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Petitioner owns bottling companies known as company bottling
operations (CBO's), each of which is a domestic corporation owned
or controlled directly or indirectly by petitioner. Petitioner's
principal place of business is Atlanta, Georgia. Caribbean
Refrescos, Inc. (CRI), is a wholly owned subsidiary of
petitioner.
CRI produces soft-drink concentrate in Puerto Rico and
transfers all of the concentrate for the U.S. market to Coca-Cola
USA (sometimes referred to as USA), an unincorporated division of
petitioner. Coca-Cola USA sells concentrate, in unchanged form,
to CBO's and to unrelated independent bottling companies engaged
in producing syrup and selling such syrup to wholesalers. Coca-
Cola USA converts the remainder of the concentrate into fountain
syrup and sells the syrup to unrelated bottlers and CBO's.
Fountain syrup is a combination of concentrate, high fructose
corn syrup, and water. Syrup is mixed with carbonated water at
retail outlets to produce the fountain soft drink sold to
consumers. During the years at issue, the dilution ratio for
Coke, Diet Coke, Caffeine Free Diet Coke, Cherry Coke, and Diet
Cherry Coke was 1:79.26:515. Thus, one unit of concentrate is
processed into 79.26 gallons of syrup, which is further processed
into 515 gallons of soft drink. Regardless of the form of the
product sold, each sale involves exactly one unit of concentrate.
The CBO's that purchase concentrate from Coca-Cola USA
convert the concentrate into fountain syrup and sell the syrup to
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