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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------- to -------------
Commission File No. 001-02217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock as of the latest
practicable date.
Class of Common Stock Outstanding at October 25, 1996
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$.25 Par Value 2,488,161,544 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 1996
and 1995 5
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 23
- 2 -
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
September 30, December 31,
1996 1995
----------- -----------
CURRENT
Cash and cash equivalents $ 2,166 $ 1,167
Marketable securities 147 148
----------- -----------
2,313 1,315
Trade accounts receivable, less
allowances of $30 at September 30
and $34 at December 31 1,511 1,695
Finance subsidiary receivables 75 55
Inventories 1,075 1,117
Prepaid expenses and other assets 1,386 1,268
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TOTAL CURRENT ASSETS 6,360 5,450
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INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 541 556
Coca-Cola Amatil Limited 858 682
Other, principally bottling companies 2,042 1,157
Cost method investments,
principally bottling companies 493 319
Finance subsidiary receivables and
investments 374 351
Marketable securities and other assets 1,038 1,246
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5,346 4,311
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PROPERTY, PLANT AND EQUIPMENT
Land 194 233
Buildings and improvements 1,558 1,944
Machinery and equipment 3,753 4,135
Containers 218 345
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5,723 6,657
Less allowances for depreciation 2,132 2,321
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3,591 4,336
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GOODWILL AND OTHER INTANGIBLE ASSETS 577 944
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$ 15,874 $ 15,041
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- 3 -
THE COCA-COLA COMPANY AND SUBSIDIARIES
LIABILITIES AND SHARE-OWNERS' EQUITY
September 30, December 31,
1996 1995
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CURRENT
Accounts payable and accrued expenses $ 2,912 $ 2,894
Loans and notes payable 3,127 2,371
Current maturities of long-term debt 8 552
Accrued taxes 1,081 1,531
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TOTAL CURRENT LIABILITIES 7,128 7,348
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LONG-TERM DEBT 1,136 1,141
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OTHER LIABILITIES 1,163 966
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DEFERRED INCOME TAXES 212 194
----------- -----------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,429,677,945 shares at
September 30; 3,423,678,994 shares
at December 31 857 856
Capital surplus 959 863
Reinvested earnings 14,671 12,882
Unearned compensation related to
outstanding restricted stock (54) (68)
Foreign currency translation adjustment (580) (424)
Unrealized gain on securities
available for sale 133 82
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15,986 14,191
Less treasury stock, at cost
(940,717,122 shares at September 30;
919,081,326 shares at December 31) 9,751 8,799
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6,235 5,392
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$ 15,874 $ 15,041
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<FN>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
NET OPERATING REVENUES $ 4,656 $ 4,895 $ 14,103 $ 13,685
Cost of goods sold 1,814 1,949 5,250 5,270
---------- ---------- ---------- ----------
GROSS PROFIT 2,842 2,946 8,853 8,415
Selling, administrative
and general expenses 2,388 1,960 5,984 5,300
---------- ---------- ---------- ----------
OPERATING INCOME 454 986 2,869 3,115
Interest income 49 59 173 185
Interest expense 67 66 210 192
Equity income 56 59 143 153
Other income - net 32 56 104 68
Gains on issuances of
stock by equity
investees 413 74 413 74
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 937 1,168 3,492 3,403
Income tax expense
(benefit) (30) 366 762 1,065
---------- ---------- ---------- ----------
NET INCOME $ 967 $ 802 $ 2,730 $ 2,338
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NET INCOME PER SHARE $ .39 $ .32 $ 1.09 $ .92
========== ========== ========== ==========
DIVIDENDS PER SHARE $ .125 $ .11 $ .375 $ .33
========== ========== ========== ==========
AVERAGE SHARES
OUTSTANDING 2,492 2,518 2,497 2,531
========== ========== ========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Nine Months Ended
September 30,
-----------------------
1996 1995
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OPERATING ACTIVITIES
Net income $ 2,730 $ 2,338
Depreciation and amortization 360 337
Deferred income taxes 128 14
Equity income, net of dividends (69) (64)
Foreign currency adjustments (58) (22)
Other noncash items (143) (57)
Net change in operating assets and liabilities (304) (245)
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Net cash provided by operating activities 2,644 2,301
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INVESTING ACTIVITIES
Additions to finance subsidiary receivables (110) (44)
Collections of finance subsidiary receivables 70 41
Acquisitions and investments,
principally bottling companies (577) (107)
Purchases of securities (67) (151)
Proceeds from disposals of investments
and other assets 1,070 505
Purchases of property, plant and equipment (682) (708)
Proceeds from disposals of property, plant
and equipment 44 45
Other investing activities (115) (43)
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Net cash used in investing activities (367) (462)
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Net cash provided by operations after
reinvestment 2,277 1,839
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FINANCING ACTIVITIES
Issuances of debt 862 551
Payments of debt (576) (40)
Issuances of stock 74 62
Purchases of stock for treasury (952) (1,417)
Dividends (624) (558)
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Net cash used in financing activities (1,216) (1,402)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (62) (50)
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CASH AND CASH EQUIVALENTS
Net increase during the period 999 387
Balance at beginning of period 1,167 1,386
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Balance at end of period $ 2,166 $ 1,773
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INTEREST PAID $ 244 $ 201
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INCOME TAXES PAID $ 952 $ 871
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<FN>
See Notes to Condensed Consolidated Financial Statements.
- 6 -
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there
has been no material change in the information disclosed in the
notes to consolidated financial statements included in the Annual
Report on Form 10-K of The Coca-Cola Company (the Company) for
the year ended December 31, 1995. In the opinion of Management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30,
1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
Certain amounts in the prior periods' financial statements have
been reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales by the Company's beverages business are generally
greater in the second and third quarters due to seasonal factors.
NOTE C - INVENTORIES
Inventories consist of the following (in millions):
September 30, December 31,
1996 1995
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Raw materials and supplies $ 778 $ 784
Work in process 19 7
Finished goods 278 326
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$ 1,075 $ 1,117
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- 7 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - SUMMARIZED INCOME STATEMENT DATA OF COCA-COLA ENTERPRISES INC.
At September 30, 1996 and 1995, the Company owned approximately
45 and 44 percent, respectively, of the outstanding common stock
of Coca-Cola Enterprises Inc. (Coca-Cola Enterprises) and,
accordingly, accounted for its related investment therein under
the equity method of accounting. Coca-Cola Enterprises meets the
definition of a significant equity investee as defined by
Rule 3-09 of Regulation S-X. Summarized income statement data
for Coca-Cola Enterprises is as follows (in millions):
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net operating revenues $ 2,187 $ 1,841 $ 5,803 $ 5,130
Gross profit $ 824 $ 658 $ 2,217 $ 1,893
Net income $ 39 $ 36 $ 105 $ 85
Net income applicable
to common share owners $ 37 $ 35 $ 99 $ 83
Coca-Cola Enterprises' results for the three and nine month
periods ended September 27, 1996, include results from the
acquisition date of the following acquired companies: Ouachita
Coca-Cola Bottling Company acquired on February 21, 1996;
Coca-Cola Beverages S.A., Coca-Cola Production S.A. and S.A.
Beverages Sales Holdings N.V. (collectively, French and Belgian
bottling and canning operations) acquired on July 26, 1996; and
Coca-Cola Bottling Company West, Inc. and Grand Forks Coca-Cola
Bottling Co. acquired on August 12, 1996. In addition, the results
for the three and nine months ended September 27, 1996, include a
favorable $6 million after-tax settlement from certain suppliers
for purchases made in previous years.
Coca-Cola Enterprises' results for the three months and the
nine months ended September 29, 1995, include the results of the
Wichita Coca-Cola Bottling Company from the date of acquisition
on January 27, 1995. Results for the nine months ended September
29, 1995, also reflect a $5 million after-tax gain on the sale of
Coca-Cola Enterprises' 50 percent ownership interest in The
Coca-Cola Bottling Company of the Mid South.
- 8 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - SHARE REPURCHASE PROGRAM
Under its share repurchase program, the Company purchased
approximately 6 million shares of its common stock in the third
quarter and approximately 21 million shares for the nine months
ended September 30, 1996.
NOTE F - ISSUANCES OF STOCK BY EQUITY INVESTEES
In September 1996, Coca-Cola Erfrischungsgetraenke G.m.b.H.
(CCEG) issued approximately 24.4 million shares of common stock
as part of a merger with three independent German bottlers
of the Company's products. The shares were valued at
approximately $925 million, based upon the fair values of the
assets of the three independent bottling companies. In
connection with CCEG's issuance of shares, the Company's
ownership in the previously wholly owned subsidiary was reduced
to 45 percent. As a result, the Company will prospectively
account for its related investment therein under the equity
method of accounting. The transaction resulted in a noncash
pretax gain of approximately $283 million for the Company. The
Company's German subsidiary has provided deferred income taxes of
approximately $171 million related to this gain.
In July 1996, Coca-Cola Amatil Limited (Coca-Cola Amatil)
issued approximately 46 million shares in a placement with the
Kerry Group in exchange for approximately $522 million. The
issuance reduced the Company's ownership percentage in Coca-Cola
Amatil from approximately 39 percent to approximately 36 percent.
This transaction resulted in a noncash pretax gain of
approximately $130 million to the Company. The Company has
provided deferred income taxes of approximately $47 million
related to this gain.
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, the Company's ownership interest in
Coca-Cola Amatil was diluted to approximately 40 percent. The
transaction resulted in a noncash pretax gain of approximately
$74 million for the Company. The Company has provided deferred
income taxes of approximately $27 million related to this gain.
NOTE G - BOTTLING TRANSACTIONS
On July 26, 1996, the Company sold its interests in the French
and Belgian bottling and canning operations to Coca-Cola
Enterprises in return for cash consideration of approximately
$936 million.
- 9 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - NONRECURRING ITEMS
In September 1996, the Company and the U.S. Internal Revenue
Service reached an agreement in principle settling certain
U.S.-related income tax matters, including issues in litigation
related to its Puerto Rico operations, dating back to the 1981
tax year and extending through 1995. This agreement had the
effect of increasing net income by $320 million as a result of
a reversal of previously accrued income tax liabilities.
In the third quarter of 1996, provisions of approximately $276
million were recorded in selling, administrative and general
expenses related to the Company's adoption of management's plans
for strengthening the Company's worldwide system. Of this $276
million, the Company's beverages business accounts for
approximately $130 million, related to the streamlining of its
operations, primarily in Greater Europe and Latin America.
Management of the beverages business has taken actions to
consolidate certain of its manufacturing operations and, as a
result, has recorded charges to recognize the impairment of
certain manufacturing assets and to recognize the estimated
losses on the disposal of other such assets. The remainder of
this $276 million provision relates to The Minute Maid Company
(formerly known as Coca-Cola Foods). During the third quarter
of 1996, The Minute Maid Company entered into two significant
agreements with independent parties: (i) a strategic supply
alliance with Sucocitrico Cutrale Ltda., the world's largest
grower and processor of oranges and (ii) a joint venture
agreement with the Danone Group to produce, distribute and sell
premium refrigerated juices globally outside of the United States
and Canada. With these agreements, The Minute Maid Company plans
to increase its focus on managing its brands while seeking
arrangements to lower overall manufacturing costs. As a
result of these actions, management recorded $146 million in
third quarter provisions, comprised primarily of impairment
charges to certain production facilities and reserves for
losses on the disposal of other production facilities.
Also in the third quarter of 1996, the Company launched a
strategic initiative, "Project Infinity," to redesign and enhance
its information systems and communications capabilities. In
connection with this initiative, the Company recorded in selling,
administrative and general expenses an $80 million impairment
charge to recognize Project Infinity's impact on existing
information systems.
Also in the third quarter of 1996, the Company recorded a $28.5
million charge in selling, administrative and general expenses
for its contribution to the corpus of The Coca-Cola Foundation, a
not-for-profit charitable organization.
- 10 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - NONRECURRING ITEMS (CONTINUED)
In the third quarter of 1995, the Company recorded a provision
of $86 million in selling, administrative and general expenses
primarily related to management's decision to increase
efficiencies as part of the ongoing process of strengthening its
worldwide system.
NOTE I - STOCK SPLIT
On April 17, 1996, the Company's share owners approved an
increase in the authorized common stock of the Company from 2.8
billion shares to 5.6 billion shares and a two-for-one stock
split that was payable to share owners of record at the close of
business on May 1, 1996. The financial statements have been
retroactively restated to reflect these changes. The stated par
value of each share of common stock remained at $.25 per share.
NOTE J - PENDING TRANSACTION
On August 9, 1996, the Company executed an agreement to sell
its 49 percent interest in Coca-Cola & Schweppes Beverages Ltd.
to Coca-Cola Enterprises. This transaction is expected to result
in gross proceeds to the Company of approximately 616 million
British pounds or approximately U.S. $955 million. The
transaction is subject to approval by the European Commission.
The Commission's Merger Task Force has indicated that it will
ask the Commission to issue a Statement of Objections, to which
the Company and other parties to the proposed sale will respond.
The Statement of Objections could result, in certain circumstances,
in changes to the transaction. Although no assurances can be
given in this regard, the Company believes that the transaction
will ultimately be allowed to go forward substantially as proposed.
- 11 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
VOLUME
BEVERAGES (EXCLUDING THE MINUTE MAID COMPANY, FORMERLY KNOWN AS
COCA-COLA FOODS): Worldwide unit case volume increased 6 percent
and gallon shipments of concentrates and syrups grew 1 percent in
the third quarter of 1996 when compared to the third quarter of
1995. Unit case volume increased 7 percent and gallon shipments
grew 6 percent for the first nine months of 1996.
Unit case volume in the Company's North America Group increased
4 percent in the third quarter of 1996, including an increase of
5 percent in the United States. Unit case volume in North
America grew 6 percent for the first nine months of 1996,
including 6 percent growth in the United States. The continuing
strong unit case volume gains in the United States resulted from
increases in the Company's core brands, which benefited from
solid execution by the bottler system and strong broad-based
marketing plans including leveraging the power of Olympic related
promotions. Packaging initiatives also contributed to strong
growth. Volume also rose from sales of products such as Barq's,
POWERaDE, and Nestea. Continued focus on programs designed to
increase retail customer volume and profit also contributed to
third quarter results. North American gallon shipments of
concentrates and syrups increased 4 percent for the third quarter
and 7 percent for the first nine months of 1996. In particular,
gallon shipments rose 4 percent in the United States for the
third quarter and 7 percent for the first nine months of 1996.
In the Latin America Group, unit case volume grew 10 percent in
the third quarter of 1996, including gains of 20 percent in
Chile, 11 percent in Argentina and 10 percent in Mexico. The
unit case volume gains in Latin America resulted from aggressive
system investment in volume and share-building activities.
Gallon shipments in the Latin America Group increased 11 percent
in the third quarter of 1996. For the first nine months of 1996,
unit case volume has increased 6 percent and gallon shipments
have grown 7 percent in the Latin America Group.
In the Africa Group, unit case volume in the third quarter of
1996 was even with levels achieved in the third quarter of 1995
while gallon shipments declined 13 percent for the same period.
Third quarter unit case volume increased 2 percent in the
Southern Africa Division and declined 2 percent in the Northern
Africa Division due to a difficult economic environment in
Nigeria. Unit case volume has risen 1 percent and gallon
shipments have declined 8 percent in the Africa Group for the
first nine months of 1996.
- 12 -
RESULTS OF OPERATIONS (CONTINUED)
Unit case volume in the Middle and Far East Group grew 9
percent in the third quarter of 1996, driven by a 29 percent
increase in China, a 17 percent increase in India and a 16
percent increase in the Philippines. Gallon shipments in the
Middle and Far East Group declined 4 percent in the third quarter
of 1996. For the first nine months of 1996, unit case volume has
grown 10 percent and gallon shipments have increased 4 percent in
the Middle and Far East Group.
In the Greater Europe Group, third quarter 1996 unit case
volume increased 1 percent. An unseasonably cold and rainy
summer negatively impacted volume in the quarter. Several key
countries were impacted by the poor weather, including Germany
and Great Britain, where unit case volume fell 10 and 17 percent,
respectively. However, the Company continued to build on its
leadership position in Eastern Europe where unit case volume
increased 18 percent in the third quarter of 1996. Gallon
shipments in the Greater Europe Group fell 4 percent in the third
quarter of 1996. For the first nine months of 1996, unit case
volume and gallon shipments in the Greater Europe Group increased
7 and 8 percent, respectively.
THE MINUTE MAID COMPANY (FORMERLY KNOWN AS COCA-COLA FOODS):
At The Minute Maid Company, unit volume increased 11 percent in
the third quarter of 1996 due to marketing initiatives, including
new advertising in support of Minute Maid Premium orange juice.
Additionally, The Minute Maid Company announced several strategic
initiatives during the quarter, including a supply alliance with
Sucocitrico Cutrale Ltda. (Cutrale), the world's largest grower
and processor of oranges, and the formation of an international
joint venture with the Danone Group (Danone), the world's leader
in fresh dairy products.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues decreased 5 percent in the third quarter
of 1996 primarily as a result of the sale of the previously
wholly owned French and Belgian bottling and canning operations
and a stronger U.S. dollar, offset by selective price increases.
For the first nine months of 1996, net operating revenues increased
3 percent due to increased beverage gallon shipments and selective
price increases, partially offset by a stronger U.S. dollar and the
disposition of the Company's French and Belgian bottling and canning
operations.
The Company's gross margin increased to 61.0 percent in the
third quarter of 1996 from 60.2 percent in the third quarter of
1995. The increase in gross margin for the third quarter of 1996
was primarily due to the sale of the Company's French and Belgian
bottling and canning operations, shifting proportionally more
revenues to the higher margin concentrate business, and favorable
results from product mix. The Company's gross margin was 62.8
and 61.5 percent, respectively, for the first nine months of 1996
and 1995.
- 13 -
RESULTS OF OPERATIONS (CONTINUED)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling expenses were $1,602 million in the third quarter of
1996, compared to $1,488 million in the third quarter of 1995.
For the first nine months of 1996, selling expenses were $4,437
million, compared to $4,110 million in the same period in 1995.
The increase was primarily due to higher marketing investments in
support of the Company's volume growth.
Administrative and general expenses were $786 million in the
third quarter of 1996, compared to $472 million in the third
quarter of 1995. For the first nine months of 1996,
administrative and general expenses were $1,547 million, compared
to $1,190 million in the comparable period of the prior year.
The 1996 increase in administrative and general expenses is
primarily a result of the following nonrecurring provisions:
- -- In the third quarter of 1996, provisions of approximately
$276 million were recorded in selling, administrative and
general expenses related to the Company's adoption of
management's plans for strengthening the Company's worldwide
system. Of this $276 million, the Company's beverages
business accounts for approximately $130 million, related to
the streamlining of its operations, primarily in Greater
Europe and Latin America. Management of the beverages
business has taken actions to consolidate certain of its
manufacturing operations and, as a result, has recorded
charges to recognize the impairment of certain manufacturing
assets and to recognize the estimated losses on the disposal
of other such assets. The remainder of this $276 million
provision relates to The Minute Maid Company (formerly
known as Coca-Cola Foods). During the third quarter of 1996,
The Minute Maid Company entered into two significant agreements
with independent parties: (i) a strategic supply alliance with
Cutrale, the world's largest grower and processor of oranges
and (ii) a joint venture agreement with Danone to produce,
distribute and sell premium refrigerated juices globally
outside of the United States and Canada. With these
agreements, The Minute Maid Company plans to increase its
focus on managing its brands while seeking arrangements to
lower overall manufacturing costs. As a result of these
actions, management recorded $146 million in third quarter
provisions, comprised primarily of impairment charges to
certain production facilities and reserves for losses on the
disposal of other production facilities.
- -- Also in the third quarter of 1996, the Company launched a
strategic initiative, "Project Infinity," to redesign and
enhance its information systems and communications
capabilities. In connection with this initiative, the Company
recorded in selling, administrative and general expenses an
$80 million impairment charge to recognize Project Infinity's
impact on existing information systems.
- 14 -
RESULTS OF OPERATIONS (CONTINUED)
- -- Also in the third quarter of 1996, the Company recorded a
$28.5 million charge in selling, administrative and general
expenses for its contribution to the corpus of The Coca-Cola
Foundation, a not-for-profit charitable organization.
In the third quarter of 1995, the Company recorded a provision
of $86 million in selling, administrative and general expenses
primarily related to management's decision to increase
efficiencies as part of the ongoing process of strengthening its
worldwide system.
OPERATING INCOME AND OPERATING MARGIN
Operating income for the third quarter of 1996 decreased to
$454 million from $986 million in the third quarter of 1995.
The decrease was due to the disposition of the Company's French
and Belgian bottling and canning operations and the recording of
several nonrecurring provisions as discussed above. In addition,
the decision to curtail concentrate shipments to bottlers
decreased operating income by an estimated $290 million in the
third quarter of 1996. For the first nine months of 1996,
operating income decreased 8 percent, to $2,869 million. The
operating margin for the first nine months of 1996 decreased to
20.3 percent from 22.8 percent in the comparable period in 1995.
INTEREST INCOME AND INTEREST EXPENSE
Interest income decreased $10 million in the third quarter and
$12 million for the first nine months of 1996 relative to the
comparable periods in 1995, due primarily to lower average short-
term investments and lower average interest rates in Latin
America. Interest expense was relatively flat in the third
quarter compared to the same period in 1995 and increased 9
percent for the first nine months of 1996 relative to the
comparable period in 1995. This increase was due primarily to
higher average debt balances.
EQUITY INCOME
Equity income for the third quarter of 1996 totaled $56
million, compared to $59 million in the third quarter of 1995.
For the first nine months of 1996, equity income totaled $143
million, compared to $153 million for the same period in 1995.
The decrease in the first nine months of the year resulted from
first quarter economic difficulties in key markets in Latin
America and lower operating results for Coca-Cola & Schweppes
Beverages Ltd., partially offset by improved results for
Coca-Cola Enterprises Inc. Operating results for Coca-Cola &
Schweppes Beverages Ltd. were impacted by the unseasonably
poor weather conditions in Europe during the third quarter.
- 15 -
RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME - NET
Other income - net was $32 million for the third quarter of
1996 compared to $56 million for the third quarter of 1995. For
the first nine months of 1996, other income - net was $104
million, compared to $68 million in the comparable period of the
prior year. The increase for the first nine months of 1996 as
compared to the same period in 1995 was due to gains on the
sales of certain investments, primarily bottling, including the
French and Belgian bottling and canning operations.
GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES
In September 1996, Coca-Cola Erfrischungsgetraenke G.m.b.H.
(CCEG) issued approximately 24.4 million shares of common stock
as part of a merger with three independent German bottlers of
the Company's products. The shares were valued at approximately
$925 million, based upon the fair values of the assets of the
three independent bottling companies. In connection with CCEG's
issuance of shares, the Company's ownership in the previously
wholly owned subsidiary was reduced to 45 percent. As a result,
the Company will prospectively account for its related investment
therein under the equity method of accounting. The transaction
resulted in a noncash pretax gain of approximately $283 million
for the Company.
In July 1996, Coca-Cola Amatil Limited (Coca-Cola Amatil)
issued approximately 46 million shares in a placement with the
Kerry Group in exchange for approximately $522 million. The
issuance reduced the Company's ownership percentage in Coca-Cola
Amatil from approximately 39 percent to approximately 36 percent.
This transaction resulted in a noncash pretax gain of
approximately $130 million to the Company.
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, the Company's ownership interest in
Coca-Cola Amatil was diluted to approximately 40 percent. The
transaction resulted in a noncash pretax gain of approximately
$74 million for the Company.
INCOME TAXES
In the third quarter of 1996, the Company reported an income
tax benefit due primarily to a settlement agreement in principle
between the Company and the U.S. Internal Revenue Service. The
agreement included issues in litigation involving Company
operations in Puerto Rico. Some of the issues date back to the
1981 tax year and extend through 1995. This agreement had the
effect of increasing net income by $320 million as a result of
a reversal of previously accrued tax liabilities.
- 16 -
RESULTS OF OPERATIONS (CONTINUED)
The Company's effective tax rate for the nine months ended
September 30, 1996 was 21.8 percent compared to 31.3 percent for
the comparable period in 1995, reflecting the favorable
settlement with the IRS.
The Company's tax rate for the third quarter and first nine
months of 1996 would have been 31 percent, excluding the
favorable impact of the IRS settlement. The 31 percent effective
tax rate reflects tax benefits derived from significant
operations outside the United States which are taxed at rates
lower than the U.S. statutory rate of 35 percent.
NET INCOME
Net income per share for the third quarter and the first nine
months of 1996 increased at a higher rate than net income due to
the Company's share repurchase program.
- 17 -
FINANCIAL CONDITION
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first nine months of 1996, net cash flow after
reinvestment totaled $2,277 million, an increase of $438 million
over the comparable period in 1995. Net cash provided by
operating activities increased by $343 million, primarily as a
result of higher net income. Net change in operating assets and
liabilities for the first nine months of 1996 includes a decrease
in accrued taxes of $450 million, primarily as a result of the
agreement in principle with the U.S. Internal Revenue Service as
discussed above.
Net cash used in investing activities decreased $95 million in
the first nine months of 1996 as compared to the first nine
months of 1995. This net change comprised an increase of $565
million in proceeds from disposals of investments and other
assets to $1,070 million, primarily as a result of the cash
proceeds received for the sale of the Company's bottling and
canning operations in France and Belgium. Further, the reduction
in property, plant and equipment before depreciation of $934
million and the reduction in goodwill and other intangible assets
of $367 million for first nine months of 1996 also relate
primarily to the sale of the Company's bottling and canning
operations in France and Belgium. Cash used in acquisitions and
investments, principally bottling companies increased by $470
million in the first nine months of 1996 as compared to the first
nine months of 1995, which includes the Company's investments in
Embotelladora Coca-Cola y Hit de Venezuela S.A. and Embotelladoras
Polar S.A. in Chile. Reinvestment in the form of property, plant
and equipment, an ongoing use of cash for investing activities,
was $682 million for the first nine months of 1996, a decrease of
$26 million from the comparable period in 1995.
FINANCING
Financing activities primarily represent the Company's net
borrowing activities, dividend payments and share repurchases.
Net cash used in financing activities totaled $1,216 million and
$1,402 million for the first nine months of 1996 and 1995,
respectively. Net borrowings were $286 million in the first nine
months of 1996, compared to $511 million in the first nine months
of 1995. Cash used for share repurchases decreased to $952
million, compared to $1,417 million in the comparable period in
1995.
- 18 -
FINANCIAL CONDITION (CONTINUED)
EXCHANGE
International operations are subject to certain opportunities
and risks, including currency fluctuations and governmental
actions. The Company closely monitors its methods of operating
in each country and adopts appropriate strategies responsive to
each environment. On a weighted average basis, the U.S. dollar
was approximately 8 percent stronger during the third quarter of
1996 versus key currencies for the comparable period of the prior
year. However, the Company's foreign currency management program
mitigates the adverse impact of exchange on net income and earnings
per share.
- 19 -
Part II. Other Information
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, in April 1994, Deborah A. Heller,
et al., individually and as a class representative, filed a class
action lawsuit against the Company and other sellers of diet soft
drink products in the Supreme Court of the State of New York,
County of Kings, which alleged that the plaintiff and other
members of the purported class had been defrauded by the
defendants by reason of their failure to advise consumers that
the sweetness level of diet soft drinks sweetened with aspartame
degrades over time. The initial complaint, which asserted claims
based upon common law fraud and violation of New York state
consumer protection statutes, did not indicate a specific damage
amount in its prayer for damages. On July 27, 1994, plaintiffs
filed an amended complaint adding several individually-named
plaintiffs and a claim for unjust enrichment. On September 23,
1994, the Company filed a motion to dismiss plaintiffs' amended
complaint in its entirety. On November 7, 1994, the plaintiffs
filed a motion for summary judgment seeking from the Company
damages of at least $1,187 million based upon its sales of such
diet soft drinks during the period from April 1988 through
December 1993. The New York law upon which plaintiffs' claims
are based allows the Court, at its discretion, to increase up to
three times any damages it awards.
On April 4, 1995, the Court granted defendants' motion to
dismiss the complaint, ruling that the Federal Food and Drug
Administration has primary jurisdiction over the issue raised by
plaintiffs; and that in any event, plaintiffs had failed to state
a cause of action under any of the various fraud,
misrepresentation and/or consumer protection counts of their
complaint. The Court also held that plaintiffs had no unjust
enrichment claim. Plaintiffs' cross motions for class action
certification and partial summary judgment were deemed moot in
light of the Court's other rulings and were not formally ruled
upon. Plaintiffs thereafter filed a notice of appeal and also
asked the Court to reconsider its earlier opinion. The latter
request was denied by the Court on October 31, 1995.
On August 12, 1996, the Appellate Division of the New York
Supreme Court affirmed the ruling of the lower court in favor of
the Company and other defendants. Plaintiffs have filed a motion
for leave to appeal to the New York Court of Appeals and the
defendants have filed papers opposing that motion.
- 20 -
Item 1. Legal Proceedings (continued)
As reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, on February 26, 1992, suit was
brought against the Company in Texas state court by The Seven-Up
Company, a competitor of the Company. An amended complaint was
filed by The Seven-Up Company on February 8, 1994. The suit
alleges that the Company is attempting to dominate the lemon-lime
segment of the soft drink industry by tortious acts designed to
induce certain independent bottlers of the Company's products to
terminate existing contractual relationships with the plaintiff
pursuant to which such bottlers bottle and distribute the
plaintiff's lemon-lime soft drink products. As amended, the
complaint alleges that Coca-Cola/Seven-Up bottlers in several
different territories, including Nacogdoches, Texas; Oklahoma
City, Oklahoma; Fargo, North Dakota; Shreveport, Louisiana;
Elkins, West Virginia; Salem, New Hampshire; Fayetteville,
Arkansas; Pine Bluff, Arkansas and Vicksburg, Mississippi, were
illegally induced into initiating Sprite distribution and
discontinuing Seven-Up distribution. The Company is accused of
using several different purportedly improper tactics to bring
about those bottler decisions, including false and misleading
statements by the Company about the plaintiff's past, present and
future business operations, improper financial advancements and
various forms of alleged coercion.
The complaint seeks unspecified money damages for (1) alleged
tortious interference with the plaintiff's contractual relations,
(2) alleged intentional tortious conduct to injure plaintiff, (3)
alleged disparagement of the plaintiff and its business, and (4)
alleged false and injurious statements harmful to plaintiff's
interests. The complaint also seeks an injunction prohibiting
future allegedly tortious conduct by the Company and seeks an
award of punitive damages in the amount of at least $500 million.
In 1993, the Company filed a counterclaim against The Seven-Up
Company in the matter alleging that The Seven-Up Company has
tortiously interfered with the Company's efforts to obtain
distribution of its lemon-lime soft drink, Sprite, through
bottlers of Coca-Cola.
On July 22, 1992, The Seven-Up Company filed a related suit in
federal court in Texas alleging that the facts and circumstances
giving rise to the state court suit (described above) also
constitute a violation of the federal Lanham Act which, inter
alia, proscribes false advertisement and disparagement of a
competitor's goods and services. The suit sought injunctive
relief, treble damages and attorneys' fees. In October 1994, the
federal Lanham Act suit was tried and resulted in a jury verdict
in favor of Seven-Up on certain of its claims. The jury awarded
Seven-Up a total of $2.53 million in damages. In December of
1994, the federal court entered an order setting aside that
damage award and awarded judgment in favor of the Company
notwithstanding the verdict. Seven-Up appealed that judgment.
- 21 -
Item 1. Legal Proceedings (continued)
Shortly after the federal court's ruling, the Company asked the
state court to dismiss all of the plaintiff's remaining claims in
that case based upon the judgment entered in the federal case.
On February 14, 1995, the state court granted that motion and
dismissed all of Seven-Up's remaining claims. Seven-Up appealed
that ruling as well.
On July 8, 1996, the U.S. Court of Appeals for the Fifth
Circuit affirmed the federal trial court's decision granting the
Company's motion for judgment in its favor notwithstanding the
jury's verdict for plaintiff Seven-Up.
On August 28, 1996, the Texas Court of Appeals affirmed the
summary judgment that the trial court had granted in the
Company's favor dismissing all of Seven-Up's state claims as
barred by the doctrine of res judicata. On September 12, 1996,
Seven-Up filed a motion for a rehearing of this decision. The
Company has opposed Seven-Up's motion.
The Company is involved in various other legal proceedings.
The Company believes that any liability to the Company which may
arise as a result of these proceedings, including the proceedings
specifically discussed above and in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, will not have
a material adverse effect on the financial condition of the
Company and its subsidiaries taken as a whole.
- 22 -
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3 - By-Laws of the Registrant, as amended and
restated through October 17, 1996
12 - Computation of Ratios of Earnings to Fixed
Charges
27 - Financial Data Schedule for the nine months
ended September 30, 1996, submitted to the Securities
and Exchange Commission in electronic format
(b) Reports on Form 8-K:
No report on Form 8-K has been filed during the quarter
for which this report is filed.
- 23 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: November 14, 1996 By: /s/ Gary P. Fayard
----------------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant
and as Principal Accounting
Officer)
- 24 -
EXHIBIT INDEX
Exhibit Number and Description
3 - By-Laws of the Registrant, as amended and
restated through October 17, 1996
12 - Computation of Ratios of Earnings to Fixed
Charges
27 - Financial Data Schedule for the nine months
ended September 30, 1996, submitted to the Securities
and Exchange Commission in electronic format