01—Abstract
Summary
Summary of the 10-K/A filed March 13, 2002. Cited figures are marked; the original filing is the authoritative source.
This filing is Amendment No. 1 to The Coca-Cola Company's 2001 Form 10-K.
It was filed solely to correct a typographical error in the 2000 'Balance at end of year' cash figure in Exhibit 13.1 (Annual Report), changing $1,891 million to $1,819 milliona. No other changes were made, so the underlying 2001 results are those of the original annual report. The amended exhibit shows a strong rebound in 2001.
Net operating revenues rose 1% to $20.1 billionb, while operating income jumped 45% to $5.35 billion, helped by the absence of roughly $1.44 billion in 2000 nonrecurring charges. Diluted EPS rose to $1.60 from $0.88, and operating cash flow grew 15% to $4.1 billion, producing free cash flow of $3.1 billion. Gross margin improved to 69.9% and operating margin to 26.6%.
Looking forward, management is signaling a shift in capital allocation. The quarterly dividend was raised to $0.20c ($0.80 annualized, the 40th consecutive annual increase), but the board intends to gradually lower the payout ratio from about 45% to 30% of net income to free cash for reinvestment.
Share repurchases are expected to rise to $750 million to $1 billiond in 2002. Key items for investors include a non-cash charge of roughly $1 billion pretax on adopting SFAS 142 in Q1 2002, the planned reclassification of about $2.6 billion of payments to bottlers and customers from SG&A into revenue deductions under EITF 00-25 (which lowers reported revenue but not operating income), the assumption of control of German bottler CCEAG (adding $700 to $800 million of debt), and expected effective tax rate of about 27.5% in 2002.
02—Key points
Key Highlights
- Amendment purpose: Filed only to correct a typo in the 2000 year-end cash balance in Exhibit 13.1 ($1,891M corrected to $1,819M); no other financial changes
- 2001 earnings rebound: Net income rose to $3.97B from $2.18B, and diluted EPS rose 82% to $1.60 from $0.88, though the 2000 comparison was depressed by about $1.44B of nonrecurring charges
- Operating performance: Net operating revenues grew 1% to $20.09B, operating income rose 45% to $5.35B, gross margin reached 69.9%, and operating margin reached 26.6% (vs. 18.6% in 2000)
- Cash generation and balance sheet: Operating cash flow was $4.11B (+15%), free cash flow was $3.15B, and net debt fell to $3.3B from $3.9B, with net debt-to-net capital at 23%; long-term debt is rated A+ (S&P) and Aa3 (Moody's)
- Capital return policy shift: Dividend of $0.72 in 2001 rising to $0.80 annualized for 2002 (40th straight annual increase), with the payout ratio (about 45%) to be reduced toward 30% over time, and 2002 buybacks planned at $750M to $1B
- Accounting changes with notable impact: SFAS 142 is expected to produce a non-cash pretax charge of about $1B in Q1 2002 (offset by roughly $60M lower amortization plus about $150M higher equity income), and EITF 00-25 will reclassify about $2.6B from SG&A into revenue deductions, reducing reported revenue without changing operating income
- Bottler consolidation: The company assumed control of CCEAG (Germany) in early 2002, a business combination expected to add $700M to $800M of debt, and it is acquiring 62.3% of Cosmos Bottling (Philippines), with a tender offer expected to close in March 2002
03—Questions
Frequently Asked Questions
Does this amended filing change the company's 2001 financial results?
No. Amendment No. 1 corrects only a typographical error in the 2000 year-end cash balance shown in Exhibit 13.1, changing $1,891 million to $1,819 million. The 2001 financial statements and all other disclosures are unchanged from the original 10-K.
Why did 2001 operating income rise 45% if revenue grew only 1%?
Much of the increase reflects the non-recurrence of 2000 nonrecurring charges totaling about $1.44B (including $405M of asset impairments, $850M of Realignment costs, and $188M of litigation and donation costs). Underlying 2001 drivers included higher gallon shipments, selective price increases, consolidation of Nordic and Brazilian bottlers, and improved gross margin, partly offset by a stronger U.S. dollar and divestitures.
Is the dividend safe, and what does the planned payout reduction mean?
The dividend was raised to $0.20 quarterly ($0.80 annualized for 2002) and has increased for 40 consecutive years, and 2001 free cash flow of $3.1B comfortably covered $1.8B of dividends. The board plans to gradually lower the payout ratio from about 45% to 30% of net income to free up cash for reinvestment in the beverage business, which implies slower dividend growth relative to earnings over time, though absolute dividends can still rise.
What accounting changes in 2002 could affect how investors read the reported numbers?
Two changes stand out. SFAS 142 will likely trigger a one-time non-cash charge of about $1B pretax in Q1 2002 (recorded as a cumulative effect of accounting change), while goodwill amortization ends. Separately, EITF 00-25 will reclassify about $2.6B of payments to bottlers and customers from SG&A into deductions from revenue, lowering reported net operating revenues and gross margin optics for 2002, with prior periods restated, but with no effect on operating income.
How are the bottler investments and CCEAG transaction affecting the company's balance sheet risk?
The company holds significant equity stakes in bottlers, including about 38% of Coca-Cola Enterprises (with an investment carrying value well below fair value) and about 41% of CCEAG. Assuming control of CCEAG, valued at about $600M in present value of payments to other owners, will raise debt by $700M to $800M. Management says the company has no legal obligation for bottler debt, but S&P and Moody's consider the strategic importance of bottlers when rating the company, so a downgrade could raise interest costs.
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