Coca Cola 2014 Annual Report Download - page 86

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We perform impairment tests of goodwill at our reporting unit level, which is one level below our operating segments. Our operating
segments are primarily based on geographic responsibility, which is consistent with the way management runs our business. Our
operating segments are subdivided into smaller geographic regions or territories that we sometimes refer to as “business units.” These
business units are also our reporting units. The Bottling Investments operating segment includes all Company-owned or consolidated
bottling operations, regardless of geographic location, except for bottling operations managed by CCR, which are included in
our North America operating segment. Generally, each Company-owned or consolidated bottling operation within our Bottling
Investments operating segment is its own reporting unit. Goodwill is assigned to the reporting unit or units that benefit from the
synergies arising from each business combination.
The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting
unit to its carrying value, including goodwill. We typically use discounted cash flow models to determine the fair value of a reporting
unit. The assumptions used in these models are consistent with those we believe hypothetical marketplace participants would use. If
the fair value of the reporting unit is less than its carrying value, the second step of the impairment test must be performed in order
to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill
with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value,
an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of
goodwill.
The Company has the option to perform a qualitative assessment of goodwill prior to completing the two-step process described
above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill and other intangible assets. If the Company concludes that this is the case, it must perform the two-step process. Otherwise,
the Company will forego the two-step process and does not need to perform any further testing. During 2014, the Company performed
qualitative assessments on less than 10 percent of our consolidated goodwill balance.
Impairment charges related to intangible assets are generally recorded in the line item other operating charges or, to the extent they
relate to equity method investees, in the line item equity income (loss) — net in our consolidated statements of income.
Contingencies
Our Company is involved in various legal proceedings and tax matters. Due to their nature, such legal proceedings and tax matters
involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental
actions. Management assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant
circumstances, as appropriate. Refer to Note 11.
Stock-Based Compensation
Our Company sponsors stock option and restricted stock award plans. The fair value of our stock option grants is estimated on the
grant date using a Black-Scholes-Merton option-pricing model. The Company recognizes compensation expense on a straight-line
basis over the period the grant is earned by the employee, generally four years.
The fair value of our restricted stock awards is the quoted market value of the Company’s stock on the grant date less the present
value of the expected dividends not received during the relevant holding period. For certain restricted stock awards granted beginning
in 2014, the Company includes a relative total shareowner return (“TSR”) modifier to determine the number of restricted shares or
share units earned at the end of the performance period. For these awards, the number of restricted shares or share units earned based
on the certified achievement of the predefined performance criteria will be reduced or increased if total shareowner return over the
performance period relative to a predefined compensation comparator group of companies falls outside of a defined range. The fair
value of performance share units that include the TSR modifier is determined using a Monte Carlo valuation model.
In the period it becomes probable that the minimum performance criteria specified in the restricted stock award plan will be achieved,
we recognize expense for the proportionate share of the total fair value of the award related to the vesting period that has already
lapsed. The remaining fair value of the award is expensed on a straight-line basis over the balance of the vesting period. In the event
the Company determines it is no longer probable that we will achieve the minimum performance criteria specified in the plan, we
reverse all of the previously recognized compensation expense in the period such a determination is made. Refer to Note 12.
Pension and Other Postretirement Benefit Plans
Our Company sponsors and/or contributes to pension and postretirement health care and life insurance benefit plans covering
substantially all U.S. employees. We also sponsor nonqualified, unfunded defined benefit pension plans for certain associates and
participate in multi-employer pension plans in the United States. In addition, our Company and its subsidiaries have various pension
plans and other forms of postretirement arrangements outside the United States. Refer to Note 13.