NOTES TO FINANCIAL
STATEMENTS
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 comprehensive description of the Plan’s provisions.
General
The Plan was
originally adopted effective July 1, 1960 and was amended and restated effective January 1, 2016. The Plan is a defined contribution
pension plan covering employees of The Coca-Cola Company and its participating subsidiaries (the “Company”). 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. Transamerica Retirement Solutions provides recordkeeping services
for the Plan. The Northern Trust Company (the “Trustee”) provides trust services for the Plan.
Contributions
The Plan allows
participants to contribute their compensation in line with applicable Internal Revenue Code (the “Code”) limitations.
The Company matches participant contributions equal to 100% of the first 1% of compensation and 50% of the next 5% of compensation,
for a maximum Company match of 3.5% of compensation. All Company contributions are initially invested in common stock of The Coca-Cola
Company. All contributions are invested as directed by participants.
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.
Forfeitures
Forfeited accounts
are generally used to reduce employer contributions or pay administrative expenses of the Plan. The forfeited account balances
were $1,536,453 and $1,831,602 as of December 31, 2018 and 2017, respectively. The Plan used $10,587 of cumulative forfeitures
to reduce employer contributions and $266,745 of cumulative forfeitures to pay administrative expenses during 2018.
Participant
Accounts
Each participant’s
account is credited with the participant’s contributions, employer contributions, if any, rollover contributions, if any,
and allocations of Plan investment results; however, each account is also charged with an allocation of administrative expenses.
Participant accounts are updated daily to reflect transactions affecting account balances. Allocations are based on participant
earnings on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from
the participant’s vested account balance.
THE COCA-COLA
COMPANY 401(k) 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 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 $2,933,080 during 2018.
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.
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.
THE COCA-COLA
COMPANY 401(k) 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.
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 on investments during
the year. Realized gains and losses on investments are determined based on 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.
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
interest in the net assets of the Master Trust was approximately 99.7% at both December 31, 2018 and December 31, 2017.
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 net assets for the Plan and the Master Trust as of December 31, 2018 and 2017 (in thousands):
|
|
2018
Plan’s Portion
of Master
Trust Assets
|
|
|
2018
Master Trust
|
|
|
2017
Plan’s Portion
of Master
Trust Assets
|
|
|
2017
Master Trust
|
|
Collective trust funds
|
|
$
|
1,358,240
|
|
|
$
|
1,363,099
|
|
|
$
|
1,615,469
|
|
|
$
|
1,621,271
|
|
Registered investment companies
|
|
|
113,539
|
|
|
|
114,583
|
|
|
|
148,260
|
|
|
|
149,478
|
|
Master Trust investment funds
|
|
|
472,526
|
|
|
|
477,083
|
|
|
|
576,152
|
|
|
|
581,211
|
|
Common stock
|
|
|
1,075,792
|
|
|
|
1,075,792
|
|
|
|
1,142,113
|
|
|
|
1,142,113
|
|
Investments at fair value
|
|
|
3,020,097
|
|
|
|
3,030,557
|
|
|
|
3,481,994
|
|
|
|
3,494,073
|
|
Due from broker
|
|
|
1,284
|
|
|
|
1,284
|
|
|
|
925
|
|
|
|
925
|
|
Fully benefit-responsive investment
contract at contract value
|
|
|
255,062
|
|
|
|
255,449
|
|
|
|
258,823
|
|
|
|
259,312
|
|
Master Trust net assets
|
|
$
|
3,276,443
|
|
|
$
|
3,287,290
|
|
|
$
|
3,741,742
|
|
|
$
|
3,754,310
|
|
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 net investment
income (loss) of the Master Trust for the years ended December 31, 2018 and 2017 was as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
Investment income (loss):
|
|
|
|
|
|
|
|
|
Net appreciation (depreciation) in fair value of
investments
|
|
$
|
(92,621
|
)
|
|
$
|
579,445
|
|
Interest and dividends
|
|
|
38,512
|
|
|
|
42,329
|
|
Net investment income (loss)
|
|
$
|
(54,109
|
)
|
|
$
|
621,774
|
|
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, 2018, were as follows (in thousands):
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Investments Using
Net Asset Value
Practical
Expedient
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
1,075,792
|
|
|
$
|
―
|
|
|
$
|
1,075,792
|
|
Registered investment companies
(B)
|
|
|
114,583
|
|
|
|
―
|
|
|
|
114,583
|
|
Collective trust funds
(C)
|
|
|
―
|
|
|
|
1,363,099
|
|
|
|
1,363,099
|
|
Master Trust investment funds
(D)
|
|
|
―
|
|
|
|
477,083
|
|
|
|
477,083
|
|
|
|
$
|
1,190,375
|
|
|
$
|
1,840,182
|
|
|
$
|
3,030,557
|
|
|
(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 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, 2017, were as follows (in thousands):
|
|
Quoted Prices in
Active Markets
for Identical
Assets
|
|
|
Investments
Using Net Asset
Value Practical
Expedient
|
|
|
Total
|
|
Common stock
(A)
|
|
$
|
1,142,113
|
|
|
$
|
―
|
|
|
$
|
1,142,113
|
|
Registered investment companies
(B)
|
|
|
149,478
|
|
|
|
―
|
|
|
|
149,478
|
|
Collective trust funds
(C)
|
|
|
―
|
|
|
|
1,621,271
|
|
|
|
1,621,271
|
|
Master Trust investment funds
(D)
|
|
|
―
|
|
|
|
581,211
|
|
|
|
581,211
|
|
|
|
$
|
1,291,591
|
|
|
$
|
2,202,482
|
|
|
$
|
3,494,073
|
|
|
(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 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 2018
and 2017, there were no Level 2 or 3 investments.
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)
Synthetic
Guaranteed Investment Contracts
The Master Trust
has a separate account (the “account”) which invests primarily in wrapper contracts (also known as synthetic guaranteed
investment contracts) as well as an insurance company separate account 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, 2018, the account consisted of $241,664,354 of wrapper contracts and $13,785,014 of cash equivalents.
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 bonds, 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
The Plan does
not consider Company contributions as party-in-interest transactions. 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.
Certain investments managed by The Northern Trust Company, the Trustee as defined by the Plan, qualify as party-in-interest transactions.
As of December
31, 2018 and 2017, the Master Trust held 22,719,999 and 24,893,485 shares of common stock of The Coca-Cola Company with a fair
value of approximately $1,075,792,000 and $1,142,113,000, respectively. During the year ended December 31, 2018, the Master Trust
had the following transactions relating to common stock of The Coca-Cola Company (in thousands):
|
|
Shares
|
|
|
Fair Value
|
|
Purchases
|
|
|
1,139
|
|
|
$
|
16,453
|
|
Sales
|
|
|
2,291
|
|
|
$
|
103,823
|
|
In-kind distributions
|
|
|
1,021
|
|
|
$
|
45,952
|
|
Dividends received
|
|
|
N/A
|
|
|
$
|
33,919
|
|
THE COCA-COLA
COMPANY 401(k) PLAN
NOTES TO FINANCIAL
STATEMENTS
(Continued)
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 statements of net assets available for benefits.
Note 5 –
Income Tax Status
The Plan has
received a determination letter from the Internal Revenue Service dated September 2, 2017, 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, 2018, 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 –
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,
2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Net assets available for benefits per the financial statements
|
|
$
|
3,321,855,166
|
|
|
$
|
3,793,022,036
|
|
Adjustment from contract value to fair value for fully benefit-responsive
investment contracts
|
|
|
(1,752,319
|
)
|
|
|
3,114,695
|
|
Net assets available for benefits per Form 5500
|
|
$
|
3,320,102,847
|
|
|
$
|
3,796,136,731
|
|
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, 2018:
Investment loss from the Master Trust per the financial statements
|
|
$
|
(54,109,034
|
)
|
Adjustment from contract value to fair value for fully benefit-responsive
investment contracts:
|
|
|
|
|
Current year
|
|
|
(1,752,319
|
)
|
Prior year
|
|
|
(3,114,695
|
)
|
Administrative expenses reported at the Master Trust level
|
|
|
(2,537,031
|
)
|
Investment loss from the Master Trust per Form 5500
|
|
$
|
(61,513,079
|
)
|
THE COCA-COLA
COMPANY 401(k) PLAN
EIN: 58-0628465
Plan Number: 002
Schedule H,
line 4i – Schedule of Assets (Held at End of Year)
December 31,
2018
(a)
|
|
(b) Identity of issue, borrower, lessor, or
similar
party
|
|
(c) Description of investment including
maturity date, rate of interest, collateral, par,
or maturity value
|
|
(e) Current value
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Participants
|
|
Loans with interest rates ranging from
3.25% to 8.25%. Maturities through 2034.
|
|
$
|
45,412,274
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Parties-in-interest
|
|
|
|
|
|
|
Note: Column (d) cost is not required
for participant-directed investments.