8-K: Coca-Cola Streamlines Operations, Reports Mixed 2024 Financials Amidst Major Tax Litigation

• The Coca-Cola Company sunset its Global Ventures operating segment effective January 1, 2025, integrating its businesses (Costa, innocent, doadan, and Monster fees) into existing geographic segments to streamline operations.
• Net operating revenues increased by 3% to $47,061 million in 2024 from $45,754 million in 2023.
• Worldwide unit case volume and concentrate sales volume both grew by 1% in 2024 compared to 2023.
• Favorable pricing initiatives and geographic mix contributed an 11% positive impact to net operating revenues, partially offset by a 5% unfavorable impact from foreign currency exchange rate fluctuations and a 4% unfavorable impact from acquisitions and divestitures.
• Gross profit margin improved to 61.1% in 2024 from 59.5% in 2023, driven by favorable pricing and bottling refranchising.
• Operating income decreased by 12% to $9,992 million in 2024 from $11,311 million in 2023, primarily due to higher commodity costs, increased selling, general and administrative expenses, and significantly higher other operating charges.
• Other operating charges surged to $4,163 million in 2024 from $1,951 million in 2023, largely due to a $3,109 million remeasurement of the fairlife contingent consideration liability and a $760 million impairment charge for the BodyArmor trademark.
• Net cash provided by operating activities decreased by 41% to $6,805 million in 2024 from $11,599 million in 2023, primarily due to a $6.0 billion payment related to ongoing IRS tax litigation.
• The company paid $8,359 million in dividends in 2024 and repurchased $1,795 million of common stock.
• The Board of Directors increased the regular quarterly dividend to $0.51 per share, marking the 63rd consecutive annual increase.

Score: 4

Explanation: The sentiment is moderately negative due to a significant decline in operating income and cash flow from operations, largely driven by substantial one-time charges and a major tax litigation payment. While revenue growth and dividend increases are positive, the magnitude of the negative financial impacts and ongoing legal uncertainty weigh heavily on the overall outlook.

• Net operating revenues increased by 3% to $47,061 million in 2024.
• Worldwide unit case volume and concentrate sales volume both grew by 1% in 2024, indicating continued consumer demand.
• Gross profit margin improved to 61.1% in 2024 from 59.5% in 2023, reflecting effective pricing strategies and benefits from refranchising.
• The company achieved its 63rd consecutive annual dividend increase, raising the quarterly dividend to $0.51 per share for 2025.
• Equity income (loss) – net increased by 5% to $1,770 million in 2024, reflecting more favorable operating results from certain equity method investees.
• Other income (loss) – net significantly increased to $1,992 million in 2024, driven by substantial gains from refranchising bottling operations in the Philippines ($595 million) and India ($303 million), and the sale of equity interests in Thailand ($506 million) and Coke Consolidated ($338 million).

• Operating income decreased by 12% to $9,992 million in 2024, primarily due to higher commodity costs and increased operating expenses.
• Operating margin declined to 21.2% in 2024 from 24.7% in 2023.
• Other operating charges more than doubled to $4,163 million in 2024, largely due to a $3,109 million remeasurement of the fairlife contingent consideration liability and a $760 million impairment charge for the BodyArmor trademark.
• Net cash provided by operating activities significantly decreased by 41% to $6,805 million in 2024, primarily due to a $6.0 billion IRS Tax Litigation Deposit.
• Consolidated net income slightly decreased to $10,649 million in 2024 from $10,703 million in 2023.
• Basic net income per share decreased to $2.47 in 2024 from $2.48 in 2023.
• Diluted net income per share decreased to $2.46 in 2024 from $2.47 in 2023.
• Foreign currency exchange rate fluctuations had an unfavorable impact of 5% on net operating revenues and 11% on operating income in 2024.

• Obesity concerns continue to impact individuals, communities, and countries worldwide, presenting a challenge to the beverage industry.
• Evolving consumer product preferences, including demand for more choices, personalization, sustainability, and transparency, require continuous adaptation.
• The commercial beverage industry is highly competitive, facing strong competition from global, regional, and local companies, as well as new entrants and private-label brands.
• The rapidly evolving digital landscape and growth of e-commerce are dramatically shifting consumer shopping habits, posing challenges to brand competitiveness and market share.
• Concerns regarding product safety and quality related to certain ingredients used in products.
• Achieving sustainability goals and aspirations is dependent on many factors, including actions of bottling partners, suppliers, governments, and other third parties, some of which are outside the company's control.
• Increased competition for existing and prospective talent, especially specialized talent, due to changing worker expectations and labor market shortages.
• Water availability, quality, and sustainability are key challenges, as water is a limited natural resource in many parts of the world.
• Fluctuations in raw material prices (e.g., HFCS, sucrose, orange juice, milk, coffee, tea, packaging materials) can impact costs.
• Adverse weather conditions (e.g., drought, freezing weather, hurricanes) can negatively affect the supply and prices of agricultural commodities.
• The company is subject to extensive governmental regulations globally, including competition law, product labeling, environmental protection, cybersecurity, privacy, and data protection laws, with potential for new or stricter requirements.
• Ongoing IRS tax litigation for tax years 2007-2009, with a $6.0 billion liability paid and appealed, and a potential aggregate remaining incremental tax and interest liability of approximately $12 billion for tax years 2010-2024 if the Tax Court Methodology is upheld.
• Potential for credit rating downgrades due to changes in capital structure, major bottlers' financial performance, or changes in credit rating agency methodology, which could increase borrowing costs.
• Uncertainty regarding the implementation and impact of OECD's Pillar One and Pillar Two initiatives on global minimum tax regulations.

The company expects 2025 capital expenditures to be approximately $2.2 billion and plans to repurchase shares to offset dilution from employee stock-based compensation plans. Net periodic pension cost is projected to be approximately $81 million in 2025. The effective tax rate in 2025 is expected to be around 20.8% before considering the impact of significant operating and nonoperating items or the ongoing tax litigation. Foreign currency exchange rate fluctuations are anticipated to have an unfavorable impact on full year 2025 net operating revenues. Certain initiatives under the productivity and reinvestment program, designed to simplify and standardize the organization, are delayed and expected to be completed during 2025. The company also anticipates being able to extend or renew tax incentive grants in Brazil, Costa Rica, Singapore, and Eswatini, which expire from 2025 to 2036.

• "We believe our success depends on our ability to connect with consumers by providing them with a wide variety of beverage options to meet their desires, needs and lifestyles. Our success further depends on the ability of our people to execute effectively, every day."
• "We are guided by our purpose, which is to refresh the world and make a difference."
• "We believe our ability to generate cash flows from operating activities is one of the fundamental strengths of our business."
• "Management believes that our Companys facilities used for the production of our products are suitable and adequate, that they are being appropriately utilized in line with past experience, and that they have sufficient production capacity for their present intended purposes."
• "While we believe it is more likely than not that we will prevail in the tax litigation discussed above, we are confident that, between our ability to generate cash flows from operating activities and our ability to borrow funds at reasonable interest rates, we can manage the range of possible outcomes in the final resolution of the matter."

The commercial beverage industry is highly competitive, with numerous global, regional, and local players. Coca-Cola is adapting to evolving consumer preferences for diverse, personalized, sustainable, and transparent beverage options. The company is also navigating the dramatic shifts in consumer shopping habits driven by the rapidly evolving digital and e-commerce landscape. The industry faces challenges related to obesity concerns, raw material price fluctuations, and increasing governmental regulation on product ingredients, packaging, and environmental impact. Coca-Cola's strategic moves, such as streamlining operations and investing in e-commerce, reflect broader industry trends towards efficiency and digital transformation.

• The document does not provide specific comparable companies, projects, or results to assess against global benchmarks. It mentions PepsiCo, Inc., Nestlé S.A., Keurig Dr Pepper Inc., Danone S.A., Suntory Beverage & Food Limited, Anheuser-Busch InBev, Kirin Holdings, Heineken N.V., Diageo plc, and Red Bull GmbH as significant competitors, but no direct comparative financial or operational data is provided within the filing.

• Shareholders: Experienced a slight decrease in basic and diluted net income per share, but benefited from the 63rd consecutive annual dividend increase. The significant tax litigation and its potential future liabilities pose a material risk to shareholder value.
• Employees: The company's total employee count decreased from approximately 79,100 in 2023 to 69,700 in 2024, primarily due to refranchising activities. The company emphasizes investment in talent, inclusive culture, and competitive compensation/benefits.
• Customers: The company continues to focus on meeting evolving consumer needs by offering an expanded portfolio of beverage choices, personalization, and transparent nutrition information.
• Suppliers: The company's voluntary supply chain finance program allows suppliers to sell their receivables to financial institutions, potentially benefiting them by leveraging Coca-Cola's credit rating.
• Creditors: The company's debt levels increased, but management expresses confidence in its ability to borrow funds at reasonable rates, supported by strong cash flows from operating activities and unused backup lines of credit. However, potential credit rating downgrades due to tax litigation or bottler performance could increase borrowing costs.

• Completion of certain delayed initiatives under the productivity and reinvestment program during 2025.
• Repurchase shares during 2025 to offset dilution resulting from employee stock-based compensation plans.
• Anticipate extending or renewing tax incentive grants in Brazil, Costa Rica, Singapore, and Eswatini.
• Continue to monitor the fair value of the BodyArmor trademark in future periods.
• Continue to monitor developments regarding OECD's Pillar One and Pillar Two initiatives to determine any potential impact.
• Vigorously defend positions in the IRS tax litigation, including the appeal to the U.S. Court of Appeals for the Eleventh Circuit.

• The company is involved in ongoing tax litigation with the United States Internal Revenue Service (IRS) concerning transfer pricing tax adjustments for tax years 2007 through 2009.
• On September 17, 2015, the company received a Statutory Notice of Deficiency from the IRS seeking approximately $3.3 billion of additional federal income tax for 2007-2009, based on a new methodology that retroactively rejected a previously agreed-upon methodology.
• On November 18, 2020, the Tax Court issued an opinion predominantly siding with the IRS.
• On November 8, 2023, the Tax Court issued a supplemental opinion, siding with the IRS on the applicability of 'blocked-income regulations' to the company's operations.
• On August 2, 2024, the Tax Court entered a decision reflecting additional federal income tax of $2.7 billion for 2007-2009, bringing the total liability with applicable interest to $6.0 billion.
• The IRS issued invoices for the $6.0 billion on September 3, 2024, which the company paid on September 10, 2024, as an 'IRS Tax Litigation Deposit' to stop interest accrual.
• On October 22, 2024, the company appealed the Tax Court's decision to the U.S. Court of Appeals for the Eleventh Circuit, strongly disagreeing with the IRS positions and the Tax Court's opinions.
• The company believes it is 'more likely than not' that it will ultimately prevail in this litigation upon appeal.
• If the Tax Court Methodology is ultimately upheld and applied to subsequent years, the company estimates a potential aggregate remaining incremental tax and interest liability for tax years 2010 through 2024 could be approximately $12 billion as of December 31, 2024.
• The company's effective tax rate in 2025 could increase by approximately 3.5% if the Tax Court Methodology is continuously applied.

• Net sales to equity method investees were $18,278 million in 2024, $17,736 million in 2023, and $16,084 million in 2022.
• Total payments, primarily related to marketing, made to equity method investees were $331 million in 2024, $294 million in 2023, and $396 million in 2022.
• Purchases of beverage products from equity method investees were $635 million in 2024, $579 million in 2023, and $505 million in 2022.
• The company refranchised its bottling operations in Bangladesh to Coca-Cola İçecek A.Ş. (CCI), an equity method investee, in February 2024.
• The company refranchised its bottling operations in the Philippines to Coca-Cola Europacific Partners plc (CCEP), an equity method investee, and a local business partner in February 2024.
• The company sold a portion of its interest in Coca-Cola Consolidated, Inc. (Coke Consolidated), an equity method investee, to Coke Consolidated in 2024.

• 1886: Beverage products bearing Coca-Cola trademarks first sold in the United States.
• 1892: The Coca-Cola Company (Georgia corporation) organized.
• 1919-09-01: The Coca-Cola Company incorporated in Delaware, succeeding the Georgia corporation.
• 1984: Inception of the company's share repurchase program.
• 1987-1995: Tax years for which the company and IRS agreed on an arms-length methodology for transfer pricing, memorialized in a Closing Agreement.
• 1996-2006: Tax years for which the IRS audited and confirmed the company's compliance with the Closing Agreement methodology.
• 2007-2009: Tax years for which the IRS issued a Statutory Notice of Deficiency seeking $3.3 billion in additional federal income tax, retroactively rejecting the previously agreed-upon methodology.
• 2010-2024: Potential aggregate remaining incremental tax and interest liability of approximately $12 billion if the Tax Court Methodology is applied to these tax years.
• 2012-02-01: Company announced a productivity and reinvestment program.
• 2014: The Coca-Cola Company 2014 Equity Plan was in use for equity awards.
• 2015-09-17: Company received a Statutory Notice of Deficiency from the IRS seeking approximately $3.3 billion of additional federal income tax for years 2007 through 2009.
• 2015-10-15: IRS designated the company's tax matter for litigation.
• 2015-12-01: Company initiated litigation by filing a petition in the U.S. Tax Court challenging the tax adjustments.
• 2017-04-01: Last expansion of the productivity and reinvestment program announced.
• 2018-03-01: Trial for the tax litigation held in the Tax Court (through May 2018).
• 2019: Global Ventures operating segment established; Board of Directors authorized a share repurchase plan of up to 150 million shares.
• 2019-04-01: Final post-trial briefs for tax litigation filed and exchanged.
• 2020-01-01: California Consumer Privacy Act of 2018 (CCPA) became effective.
• 2020-11-18: Tax Court issued an opinion predominantly siding with the IRS regarding transfer pricing tax adjustments for 2007-2009.
• 2021: Company acquired the remaining 85% ownership interest in BodyArmor.
• 2021-12-31: United Kingdom's Financial Conduct Authority ceased to publish certain LIBOR reference rates.
• 2022-11-01: Company announced a restructuring program for its North America operating unit.
• 2022-12-01: Company received cash proceeds of $823 million in advance of refranchising its bottling operations in Vietnam.
• 2023-01-01: California Privacy Rights Act (CPRA) became effective; Company refranchised its bottling operations in Vietnam.
• 2023-05-01: Company acquired certain brands in Asia Pacific.
• 2023-06-01: U.S. dollar LIBOR reference rates ceased to be published.
• 2023-11-08: Tax Court issued a supplemental opinion siding with the IRS on blocked-income regulations.
• 2024-01-01: Numerous countries enacted legislation implementing certain aspects of OECD's Pillar Two.
• 2024-01-01: Company refranchised bottling operations in certain territories in India (January and February 2024).
• 2024-02-01: Company refranchised bottling operations in Bangladesh and the Philippines.
• 2024-03-29: End of the period for which the company's Quarterly Report on Form 10-Q should be referred for material developments since the 2024 Form 10-K filing.
• 2024-05-01: The Coca-Cola Company 2024 Equity Plan and the Global Employee Stock Purchase Plan (GESPP) were approved by shareowners.
• 2024-08-02: Tax Court entered a decision reflecting additional federal income tax of $2.7 billion for the 2007-2009 tax years.
• 2024-09-03: IRS issued invoices for $6.0 billion total liability (including interest) for 2007-2009 tax years.
• 2024-09-10: Company paid the $6.0 billion IRS Tax Litigation Deposit.
• 2024-10-22: Company appealed the Tax Court's decision to the U.S. Court of Appeals for the Eleventh Circuit.
• 2024-12-31: End of the fiscal year for the reported financial results; Global Ventures operating segment sunsetted.
• 2025-01-01: Global Ventures operating segment sunsetted; Costa (excluding ready-to-drink), innocent, and doadan businesses reported within Europe, Middle East and Africa operating segment; Costa's ready-to-drink business and Monster fees reported within applicable geographic operating segments; CPRA-like privacy laws in other states may go into effect; certain aspects of OECD's Pillar Two may become effective in many countries.
• 2025-02-01: Board of Directors meeting where the regular quarterly dividend was increased to $0.51 per share.
• 2025-06-26: Date of this 8-K Report; Date of earliest event reported.
• 2025: Expected completion of certain delayed productivity and reinvestment program initiatives; Expected capital expenditures of approximately $2.2 billion; Expected share repurchases to offset dilution; Expected net periodic pension cost of approximately $81 million; Expected effective tax rate of approximately 20.8% (before certain items); Tax incentive grants expire from 2025 to 2036.
• 2027-12-31: Effective date for additional annual disclosures under ASU 2023-07.
• 2028: Effective date for additional interim disclosures under ASU 2024-03.
• 2029: Backup lines of credit expire at various times through this year; Year that the health care cost trend rate is assumed to reach the ultimate trend rate of 8.25%.