The Coca-Cola Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK COMPENSATION PLANS

STOCK COMPENSATION PLANS

12 Months Ended

Dec. 31, 2014

Our Company grants stock options and restricted stock awards to certain employees of the Company. Total stock-based compensation expense was $209 million, $227 million and $259 million in 2014, 2013 and 2012, respectively, and was included as a component of selling, general and administrative expenses in our consolidated statements of income. The total income tax benefit recognized in our consolidated statements of income related to stock-based compensation arrangements was $57 million, $62 million and $72 million in 2014, 2013 and 2012, respectively.

As of December 31, 2014, we had $437 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under our plans. This cost is expected to be recognized over a weighted-average period of 2.2 years as stock-based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards.

The Coca-Cola Company 2014 Equity Plan (the "2014 Equity Plan") was approved by shareowners in April 2014. Under the 2014 Equity Plan, a maximum of 500 million shares of our common stock was approved to be issued, through the grant of equity awards, to certain employees. As of December 31, 2014, no grants have been made under the 2014 Equity Plan. Beginning in 2015, the 2014 Equity Plan will be the primary plan in use for equity awards.

Stock Option Plans

The fair value of our stock option grants is amortized over the vesting period, generally four years. The fair value of each option award is estimated on the grant date using a Black-Scholes-Merton option-pricing model.

The weighted-average fair value of options granted during the past three years and the weighted-average assumptions used in the Black-Scholes-Merton option-pricing model for such grants were as follows:



	2014			2013			2012
Fair value of options at grant date	$	3.91		$	3.73		$	3.80
Dividend yield¹	2.7		%	2.8		%	2.7		%
Expected volatility²	16.0		%	17.0		%	18.0		%
Risk-free interest rate³	1.6		%	0.9		%	1.0		%
Expected term of the option⁴	5 years			5 years			5 years


¹	The dividend yield is the calculated yield on the Company's stock at the time of the grant.


²	Expected volatility is based on implied volatilities from traded options on the Company's stock, historical volatility of the Company's stock and other factors.


³	The risk-free interest rate for the period matching the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.


⁴	The expected term of the option represents the period of time that options granted are expected to be outstanding and is derived by analyzing historical exercise behavior.

Generally, stock options granted from 1999 through July 2003 expire 15 years from the date of grant and stock options granted in December 2003 and thereafter expire 10 years from the date of grant. The shares of common stock to be issued and/or sold under the stock option plans are made available from authorized and unissued Company common stock or from the Company's treasury shares. In 2007, the Company began issuing common stock under these plans from the Company's treasury shares.

In addition to the 2014 Equity Plan discussed above, the Company had the following stock option plans as of December 31, 2014:


•	The Coca-Cola Company 1999 Stock Option Plan (the "1999 Option Plan") was approved by shareowners in April 1999. Under the 1999 Option Plan, a maximum of 240 million shares of our common stock was approved to be issued, through the grant of stock options, to certain officers and employees.

•

The Coca-Cola Company 2002 Stock Option Plan (the "2002 Option Plan") was approved by shareowners in April 2002. An amendment to the 2002 Option Plan which permitted the issuance of stock appreciation rights was approved by shareowners in April 2003. Under the 2002 Option Plan, a maximum of 240 million shares of our common stock was approved to be issued, through the grant of stock options or stock appreciation rights, to certain officers and employees. No stock appreciation rights have been issued under the 2002 Option Plan as of December 31, 2014. There are no longer any shares available for grant from the 2002 Option Plan.


•	The Coca-Cola Company 2008 Stock Option Plan (the "2008 Option Plan") was approved by shareowners in April 2008. Under the 2008 Option Plan, a maximum of 280 million shares of our common stock was approved to be issued, through the grant of stock options, to certain officers and employees.

•

As a result of our acquisition of CCE's former North America business, the Company assumed certain stock-based compensation plans previously sponsored by CCE. The assumed Coca-Cola Enterprises Inc. 2001 Stock Option Plan, Coca-Cola Enterprises Inc. 2004 Stock Award Plan and Coca-Cola Enterprises Inc. 2007 Incentive Award Plan previously sponsored by CCE have approximately 1.4 million shares outstanding after conversion of CCE common stock into our common stock. The Company has not granted any equity awards from the assumed plans since the acquisition, and as of December 31, 2014, no shares remain available for grant.

As of December 31, 2014, there were 2.7 million shares available to be granted under the 1999 Option Plan and 2008 Option Plan. Options to purchase common stock under these plans have generally been granted at the fair market value of the Company's stock at the date of grant.

Stock option activity for all stock option plans for the year ended December 31, 2014, was as follows:



	Shares (In millions)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value (In millions)
Outstanding on January 1, 2014	305		$	29.42
Granted	68		37.24
Exercised	(58	)	26.12
Forfeited/expired	(10	)	35.03
Outstanding on December 31, 2014¹	305		$	31.60	6.07 years	$	3,241
Expected to vest at December 31, 2014	300		$	31.51	6.03 years	$	3,216
Exercisable on December 31, 2014	173		$	27.85	4.35 years	$	2,480


¹	Includes 1.4 million stock option replacement awards in connection with our acquisition of CCE's former North America business in 2010. These options had a weighted-average exercise price of $16.62 and generally vest over 3 years and expire 10 years from the original date of grant.

The total intrinsic value of the options exercised was $894 million, $815 million and $780 million in 2014, 2013 and 2012, respectively. The total shares exercised were 58 million, 53 million and 61 million in 2014, 2013 and 2012, respectively.

Restricted Stock Award Plans

Under The Coca-Cola Company 1989 Restricted Stock Award Plan and The Coca-Cola Company 1983 Restricted Stock Award Plan (the "Restricted Stock Award Plans"), 80 million and 48 million shares of restricted common stock, respectively, were originally available to be granted to certain officers and key employees of our Company. As of December 31, 2014, 0.2 million shares remain available for grant under the Restricted Stock Award Plans. The Company issues restricted stock to employees as a result of performance share unit awards, time-based awards and performance-based awards.

For awards prior to January 1, 2008, under the 1983 Restricted Stock Award Plan, participants are reimbursed by our Company for income taxes imposed on the award, but not for taxes generated by the reimbursement payment. The 1983 Restricted Stock Award Plan has been amended to eliminate this tax reimbursement for awards after January 1, 2008. The shares are subject to certain transfer restrictions and may be forfeited if a participant leaves our Company for reasons other than retirement, disability or death, absent a change in control of our Company.

Performance Share Unit Awards

In 2003, the Company established a program to grant performance share units under The Coca-Cola Company 1989 Restricted Stock Award Plan to executives. In 2008, the Company expanded the program to award a mix of stock options and performance share units to a broader group of eligible employees. Performance share units under The Coca-Cola Company 1989 Restricted Stock Award Plan require achievement of certain performance criteria, which are predefined by the Compensation Committee of the Board of Directors at the time of grant. The primary performance criteria used is compound annual growth in economic profit over a predefined performance period, which is generally three years. The compound annual growth in economic profit, which is adjusted for certain items, is approved and certified by the Audit Committee of the Board of Directors. The purpose of these adjustments is to ensure a consistent year to year comparison of the specific performance criteria. Economic profit is our net operating profit after tax less the cost of the capital used in our business. In the event the certified results equal the predefined performance criteria, the Company will grant the number of restricted shares or share units equal to the target award in the underlying performance share unit agreements. In the event the certified results exceed the predefined performance criteria, additional restricted shares or share units up to the maximum award may be granted. In the event the certified results fall below the predefined performance criteria, a reduced number of restricted shares or share units may be granted. If the certified results fall below the threshold award performance level, no restricted shares or share units will be granted. The restricted shares or share units granted under this program are then generally subject to a holding period before the restricted shares or share units are released. For performance share units granted before 2008, this holding period was generally two years. For performance share units granted in 2008 and after, this holding period is generally one year. Restrictions on such shares or share units lapse at the end of the holding period. Performance share units generally do not pay dividends or allow voting rights during the performance period. For awards granted prior to 2011, participants generally are entitled to dividends or dividend equivalents once the performance criteria have been certified and the restricted shares or share units have been issued. For awards granted in 2011 and later, participants generally are entitled to receive dividends or dividend equivalents once the shares have been released. Accordingly, the fair value of the performance share units is the quoted market value of the Company stock on the grant date less the present value of the expected dividends not received during the relevant period. For certain performance share units granted beginning in 2014, the Company includes a relative TSR modifier to determine the number of restricted shares or share units earned at the end of the performance period. For these awards, the number of restricted shares or share units earned based on the certified achievement of the predefined performance criteria will be reduced or increased if total shareowner return over the performance period relative to a predefined compensation comparator group of companies falls outside of a defined range. The fair value of performance share units that include the TSR modifier is determined using a Monte Carlo valuation model.

In the period it becomes probable that the minimum performance criteria specified in the plan will be achieved, we recognize expense for the proportionate share of the total fair value of the performance share units related to the vesting period that has already lapsed for the shares expected to vest and be released. The remaining fair value of the shares expected to vest and be released is expensed on a straight-line basis over the balance of the vesting period. In the event the Company determines it is no longer probable that we will achieve the minimum performance criteria specified in the plan, we reverse all of the previously recognized compensation expense in the period such a determination is made.

Performance share units are generally settled in stock, except for certain circumstances such as death or disability, in which case former employees or their beneficiaries are provided a cash equivalent payment. As of December 31, 2014, performance share units of 6,017,000, 5,608,000 and 5,801,000 were outstanding for the 2012–2014, 2013–2015 and 2014–2016 performance periods, respectively, based on the target award amounts in the performance share unit agreements.

The following table summarizes information about performance share units based on the target award amounts in the performance share unit agreements:



	Share Units (In thousands)		Weighted-Average Grant Date Fair Value
Outstanding on January 1, 2014	17,974		$	30.41
Granted	6,117		32.33
Paid in cash equivalent	(5	)	30.59
Canceled/forfeited	(6,660	)	29.11
Outstanding on December 31, 2014¹	17,426		$	31.59


¹	The outstanding performance share units as of December 31, 2014, at the threshold award and maximum award levels were 8.7 million and 26.1 million, respectively.

The weighted-average grant date fair value of performance share units granted was $32.33 in 2014, $32.67 in 2013 and $29.95 in 2012. The Company converted performance share units of 5,403 in 2014, 54,999 in 2013 and 16,267 in 2012 to cash equivalent payments of $0.2 million, $1.8 million and $0.6 million, respectively, to former employees who were ineligible for restricted stock grants due to certain events such as death or disability.

The following table summarizes information about nonvested restricted stock and stock units:



	Restricted Stock and Stock Units (In thousands)		Weighted-Average Grant Date Fair Value¹
Nonvested on January 1, 2014²	7,014		$	25.17
Vested and released	(6,774	)	25.17
Canceled/forfeited	(110	)	25.17
Nonvested on December 31, 2014²	130		$	25.17


¹	The weighted-average grant date fair value is based on the fair values of the performance share units granted.


²	The nonvested restricted stock and stock units as of January 1, 2014, and December 31, 2014, are presented at the performance share units' certified award level.

The total intrinsic value of restricted shares that were vested and released was $255 million, $16 million and $148 million in 2014, 2013 and 2012, respectively. The total restricted share units vested and released in 2014 were 6,773,934 at the certified award level. In 2013 and 2012, the total restricted share units vested and released were 405,963 and 4,301,732, respectively.

Replacement performance share unit awards issued by the Company in connection with our acquisition of CCE's former North America business are not included in the tables or discussions above and were originally granted under the Coca-Cola Enterprises Inc. 2007 Incentive Award Plan. These awards were converted into equivalent share units of the Company's common stock on the acquisition date and entitle the participant to dividend equivalents (which vest, in some cases, only if the restricted share units vest), but not the right to vote. Accordingly, the fair value of these units was the quoted value of the Company's stock at the grant date.

On the acquisition date, the Company issued 3.3 million replacement performance share unit awards at target with a weighted-average grant date price of $29.56 per share that were either projected to pay out at, or previously certified at, a payout rate of 200 percent. In accordance with accounting principles generally accepted in the United States, the portion of the fair value of the replacement awards related to services provided prior to the acquisition was included in the total purchase price. The portion of the fair value associated with future service was recognized as expense in the fourth quarter of 2010. The Company released shares with an intrinsic value of $5 million and $22 million in 2013 and 2012, respectively. As of December 31, 2014, the Company had no remaining outstanding replacement performance share units.

Time-Based and Performance-Based Restricted Stock and Restricted Stock Unit Awards

The Coca-Cola Company 1989 Restricted Stock Award Plan allows for the grant of time-based and performance-based restricted stock and restricted stock units. The performance-based restricted awards are released only upon the achievement of specific measurable performance criteria. These awards pay dividends during the performance period. If the performance targets are not met, the awards will be canceled. In the period it becomes probable that the performance criteria will be achieved, we recognize expense for the proportionate share of the total fair value of the shares expected to vest and be released related to the vesting period that has already lapsed. The remaining fair value of the shares expected to vest and be released is expensed on a straight-line basis over the balance of the vesting period.

For time-based and performance-based restricted stock awards, participants are entitled to vote and receive dividends on the restricted shares. The Company also awards time-based and performance-based restricted stock units for which participants may receive payments of dividend equivalents but are not entitled to vote. As of December 31, 2014, the Company had outstanding nonvested time-based and performance-based restricted stock awards, including restricted stock units, of 571,399 and 57,200, respectively. Time-based and performance-based restricted stock awards were not significant to our consolidated financial statements.

In 2010, the Company issued time-based restricted stock replacement awards, including restricted stock units, in connection with our acquisition of CCE's former North America business. These awards were converted into equivalent shares of the Company's common stock. These restricted share awards entitle the participant to dividend equivalents (which vest, in some cases, only if the restricted share unit vests), but not the right to vote. As of December 31, 2014, the Company had no outstanding nonvested time-based restricted stock replacement awards, including restricted stock units.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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