Coca Cola 2003 Annual Report Download - page 81

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 10: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
same period or periods during which the hedged transaction affects earnings. Any ineffective portion (which was
not significant in 2003, 2002 or 2001) of the change in fair value of these instruments is immediately recognized
in earnings. These contracts had maturities up to one year on December 31, 2003, which is also the period in
which primarily all amounts included in AOCI will be reclassified into earnings.
Additionally, the Company enters into forward exchange contracts that are not designated as hedging
instruments under SFAS No. 133. These instruments are used to offset the earnings impact relating to the
variability in exchange rates on certain monetary assets and liabilities denominated in nonfunctional currencies.
Changes in the fair value of these instruments are immediately recognized in earnings in the line item other
income (loss)—net of our statements of income to offset the effect of remeasurement of the monetary assets and
liabilities.
The Company also enters into forward exchange contracts to hedge its net investment position in certain
major currencies. Under SFAS No. 133, changes in the fair value of these instruments are recognized in foreign
currency translation adjustment, a component of AOCI, to offset the change in the value of the net investment
being hedged. For the years ended December 31, 2003, 2002 and 2001, approximately $29 million, $26 million
and $43 million, respectively, of losses relating to derivative financial instruments were recorded in foreign
currency translation adjustment.
For the years ended December 31, 2003, 2002 and 2001, we recorded an increase (decrease) to AOCI of
approximately $(31) million, $(151) million and $92 million, respectively, net of both income taxes and
reclassifications to earnings, primarily related to gains and losses on foreign currency cash flow hedges. These
items will generally offset cash flow gains and losses relating to the underlying exposures being hedged in future
periods. The Company estimates that it will reclassify into earnings during the next 12 months losses of
approximately $40 million from the net amount recorded in AOCI as of December 31, 2003 as the anticipated
foreign currency cash flows occur. For the year ended December 31, 2001, the Company recorded approximately
$12 million in earnings, classified within net operating revenues in our statements of income, primarily related to
the change in the time value of foreign currency options. During 2001, the FASB issued an interpretation to
SFAS No. 133 allowing the entire change in fair value, including the time value, of certain purchased options to
be recorded in AOCI until the related underlying exposure is recorded in earnings. The Company adopted this
interpretation prospectively.
The Company did not discontinue any cash flow hedge relationships during the years ended December 31,
2003, 2002 and 2001.
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