Coca Cola 2010 Annual Report Download - page 18

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 or the currencies of large developing countries, would not materially affect our financial results.
If interest rates increase, our net income could be negatively affected.
We maintain levels of debt that we consider prudent based on our cash flows, interest coverage ratio and percentage of
debt to capital. We use debt financing to lower our cost of capital, which increases our return on shareowners’ equity.
This exposes us 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. In addition, our exposure to
fluctuating interest rates has increased as a result of the indebtedness we assumed in connection with the acquisition of
CCE’s North American business. Our interest expense may also be affected by our credit ratings. In assessing our credit
strength, credit rating agencies consider our capital structure and financial policies as well as the aggregate balance
sheet and other financial information for the Company. In addition, some credit rating agencies also consider financial
information for certain major bottlers. It is our expectation that the credit rating agencies will continue using this
methodology. If our credit ratings were to be downgraded as a result of changes in our capital structure; our major
bottlers’ financial performance; changes in the credit rating agencies’ methodology in assessing our credit strength; the
credit agencies’ perception of the impact of the continuing unfavorable credit conditions on our or our major bottlers’
current or future financial performance and financial condition; or for any other reason, our cost of borrowing could
increase. Additionally, if the credit ratings of certain bottlers in which we have equity method investments were to be
downgraded, such bottlers’ interest expense could increase, which would reduce our equity income.
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 independent
bottling partners. 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.
If our bottling partners’ financial condition deteriorates, our business and financial results could be affected.
We derive a significant portion of our net operating revenues from sales of concentrates and syrups to our bottling
partners and, therefore, the success of our business depends on our bottling partners’ financial strength and
profitability. While under our bottling partners’ 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 our bottling partners’
financial condition and their ability to pass price increases along to their customers. In addition, we have investments in
certain of our bottling partners, which we account for under the equity method, and our operating results include our
proportionate share of such bottling partners’ income or loss. Our bottling partners’ financial condition is affected in
large part by conditions and events that are beyond our and their control, including competitive and general market
conditions in the territories in which they operate, the availability of capital and other financing resources on reasonable
terms, loss of major customers, or disruptions of bottling operations that may be caused by strikes, work stoppages,
labor unrest or natural disasters. A deterioration of the financial condition or results of operations of one or more of
our major bottling partners could adversely affect our net operating revenues from sales of concentrates and syrups;
could result in a decrease in our equity income; and could negatively affect the carrying values of our investments in
bottling partners, resulting in asset write-offs.
16