Coca Cola 2006 Annual Report Download - page 16

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functional currencies in addition to the U.S. dollar and derived approximately 72 percent of our net operating
revenues from operations outside of the United States. 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 operating 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
addition, we are exposed to adverse changes in interest rates. When appropriate, we use derivative financial
instruments to reduce our exposure to interest rate risks. We cannot assure you, however, that our financial risk
management program will be successful in reducing the risks inherent in exposures to interest rate fluctuations.
We rely on our bottling partners for a significant portion of our business. If we are unable to maintain good
relationships with our bottling partners, our business could suffer.
We generate a significant portion of our net operating revenues by selling concentrates and syrups to
bottlers in which we do not have any ownership interest or in which we have a noncontrolling ownership interest.
In 2006, approximately 83 percent of our worldwide unit case volume was produced and distributed by bottling
partners in which the Company did not have controlling interests. As independent companies, our bottling
partners, some of which are publicly traded companies, make their own business decisions that may not always
align with our interests. In addition, many of our bottling partners have the right to manufacture or distribute
their own products or certain products of other beverage companies. If we are unable to provide an appropriate
mix of incentives to our bottling partners through a combination of pricing and marketing and advertising
support, they may take actions that, while maximizing their own short-term profits, may be detrimental to our
Company or our brands, or they may devote more of their energy and resources to business opportunities or
products other than those of the Company. Such actions could, in the long run, have an adverse effect on our
profitability. In addition, the loss of one or more major customers by one of our major bottling partners, or
disruptions of bottling operations that may be caused by strikes, work stoppages or labor unrest affecting such
bottlers, could indirectly affect our results.
If our bottling partners’ financial condition deteriorates, our business and financial results could be affected.
The success of our business depends on the financial strength and viability of our bottling partners. Our
bottling partners’ financial condition is affected in large part by conditions and events that are beyond our
control, including competitive and general market conditions in the territories in which they operate and the
availability of capital and other financing resources on reasonable terms. While under our bottlers’ agreements
we generally have the right to unilaterally change the prices we charge for our concentrates and syrups, our
ability to do so may be materially limited by the financial condition of the applicable bottlers and their ability to
pass price increases along to their customers. In addition, because we have investments in certain of our bottling
partners, which we account for under the equity method, our operating results include our proportionate share
of such bottling partners’ income or loss. Also, a deterioration of the financial condition of bottling partners in
which we have investments could affect the carrying values of such investments and result in write-offs.
Therefore, a significant deterioration of our bottling partners’ financial condition could adversely affect our
financial results.
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