The Coca-Cola Company - Financial Analysis and Projections

The Coca-Cola Company

NYSE: KO

www.coca-cola.com


Financial Statement Analysis

Industry Analysis

Business Plan

• Company Overview

• The Coca-Cola

System

• Global Operations

• CCE NA Acquisition

Company Overview

• World’s largest beverage company• Market presence in 206 countries/territories• Own or license/market 500+ nonalcoholic brands

– Own/market 4 of world’s top 5 nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta, & Sprite

• World’s largest beverage distribution system• Headquartered in Atlanta, GA• Employs 146,200 worldwide• Revenue per Employee (TTM): $325,595• Consumers enjoy 1.8 billion servings of Coke products

daily• Market cap: $163.39BSource: TheStreet and CCC 2011 Form 10K 3

The Coca-Cola System

4 4

COMPANY

CONSUMERS

BOTTLERS

CUSTOMERS

Global OperationsPresence in 206 countries/7 operating groups

5

North America

Latin America

Europe

Eurasia &

Africa

Pacific

• Bottling Investments

• Corporate

Acquisition of CCE’s NA Business

• Coca-Coca Enterprise’s North America business– October 2010, Q4– $12.3 billion deal– Gain of $14.327 billion in intangible assets, including goodwill– $21 billion in revenue and various synergies that helped Coke

slash $350 million in annual costs

• Divestiture of Norwegian/Swedish Bottling Operations– Sold all ownership interests to New CCE for $900 million in cash– Finished products business, had a positive impact on gross

profit margins and operating margins– Gain of $597 million in 2010 (as “other income”)

Source: 2011 Form 10K 6



Industry Analysis

Business Plan

• Consolidated

Income Statements

• Operating Group

Highlights

• Consolidated

Balance Sheets

• Consolidated

Statements of Cash

Flows

• Financial Ratios

Consolidated Income Statements

8

2010 2009

Actual % Rev Actual % Rev Actual % Rev

NET OPERATING REVENUES $46,542 100% $35,119 100% $30,990 100%

Cost of goods sold (18,216) (39.14%) (12,693) (36.14%) (11,088) (35.78%)

GROSS PROFIT 28,326 60.86% 22,426 63.86% 19,902 64.22%

Selling, general and administrative expenses (17,440) (37.47%) (13,158) (37.47%) (11,358) (36.65%)

Other operating charges (732) (1.57%) (819) (2.33%) (313) (1.01%)

OPERATING INCOME 10,154 21.82% 8,449 24.06% 8,231 26.56%

Total Other Income/ Expenses Net 1,702 2.76% 6,527 16.50% 1,070 3.45%

EARNINGS BEFORE INTEREST AND TAXES 11,856 25.47% 14,976 42.64% 9,301 30.01%

Interest Expense (417) (0.90%) (733) (2.09%) (355) (1.15%)

INCOME BEFORE INCOME TAXES 11,439 24.58% 14,243 40.56% 8,946 28.87%

Income taxes (2,805) (6.03%) (2,384) (6.79%) (2,040) (6.58%)

CONSOLIDATED NET INCOME 8,634 18.55% 11,859 33.77% 6,906 22.28%

Less: Net income attributable to noncontrolling interests (62) (0.13%) (50) (0.14%) (82) (0.26%)

NET INCOME ATTRIBUTABLE TO SHAREOWNERS $8,572 18.42% $11,809 33.63% $6,824 22.02%

2011

Year Ending December 31

(In millions, except per share data)

2011 Operating Group Highlights

22.8%

27.7%

30.4%

10.8%

21.2%

2.2%

-15.1%

Percent Contribution to Operating Income by Segment

North America

Latin America

Europe

Eurasia & Africa

Pacific

Bottling Investments

Corporate

Operating Income Totaled $10,154 million in 2011


Operating Group Contributions to Operating Income (in millions)

NA LA Europe E & A Pac. Bott. Inv.

$(2,000)

$(1,000)

$-

$1,000

$2,000

$3,000

$4,000

$2,318

$2,815 $3,090

$1,091

$2,151

$224

$(1,533)2011 2010 2009

Source: 2011 Operating Groups at a Glance 10

Corp.

Consolidated Balance Sheets

11

Actual % Tot. Assets Actual % Tot. Assets Actual % Tot. Assets

ASSETS

CURRENT ASSETS

Cash and cash equivalents $12,803 16.01% $8,517 11.68% $7,021 14.43%

Short-term investments 1,088 1.36% 2,682 3.68% 2,192 4.50%

TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 13,891 17.37% 11,199 15.36% 9,213 18.93%

Marketable securities 144 0.18% 138 0.19% - -

Trade accounts receivable, less allowances of $83 and $48, respectively 4,920 6.15% 4,430 6.08% 3,758 7.72%

Inventories 3,092 3.87% 2,650 3.63% 2,354 4.84%

Prepaid expenses and other assets 3,450 4.31% 3,126 4.29% 2,226 4.57%

TOTAL CURRENT ASSETS 25,497 31.88% 21,579 29.59% 17,551 36.06%

LONG-TERM INVESTMENTS 8,374 10.47% 7,585 10.40% 6,755 13.88%

OTHER LONG-TERM ASSETS - total 3,495 4.37% 2,121 2.91% 1,976 4.06%

PROPERTY, PLANT AND EQUIPMENT - net 14,939 18.68% 14,727 20.20% 9,561 19.64%

GOODWILL 12,219 15.28% 11,665 16.00% 4,224 8.68%

INTANGIBLE ASSETS - net 15,450 19.32% 15,244 20.90% 8,604 17.68%

TOTAL ASSETS $79,974 100% $72,921 100% $48,671 100%

2009


(In millions, except par value)

2011 2010

Consolidated Balance Sheets

12

Actual % Tot. L & E Actual % Tot. L & E Actual % Tot. L & E

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable and accrued expenses $9,009 11.26% $8,859 12.15% $6,657 13.68%

Loans and notes payable 12,871 16.09% 8,100 11.11% 6,749 13.87%

Current maturities of long-term debt 2,041 2.55% 1,276 1.75% 51 0.10%

Accrued income taxes 362 0.45% 273 0.37% 264 0.54%

TOTAL CURRENT LIABILITIES 24,283 30.36% 18,508 25.38% 13,721 28.19%

LONG-TERM DEBT 13,656 17.08% 14,041 19.26% 5,059 10.39%

OTHER LIABILITIES 5,420 6.78% 4,794 6.57% 2,965 6.09%

DEFERRED INCOME TAX 4,694 5.87% 4,261 5.84% 1,580 3.25%

MINORITY INTEREST 286 0.36% 314 0.43% 547 1.12%

TOTAL LIABILITIES 48,339 60.44% 41,918 57.48% 23,872 49.05%

THE COCA-COLA COMPANY SHAREOWNERS' EQUITY Common stock, $0.25 par value; Authorized - 5,600 shares;

Issued - 3,520 and 3,520 shares, respectively 880 1.10% 880 1.21% 880 1.81%

Additional paid-in capital 11,212 14.02% 10,057 13.79% 8,537 17.54%

Retained earnings (accumulated deficit) 53,550 66.96% 49,278 67.58% 41,537 85.34%

Other equity - total (2,703) (3.38%) (1,450) (1.99%) (757) (1.56%)

Treasury stock, at cost - 1,257 and 1,228 shares, respectively (31,304) (39.14%) (27,762) (38.07%) (25,398) (52.18%)

TOTAL EQUITY 31,635 39.56% 31,003 42.52% 24,799 50.95%

TOTAL LIABILITIES AND EQUITY $79,974 100% $72,921 100% $48,671 100%

2009


(In millions, except par value)

2011 2010

Consolidated Statements ofCash Flows

13

2011 2010 2009

OPERATING ACTIVITIES

Consolidated net income $8,634 $11,859 $6,906

Depreciation and amortization 1,954 1,443 1,236

Stock-based compensation expense 354 380 241

Deferred income taxes 1,028 617 353

Equity (income) loss - net of dividends (269) (671) (359)

Foreign currency adjustments 7 151 61

Significant (gains) losses on sales of assets - net (220) (645) (43)

Other significant (gains) losses - net — (4,713) —

Other operating charges 214 264 134

Other items (335) 477 221

Net change in operating assets and liabilities (1,893) 370 (564)

Net cash provided by operating activities 9,474 9,532 8,186

INVESTING ACTIVITIES

Purchases of short-term investments (4,057) (4,759) (2,130)

Proceeds from disposals of short-term investments 5,647 4,032 —

Acquisitions and investments (977) (2,511) (300)

Purchases of other investments (787) (132) (22)

Proceeds from disposals of bottling companies and other investments 562 972 240

Purchases of property, plant and equipment (2,920) (2,215) (1,993)

Proceeds from disposals of property, plant and equipment 101 134 104

Other investing activities (93) (106) (48)

Net cash provided by (used in) investing activities (2,524) (4,405) (4,149)


(In millions)

Consolidated Statements ofCash Flows

14

2011 2010 2009

FINANCING ACTIVITIES

Issuances of debt 27,495 15,251 14,689

Payments of debt (22,530) (13,403) (12,326)

Issuances of stock 1,569 1,666 664

Purchases of stock for treasury (4,513) (2,961) (1,518)

Dividends (4,300) (4,068) (3,800)

Other financing activities 45 50 (2)

Net cash provided by (used in) financing activities (2,234) (3,465) (2,293)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (430) (166) 576

CASH AND CASH EQUIVALENTS

Net increase (decrease) during the year 4,286 1,496 2,320

Balance at beginning of year 8,517 7,021 4,701

Balance at end of year $12,803 $8,517 $7,021


(In millions)

Financial RatiosLiquidity Ratios

Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Current Assets $25,497 $21,579 $17,551

Current Liabilities 24,283 18,508 13,721

Ratio 1.10 1.10 1.05 1.17 1.28

Current RatioTTM or MRQ


Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Current Assets $25,497 $21,579 $17,551

Inventories 3,092 2,650 2,354

Current Liabilities 24,283 18,508 13,721

Ratio 0.80 0.80 0.92 1.02 1.11


Quick RatioTTM or MRQ

Source: TTM/MRQ Data via TheStreet; CCC Data via 2011 Form 10K

Current Ratio

2012 2011 2010 2009

Quick Ratio

2012 2011 2010 2009

15

Financial RatiosFinancial Leverage Ratios

Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

EBIT $11,856 $14,976 $9,301

Interest Expense 417 733 355

Ratio 11.70 28.20 28.43 20.43 26.20

Interest Coverage RatioTTM or MRQ


Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Total Debt $15,697 $15,317 $5,110

Total Equity 31,635 31,003 24,799

Ratio 0.74 1.10 0.50 0.49 0.21

Debt-Equity RatioTTM or MRQ



Debt-Equity Ratio

2012 2011 2010 2009

Interest Coverage

2012 2011 2010 2009

16

Financial Ratios

17

Profitability Ratios

Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Net Income $8,572 $11,809 $6,824

Net Sales 46,542 35,119 30,990

Ratio 0.15 0.18 0.18 0.34 0.22

Net Profit MarginTTM or MRQ


Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Net Income $8,572 $11,809 $6,824

Total Assets 79,974 72,921 48,670

Ratio 0.10 0.10 0.11 0.16 0.14

TTM or MRQ


Return on Assets (ROA)

Net Profit Margin

2012 2011 2010 2009

2012 2011 2010 2009

ROA


Financial Ratios

18

Market Value Ratios

Period Ending: 12/31/2011 12/31/2010 12/31/2009

Company Industry

Price per Share $34.99 $32.89 $28.50

Earnings per Share 1.85 2.53 1.47

Ratio 11.7 18.9 18.9 13.0 19.4

Price/Earnings Ratio (P/E)


TTM or MRQ

2012 2011 2010 2009

P/E Ratio




Industry Analysis

Business Plan

• Industry Overview

• Main Competitors

• Market Share

• Competitors

Income Statements

• Best Demonstrated

Practices

• SWOT Analysis

• Porter’s 5 Forces

Industry Overview

20

Beverages – Soft Drinks – Consumer Goods• Non-Alcoholic Ready-to-Drink

Segment

• Concentrated

• Dominated by KO and PEP

Main Competitors

• PepsiCo, Inc. (NYSE: PEP)– Market Cap: $105.45B– Employees: 297,000– Revenue per Employee (TTM): $221,199

• Dr. Pepper Snapple Group, Inc. (NYSE: DPS)– Market Cap: $8.95B– Employees: 19,000– Revenue per Employee (TTM): $314,368

Source: Yahoo! Finance; Nestlé Data via SIX Swiss Exchange

21

• Nestlé (SIX: NESN.VX)— Market Cap: $198.60B— Employees: 328,000— Revenue per Employee (TTM):

$291,629

2011 Global Market Share

51%

22%

15%

12%

Coca-Cola

PepsiCo

Dr. Pepper Snapple Group

Other

Source: Ad Age 22

Actual % Rev Actual % Rev Actual % Rev Actual % Rev

NET OPERATING REVENUES $66,504 100% $5,903 100% $46,542 100% $39,650 100%

Cost of goods sold (31,593) (47.51%) (2,485) (42.10%) (18,216) (39.14%) (18,008) (45.42%)

GROSS PROFIT 34,911 52.49% 3,418 57.90% 28,326 60.86% 21,923 55.29%

Selling, general and administrative expenses (25,145) (37.81%) (2,268) (38.42%) (17,440) (37.47%) (14,875) (37.52%)

Other operating charges (133) (0.20%) (117) (1.98%) (732) (1.57%) (375) (0.95%)

OPERATING INCOME 9,633 14.48% 1,024 17.35% 10,154 21.82% 7,061 17.81%

Total Other Income/ Expenses Net 57 0.09% 15 0.25% 1,702 2.76% 1,518 3.83%

EARNINGS BEFORE INTEREST AND TAXES 9,690 14.57% 1,039 17.60% 11,856 25.47% 8,006 20.19%

Interest Expense (856) (1.29%) (114) (1.93%) (417) (0.90%) (412) (1.04%)

INCOME BEFORE INCOME TAXES 8,834 13.28% 925 15.67% 11,439 24.58% 7,715 19.46%

Income taxes (2,372) (3.57%) (320) (5.42%) (2,805) (6.03%) (1,805) (4.55%)

CONSOLIDATED NET INCOME 6,462 9.72% 606 10.27% 8,634 18.55% 5,947 15.00%

Less: Net income attributable to noncontrolling interests (19) (0.03%) - - (62) (0.13%) (54) (0.14%)

NET INCOME ATTRIBUTABLE TO SHAREOWNERS $6,443 9.69% $606 10.27% $8,572 18.42% $5,903 14.89%

2011

Years Ending December 31

(In Millions)

2011

PEP

2011 2011

DPS KO Industry Avg.

Competitor’s Income Statements

Source: PEP and DPS 2011 Annual Reports

23

Best Demonstrated Practices

24


$46,542 100% $39,650 100% $46,542 100%

(18,216) (39.14%) (18,008) (45.42%) (18,216) (39.14%)

28,326 60.86% 21,923 55.29% 28,326 60.86%

(17,440) (37.47%) (14,875) (37.52%) (17,440) (37.47%)

(732) (1.57%) (375) (0.95%) (375) (0.81%)

10,154 21.82% 7,061 17.81% 10,511 22.58%

1,702 2.76% 1,518 3.83% 1,702 3.66%

11,856 25.47% 8,006 20.19% 12,213 26.24%

(417) (0.90%) (412) (1.04%) (417) (0.90%)

11,439 24.58% 7,715 19.46% 11,796 25.34%

(2,805) (6.03%) (1,805) (4.55%) (1,805) (3.88%)

8,634 18.55% 5,947 15.00% 9,991 21.47%

(62) (0.13%) (54) (0.14%) (54) (0.12%)

$8,572 18.42% $5,903 14.89% $9,936 21.35%

2011 2011

BDP

2011

KO Industry Avg.

NET OPERATING REVENUES

Cost of goods sold

GROSS PROFIT

Selling, general and administrative expenses

Other operating charges

OPERATING INCOME

Total Other Income/ Expenses Net

EARNINGS BEFORE INTEREST AND TAXES

Interest Expense

INCOME BEFORE INCOME TAXES

Income taxes

CONSOLIDATED NET INCOME

Less: Net income attributable to noncontrolling interests

NET INCOME ATTRIBUTABLE TO SHAREOWNERS

Years Ending December 31(In Millions)

Current Return on Sales 18.42%

Best Demonstrated Practices 21.35%

Improvement on Proft Margin 2.93%

Profit Margin Increased By 15.90%

SWOT AnalysisStrengths• Brand recognition• Customer loyalty• Worldwide network of

bottlers/distributors• Geographic diversity• Market leader

Opportunities• 2020 Vision• Expansion in new & existing

markets• Potential for acquisitions

Weaknesses• Relatively established in the

markets it operates in• Growing health-conscious

consumers• Not many sub-industries in the

beverage market that Coca-Cola does not operate in

Threats• PepsiCo• Strong competition in all

geographic regions• Higher commodity prices• Battle against obesity

25

5 Forces Analysis

Intensity of Rivalry Amongst

Competitors

HIGH

Threat of Substitutes

MODERATE-HIGH

Bargaining Power of Buyers

MODERATE

Threat of New Entrants

LOW-MODERATE

Bargaining Power of Suppliers

LOW-MODERATE26



Industry Analysis

Business Plan

• 2020 Vision

• How Do We Grow?

• Greatest

Opportunity

• Top 10 Markets of

2011

• 2011 Market Share

• 2020 Projected

Market Share

• The Coca-Cola

Company in 2020

• Conclusion

2008:$95B

2020:$200B

2020 Vision

1.8BServings

Consumed Daily

3B+Servings

Consumed Daily

28

System-wide Revenues

How Do We Grow?

• $12 billion over this decade (2010-2020)Africa • $6 billion over five years (commencing in

2010)Mexico• $1 billion over five years (commencing in

2011)Philippines• $6 billion over five years (commencing in

2012)Brazil• $5 billion by 2020 (commencing in 2012)India• $5 billion over 10 years (commencing in 2012)Middle East• $3 billion over five years (commencing in

2012)Russia• $4 billion over the next three years

(commencing in 2012)China

$30B+ invested to support anticipated growth


Greatest Opportunity

China

• Invest $4 billion with bottling partners Swire Beverages Ltd and COFCO Coca-Cola Beverage Co. over three years from 2012

• More bottling plants, buy trucks, expand distribution infrastructure, and add coolers

• Double-digit growth in unit case volume 9/10 consecutive years

• Expected to become KO’s #1 market, passing Mexico and US

• Price increases due to ability of consumer to afford higher priced products

30

Top 10 Markets of 2011

Spain

Turkey

Argentina

India

Germany

Japan

Brazil

China

Mexico

U.S.

0.55

0.55

0.58

0.6

0.64

0.96

1.9

2.1

3.4

5.5

Top markets for all Coca-Cola products in 2011 (Cases in Billions)

1 Case = 24 8oz servings

#3

Source: CNN Money 31

2011 Market Share

15.0%

4.4%

80.6%

China’s Total Beverage Market

Coca-Cola Pepsi Other

Source: Euromonitor International

• Total market = 14B unit cases (2.1B is 15% of 14B)

• The Chinese beverage market grew by approximately 3% in 2011

• At an increase of 3% per year, and more than doubling unit case volume from 2.1B to 5.6B by 2020 (becoming #1 mkt), what would Coke’s market share look like?

32

2020 Projected Market Share

Year Total Market (in unit cases) KO's Total Market Share

2011 14,000,000,000 15.0%

2012 14,420,000,000

2013 14,852,600,000

2014 15,298,178,000

2015 15,757,123,340

2016 16,229,837,040

2017 16,716,732,151

2018 17,218,234,116

2019 17,734,781,139

2020 18,266,824,574 30.7%

Assumptions: China’s total beverage market increases at 3% per year; China overtakes U.S. and Mexico to become KO’s #1 market with estimated sales of 5.6B unit cases by 2020

• 2011 NR from unit case sales = $2.4B (44% of Pacific group’s NR)

• 2011 NR per unit case = $1.14 USD (2.4B/2.1B)

• Assuming $1.14 NR/unit case in 2020, not adjusted for unforeseeable price increases/decreases, 2020 NR from unit case sales = $6.4B (5.6B * $1.14)

• 2011 to 2020 increase in NR from unit case sales = 166.7% ((6.4-2.4)/2.4)

• An approx. increase of 18.5% per year (166.7/9)

(2.1B uc)

(5.6B uc)

33

The Company in 2020

• China is only 1 of 206 countries that contribute to The Coca-Cola Company’s net revenues

• TCCC is just one segment of the Coca-Cola System discussed earlier

• No definitive information was available to project 2020 Bottler & Customer revenues

• What would TCCC’s Income Statement look like in 2020 compared to 2008 and 2011?

34

2008 vs. 2020 Income Statement

Source: 2008 Income Statement via StockAnalysisOnNet

2020 % Revs are taken from 2011 Income Statement as Best Estimate


NET OPERATING REVENUES $31,944 100% $63,888 100% $46,542 100%

Cost of goods sold (11,088) (34.71%) (25,006) (39.14%) (18,216) (39.14%)

GROSS PROFIT 19,902 62.30% 38,882 60.86% 28,326 60.86%

Selling, general and administrative expenses (11,358) (35.56%) (23,939) (37.47%) (17,440) (37.47%)

Other operating charges (313) (0.98%) (1,003) (1.57%) (732) (1.57%)

OPERATING INCOME 8,231 25.77% 13,940 21.82% 10,154 21.82%

Total Other Income/ Expenses Net 1,070 3.35% 1,763 2.76% 1,702 2.76%

EARNINGS BEFORE INTEREST AND TAXES 9,301 29.12% 16,272 25.47% 11,856 25.47%

Interest Expense (355) (1.11%) (575) (0.90%) (417) (0.90%)

INCOME BEFORE INCOME TAXES 8,946 28.01% 15,704 24.58% 11,439 24.58%

Income taxes (2,040) (6.39%) (3,852) (6.03%) (2,805) (6.03%)

CONSOLIDATED NET INCOME 6,906 21.62% 11,851 18.55% 8,634 18.55%

Less: Net income attributable to noncontrolling interests (82) (0.26%) (83) (0.13%) (62) (0.13%)

NET INCOME ATTRIBUTABLE TO SHAREOWNERS $6,824 21.36% $11,768 18.42% $8,572 18.42%

2008 2020 2011

Years ending December 31

(In millions)

35

“The FUTURE of the

world

belongs to 2 groups:…those that can grow,

and those that cannot grow…

Those that don’t grow will go into oblivion.”

- CEO Muhtar Kent

36

Sources• Reports

– The Coca-Cola Company 2010 Form 10K– The Coca-Cola Company 2010 Annual Review– The Coca-Cola Company 2011 Form 10K– The Coca-Cola Company 2011 Annual Review– 2011 Operating Groups at a Glance– PepsiCo 2011 Annual Report– Dr. Pepper Snapple Group 2011 Annual Report

• Websites– The Coca-Cola Company: http://www.coca-cola.com– The Coca-Cola Company Corporate: http://www.thecoca-colacompany.com– Thomson Reuters Streetevents: http://www.streetevents.com– The Street, KO: http://www.thestreet.com/quote/KO.html– Wikinvest, KO: http://www.wikinvest.com/stock/Coca-Cola_Company_(KO)– CNN Money, Muhtar Kent’s New Coke: postcards.blogs.fortune.cnn.com/2012/05/10/500-

coca-cola-muhtar-kent/?iid– Yahoo! Finance: http://finance.yahoo.com– Google Finance: http://www.google.com/finance– Ad Age: http://www.adage.com– StockAnalysisOnNet: http://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co

37

The Coca-Cola Company - Financial Analysis and Projections

Presentations & Public Speaking

pepper snapple

net income

net cash provided

incomeexpenses

cola company

operating

kos 1 market

market cap