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, 2016
. As a result, management must make numerous assumptions which involve a significant amount of judgment when completing recoverability and impairment tests of current and noncurrent assets in various regions around the world.
We perform recoverability and impairment tests of current and 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 such 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 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 a hypothetical marketplace participant 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. During the
three and nine months ended
September 29, 2017
, we recognized an other-than-temporary impairment charge of
$50 million
related to one of our international equity method investees, primarily driven by foreign currency exchange rate fluctuations.
The following table presents the difference between calculated 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 29, 2017
|
Fair
Value
|
|
Carrying
Value
|
|
Difference
|
|
Monster Beverage Corporation
|
$
|
5,642
|
|
$
|
3,352
|
|
$
|
2,290
|
|
Coca-Cola FEMSA, S.A.B. de C.V.
|
4,648
|
|
1,819
|
|
2,829
|
|
Coca-Cola European Partners plc
1
|
3,661
|
|
3,674
|
|
(13
|
)
|
Coca-Cola HBC AG
|
2,776
|
|
1,295
|
|
1,481
|
|
Coca-Cola Amatil Limited
|
1,370
|
|
713
|
|
657
|
|
Coca-Cola Bottlers Japan Inc.
1
|
1,126
|
|
1,162
|
|
(36
|
)
|
Embotelladora Andina S.A.
|
618
|
|
289
|
|
329
|
|
Coca-Cola İçecek A.Ş.
|
553
|
|
263
|
|
290
|
|
Coca-Cola Bottling Co. Consolidated
|
536
|
|
118
|
|
418
|
|
Corporación Lindley S.A.
|
283
|
|
125
|
|
158
|
|
Total
|
$
|
21,213
|
|
$
|
12,810
|
|
$
|
8,403
|
|
1
The carrying values of our investments exceeded their fair values as of September 29, 2017. Based on the length of time and the extent to
which the market values have been less than our cost basis; the financial condition and near-term prospects of the issuers; and our intent and
ability to retain the investments for a period of time sufficient to allow for any anticipated recovery in market value, management
determined that the declines in fair values were temporary in nature. Therefore, we did not record any impairment charges.
As of
September 29, 2017
, gross unrealized gains and losses on available-for-sale securities were $
771 million
and $
56 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 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.
Other Assets
Our Company invests in infrastructure programs with our bottlers that are directed at strengthening our bottling system and increasing unit case volume. Additionally, our Company advances payments to certain customers for distribution rights as well as to fund future marketing activities intended to generate profitable volume and we expense such payments over the periods benefited. Payments under these programs are generally capitalized and reported in the line items prepaid expenses and other assets or other assets, as appropriate, in our condensed consolidated balance sheets. When facts and circumstances indicate that the carrying value of these assets or asset groups may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of sales volume and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value.
During the
nine months ended
September 29, 2017
, the Company recorded an impairment charge of
$19 million
related to Coca-Cola Refreshments' ("CCR") other assets as a result of current year refranchising activities in North America and management's estimate of the proceeds that are expected to be received for the remaining bottling territories upon their refranchising. This charge was recorded in our Bottling Investments operating segment in the line item other operating charges in our condensed consolidated statement of income and was determined by comparing the fair value of the asset to its carrying value.
Property, Plant and Equipment
As of
September 29, 2017
, the carrying value of our property, plant and equipment, net of depreciation, was
$8,306 million
, or
9
percent of our total assets. Certain events or changes in circumstances may indicate that the recoverability of the carrying amount or remaining useful life of property, plant and equipment should be assessed, including, among others, the manner or length of time in which the Company intends to use the asset, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. When such events or changes in circumstances are present and an impairment review is performed, we estimate the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. We use a variety of
methodologies to determine the fair value of property, plant and equipment, including appraisals and discounted cash flow models, which are consistent with the assumptions we believe a hypothetical marketplace participant would use.
During the
nine months ended
September 29, 2017
, the Company recorded impairment charges of
$310 million
related to CCR's property, plant and equipment as a result of current year refranchising activities in North America and management's estimate of the proceeds that are expected to be received for the remaining bottling territories upon their refranchising. These charges were recorded in our Bottling Investments 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 assets to their carrying value. Refer to Note 14 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 may be impaired.
The assessment of recoverability and the performance of 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 intangible assets are consistent with those we use in our internal planning. When performing impairment tests, 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 that we believe 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.
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, including CCR's bottling and associated supply chain operations in the United States and Canada. 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.
In order to test for goodwill impairment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized cannot exceed the carrying amount of 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 a hypothetical marketplace participant would use.
During the
nine months ended
September 29, 2017
, the Company recorded impairment charges of
$442 million
related to certain intangible assets. These charges included
$375 million
related to goodwill and
$33 million
related to bottlers' franchise rights with indefinite lives. The impairment charges related to goodwill were determined by comparing the fair value of the reporting unit, based on Level 3 inputs, to its carrying value. As a result of these charges, the carrying value of CCR's goodwill is zero. The impairment charge related to bottlers' franchise rights with indefinite lives was determined by comparing the fair value of the assets, based on Level 3 inputs, to the current carrying value. These impairment charges were incurred primarily as a result of current year refranchising activities in North America and management's estimate of the proceeds that are expected to be received for the remaining bottling territories upon their refranchising. These charges were recorded in our Bottling Investments operating segment in the line item other operating charges in our condensed consolidated statement of income. Additionally, we recorded impairment charges related to Venezuelan intangible assets for the
nine months ended
September 29, 2017
, of
$34 million
. The Venezuelan intangible assets were written down due to weaker sales and the volatility of foreign currency exchange rates resulting from continued political instability. These charges were recorded in Corporate in the line item other operating charges in our condensed consolidated statement of income and were determined by comparing the fair value of the assets, derived using discounted cash flow analyses, to the respective carrying values.
The Company did not record any significant impairment charges related to intangible assets during the
three and nine months ended
September 30, 2016
.
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, including goodwill, 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 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 29, 2017
. 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.
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, syrups, beverage bases, source waters, and powders/minerals (in all instances 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 soft drinks and a variety of other beverages, such as juices, juice drinks, sports drinks, waters, teas and coffees, 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 concentrates and syrups 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 deconsolidation of bottling and distribution entities for accounting purposes as structural changes, which are a component of acquisitions and divestitures ("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. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's acquisitions and divestitures.
"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.
In 2017, the Company refranchised its bottling operations in China to the two local franchise bottlers. The impact of these refranchising activities has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for our Asia Pacific and Bottling Investments operating segments.
During 2017 and 2016, the Company refranchised 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 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 2017 versus 2016 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.
During 2016, the Company deconsolidated its South African bottling operations and disposed of its related equity method investment in exchange for equity method investments in Coca-Cola Beverages Africa Proprietary Limited ("CCBA") and CCBA's South African subsidiary. As part of the transaction, the Company also acquired and licensed several brands. 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 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. 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, they are also considered acquired brands. Refer to the headings "Beverage Volume" and "Net Operating Revenues" below.
During 2016, the Company also deconsolidated our German bottling operations as a result of their being combined to create Coca-Cola European Partners plc ("CCEP"). As a result of the 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 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. 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 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.
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. We intend to refranchise 100 percent of Company-owned bottling operations in the United States by the end of 2017. Additionally, on October 4, 2017, the Company and Anheuser-Busch InBev ("ABI") completed the transition of ABI's 54.5 percent majority interest in CCBA to the Company for $3.15 billion. We will account for CCBA as a discontinued operation.
Refer to
Note 16
of Notes to Condensed Consolidated Financial Statements for additional information.
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 certain 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, source waters, and powders/minerals (in all instances 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, 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, syrups, beverage bases or powders 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 2017 versus 2016
|
|
|
Three Months Ended September 29, 2017
|
|
Nine Months Ended September 29, 2017
|
|
|
Unit Cases
1,2,3
|
|
Concentrate
Sales
4
|
|
|
Unit Cases
1,2,3
|
|
Concentrate
Sales
4
|
|
|
Worldwide
|
—
|
|
—
|
%
|
5
|
—
|
%
|
(1
|
)%
|
|
Europe, Middle East & Africa
|
1
|
%
|
4
|
%
|
|
2
|
%
|
3
|
%
|
8
|
Latin America
|
(3
|
)
|
(4
|
)
|
|
(3
|
)
|
(4
|
)
|
|
North America
|
—
|
|
2
|
|
6
|
—
|
|
1
|
|
9
|
Asia Pacific
|
3
|
|
3
|
|
7
|
2
|
|
3
|
|
10
|
Bottling Investments
|
(53
|
)
|
N/A
|
|
|
(42
|
)
|
N/A
|
|
|
1
Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only.
2
Geographic operating 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 amount of concentrates, syrups, beverage bases, source waters and powders/minerals (in all instances expressed in equivalent unit cases) 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 2017 had two fewer days when compared to the first quarter of 2016, and the fourth quarter of 2017 will have one additional day when compared to the fourth quarter of 2016.
|
|
5
|
After considering the impact of structural changes, worldwide concentrate sales volume for the three months ended September 29, 2017 grew 1 percent.
|
6
After considering the impact of structural changes, concentrate sales volume for North America for the three months ended September 29, 2017 grew 1 percent.
|
|
7
|
After considering the impact of structural changes, concentrate sales volume for Asia Pacific for the three months ended September 29, 2017 grew 2 percent.
|
|
|
8
|
After considering the impact of structural changes, concentrate sales volume for Europe, Middle East and Africa for the nine months ended September 29, 2017 grew 2 percent.
|
|
|
9
|
After considering the impact of structural changes, concentrate sales volume for North America for the nine months ended September 29, 2017 was even.
|
10
After considering the impact of structural changes, concentrate sales volume for Asia Pacific for the nine months ended September 29, 2017 grew 1 percent.
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 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 for 2017 and 2016 reflects the impact of the transfer of distribution rights with respect to non-Company-owned brands that were previously licensed to us in North America bottling territories that have since been refranchised. The Company eliminated the unit case volume related to these structural changes from the base year when calculating the volume growth rates. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above.
Three Months Ended
September 29, 2017
versus
Three Months Ended
September 30, 2016
Unit case volume in Europe, Middle East and Africa grew 1 percent, which included growth of 4 percent in both water, enhanced water and sports drinks and tea and coffee. Sparkling soft drinks volume was even primarily due to 12 percent growth in Coca-Cola Zero, offset by an 11 percent decline in Diet Coke. The group reported increases in unit case volume in the Central & Eastern Europe, Turkey & Caucasus Central Asia and Middle East & North Africa business units. The increases in these business units were partially offset by decreases in the Western Europe and West Africa business units.
In Latin America, unit case volume declined 3 percent, which reflected declines of 4 percent in sparkling soft drinks and 3 percent in water, enhanced water and sports drinks partially offset by growth in juice, dairy and plant-based beverages driven by incremental volume from the recently acquired AdeS brand of plant-based beverages. The group's volume decline reflected declines of 8 percent in the Latin Center business unit and 7 percent in the Brazil business unit as a result of continued macroeconomic challenges in these regions. The Mexico business unit declined 1 percent due to a 2 percent decline in
sparkling soft drinks and a 5 percent decline in tea and coffee partially offset by 7 percent growth in juice, dairy and plant-based beverages.
Unit case volume in North America was even, reflecting even sparkling soft drinks volume, a 2 percent decline in juice, dairy and plant-based beverages as well as a 2 percent decline in water, enhanced water and sports drinks, offset by growth in energy drinks. The group's sparkling soft drinks volume included a 5 percent decline in Diet Coke, offset by 4 percent growth in Trademark Sprite and 2 percent growth in Trademark Fanta.
In Asia Pacific, unit case volume increased 3 percent, reflecting 5 percent growth in sparkling soft drinks and 4 percent growth in juice, dairy and plant-based beverages, partially offset by a 3 percent decline in water, enhanced water and sports drinks. Sparkling soft drinks volume included 8 percent growth in Trademark Coca-Cola, 3 percent growth in Trademark Fanta and 2 percent growth in Trademark Sprite. The group's volume reflects growth of 4 percent in the ASEAN business, 7 percent in the India & South West Asia business unit and 2 percent in the Greater China & Korea business unit. Unit case volume was even in the Japan business unit.
Unit case volume for Bottling Investments declined 53 percent. This decrease primarily reflects the North America refranchising activities and the refranchising of our Chinese bottling operations.
Nine Months Ended
September 29, 2017
versus
Nine Months Ended
September 30, 2016
In Europe, Middle East and Africa, unit case volume grew 2 percent, including 1 point of growth from acquired brands, which were primarily water brands in Africa. The group's growth reflected an increase of 1 percent in sparkling soft drinks, an increase of 7 percent in water, enhanced water and sports drinks and a 10 percent increase in tea and coffee. These increases were partially offset by a decrease of 1 percent in juice, dairy and plant-based beverages. All business units within the group reported growth in unit case volume.
Unit case volume in Latin America declined 3 percent, which reflected a decline of 4 percent in sparkling soft drinks partially offset by growth in juice, dairy and plant-based beverages. The group's volume reflects declines of 13 percent in the Latin Center business unit and 9 percent in the Brazil business unit. These declines were partially offset by unit case volume growth of 2 percent in the Mexico business unit, which reflected 1 percent growth in sparkling soft drinks, 3 percent growth in water, enhanced water and sports drinks, and 10 percent growth in juice, dairy and plant-based beverages.
In North America, unit case volume was even, reflecting even volume for sparkling soft drinks and juice, dairy and plant-based beverages, growth in energy drinks and a 2 percent decline in water, enhanced water and sports drinks. The group's sparkling soft drinks unit case volume included a 4 percent decline in Diet Coke, offset by 4 percent growth in both Trademark Sprite and Trademark Fanta.
Unit case volume in Asia Pacific grew 2 percent, reflecting an increase of 2 percent in sparkling soft drinks and 5 percent growth in juice, dairy and plant-based beverages. The increase in sparkling soft drinks volume included 4 percent growth in Trademark Coca-Cola and 1 percent growth in Trademark Sprite. Unit case volume in our Greater China & Korea and India & South West Asia business units grew 4 percent and 1 percent, respectively. Unit case volume in the Japan business unit was even.
Unit case volume for Bottling Investments declined 42 percent. This decrease primarily reflects the North America refranchising activities and the refranchising of our Chinese bottling operations.
Concentrate Sales Volume
During the
three months ended
September 29, 2017
, worldwide unit case volume and concentrate sales volume were even compared to the
three months ended
September 30, 2016
. During the
nine months ended
September 29, 2017
, worldwide unit case volume was even and concentrate sales volume declined 1 percent compared to the
nine months ended
September 30, 2016
. The difference between the consolidated unit case volume and concentrate sales volume growth rates during the
nine months ended September 29, 2017
, was primarily due to having two fewer days during the first quarter of 2017 when compared to the first quarter of 2016. Concentrate sales volume growth is calculated based on the amount of concentrate sold during the reporting periods, 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 the reporting periods. In addition to the impact of two fewer days, the differences between unit case volume and concentrate sales volume growth rates in the individual operating segments during the
three and nine months ended
September 29, 2017
were due to the timing of concentrate shipments, structural changes and 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, syrups, beverage bases or powders.
Net Operating Revenues
Three Months Ended September 29, 2017
versus
Three Months Ended September 30, 2016
The Company's net operating revenues decreased $1,555 million, or 15 percent.
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 2017 versus 2016
|
|
Volume
1
|
|
Acquisitions & Divestitures
|
|
Price, Product & Geographic Mix
|
|
Currency Fluctuations
|
|
Total
|
|
Consolidated
|
1
|
%
|
(18
|
)%
|
3
|
%
|
—
|
%
|
(15
|
)%
|
Europe, Middle East & Africa
|
4
|
%
|
—
|
%
|
1
|
%
|
1
|
%
|
6
|
%
|
Latin America
|
(4
|
)
|
—
|
|
10
|
|
1
|
|
7
|
|
North America
|
1
|
|
1
|
|
2
|
|
—
|
|
3
|
|
Asia Pacific
|
2
|
|
—
|
|
1
|
|
(5
|
)
|
(2
|
)
|
Bottling Investments
|
(1
|
)
|
(53
|
)
|
4
|
|
—
|
|
(50
|
)
|
Note: Certain rows may not add due to rounding.
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.
"Price, product and geographic mix" refers to the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.
Price, product and geographic mix had a 3 percent favorable impact on our consolidated net operating revenues. Price, product and geographic mix was impacted by a variety of factors and events including, but not limited to, the following:
|
|
•
|
Europe, Middle East and Africa — favorably impacted as a result of pricing initiatives, product and package mix, partially offset by geographic mix;
|
|
|
•
|
Latin America — favorable price mix in all four of the segment's business units and the impact of inflationary environments in certain markets;
|
|
|
•
|
North America — favorably impacted as a result of pricing initiatives and product and package mix;
|
|
|
•
|
Asia Pacific — favorably impacted as a result of pricing initiatives, product and package mix, partially offset by geographic mix; and
|
|
|
•
|
Bottling Investments — favorably impacted as a result of pricing initiatives and product and package mix in North America.
|
The impact of fluctuations in foreign currency exchange rates on our consolidated net operating revenues was even. This impact was due to a stronger U.S. dollar compared to certain foreign currencies, including the U.K. pound sterling, Japanese yen and Argentine peso, which had an unfavorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America operating segments, offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the euro, South African rand, Australian dollar, Mexican peso, and Brazilian real, which had a favorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America operating segments. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.
Nine Months Ended September 29, 2017
versus
Nine Months Ended September 30, 2016
The Company's net operating revenues decreased $4,556 million, or 14 percent.
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 2017 versus 2016
|
|
Volume
1
|
|
Acquisitions & Divestitures
|
|
Price, Product & Geographic Mix
|
|
Currency Fluctuations
|
|
Total
|
|
Consolidated
|
(1
|
)%
|
(15
|
)%
|
3
|
%
|
(1
|
)%
|
(14
|
)%
|
Europe, Middle East & Africa
|
2
|
%
|
(1
|
)%
|
2
|
%
|
(3
|
)%
|
—
|
%
|
Latin America
|
(4
|
)
|
—
|
|
7
|
|
—
|
|
3
|
|
North America
|
—
|
|
1
|
|
3
|
|
—
|
|
4
|
|
Asia Pacific
|
1
|
|
—
|
|
—
|
|
(3
|
)
|
(3
|
)
|
Bottling Investments
|
(3
|
)
|
(40
|
)
|
2
|
|
—
|
|
(41
|
)
|
Note: Certain rows may not add due to rounding.
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.
"Price, product and geographic mix" refers to the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.
Price, product and geographic mix had a 3 percent favorable impact on our consolidated net operating revenues. Price, product and geographic mix was impacted by a variety of factors and events including, but not limited to, the following:
|
|
•
|
Europe, Middle East and Africa — favorably impacted as a result of pricing initiatives, product and package mix, partially offset by geographic mix;
|
|
|
•
|
Latin America — favorable price mix in all four of the segment's business units and the impact of inflationary environments in certain markets, partially offset by geographic mix;
|
|
|
•
|
North America — favorably impacted as a result of pricing initiatives and product and package mix;
|
|
|
•
|
Asia Pacific — favorable product and package mix, offset by geographic mix; and
|
|
|
•
|
Bottling Investments — favorably impacted as a result of pricing initiatives and product and package mix in North America.
|
Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 1 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the U.K. pound sterling, Japanese yen, Argentine peso and Mexican peso, which had an unfavorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America 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, South African rand, Australian dollar and Brazilian real, which had a favorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America operating segments. 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 18 percent unfavorable impact on 2017 full year net operating revenues. Based on current spot rates and our hedging coverage in place, we expect currencies will have a slight favorable impact on net operating revenues in the fourth quarter of 2017.
Gross Profit Margin
As a result of our finished goods operations, which are primarily included in our North America and Bottling Investments operating segments, 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 29, 2017
, the Company recorded a net loss of
$15 million
and a net gain of
$13 million
, respectively, in the line item cost of goods sold in our condensed consolidated statement 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 62.6 percent for the
three months ended
September 29, 2017
, compared to 61.1 percent for the
three months ended
September 30, 2016
. The increase was primarily due to the impact of acquisitions and divestitures, partially offset by timing of commodity costs favorability in the prior year. Our gross profit margin increased to 62.1 percent for the
nine months ended
September 29, 2017
, compared to 61.0 percent for the
nine months ended
September 30, 2016
. The increase was primarily due to the impact of acquisitions and divestitures, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information related to acquisitions and divestitures.
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 29,
2017
|
|
September 30,
2016
|
|
|
September 29,
2017
|
|
September 30,
2016
|
|
Stock-based compensation expense
|
$
|
53
|
|
$
|
72
|
|
|
$
|
167
|
|
$
|
191
|
|
Advertising expenses
|
1,018
|
|
1,157
|
|
|
2,901
|
|
3,062
|
|
Selling and distribution expenses
1
|
794
|
|
1,253
|
|
|
2,713
|
|
4,004
|
|
Other operating expenses
|
1,338
|
|
1,527
|
|
|
3,879
|
|
4,425
|
|
Total
|
$
|
3,203
|
|
$
|
4,009
|
|
|
$
|
9,660
|
|
$
|
11,682
|
|
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 29, 2017
, selling, general and administrative expenses decreased $806 million, or 20 percent, and $2,022 million, or 17 percent, respectively, versus the prior year comparable periods. During the
three months ended
September 29, 2017
, the impact of foreign currency exchange rate fluctuations on total selling, general and administrative expenses was even. During the
nine months ended
September 29, 2017
, fluctuations in foreign currency exchange rates decreased total selling, general and administrative expenses by 1 percent.
The decrease in selling and distribution expenses and advertising expenses during the
three and nine months ended
September 29, 2017
reflects the impact of divestitures. Additionally, the decrease in selling and distribution expenses and advertising expenses during the
nine months ended
September 29, 2017
, was impacted by having two fewer days during the first quarter of 2017 when compared to the first quarter of 2016. Advertising expenses during the
nine months ended
September 29, 2017
also decreased 1 percent as a result of foreign currency exchange rate fluctuations. The decrease in other operating expenses during the
three months ended
September 29, 2017
reflects timing of expenses as well as savings from our productivity and reinvestment initiatives. The decrease in other operating expenses during the
nine months ended
September 29, 2017
reflects the impact of fluctuations in foreign currency exchange rates, timing of expenses and savings from our productivity and reinvestment initiatives. 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
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information related to divestitures.
During the
nine months ended
September 29, 2017
, the Company contributed $
88 million
to our pension plans, and we anticipate making additional contributions of approximately $
85 million
to our pension plans during the remainder of 2017. During the year ended December 31, 2016, the Company's total pension expense related to defined benefit plans was $238 million, which primarily included $86 million of net periodic benefit cost and $155 million of settlement charges and special termination benefits. We expect our total 2017 pension expense to be $350 million, which includes $27 million of net
periodic benefit cost and $323 million of estimated settlement charges, curtailment charges and special termination benefits. During the
nine months ended
September 29, 2017
, we have incurred
$251 million
of pension expense, which includes
$27 million
of net periodic benefit cost and
$224 million
of settlement charges, curtailment charges and special termination benefits. The decrease in 2017 expected net periodic benefit cost is due to favorable asset performance in 2016 compared to our expected return, partially offset by a decrease in the expected long-term rate of return on assets for the U.S. plans and a decrease in the weighted-average discount rate.
As of
September 29, 2017
, we had $240 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 1.3 years as stock-based compensation expense. 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 29,
2017
|
|
September 30,
2016
|
|
|
September 29,
2017
|
|
September 30,
2016
|
|
Europe, Middle East & Africa
|
$
|
6
|
|
$
|
2
|
|
|
$
|
2
|
|
$
|
6
|
|
Latin America
|
2
|
|
75
|
|
|
3
|
|
74
|
|
North America
|
47
|
|
22
|
|
|
131
|
|
80
|
|
Asia Pacific
|
1
|
|
—
|
|
|
4
|
|
1
|
|
Bottling Investments
|
229
|
|
95
|
|
|
1,092
|
|
479
|
|
Corporate
|
75
|
|
28
|
|
|
259
|
|
190
|
|
Total
|
$
|
360
|
|
$
|
222
|
|
|
$
|
1,491
|
|
$
|
830
|
|
During the
three months ended
September 29, 2017
, the Company recorded other operating charges of
$360 million
. These charges primarily consisted of
$213 million
related to costs incurred to refranchise certain of our North America bottling operations. Costs related to refranchising include, among other items, internal and external costs for individuals directly working on the refranchising efforts, severance and costs associated with the implementation of information technology systems to facilitate consistent data standards and availability throughout our North America bottling system. In addition, other operating charges included
$129 million
related to the Company's productivity and reinvestment program and
$18 million
related to tax litigation expense. 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 15
of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments.
During the
nine months ended
September 29, 2017
, the Company recorded other operating charges of
$1,491 million
. These charges primarily consisted of
$737 million
of CCR asset impairments and
$355 million
related to the Company's productivity and reinvestment program. In addition, other operating charges included
$314 million
related to costs incurred to refranchise certain of our bottling operations,
$43 million
related to tax litigation expense and
$34 million
related to impairments of Venezuelan intangible assets. Refer to
Note 1
of Notes to Condensed Consolidated Financial Statements for additional information about the Venezuelan intangible assets and
Note 14
of Notes to Condensed Consolidated Financial Statements for information on how the Company determined the asset impairment charges. 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 15
of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments.
During the
three months ended
September 30, 2016
, the Company incurred 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 incurred other operating charges of
$830 million
. These charges primarily consisted of
$187 million
due to the Company's productivity and reinvestment program,
$240 million
due to the integration of our German bottling operations and
$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 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.
Productivity and Reinvestment Program
In February 2012, the Company announced a 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 former North America bottling operations ("Old CCE").
In February 2014, the Company announced the expansion of our productivity and reinvestment program to drive incremental productivity 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 $2.0 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 $3.0 billion by 2019 as a result of the initiatives implemented under the 2014 expansions of the program.
In April 2017, the Company announced that we were expanding the current productivity and reinvestment program, with planned initiatives that are expected to generate an incremental $800 million in annualized savings by 2019. We expect to achieve these savings through additional efficiencies in both our supply chain and our marketing expenditures as well as the transition to a new, more agile operating model to enable growth. Under this operating model, our business units will be supported by an expanded enabling services organization and a corporate center focused on a few strategic initiatives, policy and governance. The expanded enabling services organization will focus on both simplifying and standardizing key transactional processes and providing support to business units through global centers of excellence. The Company has incurred total pretax expenses of
$2,763 million
related to this program since it began in 2012. 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, including expenses of
$240 million
incurred during the
nine months ended
September 30, 2016
. During the year ended December 31, 2016, the Company deconsolidated our German bottling operations.
Operating Income and Operating Margin
Information about our operating income contribution by operating segment on a percentage basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2017
|
|
September 30,
2016
|
|
|
September 29,
2017
|
|
September 30,
2016
|
|
Europe, Middle East & Africa
|
44.2
|
%
|
40.3
|
%
|
|
46.7
|
%
|
39.8
|
%
|
Latin America
|
26.6
|
|
19.2
|
|
|
26.3
|
|
20.2
|
|
North America
|
30.5
|
|
29.3
|
|
|
31.8
|
|
27.3
|
|
Asia Pacific
|
27.2
|
|
25.7
|
|
|
29.7
|
|
26.0
|
|
Bottling Investments
|
(10.3
|
)
|
5.4
|
|
|
(15.9
|
)
|
3.1
|
|
Corporate
|
(18.2
|
)
|
(19.9
|
)
|
|
(18.6
|
)
|
(16.4
|
)
|
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 29,
2017
|
|
September 30,
2016
|
|
|
September 29,
2017
|
|
September 30,
2016
|
|
Consolidated
|
23.3
|
%
|
21.4
|
%
|
|
22.2
|
%
|
22.4
|
%
|
Europe, Middle East & Africa
|
47.8
|
%
|
49.4
|
%
|
|
51.2
|
%
|
54.0
|
%
|
Latin America
|
55.8
|
|
45.9
|
|
|
56.9
|
|
52.8
|
|
North America
|
28.0
|
|
40.1
|
|
|
31.6
|
|
41.6
|
|
Asia Pacific
|
42.9
|
|
44.3
|
|
|
48.2
|
|
49.5
|
|
Bottling Investments
|
(9.0
|
)
|
2.6
|
|
|
(10.6
|
)
|
1.4
|
|
Three Months Ended
September 29, 2017
versus
Three Months Ended
September 30, 2016
Operating income for the
three months ended
September 29, 2017
, was unfavorably impacted by the refranchising of bottling territories in North America and China, 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 and China refranchising.
During the
three months ended September 29, 2017
, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 2 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the U.K. pound sterling, Japanese yen and Argentine peso, which had an unfavorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the euro, South African rand, Australian dollar, Mexican peso and Brazilian real, which had a favorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America 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
$936 million
and
$914 million
for the
three months ended
September 29, 2017
and
September 30, 2016
, respectively. Operating income for the segment reflects concentrate sales volume growth of 4 percent, favorable product mix and a favorable foreign currency exchange rate impact of 1 percent.
Latin America reported operating income of
$563 million
and
$435 million
for the
three months ended
September 29, 2017
and
September 30, 2016
, respectively. Operating income for the segment reflects favorable price and product mix, a favorable foreign currency exchange rate impact of 1 percent and a reduction in other operating charges.
Operating income for North America for the
three months ended
September 29, 2017
and
September 30, 2016
, was
$646 million
and
$666 million
, respectively. The decrease in operating income was driven by the timing of commodity cost favorability in the prior year and higher other operating charges partially offset by positive price and product mix.
Asia Pacific's operating income for the
three months ended
September 29, 2017
and
September 30, 2016
, was
$577 million
and
$583 million
, respectively. Operating income for the segment reflects favorable product mix offset by geographic mix and an unfavorable foreign currency exchange rate impact of 7 percent.
Operating loss for our Bottling Investments segment for the
three months ended
September 29, 2017
, was
$217 million
compared to operating income of
$124 million
for the
three months ended
September 30, 2016
. The segment was unfavorably
impacted by acquisitions and divestitures, partially offset by a 1 percent favorable impact due to fluctuations in foreign currency exchange rates.
Corporate's operating loss for the
three months ended
September 29, 2017
and
September 30, 2016
, was
$385 million
and
$451 million
, respectively. Operating loss in 2017 was favorably impacted by lower expenses primarily resulting from productivity initiatives, partially offset by an increase in other operating charges.
Nine Months Ended
September 29, 2017
versus
Nine Months Ended
September 30, 2016
Operating income for the
nine months ended
September 29, 2017
, was unfavorably impacted by two fewer days in the first quarter of 2017 when compared to the first quarter of 2016. During the
nine months ended
September 29, 2017
, the Company's operating income was also unfavorably impacted by the refranchising of bottling territories in North America and China, 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 and China refranchising.
During the
nine months ended September 29, 2017
, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 3 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the U.K. pound sterling, Japanese yen, Argentine peso and Mexican peso, which had an unfavorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America 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, South African rand, Australian dollar and Brazilian real, which had a favorable impact on our Europe, Middle East and Africa, Asia Pacific and Latin America 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
$2,884 million
and
$2,897 million
for the
nine months ended
September 29, 2017
and
September 30, 2016
, respectively. Operating income for the segment reflects an unfavorable foreign currency exchange rate impact of 3 percent and unfavorable geographic mix, partially offset by concentrate sales volume growth and favorable product mix.
Latin America reported operating income of
$1,625 million
and
$1,470 million
for the
nine months ended
September 29, 2017
and
September 30, 2016
, respectively. Operating income for the segment reflects favorable price and product mix and a reduction in other operating charges.
Operating income for North America for the
nine months ended
September 29, 2017
and
September 30, 2016
, was
$1,967 million
and
$1,982 million
, respectively. The decrease in operating income was primarily due to higher other operating charges, timing of commodity cost favorability in the prior year and an unfavorable foreign currency exchange rate impact of 1 percent.
Asia Pacific's operating income for the
nine months ended
September 29, 2017
and
September 30, 2016
, was
$1,835 million
and
$1,892 million
, respectively. Operating income for the segment reflects an unfavorable foreign currency exchange rate impact of 5 percent and unfavorable geographic mix.
Operating loss for our Bottling Investments segment for the
nine months ended
September 29, 2017
, was
$979 million
compared to operating income of
$222 million
for the
nine months ended
September 30, 2016
. The segment was unfavorably impacted by acquisitions and divestitures and
$737 million
of asset impairment charges related to CCR.
Corporate's operating loss for the
nine months ended
September 29, 2017
and
September 30, 2016
, was
$1,152 million
and
$1,192 million
, respectively. Operating loss in 2017 was favorably impacted by lower expenses resulting from productivity initiatives and a 2 percent favorable impact resulting from fluctuations in foreign currency exchange rates, partially offset by higher other operating charges.
Based on current spot rates and our hedging coverage in place, we expect currencies will have a favorable impact on operating income in the fourth quarter of 2017.
Interest Income
During the
three months ended September 29, 2017
, interest income was
$175 million
, compared to
$164 million
, during the
three months ended September 30, 2016
, an increase of $11 million, or 6 percent. During the
nine months ended September 29, 2017
, interest income was
$495 million
, compared to
$472 million
during the
nine months ended September 30, 2016
, an increase of $23 million, or 5 percent. These increases primarily reflect higher investment balances in certain of our international locations, partially offset by lower interest rates earned on certain of those investments.
Interest Expense
During the
three months ended September 29, 2017
, interest expense was
$208 million
, compared to
$182 million
during the
three months ended September 30, 2016
, an increase of $26 million, or 15 percent. During the
nine months ended September 29, 2017
, interest expense was
$631 million
, compared to
$485 million
during the
nine months ended September 30, 2016
, an increase of $146 million, or 30 percent. These increases primarily reflect the impact of short-term U.S. interest rates and longer debt maturities, both of which resulted in higher interest rates on the Company’s debt portfolio. In addition, during the
nine months ended
September 29, 2017
, the Company recorded a net charge of $38 million due to the extinguishment of certain long-term debt. This net charge included the difference between the reacquisition price and the net carrying amount of the debt extinguished. 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 29, 2017
versus
Three Months Ended September 30, 2016
During the
three months ended September 29, 2017
, equity income was
$358 million
, compared to equity income of
$281 million
during the
three months ended September 30, 2016
, an increase of $77 million, or 28 percent. This increase reflects, among other items, more favorable operating results reported by several of our equity method investees as well as an equity investment that the Company recently acquired in AC Bebidas, S. de R.L. de C.V. ("AC Bebidas"), a subsidiary of Arca Continental, S.A.B. de C.V. ("Arca"). Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's investment in AC Bebidas.
The Company recorded net charges of
$16 million
and
$14 million
in the line item equity income (loss) — net during the
three months ended September 29, 2017
and
September 30, 2016
, respectively. These amounts represent the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
Nine Months Ended September 29, 2017
versus
Nine Months Ended September 30, 2016
During the
nine months ended September 29, 2017
, equity income was
$883 million
, compared to equity income of
$678 million
during the
nine months ended September 30, 2016
, an increase of $205 million, or 30 percent. This increase reflects, among other items, more favorable operating results reported by several of our equity method investees as well as equity investments that the Company recently acquired in CCEP, CCBA and CCBA's South African subsidiary, and AC Bebidas. The favorable impact of these items was partially offset by the derecognition of the Company's former equity method investment in South Africa. Refer to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands" above for additional information on the deconsolidation of both our German and South African bottling operations. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the Company's investment in AC Bebidas.
The Company recorded net charges of
$37 million
and
$35 million
in the line item equity income (loss) — net during the
nine months ended September 29, 2017
and
September 30, 2016
, respectively. These amounts represent the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
Other Income (Loss) — Net
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; and other-than-temporary impairments of available-for-sale securities. 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 condensed consolidated balance sheets. Refer to Note 5 of Notes to Condensed Consolidated Financial Statements.
Three Months Ended September 29, 2017
versus
Three Months Ended September 30, 2016
During the
three months ended
September 29, 2017
, other income (loss) — net was a loss of
$771 million
. The Company recorded charges of
$762 million
due to the refranchising of certain bottling territories in North America and charges of
$72 million
primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of comprehensive beverage agreement ("CBA") with additional requirements. The Company also recorded an other-than-temporary impairment charge of
$50 million
related to one of our international equity method investees, primarily driven by foreign currency exchange rate fluctuations. These charges were partially offset by a gain of
$79 million
related to the refranchising of our remaining China bottling operations and related cost method investment. Other income (loss) — net also included net gains of $14 million related to trading securities and the sale of available-for-sale securities and
$10 million of dividend income, partially offset by net foreign currency exchange losses of $5 million. None of the other items included in other income (loss) — net during the
three months ended
September 29, 2017
, was individually significant. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the refranchising of our China bottling operations, North America refranchising 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
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 convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements. 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.
Nine Months Ended September 29, 2017
versus
Nine Months Ended September 30, 2016
During the
nine months ended
September 29, 2017
, other income (loss) — net was a loss of
$1,122 million
. The Company recognized a net charge of
$1,473 million
due to the refranchising of certain bottling territories in North America and charges of
$287 million
primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements. The Company also recorded an other-than-temporary impairment charge of
$50 million
related to one of our international equity method investees, primarily driven by foreign currency exchange rate fluctuations. Additionally, the Company incurred a charge of
$26 million
related to our former German bottling operations. These charges were partially offset by a gain of
$445 million
related to the integration of Coca-Cola West Co., Ltd. ("CCW") and Coca-Cola East Japan Co., Ltd. ("CCEJ") to establish Coca-Cola Bottlers Japan Inc. ("CCBJI"). In exchange for our previously existing equity interests in CCW and CCEJ, we received an approximate
17 percent
equity interest in CCBJI. The Company also recognized a gain of
$88 million
related to the refranchising of our China bottling operations and related cost method investment and a gain of
$25 million
as a result of Coca-Cola FEMSA, an equity method investee, issuing additional shares of its stock during the period at a per share amount greater than the carrying value of the Company's per share investment. Other income (loss) — net also included net gains of $69 million related to trading securities and the sale of available-for-sale securities and $62 million of dividend income, partially offset by net foreign currency exchange losses of $16 million. None of the other items included in other income (loss) — net during the
nine months ended
September 29, 2017
, was individually significant. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information on the North America refranchising, the conversion payments and the refranchising of our China bottling operations. 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
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 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 a single form of CBA with additional requirements. 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.
Income Taxes
Our effective tax rate reflects the tax benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of
35.0 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
2017
to
2036
. 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
2017
is
24.0 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.
On September 17, 2015, the Company received a Statutory Notice of Deficiency from the Internal Revenue Service ("IRS") for the tax years 2007 through 2009, after a five-year audit. Refer to
Note 7
of Notes to Condensed Consolidated Financial Statements.
The Company recorded income tax expense of
$230 million
(
13.7 percent
effective tax rate) and
$378 million
(
26.5 percent
effective tax rate) during the
three months ended
September 29, 2017
and
September 30, 2016
, respectively. The Company recorded income tax expense of
$1,805 million
(
31.1 percent
effective tax rate) and
$1,618 million
(
21.2 percent
effective tax rate) during the
nine months ended
September 29, 2017
and
September 30, 2016
, 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 29,
2017
|
|
|
September 30,
2016
|
|
|
September 29,
2017
|
|
|
September 30,
2016
|
|
|
Asset impairments
|
$
|
—
|
|
1
|
$
|
—
|
|
|
$
|
(164
|
)
|
1
|
$
|
—
|
|
|
Productivity and reinvestment program
|
(44
|
)
|
2
|
(20
|
)
|
9
|
(127
|
)
|
2
|
(65
|
)
|
9
|
Other productivity, integration and restructuring initiatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
10
|
Transaction gains and losses
|
(361
|
)
|
3
|
(246
|
)
|
11
|
172
|
|
4
|
(363
|
)
|
12
|
Certain tax matters
|
(40
|
)
|
5
|
7
|
|
13
|
(110
|
)
|
6
|
84
|
|
13
|
Other — net
|
(12
|
)
|
7
|
8
|
|
14
|
(41
|
)
|
8
|
(38
|
)
|
15
|
|
|
1
|
Related to charges of
$50 million
and
$821 million
during the
three and nine months ended
September 29, 2017
, respectively, due to the impairment of certain assets. Refer to
Note 10
and
Note 14
of Notes to Condensed Consolidated Financial Statements.
|
|
|
2
|
Related to charges of
$129 million
and
$355 million
during the
three and nine months ended
September 29, 2017
, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to
Note 11
of Notes to Condensed Consolidated Financial Statements.
|
|
|
3
|
Related to a net charge of
$968 million
which primarily consisted of
$762 million
of charges as a result of the refranchising of certain bottling territories in North America,
$213 million
related to costs incurred to refranchise certain of our bottling operations and
$72 million
primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements. These charges were partially offset by a
$79 million
gain related to the refranchising of our remaining China bottling operations and related cost method investment. Refer to
Note 2
and
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
4
|
Related to a net charge of
$1,551 million
which primarily consisted of
$1,473 million
of net charges as a result of the refranchising of certain bottling territories in North America,
$314 million
of charges related to costs incurred to refranchise certain of our bottling operations,
$287 million
of charges primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements and a
$26 million
charge related to our former German bottling operations. These charges were partially offset by a
$445 million
gain related to the merger of CCW and CCEJ, an
$88 million
gain related to the refranchising of our China bottling operations and related cost method investment and a
$25 million
gain related to Coca-Cola FEMSA, an equity method investee, issuing additional shares of its stock. Refer to
Note 2
and
Note 10
of Notes to Condensed Consolidated Financial Statements.
|
|
|
5
|
Related to
$40 million
of excess tax benefits associated with the Company's share-based compensation arrangements.
|
6
Related to
$122 million
of excess tax benefits associated with the Company's share-based compensation arrangements and the tax benefit associated with the reversal of valuation allowances in certain of the Company's foreign jurisdictions, both of which were partially offset by changes to our uncertain tax positions, including interest and penalties.
7
Related to charges of
$35 million
which primarily consisted of an
$18 million
charge related to tax litigation expense and a
$16 million
net charge due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to
Note 10
of Notes to Condensed Consolidated Financial Statements.
8
Related to charges of
$121 million
which primarily consisted of a net charge of
$38 million
related to the extinguishment of long-term debt, a
$43 million
charge related to tax litigation expense and a net charge of
$37 million
due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to
Note 10
of Notes to Condensed Consolidated Financial Statements.
9
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.
10
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.
11
Related to charges of
$1,204 million
which primarily consisted of
$1,089 million
of charges 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 a single form of CBA with additional requirements, 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.
12
Related to a net charge of
$561 million
which primarily consisted of
$1,657 million
of charges 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 a single form of CBA with additional requirements, 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 were 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.
13
Primarily related to changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
14
Related to charges of
$99 million
which included a
$76 million
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.
15
Related to charges of
$230 million
which 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
net 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.
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 2017. 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 $8,265 million in lines of credit available for general corporate purposes as of
September 29, 2017
. These backup lines of credit expire at various times between 2017 and 2022.
We have significant operations outside the United States. Unit case volume outside the United States represented 82 percent of the Company's worldwide unit case volume for the
nine months ended
September 29, 2017
. We earn a substantial amount of our consolidated operating income and income before income taxes in foreign subsidiaries that either sell concentrates and syrups 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 $24.7 billion as of
September 29, 2017
.
Net operating revenues in the United States were $11.9 billion for the
nine months ended
September 29, 2017
, or 43 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 period foreign earnings.
Based on all 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 29, 2017
and
September 30, 2016
, was $
5,918 million
and $
6,723 million
, respectively, a decrease of $805 million, or 12 percent. This decrease was primarily driven by unfavorable impacts resulting from changes in working capital of $487 million, two fewer days in the first quarter of 2017 compared to the first quarter of 2016, the refranchising of certain bottling operations and foreign currency exchange rate fluctuations. Included in the changes in working capital is an unfavorable impact resulting from additional income tax payments which was partially offset by favorable impacts resulting from hedging activities and reduced pension contributions compared to the prior year comparable period.
Cash Flows from Investing Activities
Net cash provided by investing activities for the
nine months ended
September 29, 2017
was
$244 million
compared to net cash used in investing activities of
$1,333 million
during the prior year comparable period.
Purchases of Investments and Proceeds from Disposals of Investments
During the
nine months ended
September 29, 2017
, purchases of investments were $
12,925 million
and proceeds from disposals of investments were $
12,161 million
, resulting in a net cash outflow of $764 million. The 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 3
of Notes to Condensed Consolidated Financial Statements for additional information.
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. The proceeds during the
nine months ended
September 30, 2016
included the disposal of the Company's investment 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 29, 2017
, the Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled
$538 million
, which primarily related to the acquisition of AdeS, a plant-based beverage business, by the Company and several of its bottling partners in Latin America. Additionally, in conjunction with the refranchising of CCR's Southwest operating unit ("Southwest Transaction"), we obtained an equity interest in AC Bebidas. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information.
On October 4, 2017, the Company and AB InBev completed the transition of AB InBev’s 54.5 percent majority interest in CCBA to the Company for $3.15 billion. Refer to
Note 16
of Notes to Condensed Consolidated Financial Statements for additional information.
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. ("China Green"), a maker of plant-based protein beverages in China, and a minority investment in CHI Limited ("CHI"), a Nigerian producer of value-added dairy and juice beverages, which is accounted for under the equity method of accounting. Under the terms of the agreement related to our investment in CHI, 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 29, 2017
, proceeds from disposals of businesses, equity method investments and nonmarketable securities were
$2,790 million
, primarily related to proceeds from the refranchising of certain bottling territories in North America and the refranchising of our China bottling operations and related cost method investment. 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 bottling territories in North America. Refer to
Note 2
of Notes to Condensed Consolidated Financial Statements for additional information.
Purchases of Property, Plant and Equipment
Purchases of property, plant and equipment net of disposals for the
nine months ended
September 29, 2017
, were
$1,122 million
. The Company currently expects our 2017 full year capital expenditures net of disposals to be approximately $2.0 billion, primarily in our Bottling Investments operating segment.
During the
nine months ended
September 30, 2016
, cash outflows for investing activities included purchases of property, plant and equipment net of disposals of
$1,469 million
.
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 29, 2017
and
September 30, 2016
totaled
$2,499 million
and
$1,783 million
, respectively, an increase of $716 million, or 40 percent.
Debt Financing
Issuances and payments of debt included both short-term and long-term financing activities. During the
nine months ended
September 29, 2017
, the Company had issuances of debt of $
24,899 million
, which included $21,266 million of net issuances related to commercial paper and short-term debt with maturities greater than 90 days, and issuances of long-term debt of $3,633 million, net of related discounts and issuance costs. The Company made payments of debt of $
22,424 million
during the
nine months ended
September 29, 2017
, which included $1,029 million of payments of commercial paper and short-term debt with maturities of 90 days or less, $18,607 million of payments of commercial paper and short-term debt with maturities greater than 90 days, and payments of long-term debt of $2,788 million. Refer below for additional details on our long-term debt issuances and payments.
During the
nine months ended September 29, 2017
, the Company issued U.S. dollar- and euro-denominated debt of
$1,000 million
and
€2,500 million
, respectively. The general terms of the notes issued are as follows:
|
|
•
|
$500 million
total principal amount of notes due May 25, 2022, at a fixed interest rate of
2.20 percent
;
|
|
|
•
|
$500 million
total principal amount of notes due May 25, 2027, at a fixed interest rate of
2.90 percent
;
|
|
|
•
|
€1,500 million
total principal amount of notes due March 8, 2019, at a variable interest rate equal to the three-month Euro Interbank Offered Rate ("EURIBOR") plus
0.25 percent
;
|
|
|
•
|
€500 million
total principal amount of notes due March 9, 2021, at a fixed interest rate of
0.00 percent
; and
|
|
|
•
|
€500 million
total principal amount of notes due March 8, 2024, at a fixed interest rate of
0.50 percent
.
|
During the
nine months ended September 29, 2017
, the Company retired upon maturity
$206 million
total principal amount of notes due August 1, 2017, at a fixed interest rate of
7.125 percent
and
€2,000 million
total principal amount of notes due March 9, 2017, at a variable interest rate equal to the three-month EURIBOR plus
0.15 percent
. The Company also extinguished a portion of the long-term debt that was assumed in connection with our acquisition of Old CCE. The extinguished notes had a carrying value of
$417 million
, which included fair value adjustments recorded as part of purchase accounting. The general terms of the notes extinguished were as follo
ws:
|
|
•
|
$95.6 million
total principal amount o
f notes due August 15, 2019, at a fixed interest rate of
4.50 percent
;
|
|
|
•
|
$38.6 million
total principal amount of notes due February 1, 2022, at a fixed interest rate of
8.50 percent
;
|
|
|
•
|
$11.7 million
total principal amount of notes due September 15, 2022, at a fixed interest rate of
8.00 percent
;
|
|
|
•
|
$36.5 million
total principal amount of notes due September 15, 2023, at a fixed interest rate of
6.75 percent
;
|
|
|
•
|
$9.9 million
total principal amount of notes due October 1, 2026, at a fixed interest rate of
7.00 percent
;
|
|
|
•
|
$53.8 million
total principal amount of notes due November 15, 2026, at a fixed interest rate of
6.95 percent
;
|
|
|
•
|
$41.3 million
total principal amount of notes due September 15, 2028, at a fixed interest rate of
6.75 percent
;
|
|
|
•
|
$32.0 million
total principal amount of notes due October 15, 2036, at a fixed interest rate of
6.70 percent
;
|
|
|
•
|
$3.4 million
total principal amount of notes due March 18, 2037, at a fixed interest rate of
5.71 percent
;
|
|
|
•
|
$24.3 million
total principal amount of notes due January 15, 2038, at a fixed interest rate of
6.75 percent
; and
|
|
|
•
|
$4.7 million
total principal amount of notes due May 15, 2098, at a fixed interest rate of
7.00 percent
.
|
As of
September 29, 2017
, the carrying value of the Company's long-term debt included $269 million of fair value adjustments related to the remaining debt assumed in connection with our acquisition of Old CCE. These fair value adjustments will be amortized over a weighted-average period of approximately 24 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 29, 2017
, the Company received cash proceeds from issuances of stock of $
1,320 million
, an increase of $25 million when compared to cash proceeds of $
1,295 million
from issuances of stock during the
nine months ended
September 30, 2016
. 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 29, 2017
, the Company repurchased 68.8 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 $43.76 per share, for a total cost of $3,012 million. However, due to the timing of settlements, the total cash outflow for treasury stock purchases was $
3,087 million
during the
nine months ended
September 29, 2017
. The total cash outflow for treasury stock during the first nine months of 2017 includes treasury stock that was purchased and settled during the
nine months ended
September 29, 2017
, as well as stock purchased in December 2016 that settled in early 2017; however, it does not include treasury stock that was purchased but did not settle during the
nine months ended
September 29, 2017
. In addition to shares repurchased, the Company's treasury stock activity also includes shares surrendered to the Company to pay the exercise price and/or to satisfy 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 net impact of the Company's issuances of stock and share repurchases during the
nine months ended
September 29, 2017
, resulted in a net cash outflow of $1,767 million. We expect to repurchase approximately $2.0 billion of our stock during 2017, net of proceeds from the issuance of treasury stock due to the exercise of employee stock options.
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.
Dividends
During the
nine months ended
September 29, 2017
, the Company paid dividends of
$3,165 million
. The Company paid the third quarter dividend during the first week of October 2017. During the
nine months ended
September 30, 2016
, the Company paid dividends of
$3,028 million
.
Our Board of Directors approved the Company's regular quarterly dividend of $0.37 per share at its October 2017 meeting. This dividend is payable on December 15, 2017, to shareowners of record as of December 1, 2017.
Foreign Exchange
Our international operations are subject to certain opportunities and risks, including 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 the geographic diversity of our operations, weakness in some foreign currencies may be offset by strength 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 29, 2017
by 2 percent and 3 percent, respectively. Based on current spot rates and our hedging coverage in place, we expect currencies will have a favorable impact on our results in the fourth quarter of 2017.
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. 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. The Venezuelan government also announced a new rate known as DICOM, which is allowed to float freely and is expected to fluctuate based on supply and demand. 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 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 weaker sales and the volatility of foreign currency exchange rates resulting from continued political instability, we recorded impairment charges of
$34 million
during the
nine months ended
September 29, 2017
in the line item other operating charges in our condensed consolidated statement of income. As a result of these impairment charges, the remaining carrying value of all U.S. dollar-denominated intangible assets associated with products sold in Venezuela is zero.
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 29,
2017
|
|
December 31, 2016
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Cash and cash equivalents
|
$
|
12,528
|
|
$
|
8,555
|
|
$
|
3,973
|
|
|
46
|
%
|
Short-term investments
|
9,691
|
|
9,595
|
|
96
|
|
|
1
|
|
Marketable securities
|
5,138
|
|
4,051
|
|
1,087
|
|
|
27
|
|
Trade accounts receivable — net
|
3,664
|
|
3,856
|
|
(192
|
)
|
|
(5
|
)
|
Inventories
|
2,608
|
|
2,675
|
|
(67
|
)
|
|
(3
|
)
|
Prepaid expenses and other assets
|
2,993
|
|
2,481
|
|
512
|
|
|
21
|
|
Assets held for sale
|
1,782
|
|
2,797
|
|
(1,015
|
)
|
|
(36
|
)
|
Equity method investments
|
21,644
|
|
16,260
|
|
5,384
|
|
|
33
|
|
Other investments
|
1,117
|
|
989
|
|
128
|
|
|
13
|
|
Other assets
|
4,480
|
|
4,248
|
|
232
|
|
|
5
|
|
Property, plant and equipment — net
|
8,306
|
|
10,635
|
|
(2,329
|
)
|
|
(22
|
)
|
Trademarks with indefinite lives
|
6,575
|
|
6,097
|
|
478
|
|
|
8
|
|
Bottlers' franchise rights with indefinite lives
|
138
|
|
3,676
|
|
(3,538
|
)
|
|
(96
|
)
|
Goodwill
|
9,473
|
|
10,629
|
|
(1,156
|
)
|
|
(11
|
)
|
Other intangible assets
|
378
|
|
726
|
|
(348
|
)
|
|
(48
|
)
|
Total assets
|
$
|
90,515
|
|
$
|
87,270
|
|
$
|
3,245
|
|
|
4
|
%
|
Accounts payable and accrued expenses
|
$
|
10,212
|
|
$
|
9,490
|
|
$
|
722
|
|
|
8
|
%
|
Loans and notes payable
|
13,398
|
|
12,498
|
|
900
|
|
|
7
|
|
Current maturities of long-term debt
|
3,231
|
|
3,527
|
|
(296
|
)
|
|
(8
|
)
|
Accrued income taxes
|
355
|
|
307
|
|
48
|
|
|
16
|
|
Liabilities held for sale
|
437
|
|
710
|
|
(273
|
)
|
|
(38
|
)
|
Long-term debt
|
32,471
|
|
29,684
|
|
2,787
|
|
|
9
|
|
Other liabilities
|
3,946
|
|
4,081
|
|
(135
|
)
|
|
(3
|
)
|
Deferred income taxes
|
4,313
|
|
3,753
|
|
560
|
|
|
15
|
|
Total liabilities
|
$
|
68,363
|
|
$
|
64,050
|
|
$
|
4,313
|
|
|
7
|
%
|
Net assets
|
$
|
22,152
|
|
$
|
23,220
|
|
$
|
(1,068
|
)
|
1
|
(5
|
)%
|
1
Includes an increase in net assets of
$1,511 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:
|
|
•
|
Marketable securities increased primarily due to the purchase of debt securities as part of our overall cash management strategy.
|
|
|
•
|
Assets held for sale and liabilities held for sale decreased primarily due to North America and China bottling refranchising activities. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.
|
|
|
•
|
Equity method investments increased primarily due to our new investments in AC Bebidas and CCBJI. Refer to Note 2 and Note 10 of Notes to Condensed Consolidated Financial Statements for additional information.
|
|
|
•
|
Property, plant and equipment, bottlers' franchise rights with indefinite lives and goodwill decreased primarily as a result of additional North America bottling territories being refranchised or reclassified as held for sale as well as impairment charges recorded. Refer to Note 2 and Note 14 of Notes to Condensed Consolidated Financial Statements for additional information.
|