Coca Cola 2005 Annual Report Download - page 83

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: BOTTLING INVESTMENTS (Continued)
During the second quarter of 2004, the Company’s equity income benefited by approximately $37 million
for its share of a favorable tax settlement related to Coca-Cola FEMSA.
In December 2004, the Company sold to an unrelated financial institution certain of its production assets
that were previously leased to the Japanese supply chain management company (refer to discussion below). The
assets were sold for approximately $271 million, and the sale resulted in no gain or loss. The financial institution
entered into a leasing arrangement with the Japanese supply chain management company. These assets were
previously reported in our consolidated balance sheet line item property, plant and equipment—net and
assigned to our North Asia, Eurasia and Middle East operating segment.
During 2004, our Company sold our bottling operations in Vietnam, Cambodia, Sri Lanka and Nepal to
Coca-Cola Sabco (Pty) Ltd. (‘‘Sabco’’) for a total consideration of $29 million. In addition, Sabco assumed
certain debts of these bottling operations. The proceeds from the sale of these bottlers were approximately equal
to the carrying value of the investment.
Effective May 6, 2003, one of our Company’s equity method investees, Coca-Cola FEMSA, consummated a
merger with another of the Company’s equity method investees, Panamerican Beverages, Inc. (‘‘Panamco’’). Our
Company received new Coca-Cola FEMSA shares in exchange for all 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
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 pretax charge of $102 million primarily related to our proportionate
share of these matters. This charge is included in the consolidated statement of income line item equity
income—net.
In December 2003, the Company issued a standby line of credit to Coca-Cola FEMSA. Refer to Note 12.
The Company and the major shareowner of Coca-Cola FEMSA have an understanding that will permit this
shareowner to purchase from our Company an amount of Coca-Cola FEMSA shares sufficient for this
shareowner to regain a 51 percent ownership interest in Coca-Cola FEMSA. Pursuant to this understanding,
which is in place until May 2006, this shareowner would pay the higher of the prevailing market price per share
at the time of the sale or the sum of approximately $2.22 per share plus the Company’s carrying costs. Both
resulting amounts are in excess of our Company’s carrying value.
In July 2003, we made a convertible loan of approximately $133 million to The Coca-Cola Bottling
Company of Egypt (‘‘TCCBCE’’). The loan is convertible into preferred shares of TCCBCE upon receipt of
governmental approvals. Additionally, upon certain defaults under either the loan agreement or the terms of the
preferred shares, we have the ability to convert the loan or the preferred shares into common shares. As of
December 31, 2005, our Company owned approximately 42 percent of the common shares of TCCBCE. Since
the adoption of Interpretation 46(R) in 2004, TCCBCE has been consolidated in our consolidated financial
statements.
81