The Coca-Cola Company and Subsidiaries Financial Review Incorporating Management’s Discussion and Analysis
We exist for one reason: to maximize share-owner value over time. To accomplish this mission, The Coca-Cola Company and its subsidiaries (our Company) have developed a comprehensive business strategy focused on four key objectives: (1) increasing volume, (2) expanding share of worldwide beverage sales, (3) maximizing long-term cash flows, and (4) improving economic profit and creating economic value added. We achieve these objectives by investing aggressively in the high-return beverages business and by optimizing our cost of capital through appropriate financial policies. Investments With a global business system that operates in nearly 200 countries and generates superior cash flows, our Company is uniquely positioned to capitalize on profitable new investment opportunities. Our criterion for investment is simple but strict: We seek to invest in opportunities that strategically enhance our existing operations and offer cash returns that exceed the Company’s long-term after-tax weighted average cost of capital, estimated by management to be approximately 11 percent. Because it consistently generates high returns on capital, our beverages business is a particularly attractive area for investment. In new and emerging markets, where increasing the penetration of our products is our primary goal, the bulk of our investments is dedicated to infrastructure enhancements: facilities, distribution networks, sales equipment and technology. These investments are made by acquiring or forming strategic business alliances with local bottlers, and by matching local expertise with our Company’s experience and focus. In highly developed beverage markets, where our primary goals include increasing consumer awareness and broadening the appeal of our products, the bulk of our expenditures is dedicated to marketing activities, such as creating new products and serving sizes, and improving the efficiency of production and distribution. Currently, 60 percent of the world’s population live in markets where the average person consumes less than 10 servings of our products per year, offering high-potential growth opportunities for our Company and its bottlers. In fact, the emerging markets of China, India, Indonesia and Russia represent approximately 44 percent of the world’s population, but, on a combined basis, their average per capita consumption of our products is approximately 1 percent of the United States level, As a result, we will continue aggressively investing to ensure that our products are pervasive, preferred and offer the best price relative to value.
Our investment strategy focuses primarily on capital expenditures, bottling operations and marketing activities. Capital Expenditures Capital expenditures on property, plant and equipment and the percentage distribution by geographic area for 1995, 1994 and 1993 are as follows (dollars in millions): Year Ended December 31, Capital expenditures United States Africa Greater Europe Latin America Middle & Far East and Canada 1995 $ 937 33% 2% 45% 10% 10% 1994 $ 878 32% 3% 42% 16% 7% 1993 $ 800 23% 1% 51% 19% 6%
Bottling Operations We invest heavily in bottling operations to maximize the strength and efficiency of our production, distribution and marketing systems around the world. These aggressive investments result in increases in unit case volume, net revenues and profits at the bottler level, which in turn generate increased gallon shipments for the Company’s concentrate business. As a result, both the Company and our bottlers benefit from long-term growth in volume, cash flows and share-owner value. We designate certain bottling operations in which we have invested as anchor bottlers due to their level of responsibility and performance. Anchor bottlers, which include Coca-Cola Amatil Limited (Coca-Cola Amatil) and Coca-Cola Enterprises Inc. (Coca-Cola Enterprises), are...
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