FORM 10-Q

Gross Profit
Our gross profit margin decreased to 60.8 percent during the three months ended March 29, 2013, compared to 61.0 percent during the three months ended
March 30, 2012. This decrease reflects the impact of the Company's hedging activities on our cost of goods sold, fluctuations in foreign currency exchange
rates and our acquisition of bottling operations in Vietnam, Cambodia, Guatemala and the United States. The unfavorable impact of these items was partially
offset by the deconsolidation of our Philippine bottling operations after we sold a majority ownership interest to Coca-Cola FEMSA in January 2013. See below
for additional information on the impact the Company's hedging activities had on the line item cost of goods sold. Refer to the heading "Structural Changes,
Acquired Brands and New License Agreements" above for additional information regarding the impact of our acquisition of bottling operations in Vietnam,
Cambodia and Guatemala as well as the sale of a majority interest in our Philippine bottling operations.
The following inputs represent a substantial portion of the Company's total cost of goods sold: (1) sweeteners, (2) juices, (3) metals and (4) polyethylene
terephthalate ("PET"). The majority of these costs are included within our North America and Bottling Investments operating segments. We expect the
incremental impact of increased commodity costs related to these inputs, primarily sweeteners and juices, to be approximately $100 million on our full year
2013 operating results.
In recent years, the Company has increased our hedging activities related to certain commodities in order to mitigate a portion of the price and foreign currency
risks associated with forecasted purchases. Many of the derivative financial instruments used by the Company to mitigate the risk associated with these
commodity exposures do not qualify, or are not designated, for hedge accounting. As a result, the change in fair value of these derivative instruments has been,
and will continue to be, included as a component of net income in each reporting period. During the three months ended March 29, 2013, the Company
recorded a loss of $71 million in the line item cost of goods sold in our condensed consolidated statements of income. Refer to Note 5 of Notes to Condensed
Consolidated Financial Statements.
Selling, General and Administrative Expenses
The following table sets forth the significant components of selling, general and administrative expenses (in millions):
Three Months Ended
March 29,
2013
March 30,
2012
Stock-based compensation expense $ 47 $ 77
Advertising expenses 780 765
Bottling and distribution expenses 1
2,162 2,172
Other operating expenses 1,193 1,167
Total selling, general and administrative expenses $ 4,182 $ 4,181
1 Includes operating expenses as well as general and administrative expenses related to our Bottling Investments operating segment and our finished product operations in our
North America operating segment.
During the three months ended March 29, 2013, selling, general and administrative expenses increased $1 million versus the prior year comparable period.
The decrease in stock-based compensation expense was primarily due to the reversal of previously recognized expenses related to the Company's long-term
incentive compensation programs. As a result of the Company's revised outlook of the unfavorable impact foreign currency fluctuations are projected to have
on certain performance periods, the Company lowered the estimated payouts associated with these periods. The increase in advertising expenses reflects the
Company's continued investment in our brands, our focus on building market execution capabilities and the timing of certain marketing expenses. The
decrease in bottling and distribution expenses includes the impact of having two fewer days in the first quarter of 2013 compared to the first quarter of 2012
and the Company's sale of a majority interest in our previously consolidated Philippine bottling operations to Coca-Cola FEMSA, partially offset by our
acquisition of bottling operations in Vietnam, Cambodia, Guatemala and the United States in 2012. During the three months ended March 29, 2013,
fluctuations in foreign currency exchange rates decreased selling, general and administrative expenses by 1 percent.
During the three months ended March 29, 2013, the Company contributed $558 million to our pension plans, and we anticipate making additional
contributions of approximately $82 million to our pension plans during the remainder of 2013. Our full year pension expense is currently expected to decrease
by approximately $60 million compared to 2012. The anticipated decrease is primarily due to the favorable impact of the Company's pension contributions
discussed above as well as favorable returns on plan assets in 2012. The favorable impact of these items will be partially offset by the unfavorable impact of a
decrease in the weighted-average discount rate used to calculate the Company's benefit obligation. Refer to the heading "Liquidity, Capital Resources and
Financial Position" below and Note 12 of Notes to Condensed Consolidated Financial Statements for information related to our pension contributions.
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