Coca Cola 2004 Annual Report Download - page 77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 2: BOTTLING INVESTMENTS (Continued)
In the second quarter of 2004, our Company and CCE agreed to terminate the Sales Growth Initiative
(‘‘SGI’’) agreement and certain other marketing funding programs that were previously in place. Due to
termination of these agreements, a significant portion of the cash payments to be made by us directly to CCE
was eliminated prospectively. At the termination of these agreements, we agreed that the concentrate price that
CCE pays us for sales made in the United States and Canada would be reduced. Total cash support paid by our
Company under the SGI agreement prior to its termination was $58 million, $161 million and $150 million for
2004, 2003 and 2002, respectively. These amounts are included in the line item payments made by us directly to
CCE in the table above.
In the second quarter of 2004, we and CCE agreed to establish a Global Marketing Fund, under which we
expect to pay CCE $62 million annually through December 31, 2014 as support for certain marketing activities.
The term of the agreement will automatically be extended for successive 10-year periods thereafter unless either
party gives written notice of termination of this agreement. The marketing activities to be funded under this
agreement will be agreed upon each year as part of the annual joint planning process and will be incorporated
into the annual marketing plans of both companies. We paid CCE a pro rata amount of $42 million for 2004.
This amount is included in the line item payments made by us directly to CCE in the table above.
Our Company previously entered into programs with CCE designed to help develop cold-drink
infrastructure. Under these programs, our Company paid CCE for a portion of the cost of developing the
infrastructure necessary to support accelerated placements of cold-drink equipment. These payments support a
common objective of increased sales of Coca-Cola beverages from increased availability and consumption in the
cold-drink channel. In connection with these programs, CCE agreed to:
(1) purchase and place specified numbers of Company approved cold-drink equipment each year
through 2010;
(2) maintain the equipment in service, with certain exceptions, for a period of at least 12 years
after placement;
(3) maintain and stock the equipment in accordance with specified standards; and
(4) annual reporting to our Company of minimum average annual unit case sales volume throughout the
economic life of the equipment and other specified information.
CCE must achieve minimum average unit case sales volume for a 12-year period following the placement of
equipment. These minimum average unit case sales volume levels ensure adequate gross profit from sales of
concentrate to fully recover the capitalized costs plus a return on the Company’s investment. Should CCE fail to
purchase the specified numbers of cold-drink equipment for any calendar year through 2010, the parties agreed
to mutually develop a reasonable solution. Should no mutually agreeable solution be developed, or in the event
that CCE otherwise breaches any material obligation under the contracts and such breach is not remedied within
a stated period, then CCE would be required to repay a portion of the support funding as determined by our
Company. In the third quarter of 2004, our Company and CCE agreed to amend the contract to defer the
placement of some equipment from 2004 and 2005, as previously agreed under the original contract, to 2009 and
2010. In connection with this amendment, CCE agreed to pay the Company approximately $2 million in 2004,
$3 million annually in 2005 through 2008, and $1 million in 2009. Our Company paid or committed to pay
$3 million in 2002 to CCE in connection with these infrastructure programs. These payments are recorded in
prepaid expenses and other assets and in noncurrent other assets and amortized as deductions in net operating
revenues over the 10-year period following the placement of the equipment. Our carrying values for these
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