The Coca-Cola Company — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also presents unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context
Coca-Cola owns or licenses more than 500 nonalcoholic beverage brands, sold in more than 200 countries through Company-controlled operations and independent bottling partners. The business combines higher-margin concentrate and syrup sales with lower-margin finished-product and bottling operations. The Coca-Cola system sold 28.2 billion unit cases in 2013, up 2% from 2012.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net operating revenues | $46.854 billion | $48.017 billion | Down 2% |
| Gross profit / gross margin | $28.433 billion / 60.7% | $28.964 billion / 60.3% | Profit down 2%; margin up 0.4 percentage points |
| Operating income / margin | $10.228 billion / 21.8% | $10.779 billion / 22.4% | Income down 5% |
| Net income attributable to shareowners | $8.584 billion | $9.019 billion | Down 5% |
| Diluted earnings per share | $1.90 | $1.97 | Down 4% |
| Operating cash flow | $10.542 billion | $10.645 billion | Down 1% |
| Capital expenditures | $2.550 billion | $2.780 billion | Down 8% |
Fourth quarter: Revenue was $11.040 billion versus $11.455 billion in Q4 2012; shareowner net income was $1.710 billion versus $1.866 billion; diluted EPS was $0.38 versus $0.41. Quarterly data are unaudited.
Balance sheet and funding: Total assets were $90.055 billion and total liabilities were $56.615 billion at year-end. Cash and cash equivalents were $10.414 billion, short-term investments $6.707 billion, and marketable securities $3.147 billion. Current assets of $31.304 billion exceeded current liabilities of $27.811 billion. Debt comprised $16.901 billion of loans and notes payable, $1.024 billion of current long-term debt, and $19.154 billion of long-term debt. Long-term debt increased 30% year over year. The Company reported $6.410 billion of general-purpose credit lines, with no borrowings under those backup lines in 2013.
Shareholder returns: Dividends paid were $4.969 billion; the annual dividend was $1.12 per share. The Company repurchased 121 million shares for approximately $4.8 billion.
Material changes versus 2012
- Revenue declined despite 2% volume growth: management attributed the change to a 3% adverse structural impact from bottling changes, 1% favorable price/product/geographic mix, and a 2% adverse currency impact.
- Gross margin improved partly because the Company sold a majority interest in its Philippine bottling operations and deconsolidated its Brazilian bottling operations. These transactions also reduced Bottling Investments volume and revenue.
- Operating income fell 5%, with $895 million of other operating charges in 2013 versus $447 million in 2012. Charges included $494 million for the productivity and reinvestment program, $195 million of intangible-asset impairments, and $188 million for other restructuring and integration initiatives.
- Net income included material, nonrecurring transaction effects. Other income included a $615 million gain on the Brazilian bottling transaction and a $139 million gain related to Coca-Cola FEMSA share issuance, partly offset by a $140 million Venezuelan currency remeasurement charge and a $114 million loss associated with the Japanese bottler merger. Equity income declined 27%, to $602 million.
- Cash and short-term investments increased, while total debt also rose. Operating cash flow remained broadly stable; cash used in investing activities decreased substantially from 2012, primarily reflecting the timing and scale of investment purchases and disposals.
Outlook, management commentary, and risks
- Management expected substantial operating cash flow in 2014 and described liquidity as strong. It forecast 2014 capital expenditures of $2.5–$3.0 billion and share repurchases of $2.5–$3.0 billion, net of employee stock-option proceeds.
- The Company expected foreign currency movements to reduce operating income by about 7% for full-year 2014 and 10% in the first quarter, based on early-February rates and existing hedges. It expected a 2014 effective tax rate of approximately 23%, before unusual or special items.
- Management announced an additional $1 billion productivity target by 2016, primarily to be redirected to media investment. The existing productivity and reinvestment program targeted annualized savings of $550–$650 million. Execution costs and the ability to realize and reinvest savings remain relevant.
- The Company anticipated that Mexico’s new sugar-sweetened beverage tax, effective January 1, 2014, would negatively affect 2014 volume. It was evaluating the effects of Venezuelan price and profit controls and foreign-currency restrictions; further devaluation could create additional losses.
- Key business risks include changing consumer preferences and health concerns, beverage taxes and regulation, intense competition and retailer bargaining power, bottler financial health, water scarcity and quality, agricultural and packaging input costs, adverse weather and climate impacts, foreign exchange, cybersecurity, and litigation and tax uncertainty.
- Legal matters include the long-running Aqua-Chem asbestos-insurance dispute; the Company said it could not estimate the reasonably possible loss range, while stating that insurance was expected to cover substantially all defense and indemnity costs for the next 10–15 years under specified assumptions. Management did not expect pending legal matters overall to have a material adverse effect. Certain environmental matters could lead to sanctions or penalties, which management believed would not be material.
- Subsequent to year-end, Coca-Cola agreed to invest approximately $1.25 billion for an approximately 10% stake in Green Mountain Coffee Roasters and to collaborate on products for its Keurig Cold system; the transaction closed February 27, 2014.
Most important facts for investors to verify
- Whether underlying volume, pricing, and mix can offset revenue pressure, particularly in North America and Europe, and how the Mexican beverage tax affects demand.
- How much 2013 earnings depended on bottling-disposal and other investment gains, versus recurring operations; also track restructuring costs and impairments.
- Whether currency headwinds, especially in Venezuela and other international markets, approach or exceed management’s 2014 estimates.
- Debt growth, commercial-paper refinancing needs, cash availability across jurisdictions, and the Company’s planned capital returns and investment spending.
- Progress toward productivity savings and the $1 billion incremental target, including whether savings translate into sustainable growth rather than only offsetting costs.
- Developments in the Aqua-Chem litigation, tax audits, and other disclosed contingencies; the filing does not provide a clear estimate of potential loss for the Aqua-Chem matter.
The financial statements received an unqualified audit opinion, and management and the independent auditor reported effective internal control over financial reporting as of December 31, 2013.