Coca Cola 2006 Annual Report Download - page 18

environmental or health laws or regulations, may inhibit sales of such products. In California, a law requires that
a specific warning appear on any product that contains a component listed by the state as having been found to
cause cancer or birth defects. This law recognizes no generally applicable quantitative thresholds below which a
warning is not required. If a component found in one of our products is added to the list, or if the increasing
sensitivity of detection methodology that may become available under this law and related regulations as they
currently exist, or as they may be amended, results in the detection of an infinitesimal quantity of a listed
substance in one of our beverages produced for sale in California, the resulting warning requirements or adverse
publicity could affect our sales.
Unfavorable economic and political conditions in international markets could hurt our business.
We derive a significant portion of our net operating revenues from sales of our products in international
markets. In 2006, our operations outside of the United States accounted for approximately 72 percent of our net
operating revenues. Unfavorable economic and political conditions in certain of our international markets,
including civil unrest and governmental changes, could undermine consumer confidence and reduce the
consumers’ purchasing power, thereby reducing demand for our products. In addition, product boycotts
resulting from political activism could reduce demand for our products, while restrictions on our ability to
transfer earnings or capital across borders that may be imposed or expanded as a result of political and
economic instability could impact our profitability. Without limiting the generality of the preceding sentence, the
current unstable economic and political conditions and civil unrest and political activism in the Middle East,
India or the Philippines, the unstable situation in Iraq, or the continuation or escalation of terrorist activities
could adversely impact our international business.
Changes in commercial and market practices within the European Economic Area may affect the sales of our
products.
We and our bottlers are subject to an Undertaking, rendered legally binding in June 2005 by a decision of
the European Commission, pursuant to which we committed to make certain changes in our commercial and
market practices in the European Economic Area Member States. The Undertaking potentially applies in
27 countries and in all channels of distribution where our sparkling beverages account for over 40 percent of
national sales and twice the nearest competitor’s share. The commitments we and our bottlers made in the
Undertaking relate broadly to exclusivity, percentage–based purchasing commitments, transparency, target
rebates, tying, assortment or range commitments, and agreements concerning products of other suppliers. The
Undertaking also applies to shelf space commitments in agreements with take-home customers and to financing
and availability agreements in the on-premise channel. In addition, the Undertaking includes commitments that
are applicable to commercial arrangements concerning the installation and use of technical equipment (such as
coolers, fountain equipment and vending machines). Adjustments to our business model in the European
Economic Area Member States as a result of these commitments or of future interpretations of European
Union competition laws and regulations could adversely affect our sales in the European Economic Area
markets.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We are party to various litigation claims and legal proceedings. We evaluate these litigation claims and legal
proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of
potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant
litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the
information available to management at the time and involve a significant amount of management judgment. We
caution you that actual outcomes or losses may differ materially from those envisioned by our current
assessments and estimates. In addition, we have bottling and other business operations in emerging or
developing markets with high risk legal compliance environments. Our policies and procedures require strict
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