Coca Cola 2008 Annual Report Download - page 91

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: BOTTLING INVESTMENTS (Continued)
products within CCE territories. These programs are agreed to on an annual basis. Marketing payments made to
third parties on behalf of CCE represent support of certain marketing activities and programs to promote the
sale of Company trademark products within CCE’s territories in conjunction with certain of CCE’s customers.
Pursuant to cooperative advertising and trade agreements with CCE, we received funds from CCE for local
media and marketing program reimbursements. Payments made to CCE for dispensing equipment repair
services represent reimbursement to CCE for its costs of parts and labor for repairs on cooler, dispensing, or
post-mix equipment owned by us or our customers. The other payments—net line in the table above represents
payments made to and received from CCE that are individually not significant.
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.
In addition to the charges discussed above, our Company reduced equity income (loss)—net in our
consolidated statement of income by approximately $30 million in 2008, primarily due to our proportionate
share of restructuring charges recorded by CCE. Our proportionate share of these charges impacted the Bottling
Investments operating segment.
As discussed above, in accordance with the equity method of accounting, we record our proportionate share
of net income or loss from equity method investees. When we record our proportionate share of net income, it
increases our carrying value in that investment. Conversely, when we record our proportionate share of a net
loss, it decreases our carrying value in that investment. Additionally, the equity method of accounting requires
the investor to record its proportionate share of items impacting the equity investee’s AOCI. During 2008, the
carrying value of our investment in CCE was reduced by our proportionate share of CCE’s net loss and items
impacting AOCI. CCE’s net loss was primarily attributable to the impairment charges discussed above. CCE also
recorded significant adjustments to AOCI, primarily related to an increase in its pension liability determined in
accordance with SFAS No. 158 and the impact of foreign currency fluctuations. As a result of CCE’s net loss and
adjustments to AOCI, our Company reduced the carrying value of its investment in CCE to zero as of
December 31, 2008. In accordance with accounting principles generally accepted in the United States, once the
carrying value of an equity investment is reduced to zero, the investor’s proportionate share of net losses and
items impacting AOCI is required to be recorded as a reduction to advances made from the investor to the
investee. As a result, the Company reduced the carrying value of its investment in infrastructure programs with
CCE. Our Company will continue to amortize its investment in these infrastructure programs based on our
original investment; therefore, this adjustment will have no impact on the amortization expense related to these
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