Coca Cola 2014 Annual Report Download - page 96

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The following table presents the fair values of the Company’s derivative instruments that were not designated as hedging instruments
(in millions):
Fair Value1,2
Derivatives Not Designated as Hedging Instruments Balance Sheet Location1
December 31,
2014
December
31,
2013
Assets:
Foreign currency
contracts Prepaid expenses and other assets $ 44 $ 21
Foreign currency
contracts Other assets 231 171
Commodity
contracts Prepaid expenses and other assets 933
Commodity
contracts Other assets 11
Other derivative
instruments Prepaid expenses and other assets 14 9
Other derivative
instruments Other assets 2—
Total assets $ 301 $ 235
Liabilities:
Foreign currency
contracts Accounts payable and accrued expenses
$ 33 $ 24
Foreign currency
contracts Other liabilities
21 —
Commodity
contracts Accounts payable and accrued expenses
156 23
Commodity
contracts Other liabilities
17 —
Interest rate
contracts Other liabilities
23
Other derivative
instruments Accounts payable and accrued expenses
11 —
Total
liabilities
$ 240 $ 50
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.
Credit Risk Associated with Derivatives
We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade
or better. We monitor counterparty exposures regularly and review any downgrade in credit rating immediately. If a downgrade in
the credit rating of a counterparty were to occur, we have provisions requiring collateral in the form of U.S. government securities for
substantially all of our transactions. To mitigate presettlement risk, minimum credit standards become more stringent as the duration
of the derivative financial instrument increases. In addition, the Company’s master netting agreements reduce credit risk by permitting
the Company to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into
derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to
be minimal.
Cash Flow Hedging Strategy
The Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused
by fluctuations in foreign currency exchange rates, commodity prices or interest rates. The changes in the fair values of derivatives
designated as cash flow hedges 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. The changes in fair values of hedges that
are determined to be ineffective are immediately reclassified from AOCI into earnings. During the years ended December 31, 2014,
2013 and 2012, the Company did not record any gains or losses into earnings as a result of the discontinuance of cash flow hedges
due to forecasted transactions that were no longer expected to occur. The maximum length of time for which the Company hedges its
exposure to the variability in future cash flows is typically three years.