Coca Cola 2008 Annual Report Download - page 59

• In 2007, operating income and operating margin for Latin America, North America and Pacific reflected
the impact of increases in the cost of raw materials primarily in the finished goods businesses.
• In 2007, operating income and operating margin for Bottling Investments reflected the impact of
acquisitions and the consolidation of certain bottling operations. Refer to the heading ‘‘Gross Profit,’’
above.
• In 2006, operating income was reduced by approximately $3 million for Eurasia and Africa, $36 million
for Europe, $62 million for Pacific, $87 million for Bottling Investments and $1 million for Corporate
primarily due to contract termination fees related to production capacity efficiencies, asset impairments
and other restructuring costs. Refer to the heading ‘‘Other Operating Charges,’’ above.
• In 2006, operating income was reduced by $100 million for Corporate as a result of a donation made to
The Coca-Cola Foundation.
Interest Income and Interest Expense
Our Company monitors our mix of fixed-rate and variable-rate debt as well as our mix of short-term debt
versus long-term debt. This monitoring includes a review of business and other financial risks. From time to
time, we enter into interest rate swap agreements and other related instruments to manage our mix of fixed-rate
and variable-rate debt. Refer to Note 11 of Notes to Consolidated Financial Statements.
Interest income increased by $97 million in 2008 compared to 2007. This increase was primarily due to
higher average short-term investment balances, partially offset by lower interest rates.
Interest expense decreased by $18 million in 2008 compared to 2007. This decrease was primarily
attributable to lower interest rates on short-term debt and a net benefit of approximately $8 million related to
the reclassification of gains and losses on interest rate locks from AOCI to interest expense. This net benefit
consisted of approximately $17 million of previously unrecognized gains related to cash flow hedges that were
discontinued during the second quarter of 2008, as it was no longer probable that we would issue the long-term
debt for which these hedges were designated, which was partially offset by approximately $9 million of losses
related to the portion of cash flow hedges that were deemed to be ineffective during 2008. The favorable impact
of aforementioned items was partially offset by the impact of higher average short-term and long-term debt
balances. We expect net interest expense to increase in 2009 due to forecasted higher debt balances. Refer to the
heading ‘‘Liquidity, Capital Resources and Financial Position.’’
In 2007, interest income increased by $43 million compared to 2006, primarily due to higher average
short-term investment balances, partially offset by a decline in interest rates.
Interest expense in 2007 increased by $236 million compared to 2006, primarily due to issuance of
$1,750 million of notes due November 15, 2017, and higher average balances on commercial paper borrowings in
the U.S., partially offset by a decline in interest rates. The net proceeds of approximately $1,747 million from
this long-term debt issuance and the increase in commercial paper borrowings were primarily used to finance
2007 acquisitions.
Equity Income (Loss)—Net
Equity income (loss)—net represents our Company’s proportionate share of net income or loss from each
of our equity method investments. In 2008, equity income (loss)—net was an equity loss of approximately
$874 million compared to equity income of approximately $668 million in 2007, a decrease of $1,542 million.
This decrease was primarily attributable to impairment charges recorded by CCE during 2008, of which our
Company’s proportionate share was approximately $1.6 billion. Refer to the heading ‘‘Critical Accounting
Policies and Estimates—Goodwill, Trademarks and Other Intangible Assets’’ and Note 3 of Notes to
Consolidated Financial Statements. In addition to our proportionate share of the charges discussed above, the
Company recorded charges of approximately $60 million to equity income (loss)—net, primarily related to our
57