Coca Cola 2003 Annual Report Download - page 65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
issuing the guarantee. The initial recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We do not currently
provide significant guarantees on a routine basis. As a result, this interpretation has not had a material impact
on our financial statements.
As previously disclosed, our Company adopted the disclosure requirements of SFAS No. 132 (revised 2003)
related to pensions and other postretirement benefits. Refer to Note 14.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003)
(‘‘Interpretation 46’’), ‘‘Consolidation of Variable Interest Entities.’’ Application of this interpretation is
required in our financial statements for interests in variable interest entities that are considered to be special-
purpose entities for the year ended December 31, 2003. Our Company determined that we do not have any
arrangements or relationships with special-purpose entities. Application of Interpretation 46 for all other types
of variable interest entities is required for our Company effective March 31, 2004.
Interpretation 46 addresses the consolidation of business enterprises to which the usual condition
(ownership of a majority voting interest) of consolidation does not apply. This interpretation focuses on
controlling financial interests that may be achieved through arrangements that do not involve voting interests. It
concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest)
to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best
evidence of control. If an enterprise holds a majority of the variable interests of an entity, it would be considered
the primary beneficiary. The primary beneficiary is required to include assets, liabilities and the results of
operations of the variable interest entity in its financial statements.
Our Company holds interests in certain entities, primarily bottlers, currently accounted for under the equity
method of accounting that may be considered variable interest entities. These variable interests relate to profit
guarantees or subordinated financial support for these bottlers. Our Company determined that we will increase
assets as of March 31, 2004 by approximately $170 million. We expect that the adoption of Interpretation 46 will
not result in a cumulative effect of an accounting change. The results of operations of these variable interest
entities will be included in our consolidated results beginning April 1, 2004 and are not expected to have a
material impact. Our Company’s investment, plus any loans and guarantees, related to these variable interest
entities totals approximately $325 million, representing our maximum exposure to loss. Of this amount,
$280 million is reflected in our December 31, 2003 consolidated balance sheet because we currently account for
a majority of these investments on the equity method of accounting. The remaining $45 million relates to
guarantees made to a third party.
The FASB issued FASB Staff Position 106-1 (‘‘FSP 106-1’’), ‘‘Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,’’ with an effective
date for fiscal years ending after December 7, 2003. FSP 106-1 relates to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the ‘‘Act’’) signed into law on December 8, 2003. The Act
introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health
care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare. We do not believe
that we would need to amend our postretirement health care plan in order to benefit from the federal subsidy.
As permitted by FSP 106-1, our Company made a one-time election to defer accounting for the effect of the Act
until specific authoritative guidance is issued. Therefore, in accordance with FSP 106-1, any measures of the
accumulated postretirement benefit obligation or net periodic postretirement benefit cost included in our
financial statements and accompanying notes do not reflect the effects of the Act on our plans. Specific
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