FAIR VALUE MEASUREMENTS
Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
|
• |
Level 1 — Quoted prices in active markets for identical assets or liabilities. |
|
|
• |
Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data. |
|
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
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 instruments.
Investments in Trading and Available-for-Sale Securities
The fair values of our investments in trading and available-for-sale securities were primarily determined using quoted market prices from daily exchange traded markets. The fair values of instruments using quoted market prices were based on the closing price as of the balance sheet date and were classified as Level 1. The fair values of instruments using other standard valuation models were classified as either Level 2 or Level 3.
Derivative Financial Instruments
The fair values of our futures contracts were primarily determined using quoted contract prices on futures exchange markets. The fair values of these instruments were based on the closing contract price as of the balance sheet date and were classified as Level 1.
The fair values of our derivative instruments other than futures were 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 and discount rates. 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 the current one-year credit default swap ("CDS") rate 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, 2011 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Netting
Adjustment1
|
|
|
Fair Value
Measurements
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Trading securities |
$ |
166 |
|
|
$ |
41 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
211 |
|
Available-for-sale securities |
1,071 |
|
|
214 |
|
|
116 |
|
2 |
— |
|
|
1,401 |
|
Derivatives3
|
39 |
|
|
467 |
|
|
— |
|
|
(117 |
) |
|
389 |
|
Total assets |
$ |
1,276 |
|
|
$ |
722 |
|
|
$ |
120 |
|
|
$ |
(117 |
) |
|
$ |
2,001 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Derivatives3
|
$ |
5 |
|
|
$ |
201 |
|
|
$ |
— |
|
|
$ |
(121 |
) |
|
$ |
85 |
|
Total liabilities |
$ |
5 |
|
|
$ |
201 |
|
|
$ |
— |
|
|
$ |
(121 |
) |
|
$ |
85 |
|
|
|
1 |
Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and also cash collateral held or placed with the same counterparties. |
|
|
2 |
Primarily related to long-term debt securities that mature in 2018. |
|
|
3 |
Refer to Note 5 for additional information related to the composition of our derivative portfolio. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Netting
Adjustment1
|
|
|
Fair Value
Measurements
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Trading securities |
$ |
183 |
|
|
$ |
23 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
209 |
|
Available-for-sale securities |
480 |
|
|
5 |
|
|
— |
|
|
— |
|
|
485 |
|
Derivatives2
|
19 |
|
|
151 |
|
|
4 |
|
|
(143 |
) |
|
31 |
|
Total assets |
$ |
682 |
|
|
$ |
179 |
|
|
$ |
7 |
|
|
$ |
(143 |
) |
|
$ |
725 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Derivatives2
|
$ |
2 |
|
|
$ |
382 |
|
|
$ |
— |
|
|
$ |
(142 |
) |
|
$ |
242 |
|
Total liabilities |
$ |
2 |
|
|
$ |
382 |
|
|
$ |
— |
|
|
$ |
(142 |
) |
|
$ |
242 |
|
|
|
1 |
Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and also cash collateral held or placed with the same counterparties. |
|
|
2 |
Refer to Note 5 for additional information related to the composition of our derivative portfolio. |
Gross realized and unrealized gains and losses on Level 3 assets and liabilities were not significant for the years ended December 31, 2011 and 2010.
The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. Gross transfers between levels within the hierarchy were not significant for the years ended December 31, 2011 and 2010.
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis as required by accounting principles generally accepted in the United States. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. Assets measured at fair value on a nonrecurring basis for the years ended December 31, 2011 and 2010, are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) |
|
December 31, |
2011 |
|
|
2010 |
|
|
Exchange of investment in equity securities |
$ |
418 |
|
1 |
$ |
— |
|
|
Valuation of shares in equity method investee |
122 |
|
2 |
— |
|
|
Equity method investments |
(41 |
) |
3 |
(15 |
) |
6 |
Available-for-sale securities |
(17 |
) |
4 |
(26 |
) |
7 |
Inventories |
(11 |
) |
5 |
— |
|
|
Cold-drink equipment |
(1 |
) |
5 |
— |
|
|
Investment in formerly unconsolidated subsidiary |
— |
|
|
4,978 |
|
8 |
Retained investment in formerly consolidated subsidiary |
— |
|
|
12 |
|
9 |
Total |
$ |
470 |
|
|
$ |
4,949 |
|
|
|
|
1 |
As a result of the merger of Arca and Contal, the Company recognized a gain on the exchange of the shares we previously owned in Contal for shares in the newly formed entity Arca Contal. The gain represents the difference between the carrying value of the Contal shares we relinquished and the fair value of the Arca Contal shares we received as a result of the transaction. The gain and initial carrying value of our investment were calculated based on Level 1 inputs. Refer to Note 17.
|
|
|
2 |
The Company recognized a net gain of $122 million, primarily as a result of an equity method investee issuing additional shares of its own stock at per share amounts greater than the carrying value of the Company's per share investment. Accordingly, the Company is required to treat this type of transaction as if the Company sold a proportionate share of its investment in the equity method investee. The gains the Company recognized as a result of the previous transactions were partially offset by charges associated with certain of the Company's equity method investments in Japan. The gains and charges were determined using Level 1 inputs. Refer to Note 17.
|
|
|
3 |
The Company recognized impairment charges of $41 million related to an investment in an entity accounted for under the equity method of accounting. Subsequent to the recognition of these impairment charges, the Company's remaining financial exposure related to this entity is not significant. This charge was determined using Level 3 inputs. Refer to Note 17.
|
|
|
4 |
The Company recognized other-than-temporary impairment charges of $17 million on certain available-for-sale securities. The Company determined the fair value of these securities based on Level 1 inputs. Refer to Note 17.
|
|
|
5 |
These assets primarily consisted of Company-owned inventory as well as cold-drink equipment that were damaged or lost as a result of the natural disasters in Japan on March 11, 2011. We recorded impairment charges of $11 million and $1 million related to Company-owned inventory and cold-drink equipment, respectively. These charges were determined using Level 3 inputs based on the carrying value of the inventory and cold-drink equipment prior to the disasters. Refer to Note 17.
|
|
|
6 |
The Company recognized an other-than-temporary impairment charge of $15 million. The carrying value of the Company's investment prior to recognizing the impairment was $15 million. The Company determined that the fair value of the investment was zero based on Level 3 inputs. Refer to Note 17.
|
|
|
7 |
The Company recognized other-than-temporary impairment charges on certain available-for-sale securities. The aggregate carrying value of these securities prior to recognizing the impairment charges was $131 million. The Company determined the fair value of these securities based on Level 1 and Level 2 inputs. The fair value of the Level 2 security was based on a dealer quotation. Refer to Note 17.
|
|
|
8 |
The Company recognized a gain on our previously held investment in CCE, which had been accounted for under the equity method of accounting prior to our acquisition of CCE's North American business. Accounting principles generally accepted in the United States require the acquirer to remeasure its previously held noncontrolling equity interest in the acquired entity to fair value as of the acquisition date and recognize any gains or losses in earnings. The Company remeasured our equity interest in CCE based on Level 1 inputs. Refer to Note 2 and Note 17.
|
|
|
9 |
The Company sold 50 percent of our investment in Leão Junior, which was a wholly owned subsidiary prior to this transaction. The gain on the transaction consisted of two parts: (1) the difference between the consideration received and 50 percent of the carrying value of our investment and (2) the fair value adjustment for our remaining 50 percent ownership. The gain in the table above represents the portion of the total gain related to the remeasurement of our retained investment in Leão Junior, which was based on Level 3 inputs. Refer to Note 17 for further discussion of this transaction.
|
Fair Value Measurements for Pension and Other Postretirement Benefit Plans
The fair value hierarchy discussed above is not only applicable to assets and liabilities that are included in our consolidated balance sheets, but is also applied to certain other assets that indirectly impact our consolidated financial statements. For example, our Company sponsors and/or contributes to a number of pension and other postretirement benefit plans. Assets contributed by the Company become the property of the individual plans. Even though the Company no longer has control over these assets, we are indirectly impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts the Company's future net periodic benefit cost, as well as amounts recognized in our consolidated balance sheets. Refer to Note 13. The Company uses the fair value hierarchy to measure the fair value of assets held by our various pension and other postretirement plans.
Pension Plan Assets
The following table summarizes the levels within the fair value hierarchy used to determine the fair value of our pension plan assets for our U.S. and non-U.S. pension plans as of December 31, 2011 and 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
December 31, 2010 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents |
$ |
152 |
|
|
$ |
75 |
|
|
$ |
— |
|
|
$ |
227 |
|
|
$ |
50 |
|
|
$ |
76 |
|
|
— |
|
|
$ |
126 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.-based companies |
1,366 |
|
|
15 |
|
|
14 |
|
|
1,395 |
|
|
1,325 |
|
|
14 |
|
|
15 |
|
|
1,354 |
|
International-based companies |
865 |
|
|
82 |
|
|
6 |
|
|
953 |
|
|
689 |
|
|
49 |
|
|
— |
|
|
738 |
|
Fixed-income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds |
— |
|
|
773 |
|
|
— |
|
|
773 |
|
|
— |
|
|
431 |
|
|
— |
|
|
431 |
|
Corporate bonds and debt securities |
— |
|
|
718 |
|
|
— |
|
|
718 |
|
|
— |
|
|
645 |
|
|
— |
|
|
645 |
|
Mutual, pooled and commingled funds |
167 |
|
|
557 |
|
|
5 |
|
|
729 |
|
|
248 |
|
|
863 |
|
|
20 |
|
|
1,131 |
|
Hedge funds / limited partnerships |
— |
|
|
140 |
|
|
349 |
|
|
489 |
|
|
— |
|
|
121 |
|
|
317 |
|
|
438 |
|
Real estate |
— |
|
|
— |
|
|
270 |
|
|
270 |
|
|
— |
|
|
— |
|
|
242 |
|
|
242 |
|
Other |
— |
|
|
99 |
|
|
518 |
|
1 |
617 |
|
|
3 |
|
|
86 |
|
|
303 |
|
1 |
392 |
|
Total |
$ |
2,550 |
|
|
$ |
2,459 |
|
|
$ |
1,162 |
|
|
$ |
6,171 |
|
|
$ |
2,315 |
|
|
$ |
2,285 |
|
|
$ |
897 |
|
|
$ |
5,497 |
|
|
|
1 |
Includes $514 million and $299 million of purchased annuity contracts as of December 31, 2011 and 2010, respectively.
|
The following table provides a reconciliation of the beginning and ending balance of Level 3 assets for our U.S. and non-U.S. pension plans for the years ended December 31, 2011 and 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Bonds and
Debt Securities
|
|
|
Hedge
Funds/Limited
Partnerships
|
|
|
Real Estate |
|
|
Equity
Securities
|
|
|
Mutual,
Pooled and
Commingled
Funds
|
|
|
Other |
|
|
Total |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
$ |
10 |
|
|
$ |
80 |
|
|
$ |
153 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45 |
|
|
$ |
288 |
|
Actual return on plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to assets still held at the reporting date |
— |
|
|
19 |
|
|
4 |
|
|
5 |
|
|
(1 |
) |
|
10 |
|
|
37 |
|
Related to assets sold during the year |
— |
|
|
(3 |
) |
|
— |
|
|
— |
|
|
1 |
|
|
(1 |
) |
|
(3 |
) |
Purchases, sales and settlements — net |
(10 |
) |
|
7 |
|
|
(36 |
) |
|
10 |
|
|
(4 |
) |
|
288 |
|
|
255 |
|
Business combinations and divestitures — net1
|
— |
|
|
213 |
|
|
121 |
|
|
— |
|
|
24 |
|
|
5 |
|
|
363 |
|
Transfers in or out of Level 3 — net |
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(5 |
) |
|
(4 |
) |
Translation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(39 |
) |
|
(39 |
) |
Balance at end of year |
$ |
— |
|
|
$ |
317 |
|
|
$ |
242 |
|
|
$ |
15 |
|
|
$ |
20 |
|
|
$ |
303 |
|
2 |
$ |
897 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
$ |
— |
|
|
$ |
317 |
|
|
$ |
242 |
|
|
$ |
15 |
|
|
$ |
20 |
|
|
$ |
303 |
|
|
$ |
897 |
|
Actual return on plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to assets still held at the reporting date |
— |
|
|
9 |
|
|
35 |
|
|
4 |
|
|
(5 |
) |
|
61 |
|
|
104 |
|
Related to assets sold during the year |
— |
|
|
(3 |
) |
|
(5 |
) |
|
— |
|
|
6 |
|
|
— |
|
|
(2 |
) |
Purchases, sales and settlements — net |
— |
|
|
26 |
|
|
(2 |
) |
|
(1 |
) |
|
(16 |
) |
|
146 |
|
|
153 |
|
Business combinations and divestitures — net |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Transfers in or out of Level 3 — net |
— |
|
|
1 |
|
|
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
5 |
|
Translation |
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
6 |
|
|
5 |
|
Balance at end of year |
$ |
— |
|
|
$ |
349 |
|
|
$ |
270 |
|
|
$ |
20 |
|
|
$ |
5 |
|
|
$ |
518 |
|
2 |
$ |
1,162 |
|
|
|
1 |
Primarily related to our acquisition of CCE's North American business and the sale of our Norwegian and Swedish bottling operations to New CCE. Refer to Note 2. |
|
|
2 |
Includes $514 million and $299 million of purchased annuity contracts as of December 31, 2011 and 2010, respectively.
|
Other Postretirement Benefit Plan Assets
The following table summarizes the levels within the fair value hierarchy used to determine the fair value of our other postretirement benefit plan assets as of December 31, 2011 and 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
December 31, 2010 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 1
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 1
|
|
|
Total |
|
Cash and cash equivalents |
$ |
— |
|
|
$ |
86 |
|
|
$ |
— |
|
|
$ |
86 |
|
|
$ |
— |
|
|
$ |
84 |
|
|
$ |
— |
|
|
$ |
84 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.-based companies |
70 |
|
|
— |
|
|
— |
|
|
70 |
|
|
75 |
|
|
— |
|
|
— |
|
|
75 |
|
International-based companies |
13 |
|
|
— |
|
|
— |
|
|
13 |
|
|
14 |
|
|
— |
|
|
— |
|
|
14 |
|
Fixed-income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds |
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
Corporate bonds and debt securities |
— |
|
|
6 |
|
|
— |
|
|
6 |
|
|
— |
|
|
6 |
|
|
— |
|
|
6 |
|
Mutual, pooled and commingled funds |
— |
|
|
3 |
|
|
— |
|
|
3 |
|
|
— |
|
|
3 |
|
|
— |
|
|
3 |
|
Hedge funds / limited partnerships |
— |
|
|
— |
|
|
2 |
|
|
2 |
|
|
— |
|
|
— |
|
|
1 |
|
|
1 |
|
Real estate |
— |
|
|
— |
|
|
2 |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
|
2 |
|
Other |
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
Total |
$ |
83 |
|
|
$ |
98 |
|
|
$ |
4 |
|
|
$ |
185 |
|
|
$ |
89 |
|
|
$ |
95 |
|
|
$ |
3 |
|
|
$ |
187 |
|
|
|
1 |
Level 3 assets are not a significant portion of other postretirement benefit plan assets. |
Fair Value of Other Financial Instruments
The carrying amounts of cash and cash equivalents; short-term investments; receivables; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the relatively short-term maturities of these financial instruments.