Coca Cola 2006 Annual Report Download - page 56

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• In 2004, operating income in Corporate increased $75 million due to the receipt of an insurance
settlement related to the class action lawsuit which was settled in 2000.
• In 2004, operating income in Corporate decreased $75 million due to a donation to The Coca-Cola
Foundation.
Interest Income and Interest Expense
We monitor our mix of fixed-rate and variable-rate debt as well as our mix of short-term debt versus
long-term debt. From time to time we enter into interest rate swap agreements to manage our mix of fixed-rate
and variable-rate debt.
In 2006, interest income decreased by $42 million compared to 2005, primarily due to lower average
short-term investment balances, partially offset by higher average interest rates. Interest expense in 2006
decreased by $20 million compared to 2005. This decrease is primarily the result of lower average balances on
commercial paper borrowings, partially offset by higher average interest rates. We expect 2007 net interest
expense to increase due to forecasted lower cash balances and higher debt balances.
In 2005, interest income increased by $78 million compared to 2004, primarily due to higher average
short-term investment balances and higher average interest rates on U.S. dollar denominated deposits. Interest
expense in 2005 increased by $44 million compared to 2004, primarily due to higher average interest rates on
commercial paper borrowings in the United States, partially offset by lower interest expense at CCEAG due to
the repayment of current maturities of long-term debt in 2005.
Equity Income—Net
Our Company’s share of income from equity method investments for 2006 totaled $102 million, compared
to $680 million in 2005, a decrease of $578 million. Equity income in 2006 was reduced by approximately
$602 million resulting from the impact of our proportionate share of an impairment charge recorded by CCE.
CCE recorded a $2.9 billion pretax ($1.8 billion after tax) impairment of its North American franchise rights.
The decline in the estimated fair value of CCE’s North American franchise rights was the result of several
factors, including but not limited to (1) CCE’s revised outlook on 2007 raw material costs driven by significant
increases in aluminum and HFCS; (2) a challenging marketplace environment with increased pricing pressures
in several high-growth beverage categories; and (3) increased interest rates contributing to a higher discount rate
and corresponding capital charge. Our 2006 equity income—net also reflected a net decrease of approximately
$37 million primarily related to other impairment and restructuring charges recorded by CCE and certain other
equity method investees, partially offset by approximately $33 million related to our proportionate share of
favorable changes in certain of CCE’s state and Canadian federal and provincial tax rates. In addition, our 2006
equity income was slightly impacted by the Company’s sale of shares representing 8 percent of the capital stock
of Coca-Cola FEMSA. The Company sold these shares to Fomento Economico Mexicano, S.A.B. de C.V.
(‘‘FEMSA’’), the major shareowner of Coca-Cola FEMSA, in November 2006. As a result of this sale, our
ownership interest in Coca-Cola FEMSA was reduced from approximately 40 percent to approximately
32 percent. The decrease in 2006 equity income was also the result of the sale of a portion of our investment in
Coca-Cola Icecek A.S. (‘‘Coca-Cola Icecek’’) in an initial public offering during the second quarter of 2006. As a
result of this public offering, our Company’s interest in Coca-Cola Icecek decreased from approximately
36 percent to approximately 20 percent. These reductions in ownership of Coca-Cola FEMSA and Coca-Cola
Icecek will reduce our future equity income related to these equity method investees. Refer to Note 3 of Notes
to Consolidated Financial Statements. The decrease in equity income for 2006 was partially offset 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
European operations. As a part of the restructuring, CCE expects a net job reduction of approximately 3,500
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