Coca Cola 2007 Annual Report Download - page 55

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.
Equity Income—Net
Our Company’s proportionate share of income from equity method investments for 2007 totaled $668 million,
compared to $102 million in 2006, an increase of $566 million. The increase in equity income—net reflected the
impact of impairment charges recorded by CCE in 2006. Refer to the heading “Critical Accounting Policies and
Estimates—Goodwill, Trademarks and Other Intangible Assets.” Equity income—net also increased due to our
proportionate share of increased net income from certain of our equity method investees as a result of the overall
improving health of the Coca-Cola bottling system in most of the world, our proportionate share of tax benefits
recorded by CCE and the favorable impact of foreign exchange fluctuations. The increase in equity income—net was
partially offset by our proportionate share of restructuring costs recorded by CCE in 2007, the write-off of assets
related to excess bottles and cases at CCBPI in 2007, the sale of our ownership interest in Vonpar Refrescos S.A.
(“Vonpar”), a bottler headquartered in Brazil, in January 2007, and the sale of a portion of our investment in Coca-Cola
Amatil in September 2007. 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 positions, or 5 percent of its total workforce. CCE expects this restructuring will result in a charge
of approximately $300 million, with the majority to be recognized in 2007 and 2008. The Company’s equity income in
2008 will reflect our proportionate share of the restructuring charges recorded by CCE. In addition, impairment charges
related to investments by Coca-Cola Amatil in bottling operations in South Korea unfavorably impacted our equity
income—net by approximately $62 million in 2007. The reduction in the Company’s ownership position in Coca-Cola
FEMSA in November 2006, as well as 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, also impacted our equity income—net. Our
ownership interest in Coca-Cola FEMSA was reduced from approximately 40 percent to approximately 32 percent, and
our Company’s interest in Coca-Cola Icecek decreased from approximately 36 percent to approximately 20 percent. In
2007, the Company acquired a 50 percent interest in Jugos del Valle and a 34 percent interest in Tokyo Coca-Cola
Bottling Company (“Tokyo CCBC”) which are accounted for under the equity method. The Company expects that
these investments in Jugos del Valle and Tokyo CCBC will favorably impact our future 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 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 reduced our
53