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. 28, 2012

Investments in debt and marketable equity securities, other than investments accounted for under the equity method, are classified as trading, available-for-sale or held-to-maturity. Our marketable equity investments are classified as either trading or available-for-sale with their cost basis determined by the specific identification method. Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in net income. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in our condensed consolidated balance sheets as a component of AOCI, except for the change in fair value attributable to the currency risk being hedged. Refer to Note 5 for additional information related to the Company's fair value hedges of available-for-sale securities.

Our investments in debt securities are carried at either amortized cost or fair value. 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.

Trading Securities

As of September 28, 2012, and December 31, 2011, our trading securities had a fair value of $255 million and $211 million, respectively, and consisted primarily of equity securities. The Company had net unrealized gains on trading securities of $20 million as of September 28, 2012, and net unrealized losses of $5 million as of December 31, 2011. The Company's trading securities were included in the following line items in our condensed consolidated balance sheets (in millions):



	September 28, 2012		December 31, 2011
Marketable securities	$	174	$	138
Other assets	81		73
Total trading securities	$	255	$	211

Available-for-Sale and Held-to-Maturity Securities

During 2012, the Company made a change in its overall cash management program. In an effort to manage counterparty risk and diversify our assets, the Company began to make additional investments in high-quality securities. These investments are primarily classified as available-for-sale securities.

As of September 28, 2012, available-for-sale and held-to-maturity securities consisted of the following (in millions):



			Gross Unrealized					Estimated
	Cost		Gains		Losses			Fair Value
Available-for-sale securities:¹
Equity securities	$	1,017	$	707	$	(10	)	$	1,714
Debt securities	3,239		55		(4		)	3,290
	$	4,256	$	762	$	(14	)	$	5,004
Held-to-maturity securities:
Bank and corporate debt	$	—	$	—	$	—		$	—

¹Refer to Note 14 for additional information related to the estimated fair value.

As of December 31, 2011, available-for-sale and held-to-maturity securities consisted of the following (in millions):



			Gross Unrealized					Estimated
	Cost		Gains		Losses			Fair Value
Available-for-sale securities:¹
Equity securities	$	834	$	237	$	—		$	1,071
Debt securities	332		1		(3		)	330
	$	1,166	$	238	$	(3	)	$	1,401
Held-to-maturity securities:
Bank and corporate debt	$	113	$	—	$	—		$	113

¹Refer to Note 14 for additional information related to the estimated fair value.

The sale and/or maturity of available-for-sale securities resulted in the following activity during the three and nine months ended September 28, 2012 (in millions):



	September 28, 2012
	Three Months Ended			Nine Months Ended
Gross gains	$	22		$	34
Gross losses	(26		)	(28		)
Proceeds	1,256			4,098

The Company's sale of available-for-sale securities did not result in any significant gross gains, gross losses or proceeds during the three and nine months ended September 30, 2011.

During 2011, the Company began using one of its insurance captives to reinsure group annuity insurance contracts that cover the pension obligations of certain of our European pension plans. In accordance with local insurance regulations, our insurance captive is required to meet and maintain minimum solvency capital requirements. The Company elected to invest its solvency capital in a portfolio of available-for-sale securities, which have been classified in the line item other assets in our condensed consolidated balance sheets because the assets are not available to satisfy our current obligations. As of September 28, 2012, and December 31, 2011, the Company's available-for-sale securities included solvency capital funds of $427 million and $285 million, respectively.

The Company's available-for-sale and held-to-maturity securities were included in the following line items in our condensed consolidated balance sheets (in millions):



	September 28, 2012				December 31, 2011
	Available- for-Sale Securities		Held-to- Maturity Securities		Available- for-Sale Securities		Held-to- Maturity Securities
Cash and cash equivalents	$	1	$	—	$	—	$	112
Marketable securities	2,974		—		5		1
Other investments, principally bottling companies	1,456		—		986		—
Other assets	573		—		410		—
	$	5,004	$	—	$	1,401	$	113

The contractual maturities of these investments as of September 28, 2012, were as follows (in millions):



	Available-for-Sale Securities				Held-to-Maturity Securities
	Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	1,060	$	1,067	$	—	$	—
After 1 year through 5 years	1,583		1,591		—		—
After 5 years through 10 years	289		323		—		—
After 10 years	307		309		—		—
Equity securities	1,017		1,714		—		—
	$	4,256	$	5,004	$	—	$	—

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

Cost Method Investments

Cost method investments are initially recorded at cost, and we record dividend income when applicable dividends are declared. Cost method investments are reported as other investments in our condensed consolidated balance sheets, and dividend income from cost method investments is reported in other income (loss) — net in our condensed consolidated statements of income. We review all of our cost method investments quarterly to determine if impairment indicators are present; however, we are not required to determine the fair value of these investments unless impairment indicators exist. When impairment indicators exist, we generally use discounted cash flow analyses to determine the fair value. We estimate that the fair values of our cost method investments approximated or exceeded their carrying values as of September 28, 2012, and December 31, 2011. Our cost method investments had a carrying value of $156 million and $155 million as of September 28, 2012, and December 31, 2011, respectively.