Financial Accounting: In an Economic Context

INTERNATIONAL PERSPECTIVE: INVESTMENTS AND INCOME STATEMENT DISCLOSURE

Many times in this textbook we have commented that U.S. businesses are increasingly investing in foreign markets and operations. Such investments introduce certain risks and opportunities that are different from those characterizing domestic business activities. The following quote from Coca-Cola's annual report provides an illustration:

The Company distributes its products in nearly 170 countries and [transacts in approximately 40 different currencies]. Approximately 80 percent of total operating income is generated outside the United States. International operations are subject to certain risks and opportunities, including currency fluctuation and government actions. The Company closely monitors its methods of operating in each country and adopts strategies responsive to changing economic and political environments.

Such a strong international presence increases the number of transactions that require special disclosure on the income statement. Owens Corning, for example, has significant investments in six different non-U.S.-affiliated companies (two in Saudi Arabia and one each in Canada, Japan, Brazil, and Mexico). A portion of the income reported by these affiliates is disclosed, under the equity method, as a special item on the company's income statement. Merck & Co., Inc., which has investments in foreign assets that total over $2.5 billion, has sold and restructured foreign subsidiaries frequently over ...