Coca Cola 2015 Annual Report Download - page 131

Recurring Fair Value Measurements
In accordance with accounting principles generally accepted in the United States, certain assets and liabilities are required to be recorded at fair value on a
recurring basis. For our Company, the only assets and liabilities that are adjusted to fair value on a recurring basis are investments in equity and debt
securities classified as trading or available-for-sale and derivative financial instruments. Additionally, the Company adjusts the carrying value of certain
long-term debt as a result of the Company's fair value hedging strategy.
Investments in Trading and Available-for-Sale Securities
The fair values of our investments in trading and available-for-sale securities using quoted market prices from daily exchange traded markets are based on the
closing price as of the balance sheet date and are classified as Level 1. The fair values of our investments in trading and available-for-sale securities classified
as Level 2 are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. Inputs
into these valuation techniques include actual trade data, benchmark yields, broker/dealer quotes and other similar data. These inputs are obtained from
quoted market prices, independent pricing vendors or other sources.
Derivative Financial Instruments
The fair values of our futures contracts are primarily determined using quoted contract prices on futures exchange markets. The fair values of these
instruments are based on the closing contract price as of the balance sheet date and are classified as Level 1.
The fair values of our derivative instruments other than futures are determined using standard valuation models. The significant inputs used in these models
are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2. Inputs used in
these standard valuation models for derivative instruments other than futures include the applicable exchange rates, forward rates, interest rates, discount
rates and commodity prices. The standard valuation model for options also uses implied volatility as an additional input. The discount rates are based on the
historical U.S. Deposit or U.S. Treasury rates, and the implied volatility specific to options is based on quoted rates from financial institutions.
Included in the fair value of derivative instruments is an adjustment for nonperformance risk. The adjustment is based on current credit default swap ("CDS")
rates applied to each contract, by counterparty. We use our counterparty's CDS rate when we are in an asset position and our own CDS rate when we are in a
liability position. The adjustment for nonperformance risk did not have a significant impact on the estimated fair value of our derivative instruments.
The following tables summarize those assets and liabilities measured at fair value on a recurring basis (in millions):
December 31, 2015
Level 1
Level 2
Level 3
Netting
Adjustment1
Fair Value
Measurements
Assets:
Trading securities2$ 183
$ 135
$ 4
$ —
$ 322
Available-for-sale securities23,913
4,574
119 3 —
8,606
Derivatives4
2
1,268
—
(638) 5 632 7
Total assets $ 4,098
$ 5,977
$ 123
$ (638)
$ 9,560
Liabilities:
Derivatives4
$ 24
$ 635
$ —
$ (488) 6 $ 171 7
Total liabilities $ 24
$ 635
$ —
$ (488)
$ 171
1 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or
placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet
the offsetting requirements. Refer to Note 5.
2 Refer to Note 3 for additional information related to the composition of our trading securities and available-for-sale securities.
3 Primarily related to long-term debt securities that mature in 2018.
4 Refer to Note 5 for additional information related to the composition of our derivative portfolio.
5 The Company is obligated to return $184 million in cash collateral it has netted against its derivative position.
6 The Company has the right to reclaim $17 million in cash collateral it has netted against its derivative position.
7 The Company's derivative financial instruments are recorded at fair value in our consolidated balance sheet as follows: $79 million in the line item prepaid expenses and other
assets; $553 million in the line item other assets; and $171 million in the line item other liabilities. Refer to Note 5 for additional information related to the composition of our
derivative portfolio.
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