Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
When used in this report, the terms "The Coca-Cola Company," "Company," "we," "us" and "our" mean The Coca-Cola Company and all entities included in our condensed consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Recoverability of Current and Noncurrent Assets
Our Company faces many uncertainties and risks related to various economic, political and regulatory environments in the countries in which we operate, particularly in developing and emerging markets. Refer to the heading "Item 1A. Risk Factors" in Part I and "Our Business — Challenges and Risks" in Part II of our Annual Report on Form 10-K for the year ended
December 31, 2015
. As a result, management must make numerous assumptions that involve a significant amount of judgment when performing recoverability and impairment tests of noncurrent assets in various regions around the world.
We perform recoverability and impairment tests of noncurrent assets in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired.
Our equity method investees also perform such recoverability and/or impairment tests. If an impairment charge is recorded by one of our equity method investees, the Company records its proportionate share of the charge as a reduction of equity income (loss) — net in our condensed consolidated statement of income. However, the actual amount we record with respect to our proportionate share of such charges may be impacted by items such as basis differences, deferred taxes and deferred gains.
Investments in Equity and Debt Securities
Investments classified as trading securities are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. We review our investments in equity and debt securities that are accounted for using the equity method or cost method or that are classified as available-for-sale or held-to-maturity each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we evaluate the estimated fair value compared to our cost basis in the investment. We also perform this evaluation every reporting period for each investment for which our cost basis has exceeded the fair value. The fair values of most of our Company's investments in publicly traded companies are often readily available based on quoted market prices. For investments in nonpublicly traded companies, management's assessment of fair value is based on valuation methodologies, including discounted cash flows, estimates of sales proceeds, and appraisals, as appropriate. We consider the assumptions that we believe hypothetical marketplace participants would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies. The ability to accurately predict future cash flows, especially in emerging and developing markets, may impact the determination of fair value.
In the event the fair value of an investment declines below our cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. Management's assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than our cost basis, the financial condition and near-term prospects of the issuer, and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
The following table presents the difference between estimated fair values, based on quoted closing prices of publicly traded shares, and our Company's cost basis in investments in publicly traded companies accounted for under the equity method (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
Estimated Fair
Value
|
|
Carrying
Value
|
|
Difference
|
|
Monster Beverage Corporation
|
$
|
4,997
|
|
$
|
3,212
|
|
$
|
1,785
|
|
Coca-Cola FEMSA, S.A.B. de C.V.
|
4,563
|
|
1,672
|
|
2,891
|
|
Coca-Cola European Partners plc
|
3,509
|
|
3,399
|
|
110
|
|
Coca-Cola HBC AG
|
1,996
|
|
1,189
|
|
807
|
|
Coca-Cola Amatil Limited
|
1,728
|
|
700
|
|
1,028
|
|
Coca-Cola East Japan Co., Ltd.
|
845
|
|
562
|
|
283
|
|
Coca-Cola İçecek A.Ş.
|
631
|
|
261
|
|
370
|
|
Embotelladora Andina S.A.
|
500
|
|
272
|
|
228
|
|
Coca-Cola Bottling Co. Consolidated
|
368
|
|
111
|
|
257
|
|
Corporación Lindley S.A.
|
200
|
|
101
|
|
99
|
|
Total
|
$
|
19,337
|
|
$
|
11,479
|
|
$
|
7,858
|
|
As of
September 30, 2016
, gross unrealized gains and losses on available-for-sale securities were $
597 million
and $
50 million
, respectively. Management assessed each of the available-for-sale securities that were in a gross unrealized loss position on an individual basis to determine if the decline in fair value was other than temporary. As a result of these assessments, management determined that the decline in fair value of these investments was not other than temporary and did not record any impairment charges. We will continue to monitor these investments in future periods. Refer to
Note 3
of Notes to Condensed Consolidated Financial Statements.
Goodwill, Trademarks and Other Intangible Assets
Intangible assets are classified into one of three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. For intangible assets with definite lives, tests for impairment must be performed if conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment must be performed at least annually or more frequently if events or circumstances indicate that an asset might be impaired.
Management's assessments of the recoverability and impairment tests of intangible assets involve critical accounting estimates. These estimates require significant management judgment, include inherent uncertainties, and are often interdependent; therefore, they do not change in isolation. Factors that management must estimate include, among others, the economic life of the asset, sales volume, pricing, cost of raw materials, delivery costs, inflation, cost of capital, marketing spending, foreign currency exchange rates, tax rates, capital spending and proceeds from the sale of assets. These factors are even more difficult to predict when global financial markets are highly volatile. The estimates we use when assessing the recoverability of definite-lived intangible assets are consistent with those we use in our internal planning. When performing impairment tests of indefinite-lived intangible assets, we estimate the fair values of the assets using management's best assumptions, which we believe would be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus our accounting estimates may change from period to period. If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted. As mentioned above, these factors do not change in isolation and, therefore, we do not believe it is practicable or meaningful to present the impact of changing a single factor. Furthermore, if management uses different assumptions or if different conditions exist in future periods, future impairment charges could result. Refer to the heading "Operations Review" below for additional information related to our present business environment. Certain factors discussed above are impacted by our current business environment and are discussed throughout this report, as appropriate.
Intangible assets acquired in recent transactions are naturally more susceptible to impairment, primarily due to the fact that they are recorded at fair value based on recent operating plans and macroeconomic conditions present at the time of acquisition. Consequently, if operating results and/or macroeconomic conditions deteriorate shortly after an acquisition, it could result in the impairment of the acquired assets. A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models but may also negatively impact other assumptions used in our analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, as discussed above, in accordance with U.S. GAAP, we are required to ensure that assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical marketplace participant would use. As a result, the cost of capital and/or discount rates used in our analyses may increase or decrease based on market conditions and trends, regardless of whether our Company's actual cost of capital has changed. Therefore, if the cost of capital and/or discount rates change, our Company may
recognize an impairment of an intangible asset in spite of realizing actual cash flows that are approximately equal to, or greater than, our previously forecasted amounts.
The Company did not record any significant impairment charges related to intangible assets during the
three and nine months ended
September 30, 2016
. During the
nine months ended October 2, 2015
, the Company recorded an impairment charge of $418 million due to the discontinuation of the energy products in the glacéau portfolio as a result of the transaction with Monster Beverage Corporation ("Monster"), discussed further below, and an impairment charge of $55 million related to the impairment of a Venezuelan trademark. The Venezuelan trademark impairment was due to the Company's revised expectations regarding the convertibility of the local currency. These charges were recorded in our Corporate operating segment in the line item other operating charges in our condensed consolidated statement of income and were determined by comparing the fair value of the trademarks, derived using discounted cash flow analyses, to the respective carrying value.
We perform impairment tests of goodwill at our reporting unit level, which is one level below our operating segments. Our operating segments are primarily based on geographic responsibility, which is consistent with the way management runs our business. Our operating segments are subdivided into smaller geographic regions or territories that we sometimes refer to as "business units." These business units are also our reporting units. The Bottling Investments operating segment includes all Company-owned or consolidated bottling operations, regardless of geographic location. Generally, each Company-owned or consolidated bottling operation within our Bottling Investments operating segment is its own reporting unit. Goodwill is assigned to the reporting unit or units that benefit from the synergies arising from each business combination.
The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting unit to its carrying value, including goodwill. We typically use discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those we believe hypothetical marketplace participants would use. If the fair value of the reporting unit is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill.
As of
September 30, 2016
, we did not have any reporting unit with a material amount of goodwill for which it is reasonably likely that it will fail step one of a goodwill impairment test in the near term. However, if macroeconomic conditions worsen or our current financial projections are not achieved, it is possible that we may experience significant impairments of some of our intangible assets, which would require us to recognize impairment charges. On June 7, 2007, our Company acquired Energy Brands Inc., also known as glacéau, for approximately $4.1 billion. The Company allocated $3.3 billion of the purchase price to various trademarks acquired in this business combination. On June 12, 2015, the Company closed a transaction with Monster. Under the terms of the transaction, the Company was required to discontinue selling energy products under one of the trademarks included in the glacéau portfolio. During the year ended December 31, 2015, the Company recognized impairment charges of $418 million, primarily as a result of discontinuing these products. The total combined fair value of the various trademarks in the glacéau portfolio significantly exceeds the remaining combined carrying value of $2.9 billion as of
September 30, 2016
. However, the fair value of one of the individual trademarks in the portfolio currently approximates its carrying value. If the future operating results of this trademark do not support the current financial projections, or if macroeconomic conditions change causing the cost of capital and/or discount rate to increase without an offsetting increase in the operating results, it is likely that we would be required to recognize an additional impairment charge related to this trademark. Management will continue to monitor the fair value of our intangible assets in future periods.
OPERATIONS REVIEW
Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.
Effective January 1, 2016, we transferred Coca-Cola Refreshments' ("CCR") bottling and associated supply chain operations in the United States and Canada from our North America segment to our Bottling Investments segment. Additionally, effective August 1, 2016, the Company formed a new Europe, Middle East and Africa operating group consisting of the business units that were previously included in the Europe and the Eurasia and Africa operating groups. As a result, our organizational structure as of
September 30, 2016
consists of the following operating segments, the first five of which are sometimes referred to as "operating groups" or "groups": Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Bottling Investments; and Corporate. Accordingly, all prior period segment information presented herein has been revised to reflect these changes in our organizational structure. For further information regarding our operating segments, refer to
Note 15
of Notes to Condensed Consolidated Financial Statements.
Structural Changes, Acquired Brands and Newly Licensed Brands
In order to continually improve upon the Company's operating performance, from time to time, we engage in buying and selling ownership interests in bottling partners and other manufacturing operations. In addition, we also acquire brands or enter into license agreements for certain brands to supplement our beverage offerings. These items impact our operating results and certain key metrics used by management in assessing the Company's performance.
Unit case volume growth is a metric used by management to evaluate the Company's performance because it measures demand for our products at the consumer level. The Company's unit case volume represents the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers and, therefore, reflects unit case volume for consolidated and unconsolidated bottlers. Refer to the heading "Beverage Volume" below.
Concentrate sales volume represents the amount of concentrates and syrups (in all cases expressed in equivalent unit cases) sold by, or used in finished products sold by, the Company to its bottling partners or other customers. Refer to the heading "Beverage Volume" below.
Our Bottling Investments operating segment and our other finished product operations typically generate net operating revenues by selling sparkling beverages and a variety of still beverages, such as juices and juice drinks and sports drinks, ready-to-drink teas and coffees, and certain water products, to retailers or to distributors, wholesalers and bottling partners who distribute them to retailers. In addition, in the United States, we manufacture fountain syrups and sell them to fountain retailers such as restaurants and convenience stores who use the fountain syrups to produce beverages for immediate consumption, or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers. For these consolidated finished product operations, we recognize the associated concentrate sales volume at the time the unit case or unit case equivalent is sold to the customer. Our concentrate operations typically generate net operating revenues by selling concentrates and syrups to authorized bottling and canning operations. For these concentrate operations, we recognize concentrate revenue and concentrate sales volume when we sell concentrate to the authorized unconsolidated bottling and canning operations, and we typically report unit case volume when finished products manufactured from the concentrates and syrups are sold to the customer. When we analyze our net operating revenues we generally consider the following four factors: (1) volume growth (concentrate sales volume or unit case volume, as appropriate), (2) acquisitions and divestitures (including structural changes defined below), as applicable, (3) changes in price, product and geographic mix and (4) foreign currency fluctuations. Refer to the heading "Net Operating Revenues" below.
We generally refer to acquisitions and divestitures of bottling, distribution or canning operations and consolidation or the deconsolidation of bottling and distribution entities for accounting purposes as structural changes ("structural changes"). Typically, structural changes do not impact the Company's unit case volume on a consolidated basis or at the geographic operating segment level. We recognize unit case volume for all sales of Company beverage products regardless of our ownership interest in the bottling partner, if any. However, the unit case volume reported by our Bottling Investments operating segment is generally impacted by structural changes because it only includes the unit case volume of our consolidated bottling operations.
"Acquired brands" refers to brands acquired during the past 12 months. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume from the sale of these brands is incremental to prior year volume. We do not generally consider acquired brands to be structural changes.
"Licensed brands" refers to brands not owned by the Company, but for which we hold certain rights, generally including, but not limited to, distribution rights, and from which we derive an economic benefit when these brands are ultimately sold. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to these brands in periods prior to the beginning of the term of a license agreement. Therefore, in the year that the licenses are entered into, the unit case volume and concentrate sales volume from the sale of these brands is incremental to prior year volume. We do not generally consider newly licensed brands to be structural changes.
During 2016, the Company deconsolidated our South African bottling operations and disposed of its related equity method investment in exchange for equity method investments in Coca-Cola Beverages Africa Limited ("CCBA") and CCBA's South African subsidiary. As part of the transaction, the Company also acquired and licensed several brands. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements. The impacts of the deconsolidation, the disposal of the related equity method investment and the new equity method investments have been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for our Europe, Middle East and Africa and Bottling Investments operating segments and equity income on a consolidated basis as well as for our Bottling Investments operating segment. The brands and licenses that the Company acquired impacted the Company’s unit case volume and concentrate sales volume and therefore, in addition to being included as a structural change (a component of acquisitions and divestitures), they are also considered acquired brands. Refer to the headings "Beverage Volume" and "Net Operating Revenues" below.
Also in 2016, the Company deconsolidated our German bottling operations as a result of their being merged to create Coca-Cola European Partners plc ("CCEP"). Refer to Note 2 of Notes to Condensed Consolidated Financial Statements. As a result of the merger transaction, the Company now owns an equity method investment in CCEP. Accordingly, the impact of the deconsolidation and new equity method investment has been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for our Europe, Middle East and Africa and Bottling Investments operating segments and equity income on a consolidated basis as well as for our Bottling Investments operating segment. During 2016, the Company also changed our funding arrangement with our bottling partners in China, which resulted in a reduction in net operating revenues with an offsetting reduction in direct marketing expense. The impact of the change in the arrangement has been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for our Asia Pacific operating segment. Refer to the headings "Beverage Volume" and "Net Operating Revenues" below.
In 2016 and 2015, the Company continued to refranchise bottling territories in North America that were previously managed by CCR to certain of our unconsolidated bottling partners. The impact of these refranchising activities has been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for our North America and Bottling Investments operating segments. In addition, for non-Company-owned and licensed beverage products sold in the refranchised territories for which the Company no longer reports unit case volume, we have eliminated the unit case volume from the base year when calculating 2016 versus 2015 volume growth rates on a consolidated basis as well as for the North America and Bottling Investments operating segments. Refer to the headings "Beverage Volume" and "Net Operating Revenues" below.
In 2015, the Company closed a transaction with Monster ("Monster Transaction"), which has been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for each of the Company's operating segments. This transaction consisted of multiple elements including, but not limited to, the acquisition of Monster’s non-energy brands and the expansion of our distribution territories for Monster's energy brands. These elements of the transaction impacted the Company’s unit case volume and concentrate sales volume and therefore, in addition to being included as a structural change (a component of acquisitions and divestitures), they are also considered acquired brands.
Also during 2015, the Company acquired a South African bottler, which has been included as a structural change (a component of acquisitions and divestitures) in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments operating segment. Refer to the heading "Net Operating Revenues" below.
The Company sells concentrates and syrups to both consolidated and unconsolidated bottling partners. The ownership structure of our bottling partners impacts the timing of recognizing concentrate revenue and concentrate sales volume. When we sell concentrates or syrups to our consolidated bottling partners, we are not able to recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a third party or independent customer. When we sell concentrates or syrups to our unconsolidated bottling partners, we recognize the concentrate revenue and concentrate sales volume when the concentrates or syrups are sold to the bottling partner. The subsequent sale of the finished products manufactured from the concentrates or syrups to a customer does not impact the timing of recognizing the concentrate revenue or concentrate sales volume. When we account for an unconsolidated bottling partner as an equity method investment, we eliminate the intercompany profit related to these transactions until the equity method investee has sold finished products manufactured from the concentrates or syrups to a third party or independent customer.
The Company is currently pursuing certain transactions that, if completed, will be included as structural changes for the applicable periods. In 2016, we announced our intent to refranchise 100 percent of Company-owned North America bottling territories by the end of 2017. The Company also announced that we have entered into a non-binding letter of intent to refranchise Company-owned bottling operations in China to two of our existing bottling partners.
Beverage Volume
We measure the volume of Company beverage products sold in two ways: (1) unit cases of finished products and (2) concentrate sales. As used in this report, "unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings); and "unit case volume" means the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers. Unit case volume primarily consists of beverage products bearing Company trademarks. Also included in unit case volume are certain products licensed to, or distributed by, our Company, and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which we derive economic benefit. In addition, unit case volume includes sales by joint ventures in which the Company has an equity interest. We believe unit case volume is one of the measures of the underlying strength of the Coca-Cola system because it measures trends at the consumer level. The unit case volume numbers used in this report are derived based on estimates received by the Company from its bottling partners and distributors. Concentrate sales volume represents the amount of concentrates, syrups, beverage bases and powders (in all cases expressed in equivalent unit cases) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers. Unit case volume and concentrate sales volume growth rates are not necessarily equal during any given period. Factors such as seasonality, bottlers' inventory practices, the number of days in a reporting period, supply point changes, timing of price increases, new product introductions and changes in product mix can impact unit case volume and concentrate sales volume and can create differences between unit case volume and concentrate sales volume growth rates. In addition to the items mentioned above, the impact of unit case volume from certain joint ventures in which the Company has an equity interest, but to which the Company does not sell concentrates or syrups, may give rise to differences between unit case volume and concentrate sales volume growth rates.
Information about our volume growth worldwide and by operating segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change 2016 versus 2015
|
|
|
Three Months Ended September 30, 2016
|
|
Nine Months Ended September 30, 2016
|
|
|
Unit Cases
1,2,3
|
|
Concentrate
Sales
4
|
|
|
Unit Cases
1,2,3
|
|
Concentrate
Sales
4
|
|
|
Worldwide
|
1
|
%
|
1
|
%
|
|
1
|
%
|
—
|
%
|
5
|
Europe, Middle East & Africa
|
2
|
%
|
(1
|
)%
|
|
—
|
%
|
(2
|
)%
|
6
|
Latin America
|
(2
|
)
|
—
|
|
|
—
|
|
—
|
|
|
North America
|
1
|
|
1
|
|
|
1
|
|
1
|
|
7
|
Asia Pacific
|
2
|
|
9
|
|
|
2
|
|
4
|
|
|
Bottling Investments
|
(22
|
)
|
N/A
|
|
|
(13
|
)
|
N/A
|
|
|
1
Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. After considering the impact of structural changes, unit case volume declines for Bottling Investments were 2 percent and 1 percent for the three and nine months ended September 30, 2016, respectively.
2
Geographic segment data reflects unit case volume growth for all bottlers in the applicable geographic areas, both consolidated and unconsolidated.
3
Unit case volume percent change is based on average daily sales. Unit case volume growth based on average daily sales is computed by comparing the average daily sales in each of the corresponding periods. Average daily sales are the unit cases sold during the period divided by the number of days in the period.
4
Concentrate sales volume represents the actual amount of concentrates, syrups, beverage bases and powders sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers and is not based on average daily sales. Each of our interim reporting periods, other than the fourth interim reporting period, ends on the Friday closest to the last day of the corresponding quarterly calendar period. As a result, the first quarter of 2016 had one less day when compared to the first quarter of 2015, and the fourth quarter of 2016 will have two additional days when compared to the fourth quarter of 2015.
|
|
5
|
After considering the impact of structural changes, concentrate sales volume worldwide for the nine months ended September 30, 2016 grew 1 percent.
|
|
|
6
|
After considering the impact of structural changes, concentrate sales volume for Europe, Middle East and Africa for the nine months ended September 30, 2016 declined 1 percent.
|
|
|
7
|
After considering the impact of structural changes, concentrate sales volume for North America for the nine months ended September 30, 2016 was even.
|
Unit Case Volume
Although a significant portion of our Company's revenues is not based directly on unit case volume, we believe unit case volume is a measure of the underlying strength of the Coca-Cola system because it measures trends at the consumer level. The number of unit cases sold in 2016 and 2015 in our geographic and Bottling Investments operating segments does not include licensed beverage brands that are no longer sold as a result of certain structural changes, primarily related to North America refranchising. The Company eliminated the unit case volume related to these structural changes from the base year, where applicable, when calculating the volume growth rates. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above.
Three Months Ended
September 30, 2016
versus
Three Months Ended
October 2, 2015
Unit case volume in Europe, Middle East and Africa grew 2 percent, including 1 point of growth from acquired brands, and reflected 1 percent growth in the group's sparkling beverages and 4 percent growth in the group's still beverages. The growth in still beverages was led by increases in packaged water and sports drinks, partially offset by a decrease in juices and juice drinks. The growth in sparkling beverages reflected unit case volume growth of 3 percent in Trademark Sprite and 1 percent in Trademark Fanta. The group reported increases in unit case volume in the Western Europe, Middle East & North Africa and West Africa business units. The increases in these business units were partially offset by a 2 percent decline in unit case volume in the Central & Eastern Europe business unit.
In Latin America, unit case volume declined 2 percent, which consisted of a 2 percent decline in sparkling beverages and a 1 percent decline in still beverages. The group's volume decline reflected declines of 9 percent in the Latin Center business unit, 6 percent in the Brazil business unit and 4 percent in the South Latin business unit. These declines were partially offset by unit case volume growth of 4 percent in the Mexico business unit, which reflected 5 percent growth in sparkling beverages and 2 percent growth in still beverages. Mexico's sparkling beverage unit case growth was led by 3 percent growth in Trademark Coca-Cola.
Unit case volume in North America grew 1 percent, reflecting an increase in still beverages of 2 percent and even sparkling beverage volume. The still beverage volume growth reflected the group's strong performance in packaged water and sports drinks. In addition, still beverage volume performance included 9 percent growth in vitaminwater. The sparkling beverage unit case volume included a 6 percent decline in Diet Coke, offset by 3 percent growth in Trademark Sprite, 7 percent growth in Trademark Fanta and growth in energy drinks.
In Asia Pacific, unit case volume increased 2 percent. Sparkling beverage volume was even, reflecting 1 percent growth in Trademark Coca-Cola offset by a decline of 1 percent in Trademark Sprite. The group's still beverage volume increased 5 percent, primarily reflecting growth in packaged water, teas and coffee. Unit case volume in China and the Philippines grew 2 percent and 7 percent, respectively. Japan reported unit case volume growth of 4 percent, led by growth in packaged water, coffee and teas. The growth in these countries was partially offset by a unit case volume decline of 4 percent in India.
Unit case volume for Bottling Investments declined 22 percent. This decrease primarily reflects the deconsolidation of our German bottling operations in May 2016, the decline in India as well as a decline in CCR's unit case volume of 14 percent. The decline in CCR's unit case volume is primarily driven by North America refranchising activities. The unfavorable impact of these items on the group's unit case volume results was partially offset by growth in China and other markets where we own or otherwise consolidate bottling operations. The Company's consolidated bottling operations accounted for 32 percent and 67 percent of the unit case volume in China and India, respectively. CCR accounted for 61 percent of the total bottler-distributed unit case volume in North America.
Nine Months Ended September 30, 2016
versus
Nine Months Ended October 2, 2015
In Europe, Middle East and Africa, unit case volume was even, reflecting a 2 percent increase in still beverages and even volume in sparkling beverages. The group's sparkling beverage performance included a 1 percent decline in Trademark Coca-Cola, offset by an increase of 4 percent in Trademark Sprite, an increase of 1 percent in Trademark Fanta and an increase of 6 percent in Trademark Schweppes. The increase in still beverage volume reflected growth in packaged water, teas and sports drinks, partially offset by a decline in juices and juice drinks. The group reported increases in unit case volume in our Western Europe, Middle East & North Africa and West Africa business units. The increases in these business units were offset by a 2 percent decline in unit case volume in the Central & Eastern Europe business unit and a 3 percent decline in the Turkey, Caucasus & Central Asia business unit.
Unit case volume in Latin America was even, reflecting a decline of 1 percent in sparkling beverage volume and still beverage volume growth of 4 percent. The growth in the group's still beverages was led by our performance in packaged water, juices and juice drinks and teas. The group's volume reflected declines of 5 percent in the Brazil business unit, 4 percent in the Latin Center business unit and 3 percent in the South Latin business unit. These declines were offset by unit case volume growth of 5 percent in the Mexico business unit, which reflected 5 percent growth in both sparkling and still beverages. Mexico's sparkling beverage unit case growth was led by 4 percent growth in Trademark Coca-Cola.
In North America, unit case volume grew 1 percent, reflecting even sparkling beverage volume and still beverage volume growth of 3 percent. North America's volume in sparkling beverages included a 6 percent decline in Diet Coke offset by 2 percent growth in Trademark Sprite, 6 percent growth in Trademark Fanta and strong growth in energy drinks. The increase in still beverage volume reflected growth in packaged water, sports drinks, juices and juice drinks and dairy. In addition, still beverage volume performance included 8 percent growth in vitaminwater.
Unit case volume in Asia Pacific increased 2 percent. Sparkling beverage volume was even, which included 2 percent growth in Trademark Coca-Cola offset by a 4 percent decline in Trademark Sprite. The group's still beverage volume increased 6 percent, reflecting growth in packaged water, teas and coffee, partially offset by a decline in juices and juice drinks. Unit case volume in India grew 4 percent and Japan reported unit case volume growth of 4 percent, led by growth in packaged water, coffee and teas. Unit case volume in the Philippines and Indonesia grew 12 percent and 9 percent, respectively. The growth in these countries was partially offset by a unit case volume decline of 2 percent in China.
Unit case volume for Bottling Investments decreased 13 percent. This decrease primarily reflects the deconsolidation of our German bottling operations in May 2016, the decline in China as well as a decline in CCR's unit case volume of 13 percent. The decline in CCR's unit case volume is primarily driven by North America refranchising activities. The unfavorable impact of these items on the group's unit case volume results was partially offset by growth in India and other markets where we own or otherwise consolidate bottling operations. The Company's consolidated bottling operations accounted for 33 percent and 66 percent of the unit case volume in China and India, respectively. CCR accounted for 64 percent of the total bottler-distributed unit case volume in North America.
Concentrate Sales Volume
During the
three months ended
September 30, 2016
, worldwide unit case volume and concentrate sales volume both grew 1 percent compared to the
three months ended
October 2, 2015
. During the
nine months ended September 30, 2016
, worldwide unit case volume grew 1 percent and concentrate sales volume was even compared to the
nine months ended October 2, 2015
. The difference between the consolidated unit case volume and concentrate sales volume growth rates during the
nine months ended September 30, 2016
was primarily due to having one less day during the first quarter of 2016 when compared to the first quarter of 2015. Concentrate sales volume growth is calculated based on the actual amount of concentrate sold during the reporting period, which is impacted by the number of days. Conversely, unit case volume growth is calculated based on average daily sales, which is not impacted by the number of days in a reporting period. In addition, concentrate sales volume growth in the Europe, Middle East and Africa and North America operating segments during the
three and nine months ended
September 30, 2016
was impacted by structural changes. In addition, the concentrate sales volume growth in the Asia Pacific operating segment during the
three months ended
September 30, 2016
was higher than unit case volume growth due to the timing of concentrate shipments.
Net Operating Revenues
Three Months Ended September 30, 2016
versus
Three Months Ended October 2, 2015
The Company's net operating revenues decreased $794 million.
The following table illustrates, on a percentage basis, the estimated impact of key factors resulting in the increase (decrease) in net operating revenues for each of our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change 2016 versus 2015
|
|
Volume
1
|
|
Price, Product &
Geographic Mix
|
|
Currency
Fluctuations
|
|
Acquisitions & Divestitures
|
|
Total
|
|
Consolidated
|
1%
|
|
1
|
%
|
(2
|
)%
|
(8
|
)%
|
(7)%
|
|
Europe, Middle East & Africa
|
(1)%
|
|
3%
|
|
(2
|
)%
|
(3
|
)%
|
(4
|
)%
|
Latin America
|
—
|
|
11
|
|
(16
|
)
|
—
|
|
(4
|
)
|
North America
|
1
|
|
2
|
|
—
|
|
—
|
|
3
|
|
Asia Pacific
|
9
|
|
(8
|
)
|
4
|
|
(1
|
)
|
4
|
|
Bottling Investments
|
(2
|
)
|
3
|
|
(1
|
)
|
(19
|
)
|
(19
|
)
|
Corporate
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Note: Certain rows may not add due to rounding.
|
|
*
|
Calculation is not meaningful.
|
1
Represents the percent change in net operating revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments (expressed in equivalent unit cases) after considering the impact of structural changes. For our Bottling Investments operating segment, this represents the percent change in net operating revenues attributable to the increase (decrease) in unit case volume after considering the impact of structural changes. Our Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. Refer to the heading "Beverage Volume" above.
Refer to the heading "Beverage Volume" above for additional information related to changes in our unit case and concentrate sales volumes.
"Acquisitions and Divestitures" refers to acquisitions and divestitures of brands or businesses, some of which the Company considers to be structural changes. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above for additional information related to the structural changes. The acquisitions and divestitures percent change for 2016 versus 2015 in the table above consisted entirely of structural changes.
Price, product and geographic mix favorably impacted our consolidated net operating revenues by 1 percent. Price, product and geographic mix for our operating segments was impacted by a variety of factors and events including, but not limited to, the following:
|
|
•
|
Europe, Middle East and Africa — favorable geographic mix;
|
|
|
•
|
Latin America — favorable price mix in all four of the segment's business units and the impact of inflationary environments in several markets, partially offset by unfavorable geographic mix;
|
|
|
•
|
North America — favorably impacted as a result of pricing initiatives and product and package mix;
|
|
|
•
|
Asia Pacific — unfavorably impacted by product mix; and
|
|
|
•
|
Bottling Investments — favorably impacted as a result of pricing initiatives and geographic mix.
|
Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 2 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the South African rand, U.K. pound sterling, Argentine peso and Mexican peso, which had an unfavorable impact on our Europe, Middle East and Africa, Latin America and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the euro, Brazilian real, Japanese yen and Australian dollar, which had a favorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific and Bottling Investments operating segments. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.
Nine Months Ended September 30, 2016
versus
Nine Months Ended October 2, 2015
The Company's net operating revenues decreased $1,840 million.
The following table illustrates, on a percentage basis, the estimated impact of key factors resulting in the increase (decrease) in net operating revenues for each of our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change 2016 versus 2015
|
|
Volume
1
|
|
Price, Product &
Geographic Mix
|
|
Currency
Fluctuations
|
|
Acquisitions & Divestitures
|
|
Total
|
|
Consolidated
|
1%
|
|
2
|
%
|
(3
|
)%
|
(5
|
)%
|
(5)%
|
|
Europe, Middle East & Africa
|
(1
|
)%
|
3%
|
|
(3
|
)%
|
(3
|
)%
|
(4
|
)%
|
Latin America
|
—
|
|
12
|
|
(20
|
)
|
—
|
|
(7
|
)
|
North America
|
—
|
|
3
|
|
—
|
|
—
|
|
3
|
|
Asia Pacific
|
4
|
|
(4
|
)
|
1
|
|
(2
|
)
|
(1
|
)
|
Bottling Investments
|
(1
|
)
|
1
|
|
(2
|
)
|
(10
|
)
|
(12
|
)
|
Corporate
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Note: Certain rows may not add due to rounding.
|
|
*
|
Calculation is not meaningful.
|
1
Represents the percent change in net operating revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments (expressed in equivalent unit cases) after considering the impact of structural changes. For our Bottling Investments operating segment, this represents the percent change in net operating revenues attributable to the increase (decrease) in unit case volume after considering the impact of structural changes. Our Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. Refer to the heading "Beverage Volume" above.
Refer to the heading "Beverage Volume" above for additional information related to changes in our unit case and concentrate sales volumes.
"Acquisitions and Divestitures" refers to acquisitions and divestitures of brands or businesses, some of which the Company considers to be structural changes. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above for additional information related to the structural changes. The acquisitions and divestitures percent change for 2016 versus 2015 in the table above consisted entirely of structural changes.
Price, product and geographic mix favorably impacted our consolidated net operating revenues by 2 percent. Price, product and geographic mix for our operating segments was impacted by a variety of factors and events including, but not limited to, the following:
|
|
•
|
Europe, Middle East and Africa — favorable price mix in all of the segment's business units and favorable geographic mix;
|
|
|
•
|
Latin America — favorable price mix in all four of the segment's business units and the impact of inflationary environments in several markets, partially offset by unfavorable geographic mix;
|
|
|
•
|
North America — favorably impacted as a result of pricing initiatives and product and package mix; and
|
|
|
•
|
Asia Pacific — unfavorable product and channel mix.
|
Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 3 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the South African rand, euro, U.K. pound sterling, Brazilian real, Argentine peso, Mexican peso and Australian dollar, which had an unfavorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Japanese yen, which had a favorable impact on our Asia Pacific operating segment. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.
Net operating revenue growth rates are impacted by sales volume; acquisitions and divestitures; price, product and geographic mix; and foreign currency fluctuations. The size and timing of acquisitions and divestitures are not consistent from period to period. The Company currently expects acquisitions and divestitures to have an unfavorable impact on 2016 full year net operating revenues. Based on current spot rates and our hedging coverage in place, we expect currencies will continue to have an unfavorable impact on net operating revenues through the end of the year.
Gross Profit Margin
As a result of our finished goods operations, which are primarily included in our Bottling Investments operating segment, the following inputs represent a substantial portion of the Company's total cost of goods sold: (1) sweeteners, (2) metals, (3) juices and (4)
polyethylene terephthalate ("PET"). The Company enters into hedging activities related to certain commodities in order to mitigate a portion of the price risk associated with forecasted purchases. Many of the derivative financial instruments used by the Company to mitigate the risk associated with these commodity exposures, including any related foreign currency exposure, do not qualify for hedge accounting. As a result, the changes in fair value of these derivative instruments have been, and will continue to be, included as a component of net income in each reporting period. During the
three and nine months ended
September 30, 2016
, the Company recorded losses of
$9 million
and gains of
$72 million
, respectively, in the line item cost of goods sold in our condensed consolidated statements of income related to the changes in the fair value of these derivative instruments. Refer to
Note 5
of Notes to Condensed Consolidated Financial Statements.
Our gross profit margin increased to 61.1 percent for the
three months ended
September 30, 2016
, compared to 59.9 percent for the
three months ended
October 2, 2015
. Our gross profit margin increased to 61.0 percent for the
nine months ended September 30, 2016
, compared to 60.8 percent for the
nine months ended October 2, 2015
. These increases were primarily due to the impact of positive price mix, lower commodity costs and favorable geographic mix, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations and acquisitions and divestitures. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above for additional information related to the structural changes.
Selling, General and Administrative Expenses
The following table sets forth the significant components of selling, general and administrative expenses (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2016
|
|
October 2, 2015
|
|
|
September 30, 2016
|
|
October 2, 2015
|
|
Stock-based compensation expense
|
$
|
72
|
|
$
|
54
|
|
|
$
|
191
|
|
$
|
171
|
|
Advertising expenses
|
1,157
|
|
1,097
|
|
|
3,062
|
|
3,104
|
|
Selling and distribution expenses
1
|
1,253
|
|
1,506
|
|
|
4,004
|
|
4,590
|
|
Other operating expenses
|
1,527
|
|
1,550
|
|
|
4,425
|
|
4,625
|
|
Total
|
$
|
4,009
|
|
$
|
4,207
|
|
|
$
|
11,682
|
|
$
|
12,490
|
|
1
Includes operating expenses as well as general and administrative expenses primarily related to our Bottling Investments operating segment.
During the
three and nine months ended
September 30, 2016
, selling, general and administrative expenses decreased $198 million and $808 million, respectively, versus the prior year comparable periods. During the
three and nine months ended
September 30, 2016
, fluctuations in foreign currency exchange rates decreased total selling, general and administrative expenses by 1 percent and 2 percent, respectively. Advertising expenses during the
three and nine months ended
September 30, 2016
were unfavorably impacted by 3 percent and 4 percent, respectively, as a result of foreign currency exchange fluctuations. The decrease in advertising expenses during the
nine months ended
September 30, 2016
was also impacted by the timing of expenses as well as the impact of acquisitions and divestitures. The decreases in selling and distribution expenses during the
three and nine months ended
September 30, 2016
reflect the impact of acquisitions and divestitures. Foreign currency exchange rate fluctuations have a more significant impact on both advertising and other operating expenses as compared to our selling and distribution expenses since they are generally transacted in local currency. Our selling and distribution expenses are primarily related to our Company-owned bottling operations, of which the majority of expenses are attributable to CCR and are primarily denominated in U.S. dollars. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above for additional information related to the acquisitions and divestitures.
During the
nine months ended
September 30, 2016
, the Company contributed $
519 million
to our pension plans, and we anticipate making additional contributions of approximately $
180 million
to our pension plans during the remainder of 2016. Our full year pension expense is currently expected to decrease by approximately $175 million compared to 2015. Effective January 1, 2016, the Company changed the method used to calculate the service and interest components of pension expense and started measuring these costs by applying the specific spot rates along the yield curve to the plans’ projected cash flows. The anticipated decrease in 2016 pension expense is primarily due to settlement and special termination costs incurred in 2015 of $169 million, the new method to calculate service and interest costs, an increase in the weighted-average discount rate used to calculate the Company's benefit obligations and the impact of the 2016 contributions the Company made to U.S. pension plans. The impact of these items will be partially offset by unfavorable asset performance compared to our expected return in 2015 and a decrease in the expected return on assets for U.S. plans.
As of
September 30, 2016
, we had $317 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under our plans, which we expect to recognize over a weighted-average period of 1.6 years. This expected cost does not include the impact of any future stock-based compensation awards.
Other Operating Charges
Other operating charges incurred by operating segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2016
|
|
October 2, 2015
|
|
|
September 30, 2016
|
|
October 2, 2015
|
|
Europe, Middle East & Africa
|
$
|
2
|
|
$
|
(1
|
)
|
|
$
|
6
|
|
$
|
3
|
|
Latin America
|
75
|
|
4
|
|
|
74
|
|
40
|
|
North America
|
22
|
|
31
|
|
|
80
|
|
104
|
|
Asia Pacific
|
—
|
|
2
|
|
|
1
|
|
—
|
|
Bottling Investments
|
95
|
|
151
|
|
|
479
|
|
361
|
|
Corporate
|
28
|
|
77
|
|
|
190
|
|
658
|
|
Total
|
$
|
222
|
|
$
|
264
|
|
|
$
|
830
|
|
$
|
1,166
|
|
During the
three months ended
September 30, 2016
, the Company recorded other operating charges of
$222 million
. These charges primarily consisted of a charge of
$76 million
due to the write-down we recorded related to our receivables from our bottling partner in Venezuela due to changes in exchange rates, charges of
$73 million
related to costs incurred to refranchise certain of our North America bottling territories, and charges of
$59 million
due to the Company's productivity and reinvestment program. Refer to
Note 1
of Notes to Condensed Consolidated Financial Statements for additional information on the Venezuelan exchange rates,
Note 10
of Notes to Condensed Consolidated Financial Statements for additional information on the costs related to the North America refranchising and
Note 11
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's productivity, integration and restructuring initiatives. Refer to
Note 15
of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments.
During the
nine months ended
September 30, 2016
, the Company recorded other operating charges of $
830 million
. These charges primarily consisted of
$187 million
due to the Company's productivity and reinvestment program and $
240 million
due to the integration of our German bottling operations. In addition, the Company recorded charges of
$170 million
related to costs incurred to refranchise certain of our North America bottling territories. The Company also recorded a charge of
$100 million
related to a cash contribution we made to The Coca-Cola Foundation, a charge of
$76 million
due to the write-down we recorded related to our receivables from our bottling partner in Venezuela due to changes in exchange rates and charges of
$37 million
related to noncapitalizable transaction costs associated with pending and closed transactions. Refer to
Note 11
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's productivity, integration and restructuring initiatives,
Note 10
of Notes to Condensed Consolidated Financial Statements for additional information on the costs related to the North America refranchising and
Note 1
of Notes to Condensed Consolidated Financial Statements for additional information on the Venezuelan exchange rates. Refer to
Note 15
of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments.
During the
three months ended October 2, 2015
, the Company incurred other operating charges of
$264 million
, which included charges of
$141 million
due to the Company's productivity and reinvestment program and
$75 million
due to the integration of our German bottling operations. In addition, the Company recorded an impairment charge of
$38 million
on one of the trademarks included in the glacéau portfolio and a
$3 million
impairment on a Venezuelan trademark. Refer to Note 11 of Notes to Condensed Consolidated Financial Statements for additional information on our productivity, integration and restructuring initiatives. Refer to
Note 10
of Notes to Condensed Consolidated Financial Statements for additional information on the trademark impairments. Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information related to the impact these charges had on our operating segments.
During the
nine months ended
October 2, 2015
, the Company incurred other operating charges of $
1,166 million
. These charges consisted of
$323 million
due to the Company's productivity and reinvestment program and
$204 million
due to the integration of our German bottling operations. In addition, the Company recorded impairment charges of
$418 million
primarily due to the discontinuation of the energy products in the glacéau portfolio as a result of the Monster Transaction and incurred a charge of
$100 million
related to a cash contribution we made to The Coca-Cola Foundation. The Company also incurred a charge of
$111 million
due to the write-down we recorded related to our receivables from our bottling partner in Venezuela and an impairment of a Venezuelan trademark primarily due to changes in exchange rates as a result of the establishment of the new open market exchange system. Refer to
Note 11
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's productivity, integration and restructuring initiatives. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the Monster Transaction. Refer to
Note 1
of Notes to Condensed Consolidated Financial Statements for additional information on the Venezuelan currency change. Refer to
Note 15
of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments.
Productivity and Reinvestment Program
In February 2012, the Company announced a four-year productivity and reinvestment program designed to further enable our efforts to strengthen our brands and reinvest our resources to drive long-term profitable growth. This program is focused on the following initiatives: global supply chain optimization; global marketing and innovation effectiveness; operating expense leverage and operational excellence; data and information technology systems standardization; and the integration of Coca-Cola Enterprises Inc.'s ("Old CCE") former North America business.
In February 2014, the Company announced the expansion of our productivity and reinvestment program to drive incremental productivity by 2016 that will primarily be redirected into increased media investments. Our incremental productivity goal consists of two relatively equal components. First, we will expand savings through global supply chain optimization, data and information technology systems standardization, and resource and cost reallocation. Second, we will increase the effectiveness of our marketing investments by transforming our marketing and commercial model to redeploy resources into more consumer-facing marketing investments to accelerate growth.
In October 2014, the Company announced that we were further expanding our productivity and reinvestment program and extending it through 2019. The expansion of the productivity initiatives will focus on four key areas: restructuring the Company's global supply chain; implementing zero-based work, an evolution of zero-based budget principles, across the organization; streamlining and simplifying the Company's operating model; and further driving increased discipline and efficiency in direct marketing investments. The Company expects that the expanded productivity initiatives will generate an incremental $2 billion in annualized productivity. This productivity will enable the Company to fund marketing initiatives and innovation required to deliver sustainable net revenue growth and will also support margin expansion and increased returns on invested capital over time. We expect to achieve total annualized productivity of approximately $3.6 billion by 2019 from the initiatives implemented under this program since it began in 2012 and have incurred total pretax expenses of $
2,243 million
related to this program since it began. Refer to
Note 11
of Notes to Condensed Consolidated Financial Statements for additional information.
Integration of Our German Bottling Operations
In 2008, the Company began the integration of our German bottling operations acquired in 2007. The Company incurred total pretax expenses of $
1,367 million
as a result of this initiative, primarily related to involuntary terminations. During the
nine months ended
September 30, 2016
, the Company deconsolidated our German bottling operations. Refer to Note 2 and
Note 11
of Notes to Condensed Consolidated Financial Statements.
Operating Income and Operating Margin
Information about our operating income by operating segment on a percentage basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2016
|
|
October 2, 2015
|
|
|
September 30, 2016
|
|
October 2, 2015
|
|
Europe, Middle East & Africa
|
40.3
|
%
|
39.1
|
%
|
|
39.8
|
%
|
42.1
|
%
|
Latin America
|
19.2
|
|
22.6
|
|
|
20.2
|
|
22.8
|
|
North America
|
29.3
|
|
24.5
|
|
|
27.3
|
|
26.0
|
|
Asia Pacific
|
25.7
|
|
24.0
|
|
|
26.0
|
|
26.0
|
|
Bottling Investments
|
5.4
|
|
3.6
|
|
|
3.1
|
|
3.3
|
|
Corporate
|
(19.9
|
)
|
(13.8
|
)
|
|
(16.4
|
)
|
(20.2
|
)
|
Total
|
100.0
|
%
|
100.0
|
%
|
|
100.0
|
%
|
100.0
|
%
|
Information about our operating margin on a consolidated basis and by operating segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2016
|
|
October 2, 2015
|
|
|
September 30, 2016
|
|
October 2, 2015
|
|
Consolidated
|
21.4
|
%
|
20.8
|
%
|
|
22.4
|
%
|
21.0
|
%
|
Europe, Middle East & Africa
|
49.4
|
%
|
52.8
|
%
|
|
54.0
|
%
|
56.2
|
%
|
Latin America
|
45.9
|
|
54.2
|
|
|
52.8
|
|
54.8
|
|
North America
|
40.1
|
|
39.7
|
|
|
41.6
|
|
44.2
|
|
Asia Pacific
|
44.3
|
|
45.8
|
|
|
49.5
|
|
49.2
|
|
Bottling Investments
|
2.6
|
|
1.4
|
|
|
1.4
|
|
1.3
|
|
Corporate
|
*
|
|
*
|
|
|
*
|
|
*
|
|
|
|
*
|
Calculation is not meaningful.
|
Three Months Ended
September 30, 2016
versus
Three Months Ended
October 2, 2015
During the
three months ended
September 30, 2016
and
October 2, 2015
, the Company’s operating income was unfavorably impacted by the refranchising of bottling territories in North America, which unfavorably impacted our Bottling Investments operating segment. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on North America refranchising.
During the
three months ended September 30, 2016
, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 7 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the South African rand, U.K. pound sterling, Argentine peso and Mexican peso, which had an unfavorable impact on our Europe, Middle East and Africa, Latin America and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the euro, Brazilian real, Japanese yen and Australian dollar, which had a favorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific and Bottling Investments operating segments. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.
The Company's Europe, Middle East and Africa segment reported operating income of
$914 million
and
$930 million
for the
three months ended
September 30, 2016
and
October 2, 2015
, respectively. Fluctuations in foreign currency exchange rates unfavorably impacted the segment's operating income by 3 percent.
Latin America reported operating income of
$435 million
and
$538 million
for the
three months ended
September 30, 2016
and
October 2, 2015
, respectively. Foreign currency exchange rate fluctuations unfavorably impacted operating income by 24 percent. The impact of the exchange rate fluctuations was partially offset by favorable price mix.
Operating income for North America for the
three months ended
September 30, 2016
and
October 2, 2015
, was
$666 million
and
$585 million
, respectively. The increase in the segment's operating income was due to price increases and favorable package mix as well as the favorable impact of a decrease in other operating charges.
Asia Pacific's operating income for the
three months ended
September 30, 2016
and
October 2, 2015
, was
$583 million
and
$571 million
, respectively. Operating income for the segment reflects the favorable impact of foreign currency exchange rate fluctuations of 4 percent, partially offset by unfavorable product mix.
Operating income for our Bottling Investments segment for the
three months ended
September 30, 2016
and
October 2, 2015
, was
$124 million
and
$85 million
, respectively. The Bottling Investments segment was favorably impacted by price increases, geographic mix and a decrease in other operating charges, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations of 3 percent and the impact of acquisitions and divestitures.
The Corporate segment's operating loss for the
three months ended
September 30, 2016
and
October 2, 2015
, was
$451 million
and
$330 million
, respectively. Fluctuations in foreign currency exchange rates unfavorably impacted the segment's operating income by 6 percent, the impact of which was partially offset by a decrease in other operating charges.
Nine Months Ended September 30, 2016
versus
Nine Months Ended October 2, 2015
During the
nine months ended
September 30, 2016
and
October 2, 2015
, the Company’s operating income was unfavorably impacted by the refranchising of bottling territories in North America, which unfavorably impacted our Bottling Investments operating segment. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the North America refranchising. During the
nine months ended
September 30, 2016
, the Company's operating income was unfavorably impacted by the sale of the Company’s energy brands as part of the Monster Transaction which closed on June 12, 2015. The sale of the energy brands unfavorably impacted our Europe, Middle East and Africa, Latin America, North America, Asia Pacific and Bottling Investments operating segments. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the Monster Transaction.
During the
nine months ended September 30, 2016
, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 9 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the South African rand, euro, U.K. pound sterling, Brazilian real, Argentine peso, Mexican peso and Australian dollar, which had an unfavorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Japanese yen, which had a favorable impact on our Asia Pacific operating segment. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.
The Company's Europe, Middle East and Africa segment reported operating income of
$2,897 million
and
$3,036 million
for the
nine months ended
September 30, 2016
and
October 2, 2015
, respectively. The segment was unfavorably impacted by fluctuations in foreign currency exchange rates of 3 percent as well as the impact of the acquisitions and divestitures, partially offset by favorable price mix in all of the segment's business units and favorable geographic mix.
Latin America reported operating income of
$1,470 million
and
$1,641 million
for the
nine months ended
September 30, 2016
and
October 2, 2015
, respectively. Fluctuations in foreign currency exchange rates unfavorably impacted the segment's operating income by 28 percent and the segment was also unfavorably impacted by an increase in other operating charges. The impact of these items was partially offset by favorable price mix in all of the segment's business units.
Operating income for North America for the
nine months ended
September 30, 2016
and
October 2, 2015
, was
$1,982 million
and
$1,874 million
, respectively. The increase in the segment's operating income was due to price increases and favorable package mix and a decrease in other operating charges, partially offset by the impact of acquisitions and divestitures.
Asia Pacific's operating income for the
nine months ended
September 30, 2016
and
October 2, 2015
, was
$1,892 million
and
$1,876 million
, respectively. Operating income for the segment reflects an increase in concentrate sales partially offset by the unfavorable impact of foreign currency exchange rate fluctuations of 1 percent and the impact of acquisitions and divestitures.
Operating income for our Bottling Investments segment for the
nine months ended
September 30, 2016
and
October 2, 2015
, was
$222 million
and
$239 million
, respectively. The Bottling Investments segment was unfavorably impacted by an increase in other operating charges, the unfavorable impact of foreign currency exchange rate fluctuations of 1 percent and the impact of acquisitions and divestitures.
The Corporate segment's operating loss for the
nine months ended
September 30, 2016
and
October 2, 2015
, was
$1,192 million
and
$1,456 million
, respectively. Operating loss in 2016 was favorably impacted by a decrease in other operating charges partially offset by the unfavorable impact of foreign currency exchange rate fluctuations of 4 percent.
Based on current spot rates and our hedging coverage in place, we expect currencies will have an unfavorable impact on operating income through the end of the year.
Interest Income
During the
three months ended September 30, 2016
, interest income was
$164 million
, compared to
$155 million
during the
three months ended October 2, 2015
, an increase of $9 million. During the
nine months ended September 30, 2016
, interest income was
$472 million
, compared to
$459 million
during the
nine months ended October 2, 2015
, an increase of $13 million. These increases primarily reflect higher cash balances and higher average interest rates in certain of our international locations, partially offset by the unfavorable impact of fluctuations in foreign currency exchange rates due to a stronger U.S. dollar against most major currencies.
Interest Expense
During the
three months ended September 30, 2016
, interest expense was
$182 million
, compared to
$138 million
during the
three months ended October 2, 2015
, an increase of $44 million. This increase primarily reflects the impact of additional long-term debt the Company issued during 2016 and interest rate swaps on our fixed-rate debt.
During the
nine months ended September 30, 2016
, interest expense was
$485 million
, compared to
$713 million
during the
nine months ended October 2, 2015
, a decrease of $228 million. Interest expense during the
nine months ended September 30, 2016
included the impact of recently issued long-term debt and interest rate swaps on our fixed-rate debt. The interest expense during the
nine months ended October 2, 2015
included charges of $320 million the Company recorded on the early extinguishment of certain long-term debt. These charges included the difference between the reacquisition price and the net carrying amount of the debt extinguished, including the impact of the related fair value hedging relationship. Refer to Note 5 of Notes to Condensed Consolidated Financial Statements for additional information related to the Company's hedging program. Refer to the heading "Liquidity, Capital Resources and Financial Position — Cash Flows from Financing Activities" below for additional information related to the Company's long-term debt.
Equity Income (Loss) — Net
Three Months Ended September 30, 2016
versus
Three Months Ended October 2, 2015
During the
three months ended September 30, 2016
, equity income was
$281 million
, compared to equity income of
$200 million
during the
three months ended October 2, 2015
, an increase of $81 million. This increase reflects, among other items, more favorable operating results reported by several of our equity method investees as well as our newly acquired investments in CCEP, CCBA and CCBA's South African subsidiary. The favorable impact of these items was partially offset by the unfavorable impact of fluctuations in foreign currency exchange rates due to a stronger U.S. dollar against most major currencies and the derecognition of the Company's former equity method investment in South Africa. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the deconsolidation of both our German and South African bottling operations.
The Company recorded a net charge of
$14 million
and a net gain of
$3 million
in the line item equity income (loss) — net during the
three months ended September 30, 2016
and
October 2, 2015
, respectively. These amounts represent the Company's proportionate share of significant operating and nonoperating items recorded by our equity method investees.
Nine Months Ended September 30, 2016
versus
Nine Months Ended October 2, 2015
During the
nine months ended September 30, 2016
, equity income was
$678 million
, compared to equity income of
$402 million
during the
nine months ended October 2, 2015
, an increase of $276 million. This increase reflects, among other items, more favorable operating results reported by several of our equity method investees, the impact of the June 2015 investment in Monster, as well as our newly acquired investments in CCEP, CCBA and CCBA's South African subsidiary. The favorable impact of these items was partially offset by the unfavorable impact of fluctuations in foreign currency exchange rates due to a stronger U.S. dollar against most major currencies and the derecognition of the Company's former equity method investment in South Africa. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the Monster Transaction and the deconsolidation of our South African and German bottling operations.
The Company recorded net charges of
$35 million
and
$79 million
in the line item equity income (loss) — net during the
nine months ended September 30, 2016
and
October 2, 2015
, respectively. These amounts represent the Company's proportionate share of significant operating and nonoperating items recorded by our equity method investees, including charges incurred during the
nine months ended
October 2, 2015
by an equity method investee due to changes in the Venezuelan bolivar exchange rates. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below for additional information on Venezuela's currency devaluation.
Other Income (Loss) — Net
Three Months Ended September 30, 2016
versus
Three Months Ended October 2, 2015
Other income (loss) — net includes, among other things, the impact of foreign currency exchange gains and losses; dividend income; rental income; gains and losses related to the disposal of property, plant and equipment; gains and losses related to business combinations and disposals; realized and unrealized gains and losses on trading securities; realized gains and losses on available-for-sale securities; other-than-temporary impairments of available-for-sale securities; and the accretion of expense related to certain acquisitions. The foreign currency exchange gains and losses are primarily the result of the remeasurement of monetary assets and liabilities from certain currencies into functional currencies. The effects of the remeasurement of these assets and liabilities are partially offset by the impact of our economic hedging program for certain exposures on our consolidated balance sheets. Refer to Note 5 of Notes to Condensed Consolidated Financial Statements.
During the
three months ended
September 30, 2016
, other income (loss) — net was a loss of
$1,106 million
. This loss included losses of
$1,089 million
due to the refranchising of certain bottling territories in North America and a loss of
$21 million
due to the deconsolidation of our South African bottling operations and disposal of the related equity method investment in exchange for investments in CCBA and CCBA's South African subsidiary. Additionally, the Company incurred net foreign currency exchange losses of $25 million and charges of
$17 million
related to payments made to certain of our unconsolidated bottling partners in order to convert their bottling agreements to a CBA with additional requirements ("Final Form CBA"). Other income (loss) — net also included net gains of $24 million related to trading securities and available-for-sale securities. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the North America refranchising, the deconsolidation of our South African bottling operations and the conversion payments. Refer to
Note 15
of Notes to Condensed Consolidated Financial Statements for the impact these items had on our operating segments.
During the
three months ended October 2, 2015
, other income (loss) — net was a loss of
$871 million
. This loss included a $794 million charge the Company recorded primarily due to the refranchising of certain bottling territories in North America, net foreign currency exchange losses of $65 million, and net losses of $16 million related to trading securities and available-for-sale securities. None of the other items included in other income (loss) — net during the
three months ended October 2, 2015
, was individually significant. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the North America refranchising.
Nine Months Ended September 30, 2016
versus
Nine Months Ended October 2, 2015
During the
nine months ended
September 30, 2016
, other income (loss) — net was a loss of
$315 million
. This loss included losses of
$1,657 million
due to the refranchising of certain bottling territories in North America and a loss of
$21 million
due to the deconsolidation of our South African bottling operations and and disposal of the related equity method investment in exchange for investments in CCBA and CCBA's South African subsidiary. Additionally, the Company incurred net foreign currency exchange losses of $106 million and charges of
$17 million
related to payments made to convert the bottling agreements for certain North America bottling partners' territories to Final Form CBAs. These losses were partially offset by a gain of
$1,323 million
due to the deconsolidation of our German bottling operations, dividend income of $45 million, net gains of $69 million related to trading securities and available-for-sale securities and a gain of
$18 million
resulting from the Company's disposal of its investment in Keurig Green Mountain, Inc. ("Keurig"). Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the North America refranchising, the deconsolidation of our South African bottling operations, the conversion payments, the deconsolidation of our German bottling operations and the Keurig investment disposal. Refer to
Note 15
of Notes to Condensed Consolidated Financial Statements for the impact these items had on our operating segments.
During the
nine months ended
October 2, 2015
, other income (loss) — net was income of
$709 million
. This income included a net gain of $1,402 million as a result of the Monster Transaction, primarily due to the difference in the recorded carrying value of the assets transferred, including an allocated portion of goodwill, compared to the value of the total assets and business acquired. Other income (loss) — net also included net foreign currency exchange gains of $134 million and dividend income of $70 million. This income was partially offset by charges of $827 million due to refranchising activities in North America and net losses of $46 million related to trading securities and available-for-sale securities. The net foreign currency exchange gains included a gain of $277 million associated with our euro-denominated debt partially offset by a charge of $27 million due to the initial remeasurement of the net monetary assets of our Venezuelan subsidiary using the SIMADI exchange rate. None of the other items included in other income (loss) — net during the
nine months ended October 2, 2015
, was individually significant. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the Monster Transaction and North America refranchising. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below and Note 10 of Notes to Condensed Consolidated Financial Statements for additional information on the charge due to the change in Venezuelan exchange rates.
We are in discussions with, and in some cases have signed non-binding letters of intent with, various parties regarding the refranchising of additional territories in North America. The Company has not finalized or approved definitive agreements related to these additional territories. Due to our accounting policy election related to contingent consideration, if the Company approves any future transactions with a similar structure to the North America refranchising transactions discussed in Note 2 of Notes to Condensed Consolidated Financial Statements, we will be required to record additional losses as a result of the derecognition of the related intangible assets. We expect the value of these intangible assets will be recovered through future quarterly payments to be received from the bottlers.
Income Taxes
Our effective tax rate reflects the benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of
35 percent
. As a result of employment actions and capital investments made by the Company, certain tax jurisdictions provide income tax incentive grants, including Brazil, Costa Rica, Singapore and Swaziland. The terms of these grants expire from
2016
to
2027
. We anticipate that we will be able to extend or renew the grants in these locations. In addition, our effective tax rate reflects the benefits of having significant earnings generated in investments accounted for under the equity method of accounting, which are generally taxed at rates lower than the U.S. statutory rate.
At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, our best estimate of operating results and foreign currency exchange rates. Based on current tax laws, the Company's estimated effective tax rate for
2016
is
22.5 percent
. However, in arriving at this estimate we do not include the estimated impact of significant operating and nonoperating items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
The Company recorded income tax expense of
$378 million
(
26.5 percent
effective tax rate) and
$272 million
(
15.8 percent
effective tax rate) during the
three months ended
September 30, 2016
and
October 2, 2015
, respectively. The Company recorded income tax expense of
$1,618 million
(
21.2 percent
effective tax rate) and
$1,937 million
(
24.0 percent
effective tax rate) during the
nine months ended
September 30, 2016
and
October 2, 2015
, respectively.
The following table illustrates the income tax expense (benefit) associated with significant operating and nonoperating items for the interim periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2016
|
|
|
October 2, 2015
|
|
|
September 30, 2016
|
|
|
October 2, 2015
|
|
|
Productivity and reinvestment program
|
$
|
(20
|
)
|
1
|
$
|
(49
|
)
|
8
|
$
|
(65
|
)
|
1
|
$
|
(124
|
)
|
8
|
Other productivity, integration and restructuring initiatives
|
—
|
|
|
—
|
|
9
|
—
|
|
2
|
—
|
|
9
|
Transaction gains and losses
|
(246
|
)
|
3
|
(291
|
)
|
10
|
(363
|
)
|
4
|
173
|
|
11
|
Certain tax matters
|
7
|
|
5
|
(6
|
)
|
12
|
84
|
|
5
|
(6
|
)
|
13
|
Other — net
|
8
|
|
6
|
—
|
|
|
(38
|
)
|
7
|
(168
|
)
|
14
|
|
|
1
|
Related to charges of
$59 million
and
$187 million
during the
three and nine months ended
September 30, 2016
, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to
Note 10
and
Note 11
of Notes to Condensed Consolidated Financial Statements.
|
|
|
2
|
Related to charges of
$240 million
during the
nine months ended
September 30, 2016
. These charges were due to the integration of our German bottling operations. Refer to
Note 10
and
Note 11
of Notes to Condensed Consolidated Financial Statements.
|
|
|
3
|
Related to a net charge of
$1,204 million
that primarily consisted of charges related to
$1,089 million
of losses due to the refranchising of bottling territories in North America,
$73 million
related to costs incurred to refranchise our North America bottling territories, charges of
$17 million
related to payments made to convert the bottling agreements for certain North America bottling partners' territories to Final Form CBAs, a loss of
$21 million
related to the deconsolidation of our South African bottling operations and the
$80 million
tax impact resulting from the accrual of tax on temporary differences related to the investment in foreign subsidiaries that are now expected to reverse in the foreseeable future. Refer to Note 2 and
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
4
|
Related to a net charge of
$561 million
that primarily consisted of charges related to
$1,657 million
of losses due to the refranchising of bottling territories in North America,
$170 million
related to costs incurred to refranchise our North America bottling territories, charges of
$17 million
related to payments made to convert the bottling agreements for certain North America bottling partners' territories to Final Form CBAs, a loss of
$21 million
related to the deconsolidation of our South African bottling operations and the
$80 million
tax impact resulting from the accrual of tax on temporary differences related to the investment in foreign subsidiaries that are now expected to reverse in the foreseeable future. These charges are partially offset by a
$1,288 million
net gain related to the deconsolidation of our German bottling operations and an
$18 million
net gain related to the disposal of our investment in Keurig. Refer to Note 2 and
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
5
|
Primarily related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
|
|
|
6
|
Related to charges of
$99 million
that included a
$76 million
charge due to the write-down we recorded related to receivables from our bottling partner in Venezuela, a
$14 million
charge due to our proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees and a
$9 million
charge due to tax litigation expense. Refer to
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
7
|
Related to charges of
$230 million
that included a
$100 million
cash contribution to The Coca-Cola Foundation, a
$76 million
charge due to the write-down we recorded related to receivables from our bottling partner in Venezuela, a
$35 million
charge due to our proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees and a
$19 million
charge due to tax litigation expense. Refer to
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
8
|
Related to charges of
$141 million
and
$323 million
during the
three and nine months ended
October 2, 2015
, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11 of Notes to Condensed Consolidated Financial Statements.
|
|
|
9
|
Related to charges of
$75 million
and
$204 million
during the
three and nine months ended
October 2, 2015
, respectively. These charges were due to the integration of our German bottling operations. Refer to Note 10 and Note 11 of Notes to Condensed Consolidated Financial Statements.
|
|
|
10
|
Related to a net charge of
$859 million
that included
$815 million
of charges primarily due to the refranchising of bottling territories in North America and a
$38 million
charge due to the impairment of certain trademark assets. Refer to Note 2 and Note 10 of Notes to Condensed Consolidated Financial Statements.
|
|
|
11
|
Related to a net gain of
$102 million
that primarily consisted of a
$1,402 million
net gain related to the Monster Transaction, partially offset by a
$418 million
charge due to the impairment of certain trademark assets,
$848 million
of charges due to the refranchising of bottling territories in North America, a
$6 million
additional charge related to the sale of a portion of our equity investment in a Brazilian bottling entity, and a
$19 million
charge related to the remeasurement of our equity interest in a South African bottler to fair value. Refer to Note 2 and Note 10 of Notes to Condensed Consolidated Financial Statements.
|
|
|
12
|
Primarily related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
|
|
|
13
|
Primarily related to prior year audit settlements and amounts to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in the uncertain tax positions were individually insignificant.
|
|
|
14
|
Related to charges of
$639 million
that primarily consisted of a
$100 million
cash contribution to The Coca-Cola Foundation,
$320 million
associated with the early extinguishment of long-term debt,
$27 million
due to the remeasurement of the net monetary assets of our Venezuelan subsidiary into U.S. dollars using the SIMADI exchange rate,
$111 million
due to the write-down we recorded related to receivables from our bottling partner in Venezuela and an impairment of a Venezuelan trademark, and
$79 million
due to our proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 1 and Note 10 of Notes to Condensed Consolidated Financial Statements.
|
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
We believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. Refer to the heading "Cash Flows from Operating Activities" below. The near-term outlook for our business remains strong, and we expect to generate substantial cash flows from operations in 2016. As a result of our expected cash flows from operations, we have significant flexibility to meet our financial commitments. The Company does not typically raise capital through the issuance of stock. Instead, we use debt financing to lower our overall cost of capital and increase our return on shareowners' equity. Refer to the heading "Cash Flows from Financing Activities" below. We have a history of borrowing funds domestically and continue to have the ability to borrow funds domestically at reasonable interest rates. In addition, our domestic entities have recently borrowed and continue to have the ability to borrow funds in international markets at reasonable interest rates. Our debt financing includes the use of an extensive commercial paper program as part of our overall cash management strategy. The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of commercial paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future. In addition to the Company's cash balances, commercial paper program, and our ability to issue long-term debt, we also had $8,340 million in lines of credit available for general corporate purposes as of
September 30, 2016
. These backup lines of credit expire at various times between 2016 and 2019.
We have significant operations outside the United States. Unit case volume outside the United States represented 81 percent of the Company's worldwide unit case volume for the
nine months ended
September 30, 2016
. We earn a substantial amount of our consolidated operating income and income before income taxes in foreign subsidiaries that either sell concentrate to our local bottling partners or, in certain instances, sell finished products directly to our customers to fulfill the demand for Company beverage products outside the United States. A significant portion of these foreign earnings is considered to be indefinitely reinvested in foreign jurisdictions where the Company has made, and will continue to make, substantial investments to support the ongoing development and growth of our international operations. Accordingly, no U.S. federal and state income taxes have been provided on the portion of our foreign earnings that is considered to be indefinitely reinvested in foreign jurisdictions. The Company's cash, cash equivalents, short-term investments and marketable securities held by our foreign subsidiaries totaled $22.4 billion as of
September 30, 2016
. With the exception of an insignificant amount, for which U.S. federal and state income taxes have already been provided, we do not intend, nor do we foresee a need, to repatriate these funds.
Net operating revenues in the United States were $15.1 billion for the
nine months ended
September 30, 2016
, or 47 percent of the Company's consolidated net operating revenues. We expect existing domestic cash, cash equivalents, short-term investments, marketable securities, cash flows from operations and the issuance of debt to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities. In addition, we expect existing foreign cash, cash equivalents, short-term investments, marketable securities and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities.
In the future, should we require more capital to fund significant discretionary activities in the United States than is generated by our domestic operations and is available through the issuance of domestic debt, we could elect to repatriate future periods' earnings from foreign jurisdictions. This alternative could result in a higher effective tax rate in the future. While the likelihood is remote, the Company could also elect to repatriate earnings from foreign jurisdictions that have previously been considered to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes (net of an adjustment for foreign tax credits) and withholding taxes payable to various foreign jurisdictions, where applicable. This alternative could also result in a higher effective tax rate in the period in which such a determination is made to repatriate prior periods' foreign earnings.
Based on all of the aforementioned factors, the Company believes its current liquidity position is strong, and we will continue to meet all of our financial commitments for the foreseeable future.
Cash Flows from Operating Activities
Net cash provided by operating activities for the
nine months ended
September 30, 2016
and
October 2, 2015
, was $
6,723 million
and $
8,390 million
, respectively, a decrease of $1,667 million. This decrease included the unfavorable impact of currency exchange rates, the impact of $471 million in incremental contributions made to the Company's pension plans and one less day during the first quarter of 2016 when compared to 2015. The impact of these items was partially offset by lower income tax payments during the
nine months ended
September 30, 2016
.
Cash Flows from Investing Activities
Net cash used in investing activities for the
nine months ended
September 30, 2016
was $
1,333 million
compared to net cash used in investing activities of $
5,413 million
during the prior year comparable period, a decrease of $4,080 million.
Purchases of Investments and Proceeds from Disposals of Investments
During the
nine months ended
September 30, 2016
, purchases of investments were $
12,733 million
and proceeds from disposals of investments were $
13,210 million
, resulting in a net cash inflow of $477 million. During the
nine months ended
October 2, 2015
, purchases of investments were $
12,006 million
and proceeds from disposals of investments were $
10,403 million
, resulting in a net cash outflow of $1,603 million. The proceeds during the
nine months ended
September 30, 2016
included the disposal of the Company's investment in Keurig. The purchases during the
nine months ended
October 2, 2015
, included the Company's acquisition of additional shares in Keurig. The remaining activity primarily represents the purchases of and proceeds from short-term investments that were made as part of the Company's overall cash management strategy. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on our investment in Keurig.
Acquisitions of Businesses, Equity Method Investments and Nonmarketable Securities
During the
nine months ended
September 30, 2016
, the Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $
767 million
, which primarily related to our acquisition of Xiamen Culiangwang Beverage Technology Co., Ltd., a maker of plant-based protein beverages in China, and a minority investment in CHI Limited, a Nigerian producer of value-added dairy and juice beverages. During the
nine months ended
October 2, 2015
, the Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $
2,489 million
, which primarily included our equity investments in Monster and certain Indonesian bottling operations as well as our acquisition of bottling operations in South Africa. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the transactions during the
nine months ended
September 30, 2016
and
October 2, 2015
.
Under the terms of the agreement related to our investment in CHI Limited, the Company is obligated to acquire the remaining ownership interest from the existing shareowners in 2019 based on an agreed-upon formula. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.
Proceeds from Disposals of Businesses, Equity Method Investments and Nonmarketable Securities
During the
nine months ended
September 30, 2016
, proceeds from disposals of businesses, equity method investments and nonmarketable securities were
$745 million
, primarily related to proceeds from the refranchising of certain of our bottling territories in North America. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information. During the
nine months ended
October 2, 2015
, proceeds from disposals of businesses, equity method investments and nonmarketable securities were
$416 million
, which included proceeds related to the refranchising of certain of our bottling territories in North America and cash received as a result of a Brazilian bottling entity's majority interest owners exercising their option to acquire from us an additional equity interest.
Purchases of Property, Plant and Equipment
—
Net
Purchases of property, plant and equipment (net of disposals) for the
nine months ended
September 30, 2016
, were $1,469 million. The Company currently expects our 2016 full year capital expenditures (net of disposals) to be slightly less than $2.5 billion, primarily in our Bottling Investments operating segment.
During the
nine months ended
October 2, 2015
, cash outflows for investing activities included purchases of property, plant and equipment (net of disposals) of $1,620 million.
Other Investing Activities
During the nine months ended
October 2, 2015
, cash used in other investing activities included a $530 million payment related to the Monster Transaction, partially offset by the cash flow impact of the Company's derivative contracts designated as net investment hedges. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the Monster Transaction and Note 5 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's derivative contracts designated as net investment hedges.
Cash Flows from Financing Activities
Our financing activities include net borrowings, issuances of stock, share repurchases and dividends. Net cash used in financing activities during the
nine months ended
September 30, 2016
totaled
$1,783 million
compared to net cash used in financing activities of
$1,178 million
during the prior year comparable period, an increase of $605 million.
Debt Financing
Issuances and payments of debt included both short-term and long-term financing activities. During the
nine months ended
September 30, 2016
, the Company had issuances of debt of $
22,667 million
, which included $393 million of payments related to commercial paper and short-term debt with maturities of 90 days or less and $17,291 million of issuances of commercial paper and short-term debt with maturities greater than 90 days. The Company's total issuances of debt also included long-term debt issuances of $4,983 million, net of related discounts and issuance costs. Refer below for additional details on our long-term debt issuances.
The Company made payments of debt of $
20,406 million
during the
nine months ended
September 30, 2016
, which included $18,720 million of payments related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $1,686 million.
During the
nine months ended September 30, 2016
, the Company issued Australian dollar-, euro- and U.S. dollar-denominated debt of AUD
1,000 million
,
€500 million
and
$3,725 million
, respectively. The carrying value of this debt as of
September 30, 2016
was
$5,009 million
. The general terms of the notes issued are as follows:
|
|
•
|
AUD
450 million
total principal amount of notes due June 9, 2020, at a fixed interest rate of
2.6 percent
;
|
|
|
•
|
AUD
550 million
total principal amount of notes due June 11, 2024, at a fixed interest rate of
3.25 percent
;
|
|
|
•
|
$225 million
total principal amount of notes due November 16, 2017, at a variable interest rate equal to the three-month London Interbank Offered Rate ("LIBOR") plus
0.05 percent
;
|
|
|
•
|
$1,000 million
total principal amount of notes due May 30, 2019, at a fixed interest rate of
1.375 percent
;
|
|
|
•
|
$1,000 million
total principal amount of notes due September 1, 2021, at a fixed interest rate of
1.55 percent
;
|
|
|
•
|
$500 million
total principal amount of notes due June 1, 2026, at a fixed interest rate of
2.55 percent
;
|
|
|
•
|
$1,000 million
total principal amount of notes due September 1, 2026, at a fixed interest rate of
2.25 percent
; and
|
|
|
•
|
€500 million
total principal amount of notes due September 2, 2036, at a fixed interest rate of
1.1 percent
.
|
During the
nine months ended September 30, 2016
, the Company retired upon maturity
$1,654 million
total principal amount of notes due September 1, 2016, at a fixed interest rate of
1.8 percent
.
During the
nine months ended October 2, 2015
, the Company issued SFr1,325 million and €8,500 million of long-term debt. The general terms of the notes issued are as follows:
|
|
•
|
SFr200 million total principal amount of notes due October 2, 2017, at a fixed interest rate of 0.00 percent;
|
|
|
•
|
SFr550 million total principal amount of notes due December 22, 2022, at a fixed interest rate of 0.25 percent;
|
|
|
•
|
SFr575 million total principal amount of notes due October 2, 2028, at a fixed interest rate of 1.00 percent;
|
|
|
•
|
€2,000 million total principal amount of notes due March 9, 2017, at a variable interest rate equal to the three-month Euro Interbank Offered Rate ("EURIBOR") plus 0.15 percent;
|
|
|
•
|
€2,000 million total principal amount of notes due September 9, 2019, at a variable interest rate equal to the three-month EURIBOR plus 0.23 percent;
|
|
|
•
|
€1,500 million total principal amount of notes due March 9, 2023, at a fixed interest rate of 0.75 percent;
|
|
|
•
|
€1,500 million total principal amount of notes due March 9, 2027, at a fixed interest rate of 1.125 percent; and
|
|
|
•
|
€1,500 million total principal amount of notes due March 9, 2035, at a fixed interest rate of 1.625 percent.
|
During the
nine months ended October 2, 2015
, the Company retired $2,500 million of long-term debt upon maturity. The Company also extinguished $2,039 million of long-term debt prior to maturity, incurring associated charges of $320 million recorded in the line item interest expense in our condensed consolidated statement of income. These charges included the difference between the reacquisition price and the net carrying amount of the debt extinguished, including the impact of the related fair value hedging relationship.
The general terms of the notes that were extinguished are as follows:
|
|
•
|
$1,148 million total principal amount of notes due November 15, 2017, at a fixed interest rate of 5.35 percent; and
|
|
|
•
|
$891 million total principal amount of notes due March 15, 2019, at a fixed interest rate of 4.875 percent.
|
As of
September 30, 2016
, the carrying value of the Company's long-term debt included $371 million of fair value adjustments related to the debt assumed in connection with our acquisition of Old CCE's former North America business. These fair value adjustments will be amortized over a weighted-average period of approximately 21 years, which is equal to the weighted-average maturity of the assumed debt to which these fair value adjustments relate. The amortization of these fair value adjustments will be a reduction of interest expense in future periods, which will typically result in our interest expense being less than the actual interest paid to service the debt.
Issuances of Stock
During the
nine months ended
September 30, 2016
, the Company received cash proceeds from issuances of stock of $
1,295 million
, an increase of $563 million when compared to cash proceeds of $
732 million
from stock issuances during the
nine months ended
October 2, 2015
. This increase is primarily due to an increase in the exercise of stock options by Company employees.
Share Repurchases
During the
nine months ended
September 30, 2016
, the Company repurchased 55.4 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $44.71 per share, for a total cost of $2,475 million. However, due to the timing of settlements, the total cash outflow for treasury stock purchases was $
2,509 million
during the
nine months ended
September 30, 2016
. The total cash outflow for treasury stock during the first nine months of 2016 includes treasury stock that was purchased and settled during the
nine months ended
September 30, 2016
, as well as stock purchased in December 2015 that settled in early 2016; however, it does not include treasury stock that was purchased but did not settle during the
nine months ended
September 30, 2016
. In addition, the cash flow impact of the Company's treasury stock activity also includes shares surrendered to the Company to satisfy minimum tax withholding obligations in connection with so-called stock swap exercises of employee stock options and/or the vesting of restricted stock issued to employees. The impact of the Company's issuances of stock and share repurchases during the
nine months ended
September 30, 2016
, resulted in a net cash outflow of $1,214 million. During 2016, the Company expects to purchase between $2.0 billion and $2.5 billion of treasury shares, net of proceeds from the issuance of stock due to the exercise of employee stock options.
During the
nine months ended
October 2, 2015
, the Company repurchased 49.3 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $40.49 per share, for a total cost of $1,997 million. However, due to the timing of settlements, the total cash outflow for treasury stock purchases during the
nine months ended
October 2, 2015
, was $
1,966 million
. The total cash outflow for treasury stock during the first nine months of 2015 includes treasury stock that was purchased and settled during the
nine months ended
October 2, 2015
, as well as stock purchased in December 2014 that settled in early 2015; however, it does not include treasury stock that was purchased but did not settle during the
nine months ended
October 2, 2015
. In addition, the cash flow impact of the Company's treasury stock activity also includes shares surrendered to the Company to satisfy minimum tax withholding obligations in connection with so-called stock swap exercises of employee stock options and/or the vesting of restricted stock issued to employees. The impact of the Company's issuances of stock and share repurchases during the
nine months ended
October 2, 2015
, resulted in a net cash outflow of $1,234 million.
Dividends
The Company paid dividends of
$3,028 million
and
$4,313 million
during the
nine months ended
September 30, 2016
and
October 2, 2015
, respectively. As a result of the timing of dividend payment dates, the Company only paid two quarters of dividends during the
nine months ended
September 30, 2016
, compared to three quarters of dividends during the
nine months ended
October 2, 2015
. The Company paid the third quarter dividend on October 3, 2016.
Our Board of Directors approved the Company's regular quarterly dividend of $0.35 per share at its October 2016 meeting. This dividend is payable on December 15, 2016, to shareowners of record as of December 1, 2016.
Foreign Exchange
Our international operations are subject to certain opportunities and risks, including foreign currency fluctuations and governmental actions. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to changing economic and political environments, and to fluctuations in foreign currencies.
Our Company conducts business in more than 200 countries. Due to our global operations, weaknesses in the currencies of some of these countries are often offset by strengths in others. Our foreign currency management program is designed to mitigate, over time, a portion of the potentially unfavorable impact of exchange rate changes on net income and earnings per share. Taking into account the effects of our hedging activities, the impact of changes in foreign currency exchange rates decreased our operating income for the
three and nine months ended
September 30, 2016
, by 7 percent and 9 percent, respectively. As a result of the U.S. dollar continuing to strengthen against other currencies, including many of those that we do not traditionally hedge, the Company expects foreign currency exchange rates to have an unfavorable impact on our results through the end of the year.
Hyperinflationary Economies
A hyperinflationary economy is one that has cumulative inflation of
100 percent
or more over a three-year period. In accordance with U.S. GAAP, local subsidiaries in hyperinflationary economies are required to use the U.S. dollar as their functional currency and remeasure the monetary assets and liabilities not denominated in U.S. dollars using the rate applicable to conversion of a currency for purposes of dividend remittances. All exchange gains and losses resulting from remeasurement are recognized currently in income.
Venezuela has been designated as a hyperinflationary economy. In February 2015, the Venezuelan government announced that the two previously used currency conversion mechanisms had been merged into a single mechanism called SICAD and introduced a new open market exchange rate system, SIMADI. Management determined that the SIMADI rate was the most appropriate legally available rate and remeasured the net monetary assets of our Venezuelan subsidiary, resulting in a charge of
$27 million
recorded in the line item other income (loss) — net in our condensed consolidated statement of income during the
nine months ended October 2, 2015
.
During the
nine months ended September 30, 2016
, the Venezuelan government devalued its currency and changed its official and most preferential exchange rate, which should be used for purchases of certain essential goods, to
10
bolivars per U.S. dollar from
6.3
. The official and most preferential rate is now known as DIPRO and the SICAD rate has been eliminated. The Venezuelan government also announced that the SIMADI rate would be replaced by the DICOM rate, which will be allowed to float freely and is expected to fluctuate based on supply and demand. As a result, management determined that the DICOM rate was the most appropriate legally available rate to remeasure the net monetary assets of our Venezuelan subsidiary.
In addition to the foreign currency exchange exposure related to our Venezuelan subsidiary's net monetary assets, we also sell concentrate to our bottling partner in Venezuela from outside the country. These sales are denominated in U.S. dollars. As a result of the continued lack of liquidity and our revised assessment of the U.S. dollar value we expected to realize upon the conversion of Venezuelan bolivars into U.S. dollars by our bottling partner to pay our concentrate sales receivables, we recorded a write-down of
$76 million
during the
three and nine months ended
September 30, 2016
. We recorded a write-down of
$56 million
during the
nine months ended October 2, 2015
. These write-downs were recorded in the line item other operating charges in our condensed consolidated statements of income.
We also have certain U.S. dollar denominated intangible assets associated with products sold in Venezuela. As a result of the Company's revised expectations regarding the convertibility of the local currency, we recognized impairment charges of
$3 million
and
$55 million
during the
three and nine months ended October 2, 2015
, respectively, recorded in the line item other operating charges in our condensed consolidated statements of income.
As of
September 30, 2016
, the combined carrying value of the net monetary assets of our Venezuelan subsidiary, the receivables from our bottling partner in Venezuela and the intangible assets associated with products sold in Venezuela was
$88 million
. Despite the additional currency conversion mechanisms, the Company's ability to pay dividends from Venezuela is still restricted due to the low volume of U.S. dollars available for conversion. As a result of the newly announced floating DICOM rate, the Company expects to continue to record losses on foreign currency exchange, may incur additional write-downs of receivables or impairment charges and will continue to record our proportionate share of any charges recorded by our equity method investee that has operations in Venezuela.
Overview of Financial Position
The following table illustrates the change in the individual line items of the Company's condensed consolidated balance sheet (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Cash and cash equivalents
|
$
|
11,147
|
|
$
|
7,309
|
|
$
|
3,838
|
|
|
53
|
%
|
Short-term investments
|
11,265
|
|
8,322
|
|
2,943
|
|
|
35
|
|
Marketable securities
|
3,157
|
|
4,269
|
|
(1,112
|
)
|
|
(26
|
)
|
Trade accounts receivable — net
|
4,082
|
|
3,941
|
|
141
|
|
|
4
|
|
Inventories
|
2,751
|
|
2,902
|
|
(151
|
)
|
|
(5
|
)
|
Prepaid expenses and other assets
|
3,091
|
|
2,752
|
|
339
|
|
|
12
|
|
Assets held for sale
|
2,463
|
|
3,900
|
|
(1,437
|
)
|
|
(37
|
)
|
Equity method investments
|
16,917
|
|
12,318
|
|
4,599
|
|
|
37
|
|
Other investments
|
1,110
|
|
3,470
|
|
(2,360
|
)
|
|
(68
|
)
|
Other assets
|
4,526
|
|
4,110
|
|
416
|
|
|
10
|
|
Property, plant and equipment — net
|
11,172
|
|
12,571
|
|
(1,399
|
)
|
|
(11
|
)
|
Trademarks with indefinite lives
|
6,183
|
|
5,989
|
|
194
|
|
|
3
|
|
Bottlers' franchise rights with indefinite lives
|
4,438
|
|
6,000
|
|
(1,562
|
)
|
|
(26
|
)
|
Goodwill
|
10,865
|
|
11,289
|
|
(424
|
)
|
|
(4
|
)
|
Other intangible assets
|
760
|
|
854
|
|
(94
|
)
|
|
(11
|
)
|
Total assets
|
$
|
93,927
|
|
$
|
89,996
|
|
$
|
3,931
|
|
|
4
|
%
|
Accounts payable and accrued expenses
|
$
|
11,153
|
|
$
|
9,660
|
|
$
|
1,493
|
|
|
15
|
%
|
Loans and notes payable
|
12,088
|
|
13,129
|
|
(1,041
|
)
|
|
(8
|
)
|
Current maturities of long-term debt
|
3,473
|
|
2,676
|
|
797
|
|
|
30
|
|
Accrued income taxes
|
396
|
|
331
|
|
65
|
|
|
20
|
|
Liabilities held for sale
|
682
|
|
1,133
|
|
(451
|
)
|
|
(40
|
)
|
Long-term debt
|
31,663
|
|
28,311
|
|
3,352
|
|
|
12
|
|
Other liabilities
|
3,984
|
|
4,301
|
|
(317
|
)
|
|
(7
|
)
|
Deferred income taxes
|
4,243
|
|
4,691
|
|
(448
|
)
|
|
(10
|
)
|
Total liabilities
|
$
|
67,682
|
|
$
|
64,232
|
|
$
|
3,450
|
|
|
5
|
%
|
Net assets
|
$
|
26,245
|
|
$
|
25,764
|
|
$
|
481
|
|
1
|
2
|
%
|
1
Includes a decrease in net assets of
$415 million
resulting from foreign currency translation adjustments in various balance sheet line items.
The increases (decreases) in the table above include the impact of the following transactions and events:
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|
•
|
Assets held for sale and liabilities held for sale decreased primarily due to the deconsolidation of the Company's German and South African bottling operations which were previously classified as held for sale, partially offset by the Company's China bottling operations and additional North America bottling territories being reclassified as held for sale. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.
|
|
|
•
|
Equity method investments increased primarily as a result of the Company's new investments in CCEP, CCBA and CCBA's South African subsidiary, partially offset by the derecognition of the Company's former equity method investment in South Africa. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.
|
|
|
•
|
Other investments decreased primarily due to the disposal of the Company's investment in Keurig, which was accounted for as an available-for-sale security. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.
|
|
|
•
|
Property, plant and equipment and bottlers' franchise rights decreased primarily as a result of additional North America bottling territories being refranchised or reclassified as held for sale as well as the Company's China bottling operations being reclassified as held for sale. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements.
|
|
|
•
|
Accounts payable and accrued expenses increased primarily due to the Company's third quarter 2016 dividend payment, which was payable to shareowners of record as of September 15, 2016. This payment was made on October 3, 2016.
|
|
|
•
|
Current maturities of long-term debt increased primarily due to a portion of the Company's long-term debt maturing within the next 12 months and being reclassified as current. Refer to the heading "Cash Flows from Financing Activities" above for additional information.
|
|
|
•
|
Long-term debt increased due to the Company's recent issuances of Australian dollar-, euro- and U.S. dollar-denominated debt, partially offset by a portion of the Company's long-term debt maturing within the next 12 months and being reclassified as current. Refer to the heading "Cash Flows from Financing Activities" above for additional information.
|