Coca Cola 2004 Annual Report Download - page 46

• As a result of streamlining charges, 2003 operating income was reduced by approximately $273 million for
North America, $12 million for Africa, $18 million for Asia, $183 million for Europe, Eurasia and Middle
East, $8 million for Latin America and $67 million for Corporate. Refer to Note 17.
• In 2003, Europe, Eurasia and Middle East operating income significantly increased due to innovation,
strong marketing strategies, rigorous cost management, positive currency trends and favorable weather
during the summer months.
• As a result of the Company’s receipt of a settlement related to a vitamin antitrust litigation matter,
operating income in 2003 increased by approximately $52 million for Corporate. Refer to Note 16.
Interest Income and Interest Expense
In 2004, interest income decreased by $19 million compared to 2003 primarily due to lower interest income
earned on short-term investments and interest income in 2003 related to certain tax receivables. While our
Company’s average short-term investment balances increased during 2004, significant amounts of these balances
were held in lower interest earning locations than in prior years while the Company analyzed the impact of the
Jobs Creation Act. Interest expense in 2004 increased by $18 million primarily as a result of higher average
interest rates and higher average balances on commercial paper borrowings in the United States.
In 2003, interest income decreased by $33 million compared to 2002 primarily due to lower interest rates on
short-term investments. Nevertheless, the Company benefited from cash invested in locations outside the United
States earning higher interest rates than could be obtained within the United States. Conversely, a majority of
our interest expense was incurred on borrowings in the United States. Interest expense in 2003 decreased by
$21 million primarily as a result of both a decrease in average commercial paper debt balances and lower
interest rates for commercial paper borrowings.
Equity Income—Net
Our Company’s share of income from equity method investments for 2004 totaled $621 million compared to
$406 million in 2003, an increase of $215 million or 53 percent. Equity income for 2004 benefited by
approximately $37 million from our proportionate share of a favorable tax settlement related to Coca-Cola
FEMSA. Additionally, our equity income for 2003 was negatively impacted by a $102 million charge primarily
related to Coca-Cola FEMSA, as described below. Comparing 2004 to 2003, our equity income also benefited
from favorable pricing at key bottling operations; the positive impact of the strength of most key currencies
versus the U.S. dollar, especially a stronger euro; and the overall improving health of the Coca-Cola bottling
system in most of the world.
Equity income from a majority of our investees increased during 2003 due to the overall improving health of
the Coca-Cola bottling system around the world.
Effective May 6, 2003, one of our Company’s Latin American equity method investees, 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
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