Coca Cola 2014 Annual Report Download - page 70

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rate at which future transactions could be settled, including the payment of dividends. Therefore, as of March 28, 2014, we remeasured
the net monetary assets of our Venezuelan subsidiary using an exchange rate of 10.8 bolivars per U.S. dollar, resulting in a charge of
$226 million recorded in the line item other income (loss) — net in our consolidated statement of income.
In December 2014, due to the continued lack of liquidity and increasing economic uncertainty, the Company reevaluated the rate
that should be used to remeasure the monetary assets and liabilities of our Venezuelan subsidiary. As of December 31, 2014, we
determined that the SICAD 2 rate of 50 bolivars per U.S. dollar was the most appropriate legally available rate and remeasured
the net monetary assets of our Venezuelan subsidiary, resulting in a charge of $146 million recorded in the line item other income
(loss) — net in our consolidated statement of income. In February 2015, the Venezuelan government replaced the SICAD 2 rate with
a new open market exchange system, SIMADI. As a result of this change, management is currently evaluating which of the three
legally available rates is the most appropriate to use for the remeasurement of the net monetary assets of our Venezuelan subsidiary
in the future. Our equity method investee that has bottling operations in Venezuela is also evaluating which of these rates is the most
appropriate to use for the remeasurement of the net monetary assets of their Venezuelan subsidiary in the future.
In addition to the foreign currency exchange exposure related to our Venezuelan subsidiary’s net monetary assets, we also sell
concentrate to our bottling partner in Venezuela from outside the country. These sales are denominated in U.S. dollars. During the
year ended December 31, 2014, as a result of the continued lack of liquidity and our revised assessment of the U.S. dollar value we
expect to realize upon the conversion of Venezuelan bolivars into U.S. dollars by our bottling partner to pay our concentrate sales
receivables, we recorded a write-down of $296 million recorded in the line item other operating charges in our consolidated statement
of income.
We also have certain U.S. dollar denominated intangible assets associated with products sold in Venezuela. In January 2014, the
Venezuelan government enacted a new law which imposes limits on profit margins earned in the country, reducing the Company’s
cash flows for as long as the law remains in effect. As a result of this law and the Company’s revised expectations regarding the
convertibility of the local currency, we recognized an impairment charge of $18 million during the year ended December 31, 2014,
recorded in the line item other operating charges in our consolidated statement of income. Further government regulation or changes
in exchange rates could result in additional impairments of these intangible assets.
As of December 31, 2014, the combined value of the net monetary assets of our Venezuelan subsidiary, the concentrate sales
receivables from our bottling partner and the intangible assets associated with products sold in Venezuela was $180 million. Included
in this combined value is $52 million of cash and cash equivalents. Despite the additional currency conversion mechanisms, the
Company’s ability to pay dividends from Venezuela is still restricted due to the low volume of U.S. dollars available for conversion.
If the bolivar devalues further, it would likely result in our Company recognizing additional foreign currency exchange losses, write-
downs of receivables or impairment charges and our share of any charges recorded by our equity method investee.
Impact of Inflation and Changing Prices
Inflation affects the way we operate in many markets around the world. In general, we believe that, over time, we are able to increase
prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our
productive capability.