Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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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” and “our” mean The Coca-Cola Company and all entities included in our condensed consolidated financial statements.

During the nine months ended October 1, 2021, the effects of the COVID-19 pandemic and the related actions by governments around the world to attempt to contain the spread of the virus continued to impact our business globally. In particular, the outbreak and preventive measures taken to contain COVID-19, including the spread of new variants, negatively impacted our unit case volume and increased our costs to manufacture and distribute our products. Our price, product and geographic mix was also negatively impacted, primarily due to unfavorable channel and product mix as consumer demand has shifted to more at-home consumption versus away-from-home consumption. However, the timing and number of people receiving vaccinations, the governmental actions to reopen certain economies around the world, and the substance and pace of the post-pandemic economic recovery are favorably impacting our business when compared to the prior year results. While uncertainties caused by the COVID-19 pandemic remain, we expect to continue to see improvements in our business as vaccines become more widely available around the world and vaccination rates increase.

Throughout the COVID-19 pandemic, business continuity, ensuring the safety of our associates and adapting to the needs of our customers have been critical. We have developed systemwide knowledge-sharing routines and processes, which include the management of supply chain challenges. While recent supply chain challenges have resulted in both missed opportunities and incremental costs, as of the date of this filing, there has been no material impact on our and our bottling partners’ ability to manufacture or distribute our products. Through revenue growth management, supply chain productivity initiatives and our commodity hedging program, we have been able to largely mitigate the impact of these incremental costs. However, we expect the existing supply chain challenges to continue in the near future, and we expect commodity and transportation costs to continue to increase in 2022. In addition, continuing uncertainties resulting from the COVID-19 pandemic, including the impact of recommended or mandated actions by governments and health authorities, could cause further supply chain or business disruptions, which may impact our operations. For example, since we are considered a federal contractor of the U.S. government, our U.S.-based employees are required to be fully vaccinated against COVID-19 by December 8, 2021, unless a medical or religious exemption applies. Our bottling partners and/or suppliers may be subject to, or voluntarily impose, a similar vaccine mandate. These challenges and continuing uncertainties may result in disruptions to our business, which could include, among other things, labor, ingredient and packaging material shortages, as well as reduced availability and/or increased shipping time of commercial transport. We will continue to take proactive steps in an effort to mitigate the impact of these disruptions and associated incremental costs. Together with our bottling partners and customers, we are working to ensure adequate inventory levels and partnering to forecast demand given changing conditions related to vaccination rates, infection levels and any government-imposed mobility restrictions. In addition, we continue to increase investments in e-commerce to support retailer and meal delivery services.

Although we have been experiencing significant challenges as a result of the COVID-19 pandemic, we are not losing sight of long-term opportunities for our business. We believe that we will emerge from this situation as a better and stronger company. We are leveraging the pandemic as a catalyst to accelerate our strategy by focusing on the following: prioritizing stronger global brands across various consumer needs while, at the same time, doing a better job of nurturing and growing regional and scaled local brands; establishing a more disciplined innovation framework and increasing marketing effectiveness and efficiency; strengthening our revenue growth management capabilities; enhancing our system collaboration and capturing supply chain efficiencies; and investing in new capabilities and evolving our organization to support the accelerated strategy. In August 2020, the Company announced strategic steps to transform our organizational structure in an effort to better enable us to capture growth in the fast-changing marketplace. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information about our strategic realignment initiatives.

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 Part II, “Item 1A. Risk Factors” and to the headings “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, 2020. As a result, management must make numerous assumptions, which involve a significant amount of judgment, when performing recoverability and impairment tests of current and noncurrent assets in various regions around the world.

We perform recoverability and impairment tests of current and noncurrent assets in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 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.

The assessment of recoverability and the performance of impairment tests of current and noncurrent 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 lives of the assets, sales volume, pricing, royalty rates, costs of raw materials, delivery costs, the impact of any supply chain disruptions, inflation, cost of capital, marketing spending, foreign currency exchange rates, tax rates, capital spending, proceeds from the sale of assets and customers’ financial condition. These factors are even more difficult to estimate as a result of uncertainties associated with the scope, severity and duration of the global COVID-19 pandemic and any resurgences of the pandemic including, but not limited to, the number of people contracting the virus; the impact of shelter-in-place and social distancing requirements; the impact of governmental actions across the globe to contain the virus; vaccine availability, rates of vaccination and effectiveness of vaccines against existing and new variants of the virus; governmental or other vaccine mandates and associated business and supply chain disruptions; and the substance and pace of the post-pandemic economic recovery. The estimates we use when assessing the recoverability of assets are consistent with those we use in our internal planning. When performing impairment tests, we estimate the fair values of the assets using management’s best assumptions, which we believe are consistent with those a market participant would use. The variability of these factors depends on a number of conditions, including uncertainties associated with the COVID-19 pandemic, and thus our accounting estimates may change from period to period. While uncertainties still exist, we expect to see continued improvements in our business as vaccines become more widely available, as vaccination rates increase, and as consumers return to many of their previous work routines as well as socializing and traveling. The Company has certain intangible and other long-lived assets that are more dependent on cash flows generated in away-from-home channels and/or that generate cash flows in geographic areas that are more heavily impacted by the COVID-19 pandemic and are therefore more susceptible to impairment. In addition, intangible and other long-lived assets we acquired in recent transactions are naturally more susceptible to impairment, because they are recorded at fair value based on recent operating plans and macroeconomic conditions at the time of acquisition. If we had used other assumptions and estimates when tests of these assets were performed, impairment charges could have resulted. Furthermore, if management uses different assumptions, or if different conditions exist in future periods, future impairment charges could result. The total future impairment charges we may be required to record could be material.

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 such charge as a reduction of equity income (loss) — net in our consolidated statement of income. However, the actual amount we record with respect to our proportionate share of such charge may be impacted by items such as basis differences, deferred taxes and deferred gains.

OPERATIONS REVIEW

Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters typically accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.

Structural Changes, Acquired Brands and Newly Licensed Brands

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 and their related operations 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 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 or

consumers 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, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished products sold by, the Company to its bottling partners or other customers. For Costa Limited (“Costa”) non-ready-to-drink beverage products, concentrate sales volume represents the amount of coffee (in all instances expressed in unit case equivalents) sold by the Company to customers or consumers. Refer to the heading “Beverage Volume” below.

When we analyze our net operating revenues, we generally consider the following factors: (1) volume growth (concentrate sales volume or unit case volume, as applicable); (2) changes in price, product and geographic mix; (3) foreign currency fluctuations; and (4) acquisitions and divestitures (including structural changes defined below), as applicable. Refer to the heading “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 do not recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a third party. 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 of the finished products manufactured from the concentrates or syrups to a third party does not impact the timing of recognizing the concentrate revenue or concentrate sales volume. When we account for an unconsolidated bottling partner as an equity method investment, we eliminate the intercompany profit related to these transactions to the extent of our ownership interest until the equity method investee has sold finished products manufactured from the concentrates or syrups to a third party. We typically report unit case volume when finished products manufactured from the concentrates or syrups are sold to a third party, regardless of our ownership interest in the bottling partner, if any.

We generally refer to acquisitions and divestitures of bottling operations as “structural changes,” which are a component of acquisitions and divestitures. Typically, structural changes do not impact the Company’s unit case volume or concentrate sales 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.

“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 an acquired brand in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume related to an acquired brand are incremental to prior year volume. We generally do not consider the acquisition of a brand to be a structural change.

“Licensed brands” refers to brands not owned by the Company but for which we hold certain rights, generally including, but not limited to, distribution rights, and from which we derive an economic benefit when the products are sold. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to a licensed brand in periods prior to the beginning of the term of a license agreement. Therefore, in the year a license agreement is entered into, the unit case volume and concentrate sales volume related to a licensed brand are incremental to prior year volume. We generally do not consider the licensing of a brand to be a structural change.

In 2020, the Company discontinued our Odwalla juice business. The impact of discontinuing our Odwalla juice business has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for the North America operating segment.

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), with the exception of unit case equivalents for Costa non-ready-to-drink beverage products, which are primarily measured in number of transactions; 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 or consumers. Unit case volume primarily consists of beverage products bearing Company trademarks. Also included in unit case volume are certain brands 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 certain joint ventures in which the Company has an ownership 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, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished beverages sold by, the Company to its bottling

partners or other customers. For Costa non-ready-to-drink beverage products, concentrate sales volume represents the amount of coffee (in all instances expressed in unit case equivalents) sold by the Company to customers or consumers. Unit case volume and concentrate sales volume growth rates are not necessarily equal during any given period. Factors such as seasonality, bottlers’ inventory practices, supply point changes, timing of price increases, new product introductions and changes in product mix can create differences between unit case volume and concentrate sales volume growth rates. In addition to these items, the impact of unit case volume from certain joint ventures in which the Company has an ownership interest, but to which the Company does not sell concentrates, syrups, source waters or powders/minerals, 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 is as follows:


	Percent Change 2021 versus 2020
	Three Months Ended October 1, 2021				Nine Months Ended October 1, 2021
	Unit Cases1,2,3		Concentrate Sales4		Unit Cases1,2,3		Concentrate Sales4
Worldwide	6	%	8	%	8	%	13	%
Europe, Middle East & Africa	8	%	8	%	9	%	15	%
Latin America	8		11		7		13
North America	4		7		5		7		5
Asia Pacific	3		5		9		13
Global Ventures	15		20		18		24
Bottling Investments	3		N/A		11		N/A

1 Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only.

2 Geographic and Global Ventures operating segment data reflects unit case volume growth for all bottlers, both consolidated and unconsolidated, and distributors in the applicable geographic areas. Global Ventures operating segment data also reflects unit case volume growth for Costa retail stores.

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 amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) 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. For Costa non-ready-to-drink products, concentrate sales volume represents the amount of coffee (in all instances expressed in unit case equivalents) sold by the Company to customers or consumers and is not based on average daily sales. Each of our quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. As a result, the first quarter of 2021 had five additional days when compared to the first quarter of 2020, and the fourth quarter of 2021 will have six fewer days when compared to the fourth quarter of 2020.

5 After considering the impact of structural changes, concentrate sales volume for North America grew 8 percent for the nine months ended October 1, 2021.

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 one of the measures of the underlying strength of the Coca-Cola system because it measures trends at the consumer level.

Three Months Ended October 1, 2021 versus Three Months Ended September 25, 2020

Unit case volume in Europe, Middle East and Africa increased 8 percent, which included 7 percent growth in Trademark Coca-Cola, 7 percent growth in sparkling flavors, 8 percent growth in hydration, sports, coffee and tea, and 18 percent growth in nutrition, juice, dairy and plant-based beverages. The operating segment reported growth in unit case volume of 12 percent in the Eurasia and Middle East operating unit, 12 percent in the Africa operating unit and 3 percent in the Europe operating unit.

Unit case volume in Latin America increased 8 percent, which included 5 percent growth in Trademark Coca-Cola, 13 percent growth in hydration, sports, coffee and tea, 9 percent growth in sparkling flavors and 18 percent growth in nutrition, juice, dairy and plant-based beverages. The operating segment’s volume performance included 3 percent growth in Mexico and 5 percent growth in Brazil.

Unit case volume in North America increased 4 percent, which included 10 percent growth in sparkling flavors, 9 percent growth in nutrition, juice, dairy and plant-based beverages, 3 percent growth in hydration, sports, coffee and tea, and even performance in Trademark Coca-Cola.

Unit case volume in Asia Pacific increased 3 percent, which included 4 percent growth in Trademark Coca-Cola, 4 percent growth in sparkling flavors, 9 percent growth in nutrition, juice, dairy and plant-based beverages, and even performance in hydration, sports, coffee and tea. The operating segment reported growth in unit case volume of 30 percent in the India and Southwest Asia operating unit, 1 percent in the Greater China and Mongolia operating unit, and 2 percent in the Japan and South Korea operating unit, partially offset by a decline in unit case volume of 5 percent in the ASEAN and South Pacific operating unit.

Unit case volume for Global Ventures increased 15 percent, driven by 20 percent growth in hydration, sports, coffee and tea, 1 percent growth in nutrition, juice, dairy and plant-based beverages, and growth in energy drinks.

Unit case volume for Bottling Investments increased 3 percent, which primarily reflects growth in India.

Nine Months Ended October 1, 2021 versus Nine Months Ended September 25, 2020

Unit case volume in Europe, Middle East and Africa increased 9 percent, which included 9 percent growth in Trademark Coca-Cola, 9 percent growth in sparkling flavors, 17 percent growth in nutrition, juice, dairy and plant-based beverages, and 3 percent growth in hydration, sports, coffee and tea. The operating segment reported growth in unit case volume of 14 percent in the Eurasia and Middle East operating unit, 12 percent in the Africa operating unit and 5 percent in the Europe operating unit.

Unit case volume in Latin America increased 7 percent, which included 6 percent growth in Trademark Coca-Cola, 7 percent growth in hydration, sports, coffee and tea, 7 percent growth in sparkling flavors, and 11 percent growth in nutrition, juice, dairy and plant-based beverages. The operating segment’s volume performance included 7 percent growth in Brazil and 2 percent growth in Mexico.

Unit case volume in North America increased 5 percent, which included 9 percent growth in sparkling flavors, 5 percent growth in hydration, sports, coffee and tea, 7 percent growth in nutrition, juice, dairy and plant-based beverages, and 2 percent growth in Trademark Coca-Cola.

Unit case volume in Asia Pacific increased 9 percent, which included 10 percent growth in Trademark Coca-Cola, 10 percent growth in sparkling flavors, 5 percent growth in hydration, sports, coffee and tea, and 19 percent growth in nutrition, juice, dairy and plant-based beverages. The operating segment reported growth in unit case volume of 37 percent in the India and Southwest Asia operating unit, 9 percent in the Greater China and Mongolia operating unit, 2 percent in the Japan and South Korea operating unit, and 1 percent in the ASEAN and South Pacific operating unit.

Unit case volume for Global Ventures increased 18 percent, driven by 13 percent growth in hydration, sports, coffee and tea, 2 percent growth in nutrition, juice, dairy and plant-based beverages, and growth in energy drinks.

Unit case volume for Bottling Investments increased 11 percent, which primarily reflects growth in India and South Africa.

Concentrate Sales Volume

During the three months ended October 1, 2021, worldwide concentrate sales volume increased 8 percent and unit case volume increased 6 percent compared to the three months ended September 25, 2020. During the nine months ended October 1, 2021, worldwide concentrate sales volume increased 13 percent and unit case volume increased 8 percent compared to the nine months ended September 25, 2020. Concentrate sales volume growth is calculated based on the amount of concentrate sold during the reporting periods, which is impacted by the number of days. Conversely, unit case volume growth is calculated based on average daily sales, which is not impacted by the number of days in the reporting periods. The first quarter of 2021 had five additional days when compared to the first quarter of 2020, which contributed to the differences between concentrate sales volume and unit case volume growth rates on a consolidated basis and for the individual operating segments during the nine months ended October 1, 2021. In addition, the differences between concentrate sales volume and unit case volume growth rates during the three and nine months ended October 1, 2021 were also impacted by the timing of concentrate shipments, as certain bottlers adjusted inventory levels in an effort to manage through near-term supply chain disruptions. We expect the differences between concentrate sales volume and unit case sales volume growth rates to lessen over the remainder of the year, primarily as a result of the fourth quarter of 2021 having six fewer days when compared to the fourth quarter of 2020.

Net Operating Revenues

Three Months Ended October 1, 2021 versus Three Months Ended September 25, 2020

During the three months ended October 1, 2021, net operating revenues were $10,042 million, compared to $8,652 million during the three months ended September 25, 2020, an increase of $1,390 million, or 16 percent.

The following table illustrates, on a percentage basis, the estimated impact of the factors resulting in the increase (decrease) in net operating revenues on a consolidated basis and for each of our operating segments:


	Percent Change 2021 versus 2020
	Volume1		Price, Product & Geographic Mix		Foreign Currency Fluctuations		Acquisitions & Divestitures2		Total
Consolidated	8	%	6	%	2	%	—	%	16	%
Europe, Middle East & Africa	8	%	5	%	—	%	—	%	13	%
Latin America	11		23		7		—		41
North America	7		5		—		—		13
Asia Pacific	5		(3)		2		—		3
Global Ventures	20		19		8		—		47
Bottling Investments	3		6		4		—		13

Note: Certain rows may not add due to rounding.

1 Represents the percent change in net operating revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments and our Global Ventures operating segment (expressed in unit case equivalents) after considering the impact of acquisitions and divestitures. For our Bottling Investments operating segment, this represents the percent change in net operating revenues attributable to the increase (decrease) in unit case volume computed by comparing the total sales (rather than the average daily sales) in each of the corresponding periods after considering the impact of structural changes, if any. Our Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only after considering the impact of structural changes, if any. Refer to the heading “Beverage Volume” above.

2 Includes structural changes, if any. Refer to the heading “Structural Changes, Acquired Brands and Newly Licensed Brands” above.

Refer to the heading “Beverage Volume” above for additional information related to changes in our unit case and concentrate sales volumes.

“Price, product and geographic mix” refers to the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred. The impact of price, product and geographic mix is calculated by subtracting the change in net operating revenues resulting from volume increases or decreases, changes in foreign currency exchange rates, and acquisitions and divestitures from the total change in net operating revenues. Management believes that providing investors with price, product and geographic mix enhances their understanding about the combined impact that the following items had on the Company’s net operating revenues: (1) pricing actions taken by the Company and, where applicable, our bottling partners; (2) changes in the mix of products and packages sold; (3) changes in the mix of channels where products were sold; and (4) changes in the mix of geographic territories where products were sold. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance.

Price, product and geographic mix had a 6 percent favorable impact on our consolidated net operating revenues. Price, product and geographic mix was impacted by a variety of factors and events including, but not limited to, the following:

Europe, Middle East and Africa — favorable channel and package mix, partially offset by unfavorable geographic mix;
Latin America — favorable pricing initiatives, including inflationary pricing in Argentina, along with favorable channel and package mix;
North America — favorable pricing initiatives and favorable channel and category mix;
Asia Pacific — unfavorable geographic mix;
Global Ventures — favorable channel mix primarily due to the reopening of Costa retail stores, partially offset by unfavorable product mix; and
Bottling Investments — favorable price, category and package mix, partially offset by unfavorable geographic mix.

The favorable channel and package mix for the three months ended October 1, 2021 in all applicable operating segments was primarily a result of the gradual recovery in away-from-home channels in many markets in the current year and the impact of shelter-in-place and social distancing requirements in the prior year.

Fluctuations in foreign currency exchange rates increased our consolidated net operating revenues by 2 percent. This favorable impact was primarily due to a weaker U.S. dollar compared to certain foreign currencies, including the South African rand, British pound sterling, Mexican peso and Chinese yuan, which had a favorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific, Global Ventures and Bottling Investments operating segments. The favorable impact of a weaker U.S. dollar compared to the currencies listed above was partially offset by the impact of a stronger U.S. dollar compared to certain other foreign currencies, including the Argentine peso, Japanese yen and Turkish lira, which had an unfavorable impact on our Latin America, Asia Pacific and Europe, Middle East and Africa operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

“Acquisitions and divestitures” generally refers to acquisitions and divestitures of brands or businesses, some of which the Company considers to be structural changes. The impact of acquisitions and divestitures is the difference between the change in net operating revenues and the change in what our net operating revenues would have been if we removed the net operating revenues associated with an acquisition or a divestiture from either the current year or the prior year, as applicable. Management believes that quantifying the impact that acquisitions and divestitures had on the Company’s net operating revenues provides investors with useful information to enhance their understanding of the Company’s net operating revenue performance by improving their ability to compare our period-to-period results. Management considers the impact of acquisitions and divestitures when evaluating the Company’s performance. Refer to the heading “Structural Changes, Acquired Brands and Newly Licensed Brands” above for additional information related to acquisitions and divestitures.

Nine Months Ended October 1, 2021 versus Nine Months Ended September 25, 2020

During the nine months ended October 1, 2021, net operating revenues were $29,191 million, compared to $24,403 million during the nine months ended September 25, 2020, an increase of $4,788 million, or 20 percent.


	Percent Change 2021 versus 2020
	Volume1		Price, Product & Geographic Mix		Foreign Currency Fluctuations		Acquisitions & Divestitures2		Total
Consolidated	13	%	5	%	2	%	—	%	20	%
Europe, Middle East & Africa	15	%	4	%	2	%	—	%	20	%
Latin America	13		12		(1)		—		25
North America	8		7		—		—		14
Asia Pacific	13		—		4		—		17
Global Ventures	24		13		10		—		47
Bottling Investments	13		5		3		—		21

Note: Certain rows may not add due to rounding.

2 Includes structural changes, if any. Refer to the heading “Structural Changes, Acquired Brands and Newly Licensed Brands” above.

Refer to the heading “Beverage Volume” above for additional information related to changes in our unit case and concentrate sales volumes.

Price, product and geographic mix had a 5 percent favorable impact on our consolidated net operating revenues. Price, product and geographic mix was impacted by a variety of factors and events including, but not limited to, the following:

Europe, Middle East and Africa — favorable channel and package mix, partially offset by unfavorable geographic mix;
Latin America — favorable pricing initiatives, including inflationary pricing in Argentina, along with favorable channel and package mix;
North America — favorable pricing initiatives and favorable channel and category mix;
Asia Pacific — favorable product, channel and package mix, offset by unfavorable geographic mix;
Global Ventures — favorable channel mix primarily due to the reopening of Costa retail stores, partially offset by unfavorable product mix; and
Bottling Investments — favorable price, category and package mix, partially offset by unfavorable geographic mix.

The favorable channel and package mix for the nine months ended October 1, 2021 in all applicable operating segments was primarily a result of the gradual recovery in away-from-home channels in many markets in the current year and the impact of shelter-in-place and social distancing requirements in the prior year.

Fluctuations in foreign currency exchange rates increased our consolidated net operating revenues by 2 percent. This favorable impact was primarily due to a weaker U.S. dollar compared to certain foreign currencies, including the British pound sterling, South African rand, euro, Mexican peso and Chinese yuan, which had a favorable impact on our Europe, Middle East and Africa, Latin America, Asia Pacific, Global Ventures and Bottling Investments operating segments. The favorable impact of a weaker U.S. dollar compared to the currencies listed above was partially offset by the impact of a stronger U.S. dollar compared to certain other foreign currencies, including the Argentine peso, Brazilian real, Turkish lira and Ethiopian birr, which had an unfavorable impact on our Latin America, Europe, Middle East and Africa and Bottling Investments operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

Net operating revenue growth rates are impacted by sales volume; price, product and geographic mix; foreign currency fluctuations; and acquisitions and divestitures. The size and timing of acquisitions and divestitures are not consistent from period to period. Based on current spot rates and our hedging coverage in place, we expect foreign currency fluctuations will have a slightly favorable impact on our full year 2021 net operating revenues.

Gross Profit Margin

Gross profit margin is a ratio calculated by dividing gross profit by net operating revenues. Management believes gross profit margin provides investors with useful information related to the profitability of our business prior to considering all of the operating costs incurred. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance.

Our gross profit margin increased to 60.4 percent for the three months ended October 1, 2021, compared to 59.9 percent for the three months ended September 25, 2020. Our gross profit margin increased to 61.4 percent for the nine months ended October 1, 2021, compared to 59.6 percent for the nine months ended September 25, 2020. These increases were primarily due to the impact of favorable pricing initiatives and favorable channel and package mix as a result of the gradual recovery in away-from-home channels in many markets in the current year, along with the impact of shelter-in-place and social distancing requirements in the prior year, partially offset by the impact of increased commodity and transportation costs. We expect commodity and transportation costs to continue to increase in 2022, and we will continue to proactively take actions in an effort to mitigate the impact of these incremental costs.

Selling, General and Administrative Expenses

The following table sets forth the components of selling, general and administrative expenses (in millions):


	Three Months Ended				Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Stock-based compensation expense	$	88	$	52	$	236	$	88
Advertising expenses	1,173		870		3,208		2,142
Selling and distribution expenses	606		635		1,824		1,902
Other operating expenses	1,255		954		3,540		3,010
Selling, general and administrative expenses	$	3,122	$	2,511	$	8,808	$	7,142

During the three and nine months ended October 1, 2021, selling, general and administrative expenses increased $611 million, or 24 percent, and increased $1,666 million, or 23 percent, respectively, versus the prior year comparable periods. The increases were primarily due to higher short-term incentive and stock-based compensation expense and increased marketing spending, which was reduced in the prior year as a result of uncertainties associated with the COVID-19 pandemic. The increase in short-term incentive and stock-based compensation expense in the current year was due to a more favorable outlook for our financial performance in the current year, which resulted in higher payout assumptions as compared to the prior year. During the three and nine months ended October 1, 2021, foreign currency exchange rate fluctuations increased selling, general and administrative expenses by 2 percent and 3 percent, respectively.

The decrease in selling and distribution expenses during the three and nine months ended October 1, 2021 was primarily due to the impact of the COVID-19 pandemic on away-from-home channels, partially offset by the impact of foreign currency exchange rate fluctuations.

As of October 1, 2021, we had $384 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plans, which we expect to recognize over a weighted-average period of 2.1 years as stock-based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards.

Other Operating Charges

Other operating charges incurred by operating segment and Corporate were as follows (in millions):


	Three Months Ended				Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Europe, Middle East & Africa	$	2	$	38	$	63	$	38
Latin America	—		22		11		32
North America	(2)		133		18		395
Asia Pacific	—		32		13		32
Global Ventures	—		—		—		—
Bottling Investments	—		—		—		13
Corporate	45		147		373		237
Total	$	45	$	372	$	478	$	747

During the three months ended October 1, 2021, the Company recorded other operating charges of $45 million. These charges included $31 million related to the Company’s productivity and reinvestment program, $12 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife, LLC (“fairlife”) acquisition, $4 million due to the Company’s strategic realignment initiatives and $1 million related to tax litigation expense. Other operating charges also included a net gain of $3 million related to the restructuring of our manufacturing operations in the United States.

During the nine months ended October 1, 2021, the Company recorded other operating charges of $478 million. These charges primarily consisted of $263 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $126 million due to the Company’s strategic realignment initiatives and $71 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $14 million related to tax litigation expense and a net charge of $4 million related to the restructuring of our manufacturing operations in the United States.

During the three months ended September 25, 2020, the Company recorded other operating charges of $372 million. These charges primarily consisted of $332 million due to the Company’s strategic realignment initiatives and $10 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $18 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and $12 million related to the restructuring of our manufacturing operations in the United States.

During the nine months ended September 25, 2020, the Company recorded other operating charges of $747 million. These charges primarily consisted of $332 million related to the Company’s strategic realignment initiatives and $71 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included impairment charges of $160 million related to the Odwalla trademark and charges of $35 million related to discontinuing the Odwalla juice business. Other operating charges also included an impairment charge of $55 million related to a trademark in North America, which was driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company’s portfolio. Other operating charges also included $47 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and $24 million related to the restructuring of our manufacturing operations in the United States.

Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements for additional information related to the tax litigation. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the Company’s strategic realignment initiatives and productivity and reinvestment program. Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the impairment charges. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate.

Operating Income and Operating Margin

Information about our operating income contribution by operating segment and Corporate on a percentage basis is as follows:


	Three Months Ended				Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Europe, Middle East & Africa	35.5	%	39.3	%	34.6	%	38.7	%
Latin America	24.6		21.0		22.5		22.9
North America	29.9		31.7		30.2		24.1
Asia Pacific	20.5		24.5		23.7		25.9
Global Ventures	3.9		(1.4)		2.5		(1.7)
Bottling Investments	2.8		2.4		3.6		2.0
Corporate	(17.2)		(17.5)		(17.1)		(11.9)
Total	100.0	%	100.0	%	100.0	%	100.0	%

Operating margin is a ratio calculated by dividing operating income by net operating revenues. Management believes operating margin provides investors with useful information related to the profitability of our business after considering all of the operating costs incurred. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance.

Information about our operating margin on a consolidated basis and by operating segment and Corporate is as follows:


	Three Months Ended				Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Consolidated	28.9	%	26.6	%	29.6	%	27.3	%
Europe, Middle East & Africa	58.5	%	58.0	%	58.7	%	60.5	%
Latin America	62.7		59.7		62.4		61.2
North America	25.0		23.6		26.7		18.7
Asia Pacific	48.3		46.7		53.7		52.9
Global Ventures	15.1		(6.1)		10.6		(8.3)
Bottling Investments	4.9		3.7		5.9		3.0
Corporate	*****		*		*****		*

*** Calculation is not meaningful.

Three Months Ended October 1, 2021 versus Three Months Ended September 25, 2020

During the three months ended October 1, 2021, operating income was $2,898 million, compared to $2,298 million during the three months ended September 25, 2020, an increase of $600 million, or 26 percent. The increase was driven by concentrate sales volume growth of 8 percent, favorable channel and package mix, effective cost management, lower other operating charges and a favorable foreign currency exchange rate impact, partially offset by higher short-term incentive and stock-based compensation expense along with increased marketing spending.

During the three months ended October 1, 2021, fluctuations in foreign currency exchange rates favorably impacted consolidated operating income by 4 percent due to a weaker U.S. dollar compared to certain foreign currencies, including the Mexican peso and South African rand, which had a favorable impact on our Latin America, Europe, Middle East and Africa, and Bottling Investments operating segments. The favorable impact of a weaker U.S. dollar compared to the currencies listed above was partially offset by the impact of a stronger U.S. dollar compared to certain other foreign currencies, including the Argentine peso, Japanese yen and Turkish lira, which had an unfavorable impact on our Latin America, Asia Pacific and Europe, Middle East and Africa operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

The Company’s Europe, Middle East and Africa operating segment reported operating income of $1,028 million and $903 million for the three months ended October 1, 2021 and September 25, 2020, respectively. The increase in operating income was primarily driven by an 8 percent increase in concentrate sales volume, favorable channel and package mix, and lower other operating charges, partially offset by an unfavorable foreign currency exchange rate impact of 1 percent, higher short-term incentive expense and increased marketing spending.

Latin America reported operating income of $712 million and $483 million for the three months ended October 1, 2021 and September 25, 2020, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 11 percent; favorable pricing initiatives; favorable channel and package mix; a favorable foreign currency exchange rate impact of 12 percent; and lower other operating charges, partially offset by higher short-term incentive expense and increased marketing spending.

Operating income for North America for the three months ended October 1, 2021 and September 25, 2020 was $868 million and $727 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 7 percent; favorable pricing initiatives; favorable channel and category mix; and lower other operating charges, partially offset by increased marketing spending and higher short-term incentive expense.

Asia Pacific’s operating income for the three months ended October 1, 2021 and September 25, 2020 was $594 million and $564 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 5 percent, lower other operating charges and a favorable foreign currency exchange rate impact of 2 percent, partially offset by higher short-term incentive expense and increased marketing spending.

Global Ventures’ operating income for the three months ended October 1, 2021 was $114 million, while the operating segment’s operating loss for the three months ended September 25, 2020 was $31 million. The change in operating income was primarily driven by revenue growth as a result of the reopening of Costa retail stores in the United Kingdom and a favorable foreign currency exchange rate impact of 9 percent.

Bottling Investments’ operating income for the three months ended October 1, 2021 and September 25, 2020 was $81 million and $55 million, respectively. The increase in operating income was driven by volume growth of 3 percent; favorable price, category and package mix; and a favorable foreign currency exchange rate impact of 32 percent.

Corporate’s operating loss for the three months ended October 1, 2021 and September 25, 2020 was $499 million and $403 million, respectively. Operating loss in 2021 increased primarily as a result of increased marketing spending and higher short-term incentive and stock-based compensation expense.

Nine Months Ended October 1, 2021 versus Nine Months Ended September 25, 2020

During the nine months ended October 1, 2021, operating income was $8,636 million, compared to $6,659 million during the nine months ended September 25, 2020, an increase of $1,977 million, or 30 percent. The increase was driven by concentrate sales volume growth of 13 percent, favorable channel and package mix, effective cost management, a favorable foreign currency exchange rate impact and lower other operating charges, partially offset by higher short-term incentive and stock-based compensation expense and increased marketing spending.

During the nine months ended October 1, 2021, fluctuations in foreign currency exchange rates favorably impacted consolidated operating income by 2 percent due to a weaker U.S. dollar compared to certain foreign currencies, including the Mexican peso, Chinese yuan, Australian dollar and British pound sterling, which had a favorable impact on our Latin America, Asia Pacific, Europe, Middle East and Africa, and Global Ventures operating segments. The favorable impact of a weaker U.S. dollar compared to the currencies listed above was partially offset by the impact of a stronger U.S. dollar compared to certain other foreign currencies, including the Argentine peso, Brazilian real and Turkish lira, which had an unfavorable impact on our Latin America and Europe, Middle East and Africa operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

The Company’s Europe, Middle East and Africa operating segment reported operating income of $2,990 million and $2,578 million for the nine months ended October 1, 2021 and September 25, 2020, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 15 percent, favorable channel and package mix, and a favorable foreign currency exchange rate impact of 1 percent, partially offset by increased marketing spending, higher short-term incentive expense and higher other operating charges.

Latin America reported operating income of $1,942 million and $1,526 million for the nine months ended October 1, 2021 and September 25, 2020, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 13 percent; favorable pricing initiatives; favorable channel and package mix; and lower other operating charges, partially offset by higher short-term incentive expense and increased marketing spending.

Operating income for North America for the nine months ended October 1, 2021 and September 25, 2020 was $2,610 million and $1,603 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 7 percent; favorable pricing initiatives; favorable channel and package mix; effective cost management and lower other operating charges, partially offset by higher short-term incentive expense and increased marketing spending.

Asia Pacific’s operating income for the nine months ended October 1, 2021 and September 25, 2020 was $2,046 million and $1,727 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of

13 percent; lower other operating charges and a favorable foreign currency exchange rate impact of 6 percent, partially offset by higher short-term incentive expense and increased marketing spending.

Global Ventures’ operating income for the nine months ended October 1, 2021 was $215 million, while the operating segment’s operating loss for the nine months ended September 25, 2020 was $114 million. The change in operating income was primarily driven by revenue growth as a result of the reopening of Costa retail stores in the United Kingdom and a favorable foreign currency exchange rate impact of 5 percent.

Bottling Investments’ operating income for the nine months ended October 1, 2021 and September 25, 2020 was $314 million and $130 million, respectively. The increase in operating income was primarily driven by volume growth of 11 percent; favorable price, category and package mix; and lower other operating charges, partially offset by an unfavorable foreign currency exchange rate impact of 11 percent.

Corporate’s operating loss for the nine months ended October 1, 2021 and September 25, 2020 was $1,481 million and $791 million, respectively. Operating loss in 2021 increased primarily as a result of higher short-term incentive and stock-based compensation expense, increased marketing spending and higher other operating charges.

Based on current spot rates and our hedging coverage in place, we expect foreign currency fluctuations will have a slightly favorable impact on operating income through the end of the year.

Interest Income

During the three months ended October 1, 2021, interest income was $68 million, compared to $82 million during the three months ended September 25, 2020, a decrease of $14 million, or 17 percent. The decrease was primarily driven by lower investment balances. During the nine months ended October 1, 2021, interest income was $205 million, compared to $294 million during the nine months ended September 25, 2020, a decrease of $89 million, or 30 percent. The decrease was primarily driven by lower returns in certain of our international locations.

Interest Expense

During the three months ended October 1, 2021, interest expense was $210 million, compared to $660 million during the three months ended September 25, 2020, a decrease of $450 million, or 68 percent. The decrease was primarily due to charges in the prior year of $405 million associated with the extinguishment of long-term debt. During the nine months ended October 1, 2021, interest expense was $1,432 million, compared to $1,127 million during the nine months ended September 25, 2020, an increase of $305 million, or 27 percent. The increase was primarily due to charges associated with the extinguishment of long-term debt of $650 million in the current year versus charges of $405 million in the prior year. The increase in interest expense during the nine months ended October 1, 2021 was also driven by higher average long-term debt balances, partially offset by lower short-term U.S. interest rates and balances. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements.

Equity Income (Loss) — Net

Three Months Ended October 1, 2021 versus Three Months Ended September 25, 2020

During the three months ended October 1, 2021, equity income was $455 million, compared to equity income of $431 million during the three months ended September 25, 2020, an increase of $24 million, or 6 percent. This increase reflects, among other items, the impact of more favorable operating results reported by some of our equity method investees in the current year and a favorable impact from fluctuations in foreign currency exchange rates. Additionally, the Company recorded a net gain of $18 million and a net charge of $27 million during the three months ended October 1, 2021 and September 25, 2020, respectively, which represent the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.

Nine Months Ended October 1, 2021 versus Nine Months Ended September 25, 2020

During the nine months ended October 1, 2021, equity income was $1,136 million, compared to equity income of $774 million during the nine months ended September 25, 2020, an increase of $362 million, or 47 percent. This increase primarily reflects the impact of more favorable operating results reported by most of our equity method investees in the current year, as prior year results were more negatively impacted by the COVID-19 pandemic, along with a favorable foreign currency exchange rate impact. In addition, the Company recorded net charges of $5 million and $128 million during the nine months ended October 1, 2021 and September 25, 2020, respectively, which represent the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.

Other Income (Loss) — Net

Three Months Ended October 1, 2021 versus Three Months Ended September 25, 2020

Other income (loss) — net includes, among other things, dividend income; gains and losses related to the disposal of property, plant and equipment; gains and losses related to acquisitions and divestitures; non-service cost components of net periodic

benefit cost (income) for pension and other postretirement benefit plans; other charges and credits related to pension and other postretirement benefit plans; realized and unrealized gains and losses on equity securities and trading debt securities; realized gains and losses on available-for-sale debt securities; other-than-temporary impairment charges; and net foreign currency exchange gains and losses. The foreign currency exchange gains and losses are primarily the result of the remeasurement of monetary assets and liabilities from certain currencies into functional currencies. The effects of the remeasurement of these assets and liabilities are partially offset by the impact of our economic hedging program for certain exposures on our consolidated balance sheet. Refer to Note 6 of Notes to Condensed Consolidated Financial Statements.

During the three months ended October 1, 2021, other income (loss) — net was a loss of $127 million. Other income (loss) — net included charges of $266 million related to the restructuring of our manufacturing operations in the United States and pension benefit plan settlement charges of $21 million related to the Company’s strategic realignment initiatives. These charges were partially offset by income of $73 million related to the non-service cost components of net periodic benefit cost (income), a gain of $63 million related to the sale of a portion of our ownership interest in one of our equity method investments and dividend income of $18 million.

During the three months ended September 25, 2020, other income (loss) — net was income of $30 million. Other income (loss) — net included income of $44 million related to the non-service cost components of net periodic benefit cost (income). The Company also recognized a net gain of $13 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Additionally, the Company recorded other postretirement benefit plan curtailment charges of $11 million related to its strategic realignment initiatives.

None of the other items included in other income (loss) — net for the three months ended October 1, 2021 and September 25, 2020 was individually significant. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the sale of a portion of our ownership interest in one of our equity method investments. Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for additional information on equity and debt securities. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the strategic realignment initiatives. Refer to Note 13 of Notes to Condensed Consolidated Financial Statements for additional information on net periodic benefit cost (income). Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the restructuring of our manufacturing operations in the United States. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate.

Nine Months Ended October 1, 2021 versus Nine Months Ended September 25, 2020

During the nine months ended October 1, 2021, other income (loss) — net was income of $920 million. The Company recognized a net gain of $695 million related to the sale of our ownership interest in Coca-Cola Amatil Limited (“CCA”), an equity method investee, to Coca-Cola Europacific Partners plc (“CCEP”), also an equity method investee, a net gain of $341 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities, and a gain of $63 million related to the sale of a portion of our ownership interest in one of our equity method investments. Additionally, other income (loss) — net included income of $206 million related to the non-service cost components of net periodic benefit cost (income) and dividend income of $57 million. Other income (loss) — net also included charges of $266 million related to the restructuring of our manufacturing operations in the United States, pension benefit plan settlement charges of $104 million related to our strategic realignment initiatives and net foreign currency exchange losses of $47 million.

During the nine months ended September 25, 2020, other income (loss) — net was income of $788 million. The Company recognized a gain of $902 million in conjunction with the fairlife acquisition, which resulted from the remeasurement of our previously held equity interest in fairlife to fair value. Other income (loss) — net also included income of $129 million related to the non-service cost components of net periodic benefit cost (income), dividend income of $48 million and a gain of $18 million related to the sale of a portion of our ownership interest in one of our equity method investments. These gains were partially offset by a net loss of $55 million related to economic hedging activities, an other-than-temporary impairment charge of $38 million related to one of our equity method investees in Latin America, an impairment charge of $26 million associated with an investment in an equity security without a readily determinable fair value and net foreign currency exchange losses of $36 million. The Company also recorded a charge of $21 million related to the restructuring of our manufacturing operations in the United States, other postretirement benefit plan curtailment charges of $11 million related to the Company’s strategic realignment initiatives and a net loss of $127 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.

None of the other items included in other income (loss) — net for the nine months ended October 1, 2021 and September 25, 2020 was individually significant. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the sale of our ownership interest in CCA and other equity method investments and the fairlife acquisition. Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for additional information on equity and debt securities. Refer to Note 6 of Notes to Condensed Consolidated Financial Statements for additional information on economic

hedging activities. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on the strategic realignment initiatives. Refer to Note 13 of Notes to Condensed Consolidated Financial Statements for additional information on net periodic benefit cost (income). Refer to Note 15 of Notes to Condensed Consolidated Financial Statements for additional information on the impairment charges and the restructuring of our manufacturing operations in the United States. Refer to Note 16 of Notes to Condensed Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate.

Income Taxes

The Company recorded income taxes of $609 million (19.7 percent effective tax rate) and $441 million (20.2 percent effective tax rate) during the three months ended October 1, 2021 and September 25, 2020, respectively. The Company recorded income taxes of $2,111 million (22.3 percent effective tax rate) and $1,094 million (14.8 percent effective tax rate) during the nine months ended October 1, 2021 and September 25, 2020, respectively.

The Company’s effective tax rates for the three and nine months ended October 1, 2021 and September 25, 2020 vary from the statutory U.S. federal income tax rate of 21.0 percent primarily due to the tax impact of significant operating and nonoperating items, as described in Note 11 of Notes to Condensed Consolidated Financial Statements, along with the tax benefits of having significant operations outside the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. rate.

The Company’s effective tax rates for the three and nine months ended October 1, 2021 included $75 million and $251 million, respectively, of net tax expense related to various discrete tax items, including changes in tax laws in certain foreign jurisdictions and the net tax impact of agreed-upon audit issues.

The Company’s effective tax rates for the three and nine months ended September 25, 2020 included $15 million of net tax expense and $138 million of net tax benefits, respectively, associated with various discrete tax items, including return to provision adjustments, excess tax benefits associated with the Company’s stock-based compensation arrangements, the net tax impact of tax law changes in certain foreign jurisdictions, and net tax charges for changes to our uncertain tax positions, including interest and penalties. The Company’s effective tax rate for the nine months ended September 25, 2020 also included a tax benefit of $40 million associated with the gain recorded upon the acquisition of the remaining interest in fairlife. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information on the fairlife acquisition.

On November 18, 2020, the U.S. Tax Court (“Tax Court”) issued an opinion (“Opinion”) regarding the Company’s 2015 litigation with the U.S. Internal Revenue Service (“IRS”) involving transfer pricing tax adjustments in which the Tax Court predominantly sided with the IRS. The Company strongly disagrees with the Opinion and intends to vigorously defend its position. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements for additional information on the litigation.

At the end of each quarter, 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 effective tax rate in 2021 is expected to be 18.6 percent before considering the potential impact of any significant operating and nonoperating items that may affect our effective tax rate. This rate does not include the impact of the ongoing tax litigation with the IRS, if the Company were not to prevail.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

We believe our ability to generate cash flows from operating activities is one of the fundamental strengths of our business. Refer to the heading “Cash Flows from Operating Activities” below. The Company does not typically raise capital through the issuance of stock. Instead, we use debt financing to lower our overall cost of capital and increase our return on shareowners’ equity. Refer to the heading “Cash Flows from Financing Activities” below. We have a history of borrowing funds both domestically and internationally at reasonable interest rates, and we expect to be able to continue to borrow funds at reasonable rates over the long term. Our debt financing also includes the use of a commercial paper program. We currently have the ability to borrow funds in this market at levels that are consistent with our debt financing strategy, and we expect to continue to be able to do so in the future.

The Company reviews its optimal mix of short-term and long-term debt regularly and, as a result of this review, in 2021, we issued U.S. dollar- and euro-denominated long-term debt of $6.0 billion and €3.2 billion, respectively, across various maturities. We used a portion of the proceeds from the long-term debt issuances to extinguish certain tranches of our previously issued long-term debt. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements for additional information on the debt issuances and extinguishments.

The Company’s cash, cash equivalents, short-term investments and marketable securities totaled $14.9 billion as of October 1, 2021. In addition to these funds, our commercial paper program and our ability to issue long-term debt, we had $6.5 billion in unused lines of credit for general corporate purposes as of October 1, 2021. These backup lines of credit expire at various times from 2021 through 2025.

While uncertainties caused by the COVID-19 pandemic remain, we expect to continue to see improvements in our business as vaccines become more widely available. The timing and availability of vaccines will be different around the world, and therefore we believe the pace of the recovery will vary by geography depending on vaccine availability, rates of vaccination and the effectiveness of vaccines against existing and new variants of the virus, along with other macroeconomic factors. We will remain flexible so that we can adjust to uncertainties while we continue to move forward on the initiatives we implemented to emerge stronger from the COVID-19 pandemic. In 2021, we have been increasing marketing spending behind our brands to drive increased net operating revenues. We expect the return on that spending to become more favorable as mobility increases and away-from-home channels continue to recover. While many of the operating expenses that were significantly reduced in 2020 have increased in 2021, we will continue to focus on cash flow generation. Our current capital allocation priorities are focused on investing wisely to support our business operations and continuing to grow our dividend payment. We currently expect 2021 capital expenditures to be approximately $1.5 billion. In addition, we do not intend to repurchase shares under our Board of Directors’ authorized plan during the year ending December 31, 2021, and we do not intend to change our approach toward paying dividends.

We are currently in litigation with the IRS for tax years 2007 through 2009. On November 18, 2020, the Tax Court issued the Opinion in which it predominantly sided with the IRS; however, a final decision is still pending and the timing of such decision is not currently known. The Company strongly disagrees with the IRS’ positions and the portions of the Opinion affirming such positions and intends to vigorously defend our positions utilizing every available avenue of appeal. While the Company believes that it is more likely than not that we will ultimately prevail in this litigation upon appeal, it is possible that all, or some portion of, the adjustments proposed by the IRS and sustained by the Tax Court could ultimately be upheld. In the event that all of the adjustments proposed by the IRS are ultimately upheld for tax years 2007 through 2009 and the IRS, with the consent of the federal courts, were to decide to apply the underlying methodology (“Tax Court Methodology”) to the subsequent years up to and including 2020, the Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately $12 billion as of December 31, 2020. Additional income tax and interest would continue to accrue until the time any such potential liability, or portion thereof, were to be paid. The Company estimates the impact of the continued application of the Tax Court Methodology for the nine months ended October 1, 2021 would increase the potential aggregate incremental tax and interest liability by approximately $750 million. Once the Tax Court renders a final decision, the Company will have 90 days to file a notice of appeal and pay the portion of the potential aggregate incremental tax and interest liability related to the 2007 through 2009 litigation period, which we currently estimate to be approximately $4.9 billion (including interest accrued through October 1, 2021), plus any additional interest accrued through the time of payment. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements for additional information on the tax litigation.

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.

Based on all of the aforementioned factors, the Company believes its current liquidity position is strong and will continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for the foreseeable future.

Cash Flows from Operating Activities

As part of our continued efforts to improve our working capital efficiency, we have worked with our suppliers over the past several years to revisit terms and conditions, including the extension of payment terms. Our current payment terms with the majority of our suppliers are 120 days. Additionally, two global financial institutions offer a voluntary supply chain finance (“SCF”) program which enables our suppliers, at their sole discretion, to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus may be more beneficial to them. The SCF program is available to suppliers of goods and services included in cost of goods sold as well as suppliers of goods and services included in selling, general and administrative expenses in our consolidated statement of income. The Company and our suppliers agree on contractual terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. The suppliers sell goods or services, as applicable, to the Company and issue the associated invoices to the Company based on the agreed-upon contractual terms. Then, if they are participating in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, they want to sell to the financial institutions. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by the Company or any of our subsidiaries under the SCF program. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program. Accordingly, amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable and accrued expenses in our consolidated balance sheet. All activity related to amounts due to suppliers that elected to participate in the SCF program is reflected within the operating activities section of our consolidated statement of cash flows. We have been informed by the financial institutions that as of October 1, 2021 and December 31, 2020, suppliers had elected to sell $860 million and $703 million, respectively, of our outstanding payment obligations to the financial institutions. The amounts settled through the SCF program were

$2,339 million and $2,076 million for the nine months ended October 1, 2021 and September 25, 2020, respectively. We do not believe there is a risk that our payment terms will be shortened in the near future, and we do not currently expect our net cash provided by operating activities to be significantly impacted by additional extensions of payment terms in the foreseeable future.

In the fourth quarter of 2020, the Company started a trade accounts receivable factoring program in certain countries. Under this program, we can elect to sell trade accounts receivables to unaffiliated financial institutions at a discount. In these factoring arrangements, for ease of administration, the Company collects customer payments related to the factored receivables and remits those payments to the financial institutions. The Company sold $4,595 million of trade accounts receivables under this program during the nine months ended October 1, 2021, and the costs of factoring such receivables were not material. The Company classifies the cash received from the financial institutions within the operating activities section of our consolidated statement of cash flows.

Net cash provided by operating activities during the nine months ended October 1, 2021 and September 25, 2020 was $9,231 million and $6,220 million, respectively, an increase of $3,011 million, or 48 percent. This increase was primarily driven by increased operating income, which includes the impact of five additional days when compared to the prior year, a benefit from our trade accounts receivable factoring program, a favorable impact of foreign currency exchange rate fluctuations, lower short-term incentive payments in 2021 as a result of the impact of the COVID-19 pandemic on our operating performance in 2020, lower payments in 2021 of prior year-end marketing accruals due to lower spending in 2020 as a result of the COVID-19 pandemic, and lower current year prepayments to customers. These items were partially offset by higher payments related to our strategic realignment initiatives along with higher tax payments in the current year. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information on our strategic realignment initiatives.

Cash Flows from Investing Activities

Net cash provided by investing activities for the nine months ended October 1, 2021 was $1,919 million and net cash used in investing activities for the nine months ended September 25, 2020 was $7,072 million.

Purchases of Investments and Proceeds from Disposals of Investments

During the nine months ended October 1, 2021, purchases of investments were $4,732 million and proceeds from disposals of investments were $5,294 million, resulting in a net cash inflow of $562 million. During the nine months ended September 25, 2020, purchases of investments were $12,051 million and proceeds from disposals of investments were $6,482 million, resulting in a net cash outflow of $5,569 million. This activity primarily represents the purchases of, and proceeds from the disposals of, investments in marketable securities and short-term investments that were made as part of the Company’s overall cash management strategy. Also included in this activity are purchases of, and proceeds from the disposals of, investments held by our captive insurance companies. Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.

Acquisitions of Businesses, Equity Method Investments and Nonmarketable Securities

During the nine months ended October 1, 2021, the Company’s acquisitions of businesses, equity method investments and nonmarketable securities totaled $11 million. During the nine months ended September 25, 2020, the Company’s acquisitions of businesses, equity method investments and nonmarketable securities totaled $989 million, which primarily related to the acquisition of the remaining ownership interest in fairlife. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.

Proceeds from Disposals of Businesses, Equity Method Investments and Nonmarketable Securities

During the nine months ended October 1, 2021, proceeds from disposals of businesses, equity method investments and nonmarketable securities were $1,950 million, which primarily related to the sale of our ownership interest in CCA and the sale of a portion of our ownership interest in one of our equity method investments. During the nine months ended September 25, 2020, proceeds from disposals of businesses, equity method investments and nonmarketable securities were $46 million, which primarily related to the sale of a portion of our ownership interest in one of our equity method investments. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for additional information.

Purchases of Property, Plant and Equipment

Purchases of property, plant and equipment during the nine months ended October 1, 2021 and September 25, 2020 were $728 million and $759 million, respectively.

Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended October 1, 2021 was $6,591 million, and net cash provided by financing activities during the nine months ended September 25, 2020 was $5,973 million.

Debt Financing

Issuances and payments of debt included both short-term and long-term financing activities. During the nine months ended October 1, 2021, the Company had issuances of debt of $11,848 million, which included $2,210 million of issuances related to commercial paper and short-term debt with maturities greater than 90 days and long-term debt issuances of $9,638 million, net of related discounts and issuance costs.

The Company made payments of debt of $13,037 million during the nine months ended October 1, 2021, which included $2,240 million of payments of commercial paper and short-term debt with maturities greater than 90 days, $291 million of payments of commercial paper and short-term debt with maturities of 90 days or less, and net payments of long-term debt of $10,506 million. The payments of long-term debt included payments of $6,500 million and €2,430 million related to the extinguishment of long-term debt. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements.

Issuances of Stock

During the nine months ended October 1, 2021, the Company received cash proceeds from issuances of stock of $493 million, a decrease of $21 million when compared to cash proceeds from issuances of stock of $514 million during the nine months ended September 25, 2020. The issuances of stock during the nine months ended October 1, 2021 and September 25, 2020 were related to the exercise of stock options by employees.

Share Repurchases

During the nine months ended October 1, 2021, the Company did not repurchase common stock under the share repurchase plan authorized by our Board of Directors. The Company’s treasury stock activity includes shares surrendered to the Company to pay the exercise price and/or to satisfy tax withholding obligations in connection with so-called stock swap exercises of employee stock options and/or the vesting of restricted stock issued to employees. The Company’s treasury stock activity during the nine months ended October 1, 2021 resulted in a cash outflow of $104 million.

Dividends

During the nine months ended October 1, 2021 and September 25, 2020, the Company paid dividends of $5,437 million and $3,522 million, respectively. As a result of timing, the Company paid the third quarterly dividend of 2021 in the third quarter and paid the third quarterly dividend of 2020 in the fourth quarter of 2020.

Our Board of Directors approved the Company’s regular quarterly dividend of $0.42 per share at its October 2021 meeting. This dividend is payable on December 15, 2021 to shareowners of record as of the close of business on December 1, 2021.

Foreign Exchange

Our international operations are subject to certain opportunities and risks, including currency fluctuations and governmental actions. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to changing economic and political environments as well as to fluctuations in currencies.

Our Company conducts business in more than 200 countries and territories. Due to the geographic diversity of our operations, weakness in some currencies may be offset by strength in others. Our foreign currency management program is designed to mitigate, over time, a portion of the potentially unfavorable impact of exchange rate changes on our net income and earnings per share. Taking into account the effects of our hedging activities, the impact of fluctuations in foreign currency exchange rates increased our operating income for the three and nine months ended October 1, 2021 by 4 percent and 2 percent, respectively.

Based on current spot rates and our hedging coverage in place, we expect foreign currency fluctuations will have a slightly favorable impact on operating income and cash flows from operating activities through the end of the year.

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