Water Management: Water is a main ingredient in substantially all of the company’s products. It is vital to the production of the agricultural ingredients on which the business relies and is needed in KO’s core manufacturing processes. Also, this resource is critical to the prosperity of the communities Coca-Cola serves. Water is a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, as well as rising demand for food and other consumer and industrial products whose manufacturing processes require water. These events increase the risk of pollution, poor management, and effects stemming from climate change. As the demand for water continues to climb around the world, and water becomes scarcer, the overall quality of available water sources may very well deteriorate markedly, leaving the Coca-Cola system to incur higher costs or face capacity constraints that could adversely affect its profitability or net operating revenues in the long run.
Foreign Currency Fluctuation: The company earns revenues, pays expenses, owns assets, and incurs 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 2014, it used 70 functional currencies in addition to the U.S. dollar and derived $26.2 billion of net operating revenues from operations outside the United States. Because its consolidated financial statements are presented in U.S. dollars, Coca-Cola 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 its 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 could negatively affect the value of the beverage provider’s earnings from, and of the assets located in, those markets. Weaknesses in some currencies might be offset by strengths in others over time due to the geographic diversity of the company’s operations. Moreover, KO also employs derivative financial instruments to further reduce its net exposure to foreign currency exchange rate fluctuations. However, it cannot fully hedge the impact from fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies or the currencies of large developing countries.