_coca Cola Report June 2008

Catalyst Research

Coca Cola Company (KO) Detailed Company Research Report (Based on facts and analysis of facts)

Sector: Consumer Non-Discretionary CMP: $57.26 Market Capitalization: $133.4bn P/E (trailing twelve months): 22.3x Price/ Book: 8.0x Date: June 1, 2008

Research Report Prepared By: Catalyst Research For free equity research reports: Log on to: http://equitypundit.blogspot.com For further details contact: [email protected]

Catalyst Research

Business Model Introduction: The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. Finished beverage products bearing its trademarks, sold in the United States since 1886, are now sold in more than 200 countries. Along with Coca-Cola, which is recognized as the world's most valuable brand, the company markets four of the world's top five nonalcoholic sparkling brands, including Diet Coke, Fanta and Sprite. In this report, the terms "the Company," "it" or "its" mean The Coca-Cola Company and all entities included in its consolidated financial statements. The company’s business is nonalcoholic beverages—principally sparkling beverages, but also a variety of still beverages. It manufactures beverage concentrates and syrups, which it sells to bottling and canning operations, fountain wholesalers and some fountain retailers, as well as some finished beverages, which it sells primarily to distributors. The Company owns or licenses more than 400 brands, including diet and light beverages, waters, juice and juice drinks, teas, coffees, and energy and sports drinks. In addition, it has ownership interests in numerous bottling and canning operations, although most of these operations are independently owned and managed.

Operating Structure: The Company's operating structure is the basis for its internal financial reporting. As of December 31, 2007, its operating structure included the following operating segments, the first seven of which are sometimes referred to as "operating groups" or "groups:"  Africa  Eurasia  European Union  Latin America  North America  Pacific  Bottling Investments  Corporate Products: The Company manufactures and sells beverage concentrates, sometimes referred to as "beverage bases," and syrups, including fountain syrups, and some finished beverages. Distribution: The company sells the concentrates and syrups for bottled and canned beverages to authorized bottling and canning operations. In addition to concentrates and syrups for sparkling beverages and flavored still beverages, it also sells concentrates (in powder form) for purified water products such as Dasani to authorized bottling operations. Authorized bottlers and canners either combine its syrups with sparkling water or combine its concentrates with sweeteners (depending on the product), water and sparkling water to produce finished sparkling beverages. The finished sparkling beverages are packaged in authorized containers bearing the company’s trademarks—such as cans and refillable and non-refillable glass and plastic bottles ("bottle/can products")—and are then sold to retailers ("bottle/can retailers") or, in some cases, wholesalers. For its fountain products in the United States, the company manufactures fountain syrups and sells them to authorized fountain wholesalers and some fountain retailers. The wholesalers are authorized to sell the Company's fountain syrups by a non-exclusive appointment from it that neither restricts the company in setting the prices at which it sells fountain syrups to the wholesalers, nor restricts the territory in which the wholesalers may resell in the United 2

Catalyst Research States. Outside the United States, fountain syrups typically are manufactured by authorized bottlers from concentrates sold to them by the Company. The bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers. Finished beverages manufactured by the company includes a variety of sparkling and still beverages. The Company sells most of these beverages to authorized bottlers or distributors, who in turn sell these products to retailers or, in some cases, wholesalers. It manufactures and sells juice and juice-drink products and certain water products to retailers and wholesalers in the United States and numerous other countries, both directly and through a network of business partners, including certain Coca-Cola bottlers. Operating Metrics: The Company measures the volume of products sold in two ways: (1) unit cases of finished products and (2) gallons. A "unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings); and "unit case volume" means the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners ("Coca-Cola system") to customers. Unit case volume primarily consists of beverage products bearing the Company’s trademarks.

Note: In the report, words like “the company” or “its” or “it” refer to the company which is analyzed in the entire research report and whose name appears on the front-page of this report.

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Catalyst Research

Key Employees and their Biographies Ahmet C. Bozer, 47, is President of the Eurasia Group. Alexander B. Cummings, 51, is President of the Africa Group. J. Alexander M. Douglas, Jr., 46, is Senior Vice President and President of the North America Group. Gary P. Fayard, 55, is Executive Vice President and Chief Financial Officer of the Company. Irial Finan, 50, is Executive Vice President of the Company and President, Bottling Investments and Supply Chain. E. Neville Isdell, 64, is Chairman of the Board of Directors and Chief Executive Officer of the Company Glenn G. Jordan S., 51, is President of the Pacific Group. Geoffrey J. Kelly, 63, is Senior Vice President and General Counsel of the Company. Muhtar Kent, 55, is currently President and Chief Operating Officer of the Company. Robert P. Leechman, 51, is Vice President and Chief Customer and Commercial Officer of the Company. Thomas G. Mattia, 59, is Senior Vice President of the Company and Director of Worldwide Public Affairs and Communications. Cynthia P. McCague, 57, is Senior Vice President of the Company and Director of Human Resources. Dominique Reiniche, 52, is President of the European Union Group. José Octavio Reyes, 55, is President of the Latin America Group. Danny L. Strickland, 59, is Senior Vice President of the Company and Chief Innovation and Technology Officer. Joseph V. Tripodi, 52, is Senior Vice President and Chief Marketing and Commercial Officer of the Company.

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Catalyst Research

Details of key properties owned by the company The Coca Cola Company’s worldwide headquarters is located on a 35-acre office complex in Atlanta, Georgia. The complex includes the approximately 621,000 square foot headquarters building, the approximately 870,000 square foot Coca-Cola North America (“CCNA”) building and the approximately 264,000 square foot Coca-Cola Plaza building. The complex also includes several other buildings, including technical and engineering facilities, a learning center and a reception center. The Company has leased approximately 250,000 square feet of office space at 10 Glenlake Parkway, Atlanta, Georgia, which has been currently subleased to third parties. In addition, it has leased approximately 218,000 square feet of office space at Northridge Business Park, Dunwoody, Georgia. The Company owns or has leased additional real estate, including a Company-owned office and retail building at 711 Fifth Avenue in New York, New York. These properties are primarily included in the Corporate operating segment. The Company has facilities for administrative operations, manufacturing, processing, packaging, packing, storage and warehousing throughout the United States and Canada, including a portion of the Atlanta office complex, which are included in its North America operating segment. In addition, in North America, it owns nine still beverage production facilities and four bottled water facilities, has leased one bottled water facility, and owns a facility that manufactures juice concentrates for foodservice use, all of which are included in the North America operating segment. The Company owns or holds a majority interest in or otherwise consolidates under applicable accounting rules bottling operations that own 136 principal beverage bottling and canning plants located throughout the world. These plants are included in the Bottling Investments operating segment. The Company owns a facility in Brussels, Belgium, which consists of approximately 315,000 square feet of office and technical space. This facility is included in the European Union operating segment. It also owns or has leased real estate, office space and other facilities throughout the world which are used for administrative facilities, warehouses and retail operations. In addition, as of December 31, 2007, the Company owned and operated 30 principal beverage concentrate and/or syrup manufacturing plants located throughout the world. These properties are generally included in the geographic operating segment in which they are located.

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Catalyst Research

Historical analysis of key operating metrics Margin Analysis Gross margin (%)

Operating Profit Margin (%)

70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2002

2003

2004

2005

2006

2007

Source: Company filings

As can be seen from the above graph, Coca Cola’s gross margins have increased from 63.7% in 2002 to 63.9% in 2007, indicating tremendous pricing power. Thus, the company has been able to pass on a higher price increase to its customers relative to the rise in raw material prices. However, the operating profit margin has declined 280 basis points to 25.1%, from 27.9% in 2002. Free cash flow relative to Earnings per share EPS (Rs.per share)

Free cash flow (Rs.per share)

3.0 2.5 2.0 1.5 1.0 0.5 0.0 2002

2003

2004

2005

2006

2007

Source: Company filings

As can be seen from the above graph, Coca Cola’s free cash flow per share (FCF) has remained consistently above the earnings per share (EPS) number in the years 2003 to 2005. However, in 2006, the FCF per share at $2 per share was slightly lower than the EPS of $2.2 per share. The trend was maintained in 2007, with FCF per share at $2.5 and EPS at $2.6 per share.

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Catalyst Research

Analysis of Performance in Year Ended 2007 Revenues: Revenues in 2007 increased 20%, to $28,857 million. The growth was primarily driven by structural changes (8% positive impact on growth) and volume (6% positive impact on growth). The Coca Cola system sold a total of 22.7 billion cases worldwide, compared to 21.4 bn cases in 2006. Analysis of revenue growth Year Ended December 31, all figures in percent Increase in gallon sales Structural changes Price and product/geographic mix Impact of currency fluctuations versus the U.S. dollar Total percentage increase

2005 vs. 2004 2006 vs. 2005 2007 vs 2006 3 4 6 0 -2 8 1 2 2 2 0 4 6 4 20

Source: Company filings

Volume growth was led by growth in Eurasia, which grew by 16%, complemented by a 10% growth in Africa. However, the overall growth was dragged down due to a 1% decline in volume in North America reflecting a 1% decline in the Foodservice and Hospitality Division due to the challenging restaurant industry environment. "Structural changes" relates to acquisitions or dispositions of bottling or canning operations and consolidation or deconsolidation of bottling entities for accounting purposes. In 2006, structural changes increased net operating revenues by 8 percent compared to 2006. These structural changes included the impact of the acquisition of CCBPI in the first quarter of 2007, the acquisition of the 18 remaining German bottling and distribution operations in September 2007, the acquisition of CCCIL in the third quarter of 2006, the consolidation of Brucephil effective September 29, 2006 and the acquisition of several other individually insignificant bottling operations. Price and product/geographic mix increased sales by 2 percent in 2007 over 2006 primarily due to favorable pricing and product/package mix across the majority of the operating segments. Currency fluctuations increased sales by 4% in 2007 over 2006 primarily due to depreciation in US $ vis-à-vis currencies of other operating geographies, especially euro. Operating Expenses: Cost of goods sold increased by 27.5% to $10,406 mn, faster than the 19.8% sales growth due to acquisitions and consolidations of certain bottling operations. The selling, general and administrative expenses increased 16.1% to $10,945 mn. This increase was driven by a 28.2% increase in selling expenses, which increased to $5,029 mn mainly due to consolidation in bottling investments, while the general and administrative expenses increased 7.6% to $2,829 mn. Operating Profit: Operating profit increased by 15% to $7,252 mn as the operating profit margin decreased by 110 bps to 25.1% in 2007. The decline was led by a decline in gross margin and by increase in SG&A as a percentage of sales. Equity in Earnings (Losses) of Associated Companies: The company’s share of equity in earnings of associated companies for 2007 was $668 mn, compared to $102 mn in 2006, an increase of 554.9%. Equity income in 2007 inreased by $566 mn due to the impact of the company’s proportionate share of an impairment charge recorded by one of its

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Catalyst Research associates - CCE. CCE recorded a $2.9 billion pretax ($1.8 billion after tax) impairment of its North American franchise rights in 2006. Net Income and EPS: The total other income was $173 mn for 2007 compared to $195 mn for 2006, a decrease of $22 mn. In 2007, other income (loss)—net included a gain of approximately $73 mn resulting from the sale of a portion of the Company’s ownership interest in Coca-Cola Amatil. Net interest expense was $220 mn. The effective tax rate was at 24%, an increase of 130 basis points over 2006 due to higher tax incidence on income from the gains on the sale of a portion of the company’s equity interest in Coca-Cola Amatil and Vonpar (at a tax rate of 58%). All the above resulted in profit after tax increasing to $5,981 mn in 2007, an increase of 17.7% over the corresponding period previous year.. The total diluted shares outstanding decreased by 1% to 2327 mn shares in 2007, resulting in the diluted EPS increasing by 19% to $2.57 per share.

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Catalyst Research

Significant equity method investments Coca-Cola Enterprises Inc (35% stake) The company’s ownership interest in Coca-Cola Enterprises Inc. ("CCE") was approximately 35 percent at December 31, 2007. CCE is the world’s largest bottler of the Company’s beverage products. In 2007, sales of concentrates, syrups, mineral waters, juices, sweeteners and finished products by the Company to CCE were approximately $6.3 billion. CCE estimates that the territories in which it markets beverage products to retailers (which include portions of 46 states and the District of Columbia in the United States, the U.S. Virgin Islands and certain other Caribbean islands, Canada, Great Britain, continental France, the Netherlands, Luxembourg, Belgium and Monaco) contain approximately 79 percent of the United States population, 98 percent of the population of Canada, and 100 percent of the populations of Great Britain, continental France, the Netherlands, Luxembourg, Belgium and Monaco. In 2007, CCE’s net operating revenues were approximately $20.9 billion. Excluding fountain products, in 2007, approximately 60 percent of the unit case volume of CCE consisted of Coca-Cola Trademark Beverages, approximately 33 percent of its unit case volume consisted of other Company Trademark Beverages and approximately 7 percent of its unit case volume consisted of beverage products of other companies. Coca-Cola Hellenic Bottling Company S.A. (23% stake) As at December 31, 2007, the company’s ownership interest in Coca-Cola Hellenic Bottling Company S.A. ("Coca-Cola Hellenic") was approximately 23 percent. Coca-Cola Hellenic has bottling and distribution rights, through direct ownership or joint ventures, in Armenia, Austria, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Former Yugoslavian Republic of Macedonia, Greece, Hungary, Italy, Latvia, Lithuania, Moldova, Nigeria, Northern Ireland, Poland, Republic of Ireland, Romania, Russia, Serbia, Montenegro, Slovakia, Slovenia, Switzerland and Ukraine. Coca-Cola Hellenic estimates that the territories in which it markets beverage products contain approximately 67 percent of the population of Italy and 100 percent of the populations of the other countries named above in which Coca-Cola Hellenic has bottling and distribution rights. In 2007, Coca-Cola Hellenic’s net sales of beverage products were approximately $8 billion. In 2007, approximately 43 percent of the unit case volume of Coca-Cola Hellenic consisted of Coca-Cola Trademark Beverages, approximately 51 percent of its unit case volume consisted of other Company Trademark Beverages and approximately 6 percent of its unit case volume consisted of beverage products of Coca-Cola Hellenic or other companies. Coca-Cola FEMSA, S.A.B. de C.V. (32% stake) The Company’s ownership interest in Coca-Cola FEMSA, S.A.B. de C.V. ("Coca-Cola FEMSA") was approximately 32 percent at December 31, 2007. Coca-Cola FEMSA is a Mexican holding company with bottling subsidiaries in a substantial part of central Mexico, including Mexico City and southeastern Mexico; greater São Paulo, Campinas, Santos, the state of Matto Grosso do Sul and part of the state of Goias in Brazil; central Guatemala; most of Colombia; all of Costa Rica, Nicaragua, Panama and Venezuela; and greater Buenos Aires, Argentina. Coca-Cola FEMSA estimates that the territories in which it markets beverage products contain approximately 48 percent of the population of Mexico, 16 percent of the population of Brazil, 98 percent of the population of Colombia, 47 percent of the population of Guatemala, 100 percent of the populations of Costa Rica, Nicaragua, Panama and Venezuela, and 31 percent of the population of Argentina. In 2007, Coca-Cola FEMSA’s net sales of beverage products were approximately $6 billion. In 2007, approximately 63 percent of the unit case volume of Coca-Cola FEMSA consisted of Coca-Cola Trademark Beverages,

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Catalyst Research approximately 33 percent of its unit case volume consisted of other Company Trademark Beverages and approximately 4 percent of its unit case volume consisted of beverage products of Coca-Cola FEMSA or other companies. . Coca-Cola Amatil Limited (30% stake) At December 31, 2007, our Company’s ownership interest in Coca-Cola Amatil (“Coca-Cola Amatil”) was approximately 30 percent. Coca-Cola Amatil has bottling and distribution rights, through direct ownership or joint ventures, in Australia, New Zealand, Fiji, Papua New Guinea and Indonesia. Coca-Cola Amatil estimates that the territories in which it markets beverage products contain 100 percent of the populations of Australia, New Zealand, Fiji and Papua New Guinea, and 98 percent of the population of Indonesia. In 2007, CocaCola Amatil’s net sales of beverage products from continuing operations were approximately $2.9 billion. In 2007, approximately 49 percent of the unit case volume of Coca-Cola Amatil consisted of Coca-Cola Trademark Beverages, approximately 38 percent of its unit case volume consisted of other Company Trademark Beverages and approximately 13 percent of its unit case volume consisted of beverage products of Coca-Cola Amatil.

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Catalyst Research

Recent Developments 28th May 2008: Coca-Cola Company Expresses Confidence in Second Quarter and Full Year Business Outlook The Coca-Cola Company expressed continued confidence in the Company's global business outlook for the second quarter and full year 2008. It expects that the strength in international operations, representing over 80 percent of the Company's operating income, is expected to continue to offset weakness in North America resulting from the difficult economic environment. The Company said it remains committed to restoring growth in its flagship North America market and is working collaboratively with its bottling partners. Currency is estimated to provide a mid-single digit favorable benefit to 2008 operating income. The Company said it will reinvest a portion of the currency benefit in marketing programs and productivity initiatives to drive long-term sustainable growth. 16th April, 2008 The Coca-Cola Company reports first quarter 2008 earnings: Key highlights of first quarter 2008 earnings were: o First quarter EPS increased 19 percent to $0.64; increased 20 percent to $0.67 after considering items impacting comparability. o Worldwide unit case volume up 6 percent for the first quarter and International unit case volume up 7 percent. o Solid growth with sparkling beverage unit case volume up 3 percent, led by 5 percent growth in International, and still beverage unit case volume up 17 percent. o Strong cash generation with cash from operations increasing 18 percent

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Catalyst Research

Financial Snapshot and Key Ratios Fig in $ mn Income statement Revenues Cost of goods sold SG&A Other operating expenses Operating profit Net interest expense Share of equity associates Other income/ (expense) Taxes Profit after tax Diluted Shares o/s

2002

2003

2004

2005

2006

2007

19564 7105 7001 5458 -10 384 -353 1523 3976 2483

21044 7762 7488 573 5221 2 406 -138 1148 4339 2462

21742 7674 7890 480 5698 39 621 -82 1375 4823 2429

23104 8195 8739 85 6085 5 680 -93 1818 4849 2393

24088 8164 9431 185 6308 27 102 195 1498 5080 2350

28857 10406 10945 254 7252 220 668 173 1892 5981 2331

Assets Net property, plant, equipment Goodwill Investments Other assets Cash & marketable securities Net working capital (excl.cash) Total capital employed

2002

2003

2004

2005

2006

2007

6,097 3,989 5,538 3,322 3482

6,091 3,836 6,252 3,054 6768

5,831 3,821 6,922 2,648 4767

6,903 5,135 6,783 2,701 2590

8,493 12,219 7,777 2,675 4308

-66 22,362

376 26,377

148 24,137

229 24,341

624 36,096

Liabilities Shareholder equity Total debt Other liablilities Total capital employed

2002 11800

2003 14090 5423 2,849 22362

2004 15935 7178 3,264 26377

2005 16355 5700 2,082 24137

2006 16920 4582 2,839 24341

2007 21744 9329 5,023 36096

Cash Flow Cash from operations Capex Free Cash Flow

2002 4742 -782 3960

2003 5456 -725 4731

2004 5968 -414 5554

2005 6423 -811 5612

2006 5957 -1295 4662

2007 7150 -1409 5741

Per Share Data Figures in $ per diluted share Book Value EPS Free cash flow

2002 4.8 1.6 1.6

2003 5.7 1.8 1.9

2004 6.6 2.0 2.3

2005 6.8 2.0 2.3

2006 7.2 2.2 2.0

2007 9.3 2.6 2.5

2002 63.7% 27.9% 20.3%

2003 63.1% 24.8% 20.6% 38.5% 34%

2004 64.7% 26.2% 22.2% 45.0% 32%

2005 64.5% 26.3% 21.0% 34.9% 30%

2006 66.1% 26.2% 21.1% 27.1% 31%

2007 63.9% 25.1% 20.7% 42.9% 31%

Margin Numbers Figures in % Gross margin (%) Operating Profit Margin (%) Net Margin (%) Debt/ Equity (x) RoE (%) Source: Company Filings

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