NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
When used in these notes, 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.
Description of Business
The Coca-Cola Company is the world's largest nonalcoholic beverage company. We own or license and market numerous nonalcoholic beverage brands, which we group into the following category clusters: sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. We own and market four of the world's top five nonalcoholic sparkling soft drink 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 and territories.
We make our branded beverage products available to consumers throughout the world through our network of independent bottling partners, distributors, wholesalers and retailers as well as the Company's consolidated bottling and distribution operations — the world's largest nonalcoholic beverage distribution system. Beverages bearing trademarks owned by or licensed to us account for 1.9 billion of the approximately 62 billion servings of all beverages consumed worldwide every day.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.
Principles of Consolidation
Our Company consolidates all entities that we control by ownership of a majority voting interest. Additionally, there are situations in which consolidation is required even though the usual condition of consolidation (ownership of a majority voting interest) does not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting interests, which results in a disproportionate relationship between such entity's voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise. This disproportionate relationship results in what is known as a variable interest, and the entity in which we have the variable interest is referred to as a "VIE." An enterprise must consolidate a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Our Company holds interests in certain VIEs, primarily bottling and container manufacturing operations, for which we were not determined to be the primary beneficiary. Our variable interests in these VIEs primarily relate to equity investments, profit guarantees or subordinated financial support. Refer to Note 11. Although these financial arrangements resulted in our holding variable interests in these entities, they did not empower us to direct the activities of the VIEs that most significantly impact the VIEs' economic performance. Our Company's investments, plus any loans and guarantees, and other subordinated financial support related to these VIEs totaled $2,567 million and $3,179 million as of December 31, 2020 and 2019, respectively, representing our maximum exposures to loss. The Company's investments, plus any loans and guarantees, related to these VIEs were not individually significant to the Company's consolidated financial statements.
In addition, our Company holds interests in certain VIEs, primarily bottling and container manufacturing operations, for which we were determined to be the primary beneficiary. As a result, we have consolidated these entities. Our Company's investments, plus any loans and guarantees, related to these VIEs totaled $74 million and $51 million as of December 31, 2020 and 2019, respectively, representing our maximum exposures to loss. The assets and liabilities of VIEs for which we are the primary beneficiary were not significant to the Company's consolidated financial statements.
Creditors of our VIEs do not have recourse against the general credit of the Company, regardless of whether they are accounted for as consolidated entities.
We use the equity method to account for investments in companies if our investment provides us with the ability to exercise significant influence over operating and financial policies of the investee. Our consolidated net income includes our Company's proportionate share of the net income or loss of these companies. Our judgment regarding the level of influence over each equity method investee includes considering key factors such as our ownership interest, representation on the board of directors, participation in policy-making decisions, other commercial arrangements and material intercompany transactions.
We eliminate from our financial results all significant intercompany transactions, including the intercompany transactions with consolidated VIEs and the intercompany portion of transactions with equity method investees.
Revenue Recognition
Our Company recognizes revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligation generally consists of the promise to sell concentrates, syrups or finished products to our bottling partners, wholesalers, distributors or retailers. Refer to Note 3.
Advertising Costs
Our Company expenses production costs of print, radio, television and other advertisements as of the first date the advertisements take place. All other marketing expenditures are expensed in the annual period in which the expenditure is incurred. Advertising costs included in the line item selling, general and administrative expenses in our consolidated statements of income were $3 billion in 2020 and $4 billion in 2019 and 2018. As of December 31, 2020 and 2019, advertising and production costs of $83 million and $55 million, respectively, were primarily recorded in the line item prepaid expenses and other assets in our consolidated balance sheets.
For interim reporting purposes, we allocate our estimated full year marketing expenditures that benefit multiple interim periods to each of our interim reporting periods. We use the proportion of each interim period's actual unit case volume to the estimated full year unit case volume as the basis for the allocation. This methodology results in our marketing expenditures being recognized at a standard rate per unit case. At the end of each interim reporting period, we review our estimated full year unit case volume and our estimated full year marketing expenditures in order to evaluate if a change in estimate is necessary. The impact of any changes in these full year estimates is recognized in the interim period in which the change in estimate occurs. Our full year marketing expenditures are not impacted by this interim accounting policy.
Shipping and Handling Costs
Shipping and handling costs related to the movement of goods from our manufacturing locations to our sales distribution centers are included in the line item cost of goods sold in our consolidated statement of income. Shipping and handling costs incurred to move goods from our manufacturing locations or sales distribution centers to our customers are also included in the line item cost of goods sold in our consolidated statement of income, except for costs incurred to distribute goods sold by our consolidated bottlers to our customers, which are included in the line item selling, general and administrative expenses. Our customers generally do not pay us separately for shipping and handling costs. We recognize the cost of shipping and handling activities that are performed after a customer obtains control of the goods as costs to fulfill our promise to provide goods to the customer. As a result of this election, the Company does not evaluate whether shipping and handling activities are services promised to customers. If revenue is recognized for the related goods before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.
Sales, Use, Value-Added and Excise Taxes
The Company collects taxes imposed directly on its customers related to sales, use, value-added, excise and other similar taxes. The Company then remits such taxes on behalf of its customers to the applicable governmental authorities. We exclude from net operating revenues the tax amounts imposed on revenue-producing transactions that were collected from our customers to be remitted to governmental authorities. Accordingly, such tax amounts are recorded in the line item trade accounts receivable in our consolidated balance sheet when collection of taxes from the customer has not yet occurred and are recorded in the line item accounts payable and accrued expenses in our consolidated balance sheet until they are remitted to the applicable governmental authorities. Taxes imposed directly on the Company, whether based on receipts from sales, inventory procurement costs or manufacturing activities, are recorded in the line item cost of goods sold in our consolidated statement of income.
Net Income Per Share
Basic net income per share is computed by dividing net income attributable to shareowners of The Coca-Cola Company by the weighted-average number of common shares outstanding during the reporting period. Diluted net income per share is computed similarly to basic net income per share, except that it includes the potential dilution that could occur if dilutive securities were exercised. Approximately 6 million and 5 million stock option awards were excluded from the computations of diluted net income per share in 2020 and 2018, respectively, because the awards would have been antidilutive for the years presented. The number of stock option awards excluded from the computation of diluted net income per share in 2019 was insignificant.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
We classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents or restricted cash equivalents, as applicable. Restricted cash and restricted cash equivalents generally consist of amounts held by our captive insurance companies, which are included in the line item other assets on our consolidated balance sheet. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor our concentrations of credit risk.
The following table provides a summary of cash, cash equivalents, restricted cash and restricted cash equivalents that constitute the total amounts shown in the consolidated statements of cash flows (in millions):
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December 31,
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2020
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2019
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2018
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Cash and cash equivalents
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$
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6,795
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$
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6,480
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$
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9,077
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Restricted cash and restricted cash equivalents included in other assets1
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315
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257
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241
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Cash, cash equivalents, restricted cash and restricted cash equivalents
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$
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7,110
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$
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6,737
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$
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9,318
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1 Amounts represent restricted cash and restricted cash equivalents in our solvency capital portfolio set aside primarily to cover pension obligations in certain of our European and Canadian pension plans. Refer to Note 4.
Short-Term Investments
We classify time deposits and other investments that have maturities of greater than three months but less than one year as short-term investments.
Investments in Equity and Debt Securities
We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in net income. We use quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity securities without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Management assesses each of these investments on an individual basis. Our investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Refer to Note 4 for additional information on our policy for investments, which includes our assessment of impairments.
Trade Accounts Receivable
We record trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any expected loss on the trade accounts receivable balances and charged to the provision for doubtful accounts. We calculate this allowance based on available relevant information, in addition to historical loss information, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our bottling partners and customers. We believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.
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 $185 million of trade accounts receivables under this program during the year ended December 31, 2020, and the costs of factoring such receivables were not material. The Company accounts for this program as a sale, and accordingly, the trade receivables sold are excluded from trade accounts receivable on our consolidated balance sheet. The cash received from the financial institutions is classified within the operating activities section in the consolidated statement of cash flows.
Inventories
Inventories consist primarily of raw materials and packaging (which include ingredients and supplies) and finished goods (which include concentrates and syrups in our concentrate operations and finished beverages in our finished product operations). Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the average cost or first-in, first-out methods.
Inventories consisted of the following (in millions):
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December 31,
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2020
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2019
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Raw materials and packaging
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$
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2,106
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$
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2,180
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Finished goods
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791
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851
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Other
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369
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348
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Total inventories
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$
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3,266
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$
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3,379
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Derivative Instruments
Our Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency exchange rate risk, commodity price risk and interest rate risk. All derivatives are carried at fair value in our consolidated balance sheet in the following line items, as applicable: prepaid expenses and other assets; other assets; accounts payable and accrued expenses; and other liabilities. The cash flow impact of the Company's derivative instruments is primarily included in our consolidated statement of cash flows in net cash provided by operating activities. Refer to Note 5.
Leases
Effective January 1, 2019, we adopted Accounting Standards Codification ("ASC") 842, Leases. We determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
We are the lessee in a lease contract when we obtain the right to control the asset. Operating leases are included in the line items other assets, accounts payable and accrued expenses, and other liabilities in our consolidated balance sheet. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of income. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. When our contracts contain lease and non-lease components, we account for both components as a single lease component. Refer to Note 9.
We have various arrangements for certain fountain equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repair and maintenance costs that do not improve service potential or extend economic life are expensed as incurred. Depreciation is recorded principally by the straight-line method over the estimated useful lives of our assets, which are reviewed periodically and generally have the following ranges: buildings and improvements: 40 years or less; and machinery and equipment: 20 years or less. Land is not depreciated, and construction in progress is not depreciated until ready for service. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term, including renewals that are deemed to be reasonably assured, or the estimated useful life of the improvement. Depreciation is not recorded during the period in which a long-lived asset or disposal group is classified as held for sale, even if the asset or disposal group continues to generate revenue during the period. Depreciation expense, including the depreciation expense of assets under finance leases, totaled $1,301 million, $1,208 million and $999 million in 2020, 2019 and 2018, respectively. Amortization expense for leasehold improvements totaled $18 million in 2020, 2019 and 2018.
The following table summarizes our property, plant and equipment (in millions):
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December 31,
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2020
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2019
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Land
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$
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676
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$
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659
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Buildings and improvements
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4,782
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4,576
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Machinery and equipment
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14,242
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13,686
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Property, plant and equipment — cost
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19,700
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18,921
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Less: Accumulated depreciation
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8,923
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8,083
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Property, plant and equipment — net
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$
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10,777
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$
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10,838
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Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property, plant and equipment should be assessed, including, among others, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. When such events or changes in circumstances are present and an impairment test is performed, we estimate the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. We use a variety of methodologies to determine the fair value of property, plant and equipment, including appraisals and discounted cash flow models. These appraisals and models include assumptions we believe are consistent with those a market participant would use.
Goodwill, Trademarks and Other Intangible Assets
We classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their useful lives, generally less than 25 years. Refer to Note 7.
When events or circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the asset or asset group and its eventual disposition. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the fair value. We use a variety of methodologies to determine the fair value of these assets, including discounted cash flow models, which include assumptions we believe are consistent with those a market participant would use.
We test intangible assets determined to have indefinite useful lives, including trademarks, franchise rights and goodwill, for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired. Our Company performs these annual impairment tests as of the first day of our third fiscal quarter. We use a variety of methodologies in conducting impairment assessments of indefinite-lived intangible assets, including, but not limited to, discounted cash flow models, which include assumptions we believe are consistent with those a market participant would use. For indefinite-lived intangible assets, other than goodwill, if the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. The Company has the option to perform a qualitative assessment of indefinite-lived intangible assets, other than goodwill, rather than completing the impairment test. The Company must assess whether it is more likely than not that the fair value of the intangible asset is less than its carrying amount. If the Company concludes that this is the case, it must perform the testing described above. Otherwise, the Company does not need to perform any further assessment.
We perform impairment tests of goodwill at our reporting unit level, which is one level below our operating segments. Our operating segments are primarily based on geographic responsibility, which is consistent with the way management runs our business. Our operating segments are subdivided into smaller geographic regions or territories that we sometimes refer to as "business units." These business units are also our reporting units. Our Global Ventures operating segment includes the results of our Costa Limited ("Costa"), innocent and doğadan businesses as well as fees earned pursuant to distribution coordination agreements between the Company and Monster Beverage Corporation ("Monster"), each of which is its own reporting unit. The Bottling Investments operating segment includes all consolidated bottling operations, regardless of geographic location.
Generally, each consolidated bottling operation within our Bottling Investments operating segment is its own reporting unit. Goodwill is assigned to the reporting unit or units that benefit from the synergies arising from each business combination.
In order to test for goodwill impairment, the Company compares the fair value of the reporting unit to its carrying value,
including goodwill. If the fair value of the reporting unit is less than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. We typically use discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those we believe a market participant would use. The Company has the option to perform a qualitative assessment of goodwill in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, it must perform the testing discussed above. Otherwise, the Company does not need to perform any further testing.
Impairment charges related to intangible assets, including goodwill, are generally recorded in the line item other operating charges or, to the extent they relate to equity method investees, in the line item equity income (loss) — net in our consolidated statement of income.
Contingencies
Our Company is involved in various legal proceedings and tax matters. Due to their nature, such legal proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions. Management assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances, as appropriate. Refer to Note 11.
Stock-Based Compensation
Our Company grants awards under its stock-based compensation plans to certain employees of the Company. These awards include stock options, restricted stock units, restricted stock and performance-based share units. The fair value of our stock option grants is estimated on the grant date using a Black-Scholes-Merton option-pricing model. The Company recognizes compensation expense on a straight-line basis over the period the stock option grant is earned by the employee, which is generally four years.
The fair value of our restricted stock units, restricted stock and certain performance-based share units is the quoted market value of the Company's stock on the grant date less the present value of the expected dividends not received during the relevant period. For most performance-based share units granted from 2014 to 2017 and for performance-based share units granted to executives in 2018, 2019 and 2020, the Company includes a relative total shareowner return ("TSR") modifier to determine the number of shares earned at the end of the performance period. For these awards, the number of shares earned based on the certified achievement of the predefined performance criteria will be reduced or increased if the Company's total shareowner return over the performance period relative to a predefined compensation comparator group of companies falls outside of a defined range. The fair value of performance-based share units that include the TSR modifier is determined using a Monte Carlo valuation model.
In the period it becomes probable that the minimum performance threshold specified in the performance-based share award will be achieved, we recognize expense for the proportionate share of the total fair value of the award related to the vesting period that has already lapsed. The remaining fair value of the award is expensed on a straight-line basis over the balance of the vesting period. In the event the Company determines it is no longer probable that we will achieve the minimum performance threshold specified in the award, we reverse all of the previously recognized compensation expense in the period such a determination is made.
The Company has made a policy election to estimate the number of stock-based compensation awards that are expected to vest to determine the amount of compensation expense recognized in earnings. Forfeiture estimates are trued-up through the vesting date in order to ensure that total compensation expense is recognized only for those awards that ultimately vest. Refer to Note 12.
Income Taxes
Income tax expense includes U.S., state, local and international income taxes. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The Company is involved in various tax matters, with respect to some of which the outcome is uncertain. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based
upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and caselaw and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired. Refer to Note 11 and Note 14.
Translation and Remeasurement
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars at the appropriate spot rates as of the balance sheet date. Generally, our foreign subsidiaries use the local currency as their functional currency. Changes in the carrying values of these assets and liabilities attributable to fluctuations in spot rates are recognized in net foreign currency translation adjustments, a component of AOCI. Refer to Note 15. Accounts in our consolidated statement of income are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity's functional currency must first be remeasured from the applicable currency to the legal entity's functional currency. The effect of this remeasurement process is recognized in the line item other income (loss) — net in our consolidated statement of income and is partially offset by the impact of our economic hedging program for certain exposures on our consolidated balance sheet. Refer to Note 5.
Recently Adopted Accounting Guidance
In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), which eliminates the requirement to separately measure and report hedge ineffectiveness and requires companies to recognize all elements of hedge accounting that impact earnings in the same line item in the statement of income where the hedged item resides. The amendments in this update include new alternatives for measuring the hedged item for fair value hedges of interest rate risk and ease the requirements for effectiveness testing, hedge documentation and applying the critical terms match method. We adopted ASU 2017-12 effective January 1, 2019 using the modified retrospective method. We recognized a cumulative effect adjustment to decrease the opening balance of reinvested earnings as of January 1, 2019 by $12 million, net of tax. Refer to Note 5 for additional disclosures required by this ASU.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which permits entities to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 ("Tax Reform Act") on items within AOCI to reinvested earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." The amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income is not affected by this update. We adopted ASU 2018-02 effective January 1, 2019. We recognized a cumulative effect adjustment to increase the opening balance of reinvested earnings as of January 1, 2019 by $558 million related to the effect that the change in the income tax rate had on the gross deferred tax amounts of items remaining in AOCI.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09, and its amendments, were primarily included in ASC 606, Revenue from Contracts with Customers, which we adopted effective January 1, 2018 using the modified retrospective method. We recognized a cumulative effect adjustment to decrease the opening balance of reinvested earnings as of January 1, 2018 by $257 million, net of tax.
In January 2016, the FASB issued ASU 2016-01, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 was effective for the Company beginning January 1, 2018, and we are now recognizing any changes in the fair value of certain equity investments in net income as prescribed by the new standard rather than in other comprehensive income ("OCI"). We recognized a cumulative effect adjustment to increase the opening balance of reinvested earnings as of January 1, 2018 by $409 million, net of tax.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which requires the Company to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 was effective for the Company beginning January 1, 2018 and was adopted
using a modified retrospective basis. We recorded a $2.9 billion cumulative effect adjustment to increase the opening balance of reinvested earnings as of January 1, 2018, with the majority of the offset being recorded in the line item deferred income tax assets in our consolidated balance sheet.
In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Reform Act. The amendments also require any provisional amounts or subsequent adjustments to be included in net income. Additionally, this ASU discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company adopted this standard and subsequently finalized the accounting based on the guidance, interpretations and data available as of December 31, 2018. Refer to Note 14.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Acquisitions
During 2020, our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $1,052 million, which primarily related to the acquisition of the remaining ownership interest in fairlife, LLC ("fairlife").
During 2019, our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $5,542 million, which primarily related to the acquisitions of Costa, the remaining ownership interest in C.H.I. Limited ("CHI") and controlling interests in bottling operations in Zambia, Kenya, and Eswatini.
During 2018, our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $1,263 million, which included the acquisition of the 51 percent controlling interest in the Philippine bottling operations from Coca-Cola FEMSA, S.A.B. de C.V. ("Coca-Cola FEMSA"), an equity method investee. Additionally, we acquired a minority interest in BA Sports Nutrition, LLC ("BodyArmor"). We account for our minority interest in BodyArmor as an equity method investment based on our equity ownership percentage and our representation on their Management Committee. We obtained an option to acquire the remaining ownership interests in BodyArmor based on an agreed-upon formula, which becomes exercisable in 2021. Upon the expiration of the Company's option, BodyArmor can exercise an option on behalf of the other equity owners to sell their remaining interests to the Company based on the same agreed‑upon formula. The Company also acquired additional ownership interests in the Company's franchise bottlers in the United Arab Emirates and in Oman, both of which were previously equity method investees of the Company. As a result of the additional interest acquired in the Oman bottler, we obtained a controlling interest, resulting in its consolidation. During 2018, the Company also acquired controlling interests in bottling operations in Zambia and Botswana.
fairlife, LLC
In January 2020, the Company acquired the remaining 57.5 percent ownership interest in, and now owns 100 percent of, fairlife. fairlife offers a broad portfolio of products in the value-added dairy category across North America. A significant portion of fairlife's revenues was already reflected in our consolidated financial statements, as we have operated as the sales and distribution organization for certain fairlife products. Upon consolidation, we recognized a gain of $902 million resulting from the remeasurement of our previously held equity interest in fairlife to fair value. The fair value of our previously held equity interest was determined using a discounted cash flow model based on Level 3 inputs. The gain was recorded in the line item other income (loss) — net in our consolidated statement of income. We acquired the remaining ownership interest in exchange for $979 million of cash, net of cash acquired, and effectively settled our $306 million note receivable from fairlife at the recorded amount. Under the terms of the agreement, we are subject to making future milestone payments which are contingent on fairlife achieving certain financial targets through 2024 and, if achieved, are payable in 2021, 2023 and 2025. These milestone payments are based on agreed-upon formulas related to fairlife's operating results, the resulting values of which are not subject to a ceiling. Under the applicable accounting guidance, we recorded a $270 million liability representing our best estimate of the fair value of this contingent consideration. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs. We will be required to remeasure this liability to fair value quarterly with any changes in the fair value recorded in income until the final milestone payment is made. During the year ended December 31, 2020, we recorded charges of $51 million related to this remeasurement in the line item other operating charges in our consolidated statement of income. Upon finalization of purchase accounting, $1.3 billion of the purchase price was allocated to the fairlife trademark and $0.8 billion was allocated to goodwill. The goodwill recognized as part of this acquisition is primarily related to synergistic value created from the opportunity for additional expansion. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce. The goodwill is not tax deductible and has been assigned to the North America operating segment.
Costa Limited
In January 2019, the Company acquired Costa in exchange for $4.9 billion of cash, net of cash acquired. Costa is a coffee business with retail outlets in more than 30 countries, the Costa Express vending system and a state-of-the-art roastery. We believe this acquisition will allow us to increase our presence in the hot beverage market, as Costa has a scalable platform across multiple formats and channels, including opportunities to introduce ready-to-drink products. Upon finalization of purchase accounting, $2.4 billion of the purchase price was allocated to the Costa trademark and $2.5 billion was allocated to goodwill. The goodwill recognized as part of this acquisition is primarily related to synergistic value created from the opportunity for additional expansion as well as our ability to market and distribute Costa in ready-to-drink form throughout our bottling system. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce. The goodwill is not tax deductible and has been assigned to the Global Ventures operating segment, except for $108 million, which was allocated to the Europe, Middle East and Africa operating segment.
C.H.I. Limited
In January 2019, the Company acquired the remaining 60 percent ownership interest in CHI, a Nigerian producer of value-added dairy and juice beverages and iced tea, in exchange for $257 million of cash, net of cash acquired, under the terms of the agreement for our original investment in CHI. Upon consolidation, we recognized a net loss of $118 million, which included the remeasurement of our previously held equity interest in CHI to fair value and the reversal of the related cumulative translation adjustments. The fair value of our previously held equity investment was determined using a discounted cash flow model based on Level 3 inputs. The net loss was recorded in the line item other income (loss) — net in our consolidated statement of income.
Philippine Bottling Operations
In December 2018, the Company acquired the 51 percent controlling interest in the Philippine bottling operations held by Coca‑Cola FEMSA, an equity method investee, in exchange for $715 million of cash. The acquired business had $345 million of cash on hand upon acquisition. The acquisition was a result of Coca-Cola FEMSA exercising the option to sell its ownership interest to the Company. Coca-Cola FEMSA obtained this option when it originally acquired the controlling interest from the Company in 2013. As a result of this acquisition, we now own 100 percent of the Philippine bottling operations. Upon consolidation, we recognized a net charge of $32 million, which included the remeasurement of our previously held equity interest in the Philippine bottling operations to fair value and the reversal of the related cumulative translation adjustments. The fair value of our previously held equity investment was determined using a discounted cash flow model based on Level 3 inputs. The net charge was recorded in the line item other income (loss) — net in our consolidated statement of income.
Divestitures
During 2020, proceeds from disposals of businesses, equity method investments and nonmarketable securities totaled $189 million, which primarily related to the sale of our ownership interest in Piedmont Coca-Cola Bottling Partnership to Coca-Cola Consolidated, Inc., an equity method investee, for cash proceeds of $100 million. Also included was the sale of our ownership interest in an equity method investee in North America and the sale of a portion of our ownership interest in one of our other equity method investees. We recognized a net loss of $2 million, a gain of $17 million, and a net gain of $18 million, respectively, as a result of these sales, which were recorded in the line item other income (loss) — net in our consolidated statement of income.
During 2019, proceeds from disposals of businesses, equity method investments and nonmarketable securities totaled $429 million, which primarily related to the sale of a portion of our ownership interest in Embotelladora Andina S.A. ("Andina") and the refranchising of certain of our bottling operations in India. As a result of these transactions, we recognized gains of $39 million and $73 million, respectively, which were recorded in the line item other income (loss) — net in our consolidated statement of income. We continue to account for our remaining ownership interest in Andina as an equity method investment as a result of our representation on Andina's Board of Directors and other governance rights.
During 2018, proceeds from disposals of businesses, equity method investments and nonmarketable securities totaled $1,362 million, which primarily related to proceeds from the refranchising of our Canadian and Latin American bottling operations as well as the sale of our ownership interest in Corporación Lindley S.A. ("Lindley").
Latin America Bottling Operations
During 2018, the Company sold its bottling operations in Latin America to Coca-Cola FEMSA, an equity method investee. We received net cash proceeds of $289 million as a result of these sales and recognized a net gain of $47 million, which was included in the line item other income (loss) — net in our consolidated statement of income.
Corporación Lindley S.A.
In September 2018, we sold our ownership interest in Lindley to AC Bebidas, S. de R.L. de C.V. ("AC Bebidas"), an equity method investee. We received net cash proceeds of $507 million and recognized a net gain of $296 million during the year ended December 31, 2018, which was included in the line item other income (loss) — net in our consolidated statement of income.
North America Refranchising — Canada
In September 2018, the Company completed its North America refranchising, which began in 2014, with the sale of its Canadian bottling operations. We received initial net cash proceeds of $518 million and recognized a net charge of $385 million during the year ended December 31, 2018. During the year ended December 31, 2019, we recognized a charge of $122 million, primarily related to post-closing adjustments as contemplated by the related agreements. These charges were included in the line item other income (loss) — net in our consolidated statements of income.
North America Refranchising — United States
In 2018, the Company completed the refranchising of all of our bottling territories in the United States to certain of our unconsolidated bottling partners. We recognized a net gain of $17 million during the year ended December 31, 2019 and recognized net charges of $91 million during the year ended December 31, 2018, primarily related to post-closing adjustments as contemplated by the related agreements. Included in these amounts is a net gain of $5 million during the year ended December 31, 2019 and a net charge of $21 million during the year ended December 31, 2018 from transactions with equity method investees or former management. During the years ended December 31, 2019 and 2018, the Company recorded charges of $4 million and $34 million, respectively, primarily related to payments made to certain of our unconsolidated bottling partners in order to convert the bottling agreements for their legacy territories and any previously refranchised territories to a single new form of bottling agreement with additional requirements. The net gain and charges were included in the line item other income (loss) — net in our consolidated statements of income.
Coca-Cola Beverages Africa Proprietary Limited
Due to the Company's original intent to refranchise Coca-Cola Beverages Africa Proprietary Limited ("CCBA"), it was accounted for as held for sale and a discontinued operation from October 2017 through the first quarter of 2019. As CCBA met the criteria to be classified as held for sale, we were required to record their assets and liabilities at the lower of carrying value or fair value less any costs to sell. As a result, during the year ended December 31, 2018, we recorded an impairment charge of $554 million, reflecting management's view of the proceeds that were expected to be received upon sale based on revised projections of future operating results and foreign currency exchange rate fluctuations. This charge was previously reflected in the line item income (loss) from discontinued operations in our consolidated statement of income and the corresponding reduction to assets was reflected as an allowance for reduction of assets held for sale — discontinued operations in our consolidated balance sheet. Additionally, CCBA's property, plant and equipment was not depreciated and its definite-lived intangible assets were not amortized.
While the Company had discussions with a number of potential partners throughout the period CCBA was held for sale, during the second quarter of 2019 the Company updated its plans for CCBA and now intends to maintain its controlling stake in CCBA for the foreseeable future. As a result, CCBA no longer qualifies as held for sale or as a discontinued operation, and CCBA's financial results are now presented within the Company's continuing operations for all periods presented. As a result of this change in presentation, the Company reflected the impairment charge in other income (loss) — net in our consolidated statement of income for the year ended December 31, 2018 and reallocated the allowance for reduction of assets held for sale — discontinued operations balance to reduce the carrying value of CCBA's property, plant and equipment by $225 million and CCBA's definite-lived intangible assets by $329 million based on the relative amount of depreciation and amortization that would have been recognized during the period CCBA was held for sale. We also recorded a $160 million adjustment to reduce the carrying value of CCBA's property, plant and equipment and definite-lived intangible assets by an additional $34 million and $126 million, respectively, during the year ended December 31, 2019. These additional adjustments were included in the line item other income (loss) — net in our consolidated statement of income.
NOTE 3: REVENUE RECOGNITION
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 soft drinks and other nonalcoholic 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.
Our concentrate operations typically generate net operating revenues by selling concentrates, syrups and certain finished beverages to authorized bottling operations (to which we typically refer as our "bottlers" or our "bottling partners"). Our bottling partners either combine concentrates with sweeteners (depending on the product), still water or sparkling water, or combine syrups with still or 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. In addition, outside the United States, our bottling partners are typically authorized to manufacture fountain syrups, using our concentrates, which they sell to fountain retailers for use in producing beverages for immediate consumption, or to authorized fountain wholesalers who in turn sell and distribute the fountain syrups to fountain retailers. Our concentrate operations are included in our geographic operating segments and our Global Ventures operating segment.
Our finished product operations generate net operating revenues by selling sparkling soft drinks and a variety of other finished nonalcoholic beverages, such as water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks, to retailers, or to distributors and wholesalers who in turn sell the beverages to retailers. These operations consist primarily of our consolidated bottling and distribution operations, which are included in our Bottling Investments operating segment. In certain markets, the Company also operates non-bottling finished product operations in which we sell finished beverages to distributors and wholesalers that are generally not one of the Company's bottling partners. These operations are generally included in one of our geographic operating segments or our Global Ventures operating segment. Additionally, we sell directly to consumers through retail outlets operated by Costa, which is included in our Global Ventures operating segment. In the United States, we manufacture fountain syrups and sell them to fountain retailers, who use the fountain syrups to produce beverages for immediate consumption, or to authorized fountain wholesalers or bottling partners who in turn sell the fountain syrups to fountain retailers. These fountain syrup sales are included in our North America operating segment.
Revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligation generally consists of the promise to sell concentrates, syrups or finished products to our bottling partners, wholesalers, distributors or retailers. Control of the concentrates, syrups or finished products is transferred upon shipment to, or receipt at, our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized. Our sales terms generally do not allow for a right of return except for matters related to any manufacturing defects on our part. After completion of our performance obligation, we have an unconditional right to consideration as outlined in the contract. Our receivables will generally be collected in less than six months, in accordance with the underlying payment terms. All of our performance obligations under the terms of contracts with our customers have an original duration of one year or less.
Our customers and bottling partners may be entitled to cash discounts, funds for promotional and marketing activities, volume-based incentive programs, support for infrastructure programs and other similar programs. In most markets, in an effort to allow our Company and our bottling partners to grow together through shared value, aligned financial objectives and the flexibility necessary to meet consumers' always changing needs and tastes, we have implemented an incidence-based concentrate pricing model. Under this model, the price we charge bottlers for concentrates they use to prepare and package finished products is impacted by a number of factors, including, but not limited to, the prices charged by the bottlers for such finished products, the channels in which they are sold, and package mix. The amounts associated with the arrangements described above represent variable consideration, an estimate of which is included in the transaction price as a component of net operating revenues in our consolidated statement of income upon completion of our performance obligations. The total revenue recorded, including any variable consideration, cannot exceed the amount for which it is probable that a significant reversal will not occur when uncertainties related to variability are resolved. As a result, we are recognizing revenue based on our faithful depiction of the consideration that we expect to receive. In making our estimates of variable consideration, we consider past results and make significant assumptions related to: (1) customer sales volumes; (2) customer ending inventories; (3) customer selling price per unit; (4) selling channels; and (5) discount rates, rebates and other pricing allowances, as applicable. In gathering data to
estimate our variable consideration, we generally calculate our estimates using a portfolio approach at the country and product line level rather than at the individual contract level. The result of making these estimates will impact the line items trade accounts receivable and accounts payable and accrued expenses in our consolidated balance sheet. The actual amounts ultimately paid and/or received may be different from our estimates. The change in the amount of variable consideration recognized during the year ended December 31, 2020 related to performance obligations satisfied in prior periods was immaterial.
The following table presents net operating revenues disaggregated between the United States and International and further by line of business (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
International
|
Total
|
Year Ended December 31, 2020
|
|
|
|
Concentrate operations
|
$
|
5,443
|
|
$
|
13,139
|
|
$
|
18,582
|
|
Finished product operations
|
5,838
|
|
8,594
|
|
14,432
|
|
Total
|
$
|
11,281
|
|
$
|
21,733
|
|
$
|
33,014
|
|
Year Ended December 31, 2019
|
|
|
|
Concentrate operations
|
$
|
5,252
|
|
$
|
15,247
|
|
$
|
20,499
|
|
Finished product operations
|
6,463
|
|
10,304
|
|
16,767
|
|
Total
|
$
|
11,715
|
|
$
|
25,551
|
|
$
|
37,266
|
|
Year Ended December 31, 2018
|
|
|
|
Concentrate operations
|
$
|
4,571
|
|
$
|
15,323
|
|
$
|
19,894
|
|
Finished product operations
|
6,773
|
|
7,633
|
|
14,406
|
|
Total
|
$
|
11,344
|
|
$
|
22,956
|
|
$
|
34,300
|
|
Refer to Note 19 for additional revenue disclosures by operating segment and Corporate.
NOTE 4: INVESTMENTS
We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in net income. We use quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity securities without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Management assesses each of these investments on an individual basis.
Our investments in debt securities are carried at either amortized cost or fair value. The cost basis is determined by the specific identification method. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income. Unrealized gains and losses, net of tax, on available-for-sale debt securities are included in our consolidated balance sheet as a component of AOCI, except for the changes in fair values attributable to the currency risk being hedged, if applicable, which are included in net income. Refer to Note 5 for additional information related to the Company's fair value hedges of available-for-sale debt securities.
Equity securities with readily determinable fair values that are not accounted for under the equity method and debt securities classified as trading are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. Equity method investments, equity securities without readily determinable fair values and debt securities classified as available-for-sale or held-to-maturity are reviewed each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we evaluate the fair value compared to our cost basis in the investment. We also perform this evaluation every reporting period for each investment for which our cost basis has exceeded the fair value. The fair values of most of our Company's investments in publicly traded companies are often readily available based on quoted market prices. For investments in nonpublicly traded companies, management's assessment of fair value is based on valuation methodologies including discounted cash flows, estimates of sales proceeds and appraisals, as appropriate. We consider the assumptions that we believe market participants would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies. The ability to accurately predict future cash flows, especially in emerging and
developing markets, may impact the determination of fair value. In the event the fair value of an investment declines below our cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. Management's assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than our cost basis; the financial condition and near-term prospects of the issuer; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Equity Securities
The carrying values of our equity securities were included in the following line items in our consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
Fair Value with Changes Recognized in Income
|
Measurement Alternative — No Readily Determinable Fair Value
|
December 31, 2020
|
|
|
Marketable securities
|
$
|
330
|
|
$
|
—
|
|
Other investments
|
762
|
|
50
|
|
Other assets
|
1,282
|
|
—
|
|
Total equity securities
|
$
|
2,374
|
|
$
|
50
|
|
December 31, 2019
|
|
|
Marketable securities
|
$
|
329
|
|
$
|
—
|
|
Other investments
|
772
|
|
82
|
|
Other assets
|
1,118
|
|
—
|
|
Total equity securities
|
$
|
2,219
|
|
$
|
82
|
|
The calculation of net unrealized gains and losses recognized during the year related to equity securities still held at the end of the year is as follows (in millions):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
Net gains (losses) recognized during the year related to equity securities
|
$
|
146
|
|
$
|
218
|
|
Less: Net gains (losses) recognized during the year related to equity securities sold during the
year
|
(22)
|
|
27
|
|
Net unrealized gains (losses) recognized during the year related to equity securities still held
at the end of the year
|
$
|
168
|
|
$
|
191
|
|
Debt Securities
Our debt securities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
Estimated Fair Value
|
|
Cost
|
Gains
|
Losses
|
December 31, 2020
|
|
|
|
|
Trading securities
|
$
|
36
|
|
$
|
2
|
|
$
|
—
|
|
$
|
38
|
|
Available-for-sale securities
|
2,227
|
|
51
|
|
(13)
|
|
2,265
|
|
Total debt securities
|
$
|
2,263
|
|
$
|
53
|
|
$
|
(13)
|
|
$
|
2,303
|
|
December 31, 2019
|
|
|
|
|
Trading securities
|
$
|
46
|
|
$
|
1
|
|
$
|
—
|
|
$
|
47
|
|
Available-for-sale securities
|
3,172
|
|
113
|
|
(4)
|
|
3,281
|
|
Total debt securities
|
$
|
3,218
|
|
$
|
114
|
|
$
|
(4)
|
|
$
|
3,328
|
|
The carrying values of our debt securities were included in the following line items in our consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Trading Securities
|
Available-for-Sale Securities
|
|
Trading Securities
|
Available-for-Sale Securities
|
Cash and cash equivalents
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
123
|
|
Marketable securities
|
38
|
|
1,980
|
|
|
47
|
|
2,852
|
|
Other assets
|
—
|
|
285
|
|
|
—
|
|
306
|
|
Total debt securities
|
$
|
38
|
|
$
|
2,265
|
|
|
$
|
47
|
|
$
|
3,281
|
|
The contractual maturities of these available-for-sale debt securities as of December 31, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
Estimated
Fair Value
|
|
|
|
Within 1 year
|
$
|
701
|
|
$
|
720
|
|
|
|
|
After 1 year through 5 years
|
1,236
|
|
1,237
|
|
|
|
|
After 5 years through 10 years
|
90
|
|
103
|
|
|
|
|
After 10 years
|
200
|
|
205
|
|
|
|
|
Total
|
$
|
2,227
|
|
$
|
2,265
|
|
|
|
|
The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.
The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
Gross gains
|
$
|
20
|
|
$
|
39
|
|
$
|
22
|
|
Gross losses
|
(13)
|
|
(8)
|
|
(27)
|
|
Proceeds
|
1,559
|
|
3,956
|
|
13,710
|
|
Captive Insurance Companies
In accordance with local insurance regulations, our captive insurance companies are required to meet and maintain minimum solvency capital requirements. The Company elected to invest a majority of its solvency capital in a portfolio of marketable equity and debt securities. These securities are included in the disclosures above. The Company uses one of its consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the pension obligations of certain of our European and Canadian pension plans. This captive's solvency capital funds included equity and debt securities of $1,389 million and $1,266 million as of December 31, 2020 and 2019, respectively, which were classified in the line item other assets in our consolidated balance sheets because the assets are not available to satisfy our current obligations.
NOTE 5: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company's financial performance and are referred to as "market risks." When deemed appropriate, our Company uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative and non-derivative financial instruments are foreign currency exchange rate risk, commodity price risk and interest rate risk.
The Company uses various types of derivative instruments including, but not limited to, forward contracts, commodity futures contracts, option contracts, collars and swaps. Forward contracts and commodity futures contracts are agreements to buy or sell a quantity of a currency or commodity at a predetermined future date and at a predetermined rate or price. An option contract is an agreement that conveys the purchaser the right, but not the obligation, to buy or sell a quantity of a currency or commodity at a predetermined rate or price during a period or at a time in the future. A collar is a strategy that uses a combination of options to limit the range of possible positive or negative returns on an underlying asset or liability to a specific range, or to protect expected future cash flows. To do this, an investor simultaneously buys a put option and sells (writes) a call option, or alternatively buys a call option and sells (writes) a put option. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. We do not enter into derivative financial
instruments for trading purposes. The Company may also designate certain non-derivative instruments, such as our foreign currency denominated third-party debt, in hedging relationships.
All derivative instruments are carried at fair value in our consolidated balance sheets, primarily in the following line items, as applicable: prepaid expenses and other assets; other assets; accounts payable and accrued expenses; and other liabilities. The carrying values of the derivatives reflect the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties, as applicable. These master netting agreements allow the Company to net settle positive and negative positions (assets and liabilities) arising from different transactions with the same counterparty.
The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationships. Derivatives can be designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The changes in the fair values of derivatives that have been designated and qualify for fair value hedge accounting are recorded in the same line item in our consolidated statement of income as the changes in the fair values of the hedged items attributable to the risk being hedged. The changes in the fair values of derivatives that have been designated and qualify as cash flow hedges or hedges of net investments in foreign operations are recorded in AOCI and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the values of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in the fair values of derivatives that were not designated and/or did not qualify as hedging instruments are immediately recognized into earnings.
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures.
The Company determines the fair values of its derivatives based on quoted market prices or pricing models using current market rates. Refer to Note 16. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, commodity rates or other financial indices. The Company does not view the fair values of its derivatives in isolation but rather in relation to the fair values or cash flows of the underlying hedged transactions or other exposures. Virtually all of our derivatives are straightforward over-the-counter instruments with liquid markets.
We adopted ASU 2017-12 effective January 1, 2019 using the modified retrospective method. For highly effective cash flow hedges, this ASU requires the entire change in fair value of the hedging instrument included in the assessment of hedge effectiveness to be recorded in OCI. No components of the Company's hedging instruments were excluded from the assessment of hedge effectiveness. To reflect the adoption of the new hedging standard on our cash flow hedging relationships at January 1, 2019, we recorded a $6 million increase, net of taxes, to the opening balance of reinvested earnings and a corresponding decrease to AOCI. For fair value hedges of interest rate risk, this ASU allows entities to elect to use the benchmark interest rate component of the contractual coupon cash flows to calculate the change in fair value of the hedged item attributable to changes in the benchmark interest rate. As a result of applying the new hedging standard to our fair value hedges on January 1, 2019, we recorded a $24 million increase to our hedged long-term debt balances, with a corresponding decrease to the opening balance of reinvested earnings of $18 million, net of taxes.
The following table presents the fair values of the Company's derivative instruments that were designated and qualified as part of a hedging relationship (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value1,2
|
Derivatives Designated as Hedging Instruments
|
Balance Sheet Location1
|
|
December 31,
2020
|
|
December 31,
2019
|
Assets:
|
|
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other assets
|
|
$
|
26
|
|
|
$
|
24
|
|
Foreign currency contracts
|
Other assets
|
|
74
|
|
|
91
|
|
Commodity contracts
|
Prepaid expenses and other assets
|
|
2
|
|
|
—
|
|
Interest rate contracts
|
Prepaid expenses and other assets
|
|
—
|
|
|
10
|
|
Interest rate contracts
|
Other assets
|
|
659
|
|
|
427
|
|
Total assets
|
|
|
$
|
761
|
|
|
$
|
552
|
|
Liabilities:
|
|
|
|
|
|
Foreign currency contracts
|
Accounts payable and accrued expenses
|
|
$
|
29
|
|
|
$
|
40
|
|
Foreign currency contracts
|
Other liabilities
|
|
—
|
|
|
48
|
|
|
|
|
|
|
|
Interest rate contracts
|
Accounts payable and accrued expenses
|
|
5
|
|
|
—
|
|
Interest rate contracts
|
Other liabilities
|
|
—
|
|
|
21
|
|
Total liabilities
|
|
|
$
|
34
|
|
|
$
|
109
|
|
1All of the Company's derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties, as applicable. Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral. Refer to Note 16 for the net presentation of the Company's derivative instruments.
2Refer to Note 16 for additional information related to the estimated fair value.
The following table presents the fair values of the Company's derivative instruments that were not designated as hedging instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value1,2
|
Derivatives Not Designated as Hedging Instruments
|
Balance Sheet Location1
|
|
December 31,
2020
|
|
December 31,
2019
|
Assets:
|
|
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other assets
|
|
$
|
28
|
|
|
$
|
13
|
|
Foreign currency contracts
|
Other assets
|
|
1
|
|
|
—
|
|
Commodity contracts
|
Prepaid expenses and other assets
|
|
76
|
|
|
8
|
|
Commodity contracts
|
Other assets
|
|
9
|
|
|
2
|
|
Other derivative instruments
|
Prepaid expenses and other assets
|
|
20
|
|
|
12
|
|
Other derivative instruments
|
Other assets
|
|
3
|
|
|
1
|
|
Total assets
|
|
|
$
|
137
|
|
|
$
|
36
|
|
Liabilities:
|
|
|
|
|
|
Foreign currency contracts
|
Accounts payable and accrued expenses
|
|
$
|
41
|
|
|
$
|
39
|
|
|
|
|
|
|
|
Commodity contracts
|
Accounts payable and accrued expenses
|
|
15
|
|
|
13
|
|
Commodity contracts
|
Other liabilities
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
$
|
57
|
|
|
$
|
53
|
|
1All of the Company's derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties, as applicable. Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral. Refer to Note 16 for the net presentation of the Company's derivative instruments.
2Refer to Note 16 for additional information related to the estimated fair value.
Credit Risk Associated with Derivatives
We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We monitor counterparty exposures regularly and review any downgrade in credit rating immediately. If a downgrade in the credit rating of a counterparty were to occur, we have provisions requiring collateral for substantially all of our transactions. To mitigate presettlement risk, minimum credit standards become more stringent as the duration of the derivative financial instrument increases. In addition, the Company's master netting agreements reduce credit
risk by permitting the Company to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.
Cash Flow Hedging Strategy
The Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates, commodity prices or interest rates. The changes in the fair values of derivatives designated as cash flow hedges are recorded in AOCI and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is typically three years.
The Company maintains a foreign currency cash flow hedging program to reduce the risk that our eventual U.S. dollar net cash inflows from sales outside the United States and U.S. dollar net cash outflows from procurement activities will be adversely affected by changes in foreign currency exchange rates. We enter into forward contracts and purchase foreign currency options and collars (principally euro, British pound sterling and Japanese yen) to hedge certain portions of forecasted cash flows denominated in foreign currencies. When the U.S. dollar strengthens against the foreign currencies, the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments. The total notional values of derivatives that have been designated and qualify for the Company's foreign currency cash flow hedging program were $7,785 million and $6,957 million as of December 31, 2020 and 2019, respectively.
The Company uses cross-currency swaps to hedge the changes in cash flows of certain of its foreign currency denominated debt and other monetary assets or liabilities due to changes in foreign currency exchange rates. For this hedging program, the Company records the changes in carrying values of these foreign currency denominated assets and liabilities due to changes in exchange rates into earnings each period. The changes in fair values of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the changes in fair values attributable to fluctuations in foreign currency exchange rates. The total notional values of derivatives that have been designated and qualify for the Company's foreign currency cash flow hedging program were $2,700 million and $3,028 million as of December 31, 2020 and 2019, respectively.
The Company has entered into commodity futures contracts and other derivative instruments on various commodities to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process. These derivative instruments have been designated and qualify as part of the Company's commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of certain commodities. The total notional value of derivatives that have been designated and qualify for this program were $11 million and $2 million as of December 31, 2020 and 2019, respectively.
Our Company monitors our mix of short-term debt and long-term debt regularly. From time to time, we manage our risk to interest rate fluctuations through the use of derivative financial instruments. The Company has entered into interest rate swap agreements and has designated these instruments as part of the Company's interest rate cash flow hedging program. The objective of this hedging program is to mitigate the risk of adverse changes in benchmark interest rates on the Company's future interest payments. The total notional value of these interest rate swap agreements that were designated and qualified for the Company's interest rate cash flow hedging program was $1,233 million as of December 31, 2020. As of December 31, 2019, we did not have any interest rate swaps designated as a cash flow hedge. During the year ended December 31, 2018, we discontinued a cash flow hedge relationship related to these types of swaps. We reclassified a loss of $8 million into earnings as a result of the discontinuance.
The following table presents the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on OCI, AOCI and earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized
in OCI
|
|
Location of Gain (Loss) Recognized in Income1
|
|
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
|
|
Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)2
|
2020
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
(93)
|
|
|
Net operating revenues
|
|
$
|
(73)
|
|
|
$
|
—
|
|
Foreign currency contracts
|
4
|
|
|
Cost of goods sold
|
|
9
|
|
|
—
|
|
Foreign currency contracts
|
—
|
|
|
Interest expense
|
|
(16)
|
|
|
—
|
|
Foreign currency contracts
|
37
|
|
|
Other income (loss) — net
|
|
60
|
|
|
—
|
|
Interest rate contracts
|
15
|
|
|
Interest expense
|
|
(54)
|
|
|
—
|
|
Commodity contracts
|
2
|
|
|
Cost of goods sold
|
|
—
|
|
|
—
|
|
Total
|
$
|
(35)
|
|
|
|
|
$
|
(74)
|
|
|
$
|
—
|
|
2019
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
(58)
|
|
|
Net operating revenues
|
|
$
|
(3)
|
|
|
$
|
—
|
|
Foreign currency contracts
|
1
|
|
|
Cost of goods sold
|
|
11
|
|
|
—
|
|
Foreign currency contracts
|
—
|
|
|
Interest expense
|
|
(9)
|
|
|
—
|
|
Foreign currency contracts
|
(97)
|
|
|
Other income (loss) — net
|
|
(119)
|
|
|
—
|
|
Interest rate contracts
|
(47)
|
|
|
Interest expense
|
|
(42)
|
|
|
—
|
|
Commodity contracts
|
1
|
|
|
Cost of goods sold
|
|
—
|
|
|
—
|
|
Total
|
$
|
(200)
|
|
|
|
|
$
|
(162)
|
|
|
$
|
—
|
|
2018
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
9
|
|
|
Net operating revenues
|
|
$
|
136
|
|
|
$
|
1
|
|
Foreign currency contracts
|
15
|
|
|
Cost of goods sold
|
|
8
|
|
|
(3)
|
|
Foreign currency contracts
|
—
|
|
|
Interest expense
|
|
(9)
|
|
|
—
|
|
Foreign currency contracts
|
23
|
|
|
Other income (loss) — net
|
|
(5)
|
|
|
(4)
|
|
Interest rate contracts
|
22
|
|
|
Interest expense
|
|
(40)
|
|
|
(8)
|
|
Commodity contracts
|
(1)
|
|
|
Cost of goods sold
|
|
—
|
|
|
(5)
|
|
Total
|
$
|
68
|
|
|
|
|
$
|
90
|
|
|
$
|
(19)
|
|
1 The Company records gains and losses reclassified from AOCI into income for the effective portion and the ineffective portion, if any, to the same line items in our consolidated statement of income.
2 Effective January 1, 2019, ASU 2017-12 eliminated the requirement to separately measure and report hedge ineffectiveness for cash flow hedges. No components of the Company's hedging instruments were excluded from the assessment of hedge effectiveness.
As of December 31, 2020, the Company estimates that it will reclassify into earnings during the next 12 months net losses of $68 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.
Fair Value Hedging Strategy
The Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that results from fluctuations in benchmark interest rates. The Company also uses cross-currency interest rate swaps to hedge the changes in the fair value of foreign currency denominated debt relating to changes in foreign currency exchange rates and benchmark interest rates. The changes in fair values of derivatives designated as fair value hedges and the offsetting changes in fair values of the hedged items are recognized in earnings. As a result, any difference is reflected in earnings as ineffectiveness. When a derivative is no longer designated as a fair value hedge for any reason, including termination and maturity, the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item, or immediately if the
hedged item has matured or has been extinguished. The total notional values of derivatives related to our fair value hedges of this type were $10,215 million and $12,523 million as of December 31, 2020 and 2019, respectively.
The Company also uses fair value hedges to minimize exposure to changes in the fair values of certain available-for-sale securities from fluctuations in foreign currency exchange rates. The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items due to changes in foreign currency exchange rates are recognized in earnings. As a result, any difference is reflected in earnings as ineffectiveness. As of December 31, 2020 and 2019, we did not have any fair value hedges of this type.
The following table summarizes the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings (in millions):
|
|
|
|
|
|
|
|
|
Hedging Instruments and Hedged Items
|
Location of Gain (Loss) Recognized in Income
|
Gain (Loss)
Recognized in Income
|
2020
|
|
|
Interest rate contracts
|
Interest expense
|
$
|
275
|
|
Fixed-rate debt
|
Interest expense
|
(274)
|
|
Net impact to interest expense
|
|
$
|
1
|
|
Foreign currency contracts
|
Other income (loss) — net
|
$
|
(4)
|
|
Available-for-sale securities
|
Other income (loss) — net
|
5
|
|
Net impact to other income (loss) — net
|
|
$
|
1
|
|
Net impact of fair value hedging instruments
|
|
$
|
2
|
|
2019
|
|
|
Interest rate contracts
|
Interest expense
|
$
|
368
|
|
Fixed-rate debt
|
Interest expense
|
(369)
|
|
Net impact to interest expense
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Net impact of fair value hedging instruments
|
|
$
|
(1)
|
|
2018
|
|
|
Interest rate contracts
|
Interest expense
|
$
|
34
|
|
Fixed-rate debt
|
Interest expense
|
(38)
|
|
Net impact to interest expense
|
|
$
|
(4)
|
|
Foreign currency contracts
|
Other income (loss) — net
|
$
|
(6)
|
|
Available-for-sale securities
|
Other income (loss) — net
|
6
|
|
Net impact to other income (loss) — net
|
|
$
|
—
|
|
Net impact of fair value hedging instruments
|
|
$
|
(4)
|
|
The following table summarizes the amounts recorded in the consolidated balance sheets related to hedged items in fair value hedging relationships (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Hedged Items
|
|
Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Values of Hedged Items1
|
Balance Sheet Location of Hedged Items
|
December 31,
2020
|
December 31,
2019
|
|
December 31,
2020
|
December 31,
2019
|
Current maturities of long-term debt
|
$
|
—
|
|
$
|
1,004
|
|
|
$
|
—
|
|
$
|
5
|
|
Long-term debt
|
11,129
|
|
12,087
|
|
|
646
|
|
448
|
|
1 Cumulative amount of fair value hedging adjustments does not include changes due to foreign currency exchange rate fluctuations.
Hedges of Net Investments in Foreign Operations Strategy
The Company uses forward contracts and a portion of its foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in a number of foreign operations. For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in fair values of the derivative instruments are recognized in net foreign currency translation adjustments, a component of AOCI, to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the carrying values of the designated portions of the non-derivative financial instruments due to changes in foreign currency exchange rates are recorded in net foreign currency translation adjustments. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.
The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Gain (Loss) Recognized in OCI
|
|
as of December 31,
|
|
Year Ended December 31,
|
|
2020
|
2019
|
|
2020
|
2019
|
2018
|
Foreign currency contracts
|
$
|
451
|
|
$
|
—
|
|
|
$
|
(5)
|
|
$
|
51
|
|
$
|
(14)
|
|
Foreign currency denominated debt
|
13,336
|
|
12,334
|
|
|
(1,089)
|
|
144
|
|
653
|
|
Total
|
$
|
13,787
|
|
$
|
12,334
|
|
|
$
|
(1,094)
|
|
$
|
195
|
|
$
|
639
|
|
The Company did not reclassify any gains or losses related to net investment hedges from AOCI into earnings during the years ended December 31, 2020, 2019 and 2018. In addition, the Company did not have any ineffectiveness related to net investment hedges during the years ended December 31, 2020, 2019 and 2018. The cash inflows and outflows associated with the Company's derivative contracts designated as net investment hedges are classified in the line item other investing activities in our consolidated statement of cash flows.
Economic (Non-Designated) Hedging Strategy
In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives as economic hedges of foreign currency, interest rate and commodity exposure. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effective economic hedges. The changes in the fair values of economic hedges are immediately recognized in earnings.
The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. The changes in the fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized in earnings in the line item other income (loss) — net in our consolidated statement of income. In addition, we use foreign currency economic hedges to minimize the variability in cash flows associated with fluctuations in foreign currency exchange rates, including those related to certain acquisition and divestiture activities. The changes in the fair values of economic hedges used to offset the variability in U.S. dollar net cash flows are immediately recognized in earnings in the line items net operating revenues, cost of goods sold or other income (loss) — net in our consolidated statement of income, as applicable. The total notional values of derivatives related to our foreign currency economic hedges were $5,727 million and $4,291 million as of December 31, 2020 and 2019, respectively.
The Company also uses certain derivatives as economic hedges to mitigate the price risk associated with the purchase of materials used in the manufacturing process and vehicle fuel. The changes in the fair values of these economic hedges are immediately recognized in earnings in the line items net operating revenues, cost of goods sold, or selling, general and administrative expenses in our consolidated statement of income, as applicable. The total notional values of derivatives related to our economic hedges of this type were $715 million and $425 million as of December 31, 2020 and 2019, respectively.
The following table presents the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
Location of Gain (Loss) Recognized in Income
|
|
Gain (Loss) Recognized in Income
|
|
Year Ended December 31,
|
|
2020
|
2019
|
2018
|
Foreign currency contracts
|
Net operating revenues
|
|
$
|
58
|
|
$
|
(4)
|
|
$
|
22
|
|
Foreign currency contracts
|
Cost of goods sold
|
|
6
|
|
1
|
|
9
|
|
Foreign currency contracts
|
Other income (loss) — net
|
|
(13)
|
|
(66)
|
|
(264)
|
|
|
|
|
|
|
|
Commodity contracts
|
Cost of goods sold
|
|
54
|
|
(23)
|
|
(25)
|
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
6
|
|
—
|
|
(1)
|
|
Other derivative instruments
|
Selling, general and administrative expenses
|
|
21
|
|
47
|
|
(18)
|
|
Other derivative instruments
|
Other income (loss) — net
|
|
(55)
|
|
48
|
|
(22)
|
|
Total
|
|
|
$
|
77
|
|
$
|
3
|
|
$
|
(299)
|
|
NOTE 6: EQUITY METHOD INVESTMENTS
Our consolidated net income includes our Company's proportionate share of the net income or loss of our equity method investees. When we record our proportionate share of net income, it increases equity income (loss) — net in our consolidated statement of income and our carrying value of that investment. Conversely, when we record our proportionate share of a net loss, it decreases equity income (loss) — net in our consolidated statement of income and our carrying value of that investment. The Company's proportionate share of the net income or loss of our equity method investees includes significant operating and nonoperating items recorded by our equity method investees. These items can have a significant impact on the amount of equity income (loss) — net in our consolidated statement of income and our carrying value of those investments. Refer to Note 17 for additional information related to significant operating and nonoperating items recorded by our equity method investees. The carrying values of our equity method investments are also impacted by our proportionate share of items impacting the equity method investees' AOCI.
We eliminate from our financial results all significant intercompany transactions to the extent of our ownership interest, including the intercompany portion of transactions with equity method investees.
The Company's equity method investments include, but are not limited to, our ownership interests in Coca-Cola European Partners plc ("CCEP"), Monster, AC Bebidas, Coca-Cola FEMSA, Coca-Cola HBC AG ("Coca-Cola Hellenic") and Coca-Cola Bottlers Japan Holdings Inc. ("CCBJHI"). As of December 31, 2020, we owned approximately 19 percent, 19 percent, 20 percent, 28 percent, 23 percent and 19 percent, respectively, of these companies' outstanding shares. As of December 31, 2020, our investments in our equity method investees in the aggregate exceeded our proportionate share of the net assets of these equity method investees by $8,762 million. This difference is not amortized.
A summary of financial information for our equity method investees in the aggregate is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,1
|
2020
|
|
2019
|
|
2018
|
Net operating revenues
|
$
|
69,384
|
|
|
$
|
75,980
|
|
|
$
|
75,482
|
|
Cost of goods sold
|
41,139
|
|
|
44,881
|
|
|
44,933
|
|
Gross profit
|
$
|
28,245
|
|
|
$
|
31,099
|
|
|
$
|
30,549
|
|
Operating income
|
$
|
7,056
|
|
|
$
|
7,748
|
|
|
$
|
7,511
|
|
Consolidated net income
|
$
|
4,176
|
|
|
$
|
4,597
|
|
|
$
|
4,646
|
|
Less: Net income attributable to noncontrolling interests
|
54
|
|
|
63
|
|
|
101
|
|
Net income attributable to common shareowners
|
$
|
4,122
|
|
|
$
|
4,534
|
|
|
$
|
4,545
|
|
Company equity income (loss) — net
|
$
|
978
|
|
|
$
|
1,049
|
|
|
$
|
1,008
|
|
1 The financial information represents the results of the equity method investees during the Company's period of ownership.
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Current assets
|
$
|
29,431
|
|
$
|
25,654
|
|
Noncurrent assets
|
67,900
|
|
68,269
|
|
Total assets
|
$
|
97,331
|
|
$
|
93,923
|
|
Current liabilities
|
$
|
20,033
|
|
$
|
20,271
|
|
Noncurrent liabilities
|
33,613
|
|
31,321
|
|
Total liabilities
|
$
|
53,646
|
|
$
|
51,592
|
|
Equity attributable to shareowners of investees
|
$
|
42,622
|
|
$
|
41,203
|
|
Equity attributable to noncontrolling interests
|
1,063
|
|
1,128
|
|
Total equity
|
$
|
43,685
|
|
$
|
42,331
|
|
Company equity method investments
|
$
|
19,273
|
|
$
|
19,025
|
|
Net sales to equity method investees, the majority of which are located outside the United States, were $13,041 million, $14,832 million and $14,799 million in 2020, 2019 and 2018, respectively. Total payments, primarily related to marketing, made to equity method investees were $547 million, $897 million and $1,131 million in 2020, 2019 and 2018, respectively. The decrease in net sales to, and payments made to, equity method investees in 2020 was primarily due to the impact of the COVID-19 pandemic. The decrease in payments made to equity method investees in 2019 was primarily due to changes in bottler funding arrangements. In addition, purchases of beverage products from equity method investees were $452 million, $426 million and $536 million in 2020, 2019 and 2018, respectively. The decrease in purchases of beverage products in 2019 was primarily due to reduced purchases of Monster products as a result of the North America refranchising activities. Refer to Note 2.
The following table presents the difference between calculated fair value, based on quoted closing prices of publicly traded shares, and our Company's carrying value in investments in publicly traded companies accounted for under the equity method (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Fair Value
|
|
Carrying Value
|
|
Difference
|
Monster Beverage Corporation
|
$
|
9,444
|
|
|
$
|
4,020
|
|
|
$
|
5,424
|
|
Coca-Cola European Partners plc
|
4,383
|
|
|
3,959
|
|
|
424
|
|
Coca-Cola FEMSA, S.A.B. de C.V.
|
2,657
|
|
|
1,632
|
|
|
1,025
|
|
Coca-Cola HBC AG
|
2,657
|
|
|
1,282
|
|
|
1,375
|
|
Coca-Cola Amatil Limited
|
2,222
|
|
|
707
|
|
|
1,515
|
|
Coca-Cola Consolidated, Inc.
|
661
|
|
|
169
|
|
|
492
|
|
Coca-Cola Bottlers Japan Holdings Inc.
|
522
|
|
|
522
|
|
|
—
|
|
Coca-Cola İçecek A.Ş.
|
440
|
|
|
197
|
|
|
243
|
|
Embotelladora Andina S.A.
|
143
|
|
|
116
|
|
|
27
|
|
Total
|
$
|
23,129
|
|
|
$
|
12,604
|
|
|
$
|
10,525
|
|
Net Receivables and Dividends from Equity Method Investees
Total net receivables due from equity method investees were $1,025 million and $1,707 million as of December 31, 2020 and 2019, respectively. The total amount of dividends received from equity method investees was $467 million, $628 million and $551 million for the years ended December 31, 2020, 2019 and 2018, respectively. The amount of consolidated reinvested earnings that represents undistributed earnings of investments accounted for under the equity method as of December 31, 2020 was $5,498 million.
NOTE 7: INTANGIBLE ASSETS
Indefinite-Lived Intangible Assets
The following table presents the carrying values of indefinite-lived intangible assets included in our consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Trademarks1
|
$
|
10,395
|
|
$
|
9,266
|
|
Goodwill
|
17,506
|
|
16,764
|
|
Other
|
225
|
|
219
|
|
Indefinite-lived intangible assets
|
$
|
28,126
|
|
$
|
26,249
|
|
1 For information related to the Company's acquisitions, refer to Note 2.
The following table provides information related to the carrying value of our goodwill by operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe, Middle East & Africa
|
Latin
America
|
North
America
|
Asia Pacific
|
Global Ventures
|
Bottling
Investments
|
Total
|
2019
|
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
1,051
|
|
$
|
168
|
|
$
|
7,943
|
|
$
|
152
|
|
$
|
414
|
|
$
|
4,381
|
|
$
|
14,109
|
|
Effect of foreign currency translation
|
(8)
|
|
2
|
|
—
|
|
1
|
|
1
|
|
79
|
|
75
|
|
Acquisitions1
|
141
|
|
—
|
|
—
|
|
—
|
|
2,505
|
|
173
|
|
2,819
|
|
Purchase accounting adjustments1,2
|
110
|
|
—
|
|
—
|
|
17
|
|
(114)
|
|
(252)
|
|
(239)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
$
|
1,294
|
|
$
|
170
|
|
$
|
7,943
|
|
$
|
170
|
|
$
|
2,806
|
|
$
|
4,381
|
|
$
|
16,764
|
|
2020
|
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
1,294
|
|
$
|
170
|
|
$
|
7,943
|
|
$
|
170
|
|
$
|
2,806
|
|
$
|
4,381
|
|
$
|
16,764
|
|
Effect of foreign currency translation
|
40
|
|
(6)
|
|
—
|
|
7
|
|
84
|
|
(216)
|
|
(91)
|
|
Acquisitions1
|
—
|
|
—
|
|
775
|
|
—
|
|
—
|
|
—
|
|
775
|
|
Purchase accounting adjustments1,3
|
(26)
|
|
—
|
|
74
|
|
24
|
|
2
|
|
(2)
|
|
72
|
|
Impairments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(14)
|
|
(14)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
$
|
1,308
|
|
$
|
164
|
|
$
|
8,792
|
|
$
|
201
|
|
$
|
2,892
|
|
$
|
4,149
|
|
$
|
17,506
|
|
1For information related to the Company's acquisitions, refer to Note 2.
2 Includes the allocation of goodwill from the Global Ventures segment to other reporting units expected to benefit from the Costa acquisition as well as the finalization of purchase accounting related to CCBA and the Philippine bottling operations. Refer to Note 2.
3 Includes the allocation of goodwill from the Europe, Middle East and Africa segment to other reporting units expected to benefit from the CHI acquisition as well as purchase accounting adjustments related to fairlife. Refer to Note 2.
Definite-Lived Intangible Assets
The following table provides information related to definite-lived intangible assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Gross Carrying Value
|
Accumulated Amortization
|
Net
Carrying
Value
|
|
Gross Carrying
Value
|
Accumulated Amortization
|
Net
Carrying
Value
|
Customer relationships
|
$
|
195
|
|
$
|
(61)
|
|
$
|
134
|
|
|
$
|
344
|
|
$
|
(177)
|
|
$
|
167
|
|
Trademarks
|
245
|
|
(77)
|
|
168
|
|
|
177
|
|
(99)
|
|
78
|
|
Other
|
332
|
|
(210)
|
|
122
|
|
|
396
|
|
(124)
|
|
272
|
|
Total
|
$
|
772
|
|
$
|
(348)
|
|
$
|
424
|
|
|
$
|
917
|
|
$
|
(400)
|
|
$
|
517
|
|
Total amortization expense for intangible assets subject to amortization was $203 million, $120 million and $49 million in 2020, 2019 and 2018, respectively. The increase in amortization expense in 2020 was due to the recognition of a full year of intangible amortization related to CCBA versus seven months in 2019.
Based on the carrying value of definite-lived intangible assets as of December 31, 2020, we estimate our amortization expense for the next five years will be as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Amortization
Expense
|
2021
|
|
$
|
163
|
|
2022
|
|
74
|
|
2023
|
|
43
|
|
2024
|
|
31
|
|
2025
|
|
25
|
|
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Accounts payable
|
$
|
3,517
|
|
$
|
3,804
|
|
Accrued marketing expenses
|
1,930
|
|
2,059
|
|
Variable consideration payable
|
1,137
|
|
979
|
|
Other accrued expenses
|
3,352
|
|
2,856
|
|
Accrued compensation
|
609
|
|
1,021
|
|
|
|
|
Accrued sales, payroll and other taxes
|
443
|
|
442
|
|
Container deposits
|
157
|
|
151
|
|
Accounts payable and accrued expenses
|
$
|
11,145
|
|
$
|
11,312
|
|
NOTE 9: LEASES
We have operating leases primarily for real estate, aircraft, vehicles, and manufacturing and other equipment.
Balance sheet information related to operating leases is as follows (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Operating lease ROU assets1
|
$
|
1,548
|
|
$
|
1,372
|
|
Current portion of operating lease liabilities2
|
$
|
322
|
|
$
|
281
|
|
Noncurrent portion of operating lease liabilities3
|
1,300
|
|
1,111
|
|
Total operating lease liabilities
|
$
|
1,622
|
|
$
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Operating lease ROU assets are recorded in the line item other assets in our consolidated balance sheet.
2 The current portion of operating lease liabilities is recorded in the line item accounts payable and accrued expenses in our consolidated
balance sheet.
3 The noncurrent portion of operating lease liabilities is recorded in the line item other liabilities in our consolidated balance sheet.
We had operating lease costs of $353 million and $327 million for the years ended December 31, 2020 and 2019, respectively. During 2020 and 2019, cash paid for amounts included in the measurement of operating lease liabilities was $365 million and $339 million, respectively. Operating lease ROU assets obtained in exchange for operating lease obligations were $528 million and $308 million for the years ended December 31, 2020 and 2019, respectively.
Information associated with the measurement of our remaining operating lease obligations as of December 31, 2020 is as follows:
|
|
|
|
|
|
Weighted-average remaining lease term
|
9 years
|
Weighted-average discount rate
|
3
|
%
|
Our leases have remaining lease terms of 1 year to 44 years, inclusive of renewal or termination options that we are reasonably certain to exercise.
The following table summarizes the maturities of our operating lease liabilities as of December 31, 2020 (in millions):
|
|
|
|
|
|
2021
|
$
|
340
|
|
2022
|
299
|
|
2023
|
252
|
|
2024
|
207
|
|
2025
|
170
|
|
Thereafter
|
565
|
|
Total operating lease payments
|
1,833
|
|
Less: Imputed interest
|
211
|
|
Total operating lease liabilities
|
$
|
1,622
|
|
NOTE 10: DEBT AND BORROWING ARRANGEMENTS
Short-Term Borrowings
Loans and notes payable consist primarily of commercial paper issued in the United States. As of December 31, 2020 and 2019, we had $1,329 million and $10,007 million, respectively, in outstanding commercial paper borrowings. Our weighted-average interest rates for commercial paper outstanding were approximately 1.3 percent and 2.0 percent per year as of December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, the Company also had $854 million and $987 million, respectively, in lines of credit, short-term credit facilities and other short-term borrowings that were primarily related to our international operations.
In addition, we had $10,467 million in unused lines of credit and other short-term credit facilities as of December 31, 2020, of which $7,490 million was in backup lines of credit for general corporate purposes. These backup lines of credit expire at various times from 2021 through 2025. There were no borrowings under these corporate backup lines of credit during 2020. These credit facilities are subject to normal banking terms and conditions. Some of the financial arrangements require compensating balances, none of which is presently significant to our Company.
Long-Term Debt
During 2020, the Company issued U.S. dollar- and euro-denominated debt of $15,600 million and €2,600 million, respectively. The carrying value of this debt as of December 31, 2020 was $17,616 million. The general terms of the notes issued are as follows:
•$1,000 million total principal amount of notes due March 25, 2025, at a fixed interest rate of 2.950 percent;
•$1,000 million total principal amount of notes due March 25, 2027, at a fixed interest rate of 3.375 percent;
•$1,500 million total principal amount of notes due June 1, 2027, at a fixed interest rate of 1.450 percent;
•$1,300 million total principal amount of notes due March 15, 2028, at a fixed interest rate of 1.000 percent;
•€1,000 million total principal amount of notes due March 15, 2029, at a fixed interest rate of 0.125 percent;
•$1,250 million total principal amount of notes due March 25, 2030, at a fixed interest rate of 3.450 percent;
•$1,500 million total principal amount of notes due June 1, 2030, at a fixed interest rate of 1.650 percent;
•$1,300 million total principal amount of notes due March 15, 2031, at a fixed interest rate of 1.375 percent;
•€750 million total principal amount of notes due March 15, 2033, at a fixed interest rate of 0.375 percent;
•€850 million total principal amount of notes due March 15, 2040, at a fixed interest rate of 0.800 percent;
•$500 million total principal amount of notes due March 25, 2040, at a fixed interest rate of 4.125 percent;
•$1,000 million total principal amount of notes due June 1, 2040, at a fixed interest rate of 2.500 percent;
•$1,250 million total principal amount of notes due March 25, 2050, at a fixed interest rate of 4.200 percent;
•$1,500 million total principal amount of notes due June 1, 2050, at a fixed interest rate of 2.600 percent;
•$1,500 million total principal amount of notes due March 15, 2051, at a fixed interest rate of 2.500 percent; and
•$1,000 million total principal amount of notes due June 1, 2060, at a fixed interest rate of 2.750 percent.
During 2020, the Company retired upon maturity Australian dollar- and U.S. dollar-denominated notes. The general terms of the notes retired are as follows:
•AUD450 million total principal amount of notes due June 9, 2020, at a fixed interest rate of 2.600 percent;
•$171 million total principal amount of zero coupon notes due June 20, 2020;
•$1,500 million total principal amount of notes due October 27, 2020, at a fixed interest rate of 1.875 percent;
•$1,250 million total principal amount of notes due November 1, 2020, at a fixed interest rate of 2.450 percent; and
•$1,000 million total principal amount of notes due November 15, 2020, at a fixed interest rate of 3.150 percent.
During 2020, the Company also extinguished prior to maturity U.S. dollar- and euro-denominated debt of $3,815 million and €2,679 million, respectively, resulting in associated charges of $459 million recorded in the line item interest expense in our consolidated statement of income. These charges included the difference between the reacquisition price and the net carrying amount of the debt extinguished, including the impact of the related fair value hedging relationships. We also incurred charges of $25 million as a result of the reclassification of related cash flow hedging balances from AOCI into income. The general terms of the notes that were extinguished are as follows:
•€379 million total principal amount of notes due March 8, 2021, at a variable interest rate equal to the three-month Euro Interbank Offered Rate ("EURIBOR") plus 0.200 percent;
•€500 million total principal amount of notes due March 9, 2021, at a fixed interest rate of 0.000 percent;
•$1,324 million total principal amount of notes due September 1, 2021, at a fixed interest rate of 3.300 percent;
•$1,000 million total principal amount of notes due September 1, 2021, at a fixed interest rate of 1.550 percent;
•$500 million total principal amount of notes due May 25, 2022, at a fixed interest rate of 2.200 percent;
•€1,000 million total principal amount of notes due September 22, 2022, at a fixed interest rate of 0.125 percent;
•€800 million total principal amount of notes due September 22, 2022, at a fixed interest rate of 1.125 percent;
•$282 million total principal amount of notes due March 25, 2040, at a fixed interest rate of 4.125 percent; and
•$709 million total principal amount of notes due March 25, 2050, at a fixed interest rate of 4.200 percent.
During 2019, the Company issued euro- and U.S. dollar-denominated debt of €3,500 million and $2,000 million, respectively. The carrying value of this debt as of December 31, 2019 was $5,891 million. The general terms of the notes issued are as follows:
•€750 million total principal amount of notes due March 8, 2021, at a variable interest rate equal to the three-month EURIBOR plus 0.200 percent;
•€1,000 million total principal amount of notes due September 22, 2022, at a fixed interest rate of 0.125 percent;
•€1,000 million total principal amount of notes due September 22, 2026, at a fixed interest rate of 0.750 percent;
•€750 million total principal amount of notes due March 8, 2031, at a fixed interest rate of 1.250 percent;
•$1,000 million total principal amount of notes due September 6, 2024, at a fixed interest rate of 1.750 percent; and
•$1,000 million total principal amount of notes due September 6, 2029, at a fixed interest rate of 2.125 percent.
During 2019, the Company retired upon maturity euro- and U.S. dollar-denominated notes. The general terms of the notes retired are as follows:
•€1,500 million total principal amount of notes due March 8, 2019, at a variable interest rate equal to the three-month EURIBOR plus 0.250 percent;
•€2,000 million total principal amount of notes due September 9, 2019, at a variable interest rate equal to the three-month EURIBOR plus 0.230 percent; and
•$1,000 million total principal amount of notes due May 30, 2019, at a fixed interest rate of 1.375 percent.
During 2018, the Company retired upon maturity U.S. dollar-denominated notes and debentures. The general terms of the notes and debentures retired are as follows:
•$26 million total principal amount of debentures due January 29, 2018, at a fixed interest rate of 9.660 percent;
•$750 million total principal amount of notes due March 14, 2018, at a fixed interest rate of 1.650 percent;
•$1,250 million total principal amount of notes due April 1, 2018, at a fixed interest rate of 1.150 percent; and
•$1,250 million total principal amount of notes due November 1, 2018, at a fixed interest rate of 1.650 percent.
The Company also extinguished a portion of the long-term debt that was assumed in connection with our acquisition of Coca‑Cola Enterprises Inc.'s former North America business ("Old CCE"). The extinguished debentures had a total principal amount of $94 million that was due to mature on May 15, 2098, at a fixed interest rate of 7.000 percent. Related to this extinguishment, the Company recorded a net gain of $27 million in the line item interest expense in our consolidated statement of income during the year ended December 31, 2018.
The Company's long-term debt consisted of the following (in millions except average rate data):
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Amount
|
|
Average
Rate 1
|
|
Amount
|
|
Average
Rate1
|
U.S. dollar notes due 2023–2093
|
$
|
22,550
|
|
|
2.0
|
%
|
|
$
|
14,621
|
|
|
2.4
|
%
|
U.S. dollar debentures due 2022–2098
|
1,342
|
|
|
5.1
|
|
|
1,366
|
|
|
4.9
|
|
U.S. dollar zero coupon notes due 20202
|
—
|
|
|
—
|
|
|
168
|
|
|
8.4
|
|
Australian dollar notes due 2020–2024
|
400
|
|
|
2.5
|
|
|
677
|
|
|
2.4
|
|
Euro notes due 2021–2040
|
13,821
|
|
|
0.3
|
|
|
12,807
|
|
|
0.5
|
|
Swiss franc notes due 2022–2028
|
1,236
|
|
|
2.7
|
|
|
1,129
|
|
|
3.7
|
|
Other, due through 20983
|
615
|
|
|
5.2
|
|
|
548
|
|
|
6.2
|
|
Fair value adjustments4
|
646
|
|
|
N/A
|
|
453
|
|
|
N/A
|
Total5,6
|
40,610
|
|
|
1.6
|
%
|
|
31,769
|
|
|
1.9
|
%
|
Less: Current portion
|
485
|
|
|
|
|
4,253
|
|
|
|
Long-term debt
|
$
|
40,125
|
|
|
|
|
$
|
27,516
|
|
|
|
1 Rates represent the weighted-average effective interest rate on the balances outstanding as of year end, as adjusted for the effects of interest rate swap agreements, cross-currency swap agreements and fair value adjustments, if applicable. Refer to Note 5 for a more detailed discussion on interest rate management.
2 As of December 31, 2019, the amount shown is net of an unamortized discount of $3 million.
3 As of December 31, 2020, the amount shown includes $473 million of debt instruments and finance leases that are due through 2031.
4 Amounts represent the changes in fair values due to changes in benchmark interest rates. Refer to Note 5 for additional information about our fair value hedging strategy.
5 As of December 31, 2020 and 2019, the fair value of our long-term debt, including the current portion, was $43,218 million and $32,725 million, respectively.
6 The above notes and debentures include various restrictions, none of which is presently significant to our Company.
Total interest paid was $935 million, $921 million and $903 million in 2020, 2019 and 2018, respectively.
Maturities of long-term debt for the five years succeeding December 31, 2020 are as follows (in millions):
|
|
|
|
|
|
|
Maturities of
Long-Term Debt
|
2021
|
$
|
485
|
|
2022
|
1,391
|
|
2023
|
4,272
|
|
2024
|
2,061
|
|
2025
|
2,753
|
|
NOTE 11: COMMITMENTS AND CONTINGENCIES
Guarantees
As of December 31, 2020, we were contingently liable for guarantees of indebtedness owed by third parties of $431 million, of which $109 million was related to VIEs. Refer to Note 1 for additional information related to the Company's maximum exposure to loss due to our involvement with VIEs. Our guarantees are primarily related to third-party customers, bottlers, vendors and container manufacturing operations and have arisen through the normal course of business. These guarantees have various terms, and none of these guarantees is individually significant. These amounts represent the maximum potential future payments that we could be required to make under the guarantees. However, management has concluded that the likelihood of any significant amounts being paid by our Company under these guarantees is not probable.
We believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.
Legal Contingencies
The Company is involved in various legal proceedings. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. Management believes that the total liabilities of the Company that may arise as a result of currently pending legal proceedings (excluding tax audit claims) will not have a material adverse effect on the Company taken as a whole.
Indemnifications
At the time we acquire or divest an ownership interest in an entity, we sometimes agree to indemnify the seller or buyer for specific contingent liabilities. Management believes that any liability to the Company that may arise as a result of any such indemnification agreements will not have a material adverse effect on the Company taken as a whole.
Tax Audits
The Company is involved in various tax matters, with respect to some of which the outcome is uncertain. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities, such as legislation and statutes, legislative intent, regulations, rulings and caselaw and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved. The number of years subject to tax audits or tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained; (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the tax position has expired. Refer to Note 14.
On September 17, 2015, the Company received a Statutory Notice of Deficiency ("Notice") from the Internal Revenue Service ("IRS") seeking approximately $3.3 billion of additional federal income tax for years 2007 through 2009. In the Notice, the IRS stated its intent to reallocate over $9 billion of income to the U.S. parent company from certain of its foreign affiliates that the U.S. parent company licensed to manufacture, distribute, sell, market and promote its products in certain non-U.S. markets.
The Notice concerned the Company's transfer pricing between its U.S. parent company and certain of its foreign affiliates. IRS rules governing transfer pricing require arm's-length pricing of transactions between related parties such as the Company's U.S. parent and its foreign affiliates.
To resolve the same transfer pricing issue for the tax years 1987 through 1995, the Company and the IRS had agreed in 1996 on an arm's-length methodology for determining the amount of U.S. taxable income that the U.S. parent company would report as compensation from its foreign licensees. The Company and the IRS memorialized this accord in a closing agreement resolving that dispute ("Closing Agreement"). The Closing Agreement provided that, absent a change in material facts or circumstances or relevant federal tax law, in calculating the Company's income taxes going forward, the Company would not be assessed
penalties by the IRS for using the agreed-upon tax calculation methodology that the Company and the IRS agreed would be used for the 1987-1995 tax years.
The IRS audited and confirmed the Company's compliance with the agreed-upon Closing Agreement methodology in five successive audit cycles for tax years 1996 through 2006.
The September 17, 2015 Notice from the IRS retroactively rejected the previously agreed-upon methodology for the 2007 through 2009 tax years, in favor of an entirely different methodology, without prior notice to the Company. Using the new tax calculation methodology, the IRS reallocated over $9 billion of income to the U.S. parent company from its foreign licensees for tax years 2007 through 2009. Consistent with the Closing Agreement, the IRS did not assert penalties, and it has yet to do so.
The IRS designated the Company's matter for litigation on October 15, 2015. Litigation designation is an IRS determination that forecloses to a company any and all alternative means for resolution of a tax dispute. As a result of the IRS' designation of the Company's matter for litigation, the Company was forced either to accept the IRS' newly imposed tax assessment and pay the full amount of the asserted tax or litigate the matter in the federal courts. The matter remains subject to the IRS' litigation designation, preventing the Company from any attempt to settle or otherwise mutually resolve the matter with the IRS.
The Company consequently initiated litigation by filing a petition in the U.S. Tax Court ("Tax Court") in December 2015, challenging the tax adjustments enumerated in the Notice.
Prior to trial, the IRS increased its transfer pricing adjustment by $385 million, resulting in an additional tax adjustment of $135 million. The Company obtained a summary judgment in its favor on a different matter related to Mexican foreign tax credits, which thereafter effectively reduced the IRS' potential tax adjustment by approximately $138 million.
The trial was held in the Tax Court from March through May 2018, and final post-trial briefs were filed and exchanged in April 2019.
On November 18, 2020, the Tax Court issued an opinion ("Opinion") in which it predominantly sided with the IRS but agreed with the Company that dividends previously paid by the foreign licensees to the U.S. parent company in reliance upon the Closing Agreement should continue to be allowed to offset royalties, including those that would become payable to the Company in accordance with the Opinion. The Tax Court reserved ruling on the effect of Brazilian legal restrictions on the payment of royalties by the Company's licensee in Brazil until after the Tax Court issues its opinion in the separate case of 3M Co. & Subs. v. Commissioner, T.C. Docket No. 5816-13 (filed March 11, 2013). Once the Tax Court issues its opinion in 3M Co. & Subs. v. Commissioner, the Company expects the Tax Court thereafter to render another opinion, and ultimately a final decision, in the Company's case.
The Company believes that the IRS and the Tax Court misinterpreted and misapplied the applicable regulations in reallocating income earned by the Company's foreign licensees to increase the Company's U.S. tax. Moreover, the Company believes that the retroactive imposition of such tax liability using a calculation methodology different from that previously agreed upon by the IRS and the Company, and audited by the IRS for over a decade, is unconstitutional. The Company intends to assert its claims on appeal and vigorously defend its position.
In determining the amount of tax reserve to be recorded as of December 31, 2020, the Company completed the required two-step evaluation process prescribed by ASC 740, Accounting for Income Taxes. In doing so, we consulted with outside advisors and we reviewed and considered relevant laws, rules, and regulations, including, though not limited to, the Opinion and relevant caselaw. We also considered our intention to vigorously defend our positions and assert our various well-founded legal claims via every available avenue of appeal. We concluded, based on the technical and legal merits of the Company's tax positions, that it is more likely than not the Company's tax positions will ultimately be sustained on appeal. In addition, we considered a number of alternative transfer pricing methodologies, including the methodology asserted by the IRS and affirmed in the Opinion ("Tax Court Methodology"), that could be applied by the courts upon final resolution of the litigation. Based on the required probability analysis, we determined the methodologies we believe the federal courts could ultimately order to be used in calculating the Company's tax. As a result of this analysis, we recorded a tax reserve of $438 million during the year ended December 31, 2020, related to the application of the resulting methodologies as well as the different tax treatment applicable to dividends originally paid to the U.S. parent company by its foreign licensees, in reliance upon the Closing Agreement, that would be recharacterized as royalties in accordance with the Opinion and the Company's analysis.
While the Company strongly disagrees with the IRS' positions and the portions of the Opinion affirming such positions, it is possible that some portion or all of the adjustment proposed by the IRS and sustained by the Tax Court could ultimately be upheld. In that event, the Company would likely be subject to significant additional liabilities for the years at issue, and potentially also for subsequent periods, which could have a material adverse impact on the Company's financial position, results of operations, and cash flows.
The Company calculated the potential impact of applying the Tax Court Methodology to reallocate income from foreign licensees potentially covered within the scope of the Opinion, assuming such methodology was ultimately upheld by the courts, and the IRS were to decide to apply that methodology to subsequent years, with consent of the federal courts. This impact would include taxes and interest accrued through December 31, 2020 for the 2007 through 2009 litigated tax years and for subsequent tax years from 2010 to 2020. The calculations incorporated the estimated impact of correlative adjustments to the previously accrued transition tax payable under the Tax Reform Act. The Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately $12 billion. Additional interest would continue to accrue until the time any such potential liability, or portion thereof, is paid. The Company currently projects that the impact of the continued application of the Tax Court Methodology in future years, assuming similar facts and circumstances as of December 31, 2020, would result in an incremental annual tax liability that would increase the Company's effective tax rate by approximately 3.5 percent.
The Company does not know when the Tax Court will issue its opinion regarding the effect of Brazilian legal restrictions on the payment of royalties by the Company's licensee in Brazil for the 2007 through 2009 tax years. After the Tax Court issues its opinion on the Company's Brazilian licensee, the Company and the IRS will be provided time to agree on the tax impact, if any, of both opinions, after which the Tax Court would render a final decision in the case. The Company will have 90 days thereafter to file a notice of appeal to the United States Court of Appeals for the Eleventh Circuit and pay the tax liability and interest related to the 2007 through 2009 tax period. The Company currently estimates that the payment to be made at that time related to the 2007 through 2009 tax period, which is included in the above estimate of the potential aggregate incremental tax and interest liability, would be approximately $4.6 billion (including interest accrued through December 31, 2020), plus any additional interest accrued through the time of payment. Some or all of this amount would be refunded if the Company were to prevail on appeal.
Risk Management Programs
The Company has numerous global insurance programs in place to help protect the Company from the risk of loss. In general, we are self-insured for large portions of many different types of claims; however, we do use commercial insurance above our self-insured retentions to reduce the Company's risk of catastrophic loss. Our reserves for the Company's self-insured losses are estimated using actuarial methods and assumptions of the insurance industry, adjusted for our specific expectations based on our claims history. Our self-insurance reserves totaled $265 million and $301 million as of December 31, 2020 and 2019, respectively.
NOTE 12: STOCK-BASED COMPENSATION PLANS
Our Company grants awards under its stock-based compensation plans to certain employees of the Company. The Coca-Cola Company 2014 Equity Plan ("2014 Equity Plan") was approved by shareowners in April 2014. Under the 2014 Equity Plan, a maximum of 500 million shares of our common stock was approved to be issued through the grant of equity awards to certain employees. The 2014 Equity Plan allows for grants of stock options, performance share units, restricted stock units, restricted stock and other specified award types, including cash awards with performance-based vesting criteria. As of December 31, 2020, there were 345.3 million shares available to be granted under the 2014 Equity Plan. In addition, there were 2.9 million shares from plans approved by shareowners prior to 2014 available for grants of stock option and restricted stock awards.
From 2015 to 2017, certain employees who had previously been eligible for long-term equity awards received long-term performance cash awards. Employees who received these performance cash awards did not receive equity awards as part of the long-term incentive program. In 2017, the Company changed the long-term incentive program for certain employees previously eligible for the performance cash award. These employees no longer participate in the long-term incentive program and were granted a final restricted stock unit award that vests ratably over five years.
Total stock-based compensation expense was $141 million, $201 million and $225 million in 2020, 2019 and 2018, respectively. In 2020, for certain employees who accepted voluntary separation from the Company as a result of our strategic realignment initiatives, the Company modified their outstanding equity awards granted prior to 2020 so that the employees retained all or some of their awards, whereas otherwise the awards would have been forfeited. The incremental stock-based compensation expense arising from the modifications was $15 million, which was recorded in the line item other operating charges in our consolidated statement of income. Refer to Note 18 for additional information on the Company's strategic realignment initiatives. The remainder of stock-based compensation expense in 2020 of $126 million as well as all stock-based compensation expense in 2019 and 2018 were included as a component of selling, general and administrative expenses in our consolidated statements of income. The total income tax benefit recognized in our consolidated statements of income related to total stock-based compensation expense was $32 million, $43 million and $47 million in 2020, 2019 and 2018, respectively.
As of December 31, 2020, we had $180 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 1.9 years as
stock‑based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards.
Stock Option Awards
Stock options are generally granted with an exercise price equal to the average of the high and low market prices per share for the Company's stock on the date of grant. The fair value of each stock option award is estimated using a Black-Scholes-Merton option-pricing model and is amortized over the vesting period, which is generally four years.
The weighted-average fair value of stock options granted during the years ended December 31, 2020, 2019 and 2018 and the weighted-average assumptions used in the Black-Scholes-Merton option-pricing model for such grants were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
Fair value of stock options on grant date
|
$
|
6.44
|
|
|
$
|
4.94
|
|
|
$
|
4.97
|
|
Dividend yield1
|
2.7
|
%
|
|
3.5
|
%
|
|
3.5
|
%
|
Expected volatility2
|
16.0
|
%
|
|
15.5
|
%
|
|
15.5
|
%
|
Risk-free interest rate3
|
1.4
|
%
|
|
2.6
|
%
|
|
2.8
|
%
|
Expected term of stock options4
|
6 years
|
|
6 years
|
|
6 years
|
1The dividend yield is the calculated yield on the Company's stock on the grant date.
2The expected volatility is based on implied volatilities from traded options on the Company's stock, historical volatility of the Company's stock and other factors.
3The risk-free interest rate for the period matching the expected term of the stock options is based on the U.S. Treasury yield curve in effect on the grant date.
4The expected term of the stock options represents the period of time that options granted are expected to be outstanding and is derived by analyzing historical exercise behavior.
Generally, stock options granted from 1999 through July 2003 expired 15 years from the date of grant, and stock options granted in December 2003 and thereafter expire 10 years from the date of grant. The shares of common stock to be issued and/or sold upon exercise of stock options are made available from either authorized and unissued common stock or from treasury shares. In 2007, the Company began issuing common stock under its stock-based compensation plans from treasury shares.
Stock option activity during the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(In millions)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
(In millions)
|
Outstanding on January 1, 2020
|
105
|
|
|
$
|
38.43
|
|
|
|
|
|
Granted
|
7
|
|
|
59.38
|
|
|
|
|
|
Exercised
|
(23)
|
|
|
35.67
|
|
|
|
|
|
Forfeited/expired
|
(1)
|
|
|
53.82
|
|
|
|
|
|
Outstanding on December 31, 2020
|
88
|
|
|
$
|
40.55
|
|
|
4.16 years
|
|
$
|
1,289
|
|
Expected to vest
|
87
|
|
|
$
|
40.44
|
|
|
4.11 years
|
|
$
|
1,283
|
|
Exercisable on December 31, 2020
|
72
|
|
|
$
|
38.43
|
|
|
3.29 years
|
|
$
|
1,188
|
|
The total intrinsic value of the stock options exercised was $453 million, $609 million and $721 million in 2020, 2019 and 2018, respectively. The total number of stock options exercised was 23 million, 34 million and 47 million in 2020, 2019 and 2018, respectively.
Performance-Based Share Unit Awards
Performance-based share unit awards require achievement of certain performance criteria, which are predefined by the Compensation Committee of the Board of Directors at the time of grant. For performance share units granted from 2015 through 2017, the performance criteria used were economic profit and net operating revenues over a predefined performance period of three years. Economic profit is our net operating profit after tax less the cost of the capital used in our business. Economic profit and net operating revenues are adjusted for certain items, which are approved and certified by the Audit Committee of the Board of Directors. The purpose of these adjustments is to ensure a consistent year-to-year comparison of the specific performance criteria. These grants include a relative TSR modifier to determine the number of shares earned at the end of the performance period. For these awards, the number of shares earned based on the certified achievement of the predefined performance criteria will be reduced or increased if the Company's total shareowner return over the performance period relative
to a predefined compensation comparator group of companies falls outside of a defined range. The fair value of these performance share units was determined using a Monte Carlo valuation model. The performance share units granted from 2015 through 2017 are subject to a one-year holding period after the performance period before the shares are vested and released.
In 2018, the Company renamed our performance share unit awards to growth share unit awards. For growth share units granted in 2018, 2019 and 2020, the performance criteria were equally weighted among net operating revenues, earnings per share and free cash flow over a predefined performance period of three years. Earnings per share for these purposes is diluted net income per share and free cash flow is net cash provided by operating activities less purchases of property, plant and equipment. Net operating revenues, earnings per share and free cash flow are adjusted for certain items, which are approved and certified by the Audit Committee of the Board of Directors. The purpose of these adjustments is to ensure a consistent year-to-year comparison of the specific performance criteria. Growth share units granted to executives include a relative TSR modifier to determine the number of shares earned at the end of the performance period. The fair value of growth share unit grants that include a TSR modifier is determined using a Monte Carlo valuation model. The fair value of growth share units that do not include a TSR modifier is the quoted market value of the Company's stock on the grant date less the present value of the expected dividends not received during the performance period. Growth share units granted in 2018, 2019 and 2020 will be vested and released at the end of the performance period if the predefined performance criteria are achieved.
For all performance-based share unit awards, in the event the certified results equal the predefined performance criteria, the Company will grant the number of shares equal to the target award. In the event the certified results exceed the predefined performance criteria, additional shares up to the maximum award will be granted. In the event the certified results fall below the predefined performance criteria but above the minimum threshold, a reduced number of shares will be granted. If the certified results fall below the minimum threshold, no shares will be granted. Performance-based share unit awards do not entitle participants to vote or receive dividends until the shares are vested and released.
In the period it becomes probable that the minimum threshold specified in the award will be achieved, we recognize expense for the proportionate share of the total fair value of the performance-based share units related to the vesting period that has already lapsed for the shares expected to vest and be released. The remaining fair value of the shares expected to vest and be released is expensed on a straight-line basis over the balance of the vesting period. In the event the Company determines it is no longer probable that we will achieve the minimum threshold specified in the award, we reverse all previously recognized compensation expense in the period such a determination is made.
Performance share units and growth share units are generally settled in stock, except for certain circumstances such as death or disability, in which case former employees or their beneficiaries are provided a cash equivalent payment. As of December 31, 2020, growth share units of approximately 1,872,000, 1,983,000 and 1,788,000 were outstanding for the 2018-2020, 2019-2021 and 2020-2022 performance periods, respectively, based on the target award amounts.
The following table summarizes information about performance share units and growth share units based on the target award amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units and Growth Share Units
(In thousands)
|
|
Weighted-Average
Grant Date
Fair Value
|
Outstanding on January 1, 2020
|
6,831
|
|
|
$
|
38.57
|
|
Granted
|
1,983
|
|
|
57.00
|
|
Conversions into restricted stock units1
|
(2,662)
|
|
|
35.30
|
|
Paid in cash equivalent
|
(5)
|
|
|
38.20
|
|
Canceled/forfeited
|
(504)
|
|
|
46.36
|
|
Outstanding on December 31, 20202
|
5,643
|
|
|
$
|
45.89
|
|
1Represents the target amount of performance share units converted into restricted stock units for the 2017-2019 performance period. The vesting of restricted stock units is subject to the terms of the performance share unit agreements.
2The outstanding growth share units as of December 31, 2020 at the threshold award and maximum award levels were approximately 2,384,000 and 12,950,000, respectively.
The weighted-average grant date fair value of growth share units granted in 2020, 2019 and 2018 was $57.00, $40.29 and $41.02, respectively. The Company converted performance share units and growth share units of approximately 5,000 in 2020 and approximately 1,000 in 2019 into cash equivalent payments of $0.2 million and $0.1 million, respectively, to former employees or their beneficiaries due to certain circumstances such as death or disability. The Company did not convert any performance share units or growth share units into cash equivalent payments in 2018.
The following table summarizes information about performance-based restricted stock units based on the performance share units' certified award level:
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
(In thousands)
|
Weighted-
Average
Grant Date
Fair Value
|
Nonvested on January 1, 2020
|
3,195
|
|
$
|
39.70
|
|
Conversions from performance share units
|
3,785
|
|
35.30
|
|
Vested and released
|
(3,189)
|
|
39.72
|
|
Canceled/forfeited
|
(63)
|
|
35.71
|
|
Nonvested on December 31, 2020
|
3,728
|
|
$
|
35.30
|
|
The total intrinsic value of restricted shares that were vested and released was $191 million, $118 million and $305 million in 2020, 2019 and 2018, respectively.
Time-Based Restricted Stock and Restricted Stock Unit Awards
Prior to the release date, time-based restricted stock and restricted stock units granted from the 2014 Equity Plan do not entitle recipients to vote or receive dividends and will be forfeited in the event of the recipient's termination of employment, except for reasons such as death or disability. Certain other time-based restricted stock awards entitle recipients to vote and receive dividends. The fair value of the restricted stock and restricted stock units expected to vest and be released is expensed on a straight-line basis over the vesting period. As of December 31, 2020, the Company had outstanding nonvested time-based restricted stock and restricted stock units totaling approximately 4,162,000, most of which do not have voting rights or pay dividends.
The following table summarizes information about time-based restricted stock and restricted stock units:
|
|
|
|
|
|
|
|
|
|
Restricted Stock and Restricted Stock Units
(In thousands)
|
Weighted-Average
Grant Date
Fair Value
|
Nonvested on January 1, 2020
|
4,054
|
|
$
|
40.73
|
|
Granted
|
1,354
|
|
53.90
|
|
Vested and released
|
(735)
|
|
41.52
|
|
Canceled/forfeited
|
(511)
|
|
46.30
|
|
Nonvested on December 31, 2020
|
4,162
|
|
$
|
44.18
|
|
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Our Company sponsors and/or contributes to pension and postretirement health care and life insurance benefit plans covering substantially all U.S. employees. We also sponsor nonqualified, unfunded defined benefit pension plans for certain employees. In addition, our Company and its subsidiaries have various pension plans and other forms of postretirement benefit arrangements outside the United States.
We refer to the funded defined benefit pension plan in the United States that is not associated with collective bargaining agreements as the "primary U.S. plan." As of December 31, 2020, the primary U.S. plan represented 61 percent and 59 percent of the Company's consolidated projected benefit obligation and pension plan assets, respectively.
Obligations and Funded Status
The following table sets forth the changes in benefit obligations and the fair value of plan assets for our pension and other postretirement benefit plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
Year Ended December 31,
|
2020
|
2019
|
|
2020
|
2019
|
Benefit obligation at beginning of year1
|
$
|
8,757
|
|
$
|
8,015
|
|
|
$
|
757
|
|
$
|
719
|
|
Service cost
|
112
|
|
104
|
|
|
11
|
|
9
|
|
Interest cost
|
235
|
|
291
|
|
|
21
|
|
28
|
|
Participant contributions
|
1
|
|
1
|
|
|
12
|
|
20
|
|
Foreign currency exchange rate changes
|
67
|
|
(28)
|
|
|
(1)
|
|
(2)
|
|
Amendments
|
3
|
|
(1)
|
|
|
—
|
|
—
|
|
Net actuarial loss2
|
746
|
|
931
|
|
|
22
|
|
71
|
|
Benefits paid
|
(485)
|
|
(537)
|
|
|
(59)
|
|
(86)
|
|
Settlements3
|
(81)
|
|
(19)
|
|
|
—
|
|
—
|
|
Curtailments3
|
(15)
|
|
(2)
|
|
|
6
|
|
(2)
|
|
Special termination benefits
|
2
|
|
1
|
|
|
—
|
|
—
|
|
Other
|
72
|
|
1
|
|
|
—
|
|
—
|
|
Benefit obligation at end of year1
|
$
|
9,414
|
|
$
|
8,757
|
|
|
$
|
769
|
|
$
|
757
|
|
Fair value of plan assets at beginning of year
|
$
|
8,080
|
|
$
|
7,429
|
|
|
$
|
339
|
|
$
|
289
|
|
Actual return on plan assets
|
830
|
|
1,111
|
|
|
51
|
|
38
|
|
Employer contributions
|
30
|
|
36
|
|
|
—
|
|
—
|
|
Participant contributions
|
1
|
|
1
|
|
|
7
|
|
15
|
|
Foreign currency exchange rate changes
|
97
|
|
(26)
|
|
|
—
|
|
—
|
|
Benefits paid
|
(419)
|
|
(453)
|
|
|
(1)
|
|
(3)
|
|
Settlements3
|
(53)
|
|
(18)
|
|
|
—
|
|
—
|
|
Other
|
73
|
|
—
|
|
|
—
|
|
—
|
|
Fair value of plan assets at end of year
|
$
|
8,639
|
|
$
|
8,080
|
|
|
$
|
396
|
|
$
|
339
|
|
Net liability recognized
|
$
|
(775)
|
|
$
|
(677)
|
|
|
$
|
(373)
|
|
$
|
(418)
|
|
1 For pension plans, the benefit obligation is the projected benefit obligation. For other postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation. The accumulated benefit obligation for our pension plans was $9,263 million and $8,607 million as of December 31, 2020 and 2019, respectively.
2 A decrease in the weighted-average discount rate was the primary driver of net actuarial loss during 2020 and 2019. For our primary U.S. pension plan, a decrease in the discount rate resulted in actuarial loss of $491 million and $611 million during 2020 and 2019, respectively. Other drivers of net actuarial loss included assumption updates, plan experience, our strategic realignment initiatives and our productivity and reinvestment program. Refer to Note 18.
3 Settlements and curtailments were primarily related to our strategic realignment initiatives and our productivity and reinvestment program. Refer to Note 18.
Pension and other postretirement benefit plan amounts recognized in our consolidated balance sheets were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
December 31,
|
2020
|
2019
|
|
2020
|
2019
|
Other assets
|
$
|
1,151
|
|
$
|
998
|
|
|
$
|
—
|
|
$
|
—
|
|
Accounts payable and accrued expenses
|
(116)
|
|
(72)
|
|
|
(19)
|
|
(21)
|
|
Other liabilities
|
(1,810)
|
|
(1,603)
|
|
|
(354)
|
|
(397)
|
|
Net liability recognized
|
$
|
(775)
|
|
$
|
(677)
|
|
|
$
|
(373)
|
|
$
|
(418)
|
|
Certain of our pension plans have a projected benefit obligation in excess of the fair value of plan assets. For these plans, the projected benefit obligation and the fair value of plan assets were as follows (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Projected benefit obligation
|
$
|
7,722
|
|
$
|
7,194
|
|
Fair value of plan assets
|
5,796
|
|
5,515
|
|
Certain of our pension plans have an accumulated benefit obligation in excess of the fair value of plan assets. For these plans, the accumulated benefit obligation and the fair value of plan assets were as follows (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Accumulated benefit obligation
|
$
|
7,553
|
|
$
|
7,052
|
|
Fair value of plan assets
|
5,745
|
|
5,485
|
|
All of our other postretirement benefit plans have an accumulated postretirement benefit obligation in excess of the fair value of plan assets.
Pension Plan Assets
The following table presents total assets by asset class for our U.S. and non-U.S. pension plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
December 31,
|
2020
|
2019
|
|
2020
|
2019
|
Cash and cash equivalents
|
$
|
279
|
|
$
|
364
|
|
|
$
|
399
|
|
$
|
377
|
|
Equity securities:
|
|
|
|
|
|
U.S.-based companies
|
1,382
|
|
1,231
|
|
|
757
|
|
673
|
|
International-based companies
|
988
|
|
770
|
|
|
738
|
|
617
|
|
Fixed-income securities:
|
|
|
|
|
|
Government bonds
|
220
|
|
263
|
|
|
417
|
|
273
|
|
Corporate bonds and debt securities
|
926
|
|
899
|
|
|
116
|
|
65
|
|
Mutual, pooled and commingled funds1
|
301
|
|
279
|
|
|
513
|
|
619
|
|
Hedge funds/limited partnerships
|
588
|
|
652
|
|
|
34
|
|
37
|
|
Real estate
|
326
|
|
337
|
|
|
6
|
|
5
|
|
Derivative financial instruments
|
(1)
|
|
—
|
|
|
(14)
|
|
—
|
|
Other
|
364
|
|
354
|
|
|
300
|
|
265
|
|
Total pension plan assets2
|
$
|
5,373
|
|
$
|
5,149
|
|
|
$
|
3,266
|
|
$
|
2,931
|
|
1 Mutual, pooled and commingled funds include investments in equity securities, fixed-income securities and combinations of both. There are a significant number of mutual, pooled and commingled funds from which investors can choose. The selection of the type of fund is dictated by the specific investment objectives and needs of a given plan. These objectives and needs vary greatly between plans.
2 Fair value disclosures related to our pension plan assets are included in Note 16. Fair value disclosures include, but are not limited to, the levels within the fair value hierarchy in which the fair value measurements in their entirety fall; a reconciliation of the beginning and ending balances of Level 3 assets; and information about the valuation techniques and inputs used to measure the fair value of our pension plan assets.
Investment Strategy for U.S. Pension Plans
The Company utilizes the services of investment managers to actively manage the assets of our U.S. pension plans. We have established asset allocation targets and investment guidelines with each investment manager. Our asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the plans. Selection of the targeted asset allocation for U.S. pension plan assets was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. Our target allocation is a mix of 42 percent equity investments, 30 percent fixed-income investments and 28 percent alternative investments. We believe this target allocation will enable us to achieve the following long-term investment objectives:
(1)optimize the long-term return on plan assets at an acceptable level of risk;
(2)maintain a broad diversification across asset classes and among investment managers; and
(3)maintain careful control of the risk level within each asset class.
The guidelines that have been established with each investment manager provide parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements and credit quality standards, where applicable. Investment managers agree to obtain written approval for deviations from stated investment style or guidelines. As of December 31, 2020, no investment manager was responsible for more than 9 percent of total U.S. pension plan assets.
Our target allocation of 42 percent equity investments is composed of 60 percent global equities, 16 percent emerging market equities and 24 percent domestic small- and mid-cap equities. Optimal returns through our investments in global equities are achieved through security selection as well as country and sector diversification. Investments in our common stock accounted for approximately 4 percent of our total global equities and approximately 3 percent of total U.S. pension plan assets. Our investments in global equities are intended to provide diversified exposure to both U.S. and non-U.S. equity markets. Our investments in both emerging market equities and domestic small- and mid-cap equities may experience large swings in their market value. Our investments in these asset classes are selected based on capital appreciation potential.
Our target allocation of 30 percent fixed-income investments is composed of 33 percent long-duration bonds and 67 percent with multi-strategy alternative credit managers. Long-duration bonds are intended to provide a stable rate of return through investments in high-quality publicly traded debt securities. Our investments in long-duration bonds are diversified in order to mitigate duration and credit exposure. Multi-strategy alternative credit managers invest in a combination of high-yield bonds, bank loans, structured credit and emerging market debt. These investments are in lower-rated and non-rated debt securities, which generally produce higher returns compared to long-duration bonds and also help to diversify our overall fixed-income portfolio.
Our target allocation for alternative investments is 28 percent. These alternative investments include hedge funds, reinsurance, private equity limited partnerships, leveraged buyout funds, international venture capital partnerships and real estate. The objective of investing in alternative investments is to provide a higher rate of return than that which is typically available from publicly traded equity securities. Alternative investments are inherently illiquid and require a long-term perspective in evaluating investment performance.
Investment Strategy for Non-U.S. Pension Plans
As of December 31, 2020, the long-term target allocation for 69 percent of our international subsidiaries' pension plan assets, primarily certain of our European and Canadian plans, was 64 percent equity securities, 4 percent fixed-income securities and 32 percent other investments. The actual allocation for the remaining 31 percent of the Company's international subsidiaries' pension plan assets consisted of 42 percent mutual, pooled and commingled funds; 21 percent fixed-income securities; 1 percent equity securities and 36 percent other investments. The investment strategies for our international subsidiaries' pension plans vary greatly, and in some instances are influenced by local law. None of our pension plans outside the United States is individually significant for separate disclosure.
Other Postretirement Benefit Plan Assets
Plan assets associated with other postretirement benefits primarily represent funding of one of the U.S. postretirement benefit plans through a Voluntary Employee Beneficiary Association ("VEBA"), a tax-qualified trust. The VEBA assets are primarily invested in liquid assets due to the level and timing of expected future benefit payments.
The following table presents total assets by asset class for our other postretirement benefit plans (in millions):
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Cash and cash equivalents
|
$
|
30
|
|
$
|
57
|
|
Equity securities:
|
|
|
U.S.-based companies
|
170
|
|
124
|
|
International-based companies
|
12
|
|
9
|
|
Fixed-income securities:
|
|
|
Government bonds
|
3
|
|
3
|
|
Corporate bonds and debt securities
|
80
|
|
47
|
|
Mutual, pooled and commingled funds
|
86
|
|
84
|
|
Hedge funds/limited partnerships
|
7
|
|
7
|
|
Real estate
|
4
|
|
4
|
|
Other
|
4
|
|
4
|
|
Total other postretirement benefit plan assets1
|
$
|
396
|
|
$
|
339
|
|
1Fair value disclosures related to our other postretirement benefit plan assets are included in Note 16. Fair value disclosures include, but are not limited to, the levels within the fair value hierarchy in which the fair value measurements in their entirety fall and information about the valuation techniques and inputs used to measure the fair value of our other postretirement benefit plan assets.
Components of Net Periodic Benefit Cost (Income)
Net periodic benefit cost (income) for our pension and other postretirement benefit plans consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
|
2020
|
2019
|
2018
|
Service cost
|
$
|
112
|
|
$
|
104
|
|
$
|
124
|
|
|
$
|
11
|
|
$
|
9
|
|
$
|
11
|
|
Interest cost
|
235
|
|
291
|
|
296
|
|
|
21
|
|
28
|
|
25
|
|
Expected return on plan assets1
|
(587)
|
|
(552)
|
|
(650)
|
|
|
(16)
|
|
(13)
|
|
(13)
|
|
Amortization of prior service cost (credit)
|
3
|
|
(4)
|
|
(3)
|
|
|
(3)
|
|
(2)
|
|
(14)
|
|
Amortization of net actuarial loss2
|
171
|
|
151
|
|
128
|
|
|
5
|
|
2
|
|
3
|
|
Net periodic benefit cost (income)
|
(66)
|
|
(10)
|
|
(105)
|
|
|
18
|
|
24
|
|
12
|
|
Settlement charges3
|
23
|
|
6
|
|
240
|
|
|
—
|
|
—
|
|
—
|
|
Curtailment charges (credits)3
|
1
|
|
—
|
|
5
|
|
|
6
|
|
(2)
|
|
(4)
|
|
Special termination benefits3
|
2
|
|
1
|
|
7
|
|
|
—
|
|
—
|
|
—
|
|
Other
|
(4)
|
|
1
|
|
—
|
|
|
—
|
|
—
|
|
(1)
|
|
Total cost (income) recognized in
consolidated statements of income
|
$
|
(44)
|
|
$
|
(2)
|
|
$
|
147
|
|
|
$
|
24
|
|
$
|
22
|
|
$
|
7
|
|
1The Company has elected to use the actual fair value of plan assets as the market-related value of assets in the determination of the expected return on plan assets.
2Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10 percent of the greater of the benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the plan participants.
3Settlements, curtailments and special termination benefits were primarily related to our strategic realignment initiatives, our productivity and reinvestment program and the refranchising of certain of our North America bottling operations. Refer to Note 2 and Note 18.
All of the amounts in the tables above, other than service cost, were recorded in the line item other income (loss) — net in our consolidated statements of income.
Impact on Accumulated Other Comprehensive Income
The following table sets forth the changes in AOCI for our pension and other postretirement benefit plans (in millions, pretax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance in AOCI at beginning of year
|
$
|
(2,678)
|
|
|
$
|
(2,482)
|
|
|
$
|
(59)
|
|
|
$
|
(15)
|
|
Recognized prior service cost (credit)
|
3
|
|
|
(4)
|
|
|
(3)
|
|
|
(4)
|
|
Recognized net actuarial loss
|
195
|
|
1
|
157
|
|
|
11
|
|
|
2
|
|
Prior service credit (cost) occurring during the year
|
(3)
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Net actuarial (loss) gain occurring during the year
|
(488)
|
|
2
|
(370)
|
|
|
7
|
|
|
(44)
|
|
Net foreign currency translation adjustments
|
(41)
|
|
|
20
|
|
|
(3)
|
|
|
2
|
|
Balance in AOCI at end of year
|
$
|
(3,012)
|
|
|
$
|
(2,678)
|
|
|
$
|
(47)
|
|
|
$
|
(59)
|
|
1 Includes $23 million of recognized net actuarial loss due to the impact of settlements.
2 Includes $15 million of net actuarial loss occurring during the year due to the impact of curtailments.
The following table sets forth the amounts in AOCI for our pension and other postretirement benefit plans (in millions, pretax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
December 31,
|
2020
|
2019
|
|
2020
|
2019
|
Prior service credit (cost)
|
$
|
(10)
|
|
$
|
(12)
|
|
|
$
|
17
|
|
$
|
23
|
|
Net actuarial loss
|
(3,002)
|
|
(2,666)
|
|
|
(64)
|
|
(82)
|
|
Balance in AOCI at end of year
|
$
|
(3,012)
|
|
$
|
(2,678)
|
|
|
$
|
(47)
|
|
$
|
(59)
|
|
Assumptions
Certain weighted-average assumptions used in computing the benefit obligations for our pension and other postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
December 31,
|
2020
|
2019
|
|
2020
|
2019
|
Discount rate
|
2.50
|
%
|
3.25
|
%
|
|
2.75
|
%
|
3.50
|
%
|
Interest crediting rate
|
3.00
|
%
|
3.50
|
%
|
|
N/A
|
N/A
|
Rate of increase in compensation levels
|
3.75
|
%
|
3.75
|
%
|
|
N/A
|
N/A
|
Certain weighted-average assumptions used in computing net periodic benefit cost (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement Benefit Plans
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
|
2020
|
2019
|
2018
|
Discount rate
|
3.25
|
%
|
4.00
|
%
|
3.50
|
%
|
|
3.50
|
%
|
4.25
|
%
|
3.50
|
%
|
Interest crediting rate
|
3.50
|
%
|
3.75
|
%
|
3.25
|
%
|
|
N/A
|
N/A
|
N/A
|
Rate of increase in compensation levels
|
3.75
|
%
|
3.75
|
%
|
3.50
|
%
|
|
N/A
|
N/A
|
N/A
|
Expected long-term rate of return on plan assets
|
7.50
|
%
|
7.75
|
%
|
8.00
|
%
|
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
The discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. Rates for U.S. and certain non-U.S. plans at December 31, 2020 were determined using a cash flow matching technique whereby the rates of a yield curve, developed from high-quality debt securities, were applied to the benefit obligations to determine the appropriate discount rate. For other non-U.S. plans, we base the discount rate assumption on comparable indices within each of the countries. The Company measures the service cost and interest cost components of net periodic benefit cost for pension and other postretirement benefit plans by applying the specific spot rates along the yield curve to the plans' projected cash flows. The rate of compensation increase assumption is determined by the Company based upon annual reviews.
The current cash balance interest crediting rate for the primary U.S. pension plan is the yield on six-month U.S. Treasury bills on the last day of September of the previous plan year, plus 150 basis points. The Company assumes that the current cash balance interest crediting rate will grow linearly over 10 years to the ultimate interest crediting rate assumption.
The expected long-term rate of return assumption for U.S. pension plan assets is based upon the target asset allocation and is determined using forward-looking assumptions in the context of historical returns and volatilities for each asset class, as well as correlations among asset classes. We evaluate the rate of return assumption on an annual basis. The expected long-term rate of return assumption used in computing 2020 net periodic pension cost for the U.S. pension plans was 7.50 percent. As of December 31, 2020, the 5-year, 10-year and 15-year annualized return on plan assets for the primary U.S. plan was 10.2 percent, 8.4 percent and 6.9 percent, respectively. The annualized return since inception was 10.5 percent.
The weighted-average assumptions for health care cost trend rates were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Health care cost trend rate assumed for next year
|
6.75
|
%
|
6.75
|
%
|
Rate to which the trend rate is assumed to decline (the ultimate trend rate)
|
5.25
|
%
|
5.25
|
%
|
Year that the trend rate reaches the ultimate trend rate
|
2025
|
2025
|
We review external data and our own historical trends for health care costs to determine the health care cost trend rate assumptions. The Company's U.S. postretirement benefit plans are primarily defined dollar benefit plans that limit the effects of health care inflation because the plans have established dollar limits for determining our contributions.
Cash Flows
The estimated future benefit payments for our pension and other postretirement benefit plans are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2021
|
|
2022
|
2023
|
2024
|
2025
|
2026–2030
|
Benefit payments for pension plans
|
$
|
657
|
|
1
|
$
|
437
|
|
$
|
472
|
|
$
|
483
|
|
$
|
491
|
|
$
|
2,492
|
|
Benefit payments for other postretirement
benefit plans2
|
60
|
|
|
56
|
|
54
|
|
51
|
|
50
|
|
226
|
|
Total estimated benefit payments
|
$
|
717
|
|
|
$
|
493
|
|
$
|
526
|
|
$
|
534
|
|
$
|
541
|
|
$
|
2,718
|
|
1The estimated benefit payments in 2021 are higher due to our strategic realignment initiatives. Refer to Note 18.
2The estimated benefit payments for our other postretirement benefit plans are net of estimated federal subsidies expected to be received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Federal subsidies are estimated to be $2 million for the period 2021–2025 and $2 million for the period 2026–2030.
The Company anticipates making contributions to our pension trusts in 2021 of $25 million, all of which will be allocated to our international plans. The majority of these contributions are required by funding regulations or laws.
Defined Contribution Plans
Our Company sponsors qualified defined contribution plans covering substantially all U.S. employees. Under the largest U.S. defined contribution plan, we match participants' contributions up to a maximum of 3.5 percent of compensation, subject to certain limits. The Company's expense for the U.S. plans totaled $43 million, $43 million and $39 million in 2020, 2019 and 2018, respectively. We also sponsor defined contribution plans in certain locations outside the United States. The Company's expense for these plans totaled $63 million, $64 million and $59 million in 2020, 2019 and 2018, respectively.
Multi-Employer Retirement Plans
The Company participates in various multi-employer retirement plans. Multi-employer retirement plans are designed to provide benefits to or on behalf of employees of multiple employers. These plans are typically established under collective bargaining agreements. Multi-employer retirement plans are generally governed by a board of trustees composed of representatives of both management and labor and are generally funded through employer contributions.
The Company's expense for multi-employer retirement plans totaled $2 million, $5 million and $6 million in 2020, 2019 and 2018, respectively. The plans we currently participate in have contractual arrangements that extend into 2025. If, in the future, we choose to withdraw from any of the multi-employer retirement plans in which we currently participate, we would record the appropriate withdrawal liability, if any, at that time.
NOTE 14: INCOME TAXES
Income before income taxes consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
United States
|
$
|
3,149
|
|
|
$
|
3,249
|
|
|
$
|
888
|
|
|
International
|
6,600
|
|
|
7,537
|
|
|
7,337
|
|
|
Total
|
$
|
9,749
|
|
|
$
|
10,786
|
|
|
$
|
8,225
|
|
|
Income taxes consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
State and Local
|
|
International
|
|
Total
|
2020
|
|
|
|
|
|
|
|
Current
|
$
|
296
|
|
|
$
|
396
|
|
|
$
|
1,307
|
|
|
$
|
1,999
|
|
Deferred
|
(220)
|
|
|
21
|
|
|
181
|
|
|
(18)
|
|
2019
|
|
|
|
|
|
|
|
Current
|
$
|
508
|
|
|
$
|
94
|
|
|
$
|
1,479
|
|
|
$
|
2,081
|
|
Deferred
|
(65)
|
|
|
52
|
|
|
(267)
|
|
|
(280)
|
|
2018
|
|
|
|
|
|
|
|
Current
|
$
|
591
|
|
1
|
$
|
145
|
|
|
$
|
1,426
|
|
|
$
|
2,162
|
|
Deferred
|
(386)
|
|
1
|
(81)
|
|
1
|
54
|
|
1
|
(413)
|
|
1 Includes the tax impact that resulted from changes to our original provisional estimates of the impact of the Tax Reform Act as permitted by Staff Accounting Bulletin No. 118 ("SAB 118").
We made income tax payments of $1,268 million, $2,126 million and $2,120 million in 2020, 2019 and 2018, respectively.
Our effective tax rate reflects the tax benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate. As a result of employment actions and capital investments made by the Company, certain tax jurisdictions provide income tax incentive grants, including Brazil, Costa Rica, Singapore and Swaziland. The terms of these grants expire from 2023 to 2036. We anticipate that we will be able to extend or renew the grants in these locations. Tax incentive grants favorably impacted our income tax expense by $317 million, $335 million and $318 million for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, our effective tax rate reflects the benefits of having significant earnings generated in investments accounted for under the equity method.
A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
|
|
|
Statutory U.S. federal tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
|
|
State and local income taxes — net of federal benefit
|
1.1
|
|
|
0.9
|
|
|
1.5
|
|
|
|
|
Earnings in jurisdictions taxed at rates different from the statutory U.S.
federal tax rate
|
0.9
|
|
1
|
1.1
|
|
4,5,6
|
3.1
|
|
8,9
|
|
|
Equity income or loss
|
(1.4)
|
|
|
(1.6)
|
|
|
(2.5)
|
|
|
|
|
Tax Reform Act
|
—
|
|
|
—
|
|
|
0.1
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits on stock-based compensation
|
(0.8)
|
|
|
(0.9)
|
|
|
(1.3)
|
|
|
|
|
Other — net
|
(0.5)
|
|
2,3
|
(3.8)
|
|
7
|
(0.6)
|
|
|
|
|
Effective tax rate
|
20.3
|
%
|
|
16.7
|
%
|
|
21.3
|
%
|
|
|
|
1 Includes net tax charges of $110 million (or a 1.1 percent impact on our effective tax rate) related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, in various international jurisdictions, as well as other agreed-upon tax matters.
2 Includes net tax expense of $431 million (or a 4.4 percent impact on our effective tax rate) primarily related to changes in judgment on specific tax positions due to the Opinion and amounts required to be recorded for changes to other uncertain tax positions, including interest and penalties. Also includes a tax benefit of $107 million (or a 1.1 percent impact on our effective tax rate) related to changes in our assessment of certain valuation allowances and a net tax benefit of $135 million (or a 1.4 percent impact on our effective tax rate) related to domestic return to provision adjustments and other tax items.
3 Includes a tax benefit of $40 million (or a 2.4 percent impact on our effective tax rate) associated with the $902 million gain recorded upon the acquisition of the remaining ownership interest in fairlife. Refer to Note 2.
4 Includes net tax charges of $199 million (or a 1.9 percent impact on our effective tax rate) related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, in various international jurisdictions, as well as other agreed-upon tax matters.
5 Includes the impact of pretax charges of $710 million (or a 1.2 percent impact on our effective tax rate) related to the impairment of certain of our equity method investees.
6 Includes a tax benefit of $199 million (or a 1.5 percent impact on our effective tax rate) recorded as a result of CCBA no longer qualifying as a discontinued operation. Refer to Note 2.
7 Includes a net tax benefit of $184 million (or a 1.7 percent impact on our effective tax rate) related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, a tax benefit of $145 million (or a 1.4 percent impact on our effective tax rate) related to changes in our assessment of certain valuation allowances and a net tax benefit of $89 million (or a 0.8 percent impact on our effective tax rate) related to domestic return to provision adjustments as well as other agreed-upon tax matters.
8 Includes the impact of pretax charges of $591 million (or a 1.5 percent impact on our effective tax rate) related to other-than-temporary impairments of certain of our equity method investees and the impact of a pretax charge of $554 million (or a 1.9 percent impact on our effective tax rate) related to an impairment of assets held by CCBA.
9 Includes net tax expense of $28 million on net pretax charges of $403 million (or a 1.4 percent impact on our effective tax rate) primarily related to the refranchising of certain foreign bottling operations.
10 Includes net tax expense of $8 million (or a 0.1 percent impact on our effective tax rate) related to the finalization of our accounting related to the Tax Reform Act.
The one-time transition tax is based on our total accumulated post-1986 prescribed foreign earnings and profits of approximately $41 billion. Most of this amount comprises unremitted foreign earnings, upon which no U.S. federal or state income tax had been accrued, because they were considered to have been indefinitely reinvested. At December 31, 2017, following enactment of the Tax Reform Act, we recorded a provisional $4.6 billion tax reflecting our best estimate of the one-time deemed repatriation tax liability as of December 31, 2017, and a $0.6 billion provisional deferred tax liability related to foreign withholding taxes and state income taxes on earnings no longer considered to be indefinitely reinvested.
During 2018, we recorded a net tax expense from the impact of the Tax Reform Act. As permitted by SAB 118, we had recorded provisional adjustments to our reasonable estimate of the impact of the Tax Reform Act during the 2018 measurement period pursuant to our analysis of contemporaneous guidance, interpretations and data, and we have finalized that analysis based on such information available as of December 31, 2018. As such, we recorded an additional $0.3 billion in tax for our one-time transition tax and a tax benefit of $0.3 billion, primarily related to a reduction in deferred taxes on related withholding taxes and state income taxes in 2018. We also remeasured and adjusted certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0 percent. This adjustment was not significant.
As of December 31, 2020, we have not recorded incremental income taxes for any additional outside basis differences of approximately $5.7 billion in our investments in foreign subsidiaries, as these amounts continue to be indefinitely reinvested in
foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis differences in these entities is not practicable.
The Global Intangible Low-Taxed Income ("GILTI") provisions of the Tax Reform Act require the Company to include in its U.S. income tax return each foreign subsidiary's earnings in excess of an allowable return on the foreign subsidiary's tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. We have elected to account for the tax effects of these provisions in the period that is subject to such tax and the impact is reflected in our full year provision.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. U.S. tax authorities have completed their federal income tax examinations for all years prior to 2007. With respect to state and local jurisdictions and countries outside the United States, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years prior to 2006. For U.S. federal and state tax purposes, the net operating losses and tax credit carryovers acquired in connection with our acquisition of Old CCE that were generated between the years of 1990 through 2010 are subject to adjustments until the year in which they are actually utilized is no longer subject to examination. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, including interest and penalties, have been provided for in accordance with the applicable accounting guidance.
On November 18, 2020, the Tax Court issued the Opinion regarding the Company's 2015 litigation with the IRS involving transfer pricing tax adjustments in which the court predominantly sided with the IRS. The Company disagrees with the Opinion and intends to vigorously defend its position. Refer to Note 11.
As of December 31, 2020, the gross amount of unrecognized tax benefits was $915 million. If the Company were to prevail on all uncertain tax positions, the net effect would be a benefit of $588 million, exclusive of any benefits related to interest and penalties. The remaining $327 million primarily represents tax benefits that would be received in different tax jurisdictions in the event the Company did not prevail on all uncertain tax positions.
A reconciliation of the changes in the gross amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
Balance of unrecognized tax benefits at beginning of year
|
$
|
392
|
|
|
$
|
336
|
|
|
$
|
331
|
|
Increase related to prior period tax positions
|
528
|
|
1
|
204
|
|
2
|
11
|
|
Decrease related to prior period tax positions
|
(1)
|
|
|
—
|
|
|
(2)
|
|
Increase related to current period tax positions
|
26
|
|
|
29
|
|
|
17
|
|
|
|
|
|
|
|
Decrease related to settlements with taxing authorities
|
(19)
|
|
|
(174)
|
|
3
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) due to effect of foreign currency exchange rate changes
|
(11)
|
|
|
(3)
|
|
|
(17)
|
|
Balance of unrecognized tax benefits at end of year
|
$
|
915
|
|
|
$
|
392
|
|
|
$
|
336
|
|
1 The increase was primarily related to a change in judgment on certain tax positions due to the Opinion. Refer to Note 11.
2 The increase was primarily related to a change in judgment about the Company's tax positions with several foreign jurisdictions.
3 The decrease was primarily related to a change in judgment about one of the Company's tax positions that became certain as a result of settlement of a matter in the United States.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $391 million, $201 million and $190 million in interest and penalties related to unrecognized tax benefits accrued as of December 31, 2020, 2019 and 2018, respectively. Of these amounts, $190 million, $11 million and $13 million of expense were recognized in income tax expense in 2020, 2019 and 2018, respectively. If the Company were to prevail on all uncertain tax positions, the reversal of this accrual would be a benefit to the Company's effective tax rate.
It is expected that the amount of unrecognized tax benefits will change in the next 12 months; however, we do not expect the change to have a significant impact on our consolidated statement of income or consolidated balance sheet. These changes may be the result of settlements of ongoing audits, statute of limitations expiring or final settlements in transfer pricing matters that are the subject of litigation. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
The tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Property, plant and equipment
|
$
|
44
|
|
|
$
|
53
|
|
Trademarks and other intangible assets
|
2,214
|
|
|
2,267
|
|
Equity method investments (including net foreign currency translation adjustments)
|
580
|
|
|
372
|
|
Derivative financial instruments
|
523
|
|
|
389
|
|
Other liabilities
|
1,401
|
|
|
1,066
|
|
Benefit plans
|
893
|
|
|
880
|
|
Net operating/capital loss carryforwards
|
320
|
|
|
259
|
|
Other
|
391
|
|
|
311
|
|
Gross deferred tax assets
|
6,366
|
|
|
5,597
|
|
Valuation allowances
|
(406)
|
|
|
(303)
|
|
Total deferred tax assets
|
$
|
5,960
|
|
|
$
|
5,294
|
|
Deferred tax liabilities:
|
|
|
|
Property, plant and equipment
|
$
|
(837)
|
|
|
$
|
(877)
|
|
Trademarks and other intangible assets
|
(1,661)
|
|
|
(1,533)
|
|
Equity method investments (including net foreign currency translation adjustments)
|
(1,533)
|
|
|
(1,667)
|
|
Derivative financial instruments
|
(435)
|
|
|
(348)
|
|
Other liabilities
|
(402)
|
|
|
(351)
|
|
Benefit plans
|
(321)
|
|
|
(286)
|
|
Other
|
(144)
|
|
|
(104)
|
|
Total deferred tax liabilities
|
$
|
(5,333)
|
|
|
$
|
(5,166)
|
|
Net deferred tax assets
|
$
|
627
|
|
|
$
|
128
|
|
As of December 31, 2020 and 2019, we had net deferred tax assets of $1.4 billion and $1.3 billion, respectively, located in countries outside the United States.
As of December 31, 2020, we had $2,669 million of loss carryforwards available to reduce future taxable income. Loss carryforwards of $687 million must be utilized within the next five years, and the remainder can be utilized over a period greater than five years.
An analysis of our deferred tax asset valuation allowances is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
303
|
|
|
$
|
419
|
|
|
$
|
519
|
|
|
|
|
|
|
|
Additions
|
240
|
|
|
148
|
|
|
83
|
|
Deductions
|
(137)
|
|
|
(264)
|
|
|
(183)
|
|
Balance at end of year
|
$
|
406
|
|
|
$
|
303
|
|
|
$
|
419
|
|
The Company's deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions and basis differences in certain equity investments. Current evidence does not suggest we will realize sufficient taxable income of the appropriate character within the carryforward period to allow us to realize these deferred tax benefits. If we were to identify and implement tax planning strategies to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it could lead to the reversal of these valuation allowances and a reduction of income tax expense. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheet.
In 2020, the Company recognized a net increase of $103 million in its valuation allowances. The increase was primarily due to net increases in the deferred tax assets and related valuation allowances on certain equity investments. The increase was also due to the increase of valuation allowances after considering significant negative evidence on the utilization of certain net operating losses and excess foreign tax credits.
In 2019, the Company recognized a net decrease of $116 million in its valuation allowances. This decrease was primarily due to the reversal of a valuation allowance after considering significant positive evidence on the utilization of certain net operating
losses. This decrease was also due to the reversal of a valuation allowance in our U.S. operations related to expenses that were previously determined to be nondeductible and the changes in net operating losses in the normal course of business. The decreases were partially offset by an increase in the valuation allowance due to increases in the deferred tax assets and related valuation allowances on certain equity method investments and an increase due to the acquisition of foreign operations.
In 2018, the Company recognized a net decrease of $100 million in its valuation allowances. This decrease was primarily due to changes to deferred tax assets and related valuation allowances on certain equity investments. In addition, the changes in net operating losses in the normal course of business contributed to the net decrease in valuation allowance. The decreases were partially offset by an increase due to the acquisition of a controlling interest in one of our foreign bottling operations.
NOTE 15: OTHER COMPREHENSIVE INCOME
AOCI attributable to shareowners of The Coca-Cola Company is separately presented in our consolidated balance sheet as a component of The Coca-Cola Company's shareowners' equity, which also includes our proportionate share of equity method investees' AOCI. OCI attributable to noncontrolling interests is allocated to, and included in, our consolidated balance sheet as part of the line item equity attributable to noncontrolling interests.
AOCI attributable to shareowners of The Coca-Cola Company consisted of the following, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
|
2019
|
Net foreign currency translation adjustments
|
$
|
(12,028)
|
|
|
$
|
(11,270)
|
|
Accumulated net gains (losses) on derivatives
|
(194)
|
|
|
(209)
|
|
Unrealized net gains (losses) on available-for-sale debt securities
|
28
|
|
|
75
|
|
Adjustments to pension and other postretirement benefit liabilities
|
(2,407)
|
|
|
(2,140)
|
|
Accumulated other comprehensive income (loss)
|
$
|
(14,601)
|
|
|
$
|
(13,544)
|
|
The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Shareowners of
The Coca-Cola Company
|
Noncontrolling
Interests
|
Total
|
Consolidated net income
|
$
|
7,747
|
|
$
|
21
|
|
$
|
7,768
|
|
Other comprehensive income:
|
|
|
|
Net foreign currency translation adjustments
|
(758)
|
|
(153)
|
|
(911)
|
|
Net gains (losses) on derivatives1
|
15
|
|
—
|
|
15
|
|
Net change in unrealized gains (losses) on available-for-sale debt
securities2
|
(47)
|
|
—
|
|
(47)
|
|
Net change in pension and other postretirement benefit liabilities3
|
(267)
|
|
—
|
|
(267)
|
|
Total comprehensive income
|
$
|
6,690
|
|
$
|
(132)
|
|
$
|
6,558
|
|
1 Refer to Note 5 for additional information related to the net gains or losses on derivative instruments.
2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.
3 Refer to Note 13 for additional information related to the Company's pension and other postretirement benefit liabilities.
OCI attributable to shareowners of The Coca-Cola Company, including our proportionate share of equity method investees' OCI, for the years ended December 31, 2020, 2019 and 2018 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-Tax Amount
|
Income Tax
|
After-Tax Amount
|
2020
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
Translation adjustments arising during the year
|
$
|
(2,223)
|
|
$
|
150
|
|
$
|
(2,073)
|
|
Reclassification adjustments recognized in net income
|
3
|
|
—
|
|
3
|
|
Gains (losses) on intra-entity transactions that are of a long-term investment nature
|
2,133
|
|
—
|
|
2,133
|
|
Gains (losses) on net investment hedges arising during the year1
|
(1,094)
|
|
273
|
|
(821)
|
|
|
|
|
|
Net foreign currency translation adjustments
|
$
|
(1,181)
|
|
$
|
423
|
|
$
|
(758)
|
|
Derivatives:
|
|
|
|
Gains (losses) arising during the year
|
$
|
(54)
|
|
$
|
13
|
|
$
|
(41)
|
|
Reclassification adjustments recognized in net income
|
74
|
|
(18)
|
|
56
|
|
Net gains (losses) on derivatives1
|
$
|
20
|
|
$
|
(5)
|
|
$
|
15
|
|
Available-for-sale debt securities:
|
|
|
|
Unrealized gains (losses) arising during the year
|
$
|
(64)
|
|
$
|
22
|
|
$
|
(42)
|
|
Reclassification adjustments recognized in net income
|
(7)
|
|
2
|
|
(5)
|
|
Net change in unrealized gains (losses) on available-for-sale debt securities2
|
$
|
(71)
|
|
$
|
24
|
|
$
|
(47)
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
Net pension and other postretirement benefit liabilities arising during the year
|
$
|
(560)
|
|
$
|
138
|
|
$
|
(422)
|
|
Reclassification adjustments recognized in net income
|
206
|
|
(51)
|
|
155
|
|
Net change in pension and other postretirement benefit liabilities3
|
$
|
(354)
|
|
$
|
87
|
|
$
|
(267)
|
|
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola
Company
|
$
|
(1,586)
|
|
$
|
529
|
|
$
|
(1,057)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
Translation adjustments arising during the year
|
$
|
52
|
|
$
|
(54)
|
|
$
|
(2)
|
|
Reclassification adjustments recognized in net income
|
192
|
|
—
|
|
192
|
|
Gains (losses) on intra-entity transactions that are of a long-term investment nature
|
(307)
|
|
—
|
|
(307)
|
|
Gains (losses) on net investment hedges arising during the year1
|
195
|
|
(49)
|
|
146
|
|
|
|
|
|
Net foreign currency translation adjustments
|
$
|
132
|
|
$
|
(103)
|
|
$
|
29
|
|
Derivatives:
|
|
|
|
Gains (losses) arising during the year
|
$
|
(225)
|
|
$
|
49
|
|
$
|
(176)
|
|
Reclassification adjustments recognized in net income
|
163
|
|
(41)
|
|
122
|
|
Net gains (losses) on derivatives1
|
$
|
(62)
|
|
$
|
8
|
|
$
|
(54)
|
|
Available-for-sale debt securities:
|
|
|
|
Unrealized gains (losses) arising during the year
|
$
|
47
|
|
$
|
(4)
|
|
$
|
43
|
|
Reclassification adjustments recognized in net income
|
(31)
|
|
6
|
|
(25)
|
|
Net change in unrealized gains (losses) on available-for-sale debt securities2
|
$
|
16
|
|
$
|
2
|
|
$
|
18
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
Net pension and other postretirement benefit liabilities arising during the year
|
$
|
(379)
|
|
$
|
105
|
|
$
|
(274)
|
|
Reclassification adjustments recognized in net income
|
151
|
|
(36)
|
|
115
|
|
Net change in pension and other postretirement benefit liabilities3
|
$
|
(228)
|
|
$
|
69
|
|
$
|
(159)
|
|
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola
Company
|
$
|
(142)
|
|
$
|
(24)
|
|
$
|
(166)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-Tax Amount
|
Income Tax
|
After-Tax Amount
|
2018
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
Translation adjustments arising during the year
|
$
|
(1,728)
|
|
$
|
59
|
|
$
|
(1,669)
|
|
Reclassification adjustments recognized in net income
|
398
|
|
—
|
|
398
|
|
Gains (losses) on intra-entity transactions that are of a long-term investment nature
|
(1,296)
|
|
—
|
|
(1,296)
|
|
Gains (losses) on net investment hedges arising during the year1
|
639
|
|
(160)
|
|
479
|
|
Net foreign currency translation adjustments
|
$
|
(1,987)
|
|
$
|
(101)
|
|
$
|
(2,088)
|
|
Derivatives:
|
|
|
|
Gains (losses) arising during the year
|
$
|
59
|
|
$
|
(16)
|
|
$
|
43
|
|
Reclassification adjustments recognized in net income
|
(68)
|
|
18
|
|
(50)
|
|
Net gains (losses) on derivatives1
|
$
|
(9)
|
|
$
|
2
|
|
$
|
(7)
|
|
Available-for-sale securities:
|
|
|
|
Unrealized gains (losses) arising during the year
|
$
|
(50)
|
|
$
|
11
|
|
$
|
(39)
|
|
Reclassification adjustments recognized in net income
|
5
|
|
—
|
|
5
|
|
Net change in unrealized gains (losses) on available-for-sale securities2
|
$
|
(45)
|
|
$
|
11
|
|
$
|
(34)
|
|
Pension and other postretirement benefit liabilities:
|
|
|
|
Net pension and other postretirement benefit liabilities arising during the year
|
$
|
(299)
|
|
$
|
75
|
|
$
|
(224)
|
|
Reclassification adjustments recognized in net income
|
341
|
|
(88)
|
|
253
|
|
Net change in pension and other postretirement benefit liabilities3
|
$
|
42
|
|
$
|
(13)
|
|
$
|
29
|
|
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola
Company
|
$
|
(1,999)
|
|
$
|
(101)
|
|
$
|
(2,100)
|
|
1 Refer to Note 5 for additional information related to the net gains or losses on derivative instruments.
2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale securities.
3 Refer to Note 13 for additional information related to the Company's pension and other postretirement benefit liabilities.
The following table presents the amounts and line items in our consolidated statement of income where adjustments reclassified from AOCI into income were recorded during the year ended December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
Description of AOCI Component
|
Financial Statement Line Item
|
Amount Reclassified from AOCI into Income
|
Foreign currency translation adjustments:
|
|
|
Divestitures, deconsolidations and other1
|
Other income (loss) — net
|
$
|
3
|
|
|
Income before income taxes
|
3
|
|
|
Income taxes
|
—
|
|
|
Consolidated net income
|
$
|
3
|
|
Derivatives:
|
|
|
Foreign currency contracts
|
Net operating revenues
|
$
|
73
|
|
Foreign currency and commodity contracts
|
Cost of goods sold
|
(9)
|
|
Foreign currency contracts
|
Other income (loss) — net
|
(60)
|
|
|
|
|
Foreign currency and interest rate contracts
|
Interest expense
|
70
|
|
|
Income before income taxes
|
74
|
|
|
Income taxes
|
(18)
|
|
|
Consolidated net income
|
$
|
56
|
|
Available-for-sale securities:
|
|
|
|
|
|
Sale of securities
|
Other income (loss) — net
|
$
|
(7)
|
|
|
Income before income taxes
|
(7)
|
|
|
Income taxes
|
2
|
|
|
Consolidated net income
|
$
|
(5)
|
|
Pension and other postretirement benefit liabilities:
|
|
|
Settlement charges2
|
Other income (loss) — net
|
$
|
23
|
|
Curtailment charges2
|
Other income (loss) — net
|
7
|
|
Recognized net actuarial loss
|
Other income (loss) — net
|
176
|
|
Recognized prior service cost (credit)
|
Other income (loss) — net
|
—
|
|
|
|
|
|
Income before income taxes
|
206
|
|
|
Income taxes
|
(51)
|
|
|
Consolidated net income
|
$
|
155
|
|
1 Related to the sale of a portion of our ownership interest in one of our equity method investees. Refer to Note 2.
2 The settlement and curtailment charges were related to our strategic realignment initiatives. Refer to Note 13 and Note 18.
NOTE 16: FAIR VALUE MEASUREMENTS
U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Recurring Fair Value Measurements
In accordance with U.S. GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. For our Company, the only assets and liabilities that are adjusted to fair value on a recurring basis are investments in equity securities with readily determinable fair values, debt securities classified as trading or available-for-sale and derivative financial instruments. Additionally, the Company adjusts the carrying value of certain long-term debt as a result of the Company's fair value hedging strategy.
Investments in Debt and Equity Securities
The fair values of our investments in debt and equity securities using quoted market prices from daily exchange traded markets are based on the closing price as of the balance sheet date and are classified as Level 1. The fair values of our investments in debt and equity securities classified as Level 2 are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. Inputs into these valuation techniques include actual trade data, benchmark yields, broker/dealer quotes and other similar data. These inputs are obtained from quoted market prices, independent pricing vendors or other sources.
Derivative Financial Instruments
The fair values of our futures contracts are primarily determined using quoted contract prices on futures exchange markets. The fair values of these instruments are based on the closing contract price as of the balance sheet date and are classified as Level 1.
The fair values of our derivative instruments other than futures are determined using standard valuation models. The significant inputs used in these models are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2. Inputs used in these standard valuation models for derivative instruments other than futures include the applicable exchange rates, forward rates, interest rates, discount rates and commodity prices. The standard valuation model for options also uses implied volatility as an additional input. The discount rates are based on the historical U.S. Deposit or U.S. Treasury rates, and the implied volatility specific to options is based on quoted rates from financial institutions.
Included in the fair values of derivative instruments is an adjustment for nonperformance risk. The adjustment is based on current credit default swap ("CDS") rates applied to each contract, by counterparty. We use our counterparty's CDS rate when we are in an asset position and our own CDS rate when we are in a liability position. The adjustment for nonperformance risk did not have a significant impact on the estimated fair values of our derivative instruments.
The following tables summarize those assets and liabilities measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Level 1
|
Level 2
|
Level 3
|
|
Other3
|
Netting
Adjustment
|
4
|
Fair Value
Measurements
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable values1
|
$
|
2,049
|
|
$
|
210
|
|
$
|
12
|
|
|
$
|
103
|
|
$
|
—
|
|
|
$
|
2,374
|
|
|
Debt securities1
|
4
|
|
2,267
|
|
32
|
|
|
—
|
|
—
|
|
|
2,303
|
|
|
Derivatives2
|
63
|
|
835
|
|
—
|
|
|
—
|
|
(669)
|
|
6
|
229
|
|
8
|
Total assets
|
$
|
2,116
|
|
$
|
3,312
|
|
$
|
44
|
|
|
$
|
103
|
|
$
|
(669)
|
|
|
$
|
4,906
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
$
|
—
|
|
$
|
—
|
|
$
|
321
|
|
5
|
$
|
—
|
|
$
|
—
|
|
|
$
|
321
|
|
|
Derivatives2
|
—
|
|
91
|
|
—
|
|
|
—
|
|
(81)
|
|
7
|
10
|
|
8
|
Total liabilities
|
$
|
—
|
|
$
|
91
|
|
$
|
321
|
|
|
$
|
—
|
|
$
|
(81)
|
|
|
$
|
331
|
|
|
1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2Refer to Note 5 for additional information related to the composition of our derivative portfolio.
3 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 5.
5 Refer to Note 2 for additional information related to the contingent consideration liability resulting from the fairlife acquisition.
6 The Company is obligated to return $546 million in cash collateral it has netted against its derivative position.
7 The Company does not have the right to reclaim any cash collateral it has netted against its derivative position.
8 The Company's derivative financial instruments are recorded at fair value in our consolidated balance sheet as follows: $229 million in the line item other assets, $9 million in the line item accounts payable and accrued expenses and $1 million in the line item other liabilities. Refer to Note 5 for additional information related to the composition of our derivative portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Level 1
|
Level 2
|
Level 3
|
Other3
|
Netting
Adjustment
|
4
|
Fair Value
Measurements
|
|
Assets:
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable values1
|
$
|
1,877
|
|
$
|
219
|
|
$
|
14
|
|
$
|
109
|
|
$
|
—
|
|
|
$
|
2,219
|
|
|
Debt securities1
|
—
|
|
3,291
|
|
37
|
|
—
|
|
—
|
|
|
3,328
|
|
|
Derivatives2
|
9
|
|
579
|
|
—
|
|
—
|
|
(392)
|
|
5
|
196
|
|
7
|
Total assets
|
$
|
1,886
|
|
$
|
4,089
|
|
$
|
51
|
|
$
|
109
|
|
$
|
(392)
|
|
|
$
|
5,743
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives2
|
$
|
—
|
|
$
|
162
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(130)
|
|
6
|
$
|
32
|
|
7
|
Total liabilities
|
$
|
—
|
|
$
|
162
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(130)
|
|
|
$
|
32
|
|
|
1 Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2 Refer to Note 5 for additional information related to the composition of our derivative portfolio.
3 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 5.
5 The Company is obligated to return $261 million in cash collateral it has netted against its derivative position.
6 The Company does not have the right to reclaim any cash collateral it has netted against its derivative position.
7 The Company's derivative financial instruments are recorded at fair value in our consolidated balance sheet as follows: $196 million in the line item other assets and $32 million in the line item other liabilities. Refer to Note 5 for additional information related to the composition of our derivative portfolio.
Gross realized and unrealized gains and losses on Level 3 assets and liabilities were not significant for the years ended December 31, 2020 and 2019.
The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. Gross transfers between levels within the hierarchy were not significant for the years ended December 31, 2020 and 2019.
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis as required by U.S. GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges or as a result of observable changes in equity securities using the measurement alternative.
The gains and losses on assets measured at fair value on a nonrecurring basis are summarized in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
Year Ended December 31,
|
2020
|
|
2019
|
|
Other-than-temporary impairment charges
|
$
|
(290)
|
|
1
|
$
|
(767)
|
|
1
|
Impairment of intangible assets
|
(215)
|
|
2
|
(42)
|
|
4
|
Impairment of equity investment without a readily determinable fair value
|
(26)
|
|
3
|
—
|
|
|
CCBA asset adjustments
|
—
|
|
|
(160)
|
|
5
|
Total
|
$
|
(531)
|
|
|
$
|
(969)
|
|
|
1During the years ended December 31, 2020 and 2019, the Company recorded other-than-temporary impairment charges of $252 million and $406 million, respectively, related to CCBJHI, an equity method investee. Based on the length of time and the extent to which the market value of our investment in CCBJHI was less than our carrying value and the financial condition and near-term prospects of the issuer, management determined that the decline in fair value was other than temporary in nature. These impairment charges were determined using the quoted market prices (a Level 1 measurement) of CCBJHI. The Company also recorded other-than-temporary impairment charges of $38 million and $49 million, respectively, related to certain equity method investees in Latin America. These impairment charges were derived using Level 3 inputs and were primarily driven by revised projections of future operating results. During the year ended December 31, 2019, the Company recognized other-than-temporary impairment charges of $255 million related to certain equity method investees in the Middle East. These impairment charges were derived using Level 3 inputs and were primarily driven by revised projections of future operating results largely related to instability in the region and changes in local excise taxes. The Company also recognized an other-than-temporary impairment charge of $57 million related to one of our equity method investees in North America. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.
2The Company recorded impairment charges of $160 million related to its Odwalla trademark in North America, as the Company decided in June 2020 to discontinue its Odwalla juice business. The Company also recorded an impairment charge of $55 million related to a trademark in North America, which was primarily driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company's portfolio. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.
3The Company recorded an impairment charge of $26 million related to an investment in an equity security without a readily determinable fair value. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.
4The Company recorded an impairment charge of $42 million related to a trademark in Asia Pacific, which was primarily driven by revised projections of future operating results for the trademark. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.
5 As a result of CCBA no longer being classified as held for sale, the Company was required to measure CCBA's property, plant and equipment and definite-lived intangible assets at the lower of their current fair values or their carrying amounts before they were classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been classified as held and used during the period that CCBA was classified as held for sale. As a result, we reduced the carrying value of CCBA's property, plant and equipment and definite-lived intangible assets by $34 million and $126 million, respectively, based on Level 3 inputs. Refer to Note 2.
Fair Value Measurements for Pension and Other Postretirement Benefit Plan Assets
The fair value hierarchy discussed above is not only applicable to assets and liabilities that are included in our consolidated balance sheets but is also applied to certain other assets that indirectly impact our consolidated financial statements. For example, our Company sponsors and/or contributes to a number of pension and other postretirement benefit plans. Assets contributed by the Company become the property of the individual plans. Even though the Company no longer has control over these assets, we are indirectly impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts the Company's future net periodic benefit cost as well as amounts recognized in our consolidated balance sheets. Refer to Note 13. The Company uses the fair value hierarchy to measure the fair value of assets held by our various pension and other postretirement benefit plans.
Pension Plan Assets
The following table summarizes the levels within the fair value hierarchy for our pension plan assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Level 1
|
Level 2
|
|
Level 3
|
|
Other
|
1
|
Total
|
|
Level 1
|
Level 2
|
Level 3
|
|
Other
|
1
|
Total
|
Cash and cash equivalents
|
$
|
558
|
|
$
|
120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
678
|
|
|
$
|
597
|
|
$
|
144
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
741
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.-based companies
|
2,123
|
|
12
|
|
|
4
|
|
|
—
|
|
|
2,139
|
|
|
1,876
|
|
7
|
|
21
|
|
|
—
|
|
|
1,904
|
|
International-based companies
|
1,694
|
|
32
|
|
|
—
|
|
|
—
|
|
|
1,726
|
|
|
1,354
|
|
33
|
|
—
|
|
|
—
|
|
|
1,387
|
|
Fixed-income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
—
|
|
637
|
|
|
—
|
|
|
—
|
|
|
637
|
|
|
—
|
|
536
|
|
—
|
|
|
—
|
|
|
536
|
|
Corporate bonds and debt
securities
|
—
|
|
1,011
|
|
|
31
|
|
|
—
|
|
|
1,042
|
|
|
—
|
|
924
|
|
40
|
|
|
—
|
|
|
964
|
|
Mutual, pooled and commingled
funds
|
44
|
|
268
|
|
|
—
|
|
|
502
|
|
4
|
814
|
|
|
40
|
|
258
|
|
—
|
|
|
600
|
|
4
|
898
|
|
Hedge funds/limited partnerships
|
—
|
|
—
|
|
|
—
|
|
|
622
|
|
5
|
622
|
|
|
—
|
|
—
|
|
—
|
|
|
689
|
|
5
|
689
|
|
Real estate
|
—
|
|
—
|
|
|
—
|
|
|
332
|
|
6
|
332
|
|
|
—
|
|
—
|
|
—
|
|
|
342
|
|
6
|
342
|
|
Derivative financial instruments
|
—
|
|
(15)
|
|
2
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
—
|
|
|
302
|
|
3
|
362
|
|
7
|
664
|
|
|
—
|
|
—
|
|
273
|
|
3
|
346
|
|
7
|
619
|
|
Total
|
$
|
4,419
|
|
$
|
2,065
|
|
|
$
|
337
|
|
|
$
|
1,818
|
|
|
$
|
8,639
|
|
|
$
|
3,867
|
|
$
|
1,902
|
|
$
|
334
|
|
|
$
|
1,977
|
|
|
$
|
8,080
|
|
1Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 13.
2This class of assets includes investments in credit contracts.
3Includes purchased annuity insurance contracts.
4This class of assets includes actively managed emerging markets equity funds and a collective trust fund for qualified plans, invested primarily in equity securities of companies in developing and emerging markets. There are no liquidity restrictions on these investments.
5This class of assets includes hedge funds that can be subject to redemption restrictions, ranging from monthly to semiannually, with a redemption notice period of up to one year and/or initial lock-up periods of up to three years, and private equity funds that are primarily closed-end funds in which the Company's investments are generally not eligible for redemption. Distributions from these private equity funds will be received as the underlying assets are liquidated or distributed.
6This class of assets includes funds invested in real estate, including a privately held real estate investment trust, a real estate commingled pension trust fund, infrastructure limited partnerships and commingled investment funds. These funds seek current income and capital appreciation through the investments and can be subject to redemption restrictions, ranging from quarterly to semiannually, with a redemption notice period of up to 90 days.
7This class of assets includes segregated portfolios of private investment funds that are invested in a portfolio of insurance-linked securities. These assets can be subject to a semiannual redemption, with a redemption notice period of 90 days, subject to certain gate restrictions.
The following table provides a reconciliation of the beginning and ending balance of Level 3 assets for our U.S. and non-U.S. pension plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Securities
|
Fixed-Income Securities
|
|
Other
|
|
Total
|
2019
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
17
|
|
$
|
16
|
|
|
$
|
270
|
|
|
$
|
303
|
|
Actual return on plan assets
|
1
|
|
—
|
|
|
10
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, and settlements — net
|
1
|
|
21
|
|
|
1
|
|
|
23
|
|
Transfers into Level 3 — net
|
2
|
|
3
|
|
|
—
|
|
|
5
|
|
Net foreign currency translation adjustments
|
—
|
|
—
|
|
|
(8)
|
|
|
(8)
|
|
Balance at end of year
|
$
|
21
|
|
$
|
40
|
|
|
$
|
273
|
|
1
|
$
|
334
|
|
2020
|
|
|
|
|
|
|
Balance at beginning of year
|
$
|
21
|
|
$
|
40
|
|
|
$
|
273
|
|
1
|
$
|
334
|
|
Actual return on plan assets
|
—
|
|
1
|
|
|
6
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, and settlements — net
|
(18)
|
|
(17)
|
|
|
4
|
|
|
(31)
|
|
Transfers into Level 3 — net
|
1
|
|
7
|
|
|
—
|
|
|
8
|
|
Net foreign currency translation adjustments
|
—
|
|
—
|
|
|
19
|
|
|
19
|
|
Balance at end of year
|
$
|
4
|
|
$
|
31
|
|
|
$
|
302
|
|
1
|
$
|
337
|
|
1Includes purchased annuity insurance contracts.
Other Postretirement Benefit Plan Assets
The following table summarizes the levels within the fair value hierarchy for our other postretirement benefit plan assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Level 1
|
Level 2
|
|
Other 1
|
Total
|
|
Level 1
|
Level 2
|
|
Other 1
|
Total
|
Cash and cash equivalents
|
$
|
29
|
|
$
|
1
|
|
|
$
|
—
|
|
$
|
30
|
|
|
$
|
56
|
|
$
|
1
|
|
|
$
|
—
|
|
$
|
57
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.-based companies
|
169
|
|
1
|
|
|
—
|
|
170
|
|
|
124
|
|
—
|
|
|
—
|
|
124
|
|
International-based companies
|
12
|
|
—
|
|
|
—
|
|
12
|
|
|
9
|
|
—
|
|
|
—
|
|
9
|
|
Fixed-income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
—
|
|
3
|
|
|
—
|
|
3
|
|
|
—
|
|
3
|
|
|
—
|
|
3
|
|
Corporate bonds and debt securities
|
—
|
|
80
|
|
|
—
|
|
80
|
|
|
—
|
|
47
|
|
|
—
|
|
47
|
|
Mutual, pooled and commingled funds
|
—
|
|
84
|
|
|
2
|
|
86
|
|
|
—
|
|
2
|
|
|
82
|
|
84
|
|
Hedge funds/limited partnerships
|
—
|
|
—
|
|
|
7
|
|
7
|
|
|
—
|
|
—
|
|
|
7
|
|
7
|
|
Real estate
|
—
|
|
—
|
|
|
4
|
|
4
|
|
|
—
|
|
—
|
|
|
4
|
|
4
|
|
Other
|
—
|
|
—
|
|
|
4
|
|
4
|
|
|
—
|
|
—
|
|
|
4
|
|
4
|
|
Total
|
$
|
210
|
|
$
|
169
|
|
|
$
|
17
|
|
$
|
396
|
|
|
$
|
189
|
|
$
|
53
|
|
|
$
|
97
|
|
$
|
339
|
|
1Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 13.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents; short-term investments; trade accounts receivable; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the relatively short-term maturities of these financial instruments. As of December 31, 2020, the carrying amount and fair value of our long-term debt, including the current portion, were $40,610 million and $43,218 million, respectively. As of December 31, 2019, the carrying amount and fair value of our long-term debt, including the current portion, were $31,769 million and $32,725 million, respectively.
NOTE 17: SIGNIFICANT OPERATING AND NONOPERATING ITEMS
Other Operating Charges
In 2020, the Company recorded other operating charges of $853 million. These charges primarily consisted of $413 million related to the Company's strategic realignment initiatives and $99 million related to the Company's productivity and reinvestment program. In addition, other operating charges included impairment charges of $160 million related to the Odwalla trademark and net charges of $33 million related to discontinuing the Odwalla juice business. Other operating charges also included an impairment charge of $55 million related to a trademark in North America. In addition, other operating charges included $51 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and net charges of $16 million related to the restructuring of our manufacturing operations in the United States. Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 16 for additional information on the impairment charges. Refer to Note 18 for additional information on the Company's strategic realignment initiatives and productivity and reinvestment program. Refer to Note 19 for the impact these charges had on our operating segments and Corporate.
In 2019, the Company recorded other operating charges of $458 million. These charges included $264 million related to the Company's productivity and reinvestment program and $42 million related to the impairment of a trademark in Asia Pacific. In addition, other operating charges included $46 million of transaction costs associated with the purchase of Costa, which we acquired in January 2019, and $95 million for costs incurred to refranchise certain of our North America bottling operations. These costs included, among other items, internal and external costs for individuals directly working on the refranchising efforts, severance, and costs associated with the implementation of information technology systems to facilitate consistent data standards and availability throughout our bottling systems. Refer to Note 2 for additional information on the acquisition of Costa and the refranchising of our bottling operations. Refer to Note 16 for additional information on the trademark impairment charge. Refer to Note 18 for additional information on the Company's productivity and reinvestment program. Refer to Note 19 for the impact these charges had on our operating segments and Corporate.
In 2018, the Company recorded other operating charges of $1,079 million. These charges primarily consisted of $450 million of North America bottling operations' asset impairments and $440 million related to the Company's productivity and reinvestment program. In addition, other operating charges included $139 million related to costs incurred to refranchise certain of our North America bottling operations. Other operating charges also included $33 million related to tax litigation expense and $19 million related to noncapitalizable transaction costs associated with pending and closed transactions. Refer to Note 2 for additional information on the refranchising of our bottling operations. Refer to Note 11 for additional information related to the tax litigation. Refer to Note 18 for additional information on the Company's productivity and reinvestment program. Refer to Note 19 for the impact these charges had on our operating segments and Corporate.
Other Nonoperating Items
Interest Expense
During the year ended December 31, 2020, the Company recorded charges of $484 million related to the extinguishment of certain long-term debt. Refer to Note 10.
During the year ended December 31, 2018, the Company recorded a net gain of $27 million related to the extinguishment of certain long-term debt. Refer to Note 10.
Equity Income (Loss) — Net
The Company recorded net charges of $216 million, $100 million and $111 million in equity income (loss) — net during the years ended December 31, 2020, 2019 and 2018, respectively. These amounts primarily represent the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 19 for the impact these charges had on our operating segments and Corporate.
Other Income (Loss) — Net
In 2020, other income (loss) — net was income of $841 million. The Company recognized a gain of $902 million in conjunction with the fairlife acquisition, a net gain of $148 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, a net gain of $18 million related to the sale of a portion of our ownership interest in one of our equity method investees and a gain of $17 million related to the sale of our ownership interest in an equity method investee in North America. These gains were partially offset by an other-than-temporary impairment charge of $252 million related to CCBJHI, an equity method investee, an other-than-temporary impairment charge of $38 million related to one of our equity method investees in Latin America, an impairment charge of $26 million associated with an investment in an equity security without a readily determinable fair value and a net loss of $55 million related to economic hedging activities. The Company also recorded net charges of $25 million related to the restructuring of our manufacturing operations in the United States and pension and other postretirement benefit plan settlement and curtailment charges of $14 million related to the Company's strategic realignment initiatives. Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 4 for additional information on equity and debt securities. Refer to Note 5 for additional information on our economic hedging activities. Refer to Note 16 for additional information on the impairment charges. Refer to Note 18 for additional information on the Company's strategic realignment initiatives. Refer to Note 19 for the impact these items had on our operating segments and Corporate.
In 2019, other income (loss) — net was income of $34 million. The Company recognized a gain of $739 million on the sale of a retail and office building in New York City. The Company also recognized a net gain of $250 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, a gain of $73 million related to the refranchising of certain bottling operations in India and a gain of $39 million related to the sale of a portion of our ownership interest in Andina. These gains were partially offset by other-than-temporary impairment charges of $406 million related to CCBJHI, an equity method investee, $255 million related to certain equity method investees in the Middle East, $57 million related to one of our equity method investees in North America and $49 million related to one of our equity method investees in Latin America. The Company also recorded an adjustment to reduce the carrying amount of CCBA's fixed assets and definite-lived intangible assets by $160 million and recognized a $118 million net loss in conjunction with our acquisition of the remaining ownership interest in CHI. Additionally, the Company recognized net charges of $105 million primarily related to post-closing adjustments as contemplated by the related agreements associated with the refranchising of certain bottling territories in North America and charges of $4 million primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single new form of bottling agreement with additional requirements. Refer to Note 2 for additional information on the CCBA asset adjustment, refranchising activities, the North America conversion payments, the acquisition of the remaining ownership interest in CHI and the sale of a portion of our ownership interest in Andina. Refer to Note 4 for additional information on equity and debt securities. Refer to Note 19 for the impact these items had on our operating segments and Corporate.
In 2018, other income (loss) — net was a loss of $1,674 million. The Company recorded other-than-temporary impairment charges of $591 million related to certain of our equity method investees, an impairment charge of $554 million related to assets held by CCBA and net charges of $476 million due to the refranchising of certain bottling territories in North America. The Company also recorded a net loss of $278 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, charges of $240 million related to pension settlements, and a net loss of $79 million related to economic hedging activity associated with the purchase of Costa, which we acquired in January 2019. Additionally, we recorded charges of $34 million primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single new form of bottling agreement with additional requirements, a net loss of $33 million primarily related to the reversal of the cumulative translation adjustments resulting from the substantial liquidation of the Company's former Russian juice operations and a $32 million loss related to acquiring a controlling interest in the Philippine bottling operations. These charges were partially offset by a net gain of $296 million related to the sale of our equity ownership in Lindley and a net gain of $47 million related to the refranchising of our Latin American bottling operations. Refer to Note 1 and Note 4 for additional information on equity and debt securities. Refer to Note 2 for additional information on refranchising activities, North America conversion payments, the sale of our equity ownership in Lindley, our acquisition of the controlling interest in the Philippine bottling operations and our acquisition of Costa. Refer to Note 5 for additional information on our hedging activities. Refer to Note 19 for the impact these items had on our operating segments and Corporate.
NOTE 18: RESTRUCTURING
Strategic Realignment
In August 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. We are creating new operating units effective January 1, 2021, which will be focused on regional and local execution. The operating units, which will sit under the four existing geographic segments, will be highly interconnected, with more consistency in their structure and a focus on eliminating duplication of resources and scaling new products more quickly. The operating units will work closely with five global marketing category leadership teams to rapidly scale ideas. The global marketing category leadership teams will primarily focus on innovation, marketing efficiency and effectiveness. The organizational structure will also include our existing center that will provide strategy, governance and scale for global initiatives. The operating units, global marketing category leadership teams and the center will be supported by a platform services organization, which will focus on providing efficient and scaled global services and capabilities including, but not limited to, governance, transactional work, data management, consumer analytics, digital commerce and social/digital hubs.
The expenses related to these strategic realignment initiatives were recorded in the line items other operating charges and other income (loss) — net in our consolidated statement of income. Refer to Note 19 for the impact these expenses had on our operating segments and Corporate. Outside services reported in the table below primarily relate to expenses in connection with legal and consulting activities. The Company currently expects the total cost of the strategic realignment initiatives will be up to $550 million. We expect the new networked organization to be established and functioning at the beginning of 2021, and the platform services activities will be integrated, standardized and scaled over the course of 2021.
The following table summarizes the balance of accrued expenses related to these strategic realignment initiatives (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay
and Benefits
|
|
Outside Services
|
|
Other
Direct Costs
|
|
Total
|
2020
|
|
|
|
|
|
|
|
Costs incurred
|
$
|
386
|
|
|
$
|
37
|
|
|
$
|
4
|
|
|
$
|
427
|
|
Payments
|
(170)
|
|
|
(36)
|
|
|
(1)
|
|
|
(207)
|
|
Noncash and exchange
|
(35)
|
|
1
|
—
|
|
|
—
|
|
|
(35)
|
|
Accrued balance at end of year
|
$
|
181
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
185
|
|
1 Includes stock-based compensation modification and other postretirement benefit plan curtailment charges.
Productivity and Reinvestment Program
In February 2012, the Company announced a productivity and reinvestment program designed to further enable our efforts to strengthen our brands and reinvest our resources to drive long-term profitable growth. This program is focused on the following initiatives: global supply chain optimization; global marketing and innovation effectiveness; operating expense leverage and operational excellence; data and information technology systems standardization; and the integration of Old CCE.
In February 2014, the Company announced the expansion of our productivity and reinvestment program to drive incremental productivity that will primarily be redirected into increased media investments. Our incremental productivity goal consists of two relatively equal components. First, we will expand savings through global supply chain optimization, data and information technology systems standardization, and resource and cost reallocation. Second, we will increase the effectiveness of our marketing investments by transforming our marketing and commercial model to redeploy resources into more consumer-facing marketing investments to accelerate growth.
In October 2014, the Company announced that we were further expanding our productivity and reinvestment program and extending it through 2019. The expansion of the productivity initiatives focused on four key areas: restructuring the Company's global supply chain; implementing zero-based work, an evolution of zero-based budget principles, across the organization; streamlining and simplifying the Company's operating model; and further driving increased discipline and efficiency in direct marketing investments.
In April 2017, the Company announced another expansion of our productivity and reinvestment program. This expansion is focused on achieving additional efficiencies in both our supply chain and our marketing expenditures as well as transitioning to a new, more agile operating model to enable growth. Under this operating model, our business units are supported by an enabling services organization and a corporate center focused on a few strategic initiatives, policy and governance. The enabling services organization focuses on both simplifying and standardizing key transactional processes and providing support
to business units through global centers of excellence. Certain productivity initiatives included in the April 2017 expansion, primarily related to our enabling services organization, will continue beyond 2020.
The Company has incurred total pretax expenses of $3,929 million related to our productivity and reinvestment program since it commenced. These expenses were recorded in the line items other operating charges and other income (loss) — net in our consolidated statements of income. Refer to Note 19 for the impact these charges had on our operating segments and Corporate. Outside services reported in the table below primarily relate to expenses in connection with legal, outplacement and consulting activities. Other direct costs reported in the table below include, among other items, internal and external costs associated with the development, communication, administration and implementation of these initiatives; accelerated depreciation on certain fixed assets; contract termination fees; and relocation costs.
The following table summarizes the balance of accrued expenses related to these productivity and reinvestment initiatives and the changes in the accrued amounts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay
and Benefits
|
|
Outside Services
|
|
Other
Direct Costs
|
|
Total
|
2018
|
|
|
|
|
|
|
|
Accrued balance at beginning of year
|
$
|
190
|
|
|
$
|
1
|
|
|
$
|
15
|
|
|
$
|
206
|
|
Costs incurred
|
164
|
|
|
92
|
|
|
252
|
|
|
508
|
|
Payments
|
(209)
|
|
|
(83)
|
|
|
(211)
|
|
|
(503)
|
|
Noncash and exchange
|
(69)
|
|
1
|
—
|
|
|
(52)
|
|
|
(121)
|
|
Accrued balance at end of year
|
$
|
76
|
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
90
|
|
2019
|
|
|
|
|
|
|
|
Accrued balance at beginning of year
|
$
|
76
|
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
90
|
|
Costs incurred
|
36
|
|
|
87
|
|
|
141
|
|
|
264
|
|
Payments
|
(57)
|
|
|
(98)
|
|
|
(119)
|
|
|
(274)
|
|
Noncash and exchange
|
3
|
|
1
|
2
|
|
|
(19)
|
|
|
(14)
|
|
Accrued balance at end of year
|
$
|
58
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
66
|
|
2020
|
|
|
|
|
|
|
|
Accrued balance at beginning of year
|
$
|
58
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
66
|
|
Costs incurred
|
(12)
|
|
|
69
|
|
|
42
|
|
|
99
|
|
Payments
|
(29)
|
|
|
(70)
|
|
|
(36)
|
|
|
(135)
|
|
Noncash and exchange
|
(2)
|
|
|
—
|
|
|
(11)
|
|
|
(13)
|
|
Accrued balance at end of year
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
17
|
|
1Includes pension settlement charges. Refer to Note 13.
NOTE 19: OPERATING SEGMENTS
Our organizational structure consists of the following operating segments: Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures and Bottling Investments. Our operating structure also includes Corporate, which consists of two components: (1) a center focused on strategic initiatives, policy and governance; and (2) an enabling services organization focused on both simplifying and standardizing key transactional processes and providing support to business units through global centers of excellence.
Segment Products and Services
The business of our Company is nonalcoholic beverages. Our geographic operating segments (Europe, Middle East and Africa; Latin America; North America; and Asia Pacific) derive a majority of their revenues from the manufacture and sale of beverage concentrates and syrups and, in some cases, the sale of finished beverages. Our Global Ventures operating segment includes the results of our Costa, innocent and doğadan businesses as well as fees earned pursuant to distribution coordination agreements between the Company and Monster. Our Bottling Investments operating segment is composed of our consolidated bottling operations, regardless of the geographic location of the bottler. Our Bottling Investments operating segment also includes equity income from the majority of our equity method investees. Our consolidated bottling operations derive the majority of their revenues from the sale of finished beverages. Generally, finished product operations produce higher net operating revenues but lower gross profit margins compared to concentrate operations. Refer to Note 3.
The following table sets forth the percentage of total net operating revenues attributable to concentrate operations and finished product operations:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
Concentrate operations
|
56
|
%
|
55
|
%
|
58
|
%
|
Finished product operations
|
44
|
|
45
|
|
42
|
|
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
Method of Determining Segment Income or Loss
Management evaluates the performance of our operating segments separately to individually monitor the different factors affecting financial performance. Our Company manages income taxes and certain treasury-related items, such as interest income and expense, on a global basis within Corporate. We evaluate segment performance based primarily on net operating revenues and operating income (loss).
Geographic Data
The following table provides information related to our net operating revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
United States
|
$
|
11,281
|
|
$
|
11,715
|
|
$
|
11,344
|
|
International
|
21,733
|
|
25,551
|
|
22,956
|
|
Net operating revenues
|
$
|
33,014
|
|
$
|
37,266
|
|
$
|
34,300
|
|
The following table provides information related to our property, plant and equipment — net (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
United States
|
$
|
3,988
|
|
$
|
4,062
|
|
$
|
4,154
|
|
International
|
6,789
|
|
6,776
|
|
5,444
|
|
Property, plant and equipment — net
|
$
|
10,777
|
|
$
|
10,838
|
|
$
|
9,598
|
|
Information about our Company's operations by operating segment and Corporate as of and for the years ended December 31, 2020, 2019 and 2018 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe,
Middle East & Africa
|
|
Latin
America
|
|
North
America
|
|
Asia Pacific
|
|
Global Ventures
|
|
Bottling
Investments
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
$
|
5,534
|
|
|
$
|
3,499
|
|
|
$
|
11,473
|
|
|
$
|
4,213
|
|
|
$
|
1,991
|
|
|
$
|
6,258
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
33,014
|
|
|
Intersegment
|
523
|
|
|
—
|
|
|
4
|
|
|
509
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
(1,043)
|
|
|
—
|
|
|
Total net operating revenues
|
6,057
|
|
|
3,499
|
|
|
11,477
|
|
|
4,722
|
|
|
1,991
|
|
|
6,265
|
|
|
46
|
|
|
(1,043)
|
|
|
33,014
|
|
|
Operating income (loss)
|
3,313
|
|
|
2,116
|
|
|
2,471
|
|
|
2,133
|
|
|
(123)
|
|
|
308
|
|
|
(1,221)
|
|
|
—
|
|
|
8,997
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
295
|
|
|
—
|
|
|
370
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,437
|
|
|
—
|
|
|
1,437
|
|
|
Depreciation and amortization
|
86
|
|
|
45
|
|
|
439
|
|
|
47
|
|
|
122
|
|
|
551
|
|
|
246
|
|
|
—
|
|
|
1,536
|
|
|
Equity income (loss) — net
|
31
|
|
|
(72)
|
|
|
—
|
|
|
8
|
|
|
(9)
|
|
|
779
|
|
|
241
|
|
|
—
|
|
|
978
|
|
|
Income (loss) before income taxes
|
3,379
|
|
|
2,001
|
|
|
2,500
|
|
|
2,158
|
|
|
(120)
|
|
|
898
|
|
|
(1,067)
|
|
|
—
|
|
|
9,749
|
|
|
Identifiable operating assets
|
8,098
|
|
2
|
1,597
|
|
|
19,444
|
|
|
2,073
|
|
3
|
7,575
|
|
|
10,521
|
|
2,3
|
17,903
|
|
|
—
|
|
|
67,211
|
|
|
Investments1
|
517
|
|
|
603
|
|
|
345
|
|
|
240
|
|
|
4
|
|
|
14,183
|
|
|
4,193
|
|
|
—
|
|
|
20,085
|
|
|
Capital expenditures
|
27
|
|
|
6
|
|
|
182
|
|
|
20
|
|
|
261
|
|
|
474
|
|
|
207
|
|
|
—
|
|
|
1,177
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
$
|
6,434
|
|
|
$
|
4,118
|
|
|
$
|
11,906
|
|
|
$
|
4,723
|
|
|
$
|
2,560
|
|
|
$
|
7,431
|
|
|
$
|
94
|
|
|
$
|
—
|
|
|
$
|
37,266
|
|
|
Intersegment
|
624
|
|
|
—
|
|
|
9
|
|
|
604
|
|
|
2
|
|
|
9
|
|
|
—
|
|
|
(1,248)
|
|
|
—
|
|
|
Total net operating revenues
|
7,058
|
|
|
4,118
|
|
|
11,915
|
|
|
5,327
|
|
|
2,562
|
|
|
7,440
|
|
|
94
|
|
|
(1,248)
|
|
|
37,266
|
|
|
Operating income (loss)
|
3,551
|
|
|
2,375
|
|
|
2,594
|
|
|
2,282
|
|
|
334
|
|
|
358
|
|
|
(1,408)
|
|
|
—
|
|
|
10,086
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
486
|
|
|
—
|
|
|
563
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
946
|
|
|
—
|
|
|
946
|
|
|
Depreciation and amortization
|
86
|
|
|
35
|
|
|
439
|
|
|
31
|
|
|
117
|
|
|
446
|
|
|
211
|
|
|
—
|
|
|
1,365
|
|
|
Equity income (loss) — net
|
35
|
|
|
(32)
|
|
|
(6)
|
|
|
11
|
|
|
(3)
|
|
|
836
|
|
|
208
|
|
|
—
|
|
|
1,049
|
|
|
Income (loss) before income taxes
|
3,361
|
|
|
2,288
|
|
|
2,592
|
|
|
2,310
|
|
|
343
|
|
|
716
|
|
|
(824)
|
|
|
—
|
|
|
10,786
|
|
|
Identifiable operating assets
|
8,143
|
|
2
|
1,801
|
|
|
17,687
|
|
|
2,060
|
|
|
7,265
|
|
|
11,170
|
|
2
|
18,376
|
|
|
—
|
|
|
66,502
|
|
|
Investments1
|
543
|
|
|
716
|
|
|
358
|
|
|
224
|
|
|
14
|
|
|
14,093
|
|
|
3,931
|
|
|
—
|
|
|
19,879
|
|
|
Capital expenditures
|
108
|
|
|
140
|
|
|
392
|
|
|
47
|
|
|
209
|
|
|
836
|
|
|
322
|
|
|
—
|
|
|
2,054
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
$
|
6,535
|
|
|
$
|
3,971
|
|
|
$
|
11,370
|
|
|
$
|
4,797
|
|
|
$
|
767
|
|
|
$
|
6,768
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
34,300
|
|
|
Intersegment
|
564
|
|
|
39
|
|
|
260
|
|
|
388
|
|
|
3
|
|
|
19
|
|
|
—
|
|
|
(1,273)
|
|
|
—
|
|
|
Total net operating revenues
|
7,099
|
|
|
4,010
|
|
|
11,630
|
|
|
5,185
|
|
|
770
|
|
|
6,787
|
|
|
92
|
|
|
(1,273)
|
|
|
34,300
|
|
|
Operating income (loss)
|
3,693
|
|
|
2,318
|
|
|
2,318
|
|
|
2,271
|
|
|
152
|
|
|
(197)
|
|
|
(1,403)
|
|
|
—
|
|
|
9,152
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
689
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
950
|
|
|
—
|
|
|
950
|
|
|
Depreciation and amortization
|
77
|
|
|
30
|
|
|
422
|
|
|
58
|
|
|
8
|
|
|
239
|
|
|
252
|
|
|
—
|
|
|
1,086
|
|
|
Equity income (loss) — net
|
2
|
|
|
(19)
|
|
|
(2)
|
|
|
12
|
|
|
—
|
|
|
828
|
|
|
187
|
|
|
—
|
|
|
1,008
|
|
|
Income (loss) before income taxes
|
3,386
|
|
|
2,243
|
|
|
2,345
|
|
|
2,298
|
|
|
165
|
|
|
(159)
|
|
|
(2,053)
|
|
|
—
|
|
|
8,225
|
|
|
Capital expenditures
|
66
|
|
|
90
|
|
|
429
|
|
|
31
|
|
|
11
|
|
|
517
|
|
|
404
|
|
|
—
|
|
|
1,548
|
|
|
1 Principally equity method investments and other investments in bottling companies.
2 Property, plant and equipment — net in South Africa represented 15 percent and 16 percent of consolidated property, plant and equipment — net in 2020 and 2019, respectively.
3 Property, plant and equipment — net in the Philippines represented 10 percent of consolidated property, plant and equipment — net in 2020.
During 2020, 2019 and 2018, our operating segments and Corporate were impacted by acquisition and divestiture activities. Refer to Note 2.
In 2020, the results of our operating segments and Corporate were impacted by the following items:
•Operating income (loss) and income (loss) before income taxes for North America were reduced by $160 million related to the impairment of the Odwalla trademark and $33 million related to the cost of discontinuing the Odwalla juice business.
•Operating income (loss) and income (loss) before income taxes were reduced by $145 million and $153 million, respectively, for Corporate, $31 million and $30 million, respectively, for Asia Pacific, $21 million and $26 million, respectively, for Bottling Investments and $19 million and $21 million, respectively, for Latin America due to the Company's strategic realignment initiatives. Additionally, operating income (loss) and income (loss) before income taxes were reduced by $115 million for North America, $78 million for Europe, Middle East and Africa and $4 million for Global Ventures due to the Company's strategic realignment initiatives. Refer to Note 18.
•Operating income (loss) and income (loss) before income taxes were reduced by $104 million for Corporate due to the Company's productivity and reinvestment program. Operating income (loss) and income (loss) before income taxes were increased by $5 million for Europe, Middle East and Africa due to the refinement of previously established accruals related to the Company's productivity and reinvestment program. Refer to Note 18.
•Operating income (loss) and income (loss) before income taxes were reduced by $59 million and $84 million, respectively, for North America related to the restructuring of our manufacturing operations in the United States.
•Operating income (loss) and income (loss) before income taxes were reduced by $55 million for North America related to the impairment of a trademark. Refer to Note 16.
•Operating income (loss) and income (loss) before income taxes were reduced by $51 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
•Income (loss) before income taxes was increased by $902 million for Corporate in conjunction with our fairlife acquisition, which resulted from the remeasurement of our previously held equity interest in fairlife to fair value. Refer to Note 2.
•Income (loss) before income taxes was increased by $148 million for Corporate 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. Refer to Note 4.
•Income (loss) before income taxes was increased by $18 million for Corporate related to the sale of a portion of our ownership interest in one of our equity method investees.
•Income (loss) before income taxes was increased by $17 million for Corporate related to the sale of our ownership interest in one of our equity method investees.
•Income (loss) before income taxes was reduced by $484 million for Corporate related to charges associated with the extinguishment of certain long-term debt. Refer to Note 10.
•Income (loss) before income taxes was reduced by $252 million for Bottling Investments and $38 million for Latin America due to other-than-temporary impairment charges related to certain of our equity method investees. Refer to Note 16.
•Income (loss) before income taxes was reduced by $145 million for Bottling Investments, $70 million for Latin America and $1 million for North America due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
•Income (loss) before income taxes was reduced by $26 million for Corporate due to an impairment charge associated with an investment in an equity security without a readily determinable fair value. Refer to Note 16.
In 2019, the results of our operating segments and Corporate were impacted by the following items:
•Operating income (loss) and income (loss) before income taxes were reduced by $2 million for Europe, Middle East and Africa, $1 million for Latin America, $62 million for North America, $5 million for Bottling Investments and $194 million for Corporate due to the Company's productivity and reinvestment program. Refer to Note 18.
•Operating income (loss) and income (loss) before income taxes were reduced by $95 million for Bottling Investments due to costs incurred to refranchise certain of our North America bottling operations.
•Operating income (loss) and income (loss) before income taxes were reduced by $46 million for Corporate related to transaction costs associated with the purchase of Costa, which we acquired in January 2019. Refer to Note 2.
•Operating income (loss) and income (loss) before income taxes were reduced by $42 million for Asia Pacific due to an impairment charge related to a trademark. Refer to Note 16.
•Income (loss) before income taxes was increased by $739 million for Corporate as a result of the sale of a retail and office building in New York City.
•Income (loss) before income taxes was increased by $250 million for Corporate 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. Refer to Note 4.
•Income (loss) before income taxes was increased by $73 million for Bottling Investments due to the refranchising of certain bottling operations in India. Refer to Note 2.
•Income (loss) before income taxes was increased by $39 million for Corporate related to the sale of a portion of our ownership interest in Andina. Refer to Note 2.
•Income (loss) before income taxes was reduced by $406 million for Bottling Investments, $255 million for Europe, Middle East and Africa, $57 million for North America and $49 million for Latin America due to other-than-temporary impairment charges related to certain of our equity method investees. Refer to Note 16.
•Income (loss) before income taxes was reduced by $160 million for Corporate as a result of CCBA asset adjustments. Refer to Note 2.
•Income (loss) before income taxes was reduced by $118 million for Corporate resulting from a net loss in conjunction with our acquisition of the remaining ownership interest in CHI. Refer to Note 2.
•Income (loss) before income taxes was reduced by $105 million for Bottling Investments due to the refranchising of certain bottling territories in North America. Refer to Note 2.
•Income (loss) before income taxes was reduced by $98 million for Bottling Investments and $2 million for Corporate due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
In 2018, the results of our operating segments and Corporate were impacted by the following items:
•Operating income (loss) and income (loss) before income taxes were reduced by $4 million for Latin America, $175 million for North America, $31 million for Bottling Investments and $237 million for Corporate, and were increased by $3 million for Europe, Middle East and Africa and $4 million for Asia Pacific due to the Company's productivity and reinvestment program, including refinements to prior period accruals. In addition, income (loss) before income taxes was reduced by $64 million for Corporate and $4 million for Latin America due to pension settlements related to the Company's productivity and reinvestment program. Refer to Note 13 and Note 18.
•Operating income (loss) and income (loss) before income taxes were reduced by $450 million for Bottling Investments due to asset impairment charges.
•Operating income (loss) and income (loss) before income taxes were reduced by $139 million for Bottling Investments due to costs incurred to refranchise certain of our bottling operations.
•Operating income (loss) and income (loss) before income taxes were reduced by $33 million for Corporate due to tax litigation expense. Refer to Note 11.
•Operating income (loss) and income (loss) before income taxes were reduced by $19 million for Corporate related to noncapitalizable transaction costs associated with pending and closed transactions.
•Income (loss) before income taxes was increased by $296 million for Corporate related to the sale of our equity ownership in Lindley. Refer to Note 2.
•Income (loss) before income taxes was increased by $47 million for Corporate related to the refranchising of our Latin American bottling operations. Refer to Note 2.
•Income (loss) before income taxes was increased by $27 million for Corporate related to a net gain on the extinguishment of certain long-term debt. Refer to Note 10.
•Income (loss) before income taxes was reduced by $554 million for Corporate as a result of an impairment charge related to assets held by CCBA. Refer to Note 2.
•Income (loss) before income taxes was reduced by $476 million for Bottling Investments due to the refranchising of certain bottling territories in North America. Refer to Note 2.
•Income (loss) before income taxes was reduced by $334 million for Europe, Middle East and Africa, $205 million for Bottling Investments and $52 million for Latin America due to other-than-temporary impairment charges related to certain of our equity method investees.
•Income (loss) before income taxes was reduced by $278 million for Corporate 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. Refer to Note 4.
•Income (loss) before income taxes was reduced by $124 million for Bottling Investments and was increased by $13 million for Corporate due to the Company's proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
•Income (loss) before income taxes was reduced by $149 million for Bottling Investments due to pension settlements related to the refranchising of certain of our North America bottling operations. Refer to Note 13.
•Income (loss) before income taxes was reduced by $79 million for Corporate related to economic hedging activity associated with the purchase of Costa, which we acquired in January 2019.
•Income (loss) before income taxes was reduced by $34 million for North America primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single new form of bottling agreement with additional requirements. Refer to Note 2.
•Income (loss) before income taxes was reduced by $33 million for Bottling Investments primarily due to the reversal of the cumulative translation adjustments resulting from the substantial liquidation of the Company's former Russian juice operations.
•Income (loss) before income taxes was reduced by $32 million for Corporate related to acquiring a controlling interest in the Philippine bottling operations. Refer to Note 2.
NOTE 20: NET CHANGE IN OPERATING ASSETS AND LIABILITIES
Net cash provided by (used in) operating activities attributable to the net change in operating assets and liabilities was composed of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2020
|
2019
|
2018
|
(Increase) decrease in trade accounts receivable1
|
$
|
882
|
|
$
|
(158)
|
|
$
|
27
|
|
(Increase) decrease in inventories
|
99
|
|
(183)
|
|
(203)
|
|
(Increase) decrease in prepaid expenses and other assets
|
78
|
|
(87)
|
|
(221)
|
|
Increase (decrease) in accounts payable and accrued expenses2
|
(860)
|
|
1,318
|
|
(251)
|
|
Increase (decrease) in accrued income taxes
|
(16)
|
|
96
|
|
(17)
|
|
Increase (decrease) in other liabilities3
|
507
|
|
(620)
|
|
(575)
|
|
Net change in operating assets and liabilities
|
$
|
690
|
|
$
|
366
|
|
$
|
(1,240)
|
|
1 The decrease in trade accounts receivable in 2020 was primarily due to the impacts of the COVID-19 pandemic and the start of a trade accounts receivable factoring program. Refer to Note 1 for additional information on the factoring program.
2 The decrease in accounts payable and accrued expenses in 2020 was primarily driven by the impacts of the COVID-19 pandemic and incentive payments related to prior year exceeding current year incentive accruals. The increase in accounts payable and accrued expenses in 2019 was primarily due to extending payment terms with our suppliers.
3 The increase in other liabilities in 2020 was primarily due to the increase in tax reserves related to IRS litigation. Refer to Note 11.
REPORT OF MANAGEMENT
Management's Responsibility for the Financial Statements
Management of the Company is responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with accounting principles generally accepted in the United States appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates. Financial information in this report is consistent with that in the financial statements.
Management of the Company is responsible for establishing and maintaining a system of internal controls and procedures to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control system is supported by a program of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written Code of Business Conduct adopted by our Company's Board of Directors, applicable to all officers and employees of our Company and subsidiaries. In addition, our Company's Board of Directors adopted a written Code of Business Conduct for Non-Employee Directors which reflects the same principles and values as our Code of Business Conduct for officers and employees but focuses on matters of relevance to non-employee Directors.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 ("Exchange Act"). Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) ("COSO") in Internal Control—Integrated Framework. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2020.
The Company's independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit Committee of the Company's Board of Directors, subject to ratification by our Company's shareowners. Ernst & Young LLP has audited and reported on the consolidated financial statements of The Coca-Cola Company and subsidiaries and the Company's internal control over financial reporting. The reports of the independent auditors are contained in this report.
Audit Committee's Responsibility
The Audit Committee of our Company's Board of Directors, composed solely of Directors who are independent in accordance with the requirements of the New York Stock Exchange listing standards, the Exchange Act, and the Company's Corporate Governance Guidelines, meets with the independent auditors, management and internal auditors periodically to discuss internal controls along with auditing and financial reporting matters. The Audit Committee reviews with the independent auditors the scope and results of the audit effort. The Audit Committee also meets periodically with the independent auditors and the chief internal auditor without management present to ensure that the independent auditors and the chief internal auditor have free access to the Audit Committee. Our Audit Committee's Report can be found in the Company's 2021 Proxy Statement.