Coca Cola 2010 Annual Report Download - page 148

Other Nonoperating Items
Equity Income (Loss) — Net
In 2010, the Company recorded a net charge of $66 million in equity income (loss) — net. This net charge primarily
represents the Company’s proportionate share of unusual tax charges, asset impairments, restructuring charges and
transaction costs recorded by equity method investees. The unusual tax charges primarily relate to an additional tax
liability recorded by Coca-Cola Hellenic Bottling Company S.A. as a result of the Extraordinary Social Contribution Tax
levied by the Greek government. The transaction costs represent our proportionate share of certain costs incurred by
CCE in connection with our acquisition of CCE’s North American business and the sale of our Norwegian and Swedish
bottling operations to New CCE. Refer to Note 2 for additional information related to these transactions. These
charges were partially offset by our proportionate share of a foreign currency remeasurement gain recorded by an
equity method investee. The components of the net charge were individually insignificant. Refer to Note 19 for the
impact these charges had on our operating segments.
During 2009, the Company recorded charges of $86 million in equity income (loss) — net. These charges primarily
represent the Company’s proportionate share of asset impairments and restructuring charges recorded by equity method
investees. Refer to Note 19 for the impact these charges had on our operating segments.
In 2008, the Company recognized a net charge to equity income (loss) — net of $1,686 million, primarily due to our
proportionate share of $7.6 billion of pretax charges ($4.9 billion after-tax) recorded by CCE due to impairments of its
North American franchise rights in the second quarter and fourth quarter of 2008. The Company’s proportionate share
of these charges was $1.6 billion. The decline in the estimated fair value of CCE’s North American franchise rights
during the second quarter was the result of several factors including, but not limited to, (1) challenging macroeconomic
conditions which contributed to lower than anticipated volume for higher-margin packages and certain higher-margin
beverage categories; (2) increases in raw material costs, including significant increases in aluminum, high fructose corn
syrup and resin; and (3) increased delivery costs as a result of higher fuel costs. The decline in the estimated fair value
of CCE’s North American franchise rights during the fourth quarter was primarily driven by financial market conditions
as of the measurement date that caused (1) a dramatic increase in market debt rates, which impacted the capital
charge, and (2) a significant decline in the funded status of CCE’s defined benefit pension plans. In addition, the
market price of CCE’s common stock declined by more than 50 percent between the date of CCE’s interim impairment
test (May 23, 2008) and the date of CCE’s annual impairment test (October 24, 2008). The net charge to equity income
(loss) — net also included a net charge of $60 million, primarily due to our proportionate share of restructuring charges
recorded by our equity method investees. Refer to Note 19 for the impact these charges had on our operating
segments.
Other Income (Loss) — Net
In 2010, the Company recognized gains of $4,978 million related to the remeasurement of our equity investment in
CCE to fair value, $597 million due to the sale of all of our ownership interests in our Norwegian and Swedish bottling
operations to New CCE and $23 million as a result of the sale of 50 percent of our investment in Le˜ ao Junior, which
was a wholly-owned subsidiary of the Company prior to this transaction. Refer to Note 2 for additional information
related to our acquisition of CCE’s North American business and the sale of all of our ownership interests in our
Norwegian and Swedish bottling operations to New CCE. The gain on the Le˜ ao Junior transaction consisted of two
parts: (1) the difference between the consideration received and 50 percent of the carrying value of our investment and
(2) the fair value adjustment for our remaining 50 percent ownership. We have accounted for our remaining investment
in Le˜ ao Junior under the equity method of accounting since the close of this transaction. The gains related to these
transactions were recorded in other income (loss) — net and impacted our Corporate operating segment. Refer to
Note 16 for fair value disclosures related to these transactions.
During 2010, in addition to the transaction gains, the Company recorded charges of $265 million related to preexisting
relationships with CCE and $103 million due to the remeasurement of our Venezuelan subsidiary’s net assets. The
charges related to preexisting relationships with CCE were primarily due to the write-off of our investment in
infrastructure programs with CCE. Refer to Note 6 for additional information related to our preexisting relationships
with CCE. The remeasurement loss related to our Venezuelan subsidiary’s net assets was due to the Venezuelan
government announcing a currency devaluation and Venezuela becoming a hyperinflationary economy subsequent to
December 31, 2009. As a result, our local subsidiary was required to use the U.S. dollar as its functional currency, and
146