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 consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Recoverability of Current and Noncurrent Assets

Our Company faces many uncertainties and risks related to various economic, political and regulatory environments in the countries and territories in which we operate, particularly in developing and emerging markets. Refer 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, 2022. 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 performance of recoverability and impairment tests of current and noncurrent assets involves 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, cost of raw materials, delivery costs, the impact of any supply chain disruptions, inflation, long-term growth rates, cost of capital, marketing spending, foreign currency exchange rates, tax rates, capital spending, proceeds from the sale of assets and customers’ financial condition. The variability of these factors depends on a number of conditions, and thus our accounting estimates may change from period to period. The estimates we use when performing recoverability tests 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 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 which are more heavily impacted by the COVID-19 pandemic, and therefore these assets are 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 impairment tests were performed, impairment charges could have resulted. Furthermore, if management uses different assumptions in future periods, or if different conditions exist in future periods, 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 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 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 periodically 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 key metric used by management to evaluate the Company’s performance because it measures demand for our products at the consumer level. The Company’s unit case volume represents the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers 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 non-ready-to-drink beverage products, concentrate sales volume represents the amount of beverages, primarily measured in number of transactions (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 exchange rate fluctuations; and (4) acquisitions and divestitures (including structural changes as 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 concentrate sales, 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 report 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. Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the Company’s divestitures.

“Acquired brands” refers to brands acquired during the past 12 months. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume 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 related 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 that 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 May 2023 and July 2022, the Company acquired certain brands in Asia Pacific. The impact of acquiring these brands has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for the Asia Pacific operating segment. Also, in August 2022, the Company acquired a controlling interest in a bottling operation in Malawi. The impact of this acquisition has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments operating segment. Additionally, in November 2022, the Company refranchised our bottling operations in Cambodia. The impact of this refranchising has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments and Asia Pacific operating segments.

In January 2023, the Company refranchised our bottling operations in Vietnam. The impact of this refranchising has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments and Asia Pacific operating segments.

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 an 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 indicators of the underlying strength of the Coca-Cola system because it measures demand for our products 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 beverages, primarily measured in number of transactions (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 for each of our operating segments is as follows:


	Percent Change 2023 versus 2022
	Three Months Ended June 30, 2023					Six Months Ended June 30, 2023
	Unit Cases1,2,3			Concentrate Sales4		Unit Cases1,2,3			Concentrate Sales4
Worldwide	—	%		1	%	2	%		1	%
Europe, Middle East & Africa	(5)	%		(5)	%	(4)	%		(2)	%
Latin America	4			8		5			4
North America	(1)			—		—			(1)
Asia Pacific	2			(1)		6			(1)
Global Ventures	4			8		5			8
Bottling Investments	(1)		5	N/A		(1)		5	N/A

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

2Geographic 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.

3Unit 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.

4Concentrate 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 beverage products, concentrate sales volume represents the amount of beverages, primarily measured in number of transactions (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 2023 had one less day when compared to the first quarter of 2022, and the fourth quarter of 2023 will have one additional day when compared to the fourth quarter of 2022.

5After considering the impact of structural changes, unit case volume for Bottling Investments for the three and six months ended June 30, 2023 grew 5 percent.

Unit Case Volume

Although a significant portion of our Company’s net operating revenues is not based directly on unit case volume, we believe unit case volume performance is one of the indicators of the underlying strength of the Coca-Cola system because it measures demand for our products at the consumer level.

Three Months Ended June 30, 2023 versus Three Months Ended July 1, 2022

Unit case volume in Europe, Middle East and Africa decreased 5 percent, which included a 6 percent decline in sparkling flavors, a 2 percent decline in Trademark Coca-Cola, a 23 percent decline in juice, value-added dairy and plant-based beverages, and a 6 percent decline in water, sports, coffee and tea. The operating segment reported a decline in unit case volume of 7 percent in the Europe operating unit and a decline of 5 percent in the Eurasia and Middle East operating unit, partially offset by growth of 1 percent in the Africa operating unit. The declines in the Europe operating unit, in Trademark Coca-Cola, and in juice, value-added dairy and plant-based beverages were primarily due to the suspension of the Company’s business in Russia in 2022.

Unit case volume in Latin America increased 4 percent, which included 10 percent growth in water, sports, coffee and tea, 3 percent growth in Trademark Coca-Cola, 2 percent growth in sparkling flavors, and 3 percent growth in juice, value-added dairy and plant-based beverages. The operating segment’s volume performance included 3 percent growth in Mexico and 4 percent growth in Brazil.

Unit case volume in North America decreased 1 percent, which included a 5 percent decline in water, sports, coffee and tea and a 1 percent decline in Trademark Coca-Cola, partially offset by 2 percent growth in juice, value-added dairy and plant-based beverages and 1 percent growth in sparkling flavors.

Unit case volume in Asia Pacific increased 2 percent, which included 10 percent growth in juice, value-added dairy and plant-based beverages as well as 2 percent growth in both sparkling flavors and Trademark Coca-Cola, partially offset by a 1 percent decline in water, sports, coffee and tea. The operating segment reported growth in unit case volume of 5 percent in the India and Southwest Asia operating unit and growth of 2 percent in the Greater China and Mongolia operating unit, partially offset by a decline of 1 percent in both the Japan and South Korea operating unit and the ASEAN and South Pacific operating unit.

Unit case volume for Global Ventures increased 4 percent, driven by 2 percent growth in water, sports, coffee and tea along with growth in energy drinks, partially offset by a 1 percent decline in juice, value-added dairy and plant-based beverages.

Unit case volume for Bottling Investments decreased 1 percent, which included the impact of refranchising our bottling operations in Vietnam and Cambodia and a decline in unit case volume in the Philippines, partially offset by growth in unit case volume in India and South Africa.

Six Months Ended June 30, 2023 versus Six Months Ended July 1, 2022

Unit case volume in Europe, Middle East and Africa decreased 4 percent, which included a 26 percent decline in juice, value-added dairy and plant-based beverages, a 5 percent decline in sparkling flavors, and a 7 percent decline in water, sports, coffee and tea. Unit case volume in Trademark Coca-Cola was even. The operating segment reported a decline in unit case volume of 7 percent in the Europe operating unit and a decline of 1 percent in the Africa operating unit. Unit case volume in the Eurasia and Middle East operating unit was even. The declines in the Europe operating unit and in juice, value-added dairy and plant-based beverages were primarily due to the suspension of the Company’s business in Russia in 2022.

Unit case volume in Latin America increased 5 percent, which included 10 percent growth in water, sports, coffee and tea, 3 percent growth in Trademark Coca-Cola, 2 percent growth in sparkling flavors, and 4 percent growth in juice, value-added dairy and plant-based beverages. The operating segment’s volume performance included 4 percent growth in Mexico and 5 percent growth in Brazil.

Unit case volume in North America was even, which included 3 percent growth in juice, value-added dairy and plant-based beverages and 1 percent growth in sparkling flavors, offset by a 5 percent decline in water, sports, coffee and tea. Unit case volume in Trademark Coca-Cola was even.

Unit case volume in Asia Pacific increased 6 percent, which included 6 percent growth in sparkling flavors, 5 percent growth in Trademark Coca-Cola, 13 percent growth in juice, value-added dairy and plant-based beverages, and 4 percent growth in water, sports, coffee and tea. The operating segment reported growth in unit case volume of 12 percent in the India and Southwest Asia operating unit and growth of 7 percent in the Greater China and Mongolia operating unit. Unit case volume in both the ASEAN and South Pacific operating unit and the Japan and South Korea operating unit was even.

Unit case volume for Global Ventures increased 5 percent, driven by 2 percent growth in water, sports, coffee and tea along with growth in energy drinks, partially offset by a 3 percent decline in juice, value-added dairy and plant-based beverages.

Concentrate Sales Volume

During the three months ended June 30, 2023, worldwide concentrate sales volume increased 1 percent and unit case volume was even compared to the three months ended July 1, 2022. During the six months ended June 30, 2023, worldwide concentrate sales volume increased 1 percent and unit case volume increased 2 percent compared to the six months ended July 1, 2022. Concentrate sales volume growth is calculated based on the amount 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 differences between concentrate sales volume and unit case volume growth rates for the operating segments were primarily due to the timing of concentrate shipments. In addition, the first quarter of 2023 had one less day when compared to the first quarter of 2022, which also 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 six months ended June 30, 2023. We expect the differences between concentrate sales volume and unit case volume growth rates to lessen over the remainder of the year.

Net Operating Revenues

Three Months Ended June 30, 2023 versus Three Months Ended July 1, 2022

During the three months ended June 30, 2023, net operating revenues were $11,972 million, compared to $11,325 million during the three months ended July 1, 2022, an increase of $647 million, or 6 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 2023 versus 2022
	Volume1		Price, Product & Geographic Mix		Foreign Currency Fluctuations		Acquisitions & Divestitures2		Total
Consolidated	1	%	10	%	(4)	%	(1)	%	6	%
Europe, Middle East & Africa	(5)	%	14	%	(9)	%	—	%	—	%
Latin America	8		17		(4)		—		21
North America	—		9		—		—		8
Asia Pacific	(1)		5		(5)		1		—
Global Ventures	8		3		—		—		10
Bottling Investments	5		10		(10)		(7)		(2)

Note: Certain rows may not add due to rounding.

1Represents 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, if any. 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.

2Includes 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, fluctuations 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 10 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 pricing initiatives, including inflationary pricing in Türkiye and Zimbabwe;
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, package and product mix;
Asia Pacific — favorable pricing initiatives, partially offset by unfavorable geographic mix;
Global Ventures — favorable pricing initiatives and favorable channel mix, primarily due to the favorable performance of Costa in the United Kingdom, partially offset by unfavorable product mix; and
Bottling Investments — favorable pricing initiatives across most markets, partially offset by unfavorable geographic mix.

Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 4 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the South African rand, Zimbabwean dollar, Turkish lira, Argentine peso, Indian rupee and Japanese yen, which had an unfavorable impact on our Europe, Middle East and Africa; Latin America; Asia Pacific; and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Mexican peso, which had a favorable impact on our Latin America operating segment. 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.

Six Months Ended June 30, 2023 versus Six Months Ended July 1, 2022

During the six months ended June 30, 2023, net operating revenues were $22,952 million, compared to $21,816 million during the six months ended July 1, 2022, an increase of $1,136 million, or 5 percent.


	Percent Change 2023 versus 2022
	Volume1		Price, Product & Geographic Mix		Foreign Currency Fluctuations		Acquisitions & Divestitures2		Total
Consolidated	1	%	10	%	(5)	%	(1)	%	5	%
Europe, Middle East & Africa	(2)	%	18	%	(11)	%	—	%	5	%
Latin America	4		18		(4)		—		17
North America	(1)		10		—		—		9
Asia Pacific	(1)		5		(6)		1		(1)
Global Ventures	8		—		(4)		—		3
Bottling Investments	4		9		(9)		(7)		(3)

Note: Certain rows may not add due to rounding.

2Includes 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.

Europe, Middle East and Africa — favorable pricing initiatives, including inflationary pricing in Türkiye and Zimbabwe;
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, package and product mix;
Asia Pacific — favorable pricing initiatives, partially offset by unfavorable geographic mix;
Global Ventures — favorable pricing initiatives and favorable channel mix, primarily due to the favorable performance of Costa in the United Kingdom, offset by unfavorable product mix and the impact of no longer receiving COVID-related incentives in the current year; and
Bottling Investments — favorable pricing initiatives across most markets, partially offset by unfavorable geographic mix.

Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 5 percent. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, South African rand, Zimbabwean dollar, Turkish lira, British pound sterling, Indian rupee and Japanese yen, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; Global Ventures; Asia Pacific; and Bottling Investments operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Mexican peso, which had a favorable impact on our Latin America operating segment. 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 exchange rate 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 exchange rate fluctuations will have an unfavorable impact on our full year 2023 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 selling, general and administrative expenses and other operating charges 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 59.0 percent for the three months ended June 30, 2023, compared to 57.3 percent for the three months ended July 1, 2022. Our gross profit margin increased to 59.8 percent for the six months ended June 30, 2023, compared to 59.1 percent for the six months ended July 1, 2022. These increases were primarily due to the impact of favorable pricing initiatives, favorable channel and package mix, and structural changes, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations and increased commodity costs. We expect commodity costs to continue to have an unfavorable impact on our gross profit margin during the remainder of 2023, 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				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Selling and distribution expenses	$	682	$	685	$	1,336	$	1,340
Advertising expenses	1,219		1,168		2,284		2,148
Stock-based compensation expense	62		102		120		189
Other operating expenses	1,358		1,248		2,766		2,493
Selling, general and administrative expenses	$	3,321	$	3,203	$	6,506	$	6,170

During the three and six months ended June 30, 2023, selling, general and administrative expenses increased $118 million, or 4 percent, and increased $336 million, or 5 percent, respectively, versus the prior year. The increases were primarily due to

increased operating expenses and increased advertising expenses, partially offset by a decrease in stock-based compensation expense. During the three and six months ended June 30, 2023, foreign currency exchange rate fluctuations decreased selling, general and administrative expenses by 3 percent and 4 percent, respectively.

As of June 30, 2023, we had $371 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 2.0 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				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Europe, Middle East & Africa	$	—	$	—	$	—	$	(1)
Latin America	—		—		—		—
North America	7		(1)		25		(18)
Asia Pacific	35		—		35		—
Global Ventures	—		—		—		—
Bottling Investments	—		—		—		—
Corporate	1,296		952		1,389		998
Total	$	1,338	$	951	$	1,449	$	979

During the three months ended June 30, 2023, the Company recorded other operating charges of $1,338 million. These charges consisted of $1,262 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife, LLC (“fairlife”) in 2020, $35 million related to the discontinuation of certain manufacturing operations in Asia Pacific and $24 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $8 million related to the restructuring of our North America operating unit, $6 million related to tax litigation expense and $3 million for the amortization of noncompete agreements related to the BA Sports Nutrition, LLC (“BodyArmor”) acquisition in 2021.

During the six months ended June 30, 2023, the Company recorded other operating charges of $1,449 million. These charges consisted of $1,324 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $51 million related to the Company’s productivity and reinvestment program and $35 million related to the discontinuation of certain manufacturing operations in Asia Pacific. In addition, other operating charges included $26 million related to the restructuring of our North America operating unit, $7 million for the amortization of noncompete agreements related to the BodyArmor acquisition and $6 million related to tax litigation expense.

During the three months ended July 1, 2022, the Company recorded other operating charges of $951 million. These charges consisted of $917 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $19 million related to the Company’s productivity and reinvestment program and $13 million related to the BodyArmor acquisition, which included various transition and transaction costs, employee retention costs and the amortization of noncompete agreements, net of the reimbursement of distributor termination fees recorded in 2021. Additionally, the Company recorded charges of $1 million related to its strategic realignment initiatives primarily as a result of a revision to estimated severance costs accrued in 2021 and charges of $1 million related to the restructuring of our manufacturing operations in the United States.

During the six months ended July 1, 2022, the Company recorded other operating charges of $979 million. These charges consisted of $939 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $29 million related to the Company’s productivity and reinvestment program, $8 million related to the BodyArmor acquisition, which included various transition and transaction costs, employee retention costs and the amortization of noncompete agreements, net of the reimbursement of distributor termination fees recorded in 2021, and $3 million related to the restructuring of our manufacturing operations in the United States.

Refer to Note 9 of Notes to Consolidated Financial Statements for additional information on the tax litigation. Refer to Note 13 of Notes to Consolidated Financial Statements for additional information on the Company’s restructuring initiatives. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the fairlife acquisition. Refer to Note 17 of Notes to 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				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Europe, Middle East & Africa	47.2	%	55.1	%	39.3	%	40.0	%
Latin America	33.2		28.8		28.6		25.0
North America	50.6		35.9		39.0		33.0
Asia Pacific	28.0		32.2		21.4		24.7
Global Ventures	3.3		1.9		2.3		1.6
Bottling Investments	5.1		4.8		4.5		5.3
Corporate	(67.4)		(58.7)		(35.1)		(29.6)
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 selling, general and administrative expenses and other operating charges 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 for each of our operating segments and Corporate is as follows:


	Three Months Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Consolidated	20.1	%	20.7	%	25.1	%	26.3	%
Europe, Middle East & Africa	55.4	%	64.0	%	58.5	%	62.5	%
Latin America	57.9		59.1		59.7		60.9
North America	27.9		20.8		27.2		24.9
Asia Pacific	49.8		56.1		48.8		55.1
Global Ventures	10.2		6.4		8.8		6.7
Bottling Investments	6.0		5.4		6.6		7.4
Corporate	*		*		*		*

*** Calculation is not meaningful.

Three Months Ended June 30, 2023 versus Three Months Ended July 1, 2022

During the three months ended June 30, 2023, operating income was $2,401 million, compared to $2,341 million during the three months ended July 1, 2022, an increase of $60 million, or 3 percent. The increase was driven by favorable pricing initiatives, concentrate sales volume growth of 1 percent, and favorable channel and package mix. These items were partially offset by an unfavorable foreign currency exchange rate impact; higher other operating charges; and higher selling, general and administrative expenses.

During the three months ended June 30, 2023, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 10 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, Zimbabwean dollar, euro, Turkish lira, and Japanese yen, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; and Asia Pacific operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Mexican peso, which had a favorable impact on our Latin America operating segment. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

The Europe, Middle East and Africa operating segment reported operating income of $1,133 million and $1,291 million for the three months ended June 30, 2023 and July 1, 2022, respectively. The decrease in operating income was primarily driven by an unfavorable foreign currency exchange rate impact of 11 percent, a decline in concentrate sales volume of 5 percent, increased marketing spending, higher operating expenses, and higher commodity costs, partially offset by favorable pricing initiatives.

Latin America reported operating income of $797 million and $674 million for the three months ended June 30, 2023 and July 1, 2022, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of

8 percent, favorable pricing initiatives, and favorable channel and package mix, partially offset by increased marketing spending, higher commodity costs, and an unfavorable foreign currency exchange rate impact of 7 percent.

Operating income for North America for the three months ended June 30, 2023 and July 1, 2022 was $1,216 million and $840 million, respectively. The increase in operating income was primarily driven by favorable pricing initiatives and favorable channel, package and product mix, partially offset by higher other operating charges, increased marketing spending, higher operating expenses, and an unfavorable foreign currency exchange rate impact of 1 percent.

Asia Pacific’s operating income for the three months ended June 30, 2023 and July 1, 2022 was $673 million and $753 million, respectively. The decrease in operating income was primarily driven by an unfavorable foreign currency exchange rate impact of 4 percent, a decline in concentrate sales volume of 1 percent, higher commodity costs, higher other operating charges, and higher operating expenses, partially offset by favorable pricing initiatives, decreased marketing spending, and the impact of acquired brands.

Global Ventures’ operating income for the three months ended June 30, 2023 and July 1, 2022 was $78 million and $44 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 8 percent and favorable pricing initiatives, partially offset by higher commodity costs and an unfavorable foreign currency exchange rate impact of 1 percent.

Bottling Investments’ operating income for the three months ended June 30, 2023 and July 1, 2022 was $122 million and $113 million, respectively. The increase in operating income was primarily driven by unit case volume growth of 5 percent and favorable pricing initiatives, partially offset by an unfavorable foreign currency exchange rate impact of 1 percent and the refranchising of our bottling operations in Vietnam and Cambodia.

Corporate’s operating loss for the three months ended June 30, 2023 and July 1, 2022 was $1,618 million and $1,374 million, respectively. Operating loss in 2023 increased primarily as a result of higher other operating charges due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.

Six Months Ended June 30, 2023 versus Six Months Ended July 1, 2022

During the six months ended June 30, 2023, operating income was $5,768 million, compared to $5,746 million during the six months ended July 1, 2022. The increase was driven by favorable pricing initiatives, concentrate sales volume growth of 1 percent, and favorable channel and package mix. These items were partially offset by an unfavorable foreign currency exchange rate impact; higher other operating charges; and higher selling, general and administrative expenses.

During the six months ended June 30, 2023, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 9 percent due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, Zimbabwean dollar, euro, Turkish lira, and Japanese yen, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; and Asia Pacific operating segments. The unfavorable impact of a stronger U.S. dollar compared to the currencies listed above was partially offset by the impact of a weaker U.S. dollar compared to certain other foreign currencies, including the Mexican peso, which had a favorable impact on our Latin America operating segment. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below.

The Europe, Middle East and Africa operating segment reported operating income of $2,268 million and $2,298 million for the six months ended June 30, 2023 and July 1, 2022, respectively. The decrease in operating income was primarily driven by an unfavorable foreign currency exchange rate impact of 13 percent, a decline in concentrate sales volume of 2 percent, increased marketing spending, higher operating expenses, and higher commodity costs, partially offset by favorable pricing initiatives.

Latin America reported operating income of $1,650 million and $1,434 million for the six months ended June 30, 2023 and July 1, 2022, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 4 percent, favorable pricing initiatives, and favorable channel and package mix, partially offset by increased marketing spending, higher commodity costs, higher operating expenses, and an unfavorable foreign currency exchange rate impact of 6 percent.

Operating income for North America for the six months ended June 30, 2023 and July 1, 2022 was $2,249 million and $1,896 million, respectively. The increase in operating income was primarily driven by favorable pricing initiatives and favorable channel, package and product mix, partially offset by a decline in concentrate sales volume of 1 percent, higher other operating charges, higher commodity costs, increased marketing spending, and higher operating expenses.

Asia Pacific’s operating income for the six months ended June 30, 2023 and July 1, 2022 was $1,236 million and $1,417 million, respectively. The decrease in operating income was primarily driven by an unfavorable foreign currency exchange rate impact of 6 percent, a decline in concentrate sales volume of 1 percent, higher commodity costs, higher other operating charges, and higher operating expenses, partially offset by favorable pricing initiatives, decreased marketing spending, and the impact of acquired brands and structural changes.

Global Ventures’ operating income for the six months ended June 30, 2023 and July 1, 2022 was $129 million and $95 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 8 percent, favorable pricing initiatives, and lower operating expenses, partially offset by higher commodity costs, the impact of no longer receiving COVID-related incentives in the current year, and an unfavorable foreign currency exchange rate impact of 1 percent.

Bottling Investments’ operating income for the six months ended June 30, 2023 and July 1, 2022 was $261 million and $306 million, respectively. The decrease in operating income was primarily driven by an unfavorable foreign currency exchange rate impact of 5 percent and the refranchising of our bottling operations in Vietnam and Cambodia, partially offset by unit case volume growth of 4 percent and favorable pricing initiatives.

Corporate’s operating loss for the six months ended June 30, 2023 and July 1, 2022 was $2,025 million and $1,700 million, respectively. Operating loss in 2023 increased primarily as a result of higher other operating charges due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.

Based on current spot rates and our hedging coverage in place, we expect foreign currency exchange rate fluctuations will have an unfavorable impact on our full year 2023 operating income.

Interest Income

During the three months ended June 30, 2023, interest income was $224 million, compared to $100 million during the three months ended July 1, 2022, an increase of $124 million, or 124 percent. During the six months ended June 30, 2023, interest income was $392 million, compared to $178 million during the six months ended July 1, 2022, an increase of $214 million, or 120 percent. The increases were primarily driven by higher average investment balances and higher returns on our Corporate and certain international investments.

Interest Expense

During the three months ended June 30, 2023, interest expense was $374 million, compared to $198 million during the three months ended July 1, 2022, an increase of $176 million, or 88 percent. During the six months ended June 30, 2023, interest expense was $746 million, compared to $380 million during the six months ended July 1, 2022, an increase of $366 million, or 96 percent. The increases were primarily due to higher interest rates on short-term borrowings and derivative instruments compared to the prior year.

Equity Income (Loss) — Net

Three Months Ended June 30, 2023 versus Three Months Ended July 1, 2022

During the three months ended June 30, 2023, equity income was $538 million, compared to equity income of $392 million during the three months ended July 1, 2022, an increase of $146 million, or 37 percent. The increase reflects, among other items, the impact of more favorable operating results reported by some of our equity method investees in the current year as well as a $33 million decrease in net charges resulting from the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.

Six Months Ended June 30, 2023 versus Six Months Ended July 1, 2022

During the six months ended June 30, 2023, equity income was $813 million, compared to equity income of $654 million during the six months ended July 1, 2022, an increase of $159 million, or 24 percent. The increase reflects, among other items, the impact of more favorable operating results reported by some of our equity method investees in the current year, partially offset by a $54 million increase in net charges resulting from 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 June 30, 2023 versus Three Months Ended July 1, 2022

During the three months ended June 30, 2023, other income (loss) — net was income of $91 million. The Company recognized a net gain 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, and recognized net foreign currency exchange losses of $96 million. Additionally, other income (loss) — net included dividend income of $62 million and income of $12 million related to the non-service cost components of net periodic benefit cost.

During the three months ended July 1, 2022, other income (loss) — net was a loss of $351 million. The Company recognized a net loss of $267 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, recorded an other-than-temporary impairment charge of $96 million related to an equity method investee in Russia and recognized net foreign currency exchange losses of $81 million.

Additionally, other income (loss) — net included income of $67 million related to the non-service cost components of net periodic benefit income and dividend income of $36 million.

Refer to Note 4 of Notes to Consolidated Financial Statements for additional information on equity and debt securities. Refer to Note 14 of Notes to Consolidated Financial Statements for additional information on net periodic benefit cost or income. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the impairment charge. Refer to Note 17 of Notes to Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate.

Six Months Ended June 30, 2023 versus Six Months Ended July 1, 2022

During the six months ended June 30, 2023, other income (loss) — net was income of $706 million. The Company recognized a net gain of $439 million related to the refranchising of our bottling operations in Vietnam. The Company recognized a net gain of $240 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 recognized net foreign currency exchange losses of $120 million. Additionally, other income (loss) — net included dividend income of $128 million and income of $25 million related to the non-service cost components of net periodic benefit cost.

During the six months ended July 1, 2022, other income (loss) — net was a loss of $456 million. The Company recognized a net loss of $371 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 net foreign currency exchange losses of $154 million. The Company also recorded an other-than-temporary impairment charge of $96 million related to an equity method investee in Russia and a net loss of $24 million as a result of one of our equity method investees issuing additional shares of its stock. Additionally, other income (loss) — net included income of $137 million related to the non-service cost components of net periodic benefit income and dividend income of $48 million.

Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the refranchising of our bottling operations in Vietnam. Refer to Note 4 of Notes to Consolidated Financial Statements for additional information on equity and debt securities. Refer to Note 14 of Notes to Consolidated Financial Statements for additional information on net periodic benefit cost or income. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the impairment charge and one of our equity method investees issuing additional shares of its stock. Refer to Note 17 of Notes to 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 $359 million (12.5 percent effective tax rate) and $384 million (16.8 percent effective tax rate) during the three months ended June 30, 2023 and July 1, 2022, respectively. The Company recorded income taxes of $1,299 million (18.7 percent effective tax rate) and $1,049 million (18.3 percent effective tax rate) during the six months ended June 30, 2023 and July 1, 2022, respectively.

The Company’s effective tax rates for the three and six months ended June 30, 2023 and July 1, 2022 vary from the statutory U.S. federal tax rate of 21.0 percent primarily due to the tax impact of significant operating and nonoperating items, as described in Note 12 of Notes to Consolidated Financial Statements, along with the tax benefits of having significant earnings generated outside of 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. federal tax rate.

The Company’s effective tax rates for the three and six months ended June 30, 2023 included $120 million and $125 million, respectively, of net tax benefits related to various discrete tax items, including a change in tax law in a certain foreign jurisdiction.

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 9 of Notes to Consolidated Financial Statements for additional information on the tax 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 enacted tax laws, as well as our current interpretation of recently issued regulations, the Company’s effective tax rate in 2023 is expected to be 19.3 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 regularly reviews its optimal mix of short-term and long-term debt.

The Company’s cash, cash equivalents, short-term investments and marketable securities totaled $15.7 billion as of June 30, 2023. In addition to these funds, our commercial paper program, and our ability to issue long-term debt, we had $4.2 billion in unused backup lines of credit for general corporate purposes as of June 30, 2023. These backup lines of credit expire at various times through 2028.

Our current payment terms with the majority of our suppliers are 120 days. Two global financial institutions offer a voluntary supply chain finance 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. We do not believe there is a risk that our payment terms will be shortened in the near future. Refer to Note 7 of Notes to Consolidated Financial Statements for additional information.

Our current capital allocation priorities are as follows: investing wisely to support our business operations, continuing to grow our dividend payment, enhancing our beverage portfolio and capabilities through consumer-centric acquisitions, and using excess cash to repurchase shares over time. We currently expect 2023 capital expenditures to be approximately $1.9 billion. During 2023, we also expect to repurchase shares to offset dilution resulting from employee stock-based compensation plans.

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 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 were to be 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 2022, the Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately $14 billion as of December 31, 2022. 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 six months ended June 30, 2023 would increase the potential aggregate incremental tax and interest liability by approximately $800 million. Once the Tax Court renders a 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 tax years, which we currently estimate to be approximately $5.5 billion (including interest accrued through June 30, 2023), plus any additional interest accrued through the time of payment. Refer to Note 9 of Notes to 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

The Company has 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 $7,197 million and $3,686 million of trade accounts receivables under this program during the six months ended June 30, 2023 and July 1, 2022, respectively. The costs of factoring such receivables were $31 million and $5 million for the six months ended June 30, 2023 and July 1, 2022, respectively. The cash received from the financial institutions is reflected within the operating activities section of our consolidated statement of cash flows.

Net cash provided by operating activities during the six months ended June 30, 2023 and July 1, 2022 was $4,629 million and $4,546 million, respectively, an increase of $83 million, or 2 percent. This increase was primarily driven by increased operating income, the timing of working capital initiatives and lower marketing payments resulting from year-end accruals. These items were partially offset by an unfavorable impact due to foreign currency exchange rate fluctuations, higher tax payments, payments resulting from the buildup of inventory in the prior year to manage potential supply chain disruptions and $167 million of the $275 million milestone payment for fairlife. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the milestone payment for fairlife.

Cash Flows from Investing Activities

Net cash used in investing activities during the six months ended June 30, 2023 and July 1, 2022 was $766 million and $1,145 million, respectively.

Purchases of Investments and Proceeds from Disposals of Investments

During the six months ended June 30, 2023, purchases of investments were $2,103 million and proceeds from disposals of investments were $1,608 million, resulting in a net cash outflow of $495 million. During the six months ended July 1, 2022, purchases of investments were $2,040 million and proceeds from disposals of investments were $2,272 million, resulting in a net cash inflow of $232 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 Consolidated Financial Statements for additional information on our investments.

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

During the six months ended June 30, 2023 and July 1, 2022, proceeds from disposals of businesses, equity method investments and nonmarketable securities were $320 million and $218 million, respectively, which primarily related to sales of our ownership interests in certain equity method investees.

Purchases of Property, Plant and Equipment

Purchases of property, plant and equipment during the six months ended June 30, 2023 and July 1, 2022 were $615 million and $487 million, respectively.

Collateral (Paid) Received Associated with Hedging Activities — Net

Collateral paid associated with our hedging activities during the six months ended June 30, 2023 and July 1, 2022 was $15 million and $984 million, respectively. Refer to Note 6 of Notes to Consolidated Financial Statements for additional information on our hedging activities.

Cash Flows from Financing Activities

Net cash used in financing activities was $998 million and $3,950 million during the six months ended June 30, 2023 and July 1, 2022, respectively.

Debt Financing

Issuances and payments of debt included both short-term and long-term financing activities. During the six months ended June 30, 2023, the Company had issuances of debt of $4,638 million, which included $733 million of net issuances of commercial paper and short-term debt with maturities of 90 days or less, $3,892 million of issuances of commercial paper and short-term debt with maturities greater than 90 days, and long-term debt issuances of $13 million, net of related discounts and issuance costs.

The Company made payments of debt of $2,366 million during the six months ended June 30, 2023, which included payments of $2,188 million related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $178 million.

During the six months ended July 1, 2022, the Company had issuances of debt of $3,256 million, which included $1,346 million of net issuances of commercial paper and short-term debt with maturities of 90 days or less, $1,408 million of issuances of commercial paper and short-term debt with maturities greater than 90 days, and long-term debt issuances of $502 million, net of related discounts and issuance costs.

The Company made payments of debt of $1,816 million during the six months ended July 1, 2022, which included payments of $1,250 million related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $566 million.

On December 31, 2021, the United Kingdom’s Financial Conduct Authority, the governing body responsible for regulating the London Interbank Offered Rate (“LIBOR”), ceased to publish certain LIBOR reference rates. However, other LIBOR reference rates, including U.S. dollar overnight, 1-month, 3-month, 6-month and 12-month maturities, continued to be published through June 2023. In preparation for the discontinuation of LIBOR, we have amended our LIBOR-referencing agreements to either reference the Secured Overnight Financing Rate or include mechanics for selecting an alternative rate. Refer to Note 6 of Notes to Consolidated Financial Statements for additional information on our hedging activities.

Issuances of Stock

The issuances of stock during the six months ended June 30, 2023 and July 1, 2022 were related to the exercise of stock options by employees.

Share Repurchases

During the six months ended June 30, 2023, the total cash outflow for treasury stock purchases was $1,084 million. The Company repurchased 16.1 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $60.94 per share, for a total cost of $980 million. In addition to shares repurchased under the share repurchase plan, the Company’s treasury stock activity included 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 net impact of the Company’s issuances of stock and share repurchases during the six months ended June 30, 2023 resulted in a net cash outflow of $725 million.

During the six months ended July 1, 2022, the total cash outflow for treasury stock purchases was $1,210 million. The Company repurchased 18.3 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $62.62 per share, for a total cost of $1,148 million. In addition to shares repurchased under the share repurchase plan, the Company’s treasury stock activity included 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 net impact of the Company’s issuances of stock and share repurchases during the six months ended July 1, 2022 resulted in a net cash outflow of $558 million.

Dividends

During the six months ended June 30, 2023 and July 1, 2022, the Company paid dividends of $2,089 million and $3,810 million, respectively. As a result of the timing of our quarterly reporting periods as well as our dividend payment dates, the Company paid substantially all of the 2023 second quarterly dividend in the third quarter and paid all of the 2022 second quarterly dividend in the second quarter.

Our Board of Directors approved the Company’s regular quarterly dividend of $0.46 per share at its July 2023 meeting. This dividend is payable on October 2, 2023 to shareowners of record as of the close of business on September 15, 2023.

Other Financing Activities

During the six months ended June 30, 2023 and July 1, 2022, the total cash outflow for other financing activities was $456 million and $1,022 million, respectively. The cash outflow during the six months ended June 30, 2023 included $108 million of the $275 million milestone payment for fairlife. The cash outflow during the six months ended June 30, 2023 and July 1, 2022 included payments totaling $311 million and $568 million, respectively, of the purchase price of BodyArmor, which included amounts originally held back for indemnification obligations. Additionally, the cash outflow during the six months ended July 1, 2022 included repayments of collateral related to our hedging programs. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the milestone payment for fairlife.

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.

Due to the geographic diversity of our operations, weakness in some currencies may be offset by strength in other currencies over time. Our foreign currency management program is designed to mitigate, over time, a portion of the potentially unfavorable impact of exchange rate fluctuations on our net income. Taking into account the effects of our hedging activities, the impact of fluctuations in foreign currency exchange rates decreased our operating income for the three and six months ended June 30, 2023 by 10 percent and 9 percent, respectively.

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

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