Coca Cola 2004 Annual Report Download - page 91

Download and view the complete annual report

Please find page 91 of the 2004 Coca Cola annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 10: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Foreign Currency Management
The purpose of our foreign currency hedging activities is to reduce the risk that our eventual U.S. dollar net
cash inflows resulting from sales outside the United States will be adversely affected by changes in exchange rates.
We enter into forward exchange contracts and purchase currency options (principally euro and Japanese
yen) and collars to hedge certain portions of forecasted cash flows denominated in foreign currencies. The
effective portion of the changes in fair value for these contracts, which have been designated as cash flow
hedges, are reported in AOCI and reclassified into earnings in the same financial statement line item and in the
same period or periods during which the hedged transaction affects earnings. Any ineffective portion (which was
not significant in 2004, 2003 or 2002) 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, 2004.
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 consolidated 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, 2004, 2003 and 2002, approximately $8 million, $29 million and
$26 million, respectively, of losses relating to derivative financial instruments were recorded in foreign currency
translation adjustment.
For the years ended December 31, 2004, 2003 and 2002, we recorded an increase (decrease) to AOCI of
approximately $6 million, $(31) million and $(151) 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 $35 million from the after-tax amount recorded in AOCI as of December 31, 2004 as the
anticipated foreign currency cash flows occur.
The Company did not discontinue any cash flow hedge relationships during the years ended December 31,
2004, 2003 and 2002.
89