SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 27, 2002
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The Coca-Cola Company
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(Exact name of registrant as specified in its charter)
Delaware 001-02217 58-0628465
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Coca-Cola Plaza, Atlanta, Georgia 30313
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 676-2121
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Item 5. Other Events.
The Coca-Cola Company hereby files its audited consolidated financial
statements set forth below for the year ended December 31, 2001. The Coca-Cola
Company is also filing this Current Report on Form 8-K so as to file with the
Securities and Exchange Commission certain items that are to be incorporated by
reference into its Registration Statement on Form S-3 (Registration No.
333-59936).
2
CONSOLIDATED STATEMENTS OF INCOME
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2001 2000 1999
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(In millions except per share data)
NET OPERATING REVENUES $ 20,092 $ 19,889 $ 19,284
Cost of goods sold 6,044 6,204 6,009
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GROSS PROFIT 14,048 13,685 13,275
Selling, administrative and general expenses 8,696 8,551 8,480
Other operating charges -- 1,443 813
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OPERATING INCOME 5,352 3,691 3,982
Interest income 325 345 260
Interest expense 289 447 337
Equity income (loss) 152 (289) (184)
Other income-net 39 99 98
Gains on issuances of stock by equity investees 91 -- --
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INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,670 3,399 3,819
Income taxes 1,691 1,222 1,388
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INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 3,979 2,177 2,431
Cumulative effect of accounting
change, net of income taxes (10) -- --
--------------------------------------------------------------------------------------------
NET INCOME $ 3,969 $ 2,177 $ 2,431
============================================================================================
BASIC NET INCOME PER SHARE
Before accounting change $ 1.60 $ .88 $ .98
Cumulative effect of accounting change -- -- --
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$ 1.60 $ .88 $ .98
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DILUTED NET INCOME PER SHARE
Before accounting change $ 1.60 $ .88 $ .98
Cumulative effect of accounting change -- -- --
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$ 1.60 $ .88 $ .98
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AVERAGE SHARES OUTSTANDING 2,487 2,477 2,469
Dilutive effect of stock options -- 10 18
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AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 2,487 2,487 2,487
============================================================================================
See Notes to Consolidated Financial Statements.
3
CONSOLIDATED BALANCE SHEETS
The Coca-Cola Company and Subsidiaries
December 31, 2001 2000
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(In millions except share data)
ASSETS
CURRENT
Cash and cash equivalents $ 1,866 $ 1,819
Marketable securities 68 73
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1,934 1,892
Trade accounts receivable, less allowances of
$59 in 2001 and $62 in 2000 1,882 1,757
Inventories 1,055 1,066
Prepaid expenses and other assets 2,300 1,905
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TOTAL CURRENT ASSETS 7,171 6,620
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INVESTMENTS AND OTHER ASSETS
Equity method investments
Coca-Cola Enterprises Inc. 788 707
Coca-Cola Amatil Limited 432 617
Coca-Cola HBC S.A. 791 758
Other, principally bottling companies 3,117 3,164
Cost method investments, principally bottling companies 294 519
Other assets 2,792 2,364
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8,214 8,129
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PROPERTY, PLANT AND EQUIPMENT
Land 217 225
Buildings and improvements 1,812 1,642
Machinery and equipment 4,881 4,547
Containers 195 200
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7,105 6,614
Less allowances for depreciation 2,652 2,446
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4,453 4,168
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TRADEMARKS AND OTHER INTANGIBLE ASSETS 2,579 1,917
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$ 22,417 $ 20,834
============================================================================================
4
The Coca-Cola Company and Subsidiaries
December 31, 2001 2000
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LIABILITIES AND SHARE-OWNERS' EQUITY
CURRENT
Accounts payable and accrued expenses $ 3,679 $ 3,905
Loans and notes payable 3,743 4,795
Current maturities of long-term debt 156 21
Accrued income taxes 851 600
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TOTAL CURRENT LIABILITIES 8,429 9,321
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LONG-TERM DEBT 1,219 835
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OTHER LIABILITIES 961 1,004
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DEFERRED INCOME TAXES 442 358
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SHARE-OWNERS' EQUITY
Common stock, $.25 par value
Authorized: 5,600,000,000 shares
Issued: 3,491,465,016 shares in 2001; 3,481,882,834 shares in 2000 873 870
Capital surplus 3,520 3,196
Reinvested earnings 23,443 21,265
Accumulated other comprehensive income and
unearned compensation on restricted stock (2,788) (2,722)
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25,048 22,609
Less treasury stock, at cost (1,005,237,693 shares in 2001;
997,121,427 shares in 2000) 13,682 13,293
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11,366 9,316
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$ 22,417 $ 20,834
==========================================================================================================
See Notes to Consolidated Financial Statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Coca-Cola Company and Subsidiaries
Year Ended December 31, 2001 2000 1999
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(In millions)
OPERATING ACTIVITIES
Net income $ 3,969 $ 2,177 $ 2,431
Depreciation and amortization 803 773 792
Deferred income taxes 56 3 97
Equity income or loss, net of dividends (54) 380 292
Foreign currency adjustments (60) 196 (41)
Gains on issuances of stock by equity investees (91) -- --
Gains on sales of assets, including bottling interests (85) (127) (49)
Other operating charges -- 916 799
Other items 34 119 119
Net change in operating assets and liabilities (462) (852) (557)
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Net cash provided by operating activities 4,110 3,585 3,883
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INVESTING ACTIVITIES
Acquisitions and investments, principally trademarks
and bottling companies (651) (397) (1,876)
Purchases of investments and other assets (456) (508) (518)
Proceeds from disposals of investments and other assets 455 290 176
Purchases of property, plant and equipment (769) (733) (1,069)
Proceeds from disposals of property, plant and equipment 91 45 45
Other investing activities 142 138 (179)
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Net cash used in investing activities (1,188) (1,165) (3,421)
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FINANCING ACTIVITIES
Issuances of debt 3,011 3,671 3,411
Payments of debt (3,937) (4,256) (2,455)
Issuances of stock 164 331 168
Purchases of stock for treasury (277) (133) (15)
Dividends (1,791) (1,685) (1,580)
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Net cash used in financing activities (2,830) (2,072) (471)
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EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (45) (140) (28)
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CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year 47 208 (37)
Balance at beginning of year 1,819 1,611 1,648
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Balance at end of year $ 1,866 $ 1,819 $ 1,611
=================================================================================================================
See Notes to Consolidated Financial Statements.
6
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY
The Coca-Cola Company and Subsidiaries
Number of Accumulated
Common Outstanding Other
Three Years Ended Shares Common Capital Reinvested Restricted Comprehensive Treasury
December 31, 2001 Outstanding Stock Surplus Earnings Stock Income Stock Total
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(In millions except per share data)
BALANCE DECEMBER 31, 1998 2,466 $ 865 $ 2,195 $ 19,922 $ (84) $ (1,350) $ (13,145) $ 8,403
COMPREHENSIVE INCOME:
Net income -- -- -- 2,431 -- -- -- 2,431
Translation adjustments -- -- -- -- -- (190) -- (190)
Net change in unrealized gain
(loss) on securities -- -- -- -- -- 23 -- 23
Minimum pension liability -- -- -- -- -- 25 -- 25
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COMPREHENSIVE INCOME 2,289
Stock issued to employees
exercising stock options 6 2 166 -- -- -- -- 168
Tax benefit from employees' stock
option and restricted stock plans -- -- 72 -- -- -- -- 72
Restricted stock and other stock
plans, less amortization of $27 -- -- 5 -- 25 -- -- 30
Stock issued by an equity investee -- -- 146 -- -- -- -- 146
Purchases of stock for treasury -- -- -- -- -- -- (15) (15)
Dividends (per share -- $.64) -- -- -- (1,580) -- -- -- (1,580)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 2,472 867 2,584 20,773 (59) (1,492) (13,160) 9,513
COMPREHENSIVE INCOME:
Net income -- -- -- 2,177 -- -- -- 2,177
Translation adjustments -- -- -- -- -- (965) -- (965)
Net change in unrealized gain
(loss) on securities -- -- -- -- -- (60) -- (60)
Minimum pension liability -- -- -- -- -- (10) -- (10)
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COMPREHENSIVE INCOME 1,142
Stock issued to employees
exercising stock options 12 2 329 -- -- -- -- 331
Tax benefit from employees' stock
option and restricted stock plans -- -- 116 -- -- -- -- 116
Restricted stock and other stock
plans, less amortization of $24 3 1 167 -- (136) -- -- 32
Purchases of stock for treasury (2)(1) -- -- -- -- -- (133) (133)
Dividends (per share -- $.68) -- -- -- (1,685) -- -- -- (1,685)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000 2,485 870 3,196 21,265 (195) (2,527) (13,293) 9,316
COMPREHENSIVE INCOME:
Net income -- -- -- 3,969 -- -- -- 3,969
Translation adjustments -- -- -- -- -- (207) -- (207)
Cumulative effect of
SFAS No. 133 -- -- -- -- -- 50 -- 50
Net gain (loss) on derivatives -- -- -- -- -- 92 -- 92
Net change in unrealized gain
(loss) on securities -- -- -- -- -- (29) -- (29)
Minimum pension liability -- -- -- -- -- (17) -- (17)
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COMPREHENSIVE INCOME 3,858
Stock issued to employees
exercising stock options 7 2 162 -- -- -- -- 164
Tax benefit from employees' stock
option and restricted stock plans -- -- 58 -- -- -- -- 58
Restricted stock and other stock
plans, less cancellations -- 1 132 -- (24) -- (112) (3)
Amortization of restricted stock -- -- -- -- 41 -- -- 41
Unearned restricted stock
adjustment -- -- (28) -- 28 -- -- --
Purchases of stock for treasury (6)(1) -- -- -- -- -- (277) (277)
Dividends (per share -- $.72) -- -- -- (1,791) -- -- -- (1,791)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001 2,486 $ 873 $ 3,520 $ 23,443 $ (150) $ (2,638) $ (13,682) $ 11,366
==================================================================================================================================
(1) Common stock purchased from employees exercising stock options numbered
.3 million, 2.2 million and .3 million shares for the years ended
December 31, 2001, 2000 and 1999, respectively.
See Notes to Consolidated Financial Statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Coca-Cola Company, together with its subsidiaries, (the Company or
our Company) is predominantly a manufacturer, marketer and distributor of
nonalcoholic beverage concentrates and syrups. Operating in nearly 200 countries
worldwide, we primarily sell our concentrates and syrups to bottling and canning
operations, fountain wholesalers and fountain retailers. We also market and
distribute juice and juice-drink products. We have significant markets for our
products in all the world's geographic regions. We record revenue when title
passes to our bottling partners or our customers.
BASIS OF PRESENTATION
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
CONSOLIDATION
Our Consolidated Financial Statements include the accounts of The
Coca-Cola Company and all subsidiaries except where control is temporary or does
not rest with our Company. Our investments in companies in which we have the
ability to exercise significant influence over operating and financial policies,
including certain investments where there is a temporary majority interest, are
accounted for by the equity method. Accordingly, our Company's share of the net
earnings of these companies is included in consolidated net income. Our
investments in other companies are carried at cost or fair value, as
appropriate. All significant intercompany accounts and transactions, including
transactions with equity method investees, are eliminated from our financial
results.
RECOVERABILITY OF INVESTMENTS
Management periodically assesses the recoverability of our Company's
investments. For publicly traded investments, the fair value of our Company's
investment is readily determinable based on quoted market prices. For
non-publicly traded investments, management's assessment of fair value is based
on our analysis of the investee's estimates of future operating results and the
resulting cash flows. If an investment is considered to be impaired and the
decline in value is other than temporary, an appropriate write-down is recorded.
ISSUANCES OF STOCK BY EQUITY INVESTEES
When one of our equity investees issues additional shares to third
parties, our percentage ownership interest in the investee decreases. In the
event the issuance price per share is more or less than our average carrying
amount per share, we recognize a non-cash gain or loss on the issuance. This
non-cash gain or loss, net of any deferred taxes, is generally recognized in our
net income in the period the change of ownership interest occurs.
If gains have been previously recognized on issuances of an equity
investee's stock and shares of the equity investee are subsequently repurchased
by the equity investee, gain recognition does not occur on issuances subsequent
to the date of a repurchase until shares have been issued in an amount
equivalent to the number of repurchased shares. This type of transaction is
reflected as an equity transaction and the net effect is reflected in the
accompanying Consolidated Balance Sheets. For specific transaction details,
refer to Note 3.
ADVERTISING COSTS
Our Company expenses production costs of print, radio and television
advertisements as of the first date the advertisements take place. Advertising
expenses included in selling, administrative and general expenses were $1,970
million in 2001, $1,655 million in 2000 and $1,609 million in 1999. As of
December 31, 2001 and 2000, advertising production costs of approximately $52
million and $69 million, respectively, were recorded primarily in prepaid
expenses and other assets and noncurrent other assets in the accompanying
Consolidated Balance Sheets.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted net income per share
includes the dilutive effect of stock options.
CASH EQUIVALENTS
Marketable securities that are highly liquid and have maturities of
three months or less at the date of purchase are classified as cash equivalents.
INVENTORIES
Inventories consist primarily of raw materials and supplies and are
valued at the lower of cost or market. In general, cost is determined on the
basis of average cost or first-in, first-out methods.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
principally by the straight-line method over the estimated useful lives of the
assets.
OTHER ASSETS
Our Company invests in infrastructure programs with our bottlers that
are directed at strengthening our bottling system and increasing unit case
sales. Additionally, our Company advances payments to certain customers for
marketing to fund activities intended to generate volume. Advance payments are
also made to certain customers for distribution rights. The costs of these
programs are recorded in other assets and are subsequently amortized over the
periods to be directly benefited. Management periodically evaluates the
recoverability of these assets by preparing estimates of sales volume, the
resulting gross profit, cash flows and other factors.
TRADEMARKS AND OTHER INTANGIBLE ASSETS
Trademarks and other intangible assets are stated on the basis of cost
and are amortized, principally on a straight-line basis, over the estimated
future periods to be benefited (not exceeding 40 years). Trademarks and other
intangible assets are periodically reviewed for impairment to ensure they are
appropriately valued. Conditions that may indicate an impairment issue exists
include an economic downturn in a market or a change in the assessment of future
operations. In the event that a condition is identified that may indicate an
impairment issue exists, an assessment is performed using a variety of
methodologies, including cash flow analysis, estimates of sales proceeds and
independent appraisals. Where applicable, an appropriate interest rate is
utilized, based on location-specific economic factors. Accumulated amortization
was approximately $285 million and $192 million on December 31, 2001 and 2000,
respectively.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, the
preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying notes including our assessment of the carrying value
of our investments in bottling operations. Although these estimates are based on
our knowledge of current events and actions we may undertake in the future,
actual results may ultimately differ from estimates.
NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. As discussed
further in Note 9, the 2001 Consolidated Financial Statements were prepared in
accordance with the provisions of SFAS No. 133. Prior years' financial
statements have not been restated. As required by SFAS No. 133, the 2000 and
1999 Consolidated Financial Statements were prepared in accordance with the
applicable professional literature for derivatives and hedging instruments in
effect at that time.
Effective January 1, 2001, our Company adopted the provisions of
Emerging Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales
Incentives," and EITF Issue No. 00-22, "Accounting for `Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." Both of these EITF Issues
provide additional guidance relating to the income statement classification of
certain sales incentives. The adoption of these EITF Issues resulted in the
Company reducing both net operating revenues and selling, administrative and
general expenses by approximately $580 million in 2001, $569 million in 2000 and
$521 million in 1999. These reclassifications have no impact on operating
income.
In April 2001, the EITF reached a consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products." EITF Issue No. 00-25, which is effective for the Company
beginning January 1, 2002, will require certain selling expenses incurred by the
Company to be classified as deductions from revenue. With the adoption of this
EITF Issue, we estimate that approximately $2.6 billion of our payments to
bottlers and customers that are currently classified within selling,
administrative and general expenses will be reclassified as deductions from
revenue. In our 2002 Consolidated Financial Statements, all comparative periods
will be reclassified.
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 is effective for the Company as of January 1,
2002. Under the new rules, goodwill and indefinite lived intangible assets will
no
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
longer be amortized but will be reviewed annually for impairment. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
The adoption of SFAS No. 142 requires that an initial impairment
assessment is performed on all goodwill and indefinite lived intangible assets.
To complete this assessment, the Company will compare the fair value to the
current carrying value of trademarks and other intangible assets. Fair values
will be derived using cash flow analysis. The assumptions used in this cash flow
analysis will be consistent with our internal planning. Any impairment charge
resulting from this initial assessment will be recorded as a cumulative effect
of an accounting change. The Company estimates the cumulative effect of adopting
this standard will result in a non-cash charge in the first quarter of 2002 of
approximately $1 billion on a pretax basis. This amount reflects intangible
assets for both the Company and the Company's proportionate share of its equity
method investees. The adoption of this new standard will also benefit earnings
beginning in 2002 by approximately $60 million in reduced amortization from
Company-owned intangible assets and approximately $150 million of increased
equity income relating to the Company's share of amortization savings from
equity method investees.
NOTE 2: BOTTLING INVESTMENTS
COCA-COLA ENTERPRISES INC.
Coca-Cola Enterprises Inc. (Coca-Cola Enterprises) is the largest
soft-drink bottler in the world, operating in eight countries. On December 31,
2001, our Company owned approximately 38 percent of the outstanding common stock
of Coca-Cola Enterprises, and accordingly, we account for our investment by the
equity method of accounting. As of December 31, 2001, our proportionate share of
the net assets of Coca-Cola Enterprises exceeded our investment by approximately
$283 million. This excess is amortized over a period consistent with the
applicable useful life of the underlying transactions.
A summary of financial information for Coca-Cola Enterprises is as
follows (in millions):
December 31, 2001 2000
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Current assets $ 2,876 $ 2,631
Noncurrent assets 20,843 19,531
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Total assets $ 23,719 $ 22,162
===================================================================================
Current liabilities $ 4,522 $ 3,094
Noncurrent liabilities 16,377 16,234
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Total liabilities $ 20,899 $ 19,328
===================================================================================
Share-owners' equity $ 2,820 $ 2,834
===================================================================================
Company equity investment $ 788 $ 707
===================================================================================
Year Ended December 31, 2001 2000 1999
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Net operating revenues $ 15,700 $ 14,750 $ 14,406
Cost of goods sold 9,740 9,083 9,015
-----------------------------------------------------------------------------------
Gross profit $ 5,960 $ 5,667 $ 5,391
===================================================================================
Operating income $ 601 $ 1,126 $ 839
===================================================================================
Cash operating profit(1) $ 1,954 $ 2,387 $ 2,187
===================================================================================
Cumulative effect of
accounting change $ 302 $ -- $ --
===================================================================================
Net income (loss) $ (321) $ 236 $ 59
===================================================================================
Net income (loss) available
to common share owners $ (324) $ 233 $ 56
===================================================================================
(1) Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other non-cash operating expenses.
Our net concentrate and syrup sales to Coca-Cola Enterprises were $3.9
billion in 2001, $3.5 billion in 2000 and $3.3 billion in 1999, or approximately
19 percent, 18 percent and 17 percent of our 2001, 2000 and 1999 net operating
revenues, respectively. Coca-Cola Enterprises purchases sweeteners through our
Company; however, related collections from Coca-Cola Enterprises and payments to
suppliers are not included in our Consolidated Statements of Income. These
transactions amounted to $295 million in 2001, $298 million in 2000 and $308
million in 1999. We also provide certain administrative and other services to
Coca-Cola Enterprises under negotiated fee arrangements.
Cash payments made directly to Coca-Cola Enterprises for support of
certain marketing activities and participation with them in cooperative
advertising and other marketing programs amounted to approximately $606 million,
$533 million and $525 million in 2001, 2000 and 1999, respectively. Cash
payments made directly to Coca-Cola Enterprises' customers for support of
certain marketing activities and programs amounted to approximately $282
million,
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
$221 million and $242 million in 2001, 2000 and 1999, respectively. Pursuant to
cooperative advertising and trade agreements with Coca-Cola Enterprises, we
received approximately $252 million, $195 million and $243 million in 2001, 2000
and 1999, respectively, from Coca-Cola Enterprises for local media and marketing
program expense reimbursements.
Our Company enters into programs with Coca-Cola Enterprises designed to
assist their development of the cold drink infrastructure. Under these programs,
our Company made payments to Coca-Cola Enterprises for a portion of the cost of
developing the infrastructure necessary to support accelerated placements of
cold drink equipment. These payments support a common objective of increased
sales of Coca-Cola beverages from increased availability and consumption in the
cold drink channel. In connection with these programs, Coca-Cola Enterprises
agrees to: (1) purchase and place specified numbers of vendors/coolers or cold
drink equipment each year through 2008; (2) maintain the equipment in service,
with certain exceptions, for a period of at least 12 years after placement; (3)
maintain and stock the equipment in accordance with specified standards; and (4)
report to our Company minimum average annual unit case sales volume throughout
the economic life of the equipment.
Coca-Cola Enterprises must achieve minimum average unit case sales
volume for a 12-year period following the placement of equipment. These minimum
average unit case sales volume levels ensure adequate gross profit from sales of
concentrate to fully recover the capitalized costs plus a return on the
Company's investment. Should Coca-Cola Enterprises fail to purchase the
specified numbers of vendors/coolers or cold drink equipment for any calendar
year through 2008, the parties agree to mutually develop a reasonable solution.
Should no mutually agreeable solution be developed, or in the event that
Coca-Cola Enterprises otherwise breaches any material obligation under the
contracts and such breach is not remedied within a stated period, then Coca-Cola
Enterprises would be required to repay a portion of the support funding as
determined by our Company. No repayments by Coca-Cola Enterprises have ever been
made under these programs. Our Company paid or committed to pay approximately
$159 million, $223 million and $338 million in 2001, 2000 and 1999,
respectively, to Coca-Cola Enterprises in connection with these infrastructure
programs. These payments are recorded as other assets and amortized as a charge
to earnings over the 12-year period following the placement of the equipment.
Amounts recorded in other assets were approximately $931 million as of December
31, 2001. For 2002 and thereafter, the Company has no further commitments under
these programs.
As of January 1, 2001, Coca-Cola Enterprises changed its method of
accounting for infrastructure development payments received from the Company.
Prior to this change, Coca-Cola Enterprises recognized these payments as offsets
to incremental expenses of the programs in the periods in which they were
incurred. Coca-Cola Enterprises now recognizes the infrastructure development
payments received from the Company as obligations under the contracts are
performed. Because the Company eliminates the financial effect of significant
intercompany transactions (including transactions with equity method investees),
this change in accounting method has no impact on the Consolidated Financial
Statements of our Company.
Our Company and Coca-Cola Enterprises reached an agreement in 2000 to
transfer all responsibilities and the associated staffing for major customer
marketing (CMG) efforts to Coca-Cola Enterprises from our Company and for local
media activities from Coca-Cola Enterprises to our Company. Under the agreement,
our Company reimburses Coca-Cola Enterprises for the CMG staffing costs
transferred to Coca-Cola Enterprises, and Coca-Cola Enterprises reimburses our
Company for the local media staffing costs transferred to our Company. Amounts
reimbursed to Coca-Cola Enterprises by our Company for CMG staffing expenses
were $25 million and $3 million for 2001 and 2000, respectively. Amounts
reimbursed to our Company for local media staffing expenses were $16 million for
2001.
The difference between our proportionate share of Coca-Cola
Enterprises' income available to common share owners and the Company's equity
income in Coca-Cola Enterprises is primarily related to the elimination of the
financial effect of intercompany transactions between the two companies.
If valued at the December 31, 2001, quoted closing price of Coca-Cola
Enterprises shares, the value of our investment in Coca-Cola Enterprises
exceeded its carrying value by approximately $2.4 billion.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
OTHER EQUITY INVESTMENTS
Operating results include our proportionate share of income (loss) from
our equity investments. A summary of financial information for our equity
investments in the aggregate, other than Coca-Cola Enterprises, is as follows
(in millions):
December 31, 2001 2000
---------------------------------------------------------------------------------
Current assets $ 6,013 $ 5,985
Noncurrent assets 17,879 19,030
---------------------------------------------------------------------------------
Total assets $ 23,892 $ 25,015
=================================================================================
Current liabilities $ 5,085 $ 5,419
Noncurrent liabilities 7,806 8,357
---------------------------------------------------------------------------------
Total liabilities $ 12,891 $ 13,776
=================================================================================
Share-owners' equity $ 11,001 $ 11,239
=================================================================================
Company equity investment $ 4,340 $ 4,539
=================================================================================
Year Ended December 31, 2001 2000 1999
---------------------------------------------------------------------------------
Net operating revenues(1) $ 19,955 $ 21,423 $ 19,605
Cost of goods sold 11,413 13,014 12,085
---------------------------------------------------------------------------------
Gross profit(1) $ 8,542 $ 8,409 $ 7,520
=================================================================================
Operating income (loss) $ 1,770 $ (24) $ 809
=================================================================================
Cash operating profit(2) $ 3,171 $ 2,796 $ 2,474
=================================================================================
Net income (loss) $ 735 $ (894) $ (134)
=================================================================================
Equity investments include non-bottling investees.
(1) 2000 and 1999 Net operating revenues and Gross profit have been
reclassified for EITF Issue No. 00-14 and EITF Issue No. 00-22.
(2) Cash operating profit is defined as operating income plus depreciation
expense, amortization expense and other non-cash operating expenses.
Net sales to equity investees other than Coca-Cola Enterprises were
$3.7 billion in 2001, $3.5 billion in 2000 and $3.2 billion in 1999. Total
support payments, primarily marketing, made to equity investees other than
Coca-Cola Enterprises, the majority of which are located outside the United
States, were approximately $636 million, $663 million and $685 million for 2001,
2000 and 1999, respectively.
In February 2001, the Company reached an agreement with Carlsberg A/S
(Carlsberg) for the dissolution of Coca-Cola Nordic Beverages (CCNB), a joint
venture bottler in which our Company had a 49 percent ownership. In July 2001,
our Company and San Miguel Corporation (San Miguel) acquired Coca-Cola Bottlers
Philippines (CCBPI) from Coca-Cola Amatil Limited (Coca-Cola Amatil).
In November 2001, our Company sold nearly all of its ownership
interests in various Russian bottling operations to Coca-Cola HBC S.A. (CCHBC)
for approximately $170 million in cash and notes receivable, of which $146
million in notes receivable remained outstanding as of December 31, 2001. These
interests consisted of the Company's 40 percent ownership interest in a joint
venture with CCHBC that operates bottling territories in Siberia and parts of
Western Russia, together with our Company's nearly 100 percent interests in
bottling operations with territories covering the remainder of Russia.
In July 2000, a merger of Coca-Cola Beverages plc (Coca-Cola Beverages)
and Hellenic Bottling Company S.A. was completed to create CCHBC. This merger
resulted in a decrease in our Company's equity ownership interest from
approximately 50.5 percent of Coca-Cola Beverages to approximately 24 percent of
the combined entity, CCHBC.
In July 1999, we acquired from Fraser and Neave Limited its ownership
interest in F&N Coca-Cola Pte Limited.
If valued at the December 31, 2001, quoted closing prices of shares
actively traded on stock markets, the value of our equity investments in
publicly traded bottlers other than Coca-Cola Enterprises exceeded our carrying
value by approximately $800 million.
NOTE 3: ISSUANCES OF STOCK BY EQUITY INVESTEES
In July 2001, Coca-Cola Enterprises completed its acquisition of Hondo
Incorporated and Herbco Enterprises, Inc., collectively known as Herb Coca-Cola.
The transaction was valued at approximately $1.4 billion, with approximately 30
percent of the transaction funded with the issuance of approximately 25 million
shares of Coca-Cola Enterprises common stock, and the remaining portion funded
through debt and assumed debt. The Coca-Cola Enterprises common stock issued was
valued in an amount greater than the book value per share of our investment in
Coca-Cola Enterprises. The shares issued combined with other share issuances
exceeded the amount of repurchased shares under Coca-Cola Enterprises' share
repurchase plan. As a result, the issuance of these shares resulted in a
one-time non-cash pretax gain for our Company of approximately $91 million. We
provided deferred taxes of approximately $36 million on this gain. This
transaction reduced our ownership in Coca-Cola Enterprises from approximately 40
percent to approximately 38 percent.
No gains on issuances of stock by equity investees were recorded during
2000. In the first quarter of 1999, Coca-Cola Enterprises completed its
acquisition of various bottlers. These transactions were funded primarily
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
with shares of Coca-Cola Enterprises common stock. The Coca-Cola Enterprises
common stock issued was valued in an amount greater than the book value per
share of our investment in Coca-Cola Enterprises. As a result of these
transactions, our equity in the underlying net assets of Coca-Cola Enterprises
increased, and we recorded a $241 million increase to our Company's investment
basis in Coca-Cola Enterprises. Due to Coca-Cola Enterprises' share repurchase
program, the increase in our investment in Coca-Cola Enterprises was recorded as
an equity transaction, and no gain was recognized. We recorded a deferred tax
liability of approximately $95 million on this increase to our investment in
Coca-Cola Enterprises. These transactions reduced our ownership in Coca-Cola
Enterprises from approximately 42 percent to approximately 40 percent.
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
millions):
December 31, 2001 2000
--------------------------------------------------------------------
Accrued marketing $ 1,160 $ 1,163
Container deposits 84 58
Accrued compensation 202 141
Sales, payroll and other taxes 148 166
Accrued realignment expenses 59 254
Accounts payable and
other accrued expenses 2,026 2,123
--------------------------------------------------------------------
$ 3,679 $ 3,905
====================================================================
NOTE 5: SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Loans and notes payable consist primarily of commercial paper issued in
the United States. On December 31, 2001, we had approximately $3,361 million
outstanding in commercial paper borrowings. In addition, we had $2,468 million
in lines of credit and other short-term credit facilities available, of which
approximately $382 million was outstanding. Our weighted-average interest rates
for commercial paper outstanding were approximately 1.9 percent and 6.7 percent
at December 31, 2001 and 2000, respectively.
These facilities are subject to normal banking terms and conditions.
Some of the financial arrangements require compensating balances, none of which
is presently significant to our Company.
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following (in millions):
December 31, 2001 2000
-------------------------------------------------------------------
6 5/8% U.S. dollar notes due 2002 $ 150 $ 150
6% U.S. dollar notes due 2003 150 150
5 3/4% U.S. dollar notes due 2009 399 399
5 3/4% U.S. dollar notes due 2011 498 --
7 3/8% U.S. dollar notes due 2093 116 116
Other, due 2002 to 2013 62 41
-------------------------------------------------------------------
1,375 856
Less current portion 156 21
-------------------------------------------------------------------
$ 1,219 $ 835
===================================================================
After giving effect to interest rate management instruments, the
principal amount of our long-term debt that had fixed and variable interest
rates, respectively, was $1,262 million and $113 million on December 31, 2001,
and $706 million and $150 million on December 31, 2000. The weighted-average
interest rate on our Company's long-term debt was 5.8 percent and 5.9 percent
for the years ended December 31, 2001 and 2000, respectively. Total interest
paid was approximately $304 million, $458 million and $314 million in 2001, 2000
and 1999, respectively. For a more complete discussion of interest rate
management, refer to Note 9.
Maturities of long-term debt for the five years succeeding
December 31, 2001, are as follows (in millions):
2002 2003 2004 2005 2006
-------------------------------------------------------
$ 156 $ 155 $ 2 $ 1 $ 1
=======================================================
The above notes include various restrictions, none of which is
presently significant to our Company.
NOTE 7: COMPREHENSIVE INCOME
Accumulated other comprehensive income (AOCI) consists of the following
(in millions):
December 31, 2001 2000
---------------------------------------------------------------------
Foreign currency
translation adjustment $ (2,682) $ (2,475)
Accumulated derivative net gains 142 --
Unrealized gain (loss) on
available-for-sale securities (55) (26)
Minimum pension liability (43) (26)
---------------------------------------------------------------------
$ (2,638) $ (2,527)
=====================================================================
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
A summary of the components of other comprehensive income for the years
ended December 31, 2001, 2000 and 1999, is as follows (in millions):
Before-Tax Income After-Tax
December 31, Amount Tax Amount
--------------------------------------------------------------------------------------------
2001
Net foreign currency translation $ (285) $ 78 $ (207)
Cumulative effect of adopting SFAS
No. 133, net 83 (33) 50
Net gain (loss) on derivative financial
instruments 151 (59) 92
Net change in unrealized gain (loss)
on available-for-sale securities (39) 10 (29)
Minimum pension liability (27) 10 (17)
--------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (117) $ 6 $ (111)
============================================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
--------------------------------------------------------------------------------------------
2000
Net foreign currency translation $ (1,074) $ 109 $ (965)
Net change in unrealized gain (loss)
on available-for-sale securities (90) 30 (60)
Minimum pension liability (17) 7 (10)
--------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (1,181) $ 146 $ (1,035)
============================================================================================
Before-Tax Income After-Tax
December 31, Amount Tax Amount
--------------------------------------------------------------------------------------------
1999
Net foreign currency translation $ (249) $ 59 $ (190)
Net change in unrealized gain (loss)
on available-for-sale securities 37 (14) 23
Minimum pension liability 38 (13) 25
--------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (174) $ 32 $ (142)
============================================================================================
NOTE 8: FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in our Consolidated Balance Sheets for
cash, cash equivalents, marketable equity securities, cost method investments,
receivables, loans and notes payable and long-term debt approximate their
respective fair values. Fair values are based primarily on quoted prices for
those or similar instruments. Fair values for our derivative financial
instruments are included in Note 9.
CERTAIN DEBT AND MARKETABLE EQUITY SECURITIES
Investments in debt and marketable equity securities, other than
investments accounted for by the equity method, are categorized as either
trading, available-for-sale or held-to-maturity. On December 31, 2001 and 2000,
we had no trading securities. Securities categorized as available-for-sale are
stated at fair value, with unrealized gains and losses, net of deferred income
taxes, reported as a component of AOCI. Debt securities categorized as
held-to-maturity are stated at amortized cost.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
On December 31, 2001 and 2000, available-for-sale and held-to-maturity
securities consisted of the following (in millions):
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
----------------------------------------------------------------------------------
2001
Available-for-sale
securities
Equity securities $ 251 $ 43 $ (116) $ 178
Collateralized
mortgage
obligations 13 -- (1) 12
Other debt
securities 19 -- -- 19
----------------------------------------------------------------------------------
$ 283 $ 43 $ (117) $ 209
==================================================================================
Held-to-maturity
securities
Bank and corporate debt $ 978 $ -- $ -- $ 978
Other debt securities 8 -- -- 8
----------------------------------------------------------------------------------
$ 986 $ -- $ -- $ 986
==================================================================================
Gross Gross Estimated
Unrealized Unrealized Fair
December 31, Cost Gains Losses Value
----------------------------------------------------------------------------------
2000
Available-for-sale
securities
Equity securities $ 248 $ 57 $ (90) $ 215
Collateralized mortgage
obligations 25 -- (2) 23
Other debt securities 15 -- -- 15
----------------------------------------------------------------------------------
$ 288 $ 57 $ (92) $ 253
==================================================================================
Held-to-maturity
securities
Bank and corporate debt $ 1,115 $ -- $ -- $ 1,115
----------------------------------------------------------------------------------
$ 1,115 $ -- $ -- $ 1,115
==================================================================================
On December 31, 2001 and 2000, these investments were included in the
following captions in our Consolidated Balance Sheets (in millions):
Available- Held-to-
for-Sale Maturity
December 31, Securities Securities
-----------------------------------------------------------------
2001
Cash and cash equivalents $ -- $ 976
Current marketable securities 66 2
Cost method investments,
principally bottling companies 127 --
Other assets 16 8
-----------------------------------------------------------------
$ 209 $ 986
=================================================================
2000
Cash and cash equivalents $ -- $ 1,113
Current marketable securities 71 2
Cost method investments,
principally bottling companies 151 --
Other assets 31 --
-----------------------------------------------------------------
$ 253 $ 1,115
=================================================================
The contractual maturities of these investments as of December 31,
2001, were as follows (in millions):
Available-for-Sale Held-to-Maturity
Securities Securities
------------------------- ---------------------------
Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------------------------------------------------
2002 $ 16 $ 16 $ 978 $ 978
2003-2006 3 3 8 8
Collateralized
mortgage obligations 13 12 -- --
Equity securities 251 178 -- --
-------------------------------------------------------------------------------------
$ 283 $ 209 $ 986 $ 986
=====================================================================================
For the years ended December 31, 2001 and 2000, gross realized gains
and losses on sales of available-for-sale securities were not material. The cost
of securities sold is based on the specific identification method.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 9: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
Our Company uses derivative financial instruments primarily to reduce
our exposure to adverse fluctuations in interest rates and foreign exchange
rates and, to a lesser extent, in commodity prices and other market risks. When
entered into, the Company formally designates and documents the financial
instrument as a hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge transactions. The
Company formally assesses, both at the inception and at least quarterly
thereafter, whether the financial instruments that are used in hedging
transactions are effective at offsetting changes in either the fair value or
cash flows of the related underlying exposure. Because of the high degree of
effectiveness between the hedging instrument and the underlying exposure being
hedged, fluctuations in the value of the derivative instruments are generally
offset by changes in the fair value or cash flows of the underlying exposures
being hedged. Any ineffective portion of a financial instrument's change in fair
value is immediately recognized in earnings. Virtually all of our derivatives
are straightforward over-the-counter instruments with liquid markets. Our
Company does not enter into derivative financial instruments for trading
purposes.
The fair values of derivatives used to hedge or modify our risks
fluctuate over time. These fair value amounts should not be viewed in isolation,
but rather in relation to the fair values or cash flows of the underlying hedged
transactions or other exposures. The notional amounts of the derivative
financial instruments do not necessarily represent amounts exchanged by the
parties and, therefore, are not a direct measure of our exposure from our use of
derivatives. The amounts exchanged are calculated by reference to the notional
amounts and by other terms of the derivatives, such as interest rates, exchange
rates or other financial indices.
As discussed in Note 1, the Company adopted SFAS No. 133, as amended by
SFAS No. 137 and SFAS No. 138 on January 1, 2001. These statements require the
Company to recognize all derivative instruments as either assets or liabilities
in the Consolidated Balance Sheets at fair value. The accounting for changes in
the fair value of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. At the inception of the hedge relationship, the
Company must designate the derivative instrument as either a fair value hedge, a
cash flow hedge or a hedge of a net investment in a foreign operation. This
designation is based upon the exposure being hedged.
The adoption of SFAS No. 133 resulted in the Company recording
transition adjustments to recognize its derivative instruments at fair value and
to recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax reduction to net income of approximately $10 million and an after-tax
net increase to AOCI of approximately $50 million. The reduction to net income
is primarily related to the change in the time value and fair value of foreign
currency options and interest rate agreements, respectively. The increase in
AOCI is primarily related to net gains on foreign currency cash flow hedges. The
Company reclassified into earnings during the year ended December 31, 2001
approximately $54 million of net gains relating to the transition adjustment
recorded in AOCI as of January 1, 2001.
We have established strict counterparty credit guidelines and enter
into transactions only with financial institutions of investment grade or
better. We monitor counterparty exposures daily and review any downgrade in
credit rating immediately. If a downgrade in the credit rating of a counterparty
were to occur, we have provisions requiring collateral in the form of U.S.
government securities for substantially all of our transactions. To mitigate
presettlement risk, minimum credit standards become more stringent as the
duration of the derivative financial instrument increases. To minimize the
concentration of credit risk, we enter into derivative transactions with a
portfolio of financial institutions. The Company has master netting agreements
with most of the financial institutions that are counterparties to the
derivative instruments. These agreements allow the net settlement of assets and
liabilities arising from different transactions with the same counterparty.
Based on these factors, we consider the risk of counterparty default to be
minimal.
INTEREST RATE MANAGEMENT
Our Company maintains a percentage of fixed and variable rate debt
within defined parameters. We enter into interest rate swap agreements that
maintain the fixed-to-variable mix within these parameters. These contracts had
maturities ranging from one to two years
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
on December 31, 2001. Interest rate swap agreements, which meet certain
conditions required under SFAS No. 133 for fair value hedges, are accounted for
as such. Therefore, no ineffective portion was recorded in 2001. Accordingly,
the changes in the fair value of these agreements are recorded in earnings
immediately. The fair value of our Company's interest rate swap agreements was
approximately $5 million at December 31, 2001. The Company estimates the fair
value of its interest rate management derivatives based on quoted market prices.
Prior to January 1, 2001, our Company also used interest swaps and
interest rate caps for hedging purposes. For interest rate swaps, any
differences paid or received were recognized as adjustments to interest expense
over the life of each swap, thereby adjusting the effective interest rate on the
underlying obligation. Additionally, prior to January 1, 2001, our Company had
entered into an interest rate cap agreement that entitled us to receive from a
financial institution the amount, if any, by which our interest payments on our
variable rate debt exceeded prespecified interest rates through 2004. This cap
agreement was terminated during 2001, and the impact on the Consolidated
Statements of Income was immaterial.
FOREIGN CURRENCY MANAGEMENT
The purpose of our foreign currency hedging activities is to reduce the
risk that our eventual U.S. dollar net cash inflows resulting from sales outside
the U.S. will be adversely affected by changes in exchange rates.
We enter into forward exchange contracts and purchase currency options
(principally euro and Japanese yen) to hedge certain portions of forecasted cash
flows denominated in foreign currencies. The effective portion of the changes in
fair value for these contracts, which have been designated as cash flow hedges,
are reported in AOCI and reclassified into earnings in the same financial
statement line item and in the same period or periods during which the hedged
transaction affects earnings. Any ineffective portion (which was not significant
in 2001) of the change in fair value of these instruments is immediately
recognized in earnings. These contracts had maturities ranging from one to two
years on December 31, 2001, the period in which all amounts included in AOCI
will be reclassified into earnings.
Additionally, the Company enters into forward exchange contracts, which
are not designated as hedging instruments under SFAS No. 133. These instruments
are used to offset the earnings impact relating to the variability in exchange
rates on certain monetary assets and liabilities denominated in non-functional
currencies. Changes in the fair value of these instruments are recognized in
earnings in the "Other income-net" line item of the Consolidated Statements of
Income immediately to offset the effect of remeasurement of the monetary assets
and liabilities.
The Company also enters into forward exchange contracts to hedge its
net investment position in certain major currencies. Under SFAS No. 133, changes
in the fair value of these instruments are recognized in foreign currency
translation adjustment, a component of AOCI, immediately to offset the change in
the value of the net investment being hedged. For the year ended December 31,
2001, approximately $43 million of losses relating to derivative financial
instruments were recorded in foreign currency translation adjustment.
Prior to January 1, 2001, gains and losses on derivative financial
instruments that were designated and effective as hedges of net investments in
international operations were included in foreign currency translation
adjustments, a component of AOCI.
For the year ended December 31, 2001, we recorded an increase to AOCI
of approximately $92 million, net of both income taxes and reclassifications to
earnings, primarily related to net gains on foreign currency cash flow hedges,
which will generally offset cash flow losses relating to the underlying
exposures being hedged in future periods. The Company estimates that it will
reclassify into earnings during the next 12 months approximately $120 million of
the net amount recorded in AOCI as of December 31, 2001 as the anticipated
foreign currency cash flows occur. The Company recorded approximately $12
million in earnings classified within net operating revenues in the Consolidated
Statements of Income, primarily related to the change in the time value of
foreign currency options. During 2001, the FASB issued an interpretation to SFAS
No. 133 allowing the entire change in fair value, including the time value, of
certain purchased options to be recorded in AOCI until the related underlying
exposure is recorded in earnings. The Company adopted this interpretation
prospectively.
The Company did not discontinue any cash flow hedge relationships
during the year ended December 31, 2001.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table summarizes activity in AOCI related to derivatives
designated as cash flow hedges held by the Company during the period from
January 1, 2001 through December 31, 2001 (in millions):
Before-Tax Income After-Tax
Year Ended December 31, Amount Tax Amount
------------------------------------------------------------------------------
2001
Cumulative effect of adopting
SFAS No. 133, net $ 83 $ (33) $ 50
Net changes in fair value
of derivatives 311 (122) 189
Net gains reclassified from
AOCI into earnings (160) 63 (97)
------------------------------------------------------------------------------
Accumulated derivative
net gains as of
December 31, 2001 $ 234 $ (92) $ 142
==============================================================================
The following table presents the fair value, carrying value and
maturities of the Company's foreign currency derivative instruments outstanding
as of December 31, 2001 (in millions):
Carrying Fair
December 31, Values Values Maturity
---------------------------------------------------------------
2001
Forward contracts $ 37 $ 37 2002
Currency swap agreements 10 10 2002
Purchased options 219 219 2002-2003
---------------------------------------------------------------
$ 266 $ 266
===============================================================
The Company estimates the fair value of its foreign currency
derivatives based on quoted market prices or pricing models using current market
rates. This amount is primarily reflected in prepaid expenses and other assets
within the Company's Consolidated Balance Sheets.
Prior to January 1, 2001, our Company also used foreign exchange
contracts and purchased currency options for hedging purposes. Premiums paid and
realized gains and losses, including those on any terminated contracts, were
included in prepaid expenses and other assets. These were recognized in income,
along with unrealized gains and losses, in the same period the hedging
transactions were realized. Approximately $26 million of realized gains on
settled contracts entered into as hedges of firmly committed transactions that
had not yet occurred were deferred on December 31, 2000. Deferred gains and
losses from hedging anticipated transactions were not material on December 31,
2000.
The following table presents the aggregate notional principal amounts,
carrying values, fair values and maturities of our derivative financial
instruments outstanding on December 31, 2000 (in millions):
Notional
Principal Carrying Fair
December 31, Amounts Values Values Maturity
------------------------------------------------------------------------------------------------------
2000
Interest rate management
Swap agreements
Assets $ 150 $ 1 $ 8 2003
Liabilities 25 (1) (10) 2001-2003
Interest rate caps
Assets 1,600 8 4 2004
Foreign currency management
Forward contracts
Assets 1,812 49 74 2001
Swap agreements
Assets 48 2 (3) 2001
Liabilities 359 (2) (19) 2001-2002
Purchased options
Assets 706 18 53 2001-2002
Other
Assets 87 2 3 2001
------------------------------------------------------------------------------------------------------
$ 4,787 $ 77 $ 110
======================================================================================================
NOTE 10: COMMITMENTS AND CONTINGENCIES
On December 31, 2001, we were contingently liable for guarantees of
indebtedness owed by third parties in the amount of $436 million, of which $10
million related to the Company's equity investee bottlers. We do not consider it
probable that we will be required to satisfy these guarantees.
We believe our exposure to concentrations of credit risk is limited,
due to the diverse geographic areas covered by our operations.
We have committed to make future marketing expenditures of $1,326
million, of which the majority is payable over the next 12 years.
The Company is involved in various legal proceedings. Management
believes that any liability to the Company which may arise as a result of these
proceedings will not have a material adverse effect on the financial condition
of the Company taken as a whole.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 11: NET CHANGE IN OPERATING ASSETS AND LIABILITIES
The changes in operating assets and liabilities, net of effects of
acquisitions and divestitures of businesses and unrealized exchange
gains/losses, are as follows (in millions):
2001 2000 1999
-----------------------------------------------------------------------------------
Increase in trade
accounts receivable $ (73) $ (39) $ (96)
Increase in inventories (17) (2) (163)
Increase in prepaid
expenses and other assets (349) (618) (547)
Increase (decrease) in
accounts payable
and accrued expenses (179) (84) 281
Increase (decrease) in
accrued taxes 247 (96) (36)
Increase (decrease) in
other liabilities (91) (13) 4
-----------------------------------------------------------------------------------
$ (462) $ (852) $ (557)
===================================================================================
NOTE 12: RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS
Our Company currently sponsors restricted stock award plans and stock
option plans. Our Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for our plans. Accordingly, no
compensation cost has been recognized for our stock option plans. The
compensation cost charged against income for our restricted stock award plans
was $41 million in 2001, $6 million in 2000 and $39 million in 1999. In 2000,
the Company recorded a charge of $37 million for special termination benefits as
part of the Realignment (discussed in Note 16). Had compensation cost for the
stock option plans been determined based on the fair value at the grant dates
for awards under the plans, our Company's net income and net income per share
(basic and diluted) would have been as presented in the following table.
The pro forma amounts are indicated below (in millions, except per
share amounts):
Year Ended December 31, 2001 2000 1999
----------------------------------------------------------------------------------
Net income
As reported $ 3,969 $ 2,177 $ 2,431
Pro forma $ 3,767 $ 1,995 $ 2,271
Basic net income per share
As reported $ 1.60 $ .88 $ .98
Pro forma $ 1.51 $ .81 $ .92
Diluted net income per share
As reported $ 1.60 $ .88 $ .98
Pro forma $ 1.51 $ .80 $ .91
==================================================================================
Under the amended 1989 Restricted Stock Award Plan and the amended 1983
Restricted Stock Award Plan (the Restricted Stock Award Plans), 40 million and
24 million shares of restricted common stock, respectively, may be granted to
certain officers and key employees of our Company.
On December 31, 2001, 29 million shares were available for grant under
the Restricted Stock Award Plans. In 2001, there were 116,300 shares of
restricted stock granted at an average price of $48.95. In 2000, there were
546,585 shares of restricted stock granted at an average price of $58.20. In
1999, 32,100 shares of restricted stock were granted at an average price of
$53.86. In 2001, 78,700 shares of restricted stock were cancelled at an average
price of $48.49. In 2000, 80,500 shares of restricted stock were cancelled at an
average price of $28.41. In 1999, 1,600 shares of restricted stock were
cancelled at an average price of $86.75. Participants are entitled to vote and
receive dividends on the shares and, under the 1983 Restricted Stock Award Plan,
participants are reimbursed by our Company for income taxes imposed on the
award, but not for taxes generated by the reimbursement payment. The shares are
subject to certain transfer restrictions and may be forfeited if a participant
leaves our Company for reasons other than retirement, disability or death,
absent a change in control of our Company.
In addition, 270,000 shares of three-year performance-based and
2,025,000 shares of five-year performance-based restricted stock were granted in
2000. The release of these shares was contingent upon the Company achieving
certain predefined performance targets over the three-year and five-year
measurement
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
periods, respectively. Participants were entitled to vote and receive dividends
on these shares during the measurement period. The Company also promised to
grant 180,000 shares of stock at the end of three years and 200,000 shares at
the end of five years to certain employees if the Company achieved predefined
performance targets over the respective measurement periods. In May 2001, these
performance based restricted stock awards and promises made to grant shares in
the future were cancelled. New awards, for the same number of shares, with the
exception of the promise made in 2000 to grant 200,000 shares at the end of five
years, were granted. The performance targets of these new awards are aligned
with the Company's current long-term earnings per share growth target of 11 to
12 percent. In 2001, an additional 10,000 shares of three-year and 300,000
shares of five-year performance-based restricted stock were granted with
performance targets aligned with the Company's current long-term earnings per
share growth target of 11 to 12 percent.
Under our 1991 Stock Option Plan (the 1991 Option Plan), a maximum of
120 million shares of our common stock was approved to be issued or transferred
to certain officers and employees pursuant to stock options and stock
appreciation rights granted under the 1991 Option Plan. The stock appreciation
rights permit the holder, upon surrendering all or part of the related stock
option, to receive cash, common stock or a combination thereof, in an amount up
to 100 percent of the difference between the market price and the option price.
Options to purchase common stock under the 1991 Option Plan have been granted to
Company employees at fair market value at the date of grant.
The 1999 Stock Option Plan (the 1999 Option Plan) was approved by share
owners in April of 1999. Following the approval of the 1999 Option Plan, no
grants were made from the 1991 Option Plan, and shares available under the 1991
Option Plan were no longer available to be granted. Under the 1999 Option Plan,
a maximum of 120 million shares of our common stock was approved to be issued or
transferred to certain officers and employees pursuant to stock options granted
under the 1999 Option Plan. Options to purchase common stock under the 1999
Option Plan have been granted to Company employees at fair market value at the
date of grant.
Generally, stock options become exercisable over a four-year vesting
period and expire 15 years from the date of grant. Prior to 1999, stock options
generally became exercisable over a three-year vesting period and expired 10
years from the date of grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: dividend
yields of 1.6, 1.2 and 1.2 percent; expected volatility of 31.9, 31.7 and 27.1
percent; risk-free interest rates of 5.1, 5.8 and 6.2 percent; and expected
lives of five years for 2001 and 2000 and four years for 1999. The
weighted-average fair value of options granted was $15.09, $19.85 and $15.77 for
the years ended December 31, 2001, 2000 and 1999, respectively.
A summary of stock option activity under all plans is as follows
(shares in millions):
2001 2000 1999
-------------------------- -------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
----------------------------------------------------------------------------------------------------------------------------
Outstanding on January 1, 112 $ 51.23 101 $ 46.66 80 $ 42.77
Granted(1) 45 48.11 32 57.35 28 53.53
Exercised (7) 24.30 (12) 26.00 (6) 26.12
Forfeited/Expired (2) (9) 56.74 (9) 57.51 (1) 60.40
----------------------------------------------------------------------------------------------------------------------------
Outstanding on December 31, 141 $ 51.16 112 $ 51.23 101 $ 46.66
============================================================================================================================
Exercisable on December 31, 65 $ 50.83 60 $ 46.57 59 $ 39.40
============================================================================================================================
Shares available on December 31,
for options that may be granted 25 65 92
============================================================================================================================
(1) No grants were made from the 1991 Option Plan during 2000 or 2001.
(2) Shares Forfeited/Expired relate to the 1991 and 1999 Option Plans.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table summarizes information about stock options at
December 31, 2001 (shares in millions):
Outstanding Stock Options Exercisable Stock Options
---------------------------------------------- ---------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
-----------------------------------------------------------------------------------------------------------
$ 20.00 to $ 30.00 7 2.1 years $ 23.44 7 $ 23.44
$ 30.01 to $ 40.00 9 3.8 years $ 35.63 9 $ 35.63
$ 40.01 to $ 50.00 53 12.9 years $ 48.22 9 $ 48.86
$ 50.01 to $ 60.00 59 12.2 years $ 56.30 28 $ 56.54
$ 60.01 to $ 86.75 13 6.8 years $ 65.87 12 $ 65.89
-----------------------------------------------------------------------------------------------------------
$ 20.00 to $ 86.75 141 10.9 years $ 51.16 65 $ 50.83
===========================================================================================================
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Our Company sponsors and/or contributes to pension and postretirement
health care and life insurance benefit plans covering substantially all U.S.
employees and certain employees in international locations. We also sponsor
nonqualified, unfunded defined benefit pension plans for certain officers and
other employees. In addition, our Company and its subsidiaries have various
pension plans and other forms of postretirement arrangements outside the United
States.
Total expense for all benefit plans, including defined benefit pension
plans, defined contribution pension plans, and postretirement health care and
life insurance benefit plans, amounted to approximately $142 million in 2001,
$116 million in 2000 and $108 million in 1999. In addition, in 2000 the Company
recorded a charge of $124 million for special retirement benefits as part of the
Realignment discussed in Note 16. Net periodic cost for our pension and other
defined benefit plans consists of the following (in millions):
Pension Benefits
----------------------------------------------
Year Ended December 31, 2001 2000 1999
-----------------------------------------------------------------------------------------------
Service cost $ 53 $ 54 $ 67
Interest cost 123 119 111
Expected return on plan assets (125) (132) $ (119)
Amortization of prior service cost 8 4 6
Recognized net actuarial (gain) loss 3 (7) 7
Settlements and curtailments -- 1 --
-----------------------------------------------------------------------------------------------
Net periodic pension cost $ 62 $ 39 $ 72
===============================================================================================
Other Benefits
---------------------------------------------
Year Ended December 31, 2001 2000 1999
----------------------------------------------------------------------------------------------
Service cost $ 13 $ 12 $ 14
Interest cost 34 29 22
Expected return on plan assets (1) (1) (1)
Amortization of prior service cost 2 1 --
Recognized net actuarial gain -- (1) --
----------------------------------------------------------------------------------------------
Net periodic cost $ 48 $ 40 $ 35
==============================================================================================
The following table sets forth the change in benefit obligation for our
benefit plans (in millions):
Pension Benefits Other Benefits
---------------- --------------
December 31, 2001 2000 2001 2000
-------------------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 1,819 $ 1,670 $ 407 $ 303
Service cost 53 54 13 12
Interest cost 123 119 34 29
Foreign currency
exchange rate changes (23) (55) -- --
Amendments -- 57 3 21
Actuarial loss 62 77 96 25
Benefits paid (126) (146) (23) (17)
Business combinations 10 -- -- --
Divestitures (12) -- -- --
Settlements and curtailments -- (67) -- 13
Special retirement benefits -- 104 -- 20
Other -- 6 -- 1
-------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 1,906 $ 1,819 $ 530 $ 407
===========================================================================================
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The following table sets forth the change in plan assets for our
benefit plans (in millions):
Pension Benefits Other Benefits
---------------------- ---------------------
December 31, 2001 2000 2001 2000
----------------------------------------------------------------------------------------------
Fair value of plan assets
at beginning of year(1) $ 1,555 $ 1,722 $ 17 $ 29
Actual return on plan assets (96) 4 -- 2
Employer contribution 130 31 -- --
Foreign currency exchange rate changes (14) (57) -- --
Benefits paid (91) (120) (17) (14)
Business combinations 9 -- -- --
Divestitures (4) -- -- --
Settlements -- (38) -- --
Other 3 13 -- --
----------------------------------------------------------------------------------------------
Fair value of plan assets at end of year(1) $ 1,492 $ 1,555 $ -- $ 17
==============================================================================================
(1) Pension benefit plan assets primarily consist of listed stocks
including 1,621,050 shares of common stock of our Company with a fair
value of $76 million and $99 million as of December 31, 2001 and 2000,
respectively.
The total projected benefit obligation and fair value of plan assets
for the pension plans with projected benefit obligations in excess of plan
assets were $687 million and $232 million, respectively, as of December 31, 2001
and $617 million and $194 million, respectively, as of December 31, 2000. The
total accumulated benefit obligation and fair value of plan assets for the
pension plans with accumulated benefit obligations in excess of plan assets were
$583 million and $202 million, respectively, as of December 31, 2001 and $480
million and $152 million, respectively, as of December 31, 2000.
The accrued pension and other benefit costs recognized in our
accompanying Consolidated Balance Sheets are computed as follows (in millions):
Pension Benefits Other Benefits
---------------------- ---------------------
December 31, 2001 2000 2001 2000
------------------------------------------------------------------------------------------
Funded status $ (414) $ (264) $ (530) $ (390)
Unrecognized net asset at transition (5) (6) -- --
Unrecognized prior service cost 73 90 21 23
Unrecognized net actuarial (gain) loss 195 (89) 45 (51)
------------------------------------------------------------------------------------------
Net liability recognized $ (151) $ (269) $ (464) $ (418)
------------------------------------------------------------------------------------------
Prepaid benefit cost $ 146 $ 39 $ -- $ --
Accrued benefit liability (387) (374) (464) (418)
Accumulated other comprehensive income 70 43 -- --
Intangible asset 20 23 -- --
------------------------------------------------------------------------------------------
Net liability recognized $ (151) $ (269) $ (464) $ (418)
==========================================================================================
The weighted-average assumptions used in computing the preceding
information are as follows:
Pension Benefits
-----------------------------------
December 31, 2001 2000 1999
---------------------------------------------------------------------------------------------
Discount rate 6 1/2% 7% 7%
Rate of increase in compensation levels 4 1/4% 4 1/2% 4 1/2%
Expected long-term rate of return on plan assets 8 1/2% 8 1/2% 8 1/2%
Other Benefits
-----------------------------------
December 31, 2001 2000 1999
---------------------------------------------------------------------------------------------
Discount rate 7 1/4% 7 1/2% 8%
Rate of increase in compensation levels 4 1/2% 4 3/4% 5%
Expected long-term rate of return on plan assets -- 3% 3%
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The rate of increase in per capita costs of covered health care
benefits is assumed to be 9 percent in 2002, decreasing gradually to 5 1/4
percent by the year 2007.
A one percentage point change in the assumed health care cost trend
rate would have the following effects (in millions):
One Percentage One Percentage
Point Increase Point Decrease
----------------------------------
Effect on accumulated postretirement benefit
obligation as of December 31, 2001 $ 54 $ (45)
Effect on net periodic postretirement benefit
cost in 2001 $ 7 $ (6)
NOTE 14: INCOME TAXES
Income before income taxes and cumulative effect of accounting change
consists of the following (in millions):
Year Ended December 31, 2001 2000 1999
--------------------------------------------------------------------
United States $ 2,430 $ 1,497 $ 1,504
International 3,240 1,902 2,315
--------------------------------------------------------------------
$ 5,670 $ 3,399 $ 3,819
====================================================================
Income tax expense (benefit) consists of the following (in millions):
Year Ended United State & Inter-
December 31, States Local national Total
----------------------------------------------------------------------------------------------
2001
Current $ 552 $ 102 $ 981 $ 1,635
Deferred 70 (15) 1 56
2000
Current $ 48 $ 16 $ 1,155 $ 1,219
Deferred (9) 46 (34) 3
1999
Current $ 395 $ 67 $ 829 $ 1,291
Deferred 182 11 (96) 97
==============================================================================================
We made income tax payments of approximately $1,351 million, $1,327
million and $1,404 million in 2001, 2000 and 1999, respectively. During the
first quarter of 2000, the United States and Japan taxing authorities entered
into an Advance Pricing Agreement (APA) whereby the level of royalties paid by
Coca-Cola (Japan) Company, Ltd. (our Subsidiary) to our Company has been
established for the years 1993 through 2001. Pursuant to the terms of the APA,
our Subsidiary has filed amended returns for the applicable periods reflecting
the negotiated royalty rate. These amended returns resulted in the payment
during the first and second quarters of 2000 of additional Japanese taxes, the
effect of which on both our financial performance and our effective tax rate was
not material, due primarily to offsetting tax credits utilized on our U.S.
income tax return.
A reconciliation of the statutory U.S. federal rate and effective rates
is as follows:
Year Ended December 31, 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes-net of federal benefit 1.0 .8 1.0
Earnings in jurisdictions taxed at rates different from the
statutory U.S. federal rate (4.9) (4.0) (6.0)
Equity income or loss (1) (.9) 2.9 1.6
Other operating charges (2) -- 1.9 5.3
Other-net (.4) (.6) (.6)
-----------------------------------------------------------------------------------------------------------------
29.8% 36.0% 36.3%
=================================================================================================================
(1) Includes charges by equity investees for 2000 and 1999. See Note 15.
(2) Includes charges related to certain bottling, manufacturing and
intangible assets for 2000 and 1999. See Note 15.
Our effective tax rate reflects the tax benefit derived from having
significant operations outside the United States that are taxed at rates lower
than the U.S. statutory rate of 35 percent.
In 2000, management concluded that it was more likely than not that
local tax benefits would not be realized with respect to principally all of the
items discussed in Note 15, with the exception of approximately $188 million of
charges related to the settlement terms of a class action discrimination
lawsuit. Accordingly, valuation allowances were recorded to offset the future
tax benefit of these nonrecurring items resulting in an increase in our
effective tax rate. Excluding the impact of these nonrecurring items, the
effective tax rate on operations for 2000 was slightly more than 30 percent.
In 1999, the Company recorded a charge of $813 million, primarily
reflecting the impairment of certain bottling, manufacturing and intangible
assets. For some locations with impaired assets, management concluded that it
was more likely than not that no local tax benefit would be realized.
Accordingly, a valuation allowance was recorded offsetting the future tax
benefits
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
for such locations. This resulted in an increase in our effective tax rate for
1999. Excluding the impact, the Company's effective tax rate for 1999 would have
been 31 percent.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $5.9 billion at December 31, 2001. Those earnings are
considered to be indefinitely reinvested and, accordingly, no U.S. federal and
state income taxes have been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation;
however, unrecognized foreign tax credits would be available to reduce a
substantial portion of the U.S. liability.
The tax effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities consist of the following (in
millions):
December 31, 2001 2000
---------------------------------------------------------------------------
Deferred tax assets:
Benefit plans $ 377 $ 261
Liabilities and reserves 489 456
Net operating loss carryforwards 286 375
Other operating charges 169 321
Other 232 126
---------------------------------------------------------------------------
Gross deferred tax assets 1,553 1,539
Valuation allowance (563) (641)
---------------------------------------------------------------------------
$ 990 $ 898
---------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 391 $ 425
Equity investments 196 228
Intangible assets 248 224
Other 185 129
---------------------------------------------------------------------------
$ 1,020 $ 1,006
===========================================================================
Net deferred tax asset (liability)(1) $ (30) $ (108)
===========================================================================
(1) Deferred tax assets of $412 million and $250 million have been included
in the consolidated balance sheet caption "Other assets" at December
31, 2001 and 2000, respectively.
On December 31, 2001 and 2000, we had approximately $240 million and
$143 million, respectively, of net deferred tax assets, located in countries
outside the United States.
On December 31, 2001, we had $1,229 million of tax operating loss
carryforwards available to reduce future taxable income of certain international
subsidiaries. Loss carryforwards of $440 million must be utilized within the
next five years; $789 million can be utilized over an indefinite period. A
valuation allowance has been provided for a portion of the deferred tax assets
related to these loss carryforwards.
NOTE 15: NONRECURRING ITEMS
In the first quarter of 2000, we recorded charges of approximately $405
million related to the impairment of certain bottling, manufacturing and
intangible assets, primarily within our Indian bottling operations. These
impairment charges were recorded to reduce the carrying value of the identified
assets to fair value. Fair value was derived using cash flow analysis. The
assumptions used in the cash flow analysis were consistent with those used in
our internal planning process. The assumptions included estimates of future
growth in unit cases, estimates of gross margins, estimates of the impact of
exchange rates and estimates of tax rates and tax incentives. The charge was
primarily the result of our revised outlook for the Indian beverage market
including the future expected tax environment. The remaining carrying value of
long-lived assets within our Indian bottling operations, immediately after
recording the impairment charge, was approximately $300 million.
In July 2000, we recorded a tax-free non-cash gain of approximately
$118 million related to the merger of Coca-Cola Beverages and Hellenic Bottling
Company S.A. For specific transaction details refer to Note 2.
In the fourth quarter of 2000, we recorded charges of approximately
$188 million related to the settlement terms of, and direct costs related to, a
class action discrimination lawsuit. The monetary settlement includes cash
payments to fund back pay, compensatory damages, a promotional achievement fund
and attorneys' fees. In addition, the Company introduced a wide range of
training, monitoring and mentoring programs. Of the $188 million, $50 million
was donated to The Coca-Cola Foundation to continue its broad range of community
support programs. In 2001, our Company paid out substantially all of this
settlement.
In 2000, the Company also recorded a nonrecurring charge of
approximately $306 million, which represents the Company's portion of a charge
recorded by Coca-Cola Amatil to reduce the carrying value of its
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
investment in the Philippines. In addition, Panamerican Beverages, Inc. wrote
down selected assets, including the impairment of the value of its Venezuelan
operating unit. The Company's portion of this charge was approximately $124
million. Also contributing to the equity losses were nonrecurring charges
recorded by investees in Eurasia and the Middle East. These nonrecurring charges
were partially offset by the impact of lower tax rates related to current and
deferred taxes at Coca-Cola Erfrischungsgetraenke AG (CCEAG).
In the fourth quarter of 1999, we recorded charges of approximately
$813 million. Of this $813 million, approximately $543 million related to the
impairment of certain bottling, manufacturing and intangible assets, primarily
within our Russian and Caribbean bottlers and in the Middle and Far East and in
North America. These impairment charges were recorded to reduce the carrying
value of the identified assets to fair value. Fair values were derived using a
variety of methodologies, including cash flow analysis, estimates of sales
proceeds and independent appraisals. Where cash flow analyses were used to
estimate fair values, key assumptions employed, consistent with those used in
our internal planning process, included our estimates of future growth in unit
case sales, estimates of gross margins and estimates of the impact of inflation
and foreign currency fluctuations. The charges were primarily the result of our
revised outlook in certain markets due to the prolonged severe economic
downturns. The remaining carrying value of these impaired long-lived assets,
immediately after recording the impairment charge, was approximately $140
million.
Of the $813 million, approximately $196 million related to charges
associated with the impairment of the distribution and bottling assets of our
vending operations in Japan and our bottling operations in the Baltics. The
charges reduced the carrying value of these assets to their fair value less the
cost to sell. Consistent with our long-term bottling strategy, management
intended to sell the assets of our vending operations in Japan and our bottling
operations in the Baltics. The remaining carrying value of long-lived assets
within these operations and the income from operations on an after-tax basis as
of and for the 12-month period ending December 31, 2000, were approximately $143
million and $12 million, respectively. On December 22, 2000, the Company signed
a definitive agreement to sell the assets of our vending operations in Japan and
this sale was completed in 2001. The proceeds from the sale of the assets were
approximately equal to the carrying value of the long-lived assets less the cost
to sell.
In December 2000, the Company announced that it had intended to sell
its bottling operations in the Baltics to one of our strategic business
partners. However, the partner was in the process of internal restructuring and
no longer planned to purchase the Baltics bottling operations. At that time
another suitable buyer was not identified so the Company continued to operate
the Baltics bottlers as consolidated operations until a new buyer was
identified. Subsequently, in January 2002, our Company reached an agreement to
sell our bottling operations in the Baltics to CCHBC in early 2002. The expected
proceeds from the sale of the Baltics bottlers are approximately equal to the
current carrying value of the investment.
The remainder of the $813 million charges, approximately $74 million,
primarily related to the change in senior management and charges related to
organizational changes within the Europe, Eurasia and Middle East, Latin America
and Corporate segments. These charges were incurred during the fourth quarter of
1999.
NOTE 16: REALIGNMENT COSTS
In January 2000, our Company initiated a major organizational
realignment (the Realignment) intended to put more responsibility,
accountability and resources in the hands of local business units of the Company
so as to fully leverage the local capabilities of our system.
Under the Realignment, employees were separated from almost all
functional areas of the Company's operations, and certain activities were
outsourced to third parties. The total number of employees separated as of
December 31, 2000, was approximately 5,200. Employees separated from the Company
as a result of the Realignment were offered severance or early retirement
packages, as appropriate, which included both financial and nonfinancial
components. The Realignment expenses included costs associated with involuntary
terminations, voluntary retirements and other direct costs associated with
implementing the Realignment. Other direct costs included repatriating and
relocating employees to local markets; asset write-downs; lease cancellation
costs; and costs associated with the development, communication and
administration of the Realignment.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
The table below summarizes the balance of accrued Realignment expenses
and the movement in that accrual as of and for the years ended December 31, 2001
and 2000 (in millions):
2000 Accrued 2001 Accrued
Non-cash Balance Non-cash Balance
2000 2000 and December 31, 2001 and December 31,
REALIGNMENT SUMMARY Expenses Payments Exchange 2000 Payments Exchange 2001
----------------------------------------------- ------------------------------------------------------------------------------------
Employees involuntarily separated
Severance pay and benefits $ 216 $ (123) $ (2) $ 91 $ (66) $ (8) $ 17
Outside services--legal,
outplacement, consulting 33 (25) -- 8 (8) -- --
Other--including asset
write-downs 81 (37) (7) 37 (33) (4) --
------------------------------------------------------------------------------------------------------------------------------------
$ 330 $ (185) $ (9) $ 136 $ (107) $ (12) $ 17
------------------------------------------------------------------------------------------------------------------------------------
Employees voluntarily separated
Special retirement pay
and benefits $ 353 $ (174) $ -- $ 179 $ (26) $ (12) $ 141
Outside services--legal,
outplacement, consulting 6 (3) -- 3 (3) -- --
------------------------------------------------------------------------------------------------------------------------------------
$ 359 $ (177) $ -- $ 182 $ (29) $ (12) $ 141
------------------------------------------------------------------------------------------------------------------------------------
Other direct costs $ 161 $ (92) $ (9) $ 60 $ (26) $ (11) $ 23
------------------------------------------------------------------------------------------------------------------------------------
TOTAL REALIGNMENT $ 850 $ (454) $ (18) $ 378(1) $ (162) $ (35) $ 181(1)
====================================================================================================================================
(1) As of December 31, 2001 and 2000, $59 million and $254 million,
respectively, were included in the consolidated balance sheet caption
"Accounts payable and accrued expenses." As of December 31, 2001 and
2000, $122 million and $124 million, respectively, were included in the
consolidated balance sheet caption "Other liabilities."
NOTE 17: ACQUISITIONS AND INVESTMENTS
During 2001, our Company's acquisition and investment activity totaled
approximately $651 million. In February 2001, our Company reached an agreement
with Carlsberg for the dissolution of CCNB, a joint venture bottler in which our
Company had a 49 percent ownership. At that time, CCNB had bottling operations
in Sweden, Norway, Denmark, Finland and Iceland. Under this agreement with
Carlsberg, our Company acquired CCNB's Sweden and Norway bottling operations in
June 2001, increasing our Company's ownership in those bottlers to 100 percent.
Carlsberg acquired CCNB's Denmark and Finland bottling operations, increasing
Carlsberg's ownership in those bottlers to 100 percent. Pursuant to the
agreement, CCNB sold its Iceland bottling operations to a third-party group of
investors in May 2001.
In March 2001, our Company signed a definitive agreement with La
Tondena Distillers, Inc. (La Tondena) and San Miguel to acquire carbonated soft
drink, water and juice brands for $84 million. CCBPI acquired the related
manufacturing and distribution assets from La Tondena for $63 million.
In July 2001, our Company and San Miguel acquired CCBPI from Coca-Cola
Amatil. Upon the completion of this transaction, our Company owned 35 percent of
the common shares and 100 percent of the Preferred B shares, and San Miguel
owned 65 percent of the common shares of CCBPI. Additionally, as a result of
this transaction, our Company's interest in Coca-Cola Amatil was reduced from
approximately 38 percent to approximately 35 percent.
In December 2001, our Company completed a cash tender offer for all
outstanding shares of common stock of Odwalla, Inc. This acquisition was valued
at approximately $190 million with our Company receiving an ownership interest
of 100 percent.
During the first half of 2001, in separate transactions, our Company
purchased two bottlers in Brazil: Refrescos Guararapes Ltda. and Sucovalle Sucos
e Concentrados do Vale S.A. In separate transactions during the first half of
2000, our Company purchased two other bottlers in Brazil: Companhia Mineira de
Refrescos, S.A. and Refrigerantes Minas Gerais Ltda. In October 2000, the
Company purchased a 58 percent interest in Paraguay Refrescos S.A. (Paresa), a
bottler located in Paraguay. In December 2000, the Company made a tender offer
for the remaining 42 percent of the shares in Paresa. In January 2001, following
the completion of the tender offer, we owned approximately 95 percent of Paresa.
The acquisitions and investments have been accounted for by either the
purchase, equity or cost
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
method of accounting, as appropriate. Their results have been included in the
Consolidated Financial Statements from their respective dates of acquisition
using the appropriate method of accounting. Had the results of these businesses
been included in operations commencing with 1999, the reported results would not
have been materially affected.
NOTE 18: SUBSEQUENT EVENTS
In 2001, our Company concluded negotiations regarding the terms of a
Control and Profit and Loss (CPL) agreement with certain other share owners of
CCEAG, the largest bottler in Germany, in which the Company has an approximate
41 percent ownership interest. Under the terms of the CPL agreement, the Company
obtained management control of CCEAG for a period of up to five years. In return
for the management control of CCEAG, the Company guaranteed annual payments in
lieu of dividends by CCEAG to all other CCEAG share owners. Additionally, all
other CCEAG share owners entered into either a put or a put/call option
agreement with the Company, exercisable at the end of the term of the CPL
agreement at agreed prices. In early 2002, the Company assumed control of CCEAG.
This transaction will be accounted for as a business combination. The present
value of the total amount likely to be paid by our Company to all other CCEAG
share owners, including the put or put/call payments and the guaranteed annual
payment in lieu of dividends, is approximately $600 million. In 2001, CCEAG's
revenues were approximately $1.7 billion. Additionally, our Company's debt will
increase between $700 million and $800 million once this business combination is
completed.
In November 2001, our Company and CCBPI entered into a sale and
purchase agreement with RFM Corp. to acquire its 83.2 percent interest in Cosmos
Bottling Corporation (CBC), a publicly traded Philippine beverage company. As of
the date of the agreement, the Company began supplying concentrate for this
operation. The transaction valued CBC at 14 billion Philippine pesos, or
approximately $270 million. The purchase of RFM's interest was finalized on
January 3, 2002 with our Company receiving direct and indirect ownership
totaling approximately 62.3 percent. A subsequent tender offer was made to the
remaining minority share owners and is expected to close in March 2002.
NOTE 19: OPERATING SEGMENTS
Our Company's operating structure includes the following operating
segments: North America (including The Minute Maid Company); Africa; Europe,
Eurasia and Middle East; Latin America; Asia; and Corporate. North America also
includes the United States, Canada and Puerto Rico.
Effective January 1, 2001, our Company's operating segments were
geographically reconfigured and renamed. Puerto Rico was added to North America
from Latin America. The Middle East Division was added to Europe and Eurasia,
which changed its name to Europe, Eurasia and Middle East. At the same time,
Africa and Middle East, less the relocated Middle East Division, changed its
name to Africa. During the first quarter of 2001, Asia Pacific was renamed Asia.
Prior period amounts have been reclassified to conform to the current period
presentation.
SEGMENT PRODUCTS AND SERVICES
The business of our Company is nonalcoholic ready-to-drink beverages,
principally carbonated soft drinks, but also a variety of noncarbonated
beverages. Our operating segments derive substantially all their revenues from
the manufacture and sale of beverage concentrates and syrups with the exception
of Corporate, which derives its revenues primarily from the licensing of our
brands in connection with merchandise.
METHOD OF DETERMINING SEGMENT PROFIT OR LOSS
Management evaluates the performance of its operating segments
separately to individually monitor the different factors affecting financial
performance. Segment profit or loss includes substantially all the segment's
costs of production, distribution and administration. Our Company manages income
taxes on a global basis. Thus, we evaluate segment performance based on profit
or loss before income taxes. Our Company typically manages and evaluates equity
investments and related income on a segment level. However, we manage certain
significant investments, such as our equity interests in Coca-Cola Enterprises,
at the Corporate segment. We manage financial costs, such as exchange gains and
losses and interest income and expense, on a global basis at the Corporate
segment.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
Information about our Company's operations by operating segment is as
follows (in millions):
Europe,
North Eurasia & Latin
America Africa Middle East America Asia Corporate Consolidated
----------------------------------------------------------------------------------------------------------------------------------
2001
Net operating revenues $ 7,526 $ 621 $ 4,492 $ 2,273 $ 5,000(1) $ 180 $ 20,092
Operating income 1,480 261 1,476 1,094 1,763 (722) 5,352
Interest income 325 325
Interest expense 289 289
Equity income (loss) 2 2 (63) 118 68 25 152
Identifiable operating assets 4,738 293 2,516 1,681 2,121 5,646(2) 16,995
Investments(3) 140 78 1,732 1,572 1,053 847 5,422
Capital expenditures 339 11 105 37 107 170 769
Depreciation and amortization 249 27 134 90 144 159 803
Income before income taxes
and cumulative effect of
accounting change 1,472 258 1,417 1,279 1,808 (564)(4) 5,670
==================================================================================================================================
2000
Net operating revenues $ 7,372 $ 608 $ 4,493 $ 2,140 $ 5,127(1) $ 149 $ 19,889
Operating income(5) 1,409 174 1,300(6) 908 956 (1,056)(7) 3,691
Interest income 345 345
Interest expense 447 447
Equity income (loss)(8) 3 1 (39) (75) (290) 111 (289)
Identifiable operating assets 4,271 333 1,697 1,545 1,953 5,270(2) 15,069
Investments(3) 141 85 2,010 1,767 993 769 5,765
Capital expenditures 259 8 197 16 132 121 733
Depreciation and amortization 244 32 86 96 211 104 773
Income before income taxes 1,413 161 1,379(9) 859 651 (1,064) 3,399
==================================================================================================================================
1999
Net operating revenues $ 7,086 $ 662 $ 4,670 $ 1,932 $ 4,769(1) $ 165 $ 19,284
Operating income(10) 1,447 212 912 829 1,194 (612) 3,982
Interest income 260 260
Interest expense 337 337
Equity income (loss) (5) 1 (103) (5) (37) (35) (184)
Identifiable operating assets 3,591 361 1,935 1,653 2,439 4,852(2) 14,831
Investments(3) 139 75 2,128 1,833 1,837 780 6,792
Capital expenditures 269 18 222 67 317 176 1,069
Depreciation and amortization 263 27 100 96 184 122 792
Income before income taxes 1,443 199 797 836 1,143 (599) 3,819
==================================================================================================================================
Intercompany transfers between operating segments are not material.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
(1) Japan revenues represent approximately 74 percent of total Asia
operating segment revenues related to 2001, 75 percent related to 2000
and 79 percent related to 1999.
(2) Principally marketable securities, finance subsidiary receivables,
trademarks and other intangible assets and fixed assets.
(3) Principally equity investments in bottling companies.
(4) Income before income taxes and cumulative effect of accounting change
was increased by $91 million for Corporate due to a non-cash gain which
was recognized on the issuance of stock by Coca-Cola Enterprises, one
of our equity investees.
(5) Operating income was reduced by $3 million for North America, $397
million for Asia and $5 million for Corporate related to the other
operating charges recorded for asset impairments in the first quarter
of 2000. Operating income was also reduced by $132 million for North
America, $33 million for Africa, $205 million for Europe, Eurasia &
Middle East, $59 million for Latin America, $127 million for Asia and
$294 million for Corporate as a result of other operating charges
associated with the Realignment.
(6) Operating income was reduced by $30 million for Europe, Eurasia &
Middle East due to incremental marketing expenses in Central Europe.
(7) Operating income was reduced by $188 million for Corporate related to
the settlement terms of a discrimination lawsuit and a donation to The
Coca-Cola Foundation.
(8) Equity income (loss) was reduced by $35 million for Europe, Eurasia &
Middle East, $124 million for Latin America and $306 million for Asia,
as a result of our Company's portion of nonrecurring charges recorded
by equity investees.
(9) Income before income taxes was increased by $118 million for Europe,
Eurasia & Middle East as a result of a gain related to the merger of
Coca-Cola Beverages plc and Hellenic Bottling Company S.A.
(10) Operating income was reduced by $34 million for North America, $3
million for Africa, $506 million for Europe, Eurasia & Middle East, $35
million for Latin America, $176 million for Asia and $59 million for
Corporate related to the other operating charges recorded in the fourth
quarter of 1999.
28
Europe,
Compound Growth Rates North Eurasia & Latin
Ending 2001 America Africa Middle East America Asia Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
Net operating revenues
5 years 5.5% 4.2% (5.7)% 2.4% 5.7% 1.9%
10 years 6.1% 10.9% 1.9 % 7.6% 9.5% 6.0%
===================================================================================================================================
Operating income
5 years 9.4% 14.1% 1.0 % 4.9% 6.6% 6.5%
10 years 9.2% 8.2% 4.9 % 10.4% 9.4% 8.8%
===================================================================================================================================
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
{pie charts}
NET OPERATING REVENUES BY OPERATING SEGMENT (1)
Year Ended December 31, 2001 2000 1999
------------------------------------------------------------------------------
North America 38% 37% 37%
Africa 3% 3% 4%
Europe, Eurasia & Middle East 23% 23% 24%
Latin America 11% 11% 10%
Asia 25% 26% 25%
{pie charts}
OPERATING INCOME BY OPERATING SEGMENT (1)
Year Ended December 31, 2001 2000 1999
------------------------------------------------------------------------------
North America 24% 30% 31%
Africa 4% 4% 5%
Europe, Eurasia & Middle East 25% 27% 20%
Latin America 18% 19% 18%
Asia 29% 20% 26%
(1) Charts and percentages are calculated excluding Corporate.
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHARE OWNERS
The Coca-Cola Company
We have audited the accompanying consolidated balance sheets of The
Coca-Cola Company and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, share-owners' equity, and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Coca-Cola Company and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Notes 1 and 9 to the Consolidated Financial Statements,
in 2001 the Company changed its method of accounting for derivative instruments
and hedging activities.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 25, 2002
30
Item 7. Financial Statements and Exhibits.
(c) Exhibits
1.1 Underwriting Agreement
4.1 Form of Note for 4.00% Notes due June 1, 2005
5.1 Opinion of King & Spalding
12.1 Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5)
31
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: March 7, 2002 By: /s/ Gary P. Fayard
--------------------------------------
Name: Gary P. Fayard
Title: Senior Vice President and
Chief Financial Officer
32
EXHIBIT INDEX
EXHIBIT NO.
-----------
1.1 Underwriting Agreement
4.1 Form of Note for 4.00% Notes due June 1, 2005
5.1 Opinion of King & Spalding
12.1 Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5)
33