Coca Cola 2003 Annual Report Download - page 98

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 18: ACQUISITIONS AND INVESTMENTS (Continued)
November 2001, we also entered into a Pooling Agreement with certain share owners of CCEAG that provided
our Company with voting control of CCEAG. Both agreements became effective in February 2002, when our
Company acquired control of CCEAG for a term ending no later than December 31, 2006. CCEAG is included
in our Europe, Eurasia and Middle East operating segment. As a result of acquiring control of CCEAG, our
Company is working to help focus its sales and marketing programs and assist in developing the business. This
transaction was accounted for as a business combination, and the results of CCEAG’s operations have been
included in the Company’s financial statements since February 2002. Prior to February 2002, our Company
accounted for CCEAG under the equity method of accounting. As of December 31, 2002, our Company had an
approximate 41 percent ownership interest in the outstanding shares of CCEAG. In return for control of
CCEAG, pursuant to the CPL we guaranteed annual payments, in lieu of dividends by CCEAG, to all other
CCEAG share owners. These guaranteed annual payments equal .76 euro for each CCEAG share outstanding.
Additionally, all other CCEAG share owners entered into either a put or a put/call option agreement with the
Company, exercisable at any time up to the December 31, 2006 expiration date. In 2003, one of the other share
owners exercised its put option that represented approximately 29 percent of the outstanding shares of CCEAG.
All payments related to the exercise of the put options will be made in 2006. Our Company entered into either
put or put/call agreements for shares representing an approximate 59 percent interest in CCEAG. The spread in
the strike prices of the put and call options is approximately 3 percent.
As of the date of the transaction, the Company concluded that the exercise of the put and/or call
agreements was a virtual certainty based on the minimal differences in the strike prices. We concluded that
either the holder of the put option would require the Company to purchase the shares at the agreed-upon put
strike price, or the Company would exercise its call option and require the share owner to tender its shares at the
agreed-upon call strike price. If these puts or calls are exercised, the actual transfer of shares would not occur
until the end of the term of the CPL. Coupled with the guaranteed payments in lieu of dividends for the term of
the CPL, these instruments represented the financing vehicle for the transaction. As such, the Company
determined that the economic substance of the transaction resulted in the acquisition of the remaining
outstanding shares of CCEAG and required the Company to account for the transaction as a business
combination. Furthermore, the terms of the CPL transferred control and all of the economic risks and rewards
of CCEAG to the Company immediately.
The present value of the total amount likely to be paid by our Company to all other CCEAG share owners,
including the put or put/call payments and the guaranteed annual payments in lieu of dividends, was
approximately $905 million at December 31, 2003. This amount increased from the initial liability of
approximately $600 million due to the accretion of the discounted value to the ultimate maturity of the liability,
as well as approximately $239 million of translation adjustment related to this liability. This liability is included
in the line item other liabilities. The accretion of the discounted value to its ultimate maturity value is recorded
in the line item other income (loss)—net, and this amount was approximately $51 million and $38 million,
respectively, for the years ended December 31, 2003 and 2002.
In July 2002, our Company and Danone Waters of North America, Inc. (‘‘DWNA’’) formed a new limited
liability company, CCDA, for the production, marketing and distribution of DWNA’s bottled spring and source
water business in the United States. In forming CCDA, DWNA contributed assets of its retail bottled spring and
source water business in the United States. These assets include five production facilities, a license for the use of
the Dannon and Sparkletts brands, as well as ownership of several value brands. Our Company made a cash
payment to acquire a controlling 51 percent equity interest in CCDA and is also providing marketing,
distribution and management expertise. This transaction was accounted for as a business combination, and the
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