The Coca-Cola Company — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also reports unaudited fourth-quarter results. Unless stated otherwise, amounts are U.S. dollars.
Business context and reporting period
Coca-Cola owns or licenses more than 500 nonalcoholic beverage brands and sells through a global system of bottlers, distributors and retailers. Its principal business is selling beverage concentrates and syrups; it also operates or controls bottling businesses and sells some finished beverages. Approximately 74% of 2009 net operating revenues came from outside the United States.
Key financial metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net operating revenues | $30.990 billion | $31.944 billion |
| Gross profit / gross margin | $19.902 billion / 64.2% | $20.570 billion / 64.4% |
| Operating income / operating margin | $8.231 billion / 26.6% | $8.446 billion / 26.4% |
| Net income attributable to Coca-Cola shareowners | $6.824 billion | $5.807 billion |
| Diluted earnings per share | $2.93 | $2.49 |
| Net cash from operating activities | $8.186 billion | $7.571 billion |
| Capital expenditures | $1.993 billion | $1.968 billion |
| Cash, cash equivalents and short-term investments | $9.151 billion | $4.701 billion |
| Total assets | $48.671 billion | $40.519 billion |
Operating cash flow less capital expenditures was approximately $6.193 billion in 2009. At year-end, reported loans and notes payable, current maturities of long-term debt and long-term debt totaled approximately $11.859 billion, compared with $9.312 billion in 2008. The company reported $2.3 billion of committed, unused credit lines for general corporate purposes, including commercial-paper backup.
Worldwide unit case volume and concentrate sales each increased 3%. Segment unit case volume rose 7% in Pacific, 6% in Latin America, 4% in Eurasia and Africa, and 2% in Bottling Investments; it declined 1% in Europe and 2% in North America.
Fourth quarter: Revenue was $7.510 billion versus $7.126 billion in 2008; net income attributable to shareowners was $1.543 billion versus $995 million; diluted EPS was $0.66 versus $0.43. The company said the 2009 fourth quarter had six fewer shipping days than the comparable 2008 quarter.
Material changes versus the prior comparable period
- Annual revenue fell 3%, despite 3% concentrate-sales growth. Currency movements reduced revenue by approximately 5%; structural changes reduced it by 1%, while price and product/geographic mix had a net zero impact.
- Shareowner net income increased 18% and diluted EPS increased 18%. A key driver was the swing in equity income: $781 million of equity income in 2009 versus an $874 million equity loss in 2008. The 2008 result included Coca-Cola’s approximately $1.6 billion share of CCE impairment charges.
- Gross margin edged down to 64.2% from 64.4%; operating margin increased to 26.6% from 26.4%. Management cited currency, geographic and product mix, affordability initiatives and growth in finished-product operations as pressures, partly offset by lower commodity costs and price increases.
- Operating cash flow rose 8%, partly due to lower tax payments, lower supplier payments and a $183 million special dividend from Coca-Cola Hellenic; higher pension contributions partly offset the increase.
- Cash and short-term investments increased by $4.450 billion. Long-term debt increased by $2.278 billion, including issuance of $2.250 billion in long-term notes during 2009.
Outlook, commentary, risks and unusual items
- Management expected substantial operating cash flow in 2010, capital expenditures broadly in line with 2008 and 2009, and a 2010 effective tax rate of approximately 23.0%–23.5%, excluding unusual items. It expected currency effects to be slightly positive for operating income in 2010 and price/mix effects on revenue to be similar to 2009.
- The company targeted $500 million of annualized productivity savings by the end of 2011, with approximately $500 million of total costs expected by then; management said more than half of the targeted annualized savings had been realized by year-end 2009.
- In February 2010, Coca-Cola agreed to acquire CCE’s North American operations. Consideration includes Coca-Cola’s existing 34% CCE stake, valued at approximately $3.4 billion, and assumption of approximately $8.9 billion of CCE debt. The transaction was subject to shareholder and regulatory approvals, with closing expected in the fourth quarter of 2010. Coca-Cola also agreed in principle to sell its Norway and Sweden bottling interests for approximately $822 million and granted the new CCE entity an option to acquire its German bottling interest later.
- Following Venezuela’s currency devaluation and its designation as hyperinflationary, management anticipated an initial remeasurement loss of approximately $100 million in first-quarter 2010. Cash in the Venezuelan subsidiary was approximately 2% of consolidated cash at year-end 2009.
- Other notable items included $313 million of other operating charges in 2009, comprising restructuring, productivity and impairment charges; $86 million of the company’s share of equity-investee impairment and restructuring charges; and a $27 million impairment of a cost-method investment. The 2008 comparison included the much larger CCE impairment-related equity loss.
- Principal disclosed risks include health and obesity concerns, water scarcity and quality, economic and political conditions, foreign exchange, competition, input and packaging costs, bottler financial health, regulation and litigation, climate change, and potential impairment charges. Management stated pending legal matters were not expected to materially adversely affect the company as a whole; guarantees of third-party debt totaled $245 million and payment was not considered probable.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether the CCE North American acquisition and related bottling-interest sales received approvals, closed as planned, and met the expected financial and operational objectives.
- How much reported earnings growth reflected recurring operations versus the reversal of the prior-year CCE impairment impact and other unusual items.
- Whether 3% volume growth can be sustained, particularly given declines in North America and Europe and adverse economic conditions in some markets.
- Whether currency, affordability initiatives, geographic mix and the shift toward finished beverages continue to pressure revenue and margins.
- The 2010 Venezuelan remeasurement impact, pension funding and expense, and the company’s ability to meet debt, capital spending, dividend and repurchase commitments.
- Progress toward the productivity-savings target and the costs required to achieve it.