Coca Cola 2008 Annual Report Download - page 66

Cash Flows from Financing Activities
Our cash flows used in financing activities were as follows (in millions):
Year Ended December 31, 2008 2007 2006
Cash flows provided by (used in) financing activities:
Issuances of debt $ 4,337 $ 9,979 $ 617
Payments of debt (4,308) (5,638) (2,021)
Issuances of stock 586 1,619 148
Purchases of stock for treasury (1,079) (1,838) (2,416)
Dividends (3,521) (3,149) (2,911)
Net cash provided by (used in) financing activities $ (3,985) $ 973 $ (6,583)
Debt Financing
Our Company maintains debt levels we consider prudent based on our cash flows, interest coverage ratio
and percentage of debt to capital. We use debt financing to lower our overall cost of capital, which increases our
return on shareowners’ equity. This exposes us to adverse changes in interest rates. Our interest expense may
also be affected by our credit ratings.
As of December 31, 2008, our long-term debt was rated ‘‘A+’’ by Standard & Poor’s and ‘‘Aa3’’ by Moody’s,
and our commercial paper program was rated ‘‘A-1’’ and ‘‘P-1’’ by Standard & Poor’s and Moody’s, respectively.
In assessing our credit strength, both Standard & Poor’s and Moody’s consider our capital structure (including
the amount and maturity dates of our debt) and financial policies as well as the aggregated balance sheet and
other financial information for the Company and certain bottlers, including CCE and Coca-Cola Hellenic. While
the Company has no legal obligation for the debt of these bottlers, the rating agencies believe the strategic
importance of the bottlers to the Company’s business model provides the Company with an incentive to keep
these bottlers viable. It is our expectation that the credit rating agencies will continue using this methodology. If
our credit ratings were to be downgraded as a result of changes in our capital structure, our major bottlers’
financial performance, changes in the credit rating agencies’ methodology in assessing our credit strength or for
any other reason, our cost of borrowing could increase. Additionally, if certain bottlers’ credit ratings were to
decline, the Company’s share of equity income could be reduced as a result of the potential increase in interest
expense for these bottlers.
In October 2008, Standard & Poor’s affirmed the Company’s A+ long-term debt rating, but revised its
outlook from stable to negative. Moody’s rating of Aa3 for the Company’s long-term debt remains on negative
outlook, where it has been since 2001. The Company does not believe that a downgrade by either agency would
have a material adverse effect on the cost of borrowing.
We monitor our interest coverage ratio and, as indicated above, the rating agencies consider our ratio in
assessing our credit ratings. However, the rating agencies aggregate financial data for certain bottlers along with
our Company when assessing our debt rating. As such, the key measure to rating agencies is the aggregate
interest coverage ratio of the Company and certain bottlers. Both Standard & Poor’s and Moody’s employ
different aggregation methodologies and have different thresholds for the aggregate interest coverage ratio.
These thresholds are not necessarily permanent, nor are they fully disclosed to our Company.
Our global presence and strong capital position give us access to key financial markets around the world,
enabling us to raise funds at a low effective cost. This posture, coupled with active management of our mix of
short-term and long-term debt and our mix of fixed-rate and variable-rate debt, results in a lower overall cost of
borrowing. Our debt management policies, in conjunction with our share repurchase programs and investment
activity, can result in current liabilities exceeding current assets.
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