可口可樂 (KO) 2002 Q4 法說會逐字稿

Good morning.

My name is Jason.

I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Coca-Cola Company fourth quarter end full year 2002 conference call.

All participant lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

And questions will be taken in the order they are received.

If you would like to withdraw your question, press star and then the number two.

I'd also like to remind everyone that the purpose of this call is to talk with investors.

And therefore, questions from media participants will not be addressed in this forum.

Media participants should regard the discussion as background information only, and should contact Coca-Cola's media relations department if they have additional questions.

I would now like to introduce Larry Mark, director of investor relations, who will begin the conference.

Good morning, everybody.

Thank you for joining us.

I am pleased this morning to be joined by Douglas Daft our chairman and chief executive officer.

And Gary Fayard our chief financial officer.

In addition we have the senior operating officers with us today.

They'll be participating in the Q&A session.

They are Brian Dyson,our vice chairman , Steve Heyer,our president and chief operating officer ,Sandy Allan who heads up Europe, Alex Cummings who heads up Africa, Jeff Dunn, for North America, Mary Minnick for Asia , and Jose Octavio Reyes our president for the Latin America group.

Our prepared comments will be brief.

We plan to use most of our time this morning for Q&A session.

So that we can get to as many as of your questions as possible, we would ask you to try to considerate of others and limit yourself to one question during your turn.

If you have more questions, please return to the queue.

Before I'd like to remind everybody that this conference call does contain forward-looking statements including statements concerns our long-term Volume and earnings objectives and should be considered in conjunction with the cautionary statements that are contained in our earnings release and exhibit 99.1 of the company's most recent form 10-K.

Now I'd like to turn things over to Mr. Daft.

Thanks, Larry.

I assume now that everybody with us this morning is -- has had a chance to see our earnings release.

And as Larry has indicated, I'll keep my prepared remarks very brief so we can allow maximum question time.

Let me open by saying we have concluded a strong fourth quarter and a strong 2002.

Our results reflect a clear focus on executing our six strategies.

They reflected everyone in our organization understands these strategies.

They reflect the fact that the strategies work.

And it also shows, and I'm quite proud of this, the dedication and the ability and the depth of our senior management team.

Now that you have heard me say very often that when our system, that's our brands, our employees, our bottling partners when our system works together, we are absolutely unbeatable.

And the system is working together.

All of our financial metrics support our performance.

Gary will take you through these in a moment, but quickly the worldwide case volume just short of 19 billion cases and 20 billion dollars of revenue, a record 5.5 billion of operating income.

Cash from operations, up 15% to 4.7 billion.

And after investing activities we generate 3.6 billion in cash, which in fact is 22% over 2001.

Our reported EPS of 123 which included 54 cents of one-time adjustments which in turn also included 11 cents per share impact from stock option expense as we adopted the so-called modified prospective method of expensing these options.

This currency negatively impacted our supply further 8 cents a share.

Steve and all the operating team today are totally focused on executing our six strategic priorities.

And we're confident that 2003 results will reflect just that.

We'll see stronger growth in beverages led by Coca Cola, continued strong growth in our noncarb portfolio, and improved profitability from the already solid profit base established for this part of our business in 2002.

Our results will reflect the continued collaborative relationship with all our bottlers, and continued improvement in bottler economics.

This trend actually built in 2002.

We'll see continued market share growth and value share growth.

And 2003 will see strong financial results.

From our company.

Now, I often get questions about the environment.

We do business in.

And certainly the macroeconomic environment last year, 2002, was difficult.

But we achieved our strong results in spite of that.

And I think as everybody realizes, the macroeconomic and the political environment in 2003 will be challenging.

But I've got to emphasize we have a well thought out, clearly defined strategy and a focus on execution.

And with this in hand we are confident in our ability to lead industry growth, and deliver solid financial results.

We're prepared for complexity.

It's built into our plans and programs and nothing I know today would lead me to change the way I outlined our business for 2003 when we met with many of you last December.

Now, let me hand over to Gary.

Thank you.

I'd like to continue this morning by giving you a few facts by what we have achieved in the past year.

First, I'd like to give a few comments abut our performance versus the overall industry.

As you saw in this morning's release, our worldwide volume grew 5% for the year or by nearly 950 million incremental cases.

When you compare this to the 2% growth rate of the worldwide commercial beverage industry, or the 4% growth rate of the worldwide nonalcoholic ready to drink beverage segment, you can see that we are leading the growth within our industry.

As you also saw in today's release, we outpaced the industry across all major beverage categories.

This is further evidence that our focus on our strategic priorities is clearly showing results.

Now, let me make a few comments about the numbers.

As Doug stated, our reported earnings per share were $1.23.

This is after a reduction of 54 cents per share resulting from the adoption of FAS 142 related to goodwill and other intangible assets.

The expensing of stock options and several charges and gains from earlier in the year in Latin America.

Most of these items were from earlier in the year and they are described in detail in earnings release.

Therefore, I will not go into each of them at this time.

However, I do want to mention briefly the accounting for stock options.

As announced earlier this year, we adopted a policy to expense the fair value of employee-based compensation.

Based on the transition rules that were issued at the end of December, in FAS 148, we selected the modified prospective approach to recording stock based compensation expense.

We think the modified prospective approach is better than the alternatives, as it allows easier evaluation of our growth rates and our performance in the future.

Under this approach, we started recording expenses for stock options, starting at the beginning of this past year as of January 1, 2002.

As a result, the previous reported quarterly results for 2002 have been restated to reflect the impact of adopting this new FASB ( the word inaudible)statement.

But also please recognize that when you are comparing our results with prior years that under the modified prospective approach, financial results for 2001 and prior years have not been restated.

The overall impact of adopting the fair value method was a non cash adjustment for 2002 of 373 million dollars pretax, or 11 cents per share after tax.

As we mentioned in our earnings release, this expense was spread fairly equally throughout the quarters.

We are very explicit in the release on the amounts by quarters so that you can quantify the impact of expensing stock options when you are comparing with our results to those of others.

We will continue to provide you full information so that you have all the facts in the event that you would like to make comparisons to companies which are not expensing stock options.

Lastly in this area, we expect the stock based compensation expense in 2003 will be approximately 13 cents per share after tax.

Which is slightly higher than the 11 cents per share impact in 2002.

In the years after 2003, I do not expect any significant increases in the annual stock-based compensation expense.

I believe for modeling purposes that most analysts have been building in approximately 3 cents per share in 2003 under the previous required rampup methodology.

Therefore, we would expect to see an adjustment of 10 cents by most analysts purely related to this accounting change for stock options.

Let me reiterate though that this new accounting treatment for stock options does not impact our cash flows or the underlying economics of our business.

As you know, we have taken a very proactive approach to ensuring our financial statements, take the information that was previously included as a footnote disclosure and we're now including that in our income statement.

In fact, from discussions with the international accounting standards board and the (inaudible) I believe that all companies will be required to do this same accounting in the future.

Let me move on to a few other items.

As Doug stated, our business model continued to generate strong results.

We had a record operating income of 5.5 billion dollars for the year, and this is even after reflecting the stock option expense.

As reflected in the operating segment results in our earnings release, our international operations generated operating income of 4.7 billion, reflecting one of the true competitive advantages of the Coca-Cola system.

With 80% of the growth in the beverage industry projected to come from outside the United States over the next five years, this clearly demonstrates how well positioned we are to capture those growth opportunities.

Additionally, as we discussed with many of you in December, our average profit per case on noncarbs is approximately twice that of carbonated soft drinks.

And remember that we have actually been in the investment phase for this segment of our business over the last three years.

So I would expect to see continuing improving profitability from noncarbs.

Equity income which reflects our investments in the bottling system around the world and as representative of the improving health of the Coca-Cola system, increased over 25% to 384 million dollars.

Our return on capital was a healthy 24.5% and return on equity was over 34%.

Our cash from operations were superb increasing 15% during the year and we continue to use our cash resources very effectively.

Our dividend increased to 11% in 2002.

The 40th consecutive year of a dividend increase.

And we allocated 700 million dollars to share repurchase.

Over the next five year we remain confident that we'll generate at least 31 to 33 billion in cash from operations, and spend less than 5 billion on capital expenditures.

Now, turning to the current year, as we stated in December, we are not going to give specific earnings per share guidance for quarters or for the full year.

However, we said we would continue to provide you with prospective on our value drivers.

Strategic initiatives and factors critical to understanding our business and operating environment.

First, we continue to be confident in delivering our long-term growth goals of 5 to 6% volume and 11 to 12% earnings per share growth.

Secondly, we expect 2003 to be a strong year as we continue executing our six strategic priorities.

Then let me give you a few more comments about different areas.

Economic conditions, macroeconomic conditions are expected to remain challenging in certain parts of the world, but most economists are expecting improved conditions in 2003 versus 2002.

Keep in mind that there are some uncertainties that exist surrounding the Middle East and the impact of this that this could have on global economic conditions.

Concentrate pricing.

Our expectation is that revenues will increase ahead of unit case growth as we realize price increases in line with global inflation at 1 to 2%.

Relative to currency, based on our current estimates, currencies are expected to have a neutral to slightly positive impact on earnings per share in 2003.

Relative share repurchase, as I said we repurchased about 700 million dollars worth of shares in 2002.

We will accelerate that to at least double that level in 2003.

Pension expense as we discussed in December, we have lowered our expected return on planned assets and have lowered it --from 8.25% to 7.25%.

As we had also discussed in December the net effect on this pension change on 2003 results will be about a penny per share additional pension expense.

We did make a contribution to the pension plan in January and it is fully funded.

On our streamlining initiatives, the company is integrating the operations of its three separate North American business units which will result in a head count reduction of approximately 1,000 people.

The company's bottler CCAG in Germany is also closing three bottling plants which will affect approximately 900 employees in that country.

These two initiatives are expected to result in a full year charge of earnings of approximately 400 million dollars on a pretax basis, and this will primarily be in the first and second quarters with some amounts impacting the second half.

Regarding savings from these initiatives, the German savings will be invested in that market as part of the restaging of the German business.

There will be savings from the North American initiatives that will float through to the bottom line they're expected to benefit 50 million pretax in 2003 and at least 100 million dollars on an annualized basis beginning in 2004.

Regarding other streamlining initiatives, we do not expect any other charges beyond these that we have just discussed.

Those are the primary items that you should consider as you look at 2003, although we are not commenting on specific earnings guidance.

Hopefully the comments above and the prospective from the operators today will provide helpful insight as we move forward in 2003.

But to sum it up, the Coca-Cola Company by any measure is very strong.

We have the right strategy in place.

We have collaborative relationships with our bottlers.

And are working to strengthen the entire system.

We have a broad portfolio of brands to satisfy all of our consumers beverage needs.

And we have reasserted marketing innovation and excellence worldwide.

Now, let's move to your questions.

Operator?

At this time, I would like to remind everyone that if you would like to ask a question, please press the star, then the number one on your telephone keypad.

If you would like to withdraw your question, press star and then the number two.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Andrew Conway with CSFB.

Good morning.

Doug and to the operators, my questions really revolve strategically.

It looked as though your global business accelerated a little bit in fourth quarter to 3% from a 2% run rate.

In your operating planning process for 2003 do you anticipate accelerated CSD growth to continue?

And Doug, I'm budgeting strategically about 4, 4.5% global volume in year.

In light of your improved execution, innovation pipeline and portfolio brand management, is that enough to offset some of the challenging macro and geopolitical issues?

In other words, can you profitably grow volume closer to your long-term targets of 5% this year?

You should join our planning group, Andrew.

Let me first of all, I'll make brief comment.

Sure.

Then I'll hand it over to Steve and then pull everybody in terms of the carbonated priorities.

I think I said at the beginning, our absolute priority this year is to accelerate our carbonated business, led by brand Coca-Cola.

I believe we saw that momentum build through 2002.

And, in fact, accelerate toward the end of the year.

I without commenting on the 4.5, and I'll leave the details to bring that through, let me emphasize that the things that I also said is that we have actually got a plan that incorporates assumptions about the environment which we do business in.

We believe that the these --that these assumptions always are on the conservative side, but we build our plans and our -- and what we see the business doing around these assumptions.

We have a very, very clear method of handling what we see in our environment, which makes us confident then about what we will achieve during the year.

Steve, do you want to add to that?

Well, Andrew, I think Doug hit the highlights.

The commitment we have across the entire system is that trademark Coke is a key focus and trademark Coke, we have plans in place that we feel very comfortable will cause real growth.

Across the rest of the CSD portfolio, we're also focused on putting renewed energy behind Sprite.

We think we have made tremendous moves forward in making Fanta a critically important piece of our portfolio.

And it is an element that we will also Heavily focus on this year.

We have the enthusiastic support of the bottling system around the world to do that.

With respect to your question about the growth rate and the economic difficulty that you kind of imbedded in there, our business plan assumes that we can through proper management of costs grow our margins.

And that is one of my primary areas of focus this year as Doug has instructed.

And we're encouraged that we're taking the actions to get the growth that's consistent with our long-range plan target and at the same time protect profitability should that be an issue anywhere in the world by constant pressure on nonmission critical expense management.

Thank you.

Your next question comes from Mike Branca with Lehman Brothers.

Thank you.

Good morning.

You've frightened your worldwide volume growth in 2002 in the context of the commercial and nonalcoholic drink segment.

I was hoping you could drill down a little bit more detail on your key countries outside of North America, specifically enlighten us with your market share performance either by value or volume preferably by the nine alcoholic-rated drink beverage market.

Also in that context, Doug, in your prepared remarks you talked of stronger CSD and you touched on this in the earlier question.

Can you help us get a sense as to how Coca-Cola trademark's behavior would be going forward and how much you expect to come from line extension, again outside of North America?

Yeah.

I'll let Steve handle that.

Mike, he's sitting there.

He's dying to do it.

Well, I have the data, Mike, so I thought I'd share it.

On a top-line basis, every SBU, every major region in the world grew share.

I think that's an incredibly important thing for you to register.

Secondarily with the exception of Germany, every major market of ours in the world on a country basis grew share.

And in some cases pretty dramatically.

And so we feel very pleased with our relative position and with the momentum we have and keeping momentum is an act of will.

And we've committed to one another that going forward we'll we are focused on both volume share and value share and the profitability that flows from those trade-offs.

But it was by any measure a very strong growth year for us against category growth numbers.

Okay.

In terms of trademark Coke and the broadening out of the portfolio there?

Well, I think we're going to continue to innovate, but we're going to see fundamental growth in the core in what we're defining trademark Coke today.

A lot of growth in Diet Coke around the world.

A lot of growth in Vanilla Coke as it rolls out around the world.

Pretty substantial growth in Diet Coke with Lemon as it rolls out around the world.

And the core business is a key focus, sugar Coke and we are optimistic about the growth that we believe we can get in that core brand too.

Andy, what did you comment on Diet Coke or Cokelite as it's called in Europe which is seeing an extraordinary ...

Sure.

Andrew, good morning.

Mike, sorry.

That's all right.

Call him Fred, Mike.

Um, Mike, if we look at Europe in an earlier analyst conference call, I said that I really believe that the moment for Diet Coke and Cokelight in Europe had come.

And if we look at our performance in 2002, the grasp of Diet Coke was 11% and we've rolled out Diet Coke with Lemon in 11 countries as well.

And on core, what I call core Diet Coke, we've also had stunning growth in some countries, especially in eastern Europe where we had growth in excess of 20%.

As we have progressively put more money behind Diet Coke, so to the point that we would believe that the future growth of Diet Coke in Europe is a very sustainable double digit going into the future.

Okay.

Thank you, sandy and Steve, if at some point you can clarify what a lot and what pretty substantial growth rates really mean, I'd appreciate it.

Well -

Thank you.

We'll do what we can within the bounds of what we're allowed to say.

Got it.

Thank you very much.

Your next question comes from Bill Pecoriello with Morgan Stanley.

Good morning, everyone.

I was hoping Mary can give us more color on Japan in terms of the industry weakness in fourth quarter because you alluded to the share gains.

And then the magnitude and timing of the savings you see for the bottler network and how you're managing the positive mix shift there through the weaker volumes in driving profits?

Yes, bill, you know, Japan is a difficult economic environment and no reason to expect that to particularly change one way or the other.

So under those conditions what is our criteria for success?

We think it's threefold.

Number one, are we outgrowing the industry which indicates your brands are healthy and competitive?

And the answer to that is yes, we've done that for six quarters in a row.

Second criteria is of the top-line growth that you're getting, is it managed towards the products that one are your core and therefore important to your base.

And two, that are incremental in terms of their margin.

And the answer to that is yes, we have healthy core brand growth.

In fact, greater than the corporate averages as a whole on brands like sokenbicha (ph) and Diet Coke.

And the third criteria of course is the cost reductions.

Which we've talked extensively about.

That we believe are on the table in both the short and the midterm substantial over the next three years.

So relative to Japan, that's our three criteria for success.

On the other side of the equation from a volume standpoint, we have exponential growth in other countries in the Asia portfolio.

The Indias and the Chinas of the world are high double digits.

And from a profit standpoint, there are certain profit gems within the Asia group that we can polish this year, an we did in fact polish last year and despite the softness in the fourth quarter in Japan, the company still made its objectives and as a result of, you know, intelligent portfolio management with other countries within Asia.

Particularly south Pacific, the Philippine, Thailand and so on.

Thank you.

Your next question comes from Caroline Levy, with UBS.

Caroline?

Please go ahead, Ms. Levy, your line is open.

Can you hear me?

I was asking if we can have the same discussion about Mexico which of course had a great quarter, but if we could just talk about what the financial center together means going forward and what the outlook looks like for Mexico given the recent peso devaluation and the tie to the United States?

Good morning.

That's bringing together I think to our best operators in the --in the deal that is bound to bring Deficiencies toward the system.

As mentioned, there are a lot of opportunities in terms of sales execution, in terms of production, distribution.

Efficiencies in terms of administrative overlaps that are bound to happen or that had happened before.

And this several of you have pointed out, that is something that's going to be beneficial to the Mexican market and to increase the power of what it is today a very strong system.

One of the strongest systems in the world.

Mexico is looking is looking I believe on the positive side.

Most analysts believe that the economic outlook for the country will continue to be tied to the U.S., but slowly as experienced by this past year.

We believe that it will continue in that route.

We're very confident of the power of our system and the combined strengths of Coca-Cola.

Thank you.

Would it be possible to touch on Germany and the outlook there?

Hello, Caroline.

Hi, Sandy.

Germany, while there's no doubt that the economic situation in Germany is challenging, and the change of government that took place not the change, but the continuation of the old government under Mr. Schroeder ...

Don't make political comments going forward.

No no.

No political comments.

But Mr. Schroeder I think as you read, Caroline, is having difficulty.

He's lost two provincial elections recently in December, and therefore, the government remains fragile.

And of course if you have a fragile government, it doesn't allow economic reform to carry on.

Because I know it and you know that Germany needs substantial reform in its welfare system and labor practices But a difficult environment.

I think from our business perspective, I mean, as you know there's been some recent deposit legislation which has resulted in a very difficult situation in the marketplace where consumers are finding it difficult to return containers in which they have paid a deposit.

Fortunately, our business before this deposit was put into force was 50% returnable.

And we do see an opportunity to promote our returnable package and we are in a unique position because no other competitor in Germany has anything near the returnable capacity that we have.

So although our business is being negatively affected in the short term in single serve packages, that like the half liter and the can, already we are seeing that the loss that we are having in non returnable take-home packages is being compensated by an increase in our take-home returnable packages.

So we are confident in Germany as we move forward that the German business will, from our perspective, be solid in 2003.

Thanks very much.

Your next question comes from John with JP Morgan.

Thanks.

If I can, I'd like the congratulate all you have in terms of increasing the level of disclosure in the press release, particularly in terms of the organic volume numbers and the regional operating profit.

I think it's a huge improvement and I think people really appreciate it.

So looking at that, I was wondering if sandy could give us an idea in terms of his outlook for European operating profit which was really sort of the bright spot from an operating standpoint this year, and then Gary, if you can talk to us, it appears as though corporate was a pretty big leverage area in this quarter particularly.

It seems as though corporate drove a lot of the operating profit growth year over year.

Can you let us know what drove that and how sustainable that is looking out over the next year or so?

Well, as far as Europe is concerned in 2002, we had a satisfactory year.

And the reason we had the satisfactory year is that we got marginal improvement in our business, as well as having solid volume growth.

And solid volume growth was in soft drinks which grew by 2% led by trademark Coke and also a continuing expansion into noncarbs which grew at 36% on a profitable basis.

And I see no reason that we cannot continue in the same VEIN.

Great.

Gary, do you have any thoughts on the corporate side?

Yeah, John, thanks.

Relative to corporate, we have been doing a lot of work.

As Steve said, we have a real focus around leverage of our expense lines, and it's not only in corporate, but also across all of the operating units globally as well.

But I would expect to see continued leverage coming out of corporate a we continue to refine exactly what accountabilities are as we have gone through the streamlining with North America.

I expect to see a lot more efficiency being able to leverage that.

So I would expect to continue to see leverage coming out of the corporate operating expenses as well.

So we should expect the G&A improvements you have spoken over the last six months or so should be a combination of corporate and then we should see them roll out in the regional lines as well then?

Yes.

You will also see some benefit around procurement and other activity areas in our numbers, but even more substantial improvement we expect in our bottler numbers.

Got it. great.

Thank you.

Your next question comes from Marc Cohen with Goldman Sachs.

Good morning.

You know, it's very clear that you have stepped back the emphasis up on growing the carbonated soft drink business, but I wonder if Mr. Daft and Steve Heyer, I wonder if you can address two things from a strategic stand point.

One being after having made this big investment to really build out the noncarb business, where do you see that effort in terms of scale and scope today and sort of as you look out over the next several years, what kinds of things do you feel you need to do to complete that process?

And I guess I'd also like to get a sense of having worked so hard with the bottlers to set them on a positive course where incomes rising and returns on capital are improving you know, how you see that situation playing out between yourselves and the bottlers over the next two or three years as well?

Mark, it's Doug.

First, on the noncarb, yeah, we have built now -- again, remember now that -- I mean we in the industry draw an artificial distinction, consumer choose what they want to drink.

We're offering the consumers the choice of what they want We look at it in industry jargon versus the way that the consumer looks at it which is what do I want to drink and we want them to drink one of our brands.

So we have built what we call a noncarb business very successfully in the last several years.

It's now 15% of our global volume.

That's roughly 3billion cases to put it in context, and you measure that in terms of, you know any other person, any other company, the industry, it is in its own right a huge business.

We have of course been in an investment mode.

It has from the very beginning delivered profits and will continue to deliver that profit.

What we're applying are the same principals and continue to build that business because to us it is a drink.

It is a beverage that we successfully applied in the so-called carbonated business, soft drink business which is building scale, building efficiencies in the business, building brands and as time goes on, getting increasing returns, margin returns as these businesses become as the brands become established.

And as the investment phase moves into stage two of brand building.

So certainly that process will continue.

This is something that just continues to build the strength of the Coca-Cola system.

It's not any good for us.

It's been good for the bottlers.

The situation with the bottlers, I describe as in two ways as it's collaboration.

And as you see so many signs, Mark, and I'll hand it over to Steve in a minute.

But we're both very passionate about this sort of bottler issuer as are all the operating folks, because it's the system that strengthens.

So I see it as both collaboration and you see so many signs of that.

You see the new venture in North America.

The work that was being conducted in Japan.

The fact with we announced earlier this year, a statement earlier this year that our China bottlers and ourselves are building infrastructure in China.

We're working together as you heard Sandy talk with the key bottlers in Europe on infrastructure and efficiencies.

So all of the signs of collaboration, true collaboration and the benefits for the system are there.

And then a recognition that we had we needed to and we did put the bottlers back on the path of economic health.

And as I said, we see that momentum which began -- sorry, it picked up strongly in 2002.

I think Gary mentioned a 25% growth rate in the bottler economics, our equity share which is a measure of their own success.

We see that momentum building.

Steve, you want to -

I can't add to that.

I think you answered the question.

Mark if there's anything specific that Doug didn't cover that we can handle, but I think Doug sure did justice to your question.

Yeah.

I guess if one part of it that maybe I didn't ask and should be addressed is you as part of an effort to strengthen the balance system have obviously put some of your own capital to take them back in.

How do you see that playing out you know, over a few years?

Is this level of investment that you in today should that be thought of as a level investment that should stay, but maybe rotate through properties or do you envision in any meaningful way being able to eventually get capital back out of the bottlers?

Mark, it's Gary.

Why don't I take that one, and then Steve may add a few comments of his own.

But here's how I would think about it.

We actually have a lot of capital and investments in 100% owned bottlers around the world today.

I have told you previously that a lot of those bottlers we will reduce our ownership or sell completely because many of those are not strategic.

Some are such as our investments in Coca-Cola enterprises, et cetera.

But others are not.

We will sell those bottlers and so it will reduce our own capital.

That's number one.

But in very importantly I think as you look at what we're doing around the entire system globally on being able to take capital out of the entire system equation, you can see that from the initiatives that we have going on in North America today, you can see it in initiatives we have going on that Mary is leading in Japan and China.

We've got some going on in Brazil.

We are doing this around the world.

And in fact reducing total capital requirements not only for the Coca-Cola Company but also for the entire Coca-Cola system.

The only thing I'd add, Mark, if you look at the work that we have been doing with the major bottlers around the world in procurement I.T. shared services, what you see is capital avoidance of substantial amounts on behalf of all of us because of the sharing and the leveraging that we're able to accomplish and we're very optimistic about what the impact -- what that impact will mean to the system over the next couple of years.

Thanks.

Your next question comes from Mark Swartzberger (ph) with Legg Mason.

Thank you.

Good morning, everyone.

A question for you, Mr. Daft or Steve on some of your opening comments regarding carbs growth in '03.

I wonder if you can unpack a bit more for us, there's a lot of confidence there.

I know we have talked about it in this Q&A and some of your prepared remarks, but if you can unpack that confidence for us a bit more to the extent it's relevant include any commentary on bottlers' incentives to help you achieve that objective, that would be helpful.

Yeah.

Mark, a quick comment.

It's Doug Daft.

First of all, global emphasis on -- let's call it Coca-Cola classics in the United States, as evidenced by the new campaign which you don't declare success instantly, but very you know, very strong initial positive feedbacks and Steve will elaborate a little bit from the consumer.

You know, and the bottlers and our own people and everybody who watches Coke which is most of the world.

So that's that of course gives us great impetus and momentum behind that brand.

Then you add the success of Vanilla Coke and Diet Vanilla Coke in the U.S. which will give us full year results in 2003, et cetera.

And the fact that this has proven to be a highly successful brand from Sydney to London.

Diet Coke you heard Sandy talk through, that is a worldwide phenomenon.

Diet Coke, Cokelight, whatever it's called in various countries from some countries to a small base, but the results are extremely strong.

Add that to that a very good acceptance of Diet Coke with Lemon on a global business and roll out through that will continue to add to this momentum behind the trademark Coca-Cola but every part underneath the trademark that' number one.

Number two, Fanta had a fabulous year last year.

It was I think broken out in the earnings report 6% growth.

It's a function of the strength of the brand that's been built in all countries, from Latin America through Asia through Europe.

The extensions that we add which are timely and appropriate to that flavored brand, and as I said, just the momentum once built in our system in the system itself gets behind the brand.

So I think the combination of that and we've already talked about the priority that Sprite will have in North America and will continue to have in the global business.

The only thing I'd add operationally, Mark, we are focused on obviously leveraging price pack channel with these brands very aggressively dealing with affordability in some parts of the world and deal with convenience, packaging innovation is going to be the important element of that.

As will line extensions around the core.

We have marketing momentum Doug alluded to it.

We're feeling pretty good so far.

Obviously the proof will be in our sales, but we're feeling very comfortable that we've got great advertising in development for Coke.

Early testing, quantitatively with a panel of a couple of thousand teens tells us that this campaign is the strongest in the category and maybe a decade.

So that we think puts us in a good place to see continued upside.

Innovation will continue to be important in every aspect of how we go to market.

And then last, I think the bottling system is really committed and we have plans that are very well aligned in all major markets where our business plan and their business plan, read like the same business plan.

Thank you.

Your next question comes from Jeff Kanter with Prudential Securities.

Good morning, gentlemen.

Once again, thanks for the disclosure on the press release.

I thought that was very helpful.

Gary, how much of your charge -- how much of the 400 million dollar charge this year is going to be cash?

Jeff, of the 400, I would expect probably 300 to 325, somewhere in that range would be cash.

Okay.

When we -- you know, when you consider this 1.5 billion in share repurchase or so, basically all of your free cash flow, it will be either put towards this charge or the share repurchase that's fair?

Well, I would consider the share repurchase will be some --as you say around the streamlining cost.

And there will also be some that goes to dividends and I would expect the board would have a we will propose a dividend increase to the board next week to make it 41 consecutive years. there will be some small acquisition activity.

Near a good cash position, and very strong financially.

Fair enough.

You know, Steve, I guess what we're all trying to figure out is when are we going to get a return on these investments?

You know, as I look through your P&L in 2002, your operating income growth has been in line with your shipment or below.

When you strip out all the charges and everything like that.

And we have been going through this investment stage.

You know, are we passed it now?

Are we going to start to see operating income leverage?

Hopefully that's not just from lower corporate expenses but just as a segment levels, is the heavy lifting over?

Because that's -- that to me is kind of the real key, because you haven't been get anything type of margin left.

Jeff, Gary again.

Let me get that.

Number one, we will be getting leverage in expense lines going forward.

As we have talked about earlier.

A lot of the investment phase that we talked about.

You know, if you go back three years ago, we really were a carbonated soft drink company.

And today we are the largest carbonated soft drink company and we are basically the largest non carbonated beverage company in the world in three short years.

Those three years, yeah, we have developed and invested behind and introduced and grown significantly in the noncarb area as well.

Well, what you see us doing now is in fact increasing your profitability because we're kind of out of the feeding and investment stage, if you will and now starting to grow profitability on those brands which as I said were already almost twice that op CSD.

I think you'll see a lot of leverage coming in a lot of the different lines that's why we're very confident not only in operating results but back to the free cash flow very, very good returns.

So no matter what the volume growth numbers are, in 2003, you know, if we strip away whatever the currency impacts are going to be on a quarterly basis, if you don't see any lift, you'd consider that a disappointment?

We should be getting some leverage, yes.

Not only in pricing, some in cost of goods and then some in the expense line.

So you should be seeing that coming through in all those lines.

It will be a function of scale supply chain, reinvention and regionalization or globalization in some cases of brands.

And the other thing, Jeff, you've got to remember we're doing what we do best which is build brands so the investment you're talking about in fact is a marketing investment in building that brand.

Which of course will get the returns on as opposed to if you like a capital investment.

So for PowerAde for example which is now I believe in 70 countries, that it wasn't in eight months ago has been done as we built that brand and the investment in marketing which of course the payback comes once the availability is there.

Okay.

So we just all -- we're just all hoping that the operating assets are going to start to stay flat here.

And this sounds like that that's the plan.

Thank you.

Your next question comes from Alex Patterson with Dresdner RCM (ph).

Good morning.

Just the market share point you guys made, was that value shares on the increase?

Just want to clarify that.

And secondly, kind of a broad question, sort of stepping back if you guys have, you know, transitioned the company, repositioned it, and the incentives in place for management long term hit the algorithms of 5% volume 11 to 12% earnings.

With all the changes that have gone on with accounting and options and all these things, would you give us a sense, does the 11 to 12% long term growth work off the base from 2000 which options was like $1.55 or so.

Or do we sort of reset the bar here?

The implication is to hit that 11 to 12 from off the base back then we've got quite a rapid increase in earnings growth in front of us.

I just wanted to know whether you guys were comfortable with that vis-a-vis where your incentives are lined up?

Let me take first piece of that on volume share and value share.

We have hard data on volume share and some with softer data on value share.

The hard data absolutely indicates that our volume share is up as I indicated everywhere.

And our softer data around value share also confirms that conclusion.

I think we're very comfortable that our value share actually did better than our volume share.

It's just hard for me to prove that.

That's okay.

Jeff?

Yeah.

The other thing, if you look at different categories I think you have different dynamics.

If you look at the water business for example in North America we grew volume share last year, but relative to the major competitors we grew value share faster.

I think each category is going to have slightly different dynamics, but the goal would be across all of them to accelerate value share.

You know, it's easy to give stuff away.

We have been through that cycle.

So the strategies are all with our bottlers, focused on driving value share and volume but not volume at the expense of the system's margin.

That's a mistake.

Okay.

Good.

That's clear.

It is Doug.

The best answer on incentives is to say that our incentives are in line with our expected performance.

People will have incentive if we achieve the results that we believe we will achieve.

Now, I know that's open ended but you have to be with incentives.

Let me emphasize for the operating management of our company which of course is most of the people who benefit from the incentives.

We have always measured their performance in the currency with which they do business in.

I know we're a U.S.-dollar based organization and our corporate performance is a function of U.S. dollar results.

But we are in 200 countries, and the only way you can incentivize management in those environments and we have done this forever is to ensure that our operating management incentives are based on what they're selling which is local currency.

So that may help understand how our management in fact measures itself and believes that it will benefit from that.

That's fair, Doug, and you have always talked about currency neutral earnings growth which I think is fair as well to hold your people accountable to that.

I guess I'm just wondering about the implied margin expansion that comes from, you know, growing to hit that long-term, 11to12% target off the 2000 base.

We are looking at 14% earnings growth for the next to two years.

Are you comfortable with that?

Alex, Gary.

When it comes to required accounting changes, and stock options would be one of those, where in fact it's a change where we've got an expense in this year 2002 and 2003.

Not in the 2000 base that you're referring to, you would need to adjust the 2000 base.

You need to get that out of the footnote in the financial statements.

But at the same time, there are accounting changes such as goodwill, for example, amortization where we adjusted the other way for incentives and things and actually added income back to the prior year.

So accounting changes we make it apples to apples.

Right.

Which leads us back to the long-term apples to apples growth rate in the 11 to 12% earnings per share range.

Okay.

Off of the apples to apples 2000 base or from here forward

Both.

All right.

Wanted to be clear.

Thanks a lot.

Your next question comes from Bonnie Herzog from Salomon Smith Barney.

Good morning, everyone.

I have a quick question about the health of your fountain business in North America.

I was hoping somebody could talk ( inaudible ) I understand foot traffic has been down in restaurants and I'm curious how your business has been doing.

Bonnie this is Jeff.

I'll take it.

If you look at our full year fountain results we grew 3% for 2002.

Which we believe relative to the industry and relative to our customers, traffic was very good performance.

And the fountain now the food service as we make this change, we're refocusing that group on selling all packages to our food service customers can continue to grow ahead of the industry and ahead of our customers traffic.

Now, what's the uncontrollable is our customer's traffic and there's a lot of softness out there.

Right.

Jeff Dunn I think some of it is situational, but we have to read that through the course of the year.

But we're working closely with our customers and continue to build the value of our business with them.

Because one of the most profitable things they sell are beverages and it's very important as they go through some challenging times.

I think it's going to come back, but right now especially in certain segments it's soft and we just got to work harder to get growth on top of their traffic.

That's helpful.

Thank you.

Operator we have time for one more call or one more question.

Your final question comes from Christina Farkus of Merrill Lynch.

Jeff, you commented briefly on the water business.

I'm wondering if you can talk about how the three-tier strategy is working out certainly from supermarket data we are seeing less sharp declines just on the pricing.

Secondly, Sandy, perhaps you can comment we saw benefit from new product rollouts and both CSD and Isatonics (ph)as well as from acquisitions.

Is there still room in 2003 for new territories to benefit from these product roll or is it really innovation that's going to drive that?

Thank you.

Christina, on the three-tier strategy, I think it's early days yet, but we're seeing a positive response from our customers.

Because they want to continue to build the value of the category and looking to manage multiple price points and multiple packaging configurations is the way to build the value of this.

We're collaborating with the JB (inaudible)and with Evian to continue to work with our customers to continue to build it.

So early days it's working.

So Dasani is holding up.

It's continued to have a 22% price premium to it's major competitors and it's continuing to grow very fast.

So from that standpoint it's a good data point that it's working and continue to focus on that, because the fact of the matter is we believe there's a value added proposition here for our customers and they seem to be responding well.

Christina, on carbs for Europe, I already said that we had a very strong year in 2002, and as far as PowerAde for example goes, we have now rolled out PowerAde in almost all of western Europe, and we will be rolling out in eastern Europe this year.

So there's still room to go for that.

On other products like juice and NESTEA, I mean, we are still in our infancy as far as juice is concerned in Europe.

We've taken the strategic position that in western Europe the brand is going to be Minute Maid and we have initiatives which were started in 2002 and we will see the benefit of these in 2003 and it is our intention to intensify our distribution and our investment behind the Minute Maid brand because we see that as a very strong property in Europe.

The other area that I see lots of room for expansion is in our tea business with NESTEA.

And we are currently rolling NESTEA out again in western Europe primarily and to follow in eastern Europe.

And the last category would be water.

We had some acquisition in water in 2002.

In Switzerland and dorna, in Romania and we see there are still opportunity to expand into water more than a regional basis and also looking at the possibility of expanding Dasani into Europe and certain markets.

Terrific.

Thank you.

If I can just quickly sum and say first of all, thank you very much for joining us morning.

By any measure, the Coca-Cola Company is strong.

We have the right strategy in place.

We have a collaborative relationships with our bottlers.

As we continue to strengthen the entire system.

A broad portfolio of brands to satisfy all of our consumers beverage needs, and we have reasserted marketing innovation and marketing excellence on a worldwide basis.

So thank you very much for joining us, and look forward to our further conversations.

Thank you for participating in today's teleconference of the Coca-Cola Company.

Audio playback is available via the company's Web site at Coca-Cola Company.com.