Coca Cola 2006 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)
Our Company monitors our operations with a view to minimizing the impact to our overall business that
could arise as a result of the risks and uncertainties inherent in our business.
Revenue Recognition
Our Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of products
has occurred, the sales price charged is fixed or determinable, and collectibility is reasonably assured. For our
Company, this generally means that we recognize revenue when title to our products is transferred to our
bottling partners, resellers or other customers. In particular, title usually transfers upon shipment to or receipt at
our customers’ locations, as determined by the specific sales terms of the transactions.
In addition, our customers can earn certain incentives, which are included in deductions from revenue, a
component of net operating revenues in the consolidated statements of income. These incentives include, but
are not limited to, cash discounts, funds for promotional and marketing activities, volume-based incentive
programs and support for infrastructure programs (refer to the heading ‘‘Other Assets’’). The aggregate
deductions from revenue recorded by the Company in relation to these programs, including amortization
expense on infrastructure initiatives, was approximately $3.8 billion, $3.7 billion and $3.6 billion for the years
ended December 31, 2006, 2005 and 2004, respectively.
Advertising Costs
Our Company expenses production costs of print, radio, television and other advertisements as of the first
date the advertisements take place. Advertising costs included in selling, general and administrative expenses
were approximately $2.6 billion, $2.5 billion and $2.2 billion for the years ended December 31, 2006, 2005 and
2004, respectively. As of December 31, 2006 and 2005, advertising and production costs of approximately
$214 million and $170 million, respectively, were recorded in prepaid expenses and other assets and in
noncurrent other assets in our consolidated balance sheets.
Stock-Based Compensation
Our Company currently sponsors stock option plans and restricted stock award plans. Refer to Note 15.
Prior to January 1, 2006, the Company accounted for these plans under the fair value recognition and
measurement provisions of Statement of Financial Accounting Standards (‘‘SFAS’’) No. 123, ‘‘Accounting for
Stock-Based Compensation.’’ Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
‘‘Share Based Payment’’ (‘‘SFAS No. 123(R)’’). Our Company adopted SFAS No. 123(R) using the modified
prospective method. Based on the terms of our plans, our Company did not have a cumulative effect related to
our plans. The adoption of SFAS No. 123(R) did not have a material impact on our stock-based compensation
expense for the year ended December 31, 2006. Further, we believe the adoption of SFAS No. 123(R) will not
have a material impact on our Company’s future stock-based compensation expense. The fair values of the stock
awards are determined using an estimated expected life. The Company recognizes compensation expense on a
straight-line basis over the period the award is earned by the employee.
Our equity method investees also adopted SFAS No. 123(R) effective January 1, 2006. Our proportionate
share of the stock-based compensation expense resulting from the adoption of SFAS No. 123(R) by our equity
method investees is recognized as a reduction of equity income. The adoption of SFAS No. 123(R) by our equity
method investees did not have a material impact on our consolidated financial statements.
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