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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from to
Commission File Number 001-02217
COCA COLA CO
(Exact name of Registrant as specified in its charter)
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Delaware |
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58-0628465 |
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(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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One Coca-Cola Plaza |
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Atlanta |
Georgia |
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30313 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (404)
676-2121
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, $0.25 Par Value |
KO |
New York Stock Exchange |
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0.500% Notes Due 2024 |
KO24 |
New York Stock Exchange |
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1.875% Notes Due 2026 |
KO26 |
New York Stock Exchange |
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0.750% Notes Due 2026 |
KO26C |
New York Stock Exchange |
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1.125% Notes Due 2027 |
KO27 |
New York Stock Exchange |
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0.125% Notes Due 2029 |
KO29A |
New York Stock Exchange |
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0.125% Notes Due 2029 |
KO29B |
New York Stock Exchange |
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0.400% Notes Due 2030 |
KO30B |
New York Stock Exchange |
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1.250% Notes Due 2031 |
KO31 |
New York Stock Exchange |
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0.375% Notes Due 2033 |
KO33 |
New York Stock Exchange |
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0.500% Notes Due 2033 |
KO33A |
New York Stock Exchange |
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1.625% Notes Due 2035 |
KO35 |
New York Stock Exchange |
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1.100% Notes Due 2036 |
KO36 |
New York Stock Exchange |
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0.950% Notes Due 2036 |
KO36A |
New York Stock Exchange |
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0.800% Notes Due 2040 |
KO40B |
New York Stock Exchange |
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1.000% Notes Due 2041 |
KO41 |
New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the Registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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| Large
accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the
Registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. |
☐ |
Indicate by check mark if the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock as of the latest practicable
date.
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Class of Common Stock |
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Shares Outstanding as of October 24, 2022 |
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$0.25 Par Value |
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4,324,513,264 |
THE COCA-COLA COMPANY AND SUBSIDIARIES
Table of Contents
FORWARD-LOOKING STATEMENTS
This report contains information that may constitute
“forward-looking statements.” Generally, the words “believe,”
“expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and
similar expressions identify forward-looking statements, which
generally are not historical in nature. However, the absence of
these words or similar expressions does not mean that a statement
is not forward-looking. All statements that address operating
performance, events or developments that we expect or anticipate
will occur in the future — including statements relating to
volume growth, share of sales and earnings per share growth, and
statements expressing general views about future operating
results — are forward-looking statements. Management believes
that these forward-looking statements are reasonable as and when
made. However, caution should be taken not to place undue reliance
on any such forward-looking statements because such statements
speak only as of the date when made. Our Company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law. In addition,
forward-looking statements are subject to certain risks and
uncertainties that could cause our Company’s actual results to
differ materially from historical experience and our present
expectations or projections. These risks and uncertainties include,
but are not limited to, the possibility that the assumptions used
to calculate our estimated aggregate incremental tax and interest
liability related to the potential unfavorable outcome of the
ongoing tax dispute with the U.S. Internal Revenue Service could
significantly change; those described in Part II, “Item 1A. Risk
Factors” and elsewhere in this report and in our Annual Report on
Form 10-K for the year ended December 31, 2021 and in our
Quarterly Report on Form 10-Q for the quarter ended April 1, 2022;
and those described from time to time in our future reports filed
with the Securities and Exchange Commission.
Part I. Financial Information
Item 1. Financial Statements
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30,
2022 |
October 1,
2021 |
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September 30,
2022 |
October 1,
2021 |
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Net Operating Revenues |
$ |
11,063 |
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$ |
10,042 |
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$ |
32,879 |
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$ |
29,191 |
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Cost of goods sold |
4,566 |
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3,977 |
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13,487 |
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11,269 |
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Gross Profit |
6,497 |
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6,065 |
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19,392 |
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17,922 |
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Selling, general and administrative expenses |
3,279 |
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3,122 |
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9,449 |
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8,808 |
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Other operating charges |
130 |
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45 |
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1,109 |
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478 |
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Operating Income |
3,088 |
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2,898 |
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8,834 |
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8,636 |
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Interest income |
128 |
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68 |
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306 |
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205 |
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Interest expense |
198 |
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210 |
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578 |
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1,432 |
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Equity income (loss) — net |
479 |
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455 |
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1,133 |
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1,136 |
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Other income (loss) — net |
(53) |
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(127) |
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(509) |
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920 |
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Income Before Income Taxes |
3,444 |
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3,084 |
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9,186 |
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9,465 |
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Income taxes |
622 |
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609 |
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1,671 |
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2,111 |
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Consolidated Net Income |
2,822 |
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2,475 |
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7,515 |
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7,354 |
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Less: Net income (loss) attributable to noncontrolling
interests |
(3) |
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4 |
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4 |
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(3) |
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Net Income Attributable to Shareowners of The Coca-Cola
Company |
$ |
2,825 |
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$ |
2,471 |
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$ |
7,511 |
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$ |
7,357 |
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Basic Net Income Per Share1
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$ |
0.65 |
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$ |
0.57 |
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$ |
1.74 |
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$ |
1.71 |
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Diluted Net Income Per Share1
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$ |
0.65 |
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$ |
0.57 |
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$ |
1.73 |
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$ |
1.70 |
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Average Shares Outstanding — Basic |
4,325 |
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4,318 |
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4,329 |
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4,313 |
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Effect of dilutive securities |
21 |
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26 |
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23 |
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24 |
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Average Shares Outstanding — Diluted |
4,346 |
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4,344 |
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4,352 |
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4,337 |
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1
Calculated based on net income attributable to shareowners of The
Coca-Cola Company.
Refer to Notes to Consolidated Financial Statements.
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
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Three Months Ended |
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Nine Months Ended |
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September 30,
2022 |
October 1,
2021 |
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September 30,
2022 |
October 1,
2021 |
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Consolidated Net Income |
$ |
2,822 |
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$ |
2,475 |
|
|
$ |
7,515 |
|
$ |
7,354 |
|
|
Other Comprehensive Income: |
|
|
|
|
|
|
Net foreign currency translation adjustments |
(1,364) |
|
(991) |
|
|
(2,265) |
|
(131) |
|
|
Net gains (losses) on derivatives |
93 |
|
28 |
|
|
250 |
|
184 |
|
|
Net change in unrealized gains (losses) on available-for-sale
debt securities |
18 |
|
(22) |
|
|
(12) |
|
(83) |
|
|
Net change in pension and other postretirement benefit
liabilities |
34 |
|
(32) |
|
|
284 |
|
368 |
|
|
Total Comprehensive Income |
1,603 |
|
1,458 |
|
|
5,772 |
|
7,692 |
|
|
Less: Comprehensive income (loss) attributable to noncontrolling
interests
|
(154) |
|
(62) |
|
|
(200) |
|
(16) |
|
|
Total Comprehensive Income Attributable to Shareowners
of The Coca-Cola Company
|
$ |
1,757 |
|
$ |
1,520 |
|
|
$ |
5,972 |
|
$ |
7,708 |
|
Refer to Notes to Consolidated Financial Statements.
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except par value)
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31,
2021 |
|
ASSETS |
|
Current Assets |
|
|
|
Cash and cash equivalents |
$ |
10,127 |
|
$ |
9,684 |
|
|
Short-term investments |
1,120 |
|
1,242 |
|
|
Total Cash, Cash Equivalents and Short-Term Investments |
11,247 |
|
10,926 |
|
|
Marketable securities |
1,973 |
|
1,699 |
|
|
Trade accounts receivable, less allowances of $517 and $516,
respectively
|
3,994 |
|
3,512 |
|
|
Inventories |
3,708 |
|
3,414 |
|
|
Prepaid expenses and other current assets |
3,217 |
|
2,994 |
|
|
Total Current Assets |
24,139 |
|
22,545 |
|
|
Equity method investments |
17,723 |
|
17,598 |
|
|
Other investments |
582 |
|
818 |
|
|
Other noncurrent assets |
6,130 |
|
6,731 |
|
|
Deferred income tax assets |
1,708 |
|
2,129 |
|
|
Property, plant and equipment, less accumulated depreciation of
$8,992 and $8,942, respectively
|
9,243 |
|
9,920 |
|
|
Trademarks with indefinite lives |
13,968 |
|
14,465 |
|
|
Goodwill |
18,329 |
|
19,363 |
|
|
Other intangible assets |
649 |
|
785 |
|
|
Total Assets |
$ |
92,471 |
|
$ |
94,354 |
|
|
LIABILITIES AND EQUITY |
|
Current Liabilities |
|
|
|
Accounts payable and accrued expenses |
$ |
16,103 |
|
$ |
14,619 |
|
|
Loans and notes payable |
3,396 |
|
3,307 |
|
|
Current maturities of long-term debt |
729 |
|
1,338 |
|
|
Accrued income taxes |
1,211 |
|
686 |
|
|
Total Current Liabilities |
21,439 |
|
19,950 |
|
|
Long-term debt |
35,462 |
|
38,116 |
|
|
Other noncurrent liabilities |
8,010 |
|
8,607 |
|
|
Deferred income tax liabilities |
3,124 |
|
2,821 |
|
|
The Coca-Cola Company Shareowners’ Equity |
|
|
|
Common stock, $0.25 par value; authorized —
11,200 shares; issued — 7,040 shares
|
1,760 |
|
1,760 |
|
|
Capital surplus |
18,687 |
|
18,116 |
|
|
Reinvested earnings |
70,893 |
|
69,094 |
|
|
Accumulated other comprehensive income (loss) |
(15,869) |
|
(14,330) |
|
|
Treasury stock, at cost — 2,716 and 2,715 shares,
respectively
|
(52,666) |
|
(51,641) |
|
|
Equity Attributable to Shareowners of The Coca-Cola
Company |
22,805 |
|
22,999 |
|
|
Equity attributable to noncontrolling interests |
1,631 |
|
1,861 |
|
|
Total Equity |
24,436 |
|
24,860 |
|
|
Total Liabilities and Equity |
$ |
92,471 |
|
$ |
94,354 |
|
Refer to Notes to Consolidated Financial Statements.
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30,
2022 |
October 1,
2021 |
|
Operating Activities |
|
|
|
Consolidated net income |
$ |
7,515 |
|
$ |
7,354 |
|
|
Depreciation and amortization |
953 |
|
1,111 |
|
|
Stock-based compensation expense |
273 |
|
236 |
|
|
Deferred income taxes |
(135) |
|
726 |
|
|
Equity (income) loss — net of dividends |
(767) |
|
(621) |
|
|
Foreign currency adjustments |
176 |
|
(5) |
|
|
Significant (gains) losses — net |
25 |
|
(498) |
|
|
Other operating charges |
1,070 |
|
243 |
|
|
Other items |
217 |
|
517 |
|
|
Net change in operating assets and liabilities |
(1,259) |
|
168 |
|
|
Net Cash Provided by Operating Activities |
8,068 |
|
9,231 |
|
|
Investing Activities |
|
|
|
Purchases of investments |
(3,169) |
|
(4,732) |
|
|
Proceeds from disposals of investments |
3,049 |
|
5,294 |
|
|
Acquisitions of businesses, equity method investments and
nonmarketable securities |
(40) |
|
(11) |
|
|
Proceeds from disposals of businesses, equity method investments
and nonmarketable securities |
229 |
|
1,950 |
|
|
Purchases of property, plant and equipment |
(776) |
|
(728) |
|
|
Proceeds from disposals of property, plant and
equipment |
46 |
|
65 |
|
|
Collateral (paid) received associated with hedging activities —
net |
(1,449) |
|
— |
|
|
Other investing activities |
(79) |
|
81 |
|
|
Net Cash Provided by (Used in) Investing Activities |
(2,189) |
|
1,919 |
|
|
Financing Activities |
|
|
|
Issuances of debt |
4,351 |
|
11,848 |
|
|
Payments of debt |
(3,761) |
|
(13,037) |
|
|
Issuances of stock |
707 |
|
493 |
|
|
Purchases of stock for treasury |
(1,412) |
|
(104) |
|
|
Dividends |
(3,910) |
|
(5,437) |
|
|
Other financing activities |
(1,053) |
|
(354) |
|
|
Net Cash Provided by (Used in) Financing Activities |
(5,078) |
|
(6,591) |
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents,
Restricted Cash and Restricted Cash Equivalents
|
(392) |
|
(56) |
|
|
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
Equivalents |
|
|
|
Net increase (decrease) in cash, cash equivalents, restricted cash
and restricted cash equivalents during the period |
409 |
|
4,503 |
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents at beginning of period |
10,025 |
|
7,110 |
|
|
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
Equivalents at End of Period |
10,434 |
|
11,613 |
|
|
Less: Restricted cash and restricted cash equivalents at end of
period |
307 |
|
312 |
|
|
Cash and Cash Equivalents at End of Period |
$ |
10,127 |
|
$ |
11,301 |
|
Refer to Notes to Consolidated Financial Statements.
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited 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, 2021.
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 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 and nine months ended
September 30, 2022 are not necessarily indicative of the
results that may be expected for the year ending December 31,
2022. Sales of our 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 quarterly reporting periods, other than the fourth
quarter, ends on the Friday closest to the last day of the
corresponding quarterly calendar period. The third quarter of 2022
and the third quarter of 2021 ended on September 30, 2022 and
October 1, 2021, respectively. Our fourth quarter 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 quarterly reporting purposes, we allocate our estimated full
year marketing expenditures that benefit multiple quarters to each
of those quarters. We use the proportion of each quarter’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 quarter, we review our estimated full
year unit case volume and our estimated full year marketing
expenditures that benefit multiple quarters 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 quarter 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 noncurrent
assets on 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 our consolidated statements of cash flows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31,
2021 |
|
Cash and cash equivalents |
$ |
10,127 |
|
$ |
9,684 |
|
|
|
Restricted cash and restricted cash equivalents1,2
|
307 |
|
341 |
|
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents |
$ |
10,434 |
|
$ |
10,025 |
|
|
1Amounts
include cash and cash equivalents in our solvency capital
portfolio, which are included in the line item other noncurrent
assets in our consolidated balance sheets. Refer to
Note 4.
2Amounts
include cash and cash equivalents related to assets held for sale,
which are included in the line item prepaid expenses and other
current assets in our consolidated balance sheets. Refer to
Note 2.
|
|
|
|
|
|
|
|
|
|
|
October 1,
2021 |
December 31,
2020 |
|
Cash and cash equivalents |
$ |
11,301 |
|
$ |
6,795 |
|
|
|
Restricted cash and restricted cash equivalents1
|
312 |
|
315 |
|
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents |
$ |
11,613 |
|
$ |
7,110 |
|
|
1Amounts
represent cash and cash equivalents in our solvency capital
portfolio, which are included in the line item other noncurrent
assets in our consolidated balance sheets. Refer to
Note 4.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Acquisitions
Our Company’s acquisitions of businesses, equity method investments
and nonmarketable securities totaled $40 million and
$11 million during the nine months ended September 30,
2022 and October 1, 2021, respectively.
Divestitures
Proceeds from disposals of businesses, equity method investments
and nonmarketable securities during the nine months ended
September 30, 2022 and October 1, 2021 totaled $229
million and $1,950 million, respectively. In 2022, we sold our
ownership interest in one of our equity method investments and
received cash proceeds of $123 million, resulting in a gain of
$13 million. In 2021, we sold our ownership interest in
Coca-Cola Amatil Limited (“CCA”), an equity method investee, to
Coca-Cola Europacific Partners plc, also an equity method investee.
We received cash proceeds of $1,738 million and recognized a
gain of $695 million as a result of the sale and the related
reversal of cumulative translation adjustments. In 2021, we also
sold a portion of our ownership interest in one of our equity
method investments and received cash proceeds of $134 million,
resulting in a gain of $63 million. All of the gains were recorded
in the line item other income (loss) — net in our consolidated
statements of income.
Assets and Liabilities Held for Sale
The Company had certain bottling operations in Asia Pacific that
met the criteria to be classified as held for sale. As a result, we
were required to record their assets and liabilities at the lower
of carrying value or fair value less any costs to sell. As the fair
value less any costs to sell exceeded the carrying value, the
related assets and liabilities were recorded at their carrying
value. These assets and liabilities were included in the Bottling
Investments operating segment. The Company expects these bottling
operations to be refranchised during the fourth quarter of 2022,
subject to regulatory approval.
The following table presents information related to the major
classes of assets and liabilities that were classified as held for
sale and were included in the line items prepaid expenses and other
current assets and accounts payable and accrued expenses,
respectively, in our consolidated balance sheets (in
millions):
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31, 2021 |
|
Cash, cash equivalents and short-term investments |
$ |
222 |
|
$ |
228 |
|
|
Trade accounts receivable, less allowances |
17 |
|
21 |
|
|
Inventories |
63 |
|
55 |
|
|
Prepaid expenses and other current assets |
46 |
|
36 |
|
|
Other noncurrent assets |
34 |
|
9 |
|
|
Deferred income tax assets |
7 |
|
6 |
|
|
Property, plant and equipment — net |
289 |
|
282 |
|
|
Goodwill |
35 |
|
37 |
|
|
Assets held for sale |
$ |
713 |
|
$ |
674 |
|
|
Accounts payable and accrued expenses |
$ |
165 |
|
$ |
139 |
|
|
Accrued income taxes |
6 |
|
4 |
|
|
Other noncurrent liabilities |
9 |
|
9 |
|
|
Deferred income tax liabilities |
5 |
|
5 |
|
|
Liabilities held for sale |
$ |
185 |
|
$ |
157 |
|
NOTE 3:
NET OPERATING REVENUES
The following tables present 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 September 30, 2022 |
|
|
|
|
|
|
|
Concentrate operations |
$ |
2,235 |
|
$ |
4,339 |
|
$ |
6,574 |
|
|
|
|
|
Finished product operations |
1,909 |
|
2,580 |
|
4,489 |
|
|
|
|
|
Total |
$ |
4,144 |
|
$ |
6,919 |
|
$ |
11,063 |
|
|
|
|
|
Three Months Ended October 1, 2021 |
|
|
|
|
|
|
|
Concentrate operations |
$ |
1,749 |
|
$ |
4,122 |
|
$ |
5,871 |
|
|
|
|
|
Finished product operations |
1,669 |
|
2,502 |
|
4,171 |
|
|
|
|
|
Total |
$ |
3,418 |
|
$ |
6,624 |
|
$ |
10,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
International |
Total |
|
|
|
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
Concentrate operations |
$ |
5,768 |
|
$ |
12,895 |
|
$ |
18,663 |
|
|
|
|
|
Finished product operations |
5,856 |
|
8,360 |
|
14,216 |
|
|
|
|
|
Total |
$ |
11,624 |
|
$ |
21,255 |
|
$ |
32,879 |
|
|
|
|
|
Nine Months Ended October 1, 2021 |
|
|
|
|
|
|
|
Concentrate operations |
$ |
4,899 |
|
$ |
11,948 |
|
$ |
16,847 |
|
|
|
|
|
Finished product operations |
4,744 |
|
7,600 |
|
12,344 |
|
|
|
|
|
Total |
$ |
9,643 |
|
$ |
19,548 |
|
$ |
29,191 |
|
|
|
|
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 consolidated balance sheets (in
millions):
|
|
|
|
|
|
|
|
|
|
Fair Value with Changes Recognized in Income |
Measurement Alternative — No Readily Determinable Fair
Value |
|
September 30, 2022 |
|
|
|
|
|
|
Marketable securities |
$ |
296 |
|
$ |
— |
|
|
Other investments |
542 |
|
40 |
|
|
Other noncurrent assets |
1,174 |
|
— |
|
|
Total equity securities |
$ |
2,012 |
|
$ |
40 |
|
|
December 31, 2021 |
|
|
|
|
|
|
Marketable securities |
$ |
376 |
|
$ |
— |
|
|
Other investments |
771 |
|
47 |
|
|
Other noncurrent assets |
1,576 |
|
— |
|
|
Total equity securities |
$ |
2,723 |
|
$ |
47 |
|
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 |
|
September 30,
2022 |
October 1,
2021 |
|
Net gains (losses) recognized during the period related to equity
securities |
$ |
(38) |
|
$ |
4 |
|
|
Less: Net gains (losses) recognized during the period related to
equity securities sold
during the period
|
(95) |
|
5 |
|
|
Net unrealized gains (losses) recognized during the period related
to equity securities
still held at the end of the period
|
$ |
57 |
|
$ |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
September 30,
2022 |
October 1,
2021 |
|
Net gains (losses) recognized during the period related to equity
securities |
$ |
(399) |
|
$ |
361 |
|
|
Less: Net gains (losses) recognized during the period related to
equity securities sold
during the period
|
(350) |
|
33 |
|
|
Net unrealized gains (losses) recognized during the period related
to equity securities
still held at the end of the period
|
$ |
(49) |
|
$ |
328 |
|
|
|
|
|
|
|
Debt Securities
Our debt securities consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
Estimated
Fair Value |
|
Cost |
Gains |
Losses |
|
September 30, 2022 |
|
|
|
|
|
Trading securities
|
$ |
43 |
|
$ |
— |
|
$ |
(4) |
|
$ |
39 |
|
|
Available-for-sale securities
|
1,960 |
|
22 |
|
(131) |
|
1,851 |
|
|
Total debt securities
|
$ |
2,003 |
|
$ |
22 |
|
$ |
(135) |
|
$ |
1,890 |
|
|
December 31, 2021 |
|
|
|
|
|
Trading securities
|
$ |
39 |
|
$ |
1 |
|
$ |
— |
|
$ |
40 |
|
|
Available-for-sale securities
|
1,648 |
|
33 |
|
(132) |
|
1,549 |
|
|
Total debt securities
|
$ |
1,687 |
|
$ |
34 |
|
$ |
(132) |
|
$ |
1,589 |
|
The carrying values of our debt securities were included in the
following line items in our consolidated balance sheets (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Trading Securities |
Available-for-Sale Securities |
|
Trading Securities |
Available-for-Sale Securities |
|
|
|
|
|
|
|
Marketable securities
|
$ |
39 |
|
$ |
1,638 |
|
|
$ |
40 |
|
$ |
1,283 |
|
|
Other noncurrent assets
|
— |
|
213 |
|
|
— |
|
266 |
|
|
Total debt securities |
$ |
39 |
|
$ |
1,851 |
|
|
$ |
40 |
|
$ |
1,549 |
|
The contractual maturities of these available-for-sale debt
securities as of September 30, 2022 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
Estimated
Fair Value |
|
|
|
|
Within 1 year |
$ |
352 |
|
$ |
342 |
|
|
|
|
|
After 1 year through 5 years |
1,409 |
|
1,317 |
|
|
|
|
|
After 5 years through 10 years |
35 |
|
47 |
|
|
|
|
|
After 10 years |
164 |
|
145 |
|
|
|
|
|
Total |
$ |
1,960 |
|
$ |
1,851 |
|
|
|
|
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 |
|
Nine Months Ended |
|
September 30,
2022 |
October 1,
2021 |
|
September 30,
2022 |
October 1,
2021 |
|
Gross gains |
$ |
2 |
|
$ |
2 |
|
|
$ |
5 |
|
$ |
4 |
|
|
Gross losses |
(43) |
|
— |
|
|
(51) |
|
(8) |
|
|
Proceeds |
135 |
|
91 |
|
|
479 |
|
1,058 |
|
Captive Insurance Companies
In accordance with local insurance regulations, our consolidated
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 our
consolidated captive insurance companies to reinsure group annuity
insurance contracts that cover the obligations of certain of our
European and Canadian pension plans. This captive’s solvency
capital funds included total equity and debt securities of
$1,249 million and $1,670 million as of
September 30, 2022 and December 31, 2021, respectively,
which were classified in the line item other noncurrent assets in
our consolidated balance sheets because the assets are not
available to satisfy our current obligations.
NOTE 5: INVENTORIES
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31,
2021 |
|
Raw materials and packaging |
$ |
2,123 |
|
$ |
2,133 |
|
|
Finished goods |
1,246 |
|
982 |
|
|
Other |
339 |
|
299 |
|
|
Total inventories |
$ |
3,708 |
|
$ |
3,414 |
|
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
|
September 30,
2022 |
December 31,
2021 |
|
Assets: |
|
|
|
|
Foreign currency contracts |
Prepaid expenses and other current assets |
$ |
391 |
|
$ |
151 |
|
|
Foreign currency contracts |
Other noncurrent assets |
83 |
|
27 |
|
|
|
|
|
|
Interest rate contracts |
Prepaid expenses and other current assets |
— |
|
1 |
|
|
Interest rate contracts |
Other noncurrent assets |
— |
|
282 |
|
|
Total assets |
|
$ |
474 |
|
$ |
461 |
|
|
Liabilities: |
|
|
|
|
Foreign currency contracts |
Accounts payable and accrued expenses |
$ |
52 |
|
$ |
15 |
|
|
Foreign currency contracts |
Other noncurrent liabilities |
151 |
|
17 |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
Other noncurrent liabilities |
1,604 |
|
14 |
|
|
Total liabilities |
|
$ |
1,807 |
|
$ |
46 |
|
1All
of the Company’s derivative instruments are carried at fair value
in our 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.
2Refer
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
|
September 30,
2022 |
December 31, 2021 |
|
Assets: |
|
|
|
|
Foreign currency contracts |
Prepaid expenses and other current assets |
$ |
105 |
|
$ |
53 |
|
|
Foreign currency contracts |
Other noncurrent assets |
10 |
|
— |
|
|
Commodity contracts |
Prepaid expenses and other current assets |
131 |
|
131 |
|
|
Commodity contracts |
Other noncurrent assets |
— |
|
3 |
|
|
Other derivative instruments |
Prepaid expenses and other current assets |
— |
|
9 |
|
|
|
|
|
|
Total assets |
|
$ |
246 |
|
$ |
196 |
|
|
Liabilities: |
|
|
|
|
Foreign currency contracts |
Accounts payable and accrued expenses |
$ |
22 |
|
$ |
34 |
|
|
Foreign currency contracts |
Other noncurrent liabilities |
3 |
|
9 |
|
|
Commodity contracts |
Accounts payable and accrued expenses |
40 |
|
6 |
|
|
Commodity contracts |
Other noncurrent liabilities |
6 |
|
1 |
|
|
|
|
|
|
|
|
|
|
Other derivative instruments |
Accounts payable and accrued expenses |
19 |
|
— |
|
|
|
|
|
|
Total liabilities |
|
$ |
90 |
|
$ |
50 |
|
1All
of the Company’s derivative instruments are carried at fair value
in our 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.
2Refer
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.
Furthermore, for certain derivative financial instruments, the
Company has agreements with counterparties that require collateral
to be exchanged based on changes in the fair value of the
instruments. As a result of 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 three years.
The Company maintains a foreign currency cash flow hedging program
to reduce the risk that our 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 qualified for the Company’s
foreign currency cash flow hedging program were $5,963 million and
$7,399 million as of September 30, 2022 and December 31,
2021, 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
recognizes in earnings each period the changes in carrying values
of these foreign currency denominated assets and liabilities due to
fluctuations in exchange rates. 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 were
designated as cash flow hedges for the Company’s foreign currency
denominated assets and liabilities were $1,524 million and
$1,994 million as of September 30, 2022 and
December 31, 2021, respectively.
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 were designated
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 were designated and
qualified for this program were $45 million and
$10 million as of September 30, 2022 and
December 31, 2021, respectively.
Our Company monitors our mix of short-term debt and long-term debt
regularly. We manage our risk to interest rate fluctuations through
the use of derivative financial instruments. From time to time, the
Company enters into interest rate swap agreements and designates
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. As of September 30,
2022 and December 31, 2021, we did not have any interest rate
swaps designated as a cash flow hedge.
The following tables present 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 September 30, 2022 |
|
|
|
|
|
Foreign currency contracts |
$ |
197 |
|
|
Net operating revenues |
$ |
88 |
|
|
Foreign currency contracts |
12 |
|
|
Cost of goods sold |
10 |
|
|
Foreign currency contracts |
— |
|
|
Interest expense |
(1) |
|
|
Foreign currency contracts |
(56) |
|
|
Other income (loss) — net |
(71) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
153 |
|
|
|
$ |
26 |
|
|
Three Months Ended October 1, 2021 |
|
|
|
|
|
Foreign currency contracts |
$ |
15 |
|
|
Net operating revenues |
$ |
(21) |
|
|
Foreign currency contracts |
6 |
|
|
Cost of goods sold |
(6) |
|
|
Foreign currency contracts |
— |
|
|
Interest expense |
(1) |
|
|
Foreign currency contracts |
(43) |
|
|
Other income (loss) — net |
(35) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$ |
(22) |
|
|
|
$ |
(63) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized
in OCI |
|
Location of Gain (Loss) Recognized in Income |
Gain (Loss) Reclassified from AOCI into Income |
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
Foreign currency contracts |
$ |
475 |
|
|
Net operating revenues |
$ |
148 |
|
|
Foreign currency contracts |
34 |
|
|
Cost of goods sold |
13 |
|
|
Foreign currency contracts |
— |
|
|
Interest expense |
(3) |
|
|
Foreign currency contracts |
(175) |
|
|
Other income (loss) — net |
(171) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
334 |
|
|
|
$ |
(13) |
|
|
Nine Months Ended October 1, 2021 |
|
|
|
|
|
Foreign currency contracts |
$ |
(1) |
|
|
Net operating revenues |
$ |
(71) |
|
|
Foreign currency contracts |
(5) |
|
|
Cost of goods sold |
(9) |
|
|
Foreign currency contracts |
— |
|
|
Interest expense |
(12) |
|
|
Foreign currency contracts |
15 |
|
|
Other income (loss) — net |
49 |
|
|
Interest rate contracts |
110 |
|
|
Interest expense |
(90) |
|
|
|
|
|
|
|
Total
|
$ |
119 |
|
|
|
$ |
(133) |
|
As of September 30, 2022, the Company estimates that it will
reclassify into earnings during the next 12 months net gains
of $324 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 value of foreign currency denominated
debt relating to fluctuations 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 has
been extinguished. The total notional values of derivatives that
were designated and qualified as fair value hedges of this type
were $12,701 million and $12,113 million as of
September 30, 2022 and December 31, 2021,
respectively.
The following tables summarize 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 |
September 30,
2022 |
October 1,
2021 |
|
Interest rate contracts |
Interest expense |
$ |
(688) |
|
$ |
(56) |
|
|
Fixed-rate debt |
Interest expense |
705 |
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of fair value hedging instruments |
|
$ |
17 |
|
$ |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Instruments and Hedged Items |
Location of Gain (Loss) Recognized in Income |
Gain (Loss)
Recognized in Income |
|
Nine Months Ended |
September 30,
2022 |
October 1,
2021 |
|
Interest rate contracts |
Interest expense |
$ |
(1,873) |
|
$ |
(236) |
|
|
Fixed-rate debt |
Interest expense |
1,871 |
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of fair value hedging instruments |
|
$ |
(2) |
|
$ |
1 |
|
The following table summarizes the amounts recorded in our
consolidated balance sheets related to hedged items in fair value
hedging relationships (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount of Fair Value Hedging
Adjustments1
|
|
Carrying Values of
Hedged Items |
|
Included in the Carrying Values of Hedged Items |
|
Remaining for Which Hedge Accounting Has Been
Discontinued |
|
Balance Sheet Location of Hedged Items |
September 30,
2022 |
December 31,
2021 |
|
September 30,
2022 |
December 31,
2021 |
|
September 30,
2022 |
December 31,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
$ |
— |
|
$ |
200 |
|
|
$ |
— |
|
$ |
1 |
|
|
$ |
— |
|
$ |
— |
|
|
Long-term debt |
11,243 |
|
12,353 |
|
|
(1,568) |
|
255 |
|
|
203 |
|
228 |
|
1Cumulative
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 financial instruments that are
designated and qualify as hedges of net investments in foreign
operations, the changes in the fair values of the derivative
financial 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 portions of the
non-derivative financial instruments 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 |
|
Nine Months Ended |
|
|
September 30,
2022 |
December 31,
2021 |
|
September 30,
2022 |
October 1,
2021 |
|
September 30,
2022 |
October 1,
2021 |
|
Foreign currency contracts |
$ |
37 |
|
$ |
40 |
|
|
$ |
(1) |
|
$ |
6 |
|
|
$ |
(2) |
|
$ |
(1) |
|
|
Foreign currency denominated debt |
11,043 |
|
12,812 |
|
|
709 |
|
304 |
|
|
1,768 |
|
673 |
|
|
Total |
$ |
11,080 |
|
$ |
12,852 |
|
|
$ |
708 |
|
$ |
310 |
|
|
$ |
1,766 |
|
$ |
672 |
|
The Company did not reclassify any gains or losses related to net
investment hedges from AOCI into earnings during the three and nine
months ended September 30, 2022. During the nine months ended
October 1, 2021, the Company reclassified a loss of
$4 million related to net investment hedges from AOCI into
earnings. In addition, the Company did not have any ineffectiveness
related to net investment hedges during the three and nine months
ended September 30, 2022 and October 1, 2021. 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 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 immediately 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 $4,681 million and $4,258
million as of September 30, 2022 and December 31, 2021,
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 value of derivatives related to our economic hedges
of this type was $200 million as of December 31, 2021. As of
September 30, 2022, we did not have any interest rate
contracts used as economic hedges.
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 $501 million and $908 million as of September 30, 2022
and December 31, 2021, respectively.
The following tables present 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 |
September 30,
2022 |
October 1,
2021 |
|
Foreign currency contracts |
Net operating revenues |
$ |
16 |
|
$ |
2 |
|
|
Foreign currency contracts |
Cost of goods sold |
21 |
|
(10) |
|
|
Foreign currency contracts |
Other income (loss) — net |
41 |
|
(43) |
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
Cost of goods sold |
(10) |
|
(32) |
|
|
|
|
|
|
Other derivative instruments |
Selling, general and administrative expenses |
(17) |
|
(2) |
|
|
|
|
|
|
Total |
|
$ |
51 |
|
$ |
(85) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments |
Location of Gain (Loss) Recognized in Income |
Gain (Loss)
Recognized in Income |
|
Nine Months Ended |
September 30,
2022 |
October 1,
2021 |
|
Foreign currency contracts |
Net operating revenues |
$ |
23 |
|
$ |
2 |
|
|
Foreign currency contracts |
Cost of goods sold |
44 |
|
(17) |
|
|
Foreign currency contracts |
Other income (loss) — net |
79 |
|
(39) |
|
|
Interest rate contracts |
Interest expense |
— |
|
(187) |
|
|
|
|
|
|
Commodity contracts |
Cost of goods sold |
(5) |
|
178 |
|
|
|
|
|
|
Other derivative instruments |
Selling, general and administrative expenses |
(38) |
|
18 |
|
|
Other derivative instruments |
Other income (loss) — net |
— |
|
(3) |
|
|
Total |
|
$ |
103 |
|
$ |
(48) |
|
NOTE 7: DEBT AND BORROWING ARRANGEMENTS
During the nine months ended September 30, 2022, the Company
retired upon maturity fixed interest rate U.S. dollar-denominated
debentures of $288 million due February 1, 2022 with an
interest rate of 8.500 percent and $122 million due
September 15, 2022 with an interest rate of 8.000
percent.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Guarantees
As of September 30, 2022, we were contingently liable for
guarantees of indebtedness owed by third parties of
$918 million, of which $76 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, management
has concluded that the likelihood of any significant amounts being
paid by our Company under these guarantees is not
probable.
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 quarter in which 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
740,
Accounting for Income Taxes.
In doing so, we consulted with outside advisors and we reviewed and
considered relevant laws, rules, and regulations, including, but
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 September 30, 2022. 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
September 30, 2022 to $419 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 tax years 2007 through 2009, and
potentially also for subsequent years, 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, 2021 for the 2007
through 2009 litigated tax years and for subsequent tax years from
2010 through 2021. 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 estimates that the potential aggregate incremental tax and
interest liability could be approximately $13 billion as of
December 31, 2021. 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 and nine months ended September 30, 2022 would increase
the potential aggregate incremental tax and interest liability by
approximately $250 million and $750 million,
respectively. Additionally, we currently project the continued
application of the Tax Court Methodology in future years, assuming
similar facts and circumstances as of December 31, 2021, 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 years. The Company currently estimates that the payment to be
made at that time related to the 2007 through 2009 tax years, which
is included in the above estimate of the potential aggregate
incremental tax and interest liability, would be approximately $5.1
billion (including interest accrued through September 30,
2022), 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 $218 million and
$229 million as of September 30, 2022 and
December 31, 2021, respectively.
NOTE 9: OTHER COMPREHENSIVE INCOME
AOCI attributable to shareowners of The Coca-Cola Company is
separately presented in our 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 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):
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31,
2021 |
|
Net foreign currency translation adjustments |
$ |
(14,656) |
|
$ |
(12,595) |
|
|
Accumulated net gains (losses) on derivatives |
270 |
|
20 |
|
|
Unrealized net gains (losses) on available-for-sale debt
securities |
(74) |
|
(62) |
|
|
Adjustments to pension and other postretirement benefit
liabilities |
(1,409) |
|
(1,693) |
|
|
Accumulated other comprehensive income (loss) |
$ |
(15,869) |
|
$ |
(14,330) |
|
The following table summarizes the allocation of total
comprehensive income between shareowners of The Coca-Cola Company
and noncontrolling interests (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
Shareowners of
The Coca-Cola Company |
Noncontrolling
Interests |
Total |
|
Consolidated net income |
$ |
7,511 |
|
$ |
4 |
|
$ |
7,515 |
|
|
Other comprehensive income: |
|
|
|
|
Net foreign currency translation adjustments |
(2,061) |
|
(204) |
|
(2,265) |
|
|
Net gains (losses) on derivatives1
|
250 |
|
— |
|
250 |
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
(12) |
|
— |
|
(12) |
|
|
Net change in pension and other postretirement benefit
liabilities |
284 |
|
— |
|
284 |
|
|
|
|
|
|
Total comprehensive income (loss) |
$ |
5,972 |
|
$ |
(200) |
|
$ |
5,772 |
|
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 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 September 30, 2022 |
Before-Tax Amount |
Income Tax |
After-Tax Amount |
|
Foreign currency translation adjustments: |
|
|
|
|
Translation adjustments arising during the period |
$ |
(401) |
|
$ |
(3) |
|
$ |
(404) |
|
|
|
|
|
|
Gains (losses) on intra-entity transactions that are of a long-term
investment nature |
(1,340) |
|
— |
|
(1,340) |
|
|
Gains (losses) on net investment hedges arising during the
period1
|
708 |
|
(177) |
|
531 |
|
|
|
|
|
|
Net foreign currency translation adjustments |
$ |
(1,033) |
|
$ |
(180) |
|
$ |
(1,213) |
|
|
Derivatives: |
|
|
|
|
Gains (losses) arising during the period |
$ |
150 |
|
$ |
(38) |
|
$ |
112 |
|
|
Reclassification adjustments recognized in net income |
(26) |
|
7 |
|
(19) |
|
|
Net gains (losses) on derivatives1
|
$ |
124 |
|
$ |
(31) |
|
$ |
93 |
|
|
Available-for-sale debt securities: |
|
|
|
|
Unrealized gains (losses) arising during the period |
$ |
(12) |
|
$ |
(1) |
|
$ |
(13) |
|
|
Reclassification adjustments recognized in net income |
41 |
|
(10) |
|
31 |
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
$ |
29 |
|
$ |
(11) |
|
$ |
18 |
|
|
Pension and other postretirement benefit liabilities: |
|
|
|
|
Net pension and other postretirement benefit liabilities arising
during the period |
$ |
21 |
|
$ |
(7) |
|
$ |
14 |
|
|
Reclassification adjustments recognized in net income |
26 |
|
(6) |
|
20 |
|
|
Net change in pension and other postretirement benefit
liabilities |
$ |
47 |
|
$ |
(13) |
|
$ |
34 |
|
Other comprehensive income (loss) attributable to shareowners of
The Coca-Cola
Company |
$ |
(833) |
|
$ |
(235) |
|
$ |
(1,068) |
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
Before-Tax Amount |
Income Tax |
After-Tax Amount |
|
Foreign currency translation adjustments: |
|
|
|
|
Translation adjustments arising during the period |
$ |
(27) |
|
$ |
(216) |
|
$ |
(243) |
|
|
Reclassification adjustments recognized in net income |
200 |
|
— |
|
200 |
|
|
Gains (losses) on intra-entity transactions that are of a long-term
investment nature |
(3,343) |
|
— |
|
(3,343) |
|
|
Gains (losses) on net investment hedges arising during the
period1
|
1,766 |
|
(441) |
|
1,325 |
|
|
|
|
|
|
Net foreign currency translation adjustments |
$ |
(1,404) |
|
$ |
(657) |
|
$ |
(2,061) |
|
|
Derivatives: |
|
|
|
|
Gains (losses) arising during the period |
$ |
330 |
|
$ |
(90) |
|
$ |
240 |
|
|
Reclassification adjustments recognized in net income |
13 |
|
(3) |
|
10 |
|
|
Net gains (losses) on derivatives1
|
$ |
343 |
|
$ |
(93) |
|
$ |
250 |
|
|
Available-for-sale debt securities: |
|
|
|
|
Unrealized gains (losses) arising during the period |
$ |
(56) |
|
$ |
9 |
|
$ |
(47) |
|
|
Reclassification adjustments recognized in net income |
46 |
|
(11) |
|
35 |
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
$ |
(10) |
|
$ |
(2) |
|
$ |
(12) |
|
|
Pension and other postretirement benefit liabilities: |
|
|
|
|
Net pension and other postretirement benefit liabilities arising
during the period |
$ |
287 |
|
$ |
(65) |
|
$ |
222 |
|
|
Reclassification adjustments recognized in net income |
82 |
|
(20) |
|
62 |
|
|
Net change in pension and other postretirement benefit
liabilities |
$ |
369 |
|
$ |
(85) |
|
$ |
284 |
|
Other comprehensive income (loss) attributable to shareowners of
The Coca-Cola
Company |
$ |
(702) |
|
$ |
(837) |
|
$ |
(1,539) |
|
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 October 1, 2021 |
Before-Tax Amount |
Income Tax |
After-Tax Amount |
|
Foreign currency translation adjustments: |
|
|
|
|
Translation adjustments arising during the period |
$ |
(636) |
|
$ |
39 |
|
$ |
(597) |
|
|
Reclassification adjustments recognized in net income |
13 |
|
— |
|
13 |
|
|
Gains (losses) on intra-entity transactions that are of a long-term
investment nature |
(575) |
|
— |
|
(575) |
|
|
Gains (losses) on net investment hedges arising during the
period1
|
310 |
|
(77) |
|
233 |
|
|
|
|
|
|
Net foreign currency translation adjustments |
$ |
(888) |
|
$ |
(38) |
|
$ |
(926) |
|
|
Derivatives: |
|
|
|
|
Gains (losses) arising during the period |
$ |
(26) |
|
$ |
7 |
|
$ |
(19) |
|
|
Reclassification adjustments recognized in net income |
63 |
|
(16) |
|
47 |
|
|
Net gains (losses) on derivatives1
|
$ |
37 |
|
$ |
(9) |
|
$ |
28 |
|
|
Available-for-sale debt securities: |
|
|
|
|
Unrealized gains (losses) arising during the period |
$ |
(28) |
|
$ |
8 |
|
$ |
(20) |
|
|
Reclassification adjustments recognized in net income |
(2) |
|
— |
|
(2) |
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
$ |
(30) |
|
$ |
8 |
|
$ |
(22) |
|
|
Pension and other postretirement benefit liabilities: |
|
|
|
|
Net pension and other postretirement benefit liabilities arising
during the period |
$ |
(102) |
|
$ |
29 |
|
$ |
(73) |
|
|
Reclassification adjustments recognized in net income |
56 |
|
(14) |
|
42 |
|
|
Net change in pension and other postretirement benefit
liabilities |
$ |
(46) |
|
$ |
15 |
|
$ |
(31) |
|
Other comprehensive income (loss) attributable to shareowners of
The Coca-Cola
Company |
$ |
(927) |
|
$ |
(24) |
|
$ |
(951) |
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 1, 2021 |
Before-Tax Amount |
Income Tax |
After-Tax Amount |
|
Foreign currency translation adjustments: |
|
|
|
|
Translation adjustments arising during the period |
$ |
505 |
|
$ |
(8) |
|
$ |
497 |
|
|
Reclassification adjustments recognized in net income |
193 |
|
— |
|
193 |
|
|
Gains (losses) on intra-entity transactions that are of a long-term
investment nature |
(1,317) |
|
— |
|
(1,317) |
|
|
Gains (losses) on net investment hedges arising during the
period1
|
672 |
|
(168) |
|
504 |
|
|
Reclassification adjustments for net investment hedges recognized
in net income1
|
4 |
|
— |
|
4 |
|
|
Net foreign currency translation adjustments |
$ |
57 |
|
$ |
(176) |
|
$ |
(119) |
|
|
Derivatives: |
|
|
|
|
Gains (losses) arising during the period |
$ |
108 |
|
$ |
(30) |
|
$ |
78 |
|
|
Reclassification adjustments recognized in net income |
139 |
|
(33) |
|
106 |
|
|
Net gains (losses) on derivatives1
|
$ |
247 |
|
$ |
(63) |
|
$ |
184 |
|
|
Available-for-sale debt securities: |
|
|
|
|
Unrealized gains (losses) arising during the period |
$ |
(131) |
|
$ |
45 |
|
$ |
(86) |
|
|
Reclassification adjustments recognized in net income |
4 |
|
(1) |
|
3 |
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
$ |
(127) |
|
$ |
44 |
|
$ |
(83) |
|
|
Pension and other postretirement benefit liabilities: |
|
|
|
|
Net pension and other postretirement benefit liabilities arising
during the period |
$ |
251 |
|
$ |
(46) |
|
$ |
205 |
|
|
Reclassification adjustments recognized in net income |
218 |
|
(54) |
|
164 |
|
|
Net change in pension and other postretirement benefit
liabilities |
$ |
469 |
|
$ |
(100) |
|
$ |
369 |
|
Other comprehensive income (loss) attributable to shareowners of
The Coca-Cola
Company |
$ |
646 |
|
$ |
(295) |
|
$ |
351 |
|
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
consolidated statements 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 September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
|
Foreign currency translation adjustments: |
|
|
|
|
|
Divestitures, deconsolidations and other1
|
Other income (loss) — net |
$ |
— |
|
|
$ |
200 |
|
|
|
Income before income taxes |
— |
|
|
200 |
|
|
|
Income taxes |
— |
|
|
— |
|
|
|
Consolidated net income |
$ |
— |
|
|
$ |
200 |
|
|
Derivatives: |
|
|
|
|
|
Foreign currency contracts |
Net operating revenues |
$ |
(88) |
|
|
$ |
(148) |
|
|
Foreign currency contracts |
Cost of goods sold |
(10) |
|
|
(13) |
|
|
Foreign currency contracts |
Interest expense |
1 |
|
|
3 |
|
|
|
|
|
|
|
Foreign currency contracts |
Other income (loss) — net |
71 |
|
|
171 |
|
|
|
Income before income taxes |
(26) |
|
|
13 |
|
|
|
Income taxes |
7 |
|
|
(3) |
|
|
|
Consolidated net income |
$ |
(19) |
|
|
$ |
10 |
|
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
Sale of debt securities |
Other income (loss) — net |
$ |
41 |
|
|
$ |
46 |
|
|
|
Income before income taxes |
41 |
|
|
46 |
|
|
|
Income taxes |
(10) |
|
|
(11) |
|
|
|
Consolidated net income |
$ |
31 |
|
|
$ |
35 |
|
|
Pension and other postretirement benefit liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss |
Other income (loss) — net |
$ |
26 |
|
|
$ |
84 |
|
|
Recognized prior service cost (credit) |
Other income (loss) — net |
— |
|
|
(2) |
|
|
|
|
|
|
|
|
Income before income taxes |
26 |
|
|
82 |
|
|
|
Income taxes |
(6) |
|
|
(20) |
|
|
|
Consolidated net income |
$ |
20 |
|
|
$ |
62 |
|
1Related
to the sale of our ownership interest in one of our equity method
investments and the issuance of additional shares of stock by one
of our equity method investees. Refer to Note 2 and
Note 15, respectively.
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 September 30, 2022 |
Common Shares Outstanding |
Total |
Reinvested Earnings |
Accumulated Other Comprehensive Income (Loss) |
Common Stock |
Capital Surplus |
Treasury Stock |
Non-controlling Interests |
|
July 1, 2022 |
4,326 |
|
$ |
24,803 |
|
$ |
69,970 |
|
$ |
(14,801) |
|
$ |
1,760 |
|
$ |
18,581 |
|
$ |
(52,505) |
|
$ |
1,798 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
— |
|
1,603 |
|
2,825 |
|
(1,068) |
|
— |
|
— |
|
— |
|
(154) |
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($0.44 per share) |
— |
|
(1,902) |
|
(1,902) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
Dividends paid to noncontrolling
interests
|
— |
|
(13) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
(3) |
|
(188) |
|
— |
|
— |
|
— |
|
— |
|
(188) |
|
— |
|
Impact related to stock-based
compensation plans |
1 |
|
133 |
|
— |
|
— |
|
— |
|
106 |
|
27 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
4,324 |
|
$ |
24,436 |
|
$ |
70,893 |
|
$ |
(15,869) |
|
$ |
1,760 |
|
$ |
18,687 |
|
$ |
(52,666) |
|
$ |
1,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners of The Coca-Cola Company
|
|
|
Nine Months Ended September 30, 2022 |
Common Shares Outstanding |
Total |
Reinvested Earnings |
Accumulated Other Comprehensive Income (Loss) |
Common Stock |
Capital Surplus |
Treasury Stock |
Non-controlling Interests |
|
December 31, 2021 |
4,325 |
|
$ |
24,860 |
|
$ |
69,094 |
|
$ |
(14,330) |
|
$ |
1,760 |
|
$ |
18,116 |
|
$ |
(51,641) |
|
$ |
1,861 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
— |
|
5,772 |
|
7,511 |
|
(1,539) |
|
— |
|
— |
|
— |
|
(200) |
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($1.32 per share) |
— |
|
(5,712) |
|
(5,712) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
Dividends paid to noncontrolling
interests
|
— |
|
(29) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(29) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
(21) |
|
(1,336) |
|
— |
|
— |
|
— |
|
— |
|
(1,336) |
|
— |
|
Impact related to stock-based
compensation plans |
20 |
|
881 |
|
— |
|
— |
|
— |
|
570 |
|
311 |
|
— |
|
|
Other activities |
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
(1) |
|
|
September 30, 2022 |
4,324 |
|
$ |
24,436 |
|
$ |
70,893 |
|
$ |
(15,869) |
|
$ |
1,760 |
|
$ |
18,687 |
|
$ |
(52,666) |
|
$ |
1,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners of The Coca-Cola Company
|
|
|
Three Months Ended October 1, 2021 |
Common Shares Outstanding |
Total |
Reinvested Earnings |
Accumulated Other Comprehensive Income (Loss) |
Common Stock |
Capital Surplus |
Treasury Stock |
Non-controlling Interests |
|
July 2, 2021 |
4,315 |
|
$ |
24,255 |
|
$ |
67,838 |
|
$ |
(13,299) |
|
$ |
1,760 |
|
$ |
17,781 |
|
$ |
(51,831) |
|
$ |
2,006 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
— |
|
1,458 |
|
2,471 |
|
(951) |
|
— |
|
— |
|
— |
|
(62) |
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($0.42 per share) |
— |
|
(1,815) |
|
(1,815) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
Dividends paid to noncontrolling
interests |
— |
|
(10) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(10) |
|
Contributions by noncontrolling
interests |
— |
|
20 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact related to stock-based
compensation plans |
4 |
|
225 |
|
— |
|
— |
|
— |
|
148 |
|
77 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
October 1, 2021 |
4,319 |
|
$ |
24,133 |
|
$ |
68,494 |
|
$ |
(14,250) |
|
$ |
1,760 |
|
$ |
17,929 |
|
$ |
(51,754) |
|
$ |
1,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners of The Coca-Cola Company
|
|
|
Nine Months Ended October 1, 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) |
— |
|
7,692 |
|
7,357 |
|
351 |
|
— |
|
— |
|
— |
|
(16) |
|
Dividends paid/payable to
shareowners of The Coca-Cola
Company ($1.26 per share) |
— |
|
(5,437) |
|
(5,437) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
Dividends paid to noncontrolling
interests |
— |
|
(35) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(35) |
|
|
Contributions by noncontrolling
interests
|
— |
|
20 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact related to stock-based
compensation plans |
17 |
|
590 |
|
— |
|
— |
|
— |
|
328 |
|
262 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
October 1, 2021 |
4,319 |
|
$ |
24,133 |
|
$ |
68,494 |
|
$ |
(14,250) |
|
$ |
1,760 |
|
$ |
17,929 |
|
$ |
(51,754) |
|
$ |
1,954 |
|
1Represents
the adoption of Accounting Standards Update 2019-12,
Simplifying the Accounting for Income Taxes,
effective January 1, 2021.
NOTE 11: SIGNIFICANT OPERATING AND NONOPERATING ITEMS
Other Operating Charges
During the three months ended September 30, 2022, the Company
recorded other operating charges of $130 million. These charges
primarily consisted of $57 million related to the impairment
of a trademark in Asia Pacific, $32 million related to the
remeasurement of our contingent consideration liability to fair
value in conjunction with our acquisition of fairlife, LLC
(“fairlife”) in 2020, $27 million related to the Company’s
productivity and reinvestment program, and $15 million related to
the acquisition of BA Sports Nutrition, LLC (“BodyArmor”) in the
prior year, which included various transition and transaction
costs, employee retention costs and the amortization of noncompete
agreements.
During the nine months ended September 30, 2022, the Company
recorded other operating charges of $1,109 million. These charges
primarily consisted of $971 million related to the
remeasurement of our contingent consideration liability to fair
value in conjunction with the fairlife acquisition,
$57 million related to the impairment of a trademark in Asia
Pacific and $56 million related to the Company’s productivity and
reinvestment program. In addition, other operating charges included
$23 million related to the BodyArmor acquisition in the prior
year, which included various transition and transaction costs,
employee retention costs and the amortization of noncompete
agreements, net of the reimbursement of distributor termination
fees recorded in the prior year.
During the three months ended October 1, 2021, the Company
recorded other operating charges of $45 million. These charges
included $31 million related to the Company’s productivity and
reinvestment program, $12 million related to the remeasurement of
our contingent consideration liability to fair value in conjunction
with the fairlife acquisition, $4 million
related to the Company’s strategic realignment initiatives and $1
million related to tax litigation. Other operating charges also
included a net gain of $3 million related to the restructuring
of our manufacturing operations in the United States.
During the nine months ended October 1, 2021, the Company
recorded other operating charges of $478 million. These charges
primarily consisted of $263 million related to the remeasurement of
our contingent consideration liability to fair value in conjunction
with the fairlife acquisition, $126 million related to the
Company’s strategic realignment initiatives and $71 million
related to the Company’s productivity and reinvestment program. In
addition, other operating charges included $14 million related
to tax litigation and a net charge of $4 million related to the
restructuring of our manufacturing operations in the United
States.
Refer to Note 8 for additional information related to the tax
litigation. 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
and the fairlife acquisition. Refer to Note 16 for the impact these
charges had on our operating segments and Corporate.
Other Nonoperating Items
Interest Expense
During the nine months ended October 1, 2021, the Company
recorded charges of $650 million related to the extinguishment
of long-term debt.
Equity Income (Loss) — Net
During the three and nine months ended September 30, 2022, the
Company recorded net charges of $14 million and
$44 million, respectively. During the three and nine months
ended October 1, 2021, the Company recorded a net gain of
$18 million and a net charge of $5 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 September 30, 2022, the Company
recorded a net loss of $78 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.
During the nine months ended September 30, 2022, the Company
recorded a net loss of $449 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 recorded an
other-than-temporary impairment charge of $96 million related
to an equity method investee in Russia. The Company also recorded a
net loss of $24 million as a result of one of our equity
method investees issuing additional shares of its
stock.
During the three months ended October 1, 2021, the Company
recorded charges of $266 million related to the restructuring
of our manufacturing operations in the United States. Additionally,
the Company recognized a gain of $63 million related to the
sale of a portion of our ownership interest in one of our equity
method investments. The Company also recorded pension settlement
charges of $21 million related to our strategic realignment
initiatives.
During the nine months ended October 1, 2021, the Company
recognized a net gain of $695 million related to the sale of
our ownership interest in CCA, an equity method investee, and a
gain of $63 million related to the sale of a portion of our
ownership interest in one of our equity method investments.
Additionally, the Company recognized a net gain of $341 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 charges of $266 million related to the restructuring
of our manufacturing operations in the United States and pension
settlement charges of $104 million related to our strategic
realignment initiatives.
Refer to Note 2 for additional information on the sale of
our ownership interest in CCA. Refer to Note 4 for additional
information on equity and debt securities. Refer to Note 15
for additional information on the impairment charge, one of our
equity method investees issuing additional shares of its stock, and
the charges related to the restructuring of our manufacturing
operations in the United States. Refer to Note 16 for the impact
these items had on our operating segments and
Corporate.
NOTE 12: RESTRUCTURING
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, with the last expansion occurring in April
2017. While we expect most of 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 2023,
certain initiatives may extend into 2024.
During the three and nine months ended September 30, 2022, the
Company incurred expenses of $27 million and $56 million,
respectively, and during the three and nine months ended
October 1, 2021 incurred expenses of $31 million and $71
million, respectively, related to our productivity and reinvestment
program. These expenses primarily included internal and external
costs associated with the implementation of the program’s
initiatives and were recorded in the line item other operating
charges in our consolidated statements of income. Refer to Note 16
for the impact these expenses had on our operating segments and
Corporate. The Company has incurred total pretax expenses of
$4,100 million related to this program since it
commenced.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT
PLANS
Net periodic benefit cost or income for our pension and other
postretirement benefit plans consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Other Postretirement
Benefit Plans |
|
Three Months Ended |
|
September 30,
2022 |
October 1,
2021 |
|
September 30,
2022 |
October 1,
2021 |
|
Service cost |
|