Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS AND DIVESTITURES

v2.4.0.6
ACQUISITIONS AND DIVESTITURES
 12 Months Ended
Dec. 31, 2011
Acquisitions and Divestitures Disclosure [Abstract] [  
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS AND DIVESTITURES
Acquisitions
During 2011, cash payments related to the Company's acquisition and investment activities totaled $977 million. These payments were primarily related to the acquisitions of Great Plains Coca-Cola Bottling Company ("Great Plains") and Honest Tea, Inc. ("Honest Tea"), and an additional investment in Coca-Cola Central Japan Company ("Central Japan"). In addition, the Company's acquisition and investment activities during 2011 included immaterial cash payments for the finalization of working capital adjustments related to our acquisition of CCE's North American business. Refer to our discussion of this transaction below.
The Company acquired Great Plains on December 30, 2011. The total purchase price for the Great Plains acquisition was approximately $360 million, of which $321 million was paid at closing. The purchase price was primarily allocated to property, plant and equipment, identifiable intangible assets and goodwill. The Company anticipates finalizing our purchase accounting for the Great Plains acquisition no later than the end of 2012, upon the finalization of appraisals primarily related to fixed assets and intangible assets.
During 2011, the Company also acquired the remaining ownership interest of Honest Tea not already owned by the Company. Prior to the Company acquiring the remaining ownership interest of Honest Tea, we accounted for our investment under the equity method of accounting. We remeasured our equity interest in Honest Tea to fair value upon the close of the transaction. The resulting gain on the remeasurement was not significant to our consolidated financial statements. The Company finalized our purchase accounting for Honest Tea during the fourth quarter of 2011.
In December 2011, the Company acquired an additional minority interest in Central Japan. As a result, the Company began to account for our investment in Central Japan under the equity method of accounting beginning in December 2011.
During 2010, cash payments related to the Company's acquisition and investment activities totaled $2,511 million. These payments were primarily related to the Company's acquisition of CCE's North American business and the acquisition of certain distribution rights from Dr Pepper Snapple Group, Inc. ("DPS"). See the relevant sections below for further discussion of these transactions.
In addition to the transactions listed in the preceding paragraph, our acquisition and investment activities during 2010 also included the acquisition of OAO Nidan Juices ("Nidan"), a Russian juice company, and an additional investment in Fresh Trading Ltd. ("innocent"). Total consideration for the Nidan acquisition was approximately $276 million, which was primarily allocated to property, plant and equipment, identifiable intangible assets and goodwill. The Company finalized our purchase accounting for Nidan in the third quarter of 2011. Under the terms of the agreement for our additional investment in innocent, innocent's founders retain operational control of the business, and we will continue to account for our investment under the equity method of accounting. Additionally, we have a series of outstanding put and call options with the existing shareowners of innocent for the Company to potentially acquire the remaining shares not already owned by the Company. The put and call options are exercisable in stages between 2013 and 2014.
During 2009, cash payments related to the Company's acquisition and investment activities totaled $300 million. None of the acquisitions or investments was individually significant. Included in these investment activities was the acquisition of a minority interest in innocent.
Acquisition of Coca-Cola Enterprises Inc.'s North American Business
Pursuant to the terms of the business separation and merger agreement entered into on February 25, 2010, as amended (the "merger agreement"), on October 2, 2010 (the "acquisition date"), we acquired CCE's North American business. We believe this acquisition will result in an evolved franchise system that will enable us to better serve the unique needs of the North American market. The creation of a unified operating system will strategically position us to better market and distribute our nonalcoholic beverage brands in North America. Refer to Note 18 for information related to the Company's integration initiative associated with this acquisition.
Under the terms of the merger agreement, the Company acquired the 67 percent of CCE's North American business that was not already owned by the Company for consideration that included: (1) the Company's 33 percent indirect ownership interest in CCE's European operations; (2) cash consideration; and (3) replacement awards issued to certain current and former employees of CCE's North American and corporate operations. At closing, CCE shareowners other than the Company exchanged their CCE common stock for common stock in a new entity, which was renamed Coca-Cola Enterprises, Inc. (which is referred to herein as "New CCE") and which continues to hold the European operations held by CCE prior to the acquisition. At closing, New CCE became 100 percent owned by shareowners that held shares of common stock of CCE immediately prior to the closing, other than the Company. As a result of this transaction, the Company does not own any interest in New CCE.
As of October 1, 2010, our Company owned 33 percent of the outstanding common stock of CCE. Based on the closing price of CCE's common stock on the last day of trading prior to the acquisition date, the fair value of our investment in CCE was $5,373 million, which reflected the fair value of our ownership in both CCE's North American business and European operations. We remeasured our equity interest in CCE to fair value upon the close of the transaction. As a result, we recognized a gain of $4,978 million, which was classified in the line item other income (loss) — net in our consolidated statement of income. The gain included a $137 million reclassification adjustment related to foreign currency translation gains recognized upon the disposal of our indirect investment in CCE's European operations. The Company relinquished its indirect ownership interest in CCE's European operations to New CCE as part of the consideration to acquire the 67 percent of CCE's North American business that was not already owned by the Company.
Although the CCE transaction was structured to be primarily cashless, under the terms of the merger agreement, we agreed to assume $8.9 billion of CCE debt. In the event the actual CCE debt on the acquisition date was less than the agreed amount, we agreed to make a cash payment to New CCE for the difference. As of the acquisition date, the debt assumed by the Company was $7.9 billion. The total cash consideration paid to New CCE as part of the transaction was $1.4 billion, which included $1.0 billion related to the debt shortfall. In addition, the cash consideration paid to New CCE included amounts related to working capital adjustments which were finalized in 2011.
Under the terms of the merger agreement, the Company replaced share-based payment awards for certain current and former employees of CCE's North American and corporate operations. The following table provides a list of all replacement awards and the estimated fair value of those awards issued in conjunction with our acquisition of CCE's North American business (in millions):
 
Number of
Shares, Options
and Units Issued

 
Fair Value

Performance share units
1.6

 
$
192

Stock options
4.8

 
109

Restricted share units
0.8

 
50

Restricted stock
0.2

 
12

Total
7.4

 
$
363


The portion of the fair value of the replacement awards related to services provided prior to the business combination was included in the total purchase price. The portion of the fair value associated with future service is recognized as expense over the future service period, which varies by award. The Company determined that $237 million ($154 million net of tax) of the replacement awards was related to services rendered prior to the business combination.
Each CCE performance share unit ("PSU") replaced by the Company was converted at 100 percent of target into an adjusted PSU of The Coca-Cola Company, determined by multiplying the number of shares of each PSU by an exchange ratio (the "closing exchange ratio") equal to the closing price of a share of CCE common stock on the last day of trading prior to the acquisition date divided by the closing price of the Company's common stock on the same day. At the time we issued these replacement PSUs, they were subject to the same vesting conditions and other terms applicable to the CCE PSUs immediately prior to the closing date. However, in the fourth quarter of 2010, the Company modified primarily all of these PSUs to eliminate the remaining holding period, which resulted in $74 million of accelerated expense. Refer to Note 12 for additional information.
Each CCE stock option replaced by the Company was converted into an adjusted stock option of The Coca-Cola Company to acquire a number of shares of Coca-Cola common stock, determined by multiplying the number of shares of CCE common stock subject to the CCE stock option by the closing exchange ratio. The exercise price per share of the replacement awards was equal to the per share exercise price of the CCE stock option divided by the closing exchange ratio. All of the replacement stock options are subject to the same vesting conditions and other terms applicable to the CCE stock options immediately prior to the closing date. Refer to Note 12 for additional information.
Each CCE restricted share unit ("RSU") replaced by the Company was converted into an adjusted RSU of The Coca-Cola Company, determined by multiplying the number of shares of each RSU by the closing exchange ratio. All of the replacement RSUs are subject to the same vesting conditions and other terms applicable to the CCE RSUs immediately prior to the closing date. Refer to Note 12 for additional information.
Each share of CCE restricted stock replaced by the Company was converted into an adjusted share of restricted stock of The Coca-Cola Company, determined by multiplying the number of shares of CCE restricted stock by the closing exchange ratio. All of the replacement shares of restricted stock are subject to the same vesting conditions and other terms applicable to the CCE shares of restricted stock immediately prior to the closing date. Refer to Note 12 for additional information.
The following table reconciles the total purchase price of the Company's acquisition of CCE's North American business, including adjustments recorded as part of the Company's purchase accounting (in millions):
 
October 2,
2010

Fair value of our equity investment in CCE1
$
5,373

Cash consideration2
1,368

Fair value of share-based payment awards3
154

Total purchase price
$
6,895

1 
Represents the fair value of our 33 percent ownership interest in the outstanding common stock of CCE based on the closing price of CCE's common stock on the last day the New York Stock Exchange was open prior to the acquisition date. The fair value reflects our indirect ownership interest in both CCE's North American business and European operations.
2 
Primarily related to the debt shortfall and working capital adjustments.
3 
Represents the portion of the total fair value of the replacement awards associated with services rendered prior to the business combination, net of tax.
The following table presents the final allocation of the purchase price by major class of assets and liabilities (in millions) as of the acquisition date, as well as adjustments made during 2011 (referred to as "measurement period adjustments"):
 
Amounts
Recognized as of
Acquisition Date1

 
Measurement
Period
Adjustments2

 
Amounts
Recognized as of
Acquisition Date
(as Adjusted)

Cash and cash equivalents
$
49

 
$
—

 
$
49

Marketable securities
7

 
—

 
7

Trade accounts receivable3
1,194

 
—

 
1,194

Inventories
696

 
—

 
696

Other current assets4
744

 
(5
)
 
739

Property, plant and equipment4
5,385

 
(682
)
 
4,703

Bottlers' franchise rights with indefinite lives4,5
5,100

 
100

 
5,200

Other intangible assets4,6
1,032

 
45

 
1,077

Other noncurrent assets
261

 
—

 
261

Total identifiable assets acquired
$
14,468

 
$
(542
)
 
$
13,926

Accounts payable and accrued expenses4
1,826

 
8

 
1,834

Loans and notes payable7
266

 
—

 
266

Long-term debt7
9,345

 
—

 
9,345

Pension and other postretirement liabilities8
1,313

 
—

 
1,313

Other noncurrent liabilities4,9
2,603

 
(293
)
 
2,310

Total liabilities assumed
$
15,353

 
$
(285
)
 
$
15,068

Net liabilities assumed
(885
)
 
(257
)
 
(1,142
)
Goodwill4,10
7,746

 
304

 
8,050

 
$
6,861

 
$
47

 
$
6,908

Less: Noncontrolling interests
13

 
—

 
13

Net assets acquired
$
6,848

 
$
47

 
$
6,895

1 
As previously reported in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
2 
The measurement period adjustments did not have a significant impact on our consolidated statements of income for the years ended December 31, 2011, and December 31, 2010. In addition, these adjustments did not have a significant impact on our consolidated balance sheet as of December 31, 2010. Therefore, we have not retrospectively adjusted the comparative 2010 financial information.
3 
The gross amount due under receivables we acquired was $1,226 million, of which $32 million was expected to be uncollectible.
4 
The measurement period adjustments were due to the finalization of appraisals related to intangible assets and certain fixed assets and resulted in the following: a decrease to property, plant and equipment; an increase to franchise rights; and a decrease to noncurrent deferred tax liabilities. The net impact of the measurement period adjustments and the payments made to New CCE that related to the finalization of working capital adjustments resulted in a net increase to goodwill.
5 
Represents reacquired franchise rights that had previously provided CCE with exclusive and perpetual rights to manufacture and/or distribute certain beverages in specified territories. These rights have been determined to have indefinite lives and are not amortized.
6 
Other intangible assets primarily relate to franchise rights that had previously provided CCE with exclusive rights to manufacture and/or distribute certain beverages in specified territories for a finite period of time, and therefore have been classified as definite-lived intangible assets. The estimated fair value of franchise rights with definite lives was $650 million as of the acquisition date. These franchise rights will be amortized over a weighted-average life of approximately eight years, which is equal to the weighted-average remaining contractual term of the franchise rights. Other intangible assets also include $380 million of customer relationships, which will be amortized over approximately 20 years.
7 
Refer to Note 10 for additional information.
8 
The assumed pension and other postretirement liabilities consisted of benefit obligations of $3,544 million and plan assets of $2,231 million. Refer to Note 13 for additional information related to pension and other postretirement plans assumed from CCE.
9 
Primarily relates to deferred tax liabilities recorded on franchise rights. Refer to Note 14.
10 
The goodwill recognized as part of this acquisition has been assigned to the North America operating segment. $170 million of this goodwill is tax deductible. The goodwill recognized in conjunction with our acquisition of CCE's North American business is primarily related to synergistic value created from having a unified operating system that will strategically position us to better market and distribute our nonalcoholic beverage brands in North America. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.
In a concurrent transaction, we agreed to sell all of our ownership interests in Coca-Cola Drikker AS (the "Norwegian bottling operation") and Coca-Cola Drycker Sverige AB (the "Swedish bottling operation") to New CCE at fair value. The divestiture of our Norwegian and Swedish bottling operations also closed on October 2, 2010. See further discussion of this divestiture below. In addition, we granted New CCE the right to negotiate the acquisition of our majority interest in our German bottling operation, Coca-Cola Erfrischungsgetraenke AG ("CCEAG"), 18 to 39 months after the date of the merger agreement, at the then current fair value and subject to terms and conditions as mutually agreed.
The Company incurred $84 million of transaction costs in connection with our acquisition of CCE's North American business and the sale of our ownership interests in our Norwegian and Swedish bottling operations to New CCE since the transaction commenced. These costs were included in the line item other operating charges in our consolidated statements of income. Refer to Note 17 for additional information. In addition, the Company recorded charges of $265 million related to preexisting relationships during 2010. These charges were primarily related to the write-off of our investment in infrastructure programs with CCE. Our investment in these infrastructure programs with CCE did not meet the criteria to be recognized as an asset subsequent to the acquisition. In 2011, the Company recorded an additional charge of $1 million associated with these preexisting relationships. These charges were included in the line item other income (loss) — net in our consolidated statements of income. Refer to Note 6 for additional information.
The CCE North American business contributed net revenues of approximately $3,637 million and net losses of approximately $122 million from October 2, 2010 through December 31, 2010. The following table presents unaudited consolidated pro forma information as if our acquisition of CCE's North American business and the divestiture of our Norwegian and Swedish bottling operations had occurred on January 1, 2009 (in millions):
 
Unaudited  
 
Year Ended December 31,
2010

 
2009

 
Net operating revenues1
$
43,106

 
$
41,635

 
Net income attributable to shareowners of The Coca-Cola Company2
6,839

 
11,767

3 
1 
The deconsolidation of our Norwegian and Swedish bottling operations resulted in a decrease to net operating revenues of approximately $433 million and $542 million in 2010 and 2009, respectively.
2 
The deconsolidation of our Norwegian and Swedish bottling operations resulted in a decrease to net income attributable to shareowners of The Coca-Cola Company of approximately $387 million in 2010 and an increase of $294 million in 2009.
3 
Includes the gain related to the remeasurement of our equity interest in CCE to fair value upon the close of the transaction, the gain on the sale of our Norwegian and Swedish bottling operations, transaction costs and charges related to preexisting relationships. The 2010 pro forma information has been adjusted to exclude the impact of these items in order to present the pro forma information as if the transactions had occurred on January 1, 2009.
The unaudited pro forma financial information presented above does not purport to represent what the actual results of our operations would have been if our acquisition of CCE's North American business and the divestiture of our Norwegian and Swedish bottling operations had occurred on January 1, 2009, nor is it indicative of the future operating results of The Coca-Cola Company. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated cost savings from operating synergies.
The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments that are (1) directly related to the business combination; (2) factually supportable; and (3) expected to have a continuing impact. These adjustments include, but are not limited to, the application of our accounting policies; elimination of related party transactions and equity income; and depreciation and amortization related to fair value adjustments to property, plant and equipment and intangible assets.
Dr Pepper Snapple Group, Inc. Agreements
In contemplation of the closing of our acquisition of CCE's North American business, we reached an agreement with DPS to distribute certain DPS brands in territories where DPS brands had been distributed by CCE prior to the CCE transaction. Under the terms of our agreement with DPS, and concurrently with the closing of the CCE transaction, we entered into license agreements with DPS to distribute Dr Pepper trademark brands in the U.S., Canada Dry in the Northeast U.S., and Canada Dry and C' Plus in Canada, and we made a net one-time cash payment of $715 million to DPS. Under the license agreements, the Company agreed to meet certain performance obligations in order to distribute DPS products in retail and foodservice accounts and vending machines. The license agreements have initial terms of 20 years, with automatic 20-year renewal periods unless otherwise terminated under the terms of the agreements. The license agreements replaced agreements between DPS and CCE existing immediately prior to the completion of the CCE transaction. In addition, we entered into an agreement with DPS to
include Dr Pepper and Diet Dr Pepper in our Coca-Cola Freestyle fountain dispensers in certain outlets throughout the United States. The Coca-Cola Freestyle agreement has a term of 20 years.
Although these transactions were negotiated concurrently, they are legally separable and have distinct termination provisions and penalties, if applicable. As a result, the Company recorded an asset of $865 million related to the DPS license agreements and recorded deferred revenue of $150 million related to the Freestyle agreement. The DPS license agreements were determined to be indefinite-lived intangible assets and classified in the line item bottlers' franchise rights with indefinite lives in our consolidated balance sheet. The Company reached the conclusion that these distribution rights had an indefinite life based on several key factors, including, but not limited to, (1) our license agreements with DPS shall remain in effect for 20 years and shall automatically renew for additional 20-year successive periods thereafter unless terminated pursuant to the provisions of the agreements; (2) no additional payments shall be due for the renewal periods; (3) we anticipate using the assets indefinitely; (4) there are no known legal, regulatory or contractual provisions that are likely to limit the useful life of these assets; and (5) the classification of these assets as indefinite-lived assets is consistent with similar market transactions. The Company will amortize the deferred revenue related to the Freestyle agreement on a straight-line basis over 20 years, which is the length of the agreement. The amortization will be included as a component of the Company's net operating revenues.
Definitive Agreement to Acquire an Investment in Aujan Industries
On December 14, 2011, the Company entered into a definitive agreement with Aujan Industries (“Aujan”), one of the largest independent beverage companies in the Middle East, to acquire approximately half of the equity in Aujan's existing beverage business, excluding Aujan's Iranian manufacturing and distribution business. Under the terms of the agreement, we will acquire 50 percent of the Aujan entity that holds the rights to Aujan-owned brands, and 49 percent of Aujan's bottling and distribution company, which will continue to hold the licensed brand Vimto. Total consideration for this investment, which will be accounted for under the equity method, is approximately $980 million, which we expect to fund from our existing cash reserves. Closing of the transaction is subject to certain conditions and is expected to occur in the first half of 2012.
Divestitures
During 2011, proceeds from the disposal of bottling companies and other investments totaled $562 million, primarily related to the sale of our investment in Coca-Cola Embonor, S.A. ("Embonor"), a bottling partner with operations primarily in Chile, for $394 million. Prior to this transaction, the Company accounted for our investment in Embonor under the equity method of accounting. Refer to Note 17. None of the Company's other divestitures was individually significant.
In 2010, proceeds from the disposal of bottling companies and other investments totaled $972 million, primarily related to the sale of all our ownership interests in our Norwegian and Swedish bottling operations to New CCE for $0.9 billion in cash on October 2, 2010. In addition to the proceeds related to the disposal of our Norwegian and Swedish bottling operations, our Company sold 50 percent of our investment in Leão Junior, S.A. ("Leão Junior"), a Brazilian tea company, for $83 million. Refer to Note 17 for information related to the gain on these divestitures.
Our Norwegian and Swedish bottling operations (the disposal group) met the criteria to be classified as held for sale prior to their disposal. The following table presents information related to the major classes of assets and liabilities of the disposal group as of October 1, 2010 (in millions):
Trade receivables, less allowances for doubtful accounts
$
67

Inventories
42

Prepaid expenses and other current assets
17

Property, plant and equipment — net
315

Intangible assets
172

Total assets1
$
613

Accounts payable and accrued expenses
$
159

Accrued income taxes
10

Deferred income taxes
45

Total liabilities1
$
214

1 
Prior to the divestiture of our Norwegian and Swedish bottling operations, the assets and liabilities of these entities were included in our Bottling Investments operating segment. Refer to Note 19.
We determined that our Norwegian and Swedish bottling operations did not meet the criteria to be classified as discontinued operations, primarily due to our continuing significant involvement with these entities. Although we do not have an ownership interest in New CCE, we have concluded that our ongoing contractual relationship, governed by the Bottler's Agreements, constitutes a continuing significant involvement.
In 2009, proceeds from the disposal of bottling companies and other investments totaled $240 million, none of which was individually significant.