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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 1-2217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at July 26, 2002
--------------------- ----------------------------
$.25 Par Value 2,482,327,495 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Statements of Income
Three and six months ended June 30, 2002 and 2001 3
Condensed Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 33
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 34
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2002 2001 2002 2001
------- ------- ------- -------
NET OPERATING REVENUES $ 5,368 $ 4,653 $ 9,447 $ 8,612
Cost of goods sold 1,927 1,579 3,321 2,924
------- ------- ------- -------
GROSS PROFIT 3,441 3,074 6,126 5,688
Selling, administrative and
general expenses 1,789 1,561 3,221 2,895
------- ------- ------- -------
OPERATING INCOME 1,652 1,513 2,905 2,793
Interest income 52 78 110 159
Interest expense 58 77 104 168
Equity income (loss) - net 176 101 237 63
Other income (loss) - net (55) (18) (230) (3)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,767 1,597 2,918 2,844
Income taxes 477 479 827 853
------- ------- ------- -------
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 1,290 1,118 2,091 1,991
Cumulative effect of
accounting change for SFAS
No. 142, net of income taxes:
Company operations - - (367) -
Equity investees - - (559) -
Cumulative effect of
accounting change for SFAS
No. 133, net of income taxes - - - (10)
------- ------- ------- -------
NET INCOME $ 1,290 $ 1,118 $ 1,165 $ 1,981
======= ======= ======= =======
BASIC NET INCOME PER SHARE:
Before accounting change $ .52 $ .45 $ .84 $ .80
Cumulative effect of
accounting change - - (.37) -
------- ------- ------- -------
$ .52 $ .45 $ .47 $ .80
======= ======= ======= =======
3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2002 2001 2002 2001
------- ------- ------- -------
DILUTED NET INCOME PER SHARE:
Before accounting change $ .52 $ .45 $ .84 $ .80
Cumulative effect of
accounting change - - (.37) -
------- ------- ------- -------
$ .52 $ .45 $ .47 $ .80
======= ======= ======= =======
DIVIDENDS PER SHARE $ .20 $ .18 $ .40 $ .36
======= ======= ======= =======
AVERAGE SHARES OUTSTANDING 2,481 2,488 2,482 2,487
Dilutive effect of
stock options 7 - - -
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,488 2,488 2,482 2,487
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
June 30, December 31,
2002 2001
---------- ------------
CURRENT
Cash and cash equivalents $ 2,671 $ 1,866
Marketable securities 165 68
-------- --------
2,836 1,934
Trade accounts receivable, less
allowances of $58 at June 30
and $59 at December 31 2,334 1,882
Inventories 1,385 1,055
Prepaid expenses and other assets 1,995 2,300
-------- --------
TOTAL CURRENT ASSETS 8,550 7,171
-------- --------
INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 841 788
Coca-Cola Amatil Limited 502 432
Coca-Cola Hellenic Bottling Company S.A. 789 791
Other, principally bottling companies 2,397 3,117
Cost method investments,
principally bottling companies 275 294
Other assets 3,038 2,792
-------- --------
7,842 8,214
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land 349 217
Buildings and improvements 2,194 1,812
Machinery and equipment 5,469 4,881
Containers 336 195
-------- --------
8,348 7,105
Less allowances for depreciation 2,882 2,652
-------- --------
5,466 4,453
-------- --------
TRADEMARKS AND OTHER INTANGIBLE ASSETS 3,429 2,579
-------- --------
$ 25,287 $ 22,417
======== ========
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
June 30, December 31,
2002 2001
---------- ------------
CURRENT
Accounts payable and accrued expenses $ 4,485 $ 3,679
Loans and notes payable 2,967 3,743
Current maturities of long-term debt 203 156
Accrued income taxes 1,208 851
-------- --------
TOTAL CURRENT LIABILITIES 8,863 8,429
-------- --------
LONG-TERM DEBT 2,774 1,219
-------- --------
OTHER LIABILITIES 1,759 961
-------- --------
DEFERRED INCOME TAXES 540 442
-------- --------
SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,494,331,099 shares at June 30;
3,491,465,016 shares at December 31 874 873
Capital surplus 3,641 3,520
Reinvested earnings 23,614 23,443
Accumulated other comprehensive income and
unearned compensation on restricted stock (2,792) (2,788)
-------- --------
25,337 25,048
Less treasury stock, at cost
(1,011,322,527 shares at June 30;
1,005,237,693 shares at December 31) 13,986 13,682
-------- --------
11,351 11,366
-------- --------
$ 25,287 $ 22,417
======== ========
See Notes to Condensed Consolidated Financial Statements.
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
Six Months Ended
June 30,
-----------------------
2002 2001
------- -------
OPERATING ACTIVITIES
Net income $ 1,165 $ 1,981
Depreciation and amortization 398 385
Deferred income taxes (145) (84)
Equity income or loss, net of dividends (173) 4
Foreign currency adjustments 16 7
Cumulative effect of accounting changes 926 10
Other items 225 25
Net change in operating assets and liabilities (256) (233)
------- -------
Net cash provided by operating activities 2,156 2,095
------- -------
INVESTING ACTIVITIES
Acquisitions and investments,
principally trademarks and bottling companies (267) (241)
Purchases of investments and other assets (62) (340)
Proceeds from disposals of investments
and other assets 46 140
Purchases of property, plant and equipment (374) (313)
Proceeds from disposals of property, plant
and equipment 35 55
Other investing activities 36 104
------- -------
Net cash used in investing activities (586) (595)
------- -------
Net cash provided by operations after reinvestment 1,570 1,500
------- -------
FINANCING ACTIVITIES
Issuances of debt 1,189 2,307
Payments of debt (1,272) (2,523)
Issuances of stock 85 125
Purchases of stock for treasury (301) (132)
Dividends (497) (448)
------- -------
Net cash used in financing activities (796) (671)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 31 (49)
------- -------
CASH AND CASH EQUIVALENTS
Net increase during the period 805 780
Balance at beginning of period 1,866 1,819
------- -------
Balance at end of period $ 2,671 $ 2,599
======= =======
See Notes to Condensed Consolidated Financial Statements.
7
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements included in the Annual Report on Form 10-K of The Coca-Cola
Company (the Company or our Company) for the year ended December 31, 2001. In
the opinion of management, all adjustments (consisting of normal recurring
accruals), as well as the accounting change to adopt Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2002, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONALITY
Sales of ready-to-drink nonalcoholic beverages are somewhat seasonal, with
the second and third calendar quarters accounting for the highest sales volumes
in the Northern Hemisphere. The volume of sales in the beverages business may be
affected by weather conditions.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income for the three months ended June 30, 2002 and
2001, was comprised of the following:
For the three months ended June 30,
-----------------------------------
2002 2001
------- -------
Net income $ 1,290 $ 1,118
Net foreign currency translation 224 (209)
Net gain (loss) on derivative financial
instruments (100) (48)
Net change in unrealized gain (loss) on
available-for-sale securities (11) 7
Minimum pension liability (33) -
------- -------
Total Comprehensive Income $ 1,370 $ 868
======= =======
Total comprehensive income for the six months ended June 30, 2002 and 2001,
was comprised of the following:
For the six months ended June 30,
---------------------------------
2002 2001
------- -------
Net income $ 1,165 $ 1,981
Net foreign currency translation 84 (139)
Net gain (loss) on derivative financial
instruments (includes 2001 cumulative
effect of accounting change for SFAS No. 133) (116) 104
Net change in unrealized gain (loss) on
available-for-sale securities 67 7
Minimum pension liability (33) -
------- -------
Total Comprehensive Income $ 1,167 $ 1,953
======= =======
Net foreign currency translation for the three months and six months ended
June 30, 2002, was impacted by the strengthening of certain currencies since
December 31, 2001, including the Japanese yen and the euro, against the U.S.
dollar, primarily in the second quarter of 2002. Net gain (loss) on derivative
financial instruments for the three months and six months ended June 30, 2002,
was impacted primarily by decreases in the fair value of outstanding hedging
instruments primarily related to the Japanese yen. Fluctuations in the value of
the hedging instruments are generally offset by changes in the fair value or
cash flows of the underlying exposures being hedged.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D - ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, our Company adopted SFAS No. 142. For
information regarding trademarks and other intangible assets and the impact the
adoption of SFAS No. 142 had on our Condensed Consolidated Financial Statements,
refer to Note F.
Effective January 1, 2002, our Company adopted the fair value method
defined in SFAS No. 123, "Accounting for Stock-Based Compensation." For
information regarding the adoption of the fair value method defined in SFAS
No. 123, refer to Note I.
Effective January 1, 2002, our Company adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 01-9, "Accounting for Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's Products." EITF Issue
No.01-9 codifies and reconciles the Task Force consensuses on all or specific
aspects of EITF Issues No. 00-14, "Accounting for Certain Sales Incentives,"
No.00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based
Sales Incentives Offers, and Offers for Free Products or Services to be
Delivered in the Future," and No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products"
and identifies other related interpretive issues. Our Company adopted the
provisions of EITF Issues No. 00-14 and No. 00-22 on January 1, 2001, resulting
in income statement reclassification of certain sales incentives. Upon adoption,
the Company reduced both net operating revenues and selling, administrative and
general expenses by approximately $152 million for the three months ended June
30, 2001, approximately $303 million for the six months ended June 30, 2001, and
approximately $580 million for the year ended December 31, 2001. EITF Issue No.
01-9 requires certain selling expenses incurred by the Company, not previously
reclassified, to be classified as deductions from revenue. The adoption of the
remaining items included in EITF Issue No. 01-9 resulted in the Company reducing
both net operating revenues and selling, administrative and general expenses by
approximately $640 million for the three months ended June 30, 2001 and
approximately $1,160 million for the six months ended June 30, 2001. The full
year amount of the reclassification for 2001 was approximately $2.5 billion.
These reclassifications have no impact on operating income.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137
and SFAS No. 138. The adoption of SFAS No. 133 resulted in the Company recording
transition adjustments to recognize its derivative instruments at fair value and
to recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax reduction to net income of approximately $10 million and an after-tax
net increase to Accumulated Other Comprehensive Income of approximately $50
million.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E - ACQUISITIONS
Effective February 2002, our Company assumed control of Coca-Cola
Erfrischungsgetraenke AG (CCEAG), the largest bottler in Germany. This
transaction was accounted for as a business combination, and the consolidated
results of CCEAG's operations have been included in the Company's Consolidated
Financial Statements since February 2002. Prior to February 2002, CCEAG was
accounted for by our Company under the equity method of accounting. Our Company
has an approximate 41 percent ownership interest in the outstanding shares of
CCEAG. In accordance with the terms of a Control and Profit and Loss Transfer
Agreement (CPL) with certain share owners of CCEAG, our Company obtained
management control of CCEAG for a period of up to five years. In return for the
management control of CCEAG, the Company guaranteed annual payments in lieu of
dividends by CCEAG to all other CCEAG share owners. Additionally, all other
CCEAG share owners entered into either a put or put/call option with the
Company, exercisable at the end of the term of the CPL agreement at agreed
prices. As a result of assuming control of CCEAG, our Company expects to help
focus its sales and marketing programs and assist in developing the business.
The present value of the total amount likely to be paid by our Company to
all other CCEAG share owners, including the put or put/call payments and the
guaranteed annual payments in lieu of dividends, is approximately $600 million.
This liability is included in the caption "Other Liabilities" in the Condensed
Consolidated Balance Sheet. The accretion of this discounted value to its
ultimate maturity value was recorded in the caption "Other income (loss) - net"
in the Condensed Consolidated Statement of Income, and this amount was
approximately $15 million for the six months ended June 30, 2002. In this
transaction, the Company acquired bottler franchise rights with a fair value of
approximately $925 million and goodwill with a fair value of approximately $40
million. Such intangible assets were assigned indefinite lives. The purchase
price allocation is subject to refinement.
In November 2001, our Company and Coca-Cola Bottlers Philippines, Inc.
(CCBPI) entered into a sale and purchase agreement with RFM Corp. to acquire its
83.2 percent interest in Cosmos Bottling Corporation (CBC), a publicly traded
Philippine beverage company. As of the date of the agreement, the Company began
supplying concentrate for this operation. The purchase of RFM's interest was
finalized on January 3, 2002. On March 7, 2002, a tender offer was completed
with our Company and CCBPI acquiring all shares of the remaining minority share
owners except for shares representing a one percent interest in CBC. As of June
30, 2002, our Company's direct ownership interest in CBC is 60.8 percent, and
our indirect ownership interest in CBC is 13.3 percent. The total consideration
paid by the Company for all of its
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E - ACQUISITIONS (Continued)
purchases of CBC shares was approximately $198 million including acquired
trademarks with a fair value of approximately $165 million. These trademarks
were assigned indefinite lives. The purchase price allocation is subject to
refinement. This transaction was accounted for as a business combination, and
the results of CBC's operations have been included in the Company's Consolidated
Financial Statements since January 3, 2002. CBC is an established carbonated
soft drink business in the Philippines. Our Company's goal is to leverage our
new partnership with San Miguel Corporation in the Philippines, as well as
leverage our sales, marketing and system resources, to expand CBC volume over
time.
Had the results of these businesses been included in operations commencing
with 2001, the reported results would not have been materially affected.
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS
In accordance with SFAS No. 142, goodwill and indefinite lived intangible
assets will no longer be amortized but will be reviewed annually for impairment.
Intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of SFAS No.
142 apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company began applying the new accounting rules beginning January 1, 2002.
The adoption of SFAS No. 142 required the Company to perform an initial
impairment assessment on all goodwill and indefinite lived intangible assets as
of January 1, 2002. The Company compared the fair value of trademarks and other
intangible assets to current carrying value. Fair values were derived using
discounted cash flow analyses. The assumptions used in these discounted cash
flow analyses were consistent with our internal planning. Valuations were
completed for intangible assets for both the Company and our equity method
investees. For the Company's intangible assets, the cumulative effect of this
change in accounting principle was an after-tax decrease to net income of
approximately $367 million. For the Company's proportionate share of its equity
method investees, the cumulative effect of this change in accounting principle
was an after-tax decrease to net income of approximately $559 million. The
deferred income tax benefit related to the cumulative effect of this change for
the Company's intangible assets was approximately $94 million and for the
Company's proportionate share of its equity method investees was approximately
$123 million.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
The impairment charges resulting in the after-tax decrease to net income
for the cumulative effect of this change by applicable operating segment as of
January 1, 2002 are as follows (in millions):
The Company:
Europe, Eurasia and Middle East $ 33
Latin America 226
Asia 108
------
Total $ 367
======
The Company's Proportionate Share of its Equity
Method Investees:
Africa $ 63
Europe, Eurasia and Middle East 400
Latin America 96
------
Total $ 559
======
Of the Company's $226 million impairment for Latin America, approximately
$113 million relates to Company-owned Brazilian bottlers' franchise rights. The
Brazilian macroeconomic conditions, the devaluation of the currency and lower
pricing have impacted the valuation of these bottlers' franchise rights. The
remainder of the $226 million primarily relates to a $109 million impairment for
certain trademarks in Latin America. In early 1999, our Company formed a
strategic partnership to market and distribute such trademark brands. The
macroeconomic conditions and lower pricing have depressed operating margins for
these trademarks.
Of the $108 million impairment for the Company in Asia, $99 million relates
to bottlers' franchise rights in consolidated bottling operations in our
Southeast and West Asia Division. Difficult economic conditions persist in
Singapore, Sri Lanka, Nepal and Vietnam. As a result, bottlers in these
countries have experienced lower than expected volume and operating margins.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
For Europe, Eurasia and Middle East equity method investees, a $400 million
impairment was recorded for the Company's proportionate share related to
bottlers' franchise rights. Of this amount, approximately $301 million relates
to CCEAG. This impairment is due to a prolonged difficult economic environment
in Germany resulting in continuing losses for CCEAG in east Germany. The market
for nonalcoholic beverages is currently undergoing a transformation. A changing
competitive landscape, continuing price pressure, and growing demand for new
products and packaging are elements impacting CCEAG. The $400 million impairment
also includes a $50 million charge for Middle East bottlers' franchise rights.
In our Africa operating segment, a $63 million charge was recorded for the
Company's proportionate share of impairments related to equity method investee
bottlers' franchise rights. These Middle East and Africa bottlers have
challenges as a result of the political instability, and the resulting economic
instability, in their respective regions, which has adversely impacted financial
performance.
A $96 million impairment was recorded for the Company's proportionate share
related to bottlers' franchise rights of Latin America equity method investees.
In South Latin America, the macroeconomic conditions and recent devaluation of
the Argentine peso have significantly impacted the valuation of bottlers'
franchise rights.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
As discussed in Note E above, the Company acquired certain intangible
assets in connection with the acquisitions of CCEAG and CBC. Because such assets
were assigned indefinite lives, no amortization will be recorded.
The following table sets forth the information for intangible assets
subject to amortization and for intangible assets not subject to amortization
(in millions):
June 30, 2002 December 31, 2001
------------- -----------------
Amortized intangible assets
(various, principally trademarks):
Gross carrying amount $ 161 $ 160
======= =======
Accumulated amortization $ 71 $ 67
======= =======
Unamortized intangible assets:
Trademarks $ 1,715 $ 1,697
Bottlers' franchise rights 1,337 639
Goodwill 195 108
Other 92 42
------- -------
Total $ 3,339 $ 2,486
======= =======
Aggregate amortization expense:
For the three months ended
June 30, 2002 $ 3
=======
For the six months ended
June 30, 2002 $ 6
=======
Estimated amortization expense:
For the year ending December 31, 2002 $ 12
For the year ending December 31, 2003 12
For the year ending December 31, 2004 11
For the year ending December 31, 2005 11
For the year ending December 31, 2006 8
For the year ending December 31, 2007 8
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
The following table summarizes and reconciles net income before cumulative
effect of accounting change for the three and six months ended June 30, 2002 and
2001, adjusted to exclude amortization expense recognized in such periods
related to trademarks, bottlers' franchise rights, goodwill, other indefinite
lived intangible assets that are no longer amortized and our proportionate share
of equity method intangibles (in millions except per share amounts):
For the three months ended June 30,
-----------------------------------
2002 2001
------- -------
Reported net income before cumulative effect
of accounting change (1) $ 1,290 $ 1,118
Add back after-tax amounts:
Trademark amortization - 7
Bottlers' franchise rights amortization - 1
Goodwill amortization - 1
Other indefinite lived
intangible amortization - 1
Equity method intangibles amortization - 27
------- -------
Adjusted net income before cumulative effect
of accounting change $ 1,290 $ 1,155
======= =======
Basic net income per share before
accounting change (1):
Reported net income $ .52 $ .45
Trademark amortization - -
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .01
------- -------
Adjusted basic net income per share
before accounting change $ .52 $ .46
======= ========
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
For the three months ended June 30,
-----------------------------------
2002 2001
-------- -------
Diluted net income per share before
accounting change (1):
Reported net income $ .52 $ .45
Trademark amortization - -
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .01
------- -------
Adjusted diluted net income per share
before accounting change $ .52 $ .46
======= =======
For the six months ended June 30,
---------------------------------
2002 2001
-------- --------
Reported net income before cumulative effect
of accounting change (1) $ 2,091 $ 1,991
Add back after-tax amounts:
Trademark amortization - 15
Bottlers' franchise rights amortization - 2
Goodwill amortization - 1
Other indefinite lived
intangible amortization - 1
Equity method intangibles amortization - 55
------- -------
Adjusted net income before cumulative effect
of accounting change $ 2,091 $ 2,065
======= =======
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued)
For the six months ended June 30,
---------------------------------
2002 2001
---- ----
Basic net income per share before
accounting change (1):
Reported net income $ .84 $ .80
Trademark amortization - .01
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .02
----- -----
Adjusted basic net income per share
before accounting change $ .84 $ .83
===== =====
For the six months ended June 30,
---------------------------------
2002 2001
---- ----
Diluted net income per share before
accounting change (1):
Reported net income $ .84 $ .80
Trademark amortization - .01
Bottlers' franchise rights amortization - -
Goodwill amortization - -
Other indefinite lived
intangible amortization - -
Equity method intangibles amortization - .02
----- -----
Adjusted diluted net income per share
before accounting change $ .84 $ .83
===== =====
(1) Basic and diluted net income per share amounts are rounded to the nearest
$.01, and after-tax amounts are rounded to the nearest million; therefore, such
rounding may slightly impact amounts presented.
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - OPERATING SEGMENTS
The Company's operating structure includes the following operating
segments: North America (including The Minute Maid Company); Africa; Europe,
Eurasia and Middle East; Latin America; Asia; and Corporate. North America
includes the United States, Canada and Puerto Rico.
During the first quarter of 2002, the Egypt Region was relocated from
Europe, Eurasia and Middle East to Africa. Prior period amounts have been
reclassified to conform to the current period presentation.
Information about our Company's operations as of and for the three months
ended June 30, 2002 and 2001, by operating segment, is as follows (in millions):
Europe,
North Eurasia and Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ----------- ------- ---- --------- ------------
2002
Net operating
revenues $ 1,644 $ 184 $ 1,458 $ 554 $ 1,480 $ 48 $ 5,368
Operating income 460 60 468 272 569 (177) 1,652
Identifiable
operating
assets (1) 4,991 541 4,800 1,339 2,254 6,558 20,483
Investments (2) 137 97 986 1,488 1,181 915 4,804
2001
Net operating
revenues $ 1,517 $ 147 $ 1,026 $ 565 $ 1,351 $ 47 $ 4,653
Operating income 369 57 432 282 511 (138) 1,513
Identifiable
operating
assets 4,414 515 1,855 1,670 2,049 6,176 16,679
Investments 141 227 1,839 1,724 1,005 772 5,708
Intercompany transfers between operating segments are not material.
(1) Identifiable operating assets for Europe, Eurasia and Middle East increased
primarily due to the consolidation of CCEAG in 2002.
(2) Investments for Europe, Eurasia and Middle East decreased primarily due to
the consolidation of CCEAG in 2002.
19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G - OPERATING SEGMENTS (Continued)
Information about our Company's operations for the six months ended June
30, 2002 and 2001, by operating segment, is as follows (in millions):
Europe,
North Eurasia and Latin
America Africa Middle East America Asia Corporate Consolidated
------- ------ ----------- ------- ---- --------- ------------
2002
Net operating
revenues $ 3,006 $ 329 $ 2,475 $ 1,097 $ 2,458 $ 82 $ 9,447
Operating income 829 122 810 548 937 (341) 2,905
2001
Net operating
revenues $ 2,837 $ 292 $ 1,898 $ 1,087 $ 2,404 $ 94 $ 8,612
Operating income 749 126 829 559 846 (316) 2,793
Intercompany transfers between operating segments are not material.
20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H - NONRECURRING ITEMS
Our Company has direct and indirect ownership interests totaling
approximately 18 percent in Cervejarias Kaiser S.A. (Kaiser S.A.). In March
2002, Kaiser S.A. sold its investment in Cervejarias Kaiser Brazil Ltda to
Molson Inc. (Molson) for cash of approximately $485 million and shares of Molson
valued at approximately $150 million. Our Company's pre-tax share of the gain
related to this sale was approximately $51 million, of which approximately $28
million was recorded in the caption "Equity income (loss) - net" and
approximately $23 million was recorded in the caption "Other income (loss) -
net." This gain was recorded in the first quarter of 2002.
In the first quarter of 2002, our Company recorded a non-cash pre-tax
charge of approximately $157 million (recorded in the caption "Other income
(loss) - net") primarily related to the write-down of our investments in Latin
America. This write-down reduced the carrying value of the investments in Latin
America to fair value. The charge was primarily the result of the economic
developments in Argentina during the first quarter of 2002, including the
continued devaluation of the Argentine peso and the severity of the unfavorable
economic outlook.
NOTE I - RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
Effective January 1, 2002, our Company adopted the fair value method
defined in SFAS No. 123 in accounting for our Company's restricted-stock and
stock option plans. Previously, our Company applied the intrinsic value method
(as permitted under SFAS No. 123) defined in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations.
SFAS No. 123 indicates that the fair value method is the preferable method of
accounting. Furthermore, SFAS No. 123 requires that the fair value method be
adopted prospectively.
21
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the second quarter of 2002, our worldwide unit case volume increased 5
percent compared to the second quarter of 2001. The increase in unit case volume
was driven by 5 percent volume growth for international operations and 4 percent
growth for North American operations. Second quarter 2002 unit case volume for
the Company's international operating segments included 7 percent growth for
Africa; 3 percent growth for Europe, Eurasia and Middle East; 1 percent growth
for Latin America; and 14 percent growth for Asia. The 1 percent growth in Latin
America was due to strong performance in Mexico offset by challenging economic
conditions in other Latin American markets, primarily Argentina and Venezuela.
Our unit case volume for the first six months of 2002 increased 5 percent
compared to the first six months of 2001. The increase in unit case volume was
driven by 5 percent volume growth for international operations and 4 percent
growth for North American operations. Unit case volume for the first six months
of 2002 for the Company's international operating segments included 9 percent
growth for Africa; 6 percent growth for Europe, Eurasia and Middle East; slight
increase for Latin America; and 12 percent growth for Asia. Carbonated soft
drinks and non-carbonated beverages contributed 2 percent volume growth and 25
percent volume growth, respectively, for the first six months of 2002.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues increased by 15 percent to $5,368 million in the
second quarter of 2002 relative to the comparable period in 2001. The increase
reflected a 6 percent increase in gallon shipments, structural changes
(primarily the consolidation of our German bottler, Coca-Cola
Erfrischungsgetraenke AG (CCEAG) and certain Nordic bottling operations) and
price increases in selected countries, partially offset by the impact of a
stronger U.S. dollar. Net operating revenues for the first six months of 2002
increased by 10 percent to $9,447 million relative to the comparable period in
2001. The increase for the first six months of 2002 reflected a 4 percent
increase in gallon shipments, structural changes (primarily the consolidation of
CCEAG and certain Nordic bottling operations) and price increases in selected
countries, partially offset by the impact of a stronger U.S. dollar.
22
RESULTS OF OPERATIONS (Continued)
NET OPERATING REVENUES AND GROSS MARGIN (Continued)
Our gross profit margin decreased to 64.1 percent in the second quarter of
2002 from 66.1 percent in the second quarter of 2001. For the first six months
of 2002, our gross profit margin decreased to 64.8 percent from 66.0 percent for
the first six months of 2001. The decrease in our gross profit margin for both
the second quarter and the first six months of 2002 was due primarily to the
consolidation of lower margin bottling operations, primarily CCEAG and certain
Nordic bottling operations.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were $1,789 million in the
second quarter of 2002, compared to $1,561 million in the second quarter of
2001. For the first six months of 2002, selling, administrative and general
expenses were $3,221 million compared to $2,895 million for the same period in
2001. Both increases during 2002 were due primarily to structural changes
related to Company owned bottling operations, including the consolidation of
CCEAG and certain Nordic bottling operations.
In 2001, the Company implemented significant strategic one-time marketing
initiatives in order to accelerate the Company's business strategies. During the
second quarter of 2001, approximately $82 million, or $0.02 per share after tax,
was expensed on these incremental one-time marketing activities in selected key
markets, specifically the United States, Japan and Germany.
23
RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income was $1,652 million in the second quarter of 2002, compared
to $1,513 million in the second quarter of 2001. Our consolidated operating
margin for the second quarter of 2002 was 30.8 percent, compared to 32.5 percent
for the comparable period in 2001. Operating income and operating margin for the
six months ended June 30, 2002, were $2,905 million and 30.8 percent,
respectively, compared to $2,793 million and 32.4 percent for the six months
ended June 30, 2001. The increase in operating income for the second quarter and
the first six months of 2002 reflected the increase in gallon shipments and
price increases in selected countries, partially offset by the negative impact
from the stronger U.S. dollar, which reduced operating income by approximately 3
percent during both the second quarter and first six months of 2002. The
stronger U.S. dollar compared to the Japanese yen, the Argentine peso, the
Mexican peso, the Brazilian real, the Venezuelan bolivar and the South African
rand drove the negative currency impact. Additionally, structural changes,
mainly the consolidation of CCEAG and certain Nordic bottling operations,
contributed to the reduction in operating margin. Generally, bottling operations
produce higher revenues but lower operating margins compared to concentrate and
syrup operations.
INTEREST INCOME AND INTEREST EXPENSE
Interest income decreased to $52 million for the second quarter of 2002 and
to $110 million for the six months ended June 30, 2002, from $78 million and
$159 million, respectively, for the comparable periods in 2001. In both cases, a
majority of the decrease was due to lower interest rates earned on short-term
investments during 2002. Nevertheless, the Company continues to benefit from
cash invested in locations outside the United States earning higher interest
rates than could be obtained within the United States. Interest expense
decreased $19 million, or 25 percent, in the second quarter of 2002 relative to
the comparable period in 2001, and by $64 million, or 38 percent, for the six
months ended June 30, 2002, due mainly to both a decrease in average commercial
paper debt balances and lower interest rates for commercial paper debt. The
decrease in interest expense for commercial paper debt was partially offset by
increased interest expense on debt related to the consolidation of CCEAG. Our
Company's debt increased approximately $800 million, of which approximately $750
million is classified as long-term, as a result of the consolidation of CCEAG.
Additionally, long-term debt increased due to the issuance during 2002 of $750
million of 4 percent U.S. dollar notes due June 1, 2005. This $750 million of
long-term debt was used to reduce current debt.
24
RESULTS OF OPERATIONS (Continued)
EQUITY INCOME (LOSS) - NET
Our Company's share of income from equity method investments for the second
quarter of 2002 totaled $176 million, compared to $101 million in the second
quarter of 2001. For the first six months of 2002, our Company's share of income
from equity method investees totaled $237 million, compared to $63 million for
the comparable period in 2001. This improvement in 2002 was due to the overall
continued improvement in operating performance by the Coca-Cola bottling system
around the world, the decrease in amortization expenses resulting from
implementation of Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," and the consolidation of bottlers
(primarily CCEAG) previously accounted for under the equity method. For the
first six months of 2002, our Company's share of income from equity method
investees was also favorably impacted by a benefit related to our share of the
gain on the sale by Cervejarias Kaiser S.A. (Kaiser S.A.) of its interests in
Brazil to Molson Inc. (refer to Note H in the Notes to Condensed Consolidated
Financial Statements). Approximately $28 million of the pre-tax gain from the
sale by Kaiser S.A. was recorded in equity income in the first quarter of 2002
with the remaining portion ($23 million) recorded in "Other income (loss) -
net."
OTHER INCOME (LOSS) - NET
Other income (loss) - net was a net loss of $55 million for the second
quarter of 2002 compared to a net loss of $18 million for the first quarter of
2001. The change in other income (loss) was due primarily to foreign currency
exchange losses. Other income (loss) - net was a net loss of $230 million for
the first six months of 2002 compared to a $3 million net loss for the
comparable period in 2001. The change in other income (loss) for the first six
months of 2002 was due to foreign currency exchange losses as well as
non-recurring items which were recorded during the first quarter of 2002. In the
first quarter of 2002, our Company recorded a non-cash pre-tax charge of
approximately $157 million primarily related to the write-down of our
investments in Latin America. The charge was primarily the result of the
economic developments in Argentina during the first quarter of 2002, including
the continued devaluation of the Argentine peso and the severity of the
unfavorable economic outlook. The Company expects to realize a minimal tax
benefit from this write-down. The final impact on diluted earnings per share was
an after-tax reduction of approximately $0.06 per share. As previously noted, a
$23 million portion of the pre-tax gain from the sale by Kaiser S.A. was
recorded in "Other income (loss) - net." The remainder of the net loss for the
first six months of 2002 was due to net losses on currency exchange, primarily
in Latin America, which was impacted by the significant devaluation of the
Argentine peso, and in Africa.
25
RESULTS OF OPERATIONS (Continued)
INCOME TAXES
Our effective tax rate was 27 percent for the second quarter of 2002
compared to 30 percent for the second quarter of 2001. Our effective tax rate
for the first six months of 2002 was 28 percent compared to 30 percent for the
first six months of 2001. The effective tax rate for the first six months of
2002 was impacted by non-recurring items - our share of the gain on the sale of
Kaiser S.A. interests and the write-down of our investments primarily in Latin
America. Excluding the impact of these items, our effective tax rate would have
been 27 percent for the first six months of 2002. For the full year 2002, the
Company expects the ongoing effective tax rate to be 27 percent instead of the
27.5 percent rate previously estimated by the Company in its Annual Report on
Form 10-K for the year ended December 31, 2001. This slight reduction in our
estimated effective tax rate is due to a non-cash benefit related solely to the
adoption of SFAS No. 142 and is expected to benefit the current year by
approximately $0.01 per share. Our ongoing effective tax rate reflects tax
benefits derived from significant operations outside the United States, which
are taxed at lower rates than the U.S. statutory rates.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR SFAS NO. 142
The adoption of SFAS No. 142 is a required change in accounting principle,
and the cumulative effect of adopting this standard as of January 1, 2002
resulted in a non-cash, after-tax decrease to net income of $367 million for
Company operations and $559 million for the Company's proportionate share of its
equity method investees in the first quarter of 2002. The adoption of this
accounting standard will result in a pretax reduction in annual amortization
expense of approximately $60 million, and an increase in annual equity income of
approximately $150 million.
26
RESULTS OF OPERATIONS (Continued)
RECENT DEVELOPMENTS
Effective January 1, 2002, our Company adopted the fair value method of
recording stock options contained in SFAS No. 123, "Accounting for Stock-Based
Compensation," which is considered the preferable accounting method for
stock-based employee compensation. All future employee stock option grants will
be expensed over the stock option vesting period based on the fair value at the
date the options are granted. Based on the current accounting guidance related
to the adoption of the fair value method of recording stock options, which is
currently under review by the Financial Accounting Standards Board, our Company
expects minimal financial impact in the current year from the adoption of this
accounting methodology. If our Board of Directors grants options in 2002 at a
similar level to 2001, the expected impact would be approximately $0.01 per
share for 2002. Our Company's best estimate is that the impact per share would
increase annually over the next several years and level off at approximately
$0.09 to $0.10 per share by 2006. This estimate assumes the number of options
granted by our Board of Directors and the fair value of options granted is
similar for all years. The actual impact per share would be different in the
event the number of options granted or the fair value of options increases or
decreases from the current estimate, or if the current accounting guidance
changes. Historically, our Company had applied the intrinsic value method
permitted under SFAS No. 123, as defined in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations,
in accounting for our stock option plans. Accordingly, no compensation cost has
been recognized for our stock option plans in the past.
In June 2002, our Company announced long-term agreements with the National
Collegiate Athletic Association (NCAA) and CBS, and with the Houston Astros
Baseball Club with a combined value of approximately $650 to $800 million. Our
Company, CBS and the NCAA will participate in an integrated marketing and media
program that includes, for our Company, beverage marketing and media rights to
87 NCAA championships in 22 sports. Additionally, The Minute Maid Company, an
operating unit of our Company, and the Houston Astros Baseball Club will
participate in a long-term marketing and community partnership, including naming
rights for Astros Field, which will be renamed "Minute Maid Park." Definitive
agreements are expected to be finalized during the third quarter of 2002.
27
FINANCIAL CONDITION
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first six months of 2002, net cash provided by operations after
reinvestment totaled $1,570 million versus $1,500 million for the comparable
period in 2001.
Net cash provided by operating activities in the first six months of 2002
amounted to $2,156 million, a $61 million increase compared to the first six
months of 2001. Increased cash flows from operations in 2002 are a result of
improved worldwide business operating results along with the collection of
significant tax receivables in connection with an Advance Pricing Agreement
(APA) reached between the United States and Japan in 2000. The APA established
the level of royalties paid by Coca-Cola (Japan) Company to our Company for the
years 1993 through 2001. These increases were partially offset by pension plan
contributions made during the second quarter of 2002.
Net cash used in investing activities totaled $586 million for the first
six months of 2002, compared to $595 million for the first six months of 2001.
During the first six months of 2002, cash outlays for investing activities
included purchases of property, plant and equipment of $374 million and the
purchase of shares of Cosmos Bottling Corporation of $198 million (refer to Note
E in the Notes to Condensed Consolidated Financial Statements).
FINANCING ACTIVITIES
Our financing activities include net borrowings, dividend payments, share
issuances and share repurchases. Net cash used in financing activities totaled
$796 million for the first six months of 2002 compared to $671 million for the
first six months of 2001.
In the first six months of 2002, the Company had issuances of debt of
$1,189 million and payments of debt of $1,272 million. The issuances of debt
included $437 million of issuances of commercial paper with maturities over 90
days and $750 million in issuances of long-term debt due June 1, 2005. The
payments of debt included $372 million primarily related to commercial paper
with maturities over 90 days, and net payments of $857 million primarily related
to commercial paper with maturities less than 90 days.
28
FINANCIAL CONDITION (Continued)
FINANCING ACTIVITIES (Continued)
For the comparable first six months of 2001, the Company had issuances of
debt of $2,307 million and payments of debt of $2,523 million. The issuances of
debt included $1,778 million of issuances of commercial paper with maturities
over 90 days and a $500 million issuance of long-term debt. The payments of debt
included $2,057 million primarily related to commercial paper with maturities
over 90 days, and net payments of $453 million primarily related to commercial
paper with maturities less than 90 days.
During the first six months of 2002 and 2001, the Company repurchased
common stock under the stock repurchase plan authorized by our Board of
Directors in October 1996. Cash used to purchase common stock for treasury was
$301 million for the first six months of 2002 compared to $132 million for the
first six months of 2001. During the first six months of 2002 and 2001, the
Company repurchased approximately 5,907,000 and 2,400,000 shares, respectively,
of common stock at an average cost of $50.00 and $48.73 per share, respectively,
under the 1996 plan.
FINANCIAL POSITION
The Condensed Consolidated Balance Sheet as of June 30, 2002, as compared
to the Condensed Consolidated Balance Sheet as of December 31, 2001, was
significantly impacted as a result of our Company's consolidation of CCEAG.
Prior to consolidation, our investment in CCEAG was recorded as an equity method
investment. Upon consolidation of CCEAG, the individual balances were included
in the respective balance sheet line items. The consolidation of CCEAG was the
main component of the following changes in the Company's balance sheet from
December 31, 2001 to June 30, 2002: (1) $720 million decrease in "Equity method
investments - other, principally bottling companies"; (2) $452 million increase
in "Trade accounts receivable"; (3) $1,243 million increase in "Property, Plant
and Equipment"; (4) $850 million increase in "Trademarks and Other Intangible
Assets"; and (6) $798 million increase in "Other liabilities." The increase in
cash and cash equivalents was due primarily to the accumulation of cash for the
quarterly dividend payment. The increase in accounts payable and accrued
expenses was primarily due to dividends payable accrued as of June 30, 2002
which will be paid during the third quarter of 2002. Additionally, the adoption
of SFAS No. 142, which was effective January 1, 2002, also impacted the 2002
Condensed Consolidated Balance Sheet, by reducing the balances in both
"Investments and Other Assets" and "Trademarks and Other Intangible Assets."
The $1,555 million increase in the Company's long-term debt was due to both
the consolidation of CCEAG, which had the effect of increasing debt by
approximately $800 million, of which approximately $750 million is classified as
long-term, and the issuance during 2002 of $750 million of 4 percent U.S. dollar
notes due June 1, 2005. This $750 million of long-term debt was used to reduce
current debt.
29
FINANCIAL CONDITION (Continued)
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and government actions. We closely
monitor our operations in each country and seek to adopt appropriate strategies
that are responsive to changing economic and political environments and to
fluctuations in foreign currencies.
We use approximately 59 functional currencies. Due to our global
operations, weaknesses in some of these currencies are often offset by strengths
in others. The U.S. dollar was approximately 2 percent stronger in the second
quarter of 2002, compared to the second quarter of 2001, based on comparable
weighted averages for our functional currencies. This does not include the
effects of our hedging activities and, therefore, does not reflect the actual
impact of fluctuations in exchange rates on our operating results. Our foreign
currency management program mitigates over time a portion of the impact of
exchange on net income and earnings per share. The impact of a stronger U.S.
dollar reduced our operating income by approximately 3 percent in the second
quarter of 2002, and by approximately 3 percent for the first six months of
2002, compared to the same periods in 2001. The stronger U.S. dollar had a
negative impact of $0.02 on income per share for the second quarter of 2002, and
a negative impact of $0.05 on income per share for the first six months of 2002,
compared to the same periods in 2001.
The Company will continue to manage its foreign currency exposures to
mitigate over time a portion of the impact of exchange on net income and
earnings per share. Our Company conducts business in nearly 200 countries around
the world, and we manage foreign currency exposures through the portfolio effect
of the basket of functional currencies in which we do business.
30
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by our Company and subsidiaries or
with the approval of an authorized executive officer of our Company may
constitute "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995, including statements made in this report and
other filings with the Securities and Exchange Commission. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "project," "will" and
similar expressions identify forward-looking statements, which generally are not
historical in nature. All statements which address operating performance, events
or developments that we expect or anticipate will occur in the future --
including statements relating to volume growth, share of sales and earnings per
share growth and statements expressing general optimism about future operating
results -- are forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from our Company's historical experience and our present
expectations or projections. As and when made, management believes that these
forward-looking statements are reasonable. However, caution should be taken not
to place undue reliance on any such forward-looking statements since such
statements speak only as of the date when made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
The following are some of the factors that could cause our Company's actual
results to differ materially from the expected results described in or
underlying our Company's forward-looking statements:
- Foreign currency rate fluctuations, interest rate fluctuations and
other capital market conditions. Most of our exposures to capital
markets, including foreign currency and interest rates, are
managed on a consolidated basis, which allows us to net certain
exposures and, thus, take advantage of any natural offsets. We use
derivative financial instruments to reduce our net exposure to
financial risks. There can be no assurance, however, that our
financial risk management program will be successful in reducing
capital market exposures.
- Changes in the nonalcoholic beverages business environment. These
include, without limitation, changes in consumer preferences,
competitive product and pricing pressures and our ability to gain
or maintain share of sales in the global market as a result of
actions by competitors. While we believe our opportunities for
sustained, profitable growth are considerable, factors such as
these could impact our earnings, share of sales and volume growth.
31
FORWARD-LOOKING STATEMENTS (Continued)
- Adverse weather conditions, which could reduce demand for Company
products.
- Our ability to generate sufficient cash flows to support capital
expansion plans, share repurchase programs and general operating
activities.
- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new
tax laws and revised tax law interpretations) and environmental
laws in domestic or foreign jurisdictions.
- The effectiveness of our advertising, marketing and promotional
programs.
- Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and
relationships.
- Our ability to achieve earnings forecasts, which are generated
based on projected volumes and sales of many product types, some
of which are more profitable than others. There can be no
assurance that we will achieve the projected level or mix of
product sales.
- Economic and political conditions, especially in international
markets, including civil unrest, governmental changes and
restrictions on the ability to transfer capital across borders.
Without limiting the preceding sentence, the current unstable
economic and political conditions and civil unrest in the Middle
East could have an adverse impact on our Company's business
results and valuation of assets in that region.
- Our ability to penetrate developing and emerging markets, which
also depends on economic and political conditions, and how well we
are able to acquire or form strategic business alliances with
local bottlers and make necessary infrastructure enhancements to
production facilities, distribution networks, sales equipment and
technology. Moreover, the supply of products in developing markets
must match the customers' demand for those products, and due to
product price and cultural differences, there can be no assurance
of product acceptance in any particular market.
- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's
Securities and Exchange Commission filings.
The foregoing list of important factors is not exclusive.
32
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
Annual Report on Form 10-K for the year ended December 31, 2001.
33
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 - Computation of Ratios of Earnings to Fixed Charges.
(b) Reports on Form 8-K:
During the second quarter of 2002, the Company filed a report on
Form 8-K dated May 16, 2002.
Item 5. Other Events - The Company filed this Form 8-K so as to
file with the Securities and Exchange Commission certain items to
be incorporated by reference into its Registration Statement on
Form S-3 (Registration Statement 333-59936).
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: August 13, 2002 By: /s/ Connie D. McDaniel
-------------------------
Connie D. McDaniel
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
35
Exhibit Index
Exhibit Number and Description
(a) Exhibits
12 - Computation of Ratios of Earnings to Fixed Charges.