Coca Cola 2005 Annual Report Download - page 71

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THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
evidence of control. If an enterprise holds a majority of the variable interests of an entity, it would be considered
the primary beneficiary. Upon consolidation, the primary beneficiary is generally required to include assets,
liabilities and noncontrolling interests at fair value and subsequently account for the variable interest as if it were
consolidated based on majority voting interest.
In our consolidated financial statements as of December 31, 2003, and prior to December 31, 2003, we
consolidated all entities that we controlled by ownership of a majority of voting interests. As a result of
Interpretation 46(R), effective as of April 2, 2004, our consolidated balance sheets include the assets and
liabilities of:
• all entities in which the Company has ownership of a majority of voting interests; and, additionally,
• all variable interest entities for which we are the primary beneficiary.
Our Company holds interests in certain entities, primarily bottlers, previously accounted for under the
equity method of accounting that are considered variable interest entities. These variable interests relate to
profit guarantees or subordinated financial support for these entities. Upon adoption of Interpretation 46(R) as
of April 2, 2004, we consolidated assets of approximately $383 million and liabilities of approximately
$383 million that were previously not recorded on our consolidated balance sheets. We did not record a
cumulative effect of an accounting change, and prior periods were not restated. The results of operations of
these variable interest entities were included in our consolidated results beginning April 3, 2004, and did not
have a material impact for the year ended December 31, 2004. Our Company’s investment, plus any loans and
guarantees, related to these variable interest entities totaled approximately $263 million and $313 million at
December 31, 2005 and 2004, respectively, representing our maximum exposures to loss. Any creditors of the
variable interest entities do not have recourse against the general credit of the Company as a result of including
these variable interest entities in our consolidated financial statements.
Use of Estimates and Assumptions
The preparation of our consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities in our consolidated financial statements and accompanying notes. Although these estimates
are based on our knowledge of current events and actions we may undertake in the future, actual results may
ultimately differ from estimates and assumptions.
Risks and Uncertainties
Factors that could adversely impact the Company’s operations or financial results include, but are not
limited to, the following: obesity concerns; water scarcity and quality; changes in the nonalcoholic beverages
business environment; increased competition; an inability to enter or expand in developing and emerging
markets; fluctuations in foreign currency exchange and interest rates; the ability to maintain good relationships
with our bottling partners; a deterioration in our bottling partners’ financial condition; strikes or work stoppages
(including at key manufacturing locations); increased cost of energy; increased cost, disruption of supply or
shortage of raw materials; changes in laws and regulations relating to our business, including those regarding
beverage containers and packaging; additional labeling or warning requirements; unfavorable economic and
political conditions in international markets; changes in commercial and market practices within the European
Economic Area; litigation or legal proceedings; adverse weather conditions; an inability to maintain brand image
and product issues such as product recalls; changes in the legal and regulatory environment in various countries
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