The Coca-Cola Company Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Investments

Investments

9 Months Ended

Sep. 27, 2019

INVESTMENTS

We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in earnings. We use quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity securities without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Management assesses each of these investments on an individual basis.

Our investments in debt securities are classified as trading, available-for-sale or held-to-maturity and carried at either amortized cost or fair value. The cost basis is determined by the specific identification method. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on debt securities classified as trading securities are included in net income. For debt securities classified as available-for-sale, realized gains and losses are included in net income. Unrealized gains and losses, net of tax, on available-for-sale debt securities are included in our consolidated balance sheet as a component of AOCI, except for the change in fair value attributable to the currency risk being hedged, if applicable, which is included in net income. Refer to Note 6 for additional information related to the Company's fair value hedges of available-for-sale debt securities.

Equity securities with readily determinable fair values that are not accounted for under the equity method and debt securities classified as trading are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. Equity method investments, equity securities without readily determinable fair values and debt securities classified as available-for-sale or held-to-maturity are reviewed each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we evaluate the fair value of the investment to determine whether or not an impairment exists. We also perform this evaluation every reporting period for each investment for which an impairment indicator exists. The fair values of most of our Company's investments in publicly traded companies are often readily available based on quoted market prices. For investments in nonpublicly traded companies, management's assessment of fair value is based on valuation methodologies including discounted cash flows, estimates of sales proceeds and appraisals, as appropriate. We consider the assumptions that we believe a hypothetical marketplace participant would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies. The ability to accurately predict future cash flows, especially in emerging and developing markets, may impact the determination of fair value. In the event the fair value of an investment declines below our cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. Management's assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than our cost basis; the financial condition and near-term prospects of the issuer; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Equity Securities

The carrying values of our equity securities were included in the following line items in our condensed consolidated balance sheets (in millions):



	Fair Value with Changes Recognized in Income		Measurement Alternative — No Readily Determinable Fair Value
September 27, 2019
Marketable securities	$	310	$	—
Other investments	796		82
Other assets	989		—
Total equity securities	$	2,095	$	82
December 31, 2018
Marketable securities	$	278	$	—
Other investments	787		80
Other assets	869		—
Total equity securities	$	1,934	$	80

The calculation of net unrealized gains and losses recognized during the period related to equity securities still held at the end of the period is as follows (in millions):



	Three Months Ended
	September 27, 2019		September 28, 2018
Net gains (losses) recognized during the period related to equity securities	$	29	$	62
Less: Net gains (losses) recognized during the period related to equity securities sold during the period	—		5
Net unrealized gains (losses) recognized during the period related to equity securities still held at the end of the period	$	29	$	57



	Nine Months Ended
	September 27, 2019		September 28, 2018
Net gains (losses) recognized during the period related to equity securities	$	163	$	21
Less: Net gains (losses) recognized during the period related to equity securities sold during the period	16		13
Net unrealized gains (losses) recognized during the period related to equity securities still held at the end of the period	$	147	$	8

Debt Securities

Our debt securities consisted of the following (in millions):



			Gross Unrealized					Estimated Fair Value
	Cost		Gains		Losses			Estimated Fair Value
September 27, 2019
Trading securities	$	45	$	1	$	—		$	46
Available-for-sale securities	3,445		150		(2		)	3,593
Total debt securities	$	3,490	$	151	$	(2	)	$	3,639
December 31, 2018
Trading securities	$	45	$	—	$	(1	)	$	44
Available-for-sale securities	4,901		119		(27		)	4,993
Total debt securities	$	4,946	$	119	$	(28	)	$	5,037

The fair values of our debt securities were included in the following line items in our condensed consolidated balance sheets (in millions):



	September 27, 2019				December 31, 2018
	Trading Securities		Available-for-Sale Securities		Trading Securities		Available-for-Sale Securities
Cash and cash equivalents	$	—	$	155	$	—	$	—
Marketable securities	46		3,100		44		4,691
Other assets	—		338		—		302
Total debt securities	$	46	$	3,593	$	44	$	4,993

The contractual maturities of these available-for-sale debt securities as of September 27, 2019 were as follows (in millions):



	Cost		Estimated Fair Value
Within 1 year	$	2,145	$	2,200
After 1 year through 5 years	1,038		1,102
After 5 years through 10 years	72		85
After 10 years	190		206
Total	$	3,445	$	3,593

The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.

The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity (in millions):



	Three Months Ended						Nine Months Ended
	September 27, 2019			September 28, 2018			September 27, 2019			September 28, 2018
Gross gains	$	9		$	11		$	37		$	19
Gross losses	(1		)	(8		)	(5		)	(21		)
Proceeds	1,284			3,421			3,074			9,744

Captive Insurance Companies

In accordance with local insurance regulations, our captive insurance companies are required to meet and maintain minimum solvency capital requirements. The Company elected to invest a majority of its solvency capital in a portfolio of marketable equity and debt securities. These securities are included in the disclosures above. The Company uses one of its consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the pension obligations of certain of our European and Canadian pension plans. This captive's solvency capital funds included equity and debt securities of $1,197 million as of September 27, 2019 and $1,056 million as of December 31, 2018, which are classified in the line item other assets in our condensed consolidated balance sheets because the assets are not available to satisfy our current obligations.