Coca Cola 2005 Annual Report Download - page 15

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Water scarcity and poor quality could negatively impact the Coca-Cola system’s production costs and capacity.
Water is the main ingredient in substantially all of our products. It is also a limited resource in many parts of
the world, facing unprecedented challenges from overexploitation, increasing pollution and poor management.
As demand for water continues to increase around the world and as the quality of available water deteriorates,
our system may incur increasing production costs or face capacity constraints which could adversely affect our
profitability in the long run.
Changes in the nonalcoholic beverages business environment could impact our financial results.
The nonalcoholic beverages business environment is rapidly evolving as a result of, among other things,
changes in consumer preferences, including changes based on health and nutrition considerations and obesity
concerns, shifting consumer preferences and needs, changes in consumer lifestyles, increased consumer
information and competitive product and pricing pressures. In addition, the industry is being affected by the
trend toward consolidation in the retail channel, particularly in Europe and the United States. If we are unable
to successfully adapt to this rapidly changing environment, our net income, share of sales and volume growth
could be negatively affected.
Increased competition could hurt our business.
The nonalcoholic beverages segment of the commercial beverages industry is highly competitive. We
compete with major international beverage companies that, like our Company, operate in multiple geographic
areas, as well as numerous firms that are primarily local in operation. In many countries in which we do business,
including the United States, PepsiCo, Inc. is a primary competitor. Other significant competitors include Nestl´
e,
Cadbury Schweppes plc, Groupe Danone and Kraft Foods Inc. Our ability to gain or maintain share of sales or
gross margins in the global market or in various local markets may be limited as a result of actions by
competitors.
If we are unable to enter or expand our operations in developing and emerging markets, our growth rate could be
negatively affected.
Our success depends in part on our ability to penetrate developing and emerging markets, which in turn
depends on economic and political conditions in these markets and on our ability to acquire or form strategic
business alliances with local bottlers and to make necessary infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology. Moreover, the supply of our products in developing and
emerging markets must match customers’ demand for those products. Due to product price, limited purchasing
power and cultural differences, there can be no assurance that our products will be accepted in any particular
developing or emerging market.
Fluctuations in foreign currency exchange and interest rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the
U.S. dollar, including the euro, the Japanese yen, the Brazilian real and the Mexican peso. In 2005, we used 45
functional currencies in addition to the U.S. dollar and derived approximately 71 percent of our net operating
revenues from operations outside of our North America operating group. Because our consolidated financial
statements are presented in U.S. dollars, we must translate revenues, income and expenses as well as assets and
liabilities into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore,
increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues,
operating income and the value of balance sheet items denominated in foreign currencies. Because of the
geographic diversity of our operations, weaknesses in some currencies might be offset by strengths in others over
time. We also use derivative financial instruments to further reduce our net exposure to currency exchange rate
fluctuations. However, we cannot assure you that fluctuations in foreign currency exchange rates, particularly the
strengthening of the U.S. dollar against major currencies, would not materially affect our financial results. In
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