可口可樂 (KO) 2002 Q1 法說會逐字稿

and our senior operating officers, who are in New York for our shareowners' meeting.

Today Gary and I are joined by Sandy Allan, who's the president of our operations in Europe, Eurasia and the Middle East; Alex Cummings, who's the president of our Africa group; Jeff Dunn, the president of the Americas; and Mary Minnick, the president of our Asia group.

Our prepared comments will last approximately 20 to 15 minutes, and then we will allocate time to your questions and answers. So that we can get to as many questions as possible, we'd ask everyone to try to limit your questions to one, and then if you have more questions, please then return to the que.

Before we get started, I'd like to remind everyone that this conference call does contain forward-looking statements, including statements concerning long-term volume and earnings objectives and should be considered in conjunction with the cautionary statements that are contained in our earnings release and in Exhibit 99.1 of the company's most recent Form 10-K.

Now let me turn things over to Gary.

Thanks, Larry. And thanks to each of you for joining the call this morning.

As Larry said, we are all here in New York in preparation for our annual shareholders' meeting, which is tomorrow. And I look forward to seeing some of you hopefully in person tomorrow if you're able to join us.

As indicated by today's earnings release, we continue to deliver solid performance. We see our ability to deliver unit case volume growth of over five percent within this very challenging economic environment in which we're operating as quite an accomplishment.

Our first quarter volume performance, earnings per share growth and free cash flow generation are a result of our disciplined approach to executing our strategic priorities. We are totally aligned around the following priorities: accelerating carbonated soft drink growth, led by Coca-Cola; selectively broadening our family of beverage brands to drive profitable growth; growing system profitability and capability together with our bottling partners; serving customers with creativity and consistency to generate growth across all channels; directing investments to the highest potential areas across all markets; and driving efficiency and cost effectiveness everywhere.

And I think, as we go through the call today, you will see that we have delivered on each of these priorities in the quarter and will continue to do so for the year and for the years ahead. And it has been this reason that we've been able to deliver industry-leading growth. The results released this morning reflect the fact that we are taking advantage of all of the strengths within the Coca-Cola system.

Our carbonated beverages grew three percent and our non-carbonated beverages grew by 22 percent, led by Dasani, Marocha Green Tea, Minute Maid, Qoo, and Powerade. We were also pleased that our growth in both North America and our international operations was up five percent. You'll hear in a few minutes from our senior operators on what contributed to that growth and strong growth all around the world.

From an earnings perspective, there are a couple of unusual items in the quarter. Most of these we discussed with you at the end of January. But those items include: a gain arising from the sale of our stake in Kaiser, a brewer in Brazil; our required adoption of FAS-142, dealing with goodwill; a reclassification of marketing expenses -- that's EITF 0109 for the technical accountants in the group; the write-down of some investments in Latin America related to the economic crisis in Argentina.

When you exclude those items from consideration, our underlying business results on a currency neutral basis were very positive, with ongoing earnings per share increasing 11 percent. And that's even with gallons only being up one percent when case volume is up over five. And that really gives us a lot more confidence in hitting our full year earnings per share targets for the year.

The impact of the stronger U.S. dollar reduced our earnings per share by approximately eight percent during the quarter. I think that's probably about a penny greater than many of you may have thought. That's particularly related to the economic issues in Latin America.

In addition to the positive results at the Coca-Cola Company, we also continue to see improvement in the financial results of our bottling partners around the world. And I'll cover some of these financial details in a few minutes in a lot more detail. But first, allow me to pass over to Sandy Allan, who delivered a very strong quarter in Europe.

Sandy?

Thanks Gary.

I'm pleased to have the opportunity to talk about the performance for Europe, Eurasia and the Middle East business unit in the first quarter and also give you a sense of what is coming up in the next three months.

Our total business grew in volume by eight percent. Within that eight percent, we recognize that some of the growth was a result of Easter occurring in quarter one this year versus quarter two last year. However, the group still achieved strong volume growth for the quarter.

There are many reasons for this good result. And they differ by market. But the one overriding factor for the success is the continued strong alignment between the company and its bottlers.

If I just look at our three biggest bottlers across the region -- Coca-Cola Enterprises, Coca-Cola Hellenic and CCEAG, our major bottler in Germany -- which together account for over 60 percent of our total volume in size of business unit, the relationship within the system is strong. And we are aligned on both the strategies and the plans. This is obviously starting to have a positive impact on the business. Let me now say something specifically about Germany. Here, volume grew by six percent. Within that six percent, brand Coke grew plus five, Coca-Cola Light grew plus 12 and Sprite grew plus eight percent. The management control agreement the company now has in place with CCEAG, which accounts for close to 70 percent of the volume in Germany, is beginning to take real effect.

However, injecting a note of realism here, there is still much to do in Germany as we simultaneously drive daily sales and work in ways to reengineer the business for the future. But the signs are encouraging.

What is also encouraging is that our good business performance for the first quarter was spread across the whole of the business unit. Of our nine operating divisions, seven of them exceeded their budgets for the quarter. And the remaining two were on plan.

If we look to the second quarter and the rest of the year, I believe we are now on the right track to deliver our business objectives. I am confident in the plans we have, both on core brands and on new beverages.

On core brands, we are executing massive activities around the World Cup soccer and brand Coke in particular. Half of the teams competing in this year's World Cup soccer finals in Japan and Korea come from my part of the world. This is great news for European soccer fans and equally great news for our business. We are activating this global property with advertising, packaging, promotions and customer activities across the region to further connect brand Coca-Cola emotionally with our consumers and to, of course, drive profitable volume.

A quick word on Diet Coke or Coca-Cola Light in Europe, which continues to grow at double digits in most markets, even in the more developed ones. The launch of Diet Coke with lemon in Great Britain, Austria and France is underway. And we have great expectations for it.

On Sprite, we are doing the first ever line extensions in Europe, with Sprite

in Italy, a formulation with a taste of mint, a Sprite

in Greece, a new way we are thinking about Diet Sprite in that market.

On Fanta, we continue to see solid growth in the brand, further enhanced by fruit-based line extensions. In the second quarter, we are launching, for example, Fanta Lime in Russia, Fanta

in France, which is a mixed fruit blend, and many other new Fanta flavors across the region.

The final point I would like to make about core brands is the strong continued focus we have on immediate consumption. In almost every market, there are big opportunities, both in volume and, of course, in value to the entire system. Strategically, immediate consumption is critical to strengthening our preference scores and growing our base of daily drinkers.

Just to give you one example, in Italy, we have a huge program called "Pit Stop Refreshment," a program that incorporates significant cooler placements, presence and TV advertising linking Coca-Cola to the hugely popular sports car racing.

So lots of activity is planned across our core brands in the next three months.

In the area of new beverages, which is playing an ever-increasing role in this part of the world, the second quarter will also be exciting. We are executing 17 new launches or significant relaunches.

Water continues to be a focus. Bonaqa is being completely relaunched in both Germany and Russia.

In the area of juice and juice drinks, we are launching our Disney range of juice drinks in Great Britain, France and the Netherlands. The Disney concepts, led by the characters of Mickey Mouse, Pooh Bear and Roo have tested extremely well with consumers. And combined with some excellent product development and innovative packaging, I am enthusiastic about our efforts here.

Powerade continues to perform extremely well in the five markets in which it has been launched. And as five more markets come onstream this year, I expect this to continue.

In total, Powerade volume was on plan for the first quarter and has achieved approximately eight percent market share of the European sports drink category in just three months.

So that's where we are with the European business: a strong first quarter. And I am pretty optimistic about what we are doing in Europe to drive sustainable growth.

I'd now like to hand you over to Alex Cummings, who also had a very strong quarter.

Thanks, Sandy. It's a pleasure to join you this morning. It's not often that I'm in town to participate in investor calls. And it is therefore my pleasure to be able to be able to be with you today.

We don't have too much time to cover all of our markets. But I'd like to take a moment to define Africa. For us, Africa is the entire continent, comprising 56 countries, including the Indian Ocean islands. The continent is one-fifth of the world's land mass, with 20 cities of one million-plus population and the highest population growth rate in the world at roughly three-plus percent.

As some of you may know, South Africa is our biggest market and quite a success story. Just for context, it's about the size of Italy and France, from a volume perspective. However, our future also relies on countries like Nigeria, which has the potential to become Africa's largest beverage market. And we grew that business last year about 36 percent.

Our business is driven by a few key success factors. First, CSDs are the heart of our business. We have a high CSD market share. But our real opportunity is growing per caps. And we are doing that at a double-digit growth rate.

We leverage this leading position to selectively enter new segments and last year introduced 32 new products, flavors and packages.

Africa, as you know, is a poor continent. And we have to drive affordability. We do that through packages and through system efficiency. We focus on our top key markets -- our top key six markets -- which are: South Africa, Nigeria, Egypt, Morocco, Tunisia and Kenya. And those markets are all growing very, very well.

We continuously nurture our strong bottler relationship, which are healthy. And all of our bottlers are profitable.

And finally, we leverage our experience in managing uncertainty and risk. We are profitable in all markets where we operate in the continent.

The first quarter is a very good illustration of how this approach is working. We delivered strong unit case volume growth, up 11 percent versus prior year. Core CSDs made up the majority of that growth. Brand Coke is growing behind renewed equity and operational focus. And we introduced 25 new products, packages and flavors, both in CSDs and non-CSDs.

So as you can see, we had a relatively good first quarter. And we are confident about the rest of the year. But more importantly, we believe in the long-term future of Africa. And our strategies and investments will be guided by this belief. Now I'd like to turn you over to Jeff.

Thanks, Alex. Good morning, everyone. First, I have to take exception to Sandy Allan's not-so-subtle endorsement of the European soccer teams, World Cup teams. Everyone knows that Latin America will produce the World Cup champion.

So with that, let's go on. It's certainly a pleasure to talk about North American and Latin American results this morning. North America had a solid quarter, plus five. Latin America, facing tough challenges that everyone knows in Venezuela and Argentina, was flat. But that was very good performance. And I'll break it down for you.

If you look at Latin America, results were driven first by solid performance in Mexico, up five percent; in Central America, up four percent, despite relatively soft economies in these regions. Argentina and Venezuela are having a significant negative impact, not only on Latin American volume, but worldwide volume.

Brazil improved through the quarter. But the improvement was not enough to overcome weakness in January, which is the largest month in the quarter. Brazil, specifically, we made the decision to take price coming into the year, I think as we talked about, in order to recapture some of the 30 percent in value lost over the last two years, due to the devaluation of the real.

In January, as expected, our volumes were impacted by the price change. But additionally, it rained 21 of 31 days. And that led to a very weak January.

We had positive growth in February. That accelerated in March. And we're hopeful we can maintain positive growth through the rest of the year, as we take steps to rebalance profitability in this market, which I think is very important to the long-term sustainability for us and our bottling partners.

In Argentina, every day is a challenge. Our system is working very, very closely together. But the fact of the matter is it's a very tough situation. Volume was down 18 percent in the quarter. And that was actually good. We quickly responded.

And there is two key things we're doing in Argentina as we go forward. One is continuing to connect our brands with consumers. We went dark in January and February but came back on-air in March.

And this is very simple. Consumers are telling us in Argentina that they're going to judge brands by those people who stand by them in the crisis. And so it's important for us to activate World Cup. Argentina is a World Cup participant. And we've got great creative running there.

Number two, we're adjusting our package mix by moving emphasis back to returnables. Actually, market share is up in Argentina. And the returnable business needs a little infrastructure that we're working with bottlers to put back in so we can be more affordable, given the obvious economic issues with the consumer in Argentina.

Next, let me talk Mexico. Can't say enough good about Mexico. Business accelerated quarter over quarter last year. One in the first, two in the second, three in the third, four in the fourth and then five in the first quarter of this year.

That's very good performance. It's driven by both strong marketing and focus on value packages. And we've got great World Cup plans going forward.

Let me take North America next. We had solid growth of five percent and gained share across major segments. When we take into account all channels, the growth is comprised of six percent bottle and can growth and over three percent fountain growth. Both bottlers -- Coca-Cola Enterprises and Consolidated -- will report their results in the next few days. And I think you'll be pleased, as we are, with improving trends in both their businesses.

As we look at the non-alcoholic landscape, in the last 12 months rolling in North America, we've grown over three percent, which is right at our business model.

There's four keys to that growth over the last 12 months and the five percent in the first quarter. The first key is core brands, led by Coca-Cola. Trademark Coke was up three percent for the first quarter, which is very gratifying. That was comprised of one percent growth for Coca-Cola Classic and over 10 percent growth for the Diet Coke trademark, driven not only by Diet Coke, but the introduction of Diet Coke with lemon.

The fact of the matter is cola growth has been reasserted in North America. And with the announcement yesterday of the launch of Vanilla Coke, we see that continuing into the rest of 2002.

The second key is water. Dasani continues to grow very healthily and very profitably. We positioned it as a value-added product and, because of that, were able to maintain price points and continue to deliver through our DSD system, which we believe is advantaged in this area. And we feel very good about the performance there.

The other piece to Dasani which is important is placing it in food service outlets. We've placed it in close to 8,000 so far. And our strategy there is to place it on economic and service terms. The fact of the matter is we don't want to give it away there. We want to make sure that we're maintaining price integrity. And we believe that that is a real opportunity for us to continue to expand the footprint of the brand.

While on the subject of fountain, I want to reiterate the basic strategy of fountain is value added. We're at very high market shares. And we're holding market share there. And the bottom line is we've earned that position through customer service and a superior infrastructure over a long period of time.

And price is not our strategy. And we are going to continue to focus on delivering value to customers through service and not irrational pricing.

Third key is Powerade. Very strong performance in the first quarter, up 20 percent. Fastest growing brand in the category. And the real interesting key there is C&P, where the brand has had good growth. And if you all will remember, we talked about the strategy for Powerade was expand the footprint in supermarkets last year, relaunch the brand in July. The brand has taken hold with the consumer. And in C&P, which is a freedom of choice market, Powerade continues to gain share and perform very well.

The fourth key is juice and juice drinks. We had great performance on Minute Maid, up six percent for the quarter. That was led by not only the Minute Maid brand, but Simply Orange and the Disney juice drink rollout. Minute Maid Lemonade and Fruit Punch continue to drive incremental growth for the quarter and will be further strengthened in the second quarter by the launch of Pink Lemonade and Minute Maid Lemonade Light.

When you look across the board in our North American business, all the categories grew. We're continuing to drive innovation and learn how to do that with our bottlers. And we're improving the economics of the business for the system.

With that, let me turn it over to Mary Minnick, who will talk about our business in Asia. Thanks.

Thank you, Jeff.

In the first quarter, the total Asia business volume grew a healthy nine percent. Importantly, if we exclude the results of the Philippines, where we recently acquired the Cosmos brands, growth in the rest of Asia was 8.5 percent.

While growth in the Philippines was solid, we are not yet realizing the full short-term volume gains in that market which were originally estimated. This is due to a number of restructuring initiatives that are critical to optimizing the long-term value of the Philippines business for ourselves and our bottling partner.

In a moment, I will share with you these initiatives. But first, I'd like to update you on our outstanding results in the rest of Asia. First quarter performance was particularly strong in key markets, with six percent volume growth in Japan, our key profit market, and strong double-digit growth in both China and India.

Let's take a closer look at Q1 performance in two key market, Japan and China. In our last conference call, I indicated we would aggressively pursue four strategic priorities to maintain strong volume and profit growth in Japan this year. These were: to continue to drive Coke growth; to growth our tea business aggressively; to maintain the momentum of Georgia; and to accelerate the highly profitable vending market.

In the first quarter of this year, we successfully executed against these four strategic priorities, resulting in very strong profitable volume growth of six percent. These results are particularly pleasing when compared against an estimated growth of around only two percent for the beverage industry as a whole

therefore has consistently gained share of the beverage market over the past four quarters. Whilst the first quarter seasonal growth rate in Japan generally favors tea and coffee, as we discussed two conference calls ago, we still achieved growth for our Coca-Cola trademark of 3.5 percent, driven by the first wave of our 2002 World Cup promotion and the continuation of the successful "No Reason" campaign.

Our other CSD brands have also performed well, especially brand Fanta. Our tea business in Q1 grew in excess of five percent. The result was driven by new Marocha graphics, which our green tea, the Sokenbicha relaunch in February, on pack promotions for Sokenbicha and Marocha and the launch of our new non-sugar tea product,

.

Georgia Coffee performed solidly, with three percent growth, cycling the 2001 emblem launch. Georgia continues to lead the coffee category in Japan. Our market share is 51 percent of canned coffee. And we gained two percentage points in Q1.

These solid results were driven by the introduction of several new flavors and the continuation of the highly successful "Tomorrow is Another Day" campaign.

Driven by strong sales of Georgia Coffee and Tea, we also saw solid gains in the important vending channel. However, it is worth noting, we expect the negative macroeconomic situation in Japan to continue. In spite of these circumstances, we believe that the fundamentals of our business are strong. And while we are not immune to these economic challenges, we are able to weather the weak economic environment.

This is our third significant recession for Japan in 10 years. And we have experience in managing these conditions.

We reported strong growth in China in the first quarter of just over 12 percent, with both our core CSD and non-carbonated brands performing solidly. Looking closer at our CSD performance, the core brands of Coke, Sprite and Fanta continue to show strong growth, collectively achieving an impressive nine percent volume growth.

First quarter CSD results were due to: a very successful integrated Chinese New Year marketing program, which grew promotive packs over 24 percents; an intensive, multifaceted Team China sponsorship campaign, which capitalizes on the national fervor over China's first ever qualification for the World Cup in 44 years; and an effective Fanta promotion, offering teens the latest fun electronic gadgets, which boosts sales over 19 percent.

During the quarter, our CSD business also achieved our highest share of CSDs since the second quarter of 1999, with a 52 percent share of the national market, plus three percent share points versus prior year.

Our non-carbonated brands also grew strongly in the first quarter in China and accounted for approximately one-half of our total volume growth for the period. The successful launch of the juice drink Qoo and the locally branded water Sensation Ice do help produce strong results. The launch of Qoo has been a runaway success, with sales in the first three months exceeding the annual budget.

Building on this success, we're about to commence an aggressive entry into the tea category in China, through our Yangguang and Nestea brands. Starting this week, we're nationally rolling Yangguang and Iced Fruit Tea in three flavors. And Nestea will also be introduced in the second quarter in two flavors.

The outlook for our business in China for the rest of 2002 remains positive. And we are expecting strong volume growth.

Now, let's return to the Philippines. Our business in the Philippines saw solid overall volume growth in the first quarter, driven by the acquisition of the Cosmos brands, and strong growth and share gains in non-carbs. With last year's acquisition of Cosmos, we are well positioned for strong future growth. We now participate in most non-alcoholic segments, including carbonated soft drinks, waters, juices and powders and manage more than 30 percent of all commercial beverages, including alcohol.

Together with San Miguel, we are in the process of implementing a number of programs to build and expand our overall system capabilities to position the business for the long run. One ongoing initiative is a business-critical optimization of our bottlers, distribution and logistics system, converting points of distribution from a large number of small, independent wholesalers to a smaller number of strong wholesaler partners, combined with a restructuring of the general trading term.

This new route-to-market is sound and necessary in order to build our sales and system for this future, to maintain our level of affordability and to be competitive in the marketplace. In addition to taking cost out of the system, the new structure will increase the number of outlets served significantly and enable us to have consistent trading terms and execution standards in place.

As a consequence of transitioning to the new setup, the core brand inventory level in the trade decreased significantly during this quarter, negatively impacting the volume shipped from our bottler in the first quarter. We are currently working aggressively with San Miguel to accelerate the rebuilding of the route-to-market system and reduce the transition impact to a minimum. However, the overall transition is expected to take until the end of this year.

We are confident about the long-term potential of our newly expanded business in this market. We're doing the right things now to optimize our investment in the country and maximize long-term value of the business.

In summary then, we're comfortable with the overall performance of Asia business in Q1. The fundamentals of our business are strong. Our CSD business is growing healthily in key markets, driven by solid marketing momentum. We are aggressively building our NCB -- non-carbonated beverage -- portfolio throughout the region.

We continue to grow our share of the non-alcoholic ready-to-drink segment in Asia. We are reducing costs as planned. And together with our bottling partners, we are successfully working together to optimize overall system economics.

Looking forward, the outlook for the Asian business for the rest of the year is positive. We are on-track and confident of reaching our targets and delivering Asia's share of the Coca-Cola Company's volume and profit objectives.

Now I'll turn things back to Gary.

Thanks, Mary. Now I'd like to make a few statements about our operating results for the quarter. The reported numbers were impacted by a number of items. And I'd like to make a few comments about each of those.

First, starting with Germany, as disclosed in our annual report and as we've discussed earlier and as Sandy talked about as well, we completed the control agreement with our German bottler, CCEAG, in early 2002. This transaction is being accounted for as a business combination. Therefore, we began fully consolidating the German bottler in February of this year.

From an income statement standpoint, the consolidation of the German bottling operations impacted essentially most of the lines on the income statement, as we have consolidated a business with a sizable revenue base and not much income historically. For the full year 2001 -- so full year last year -- the German bottlers' revenues were about $1.7 billion and roughly break-even earnings. And that's after the implementation of FAS-142, related to amortization of goodwill.

Secondly, around Kaiser, the first quarter results include the impact of the sale of the Kaiser brand in Brazil, which resulted in a slight gain. Because Coca-Cola's ownership was both direct and indirect through equity investments in our bottling partners in Brazil, we recorded a penny per share after tax gain on this transaction. The penny has reflected about half of that in equity income and half of that in other income in our income statement.

This is a non-recurring item the way we've looked at it and does not impact our estimate of ongoing recurring earnings for the year. During the quarter, we also recorded a non-cash asset impairment charge of $157 million before tax, or about six cents per share for investment in Latin America caused by the devaluation and economic crisis in Argentina.

We also, as most all companies in the U.S. had to do, implemented a EITF 109, which resulted in a reclassification of about $520 million last year, from selling expenses to deductions from revenues. That's for the first quarter 2001. We have posted a detailed schedule showing the impact of the implementation of this standard by quarter, by segment, on our company's Web site for those who would like to see that information.

Next, the implementation of FAS 142, the new statement related to goodwill and intangibles, as we discussed with you in January, as well as in our annual report, the cumulative effect of the adoption of this standard resulted in a non-cash charge in the first quarter of this year of approximately $926 million. As mentioned in the release, we also expect an additional benefit to current year earnings of approximately a penny per share, related to a slightly lower tax rate resulting from the reduced amortization expense from the implementation of this new goodwill standard. This benefit will flow through to the full year results, as the tax rate which we'll maintain for the foreseeable future is lower than what we had originally anticipated in January.

Just to be very clear, in January, we talked about reducing our ongoing tax rate to 27.5 percent. And I said that we were very comfortable in holding that tax rate for the foreseeable future. We would now expect that our ongoing recurring tax rate would be 27 percent, so about a penny benefit. And I would expect you to add that penny to your estimate of earnings for the full year. And we will be able to maintain that 27 percent tax rate on an ongoing basis for the foreseeable future.

Once all the accounting changes and the structural changes are taken into consideration, we are left with operating results which are very solid, but impacted by two items; first, currency; and secondly, the timing of gallon shipments. Gallons increased one percent in the quarter, which is four percentage points below the growth in unit cases. And this is primarily due to timing. As I said earlier, it gives us even more confidence in hitting our full year target for earnings per share, as we do anticipate the gallon shipment growth will come back more in line with unit case growth on a full year basis.

Also in the quarter, around selling, general and administrative expenses, you'll see that on a reported basis, those were up. And that is due to the structural changes caused by the consolidation of bottling operations in Germany, Norway, Sweden and Brazil and then somewhat offset by the sale of the Russia and Baltic bottling operations. Excluding the structural change from those bottlers, SG&A declined slightly when compared to the prior year.

I think, very importantly, our business model continues to produce significant free cash flow. In the first quarter, we generated over $950 million in cash from operations, which is an increase of 35 percent when compared to the prior year. Our dividend payout increased 11 percent over the first quarter of last year, reflecting our confidence in our business model and where we're taking this business. And we also spent about $175 million during the quarter on the repurchase of company stock.

We expect that our share repurchase activity will continue on that pace for an annual pace of at least $750 million in 2002, if not higher. As I believe you heard from our operators, we are still facing many macroeconomic challenges. But we're very pleased with today's announcement and by all of the activities which are taking place around the world.

But we are still facing difficult economic environments in many regions. But let me just be very clear. Our outlook for full year volume and earnings growth remains unchanged, other than you can add the penny for the decrease in the tax rate.

As you saw, the crisis in Argentina impacted results from both the operating income and other income net line. However, our outlook for negative currency impact for the current year has not changed. We still expect negative currency impact for 2002 in the range of eight to 10 cents. But based upon first quarter events, we anticipate an impact at the upper end of the range and skewed to the first half of the year.

As we stated in this morning's release, we remain comfortable with the range of analyst earnings estimates for the full year, which exclude non-recurring items and are posted on first call at $1.76 to $1.80. And with the penny from the tax change, I would expect to see the first call go to $1.77 to $1.81.

Turning to our disclosure policies, let me outline a few important changes that we are making to provide investors with relevant and timely information. As noted in today's release, beginning in the second quarter, we are going to expand our financial disclosures to provide quarterly balance sheets and cash flow statements. This additional data will help investors focus on a wide range of metrics used to evaluate our performance.

In addition, we will discontinue the practice of regularly issuing a volume update in advance of final quarterly results. We will still be discussing our volume performance in the context of our operating results at the time of our earnings release. This timing change will provide investors with the fullest possible discussion of our results and will allow investors to continue focusing on the long-term metrics that drive value for the Coca-Cola Company.

As you can see from our results, we are pursuing clear strategies which are building on a business model to deliver consistent, predictable and sustainable growth. There is still much to accomplish, as we must continue to improve our strategic and financial position. But because of the strength of our brands, our system and our people -- and let me repeat that, the strength of our brands, system and people -- we are extremely well positioned to manage through the current environment and to deliver growth well into the future.

With that, I'd like to open the call to any questions that you may have.

Operator?

Thank you. At this time, we would like to take questions. If you would like to ask a question, please press "star-one" on your touch-tone phone. You will be announced by your name and company prior to asking a question. To withdraw your question, please press "two." Once again, if you would like to ask a question, please press "star-one."

The first question comes from

, UBS Warburg.

Good morning, everybody. I was wondering, Jeff, perhaps if you could elaborate a little bit on what you've learned about Vanilla Coke in tests or in consumer groups and how you're thinking about that impacting the business this year? And also, address whether there are any new ad campaigns coming on Coke Class and Sprite, just the marketing activity around those brands.

Hey, Caroline.

Hi.

Vanilla Coke. Well, without going into a lot of detail, the headlines would be this: "Consumers Across all Demos are Very Interested in the Product." You may have seen that just from the massive press speculation on it. I think that's a good metaphor for the consumer interest.

As we have gone into testing, they not only buy into the concept, but they really like the product, again across all the consumer groups. And it's almost like Contour. The fact of the matter is when we launched Contour, adults remembered it from the glass bottle. Teens thought it was new and interesting. That would be the analog here to Vanilla Coke.

So we're excited about the launch. We think it will add excitement to the cola category and to brand Coca-Cola. And as we've seen with Diet Coke with lemon, that can accelerate the whole category. So that's going to be fun.

Relative to add campaigns on Coke and Sprite, both are in development. We're on it right now with the Kobe stuff on Sprite that's working very well. We think that's great.

And on Coke, as we look to the launch of Vanilla Coke summer promotion, we are continuing to build out what we think is the right campaign architecture. And as I have said, on both those campaigns, we're going to make sure they're right before we have what I'd describe as a formal launch.

And I'm not in a position right now to put timing on that. It will be as soon as they're ready.

Now the business is responding nicely with the marketing efforts we've put out there. And so I have confidence that when we get the campaigns correct, that will simply accelerate the trends we're already seeing.

Thank you.

Thank you. The next question comes from

of

.

Thank you.

Gary, first would you please clarify the effect of the Philippines on shipments as they trailed case volumes in the first quarter? And maybe Mary, you could elaborate on what kind of revenue trends we would expect over the next few quarters as a result of that?

And then also, if you could give us a little more detail on the impact that consolidating the German bottler had, just that impact alone, on the SG&A trends, that would be very helpful. Thank you.

Yeah, as I said, excluding the Philippines, Asia growth was still 8.5 percent. And in terms of what to expect, we are doing what we need to do to get this business optimally positioned for the long term. And that means significantly reducing the number of wholesalers, improving the quality of wholesalers, restructuring credit terms, reducing accounts receivable, et cetera. And like I said, that will take place throughout the year. It will be the end of the year before that process is finalized.

Mark? Gary.

I guess I would follow up a little bit on the Philippines as well and say that with pretty healthy volume growth globally and really held down only by the economic crisis in Latin America, the really encouraging thing is that the Philippines, even though we bought the Cosmos brands, Mary and her team are now doing the right -- taking the right long-term moves for the business. And there is no acquired growth, if you will, in our numbers from Cosmos.

Now I think we'll agree that in certain parts of the world, there is some lift because of Easter shifting from the second to the first quarter. But there is really no real lift coming out of Cosmos. So really underlying good organic growth around the world and, I think, strong growth.

Relative to the question around SG&A, I think you'll see on a reported basis, I think we were up about seven percent. On a reported basis, that is coming because of consolidation, not only of SG&A expenses from the German bottler, but as well the Brazil bottler. You also have Odwalla and Norway-Sweden bottlers.

If you take all of those out and backed year on year, SG&A is down one percent for the quarter on an apples to apples basis.

Thank you.

And just as follow up, could you talk about runaway trends, apples to apples, for what you're seeing in terms of media rates? Any firm up in the ad market, potentially having impact there?

I think that's probably more of a question I think you're talking about North America more.

Right.

Jeff?

Clearly, the ad market in terms of demand has picked up as the economy has picked up. We went into the upfront. We bought the upfront. So we, from that standpoint, locked in a portion of our media budgets and were still out in the spot market.

But relative to our budget, we're right there where we expected to be. So we don't see any impact. As we get closer into June, July, we'll start looking at the upfront for next year. And that will be interesting to see what happens.

But the general situation is that supply continues to outstrip demand. And I think it's still a fairly weak media market play.

Thank you.

Thank you. The next question comes from Andrew Conway, Credit Suisse First Boston.

Thank you very much, operator.

Gary, a couple of questions on gallon shipments versus unit case results. Could you talk a little bit about do you expect the catch-up in the business to be spread evenly over the second, third and fourth quarters? Were there any regions of the world where gallons actually did run ahead of unit cases? And if you could elaborate just a little bit more on the country mix effect in the quarter and your outlook there, please?

Sure. Thanks, Andrew.

A couple of things. First, relative to gallons versus unit cases, I would expect to see gallons start running ahead of unit cases across the remaining three quarters of the year so that gallons are catching up with cases over the remaining course of this year. And so it really is timing.

Gallons really were behind cases generally across all regions of the world. The only thing I would say is that, relative to country mix, gallons were significantly below cases even with lower case results relative to Argentina. That is the planned reduction because when you go through the kind of economic crisis that has occurred in Argentina, you want to manage that and you want to manage all of your inventories. So that was a planned reduction in Argentina just around that economic crisis.

Additionally, you may remember, we talked about we actually changed the supply point and reopened a concentrate plant in Argentina last fall.

Right.

Anticipating that something might happen in Argentina and we needed to be locally based. That in fact allowed the inventories to go down a little bit as well. But that's the real case, if you will, that's kind of structural and economic. But relative to the rest of the world, pretty much across the world, is all timing. And we would expect to see it coming back in line.

Thank you.

. . . your guidance is the $.37 and not the $.40. Is that correct?

Yes, that's correct. And in fact, just to be clear, yes, because the $.40 would be a currency neutral number. The $.37 would be a recurring number. And the first call range that's out there is a recurring number. And currency has already been taken out of it. So the $.37 would compare to what the first call range is.

Yes. I just wanted to make sure. And can you bridge the gallon shipment number of up one to the revenue number when you have all the currencies and mix and structural changes and everything else?

Yes. And basically, I would think about it this way. Your revenues are up three, I believe. You've got one in gallons. You've got, if you will, net-net, a couple of points in pricing. And then you've got some structural change that is basically offsetting the negative currency that comes down to three.

So currency -- the gallons are up one, pricing was up two and structural and currency offset each other?

Structural and currency. And you've got a little bit of mix in there, probably a point or so of mix. So you've got gallons up one, pricing up two, currency probably a negative, I'd say, five or six. And then you've got structural, probably a plus seven or eight. And then you've got a little bit of mix that will be one to two, somewhere in there.

Fair enough. And just another clarification. The change of accounting for goodwill, how much of that helps equity income?

Is helping equity income?

The change in accounting for goodwill. Forty -- Jeff? Larry. I think, just bear with me, $39 million is helping equity income on the FAS 142 implementation. So it would be $13 million. If you had applied it to the prior year, you would have -- essentially, the prior year equity income would have been higher about $39 million. And then also, had you applied FAS 142 to the prior year, SG&A would have been lower by $13 million.

Got you. So again, it was a $39 million benefit in the quarter. Is that correct?

Correct. I mean, on last year's number, prior year number, it would have been $39 million higher. So that's the exact number. Correct.

Okay. All right. I just wanted to get an apples to apples. And just finally, what was marketing in the quarter? I know that SG&A was down by a percent. What was marketing in the quarter?

Marketing is affected by two things first. Remember that we did that pretty large reclassification of a lot of marketing of what you saw. That was the $520 million in last year's marketing line that went up to deductions from revenue.

Relative to the marketing line itself, two things happened. It's down slightly for the quarter. Some of that is because of this reclass and some growth in marketing with our customers. But the other is that in the strategic growth initiative agreement that we entered into with Coca-Cola Enterprises that you'll remember we talked about at length in our last call, a lot of funding out of that agreement last year was classified in marketing and this year will actually be up in the deductions from revenue line, which is causing a quarter to quarter shift as well.

That is going into CCE for local marketing. And while we won't show it -- we'll show it as a deduction. It will show up as marketing over at CCE. And that's why you see a slight decrease for the quarter.

Okay, fair enough. Thank you very much.

Thank you. The next question comes from Marc Cohen of Goldman Sachs.

Hi. I have two questions, one for Gary and then just one sort of more broadly in terms of volume growth. The mix of volume growth is three percent carbs, 22 percent non-carbs. The non-carb growth here continues to be probably well ahead of what many of us expected.

Can you talk about, as you look out across the year and then sort of into next year, how you see those two different product areas behaving? In other words, I'm looking for some insight about drivers that may make the carb business accelerate. And can you keep this non-carb business growing at over 20 percent rate? What are your thoughts on that?

And then I'll come back and I have an accounting question really for you, Gary.

Marc? Jeff. Let me try to talk about it at least relative to my region of the world. I don't think there is any question that we can continue on a worldwide basis to drive strong, non-carb growth. In fact, that's our strategy. We've only really just started, in the last two years, to build the capabilities to do that. And that's translating, I think, into very good results.

With CSDs, you know, marketing and innovation clearly is what's going to drive it. And the thing I think everyone needs to keep in mind is we're continuing to address some of the economic imbalance which manifested itself mostly in CSDs with the bottlers, in order to make sure that we've got a long-term healthy system.

And so those things are impacting -- you know, Brazil is a good example -- some short-term volume growth, but I think putting us in a position to sustain long-term growth. And so I think there are very different drivers in CSDs right now, vis a vis non-carbs. But I think we're doing the right thing in both cases for long-term cash flows.

All right.

Gary, you talk about this reduced tax rate to 27 percent. And I'm wondering if, in order to understand the sustainability of that, which you emphasize quite clearly, some of this has to do with reducing amortization expense and sort of the tax rate that was applicable to the amortization expense. Can you actually sort that out for us, how much of the amortization that you're no longer expensing was tax deductible on both the operating line and on the bottler line?

Yeah, in fact, at the pre-tax line, how about if I take you to just pre-tax?

Okay.

The decrease in the income tax rate that we talked about in January when we said we could take the tax rate down to 27.5 percent and maintain that rate for the foreseeable future, that was all pretty much cash-related taxes. The FAS 142 impact, there is a little bit of FAS 142. But the real FAS 142 impact is this additional half point decrease that we're talking about today.

As we finalized -- and in fact, without going into it, it was a very complicated tax calculation because you have to attach the calculation basically everywhere you had goodwill around the whole world and look at every country's tax structures, et cetera. But that half point benefit that we announced today, or a penny a share over the year, is a non-cash benefit.

The rest of it was pretty much all cash benefit. And we're very comfortable that not only will we maintain the $100 million in cash savings per year from the lower tax rate but that we'll be able to maintain the 27 percent rate as a sustainable rate for the next three to five years.

Why are you so comfortable about that? fayard: Because as we look out at our business plan, but as well as some very good tax planning, we have -- and I think I talked some about it in January -- but we have been doing a lot of tax planning around our tax rate for the last couple of years. And we're really now seeing it come to fruition.

It's really kind of like, as the operators talked about, the things you're starting to see this business really respond in this quarter and really seeing the results coming through, taxes are the same kinds of things. We've gotten tax audits around the world up to date. We've built a new concentrate plant at a tax-advantaged location. We've done a lot of work around this to really be able to now see the fruits of our labor, to be able to take the rate down and hold it.

Okay, thanks.

Thanks, Marc.

Thank you. The next question comes from

of Dresdner.

Yes, good morning.

Just two questions. One, I need a little clarity. I may be misreading this with all the accounting stuff that was going on in the quarter. The interest expense line net, it's saying it's at net $12 million income. And I guess I just want to compare that to -- I've been looking at a handful of consensus models. And they seem to imply that the full year was to be a net $100 million interest expense.

Should we adjust for what this quarter is saying? And then I have another question.

Yeah, Alec? Gary. We did have a net interest income for the quarter. We would expect it to turn around probably in the second quarter because we will be paying some dividends out about right now, in fact, and bringing that cash back to the U.S. When we do that, we've been earning some higher rates than what we've been paying in the U.S. So that's how we got that net interest income.

So interest will flip starting, I think, probably in the second quarter and will flip to interest expense for the rest of the year. And so I think what you're seeing is really kind of a timing and it will flip around as we move through the year.

So you mean, for the full year, we should still feel that the $100 million net interest expense number is about right?

It's probably $100 million. It might be a little bit less. I mean, I'm not giving up as I manage those lines on the P&L. But I would say, you're starting in a good place. But I will continue to try to get it down.

Okay. I just want to make sure we weren't seeing a penny a quarter upside here.

No, you're not. You're not.

Okay. The other question is just, as I try to back out the impact of the consolidation, deconsolidation bottler stuff, it seems as if the SG&A to sales ratio stepped up year over year for the first quarter. And I guess I'm trying to get at the heart of what I believe to be some of the turnaround issues for Coca-Cola; and that is, when they get their volumes back in line, will they have enough traction such that their operating profit per case is at the right level?

And so I'm trying to get a sense here, at looking at that step up in SG&A to sales ratio as a question mark about the volume trend. What is going on with SG&A to sales? And do you think we're at the appropriate level?

Yeah, well first, the consolidation of the bottlers does have a significant impact. And when you take those out so that you can look at it on an apples to apples basis, SG&A was actually down a percent on revenues being up three.

No, no, no. You have to back out the revenues of the bottlers too.

Well, that's true. But where I was about to go was, remember that a lot of those SG&A numbers, you've got marketing that's really on a sales curve that's over the year, number one, on cases and not on gallons. Okay?

Right.

So we've got more expenses in the quarter for marketing relative to our unit case increase of five percent. But our revenues, which are off of gallons, which were only up one. And so as you see those gallons catch up with cases during the remainder of the year, you'll see the ratio you're talking about going back down.

So I think SG&A is very well under control and so issues there at all.

Okay. So it's just the flip of what happened last year.

Yeah, exactly right.

Okay, great. Thanks, Gary.

Thanks,

.

Thank you. The last question comes from

of J.P. Morgan.

Thanks, good morning.

A question for Mary. Mary, we've been hearing a lot about competitive launches, particularly in the tea segment in Japan. Can you give us an idea, in terms of the competitive landscape there? And also, how long do you think it will be before we get an idea whether some of these new competitive products have really gained traction in the market?

Well, as you know, the major launch period for most of the teas is in the February-March time period. So most of us are out there with our entries right now.

We did, despite cycling the launch of Marocha last year, which was a huge success for us, we managed to cycle those numbers. And as I said, first quarter tea growth was in excess of five percent, which is pretty good.

The good news there is we've got a pretty balanced portfolio now. We have a strong green tea entry because you know that's where most of the action was last year. So Marocha is holding its own in the green tea category.

We've completely repositioned Sokenbicha, which has been our long-term leader in the tea category for quite a while. We launched

to compete in the non-sugar tea category again. We're going to follow up with kind of a version of tea called Love Body in another couple of weeks.

So I think we finally have more eggs in our basket this time. Before, we used to just have Sokenbicha as our primary tea competitor. And now we have Marocha. We have

. We have Love Body coming up. So we have a pretty good portfolio I feel good about.

But I think probably by July and August, we'll know who the winners and losers are. It generally only takes a couple of months in Japan.

Great, thanks.

Well, I would like to thank you all for joining us this morning. And we look forward to speaking with you again soon.

Thanks very much.

Thank you for participating in today's conference call with the Coca-Cola Company. Audio playback is available via the company's website at www.coca-cola.com. You may now all disconnect. Thank you.