Coca Cola 2003 Annual Report Download - page 43

In the first quarter of 2002, our Company recorded a noncash pretax charge of approximately $157 million,
primarily related to the write-down of certain investments in Latin America. This write-down reduced the
carrying value of the investments to fair value. The charge was primarily the result of economic developments in
Argentina during the first quarter of 2002, including devaluation of the Argentine peso and the severity of the
unfavorable economic conditions. The Company expects to realize a minimal tax benefit from this write-down.
The impact on 2002 diluted earnings per share was an after-tax reduction of approximately $0.06 per share. As
previously noted, $22 million of our share of the pretax gain from the sale by Kaiser S.A. was recorded in the line
item other income (loss)—net in 2002.
Gains on Issuances of Stock by Equity Investees
If and when an equity investee issues its stock to third parties at a price in excess of our book value, our
Company’s equity in the underlying net assets of that investee increases. We generally record an increase to our
investment account and a corresponding gain for these transactions.
In 2003, our Company recorded approximately $8 million of noncash pretax gains on issuances of stock by
equity investees. These gains primarily related to the issuance by CCE of common stock valued at an amount
greater than the book value per share of our investment in CCE. This transaction reduced our ownership
interest in the total outstanding shares of CCE common stock by less than 1 percent.
In July 2001, CCE completed its acquisition of Hondo Incorporated and Herbco Enterprises, Inc.,
collectively known as Herb Coca-Cola. The transaction was valued at approximately $1.4 billion, with
approximately 30 percent of the transaction funded with the issuance of approximately 25 million shares of CCE
common stock, and the remaining portion funded through debt and assumed debt. The issuance of shares
resulted in a noncash pretax gain for our Company of approximately $91 million. This gain represents the
increase in our Company’s equity in the underlying net assets of the related investee. This transaction reduced
our ownership interest in the total outstanding shares of CCE common stock from approximately 40 percent to
approximately 38 percent.
No gains on issuances of stock by equity investees were recorded to our statements of income during 2002.
Refer to Note 3.
Income Taxes
Our effective tax rate reflects tax benefits derived from significant operations outside the United States,
which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. During 2003, the Company’s
results benefited from a lower effective tax rate because of increased profit contributions from lower taxed
locations resulting from favorable currency exchange rates and other business conditions.
Our effective tax rate of approximately 21 percent for the year ended December 31, 2003 reflects the
following:
• the favorable resolution of various tax matters (approximately $50 million) during the fourth quarter of
2003, partially offset by additional taxes primarily related to the repatriation of funds;
• the effective tax rate for the costs related to the streamlining initiatives of approximately 33 percent;
• the effective tax rate for the proceeds received related to the vitamin antitrust litigation matter of
approximately 34 percent;
• the effective tax rate for the charge related to a Latin American equity investee of approximately
3 percent; and
• the effective tax rate for all other pretax income of approximately 22 percent.
40