Coca Cola 2007 Annual Report Download - page 83

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: BOTTLING INVESTMENTS (Continued)
each year as part of the annual joint planning process and will be incorporated into the annual marketing plans of both
companies. These amounts are included in the line item marketing payments made by us directly to CCE in the table
above.
Our Company previously entered into programs with CCE designed to help develop cold-drink infrastructure.
Under these programs, our Company paid CCE for a portion of the cost of developing the infrastructure necessary to
support accelerated placements of cold-drink equipment. These payments support a common objective of increased
sales of Company trademarked beverages from increased availability and consumption in the cold-drink channel. In
connection with these programs, CCE agreed to:
(1) purchase and place specified numbers of Company-approved cold-drink equipment each year through 2010;
(2) maintain the equipment in service, with certain exceptions, for a period of at least 12 years after placement;
(3) maintain and stock the equipment in accordance with specified standards; and
(4) annual reporting to our Company of minimum average annual unit case volume throughout the economic life
of the equipment and other specified information.
CCE must achieve minimum average unit case volume for a 12-year period following the placement of equipment.
These minimum average unit case volume levels ensure adequate gross profit from sales of concentrate to fully recover
the capitalized costs plus a return on the Company’s investment. Should CCE fail to purchase the specified numbers of
cold-drink equipment for any calendar year through 2010, the parties agreed to mutually develop a reasonable solution.
Should no mutually agreeable solution be developed, or in the event that CCE otherwise breaches any material
obligation under the contracts and such breach is not remedied within a stated period, then CCE would be required to
repay a portion of the support funding as determined by our Company. In the third quarter of 2004, our Company and
CCE agreed to amend the contract to defer the placement of some equipment from 2004 and 2005, as previously agreed
under the original contract, to 2009 and 2010. In connection with this amendment, CCE agreed to pay the Company
approximately $2 million in 2004, $3 million annually in 2005 through 2008, and $1 million in 2009. In 2005, our
Company and CCE agreed to amend the contract for North America to move to a system of purchase and placement
credits, whereby CCE earns credit toward its annual purchase and placement requirements based upon the type of
equipment it purchases and places. The amended contract also provides that no breach by CCE will occur even if they
do not achieve the required number of purchase and placement credits in any given year, so long as (1) the shortfall
does not exceed 20 percent of the required purchase and placement credits for that year; (2) a compensating payment is
made to our Company by CCE; (3) the shortfall is corrected in the following year; and (4) CCE meets all specified
purchase and placement credit requirements by the end of 2010. The payments we made to CCE under these programs
are recorded in prepaid expenses and other assets and in noncurrent other assets and amortized as deductions from
revenues over the 10-year period following the placement of the equipment. Our carrying values for these infrastructure
programs with CCE were approximately $494 million and $576 million as of December 31, 2007 and 2006,
respectively. The Company has no further commitments under these programs.
Effective December 31, 2006, CCE adopted SFAS No. 158. Our proportionate share of the impact of CCE’s
adoption of SFAS No. 158 was an approximate $132 million pretax ($84 million after tax) reduction in both the
carrying value of our investment in CCE and our accumulated other comprehensive income (loss) (“AOCI”). Refer to
Note 10 and Note 16.
If valued at the December 31, 2007 quoted closing price of CCE shares, the fair value of our investment in CCE
would have exceeded our carrying value by approximately $2.8 billion.
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