Coca Cola 2006 Annual Report Download - page 42

In 2006, our Company recorded impairment charges of approximately $41 million primarily related to
trademarks for beverages sold in the Philippines and Indonesia. The Philippines and Indonesia are components
of East, South Asia and Pacific Rim. The amount of these impairment charges was determined by comparing the
fair values of the intangible assets to their respective carrying values. The fair values were determined using
discounted cash flow analyses. Because the fair values were less than the carrying values of the assets, we
recorded impairment charges to reduce the carrying values of the assets to their respective fair values. These
impairment charges were recorded in the line item other operating charges in the consolidated statement of
income.
In December 2006, the Company entered into a purchase agreement with San Miguel Corporation and two
of its subsidiaries (collectively, ‘‘SMC’’) to acquire all of the shares of capital stock of Coca-Cola Bottlers
Philippines, Inc. (‘‘CCBPI’’) held by SMC, representing 65 percent of all the issued and outstanding capital stock
of CCBPI. CCBPI is the Company’s authorized bottler in the Philippines. The transaction is subject to certain
conditions. Upon the closing of this transaction, the Company will own 100 percent of the issued and
outstanding capital stock of CCBPI. Management will continue to monitor the Philippines and conduct
impairment reviews as required.
In 2005, our Company recorded impairment charges of approximately $84 million related to intangible
assets. These intangible assets related to trademarks for beverages sold in the Philippines. The carrying value of
our trademarks in the Philippines, prior to the recording of the impairment charges in 2005, was approximately
$268 million. The impairments were the result of our revised outlook for the Philippines, which had been
unfavorably impacted by declines in volume and income before income taxes resulting from the continued lack
of an affordable package offering and the continued limited availability of these trademark beverages in the
marketplace. We determined the amounts of the impairment charges by comparing the fair values of the
intangible assets to their then carrying values. Fair values were derived using discounted cash flow analyses with
a number of scenarios that were weighted based on the probability of different outcomes. Because the fair values
were less than the carrying values of the assets, we recorded impairment charges to reduce the carrying values of
the assets to fair values. In addition, in 2005, we recorded an impairment charge of approximately $4 million in
the line item equity income—net related to our proportionate share of a write-down of intangible assets
recorded by our equity method investee bottler in the Philippines.
In 2004, our Company recorded impairment charges related to intangible assets of approximately
$374 million, primarily related to franchise rights at CCEAG. CCEAG is a component of Bottling Investments.
The CCEAG impairment charges were the result of our revised outlook for the German market, which was
unfavorably impacted by volume declines resulting from market shifts related to the deposit law on nonrefillable
beverage packages and the corresponding lack of availability of our products in the discount retail channel. The
deposit law in Germany had led to discount chains creating proprietary nonrefillable packages that could only be
returned to their own stores. We determined the amount of the impairment by comparing the fair value of the
intangible assets to its then carrying value. Fair values were derived using discounted cash flow analyses with a
number of scenarios that were weighted based on the probability of different outcomes. Because the fair value
was less than the carrying value of the assets, we recorded an impairment charge to reduce the carrying value of
the assets to fair value. These impairment charges were recorded in the line item other operating charges in our
consolidated statement of income for 2004. At the end of 2004, the German government passed an amendment
to the mandatory deposit legislation that requires retailers, including discount chains, to accept returns of each
type of nonrefillable beverage package they sell, regardless of where the beverage package type was purchased.
In addition, the mandatory deposit requirement was expanded to other beverage categories.
In August 2006, the Company announced that it had reached an agreement in principle with its
independent bottlers in Germany regarding the creation of a single bottler. A non-binding letter of intent was
signed containing the financial framework and the key conditions under which CCEAG and the seven
independent bottlers will become one bottler. We currently expect that this consolidation will occur in 2007. The
Company will be the majority owner of the consolidated bottling operation in Germany. The Company has
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