Coca Cola 2006 Annual Report Download - page 77

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THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Activity in the allowance for doubtful accounts was as follows (in millions):
Year Ended December 31, 2006 2005 2004
Balance, beginning of year $72 $69 $61
Net charges to costs and expenses 217 28
Write-offs (12) (12) (19)
Other11(2) (1)
Balance, end of year $63 $72 $69
1Other includes acquisitions, divestitures and currency translation.
A significant portion of our net operating revenues is derived from sales of our products in international
markets. Refer to Note 20. We also generate a significant portion of our net operating revenues by selling
concentrates and syrups to bottlers in which we have a noncontrolling interest, including Coca-Cola
Enterprises Inc. (‘‘CCE’’), Coca-Cola Hellenic Bottling Company S.A. (‘‘Coca-Cola HBC’’), Coca-Cola
FEMSA, S.A.B. de C.V. (‘‘Coca-Cola FEMSA’’) and Coca-Cola Amatil Limited (‘‘Coca-Cola Amatil’’). Refer to
Note 3.
Inventories
Inventories consist primarily of raw materials and packaging (which includes ingredients and supplies) and
finished goods (which includes concentrates and syrups in our concentrate and foodservice operations, and
finished beverages in our bottling and canning operations). Inventories are valued at the lower of cost or market.
We determine cost on the basis of the average cost or first-in, first-out methods. Refer to Note 2.
Recoverability of Equity Method and Cost Method Investments
Management periodically assesses the recoverability of our Company’s equity method and cost method
investments. For publicly traded investments, readily available quoted market prices are an indication of the fair
value of our Company’s investments. For nonpublicly traded investments, if an identified event or change in
circumstances requires an impairment evaluation, management assesses fair value based on valuation
methodologies, including discounted cash flows, estimates of sales proceeds and external appraisals, as
appropriate. We consider the assumptions that we believe hypothetical marketplace participants would use in
evaluating estimated future cash flows when employing the discounted cash flows and estimates of sales
proceeds valuation methodologies. If an investment is considered to be impaired and the decline in value is
other than temporary, we record a write-down.
Other Assets
Our Company advances payments to certain customers for marketing to fund future activities intended to
generate profitable volume, and we expense such payments over the applicable period. Advance payments are
also made to certain customers for distribution rights. Additionally, our Company invests in infrastructure
programs with our bottlers that are directed at strengthening our bottling system and increasing unit case
volume. When facts and circumstances indicate that the carrying value of the assets may not be recoverable,
management evaluates the recoverability of these assets by preparing estimates of sales volume, the resulting
gross profit and cash flows. Costs of these programs are recorded in prepaid expenses and other assets and
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