Coca Cola 2010 Annual Report Download - page 102

ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.
Refer to Note 14.
Translation and Remeasurement
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S.
dollars at the appropriate spot rates as of the balance sheet date. Generally, our foreign subsidiaries use the local
currency as their functional currency. Changes in the carrying value of these assets and liabilities attributable to
fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of AOCI. Refer to
Note 15. Income statement accounts are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency
must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this
remeasurement process is recognized in the line item other income (loss) — net in our consolidated statements of
income and is partially offset by the impact of our economic hedging program for certain exposures on our consolidated
balance sheets. Refer to Note 5.
Hyperinflationary Economies
As of December 31, 2009, two main exchange rate mechanisms existed in Venezuela. The first exchange rate mechanism
is known as the official rate of exchange (‘‘official rate’’), which is set by the Venezuelan government. In order to utilize
the official rate, entities must seek approval from the government-operated Foreign Exchange Administration Board
(‘‘CADIVI’’). As of December 31, 2009, the official rate set by the Venezuelan government was 2.15 bolivars per U.S.
dollar. The second exchange rate mechanism was known as the parallel rate, which in some circumstances provided
entities with a more liquid exchange through the use of a series of transactions via a broker.
Subsequent to December 31, 2009, Venezuela was determined to be a hyperinflationary economy, and the Venezuelan
government devalued the bolivar by resetting the official rate to 2.6 bolivars per U.S. dollar for essential goods and 4.3
bolivars per U.S. dollar for nonessential goods. In accordance with hyperinflationary accounting under accounting
principles generally accepted in the United States, our local subsidiary was required to use the U.S. dollar as its
functional currency. As a result, we remeasured the net assets of our Venezuelan subsidiary using the official rate for
nonessential goods of 4.3 bolivars per U.S. dollar. During the first quarter of 2010, we recorded a loss of approximately
$103 million related to the remeasurement of our Venezuelan subsidiary’s net assets. The loss was recorded in the line
item other income (loss) — net in our consolidated statement of income. We classified the impact of the
remeasurement loss in the line item effect of exchange rate changes on cash and cash equivalents in our consolidated
statement of cash flows.
In early June 2010, the Venezuelan government introduced a newly regulated foreign currency exchange system known
as the Transaction System for Foreign Currency Denominated Securities (‘‘SITME’’). This new system, which is subject
to annual limits, replaced the parallel market whereby entities domiciled in Venezuela are able to exchange their bolivar
to U.S. dollars through authorized financial institutions (commercial banks, savings and lending institutions, etc.).
In December 2010, the Venezuelan government announced that it was eliminating the official rate of 2.6 bolivars per
U.S. dollar for essential goods. As a result, there are only two exchange rates available for remeasuring bolivar-
denominated transactions as of December 31, 2010, the official rate of 4.3 bolivars per U.S. dollar for nonessential
goods and the SITME rate. As discussed above, the Company has remeasured the net assets of our Venezuelan
subsidiary using the official rate for nonessential goods of 4.3 bolivars per U.S. dollar since January 1, 2010. Therefore,
the elimination of the official rate for essential goods had no impact on the remeasurement of the net assets of our
Venezuelan subsidiary. We continue to use the official exchange rate for nonessential goods to remeasure the financial
statements of our Venezuelan subsidiary. If the official exchange rate devalues further, it would result in our Company
recognizing additional foreign currency exchange losses in our consolidated financial statements. As of December 31,
2010, our Venezuelan subsidiary held monetary assets of approximately $200 million, including cash which accounted for
approximately 2 percent of our consolidated cash and cash equivalents balance.
In addition to the foreign currency exchange exposure related to our Venezuelan subsidiary’s net assets, we also sell
concentrate to our bottling partner in Venezuela from outside the country. These sales are denominated in U.S. dollars.
Some of our concentrate sales were approved by the CADIVI to receive the official rate for essential goods of 2.6
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