the Company has no
legal obligation for the debt of these bottlers, the rating agencies believe the
strategic importance of the bottlers to the Company's business model provides
the Company with an incentive to keep these bottlers viable. If the credit
ratings were reduced by the rating agencies, our interest expense could
increase.
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, 2001 2000 1999
- -------------------------------------------------------------------------------
Net debt (in billions) $ 3.3 $ 3.9 $ 4.5
Net debt-to-net capital 23% 29% 32%
Free cash flow to net debt 95% 72% 52%
Interest coverage 20x 12x 14x
Ratio of earnings to
fixed charges 18.1x 8.7x 11.6x
===============================================================================
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 2001,
we repurchased approximately 5 million shares under the 1996 plan.
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 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, 2001, 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 $12.64.
We expect that the Company's share repurchases will be increased in 2002 and
are currently estimating a range of $750 million to $1 billion of repurchases
during the year.
Dividend Policy
At its February 2002 meeting, our Board of Directors again increased our
quarterly dividend, raising it to
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
$.20 per share. This is equivalent to a full-year dividend of $.80 in 2002, our
40th consecutive annual increase. Our annual common stock dividend was $.72 per
share, $.68 per share and $.64 per share in 2001, 2000 and 1999, respectively.
In 2001, our dividend payout ratio was approximately 45 percent of our net
income. 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.
FINANCIAL RISK MANAGEMENT
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. Virtually all of our derivatives are straightforward
over-the-counter instruments with liquid markets.
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 77 percent of 2001 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 contracts and purchases currency options
(principally euro and Japanese yen) to hedge certain portions of forecasted cash
flows denominated in foreign currencies. Additionally, the Company enters into
forward exchange contracts to offset the earnings impact relating to exchange
rate fluctuations on certain monetary assets and liabilities. The Company enters
into forward exchange contracts as hedges of net investments in international
operations.
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.
Value at Risk
Our Company monitors our exposure to financial market risks using several
objective measurement systems, including value-at-risk models. Our value-at-risk
calculations use a historical simulation model to estimate potential future
losses in the fair value of our derivatives and other financial instruments that
could occur 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 calculation. We examined historical
weekly returns over the previous 10 years to calculate our value at risk. The
average value at risk represents the simple average of quarterly amounts over
the past year. As a result of our foreign currency value-at-risk calculation, we
estimate with 95 percent confidence that the fair values of our foreign currency
derivatives and other financial instruments, over a one-week period, would
decline by less than $43 million using 2001 average fair values and by less than
$37 million using December 31, 2001 fair values. On December 31, 2000, we
estimated the fair value would decline by less than $37 million. According to
our interest rate value-at-risk calculations, we estimate with 95 percent
confidence that any increase in our net interest expense due to an adverse move
in our 2001 average or in our December 31, 2001 interest rates over a one-week
period would not have a material impact on our Consolidated Financial
Statements. Our December 31, 2000 estimate also was not material to our
Consolidated Financial Statements.
For additional discussion of financial risk management related to hedging
transactions and derivative financial instruments, refer to Note 9 in our
Consolidated Financial Statements.
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,
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
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
We measure our sales volume in two ways: (1) gallons and (2) unit cases of
finished products. Gallons represent our primary business and measure the volume
of concentrates, syrups and other beverage products (expressed in equivalent
gallons of syrup) included by the Company in unit case volume. Most of our
revenues are based on this measure of "wholesale" activity.
We also measure volume in unit cases. As used in this report, "unit case"
means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage
(24 eight-ounce servings); and "unit case volume" of the Company means the
number of unit cases (or unit case equivalents) of Company trademark or licensed
beverage products directly or indirectly sold by the Coca-Cola bottling system
or by the Company to customers, including (i) beverage products bearing
trademarks licensed to the Company and (ii) certain key products (which are not
material) owned by our bottlers and for which the Company provides marketing
support and derives profit from the sales.
Our worldwide unit case volume increased 4 percent in 2001, on top of a 4
percent increase in 2000. The increase in unit case volume reflects consistent
performance across certain key operations despite difficult global economic
conditions. Our business system sold 17.8 billion unit cases in 2001.
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.
CRITICAL ACCOUNTING POLICIES
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. All majority-owned entities in which our Company's control is
considered other than temporary are consolidated. For 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, such entities are accounted for by the equity method. Our
judgments regarding the level of influence or control of each equity method
investment include considering key factors such as our ownership interest,
representation on the board of directors, participation in policy making
decisions and material intercompany transactions. Our investments in other
companies that we do not control and for which we do not have the ability to
exercise significant influence as discussed above are carried at cost or fair
value, as appropriate. All significant intercompany accounts and transactions,
including transactions with equity method investees, are eliminated from our
financial results.
Recoverability of Investments
Management periodically assesses the recoverability of our Company's
investments. The significant judgment required in management's recoverability
assessment is the determination of the fair value of the investment. For
publicly traded investments, the fair value of our Company's investment is
readily determinable based on quoted market prices. For non-publicly traded
investments, management's assessment of fair value is based on our analysis of
the investee's estimates of future operating results and the resulting cash
flows. Management's ability to accurately predict future cash flows, especially
in emerging and developing markets such as the Middle East and Latin America,
may impact the determination of fair value.
In the event a decline in fair value of an investment occurs, management may
be required to make a determination as to whether the decline in market value is
other than temporary. Management's assessment as to the nature of a decline in
fair value is largely based on our estimates of future operating results, the
resulting cash flows and intent to hold the investment. If an investment is
considered to be impaired and the decline in value is considered to be other
than temporary, an appropriate write-down is recorded.
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
Other Assets
Our Company invests in infrastructure programs with our bottlers that are
directed at strengthening our bottling system and increasing unit case sales.
Additionally, our Company advances payments to certain customers for marketing
to fund activities intended to generate volume. Advance payments are also made
to certain customers for distribution rights. Payments under these programs are
generally capitalized as other assets on the Consolidated Balance Sheets.
Management periodically evaluates the recoverability of these assets by
preparing estimates of sales volume, the resulting gross profit, cash flows and
other factors. Accuracy of our recoverability assessments is based on
management's ability to accurately predict certain key variables such as sales
volume, prices, marketing spending and other economic factors. Predicting these
key variables involves uncertainty about future events; however, the assumptions
used are consistent with our internal planning. If the assets are assessed to be
recoverable, they are amortized over the periods benefited. If the carrying
value of these assets is considered to be not recoverable, such assets are
written down as appropriate.
Trademarks and Other Intangible Assets
Trademarks 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). Other intangible assets
consist primarily of bottling and distribution rights in specific territories.
Trademarks and other intangible assets are periodically reviewed for impairment
whenever events or changes occur that indicate the carrying value may not be
recoverable. When such events or changes occur, management estimates the future
cash flows expected to result from the use and, if applicable, the eventual
disposition of the assets. The key variables which management must estimate
include sales volume, prices, marketing spending and other economic factors.
Significant management judgment is involved in estimating these variables, and
they include inherent uncertainties; however, the assumptions used are
consistent with our internal planning. Therefore, management periodically
evaluates and updates the estimates based on the conditions that influence these
variables. If such assets are considered impaired, they are written down to fair
value as appropriate.
The assumptions and conditions for "Recoverability of Investments," "Other
Assets" and "Trademarks and Other Intangible Assets" reflect management's best
assumptions and estimates, but these items involve inherent uncertainties as
described above, which may or may not be controllable by management. As a
result, the accounting for such items could result in different amounts if
management used different assumptions or if different conditions occur in future
periods.
Other Policies
The Company has adopted or will adopt the following new accounting standards:
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138; SFAS No. 141, "Business Combinations"; and SFAS No. 142, "Goodwill
and Other Intangible Assets." These standards are considered to be critical
accounting policies and are explained under the heading "New Accounting
Standards."
For further information concerning accounting policies, refer to Note 1 of
our Consolidated Financial Statements.
OPERATIONS
Net Operating Revenues and Gross Margin
In 2001, on a consolidated basis, our net operating revenues and our gross
profit grew 1 percent and 3 percent, respectively. The growth in net operating
revenues was primarily due to an increase in gallon shipments, price increases
in selected countries and the consolidation of the Nordic and Brazilian bottling
operations. These gains were offset by the negative impact of a stronger U.S.
dollar and the sale of our previously owned vending operations in Japan and
canning operations in Germany. Our gross profit margin increased to 69.9 percent
in 2001 from 68.8 percent in 2000, primarily due to the sale in 2001 of our
Japan vending and German canning operations, partially offset by the
consolidation in 2001 of the Nordic and Brazilian bottling operations.
Generally, bottling and vending operations produce higher net revenues but lower
gross margins compared to concentrate and syrup operations.
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
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
impact of a stronger U.S. dollar and the inventory reduction by certain
bottlers. Our gross profit margin of 68.8 percent remained unchanged in 2000
compared to 1999.
Selling, Administrative and General Expenses
Selling expenses totaled $6,930 million in 2001,$6,863 million in 2000 and
$6,745 million in 1999.
During the first quarter of 2001, the Company announced plans to implement
incremental strategic marketing initiatives in order to accelerate the Company's
business strategies. During 2001, the Company invested $298 million of
incremental marketing in the United States, Japan and Germany.
The increase in 2001 was primarily due to higher marketing in line with the
Company's unit case volume growth, incremental marketing expenses discussed
above and the consolidation in 2001 of the Nordic and Brazilian bottling
operations. Such increases were partially offset by the sale in 2001 of our
Japan vending and German canning operations and the impact of a stronger U.S.
dollar. The increase in 2000 was primarily due to higher marketing expenditures
in line with 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.
Administrative and general expenses totaled $1,766 million in 2001, $1,688
million in 2000 and $1,735 million in 1999. The increase in 2001 is due to the
consolidation in 2001 of the Nordic and Brazilian bottling operations, partially
offset by the sale in 2001 of our Japan vending and German canning operations
and the impact of a stronger U.S. dollar. 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.
Administrative and general expenses, as a percentage of net operating
revenues, totaled approximately 9 percent in 2001, 8 percent in 2000 and 9
percent in 1999.
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.
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 were separated from almost all functional areas of the Company's
operations, and certain activities were 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
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
the Realignment. During 2000, 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 included 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. In 2001, our Company paid out substantially all of this
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 strategy, management intended to
sell the assets of our vending operations in Japan and our bottling operations
in the Baltics. On December 22, 2000, the Company signed a definitive agreement
to sell the assets of our vending operations in Japan, and this sale was
completed in 2001. The proceeds from the sale of the assets were approximately
equal to the carrying value of the long-lived assets less the cost to sell.
In December 2000, the Company announced it had intended to sell its bottling
operations in the Baltics to one of our strategic business partners. However,
that partner was in the process of an internal restructuring and no longer
planned to purchase the Baltics bottling operations. At that time, another
suitable buyer was not identified so the Company continued to operate the
Baltics bottlers as consolidated operations until a new buyer was identified.
Subsequently, in January 2002, our Company reached an agreement to sell our
bottling operations in the Baltics to CCHBC in early 2002. The expected proceeds
from the sale of the Baltics bottlers are approximately equal to the current
carrying value of the investment.
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, Eurasia and Middle East, Latin America
and Corporate segments. These charges were incurred during the fourth quarter of
1999.
Operating Income and Operating Margin
On a consolidated basis, our operating income increased 45 percent in 2001 to
$5,352 million. This follows a decline of 7 percent in 2000 to $3,691 million.
The 2001 results reflect an increase in gallon shipments, price increases in
selected countries, the impact of nonrecurring charges in 2000 as previously
discussed under the heading "Other Operating Charges" and the consolidation of
the Nordic and Brazilian bottling operations. This is offset by the negative
impact of a stronger U.S. dollar and the sale of our previously owned vending
operations in Japan and canning operations in Germany. 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. Our consolidated
operating margin was 26.6 percent in 2001, 18.6 percent in 2000 and 20.6 percent
in 1999.
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
MARGIN ANALYSIS (Chart converted to table)
2001 2000 1999
- ------------------------------------------------------------------------------
Net Operating Revenues
(in billions) $ 20.1 $ 19.9 $ 19.3
Gross Margin 69.9% 68.8% 68.8%
Operating Margin 26.6% 18.6% 20.6%
- ------------------------------------------------------------------------------
Interest Income and Interest Expense
In 2001, our interest income decreased 6 percent due primarily to lower interest
rates. In 2000, our interest income increased 33 percent due primarily to higher
average cash balances and higher interest rates. Interest expense decreased 35
percent in 2001 due to both a decrease in average commercial paper debt balances
and lower interest rates. In 2001, the Company used free cash flow to reduce
commercial paper debt balances. Interest expense increased 33 percent in 2000
due primarily to both an increase in average commercial paper debt balances and
higher interest rates throughout the period. Average 2000 commercial paper 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."
In 2001, interest income exceeded interest expense. Interest income benefited
from cash invested in locations outside the United States earning higher rates
of interest than could be obtained within the United States. Our interest
expense is primarily incurred on borrowings in the United States.
Equity Income (Loss)
In 2001, our Company's share of income from equity method investments totaled
$152 million. The increase in our Company's share of income from equity method
investments was due primarily to the continued improvement in operating
performance by the majority of our equity investees and the impact of impairment
charges on equity investees in 2000 as discussed below.
As of January 1, 2001, Coca-Cola Enterprises changed its method of accounting
for infrastructure development payments received from the Company. Prior to this
change, Coca-Cola Enterprises recognized these payments as offsets to
incremental expenses of the programs in the periods in which they were incurred.
Coca-Cola Enterprises now recognizes the infrastructure development payments
received from the Company as obligations under the contracts are performed.
Because the Company eliminates the financial effect of significant intercompany
transactions (including transactions with equity method investees), this change
in accounting method has no impact on the Consolidated Financial Statements of
our Company. For a more complete description of these transactions, refer to
Note 2 in our Consolidated Financial Statements.
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 an overall improvement
in operating performance by our portfolio of bottlers and the positive impact of
lower tax rates on current and deferred taxes at CCEAG.
Other Income-Net
In 2001, other income-net declined to $39 million from $99 million in 2000,
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 non-cash gain of approximately $118 million was
recognized. In 2000, this gain was partially offset by exchange losses
recognized versus exchange gains in 1999 attributable to the hedging of our
resources in Brazil.
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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 issues 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. In July 2001, Coca-Cola
Enterprises completed its acquisition of Hondo Incorporated and Herbco
Enterprises, Inc., collectively known as Herb Coca-Cola. The transaction was
valued at approximately $1.4 billion, with approximately 30 percent of the
transaction funded with the issuance of approximately 25 million shares of
Coca-Cola Enterprises common stock, and the remaining portion funded through
debt and assumed debt. The issuance of shares resulted in a one-time non-cash
pretax gain for our Company of approximately $91 million. This gain represents
the increase in our Company's equity in the underlying net assets of the related
investee. No gains on issuances of stock by equity investees were recorded to
the Consolidated Statements of Income during 2000 or 1999. For a more complete
description of these transactions, refer to Note 3 in our Consolidated Financial
Statements.
Income Taxes
Our effective tax rates were 29.8 percent in 2001, 36.0 percent in 2000 and 36.3
percent in 1999. Our ongoing 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. The decrease in our effective
tax rate in 2001 was primarily due to effective tax planning and the impact that
the impairment charges recorded in 2000 had on the 2000 effective tax rate. 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
recorded 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 related to the merger of Coca-Cola Beverages and
Coca-Cola Hellenic Bottling Company S.A., previously discussed under the heading
"Other Income - Net." 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
utilized on our U.S. income tax return. The majority of the offsetting tax
credits will be realized by the end of the first quarter of 2002.
Management estimates that the effective tax rate for the year ending December
31, 2002 will be approximately 27.5 percent.
Income Per Share
Our basic net income per share increased by 82 percent in 2001, compared to a 10
percent decline in 2000. Diluted net income per share increased by 82 percent in
2001, compared to a 10 percent decline in 2000.
Recent Developments
In November 2001, our Company and CCBPI entered into a sale and purchase
agreement with RFM Corp. to acquire its 83.2 percent interest in Cosmos Bottling
Corporation (CBC), a publicly traded Philippine beverage company. As of the date
of the agreement, the Company began supplying concentrate for this operation.
The transaction valued CBC at 14 billion Philippine pesos, or approximately $270
million. The purchase of RFM's interest was finalized on January 3, 2002 with
our Company receiving direct and indirect ownership totaling approximately 62.3
percent. A subsequent tender offer was made to the remaining minority share
owners and is expected to close in March 2002. The Company and CCBPI have agreed
to restructure the operations of CBC upon completion of the acquisition. The
restructuring will result in the Company owning all acquired trademarks and
CCBPI owning all the acquired bottling assets. No gain or loss is expected upon
completion of this restructuring.
In early 2002, the Company entered into an agreement with Coca-Cola
Enterprises designed to support profitable volume growth of Company brands
within Coca-Cola Enterprises' territories. Under the terms of the agreement,
Coca-Cola Enterprises will earn cash funding as they achieve mutually
established unit
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
case volume growth targets. The total cash support expected to be paid to
Coca-Cola Enterprises under this agreement is $150 million in 2002 and $250
million in 2003. Beginning in 2004, the expected annual cash support to be paid
to Coca-Cola Enterprises under this agreement will be reduced each year through
2009 when the annual cash support expected to be paid to Coca-Cola Enterprises
will be $80 million. Beginning in 2009 and for each year thereafter, the support
expected to be paid is $80 million annually. The Company will expense the
funding as it is earned by Coca-Cola Enterprises. The agreement can be cancelled
by either party at the end of a fiscal year with at least six months notice.
During 2001, the Company also entered into an agreement to provide financial
support to Coca-Cola Enterprises for introducing certain Company brands within
Coca-Cola Enterprises' recently acquired Herb Coca-Cola territories. Under the
terms of this agreement, the Company expects to pay Coca-Cola Enterprises $14
million annually in the years 2002 through 2008 and $11 million in 2009.
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 2002 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, 2001 2000 1999
- -------------------------------------------------------------------------------
Cash flows provided by (used in):
Operations $ 4,110 $ 3,585 $ 3,883
Business reinvestment (963) (779) (1,551)
- -------------------------------------------------------------------------------
Free Cash Flow 3,147 2,806 2,332
Cash flows (used in) provided by:
Acquisitions,
net of disposals (225) (386) (1,870)
Share repurchases (277) (133) (15)
Dividends (1,791) (1,685) (1,580)
Other financing activities (762) (254) 1,124
Exchange (45) (140) (28)
- -------------------------------------------------------------------------------
Increase (decrease) in cash $ 47 $ 208 $ (37)
===============================================================================
In 2001, cash provided by operations amounted to $4,110 million, a 15 percent
increase from 2000. The increase was primarily due to solid 2001 business
results partially offset by a stronger U.S. dollar, 2000 being unfavorably
impacted by the previously mentioned planned inventory reduction by certain
bottlers as discussed under the heading "Volume," cash payments made to
separated employees under the Realignment, as well as additional Japanese tax
payments made pursuant to the terms of the APA entered into by the United States
and Japan taxing authorities. Cash provided by operations in 2000 amounted to
$3,585 million, an 8 percent decrease from 1999. The decrease was primarily due
to 2000 being unfavorably impacted by the items mentioned above.
In 2001, net cash used in investing activities increased by $23 million
compared to 2000. The increase was primarily the result of increased purchases
of property, plant and equipment; the acquisition of the Nordic bottling
operations and other investing activities such as the acquisitions of Odwalla,
Inc. and Brazilian bottling operations. This was offset by proceeds received
from the sale of our Japan Vending operations.
In 2000, net cash used in investing activities decreased by $2,256 million
compared to 1999. The decrease was primarily the result of brand and bottler
acquisitions during 1999.
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
Total capital expenditures for property, plant and equipment (including our
investments in information technology) and the percentage distribution by
operating segment for 2001, 2000 and 1999 are as follows (in millions):
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------
Capital expenditures $ 769 $ 733 $ 1,069
- -------------------------------------------------------------------------------
North America (1) 44% 35% 25%
Africa 1% 1% 2%
Europe, Eurasia
& Middle East 14% 27% 21%
Latin America 5% 2% 6%
Asia 14% 18% 30%
Corporate 22% 17% 16%
===============================================================================
<FN>
(1) Includes The Minute Maid Company
</FN>
Financing Activities, Contractual Obligations and
Commercial Commitments
Our financing activities include net borrowings, dividend payments and share
issuances and repurchases. Net cash used in financing activities totaled $2,830
million in 2001, $2,072 million in 2000 and $471 million in 1999. The changes
between 2001 and 2000 as well as between 2000 and 1999 were primarily due to the
use of free cash flow to pay down outstanding debt.
Cash used to purchase common stock for treasury under the 1996 share
repurchase plan and employee stock award programs totaled $277 million in 2001,
$133 million in 2000 and $15 million in 1999. In 2000 and in 1999, we did not
repurchase any shares under the 1996 share repurchase plan. As previously
mentioned, we expect that the Company's share repurchases will be increased in
2002, and we are currently estimating a range of $750 million to $1 billion of
repurchases during the year.
Commercial paper is our primary source of short-term financing. On December
31, 2001, we had $3,361 million outstanding in commercial paper borrowings
compared to $4,549 million outstanding at the end of 2000, a $1,188 million
decrease in borrowings. The 2001 decrease in commercial paper was due to the use
of free cash flow to pay down outstanding debt. 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. On December 31,
2001, we had $2,468 million in lines of credit and other short-term credit
facilities available, of which approximately $382 million was outstanding.
On December 31, 2001, we had $1,219 million outstanding in long-term debt,
compared to $835 million outstanding at the end of 2000, a $384 million increase
in borrowings. These increased borrowings were a result of the Company issuing
$500 million in 10-year global notes in March 2001. This debt was incurred in
order to obtain funds at attractive rates available in 2001. Current maturities
of long-term debt were $156 million as of December 31, 2001 compared to $21
million as of December 31, 2000, an increase of $135 million.
The Company's contractual obligations and commercial commitments are as
follows (in millions):
December 31, 2001
- -------------------------------------------------------------------------------
Short-term loans and notes payable:
Commercial paper borrowings $ 3,361
Lines of credit and other
short-term borrowings 382
Current maturities of long-term debt 156
Long-term debt 1,219
Marketing commitments 1,326
- -------------------------------------------------------------------------------
Contractual obligations $ 6,444
===============================================================================
Contingent liability for guarantees of
indebtedness owed to third parties $ 436
===============================================================================
For the year ended December 31, 2001, our Company generated cash flows
provided by operating activities of $4,110 million. Management's expectations
are that future cash flows provided by operating activities will be sufficient
to meet the Company's contractual obligations. For further discussion of the
above contractual obligations and commercial commitments, refer to Notes 5, 6
and 10 of the Consolidated Financial Statements.
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.
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FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
We use approximately 59 functional currencies. Due to our global operations,
weaknesses in some of these currencies are often offset by strengths in others.
In 2001, 2000 and 1999, the weighted-average exchange rates for foreign
currencies in which the Company conducts operations (all operating currencies),
and for certain individual currencies, strengthened (weakened) against the U.S.
dollar as follows:
Year Ended December 31, 2001 2000 1999
- -----------------------------------------------------------------------------
All operating currencies (8)% (5)% Even
- -----------------------------------------------------------------------------
Australian dollar (13)% (8)% 3 %
British pound (5)% (7)% (2)%
Canadian dollar (4)% Even Even
French franc (5)% (14)% (2)%
German mark (5)% (14)% (2)%
Japanese yen (11)% 4 % 15 %
=============================================================================
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 is designed to
mitigate 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 5 percent in 2001 and approximately 4 percent in 2000.
The negative trend from currencies on our 2002 operating income, including the
recent devaluation in Argentina, is expected to continue.
Exchange gains (losses)-net amounted to $(9) million in 2001, $(12) million
in 2000 and $87 million in 1999, and were recorded in other income-net in the
Consolidated Statements of Income. 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.
Off Balance Sheet Arrangements
The Company does not have transactions, arrangements or relationships with
"special purpose" entities, and the Company does not have any off balance sheet
debt.
FINANCIAL POSITION
Comparing 2001 to 2000, the increase in prepaid expenses and other assets was
primarily due to the change in the carrying value of derivatives and hedging
instruments and amounts due from CCHBC of $146 million related to the sale of
the Russian bottling operations. For further discussion, refer to Note 2 of the
Consolidated Financial Statements. The decrease in cost method investments was
primarily due to the consolidation of our recently purchased Brazilian bottling
operations that had been classified as temporary cost method investments. The
increase in other assets was due to a higher cash surrender value of insurance
due to the pay off of policy loans. The increase in trademarks and other
intangible assets was due primarily to acquisitions of brands and bottling
operations during 2001.
Comparing 2000 to 1999, 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 other assets in 2000 is primarily due to an increase in marketing
prepayments. The increase in accounts payable and accrued expenses in 2000 is
due primarily to the accrual for the Realignment expenses.
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 was
phased in over a period ended January 1, 2002, when euro notes and coins came
into circulation. The replacement of other currencies with the euro did not have
and is not expected to have a material impact on our operations or our
Consolidated Financial Statements.
Page 54
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
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 majority of the
inflationary effects of increasing costs and to generate sufficient cash flows
to maintain our productive capability.
NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. As discussed further in Note 9, the 2001 Consolidated Financial
Statements were prepared in accordance with the provisions of SFAS No. 133.
Prior years' financial statements have not been restated. The 2000 and 1999
Consolidated Financial Statements were prepared in accordance with the
applicable professional literature for derivatives and hedging instruments in
effect at that time.
Effective January 1, 2001, our Company adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales
Incentives," and EITF Issue No. 00-22, "Accounting for 'Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." Both of these EITF Issues
provide additional guidance relating to the income statement classification of
certain sales incentives. The adoption of these EITF Issues resulted in the
Company reducing both net operating revenues and selling, administrative and
general expenses by approximately $580 million in 2001, $569 million in 2000 and
$521 million in 1999. These reclassifications have no impact on operating
income.
In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." EITF Issue No. 00-25, which is effective for the Company
beginning January 1, 2002, will require certain selling expenses incurred by the
Company to be classified as deductions from revenue. With the adoption of this
EITF Issue, we estimate that approximately $2.6 billion of our payments to
bottlers and customers that are currently classified within selling,
administrative and general expenses will be reclassified as deductions from
revenue. In our 2002 Consolidated Financial Statements, all comparative periods
will be reclassified.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 is effective for the Company as of January 1, 2002. Under
the new rules, goodwill and indefinite lived intangible assets will no longer be
amortized but will be reviewed annually for impairment. Intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives.
The adoption of SFAS No. 142 requires that an initial impairment assessment
be performed on all goodwill and indefinite lived intangible assets. To complete
this assessment, the Company will compare the fair value to the current carrying
value of trademarks and other intangible assets. Fair values will be derived
using cash flow analysis. The assumptions used in this cash flow analysis will
be consistent with our internal planning. Any impairment charge resulting from
this initial assessment will be recorded as a cumulative effect of an accounting
change. The Company estimates the cumulative effect of adopting this standard
will result in a non-cash charge in the first quarter of 2002 of approximately
$1 billion on a pretax basis. This amount reflects intangible assets for both
the Company and the Company's proportionate share of its equity method
investees. The adoption of this new standard will also benefit earnings
beginning in 2002 by approximately $60 million in reduced amortization from
Company-owned intangible assets and approximately $150 million of increased
equity income relating to the Company's share of amortization savings from
equity method investees.
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.
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by our Company and subsidiaries or with
the approval of an
Page 55
FINANCIAL REVIEW INCORPORATING MANAGEMENT'S DISCUSSION AND ANALYSIS
The Coca-Cola Company and Subsidiaries
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:
- Foreign currency rate fluctuations, interest rate fluctuations and other
capital market conditions. Most of our exposures to capital markets,
including foreign currency and interest rates, are managed on a
consolidated basis, which allows us to net certain exposures and, thus,
take advantage of any natural offsets. We use derivative financial
instruments to reduce our net exposure to financial risks. There can be no
assurance, however, that our financial risk management program will be
successful in reducing capital market exposures.
- Changes in the nonalcoholic beverages business environment. These include,
without limitation, changes in consumer preferences, competitive product
and pricing pressures and our ability to gain or maintain share of sales in
the global market as a result of actions by competitors. 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.
- Adverse weather conditions, which could reduce demand for Company products.
- Our ability to generate sufficient cash flows to support capital expansion
plans, share repurchase programs and general operating activities.
- Changes in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretations) and environmental laws in domestic or foreign
jurisdictions.
- The effectiveness of our advertising, marketing and promotional programs.
- Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships.
- Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are more
profitable than others. There can be no assurance that we will achieve the
projected level or mix of product sales.
- 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 uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in our Company's Securities and Exchange
Commission filings.
The foregoing list of important factors is not exclusive.
ADDITIONAL INFORMATION
For additional information about our operations, cash flows, liquidity and
capital resources, please refer to the information on pages 57 through 84 of
this report. Additional information concerning our operating segments is
presented on pages 81 through 83.
Page 56
CONSOLIDATED STATEMENTS OF INCOME
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
(In millions except per share data)
NET OPERATING REVENUES $ 20,092 $ 19,889 $ 19,284
- ----------------------
Cost of goods sold 6,044 6,204 6,009
- --------------------------------------------------------------------------------
GROSS PROFIT 14,048 13,685 13,275
- ------------
Selling, administrative and general
expenses 8,696 8,551 8,480
Other operating charges - 1,443 813
- --------------------------------------------------------------------------------
OPERATING INCOME 5,352 3,691 3,982
- ----------------
Interest income 325 345 260
Interest expense 289 447 337
Equity income (loss) 152 (289) (184)
Other income-net 39 99 98
Gains on issuances of stock by
equity investees 91 - -
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,670 3,399 3,819
- ---------------------------------------
Income taxes 1,691 1,222 1,388
- --------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 3,979 2,177 2,431
- -------------------------------
Cumulative effect of accounting
change, net of income taxes (10) - -
- --------------------------------------------------------------------------------
NET INCOME $ 3,969 $ 2,177 $ 2,431
================================================================================
BASIC NET INCOME PER SHARE
- --------------------------
Before accounting change $ 1.60 $ .88 $ .98
Cumulative effect of accounting change - - -
- --------------------------------------------------------------------------------
$ 1.60 $ .88 $ .98
- --------------------------------------------------------------------------------
DILUTED NET INCOME PER SHARE
- ----------------------------
Before accounting change $ 1.60 $ .88 $ .98
Cumulative effect of accounting change - - -
- --------------------------------------------------------------------------------
$ 1.60 $ .88 $ .98
- --------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 2,487 2,477 2,469
- --------------------------
Dilutive effect of stock options - 10 18
- --------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,487 2,487 2,487
================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Page 57
CONSOLIDATED BALANCE SHEETS
The Coca-Cola Company and Subsidiaries
December 31, 2001 2000
- --------------------------------------------------------------------------------
(In millions except share data)
ASSETS
- ------
CURRENT
- -------
Cash and cash equivalents $ 1,866 $ 1,819
Marketable securities 68 73
- --------------------------------------------------------------------------------
1,934 1,892
Trade accounts receivable, less allowances
of $59 in 2001 and $62 in 2000 1,882 1,757
Inventories 1,055 1,066
Prepaid expenses and other assets 2,300 1,905
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,171 6,620
- --------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
- ----------------------------
Equity method investments
Coca-Cola Enterprises Inc. 788 707
Coca-Cola Amatil Limited 432 617
Coca-Cola HBC S.A. 791 758
Other, principally bottling companies 3,117 3,164
Cost method investments, principally
bottling companies 294 519
Other assets 2,792 2,364
- --------------------------------------------------------------------------------
8,214 8,129
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Land 217 225
Buildings and improvements 1,812 1,642
Machinery and equipment 4,881 4,547
Containers 195 200
- --------------------------------------------------------------------------------
7,105 6,614
Less allowances for depreciation 2,652 2,446
- --------------------------------------------------------------------------------
4,453 4,168
- --------------------------------------------------------------------------------
TRADEMARKS AND OTHER INTANGIBLE ASSETS 2,579 1,917
- --------------------------------------------------------------------------------
$ 22,417 $ 20,834
================================================================================
Page 58
The Coca-Cola Company and Subsidiaries
December 31, 2001 2000
- --------------------------------------------------------------------------------
LIABILITIES AND SHARE-OWNERS' EQUITY
- ------------------------------------
CURRENT
- -------
Accounts payable and accrued expenses $ 3,679 $ 3,905
Loans and notes payable 3,743 4,795
Current maturities of long-term debt 156 21
Accrued income taxes 851 600
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,429 9,321
- --------------------------------------------------------------------------------
LONG-TERM DEBT 1,219 835
- --------------------------------------------------------------------------------
OTHER LIABILITIES 961 1,004
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES 442 358
- --------------------------------------------------------------------------------
SHARE-OWNERS' EQUITY
- --------------------
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,491,465,016 shares in 2001;
3,481,882,834 shares in 2000 873 870
Capital surplus 3,520 3,196
Reinvested earnings 23,443 21,265
Accumulated other comprehensive income and
unearned compensation on restricted stock (2,788) (2,722)
- --------------------------------------------------------------------------------
25,048 22,609
Less treasury stock, at cost
(1,005,237,693 shares in 2001;
997,121,427 shares in 2000) 13,682 13,293
- --------------------------------------------------------------------------------
11,366 9,316
- --------------------------------------------------------------------------------
$ 22,417 $ 20,834
================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Page 59
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
(In millions)
OPERATING ACTIVITIES
- --------------------
Net income $ 3,969 $ 2,177 $ 2,431
Depreciation and amortization 803 773 792
Deferred income taxes 56 3 97
Equity income or loss, net of dividends (54) 380 292
Foreign currency adjustments (60) 196 (41)
Gains on issuances of stock by equity
investees (91) - -
Gains on sales of assets, including
bottling interests (85) (127) (49)
Other operating charges - 916 799
Other items 34 119 119
Net change in operating assets and
liabilities (462) (852) (557)
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 4,110 3,585 3,883
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
- --------------------
Acquisitions and investments,
principally trademarks
and bottling companies (651) (397) (1,876)
Purchases of investments and other
assets (456) (508) (518)
Proceeds from disposals of investments
and other assets 455 290 176
Purchases of property, plant and
equipment (769) (733) (1,069)
Proceeds from disposals of property,
plant and equipment 91 45 45
Other investing activities 142 138 (179)
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,188) (1,165) (3,421)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
- --------------------
Issuances of debt 3,011 3,671 3,411
Payments of debt (3,937) (4,256) (2,455)
Issuances of stock 164 331 168
Purchases of stock for treasury (277) (133) (15)
Dividends (1,791) (1,685) (1,580)
- --------------------------------------------------------------------------------
Net cash used in financing activities (2,830) (2,072) (471)
- --------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (45) (140) (28)
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- -------------------------
Net increase (decrease) during the year 47 208 (37)
Balance at beginning of year 1,819 1,611 1,648
- --------------------------------------------------------------------------------
Balance at end of year $ 1,866 $ 1,891 $ 1,611
================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Page 60
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, 2001 Outstanding | Stock Surplus Earnings Stock Income Stock Total
- -----------------------------------------|-----------------------------------------------------------------------------------------
|
(In millions except per share data) |
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 (loss) 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
Restricted stock and other stock |
plans, less amortizatization of |
$27 - | - 5 - 25 - - 30
Stock issued by an equity |
investee - | - 146 - - - - 146
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 (loss) 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
Restricted stock and other stock |
plans, less amortizatization of |
$24 3 | 1 167 - (136) - - 32
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
- ------------------------- |
COMPREHENSIVE INCOME: |
Net income - | - - 3,969 - - - 3,969
Translation adjustments - | - - - - (207) - (207)
Cumulative effect of SFAS No. 133 - | - - - - 50 - 50
Net gain (loss) on derivatives - | - - - - 92 - 92
Net change in unrealized gain |
(loss) on securities - | - - - - (29) - (29)
Minimum pension liability - | - - - - (17) - (17)
|
| ------
COMPREHENSIVE INCOME | 3,858
Stock issued to employees |
exercising stock options 7 | 2 162 - - - - 164
Tax benefit from employees' |
stock option and restricted |
stock plans - | - 58 - - - - 58
Restricted stock and other |
stock plans, less cancellations - | 1 132 - (24) - (112) (3)
Amortization of restricted stock - | - - - 41 - - 41
Unearned restricted stock |
adjustment - | - (28) - 28 - - -
Purchases of stock for treasury (6)(1)| - - - - - (277) (277)
Dividends (per share -- $.72) - | - - (1,791) - - - (1,791)
- -----------------------------------------|------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001 2,486 | $ 873 $ 3,520 $ 23,443 $ (150) $ (2,638) $ (13,682) $ 11,366
====================================================================================================================================
<FN>
(1) Common stock purchased from employees exercising stock options numbered .3
million, 2.2 million and .3 million shares for the years ended December 31,
2001, 2000 and 1999, respectively.
</FN>
See Notes to Consolidated Financial Statements.
Page 61
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, together with its subsidiaries, (the Company or 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 bottling partners or our customers.
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, including transactions with
equity method investees, are eliminated from our financial results.
Recoverability of Investments
Management periodically assesses the recoverability of our Company's
investments. For publicly traded investments, the fair value of our Company's
investment is readily determinable based on quoted market prices. For
non-publicly traded investments, management's assessment of fair value is based
on our analysis of the investee's estimates of future operating results and the
resulting cash flows. If an investment is considered to be impaired and the
decline in value is other than temporary, an appropriate write-down is recorded.
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 non-cash gain or loss on the issuance. This non-cash 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 $1,970
million in 2001, $1,655 million in 2000 and $1,609 million in 1999. As of
December 31, 2001 and 2000, advertising production costs of approximately $52
million and $69 million, respectively, were recorded primarily in prepaid
expenses and other assets and noncurrent 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.
Page 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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.
Additionally, our Company advances payments to certain customers for marketing
to fund activities intended to generate volume. Advance payments are also made
to certain customers for distribution rights. The costs of these programs are
recorded in other assets and are subsequently amortized over the periods to be
directly benefited. Management periodically evaluates the recoverability of
these assets by preparing estimates of sales volume, the resulting gross profit,
cash flows and other factors.
Trademarks and Other Intangible Assets
Trademarks 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). Trademarks 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 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 applicable, an appropriate interest rate is
utilized, based on location-specific economic factors. Accumulated amortization
was approximately $285 million and $192 million on December 31, 2001 and 2000,
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
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. As discussed further
in Note 9, the 2001 Consolidated Financial Statements were prepared in
accordance with the provisions of SFAS No. 133. Prior years' financial
statements have not been restated. As required by SFAS No. 133, the 2000 and
1999 Consolidated Financial Statements were prepared in accordance with the
applicable professional literature for derivatives and hedging instruments in
effect at that time.
Effective January 1, 2001, our Company adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales
Incentives," and EITF Issue No. 00-22, "Accounting for 'Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." Both of these EITF Issues
provide additional guidance relating to the income statement classification of
certain sales incentives. The adoption of these EITF Issues resulted in the
Company reducing both net operating revenues and selling, administrative and
general expenses by approximately $580 million in 2001, $569 million in 2000 and
$521 million in 1999. These reclassifications have no impact on operating
income.
In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." EITF Issue No. 00-25, which is effective for the Company
beginning January 1, 2002, will require certain selling expenses incurred by the
Company to be classified as deductions from revenue. With the adoption of this
EITF Issue, we estimate that approximately $2.6 billion of our payments to
bottlers and customers that are currently classified within selling,
administrative and general expenses will be reclassified as deductions from
revenue. In our 2002 Consolidated Financial Statements, all comparative periods
will be reclassified.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 is effective for the Company as of January 1, 2002. Under
the new rules, goodwill and indefinite lived intangible assets will no
Page 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
longer be amortized but will be reviewed annually for impairment. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
The adoption of SFAS No. 142 requires that an initial impairment assessment
is performed on all goodwill and indefinite lived intangible assets. To complete
this assessment, the Company will compare the fair value to the current carrying
value of trademarks and other intangible assets. Fair values will be derived
using cash flow analysis. The assumptions used in this cash flow analysis will
be consistent with our internal planning. Any impairment charge resulting from
this initial assessment will be recorded as a cumulative effect of an accounting
change. The Company estimates the cumulative effect of adopting this standard
will result in a non-cash charge in the first quarter of 2002 of approximately
$1 billion on a pretax basis. This amount reflects intangible assets for both
the Company and the Company's proportionate share of its equity method
investees. The adoption of this new standard will also benefit earnings
beginning in 2002 by approximately $60 million in reduced amortization from
Company-owned intangible assets and approximately $150 million of increased
equity income relating to the Company's share of amortization savings from
equity method investees.
NOTE 2: BOTTLING INVESTMENTS
Coca-Cola Enterprises Inc.
Coca-Cola Enterprises Inc. (Coca-Cola Enterprises) is the largest soft-drink
bottler in the world, operating in eight countries. On December 31, 2001, our
Company owned approximately 38 percent of the outstanding common stock of
Coca-Cola Enterprises, and accordingly, we account for our investment by the
equity method of accounting. As of December 31, 2001, our proportionate share of
the net assets of Coca-Cola Enterprises exceeded our investment by approximately
$283 million. This excess is amortized over a period consistent with the
applicable useful life of the underlying transactions.
A summary of financial information for Coca-Cola Enterprises is as follows
(in millions):
December 31, 2001 2000
- --------------------------------------------------------------------------------
Current assets $ 2,876 $ 2,631
Noncurrent assets 20,843 19,531
- --------------------------------------------------------------------------------
Total assets $ 23,719 $ 22,162
================================================================================
Current liabilities $ 4,522 $ 3,094
Noncurrent liabilities 16,377 16,234
- --------------------------------------------------------------------------------
Total liabilities $ 20,899 $ 19,328
================================================================================
Share-owners' equity $ 2,820 $ 2,834
================================================================================
Company equity investment $ 788 $ 707
================================================================================
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Net operating revenues $ 15,700 $ 14,750 $ 14,406
Cost of goods sold 9,740 9,083 9,015
- --------------------------------------------------------------------------------
Gross profit $ 5,960 $ 5,667 $ 5,391
================================================================================
Operating income $ 601 $ 1,126 $ 839
================================================================================
Cash operating profit (1) $ 1,954 $ 2,387 $ 2,187
================================================================================
Cumulative effect of
accounting change $ 302 $ - $ -
================================================================================
Net income (loss) $ (321) $ 236 $ 59
================================================================================
Net income (loss) available
to common share owners $ (324) $ 233 $ 56
================================================================================
<FN>
(1) Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other non-cash operating expenses.
</FN>
Our net concentrate and syrup sales to Coca-Cola Enterprises were $3.9
billion in 2001, $3.5 billion in 2000 and $3.3 billion in 1999, or approximately
19 percent, 18 percent and 17 percent of our 2001, 2000 and 1999 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 $295 million in 2001, $298 million in 2000 and $308
million in 1999. We also provide certain administrative and other services to
Coca-Cola Enterprises under negotiated fee arrangements.
Cash payments made directly to Coca-Cola Enterprises for support of certain
marketing activities and participation with them in cooperative advertising and
other marketing programs amounted to approximately $606 million, $533 million
and $525 million in 2001, 2000 and 1999, respectively. Cash payments made
directly to Coca-Cola Enterprises' customers for support of certain marketing
activities and programs amounted to approximately $282 million,
Page 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
$221 million and $242 million in 2001, 2000 and 1999, respectively. Pursuant to
cooperative advertising and trade agreements with Coca-Cola Enterprises, we
received approximately $252 million, $195 million and $243 million in 2001, 2000
and 1999, respectively, from Coca-Cola Enterprises for local media and marketing
program expense reimbursements.
Our Company enters into programs with Coca-Cola Enterprises designed to
assist their development of the cold drink infrastructure. Under these programs,
our Company made payments to Coca-Cola Enterprises for a portion of the cost of
developing the infrastructure necessary to support accelerated placements of
cold drink equipment. These payments support a common objective of increased
sales of Coca-Cola beverages from increased availability and consumption in the
cold drink channel. In connection with these programs, Coca-Cola Enterprises
agrees to: (1) purchase and place specified numbers of vendors/coolers or cold
drink equipment each year through 2008; (2) maintain the equipment in service,
with certain exceptions, for a period of at least 12 years after placement; (3)
maintain and stock the equipment in accordance with specified standards; and (4)
report to our Company minimum average annual unit case sales volume throughout
the economic life of the equipment.
Coca-Cola Enterprises must achieve minimum average unit case sales volume for
a 12-year period following the placement of equipment. These minimum average
unit case sales volume levels ensure adequate gross profit from sales of
concentrate to fully recover the capitalized costs plus a return on the
Company's investment. Should Coca-Cola Enterprises fail to purchase the
specified numbers of vendors/coolers or cold drink equipment for any calendar
year through 2008, the parties agree to mutually develop a reasonable solution.
Should no mutually agreeable solution be developed, or in the event that
Coca-Cola Enterprises otherwise breaches any material obligation under the
contracts and such breach is not remedied within a stated period, then Coca-Cola
Enterprises would be required to repay a portion of the support funding as
determined by our Company. No repayments by Coca-Cola Enterprises have ever been
made under these programs. Our Company paid or committed to pay approximately
$159 million, $223 million and $338 million in 2001, 2000 and 1999,
respectively, to Coca-Cola Enterprises in connection with these infrastructure
programs. These payments are recorded as other assets and amortized as a charge
to earnings over the 12-year period following the placement of the equipment.
Amounts recorded in other assets were approximately $931 million as of December
31, 2001. For 2002 and thereafter, the Company has no further commitments under
these programs.
As of January 1, 2001, Coca-Cola Enterprises changed its method of accounting
for infrastructure development payments received from the Company. Prior to this
change, Coca-Cola Enterprises recognized these payments as offsets to
incremental expenses of the programs in the periods in which they were incurred.
Coca-Cola Enterprises now recognizes the infrastructure development payments
received from the Company as obligations under the contracts are performed.
Because the Company eliminates the financial effect of significant intercompany
transactions (including transactions with equity method investees), this change
in accounting method has no impact on the Consolidated Financial Statements of
our Company.
Our Company and Coca-Cola Enterprises reached an agreement in 2000 to
transfer all responsibilities and the associated staffing for major customer
marketing (CMG) efforts to Coca-Cola Enterprises from our Company and for local
media activities from Coca-Cola Enterprises to our Company. Under the agreement,
our Company reimburses Coca-Cola Enterprises for the CMG staffing costs
transferred to Coca-Cola Enterprises, and Coca-Cola Enterprises reimburses our
Company for the local media staffing costs transferred to our Company. Amounts
reimbursed to Coca-Cola Enterprises by our Company for CMG staffing expenses
were $25 million and $3 million for 2001 and 2000, respectively. Amounts
reimbursed to our Company for local media staffing expenses were $16 million for
2001.
The difference between our proportionate share of Coca-Cola Enterprises'
income available to common share owners and the Company's equity income in
Coca-Cola Enterprises is primarily related to the elimination of the financial
effect of intercompany transactions between the two companies.
If valued at the December 31, 2001, quoted closing price of Coca-Cola
Enterprises shares, the value of our investment in Coca-Cola Enterprises
exceeded its carrying value by approximately $2.4 billion.
Page 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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, 2001 2000
- --------------------------------------------------------------------------------
Current assets $ 6,013 $ 5,985
Noncurrent assets 17,879 19,030
- --------------------------------------------------------------------------------
Total assets $ 23,892 $ 25,015
================================================================================
Current liabilities $ 5,085 $ 5,419
Noncurrent liabilities 7,806 8,357
- --------------------------------------------------------------------------------
Total liabilities $ 12,891 $ 13,776
================================================================================
Share-owners' equity $ 11,001 $ 11,239
================================================================================
Company equity investment $ 4,340 $ 4,539
================================================================================
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Net operating revenues (1) $ 19,955 $ 21,423 $ 19,605
Cost of goods sold 11,413 13,014 12,085
- --------------------------------------------------------------------------------
Gross profit (1) $ 8,542 $ 8,409 $ 7,520
================================================================================
Operating income (loss) $ 1,770 $ (24) $ 809
================================================================================
Cash operating profit (2) $ 3,171 $ 2,796 $ 2,474
================================================================================
Net income (loss) $ 735 $ (894) $ (134)
================================================================================
<FN>
Equity investments include non-bottling investees.
(1) 2000 and 1999 Net operating revenues and Gross profit have been reclassified
for EITF Issue No. 00-14 and EITF Issue No. 00-22.
(2) Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other non-cash operating expenses.
</FN>
Net sales to equity investees other than Coca-Cola Enterprises were $3.7
billion in 2001, $3.5 billion in 2000 and $3.2 billion in 1999. Total support
payments, primarily marketing, made to equity investees other than Coca-Cola
Enterprises, the majority of which are located outside the United States, were
approximately $636 million, $663 million and $685 million for 2001, 2000 and
1999, respectively.
In February 2001, the Company reached an agreement with Carlsberg A/S
(Carlsberg) for the dissolution of Coca-Cola Nordic Beverages (CCNB), a joint
venture bottler in which our Company had a 49 percent ownership. In July 2001,
our Company and San Miguel Corporation (San Miguel) acquired Coca-Cola Bottlers
Philippines (CCBPI) from Coca-Cola Amatil Limited (Coca-Cola Amatil).
In November 2001, our Company sold nearly all of its ownership interests in
various Russian bottling operations to Coca-Cola HBC S.A. (CCHBC) for
approximately $170 million in cash and notes receivable, of which $146 million
in notes receivable remained outstanding as of December 31, 2001. These
interests consisted of the Company's 40 percent ownership interest in a joint
venture with CCHBC that operates bottling territories in Siberia and parts of
Western Russia, together with our Company's nearly 100 percent interests in
bottling operations with territories covering the remainder of Russia.
In July 2000, a merger of Coca-Cola Beverages plc (Coca-Cola Beverages) and
Hellenic Bottling Company S.A. was completed to create CCHBC. This merger
resulted in a decrease in our Company's equity ownership interest from
approximately 50.5 percent of Coca-Cola Beverages to approximately 24 percent of
the combined entity, CCHBC.
In July 1999, we acquired from Fraser and Neave Limited its ownership
interest in F&N Coca-Cola Pte Limited.
If valued at the December 31, 2001, quoted closing prices of shares actively
traded on stock markets, the value of our equity investments in publicly traded
bottlers other than Coca-Cola Enterprises exceeded our carrying value by
approximately $800 million.
NOTE 3: ISSUANCES OF STOCK BY
EQUITY INVESTEES
In July 2001, Coca-Cola Enterprises completed its acquisition of Hondo
Incorporated and Herbco Enterprises, Inc., collectively known as Herb Coca-Cola.
The transaction was valued at approximately $1.4 billion, with approximately 30
percent of the transaction funded with the issuance of approximately 25 million
shares of Coca-Cola Enterprises common stock, and the remaining portion funded
through debt and assumed debt. 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. The shares issued combined with other share issuances
exceeded the amount of repurchased shares under Coca-Cola Enterprises' share
repurchase plan. As a result, the issuance of these shares resulted in a
one-time non-cash pretax gain for our Company of approximately $91 million. We
provided deferred taxes of approximately $36 million on this gain. This
transaction reduced our ownership in Coca-Cola Enterprises from approximately 40
percent to approximately 38 percent.
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
Page 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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.
NOTE 4: ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in millions):
December 31, 2001 2000
- --------------------------------------------------------------------------------
Accrued marketing $ 1,160 $ 1,163
Container deposits 84 58
Accrued compensation 202 141
Sales, payroll and other taxes 148 166
Accrued realignment expenses 59 254
Accounts payable and
other accrued expenses 2,026 2,123
- --------------------------------------------------------------------------------
$ 3,679 $ 3,905
================================================================================
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, 2001, we had approximately $3,361 million
outstanding in commercial paper borrowings. In addition, we had $2,468 million
in lines of credit and other short-term credit facilities available, of which
approximately $382 million was outstanding. Our weighted-average interest rates
for commercial paper outstanding were approximately 1.9 percent and 6.7 percent
at December 31, 2001 and 2000, 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, 2001 2000
- --------------------------------------------------------------------------------
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
5 3/4% U.S. dollar notes due 2011 498 -
7 3/8% U.S. dollar notes due 2093 116 116
Other, due 2002 to 2013 62 41
- --------------------------------------------------------------------------------
1,375 856
Less current portion 156 21
- --------------------------------------------------------------------------------
$ 1,219 $ 835
================================================================================
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 $1,262 million and $113 million on December 31, 2001, and $706
million and $150 million on December 31, 2000. The weighted-average interest
rate on our Company's long-term debt was 5.8 percent and 5.9 percent for the
years ended December 31, 2001 and 2000, respectively. Total interest paid was
approximately $304 million, $458 million and $314 million in 2001, 2000 and
1999, 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, 2001,
are as follows (in millions):
2002 2003 2004 2005 2006
- --------------------------------------------------------------------------------
$ 156 $ 155 $ 2 $ 1 $ 1
================================================================================
The above notes include various restrictions, none of which is presently
significant to our Company.
NOTE 7: COMPREHENSIVE INCOME
Accumulated other comprehensive income (AOCI) consists of the following (in
millions):
December 31, 2001 2000
- --------------------------------------------------------------------------------
Foreign currency
translation adjustment $ (2,682) $ (2,475)
Accumulated derivative net gains 142 -
Unrealized gain (loss) on
available-for-sale securities (55) (26)
Minimum pension liability (43) (26)
- --------------------------------------------------------------------------------
$ (2,638) $ (2,527)
================================================================================
Page 67
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, 2001, 2000 and 1999, is as follows (in millions):
Before-Tax Income After-Tax
December 31, Amount Tax Amount
- --------------------------------------------------------------------------------
2001
- ----
Net foreign currency
translation $ (285) $ 78 $ (207)
Cumulative effect of
adopting SFAS
No. 133, net 83 (33) 50
Net gain (loss) on
derivative financial
instruments 151 (59) 92
Net change in
unrealized gain (loss)
on available-for-sale
securities (39) 10 (29)
Minimum pension
liability (27) 10 (17)
- --------------------------------------------------------------------------------
Other comprehensive
income (loss) $ (117) $ 6 $ (111)
================================================================================
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)
================================================================================
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. Fair values for our derivative financial instruments are 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, 2001 and 2000, 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 AOCI. Debt securities categorized as held-to-maturity
are stated at amortized cost.
Page 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
On December 31, 2001 and 2000, 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
- --------------------------------------------------------------------------------
2001
- ----
Available-for-sale
securities
Equity securities $ 251 $ 43 $ (116) $ 178
Collateralized
mortgage
obligations 13 - (1) 12
Other debt
securities 19 - - 19
- --------------------------------------------------------------------------------
$ 283 $ 43 $ (117) $ 209
================================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 978 $ - $ - $ 978
Other debt
securities 8 - - 8
- --------------------------------------------------------------------------------
$ 986 $ - $ - $ 986
================================================================================
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
================================================================================
On December 31, 2001 and 2000, these investments were included in the
following captions in our Consolidated Balance Sheets (in millions):
Available- Held-to-
for-Sale Maturity
December 31, Securities Securities
- --------------------------------------------------------------------------------
2001
- ----
Cash and cash equivalents $ - $ 976
Current marketable securities 66 2
Cost method investments,
principally bottling companies 127 -
Other assets 16 8
- --------------------------------------------------------------------------------
$ 209 $ 986
================================================================================
2000
- ----
Cash and cash equivalents $ - $ 1,113
Current marketable securities 71 2
Cost method investments,
principally bottling companies 151 -
Other assets 31 -
- --------------------------------------------------------------------------------
$ 253 $ 1,115
================================================================================
The contractual maturities of these investments as of December 31, 2001, were
as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
------------------ ----------------------
Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------
2002 $ 16 $ 16 $ 978 $ 978
2003-2006 3 3 8 8
Collateralized
mortgage
obligations 13 12 - -
Equity securities 251 178 - -
- -----------------------------------------------------------------------------
$ 283 $ 209 $ 986 $ 986
=============================================================================
For the years ended December 31, 2001 and 2000, 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.
Page 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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, in commodity prices and other market risks. When
entered into, the Company formally designates and documents the financial
instrument as a hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge transactions. The
Company formally assesses, both at the inception and at least quarterly
thereafter, whether the financial instruments that are used in hedging
transactions are effective at offsetting changes in either the fair value or
cash flows of the related underlying exposure. Because of the high degree of
effectiveness between the hedging instrument and the underlying exposure being
hedged, fluctuations in the value of the derivative instruments are generally
offset by changes in the fair value or cash flows of the underlying exposures
being hedged. Any ineffective portion of a financial instrument's change in fair
value is immediately recognized in earnings. Virtually all of our derivatives
are straightforward over-the-counter instruments with liquid markets. Our
Company does not enter into derivative financial instruments for trading
purposes.
The 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 or cash flows of the underlying hedged
transactions or other exposures. 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.
As discussed in Note 1, the Company adopted SFAS No. 133, as amended by SFAS
No. 137 and SFAS No. 138 on January 1, 2001. These statements require the
Company to recognize all derivative instruments as either assets or liabilities
in the Consolidated Balance Sheets at fair value. The accounting for changes in
the fair value of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. At the inception of the hedge relationship, the
Company must designate the derivative instrument as either a fair value hedge, a
cash flow hedge or a hedge of a net investment in a foreign operation. This
designation is based upon the exposure being hedged.
The adoption of SFAS No. 133 resulted in the Company recording transition
adjustments to recognize its derivative instruments at fair value and to
recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax reduction to net income of approximately $10 million and an after-tax
net increase to AOCI of approximately $50 million. The reduction to net income
is primarily related to the change in the time value and fair value of foreign
currency options and interest rate agreements, respectively. The increase in
AOCI is primarily related to net gains on foreign currency cash flow hedges. The
Company reclassified into earnings during the year ended December 31, 2001
approximately $54 million of net gains relating to the transition adjustment
recorded in AOCI as of January 1, 2001.
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 collateral in the form of U.S. government
securities for substantially all of 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. The Company has master netting agreements with most of the
financial institutions that are counterparties to the derivative instruments.
These agreements allow the net settlement of assets and liabilities arising from
different transactions with the same counterparty. Based on these factors, 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 two years
Paqe 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
on December 31, 2001. Interest rate swap agreements, which meet certain
conditions required under SFAS No. 133 for fair value hedges, are accounted for
as such. Therefore, no ineffective portion was recorded in 2001. Accordingly,
the changes in the fair value of these agreements are recorded in earnings
immediately. The fair value of our Company's interest rate swap agreements was
approximately $5 million at December 31, 2001. The Company estimates the fair
value of its interest rate management derivatives based on quoted market prices.
Prior to January 1, 2001, our Company also used interest swaps and interest
rate caps for hedging purposes. For interest rate swaps, any differences paid or
received were recognized as adjustments to interest expense over the life of
each swap, thereby adjusting the effective interest rate on the underlying
obligation. Additionally, prior to January 1, 2001, our Company had entered into
an interest rate cap agreement that entitled us to receive from a financial
institution the amount, if any, by which our interest payments on our variable
rate debt exceeded prespecified interest rates through 2004. This cap agreement
was terminated during 2001, and the impact on the Consolidated Statements of
Income was immaterial.
Foreign Currency Management
The purpose of our foreign currency hedging activities is to reduce the risk
that our eventual U.S. dollar net cash inflows resulting from sales outside the
U.S. 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 certain portions of forecasted cash
flows denominated in foreign currencies. The effective portion of the changes in
fair value for these contracts, which have been designated as cash flow hedges,
are reported in AOCI and reclassified into earnings in the same financial
statement line item and in the same period or periods during which the hedged
transaction affects earnings. Any ineffective portion (which was not significant
in 2001) of the change in fair value of these instruments is immediately
recognized in earnings. These contracts had maturities ranging from one to two
years on December 31, 2001, the period in which all amounts included in AOCI
will be reclassified into earnings.
Additionally, the Company enters into forward exchange contracts, which are
not designated as hedging instruments under SFAS No. 133. These instruments are
used to offset the earnings impact relating to the variability in exchange rates
on certain monetary assets and liabilities denominated in non-functional
currencies. Changes in the fair value of these instruments are recognized in
earnings in the "Other income-net" line item of the Consolidated Statements of
Income immediately to offset the effect of remeasurement of the monetary assets
and liabilities.
The Company also enters into forward exchange contracts to hedge its net
investment position in certain major currencies. Under SFAS No. 133, changes in
the fair value of these instruments are recognized in foreign currency
translation adjustment, a component of AOCI, immediately to offset the change in
the value of the net investment being hedged. For the year ended December 31,
2001, approximately $43 million of losses relating to derivative financial
instruments were recorded in foreign currency translation adjustment.
Prior to January 1, 2001, gains and losses on derivative financial
instruments that were designated and effective as hedges of net investments in
international operations were included in foreign currency translation
adjustments, a component of AOCI.
For the year ended December 31, 2001, we recorded an increase to AOCI of
approximately $92 million, net of both income taxes and reclassifications to
earnings, primarily related to net gains on foreign currency cash flow hedges,
which will generally offset cash flow losses relating to the underlying
exposures being hedged in future periods. The Company estimates that it will
reclassify into earnings during the next 12 months approximately $120 million of
the net amount recorded in AOCI as of December 31, 2001 as the anticipated
foreign currency cash flows occur. The Company recorded approximately $12
million in earnings classified within net operating revenues in the Consolidated
Statements of Income, primarily related to the change in the time value of
foreign currency options. During 2001, the FASB issued an interpretation to SFAS
No. 133 allowing the entire change in fair value, including the time value, of
certain purchased options to be recorded in AOCI until the related underlying
exposure is recorded in earnings. The Company adopted this interpretation
prospectively.
The Company did not discontinue any cash flow hedge relationships during the
year ended December 31, 2001.
Page 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table summarizes activity in AOCI related to derivatives
designated as cash flow hedges held by the Company during the period from
January 1, 2001 through December 31, 2001 (in millions):
Before-Tax Income After-Tax
Year Ended December 31, Amount Tax Amount
- --------------------------------------------------------------------------------
2001
- ----
Cumulative effect
of adopting
SFAS No. 133, net $ 83 $ (33) $ 50
Net changes in fair value
of derivatives 311 (122) 189
Net gains reclassified from
AOCI into earnings (160) 63 (97)
- --------------------------------------------------------------------------------
Accumulated derivative
net gains as of
December 31, 2001 $ 234 $ (92) $ 142
================================================================================
The following table presents the fair value, carrying value and maturities of
the Company's foreign currency derivative instruments outstanding as of December
31, 2001 (in millions):
Carrying Fair
December 31, Values Values Maturity
- --------------------------------------------------------------------------------
2001
- ----
Forward contracts $ 37 $ 37 2002
Currency swap agreements 10 10 2002
Purchased options 219 219 2002-2003
- --------------------------------------------------------------------------------
$ 266 $ 266
================================================================================
The Company estimates the fair value of its foreign currency derivatives
based on quoted market prices or pricing models using current market rates. This
amount is primarily reflected in prepaid expenses and other assets within the
Company's Consolidated Balance Sheets.
Prior to January 1, 2001, our Company also used foreign exchange contracts
and purchased currency options for hedging purposes. Premiums paid and realized
gains and losses, including those on any terminated contracts, were included in
prepaid expenses and other assets. These were recognized in income, along with
unrealized gains and losses, in the same period the hedging transactions were
realized. Approximately $26 million of realized gains on settled contracts
entered into as hedges of firmly committed transactions that had not yet
occurred were deferred on December 31, 2000. Deferred gains and losses from
hedging anticipated transactions were not material on December 31, 2000.
The following table presents the aggregate notional principal amounts,
carrying values, fair values and maturities of our derivative financial
instruments outstanding on December 31, 2000 (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
================================================================================
NOTE 10: COMMITMENTS AND CONTINGENCIES
On December 31, 2001, we were contingently liable for guarantees of indebtedness
owed by third parties in the amount of $436 million, of which $10 million
related to the Company's equity investee bottlers. 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 $1,326 million, of
which the majority is payable over the next 12 years.
The Company is involved in various legal proceedings. Management believes
that any liability to the Company which may arise as a result of these
proceedings will not have a material adverse effect on the financial condition
of the Company taken as a whole.
Page 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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):
2001 2000 1999
- --------------------------------------------------------------------------------
Increase in trade
accounts receivable $ (73) $ (39) $ (96)
Increase in inventories (17) (2) (163)
Increase in prepaid
expenses and
other assets (349) (618) (547)
Increase (decrease) in
accounts payable
and accrued expenses (179) (84) 281
Increase (decrease) in
accrued taxes 247 (96) (36)
Increase (decrease) in
other liabilities (91) (13) 4
- --------------------------------------------------------------------------------
$ (462) $ (852) $ (557)
================================================================================
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 $41 million in 2001, $6 million in 2000 and $39 million in 1999. In 2000,
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.
The pro forma amounts are indicated below (in millions, except per share
amounts):
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Net income
As reported $ 3,969 $ 2,177 $ 2,431
Pro forma $ 3,767 $ 1,995 $ 2,271
Basic net income
per share
As reported $ 1.60 $ .88 $ .98
Pro forma $ 1.51 $ .81 $ .92
Diluted net income
per share
As reported $ 1.60 $ .88 $ .98
Pro forma $ 1.51 $ .80 $ .91
================================================================================
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, 2001, 29 million shares were available for grant under the
Restricted Stock Award Plans. In 2001, there were 116,300 shares of restricted
stock granted at an average price of $48.95. In 2000, there were 546,585 shares
of restricted stock granted at an average price of $58.20. In 1999, 32,100
shares of restricted stock were granted at an average price of $53.86. In 2001,
78,700 shares of restricted stock were cancelled at an average price of $48.49.
In 2000, 80,500 shares of restricted stock were cancelled at an average price of
$28.41. In 1999, 1,600 shares of restricted stock were cancelled at an average
price of $86.75. 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 was contingent upon the Company achieving certain
predefined performance targets over the three-year and five-year measurement
Page 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
periods, respectively. Participants were 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 at
the end of five years to certain employees if the Company achieved predefined
performance targets over the respective measurement periods. In May 2001, these
performance based restricted stock awards and promises made to grant shares in
the future were cancelled. New awards, for the same number of shares, with the
exception of the promise made in 2000 to grant 200,000 shares at the end of five
years, were granted. The performance targets of these new awards are aligned
with the Company's current long-term earnings per share growth target of 11 to
12 percent. In 2001, an additional 10,000 shares of three-year and 300,000
shares of five-year performance-based restricted stock were granted with
performance targets aligned with the Company's current long-term earnings per
share growth target of 11 to 12 percent.
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.
The 1999 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, stock options
generally 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 2001, 2000 and 1999, respectively: dividend
yields of 1.6, 1.2 and 1.2 percent; expected volatility of 31.9, 31.7 and 27.1
percent; risk-free interest rates of 5.1, 5.8 and 6.2 percent; and expected
lives of five years for 2001 and 2000 and four years for 1999. The
weighted-average fair value of options granted was $15.09, $19.85 and $15.77 for
the years ended December 31, 2001, 2000 and 1999, respectively.
A summary of stock option activity under all plans is as follows (shares in
millions):
2001 2000 1999
------------------------- -------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding on January 1, 112 $ 51.23 101 $ 46.66 80 $ 42.77
Granted (1) 45 48.11 32 57.35 28 53.53
Exercised (7) 24.30 (12) 26.00 (6) 26.12
Forfeited/Expired (2) (9) 56.74 (9) 57.51 (1) 60.40
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding on December 31, 141 $ 51.16 112 $ 51.23 101 $ 46.66
===================================================================================================================================
Exercisable on December 31, 65 $ 50.83 60 $ 46.57 59 $ 39.40
===================================================================================================================================
Shares available on December 31,
for options that may be granted 25 65 92
===================================================================================================================================
<FN>
(1) No grants were made from the 1991 Option Plan during 2000 or 2001.
(2) Shares Forfeited/Expired relate to the 1991 and 1999 Option Plans.
</FN>
Page 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table summarizes information about stock options at
December 31, 2001 (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
- -----------------------------------------------------------------------------------------------------------------------------
$20.00 to $30.00 7 2.1 years $ 23.44 7 $ 23.44
$30.01 to $40.00 9 3.8 years $ 35.63 9 $ 35.63
$40.01 to $50.00 53 12.9 years $ 48.22 9 $ 48.86
$50.01 to $60.00 59 12.2 years $ 56.30 28 $ 56.54
$60.01 to $86.75 13 6.8 years $ 65.87 12 $ 65.89
- -----------------------------------------------------------------------------------------------------------------------------
$20.00 to $86.75 141 10.9 years $ 51.16 65 $ 50.83
=============================================================================================================================
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 $142 million in 2001, $116
million in 2000 and $108 million in 1999. In addition, in 2000 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
defined benefit plans consists of the following (in millions):
Pension Benefits
------------------------------------------
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Service cost $ 53 $ 54 $ 67
Interest cost 123 119 111
Expected return on
plan assets (125) (132) (119)
Amortization of prior
service cost 8 4 6
Recognized net actuarial
(gain) loss 3 (7) 7
Settlements and curtailments - 1 -
- --------------------------------------------------------------------------------
Net periodic pension cost $ 62 $ 39 $ 72
================================================================================
Other Benefits
------------------------------------------
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Service cost $ 13 $ 12 $ 14
Interest cost 34 29 22
Expected return on
plan assets (1) (1) (1)
Amortization of prior
service cost 2 1 -
Recognized net
actuarial gain - (1) -
- --------------------------------------------------------------------------------
Net periodic cost $ 48 $ 40 $ 35
================================================================================
The following table sets forth the change in benefit obligation for our
benefit plans (in millions):
Pension Benefits Other Benefits
----------------------------- ----------------------------
December 31, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------
Benefit obligation
at beginning
of year $ 1,819 $ 1,670 $ 407 $ 303
Service cost 53 54 13 12
Interest cost 123 119 34 29
Foreign currency
exchange rate
changes (23) (55) - -
Amendments - 57 3 21
Actuarial loss 62 77 96 25
Benefits paid (126) (146) (23) (17)
Business
combinations 10 - - -
Divestitures (12) - - -
Settlements and
curtailments - (67) - 13
Special retirement
benefits - 104 - 20
Other - 6 - 1
- -------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 1,906 $ 1,819 $ 530 $ 407
=================================================================================================
Page 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table sets forth the change in plan assets for our benefit
plans (in millions):
Pension Benefits Other Benefits
----------------------------- --------------------------
December 31, 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------
Fair value of
plan assets
at beginning
of year (1) $ 1,555 $ 1,722 $ 17 $ 29
Actual return on
plan assets (96) 4 - 2
Employer
contribution 130 31 - -
Foreign currency
exchange rate
changes (14) (57) - -
Benefits paid (91) (120) (17) (14)
Business
combinations 9 - - -
Divestitures (4) - - -
Settlements - (38) - -
Other 3 13 - -
- ------------------------------------------------------------------------------------------------
Fair value of
plan assets
at end of year (1) $ 1,492 $ 1,555 $ - $ 17
================================================================================================
<FN>
(1) Pension benefit plan assets primarily consist of listed stocks including
1,621,050 shares of common stock of our Company with a fair value of $76 million
and $99 million as of December 31, 2001 and 2000, respectively.
</FN>
The total projected benefit obligation and fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets were
$687 million and $232 million, respectively, as of December 31, 2001 and $617
million and $194 million, respectively, as of December 31, 2000. The total
accumulated benefit obligation and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan assets were $583
million and $202 million, respectively, as of December 31, 2001 and $480 million
and $152 million, respectively, as of December 31, 2000.
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, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------
Funded status $ (414) $ (264) $ (530) $ (390)
Unrecognized net
asset at transition (5) (6) - -
Unrecognized prior
service cost 73 90 21 23
Unrecognized
net actuarial
(gain) loss 195 (89) 45 (51)
- -------------------------------------------------------------------------------------------------
Net liability
recognized $ (151) $ (269) $ (464) $ (418)
- -------------------------------------------------------------------------------------------------
Prepaid benefit
cost $ 146 $ 39 $ - $ -
Accrued benefit
liability (387) (374) (464) (418)
Accumulated other
comprehensive income 70 43 - -
Intangible asset 20 23 - -
- -------------------------------------------------------------------------------------------------
Net liability
recognized $ (151) $ (269) $ (464) $ (418)
=================================================================================================
The weighted-average assumptions used in computing the preceding information
are as follows:
Pension Benefits
----------------------------------------
December 31, 2001 2000 1999
- ------------------------------------------------------------------------------
Discount rate 6 1/2% 7% 7%
Rate of increase in
compensation levels 4 1/4% 4 1/2% 4 1/2%
Expected long-term
rate of return on
plan assets 8 1/2% 8 1/2% 8 1/2%
Other Benefits
----------------------------------------
December 31, 2001 2000 1999
- ------------------------------------------------------------------------------
Discount rate 7 1/4% 7 1/2% 8%
Rate of increase in
compensation levels 4 1/2% 4 3/4% 5%
Expected long-term
rate of return on
plan assets - 3% 3%
Page 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The rate of increase in per capita costs of covered health care benefits is
assumed to be 9 percent in 2002, decreasing gradually to 5 1/4 percent by the
year 2007.
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, 2001 $ 54 $ (45)
Effect on net periodic
postretirement benefit
cost in 2001 $ 7 $ (6)
NOTE 14: INCOME TAXES
Income before income taxes and cumulative effect of accounting change consists
of the following (in millions):
Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------
United States $ 2,430 $ 1,497 $ 1,504
International 3,240 1,902 2,315
- ------------------------------------------------------------------------------
$ 5,670 $ 3,399 $ 3,819
==============================================================================
Income tax expense (benefit) consists of the following (in millions):
Year Ended United State &
December 31, States Local International Total
- ---------------------------------------------------------------------------
2001
Current $ 552 $ 102 $ 981 $ 1,635
Deferred 70 (15) 1 56
2000
urrent $ 48 $ 16 $ 1,155 $ 1,219
Deferred (9) 46 (34) 3
1999
Current $ 395 $ 67 $ 829 $ 1,291
Deferred 182 11 (96) 97
===========================================================================
We made income tax payments of approximately $1,351 million, $1,327 million
and $1,404 million in 2001, 2000 and 1999, 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 utilized 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, 2001 2000 1999
- --------------------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes-net of
federal benefit 1.0 .8 1.0
Earnings in jurisdictions taxed
at rates different from the
statutory U.S. federal rate (4.9) (4.0) (6.0)
Equity income or loss (1) (.9) 2.9 1.6
Other operating charges (2) - 1.9 5.3
Other-net (.4) (.6) (.6)
- --------------------------------------------------------------------------------
29.8% 36.0% 36.3%
================================================================================
<FN>
(1) Includes charges by equity investees for 2000 and 1999. See Note 15.
(2) Includes charges related to certain bottling, manufacturing and intangible
assets for 2000 and 1999. 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 2000 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
Page 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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 percent.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $5.9 billion at December 31, 2001. Those earnings are considered
to be indefinitely reinvested and, accordingly, no U.S. federal and state income
taxes have been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation; however,
unrecognized foreign tax credits would be available to reduce a substantial
portion of the U.S. liability.
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, 2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Benefit plans $ 377 $ 261
Liabilities and reserves 489 456
Net operating loss carryforwards 286 375
Other operating charges 169 321
Other 232 126
- --------------------------------------------------------------------------------
Gross deferred tax assets 1,553 1,539
Valuation allowance (563) (641)
- --------------------------------------------------------------------------------
$ 990 $ 898
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 391 $ 425
Equity investments 196 228
Intangible assets 248 224
Other 185 129
- --------------------------------------------------------------------------------
$ 1,020 $ 1,006
================================================================================
Net deferred tax asset (liability)(1) $ ( 30) $ (108)
================================================================================
<FN>
(1) Deferred tax assets of $412 million and $250 million have been included in
the consolidated balance sheet caption "Other assets" at December 31, 2001 and
2000, respectively.
</FN>
On December 31, 2001 and 2000, we had approximately $240 million and $143
million, respectively, of net deferred tax assets, located in countries outside
the United States.
On December 31, 2001, we had $1,229 million of tax operating loss
carryforwards available to reduce future taxable income of certain international
subsidiaries. Loss carryforwards of $440 million must be utilized within the
next five years; $789 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 July 2000, we recorded a tax-free non-cash gain of approximately $118
million related to the merger of Coca-Cola Beverages and Hellenic Bottling
Company S.A. For specific transaction details refer to Note 2.
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. In 2001, our Company paid out substantially all of this 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
Page 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
investment in the Philippines. In addition, Panamerican Beverages, Inc. 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 Coca-Cola Erfrischungsgetraenke AG (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.
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 strategy, management intended to
sell the assets of our vending operations in Japan and our bottling operations
in the Baltics. 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 $12 million, respectively. On December 22, 2000, the Company signed a
definitive agreement to sell the assets of our vending operations in Japan and
this sale was completed in 2001. The proceeds from the sale of the assets were
approximately equal to the carrying value of the long-lived assets less the cost
to sell.
In December 2000, the Company announced that it had intended to sell its
bottling operations in the Baltics to one of our strategic business partners.
However, the partner was in the process of internal restructuring and no longer
planned to purchase the Baltics bottling operations. At that time another
suitable buyer was not identified so the Company continued to operate the
Baltics bottlers as consolidated operations until a new buyer was identified.
Subsequently, in January 2002, our Company reached an agreement to sell our
bottling operations in the Baltics to CCHBC in early 2002. The expected proceeds
from the sale of the Baltics bottlers are approximately equal to the current
carrying value of the investment.
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, Eurasia and Middle East, Latin America
and Corporate segments. These charges were incurred during the fourth quarter of
1999.
NOTE 16: REALIGNMENT COSTS
In January 2000, our Company initiated a major organizational realignment (the
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 were 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.
Page 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The table below summarizes the balance of accrued Realignment expenses and
the movement in that accrual as of and for the years ended December 31, 2001 and
2000 (in millions):
2000 Accrued 2001 Accrued
Non-cash Balance Non-cash Balance
2000 2000 and December 31, 2001 and December 31,
REALIGNMENT SUMMARY Expenses Payments Exchange 2000 Payments Exchange 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Employees involuntarily separated
Severance pay and benefits $ 216 $ (123) $ (2) $ 91 $ (66) $ (8) $ 17
Outside services-legal,
outplacement, consulting 33 (25) - 8 (8) - -
Other-including asset
write-downs 81 (37) (7) 37 (33) (4) -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 330 $ (185) $ (9) $ 136 $ (107) $ (12) $ 17
- ------------------------------------------------------------------------------------------------------------------------------------
Employees voluntarily separated
Special retirement pay
and benefits $ 353 $ (174) $ - $ 179 $ (26) $ (12) $ 141
Outside services-legal,
outplacement, consulting 6 (3) - 3 (3) - -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 359 $ (177) $ - $ 182 $ (29) $ (12) $ 141
- ------------------------------------------------------------------------------------------------------------------------------------
Other direct costs $ 161 $ (92) $ (9) $ 60 $ (26) $ (11) $ 23
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REALIGNMENT $ 850 $ (454) $ (18) $ 378(1) $ (162) $ (35) $ 181 (1)
====================================================================================================================================
<FN>
(1) As of December 31, 2001 and 2000, $59 million and $254 million,
respectively, were included in the consolidated balance sheet caption "Accounts
payable and accrued expenses." As of December 31, 2001 and 2000, $122 million
and $124 million, respectively, were included in the consolidated balance sheet
caption "Other liabilities."
</FN>
NOTE 17: ACQUISITIONS AND INVESTMENTS
During 2001, our Company's acquisition and investment activity totaled
approximately $651 million. In February 2001, our Company reached an agreement
with Carlsberg for the dissolution of CCNB, a joint venture bottler in which our
Company had a 49 percent ownership. At that time, CCNB had bottling operations
in Sweden, Norway, Denmark, Finland and Iceland. Under this agreement with
Carlsberg, our Company acquired CCNB's Sweden and Norway bottling operations in
June 2001, increasing our Company's ownership in those bottlers to 100 percent.
Carlsberg acquired CCNB's Denmark and Finland bottling operations, increasing
Carlsberg's ownership in those bottlers to 100 percent. Pursuant to the
agreement, CCNB sold its Iceland bottling operations to a third-party group of
investors in May 2001.
In March 2001, our Company signed a definitive agreement with La Tondena
Distillers, Inc. (La Tondena) and San Miguel to acquire carbonated soft drink,
water and juice brands for $84 million. CCBPI acquired the related manufacturing
and distribution assets from La Tondena for $63 million.
In July 2001, our Company and San Miguel acquired CCBPI from Coca-Cola
Amatil. Upon the completion of this transaction, our Company owned 35 percent of
the common shares and 100 percent of the Preferred B shares, and San Miguel
owned 65 percent of the common shares of CCBPI. Additionally, as a result of
this transaction, our Company's interest in Coca-Cola Amatil was reduced from
approximately 38 percent to approximately 35 percent.
In December 2001, our Company completed a cash tender offer for all
outstanding shares of common stock of Odwalla, Inc. This acquisition was valued
at approximately $190 million with our Company receiving an ownership interest
of 100 percent.
During the first half of 2001, in separate transactions, our Company
purchased two bottlers in Brazil: Refrescos Guararapes Ltda. and Sucovalle Sucos
e Concentrados do Vale S.A. In separate transactions during the first half of
2000, our Company purchased two other 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, following
the completion of the tender offer, we owned approximately 95 percent of Paresa.
The acquisitions and investments have been accounted for by either the
purchase, equity or cost
Page 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
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 1999, the reported results would not
have been materially affected.
NOTE 18: SUBSEQUENT EVENTS
In 2001, our Company concluded negotiations regarding the terms of a Control and
Profit and Loss (CPL) agreement with certain other share owners of CCEAG, the
largest bottler in Germany, in which the Company has an approximate 41 percent
ownership interest. Under the terms of the CPL agreement, the Company obtained
management control of CCEAG for a period of up to five years. In return for the
management control of CCEAG, the Company guaranteed annual payments in lieu of
dividends by CCEAG to all other CCEAG share owners. Additionally, all other
CCEAG share owners entered into either a put or a put/call option agreement with
the Company, exercisable at the end of the term of the CPL agreement at agreed
prices. In early 2002, the Company assumed control of CCEAG. This transaction
will be accounted for as a business combination. The present value of the total
amount likely to be paid by our Company to all other CCEAG share owners,
including the put or put/call payments and the guaranteed annual payment in lieu
of dividends, is approximately $600 million. In 2001, CCEAG's revenues were
approximately $1.7 billion. Additionally, our Company's debt will increase
between $700 million and $800 million once this business combination is
completed.
In November 2001, our Company and CCBPI entered into a sale and purchase
agreement with RFM Corp. to acquire its 83.2 percent interest in Cosmos Bottling
Corporation (CBC), a publicly traded Philippine beverage company. As of the date
of the agreement, the Company began supplying concentrate for this operation.
The transaction valued CBC at 14 billion Philippine pesos, or approximately $270
million. The purchase of RFM's interest was finalized on January 3, 2002 with
our Company receiving direct and indirect ownership totaling approximately 62.3
percent. A subsequent tender offer was made to the remaining minority share
owners and is expected to close in March 2002.
NOTE 19: OPERATING SEGMENTS
Our Company's operating structure includes the following operating segments:
North America (including The Minute Maid Company); Africa; Europe, Eurasia and
Middle East; Latin America; Asia; and Corporate. North America also includes the
United States, Canada and Puerto Rico.
Effective January 1, 2001, our Company's operating segments were
geographically reconfigured and renamed. Puerto Rico was added to North America
from Latin America. The Middle East Division was added to Europe and Eurasia,
which changed its name to Europe, Eurasia and Middle East. At the same time,
Africa and Middle East, less the relocated Middle East Division, changed its
name to Africa. During the first quarter of 2001, Asia Pacific was renamed Asia.
Prior period amounts have been reclassified to conform to the current period
presentation.
Segment Products and Services
The business of our Company is nonalcoholic ready-to-drink beverages,
principally carbonated 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. 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.
Page 81
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):
Europe,
North Eurasia & Latin
America Africa Middle East America Asia Corporate Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
2001
- ----
Net operating revenues $ 7,526 $ 621 $ 4,492 $ 2,273 $ 5,000 (1) $ 180 $ 20,092
Operating income 1,480 261 1,476 1,094 1,763 (722) 5,352
Interest income 325 325
Interest expense 289 289
Equity income (loss) 2 2 (63) 118 68 25 152
Identifiable operating assets 4,738 293 2,516 1,681 2,121 5,646 (2) 16,995
Investments (3) 140 78 1,732 1,572 1,053 847 5,422
Capital expenditures 339 11 105 37 107 170 769
Depreciation and amortization 249 27 134 90 144 159 803
Income before income taxes
and cumulative effect of
accounting change 1,472 258 1,417 1,279 1,808 (564)(4) 5,670
====================================================================================================================================
2000
- ----
Net operating revenues $ 7,372 $ 608 $ 4,493 $ 2,140 $ 5,127 (1) $ 149 $ 19,889
Operating income (5) 1,409 174 1,300 (6) 908 956 (1,056)(7) 3,691
Interest income 345 345
Interest expense 447 447
Equity income (loss) (8) 3 1 (39) (75) (290) 111 (289)
Identifiable operating assets 4,271 333 1,697 1,545 1,953 5,270 (2) 15,069
Investments (3) 141 85 2,010 1,767 993 769 5,765
Capital expenditures 259 8 197 16 132 121 733
Depreciation and amortization 244 32 86 96 211 104 773
Income before income taxes 1,413 161 1,379 (9) 859 651 (1,064) 3,399
====================================================================================================================================
1999
- ----
Net operating revenues $ 7,086 $ 662 $ 4,670 $ 1,932 $ 4,769 (1) $ 165 $ 19,284
Operating income (10) 1,447 212 912 829 1,194 (612) 3,982
Interest income 260 260
Interest expense 337 337
Equity income (loss) (5) 1 (103) (5) (37) (35) (184)
Identifiable operating assets 3,591 361 1,935 1,653 2,439 4,852 (2) 14,831
Investments (3) 139 75 2,128 1,833 1,837 780 6,792
Capital expenditures 269 18 222 67 317 176 1,069
Depreciation and amortization 263 27 100 96 184 122 792
Income before income taxes 1,443 199 797 836 1,143 (599) 3,819
====================================================================================================================================
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 74 percent of total Asia operating
segment revenues related to 2001, 75 percent related to 2000 and 79 percent
related to 1999.
(2) Principally marketable securities, finance subsidiary receivables,
trademarks and other intangible assets and fixed assets.
(3) Principally equity investments in bottling companies.
(4) Income before income taxes and cumulative effect of accounting change was
increased by $91 million for Corporate due to a non-cash gain which was
recognized on the issuance of stock by Coca-Cola Enterprises, one of our equity
investees.
(5) Operating income was reduced by $3 million for North America, $397 million
for Asia 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 $132 million for North America, $33 million for Africa, $205
million for Europe, Eurasia & Middle East, $59 million for Latin America, $127
million for Asia and $294 million for Corporate as a result of other operating
charges associated with the Realignment.
(6) Operating income was reduced by $30 million for Europe, Eurasia & Middle
East due to incremental marketing expenses in Central Europe.
(7) 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.
(8) Equity income (loss) was reduced by $35 million for Europe, Eurasia & Middle
East, $124 million for Latin America and $306 million for Asia, as a result of
our Company's portion of nonrecurring charges recorded by equity investees.
(9) Income before income taxes was increased by $118 million for Europe, Eurasia
& Middle East as a result of a gain related to the merger of Coca-Cola Beverages
plc and Hellenic Bottling Company S.A.
(10) Operating income was reduced by $34 million for North America, $3 million
for Africa, $506 million for Europe, Eurasia & Middle East, $35 million for
Latin America, $176 million for Asia and $59 million for Corporate related to
the other operating charges recorded in the fourth quarter of 1999.
</FN>
Europe,
Compound Growth Rates North Eurasia & Latin
Ending 2001 America Africa Middle East America Asia Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 5.5% 4.2% (5.7)% 2.4% 5.7% 1.9%
10 years 6.1% 10.9% 1.9% 7.6% 9.5% 6.0%
====================================================================================================================================
Operating income
5 years 9.4% 14.1% 1.0% 4.9% 6.6% 6.5%
10 years 9.2% 8.2% 4.9% 10.4% 9.4% 8.8%
====================================================================================================================================
Page 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
[pie charts]
NET OPERATING REVENUES BY OPERATING SEGMENT (1)
2001 2000 1999
- ------------------------------------------------------------------------------
North America 38% 37% 37%
Africa 3% 3% 4%
Europe, Eurasia and Middle East 23% 23% 24%
Latin America 11% 11% 10%
Asia 25% 26% 25%
OPERATING INCOME BY OPERATING SEGMENT (1)
2001 2000 1999
- ------------------------------------------------------------------------------
North America 24% 30% 31%
Africa 4% 4% 5%
Europe, Eurasia & Middle East 25% 27% 20%
Latin America 18% 19% 18%
Asia 29% 20% 26%
(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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As discussed in Notes 1 and 9 to the Consolidated Financial Statements, in
2001 the Company changed its method of accounting for derivative instruments and
hedging activities.
/S/ ERNST & YOUNG LLP
Atlanta, Georgia
January 25, 2002
Page 83
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
- ----------------------------------------------------------------------------------------
2001
- ----
Net operating revenues $ 4,479 $ 5,293 $ 5,397 $ 4,923 $ 20,092
Gross profit 3,134 3,714 3,705 3,495 14,048
Net income 863 1,118 1,074 914 3,969
Basic net income per share .35 .45 .43 .37 1.60
Diluted net income per share .35 .45 .43 .37 1.60
========================================================================================
2000
- ----
Net operating revenues $ 4,256 $ 5,487 $ 5,413 $ 4,733 $ 19,889
Gross profit 2,858 3,810 3,677 3,340 13,685
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
========================================================================================
The third quarter of 2001 includes a non-cash gain on the issuance of stock by
one of our equity investees, Coca-Cola Enterprises, of approximately $91 million
($.02 per share after income taxes, basic and diluted).
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
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).
Effective January 1, 2001, our Company adopted the provisions of EITF Issue No.
00-14, "Accounting for Certain Sales Incentives," and EITF Issue No. 00-22,
"Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered in
the Future." Both of these EITF Issues provide additional guidance relating to
the income statement classification of certain sales incentives. The adoption of
these EITF Issues resulted in the Company reducing both net operating revenues
and gross profit by $135 million, $134 million, $130 million and $170 million
for the first quarter, second quarter, third quarter and fourth quarter of 2000,
respectively.
STOCK PRICES
Below is a summary of the New York Stock Exchange Composite high, low and
closing prices of The Coca-Cola Company's stock for each quarter of 2001 and
2000.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
2001
- ----
High $ 62.19 $ 49.35 $ 50.70 $ 50.45
Low 43.76 42.37 43.50 44.01
Close 45.16 45.00 46.85 47.15
================================================================================
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
================================================================================
Page 85
SELECTED FINANCIAL DATA
The Coca-Cola Company and Subsidiaries
Compound
(In millions except per Growth Rates Year Ended December 31,
share data, ratios and ------------------- -------------------------------------------------------------------------------
growth rates) 5 Years 10 Years 2001(2)(3) 2000(3) 1999(3) 1998(3)(4) 1997(3)(4) 1996(3)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ---------------------
Net operating revenues 1.9 % 6.0 % $ 20,092 $ 19,889 $ 19,284 $ 18,357 $ 18,462 $ 18,290
Cost of goods sold (2.2)% 2.7 % 6,044 6,204 6,009 5,562 6,015 6,738
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 4.0 % 7.8 % 14,048 13,685 13,275 12,795 12,447 11,552
Selling, administrative and
general expenses 3.7 % 7.3 % 8,696 8,551 8,480 7,755 7,386 7,252
Other operating charges - 1,443 813 73 60 385
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 6.5 % 8.8 % 5,352 3,691 3,982 4,967 5,001 3,915
Interest income 325 345 260 219 211 238
Interest expense 289 447 337 277 258 286
Equity income (loss) 152 (289) (184) 32 155 211
Other income (deductions)-net 39 99 98 230 583 87
Gains on issuances of stock by
equity investees 91 - - 27 363 431
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 4.3 % 9.1 % 5,670 3,399 3,819 5,198 6,055 4,596
Income taxes 8.9 % 8.3 % 1,691 1,222 1,388 1,665 1,926 1,104
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles 2.6 % 9.4 % $ 3,979 $ 2,177 $ 2,431 $ 3,533 $ 4,129 $ 3,492
====================================================================================================================================
Net income 2.6 % 9.4 % $ 3,969 $ 2,177 $ 2,431 $ 3,533 $ 4,129 $ 3,492
Preferred stock dividends - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners 2.6 % 9.4 % $ 3,969 $ 2,177 $ 2,431 $ 3,533 $ 4,129 $ 3,492
====================================================================================================================================
Average common shares
outstanding 2,487 2,477 2,469 2,467 2,477 2,494
Average common shares
outstanding assuming dilution 2,487 2,487 2,487 2,496 2,515 2,523
PER COMMON SHARE DATA
- ---------------------
Income from continuing
operations before changes
in accounting principles
-- basic 2.7 % 10.1 % $ 1.60 $ .88 $ .98 $ 1.43 $ 1.67 $ 1.40
Income from continuing
operations before changes
in accounting principles
-- diluted 3.0 % 10.3 % 1.60 .88 .98 1.42 1.64 1.38
Basic net income 2.7 % 10.1 % 1.60 .88 .98 1.43 1.67 1.40
Diluted net income 3.0 % 10.3 % 1.60 .88 .98 1.42 1.64 1.38
Cash dividends 7.6 % 11.6 % .72 .68 .64 .60 .56 .50
Market price on December 31, (2.2)% 8.9 % 47.15 60.94 58.25 67.00 66.69 52.63
TOTAL MARKET VALUE OF
COMMON STOCK (1) (2.1)% 8.2 % $ 117,226 $ 151,421 $ 143,969 $ 165,190 $ 164,766 $ 130,575
- ---------------------
BALANCE SHEET AND OTHER DATA
- ----------------------------
Cash, cash equivalents and
current marketable securities $ 1,934 $ 1,892 $ 1,812 $ 1,807 $ 1,843 $ 1,658
Property, plant and equipment-net 4,453 4,168 4,267 3,669 3,743 3,550
Depreciation 502 465 438 381 384 442
Capital expenditures 769 733 1,069 863 1,093 990
Total assets 22,417 20,834 21,623 19,145 16,881 16,112
Long-term debt 1,219 835 854 687 801 1,116
Total debt 5,118 5,651 6,227 5,149 3,875 4,513
Share-owners' equity 11,366 9,316 9,513 8,403 7,274 6,125
Total capital (1) 16,484 14,967 15,740 13,552 11,149 10,638
OTHER KEY FINANCIAL MEASURES (1)
- ----------------------------
Total debt-to-total capital 31.0% 37.8% 39.6% 38.0% 34.8% 42.4%
Net debt-to-net capital 22.6% 29.4% 32.2% 28.1% 22.0% 31.6%
Return on common equity 38.5% 23.1% 27.1% 45.1% 61.6% 60.8%
Return on capital 26.6% 16.2% 18.2% 30.2% 39.5% 36.8%
Dividend payout ratio 45.1% 77.4% 65.0% 41.9% 33.6% 35.7%
Free cash flow (9) $ 3,147 $ 2,806 $ 2,332 $ 1,876 $ 2,951 $ 2,215
Economic profit $ 2,466 $ 861 $ 1,128 $ 2,480 $ 3,325 $ 2,718
====================================================================================================================================
<FN>
(1) See Glossary on inside back cover.
(2) In 2001, we adopted SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities."
(3) In 2001, we adopted EITF Issue No. 00-14 "Accounting for Certain Sales
Incentives" and EITF Issue No. 00-22 "Accounting for 'Points' and Certain Other
Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products
or Services to be Delivered in the Future." All prior years were reclassified to
conform to the current year presentation.
(4) In 1998, we adopted SFAS No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits."
</FN>
Page 86
SELECTED FINANCIAL DATA
The Coca-Cola Company and Subsidiaries
(In millions except per Year Ended December 31,
share data, ratios and ---------------------------------------------------------------------------------------------
growth rates) 1995(3)(4) 1994(3)(4)(5) 1993(3)(4)(6) 1992(3)(4)(7)(8) 1991(3)(4)(8)
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ---------------------
Net operating revenues $ 17,753 $ 15,845 $ 13,637 $ 12,769 $ 11,272
Cost of goods sold 6,940 6,168 5,160 5,055 4,649
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 10,813 9,677 8,477 7,714 6,623
Selling, administrative and
general expenses 6,701 6,040 5,328 4,967 4,301
Other operating charges 86 - 50 - 13
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 4,026 3,637 3,099 2,747 2,309
Interest income 245 181 144 164 175
Interest expense 272 199 168 171 192
Equity income (loss) 169 134 91 65 40
Other income (deductions)-net 86 (25) 7 (59) 51
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
Income taxes 1,342 1,174 997 863 765
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles $ 2,986 $ 2,554 $ 2,188 $ 1,883 $ 1,618
===============================================================================================================================
Net income $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,618
Preferred stock dividends - - - - 1
- -------------------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,617
===============================================================================================================================
Average common shares
outstanding 2,525 2,580 2,603 2,634 2,666
Average common shares
outstanding assuming dilution 2,549 2,599 2,626 2,668 2,695
PER COMMON SHARE DATA
- ---------------------
Income from continuing
operations before changes
in accounting principles
-- basic $ 1.18 $ .99 $ .84 $ .72 $ .61
Income from continuing
operations before changes
in accounting principles
-- diluted 1.17 .98 .83 .71 .60
Basic net income 1.18 .99 .84 .63 .61
Diluted net income 1.17 .98 .83 .62 .60
Cash dividends .44 .39 .34 .28 .24
Market price on December 31, 37.13 25.75 22.31 20.94 20.06
TOTAL MARKET VALUE OF
COMMON STOCK (1) $ 92,983 $ 65,711 $ 57,905 $ 54,728 $ 53,325
- ---------------------
BALANCE SHEET AND OTHER DATA
- ----------------------------
Cash, cash equivalents and
current marketable securities $ 1,315 $ 1,531 $ 1,078 $ 1,063 $ 1,117
Property, plant and equipment-net 4,336 4,080 3,729 3,526 2,890
Depreciation 421 382 333 310 254
Capital expenditures 937 878 800 1,083 792
Total assets 15,004 13,863 11,998 11,040 10,185
Long-term debt 1,141 1,426 1,428 1,120 985
Total debt 4,064 3,509 3,100 3,207 2,288
Share-owners' equity 5,369 5,228 4,570 3,881 4,236
Total capital (1) 9,433 8,737 7,670 7,088 6,524
OTHER KEY FINANCIAL MEASURES (1)
- ----------------------------
Total debt-to-total capital 43.1% 40.2% 40.4% 45.2% 35.1%
Net debt-to-net capital 32.3% 25.5% 29.0% 33.1% 24.2%
Return on common equity 56.4% 52.1% 51.8% 46.4% 41.3%
Return on capital 34.9% 32.8% 31.2% 29.4% 27.5%
Dividend payout ratio 37.2% 39.4% 40.6% 44.3% 39.5%
Free cash flow (9) $ 2,460 $ 2,356 $ 1,857 $ 875 $ 881
Economic profit $ 2,291 $ 1,896 $ 1,549 $ 1,300 $ 1,073
================================================================================================================================
<FN>
(5) In 1994, we adopted SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities."
(6) In 1993, we adopted SFAS No. 112 "Employers' Accounting for Postemployment
Benefits."
(7) In 1992, we adopted SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
(8) In 1992, we adopted SFAS No. 109 "Accounting for Income Taxes," by restating
financial statements beginning in 1989.
(9) All years presented have been restated to exclude net cash flows related to
acquisitions.
</FN>
Page 87
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: 371,794
Shares outstanding at year end: 2.49 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 2002 meeting, our Board increased our quarterly dividend to 20
cents per share, equivalent to an annual dividend of 80 cents per share. The
Company has increased dividends each of the last 40 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 323 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
EquiServe Trust Company, N.A.
P.O. Box 2500
Jersey City, NJ 07303-2500
Toll-free: (888) COKESHR (265-3747)
For hearing impaired: (201) 222-4955
E-mail: 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, 76 percent of the Company's share owners of record were
participants in the Plan. In 2001, share owners invested $36 million in
dividends and $31 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 EquiServe Trust Company, N.A., electronically
through the Direct Registration System.
For more details on the Dividend and Cash Investment Plan, please contact the
Plan Administrator, EquiServe, 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 17, 2002, 9:30 a.m., local time
The Theater at Madison Square Garden
Seventh Avenue between W. 31st and W. 33rd Streets
New York, New York
CORPORATE OFFICES
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
INSTITUTIONAL INVESTOR INQUIRIES
(404) 676-5766
INFORMATION RESOURCES
Internet
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 and 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 EquiServe at (888) COKESHR (265-3747).
Page 90
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.
CARBONATED SOFT DRINK: nonalcoholic carbonated beverage containing flavorings
and sweeteners. Excludes waters and flavored waters, juices and juice-based
beverages, sports drinks, and teas and coffees.
THE COCA-COLA SYSTEM: The Company and its bottling partners.
COMPANY: The Coca-Cola Company together with its subsidiaries.
CONCENTRATE OR BEVERAGE BASE: material manufactured from Company-defined
ingredients and sold to bottlers to prepare finished beverages marketed under
trademarks of the Company through the addition of sweeteners 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 drinks 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.
GALLONS: unit of measurement for concentrates, syrups and other beverage
products (expressed in equivalent gallons of syrup) included by the Company in
unit-case volume.
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.
NONCARBONATED BEVERAGES: nonalcoholic noncarbonated beverages including, without
limitation, waters and flavored waters, juices and juice-based beverages, sports
drinks, and teas and coffees.
OPERATING MARGIN: calculated by dividing operating income by net operating
revenues.
PER CAPITA CONSUMPTION: average number of eight-U.S.-fluid-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.
SYRUP: concentrate mixed with sweetener and water, sold to bottlers and
customers who add carbonated water to produce finished carbonated 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 eight-U.S.-fluid-ounce servings.
UNIT CASE VOLUME, OR VOLUME: the number of unit cases (or unit case equivalents)
of Company trademark or licensed beverage products directly or indirectly sold
by the Coca-Cola bottling system or by the Company to customers. Includes (i)
beverage products bearing trademarks licensed to the Company and (ii) certain
key products owned by Coca-Cola system 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 38,000 employees as of December 31, 2001. 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, status as a special disabled veteran, a veteran
of the Vietnam era, or other covered veteran. The Company also makes 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.