NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of The Coca-Cola Company for the year ended December 31, 2020.
When used in these notes, 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. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended April 2, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters typically accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.
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. The first quarter of 2021 and the first quarter of 2020 ended on April 2, 2021 and March 27, 2020, respectively. Our fourth interim reporting period and our fiscal year end on December 31 regardless of the day of the week on which December 31 falls.
Advertising Costs
The Company’s accounting policy related to advertising costs for annual reporting purposes is to expense production costs of print, radio, television and other advertisements as of the first date the advertisements take place. All other marketing expenditures are expensed in the annual period in which the expenditure is incurred.
For interim reporting purposes, we allocate our estimated full year marketing expenditures that benefit multiple interim periods to each of our interim reporting periods. We use the proportion of each interim period’s actual unit case volume to the estimated full year unit case volume as the basis for the allocation. This methodology results in our marketing expenditures being recognized at a standard rate per unit case. At the end of each interim reporting period, we review our estimated full year unit case volume and our estimated full year marketing expenditures that benefit multiple interim periods in order to evaluate if a change in estimate is necessary. The impact of any change in the full year estimate is recognized in the interim period in which the change in estimate occurs. Our full year marketing expenditures are not impacted by this interim accounting policy.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
We classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents or restricted cash equivalents, as applicable. Restricted cash and restricted cash equivalents generally consist of amounts held by our captive insurance companies, which are included in the line item other assets in our consolidated balance sheet. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor our concentrations of credit risk.
The following tables provide a summary of cash, cash equivalents, restricted cash and restricted cash equivalents that constitute the total amounts shown in the condensed consolidated statements of cash flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
April 2,
2021
|
December 31,
2020
|
Cash and cash equivalents
|
$
|
8,484
|
|
$
|
6,795
|
|
|
Restricted cash and restricted cash equivalents included in other assets1
|
327
|
|
315
|
|
|
Cash, cash equivalents, restricted cash and restricted cash equivalents
|
$
|
8,811
|
|
$
|
7,110
|
|
|
|
|
|
|
1 Amounts represent restricted cash and restricted cash equivalents in our solvency capital portfolio set aside primarily to cover pension obligations in certain of our European and Canadian pension plans. Refer to Note 4.
|
|
|
|
|
|
|
|
|
|
|
March 27,
2020
|
December 31,
2019
|
Cash and cash equivalents
|
$
|
13,561
|
|
$
|
6,480
|
|
|
Restricted cash and restricted cash equivalents included in other assets1
|
404
|
|
257
|
|
|
Cash, cash equivalents, restricted cash and restricted cash equivalents
|
$
|
13,965
|
|
$
|
6,737
|
|
|
1 Amounts represent restricted cash and restricted cash equivalents in our solvency capital portfolio set aside primarily to cover pension obligations in certain of our European and Canadian pension plans. Refer to Note 4.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Acquisitions
Our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $4 million and $984 million during the three months ended April 2, 2021 and March 27, 2020, respectively. In 2020, we acquired the remaining ownership interest in fairlife, LLC (“fairlife”).
fairlife, LLC
In January 2020, the Company acquired the remaining 57.5 percent ownership interest in, and now owns 100 percent of, fairlife. fairlife offers a broad portfolio of products in the value-added dairy category across North America. Upon consolidation, we recognized a gain of $902 million resulting from the remeasurement of our previously held equity interest in fairlife to fair value. The fair value of our previously held equity interest was determined using a discounted cash flow model based on Level 3 inputs. The gain was recorded in the line item other income (loss) — net in our condensed consolidated statement of income. We acquired the remaining ownership interest in exchange for $979 million of cash, net of cash acquired, and effectively settled our $306 million note receivable from fairlife at the recorded amount. Under the terms of the agreement, we are subject to making future milestone payments which are contingent on fairlife achieving certain financial targets through 2024 and, if achieved, are payable in 2021, 2023 and 2025. These milestone payments are based on agreed-upon formulas related to fairlife’s operating results, the resulting values of which are not subject to a ceiling. Under the applicable accounting guidance, we recorded a $270 million liability representing our best estimate of the fair value of this contingent consideration as of the acquisition date. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs. We are required to remeasure this liability to fair value quarterly, with any changes in the fair value recorded in income until the final milestone payment is made. Upon finalization of purchase accounting, $1.3 billion of the purchase price was allocated to the fairlife trademark and $0.8 billion was allocated to goodwill. The goodwill recognized as part of this acquisition is primarily related to synergistic value created from the opportunity for additional expansion. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce. The goodwill is not tax deductible and has been assigned to the North America operating segment.
During the three months ended April 2, 2021 and March 27, 2020, we recorded charges of $4 million and $11 million, respectively, related to the remeasurement of the contingent consideration liability to fair value in the line item other operating charges in our condensed consolidated statements of income. During the three months ended April 2, 2021, we made the first milestone payment of $100 million based on fairlife meeting its financial targets in 2020.
Divestitures
Proceeds from disposals of businesses, equity method investments and nonmarketable securities during the three months ended April 2, 2021 and March 27, 2020 totaled $2 million and $36 million, respectively. In 2020, we sold a portion of our ownership interest in one of our equity method investments and recognized a net gain of $18 million, which was recorded in the line item other income (loss) — net in our condensed consolidated statement of income.
NOTE 3: REVENUE RECOGNITION
The following table presents net operating revenues disaggregated between the United States and International and further by line of business (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
International
|
Total
|
|
|
|
Three Months Ended April 2, 2021
|
|
|
|
|
|
|
Concentrate operations
|
$
|
1,410
|
|
$
|
3,572
|
|
$
|
4,982
|
|
|
|
|
Finished product operations
|
1,483
|
|
2,555
|
|
4,038
|
|
|
|
|
Total
|
$
|
2,893
|
|
$
|
6,127
|
|
$
|
9,020
|
|
|
|
|
Three Months Ended March 27, 2020
|
|
|
|
|
|
|
Concentrate operations
|
$
|
1,324
|
|
$
|
3,465
|
|
$
|
4,789
|
|
|
|
|
Finished product operations
|
1,483
|
|
2,329
|
|
3,812
|
|
|
|
|
Total
|
$
|
2,807
|
|
$
|
5,794
|
|
$
|
8,601
|
|
|
|
|
Refer to Note 16 for disclosures of net operating revenues by operating segment and Corporate.
NOTE 4: INVESTMENTS
Equity Securities
The carrying values of our equity securities were included in the following line items in our condensed consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
Fair Value with Changes Recognized in Income
|
Measurement Alternative — No Readily Determinable Fair Value
|
April 2, 2021
|
|
|
|
|
|
Marketable securities
|
$
|
345
|
|
$
|
—
|
|
Other investments
|
755
|
|
51
|
|
Other assets
|
1,441
|
|
—
|
|
Total equity securities
|
$
|
2,541
|
|
$
|
51
|
|
December 31, 2020
|
|
|
|
|
|
Marketable securities
|
$
|
330
|
|
$
|
—
|
|
Other investments
|
762
|
|
50
|
|
Other assets
|
1,282
|
|
—
|
|
Total equity securities
|
$
|
2,374
|
|
$
|
50
|
|
The calculation of net unrealized gains and losses recognized during the period related to equity securities still held at the end of the period is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2021
|
March 27,
2020
|
Net gains (losses) recognized during the period related to equity securities
|
$
|
155
|
|
$
|
(396)
|
|
Less: Net gains (losses) recognized during the period related to equity securities sold
during the period
|
14
|
|
(16)
|
|
Net unrealized gains (losses) recognized during the period related to equity securities
still held at the end of the period
|
$
|
141
|
|
$
|
(380)
|
|
|
|
|
|
|
|
Debt Securities
Our debt securities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
Estimated Fair Value
|
|
Cost
|
Gains
|
Losses
|
April 2, 2021
|
|
|
|
|
Trading securities
|
$
|
37
|
|
$
|
2
|
|
$
|
—
|
|
$
|
39
|
|
Available-for-sale securities
|
2,180
|
|
33
|
|
(85)
|
|
2,128
|
|
Total debt securities
|
$
|
2,217
|
|
$
|
35
|
|
$
|
(85)
|
|
$
|
2,167
|
|
December 31, 2020
|
|
|
|
|
Trading securities
|
$
|
36
|
|
$
|
2
|
|
$
|
—
|
|
$
|
38
|
|
Available-for-sale securities
|
2,227
|
|
51
|
|
(13)
|
|
2,265
|
|
Total debt securities
|
$
|
2,263
|
|
$
|
53
|
|
$
|
(13)
|
|
$
|
2,303
|
|
The carrying values of our debt securities were included in the following line items in our condensed consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2021
|
December 31, 2020
|
|
Trading Securities
|
Available-for-Sale Securities
|
Trading Securities
|
Available-for-Sale Securities
|
Cash and cash equivalents
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Marketable securities
|
39
|
|
1,850
|
|
38
|
|
1,980
|
|
Other assets
|
—
|
|
278
|
|
—
|
|
285
|
|
Total debt securities
|
$
|
39
|
|
$
|
2,128
|
|
$
|
38
|
|
$
|
2,265
|
|
The contractual maturities of these available-for-sale debt securities as of April 2, 2021 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
Estimated
Fair Value
|
|
|
|
Within 1 year
|
$
|
684
|
|
$
|
691
|
|
|
|
|
After 1 year through 5 years
|
1,205
|
|
1,143
|
|
|
|
|
After 5 years through 10 years
|
92
|
|
101
|
|
|
|
|
After 10 years
|
199
|
|
193
|
|
|
|
|
Total
|
$
|
2,180
|
|
$
|
2,128
|
|
|
|
|
The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.
The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity (in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2021
|
March 27,
2020
|
Gross gains
|
$
|
1
|
|
$
|
8
|
|
Gross losses
|
(4)
|
|
(2)
|
|
Proceeds
|
158
|
|
906
|
|
Captive Insurance Companies
In accordance with local insurance regulations, our captive insurance companies are required to meet and maintain minimum solvency capital requirements. The Company elected to invest a majority of its solvency capital in a portfolio of marketable equity and debt securities. These securities are included in the disclosures above. The Company uses one of its consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the pension obligations of certain of our European and Canadian pension plans. This captive’s solvency capital funds included equity and debt securities of $1,534 million and $1,389 million as of April 2, 2021 and December 31, 2020, respectively, which are classified in the line item other assets in our condensed consolidated balance sheets because the assets are not available to satisfy our current obligations.
NOTE 5: INVENTORIES
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
April 2,
2021
|
December 31,
2020
|
Raw materials and packaging
|
$
|
2,097
|
|
$
|
2,106
|
|
Finished goods
|
877
|
|
791
|
|
Other
|
382
|
|
369
|
|
Total inventories
|
$
|
3,356
|
|
$
|
3,266
|
|
NOTE 6: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the fair values of the Company’s derivative instruments that were designated and qualified as part of a hedging relationship (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value1,2
|
Derivatives Designated as Hedging Instruments
|
Balance Sheet Location1
|
April 2,
2021
|
December 31, 2020
|
Assets:
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other assets
|
$
|
47
|
|
$
|
26
|
|
Foreign currency contracts
|
Other assets
|
116
|
|
74
|
|
Commodity contracts
|
Prepaid expenses and other assets
|
—
|
|
2
|
|
Interest rate contracts
|
Prepaid expenses and other assets
|
6
|
|
—
|
|
Interest rate contracts
|
Other assets
|
520
|
|
659
|
|
Total assets
|
|
$
|
689
|
|
$
|
761
|
|
Liabilities:
|
|
|
|
Foreign currency contracts
|
Accounts payable and accrued expenses
|
$
|
31
|
|
$
|
29
|
|
Foreign currency contracts
|
Other liabilities
|
1
|
|
—
|
|
|
|
|
|
Interest rate contracts
|
Accounts payable and accrued expenses
|
—
|
|
5
|
|
Interest rate contracts
|
Other liabilities
|
247
|
|
—
|
|
Total liabilities
|
|
$
|
279
|
|
$
|
34
|
|
1 All of the Company’s derivative instruments are carried at fair value in our condensed consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties, as applicable. Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral. Refer to Note 15 for the net presentation of the Company’s derivative instruments.
2 Refer to Note 15 for additional information related to the estimated fair value.
The following table presents the fair values of the Company’s derivative instruments that were not designated as hedging instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value1,2
|
Derivatives Not Designated as Hedging Instruments
|
Balance Sheet Location1
|
April 2,
2021
|
December 31, 2020
|
Assets:
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other assets
|
$
|
26
|
|
$
|
28
|
|
Foreign currency contracts
|
Other assets
|
3
|
|
1
|
|
Commodity contracts
|
Prepaid expenses and other assets
|
140
|
|
76
|
|
Commodity contracts
|
Other assets
|
13
|
|
9
|
|
Other derivative instruments
|
Prepaid expenses and other assets
|
18
|
|
20
|
|
Other derivative instruments
|
Other assets
|
—
|
|
3
|
|
Total assets
|
|
$
|
200
|
|
$
|
137
|
|
Liabilities:
|
|
|
|
Foreign currency contracts
|
Accounts payable and accrued expenses
|
$
|
40
|
|
$
|
41
|
|
|
|
|
|
Commodity contracts
|
Accounts payable and accrued expenses
|
4
|
|
15
|
|
Commodity contracts
|
Other liabilities
|
2
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
46
|
|
$
|
57
|
|
1 All of the Company’s derivative instruments are carried at fair value in our condensed consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties, as applicable. Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral. Refer to Note 15 for the net presentation of the Company’s derivative instruments.
2 Refer to Note 15 for additional information related to the estimated fair value.
Credit Risk Associated with Derivatives
We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We monitor counterparty exposures regularly and review any downgrade in credit rating immediately. If a downgrade in the credit rating of a counterparty were to occur, we have provisions requiring collateral for substantially all of our transactions. To mitigate presettlement risk, minimum credit standards become more stringent as the duration of the derivative financial instrument increases. In addition, the Company’s master netting agreements reduce credit risk by permitting the Company to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.
Cash Flow Hedging Strategy
The Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates, commodity prices or interest rates. The changes in the fair values of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings. The changes in the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is typically four years.
The Company maintains a foreign currency cash flow hedging program to reduce the risk that our eventual U.S. dollar net cash inflows from sales outside the United States and U.S. dollar net cash outflows from procurement activities will be adversely affected by fluctuations in foreign currency exchange rates. We enter into forward contracts and purchase foreign currency options and collars (principally euro, British pound sterling and Japanese yen) to hedge certain portions of forecasted cash flows denominated in foreign currencies. When the U.S. dollar strengthens against the foreign currencies, the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments. The total notional values of derivatives that were designated and qualify for the Company’s foreign currency cash flow hedging program were $9,327 million and $7,785 million as of April 2, 2021 and December 31, 2020, respectively.
The Company uses cross-currency swaps to hedge the changes in cash flows of certain of its foreign currency denominated debt and other monetary assets or liabilities due to fluctuations in foreign currency exchange rates. For this hedging program, the
Company records the changes in carrying values of these foreign currency denominated assets and liabilities due to changes in exchange rates into earnings each period. The changes in fair values of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the changes in fair values attributable to fluctuations in foreign currency exchange rates. The total notional values of derivatives that have been designated as cash flow hedges for the Company’s foreign currency denominated assets and liabilities were $2,700 million as of April 2, 2021 and December 31, 2020.
The Company has entered into commodity futures contracts and other derivative instruments on various commodities to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process. These derivative instruments have been designated and qualify as part of the Company’s commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of certain commodities. The total notional values of derivatives that have been designated and qualify for this program were $18 million and $11 million as of April 2, 2021 and December 31, 2020, respectively.
Our Company monitors our mix of short-term debt and long-term debt regularly. From time to time, we manage our risk to interest rate fluctuations through the use of derivative financial instruments. The Company has entered into interest rate swap agreements and has designated these instruments as part of the Company’s interest rate cash flow hedging program. The objective of this hedging program is to mitigate the risk of adverse changes in benchmark interest rates on the Company’s future interest payments. The total notional value of these interest rate swap agreements that were designated and qualified for the Company’s interest rate cash flow hedging program was $1,233 million as of December 31, 2020. As of April 2, 2021, we did not have any interest rate swaps designated as a cash flow hedge.
The following table presents the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized
in OCI
|
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss) Reclassified from AOCI into Income
|
Three Months Ended April 2, 2021
|
|
|
|
|
Foreign currency contracts
|
$
|
(23)
|
|
|
Net operating revenues
|
$
|
(23)
|
|
Foreign currency contracts
|
(5)
|
|
|
Cost of goods sold
|
(1)
|
|
Foreign currency contracts
|
—
|
|
|
Interest expense
|
(1)
|
|
Foreign currency contracts
|
87
|
|
|
Other income (loss) — net
|
66
|
|
Interest rate contracts
|
121
|
|
|
Interest expense
|
(5)
|
|
|
|
|
|
|
Total
|
$
|
180
|
|
|
|
$
|
36
|
|
Three Months Ended March 27, 2020
|
|
|
|
|
Foreign currency contracts
|
$
|
103
|
|
|
Net operating revenues
|
$
|
(4)
|
|
Foreign currency contracts
|
11
|
|
|
Cost of goods sold
|
1
|
|
Foreign currency contracts
|
—
|
|
|
Interest expense
|
(2)
|
|
Foreign currency contracts
|
(90)
|
|
|
Other income (loss) — net
|
15
|
|
Interest rate contracts
|
8
|
|
|
Interest expense
|
(11)
|
|
|
|
|
|
|
Total
|
$
|
32
|
|
|
|
$
|
(1)
|
|
As of April 2, 2021, the Company estimates that it will reclassify into earnings during the next 12 months net losses of $60 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.
Fair Value Hedging Strategy
The Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates. The Company also uses cross-currency interest rate swaps to hedge the changes in the fair values of foreign currency denominated debt relating to changes in foreign currency exchange rates and benchmark interest rates. The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items are recognized in earnings. As a result, any difference is reflected in earnings as ineffectiveness. When a derivative is no longer designated as a fair value hedge for any reason, including termination and maturity, the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item, or immediately if the hedged item has matured or been extinguished. The total notional values of derivatives related to fair value hedges of this type were $17,677 million and $10,215 million as of April 2, 2021 and December 31, 2020, respectively.
The following table summarizes the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Instruments and Hedged Items
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss)
Recognized in Income
|
Three Months Ended
|
April 2,
2021
|
March 27,
2020
|
Interest rate contracts
|
Interest expense
|
$
|
(395)
|
|
$
|
112
|
|
Fixed-rate debt
|
Interest expense
|
396
|
|
(103)
|
|
Net impact to interest expense
|
|
$
|
1
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of fair value hedging instruments
|
|
$
|
1
|
|
$
|
9
|
|
The following table summarizes the amounts recorded in the condensed consolidated balance sheets related to hedged items in fair value hedging relationships (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Hedged Items
|
|
Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Values of Hedged Items1
|
Balance Sheet Location of Hedged Items
|
April 2,
2021
|
December 31,
2020
|
|
April 2,
2021
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
$
|
1,245
|
|
$
|
—
|
|
|
$
|
6
|
|
$
|
—
|
|
Long-term debt
|
16,638
|
|
11,129
|
|
|
462
|
|
646
|
|
1 Cumulative amount of fair value hedging adjustments does not include changes due to foreign currency exchange rate fluctuations.
Hedges of Net Investments in Foreign Operations Strategy
The Company uses forward contracts and a portion of its foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in a number of foreign operations. For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the fair values of the derivative instruments are recognized in net foreign currency translation adjustments, a component of AOCI, to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the carrying values of the designated portion of the non-derivative financial instrument due to fluctuations in foreign currency exchange rates are recorded in net foreign currency translation adjustments. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.
The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Values
|
|
Gain (Loss) Recognized in OCI
|
|
as of
|
|
Three Months Ended
|
|
April 2,
2021
|
December 31, 2020
|
|
April 2,
2021
|
March 27,
2020
|
Foreign currency contracts
|
$
|
1,049
|
|
$
|
451
|
|
|
$
|
(8)
|
|
$
|
(3)
|
|
Foreign currency denominated debt
|
13,000
|
|
13,336
|
|
|
483
|
|
79
|
|
Total
|
$
|
14,049
|
|
$
|
13,787
|
|
|
$
|
475
|
|
$
|
76
|
|
The Company did not reclassify any gains or losses related to net investment hedges from AOCI into earnings during the three months ended April 2, 2021 and March 27, 2020. In addition, the Company did not have any ineffectiveness related to net investment hedges during the three months ended April 2, 2021 and March 27, 2020. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in the line item other investing activities in our condensed consolidated statement of cash flows.
Economic (Non-Designated) Hedging Strategy
In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives as economic hedges of foreign currency, interest rate and commodity exposure. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effective economic hedges. The changes in the fair values of economic hedges are immediately recognized in earnings.
The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. The changes in the fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized in earnings in the line item other income (loss) — net in our consolidated statement of income. In addition, we use foreign currency economic hedges to minimize the variability in cash flows associated with fluctuations in foreign currency exchange rates, including those related to certain acquisition and divestiture activities. The changes in the fair values of economic hedges used to offset the variability in U.S. dollar net cash flows are recognized in earnings in the line items net operating revenues, cost of goods sold or other income (loss) — net in our consolidated statement of income, as applicable. The total notional values of derivatives related to our foreign currency economic hedges were $6,370 million and $5,727 million as of April 2, 2021 and December 31, 2020, respectively.
The Company uses interest rate contracts as economic hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates. The total notional values of derivatives related to our economic hedges of this type were $200 million as of April 2, 2021 and December 31, 2020.
The Company also uses certain derivatives as economic hedges to mitigate the price risk associated with the purchase of materials used in the manufacturing process and vehicle fuel. The changes in the fair values of these economic hedges are immediately recognized in earnings in the line items net operating revenues, cost of goods sold, or selling, general and administrative expenses in our consolidated statement of income, as applicable. The total notional values of derivatives related to our economic hedges of this type were $1,057 million and $715 million as of April 2, 2021 and December 31, 2020, respectively.
The following table presents the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss)
Recognized in Income
|
Three Months Ended
|
April 2,
2021
|
March 27,
2020
|
Foreign currency contracts
|
Net operating revenues
|
$
|
(1)
|
|
$
|
24
|
|
Foreign currency contracts
|
Cost of goods sold
|
(8)
|
|
14
|
|
Foreign currency contracts
|
Other income (loss) — net
|
(28)
|
|
(91)
|
|
Interest rate contracts
|
Interest expense
|
(187)
|
|
—
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
82
|
|
(85)
|
|
|
|
|
|
Other derivative instruments
|
Selling, general and administrative expenses
|
8
|
|
(56)
|
|
Other derivative instruments
|
Other income (loss) — net
|
(3)
|
|
(57)
|
|
Total
|
|
$
|
(137)
|
|
$
|
(251)
|
|
NOTE 7: DEBT AND BORROWING ARRANGEMENTS
During the three months ended April 2, 2021, the Company issued U.S. dollar- and euro-denominated debt of $2,500 million and €2,000 million, respectively. The carrying value of this debt as of April 2, 2021 was $4,775 million. The general terms of the notes issued are as follows:
•$750 million total principal amount of notes due March 5, 2028, at a fixed interest rate of 1.500 percent;
•€700 million total principal amount of notes due March 9, 2029, at a fixed interest rate of 0.125 percent;
•$750 million total principal amount of notes due March 5, 2031, at a fixed interest rate of 2.000 percent;
•€650 million total principal amount of notes due March 9, 2033, at a fixed interest rate of 0.500 percent;
•€650 million total principal amount of notes due March 9, 2041, at a fixed interest rate of 1.000 percent; and
•$1,000 million total principal amount of notes due March 5, 2051, at a fixed interest rate of 3.000 percent.
During the three months ended April 2, 2021, the Company retired upon maturity €371 million total principal amount of notes due March 8, 2021, at a variable interest rate equal to the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.200 percent.
During the three months ended April 2, 2021, the Company extinguished prior to maturity U.S. dollar- and euro-denominated debt of $751 million and €633 million, respectively, resulting in associated charges of $58 million recorded in the line item interest expense in our condensed consolidated statement of income. These charges included the difference between the reacquisition price and the net carrying value of the debt extinguished, including the impact of the related fair value hedging relationships. The general terms of the notes that were extinguished are as follows:
•€633 million total principal amount of notes due March 9, 2023, at a fixed interest rate of 0.750 percent;
•$358 million total principal amount of notes due April 1, 2023, at a fixed interest rate of 2.500 percent; and
•$393 million total principal amount of notes due November 1, 2023, at a fixed interest rate of 3.200 percent.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Guarantees
As of April 2, 2021, we were contingently liable for guarantees of indebtedness owed by third parties of $510 million, of which $110 million was related to variable interest entities. Our guarantees are primarily related to third-party customers, bottlers and vendors and have arisen through the normal course of business. These guarantees have various terms, and none of these guarantees is individually significant. These amounts represent the maximum potential future payments that we could be required to make under the guarantees; however, we do not consider it probable that we will be required to satisfy these guarantees.
We believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.
Legal Contingencies
The Company is involved in various legal proceedings. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. Management believes that the total liabilities of the Company that may arise as a result of currently pending legal proceedings (excluding tax audit claims) will not have a material adverse effect on the Company taken as a whole.
Tax Audits
The Company is involved in various tax matters, with respect to some of which the outcome is uncertain. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon one of the following conditions: (1) the tax position is not “more likely than not” to be sustained; (2) the tax position is “more likely than not” to be sustained but for a lesser amount; or (3) the tax position is “more likely than not” to be sustained but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities, such as legislation and statutes, legislative intent, regulations, rulings and caselaw and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved. The number of years subject to tax audits or tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is “more likely than not” to be sustained; (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the tax position has expired. Refer to Note 14.
On September 17, 2015, the Company received a Statutory Notice of Deficiency (“Notice”) from the U.S. Internal Revenue Service (“IRS”) seeking approximately $3.3 billion of additional federal income tax for years 2007 through 2009. In the Notice, the IRS stated its intent to reallocate over $9 billion of income to the U.S. parent company from certain of its foreign affiliates that the U.S. parent company licensed to manufacture, distribute, sell, market and promote its products in certain non-U.S. markets.
The Notice concerned the Company’s transfer pricing between its U.S. parent company and certain of its foreign affiliates. IRS rules governing transfer pricing require arm’s-length pricing of transactions between related parties such as the Company’s U.S. parent and its foreign affiliates.
To resolve the same transfer pricing issue for the tax years 1987 through 1995, the Company and the IRS had agreed in 1996 on an arm’s-length methodology for determining the amount of U.S. taxable income that the U.S. parent company would report as compensation from its foreign licensees. The Company and the IRS memorialized this accord in a closing agreement resolving that dispute (“Closing Agreement”). The Closing Agreement provided that, absent a change in material facts or circumstances or relevant federal tax law, in calculating the Company’s income taxes going forward, the Company would not be assessed penalties by the IRS for using the agreed-upon tax calculation methodology that the Company and the IRS agreed would be used for the 1987 through 1995 tax years.
The IRS audited and confirmed the Company’s compliance with the agreed-upon Closing Agreement methodology in five successive audit cycles for tax years 1996 through 2006.
The September 17, 2015 Notice from the IRS retroactively rejected the previously agreed-upon methodology for the 2007 through 2009 tax years, in favor of an entirely different methodology, without prior notice to the Company. Using the new tax calculation methodology, the IRS reallocated over $9 billion of income to the U.S. parent company from its foreign licensees for tax years 2007 through 2009. Consistent with the Closing Agreement, the IRS did not assert penalties, and it has yet to do so.
The IRS designated the Company’s matter for litigation on October 15, 2015. Litigation designation is an IRS determination that forecloses to a company any and all alternative means for resolution of a tax dispute. As a result of the IRS’ designation of the Company’s matter for litigation, the Company was forced to either accept the IRS’ newly imposed tax assessment and pay the full amount of the asserted tax or litigate the matter in the federal courts. The matter remains subject to the IRS’ litigation designation, preventing the Company from any attempt to settle or otherwise mutually resolve the matter with the IRS.
The Company consequently initiated litigation by filing a petition in the U.S. Tax Court (“Tax Court”) in December 2015, challenging the tax adjustments enumerated in the Notice.
Prior to trial, the IRS increased its transfer pricing adjustment by $385 million, resulting in an additional tax adjustment of $135 million. The Company obtained a summary judgment in its favor on a different matter related to Mexican foreign tax credits, which thereafter effectively reduced the IRS’ potential tax adjustment by approximately $138 million.
The trial was held in the Tax Court from March through May 2018, and final post-trial briefs were filed and exchanged in April 2019.
On November 18, 2020, the Tax Court issued an opinion (“Opinion”) in which it predominantly sided with the IRS but agreed with the Company that dividends previously paid by the foreign licensees to the U.S. parent company in reliance upon the Closing Agreement should continue to be allowed to offset royalties, including those that would become payable to the Company in accordance with the Opinion. The Tax Court reserved ruling on the effect of Brazilian legal restrictions on the payment of royalties by the Company’s licensee in Brazil until after the Tax Court issues its opinion in the separate case of 3M Co. & Subs. v. Commissioner, T.C. Docket No. 5816-13 (filed March 11, 2013). Once the Tax Court issues its opinion in 3M Co. & Subs. v. Commissioner, the Company expects the Tax Court thereafter to render another opinion, and ultimately a final decision, in the Company’s case.
The Company believes that the IRS and the Tax Court misinterpreted and misapplied the applicable regulations in reallocating income earned by the Company’s foreign licensees to increase the Company’s U.S. tax. Moreover, the Company believes that the retroactive imposition of such tax liability using a calculation methodology different from that previously agreed upon by the IRS and the Company, and audited by the IRS for over a decade, is unconstitutional. The Company intends to assert its claims on appeal and vigorously defend its position.
In determining the amount of tax reserve to be recorded as of December 31, 2020, the Company completed the required two-step evaluation process prescribed by Accounting Standards Codification (“ASC”) 740, Accounting for Income Taxes. In doing so, we consulted with outside advisors and we reviewed and considered relevant laws, rules, and regulations, including, though not limited to, the Opinion and relevant caselaw. We also considered our intention to vigorously defend our positions and assert our various well-founded legal claims via every available avenue of appeal. We concluded, based on the technical and legal merits of the Company’s tax positions, that it is more likely than not the Company’s tax positions will ultimately be sustained on appeal. In addition, we considered a number of alternative transfer pricing methodologies, including the methodology asserted by the IRS and affirmed in the Opinion (“Tax Court Methodology”), that could be applied by the courts upon final resolution of the litigation. Based on the required probability analysis, we determined the methodologies we believe the federal courts could ultimately order to be used in calculating the Company’s tax. As a result of this analysis, we recorded a tax reserve of $438 million during the year ended December 31, 2020 related to the application of the resulting methodologies as well as the different tax treatment applicable to dividends originally paid to the U.S. parent company by its foreign licensees, in
reliance upon the Closing Agreement, that would be recharacterized as royalties in accordance with the Opinion and the Company’s analysis.
The Company’s conclusion that it is more likely than not the Company’s tax positions will ultimately be sustained on appeal is unchanged as of April 2, 2021. However, we updated our calculation of the methodologies we believe the federal courts could ultimately order to be used in calculating the Company’s tax. As a result of the application of the required probability analysis to these updated calculations and the accrual of interest through the current reporting period, we updated our tax reserve as of April 2, 2021 to $390 million.
While the Company strongly disagrees with the IRS’ positions and the portions of the Opinion affirming such positions, it is possible that some portion or all of the adjustment proposed by the IRS and sustained by the Tax Court could ultimately be upheld. In that event, the Company would likely be subject to significant additional liabilities for the years at issue, and potentially also for subsequent periods, which could have a material adverse impact on the Company’s financial position, results of operations and cash flows.
The Company calculated the potential impact of applying the Tax Court Methodology to reallocate income from foreign licensees potentially covered within the scope of the Opinion, assuming such methodology were to be ultimately upheld by the courts, and the IRS were to decide to apply that methodology to subsequent years, with consent of the federal courts. This impact would include taxes and interest accrued through December 31, 2020 for the 2007 through 2009 litigated tax years and for subsequent tax years from 2010 to 2020. The calculations incorporated the estimated impact of correlative adjustments to the previously accrued transition tax payable under the 2017 Tax Cuts and Jobs Act. The Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately $12 billion as of December 31, 2020. Additional income tax and interest would continue to accrue until the time any such potential liability, or portion thereof, were to be paid. The Company estimates the impact of the continued application of the Tax Court Methodology for the three months ended April 2, 2021 would increase the potential aggregate incremental tax and interest liability by approximately $250 million. Additionally, we currently project the continued application of the Tax Court Methodology in future years, assuming similar facts and circumstances as of December 31, 2020, would result in an incremental annual tax liability that would increase the Company’s effective tax rate by approximately 3.5 percent.
The Company does not know when the Tax Court will issue its opinion regarding the effect of Brazilian legal restrictions on the payment of royalties by the Company’s licensee in Brazil for the 2007 through 2009 tax years. After the Tax Court issues its opinion on the Company’s Brazilian licensee, the Company and the IRS will be provided time to agree on the tax impact, if any, of both opinions, after which the Tax Court would render a final decision in the case. The Company will have 90 days thereafter to file a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit and pay the tax liability and interest related to the 2007 through 2009 tax period. The Company currently estimates that the payment to be made at that time related to the 2007 through 2009 tax period, which is included in the above estimate of the potential aggregate incremental tax and interest liability, would be approximately $4.7 billion (including interest accrued through April 2, 2021), plus any additional interest accrued through the time of payment. Some or all of this amount would be refunded if the Company were to prevail on appeal.
Risk Management Programs
The Company has numerous global insurance programs in place to help protect the Company from the risk of loss. In general, we are self-insured for large portions of many different types of claims; however, we do use commercial insurance above our self-insured retentions to reduce the Company’s risk of catastrophic loss. Our reserves for the Company’s self-insured losses are estimated using actuarial methods and assumptions of the insurance industry, adjusted for our specific expectations based on our claims history. Our self-insurance reserves totaled $253 million and $265 million as of April 2, 2021 and December 31, 2020, respectively.
NOTE 9: OTHER COMPREHENSIVE INCOME
AOCI attributable to shareowners of The Coca-Cola Company is separately presented in our condensed consolidated balance sheet as a component of The Coca-Cola Company’s shareowners’ equity, which also includes our proportionate share of equity method investees’ AOCI. OCI attributable to noncontrolling interests is allocated to, and included in, our condensed consolidated balance sheet as part of the line item equity attributable to noncontrolling interests.
AOCI attributable to shareowners of The Coca-Cola Company consisted of the following, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2,
2021
|
|
December 31, 2020
|
Net foreign currency translation adjustments
|
$
|
(12,024)
|
|
|
$
|
(12,028)
|
|
Accumulated net gains (losses) on derivatives
|
(90)
|
|
|
(194)
|
|
Unrealized net gains (losses) on available-for-sale debt securities
|
(32)
|
|
|
28
|
|
Adjustments to pension and other postretirement benefit liabilities
|
(1,987)
|
|
|
(2,407)
|
|
Accumulated other comprehensive income (loss)
|
$
|
(14,133)
|
|
|
$
|
(14,601)
|
|
The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 2, 2021
|
|
Shareowners of
The Coca-Cola Company
|
Noncontrolling
Interests
|
Total
|
Consolidated net income
|
$
|
2,245
|
|
$
|
10
|
|
$
|
2,255
|
|
Other comprehensive income:
|
|
|
|
Net foreign currency translation adjustments
|
4
|
|
—
|
|
4
|
|
Net gains (losses) on derivatives1
|
104
|
|
—
|
|
104
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
(60)
|
|
—
|
|
(60)
|
|
Net change in pension and other postretirement benefit liabilities
|
420
|
|
—
|
|
420
|
|
|
|
|
|
Total comprehensive income (loss)
|
$
|
2,713
|
|
$
|
10
|
|
$
|
2,723
|
|
1 Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.
2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.
The following tables present OCI attributable to shareowners of The Coca-Cola Company, including our proportionate share of equity method investees’ OCI (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 2, 2021
|
Before-Tax Amount
|
|
Income Tax
|
|
After-Tax Amount
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Translation adjustments arising during the period
|
$
|
624
|
|
|
$
|
(23)
|
|
|
$
|
601
|
|
|
|
|
|
|
|
Gains (losses) on intra-entity transactions that are of a long-term investment nature
|
(954)
|
|
|
—
|
|
|
(954)
|
|
Gains (losses) on net investment hedges arising during the period1
|
475
|
|
|
(118)
|
|
|
357
|
|
|
|
|
|
|
|
Net foreign currency translation adjustments
|
$
|
145
|
|
|
$
|
(141)
|
|
|
$
|
4
|
|
Derivatives:
|
|
|
|
|
|
Gains (losses) arising during the period
|
$
|
174
|
|
|
$
|
(43)
|
|
|
$
|
131
|
|
Reclassification adjustments recognized in net income
|
(36)
|
|
|
9
|
|
|
(27)
|
|
Net gains (losses) on derivatives1
|
$
|
138
|
|
|
$
|
(34)
|
|
|
$
|
104
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
$
|
(92)
|
|
|
$
|
30
|
|
|
$
|
(62)
|
|
Reclassification adjustments recognized in net income
|
3
|
|
|
(1)
|
|
|
2
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale debt securities2
|
$
|
(89)
|
|
|
$
|
29
|
|
|
$
|
(60)
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
|
|
Net pension and other postretirement benefit liabilities arising during the period
|
$
|
453
|
|
|
$
|
(109)
|
|
|
$
|
344
|
|
Reclassification adjustments recognized in net income
|
101
|
|
|
(25)
|
|
|
76
|
|
Net change in pension and other postretirement benefit liabilities
|
$
|
554
|
|
|
$
|
(134)
|
|
|
$
|
420
|
|
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola
Company
|
$
|
748
|
|
|
$
|
(280)
|
|
|
$
|
468
|
|
1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.
2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 27, 2020
|
Before-Tax Amount
|
|
Income Tax
|
|
After-Tax Amount
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Translation adjustments arising during the period
|
$
|
(2,281)
|
|
|
$
|
212
|
|
|
$
|
(2,069)
|
|
Reclassification adjustments recognized in net income
|
3
|
|
|
—
|
|
|
3
|
|
Gains (losses) on intra-entity transactions that are of a long-term investment nature
|
(157)
|
|
|
—
|
|
|
(157)
|
|
Gains (losses) on net investment hedges arising during the period1
|
76
|
|
|
(19)
|
|
|
57
|
|
Net foreign currency translation adjustments
|
$
|
(2,359)
|
|
|
$
|
193
|
|
|
$
|
(2,166)
|
|
Derivatives:
|
|
|
|
|
|
Gains (losses) arising during the period
|
$
|
23
|
|
|
$
|
(8)
|
|
|
$
|
15
|
|
Reclassification adjustments recognized in net income
|
1
|
|
|
—
|
|
|
1
|
|
Net gains (losses) on derivatives1
|
$
|
24
|
|
|
$
|
(8)
|
|
|
$
|
16
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
$
|
(8)
|
|
|
$
|
5
|
|
|
$
|
(3)
|
|
Reclassification adjustments recognized in net income
|
(6)
|
|
|
1
|
|
|
(5)
|
|
Net change in unrealized gains (losses) on available-for-sale debt securities2
|
$
|
(14)
|
|
|
$
|
6
|
|
|
$
|
(8)
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
|
|
Net pension and other postretirement benefit liabilities arising during the period
|
$
|
(25)
|
|
|
$
|
(1)
|
|
|
$
|
(26)
|
|
Reclassification adjustments recognized in net income
|
43
|
|
|
(11)
|
|
|
32
|
|
Net change in pension and other postretirement benefit liabilities
|
$
|
18
|
|
|
$
|
(12)
|
|
|
$
|
6
|
|
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola
Company
|
$
|
(2,331)
|
|
|
$
|
179
|
|
|
$
|
(2,152)
|
|
1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.
2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.
The following table presents the amounts and line items in our condensed consolidated statement of income where adjustments reclassified from AOCI into income were recorded (in millions):
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from AOCI into Income
|
Description of AOCI Component
|
Financial Statement Line Item
|
Three Months Ended April 2, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
Foreign currency contracts
|
Net operating revenues
|
$
|
23
|
|
Foreign currency contracts
|
Cost of goods sold
|
1
|
|
Foreign currency contracts
|
Other income (loss) — net
|
(66)
|
|
|
|
|
Foreign currency and interest rate contracts
|
Interest expense
|
6
|
|
|
Income before income taxes
|
(36)
|
|
|
Income taxes
|
9
|
|
|
Consolidated net income
|
$
|
(27)
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
Sale of debt securities
|
Other income (loss) — net
|
$
|
3
|
|
|
Income before income taxes
|
3
|
|
|
Income taxes
|
(1)
|
|
|
Consolidated net income
|
$
|
2
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
|
|
Settlement charges1
|
Other income (loss) — net
|
$
|
54
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
Other income (loss) — net
|
48
|
|
Recognized prior service cost (credit)
|
Other income (loss) — net
|
(1)
|
|
|
|
|
|
Income before income taxes
|
101
|
|
|
Income taxes
|
(25)
|
|
|
Consolidated net income
|
$
|
76
|
|
1 The settlement charges were related to the strategic realignment initiatives. Refer to Note 12.
NOTE 10: CHANGES IN EQUITY
The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to shareowners of The Coca-Cola Company and equity attributable to noncontrolling interests (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners of The Coca-Cola Company
|
|
Three Months Ended April 2, 2021
|
Common Shares Outstanding
|
Total
|
Reinvested
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Common
Stock
|
Capital
Surplus
|
Treasury
Stock
|
Non-
controlling
Interests
|
December 31, 2020
|
4,302
|
|
$
|
21,284
|
|
$
|
66,555
|
|
$
|
(14,601)
|
|
$
|
1,760
|
|
$
|
17,601
|
|
$
|
(52,016)
|
|
$
|
1,985
|
|
Adoption of accounting standards1
|
—
|
|
19
|
|
19
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Comprehensive income (loss)
|
—
|
|
2,723
|
|
2,245
|
|
468
|
|
—
|
|
—
|
|
—
|
|
10
|
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($0.42 per share)
|
—
|
|
(1,810)
|
|
(1,810)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Dividends paid to noncontrolling
interests
|
—
|
|
(18)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact related to stock-based
compensation plans
|
9
|
|
134
|
|
—
|
|
—
|
|
—
|
|
29
|
|
105
|
|
—
|
|
|
|
|
|
|
|
|
|
|
April 2, 2021
|
4,311
|
|
$
|
22,332
|
|
$
|
67,009
|
|
$
|
(14,133)
|
|
$
|
1,760
|
|
$
|
17,630
|
|
$
|
(51,911)
|
|
$
|
1,977
|
|
1 Represents the adoption of Accounting Standards Update 2019-12, Simplifying the Accounting for Income Taxes, effective January 1, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners of The Coca-Cola Company
|
|
Three Months Ended March 27, 2020
|
Common Shares Outstanding
|
Total
|
Reinvested
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Common
Stock
|
Capital
Surplus
|
Treasury
Stock
|
Non-
controlling
Interests
|
December 31, 2019
|
4,280
|
|
$
|
21,098
|
|
$
|
65,855
|
|
$
|
(13,544)
|
|
$
|
1,760
|
|
$
|
17,154
|
|
$
|
(52,244)
|
|
$
|
2,117
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
—
|
|
188
|
|
2,775
|
|
(2,152)
|
|
—
|
|
—
|
|
—
|
|
(435)
|
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($0.41 per share)
|
—
|
|
(1,760)
|
|
(1,760)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Dividends paid to noncontrolling
interests
|
—
|
|
(6)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact related to stock-based
compensation plans
|
14
|
|
314
|
|
—
|
|
—
|
|
—
|
|
158
|
|
156
|
|
—
|
|
|
|
|
|
|
|
|
|
|
March 27, 2020
|
4,294
|
|
$
|
19,834
|
|
$
|
66,870
|
|
$
|
(15,696)
|
|
$
|
1,760
|
|
$
|
17,312
|
|
$
|
(52,088)
|
|
$
|
1,676
|
|
NOTE 11: SIGNIFICANT OPERATING AND NONOPERATING ITEMS
Other Operating Charges
During the three months ended April 2, 2021, the Company recorded other operating charges of $124 million. These charges primarily consisted of $93 million due to the Company’s strategic realignment initiatives and $18 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $4 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and $9 million related to tax litigation expense. Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 8 for additional information related to the tax litigation. Refer to Note 12 for additional information on the Company’s strategic realignment initiatives and productivity and reinvestment program. Refer to Note 16 for the impact these charges had on our operating segments and Corporate.
During the three months ended March 27, 2020, the Company recorded other operating charges of $202 million. These charges primarily consisted of an impairment charge of $152 million related to our Odwalla trademark, which was primarily driven by revised projections of future operating results due to reduced availability at retail customer outlets and a change in brand focus in the Company’s portfolio. In addition, other operating charges included $39 million related to the Company’s productivity and reinvestment program and $11 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 12 for additional information on the Company’s productivity and reinvestment program. Refer to Note 15 for additional information on the impairment charge. Refer to Note 16 for the impact these charges had on our operating segments and Corporate.
Other Nonoperating Items
Interest Expense
During the three months ended April 2, 2021, the Company recorded charges of $58 million related to the extinguishment of long-term debt. Refer to Note 7.
Equity Income (Loss) — Net
During the three months ended April 2, 2021 and March 27, 2020, the Company recorded a net gain of $37 million and a net charge of $38 million, respectively. These amounts represent the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 16 for the impact these items had on our operating segments and Corporate.
Other Income (Loss) — Net
During the three months ended April 2, 2021, the Company recognized a net gain of $133 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. The Company also recorded pension benefit plan settlement charges of $54 million related to its strategic realignment initiatives. Refer to Note 4 for additional information on equity and debt securities. Refer to Note 12 for additional information on the Company’s strategic realignment initiatives. Refer to Note 16 for the impact these items had on our operating segments and Corporate.
During the three months ended March 27, 2020, the Company recognized a gain of $902 million in conjunction with the fairlife acquisition and a gain of $18 million related to the sale of a portion of our ownership interest in one of our equity method investments. These gains were partially offset by a net loss of $392 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities, and a loss of $57 million related to economic hedging activities. Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 4 for additional information on equity and debt securities. Refer to Note 6 for additional information on our economic hedging activities. Refer to Note 16 for the impact that certain of these items had on our operating segments and Corporate.
NOTE 12: RESTRUCTURING
Strategic Realignment
In August 2020, the Company announced strategic steps to transform our organizational structure in an effort to better enable us to capture growth in the fast-changing marketplace. The Company is building a networked global organization designed to combine the power of scale with the deep knowledge required to win locally. We created new operating units effective January 1, 2021, which are focused on regional and local execution. The operating units, which sit under the four existing geographic operating segments, are highly interconnected, with more consistency in their structure and a focus on eliminating duplication of resources and scaling new products more quickly. The operating units work closely with five global marketing category leadership teams to rapidly scale ideas. The global marketing category leadership teams primarily focus on innovation, marketing efficiency and effectiveness. The organizational structure also includes our existing center that provides strategy, governance and scale for global initiatives. The operating units, global marketing category leadership teams and the center are supported by a platform services organization, which focuses on providing efficient and scaled global services and capabilities including, but not limited to, governance, transactional work, data management, consumer analytics, digital commerce and social/digital hubs.
The Company has incurred total pretax expenses of $574 million related to these strategic realignment initiatives since they commenced. These expenses were recorded in the line items other operating charges and other income (loss) — net in our condensed consolidated statements of income. Refer to Note 16 for the impact these expenses had on our operating segments and Corporate. Outside services reported in the table below primarily relate to expenses in connection with legal and consulting activities. The Company currently expects the total cost of the strategic realignment initiatives will be up to $600 million. The new networked organization is established and functioning, and the platform services activities will be integrated, standardized and scaled over the course of 2021.
The following table summarizes the balance of accrued expenses related to these strategic realignment initiatives and the changes in the accrued amounts as of and for the three months ended April 2, 2021 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay
and Benefits
|
|
Outside Services
|
|
Other
Direct Costs
|
|
Total
|
Accrued balance December 31, 2020
|
$
|
181
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
185
|
|
Costs incurred
|
141
|
|
|
6
|
|
|
—
|
|
|
147
|
|
Payments
|
(122)
|
|
|
(6)
|
|
|
—
|
|
|
(128)
|
|
Noncash and exchange
|
(57)
|
|
1
|
—
|
|
|
—
|
|
|
(57)
|
|
Accrued balance April 2, 2021
|
$
|
143
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
147
|
|
1 Includes pension benefit plan settlement charges. Refer to Note 13.
Productivity and Reinvestment Program
In February 2012, the Company announced a productivity and reinvestment program designed to strengthen our brands and reinvest our resources to drive long-term profitable growth. The program was expanded multiple times since it commenced, with the last expansion occurring in April of 2017. We expect the remaining initiatives included in this program, which are primarily designed to further simplify and standardize our organization, to be completed by the end of 2022.
The Company has incurred total pretax expenses of $3,947 million related to our productivity and reinvestment program since it commenced. These expenses were recorded in the line items other operating charges and other income (loss) — net in our condensed consolidated statements of income. Refer to Note 16 for the impact these charges had on our operating segments and Corporate. Outside services reported in the table below primarily relate to expenses in connection with legal, outplacement and consulting activities. Other direct costs reported in the table below include, among other items, internal and external costs associated with the development, communication, administration and implementation of these initiatives; accelerated depreciation on certain fixed assets; contract termination fees; and relocation costs.
The following table summarizes the balance of accrued expenses related to our productivity and reinvestment program and the changes in the accrued amounts as of and for the three months ended April 2, 2021 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay
and Benefits
|
|
Outside Services
|
|
Other
Direct Costs
|
|
Total
|
Accrued balance December 31, 2020
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
17
|
|
Costs incurred
|
—
|
|
|
17
|
|
|
1
|
|
|
18
|
|
Payments
|
—
|
|
|
(17)
|
|
|
(6)
|
|
|
(23)
|
|
Noncash and exchange
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Accrued balance April 2, 2021
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
17
|
|
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The total cost (income) for our pension and other postretirement benefit plans consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plans
|
|
Other Postretirement
Benefit Plans
|
|
Three Months Ended
|
|
April 2,
2021
|
March 27,
2020
|
|
April 2,
2021
|
March 27,
2020
|
Service cost
|
$
|
24
|
|
$
|
28
|
|
|
$
|
2
|
|
$
|
3
|
|
Interest cost
|
44
|
|
59
|
|
|
4
|
|
6
|
|
Expected return on plan assets1
|
(151)
|
|
(147)
|
|
|
(4)
|
|
(4)
|
|
Amortization of prior service credit
|
—
|
|
—
|
|
|
(1)
|
|
(1)
|
|
Amortization of net actuarial loss
|
47
|
|
43
|
|
|
1
|
|
1
|
|
Net periodic benefit cost (income)
|
(36)
|
|
(17)
|
|
|
2
|
|
5
|
|
|
|
|
|
|
|
Settlement charges2
|
54
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost (income)
|
$
|
18
|
|
$
|
(17)
|
|
|
$
|
2
|
|
$
|
5
|
|
1 The weighted-average expected long-term rates of return on plan assets used in computing 2021 net periodic benefit cost (income) were 7.25 percent for pension benefit plans and 4.25 percent for other postretirement benefit plans.
2 The settlement charges were related to the strategic realignment initiatives. Refer to Note 12.
All amounts in the table above, other than service cost, were recorded in the line item other income (loss) — net in our condensed consolidated statements of income. During the three months ended April 2, 2021, the Company contributed $5 million to our pension trusts, and we anticipate making additional contributions of approximately $22 million during the remainder of 2021. The Company contributed $7 million to our pension trusts during the three months ended March 27, 2020.
NOTE 14: INCOME TAXES
The Company recorded income taxes of $508 million (18.4 percent effective tax rate) and $215 million (7.2 percent effective tax rate) during the three months ended April 2, 2021 and March 27, 2020, respectively.
The Company’s effective tax rates for the three months ended April 2, 2021 and March 27, 2020 vary from the statutory U.S. federal income tax rate of 21.0 percent primarily due to the tax impact of significant operating and nonoperating items, along with the tax benefits of having significant operations outside the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. rate.
The Company’s effective tax rate for the three months ended March 27, 2020 included a tax benefit of $40 million associated with the gain recorded upon the acquisition of the remaining ownership interest in fairlife and also included the net tax benefit of various discrete tax items recorded during the quarter. Refer to Note 2 for additional information on the fairlife acquisition.
On November 18, 2020, the Tax Court issued the Opinion regarding the Company’s 2015 litigation with the IRS involving transfer pricing tax adjustments in which the court predominantly sided with the IRS. The Company strongly disagrees with the Opinion and intends to vigorously defend its position. Refer to Note 8.
NOTE 15: FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following tables summarize assets and liabilities measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2021
|
Level 1
|
Level 2
|
Level 3
|
|
Other3
|
Netting
Adjustment
|
4
|
Fair Value
Measurements
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable values1
|
$
|
2,201
|
|
$
|
218
|
|
$
|
14
|
|
|
$
|
108
|
|
$
|
—
|
|
|
$
|
2,541
|
|
|
Debt securities1
|
—
|
|
2,129
|
|
38
|
|
|
—
|
|
—
|
|
|
2,167
|
|
|
Derivatives2
|
104
|
|
785
|
|
—
|
|
|
—
|
|
(615)
|
|
6
|
274
|
|
8
|
Total assets
|
$
|
2,305
|
|
$
|
3,132
|
|
$
|
52
|
|
|
$
|
108
|
|
$
|
(615)
|
|
|
$
|
4,982
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
$
|
—
|
|
$
|
—
|
|
$
|
225
|
|
5
|
$
|
—
|
|
$
|
—
|
|
|
$
|
225
|
|
|
Derivatives2
|
3
|
|
322
|
|
—
|
|
|
—
|
|
(256)
|
|
7
|
69
|
|
8
|
Total liabilities
|
$
|
3
|
|
$
|
322
|
|
$
|
225
|
|
|
$
|
—
|
|
$
|
(256)
|
|
|
$
|
294
|
|
|
1 Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2 Refer to Note 6 for additional information related to the composition of our derivative portfolio.
3 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 6.
5 Refer to Note 2 for additional information related to the contingent consideration liability resulting from the fairlife acquisition.
6 The Company is obligated to return $473 million in cash collateral it has netted against its derivative position.
7 The Company has the right to reclaim $177 million in cash collateral it has netted against its derivative position.
8 The Company’s derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows:
$274 million in the line item other assets and $69 million in the line item other liabilities. Refer to Note 6 for additional information related to the composition of our derivative portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Level 1
|
Level 2
|
Level 3
|
|
Other3
|
Netting
Adjustment
|
4
|
Fair Value
Measurements
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable values1
|
$
|
2,049
|
|
$
|
210
|
|
$
|
12
|
|
|
$
|
103
|
|
$
|
—
|
|
|
$
|
2,374
|
|
|
Debt securities1
|
4
|
|
2,267
|
|
32
|
|
|
—
|
|
—
|
|
|
2,303
|
|
|
Derivatives2
|
63
|
|
835
|
|
—
|
|
|
—
|
|
(669)
|
|
6
|
229
|
|
8
|
Total assets
|
$
|
2,116
|
|
$
|
3,312
|
|
$
|
44
|
|
|
$
|
103
|
|
$
|
(669)
|
|
|
$
|
4,906
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
$
|
—
|
|
$
|
—
|
|
$
|
321
|
|
5
|
$
|
—
|
|
$
|
—
|
|
|
$
|
321
|
|
|
Derivatives2
|
—
|
|
91
|
|
—
|
|
|
—
|
|
(81)
|
|
7
|
10
|
|
8
|
Total liabilities
|
$
|
—
|
|
$
|
91
|
|
$
|
321
|
|
|
$
|
—
|
|
$
|
(81)
|
|
|
$
|
331
|
|
|
1 Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2 Refer to Note 6 for additional information related to the composition of our derivative portfolio.
3 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 6.
5 Refer to Note 2 for additional information related to the contingent consideration liability resulting from the fairlife acquisition.
6 The Company is obligated to return $546 million in cash collateral it has netted against its derivative position.
7 The Company does not have the right to reclaim any cash collateral it has netted against its derivative position.
8 The Company’s derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows: $229 million in the line item other assets, $9 million in the line item accounts payable and accrued expenses, and $1 million in the line item other liabilities. Refer to Note 6 for additional information related to the composition of our derivative portfolio.
Gross realized and unrealized gains and losses on Level 3 assets and liabilities were not significant for the three months ended April 2, 2021 and March 27, 2020.
The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. Gross transfers between levels within the hierarchy were not significant for the three months ended April 2, 2021 and March 27, 2020.
Nonrecurring Fair Value Measurements
The gains and losses on assets measured at fair value on a nonrecurring basis are summarized in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
April 2,
2021
|
|
March 27,
2020
|
|
|
|
|
|
Impairment of intangible assets
|
$
|
—
|
|
|
$
|
(152)
|
|
1
|
|
|
|
|
Impairment of equity investment without a readily determinable fair value
|
—
|
|
|
(26)
|
|
2
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
(178)
|
|
|
|
|
|
|
1 The Company recorded an impairment charge of $152 million related to its Odwalla trademark, which was primarily driven by revised projections of future operating results due to reduced availability at retail customer outlets and a change in brand focus in the Company’s portfolio. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.
2 The Company recorded an impairment charge of $26 million related to an investment in an equity security without a readily determinable fair value. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.
Other Fair Value Disclosures
The carrying values of cash and cash equivalents; short-term investments; trade accounts receivable; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the short-term maturities of these financial instruments. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments. Where quoted prices are not available, the fair value is estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of the debt instruments. As of April 2, 2021, the carrying
value and fair value of our long-term debt, including the current portion, were $43,050 million and $44,335 million, respectively. As of December 31, 2020, the carrying value and fair value of our long-term debt, including the current portion, were $40,610 million and $43,218 million, respectively.
NOTE 16: OPERATING SEGMENTS
Information about our Company’s operations by operating segment and Corporate is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe, Middle East & Africa
|
|
Latin
America
|
North
America
|
Asia Pacific
|
|
Global Ventures
|
|
Bottling
Investments
|
|
Corporate
|
Eliminations
|
Consolidated
|
As of and for the Three Months Ended April 2, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
$
|
1,462
|
|
|
$
|
909
|
|
$
|
2,936
|
|
$
|
1,232
|
|
|
$
|
570
|
|
|
$
|
1,894
|
|
|
$
|
17
|
|
$
|
—
|
|
$
|
9,020
|
|
Intersegment
|
161
|
|
|
—
|
|
1
|
|
170
|
|
|
—
|
|
|
2
|
|
|
—
|
|
(334)
|
|
—
|
|
Total net operating revenues
|
1,623
|
|
|
909
|
|
2,937
|
|
1,402
|
|
|
570
|
|
|
1,896
|
|
|
17
|
|
(334)
|
|
9,020
|
|
Operating income (loss)
|
820
|
|
|
552
|
|
792
|
|
686
|
|
|
26
|
|
|
141
|
|
|
(295)
|
|
—
|
|
2,722
|
|
Income (loss) before income taxes
|
830
|
|
|
555
|
|
816
|
|
695
|
|
|
27
|
|
|
317
|
|
|
(477)
|
|
—
|
|
2,763
|
|
Identifiable operating assets
|
8,335
|
|
2
|
1,650
|
|
19,792
|
|
2,332
|
|
3
|
7,843
|
|
|
10,426
|
|
2,3
|
19,843
|
|
—
|
|
70,221
|
|
Investments1
|
466
|
|
|
595
|
|
343
|
|
249
|
|
|
4
|
|
|
13,833
|
|
|
4,282
|
|
—
|
|
19,772
|
|
As of and for the Three Months Ended March 27, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
$
|
1,573
|
|
|
$
|
930
|
|
$
|
2,849
|
|
$
|
989
|
|
|
$
|
573
|
|
|
$
|
1,656
|
|
|
$
|
31
|
|
$
|
—
|
|
$
|
8,601
|
|
Intersegment
|
152
|
|
|
—
|
|
1
|
|
139
|
|
|
—
|
|
|
2
|
|
|
—
|
|
(294)
|
|
—
|
|
Total net operating revenues
|
1,725
|
|
|
930
|
|
2,850
|
|
1,128
|
|
|
573
|
|
|
1,658
|
|
|
31
|
|
(294)
|
|
8,601
|
|
Operating income (loss)
|
960
|
|
|
539
|
|
387
|
|
511
|
|
|
19
|
|
|
63
|
|
|
(99)
|
|
—
|
|
2,380
|
|
Income (loss) before income taxes
|
971
|
|
|
535
|
|
402
|
|
513
|
|
|
18
|
|
|
198
|
|
|
373
|
|
—
|
|
3,010
|
|
Identifiable operating assets
|
8,172
|
|
2
|
1,853
|
|
20,600
|
|
2,312
|
|
|
7,378
|
|
|
10,184
|
|
2
|
24,842
|
|
—
|
|
75,341
|
|
Investments1
|
498
|
|
|
661
|
|
357
|
|
225
|
|
|
11
|
|
|
12,968
|
|
|
3,952
|
|
—
|
|
18,672
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable operating assets
|
$
|
8,098
|
|
2
|
$
|
1,597
|
|
$
|
19,444
|
|
$
|
2,073
|
|
3
|
$
|
7,575
|
|
|
$
|
10,521
|
|
2,3
|
$
|
17,903
|
|
$
|
—
|
|
$
|
67,211
|
|
Investments1
|
517
|
|
|
603
|
|
345
|
|
240
|
|
|
4
|
|
|
14,183
|
|
|
4,193
|
|
—
|
|
20,085
|
|
1 Principally equity method investments and other investments in bottling companies.
2 Property, plant and equipment — net in South Africa represented 15 percent, 14 percent and 15 percent of consolidated property, plant and equipment — net as of April 2, 2021, March 27, 2020 and December 31, 2020, respectively.
3 Property, plant and equipment — net in the Philippines represented 10 percent of consolidated property, plant and equipment — net as of April 2, 2021 and December 31, 2020.
During the three months ended April 2, 2021, the results of our operating segments and Corporate were impacted by the following items:
•Operating income (loss) and income (loss) before income taxes were reduced by $50 million for Europe, Middle East and Africa, $11 million for Latin America, $12 million for North America and $13 million for Asia Pacific, and operating income (loss) and income (loss) before income taxes were reduced by $7 million and $61 million, respectively, for Corporate due to the Company’s strategic realignment initiatives. Refer to Note 12.
•Operating income (loss) and income (loss) before income taxes were reduced by $19 million for North America related to the restructuring of our manufacturing operations in the United States.
•Operating income (loss) and income (loss) before income taxes were reduced by $18 million for Corporate due to the Company’s productivity and reinvestment program. Refer to Note 12.
•Operating income (loss) and income (loss) before income taxes were reduced by $9 million for Corporate related to tax litigation expense. Refer to Note 8.
•Operating income (loss) and income (loss) before income taxes were reduced by $4 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
•Income (loss) before income taxes was increased by $133 million for Corporate related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Refer to Note 4.
•Income (loss) before income taxes was increased by $5 million for Bottling Investments and $32 million for Corporate due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
•Income (loss) before income taxes was reduced by $58 million for Corporate related to charges associated with the extinguishment of long-term debt. Refer to Note 7.
During the three months ended March 27, 2020, the results of our operating segments and Corporate were impacted by the following items:
•Operating income (loss) and income (loss) before income taxes were reduced by $152 million for North America related to the impairment of our Odwalla trademark. Refer to Note 15.
•Operating income (loss) and income (loss) before income taxes were reduced by $39 million for Corporate due to the Company’s productivity and reinvestment program. Refer to Note 12.
•Operating income (loss) and income (loss) before income taxes were reduced by $11 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
•Income (loss) before income taxes was increased by $902 million for Corporate in conjunction with the fairlife acquisition, which resulted from the remeasurement of our previously held equity interest in fairlife to fair value. Refer to Note 2.
•Income (loss) before income taxes was increased by $18 million for Corporate related to the sale of a portion of our ownership interest in one of our equity method investments.
•Income (loss) before income taxes was reduced by $392 million for Corporate related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Refer to Note 4.
•Income (loss) before income taxes was reduced by $38 million for Bottling Investments due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
NOTE 17: SUBSEQUENT EVENTS
Debt Extinguishment
In April 2021, the Company extinguished a portion of its long-term debt prior to maturity. As of April 2, 2021, the extinguished notes had a carrying value of $2,542 million. The general terms of the notes that were extinguished are as follows:
•€867 million total principal amount of notes due March 9, 2023, at a fixed interest rate of 0.750 percent;
•$392 million total principal amount of notes due April 1, 2023, at a fixed interest rate of 2.500 percent; and
•$1,107 million total principal amount of notes due November 1, 2023, at a fixed interest rate of 3.200 percent.
The notes were redeemed at a redemption price of 100 percent of the principal amount of the applicable notes, plus accrued and unpaid interest and the applicable make-whole premiums. As a result of the extinguishment, the Company incurred charges of approximately $110 million.
Sale of Ownership Interest in Coca-Cola Amatil Limited
In May 2021, Coca-Cola European Partners plc, an equity method investee, will acquire our approximate 31 percent ownership interest in Coca-Cola Amatil Limited, an equity method investee, for approximately $1.7 billion in cash.