Coca Cola 2010 Annual Report Download - page 116

Economic (Non-designated) Hedging Strategy
In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses
certain derivatives as economic hedges. Although these derivatives were not designated and/or did not qualify for hedge
accounting, they are effective economic hedges. The Company primarily uses economic hedges to offset the earnings
impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated
in nonfunctional currencies. The changes in fair values of these economic hedges are immediately recognized into
earnings in the line item other income (loss) — net. The total notional value of derivatives related to our economic
hedges of this type as of December 31, 2010 and 2009, was approximately $2,312 million and $651 million, respectively.
In 2010, the Company initiated certain commodity hedging programs as a result of our acquisition of CCE’s North
American business. The Company uses these types of derivatives as economic hedges to mitigate the price risk
associated with the purchases of materials used in the manufacturing process and for vehicle fuel. The changes in fair
values of these economic hedges are immediately recognized into earnings in the line item cost of goods sold. The total
notional value of derivatives for economic hedges of this type as of December 31, 2010, was approximately $425 million.
The total notional value of these types of derivatives was not significant to the Company as of December 31, 2009.
In connection with our acquisition of CCE’s North American business, the Company assumed certain interest rate
derivatives. The Company did not designate these derivatives as hedges subsequent to the acquisition. These derivatives
were originally recorded at fair value as of October 2, 2010. As of December 31, 2010, all interest rate derivatives
acquired from CCE were settled and will have no additional impact on future earnings. In 2010, the Company recorded
$5 million of losses related to these instruments in interest expense.
The Company entered into interest rate locks that were used as economic hedges to mitigate the interest rate risk
associated with the Company’s repurchase of certain long-term debt. These hedges were not designated and did not
qualify for hedge accounting, but were effective economic hedges. The Company settled these hedges and recognized
losses of $104 million in interest expense during 2010. As of December 31, 2010, there were no outstanding interest rate
derivatives used as economic hedges.
The following table presents the pretax impact that changes in the fair values of derivatives not designated as hedging
instruments had on earnings (in millions):
Gains (Losses)
Year Ended December 31,
Derivatives Not Designated Location of Gains (Losses)
as Hedging Instruments Recognized in Income 2010 2009
Foreign currency contracts Net operating revenues $ (15) $ (16)
Foreign currency contracts Other income (loss) — net (46) 114
Foreign currency contracts Cost of goods sold (9) —
Commodity futures Cost of goods sold 40 12
Interest rate swaps Interest expense (5) —
Interest rate locks Interest expense (104) —
Other derivative instruments Selling, general and administrative expenses 21 23
Total $ (118) $ 133
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