Coca Cola 2006 Annual Report Download - page 51

Information about our net operating revenues by operating segment as a percentage of Company net
operating revenues is as follows:
Year Ended December 31, 2006 2005 2004
Africa 4.6% 4.8% 4.4%
East, South Asia and Pacific Rim 3.3 3.1 3.2
European Union 14.6 17.8 18.0
Latin America 10.3 8.9 8.2
North America 29.1 28.9 29.5
North Asia, Eurasia and Middle East 16.5 17.7 17.9
Bottling Investments 21.2 18.4 18.3
Corporate 0.4 0.4 0.5
100.0% 100.0% 100.0%
The percentage contribution of each operating segment has changed due to net operating revenues in
certain segments growing at a faster rate compared to the other operating segments, the impact of foreign
currency fluctuations; and the acquisitions of CCCIL and TJC, and the consolidation of Brucephil under
Interpretation No. 46(R), which impacted Bottling Investments. The acquisition of Bremer during the third
quarter of 2005 also increased net operating revenues in 2006, reflecting the impact of full-year net operating
revenues in 2006 for Bremer compared to a partial year in 2005.
The size and timing of structural changes, including acquisitions or dispositions of bottling and canning
operations, do not occur consistently from period to period. As a result, anticipating the impact of such events
on future increases or decreases in net operating revenues (and other financial statement line items) usually is
not possible. However, we expect to continue to buy and sell bottling interests in limited circumstances and, as a
result, structural changes will continue to affect our consolidated financial statements in future periods.
Gross Profit
Our gross profit margin increased to 66.1 percent in 2006 from 64.5 percent in 2005. Our gross margin was
favorably impacted by the change in the business model in Spain, as discussed above. Other structural changes,
which included the consolidation of Brucephil under Interpretation No. 46(R) in 2006, the acquisitions of
CCCIL and TJC in 2006, and the acquisition of Bremer in 2005, unfavorably impacted our gross profit margin.
Generally, bottling and finished product operations produce higher net operating revenues but lower gross profit
margins compared to concentrate and syrup operations. Our gross margin in 2006 was also impacted favorably
by price increases, partially offset by increases in the cost of raw materials and freight, primarily in North
America, and by an unfavorable product mix, primarily in Japan. Gross profit margin in 2005 was favorably
impacted by the receipt of approximately $109 million in proceeds related 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. From 1991 to 1995, the Company purchased HFCS on behalf
of those bottlers. Therefore, those bottlers ultimately were entitled to a portion of the proceeds. The Company’s
portion of the settlement was approximately $47 million, which was recorded as a reduction of cost of goods sold
and impacted Corporate. Refer to Note 18 of Notes to Consolidated Financial Statements.
In 2007, the Company expects the cost of raw materials to increase, primarily in North America. We will
attempt to mitigate the overall impact on our business through appropriate pricing and other strategies.
Our gross profit margin decreased to 64.5 percent in 2005 from 64.7 percent in 2004, primarily due to higher
raw material and freight costs driven by rising oil prices. This decrease was partially offset by the receipt of net
settlement proceeds of approximately $47 million, as discussed above. Our gross margin was also impacted by
the consolidation of certain bottling operations under Interpretation No. 46(R) as of April 2, 2004. Refer to
Note 1 of Notes to Consolidated Financial Statements.
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