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The Coca-Cola Company - SEC Comment Letter (6-8-2005)

THE COCA-COLA COMPANY

Coca-Cola
Plaza

Atlanta,
Georgia

      CONNIE
      D. MCDANIEL

      VICE
      PRESIDENT AND CONTROLLER

      ADDRESS
      REPLY TO

      P.O.
      BOX 1734

      ATLANTA,
      GA 30301

      -----

      404-676-3497

June 10,
2005

Mr. Will
Choi

Accounting
Branch Chief

Division
of Corporation Finance

Securities
and Exchange Commission

100 F
Street, N.E.

Washington,
D.C. 20549

      Re:

      The
      Coca-Cola Company

      Form
      10-K for the fiscal year ended December 31, 2004

      Filed
      March 4, 2005

Dear Mr.
Choi:

Thank you
for your letter dated April 27, 2005 setting forth comments of the Staff
relating to the periodic report of The Coca-Cola Company (“KO” or the “Company”)
referenced above.

KO’s
responses to the Staff’s comments are set forth below.

To
facilitate the Staff’s review, we have included in this letter the captions and
numbered comments from the Staff’s letter and have provided KO’s responses
immediately following each numbered comment.

Mr. Will
Choi

June 10,
2005

Page
2

General

    1.

      Where
      a comment below requests additional disclosures or other revisions to be
      made, please include these disclosures and revisions in your future
      filings.

Response:

As noted
in the Company’s responses to individual questions below, when appropriate, the
Company will include additional disclosures or other revisions in our future
filings.

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 24

Application
of Critical Accounting Policies, page 31

    2.

      We
      note that you recognized an impairment charge of $374 million related to
      CCEAG’s franchise rights in the third quarter of 2004 due to volume
      declines resulting from a deposit law enacted by the German government on
      January 1, 2003. However, it appears that you have not recognized or
      expect to recognize an impairment loss related to CCEAG’s goodwill and
      tangible assets. Please help us understand your consideration of these
      circumstances in evaluating the timing of an impairment test and the need
      for recognition of impairment charges related to CCEAG’s goodwill and
      tangible assets.

Response:

The
Company recognized an impairment charge primarily related to CCEAG’s franchise
rights of $374 million in the third quarter of 2004. Additionally, in the third
quarter of 2004, we considered the impairment indicators related to CCEAG and
performed appropriate analyses as required by the various applicable accounting
standards on all of the related assets as follows:

Goodwill - As
required by Statement of Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets” (SFAS No. 142), we performed an impairment test of
goodwill in the third quarter of 2004. The estimated fair value of the Germany
and Nordic reporting unit, which includes CCEAG, exceeded the carrying value of
the reporting unit by a substantial margin. Accordingly, we were not required to
perform Step 2 of the goodwill impairment test described in SFAS No.
142.

Tangible
Assets - We
performed a recoverability analysis of our CCEAG tangible assets under Statement
of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (SFAS No. 144), during the third quarter of 2004.
Based on this analysis, we concluded that the sum of the estimated future
undiscounted cash flows expected to be generated from the use of these assets
exceeded the carrying value of the assets by a substantial amount. Accordingly,
no impairment charge was required to be recognized.

Mr. Will
Choi

June 10,
2005

Page
3

Reconciliation
of Non-GAAP Financial Measures, page 55

    3.

      Please
      disclose, in more detail, why
      you believe that presentation of non-GAAP financial measures provides
      useful information to investors regarding your financial condition and
      results of operations. Please also detail the manner in which you use
      non-GAAP financial measures. Your disclosures should be specific to the
      non-GAAP financial measure used, the nature of your business and industry,
      and the manner in which you assess the non-GAAP financial measures and
      apply them to management decisions. See Item 10(e) of Regulation
      S-K.

Response:

In future
filings, we will disclose in more detail why we believe any non-GAAP financial
measures presented provide useful information to investors regarding the
Company’s financial condition and results of operations. In addition, we will
disclose the purposes for which management uses such non-GAAP financial
measures.

For
example, management uses Return on Average Total Capital as a measure of the
Company’s actual returns compared to the cost of the capital employed to
generate those returns. Further, management uses Return on Average Shareowners’
Equity to determine how well the Company has used reinvested earnings to
generate additional returns or earnings. Additionally, management uses Total
Debt-to-Total Capital and Net Debt-to-Net Capital to evaluate financing
decisions and as a measure of the financial leverage of our Company. Lastly,
management uses Interest Coverage Ratio as a way to evaluate our debt servicing
ability. We believe investors use these measures for the same purposes. We also
believe that Total Debt-to-Total Capital, Net Debt-to-Net Capital and Interest
Coverage Ratio are used by debt rating agencies as an input into determining the
Company’s overall credit rating.

Item
8. Financial Statements and Supplementary Data, page
60

Note
1. Organization and Summary of Significant Accounting Policies, page
66

Variable
Interest Entities, page 66

    4.

      It
      appears that you have concluded that Coca-Cola FEMSA is not a variable
      interest entity. Please help us understand the following with respect to
      your application of FIN 46R to Coca-Cola
FEMSA:

    ·

      Please
      identify for us your variable interests in Coca-Cola FEMSA. In this
      regard, please discuss your evaluation of whether your equity interests,
      your $250 million letter of credit, your bottling agreements, and your
      marketing and infrastructure support represent variable interests in Coca-Cola
      FEMSA. From Coca-Cola FEMSA’s Form 20-F, we note that under your bottling
      agreements, you set prices as a percentage of the

Mr. Will
Choi

June 10,
2005

Page
4

average
sales price that Coca-Cola FEMSA charges to retailers, which suggests that these
agreements somewhat absorb Coca-Cola FEMSA’s variability and may represent
variable interests. Please advise.

    ·

      Please
      explain your consideration of paragraph 5 of FIN 46R in determining that
      Coca-Cola FEMSA is not a variable interest entity. In this regard, please
      also explain:

    o

      Your
      evaluation of whether the terms of your bottling agreements and marketing
      and infrastructure programs indirectly protect investors from expected
      losses or guarantee a return, pursuant to paragraph 5(b)(2) of FIN
      46R.

    o

      Your
      evaluation of whether your obligations to absorb expected losses and/or
      receive expected residual returns by way of your variable interests are
      disproportional to your voting rights, pursuant to paragraph 5(c) of FIN
      46R.

Response:

Upon
adoption of FIN 46R, the Company performed an analysis with respect to
Coca-Cola
FEMSA (“KOF”) and determined that the Company’s investment in KOF qualified for
the “business scope exception” described in paragraph 4.h. of FIN 46R. The
following summarizes our analysis under paragraph 4.h. of FIN 46R.

Consideration
1: KOF is a
“business” as defined in Appendix C of FIN 46R.

Appendix
C states that a business consists of (a) inputs, (b) processes applied to those
inputs, and (c) resulting outputs that are used to generate revenues. KOF’s set
of activities and assets contain all of these essential components of a
business.

Inputs

The
primary business of KOF is to manufacture and distribute beverages, primarily
Company trademark products but also certain other products that do not bear
Company trademarks. In manufacturing and distributing beverage products, KOF
owns or leases a substantial amount of machinery and equipment, employs a
substantial number of personnel for production, administration and management,
and obtains all the necessary raw materials to produce beverages.

Processes

KOF has
its own organization to conduct its business, including a management structure
comparable to any business where objectives are determined by its own Board of
Directors and day to day business is conducted by a management team. This
structure includes
management routines and separate operational processes such as manufacturing,
sales, logistics and distribution, merchandising, quality, finance, human
resources, etc.

Mr. Will
Choi

June 10,
2005

Page
5

Outputs

KOF,
through the authorization granted under various bottler’s agreements
(collectively, the “Bottler’s Agreement”), is authorized to manufacture and
distribute particular designated Company trademark products, to package the same
in particular authorized containers, and to distribute and sell the same in an
identified territory. In addition, KOF manufactures and distributes certain
other products that do not bear Company trademarks. Therefore, KOF has the
ability to access and has established business relationships with customers in
its identified territories that purchase products manufactured and distributed
by KOF.

The
Company also believes that goodwill is present in KOF’s activities and assets
(i.e., if KOF were acquired, a portion of the purchase price would be allocated
to goodwill). Consequently, pursuant to paragraph C5 of FIN 46R, the Company
notes that the KOF set of activities should be presumed to be a
business.

Conclusion:

KOF
generates revenues, cash flows, profits, and a return to its investors through
inputs, processes and outputs as described above. Based on this analysis, we
concluded that KOF is a “business” as defined in Appendix C of FIN 46R, and the
“business scope exception” of paragraph 4.h. is applicable to KOF.

Consideration
2: None of
the conditions listed in paragraph 4.h., items (1) to (4), which limit the
“business scope exception” provided by paragraph 4.h. of FIN 46R, are applicable
to KOF. The following summarizes our analysis of each of the four
items.

Item
1: The reporting enterprise, its related parties, or both participated
significantly in the design or redesign of the entity. However, this condition
does not apply if the entity is an operating joint venture under joint control
of the reporting enterprise and one or more independent parties or a franchisee
(the term franchisee is defined in paragraph 26 of FASB Statement No. 45,
“Accounting for Franchise Fee Revenue” (SFAS No. 45)).

The
condition stated in this item is not applicable because KOF is a franchisee
under SFAS No. 45. The business agreement between the Company and KOF meets the
requirements of paragraph 26 of SFAS No. 45 and, therefore, constitutes a
franchise agreement:

    ·

      Paragraph
      26(a): The relationship between the Company and KOF is contractual; the
      Bottler’s Agreement confirms the rights and responsibilities of each
      party, and is in force for a specified period.

    ·

      Paragraph
      26(b): The primary purpose of the Bottler’s Agreement is to authorize KOF
      to manufacture and distribute Company trademark products within a
      particular market area authorized by the
Company.

    ·

      Paragraph
      26(c): The Company owns trademarks while KOF owns production and
      distribution assets. KOF also has an independent management team which is

Mr. Will
Choi

June 10,
2005

Page
6

accountable
to its investors. Both parties contribute resources for establishing and
maintaining the franchise.

    ·

      Paragraph
      26(d): The Bottler’s Agreement outlines and describes the specific
      marketing practices to be followed, specifies the contribution of each
      party to the operation of the business, and sets forth certain operating
      procedures with which both parties agree to
comply.

    ·

      Paragraph
      26(e): The establishment of KOF created a business entity that requires
      and supports the full-time business activity of the franchisee.

    ·

      Paragraph
      26(f): Both the Company and KOF are identified with the Company’s
      trademarks. This identity is frequently reinforced through advertising
      programs designed to promote the sale of Company trademark products in
      KOF’s territories.

Based on
this analysis, the condition stated in item 1 of paragraph 4.h. is not
applicable because KOF is a franchisee.

Item
2: The entity is designed so that substantially all of its activities either
involve or are conducted on behalf of the reporting enterprise and its related
parties.

KOF’s
activities are conducted for the benefit of all of its investors, including the
Company, which has a minority interest in KOF. It is important to note that KOF
generates substantial revenues, cash flows, and profits and pays dividends to
its equity owners. The Company receives its proportionate share of such
dividends.

We
considered the following factors to conclude that substantially all of KOF’s
activities are not conducted on behalf of the Company and its related parties:

    ·

      The
      Company’s operations are not substantially similar to those of KOF, as the
      Company owns the trademarks and produces concentrate and KOF produces and
      distributes finished beverages for consumers.

    ·

      Substantially
      all of KOF’s assets were not acquired from the
Company.

    ·

      Employees
      of the Company are not actively involved in managing the operations of
      KOF, with the exception of minority representation on KOF’s Board of
      Directors commensurate with the level of equity ownership.

    ·

      The
      Company is not obligated to fund operating losses of KOF, if they occur.

    ·

      The
      Company has not outsourced activities to KOF. The Company has entered into
      a formal franchise arrangement as outlined in the Bottler’s Agreement.

    ·

      KOF
      has not leased a significant portion of its assets from the Company.

Item
3: The reporting enterprise and its related parties provide more than half of
the total of the equity, subordinated debt, and other forms of subordinated
financial support to the entity based on an analysis of the fair values of the
interests in the entity.

Mr. Will
Choi

June 10,
2005

Page
7

Consideration
of equity

The
Company and its subsidiaries hold approximately 39.6% of KOF's share capital and
46.4% of KOF's voting share capital. The capital structure of KOF as of March
31, 2004 (the date of our assessment for FIN 46R purposes) was as follows:

      Shareholder

      Outstanding
      Capital Stock

      %
      Ownership of Outstanding Capital Stock

      %
      of Voting Rights

      Compana
      Internacional de Bebidas, S.A. de C.V. (Series A)

      844,078,519

      45.7

      53.6

      KO
      (Series D)

      731,545,678

      39.6

      46.4

      Public
      (Series L)

      270,750,000

      14.7

      *

      Total

      1,846,374,197

      100.0

      100.0

* Holders
of Series L are only entitled to vote in limited circumstances.

The
relative ownership of the voting rights among the various shareholders differs
from the relative economic rights because holders of Series L shares have
limited voting rights. However, the differences do not result in the Company
holding the majority of either the economic or voting rights of KOF's
out