EXHIBIT 13.1
FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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Our mission is to maximize share-owner value over time. To
create long-term value, The Coca-Cola Company and its
subsidiaries (our Company) execute a comprehensive business
strategy driven by four key objectives. We strive to (1)
increase volume, (2) expand our share of beverage sales
worldwide, (3) maximize our long-term cash flows and (4)
improve economic profit and create economic value added. We
achieve these goals by strategically investing 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: New investments must directly enhance our existing
operations and must be expected to provide cash returns that
exceed our long-term, after-tax, weighted-average cost of
capital, currently estimated at approximately 11 percent.
Because it consistently generates high returns, our
business, beverages, is a particularly attractive investment
for us. In emerging and still-developing markets, our
Company's main objective is to increase the penetration of
our products. In these markets, the bulk of our investments
are for infrastructure enhancements such as production
facilities, distribution networks, sales equipment and
technology. We make these investments by acquiring or forming
strategic business alliances with local bottlers and by
matching local expertise with our experience, resources and
focus. In highly developed markets, our expenditures are
primarily for marketing activities.
Currently, 50 percent of the world's population live in
markets where the average person consumes fewer than 10
servings of our beverages per year. For example, the emerging
markets of China, India, Indonesia and Russia represent
approximately 44 percent of the world's population, yet, on a
combined basis, the average per capita consumption of our
products in these markets is less than 2 percent of the
United States' level. We continue to invest aggressively in
these areas.
Our investment strategy focuses on the four fundamental
components of our business: bottling operations, capital
expenditures, marketing activities and people.
BOTTLING OPERATIONS - Our Company has business relationships
with three types of bottlers: (1) independently owned
bottlers, in which we have no ownership interest; (2)
bottlers in which we have invested and have a noncontrolling
ownership interest; and (3) bottlers in which we have
invested and have a controlling ownership interest.
During 1997, independently owned bottling operations
produced and distributed approximately 37 percent of our
worldwide unit case volume. Bottlers in which we own a
noncontrolling ownership interest produced and distributed
approximately 50 percent of our 1997 worldwide unit case
volume while controlled bottling and fountain operations
produced and distributed approximately 13 percent of 1997
worldwide unit case volume.
The reason we invest in bottling operations is to maximize
the strength and efficiency of our production, distribution
and marketing systems around the world. These investments
often result in increases in unit case volume, net revenues
and profits at the bottler level, which in turn generate
increased gallon shipments for our concentrate business. As a
result, both our Company and the bottlers benefit from long-
term growth in volume, improved cash flows and increased
share-owner value.
The level of our investment generally depends on the
bottler's capital structure and its available resources at
the time of our investment. In certain situations, it can be
advantageous to acquire a controlling interest in a bottling
operation. Although it is not our primary long-term business
strategy, owning a controlling interest allows us to
compensate for limited local resources and enables us to help
focus these bottlers' sales and marketing programs, assist in
developing their business and information systems, and
establish appropriate capital structures.
In 1997, we purchased the bottling assets of three South
Korean bottlers. Also in 1997, the Indian government approved
our plan to invest in Indian bottling operations, allowing us
to set up an integrated bottling system in India. Previously,
we acquired controlling interests in certain bottling
operations in Italy in 1996 and 1995. By providing capital
and marketing expertise to newly acquired bottlers, we
strengthen their ability to deliver our Company's brands to
customers and consumers.
In line with our long-term bottling strategy, we
periodically consider options for reducing our ownership
interest in a consolidated bottler. One option for reducing
our ownership interest is to combine our bottling interests
with the bottling interests of others to form strategic
business alliances. Another option is to sell our interest
in a consolidated bottling operation to one of our equity
investee bottlers. In both of these situations, we continue
participating in the previously consolidated bottler's
earnings through our portion of the equity investee's income.
Consistent with our strategy, in early 1998, we announced a
proposal for our consolidated bottling operations in northern
and central Italy to become part of a new publicly traded
European bottler, Coca-Cola Beverages. Coca-Cola Beverages
will be formed upon the completion of a proposed spin-off by
Coca-Cola Amatil Limited (Coca-Cola Amatil) of its European
operations. After the spin-off, these Italian bottling
operations will be acquired by Coca-Cola Beverages for both
cash and shares of Coca-Cola Beverages stock in a transaction
valued at approximately $979 million. Additionally, once the
proposed spin-off has been completed, our bottling operations
in South Korea will be acquired by Coca-Cola Amatil for shares of
stock in Coca-Cola Amatil in a transaction valued at approximately
$588 million. The proposed transactions are subject to certain
conditions, including approvals by holders of ordinary shares
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FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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of Coca-Cola Amatil stock and applicable regulatory
authorities.
In 1996, we sold our consolidated bottling and canning
operations in France and Belgium to Coca-Cola Enterprises
Inc. (Coca-Cola Enterprises). We also formed a strategic
business alliance in Germany, Coca-Cola Erfrischungsgetraenke
AG (CCEAG), in 1996 through the merger of our then wholly
owned east German bottler with three independent bottlers. In
1997, we merged our consolidated bottling operation in
Germany, Coca-Cola Rhein-Ruhr, into CCEAG. Currently, we have
a 45 percent interest in CCEAG.
Also in 1996, we combined our bottling interests in
Venezuela with the Cisneros Group's bottling companies to
form a new joint venture, Embotelladora Coca-Cola y Hit de
Venezuela, S.A. (Coca-Cola y Hit). In 1997, our Company and
the Cisneros Group sold our respective interests in Coca-Cola
y Hit to Panamerican Beverages, Inc. (Panamco) in exchange
for shares of Panamco stock. At the completion of this
transaction, our ownership in Panamco was approximately 23
percent, and we began accounting for our investment by the
equity method.
As stated earlier, our investments in a bottler can
represent either a noncontrolling or a controlling interest.
Through noncontrolling investments in bottling companies, we
provide expertise and resources to strengthen those
businesses. In 1997, we increased our interest in Grupo
Continental, S.A., a bottler in Mexico, from 18 percent to 20
percent; our interest in Embotelladoras Polar S.A., a bottler
headquartered in Chile, from 17 percent to 19 percent; and
our interest in Embotelladora Andina S.A., another bottler
headquartered in Chile, from 6 percent to 11 percent.
Certain bottling operations in which we have a
noncontrolling ownership interest are designated as "anchor
bottlers" due to their level of responsibility and
performance. Anchor bottlers are strongly committed to their
own profitable growth which, in turn, helps us meet our
strategic goals and furthers the interests of our worldwide
production, distribution and marketing systems. Anchor
bottlers tend to be large and geographically diverse with
strong financial and management resources. In 1997, our
anchor bottlers produced and distributed approximately 38
percent of our total worldwide unit case volume. Anchor
bottlers give us strong partners on every major continent.
Upon its formation, Coca-Cola Beverages, the Coca-Cola
Amatil spin-off which will operate in Europe, will be
designated as our tenth anchor bottler. Additionally, we
designated Coca-Cola Nordic Beverages (CCNB) as an anchor
bottler in 1997. CCNB, a joint venture in which Carlsberg A/S
will own a 51 percent interest and we will own a 49 percent
interest, has bottling operations in Denmark and Sweden.
In 1997, our Company and San Miguel Corporation (San
Miguel) sold Coca-Cola Bottlers Philippines, Inc. to Coca-Cola
Amatil in exchange for shares of Coca-Cola Amatil stock.
Also in 1997, we sold to Coca-Cola Enterprises our 49 percent
interest in Coca-Cola & Schweppes Beverages Ltd., a bottler
in Great Britain; our 48 percent interest in Coca-Cola
Beverages Ltd. of Canada; and our 49 percent interest in The
Coca-Cola Bottling Company of New York, Inc.
In line with our established investment strategy, our
bottling investments have been profitable over time. For
bottling investments that are accounted for by the equity
method, we measure the profitability of our bottling
investments in two ways - equity income and the excess of the
fair values over the carrying values of our investments.
Equity income, which is included in our consolidated net
income, represents our share of the net earnings of our
investee companies. In 1997, equity income was $155 million.
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):
Fair Carrying
December 31, Value Value Excess
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1997
Coca-Cola Enterprises Inc. $ 6,008 $ 184 $ 5,824
Coca-Cola Amatil Limited 2,122 1,204 918
Panamerican Beverages, Inc. 924 735 189
Coca-Cola FEMSA, S.A. de C.V. 827 87 740
Grupo Continental, S.A. 272 89 183
Coca-Cola Bottling Co. Consolidated 171 71 100
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$ 7,954
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The excess of calculated fair values over carrying values
for our investments illustrates the significant increase in
the value of our investments. Although this excess value for
equity method investees is not reflected in our consolidated
results of operations or financial position, it represents a
true economic benefit to us.
CAPITAL EXPENDITURES - Capital expenditures for property,
plant and equipment and the percentage distribution by
geographic area for 1997, 1996 and 1995 are as follows (in
millions):
Year Ended December 31, 1997 1996 1995
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Capital expenditures $ 1,093 $ 990 $ 937
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North America 24% 27% 31%
Africa 2% 3% 2%
Greater Europe 30% 38% 41%
Latin America 7% 8% 9%
Middle & Far East 18% 12% 9%
Corporate 19% 12% 8%
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In 1996, our Company launched Project Infinity, a strategic
business initiative utilizing technology to integrate business
systems across our global enterprise over the next several years.
In 1997, we began testing a limited version of the Project
Infinity software technology and anticipate rolling it out to
certain divisions in late 1998. Project Infinity will enhance
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FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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our competitiveness by supplying immediate, detailed
information about our financial position and the marketplace
to our management, associates and bottlers worldwide. By
giving our people real-time data, Project Infinity will
increase our ability to recognize opportunities and make
better and faster decisions about operations, marketing and
finance. Project Infinity will require significant capital
expenditures over the next several years. All related costs
of business process reengineering activities have been
expensed as incurred.
In December 1997, our Company signed a letter of intent
with beverage company Pernod Ricard to purchase its Orangina
brands, three bottling operations and one concentrate plant
in France for approximately 5 billion French francs
(approximately $850 million based on December 1997 exchange
rates). This transaction is subject to approvals from
regulatory authorities.
MARKETING ACTIVITIES - In addition to investing in our
bottling and distribution infrastructure, we make significant
expenditures in marketing to support our trademarks. We
define marketing as anything we do to create consumer demand
for our brands. We focus on continually finding new ways to
differentiate our products and build value into all our
brands. Marketing spending enhances consumer awareness and
increases consumer preference for our brands. This produces
growth in volume, per capita consumption and our share of
worldwide beverage sales.
We heighten consumer awareness and product appeal for our
trademarks using integrated marketing programs. Through our
bottling investments and strategic alliances with other
bottlers of our products, we create and implement these
programs worldwide. In developing a global strategy for a
Company trademark, we conduct product and packaging research,
establish brand positioning, develop precise consumer
communications and solicit consumer feedback. Our integrated
marketing programs include activities such as advertising,
point-of-sale merchandising and product sampling.
To maximize the impact of our advertising expenditures, we
assign specific brands to individual advertising agencies.
This approach enables us to increase accountability and
enhance each brand's global positioning.
PEOPLE - Our continued success depends on recruiting,
training and retaining people who can quickly identify and
act on profitable business opportunities. This means
maintaining and refining a corporate culture that encourages
learning, innovation and value creation on a daily basis. The
Coca-Cola Learning Consortium works with the management of
our entire system to foster learning as a core capability.
This group helps build the culture, systems and processes our
people need to develop the knowledge and skills to take
advantage of new opportunities.
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 - Our Company maintains debt levels considered
prudent based on our cash flow, interest coverage and
percentage of debt to capital. We use debt financing to lower
our overall cost of capital, which increases our return on
share-owners' equity.
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.
Our global presence and strong capital position give us
easy access to key financial markets around the world,
enabling us to raise funds with a low effective cost. This
posture, coupled with the active management of our mix of
short-term and long-term debt, results in a lower overall
cost of borrowing. Our debt management policies, in
conjunction with our share repurchase programs and investment
activity, typically result in current liabilities exceeding
current assets.
In managing our use of debt capital, we consider the
following financial measurements and ratios:
Year Ended December 31, 1997 1996 1995
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Net debt (in billions) $ 2.0 $ 2.8 $ 2.6
Net debt-to-net capital 22% 31% 32%
Free cash flow to net debt 172% 85% 82%
Interest coverage 22x 17x 16x
Ratio of earnings to
fixed charges 20.8x 14.9x 14.5x
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Net debt is debt in excess of cash, cash equivalents and
marketable securities not required for operations and certain
temporary bottling investments.
SHARE REPURCHASES - Our Company demonstrates confidence in
the long-term growth potential of our business by our
continued and consistent use of share repurchase programs. In
1992, our Board of Directors authorized a plan to repurchase
up to 200 million shares of our Company's common stock
through the year 2000. In 1997, we repurchased approximately
20 million shares under the 1992 plan. Through 1997, we had
repurchased 187 million shares under the 1992 plan.
In October 1996, our Board of Directors authorized a new
program to repurchase 206 million additional shares through
the year 2006.
Since the inception of our initial share repurchase program
in 1984 through our current program as of December 31, 1997,
we have repurchased more than 1 billion shares, representing
31 percent of the shares outstanding as of January 1, 1984,
at an average price per share of $11.27.
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FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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DIVIDEND POLICY - At its February 1998 meeting, our Board of
Directors again increased our quarterly dividend to $.15 per
share, equivalent to a full-year dividend of $.60 in 1998,
our 36th consecutive annual increase. Our annual common stock
dividend was $.56 per share, $.50 per share and $.44 per
share in 1997, 1996 and 1995, respectively.
In 1997, our dividend payout ratio was approximately 34
percent of our net income. To free up additional cash for
reinvestment in our high-return beverages business, our Board
of Directors intends to gradually reduce our dividend payout
ratio to 30 percent over time.
FINANCIAL RISK MANAGEMENT
Our Company uses derivative financial instruments primarily
to reduce our exposure to adverse fluctuations in interest
rates and foreign exchange rates, and to a lesser extent, to
reduce our exposure to adverse fluctuations in commodity
prices and other market risks. We do not enter into
derivative financial instruments for trading purposes. As a
matter of policy, all our derivative positions are used to
reduce risk by hedging an underlying economic exposure.
Because of the high correlation between the hedging
instrument and the underlying exposure, fluctuations in the
value of the instruments are generally offset by reciprocal
changes in the value of the underlying exposure. The
derivatives we use are straightforward instruments with
liquid markets.
Our Company monitors our exposure to financial market risks
using several objective measurement systems, including value-
at-risk models. For the value-at-risk calculations discussed
below, we used a historical simulation model to estimate
potential future losses our Company could incur as a result
of adverse movements in foreign currency and interest rates.
We have not considered the potential impact of favorable
movements in foreign currency and interest rates on our
calculations. We examined historical weekly returns over the
previous 10 years to calculate our value at risk. Our value-
at-risk calculations do not purport to represent the actual
losses that our Company expects to incur.
FOREIGN CURRENCY - We manage most of our foreign currency
exposures on a consolidated basis, which allows us to net
certain exposures and take advantage of any natural offsets.
With approximately 77 percent of our 1997 operating income
generated outside the United States, weakness in one
particular currency is often offset by strengths in others.
We use derivative financial instruments to further reduce our
net exposure to currency fluctuations.
Our Company enters into forward exchange contracts and
purchases currency options (principally European currencies
and Japanese yen) to hedge firm sale commitments denominated
in foreign currencies. We also purchase 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.
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.
Our value-at-risk calculation estimates foreign currency
risk on our derivative and other financial instruments. We
have not included in our calculation the effects of currency
movements on anticipated foreign currency denominated sales
and other hedged transactions. According to our calculation,
on December 31, 1997, we estimate with 95 percent confidence
that the fair value of our derivative and other financial
instruments would decline by less than $58 million over a one-
week period due to an adverse move in foreign currency
exchange rates. However, we would expect that any loss in the
fair value of our derivative and other financial instruments
would be generally offset by an increase in the fair value of
our underlying exposures.
INTEREST RATES - Our Company maintains our percentage of
fixed and variable rate debt within defined parameters. We
enter into interest rate swap agreements that maintain the
fixed/variable mix within these parameters. Any differences
paid or received on interest rate swap agreements are
recognized as adjustments to interest expense over the life
of each swap.
Our value-at-risk calculation estimates interest rate risk
on our derivative and other financial instruments. According
to our calculation, on December 31, 1997, we estimate with 95
percent confidence that any increase in our net interest
expense due to an adverse move in interest rates over a one-
week period would not have a material impact on our
consolidated financial position, results of operations or
cash flows.
PERFORMANCE TOOLS
Economic profit and economic value added provide a framework
by which we measure the value of our actions. We define
economic profit as income from continuing operations after
taxes, excluding interest, 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. To ensure that our management team stays clearly
focused on the key drivers of our business, economic value
added and economic profit are used in determining annual
incentive awards and long-term incentive awards for most
eligible employees.
During 1996, we implemented a new tool to help us improve
our performance - value-based management (VBM). VBM does not
replace the economic value added concept; rather, it is a
tool to manage economic profit. It requires us to think about
creating value in everything we do, every day.
VBM's principles assist us in managing economic profit by
clarifying our understanding of what creates value and what
destroys it and encouraging us to manage for increased value.
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FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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With VBM, we determine how best to create value in every area
of our business. We believe that using VBM as a planning and
execution tool, and economic profit as a performance
measurement tool, greatly enhances our ability to build share-
owner value over time.
TOTAL RETURN TO SHARE OWNERS
Our Company has provided share owners with an excellent
return on their investment over the past decade. A $100
investment in our Company's common stock on December 31,
1987, together with reinvested dividends, grew in pretax
value to approximately $1,643 on December 31, 1997, an
average annual compound return of 32 percent.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUR BUSINESS
We are the largest manufacturer, distributor and marketer of
soft-drink beverage concentrates and syrups in the world. Our
Company manufactures beverage concentrates and syrups and, in
certain instances, finished beverages, which we sell to
bottling and canning operations, authorized fountain
wholesalers and some fountain retailers. In addition, we have
ownership interests in numerous bottling and canning
operations. We are also the world's largest distributor and
marketer of juice and juice-drink products.
We own some of the world's most valuable brands, more than
160 brands in all. These include soft drinks and
noncarbonated beverages such as sports drinks, juice drinks,
milk products, water products, teas and coffees.
VOLUME
We measure our sales volume in two ways: (1) gallon shipments
of concentrates and syrups and (2) unit cases of finished
product. Gallon shipments represent our primary business and
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. We include fountain syrups sold directly to
our customers in both measures.
In 1997, our worldwide unit case volume increased 9
percent, on top of an 8 percent increase in 1996. Our
business system sold 14.9 billion unit cases in 1997, an
increase of 1.2 billion unit cases over 1996. Our 1997
results are the product of years of systematically investing
not only in marketing, but also in our worldwide
infrastructure that includes bottlers, capital, information
systems and people.
OPERATIONS
NET OPERATING REVENUES AND GROSS MARGIN - On a consolidated
basis, our net revenues increased 1 percent and our gross
profit grew 8 percent in 1997. The growth in revenues
reflects gallon shipment increases and price increases in
certain markets, offset by the full-year impact of the sale
of previously consolidated bottling and canning operations in
France, Belgium and eastern Germany in 1996 as well as the
effects of a stronger U.S. dollar. Our gross profit margin
increased to 68 percent in 1997 from 64 percent in 1996,
primarily due to the sale in 1996 of previously consolidated
bottling operations, which shifted proportionately more
revenue to our higher margin concentrate business.
On a consolidated basis, our net revenues grew 3 percent
and our gross profit grew 7 percent in 1996. The increase in
revenues was due primarily to an increase in gallon shipments
and selective price increases offset by a stronger U.S.
dollar and the disposition of our French, Belgian and east
German bottling and canning operations. Our gross profit
margin increased to 64 percent in 1996 from 62 percent in
1995, primarily due to the sale of our previously
consolidated bottling and canning operations as well as
favorable results from changes in our product mix.
Additionally, gross margins improved in 1996 due to favorable
price variances in raw materials, such as packaging, at our
consolidated bottlers.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES - Selling
expenses were $6,244 million in 1997, $6,018 million in 1996
and $5,508 million in 1995. The increases in 1997 and 1996
were primarily due to higher marketing expenditures in
support of our Company's volume growth.
Administrative and general expenses totaled $1,608 million
in 1997, $2,002 million in 1996 and $1,653 million in 1995.
The decrease in 1997 was principally due to certain
nonrecurring provisions recorded in 1996, as discussed below,
partially offset by a $60 million nonrecurring provision
recorded in 1997 related to enhancing manufacturing
efficiencies in North America.
Administrative and general expenses increased in 1996 due
to certain nonrecurring provisions. In the third quarter of
1996, we recorded provisions of approximately $276 million in
administrative and general expenses related to our plans for
strengthening our worldwide system. Of this $276 million,
approximately $130 million related to streamlining our
operations, primarily in Greater Europe and Latin America. Our
management took actions to consolidate certain manufacturing
operations and, as a result, recorded charges to recognize the
impairment of certain manufacturing assets and the estimated
losses on the disposal of other assets. The remainder of this
$276 million provision was for impairment charges to certain
production facilities and reserves for losses on the disposal
of other production facilities of The Minute Maid Company.
Also in the third quarter of 1996, we recorded in administrative
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FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
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and general expenses an $80 million impairment charge to
recognize Project Infinity's impact on existing information
systems and a $28.5 million charge as a result of our
decision to make a contribution to The Coca-Cola Foundation,
a not-for-profit charitable organization.
Administrative and general expenses, as a percentage of net
operating revenues, were approximately 9 percent in 1997, 11
percent in 1996 and 9 percent in 1995.
OPERATING INCOME AND OPERATING MARGIN - On a consolidated
basis, our operating income increased 28 percent in 1997,
following a 3 percent decrease in 1996. The increase in 1997
was due to increased gallon shipments coupled with an
increase in gross profit margins, as well as the recording of
several nonrecurring provisions in the third quarter of 1996.
In addition, the curtailment of concentrate shipments
decreased 1996 operating income by an estimated $290 million.
Our consolidated operating margin was 27 percent in 1997 and
21 percent in 1996.
MARGIN ANALYSIS
[bar chart]
1997 1996 1995
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Net Operating Revenues $18.9 $18.7 $18.1
(in billions)
Gross Margin 68% 64% 62%
Operating Margin 27% 21% 22%
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INTEREST INCOME AND INTEREST EXPENSE - In 1997, our interest
income decreased 11 percent due primarily to decreases in
international interest rates. Interest expense decreased 10
percent in 1997 due to lower average commercial paper
borrowings.
In 1996, our interest income decreased 3 percent, due
primarily to lower average short-term investments and lower
average interest rates in Latin America. Interest expense
increased 5 percent in 1996, due to higher average debt
balances.
EQUITY INCOME - Equity income decreased 27 percent to $155
million in 1997, due primarily to the significant amount of
structural change in our global bottling system, which was
partially offset by solid results at key equity bottlers.
Equity income increased 25 percent to $211 million in 1996,
due primarily to stronger operating performances by Coca-Cola
Enterprises, Coca-Cola Beverages Ltd. of Canada and The
Coca-Cola Bottling Company of New York, Inc.
OTHER INCOME-NET - In 1997, other income-net increased $496
million and includes gains totaling $508 million on the sales
of our interests in Coca-Cola & Schweppes Beverages Ltd.,
Coca-Cola Beverages Ltd. of Canada and The Coca-Cola Bottling
Company of New York, Inc. Gains on other bottling
transactions are also included in other income-net.
In 1996, other income-net increased $1 million and included
gains recorded on the sale of our bottling and canning
operations in France and Belgium, as well as gains on other
bottling transactions.
GAINS ON ISSUANCES OF STOCK BY EQUITY INVESTEES - In 1997,
our Company and San Miguel sold our respective interests in
Coca-Cola Bottlers Philippines, Inc. to Coca-Cola Amatil in
exchange for approximately 293 million shares of Coca-Cola
Amatil stock. In connection with this transaction, Coca-Cola
Amatil issued to San Miguel approximately 210 million shares
valued at approximately $2.4 billion. The issuance to San
Miguel resulted in a one-time noncash pretax gain for our
Company of approximately $343 million, and resulted in our 36
percent interest in Coca-Cola Amatil being diluted to
approximately 33 percent.
Also in 1997, our Company and the Cisneros Group sold our
respective interests in Coca-Cola y Hit to Panamco in
exchange for approximately 30.6 million shares of Panamco
stock. In connection with this transaction, Panamco issued to
the Cisneros Group approximately 13.6 million shares valued
at approximately $402 million. The issuance to the Cisneros
Group resulted in a one-time noncash pretax gain for our
Company of approximately $20 million. At the completion of
this transaction, our ownership in Panamco was approximately
23 percent.
In 1996, Coca-Cola Amatil issued approximately 46 million
shares in exchange for approximately $522 million. This
issuance reduced our ownership in Coca-Cola Amatil from
approximately 39 percent to approximately 36 percent and
resulted in a noncash pretax gain for our Company of
approximately $130 million.
Also in 1996, Coca-Cola Erfrischungsgetraenke G.m.b.H.
(CCEG), our wholly owned east German bottler, issued new
shares to effect a merger with three independent German
bottling operations. The shares were valued at approximately
$925 million, based upon the fair values of the assets of the
three acquired bottling companies. Approximately 24.4 million
shares were issued, resulting in a noncash pretax gain
- 38 -
FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
- ------------------------------------------------------------------------
of approximately $283 million for our Company. We own a 45
percent interest in the resulting anchor bottler, CCEAG.
In 1996, Coca-Cola FEMSA de Buenos Aires, S.A. (CCFBA)
issued approximately 19 million shares to Coca-Cola FEMSA,
S.A. de C.V. This issuance reduced our ownership in CCFBA
from 49 percent to approximately 32 percent. We recognized a
noncash pretax gain of approximately $18 million as a result
of this transaction. In subsequent transactions, our Company
disposed of its remaining interest in CCFBA.
INCOME TAXES - Our effective tax rates were 31.8 percent in
1997, 24.0 percent in 1996 and 31.0 percent in 1995. Our 1997
effective tax rate of 31.8 percent 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, partially offset by the tax
impact of certain gains recognized from previously discussed
bottling transactions. These transactions are generally taxed
at rates higher than our Company's effective rate on
operations.
In the third quarter of 1996, our Company reached an
agreement in principle with the U.S. Internal Revenue Service
(IRS) settling certain U.S.-related income tax matters,
including issues in litigation related to our operations in
Puerto Rico dating back to 1981 and extending through 1995.
This settlement resulted in a one-time reduction of $320
million to our 1996 income tax expense as a result of a
reversal of previously accrued income tax liabilities and
reduced our effective tax rate in 1996. Excluding the
favorable impact of the settlement with the IRS, our 1996
effective tax rate would have been 31.0 percent.
INCOME PER SHARE - Accelerated by our Company's share
repurchase program, our basic net income per share grew 19
percent in 1997, 1996 and 1995, and diluted net income per
share grew 19 percent in 1997, 18 percent in 1996 and 19
percent in 1995.
LIQUIDITY AND CAPITAL RESOURCES
We believe our ability to generate cash from operations in
excess of our capital reinvestment and dividend requirements
is one of our fundamental financial strengths. We anticipate
that our operating activities in 1998 will continue to
provide us with sufficient cash flows to meet all our
financial commitments and to capitalize on opportunities for
business expansion.
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, 1997 1996 1995
- ------------------------------------------------------------------------
Cash flows provided by (used in):
Operations $ 4,033 $ 3,463 $ 3,328
Investment activities (500) (1,050) (1,226)
- ------------------------------------------------------------------------
FREE CASH FLOW 3,533 2,413 2,102
Cash flows used in:
Financing
Share repurchases (1,262) (1,521) (1,796)
Other financing activities (1,833) (581) (482)
Exchange (134) (45) (43)
- ------------------------------------------------------------------------
Increase (decrease) in cash $ 304 $ 266 $ (219)
========================================================================
Cash provided by operations in 1997 amounted to $4.0
billion, a 16 percent increase from 1996. This increase is
primarily due to growth in net income in 1997. In 1996, cash
provided by operations amounted to $3.5 billion, a 4 percent
increase from 1995. This increase resulted from the continued
growth of our business and includes the cash effect of
significant items recorded in 1996. These items have been
discussed previously in Management's Discussion and Analysis
on pages 37 through 39.
In 1997, net cash used in investment activities decreased
from 1996, primarily due to the increase in proceeds from the
disposal of investments and other assets including the
dispositions of our interests in Coca-Cola & Schweppes
Beverages Ltd., The Coca-Cola Bottling Company of New York,
Inc. and Coca-Cola Beverages Ltd. of Canada. The growth in
proceeds from disposals was partially offset by increased
acquisitions and investments, primarily in bottling
operations, including the South Korean bottlers. In 1996, net
cash used in investment activities decreased from 1995, also
due to the increase in proceeds from the disposal of
investments and other assets including the disposition of our
bottling and canning operations in France and Belgium. The
increase in proceeds from disposals was partially offset by
significant acquisitions and investments, including our
investment in Coca-Cola y Hit.
FINANCING ACTIVITIES - Our financing activities include net
borrowings, dividend payments and share repurchases. Net cash
used in financing activities totaled $3.1 billion in 1997,
$2.1 billion in 1996 and $2.3 billion in 1995. The change
between 1997 and 1996 was primarily due to net reductions of
debt in 1997 compared to net borrowings of debt in 1996. Cash
used to purchase common stock for treasury was $1.3 billion
in 1997 versus $1.5 billion in 1996.
Commercial paper is our primary source of short-term financing.
On December 31, 1997, we had $2.6 billion outstanding in
commercial paper borrowings. In addition, we had $.9 billion in
lines of credit and other short-term credit facilities available,
$.1 billion of which was outstanding. The 1997 reduction in
- 39 -
FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
- ------------------------------------------------------------------------
loans and notes payable was funded by proceeds received from
the sale of certain bottling interests, as discussed
previously.
EXCHANGE - Our international operations are subject to
certain opportunities and risks, including currency
fluctuations and government actions. We closely monitor our
operations in each country so we can quickly and decisively
respond to changing economic and political environments and
to fluctuations in foreign currencies and interest rates.
We use approximately 50 functional currencies. Due to our
global operations, weaknesses in some of these currencies are
often offset by strengths in others. In 1997, 1996 and 1995,
the weighted-average exchange rates for a basket of selected
foreign currencies, and certain individual currencies,
strengthened (weakened) against the U.S. dollar as follows:
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------
Basket of currencies (10)% (8)% Even
- -------------------------------------------------------------
Australian dollar (7)% 6% 1%
British pound 4% Even 3%
Canadian dollar (1)% Even Even
French franc (12)% (4)% 13%
German mark (13)% (6)% 13%
Japanese yen (10)% (15)% 9%
=============================================================
These percentages do not include the effects of our hedging
activities and, therefore, do not reflect the actual impact
of fluctuations in exchange on our operating results. Our
foreign currency management program mitigates over time a
portion of our exchange risks.
The change in our foreign currency translation adjustment
in 1997 and 1996 was primarily due to the revaluation of net
assets located in countries where the local currency
significantly weakened against the U.S. dollar. Exchange
gains (losses)-net amounted to $(56) million in 1997, $3
million in 1996 and $(21) million in 1995, and were recorded
in other income-net. Exchange gains (losses)-net includes the
remeasurement of certain currencies into functional
currencies and the costs of hedging certain of our balance
sheet exposures.
Additional information concerning our hedging activities is
presented on pages 53 through 55.
FINANCIAL POSITION
The carrying value of our investment in Coca-Cola Enterprises
decreased in 1997 as a result of deferred gains related to
the sales of our interests in Coca-Cola & Schweppes Beverages
Ltd., Coca-Cola Beverages Ltd. of Canada and The Coca-Cola
Bottling Company of New York, Inc. to Coca-Cola Enterprises.
The deferred gains result from our approximate 44 percent
ownership in Coca-Cola Enterprises. The carrying value of our
investment in Coca-Cola Amatil increased in 1997 due to
Coca-Cola Amatil issuing shares to San Miguel Corporation at
a value per share greater than the carrying value per share
of our interest in Coca-Cola Amatil. Our equity method
investments also increased in 1997 due to our change from the
cost method to the equity method in accounting for Panamco
and Grupo Continental, S.A., and due to increased investments
in other bottling operations. Our cost method investments
declined due to the change in accounting for Panamco
and Grupo Continental, S.A., partially offset by additional
investments in Embotelladoras Polar S.A. and Embotelladora
Andina S.A. Unrealized gain on available-for-sale securities,
a component of share-owners' equity, is comprised of
adjustments to report our marketable cost method investments
at fair value. During 1997, unrealized gain on securities
decreased $98 million due primarily to the change in
accounting for Panamco and Grupo Continental, S.A.
The 1996 decrease in our accounts receivable, inventories,
property, plant and equipment, goodwill, and accounts payable
and accrued expenses was primarily due to the disposition of
our previously consolidated bottling and canning operations
in France and Belgium and the deconsolidation of our
previously consolidated east German bottler. In 1996, our
equity method investments increased primarily due to our
investments in CCEAG and Coca-Cola y Hit. The 1996 increase
in cost method investments included our investment in
Embotelladoras Polar S.A., Embotelladora Andina S.A., Panamco
and noncash adjustments that increased our investments to
fair value. The decrease in accrued income taxes was directly
attributable to our 1996 settlement with the IRS, whereby
$320 million of previously accrued income tax liabilities was
reversed as a reduction of income tax expense.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation is a factor that affects 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 to
generate sufficient cash flows to maintain our productive
capability.
YEAR 2000
In prior years, certain computer programs were written using
two digits rather than four to define the applicable year.
These programs were written without considering the impact of
the upcoming change in the century and may experience
problems handling dates beyond the year 1999. This could
cause computer applications to fail or to create erroneous
results unless corrective measures are taken. Incomplete or
untimely resolution of the Year 2000 issue could have a
material adverse impact on our Company's business, operations
or financial condition in the future.
Our Company has been assessing the impact that the Year
2000 issue will have on our computer systems since 1995. In
response to these assessments, which are ongoing, our Company
has developed a plan to inventory critical systems and develop
solutions to those systems that are found to have date-related
- 40 -
FINANCIAL REVIEW INCORPORATING THE COCA-COLA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND SUBSIDIARIES
- ------------------------------------------------------------------------
deficiencies. Project plans call for the completion of the
solution implementation phase and testing of those solutions
prior to any anticipated impact on our systems. Our Company
is also surveying critical suppliers and customers to
determine the status of their Year 2000 compliance programs.
Based on our work to date, and assuming that our project
plans, which continue to evolve, can be implemented as
planned, we believe future costs relating to the Year 2000
issue will not have a material impact on our Company's
consolidated financial position, results of operations or
cash flows.
OUTLOOK
While we cannot predict future performance, we believe
considerable opportunities exist for sustained, profitable
growth, not only in the developing population centers of the
world but also in our most established markets, including the
United States.
We firmly believe the strength of our brands, our
unparalleled distribution system, our global presence, our
strong financial condition and the skills of our people give
us the flexibility to capitalize on these growth
opportunities as we continue to pursue our goal of increasing
share-owner value.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the
Act) provides a safe harbor for forward-looking statements
made by or on behalf of our Company. Our Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
our Company's filings with the Securities and Exchange
Commission and in our reports to share owners. All
statements which address operating performance, events or
developments that we expect or anticipate will occur in the
future, including statements relating to volume growth, share
of sales and earnings per share growth or statements
expressing general optimism about future operating results,
are forward-looking statements within the meaning of the Act.
The forward-looking statements are and will be based on
management's then current views and assumptions regarding
future events and operating performance.
The following are some of the factors that could cause
actual results to differ materially from estimates contained
in our Company's forward-looking statements:
- -- The ability to generate sufficient cash flows to support
capital expansion plans, share repurchase programs and
general operating activities.
- -- Competitive product and pricing pressures and the ability
to gain or maintain share of sales in the global market
as a result of actions by competitors. While we believe
our opportunities for sustained, profitable growth are
considerable, unanticipated actions of competitors could
impact our earnings, share of sales and volume growth.
- -- Changes in laws and regulations, including changes in
accounting standards, taxation requirements (including
tax rate changes, new tax laws and revised tax law
interpretations) and environmental laws in domestic or
foreign jurisdictions.
- -- Fluctuations in the cost and availability of raw
materials and the ability to maintain favorable supplier
arrangements and relationships.
- -- The ability to achieve earnings forecasts, which are
generated based on projected volumes and sales of many
product types, some of which are more profitable than
others. There can be no assurance that we will achieve
the projected level or mix of product sales.
- -- Interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations.
Most of our exposures to capital markets, including
interest and foreign currency, are managed on a
consolidated basis, which allows us to net certain
exposures and, thus, take natural offsets. We use
derivative financial instruments to reduce our net
exposure to financial risks. There can be no assurance,
however, that our financial risk management program will
be successful in reducing foreign currency exposures.
- -- Economic and political conditions in international
markets, including civil unrest, governmental changes and
restrictions on the ability to transfer capital across
borders.
- -- The ability to penetrate developing and emerging markets,
which also depends on economic and political conditions,
and how well we are able to acquire or form strategic
business alliances with local bottlers and make necessary
infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets
must match the customers' demand for those products, and
due to product price and cultural differences, there can
be no assurance of product acceptance in any particular
market.
- -- The effectiveness of our advertising, marketing and
promotional programs.
- -- The uncertainties of litigation, as well as other risks
and uncertainties detailed from time to time in our
Company's Securities and Exchange Commission filings.
- -- Adverse weather conditions, which could reduce demand for
Company products.
- -- Our Company's ability and our customers' and suppliers'
ability to replace, modify or upgrade computer programs
in ways that adequately address the Year 2000 issue.
The foregoing list of important factors is not exclusive.
ADDITIONAL INFORMATION
For additional information about our operations, cash flows,
liquidity and capital resources, please refer to the
information on pages 44 through 62 of this report. Additional
information concerning our operations in specific geographic
areas is presented on page 60.
- 41 -
SELECTED FINANCIAL DATA THE COCA-COLA COMPANY AND SUBSIDIARIES
Compound
(In millions except per Growth Rates Year Ended December 31,
share data, ratios ----------------- -------------------------------------------------
and growth rates) 5 Years 10 Years 1997 1996 1995 1994{2}
- ------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net operating revenues 7.5% 9.4% $ 18,868 $ 18,673 $18,127 $16,264
Cost of goods sold 3.5% 5.2% 6,015 6,738 6,940 6,168
- -----------------------------------------------------------------------------------------------
Gross profit 9.8% 12.3% 12,853 11,935 11,187 10,096
Selling, administrative
and general expenses 8.1% 11.3% 7,852 8,020 7,161 6,459
- -----------------------------------------------------------------------------------------------
Operating income 12.7% 14.0% 5,001 3,915 4,026 3,637
Interest income 211 238 245 181
Interest expense 258 286 272 199
Equity income 155 211 169 134
Other income (deductions)-net 583 87 86 (25)
Gains on issuances of stock by
equity investees 363 431 74 -
- -----------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 17.1% 16.1% 6,055 4,596 4,328 3,728
Income taxes 17.4% 14.5% 1,926 1,104 1,342 1,174
- -----------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles 17.0% 16.9% $ 4,129 $ 3,492 $ 2,986 $ 2,554
===============================================================================================
Net income 19.9% 16.3% $ 4,129 $ 3,492 $ 2,986 $ 2,554
Preferred stock dividends - - - -
- -----------------------------------------------------------------------------------------------
Net income available to
common share owners 19.9% 16.3% $ 4,129 $ 3,492 $ 2,986 $ 2,554
===============================================================================================
Average common shares
outstanding 2,477 2,494 2,525 2,580
Average common shares
outstanding assuming dilution 2,515 2,523 2,549 2,599
PER COMMON SHARE DATA
Income from continuing
operations before
changes in accounting
principles - basic 18.3% 19.1% $ 1.67 $ 1.40 $ 1.18 $ .99
Income from continuing
operations before
changes in accounting
principles - diluted 18.2% 18.9% 1.64 1.38 1.17 .98
Basic net income 21.5% 18.7% 1.67 1.40 1.18 .99
Diluted net income 21.5% 18.5% 1.64 1.38 1.17 .98
Cash dividends 14.9% 14.9% .56 .50 .44 .39
Market price on December 31 26.1% 30.2% 66.69 52.63 37.13 25.75
TOTAL MARKET VALUE OF
COMMON STOCK{1} 24.7% 27.8% $164,766 $130,575 $92,983 $65,711
BALANCE SHEET DATA
Cash, cash equivalents and
current marketable
securities $ 1,843 $ 1,658 $ 1,315 $ 1,531
Property, plant and
equipment-net 3,743 3,550 4,336 4,080
Depreciation 384 442 421 382
Capital expenditures 1,093 990 937 878
Total assets 16,940 16,161 15,041 13,873
Long-term debt 801 1,116 1,141 1,426
Total debt 3,875 4,513 4,064 3,509
Share-owners' equity 7,311 6,156 5,392 5,235
Total capital{1} 11,186 10,669 9,456 8,744
OTHER KEY FINANCIAL MEASURES{1}
Total debt-to-total capital 34.6% 42.3% 43.0% 40.1%
Net debt-to-net capital 21.9% 31.4% 32.2% 25.5%
Return on common equity 61.3% 60.5% 56.2% 52.0%
Return on capital 39.4% 36.7% 34.9% 32.7%
Dividend payout ratio 33.6% 35.7% 37.2% 39.4%
Free cash flow $ 3,533 $ 2,413 $ 2,102 $ 2,146
Economic profit $ 3,325 $ 2,718 $ 2,291 $ 1,896
===============================================================================================
<FN>
{1} See Glossary on page 67.
{2} In 1994, we adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
{3} In 1993, we adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
{4} In 1992, we adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."
</FN>
- 42 -
SELECTED FINANCIAL DATA THE COCA-COLA COMPANY AND SUBSIDIARIES
(In millions except per Year Ended December 31,
share data, ratios ----------------------------------------------------------------------------------------
and growth rates) 1993{3} 1992{4,5} 1991{5} 1990{5} 1989{5} 1988 1987
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net operating revenues $14,030 $13,119 $11,599 $10,261 $ 8,637 $ 8,076 $ 7,667
Cost of goods sold 5,160 5,055 4,649 4,208 3,548 3,429 3,633
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 8,870 8,064 6,950 6,053 5,089 4,637 4,034
Selling, administrative and
general expenses 5,771 5,317 4,641 4,103 3,342 3,044 2,682
- ---------------------------------------------------------------------------------------------------------------------
Operating income 3,099 2,747 2,309 1,950 1,747 1,603 1,352
Interest income 144 164 175 170 205 199 232
Interest expense 168 171 192 231 308 230 297
Equity income 91 65 40 110 75 92 64
Other income (deductions)-net 7 (59) 51 15 45 (38) (28)
Gains on issuances of stock by
equity investees 12 - - - - - 40
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income
taxes and changes in
accounting principles 3,185 2,746 2,383 2,014 1,764 1,626 1,363
Income taxes 997 863 765 632 553 537 496
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before changes
in accounting principles $ 2,188 $ 1,883 $ 1,618 $ 1,382 $ 1,211 $ 1,089 $ 867
=====================================================================================================================
Net income $ 2,176 $ 1,664 $ 1,618 $ 1,382 $ 1,537 $ 1,045 $ 916
Preferred stock dividends - - 1 18 21 7 -
- ---------------------------------------------------------------------------------------------------------------------
Net income available to
common share owners $ 2,176 $ 1,664 $ 1,617 $ 1,364 $ 1,516{6} $ 1,038 $ 916
=====================================================================================================================
Average common shares
outstanding 2,603 2,634 2,666 2,674 2,768 2,917 3,019
Average common shares
outstanding assuming dilution 2,626 2,668 2,695 2,706 2,789 2,929 3,037
PER COMMON SHARE DATA
Income from continuing
operations before
changes in accounting
principles - basic $ .84 $ .72 $ .61 $ .51 $ .43 $ .37 $ .29
Income from continuing
operations before
changes in accounting
principles - diluted .83 .71 .60 .50 .43 .37 .29
Basic net income .84 .63 .61 .51 .55{6} .36 .30
Diluted net income .83 .62 .60 .50 .54 .35 .30
Cash dividends .34 .28 .24 .20 .17 .15 .14
Market price on December 31 22.31 20.94 20.06 11.63 9.66 5.58 4.77
TOTAL MARKET VALUE OF
COMMON STOCK{1} $57,905 $54,728 $53,325 $31,073 $26,034 $15,834 $14,198
BALANCE SHEET DATA
Cash, cash equivalents and
current marketable
securities $ 1,078 $ 1,063 $ 1,117 $ 1,492 $ 1,182 $ 1,231 $ 1,489
Property, plant and
equipment-net 3,729 3,526 2,890 2,386 2,021 1,759 1,602
Depreciation 333 310 254 236 181 167 152
Capital expenditures 800 1,083 792 593 462 387 304
Total assets 12,021 11,052 10,189 9,245 8,249 7,451 8,606
Long-term debt 1,428 1,120 985 536 549 761 909
Total debt 3,100 3,207 2,288 2,537 1,980 2,124 2,995
Share-owners' equity 4,584 3,888 4,239 3,662 3,299 3,345 3,187
Total capital{1} 7,684 7,095 6,527 6,199 5,279 5,469 6,182
OTHER KEY FINANCIAL MEASURES{1}
Total debt-to-total capital 40.3% 45.2% 35.1% 40.9% 37.5% 38.8% 48.4%
Net debt-to-net capital 29.0% 33.1% 24.1% 24.6% 15.6% 21.1% 21.1%
Return on common equity 51.7% 46.4% 41.3% 41.4% 39.4% 34.7% 26.0%
Return on capital 31.2% 29.4% 27.5% 26.8% 26.5% 21.3% 18.3%
Dividend payout ratio 40.6% 44.3% 39.5% 39.2% 31.0%{6} 42.1% 46.0%
Free cash flow $ 1,623 $ 873 $ 960 $ 844 $ 1,664 $ 1,517 $ 1,023
Economic profit $ 1,549 $ 1,300 $ 1,073 $ 920 $ 859 $ 717 $ 530
=====================================================================================================================
<FN>
{5} In 1992, we adopted SFAS No. 109, "Accounting for Income Taxes," by restating financial statements
beginning in 1989.
{6} Net income available to common share owners in 1989 included after-tax gains of $604 million
($.22 per common share, basic and diluted) from the sales of our equity interest in Columbia Pictures
Entertainment, Inc. and our bottled water business, and the transition effect of $265 million related
to the change in accounting for income taxes. Excluding these nonrecurring items, our dividend payout
ratio in 1989 was 39.9 percent.
</FN>
- 43 -
CONSOLIDATED BALANCE SHEETS THE COCA-COLA COMPANY AND SUBSIDIARIES
December 31, 1997 1996
- ------------------------------------------------------------------------------------
(In millions except share data)
ASSETS
CURRENT
Cash and cash equivalents $ 1,737 $ 1,433
Marketable securities 106 225
- ------------------------------------------------------------------------------------
1,843 1,658
Trade accounts receivable, less allowances
of $23 in 1997 and $30 in 1996 1,639 1,641
Inventories 959 952
Prepaid expenses and other assets 1,528 1,659
- ------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,969 5,910
- ------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 184 547
Coca-Cola Amatil Limited 1,204 881
Other, principally bottling companies 3,049 2,004
Cost method investments, principally
bottling companies 457 737
Marketable securities and other assets 1,607 1,779
- ------------------------------------------------------------------------------------
6,501 5,948
- ------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 183 204
Buildings and improvements 1,535 1,528
Machinery and equipment 3,896 3,649
Containers 157 200
- ------------------------------------------------------------------------------------
5,771 5,581
Less allowances for depreciation 2,028 2,031
- ------------------------------------------------------------------------------------
3,743 3,550
- ------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS 727 753
- ------------------------------------------------------------------------------------
$ 16,940 $ 16,161
====================================================================================
See Notes to Consolidated Financial Statements.
- 44 -
CONSOLIDATED BALANCE SHEETS THE COCA-COLA COMPANY AND SUBSIDIARIES
December 31, 1997 1996
- ------------------------------------------------------------------------------------
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
CURRENT
Accounts payable and accrued expenses $ 3,249 $ 2,972
Loans and notes payable 2,677 3,388
Current maturities of long-term debt 397 9
Accrued income taxes 1,056 1,037
- ------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,379 7,406
- ------------------------------------------------------------------------------------
LONG-TERM DEBT 801 1,116
- ------------------------------------------------------------------------------------
OTHER LIABILITIES 1,001 1,182
- ------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 448 301
- ------------------------------------------------------------------------------------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,443,441,902 shares in 1997;
3,432,956,518 shares in 1996 861 858
Capital surplus 1,527 1,058
Reinvested earnings 17,869 15,127
Unearned compensation related to outstanding
restricted stock (50) (61)
Foreign currency translation adjustment (1,372) (662)
Unrealized gain on securities available for sale 58 156
- ------------------------------------------------------------------------------------
18,893 16,476
Less treasury stock, at cost
(972,812,731 shares in 1997;
951,963,574 shares in 1996) 11,582 10,320
- ------------------------------------------------------------------------------------
7,311 6,156
- ------------------------------------------------------------------------------------
$ 16,940 $ 16,161
====================================================================================
See Notes to Consolidated Financial Statements.
- 45 -
CONSOLIDATED STATEMENTS OF INCOME THE COCA-COLA COMPANY AND SUBSIDIARIES
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------
(In millions except per share data)
NET OPERATING REVENUES $ 18,868 $ 18,673 $ 18,127
Cost of goods sold 6,015 6,738 6,940
- ------------------------------------------------------------------------------------
GROSS PROFIT 12,853 11,935 11,187
Selling, administrative and general expenses 7,852 8,020 7,161
- ------------------------------------------------------------------------------------
OPERATING INCOME 5,001 3,915 4,026
Interest income 211 238 245
Interest expense 258 286 272
Equity income 155 211 169
Other income-net 583 87 86
Gains on issuances of stock by equity investees 363 431 74
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 6,055 4,596 4,328
Income taxes 1,926 1,104 1,342
- ------------------------------------------------------------------------------------
NET INCOME $ 4,129 $ 3,492 $ 2,986
====================================================================================
BASIC NET INCOME PER SHARE $ 1.67 $ 1.40 $ 1.18
DILUTED NET INCOME PER SHARE $ 1.64 $ 1.38 $ 1.17
====================================================================================
AVERAGE SHARES OUTSTANDING 2,477 2,494 2,525
Dilutive effect of stock options 38 29 24
- ------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,515 2,523 2,549
====================================================================================
See Notes to Consolidated Financial Statements.
- 46 -
CONSOLIDATED STATEMENTS OF CASH FLOWS THE COCA-COLA COMPANY AND SUBSIDIARIES
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------
(In millions)
OPERATING ACTIVITIES
Net income $ 4,129 $ 3,492 $ 2,986
Depreciation and amortization 626 633 562
Deferred income taxes 380 (145) 157
Equity income, net of dividends (108) (89) (25)
Foreign currency adjustments 37 (60) (23)
Gains on issuances of stock by equity investees (363) (431) (74)
Gains on sales of assets, including
bottling interests (639) (135) (16)
Other items 18 316 60
Net change in operating assets and liabilities (47) (118) (299)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 4,033 3,463 3,328
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions and investments, principally
bottling companies (1,100) (645) (338)
Purchases of investments and other assets (459) (623) (403)
Proceeds from disposals of investments
and other assets 1,999 1,302 580
Purchases of property, plant and equipment (1,093) (990) (937)
Proceeds from disposals of property, plant
and equipment 71 81 44
Other investing activities 82 (175) (172)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (500) (1,050) (1,226)
- ------------------------------------------------------------------------------------
Net cash provided by operations
after reinvestment 3,533 2,413 2,102
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuances of debt 155 1,122 754
Payments of debt (751) (580) (212)
Issuances of stock 150 124 86
Purchases of stock for treasury (1,262) (1,521) (1,796)
Dividends (1,387) (1,247) (1,110)
- ------------------------------------------------------------------------------------
Net cash used in financing activities (3,095) (2,102) (2,278)
- ------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (134) (45) (43)
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year 304 266 (219)
Balance at beginning of year 1,433 1,167 1,386
- ------------------------------------------------------------------------------------
Balance at end of year $ 1,737 $ 1,433 $ 1,167
====================================================================================
See Notes to Consolidated Financial Statements.
- 47 -
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY THE COCA-COLA COMPANY AND SUBSIDIARIES
Number of
Common Outstanding Foreign Unrealized
Three Years Ended Shares Common Capital Reinvested Restricted Currency Gain on Treasury
December 31, 1997 Outstanding Stock Surplus Earnings Stock Translation Securities Stock
- ------------------------------------------------------------------------------------------------------------------------
(In millions except per share data) |
|
BALANCE DECEMBER 31, 1994 2,552 | $854 $ 746 $11,006 $(74) $ (272) $48 $(7,073)
Stock issued to employees |
exercising stock options 8 | 2 84 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 26 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $12 -- | -- 7 -- 6 -- -- --
Translation adjustments -- | -- -- -- -- (152) -- --
Net change in unrealized |
gain on securities, |
net of deferred taxes -- | -- -- -- -- -- 34 --
Purchases of stock for |
treasury (58){1}| -- -- -- -- -- -- (1,796)
Treasury stock issued |
in connection with |
an acquisition 3 | -- -- -- -- -- -- 70
Net income -- | -- -- 2,986 -- -- -- --
Dividends (per share-$.44) -- | -- -- (1,110) -- -- -- --
- ---------------------------------------|-------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 2,505 | 856 863 12,882 (68) (424) 82 (8,799)
Stock issued to employees |
exercising stock options 9 | 2 122 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 63 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $15 -- | -- 10 -- 7 -- -- --
Translation adjustments -- | -- -- -- -- (238) -- --
Net change in unrealized |
gain on securities, |
net of deferred taxes -- | -- -- -- -- -- 74 --
Purchases of stock for |
treasury (33){1}| -- -- -- -- -- -- (1,521)
Net income -- | -- -- 3,492 -- -- -- --
Dividends (per share-$.50) -- | -- -- (1,247) -- -- -- --
- ---------------------------------------|-------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 2,481 | 858 1,058 15,127 (61) (662) 156 (10,320)
Stock issued to employees |
exercising stock options 10 | 3 147 -- -- -- -- --
Tax benefit from employees' |
stock option and |
restricted stock plans -- | -- 312 -- -- -- -- --
Stock issued under |
restricted stock plans, |
less amortization of $10 -- | -- 10 -- 11 -- -- --
Translation adjustments -- | -- -- -- -- (710) -- --
Net change in unrealized |
gain on securities, |
net of deferred taxes -- | -- -- -- -- -- (98) --
Purchases of stock for |
treasury (20){1}| -- -- -- -- -- -- (1,262)
Net income -- | -- -- 4,129 -- -- -- --
Dividends (per share-$.56) -- | -- -- (1,387) -- -- -- --
- ---------------------------------------|-------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 2,471 | $861 $1,527 $17,869 $(50) $(1,372) $ 58 $(11,582)
=======================================================================================================================
{1} Common stock purchased from employees exercising stock options numbered 1.1 million, .9 million
and.6 million shares for the years ending December 31, 1997, 1996 and 1995, respectively.
See Notes to Consolidated Financial Statements.
- 48 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION - The Coca-Cola Company and subsidiaries (our
Company) is predominantly a manufacturer, marketer and
distributor of soft-drink and noncarbonated beverage
concentrates and syrups. Operating in nearly 200 countries
worldwide, we primarily sell our concentrates and syrups to
bottling and canning operations, fountain wholesalers and
fountain retailers. We have significant markets for our
products in all of the world's geographic regions. We record
revenue when title passes to our customers.
BASIS OF PRESENTATION - Certain amounts in the prior years'
financial statements have been reclassified to conform to the
current year presentation.
CONSOLIDATION - Our consolidated financial statements include
the accounts of The Coca-Cola Company and all subsidiaries
except where control is temporary or does not rest with our
Company. Our investments in companies in which we have the
ability to exercise significant influence over operating and
financial policies, including certain investments where there
is a temporary majority interest, are accounted for by the
equity method. Accordingly, our Company's share of the net
earnings of these companies is included in consolidated net
income. Our investments in other companies are carried at
cost or fair value, as appropriate. All significant
intercompany accounts and transactions are eliminated upon
consolidation.
ISSUANCES OF STOCK BY EQUITY INVESTEES - When one of our
equity investees issues additional shares to third parties,
our percentage ownership interest in the investee decreases.
In the event the issuance price per share is more or less
than our average carrying amount per share, we recognize a
noncash gain or loss on the issuance. This noncash gain or
loss, net of any deferred taxes, is recognized in our net
income in the period the change of ownership interest occurs.
ADVERTISING COSTS - Our Company expenses production costs of
print, radio and television advertisements as of the first
date the advertisements take place. Advertising expenses
included in selling, administrative and general expenses were
$1,576 million in 1997, $1,441 million in 1996 and $1,292
million in 1995. As of December 31, 1997 and 1996,
advertising costs of approximately $358 million and $247
million, respectively, were recorded primarily in prepaid
expenses and other assets in our accompanying balance sheets.
NET INCOME PER SHARE Basic net income per share is computed
by dividing net income by the weighted-average number of
shares outstanding. Diluted net income per share includes the
dilutive effect of stock options.
CASH EQUIVALENTS - Marketable securities that are highly
liquid and have maturities of three months or less at the date
of purchase are classified as cash equivalents.
INVENTORIES - Inventories consist primarily of raw materials
and supplies and are valued at the lower of cost or market.
In general, cost is determined on the basis of average cost
or first-in, first-out methods.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment
are stated at cost and are depreciated principally by the
straight-line method over the estimated useful lives of the
assets.
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 they are appropriately valued.
Accumulated amortization was approximately $105 million and
$86 million on December 31, 1997 and 1996, respectively.
USE OF ESTIMATES - In conformity with generally accepted
accounting principles, the preparation of our financial
statements requires our management to make estimates and
assumptions that affect the amounts reported in our financial
statements and accompanying notes. Although these estimates
are based on our knowledge of current events and actions we
may undertake in the future, actual results may ultimately
differ from estimates.
NEW ACCOUNTING STANDARDS - In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements, which
are effective for fiscal years beginning after December 15,
1997, expand or modify disclosures and will have no impact on
our consolidated financial position, results of operations or
cash flows.
We adopted SFAS No. 128, "Earnings per Share," in 1997. In
accordance with SFAS No. 128, we have presented both basic
net income per share and diluted net income per share in our
financial statements.
- 49 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
NOTE 2: BOTTLING INVESTMENTS
COCA-COLA ENTERPRISES INC. - Coca-Cola Enterprises is the
largest soft-drink bottler in the world. Our Company owns
approximately 44 percent of the outstanding common stock of
Coca-Cola Enterprises, and accordingly, we account for our
investment by the equity method of accounting. The excess of
our equity in the underlying net assets of Coca-Cola
Enterprises over our investment is primarily being amortized
on a straight-line basis over 40 years. The balance of this
excess, net of amortization, was approximately $595 million
at December 31, 1997. A summary of financial information for
Coca-Cola Enterprises is as follows (in millions):
December 31, 1997 1996
- --------------------------------------------------------------------
Current assets $ 1,813 $ 1,319
Noncurrent assets 15,674 9,915
- --------------------------------------------------------------------
Total assets $ 17,487 $ 11,234
====================================================================
Current liabilities $ 3,032 $ 1,690
Noncurrent liabilities 12,673 7,994
- --------------------------------------------------------------------
Total liabilities $ 15,705 $ 9,684
====================================================================
Share-owners' equity $ 1,782 $ 1,550
====================================================================
Company equity investment $ 184 $ 547
====================================================================
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------
Net operating revenues $ 11,278 $ 7,921 $ 6,773
Cost of goods sold 7,096 4,896 4,267
- --------------------------------------------------------------------
Gross profit $ 4,182 $ 3,025 $ 2,506
====================================================================
Operating income $ 720 $ 545 $ 468
====================================================================
Cash operating profit{1} $ 1,666 $ 1,172 $ 997
====================================================================
Net income $ 171 $ 114 $ 82
====================================================================
Net income available to
common share owners $ 169 $ 106 $ 80
====================================================================
Company equity income $ 59 $ 53 $ 35
====================================================================
{1} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other
noncash operating expenses.
Our net concentrate/syrup sales to Coca-Cola Enterprises
were $2.5 billion in 1997, $1.6 billion in 1996 and $1.3
billion in 1995, comprising approximately 13 percent, 9
percent and 7 percent of our 1997, 1996 and 1995 net
operating revenues. Coca-Cola Enterprises purchases
sweeteners through our Company; however, related collections
from Coca-Cola Enterprises and payments to suppliers are not
included in our consolidated statements of income. These
transactions amounted to $223 million in 1997, $247 million
in 1996 and $242 million in 1995. We also provide certain
administrative and other services to Coca-Cola Enterprises
under negotiated fee arrangements.
Our direct support for certain marketing activities of
Coca-Cola Enterprises and participation with them in
cooperative advertising and other marketing programs amounted
to approximately $604 million in 1997, $448 million in 1996
and $343 million in 1995. Additionally, in 1997 and 1996, we
committed approximately $190 million and $120 million,
respectively, to Coca-Cola Enterprises under a Company
program that encourages bottlers to invest in building and
supporting beverage infrastructure.
If valued at the December 31, 1997, quoted closing price of
publicly traded Coca-Cola Enterprises shares, the calculated
value of our investment in Coca-Cola Enterprises would have
exceeded its carrying value by approximately $5.8 billion.
COCA-COLA AMATIL LIMITED - We own approximately 33 percent of
Coca-Cola Amatil, an Australian-based bottler of our products
that operates in 18 countries. Accordingly, we account for
our investment in Coca-Cola Amatil by the equity method. The
excess of our investment over our equity in the underlying
net assets of Coca-Cola Amatil is being amortized on a
straight-line basis over 40 years. The balance of this
excess, net of amortization, was approximately $64 million at
December 31, 1997. A summary of financial information for
Coca-Cola Amatil is as follows (in millions):
December 31, 1997 1996
- --------------------------------------------------------------------
Current assets $ 1,470 $ 1,847
Noncurrent assets 4,590 2,913
- --------------------------------------------------------------------
Total assets $ 6,060 $ 4,760
====================================================================
Current liabilities $ 1,053 $ 1,247
Noncurrent liabilities 1,552 1,445
- --------------------------------------------------------------------
Total liabilities $ 2,605 $ 2,692
====================================================================
Share-owners' equity $ 3,455 $ 2,068
====================================================================
Company equity investment $ 1,204 $ 881
====================================================================
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------
Net operating revenues $ 3,290 $ 2,905 $ 2,193
Cost of goods sold 1,856 1,737 1,311
- --------------------------------------------------------------------
Gross profit $ 1,434 $ 1,168 $ 882
====================================================================
Operating income $ 276 $ 215 $ 214
====================================================================
Cash operating profit{1} $ 505 $ 384 $ 329
====================================================================
Net income $ 89 $ 80 $ 75
====================================================================
Company equity income $ 27 $ 27 $ 28
====================================================================
{1} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other
noncash operating expenses.
Our net concentrate sales to Coca-Cola Amatil were
approximately $588 million in 1997, $450 million in 1996 and
$340 million in 1995. We also participate in various marketing,
promotional and other activities with Coca-Cola Amatil.
If valued at the December 31, 1997, quoted closing price of
publicly traded Coca-Cola Amatil shares, the calculated value
of our investment in Coca-Cola Amatil would have exceeded its
carrying value by approximately $918 million.
- 50 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
OTHER EQUITY INVESTMENTS - Operating results include our
proportionate share of income from our equity investments
since the respective dates of those investments. A summary of
financial information for our equity investments in the
aggregate, other than Coca-Cola Enterprises and Coca-Cola
Amatil, is as follows (in millions):
December 31, 1997 1996
- -------------------------------------------------------------------
Current assets $ 2,946 $ 2,792
Noncurrent assets 11,371 8,783
- -------------------------------------------------------------------
Total assets $ 14,317 $ 11,575
===================================================================
Current liabilities $ 3,545 $ 2,758
Noncurrent liabilities 4,636 4,849
- -------------------------------------------------------------------
Total liabilities $ 8,181 $ 7,607
===================================================================
Share-owners' equity $ 6,136 $ 3,968
===================================================================
Company equity investment $ 3,049 $ 2,004
===================================================================
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
Net operating revenues $ 13,688 $ 11,640 $ 9,370
Cost of goods sold 8,645 8,028 6,335
- -------------------------------------------------------------------
Gross profit $ 5,043 $ 3,612 $ 3,035
===================================================================
Operating income $ 869 $ 835 $ 632
===================================================================
Cash operating profit{1} $ 1,794 $ 1,268 $ 1,079
===================================================================
Net income $ 405 $ 366 $ 280
===================================================================
Company equity income $ 69 $ 131 $ 106
===================================================================
Equity investments include certain non-bottling investees.
{1} Cash operating profit is defined as operating income plus
depreciation expense, amortization expense and other
noncash operating expenses.
Net sales to equity investees other than Coca-Cola
Enterprises and Coca-Cola Amatil were $1.5 billion in 1997,
$1.5 billion in 1996 and $1.2 billion in 1995. Our Company
also participates in various marketing, promotional and other
activities with these investees, the majority of which are
located outside the United States.
In February 1997, we sold our 49 percent interest in
Coca-Cola & Schweppes Beverages Ltd. to Coca-Cola Enterprises.
This transaction resulted in proceeds for our Company of
approximately $1 billion and an after-tax gain of
approximately $.08 per share (basic and diluted). In August
1997, we sold our 48 percent interest in Coca-Cola Beverages
Ltd. of Canada and our 49 percent ownership interest in The
Coca-Cola Bottling Company of New York, Inc. to Coca-Cola
Enterprises in exchange for aggregate consideration valued at
approximately $456 million. This sale resulted in an after-
tax gain of approximately $.04 per share (basic and diluted).
In July 1996, we sold our interests in our French and
Belgian bottling and canning operations to Coca-Cola
Enterprises in return for cash consideration of approximately
$936 million. Also in 1996, we contributed cash and our
Venezuelan bottling interests to a new joint venture,
Embotelladora Coca-Cola y Hit de Venezuela, S.A. (Coca-Cola y
Hit), in exchange for a 50 percent ownership interest. In
1997, we sold our interest in Coca-Cola y Hit to Panamerican
Beverages, Inc. (Panamco) in exchange for shares in Panamco.
(See Note 3.)
If valued at the December 31, 1997, quoted closing prices
of shares actively traded on stock markets, the calculated
value of our equity investments in publicly traded bottlers
other than Coca-Cola Enterprises and Coca-Cola Amatil would
have exceeded our carrying value by approximately $1.2 billion.
NOTE 3: ISSUANCES OF STOCK BY EQUITY INVESTEES
In the second quarter of 1997, our Company and San Miguel
Corporation (San Miguel) sold our respective interests in
Coca-Cola Bottlers Philippines, Inc. to Coca-Cola Amatil in
exchange for approximately 293 million shares of Coca-Cola
Amatil stock. In connection with this transaction, Coca-Cola
Amatil issued approximately 210 million shares to San Miguel
valued at approximately $2.4 billion. The issuance to San
Miguel resulted in a one-time noncash pretax gain for our
Company of approximately $343 million. We provided deferred
taxes of approximately $141.5 million on this gain. This
transaction resulted in our Company's 36 percent interest in
Coca-Cola Amatil being diluted to 33 percent.
Also in the second quarter of 1997, our Company and the
Cisneros Group sold our respective interests in Coca-Cola y
Hit to Panamco in exchange for approximately 30.6 million
shares of Panamco stock. In connection with this transaction,
Panamco issued approximately 13.6 million shares to the
Cisneros Group valued at approximately $402 million. The
issuance to the Cisneros Group resulted in a one-time noncash
pretax gain for our Company of approximately $20 million. We
provided deferred taxes of approximately $7.2 million on this
gain. At the completion of this transaction, our ownership in
Panamco was approximately 23 percent.
In the third quarter of 1996, our previously wholly owned
subsidiary, 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
our products. The shares were valued at approximately $925
million, based upon the fair values of the assets of the
three acquired bottling companies. In connection with CCEG's
issuance of shares, a new corporation was established,
Coca-Cola Erfrischungsgetraenke AG (CCEAG), and our ownership
was reduced to 45 percent of the resulting corporation. As a
result, we began accounting for our related investment by the
equity method of accounting prospectively from the
transaction date. This transaction resulted in a noncash
pretax gain of $283 million for our Company. We provided
deferred taxes of approximately $171 million related to this
gain.
Also in the third quarter of 1996, Coca-Cola Amatil issued
approximately 46 million shares in exchange for approximately
$522 million. This issuance reduced our Company's ownership
percentage in Coca-Cola Amatil from approximately 39 percent to
approximately 36 percent. This transaction resulted in a noncash
- 51 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
pretax gain of $130 million for our Company. We have provided
deferred taxes of approximately $47 million on this gain.
In 1996, Coca-Cola FEMSA de Buenos Aires, S.A. (CCFBA)
issued approximately 19 million shares to Coca-Cola FEMSA,
S.A. de C.V. This issuance reduced our ownership in CCFBA
from 49 percent to approximately 32 percent. We recognized a
noncash pretax gain of approximately $18 million as a result
of this transaction. In subsequent transactions, we disposed
of our remaining interest in CCFBA.
In the third quarter of 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 interest in Coca-Cola Amatil was diluted to
approximately 40 percent. This transaction resulted in a
noncash pretax gain of $74 million. We provided deferred
taxes of approximately $27 million on this gain.
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following
(in millions):
December 31, 1997 1996
- -------------------------------------------------------------
Accrued marketing $ 615 $ 510
Container deposits 30 64
Accrued compensation 152 169
Sales, payroll and other taxes 173 174
Accounts payable and
other accrued expenses 2,279 2,055
- -------------------------------------------------------------
$ 3,249 $ 2,972
=============================================================
NOTE 5: SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Loans and notes payable consist primarily of commercial paper
issued in the United States. On December 31, 1997, we had
$2.6 billion outstanding in commercial paper borrowings. In
addition, we had $.9 billion in lines of credit and other
short-term credit facilities available, under which $.1
billion was outstanding. Our weighted-average interest rates
for commercial paper were approximately 5.8 and 5.6 percent
on December 31, 1997 and 1996, 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 our Company.
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following (in millions):
December 31, 1997 1996
- -----------------------------------------------------------------
5-3/4% German mark notes due 1998{1} $ 141 $ 161
7-7/8% U.S. dollar notes due 1998 250 250
6% U.S. dollar notes due 2000 251 251
6-5/8% U.S. dollar notes due 2002 150 150
6% U.S. dollar notes due 2003 150 150
7-3/8% U.S. dollar notes due 2093 116 116
Other, due 1998 to 2013 140 47
- -----------------------------------------------------------------
1,198 1,125
Less current portion 397 9
- -----------------------------------------------------------------
$ 801 $ 1,116
=================================================================
{1} Portions of these notes have been swapped for liabilities
denominated in other currencies.
After giving effect to interest rate management instruments
(see Note 8), the principal amount of our long-term debt that
had fixed and variable interest rates, respectively, was $480
million and $718 million on December 31, 1997, and $261
million and $864 million on December 31, 1996. The weighted-
average interest rate on our Company's long-term debt was 6.2
and 5.9 percent on December 31, 1997 and 1996, respectively.
Interest paid was approximately $264 million, $315 million
and $275 million in 1997, 1996 and 1995, respectively.
Maturities of long-term debt for the five years succeeding
December 31, 1997, are as follows (in millions):
1998 1999 2000 2001 2002
- ------------------------------------------------------------
$ 397 $ 13 $ 309 $ 61 $ 151
============================================================
The above notes include various restrictions, none of which
is presently significant to our Company.
NOTE 7: FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts
reflected in our consolidated balance sheets for cash, cash
equivalents, marketable equity securities, marketable cost
method investments, receivables, loans and notes payable and
long-term debt approximate their respective fair values. Fair
values are based primarily on quoted prices for those or
similar instruments. A comparison of the carrying value and
fair value of our hedging instruments is included in Note 8.
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,
1997 and 1996, we had no trading securities. Securities categorized
as available-for-sale are stated at fair value, with unrealized
gains and losses, net of deferred income taxes, reported in share-
- 52 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
owners' equity. Debt securities categorized as held-to-maturity are
stated at amortized cost.
On December 31, 1997 and 1996, 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
- --------------------------------------------------------------------------
1997
Available-for-sale
securities
Equity securities $ 293 $ 93 $ (3) $ 383
Collateralized
mortgage
obligations 132 - (2) 130
Other debt
securities 23 - - 23
- -------------------------------------------------------------------------
$ 448 $ 93 $ (5) $ 536
=========================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,569 $ - $ - $ 1,569
Other debt
securities 22 - - 22
- -------------------------------------------------------------------------
$ 1,591 $ - $ - $ 1,591
=========================================================================
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
- --------------------------------------------------------------------------
1996
Available-for-sale
securities
Equity securities $ 377 $ 259 $ (2) $ 634
Collateralized
mortgage
obligations 145 - (5) 140
Other debt
securities 24 - (1) 23
- -------------------------------------------------------------------------
$ 546 $ 259 $ (8) $ 797
=========================================================================
Held-to-maturity
securities
Bank and
corporate debt $ 1,550 $ - $ (9) $ 1,541
Other debt
securities 58 - - 58
- -------------------------------------------------------------------------
$ 1,608 $ - $ (9) $ 1,599
=========================================================================
On December 31, 1997 and 1996, these investments were included in
the following captions on our consolidated balance sheets (in millions):
Available-for-Sale Held-to-Maturity
December 31, Securities Securities
- -------------------------------------------------------------------------
1997
Cash and cash equivalents $ - $ 1,346
Current marketable securities 64 42
Cost method investments,
principally bottling companies 336 -
Marketable securities and
other assets 136 203
- -------------------------------------------------------------------------
$ 536 $ 1,591
=========================================================================
Available-for-Sale Held-to-Maturity
Securities Securities
- -------------------------------------------------------------------------
1996
Cash and cash equivalents $ - $ 1,208
Current marketable securities 68 157
Cost method investments,
principally bottling companies 584 -
Marketable securities and
other assets 145 243
- -------------------------------------------------------------------------
$ 797 $ 1,608
=========================================================================
The contractual maturities of these investments as of December 31, 1997,
were as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
- ----------------------------------------------------------------------------
Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------
1998 $ 20 $ 20 $ 1,388 $ 1,388
1999-2002 3 3 203 203
Collateralized
mortgage obligations 132 130 - -
Equity securities 293 383 - -
- ----------------------------------------------------------------------------
$ 448 $ 536 $ 1,591 $ 1,591
============================================================================
For the years ended December 31, 1997 and 1996, gross
realized gains and losses on sales of available-for-sale
securities were not material. The cost of securities sold is
based on the specific identification method.
NOTE 8: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
Our Company uses derivative financial instruments primarily to
reduce our exposure to adverse fluctuations in interest rates
and foreign exchange rates, and to a lesser extent, to reduce
our exposure to adverse fluctuations in commodity prices and other
market risks. When entered into, these financial instruments are
designated as hedges of underlying exposures. Because of the high
correlation between the hedging instrument and the underlying
exposure being hedged, fluctuations in the value of the
instruments are generally offset by changes in the value of the
- 53 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
underlying exposures. Virtually all of our derivatives are
"over-the-counter" instruments. Our Company does not enter
into derivative financial instruments for trading purposes.
The estimated fair values of derivatives used to hedge or
modify our risks fluctuate over time. These fair value
amounts should not be viewed in isolation but rather in
relation to the fair values of the underlying hedged
transactions and investments and to the overall reduction in
our exposure to adverse fluctuations in interest rates,
foreign exchange rates, commodity prices and other market
risks.
The notional amounts of the derivative financial
instruments do not necessarily represent amounts exchanged by
the parties and, therefore, are not a direct measure of our
exposure through our use of derivatives. The amounts
exchanged are calculated by reference to the notional amounts
and by other terms of the derivatives, such as interest
rates, exchange rates or other financial indices.
We have established strict counterparty credit guidelines
and only enter into transactions with financial institutions
of investment grade or better. We monitor counterparty
exposures daily and any downgrade in credit rating receives
immediate review. If a downgrade in the credit rating of a
counterparty were to occur, we have provisions requiring
collateral in the form of U.S. government securities for
substantially all of our transactions. To mitigate 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, we enter into derivative transactions with a portfolio
of financial institutions. As a result, we consider the risk
of counterparty default to be minimal.
INTEREST RATE MANAGEMENT - Our Company maintains our
percentage of fixed and variable rate debt within defined
parameters. We enter into interest rate swap agreements that
maintain the fixed/variable mix within these parameters.
These contracts had maturities ranging from one to six years
on December 31, 1997. Variable rates are predominantly linked
to 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.
FOREIGN CURRENCY MANAGEMENT - The purpose of our foreign
currency hedging activities is to reduce the risk that our
eventual dollar net cash inflows resulting from sales outside
the United States will be adversely affected by changes in
exchange rates.
We enter into forward exchange contracts and purchase
currency options (principally European currencies and
Japanese yen) to hedge firm sale commitments denominated in
foreign currencies. We also purchase 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 $52 million of realized gains and $17 million
of realized losses on settled contracts entered into as
hedges of firmly committed transactions that have not yet
occurred were deferred on December 31, 1997 and 1996,
respectively. Deferred gains/losses from hedging anticipated
transactions were not material on December 31, 1997 or 1996.
In the unlikely event that the underlying transaction
terminates or becomes improbable, the deferred gains or
losses on the associated derivative will be recorded in our
income statement.
Gains and losses on derivative financial instruments that
are designated and effective as hedges of net investments in
international operations are included in share-owners' equity
as a foreign currency translation adjustment.
The following table presents the aggregate notional
principal amounts, carrying values, fair values and
maturities of our derivative financial instruments
outstanding on December 31, 1997 and 1996 (in millions):
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------
1997
Interest rate
management
Swap agreements
Assets $ 597 $ 4 $ 15 1998-2003
Liabilities 175 (1) (12) 2000-2003
Foreign currency
management
Forward contracts
Assets 1,286 27 93 1998-1999
Liabilities 465 (6) 18 1998-1999
Swap agreements
Assets 178 1 3 1998
Liabilities 1,026 (4) (28) 1998-2002
Purchased options
Assets 1,051 34 109 1998
Other
Assets 470 2 53 1998
Liabilities 68 (2) _ 1998
- --------------------------------------------------------------------------
$ 5,316 $ 55 $ 251
==========================================================================
- 54 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- -----------------------------------------------------------------------
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
- --------------------------------------------------------------------------
1996
Interest rate
management
Swap agreements
Assets $ 893 $ 5 $ 13 1997-2003
Liabilities 25 - 1 2002
Interest rate caps
Assets 400 1 - 1997
Foreign currency
management
Forward contracts
Assets 5 1 (2) 1997
Liabilities 2,541 (53) (42) 1997-1998
Swap agreements
Assets 398 18 12 1997-1998
Liabilities 1,086 (12) (114) 1997-2002
Purchased options
Assets 1,873 42 89 1997
Other
Assets 537 67 33 1997
- --------------------------------------------------------------------------
$ 7,758 $ 69 $ (10)
==========================================================================
Maturities of derivative financial instruments held on
December 31, 1997, are as follows (in millions):
1998 1999 2000 2001-2003
- --------------------------------------------------------------------
$ 4,218 $ 257 $ 426 $ 415
====================================================================
NOTE 9: COMMITMENTS AND CONTINGENCIES
On December 31, 1997, we were contingently liable for guarantees
of indebtedness owed by third parties in the amount of $409 million,
of which $26 million related to independent bottling licensees.
We do not consider it probable that we will be required to
satisfy these guarantees. The fair value of these contingent
liabilities is immaterial to our consolidated financial statements.
We believe our exposure to concentrations of credit risk is
limited, due to the diverse geographic areas covered by our operations.
Additionally, under certain circumstances, we have committed
to make future investments in bottling companies. However, we do
not consider any of these commitments to be individually significant.
NOTE 10: 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):
1997 1996 1995
- --------------------------------------------------------------------------
Increase in trade accounts receivable $ (164) $ (230) $ (255)
Increase in inventories (43) (33) (80)
Increase in prepaid expenses
and other assets (145) (219) (267)
Increase in accounts payable
and accrued expenses 299 361 214
Increase (decrease) in accrued taxes 393 (208) 26
Increase (decrease) in
other liabilities (387) 211 63
- --------------------------------------------------------------------------
$ (47) $ (118) $ (299)
==========================================================================
NOTE 11: RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
Our Company sponsors restricted stock award plans, stock
option plans, Incentive Unit Agreements and Performance Unit
Agreements. Our Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for
our plans. Accordingly, for our stock option plans, no
compensation cost has been recognized. The compensation cost
that has been charged against income for our restricted stock
award plans was $56 million in 1997, $63 million in 1996 and
$45 million in 1995. For our Incentive Unit Agreements and
Performance Unit Agreements, the charge against income was
$31 million in 1997, $90 million in 1996 and $64 million in
1995. Had compensation cost for the stock option plans been
determined based on the fair value at the grant dates for
awards under the plans, consistent with the alternative
method set forth under SFAS No. 123, "Accounting for Stock-
Based Compensation," our Company's net income, basic net
income per share and diluted net income per share would have
been reduced.
The pro forma amounts are indicated below (in millions,
except per share amounts):
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
Net income
As reported $ 4,129 $ 3,492 $ 2,986
Pro forma $ 4,026 $ 3,412 $ 2,933
Basic net income per share
As reported $ 1.67 $ 1.40 $ 1.18
Pro forma $ 1.63 $ 1.37 $ 1.16
Diluted net income per share
As reported $ 1.64 $ 1.38 $ 1.17
Pro forma $ 1.60 $ 1.35 $ 1.15
==========================================================================
- 55 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- ----------------------------------------------------------------------
Under the amended 1989 Restricted Stock Award Plan and the
amended 1983 Restricted Stock Award Plan (the Restricted
Stock Award Plans), 40 million and 24 million shares of
restricted common stock, respectively, may be granted to
certain officers and key employees of our Company.
On December 31, 1997, 33 million shares were available for
grant under the Restricted Stock Award Plans. In 1997, 1996
and 1995, 162,000, 210,000 and 190,000 shares of restricted
stock were granted at $59.75, $48.88 and $35.63,
respectively. Participants are entitled to vote and receive
dividends on the shares, and under the 1983 Restricted Stock
Award Plan, participants are reimbursed by our Company for
income taxes imposed on the award, but not for taxes
generated by the reimbursement payment. The shares are
subject to certain transfer restrictions and may be forfeited
if a participant leaves our Company for reasons other than
retirement, disability or death, absent a change in control
of our Company.
Under our 1991 Stock Option Plan (the Option Plan), a
maximum of 120 million shares of our common stock was
approved to be issued or transferred to certain officers and
employees pursuant to stock options and stock appreciation
rights granted under the Option Plan. The stock appreciation
rights permit the holder, upon surrendering all or part of
the related stock option, to receive cash, common stock or a
combination thereof, in an amount up to 100 percent of the
difference between the market price and the option price.
Options to purchase common stock under the Option Plan have
been granted to Company employees at fair market value at the
date of grant. Generally, stock options become exercisable
over a three-year vesting period and expire 10 years from the
date of grant.
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995, respectively: dividend yields
of 1.0, 1.0 and 1.3 percent; expected volatility of 20.1,
18.3 and 20.1 percent; risk-free interest rates of 6.0, 6.2
and 5.9 percent; and expected lives of four years for all
years. The weighted-average fair value of options granted was
$13.92, $11.43 and $8.13 for the years ended December 31,
1997, 1996 and 1995, respectively.
A summary of stock option activity under all plans is as
follows (shares in millions):
1997 1996 1995
--------------------------- --------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------
Outstanding on
January 1, 78 $ 26.50 74 $ 20.74 65 $ 15.53
Granted 13 59.79 14 48.86 18 34.88
Exercised (10) 14.46 (9) 13.72 (8) 10.63
Forfeited/Expired (1) 44.85 (1) 31.62 (1) 24.84
- ------------------------------------------------------------------------------------------------------------
Outstanding on
December 31, 80 $ 33.22 78 $ 26.50 74 $ 20.74
============================================================================================================
Exercisable on
December 31, 55 $ 24.62 51 $ 18.69 45 $ 14.22
============================================================================================================
Shares Available
on December 31,
for options that
may be granted 34 46 59
============================================================================================================
The following table summarizes information about stock
options at December 31, 1997 (shares in millions):
Outstanding Stock Options Exercisable Stock Options
--------------------------------------------- -----------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------
$ 4.00 to $ 10.00 11 1.5 years $ 7.33 11 $ 7.33
$ 10.01 to $ 20.00 4 3.5 years $ 14.50 4 $ 14.50
$ 20.01 to $ 30.00 24 6.1 years $ 23.71 24 $ 23.71
$ 30.01 to $ 40.00 15 7.8 years $ 35.63 11 $ 35.63
$ 40.01 to $ 50.00 13 8.8 years $ 48.86 5 $ 48.86
$ 50.01 to $ 71.00 13 9.8 years $ 59.78 _ $ _
=============================================================================================================
$ 4.00 to $ 71.00 80 6.7 years $ 33.22 55 $ 24.62
=============================================================================================================
- 56 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
In 1988, our 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 2.4 million shares of our common stock at the
measurement dates. Under the Incentive Unit Agreements, the
employee is reimbursed by our Company for income taxes
imposed when the value of the units is paid, but not for
taxes generated by the reimbursement payment. At December 31,
1996 and 1995, approximately 1.6 million units were
outstanding. In 1997, all outstanding units were paid at a
price of $58.50 per unit.
In 1985, we entered into Performance Unit Agreements,
whereby certain officers were given the right to receive cash
awards based on the difference in the market value of
approximately 4.4 million shares of our common stock at the
measurement dates and the base price of $2.58, the market
value as of January 2, 1985. At December 31, 1996 and 1995,
approximately 2.9 million units were outstanding. In 1997,
all outstanding units were paid based on a market price of
$58.50 per unit.
NOTE 12: PENSION AND OTHER POSTRETIREMENT BENEFITS
Our 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. We generally fund pension costs currently,
subject to regulatory funding limitations. We also sponsor
nonqualified, unfunded defined benefit plans for certain
officers and other employees. In addition, our Company and
its subsidiaries have various pension plans and other forms
of postretirement arrangements outside the United States.
Total pension expense for all benefit plans, including
defined benefit plans, amounted to approximately $77 million
in 1997, $85 million in 1996 and $81 million in 1995. Net
periodic pension cost for our defined benefit plans consists
of the following (in millions):
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
Service cost-benefits earned
during the period $ 49 $ 48 $ 43
Interest cost on projected
benefit obligation 93 91 89
Actual return on plan assets (172) (169) (211)
Net amortization and deferral 98 103 145
- -------------------------------------------------------------------
Net periodic pension cost $ 68 $ 73 $ 66
====================================================================
The funded status of our defined benefit plans is as follows
(in millions):
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
-------------------- ----------------------
December 31, 1997 1996 1997 1996
- ---------------------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefit
obligation $ 804 $ 704 $ 328 $ 343
===========================================================================
Accumulated benefit
obligation $ 872 $ 768 $ 370 $ 384
===========================================================================
Projected benefit
obligation $ 1,016 $ 890 $ 472 $ 485
Plan assets at fair value{1} 1,280 1,126 128 156
- ---------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 264 236 (344) (329)
Unrecognized net (asset)
liability at transition (30) (39) 28 36
Unrecognized prior service
cost 29 33 12 16
Unrecognized net (gain) loss (211) (191) 113 104
Adjustment required to
recognize minimum liability - - (76) (66)
- ---------------------------------------------------------------------------
Accrued pension asset
(liability) included in the
consolidated balance sheet $ 52 $ 39 $ (267) $ (239)
===========================================================================
{1} Primarily listed stocks, bonds and government securities.
The assumptions used in computing the preceding information
are as follows:
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
Discount rates 7% 7-1/4% 7%
Rates of increase in
compensation levels 4-3/4% 4-3/4% 4-3/4%
Expected long-term rates of
return on assets 9% 8-1/2% 8-1/2%
===================================================================
Our 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 our postretirement health care and life
insurance benefits consists of the following (in millions):
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
Service cost $ 11 $ 12 $ 12
Interest cost 23 20 23
Other (2) (3) (2)
- -------------------------------------------------------------------
$ 32 $ 29 $ 33
===================================================================
- 57 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- -----------------------------------------------------------------------
In addition, we contribute to a Voluntary Employees'
Beneficiary Association trust that will be used to partially
fund health care benefits for future retirees. Generally, we
fund 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 our postretirement health care and
life insurance plans is as follows (in millions):
December 31, 1997 1996
- -----------------------------------------------------------------------
Accumulated postretirement
benefit obligations:
Retirees $ 154 $ 114
Fully eligible active plan participants 41 35
Other active plan participants 132 130
- -----------------------------------------------------------------------
Total benefit obligation 327 279
Plan assets at fair value{1} 40 41
- -----------------------------------------------------------------------
Plan assets less than benefit obligation (287) (238)
Unrecognized prior service cost 5 5
Unrecognized net gain (27) (57)
- -----------------------------------------------------------------------
Accrued postretirement benefit
liability included in the
consolidated balance sheet $(309) $(290)
=======================================================================
{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, 1997 1996 1995
- -------------------------------------------------------------------
Discount rate 7-1/4% 7-3/4% 7-1/4%
Rates of increase in
compensation levels 4-3/4% 5% 4-3/4%
===================================================================
The rate of increase in the per capita costs of covered
health care benefits is assumed to be 7-1/4 percent in 1998,
decreasing gradually to 5 percent by the year 2002.
Increasing the assumed health care cost trend rate by one
percentage point would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by
approximately $39 million and increase the net periodic
postretirement benefit cost by approximately $5 million in 1997.
NOTE 13: INCOME TAXES
Income before income taxes consists of the following (in millions):
Year Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------
United States $ 1,515 $ 1,168 $ 1,270
International 4,540 3,428 3,058
- ---------------------------------------------------------------
$ 6,055 $ 4,596 $ 4,328
===============================================================
Income tax expense (benefit) consists of the following
(in millions):
Year Ended United State &
December 31, States Local International Total
- -----------------------------------------------------------------------
1997
Current $ 240 $ 45 $ 1,261 $ 1,546
Deferred 180 21 179 380
1996
Current $ 256 $ 79 $ 914 $ 1,249
Deferred (264) (29) 148 (145)
1995
Current $ 204 $ 41 $ 940 $ 1,185
Deferred 80 10 67 157
=======================================================================
We made income tax payments of approximately $982 million,
$1,242 million and $1,000 million in 1997, 1996 and 1995, respectively.
A reconciliation of the statutory U.S. federal rate and effective
rates is as follows:
Year Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------
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 (2.6) (3.3) (3.9)
Equity income (.6) (1.7) (1.7)
Tax settlement - (7.0) -
Other-net (1.0) - .6
- -----------------------------------------------------------------------
31.8% 24.0% 31.0%
=======================================================================
Our 31.8 percent 1997 effective tax rate reflects the tax
benefit derived from having significant operations outside
the United States that are taxed at rates lower than the U.S.
statutory rate of 35 percent, partially offset by the tax
impact of certain gains recognized from previously discussed
bottling transactions. These transactions are generally taxed
at rates higher than our Company's effective rate on operations.
In 1996, we reached an agreement in principle with the U.S.
Internal Revenue Service (IRS) settling certain U.S.-related
income tax matters. The agreement included issues in
litigation involving our operations in Puerto Rico, dating
back to the 1981 tax year and extending through 1995. This
agreement resulted in a one-time reduction of $320 million to
our 1996 income tax expense as a result of reversing
previously accrued contingent income tax liabilities. Our
1996 effective tax rate would have been 31 percent, excluding
the favorable impact of the settlement with the IRS.
- 58 -
NOTES TO CONSOLIDATED THE COCA-COLA COMPANY
FINANCIAL STATEMENTS AND SUBSIDIARIES
- --------------------------------------------------------------------
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 our international
subsidiaries that is expected to be indefinitely reinvested
was approximately $1,917 million on December 31, 1997. The
taxes that would be paid upon remittance of these
indefinitely reinvested earnings are approximately $671
million, based on current tax laws.
The tax effects of temporary differences and carryforwards
that give rise to deferred tax assets and liabilities consist
of the following (in millions):
December 31, 1997 1996
- -------------------------------------------------------------------
Deferred tax assets:
Benefit plans $ 246 $ 414
Liabilities and reserves 172 164
Net operating loss carryforwards 72 130
Other 89 88
- -------------------------------------------------------------------
Gross deferred tax assets 579 796
Valuation allowance (21) (18)
- -------------------------------------------------------------------
$ 558 $ 778
===================================================================
Deferred tax liabilities:
Property, plant and equipment $ 203 $ 200
Equity investments 107 369
Intangible assets 164 74
Other 288 33
- -------------------------------------------------------------------
$ 762 $ 676
===================================================================
Net deferred tax asset (liability){1} $(204) $ 102
===================================================================
{1} Deferred tax assets of $244 million and $403 million have
been included in the consolidated balance sheet caption
"marketable securities and other assets" at December 31,
1997 and 1996, respectively.
On December 31, 1997, we had $180 million of operating loss
carryforwards available to reduce future taxable income of
certain international subsidiaries. Loss carryforwards of $11
million must be utilized within the next five years; $169
million can be utilized over an indefinite period. A
valuation allowance has been provided for a portion of the
deferred tax assets related to these loss carryforwards.
NOTE 14: NONRECURRING ITEMS
In the second quarter of 1997, we recorded a nonrecurring
charge of $60 million in selling, administrative and general
expenses related to enhancing manufacturing efficiencies in
North America.
In the third quarter of 1996, we recorded provisions of
approximately $276 million in selling, administrative and
general expenses related to our plans for strengthening our
worldwide system. Of this $276 million, approximately $130
million related to streamlining our operations, primarily in
Greater Europe and Latin America. Our management took actions
to consolidate certain manufacturing operations and, as a
result, recorded charges to recognize the impairment of
certain manufacturing assets and estimated losses on the
disposal of other assets.
The remainder of this $276 million provision related to
actions taken by The Minute Maid Company. During the third
quarter of 1996, The Minute Maid Company entered into two
significant agreements with independent parties: (1) a
strategic supply alliance with Sucocitrico Cutrale Ltda., the
world's largest grower and processor of oranges, and (2) a
joint venture agreement with Groupe Danone to produce,
distribute and sell premium refrigerated juices outside the
United States and Canada. With these agreements, we intend to
increase The Minute Maid Company's focus on managing its
brands while seeking arrangements to lower its overall
manufacturing costs. In connection with these actions, we
recorded $146 million in third quarter provisions, composed
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, we launched a strategic
initiative, Project Infinity, to redesign and enhance our
information systems and communications capabilities. In
connection with this initiative, we recorded an $80 million
impairment charge in administrative and general expenses to
recognize Project Infinity's impact on existing information
systems.
Based on management's commitment to certain strategic
actions during the third quarter of 1996, these impairment
charges were recorded to reduce the carrying value of
identified assets to fair value. Fair values were derived
using a variety of methodologies, including cash flow
analysis, estimates of sales proceeds and independent
appraisals.
Also in the third quarter of 1996, we recorded a $28.5
million charge in administrative and general expenses as a
result of our decision to make a contribution to The Coca-Cola
Foundation, a not-for-profit charitable organization.
During 1995, selling, administrative and general expenses
included provisions of $86 million to increase efficiencies
in our operations in North America and Europe.
- 59 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE COCA-COLA COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
15. OPERATIONS IN GEOGRAPHIC AREAS
Information about the Company's operations by geographic area is as follows (in millions):
North Greater Latin Middle &
America Africa Europe America Far East Corporate Consolidated
- ----------------------------------------------------------------------------------------------------------------------
1997
Net operating revenues $6,443 $582 $5,395 $2,124 $4,256 $ 68 $18,868
Operating income 1,311{2} 165 1,479 957 1,508 (419) 5,001
Identifiable operating assets 4,429 418 2,410 1,593 1,624 1,572{1} 12,046
Equity income 155 155
Investments (principally
bottling companies) 4,894 4,894
Capital expenditures 261 17 327 78 196 214 1,093
Depreciation and amortization 195 22 123 99 106 81 626
======================================================================================================================
1996
Net operating revenues $6,050 $482 $5,959 $2,040 $4,095 $ 47 $18,673
Operating income 949{3} 118{3} 1,277{3} 815{3} 1,358{3} (602){3} 3,915
Identifiable operating assets 3,814 326 2,896 1,405 1,463 2,088{1} 11,992
Equity income 211 211
Investments (principally
bottling companies) 4,169 4,169
Capital expenditures 261 32 379 79 121 118 990
Depreciation and amortization 188 12 190 83 84 76 633
======================================================================================================================
1995
Net operating revenues $5,513 $603 $6,007 $1,955 $3,994 $ 55 $18,127
Operating income 856{4} 205 1,256{4} 798 1,394 (483) 4,026
Identifiable operating assets 3,478 348 4,301 1,294 1,445 1,461{1} 12,327
Equity income 169 169
Investments (principally
bottling companies) 2,714 2,714
Capital expenditures 286 19 383 87 85 77 937
Depreciation and amortization 156 13 192 64 71 66 562
======================================================================================================================
Intercompany transfers between geographic areas are not material.
North America includes only the United States and Canada.
Certain prior year amounts 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 North America was reduced by $60 million for provisions related to enhancing manufacturing
efficiencies.
{3} Operating income for North America, Africa, Greater Europe, Latin America and the Middle & Far East was reduced
by $153 million, $7 million, $66 million, $32 million and $18 million, respectively, for provisions related to
management's strategic plans to strengthen our worldwide system. Corporate operating income was reduced by
$80 million for Project Infinity's impairment impact to existing systems and by $28.5 million for our decision
to contribute to The Coca-Cola Foundation.
{4} Operating income for North America and Greater Europe was reduced by $61 million and $25 million, respectively,
for provisions to increase efficiencies.
Compound Growth Rates North Greater Latin Middle &
Ending 1997 America Africa Europe America Far East Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 7% 19% 4% 9% 13% 8%
10 years 6% 17% 13% 14% 9% 9%
=======================================================================================================================
Operating income
5 years 13% 5% 8% 14% 12% 13%
10 years 12% 13% 13% 20% 13% 14%
=======================================================================================================================
- 60 -
THE COCA-COLA COMPANY AND SUBSIDIARIES
NET OPERATING REVENUES BY GEOGRAPHIC AREA{1}
[bar chart]
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------
Middle & Far East 23% 22% 22%
Latin America 11% 11% 11%
Greater Europe 29% 32% 33%
Africa 3% 3% 3%
North America 34% 32% 31%
OPERATING INCOME BY GEOGRAPHIC AREA{1}
[bar chart]
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------
Middle & Far East 28% 30% 31%
Latin America 18% 18% 18%
Greater Europe 27% 28% 28%
Africa 3% 3% 4%
North America 24% 21% 19%
{1} Charts and percentages are calculated exclusive of
corporate operations.
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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 23, 1998
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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
- ---------------------------------------------------------------------------------
1997
Net operating revenues $4,138 $5,075 $4,954 $4,701 $18,868
Gross profit 2,843 3,466 3,295 3,249 12,853
Net income 987 1,314 1,011 817 4,129
Basic net income per share .40 .53 .41 .33 1.67
Diluted net income per share .39 .52 .40 .33 1.64
=================================================================================
1996
Net operating revenues $4,224 $5,286 $4,687 $4,476 $18,673
Gross profit 2,694 3,380 2,873 2,988 11,935
Net income 713 1,050 967 762 3,492
Basic net income per share .28 .42 .39 .31 1.40
Diluted net income per share .28 .42 .38 .30 1.38
=================================================================================
The first quarter of 1997 includes a gain of approximately
$352 million ($.08 per share after income taxes, basic and
diluted) on the sale of our 49 percent interest in Coca-Cola
& Schweppes Beverages Ltd. to Coca-Cola Enterprises.
The second quarter of 1997 includes noncash gains on the
issuance of stock by Coca-Cola Amatil of approximately $343
million ($.08 per share after income taxes, basic and diluted).
The second quarter of 1997 also includes provisions related to
enhancing manufacturing efficiencies in North America of $60
million ($.02 per share after income taxes, basic and diluted).
The third quarter of 1997 includes a gain of approximately
$156 million ($.04 per share after income taxes, basic and
diluted) on the sale of our 48 percent interest in Coca-Cola
Beverages Ltd. of Canada and our 49 percent interest in The
Coca-Cola Bottling Company of New York, Inc. to Coca-Cola
Enterprises.
The third quarter of 1996 includes a noncash gain from a tax
settlement with the IRS for $320 million ($.13 per share
after income taxes, basic and diluted), an impairment charge
of $80 million ($.02 per share after income taxes, basic and
diluted) to recognize Project Infinity's impact on existing
information systems, a $28.5 million ($.01 per share after
income taxes, basic and diluted) charge for our decision to
make a contribution to The Coca-Cola Foundation, a not-for-
profit charitable organization and provisions related to
management's strategic plans to strengthen our worldwide
system of $276 million ($.07 per share after income taxes,
basic and diluted). In addition, the third quarter of 1996
includes noncash gains on the issuance of stock by Coca-Cola
Amatil of $130 million ($.03 per share after income taxes,
basic and diluted) and CCEAG of $283 million ($.04 per share
after income taxes, basic and diluted).
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
1997 and 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------
1997
High $ 63.25 $72.63 $71.94 $67.19
Low 51.13 52.75 55.06 51.94
Close 55.75 68.00 61.00 66.69
====================================================================
1996
High $ 42.69 $49.50 $53.88 $54.25
Low 36.06 39.13 44.25 46.88
Close 41.38 49.00 50.88 52.63
====================================================================
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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: 366,279
Shares outstanding at year end: 2.47 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 and the Swiss exchange in Zurich.
DIVIDENDS
At its February 1998 meeting, our Board increased our quarterly
dividend to 15 cents per share, equivalent to an annual dividend of
60 cents per share. The Company has increased dividends each of
the last 36 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 307 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 $125,000 per year.
All brokerage commissions associated with purchases made
through the Plan are paid by the Company.
The Plan's administrator, First Chicago Trust Company of New
York, purchases stock for voluntary cash investments beginning
the first business day of each month, except in December when
purchases begin on the 15th; dividend reinvestment purchases
begin on April 1, July 1, October 1 and December 15.
If your shares are held in street name by your broker and you are
interested in participating in the Dividend and Cash Investment
Plan, you may have your broker transfer the shares to First Chicago
Trust Company of New York electronically through the Direct
Registration System.
At year end, 69 percent of the Company's share owners of record
were participants in the Plan. In 1997, share owners invested
$39 million in dividends and $124 million in cash in the Plan.
ANNUAL MEETING OF SHARE OWNERS
April 15, 1998, 9 a.m. local time
The Playhouse Theatre
Du Pont Building
10th and Market Streets
Wilmington, Delaware
CORPORATE OFFICES
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
INSTITUTIONAL INVESTOR INQUIRIES
(404) 676-5766
SHARE-OWNER ACCOUNT ASSISTANCE
For address changes, dividend checks, direct deposit of
dividends, account consolidation, registration changes,
lost stock certificates, stock holdings and the Dividend
and Cash Investment Plan, please contact:
Registrar and Transfer Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
Toll-free: (888) COKESHR (265-3747)
For hearing impaired: (201) 222-4955
E-mail: fctc@em.fcnbd.com
Internet: http://www.fctc.com
INFORMATION RESOURCES
PUBLICATIONS
THE COMPANY'S ANNUAL AND INTERIM REPORTS, PROXY STATEMENT,
FORM 10-K AND FORM 10-Q REPORTS ARE AVAILABLE FREE OF CHARGE
FROM OUR INDUSTRY & CONSUMER AFFAIRS DEPARTMENT
AT THE COMPANY'S CORPORATE ADDRESS, LISTED ABOVE. Also available
is "The Chronicle of Coca-Cola Since 1886."
INTERNET SITE
Our site at http://www.coca-cola.com offers information about
our Company, as well as periodic marketing features.
HOTLINE
The Company's hotline, (800) INVSTKO (468-7856), offers taped
highlights from the most recent quarter and may be used to
request the most recent quarterly results news release.
AUDIO ANNUAL REPORT
An audiocassette version of this report is available without
charge as a service to the visually impaired. To receive a copy,
please contact our Industry & Consumer Affairs Department
at (800) 571-2653.
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our
publications, please contact the First Chicago Trust Company
of New York at one of the numbers listed above.
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GLOSSARY
[Following are certain definitions extracted from page 67:]
DIVIDEND PAYOUT RATIO: Calculated by dividing cash dividends on
common stock by net income available to common share owners.
ECONOMIC PROFIT: Income from continuing operations, after taxes,
excluding interest, in excess of a computed capital charge for
average operating capital employed.
FREE CASH FLOW: Cash provided by operations less cash used in
investing activities. The Company uses free cash flow along
with borrowings to pay dividends and make share repurchases.
NET DEBT AND NET CAPITAL: Debt and capital in excess of cash,
cash equivalents and marketable securities not required for
operations and certain temporary bottling investments.
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.
TOTAL MARKET VALUE OF COMMON STOCK: Stock price at year end
multiplied by the number of shares outstanding at year end.
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