Coca Cola 2007 Annual Report Download - page 74

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $4.1 billion, $3.8 billion and $3.7 billion for the years ended December 31, 2007, 2006 and 2005,
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 $2.8 billion, $2.6 billion and $2.5 billion for the years ended December 31, 2007, 2006 and 2005,
respectively. As of December 31, 2007 and 2006, advertising and production costs of approximately $224 million and
$214 million, respectively, were recorded in prepaid expenses and 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. 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.
Issuances of Stock by Equity Method Investees
When one of our equity method investees issues additional shares to third parties, our percentage ownership
interest in the investee decreases. In the event the issuance price per share is higher or lower than our average carrying
amount per share, we recognize a noncash gain or loss on the issuance. This noncash gain or loss, net of any deferred
taxes, is generally recognized in our net income in the period the change in ownership interest occurs.
If gains or losses have been previously recognized on issuances of an equity method investee’s stock and shares of
the equity method investee are subsequently repurchased by the equity method investee, gain or loss recognition does
not occur on issuances subsequent to the date of a repurchase until shares have been issued in an amount equivalent to
the number of repurchased shares. This type of transaction is reflected as an equity transaction, and the net effect is
reflected in our consolidated balance sheets. Refer to Note 4.
Income Taxes
Income tax expense includes United States, state, local and international income taxes, plus a provision for U.S.
taxes on undistributed earnings of foreign subsidiaries not deemed to be indefinitely reinvested. Deferred tax assets and
liabilities are recognized for the tax consequences of temporary differences between the financial reporting and the tax
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