Coca Cola 2003 Annual Report Download - page 42

Equity Income—Net
Equity income for the majority of our investees increased during 2003 due to the overall improving health
of the Coca-Cola bottling system around the world. Our equity income for 2003 was negatively impacted by a
$102 million charge primarily related to a Latin American equity investee, as described below.
Effective May 6, 2003, one of our Company’s Latin American equity method investees, Coca-Cola FEMSA,
S.A. de C.V. (‘‘Coca-Cola FEMSA’’), consummated a merger with another of the Company’s Latin American
equity method investees, Panamerican Beverages, Inc. (‘‘Panamco’’). Our Company received new Coca-Cola
FEMSA shares in exchange for all the Panamco shares previously held by the Company. Our Company’s
ownership interest in Coca-Cola FEMSA increased from 30 percent to approximately 40 percent as a result of
this merger. This exchange of shares was treated as a nonmonetary exchange of similar productive assets, and no
gain was recorded by our Company as a result of this merger.
In connection with the merger, Coca-Cola FEMSA management initiated steps to streamline and integrate
the operations. This process included the closing of various distribution centers and manufacturing plants.
Furthermore, due to the challenging economic conditions and an uncertain political situation in Venezuela,
certain intangible assets were determined to be impaired and written down to their fair market value. During
2003, our Company recorded a noncash charge of $102 million primarily related to these matters. This charge is
included in the line item equity income—net.
The $232 million increase in 2002 equity income—net, as compared to 2001, was due to the overall
improving health of the Coca-Cola bottling system around the world and the favorable impact of reduced
amortization resulting from the adoption of SFAS No. 142. Specific items with a positive impact to equity
income—net were the increase in equity income for CCE of approximately $209 million due to improving trends
in operating and financial performance (which included a $90 million favorable impact resulting from the
adoption of SFAS No. 142) and the reduction in amortization expenses of approximately $60 million for
investments other than CCE resulting from the implementation of SFAS No. 142. Due to the adoption of SFAS
No. 142, equity income—net for 2002 increased by approximately $150 million. These increases were offset by
selected equity method investments in Latin America that had been adversely impacted by economic difficulties,
as well as our Company’s share of impairment and restructuring charges taken by certain equity method
investees in Latin America during the third quarter of 2002. The Company’s share of these charges was
approximately $33 million.
For 2002, our Company’s share of income from equity method investees was also favorably impacted by a
benefit related to our share of the gain on the sale by Cervejarias Kaiser S.A. (‘‘Kaiser S.A.’’) of its interests in
Cervejarias Kaiser Brazil, Ltda to Molson Inc. (refer to Note 16). Approximately $21 million of our share of the
pretax gain from the sale by Kaiser S.A. was recorded in the line item equity income—net with the remaining
portion, $22 million, recorded in the line item other income (loss)—net.
Other Income (Loss)—Net
Other income (loss)—net was a net loss of $138 million for 2003 compared to a net loss of $353 million for
2002, a difference of $215 million. The significant portion of this difference related to a $157 million charge
(discussed below) in 2002, and no such charge applied to 2003. This line item in 2003 primarily consisted of
foreign exchange losses of $76 million and accretion of $51 million for the discounted value of the
CCEAG liability.
Other income (loss)—net in 2002 was principally composed of foreign currency exchange losses of
approximately $118 million, the accretion of the discounted value of the CCEAG liability of approximately
$38 million (refer to Note 18), the items discussed in this section below and minority interest accruals. The losses
on currency exchange primarily occurred in Latin America and Africa, which experienced significant devaluation
of currencies. The increase in the minority interest accruals primarily related to the acquisitions of our interests
in CBC and CCDA. Refer to Note 18.
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