Coca Cola 2014 Annual Report Download - page 95

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derivatives reflect the impact of legally enforceable master netting agreements and cash collateral held or placed with the same
counterparties, as applicable. These master netting agreements allow the Company to net settle positive and negative positions (assets
and liabilities) arising from different transactions with the same counterparty.
The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the
derivatives have been designated and qualify as hedging instruments and the type of hedging relationships. Derivatives can be
designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The changes in the fair values
of derivatives that have been designated and qualify for fair value hedge accounting are recorded in the same line item in our
consolidated statements of income as the changes in the fair values of the hedged items attributable to the risk being hedged. The
changes in fair values of derivatives that have been designated and qualify as cash flow hedges or hedges of net investments in foreign
operations are recorded in AOCI and are reclassified into the line item in our consolidated statement of income in which the hedged
items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging
instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by
changes in the fair values or cash flows of the underlying exposures being hedged. The changes in fair values of derivatives that were
not designated and/or did not qualify as hedging instruments are immediately recognized into earnings.
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents, at inception, the
financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking
the hedge transaction. In addition, the Company formally assesses, both at the inception and at least quarterly thereafter, whether
the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the
related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized into
earnings.
The Company determines the fair values of its derivatives based on quoted market prices or pricing models using current market rates.
Refer to Note 16. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by
the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are
calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange
rates, commodity rates or other financial indices. The Company does not view the fair values of its derivatives in isolation, but rather
in relation to the fair values or cash flows of the underlying hedged transactions or other exposures. Virtually all of our derivatives are
straightforward over-the-counter instruments with liquid markets.
The following table presents the fair values of the Company’s derivative instruments that were designated and qualified as part of a
hedging relationship (in millions):
Fair Value1,2
Derivatives Designated as Hedging Instruments Balance Sheet Location1
December 31,
2014
December 31,
2013
Assets:
Foreign currency contracts Prepaid expenses and other assets $ 923 $ 211
Foreign currency contracts Other assets 346 109
Commodity contracts Prepaid expenses and other assets —1
Interest rate contracts Prepaid expenses and other assets 14 —
Interest rate contracts Other assets 146 283
Total assets $ 1,429 $ 604
Liabilities:
Foreign currency contracts Accounts payable and accrued expenses $ 24 $ 84
Foreign currency contracts Other liabilities 249 40
Commodity contracts Accounts payable and accrued expenses 11
Interest rate contracts Accounts payable and accrued expenses 11 —
Interest rate contracts Other liabilities 35 —
Total liabilities $ 320 $ 125
1 All of the Company’s derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable
master netting agreements and cash collateral held or placed with the same counterparties, as applicable. Current disclosure requirements mandate
that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral. Refer to Note 16 for the net
presentation of the Company’s derivative instruments.
2 Refer to Note 16 for additional information related to the estimated fair value.