Coca Cola 2006 Annual Report Download - page 84

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: BOTTLING INVESTMENTS (Continued)
CCE’s corporate headquarters. These charges were partially offset by an approximate $37 million increase to
equity income in the second quarter of 2005 resulting from CCE’s HFCS lawsuit settlement proceeds and
changes in certain of CCE’s state and provincial tax rates. Refer to Note 18.
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 approximately $58 million and approximately
$161 million for 2004 and 2003, respectively. These amounts are included in the line item marketing payments
made by us directly to CCE in the table above.
In the second quarter of 2004, our Company 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 prorated amount of
$42 million for 2004. The prorated amount was determined based on the agreement date. These amounts are
included in the line item marketing 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 Company trademarked 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 volume throughout the
economic life of the equipment and other specified information.
CCE must achieve minimum average unit case volume for a 12-year period following the placement of
equipment. 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, 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
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