Coca-Cola Company — FY2021 Form 10-K
Business context and reporting period: This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. Coca-Cola is a global beverage company operating in more than 200 countries and territories through independent bottlers and its own operations. Results reflect a gradual recovery in away-from-home channels from the effects of COVID-19.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net operating revenue | $38.655 billion | $33.014 billion |
| Gross profit / gross margin | $23.298 billion / 60.3% | $19.581 billion / 59.3% |
| Operating income / operating margin | $10.308 billion / 26.7% | $8.997 billion / 27.3% |
| Net income attributable to Coca-Cola shareowners | $9.771 billion | $7.747 billion |
| Diluted earnings per share | $2.25 | $1.79 |
| Net cash provided by operating activities | $12.625 billion | $9.844 billion |
| Capital expenditures | $1.367 billion | $1.177 billion |
- Revenue rose 17%; management attributed the increase principally to 9% concentrate-sales-volume growth, favorable price/product/geographic mix, and currency effects. System unit-case volume increased 8%, to 31.3 billion cases.
- Operating income increased 15% and shareowner net income increased 26%. Diluted EPS increased 26%. Gross margin improved, but operating margin declined 0.6 percentage points as selling, general and administrative expenses grew 25%, including higher marketing, incentive compensation, stock compensation and charitable giving.
- Operating cash flow increased 28%. The company paid $7.252 billion in dividends. Operating cash flow less capital expenditures was approximately $11.258 billion, calculated from the reported figures; operating cash flow benefited in part from receivables factoring and working-capital movements.
- At year-end, cash and cash equivalents were $9.684 billion; short-term investments were $1.242 billion and marketable securities were $1.699 billion. Current assets were $22.545 billion versus current liabilities of $19.950 billion.
- Long-term debt, including current maturities, had a carrying value of $39.454 billion; loans and notes payable were another $3.307 billion. Total debt on this basis was approximately $42.761 billion. The company reported $8.1 billion of unused corporate backup credit lines and described liquidity as strong.
Material changes and unusual items
- Recovery in away-from-home consumption helped volume, channel mix and margins versus pandemic-affected 2020. Reported revenue remained above 2019, while net income was higher than 2019; 2021 comparisons also included significant nonrecurring items.
- In November 2021, Coca-Cola acquired the remaining 85% of BodyArmor for approximately $5.6 billion, including $4.745 billion paid at closing, and now owns 100%. The acquisition generated an $834 million remeasurement gain on its previously held stake. Purchase-price allocation was preliminary at year-end.
- Other income included a $695 million gain on the sale of Coca-Cola Amatil shares and $467 million of net investment-security gains. Interest expense included $650 million of charges for early debt extinguishments.
- Other operating charges totaled $846 million, including $369 million from remeasurement of fairlife contingent consideration, $146 million of strategic realignment costs, $119 million related to BodyArmor, $115 million from the productivity program and a $78 million trademark impairment.
- The effective tax rate was 21.1%, compared with 20.3% in 2020. Tax-law changes and uncertain tax positions contributed to 2021 tax expense.
Outlook, management commentary and risks
- Management expected supply-chain pressures and inflation in materials, packaging, labor, energy, fuel and transport to continue into 2022; the company cautioned that pricing may not fully offset higher costs or may reduce volume.
- Based on then-current spot rates and hedging, foreign currency fluctuations were expected to negatively affect full-year 2022 revenue. The company expected a 2022 effective tax rate of approximately 20%, before significant items.
- Planned 2022 capital expenditures were approximately $1.5 billion. Management expected approximately $500 million of share repurchases, in addition to shares repurchased to offset stock-based compensation issuances. The board raised the quarterly dividend to $0.44 per share, or $1.76 annualized.
- The principal disclosed risks include COVID-19 and channel recovery, persistent supply and cost pressures, competition and changing consumer preferences, bottler and customer relationships, foreign exchange, water and climate impacts, packaging regulation, cybersecurity, and health-related concerns about sugar-sweetened beverages.
- IRS transfer-pricing dispute: Coca-Cola recorded a $400 million reserve at year-end and said it believes its tax positions are more likely than not to prevail on appeal. However, it estimated a potential aggregate incremental tax-and-interest liability of approximately $13 billion if the Tax Court methodology were ultimately upheld and applied to later years. A potential payment for 2007–2009 was estimated at $4.9 billion, plus further interest; final Tax Court action and appeal timing remained uncertain.
Most important facts for investors to verify
- Whether volume and away-from-home recovery continue, and whether pricing offsets input-cost inflation without materially weakening demand.
- Cash conversion and working-capital quality, particularly the effect of receivables factoring and extended supplier payment terms on operating cash flow.
- BodyArmor’s final purchase-price allocation, subsequent performance and the fairlife contingent-consideration liability.
- Developments in the IRS litigation, including the final decision, appeal process, potential payment timing and possible application to later tax years.
- Debt maturities, refinancing costs, and the capacity to sustain dividends and planned investment or repurchases under adverse conditions.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2021.