Coca Cola 2007 Annual Report Download - page 76

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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)
Inventories
Inventories consist primarily of raw materials and packaging (which includes ingredients and supplies) and
finished goods (which include 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. If we determine that the
carrying value of the assets is not recoverable, we record an impairment loss equal to the excess of the carrying amount
of the assets over fair value of the assets. Costs of these programs are recorded in prepaid expenses and other assets and
noncurrent other assets and are amortized over the remaining periods directly benefited, which range from 1 to
11 years. Amortization expense for infrastructure programs was approximately $151 million, $136 million and
$134 million for the years ended December 31, 2007, 2006 and 2005, respectively. Refer to heading “Revenue
Recognition,” above, and Note 3.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repair and maintenance costs that do not improve service
potential or extend economic life are expensed as incurred. Depreciation is recorded principally by the straight-line
method over the estimated useful lives of our assets, which generally have the following ranges: buildings and
improvements: 40 years or less; machinery and equipment: 15 years or less; containers: 10 years or less. Land is not
depreciated, and construction in progress is not depreciated until ready for service and capitalized. Leasehold
improvements are amortized using the straight-line method over the shorter of the remaining lease term, including
renewals that are deemed to be reasonably assured, or the estimated useful life of the improvement. Depreciation
expense, including the depreciation expense of assets under capital lease, totaled approximately $958 million,
$763 million and $752 million for the years ended December 31, 2007, 2006 and 2005, respectively. Amortization
expense for leasehold improvements totaled approximately $21 million, $21 million and $17 million for the years
ended December 31, 2007, 2006 and 2005, respectively. Refer to Note 5.
Management assesses the recoverability of the carrying amount of property, plant and equipment if certain events
or changes in circumstances indicate that the carrying value of such assets may not be recoverable, such as a significant
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