Coca Cola 2005 Annual Report Download - page 75

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
undiscounted future cash flows, excluding interest charges, we record an impairment loss equal to the excess of
the carrying amount of the asset over its fair value.
Goodwill, Trademarks and Other Intangible Assets
In accordance with SFAS No. 142, ‘‘Goodwill and Other Intangible Assets,’’ we classify intangible assets
into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with
indefinite lives not subject to amortization; and (3) goodwill. We do not amortize intangible assets with
indefinite lives and goodwill. We test intangible assets with definite lives for impairment if conditions exist that
indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a
geographic market or a change in the assessment of future operations. For intangible assets with indefinite lives
and goodwill, we perform tests for impairment at least annually or more frequently if events or circumstances
indicate that assets might be impaired. Such tests for impairment are also required for intangible assets and/or
goodwill recorded by our equity method investees. All goodwill is assigned to reporting units, which are one level
below our operating segments. Goodwill is assigned to the reporting unit that benefits from the synergies arising
from each business combination. We perform our impairment tests of goodwill at our reporting unit level. Such
impairment tests for goodwill include comparing the fair value of a reporting unit with its carrying value,
including goodwill. We record an impairment charge if the carrying value of the asset exceeds its fair value. Fair
values are derived using discounted cash flow analyses with a number of scenarios, where applicable, that are
weighted based on the probability of different outcomes. When appropriate, we consider the assumptions that
we believe hypothetical marketplace participants would use in estimating future cash flows. In addition, where
applicable, an appropriate discount rate is used, based on the Company’s cost of capital rate or location-specific
economic factors. In case the fair value is less than the carrying value of the assets, we record an impairment
charge to reduce the carrying value of the assets to fair value. These impairment charges are generally recorded
in the line item other operating charges or equity income—net in the consolidated statements of income.
Our Company determines the useful lives of our identifiable intangible assets after considering the specific
facts and circumstances related to each intangible asset. Factors we consider when determining useful lives
include the contractual term of any agreement, the history of the asset, the Company’s long-term strategy for the
use of the asset, any laws or other local regulations which could impact the useful life of the asset and, other
economic factors, including competition and specific market conditions. Intangible assets that are deemed to
have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 1 to
48 years. Refer to Note 5.
Derivative Financial Instruments
Our Company accounts for derivative financial instruments in accordance with SFAS No. 133, ‘‘Accounting
for Derivative Instruments and Hedging Activities,’’ as amended by SFAS No. 137, ‘‘Accounting for Derivative
Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133—an
amendment of FASB Statement No. 133,’’ SFAS No. 138, ‘‘Accounting for Certain Derivative Instruments and
Certain Hedging Activities—an amendment of FASB Statement No. 133,’’ and SFAS No. 149, ‘‘Amendment of
Statement 133 on Derivative Instruments and Hedging Activities.’’ We recognize all derivative instruments as
either assets or liabilities at fair value in our consolidated balance sheets, with fair values of foreign currency
derivatives estimated based on quoted market prices or pricing models using current market rates. Refer to
Note 11.
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