Coca Cola 2015 Annual Report Download - page 72

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 merged SICAD 1 and SICAD 2 into a single mechanism called SICAD and introduced a new open market
exchange rate system, SIMADI. As a result, management determined that the SIMADI rate was the most appropriate legally available rate and remeasured the
net monetary assets of our Venezuelan subsidiary, resulting in a charge of $27 million recorded in the line item other income (loss) — net in our consolidated
statement of income.
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 years ended December 31, 2015 and 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 write-downs of $56 million and $296 million,
respectively, recorded in the line item other operating charges in our consolidated statements of income.
We also have certain U.S. dollar denominated intangible assets associated with products sold in Venezuela. As a result of the Company's revised expectations
regarding the convertibility of the local currency, we recognized impairment charges of $55 million and $18 million, respectively, during the years ended
December 31, 2015 and December 31, 2014. These charges were recorded in the line item other operating charges in our consolidated statements of income.
During the year ended December 31, 2015, the Company continued to use the SIMADI rate to remeasure the net monetary assets of our Venezuelan
subsidiary. As of December 31, 2015, the combined value of the net monetary assets of our Venezuelan subsidiary, the receivables from our bottling partner
in Venezuela and the intangible assets associated with products sold in Venezuela was $100 million. Included in this combined value is $15 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.
In February 2016, the Venezuelan government devalued its currency and changed its official and most preferential exchange rate, which will continue to be
used for purchases of certain essential goods, to 10 bolivars per U.S. dollar from 6.3. The Venezuelan government announced it will reduce its three-tier
system of exchange rates to two tiers by eliminating the SICAD rate. Additionally, the government announced that the SIMADI rate will be allowed to float
freely beginning at a rate of 203 bolivars per U.S. dollar. As a result, the Company expects to continue to record losses on foreign currency exchange, may
incur additional write-downs of receivables or impairment charges and will continue to record our proportionate share of any charges recorded by our equity
method investee that has operations in Venezuela.
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 will be 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.
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