2

Coca-Colas Fizzy Math:

How Bad Performance, Excessive Pay and Weak
Governance are Harming Shareholders
Wintergreen Advisers takes seriously its responsibility to safeguard the
interests of its clients. That is why we have spoken out about the issues at
The Coca-Cola Company, where investment funds we advise have been
committed, long-term shareholders.
We have been sharply critical of Coca-Colas poor performance, excessive pay
practices and weak governance because they harm all Coca-Cola shareholders.
Yet despite criticism from us and from Coca-Cola shareholders, Coca-Colas
management and Board of Directors appear to be doing little to address these
problems. Instead of meaningful change, Coke seems to us to be using diversions
and obfuscation what we call fizzy math in order to continue practices that
have failed its shareholders time and again.
We believe urgent action is needed to restore growth and a shareholder-focused
philosophy at Coca-Cola. We urge all shareholders to review our materials and
make their voices heard.

The 2014 Equity Plan is Still Bad for Shareholders

Coca-Colas fizzy math starts with its 2014 Equity Compensation Plan. In April,
Coca-Cola CEO Muhtar Kent said the plan was substantially in line with past
plans, and Maria Elena Lagomasino, head of the boards compensation
committee, said it had broad-based investor support.

We believe that neither statement was true. Warren Buffett, CEO of Cokes largest
shareholder, Berkshire Hathaway, said the plan was excessive, too much,
and quite different from past plans. Major shareholders voted against it or
abstained from voting. In fact, less than half of Coca-Colas total outstanding
shares supported the 2014 Equity Plan.

Coke will change

the mix of stock
and option awards,
and pay out
substantially more
cash over a tenyear timeframe.

But Cokes fizzy math doesnt end there. Coke announced in October that it had
adopted what it called Equity Stewardship Guidelines in an attempt to address
investors concerns. At first we were optimistic that Coke got the message. But as
we looked more closely, it appeared to us that the guidelines did nothing to correct
the worst excesses of the 2014 Equity Plan and could actually make things worse
for Coke shareholders.
Coke does not intend to pay less compensation to top management under the
new guidelines. Instead, it will change the mix of stock and option awards, and
pay out substantially more cash over a ten-year timeframe. If Coke expects to
pay the same amount of compensation to its top executives, how is that better
for shareholders?

Source: Coca-Cola Company filings, Wintergreen estimates based on 2014 Equity

Compensation Plan disclosures

Coke hasnt explained the details of how the new guidelines will be implemented,
but as we have previously noted, by our estimates it appears that the cash
compensation required to meet the Guidelines will cost shareholders between
$1 billion and $3 billion per year in what we view as excessive management
compensation. That is cash that comes directly out of shareholders pockets
and reduces Coca-Colas earnings by a proportionate amount. After taxes, that
$1 billion to $3 billion per year is worth between $0.17 and $0.51 in annual per
share net income, assuming a 25% corporate tax rate.
At Coca-Colas current valuation of 20x earnings, that excessive cash
compensation costs shareholders between $3.40 and $10.20 of per share value.


Cokes 50-Year Record of Dividend Increases is at Risk
We believe Cokes excessive pay plan also carries another risk for its
shareholders. Under the new guidelines, Coke expects to use more cash to pay
top management. At the same time, Coke has announced it will cut its workforce
by several thousand next year to pare costs, which could result in a significant
cash charge for severance and other restructuring expenses.

Putting Cokes
record of annual
dividend growth
at risk would be
irresponsible.

Whats more, Coke has been routinely outspending its cash flow in recent years
and funding the gap with debt. Additional spending on executive bonuses and
severance charges threatens to make this problem even worse. We believe the
companys excessive pay practices, combined with slowing profit growth, could
threaten Cokes 50-year record of dividend increases.
In 2010, Coca-Colas spending on capital expenditures, dividends and share
repurchases totaled $9.2 billion, which was covered by $9.4 billion in cash flow
from operations. But the following year, Cokes spending topped $11.7 billion
against just $9.5 billion in cash flow from operations. Coke borrowed to fill the
gap, and has done so every year since.

Source: Bloomberg. Calendar year data for 2010-2013; 2014 data is from 9/30/13 - 9/30/14.

Last year, Coke generated net income of $8.6 billion and paid $5.0 billion in
dividends. Thats a dividend-coverage ratio of 1.7x, which is far below that of
the average company in the S&P 500 Index, which stands at 5.0x.i
If we look ahead to next year, we believe Coke is likely to generate $9.2 billion of
net income,ii but could take a cash charge of $1 billion or more for employee
layoffs and other restructuring costsiii. And if Coke pays an additional $1 billion in
cash bonuses to the top 5% of management under the new Equity Plan Guidelines,
cash available for dividends, capital expenditures and share repurchases falls to
$7.2 billion. That would result in a dividend coverage ratio of just 1.4x.
Could the Coke board fail to increase, or even reduce, the dividend and still
pay the top 5% of management outsized bonuses? Thats what worries us.
Putting Cokes record of annual dividend growth at risk would be irresponsible.

Cokes Management Earns High Pay for Poor Performance

Cokes
managers have
been paid
handsomely
even as the
companys
performance
has lagged.

Coca-Cola management and its defenders will say that the Equity Plan isnt a
problem because Muhtar Kent and his team wont be paid unless they perform.
Well, that sounds comforting, but if you look at the facts, Cokes managers have
been paid handsomely even as the companys performance has lagged.
According to Cokes financial reports, annual equity grants to top management
have risen steadily over the past four years, while Cokes profit growth has stalled.
How can shareholders have any confidence that the Coke Board will hold
management accountable in the future if they havent done so in the past?
High pay for poor performance? Thats fizzy math. And its a bad deal for
Coca-Cola shareholders.

Source: Bloomberg, Coca-Cola Company 10-K filings. Calendar year data for 2010-2013; 2014 data
is from 9/30/13 - 9/30/14.

Muhtar Kent has Destroyed Shareholder Value

We believe that Muhtar Kent who would likely gain the most under Cokes 2014
Equity Plan - has repeatedly let down Cokes shareholders by overseeing CocaColas strategic investments that we view as having destroyed shareholder value.
For example, the purchase of Coca-Cola Enterprises North American business
for $12.2 billion four years ago appears to us to be a massively expensive blunder.
When the deal was announced over four years ago, management promised to
fix up the business and sell it off to bottling partners. Over those four years,
Coca-Cola shareholders have seen little more than never-ending promises of
improvement around the corner. Similarly, Coca-Colas purchase of Glaceau, the
maker of Vitaminwater, for $4.1 billion of shareholders money - a deal which the
company promised would deliver immediate, high quality growth - appears to
us to be an abject failure, based upon failed product introductions and increased
competition within the enhanced water category.

Cokes fizzy math

lets the company
obscure the
true health of
its business.

Management spent a combined total of $16.3 billion of shareholders money

on these two deals. Lets say Coke had retained this $16.3 billion rather than
squander it on bad deals. And lets say Coke earned a 15% pretax return on this
savings (thats the companys average return on invested capital over the past five
yearsiv). If it had done those things and those assumptions turned out to be true,
that $16.3 billion would generate $1.8 billion in net income per year, or $0.42 per
share, assuming a 25% tax rate. At 20x earnings, that $0.42 in net income per
share is worth $8.40 per share in lost shareholder value. In other words, it is
possible that Coke stock could be worth $8.40 per share more than it is now.
We believe Muhtar Kent and his team also missed several fast growing trends
such as energy drinks and coffee. In an attempt to catch up with competitors, Coke
has recently spent $3.6 billion of shareholder money acquiring expensive minority
stakes in Monster Beverage Corp and Keurig Green Mountain. Had management
instead kept that money and reinvested it at a 15% pretax return, it would have
resulted in over $400 million of annual after tax net income for shareholders.
At 20x earnings, this would be worth $1.80 per share to Coke shareholders.
It difficult to know exactly how these businesses are performing, because Coke
discloses little about them. We believe Cokes fizzy math lets the company
obscure the true health of its business and its investments.

Cokes Board of Directors Needs New Blood

The election of two new directors at Coca-Cola is a welcome sign of progress.
We believe both individuals have backgrounds that should be helpful in steering
Coca-Cola toward renewed growth and value creation for all shareholders. We
are gratified that Coca-Cola appears to be responding to the concerns expressed
by Wintergreen and Coca-Cola shareholders about the Boards capabilities
and performance.
These appointments are a step in the right direction, yet we believe more needs to
be done. Indeed, Coca-Colas Board has Directors who, in our view, have served
for too long. Three members of the board have served for a combined 102 years.
Such long tenures can make the board an insular club rather than a vigilant
protector of shareholders interests.
Companies with poor corporate governance practices and weak boards
deservedly trade at discounted valuations to well governed companies. As one
of the strongest brands in the world, Coca-Cola and its shareholders deserve a
first-rate, shareholder-focused board of directors. We believe anything less can
cost shareholders money.

Cokes Problems Can be Fixed

Coca-Cola is a great business. However, we believe its cost structure from
procurement, to manufacturing and distribution, to overhead, to marketing is
bloated and badly in need of fixing. With the right management and a commitment
to serving shareholders, we think it can thrive again. We think Cokes problems
are fixable.

Coca-Cola and
its shareholders
deserve a firstrate, shareholderfocused board
of directors.

Cokes EBITDA margin of 28% falls far short of the profit margins of comparable
global beverage companies such as ABI InBev and SABMiller, which average
37% EBITDA marginsv. If Coke were able to achieve even a 37% EBITDA margin
though significant cost cuts at all levels of the company, the company would
generate an additional $4 billon of EBITDA per year. At Cokes current valuation
of 15x EBITDA, that $4 billon of incremental profit would be worth $60 billion of
shareholder value, or nearly $14 per share.
Recently announced cost-cutting initiatives of $3 billion per year fall far short of
what we believe can and should be done, and wont be fully realized until 2019.
On top of that, a meaningful portion of these cost savings may end up in the
pockets of the top 5% of management because of increased cash bonuses,
rather than in the pockets of shareholders.
Because of what we view as terrible compensation practices, bad management
decisions, and poor corporate governance, we believe that Coca-Cola stock trades
at a massive discount to its intrinsic value.

This chart represents Wintergreen Advisers LLCs subjective belief and is a projection. It is neither an
assurance nor an opinion as to the price at which the securities of The Coca-Cola Company will trade at
any time in the future.

We estimate that the discount placed on Cokes shares because of these issues is
between $30 and $38 per share. Removing these discounts would put Cokes
share price at $74 to $82 per share, in line with the $90 per share Nomura analyst
Ian Shackleton believes Coke shares could be worth in an LBO scenariovi.
We believe that resolving most of these issues is quite possible under the
leadership of a new and capable management team along with getting rid of bad
compensation plans, getting expenses and overhead under control, and replacing
the current long-serving directors with a truly shareholder-focused board.

About Wintergreen Advisers
Established in 2005, Wintergreen is an independent global money manager that
employs a research-driven value style in managing global securities. As of
September 30, 2014, Wintergreen Advisers had approximately $2.0 billion under
management on behalf of individuals and institutions through its mutual fund and
other clients, and is based in Mountain Lakes, New Jersey. Wintergreens clients
own over 2.5 million shares of The Coca-Cola Company, and have owned
Coca-Cola shares for over five years.
For further information on Wintergreen Advisers, please call 973-263-4500 or visit
www.wintergreenadvisers.com. Additional information regarding what we view as
the issues at The Coca-Cola Company may be found at www.FixBigSoda.com.
For information, forms and documents regarding our U.S. mutual fund, please
visit www.wintergreenfund.com

_________________________________________________________________
THIS REPORT INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES.
ALTHOUGH WE BELIEVE THAT THE DATA ARE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE
RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS PAPER.
MANY OF THE STATEMENTS IN THIS PAPER REFLECT OUR SUBJECTIVE BELIEF.
THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT
ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE
AT WHICH THE SECURITIES OF THE COCA-COLA COMPANY MAY TRADE AT ANY TIME. THE
INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON
THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS
REGARDING THE COCA-COLA COMPANY AND ITS PROSPECTS BASED ON SUCH INVESTORS OWN
REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION
CONTAINED HEREIN. NEITHER WINTERGREEN ADVISERS, LLC NOR ANY OF ITS AFFILIATES ACCEPTS
ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING,
DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

Source: Bloomberg

ii

Source: Bloomberg estimates

iii

Source: Wintergreen estimates based on forecast layoffs and continued restructuring expenses

iv

Source: Bloomberg

Source: Bloomberg

vi

Source: October 29, 2014 Nomura Securities report