2013.03.29 10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to                                     
Commission File No. 001-02217
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
58-0628465
(IRS Employer
Identification No.)
One Coca-Cola Plaza
Atlanta, Georgia
(Address of principal executive offices)
 
30313
(Zip Code)
Registrant's telephone number, including area code: (404) 676-2121
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ý
                
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
                
Smaller reporting company o
Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
Class of Common Stock 
 
Outstanding at April 22, 2013
$0.25 Par Value
 
4,453,755,295 Shares
 




THE COCA-COLA COMPANY AND SUBSIDIARIES
Table of Contents
 
 
Page Number
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.





FORWARD-LOOKING STATEMENTS
This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2012, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

1



Part I. Financial Information
Item 1.  Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
 
Three Months Ended
 
March 29,
2013

March 30,
2012

NET OPERATING REVENUES
$
11,035

$
11,137

Cost of goods sold
4,324

4,348

GROSS PROFIT
6,711

6,789

Selling, general and administrative expenses
4,182

4,181

Other operating charges
121

99

OPERATING INCOME
2,408

2,509

Interest income
116

115

Interest expense
102

88

Equity income (loss) — net
87

140

Other income (loss) — net
(165
)
49

INCOME BEFORE INCOME TAXES
2,344

2,725

Income taxes
575

658

CONSOLIDATED NET INCOME
1,769

2,067

Less: Net income attributable to noncontrolling interests
18

13

NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF
   THE COCA-COLA COMPANY
$
1,751

$
2,054

BASIC NET INCOME PER SHARE1
$
0.39

$
0.45

DILUTED NET INCOME PER SHARE1
$
0.39

$
0.45

DIVIDENDS PER SHARE
$
0.28

$
0.255

AVERAGE SHARES OUTSTANDING
4,455

4,525

Effect of dilutive securities
75

76

AVERAGE SHARES OUTSTANDING ASSUMING DILUTION
4,530

4,601

1 Calculated based on net income attributable to shareowners of The Coca-Cola Company.
Refer to Notes to Condensed Consolidated Financial Statements.

2



THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In millions)
 
Three Months Ended
 
March 29,
2013

March 30,
2012

CONSOLIDATED NET INCOME
$
1,769

$
2,067

Other comprehensive income:
 
 
Net foreign currency translation adjustment
70

930

Net gain (loss) on derivatives
87

31

Net unrealized gain (loss) on available-for-sale securities
8

100

Net change in pension and other benefit liabilities
32

(11
)
TOTAL COMPREHENSIVE INCOME
1,966

3,117

Less: Comprehensive income (loss) attributable to noncontrolling interests
41

64

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAREOWNERS OF
   THE COCA-COLA COMPANY
$
1,925

$
3,053

Refer to Notes to Condensed Consolidated Financial Statements.

3



THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except par value)
 
March 29,
2013

December 31,
2012

ASSETS
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
$
9,162

$
8,442

Short-term investments
6,176

5,017

TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
15,338

13,459

Marketable securities
3,090

3,092

Trade accounts receivable, less allowances of $58 and $53, respectively
5,007

4,759

Inventories
3,607

3,264

Prepaid expenses and other assets
3,294

2,781

Assets held for sale
1,183

2,973

TOTAL CURRENT ASSETS
31,519

30,328

EQUITY METHOD INVESTMENTS
9,850

9,216

OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES
1,227

1,232

OTHER ASSETS
3,922

3,585

 PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation of
$9,395 and $9,010, respectively
14,543

14,476

TRADEMARKS WITH INDEFINITE LIVES
6,570

6,527

BOTTLERS' FRANCHISE RIGHTS WITH INDEFINITE LIVES
7,414

7,405

GOODWILL
12,291

12,255

OTHER INTANGIBLE ASSETS
1,114

1,150

TOTAL ASSETS
$
88,450

$
86,174

LIABILITIES AND EQUITY
 
 
CURRENT LIABILITIES
 
 
Accounts payable and accrued expenses
$
9,447

$
8,680

Loans and notes payable
16,322

16,297

Current maturities of long-term debt
4,505

1,577

Accrued income taxes
382

471

Liabilities held for sale
446

796

TOTAL CURRENT LIABILITIES
31,102

27,821

LONG-TERM DEBT
14,291

14,736

OTHER LIABILITIES
4,949

5,468

DEFERRED INCOME TAXES
5,214

4,981

THE COCA-COLA COMPANY SHAREOWNERS' EQUITY
 
 
 Common stock, $0.25 par value; Authorized — 11,200 shares;
 Issued — 7,040 and 7,040 shares, respectively
1,760

1,760

Capital surplus
11,664

11,379

Reinvested earnings
58,549

58,045

Accumulated other comprehensive income (loss)
(3,211
)
(3,385
)
Treasury stock, at cost — 2,592 and 2,571 shares, respectively
(36,282
)
(35,009
)
EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY
32,480

32,790

EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS
414

378

TOTAL EQUITY
32,894

33,168

TOTAL LIABILITIES AND EQUITY
$
88,450

$
86,174

Refer to Notes to Condensed Consolidated Financial Statements.

4



THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
 
Three Months Ended
 
March 29,
2013

March 30,
2012

OPERATING ACTIVITIES
 
 
Consolidated net income
$
1,769

$
2,067

Depreciation and amortization
473

447

Stock-based compensation expense
47

77

Deferred income taxes
157

(103
)
Equity (income) loss — net of dividends
(77
)
(133
)
Foreign currency adjustments
184

(66
)
Significant (gains) losses on sales of assets — net
(1
)
(14
)
Other operating charges
74

63

Other items
36

1

Net change in operating assets and liabilities
(2,184
)
(1,846
)
Net cash provided by operating activities
478

493

INVESTING ACTIVITIES
 
 
Purchases of investments
(3,506
)
(4,664
)
Proceeds from disposals of investments
2,225

556

Acquisitions of businesses, equity method investments and nonmarketable securities
(28
)
(120
)
Proceeds from disposals of businesses, equity method investments and nonmarketable securities
690

11

Purchases of property, plant and equipment
(498
)
(592
)
Proceeds from disposals of property, plant and equipment
35

27

Other investing activities
(136
)
(101
)
Net cash provided by (used in) investing activities
(1,218
)
(4,883
)
FINANCING ACTIVITIES
 
 
Issuances of debt
12,585

11,358

Payments of debt
(10,065
)
(8,835
)
Issuances of stock
417

436

Purchases of stock for treasury
(1,523
)
(1,079
)
Dividends


Other financing activities
21

42

Net cash provided by (used in) financing activities
1,435

1,922

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
25

329

CASH AND CASH EQUIVALENTS
 
 
Net increase (decrease) during the period
720

(2,139
)
Balance at beginning of period
8,442

12,803

Balance at end of period
$
9,162

$
10,664

Refer to Notes to Condensed Consolidated Financial Statements.


5



THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of The Coca-Cola Company for the year ended December 31, 2012.
When used in these notes, the terms "The Coca-Cola Company," "Company," "we," "us" or "our" mean The Coca-Cola Company and all entities included in our condensed consolidated financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 29, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.
Each of our interim reporting periods, other than the fourth interim reporting period, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The first quarter of 2013 and 2012 ended on March 29, 2013, and March 30, 2012, respectively. Our fourth interim reporting period and our fiscal year end on December 31 regardless of the day of the week on which December 31 falls.
Effective January 1, 2013, the Company transferred our India and South West Asia business unit from the Eurasia and Africa operating segment to the Pacific operating segment. Accordingly, these and certain other amounts in the prior year's condensed consolidated financial statements and notes have been revised to conform to the current year presentation.
Advertising Costs
The Company's accounting policy related to advertising costs for annual reporting purposes, as disclosed in Note 1 of our 2012 Annual Report on Form 10-K, is to expense 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.
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.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Acquisitions
During the three months ended March 29, 2013, our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $28 million, none of which were individually significant.
During the three months ended March 30, 2012, our Company's acquisitions of businesses, equity method investments and nonmarketable securities totaled $120 million, which included our acquisition of bottling operations in Vietnam and Cambodia. None of the Company's acquisitions were individually significant.
Divestitures
During the three months ended March 29, 2013, proceeds from disposals of businesses, equity method investments and nonmarketable securities totaled $690 million, which primarily included the sale of a majority ownership interest in our previously consolidated bottling operations in the Philippines ("Philippine bottling operations") to Coca-Cola FEMSA, S.A.B. de C.V. ("Coca-Cola FEMSA"), an equity method investee. The Company now accounts for our ownership interest in the

6



Philippine bottling operations as an equity method investment, which we remeasured to fair value taking into consideration the sale price of the majority ownership interest. Coca-Cola FEMSA has an option to purchase our remaining ownership interest in the Philippine bottling operations at any time during the seven years following closing at the initial purchase price plus a defined return. Coca-Cola FEMSA also has an option exercisable during the sixth year after closing to sell its ownership interest back to the Company at a price not to exceed the initial purchase price.
During the three months ended March 30, 2012, proceeds from disposals of businesses, equity method investments and nonmarketable securities totaled $11 million, none of which were individually significant.
Assets and Liabilities Held for Sale
On December 13, 2012, the Company and Coca-Cola FEMSA executed a share purchase agreement for the sale of a majority ownership interest in our consolidated Philippine bottling operations. This transaction was completed on January 25, 2013. As of December 31, 2012, our Philippine bottling operations met the criteria to be classified as held for sale, and we were required to record their assets and liabilities at the lower of carrying value or fair value less any costs to sell based on the agreed-upon purchase price. The Company recorded a total loss of $107 million, primarily during the fourth quarter of 2012, on the sale of our Philippine bottling operations. Refer to the table below for a detail of our Philippine bottling assets and liabilities that were classified as held for sale as of December 31, 2012.
On December 17, 2012, the Company entered into an agreement with several parties which will result in the merger of our consolidated bottling operations in Brazil ("Brazilian bottling operations") with an independent bottler in Brazil. Upon completion of the transaction, we will deconsolidate our Brazilian bottling operations in exchange for cash and a minority ownership interest in the newly combined entity. As a result, our Brazilian bottling operations met the criteria to be classified as held for sale. We were not required to record their assets and liabilities at fair value less any costs to sell because their fair value exceeded our carrying value as of March 29, 2013, and December 31, 2012.
The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in our condensed consolidated balance sheets as of March 29, 2013, and December 31, 2012 (in millions):
 
March 29, 2013

 
December 31, 2012
 
Brazilian
Bottling Operations

 
Brazilian
Bottling Operations

 
Philippine Bottling Operations

 
Total Bottling Operations
Held for Sale as of December 31, 2012

Cash, cash equivalents and short-term investments
$
85

 
$
45

 
$
133

 
$
178

Trade accounts receivable, less allowances
62

 
88

 
108

 
196

Inventories
92

 
85

 
187

 
272

Prepaid expenses and other assets
134

 
174

 
223

 
397

Other assets
182

 
128

 
7

 
135

Property, plant and equipment — net
464

 
419

 
841

 
1,260

Bottlers' franchise rights with indefinite lives
141

 
130

 
341

 
471

Goodwill
23

 
22

 
148

 
170

Other intangible assets

 
1

 

 
1

Allowance for reduction of assets held for sale

 

 
(107
)
 
(107
)
Total assets
$
1,183

 
$
1,092

 
$
1,881

 
$
2,973

Accounts payable and accrued expenses
$
140

 
$
157

 
$
241

 
$
398

Loans and notes payable
15

 
6

 

 
6

Current maturities of long-term debt
32

 
28

 

 
28

Accrued income taxes
1

 
4

 
(4
)
 

Long-term debt
152

 
147

 

 
147

Other liabilities
85

 
75

 
20

 
95

Deferred income taxes
21

 
20

 
102

 
122

Total liabilities
$
446

 
$
437

 
$
359

 
$
796

We determined that our Philippine and Brazilian bottling operations did not meet the criteria to be classified as discontinued operations, primarily due to the continued significant involvement we anticipate having in these operations following each transaction.

7



NOTE 3: INVESTMENTS
Investments in debt and marketable equity securities, other than investments accounted for under the equity method, are classified as trading, available-for-sale or held-to-maturity. Our marketable equity investments are classified as either trading or available-for-sale with their cost basis determined by the specific identification method. Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in net income. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in our condensed consolidated balance sheets as a component of accumulated other comprehensive income ("AOCI"), except for the change in fair value attributable to the currency risk being hedged. Refer to Note 5 for additional information related to the Company's fair value hedges of available-for-sale securities.
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.
Trading Securities
As of March 29, 2013, and December 31, 2012, our trading securities had a fair value of $280 million and $266 million, respectively, and consisted primarily of equity securities. The Company had net unrealized gains on trading securities of $34 million and $19 million as of March 29, 2013, and December 31, 2012, respectively. The Company's trading securities were included in the following line items in our condensed consolidated balance sheets (in millions):
 
March 29,
2013

December 31,
2012

Marketable securities
$
195

$
184

Other assets
85

82

Total trading securities
$
280

$
266

Available-for-Sale and Held-to-Maturity Securities
As of March 29, 2013, available-for-sale securities consisted of the following (in millions):
 
 
Gross Unrealized
 
 
Cost

Gains

Losses

Fair Value

Available-for-sale securities:1
 
 
 
 
Equity securities
$
962

$
459

$
(12
)
$
1,409

Debt securities
3,246

47

(4
)
3,289

Total available-for-sale securities
$
4,208

$
506

$
(16
)
$
4,698

1 Refer to Note 14 for additional information related to the estimated fair value.
As of December 31, 2012, available-for-sale securities consisted of the following (in millions):
 
 
Gross Unrealized
 
 
Cost

Gains

Losses

Fair Value

Available-for-sale securities:1
 
 
 
 
Equity securities
$
957

$
441

$
(10
)
$
1,388

Debt securities
3,169

46

(10
)
3,205

Total available-for-sale securities
$
4,126

$
487

$
(20
)
$
4,593

1 Refer to Note 14 for additional information related to the estimated fair value.

8



The sale and/or maturity of available-for-sale securities resulted in the following activity during the three months ended March 29, 2013, and March 30, 2012 (in millions):
 
Three Months Ended
 
March 29,
2013

March 30,
2012

Gross gains
$
5

$
1

Gross losses
(5
)
(2
)
Proceeds
1,137

1,231

The Company uses one of its insurance captives to reinsure group annuity insurance contracts that cover the pension obligations of certain of our European pension plans. In accordance with local insurance regulations, our insurance captive is required to meet and maintain minimum solvency capital requirements. The Company elected to invest its solvency capital in a portfolio of available-for-sale securities, which have been classified in the line item other assets in our condensed consolidated balance sheets because the assets are not available to satisfy our current obligations. As of March 29, 2013, and December 31, 2012, the Company's available-for-sale securities included solvency capital funds of $490 million and $451 million, respectively.
The Company's available-for-sale securities were included in the following line items in our condensed consolidated balance sheets (in millions):
 
March 29,
2013

December 31,
2012

Cash and cash equivalents
$
100

$
9

Marketable securities
2,895

2,908

Other investments, principally bottling companies
1,080

1,087

Other assets
623

589

Total available-for-sale securities
$
4,698

$
4,593

The contractual maturities of these available-for-sale securities as of March 29, 2013, were as follows (in millions):
 
Cost

Fair Value

Within 1 year
$
1,166

$
1,171

After 1 year through 5 years
1,502

1,509

After 5 years through 10 years
263

291

After 10 years
315

318

Equity securities
962

1,409

Total available-for-sale securities
$
4,208

$
4,698

The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.
As of March 29, 2013, and December 31, 2012, the Company did not have any held-to-maturity securities.
Cost Method Investments
Cost method investments are initially recorded at cost, and we record dividend income when applicable dividends are declared. Cost method investments are reported as other investments in our condensed consolidated balance sheets, and dividend income from cost method investments is reported in other income (loss) — net in our condensed consolidated statements of income. We review all of our cost method investments quarterly to determine if impairment indicators are present; however, we are not required to determine the fair value of these investments unless impairment indicators exist. When impairment indicators exist, we generally use discounted cash flow analyses to determine the fair value. We estimate that the fair values of our cost method investments approximated or exceeded their carrying values as of March 29, 2013, and December 31, 2012. Our cost method investments had a carrying value of $147 million and $145 million as of March 29, 2013, and December 31, 2012, respectively.

9



NOTE 4: 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 market. We determine cost on the basis of the average cost or first-in, first-out methods. Inventories consisted of the following (in millions):
 
March 29,
2013

December 31,
2012

Raw materials and packaging
$
1,899

$
1,773

Finished goods
1,375

1,171

Other
333

320

Total inventories
$
3,607

$
3,264

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 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.
All derivatives are carried at fair value in our condensed consolidated balance sheets 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 condensed consolidated statements 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 condensed 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 value 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 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 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. Any ineffective portion of a financial instrument's change in fair value is immediately recognized into earnings.
The Company determines the fair values of its derivatives based on quoted market prices or pricing models using current market rates. Refer to Note 14. 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

10



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 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.
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
March 29,
2013

December 31, 2012

Assets
 
 
 
Foreign currency contracts
Prepaid expenses and other assets
$
248

$
149

Foreign currency contracts
Other assets
56


Commodity contracts
Prepaid expenses and other assets
1


Interest rate contracts
Prepaid expenses and other assets
10

7

Interest rate contracts
Other assets
313

335

Total assets
 
$
628

$
491

Liabilities
 
 
 
Foreign currency contracts
Accounts payable and accrued expenses
$
33

$
55

Foreign currency contracts
Other liabilities
14


Commodity contracts
Accounts payable and accrued expenses

1

Interest rate contracts
Other liabilities
7

6

Total liabilities
 
$
54

$
62

1 All of the Company's derivative instruments are carried at fair value in our condensed 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 14 for the net presentation of the Company's derivative instruments.
2 Refer to Note 14 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
March 29,
2013

December 31, 2012

Assets
 
 
 
Foreign currency contracts
Prepaid expenses and other assets
$
36

$
19

Foreign currency contracts
Other assets
117

42

Commodity contracts
Prepaid expenses and other assets
71

72

Other derivative instruments
Prepaid expenses and other assets
10

6

Total assets
 
$
234

$
139

Liabilities
 
 
 
Foreign currency contracts
Accounts payable and accrued expenses
$
20

$
24

Foreign currency contracts
Other liabilities
20

1

Commodity contracts
Accounts payable and accrued expenses
50

43

Commodity contracts
Other liabilities
2

1

Other derivative instruments
Accounts payable and accrued expenses

2

Total liabilities
 
$
92

$
71

1 All of the Company's derivative instruments are carried at fair value in our condensed 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 14 for the net presentation of the Company's derivative instruments.
2 Refer to Note 14 for additional information related to the estimated fair value.

11



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 in the form of U.S. government securities 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 condensed consolidated statements 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 Company did not discontinue any cash flow hedging relationships during the three months ended March 29, 2013, or March 30, 2012. The maximum length of time for which the Company hedges its exposure to 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 fluctuations in foreign currency exchange rates. We enter into forward contracts and purchase foreign currency options (principally euros and Japanese yen) and collars 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 were designated and qualified for the Company's foreign currency cash flow hedging program were $5,327 million and $4,715 million as of March 29, 2013, and December 31, 2012, 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 values of derivatives that were designated and qualified for the Company's commodity cash flow hedging program were $12 million and $17 million as of March 29, 2013, and December 31, 2012, 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 values of these interest rate swap agreements that were designated and qualified for the Company's interest rate cash flow hedging program were $2,215 million and $1,764 million as of March 29, 2013, and December 31, 2012, respectively.

12



The following table presents the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on AOCI and earnings during the three months ended March 29, 2013 (in millions):
 
Gain (Loss)
Recognized
in Other
Comprehensive
Income ("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)

 
Foreign currency contracts
$
131

Net operating revenues
$
19

$

2 
Foreign currency contracts
21

Cost of goods sold
2


 
Interest rate contracts
13

Interest expense
(3
)

2 
Commodity contracts
2

Cost of goods sold


 
Total
$
167

 
$
18

$

 
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 condensed consolidated statements of income.
2 Includes a de minimis amount of ineffectiveness in the hedging relationship.
The following table presents the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on AOCI and earnings during the three months ended March 30, 2012 (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)

Foreign currency contracts
$
(1
)
Net operating revenues
$
(21
)
$
1

Foreign currency contracts
26

Cost of goods sold
(6
)

Interest rate contracts

Interest expense
(3
)

Commodity contracts
(1
)
Cost of goods sold
1


Total
$
24

 
$
(29
)
$
1

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 condensed consolidated statements of income.
As of March 29, 2013, the Company estimates that it will reclassify into earnings during the next 12 months approximately $148 million of gains 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 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. The ineffective portions of these hedges are immediately recognized in earnings. As of March 29, 2013, such adjustments had cumulatively increased the carrying value of our long-term debt by $227 million. When a derivative is no longer designated as a fair value hedge for any reason, including termination and maturity, the remaining difference between the carrying value at that time and the par 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. The total notional values of derivatives that related to our fair value hedges of this type were $6,700 million and $6,700 million as of March 29, 2013, and December 31, 2012, respectively.
The Company also uses fair value hedges to minimize exposure to changes in the fair value of certain available-for-sale securities from fluctuations in foreign currency exchange 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. The ineffective portions of these hedges are immediately recognized in earnings. The total notional values of derivatives that related to our fair value hedges of this type were $913 million and $850 million as of March 29, 2013, and December 31, 2012, respectively.

13



The following table summarizes the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings during the three months ended March 29, 2013, and March 30, 2012 (in millions):
Fair Value Hedging Instruments
Location of Gain (Loss)
Recognized in Income
Gain (Loss)
Recognized in Income
 
March 29,
2013

March 30,
2012

Interest rate contracts
Interest expense
$
(35
)
$
(21
)
Fixed-rate debt
Interest expense
45

39

Net impact to interest expense
 
$
10

$
18

Foreign currency contracts
Other income (loss) — net
$
10

$
40

Available-for-sale securities
Other income (loss) — net
(16
)
(39
)
Net impact to other income (loss) — net
 
$
(6
)
$
1

Net impact of fair value hedging instruments
 
$
4

$
19

Hedges of Net Investments in Foreign Operations Strategy
The Company uses forward contracts to protect the value of our investments in a number of foreign subsidiaries. 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 gain (loss), a component of AOCI, to offset the changes in the values of the net investments being hedged. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change. The total notional values of derivatives that were designated and qualified for the Company's net investments hedging program were $1,211 million and $1,718 million as of March 29, 2013, and December 31, 2012, respectively.
The following table presents the pretax impact that changes in the fair values of derivatives designated as net investment hedges had on AOCI during the three months ended March 29, 2013, and March 30, 2012 (in millions):
 
Gain (Loss) Recognized in OCI
 
Three Months Ended
 
March 29,
2013

March 30,
2012

Foreign currency contracts
$
(57
)
$
(94
)
The Company did not reclassify any deferred gains or losses related to net investment hedges from AOCI to earnings during the three months ended March 29, 2013, and March 30, 2012. In addition, the Company did not have any ineffectiveness related to net investment hedges during the three months ended March 29, 2013, and March 30, 2012.
Economic (Nondesignated) 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 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 fair values of economic hedges are immediately recognized into 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 fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized into earnings in the line item other income (loss) — net in our condensed consolidated statements 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. The changes in fair values of economic hedges used to offset the variability in U.S. dollar net cash flows are recognized into earnings in the line items net operating revenues and cost of goods sold in our condensed consolidated statements of income, as applicable. The total notional values of derivatives related to our foreign currency economic hedges were $3,888 million and $3,865 million as of March 29, 2013, and December 31, 2012, 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 for vehicle fuel. The changes in fair values of these economic hedges are immediately recognized into earnings in the line items cost of goods sold and selling, general and administrative expenses in our condensed consolidated statements of income, as applicable. The total notional values of derivatives related to our economic hedges of this type were $1,524 million and $1,084 million as of March 29, 2013, and December 31, 2012, respectively.

14



The following table presents the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings during the three months ended March 29, 2013, and March 30, 2012, respectively (in millions):
 
 
Three Months Ended
Derivatives Not Designated
as Hedging Instruments
Location of Gain (Loss)
Recognized in Income
March 29,
2013

March 30,
2012

Foreign currency contracts
Net operating revenues
$
(2
)
$
(9
)
Foreign currency contracts
Other income (loss) — net
67

112

Foreign currency contracts
Cost of goods sold
(2
)

Commodity contracts
Cost of goods sold
(69
)
6

Commodity contracts
Selling, general and administrative expenses

19

Other derivative instruments
Selling, general and administrative expenses
20

16

Total
 
$
14

$
144

NOTE 6: DEBT AND BORROWING ARRANGEMENTS
During the first quarter of 2013, the Company issued $2,500 million of long-term debt. The general terms of the notes issued are as follows:
$500 million total principal amount of notes due March 5, 2015, at a variable interest rate equal to the three-month London Interbank Offered Rate ("LIBOR") minus 0.02 percent;
$1,250 million total principal amount of notes due April 1, 2018, at a fixed interest rate of 1.15 percent; and
$750 million total principal amount of notes due April 1, 2023, at a fixed interest rate of 2.5 percent.
In addition, during the first quarter of 2013, the Company issued redemption notices for certain amounts of our existing long-term debt. This transaction was completed in April 2013 and included the following notes:
$225 million total principal amount of notes due August 15, 2013, at a fixed interest rate of 5.0 percent;
$675 million total principal amount of notes due March 3, 2014, at a fixed interest rate of 7.375 percent; and
$354 million total principal amount of notes due March 1, 2015, at a fixed interest rate of 4.25 percent.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Guarantees
As of March 29, 2013, we were contingently liable for guarantees of indebtedness owed by third parties of $632 million, of which $294 million related to variable interest entities ("VIEs"). These guarantees are primarily related to third-party customers, bottlers, vendors and container manufacturing operations that have arisen through the normal course of business. These guarantees have various terms, and none of these guarantees were individually significant. The amount represents the maximum potential future payments that we could be required to make under the guarantees; however, we do not consider it probable that we will be required to satisfy these guarantees.
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 to the Company that may arise as a result of currently pending legal proceedings will not have a material adverse effect on the Company taken as a whole.
During the period from 1970 to 1981, our Company owned Aqua-Chem, Inc., now known as Cleaver-Brooks, Inc. ("Aqua-Chem"). During that time, the Company purchased over $400 million of insurance coverage, which also insures Aqua-Chem for some of its prior and future costs for certain product liability and other claims. A division of Aqua-Chem manufactured certain boilers that contained gaskets that Aqua-Chem purchased from outside suppliers. Several years after our Company sold this entity, Aqua-Chem received its first lawsuit relating to asbestos, a component of some of the gaskets. Aqua-Chem was first named as a defendant in asbestos lawsuits in or around 1985 and currently has approximately 40,000 active claims pending against it. In September 2002, Aqua-Chem notified our Company that it believed we were obligated for certain costs and

15



expenses associated with its asbestos litigations. Aqua-Chem demanded that our Company reimburse it for approximately $10 million for out-of-pocket litigation-related expenses. Aqua-Chem also demanded that the Company acknowledge a continuing obligation to Aqua-Chem for any future liabilities and expenses that are excluded from coverage under the applicable insurance or for which there is no insurance. Our Company disputes Aqua-Chem's claims, and we believe we have no obligation to Aqua-Chem for any of its past, present or future liabilities, costs or expenses. Furthermore, we believe we have substantial legal and factual defenses to Aqua-Chem's claims. The parties entered into litigation in Georgia to resolve this dispute, which was stayed by agreement of the parties pending the outcome of litigation filed in Wisconsin by certain insurers of Aqua-Chem. In that case, five plaintiff insurance companies filed a declaratory judgment action against Aqua-Chem, the Company and 16 defendant insurance companies seeking a determination of the parties' rights and liabilities under policies issued by the insurers and reimbursement for amounts paid by plaintiffs in excess of their obligations. During the course of the Wisconsin insurance coverage litigation, Aqua-Chem and the Company reached settlements with several of the insurers, including plaintiffs, who have or will pay funds into an escrow account for payment of costs arising from the asbestos claims against Aqua-Chem. On July 24, 2007, the Wisconsin trial court entered a final declaratory judgment regarding the rights and obligations of the parties under the insurance policies issued by the remaining defendant insurers, which judgment was not appealed. The judgment directs, among other things, that each insurer whose policy is triggered is jointly and severally liable for 100 percent of Aqua-Chem's losses up to policy limits. The court's judgment concluded the Wisconsin insurance coverage litigation. The Georgia litigation remains subject to the stay agreement. The Company and Aqua-Chem continued to negotiate with various insurers that were defendants in the Wisconsin insurance coverage litigation over those insurers' obligations to defend and indemnify Aqua-Chem for the asbestos-related claims. The Company anticipated that a final settlement with three of those insurers (the "Chartis insurers") would be finalized in May 2011, but such insurers repudiated their settlement commitments and, as a result, Aqua-Chem and the Company filed suit against them in Wisconsin state court to enforce the coverage-in-place settlement or, in the alternative, to obtain a declaratory judgment validating Aqua-Chem and the Company's interpretation of the court's judgment in the Wisconsin insurance coverage litigation. In February 2012, the parties filed and argued a number of cross-motions for summary judgment related to the issues of the enforceability of the settlement agreement and the exhaustion of policies underlying those of the Chartis insurers. The court granted defendants' motions for summary judgment that the 2011 settlement agreement and 2010 term sheet were not binding contracts, but denied their similar motions related to the plaintiffs' claims for promissory and/or equitable estoppel. On or about May 15, 2012, the parties entered into a mutually agreeable settlement/stipulation resolving two major issues: exhaustion of underlying coverage and control of defense. On or about January 10, 2013, the parties reached a settlement of the estoppel claims and all of the remaining coverage issues, with the exception of one disputed issue relating to the scope of the Chartis insurers' defense obligations in two policy years. The trial court granted summary judgment in favor of the Company and Aqua-Chem on that one open issue and entered a final appealable judgment to that effect following the parties' settlement. On January 23, 2013, the Chartis insurers filed a notice of appeal of the trial court's summary judgment ruling. Whatever the outcome of that appeal, these three insurance companies will remain subject to the court's judgment in the Wisconsin insurance coverage litigation.
The Company is unable to estimate at this time the amount or range of reasonably possible loss it may ultimately incur as a result of asbestos-related claims against Aqua-Chem. The Company believes that assuming (a) the defense and indemnity costs for the asbestos-related claims against Aqua-Chem in the future are in the same range as during the past five years, and (b) the various insurers that cover the asbestos-related claims against Aqua-Chem remain solvent, regardless of the outcome of the coverage-in-place settlement litigation but taking into account the issues resolved to date, insurance coverage for substantially all defense and indemnity costs would be available for the next 10 to 15 years.
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 case law 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 our 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 13.

16



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 claim history. Our self-insurance reserves totaled $514 million and $508 million as of March 29, 2013, and December 31, 2012, respectively.
NOTE 8: COMPREHENSIVE INCOME
The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests (in millions):
 
Three Months Ended March 29, 2013
 
Shareowners of
The Coca-Cola Company

Noncontrolling
Interests

Total

Consolidated net income
$
1,751

$
18

$
1,769

Other comprehensive income:
 
 
 
Net foreign currency translation adjustment
47

23

70

Net gain (loss) on derivatives1
87


87

Net unrealized gain (loss) on available-for-sale securities2
8


8

Net change in pension and other benefit liabilities
32


32

Total comprehensive income
$
1,925

$
41

$
1,966

1 Refer to Note 5 for information related to the net gain or loss on derivative instruments classified as cash flow hedges.
2 Refer to Note 3 for information related to the net unrealized gain or loss on available-for-sale securities.
OCI attributable to shareowners of The Coca-Cola Company, including our proportionate share of equity method investees' OCI, for the three months ended March 29, 2013, is as follows (in millions):
 
Before-Tax Amount

 
Income Tax

 
After-Tax Amount

Foreign currency translation adjustments:
 
 
 
 
 
Translation adjustment arising during the period
$
325

 
$
(60
)
 
$
265

Reclassification adjustments recognized in net income
(218
)
 

 
(218
)
Net foreign currency translation adjustments
107

 
(60
)
 
47

Derivatives:
 
 
 
 
 
Unrealized gains (losses) arising during the period
162

 
(64
)
 
98

Reclassification adjustments recognized in net income
(18
)
 
7

 
(11
)
Net gain (loss) on derivatives1
144

 
(57
)
 
87

Available-for-sale securities:
 
 
 
 
 
Unrealized gains (losses) arising during the period
5

 
3

 
8

Reclassification adjustments recognized in net income

 

 

Net change in unrealized gain (loss) on available-for-sale securities2
5

 
3

 
8

Pension and other benefit liabilities:
 
 
 
 
 
Net pension and other benefits arising during the period
7

 
(5
)
 
2

Reclassification adjustments recognized in net income3
48

 
(18
)
 
30

Net change in pension and other benefit liabilities4
55

 
(23
)
 
32

Other comprehensive income (loss) attributable to The Coca-Cola Company
$
311

 
$
(137
)
 
$
174

1 
Refer to Note 5 for additional information related to the net gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments.
2 
Includes reclassification adjustments related to divestitures of certain available-for-sale securities. Refer to Note 3 for additional information related to these divestitures.
3 
These adjustments were not reclassified out of AOCI into a single line item in our condensed consolidated statement of income in their entirety. Refer to the table below which provides further details on our reclassification adjustments.
4 
Refer to Note 12 for additional information related to the Company's pension and other postretirement benefit liabilities.

17



OCI attributable to shareowners of The Coca-Cola Company, including our proportionate share of equity method investees' OCI, for the three months ended March 30, 2012, is as follows (in millions):
 
Before-Tax Amount

 
Income Tax

 
After-Tax Amount

Net foreign currency translation adjustment
$
900

 
$
(21
)
 
$
879

Derivatives:
 
 
 
 
 
Unrealized gains (losses) arising during the period
22

 
(9
)
 
13

Reclassification adjustments recognized in net income
29

 
(11
)
 
18

Net gain (loss) on derivatives1
51

 
(20
)
 
31

Available-for-sale securities:
 
 
 
 
 
Unrealized gains (losses) arising during the period
155

 
(57
)
 
98

Reclassification adjustments recognized in net income
2

 

 
2

Net change in unrealized gain (loss) on available-for-sale securities2
157

 
(57
)
 
100

Pension and other benefit liabilities:
 
 
 
 
 
Net pension and other benefits arising during the period
(24
)
 
(1
)
 
(25
)
Reclassification adjustments recognized in net income3
22

 
(8
)
 
14

Net change in pension and other benefit liabilities4
(2
)
 
(9
)
 
(11
)
Other comprehensive income (loss) attributable to The Coca-Cola Company
$
1,106

 
$
(107
)
 
$
999

1 
Refer to Note 5 for additional information related to the net gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments.
2 
Includes reclassification adjustments related to divestitures of certain available-for-sale securities. Refer to Note 3 for additional information related to these divestitures.
3 
These adjustments were not reclassified out of AOCI into a single line item in our condensed consolidated statement of income in their entirety. Refer to the table below which provides further details on our reclassification adjustments.
4 
Refer to Note 12 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 condensed consolidated statement of income where adjustments reclassified from AOCI into income were recorded during the three months ended March 29, 2013 (in millions):
Description of AOCI Component
Location of Gain (Loss)
Recognized in Income
Amount Reclassified from AOCI into Income

Foreign currency translation adjustments:
 
 
Disposal of bottling operations
Other income (loss) — net
$
(218
)
 
Income before income taxes
$
(218
)
 
Income taxes

 
Consolidated net income
$
(218
)
Derivatives:
 
 
Foreign currency contracts
Net operating revenues
$
(19
)
Foreign currency contracts
Cost of goods sold
(2
)
Interest rate contracts
Interest expense
3

 
Income before income taxes
$
(18
)
 
Income taxes
7

 
Consolidated net income
$
(11
)
Pension and other benefit liabilities:
 
 
Insignificant items
Other income (loss) — net
$
(1
)
Amortization of net actuarial loss
*
53

Amortization of prior service cost (credit)
*
(4
)
 
Income before income taxes
$
48

 
Income taxes
(18
)
 
Consolidated net income
$
30

*
This component of AOCI is included in the Company's computation of net periodic benefit cost and is not reclassified out of AOCI into a single line item in our condensed consolidated statement of income in its entirety. Refer to Note 12 for additional information.

18



NOTE 9: CHANGES IN EQUITY
The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to shareowners of The Coca-Cola Company and equity attributable to noncontrolling interests (in millions):
 
 
Shareowners of The Coca-Cola Company  
 

 
Total

Reinvested
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Common
Stock

Capital
Surplus

Treasury
Stock

Non-
controlling
Interests

December 31, 2012
$
33,168

$
58,045

$
(3,385
)
$
1,760

$
11,379

$
(35,009
)
$
378

Comprehensive income (loss)
1,966

1,751

174




41

Dividends paid/payable to shareowners of
     The Coca-Cola Company
(1,247
)
(1,247
)





Business combinations
2






2

Deconsolidation of certain entities
(7
)





(7
)
Purchases of treasury stock
(1,513
)




(1,513
)

Impact of employee stock option and
     restricted stock plans
525




285

240


March 29, 2013
$
32,894

$
58,549

$
(3,211
)
$
1,760

$
11,664

$
(36,282
)
$
414

NOTE 10: SIGNIFICANT OPERATING AND NONOPERATING ITEMS
Other Operating Items
Cost of Goods Sold
In December 2011, the Company detected that orange juice being imported from Brazil contained residues of carbendazim, a fungicide that is not registered in the United States for use on citrus products. As a result, we began purchasing additional supplies of Florida orange juice at a higher cost than Brazilian orange juice and incurred charges of $5 million during the three months ended March 30, 2012. These charges were recorded in the line item cost of goods sold in our condensed consolidated statements of income.
Other Operating Charges
During the three months ended March 29, 2013, the Company incurred other operating charges of $121 million. These charges primarily consisted of $102 million due to the Company's productivity and reinvestment program and $21 million due to the Company's other restructuring and integration initiatives, including the integration of our German bottling and distribution operations. Refer to Note 11 for additional information on our productivity and reinvestment program as well as the Company's other productivity, integration and restructuring initiatives. Refer to Note 15 for the impact these charges had on our operating segments.
During the three months ended March 30, 2012, the Company incurred other operating charges of $99 million. These charges primarily consisted of $64 million due to the Company's productivity and reinvestment program; $20 million due to changes in the Company's ready-to-drink tea strategy as a result of our U.S. license agreement with Nestlé S.A. ("Nestlé") terminating at the end of 2012; $15 million due to the Company's other restructuring and integration initiatives, including the integration of our German bottling and distribution operations; and $1 million due to costs associated with the Company detecting carbendazim in orange juice imported from Brazil for distribution in the United States. These charges were partially offset by a reversal of $1 million due to the refinement of previously established accruals related to the Company's 2008–2011 productivity initiatives. Refer to Note 11 for additional information on our productivity, integration and restructuring initiatives. Refer to Note 15 for the impact these charges had on our operating segments.
Other Nonoperating Items
Equity Income (Loss) — Net
During the three months ended March 29, 2013, the Company recorded a net charge of $39 million in the line item equity income (loss) — net. This net charge represents the Company's proportionate share of unusual or infrequent items recorded by certain of our equity method investees, including a charge incurred by an equity method investee due to the devaluation of the Venezuelan bolivar. Refer to Note 15 for the impact this charge had on our operating segments.
During the three months ended March 30, 2012, the Company recorded a net gain of $44 million in the line item equity income (loss) — net. This net gain primarily represents the Company's proportionate share of unusual or infrequent items recorded by

19



certain of our equity method investees. In addition, the Company recorded a charge of $3 million due to changes in the structure of Beverage Partners Worldwide ("BPW"), our 50/50 joint venture with Nestlé in the ready-to-drink tea category. These changes resulted in the joint venture focusing its geographic scope primarily on Europe and Canada. The Company accounts for our investment in BPW under the equity method of accounting. Refer to Note 15 for the impact these charges had on our operating segments.
Other Income (Loss) — Net
During the three months ended March 29, 2013, the Company recorded a charge of $140 million in the line item other income (loss) — net due to the Venezuelan government announcing a currency devaluation. As a result of this devaluation, the Company remeasured the net assets related to its operations in Venezuela. Refer to Note 15 for the impact this charge had on our operating segments.
During the three months ended March 30, 2012, the Company did not record any significant unusual or infrequent items in the line item other income (loss) — net.
NOTE 11: PRODUCTIVITY, INTEGRATION AND RESTRUCTURING INITIATIVES
Productivity and Reinvestment
In February 2012, the Company announced a four-year productivity and reinvestment program which will 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 further integration of CCE's former North America business.
As of March 29, 2013, the Company has incurred total pretax expenses of $372 million related to this program since the plan commenced. These expenses were recorded in the line item other operating charges in our condensed consolidated statements of income. Refer to Note 15 for the impact these charges had on our operating segments. Outside services reported in the tables below primarily relate to expenses in connection with legal, outplacement and consulting activities. Other direct costs reported in the tables 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 as of and for the three months ended March 29, 2013 (in millions):
 
Accrued
Balance
December 31,
2012

Costs
Incurred
Three Months Ended
March 29,
2013

Payments

Noncash
and
Exchange

Accrued
Balance
March 29,
2013

Severance pay and benefits
$
12

$
45

$
(7
)
$

$
50

Outside services
6

23

(26
)

3

Other direct costs
8

34

(32
)

10

Total
$
26

$
102

$
(65
)
$

$
63

Integration of Our German Bottling and Distribution Operations
In 2008, the Company began an integration initiative related to the 18 German bottling and distribution operations acquired in 2007. The Company incurred expenses of $20 million related to this initiative during the three months ended March 29, 2013, and has incurred total pretax expenses of $460 million related to this initiative since it commenced. These charges were recorded in the line item other operating charges in our condensed consolidated statements of income and impacted the Bottling Investments operating segment. The charges recorded in connection with these integration activities have been primarily due to involuntary terminations. The Company had $102 million and $96 million accrued related to these integration costs as of March 29, 2013, and December 31, 2012, respectively.
The Company is currently reviewing other integration and restructuring opportunities within the German bottling and distribution operations, which, if implemented, will result in additional charges in future periods. However, as of March 29, 2013, the Company has not finalized any additional plans.

20



NOTE 12: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Net periodic benefit cost for our pension and other postretirement benefit plans consisted of the following during the three months ended March 29, 2013, and March 30, 2012, respectively (in millions):
 
Pension Benefits  
 
Other Benefits  
 
Three Months Ended
 
March 29,
2013

March 30,
2012

 
March 29,
2013

March 30,
2012

Service cost
$
69

$
65

 
$
9

$
8

Interest cost
94

98

 
11

11

Expected return on plan assets
(164
)
(144
)
 
(2
)
(2
)
Amortization of prior service cost (credit)
(1
)
(1
)
 
(3
)
(13
)
Amortization of net actuarial loss
50

34

 
3

2

Net periodic benefit cost (credit) recognized in income
$
48

$
52

 
$
18

$
6

During the three months ended March 29, 2013, the Company contributed $558 million to our pension plans, and we anticipate making additional contributions of approximately $82 million to our pension plans during the remainder of 2013. The Company contributed $936 million to our pension plans during the three months ended March 30, 2012.
NOTE 13: INCOME TAXES
Our effective tax rate reflects the benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. 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 2015 to 2020. We expect each of these grants to be renewed indefinitely. In addition, our effective tax rate reflects the benefits of having significant earnings generated in investments accounted for under the equity method of accounting, which are generally taxed at rates lower than the U.S. statutory rate.
At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, our best estimate of operating results and foreign currency exchange rates. Based on current tax laws, the Company's estimated effective tax rate for 2013 is 23.5 percent. However, in arriving at this estimate we do not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
The Company recorded income tax expense of $575 million (24.6 percent effective tax rate) during the three months ended March 29, 2013, and income tax expense of $658 million (24.1 percent effective tax rate) during the three months ended March 30, 2012. The following table illustrates the tax expense (benefit) associated with unusual and/or infrequent items for the interim periods presented (in millions):
 
Three Months Ended
 
 
March 29,
2013

 
March 30,
2012

 
Productivity and reinvestment program
$
(40
)
1 
$
(24
)
5 
Other productivity, integration and restructuring initiatives

2 

 
Certain tax matters
1

3 
(8
)
6 
Other — net
4

4 
(7
)
7 
1 
Related to charges of $102 million due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
2 
Related to charges of $21 million due to the Company's other integration and restructuring initiatives. These initiatives were outside the scope of the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
3 
Related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
4 
Related to charges of $176 million that primarily consisted of $149 million due to the devaluation of the Venezuelan bolivar and $30 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
5 
Related to charges of $64 million due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
6 
Related to a net tax benefit primarily associated with the reversal of a valuation allowance in one of the Company's foreign jurisdictions, partially offset by amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties.
7 
Related to a net gain of $15 million. This net gain is primarily due to a net gain of $44 million related to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees, partially offset by charges of $20 million associated with changes in the Company's ready-to-drink tea strategy in the United States, charges of $3 million associated with changes in the structure of BPW, and charges of $6 million associated with the Company's orange juice supply in the United States. Refer to Note 10.

21



NOTE 14: FAIR VALUE MEASUREMENTS
Accounting principles generally accepted in the United States define 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 accounting principles generally accepted in the United States, 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 and debt securities classified as trading or available-for-sale and derivative financial instruments. Additionally, the Company adjusts the fair value of long-term debt as a result of the Company's fair value hedging strategy.
Investments in Trading and Available-for-Sale Securities
The fair values of our investments in trading and available-for-sale securities using quoted market prices from daily exchange traded markets were based on the closing price as of the balance sheet date and were classified as Level 1. The fair values of our investments in trading and available-for-sale 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 were primarily determined using quoted contract prices on futures exchange markets. The fair values of these instruments were based on the closing contract price as of the balance sheet date and were classified as Level 1.
The fair values of our derivative instruments other than futures were 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 and discount rates. 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.

22



Included in the fair value of derivative instruments is an adjustment for nonperformance risk. The adjustment is based on the current one-year credit default swap ("CDS") rate 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 value of our derivative instruments. The following table summarizes those assets and liabilities measured at fair value on a recurring basis as of March 29, 2013 (in millions):
 
Level 1

Level 2

Level 3

 
Netting
Adjustment1

Fair Value
Measurements

 
Assets
 
 
 
 
 
 
 
Trading securities2
$
126

$
151

$
3

 
$

$
280

 
Available-for-sale securities2
1,409

3,159

130

3 

4,698

 
Derivatives4
57

805


 
(106
)
756

5 
Total assets
$
1,592

$
4,115

$
133

 
$
(106
)
$
5,734

 
Liabilities
 
 
 
 
 
 
 
Derivatives4
$
30

$
116

$

 
$
(108
)
$
38

5 
Total liabilities
$
30

$
116

$

 
$
(108
)
$
38

 
1 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle 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.
2 
Refer to Note 3 for additional information related to the composition of our trading securities and available-for-sale securities.
3 Primarily related to long-term debt securities that mature in 2018.
4 Refer to Note 5 for additional information related to the composition of our derivative portfolio.
5 The Company's derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows: $270 million in the line item prepaid expenses and other assets; $486 million in the line item other assets; $14 million in the line item accounts payable and accrued expenses; and $24 million in the line item other liabilities. Refer to Note 5 for additional information related to the composition of our derivative portfolio.
The following table summarizes those assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 (in millions):
 
Level 1

Level 2

Level 3

 
Netting
Adjustment1

Fair Value
Measurements

 
Assets
 
 
 
 
 
 
 
Trading securities2
$
146

$
116

$
4

 
$

$
266

 
Available-for-sale securities2
1,390

3,068

135

3 

4,593

 
Derivatives4
47

583


 
(116
)
514

5 
Total assets
$
1,583

$
3,767

$
139

 
$
(116
)
$
5,373

 
Liabilities
 
 
 
 
 
 
 
Derivatives4
$
35

$
98

$

 
$
(121
)
$
12

5 
Total liabilities
$
35

$
98

$

 
$
(121
)
$
12

 
1 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle 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.
2 
Refer to Note 3 for additional information related to the composition of our trading securities and available-for-sale securities.
3 Primarily related to long-term debt securities that mature in 2018.
4 Refer to Note 5 for additional information related to the composition of our derivative portfolio.
5 The Company's derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows: $137 million in the line item prepaid expenses and other assets; $377 million in the line item other assets; $4 million in the line item accounts payable and accrued expenses; and $8 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 three months ended March 29, 2013, and March 30, 2012.
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 three months ended March 29, 2013, and March 30, 2012.

23



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 accounting principles generally accepted in the United States. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.
The Company did not record any significant impairment charges related to assets measured at fair value on a nonrecurring basis during the three months ended March 29, 2013, and March 30, 2012.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents; short-term investments; receivables; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the relatively short-term maturities of these instruments.
The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those or similar instruments. As of March 29, 2013, the carrying amount and fair value of our long-term debt, including the current portion, were $18,796 million and $19,581 million, respectively. As of December 31, 2012, the carrying amount and fair value of our long-term debt, including the current portion, were $16,313 million and $17,157 million, respectively.
NOTE 15: OPERATING SEGMENTS
Effective January 1, 2013, the Company transferred our India and South West Asia business unit from the Eurasia and Africa operating segment to the Pacific operating segment. Accordingly, all prior period segment information presented herein has been adjusted to reflect this change in our organizational structure.
Information about our Company's operations as of and for the three months ended March 29, 2013, and March 30, 2012, by operating segment, is as follows (in millions):
 
Eurasia
& Africa

Europe

Latin
America

North
America

Pacific

Bottling
Investments

Corporate

Eliminations

Consolidated

2013
 
 
 
 
 
 
 
 
 
Net operating revenues:
 
 
 
 
 
 
 
 
 
Third party
$
669

$
1,020

$
1,157

$
4,883

$
1,244

$
2,018

$
44

$

$
11,035

Intersegment

157

71

4

146

20


(398
)

Total net revenues
669

1,177

1,228

4,887

1,390

2,038

44

(398
)
11,035

Operating income (loss)
282

683

763

341

602

39

(302
)

2,408

Income (loss) before income taxes
289

694

764

342

604

109

(458
)

2,344

Identifiable operating assets
1,366

3,160

2,734

34,591

2,193

8,224

25,105


77,373

Noncurrent investments
1,172

278

567

38

128

8,828

66


11,077

2012
 
 
 
 
 
 
 
 
 
Net operating revenues:
 
 
 
 
 
 
 
 
 
Third party
$
615

$
1,054

$
1,127

$
4,917

$
1,310

$
2,084

$
30

$

$
11,137

Intersegment

150

59

4

138

19


(370
)

Total net revenues
615

1,204

1,186

4,921

1,448

2,103

30

(370
)
11,137

Operating income (loss)
266

695

744

451

602

35

(284
)

2,509

Income (loss) before income taxes
266

708

743

467

601

169

(229
)

2,725

Identifiable operating assets
1,304

3,276

2,667

33,932

2,103

9,439

22,265


74,986

Noncurrent investments
304

251

535

22

132

7,593

74


8,911

As of December 31, 2012
 
 
 
 
 
 
 
 
 
Identifiable operating assets
$
1,299

$
2,976

$
2,759

$
34,114

$
2,163

$
9,648

$
22,767

$

$
75,726

Noncurrent investments
1,155

271

539

39

127

8,253

64


10,448

During the three months ended March 29, 2013, the results of our operating segments were impacted by the following items:
Operating income (loss) and income (loss) before income taxes were reduced by $2 million for Eurasia and Africa, $82 million for North America, $8 million for Pacific, $21 million for Bottling Investments and $10 million for Corporate due to charges related to the Company's productivity and reinvestment program as well as other restructuring initiatives. Refer to Note 10 and Note 11 for additional information on each of the Company's productivity, restructuring and integration initiatives.

24



Income (loss) before income taxes was reduced by $9 million for Bottling Investments and $140 million for Corporate due to the devaluation of the Venezuelan bolivar, including our proportionate share of the charge incurred by an equity method investee which has operations in Venezuela. Refer to Note 10.
Income (loss) before income taxes was reduced by $30 million for Bottling Investments due to the Company’s proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
During the three months ended March 30, 2012, the results of our operating segments were impacted by the following items:
Operating income (loss) and income (loss) before income taxes were reduced by $61 million for North America, $15 million for Bottling Investments and $3 million for Corporate due to the Company's productivity and reinvestment program as well as other restructuring initiatives. Refer to Note 10 and Note 11. Operating income (loss) and income (loss) before income taxes were increased by $1 million for Europe due to the reversal of an accrual related to the Company's 2008–2011 productivity initiatives.
Operating income (loss) and income (loss) before income taxes were reduced by $20 million for North America due to changes in the Company's ready-to-drink tea strategy as a result of our current U.S. license agreement with Nestlé terminating at the end of 2012. Refer to Note 10.
Operating income (loss) and income (loss) before income taxes were reduced by $6 million for North America due to costs associated with the Company detecting residues of carbendazim, a fungicide that is not registered in the United States for use on citrus products, in orange juice imported from Brazil for distribution in the United States. As a result, the Company began purchasing additional supplies of Florida orange juice at a higher cost than Brazilian orange juice. Refer to Note 10.
Income (loss) before income taxes was reduced by $3 million for Corporate due to changes in the structure of BPW, our 50/50 joint venture with Nestlé in the ready-to-drink tea category. Refer to Note 10.
Income (loss) before income taxes was increased by $44 million for Bottling Investments due to the Company's proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
When used in this report, the terms "The Coca-Cola Company," "Company," "we," "us" or "our" mean The Coca-Cola Company and all entities included in our condensed consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Recoverability of Current and Noncurrent Assets
Our Company faces many uncertainties and risks related to various economic, political and regulatory environments in the countries in which we operate, particularly in developing and emerging markets. Refer to the heading "Item 1A. Risk Factors" in Part I and "Our Business — Challenges and Risks" in Part II of our Annual Report on Form 10-K for the year ended December 31, 2012. As a result, management must make numerous assumptions that involve a significant amount of judgment when performing recoverability and impairment tests of noncurrent assets in various regions around the world.
We perform recoverability and impairment tests of noncurrent assets in accordance with accounting principles generally accepted in the United States. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired.
Our equity method investees also perform such recoverability and/or impairment tests. If an impairment charge is recorded by one of our equity method investees, the Company records its proportionate share of the charge as a reduction of equity income (loss) — net in our condensed consolidated statement of income. However, the actual amount we record with respect to our proportionate share of such charges may be impacted by items such as basis differences, deferred taxes and deferred gains.
Investments in Equity and Debt Securities
Investments classified as trading securities are not assessed for impairment since they are carried at fair value with the change in fair value included in net income. We review our investments in equity and debt securities that are accounted for using the equity method or cost method or that are classified as available-for-sale or held-to-maturity 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 in the prior period. The fair values of most of our Company's investments in publicly traded companies are often readily available

25



based on quoted market prices. For investments in non-publicly 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 hypothetical marketplace 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 developing and emerging 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 in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
The following table presents the difference between calculated fair values, based on quoted closing prices of publicly traded shares, and our Company's cost basis in publicly traded bottlers accounted for as equity method investments (in millions):
March 29, 2013
Fair
Value

Carrying
Value

Difference

Coca-Cola FEMSA, S.A.B. de C.V.
$
9,220

$
2,180

$
7,040

Coca-Cola Amatil Limited
3,355

1,021

2,334

Coca-Cola Hellenic Bottling Company S.A.
2,367

1,402

965

Coca-Cola Icecek A.S.
1,488

221

1,267

Embotelladora Andina S.A.
834

403

431

Coca-Cola Central Japan Co., Ltd.
191

149

42

Coca-Cola Bottling Co. Consolidated
150

79

71

Mikuni Coca-Cola Bottling Co., Ltd.
109

90

19

Total
$
17,714

$
5,545

$
12,169

As of March 29, 2013, gross unrealized gains and losses on available-for-sale securities were $506 million and $16 million, respectively. Management assessed each investment with unrealized losses to determine if the decline in fair value was other than temporary. Based on these assessments, the Company did not record any significant impairment charges related to available-for-sale securities during the three months ended March 29, 2013, and March 30, 2012. We will continue to monitor these investments in future periods. Refer to Note 3 of Notes to Condensed Consolidated Financial Statements.
Goodwill, Trademarks and Other Intangible Assets
Intangible assets are classified into one of three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. For intangible assets with definite lives, tests for impairment must be performed if conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment must be performed at least annually, or more frequently if events or circumstances indicate that an asset might be impaired.
Management's assessments of the recoverability and impairment tests of intangible assets involve critical accounting estimates. These estimates require significant management judgment, include inherent uncertainties and are often interdependent; therefore, they do not change in isolation. Factors that management must estimate include, among others, the economic life of the asset, sales volume, pricing, cost of raw materials, delivery costs, inflation, cost of capital, marketing spending, foreign currency exchange rates, tax rates, capital spending and proceeds from the sale of assets. These factors are even more difficult to predict when global financial markets are highly volatile. The estimates we use when assessing the recoverability of definite-lived intangible assets are consistent with those we use in our internal planning. When performing impairment tests of indefinite-lived intangible assets, we estimate the fair values of the assets using management's best assumptions, which we believe would be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus our accounting estimates may change from period to period. If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted. As mentioned above, these factors do not change in isolation and, therefore, we do not believe it is practicable or meaningful to present the impact of changing a single factor. Furthermore, if management uses different assumptions or if different conditions occur in future periods, future impairment charges could result. Refer to the heading "Operations Review" below for additional information related to our present business environment. Certain factors discussed above are impacted by our current business environment and are discussed throughout this report, as appropriate.

26



Intangible assets acquired in recent transactions are naturally more susceptible to impairment, primarily due to the fact that they are recorded at fair value based on recent operating plans and macroeconomic conditions present at the time of acquisition. Consequently, if operating results and/or macroeconomic conditions deteriorate shortly after an acquisition, this could result in the impairment of the acquired assets. A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models, but it may also negatively impact other assumptions used in our analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, as discussed above, in accordance with accounting principles generally accepted in the United States, we are required to ensure that assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical marketplace participant would use. As a result, the cost of capital and/or discount rates used in our analyses may increase or decrease based on market conditions and trends, regardless of whether our Company's actual cost of capital has changed. Therefore, if the cost of capital and/or discount rates change, our Company may recognize an impairment of an intangible asset or assets in spite of realizing actual cash flows that are approximately equal to, or greater than, our previously forecasted amounts.
The Company did not record any significant impairment charges related to intangible assets during the three months ended March 29, 2013, and March 30, 2012.
OPERATIONS REVIEW
Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.
Our organizational structure as of March 29, 2013, consisted of the following operating segments, the first six of which are sometimes referred to as "operating groups" or "groups": Eurasia and Africa; Europe; Latin America; North America; Pacific; Bottling Investments; and Corporate. Effective January 1, 2013, the Company transferred our India and South West Asia business unit from the Eurasia and Africa operating segment to the Pacific operating segment. Accordingly, all prior period segment information presented herein has been adjusted to reflect this change in our organizational structure. For further information regarding our operating segments, refer to Note 15 of Notes to Condensed Consolidated Financial Statements.
Structural Changes, Acquired Brands and New License Agreements
In order to continually improve upon the Company's operating performance, from time to time we engage in buying and selling ownership interests in bottling partners and other manufacturing operations. In addition, we also acquire brands or enter into license agreements for certain brands to supplement our beverage offerings. These items impact our operating results and certain key metrics used by management in assessing the Company's performance.
Unit case volume growth is a key metric used by management to evaluate the Company's performance because it measures demand for our products at the consumer level. The Company's unit case volume represents the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers and, therefore, reflects unit case volume for both consolidated and unconsolidated bottlers. Refer to the heading "Beverage Volume" below.
Concentrate sales volume represents the amount of concentrates and syrups (in all cases expressed in equivalent unit cases) sold by, or used in finished products sold by, the Company to its bottling partners or other customers. Refer to the heading "Beverage Volume" below.
Our Bottling Investments operating segment and our other finished product operations, including our finished product operations in our North America operating segment, typically generate net operating revenues by selling sparkling beverages and a variety of still beverages, such as juices and juice drinks, energy and sports drinks, ready-to-drink teas and coffees, and water products, to retailers or to distributors, wholesalers and bottling partners who distribute them to retailers. In addition, in the United States, we manufacture fountain syrups and sell them to fountain retailers such as restaurants and convenience stores which use the fountain syrups to produce beverages for immediate consumption, or to authorized fountain wholesalers or bottling partners which resell the fountain syrups to fountain retailers. For these consolidated finished product operations, we recognize the associated concentrate sales volume at the time the unit case or unit case equivalent is sold to the customer. Our concentrate operations typically generate net operating revenues by selling concentrates and syrups to authorized bottling and canning operations. For these concentrate operations, we recognize concentrate revenue and concentrate sales volume when we sell concentrate to the authorized unconsolidated bottling and canning operations, and we typically report unit case volume when finished products manufactured from the concentrates and syrups are sold to the customer. When we analyze our net operating revenues we generally consider the following four factors: (1) volume growth (unit case volume or concentrate sales volume, as appropriate), (2) structural changes, (3) changes in price, product and geographic mix and (4) foreign currency fluctuations. Refer to the heading "Net Operating Revenues" below.
"Structural changes" generally refers to acquisitions or dispositions of bottling, distribution or canning operations and consolidation or deconsolidation of bottling and distribution entities for accounting purposes. Typically, structural changes do

27



not impact the Company's unit case volume on a consolidated basis or at the geographic operating segment level. We recognize unit case volume for all sales of Company beverage products regardless of our ownership interest in the bottling partner, if any. However, the unit case volume reported by our Bottling Investments operating segment is generally impacted by structural changes because it only includes the unit case volume of our consolidated bottling operations.
The Company acquired bottling operations in Vietnam, Cambodia and Guatemala in 2012 and sold a majority interest in our previously consolidated Philippine bottling operations in 2013. Accordingly, the impact to net operating revenues related to these acquisition and disposal activities was included as a structural change in our analysis of changes to net operating revenues. Refer to the heading "Net Operating Revenues" below.
In January 2012, the Company announced that Beverage Partners Worldwide ("BPW"), our joint venture with Nestlé S.A. ("Nestlé") in the ready-to-drink tea category, would focus its geographic scope primarily on Europe and Canada. The joint venture was phased out in all other territories in a transition completed by the end of 2012, and the Company's U.S. license agreement with Nestlé also terminated at the end of 2012. The impact to net operating revenues for North America related to the termination of our license agreement has been included as a structural change in our analysis of changes to net operating revenues. In addition, we have eliminated the BPW and Nestlé licensed unit case volume and associated concentrate sales for the three months ended March 30, 2012, in those countries impacted by these changes during 2012. Refer to the headings "Beverage Volume" and "Net Operating Revenues" below.
The Company sells concentrates and syrups to both consolidated and unconsolidated bottling partners. The ownership structure of our bottling partners impacts the timing of recognizing concentrate revenue and concentrate sales volume. When we sell concentrates or syrups to our consolidated bottling partners, we are not able to recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a customer. When we sell concentrates or syrups to our unconsolidated bottling partners, we recognize the concentrate revenue and concentrate sales volume when the concentrates or syrups are sold to the bottling partner. The subsequent sale by our unconsolidated bottling partners of the finished products manufactured from the concentrates or syrups to a customer does not impact the timing of recognizing the concentrate revenue or concentrate sales volume. We eliminate from our financial results all significant intercompany transactions, including the intercompany portion of transactions with certain of our unconsolidated bottling partners that are accounted for under the equity method of accounting.
"Acquired brands" refers to brands acquired during the past 12 months. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume from the sale of these brands is incremental to prior year volume. We do not generally consider acquired brands to be structural changes.
During the second quarter of 2012, the Company invested in the existing beverage business of Aujan Industries ("Aujan"), one of the largest independent beverage companies in the Middle East. Under our definitive agreement with Aujan, the Company now owns 50 percent of the Aujan entity that holds the rights to Aujan-owned brands in certain territories and 49 percent of Aujan's bottling and distribution operations in certain territories. Accordingly, the volume associated with the Aujan transaction during the first quarter of 2013 is considered to be from acquired brands. Refer to the heading "Beverage Volume" below.
"License agreements" refers to brands not owned by the Company but for which we hold certain rights, generally including, but not limited to, distribution rights, and we derive an economic benefit from the ultimate sale of these brands. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to these brands in periods prior to the beginning of the term of a license agreement. Therefore, the unit case volume and concentrate sales volume from the sale of these brands is incremental to prior year volume. We do not generally consider new license agreements to be structural changes.
Beverage Volume
We measure the volume of Company beverage products sold in two ways: (1) unit cases of finished products and (2) concentrate sales. As used in this report, "unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings); and "unit case volume" means the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers. Unit case volume primarily consists of beverage products bearing Company trademarks. Also included in unit case volume are certain products licensed to, or distributed by, our Company, and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which we derive economic benefit. In addition, unit case volume includes sales by joint ventures in which the Company has an equity interest. We believe unit case volume is one of the measures of the underlying strength of the Coca-Cola system because it measures trends at the consumer level. The unit case volume numbers used in this report are derived based on estimates received by the Company from its bottling partners and distributors. Concentrate sales volume represents the amount of concentrates and syrups (in all cases expressed in equivalent unit cases) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers. Unit case volume and concentrate sales volume growth rates are not necessarily equal during any given period. Factors such as seasonality, bottlers'

28



inventory practices, the number of selling days in a reporting period, supply point changes, timing of price increases, new product introductions and changes in product mix can impact unit case volume and concentrate sales volume and can create differences between unit case volume and concentrate sales volume growth rates. In addition to the items mentioned above, the impact of unit case volume from certain joint ventures in which the Company has an equity interest, but to which the Company does not sell concentrates or syrups, may give rise to differences between unit case volume and concentrate sales volume growth rates.
Information about our volume growth worldwide and by operating segment for the three months ended March 29, 2013, is as follows:
 
Percent Change
2013 versus 2012
 
First Quarter
 
Unit Cases1,2,3

Concentrate
Sales4

Worldwide
4
%
2
%
Eurasia & Africa
15
%
10
%
Europe

(2
)
Latin America
4

2

North America
1

(2
)
Pacific
3

4

Bottling Investments
(6
)
N/A

1 Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only.
2 Geographic segment data reflects unit case volume growth for all bottlers in the applicable geographic areas, both consolidated and unconsolidated.
3 Unit case volume percent change is based on average daily sales. Unit case volume growth based on average daily sales is computed by comparing the average daily sales in each of the corresponding periods. Average daily sales are the unit cases sold during the period divided by the number of days in the period.
4 Concentrate sales volume represents the actual amount of concentrates, syrups, beverage bases and powders sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers and is not based on average daily sales. Each of our interim reporting periods, other than the fourth interim reporting period, ends on the Friday closest to the last day of the corresponding quarterly calendar period. As a result, the first quarter of 2013 had two fewer days when compared to the first quarter of 2012, and the fourth quarter of 2013 will have one additional day compared to the fourth quarter of 2012. In addition, due to 2012 being a leap year, our full year 2013 results will have one less day compared to full year 2012.
Unit Case Volume
Although a significant portion of our Company's revenues is not based directly on unit case volume, we believe unit case volume is a measure of the underlying strength of the Coca-Cola system because it measures trends at the consumer level.
Three Months Ended March 29, 2013, versus Three Months Ended March 30, 2012
In Eurasia and Africa, unit case volume increased 15 percent, which consisted of 12 percent growth in sparkling beverages and 26 percent growth in still beverages. The group's sparkling beverage growth was led by 12 percent growth in brand Coca-Cola, 10 percent growth in Trademark Fanta and 15 percent growth in Trademark Sprite. Growth in still beverages was primarily due to juices and juice drinks and included a 15 percentage point benefit attributable to acquired volume, primarily related to our Aujan partnership. Russia reported unit case volume growth of 8 percent, which included growth of 15 percent in both brand Coca-Cola and Trademark Fanta as well as growth of 7 percent in Trademark Sprite. Still beverage growth in Russia included growth of 13 percent and 27 percent in our juice brands Dobriy and Rich, respectively. Unit case volume growth in Russia was favorably impacted by the beginning of marketing activities related to the Sochi 2014 Winter Olympics and Torch Relay. Eurasia and Africa also benefited from unit case volume growth of 30 percent in the Company's Middle East and North Africa business unit, including a 13 percentage point benefit attributable to acquired volume, primarily related to our Aujan partnership.
Unit case volume in Europe was even, despite poor weather, especially in March, competitive pricing and ongoing weakness in consumer confidence and spending across the region. Sparkling beverage growth in Europe was positive during the quarter, but rounded to even, and still beverages declined 3 percent. Germany reported unit case volume growth of 3 percent, driven by strong integrated marketing campaigns, solid execution in the marketplace and customer distribution gains. Europe also benefited from 4 percent unit case volume growth in Great Britain, led by growth in sparkling beverages, including growth of 3 percent in brand Coca-Cola. The favorable impact of growth in Germany and Great Britain was offset by volume declines in

29



other markets. The group reported a decline in unit case volume of 2 percent in the Central and Southern Europe business unit and a volume decline of 3 percent in the Iberia business unit.
In Latin America, unit case volume increased 4 percent, which consisted of 2 percent growth in sparkling beverages and 11 percent growth in still beverages. The growth reported throughout Latin America was driven by strong activation of brand and category advertising as well as investments in cold-drink equipment and continued segmentation across multiple price points and package sizes. The group's growth in sparkling beverages was led by 2 percent growth in brand Coca-Cola and 5 percent growth in both Trademark Fanta and Trademark Sprite. Still beverage growth in Latin America reflected 53 percent growth in ready-to-drink teas, 19 percent growth in sports drinks, 8 percent growth in packaged water and 6 percent growth in juices and juice drinks. The group's growth in ready-to-drink teas was primarily a result of the strong performance of Fuze Tea, which was launched after the first quarter of 2012. Brazil reported unit case volume growth of 3 percent, which consisted of 2 percent growth in brand Coca-Cola, 8 percent growth in Trademark Fanta and 6 percent growth in still beverages. Latin America also benefited from unit case volume growth of 3 percent in Mexico and 2 percent growth in Argentina.
Unit case volume in North America increased 1 percent, led by 6 percent growth in still beverages. Still beverage growth in North America was led by 23 percent growth in ready-to-drink teas, including Gold Peak, Honest Tea and Fuze. Still beverage growth in North America also reflected 3 percent growth in juices and juice drinks as well as 5 percent growth in packaged water, partially offset by a slight decline in sports drinks reflecting the impact of aggressive competitive pricing. Growth in juices and juice drinks included 9 percent growth in Trademark Simply which was driven by new flavors and growth in single-serve packaging. The group's unit case volume in sparkling beverages declined 1 percent, but included slight growth in brand Coca-Cola and 3 percent growth in Coca-Cola Zero, reflecting the group's strong marketing campaign around NCAA March Madness.
In Pacific, unit case volume increased 3 percent, which consisted of 6 percent growth in sparkling beverages and a 1 percent decline in still beverages. India reported 8 percent unit case volume growth, led by growth of 30 percent in brand Coca-Cola, 13 percent growth in Trademark Sprite and 8 percent growth in Trademark Thums Up. India's growth in sparkling beverages reflected the impact of strong integrated marketing campaigns and continued expansion of packaging choices to consumers. Japan's unit case volume increased 1 percent, which included 4 percent growth in sparkling beverages, partially offset by a decline of 1 percent in still beverages. China reported unit case volume growth of 1 percent, despite the impact of the economic slowdown and poor weather. China's growth included 8 percent growth in sparkling beverages and 14 percent growth in juices and juice drinks. Still beverages in China declined 9 percent, reflecting a decline in packaged water volume as we focused on driving more profitable growth in packaged water through immediate consumption. The group's volume results also benefited from 18 percent growth in Thailand and 12 percent growth in South Korea.
Unit case volume for Bottling Investments decreased 6 percent. This decrease primarily reflects the sale of a majority ownership interest in our previously consolidated bottling operations in the Philippines to Coca-Cola FEMSA, S.A.B. de C.V. ("Coca-Cola FEMSA") in January 2013. The unfavorable impact of this transaction on the group's unit case volume growth was partially offset by growth in other key markets where we own or otherwise consolidate bottling operations, including unit case volume growth of 1 percent in China, 8 percent in India and 3 percent in Germany. The Company's consolidated bottling operations accounted for 36 percent, 69 percent and 100 percent of the unit case volume in China, India and Germany, respectively.
Concentrate Sales Volume
During the three months ended March 29, 2013, unit case volume grew 4 percent and concentrate sales volume grew 2 percent compared to the three months ended March 30, 2012. The difference between the consolidated unit case volume and concentrate sales volume growth rates during the three months ended March 29, 2013, was primarily due to having two fewer selling days during the first quarter of 2013 when compared to the first quarter of 2012. In addition, this difference reflects the timing of concentrate shipments and the impact of unit case volume from certain joint ventures in which the Company has an equity interest, but to which the Company does not sell concentrates, syrups, beverage bases or powders. Concentrate sales volume growth is calculated based on the actual amount of concentrate sold during the reporting period, which is impacted by the number of selling days. Conversely, unit case volume growth is calculated based on average daily sales, which is not impacted by the number of selling days in a reporting period.

30



Net Operating Revenues
Three Months Ended March 29, 2013, versus Three Months Ended March 30, 2012
The Company's net operating revenues decreased $102 million, or 1 percent, which includes the impact of having two fewer days in the first quarter of 2013 compared to the first quarter of 2012. The following table illustrates, on a percentage basis, the estimated impact of key factors resulting in the increase (decrease) in net operating revenues by operating segment:
 
Percent Change 2013 versus 2012
 
Volume1

Structural
Changes

Price, Product &
Geographic Mix

Currency
Fluctuations

Total

Consolidated
2
%
(1
)%
%
(2
)%
(1
)%
Eurasia & Africa
10
%
 %
3
%
(4
)%
9
 %
Europe
(2
)



(2
)
Latin America
2

(1
)
8

(5
)
4

North America
(2
)
(1
)
2


(1
)
Pacific
4


(4
)
(4
)
(4
)
Bottling Investments
2

(5
)
2

(2
)
(3
)
Corporate
*

*

*

*

*

*
Calculation is not meaningful.
1 Represents the percent change in net operating revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments (expressed in equivalent unit cases). For our Bottling Investments operating segment, this represents the percent change in net operating revenues attributable to the increase in unit case volume after considering the impact of structural changes. Our Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. Refer to the heading "Beverage Volume" above.
Refer to the heading "Beverage Volume" above for additional information related to changes in our unit case and concentrate sales volumes.
Refer to the heading "Structural Changes, Acquired Brands and New License Agreements" above for additional information related to the structural changes that impacted our Latin America, North America and Bottling Investments operating segments.
The impact of price, product and geographic mix was even on our consolidated net operating revenues. Geographic mix impacted our consolidated operating results due to higher growth in our emerging and developing markets which are recovering from the global recession at a quicker pace than our developed markets. The revenue per unit sold in our emerging markets is generally less than in developed markets.
Price, product and geographic mix for our operating segments was impacted by a variety of factors and events including, but not limited to, the following:
Latin America was favorably impacted as a result of price increases across a number of our key markets.
North America was favorably impacted as a result of 3 percent positive pricing on sparkling beverages.
Pacific was unfavorably impacted by geographic mix as well as shifts in product and package mix within individual markets.
Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 2 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the Japanese yen, Brazilian real, U.K. pound sterling, South African rand and Australian dollar, which had an unfavorable impact on our Eurasia and Africa, Europe, Latin America, Pacific and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the euro and Mexican peso, which had a favorable impact on our Europe, Latin America and Bottling Investments operating segments. Refer to the heading "Liquidity, Capital Resources and Financial Position — Foreign Exchange" below.

31



Gross Profit
Our gross profit margin decreased to 60.8 percent during the three months ended March 29, 2013, compared to 61.0 percent during the three months ended March 30, 2012. This decrease reflects the impact of the Company's hedging activities on our cost of goods sold, fluctuations in foreign currency exchange rates and our acquisition of bottling operations in Vietnam, Cambodia, Guatemala and the United States. The unfavorable impact of these items was partially offset by the deconsolidation of our Philippine bottling operations after we sold a majority ownership interest to Coca-Cola FEMSA in January 2013. See below for additional information on the impact the Company's hedging activities had on the line item cost of goods sold. Refer to the heading "Structural Changes, Acquired Brands and New License Agreements" above for additional information regarding the impact of our acquisition of bottling operations in Vietnam, Cambodia and Guatemala as well as the sale of a majority interest in our Philippine bottling operations.
The following inputs represent a substantial portion of the Company's total cost of goods sold: (1) sweeteners, (2) juices, (3) metals and (4) polyethylene terephthalate ("PET"). The majority of these costs are included within our North America and Bottling Investments operating segments. We expect the incremental impact of increased commodity costs related to these inputs, primarily sweeteners and juices, to be approximately $100 million on our full year 2013 operating results.
In recent years, the Company has increased our hedging activities related to certain commodities in order to mitigate a portion of the price and foreign currency risks associated with forecasted purchases. Many of the derivative financial instruments used by the Company to mitigate the risk associated with these commodity exposures do not qualify, or are not designated, for hedge accounting. As a result, the change in fair value of these derivative instruments has been, and will continue to be, included as a component of net income in each reporting period. During the three months ended March 29, 2013, the Company recorded a loss of $71 million in the line item cost of goods sold in our condensed consolidated statements of income. Refer to Note 5 of Notes to Condensed Consolidated Financial Statements.
Selling, General and Administrative Expenses
The following table sets forth the significant components of selling, general and administrative expenses (in millions):
 
Three Months Ended
 
March 29,
2013

March 30,
2012

Stock-based compensation expense
$
47

$
77

Advertising expenses
780

765

Bottling and distribution expenses1
2,162