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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2021
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to                                     
Commission File Number 001-02217
ko-20211001_g1.jpg
COCA COLA CO
(Exact name of Registrant as specified in its charter)
Delaware 58-0628465
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
One Coca-Cola Plaza
AtlantaGeorgia30313
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (404) 676-2121
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.25 Par ValueKONew York Stock Exchange
0.500% Notes Due 2024KO24New York Stock Exchange
1.875% Notes Due 2026KO26New York Stock Exchange
0.750% Notes Due 2026KO26CNew York Stock Exchange
1.125% Notes Due 2027KO27New York Stock Exchange
0.125% Notes Due 2029KO29ANew York Stock Exchange
0.125% Notes Due 2029KO29BNew York Stock Exchange
0.400% Notes Due 2030KO30BNew York Stock Exchange
1.250% Notes Due 2031KO31New York Stock Exchange
0.375% Notes Due 2033KO33New York Stock Exchange
0.500% Notes Due 2033KO33ANew York Stock Exchange
1.625% Notes Due 2035KO35New York Stock Exchange
1.100% Notes Due 2036KO36New York Stock Exchange
0.950% Notes Due 2036KO36ANew York Stock Exchange
0.800% Notes Due 2040KO40BNew York Stock Exchange
1.000% Notes Due 2041KO41New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes     No 



Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes     No 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer 
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class of Common Stock  Shares Outstanding as of October 25, 2021
$0.25 Par Value 4,319,420,236



THE COCA-COLA COMPANY AND SUBSIDIARIES
Table of Contents
  Page
 
Item 1.
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.



FORWARD-LOOKING STATEMENTS
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause our Company’s actual results to differ materially from historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, the possibility that the assumptions used to calculate our estimated aggregate incremental tax and interest liability related to the potential unfavorable outcome of the ongoing tax dispute with the U.S. Internal Revenue Service could significantly change; those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020; and those described from time to time in our future reports filed with the Securities and Exchange Commission.
1


Part I. Financial Information
Item 1.  Financial Statements (Unaudited)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions except per share data)
Three Months EndedNine Months Ended
October 1,
2021
September 25,
2020
October 1,
2021
September 25,
2020
Net Operating Revenues$10,042 $8,652 $29,191 $24,403 
Cost of goods sold3,977 3,471 11,269 9,855 
Gross Profit6,065 5,181 17,922 14,548 
Selling, general and administrative expenses3,122 2,511 8,808 7,142 
Other operating charges45 372 478 747 
Operating Income2,898 2,298 8,636 6,659 
Interest income68 82 205 294 
Interest expense210 660 1,432 1,127 
Equity income (loss) — net455 431 1,136 774 
Other income (loss) — net(127)30 920 788 
Income Before Income Taxes3,084 2,181 9,465 7,388 
Income taxes 609 441 2,111 1,094 
Consolidated Net Income2,475 1,740 7,354 6,294 
Less: Net income (loss) attributable to noncontrolling interests4 3 (3)3 
Net Income Attributable to Shareowners of The Coca-Cola
   Company
$2,471 $1,737 $7,357 $6,291 
Basic Net Income Per Share1
$0.57 $0.40 $1.71 $1.47 
Diluted Net Income Per Share1
$0.57 $0.40 $1.70 $1.46 
Average Shares Outstanding — Basic4,318 4,296 4,313 4,293 
Effect of dilutive securities26 25 24 28 
Average Shares Outstanding — Diluted4,344 4,321 4,337 4,321 
1 Calculated based on net income attributable to shareowners of The Coca-Cola Company.
Refer to Notes to Condensed Consolidated Financial Statements.


2


THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In millions)
Three Months EndedNine Months Ended
October 1,
2021
September 25,
2020
October 1,
2021
September 25,
2020
Consolidated Net Income$2,475 $1,740 $7,354 $6,294 
Other Comprehensive Income:  
Net foreign currency translation adjustments(991)1,052 (131)(2,283)
Net gains (losses) on derivatives28 (13)184 (23)
 Net change in unrealized gains (losses) on available-for-sale debt securities(22)(21)(83)(40)
Net change in pension and other postretirement benefit liabilities(32)(2)368 45 
Total Comprehensive Income1,458 2,756 7,692 3,993 
Less: Comprehensive income (loss) attributable to noncontrolling interests
(62)5 (16)(396)
Total Comprehensive Income Attributable to Shareowners
of The Coca-Cola Company
$1,520 $2,751 $7,708 $4,389 

Refer to Notes to Condensed Consolidated Financial Statements.



3


THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions except par value)
October 1,
2021
December 31,
2020
ASSETS
Current Assets 
Cash and cash equivalents$11,301 $6,795 
Short-term investments1,844 1,771 
Total Cash, Cash Equivalents and Short-Term Investments13,145 8,566 
Marketable securities1,724 2,348 
Trade accounts receivable, less allowances of $534 and $526, respectively
3,889 3,144 
Inventories3,182 3,266 
Prepaid expenses and other assets2,300 1,916 
Total Current Assets24,240 19,240 
Equity method investments18,284 19,273 
Other investments897 812 
Other assets6,490 6,184 
Deferred income tax assets2,237 2,460 
Property, plant and equipment, less accumulated depreciation of $9,153 and $8,923, respectively
10,058 10,777 
Trademarks with indefinite lives10,449 10,395 
Goodwill17,455 17,506 
Other intangible assets496 649 
Total Assets$90,606 $87,296 
LIABILITIES AND EQUITY
Current Liabilities  
Accounts payable and accrued expenses$12,830 $11,145 
Loans and notes payable1,866 2,183 
Current maturities of long-term debt448 485 
Accrued income taxes846 788 
Total Current Liabilities15,990 14,601 
Long-term debt39,394 40,125 
Other liabilities8,401 9,453 
Deferred income tax liabilities2,688 1,833 
The Coca-Cola Company Shareowners’ Equity  
Common stock, $0.25 par value; authorized — 11,200 shares; issued — 7,040 shares
1,760 1,760 
Capital surplus17,929 17,601 
Reinvested earnings68,494 66,555 
Accumulated other comprehensive income (loss)(14,250)(14,601)
Treasury stock, at cost — 2,721 and 2,738 shares, respectively
(51,754)(52,016)
Equity Attributable to Shareowners of The Coca-Cola Company22,179 19,299 
Equity attributable to noncontrolling interests1,954 1,985 
Total Equity24,133 21,284 
Total Liabilities and Equity$90,606 $87,296 
Refer to Notes to Condensed Consolidated Financial Statements.
4


THE COCA-COLA COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
 Nine Months Ended
 October 1,
2021
September 25,
2020
Operating Activities  
Consolidated net income$7,354 $6,294 
Depreciation and amortization1,111 1,106 
Stock-based compensation expense236 88 
Deferred income taxes726 10 
Equity (income) loss — net of dividends(621)(565)
Foreign currency adjustments(5)(145)
Significant (gains) losses — net(498)(899)
Other operating charges243 671 
Other items517 562 
Net change in operating assets and liabilities168 (902)
Net Cash Provided by Operating Activities9,231 6,220 
Investing Activities  
Purchases of investments(4,732)(12,051)
Proceeds from disposals of investments5,294 6,482 
Acquisitions of businesses, equity method investments and nonmarketable securities(11)(989)
Proceeds from disposals of businesses, equity method investments and nonmarketable securities1,950 46 
Purchases of property, plant and equipment(728)(759)
Proceeds from disposals of property, plant and equipment65 156 
Other investing activities81 43 
Net Cash Provided by (Used in) Investing Activities1,919 (7,072)
Financing Activities 
Issuances of debt11,848 26,898 
Payments of debt(13,037)(17,977)
Issuances of stock493 514 
Purchases of stock for treasury(104)(93)
Dividends(5,437)(3,522)
Other financing activities(354)153 
Net Cash Provided by (Used in) Financing Activities(6,591)5,973 
Effect of Exchange Rate Changes on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
(56)(36)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
    during the period
4,503 5,085 
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period7,110 6,737 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents at End of Period11,613 11,822 
Less: Restricted cash and restricted cash equivalents at end of period312 437 
Cash and Cash Equivalents at End of Period$11,301 $11,385 
Refer to Notes to Condensed Consolidated Financial Statements.

5



THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of The Coca-Cola Company for the year ended December 31, 2020.
When used in these notes, the terms “The Coca-Cola Company,” “Company,” “we,” “us” and “our” mean The Coca-Cola Company and all entities included in our condensed consolidated financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended October 1, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Sales of our nonalcoholic ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters typically accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions.
Each of our quarterly reporting periods, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The third quarter of 2021 and the third quarter of 2020 ended on October 1, 2021 and September 25, 2020, respectively. Our fourth quarter and our fiscal year end on December 31 regardless of the day of the week on which December 31 falls.
Advertising Costs
The Company’s accounting policy related to advertising costs for annual reporting purposes is to expense production costs of print, radio, television and other advertisements as of the first date the advertisements take place. All other marketing expenditures are expensed in the annual period in which the expenditure is incurred.
For quarterly reporting purposes, we allocate our estimated full year marketing expenditures that benefit multiple quarters to each of those quarters. We use the proportion of each quarter’s actual unit case volume to the estimated full year unit case volume as the basis for the allocation. This methodology results in our marketing expenditures being recognized at a standard rate per unit case. At the end of each quarter, we review our estimated full year unit case volume and our estimated full year marketing expenditures that benefit multiple quarters in order to evaluate if a change in estimate is necessary. The impact of any change in the full year estimate is recognized in the quarter in which the change in estimate occurs. Our full year marketing expenditures are not impacted by this interim accounting policy.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
We classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents or restricted cash equivalents, as applicable. Restricted cash and restricted cash equivalents generally consist of amounts held by our captive insurance companies, which are included in the line item other assets in our consolidated balance sheet. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor our concentrations of credit risk.
The following tables provide a summary of cash, cash equivalents, restricted cash and restricted cash equivalents that constitute the total amounts shown in our condensed consolidated statements of cash flows (in millions):
October 1,
2021
December 31,
2020
Cash and cash equivalents$11,301 $6,795 
Restricted cash and restricted cash equivalents included in other assets1
312 315 
Cash, cash equivalents, restricted cash and restricted cash equivalents $11,613 $7,110 
1 Amounts represent restricted cash and restricted cash equivalents in our solvency capital portfolio set aside primarily to cover pension obligations in certain of our European and Canadian pension plans. Refer to Note 4.
6


September 25,
2020
December 31,
2019
Cash and cash equivalents$11,385 $6,480 
Restricted cash and restricted cash equivalents included in other assets1
437 257 
Cash, cash equivalents, restricted cash and restricted cash equivalents$11,822 $6,737 
1 Amounts represent restricted cash and restricted cash equivalents in our solvency capital portfolio set aside primarily to cover pension obligations in certain of our European and Canadian pension plans. Refer to Note 4.
NOTE 2: ACQUISITIONS AND DIVESTITURES
Acquisitions
Our Company’s acquisitions of businesses, equity method investments and nonmarketable securities totaled $11 million and $989 million during the nine months ended October 1, 2021 and September 25, 2020, respectively. In 2020, we acquired the remaining ownership interest in fairlife, LLC (“fairlife”).
fairlife, LLC
In January 2020, the Company acquired the remaining 57.5 percent ownership interest in, and now owns 100 percent of, fairlife. fairlife offers a broad portfolio of products in the value-added dairy category across North America. Upon consolidation, we recognized a gain of $902 million resulting from the remeasurement of our previously held equity interest in fairlife to fair value. The fair value of our previously held equity interest was determined using a discounted cash flow model based on Level 3 inputs. The gain was recorded in the line item other income (loss) — net in our condensed consolidated statement of income. We acquired the remaining ownership interest in exchange for $979 million of cash, net of cash acquired, and effectively settled our $306 million note receivable from fairlife at the recorded amount. Under the terms of the agreement, we are subject to making future milestone payments which are contingent on fairlife achieving certain financial targets through 2024 and, if achieved, are payable in 2021, 2023 and 2025. These milestone payments are based on agreed-upon formulas related to fairlife’s operating results, the resulting values of which are not subject to a ceiling. Under the applicable accounting guidance, we recorded a $270 million liability representing our best estimate of the fair value of this contingent consideration as of the acquisition date. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs, including management’s latest estimates of future operating results. We are required to remeasure this liability to fair value quarterly, with any changes in the fair value recorded in income until the final milestone payment is made. Upon finalization of purchase accounting, $1.3 billion of the purchase price was allocated to the fairlife trademark and $0.8 billion was allocated to goodwill. The goodwill recognized as part of this acquisition is primarily related to synergistic value created from the opportunity for additional expansion. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce. The goodwill is not tax deductible and has been assigned to the North America operating segment.
During the three and nine months ended October 1, 2021, we recorded charges of $12 million and $263 million, respectively. During the three and nine months ended September 25, 2020, we recorded charges of $18 million and $47 million, respectively. These charges related to the remeasurement of the contingent consideration liability to fair value and were recorded in the line item other operating charges in our condensed consolidated statements of income. During the nine months ended October 1, 2021, we made the first milestone payment of $100 million based on fairlife meeting its financial targets in 2020.
Divestitures
Proceeds from disposals of businesses, equity method investments and nonmarketable securities during the nine months ended October 1, 2021 and September 25, 2020 totaled $1,950 million and $46 million, respectively. In 2021, we sold our ownership interest in Coca-Cola Amatil Limited (“CCA”), an equity method investee, to Coca-Cola Europacific Partners plc (“CCEP”), also an equity method investee. We received cash proceeds of $1,738 million and recognized a net gain of $695 million as a result of the sale and the related reversal of cumulative translation adjustments. In 2021 and 2020, we sold portions of our ownership interest in one of our equity method investments and received cash proceeds of $134 million and $34 million, respectively, resulting in gains of $63 million and $18 million, respectively. All of the gains were recorded in the line item other income (loss) — net in our condensed consolidated statements of income.
7


NOTE 3: REVENUE RECOGNITION
The following tables present net operating revenues disaggregated between the United States and International and further by line of business (in millions):
United StatesInternationalTotal
Three Months Ended October 1, 2021
Concentrate operations$1,749 $4,122 $5,871 
Finished product operations1,669 2,502 4,171 
Total $3,418 $6,624 $10,042 
Three Months Ended September 25, 2020
Concentrate operations$1,523 $3,556 $5,079 
Finished product operations1,503 2,070 3,573 
Total $3,026 $5,626 $8,652 
United StatesInternationalTotal
Nine Months Ended October 1, 2021
Concentrate operations$4,899 $11,948 $16,847 
Finished product operations4,744 7,600 12,344 
Total $9,643 $19,548 $29,191 
Nine Months Ended September 25, 2020
Concentrate operations$4,117 $9,966 $14,083 
Finished product operations4,299 6,021 10,320 
Total $8,416 $15,987 $24,403 
Refer to Note 16 for disclosures of net operating revenues by operating segment and Corporate.
NOTE 4: INVESTMENTS
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
October 1, 2021
Marketable securities$361 $ 
Other investments850 47 
Other assets1,490  
Total equity securities$2,701 $47 
December 31, 2020
Marketable securities$330 $ 
Other investments762 50 
Other assets1,282  
Total equity securities$2,374 $50 
8


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
October 1,
2021
September 25,
2020
Net gains (losses) recognized during the period related to equity securities $4 $17 
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
$(1)$17 
Nine Months Ended
October 1,
2021
September 25,
2020
Net gains (losses) recognized during the period related to equity securities $361 $(137)
Less: Net gains (losses) recognized during the period related to equity securities sold
during the period
33 (24)
Net unrealized gains (losses) recognized during the period related to equity securities
still held at the end of the period
$328 $(113)
Debt Securities
Our debt securities consisted of the following (in millions):
Gross UnrealizedEstimated Fair Value
CostGainsLosses
October 1, 2021
Trading securities
$38 $2 $ $40 
Available-for-sale securities
1,677 35 (123)1,589 
Total debt securities
$1,715 $37 $(123)$1,629 
December 31, 2020
Trading securities
$36 $2 $ $38 
Available-for-sale securities
2,227 51 (13)2,265 
Total debt securities
$2,263 $53 $(13)$2,303 
The carrying values of our debt securities were included in the following line items in our condensed consolidated balance sheets (in millions):
October 1, 2021December 31, 2020
Trading Securities Available-for-Sale Securities Trading Securities Available-for-Sale Securities
Marketable securities
$40 $1,323 $38 $1,980 
Other assets
 266  285 
Total debt securities$40 $1,589 $38 $2,265 
The contractual maturities of these available-for-sale debt securities as of October 1, 2021 were as follows (in millions):
CostEstimated
Fair Value
Within 1 year$26 $26 
After 1 year through 5 years1,381 1,279 
After 5 years through 10 years91 100 
After 10 years179 184 
Total$1,677 $1,589 
The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.
9


The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity (in millions):
Three Months EndedNine Months Ended
October 1,
2021
September 25,
2020
October 1,
2021
September 25,
2020
Gross gains$2 $2 $4 $19 
Gross losses (3)(8)(11)
Proceeds91 233 1,058 1,419 
Captive Insurance Companies
In accordance with local insurance regulations, our consolidated 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 our consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the obligations of certain of our European and Canadian pension plans. This captive’s solvency capital funds included total equity and debt securities of $1,589 million and $1,389 million as of October 1, 2021 and December 31, 2020, respectively, 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.
NOTE 5: INVENTORIES
Inventories consisted of the following (in millions):
October 1,
2021
December 31,
2020
Raw materials and packaging$1,914 $2,106 
Finished goods 925 791 
Other 343 369 
Total inventories $3,182 $3,266 
NOTE 6: HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the fair values of the Company’s derivative instruments that were designated and qualified as part of a hedging relationship (in millions):
 
Fair Value1,2
Derivatives Designated as Hedging Instruments
Balance Sheet Location1
October 1,
2021
December 31, 2020
Assets:   
Foreign currency contractsPrepaid expenses and other assets$122 $26 
Foreign currency contractsOther assets41 74 
Commodity contractsPrepaid expenses and other assets 2 
Interest rate contractsPrepaid expenses and other assets2  
Interest rate contractsOther assets346 659 
Total assets $511 $761 
Liabilities:   
Foreign currency contractsAccounts payable and accrued expenses$19 $29 
Foreign currency contractsOther liabilities1  
Commodity contractsAccounts payable and accrued expenses2  
Interest rate contractsAccounts payable and accrued expenses 5 
Total liabilities $22 $34 
1 All of the Company’s derivative instruments are carried at fair value in our condensed 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 15 for the net presentation of the Company’s derivative instruments.
2 Refer to Note 15 for additional information related to the estimated fair value.
10


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
October 1,
2021
December 31, 2020
Assets:   
Foreign currency contractsPrepaid expenses and other assets$28 $28 
Foreign currency contractsOther assets2 1 
Commodity contractsPrepaid expenses and other assets115 76 
Commodity contractsOther assets48 9 
Other derivative instrumentsPrepaid expenses and other assets1 20 
Other derivative instrumentsOther assets 3 
Total assets $194 $137 
Liabilities:   
Foreign currency contractsAccounts payable and accrued expenses$49 $41 
Foreign currency contractsOther liabilities6  
Commodity contractsAccounts payable and accrued expenses2 15 
Commodity contractsOther liabilities 1 
Other derivative instrumentsAccounts payable and accrued expenses6  
Total liabilities $63 $57 
1 All of the Company’s derivative instruments are carried at fair value in our condensed 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 15 for the net presentation of the Company’s derivative instruments.
2 Refer to Note 15 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 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 accumulated other comprehensive income (loss) (“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 the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is typically four years.
The Company maintains a foreign currency cash flow hedging program to reduce the risk that our U.S. dollar net cash inflows from sales outside the United States and U.S. dollar net cash outflows from procurement activities will be adversely affected by fluctuations in foreign currency exchange rates. We enter into forward contracts and purchase foreign currency options and collars (principally euro, British pound sterling and Japanese yen) to hedge certain portions of forecasted cash flows denominated in foreign currencies. When the U.S. dollar strengthens against the foreign currencies, the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments. The total notional values of derivatives that were designated and qualified for the Company’s foreign currency cash flow hedging program were $8,105 million and $7,785 million as of October 1, 2021 and December 31, 2020, respectively.
11


The Company uses cross-currency swaps to hedge the changes in cash flows of certain of its foreign currency denominated debt and other monetary assets or liabilities due to fluctuations in foreign currency exchange rates. For this hedging program, the Company recognizes in earnings each period the changes in carrying values of these foreign currency denominated assets and liabilities due to changes in exchange rates. The changes in fair values of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the changes in fair values attributable to fluctuations in foreign currency exchange rates. The total notional values of derivatives that were designated as cash flow hedges for the Company’s foreign currency denominated assets and liabilities were $2,700 million as of October 1, 2021 and December 31, 2020.
The Company has entered into commodity futures contracts and other derivative instruments on various commodities to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process. These derivative instruments were designated as part of the Company’s commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of certain commodities. The total notional values of derivatives that were designated and qualified for this program were $34 million and $11 million as of October 1, 2021 and December 31, 2020, respectively.
Our Company monitors our mix of short-term debt and long-term debt regularly. From time to time, we manage our risk to interest rate fluctuations through the use of derivative financial instruments. The Company has entered into interest rate swap agreements and has designated these instruments as part of the Company’s interest rate cash flow hedging program. The objective of this hedging program is to mitigate the risk of adverse changes in benchmark interest rates on the Company’s future interest payments. The total notional value of these interest rate swap agreements that were designated and qualified for the Company’s interest rate cash flow hedging program was $1,233 million as of December 31, 2020. As of October 1, 2021, we did not have any interest rate swaps designated as a cash flow hedge.
The following tables present the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings (in millions):
Gain (Loss)
Recognized
in OCI
Location of Gain (Loss) Recognized in IncomeGain (Loss) Reclassified from AOCI into Income
Three Months Ended October 1, 2021
Foreign currency contracts$15 Net operating revenues$(21)
Foreign currency contracts6