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 three months endedApril 2, 2021 , the effects of the COVID-19 pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have continued to impact 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, primarily due to unfavorable channel and product mix as consumer demand has shifted to more at-home consumption versus away-from-home consumption. The Company's priorities during the COVID-19 pandemic and related business disruption are ensuring the health and safety of our employees; supporting and making a difference in the communities we serve; keeping our brands in supply and maintaining the quality and safety of our products; serving our customers across all channels as they adapt to the shifting demands of consumers during the pandemic; and positioning ourselves to emerge stronger when the pandemic ends. We deployed global and regional teams to monitor the rapidly evolving situation in each of our local markets and recommend risk mitigation actions; we implemented travel restrictions; and we are following social distancing practices. Around the world, we are endeavoring to follow guidance from governmental 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. 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 required 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. 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, 2020 . As a result, management must make numerous assumptions, which involve a significant amount of judgment, when completing recoverability and impairment tests of current and noncurrent assets in various regions around the world. We perform recoverability and impairment tests of current and noncurrent assets in accordance with accounting principles generally accepted 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. The assessment of recoverability and the performance of impairment tests of current and noncurrent assets involve critical accounting estimates. These estimates require significant management judgment, include inherent uncertainties and are often interdependent; therefore, they do not change in isolation. Factors that management must estimate include, among others, the 28 -------------------------------------------------------------------------------- economic lives of the assets, sales volume, pricing, royalty rates, 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 scope, severity and duration of the global COVID-19 pandemic and any resurgences of the pandemic including, but not limited to, the number of people contracting the virus, the impact of shelter-in-place and social distancing requirements, the impact of governmental actions across the globe to contain the virus, the timing and number of people receiving vaccinations, 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 are consistent with those a market participant would use. The variability of these factors depends on a number of conditions, including uncertainties associated with the COVID-19 pandemic, and thus our accounting estimates may change from period to period. Our current estimates reflect our belief that we expect COVID-19 to impact our business for the better part of 2021, with the first half of the year likely to be more challenging than the second half. We expect to see improvements in our business as vaccines become more widely available throughout the year and consumers begin to return to many of their previous routines of socializing, work and travel. The Company has certain intangible and other long-lived assets that are more dependent on cash flows generated in 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. 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. 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. 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 29 -------------------------------------------------------------------------------- party 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. We typically report unit case volume when finished products manufactured from the concentrates or syrups are sold to a third party 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. "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 an acquired brand in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume related to an acquired brand 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 a licensed brand 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 a licensed 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 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. 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 brands 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 ownership 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 these items, the impact of unit case volume from certain joint ventures in which the Company has an ownership 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. 30 -------------------------------------------------------------------------------- Information about our volume growth worldwide and by operating segment is as follows: Percent Change 2021 versus 2020 Three Months Ended April 2, 2021 Concentrate Unit Cases1,2,3 Sales4 Worldwide - % 5 % Europe, Middle East & Africa (2) % (2) % Latin America - 2 North America (6) - Asia Pacific 9 20 Global Ventures (3) 3 Bottling Investments 5 N/A 1 Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. 2Geographic 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 2021 had five additional days when compared to the first quarter of 2020, and the fourth quarter of 2021 will have six fewer days when compared to the fourth quarter of 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 ofthe Coca-Cola system because it measures trends at the consumer level. Three Months EndedApril 2, 2021 versus Three Months EndedMarch 27, 2020 Unit case volume inEurope ,Middle East andAfrica declined 2 percent, which included a 22 percent decline in hydration, sports, coffee and tea, partially offset by 2 percent growth in Trademark Coca-Cola, 4 percent growth in nutrition, juice, dairy and plant-based beverages, and even performance in sparkling flavors. The operating segment reported a decline in unit case volume of 9 percent in theEurope operating unit, partially offset by growth of 8 percent in the Eurasia andMiddle East operating unit and 2 percent in theAfrica operating unit. Unit case volume inLatin America was even, which included growth of 5 percent in Trademark Coca-Cola, offset by a 9 percent decline in hydration, sports, coffee and tea, a 2 percent decline in sparkling flavors and a 1 percent decline in nutrition, juice, dairy and plant-based beverages. The operating segment's volume performance included a decline of 1 percent inMexico and even performance inBrazil . Unit case volume inNorth America declined 6 percent, which included a 13 percent decline in hydration, sports, coffee and tea, a 3 percent decline in Trademark Coca-Cola, a 7 percent decline in sparkling flavors and a 6 percent decline in nutrition, juice, dairy and plant-based beverages. InAsia Pacific , unit case volume grew 9 percent, which included growth of 15 percent in Trademark Coca-Cola, 12 percent in sparkling flavors and 17 percent in nutrition, juice, dairy and plant-based beverages, partially offset by a 2 percent decline in hydration, sports, coffee and tea. The operating segment reported increases in unit case volume of 19 percent in theGreater China andMongolia operating unit and 23 percent in theIndia andSouth West Asia operating unit. The growth in these operating units was partially offset by declines of 5 percent in theJapan andSouth Korea operating unit and 3 percent in theASEAN andSouth Pacific operating unit. Unit case volume forGlobal Ventures declined 3 percent, driven by a 22 percent decline in hydration, sports, coffee and tea and a 9 percent decline in nutrition, juice, dairy and plant-based beverages, partially offset by growth in energy drinks. Unit case volume for Bottling Investments grew 5 percent, which primarily reflects growth inIndia andSouth Africa . 31 -------------------------------------------------------------------------------- Concentrate Sales Volume During the three months endedApril 2, 2021 , worldwide concentrate sales volume grew 5 percent and unit case volume was even compared to the three months endedMarch 27, 2020 . 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 2021 had five additional days when compared to the first quarter of 2020, which contributed to the differences between concentrate sales volume and unit case volume growth rates on a consolidated basis and for the individual operating segments during the three months endedApril 2, 2021 . The differences between concentrate sales volume and unit case volume growth rates during the three months endedApril 2, 2021 were also impacted by the timing of concentrate shipments as bottlers built inventory in the prior year due to COVID-19 uncertainty. Net Operating Revenues During the three months endedApril 2, 2021 , net operating revenues were$9,020 million , compared to$8,601 million during the three months endedMarch 27, 2020 , an increase of$419 million , or 5 percent. The following table illustrates the estimated impact of the factors resulting in the increase (decrease) in net operating revenues on a consolidated basis and for each of our operating segments:
Percent Change 2021 versus 2020
Price, Product & Foreign Currency Acquisitions &
Volume1 Geographic Mix Fluctuations Divestitures2 Total
Consolidated 5 % 1 % (1) % - % 5 %
Europe, Middle East & Africa (2) % (5) % 1 % - % (6) %
Latin America 2 7 (10) - (2)
North America - 4 - (1) 3
Asia Pacific 20 (2) 6 - 24
Global Ventures 3 (8) 5 - (1)
Bottling Investments 11 5 (2) - 14
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, if any. Our Bottling Investments operating segment data
reflects unit case volume growth for consolidated bottlers only after
considering the impact of structural changes, if any. Refer to the heading
"Beverage Volume" above.
2 Includes structural changes, if any. 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; (3) changes in the mix of channels where products
were sold; and (4) changes in the mix of 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 1 percent favorable impact on our
consolidated net operating revenues. Price, product and geographic mix was
impacted by a variety of factors and events including, but not limited to, the
following:
•Europe, Middle East and Africa - unfavorable channel, package and geographic
mix;
•Latin America - favorable pricing initiatives, including inflationary pricing
in Argentina ;
•North America - favorable product and category mix, partially offset by
unfavorable channel mix;
32
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•Asia Pacific - unfavorable geographic mix, partially offset by favorable
product, channel and package mix;
•Global Ventures - unfavorable product and channel mix primarily due to the
impact of the COVID-19 pandemic on Costa retail stores; and
•Bottling Investments - favorable pricing and favorable category and package
mix, partially offset by unfavorable geographic mix.
Fluctuations in foreign currency exchange rates decreased our consolidated net
operating revenues by 1 percent. This unfavorable impact was primarily due to a
stronger U.S. dollar compared to certain foreign currencies, including the
Mexican peso, Brazilian real, Turkish lira, Russian ruble, South African rand
and Indian rupee, which had an unfavorable impact on our Latin America , Europe ,
Middle East and Africa 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,
Japanese yen, Australian dollar and Philippine peso, which had a favorable
impact on our Europe , Middle East and Africa , Global Ventures , Asia Pacific and
Bottling Investments operating segments. Refer to the heading "Liquidity,
Capital Resources and Financial Position - Foreign Exchange" below.
"Acquisitions and divestitures" generally 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.
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 currency fluctuations will have a slightly
favorable impact on our full year 2021 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 increased to 61.1 percent for the three months ended
April 2, 2021 , compared to 60.8 percent for the three months ended March 27,
2020 . This increase was primarily related to the impact of economic hedging
activity, partially offset by unfavorable channel and package mix due to the
impact of the COVID-19 pandemic.
Selling, General and Administrative Expenses
The following table sets forth the components of selling, general and
administrative expenses (in millions):
Three Months Ended
April 2, March 27,
2021 2020
Stock-based compensation expense (income)
901 902
Selling and distribution expenses 618 698
Other operating expenses 1,092 1,053
Selling, general and administrative expenses
During the three months endedApril 2, 2021 , selling, general and administrative expenses increased$21 million , or 1 percent, versus the prior year comparable period. The increase was primarily due to an increase in short-term incentive and stock-based compensation expense due to a change in payout assumptions in the prior year as a result of the expected impact of the COVID-19 pandemic. 33 -------------------------------------------------------------------------------- The decrease in selling and distribution expenses during the three months endedApril 2, 2021 was primarily due to the impact of the COVID-19 pandemic on Costa retail stores andNorth America away-from-home channels as well as effective cost management. As ofApril 2, 2021 , we had$404 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plans, which we expect to recognize over a weighted-average period of 2.3 years as stock-based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards. Other Operating Charges Other operating charges incurred by operating segment and Corporate were as follows (in millions): Three Months Ended April 2, March 27, 2021 2020 Europe, Middle East & Africa$ 50 $ - Latin America 11 - North America 12 152 Asia Pacific 13 - Global Ventures - - Bottling Investments - - Corporate 38 50 Total$ 124 $ 202 During the three months endedApril 2, 2021 , the Company recorded other operating charges of$124 million . These charges primarily consisted of$93 million due to the Company's strategic realignment initiatives and$18 million related to the Company's productivity and reinvestment program. In addition, other operating charges included$4 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife, LLC ("fairlife") acquisition and$9 million related to tax litigation expense. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements for additional information related to the tax litigation. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company's strategic realignment initiatives and 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. During the three months endedMarch 27, 2020 , the Company recorded other operating charges of$202 million . These charges primarily consisted of an impairment charge of$152 million related to theOdwalla trademark. In addition, other operating charges included$39 million related to the Company's productivity and reinvestment program and$11 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our 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. 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 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. 34 -------------------------------------------------------------------------------- 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 April 2, March 27, 2021 2020 Europe, Middle East & Africa 30.1 % 40.3 % Latin America 20.3 22.7 North America 29.1 16.3 Asia Pacific 25.2 21.5 Global Ventures 1.0 0.8 Bottling Investments 5.2 2.6 Corporate (10.9) (4.2) Total 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. Information about our operating margin on a consolidated basis and by operating segment and Corporate is as follows: Three Months Ended April 2, March 27, 2021 2020 Consolidated 30.2 % 27.7 % Europe, Middle East & Africa 56.1 % 61.1 % Latin America 60.7 58.0 North America 27.0 13.6 Asia Pacific 55.6 51.6 Global Ventures 4.6 3.3 Bottling Investments 7.4 3.8 Corporate * * * Calculation is not meaningful. During the three months endedApril 2, 2021 , operating income was$2,722 million , compared to$2,380 million during the three months endedMarch 27, 2020 , an increase of$342 million , or 14 percent. The increase was driven by concentrate sales volume growth of 5 percent; favorable price, product and geographic mix; effective cost management; and lower other operating charges, partially offset by increased stock-based compensation expense and an unfavorable foreign currency exchange rate impact. During the three months endedApril 2, 2021 , fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 2 percent due to a strongerU.S. dollar compared to certain foreign currencies, including the Mexican peso, Brazilian real, Turkish lira, Russian ruble, South African rand and Indian rupee, which had an unfavorable impact on ourLatin America ,Europe ,Middle East andAfrica and Bottling Investments operating segments. The unfavorable impact of a strongerU.S. dollar compared to the currencies listed above was partially offset by the impact of a weakerU.S. dollar compared to certain other foreign currencies, including the euro, British pound sterling, Japanese yen, Australian dollar and Philippine peso, which had a favorable impact on ourEurope ,Middle East andAfrica ,Global Ventures ,Asia Pacific and Bottling Investments operating segments. Refer to the heading "Liquidity, Capital Resources and Financial Position - Foreign Exchange" below. The Company'sEurope ,Middle East andAfrica operating segment reported operating income of$820 million and$960 million for the three months endedApril 2, 2021 andMarch 27, 2020 , respectively. The decrease in operating income was primarily driven by a 2 percent decrease in concentrate sales volume; unfavorable channel, package and geographic mix; and higher other operating charges. 35 --------------------------------------------------------------------------------Latin America reported operating income of$552 million and$539 million for the three months endedApril 2, 2021 andMarch 27, 2020 , respectively. The increase in operating income was driven by concentrate sales volume growth of 2 percent, favorable price mix and effective cost management, partially offset by higher other operating charges and an unfavorable foreign currency exchange rate impact of 11 percent. Operating income forNorth America for the three months endedApril 2, 2021 andMarch 27, 2020 was$792 million and$387 million , respectively. The increase in operating income was primarily driven by favorable product and category mix, effective cost management and lower other operating charges.Asia Pacific's operating income for the three months endedApril 2, 2021 andMarch 27, 2020 was$686 million and$511 million , respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 20 percent, effective cost management and a favorable foreign currency exchange rate impact of 8 percent, partially offset by higher other operating charges.Global Ventures' operating income for the three months endedApril 2, 2021 andMarch 27, 2020 was$26 million and$19 million , respectively. The increase in operating income was primarily driven by effective cost management and a favorable foreign currency exchange rate impact of 5 percent, partially offset by the impact of the COVID-19 pandemic on Costa retail stores. Bottling Investments' operating income for the three months endedApril 2, 2021 andMarch 27, 2020 was$141 million and$63 million , respectively. The increase in operating income was driven by 11 percent volume growth; favorable price, category and package mix; and effective cost management, partially offset by an unfavorable foreign currency exchange rate impact of 21 percent. Corporate's operating loss for the three months endedApril 2, 2021 andMarch 27, 2020 was$295 million and$99 million , respectively. Operating loss in 2021 increased primarily as a result of higher short-term incentive and stock-based compensation expense, partially offset by lower other operating charges. Based on current spot rates and our hedging coverage in place, we expect foreign currency fluctuations will have a slightly favorable impact on operating income through the end of the year. Interest Income During the three months endedApril 2, 2021 , interest income was$66 million , compared to$112 million during the three months endedMarch 27, 2020 , a decrease of$46 million , or 41 percent. This decrease was 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 endedApril 2, 2021 , interest expense was$442 million , compared to$193 million during the three months endedMarch 27, 2020 , an increase of$249 million , or 129 percent. This increase was primarily due to charges of$58 million associated with the extinguishment of certain long-term debt and charges related to certain hedging activities. The increase in interest expense was also driven by higher average long-term debt balances, partially offset by lower short-termU.S. interest rates and balances. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements. Equity Income (Loss) -Net During the three months endedApril 2, 2021 , equity income was$279 million , compared to$167 million during the three months endedMarch 27, 2020 , an increase of$112 million , or 67 percent. This increase reflects, among other things, the impact of more favorable operating results reported by several of our equity method investees. In addition, the Company recorded a net gain of$37 million and a net charge of$38 million in the line item equity income (loss) - net during the three months endedApril 2, 2021 andMarch 27, 2020 , respectively. These amounts represent the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Other Income (Loss) - Net Other income (loss) - net includes, among other things, 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; other-than-temporary impairment charges; and net 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. 36 -------------------------------------------------------------------------------- During the three months endedApril 2, 2021 , other income (loss) - net was income of$138 million . The Company recognized a net gain of$133 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. The Company also recorded pension benefit plan settlement charges of$54 million related to its strategic realignment initiatives. Other income (loss) - net also included income of$60 million related to the non-service cost components of net periodic benefit cost (income),$10 million of dividend income and net foreign currency exchange losses of$9 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 13 of Notes to Condensed Consolidated Financial Statements for additional information on net periodic benefit cost (income). Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate. During the three months endedMarch 27, 2020 , other income (loss) - net was income of$544 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$392 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities, and a loss of$57 million related to economic hedging activities. Other income (loss) - net also included income of$43 million related to the non-service cost components of net periodic benefit cost (income), net foreign currency exchange losses of$16 million and dividend income of$7 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 economic hedging activities. Refer to Note 13 of Notes to Condensed Consolidated Financial Statements for additional information on net periodic benefit cost (income). Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate. Income Taxes The Company recorded income taxes of$508 million (18.4 percent effective tax rate) and$215 million (7.2 percent effective tax rate) during the three months endedApril 2, 2021 andMarch 27, 2020 , respectively. The Company's effective tax rates for the three months endedApril 2, 2021 andMarch 27, 2020 vary from the statutoryU.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 outsidethe 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 statutoryU.S. rate. The Company's effective tax rate for the three months endedMarch 27, 2020 included a tax benefit of$40 million associated with the gain recorded upon the acquisition of the remaining ownership interest in fairlife and also included the net tax benefit of various discrete tax items recorded during the quarter. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition. OnNovember 18, 2020 , theU.S. Tax Court ("Tax Court") issued the opinion ("Opinion") regarding the Company's 2015 litigation with theU.S. Internal Revenue Service ("IRS") involving transfer pricing tax adjustments in which the court predominantly sided with theIRS . The Company strongly disagrees with the Opinion and intends to vigorously defend its position. 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 2021 is expected to be 19.1 percent before considering the potential impact of any significant operating and nonoperating items that may affect our effective tax rate. This rate does not include the impact, if the Company were not to prevail, of the ongoing tax litigation with theIRS . LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION We believe our ability to generate cash flows from operating activities is one of the fundamental strengths of our business. Refer to the heading "Cash Flows from Operating Activities" below. 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 a commercial paper program. We currently have the ability to borrow funds in this market at levels that are consistent with our debt financing strategy, and we expect to continue to be able to do so in the future. 37 -------------------------------------------------------------------------------- The Company reviews its optimal mix of short-term and long-term debt regularly and, as a result of this review, inMarch 2021 , we issuedU.S. dollar- and euro-denominated long-term debt of$2.5 billion and €2.0 billion, respectively, across various maturities. We used a portion of the proceeds from the long-term debt issuances to extinguish certain tranches of our previously issued long-term debt. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements for additional information on the debt extinguishment. The Company's cash, cash equivalents, short-term investments and marketable securities totaled$12.6 billion as ofApril 2, 2021 . In addition to these funds, our commercial paper program and our ability to issue long-term debt, we had$6.5 billion in unused lines of credit for general corporate purposes as ofApril 2, 2021 . These backup lines of credit expire at various times from 2021 through 2025. While near-term uncertainty caused by the COVID-19 pandemic remains, we expect to see improvements in our business as vaccines become more widely available. The timing and availability of vaccines will be different around the world, and therefore we believe the pace of the recovery will vary by geography depending on both vaccine distribution and other macroeconomic factors. We will remain flexible so that we can adjust to near-term uncertainties while we continue to move forward on the initiatives we implemented to emerge stronger from the COVID-19 pandemic. In 2021, we plan to increase marketing spending behind our brands to drive increased net operating revenues. We expect the return on that spend to become more favorable as mobility increases and away-from-home channels regain momentum. While many of the operating expenses that were significantly reduced in 2020 are likely to increase in 2021, we will 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 grow our dividend payment. We currently expect 2021 capital expenditures to be approximately$1.5 billion . In addition, we do not intend to repurchase shares under our Board of Directors' authorized plan during the year endingDecember 31, 2021 , and we do not intend to change our approach toward paying dividends. We are currently in litigation with theIRS for tax years 2007 through 2009. OnNovember 18, 2020 , the Tax Court issued the Opinion in which it predominantly sided with theIRS ; however, a final decision is still pending and the timing of such decision is currently not known. The Company strongly disagrees with theIRS' positions and the portions of the Opinion affirming such positions and intends to vigorously defend our positions utilizing every available avenue of appeal. While the Company believes that it is more likely than not that we will ultimately prevail in this litigation upon appeal, it is possible that all, or some portion of, the adjustments proposed by theIRS and sustained by the Tax Court could ultimately be upheld. In the event that all of the adjustments proposed by theIRS are ultimately upheld for the years at issue and theIRS , with the consent of the federal court, were to decide to apply the underlying methodology ("Tax Court Methodology") to the subsequent years up to and including 2020, the Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately$12 billion . Additional income tax and interest would continue to accrue until the time any such potential liability, or portion thereof, were to be paid. The Company estimates the impact of the continued application of the Tax Court Methodology for the three months endedApril 2, 2021 would increase the potential aggregate incremental tax and interest liability by approximately$250 million . Once the Tax Court renders a final decision, the Company will have 90 days to file a notice of appeal and pay the portion of the potential aggregate incremental tax and interest liability related to the 2007 through 2009 litigation period, which we currently estimate to be approximately$4.7 billion (including interest accrued throughApril 2, 2021 ), plus any additional interest accrued through the time of payment. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements for additional information on the tax litigation. While we believe it is more likely than not that we will prevail in the tax litigation discussed above, we are confident that, between our ability to generate cash flows from operating activities and our ability to borrow funds at reasonable interest rates, we can manage the range of possible outcomes in the final resolution of the matter. 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. 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 contractual 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 38 -------------------------------------------------------------------------------- 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 within the operating activities section of our consolidated statement of cash flows. We have been informed by the financial institutions that as ofApril 2, 2021 andDecember 31, 2020 , suppliers had elected to sell$675 million and$703 million , respectively, of our outstanding payment obligations to the financial institutions. The amounts settled through the SCF program were$705 million and$711 million for the three months endedApril 2, 2021 andMarch 27, 2020 , respectively. We do not believe there is a risk that our payment terms will be shortened in the near future. In the fourth quarter of 2020, the Company started a trade accounts receivable factoring program in certain countries. Under this program, we can elect to sell trade accounts receivables to unaffiliated financial institutions at a discount. In these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables and remit those payments to the financial institutions. The Company sold$1,309 million of trade accounts receivables under this program during the three months endedApril 2, 2021 , and the costs of factoring such receivables were not material. The Company classifies the cash received from the financial institutions within the operating activities section of our consolidated statement of cash flows. Net cash provided by operating activities for the three months endedApril 2, 2021 andMarch 27, 2020 was$1,636 million and$556 million , respectively, an increase of$1,080 million , or 194 percent. This increase was primarily driven by increased operating income, a benefit from our trade accounts receivable factoring program, lower short-term incentive payments in the first quarter of 2021 as a result of the impact of the COVID-19 pandemic on our operating performance in 2020, lower payments of year-end marketing accruals due to lower spending in 2020 as result of the COVID-19 pandemic, lower current year prepayments to customers and the impact of payment term extensions with certain of our suppliers throughout 2020. These items were partially offset by higher tax and interest payments in the current year. Cash Flows from Investing Activities Net cash used in investing activities for the three months endedApril 2, 2021 andMarch 27, 2020 was$281 million and$1,084 million , respectively. Purchases of Investments and Proceeds from Disposals of Investments During the three months endedApril 2, 2021 , purchases of investments were$1,466 million and proceeds from disposals of investments were$1,375 million , resulting in a net cash outflow of$91 million . During the three months endedMarch 27, 2020 , purchases of investments were$1,455 million and proceeds from disposals of investments were$1,603 million , resulting in a net cash inflow of$148 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, investments held by our captive insurance companies. Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for additional information. Acquisitions of Businesses,Equity Method Investments andNonmarketable Securities During the three months endedApril 2, 2021 , the Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled$4 million . During the three months endedMarch 27, 2020 , the Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled$984 million , which primarily related to the acquisition of the remaining ownership interest in fairlife. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information. Proceeds from Disposals of Businesses,Equity Method Investments andNonmarketable Securities During the three months endedApril 2, 2021 , proceeds from disposals of businesses, equity method investments and nonmarketable securities were$2 million . During the three months endedMarch 27, 2020 , proceeds from disposals of businesses, equity method investments and nonmarketable securities were$36 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. 39 -------------------------------------------------------------------------------- Purchases of Property, Plant and Equipment Purchases of property, plant and equipment for the three months endedApril 2, 2021 andMarch 27, 2020 were$216 million and$327 million , respectively. Cash Flows from Financing Activities Net cash provided by financing activities during the three months endedApril 2, 2021 andMarch 27, 2020 was$364 million and$7,810 million , respectively. Debt Financing Issuances and payments of debt included both short-term and long-term financing activities. During the three months endedApril 2, 2021 , the Company had issuances of debt of$5,588 million , which included$677 million of net issuances related to commercial paper and short-term debt with maturities greater than 90 days,$106 million of payments of commercial paper and short-term debt with maturities of 90 days or less and long-term debt issuances of$4,805 million , net of related discounts and issuance costs. The Company made payments of debt of$3,044 million during the three months endedApril 2, 2021 , which included$1,030 million of payments of commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of$2,014 million . During the three months endedApril 2, 2021 , the Company issuedU.S. dollar- and euro-denominated debt of$2,500 million and €2,000 million, respectively. The carrying value of this debt as ofApril 2, 2021 was$4,775 million . During the three months endedApril 2, 2021 , the Company retired upon maturity euro-denominated notes of €371 million. During the three months endedApril 2, 2021 , the Company extinguished prior to maturityU.S. dollar- and euro-denominated debt of$751 million and €633 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 three months endedApril 2, 2021 , the Company received cash proceeds from issuances of stock of$183 million , a decrease of$230 million when compared to cash proceeds from issuances of stock of$413 million during the three months endedMarch 27, 2020 . Share Repurchases During the three months endedApril 2, 2021 , 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 three months endedApril 2, 2021 resulted in a cash outflow of$104 million . Dividends During the three months endedApril 2, 2021 , the Company paid dividends of$1,810 million . During the three months endedMarch 27, 2020 , the Company did not make any payments for dividends. The Company paid the first quarter dividend in 2020 during the first week of April. Our Board of Directors approved the Company's regular quarterly dividend of$0.42 per share at itsApril 2021 meeting. This dividend is payable onJuly 1, 2021 to shareowners of record as of the close of business onJune 15, 2021 . 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 currencies. Our Company conducts business in more than 200 countries and territories. Due to the geographic diversity of our operations, weakness in some 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 our net income and earnings per share. Taking into account the effects of our hedging activities, the impact of fluctuations in foreign currency exchange rates decreased our operating income for the three months endedApril 2, 2021 by 2 percent. Based on current spot rates and our hedging coverage in place, we expect foreign currency fluctuations will have a slightly favorable impact on operating income and cash flows from operating activities through the end of the year. 40
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