Investment Accounting Policy
Short-term Investments
Coca-Cola classifies investments in time deposits that have maturities of greater than three months but less than one year as short-term investments.
Investments in Equity and Debt Securities
Coca-Cola uses the equity method to account for investments in equity securities if Coca-Cola's investment gives the ability to exercise significant influence over operating and financial policies of the investee. Coca-Cola includes proportionate share of earnings and/or losses of equity method investees in equity income (loss) — net in the consolidated statements of income. The carrying value of equity investments is reported in equity method investments in consolidated balance sheets.
Coca-Cola accounts for investments in companies that do not control or account for under the equity method either at fair value or under the cost method, as applicable. Investments in equity securities are carried at fair value if the fair value of the security is readily determinable. Equity investments carried at fair value are classified as either trading or available-for-sale securities 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 other income (loss) — net in the consolidated statements of income. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in Coca-Cola's consolidated balance sheets as a component of accumulated other comprehensive income (loss) ("AOCI"). Trading securities are reported as either marketable securities or other assets in Coca-Cola's consolidated balance sheets. Securities classified as available-for-sale are reported as either marketable securities or other investments in consolidated balance sheets, depending on the length of time Coca-Cola intends to hold the investment.
Investments in equity securities that Coca-Cola does not control or account for under the equity method and does not have readily determinable fair values are accounted for under the cost method. Cost method investments are originally recorded at cost, and Coca-Cola records dividend income when applicable dividends are declared. Cost method investments are reported as other investments in consolidated balance sheets, and dividend income from cost method investments is reported in other income (loss) — net.
Coca-Cola's investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that Coca-Cola 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.
Each reporting period Coca-Cola reviews all of investments in equity and debt securities, except for those classified as trading, 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, Coca-Cola evaluates the fair value compared to cost basis in the investment. Coca-Cola also performs this evaluation every reporting period for each investment for which cost basis exceeded the fair value in the prior period. The fair values of most of Coca-Cola'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. Coca-Cola considers the assumptions that believes hypothetical marketplace participants would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies.
In the event the fair value of an investment declines below cost basis, management determines 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 Coca-Cola's cost basis, the financial condition and near-term prospects of the issuer, and Coca-Cola's intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Source: Coca-Cola Co., Annual Report
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