Credit Analysis and Commercial Lending

Group member: 1.

November 8, 2011, DUFE

BUSINESS RISK ASSESSMENT WORKSHEET Company: Coca cola

Very low 1 Low Moderately Low 3 4 Moderate Moderately high 7 8 high Very High 10

5 5

General Risks
Industry Risk
Company maturity 4

Asset Conversion Cycle Risk

Supply
Concentration Availability Price Characteristics 3 4 6 2 4

Production risk
Consistency Technology

Fixed Assets

2 3 3 6 3 3 4 4 4 4 3 2 2 5 2

Sales Risk
Production Importance Product Diversification Product Differentiation

Competitive position Customer base

Demand characteristics

Price characteristics

Distribution risk
Control Flexibility

Management
Integrity Competence Experience Depth Record Overall Business risk

1. Company introduction The Coca-Cola Company (NYSE: KO) is an American multinational beverage corporation and manufacturer, retailer and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its flagship product Coca-Cola, invented in 1886 by pharmacist John Stith Pemberton in Columbus, Georgia. The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake CocaCola beverage, Coca-Cola currently offers more than 500 brands in over 200 countries or territories and serves over 1.7 billion servings each day. Coca-Cola is the most popular and biggest-selling soft drink in history, as theyll as the bestknown product in the world. On May 8, 2011, Coca-Cola marks its 125th anniversary. Created in 1886 in Atlanta, Georgia, by Dr. John S. Pemberton, Coca-Cola was first offered as a fountain beverage at Jacob's Pharmacy by mixing Coca-Cola syrup with carbonated water. Coca-Cola was patented in 1887, registered as a trademark in 1893 and by 1895 it was being sold in every state and territory in the United States. In 1899, The Coca-Cola Company began franchised bottling operations in the United States. Coca-Cola might othey its origins to the United States, but its popularity has made it truly universal. Today, you can find Coca-Cola in virtually every part of the world. 2. General Company Risks 2. 1.Industry Risk: (5 point) Everyone likes to have a drink in their hand. No matter if it's early in the morning or late at

night, people like to be able to have something to drink. With this never ending demand, manufacturers have begun to see the value in appeasing the masses with a wide variety of beverages for any time of day. Industry Risk subscribers include general management, plant operations, production, packaging, engineering, warehouse and distribution managers as theyll as fleet personnel, research & development, quality control and sales & marketing professionals. These individuals work for bottlers, canners, distillers and distributors of all types of beverages. 2. 1.1.Industry maturity: 2. 1.2.Level of competition: Competition in this industry is high and the trend of competition is increasing. Companies in this industry face ongoing challenges that make it difficult to rise above the competition. Government agencies continue to impose complex and ever-changing regulations on the industry. Retailers and beverage service operators are demanding improved productivity and lower prices from the industry. Consumers have renewed concerns about beverage safety and are expecting new health and theyllness products. And finally, the lack of visibility into product data and supply chains contribute to ever increasing proliferation and complexity. These challenges, along with aggressive competition, can slow company growth and reduce profit margins. 2. 1.3.Thread of Substitutes: Substitutes (moderate): Companies can move the consulting process in-house by hiring former consultants and bright MBAs. This occurrence is more likely during tight economic periods 2. 1.4.Cost structure (4) Beverage industry are considered directly have variable costs. Directly variable costs are directly linked to volume of business, so that every increase or decrease in volume brings a corresponding increase or decrease in cost. Every time each sale of a bottle of beer at the bar results in a cost for the beer. Total directly variable costs, then, increase or decrease or at least should increase or decrease in direct proportion to sales volume. Payroll costs (including salaries and wages and employee benefits, and often referred to as labor costs) present an interesting contrast. Foodservice employees may be divided into two categories those whose numbers will remain constant despite normal fluctuations in business volume, and those whose numbers and consequent total costs should logically (and often will) vary with normal changes in business volume. The first category includes such personnel as the manager, bookkeeper, chef, and cashier. In terms of the preceding definition, they are fixed - cost personnel. Their numbers and costs may change, but not because of short - term changes in business volume. The second category includes the servers, or the wait staff. As business volume changes, their numbers and total costs can be expected to increase or decrease accordingly. In this industry, a higher proportion of its cost is variable rather than fixed. So this industry have low operating leverage. Companies in these types of industries have an advantage when the economy theyakens or sales volume decreases, because they can more quickly and easily reduce variable costs and maintain profitability. Hotheyver when the economy and sales growth strengthen, profitability within industries with low operating leverage grows slowly than in industries with high operating leverage. This industry with the cost structure reflecting almost totally variable costs would show very little increase in operating profits when production and Sales increase because costs would rise with Sales. Company in this industry has low operating leverage, tend to have lotheyr break-even point.

(The break-even point is the level of Sales for a particular company where net Sales equal expenses and profit is zero) The lotheyr the break-even point, the lotheyr risk to continued profitable. This means the risk in this industry is moderately low. 2. 1.5.Cyclicality beverage companies generally coordinate product development activities across multiple functions using time-consuming manual processes and disconnected systems. In addition, these companies lack control over the product lifecycle because they do not have a streamlined process based on clear milestones to move projects forward to the launch phase. All project activities and deliverables may be stored in islands of information, and executives do not have solid criteria on which to make decisions. Finally, users cannot easily measure the health of entire portfolios based on user-defined criteria and metrics. The result? Innovation stagnates, product development cycle times lengthen, product costs and risks increase, and product teams are less productive and find it difficult to reuse organizational knowledge. This means that such companies investments are less profitable with a high percentage of their products destined to fail. Ultimately, these companies miss promising market opportunities and see a sub-optimal return on investment (ROI) for all product development efforts.

2. 1.6.Barriers to Entry: Almost everyone will agree that the new drivers of innovation in the beverage industry are entrepreneurial small companies that launch their products on a shoe string and defy the odds to reach a critical mass with very little outside funding. There is, hotheyver, a huge barrier in this market. The institutional buyers often make the cost of entry on to the shelves of their stores prohibitively expensive. This often prevents the expected innovation and commercial success that should naturally follow the effort and passion of these innovators. These entrepreneurs respond to a market need and achieve encouraging initial success from the early adopters. They soon hit the wall and are not able to "cross the chasm" from a small group of early adaptors to general market distribution within the large retailers. There is little economic value created when promising concepts are in the control of an under funded start-up company and the brand never reaches broad acceptance. INDUSTRY RISK ASSESSMENT WORKSHEET Very low 1 Low Moderately Low 2 3 4 4 Beverage Industry Moderate Moderately High Very high High 7 8 9 10

Industry Maturity Level of competition

5 5

 3 Cost Structure 2 Cyclicality 3 Barriers to Entry Regulatory Environment 3 Overall Industry risk 2. 2. Company maturity: (4 point) Threat of Substitutes

Coca-Cola is the most popular and biggest-selling soft drink in history, as well as the best-known product in the world. Coca-Cola was patented in 1887, registered as a trademark in 1893 and by 1895 it was being sold in every state and territory in the United States. In 1899, The Coca-Cola Company began franchised bottling operations in the United States. Coca-Cola might owe its origins to the United States, but its popularity has made it truly universal. Today, you can find Coca-Cola in virtually every part of the world.

3. Asset Conversion Cycle Risks 3. 1. Supply risk Creating future competitive advantage will require their company to harness the strength of our $64 billion supply chain -- from integrating our inventory planning processes, to leveraging our global buying potheyr, to driving post-consumer recovery initiatives," Frazier added. Building a demand-driven supply chain means moving from a "push" to a "pull" system. "It means sensing signals of demand as close as possible to the end consumer and customer, and translating that information into a system-wide set of requirements to shape and respond to that demand in a profitable way," Frazier explained. Our global supply chain strategy is centered upon five interconnected strategic priorities: 1) Growth: Building portfolio competitive advantage; 2) Productivity: Driving bottom-line savings to fuel top-line growth through Operational Excellence (OE) and other initiatives; 3) Sustainability: Earning our social license to operate and driving reputational equity; 4) Governance: Synchronous global execution against an agenda focused on building brand trust; and 5) Capability: An ongoing commitment to building future-critical capabilities by investing in our people, promoting collaboration and building a culture that values learning. 3. 1.1.Concentration risk: (3) 3.1.2. Availability risk: (4) 3.1.3.Price characteristics risk:(6) Supplier Bargaining Potheyr (low-moderate): Major suppliers are the intellectual capital employed by the firm (e.g. experienced consultants who bring in sales and new consultants who provide analytic abilities). Must pay market price or risk losing suppliers, but current economic conditions have caused a reduction in supplier potheyr, due to decreased demand from consulting companies and fetheyr options outside of consulting. In the last couple of years, the

consulting market has suffered, with supply exceeding demand, which should have increased buyer potheyr and driven 3.2. Production risk 3.2.1.Consistency: (2) The economic downturn has presented beverage companies with new challenges. It is impacting how much money consumers spend but also the way in which they spend it. Footfall in discount grocers is rising and many shoppers are trading down. That said the focus on good nutrition and health has not gone away. People are still spending money but their priorities are changing, with price and value increasingly central to the choices they make about where to shop and what to buy. They are, for example, seeing significant shifts away from eating out to eating at home, with consequent challenges in food service and opportunities in grocery. 3.2.2.Technology: (4) Since 2006, they have installed more than 3.5 million intelligent energy management devices that reduce energy consumption by monitoring the energy use of our refrigeration units. They also have invested more than $60 million since 2000 in research and development to advance the use of climate-friendly cooling technologies 3.2.3. Fixed Assets :(2) 2011 has been a challenging year as the economy remains the yak and commodity costs continue to increase at rates that exceed the rate of inflation. The bottling company said its thirdquarter earnings theyre hit by losses including the accounting adjustments on fuel and aluminum hedges. Companies hedge prices for raw materials like metal and fuel by agreeing to pay a given price for future supplies. Those hedges can result in losses if prices change unexpectedly before the hedging contract is fulfilled. Shares of the company fell 74 cents, or 1.3 percent, to $56.76 in after-market trading after the results theyre released. They had ended regular trading up $1.30, or 2.3 percent, at $57.50. 3.3.Sale risks 3.3.1. Product importance (3)
Everyone likes to have a drink in their hand. No matter if it's early in the morning or late at night, people like to be able to have something to drink. With this never ending demand, manufacturers have begun to see the value in appeasing the masses with a wide variety of beverages for any time of day.

3.3.2. Diversification of Products (3) With a portfolio of more than 3,500 beverages, from diet and regular sparkling beverages to still beverages such as 100 percent fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk-and soy-based beverages, our variety spans the globe. 3.3.3. Product differentiation. (6)
New tea drinks, vitamin-enhanced juices and new cherry, lemon and lime flavours of Diet Coke are planned in Britain this year to stop the slump in Coca-Cola sales. On May 8, 2011, Coca-Cola marks its 125th anniversary. Created in 1886 in Atlanta, Georgia, by Dr. John S. Pemberton, Coca-Cola was first offered as a fountain beverage at Jacob's Pharmacy by mixing Coca-Cola syrup with carbonated water.

3.3.4.Competitive position (3) Market share

According to the 2005 Annual Report, the company sells beverage products in more than 200 countries. The report further states that of the more than 50 billion beverage servings of all types consumed worldwide every day. Also according to the 2007 Annual Report, Coca-Cola had gallon sales distributed as follows: 42% in the United States 37% in Mexico,India, Brazil, Japan and the People's Republic of China 20% spread throughout the rest of the world Competitive advantages 3.3.5.Customer base (3) According to the 2005 Annual Report, the company sells beverage products in more than 200 countries. The report further states that of the more than 50 billion beverage servings of all types consumed worldwide every day, beverages bearing the trademarks owned by or licensed to Coca-Cola account for approximately 1.5 billion (the latest figure in 2010 shows that now they serve 1.6 billion drinks every day). Of these, beverages bearing the trademark "Coca-Cola" or "Coke" accounted for approximately 78% of the Company's total gallon sales. In 2010 it was announced that Coca-Cola had become the first brand to top 1 billion in annual UK grocery sales. 3.3.6.Demand characteristics (4)
Coca-Cola is the world's most famous and powerful brand, selling more than one billion drinks every day. Its red and white logo can be seen everywhere from remote hillside shacks in Afghanistan to vast neon hoardings in central Tokyo. But the drink which prides itself as the "real thing" is in trouble: its global dominance is under serious threat from its rival Pepsi, and its sales hit by a health-conscious backlash against the sugary drinks widely blamed for the West's obesity epidemic. Earlier this month, Coca-Cola retaliated. Its chairman, Neville Isdell, met the UN Secretary General, Kofi Annan, to sign the UN's Global Compact on human rights and labour relations. But campaigners claim that global tastes are changing quicker than Coca-Cola's marketing strategy. Now, they claim, consumers are looking behind the label, and can force the world's most powerful brand to listen up.

3.3.7. Price characteristics ( 4) 3.4.Distribution risk 3.4.1. Control (4) 3.4.2. Flexibility (4) 3.5.Management Risk

3.5.1.Integrity (3) With an enduring commitment to building sustainable communities, their company is focused on initiatives that reduce our environmental footprint, support active, healthy living, create a safe, inclusive work environment for our associates, and enhance the economic development of the communities where they operate. Success will require what Chairman and CEO Muhtar Kent refers to as the "Golden Triangle," which is the collaboration necessary among business, government and civil society to produce scaleable, lasting impact. A healthy environment, locally and globally, is vital to our business and to the communities

where they operate. They view protection of the environment as a journey, not a destination. They began that journey a number of years ago, and it continues today. Each employee of The Coca Cola Company has responsibility for stewardship of our natural resources and must strive to conduct business in ways that protect and preserve the environment. Their employees, business partners, suppliers and consumers must all work together to continuously find innovative ways to foster the efficient use of natural resources, the prevention of waste and the sound management of water. Doing so not only benefits the environment, it makes good 3.5.2.Competence (2) Since their first soda fountain sales in 1886, they have been a driver of marketplace innovation and an investor in local economies. Today they lead the beverage industry with more than 500 beverage brands -- including four of the world's top-five sparkling brands. But while our business opportunities are enormous, our commitment to our consumers and the communities in which they operate is even greater. Muhtar Kent, 2010 Top 200 U.S. CEOs, the Chairman of the Board and Chief Executive Officer, leads Coca-Cola into the new century with a firm commitment to the values and spirit of the world's greatest brand. In our journey to become a sustainable, profitable growth company, their management structure has evolved to sharpen external focus on the marketplace with greater speed, productivity and effectiveness. Through the successful of the company, it can somewhat reflect the ability of the key managers of the company. With a long history in the beverage industry, a rational person should believe in their managers ability. So the Competence risk is low. 3.5.3.Experience (2) 3.5.4.Depth (5) Our Board of Directors (the Board) is elected by the shareowners to oversee their interest in the long-term health and overall success of the Company and its financial strength. The Board serves as the ultimate decision-making body of the Company, except for those matters reserved to or shared with the shareowners. The Board selects and oversees members of senior management, who are charged by the Board with conducting the business of the Company. Their Board currently has 15 members, 14 of whom are not employees of the Company. 3.5.5.Record (2) The Coca-Cola Company (NYSE: KO) is the world's largest beverage company, refreshing consumers with more than 500 sparkling and still brands. Led by Coca-Cola, the world's most valuable brand, the Company's portfolio features 15 billion dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Potheyrade, Minute Maid, Simply and Georgia. Globally, they are the No. 1 provider of sparkling beverages, juices and juice drinks and readyto-drink teas and coffees. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the Company's beverages at a rate of 1.7 billion servings a day. Key financials Revenues Profits Assets Stockholders' equity $ millions 35119 11809 72921 31003 % change from 2009 13.3 73.1

Market (3/25/2011) Profits as % of

value

149688.2

33.6 16.2 38.1 5.06 72.7 19.1 % 19 3.3

Revenues Assets Stockholders' equity Earnings per share 2010 $ % change from 2009 2000-2010 annual growth rate % Total return to investors 2010 2000-2010 annual rate

In 2009, The company reported net income for the quarter of $9.8 million, or $1.06 per share, compared with $15.5 million, or $1.69 per share. Its quarterly revenue was $405.9 million, up from $395.4 million. Excluding one-time items, such as a loss on fuel and aluminum hedges and a gain from changes in its tax reserves, the company said it earned $1.09 per share, compared with adjusted earnings of $1.31 per share the year before. Coca-Cola Bottling packages and distributes beverages, primarily for soft drink maker CocaCola Co. Executives said in a statement that consumers remain cautious and the competitive environment is tough. "2011 has been a challenging year as the economy remains the yak and commodity costs continue to increase at rates that exceed the rate of inflation," said Chairman and CEO Frank Harrison. The bottling company said its third-quarter earnings theyre hit by losses including the accounting adjustments on fuel and aluminum hedges. Companies hedge prices for raw materials like metal and fuel by agreeing to pay a given price for future supplies. Those hedges can result in losses if prices change unexpectedly before the hedging contract is fulfilled. Shares of the company fell 74 cents, or 1.3 percent, to $56.76 in after-market trading after the results theyre released. They had ended regular trading up $1.30, or 2.3 percent, at $57.50.

These risks include, but are not limited to, obesity and other health concerns; scarcity and quality of water; changes in the nonalcoholic beverages business environment, including changes in consumer preferences based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in lifestyles and competitive product and pricing pressures; impact of the global credit crisis on our liquidity and financial performance; increased competition; our ability to expand our operations in developing and emerging markets; foreign currency exchange rate fluctuations; increases in interest rates; our ability to maintain good relationships with our bottling partners; the financial condition of our bottling partners; increases in income tax rates or changes in income tax laws; increases in indirect taxes or new indirect taxes; our ability and the ability of our bottling partners to maintain good labor relations, including the ability to renew collective bargaining agreements on satisfactory terms and avoid strikes, work stoppages or labor unrest; increase in cost, disruption of supply or shortage of energy; increase in cost, disruption of supply or shortage of ingredients or packaging materials; changes in laws and regulations relating to beverage containers and packaging, including container deposit, recycling, eco-tax and/or product stewardship laws or regulations; adoption of significant additional labeling or warning requirements; unfavorable general economic conditions in the United States or other major markets; unfavorable economic and political conditions in international markets, including civil unrest and product boycotts; changes in commercial or market practices and business model within the European Union; litigation uncertainties; adverse theyather conditions; our ability to maintain brand image and corporate reputation, as theyll as other product issues such as product recalls; changes in legal and regulatory environments; changes in accounting standards and taxation requirements; our ability to achieve overall long-term goals; our ability to protect our information systems; additional impairment charges; our ability to successfully manage Company-owned bottling operations; the impact of climate change on our business; global or regional catastrophic events; risks related to our acquisition of Coca-Cola Enterprises Inc.s North American operations; and other risks discussed in their companys filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Coca-Cola Company undertakes no obligation to publicly update or revise any forward-looking statements.