COCA COLA CO 10-Q

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, discount rate, 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. In November 2021, the Company acquired the remaining 85% ownership interest in, and now owns 100% of, BA Sports Nutrition, LLC (“BodyArmor”), which offers a line of sports performance and hydration beverages. The Company allocated $4.2 billion of the purchase price to the BodyArmor trademark. As of September 29, 2023, the fair value of this trademark approximates its carrying value. If the near-term operating results of this trademark do not achieve our current financial projections, or if the macroeconomic conditions change causing the discount rate to increase without an offsetting increase in the operating results, it is likely that we would be required to recognize an impairment charge. Management will continue to monitor the fair value of this trademark in future periods. 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. 32 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 33 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, the Company refranchised our bottling operations in Cambodia and Vietnam in November 2022 and January 2023, respectively, the impact of which 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 September 29, 2023 Nine Months Ended September 29, 2023 Unit Cases 1,2,3 Concentrate Sales 4 Unit Cases 1,2,3 Concentrate Sales 4 Worldwide 2 % 3 % 6 2 % 2 % 6 Europe, Middle East & Africa (1) % 2 % (3) % (1) % Latin America 7 5 5 4 North America — 1 — — Asia Pacific — 1 4 — 7 Global Ventures 5 3 5 6 Bottling Investments 2 5 N/A — 5 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 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. 34 5 After considering the impact of structural changes, unit case volume for Bottling Investments for the three and nine months ended September 29, 2023 grew 10% and 6%, respectively. 6 After considering the impact of structural changes, worldwide concentrate sales volume for the three and nine months ended September 29, 2023 grew 2% and 1%, respectively. 7 After considering the impact of structural changes, concentrate sales volume for Asia Pacific for the nine months ended September 29, 2023 declined 1%. 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 September 29, 2023 versus Three Months Ended September 30, 2022 Unit case volume in Europe, Middle East and Africa decreased 1%, which included a 2% decline in Trademark Coca-Cola, a 1% decline in sparkling flavors and a 5% decline in juice, value-added dairy and plant-based beverages, partially offset by 3% growth in water, sports, coffee and tea. The operating segment reported a decline in unit case volume of 7% in the Europe operating unit, partially offset by growth of 7% in the Africa operating unit and growth of 2% in the Eurasia and Middle East operating unit. The decline in unit case volume in Europe, Middle East and Africa was primarily due to the suspension of the Company’s business in Russia in 2022. Unit case volume in Latin America increased 7%, which included 7% growth in Trademark Coca-Cola, 10% growth in water, sports, coffee and tea, 4% growth in sparkling flavors and 6% growth in juice, value-added dairy and plant-based beverages. The operating segment’s volume performance included 9% growth in Mexico and 4% growth in Brazil. Unit case volume in North America was even, which included 2% growth in both sparkling flavors and juice, value-added dairy and plant-based beverages, offset by a 4% decline in water, sports, coffee and tea. Unit case volume in Trademark Coca-Cola was even. Unit case volume in Asia Pacific was even, which included 4% growth in Trademark Coca-Cola, 1% growth in sparkling flavors and 3% growth in juice, value-added dairy and plant-based beverages, offset by a 4% decline in water, sports, coffee and tea. The operating segment reported growth in unit case volume of 8% in the India and Southwest Asia operating unit, 6% in the ASEAN and South Pacific operating unit, and 5% in the Japan and South Korea operating unit, offset by a decline of 6% in the Greater China and Mongolia operating unit. Unit case volume for Global Ventures increased 5%, driven by 4% growth in water, sports, coffee and tea, 1% growth in juice, value-added dairy and plant-based beverages, and growth in energy drinks. Unit case volume for Bottling Investments increased 2%, driven by growth in unit case volume in India, the Philippines and South Africa, partially offset by the impact of refranchising our bottling operations in Vietnam and Cambodia. Nine Months Ended September 29, 2023 versus Nine Months Ended September 30, 2022 Unit case volume in Europe, Middle East and Africa decreased 3%, which included a 20% decline in juice, value-added dairy and plant-based beverages, a 4% decline in sparkling flavors, a 1% decline in Trademark Coca-Cola and a 3% decline in water, sports, coffee and tea. The operating segment reported a decline in unit case volume of 7% in the Europe operating unit, partially offset by growth of 2% in the Africa operating unit and 1% in the Eurasia and Middle East operating unit. The decline in unit case volume in Europe, Middle East and Africa was primarily due to the suspension of the Company’s business in Russia in 2022. Unit case volume in Latin America increased 5%, which included 4% growth in Trademark Coca-Cola, 10% growth in water, sports, coffee and tea, 3% growth in sparkling flavors and 5% growth in juice, value-added dairy and plant-based beverages. The operating segment’s volume performance included 6% growth in Mexico and 5% growth in Brazil. Unit case volume in North America was even, which included 3% growth in juice, value-added dairy and plant-based beverages and 1% growth in sparkling flavors, offset by a 4% decline in water, sports, coffee and tea. Unit case volume in Trademark Coca-Cola was even. Unit case volume in Asia Pacific increased 4%, which included 4% growth in both sparkling flavors and Trademark Coca-Cola, 10% growth in juice, value-added dairy and plant-based beverages, and 1% growth in water, sports, coffee and tea. The operating segment reported growth in unit case volume of 11% in the India and Southwest Asia operating unit and growth of 2% in each of the Greater China and Mongolia, ASEAN and South Pacific, and Japan and South Korea operating units. Unit case volume for Global Ventures increased 5%, driven by 3% growth in water, sports, coffee and tea along with growth in energy drinks, partially offset by a 2% decline in juice, value-added dairy and plant-based beverages. 35 Unit case volume for Bottling Investments was even, which included growth in unit case volume in India and South Africa, offset by the impact of refranchising our bottling operations in Vietnam and Cambodia. Concentrate Sales Volume During the three months ended September 29, 2023, worldwide concentrate sales volume increased 3% and unit case volume increased 2% compared to the three months ended September 30, 2022. During the nine months ended September 29, 2023, worldwide concentrate sales volume and unit case volume both increased 2% compared to the nine months ended September 30, 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 for the individual operating segments during the nine months ended September 29, 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 September 29, 2023 versus Three Months Ended September 30, 2022 During the three months ended September 29, 2023, net operating revenues were $11,953 million, compared to $11,063 million during the three months ended September 30, 2022, an increase of $890 million, or 8%. 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 Volume 1 Price, Product & Geographic Mix Foreign Currency Fluctuations Acquisitions & Divestitures 2 Total Consolidated 2 % 9 % (2) % (1) % 8 % Europe, Middle East & Africa 2 % 19 % (12) % — % 10 % Latin America 5 15 4 — 24 North America 1 5 — — 6 Asia Pacific 1 1 (4) — (2) Global Ventures 3 6 6 — 15 Bottling Investments 10 9 (5) (9) 4 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, 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. 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, 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. 36 Price, product and geographic mix had a 9% 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, partially offset by unfavorable geographic mix; • Latin America — favorable pricing initiatives, including inflationary pricing in Argentina, along with favorable channel and product mix, partially offset by unfavorable geographic mix; • North America — favorable pricing initiatives and favorable channel, package and product mix; • Asia Pacific — favorable pricing initiatives; • Global Ventures — favorable pricing initiatives and favorable channel mix, primarily due to the favorable performance of Costa in the United Kingdom; and • Bottling Investments — favorable pricing initiatives across most markets and favorable product mix, partially offset by unfavorable geographic mix. Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 2%. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, Zimbabwean dollar, Turkish lira, Nigerian naira and South African rand, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; 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. 37 Nine Months Ended September 29, 2023 versus Nine Months Ended September 30, 2022 During the nine months ended September 29, 2023, net operating revenues were $34,905 million, compared to $32,879 million during the nine months ended September 30, 2022, an increase of $2,026 million, or 6%. 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 Volume 1 Price, Product & Geographic Mix Foreign Currency Fluctuations Acquisitions & Divestitures 2 Total Consolidated 1 % 10 % (4) % (1) % 6 % Europe, Middle East & Africa (1) % 18 % (11) % — % 6 % Latin America 4 17 (1) — 20 North America — 8 — — 8 Asia Pacific (1) 4 (6) 1 (1) Global Ventures 6 2 (1) — 7 Bottling Investments 6 9 (8) (8) (1) 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, 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. 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 10% 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, 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, 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 and favorable product mix, partially offset by unfavorable geographic mix. Fluctuations in foreign currency exchange rates decreased our consolidated net operating revenues by 4%. 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, Nigerian naira, Japanese yen and Indian rupee, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; Bottling Investments; 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. 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. 38 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 61.0% for the three months ended September 29, 2023, compared to 58.7% for the three months ended September 30, 2022. Our gross profit margin increased to 60.2% for the nine months ended September 29, 2023, compared to 59.0% for the nine months ended September 30, 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 Nine Months Ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Selling and distribution expenses $ 694 $ 563 $ 2,030 $ 1,903 Advertising expenses 1,526 1,451 3,810 3,599 Stock-based compensation expense 57 84 177 273 Other operating expenses 1,390 1,181 4,156 3,674 Selling, general and administrative expenses $ 3,667 $ 3,279 $ 10,173 $ 9,449 During the three and nine months ended September 29, 2023, selling, general and administrative expenses increased $388 million, or 12%, and increased $724 million, or 8%, respectively, versus the prior year. The increases were primarily due to higher advertising and other marketing expenses as well as higher annual incentive expenses, partially offset by a decrease in stock-based compensation expense. During the three and nine months ended September 29, 2023, foreign currency exchange rate fluctuations decreased selling, general and administrative expenses by 1% and 3%, respectively. As of September 29, 2023, we had $312 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 1.8 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 September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Europe, Middle East & Africa $ — $ — $ — $ (1) Latin America — — — — North America — (1) 25 (19) Asia Pacific — 57 35 57 Global Ventures — — — — Bottling Investments — — — — Corporate 359 74 1,748 1,072 Total $ 359 $ 130 $ 1,808 $ 1,109 During the three months ended September 29, 2023, the Company recorded other operating charges of $359 million. These charges consisted of $296 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife, LLC (“fairlife”) in 2020, $58 million related to the Company’s productivity and reinvestment program, $4 million for the amortization of noncompete agreements related to the BodyArmor acquisition in 2021 and $1 million related to tax litigation expense. 39 During the nine months ended September 29, 2023, the Company recorded other operating charges of $1,808 million. These charges consisted of $1,620 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $109 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, $11 million for the amortization of noncompete agreements related to the BodyArmor acquisition and $7 million related to tax litigation expense. During the three months ended September 30, 2022, the Company recorded other operating charges of $130 million. These charges primarily consisted of $57 million related to the impairment of a trademark in Asia Pacific, $32 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $27 million related to the Company’s productivity and reinvestment program, and $15 million related to the BodyArmor acquisition, which included various transition and transaction costs, employee retention costs and the amortization of noncompete agreements. During the nine months ended September 30, 2022, the Company recorded other operating charges of $1,109 million. These charges primarily consisted of $971 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $57 million related to the impairment of a trademark in Asia Pacific and $56 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $23 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. 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 and on the impairment charge. 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 Nine Months Ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Europe, Middle East & Africa 34.7 % 33.9 % 37.7 % 37.9 % Latin America 30.1 23.0 29.1 24.3 North America 39.0 35.0 39.0 33.7 Asia Pacific 15.0 19.1 19.1 22.7 Global Ventures 2.5 2.2 2.3 1.8 Bottling Investments 4.1 1.5 4.4 4.0 Corporate (25.4) (14.7) (31.6) (24.4) 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. 40 Information about our operating margin on a consolidated basis and for each of our operating segments and Corporate is as follows: Three Months Ended Nine Months Ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Consolidated 27.4 % 27.9 % 25.9 % 26.9 % Europe, Middle East & Africa 56.6 % 56.7 % 57.9 % 60.5 % Latin America 62.5 56.2 60.7 59.3 North America 28.6 25.8 27.7 25.2 Asia Pacific 39.8 46.6 45.8 52.3 Global Ventures 10.4 9.9 9.3 7.7 Bottling Investments 7.1 2.6 6.7 6.0 Corporate * * * * * Calculation is not meaningful. Three Months Ended September 29, 2023 versus Three Months Ended September 30, 2022 During the three months ended September 29, 2023, operating income was $3,270 million, compared to $3,088 million during the three months ended September 30, 2022, an increase of $182 million, or 6%. The increase was driven by concentrate sales volume growth of 2% and favorable pricing initiatives. These items were partially offset by higher commodity costs; higher selling, general and administrative expenses; higher other operating charges; and an unfavorable foreign currency exchange rate impact. During the three months ended September 29, 2023, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 4% due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, Zimbabwean dollar, and Turkish lira, which had an unfavorable impact on our Latin America and Europe, Middle East and Africa 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 $1,136 million and $1,046 million for the three months ended September 29, 2023 and September 30, 2022, respectively. The increase in operating income was primarily driven by an increase in concentrate sales volume of 2% and favorable pricing initiatives, partially offset by higher commodity costs, increased marketing spending and an unfavorable foreign currency exchange rate impact of 13%. Latin America reported operating income of $985 million and $712 million for the three months ended September 29, 2023 and September 30, 2022, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 5%, favorable pricing initiatives and a favorable foreign currency exchange rate impact of 7%, partially offset by increased marketing spending and higher operating expenses. Operating income for North America for the three months ended September 29, 2023 and September 30, 2022 was $1,276 million and $1,082 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 1% and favorable pricing initiatives, partially offset by increased marketing spending. Asia Pacific’s operating income for the three months ended September 29, 2023 and September 30, 2022 was $491 million and $589 million, respectively. The decrease in operating income was primarily driven by higher commodity costs, increased marketing spending and an unfavorable foreign currency exchange rate impact of 6%, partially offset by concentrate sales volume growth of 1%, favorable pricing initiatives, lower other operating charges and the impact of acquired brands. Global Ventures’ operating income for the three months ended September 29, 2023 and September 30, 2022 was $81 million and $67 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 3%, favorable pricing initiatives and a favorable foreign currency exchange rate impact of 5%, partially offset by higher commodity costs and higher operating expenses. Bottling Investments’ operating income for the three months ended September 29, 2023 and September 30, 2022 was $132 million and $46 million, respectively. The increase in operating income was primarily driven by unit case volume growth of 10% and favorable pricing initiatives, partially offset by higher commodity costs, an unfavorable foreign currency exchange rate impact of 12% and the refranchising of our bottling operations in Vietnam and Cambodia. 41 Corporate’s operating loss for the three months ended September 29, 2023 and September 30, 2022 was $831 million and $454 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. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the fairlife acquisition. Nine Months Ended September 29, 2023 versus Nine Months Ended September 30, 2022 During the nine months ended September 29, 2023, operating income was $9,038 million, compared to $8,834 million during the nine months ended September 30, 2022, an increase of $204 million, or 2%. The increase was driven by concentrate sales volume growth of 1% and favorable pricing initiatives. These items were partially offset by higher commodity costs; higher selling, general and administrative expenses; higher other operating charges; and an unfavorable foreign currency exchange rate impact. During the nine months ended September 29, 2023, fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 7% due to a stronger U.S. dollar compared to certain foreign currencies, including the Argentine peso, Zimbabwean dollar, Turkish lira, euro, 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 $3,404 million and $3,344 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase in operating income was primarily driven by favorable pricing initiatives, partially offset by a decline in concentrate sales volume of 1%, higher commodity costs, increased marketing spending, higher operating expenses and an unfavorable foreign currency exchange rate impact of 13%. Latin America reported operating income of $2,635 million and $2,146 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 4% and favorable pricing initiatives, partially offset by higher commodity costs, increased marketing spending, higher operating expenses and an unfavorable foreign currency exchange rate impact of 2%. Operating income for North America for the nine months ended September 29, 2023 and September 30, 2022 was $3,525 million and $2,978 million, respectively. The increase in operating income was primarily driven by favorable pricing initiatives, partially offset by higher commodity costs, increased marketing spending, higher operating expenses and higher other operating charges. Asia Pacific’s operating income for the nine months ended September 29, 2023 and September 30, 2022 was $1,727 million and $2,006 million, respectively. The decrease in operating income was primarily driven by a decline in concentrate sales volume of 1%, higher commodity costs, increased marketing spending, higher operating expenses and an unfavorable foreign currency exchange rate impact of 6%, partially offset by favorable pricing initiatives, lower other operating charges and the impact of acquired brands and structural changes. Global Ventures’ operating income for the nine months ended September 29, 2023 and September 30, 2022 was $210 million and $162 million, respectively. The increase in operating income was primarily driven by concentrate sales volume growth of 6%, favorable pricing initiatives and a favorable foreign currency exchange rate impact of 1%, partially offset by higher commodity costs, higher operating expenses and the impact of no longer receiving COVID-related incentives in the current year. Bottling Investments’ operating income for the nine months ended September 29, 2023 and September 30, 2022 was $393 million and $352 million, respectively. The increase in operating income was primarily driven by unit case volume growth of 6% and favorable pricing initiatives, partially offset by higher commodity costs, an unfavorable foreign currency exchange rate impact of 6% and the refranchising of our bottling operations in Vietnam and Cambodia. Corporate’s operating loss for the nine months ended September 29, 2023 and September 30, 2022 was $2,856 million and $2,154 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. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on 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. 42 Interest Income During the three months ended September 29, 2023, interest income was $248 million, compared to $128 million during the three months ended September 30, 2022, an increase of $120 million, or 95%. During the nine months ended September 29, 2023, interest income was $640 million, compared to $306 million during the nine months ended September 30, 2022, an increase of $334 million, or 109%. 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 September 29, 2023, interest expense was $368 million, compared to $198 million during the three months ended September 30, 2022, an increase of $170 million, or 87%. During the nine months ended September 29, 2023, interest expense was $1,114 million, compared to $578 million during the nine months ended September 30, 2022, an increase of $536 million, or 93%. The increases were primarily due to the impact of higher interest rates on short-term borrowings and derivative instruments compared to the prior year. Equity Income (Loss) — Net Three Months Ended September 29, 2023 versus Three Months Ended September 30, 2022 During the three months ended September 29, 2023, equity income was $517 million, compared to equity income of $479 million during the three months ended September 30, 2022, an increase of $38 million, or 8%. 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, and a favorable foreign currency exchange rate impact. These favorable impacts were partially offset by a $34 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. Nine Months Ended September 29, 2023 versus Nine Months Ended September 30, 2022 During the nine months ended September 29, 2023, equity income was $1,330 million, compared to equity income of $1,133 million during the nine months ended September 30, 2022, an increase of $197 million, or 17%. 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, and a favorable foreign currency exchange rate impact. These favorable impacts were partially offset by an $88 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 September 29, 2023 versus Three Months Ended September 30, 2022 During the three months ended September 29, 2023, other income (loss) — net was a loss of $130 million. The Company recognized a net loss of $119 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 $52 million. Additionally, other income (loss) — net included dividend income of $44 million and income of $13 million related to the non-service cost components of net periodic benefit cost. During the three months ended September 30, 2022, other income (loss) — net was a loss of $53 million. The Company recognized a net loss of $78 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 $36 million. Additionally, other income (loss) — net included income of $41 million related to the non-service cost components of net periodic benefit income and dividend income of $25 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 17 of Notes to Consolidated Financial Statements for the impact that certain of these items had on our operating segments and Corporate. Nine Months Ended September 29, 2023 versus Nine Months Ended September 30, 2022 During the nine months ended September 29, 2023, other income (loss) — net was income of $576 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 $121 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 $172 million. Additionally, other income (loss) — net included dividend income of $172 million and income of $38 million related to the non-service cost components of net periodic benefit cost. 43 During the nine months ended September 30, 2022, other income (loss) — net was a loss of $509 million. The Company recognized a net loss of $449 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 $190 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 $178 million related to the non-service cost components of net periodic benefit income and dividend income of $73 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 $454 million (12.8% effective tax rate) and $622 million (18.1% effective tax rate) during the three months ended September 29, 2023 and September 30, 2022, respectively. The Company recorded income taxes of $1,753 million (16.7% effective tax rate) and $1,671 million (18.2% effective tax rate) during the nine months ended September 29, 2023 and September 30, 2022, respectively. The Company’s effective tax rates for the three and nine months ended September 29, 2023 and September 30, 2022 vary from the statutory U.S. federal tax rate of 21.0% 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 nine months ended September 29, 2023 included $186 million and $311 million, respectively, of net tax benefits related to various discrete tax items, including return to provision adjustments and the net tax impact of agreed-upon audit issues. The Company’s effective tax rate for the nine months ended September 29, 2023 also included a tax benefit of $90 million related to 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 19.0% 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. Many jurisdictions have enacted legislation and adopted policies resulting from the Organization for Economic Co-operation and Development’s (“OECD”) Anti-Base Erosion and Profit Shifting project. The OECD is currently coordinating a project on behalf of the G20 and other participating countries which would grant additional taxing rights over profits earned by multinational enterprises to the countries in which their products are sold and services rendered. Model rules adopted pursuant to this project would establish a global per-country minimum tax of 15%, and the European Union has approved a directive requiring member states to incorporate similar provisions into their respective domestic laws. The directive requires the rules to initially become effective for fiscal years starting on or after December 31, 2023. Other countries have taken similar actions. Significant details around the provisions are still under formulation and the timing around enactment remains uncertain. Our income tax expense could be unfavorably impacted as the legislation becomes effective in countries in which we do business. We will continue to monitor the pending legislation and implementation by individual countries. 44 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 $15.4 billion as of September 29, 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 September 29, 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 expect to repurchase shares to offset dilution resulting from employee stock-based compensation. We may also use a portion of the proceeds we expect to receive from nonoperating activities to repurchase additional shares. 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 nine months ended September 29, 2023 would increase the potential aggregate incremental tax and interest liability by approximately $1.2 billion. 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 $5.6 billion (including interest accrued through September 29, 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 $12,793 million and $7,097 million of trade accounts receivables under this program during the nine months ended September 29, 2023 and September 30, 2022, respectively. The costs of factoring such receivables were $58 million and $14 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The cash received from the financial institutions is reflected within the operating activities section of our consolidated statement of cash flows. 45 Net cash provided by operating activities during the nine months ended September 29, 2023 and September 30, 2022 was $8,929 million and $8,068 million, respectively, an increase of $861 million, or 11%. 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 nine months ended September 29, 2023 and September 30, 2022 was $2,423 million and $2,189 million, respectively. Purchases of Investments and Proceeds from Disposals of Investments During the nine months ended September 29, 2023, purchases of investments were $4,588 million and proceeds from disposals of investments were $2,892 million, resulting in a net cash outflow of $1,696 million. During the nine months ended September 30, 2022, purchases of investments were $3,169 million and proceeds from disposals of investments were $3,049 million, resulting in a net cash outflow of $120 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 nine months ended September 29, 2023 and September 30, 2022, proceeds from disposals of businesses, equity method investments and nonmarketable securities were $327 million and $229 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 nine months ended September 29, 2023 and September 30, 2022 were $1,001 million and $776 million, respectively. Collateral (Paid) Received Associated with Hedging Activities — Net Collateral paid associated with our hedging activities during the nine months ended September 29, 2023 was $124 million, and collateral paid associated with our hedging activities during the nine months ended September 30, 2022 was $1,449 million. 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 during the nine months ended September 29, 2023 and September 30, 2022 was $4,085 million and $5,078 million, respectively. Debt Financing Issuances and payments of debt included both short-term and long-term financing activities. During the nine months ended September 29, 2023, the Company had issuances of debt of $6,013 million, which included $5,979 million of issuances of commercial paper and short-term debt with maturities greater than 90 days and long-term debt issuances of $34 million, net of related discounts and issuance costs. The Company made payments of debt of $4,794 million during the nine months ended September 29, 2023, which included $630 million of net payments of commercial paper and short-term debt with maturities of 90 days or less, payments of $3,893 million related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $271 million. Refer to Note 8 of Notes to Consolidated Financial Statements for additional information. During the nine months ended September 30, 2022, the Company had issuances of debt of $4,351 million, which included $2,163 million of net issuances of commercial paper and short-term debt with maturities of 90 days or less, $1,402 million of issuances of commercial paper and short-term debt with maturities greater than 90 days, and long-term debt issuances of $786 million, net of related discounts and issuance costs. The Company made payments of debt of $3,761 million during the nine months ended September 30, 2022, which included payments of $3,022 million related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $739 million. 46 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 nine months ended September 29, 2023 and September 30, 2022 were related to the exercise of stock options by employees. Share Repurchases During the nine months ended September 29, 2023, the total cash outflow for treasury stock purchases was $1,193 million. The Company repurchased 17.9 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 $60.79 per share, for a total cost of $1,088 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 nine months ended September 29, 2023 resulted in a net cash outflow of $769 million. During the nine months ended September 30, 2022, the total cash outflow for treasury stock purchases was $1,412 million. The Company repurchased 21.3 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 $62.67 per share, for a total cost of $1,336 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 nine months ended September 30, 2022 resulted in a net cash outflow of $705 million. Dividends During the nine months ended September 29, 2023 and September 30, 2022, the Company paid dividends of $4,078 million and $3,910 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 2022 and 2023 third quarterly dividends in the fourth quarter of each year. Our Board of Directors approved the Company’s regular quarterly dividend of $0.46 per share at its October 2023 meeting. This dividend is payable on December 15, 2023 to shareowners of record as of the close of business on December 1, 2023. Other Financing Activities During the nine months ended September 29, 2023 and September 30, 2022, the total cash outflow for other financing activities was $457 million and $1,053 million, respectively. The cash outflow during the nine months ended September 29, 2023 included $108 million of the $275 million milestone payment for fairlife. The cash outflow during the nine months ended September 29, 2023 and September 30, 2022 included payments totaling $311 million and $616 million, respectively, of the purchase price of BodyArmor, which included amounts originally held back for indemnification obligations. Additionally, the cash outflow during the nine months ended September 30, 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 nine months ended September 29, 2023 by 4% and 7%, respectively. 47 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk We have no material changes to the disclosures on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2022.