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Coca Colas Capital Structure Choices
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This report contains information that may constitute ‘‘forward-looking statements.’’ Generally, the words ‘‘believe,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘anticipate,’’ ‘‘project,’’ ‘‘will’’ and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forwardlooking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part I, ‘‘Item 1A. Risk Factors’’ and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS In this report, the terms ‘‘The Coca-Cola Company,’’ ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ mean The Coca-Cola Company and all entities included in our consolidated financial statements. General The Coca-Cola Company is the world’s largest beverage company. We own or license and market more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. We own and market four of the world’s top five nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. Finished beverage products bearing our trademarks, sold in the United States since 1886, are now sold in more than 200 countries. We make our branded beverage products available to consumers throughout the world through our network of Company-owned or -controlled bottling and distribution operations as well as independent bottling partners, distributors, wholesalers and retailers — the world’s largest beverage distribution system. Beverages bearing trademarks owned by or licensed to us account for 1.9 billion of the approximately 57 billion beverage servings of all types consumed worldwide every day. We believe our success depends on our ability to connect with consumers by providing them with a wide variety of options to meet their desires, needs and lifestyles. Our success further depends on the ability of our people to execute effectively, every day. Our goal is to use our Company’s assets — our brands, financial strength, unrivaled distribution system, global reach, and the talent and strong commitment of our management and associates — to become more competitive and to accelerate growth in a manner that creates value for our shareowners. We were incorporated in September 1919 under the laws of the State of Delaware and succeeded to the business of a Georgia corporation with the same name that had been organized in 1892. 1 Acquisition of Coca-Cola Enterprises Inc.’s Former North America Business and Related Transactions On October 2, 2010, we acquired the former North America business of Coca-Cola Enterprises Inc. (‘‘CCE’’), one of our major bottlers, consisting of CCE’s production, sales and distribution operations in the United States, Canada, the British Virgin Islands, the United States Virgin Islands and the Cayman Islands, and a substantial majority of CCE’s corporate segment. CCE shareowners other than the Company exchanged their CCE common stock for common stock in a new entity named Coca-Cola Enterprises, Inc. (‘‘New CCE’’), which, after the closing of the transaction, continued to hold the European operations that had been held by CCE prior to the acquisition. The Company does not have any ownership interest in New CCE. Upon completion of the CCE transaction, we combined the management of the acquired North America business with the management of our existing foodservice business; Minute Maid and Odwalla juice businesses; North America supply chain operations; and Company-owned bottling operations in Philadelphia, Pennsylvania, into a unified bottling and customer service organization called Coca-Cola Refreshments (‘‘CCR’’). In addition, we reshaped our remaining Coca-Cola North America operations into an organization that primarily provides franchise leadership and consumer marketing and innovation for the North American market. As a result of the transaction and related reorganization, our North American businesses operate as aligned and agile organizations with distinct capabilities, responsibilities and strengths. In contemplation of the closing of our acquisition of CCE’s former North America business, we reached an agreement with Dr Pepper Snapple Group, Inc. (‘‘DPSG’’) to distribute certain DPSG brands in territories where DPSG brands had been distributed by CCE prior to the CCE transaction. Under the terms of our agreement with DPSG, concurrently with the closing of the CCE transaction, we entered into license agreements with DPSG to distribute Dr Pepper trademark brands in the United States, Canada Dry in the Northeastern United States, and Canada Dry and C’ Plus in Canada, and we made a net one-time cash payment of $715 million to DPSG. Under the license agreements, the Company agreed to meet certain performance obligations to distribute DPSG products in retail and foodservice accounts and vending machines. The license agreements have initial terms of 20 years, with automatic 20-year renewal periods unless otherwise terminated under the terms of the agreements. The license agreements replaced agreements between DPSG and CCE existing immediately prior to the completion of the CCE transaction. In addition, we entered into an agreement with DPSG to include Dr Pepper and Diet Dr Pepper in our Coca-Cola Freestyle fountain dispensers in certain outlets throughout the United States. The Coca-Cola Freestyle agreement has a term of 20 years. On October 2, 2010, we sold all of our ownership interests in Coca-Cola Drikker AS (the ‘‘Norwegian bottling operation’’) and Coca-Cola Drycker Sverige AB (the ‘‘Swedish bottling operation’’) to New CCE for $0.9 billion in cash. Operating Segments The Company’s operating structure is the basis for our internal financial reporting. As of December 31, 2013, our operating structure included the following operating segments, the first six of which are sometimes referred to as ‘‘operating groups’’ or ‘‘groups’’: • Eurasia and Africa • Europe • Latin America • North America • Pacific • Bottling Investments • Corporate Our operating structure as of December 31, 2013, reflected changes we made, effective January 1, 2013, when we transferred our India and South West Asia business unit from the Eurasia and Africa operating segment to the Pacific operating segment. We revised previously reported operating segment information to conform to our operating structure in effect as of December 31, 2013. Effective January 1, 2014, we changed the name of the Pacific operating segment to Asia Pacific. Except to the extent that differences among operating segments are material to an understanding of our business taken as a whole, the description of our business in this report is presented on a consolidated basis. For financial information about our operating segments and geographic areas, refer to Note 19 of Notes to Consolidated Financial Statements set forth in Part II, ‘‘Item 8. Financial Statements and Supplementary Data’’ of this report, incorporated herein by reference. For certain risks attendant to our non-U.S. operations, refer to ‘‘Item 1A. Risk Factors’’ below. 2 Products and Brands As used in this report: • ‘‘concentrates’’ means flavoring ingredients and, depending on the product, sweeteners used to prepare syrups or finished beverages, and includes powders for purified water products such as Dasani; • ‘‘syrups’’ means beverage ingredients produced by combining concentrates and, depending on the product, sweeteners and added water; • ‘‘fountain syrups’’ means syrups that are sold to fountain retailers, such as restaurants and convenience stores, which use dispensing equipment to mix the syrups with sparkling or still water at the time of purchase to produce finished beverages that are served in cups or glasses for immediate consumption; • ‘‘sparkling beverages’’ means nonalcoholic ready-to-drink beverages with carbonation, including carbonated energy drinks and carbonated waters and flavored waters; • ‘‘still beverages’’ means nonalcoholic beverages without carbonation, including noncarbonated waters, flavored waters and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks; • ‘‘Company Trademark Beverages’’ means beverages bearing our trademarks and certain other beverage products bearing trademarks licensed to us by third parties for which we provide marketing support and from the sale of which we derive economic benefit; and • ‘‘Trademark Coca-Cola Beverages’’ or ‘‘Trademark Coca-Cola’’ means beverages bearing the trademark Coca-Cola or any trademark that includes Coca-Cola or Coke (that is, Coca-Cola, Diet Coke and Coca-Cola Zero and all their variations and line extensions, including Coca-Cola Light, caffeine free Diet Coke, Cherry Coke, etc.). Likewise, when we use the capitalized word ‘‘Trademark’’ together with the name of one of our other beverage products (such as ‘‘Trademark Fanta,’’ ‘‘Trademark Sprite’’ or ‘‘Trademark Simply’’), we mean beverages bearing the indicated trademark (that is, Fanta, Sprite or Simply, respectively) and all its variations and line extensions (such that ‘‘Trademark Fanta’’ includes Fanta Orange, Fanta Zero Orange, Fanta Apple, etc.; ‘‘Trademark Sprite’’ includes Sprite, Diet Sprite, Sprite Zero, Sprite Light, etc.; and ‘‘Trademark Simply’’ includes Simply Orange, Simply Apple, Simply Grapefruit, etc.). Our Company markets, manufactures and sells: • beverage concentrates, sometimes referred to as ‘‘beverage bases,’’ and syrups, including fountain syrups (we refer to this part of our business as our ‘‘concentrate business’’ or ‘‘concentrate operations’’); and • finished sparkling and still beverages (we refer to this part of our business as our ‘‘finished product business’’ or ‘‘finished product operations’’). Generally, finished product operations generate higher net operating revenues but lower gross profit margins than concentrate operations. In our concentrate operations, we typically generate net operating revenues by selling concentrates and syrups to authorized bottling and canning operations (to which we typically refer as our ‘‘bottlers’’ or our ‘‘bottling partners’’). Our bottling partners either combine the concentrates with sweeteners (depending on the product), still water and/or sparkling water, or combine the syrups with sparkling water to produce finished beverages. The finished beverages are packaged in authorized containers — such as cans and refillable and nonrefillable glass and plastic bottles — bearing our trademarks or trademarks licensed to us and are then sold to retailers directly or, in some cases, through wholesalers or other bottlers. Outside the United States, we also sell concentrates for fountain beverages to our bottling partners who are typically authorized to manufacture fountain syrups, which they sell to fountain retailers such as restaurants and convenience stores which use the fountain syrups to produce beverages for immediate consumption, or to authorized fountain wholesalers who in turn sell and distribute the fountain syrups to fountain retailers. Our finished product operations consist primarily of our Company-owned or -controlled bottling, sales and distribution operations, including CCR. Our Company-owned or -controlled bottling, sales and distribution operations, other than CCR, are included in our Bottling Investments operating segment. CCR is included in our North America operating segment. Our finished product operations generate net operating revenues by selling sparkling beverages and a variety of still beverages, such as juices and juice drinks, energy and sports drinks, ready-to-drink teas and coffees, and certain water products, to retailers or to distributors, wholesalers and bottling partners who distribute them to retailers. In addition, in the United States, we manufacture fountain syrups and sell them to fountain retailers, such as restaurants and convenience stores who use the fountain syrups to produce beverages for immediate consumption, or to authorized fountain wholesalers or bottling partners who resell the 3 fountain syrups to fountain retailers. In the United States, we authorize wholesalers to resell our fountain syrups through nonexclusive appointments that neither restrict us in setting the prices at which we sell fountain syrups to the wholesalers nor restrict the territories in which the wholesalers may resell in the United States. For information about net operating revenues and unit case volume related to our concentrate operations and finished product operations, refer to the heading ‘‘Our Business — General’’ in Part II, ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ of this report, which is incorporated herein by reference. We own numerous valuable nonalcoholic beverage brands, including the following: Coca-Cola Minute Maid Glaceau Vitaminwater Del Valle ´ 3 Diet Coke/Coca-Cola Light Powerade Georgia1 Ayataka4 Coca-Cola Zero Aquarius Simply2 Bonaqua/Bonaqa Sprite Dasani Minute Maid Pulpy Schweppes5 Fanta 1 Georgia is primarily a coffee brand sold mainly in Japan. 2 Simply is a juice and juice drink brand sold in North America. 3 We manufacture, market and sell juices and juice drinks under the Del Valle trademark primarily in Mexico and Brazil through joint ventures with our bottling partners. 4 Ayataka is a green tea brand sold in Japan. 5 Schweppes is owned by the Company in certain countries other than the United States. In 2012, we invested in the beverage business of Aujan Industries Company J.S.C. (‘‘Aujan’’), one of the largest independent beverage companies in the Middle East. As a result of this transaction, we acquired 50 percent of the Aujan entity that holds the rights to Aujan-owned brands, including Rani, a juice brand, and Barbican, a flavored malt beverage brand, in certain territories. In addition, Beverage Partners Worldwide (‘‘BPW’’), the Company’s joint venture with Nestle S.A. (‘‘Nestl ´ e’’), markets and ´ distributes Nestea products in Europe, Canada, Australia and certain markets in Asia under agreements with our bottlers (the Nestea trademark is owned by Societ ´ e des Produits Nestl ´ e S.A.). ´ We also produce and/or distribute certain third-party brands, including certain brands of Monster Beverage Corporation (‘‘Monster’’), primarily Monster Energy, which we distribute in designated territories in the United States and Canada, and certain of our bottlers distribute in designated U.S. and international territories pursuant to master distribution and coordination agreements with Monster to which we are a party; and certain DPSG brands which we produce and distribute in designated territories in the United States and Canada pursuant to license agreements with DPSG. Consumer demand determines the optimal menu of Company product offerings. Consumer demand can vary from one locale to another and can change over time within a single locale. Employing our business strategy, and with special focus on core brands, our Company seeks to build its existing brands and, at the same time, to broaden its historical family of brands, products and services in order to create and satisfy consumer demand locale by locale. 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); 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 (the ‘‘Coca-Cola system’’) to customers. 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 w
Coca Colas Capital Structure Choices
