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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 No. 001-02217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
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 X No
------- -------
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at April 26, 1999
--------------------- -----------------------------
$.25 Par Value 2,467,589,633 Shares
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THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 27
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting principles
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 (our Company) for the year ended
December 31, 1998. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of soft drink and noncarbonated beverage products are
generally greater in the second and third quarters due to seasonal factors.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three-
month periods ended March 31, 1999 and 1998 are as follows (in millions):
1999 1998
--------- ---------
Net income $ 747 $ 857
Net foreign currency translation (476) 12
Net change in unrealized gain on
available-for-sale securities 14 16
--------- ---------
Comprehensive income $ 285 $ 885
========= =========
The components of accumulated other comprehensive income, net of related
tax, at March 31, 1999 and December 31, 1998 are as follows (in millions):
1999 1998
--------- ---------
Foreign currency translation adjustment $ (1,796) $ (1,320)
Unrealized gain on
available-for-sale securities 25 11
Minimum pension liability (41) (41)
--------- ---------
Accumulated other comprehensive income $ (1,812) $ (1,350)
========= =========
NOTE D - ISSUANCES OF STOCK BY EQUITY INVESTEES
When one of our equity investees issues additional shares to third
parties, our percentage ownership interest in the investee decreases. In
the event the issuance price per share is more or less than our average
carrying amount per share, we recognize a noncash gain or loss on the
issuance. This noncash gain or loss, net of any deferred taxes, is
generally recognized in our net income in the period the change of
ownership interest occurs.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D - ISSUANCES OF STOCK BY EQUITY INVESTEES (Continued)
If gains have been previously recognized on issuances of an equity
investee's stock and shares of the equity investee are subsequently
repurchased by the equity investee, gain recognition does not occur on
issuances subsequent to the date of a repurchase until shares have been
issued in an amount equivalent to the number of repurchased shares. This
type of transaction is reflected as an equity transaction and the net
effect is reflected in the accompanying condensed consolidated balance
sheets.
In the first quarter of 1999, Coca-Cola Enterprises (CCE) completed its
acquisition of various bottlers. These transactions were funded primarily
with shares of CCE common stock. The CCE common stock issued was valued in
an amount greater than the book value per share of our investment in CCE.
As a result of these transactions, our equity in the underlying net assets
of CCE increased, and we recorded a $241 million increase to our Company's
investment basis in CCE. Due to CCE's share repurchase programs, the
increase in our investment in CCE was recorded as an equity transaction and
no gain was recognized. We recorded a deferred tax liability of
approximately $95 million on this increase to our investment in CCE. The
transactions reduced our ownership in CCE from approximately 42 percent to
approximately 40 percent.
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new statement requires all
derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. The statement
is effective for years beginning after June 15, 1999. We are assessing the
impact this statement will have on our Consolidated Financial Statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - OPERATING SEGMENTS
Our Company's operating structure includes the following operating
segments: the North America Group (including The Minute Maid Company); the
Africa Group; the Greater Europe Group; the Latin America Group; the Middle
& Far East Group; and Corporate. The North America Group includes the
United States and Canada.
Information about our Company's operations by operating segment is as
follows (in millions):
As of and for the Three Months Ended March 31,
Intercompany transfers between operating segments are not material.
10
NOTE G - OTHER TRANSACTIONS
In December 1997, our Company announced its intent to acquire from
beverage company Pernod Ricard, its Orangina brands, three bottling
operations and one concentrate plant in France for approximately 5 billion
French francs. In May 1999, our Company signed a new letter of intent
whereby the distribution of Orangina in the French on-premise channel for a
period of 10 years will be handled by an independent third party. Our
Company would have full rights to market and distribute the brand outside
the French on-premise channel. The amended transaction is now valued at
4.7 billion French francs (approximately $761 million) and is subject to
approvals from regulatory authorities of the French government.
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the first quarter of 1999, our worldwide unit case volume (excluding
volume of The Minute Maid Company) decreased 1 percent and gallon sales of
concentrates and syrups declined 6 percent, cycling first quarter 1998
increases of 14 percent and 15 percent, respectively. The decrease in
volume is primarily a result of the impacts of difficult economic conditions
in many parts of the world.
In the first quarter of 1999, volume increased 5 percent for The Minute
Maid Company compared to a 4 percent increase in the first quarter of 1998.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues declined 1 percent in the first quarter of 1999
reflecting the 6 percent decline in gallon sales, the impact of a stronger
U.S. dollar and the sale in 1998 of our previously consolidated bottling
operations in Italy, partially offset by selective price increases and the
consolidation in 1999 of our recently acquired bottling operations in India
and our vending operations in Japan.
Our gross profit margin decreased to 69.9 percent in the first quarter of
1999 from 70.4 percent in the first quarter of 1998. The decrease in gross
margin for the first quarter of 1999 was due primarily to the consolidation
in 1999 of our bottling operations in India and our vending operations in
Japan.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were $1,953 million in the
first quarter of 1999, compared to $1,857 million in the first quarter of
1998. The increase was due primarily to the consolidation in 1999 of our
recently acquired bottling operations in India and our vending operations
in Japan, partially offset by the sale of our wholly owned Italian bottling
operations to Coca-Cola Beverages plc in June 1998.
12
RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income for the first quarter of 1999 totaled $1,144 million,
a decrease of $138 million from the first quarter of 1998. First quarter
1999 operating income reflects the difficult economic conditions in many
markets throughout the world, the impact of the stronger U.S. dollar and
the consolidation in 1999 of our recently acquired bottling operations
in India and our vending operations in Japan. Operating margin for the
first quarter of 1999 was 25.8 percent, compared to 28.8 percent for the
comparable period in 1998.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $12 million in the first quarter of 1999
relative to the comparable period in 1998, due primarily to higher average
cash balances in the first quarter of 1999. Interest expense increased
$15 million in the first quarter of 1999 relative to the comparable period
in 1998, due to an increase in average commercial paper debt balances.
EQUITY INCOME (LOSS)
Our Company's share of losses from equity method investments for the
first quarter of 1999 totaled $95 million, compared to a loss of $24 million
in the first quarter of 1998. The first quarter 1999 loss was due primarily
to the negative impact of difficult economic conditions in many worldwide
markets as well as the seasonal nature of bottling operations.
OTHER INCOME (LOSS) - NET
Other income (loss) - net increased to $46 million income for the first
quarter of 1999 compared to a $5 million loss for the first quarter of 1998.
The increase reflects a foreign currency gain recorded during the first
quarter of 1999 as a result of effective treasury management practices for
Brazil.
INCOME TAXES
Our effective tax rate was 31.0 percent for the first quarter of 1999 and
1998. Our effective tax rate reflects tax benefits derived from significant
operations outside the United States which are taxed at rates lower than the
U.S. statutory rate of 35 percent.
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first three months of 1999, net cash used in operations
after reinvestment totaled $175 million compared to $26 million in net cash
provided by operations after reinvestment for the first three months of
1998.
13
FINANCIAL CONDITION
Net cash provided by operating activities in the first three months of 1999
amounted to $337 million, a $174 million decrease compared to the first
three months of 1998. The decrease was primarily due to an increased use
of cash for operating assets and liabilities in the first three months of
1999 relative to the comparable period in 1998.
Net cash used in investing activities totaled $512 million for the first
three months of 1999 compared to $485 million in net cash used in investing
activities for the first three months of 1998. The increase was primarily
the result of reinvestment in the business through increased investments in
property, plant and equipment.
FINANCING
Our financing activities primarily consist of net borrowings, dividend
payments and share repurchases. Net cash provided by financing activities
totaled $225 million and $159 million for the first three months of 1999
and 1998, respectively. Our Company had net borrowings of $520 million and
$738 million for the first three months of 1999 and 1998, respectively.
Cash used for share repurchases was $5 million for the first three months
of 1999, compared to $294 million for the first three months of 1998. This
decrease in treasury stock repurchases was due primarily to our pending
acquisitions from Cadbury Schweppes plc and Pernod Ricard for approximately
$1.85 billion and $761 million, respectively. Both of these transactions
are subject to certain conditions including approvals from regulatory
authorities in various countries.
FINANCIAL POSITION
The change in the carrying value of our investment in Coca-Cola
Enterprises (CCE) in the first three months of 1999 is primarily a result
of CCE's issuance of stock in an acquisition as discussed in Note D of the
accompanying condensed consolidated financial statements. The increase in
our property, plant and equipment and goodwill and other intangible assets
is primarily due to the consolidation in 1999 of our recently acquired
bottling operations in India and our vending operations in Japan.
14
FINANCIAL CONDITION (Continued)
EURO CONVERSION
In January 1999, certain member countries of the European Union
established permanent, fixed conversion rates between their existing
currencies and the European Union's common currency (the Euro).
The transition period for the introduction of the Euro is scheduled to
phase in over a period ending January 1, 2002, with the existing currency
being completely removed from circulation on July 1, 2002. Our Company has
been preparing for the introduction of the Euro for several years. The
timing of our phasing out all uses of the existing currencies will comply
with the legal requirements and also be scheduled to facilitate optimal
coordination with the plans of our vendors, distributors and customers.
Our work related to the introduction of the Euro and the phasing out of the
other currencies includes converting information technology systems;
recalculating currency risk; recalibrating derivatives and other financial
instruments; evaluating and taking action, if needed, regarding continuity
of contracts; and modifying our processes for preparing tax, accounting,
payroll and customer records.
Based on our work to date, we believe the Euro replacing the other
currencies will not have a material impact on our operations or our
Consolidated Financial Statements.
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and governmental actions. We
closely monitor our operations in each country and adopt appropriate
strategies responsive to each environment. In the first quarter of 1999,
the U.S. dollar was approximately 3% stronger versus all of our functional
currencies. This does not include the effects of our hedging activities
and therefore, does not reflect the actual impact of fluctuations on our
operating results. Our foreign currency management program mitigates over
time a portion of the impact of exchange on net income and earnings per
share.
15
FINANCIAL CONDITION (Continued)
YEAR 2000
Certain computer programs written with two digits rather than four
to define the applicable year may experience problems handling dates near
the end of and beyond the year 1999 (Year 2000 failure dates). This may
cause computer applications to fail or to create erroneous results unless
corrective measures are taken. The Year 2000 problem can arise at any
point in the Company's supply, manufacturing, processing, distribution and
financial chains.
Aided by third party service providers, we are implementing a plan to
address the anticipated impacts of the Year 2000 problem on our information
technology (IT) systems and on non-IT systems involving embedded chip
technologies (non-IT systems). We are also surveying selected third
parties to determine the status of their Year 2000 compliance programs.
In addition, we are developing contingency plans specifying what the
Company will do if it or important third parties experience disruptions as
a result of the Year 2000 problem.
With respect to IT systems, our Year 2000 plan includes programs relating
to (i) computer applications, including those for mainframes, client server
systems, minicomputers and personal computers (the Applications Program)
and (ii) IT infrastructure, including hardware, software, network
technology and voice and data communications (the Infrastructure Program).
In the case of non-IT systems, our Year 2000 plan includes programs relating
to (i) equipment and processes required to produce and distribute beverage
concentrates and syrups, finished beverages, juices and juice-drink products
(the Manufacturing Program) and (ii) equipment and systems in buildings not
encompassed by the Manufacturing Program that our Company occupies or leases
to third parties (the Facilities Program).
Each of these programs is being conducted in phases, described as follows:
INVENTORY PHASE -- Identify hardware, software, processes or devices that
use or process date information.
ASSESSMENT PHASE -- Identify Year 2000 date processing deficiencies and
related implications.
PLANNING PHASE -- Determine for each deficiency an appropriate solution
and budget. Schedule resources and develop testing plans.
IMPLEMENTATION PHASE -- Implement designed solutions. Conduct appropriate
systems testing.
16
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
Certain additional testing may be conducted following completion of the
implementation phase. The plan also includes a control element intended to
ensure that changes to IT and non-IT systems do not introduce additional
Year 2000 issues.
Our Year 2000 plan is subject to modification and is revised periodically
as additional information is developed. The Company currently believes
that its Year 2000 plan will be completed in all material respects prior to
the anticipated Year 2000 failure dates. For the Company and its
consolidated subsidiaries, status reports regarding the Applications,
Infrastructure, Manufacturing and Facilities Programs as of the respective
dates indicated below are as follows:
APPLICATIONS PROGRAM (AS OF MARCH 31, 1999) -- We have completed the
inventory, assessment and planning phases for all 46 applications considered
to be mission-critical, and implementation phase progress is as follows:
42 are complete and four are expected to be completed by June 1999. Of
approximately 2,890 other applications we have identified, all have
been assessed and approximately 1,880 of these have been determined to
require Year 2000 planning and implementation phase work. We have
completed the planning and implementation phases for approximately 1,810
and 1,510 applications, respectively, and we estimate completion of the
remainder by May and July 1999, respectively.
INFRASTRUCTURE PROGRAM (AS OF MARCH 31, 1999) -- The inventory phase is
estimated to be approximately 96 percent complete and is expected to be
fully completed by May 1999. Approximately 4,400 "components" have been
identified. (We define a component as a particular type - of which there
may be numerous individual iterations - of software package, computer or
telecommunications hardware, or lab or research equipment, including any
supporting software and utilities.) The assessment, planning and
implementation phases are estimated to be approximately 94 percent, 91
percent and 75 percent complete, respectively, and are expected to be fully
completed by June, June and October 1999, respectively.
MANUFACTURING PROGRAM (AS OF MARCH 31, 1999 EXCEPT AS OTHERWISE NOTED) --
We have identified 98 separate manufacturing operations, all of which
have completed the inventory and assessment phases. Of the 98 operations,
all but one (which subsequently completed on April 29, 1999) have completed
the planning phase. Implementation phase work has been completed in 55
operations and is expected to be fully completed by July 1999.
17
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
FACILITIES PROGRAM (AS OF MARCH 31, 1999) -- Of the 59 non-manufacturing
buildings we have identified, 21 were found to have no Year 2000 issues and
the remaining 38 were either found to have Year 2000 issues requiring
planning and implementation or have not yet completed the inventory and
assessment phases. Status by phase is as follows:
Not Yet In Total Estimated 100%
Phase Started Progress Complete Buildings Completion Date
----- ------- -------- -------- --------- ---------------
Inventory 1 5 53 59 April 1999
Assessment 4 2 53 59 June 1999
Planning 5 1 32 38 June 1999
Implementation 10 25 3 38 December 1999
Owners of properties leased by our Company are being contacted in order
to assess the Year 2000 readiness of their facilities.
THIRD PARTY YEAR 2000 READINESS. The Company has material relationships
with third parties whose failure to be Year 2000 compliant could have
materially adverse impacts on our Company's business, operations or
financial condition in the future. Third parties that we consider to be in
this category for Year 2000 purposes (Key Business Partners) include
critically important bottlers, customers, suppliers, vendors and public
entities such as government regulatory agencies, utilities, financial
entities and others.
BOTTLERS. We derive most of our net operating revenues from sales of
concentrates, syrups and finished products to authorized third parties,
including bottling and canning operations (Bottlers), that produce, package
and distribute beverages bearing the Company's brands. We have made Year
2000 awareness information available to all Bottlers and have asked each
Bottler to advise us of the Bottler's plans for reaching Year 2000 readiness
with respect to non-IT systems. All of our Bottlers have made their plans
available to us. We have also contacted the Bottlers to inquire about their
state of Year 2000 readiness with respect to IT systems as well as the
actions being taken by Bottlers with respect to third parties. We may take
further action as we deem it appropriate in particular cases.
CUSTOMERS. We have met and exchanged information with a limited number
of key non-Bottler customers regarding Year 2000 readiness and business
continuity issues.
18
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
SUPPLIERS AND VENDORS. The Company classifies as "critical" those
suppliers of products or services consumed on an ongoing basis that, if
interrupted, would materially disrupt our Company's ability to deliver
products or conduct operations. We are conducting reviews of suppliers
identified as critical on a worldwide basis, for purposes of assessing
their Year 2000 plans and their progress toward implementation. We expect
all of these reviews to be completed by May 1999. Thereafter, additional
assessments may occur during the remainder of the year. In addition, each
Company field location is working to assess the likelihood of supply issues
with suppliers classified as critical on a regional basis.
Suppliers of less critical importance to our business, and vendors from
whom we buy goods expected to be in service beyond 1999, have been sent a
questionnaire from us asking about the status of their Year 2000 plans.
Responses are being evaluated and periodically reassessed, certain selected
goods are being tested, and follow-up action is being taken by the Company
as it deems appropriate.
PUBLIC ENTITIES. We also have a Year 2000 program that involves
interaction with and assessment of public entities such as government
regulatory agencies, utilities, financial entities and others.
CONTINGENCY PLANS. The Company is preparing contingency plans relating
specifically to identified Year 2000 risks and developing cost estimates
relating to these plans. Contingency plans may include stockpiling raw and
packaging materials, increasing inventory levels, securing alternate sources
of supply, adopting workaround procedures, and other appropriate measures.
We anticipate completion of the Year 2000 contingency plans during the first
half of 1999. Once developed, Year 2000 contingency plans and related cost
estimates will be tested in certain respects and continually refined as
additional information becomes available.
19
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
YEAR 2000 RISKS. While the Company currently believes that it will be
able to modify or replace its affected systems in time to minimize any
significant detrimental effects on its operations, failure to do so, or the
failure of Key Business Partners or other third parties to modify or replace
their affected systems, could have materially adverse impacts on the
Company's business, operations or financial condition in the future. There
can be no guarantee that such impacts will not occur. In particular,
because of the interdependent nature of business systems, the Company could
be materially adversely affected if private businesses, utilities and
governmental entities with which it does business or that provide essential
products or services are not Year 2000 ready. The Company currently
believes that the greatest risk of disruption in its businesses exists in
certain international markets. Reasonably likely consequences of failure
by the Company or third parties to resolve the Year 2000 problem include,
among other things, temporary slowdowns or cessations of operations at one
or more Company or Bottler facilities, delays in the delivery or
distribution of products, delays in the receipt of supplies, invoice and
collection errors, and inventory and supply obsolescence. However, the
Company believes that its Year 2000 readiness program, including related
contingency planning, should significantly reduce the possibility of
significant interruptions of normal operations.
COSTS. As of March 31, 1999, the Company's total incremental costs
(historical plus estimated future costs) of addressing Year 2000 issues are
estimated to be in the range of $130 million to $160 million, of which
approximately $90 million has been incurred. These costs are being funded
through operating cash flow. These amounts do not include: (i) any costs
associated with the implementation of contingency plans, which are in the
process of being developed, or (ii) costs associated with replacements of
computerized systems or equipment in cases where replacement was not
accelerated due to Year 2000 issues.
Implementation of our Company's Year 2000 plan is an ongoing process.
Consequently, the above described estimates of costs and completion dates
for the various components of the plan are subject to change.
For further information regarding Year 2000 matters, see the disclosures
under Forward-Looking Statements on page 24.
20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
report on Form 10-K for the year ended December 31, 1998.
21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Share Owners was held on Wednesday, April 21, 1999,
in Wilmington, Delaware, at which the following matters were submitted to a
vote of the share owners:
(a) Votes regarding the election of four Directors for a term
expiring in 2002 were as follows:
FOR WITHHELD
-------------- ----------
Cathleen P. Black 2,158,335,124 15,457,895
Warren E. Buffett 2,156,626,650 17,166,369
M. Douglas Ivester 2,156,325,734 17,467,285
Susan B. King 2,147,252,537 26,540,482
Additional Directors, whose terms of office as Directors
continued after the meeting, are as follows:
Term expiring in 2000 Term expiring in 2001
--------------------- ---------------------
Ronald W. Allen Herbert A. Allen
Donald F. McHenry James D. Robinson III
Sam Nunn Peter V. Ueberroth
Paul F. Oreffice
James B. Williams
(b) Votes regarding reapproval of the Company's Long-Term
Performance Incentive Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,115,073,591 44,904,353 13,815,075
(c) Votes regarding reapproval of the Company's Executive
Performance Incentive Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,107,662,013 50,819,205 15,311,801
22
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)
(d) Votes regarding approval of the Company's 1999 Stock Option
Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
1,906,701,710 251,825,068 15,266,241
(e) Votes regarding ratification of the appointment of Ernst &
Young LLP as independent auditors of the Company to serve for
the 1999 fiscal year were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,162,450,587 4,593,467 6,748,965
23
Part II. Other Information
Item 5. Other Information
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for forward-looking statements made by or on behalf of our
Company. Our Company and its representatives may from time to time make
written or verbal forward-looking statements, including statements
contained in this report and other Company filings with the Securities and
Exchange Commission and in our reports to share owners. All statements
which 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, statements
expressing general optimism about future operating results, and non-
historical Year 2000 information, are forward-looking statements within the
meaning of the Act. The forward-looking statements are and will be based
on management's then current views and assumptions regarding future events
and operating performance.
FACTORS THAT MAY IMPACT FORWARD-LOOKING STATEMENTS OR FINANCIAL PERFORMANCE
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from
estimates contained in or underlying our Company's forward-looking
statements:
-- Our ability to generate sufficient cash flows to support capital
expansion plans, share repurchase programs and general operating
activities.
-- Competitive product and pricing pressures and our ability to gain or
maintain share of sales in the global market as a result of actions by
competitors. While we believe our opportunities for sustained,
profitable growth are considerable, unanticipated actions of
competitors could impact our earnings, share of sales and volume
growth.
-- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations) and environmental laws in
domestic or foreign jurisdictions.
-- Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and relationships.
-- Our ability to achieve earnings forecasts, which are generated based
on projected volumes and sales of many product types, some of which
are more profitable than others. There can be no assurance that we
will achieve the projected level or mix of product sales.
24
FORWARD-LOOKING STATEMENTS (Continued)
-- Interest rate fluctuations and other capital market conditions,
including foreign currency rate fluctuations. Most of our exposures
to capital markets, including interest and foreign currency, are
managed on a consolidated basis, which allows us to net certain
exposures and, thus, take advantage of any natural offsets. We use
derivative financial instruments to reduce our net exposure to
financial risks. There can be no assurance, however, that our
financial risk management program will be successful in reducing
foreign currency exposures.
-- Economic and political conditions in international markets, including
civil unrest, governmental changes and restrictions on the ability to
transfer capital across borders.
-- Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions and how well we are able
to acquire or form strategic business alliances with local bottlers
and make necessary infrastructure enhancements to production
facilities, distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets must match the
customers' demand for those products, and due to product price and
cultural differences, there can be no assurance of product acceptance
in any particular market.
-- The effectiveness of our advertising, marketing and promotional
programs.
-- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's Securities
and Exchange Commission filings.
-- Adverse weather conditions, which could reduce demand for Company
products.
25
FORWARD-LOOKING STATEMENTS (Continued)
-- Our ability and the ability of our Key Business Partners and other
third parties to replace, modify or upgrade computer systems in ways
that adequately address the Year 2000 problem. Given the numerous
and significant uncertainties involved, there can be no assurance
that Year 2000-related estimates and anticipated results will be
achieved, and actual results could differ materially. Specific
factors that might cause such material differences include, but are
not limited to, the ability to identify and correct all relevant
computer codes and embedded chips, unanticipated difficulties or
delays in the implementation of Year 2000 project plans and the
ability of third parties to adequately address their own Year 2000
issues.
-- Our ability to timely resolve issues relating to introduction of the
European Union's common currency (the Euro).
The foregoing list of important factors is not exclusive.
26
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 - Amendment No. 1, dated April 19, 1999, to Amended and
Restated Purchase Agreement, dated as of December 11,
1998, among the Company, Atlantic Industries and Cadbury
Schweppes plc
10.1 - The Coca-Cola Company 1987 Stock Option Plan, as amended
and restated through April 20, 1999
10.2 - The Coca-Cola Company 1991 Stock Option Plan, as amended
and restated through April 20, 1999
10.3 - The Coca-Cola Company 1999 Stock Option Plan
10.4 - Long-Term Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
10.5 - Executive Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the three months ended
March 31, 1999, submitted to the Securities and Exchange
Commission in electronic format
(b) Reports on Form 8-K:
No report on Form 8-K has been filed by the Registrant during the
quarter for which this report is filed.
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: May 12, 1999 By: /s/ Gary P. Fayard
----------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
28
EXHIBIT INDEX
Exhibit Number and Description
2.1 - Amendment No. 1, dated April 19, 1999, to Amended and
Restated Purchase Agreement, dated as of December 11,
1998, among the Company, Atlantic Industries and Cadbury
Schweppes plc
10.1 - The Coca-Cola Company 1987 Stock Option Plan, as amended
and restated through April 20, 1999
10.2 - The Coca-Cola Company 1991 Stock Option Plan, as amended
and restated through April 20, 1999
10.3 - The Coca-Cola Company 1999 Stock Option Plan
10.4 - Long-Term Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
10.5 - Executive Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the three months ended
March 31, 1999, submitted to the Securities and Exchange
Commission in electronic format
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 No. 001-02217
The Coca-Cola Company
(Exact name of Registrant as specified in its Charter)
Delaware 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza 30313
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 676-2121
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 X No
------- -------
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at April 26, 1999
--------------------- -----------------------------
$.25 Par Value 2,467,589,633 Shares
===========================================================================
THE COCA-COLA COMPANY AND SUBSIDIARIES
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 27
2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
ASSETS
3
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except share data)
LIABILITIES AND SHARE-OWNERS' EQUITY
4
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
5
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
6
THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting principles
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 (our Company) for the year ended
December 31, 1998. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.
Certain amounts in our prior period financial statements have been
reclassified to conform to the current period presentation.
NOTE B - SEASONAL NATURE OF BUSINESS
Unit sales of soft drink and noncarbonated beverage products are
generally greater in the second and third quarters due to seasonal factors.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three-
month periods ended March 31, 1999 and 1998 are as follows (in millions):
1999 1998
--------- ---------
Net income $ 747 $ 857
Net foreign currency translation (476) 12
Net change in unrealized gain on
available-for-sale securities 14 16
--------- ---------
Comprehensive income $ 285 $ 885
========= =========
The components of accumulated other comprehensive income, net of related
tax, at March 31, 1999 and December 31, 1998 are as follows (in millions):
1999 1998
--------- ---------
Foreign currency translation adjustment $ (1,796) $ (1,320)
Unrealized gain on
available-for-sale securities 25 11
Minimum pension liability (41) (41)
--------- ---------
Accumulated other comprehensive income $ (1,812) $ (1,350)
========= =========
NOTE D - ISSUANCES OF STOCK BY EQUITY INVESTEES
When one of our equity investees issues additional shares to third
parties, our percentage ownership interest in the investee decreases. In
the event the issuance price per share is more or less than our average
carrying amount per share, we recognize a noncash gain or loss on the
issuance. This noncash gain or loss, net of any deferred taxes, is
generally recognized in our net income in the period the change of
ownership interest occurs.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D - ISSUANCES OF STOCK BY EQUITY INVESTEES (Continued)
If gains have been previously recognized on issuances of an equity
investee's stock and shares of the equity investee are subsequently
repurchased by the equity investee, gain recognition does not occur on
issuances subsequent to the date of a repurchase until shares have been
issued in an amount equivalent to the number of repurchased shares. This
type of transaction is reflected as an equity transaction and the net
effect is reflected in the accompanying condensed consolidated balance
sheets.
In the first quarter of 1999, Coca-Cola Enterprises (CCE) completed its
acquisition of various bottlers. These transactions were funded primarily
with shares of CCE common stock. The CCE common stock issued was valued in
an amount greater than the book value per share of our investment in CCE.
As a result of these transactions, our equity in the underlying net assets
of CCE increased, and we recorded a $241 million increase to our Company's
investment basis in CCE. Due to CCE's share repurchase programs, the
increase in our investment in CCE was recorded as an equity transaction and
no gain was recognized. We recorded a deferred tax liability of
approximately $95 million on this increase to our investment in CCE. The
transactions reduced our ownership in CCE from approximately 42 percent to
approximately 40 percent.
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new statement requires all
derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. The statement
is effective for years beginning after June 15, 1999. We are assessing the
impact this statement will have on our Consolidated Financial Statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F - OPERATING SEGMENTS
Our Company's operating structure includes the following operating
segments: the North America Group (including The Minute Maid Company); the
Africa Group; the Greater Europe Group; the Latin America Group; the Middle
& Far East Group; and Corporate. The North America Group includes the
United States and Canada.
Information about our Company's operations by operating segment is as
follows (in millions):
As of and for the Three Months Ended March 31,
Intercompany transfers between operating segments are not material.
10
NOTE G - OTHER TRANSACTIONS
In December 1997, our Company announced its intent to acquire from
beverage company Pernod Ricard, its Orangina brands, three bottling
operations and one concentrate plant in France for approximately 5 billion
French francs. In May 1999, our Company signed a new letter of intent
whereby the distribution of Orangina in the French on-premise channel for a
period of 10 years will be handled by an independent third party. Our
Company would have full rights to market and distribute the brand outside
the French on-premise channel. The amended transaction is now valued at
4.7 billion French francs (approximately $761 million) and is subject to
approvals from regulatory authorities of the French government.
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
BEVERAGE VOLUME
In the first quarter of 1999, our worldwide unit case volume (excluding
volume of The Minute Maid Company) decreased 1 percent and gallon sales of
concentrates and syrups declined 6 percent, cycling first quarter 1998
increases of 14 percent and 15 percent, respectively. The decrease in
volume is primarily a result of the impacts of difficult economic conditions
in many parts of the world.
In the first quarter of 1999, volume increased 5 percent for The Minute
Maid Company compared to a 4 percent increase in the first quarter of 1998.
NET OPERATING REVENUES AND GROSS MARGIN
Net operating revenues declined 1 percent in the first quarter of 1999
reflecting the 6 percent decline in gallon sales, the impact of a stronger
U.S. dollar and the sale in 1998 of our previously consolidated bottling
operations in Italy, partially offset by selective price increases and the
consolidation in 1999 of our recently acquired bottling operations in India
and our vending operations in Japan.
Our gross profit margin decreased to 69.9 percent in the first quarter of
1999 from 70.4 percent in the first quarter of 1998. The decrease in gross
margin for the first quarter of 1999 was due primarily to the consolidation
in 1999 of our bottling operations in India and our vending operations in
Japan.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, administrative and general expenses were $1,953 million in the
first quarter of 1999, compared to $1,857 million in the first quarter of
1998. The increase was due primarily to the consolidation in 1999 of our
recently acquired bottling operations in India and our vending operations
in Japan, partially offset by the sale of our wholly owned Italian bottling
operations to Coca-Cola Beverages plc in June 1998.
12
RESULTS OF OPERATIONS (Continued)
OPERATING INCOME AND OPERATING MARGIN
Operating income for the first quarter of 1999 totaled $1,144 million,
a decrease of $138 million from the first quarter of 1998. First quarter
1999 operating income reflects the difficult economic conditions in many
markets throughout the world, the impact of the stronger U.S. dollar and
the consolidation in 1999 of our recently acquired bottling operations
in India and our vending operations in Japan. Operating margin for the
first quarter of 1999 was 25.8 percent, compared to 28.8 percent for the
comparable period in 1998.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $12 million in the first quarter of 1999
relative to the comparable period in 1998, due primarily to higher average
cash balances in the first quarter of 1999. Interest expense increased
$15 million in the first quarter of 1999 relative to the comparable period
in 1998, due to an increase in average commercial paper debt balances.
EQUITY INCOME (LOSS)
Our Company's share of losses from equity method investments for the
first quarter of 1999 totaled $95 million, compared to a loss of $24 million
in the first quarter of 1998. The first quarter 1999 loss was due primarily
to the negative impact of difficult economic conditions in many worldwide
markets as well as the seasonal nature of bottling operations.
OTHER INCOME (LOSS) - NET
Other income (loss) - net increased to $46 million income for the first
quarter of 1999 compared to a $5 million loss for the first quarter of 1998.
The increase reflects a foreign currency gain recorded during the first
quarter of 1999 as a result of effective treasury management practices for
Brazil.
INCOME TAXES
Our effective tax rate was 31.0 percent for the first quarter of 1999 and
1998. Our effective tax rate reflects tax benefits derived from significant
operations outside the United States which are taxed at rates lower than the
U.S. statutory rate of 35 percent.
NET CASH FLOW PROVIDED BY OPERATIONS AFTER REINVESTMENT
In the first three months of 1999, net cash used in operations
after reinvestment totaled $175 million compared to $26 million in net cash
provided by operations after reinvestment for the first three months of
1998.
13
FINANCIAL CONDITION
Net cash provided by operating activities in the first three months of 1999
amounted to $337 million, a $174 million decrease compared to the first
three months of 1998. The decrease was primarily due to an increased use
of cash for operating assets and liabilities in the first three months of
1999 relative to the comparable period in 1998.
Net cash used in investing activities totaled $512 million for the first
three months of 1999 compared to $485 million in net cash used in investing
activities for the first three months of 1998. The increase was primarily
the result of reinvestment in the business through increased investments in
property, plant and equipment.
FINANCING
Our financing activities primarily consist of net borrowings, dividend
payments and share repurchases. Net cash provided by financing activities
totaled $225 million and $159 million for the first three months of 1999
and 1998, respectively. Our Company had net borrowings of $520 million and
$738 million for the first three months of 1999 and 1998, respectively.
Cash used for share repurchases was $5 million for the first three months
of 1999, compared to $294 million for the first three months of 1998. This
decrease in treasury stock repurchases was due primarily to our pending
acquisitions from Cadbury Schweppes plc and Pernod Ricard for approximately
$1.85 billion and $761 million, respectively. Both of these transactions
are subject to certain conditions including approvals from regulatory
authorities in various countries.
FINANCIAL POSITION
The change in the carrying value of our investment in Coca-Cola
Enterprises (CCE) in the first three months of 1999 is primarily a result
of CCE's issuance of stock in an acquisition as discussed in Note D of the
accompanying condensed consolidated financial statements. The increase in
our property, plant and equipment and goodwill and other intangible assets
is primarily due to the consolidation in 1999 of our recently acquired
bottling operations in India and our vending operations in Japan.
14
FINANCIAL CONDITION (Continued)
EURO CONVERSION
In January 1999, certain member countries of the European Union
established permanent, fixed conversion rates between their existing
currencies and the European Union's common currency (the Euro).
The transition period for the introduction of the Euro is scheduled to
phase in over a period ending January 1, 2002, with the existing currency
being completely removed from circulation on July 1, 2002. Our Company has
been preparing for the introduction of the Euro for several years. The
timing of our phasing out all uses of the existing currencies will comply
with the legal requirements and also be scheduled to facilitate optimal
coordination with the plans of our vendors, distributors and customers.
Our work related to the introduction of the Euro and the phasing out of the
other currencies includes converting information technology systems;
recalculating currency risk; recalibrating derivatives and other financial
instruments; evaluating and taking action, if needed, regarding continuity
of contracts; and modifying our processes for preparing tax, accounting,
payroll and customer records.
Based on our work to date, we believe the Euro replacing the other
currencies will not have a material impact on our operations or our
Consolidated Financial Statements.
EXCHANGE
Our international operations are subject to certain opportunities and
risks, including currency fluctuations and governmental actions. We
closely monitor our operations in each country and adopt appropriate
strategies responsive to each environment. In the first quarter of 1999,
the U.S. dollar was approximately 3% stronger versus all of our functional
currencies. This does not include the effects of our hedging activities
and therefore, does not reflect the actual impact of fluctuations on our
operating results. Our foreign currency management program mitigates over
time a portion of the impact of exchange on net income and earnings per
share.
15
FINANCIAL CONDITION (Continued)
YEAR 2000
Certain computer programs written with two digits rather than four
to define the applicable year may experience problems handling dates near
the end of and beyond the year 1999 (Year 2000 failure dates). This may
cause computer applications to fail or to create erroneous results unless
corrective measures are taken. The Year 2000 problem can arise at any
point in the Company's supply, manufacturing, processing, distribution and
financial chains.
Aided by third party service providers, we are implementing a plan to
address the anticipated impacts of the Year 2000 problem on our information
technology (IT) systems and on non-IT systems involving embedded chip
technologies (non-IT systems). We are also surveying selected third
parties to determine the status of their Year 2000 compliance programs.
In addition, we are developing contingency plans specifying what the
Company will do if it or important third parties experience disruptions as
a result of the Year 2000 problem.
With respect to IT systems, our Year 2000 plan includes programs relating
to (i) computer applications, including those for mainframes, client server
systems, minicomputers and personal computers (the Applications Program)
and (ii) IT infrastructure, including hardware, software, network
technology and voice and data communications (the Infrastructure Program).
In the case of non-IT systems, our Year 2000 plan includes programs relating
to (i) equipment and processes required to produce and distribute beverage
concentrates and syrups, finished beverages, juices and juice-drink products
(the Manufacturing Program) and (ii) equipment and systems in buildings not
encompassed by the Manufacturing Program that our Company occupies or leases
to third parties (the Facilities Program).
Each of these programs is being conducted in phases, described as follows:
INVENTORY PHASE -- Identify hardware, software, processes or devices that
use or process date information.
ASSESSMENT PHASE -- Identify Year 2000 date processing deficiencies and
related implications.
PLANNING PHASE -- Determine for each deficiency an appropriate solution
and budget. Schedule resources and develop testing plans.
IMPLEMENTATION PHASE -- Implement designed solutions. Conduct appropriate
systems testing.
16
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
Certain additional testing may be conducted following completion of the
implementation phase. The plan also includes a control element intended to
ensure that changes to IT and non-IT systems do not introduce additional
Year 2000 issues.
Our Year 2000 plan is subject to modification and is revised periodically
as additional information is developed. The Company currently believes
that its Year 2000 plan will be completed in all material respects prior to
the anticipated Year 2000 failure dates. For the Company and its
consolidated subsidiaries, status reports regarding the Applications,
Infrastructure, Manufacturing and Facilities Programs as of the respective
dates indicated below are as follows:
APPLICATIONS PROGRAM (AS OF MARCH 31, 1999) -- We have completed the
inventory, assessment and planning phases for all 46 applications considered
to be mission-critical, and implementation phase progress is as follows:
42 are complete and four are expected to be completed by June 1999. Of
approximately 2,890 other applications we have identified, all have
been assessed and approximately 1,880 of these have been determined to
require Year 2000 planning and implementation phase work. We have
completed the planning and implementation phases for approximately 1,810
and 1,510 applications, respectively, and we estimate completion of the
remainder by May and July 1999, respectively.
INFRASTRUCTURE PROGRAM (AS OF MARCH 31, 1999) -- The inventory phase is
estimated to be approximately 96 percent complete and is expected to be
fully completed by May 1999. Approximately 4,400 "components" have been
identified. (We define a component as a particular type - of which there
may be numerous individual iterations - of software package, computer or
telecommunications hardware, or lab or research equipment, including any
supporting software and utilities.) The assessment, planning and
implementation phases are estimated to be approximately 94 percent, 91
percent and 75 percent complete, respectively, and are expected to be fully
completed by June, June and October 1999, respectively.
MANUFACTURING PROGRAM (AS OF MARCH 31, 1999 EXCEPT AS OTHERWISE NOTED) --
We have identified 98 separate manufacturing operations, all of which
have completed the inventory and assessment phases. Of the 98 operations,
all but one (which subsequently completed on April 29, 1999) have completed
the planning phase. Implementation phase work has been completed in 55
operations and is expected to be fully completed by July 1999.
17
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
FACILITIES PROGRAM (AS OF MARCH 31, 1999) -- Of the 59 non-manufacturing
buildings we have identified, 21 were found to have no Year 2000 issues and
the remaining 38 were either found to have Year 2000 issues requiring
planning and implementation or have not yet completed the inventory and
assessment phases. Status by phase is as follows:
Not Yet In Total Estimated 100%
Phase Started Progress Complete Buildings Completion Date
----- ------- -------- -------- --------- ---------------
Inventory 1 5 53 59 April 1999
Assessment 4 2 53 59 June 1999
Planning 5 1 32 38 June 1999
Implementation 10 25 3 38 December 1999
Owners of properties leased by our Company are being contacted in order
to assess the Year 2000 readiness of their facilities.
THIRD PARTY YEAR 2000 READINESS. The Company has material relationships
with third parties whose failure to be Year 2000 compliant could have
materially adverse impacts on our Company's business, operations or
financial condition in the future. Third parties that we consider to be in
this category for Year 2000 purposes (Key Business Partners) include
critically important bottlers, customers, suppliers, vendors and public
entities such as government regulatory agencies, utilities, financial
entities and others.
BOTTLERS. We derive most of our net operating revenues from sales of
concentrates, syrups and finished products to authorized third parties,
including bottling and canning operations (Bottlers), that produce, package
and distribute beverages bearing the Company's brands. We have made Year
2000 awareness information available to all Bottlers and have asked each
Bottler to advise us of the Bottler's plans for reaching Year 2000 readiness
with respect to non-IT systems. All of our Bottlers have made their plans
available to us. We have also contacted the Bottlers to inquire about their
state of Year 2000 readiness with respect to IT systems as well as the
actions being taken by Bottlers with respect to third parties. We may take
further action as we deem it appropriate in particular cases.
CUSTOMERS. We have met and exchanged information with a limited number
of key non-Bottler customers regarding Year 2000 readiness and business
continuity issues.
18
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
SUPPLIERS AND VENDORS. The Company classifies as "critical" those
suppliers of products or services consumed on an ongoing basis that, if
interrupted, would materially disrupt our Company's ability to deliver
products or conduct operations. We are conducting reviews of suppliers
identified as critical on a worldwide basis, for purposes of assessing
their Year 2000 plans and their progress toward implementation. We expect
all of these reviews to be completed by May 1999. Thereafter, additional
assessments may occur during the remainder of the year. In addition, each
Company field location is working to assess the likelihood of supply issues
with suppliers classified as critical on a regional basis.
Suppliers of less critical importance to our business, and vendors from
whom we buy goods expected to be in service beyond 1999, have been sent a
questionnaire from us asking about the status of their Year 2000 plans.
Responses are being evaluated and periodically reassessed, certain selected
goods are being tested, and follow-up action is being taken by the Company
as it deems appropriate.
PUBLIC ENTITIES. We also have a Year 2000 program that involves
interaction with and assessment of public entities such as government
regulatory agencies, utilities, financial entities and others.
CONTINGENCY PLANS. The Company is preparing contingency plans relating
specifically to identified Year 2000 risks and developing cost estimates
relating to these plans. Contingency plans may include stockpiling raw and
packaging materials, increasing inventory levels, securing alternate sources
of supply, adopting workaround procedures, and other appropriate measures.
We anticipate completion of the Year 2000 contingency plans during the first
half of 1999. Once developed, Year 2000 contingency plans and related cost
estimates will be tested in certain respects and continually refined as
additional information becomes available.
19
FINANCIAL CONDITION (Continued)
YEAR 2000 (Continued)
YEAR 2000 RISKS. While the Company currently believes that it will be
able to modify or replace its affected systems in time to minimize any
significant detrimental effects on its operations, failure to do so, or the
failure of Key Business Partners or other third parties to modify or replace
their affected systems, could have materially adverse impacts on the
Company's business, operations or financial condition in the future. There
can be no guarantee that such impacts will not occur. In particular,
because of the interdependent nature of business systems, the Company could
be materially adversely affected if private businesses, utilities and
governmental entities with which it does business or that provide essential
products or services are not Year 2000 ready. The Company currently
believes that the greatest risk of disruption in its businesses exists in
certain international markets. Reasonably likely consequences of failure
by the Company or third parties to resolve the Year 2000 problem include,
among other things, temporary slowdowns or cessations of operations at one
or more Company or Bottler facilities, delays in the delivery or
distribution of products, delays in the receipt of supplies, invoice and
collection errors, and inventory and supply obsolescence. However, the
Company believes that its Year 2000 readiness program, including related
contingency planning, should significantly reduce the possibility of
significant interruptions of normal operations.
COSTS. As of March 31, 1999, the Company's total incremental costs
(historical plus estimated future costs) of addressing Year 2000 issues are
estimated to be in the range of $130 million to $160 million, of which
approximately $90 million has been incurred. These costs are being funded
through operating cash flow. These amounts do not include: (i) any costs
associated with the implementation of contingency plans, which are in the
process of being developed, or (ii) costs associated with replacements of
computerized systems or equipment in cases where replacement was not
accelerated due to Year 2000 issues.
Implementation of our Company's Year 2000 plan is an ongoing process.
Consequently, the above described estimates of costs and completion dates
for the various components of the plan are subject to change.
For further information regarding Year 2000 matters, see the disclosures
under Forward-Looking Statements on page 24.
20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
We have no material changes to the disclosure on this matter made in our
report on Form 10-K for the year ended December 31, 1998.
21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Share Owners was held on Wednesday, April 21, 1999,
in Wilmington, Delaware, at which the following matters were submitted to a
vote of the share owners:
(a) Votes regarding the election of four Directors for a term
expiring in 2002 were as follows:
FOR WITHHELD
-------------- ----------
Cathleen P. Black 2,158,335,124 15,457,895
Warren E. Buffett 2,156,626,650 17,166,369
M. Douglas Ivester 2,156,325,734 17,467,285
Susan B. King 2,147,252,537 26,540,482
Additional Directors, whose terms of office as Directors
continued after the meeting, are as follows:
Term expiring in 2000 Term expiring in 2001
--------------------- ---------------------
Ronald W. Allen Herbert A. Allen
Donald F. McHenry James D. Robinson III
Sam Nunn Peter V. Ueberroth
Paul F. Oreffice
James B. Williams
(b) Votes regarding reapproval of the Company's Long-Term
Performance Incentive Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,115,073,591 44,904,353 13,815,075
(c) Votes regarding reapproval of the Company's Executive
Performance Incentive Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,107,662,013 50,819,205 15,311,801
22
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)
(d) Votes regarding approval of the Company's 1999 Stock Option
Plan were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
1,906,701,710 251,825,068 15,266,241
(e) Votes regarding ratification of the appointment of Ernst &
Young LLP as independent auditors of the Company to serve for
the 1999 fiscal year were as follows:
ABSTENTIONS
AND
BROKER
FOR AGAINST NON-VOTES
------------- ------------- -------------
2,162,450,587 4,593,467 6,748,965
23
Part II. Other Information
Item 5. Other Information
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for forward-looking statements made by or on behalf of our
Company. Our Company and its representatives may from time to time make
written or verbal forward-looking statements, including statements
contained in this report and other Company filings with the Securities and
Exchange Commission and in our reports to share owners. All statements
which 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, statements
expressing general optimism about future operating results, and non-
historical Year 2000 information, are forward-looking statements within the
meaning of the Act. The forward-looking statements are and will be based
on management's then current views and assumptions regarding future events
and operating performance.
FACTORS THAT MAY IMPACT FORWARD-LOOKING STATEMENTS OR FINANCIAL PERFORMANCE
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from
estimates contained in or underlying our Company's forward-looking
statements:
-- Our ability to generate sufficient cash flows to support capital
expansion plans, share repurchase programs and general operating
activities.
-- Competitive product and pricing pressures and our ability to gain or
maintain share of sales in the global market as a result of actions by
competitors. While we believe our opportunities for sustained,
profitable growth are considerable, unanticipated actions of
competitors could impact our earnings, share of sales and volume
growth.
-- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations) and environmental laws in
domestic or foreign jurisdictions.
-- Fluctuations in the cost and availability of raw materials and the
ability to maintain favorable supplier arrangements and relationships.
-- Our ability to achieve earnings forecasts, which are generated based
on projected volumes and sales of many product types, some of which
are more profitable than others. There can be no assurance that we
will achieve the projected level or mix of product sales.
24
FORWARD-LOOKING STATEMENTS (Continued)
-- Interest rate fluctuations and other capital market conditions,
including foreign currency rate fluctuations. Most of our exposures
to capital markets, including interest and foreign currency, are
managed on a consolidated basis, which allows us to net certain
exposures and, thus, take advantage of any natural offsets. We use
derivative financial instruments to reduce our net exposure to
financial risks. There can be no assurance, however, that our
financial risk management program will be successful in reducing
foreign currency exposures.
-- Economic and political conditions in international markets, including
civil unrest, governmental changes and restrictions on the ability to
transfer capital across borders.
-- Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions and how well we are able
to acquire or form strategic business alliances with local bottlers
and make necessary infrastructure enhancements to production
facilities, distribution networks, sales equipment and technology.
Moreover, the supply of products in developing markets must match the
customers' demand for those products, and due to product price and
cultural differences, there can be no assurance of product acceptance
in any particular market.
-- The effectiveness of our advertising, marketing and promotional
programs.
-- The uncertainties of litigation, as well as other risks and
uncertainties detailed from time to time in our Company's Securities
and Exchange Commission filings.
-- Adverse weather conditions, which could reduce demand for Company
products.
25
FORWARD-LOOKING STATEMENTS (Continued)
-- Our ability and the ability of our Key Business Partners and other
third parties to replace, modify or upgrade computer systems in ways
that adequately address the Year 2000 problem. Given the numerous
and significant uncertainties involved, there can be no assurance
that Year 2000-related estimates and anticipated results will be
achieved, and actual results could differ materially. Specific
factors that might cause such material differences include, but are
not limited to, the ability to identify and correct all relevant
computer codes and embedded chips, unanticipated difficulties or
delays in the implementation of Year 2000 project plans and the
ability of third parties to adequately address their own Year 2000
issues.
-- Our ability to timely resolve issues relating to introduction of the
European Union's common currency (the Euro).
The foregoing list of important factors is not exclusive.
26
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 - Amendment No. 1, dated April 19, 1999, to Amended and
Restated Purchase Agreement, dated as of December 11,
1998, among the Company, Atlantic Industries and Cadbury
Schweppes plc
10.1 - The Coca-Cola Company 1987 Stock Option Plan, as amended
and restated through April 20, 1999
10.2 - The Coca-Cola Company 1991 Stock Option Plan, as amended
and restated through April 20, 1999
10.3 - The Coca-Cola Company 1999 Stock Option Plan
10.4 - Long-Term Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
10.5 - Executive Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the three months ended
March 31, 1999, submitted to the Securities and Exchange
Commission in electronic format
(b) Reports on Form 8-K:
No report on Form 8-K has been filed by the Registrant during the
quarter for which this report is filed.
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COCA-COLA COMPANY
(REGISTRANT)
Date: May 12, 1999 By: /s/ Gary P. Fayard
----------------------------
Gary P. Fayard
Vice President and Controller
(On behalf of the Registrant and
as Chief Accounting Officer)
28
EXHIBIT INDEX
Exhibit Number and Description
2.1 - Amendment No. 1, dated April 19, 1999, to Amended and
Restated Purchase Agreement, dated as of December 11,
1998, among the Company, Atlantic Industries and Cadbury
Schweppes plc
10.1 - The Coca-Cola Company 1987 Stock Option Plan, as amended
and restated through April 20, 1999
10.2 - The Coca-Cola Company 1991 Stock Option Plan, as amended
and restated through April 20, 1999
10.3 - The Coca-Cola Company 1999 Stock Option Plan
10.4 - Long-Term Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
10.5 - Executive Performance Incentive Plan of the Company, as
amended and restated effective April 21, 1999
12 - Computation of Ratios of Earnings to Fixed Charges
27 - Financial Data Schedule for the three months ended
March 31, 1999, submitted to the Securities and Exchange
Commission in electronic format