Coca Cola 2007 Annual Report Download - page 41

Goodwill, Trademarks and Other Intangible Assets
SFAS No. 142, “Goodwill and Other Intangible Assets,” classifies 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. For intangible assets with definite lives, tests for impairment must be performed if
conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and
goodwill, tests for impairment must be performed at least annually or more frequently if events or circumstances
indicate that assets might be impaired. Our equity method investees also perform such tests for impairment for
intangible assets and/or goodwill. If an impairment charge was recorded by one of our equity method investees, the
Company would record its proportionate share of such charge.
In 2006, our Company recorded a charge of approximately $602 million in the line item equity income—net
resulting from the impact of our proportionate share of an impairment charge recorded by CCE, which impacted
Bottling Investments. Refer to the heading “Operations Review—Equity Income—Net” and Note 3 of Notes to
Consolidated Financial Statements.
Our trademarks and other intangible assets determined to have definite lives are amortized over their useful lives.
In accordance with SFAS No. 142, if conditions exist that indicate the carrying value may not be recoverable, we
review such trademarks and other intangible assets with definite lives for impairment. Such conditions may include an
economic downturn in a market or a change in the assessment of future operations. Trademarks and other intangible
assets determined to have indefinite useful lives are not amortized. We test such trademarks and other intangible assets
with indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that assets
might be impaired. Goodwill is not amortized. We also perform tests for impairment of goodwill annually, or more
frequently if events or circumstances indicate it might be impaired. 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.
Impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value,
including goodwill. We use a variety of methodologies in conducting these impairment assessments, including cash
flow analyses that are consistent with the assumptions we believe hypothetical marketplace participants would use,
estimates of sales proceeds and appraisals. Where applicable, we use an appropriate discount rate that is commensurate
with the risk inherent in the projected cash flows.
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 the Pacific. 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 2005, our Company recorded impairment charges of approximately $84 million related to intangible assets. These
intangible assets were 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.
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