Coca Cola 2006 Annual Report Download

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20FEB200406462039
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
፤ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
អTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-2217
(Exact name of Registrant as specified in its charter)
DELAWARE 58-0628465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Coca-Cola Plaza
Atlanta, Georgia 30313
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (404) 676-2121
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $0.25 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ፤No អ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes អNo ፤
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past
90 days. Yes ፤No អ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. អ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See
definition of ‘‘accelerated filer’’ or ‘‘large accelerated filer’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer ፤Accelerated filer អNon-accelerated filer អ
Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អNo ፤
The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for these purposes, but
without conceding, that all executive officers and Directors are ‘‘affiliates’’ of the Registrant) as of June 30, 2006, the last business
day of the Registrant’s most recently completed second fiscal quarter, was $95,705,925,512 (based on the closing sale price of the
Registrant’s Common Stock on that date as reported on the New York Stock Exchange).
The number of shares outstanding of the Registrant’s Common Stock as of February 20, 2007 was 2,315,288,508.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the Annual Meeting of Shareowners to be held on April 18, 2007, are
incorporated by reference in Part III.

Table of contents

  • Page 1
    ....) One Coca-Cola Plaza Atlanta, Georgia 30313 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 676-2121 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered COMMON STOCK...

  • Page 2
    ... and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other...

  • Page 3
    ... reports filed with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS General The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. Finished beverage products bearing our trademarks, sold in the United...

  • Page 4
    ... Statements set forth in Part II, ''Item 8. Financial Statements and Supplementary Data'' of this report, incorporated herein by reference. For certain risks attendant to our non-U.S. operations, refer to ''Item 1A. Risk Factors,'' below. Products and Distribution Our Company manufactures and sells...

  • Page 5
    ... (manufactured and marketed under license agreements from Bacardi & Company Limited) and Hi-C ready-to-serve juice drinks. We have a license to manufacture and sell concentrates for Seagram's mixers, a line of sparkling drinks, in the United States and certain other countries. Our Company is...

  • Page 6
    ... with Nestle sparkling green tea product, and Gold Peak, a premium ready-to-drink iced tea in five flavors. The Company introduced Dasani Sparkling in Kenya and Mauritius; Five Alive and Coca-Cola Light in Kenya; Powerade Balance, Five Alive, Fanta Free and Bonaqua flavored waters in South Africa...

  • Page 7
    ..., bottlers' inventory practices, supply point changes, timing of price increases, new product introductions and changes in product mix can impact unit case volume and gallon sales and can create differences between unit case volume and gallon sales growth rates. In 2006, concentrates and syrups for...

  • Page 8
    .... A majority of the Bottler's Agreements in force between us and bottlers outside the United States authorize the bottlers to manufacture and distribute fountain syrups, usually on a nonexclusive basis. Our Company generally has complete flexibility to determine the price and other terms of sale of...

  • Page 9
    ... determine the price and other terms of sale of its syrups, concentrates and finished beverages under various agreements described above is subject, both outside and within the United States, to competitive market conditions. Significant Equity Method Investments and Company Bottling Operations Our...

  • Page 10
    ...result in increases in unit case volume, net revenues and profits at the bottler level, which in turn generate increased gallon sales for our Company's concentrate and syrup business. When this occurs, both we and our bottling partners benefit from long-term growth in volume, improved cash flows and...

  • Page 11
    ...of the other countries named above in which Coca-Cola HBC has bottling and distribution rights. In 2006, Coca-Cola HBC's net sales of beverage products were approximately $7 billion. In 2006, approximately 44 percent of the unit case volume of Coca-Cola HBC consisted of Coca-Cola Trademark Beverages...

  • Page 12
    ... market price. Our Company generally has not experienced any difficulties in obtaining its requirements for nutritive sweeteners. In the United States, we purchase high fructose corn syrup to meet our and our bottlers' requirements with the assistance of Coca-Cola Bottlers' Sales & Services Company...

  • Page 13
    ... are properly maintained. Pursuant to our Bottler's Agreements, we authorize our bottlers to use applicable Company trademarks in connection with their manufacture, sale and distribution of Company products. In addition, we grant licenses to third parties from time to time to use certain of our...

  • Page 14
    ... other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing our Company. Additional risks and uncertainties not currently...

  • Page 15
    ...Increasing public awareness about these issues and negative publicity resulting from actual or threatened legal actions may reduce demand for our sparkling beverages, which could affect our profitability. Water scarcity and poor quality could negatively impact the Coca-Cola system's production costs...

  • Page 16
    ...our brands, or they may devote more of their energy and resources to business opportunities or products other than those of the Company. Such actions could, in the long run, have an adverse effect on our profitability. In addition, the loss of one or more major customers by one of our major bottling...

  • Page 17
    ... to operate our concentrate and bottling plants. An increase in the price of fuel and other energy sources would increase our and the Coca-Cola system's operating costs and, therefore, could negatively impact our profitability. Increase in cost, disruption of supply or shortage of raw materials...

  • Page 18
    ... commercial and market practices in the European Economic Area Member States. The Undertaking potentially applies in 27 countries and in all channels of distribution where our sparkling beverages account for over 40 percent of national sales and twice the nearest competitor's share. The commitments...

  • Page 19
    ...required from time to time to recall products entirely or from specific markets. Product recalls could affect our profitability and could negatively affect brand image. Also, adverse publicity surrounding obesity concerns, water usage, labor relations and the like could negatively affect our Company...

  • Page 20
    ... are recorded. If we do not successfully manage our Company-owned bottling operations, our results could suffer. While we primarily manufacture, market and sell concentrates and syrups to our bottling partners, from time to time we do acquire or take control of bottling operations. Often, though not...

  • Page 21
    ...products. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our worldwide headquarters is located on a 35-acre office complex in Atlanta, Georgia. The complex includes the approximately 621,000 square foot headquarters building, the approximately 870,000 square foot Coca-Cola North America...

  • Page 22
    ... that review, may from time to time acquire additional facilities and/or dispose of existing facilities. ITEM 3. LEGAL PROCEEDINGS On October 27, 2000, a class action lawsuit (Carpenters Health & Welfare Fund of Philadelphia & Vicinity v. The Coca-Cola Company, et al.) was filed in the United States...

  • Page 23
    ... purchased over $400 million of insurance coverage, of which approximately $350 million is still available to cover Aqua-Chem's costs for certain product liability and other claims. The Company sold Aqua-Chem to Lyonnaise American Holding, Inc. in 1981 under the terms of a stock sale agreement...

  • Page 24
    ... of Georgia against the Company and certain current and former executive officers. These cases were subsequently consolidated, and an amended and consolidated complaint was filed in September 2005. The purported class consists of persons, except the defendants, who purchased Company stock between...

  • Page 25
    ... of Georgia by participants in the Company's Thrift & Investment Plan (the ''Plan'') alleging breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 by the Company, certain current and former executive officers, and the Company's Benefits Committee. The purported class...

  • Page 26
    ... applicable. ITEM X. EXECUTIVE OFFICERS OF THE COMPANY The following are the executive officers of our Company as of February 20, 2007: Ahmet Bozer, 46, is President of the Eurasia Group. Mr. Bozer joined the Company in 1990 as a Financial Control Manager for Coca-Cola USA and held a number of other...

  • Page 27
    ...of Directors and Chief Executive Officer of the Company. Mr. Isdell joined the Coca-Cola system in 1966 with the local bottling company in Zambia. In 1972, he became General Manager of Coca-Cola Bottling of Johannesburg, the largest Coca-Cola bottler in South Africa at the time. Mr. Isdell was named...

  • Page 28
    ...of activities from brand management and media relations to advertising and on-line marketing and communications. From 1995 to 2000, Mr. Mattia held a variety of executive positions with Ford Motor Company, including head of International Public Affairs, Vice President of Lincoln Mercury and Director...

  • Page 29
    ... of the Latin America Group. He began his career with The Coca-Cola ´xico as Manager of Strategic Planning. In 1987, he was appointed Company in 1980 at Coca-Cola de Me Manager of the Sprite and Diet Coke brands at Corporate Headquarters. In 1990, he was appointed Marketing Director for the Brazil...

  • Page 30
    ... forth, for the calendar periods indicated, the high and low sales prices per share for the Company's common stock, as reported on the New York Stock Exchange composite tape, and dividend per share information: Common Stock Market Price High Low Dividends Declared 2006 Fourth quarter Third quarter...

  • Page 31
    ...18(a)(3) under the Exchange Act. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs2 Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs3 Period Total Number of Shares Purchased1 Average Price Paid Per Share September 30...

  • Page 32
    ...Archer-Daniels-Midland Company, Brown-Forman Corporation, Bunge Limited, Campbell Soup Company, Loews Corporation (Carolina Group tracking stock), Chiquita Brands International, Inc., Coca-Cola Enterprises Inc., ConAgra Foods, Inc., Constellation Brands, Inc., Corn Products International, Inc., Dean...

  • Page 33
    ... Market price on December 31 TOTAL MARKET VALUE OF COMMON STOCK BALANCE SHEET DATA Cash, cash equivalents and current marketable securities Property, plant and equipment - net Depreciation Capital expenditures Total assets Long-term debt Shareowners' equity NET CASH PROVIDED BY OPERATING ACTIVITIES...

  • Page 34
    ...Coke, Fanta and Sprite. Our Company owns or licenses more than 400 brands, including diet and light beverages, waters, juice and juice drinks, teas, coffees, and energy and sports drinks. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the Company...

  • Page 35
    ... a Company brand, we conduct product and packaging research, establish brand positioning, develop precise consumer communications and solicit consumer feedback. Our integrated global and local marketing programs include activities such as advertising, point-of-sale merchandising and sales promotions...

  • Page 36
    ... in specific markets to ensure that we appropriately share the value created by these beverages with our bottling partners. We will continue to build a supply chain network that leverages the size and scale of the Coca-Cola system to gain a competitive advantage. Challenges and Risks Being a global...

  • Page 37
    ... profitable segments of the nonalcoholic beverages segment of the commercial beverages industry and strengthen our capabilities in marketing and innovation in order to maintain our brand loyalty and market share. All four of these challenges and risks-obesity and inactive lifestyles, water quality...

  • Page 38
    behalf of our Company, determining whether the Company provides more than half of the subordinated financial support to the entity, and determining if we absorb the majority of the entity's expected losses or returns. We use the equity method to account for investments for which we have the ability ...

  • Page 39
    ...; India, where affordability issues remain; and certain markets in Latin America, Asia and Africa, where local economic and political conditions are unstable. We have bottling assets and investments in many of these markets. The table below reflects the Company's carrying value of noncurrent assets...

  • Page 40
    ... closing prices of publicly traded shares, and our Company's carrying values for significant investments in publicly traded bottlers accounted for as equity method investees (in millions): December 31, 2006 Fair Value Carrying Value Difference Coca-Cola Enterprises Inc. Coca-Cola Hellenic Bottling...

  • Page 41
    balance sheets. Management evaluates the recoverability of the carrying value of these assets when facts and circumstances indicate that the carrying value of these assets may not be recoverable by preparing estimates of sales volume and the resulting gross profit and cash flows. If the carrying ...

  • Page 42
    ... charges in the consolidated statement of income. In December 2006, the Company entered into a purchase agreement with San Miguel Corporation and two of its subsidiaries (collectively, ''SMC'') to acquire all of the shares of capital stock of Coca-Cola Bottlers Philippines, Inc. (''CCBPI'') held by...

  • Page 43
    ... not limited to, cash discounts, funds for promotional and marketing activities, volume-based incentive programs and support for infrastructure programs. Refer to Note 1 of Notes to Consolidated Financial Statements. The aggregate deductions from revenue recorded by the Company in relation to these...

  • Page 44
    ...which are sometimes referred to as ''operating groups'' or ''groups'': Africa; East, South Asia and Pacific Rim; European Union; Latin America; North America; North Asia, Eurasia and Middle East; Bottling Investments; and Corporate. For further information regarding our operating segments, including...

  • Page 45
    ..., our Company, and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which it derives income. Such products licensed to, or distributed by, our Company or owned by Coca-Cola system bottlers account for a minimal portion of total unit case...

  • Page 46
    ...2006, the Company and Coca-Cola FEMSA entered into an agreement to jointly acquire Jugos del Valle, S.A.B. de C.V., the second largest producer of packaged juices, nectars and fruitflavored beverages in Mexico and the largest producer of such products in Brazil. Unit case volume in North America was...

  • Page 47
    ...maker of Fuze enhanced juices, teas, waters and energy drinks. The Company expects performance in North America to be weak during 2007. In North Asia, Eurasia and Middle East, unit case volume grew 11 percent in 2006 compared to 2005, led by double-digit growth in China, Russia and Turkey, partially...

  • Page 48
    ...lower than the unit case volume increase mostly due to planned inventory reductions in Nigeria. In East, South Asia and Pacific Rim, the gallon sales decline was lower than the unit case volume decline due to demand for Coca-Cola Zero in Australia and timing of gallon sales in India. In the European...

  • Page 49
    Analysis of Consolidated Statements of Income Year Ended December 31, (In millions except per share data and percentages) 2006 2005 2004 Percent Change 2006 vs. 2005 2005 vs. 2004 NET OPERATING REVENUES Cost of goods sold GROSS PROFIT GROSS PROFIT MARGIN Selling, general and administrative expenses...

  • Page 50
    ... Resources and Financial Position-Foreign Exchange.'' Price and product/geographic mix increased net operating revenues by 1 percent in 2005 compared to 2004, primarily due to price increases across the majority of the operating segments and improved product/package mix in Bottling Investments...

  • Page 51
    ...to a class action lawsuit settlement concerning price-fixing in the sale of high fructose corn syrup (''HFCS'') purchased by the Company during the years 1991 to 1995. Subsequent to the receipt of this settlement, the Company distributed approximately $62 million to certain bottlers in North America...

  • Page 52
    ... in selling and advertising expenses were primarily related to increased investments in marketing activities, including World Cup and Winter Olympics promotions in the European Union, combined with new product innovation activities and increased costs in our consolidated bottling investments as...

  • Page 53
    ... by operating segment were as follows (in millions): Year Ended December 31, 2006 2005 2004 Africa East, South Asia and Pacific Rim European Union Latin America North America North Asia, Eurasia and Middle East Bottling Investments Corporate Total $ 3 44 36 - - 17 84 1 $ - 85 85 $ - - - - 18...

  • Page 54
    ....0% Information about our operating margin on a consolidated basis and by operating segment is as follows: Year Ended December 31, 2006 2005 2004 Consolidated Africa East, South Asia and Pacific Rim European Union Latin America North America North Asia, Eurasia and Middle East Bottling Investments...

  • Page 55
    ...operating margins in North Asia, Eurasia and Middle East increased. Effective October 1, 2003, the Company and all of our bottling partners in Japan created a nationally integrated supply chain management company to centralize procurement, production and logistics operations for the entire Coca-Cola...

  • Page 56
    ... by our Company's proportionate share of increased net income from certain of the equity method investees and our proportionate share of the net income of the Multon juice joint venture in Russia. In February 2007, CCE announced that it would restructure segments of its Corporate, North America and...

  • Page 57
    ...by CCE. Our Company's share of income from equity method investments for 2005 totaled $680 million compared to $621 million in 2004, an increase of $59 million or 10 percent, primarily due to the overall improving health of the Coca-Cola bottling system in most of the world and the joint acquisition...

  • Page 58
    ... for the differences between the financial reporting and tax bases in the stock sold; • an income tax benefit primarily related to the impairment of assets and investments in our bottling operations, contract termination costs related to production capacity efficiencies and other restructuring...

  • Page 59
    ...) $ (1,496) $ (503) Purchases of property, plant and equipment accounted for the most significant cash outlays for investing activities in each of the three years ended December 31, 2006. Our Company currently estimates that purchases of property, plant and equipment in 2007 will be approximately...

  • Page 60
    ... investments in information technology) and the percentage of such totals by operating segment for 2006, 2005 and 2004 were as follows: Year Ended December 31, 2006 2005 2004 Capital expenditures (in millions) Africa East, South Asia and Pacific Rim European Union Latin America North America North...

  • Page 61
    ... they fully disclosed to our Company. Our global presence and strong capital position give us access to key financial markets around the world, enabling us to raise funds at a low effective cost. This posture, coupled with active management of our mix of short-term and long-term debt and our mix of...

  • Page 62
    .... Our Company recognizes all derivatives as either assets or liabilities at fair value in our consolidated balance sheets. Refer to Note 12 of Notes to Consolidated Financial Statements. In December 2003, we granted a $250 million standby line of credit to Coca-Cola FEMSA with normal market terms...

  • Page 63
    ... cash flows from operating activities and/or short-term borrowings. The purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including long-term contractual obligations, open purchase orders, accounts...

  • Page 64
    ... projected benefit obligation of all pension plans other than the U.S. qualified pension plans was $1,385 million, and the fair value of all other pension plan assets was $723 million. The majority of this underfunding is attributable to an international pension plan for certain non-U.S. employees...

  • Page 65
    ... Prices Inflation affects the way we operate in many markets around the world. In general, we believe that, over time, we are able to increase prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our productive capability...

  • Page 66
    ... consist of the following operating segments: Africa; Eurasia; European Union; Latin America; North America; Pacific; Bottling Investments; and Corporate. For information concerning our operating segments as of December 31, 2006, refer to Note 20 of Notes to Consolidated Financial Statements. 64

  • Page 67
    ... interest rates and commodity prices and other market risks. We do not enter into derivative financial instruments for trading purposes. As a matter of policy, all our derivative positions are used to reduce risk by hedging an underlying economic exposure. Because of the high correlation between the...

  • Page 68
    ... Balance Sheets ...Consolidated Statements of Cash Flows ...Consolidated Statements of Shareowners' Equity ...Notes to Consolidated Financial Statements ...Report of Management on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Report...

  • Page 69
    THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (In millions except per share data) 2006 2005 2004 NET OPERATING REVENUES Cost of goods sold GROSS PROFIT Selling, general and administrative expenses Other operating charges OPERATING INCOME Interest ...

  • Page 70
    THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (In millions except par value) 2006 2005 ASSETS CURRENT ASSETS Cash and cash equivalents Marketable securities Trade accounts receivable, less allowances of $63 and $72, respectively Inventories Prepaid expenses and ...

  • Page 71
    THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In millions) 2006 2005 2004 OPERATING ACTIVITIES Net income Depreciation and amortization Stock-based compensation expense Deferred income taxes Equity income or loss, net of dividends Foreign ...

  • Page 72
    THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY Year Ended December 31, (In millions except per share data) 2006 2005 2004 NUMBER OF COMMON SHARES OUTSTANDING Balance at beginning of year Stock issued to employees exercising stock options Purchases of stock for...

  • Page 73
    ..., distributors, fountain wholesalers and fountain retailers. Our Company owns or licenses more than 400 brands, including Coca-Cola, Diet Coke, Fanta and Sprite, and a variety of diet and light beverages, waters, juice and juice drinks, teas, coffees, and energy and sports drinks. Additionally, we...

  • Page 74
    ... exchange and interest rates; inability to maintain good relationships with our bottling partners; a deterioration in our bottling partners' financial condition; strikes or work stoppages (including at key manufacturing locations); increased cost of energy; increased cost, disruption of supply...

  • Page 75
    ... balance sheets. Stock-Based Compensation Our Company currently sponsors stock option plans and restricted stock award plans. Refer to Note 15. Prior to January 1, 2006, the Company accounted for these plans under the fair value recognition and measurement provisions of Statement of Financial...

  • Page 76
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Issuances of Stock by Equity Method Investees When one of our equity method investees issues additional shares to third parties, our ...

  • Page 77
    ... to certain customers for distribution rights. Additionally, our Company invests in infrastructure programs with our bottlers that are directed at strengthening our bottling system and increasing unit case volume. When facts and circumstances indicate that the carrying value of the assets may not...

  • Page 78
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) noncurrent other assets and are being amortized over the remaining periods to be directly benefited, which range from 1 to 12 years. ...

  • Page 79
    ... term of any agreement, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets...

  • Page 80
    ...purchase method. Furthermore, we recognize intangible assets apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Recent Accounting Standards and Pronouncements In February 2007, the FASB issued SFAS No. 159, ''The Fair Value Option for Financial...

  • Page 81
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. APB...

  • Page 82
    ...-Cola Enterprises Inc. CCE is a marketer, producer and distributor of bottle and can nonalcoholic beverages, operating in eight countries. As of December 31, 2006, our Company owned approximately 35 percent of the outstanding common stock of CCE. We account for our investment by the equity method...

  • Page 83
    ... our Company to major customers and purchases of bottle and can products. Marketing payments made by us directly to CCE represent support of certain marketing activities and our participation with CCE in cooperative advertising and other marketing activities to promote the sale of Company trademark...

  • Page 84
    .... These minimum average unit case 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...

  • Page 85
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: BOTTLING INVESTMENTS (Continued) 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. In ...

  • Page 86
    ...COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: BOTTLING INVESTMENTS (Continued) A summary of financial information for our equity method investees in the aggregate, other than CCE, is as follows (in millions): December 31, 2006 2005 Current assets Noncurrent assets...

  • Page 87
    ...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...

  • Page 88
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: BOTTLING INVESTMENTS (Continued) Net Receivables and Dividends from Equity Method Investees The total amount of net receivables due from equity method investees, including CCE, was approximately $857 million ...

  • Page 89
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS The following tables set forth information for intangible assets subject to amortization and for intangible assets not subject to amortization (in millions): ...

  • Page 90
    ... COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued) Goodwill by operating segment was as follows (in millions): December 31, 2006 2005 Africa East, South Asia and Pacific Rim European Union Latin America...

  • Page 91
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following (in millions): December 31, 2006 2005 Other accrued expenses Accrued marketing Trade accounts payable ...

  • Page 92
    ... notes due 2093 Other, due through 20141 Less current portion Long-term debt 1 $ 399 499 116 333 $ 399 499 116 168 $ 1,347 33 $ 1,314 $ 1,182 28 $ 1,154 The weighted-average interest rate on outstanding balances was 6% for both the years ended December 31, 2006 and 2005. The above notes...

  • Page 93
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10: COMPREHENSIVE INCOME AOCI, including our proportionate share of equity method investees' AOCI, consisted of the following (in millions): December 31, 2006 2005 Foreign currency translation adjustment ...

  • Page 94
    ...or held-to-maturity. Our marketable equity investments are categorized as trading or available-for-sale with their cost basis determined by the specific identification method. Trading securities are carried at fair value with realized and unrealized gains and losses included in net income. We record...

  • Page 95
    ... gains and losses on sales of trading and available-for-sale securities were not material. The cost of securities sold is based on the specific identification method. Fair Value of Other Financial Instruments The carrying amounts of cash and cash equivalents, receivables, accounts payable and...

  • Page 96
    ... and foreign currency exchange rates, commodity prices and other market risks. Derivative instruments used to manage fluctuations in commodity prices were not material to the consolidated financial statements for the three years ended December 31, 2006. The Company formally designates and documents...

  • Page 97
    ... in earnings in the line item other income (loss)-net of our consolidated statements of income to offset the effect of remeasurement of the monetary assets and liabilities. The Company also enters into forward exchange contracts to hedge its net investment position in certain major currencies. Under...

  • Page 98
    ... The Company estimates the fair value of its foreign currency derivatives based on quoted market prices or pricing models using current market rates. These amounts are primarily reflected in prepaid expenses and other assets in our consolidated balance sheets. Summary of AOCI For the years ended...

  • Page 99
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS (Continued) The following table summarizes activity in AOCI related to derivatives designated as cash flow hedges held by the Company during the ...

  • Page 100
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13: COMMITMENTS AND CONTINGENCIES (Continued) The Company is involved in various legal proceedings. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable ...

  • Page 101
    ... 123(R), using the modified prospective method. Based on the terms of our plans, our Company did not have a cumulative effect related to its plans. The adoption of SFAS No. 123(R) did not have a material impact on our stock-based compensation expense for the year ended December 31, 2006. Further, we...

  • Page 102
    ...(R) by our equity method investees did not have a material impact on our consolidated financial statements. During 2005, the Company changed its estimated service period for retirement-eligible participants in its plans when the terms of their stock-based compensation awards provide for accelerated...

  • Page 103
    ... COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) analyzing historic exercise behavior. Expected volatilities are based on implied volatilities from traded options on the Company's stock, historical volatility of the Company...

  • Page 104
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) A summary of stock option activity under all plans for the years ended December 31, 2006, 2005 and 2004, is as follows: Shares (In millions) Weighted-Average Exercise Price...

  • Page 105
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) Restricted Stock Award Plans Under the amended 1989 Restricted Stock Award Plan and the amended 1983 Restricted Stock Award Plan (the ''Restricted Stock Award Plans''), 40 ...

  • Page 106
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) Time-Based Restricted Stock Awards The following table summarizes information about time-based restricted stock awards: 2006 WeightedAverage Grant-Date Shares Fair Value ...

  • Page 107
    ...-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) The following table summarizes information about performance-based restricted stock awards: 2006 WeightedAverage Grant-Date Shares Fair Value 2005 WeightedAverage Grant-Date Shares...

  • Page 108
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: STOCK COMPENSATION PLANS (Continued) Of the outstanding granted performance share unit awards as of December 31, 2006, 590,964; 787,576; and 820,700 awards are for the 2004-2006, 2005-2007 and 2006-2008 ...

  • Page 109
    ...COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) Effective December 31, 2006, the Company adopted SFAS No. 158, which required the recognition in pension obligations and AOCI of actuarial gains or losses...

  • Page 110
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) Obligations and Funded Status The following table sets forth the change in benefit obligations for our benefit plans (in millions): Pension Benefits ...

  • Page 111
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) The following table sets forth the change in the fair value of plan assets for our benefit plans (in millions): Pension Benefits December 31, 2006 ...

  • Page 112
    ... Certain weighted-average assumptions used in computing net periodic benefit cost are as follows: Pension Benefits Year Ended December 31, 2006 2005 2004 Other Benefits 2006 2005 2004 Discount rate Rate of increase in compensation levels Expected long-term rate of return on plan assets 51⁄2% 51...

  • Page 113
    ... COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. A one percentage point...

  • Page 114
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the ...

  • Page 115
    ... COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued) Cash Flows Information about the expected cash flows for our pension and other postretirement benefit plans is as follows (in millions): Pension Benefits...

  • Page 116
    ... COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17: INCOME TAXES (Continued) Income tax expense (benefit) consisted of the following for the years ended December 31, 2006, 2005 and 2004 (in millions): United States State and Local International Total 2006 Current...

  • Page 117
    .... One of the provisions provides a one-time benefit related to foreign tax credits generated by equity investments in prior years. The Company recorded an income tax benefit of approximately $50 million as a result of this law change in 2004. The Jobs Creation Act also included a temporary incentive...

  • Page 118
    ... 2005 Deferred tax assets: Property, plant and equipment Trademarks and other intangible assets Equity method investments (including translation adjustment) Other liabilities Benefit plans Net operating/capital loss carryforwards Other Gross deferred tax assets Valuation allowances Total deferred...

  • Page 119
    ... costs related to production capacity efficiencies and approximately $24 million related to other restructuring costs. These charges impacted the Africa, the East, South Asia and Pacific Rim, the European Union, the North Asia, Eurasia and Middle East, the Bottling Investments and the Corporate...

  • Page 120
    ... the settlement of a class action lawsuit concerning price-fixing in the sale of HFCS purchased by the Company during the years 1991 to 1995. Subsequent to the receipt of this settlement amount, the Company distributed approximately $62 million to certain bottlers in North America. From 1991 to 1995...

  • Page 121
    ... to adjustment based on the terms and conditions of the purchase agreement. The results of operations of CCBPI will be included in our consolidated financial statements from the date of the closing. In December 2006, the Company and Coca-Cola FEMSA entered into an agreement to jointly acquire Jugos...

  • Page 122
    ... not previously owned by our Company. Our Company and Danone Waters of North America, Inc. (''DWNA'') had formed CCDA in July 2002 for the production, marketing and distribution of DWNA's bottled spring and source water business in the United States. This transaction was accounted for as a business...

  • Page 123
    ...; East, South Asia and Pacific Rim; European Union; Latin America; North America; North Asia, Eurasia and Middle East; Bottling Investments; and Corporate. Prior-year amounts have been reclassified to conform to the new operating structure described above. Segment Products and Services The business...

  • Page 124
    THE COCA-COLA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20: OPERATING SEGMENTS (Continued) Information about our Company's operations by operating segment for the years ended December 31, 2006, 2005 and 2004, is as follows (in millions): East, South Asia and Pacific ...

  • Page 125
    ... a $75 million insurance settlement related to the class action lawsuit settled in 2000. The Company subsequently donated $75 million to The Coca-Cola Foundation. Equity income-net and income (loss) before income taxes were increased by approximately $37 million for Bottling Investments as a result...

  • Page 126
    .... Prior to this sale, our Company owned approximately 49 percent of Vonpar's outstanding common stock and accounted for the investment using the equity method. On February 1, 2007, our Company entered into an agreement to purchase Fuze Beverage, LLC, maker of Fuze enhanced juices and teas in the...

  • Page 127
    ... of Directors, subject to ratification by our Company's shareowners. Ernst & Young LLP have audited and reported on the consolidated financial statements of The Coca-Cola Company and subsidiaries, management's assessment of the effectiveness of the Company's internal control over financial reporting...

  • Page 128
    ... to defined benefit pension and other postretirement plans. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Coca-Cola Company and subsidiaries' internal control over financial reporting as of December...

  • Page 129
    ... effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Coca-Cola Company and subsidiaries...

  • Page 130
    ... Our reporting period ends on the Friday closest to the last day of the quarterly calendar period. Our fiscal year ends on December 31 regardless of the day of the week on which December 31 falls. The Company's first quarter of 2006 results were impacted by one less shipping day as compared to the...

  • Page 131
    ... East, South Asia and Pacific Rim and certain bottling operations and asset impairments in North Asia, Eurasia and Middle East. Refer to Note 18. • A $100 million donation made to The Coca-Cola Foundation. • An approximate $175 million net gain related to the sale of Coca-Cola FEMSA shares. This...

  • Page 132
    ... the settlement of a class action lawsuit concerning the purchase of HFCS. Refer to Note 18. • An approximate $49 million reduction to equity income due to our proportionate share of CCE's tax expense related to repatriation of previously unremitted foreign earnings under the Jobs Creation Act and...

  • Page 133
    ... WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design...

  • Page 134
    ... Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company's public disclosures. ITEM 11. EXECUTIVE COMPENSATION The information under the headings ''Information About the Board of Directors and Corporate Governance-Director Compensation...

  • Page 135
    ... and unconsolidated subsidiaries for which financial statements are required to be filed with the SEC. The Key Executive Retirement Plan of the Company, as amended-incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-K Annual Report for the year ended December 31, 1995...

  • Page 136
    ... Stock Agreement (Performance Share Unit Agreement) for E. Neville Isdell in connection with the 1989 Restricted Stock Award Plan of the Company-incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K Current Report filed on February 17, 2006.* Compensation Deferral & Investment...

  • Page 137
    ...Amendment Number Six to the Compensation Deferral & Investment Program of the Company, dated as of January 12, 2004, effective January 1, 2004-incorporated herein by reference to Exhibit 10.9.3 of the Company's Form 10-K Annual Report for the year ended December 31, 2003.* Executive Medical Plan of...

  • Page 138
    ...between the Company and Coca-Cola Enterprises Inc. (''Coca-Cola Enterprises'') or its subsidiaries-incorporated herein by reference to Exhibit 10.24 of Coca-Cola Enterprises' Annual Report on Form 10-K for the fiscal year ended December 30, 1988 (File No. 01-09300). Deferred Compensation Plan of the...

  • Page 139
    ... Number One to the Company's Benefits Plan for Members of the Board of Directors, dated December 16, 2005-incorporated herein by reference to Exhibit 10.31.2 of the Company's Form 10-K Annual Report for the year ended December 31, 2005.* Letter Agreement, dated March 2, 2004, between the Company...

  • Page 140
    ... the years ended December 31, 2006, 2005, 2004, 2003 and 2002 List of subsidiaries of the Company as of December 31, 2006. Consent of Independent Registered Public Accounting Firm. Powers of Attorney of Officers and Directors signing this report. Rule 13a-14(a)/15d-14(a) Certification, executed by...

  • Page 141
    ..., thereunto duly authorized. THE COCA-COLA COMPANY (Registrant) By: /s/ E. NEVILLE ISDELL E. NEVILLE ISDELL Chairman, Board of Directors, Chief Executive Officer Date: February 21, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by...

  • Page 142
    ... Director February 21, 2007 SAM NUNN Director February 21, 2007 * * JAMES D. ROBINSON III Director February 21, 2007 JAMES B. WILLIAMS Director February 21, 2007 * * PETER V. UEBERROTH Director February 21, 2007 By: /s/ CAROL CROFOOT HAYES CAROL CROFOOT HAYES Attorney-in-fact February 21, 2007...

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