Balance Sheet and Cash Flow

The Company ended 3Q10 with $10,509.0 million in cash and cash equivalents, up from $8,846 million in 3Q09. Accounts receivable less of allowances stood at $3,720 million compared to $3,465 million a in 3Q09. Accounts payable amounted to $7,691 million in the quarter compared to $6,755 million in the prior-year quarter. The rise in accrued expenses was the result of increased investment and ongoing synergies in the quarter.

Working capital was a $5834.0 million use of cash in 3Q10 as compared to a $3,830.0 million use in 3Q09.

Cash from operations in 3Q10 increased 15% y-o-y to $7.2 billion compared to $6.3 billion in 3Q09 due to decrease in net income and effect of currency.

Capital Expenditure

Capital expenditure in the quarter was $393.0 million (5.2% of sales) versus $467.0 million (6.5% of sales) in 3Q09. The Company continues to expect synergies of at least $350 million phased over for the next four years.
Dividend

On October 22, 2010 management declared a dividend of 44cents per common share payable on December 15, 2010. The annual dividend declared by the Company was $1.76 per share compared to $1.64 in 3Q09.

Share Repurchase

Share repurchase was kept on hold for the third consecutive quarter due to the ongoing acquisition of CCE’s North America’s bottling operation. However, the Company raised its target of repurchasing $2 billion of shares from the previous target of $1.5 billion by FY11.

Effective Tax Rate

The reported effective tax rate in 3Q10 was 23.4%. The underlying effective tax rate on operations in 3Q10 was 22.6%. The variance between the reported rate and the underlying rate was due to the tax impact of various separately disclosed items impacting comparability.

Management’s estimated underlying effective tax rate does not reflect the impact of significant or unusual items and discrete events, which, if and when they occur, are separately recognized in the appropriate period.

Productivity Savings

The Company is targeting $500.0 million in annualized savings from productivity initiatives by year-end FY11 to provide additional flexibility to invest for growth. The savings are expected to be generated in a number of areas, including aggressively managing operating expenses supported by lean techniques, redesigning key processes to drive standardization and effectiveness, better leveraging, and driving savings in indirect costs through the implementation of a “procure-to-pay” program. However, in realizing the savings, the Company expects to incur non-recurring costs to be approximately equal to the annualized savings by FY11.

On October 3, 2010, Coca Cola completed its acquisition of Coca Cola Enterprise’s North American Business. It sold its Norway and Sweden bottling operations to Coca Cola Enterprise. This acquisition is expected to generate increased cash flow returns and optimized operating income model in North America.

On September 1, 2010, Coca Cola acquired Nidan Juices, one of the fourth largest juice makers in Russia. Though terms of the deal were not disclosed, the acquisition marks an important step towards the Company’s expansion in Russia. Important brands of Nidan operating from Moscow and Novosibirsk include Moya Semya, Da and Caprice.
 

Exchange risks: The Company is subject to hedging positions for volatile emerging-market currencies.

Execution challenges: KO has not been able to translate volume growth into improved operating margin due to country mix and the trend toward non-carbonated beverages.

Challenges in specific markets: Markets in South Africa (due to a struggling local economy), India (due to poor infrastructure) and Japan have been challenging for some time.

Innovation risk: KO is dependent on innovation to drive volume growth. A low hit rate or lack of success at bringing new products to market could affect earnings.

Health concerns: Obesity and health concerns could also dampen demand for carbonated soft drinks.