Report
of Independent Registered Public Accounting Firm
Opinion
on the Financial Statements
We
have audited the accompanying statements of net assets available for benefits of Caribbean Refrescos, Inc. Thrift Plan (the Plan)
as of December 31, 2017 and 2016, and the related statement of changes in net assets available for benefits for the year ended
December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December
31, 2017 and 2016, and the changes in its net assets available for benefits for the year ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the
Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental
Schedule
The supplemental
schedule of assets (held at end of year) as of December 31, 2017, has been subjected to audit procedures performed in conjunction
with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s
management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements
or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy
of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated
whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s
Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion,
the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/
Long & Associates, LLC
We
have served as the Plan’s auditor since 2017.
Alpharetta,
Georgia
June
27, 2018
NOTES TO FINANCIAL
STATEMENTS
Note
1 – Description of Plan
The
following description of the Caribbean Refrescos, Inc. Thrift 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 is a defined contribution pension plan covering a majority of the employees of Caribbean Refrescos, Inc. (the “Company”),
a wholly owned subsidiary of The Coca-Cola Company. Eligible employees may begin participating in the Plan after reaching age
18 and completing three months of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”).
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 currently making a matching contribution equal to 100% of the first 3% of compensation
contributed by a participant subject to certain limitations imposed by the Puerto Rico Internal Revenue Code of 2011 (the “Code”).
Participants are fully vested in their contributions and the Company contributions immediately.
Participants
may contribute to the Plan with “Before-Tax” dollars and/or “After-Tax” dollars. “Before-Tax”
contributions are not subject to current income taxation. For the year 2017, participants may contribute to the Plan on a “Before-Tax”
basis up to $15,000 of their annual compensation subject to certain limitations imposed by the Code. In addition to “Before-Tax”
contributions, participants may contribute on an “After-Tax” basis up to 10% of their annual compensation, as defined
by the Plan. Participants are allowed to roll over account balances from other qualified retirement plans into the Plan. The Plan
allows participants who are age 50 or older by the end of the year to make additional “Catch-Up” contributions within
limits imposed by the Code.
All
contributions are paid to a trustee and are invested as directed by participants. Participants may direct their contributions
into common stock of The Coca-Cola Company, mutual funds and collective trust funds with various investment objectives and strategies.
Valuation
of Participant Accounts
Participant
account balances are valued based upon the number of shares or units of each investment fund credited to participant accounts.
The shares and units are revalued on a daily basis to reflect earnings and other transactions. Participant account balances are
updated on a daily basis to reflect transactions affecting account balances.
CARIBBEAN
REFRESCOS, INC. THRIFT PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note
1 – Description of Plan (Continued)
Notes
Receivable from Participants
Participants
may borrow from their account balances subject to certain limitations. Participant loans may be taken from a combination of “Before-Tax”,
“After-Tax” and rollover 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.
|
|
(b)
|
The
minimum amount that a participant may borrow is the lesser of 50% of their account balance
or $1,000.
|
|
(c)
|
The
loan interest rate is the prime rate (as published in
The Wall Street Journal
at the inception of the loan). Prior to April 1, 2016, the loan interest rate was the
prime rate plus 1%.
|
|
(d)
|
The
loan repayment period is one to five years for a general purpose loan and one to 15 years
for a loan used to purchase or build a principal residence. Principal and interest are
paid ratably through payroll deductions.
|
Payment
of Benefits
Generally,
payments from the Plan are made in a single lump sum upon a participant’s retirement, termination or disability. However,
upon death of a participant, the surviving spouse or other designated beneficiary may choose to receive annual installment payments,
up to a maximum of 10, from the Plan. Participants may elect to receive in-service withdrawals from their “After-Tax”
account balances.
Administration
The Company is the named Plan administrator. However, the Thrift Plan Committee of Caribbean Refrescos, Inc. (the “Committee”),
on behalf of the Company and as designated in the Plan document, has substantial control of and discretion over the administration
of the Plan. Banco Popular de Puerto Rico (the “Trustee”) provides trust services for the Plan, and Transamerica
Retirement Solutions provides recordkeeping services for the Plan.
Plan
Termination
The Company expects the Plan to be continued indefinitely but reserves the right to terminate the Plan or to discontinue its contributions to the Plan at any time. In the event of termination, the Committee may either continue the Trust for as long as it considers advisable, or terminate the Trust, pay all expenses from the Trust assets, and direct the payment of participant account balances, either in the form of lump-sum distributions, installment payments, or any other form selected by the Committee.
CARIBBEAN
REFRESCOS, INC. THRIFT PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
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”).
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. No
allowance for credit losses has been recorded as of December 31, 2017 or 2016. Delinquent notes receivable are classified as distributions
based upon the terms of the Plan document.
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. The net appreciation 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.
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.
Payment
of Benefits
Distributions
to participants are recorded when payment is made.
CARIBBEAN
REFRESCOS, INC. THRIFT PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note
3 – 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
at the measurement date. The asset or liability’s fair value measurement level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value measurement. ASC 820 established a three-level 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.
|
Investments
as of December 31, 2017 were measured at fair value on a recurring basis (at least annually) as follows (in thousands):
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Investments
Using Net
Asset Value
Practical
Expedient*
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
26,043
|
|
|
$
|
―
|
|
|
$
|
26,043
|
|
Registered investment companies
(B)
|
|
|
6,882
|
|
|
|
―
|
|
|
|
6,882
|
|
Collective trust funds
(C)
|
|
|
―
|
|
|
|
7,321
|
|
|
|
7,321
|
|
|
|
$
|
32,925
|
|
|
$
|
7,321
|
|
|
$
|
40,246
|
|
|
(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 registered
investment companies are valued at the publicly quoted net asset value (“NAV”) of each fund. The total value is calculated
by multiplying the NAV per share by the number of shares held as of the measurement date.
|
|
(C)
|
The
underlying investments held in the collective trust funds are active or passive equity
or debt securities. The collective trust funds are valued at the net asset value 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 or unfunded commitments.
|
* In
accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have
not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation
of the fair value hierarchy to the line items presented on the statements of net assets available for benefits.
CARIBBEAN
REFRESCOS, INC. THRIFT PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 3 – Fair
Value Measurements (Continued)
Investments
as of December 31, 2016 were measured at fair value on a recurring basis (at least annually) as follows (in thousands):
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Investments
Using NAV
Practical
Expedient*
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
24,934
|
|
|
$
|
―
|
|
|
$
|
24,934
|
|
Registered investment companies
(B)
|
|
|
4,796
|
|
|
|
―
|
|
|
|
4,796
|
|
Collective trust funds
(C)
|
|
|
―
|
|
|
|
6,727
|
|
|
|
6,727
|
|
|
|
$
|
29,730
|
|
|
$
|
6,727
|
|
|
$
|
36,457
|
|
|
(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 registered
investment companies are valued at the publicly quoted NAV of each fund. The total value is calculated by multiplying the NAV
per share by the number of shares held as of the measurement date.
|
|
(C)
|
The
underlying investments held in the collective trust funds consist of actively managed
equity securities. The collective trust funds are valued at the net asset value 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 or unfunded commitments.
|
*
In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have
not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation
of the fair value hierarchy to the line items presented on the statements of net assets available for benefits.
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. There have been no changes in the methodologies used
at December 31, 2017 and 2016. During the year ended December 31, 2017, there were no Level 2 or 3 investments.
CARIBBEAN
REFRESCOS, INC. THRIFT PLAN
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 4 –
Transactions with Parties-in-Interest
As of
December 31, 2017 and 2016, the Plan held 567,643 and 601,396 shares of common stock of The Coca-Cola Company with fair values
of approximately $26,043,000 and $24,934,000, respectively. During the year ended December 31, 2017, the Plan had the following
transactions relating to common stock of The Coca-Cola Company (in thousands):
|
|
Shares
|
|
|
Fair Value
|
|
Purchases
|
|
|
106
|
|
|
$
|
3,754
|
|
Sales
|
|
|
139
|
|
|
$
|
6,069
|
|
Dividends received
|
|
|
N/A
|
|
|
$
|
839
|
|
Fees
paid during the year for investment management, auditing and other professional services rendered by parties-in-interest were
based on customary and reasonable rates for such services.
Note
5 – 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 participants’
account balances and the amounts reported in the statements of net assets available for benefits.
Included
in investments as of December 31, 2017 and 2016 is common stock of The Coca-Cola Company with a market value of approximately
$26,043,000 and $24,934,000, respectively. These investments represent 64.7% and 68.4% of total investments as of December 31,
2017 and 2016, respectively. A significant decline in the market value of common stock of The Coca-Cola Company would have an
adverse effect on the Plan’s net assets available for benefits.
Note
6 – Income Tax Status
The
Plan qualifies under Sections 165(a) and 165(e) of the Puerto Rico Income Tax Act of 1954 (the “Act”), as amended
(for applicable tax years), Sections 1165(a) and 1165(e) of the Puerto Rico Internal Revenue Code of 1994, as amended (for applicable
tax years), and Sections 1081.01(a) and 1081.01(d) of the Puerto Rico Internal Revenue Code of 2011, as amended (for applicable
tax years) and is, therefore, not subject to tax under present income tax laws. Once qualified, the Plan is required to operate
in conformity with the applicable tax requirements to maintain its qualification. The Plan obtained a determination letter on
October 19, 1990, in which the Puerto Rico Department of the Treasury ruled that the Plan, as then designed, was in compliance
with the applicable requirements of the Act. The Plan has been amended subsequent to receiving this determination letter. The
Plan obtained letters on October 22, 1998, September 27, 2000, February 16, 2012 and February 10, 2014, in which the Puerto Rico
Department of the Treasury ruled that the amendments did not affect the qualified status of the Plan. The February 10, 2014 letter
provides that the Plan constitutes a qualified retirement plan that satisfies the rules of the Code, as amended. The Committee
believes that the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that
the Plan is qualified and the related trust is tax exempt.