Item 1. Financial Statements (Unaudited)

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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 Ended				Nine 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 sold	3,977		3,471		11,269		9,855
Gross Profit	6,065		5,181		17,922		14,548
Selling, general and administrative expenses	3,122		2,511		8,808		7,142
Other operating charges	45		372		478		747
Operating Income	2,898		2,298		8,636		6,659
Interest income	68		82		205		294
Interest expense	210		660		1,432		1,127
Equity income (loss) — net	455		431		1,136		774
Other income (loss) — net	(127)		30		920		788
Income Before Income Taxes	3,084		2,181		9,465		7,388
Income taxes	609		441		2,111		1,094
Consolidated Net Income	2,475		1,740		7,354		6,294
Less: Net income (loss) attributable to noncontrolling interests	4		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 — Basic	4,318		4,296		4,313		4,293
Effect of dilutive securities	26		25		24		28
Average Shares Outstanding — Diluted	4,344		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.

THE COCA-COLA COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In millions)


	Three Months Ended				Nine 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 derivatives	28		(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 Income	1,458		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.

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 investments	1,844		1,771
Total Cash, Cash Equivalents and Short-Term Investments	13,145		8,566
Marketable securities	1,724		2,348
Trade accounts receivable, less allowances of $534 and $526, respectively	3,889		3,144
Inventories	3,182		3,266
Prepaid expenses and other assets	2,300		1,916
Total Current Assets	24,240		19,240
Equity method investments	18,284		19,273
Other investments	897		812
Other assets	6,490		6,184
Deferred income tax assets	2,237		2,460
Property, plant and equipment, less accumulated depreciation of $9,153 and $8,923, respectively	10,058		10,777
Trademarks with indefinite lives	10,449		10,395
Goodwill	17,455		17,506
Other intangible assets	496		649
Total Assets	$	90,606	$	87,296
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	12,830	$	11,145
Loans and notes payable	1,866		2,183
Current maturities of long-term debt	448		485
Accrued income taxes	846		788
Total Current Liabilities	15,990		14,601
Long-term debt	39,394		40,125
Other liabilities	8,401		9,453
Deferred income tax liabilities	2,688		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 surplus	17,929		17,601
Reinvested earnings	68,494		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 Company	22,179		19,299
Equity attributable to noncontrolling interests	1,954		1,985
Total Equity	24,133		21,284
Total Liabilities and Equity	$	90,606	$	87,296

Refer to Notes to Condensed Consolidated Financial Statements.

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 amortization	1,111		1,106
Stock-based compensation expense	236		88
Deferred income taxes	726		10
Equity (income) loss — net of dividends	(621)		(565)
Foreign currency adjustments	(5)		(145)
Significant (gains) losses — net	(498)		(899)
Other operating charges	243		671
Other items	517		562
Net change in operating assets and liabilities	168		(902)
Net Cash Provided by Operating Activities	9,231		6,220
Investing Activities
Purchases of investments	(4,732)		(12,051)
Proceeds from disposals of investments	5,294		6,482
Acquisitions of businesses, equity method investments and nonmarketable securities	(11)		(989)
Proceeds from disposals of businesses, equity method investments and nonmarketable securities	1,950		46
Purchases of property, plant and equipment	(728)		(759)
Proceeds from disposals of property, plant and equipment	65		156
Other investing activities	81		43
Net Cash Provided by (Used in) Investing Activities	1,919		(7,072)
Financing Activities
Issuances of debt	11,848		26,898
Payments of debt	(13,037)		(17,977)
Issuances of stock	493		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 period	7,110		6,737
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents at End of Period	11,613		11,822
Less: Restricted cash and restricted cash equivalents at end of period	312		437
Cash and Cash Equivalents at End of Period	$	11,301	$	11,385

Refer to Notes to Condensed Consolidated Financial Statements.

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.


	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

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.

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 States		International		Total
Three Months Ended October 1, 2021
Concentrate operations	$	1,749	$	4,122	$	5,871
Finished product operations	1,669		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 operations	1,503		2,070		3,573
Total	$	3,026	$	5,626	$	8,652


	United States		International		Total
Nine Months Ended October 1, 2021
Concentrate operations	$	4,899	$	11,948	$	16,847
Finished product operations	4,744		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 operations	4,299		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 investments	850		47
Other assets	1,490		—
Total equity securities	$	2,701	$	47
December 31, 2020

Marketable securities	$	330	$	—
Other investments	762		50
Other assets	1,282		—
Total equity securities	$	2,374	$	50

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 Unrealized				Estimated Fair Value
	Cost		Gains		Losses
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, 2021				December 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):


	Cost		Estimated Fair Value
Within 1 year	$	26	$	26
After 1 year through 5 years	1,381		1,279
After 5 years through 10 years	91		100
After 10 years	179		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.

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
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Gross gains	$	2	$	2	$	4	$	19
Gross losses	—		(3)		(8)		(11)
Proceeds	91		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 contracts	Prepaid expenses and other assets	$	122	$	26
Foreign currency contracts	Other assets	41		74
Commodity contracts	Prepaid expenses and other assets	—		2
Interest rate contracts	Prepaid expenses and other assets	2		—
Interest rate contracts	Other assets	346		659
Total assets		$	511	$	761
Liabilities:
Foreign currency contracts	Accounts payable and accrued expenses	$	19	$	29
Foreign currency contracts	Other liabilities	1		—
Commodity contracts	Accounts payable and accrued expenses	2		—
Interest rate contracts	Accounts 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.

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 contracts	Prepaid expenses and other assets	$	28	$	28
Foreign currency contracts	Other assets	2		1
Commodity contracts	Prepaid expenses and other assets	115		76
Commodity contracts	Other assets	48		9
Other derivative instruments	Prepaid expenses and other assets	1		20
Other derivative instruments	Other assets	—		3
Total assets		$	194	$	137
Liabilities:
Foreign currency contracts	Accounts payable and accrued expenses	$	49	$	41
Foreign currency contracts	Other liabilities	6		—
Commodity contracts	Accounts payable and accrued expenses	2		15
Commodity contracts	Other liabilities	—		1


Other derivative instruments	Accounts payable and accrued expenses	6		—

Total liabilities		$	63	$	57

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.

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 Income	Gain (Loss) Reclassified from AOCI into Income
Three Months Ended October 1, 2021
Foreign currency contracts	$	15	Net operating revenues	$	(21)
Foreign currency contracts	6		Cost of goods sold	(6)
Foreign currency contracts	—		Interest expense	(1)
Foreign currency contracts	(43)		Other income (loss) — net	(35)


Total	$	(22)		$	(63)
Three Months Ended September 25, 2020
Foreign currency contracts	$	(84)	Net operating revenues	$	(21)
Foreign currency contracts	(4)		Cost of goods sold	2
Foreign currency contracts	—		Interest expense	(6)
Foreign currency contracts	122		Other income (loss) — net	100
Interest rate contracts	9		Interest expense	(14)
Commodity contracts	(2)		Cost of goods sold	(1)
Total	$	41		$	60


	Gain (Loss) Recognized in OCI		Location of Gain (Loss) Recognized in Income	Gain (Loss) Reclassified from AOCI into Income
Nine Months Ended October 1, 2021
Foreign currency contracts	$	(1)	Net operating revenues	$	(71)
Foreign currency contracts	(5)		Cost of goods sold	(9)
Foreign currency contracts	—		Interest expense	(12)
Foreign currency contracts	15		Other income (loss) — net	49
Interest rate contracts	110		Interest expense	(90)

Total	$	119		$	(133)
Nine Months Ended September 25, 2020
Foreign currency contracts	$	(61)	Net operating revenues	$	(22)
Foreign currency contracts	6		Cost of goods sold	7
Foreign currency contracts	—		Interest expense	(10)
Foreign currency contracts	21		Other income (loss) — net	71
Interest rate contracts	21		Interest expense	(35)
Commodity contracts	(2)		Cost of goods sold	(1)
Total	$	(15)		$	10

As of October 1, 2021, the Company estimates that it will reclassify into earnings during the next 12 months net gains of $7 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.

Fair Value Hedging Strategy

The Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates. The Company also uses cross-currency interest rate swaps to hedge the changes in the fair values of foreign currency denominated debt relating to changes in foreign currency exchange rates and benchmark interest rates. The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items are recognized in earnings. As a result, any difference is reflected in earnings as ineffectiveness. When a derivative is no longer designated as a fair value hedge for any reason, including termination and maturity, the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item, or immediately if the hedged item has matured or been extinguished. The total notional values of derivatives that were designated and qualified as fair value hedges of this type were $8,192 million and $10,215 million as of October 1, 2021 and December 31, 2020, respectively.

The following tables summarize the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings (in millions):


Hedging Instruments and Hedged Items	Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized in Income
Three Months Ended
October 1, 2021	September 25, 2020
Interest rate contracts	Interest expense	$	(56)	$	94
Fixed-rate debt	Interest expense	55		(97)
Net impact to interest expense		$	(1)	$	(3)
Foreign currency contracts	Other income (loss) — net	$	—	$	3
Available-for-sale securities	Other income (loss) — net	—		(3)
Net impact to other income (loss) — net		$	—	$	—
Net impact of fair value hedging instruments		$	(1)	$	(3)


Hedging Instruments and Hedged Items	Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized in Income
Nine Months Ended
October 1, 2021	September 25, 2020
Interest rate contracts	Interest expense	$	(236)	$	284
Fixed-rate debt	Interest expense	237		(281)
Net impact to interest expense		$	1	$	3
Foreign currency contracts	Other income (loss) — net	$	—	$	3
Available-for-sale securities	Other income (loss) — net	—		(3)
Net impact to other income (loss) — net		$	—	$	—
Net impact of fair value hedging instruments		$	1	$	3

The following table summarizes the amounts recorded in our condensed consolidated balance sheets related to hedged items in fair value hedging relationships (in millions):


					Cumulative Amount of Fair Value Hedging Adjustments
	Carrying Values of Hedged Items				Included in the Carrying Values of Hedged Items1				Remaining for Which Hedge Accounting Has Been Discontinued
Balance Sheet Location of Hedged Items	October 1, 2021		December 31, 2020		October 1, 2021		December 31, 2020		October 1, 2021		December 31, 2020


Current maturities of long-term debt	$	200	$	—	$	2	$	—	$	—	$	—
Long-term debt	8,557		11,129		348		646		236		—

1 Cumulative amount of fair value hedging adjustments does not include changes due to foreign currency exchange rate fluctuations.

Hedges of Net Investments in Foreign Operations Strategy

The Company uses forward contracts and a portion of its foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in a number of foreign operations. For derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the fair values of the derivative financial instruments are recognized in net foreign currency translation adjustments, a component of AOCI, to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the carrying values of the designated portions of the non-derivative financial instruments due to fluctuations in foreign currency exchange rates are recorded in net foreign currency translation adjustments. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.

The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges (in millions):


	Notional Values				Gain (Loss) Recognized in OCI
	as of				Three Months Ended				Nine Months Ended
	October 1, 2021		December 31, 2020		October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Foreign currency contracts	$	—	$	451	$	6	$	(23)	$	(1)	$	(4)
Foreign currency denominated debt	13,066		13,336		304		(445)		673		(452)
Total	$	13,066	$	13,787	$	310	$	(468)	$	672	$	(456)

During the nine months ended October 1, 2021, the Company reclassified a loss of $4 million related to net investment hedges from AOCI into earnings. The Company did not reclassify any gains or losses related to net investment hedges from AOCI into earnings during the three months ended October 1, 2021 and the three and nine months ended September 25, 2020. In addition, the Company did not have any ineffectiveness related to net investment hedges during the three and nine months ended October 1, 2021 and September 25, 2020. The cash inflows and outflows associated with the Company’s derivative financial instruments designated as net investment hedges are classified in the line item other investing activities in our consolidated statement of cash flows.

Economic (Non-Designated) Hedging Strategy

In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives as economic hedges of foreign currency, interest rate and commodity exposure. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effective economic hedges. The changes in the fair values of economic hedges are immediately recognized in earnings.

The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. The changes in the fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized in earnings in the line item other income (loss) — net in our consolidated statement of income. In addition, we use foreign currency economic hedges to minimize the variability in cash flows associated with fluctuations in foreign currency exchange rates, including those related to certain acquisition and divestiture activities. The changes in the fair values of economic hedges used to offset the variability in U.S. dollar net cash flows are immediately recognized in earnings in the line items net operating revenues, cost of goods sold or other income (loss) — net in our consolidated statement of income, as applicable. The total notional values of derivatives related to our foreign currency economic hedges were $5,489 million and $5,727 million as of October 1, 2021 and December 31, 2020, respectively.

The Company uses interest rate contracts as economic hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates. The total notional values of derivatives related to our economic hedges of this type were $200 million as of October 1, 2021 and December 31, 2020.

The Company also uses certain derivatives as economic hedges to mitigate the price risk associated with the purchase of materials used in the manufacturing process and vehicle fuel. The changes in the fair values of these economic hedges are immediately recognized in earnings in the line items net operating revenues, cost of goods sold, or selling, general and administrative expenses in our consolidated statement of income, as applicable. The total notional values of derivatives related to our economic hedges of this type were $1,024 million and $715 million as of October 1, 2021 and December 31, 2020, respectively.

The following tables present the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings (in millions):


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized in Income
Three Months Ended
October 1, 2021	September 25, 2020
Foreign currency contracts	Net operating revenues	$	2	$	2
Foreign currency contracts	Cost of goods sold	(10)		(17)
Foreign currency contracts	Other income (loss) — net	(43)		53
Interest rate contracts	Interest expense	—		2

Commodity contracts	Cost of goods sold	(32)		34

Other derivative instruments	Selling, general and administrative expenses	(2)		20

Total		$	(85)	$	94


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized in Income
Nine Months Ended
October 1, 2021	September 25, 2020
Foreign currency contracts	Net operating revenues	$	2	$	64
Foreign currency contracts	Cost of goods sold	(17)		10
Foreign currency contracts	Other income (loss) — net	(39)		(33)
Interest rate contracts	Interest expense	(187)		2

Commodity contracts	Cost of goods sold	178		(33)

Other derivative instruments	Selling, general and administrative expenses	18		(12)
Other derivative instruments	Other income (loss) — net	(3)		(55)
Total		$	(48)	$	(57)

NOTE 7: DEBT AND BORROWING ARRANGEMENTS

During the nine months ended October 1, 2021, the Company issued U.S. dollar- and euro-denominated debt of $5,950 million and €3,150 million, respectively. The carrying value of this debt as of October 1, 2021 was $9,478 million. The general terms of the notes issued are as follows (in millions, except fixed interest rate data):


	Total Principal Amount		Fixed Interest Rate
U.S. dollar notes due March 5, 2028	$	750	1.500	%
Euro notes due March 9, 2029	€	700	0.125
Euro notes due May 6, 2030	€	650	0.400
U.S. dollar notes due March 5, 2031	$	750	2.000
U.S. dollar notes due January 5, 2032	$	2,000	2.250
Euro notes due March 9, 2033	€	650	0.500
Euro notes due May 6, 2036	€	500	0.950
Euro notes due March 9, 2041	€	650	1.000
U.S. dollar notes due May 5, 2041	$	750	2.875
U.S. dollar notes due March 5, 2051	$	1,700	3.000

During the nine months ended October 1, 2021, the Company retired upon maturity €371 million total principal amount of notes due March 8, 2021, at a variable interest rate equal to the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.200 percent.

During the nine months ended October 1, 2021, the Company extinguished prior to maturity U.S. dollar- and euro-denominated debt of $6,500 million and €2,430 million, respectively, resulting in charges of $559 million recorded in the line item interest expense in our condensed consolidated statement of income. These charges included the difference between the reacquisition price and the net carrying value of the debt extinguished, including the impact of the related fair value hedging relationships. We also incurred charges of $91 million as a result of the reclassification of related cash flow hedging balances from AOCI into income. The general terms of the notes that were extinguished are as follows (in millions, except fixed interest rate data):


	Total Principal Amount		Fixed Interest Rate
Euro notes due March 9, 2023	€	1,500	0.750	%
U.S. dollar notes due April 1, 2023	$	750	2.500
U.S. dollar notes due November 1, 2023	$	1,500	3.200
U.S. dollar notes due March 25, 2025	$	1,000	2.950
U.S. dollar notes due October 27, 2025	$	1,750	2.875
U.S. dollar notes due June 1, 2026	$	500	2.550
U.S. dollar notes due September 1, 2026	$	1,000	2.250
Euro notes due September 22, 2026	€	587	0.750
Euro notes due September 22, 2026	€	343	1.875

NOTE 8: COMMITMENTS AND CONTINGENCIES

Guarantees

As of October 1, 2021, we were contingently liable for guarantees of indebtedness owed by third parties of $420 million, of which $115 million was related to variable interest entities. Our guarantees are primarily related to third-party customers, bottlers and vendors and have arisen through the normal course of business. These guarantees have various terms, and none of these guarantees is individually significant. These amounts represent the maximum potential future payments that we could be required to make under the guarantees. However, management has concluded that the likelihood of any significant amounts being paid by our Company under these guarantees is not probable.

We believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.

Legal Contingencies

The Company is involved in various legal proceedings. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. Management believes that the total liabilities of the Company that may arise as a result of currently pending legal proceedings (excluding tax audit claims) will not have a material adverse effect on the Company taken as a whole.

Tax Audits

The Company is involved in various tax matters, with respect to some of which the outcome is uncertain. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon one of the following conditions: (1) the tax position is not “more likely than not” to be sustained; (2) the tax position is “more likely than not” to be sustained but for a lesser amount; or (3) the tax position is “more likely than not” to be sustained but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities, such as legislation and statutes, legislative intent, regulations, rulings and caselaw and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved. The number of years subject to tax audits or tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in income tax expense in the quarter in which the uncertainty disappears under any one of the following conditions: (1) the tax position is “more likely than not” to be sustained; (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the tax position has expired. Refer to Note 14.

On September 17, 2015, the Company received a Statutory Notice of Deficiency (“Notice”) from the U.S. Internal Revenue Service (“IRS”) seeking approximately $3.3 billion of additional federal income tax for years 2007 through 2009. In the Notice, the IRS stated its intent to reallocate over $9 billion of income to the U.S. parent company from certain of its foreign affiliates that the U.S. parent company licensed to manufacture, distribute, sell, market and promote its products in certain non-U.S. markets.

The Notice concerned the Company’s transfer pricing between its U.S. parent company and certain of its foreign affiliates. IRS rules governing transfer pricing require arm’s-length pricing of transactions between related parties such as the Company’s U.S. parent and its foreign affiliates.

To resolve the same transfer pricing issue for the tax years 1987 through 1995, the Company and the IRS had agreed in 1996 on an arm’s-length methodology for determining the amount of U.S. taxable income that the U.S. parent company would report as compensation from its foreign licensees. The Company and the IRS memorialized this accord in a closing agreement resolving that dispute (“Closing Agreement”). The Closing Agreement provided that, absent a change in material facts or circumstances or relevant federal tax law, in calculating the Company’s income taxes going forward, the Company would not be assessed penalties by the IRS for using the agreed-upon tax calculation methodology that the Company and the IRS agreed would be used for the 1987 through 1995 tax years.

The IRS audited and confirmed the Company’s compliance with the agreed-upon Closing Agreement methodology in five successive audit cycles for tax years 1996 through 2006.

The September 17, 2015 Notice from the IRS retroactively rejected the previously agreed-upon methodology for the 2007 through 2009 tax years in favor of an entirely different methodology, without prior notice to the Company. Using the new tax calculation methodology, the IRS reallocated over $9 billion of income to the U.S. parent company from its foreign licensees for tax years 2007 through 2009. Consistent with the Closing Agreement, the IRS did not assert penalties, and it has yet to do so.

The IRS designated the Company’s matter for litigation on October 15, 2015. Litigation designation is an IRS determination that forecloses to a company any and all alternative means for resolution of a tax dispute. As a result of the IRS’ designation of the Company’s matter for litigation, the Company was forced to either accept the IRS’ newly imposed tax assessment and pay the full amount of the asserted tax or litigate the matter in the federal courts. The matter remains subject to the IRS’ litigation designation, preventing the Company from any attempt to settle or otherwise mutually resolve the matter with the IRS.

The Company consequently initiated litigation by filing a petition in the U.S. Tax Court (“Tax Court”) in December 2015, challenging the tax adjustments enumerated in the Notice.

Prior to trial, the IRS increased its transfer pricing adjustment by $385 million, resulting in an additional tax adjustment of $135 million. The Company obtained a summary judgment in its favor on a different matter related to Mexican foreign tax credits, which thereafter effectively reduced the IRS’ potential tax adjustment by approximately $138 million.

The trial was held in the Tax Court from March through May 2018, and final post-trial briefs were filed and exchanged in April 2019.

On November 18, 2020, the Tax Court issued an opinion (“Opinion”) in which it predominantly sided with the IRS but agreed with the Company that dividends previously paid by the foreign licensees to the U.S. parent company in reliance upon the Closing Agreement should continue to be allowed to offset royalties, including those that would become payable to the Company in accordance with the Opinion. The Tax Court reserved ruling on the effect of Brazilian legal restrictions on the payment of royalties by the Company’s licensee in Brazil until after the Tax Court issues its opinion in the separate case of 3M Co. & Subs. v. Commissioner, T.C. Docket No. 5816-13 (filed March 11, 2013). Once the Tax Court issues its opinion in 3M Co. & Subs. v. Commissioner, the Company expects the Tax Court thereafter to render another opinion, and ultimately a final decision, in the Company’s case.

The Company believes that the IRS and the Tax Court misinterpreted and misapplied the applicable regulations in reallocating income earned by the Company’s foreign licensees to increase the Company’s U.S. tax. Moreover, the Company believes that the retroactive imposition of such tax liability using a calculation methodology different from that previously agreed upon by the IRS and the Company, and audited by the IRS for over a decade, is unconstitutional. The Company intends to assert its claims on appeal and vigorously defend its position.

In determining the amount of tax reserve to be recorded as of December 31, 2020, the Company completed the required two-step evaluation process prescribed by Accounting Standards Codification 740, Accounting for Income Taxes. In doing so, we consulted with outside advisors and we reviewed and considered relevant laws, rules, and regulations, including, though not limited to, the Opinion and relevant caselaw. We also considered our intention to vigorously defend our positions and assert our various well-founded legal claims via every available avenue of appeal. We concluded, based on the technical and legal merits of the Company’s tax positions, that it is more likely than not the Company’s tax positions will ultimately be sustained on appeal. In addition, we considered a number of alternative transfer pricing methodologies, including the methodology asserted by the IRS and affirmed in the Opinion (“Tax Court Methodology”), that could be applied by the courts upon final resolution of the litigation. Based on the required probability analysis, we determined the methodologies we believe the federal courts could ultimately order to be used in calculating the Company’s tax. As a result of this analysis, we recorded a tax reserve of $438 million during the year ended December 31, 2020 related to the application of the resulting methodologies as well as the different tax treatment applicable to dividends originally paid to the U.S. parent company by its foreign licensees, in reliance upon the Closing Agreement, that would be recharacterized as royalties in accordance with the Opinion and the Company’s analysis.

The Company’s conclusion that it is more likely than not the Company’s tax positions will ultimately be sustained on appeal is unchanged as of October 1, 2021. However, we updated our calculation of the methodologies we believe the federal courts could ultimately order to be used in calculating the Company’s tax. As a result of the application of the required probability analysis to these updated calculations and the accrual of interest through the current reporting period, we updated our tax reserve as of October 1, 2021 to $400 million.

While the Company strongly disagrees with the IRS’ positions and the portions of the Opinion affirming such positions, it is possible that some portion or all of the adjustment proposed by the IRS and sustained by the Tax Court could ultimately be upheld. In that event, the Company would likely be subject to significant additional liabilities for tax years 2007 through 2009, and potentially also for subsequent years, which could have a material adverse impact on the Company’s financial position, results of operations and cash flows.

The Company calculated the potential impact of applying the Tax Court Methodology to reallocate income from foreign licensees potentially covered within the scope of the Opinion, assuming such methodology were to be ultimately upheld by the courts, and the IRS were to decide to apply that methodology to subsequent years, with consent of the federal courts. This impact would include taxes and interest accrued through December 31, 2020 for the 2007 through 2009 litigated tax years and for subsequent tax years from 2010 to 2020. The calculations incorporated the estimated impact of correlative adjustments to the previously accrued transition tax payable under the 2017 Tax Cuts and Jobs Act. The Company currently estimates that the potential aggregate incremental tax and interest liability could be approximately $12 billion as of December 31, 2020. Additional income tax and interest would continue to accrue until the time any such potential liability, or portion thereof, were to be paid. The Company estimates the impact of the continued application of the Tax Court Methodology for the three and nine months ended October 1, 2021 would increase the potential aggregate incremental tax and interest liability by approximately $250 million and $750 million, respectively. Additionally, we currently project the continued application of the Tax Court Methodology in future years, assuming similar facts and circumstances as of December 31, 2020, would result in an incremental annual tax liability that would increase the Company’s effective tax rate by approximately 3.5 percent.

The Company does not know when the Tax Court will issue its opinion regarding the effect of Brazilian legal restrictions on the payment of royalties by the Company’s licensee in Brazil for the 2007 through 2009 tax years. After the Tax Court issues its opinion on the Company’s Brazilian licensee, the Company and the IRS will be provided time to agree on the tax impact, if any, of both opinions, after which the Tax Court would render a final decision in the case. The Company will have 90 days thereafter to file a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit and pay the tax liability and interest related to the 2007 through 2009 tax period. The Company currently estimates that the payment to be made at that time related to the 2007 through 2009 tax period, which is included in the above estimate of the potential aggregate incremental tax and interest liability, would be approximately $4.9 billion (including interest accrued through October 1, 2021), plus any additional interest accrued through the time of payment. Some or all of this amount would be refunded if the Company were to prevail on appeal.

Risk Management Programs

The Company has numerous global insurance programs in place to help protect the Company from the risk of loss. In general, we are self-insured for large portions of many different types of claims; however, we do use commercial insurance above our self-insured retentions to reduce the Company’s risk of catastrophic loss. Our reserves for the Company’s self-insured losses are estimated using actuarial methods and assumptions of the insurance industry, adjusted for our specific expectations based on our claims history. Our self-insurance reserves totaled $240 million and $265 million as of October 1, 2021 and December 31, 2020, respectively.

NOTE 9: OTHER COMPREHENSIVE INCOME

AOCI attributable to shareowners of The Coca-Cola Company is separately presented in our consolidated balance sheet as a component of The Coca-Cola Company’s shareowners’ equity, which also includes our proportionate share of equity method investees’ AOCI. OCI attributable to noncontrolling interests is allocated to, and included in, our consolidated balance sheet as part of the line item equity attributable to noncontrolling interests.

AOCI attributable to shareowners of The Coca-Cola Company consisted of the following, net of tax (in millions):


	October 1, 2021		December 31, 2020
Net foreign currency translation adjustments	$	(12,147)	$	(12,028)
Accumulated net gains (losses) on derivatives	(10)		(194)
Unrealized net gains (losses) on available-for-sale debt securities	(55)		28
Adjustments to pension and other postretirement benefit liabilities	(2,038)		(2,407)
Accumulated other comprehensive income (loss)	$	(14,250)	$	(14,601)

The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests (in millions):


	Nine Months Ended October 1, 2021
	Shareowners of The Coca-Cola Company		Noncontrolling Interests		Total
Consolidated net income	$	7,357	$	(3)	$	7,354
Other comprehensive income:
Net foreign currency translation adjustments	(119)		(12)		(131)
Net gains (losses) on derivatives1	184		—		184
Net change in unrealized gains (losses) on available-for-sale debt securities2	(83)		—		(83)
Net change in pension and other postretirement benefit liabilities	369		(1)		368

Total comprehensive income (loss)	$	7,708	$	(16)	$	7,692

1 Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.

2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.

The following tables present OCI attributable to shareowners of The Coca-Cola Company, including our proportionate share of equity method investees’ OCI (in millions):


Three Months Ended October 1, 2021	Before-Tax Amount		Income Tax		After-Tax Amount
Foreign currency translation adjustments:
Translation adjustments arising during the period	$	(636)	$	39	$	(597)
Reclassification adjustments recognized in net income	13		—		13
Gains (losses) on intra-entity transactions that are of a long-term investment nature	(575)		—		(575)
Gains (losses) on net investment hedges arising during the period1	310		(77)		233

Net foreign currency translation adjustments	$	(888)	$	(38)	$	(926)
Derivatives:
Gains (losses) arising during the period	$	(26)	$	7	$	(19)
Reclassification adjustments recognized in net income	63		(16)		47
Net gains (losses) on derivatives1	$	37	$	(9)	$	28
Available-for-sale debt securities:
Unrealized gains (losses) arising during the period	$	(28)	$	8	$	(20)
Reclassification adjustments recognized in net income	(2)		—		(2)

Net change in unrealized gains (losses) on available-for-sale debt securities2	$	(30)	$	8	$	(22)
Pension and other postretirement benefit liabilities:
Net pension and other postretirement benefit liabilities arising during the period	$	(102)	$	29	$	(73)
Reclassification adjustments recognized in net income	56		(14)		42
Net change in pension and other postretirement benefit liabilities	$	(46)	$	15	$	(31)
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola Company	$	(927)	$	(24)	$	(951)

1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.

2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.


Nine Months Ended October 1, 2021	Before-Tax Amount		Income Tax		After-Tax Amount
Foreign currency translation adjustments:
Translation adjustments arising during the period	$	505	$	(8)	$	497
Reclassification adjustments recognized in net income	193		—		193
Gains (losses) on intra-entity transactions that are of a long-term investment nature	(1,317)		—		(1,317)
Gains (losses) on net investment hedges arising during the period1	672		(168)		504
Reclassification adjustments for net investment hedges recognized in net income1	4		—		4
Net foreign currency translation adjustments	$	57	$	(176)	$	(119)
Derivatives:
Gains (losses) arising during the period	$	108	$	(30)	$	78
Reclassification adjustments recognized in net income	139		(33)		106
Net gains (losses) on derivatives1	$	247	$	(63)	$	184
Available-for-sale debt securities:
Unrealized gains (losses) arising during the period	$	(131)	$	45	$	(86)
Reclassification adjustments recognized in net income	4		(1)		3

Net change in unrealized gains (losses) on available-for-sale debt securities2	$	(127)	$	44	$	(83)
Pension and other postretirement benefit liabilities:
Net pension and other postretirement benefit liabilities arising during the period	$	251	$	(46)	$	205
Reclassification adjustments recognized in net income	218		(54)		164
Net change in pension and other postretirement benefit liabilities	$	469	$	(100)	$	369
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola Company	$	646	$	(295)	$	351

1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.

2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.


Three Months Ended September 25, 2020	Before-Tax Amount		Income Tax		After-Tax Amount
Foreign currency translation adjustments:
Translation adjustments arising during the period	$	548	$	(30)	$	518
Reclassification adjustments recognized in net income	—		—		—
Gains (losses) on intra-entity transactions that are of a long-term investment nature	883		—		883
Gains (losses) on net investment hedges arising during the period1	(468)		117		(351)
Net foreign currency translation adjustments	$	963	$	87	$	1,050
Derivatives:
Gains (losses) arising during the period	$	41	$	(9)	$	32
Reclassification adjustments recognized in net income	(60)		15		(45)
Net gains (losses) on derivatives1	$	(19)	$	6	$	(13)
Available-for-sale debt securities:
Unrealized gains (losses) arising during the period	$	(32)	$	10	$	(22)
Reclassification adjustments recognized in net income	1		—		1
Net change in unrealized gains (losses) on available-for-sale debt securities2	$	(31)	$	10	$	(21)
Pension and other postretirement benefit liabilities:
Net pension and other postretirement benefit liabilities arising during the period	$	(44)	$	9	$	(35)
Reclassification adjustments recognized in net income	44		(11)		33
Net change in pension and other postretirement benefit liabilities	$	—	$	(2)	$	(2)
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola Company	$	913	$	101	$	1,014

1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.

2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.


Nine Months Ended September 25, 2020	Before-Tax Amount		Income Tax		After-Tax Amount
Foreign currency translation adjustments:
Translation adjustments arising during the period	$	(2,627)	$	196	$	(2,431)
Reclassification adjustments recognized in net income	3		—		3
Gains (losses) on intra-entity transactions that are of a long-term investment nature	886		—		886
Gains (losses) on net investment hedges arising during the period1	(456)		114		(342)
Net foreign currency translation adjustments	$	(2,194)	$	310	$	(1,884)
Derivatives:
Gains (losses) arising during the period	$	(24)	$	8	$	(16)
Reclassification adjustments recognized in net income	(10)		3		(7)
Net gains (losses) on derivatives1	$	(34)	$	11	$	(23)
Available-for-sale debt securities:
Unrealized gains (losses) arising during the period	$	(54)	$	20	$	(34)
Reclassification adjustments recognized in net income	(8)		2		(6)
Net change in unrealized gains (losses) on available-for-sale debt securities2	$	(62)	$	22	$	(40)
Pension and other postretirement benefit liabilities:
Net pension and other postretirement benefit liabilities arising during the period	$	(68)	$	15	$	(53)
Reclassification adjustments recognized in net income	130		(32)		98
Net change in pension and other postretirement benefit liabilities	$	62	$	(17)	$	45
Other comprehensive income (loss) attributable to shareowners of The Coca-Cola Company	$	(2,228)	$	326	$	(1,902)

1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.

2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.

The following table presents the amounts and line items in our condensed consolidated statements of income where adjustments reclassified from AOCI into income were recorded (in millions):


		Amount Reclassified from AOCI into Income
Description of AOCI Component	Financial Statement Line Item	Three Months Ended October 1, 2021		Nine Months Ended October 1, 2021
Foreign currency translation adjustments:
Divestitures, deconsolidations and other1	Other income (loss) — net	$	13	$	197
	Income before income taxes	13		197
	Income taxes	—		—
	Consolidated net income	$	13	$	197
Derivatives:
Foreign currency contracts	Net operating revenues	$	21	$	71
Foreign currency contracts	Cost of goods sold	6		9
Foreign currency contracts	Other income (loss) — net	35		(49)
Divestitures, deconsolidations and other1	Other income (loss) — net	—		6
Foreign currency and interest rate contracts	Interest expense	1		102
	Income before income taxes	63		139
	Income taxes	(16)		(33)
	Consolidated net income	$	47	$	106
Available-for-sale debt securities:

Sale of debt securities	Other income (loss) — net	$	(2)	$	4
	Income before income taxes	(2)		4
	Income taxes	—		(1)
	Consolidated net income	$	(2)	$	3
Pension and other postretirement benefit liabilities:

Settlement charges2	Other income (loss) — net	$	21	$	104


Recognized net actuarial loss	Other income (loss) — net	34		115
Recognized prior service cost (credit)	Other income (loss) — net	(1)		(2)
Divestitures, deconsolidations and other1	Other income (loss) — net	2		1
	Income before income taxes	56		218
	Income taxes	(14)		(54)
	Consolidated net income	$	42	$	164

1 Refer to Note 2.

2 The settlement charges were related to our strategic realignment initiatives. Refer to Note 12.

NOTE 10: CHANGES IN EQUITY

The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to shareowners of The Coca-Cola Company and equity attributable to noncontrolling interests (in millions):


				Shareowners of The Coca-Cola Company
Three Months Ended October 1, 2021	Common Shares Outstanding	Total		Reinvested Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Capital Surplus		Treasury Stock		Non-controlling Interests
July 2, 2021	4,315	$	24,255	$	67,838	$	(13,299)	$	1,760	$	17,781	$	(51,831)	$	2,006

Comprehensive income (loss)	—	1,458		2,471		(951)		—		—		—		(62)
Dividends paid/payable to shareowners of The Coca-Cola Company ($0.42 per share)	—	(1,815)		(1,815)		—		—		—		—		—
Dividends paid to noncontrolling interests	—	(10)		—		—		—		—		—		(10)
Contributions by noncontrolling interests	—	20		—		—		—		—		—		20



Impact related to stock-based compensation plans	4	225		—		—		—		148		77		—

October 1, 2021	4,319	$	24,133	$	68,494	$	(14,250)	$	1,760	$	17,929	$	(51,754)	$	1,954


				Shareowners of The Coca-Cola Company
Nine Months Ended October 1, 2021	Common Shares Outstanding	Total		Reinvested Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Capital Surplus		Treasury Stock		Non-controlling Interests
December 31, 2020	4,302	$	21,284	$	66,555	$	(14,601)	$	1,760	$	17,601	$	(52,016)	$	1,985
Adoption of accounting standards1	—	19		19		—		—		—		—		—
Comprehensive income (loss)	—	7,692		7,357		351		—		—		—		(16)
Dividends paid/payable to shareowners of The Coca-Cola Company ($1.26 per share)	—	(5,437)		(5,437)		—		—		—		—		—
Dividends paid to noncontrolling interests	—	(35)		—		—		—		—		—		(35)
Contributions by noncontrolling interests	—	20		—		—		—		—		—		20



Impact related to stock-based compensation plans	17	590		—		—		—		328		262		—

October 1, 2021	4,319	$	24,133	$	68,494	$	(14,250)	$	1,760	$	17,929	$	(51,754)	$	1,954

1 Represents the adoption of Accounting Standards Update 2019-12, Simplifying the Accounting for Income Taxes, effective January 1, 2021.


				Shareowners of The Coca-Cola Company
Three Months Ended September 25, 2020	Common Shares Outstanding	Total		Reinvested Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Capital Surplus		Treasury Stock		Non-controlling Interests
June 26, 2020	4,295	$	19,189	$	66,888	$	(16,460)	$	1,760	$	17,367	$	(52,071)	$	1,705

Comprehensive income (loss)	—	2,756		1,737		1,014		—		—		—		5
Dividends paid/payable to shareowners of The Coca-Cola Company ($0.41 per share)	—	(1,762)		(1,762)		—		—		—		—		—
Dividends paid to noncontrolling interests	—	(1)		—		—		—		—		—		(1)



Impact related to stock-based compensation plans	2	134		—		—		—		96		38		—

September 25, 2020	4,297	$	20,316	$	66,863	$	(15,446)	$	1,760	$	17,463	$	(52,033)	$	1,709


				Shareowners of The Coca-Cola Company
Nine Months Ended September 25, 2020	Common Shares Outstanding	Total		Reinvested Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Capital Surplus		Treasury Stock		Non-controlling Interests
December 31, 2019	4,280	$	21,098	$	65,855	$	(13,544)	$	1,760	$	17,154	$	(52,244)	$	2,117

Comprehensive income (loss)	—	3,993		6,291		(1,902)		—		—		—		(396)
Dividends paid/payable to shareowners of The Coca-Cola Company ($1.23 per share)	—	(5,283)		(5,283)		—		—		—		—		—
Dividends paid to noncontrolling interests	—	(12)		—		—		—		—		—		(12)



Impact related to stock-based compensation plans	17	520		—		—		—		309		211		—

September 25, 2020	4,297	$	20,316	$	66,863	$	(15,446)	$	1,760	$	17,463	$	(52,033)	$	1,709

NOTE 11: SIGNIFICANT OPERATING AND NONOPERATING ITEMS

Other Operating Charges

During the three months ended October 1, 2021, the Company recorded other operating charges of $45 million. These charges included $31 million related to the Company’s productivity and reinvestment program, $12 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $4 million due to the Company’s strategic realignment initiatives and $1 million related to tax litigation expense. Other operating charges also included a net gain of $3 million related to the restructuring of our manufacturing operations in the United States.

During the nine months ended October 1, 2021, the Company recorded other operating charges of $478 million. These charges primarily consisted of $263 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition, $126 million due to the Company’s strategic realignment initiatives and $71 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $14 million related to tax litigation expense and a net charge of $4 million related to the restructuring of our manufacturing operations in the United States.

During the three months ended September 25, 2020, the Company recorded other operating charges of $372 million. These charges primarily consisted of $332 million due to the Company’s strategic realignment initiatives and $10 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $18 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and $12 million related to the restructuring of our manufacturing operations in the United States.

During the nine months ended September 25, 2020, the Company recorded other operating charges of $747 million. These charges primarily consisted of $332 million related to the Company’s strategic realignment initiatives and $71 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included impairment charges of $160 million related to the Odwalla trademark and charges of $35 million related to discontinuing the Odwalla juice business. Other operating charges also included an impairment charge of $55 million related to a trademark in North America, which was driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company’s portfolio. Other operating charges also included $47 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition and $24 million related to the restructuring of our manufacturing operations in the United States.

Refer to Note 2 for additional information on the fairlife acquisition. Refer to Note 8 for additional information related to the tax litigation. Refer to Note 12 for additional information on the Company’s strategic realignment initiatives and productivity and reinvestment program. Refer to Note 15 for additional information on the impairment charges. Refer to Note 16 for the impact these charges had on our operating segments and Corporate.

Other Nonoperating Items

Interest Expense

During the nine months ended October 1, 2021, the Company recorded charges of $650 million related to the extinguishment of long-term debt. During the three and nine months ended September 25, 2020, the Company recorded charges of $405 million related to the extinguishment of long-term debt. Refer to Note 7.

Equity Income (Loss) — Net

During the three and nine months ended October 1, 2021, the Company recorded a net gain of $18 million and a net charge of $5 million, respectively. During the three and nine months ended September 25, 2020, the Company recorded net charges of $27 million and $128 million, respectively. These amounts represent the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees. Refer to Note 16 for the impact these items had on our operating segments and Corporate.

Other Income (Loss) — Net

During the three months ended October 1, 2021, the Company recorded charges of $266 million related to the restructuring of our manufacturing operations in the United States. Additionally, the Company recognized a gain of $63 million related to the sale of a portion of our ownership interest in one of our equity method investments. The Company also recorded pension benefit plan settlement charges of $21 million related to our strategic realignment initiatives.

During the nine months ended October 1, 2021, the Company recognized a net gain of $695 million related to the sale of our ownership interest in CCA, an equity method investee, and a gain of $63 million related to the sale of a portion of our ownership interest in one of our equity method investments. Additionally, the Company recognized a net gain of $341 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. The Company also recorded charges of $266 million related to the restructuring of our manufacturing operations in the United States and pension benefit plan settlement charges of $104 million related to our strategic realignment initiatives.

During the three months ended September 25, 2020, the Company recognized a net gain of $13 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. The Company also recorded other postretirement benefit plan curtailment charges of $11 million related to our strategic realignment initiatives.

During the nine months ended September 25, 2020, the Company recognized a gain of $902 million in conjunction with the fairlife acquisition, which resulted from the remeasurement of our previously held equity interest in fairlife to fair value, and a gain of $18 million related to the sale of a portion of our ownership interest in one of our equity method investments. These gains were partially offset by a net loss of $55 million related to economic hedging activities, an other-than-temporary impairment charge of $38 million related to one of our equity method investees in Latin America, and an impairment charge of $26 million associated with an investment in an equity security without a readily determinable fair value. The impairment charges were primarily driven by revised projections of future operating results. The Company also recorded a charge of $21 million related to the restructuring of our manufacturing operations in the United States, other postretirement benefit plan curtailment charges of $11 million related to our strategic realignment initiatives, and a net loss of $127 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.

Refer to Note 2 for additional information on the sale of our ownership interest in CCA and the fairlife acquisition. Refer to Note 4 for additional information on equity and debt securities. Refer to Note 6 for additional information on our economic hedging activities. Refer to Note 12 for additional information on the Company’s strategic realignment initiatives. Refer to Note 15 for additional information on the impairment charges and the charges related to the restructuring of our manufacturing operations in the United States. Refer to Note 16 for the impact that certain of these items had on our operating segments and Corporate.

NOTE 12: RESTRUCTURING

Strategic Realignment

In August 2020, the Company announced strategic steps to transform our organizational structure in an effort to better enable us to capture growth in the fast-changing marketplace. The Company is building a networked global organization designed to combine the power of scale with the deep knowledge required to win locally. We created new operating units effective January 1, 2021, which are focused on regional and local execution. The operating units, which sit under the four existing geographic operating segments, are highly interconnected, with more consistency in their structure and a focus on eliminating duplication of resources and scaling new products more quickly. The operating units work closely with five global marketing category leadership teams to rapidly scale ideas. The global marketing category leadership teams primarily focus on innovation, marketing efficiency and effectiveness. The organizational structure also includes our existing center that provides strategy, governance and scale for global initiatives. The operating units, global marketing category leadership teams and the center are supported by a platform services organization, which focuses on providing efficient and scaled global services and capabilities including, but not limited to, governance, transactional work, data management, consumer analytics, digital commerce and social/digital hubs.

The Company has incurred total pretax expenses of $657 million related to these strategic realignment initiatives since they commenced. These expenses were recorded in the line items other operating charges and other income (loss) — net in our condensed consolidated statements of income. Refer to Note 16 for the impact these expenses had on our operating segments and Corporate. Outside services reported in the tables below primarily relate to expenses in connection with legal and consulting activities. The Company currently expects the total costs of the strategic realignment initiatives will be approximately $675 million, including pension benefit plan settlement charges.

The following tables summarize the balance of accrued expenses related to these strategic realignment initiatives and the changes in the accrued amounts as of and for the three and nine months ended October 1, 2021 (in millions):


	Severance Pay and Benefits			Outside Services		Other Direct Costs		Total
Accrued balance July 2, 2021	$	29		$	1	$	4	$	34
Costs incurred	25			1		(1)		25
Payments	(11)			(1)		(1)		(13)
Noncash and exchange	(20)		1	(1)		—		(21)
Accrued balance October 1, 2021	$	23		$	—	$	2	$	25

1 Includes pension benefit plan settlement charges. Refer to Note 13.


	Severance Pay and Benefits			Outside Services		Other Direct Costs		Total
Accrued balance December 31, 2020	$	181		$	1	$	3	$	185
Costs incurred	211			17		2		230
Payments	(263)			(15)		(3)		(281)
Noncash and exchange	(106)		1	(3)		—		(109)
Accrued balance October 1, 2021	$	23		$	—	$	2	$	25

1 Includes pension benefit plan settlement charges. Refer to Note 13.

Productivity and Reinvestment Program

In February 2012, the Company announced a productivity and reinvestment program designed to strengthen our brands and reinvest our resources to drive long-term profitable growth. The program was expanded multiple times, with the last expansion occurring in April 2017. While we expect most of the remaining initiatives included in this program, which are primarily designed to further simplify and standardize our organization, to be completed by the end of 2022, certain initiatives may extend into 2023.

The Company has incurred total pretax expenses of $4,000 million related to our productivity and reinvestment program since it commenced. These expenses were recorded in the line items other operating charges and other income (loss) — net in our condensed consolidated statements of income. Refer to Note 16 for the impact these charges had on our operating segments and Corporate. Outside services reported in the tables below primarily include costs associated with consulting activities. Other direct costs reported in the tables below primarily include internal and external costs associated with the implementation of these initiatives and accelerated depreciation on certain fixed assets.

The following tables summarize the balance of accrued expenses related to our productivity and reinvestment program and the changes in the accrued amounts as of and for the three and nine months ended October 1, 2021 (in millions):


	Severance Pay and Benefits		Outside Services		Other Direct Costs		Total
Accrued balance July 2, 2021	$	16	$	—	$	3	$	19
Costs incurred	(1)		28		4		31
Payments	(1)		(28)		—		(29)
Noncash and exchange	(2)		—		(1)		(3)
Accrued balance October 1, 2021	$	12	$	—	$	6	$	18


	Severance Pay and Benefits		Outside Services		Other Direct Costs		Total
Accrued balance December 31, 2020	$	15	$	—	$	2	$	17
Costs incurred	1		57		13		71
Payments	(2)		(57)		(13)		(72)
Noncash and exchange	(2)		—		4		2
Accrued balance October 1, 2021	$	12	$	—	$	6	$	18

NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The total cost (income) for our pension and other postretirement benefit plans consisted of the following (in millions):


	Pension Benefit Plans				Other Postretirement Benefit Plans
	Three Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Service cost	$	25	$	28	$	2	$	2
Interest cost	46		58		4		6
Expected return on plan assets1	(152)		(148)		(4)		(4)
Amortization of prior service credit	—		—		(1)		(1)
Amortization of net actuarial loss	34		43		—		2
Net periodic benefit cost (income)	(47)		(19)		1		5
Curtailment charges2	—		—		—		11
Settlement charges2	21		—		—		—


Total cost (income)	$	(26)	$	(19)	$	1	$	16

1 The weighted-average expected long-term rates of return on plan assets used in computing 2021 net periodic benefit cost (income) were 7.25 percent for pension benefit plans and 4.25 percent for other postretirement benefit plans.

2 The settlement charges were related to our strategic realignment initiatives. Refer to Note 12.


	Pension Benefit Plans				Other Postretirement Benefit Plans
	Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Service cost	$	74	$	84	$	7	$	8
Interest cost	137		176		11		17
Expected return on plan assets1	(454)		(440)		(13)		(12)
Amortization of prior service credit	—		—		(2)		(2)
Amortization of net actuarial loss	114		128		1		4
Net periodic benefit cost (income)	(129)		(52)		4		15
Curtailment charges2	—		—		—		11
Settlement charges2	104		—		—		—


Total cost (income)	$	(25)	$	(52)	$	4	$	26

2 The settlement charges were related to our strategic realignment initiatives. Refer to Note 12.

All amounts in the tables above, other than service cost, were recorded in the line item other income (loss) — net in our condensed consolidated statements of income. During the nine months ended October 1, 2021, the Company contributed $22 million to our pension trusts, and we anticipate making additional contributions of approximately $9 million during the remainder of 2021. The Company contributed $25 million to our pension trusts during the nine months ended September 25, 2020.

NOTE 14: INCOME TAXES

The Company recorded income taxes of $609 million (19.7 percent effective tax rate) and $441 million (20.2 percent effective tax rate) during the three months ended October 1, 2021 and September 25, 2020, respectively. The Company recorded income taxes of $2,111 million (22.3 percent effective tax rate) and $1,094 million (14.8 percent effective tax rate) during the nine months ended October 1, 2021 and September 25, 2020, respectively.

The Company’s effective tax rates for the three and nine months ended October 1, 2021 and September 25, 2020 vary from the statutory U.S. federal income tax rate of 21.0 percent primarily due to the tax impact of significant operating and nonoperating items, as described in Note 11, along with the tax benefits of having significant operations outside the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. rate.

The Company’s effective tax rates for the three and nine months ended October 1, 2021 included $75 million and $251 million, respectively, of net tax expense related to various discrete tax items, including changes in tax laws in certain foreign jurisdictions and the net tax impact of agreed-upon audit issues.

The Company’s effective tax rates for the three and nine months ended September 25, 2020 included $15 million of net tax expense and $138 million of net tax benefits, respectively, associated with various discrete tax items, including return to provision adjustments, excess tax benefits associated with the Company’s stock-based compensation arrangements, the net tax impact of tax law changes in certain foreign jurisdictions, and net tax charges for changes to our uncertain tax positions, including interest and penalties. The Company’s effective tax rate for the nine months ended September 25, 2020 also included a tax benefit of $40 million associated with the gain recorded upon the acquisition of the remaining interest in fairlife. Refer to Note 2 for additional information on the fairlife acquisition.

On November 18, 2020, the Tax Court issued the Opinion regarding the Company’s 2015 litigation with the IRS involving transfer pricing tax adjustments in which the Tax Court predominantly sided with the IRS. The Company strongly disagrees with the Opinion and intends to vigorously defend its position. Refer to Note 8.

NOTE 15: FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following tables summarize assets and liabilities measured at fair value on a recurring basis (in millions):


October 1, 2021	Level 1		Level 2		Level 3			Other3		Netting Adjustment		4	Fair Value Measurements
Assets:
Equity securities with readily determinable values1	$	2,357	$	221	$	18		$	105	$	—		$	2,701
Debt securities1	—		1,595		34			—		—			1,629
Derivatives2	71		634		—			—		(447)		6	258		7
Total assets	$	2,428	$	2,450	$	52		$	105	$	(447)		$	4,588
Liabilities:
Contingent consideration liability	$	—	$	—	$	484	5	$	—	$	—		$	484
Derivatives2	4		81		—			—		(80)			5		7
Total liabilities	$	4	$	81	$	484		$	—	$	(80)		$	489

1 Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.

2 Refer to Note 6 for additional information related to the composition of our derivatives portfolio.

3 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.

4 Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There are no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 6.

5 Refer to Note 2 for additional information related to the contingent consideration liability resulting from the fairlife acquisition.

6 The Company is obligated to return $354 million in cash collateral it has netted against its derivative positions.

7 The Company’s derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows: $258 million in the line item other assets and $5 million in the line item other liabilities. Refer to Note 6 for additional information related to the composition of our derivatives portfolio.


December 31, 2020	Level 1		Level 2		Level 3			Other3		Netting Adjustment		4	Fair Value Measurements
Assets:
Equity securities with readily determinable values1	$	2,049	$	210	$	12		$	103	$	—		$	2,374
Debt securities1	4		2,267		32			—		—			2,303
Derivatives2	63		835		—			—		(669)		6	229		8
Total assets	$	2,116	$	3,312	$	44		$	103	$	(669)		$	4,906
Liabilities:
Contingent consideration liability	$	—	$	—	$	321	5	$	—	$	—		$	321
Derivatives2	—		91		—			—		(81)		7	10		8
Total liabilities	$	—	$	91	$	321		$	—	$	(81)		$	331

1 Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.

2 Refer to Note 6 for additional information related to the composition of our derivatives portfolio.

5 Refer to Note 2 for additional information related to the contingent consideration liability resulting from the fairlife acquisition.

6 The Company is obligated to return $546 million in cash collateral it has netted against its derivative positions.

7 The Company does not have the right to reclaim any cash collateral it has netted against its derivative positions.

8 The Company’s derivative financial instruments are recorded at fair value in our condensed consolidated balance sheet as follows: $229 million in the line item other assets, $9 million in the line item accounts payable and accrued expenses, and $1 million in the line item other liabilities. Refer to Note 6 for additional information related to the composition of our derivatives portfolio.

Gross realized and unrealized gains and losses on Level 3 assets and liabilities were not significant for the three and nine months ended October 1, 2021 and September 25, 2020.

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 three and nine months ended October 1, 2021 and September 25, 2020.

Nonrecurring Fair Value Measurements

The gains and losses on assets measured at fair value on a nonrecurring basis are summarized in the following table (in millions):


	Gains (Losses)
	Three Months Ended					Nine Months Ended
	October 1, 2021			September 25, 2020		October 1, 2021			September 25, 2020
Assets held for sale	$	(266)	1	$	—	$	(266)	1	$	—
Impairment of intangible assets	—			—		—			(215)		2
Other-than-temporary impairment charges	—			—		—			(38)		3
Impairment of equity investment without a readily determinable fair value	—			—		—			(26)		4
Total	$	(266)		$	—	$	(266)		$	(279)

1 The Company is required to record assets and liabilities that are held for sale at the lower of carrying value or fair value less any costs to sell based on the agreed-upon sale price. The Company recorded charges of $266 million in the line item other income (loss) — net related to the restructuring of our manufacturing operations in the United States. These charges, which were calculated based on Level 3 inputs, primarily impacted the line item property, plant and equipment in our condensed consolidated balance sheet.

2 The Company recorded impairment charges of $160 million related to its Odwalla trademark, as the Company decided in June 2020 to discontinue its Odwalla juice business. The Company recorded an impairment charge of $55 million related to a trademark in North America, which was driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company’s portfolio. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.

3 The Company recognized an other-than-temporary impairment charge of $38 million related to one of our equity method investees in Latin America, primarily driven by revised projections of future operating results. The fair value of this investment was derived using discounted cash flow analyses based on Level 3 inputs.

4 The Company recorded an impairment charge of $26 million related to an investment in an equity security without a readily determinable fair value. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.

Other Fair Value Disclosures

The carrying values of cash and cash equivalents; short-term investments; trade accounts receivable; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the short-term maturities of these financial instruments. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments. Where quoted prices are not available, the fair value is estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of the debt instruments. As of October 1, 2021, the carrying value and fair value of our long-term debt, including the current portion, were $39,842 million and $40,795 million, respectively. As of December 31, 2020, the carrying value and fair value of our long-term debt, including the current portion, were $40,610 million and $43,218 million, respectively.

NOTE 16: OPERATING SEGMENTS

Information about our Company’s operations by operating segment and Corporate is as follows (in millions):


	Europe, Middle East & Africa			Latin America		North America		Asia Pacific			Global Ventures		Bottling Investments			Corporate		Eliminations		Consolidated
As of and for the Three Months Ended October 1, 2021
Net operating revenues:
Third party	$	1,758		$	1,137	$	3,478	$	1,229		$	753	$	1,663		$	24	$	—	$	10,042
Intersegment	157			—		1		145			—		2			1		(306)		—
Total net operating revenues	1,915			1,137		3,479		1,374			753		1,665			25		(306)		10,042
Operating income (loss)	1,028			712		868		594			114		81			(499)		—		2,898
Income (loss) before income taxes	1,050			716		630		604			116		462			(494)		—		3,084
Identifiable operating assets	8,213		2	1,839		19,118		2,254		3	7,784		10,213		2,3	22,004		—		71,425
Investments1	482			606		331		238			2		13,137			4,385		—		19,181
As of and for the Three Months Ended September 25, 2020
Net operating revenues:
Third party	$	1,556		$	809	$	3,087	$	1,207		$	513	$	1,474		$	6	$	—	$	8,652
Intersegment	137			—		1		127			—		1			—		(266)		—
Total net operating revenues	1,693			809		3,088		1,334			513		1,475			6		(266)		8,652
Operating income (loss)	903			483		727		564			(31)		55			(403)		—		2,298
Income (loss) before income taxes	925			476		738		575			(29)		398			(902)		—		2,181
Identifiable operating assets	8,283		2	1,647		19,983		2,143		3	7,453		9,851		2,3	28,237		—		77,597
Investments1	544			577		356		236			6		13,765			4,103		—		19,587
As of December 31, 2020
Identifiable operating assets	$	8,098	2	$	1,597	$	19,444	$	2,073	3	$	7,575	$	10,521	2,3	$	17,903	$	—	$	67,211
Investments1	517			603		345		240			4		14,183			4,193		—		20,085

1 Principally equity method investments and other investments in bottling companies.

2 Property, plant and equipment — net in South Africa represented 16 percent, 14 percent and 15 percent of consolidated property, plant and equipment — net as of October 1, 2021, September 25, 2020 and December 31, 2020, respectively.

3 Property, plant and equipment — net in the Philippines represented 10 percent of consolidated property, plant and equipment — net as of October 1, 2021, September 25, 2020 and December 31, 2020.

During the three months ended October 1, 2021, the results of our operating segments and Corporate were impacted by the following items:

Operating income (loss) and income (loss) before income taxes were reduced by $31 million for Corporate due to the Company’s productivity and reinvestment program. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $12 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
Operating income (loss) and income (loss) before income taxes were reduced by $7 million and $273 million, respectively, for North America related to the restructuring of our manufacturing operations in the United States. Refer to Note 15.
Operating income (loss) and income (loss) before income taxes were reduced by $2 million for Europe, Middle East and Africa and $1 million for North America, and operating income (loss) and income (loss) before income taxes were reduced by $1 million and $22 million, respectively, for Corporate due to the Company’s strategic realignment initiatives. Refer to Note 12.
Income (loss) before income taxes was increased by $63 million for Corporate related to the sale of a portion of our ownership interest in one of our equity method investments. Refer to Note 2.
Income (loss) before income taxes was increased by $18 million for Bottling Investments due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.

During the three months ended September 25, 2020, the results of our operating segments and Corporate were impacted by the following items:

Operating income (loss) and income (loss) before income taxes were reduced by $41 million for Europe, Middle East and Africa, $22 million for Latin America, $121 million for North America and $32 million for Asia Pacific, and operating income (loss) and income (loss) before income taxes were reduced by $116 million and $127 million, respectively, for Corporate due to the Company’s strategic realignment initiatives. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $23 million and $25 million, respectively, for North America related to the restructuring of our manufacturing operations in the United States.
Operating income (loss) and income (loss) before income taxes were reduced by $18 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
Operating income (loss) and income (loss) before income taxes were reduced by $13 million for Corporate due to the Company’s productivity and reinvestment program. Operating income (loss) and income (loss) before income taxes were increased by $3 million for Europe, Middle East and Africa due to the refinement of previously established accruals related to the Company’s productivity and reinvestment program. Refer to Note 12.
Income (loss) before income taxes was increased by $13 million for Corporate related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Refer to Note 4.
Income (loss) before income taxes was reduced by $405 million for Corporate related to charges associated with the extinguishment of long-term debt.
Income (loss) before income taxes was reduced by $27 million for Bottling Investments due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.


	Europe, Middle East & Africa		Latin America		North America		Asia Pacific		Global Ventures		Bottling Investments		Corporate		Eliminations		Consolidated
Nine Months Ended October 1, 2021
Net operating revenues:
Third party	$	5,094	$	3,113	$	9,793	$	3,811	$	2,030	$	5,292	$	58	$	—	$	29,191
Intersegment	461		—		4		468		—		7		1		(941)		—
Total net operating revenues	5,555		3,113		9,797		4,279		2,030		5,299		59		(941)		29,191
Operating income (loss)	2,990		1,942		2,610		2,046		215		314		(1,481)		—		8,636
Income (loss) before income taxes	3,049		1,952		2,405		2,078		221		1,201		(1,441)		—		9,465
Nine Months Ended September 25, 2020
Net operating revenues:
Third party	$	4,264	$	2,494	$	8,583	$	3,264	$	1,381	$	4,392	$	25	$	—	$	24,403
Intersegment	364		—		3		381		—		4		—		(752)		—
Total net operating revenues	4,628		2,494		8,586		3,645		1,381		4,396		25		(752)		24,403
Operating income (loss)	2,578		1,526		1,603		1,727		(114)		130		(791)		—		6,659
Income (loss) before income taxes	2,632		1,455		1,623		1,749		(114)		762		(719)		—		7,388

During the nine months ended October 1, 2021, the results of our operating segments and Corporate were impacted by the following items:

Operating income (loss) and income (loss) before income taxes were reduced by $263 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
Operating income (loss) and income (loss) before income taxes were reduced by $71 million for Corporate due to the Company’s productivity and reinvestment program. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $63 million for Europe, Middle East and Africa, $11 million for Latin America, $14 million for North America and $13 million for Asia Pacific, and operating income (loss) and income (loss) before income taxes were reduced by $25 million and $129 million, respectively, for Corporate due to the Company’s strategic realignment initiatives. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $42 million and $308 million, respectively, for North America related to the restructuring of our manufacturing operations in the United States. Refer to Note 15.
Operating income (loss) and income (loss) before income taxes were reduced by $14 million for Corporate related to tax litigation expense. Refer to Note 8.
Income (loss) before income taxes was increased by $695 million for Corporate related to the sale of our ownership interest in CCA, an equity method investee. Refer to Note 2.
Income (loss) before income taxes was increased by $341 million for Corporate related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Refer to Note 4.
Income (loss) before income taxes was increased by $63 million for Corporate related to the sale of a portion of our ownership interest in one of our equity method investments. Refer to Note 2.
Income (loss) before income taxes was reduced by $650 million for Corporate related to charges associated with the extinguishment of long-term debt. Refer to Note 7.
Income (loss) before income taxes was reduced by $37 million for Bottling Investments and was increased by $32 million for Corporate due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.

During the nine months ended September 25, 2020, the results of our operating segments and Corporate were impacted by the following items:

Operating income (loss) and income (loss) before income taxes were reduced by $160 million for North America related to the impairment of our Odwalla trademark and $37 million related to the cost of discontinuing the Odwalla juice business.
Operating income (loss) and income (loss) before income taxes were reduced by $41 million for Europe, Middle East and Africa, $22 million for Latin America, $121 million for North America and $32 million for Asia Pacific, and operating income (loss) and income (loss) before income taxes were reduced by $116 million and $127 million, respectively, for Corporate due to the Company’s strategic realignment initiatives. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $74 million for Corporate due to the Company’s productivity and reinvestment program. Operating income (loss) and income (loss) before income taxes were increased by $3 million for Europe, Middle East and Africa due to the refinement of previously established accruals related to the Company’s productivity and reinvestment program. Refer to Note 12.
Operating income (loss) and income (loss) before income taxes were reduced by $55 million for North America related to the impairment of a trademark, which was driven by the impact of the COVID-19 pandemic, revised projections of future operating results and a change in brand focus in the Company’s portfolio.
Operating income (loss) and income (loss) before income taxes were reduced by $48 million and $69 million, respectively, for North America related to the restructuring of our manufacturing operations in the United States.
Operating income (loss) and income (loss) before income taxes were reduced by $47 million for Corporate related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 2.
Income (loss) before income taxes was increased by $902 million for Corporate in conjunction with the fairlife acquisition, which resulted from the remeasurement of our previously held equity interest in fairlife to fair value. Refer to Note 2.
Income (loss) before income taxes was increased by $18 million for Corporate related to the sale of a portion of our ownership interest in one of our equity method investments.
Income (loss) before income taxes was reduced by $405 million for Corporate related to charges associated with the extinguishment of long-term debt.
Income (loss) before income taxes was reduced by $127 million for Corporate related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Refer to Note 4.
Income (loss) before income taxes was reduced by $28 million for Latin America, $1 million for North America and $99 million for Bottling Investments due to the Company’s proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.
Income (loss) before income taxes was reduced by $38 million for Latin America due to an other-than-temporary impairment charge related to one of our equity method investees. Refer to Note 15.
Income (loss) before income taxes was reduced by $26 million for Corporate due to an impairment charge associated with an investment in an equity security without a readily determinable fair value. Refer to Note 15.

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