Coca Cola 2011 Annual Report Download - page 15

Increased competition could hurt our business.
The nonalcoholic beverage segment of the commercial beverage industry is highly competitive. We compete with major
international beverage companies that, like our Company, operate in multiple geographic areas, as well as numerous companies
that are primarily local in operation. In many countries in which we do business, including the United States, PepsiCo, Inc. is a
primary competitor. Other significant competitors include, but are not limited to, Nestl´ e, Dr Pepper Snapple Group, Inc., Groupe
Danone, Kraft Foods Inc. and Unilever. In certain markets, our competition includes major beer companies. Our beverage
products also compete against local or regional brands as well as against store or private label brands developed by retailers, some
of which are Coca-Cola system customers. Our ability to gain or maintain share of sales or gross margins in the global market or
in various local markets may be limited as a result of actions by competitors.
If we are unable to expand our operations in developing and emerging markets, our growth rate could be negatively affected.
Our success depends in part on our ability to grow our business in developing and emerging markets, which in turn depends on
economic and political conditions in those markets and on our ability to acquire bottling operations in those markets or to form
strategic business alliances with local bottlers and to make necessary infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology. Moreover, the supply of our products in developing and emerging markets
must match consumers’ demand for those products. Due to product price, limited purchasing power and cultural differences, there
can be no assurance that our products will be accepted in any particular developing or emerging market.
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including
the euro, the Japanese yen, the Brazilian real and the Mexican peso. In 2011, we used 72 functional currencies in addition to the
U.S. dollar and derived $27.8 billion of net operating revenues from operations outside 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 affect our net operating revenues, operating income and
the value of balance sheet items denominated in foreign currencies. In addition, unexpected and dramatic devaluations of
currencies in developing or emerging markets, such as the devaluation of the Venezuelan bolivar, could negatively affect the value
of our earnings from, and of the assets located in, those markets. 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 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 consolidated 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
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