THE COCA-COLA COMPANY When used in this report, the terms "The Coca-Cola Company ," "Company," "we," "us" and "our" meanThe Coca-Cola Company and all entities included in our condensed consolidated financial statements. During the nine months endedSeptember 25, 2020 , the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have impacted our business globally. In particular, the outbreak and preventive measures taken to contain COVID-19 negatively impacted our unit case volume and our price, product and geographic mix in all of our operating segments, primarily due to unfavorable channel and product mix as consumer demand has shifted to more at-home consumption versus away from home. In response to the COVID-19 outbreak and business disruption, we have five priorities: •To ensure the health and safety of our employees • To support and make a difference in the communities we serve • To keep our brands in supply and to maintain the quality and safety of our products • To best serve our customers across all channels as they adapt to the shifting demands of consumers during the crisis •To best position ourselves to emerge stronger when this crisis ends We have deployed global and regional teams to monitor the rapidly evolving situation in each of our local markets and recommend risk mitigation actions; we have implemented travel restrictions; and we are following social distancing practices. Around the world, we are endeavoring to follow guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at system facilities. In addition, most office-based employees around the world are required to work remotely. We are grateful to the people throughout the world who are providing essential services, keeping communities safe and ensuring access to food, medicine and many other essential goods. We have made contributions of money, products and materials to support relief efforts in impacted local communities across the globe. During times of crisis, business continuity and adapting to the needs of our customers is critical. We have developed systemwide knowledge-sharing routines and processes which include the management of any supply chain challenges. As of the date of this filing, there has been no material impact and we do not foresee a material impact on our and our bottling partners' ability to manufacture or distribute our products. We are moving with speed to best serve our customers impacted by COVID-19. In partnership with our bottlers and retail customers, we are working to ensure adequate inventory levels in key channels while prioritizing core brands, key packages and consumer affordability. We are increasing investments in e-commerce to support retailer and meal delivery services, shifting toward package sizes that are fit-for-purpose for online sales, and shifting more consumer and trade promotions to digital. Although we are experiencing a time of crisis, we are not losing sight of long-term opportunities for our business. We believe that we will come out of this situation a better and stronger company. We are leveraging the crisis as a catalyst to accelerate our strategy by focusing on the following: prioritizing stronger global brands across various consumer needs while, at the same time, doing a better job of nurturing and growing regional and scaled local brands; establishing a more disciplined innovation framework and increasing marketing effectiveness and efficiency; strengthening our revenue growth management capabilities; enhancing our system collaboration and capturing supply chain efficiencies; and investing in new capabilities and evolving our organization to support the accelerated strategy. InAugust 2020 , the Company announced strategic steps to transform our organizational structure in an effort to better enable us to capture growth in the fast-changing marketplace. The Company is building a networked global organization designed to combine the power of scale with the deep knowledge required to win locally. These organizational changes will require a reallocation of resources, along with both voluntary and involuntary reductions of associates. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information about our strategic realignment initiatives. 36 -------------------------------------------------------------------------------- CRITICAL ACCOUNTING POLICIES AND ESTIMATES Recoverability of Current and Noncurrent Assets Our Company faces many uncertainties and risks related to various economic, political and regulatory environments in the countries in which we operate, particularly in developing and emerging markets. Refer to the heading "Item 1A. Risk Factors" in Part I and "Our Business - Challenges and Risks" in Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . As a result, management must make numerous assumptions, which involve a significant amount of judgment, when completing recoverability and impairment tests of current and noncurrent assets in various regions around the world. Factors that management must estimate include, among others, the economic lives of the assets, sales volume, pricing, cost of raw materials, delivery costs, inflation, cost of capital, marketing spending, foreign currency exchange rates, tax rates, capital spending, proceeds from the sale of assets and customers' financial condition. These factors are even more difficult to estimate as a result of uncertainties associated with the global COVID-19 pandemic, including, but not limited to, the continued number of people contracting the virus, the impact of social distancing requirements and reopening plans across the globe, and the substance and pace of the post-pandemic economic recovery. The estimates we use when assessing the recoverability of assets are consistent with those we use in our internal planning. When performing impairment tests, we estimate the fair values of the assets using management's best assumptions, which we believe would be consistent with what a market participant would use. The variability of these factors depends on a number of conditions, including uncertainties associated with COVID-19, and thus our accounting estimates may change from period to period. Our current estimates reflect our belief that the second quarter of 2020 will be the most severely impacted quarter of the year; however, we still anticipate that the continued number of people testing positive for the virus and the reopening plans and social distancing practices across the globe will have a negative impact on our business in the fourth quarter of 2020. We also anticipate that many smaller customers throughout the world may permanently close. The Company has certain intangible and other long-lived assets that are more dependent on cash flows generated in the away-from-home channels and/or that generate cash flows in geographic areas that are more heavily impacted by the COVID-19 pandemic and are therefore more susceptible to impairment. In addition, intangible and other long-lived assets we acquired in recent transactions are naturally more susceptible to impairment, because they are recorded at fair value based on recent operating plans and macroeconomic conditions at the time of acquisition. If we had used other assumptions and estimates when tests of these assets were performed, impairment charges could have resulted. Furthermore, if management uses different assumptions or if different conditions exist in future periods, future impairment charges could result. The total future impairment charges we may be required to record could be material. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of recent acquisitions. Refer to Note 11 of Notes to Condensed Consolidated Financial Statements for the discussion of impairment charges. We perform recoverability and impairment tests of current and noncurrent assets in accordance with accounting principles generally accepted inthe United States ("U.S. GAAP"). For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired. During the third quarter of 2020, we conducted a portfolio rationalization process with the objective of reducing our product offerings to a tailored collection of global, regional and local brands with the potential for greater growth. As a result, the Company elected to discontinue selling certain brands over the next 1 to 2 years. While the portfolio rationalization process did not result in any impairment charges, we reclassified a net$80 million from indefinite-lived intangible assets to definite-lived intangible assets. We are amortizing the carrying values of the brands we elected to discontinue over their remaining useful lives. As ofSeptember 25, 2020 , the carrying value of our investment in Coca-Cola Bottlers Japan Holdings Inc. ("CCBJHI") exceeded its fair value by$207 million , or 37 percent, and the carrying value of our investment inCoca-Cola European Partners plc exceeded its fair value by$461 million , or 14 percent. Based on the length of time and the extent to which the fair values have been less than our carrying values and our intent and ability to retain the investments for a period of time sufficient to allow for any anticipated recovery in market value, management determined that the declines in fair values were temporary in nature. Therefore, we did not record an impairment charge related to either investment. Our equity method investees also perform such recoverability and/or impairment tests. If an impairment charge is recorded by one of our equity method investees, the Company records its proportionate share of such charge as a reduction of equity income (loss) - net in our consolidated statement of income. However, the actual amount we record with respect to our proportionate share of such charge may be impacted by items such as basis differences, deferred taxes and deferred gains. OPERATIONS REVIEW Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters typically accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions. 37 -------------------------------------------------------------------------------- Structural Changes, Acquired Brands and Newly Licensed Brands In order to continually improve upon the Company's operating performance, from time to time, we engage in buying and selling ownership interests in bottling partners and other manufacturing operations. In addition, we also acquire brands and their related operations or enter into license agreements for certain brands to supplement our beverage offerings. These items impact our operating results and certain key metrics used by management in assessing the Company's performance. Unit case volume growth is a metric used by management to evaluate the Company's performance because it measures demand for our products at the consumer level. The Company's unit case volume represents the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers and, therefore, reflects unit case volume for both consolidated and unconsolidated bottlers. Refer to the heading "Beverage Volume" below. Concentrate sales volume represents the amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished products sold by, the Company to its bottling partners or other customers. ForCosta Limited ("Costa") non-ready-to-drink beverage products, concentrate sales volume represents the amount of coffee beans and finished beverages (in all instances expressed in unit case equivalents) sold by the Company to customers or consumers. Refer to the heading "Beverage Volume" below. When we analyze our net operating revenues we generally consider the following factors: (1) volume growth (concentrate sales volume or unit case volume, as applicable); (2) changes in price, product and geographic mix; (3) foreign currency fluctuations; and (4) acquisitions and divestitures (including structural changes defined below), as applicable. Refer to the heading "Net Operating Revenues" below. The Company sells concentrates and syrups to both consolidated and unconsolidated bottling partners. The ownership structure of our bottling partners impacts the timing of recognizing concentrate revenue and concentrate sales volume. When we sell concentrates or syrups to our consolidated bottling partners, we are not able to recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a third party or independent customer. When we sell concentrates or syrups to our unconsolidated bottling partners, we recognize the concentrate revenue and concentrate sales volume when the concentrates or syrups are sold to the bottling partner. The subsequent sale of the finished products manufactured from the concentrates or syrups to a third party or independent customer does not impact the timing of recognizing the concentrate revenue or concentrate sales volume. When we account for an unconsolidated bottling partner as an equity method investment, we eliminate the intercompany profit related to these transactions to the extent of our ownership interest until the equity method investee has sold finished products manufactured from the concentrates or syrups to a third party or independent customer. We typically report unit case volume when finished products manufactured from the concentrates or syrups are sold to a third party or independent customer regardless of our ownership interest in the bottling partner. We generally refer to acquisitions and divestitures of bottling operations as structural changes, which are a component of acquisitions and divestitures. Typically, structural changes do not impact the Company's unit case volume or concentrate sales volume on a consolidated basis or at the geographic operating segment level. We recognize unit case volume for all sales of Company beverage products, regardless of our ownership interest in the bottling partner, if any. However, the unit case volume reported by our Bottling Investments operating segment is generally impacted by structural changes because it only includes the unit case volume of our consolidated bottling operations. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's acquisitions and divestitures. "Acquired brands" refers to brands acquired during the past 12 months. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume related to these brands is incremental to prior year volume. We generally do not consider the acquisition of a brand to be a structural change. "Licensed brands" refers to brands not owned by the Company but for which we hold certain rights, generally including, but not limited to, distribution rights, and from which we derive an economic benefit when the products are sold. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to these brands in periods prior to the beginning of the term of a license agreement. Therefore, in the year a license agreement is entered into, the unit case volume and concentrate sales volume related to the brand is incremental to prior year volume. We generally do not consider the licensing of a brand to be a structural change. In 2020, the Company acquired the remaining interest in fairlife, LLC ("fairlife"). The impact on revenues for fairlife products not previously sold by the Company has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for theNorth America operating segment. Also in 2020, the Company discontinued ourOdwalla juice business. The impact of discontinuing ourOdwalla juice business has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for theNorth America operating segment. 38 -------------------------------------------------------------------------------- In 2019, the Company acquired the remaining interest inC.H.I. Limited ("CHI"). The impact of this acquisition has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for theEurope ,Middle East andAfrica operating segment. Other acquisitions by the Company in 2019 included controlling interests in bottling operations inZambia ,Kenya and Eswatini. The impact of these acquisitions has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments andEurope ,Middle East andAfrica operating segments. Also in 2019, the Company refranchised certain of its bottling operations inIndia . The impact of these refranchising activities has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments andAsia Pacific operating segments. Beverage Volume We measure the volume of Company beverage products sold in two ways: (1) unit cases of finished products and (2) concentrate sales. As used in this report, "unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings), with the exception of unit case equivalents for Costa non-ready-to-drink beverage products which are primarily measured in number of transactions; and "unit case volume" means the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers. Unit case volume primarily consists of beverage products bearing Company trademarks. Also included in unit case volume are certain products licensed to, or distributed by, our Company, and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which we derive economic benefit. In addition, unit case volume includes sales by certain joint ventures in which the Company has an equity interest. We believe unit case volume is one of the measures of the underlying strength ofthe Coca-Cola system because it measures trends at the consumer level. The unit case volume numbers used in this report are derived based on estimates received by the Company from its bottling partners and distributors. Concentrate sales volume represents the amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers. For Costa non-ready-to-drink beverage products, concentrate sales volume represents the amount of coffee beans and finished beverages (in all instances expressed in unit case equivalents) sold by the Company to customers or consumers. Unit case volume and concentrate sales volume growth rates are not necessarily equal during any given period. Factors such as seasonality, bottlers' inventory practices, supply point changes, timing of price increases, new product introductions and changes in product mix can create differences between unit case volume and concentrate sales volume growth rates. In addition to the items mentioned above, the impact of unit case volume from certain joint ventures in which the Company has an equity interest, but to which the Company does not sell concentrates, syrups, source waters or powders/minerals, may give rise to differences between unit case volume and concentrate sales volume growth rates. 39 --------------------------------------------------------------------------------
Information about our volume growth worldwide and by operating segment is as follows:
Percent Change 2020 versus 2019
Three Months Ended Nine Months Ended
September 25, 2020 September 25, 2020
Concentrate Concentrate
Unit Cases1,2,3 Sales4 Unit Cases1,2,3 Sales4
Worldwide (4) % (3) % 6 (7) % (9) %
Europe, Middle East & Africa (3) % - % (7) % (10) %
Latin America (4) (2) (4) (6)
North America (6) (7) (7) (7) 7
Asia Pacific (4) (4) (10) (9) 8
Global Ventures (11) (14) (15) (17)
Bottling Investments (10) 5 N/A (19) 5 N/A
1 Bottling Investments operating segment data reflects unit case volume growth
for consolidated bottlers only.
2 Geographic and Global Ventures operating segment data reflects unit case
volume growth for all bottlers, both consolidated and unconsolidated, and
distributors in the applicable geographic areas.
3 Unit case volume percent change is based on average daily sales. Unit case
volume growth based on average daily sales is computed by comparing the average
daily sales in each of the corresponding periods. Average daily sales are the
unit cases sold during the period divided by the number of days in the period.
4 Concentrate sales volume represents the amount of concentrates, syrups, source
waters and powders/minerals (in all instances expressed in unit case
equivalents) sold by, or used in finished beverages sold by, the Company to its
bottling partners or other customers and is not based on average daily sales.
For Costa non-ready-to-drink products, concentrate sales volume represents the
amount of coffee beans and finished beverages (in all instances expressed in
unit case equivalents) sold by the Company to customers or consumers and is not
based on average daily sales. Each of our interim reporting periods, other than
the fourth interim reporting period, ends on the Friday closest to the last day
of the corresponding quarterly calendar period. As a result, the first quarter
of 2020 had one less day when compared to the first quarter of 2019, and the
fourth quarter of 2020 will have two additional days when compared to the fourth
quarter of 2019.
5 After considering the impact of structural changes, unit case volume for
Bottling Investments declined 9 percent and 16 percent for the three and nine
months ended September 25, 2020 , respectively.
6 After considering the impact of structural changes, worldwide concentrate
sales volume declined 4 percent for the three months ended September 25, 2020 .
7 After considering the impact of structural changes, concentrate sales volume
for North America declined 8 percent for the nine months ended September 25,
2020 .
8 After considering the impact of structural changes, concentrate sales volume
for Asia Pacific declined 10 percent for the nine months ended September 25,
2020 .
Unit Case Volume
Although a significant portion of our Company's revenues is not based directly
on unit case volume, we believe unit case
volume is one of the measures of the underlying strength of the Coca-Cola system
because it measures trends at the consumer level.
Three Months Ended September 25, 2020 versus Three Months Ended September 27,
2019
Unit case volume in Europe , Middle East and Africa declined 3 percent, which
included a 1 percent decline in sparkling soft drinks, a 16 percent decline in
water, enhanced water and sports drinks, and an 8 percent decline in tea and
coffee, with even performance in juice, dairy and plant-based beverages. The
group's sparkling soft drinks volume performance included 2 percent growth in
Trademark Coca-Cola. The group reported decreases in unit case volume in the
Western Europe ; South & East Africa ; Middle East & North Africa and Turkey ,
Caucasus & Central Asia business units. The decreases in these business units
were partially offset by an increase in the West Africa business unit and even
performance in the Central & Eastern Europe business unit.
In Latin America , unit case volume declined 4 percent, which included a 2
percent decline in sparkling soft drinks, a 10 percent decline in water,
enhanced water and sports drinks, and a 9 percent decline in juice, dairy and
plant-based beverages. These decreases were partially offset by a 14 percent
increase in tea and coffee. The group reported declines in unit case volume of 6
percent in the Mexico business unit, 8 percent in the South Latin business unit
and 6 percent in the Latin Center business unit. The decreases in these business
units were partially offset by an 8 percent increase in the Brazil business
unit.
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Unit case volume in North America declined 6 percent, which included a 14
percent decline in tea and coffee, a 4 percent decline in water, enhanced water
and sports drinks, and a 5 percent decline in juice, dairy and plant-based
beverages. The group's sparkling soft drinks volume declined 7 percent, which
included a 4 percent decline in Trademark Coca-Cola.
In Asia Pacific , unit case volume declined 4 percent, which included a 12
percent decline in water, enhanced water and sports drinks, a 10 percent decline
in juice, dairy and plant-based beverages, and a 9 percent decline in tea and
coffee, partially offset by a 2 percent increase in sparkling soft drinks. The
group's sparkling soft drinks volume growth included 5 percent growth in
Trademark Coca-Cola. The group reported declines in unit case volume of 11
percent in the India & South West Asia business unit, 8 percent in the Japan
business unit, 2 percent in the ASEAN business unit and 1 percent in both the
South Pacific and Greater China & Korea business units.
Unit case volume for Global Ventures declined 11 percent, driven by a 30 percent
decrease in tea and coffee, partially offset by a 2 percent increase in juice,
dairy and plant-based beverages and an increase in energy drinks.
Unit case volume for Bottling Investments declined 10 percent. The declines in
unit case volume in the majority of our consolidated bottling operations were
primarily the result of the impact of the COVID-19 pandemic.
Nine Months Ended September 25, 2020 versus Nine Months Ended September 27, 2019
Unit case volume in Europe , Middle East and Africa declined 7 percent, which
included a 5 percent decline in sparkling soft drinks, a 17 percent decline in
water, enhanced water and sports drinks, a 12 percent decline in juice, dairy
and plant-based beverages, and an 18 percent decline in tea and coffee. The
group's sparkling soft drinks volume performance reflected a decline of 3
percent in Trademark Coca-Cola. The group reported declines in all business
units with the exception of the West Africa business unit, which was even.
In Latin America , unit case volume declined 4 percent, which included a 4
percent decline in sparkling soft drinks, a 5 percent decline in water, enhanced
water and sports drinks, and a 9 percent decline in juice, dairy and plant-based
beverages, partially offset by 1 percent growth in tea and coffee. The group
reported declines in unit case volume of 11 percent in the South Latin business
unit, 5 percent in the Mexico business unit and 1 percent in the Latin Center
business unit. The Brazil business unit performance was even.
Unit case volume in North America declined 7 percent, which included a 16
percent decline in tea and coffee, a 4 percent decline in water, enhanced water
and sports drinks, and a 5 percent decline in juice, dairy and plant-based
beverages. The group's sparkling soft drinks volume declined 8 percent, which
included a 5 percent decline in Trademark Coca-Cola.
In Asia Pacific , unit case volume declined 10 percent, which included a 6
percent decline in sparkling soft drinks, an 18 percent decline in water,
enhanced water and sports drinks, a 19 percent decline in juice, dairy and
plant-based beverages, and a 10 percent decline in tea and coffee. The group's
sparkling soft drinks volume performance included 2 percent growth in Trademark
Coca-Cola. The group reported a 31 percent decline in unit case volume in the
India & South West Asia business unit, a 9 percent decline in the Japan business
unit, a 7 percent decline in the ASEAN business unit, a 6 percent decline in the
South Pacific business unit, and a 4 percent decline in the Greater China &
Korea business unit.
Unit case volume for Global Ventures declined 15 percent, driven by a 31 percent
decrease in tea and coffee, partially offset by growth in energy drinks.
Performance was even in juice, dairy and plant-based beverages.
Unit case volume for Bottling Investments declined 19 percent. The declines in
unit case volume in all of our consolidated bottling operations were primarily
the result of the impact of the COVID-19 pandemic.
The ultimate impact that the COVID-19 pandemic will have on full year 2020 unit
case volume is unknown at this time, as it will depend heavily on the impact of
social distancing practices and the timing, pace and success of reopening plans,
as well as the substance and pace of the post-pandemic recovery. While we
believe the second quarter of 2020 will be the most severely impacted quarter of
the year, we believe the fourth quarter will continue to be negatively impacted
by the COVID-19 pandemic. The percentage decline in global unit case volume for
October month-to-date was low single digits.
Concentrate Sales Volume
During the three months ended September 25, 2020 , worldwide concentrate sales
volume declined 3 percent and unit case volume declined 4 percent compared to
the three months ended September 27, 2019 . During the nine months ended
September 25, 2020 , worldwide concentrate sales volume declined 9 percent and
unit case volume declined 7 percent compared to the nine months ended
September 27, 2019 . Concentrate sales volume growth is calculated based on the
amount of concentrate sold during the reporting periods, which is impacted by
the number of days. Conversely, unit case volume growth is calculated based on
average daily sales, which is not impacted by the number of days in the
reporting periods. The first quarter of 2020 had one less day when compared to
the first quarter of 2019, which contributed to the differences between
concentrate sales volume and unit case sales volume growth rates on a
consolidated basis and for the individual operating segments during the nine
months ended September 25, 2020 . In addition, the differences between
concentrate sales volume and unit case volume
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growth rates on a consolidated basis and for the Europe , Middle East and Africa
operating segment during the nine months ended September 25, 2020 were impacted
by the timing of concentrate shipments related to Brexit in the prior year. The
differences between concentrate sales volume and unit case volume growth rates
during the three months ended September 25, 2020 were impacted by the timing of
concentrate shipments as bottlers adjusted inventory levels due to COVID-19
uncertainty in the current year and also by the timing of concentrate shipments
in Brazil in the prior year.
Net Operating Revenues
Three Months Ended September 25, 2020 versus Three Months Ended September 27,
2019
During the three months ended September 25, 2020 , net operating revenues were
$8,652 million compared to $9,507 million during the three months ended
September 27, 2019 , a decrease of $855 million , or 9 percent.
The following table illustrates, on a percentage basis, the estimated impact of
key factors resulting in the increase (decrease) in net operating revenues on a
consolidated basis and for each of our operating segments:
Percent Change 2020 versus 2019
Price, Product & Foreign Currency Acquisitions &
Volume1 Geographic Mix Fluctuations Divestitures2 Total
Consolidated (4) % (3) % (3) % - % (9) %
Europe, Middle East & Africa - % (6) % (1) % - % (7) %
Latin America (2) (1) (19) - (23)
North America (7) 4 - 1 (2)
Asia Pacific (4) (4) (1) - (9)
Global Ventures (14) (7) 2 - (19)
Bottling Investments (9) 2 (5) (1) (12)
Note: Certain rows may not add due to rounding.
1 Represents the percent change in net operating revenues attributable to the
increase (decrease) in concentrate sales volume for our geographic operating
segments and our Global Ventures operating segment (expressed in unit case
equivalents) after considering the impact of acquisitions and divestitures. For
our Bottling Investments operating segment, this represents the percent change
in net operating revenues attributable to the increase (decrease) in unit case
volume computed by comparing the total sales (rather than the average daily
sales) in each of the corresponding periods after considering the impact of
structural changes. Our Bottling Investments operating segment data reflects
unit case volume growth for consolidated bottlers only after considering the
impact of structural changes. Refer to the heading "Beverage Volume" above.
2 Includes structural changes. Refer to the heading "Structural Changes,
Acquired Brands and Newly Licensed Brands" above.
Refer to the heading "Beverage Volume" above for additional information related
to changes in our unit case and concentrate sales volumes.
"Price, product and geographic mix" refers to the change in net operating
revenues caused by factors such as price changes, the mix of products and
packages sold, and the mix of channels and geographic territories where the
sales occurred. The impact of price, product and geographic mix is calculated by
subtracting the change in net operating revenues resulting from volume increases
or decreases, changes in foreign currency exchange rates, and acquisitions and
divestitures from the total change in net operating revenues. Management
believes that providing investors with price, product and geographic mix
enhances their understanding about the combined impact that the following items
had on the Company's net operating revenues: (1) pricing actions taken by the
Company and, where applicable, our bottling partners; (2) changes in the mix of
products and packages sold; and (3) changes in the mix of channels and
geographic territories where products were sold. Management uses this measure in
making financial, operating and planning decisions and in evaluating the
Company's performance.
Price, product and geographic mix had a 3 percent unfavorable impact on our
consolidated net operating revenues. Price, product and geographic mix was
impacted by a variety of factors and events including, but not limited to, the
following:
•Europe, Middle East and Africa - unfavorable channel, package and geographic
mix;
•Latin America - unfavorable channel, package and geographic mix and the timing
of deductions from revenue, partially offset by pricing initiatives in Mexico
and the impact of inflationary environments in certain markets;
•North America - favorable product mix, partially offset by unfavorable channel
and package mix;
•Asia Pacific - unfavorable channel and package mix across a majority of the
business units, partially offset by favorable geographic mix;
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•Global Ventures - unfavorable product and channel mix primarily due to the
impact of social distancing measures and gradual reopenings of the Costa retail
stores as a result of the impact of the COVID-19 pandemic; and
•Bottling Investments - favorable pricing, partially offset by unfavorable
channel and package mix.
Fluctuations in foreign currency exchange rates decreased our consolidated net
operating revenues by 3 percent. This unfavorable impact was primarily due to a
stronger U.S. dollar compared to certain foreign currencies, including the
Mexican peso, Brazilian real, Chilean peso, Turkish lira, Russian ruble and
Indian rupee, which had an unfavorable impact on our Latin America , Europe ,
Middle East and Africa , Asia Pacific and Bottling Investments operating
segments. The unfavorable impact of a stronger U.S. dollar compared to the
currencies listed above was partially offset by the impact of a weaker U.S.
dollar compared to certain other foreign currencies, including the euro, British
pound sterling, South African rand and Australian dollar, which had a favorable
impact on our Europe , Middle East and Africa , Global Ventures and Asia Pacific
operating segments. Refer to the heading "Liquidity, Capital Resources and
Financial Position - Foreign Exchange" below.
"Acquisitions and divestitures" refers to acquisitions and divestitures of
brands or businesses, some of which the Company considers to be structural
changes. The impact of acquisitions and divestitures is the difference between
the change in net operating revenues and the change in what our net operating
revenues would have been if we removed the net operating revenues associated
with an acquisition or divestiture from either the current year or the prior
year, as applicable. Management believes that quantifying the impact that
acquisitions and divestitures had on the Company's net operating revenues
provides investors with useful information to enhance their understanding of the
Company's net operating revenue performance by improving their ability to
compare our period-to-period results. Management considers the impact of
acquisitions and divestitures when evaluating the Company's performance. Refer
to the heading "Structural Changes, Acquired Brands and Newly Licensed Brands"
above for additional information related to acquisitions and divestitures.
Nine Months Ended September 25, 2020 versus Nine Months Ended September 27, 2019
During the nine months ended September 25, 2020 , net operating revenues were
$24,403 million , compared to $28,198 million during the nine months ended
September 27, 2019 , a decrease of $3,795 million , or 13 percent.
The following table illustrates, on a percentage basis, the estimated impact of
key factors resulting in the increase (decrease) in net operating revenues on a
consolidated basis and for each of our operating segments:
Percent Change 2020 versus 2019
Price, Product & Foreign Currency Acquisitions &
Volume1 Geographic Mix Fluctuations Divestitures2 Total
Consolidated (9) % (2) % (3) % - % (13) %
Europe, Middle East & Africa (10) % (5) % (2) % - % (16) %
Latin America (6) 4 (13) - (15)
North America (8) 2 - 2 (4)
Asia Pacific (10) (3) (1) 1 (13)
Global Ventures (17) (8) - - (25)
Bottling Investments (16) 1 (4) (2) (20)
Note: Certain rows may not add due to rounding.
1 Represents the percent change in net operating revenues attributable to the
increase (decrease) in concentrate sales volume for our geographic operating
segments and our Global Ventures operating segment (expressed in unit case
equivalents) after considering the impact of acquisitions and divestitures. For
our Bottling Investments operating segment, this represents the percent change
in net operating revenues attributable to the increase (decrease) in unit case
volume computed by comparing the total sales (rather than the average daily
sales) in each of the corresponding periods after considering the impact of
structural changes. Our Bottling Investments operating segment data reflects
unit case volume growth for consolidated bottlers only after considering the
impact of structural changes. Refer to the heading "Beverage Volume" above.
2 Includes structural changes. Refer to the heading "Structural Changes,
Acquired Brands and Newly Licensed Brands" above.
Refer to the heading "Beverage Volume" above for additional information related
to changes in our unit case and concentrate sales volumes.
Price, product and geographic mix had a 2 percent unfavorable impact on our
consolidated net operating revenues. Price, product and geographic mix was
impacted by a variety of factors and events including, but not limited to, the
following:
•Europe, Middle East and Africa - unfavorable channel, package and geographic
mix, including the impact of the Brexit inventory build in the prior year;
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•Latin America - favorable pricing initiatives in Mexico and the impact of
inflationary environments in certain markets, partially offset by unfavorable
channel and package mix;
•North America - favorable product mix, partially offset by unfavorable channel
and package mix;
•Asia Pacific - unfavorable channel and package mix, partially offset by
favorable geographic mix;
•Global Ventures - unfavorable product and channel mix primarily due to the
impact of the temporary closures, social distancing measures and gradual third
quarter reopenings of the Costa retail stores as a result of the COVID-19
pandemic; and
•Bottling Investments - favorable price and geographic mix, partially offset by
unfavorable channel and package mix.
The unfavorable channel and package mix for both the three and nine months ended
September 25, 2020 in all operating segments was primarily a result of the shift
in consumer demand due to the impact of the COVID-19 pandemic. Consumers are
purchasing more products in the at-home channels and fewer in the away-from-home
channels. We expect any shift in consumer demand back to the away-from-home
channels during the fourth quarter of 2020 to be closely correlated with the
success of reopening plans and social distancing practices.
Fluctuations in foreign currency exchange rates decreased our consolidated net
operating revenues by 3 percent. This unfavorable impact was primarily due to a
stronger U.S. dollar compared to certain foreign currencies, including the South
African rand, Turkish lira, Mexican peso, Chilean peso, Brazilian real, Indian
rupee and Australian dollar, which had an unfavorable impact on our Europe ,
Middle East and Africa , Latin America , Asia Pacific and Bottling Investments
operating segments. The unfavorable impact of a stronger U.S. dollar compared to
the currencies listed above was partially offset by the impact of a weaker U.S.
dollar compared to certain other foreign currencies, including the euro, British
pound sterling and Japanese yen, which had a favorable impact on our Europe ,
Middle East and Africa and Asia Pacific operating segments. Refer to the heading
"Liquidity, Capital Resources and Financial Position - Foreign Exchange" below.
Net operating revenue growth rates are impacted by sales volume; price, product
and geographic mix; foreign currency fluctuations; and acquisitions and
divestitures. The size and timing of acquisitions and divestitures are not
consistent from period to period. Based on current spot rates and our hedging
coverage in place, we expect foreign currencies will have an unfavorable impact
on our full year 2020 net operating revenues.
Gross Profit Margin
Gross profit margin is a ratio calculated by dividing gross profit by net
operating revenues. Management believes gross profit margin provides investors
with useful information related to the profitability of our business prior to
considering all of the operating costs incurred. Management uses this measure in
making financial, operating and planning decisions and in evaluating the
Company's performance.
Our gross profit margin decreased to 59.9 percent for the three months ended
September 25, 2020 , compared to 60.4 percent for the three months ended
September 27, 2019 . Our gross profit margin decreased to 59.6 percent for the
nine months ended September 25, 2020 , compared to 60.8 percent for the nine
months ended September 27, 2019 . These decreases were primarily related to
unfavorable channel and package mix along with unfavorable manufacturing
overhead variances, partially offset by the impact of acquisitions and
divestitures. Refer to Note 2 of Notes to Condensed Consolidated Financial
Statements for additional information related to acquisitions and divestitures.
Selling, General and Administrative Expenses
The following table sets forth the components of selling, general and
administrative expenses (in millions):
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
2020 2019 2020 2019
Stock-based compensation expense $ 52 $ 58 $ 88 $ 146
Advertising expenses 870 1,201 2,142 3,319
Selling and distribution expenses 635 733 1,902 2,121
Other operating expenses 954 1,124 3,010 3,293
Selling, general and administrative expenses
3,116
During the three and nine months endedSeptember 25, 2020 , selling, general and administrative expenses decreased$605 million , or 19 percent, and decreased$1,737 million , or 20 percent, respectively, versus the prior year comparable period. The decreases were primarily due to effective cost management and a reduction in marketing spending as a result of uncertainties related to the impact of the COVID-19 pandemic, the impact of savings from our productivity initiatives and a 44 -------------------------------------------------------------------------------- foreign currency exchange rate impact of 2 percent. The decrease for the nine months endedSeptember 25, 2020 was also impacted by a reduction in stock-based compensation expense resulting from a change in estimated payout. The decreases in advertising expenses during the three and nine months endedSeptember 25, 2020 included the impact of a reduction in our estimate of full year advertising expenses that benefit multiple interim periods. Based on our interim accounting policy for advertising costs, a change in estimate of full year advertising expense is recognized in the interim period in which the change in estimate occurs. The foreign currency exchange rate impact on advertising expenses was a decrease of 1 percent for both the three and nine months endedSeptember 25, 2020 . The decrease in selling and distribution expenses during the three months endedSeptember 25, 2020 was primarily due to effective cost management as a result of uncertainties related to the COVID-19 pandemic. The decrease in selling and distribution expenses during the nine months endedSeptember 25, 2020 was primarily due to volume declines and effective cost management as a result of uncertainties related to the COVID-19 pandemic, partially offset by amortization and depreciation expense in the current year forCoca-Cola Beverages Africa Proprietary Limited ("CCBA"). During the first five months of 2019, CCBA was classified as held for sale, and therefore amortization and depreciation expense were not recorded. As ofSeptember 25, 2020 , we had$255 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plans, which we expect to recognize over a weighted-average period of 2.1 years as stock-based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards granted. Other Operating Charges Other operating charges incurred by operating segment and Corporate were as follows (in millions): Three Months Ended Nine Months Ended September 25, September 27, September 25, September 27, 2020 2019 2020 2019 Europe, Middle East & Africa$ 38 $ 1 $ 38 $ 2 Latin America 22 - 32 - North America 133 12 395 42 Asia Pacific 32 42 32 42 Global Ventures - - - - Bottling Investments - 21 13 64 Corporate 147 49 237 194 Total$ 372 $ 125 $ 747$ 344 During the three months endedSeptember 25, 2020 , the Company recorded other operating charges of$372 million . These charges primarily consisted of$332 million due to the Company's strategic realignment initiatives and$10 million related to the Company's productivity and reinvestment program. In addition, other operating charges included$18 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and$12 million related to the restructuring of our manufacturing operations inthe United States . Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's strategic realignment initiatives and the Company's productivity and reinvestment program. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate. 45 -------------------------------------------------------------------------------- During the nine months endedSeptember 25, 2020 , the Company recorded other operating charges of$747 million . These charges primarily consisted of$332 million related to the Company's strategic realignment initiatives and$71 million related the Company's productivity and reinvestment program. In addition, other operating charges included impairment charges of$160 million related to theOdwalla trademark and charges of$35 million related to discontinuing theOdwalla juice business. Other operating charges also included an impairment charge of$55 million related to a trademark inNorth America , which was primarily driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company's portfolio. Other operating charges also included$47 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and$24 million related to the restructuring of our manufacturing operations inthe United States . Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's strategic realignment initiatives and the Company's productivity and reinvestment program. Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the impairment charges. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate. During the three months endedSeptember 27, 2019 , the Company recorded other operating charges of$125 million . These charges primarily consisted of$61 million related to the Company's productivity and reinvestment program and$42 million related to the impairment of a trademark inAsia Pacific . In addition, other operating charges included$21 million for costs incurred to refranchise certain of ourNorth America bottling operations. Costs related to refranchising include, among other items, internal and external costs for individuals directly working on the refranchising efforts, severance, and costs associated with the implementation of information technology systems to facilitate consistent data standards and availability throughout ourNorth America bottling system. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's productivity and reinvestment program. Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the trademark impairment charge. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate. During the nine months endedSeptember 27, 2019 , the Company recorded other operating charges of$344 million . These charges primarily consisted of$184 million related to the Company's productivity and reinvestment program and$42 million related to the impairment of a trademark inAsia Pacific . In addition, other operating charges included$46 million of transaction costs associated with the purchase of Costa, which we acquired inJanuary 2019 , and$61 million for costs incurred to refranchise certain of ourNorth America bottling operations. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the acquisition of Costa. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's productivity and reinvestment program. Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the trademark impairment charge. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate. Operating Income and Operating Margin Information about our operating income contribution by operating segment and Corporate on a percentage basis is as follows: Three Months Ended Nine Months Ended September 25, September 27, September 25, September 27, 2020 2019 2020 2019 Europe, Middle East & Africa 39.3% 35.4% 38.7% 36.6% Latin America 21.0 24.1 22.9 21.3 North America 31.7 25.6 24.1 24.4 Asia Pacific 24.5 23.8 25.9 23.6 Global Ventures (1.4) 3.1 (1.7) 2.7 Bottling Investments 2.4 0.3 2.0 2.9 Corporate (17.5) (12.3) (11.9) (11.5) Total 100.0% 100.0% 100.0% 100.0% Operating margin is a ratio calculated by dividing operating income by net operating revenues. Management believes operating margin provides investors with useful information related to the profitability of our business after considering all of the operating costs incurred. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company's performance. 46 --------------------------------------------------------------------------------
Information about our operating margin on a consolidated basis and by operating segment and Corporate is as follows:
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
2020 2019 2020 2019
Consolidated 26.6% 26.3% 27.3% 28.1%
Europe, Middle East & Africa 58.0% 53.0% 60.5% 56.8%
Latin America 59.7 57.7 61.2 57.3
North America 23.6 20.4 18.7 21.6
Asia Pacific 46.7 45.0 52.9 50.1
Global Ventures (6.1) 12.2 (8.3) 11.7
Bottling Investments 3.7 0.4 3.0 4.1
Corporate * * * *
* Calculation is not meaningful.
Three Months Ended September 25, 2020 versus Three Months Ended September 27,
2019
During the three months ended September 25, 2020 , operating income was $2,298
million , compared to $2,499 million during the three months ended September 27,
2019 , a decrease of $201 million , or 8 percent. The decrease was primarily
driven by a decline in net operating revenues due to the impact of the COVID-19
pandemic, an unfavorable foreign currency exchange rate impact and higher other
operating charges, partially offset by lower selling, general and administrative
expenses.
During the three months ended September 25, 2020 , fluctuations in foreign
currency exchange rates unfavorably impacted consolidated operating income by 9
percent due to a stronger U.S. dollar compared to certain foreign currencies,
including the Mexican peso, Brazilian real, Chilean peso, Turkish lira, Russian
ruble and Indian rupee, which had an unfavorable impact on our Latin America ,
Europe , Middle East and Africa , Asia Pacific and Bottling Investments operating
segments. The unfavorable impact of a stronger U.S. dollar compared to the
currencies listed above was partially offset by the impact of a weaker U.S.
dollar compared to certain other foreign currencies, including the euro, British
pound sterling and Australian dollar, which had a favorable impact on our
Europe , Middle East and Africa and Asia Pacific operating segments.
Operating income for all operating segments and Corporate was impacted by a
decline in net operating revenues due to the impact of the COVID-19 pandemic.
Operating income was also impacted by lower selling, general and administrative
expenses. In addition, operating income for each operating segment and Corporate
was impacted by the following:
•Europe, Middle East and Africa - higher other operating charges and an
unfavorable foreign currency exchange rate impact of 3 percent;
•Latin America - higher other operating charges and an unfavorable foreign
currency exchange rate impact of 28 percent;
•North America - higher other operating charges;
•Asia Pacific - an unfavorable foreign currency exchange rate impact of 2
percent, partially offset by lower other operating charges;
•Global Ventures - the impact of social distancing practices and the gradual
reopenings of the Costa retail stores in Western Europe ;
•Bottling Investments - lower other operating charges, partially offset by an
unfavorable foreign currency exchange rate impact; and
•Corporate - operating loss in 2020 increased primarily as a result of higher
other operating charges and unfavorable manufacturing overhead variances due to
lower volume, partially offset by lower stock-based compensation expense, lower
annual incentive expense and savings from productivity initiatives.
Nine Months Ended September 25, 2020 versus Nine Months Ended September 27, 2019
During the nine months ended September 25, 2020 , operating income was $6,659
million , compared to $7,922 million during the nine months ended September 27,
2019 , a decrease of $1,263 million , or 16 percent. The decrease in operating
income was primarily driven by a decline in net operating revenues due to the
impact of the COVID-19 pandemic, an unfavorable foreign currency exchange rate
impact and higher other operating charges, partially offset by lower selling,
general and administrative expenses.
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During the nine months ended September 25, 2020 , fluctuations in foreign
currency exchange rates unfavorably impacted consolidated operating income by 6
percent due to a stronger U.S. dollar compared to certain foreign currencies,
including the South African rand, Turkish lira, Mexican peso, Chilean peso,
Brazilian real, Australian dollar and Indian rupee, which had an unfavorable
impact on our Europe , Middle East and Africa , Latin America , Asia Pacific and
Bottling Investments operating segments. The unfavorable impact of a stronger
U.S. dollar compared to the currencies listed above was partially offset by the
impact of a weaker U.S. dollar compared to certain other foreign currencies,
including the euro, British pound sterling and Japanese yen, which had a
favorable impact on our Europe , Middle East and Africa and Asia Pacific
operating segments.
Operating income for all operating segments and Corporate was impacted by a
decline in net operating revenues due to the impact of the COVID-19 pandemic.
Operating income was also impacted by lower selling, general and administrative
expenses. In addition, operating income for each operating segment and Corporate
was impacted by the following:
•Europe, Middle East and Africa - higher other operating charges and an
unfavorable foreign currency exchange rate impact of 3 percent;
•Latin America - higher other operating charges and an unfavorable foreign
currency exchange rate impact of 20 percent;
•North America - higher other operating charges;
•Asia Pacific - an unfavorable foreign currency exchange rate impact of 2
percent, partially offset by lower other operating charges;
•Global Ventures - the temporary closures and gradual third quarter 2020
reopenings of the Costa retail stores;
•Bottling Investments - a favorable foreign currency exchange rate impact of 10
percent and lower other operating charges; and
•Corporate - operating loss in 2020 decreased primarily as a result of lower
stock-based compensation expense, lower annual incentive expense and savings
from productivity initiatives, partially offset by higher other operating
charges, unfavorable manufacturing overhead variances due to lower volume and a
loss on the disposal of certain assets.
Based on current spot rates and our hedging coverage in place, we expect foreign
currency fluctuations will have an unfavorable impact on operating income
through the end of the year.
Interest Income
During the three months ended September 25, 2020 , interest income was $82
million , compared to $153 million during the three months ended September 27,
2019 , a decrease of $71 million , or 46 percent. During the nine months ended
September 25, 2020 , interest income was $294 million , compared to $428 million
during the nine months ended September 27, 2019 , a decrease of $134 million , or
31 percent. These decreases were primarily driven by lower returns in certain of
our international locations, as well as the unfavorable impact of fluctuations
in foreign currency exchange rates.
Interest Expense
During the three months ended September 25, 2020 , interest expense was $660
million , compared to $230 million during the three months ended September 27,
2019 , an increase of $430 million , or 188 percent. During the nine months ended
September 25, 2020 , interest expense was $1,127 million , compared to $711
million during the nine months ended September 27, 2019 , an increase of $416
million , or 59 percent. These increases were primarily due to charges of $405
million associated with the extinguishment of certain long-term debt. The
increases in interest expense were also driven by higher average balances
resulting from 2020 long-term debt issuances, partially offset by lower
short-term U.S. interest rates and balances. Refer to Note 7 of Notes to
Condensed Consolidated Financial Statements.
Equity Income (Loss) - Net
Three Months Ended September 25, 2020 versus Three Months Ended September 27,
2019
During the three months ended September 25, 2020 , equity income was $431
million , compared to equity income of $346 million during the three months ended
September 27, 2019 , an increase of $85 million , or 24 percent. This increase
reflects, among other things, the impact of more favorable operating results
reported by several of our equity method investees, partially offset by the
unfavorable impact of foreign currency exchange rate fluctuations. In addition,
the Company recorded net charges of $27 million and $39 million in the line item
equity income (loss) - net during the three months ended September 25, 2020 and
September 27, 2019 , respectively. These amounts represent the Company's
proportionate share of significant operating and nonoperating items recorded by
certain of our equity method investees.
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Nine Months Ended September 25, 2020 versus Nine Months Ended September 27, 2019
During the nine months ended September 25, 2020 , equity income was $774 million ,
compared to equity income of $808 million during the nine months ended
September 27, 2019 , a decrease of $34 million , or 4 percent. This decrease
reflects the impact of the COVID-19 pandemic on operating results reported by
our equity method investees and the unfavorable impact of foreign currency
exchange rate fluctuations. In addition, the Company recorded net charges of
$128 million and $107 million in the line item equity income (loss) - net during
the nine months ended September 25, 2020 and September 27, 2019 , respectively.
These amounts represent the Company's proportionate share of significant
operating and nonoperating items recorded by certain of our equity method
investees.
Other Income (Loss) - Net
Three Months Ended September 25, 2020 versus Three Months Ended September 27,
2019
Other income (loss) - net includes, among other things, dividend income; gains
and losses related to the disposal of property, plant and equipment; gains and
losses related to acquisitions and divestitures; non-service cost components of
net periodic benefit cost for pension and other postretirement benefit plans;
other charges and credits related to pension and other postretirement benefit
plans; realized and unrealized gains and losses on equity securities and trading
debt securities; realized gains and losses on available-for-sale debt
securities; and the impact of foreign currency exchange gains and losses. The
foreign currency exchange gains and losses are primarily the result of the
remeasurement of monetary assets and liabilities from certain currencies into
functional currencies. The effects of the remeasurement of these assets and
liabilities are partially offset by the impact of our economic hedging program
for certain exposures on our consolidated balance sheet. Refer to Note 6 of
Notes to Condensed Consolidated Financial Statements.
During the three months ended September 25, 2020 , other income (loss) - net was
income of $30 million . The Company recognized a net gain of $13 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 other postretirement benefit plan
curtailment charges of $11 million related to the strategic realignment
initiatives. Other income (loss) - net also included income of $44 million
related to the non-service cost components of net periodic benefit cost, $5
million of dividend income and net foreign currency exchange losses of $3
million . None of the other items included in other income (loss) - net was
individually significant. Refer to Note 4 of Notes to Condensed Consolidated
Financial Statements for additional information on equity and debt securities.
Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for
additional information on the strategic realignment initiatives. Refer to Note
16 of Notes to Condensed Consolidated Financial Statements for the impact these
items had on our operating segments and Corporate.
During the three months ended September 27, 2019 , other income (loss) - net was
income of $324 million . The Company recognized a gain of $739 million on the
sale of a retail and office building in New York City and a net gain of
$38 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. In addition, the Company recorded an
other-than-temporary impairment charge of $120 million related to CCBJHI, an
equity method investee, and other-than-temporary impairment charges of
$255 million related to certain equity method investees in the Middle East . The
Company also recorded net charges of $103 million primarily related to
post-closing adjustments as contemplated by the related agreements associated
with the refranchising of certain bottling territories in North America . Other
income (loss) - net also included income of $24 million related to the
non-service cost components of net periodic benefit cost, $11 million of
dividend income and net foreign currency exchange losses of $15 million . None of
the other items included in other income (loss) - net was individually
significant. Refer to Note 2 of Notes to Condensed Consolidated Financial
Statements for additional information on refranchising activities. Refer to
Note 4 of Notes to Condensed Consolidated Financial Statements for additional
information on equity and debt securities. Refer to Note 15 of Notes to
Condensed Consolidated Financial Statements for information on the impairment
charges. Refer to Note 16 of Notes to Condensed Consolidated Financial
Statements for the impact these items had on our operating segments and
Corporate.
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Nine Months Ended September 25, 2020 versus Nine Months Ended September 27, 2019
During the nine months ended September 25, 2020 , other income (loss) - net was
income of $788 million . The Company recognized a gain of $902 million in
conjunction with the fairlife acquisition, which resulted from the remeasurement
of our previously held equity interest in fairlife to fair value and a gain of
$18 million related to the sale of a portion of our ownership interest in one of
our equity method investments. These gains were partially offset by a net loss
of $55 million related to economic hedging activities, an other-than-temporary
impairment charge of $38 million related to one of our equity method investees
in Latin America and an impairment charge of $26 million associated with an
investment in an equity security without a readily determinable fair value,
which were primarily driven by revised projections of future operating results.
The Company also recorded a charge of $21 million related to the restructuring
of our manufacturing operations in the United States , other postretirement
benefit plan curtailment charges of $11 million related to the Company's
strategic realignment initiatives, and a net loss of $127 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. Other income (loss) - net also included income of $129 million
related to the non-service cost components of net periodic benefit cost,
dividend income of $48 million and net foreign currency exchange losses of $36
million . None of the other items included in other income (loss) - net was
individually significant. Refer to Note 2 of Notes to Condensed Consolidated
Financial Statements for additional information on the fairlife acquisition.
Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for
additional information on equity and debt securities. Refer to Note 6 of Notes
to Condensed Consolidated Financial Statements for additional information on our
economic hedging activities. Refer to Note 12 of Notes to Condensed Consolidated
Financial Statements for additional information on the Company's strategic
realignment initiatives. Refer to Note 15 of Notes to Condensed Consolidated
Financial Statements for additional information on the impairment charges. Refer
to Note 16 of Notes to Condensed Consolidated Financial Statements for the
impact these items had on our operating segments and Corporate.
During the nine months ended September 27, 2019 , other income (loss) - net was a
loss of $81 million . The Company recognized a gain of $739 million on the sale
of a retail and office building in New York City . The Company also recognized a
net gain of $197 million related to realized and unrealized gains and losses on
equity securities and trading debt securities as well as realized gains and
losses on available-for-sale debt securities and a gain of $39 million related
to the sale of a portion of our equity ownership interest in Embotelladora
Andina S.A. ("Andina"). These gains were partially offset by
other-than-temporary impairment charges of $406 million related to CCBJHI, an
equity method investee, $255 million related to certain equity method investees
in the Middle East , $57 million related to one of our equity method investees in
North America and $49 million related to one of our other equity method
investees in Latin America . The Company also recorded an adjustment to reduce
the carrying amount of CCBA's fixed assets and definite-lived intangible assets
by $160 million and recognized a $121 million loss in conjunction with our
acquisition of the remaining equity ownership interest in CHI. Additionally, the
Company recognized net charges of $107 million primarily related to post-closing
adjustments as contemplated by the related agreements associated with the
refranchising of certain bottling territories in North America . Other income
(loss) - net also included income of $75 million related to the non-service cost
components of net periodic benefit cost and $51 million of dividend income,
partially offset by net foreign currency exchange losses of $76 million . None of
the other items included in other income (loss) - net was individually
significant. Refer to Note 2 of Notes to Condensed Consolidated Financial
Statements for additional information on the CCBA asset adjustment,
refranchising activities, the acquisition of the remaining equity ownership
interest in CHI and the sale of a portion of our equity ownership interest in
Andina. Refer to Note 4 of Notes to Condensed Consolidated Financial
Statements for additional information on equity and debt securities. Refer to
Note 15 of Notes to Condensed Consolidated Financial Statements for additional
information on the impairment charges. Refer to Note 16 of Notes to Condensed
Consolidated Financial Statements for the impact these items had on our
operating segments and Corporate.
Income Taxes
The Company recorded income taxes of $441 million (20.2 percent effective tax
rate) and $503 million (16.3 percent effective tax rate) during the three months
ended September 25, 2020 and September 27, 2019 , respectively. The Company
recorded income taxes of $1,094 million (14.8 percent effective tax rate) and
$1,446 million (17.3 percent effective tax rate) during the nine months ended
September 25, 2020 and September 27, 2019 , respectively.
The Company's effective tax rates for the three and nine months ended
September 25, 2020 and September 27, 2019 vary from the statutory U.S. federal
income tax rate of 21.0 percent primarily due to the tax impact of significant
operating and nonoperating items, along with the tax benefits of having
significant operations outside the United States and significant earnings
generated in investments accounted for under the equity method, both of which
are generally taxed at rates lower than the statutory U.S. rate.
The Company's effective tax rates for the three and nine months ended
September 25, 2020 included $15 million of net tax expense and $138 million of
net tax benefit, respectively, associated with various discrete tax items,
including return to provision adjustments, excess tax benefits associated with
the Company's stock-based compensation arrangements, the net tax impact of tax
law changes in certain foreign jurisdictions, and net tax charges for changes to
our uncertain tax positions,
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including interest and penalties. The Company's effective tax rate for the nine
months ended September 25, 2020 also included a tax benefit of $40 million
associated with the gain recorded upon the acquisition of the remaining interest
in fairlife. Refer to Note 2 of Notes to Condensed Consolidated Financial
Statements for additional information on the fairlife acquisition.
The Company's effective tax rates for the three and nine months ended
September 27, 2019 included $213 million and $245 million , respectively, of net
tax benefits recorded. These net tax benefits were primarily associated with
return to provision adjustments, but also included excess tax benefits
associated with the Company's stock-based compensation arrangements, net tax
charges for various resolved tax audit issues, and net tax charges for changes
to our uncertain tax positions, including interest and penalties. The Company's
effective tax rate for the nine months ended September 27, 2019 also included a
tax benefit of $199 million recorded as a result of CCBA no longer qualifying as
a discontinued operation. Refer to Note 2 of Notes to Condensed Consolidated
Financial Statements for additional information on CCBA.
On September 17, 2015 , the Company received a Statutory Notice of Deficiency
from the Internal Revenue Service ("IRS") for the tax years 2007 through 2009,
after a five-year audit. The Company contested the proposed adjustments in U.S.
Tax Court and is currently awaiting a decision. Refer to Note 8 of Notes to
Condensed Consolidated Financial Statements.
At the end of each interim period, we make our best estimate of the effective
tax rate expected to be applicable for the full fiscal year. This estimate
reflects, among other items, our best estimate of operating results and foreign
currency exchange rates. Based on current tax laws, the Company's effective tax
rate in 2020 is expected to be 19.5 percent before considering the potential
impact of any significant operating and nonoperating items that may affect our
effective tax rate.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
As a result of uncertainties in the near-term outlook for our business caused by
the COVID-19 pandemic, we are reevaluating all aspects of our spending. We
recognize that marketing campaigns are often less effective at times like these;
therefore, we have taken actions to adjust our marketing spending until we have
more clarity and visibility into the impact of the pandemic on our business. We
have reviewed all of our capital projects to ensure that we are only spending on
projects that are deemed to be essential in the current environment. We have
taken steps to limit spending on travel, third-party services and other
operating expenses, and we continue to focus on cash flow generation. Our
current capital allocation priorities are focused on investing wisely to support
our business operations and continuing to prioritize our dividend payment.
Currently, we have no intention of repurchasing shares under our Board of
Directors' authorized plan during the year ending December 31, 2020 , and we have
no intention on changing our approach toward paying dividends. We also do not
currently expect any significant mergers and acquisitions activity to occur
during the remainder of this year. We will review and, when appropriate, adjust
our overall approach to capital allocation as we know more about the length and
severity of the COVID-19 pandemic and how the post-pandemic recovery will
unfold. The Company does not typically raise capital through the issuance of
stock. Instead, we use debt financing to lower our overall cost of capital and
increase our return on shareowners' equity. Refer to the heading "Cash Flows
from Financing Activities" below. We have a history of borrowing funds both
domestically and internationally at reasonable interest rates, and we expect to
be able to continue to borrow funds at reasonable rates over the long term. Our
debt financing also includes the use of an extensive commercial paper program.
While the COVID-19 pandemic initially caused a disruption in the commercial
paper market, we currently still have the ability to borrow funds in this market
and expect to continue to be able to do so in the future. The Company reviews
its optimal mix of short-term and long-term debt regularly, and as a result of
this review, during both the second and third quarter of 2020, we issued
additional long-term debt with certain tranches having a longer duration than
other recent long-term debt issuances. We used a portion of the proceeds from
the long-term debt issuances to extinguish certain tranches of our previously
issued long-term debt which had either near-term maturity dates and/or high
coupon rates. While we intend to remain active in the commercial paper market,
we also used a portion of the proceeds from the long-term debt issuances to
reduce our commercial paper balance. We also intend to use a portion of the
proceeds to extinguish additional tranches of our previously issued long-term
debt. Refer to Note 7 and Note 17 of Notes to Condensed Consolidated Financial
Statements for additional information on the debt extinguishments.
On March 20, 2020 and April 29, 2020 , we issued $5.0 billion and $6.5 billion ,
respectively, of long-term debt across various maturities. On September 14,
2020 , we issued U.S. dollar- and euro-denominated long-term debt of $4.1 billion
and €2.6 billion, respectively, across various maturities. The Company's cash,
cash equivalents, short-term investments and marketable securities totaled $21.1
billion as of September 25, 2020 . In addition to these funds, our commercial
paper program and our ability to issue long-term debt, we had $8.9 billion in
unused lines of credit for general corporate purposes as of September 25, 2020 .
These backup lines of credit expire at various times from 2020 through 2025.
Based on all of the aforementioned factors, the Company believes its current
liquidity position is strong and will continue to be sufficient to fund our
operating activities and cash commitments for investing and financing activities
for the foreseeable future.
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Cash Flows from Operating Activities
As part of our continued efforts to improve our working capital efficiency, we
have worked with our suppliers over the past several years to revisit terms and
conditions, including the extension of payment terms. Our current payment terms
with the majority of our suppliers are 120 days. Additionally, two global
financial institutions offer a voluntary supply chain finance ("SCF") program
which enables our suppliers, at their sole discretion, to sell their receivables
from the Company to these financial institutions on a non-recourse basis at a
rate that leverages our credit rating and thus may be more beneficial to them.
The SCF program is available to suppliers of goods and services included in cost
of goods sold as well as suppliers of goods and services included in selling,
general and administrative expenses in our consolidated statement of income. The
Company and our suppliers agree on commercial terms for the goods and services
we procure, including prices, quantities and payment terms, regardless of
whether the supplier elects to participate in the SCF program. The suppliers
sell goods or services, as applicable, to the Company and issue the associated
invoices to the Company based on the agreed-upon contractual terms. Then, if
they are participating in the SCF program, our suppliers, at their sole
discretion, determine which invoices, if any, they want to sell to the financial
institutions. Our suppliers' voluntary inclusion of invoices in the SCF program
has no bearing on our payment terms. No guarantees are provided by the Company
or any of our subsidiaries under the SCF program. We have no economic interest
in a supplier's decision to participate in the SCF program, and we have no
direct financial relationship with the financial institutions, as it relates to
the SCF program. Accordingly, amounts due to our suppliers that elected to
participate in the SCF program are included in the line item accounts payable
and accrued expenses in our consolidated balance sheet. All activity related to
amounts due to suppliers that elected to participate in the SCF program is
reflected in the line item cash flows from operating activities in our
consolidated statement of cash flows. We have been informed by the financial
institutions that as of September 25, 2020 and December 31, 2019 , suppliers
elected to sell $724 million and $784 million , respectively, of our outstanding
payment obligations to the financial institutions. The amount settled through
the SCF program was $2,076 million for the nine months ended September 25, 2020 .
Net cash provided by operating activities for the nine months ended
September 25, 2020 and September 27, 2019 was $6,220 million and $7,771 million ,
respectively, a decrease of $1,551 million , or 20 percent. This decrease was
primarily driven by the decline in operating income, the extension of payment
terms with certain of our suppliers in the prior year, one less selling day in
the current year and the unfavorable impact of foreign currency exchange rate
fluctuations. Net cash provided by operating activities included estimated
benefits of $786 million and $869 million for the nine months ended
September 27, 2019 and year ended December 31, 2019 , respectively, from the
extension of payment terms with certain of our suppliers. We do not believe
there is a risk that our payment terms will be shortened in the near future, and
we do not currently expect our net cash provided by operating activities to be
significantly impacted by additional extensions of payment terms in 2020.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 25,
2020 and September 27, 2019 was $7,072 million and $3,901 million , respectively.
Purchases of Investments and Proceeds from Disposals of Investments
During the nine months ended September 25, 2020 , purchases of investments were
$12,051 million and proceeds from disposals of investments were $6,482 million ,
resulting in a net cash outflow of $5,569 million . During the nine months ended
September 27, 2019 , purchases of investments were $4,113 million and proceeds
from disposals of investments were $5,674 million , resulting in a net cash
inflow of $1,561 million . This activity primarily represents the purchases of,
and proceeds from the disposals of, investments in marketable securities and
short-term investments that were made as part of the Company's overall cash
management strategy. Also included in this activity are purchases of, and
proceeds from the disposals of, insurance captive investments. Refer to Note 4
of Notes to Condensed Consolidated Financial Statements for additional
information.
Acquisitions of Businesses, Equity Method Investments and Nonmarketable
Securities
During the nine months ended September 25, 2020 , the Company's acquisitions of
businesses, equity method investments and nonmarketable securities totaled
$989 million , which primarily related to the acquisition of the remaining
interest in fairlife. Refer to Note 2 of Notes to Condensed Consolidated
Financial Statements for additional information.
During the nine months ended September 27, 2019 , the Company's acquisitions of
businesses, equity method investments and nonmarketable securities totaled
$5,376 million , which primarily related to the acquisition of Costa and the
remaining interest in CHI. Refer to Note 2 of Notes to Condensed Consolidated
Financial Statements for additional information.
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Proceeds from Disposals of Businesses, Equity Method Investments and
Nonmarketable Securities
During the nine months ended September 25, 2020 , proceeds from disposals of
businesses, equity method investments and nonmarketable securities were
$46 million , which primarily related to the sale of a portion of our ownership
interest in one of our equity method investments. Refer to Note 2 of Notes to
Condensed Consolidated Financial Statements for additional information.
During the nine months ended September 27, 2019 , proceeds from disposals of
businesses, equity method investments and nonmarketable securities were
$266 million , which primarily related to the proceeds from the sale of a portion
of our equity ownership interest in Andina. Refer to Note 2 of Notes to
Condensed Consolidated Financial Statements for additional information.
Purchases of Property, Plant and Equipment
Purchases of property, plant and equipment for the nine months ended
September 25, 2020 and September 27, 2019 were $759 million and $1,206 million ,
respectively.
Cash Flows from Financing Activities
Net cash provided by financing activities during the nine months ended
September 25, 2020 was $5,973 million , and net cash used in financing activities
during the nine months ended September 27, 2019 was $5,337 million .
Debt Financing
Issuances and payments of debt included both short-term and long-term financing
activities. During the nine months ended September 25, 2020 , the Company had
issuances of debt of $26,898 million , which included $8,260 million of net
issuances related to commercial paper and short-term debt with maturities
greater than 90 days and long-term debt issuances of $18,638 million , net of
related discounts and issuance costs.
The Company made payments of debt of $17,977 million during the nine months
ended September 25, 2020 , which included $11,464 million of payments of
commercial paper and short-term debt with maturities greater than 90 days,
$1,911 million of payments of commercial paper and short-term debt with
maturities of 90 days or less, and payments of long-term debt of $4,602 million .
During the nine months ended September 25, 2020 , the Company issued U.S. dollar-
and euro-denominated debt of $15,600 million and €2,600 million, respectively.
The carrying value of this debt as of September 25, 2020 was $17,461 million .
During the nine months ended September 25, 2020 , the Company retired upon
maturity Australian dollar- and U.S. dollar-denominated notes of AUD450 million
and $171 million , respectively. During the nine months ended September 25, 2020 ,
the Company also extinguished prior to maturity U.S. dollar- and
euro-denominated debt of $1,954 million and €1,448 million, respectively. Refer
to Note 7 of Notes to Condensed Consolidated Financial Statements for the
general terms of these notes.
Issuances of Stock
During the nine months ended September 25, 2020 , the Company received cash
proceeds from issuances of stock of $514 million , a decrease of $409 million
when compared to cash proceeds from issuances of stock of $923 million during
the nine months ended September 27, 2019 .
Share Repurchases
During the nine months ended September 25, 2020 , the Company did not repurchase
common stock under the share repurchase plan authorized by our Board of
Directors. The Company's treasury stock activity includes shares surrendered to
the Company to pay the exercise price and/or to satisfy tax withholding
obligations in connection with so-called stock swap exercises of employee stock
options and/or the vesting of restricted stock issued to employees. The
Company's treasury stock activity during the nine months ended September 25,
2020 resulted in a cash outflow of $93 million .
Dividends
During the nine months ended September 25, 2020 and September 27, 2019 , the
Company paid dividends of $3,522 million and $3,419 million , respectively. The
Company paid the third quarter dividend in both 2020 and 2019 during the first
week of October.
Our Board of Directors approved the Company's regular quarterly dividend of
$0.41 per share at its October 2020 meeting. This dividend is payable on
December 15, 2020 to shareowners of record as of the close of business on
December 1, 2020 .
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Foreign Exchange
Our international operations are subject to certain opportunities and risks,
including currency fluctuations and governmental actions. We closely monitor our
operations in each country and seek to adopt appropriate strategies that are
responsive to changing economic and political environments as well as to
fluctuations in foreign currencies.
Our Company conducts business in more than 200 countries and territories. Due to
the geographic diversity of our operations, weakness in some foreign currencies
may be offset by strength in others. Our foreign currency management program is
designed to mitigate, over time, a portion of the potentially unfavorable impact
of exchange rate changes on net income and earnings per share. Taking into
account the effects of our hedging activities, the impact of changes in foreign
currency exchange rates decreased our operating income for the three and nine
months ended September 25, 2020 by 9 percent and 6 percent, respectively.
Based on current spot rates and our hedging coverage in place, we expect foreign
currency fluctuations will have an unfavorable impact on operating income and
cash flows from operations through the end of the year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have no material changes to the disclosures on this matter made in our Annual
Report on Form 10-K for the year ended December 31, 2019 .
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company , under the supervision and with the participation of its management,
including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the design and operation of the Company's "disclosure
controls and procedures" (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of September 25, 2020 .
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial
reporting during the quarter ended September 25, 2020 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Information regarding reportable legal proceedings is contained in Part I,
"Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year
ended December 31, 2019 .
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2019 , as updated
and supplemented in Part II, "Item 1A. Risk Factors" in our Quarterly Report on
Form 10-Q for the quarter ended March 27, 2020 and in Part II, "Item 1A. Risk
Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 26,
2020 and as further updated and supplemented below, which could materially
affect our business, financial condition or results of operations in future
periods. These risks are not the only risks facing our Company. Additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition or results of operations in future periods.
The COVID-19 pandemic has had, and we expect will continue to have, certain
negative impacts on our business, and such impacts have had, and may continue to
have, a material adverse effect on our results of operations, financial
condition and cash flows.
The public health crisis caused by the COVID-19 pandemic and the measures that
have been taken or that may be taken in the future by governments, businesses,
including us and our bottling partners, and the public at large to
limit COVID-19's spread have had, and we expect will continue to have, certain
negative impacts on our business including, without limitation, the following:
•We have experienced a decrease in sales of certain of our products in markets
around the world that have been affected by the COVID-19 pandemic. In
particular, sales of our products in the away-from-home channels have been
significantly negatively affected by shelter-in-place regulations or
recommendations, closings of restaurants and
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cancellations of major sporting and other events that were imposed as a result
of the initial COVID-19 outbreak. While some of these restrictions have been
lifted or eased in many jurisdictions as the rates of COVID-19 infections have
decreased or stabilized, resurgence of the pandemic in some markets has slowed
the reopening process. If COVID-19 infection trends continue to reverse and the
pandemic intensifies and expands geographically, its negative impacts on our
sales could be more prolonged and may become more severe. While we initially
experienced increased sales in the at-home channels from pantry loading as
consumers stocked up on certain of our products with the expectation of spending
more time at home during the crisis, such increased sales levels have not, and
we expect will not, fully offset the sales pressures we have experienced and we
expect will continue to experience in the away-from-home channels while social
distancing mandates or recommendations are in effect.
•In certain COVID-19 affected markets, consumer demand has shifted away from
some of our more profitable beverages and away-from-home consumption to
lower-margin products and at-home consumption, and this shift in consumer
purchasing patterns is likely to continue while shelter-in-place and social
distancing behaviors are mandated or encouraged.
•Deteriorating economic and political conditions in many of our major markets
affected by the COVID-19 pandemic, such as increased unemployment, decreases in
disposable income, declines in consumer confidence, or economic slowdowns or
recessions, have caused a decrease in demand for our products. Continuing
economic and political uncertainties in such markets may slow down or prevent
the recovery of the demand for our products or may even further erode such
demand.
•We are accelerating our business strategy and are taking certain actions to
address challenges posed by the COVID-19 pandemic and deliver on our commitment
to emerge stronger from this crisis. These actions include focusing investments
on a defined growth portfolio by prioritizing brands best positioned for
consumer reach; streamlining the innovation pipeline through initiatives that
are scalable regionally or globally as well as maintaining a disciplined
approach to local experimentation; refreshing our marketing approach, with a
focus on improving our marketing investment effectiveness and efficiency; and
investing in new capabilities to capitalize on emerging shifts in consumer
behaviors that we anticipate may last beyond this crisis. These actions, which
may require substantial additional investment of management time and financial
resources, may not be sufficient to accomplish our goals.
•We have experienced temporary disruptions in certain of our concentrate
production operations. We have taken measures to protect our employees and
facilities around the world, which have included, but have not been limited to,
checking the temperature of employees when they enter our facilities, requiring
employees to wear masks and other protective clothing as appropriate, and
implementing additional cleaning and sanitization routines. These measures may
not be sufficient to prevent the spread of COVID-19 among our employees and,
therefore, we may face additional concentrate production disruptions in the
future, which may place constraints on our ability to supply concentrates to our
bottling partners in a timely manner or may increase our concentrate supply
costs.
•We have faced, and may continue to face, delays in the delivery of concentrates
to our bottling partners as a result of shipping delays due to, among other
things, additional safety requirements imposed by port authorities, closures of
or congestion at ports, and capacity constraints experienced by our
transportation contractors.
•Some of our bottling partners have experienced, and may experience in the
future, temporary plant closures, production slowdowns and disruptions in
distribution operations as a result of the impact of the COVID-19 pandemic on
their respective businesses.
•Disruptions in supply chains have placed, and may continue to place,
constraints on our and our bottling partners' ability to source beverage
containers, such as glass bottles and cans, which has increased, and in the
future may increase, our and their packaging costs.
•We have experienced, and expect to continue to experience, adverse fluctuations
in foreign currency exchange rates, particularly an increase in the value of the
U.S. dollar against certain key foreign currencies, which negatively affected,
and we expect will continue to negatively affect, our reported results of
operations and financial condition.
•Governmental authorities in the United States and throughout the world may
increase or impose new income taxes or indirect taxes, or revise interpretations
of existing tax rules and regulations, as a means of financing the costs of
stimulus and other measures enacted or taken, or that may be enacted or taken in
the future, to protect populations and economies from the impact of the COVID-19
pandemic. Such actions could have an adverse effect on our results of operations
and/or cash flows.
•We rely on third-party service providers and business partners, such as cloud
data storage and other information technology service providers, suppliers,
distributors, contractors, joint venture partners and other external business
partners, for certain functions or for services in support of key portions of
our operations. These third-party service providers and business partners are
subject to risks and uncertainties related to the COVID-19 pandemic, which may
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interfere with their ability to fulfill their respective commitments and
responsibilities to us in a timely manner and in accordance with the agreed-upon
terms.
•The financial impact of the COVID-19 pandemic may cause one or more of our
counterparty financial institutions to fail or default on their obligations to
us, which could cause us to incur significant losses.
•We may be required to record significant impairment charges with respect to
noncurrent assets, including trademarks, bottler franchise rights, goodwill and
other intangible assets, equity method investments, and other long-lived assets,
whose fair values may be negatively affected by the effects of the COVID-19
pandemic on our operations. In addition, we are required to record impairment
charges related to our proportionate share of impairment charges that may be
recorded by equity method investees, and such charges may be significant.
•As a result of the COVID-19 pandemic, including related governmental guidance
or directives, we have required most office-based employees, including most
employees based at our global headquarters in Atlanta , to work remotely. We may
experience reductions in productivity and disruptions to our business routines
while our remote work policy remains in place.
•Actions we have taken or may take, or decisions we have made or may make, as a
consequence of the COVID-19 pandemic may result in legal claims or litigation
against us.
The resumption of normal business operations after the disruptions caused by the
COVID-19 pandemic may be delayed or constrained by the pandemic's lingering
effects on our bottling partners, consumers, suppliers and/or third-party
service providers.
Any of the negative impacts of the COVID-19 pandemic, including those described
above, alone or in combination with others, may have a material adverse effect
on our results of operations, financial condition and cash flows. Any of these
negative impacts, alone or in combination with others, could exacerbate many of
the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual
Report on Form 10-K for the year ended December 31, 2019 . The full extent to
which the COVID-19 pandemic will negatively affect our results of operations,
financial condition and cash flows will depend on future developments that are
highly uncertain and cannot be predicted, including the scope and duration of
the pandemic, the duration of the various shelter-in-place orders and reopening
plans across the globe, and actions taken, or that may be taken in the future,
by governmental authorities and other third parties in response to the pandemic.
If we do not realize the economic benefits we anticipate from our recently
announced reorganization and related reduction in workforce, or are unable to
successfully manage their possible negative consequences, our business
operations could be adversely affected.
Over the last three years, we worked to develop the strategies and evolve our
culture to equip us to grow and become a total beverage company - one that is
empowered and energized, working toward our purpose and vision. Equipping our
organization is not just about strategies or the culture, it is also about the
structure of our organization. Through the implementation of our strategies and
the recent pandemic, we recognized we must operate differently to emerge
stronger. As a result, in August 2020 , we announced a series of strategic steps
to transform our organizational structure and better enable the Coca-Cola system
to pursue our beverages for life ambition. These changes will result in the
reallocation of some people and resources, along with both voluntary and
involuntary reductions in employees. We have incurred and expect we will incur
in future periods significant expenses in connection with the reorganization and
related reduction in employees. If we are unable to timely capture the
efficiencies, cost savings and revenue growth opportunities we anticipate from
these actions, our results of operations in future periods could be negatively
affected. In addition, the reorganization and related reduction in employees may
become a distraction for our managers and employees remaining with the Company
and may disrupt our ongoing business operations; cause deterioration in employee
morale which may make it more difficult for us to retain or attract qualified
managers and employees in the future; disrupt or weaken our internal control and
financial reporting structures; and/or give rise to negative publicity which
could affect our corporate reputation. If we are unable to successfully manage
the possible negative consequences of our reorganization and reduction in
employees, our business operations could be adversely affected.
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