NOTES TO FINANCIAL
STATEMENTS
December 31,
2016 and 2015
Note 1 –
Description of Plan
The following
description of The Coca-Cola Company 401(k) Plan (the “Plan”) provides only general information. Participants should
refer to the Summary Plan Description for a more complete description of the Plan’s provisions.
General
The Plan was
originally adopted effective July 1, 1960 and was amended and restated effective January 1, 2012. The Plan is a defined contribution
pension plan covering employees of The Coca-Cola Company and its participating subsidiaries (the “Company”), with
the exception of employees represented by bargaining units which have not negotiated coverage and others listed in the Plan document.
Eligible employees may begin participating in the Plan upon hire with the Company. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Administration
The Plan is
administered by The Coca-Cola Company Benefits Committee (the “Committee”) which, as Plan Administrator, has substantial
control of and discretion over the administration of the Plan. Mercer Trust Company (the “Trustee”) provides trust
services and Transamerica Retirement Plan Services provides recordkeeping services for the Plan.
Contributions
The election
to contribute to the Plan by employees (“Participants”) is voluntary. Participant contributions are in the form of
payroll deductions with the Company making a matching contribution during 2016 equal to 100% of the first 1% of compensation and
50% of the next 5% of compensation, subject to certain limitations imposed by the Internal Revenue Code (the “Code”).
All Company contributions are initially invested in common stock of The Coca-Cola Company. Participants may redirect all or any
of these Company contributions into other investment options in the Plan.
Participants
may make contributions to the Plan with pre-tax dollars. Pre-tax contributions are not subject to current federal income taxes
but are subject to Federal Insurance Contributions Act (“FICA”) taxes. Pre-tax contributions are limited in total
to 50% of compensation, subject to certain limitations. For 2016, the maximum pre-tax annual contribution amount under the Code
was $18,000. The Plan has an automatic contribution election of 3% of eligible compensation unless the Participant elects otherwise.
Participants were able to make after-tax contributions to the Plan prior to January 1, 2012. No additional after-tax contributions
were permitted after this date.
Participants
who are age 50 or older by the end of the year may make additional catch-up contributions with pre-tax dollars provided certain
Plan or Internal Revenue Service limits have been met. For 2016, the maximum catch-up contribution amount was $6,000.
All contributions
are paid to the Trustee and are invested as directed by Participants and the Company. Participants may direct their contributions
into investment options offered by the Plan. These investment options include Master Trust investment funds, a stable value fund,
common stock of The Coca-Cola Company, collective trust funds and mutual funds with various investment objectives and strategies.
Participants are eligible to roll over account balances from a previous employer’s tax-qualified retirement plan or Individual
Retirement Accounts into the Plan.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 1 –
Description of Plan (Continued)
Vesting
Participants
are immediately vested in their salary deferral contributions and related earnings, while Company contributions and related earnings
are vested after two years of service.
Forfeited
Accounts
Forfeited amounts
are generally used to reduce employer contributions or pay administrative expenses of the Plan. The forfeited account balances
were approximately $1,425,000 and $1,021,000 as of December 31, 2016 and 2015, respectively. The Plan used approximately $2,539,000
of cumulative forfeitures to reduce employer contributions and approximately $408,000 to pay administrative expenses during 2016.
Valuation
of Participant Accounts
Participant
account balances are valued based upon the number of shares of each investment credited to Participant accounts. Shares are revalued
on a daily basis to reflect earnings and other transactions. Shares of common stock of The Coca-Cola Company are revalued on a
daily basis to reflect changes in fair value. Participant accounts are updated on a daily basis to reflect transactions affecting
account balances.
Notes Receivable
from Participants
Participants
may borrow from their account balances subject to certain limitations. Participant loans may be funded from a combination of all
vested account balances. The following applies to Participant loans:
|
(a)
|
The
maximum amount that a Participant may borrow is the lesser of 50% of their account balance
or $50,000. The $50,000 maximum is reduced by the Participant’s highest outstanding
loan balance on any loans during the preceding 12 months. No more than two loans are
allowed from the Plan at a time.
|
|
(b)
|
The
minimum loan amount is $1,000.
|
|
(c)
|
The
loan interest rate is the prime rate as published in
The Wall Street Journal
on
the 1
st
business day of the month the loan is requested.
|
|
(d)
|
The
loan repayment period is limited to five years for a general purpose loan and 15 years
for a loan used to purchase or build a principal residence.
|
Employee
Stock Ownership Plan
The portion
of the Plan invested in common stock of The Coca-Cola Company is designated as an employee stock ownership plan (“ESOP”)
within the meaning of Code Section 4975(e)(7). Participants invested in common stock of The Coca-Cola Company may elect to receive
their entire dividend amount as a cash payment made directly to them rather than have the dividend amount reinvested in their
Plan account. The total amount of dividends paid directly to Participants was $3,129,671 during 2016.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 1 –
Description of Plan (Continued)
Payment of
Benefits
Upon retirement,
termination or disability, Participants may elect to receive payment from the Plan in a lump-sum distribution, installments or
in partial payments (a portion paid in a lump sum, and the remainder paid later). Participants may elect in-service distributions
from after-tax and rollover account balances, or after attaining age 59½ from all vested account balances. Participants
may elect to receive payment of the portion of their accounts invested in common stock of The Coca-Cola Company in shares rather
than cash (“in-kind distributions”). Participants may also request an in-service distribution for the purpose of a
financial hardship from certain vested account balances.
North America
Refranchising Transactions
In conjunction
with implementing a new beverage partnership model in North America, the Company refranchised territories that were previously
managed by Coca-Cola Refreshments, Inc. to certain of the Company’s unconsolidated bottling partners. The Company expects
to complete its refranchising in the United States by the end of 2017. The refranchising will significantly decrease the number
of active participants in the Plan.
In connection
with the Company’s refranchising of certain distribution and manufacturing facilities to independent bottlers, amendments
were made to the Plan to fully vest impacted employees who were terminated from the Company as a result of the divestiture of
their facility (“Transitioning Employees”). In addition, the Plan’s loan procedures were revised to allow Transitioning
Employees who elect to rollover their entire Plan account balances to an applicable bottler’s defined contribution plan
to also elect to rollover their outstanding loan balances. Approximately $21.4 million of Participant loans were rolled out of
the Plan and included in distributions to Participants for the year ended December 31, 2016.
Plan Termination
The Company,
by action of the Committee, reserves the right to, at any time and for any reason, terminate the Plan or completely discontinue
contributions to the Plan. The Plan shall be terminated or contributions shall be discontinued by a written instrument approved
by the Committee by resolution.
In the event
of the Plan’s termination, if no successor plan is established or maintained, lump-sum distributions shall be made in accordance
with the terms of the Plan as in effect at the time of the Plan’s termination or as thereafter amended. To the extent any
assets of the Trust represent amounts allocated to a Code Section 415 suspense account, such amounts may revert to the Company.
The Plan Administrator’s authority shall continue beyond the Plan’s termination date until all Trust assets have been
liquidated and distributed.
Note 2 –
Summary of Significant Accounting Policies
Basis of
Accounting
The accompanying
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”).
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 2 –
Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation
of financial statements in conformity with U.S. GAAP requires Plan management to make estimates that affect certain reported amounts
and disclosures. Actual results may differ from those estimates.
Valuation
of Investments
The Plan’s
investments are stated at fair value in accordance with Accounting Standards Codification Topic 820 “Fair Value Measurements
and Disclosures” (“ASC 820”). See Note 3 for fair value measurements.
Notes Receivable
from Participants
Participant
loans, which are classified as receivables, are stated at the unpaid principal balance plus any accrued but unpaid interest.
Investment
Transactions and Income
Investment transactions
are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date. Interest is recognized on an accrual
basis. Brokerage commissions on purchases and sales of common stock are considered transaction costs and are recorded as an increase
to the cost basis of shares purchased and/or reduction of proceeds on a sale of shares. The net appreciation or depreciation in
fair value of investments consists of realized gains and losses and changes in unrealized gains or losses of these investments
during the year. Realized gains and losses on investments are determined on the basis of average cost. Unrealized gains or losses
on investments are based on changes in the market values or fair values of such investments.
Payment of
Benefits
Distributions
to Participants are recorded when payment is made. In-kind distributions are recorded based on the market value of the shares
at the date of distribution.
Administrative
Expenses
Certain administrative
expenses were paid by the Plan, as permitted by the Plan document. All other administrative expenses were paid by the Company.
Recent Accounting
Pronouncements
In February
2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare
Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.
The new standard clarifies presentation requirements
for a plan’s interest in a master trust and requires more detailed disclosures of the plan’s interest in the master
trust. For each master trust in which a plan holds an interest, the amendments in this standard require a plan’s interest
in that master trust and any change in that interest to be presented in separate financial statement line items in the statement
of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. The standard
is effective for fiscal years beginning after December 15, 2018 (with early adoption permitted) using a retrospective transition
approach. The Company is currently evaluating the impact of this standard on the Plan’s financial statements.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 3 –
The Coca-Cola Company Master Trust for 401(k) Plans
The Plan participates
in The Coca-Cola Company Master Trust for 401(k) Plans (the “Master Trust”) with similar retirement plans sponsored
by the Company and certain other subsidiaries of the Company, whereby investments are held collectively for all plans by the Trustee.
Each participating plan’s investment in the Master Trust is equal to the sum of its participant account balances in relation
to total Master Trust investments. The Plan’s investments include retirement target date funds, equity and fixed income
index funds, actively managed equity and fixed income funds, synthetic guaranteed investment contracts, and common stock of The
Coca-Cola Company. The investment structures include mutual funds, collective trust funds, Master Trust investment funds, and
direct ownership of common stock of The Coca-Cola Company.
The Plan’s
investments in the Master Trust were approximately $4.2 billion and $4.4 billion at December 31, 2016 and 2015, respectively.
The Plan’s interest in the net assets of the Master Trust was approximately 96.7% and 96.6% at December 31, 2016 and
2015, respectively. This was determined by comparing the Plan’s investment in the Master Trust to total net assets in the
Master Trust.
The following
table summarizes the net assets of the Master Trust as of December 31, 2016 and 2015 (in thousands):
|
|
2016
|
|
|
2015
|
|
Collective trust funds
|
|
$
|
2,026,349
|
|
|
$
|
2,090,492
|
|
Mutual funds
|
|
|
137,894
|
|
|
|
156,426
|
|
Master Trust investment funds
|
|
|
635,228
|
|
|
|
632,263
|
|
Common stock
|
|
|
1,221,648
|
|
|
|
1,284,920
|
|
Investments at fair value
|
|
|
4,021,119
|
|
|
|
4,164,101
|
|
Due from broker
|
|
|
16
|
|
|
|
137
|
|
Fully benefit-responsive investment contract at contract value
|
|
|
367,599
|
|
|
|
375,378
|
|
Master Trust net assets
|
|
$
|
4,388,734
|
|
|
$
|
4,539,616
|
|
The net investment income of the
Master Trust for the year ended December 31, 2016 was as follows (in thousands):
Investment income:
|
|
|
|
|
Net appreciation in fair value of investments
|
|
$
|
196,783
|
|
Interest and dividends
|
|
|
43,962
|
|
Net investment income
|
|
$
|
240,745
|
|
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 3 – The Coca-Cola Company
Master Trust for 401(k) Plans (Continued)
Fair Value
Measurements
ASC 820 defines
fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also established a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires
entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
•
|
Level 1 —
|
Quoted
prices in active markets for identical assets or liabilities.
|
•
|
Level 2 —
|
Observable
inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets
and liabilities in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data.
|
•
|
Level 3 —
|
Unobservable
inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. This includes certain pricing models, discounted
cash flow methodologies and similar techniques that use significant unobservable inputs.
|
The Plan’s
valuation methods used to measure fair value of its investments may produce fair values that may not be indicative of a future
sale, or reflective of future fair values. The use of different methods to determine the fair value of investments could result
in different estimates of fair value at the reporting date.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note
3
–
The Coca-Cola Company
Master Trust for 401(k) Plans (Continued)
The Master Trust assets, measured
at fair value on a recurring basis (at least annually) as of December 31, 2016, were as follows (in thousands):
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Investments
Using NAV
Practical
Expedient
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
1,221,648
|
|
|
$
|
—
|
|
|
$
|
1,221,648
|
|
Mutual funds
(B)
|
|
|
137,894
|
|
|
|
—
|
|
|
|
137,894
|
|
Collective trust funds
(C)
|
|
|
—
|
|
|
|
2,026,349
|
|
|
|
2,026,349
|
|
Master
Trust investment funds
(D)
|
|
|
—
|
|
|
|
635,228
|
|
|
|
635,228
|
|
|
|
$
|
1,359,542
|
|
|
$
|
2,661,577
|
|
|
$
|
4,021,119
|
|
|
(A)
|
Investments
in common stock are in shares of The Coca-Cola Company and are valued using the quoted
market price multiplied by the number of shares owned as of the measurement date.
|
|
(B)
|
Investments
in mutual funds are valued at the publicly quoted net asset value of each fund. The total
value is calculated by multiplying the net asset value per share by the number of shares
held as of the measurement date.
|
|
(C)
|
The
underlying investments held in the collective trust funds are equity or debt securities
held to replicate the performance of a specific equity or bond market index. The collective
trust funds are valued at the NAV per share as determined by the manager of the funds
multiplied by the number of shares held as of the measurement date. These funds have
no redemption restrictions.
|
|
(D)
|
The
Master Trust investment funds include the US Large Cap Active Equity Fund, the US Small-Mid
Cap Active Equity Fund, and the US Core-Plus Active Fixed Income Fund. The total value
is calculated by multiplying the NAV per share by the number of shares held as of the
measurement date. The underlying investments include common stock, preferred stock, mutual
funds, collective trust funds and a short-term investment account. These funds have no
redemption restrictions.
|
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 3 – The Coca-Cola Company
Master Trust for 401(k) Plans (Continued)
The Master Trust assets, measured
at fair value on a recurring basis (at least annually) as of December 31, 2015, were as follows (in thousands):
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Investments
Using NAV
Practical
Expedient
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
1,284,920
|
|
|
$
|
—
|
|
|
$
|
1,284,920
|
|
Mutual funds
(B)
|
|
|
156,426
|
|
|
|
—
|
|
|
|
156,426
|
|
Collective trust funds
(C)
|
|
|
—
|
|
|
|
2,090,492
|
|
|
|
2,090,492
|
|
Master Trust investment
funds
(D)
|
|
|
—
|
|
|
|
632,263
|
|
|
|
632,263
|
|
|
|
$
|
1,441,346
|
|
|
$
|
2,722,755
|
|
|
$
|
4,164,101
|
|
|
(A)
|
Investments
in common stock are in shares of The Coca-Cola Company and are valued using the quoted
market price multiplied by the number of shares owned as of the measurement date.
|
|
(B)
|
Investments
in mutual funds are valued at the publicly quoted net asset value of each fund. The total
value is calculated by multiplying the net asset value per share by the number of shares
held as of the measurement date.
|
|
(C)
|
The
underlying investments held in the collective trust funds are equity or debt securities
held to replicate the performance of a specific equity or bond market index. The collective
trust funds are valued at the NAV per share as determined by the manager of the funds
multiplied by the number of shares held as of the measurement date. These funds have
no redemption restrictions.
|
|
(D)
|
The
Master Trust investment funds include the US Large Cap Active Equity Fund, the US Small-Mid
Cap Active Equity Fund, and the US Core-Plus Active Fixed Income Fund. The total value
is calculated by multiplying the NAV per share by the number of shares held as of the
measurement date. The underlying investments include common stock, preferred stock, mutual
funds, collective trust funds and a short-term investment account. These funds have no
redemption restrictions.
|
During
2016 and 2015 there were no Level 2 or 3 investments.
Synthetic Guaranteed Investment
Contracts
The Master Trust has a separate account (the “account”) which invests in wrapper contracts (comprised primarily
of synthetic guaranteed investment contracts) and cash equivalents. The contracts within the account
are fully benefit-responsive and are therefore reported at contract value on the statements of net assets available for benefits.
Contract value represents contributions made under the contracts, plus earnings, less withdrawals and administrative expenses.
As of December 31, 2016, the account consisted of approximately $350,550,000 of wrapper contracts and approximately $17,049,000
of cash equivalents.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 3 – The Coca-Cola Company
Master Trust for 401(k) Plans (Continued)
In a wrapper
contract structure, the underlying investments are owned by the account and held in trust for Plan participants. These contracts
wrap a diversified portfolio primarily comprised of corporate and government bonds, and collective trust funds. The account purchases
wrapper contracts from an insurance company or bank. The wrapper contracts amortize the realized and unrealized gains and losses
on the underlying fixed income investments, typically over the duration of the investments, through adjustments to the future
interest crediting rate (which is the rate earned by participants in the account for the underlying investments). The issuers
of the wrapper contracts provide assurances that the adjustments to the interest crediting rate do not result in a future crediting
rate that is less than zero.
Examples of
events that would permit a wrapper contract issuer to terminate a wrapper contract upon short notice include the Plan’s
loss of its qualified status, uncured material breaches of responsibilities, or material and adverse changes to the provisions
of the Plan. If one of these events was to occur, the wrapper contract issuer could terminate the wrapper contract at the market
value of the underlying investments.
Transactions with Parties-in-Interest
During the year
ended December 31, 2016, the Master Trust had the following transactions relating to common stock of The Coca-Cola Company (in
thousands):
|
|
Shares
|
|
|
Fair Value
|
|
Purchases
|
|
|
3,792
|
|
|
$
|
165,892
|
|
Sales
|
|
|
2,849
|
|
|
$
|
127,434
|
|
In-kind distributions
|
|
|
1,387
|
|
|
$
|
60,084
|
|
Dividends received
|
|
|
N/A
|
|
|
$
|
41,398
|
|
The Master Trust held the following
investments in common stock of The Coca-Cola Company as of December 31, 2016 and 2015 (in thousands):
|
|
Shares
|
|
|
Fair Value
|
|
December 31, 2016
|
|
|
29,466
|
|
|
$
|
1,221,648
|
|
December 31, 2015
|
|
|
29,910
|
|
|
$
|
1,284,920
|
|
Note 4 –
Risks and Uncertainties
The Plan invests
in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit
risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes
in the values of investment securities will occur in the near term and that such changes could materially affect Participant account
balances and the amounts reported in the statement of net assets available for benefits.
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 5 –
Income Tax Status
The Plan has
received a determination letter from the Internal Revenue Service dated September 13, 2013, stating that the Plan is qualified
under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. The Plan was amended subsequent to
receipt of the determination letter. Once qualified, the Plan is required to operate in conformity with the Code to maintain its
qualification. The Committee and the Company’s tax counsel believe the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believe the Plan, as amended, is qualified and the related trust is tax exempt.
U.S. GAAP require
Plan management to evaluate tax positions taken by the Plan. The financial statement effects of a tax position are recognized
when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan
Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016, there are no uncertain
positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions.
The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Note 6 –
Nonexempt Transactions
During 2016,
the Plan Administrator identified certain operational deficiencies regarding three participants’ loans. Management
of the Plan has taken corrective actions to ensure compliance with the Plan’s loan policy and will be filing an application
under the Voluntary Correction Program (“VCP”) with the IRS with proposed corrections of these matters. The Plan Administrator
and counsel for the Plan believe that these deficiencies and VCP application will not impact the tax qualification of the Plan
and that the Plan continues to maintain tax qualified status under the applicable sections of the Code.
Note 7 –
Reconciliation of Financial Statements to Form 5500
The following
is a reconciliation of the net assets available for benefits per the financial statements to the Form 5500 as of December 31,
2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Net assets available for benefits per the financial statements
|
|
$
|
4,376,962,707
|
|
|
$
|
4,539,510,373
|
|
Adjustment from contract value to fair value for fully
benefit-responsive investment contracts
|
|
|
2,754,521
|
|
|
|
3,823,765
|
|
Net assets available for benefits per Form 5500
|
|
$
|
4,379,717,228
|
|
|
$
|
4,543,334,138
|
|
THE
COCA-COLA COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 7 – Reconciliation
of Financial Statements to Form 5500
(Continued)
The following is a reconciliation
of investment income from the Master Trust per the financial statements to the Form 5500 for the year ended December 31, 2016:
Investment income from the Master Trust per the financial statements
|
|
$
|
230,421,342
|
|
Adjustment from contract to fair value for fully benefit-responsive investment contracts:
|
|
|
|
|
Current year
|
|
|
2,754,521
|
|
Prior year
|
|
|
(3,823,765
|
)
|
Less: Administrative expenses reported at Master Trust level
|
|
|
(3,198,139
|
)
|
Investment income from Master Trust per Form 5500
|
|
$
|
226,153,959
|
|