10-QPeriod: Q3 FY2007

COCA COLA CO Quarterly Report for Q3 Ended Sep 28, 2007

Filed October 24, 2007For Securities:KO

Summary

The Coca-Cola Company reported strong top-line growth for the nine months ended September 28, 2007, with net operating revenues increasing by 19% year-over-year to $21.5 billion. This growth was driven by a combination of increased concentrate sales volume (6%), strategic acquisitions and consolidations (structural changes contributing 7%), favorable price/product/geographic mix (3%), and positive currency fluctuations (3%). Net income also saw a healthy increase, rising to $4.77 billion from $4.40 billion in the prior year period. The company demonstrated robust operating cash flow of $5.46 billion, although investing activities showed a significant outflow of $4.61 billion primarily due to substantial acquisitions. Financing activities shifted from a net outflow in the prior year to a net inflow in the current period, largely driven by increased debt issuances to fund these acquisitions.

Key Highlights

  • 1Net operating revenues grew 19% to $21.5 billion for the nine months ended September 28, 2007.
  • 2Net income increased to $4.77 billion for the nine months ended September 28, 2007, up from $4.40 billion in the prior year.
  • 3Operating cash flow was strong at $5.46 billion for the nine months ended September 28, 2007.
  • 4Significant strategic acquisitions, including glacéau, 18 German bottling operations, and CCBPI, drove a substantial increase in investing activities ($4.61 billion used).
  • 5Financing activities generated positive cash flow of $1.23 billion for the nine months ended September 28, 2007, compared to a significant outflow in the prior year, primarily due to increased debt issuances for acquisitions.
  • 6Global unit case volume increased by 6% for both the third quarter and the first nine months of 2007.
  • 7The company adopted Interpretation No. 48, clarifying accounting for income tax uncertainties, resulting in a $66 million increase in accrued income taxes for unrecognized tax benefits.

Frequently Asked Questions

Revenue growth was primarily driven by a 6% increase in concentrate sales volume, 7% from structural changes (acquisitions and consolidations), 3% from favorable price and product/geographic mix, and 3% from positive currency fluctuations. The company's strategic acquisitions, such as glacéau and German bottling operations, significantly contributed to the structural changes that boosted revenues.

The company primarily financed its acquisitions through a combination of increased debt issuances, including commercial paper and short-term debt, totaling approximately $7.09 billion in issuances for the nine months ended September 28, 2007. This led to a significant shift from a net cash outflow in financing activities in the prior year to a net cash inflow in the current period.

Acquisitions, particularly glacéau, 18 German bottling operations, and CCBPI, had a significant impact. They led to substantial increases in net operating revenues, investing cash outflows, long-term debt, goodwill, and intangible assets on the balance sheet. The consolidation of these acquired businesses also contributed to higher selling, general, and administrative expenses.

The company reported a favorable impact from currency fluctuations in the nine months ended September 28, 2007, driven by a stronger euro and Brazilian real. Based on current rates and hedging, they expected a mid single-digit favorable impact on operating income for the fourth quarter of 2007.