1
EXHIBIT 99.1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COCA-COLA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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(In millions except per share data) 1993 1992 1991
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NET OPERATING REVENUES $5,465 $5,127 $3,915
Cost of sales (includes purchases from The Coca-Cola Company of
approximately $1,392, $1,308 and $949) 3,372 3,219 2,420
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GROSS PROFIT 2,093 1,908 1,495
Selling, general and administrative expenses 1,708 1,602 1,223
Provision for restructuring -- -- 152
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OPERATING INCOME 385 306 120
Interest expense, net 328 312 210
Other nonoperating deductions, net 2 6 2
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INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 55 (12) (92)
Income taxes:
Expense (benefit) excluding rate change 30 3 (9)
Rate change -- federal 40 -- --
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INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (15) (15) (83)
Cumulative effect of accounting changes:
Postretirement benefits (net of income taxes of $91) -- (148) --
Income taxes -- (23) --
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NET INCOME (LOSS) (15) (186) (83)
Preferred stock dividend requirements -- -- 9
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NET INCOME (LOSS) APPLICABLE TO COMMON SHARE OWNERS $ (15) $ (186) $ (92)
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AVERAGE COMMON SHARES OUTSTANDING 129 129 116
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PER SHARE DATA:
Income (loss) before cumulative effect of accounting changes $(0.11) $(0.11) $(0.71)
Cumulative effect of accounting changes:
Postretirement benefits -- (1.15) --
Income taxes -- (0.18) --
Preferred stock dividends -- -- (0.08)
Net income (loss) applicable to common share owners (0.11) (1.45) (0.79)
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
2
COCA-COLA ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31,
-------------------
(In millions except share data) 1993 1992
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ASSETS
CURRENT
Cash and cash equivalents, at cost (approximates market) $ 11 $ 6
Amounts due from The Coca-Cola Company 13 12
Trade accounts receivable, less allowances of $33 and $31, respectively 442 391
Inventories 200 212
Prepaid expenses and other assets 80 80
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Total Current Assets 746 701
PROPERTY, PLANT AND EQUIPMENT
Land 163 179
Buildings and improvements 622 594
Machinery and equipment 2,132 1,851
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2,917 2,624
Less allowances for depreciation 1,121 973
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1,796 1,651
Construction in progress 94 82
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1,890 1,733
FRANCHISE AND OTHER NONCURRENT ASSETS 6,046 5,651
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$8,682 $8,085
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
COCA-COLA ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31,
-------------------
1993 1992
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LIABILITIES AND SHARE-OWNERS' EQUITY
CURRENT
Accounts payable and accrued expenses $ 699 $ 682
Current maturities of long-term debt 308 622
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Total Current Liabilities 1,007 1,304
LONG-TERM DEBT 4,083 3,509
DEFERRED INCOME TAXES 1,831 1,567
OTHER LONG-TERM OBLIGATIONS 501 451
SHARE-OWNERS' EQUITY
Preferred stock, $35 stated value -- Authorized - 1,000,000 shares;
Issued - 1,000,000 shares in 1993 29 --
Common stock, $1 par value -- Authorized - 500,000,000 shares;
Issued - 142,182,183 shares and 141,569,162 shares, respectively 142 142
Paid-in capital 1,280 1,267
Reinvested earnings 9 32
Cumulative translation adjustment (3) --
Common stock in treasury, at cost (13,004,598 shares and
12,228,298 shares, respectively) (197) (187)
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1,260 1,254
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$8,682 $8,085
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4
COCA-COLA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY
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CUMULATIVE SHARE-
THREE YEARS ENDED DECEMBER 31, 1993 PREFERRED COMMON PAID-IN REINVESTED TRANSLATION TREASURY OWNERS'
(In millions except per share data) STOCK STOCK CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
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BALANCE DECEMBER 28, 1990 $ 250 $141 $ 1,263 $ 382 $-- $ (409) $ 1,627
Issuance of shares to effect merger -- -- (2) (59) -- 222 161
Redemption of preferred stock (250) -- -- -- -- -- (250)
Exercise of employee stock options -- -- 2 -- -- -- 2
Issuance of shares under stock award
plan -- -- 2 -- -- -- 2
Unamortized cost of restricted
shares issued -- -- (1) -- -- -- (1)
Dividends on preferred stock
(per share -- $3,983.49) -- -- -- (10) -- -- (10)
Dividends on common stock
(per share -- $0.05) -- -- -- (6) -- -- (6)
Net loss -- -- -- (83) -- -- (83)
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BALANCE DECEMBER 31, 1991 -- 141 1,264 224 -- (187) 1,442
Issuance of shares under stock award
plan -- 1 11 -- -- -- 12
Unamortized cost of restricted
shares issued -- -- (12) -- -- -- (12)
Amortization of restricted shares
cost -- -- 4 -- -- -- 4
Dividends on common stock
(per share -- $0.05) -- -- -- (6) -- -- (6)
Net loss -- -- -- (186) -- -- (186)
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BALANCE DECEMBER 31, 1992 -- 142 1,267 32 -- (187) 1,254
Issuance of shares under stock award
plan -- -- 6 -- -- -- 6
Unamortized cost of restricted
shares issued -- -- (6) -- -- -- (6)
Amortization of restricted shares
cost -- -- 2 -- -- -- 2
Conversion of executive deferred
compensation to equity -- -- 9 -- -- -- 9
Purchase of common stock for
treasury -- -- -- -- -- (17) (17)
Issuance of preferred stock to
effect acquisition 29 -- -- -- -- -- 29
Issuance of treasury stock to effect
acquisition -- -- -- (2) -- 7 5
Exercise of employee stock options -- -- 2 -- -- -- 2
Translation adjustments -- -- -- -- (3) -- (3)
Dividends on common stock
(per share -- $0.05) -- -- -- (6) -- -- (6)
Net loss -- -- -- (15) -- -- (15)
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BALANCE DECEMBER 31, 1993 $ 29 $142 $ 1,280 $ 9 $(3) $ (197) $ 1,260
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
COCA-COLA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In millions) 1993 1992 1991
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (15) $ (186) $ (83)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Cumulative effect of accounting changes -- 171 --
Depreciation 254 227 160
Amortization 165 162 91
Deferred income taxes 60 (21) (16)
Changes in current assets and current liabilities 22 (116) 72
Other nonoperating cash flows 7 42 37
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Net cash provided by operating activities 493 279 261
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (353) (291) (238)
Proceeds from the sale of property, plant and equipment 19 20 16
Acquisitions of companies, net of cash acquired (amounts paid to
The Coca-Cola Company were $260, $11 and $81) (287) (27) (222)
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Net cash used in investing activities (621) (298) (444)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of debt 822 2,218 1,091
Payments on debt (668) (2,251) (580)
Redemption of preferred stock -- -- (250)
Purchase of treasury stock (17) -- --
Dividends on common and preferred stock (6) (6) (16)
Proceeds from issuance of common stock 2 -- 2
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Net cash provided by (used in) financing activities 133 (39) 247
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
DURING THE YEAR 5 (58) 64
Cash and cash equivalents at beginning of year 6 64 --
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CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11 $ 6 $ 64
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS AND OWNERSHIP
The Company operates in a single industry segment, which encompasses the
manufacture, distribution and marketing of liquid nonalcoholic refreshments
under rights to acquired franchise territories. The Coca-Cola Company owns
approximately 44% of the Company's outstanding common shares.
PRINCIPAL ACCOUNTING POLICIES
Significant accounting policies and practices of the Company follow:
Basis of Presentation: The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
The fiscal years presented are the fiscal periods ended December 31, 1993,
1992 and 1991. Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
Net Income (Loss) Per Common Share: Net income (loss) per common share is
computed by dividing net income (loss) less dividends on preferred stock by the
weighted average number of common shares outstanding.
Cash Equivalents: Cash equivalents include all highly liquid debt
instruments purchased with original maturities of less than three months.
Concentrations of Credit Risk: The Company sells products to chain store
and other customers and extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables varies by customer principally due to the financial condition of
each customer. The Company monitors exposure to credit losses and maintains
allowances for anticipated losses.
Inventories: Inventories are valued at the lower of cost or market. Cost
is computed principally on the last-in, first-out (LIFO) method.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost, less allowances for depreciation. Depreciation expense is determined
principally by the straight-line method. The annual rates of depreciation are 3%
to 5% for buildings and improvements and 7% to 34% for machinery and equipment.
The Company capitalizes, as land improvements, certain environmental remediation
costs which improve the condition of the property as compared to the condition
when constructed or acquired.
Franchise Assets: The Company operates under franchise agreements with The
Coca-Cola Company and certain other licensors of beverage products. These
agreements establish performance obligations as to production, distribution and
marketing arrangements. The majority of such agreements are perpetual in nature
and reflect a long and ongoing relationship with The Coca-Cola Company and other
franchisors. The Company has one nonperpetual franchise agreement with The
Coca-Cola Company covering our Netherlands operations. This is a result of the
fact that The Coca-Cola Company's franchises outside of the United States are
not perpetual.
Given the Company's historical relationship with The Coca-Cola Company and
The Coca-Cola Company's equity ownership of approximately 44% in the Company,
management of the Company believes this agreement will continue to be renewed
upon expiration and that the economic period of benefit is ongoing. Franchise
assets, stated at cost, are amortized on a straight-line basis over the
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COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum allowed estimated periods to be benefitted (principally 40 years).
Accumulated amortization amounted to $738 million and $577 million at December
31, 1993 and 1992, respectively.
Impairment of Long-Lived Assets: In the event facts and circumstances
suggest that the cost of franchise assets or other assets may be impaired, an
assessment of recoverability would be performed. If the estimated future cash
flows associated with an asset were less than the carrying amount of the asset,
an impairment write-down to a market value or discounted cash flow value would
be required.
Foreign Currency: The Company uses the local currency of Dutch florins as
the functional currency of its Netherlands operations. Accordingly, assets and
liabilities of the Netherlands subsidiary are translated into dollars at the
rate of exchange in effect at the balance sheet date. Income and expense items
are translated at the monthly average exchange rates prevailing during the year.
The cumulative translation adjustment is included in a separate component of
share-owners' equity.
Hedging Instruments: The Company is party to a variety of interest rate
swaps, short positions in interest rate futures and foreign currency option
contracts in the management of interest rate and foreign currency exposures. The
interest differential related to interest rate swap agreements is recognized as
an adjustment of interest expense. Foreign currency options were not significant
at December 31, 1993. Realized and unrealized gains and losses on all financial
instruments designated and effective as hedges of interest rate exposure are
deferred and recognized as increases or decreases to interest expense over the
periods the hedged liabilities are outstanding.
Marketing Costs: The Company participates in various advertising and
marketing programs, some with The Coca-Cola Company. Certain costs incurred in
connection with these programs are reimbursed by The Coca-Cola Company. All
unreimbursed costs related to marketing and advertising the Company's products
are expensed in the period incurred.
Postretirement Benefits Other Than Pensions: In 1992, the Company adopted
Statement of Financial Accounting Standards No. 106 ("FAS 106"), a method of
accounting for postretirement benefits by accrual of the costs of such benefits
during the periods employees provide service to the Company. The Company
previously accounted for such costs as expense when incurred. The effect on
years prior to 1992, representing that portion of future retiree benefit costs
related to past service of both active and retired employees at the date of
adoption, has been reported as the cumulative effect of an accounting change and
such prior periods have not been restated.
Income Taxes: In 1992, the Company changed its method of accounting for
income taxes from the deferred method under Accounting Principles Board
Statement No. 11 to the liability method by adopting Statement of Financial
Accounting Standards No. 109 ("FAS 109"). Financial statements for periods prior
to 1992 have not been restated for the effects of adopting FAS 109. The effect
on prior years of adopting FAS 109 has been reported as the cumulative effect of
an accounting change. FAS 109 requires that deferred tax liabilities and assets
be established based on the difference between the financial statement and
income tax bases of assets and liabilities using existing tax rates.
ACQUISITIONS AND DIVESTITURES
The Company has the right to produce, distribute and market the soft drink
products of The Coca-Cola Company and/or other soft drink products in the
territories of acquired operations. Under the purchase method of accounting, the
results of operations of acquired companies are included in the consolidated
statements of operations of the Company as of their acquisition date. The assets
and liabilities of acquired companies are included in the Company's consolidated
8
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance sheet at their estimated fair values on date of purchase based on a
preliminary allocation of the purchase price.
On June 30, 1993, the Company acquired, from The Coca-Cola Company, the
stock of (i) Coca-Cola Beverages Nederland B.V. in the Netherlands ("CCBN");
(ii) Roddy Coca-Cola Bottling Company, Inc. ("Roddy") in Knoxville, Tennessee;
and (iii) Coca-Cola Bottling Company of Johnson City ("JC"), in Johnson City,
Tennessee for an aggregate purchase price of approximately $366 million in cash
and assumed debt. The transaction was accounted for under the purchase method.
In December 1991, the Company acquired the Johnston Coca-Cola Bottling
Group, Inc. ("Johnston"), the second largest bottler of soft drink products of
The Coca-Cola Company in the United States. Johnston's territories, with a
population estimated at approximately 28 million or 11% of the U.S. population,
were located principally in the Midwestern United States. All of the outstanding
Johnston common stock was acquired in exchange for the issuance from treasury of
13.438 million shares of the Company's common stock and the payment of
approximately $196 million in cash in a transaction accounted for under the
purchase method.
Assuming the Johnston bottling operations had been acquired as of January
1, 1991, and the CCBN/Roddy/JC acquisition occurred as of January 1, 1992,
unaudited pro forma results of operations are as follows (in millions except per
share amounts):
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1993 1992 1991
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NET OPERATING REVENUES $5,667 $5,538 $5,027
Cost of Sales 3,535 3,547 3,170
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GROSS PROFIT 2,132 1,991 1,857
Selling, general and administrative expenses 1,741 1,670 1,535
Provision for restructuring -- -- 152
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OPERATING INCOME 391 321 170
Interest expense, net 334 325 312
Other nonoperating deductions, net 2 7 3
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INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 55 (11) (145)
Income taxes:
Expense (benefit) excluding rate change 30 4 (17)
Rate change -- federal 40 -- --
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INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (15) (15) (128)
Cumulative effect of accounting changes -- (171) --
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NET INCOME (LOSS) (15) (186) (128)
Preferred stock dividend requirements -- -- 9
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NET INCOME (LOSS) APPLICABLE TO COMMON SHARE OWNERS $ (15) $ (186) $ (137)
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Income (Loss) Before Cumulative Effect of Accounting Changes
Per Common Share $(0.11) $(0.11) $(0.99)
Net Income (Loss) Applicable to Common Share Owners Per Share (0.11) (1.45) (1.06)
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Depreciation $ 266 $ 248 $ 205
Amortization 172 175 125
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The foregoing summary pro forma financial information reflects adjustments
for the CCBN/Roddy/JC acquisition to give effect to (i) interest expense on
acquisition financing through issuance of commercial paper at an annual interest
rate of 3.8% for 1992 and 3.1% for the
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COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preacquisition period of 1993; (ii) repayment of assumed debt; (iii)
amortization of the franchise assets acquired in the acquisition; and (iv) the
income tax effect of such pro forma adjustments.
The foregoing also reflects adjustments for the Johnston acquisition to
give effect to (i) interest expense on acquisition financing at an estimated
annual interest rate of 8.4%; (ii) issuance from treasury of 13.438 million
shares of the Company's common stock; (iii) amortization of the franchise asset;
(iv) the effect of adjusting debt assumed from Johnston for terms anticipated
for such debt to remain outstanding and to an effective annual interest rate of
approximately 7.8%; (v) elimination of the gain recognized by the Company from
the sale of its Ohio operations to Johnston in June 1990; and (vi) the income
tax effect of such pro forma adjustments.
Also in separate transactions in 1993, the Company acquired bottling
operations in Arkansas and an architectural design and facility engineering
company. The aggregate purchase price for these acquisitions, accounted for
under the purchase method, approximated $60 million in common stock, preferred
stock and debt.
In separate transactions in 1992, the Company acquired bottling operations
in Quincy, Illinois; Manchester, Georgia; Erie, Pennsylvania; and Laredo, Texas.
The aggregate purchase price of these acquisitions, accounted for under the
purchase method, approximated $40 million in cash and debt.
In separate transactions in 1991, the Company acquired bottling operations
in Ukiah, California; Jasper, Texas; Westminster, Annapolis and Cambridge,
Maryland; and Dover, Delaware. The aggregate purchase price of these
acquisitions, accounted for under the purchase method, approximated $55 million
in cash and debt. Also in 1991, the Company sold its right to produce,
distribute and market Dr Pepper and Barq's soft drinks in Jackson, Tennessee for
approximately $3 million, resulting in a pretax gain of approximately $1
million.
INVENTORIES
Inventories are comprised of the following (in millions):
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DECEMBER 31,
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1993 1992
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Finished goods $134 $127
Raw materials 48 74
Other 20 21
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202 222
Less LIFO reserve 2 10
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$200 $212
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10
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following (in
millions):
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DECEMBER 31,
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1993 1992
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Trade accounts payable $185 $263
Deposits on containers and shells 53 21
Accrued advertising payable 98 78
Accrued compensation payable 78 71
Accrued insurance payable 62 68
Accrued interest payable 98 95
Other accrued expenses 125 86
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$699 $682
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LONG-TERM DEBT
Long-term debt including current maturities consists of the following (in
millions):
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DECEMBER 31,
---------------
1993 1992
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Commercial Paper $ 522 $ 197
8.00% and 8.20% Notes, due 1993 -- 500
8.20% Notes, due 1994 243 243
8.35% Notes, due 1995 250 250
6.50% and 7.875% Notes, due 1997 550 550
7.00% Notes, due 1999 200 200
7.875% Notes, due 2002 500 500
8.00% Notes, due 2005 250 --
8.50% Debentures, due 2012 250 250
8.75% Debentures, due 2017 154 154
8.00% and 8.50% Debentures, due 2022 1,000 1,000
6.75% Debentures, due 2023 250 --
Other long-term obligations 222 287
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$4,391 $4,131
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Maturities of long-term debt for the five fiscal years subsequent to
December 31, 1993, are as follows (in millions): 1994 -- $308; 1995 -- $263;
1996 -- $558; 1997 -- $555; and 1998 -- $10.
The Company's commercial paper program is supported by a $1 billion
revolving bank credit agreement maturing in April 1996 and two short-term credit
facilities. There are no borrowings outstanding under these agreements; however,
under the commercial paper program supported by these agreements, an aggregate
$522 million was outstanding at December 31, 1993. The weighted average interest
rates of borrowings under the commercial paper program were approximately 3.2%
and 3.8% for 1993 and 1992, respectively.
Terms of the revolving bank credit agreement and/or the outstanding notes
and debentures include various provisions which, among other things, require the
Company to (i) maintain a defined leverage ratio and (ii) limit the incurrence
of certain liens or encumbrances in excess of defined amounts. None of these
restrictions are presently significant to the Company.
11
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has outstanding certain interest rate swap agreements with
financial institutions. At December 31, 1993, these interest rate swap
agreements change (i) $150 million of the floating rate exposure on commercial
paper to fixed rate exposure and (ii) $500 million of the fixed rate exposure on
the $250 million 8% debentures due 2022 and $250 million of the $750 million
8.5% debentures due 2022 to floating rate exposure. All of the above interest
rate swap agreements were in force at the beginning of 1993 except for the swap
agreement related to the $250 million outstanding on the 8% debentures due 2022.
These swap agreements expire in varying periods from 1994 through 1996, but may
extend through 2023 depending upon interest rates at the initial expiration
date.
In addition, the Company has certain Eurodollar futures contracts with
financial institutions which hedge its floating rate exposure on the interest
rate swap agreements. At December 31, 1993, the Eurodollar futures cover the
following periods: (i) $250 million from December 1993 through September 1994
and (ii) $250 million from March 1994 through June 1996. The adjustment to
market of these Eurodollar futures contracts aggregate unrecognized losses of $5
million as of December 31, 1993. These unrecognized amounts will be decreased or
increased, as appropriate, to the final settlement date of each contract, at
which time amounts will be amortized over the ensuing contract period.
Activities under interest rate swap agreements and Eurodollar futures
contracts have resulted in a decrease in interest expense for 1993 of
approximately $7 million. The Company is exposed to credit losses for periodic
settlements of amounts due under interest rate swaps; however, amounts due under
these agreements were not significant at December 31, 1993.
LEASES
The Company leases office and warehouse space, computer hardware, and
machinery and equipment under lease agreements which expire at various dates
through 2019. At December 31, 1993, future minimum lease payments under
noncancellable operating leases aggregate approximately $44 million. Rent
expense was approximately $25 million, $25 million and $24 million during 1993,
1992 and 1991, respectively.
PREFERRED STOCK
In connection with the 1993 acquisition of the Coca-Cola Bottling Company
of Northeast Arkansas, Inc., the Company issued 1,000,000 shares of nonvoting
convertible preferred stock with a stated value of $35 per share. Each share is
convertible into one share of common stock at any time at the option of the
holder. The preferred stock may be called by the Company at any time for cash
equal to its stated value plus accrued dividends. The preferred stock pays
cumulative cash dividends of 3% per annum for the first five years, 4.29% per
annum for the following five years, adjusting to an annual rate equal to LIBOR
plus 1% thereafter. Adjustment of the stated value of the preferred stock to its
estimated fair value of approximately $29 million results in an annual dividend
cost of approximately 6%.
During 1991, the Company redeemed all of its then existing nonvoting
variable dividend rate preferred stock at book value.
SHARE REPURCHASE
During 1993, the Company repurchased 1,153,900 shares of its common stock
on the open market for an aggregate cost of approximately $17 million. The
repurchased shares represent
12
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additions to treasury stock and are intended, among other things, to replenish
an aggregate 400,000 treasury shares issued to effect an acquisition during
1993.
STOCK OPTIONS AND OTHER STOCK PLANS
The Company's 1992 Restricted Stock Award Plan ("the 1992 Plan") provides
for awards to certain officers and other key employees of the Company of up to
an aggregate 1.5 million shares of the Company's common stock. The 1986
Restricted Stock Award Plan ("the 1986 Plan") provides for awards to certain
officers and other key employees of the Company of up to an aggregate 1 million
shares of the Company's common stock. Awards under both plans vest (i) when a
participant dies, retires or becomes disabled; (ii) when the Compensation
Committee of the Board of Directors elects, in its sole discretion, to remove
certain restrictions; or, with regard to the 1992 Plan, (iii) based on the
attainment of certain market price levels of the Company's stock. Such awards
also entitle the participant to full dividend and voting rights. Shares awarded
under both plans are restricted as to disposition and subject to forfeiture
under certain circumstances. The market value of the shares at the date of grant
is charged to operations ratably over the vesting periods.
In 1992, the Board of Directors of the Company terminated the 1986 Plan,
canceling the remaining 476,000 shares under this plan available for grant.
Restricted shares issued under the 1992 Plan, totalling 22,400 shares were
forfeited in 1993 and returned to treasury. Further information relating to
restricted stock awards follows:
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1993 1992
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Awards available for grant -- beginning of year 648,900 476,000
New awards authorized -- 1,500,000
Available shares terminated -- (476,000)
Shares issued (463,100) (851,100)
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Awards available for grant -- end of year 185,800 648,900
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The Company's 1991 Stock Option Plan (the "Stock Option Plan"), provides
for the granting of nonqualified stock options to officers and certain key
employees. The Stock Option Plan provides that options for 3 million shares of
the Company's common stock may be granted prior to the plan's expiration in
1996. The Company's 1990 Management Stock Option Plan (the "Management Option
Plan") provides for the granting of nonqualified stock options to certain key
employees. The Management Option Plan provides that options for 2 million shares
of the Company's common stock may be granted. Options awarded under the Stock
Option Plan and the Management Option Plan (i) are generally granted at prices
which equate to or are above fair market value on the date of grant; (ii) become
exercisable over either a three or four year period; and (iii) expire ten years
subsequent to award.
13
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in options outstanding at December 31, 1993 were various options
granted under previous plans with similar terms. Further information relating to
options follows:
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1993 1992
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Options outstanding at beginning of year 5,680,333 4,128,067
Options granted 1,109,900 1,885,800
Options exercised (149,921) --
Options canceled (598,545) (333,534)
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Options outstanding at end of year 6,041,767 5,680,333
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Options exercisable at end of year
(Option price -- $13.125 to $18.50 per share) 3,034,534 3,230,828
- ---------------------------------------------------------------------------------------------
Shares available for future grant 286,500 1,396,400
- ---------------------------------------------------------------------------------------------
On initial offering of stock to the public, each of the seven directors who
was not an officer of the Company or The Coca-Cola Company was awarded options
to acquire up to 1,500 shares of common stock and certain officers of the
Company were granted options to purchase 245,000 shares of the Company's common
stock at $16.50 per share (the initial public offering price). Since that time,
new directors, upon election, who were not an officer of the Company or The
Coca-Cola Company were awarded options to acquire up to 1,500 shares of common
stock at $16.50 per share. Options to purchase 198,000 shares under this plan
have subsequently been canceled, and 15,000 options have been exercised.
Currently exercisable options with rights totaling 45,500 shares remain
outstanding and will expire in November 1996.
In 1991, the Company adopted the Stock Appreciation Rights Plan (the "SAR
Plan") which provides for the award of an aggregate 1 million stock appreciation
rights ("units") to qualified participants prior to the SAR Plan's expiration in
1996. Each unit entitles the holder to receive cash based on the difference
between the market value of a share of the Company's common stock on the date of
award and the fair market value of such stock on the date of exercise. Included
in stock appreciation rights outstanding at December 31, 1993 are various units
awarded under a prior plan with similar terms. In 1992, units available for
future grants under all stock appreciation rights plans were terminated.
Further information relating to stock appreciation rights follows:
- ---------------------------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------------------------
Units outstanding at beginning of year 1,070,572 1,076,580
Units granted -- --
Units exercised (58,027) --
Units canceled (134,168) (6,008)
- ---------------------------------------------------------------------------------------------
Units outstanding at end of year
(Base value -- $14.50 to $17.50 per unit) 878,377 1,070,572
- ---------------------------------------------------------------------------------------------
PENSION AND CERTAIN BENEFIT PLANS
The Company sponsors various pension plans and participates in certain
multiemployer pension plans covering substantially all U.S. employees. The
benefits related to company-sponsored plans are based on years of service and
compensation earned during years of employment. The Company's funding policy is
to contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such
14
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional amounts as management may determine to be appropriate but within
applicable legal limits. These qualified defined benefit plans sponsored by the
Company are insured by the Pension Benefit Guaranty Corporation ("PBGC"). The
Company also sponsors several unfunded nonqualified defined benefit plans
covering certain officers and other employees.
Total pension expense amounted to approximately $19 million (including $6
million for multiemployer plans) in 1993 and 1992, and $14 million (including $5
million for multiemployer plans) in 1991.
Net periodic pension cost for company-sponsored defined benefit plans
included the following (in millions):
- --------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------
Service cost -- benefits earned during the period $ 19 $ 14 $ 10
Interest cost on projected benefit obligation 29 29 23
Actual return on assets (61) (36) (61)
Net amortization and deferral 26 6 37
- --------------------------------------------------------------------------------------------
Net periodic pension cost $ 13 $ 13 $ 9
- --------------------------------------------------------------------------------------------
The following table sets forth the funded status of domestic
company-sponsored plans and amounts recognized by the Company, segregated by
(i) plans whose assets exceed the accumulated benefit obligation ("ABO") and
(ii) plans whose ABO exceeds assets (in millions):
- ------------------------------------------------------------------------------------------
PBGC INSURED PLANS OTHER PLANS
----------------------------------- -----------------
1993 1992 1993 1992
---------------- ---------------- ------- -------
ASSETS ABO ASSETS ABO ABO ABO
EXCEED EXCEEDS EXCEED EXCEEDS EXCEEDS EXCEEDS
ABO ASSETS ABO ASSETS ASSETS ASSETS
- ------------------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $(303) $ (22) $(212) $ (50) $ (13) $ (12)
- ------------------------------------------------------------------------------------------
Accumulated benefit obligation $(325) $ (25) $(248) $ (54) $ (13) $ (14)
- ------------------------------------------------------------------------------------------
Projected benefit obligation $(367) $ (25) $(311) $ (64) $ (14) $ (19)
Plan assets at fair value,
primarily listed stocks, bonds
and government securities 402 18 321 46 -- --
- ------------------------------------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit
obligation 35 (7) 10 (18) (14) (19)
Unrecognized net (gain) loss (14) 3 20 3 4 4
Unrecognized prior service cost (12) 2 1 2 (9) --
Unrecognized net transition
(asset) liability and other (12) -- (13) 1 2 2
- ------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost
included in the balance sheet $ (3) $ (2) $ 18 $ (12) $ (17) $ (13)
- ------------------------------------------------------------------------------------------
The weighted average discount rate utilized in determining the actuarial
present value of the projected benefit obligation as of the respective valuation
dates was 7.5% and 8.25% in 1993 and 1992, respectively. The weighted average
rate of increase in future compensation was 5.5% and 6%
15
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in 1993 and 1992, respectively. The expected long-term rate of return on plan
assets was 8.5%, 9.5% and 9% in 1993, 1992 and 1991, respectively.
CCBN participates in a multiemployer pension plan covering a majority of
its employees. CCBN also sponsors a supplemental defined benefit plan for
certain employees. At December 31, 1993, the accumulated benefit obligation for
the supplemental plan was $9 million, the projected benefit obligation was $17
million and plan assets were $17 million. CCBN also sponsors an unfunded
voluntary early retirement plan for certain employees allowing early retirement
at age 60. At December 31, 1993, the accumulated benefit obligation, which has
been fully accrued, was $5 million and the projected benefit obligation was $6
million.
In addition to the defined benefit plans described above, the Company also
sponsors a qualified defined contribution plan covering all full-time nonunion
employees in the United States. The Company matches 50% of a participant's
voluntary contributions up to a maximum of 6% of a participant's compensation.
The Company's contribution expense was approximately $10 million in 1993 and
1992, and $9 million in 1991.
POSTRETIREMENT BENEFIT PLANS
The Company sponsors various unfunded defined benefit postretirement plans
that provide health care and life insurance benefits to substantially all
nonunion and certain union retirees who retire with a minimum period of service.
Adoption of FAS 106 during 1992 changed the Company's method of accounting for
such postretirement benefits as an expense when claims were incurred to accrual
of the costs of such benefits during the periods employees provide service to
the Company.
The Company immediately recognized the transition obligation of adopting
FAS 106. The effect on years prior to 1992 of adopting FAS 106, representing
that portion of unrecognized future retiree benefit costs related to past
service of both active and retired employees as of the date of adoption, has
been reported as the cumulative effect of an accounting change and prior periods
have not been restated. The cumulative effect of adopting FAS 106 as of January
1, 1992 decreased net income by approximately $148 million (net of income taxes
of $91 million) or $1.15 per common share.
In the first quarter of 1993, the Company completed the redesign and
consolidation of its postretirement benefit plans by amending the plans then in
effect. The effect of plan amendments was to decrease the accumulated
postretirement benefit obligation at January 1, 1993 from approximately $312
million to $164 million, resulting in $148 million of excess prior service cost,
and to reduce the full-year 1993 postretirement benefits expense by
approximately $31 million. The excess prior service cost is being amortized over
the average service life of plan participants, approximately 17 years.
16
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's balance sheets at December 31, 1993 and 1992
(in millions):
- --------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $105 $108
Fully eligible active plan participants 11 32
Other active plan participants 63 172
- --------------------------------------------------------------------------------------------
179 312
Unamortized excess prior service cost asset 140 --
Unrecognized net loss (2) --
- --------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $317 $312
- --------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost for 1993 and 1992 includes the
following components (in millions):
- --------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------
Service cost attributed to service during the year $ 6 $14
Interest cost on accumulated postretirement benefit obligation 14 24
Amortization of unrecognized excess prior service cost (9) --
- --------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $11 $38
- --------------------------------------------------------------------------------------------
Actuarial assumptions used in determining the postretirement benefit cost
and the accumulated postretirement benefit obligation include a discount rate of
7.5% and 8.5% and an average rate of increase in future compensation of 5.5% and
6%, in 1993 and 1992, respectively. The assumed weighted average annual rate of
increase in the per capita cost of covered benefits (the health care cost trend
rate) was 15% pre-Medicare and 11% post-Medicare for 1993 and 1992, decreasing
to 6% by the year 2052 and remaining at that level thereafter. However, the
postretirement benefit plan, as amended effective January 1, 1993, is a "defined
dollar benefit plan" which limits the effect of medical inflation to a maximum
of 4% per year after 1996. Because the amended postretirement medical plan has
established dollar limits for determining company contributions, the effect of a
1% increase in the assumed health care cost trend rates is not significant.
PROVISION FOR RESTRUCTURING
The Company recognized in the fourth quarter of 1991 a $152 million ($0.86
per common share) provision for restructuring related primarily to the
standardization of information systems, reconfiguration of sales and
distribution centers, and severance and relocation costs associated with
decentralizing the Company's organizational structure and eliminating redundant
staff and operating positions.
INCOME TAXES
On August 10, 1993, the Omnibus Budget Reconciliation Act was signed into
law. The Company was affected principally by the increase in the corporate
marginal income tax rate from 34% to 35%. Under FAS 109, the Company's deferred
income taxes were adjusted to reflect the effect of the new rate. This
adjustment resulted in a one-time charge of approximately $40 million ($0.31 per
common share) to increase the Company's deferred tax liability existing at the
date of enactment for the effect of the rate change. Additionally, the Company's
annual estimated effective tax rate was
17
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increased by an amount approximating the 1% marginal rate increase. Other
components of the new law are not expected to have a material impact on the
financial position or results of operations of the Company.
Application of FAS 109 decreases pretax income and decreases income tax
expense in both 1992 and 1993 by approximately $38 million as a result of
amortization of the increased franchise asset. This increased amortization
results from the requirement to report assets acquired in prior business
combinations at their pretax amounts, eliminating the impact of nondeductible
amortization from the computation of income tax expense under the new accounting
standard.
During 1987, the Company filed elections under Section 338 of the Internal
Revenue Code, relating to various bottling companies acquired in 1986. Tax
operating loss carryforwards aggregating approximately $943 million have arisen
principally from the additional tax deductions resulting from such elections.
These carryforwards are available to offset future federal taxable income
through their expiration in varying amounts aggregating $5 million in 1996
through 1998; $279 million in 1999 through 2003; and $659 million in 2004
through 2008.
A deferred tax asset is recognized for the tax benefit of deductible
temporary differences and net operating loss and tax credit carryforwards. A
valuation allowance is recognized if it is "more likely than not" that some or
all of the deferred tax asset will not be realized. Management believes that the
future reversal of existing taxable temporary differences provides evidence that
the majority of deferred tax assets will be realized. A valuation allowance of
$105 million, $86 million and $77 million as of December 31, 1993, 1992 and
January 1, 1992, respectively, was established for the remaining deferred tax
assets. Upon realization, the tax benefit for net operating loss carryforwards
of acquired companies for which a valuation allowance has been established will
be applied to reduce recorded franchise values. Net operating loss carryforwards
of acquired companies were approximately $59 million at December 31, 1993.
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1993 and 1992 are as follows (in millions):
- --------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------
Deferred tax liabilities:
Franchise assets $2,210 $1,894
Property, plant and equipment 180 164
- --------------------------------------------------------------------------------------------
Total deferred tax liabilities 2,390 2,058
- --------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards (378) (335)
Employee and retiree benefit accruals (186) (166)
Restructuring reserves (31) (35)
Long-term debt (4) (11)
Other, net (65) (30)
- --------------------------------------------------------------------------------------------
Total deferred tax assets (664) (577)
Valuation allowance for deferred tax assets 105 86
- --------------------------------------------------------------------------------------------
Net deferred tax liabilities $1,831 $1,567
- --------------------------------------------------------------------------------------------
18
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations, excluding the cumulative effect of accounting changes,
are as follows (in millions):
- ---------------------------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------------------------
Current:
United States
Federal $-- $ 6 $ 2
State and local 9 18 5
Foreign 1 -- --
- ---------------------------------------------------------------------------------------------
Total current provision 10 24 7
- ---------------------------------------------------------------------------------------------
Deferred:
United States
Federal 20 (9) (17)
State and local 2 (12) 1
Rate change -- federal 40 -- --
Foreign (2) -- --
- ---------------------------------------------------------------------------------------------
Total deferred provision 60 (21) (16)
- ---------------------------------------------------------------------------------------------
Total provision for income taxes $70 $ 3 $ (9)
- ---------------------------------------------------------------------------------------------
The current tax provision for 1993 and 1992 represents the amount of income
taxes paid or payable for the year. The deferred tax provision for 1993 and 1992
represents the change in the deferred tax liabilities and assets and, for
business combinations, the change since date of acquisition.
The components of the provision for deferred income taxes for 1991,
computed using the deferred method, are as follows (in millions):
- -------------------------------------------------------------------------------------------
1991
- -------------------------------------------------------------------------------------------
Depreciation $ 13
Amortization 67
Tax net operating losses (42)
Installment gain election for sale of Ohio operations (12)
Accrual to cash adjustments (50)
Alternative minimum tax (1)
Other, net 9
- -------------------------------------------------------------------------------------------
$(16)
- -------------------------------------------------------------------------------------------
19
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the expected income tax expense (benefit) at the
statutory federal rate to the Company's actual income tax provision follows (in
millions):
- ----------------------------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------------------------
Statutory expense (benefit) $19 $(4) $(31)
State income taxes -- net of federal benefit 7 4 4
Nondeductible items 2 1 1
Rate change -- federal 40 -- --
Amortization of franchise assets -- -- 13
Acquisition adjustments -- -- 1
Other, net 2 2 3
- ----------------------------------------------------------------------------------------------
$70 $ 3 $ (9)
- ----------------------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
Long-term debt: The carrying amounts of commercial paper, variable rate
debt and other short-term borrowings approximate their fair values. The fair
values of the Company's long-term debt are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Hedging instruments and warrants: The fair values of the Company's futures
contracts are estimated based on quoted market prices of comparable contracts or
current settlement values. The fair values of the Company's interest rate swaps
and warrants are estimated based on independent valuations from major investment
banks.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1993 are as follows (in millions):
- -------------------------------------------------------------------------------------------------
CARRYING AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 11 $ 11
Long-term debt 4,391 4,783
Futures contracts 5 5
Interest rate swaps -- 5
Warrants -- 58
- -------------------------------------------------------------------------------------------------
The Company does not anticipate any significant refunding activities which
would settle long-term debt at fair value.
RELATED PARTY TRANSACTIONS
The Company and The Coca-Cola Company have entered into various
transactions and agreements related to their respective businesses. Various
significant transactions and agreements entered into between the Company and The
Coca-Cola Company are disclosed in other sections of
20
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the accompanying financial statements and related notes. The following items
represent other transactions between the Company and The Coca-Cola Company, and
its affiliates:
Acquisition: The Coca-Cola Company had an approximate 20% ownership
interest in Johnston. As a result of the acquisition in 1991, The Coca-Cola
Company received 49,892 shares of the Company's common stock and $81 million in
cash, reducing The Coca-Cola Company's ownership in the outstanding common stock
of the Company from approximately 49% to approximately 44%.
Fountain Syrup and Package Product Sales: Certain of the Company's
operations sell fountain syrup to The Coca-Cola Company and deliver this syrup
on behalf of The Coca-Cola Company to certain major or national accounts of The
Coca-Cola Company. In addition, the Company sells bottle/can products to The
Coca-Cola Company at prices that equate to amounts charged by the Company to its
major customers. During 1993, 1992 and 1991, The Coca-Cola Company paid the
Company approximately $220 million, $193 million and $138 million, respectively,
for fountain syrups, bottle/can products and delivery and billing services.
Antitrust Indemnity Agreement: During 1991, The Coca-Cola Company paid the
Company approximately $1 million, pursuant to an agreement which indemnifies the
Company for certain costs, settlements and fines arising out of alleged
antitrust violations which occurred prior to the acquisition of certain bottlers
by the Company. The indemnity period expired January 1, 1993.
Marketing Support Arrangements: The Coca-Cola Company engages in a variety
of marketing programs, local media advertising and other similar arrangements to
promote the sale of products of The Coca-Cola Company in territories operated by
the Company. For 1993, 1992 and 1991, total direct marketing support provided to
the Company or on behalf of the Company by The Coca-Cola Company was
approximately $256 million, $253 million and $199 million, respectively. In
addition, the Company paid an additional $65 million, $63 million and $45
million in 1993, 1992 and 1991, respectively, for local media and marketing
program expense pursuant to a cooperative advertising arrangement with The
Coca-Cola Company.
COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for guarantees of the indebtedness owed
primarily by manufacturing cooperatives of approximately $43 million at December
31, 1993.
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. Generally, the Company is self-insured for certain expected losses
related primarily to workers' compensation, physical loss to property, business
interruption resulting from such loss and comprehensive general, product and
vehicle liability. Provisions for losses expected under these programs are
recorded based upon the Company's estimates of the aggregate liability for
claims incurred. Such estimates utilize certain actuarial assumptions followed
in the insurance industry. The Company has provided letters of credit
aggregating approximately $104 million in connection with self-insurance
programs.
The Company has purchase agreements with various suppliers extending beyond
one year. Subject to the supplier's quality and performance, the purchases
covered by these agreements aggregate approximately $527 million in 1994, $529
million in 1995, $502 million in 1996, $508 million in 1997 and $103 million in
1998.
Federal, state and local laws govern the Company's operation of underground
fuel storage tanks and the required removal, replacement or modification of such
tanks to satisfy regulations which go into effect in varying stages through
1998. Expenditures aggregating $9 million, $8 million
21
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and $25 million were made in 1993, 1992 and 1991, respectively, in a structured
program designed to enhance compliance with such regulations including
regulations governing the environmental discharge of materials. The Company has
completed a majority of its multiyear program for remediation of environmental
contamination. Completion of the Company's remediation program is not expected
to have a material adverse effect on the financial position or results of
operations of the Company.
The Company has been named as a potentially responsible party ("PRP") for
the costs of remediation of hazardous waste at six federal "Superfund" sites in
Arkansas, California, Florida, Minnesota, New Hampshire and Ohio. Under current
law, the Company's liability for clean up of such sites may be joint and several
with other PRP's, regardless of the extent of the Company's use in relation to
other users. In each case, the Company has determined that to the extent that it
has any responsibility for hazardous waste deposited at any site, the amounts of
such deposits are minimal compared to those of other financially responsible
PRP's, and as a result, we believe the Company's ultimate liability will not
have a material effect on its financial position or results of operations.
In 1991, a Complaint was filed against the Company, each of the directors
of the Company and Johnston seeking, among other things, to enjoin the Johnston
acquisition. The Complaint alleges that The Coca-Cola Company, as the holder of
approximately 49% (prior to the Johnston acquisition) of the outstanding common
stock of the Company, owes fiduciary duties of loyalty, care and candor to the
Company and the Company's public share owners and that The Coca-Cola Company
breached its fiduciary duties by exerting influence over the Company in
connection with the acquisition in order to maximize its financial interests at
the expense of the Company and the Company's public share owners. The Complaint
also alleges that the directors of the Company breached their fiduciary duties
to the Company and its public share owners. Management believes that the
Complaint is without merit and its ultimate disposition will not have a material
adverse effect on the financial condition or results of operations of the
Company.
The Company is also involved in various other claims and legal proceedings,
the resolution of which management believes will not have a material adverse
effect on the financial position or results of operations of the Company.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Changes in assets and liabilities, net of effects from acquisitions of
companies, were as follows (in millions):
- --------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------
Trade accounts and other receivables $ 1 $ (30) $ 26
Inventories 28 (16) (14)
Prepaid expenses and other assets 6 (13) 6
Accounts payable and accrued expenses (13) (57) 54
- --------------------------------------------------------------------------------------------
Decrease (Increase) $ 22 $(116) $ 72
- --------------------------------------------------------------------------------------------
Cash payments during the year were as follows (in millions):
- --------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------
Interest $330 $255 $212
Income taxes 10 36 8
- --------------------------------------------------------------------------------------------
22
COCA-COLA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with the acquisitions of bottling companies, liabilities were
assumed as follows (in millions):
- --------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------
Fair value of assets acquired $ 774 $ 48 $1,674
Cash paid (287) (27) (222)
Equity issued (34) -- (161)
Debt issued (1) (15) --
- --------------------------------------------------------------------------------------------
Liabilities assumed $ 452 $ 6 $1,291
- --------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
(Unaudited; in millions except per share data)
- -----------------------------------------------------------------------------------------------
FISCAL
1993 FIRST SECOND THIRD FOURTH YEAR
- -----------------------------------------------------------------------------------------------
Net Operating Revenues $1,208 $1,448 $1,487 $1,322 $5,465
Gross Profit 477 556 541 519 2,093
Net Income (Loss) (5) 16 (30) 4 (15)
Net Income (Loss) Per Common Share (0.04) 0.13 (0.23) 0.03 (0.11)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
FISCAL
1992 FIRST SECOND THIRD FOURTH YEAR
- -----------------------------------------------------------------------------------------------
Net Operating Revenues $1,112 $1,385 $1,351 $1,279 $5,127
Gross Profit 424 519 491 474 1,908
- -----------------------------------------------------------------------------------------------
Income (Loss) Before Cumulative Effect of
Accounting Changes $ 25 $ (26) $ 17 $ (31) $ (15)
Cumulative Effect of Accounting Changes (171) -- -- -- (171)
- -----------------------------------------------------------------------------------------------
Net Income (Loss) $ (146) $ (26) $ 17 $ (31) $ (186)
- -----------------------------------------------------------------------------------------------
Per Common Share Data:
Income (Loss) Before Cumulative Effect of
Accounting Changes $ 0.20 $(0.20) $ 0.13 $(0.24) $(0.11)
Cumulative Effect of Accounting Changes (1.33) -- -- -- (1.33)
Net Income (Loss) (1.14) (0.20) 0.13 (0.24) (1.45)
- -----------------------------------------------------------------------------------------------
Each quarter presented includes ninety-one days, except the first quarter
of 1992 (eighty-seven days), the fourth quarter of 1992 (ninety-seven days) and
the first quarter of 1993 (ninety-two days).
Due to the method used in calculating per share data as prescribed by
Accounting Principles Board Opinion No. 15 and the timing of share repurchases
by the Company, the per share data does not sum in certain instances to the per
share data as computed for the quarter and the year.
The third quarter of 1993 includes a one-time charge of approximately $40
million ($0.31 per common share) to increase the Company's deferred tax
liability as a result of a 1% increase in the corporate marginal income tax
rate.
The fourth quarter of 1993 included a favorable year-end inventory (LIFO)
adjustment of approximately $7 million of which approximately $5 million ($0.03
per common share) applied to previous quarters.
23
COCA-COLA ENTERPRISES INC.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors
Coca-Cola Enterprises Inc.
We have audited the accompanying consolidated balance sheets of Coca-Cola
Enterprises Inc. and the related consolidated statements of operations,
share-owners' equity, and cash flows for each of the three years in the period
ended December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)(2). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Coca-Cola Enterprises Inc. at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in the notes to consolidated financial statements, in 1992 the
Company changed its methods of accounting for income taxes and postretirement
benefits other than pensions.
/s/ ERNST & YOUNG
Atlanta, Georgia
January 31, 1994
24
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Schedule V -- Property, Plant and Equipment for the fiscal years ended
December 31, 1993, 1992 and 1991...................................... F-2
Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant and Equipment for the fiscal years ended
December 31, 1993, 1992 and 1991...................................... F-3
Schedule VIII -- Valuation and Qualifying Accounts for the fiscal years ended
December 31, 1993, 1992 and 1991...................................... F-4
Schedule IX -- Short-Term Borrowings for the fiscal years ended
December 31, 1993, 1992 and 1991...................................... F-5
Schedule X -- Supplementary Income Statement Information for the fiscal
years ended December 31, 1993, 1992 and 1991.......................... F-6
25
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
COCA-COLA ENTERPRISES INC.
(In millions)
- ---------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------------------------------------
BALANCE AT OTHER CHANGES- BALANCE AT
BEGINNING ADDITIONS RETIREMENTS ADD (DEDUCT)- END
CLASSIFICATION OF PERIOD AT COST (a) DESCRIBE(b) OF PERIOD
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED:
DECEMBER 31, 1993
Land $ 179 $ -- $ 22 $ 6 $ 163
Buildings and improvements 594 25 9 12 622
Machinery and equipment 1,851 307 116 90 2,132
- ---------------------------------------------------------------------------------------------------------
2,624 332 147 108 2,917
Construction in progress(c) 82 6 8 14 94
- ---------------------------------------------------------------------------------------------------------
TOTAL $2,706 $ 338 $ 155 $ 122 $3,011
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1992
Land $ 172 $ 17 $ 10 $ -- $ 179
Buildings and improvements 577 27 9 (1) 594
Machinery and equipment 1,673 245 63 (4) 1,851
- ---------------------------------------------------------------------------------------------------------
2,422 289 82 (5) 2,624
Construction in progress(c) 83 5 6 -- 82
- ---------------------------------------------------------------------------------------------------------
TOTAL $2,505 $ 294 $ 88 $ (5) $2,706
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1991
Land $ 157 $ 9 $ 6 $ 12 $ 172
Buildings and improvements 453 50 13 87 577
Machinery and equipment 1,340 243 89 179 1,673
- ---------------------------------------------------------------------------------------------------------
1,950 302 108 278 2,422
Construction in progress(c) 146 (63) -- -- 83
- ---------------------------------------------------------------------------------------------------------
TOTAL $2,096 $ 239 $ 108 $ 278 $2,505
- ---------------------------------------------------------------------------------------------------------
(a) The amounts shown in Column D include amounts transferred to other assets
applicable to assets identified as idle during the year.
(b) The amounts shown in Column E include amounts applicable to acquired
companies at date of acquisition net of (i) the effect of the restructuring
reserve in 1991 and (ii) the effect of FAS 109 in 1992.
(c) Additions for construction in progress are net of amounts transferred to
productive asset categories for assets placed in service during the year.
26
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
COCA-COLA ENTERPRISES INC.
(In millions)
- ---------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS OTHER CHANGES- AT END
BEGINNING AND RETIREMENTS ADD (DEDUCT)- OF
DESCRIPTION OF PERIOD EXPENSES (a) DESCRIBE PERIOD
- ---------------------------------------------------------------------------------------------
FISCAL YEAR ENDED:
DECEMBER 31, 1993
Buildings and
improvements $ 125 $ 26 $ 3 $ -- $ 148
Machinery and equipment 848 228 103 -- 973
- ---------------------------------------------------------------------------------------------
TOTAL $ 973 $ 254 $106 $ -- $1,121
- ---------------------------------------------------------------------------------------------
DECEMBER 31, 1992
Buildings and
improvements $ 108 $ 21 $ 4 $ -- $ 125
Machinery and equipment 691 206 49 -- 848
- ---------------------------------------------------------------------------------------------
TOTAL $ 799 $ 227 $ 53 $ -- $ 973
- ---------------------------------------------------------------------------------------------
DECEMBER 31, 1991
Buildings and
improvements $ 103 $ 11 $ 6 $ -- $ 108
Machinery and equipment 621 149 79 -- 691
- ---------------------------------------------------------------------------------------------
TOTAL $ 724 $ 160 $ 85 $ -- $ 799
- ---------------------------------------------------------------------------------------------
(a) Includes amounts transferred to other assets applicable to assets identified
as idle during the year.
27
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
COCA-COLA ENTERPRISES INC.
(In millions)
- --------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO OTHER DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS-DESCRIBE DESCRIBE OF PERIOD
- --------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED:
DECEMBER 31, 1993
Allowance for losses on
trade accounts $ 31 $ 13 $ 5(a) $16(b) $ 33
Valuation allowance for
deferred tax assets 86 19 -- -- 105
DECEMBER 31, 1992
Allowance for losses on
trade accounts $ 22 $ 13 $ 4(a) $ 8(b) $ 31
Valuation allowance for
deferred tax assets -- 9 77(c) -- 86
DECEMBER 31, 1991
Allowance for losses on
trade accounts $ 19 $ 1 $ 6(a) $ 4(b) $ 22
- --------------------------------------------------------------------------------------------------------
(a) Principally represents allowances for losses on trade accounts of acquired
companies at date of acquisition and recoveries of amounts previously
charged off.
(b) Charge off of uncollectible accounts.
(c) Adoption of FAS 109 as of January 1, 1992.
28
SCHEDULE IX -- SHORT-TERM BORROWINGS
COCA-COLA ENTERPRISES INC.
(In millions)
- ---------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------------------------------------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
END OF INTEREST DURING THE DURING THE DURING THE
CATEGORY PERIOD RATE PERIOD PERIOD(a) PERIOD(b)
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED:
DECEMBER 31, 1993
Notes payable to banking
institutions $ 22 6.7% $ 27 $ 12 7.3%
Commercial paper 522 3.4% 694 409 3.2%
DECEMBER 31, 1992
Public medium-term notes $ -- -- $ 484 $ 169 4.4%
Commercial paper 197 3.3% 779 523 3.8%
DECEMBER 31, 1991
Notes payable to banking
institutions $ -- -- $ 250 $ 63 7.9%
Public medium-term notes 484 4.4% 484 338 5.5%
Commercial paper 778 4.8% 778 546 6.0%
- --------------------------------------------------------------------------------------------------------
(a) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by the number of
months in the period.
(b) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt outstanding.
29
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
COCA-COLA ENTERPRISES INC.
(In millions)
- -------------------------------------------------------------------------------------------------
COLUMN A COLUMN B
- -------------------------------------------------------------------------------------------------
CHARGED TO COSTS AND EXPENSES
(b)
--------------------------------
FISCAL YEAR
--------------------------------
ITEM 1993 1992 1991
- -------------------------------------------------------------------------------------------------
Maintenance and repairs $ 76 $ 70 $ 48
Media advertising costs(a) 39 44 35
Amortization of franchise and other assets 165 162 91
- -------------------------------------------------------------------------------------------------
(a) Media advertising costs as shown above do not include administrative
expenses, as it is not practical to determine that portion applicable to
media advertising. In addition, the amounts shown are net of cooperative
advertising credits received from soft drink licensors of $41 million in
1993, $39 million in 1992 and $32 million in 1991.
(b) Royalties and taxes other than payroll and income taxes do not exceed one
percent of net operating revenues and, accordingly, are not presented in the
schedule.