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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 01-09300
COCA-COLA ENTERPRISES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0503352
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION
NUMBER)
ONE COCA-COLA PLAZA, N.W., ATLANTA, GEORGIA 30313
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(404) 676-2100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of Common Stock held by nonaffiliates of the
registrant as of March 1, 1994 was $1,084,391,309.
There were 129,577,651 shares of Common Stock outstanding as of March 1,
1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Share Owners to be held on April 13, 1994 are incorporated by reference in Part
III hereof.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS..................................................... 1
Introduction............................................... 1
Relationship with The Coca-Cola Company.................... 2
Acquisitions and Divestitures.............................. 3
Territories................................................ 3
Products................................................... 4
Marketing.................................................. 4
Raw Materials.............................................. 5
Domestic Bottle Contracts.................................. 6
International Bottler's Agreement.......................... 9
Competition................................................ 10
Employees.................................................. 10
Governmental Regulation.................................... 10
ITEM 2. PROPERTIES................................................... 12
ITEM 3. LEGAL PROCEEDINGS............................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 14
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY............................ 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................... 16
ITEM 6. SELECTED FINANCIAL DATA...................................... 18
Notes to Selected Financial Data........................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 20
Description of Business.................................... 20
Operating Results.......................................... 22
Financial Position......................................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 29
Consolidated Statements of Operations...................... 29
Consolidated Balance Sheets................................ 30
Consolidated Statements of Share-Owners' Equity............ 32
Consolidated Statements of Cash Flows...................... 33
Notes to Consolidated Financial Statements................. 34
Report of Independent Auditors............................. 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 52
ITEM 11. EXECUTIVE COMPENSATION....................................... 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.......................................................... 52
SIGNATURES................................................... 59
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Coca-Cola Enterprises Inc. (the "Company") is in the liquid nonalcoholic
refreshment business and is the world's largest producer, marketer and
distributor of bottle/can soft drink products of The Coca-Cola Company.
The Company was organized under the laws of the State of Delaware in 1944
as a wholly owned subsidiary of The Coca-Cola Company. It was inactive from 1970
until August 1986, when it was reactivated with a restated certificate of
incorporation and amended bylaws. Unless the context indicates otherwise, all
references in this report to the "Company" include the Company and its divisions
and subsidiaries.
On November 21, 1986, the Company sold 71,400,000 shares of its common
stock to the public, reducing the percentage of the Company's common stock owned
by The Coca-Cola Company immediately after the public offering from 100% to
approximately 49%. The Coca-Cola Company now owns approximately 43.5% of the
outstanding common stock of the Company.
The Company produces, markets and distributes carbonated soft drink
products of The Coca-Cola Company, representing approximately 55% of all
bottle/can sales of carbonated soft drink products of The Coca-Cola Company in
the United States. The Company estimates that the territories in which it
markets beverages to retailers (including portions of 38 states, the District of
Columbia, the U.S. Virgin Islands, and the Netherlands) contain approximately
150 million people. Slightly more than one-half (52%) of the population of the
United States and the entire population of the Netherlands reside within the
Company's territories. The Company is the principal Coca-Cola bottler in the
five states in the United States (California, Florida, Texas, Washington and
Virginia) with the largest increases in population from 1989 to 1993. In all of
its territories, the Company sold approximately 1.6 billion equivalent cases* of
liquid nonalcoholic refreshments in 1993.
Domestic Operations
Management estimates that 1993 sales of the Company represented
approximately 17% of the total 1993 dollar sales of soft drinks by all bottlers
and fountain distributors in the United States. In addition, the Company's 1993
total volume sales of such products were approximately 1.5 billion equivalent
cases or approximately 18% of the estimated total 1993 volume sales of soft
drink products by all bottlers and fountain distributors in the United States.
In 1993, approximately 70% of the equivalent case sales of the Company
(excluding products in post-mix form) were beverages bearing the trademarks
"Coca-Cola" or "Coke" ("Coca-Cola Trademark Beverages"), approximately 19% of
its equivalent case sales were other beverages of The Coca-Cola Company ("Allied
Beverages" and collectively with the Coca-Cola Trademark Beverages, "beverage
products of The Coca-Cola Company"), and approximately 11% of its equivalent
case sales were beverage products of companies other than The Coca-Cola Company.
Equivalent case sales by the Company of products in bottles and cans, including
products of companies other than The Coca-Cola Company, constituted
approximately 87% of the equivalent case sales of the Company in 1993. The
remaining 13% of the Company's equivalent case sales in 1993 related to post-mix
for fountain sales.
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* As used in this report, the term "equivalent case" refers to 192 ounces of
finished beverage product (24 eight-ounce servings).
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Dutch Operations
The Company's Dutch subsidiary, Coca-Cola Beverages Nederland B. V. ("CCB
Nederland"), in 1993 sold approximately 35 million equivalent cases.
Approximately 96% of CCB Nederland's equivalent case sales were of beverage
products of The Coca-Cola Company.
Strategy
The Company's management believes that share of the liquid nonalcoholic
refreshment market is the principal determinant of long-term profitability;
improvements in market share, together with increases in per capita consumption
and population, determine case sales growth. The Company's competitive strategy
is to obtain profitable increases in case sales and over the long term to
increase its total share of the liquid nonalcoholic refreshment market. The
Company attempts to meet these objectives through (i) the development and
superior execution of innovative marketing programs, (ii) the implementation of
cost-effective production and distribution strategies, including capital
investment in automation where appropriate, and (iii) an emphasis on the
marketing of the products of The Coca-Cola Company, including new "alternative"
and other beverages that the Company expects to introduce with increasing
frequency when they can be expected to contribute to gross profit. Management of
the Company believes that because its business is characterized by local
competition that may differ from one territory to another, discipline in the
execution of marketing programs at the local level is critical. Both the
Company's local sales representatives and its senior management are accountable
for the execution and success of such programs.
RELATIONSHIP WITH THE COCA-COLA COMPANY
The Coca-Cola Company is the Company's largest share owner. Two Directors
of the Company are executive officers of The Coca-Cola Company, and two other
Directors of the Company are former executive officers of The Coca-Cola Company.
The Company and The Coca-Cola Company are parties to a number of
significant transactions and agreements incident to their respective businesses,
and the Company and The Coca-Cola Company may enter into additional material
transactions and agreements from time to time in the future.
The Company conducts its business primarily under contracts with The
Coca-Cola Company. These contracts give the Company the exclusive right to
produce, market and distribute beverage products of The Coca-Cola Company in
authorized bottles and cans in specified territories and provide The Coca-Cola
Company with the ability, in its sole discretion, to establish prices, terms of
payment and other terms and conditions for the purchase of concentrates and
syrups from The Coca-Cola Company. See "Domestic Bottle Contracts" and
"International Bottler's Agreement" below. Other significant transactions and
agreements relate to, among other things, arrangements for cooperative
marketing, advertising expenditures and purchases of sweeteners.
Since 1979, The Coca-Cola Company has assisted in the transfer of ownership
or financial restructuring of a majority of its United States bottler operations
and has assisted in similar transfers of bottlers operating outside the United
States, such as the June 1993 acquisition of CCB Nederland by the Company.
Certain bottlers and interests therein have been acquired by The Coca-Cola
Company and certain of those have been sold to bottlers, including the Company,
which are believed by management of The Coca-Cola Company to be the best suited
to manage and develop these acquired operations. The Coca-Cola Company has
advised the Company that it may continue to acquire bottling companies or
interests therein to assist in the transfer of acquired bottlers to other
bottlers, which may or may not include the Company, viewed as the best suited to
promote the interests of The Coca-Cola Company and the Coca-Cola bottler system
in acquired territories. In connection with such transactions, The Coca-Cola
Company may own all or part of the equity interests of acquired bottlers for
varying periods of time. See "Acquisitions and Divestitures" below and "Certain
Relationships and Related Transactions -- Agreements and Transactions with The
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Coca-Cola Company -- Purchase of Coca-Cola Bottlers" in the 1994 Proxy
Statement, which information is incorporated by reference in Item 13 hereof.
The Company intends to acquire only bottling businesses offering the
Company the ability to produce long-term share-owner value. From time to time
The Coca-Cola Company may sell additional bottling businesses or additional
ownership interests therein to, or buy bottling businesses or ownership
interests therein from, the Company.
ACQUISITIONS AND DIVESTITURES
During 1993, the Company acquired four bottling businesses located in
Knoxville and Johnson City, Tennessee, the Netherlands and Jonesboro, Arkansas.
It also acquired an engineering consulting firm in Florida, Dr Pepper franchise
rights in Georgia, Rhode Island, and Wisconsin, and certain assets of a post-mix
business in Connecticut. For these 1993 acquisitions the Company paid an
aggregate cost, including assumed and issued debt, where applicable, of
approximately $430 million. In January 1994, the Company purchased 4% of the
outstanding stock of The Coca-Cola Bottling Company of New York, Inc. from The
Coca-Cola Company, the controlling share owner, for approximately $6 million,
with a right of first refusal exercisable within five years for any additional
stock proposed to be transferred by The Coca-Cola Company. These shares
represent an approximate 9% voting interest. The total cost of acquisitions
since reorganization in 1986, including assumed and issued debt, where
applicable, has been approximately $5.6 billion.
Since reorganization in 1986, the total proceeds to the Company from the
sale of bottlers and other businesses approximates $455 million. However, of
this amount, bottlers representing sales proceeds of approximately $404 million
were reacquired by the Company in 1991 as a result of the acquisition of
Johnston Coca-Cola Bottling Group, Inc. ("Johnston Coca-Cola"), now a subsidiary
of the Company. In 1993, the Company sold Seven-Up bottling rights in Louisiana
and Dr Pepper franchise rights in Mississippi for proceeds aggregating
approximately $564,000.
TERRITORIES
The domestic bottling territories in which the Company markets its products
include portions of 38 states, the District of Columbia and the U.S. Virgin
Islands and contain approximately 135 million people, or about 52% of the U.S.
population. Between 1989 and 1993, population in the territories in the United
States in which the Company operates increased by approximately 5.9% as compared
to an increase in the general United States population of approximately 3.6%
during the same period.
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The Company's territory in the Netherlands has a population of approximately 15
million people. The following maps identify the territories in which the Company
operates:
[MAP]
(MAPS NOT TO SAME SCALE)
PRODUCTS
The Company produces and markets beverage products of The Coca-Cola
Company. The beverage products of The Coca-Cola Company include Coca-Cola,
Coca-Cola classic, caffeine free Coca-Cola classic, diet Coke, caffeine free
diet Coke, Sprite, diet Sprite, cherry Coke, diet cherry Coke, Fanta brand soft
drinks, Fresca, Hi-C brand soft drinks, Mello Yello, diet Mello Yello, Minute
Maid and diet Minute Maid brand soft drinks and Minute Maid Juices To Go, Mr.
PiBB, diet Mr. PiBB, PowerAde, Ramblin' root beer and TAB. The Company also
produces and markets various noncola beverage products under the trademarks of
companies other than The Coca-Cola Company, including, in some markets Dr
Pepper. The Company markets substantially all of the Coca-Cola Trademark
Beverages, as well as TAB, Sprite and diet Sprite, and Minute Maid and diet
Minute Maid orange beverages, in substantially all of its domestic territories,
and markets other products of The Coca-Cola Company and other companies in
selected territories. In addition to producing products for its own territories,
certain of the Company's locations produce some products for sale to other
Coca-Cola bottlers and major fountain accounts.
The Coca-Cola Company and other companies manufacture concentrates, and in
some cases the finished product, for sale to bottlers and to fountain
wholesalers. Bottling and canning operations combine the concentrate with
sweetener and carbonated water, and package the finished product in authorized
bottles, cans and post-mix containers for sale to retailers. The Company
purchases some products, such as PowerAde and Nestea, from contract packers. See
"Marketing" and "Raw Materials" below.
Approximately 69% of the Company's domestic equivalent case sales in 1993
(excluding post-mix) represented caloric products and the balance represented
low calorie products.
MARKETING
The Company sells its products in a variety of cans and bottles authorized
by The Coca-Cola Company and other companies. Fountain syrup for use in post-mix
fountain dispensers is sold in one-gallon and five-gallon containers. In 1993,
excluding post-mix syrup sales, domestic equivalent
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case sales of the Company were packaged approximately 61% in cans, 38% in
nonrefillable bottles and the balance was in various other containers. Post-mix
syrup accounted for approximately 13% of the Company's domestic equivalent case
sales and approximately 6% of revenues during 1993. In the Netherlands, the
approximate packaging mix was 83% in returnable PET bottles and glass, 12% in
steel cans, 1% in nonreturnable glass and the balance in pre-mix and post-mix
containers.
The Company relies extensively on advertising and sales promotion in the
marketing of its products. The Coca-Cola Company and the other beverage
companies that supply concentrates and syrups and finished product to the
Company, together with the Company, make substantial advertising expenditures in
all major media to promote sales in the local areas served by the Company. In
addition, the Company benefits from national advertising programs conducted by
The Coca-Cola Company and other beverage companies. In 1993, the Company's local
media advertising expenditures were approximately $39 million, in addition to
cooperative media advertising payments by The Coca-Cola Company and other
beverage companies of approximately $41 million. Certain of the marketing
expenditures by The Coca-Cola Company are made pursuant to annual arrangements
between The Coca-Cola Company and the Company. Although The Coca-Cola Company
has advised the Company that it intends to continue to provide marketing support
in 1994, it is not obligated to do so under either the domestic or international
bottle contracts between The Coca-Cola Company and the Company. See "Domestic
Bottle Contracts" and "International Bottler's Agreement" below.
Sales of the Company's products are seasonal, with the second and third
calendar quarters generally accounting for higher sales volumes than the first
and fourth quarters.
RAW MATERIALS
In addition to concentrates, sweeteners and finished product, the Company
purchases carbon dioxide, glass and plastic bottles, cans, closures, post-mix
packaging (such as plastic bags in cardboard boxes) and other packaging
materials. The Company generally purchases its raw materials, other than
concentrates, syrups and sweeteners, from multiple suppliers. The bottle
contracts with The Coca-Cola Company provide that, with respect to the products
of The Coca-Cola Company, all authorized containers, closures, cases, cartons
and other packages and labels must be purchased from manufacturers approved by
The Coca-Cola Company.
High fructose corn syrup currently is the principal sweetener of the
beverage products, other than low-calorie products, of The Coca-Cola Company.
The Company and The Coca-Cola Company have entered into arrangements for the
purchase by the Company from The Coca-Cola Company of substantially all of the
Company's requirements for sweeteners for 1994. See "Certain Relationships and
Related Transactions -- Agreements and Transactions with The Coca-Cola
Company -- Sweetener Requirements Agreement" in the Company's 1994 Proxy
Statement, which information is incorporated by reference in Item 13 hereof. The
Company does not directly purchase low-calorie sweeteners because sweeteners for
the low-calorie beverage products of The Coca-Cola Company are contained in the
concentrate purchased by the Company from The Coca-Cola Company.
The Company currently purchases a significant portion of the Company's
requirements for plastic bottles from cooperatives owned by it and other
Coca-Cola bottlers. Management of the Company believes that ownership interests
in certain suppliers and the self-manufacture of certain items serve to reduce
or contain costs.
There are no materials or supplies used by the Company which are currently
in short supply, although the supply of specific materials could be adversely
affected by strikes, weather conditions, governmental controls or national
emergencies.
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DOMESTIC BOTTLE CONTRACTS
The Company purchases concentrate and syrup from The Coca-Cola Company and
manufactures, packages, distributes and sells the principal liquid nonalcoholic
refreshment products in its domestic territories in the United States under two
basic forms of bottle contracts with The Coca-Cola Company: bottle contracts
that cover the Coca-Cola Trademark Beverages (the "Cola Bottle Contracts") and
bottle contracts that cover the Allied Beverages (the "Allied Bottle Contracts")
(herein referred to collectively as the "Bottle Contracts"). See "Introduction"
and "Products" above. The Company and each of its wholly owned bottling company
subsidiaries are parties to one or more separate Cola Bottle Contracts and to
various Allied Bottle Contracts. In this section, unless the context indicates
otherwise, a reference to the Company refers to the legal entity, which may be
either the Company or one of its bottling company subsidiaries, which is a party
to the Bottle Contracts with The Coca-Cola Company.
The Cola Bottle Contracts
The Cola Bottle Contracts provide that the Company will purchase its entire
requirements of concentrates and syrups for Coca-Cola Trademark Beverages from
The Coca-Cola Company at prices, terms of payment and other terms and conditions
of supply, as determined from time to time by The Coca-Cola Company in its sole
discretion. The Company has the exclusive right to distribute Coca-Cola
Trademark Beverages for sale in its territories in authorized containers, which
include various configurations of cans and refillable and nonrefillable bottles.
The Coca-Cola Company may determine from time to time in its sole discretion
what types of containers to authorize for use with products of The Coca-Cola
Company.
The pricing terms for concentrates and syrups under the Cola Bottle
Contracts provide for prices determined from time to time by The Coca-Cola
Company in its sole discretion, and pursuant to the Cola Bottle Contracts, The
Coca-Cola Company has established the prices charged to the Company for
concentrates and syrups for Coca-Cola Trademark Beverages annually. The Company
expects that net prices charged by The Coca-Cola Company in 1994 for syrup and
concentrates will increase approximately 2.5% as compared to 1993 prices. Under
the Bottle Contracts, The Coca-Cola Company has no rights to establish the
resale prices at which the Company sells its products.
The Company is obligated to maintain such plant and equipment, staff and
distribution, and vending facilities as are capable of manufacturing, packaging
and distributing Coca-Cola Trademark Beverages in authorized containers in
accordance with the Cola Bottle Contracts and in sufficient quantities to
satisfy fully the demand for these beverages in authorized containers in its
territories; to undertake adequate quality control measures prescribed by The
Coca-Cola Company; to develop and stimulate the demand for Coca-Cola Trademark
Beverages in those territories; to use all approved means, and spend such funds
on advertising and other forms of marketing, as may be reasonably required to
satisfy that objective; and to maintain such sound financial capacity as may be
reasonably necessary to assure performance by the Company and its affiliates of
their obligations to The Coca-Cola Company. The Cola Bottle Contracts require
the Company to meet annually with The Coca-Cola Company to discuss the Company's
plans for the following year. At such meetings, the Company is obligated to
present plans that set out in reasonable detail its marketing, management and
advertising plans with respect to the Coca-Cola Trademark Beverages for the
year, including financial plans showing that the Company and all of its bottler
affiliates have the consolidated financial capacity to perform their duties and
obligations to The Coca-Cola Company. The Coca-Cola Company may not unreasonably
withhold approval of such plans. If the Company carries out its plans in all
material respects, it will be deemed to have satisfied its obligations to
develop, stimulate and fully satisfy the demand for the Coca-Cola Trademark
Beverages and to maintain the requisite financial capacity. Failure to carry out
such plans in all material respects would constitute an event of default that,
if not cured or waived by The Coca-Cola Company within 120 days of notice of the
failure, would give The Coca-Cola Company the right to
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terminate the Cola Bottle Contract. If the Company at any time fails to carry
out a plan in all material respects in any geographic segment of its territory,
and if such failure is not cured within six months after notice of the failure,
The Coca-Cola Company may reduce the territory covered by that Cola Bottle
Contract by eliminating the portion of the territory with respect to which such
failure has occurred.
The Coca-Cola Company has no obligation under the Bottle Contracts to
participate with the Company in expenditures for advertising and marketing, but
it may, in its discretion, contribute to such expenditures and undertake
independent advertising and marketing activities, as well as cooperative
advertising and sales promotion programs, that would require the cooperation and
support of the Company. Although The Coca-Cola Company has advised the Company
that it intends to continue to provide various forms of marketing support in
1994 at a comparable level of support as provided in 1993, it is not obligated
to do so under the Bottle Contracts.
If the Company acquires control, directly or indirectly, of any bottler of
Coca-Cola Trademark Beverages in the United States, or any party controlling a
bottler of Coca-Cola Trademark Beverages in the United States, the Company must
cause the acquired bottler to amend its bottle contract for the Coca-Cola
Trademark Beverages to conform to the terms of the Cola Bottle Contract
described above.
The Cola Bottle Contracts are perpetual, subject to termination by The
Coca-Cola Company in the event of default by the Company. Events of default with
respect to each Cola Bottle Contract include: (1) production or sale of any cola
product not authorized by The Coca-Cola Company; (2) insolvency, bankruptcy,
dissolution, receivership or the like; (3) any disposition by the Company of any
voting securities of any bottling company without the consent of The Coca-Cola
Company; and (4) any material breach of any obligation of the Company under the
Cola Bottle Contract that remains uncured for 120 days after notice by The
Coca-Cola Company. If any Cola Bottle Contract is terminated, The Coca-Cola
Company has the right to terminate all other Cola Bottle Contracts held by the
bottler which is a party to the terminated contract, as well as the Cola Bottle
Contracts of any other entity which such bottler controls.
In addition, each Cola Bottle Contract held by the Company provides that
The Coca-Cola Company has the right to terminate that Cola Bottle Contract if a
person or affiliated group (with specified exceptions) acquires or obtains any
contract, option, conversion privilege or other right to acquire, directly or
indirectly, beneficial ownership of more than 10% of any class or series of
voting securities of the Company; however, The Coca-Cola Company has agreed with
the Company that this provision will not apply with respect to the ownership of
any class or series of voting securities of Coca-Cola Enterprises Inc. although
it would apply to the voting securities of each bottling company subsidiary.
The provisions of the Cola Bottle Contracts of the Company which make it an
event of default to dispose of any Cola Bottle Contract or voting securities of
any bottling company subsidiary without the consent of The Coca-Cola Company and
which prohibit the assignment or transfer of the Cola Bottle Contracts are
designed to preclude any person not acceptable to The Coca-Cola Company from
obtaining an assignment of a Cola Bottle Contract or from acquiring any voting
securities of the Company's bottling subsidiaries. These provisions will prevent
the Company from selling or transferring any of its interest in any bottling
operations without the consent of The Coca-Cola Company. These provisions may
also make it impossible for the Company to benefit from certain transactions,
such as mergers or acquisitions, involving any of the bottling operations that
might be beneficial to the Company and its share owners but which are not
acceptable to The Coca-Cola Company.
The terms of the Cola Bottle Contracts generally impose greater obligations
upon the Company and contain events of default and termination and other
provisions that are less favorable to the Company bottlers than the bottle
contracts for Coca-Cola Trademark Beverages currently in effect
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for other Coca-Cola bottlers representing approximately 26% of 1993 domestic
gallon shipments for bottled and canned beverage products of The Coca-Cola
Company.
Supplementary Agreement
In addition to the Cola Bottle Contracts with The Coca-Cola Company
described above, the Company is a party to a supplementary agreement (the
"Supplementary Agreement") with The Coca-Cola Company regarding the exercise by
The Coca-Cola Company of its rights under the Bottle Contracts. Pursuant to the
Supplementary Agreement, The Coca-Cola Company has agreed to exercise good faith
and fair dealing under the Bottle Contracts; offer marketing support and
exercise its rights under the Bottle Contracts in a manner consistent with its
dealings with comparable bottlers; offer to the Company any material written
amendment to such Bottle Contracts which it offers to any other bottler; and,
subject to certain limitations, sell syrups and concentrates to the Company at
prices not greater than those charged to other bottlers which are parties to
agreements substantially similar to the Bottle Contracts. The Supplementary
Agreement provides for a term expiring on March 15, 1999 and may be terminated
by The Coca-Cola Company upon 30 days' notice in the event that The Coca-Cola
Company should cease to own more than 40% of the Company's outstanding common
stock.
The Allied Bottle Contracts
The Allied Bottle Contracts contain provisions that are similar to those of
the Cola Bottle Contracts with respect to pricing, authorized containers,
planning, quality control, transfer restrictions and related matters, and grant
similar exclusive rights with respect to the distribution of the Allied
Beverages for sale in authorized containers in specified territories. Under the
Allied Bottle Contracts, the Company likewise has advertising, marketing and
promotional obligations, but without restriction as to the marketing of
competitive products as long as there is no manufacturing or handling of other
products that would imitate, infringe upon, or cause confusion with, the
products of The Coca-Cola Company. The Coca-Cola Company has the right to
discontinue any or all Allied Beverages, and the Company has a right, but not an
obligation, under each of the Allied Bottle Contracts (except under the Allied
Bottle Contracts for Hi-C brand soft drinks and Minute Maid orange beverages) to
elect to market any new beverage introduced by The Coca-Cola Company under the
trademarks covered by the respective Allied Bottle Contracts. The Allied Bottle
Contracts each have a term of ten years and are renewable by the bottler for an
additional ten years at the end of each ten-year period. The initial term for
most of the Company's Allied Bottle Contracts will expire in 1996 and subsequent
years. The Allied Bottle Contracts are subject to termination in the event of
default by the Company. The Coca-Cola Company may terminate an Allied Bottle
Contract in the event of: (1) insolvency, bankruptcy, dissolution, receivership
or the like; (2) termination of the Cola Bottle Contract of the Company by
either party for any reason; or (3) any material breach of any obligation of the
Company under the Allied Bottle Contract that remains uncured for 120 days after
notice by The Coca-Cola Company.
Post-Mix Marketing, Fountain Appointments and Other Similar Arrangements
The Company has in the past sold and delivered the post-mix products of The
Coca-Cola Company pursuant to one-year post-mix distributorship appointments. In
1993, the Company sold and/or delivered such post-mix products in most of its
major markets. Under the terms of the appointments, the Company is authorized to
distribute such syrups to retailers for dispensing to consumers within the
United States. The appointments are terminable by either party without cause
upon ten days' written notice. Unlike the Bottle Contracts, there is no
exclusive territory and the Company faces competition not only from sellers of
other post-mix syrups but from other sellers of post-mix syrups of The Coca-Cola
Company (including The Coca-Cola Company). Depending on the market, the Company
is involved in the sale, distribution and marketing of post-mix syrups in
differing degrees. In some markets, the Company sells syrup on its own behalf,
but the primary
8
11
responsibility for marketing lies with The Coca-Cola Company. In other
territories, the Company is responsible for marketing post-mix syrup to certain
segments of the market. See "Certain Relationships and Related
Transactions -- Agency Billing and Delivery Arrangements" in the Company's 1994
Proxy Statement, which information is incorporated by reference in Item 13
hereof.
Other Bottle Agreements
The bottle agreements between the Company and other licensors of beverage
products and syrups generally give those licensors the unilateral right to
change the prices for their products and syrups at any time in their sole
discretion. Some of these bottling agreements have limited terms of appointment
and in most instances, prohibit the bottler from dealing in competitive
products. Those agreements contain restrictions generally similar in effect to
those in the Cola Bottle Contracts as to trade names, approved bottles, cans and
labels, sale of imitations and cause for termination.
INTERNATIONAL BOTTLER'S AGREEMENT
CCB Nederland operates in the Netherlands under a Bottler's Agreement dated
December 14, 1992 (the "International Bottler's Agreement") with The Coca-Cola
Company; this agreement has some significant differences from the Bottle
Contracts under which the Company operates domestically.
Unlike the Cola Bottle Contracts, which are perpetual although subject to
early termination by The Coca-Cola Company under certain circumstances described
above, the International Bottler's Agreement is for a term of years, expiring
September 30, 1998 unless terminated earlier as provided therein. If CCB
Nederland has fully complied with the agreement during the initial term, is
"capable of the continued promotion, development and exploitation of the full
potential of the business" and requests an extension of the agreement, an
additional ten-year term may be granted at the sole discretion of The Coca-Cola
Company. The Coca-Cola Company is given the right to terminate the International
Bottler's Agreement before the expiration of the stated term upon the
insolvency, bankruptcy, nationalization or similar condition of CCB Nederland or
the occurrence of a default under the International Bottler's Agreement which is
not remedied within 60 days of notice of the default being given by The
Coca-Cola Company. The International Bottler's Agreement may be terminated by
either party in the event foreign exchange is unavailable or local laws prevent
performance.
CCB Nederland has the exclusive right to sell the beverages covered by the
International Bottler's Agreement in refillable glass bottles and PET bottles
within the territory, which is described as the Netherlands, excluding the
Netherlands Antilles. The covered beverages include the Coca-Cola Trademark and
Allied Beverages. The Coca-Cola Company has retained the rights to produce and
sell or authorize third parties to produce and sell the beverages in any other
manner or form, including cans, within the territory. CCB Nederland has been
granted a nonexclusive authorization to purchase finished product in cans from
The Coca-Cola Company or its designee and distribute them within its territory.
This authorization is granted in connection with the International Bottler's
Agreement and expires on September 30, 1998, with a provision for an extension
of five years at the discretion of The Coca-Cola Company. The Coca-Cola Company
has granted CCB Nederland a nonexclusive authorization to package and sell
post-mix and pre-mix beverages in the territory; this authorization is
terminable by either party with 90 days' prior notice.
CCB Nederland is prohibited from making sales of the beverages outside of
its territory or to anyone intending to resell the beverages outside the
territory without the consent of The Coca-Cola Company, except for sales arising
out of an order from a customer in another member state of the European Union or
for export to another such member state. The International Bottler's Agreement
contemplates that there may be instances in which large or special buyers have
operations transcending the boundaries of CCB Nederland's territories, and in
furtherance of this, CCB Nederland and The Coca-Cola Company are cooperating in
sales to such buyers.
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12
The Company believes that the International Bottler's Agreement is
substantially similar to other agreements between The Coca-Cola Company and
European bottlers of Coca-Cola Trademark and Allied Beverages.
Similar to the Bottle Contracts under which the Company and its other
subsidiaries operate, the International Bottler's Agreement provides that the
sales of beverage base and other goods to CCB Nederland are at prices which are
set from time to time by The Coca-Cola Company. The Company expects that net
prices charged in 1994 by The Coca-Cola Company for beverage base and other
goods will increase approximately 4% over 1993 prices.
The Coca-Cola Company has no commitment to provide marketing support under
the International Bottler's Agreement, but it has done so in the past and has
advised CCB Nederland that it intends to continue marketing support to CCB
Nederland in 1994 at a similar level as provided in 1993.
COMPETITION
The liquid nonalcoholic refreshment business is highly competitive.
Carbonated soft drink products compete with coffee, water, milk, beer and wine,
sports drinks, bottled waters, tea and juices as well as with noncarbonated soft
drinks, citrus and noncitrus fruit drinks and other beverages. Competitors in
the soft drink industry include bottlers and distributors of nationally
advertised and marketed products, regionally advertised and marketed products,
and chain store and private label soft drinks. The Company estimates that in
1993 the products of The Coca-Cola Company represented approximately 33% of
total food store soft drink sales in all domestic territories in which the
Company operates, and that those of PepsiCo, Inc. represented approximately 30%.
The Company also estimates that in each of its domestic territories, between 55%
and 72% of food store soft drink sales are accounted for by the Company and its
major competitor, which in most territories is the bottler of the soft drink
products of PepsiCo, Inc. Private label and store brands played an increased
role in domestic food store sales in 1993 over previous years and accounted for
a significant percentage of soft drink sales in the Netherlands.
Brand recognition and pricing are significant factors affecting the
Company's competitive position, and the trademarks associated with its products
are the most favorable factor for the Company. Other competitive factors among
bottlers are marketing, distribution methods, service to the trade and the
management of sales promotion activities. Vending machine sales, packaging
changes and contracts with fountain customers are also competitive factors.
The introduction of new products has been another major competitive element
in the liquid nonalcoholic refreshment industry. The Company expects The
Coca-Cola Company to introduce an increasing number of new "alternative"
beverages during 1994. These products include teas, fruit drinks, "natural"
sodas and bottled waters.
EMPLOYEES
As of March 1, 1994, the Company had approximately 26,500 employees, about
850 of whom are in the Netherlands. The Company is a party to collective
bargaining agreements covering approximately 24% of its employees. These
collective bargaining agreements expire at various dates through 1996. The
Company has no reason to believe that it will be unable to renegotiate any of
these agreements on satisfactory terms. Management of the Company believes that
the Company's relations with its employees are generally good.
GOVERNMENTAL REGULATION
Anti-litter measures have been enacted in the states of California,
Connecticut, Delaware, Iowa, Massachusetts, Michigan, New York, Oregon and the
City of Columbia, Missouri, where some of the Company bottlers operate,
prohibiting the sale of certain beverages, whether in refillable or
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nonrefillable containers, unless a deposit is charged by the retailer for the
container. The retailer or redemption center refunds the deposit to the customer
upon the return of the container. The containers are then returned to the
bottler, which, in most jurisdictions, must pay the refund and, in certain
others, must also pay a handling fee. In the past, similar legislation has been
proposed but not adopted elsewhere, although the Company anticipates that
additional states or local jurisdictions may enact such laws.
Massachusetts requires the creation of a deposit transaction fund by
bottlers and the payment to the state of balances in that fund that exceed three
months of deposits received, net of deposits repaid and interest earned. A
portion of the Massachusetts law had been held unconstitutional by the
Massachusetts Supreme Judicial Court as it related to deposits escheated to the
state prior to the effective date of the law, and the Company, together with
beer distributors and other soft drink bottlers, is negotiating with the
Commonwealth of Massachusetts for the return of such deposits. Michigan also has
a statute, effective January 1, 1990, requiring bottlers to pay to the state
unclaimed container deposits. The Michigan Soft Drink Association filed a
lawsuit challenging the constitutionality of the Michigan law. On February 14,
1991, a Michigan trial court ruled that the sections of the Michigan statute
requiring bottlers to pay unclaimed deposits to the state were unconstitutional.
The Michigan Attorney General appealed that decision. On December 20, 1993, the
Michigan Court of Appeals heard oral arguments in the Michigan Soft Drink
Association's lawsuit.
Excise taxes on sales of soft drinks have been in place in various states
for several years. The states in which the Company operates currently imposing
such taxes are the states of Arkansas, Louisiana, North Carolina, Ohio,
Tennessee and Washington. In addition, three local jurisdictions in which the
Company operates, Baltimore and Montgomery County, Maryland and Honolulu,
Hawaii, have imposed a special tax on nonrefillable soft drink containers. To
the knowledge of management of the Company, no similar legislation has been
enacted in any other markets served by the Company. Proposals have been
introduced in certain states and localities that would impose a special tax on
beverages sold in nonrefillable containers as a means of encouraging the use of
refillable containers. Management of the Company is unable to predict, however,
whether such additional legislation will be adopted.
The Company has taken actions to mitigate the adverse effects resulting
from legislation concerning deposits, restrictive packaging and escheat of
unclaimed deposits which impose additional costs on the Company. The Company is
unable to quantify the impact on current and future operations which may result
from such legislation if enacted in the future, but any such legislation could
be potentially significant if widely enacted.
The domestic production, distribution and sale of many of the Company's
products are subject to the Federal Food, Drug and Cosmetic Act; the
Occupational Safety and Health Act; the Lanham Act; various federal, state and
local environmental statutes and regulations; and various other federal, state
and local statutes regulating the production, packaging, sale, safety,
advertising, labeling and ingredients of such products.
A California law, enacted in 1986 by ballot initiative, requires that any
person who exposes another to a carcinogen or a reproductive toxicant must
provide a warning to that effect. Because the law does not define quantitative
thresholds below which a warning is not required, virtually all manufacturers of
food products are confronted with the possibility of having to provide warnings
due to the presence of trace amounts of defined substances. Regulations
implementing the law exempt manufacturers from providing the required warning if
it can be demonstrated that the defined substances occur naturally in the
product or are present in municipal water used to manufacture the product. The
Company has assessed the impact of the law and its implementing regulations on
its soft drink and other products and has concluded that none of its products
currently requires a warning under the law. The Company cannot predict whether
or to what extent food industry efforts to minimize the law's impact on food
products will succeed, nor can the
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14
Company predict what impact, either in terms of direct costs or diminished
sales, imposition of the law may have.
Substantially all of the facilities of the Company are subject to federal,
state and local provisions regulating above-ground and underground fuel storage
tanks and the discharge of materials into the environment. Compliance with these
provisions has not had, and the Company does not expect such compliance to have,
any material effect upon the capital expenditures, net income, financial
condition or competitive position of the Company. The Company's beverage
manufacturing operations do not use or generate a significant amount of toxic or
hazardous substances. Management believes that its current practices and
procedures for the control and disposition of such wastes comply with applicable
federal and state requirements. The Company has been named as a potentially
responsible party in connection with certain landfill sites where the Company
may have been a de minimis contributor. Under current law, the Company's
liability for cleanup costs may be joint and several with other users of such
sites, regardless of the extent of the Company's use in relation to other users.
However, in the opinion of management of the Company, the potential liability of
the Company in connection with such activity is not significant and will not
have a material adverse effect on the financial condition or results of
operations of the Company.
Several underground fuel storage tanks used by the Company may not be in
compliance with all applicable federal and state requirements for the continued
maintenance and use of such tanks. The Company has adopted a plan for the
testing, removal, replacement and repair, if necessary, of underground fuel
storage tanks at Company bottlers and remediation of their sites, if necessary.
The Company spent approximately $25 million pursuant to such plan in 1991, $8
million in 1992 and $9 million in 1993. The Company estimates it will spend
approximately $15 million from 1994 through 1998 pursuant to this plan. In the
opinion of management of the Company, any liabilities associated with such
underground fuel storage tanks will not have a material adverse effect on the
financial condition or results of operations of the Company.
The business of the Company, as the exclusive manufacturer and distributor
of bottled and canned beverage products of The Coca-Cola Company and other
manufacturers within specified geographic territories, is subject to federal and
state antitrust laws of general applicability. Under the federal Soft Drink
Interbrand Competition Act, the exercise and enforcement of an exclusive
contractual right to manufacture, distribute and sell a soft drink product in a
geographic territory is presumptively legal if the soft drink product is in
substantial and effective interbrand competition with other products of the same
class in the market. Management of the Company believes that there is such
substantial and effective competition in each of the exclusive geographic
territories in which the Company operates.
ITEM 2. PROPERTIES
The executive offices of the Company occupy approximately 104,000 square
feet in an office building in Atlanta, Georgia leased from The Coca-Cola
Company. See "Certain Relationships and Related Transactions -- Agreements and
Transactions with The Coca-Cola Company -- Lease of Office Space" in the
Company's 1994 Proxy Statement, which information is incorporated by reference
in Item 13 hereof.
The principal properties of the Company include production facilities,
distribution facilities, administrative offices and service centers. The Company
operates 45 soft drink production facilities, 15 of which are solely production
facilities and 30 of which are combination production/distribution facilities,
and also operates 206 principal distribution facilities. The Company owns all of
its production facilities, except one, and owns 183 of its principal
distribution facilities and leases the others. In the aggregate, the Company's
owned and leased facilities cover approximately 21 million square feet.
Management of the Company believes that its production and distribution
facilities are generally sufficient to meet present needs.
12
15
Seventeen of the facilities owned by the Company are subject to liens to
secure indebtedness in an aggregate principal amount of approximately $13
million at December 31, 1993. Excluding expenditures for bottler acquisitions,
the Company's capital expenditures in 1993 were approximately $353 million.
The Company also owns and operates approximately 23,000 vehicles of all
types used in the sale, production and distribution of its products. The Company
also owns approximately 750,000 coolers, beverage dispensers and vending
machines.
ITEM 3. LEGAL PROCEEDINGS
Immediately prior to the acquisition of Johnston Coca-Cola by the Company
in 1991, a derivative suit (i.e., one which is purportedly brought on behalf of
the Company) was filed by Three Bridges Investment Group in the Chancery Court
of the State of Delaware against The Coca-Cola Company, Johnston Coca-Cola and
the Directors of the Company then in office. The suit is seeking, among other
things, a declaration that it is a proper class action, to enjoin or rescind the
acquisition of Johnston Coca-Cola, damages, costs and attorneys' fees. The
complaint alleged breaches of fiduciary duties on the part of The Coca-Cola
Company and the Directors, and asserted a claim against Johnston Coca-Cola for
allegedly aiding and abetting the alleged wrongdoing. Johnston Coca-Cola has
since been dismissed from the claim, and the remaining defendants have filed
answers denying all substantive allegations. The suit is still in the process of
discovery. Management of the Company believes this action to be without merit
and is defending it vigorously.
Several of the Company's bottling subsidiaries or divisions have been named
as potentially responsible parties ("PRPs") at several federal "Superfund"
sites. In 1991 Johnston Coca-Cola was named by the Environmental Protection
Agency ("EPA") and the Minnesota Pollution Control Agency as one of
approximately 200 PRPs at the Arrowhead site near Duluth, Minnesota. Each PRP
may be jointly and severally liable for the remediation of that site, which has
been estimated to cost as much as $60 million. Johnston Coca-Cola's contribution
of petroleum waste and solvents, which Johnston Coca-Cola had entrusted to third
parties for recycling, appears to represent less than one percent of the total
volume of all used oil contributed by all PRPs. Johnston Coca-Cola believes it
should be successful in limiting its pro rata share of liability for the cleanup
cost to an amount commensurate with the degree of its involvement in the
contamination. As of December 31, 1993, Johnston Coca-Cola had paid a total of
$100,000 to the site committee for investigation and cleanup; it may spend a
like amount in 1994. In 1987 the Coca-Cola Bottling Company of Los Angeles
("CCBCLA") was named by the EPA as a PRP at the Operating Industries, Inc. site
at Monterey Park, California. CCBCLA has contributed approximately $300,000
toward the remediation efforts, which are virtually complete. CCBCLA believes
that any future contributions to the remediation efforts will not be material.
Additionally, in 1992 the Florida Coca-Cola Bottling Company ("Florida CCBC")
was named by the EPA as a PRP at the Peak Oil Site in Tampa, Florida, a location
which was used in the 1960s and 1970s for the refining of used motor oil.
Florida CCBC's involvement with this site has not yet been determined, although
the Peak Oil PRP group has informed Florida CCBC that its ultimate liability
could be between $600,000 and $1.4 million, based on Peak Oil records and
testimony of former employees. Florida CCBC has joined the Peak Oil PRP group to
contest the volume of waste oil attributed to it. It is not currently known
whether Florida CCBC's ultimate liability, if any, would be material. In late
1992 a PRP for the West Memphis Landfill site in West Memphis, Arkansas brought
The Coca-Cola Bottling Company of Memphis, Tenn. ("CCBC Memphis") into the
remediation proceedings as an additional PRP with respect to that site. The site
is alleged to have been used in the 1950s and 1960s as a dump site for by-
products from the reprocessing of used motor oil. The EPA is still in the
initial stages of its investigation and has not issued an estimate for the costs
of remediating the site; however, the PRP naming CCBC Memphis has estimated the
total cost to be as much as $45 million. The involvement of CCBC Memphis has not
yet been determined; accordingly, CCBC Memphis does not yet know whether its
ultimate liability, if any, would be material. During 1993 the Company settled
its liability
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for its alleged contributions to the Kingston Steel Drum site in New Hampshire
and has agreed, subject to the approval of the EPA, to settle its liability
relating to the Commercial Oil Services site near Toledo, Ohio. In each case,
the settlement involves payment by the Company of an immaterial amount.
In August 1992, Phar-Mor, Inc. and a number of its subsidiaries
(collectively "Phar-Mor"), a national retail chain customer of the Company,
filed for reorganization under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court of the Northern District of Ohio, Eastern Division. The
Company's claim against Phar-Mor for unpaid product is approximately $10
million. Additionally, the Company is a party to contracts with Phar-Mor which,
if terminated early, would increase the Company's claim. Management of the
Company believes that any losses resulting from Phar-Mor's bankruptcy will be
fully covered by the Company's existing allowances for uncollectible trade
accounts receivable.
There are various other lawsuits and claims pending against the Company.
Included among such litigation are claims for injury to persons or property.
Management of the Company believes that such claims are covered by insurance
with financially responsible carriers or adequate provisions for losses have
been recognized by the Company in its consolidated financial statements. In the
opinion of management of the Company, the losses that might result from such
litigation will not have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information as of March 1, 1994 regarding the executive
officers of the Company:
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
- ------------------------------- ---- --------------------------------------------------------
Summerfield K. Johnston, Jr.... 61 Mr. Johnston has been the Vice Chairman of the Board and
Chief Executive Officer of the Company since December
1991. From 1979 to December 1991, he served as Chairman
of the Board and Chief Executive Officer of Johnston
Coca-Cola and served as President of Johnston Coca-Cola
prior to that time.
Henry A. Schimberg............. 61 Mr. Schimberg has been the President, Chief Operating
Officer and a Director of the Company since December
1991. From 1984 to December 1991, he served as President
and Chief Operating Officer of Johnston Coca-Cola.
John R. Alm.................... 48 Mr. Alm has been a Senior Vice President and Chief
Financial Officer of the Company since December 1991 and
has also served as the principal accounting officer
since July 1992. From 1985 to December 1991, he served
as Senior Vice President -- Finance and Administration
of Johnston Coca-Cola.
Bernice H. Winter.............. 45 Ms. Winter has been Vice President and Controller of the
Company since December 1993. She was Vice President,
European Community Group, Coca-Cola International from
1991 to December 1993 and was President, Coca-Cola
Financial Corporation from 1989 to 1991.
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17
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
- ------------------------------- ---- --------------------------------------------------------
Norman P. Findley.............. 49 Mr. Findley has been Vice President, Domestic and
International Marketing of the Company since July 1993.
From 1989 to July 1993, he served as Vice President,
Marketing of the Company. From 1987 to 1989, he served
as Vice President and Account Manager of the Coca-Cola
USA division of The Coca-Cola Company.
Robert F. Gray................. 46 Mr. Gray has been Vice President, Information Systems of
the Company since February 1992. Mr. Gray was a partner
with KPMG Peat Marwick (accounting firm) from 1984 to
1992.
S. K. Johnston III*............ 40 Mr. Johnston has been Vice President, Regional
Operations of the Company since July 1993. He was Vice
President and General Manager, West Central Region from
December 1992 to July 1993 and served as Vice President,
Human Resources of the Company from February 1992 to
December 1992. From 1987 to 1991, Mr. Johnston served as
Executive Vice President and General Manager of the Mid-
west Coca-Cola Bottling Company division of Johnston
Coca-Cola.
G. David Van Houten, Jr.*...... 44 Mr. Van Houten has been Vice President, Regional Opera-
tions of the Company since July 1993. He was Regional
Vice President and General Manager, Texas Region from
1992 to 1993 and served as Area Vice President, Texas
Area from 1989 to 1991.
Jarratt H. Jones*.............. 40 Mr. Jones has been Vice President, Human Resources of
the Company since October 1993. Mr. Jones was a General
Manager for International Business Machines Corporation
from 1989 to 1993.
John C. Heinrich............... 52 Mr. Heinrich has been Vice President, Operations of the
Company since February 1992. He was the Vice President
for Operations of Johnston Coca-Cola from 1988 to 1991,
and served as Vice President, Operations from 1985 to
1988 of the Central States Coca-Cola Bottling Company
division of Johnston Coca-Cola.
Philip H. Sanford.............. 40 Mr. Sanford has been Vice President, Finance and
Administration of the Company since February 1993. He
had been Vice President and Executive Assistant to the
Chief Executive Officer of the Company since February
1992. From 1985 to 1991, he was Senior Vice President
and Treasurer of Johnston Coca-Cola.
Vicki G. Roman................. 40 Ms. Roman has been Vice President and Treasurer of the
Company since December 1993. She was Treasurer of the
Company from February 1992 to December 1993 and was an
Assistant Treasurer of the Company from 1986 to Febru-
ary 1992.
- ---------------
* Designated an executive officer by the Company's Board of Directors on
February 15, 1994.
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PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
- ------------------------------- ---- --------------------------------------------------------
Lowry F. Kline................. 53 Mr. Kline has been General Counsel of the Company since
December 1991. He has been a partner in the law firm of
Miller & Martin, Chattanooga, Tennessee, since 1970.
Summerfield K. Johnston, Jr. is the father of S. K. Johnston III.
The officers of the Company are elected annually by the Board of Directors
for terms of one year or until their successors are elected and qualified,
subject to removal by the Board of Directors at any time.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LISTED AND TRADED: New York Stock Exchange
TRADED: Boston, Cincinnati, Midwest,
Pacific, and Philadelphia Exchanges
Share owners of record as of March 1, 1994: 9,037
STOCK PRICES
- --------------------------------------------------------------------------------------------
1993 HIGH LOW
- --------------------------------------------------------------------------------------------
Fourth Quarter 15 5/8 13 1/2
Third Quarter 15 5/8 13 3/4
Second Quarter 15 7/8 12 3/4
First Quarter 15 3/4 11 3/4
- --------------------------------------------------------------------------------------------
1992 HIGH LOW
- --------------------------------------------------------------------------------------------
Fourth Quarter 12 7/8 11 5/8
Third Quarter 13 3/4 11 1/4
Second Quarter 13 3/4 12 5/8
First Quarter 16 1/4 12 5/8
- --------------------------------------------------------------------------------------------
DIVIDENDS
Quarterly dividends in the amount of $0.0125 per share were paid during the
fiscal years 1992 and 1993.
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17
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ITEM 6. SELECTED FINANCIAL DATA
COCA-COLA ENTERPRISES INC.
SELECTED FINANCIAL DATA
FISCAL
- ------------------------------------------------------------------------------------------------------
(In millions except per share data) 1993(A) 1992(B)
- ------------------------------------------------------------------------------------------------------
OPERATIONS SUMMARY
Net operating revenues $5,465 $5,127
Cost of sales 3,372 3,219
- ------------------------------------------------------------------------------------------------------
Gross profit 2,093 1,908
Selling, general and administrative expenses 1,708 1,602
Provision for restructuring -- --
- ------------------------------------------------------------------------------------------------------
Operating income 385 306
Interest expense, net 328 312
Other income (expense), net (2) (6)
Gain on sale of bottling operations -- --
- ------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative effect of changes in
accounting principles 55 (12)
Income taxes:
Expense (benefit) excluding rate change 30 3
Rate change -- federal 40 --
- ------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of changes
in accounting principles (15) (15)
Cumulative effect of changes in accounting principles -- (171)
- ------------------------------------------------------------------------------------------------------
Net income (loss) (15) (186)
Preferred stock dividend requirements -- --
- ------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common share owners $ (15) $ (186)
- ------------------------------------------------------------------------------------------------------
OTHER OPERATING DATA
Depreciation expense $ 254 $ 227
Amortization expense 165 162
- ------------------------------------------------------------------------------------------------------
SHARE AND PER SHARE DATA
Average common shares outstanding 129 129
Net income (loss) per common share before cumulative effect of changes
in accounting principles $(0.11) $(0.11)
Net income (loss) per common share (0.11) (1.45)
Dividends per common share 0.05 0.05
- ------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Property, plant and equipment, net $1,890 $1,733
Franchise and other noncurrent assets 6,046 5,651
Total assets 8,682 8,085
Long-term debt 4,391 4,131
Share-owners' equity 1,260 1,254
- ------------------------------------------------------------------------------------------------------
(Notes to Selected Financial Data begin on page 20)
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YEAR
- ------------------------------------------------------------------------------------------------------
1991 1986
- ------------------------- -------------------------
PRO FORMA(C) REPORTED 1990(D) 1989(E) 1988(F) 1987 PRO FORMA(G) REPORTED
- ------------------------------------------------------------------------------------------------------
$5,027 $3,915 $3,933 $3,822 $3,821 $3,327 $3,191 $1,951
3,170 2,420 2,400 2,350 2,303 1,953 1,872 1,138
- ------------------------------------------------------------------------------------------------------
1,857 1,495 1,533 1,472 1,518 1,374 1,319 813
1,535 1,223 1,199 1,162 1,137 1,037 1,024 645
152 152 9 -- 27 -- -- --
- ------------------------------------------------------------------------------------------------------
170 120 325 310 354 337 295 168
312 210 200 193 202 160 188 76
(3) (2) 3 10 12 (4) (9) (7)
-- -- 56 11 104 -- -- --
- ------------------------------------------------------------------------------------------------------
(145) (92) 184 138 268 173 98 85
(17) (9) 91 66 115 85 77 57
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
(128) (83) 93 72 153 88 21 28
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
(128) (83) 93 72 153 88 21 28
9 9 16 18 10 -- -- --
- ------------------------------------------------------------------------------------------------------
$ (137) $ (92) $ 77 $ 54 $ 143 $ 88 $ 21 $ 28
- ------------------------------------------------------------------------------------------------------
$ 205 $ 160 $ 150 $ 148 $ 143 $ 123 $ 108 $ 68
125 91 86 81 82 72 65 24
- ------------------------------------------------------------------------------------------------------
129 116 119 130 139 140 140 77
$(1.06) $(0.79) $ 0.65 $ 0.41 $ 1.03 $ 0.63 $ 0.15 $ 0.36
(1.06) (0.79) 0.65 0.41 1.03 0.63 0.15 0.36
0.05 0.05 0.05 0.05 0.05 0.05 -- --
- ------------------------------------------------------------------------------------------------------
$1,706 $1,706 $1,373 $1,286 $1,180 $1,038 $ 850 $ 850
4,265 4,265 3,153 2,952 3,001 2,760 2,539 2,539
6,677 6,677 5,021 4,732 4,669 4,250 3,811 3,811
4,091 4,091 2,537 2,305 2,211 2,157 1,804 1,804
1,442 1,442 1,627 1,680 1,808 1,526 1,448 1,448
- ------------------------------------------------------------------------------------------------------
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22
NOTES TO SELECTED FINANCIAL DATA
The Company changed its fiscal year end in 1991, from the Friday nearest
December 31 to a calendar year end. Accordingly, fiscal years presented are the
periods ended December 31, 1993, 1992 and 1991, December 28, 1990, December 29,
1989, December 30, 1988, January 1, 1988 and January 2, 1987. The Company
acquired subsidiaries in each year presented and divested subsidiaries in
certain periods. Such transactions, except for (i) the acquisition of Johnston
Coca-Cola Bottling Group, Inc. ("Johnston"), (ii) gains from the sale of certain
bottling operations, and (iii) acquisitions in 1986, did not significantly
affect the Company's operating results for any fiscal period. All acquisitions
and divestitures have been included in or excluded from (as appropriate) the
consolidated operating results of the Company from their respective transaction
dates. Reclassifications have been made to certain prior period amounts to
conform to the 1993 presentation.
(A) On August 10, 1993, the Omnibus Budget Reconciliation Act was signed into
law resulting in an increase in the corporate marginal income tax rate from
34% to 35%. The resulting one-time adjustment increased deferred taxes and
income tax expense by approximately $40 million ($0.31 per common share).
(B) In the fourth quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 ("Employers' Accounting for Postretirement
Benefits Other Than Pensions") and Statement of Financial Accounting
Standards No. 109 ("Accounting for Income Taxes"), retroactive to January
1, 1992, resulting in one-time charges to income reflecting the cumulative
prior years' effect of changes in these accounting principles. Fiscal
periods prior to 1992 were not restated for these accounting changes.
(C) The pro forma Operations Summary, Other Operating Data, and Share and Per
Share Data give effect to the acquisition of Johnston in December 1991,
assuming such acquisition was consummated as of the beginning of 1991.
(D) In June 1990, the Company sold its interest in Coca-Cola Bottling Company
of Ohio and Portsmouth Coca-Cola Bottling Company. These operations were
sold to Johnston and, as a result of the 1991 acquisition of Johnston, have
been reacquired by the Company.
(E) In February 1989, the Company sold its wholly owned subsidiaries, Goodwill
Bottling Ltd. and Goodwill Bottling North Ltd.
(F) In December 1988, the Company sold a wholly owned subsidiary, The Coca-Cola
Bottling Company of Mid-America, Inc. The Mid-America operations were sold
to Johnston and, as a result of the 1991 acquisition of Johnston, have been
reacquired by the Company.
(G) The pro forma Operations Summary, Other Operating Data, and Share and Per
Share Data give effect to 1986 acquisitions as though they had been
completed at the beginning of 1986.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DESCRIPTION OF BUSINESS
Coca-Cola Enterprises Inc. (the "Company") is the world's largest producer
and distributor of bottle and can soft drink products of The Coca-Cola Company.
We are the Coca-Cola bottler within 38 states, the District of Columbia, the
U.S. Virgin Islands and the Netherlands. Within the United States, we operate
through exclusive and perpetual rights in territories encompassing approximately
52% of the population and accounting for approximately 55% of all Coca-Cola
bottled and canned products sold. Approximately 89% of our revenues are derived
from the sale of The Coca-Cola Company products.
Principal Stock Ownership and Relationship with The Coca-Cola Company
Management has a significant vested interest in the success of our Company.
Summerfield K. Johnston, Jr., our chief executive officer and vice chairman of
our Board of Directors, and his family
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were the principal owners of Johnston Coca-Cola Bottling Group, Inc.
("Johnston") and were the recipients of virtually all of the Coca-Cola
Enterprises common stock issued in the merger with Johnston. As a result, Mr.
Johnston and his family hold approximately 9% of our outstanding stock. All
directors and officers of the Company as a group hold approximately 10% of our
outstanding stock.
We also encourage employee stock ownership below the director and officer
level. In 1993, we established stock ownership guidelines for all officers and
senior management of the Company. Through implementation of these policies, our
intent is to encourage employees to have a share-owner focus in making
day-to-day operating decisions.
We benefit from a special relationship with The Coca-Cola Company. The
Coca-Cola Company is the supplier of the raw material beverage base for the
majority of our products and is the principal marketer of these products
providing us with a variety of media advertising and marketing program support.
The Chairman and other members of our Board of Directors are current or former
executives of The Coca-Cola Company, complementing other accomplished men and
women who comprise directors elected by our share owners. The Coca-Cola Company
is our largest single share owner, holding approximately 44% of our outstanding
stock. The Company's success, while principally dependent upon our expertise in
bottling operations, is enhanced by this relationship.
International Expansion
1993 was a significant milestone in the Company's existence. It was the
year we substantially completed the operational and organizational restructuring
of the Company, after the merger with Johnston Coca-Cola Bottling Group, Inc. in
1991, and the year that we began our expansion outside the United States.
International markets provide an increased opportunity for long-term volume
growth because of existing low consumption rates when compared to the domestic
market. Our first international acquisition was completed in June 1993 through
the acquisition of Coca-Cola Beverages Nederland B.V. ("CCBN") in the
Netherlands from The Coca-Cola Company. Through this acquisition, we purchased
the franchise rights to distribute all the canned and bottled products of The
Coca-Cola Company in the Netherlands.
The Coca-Cola Company completed its acquisition of all outside ownership
interests of CCBN during 1993. The Coca-Cola Company then began discussions with
us to acquire CCBN, we believe, principally because of the successes we have
achieved domestically and the opportunities for growth in this region through
efficient management. We believe the operating strategies we have developed in
the U.S. market to increase volume and advance market share can also be employed
successfully in other international markets.
We are interested in continuing international expansion given the right
opportunities and provided they do not dilute our current business. Our plans
for future international expansion will be guided by the availability of
additional franchise opportunities that we believe will grow share-owner value.
Business Strategy for Enhancing Share-Owner Value
We can best achieve our goal of enhancing share-owner value by increasing
long-term operating cash flows through the balancing of growth in sales volume
with optimal gross profit margins. Careful consideration will be given to all
the potential uses of these operating cash flows, including strategic
acquisition opportunities.
The liquid nonalcoholic refreshment business continues to be increasingly
competitive. This increased competition strengthens our belief that market share
is the principal determinant of long-term profitability. Improvements in market
share, together with increases in per capita consumption and population,
determine case sales growth. Our competitive strategy continues to be to obtain
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profitable increases in case sales by balancing case sales growth with improved
margins and sustainable increases in market share. We do not intend to implement
a strategy of liquidating market share to realize short-term profits. Our
objective is to increase our share of liquid nonalcoholic refreshment sales and
per capita consumption of our products through the development of innovative
marketing programs and improved execution at the local level.
In the past seven years, the Company has acquired numerous bottlers for an
aggregate purchase price of approximately $5.6 billion. As a result, the Company
currently maintains a high degree of financial leverage. Our capital structure,
financial position and cash flow streams allow us to maintain flexibility for
acquisitions and capital projects that offer an acceptable rate of return and an
opportunity to implement our operating strategies. We continually evaluate
alternative methods of financing acquisitions, including the use of preferred
and common stock.
OPERATING RESULTS
Summary of One-Time Charges
Operating results for each year in the period from 1991 through 1993 were
affected by significant one-time charges which materially impact reported
results of operations and net income per common share. In 1993, the Omnibus
Budget Reconciliation Act was signed into law resulting in a one-time charge for
the effect of the increase in the income tax rate from 34% to 35% on deferred
income taxes. In 1992, we adopted Financial Accounting Standards No. 106 ("FAS
106") and Financial Accounting Standards No. 109 ("FAS 109") resulting in
significant one-time adjustments for the cumulative effect of changes in
accounting principles and increased expense under FAS 106. The increased expense
under FAS 106 for 1993 was mitigated by the redesign of our postretirement
benefit plans in 1993. In 1991, we recognized a provision for restructuring the
Company after the merger with Johnston. Each of these items is discussed in
greater detail in the following highlights of operating results.
We believe comparisons of operating results are more meaningful when we
exclude these one-time items. The following table identifies the effects on
reported earnings of the increase in the income tax rate in 1993, FAS 106 and
FAS 109, the effects of postretirement benefit plan amendments and restructuring
charges on an after-tax basis.
- ------------------------------------------------------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
PER PER PER
(In millions except per share NET COMMON NET COMMON NET COMMON
data) INCOME SHARE INCOME SHARE INCOME SHARE
- ------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common share owners $(15) $(0.11) $ (186) $(1.45) $ (92) $(0.79)
FAS 106 increased expense -- -- (1) (18) (0.14) -- --
Tax legislation one-time charge (40) (0.31) -- -- -- --
Restructuring charges -- -- -- -- (100) (0.86)
- ------------------------------------------------------------------------------------------------
25 0.20 (168) (1.31) 8 0.07
Cumulative effect of changes in
accounting principles:
FAS 106 -- -- (148) (1.15) -- --
FAS 109 -- -- (23) (0.18) -- --
- ------------------------------------------------------------------------------------------------
Net income applicable to common
share owners, as adjusted $ 25 $0.20 $ 3 $0.03 (2) $ 8 $0.07
- ------------------------------------------------------------------------------------------------
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(1) The increased expense under FAS 106 for 1993 was entirely offset by the
accounting treatment for the plans' redesign in 1993.
(2) Does not sum to the total because of rounding of individual amounts.
The consolidation and redesign of our postretirement benefit plans was
completed in the first quarter of 1993 through plan amendments as of January 1,
1993. These plan amendments had the effect of decreasing the accumulated
postretirement benefit obligation at January 1, 1993 from approximately $312
million to $164 million. This reduction of $148 million in the postretirement
benefit obligation is being amortized over the average service life of plan
participants (approximately 17 years) as a reduction in net periodic benefit
cost. The accounting treatment for these plan amendments had the effect of
reducing postretirement benefit expense by approximately $31 million ($0.15 per
common share) in 1993.
On August 10, 1993, the Omnibus Budget Reconciliation Act was signed into
law. The primary effect on our operations was the increase in the corporate
marginal income tax rate from 34% to 35%. The adjustment in 1993 to our deferred
tax liability for the effect of the federal tax increase resulted in a one-time
charge of approximately $40 million ($0.31 per common share).
We adopted FAS 106 and FAS 109 in the fourth quarter of 1992, retroactive
to January 1, 1992. Although these new accounting principles had no effect on
cash flows, they affected the reporting of our operating results. The adoption
of FAS 106 changed our practice of recognizing the cost of postretirement
benefits expense as claims are paid to the practice of accruing these costs
during the period employees provide service to the Company. The cumulative
effect of adopting FAS 106 as of January 1, 1992 resulted in a one-time, noncash
earnings charge of $148 million. The adoption of FAS 106 in 1992 also increased
1992 expense by approximately $30 million.
The adoption of FAS 109 changed our method of accounting for income taxes
from an income statement approach to a balance sheet approach. We recognized, as
of January 1, 1992, the FAS 109 prior years' effect of $23 million as the
cumulative effect of this change. This new accounting principle decreased pretax
income and correspondingly decreased income tax expense by approximately $38
million in 1992 and 1993, with no effect on annual net income. Pretax income
decreased from 1991 because of increased amortization expense resulting from a
$1.4 billion increase in the franchise asset basis. Income tax expense for 1993
and 1992 decreased from 1991 because of the additional amortization of a
deferred benefit.
In 1991, we recognized a $152 million provision for restructuring relating
to standardization of operations following the merger with Johnston. The
restructuring charge related primarily to the reconfiguration of sales and
distribution centers, standardization of information systems, and severance and
relocation costs associated with the decentralization of our organizational
structure and elimination of redundant staff and operating positions.
Operating Results Overview
The most meaningful operating results comparisons between years reflect (i)
1993 excluding the impact of the Omnibus Budget Reconciliation Act on deferred
income taxes; (ii) 1992 excluding noncash charges resulting from the adoption of
FAS 106 and FAS 109; (iii) pro forma 1991 excluding the restructuring charge of
$152 million; and (iv) 1993, 1992 and 1991 adjusted for the effects of
acquisitions, if significant. Accordingly, we refer to "comparable" results in
the following discussions as the results of operations excluding the impact of
the above items.
Revenues, Pricing and Volume: Revenues are comprised principally of
wholesale sales and agency sales. Wholesale sales are sales to retailers and
accounted for approximately 96% of our net sales and 99% of our gross profit.
Agency sales are sales to other independent bottlers. Comparable net operating
revenues for 1993 increased approximately 4% over 1992. This increase results
from an approximate 1/2% increase in net pricing and an approximate 2% increase
in bottle/can case
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sales volume. Actual net operating revenues for 1993 increased approximately 7%
over 1992. This increase was driven by an approximate 5 1/2% increase in actual
bottle/can physical case sales volume for 1993 we achieved through sales volume
increases and the effects of acquisitions in 1993 and 1992.
The net price per case increase for 1993 is partially the result of shifts
into higher priced products and packages. The sales volume growth we experienced
on a comparable basis in 1993 was aided by the introductions of new products in
1993 and our marketing efforts for these products. The introductions of PowerAde
and Minute Maid Juices To Go were successes in 1993, and we are optimistic about
the impact these products will have on 1994.
Volume growth in 1993 and 1992 for The Coca-Cola Company products and the
soft drink industry was significantly influenced by the fountain segment of the
business. We experienced a growth in fountain sales, excluding the effects of
acquisitions, of approximately 8 1/2% and 9% in 1993 and 1992, respectively.
This increase in fountain sales, however, does not have a significant impact on
our operating results because operating margins on fountain sales are relatively
low.
Net operating revenues for 1992 increased 31% over the same period of 1991
principally from the acquisition of Johnston. Comparable net operating revenues
for 1992 increased approximately 2% from 1991. This increase results primarily
from an approximate 2 1/2% increase in net pricing for wholesale sales, reduced
by an approximate 1/2% decrease in bottle/can case sales volume. The decrease
in 1992 bottle/can physical case sales volume from 1991 resulted principally
from the economic environment, higher prices and unseasonably cool, damp weather
in many of the Company's territories.
Cost of Sales: Cost of sales per physical case for 1993, excluding the
effect of fountain sales, decreased approximately 1 1/2% over 1992. This
decrease is primarily attributable to favorable packaging and ingredient costs.
Comparable cost of sales per unit for 1993, excluding fountain sales, decreased
approximately 2% from 1992. Comparable cost of sales per case for 1992,
excluding fountain sales, increased approximately 1/2% from 1991. This increase
resulted principally from increased concentrate costs in 1992.
We expect concentrate costs to increase by approximately 2 1/2% in 1994,
with anticipated increases in other ingredient costs as well. These increased
costs, however, will be mitigated somewhat by anticipated savings in packaging
costs. We expect bottle/can unit cost of sales in 1994 to increase moderately
over 1993 due to the effect of these anticipated changes.
Cash Operating Profit and Operating Income: We believe the best measure of
the Company's performance is a comparison of cash operating profit (operating
income before the deduction for depreciation and amortization). Cash operating
profit growth encompasses various combinations of volume, price and cost
elements. We attempt to maximize cash operating profit growth by managing volume
and margins in response to existing market conditions. We do not predict trends
in these factors independently, but instead manage these factors over time to
achieve our cash operating profit goals.
Comparable cash operating profit and comparable operating income increased
approximately 8% and 12% over 1992, respectively. Actual cash operating profit
and operating income for 1993 increased approximately 16% and 26% over 1992,
respectively. Comparable cash operating profit and comparable operating income
for 1992 increased approximately 9% and 11% over 1991, respectively. Actual cash
operating profit and operating income for 1992, after giving effect in 1991 to
the acquisition of Johnston, increased approximately 39% and 80%, respectively,
over 1991.
We believe that revenue growth for 1994 will exceed reported 1993 revenue
growth of 7%, balanced between volume and price which, when combined with cost
containment measures, will achieve an approximate 8% growth in cash operating
profit, excluding the effect of acquisitions. We
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expect price increases in excess of any cost increases and volume growth for
bottle/can in excess of 1993 performance. We anticipate that net income and
earnings per common share, driven principally by our anticipated growth in cash
operating profit, will increase by more than 50% over 1993 results excluding the
$40 million one-time tax charge.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for 1993 increased approximately 6 1/2% from 1992
resulting primarily from the increased case sales volume and acquisitions during
the year. Comparable selling, general and administrative expenses as a
percentage of sales for 1993 increased approximately 1/2% from 1992, primarily
as a result of increases in administrative expenses. We attribute this increase
to the cost of operating a fully implemented decentralized organizational
structure.
Selling, general and administrative expenses for 1992 increased
approximately 31% from 1991 as a result of the acquisition of Johnston and
increased expense related to the adoption of FAS 106 and FAS 109. Comparable
selling, general and administrative expenses as a percentage of sales for 1992
decreased approximately 1/2% from 1991. This decrease reflects our cost control
efforts coupled with the fixed nature of certain costs.
In response to the general decline in long-term interest rates during 1993,
we decreased the rate used to discount our postretirement and pension benefit
obligations. The change in the discount rate will increase net periodic benefit
cost by approximately $4 million in 1994. A 0.25% additional change in the
discount rate would increase or decrease, as appropriate, postretirement and
pension benefit expense in the aggregate for 1994 by approximately $1.4 million.
In 1991, we recognized a $152 million ($0.86 per common share) provision
for restructuring as a result of the Johnston merger. This restructuring charge
related primarily to the standardization of information systems, reconfiguration
of sales and distribution centers, and severance and relocation costs associated
with decentralizing our organizational structure and elimination of redundant
staff and operating positions. Our restructuring plan is now substantially
complete and we believe we are beginning to realize the effects of the
restructuring in our improved financial operating performance which occurred
despite the significant organizational distractions and difficult economic
environment.
Interest Expense: The increase in interest expense for 1993 over 1992
reflects (i) an increase in the average debt balance resulting from acquisitions
and (ii) a higher weighted average borrowing rate resulting principally from
fixed rate financings which occurred during 1992. The increase in net interest
expense for 1992 over 1991 reflected higher average debt balances resulting from
the acquisition of Johnston. Our blended borrowing rates for 1993, 1992 and 1991
were approximately 7.6%, 7.5% and 7.8%, respectively. Net interest expense for
1994 should not be appreciably different from 1993 after adjusting 1993 to give
effect to ownership of acquired companies for a full year.
Income Taxes: Changes in enacted tax rates are accounted for under FAS 109
as an adjustment to income tax expense in the period the change is effected. The
adjustment to deferred taxes to recognize the effect of the Omnibus Budget
Reconciliation Act resulted in a one-time charge of approximately $40 million
($0.31 per common share) in 1993 to increase the deferred tax liability existing
at the date of enactment for the effect of the rate change. Additionally, our
annual estimated effective tax rate was increased by an amount approximating the
1% marginal rate increase under the law. Other components of the law are not
expected to have a material impact on the Company.
Our effective tax rates for 1993, 1992 and 1991 were approximately 55%
(excluding the one-time charge), 25% and 10%, respectively. The change in the
effective tax rate from 1992 to 1993 is principally due to the level of pretax
income in each period and the relationship of
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nondeductible expenses to pretax income. 1991 was not restated for the adoption
of FAS 109 in 1992.
Operating Contingencies
We are subject to laws and regulations pertaining to special soft drink
taxes, forced deposit legislation, restrictive packaging measures and
escheats/unclaimed deposits. We have taken actions to mitigate the adverse
effects resulting from legislation which imposes additional costs on the Company
and to inform consumers of the possible resulting effect on product pricing.
Similar laws and regulations are receiving increased attention by the
legislatures of other states and by the Congress of the United States. We are
presently unable to quantify the impact on current and future operations which
may result from legislation enacted in the future, but we view this legislation
to be potentially significant if widely enacted.
Substantially all of the facilities of the Company are subject to federal,
state and local provisions regulating fuel storage tanks and the environmental
discharge of materials. Certain underground fuel storage tanks used in their
present condition may not be in compliance with all applicable requirements for
the continued maintenance and use of such tanks. Virtually all of such tanks
were acquired through acquisitions. We have established plans for the testing,
removal, replacement or repair of our underground fuel storage tanks and
remediation of their sites, if necessary. We are committed to maintaining our
environment and protecting our natural resources, and to achieving full
compliance with all applicable laws and regulations.
Expenditures related to federal and state requirements for remediation and
maintenance of underground fuel storage tanks approximated $9 million, $8
million and $25 million during 1993, 1992 and 1991, respectively. We believe our
reserves established for environmental remediation costs are adequate to provide
for noncapitalizable costs expected to be incurred in connection with completion
of the Company's multiyear remediation program. Cash expenditures remaining to
complete the program are expected to aggregate approximately $15 million through
1998.
The Company has been named as a potentially responsible party ("PRP") for
the costs of remediation of hazardous waste at 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.
The Congress of the United States is currently considering health care
reform proposals which would result in significant changes in health care
delivery, potentially increasing the amount of health care expenditures that
companies will be required to make. Because of the present uncertainty as to the
outcome of any proposed legislation, we cannot predict the impact any such
legislation may have on future results of operations.
FINANCIAL POSITION
Cash and cash equivalents increased approximately $5 million in 1993. Our
principal sources of cash consisted of (i) those provided from operations ($493
million) and (ii) the issuance of debt ($822 million). Our primary uses of cash
were (i) additions to property, plant and equipment ($353 million); (ii)
acquisitions of bottling companies ($287 million); and (iii) payments on debt
($668 million).
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On June 30, 1993, we acquired, from The Coca-Cola Company, the stock of (i)
Coca-Cola Beverages Nederland B.V. in the Netherlands; (ii) Roddy Coca-Cola
Bottling Company, Inc. in Knoxville, Tennessee; and (iii) Coca-Cola Bottling
Company of Johnson City, in Johnson City, Tennessee for an aggregate purchase
price of approximately $366 million in cash and assumed debt. On December 15,
1993, we acquired the outstanding stock of Coca-Cola Bottling Company of
Northeast Arkansas, Inc. for approximately $54 million in preferred stock and
assumed debt. These acquisitions were accounted for using the purchase method.
The assets and liabilities of the acquired companies are included in the
consolidated balance sheet at their estimated fair values representing a
preliminary allocation of the purchase price.
The increase in trade accounts receivable results primarily from the effect
of current year acquisitions. Excluding the effect of current year acquisitions,
inventories in 1993 decreased from 1992 as a result of increased purchases of
ingredients during 1992, including concentrate for the production of TAB clear
which was introduced to the market in January 1993. Amounts due from The
Coca-Cola Company result from the timing of receipts for marketing support
payments and are net of approximately $37 and $34 million in amounts payable for
purchases of ingredients in 1993 and 1992, respectively. The increase in
franchise and other noncurrent assets results primarily from current year
acquisitions.
The decrease in current maturities of long-term debt is a result of
scheduled maturities during 1993. Total long-term debt increased during 1993
reflecting a $325 million increase in commercial paper, the proceeds of which
were used primarily to finance current year acquisitions. The increase in
deferred income taxes from 1992 is due to a one-time charge of $40 million
resulting from newly enacted tax legislation and the tax effects of basis
differences from current year acquisitions.
During 1993, we issued preferred stock in connection with the acquisition
of a bottling business. We believe the use of equity financing as an alternative
to debt provides increased flexibility for both negotiating and funding future
acquisitions while maintaining a desired debt to equity ratio.
As a result of our entrance into the international marketplace, the Company
is exposed to fluctuations in the exchange rate for the Dutch florin. Currently,
gains and losses resulting from translation of foreign currency transactions are
not material. Adjustments resulting from translation of our net investment in
the Netherlands operation are recorded in the cumulative translation adjustment
component of share-owners' equity.
Our 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 currently outstanding under these agreements; however,
under the commercial paper program supported by these agreements, an aggregate
$522 million was outstanding at December 31, 1993.
We believe that adequate capital resources are available to satisfy our
capital expenditure program and to satisfy scheduled maturities of debt
obligations. We currently expect 1994 capital expenditures to aggregate $330 to
$370 million. Our sources of capital include, but are not limited to, the
issuance of public or private placement debt, bank borrowings and the issuance
of certain equity securities. We believe that the Company is able to generate
sufficient cash flow to maintain current operations.
In November 1992, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," requiring the accrual of benefits to former or inactive employees
after employment but before retirement. The Company has historically accrued for
postemployment benefit obligations in accordance with the requirements under the
Statement, therefore no adjustments are required.
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In May 1993, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," requiring a fair value approach to valuing certain debt and
marketable equity securities. The Company does not hold significant investments
in debt and equity securities which fall within the scope of the Statement,
therefore no adjustments are required.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COCA-COLA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------
(In millions except per share data) 1993 1992 1991
- ---------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------
GROSS PROFIT 2,093 1,908 1,495
Selling, general and administrative expenses 1,708 1,602 1,223
Provision for restructuring -- -- 152
- ---------------------------------------------------------------------------------------------
OPERATING INCOME 385 306 120
Interest expense, net 328 312 210
Other nonoperating deductions, net 2 6 2
- ---------------------------------------------------------------------------------------------
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 -- --
- ---------------------------------------------------------------------------------------------
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) --
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) (15) (186) (83)
Preferred stock dividend requirements -- -- 9
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARE OWNERS $ (15) $ (186) $ (92)
- ---------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 129 129 116
- ---------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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COCA-COLA ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------
(In millions except share data) 1993 1992
- --------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------
Total Current Assets 746 701
PROPERTY, PLANT AND EQUIPMENT
Land 163 179
Buildings and improvements 622 594
Machinery and equipment 2,132 1,851
- --------------------------------------------------------------------------------------------