Coca Cola 2005 Annual Report Download - page 81

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: BOTTLING INVESTMENTS (Continued)
Our Company previously entered into programs with CCE designed to help develop cold-drink
infrastructure. Under these programs, our Company paid CCE for a portion of the cost of developing the
infrastructure necessary to support accelerated placements of cold-drink equipment. These payments support a
common objective of increased sales of Company trademarked beverages from increased availability and
consumption in the cold-drink channel. In connection with these programs, CCE agreed to:
(1) purchase and place specified numbers of Company-approved cold-drink equipment each year through
2010;
(2) maintain the equipment in service, with certain exceptions, for a period of at least 12 years after
placement;
(3) maintain and stock the equipment in accordance with specified standards; and
(4) annual reporting to our Company of minimum average annual unit case volume throughout the
economic life of the equipment and other specified information.
CCE must achieve minimum average unit case volume for a 12-year period following the placement of
equipment. These minimum average unit case volume levels ensure adequate gross profit from sales of
concentrate to fully recover the capitalized costs plus a return on the Company’s investment. Should CCE fail to
purchase the specified numbers of cold-drink equipment for any calendar year through 2010, the parties agreed
to mutually develop a reasonable solution. Should no mutually agreeable solution be developed, or in the event
that CCE otherwise breaches any material obligation under the contracts and such breach is not remedied within
a stated period, then CCE would be required to repay a portion of the support funding as determined by our
Company. In the third quarter of 2004, our Company and CCE agreed to amend the contract to defer the
placement of some equipment from 2004 and 2005, as previously agreed under the original contract, to 2009 and
2010. In connection with this amendment, CCE agreed to pay the Company approximately $2 million in 2004,
$3 million annually in 2005 through 2008, and $1 million in 2009. In 2005, our Company and CCE agreed to
amend the contract for North America to move to a system of purchase and placement credits, whereby CCE
earns credit toward its annual purchase and placement requirements based upon the type of equipment it
purchases and places. The amended contract also provides that no breach by CCE will occur even if they do not
achieve the required number of purchase and placement credits in any given year, so long as (1) the shortfall
does not exceed 20 percent of the required purchase and placement credits for that year; (2) a compensating
payment is made to our Company by CCE; (3) the shortfall is corrected in the following year; and (4) CCE
meets all specified purchase and placement credit requirements by the end of 2010. The payments we made to
CCE under these programs are recorded in prepaid expenses and other assets and in noncurrent other assets
and amortized as deductions from revenues over the 10-year period following the placement of the equipment.
Our carrying values for these infrastructure programs with CCE were approximately $662 million and
$759 million as of December 31, 2005 and 2004, respectively. The Company has no further commitments under
these programs.
In March 2004, the Company and CCE launched the Dasani water brand in Great Britain. The product was
voluntarily recalled. During 2004, our Company reimbursed CCE $32 million for product recall costs incurred by
CCE.
In March 2003, our Company acquired a 100 percent ownership interest in Truesdale Packaging Company
LLC (‘‘Truesdale’’) from CCE. Refer to Note 19.
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