EXHIBIT 13.1
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
We exist for one reason: to maximize share-owner value over time. To
accomplish this mission, The Coca-Cola Company and its subsidiaries
(our Company) have developed a comprehensive business strategy focused
on four key objectives: (1) increasing volume, (2) expanding share of
worldwide beverage sales, (3) maximizing long-term cash flows, and (4)
improving economic profit and creating economic value added. We
achieve these objectives by investing aggressively in the high-return
beverages business and by optimizing our cost of capital through
appropriate financial policies.
INVESTMENTS
With a global business system that operates in nearly 200 countries
and generates superior cash flows, our Company is uniquely positioned
to capitalize on profitable new investment opportunities. Our
criterion for investment is simple but strict: We seek to invest in
opportunities that strategically enhance our existing operations and
offer cash returns that exceed the Company's long-term after-tax
weighted average cost of capital, estimated by management to be
approximately 11 percent.
Because it consistently generates high returns on capital, our
beverages business is a particularly attractive area for investment.
In new and emerging markets, where increasing the penetration of our
products is our primary goal, the bulk of our investments is dedicated
to infrastructure enhancements: facilities, distribution networks,
sales equipment and technology. These investments are made by
acquiring or forming strategic business alliances with local bottlers,
and by matching local expertise with our Company's experience and
focus. In highly developed beverage markets, where our primary goals
include increasing consumer awareness and broadening the appeal of our
products, the bulk of our expenditures is dedicated to marketing
activities, such as creating new products and serving sizes, and
improving the efficiency of production and distribution.
Currently, 60 percent of the world's population live in markets
where the average person consumes less than 10 servings of our
products per year, offering high-potential growth opportunities for
our Company and its bottlers. In fact, the emerging markets of China,
India, Indonesia and Russia represent approximately 44 percent of the
world's population, but, on a combined basis, their average per capita
consumption of our products is approximately 1 percent of the United
States level. As a result, we will continue aggressively investing to
ensure that our products are pervasive, preferred and offer the best
price relative to value.
Our investment strategy focuses primarily on capital expenditures,
bottling operations and marketing activities.
CAPITAL EXPENDITURES
Capital expenditures on property, plant and equipment and the
percentage distribution by geographic area for 1995, 1994 and 1993 are
as follows (dollars in millions):
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------
Capital expenditures $ 937 $ 878 $ 800
- --------------------------------------------------------------------
United States 33% 32% 23%
Africa 2% 3% 1%
Greater Europe 45% 42% 51%
Latin America 10% 16% 19%
Middle & Far East
and Canada 10% 7% 6%
====================================================================
BOTTLING OPERATIONS
We invest heavily in bottling operations to maximize the strength and
efficiency of our production, distribution and marketing systems
around the world. These aggressive investments result in increases in
unit case volume, net revenues and profits at the bottler level, which
in turn generate increased gallon shipments for the Company's
concentrate business. As a result, both the Company and our bottlers
benefit from long-term growth in volume, cash flows and share-owner
value.
We designate certain bottling operations in which we have invested
as anchor bottlers due to their level of responsibility and
performance. Anchor bottlers, which include Coca-Cola Amatil Limited
(Coca-Cola Amatil) and Coca-Cola Enterprises Inc. (Coca-Cola
Enterprises), are strongly committed to the strategic goals of the
Company and to furthering the interests of our worldwide production,
distribution and marketing systems. They tend to be large and
geographically diverse, and have strong financial and management
resources.
In addition to our anchor bottlers, we will continue making
investments in bottling operations of new and emerging markets and in
existing bottling operations that require restructuring or rebuilding.
Our investments in a bottler can represent either a noncontrolling or
a controlling interest, depending on the bottler's capital structure
and its available resources at the time of our investment.
Through noncontrolling investments in bottling companies, we provide
expertise and resources to strengthen those businesses. Specifically, we help
improve sales and marketing programs, assist in the development of effective
business and information systems and help establish appropriate capital
41
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
structures. In 1995, we increased our economic interest in Panamerican
Beverages, Inc. (Panamerican Beverages) from 7 to 13 percent and
designated it as an anchor bottler. Panamerican Beverages owns
bottling operations in Mexico, Brazil, Colombia and Costa Rica. Also
in 1995, we contributed assets to a new joint venture, Coca-Cola Sabco
(Proprietary) Limited (Coca-Cola Sabco), also an anchor bottler, in
return for a 16 percent economic interest and notes receivable.
Coca-Cola Sabco will strengthen our distribution system in south and
east Africa. During 1994, we formed a joint venture known as the
Coca-Cola Bottling Companies of Egypt following the privatization of
the Egyptian public sector bottler. In 1993, our Company purchased a
30 percent economic interest in another anchor bottler, Coca-Cola
FEMSA, S.A. de C.V. (Coca-Cola FEMSA), to assist in further
strengthening strategic bottling territories in Latin America.
The following table illustrates the excess of the calculated fair
values, based on quoted closing prices of publicly traded shares, over
our Company's carrying values for selected equity method investees (in
millions):
Carrying Fair
December 31, Value Value Excess
- ----------------------------------------------------------------------
1995
Coca-Cola Amatil Limited $682 $1,579 $ 897
Coca-Cola Enterprises Inc. 556 1,513 957
Coca-Cola FEMSA, S.A. de C.V. 86 264 178
Coca-Cola Beverages Ltd. 11 123 112
Coca-Cola Bottling Co. Consolidated 84 97 13
- ----------------------------------------------------------------------
$2,157
======================================================================
Equity income, primarily from investments in unconsolidated
bottling investments, reached $169 million in 1995.
In certain situations, it is advantageous to acquire a controlling
interest in bottling operations. Although not our primary long-term
business strategy, owning a controlling interest allows us to
compensate for limited local resources or facilitate improvements in
customer relationships while building or restructuring the bottling
operations. While bottling businesses typically generate lower margins
on revenue than our concentrate business, they can increase revenues
and operating profits on a per-gallon basis. In 1995, we acquired
controlling interests in certain bottling operations in Italy and
Venezuela. By providing capital and marketing expertise to these newly
acquired bottlers, we intend to strengthen our bottling territories
and market positions in those countries.
In line with our long-term bottling strategy, we will consider
options for reducing our ownership interest in a consolidated bottler.
One such option is to sell our interest in a consolidated bottling
operation to one of our equity investee bottlers. In these situations,
we continue participating in the previously consolidated bottler's
earnings through our portion of the equity investee's income.
Currently, we are holding preliminary discussions to sell our
bottling and canning operations located in Belgium and France to
Coca-Cola Enterprises. During 1995, we sold our controlling interests
in certain bottling operations in Poland, Croatia and Romania to
Coca-Cola Amatil. In 1994, our Company sold a controlling 51 percent
interest in the previously wholly owned bottler in Argentina,
Coca-Cola S.A. Industrial, Comercial y Financiera, to Coca-Cola FEMSA.
In 1995, consolidated bottling and fountain operations produced
and distributed approximately 16 percent of our worldwide unit case
volume. Bottlers in which we own a noncontrolling interest produced
and distributed an additional 36 percent of our worldwide unit case
volume.
MARKETING ACTIVITIES
In addition to investments in bottling and distribution infrastructure,
we also make significant expenditures in support of our trademarks.
Through prudent expenditures on marketing activities, we enhance global
consumer awareness of our products. Enhancing consumer awareness builds
consumer preference for our products, which produces growth in volume,
per capita consumption of our products and our share of worldwide
beverage sales.
We build consumer awareness and product appeal for our trademarks
using integrated marketing programs. These programs include activities
such as advertising, point of sale merchandising and product sampling.
Each of these activities contributes to building consumer awareness
and product preference.
Through our bottling investments and strategic alliances with
other bottlers of Company products, we are able to develop and
implement integrated marketing programs on a global basis. In
developing a global strategy for a Company trademark, we perform
product and packaging research, establish brand positioning, develop
precise consumer communications and seek consumer feedback. Examples
of recent successes with our global brand strategies include the
Coca-Cola Classic theme, "Always," and, for Sprite, "Obey Your Thirst."
As part of our ongoing efforts to maximize the impact of our advertising
expenditures, we recently began assigning specific brands to individual
advertising agencies. This approach enables us to enhance each brand's global
42
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
positioning, increase accountability and use the Company's marketing
expenditures more efficiently and effectively.
During 1995, our Company's direct marketing expenses, which
include our expenditures on consumer marketing activities, increased
11 percent to reach $3,834 million.
FINANCIAL STRATEGIES
We use several strategies to optimize our cost of capital, which is a
key component of our ability to maximize share-owner value.
DEBT FINANCING
We maintain debt levels considered prudent based on our cash flow,
interest coverage and percentage of debt to total capital. We use debt
financing to lower our overall cost of capital, which increases our
return on share-owners' equity.
Our capital structure and financial policies have earned long-term
credit ratings of "AA" from Standard & Poor's and "Aa3" from Moody's,
and the highest credit ratings available for our commercial paper
programs.
FINANCIAL RISK MANAGEMENT
We use derivative financial instruments to reduce our exposure to
financial risks.
With approximately 82 percent of our 1995 operating income
generated outside the United States, weakness in one particular
currency is often offset by strengths in others.
Most of our foreign currency exposures are managed on a
consolidated basis, which allows us to net certain exposures and thus
take advantage of any natural offsets. We use forward exchange
contracts to adjust the currency mix of our recorded assets and
liabilities, which further reduces our exposure from adverse
fluctuations in exchange rates. In addition, we enter into forward
exchange and swap contracts and purchase options to hedge both firmly
committed and anticipated transactions, as appropriate, and net
investments in certain international operations.
We use primarily liquid spot, forward, option and swap contracts.
Our Company does not enter into leveraged or structured contracts.
Additionally, we do not enter into derivative financial instruments
for trading purposes. As a matter of policy, all of our derivative
positions are used to hedge underlying economic exposures by
mitigating certain risks such as changes in currency, interest rates
and other market factors on a matched basis. Gains or losses on
hedging transactions are offset by gains or losses on the underlying
exposures being hedged.
SHARE REPURCHASES
In July 1992, our Board of Directors authorized a plan to repurchase
up to 100 million shares of our Company's common stock through the
year 2000. In 1995, we repurchased 29 million shares under this plan
at a total cost of approximately $1.8 billion. As of December 31,
1995, we have repurchased 67 million shares under the July 1992 plan.
Since the inception of our initial share repurchase program in
1984 through our current program as of December 31, 1995, our Company
has repurchased 483 million shares, representing 30 percent of the
shares outstanding as of January 1, 1984, at an average price per
share of $18.21.
DIVIDEND POLICY
Because of our continually strong earnings growth, our Board of
Directors has increased the cash dividend per common share by an
average annual compound growth rate of 13 percent since December 31,
1985. Our annual common stock dividend was $.88 per share, $.78 per
share and $.68 per share in 1995, 1994 and 1993, respectively. At its
February 1996 meeting, our Board of Directors again increased our
quarterly dividend per share to $.25, equivalent to a full-year
dividend of $1.00 in 1996, the 34th consecutive annual increase.
Our 1995 dividend payout ratio was approximately 37 percent of our
net income. It is the intention of our Board of Directors to gradually
reduce our dividend payout ratio to 30 percent over time.
MEASURING PERFORMANCE
Economic profit and economic value added provide a framework for
measuring the impact of value-oriented actions. We define economic
profit as net operating profit after taxes in excess of a computed
capital charge for average operating capital employed. Economic value
added represents the growth in economic profit from year to year.
Recently, we began expanding the use of economic value added as a
performance measurement tool. Both annual incentive awards and long-
term incentive awards for most eligible employees are now determined,
in part, by comparison against economic profit target levels. These
changes in performance measures were made to ensure that our
management team is clearly focused on the key drivers of our business.
We intend to continue expanding the use of economic profit and the
related concept of value creation in measuring performance. We believe
that a clear focus on the components of economic profit, and the
resultant growth in economic value added over time, leads to the
creation of share-owner wealth.
43
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
Over the last 10 years, we have increased our economic profit at
an average annual compound rate of 23 percent, resulting in economic
value added to the Company of $1.9 billion. Over the same period, our
Company's stock price has increased at an average annual compound rate
of 27 percent.
TOTAL RETURN TO SHARE OWNERS
Share owners of our Company have received an excellent return on their
investment over the past decade. A $100 investment in our Company's
common stock on December 31, 1985, together with reinvested dividends,
was worth approximately $1,287 on December 31, 1995, an average annual
compound return of 29 percent.
MANAGEMENT'S DISCUSSION AND ANALYSIS
LINES OF BUSINESS
BEVERAGES
Our beverages business is the largest manufacturer, marketer and
distributor of soft drink and noncarbonated beverage concentrates and
syrups in the world. We manufacture beverage concentrates and syrups,
and in certain instances, finished beverages, which we sell to
bottling and canning operations, authorized fountain wholesalers and
some fountain retailers. In addition, we have substantial ownership
interests in numerous bottling and canning operations.
FOODS
Our foods business produces, markets and distributes principally juice
and juice-drink products. It is the largest marketer of juice and
juice-drink products in the world.
VOLUME
BEVERAGES
We measure beverage volume in two ways: (1) gallon shipments of
concentrates and syrups and (2) equivalent unit cases of finished
product. Gallon shipments represent our primary business, since they
measure the volume of concentrates and syrups we sell to our bottling
system. Most of our revenues are based on this measure of "wholesale"
activity. We also measure volume in unit cases, which represent the
amount of finished product our bottling system sells to retail
customers. We believe unit case volume more accurately measures the
underlying strength of our business system because it measures trends
at the retail level and is less impacted by inventory management
practices at the wholesale level. Fountain syrups sold directly to
our customers are included in both measures simultaneously.
OPERATIONS
NET OPERATING REVENUES AND GROSS MARGIN
In 1995, revenues from our beverages business increased 13 percent,
reflecting an increase in gallon shipments, selective price increases
and continued expansion of our bottling and canning operations.
Revenues from our foods business decreased 7 percent in 1995,
resulting from implementation of a strategy to reduce short-term price
promotions and increase long-term brand-building and marketing
investments.
In 1994, revenues from our beverages business increased 18
percent, primarily due to increased gallon shipments, selective price
increases, continued expansion of our bottling and canning operations
and a weaker U.S. dollar versus key currencies. Revenues for our foods
business increased 3 percent in 1994 as a result of price increases
for orange juice products.
On a consolidated basis, our net revenues grew 11 percent and our
gross profit grew 11 percent in 1995. Our gross margin declined to 61
percent in 1995 from 62 percent in 1994, primarily due to higher costs
for materials such as sweeteners and packaging.
On a consolidated basis, our worldwide net revenues grew 16
percent in 1994, while gross profit grew 14 percent. Our gross margin
contracted to 62 percent in 1994 from 63 percent in 1993, primarily
due to the acquisition of bottling and canning operations, which
typically have lower gross profit to net revenue relationships, but
offer strong cash flows.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $5,399 million in 1995, $4,931 million in 1994
and $4,360 million in 1993. The increases in 1995 and 1994 were
primarily due to higher marketing investments in support of our
Company's volume growth.
Administrative and general expenses were $1,587 million in 1995,
$1,366 million in 1994 and $1,335 million in 1993. The increase in
1995 reflects higher expenses related to stock-based employee benefits
and a nonrecurring provision of $86 million to increase efficiencies
in the Company's operations in the United States and Europe. The
increase in 1994 was due primarily to expansion of our business,
particularly newly formed Company-owned bottling operations.
Administrative and general expenses, as a percentage of net operating
revenues, were approximately 9 percent in 1995, 8 percent in 1994 and
10 percent in 1993.
44
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING INCOME AND OPERATING MARGIN
On a consolidated basis, our operating income grew 10 percent in 1995,
on top of a 20 percent increase in 1994. During 1995, operating income
for our beverages business rose approximately 14 percent primarily as
a result of increased revenues. Our foods business reported a modest
loss of $14 million in 1995, due to its decline in net revenues and a
nonrecurring provision for increasing efficiencies. Our consolidated
operating margin was 23 percent in 1995 and 1994.
MARGIN ANALYSIS
[bar chart]
Year ended December 31, 1993 1994 1995
- ----------------------------------------------------------------------
Net operating revenues
(in billions) $14.0 $16.2 $18.0
Gross margin 63% 62% 61%
Operating margin 22% 23% 23%
======================================================================
Our Company's gross profit and operating income growth are a
result of increasing revenues.
INTEREST INCOME AND INTEREST EXPENSE
In 1995, our interest income increased 35 percent as a result of
higher average interest rates outside of the United States. Interest
expense increased 37 percent in 1995, reflecting higher commercial
paper balances.
Interest income increased 26 percent in 1994, due primarily to
rising interest rates and higher average investments in cash
equivalents and marketable securities. Interest expense increased 18
percent in 1994 as a result of rising interest rates.
EQUITY INCOME
Equity income increased 26 percent to $169 million in 1995, due
primarily to improved results at Coca-Cola FEMSA, Coca-Cola Nestle
Refreshments, Coca-Cola Bottlers Philippines, Inc. and Coca-Cola
Beverages Ltd.
Equity income increased 47 percent to $134 million in 1994,
resulting from increased earnings from Coca-Cola Enterprises and
Coca-Cola & Schweppes Beverages Ltd. and improved results from
Coca-Cola Beverages Ltd.
OTHER INCOME (DEDUCTIONS)-NET
In 1995, other income (deductions)-net increased $124 million, and
includes gains recorded on the sale of bottling operations in Poland,
Croatia and Romania.
In 1994, other income (deductions)-net decreased $102 million,
primarily due to recognition in 1993 of approximately $84 million of
pretax gains on sales of real estate and bottling investments. These
1993 gains include a $50 million pretax gain recognized on the sale of
citrus groves in the United States and a $34 million pretax gain
recognized on the sale of property no longer required as a result of a
consolidation of manufacturing operations in Japan. No transactions
resulting in significant gains occurred in 1994.
GAIN ON ISSUANCE OF STOCK BY COCA-COLA AMATIL
In July 1995, Coca-Cola Amatil completed a public offering in
Australia of approximately 97 million shares of common stock. In
connection with the offering, our ownership in Coca-Cola Amatil was
reduced to approximately 40 percent. We recognized a non-cash pretax
gain of approximately $74 million as a result of this transaction.
In the fourth quarter of 1993, Coca-Cola Amatil purchased a
bottling operation in Indonesia by issuing approximately 8 million
shares of common stock, resulting in a non-cash pretax gain of $12
million for our Company.
INCOME TAXES
Our effective tax rates of 31.0 percent in 1995, 31.5 percent in 1994
and 31.3 percent in 1993 reflect the tax benefit we derive from having
significant operations outside the United States that are taxed at
rates lower than the U.S. statutory rate of 35 percent.
TRANSITION EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). We will adopt the provisions of SFAS 121 on
January 1, 1996. SFAS 121 standardizes the accounting practices for
the recognition and measurement of impairment losses on certain long-
lived assets. We do not expect the adoption of SFAS 121 to have a
material impact on our results of operations or financial position.
However, the provisions of SFAS 121 will require certain charges
historically recorded by our Company in other income (deductions)-net
to be included in operating income.
45
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
We adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115) as of January 1, 1994, resulting in an after-tax increase
to share-owners' equity of $60 million, with no effect on net income.
SFAS 115 changed our method of accounting for certain debt and
marketable equity securities from a historical cost basis to a fair
value approach.
INCOME PER SHARE
Accelerated by our Company's share repurchase program, our net income
per share grew 20 percent and 19 percent in 1995 and 1994, respectively.
Income per share before changes in accounting principles grew 18 percent
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to generate cash from operations in excess of our capital
reinvestment and dividend requirements is one of our chief financial
strengths. We anticipate that our operating activities in 1996 will
continue to provide us with sufficient cash flows to capitalize on
opportunities for business expansion and to meet all of 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 primary objective, maximizing
share-owner value over time. We use free cash flow, along with
borrowings, to pay dividends and make share repurchases. The
consolidated statements of our cash flows are summarized as follows
(in millions):
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
Cash flows provided by
(used in):
Operations $3,115 $3,183 $2,508
Investment activities (1,013) (1,037) (885)
- ----------------------------------------------------------------------
FREE CASH FLOW 2,102 2,146 1,623
Cash flows provided by
(used in):
Financing
Share repurchases (1,796) (1,192) (680)
Other financing activities (482) (600) (860)
Exchange (43) 34 (41)
- ----------------------------------------------------------------------
Increase (decrease) in cash $ (219) $ 388 $ 42
======================================================================
Cash provided by operations amounted to $3.1 billion, a 2 percent
decrease from 1994. This 1995 decrease primarily resulted from
increases in accounts receivable and inventories related to the
increase in our net revenues, and an increase in prepaid expenses and
other assets. In 1994, cash from operations totaled $3.2 billion, a 27
percent increase over 1993, resulting primarily from growth in our net
income before non-cash charges for depreciation and amortization and
increased dividends from equity method investments.
As compared to 1994, net cash used in investment activities
decreased in 1995, primarily attributable to an increase in proceeds
from disposals of investments and other assets. Specifically, during
1995, we sold our interests in the bottling operations of Poland,
Croatia and Romania.
While cash used for acquisitions and investments, principally
bottling companies, declined in 1994, that decline was more than
offset by a reduction in proceeds from disposals of property, plant
and equipment and investments and other assets, resulting in a net
increase in cash used in investment activities in 1994.
The 1995 increase in cost method investments includes an increased
investment in Panamerican Beverages. In 1995, goodwill and other
intangible assets increased in association with our acquisitions
during the year, such as Barq's, Inc. and certain fountain syrup
manufacturing operations. The increase in 1994 in marketable
securities and the carrying value of cost method investments was due,
in part, to our Company's adoption of SFAS 115, which reflects a non-
cash adjustment to fair value. A portion of the 1994 increase was
attributable to an increase in securities held in accordance with a
negotiated income tax exemption grant for the Company's manufacturing
facilities in Puerto Rico. The balance also increased due to deferred
tax assets generated in 1994.
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments and
share repurchases. Net cash used in financing activities totaled $2.3
billion in 1995, $1.8 billion in 1994 and $1.5 billion in 1993. The
change between years was due, in part, to net borrowings of debt in
1995 and 1994, compared to net reductions of debt in 1993. Cash used
to purchase common stock for treasury increased to $1.8 billion in
1995, from $1.2 billion in 1994.
Our global presence and strong capital position afford 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
aggressive 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 program and
investment activity, typically result in current liabilities exceeding
current assets.
46
THE COCA-COLA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW INCORPORATING
MANAGEMENT'S DISCUSSION AND ANALYSIS
We manage our debt levels based on the following financial
measurements and ratios:
Year Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------
Net debt (in billions) $2.2 $1.5 $1.6
Net debt-to-net capital 29% 23% 26%
Free cash flow to net debt 96% 141% 100%
Interest coverage 16x 19x 18x
Ratio of earnings to
fixed charges 14.5x 16.8x 15.7x
==================================================================
Net debt excludes the debt entered into on behalf of the Company's
finance subsidiary, and is net of cash, cash equivalents and
marketable securities in excess of operating requirements and net of
temporary bottling investments.
Commercial paper is our primary source of short-term financing. On
December 31, 1995, we had $3.3 billion in lines of credit and other
short-term credit facilities available, under which $2.4 billion was
outstanding. Included was $2.2 billion outstanding in commercial paper
borrowings. The 1995 and 1994 increases in loans and notes payable
were primarily attributable to additional commercial paper borrowings
resulting from the management of our short-term and long-term debt mix.
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and government actions. We
monitor our operations in each country closely so that we can respond
to changing economic and political environments quickly and decisively,
and take full advantage of changing foreign currencies and interest rates.
We use approximately 48 functional currencies. In 1995, we
expanded the calculation of the impact of weighted average exchange
rates versus the U.S. dollar to include the Mexican and Philippine
pesos and the South African rand. The 1994 and 1993 calculation for
key currencies now reflects this change. In 1995, 1994 and 1993, the
weighted average exchange rates for certain key foreign currencies
strengthened (weakened) against the U.S. dollar as follows:
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
Key currencies Even 2 % (3)%
- ----------------------------------------------------------------------
Australian dollar 1 % 9 % (7)%
British pound 3 % 2 % (15)%
Canadian dollar Even (5)% (8)%
French franc 13 % (1)% (3)%
German mark 13 % 2 % (5)%
Japanese yen 9 % 9 % 15 %
Mexican peso (46)% (8)% (1)%
======================================================================
The change in our foreign currency translation adjustment in 1995
was due primarily to the revaluation of net assets located in
countries where the local currency significantly weakened versus the
U.S. dollar. Exchange losses amounting to $21 million in 1995, $25
million in 1994 and $74 million in 1993 were recorded in other income
(deductions)-net. Exchange losses include the remeasurement of certain
currencies into functional currencies and the costs of hedging certain
transaction and balance sheet exposures.
Additional information concerning our hedging activities is
presented on pages 60 through 61.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation is a factor that impacts the way we operate in many markets
around the world. In general, we are able to increase prices to
counteract the effects of increasing costs and generate sufficient
cash flows to maintain our productive capability.
OUTLOOK
As a global business that generates the majority of its operating
income outside the United States, our Company is uniquely positioned
to benefit from operating in a variety of currencies, as downturns in
any one region are often offset by strengths in others. Additionally,
we have various operational initiatives available to offset the
unfavorable impact of such events.
While we cannot predict future economic events, we believe
continued expansion into the developing population centers of the
world presents further opportunity for growth. The strength of our
brands, our broad global presence and our strong financial condition
allow our Company the flexibility to take advantage of growth
opportunities and to continue increasing share-owner value.
ADDITIONAL INFORMATION
For additional information about our operations, cash flows, liquidity
and capital resources, please refer to the information on pages 50
through 70 of this report. Additional information concerning our
operations in different lines of business and geographic areas is
presented on pages 67 and 68.
47
THE COCA-COLA COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Compound
(In millions except per Growth Rates Year Ended December 31,
share data, ratios and ----------------- -------------------------------------------------------
growth rates) 5 Years 10 Years 1995 1994{2} 1993{3} 1992{4,5} 1991{5}
- ------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net operating revenues 12.0% 11.9% $18,018 $16,181 $13,963 $13,074 $11,572
Cost of goods sold 10.5% 9.1% 6,940 6,168 5,160 5,055 4,649
- ------------------------------------------------------------------------------------------------------
Gross profit 12.9% 14.1% 11,078 10,013 8,803 8,019 6,923
Selling, administrative
and general expenses 11.4% 12.4% 6,986 6,297 5,695 5,249 4,604
- ------------------------------------------------------------------------------------------------------
Operating income 16.0% 17.6% 4,092 3,716 3,108 2,770 2,319
Interest income 245 181 144 164 175
Interest expense 272 199 168 171 192
Equity income 169 134 91 65 40
Other income (deductions)-net 20 (104) (2) (82) 41
Gain on issuance of stock by
equity investees 74 -- 12 -- --
- ------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 16.5% 17.2% 4,328 3,728 3,185 2,746 2,383
Income taxes 16.3% 15.6% 1,342 1,174 997 863 765
- ------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles 16.7% 18.0% $ 2,986 $ 2,554 $ 2,188 $ 1,883 $ 1,618
======================================================================================================
Net income 16.7% 15.3% $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,618
Preferred stock dividends -- -- -- -- 1
- ------------------------------------------------------------------------------------------------------
Net income available to
common share owners 17.0% 15.3% $ 2,986 $ 2,554 $ 2,176 $ 1,664 $ 1,617
======================================================================================================
Average common shares
outstanding 1,262 1,290 1,302 1,317 1,333
PER COMMON SHARE DATA
Income from continuing
operations before changes
in accounting principles 18.4% 20.7% $ 2.37 $ 1.98 $ 1.68 $ 1.43 $ 1.21
Net income 18.4% 17.8% 2.37 1.98 1.67 1.26 1.21
Cash dividends 17.1% 13.4% .88 .78 .68 .56 .48
Market price on December 31 26.1% 26.6% 74.25 51.50 44.63 41.88 40.13
TOTAL MARKET VALUE OF
COMMON STOCK 24.5% 23.9% $92,983 $65,711 $57,905 $54,728 $53,325
BALANCE SHEET 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 15,041 13,873 12,021 11,052 10,189
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 5,392 5,235 4,584 3,888 4,239
Total capital{1} 9,456 8,744 7,684 7,095 6,527
OTHER KEY FINANCIAL
MEASURES{1}
Total debt-to-total capital 43.0% 40.1% 40.3% 45.2% 35.1%
Net debt-to-net capital 28.8% 22.6% 26.2% 31.9% 19.2%
Return on common equity 56.2% 52.0% 51.7% 46.4% 41.3%
Return on capital 34.9% 32.7% 31.2% 29.4% 27.5%
Dividend payout ratio 37.2% 39.4% 40.6% 44.3% 39.5%
Economic profit{6} $ 2,172 $ 1,881 $ 1,488 $ 1,300 $ 1,038
======================================================================================================
{1} See Glossary on page 74.
{2} In 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
{3} In 1993, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
{4} In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."
{5} The Company adopted SFAS No. 109, "Accounting for Income Taxes," in 1992 by restating financial
statements beginning in 1989.
{6} The calculation of economic profit has been simplified and amounts prior to 1995 have been
restated.
48
THE COCA-COLA COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except per Year Ended December 31,
share data, ratios and -------------------------------------------------------------------
growth rates) 1990{5} 1989{5} 1988 1987 1986 1985
- --------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net operating revenues $10,236 $ 8,622 $ 8,065 $ 7,658 $ 6,977 $ 5,879
Cost of goods sold 4,208 3,548 3,429 3,633 3,454 2,909
- --------------------------------------------------------------------------------------------------
Gross profit 6,028 5,074 4,636 4,025 3,523 2,970
Selling, administrative
and general expenses 4,076 3,348 3,038 2,701 2,626 2,163
- --------------------------------------------------------------------------------------------------
Operating income 1,952 1,726 1,598 1,324 897 807
Interest income 170 205 199 232 154 151
Interest expense 231 308 230 297 208 196
Equity income 110 75 92 64 45 52
Other income (deductions)-net 13 66 (33) -- 35 69
Gain on issuance of stock by
equity investees -- -- -- 40 375 --
- --------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 2,014 1,764 1,626 1,363 1,298 883
Income taxes 632 553 537 496 471 314
- --------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles $ 1,382 $ 1,211 $ 1,089 $ 867 $ 827 $ 569
==================================================================================================
Net income $ 1,382 $ 1,537 $ 1,045 $ 916 $ 934 $ 722
Preferred stock dividends 18 21 7 -- -- --
- --------------------------------------------------------------------------------------------------
Net income available to
common share owners $ 1,364 $ 1,516{7} $ 1,038 $ 916 $ 934 $ 722
==================================================================================================
Average common shares
outstanding 1,337 1,384 1,458 1,509 1,547 1,573
PER COMMON SHARE DATA
Income from continuing
operations before changes
in accounting principles $ 1.02 $ .86 $ .74 $ .57 $ .53 $ .36
Net income 1.02 1.10{7} .71 .61 .60 .46
Cash dividends .40 .34 .30 .28 .26 .25
Market price on December 31 23.25 19.31 11.16 9.53 9.44 7.04
TOTAL MARKET VALUE OF
COMMON STOCK $31,073 $26,034 $15,834 $14,198 $14,534 $10,872
BALANCE SHEET DATA
Cash, cash equivalents
and current marketable
securities $ 1,492 $ 1,182 $ 1,231 $ 1,489 $ 895 $ 843
Property, plant and
equipment-net 2,386 2,021 1,759 1,602 1,538 1,483
Depreciation 236 181 167 152 151 130
Capital expenditures 593 462 387 304 346 412
Total assets 9,245 8,249 7,451 8,606 7,675 6,341
Long-term debt 536 549 761 909 996 801
Total debt 2,537 1,980 2,124 2,995 1,848 1,280
Share-owners' equity 3,662 3,299 3,345 3,187 3,479 2,948
Total capital{1} 6,199 5,279 5,469 6,182 5,327 4,228
OTHER KEY FINANCIAL
MEASURES{1}
Total debt-to-total capital 40.9% 37.5% 38.8% 48.4% 34.7% 30.3%
Net debt-to-net capital 23.7% 14.7% 18.9% 15.4% 10.9% 15.6%
Return on common equity 41.4% 39.4% 34.7% 26.0% 25.7% 20.0%
Return on capital 26.8% 26.5% 21.3% 18.3% 20.1% 16.8%
Dividend payout ratio 39.2% 31.0%{7} 42.1% 46.0% 43.1% 53.8%
Economic profit{6} $ 918 $ 817 $ 717 $ 490 $ 331 $ 266
==================================================================================================
{7} Net income available to common share owners in 1989 included after-tax gains of
$604 million ($.44 per common share) from the sales of the Company's equity
interest in Columbia Pictures Entertainment, Inc. and the Company's bottled
water business and the transition effect of $265 million related to the change
in accounting for income taxes. Excluding these nonrecurring items, the dividend
payout ratio in 1989 was 39.9 percent.
49
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
- --------------------------------------------------------------------------
(In millions except share data)
ASSETS
CURRENT
Cash and cash equivalents $ 1,167 $ 1,386
Marketable securities 148 145
- --------------------------------------------------------------------------
1,315 1,531
Trade accounts receivable, less allowances
of $34 in 1995 and $33 in 1994 1,695 1,470
Finance subsidiary receivables 55 55
Inventories 1,117 1,047
Prepaid expenses and other assets 1,268 1,102
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,450 5,205
- --------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 556 524
Coca-Cola Amatil Limited 682 694
Other, principally bottling companies 1,157 1,114
Cost method investments, principally
bottling companies 319 178
Finance subsidiary receivables and investments 351 255
Marketable securities and other assets 1,246 1,163
- --------------------------------------------------------------------------
4,311 3,928
- --------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 233 221
Buildings and improvements 1,944 1,814
Machinery and equipment 4,135 3,776
Containers 345 346
- --------------------------------------------------------------------------
6,657 6,157
Less allowances for depreciation 2,321 2,077
- --------------------------------------------------------------------------
4,336 4,080
- --------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS 944 660
- --------------------------------------------------------------------------
$15,041 $13,873
==========================================================================
See Notes to Consolidated Financial Statements.
50
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
- --------------------------------------------------------------------------
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
CURRENT
Accounts payable and accrued expenses $ 2,894 $ 2,564
Loans and notes payable 2,371 2,048
Current maturities of long-term debt 552 35
Accrued taxes 1,531 1,530
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,348 6,177
- --------------------------------------------------------------------------
LONG-TERM DEBT 1,141 1,426
- --------------------------------------------------------------------------
OTHER LIABILITIES 966 855
- --------------------------------------------------------------------------
DEFERRED INCOME TAXES 194 180
- --------------------------------------------------------------------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 2,800,000,000 shares
Issued: 1,711,839,497 shares in 1995;
1,707,627,955 shares in 1994 428 427
Capital surplus 1,291 1,173
Reinvested earnings 12,882 11,006
Unearned compensation related to
outstanding restricted stock (68) (74)
Foreign currency translation adjustment (424) (272)
Unrealized gain on securities available for sale 82 48
- --------------------------------------------------------------------------
14,191 12,308
Less treasury stock, at cost
(459,540,663 shares in 1995;
431,694,661 shares in 1994) 8,799 7,073
- --------------------------------------------------------------------------
5,392 5,235
- --------------------------------------------------------------------------
$15,041 $13,873
==========================================================================
See Notes to Consolidated Financial Statements.
51
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
(In millions except per share data)
NET OPERATING REVENUES $18,018 $16,181 $13,963
Cost of goods sold 6,940 6,168 5,160
- -----------------------------------------------------------------------------
GROSS PROFIT 11,078 10,013 8,803
Selling, administrative and general expenses 6,986 6,297 5,695
- -----------------------------------------------------------------------------
OPERATING INCOME 4,092 3,716 3,108
Interest income 245 181 144
Interest expense 272 199 168
Equity income 169 134 91
Other income (deductions)-net 20 (104) (2)
Gain on issuance of stock by Coca-Cola Amatil 74 -- 12
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CHANGE IN ACCOUNTING PRINCIPLE 4,328 3,728 3,185
Income taxes 1,342 1,174 997
- -----------------------------------------------------------------------------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE 2,986 2,554 2,188
Transition effect of change in accounting for
postemployment benefits -- -- (12)
- -----------------------------------------------------------------------------
NET INCOME $ 2,986 $ 2,554 $ 2,176
=============================================================================
INCOME PER SHARE
Before change in accounting principle $ 2.37 $ 1.98 $ 1.68
Transition effect of change in
accounting for postemployment benefits -- -- (.01)
- -----------------------------------------------------------------------------
NET INCOME PER SHARE $ 2.37 $ 1.98 $ 1.67
=============================================================================
AVERAGE SHARES OUTSTANDING 1,262 1,290 1,302
=============================================================================
See Notes to Consolidated Financial Statements.
52
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------
(In millions)
OPERATING ACTIVITIES
Net income $2,986 $2,554 $2,176
Transition effect of change in accounting principle -- -- 12
Depreciation and amortization 454 411 360
Deferred income taxes 157 58 (62)
Equity income, net of dividends (25) (4) (35)
Foreign currency adjustments (23) (6) 9
Gains on sales of assets -- -- (84)
Other noncash items (29) 41 78
Net change in operating assets and liabilities (405) 129 54
- -------------------------------------------------------------------------------------
Net cash provided by operating activities 3,115 3,183 2,508
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to finance subsidiary receivables (144) (94) (177)
Collections of finance subsidiary receivables 46 50 44
Acquisitions and investments, principally
bottling companies (338) (311) (611)
Purchases of securities (190) (201) (245)
Proceeds from disposals of investments and other assets 580 299 690
Purchases of property, plant and equipment (937) (878) (800)
Proceeds from disposals of property, plant and equipment 44 109 312
Other investing activities (74) (11) (98)
- -------------------------------------------------------------------------------------
Net cash used in investing activities (1,013) (1,037) (885)
- -------------------------------------------------------------------------------------
Net cash provided by operations after reinvestment 2,102 2,146 1,623
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuances of debt 754 491 445
Payments of debt (212) (154) (567)
Issuances of stock 86 69 145
Purchases of stock for treasury (1,796) (1,192) (680)
Dividends (1,110) (1,006) (883)
- -------------------------------------------------------------------------------------
Net cash used in financing activities (2,278) (1,792) (1,540)
- -------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (43) 34 (41)
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year (219) 388 42
Balance at beginning of year 1,386 998 956
- -------------------------------------------------------------------------------------
Balance at end of year $1,167 $1,386 $ 998
=====================================================================================
See Notes to Consolidated Financial Statements.
53
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY
Number of
Common Outstanding Foreign Unrealized
Three Years Ended Shares Common Capital Reinvested Restricted Currency Gain on Treasury
December 31, 1995 Outstanding Stock Surplus Earnings Stock Translation Securities Stock
- ----------------------------------------------------------------------------------------------------------------------
(In millions except |
per share data) |
|
BALANCE DECEMBER 31, 1992 1,307 | $424 $ 871 $ 8,165 $(100) $(271) $-- $(5,201)
Stock issued to employees |
exercising stock options 7 | 2 143 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 66 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $19 -- | -- 6 -- 15 -- -- --
Translation adjustments -- | -- -- -- -- (149) -- --
Purchases of stock for |
treasury (17){1}| -- -- -- -- -- -- (680)
Net income -- | -- -- 2,176 -- -- -- --
Dividends (per share-$.68) -- | -- -- (883) -- -- -- --
- -----------------------------------------|----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1993 1,297 | 426 1,086 9,458 (85) (420) -- (5,881)
Transition effect of change |
in accounting for certain |
debt and marketable equity |
securities, net |
of deferred taxes -- | -- -- -- -- -- 60 --
Stock issued to employees |
exercising stock options 4 | 1 68 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 17 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $13 -- | -- 2 -- 11 -- -- --
Translation adjustments -- | -- -- -- -- 148 -- --
Net change in unrealized |
gain on securities, |
net of deferred taxes -- | -- -- -- -- -- (12) --
Purchases of stock for |
treasury (25){1}| -- -- -- -- -- -- (1,192)
Net income -- | -- -- 2,554 -- -- -- --
Dividends (per share-$.78) -- | -- -- (1,006) -- -- -- --
- -----------------------------------------|----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 1,276 | 427 1,173 11,006 (74) (272) 48 (7,073)
Stock issued to employees |
exercising stock options 4 | 1 85 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 26 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $12 -- | -- 7 -- 6 -- -- --
Translation adjustments -- | -- -- -- -- (152) -- --
Net change in unrealized |
gain on securities, |
net of deferred taxes -- | -- -- -- -- -- 34 --
Purchases of stock for |
treasury (29){1}| -- -- -- -- -- -- (1,796)
Treasury stock issued |
in connection with |
an acquisition 1 | -- -- -- -- -- -- 70
Net income -- | -- -- 2,986 -- -- -- --
Dividends (per share-$.88) -- | -- -- (1,110) -- -- -- --
- -----------------------------------------|-----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 1,252 | $428 $1,291 $12,882 $ (68) $(424) $82 $(8,799)
======================================================================================================================
{1} Common stock purchased from employees exercising stock options amounted to 280 thousand, 208
thousand and 2.7 million shares for the years ending December 31, 1995, 1994 and 1993, respectively.
See Notes to Consolidated Financial Statements.
54
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The significant accounting policies and practices followed by The
Coca-Cola Company and subsidiaries (the Company) are as follows:
ORGANIZATION
The Company is predominantly a manufacturer, marketer and distributor
of soft drink and noncarbonated beverage concentrates and syrups.
Operating in nearly 200 countries worldwide, the Company primarily
sells its concentrates and syrups to bottling and canning operations,
fountain wholesalers and fountain retailers. The Company has
significant markets for its products in all of the world's geographic
regions.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all subsidiaries except where control is temporary or does
not rest with the Company. The Company's investments in companies in
which it has the ability to exercise significant influence over
operating and financial policies are accounted for by the equity
method. Accordingly, the Company's share of the net earnings of these
companies is included in consolidated net income. The Company's
investments in other companies are carried at cost or fair value, as
appropriate. All significant intercompany accounts and transactions
are eliminated.
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
ADVERTISING COSTS
The Company generally 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 $1,333 million in 1995, $1,142 million in 1994
and $1,002 million in 1993. As of December 31, 1995 and 1994, advertising
costs of approximately $299 million and $259 million, respectively, were
recorded primarily in prepaid expenses and other assets in the accompanying
balance sheets.
NET INCOME PER SHARE
Net income per share is computed by dividing net income by the
weighted average number of shares outstanding.
On December 21, 1995, the Board of Directors authorized a two-for-
one stock split. The stock split is subject to share-owner approval in
April 1996. If approved, the stock split will be payable to share
owners of record on May 1, 1996. These financial statements have not
been restated to reflect the proposed stock split.
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 are valued at the lower of cost or market. In general,
cost is determined on the basis of average cost or first-in, first-out
methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
principally by the straight-line method over the estimated useful
lives of the assets.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are stated on the basis of cost
and are amortized, principally on a straight-line basis, over the
estimated future periods to be benefited (not exceeding 40 years).
Goodwill and other intangible assets are periodically reviewed for
impairment based on an assessment of future operations to ensure that
they are appropriately valued. Accumulated amortization was
approximately $117 million and $77 million on December 31, 1995 and
1994, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based
on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
CHANGES IN ACCOUNTING PRINCIPLES
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). The Company's required adoption date is
January 1, 1996. SFAS 121 standardizes the accounting practices for
the recognition and measurement of impairment losses on certain long-
lived assets. The Company anticipates the adoption of SFAS 121 will
not have a material impact on its results of operations or financial
position. However, the provisions of SFAS 121 will require certain
charges historically recorded by the Company in other income
(deductions)-net to be included in operating income.
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115), was
adopted as of January 1, 1994.
55
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS 115 requires that the carrying value of certain investments be
adjusted to their fair value. Upon adoption of SFAS 115, the Company
recorded an increase to share-owners' equity of $60 million, which is
net of deferred income taxes of $44 million.
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112), was adopted as of
January 1, 1993. SFAS 112 requires employers to accrue the costs of
benefits to former or inactive employees after employment, but before
retirement. Upon adoption, the Company recorded an accumulated
obligation of $12 million, which is net of deferred income taxes of $8
million.
STOCK-BASED COMPENSATION
The Company currently accounts for its stock-based compensation plans
using the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25).
In 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Under the provisions of SFAS 123, companies can elect to account
for stock-based compensation plans using a fair-value-based method or
continue measuring compensation expense for those plans using the
intrinsic value method prescribed in APB 25. SFAS 123 requires that
companies electing to continue using the intrinsic value method must
make pro forma disclosures of net income and earnings per share as if
the fair-value-based method of accounting had been applied. The
adoption of SFAS 123 will be reflected in the Company's 1996
consolidated financial statements.
As the Company anticipates continuing to account for stock-based
compensation using the intrinsic value method, SFAS 123 will not have
an impact on the Company's results of operations or financial
position.
2. INVENTORIES
Inventories consist of the following (in millions):
December 31, 1995 1994
- ---------------------------------------------------------
Raw materials and supplies $ 784 $ 728
Work in process 7 4
Finished goods 326 315
- ---------------------------------------------------------
$1,117 $1,047
=========================================================
3. BOTTLING INVESTMENTS
COCA-COLA ENTERPRISES INC.
Coca-Cola Enterprises is the largest soft drink bottler in the world.
The Company owns approximately 44 percent of the outstanding common
stock of Coca-Cola Enterprises, and accordingly, accounts for its
investment by the equity method of accounting. A summary of financial
information for Coca-Cola Enterprises is as follows (in millions):
December 31, 1995 1994
- -----------------------------------------------------------
Current assets $ 982 $ 809
Noncurrent assets 8,082 7,928
- -----------------------------------------------------------
Total assets $9,064 $8,737
===========================================================
Current liabilities $ 859 $1,088
Noncurrent liabilities 6,770 6,310
- -----------------------------------------------------------
Total liabilities $7,629 $7,398
===========================================================
Share-owners' equity $1,435 $1,339
===========================================================
Company equity investment $ 556 $ 524
===========================================================
Year Ended December 31, 1995 1994 1993
- -----------------------------------------------------------
Net operating revenues $6,773 $6,011 $5,465
Cost of goods sold 4,267 3,703 3,372
- -----------------------------------------------------------
Gross profit $2,506 $2,308 $2,093
===========================================================
Operating income $ 468 $ 440 $ 385
===========================================================
Operating cash flow $ 997 $ 901 $ 804
===========================================================
Net income (loss) $ 82 $ 69 $ (15)
===========================================================
Net income (loss) available
to common share owners $ 80 $ 67 $ (15)
===========================================================
Company equity income (loss) $ 35 $ 30 $ (6)
===========================================================
The Company's net concentrate/syrup sales to Coca-Cola Enterprises
were $1.3 billion in 1995, $1.2 billion in 1994 and $961 million in
1993. Coca-Cola Enterprises purchases sweeteners through the Company
under a pass-through arrangement, and accordingly, related collections
from Coca-Cola Enterprises and payments to suppliers are not included
in the Company's consolidated statements of income. These transactions
amounted to $242 million in 1995, $254 million in 1994 and $211
million in 1993. The Company also provides certain administrative and
other services to Coca-Cola Enterprises under negotiated fee
arrangements.
The Company's direct support for certain marketing activities of
Coca-Cola Enterprises and participation with Coca-Cola Enterprises in
cooperative advertising and other marketing programs amounted to
approximately $343 million in 1995, $319 million in 1994 and $256
million in 1993. Additionally, in 1995 and 1994, the Company
56
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
committed to provide approximately $55 million and $34 million,
respectively, to Coca-Cola Enterprises under a Company program which
encourages bottlers to invest in building and supporting beverage
infrastructure.
If valued at the December 31, 1995, quoted closing price of
publicly traded Coca-Cola Enterprises shares, the calculated value of
the Company's investment in Coca-Cola Enterprises would have exceeded
its carrying value by approximately $957 million.
OTHER EQUITY INVESTMENTS
On December 31, 1995, the Company owned approximately 40 percent of
Coca-Cola Amatil Limited (Coca-Cola Amatil), an Australian-based
bottler of Company products that operates in 16 countries.
Accordingly, the Company accounts for its investment in Coca-Cola
Amatil by the equity method.
In July 1995, Coca-Cola Amatil completed a public offering in
Australia of approximately 97 million shares of common stock. This
transaction resulted in a non-cash pretax gain of approximately $74
million for the Company.
In the fourth quarter of 1993, Coca-Cola Amatil issued
approximately 8 million shares of stock to acquire the Company's
franchise bottler in Jakarta, Indonesia. This transaction resulted in
a pretax gain for the Company of approximately $12 million.
On December 31, 1995, the excess of the Company's investment over
its equity in the underlying net assets of Coca-Cola Amatil was
approximately $91 million, which is being amortized on a straight-line
basis over 40 years.
During 1995, the Company's finance subsidiary invested $160
million in The Coca-Cola Bottling Company of New York, Inc. (CCNY), in
return for redeemable preferred stock. As of December 31, 1995, the
Company held a 49 percent voting and economic interest in CCNY.
Accordingly, the Company accounts for its investment in CCNY by the
equity method.
In 1993, the Company acquired a 30 percent equity interest in
Coca-Cola FEMSA, S.A. de C.V. (Coca-Cola FEMSA), which operates
bottling facilities in Mexico and Argentina, for $195 million.
On December 31, 1995, the excess of the Company's investment over
its equity in the underlying net assets of Coca-Cola FEMSA was
approximately $31 million, which is being amortized over 40 years.
Operating results include the Company's proportionate share of
income from equity investments since the respective dates of
investment. A summary of financial information for the Company's
equity investments, other than Coca-Cola Enterprises, is as follows
(in millions):
December 31, 1995 1994
- -----------------------------------------------------------
Current assets $2,954 $2,747
Noncurrent assets 6,637 5,316
- -----------------------------------------------------------
Total assets $9,591 $8,063
===========================================================
Current liabilities $2,944 $2,382
Noncurrent liabilities 2,849 2,669
- -----------------------------------------------------------
Total liabilities $5,793 $5,051
===========================================================
Share-owners' equity $3,798 $3,012
===========================================================
Company equity investment $1,839 $1,808
===========================================================
Year Ended December 31, 1995 1994 1993
- -----------------------------------------------------------
Net operating revenues $11,563 $9,668 $8,168
Cost of goods sold 7,646 6,397 5,385
- -----------------------------------------------------------
Gross profit $ 3,917 $3,271 $2,783
===========================================================
Operating income $ 846 $ 783 $ 673
===========================================================
Operating cash flow $ 1,403 $1,076 $ 984
===========================================================
Net income $ 355 $ 323 $ 258
===========================================================
Company equity income $ 134 $ 104 $ 97
===========================================================
Equity investments include certain non-bottling investees.
Net income for the Company's equity investments in 1993 reflects
an $86 million after-tax charge recorded by Coca-Cola Beverages Ltd.,
related to the restructuring of its operations in Canada.
Net sales to equity investees other than Coca-Cola Enterprises
were $1.4 billion in 1995 and $1.2 billion in 1994 and 1993. The
Company also participates in various marketing, promotional and other
activities with these investees, the majority of which are located
outside the United States.
If valued at the December 31, 1995, quoted closing prices of
shares actively traded on stock markets, the calculated value of the
Company's equity investments in publicly traded bottlers other than
Coca-Cola Enterprises would have exceeded the Company's carrying value
by approximately $1.2 billion.
57
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCE SUBSIDIARY
Coca-Cola Financial Corporation (CCFC) provides loans and other forms
of financing to Coca-Cola bottlers and customers for the acquisition
of sales-related equipment and for other business purposes. The
approximate contractual maturities of finance receivables for the five
years succeeding December 31, 1995, are as follows (in millions):
1996 1997 1998 1999 2000
- --------------------------------------------------------
$55 $39 $39 $33 $58
========================================================
These amounts do not reflect possible prepayments or renewals.
CCFC has agreed to issue up to $50 million in letters of credit on
CCNY's behalf, of which $24 million was committed on December 31,
1995.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
millions):
December 31, 1995 1994
- ---------------------------------------------------
Accrued marketing $ 492 $ 425
Container deposits 130 112
Accrued compensation 198 189
Accounts payable and
other accrued expenses 2,074 1,838
- ---------------------------------------------------
$2,894 $2,564
===================================================
6. SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Loans and notes payable consist primarily of commercial paper issued
in the United States. On December 31, 1995, the Company had $3.3
billion in lines of credit and other short-term credit facilities
available, under which $2.4 billion was outstanding. Included was $2.2
billion outstanding in commercial paper borrowings. The Company's
weighted average interest rates for commercial paper were
approximately 5.7 and 5.8 percent on December 31, 1995 and 1994,
respectively.
These facilities are subject to normal banking terms and
conditions. Some of the financial arrangements require compensating
balances, none of which are presently significant to the Company.
7. ACCRUED TAXES
Accrued taxes consist of the following (in millions):
December 31, 1995 1994
- --------------------------------------------------------------
Income taxes $1,322 $1,312
Sales, payroll and other taxes 209 218
- --------------------------------------------------------------
$1,531 $1,530
==============================================================
8. LONG-TERM DEBT
Long-term debt consists of the following (in millions):
December 31, 1995 1994
- -----------------------------------------------------------------
7 3/4% U.S. dollar notes due 1996 $ 250 $ 250
5 3/4% Japanese yen notes due 1996 292 301
5 3/4% German mark notes due 1998{1} 175 161
7 7/8% U.S. dollar notes due 1998 250 250
6% U.S. dollar notes due 2000 252 --
6 5/8% U.S. dollar notes due 2002 149 149
6% U.S. dollar notes due 2003 150 150
7 3/8% U.S. dollar notes due 2093 116 116
Other, due 1996 to 2013 59 84
- -----------------------------------------------------------------
1,693 1,461
Less current portion 552 35
- -----------------------------------------------------------------
$1,141 $1,426
=================================================================
{1} Portions of these notes have been swapped for liabilities
denominated in other currencies.
After giving effect to interest rate management instruments (see
Note 10), the principal amount of the Company's long-term debt that
had fixed and variable interest rates, respectively, was $1,017
million and $676 million on December 31, 1995 and $849 million and
$612 million on December 31, 1994. The weighted average interest rate
on the Company's long-term debt was 6.5 and 6.6 percent on December
31, 1995 and 1994, respectively.
Maturities of long-term debt for the five years succeeding
December 31, 1995, are as follows (in millions):
1996 1997 1998 1999 2000
- ----------------------------------------------------------
$552 $10 $435 $8 $255
==========================================================
The above notes include various restrictions, none of which are
presently significant to the Company.
Interest paid was approximately $275 million, $197 million and
$158 million in 1995, 1994 and 1993, respectively.
58
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for
cash, cash equivalents, loans and notes payable approximate their
respective fair values due to the short maturities of these
instruments. The fair values for marketable equity securities,
investments, receivables, long-term debt and hedging instruments are
based primarily on quoted prices for those or similar instruments. A
comparison of the carrying value and fair value of these financial
instruments is as follows (in millions):
Carrying Fair
December 31, Value Value
- -------------------------------------------------------------------
1995
Current marketable securities $ 148 $ 148
Finance subsidiary receivables
and investments 406 410
Cost method investments,
principally bottling companies 319 319
Marketable securities and other assets 1,246 1,245
Long-term debt (1,693) (1,737)
Hedging instruments (see Note 10) 54 (107)
===================================================================
1994
Current marketable securities $ 145 $ 145
Finance subsidiary receivables
and investments 310 315
Cost method investments,
principally bottling companies 178 236
Marketable securities and other assets 1,163 1,156
Long-term debt (1,461) (1,416)
Hedging instruments (see Note 10) 64 (293)
===================================================================
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, 1995 and 1994, the Company 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
in share-owners' equity. Debt securities categorized as held to
maturity are stated at amortized cost.
On December 31, 1995 and 1994, 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
- ----------------------------------------------------------------------
1995
Available-for-sale
securities
Equity securities $ 128 $151 $ (2) $ 277
Collateralized
mortgage
obligations 147 -- (5) 142
Other debt
securities 26 -- -- 26
- ----------------------------------------------------------------------
$ 301 $151 $ (7) $ 445
======================================================================
Held-to-maturity
securities
Bank and
corporate debt $1,333 $ -- $ -- $1,333
Other debt
securities 40 -- -- 40
- ----------------------------------------------------------------------
$1,373 $ -- $ -- $1,373
======================================================================
1994
Available-for-sale
securities
Equity securities $ 48 $ 76 $ (4) $ 120
Collateralized
mortgage
obligations 150 -- (11) 139
Other debt
securities 32 -- -- 32
- ----------------------------------------------------------------------
$ 230 $ 76 $(15) $ 291
======================================================================
Held-to-maturity
securities
Bank and
corporate debt $1,388 $ -- $ -- $1,388
Other debt
securities 68 -- -- 68
- ----------------------------------------------------------------------
$1,456 $ -- $ -- $1,456
======================================================================
59
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 31, 1995 and 1994, these investments were included in the
following captions on the consolidated balance sheets (in millions):
Available-for-Sale Held-to-Maturity
December 31, Securities Securities
- ----------------------------------------------------------------------
1995
Cash and cash equivalents $ -- $ 900
Current marketable securities 74 74
Cost method investments,
principally bottling companies 222 --
Marketable securities and
other assets 149 399
- ----------------------------------------------------------------------
$445 $1,373
======================================================================
1994
Cash and cash equivalents $ -- $1,041
Current marketable securities 87 58
Cost method investments,
principally bottling companies 58 --
Marketable securities and
other assets 146 357
- ----------------------------------------------------------------------
$291 $1,456
======================================================================
The contractual maturities of these investments as of December 31,
1995, were as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
- ----------------------------------------------------------------------
Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------
1996 $ 22 $ 22 $ 974 $ 974
1997-2000 4 4 379 379
After 2000 -- -- 20 20
Collateralized
mortgage obligations 147 142 -- --
Equity securities 128 277 -- --
- ----------------------------------------------------------------------
$301 $445 $1,373 $1,373
======================================================================
For the years ended December 31, 1995 and 1994, 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.
10. HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company employs derivative financial instruments primarily to
reduce its exposure to adverse fluctuations in interest and
foreign exchange rates. These financial instruments, when entered
into, are designated as hedges of underlying exposures. Because
of the high correlation between the hedging instrument and the
underlying exposure being hedged, fluctuations in the value of
the instruments are generally offset by changes in the value of
the underlying exposures. The Company effectively monitors the
use of these derivative financial instruments through the use of
objective measurement systems, well-defined market and credit
risk limits and timely reports to senior management according to
prescribed guidelines. Virtually all of the Company's derivatives
are "over-the-counter" instruments.
The estimated fair values of derivatives used to hedge or
modify the Company's risks will fluctuate over time. These fair
value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions
and investments and the overall reduction in the Company's exposure
to adverse fluctuations in interest and foreign exchange rates.
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 the exposure of the
Company through its use of derivatives. The amounts exchanged are
calculated by reference to the notional amounts and by the other
terms of the derivatives, such as interest rates, exchange rates
or other financial indices.
The Company has established strict counterparty credit
guidelines and only enters into transactions with financial
institutions of investment grade or better. Counterparty
exposures are monitored daily and any downgrade in credit rating
receives immediate review. If a downgrade in the credit rating of
a counterparty were to occur, the Company has provisions to
require collateral in the form of U.S. government securities for
transactions with maturities in excess of three years. To
mitigate pre-settlement risk, minimum credit standards become
more stringent as the duration of the derivative financial
instrument increases. To minimize the concentration of credit
risk, the Company enters into derivative transactions with a
portfolio of financial institutions. As a result, the Company
considers the risk of counterparty default to be minimal.
INTEREST RATE MANAGEMENT
Management of the Company has implemented a policy to maintain
the percentage of fixed and variable rate debt within certain
parameters. The Company enters into interest rate swap
agreements that maintain the fixed/variable mix within these
defined parameters. These contracts had maturities ranging from
2 to 8 years on December 31, 1995. Variable rates are
predominantly linked to the LIBOR (London Interbank Offered
Rate). Any differences paid or received on interest rate swap
agreements are recognized as adjustments to interest expense
over the life of each swap, thereby adjusting the effective
interest rate on the underlying obligation.
Additionally, the Company enters into interest rate cap
agreements that entitle the Company to receive from a financial
institution the amount, if any, by which the Company's interest
60
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payments on its variable rate debt exceed pre-specified interest rates
through 1997. Premiums paid for interest rate cap agreements are
included in prepaid expenses and other assets and are amortized to
interest expense over the terms of the respective agreements. Payments
received pursuant to the interest rate cap agreements, if any, are
recognized as an adjustment of the interest expense on the underlying
debt instruments.
FOREIGN CURRENCY MANAGEMENT
The purpose of the Company's foreign currency hedging activities is to
reduce the risk that the eventual dollar net cash inflows resulting
from sales outside the U.S. will be adversely affected by changes in
exchange rates.
The Company enters into forward exchange contracts and purchases
currency options (principally European currencies and Japanese yen) to
hedge firm sale commitments denominated in foreign currencies. The
Company also purchases currency options (principally European
currencies and Japanese yen) to hedge certain anticipated sales.
Premiums paid and realized gains and losses, including those on
terminated contracts, if any, are included in prepaid expenses and
other assets. These are recognized in income along with unrealized
gains and losses, in the same period the hedged transactions are
realized. Approximately $27 million and $10 million of realized losses
on settled contracts entered into as hedges of firmly committed
transactions which have not yet occurred were deferred on December 31,
1995 and 1994, respectively. Deferred gains/losses from hedging
anticipated transactions were not material on December 31, 1995 or
1994. In the unlikely event that the underlying transaction terminates
or becomes improbable, the deferred gains or losses on the associated
derivative will be recorded in the income statement.
Gains and losses on derivative financial instruments that are
designated and effective as hedges of net investments in international
operations are included in share-owners' equity as a foreign currency
translation adjustment.
The following table presents the aggregate notional principal
amounts, carrying values, fair values and maturities of the Company's
derivative financial instruments outstanding on December 31, 1995 and
1994 (in millions):
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- ----------------------------------------------------------------------
1995
Interest rate
management
Swap agreements
Assets $ 705 $ 4 $ 30 1997-2003
Liabilities 62 -- (2) 2000-2002
Interest rate caps
Assets 400 2 -- 1997
Foreign currency
management
Forward contracts
Assets 1,927 25 36 1996
Liabilities 554 (17) (15) 1996-1997
Swap agreements
Assets 390 17 11 1996-2000
Liabilities 1,686 (46) (262) 1996-2002
Purchased options
Assets 1,823 62 90 1996
Other
Assets 327 7 5 1996
- ----------------------------------------------------------------------
$7,874 $54 $(107)
======================================================================
1994
Interest rate
management
Swap agreements
Assets $ 626 $ 3 $ (30) 1995-2003
Liabilities 225 (1) 1 1995-2005
Interest rate caps
Assets 400 3 5 1995-1997
Foreign currency
management
Forward contracts
Assets 1,887 24 33 1995-1996
Liabilities 666 (10) (9) 1995
Swap agreements
Assets 399 23 22 1995-2000
Liabilities 2,104 (44) (356) 1995-2002
Purchased options
Assets 3,485 66 41 1995-1996
- ----------------------------------------------------------------------
$9,792 $64 $(293)
======================================================================
Maturities of derivative financial instruments held on December
31, 1995, are as follows (in millions):
1996 1997 1998 1999 through 2003
- ----------------------------------------------------------
$5,343 $1,025 $534 $972
==========================================================
61
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
On December 31, 1995, the Company was contingently liable for
guarantees of indebtedness owed by third parties in the amount of $202
million, of which $48 million is related to independent bottling
licensees.
The Mitsubishi Bank Limited has provided a yen denominated
guarantee for the equivalent of $253 million in support of a
suspension of enforcement of a tax assessment levied by the Japanese
tax authorities. The Company has agreed to indemnify Mitsubishi if
amounts are paid pursuant to this guarantee. This matter is being
reviewed by the tax authorities of the United States and Japan under
the tax treaty signed by the two nations to prevent double taxation.
Any additional tax payable to Japan should be offset by tax credits in
the United States and would not adversely affect earnings.
In the opinion of management, it is not probable that the Company
will be required to satisfy these guarantees or indemnification
agreements. The fair value of these contingent liabilities is
immaterial to the Company's consolidated financial statements.
It is also the opinion of management that the Company's exposure
to concentrations of credit risk is limited, due to the diverse
geographic areas covered by the Company's operations.
Additionally, the Company has committed, under certain
circumstances, to make future investments in bottling companies.
However, none of these commitments is considered by management to be
individually significant.
12. RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
The Company sponsors restricted stock award plans, stock option plans,
Incentive Unit Agreements and Performance Unit Agreements.
Under the amended 1989 Restricted Stock Award Plan and the amended
1983 Restricted Stock Award Plan (the Restricted Stock Plans), 20
million and 12 million shares of restricted common stock,
respectively, may be granted to certain officers and key employees of
the Company.
On December 31, 1995, 17 million shares were available for grant
under the Restricted Stock Plans. Participants are entitled to vote
and receive dividends on the shares, and under the 1983 Restricted
Stock Award Plan, participants are reimbursed by the 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 the Company
for reasons other than retirement, disability or death, absent a
change in control of the Company. On July 18, 1991, the Restricted
Stock Plans were amended to specify age 62 as the minimum retirement
age. The 1983 Restricted Stock Award Plan was further amended to
conform to the terms of the 1989 Restricted Stock Award Plan by
requiring a minimum of five years of service between the date of the
award and retirement. The amendments affect shares granted after July
18, 1991.
Under the Company's 1991 Stock Option Plan (the Option Plan), a
maximum of 60 million shares of the Company's 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 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 outstanding on December 31, 1995, also include various options
granted under previous plans. Further information relating to options
is as follows (in millions, except per share amounts):
1995 1994 1993
- -------------------------------------------------------------------
Outstanding on January 1, 33 30 31
Granted 9 7 6
Exercised (4) (4) (7)
Canceled (1) -- --
- -------------------------------------------------------------------
Outstanding on December 31, 37 33 30
===================================================================
Exercisable on December 31, 23 22 22
===================================================================
Shares available on December 31,
for options that may be granted 30 38 45
Prices per share
Exercised $6-$51 $5-$44 $4-$41
Unexercised on December 31, $7-$76 $6-$51 $5-$44
===================================================================
In 1988, the Company entered into Incentive Unit Agreements
whereby, subject to certain conditions, certain officers were given
the right to receive cash awards based on the market value of 1.2
million shares of the Company's common stock at the measurement dates.
Under the Incentive Unit Agreements, the employee is reimbursed by the
Company for income taxes imposed when the value of the units is paid,
but not for taxes generated by the reimbursement payment. In 1993,
400,000 units were paid, leaving 800,000 units outstanding on December
31, 1993. No units were paid in 1994 or 1995, leaving the number of
units outstanding unchanged on December 31, 1995.
In 1985, the Company entered into Performance Unit
Agreements, whereby certain officers were given the right
to receive cash awards based on the difference in the market
62
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of approximately 2.2 million shares of the Company's common
stock at the measurement dates and the base price of $5.16, the market
value as of January 2, 1985. In 1993, 780,000 units were paid, leaving
approximately 1.4 million units outstanding on December 31, 1993. No
units were paid in 1994 or 1995, leaving the number of units
outstanding unchanged on December 31, 1995.
13. PENSION BENEFITS
The Company sponsors and/or contributes to pension plans covering
substantially all U.S. employees and certain employees in
international locations. The benefits are primarily based on years of
service and the employees' compensation for certain periods during the
last years of employment. Pension costs are generally funded
currently, subject to regulatory funding limitations. The Company also
sponsors nonqualified, unfunded defined benefit plans for certain
officers and other employees. In addition, the Company and its
subsidiaries have various pension plans and other forms of
postretirement arrangements outside the United States.
Total pension expense for all benefit plans, including defined
benefit plans, amounted to approximately $81 million in 1995, $73
million in 1994 and $57 million in 1993. Net periodic pension cost for
the Company's defined benefit plans consists of the following (in
millions):
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------
U.S. Plans
Service cost-benefits earned
during the period $ 20 $22 $17
Interest cost on projected
benefit obligation 62 53 53
Actual return on plan assets (184) (4) (77)
Net amortization and deferral 136 (44) 31
- ---------------------------------------------------------------------
Net periodic pension cost $ 34 $27 $24
=====================================================================
International Plans
Service cost-benefits earned
during the period $ 23 $24 $17
Interest cost on projected
benefit obligation 27 25 22
Actual return on plan assets (27) (21) (27)
Net amortization and deferral 9 5 13
- ---------------------------------------------------------------------
Net periodic pension cost $ 32 $33 $25
=====================================================================
The funded status for the Company's defined benefit plans is as
follows (in millions):
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
-------------------- --------------------
December 31, 1995 1994 1995 1994
- --------------------------------------------------------------- --------------------
U.S. Plans
Actuarial present value of
benefit obligations
Vested benefit
obligation $562 $479 $ 137 $101
=============================================================== ====================
Accumulated benefit
obligation $613 $521 $ 144 $104
=============================================================== ====================
Projected benefit
obligation $705 $599 $ 169 $125
Plan assets at fair value{1} 785 597 3 2
- --------------------------------------------------------------- --------------------
Plan assets in excess of (less than)
projected benefit obligation 80 (2) (166){2} (123){2}
Unrecognized net (asset) liability
at transition (26) (30) 13 15
Unrecognized prior service cost 35 37 14 15
Unrecognized net (gain) loss (81) (30) 53 18
Adjustment required to recognize
minimum liability -- -- (54) (28)
- --------------------------------------------------------------- --------------------
Accrued pension asset (liability)
included in the consolidated
balance sheet $ 8 $(25) $(140) $(103)
=============================================================== ====================
International Plans
Actuarial present value of
benefit obligations
Vested benefit
obligation $169 $156 $ 149 $ 147
=============================================================== ====================
Accumulated benefit
obligation $177 $157 $ 172 $ 175
=============================================================== ====================
Projected benefit
obligation $214 $199 $ 225 $ 237
Plan assets at fair value{1} 259 235 109 110
- --------------------------------------------------------------- --------------------
Plan assets in excess of (less than)
projected benefit obligation 45 36 (116) (127)
Unrecognized net (asset) liability
at transition (18) (18) 28 36
Unrecognized prior service cost 3 4 11 13
Unrecognized net (gain) loss (3) (1) 1 16
Adjustment required to recognize
minimum liability -- -- (6) (9)
- --------------------------------------------------------------- --------------------
Accrued pension asset (liability)
included in the consolidated
balance sheet $ 27 $ 21 $ (82) $ (71)
=============================================================== ====================
{1} Primarily listed stocks, bonds and government securities.
{2} Substantially all of this amount relates to nonqualified, unfunded defined
benefit plans.
63
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumptions used in computing the preceding information are as
follows:
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
U.S. Plans
Discount rates 7 1/4% 8 1/4% 7 1/4%
Rates of increase in
compensation levels 4 3/4% 5 1/4% 4 3/4%
Expected long-term rates
of return on assets 9 1/2% 9 1/2% 9 1/2%
======================================================================
International Plans (weighted
average rates)
Discount rates 6 1/4% 6% 6 1/2%
Rates of increase in
compensation levels 4 1/2% 4 1/2% 5%
Expected long-term rates
of return on assets 6% 6% 7%
======================================================================
14. OTHER POSTRETIREMENT BENEFITS
The Company has plans providing postretirement health care and life
insurance benefits to substantially all U.S. employees and certain
employees in international locations who retire with a minimum of five
years of service.
Net periodic cost for the Company's postretirement health care and
life insurance benefits consists of the following (in millions):
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------
Service cost $ 12 $ 12 $ 10
Interest cost 23 21 21
Other (2) (1) (1)
- ----------------------------------------------------------------
$ 33 $ 32 $ 30
================================================================
The Company contributes to a Voluntary Employees' Beneficiary
Association trust that will be used to partially fund health care
benefits for future retirees. Generally, the Company funds benefits to
the extent contributions are tax-deductible, which under current
legislation is limited. In general, retiree health benefits are paid
as covered expenses are incurred.
The funded status of the Company's postretirement health care and
life insurance plans is as follows (in millions):
December 31, 1995 1994
- -------------------------------------------------------------------
Accumulated postretirement
benefit obligations:
Retirees $ 122 $ 128
Fully eligible active plan participants 40 35
Other active plan participants 141 120
- -------------------------------------------------------------------
Total benefit obligation 303 283
Plan assets at fair value{1} 42 41
- -------------------------------------------------------------------
Plan assets less than benefit obligation (261) (242)
Unrecognized prior service cost (3) (3)
Unrecognized net gain (9) (7)
- -------------------------------------------------------------------
Accrued postretirement benefit
liability included in the
consolidated balance sheet $(273) $(252)
===================================================================
{1} Consists of corporate bonds, government securities and short-term
investments.
The assumptions used in computing the preceding information are as
follows:
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------
Discount rate 7 1/4% 8 1/4% 7 1/4%
Rate of increase in compensation
levels 4 3/4% 5 1/4% 4 3/4%
=====================================================================
The rate of increase in the per capita costs of covered health
care benefits is assumed to be 8 1/4 percent in 1996, decreasing
gradually to 5 percent by the year 2003. Increasing the assumed health
care cost trend rate by 1 percentage point would increase the
accumulated postretirement benefit obligation as of December 31, 1995,
by approximately $39 million and increase the net periodic
postretirement benefit cost by approximately $5 million in 1995.
15. INCOME TAXES
Income before income taxes and change in accounting principle consists
of the following (in millions):
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------
United States $1,270 $1,214 $1,035
International 3,058 2,514 2,150
- --------------------------------------------------------------------
$4,328 $3,728 $3,185
====================================================================
64
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense (benefit) consists of the following (in
millions):
Year Ended United State &
December 31, States Local International Total
- ----------------------------------------------------------------
1995
CURRENT $204 $41 $940 $1,185
DEFERRED 80 10 67 157
1994
Current $299 $38 $779 $1,116
Deferred 24 5 29 58
1993
Current $356 $34 $669 $1,059
Deferred{1} (64) 5 (3) (62)
================================================================
{1} An additional deferred tax benefit of $8 million in 1993 has been
included in the SFAS 112 transition effect charge.
The Company made income tax payments of approximately $1,000
million, $785 million and $650 million in 1995, 1994 and 1993,
respectively.
A reconciliation of the statutory U.S. federal rate and effective
rates is as follows:
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes-net of
federal benefit 1.0 1.0 1.0
Earnings in jurisdictions taxed
at rates different from the
statutory U.S. federal rate (3.9) (4.3) (5.1)
Equity income (1.7) (1.1) (1.7)
Other-net .6 .9 2.1
- ----------------------------------------------------------------------
31.0% 31.5% 31.3%
======================================================================
The Company's effective tax rate reflects the favorable U.S. tax
treatment from manufacturing facilities in Puerto Rico that operate
under a negotiated exemption grant that expires December 31, 2009.
Changes to U.S. tax law enacted in 1993 limit the utilization of the
favorable tax treatment from operations in Puerto Rico. The Company's
effective tax rate also 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. As a result of
changes in U.S. tax law, the Company was required to record charges
for additional taxes and tax-related expenses that reduced net income
by approximately $51 million in 1993.
Appropriate U.S. and international taxes have been provided for
earnings of subsidiary companies that are expected to be remitted to
the parent company. Exclusive of amounts that would result in little
or no tax if remitted, the cumulative amount of unremitted earnings
from international subsidiaries that are expected to be indefinitely
reinvested is approximately $577 million on December 31, 1995. The
taxes that would be paid upon remittance of these indefinitely
reinvested earnings are approximately $202 million based on current
tax laws.
The tax effects of temporary differences and carryforwards that
give rise to significant portions of deferred tax assets and
liabilities consist of the following (in millions):
December 31, 1995 1994
- ----------------------------------------------------------------------
Deferred tax assets:
Benefit plans $ 369 $324
Liabilities and reserves 178 169
Net operating loss carryforwards 97 108
Other 151 128
- ----------------------------------------------------------------------
Gross deferred tax assets 795 729
Valuation allowance (42) (46)
- ----------------------------------------------------------------------
$ 753 $683
======================================================================
Deferred tax liabilities:
Property, plant and equipment $ 414 $362
Equity investments 170 188
Intangible assets 89 34
Other 205 72
- ----------------------------------------------------------------------
$ 878 $656
======================================================================
Net deferred tax asset (liability){1} $(125) $ 27
======================================================================
{1} Deferred tax assets of $69 million and $207 million have been
included in the consolidated balance sheet caption "marketable
securities and other assets" at December 31, 1995 and 1994,
respectively.
On December 31, 1995, the Company had $265 million of operating
loss carryforwards available to reduce future taxable income of
certain international subsidiaries. Loss carryforwards of $107 million
must be utilized within the next 5 years, and $158 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.
65
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. 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):
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
Increase in trade accounts
receivable $(255) $(169) $(151)
(Increase) decrease in inventories (80) 43 (41)
Increase in prepaid expenses
and other assets (373) (273) (76)
Increase (decrease) in accounts
payable and accrued expenses 214 197 (44)
Increase in accrued taxes 26 200 355
Increase in other liabilities 63 131 11
- ----------------------------------------------------------------------
$(405) $ 129 $ 54
======================================================================
17. NONRECURRING ITEMS
During 1995, selling, administrative and general expenses include
provisions of $86 million to increase efficiencies in the Company's
operations in the United States and Europe.
Upon a favorable court decision in 1993, the Company reversed
previously recorded reserves for bottler litigation, resulting in a
$13 million reduction to selling, administrative and general expenses
and a $10 million reduction to interest expense. Selling,
administrative and general expenses for 1993 also include provisions
of $63 million to increase efficiencies in the Company's operations in
the United States and Europe, and Corporate. Also in 1993, equity
income was reduced by $42 million related to restructuring charges
recorded by Coca-Cola Beverages Ltd. Other income (deductions)-net for
1993 included a $50 million pretax gain recorded by the foods business
upon the sale of citrus groves in the United States, and a $34 million
pretax gain recognized on the sale of property no longer required as a
result of a consolidation of manufacturing operations in Japan.
NET OPERATING REVENUES BY LINE OF BUSINESS
[bar chart]
Year Ended December 31, 1993 1994 1995
- -------------------------------------------------------------------
Foods 12% 11% 9%
Beverages 88% 89% 91%
OPERATING INCOME BY LINE OF BUSINESS
[bar chart]
Year Ended December 31, 1993 1994 1995
- -------------------------------------------------------------------
Foods 3% 3% 0%
Beverages 97% 97% 100%
66
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. LINES OF BUSINESS
The Company operates in two major lines of business: beverages and
foods. Information concerning operations in these businesses is as
follows (in millions):
Beverages Foods Corporate Consolidated
- ------------------------------------------------------------------------------------------------------
1995
Net operating revenues $16,350 $1,613 $ 55 $18,018
Operating income 4,594{2} (14){2} (488) 4,092
Identifiable operating assets 10,177 689 1,461{1} 12,327
Equity income 169 169
Investments (principally bottling companies) 2,714 2,714
Capital expenditures 795 65 77 937
Depreciation and amortization 350 38 66 454
======================================================================================================
1994
Net operating revenues $14,412 $1,728 $ 41 $16,181
Operating income 4,022 123 (429) 3,716
Identifiable operating assets 9,176 731 1,456{1} 11,363
Equity income 134 134
Investments (principally bottling companies) 2,510 2,510
Capital expenditures 750 39 89 878
Depreciation and amortization 313 38 60 411
======================================================================================================
1993
Net operating revenues $12,257 $1,680 $ 26 $13,963
Operating income 3,433{3} 117 (442){3} 3,108
Identifiable operating assets 7,765 761 1,280 {1} 9,806
Equity income 91 {3} 91
Investments (principally bottling companies) 2,215 2,215
Capital expenditures 693 30 77 800
Depreciation and amortization 263 38 59 360
======================================================================================================
Intercompany transfers between sectors are not material.
Certain prior year amounts related to net operating revenues and
operating income have been reclassified to conform to the current year
presentation.
{1} Corporate identifiable operating assets are composed principally
of marketable securities, finance subsidiary receivables and fixed
assets.
{2} Operating income for the beverages and foods businesses was
reduced by $49 million and $37 million, respectively, for provisions
to increase efficiencies.
{3} Operating income for the beverages business and Corporate was
reduced by $46 million and $17 million, respectively, for provisions
to increase efficiencies. Equity income was reduced by $42 million
related to restructuring charges recorded by Coca-Cola Beverages Ltd.
Compound Growth Rates
Ending 1995 Beverages Foods Consolidated
- ------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 14% --% 12%
10 years 14% 2% 12%
======================================================================================================
Operating income
5 years 16% --% 16%
10 years 19% --% 18%
======================================================================================================
67
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. OPERATIONS IN GEOGRAPHIC AREAS
Effective February 1, 1996, the Company's operating management
structure will consist of five geographic groups and Coca-Cola Foods,
and the International and North America Business Sectors will cease to
exist. Information about the Company's operations by geographic area
is as follows (in millions):
Middle &
United Greater Latin Far East
States Africa Europe America & Canada Corporate Consolidated
- ---------------------------------------------------------------------------------------------------------------------
1995
Net operating revenues $5,261 $595 $6,025 $1,920 $4,162 $ 55 $18,018
Operating income 840{2} 206 1,300{2} 797 1,437 (488) 4,092
Identifiable operating assets 3,384 348 4,301 1,294 1,539 1,461{1} 12,327
Equity income 169 169
Investments (principally bottling companies) 2,714 2,714
Capital expenditures 285 19 383 88 85 77 937
Depreciation and amortization 146 8 180 31 23 66 454
=====================================================================================================================
1994
Net operating revenues $5,092 $522 $5,047 $1,928 $3,551 $ 41 $16,181
Operating income 869 182 1,173 713 1,208 (429) 3,716
Identifiable operating assets 2,991 357 3,958 1,164 1,437 1,456{1} 11,363
Equity income 134 134
Investments (principally bottling companies) 2,510 2,510
Capital expenditures 252 27 330 129 51 89 878
Depreciation and amortization 128 6 160 36 21 60 411
=====================================================================================================================
1993
Net operating revenues $4,586 $255 $4,456 $1,683 $2,957 $ 26 $13,963
Operating income 782{3} 152 1,029{3} 582 1,005 (442){3} 3,108
Identifiable operating assets 2,682 153 3,287 1,220 1,184 1,280 {1} 9,806
Equity income 91 {3} 91
Investments (principally bottling companies) 2,215 2,215
Capital expenditures 165 6 366 141 45 77 800
Depreciation and amortization 127 3 120 33 18 59 360
=====================================================================================================================
Intercompany transfers between geographic areas are not material.
Certain prior year amounts related to net operating revenues and operating income have been reclassified to
conform to the current year presentation.
Identifiable liabilities of operations outside the United States amounted to approximately $2.7 billion on
December 31, 1995, $2.5 billion on December 31, 1994, and $1.9 billion on December 31, 1993.
{1} Corporate identifiable operating assets are composed principally of marketable
securities, finance subsidiary receivables and fixed assets.
{2} Operating income for the United States and Greater Europe was reduced by $61 million
and $25 million, respectively, for provisions to increase efficiencies.
{3} Operating income for the United States, Greater Europe and Corporate was reduced by
$13 million, $33 million and $17 million, respectively, for provisions to increase
efficiencies. Equity income was reduced by $42 million related to restructuring charges
recorded by Coca-Cola Beverages Ltd.
Middle &
Compound Growth Rates United Greater Latin Far East
Ending 1995 States Africa Europe America & Canada Consolidated
- ---------------------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 6% 24% 14% 19% 15% 12%
10 years 5% 9% 20% 16% 15% 12%
=====================================================================================================================
Operating income
5 years 14% 16% 12% 22% 17% 16%
10 years 10% 9% 20% 24% 20% 18%
=====================================================================================================================
68
THE COCA-COLA COMPANY AND SUBSIDIARIES
NET OPERATING REVENUES BY GEOGRAPHIC AREA
[bar chart]
Year Ended December 31, 1993 1994 1995
- ---------------------------------------------------------------
Middle & Far East and Canada 21% 22% 23%
Latin America 12% 12% 11%
Greater Europe 32% 31% 34%
Africa 2% 3% 3%
United States 33% 32% 29%
OPERATING INCOME BY GEOGRAPHIC AREA
[bar chart]
Year Ended December 31, 1993 1994 1995
- ---------------------------------------------------------------
Middle & Far East and Canada 29% 29% 31%
Latin America 16% 17% 18%
Greater Europe 29% 29% 28%
Africa 4% 4% 5%
United States 22% 21% 18%
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, 1995 and 1994,
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, 1995. 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 generally accepted
auditing standards. 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, 1995 and
1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
January 23, 1996
69
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
- ---------------------------------------------------------------------------
1995
Net operating revenues $3,854 $4,936 $4,895 $4,333 $18,018
Gross profit 2,409 3,060 2,946 2,663 11,078
Net income 638 898 802 648 2,986
Net income per share .50 .71 .64 .52 2.37
===========================================================================
1994
Net operating revenues $3,352 $4,342 $4,461 $4,026 $16,181
Gross profit 2,110 2,675 2,701 2,527 10,013
Net income 521 758 708 567 2,554
Net income per share .40 .59 .55 .44 1.98
===========================================================================
The third quarter of 1995 includes provisions to increase efficiencies
of $86 million ($.04 per share after income taxes) and a non-cash
gain recognized on the issuance of stock by Coca-Cola Amatil of $74
million ($.04 per share after income taxes).
STOCK PRICES
Below are the New York Stock Exchange high, low and closing prices of
The Coca-Cola Company's stock for each quarter of 1995 and 1994.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
1995
High $59.38 $66.00 $70.63 $80.38
Low 48.75 56.13 62.63 68.38
Close 56.38 63.75 69.00 74.25
============================================================================
1994
High $44.75 $42.38 $50.00 $53.50
Low 40.13 38.88 41.00 48.00
Close 40.63 40.63 48.63 51.50
============================================================================
71
[Following are certain definitions extracted from page 74:]
DIVIDEND PAYOUT RATIO: Calculated by dividing cash dividends on common
stock by net income available to common share owners.
ECONOMIC PROFIT: Represents net operating profit after taxes in excess
of a computed capital charge for average operating capital employed.
NET DEBT AND NET CAPITAL: Debt and capital in excess of cash, cash
equivalents and marketable securities not required for operations and
temporary bottling investments. The net-debt-to-net-capital ratio
excludes debt and excess cash of the Company's finance subsidiary.
RETURN ON CAPITAL: Calculated by dividing income from continuing
operations before changes in accounting principles, adjusted for
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.
TOTAL CAPITAL: Equals share-owners' equity plus interest-bearing debt.
74
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: 225,904
Shares outstanding at year-end: 1.252 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, Cincinnati, Chicago, Pacific and
Philadelphia stock exchanges.
OUTSIDE THE UNITED STATES:
Common stock listed and traded: The German exchange in Frankfurt; Swiss
exchanges in Zurich, Geneva, Bern, Basel and Lausanne.
DIVIDENDS
At its February 1996 meeting, our Board increased our quarterly
dividend to 25 cents per share, equivalent to an annual dividend of
$1.00 per share. The Company has increased dividends each of the last
34 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 299 consecutive quarterly dividends, beginning in 1920.
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
$60,000 per year.
All costs and commissions associated with joining and participating
in the Plan are paid by the Company.
The Plan's administrator, First Chicago Trust Company of New York,
purchases stock for voluntary cash investments on or about the first of
each month, and for dividend reinvestment on April 1, July 1, October 1
and December 15.
At year-end, 59 percent of share owners of record were participants
in the Plan. In 1995, share owners invested $28.6 million in dividends
and $65.9 million in cash in the Plan.
ANNUAL MEETING OF SHARE OWNERS
April 17, 1996, at 9 a.m. local time
Hotel du Pont
11th and Market Streets
Wilmington, Delaware
INSTITUTIONAL INVESTOR INQUIRIES
(404)676-5766
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:
Registrar and Transfer Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 519-3111 or (201) 324-1225
For hearing impaired: (201) 222-4955
E-mail: fctc@delphi.com
Internet: http://www.fctc.com
or
Office of the Secretary
The Coca-Cola Company
(404) 676-2777
CORPORATE OFFICES
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
(404) 676-2121
INFORMATION RESOURCES
PUBLICATIONS
THE COMPANY'S ANNUAL REPORT, PROXY STATEMENT, FORM 10-K AND 10-Q
REPORTS AND MID-YEAR REPORT ARE AVAILABLE FREE OF CHARGE FROM INDUSTRY
& CONSUMER AFFAIRS AT THE ABOVE ADDRESS. Also available are "Our
Mission and Our Commitment," "The Coca-Cola Company and the
Environment" and "The Chronicle of Coca-Cola Since 1886."
INTERNET SITE
Our expanded site, "http://www.cocacola.com", offers information about
our Company and stock, as well as features on topics such as our
Olympics partnership.
HOTLINE
The Company's hotline for share owners, 1-800-INVST-KO (1-800-468-7856),
offers taped highlights from the most recent quarter and may be used to
request the most recent quarterly results news release. The hotline is
accessible from within the U.S.
AUDIO ANNUAL REPORT
An audio cassette version of this report is available without charge as
a service to the visually impaired. To receive a copy, please contact
the Office of the Secretary.
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our publications,
please contact the Office of the Secretary.
[75]