Coca Cola 2008 Annual Report Download - page 45

assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical
marketplace participant would use. As a result, the cost of capital and/or discount rates used in our analyses may
increase or decrease based on market conditions and trends, regardless of whether our Company’s actual cost of
capital has changed. Therefore, our Company may recognize an impairment of an intangible asset or assets in
spite of realizing actual cash flows that are approximately equal to or greater than our previously forecasted
amounts. The Company has acquired significant intangible assets in the past several years through asset
acquisitions and business combinations, including, among others, the acquisition of brands and licenses in
Denmark and Finland from Carlsberg; 18 German bottling and distribution operations; Energy Brands Inc., also
known as glac´ eau; CCBPI; and Kerry Beverages Limited, which was subsequently renamed Coca-Cola China
Industries Limited (‘‘CCCIL’’). Refer to Note 20 of Notes to Consolidated Financial Statements for more
detailed information about recently acquired intangible assets.
As of our most recent annual SFAS No. 142 impairment review, the Company had no significant
impairments of its intangible assets, individually or in the aggregate. However, if macroeconomic conditions
continue to worsen, it is possible that we may experience significant impairments of some of our intangible
assets, which would require us to recognize impairment charges. Management will continue to monitor the fair
value of our intangible assets in future periods.
As mentioned above, the Company is required to record its proportionate share of impairment charges
recorded by our equity method investees. In 2008, we recorded our proportionate share of approximately
$7.6 billion pretax ($4.9 billion after-tax) of charges recorded by CCE due to impairments of its North American
franchise rights in the second quarter and fourth quarter of 2008. The Company’s proportionate share of these
charges was approximately $1.6 billion. The decline in the estimated fair value of CCE’s North American
franchise rights during the second quarter was the result of several factors including, but not limited to,
(1) challenging macroeconomic conditions which contributed to lower than anticipated volume for higher-
margin packages and certain higher-margin beverage categories; (2) increases in raw material costs including
significant increases in aluminum, high fructose corn syrup (‘‘HFCS’’) and resin; and (3) increased delivery costs
as a result of higher fuel costs. The decline in the estimated fair value of CCE’s North American franchise rights
during the fourth quarter was primarily driven by financial market conditions as of the measurement date that
caused (1) a dramatic increase in market debt rates, which impacted the capital charge, and (2) a significant
decline in the funded status of CCE’s defined benefit pension plans. In addition, the market price of CCE’s
common stock declined by more than 50 percent between the date of CCE’s interim impairment test (May 23,
2008) and the date of CCE’s annual impairment test (October 24, 2008). Our proportionate share of these
charges was recorded to equity income (loss)—net in our consolidated statement of income and impacted the
Bottling Investments operating segment. Refer to the heading ‘‘Operations Review—Equity Income (Loss)—
Net’’ and Note 3 and Note 19 of Notes to Consolidated Financial Statements.
In 2006, our Company recorded a charge of approximately $602 million in equity income (loss)—net, which
primarily represented our proportionate share of impairment charges recorded by CCE. These charges impacted
the Bottling Investments operating segment. Refer to the heading ‘‘Operations Review—Equity Income
(Loss)—Net’’ and Note 3 and Note 19 of Notes to Consolidated Financial Statements.
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 operating segment. 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 models. 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.
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