Coca Cola 2014 Annual Report Download - page 16

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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 foreign
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 and to the extent 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. 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 of the Company. In addition, some credit rating agencies also consider financial information of certain
of our 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 credit market 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, or if our bottling partners are not satisfied
with our brand innovation and development efforts, 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 independent bottling partners
and, therefore, the success of our business depends on our bottling partners’ financial strength and profitability. While under our
agreements with our bottling partners 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.
Increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on
our financial results.
We are subject to income tax in the United States and in numerous other jurisdictions in which we generate net operating
revenues. Increases in income tax rates could reduce our after-tax income from affected jurisdictions. We earn a substantial
portion of our income in foreign countries. If our capital or financing needs in the United States require us to repatriate
earnings from foreign jurisdictions above our current levels, our effective tax rates for the affected periods could be negatively
impacted. In addition, there have been proposals to reform U.S. tax laws that could significantly impact how U.S. multinational
corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass,