Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - COCA-COLA EUROPEAN PARTNERS US, LLCFinancial_Report.xls
EX-21 - SUBSIDIARIES OF COCA-COLA ENTERPRISES, INC. - COCA-COLA EUROPEAN PARTNERS US, LLCex21-2014scheduleofsignifi.htm
EX-32.1 - 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCex321-201410k.htm
EX-31.2 - 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCex312-201410k.htm
EX-10.10 - EMPLOYMENT AGREEMENT - LAURA BRIGHTWELL - COCA-COLA EUROPEAN PARTNERS US, LLCex1010-201410kbrightwellco.htm
EX-32.2 - 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCex322-201410k.htm
EX-31.1 - 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCex311-201410k.htm
EX-12 - EARNINGS TO FIXED CHARGES - COCA-COLA EUROPEAN PARTNERS US, LLCex12-201410k.htm
EX-23 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - COCA-COLA EUROPEAN PARTNERS US, LLCex23-consentofindependentr.htm
EX-24 - POWER OF ATTORNEY - COCA-COLA EUROPEAN PARTNERS US, LLCex24-powersofattorneyx2014.htm
EX-10.11 - EMPLOYMENT AGREEMENT - MANIK JHANGIANI - COCA-COLA EUROPEAN PARTNERS US, LLCex1011-2014jhangianicontra.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________________________
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, 2014.
or
[ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________ .
Commission file number 001-34874
(Exact name of registrant as specified in its charter)
Delaware
 
27-2197395
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

2500 Windy Ridge Parkway, Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
(678) 260-3000
(Registrant’s telephone number, including area code)
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on
which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange (NYSE), NYSE Euronext Paris
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  [X]   No  [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  [ ]   No  [X]
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  [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).    Yes  [X]   No  [ ]
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 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.  [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer [X]
 
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
 
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  [ ]  No  [X]
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 27, 2014 (assuming, for the sole purpose of this calculation, that all directors and executive officers of the registrant are "affiliates") was $11,679,940,390 (based on the closing sale price of the registrant's common stock as reported on the New York Stock Exchange).
The number of shares outstanding of the registrant’s common stock as of January 30, 2015 was 235,855,465.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareowners to be held on April 28, 2015 are incorporated by reference in Part III.
 

1



TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



PART I
 
ITEM 1.
BUSINESS
 
References in this report to “CCE,” “we,” “our,” or “us” refer to Coca-Cola Enterprises, Inc. and its subsidiaries unless the context requires otherwise.
 
Forward-looking statements involve matters that are not historical facts. Because these statements involve anticipated events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would,” or similar expressions. These statements are based upon the current reasonable expectations and assessments of our management and are inherently subject to business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
 
Forward-looking statements include, but are not limited to:
Projections of revenues, income, basic and diluted earnings per share, capital expenditures, dividends, capital structure, or other financial and operating measures;
Descriptions of anticipated plans, goals, or objectives of our management for operations, products, or services;
Forecasts of performance; and
Assumptions regarding any of the foregoing.
For example, our forward-looking statements include our expectations regarding:
Net sales growth;
Volume growth;
Net price per case growth;
Cost of sales per case growth;
Operating income growth; and
Diluted earnings per share.
Additionally, we may also make forward-looking statements regarding:
Capital expenditures;
Concentrate cost increases from The Coca-Cola Company (TCCC);
Developments in accounting standards;
Future repatriation of foreign earnings;
Renewal of our product licensing agreements;
Planned share repurchases;
Restructuring charges and expected annual cost savings; and
Return on invested capital (ROIC).
 
Do not unduly rely on forward-looking statements. They represent our expectations about the future and are not guarantees. Forward-looking statements are only as of the date of the filing of this report, and, except as required by law, might not be updated to reflect changes as they occur after the forward-looking statements are made. We urge you to review our periodic filings with the Securities and Exchange Commission (SEC) for any updates to our forward-looking statements.
 
We undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. We do not assume responsibility for the accuracy and completeness of forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, any or all of the forward-looking statements contained in this report and in any other of our public statements may prove to be incorrect. This may occur as a result of inaccurate assumptions as a consequence of known or unknown risks and uncertainties. We caution that our list of risk factors may not be exhaustive (refer to Item 1A. Risk Factors in this report). We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of the new risk factors on our business or the extent

3



to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statement. In light of these risks, uncertainties, and assumptions, the events anticipated by our forward-looking statements discussed in this report might not occur.
 
Introduction
 
Coca-Cola Enterprises, Inc. at a Glance
Markets, produces, and distributes nonalcoholic beverages.
Serves a market of approximately 170 million consumers throughout Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden.
Employs approximately 11,650 people.
Generated $8.3 billion in net sales and sold approximately 12 billion bottles and cans (or 600 million physical cases) during 2014.
 
On October 2, 2010, pursuant to the merger agreement (the Agreement) dated February 25, 2010, Coca-Cola Enterprises Inc. (Legacy CCE) completed a merger (the Merger) with TCCC and separated its European operations, and a related portion of its corporate segment into a new legal entity, which was renamed Coca-Cola Enterprises, Inc. (“CCE,” “we,” “our,” or “us”) at the time of the Merger. Concurrently with the Merger, two indirect, wholly owned subsidiaries of CCE acquired TCCC’s bottling operations in Norway and Sweden.
 
We were incorporated in Delaware in 2010 by Legacy CCE and are a publicly traded company listed on the New York Stock Exchange (NYSE) and NYSE Euronext Paris.
 
We are TCCC’s strategic bottling partner in Western Europe and one of the world's largest independent Coca-Cola bottlers. We have 10-year bottling agreements with TCCC for each of our territories which extend through October 2, 2020, with each containing the right for us to request a 10-year renewal. Products licensed to us through TCCC and its affiliates represent greater than 90 percent of our sales volume, with the remainder of our volume being attributable to sales of non-TCCC products.
 
We have bottling rights within our territories for various beverage brands, including products with the name “Coca-Cola.” For substantially all products, the bottling rights include stated expiration dates. For all bottling rights granted by TCCC with stated expiration dates, we believe our interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by nonrenewals of these licenses ensure that they will continue to be renewed. For additional information about the terms of these licenses, refer to the section of this report titled “Product Licensing and Bottling Agreements.”
 
Relationship with TCCC
 
We conduct our business primarily under agreements with TCCC. These agreements generally give us the exclusive right to market, produce, and distribute beverage products of TCCC in authorized containers in specified territories. These agreements provide TCCC with the ability, at its sole discretion, to establish its sales prices, terms of payment, and other terms and conditions for our purchases of concentrates and syrups from TCCC. However, concentrate prices are subject to the terms of an incidence-based concentrate pricing agreement between us and TCCC which extends through December 31, 2015.
 
Other significant transactions and agreements with TCCC include arrangements for cooperative marketing; advertising expenditures; purchases of sweeteners, juices, mineral waters, and finished products; strategic marketing initiatives; cold-drink equipment placement; and, from time to time, acquisitions of bottling territories.
 
Territories
 
Our bottling territories consist of Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden (our Bottlers). The aggregate population of these territories was approximately 170 million at December 31, 2014. We generated $8.3 billion in net sales and sold approximately 12 billion bottles and cans (or 600 million physical cases) during 2014.
 

4



Product Licensing and Bottling Agreements
 
As used throughout this report, the term sparkling beverage means nonalcoholic ready-to-drink beverages with carbonation, including energy drinks, waters, and flavored waters with carbonation. The term stillbeverage means nonalcoholic beverages without carbonation, including waters and flavored waters without carbonation, juice and juice drinks, teas, coffees, and sports drinks. The term Coca-Cola trademark refers to sparkling beverages bearing the trademark Coca-Cola or Cokebrand name. The term allied beverages refers to sparkling beverages of TCCC or its subsidiaries other than Coca-Cola trademark beverages or energy drinks. The term pre-mix refers to ready-to-serve beverages which are sold in tanks or kegs, and the term post-mix refers to fountain syrup.
 
Product Licensing and Bottling Agreements with TCCC
 
Our Bottlers operate in their respective territories under licensing, bottling, and distribution agreements with TCCC and The Coca-Cola Export Corporation, a Delaware subsidiary of TCCC (the product licensing and bottling agreements). We believe that the structure of these product licensing and bottling agreements are substantially similar to agreements between TCCC and other European bottlers of Coca-Cola trademark beverages and allied beverages.
 
Exclusivity. Subject to the Supplemental Agreement (described below) and with certain minor exceptions, our Bottlers have the exclusive rights granted by TCCC in their territories to sell the beverages covered by their respective product licensing and bottling agreements in containers authorized for use by TCCC (including pre- and post-mix containers). The covered beverages include Coca-Cola trademark beverages, allied beverages, still beverages, and certain other beverages specific to the European market. TCCC has retained the right, under certain limited circumstances, to produce and sell, or authorize third parties to produce and sell, the beverages in any manner or form within our territories.
 
Our Bottlers are prohibited from selling covered beverages outside their territories, or to anyone intending to resell the beverages outside their territories, without the consent of TCCC, except for sales arising out of an unsolicited order from a customer in another member state of the European Economic Area (EEA) or for export to another such member state. The product licensing and bottling agreements also contemplate that there may be instances in which large or special buyers have operations transcending the boundaries of our territories and, in such instances, our Bottlers agree to collaborate with TCCC to provide sales and distribution to such customers.
 
Pricing. The product licensing and bottling agreements provide that sales by TCCC of concentrate, syrups, juices, mineral waters, finished goods, and other goods to our Bottlers are at prices that are set from time to time by TCCC at its sole discretion. We and TCCC have entered into an incidence-based concentrate pricing agreement through December 31, 2015, under which concentrate prices increase in a manner that generally tracks our annual net sales per case growth.
 
Term and Termination. The product licensing and bottling agreements have 10-year terms, extending through October 2, 2020, with each containing the right for us to request a 10-year renewal. While the agreements contain no automatic right of renewal beyond October 2, 2020, we believe that our interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by nonrenewals ensure that these agreements will continue to be renewed. Neither CCE nor Legacy CCE have ever had a franchise license agreement with TCCC terminated due to nonperformance of the agreement terms or due to a decision by TCCC to not renew an agreement at the expiration of a term.
 
TCCC has the right to terminate the product licensing and bottling agreements before the expiration of the stated term upon the insolvency, bankruptcy, nationalization, or similar condition of our Bottlers. The product licensing and bottling agreements may be terminated by either party upon the occurrence of a default that is not remedied within 60 days of the receipt of a written notice of default, or in the event that U.S. currency exchange is unavailable or local laws prevent performance. They also terminate automatically, after a certain lapse of time, if any of our Bottlers refuse to pay a concentrate base price increase.
 
Supplemental Agreement with TCCC
 
In addition to the product licensing and bottling agreements with TCCC, our Bottlers (excluding the Luxembourg distributor), TCCC, and The Coca-Cola Export Corporation are parties to a supplemental agreement (the Supplemental Agreement) with regard to our Bottlers’ rights. The Supplemental Agreement permits our Bottlers to prepare, package, distribute, and sell the beverages covered by any of our Bottlers’ product licensing and bottling agreements in any other territory of our Bottlers, provided that we and TCCC have reached agreement on a business plan for such beverages. The Supplemental Agreement may be terminated, either in whole or in part by territory, by TCCC at any time with 90 days' prior written notice.
 

5



Product Licensing and Bottling Agreements with Other Licensors
 
The product licensing and bottling agreements between us 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 at their sole discretion. Some of these agreements have limited terms of appointment and some prohibit us from selling competing products with similar flavors. These agreements contain restrictions that are generally similar in effect to those in the product licensing and bottling agreements with TCCC as to the use of trademarks and trade names; approved bottles, cans, and labels; planning; and causes for termination.
 
Schweppes. In Great Britain, we distribute Schweppes, Dr Pepper, Oasis, and Schweppes Abbey Well (collectively the Schweppes Products) pursuant to agreements with an affiliate of TCCC (the Schweppes Agreements). These agreements cover the marketing, sale, and distribution of Schweppes Products in Great Britain. The Schweppes Agreements run through December 31, 2020, and will be automatically renewed for one 10-year term unless terminated by either party.
 
In November 2008, the Abbey Well water brand was acquired by an affiliate of TCCC. Our use of the Schweppes name with the brand is pursuant to, and under the terms of, the Schweppes Agreements. Abbey Well is a registered trademark of Waters & Robson Ltd., and we have been granted the right to use the Abbey Well name until February 10, 2022, but only in connection with the sale of Schweppes Abbey Well products.
 
We commenced distribution of Schweppes and Dr Pepper products in the Netherlands in early 2010, pursuant to agreements with Schweppes International Limited. The agreements to distribute products such as Schweppes and Dr Pepper were renegotiated and effective January 1, 2014 for five-year periods each, replacing the previous agreements. The terms of these agreements include certain annual volume targets for Schweppes and Dr Pepper in the Netherlands, but do not include any monetary remedies if these targets are not met.
 
WILD. We distribute Capri-Sun beverages in France, Belgium, the Netherlands, and Luxembourg through a distribution agreement with a related entity of WILD GmbH & Co. KG (WILD). We also produce and distribute Capri-Sun beverages in Great Britain through a manufacturing and license agreement. As the initial duration of some of our prior agreements expired on December 31, 2013, we signed a new pan-European distribution agreement for France, Belgium, the Netherlands, and Luxembourg and a new license and manufacturing agreement in Great Britain, effective January 1, 2014. The new terms extended the agreements for an initial period of five years expiring on December 31, 2018, and will be renewable for an additional five-year period, subject to achieving certain performance criteria. Although these contracts do not impose monetary penalties in the event that the defined volume targets are not met, meeting the volume targets is part of the performance criteria evaluated in determining whether we would be able to renew these agreements for the additional five-year period.
 
We also reached agreement with a related entity of WILD to extend the pan-European master distribution agreement to Sweden to take effect from June 1, 2015 (or at an earlier date on or after May 1, 2015, to be agreed between WILD, CCE, and the outgoing distributor in Sweden), for an initial period of three years. The agreement in Sweden will be renewable for an additional five-year period, subject to performance criteria and conditions similar to those in our other European territories.
 
Monster. We distribute Monster beverages in all of our territories (with the exception of Norway) under distribution agreements between us and Monster Beverage Corporation. These agreements, for all territories except for Belgium, have 20-year terms, comprised of four five-year terms, and can be terminated by either party under certain circumstances, subject to a termination penalty in some cases. In Belgium, the agreement has a 10-year term, comprised of two five-year terms, and can be terminated by either party under certain circumstances, subject to a termination penalty in some cases. In Great Britain, we also produce selected Monster beverages through a manufacturing agreement with Monster Energy Limited. We renewed this agreement for a new term that will expire on October 2, 2018, with the possibility of renewal for two successive periods of five years each.
 
Other Agreements. We currently distribute Ocean Spray products in France, subject to an agreement with Ocean Spray International, Inc. The agreement with Ocean Spray International was automatically renewed through February 28, 2020 as of March 1, 2014.
  
In April 2011, we entered into an agreement with SAB Miller International BV to manufacture, distribute, market, and sell Appletiser products in Great Britain. This agreement has an initial term of 10 years and will continue thereafter until either party terminates the agreement upon providing a 12-month notice. 
 
We also distribute Fernandes products in the Netherlands. On January 1, 2006, we entered into a 10-year distribution agreement with the Fernandes family and its Netherlands representative, Holfer BV. Although distribution of Fernandes products is currently limited to the Netherlands, we have the right to distribute Fernandes products in the remainder of Europe and Africa. The distribution agreement may be renewed by mutual agreement of the parties beginning six months before the end of its term.
 

6



Products, Packaging, and Distribution
 
We derive our net sales from marketing, producing, and distributing nonalcoholic beverages. Our beverage portfolio consists of some of the most recognized brands in the world, including one of the world’s most valuable beverage brands, Coca-Cola. We manufacture approximately 94 percent of the finished product we sell from concentrates and syrups that we buy. The remainder of the products we sell are purchased in finished form. Although in some of our territories we deliver our product directly to retailers, our product is principally distributed to our customers’ central warehouses and through wholesalers who deliver to retailers.
 
Our top five brands by volume are:
Coca-Cola
Diet Coke/Coca-Cola light
Coca-Cola Zero
Fanta
Capri-Sun
 
During 2014, 2013, and 2012, sales of certain major brand categories represented more than 10 percent of our total net sales. The following table summarizes the percentage of total net sales contributed by these major brand categories for the periods presented (rounded to the nearest 0.5 percent): 
 
2014
 
2013
 
2012
Coca-Cola trademark
64.0
%
 
64.0
%
 
65.0
%
Sparkling flavors and energy
17.0

 
17.0

 
17.0

 
Our products are available in a variety of different package types and sizes (single-serve and multi-serve), including, but not limited to, aluminum and steel cans, glass, polyethylene terephthalate (PET) and aluminum bottles, pouches, and bag-in-box for fountain use.
 
For additional information about our various products and packages, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
 
Seasonality
 
Sales of our products are seasonal, with the second and third calendar quarters accounting for higher unit sales of products than the first and fourth quarters. In a typical year, we earn more than 60 percent of our annual operating income during the second and third quarters of the year. The seasonality of our sales volume, combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Additionally, year-over-year shifts in holidays, selling days, and weather patterns, particularly cold or wet weather during the summer months, can impact our results on an annual or quarterly basis.
 
Large Customers
 
No single customer accounted for 10 percent or more of our total net sales in 2014, 2013, or 2012.

Advertising and Marketing
 
We rely extensively on advertising and sales promotions in marketing our products. TCCC and other licensors that supply concentrates, syrups, and finished products to us advertise in all major media to promote sales in the local areas we serve. We also benefit from regional, local, and global advertising programs conducted by TCCC and other licensors. Certain of the advertising expenditures by TCCC and other licensors are made pursuant to annual arrangements.
 
We and TCCC engage in a variety of marketing programs to promote the sale of products of TCCC in territories in which we operate. The amounts to be paid to us by TCCC under the programs are determined annually and are periodically reassessed as the programs progress. Marketing support funding programs entered into with TCCC provide financial support, principally based on our product sales or upon the completion of stated requirements, to offset a portion of our costs of the joint marketing programs. Except in certain limited circumstances, TCCC has no specified contractual obligation to participate in expenditures for advertising, marketing, and other support in our territories. The terms of similar programs TCCC may have with other licensees and the amounts paid by TCCC pursuant thereto could differ from our arrangements.

7



 
Global Marketing Fund
 
We and TCCC have established a Global Marketing Fund under which TCCC pays us $45 million annually through December 31, 2015, except under certain limited circumstances. The agreement will automatically be extended for successive 10-year periods thereafter, unless either party gives written notice to terminate the agreement. We earn annual funding under the agreement if both parties agree on an annual marketing and business plan. TCCC may terminate the agreement for the balance of any year in which we fail to timely complete the marketing plan or are unable to execute the elements of that plan, if such failure were to be within our reasonable control. During each of the years 2014, 2013, and 2012, we received $45 million under the Global Marketing Fund with TCCC.
 
Competition
 
The market for nonalcoholic beverages is highly competitive. We face competitors that differ within individual categories in our territories. Moreover, competition exists not only within the nonalcoholic beverage market, but also between the nonalcoholic and alcoholic markets.
 
The most important competitive factors impacting our business include advertising and marketing, brand image, product offerings that meet consumer preferences and trends, new product and package innovations, pricing, and cost inputs. Other competitive factors include supply chain (procurement, manufacturing, and distribution) and sales methods, merchandising productivity, customer service, trade and community relationships, and the management of sales and promotional activities. Management of cold-drink equipment, including coolers and vending machines, is also a competitive factor. We believe our most favorable competitive factor is the consumer and customer goodwill associated with our brand portfolio.
 
We face strong competition from companies that produce and sell competing products to a retail sector that is consolidating and in which buyers are able to choose freely between our products and those of our competitors. Our competitors include the local bottlers and distributors of competing products and manufacturers of private-label products. For example, we compete with bottlers and distributors of products of PepsiCo, Inc., Nestlé S.A., Groupe Danone S.A., and other private-label products, including those of certain of our customers. In certain of our territories, we sell products against which we compete in other territories. However, in all of our territories, our primary business is marketing, producing, and distributing products of TCCC.
 
Raw Materials and Other Supplies

We purchase concentrates and syrups from TCCC and other licensors to manufacture products. In addition, we purchase sweeteners, juices, mineral waters, finished product, carbon dioxide, fuel, PET (plastic) preforms, glass, aluminum and plastic bottles, aluminum and steel cans, pouches, closures, post-mix, and packaging materials. We generally purchase our raw materials, other than concentrates, syrups, and mineral waters, from multiple suppliers. The product licensing and bottling agreements with TCCC and agreements with some of our other licensors provide that all authorized containers, closures, cases, cartons and other packages, and labels for their products must be purchased from manufacturers approved by the respective licensor.
 
The principal sweetener we use is sugar derived from sugar beets. Our sugar purchases are made from multiple suppliers. We do not separately purchase low-calorie sweeteners because sweeteners for low-calorie beverage products are contained in the concentrates or syrups we purchase.
 
We produce most of our plastic bottle requirements within our production facilities using preforms purchased from multiple suppliers. We believe the self-manufacture of certain packages serves to ensure supply and to reduce or manage our costs.
 
We do not use any materials or supplies that are currently in short supply, although the supply and price of specific materials or supplies are, at times, adversely affected by strikes, weather conditions, speculation, abnormally high demand, governmental controls, new taxes, national emergencies, natural disasters, price or supply fluctuations of their raw material components, and currency fluctuations.
 
Governmental Regulation
 
The production, distribution, and sale of many of our products is subject to various laws and regulations of the countries in which we operate that regulate the production, packaging, sale, safety, advertising, labeling, and ingredients of our products.
 
Packaging
 
The European Commission has a packaging and packing waste directive that has been incorporated into the national legislation of the European Union (EU) member states in which we do business. The weight of packages collected and sent for recycling (inside or outside the EU) in the countries in which we operate must meet certain minimum targets, depending on the type of

8



packaging. The legislation sets targets for the recovery and recycling of household, commercial, and industrial packaging waste and imposes substantial responsibilities on bottlers and retailers for implementation.
 
In the Netherlands, we include approximately 25 percent recycled content in our recyclable plastic bottles, in accordance with an agreement we have with the government. In compliance with national regulation within the sparkling beverage industry, we charge our customers in the Netherlands a deposit on all containers greater than a 1/2 liter, which is refunded to them if and when the containers are returned. Container deposit schemes also exist in Norway (which is part of the EEA but is not an EU member state) and Sweden, under which a deposit fee is included in the consumer price, which is refunded to them if and when the container is returned. The Norwegian government further imposes two types of packaging taxes: (1) a base tax and (2) an environmental tax calculated against the amount returned. The Norwegian base tax applies only to one-way packages such as cans and nonreturnable PET (plastic) that may not be used again in their original form.

In France, federal law currently requires the elimination of Bisphenol A (BPA) in all food and drink packaging as of January 1, 2015. BPA is a chemical used widely across the world in packaging, including a small amount sometimes found in the coating of metal food and beverage cans. In January 2015, the European Food Safety Authority (EFSA) published its final risk assessment of BPA confirming that current levels of exposure are not a health concern. This finding is consistent with the other scientific and regulatory assessments from around the world, including the U.S. Food and Drug Administration. We were in full compliance with the law as of its effective date.
 
We have taken actions to mitigate the adverse financial effects resulting from legislation concerning deposits and restrictive packaging, which impose additional costs on us. We are unable to quantify the impact on current and future operations that may result from additional legislation if enacted or enforced in the future, but the impact of any such legislation could be significant.
 
Excise and Other Taxes
 
There are specific taxes on certain beverage products in certain territories in which we do business. Excise taxes on the sale of sparkling and still beverages are in place in Belgium, France, the Netherlands, and Norway.
 
Proposals could be adopted to increase existing excise tax rates, or to impose new special taxes, on certain beverages that we sell. We are unable to forecast whether such new legislation will be adopted and, if enacted, what the impact would be on our financial results.
 
Beverages in Schools
 
Throughout our territories, different policies exist related to the presence of our products in schools, from a total ban of vending machines in schools in France, to a limited choice in Great Britain, and self-regulation guidelines in our other territories, including our commitment to selling primarily low-calorie options in this channel. Despite our established internal guidelines, we continue to face pressure from regulatory intervention to further restrict the availability of sugared and sweetened beverages in schools. During 2014, sales in schools represented less than 1 percent of our total sales volume.
 
Environmental Regulations
 
Substantially all of our facilities are subject to laws and regulations dealing with above-ground and underground fuel storage tanks and the discharge of materials into the environment.
 
Our beverage manufacturing operations do not use or generate a significant amount of toxic or hazardous substances. We believe our current practices and procedures for the control and disposition of such wastes comply with applicable laws in each of our territories.
 
We are subject to, and operate in accordance with, the provisions of the EU Directive on Waste Electrical and Electronic Equipment (WEEE). Under the WEEE Directive, companies that put electrical and electronic equipment (such as our cold-drink equipment) on the EU market are responsible for the costs of collection, treatment, recovery, and disposal of their own products.
 
Trade Regulation
 
As the exclusive manufacturer and distributor of bottled and canned beverage products of TCCC and other manufacturers within specified geographic territories, we are subject to antitrust laws of general applicability.
 
EU rules adopted by the European countries in which we do business preclude restriction of the free movement of goods among the member states. As a result, the product licensing and bottling agreements grant us exclusive bottling territories, subject to the exception that other EEA bottlers of Coca-Cola trademark beverages and allied beverages can, in response to unsolicited orders,

9



sell such products in our European territories (as we can in their territories). For additional information about our bottling agreements, refer to the section of this report titled “Product Licensing and Bottling Agreements.”
 
Employees
 
At December 31, 2014, we had approximately 11,650 employees, of which approximately 150 were located in the U.S.
 
A majority of our employees in Europe are covered by collectively bargained labor agreements, most of which do not expire. However, wage rates must be renegotiated at various dates through 2016. We believe we will be able to renegotiate these wage rates with satisfactory terms.
 
Financial Information on Industry Segments and Geographic Areas
 
For financial information about our industry segment and operations in geographic areas, refer to Note 13 of the Notes to Consolidated Financial Statements in this report.
 
For More Information About Us
 
As a public company, we regularly file reports and proxy statements with the SEC. These reports are required by the U.S. Securities Exchange Act of 1934 and include:
Annual reports on Form 10-K (such as this report);
Quarterly reports on Form 10-Q;
Current reports on Form 8-K; and
Proxy statements on Schedule 14A.
Anyone may read and copy any of the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549; information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains our reports, proxy and information statements, and our other SEC filings; the address of that site is http://www.sec.gov.
 
We make our SEC filings (including any amendments) available on our own internet site as soon as reasonably practicable after we file them with or furnished them to the SEC. Our internet address is http://www.cokecce.com. All of these filings are available on our website free of charge.
 
The information on our website is not incorporated by reference into this annual report on Form 10-K unless specifically so incorporated by reference herein.
 
Our website contains, under “Corporate Governance” in the “About CCE” section, information about our policies, such as:
Code of Business Conduct;
Board of Directors Guidelines on Significant Corporate Governance Issues;
Board Committee Charters;
Certificate of Incorporation; and
Bylaws.
Any of these items are available in print to any shareowner who requests them. Requests should be sent to the corporate secretary at Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339.

10



ITEM 1A.
RISK FACTORS
 
Risks and Uncertainties
 
Set forth below are some of the risks and uncertainties that, if they were to occur, could materially and adversely affect our business or could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and the other public statements we make.
 
Our business success, including financial results, depends upon our relationship with TCCC.
 
Under the express terms of our product licensing agreements with TCCC:
We purchase our entire requirement of concentrates and syrups for Coca-Cola trademark beverages and allied beverages from TCCC at prices, terms of payment, and other terms and conditions determined from time to time by TCCC at its sole discretion. The terms of our contracts with TCCC contain no express limits on the prices TCCC may charge us for concentrate; however, we have entered into an incidence-based concentrate pricing agreement with TCCC through December 31, 2015, pursuant to which concentrate prices increase in a manner that generally tracks our annual net sales per case growth.
Our product licensing and bottling agreements with TCCC state they are for fixed terms, and most of them are renewable only at the discretion of TCCC at the conclusion of their current terms. A decision by TCCC not to renew a current fixed-term product licensing and bottling agreement at the end of its term could substantially and adversely affect our financial results.
We receive from TCCC, at their discretion, much of our marketing and promotional support. Programs currently in effect or under discussion contain requirements or are subject to conditions established by TCCC, which we may not satisfy. The terms of most of the marketing programs contain no express obligation for TCCC to participate in future programs or continue past levels of payments into the future.
We are obligated to maintain sound financial capacity to perform our duties as is required and determined by TCCC at its sole discretion. These duties include, but are not limited to, making certain investments in marketing activities to stimulate the demand for products in our territories and making infrastructure improvements to ensure our facilities and distribution network are capable of handling the demand for these beverages.
We must obtain approval from TCCC to acquire any bottler of Coca-Cola or to dispose of one or more of our Coca-Cola bottling territories.
Products licensed to us through TCCC and its affiliates represent greater than 90 percent of our sales volume, and disagreements with TCCC concerning other business issues may lead TCCC to act adversely to our interests with respect to the relationships described above which could negatively affect our financial results. Additionally, our current incidence pricing agreement, which includes our Global Marketing Fund, expires on December 31, 2015. Our inability to successfully renegotiate this agreement could lead to a significant increase in our costs and materially impact our financial results.
 
Legislative or regulatory changes that affect our products, distribution, or packaging, including changes in tax laws, could reduce demand for our products or increase our costs.
 
Our business model depends on the availability of our various products and packages in multiple channels and locations to satisfy the preferences of our customers and consumers. Laws that restrict our ability to distribute products in certain channels and locations, as well as laws that require deposits for certain types of packages or those that limit our ability to design new packages or market certain packages, could negatively impact our financial results. In addition, taxes or other charges imposed on the sale of certain of our products could increase costs or cause consumers to purchase fewer of our products. Many countries in Europe, including territories in which we operate, are evaluating the implementation of, or increase in, such taxes.
 
For example, in France, federal law currently requires, and we are in compliance with, the elimination of BPA in all food and drink packaging as of January 1, 2015. BPA is a chemical used widely across the world in packaging, including a small amount sometimes found in the coating of metal food and beverage cans, and has been confirmed as safe at current levels by the EFSA. Ensuring compliance with this and other such laws can increase packaging costs and impact our financial results.
 
Concerns about health and wellness, including obesity, could further reduce the demand for some of our products.
 
Consumers and public health and government officials are highly concerned about the public health consequences of obesity, particularly among young people. In addition, some researchers, health advocates, and dietary guidelines are suggesting that consumption of sugar-sweetened beverages is a primary cause of increased obesity rates and are encouraging consumers to reduce

11



or eliminate consumption of such products. Increasing public concern about obesity and additional governmental regulations concerning the marketing, labeling, packaging, or sale of sugar-sweetened beverages may reduce demand for or increase the cost of our sugar-sweetened beverages.
 
Health and wellness trends have also resulted in an increased demand for more low-calorie or no-calorie sparkling beverages, water, enhanced water, isotonics, energy drinks, teas, and beverages with natural sweeteners. Limitations on our ability to provide any of these types of products or otherwise satisfy changing consumer preferences relating to nonalcoholic beverages could adversely affect our financial results.
 
If we, TCCC, or other licensors and bottlers of products we distribute are unable to maintain positive brand or corporate images, or are subject to product liability claims or product recalls, our financial results and brand image may be negatively affected.
 
Our success depends on our products having a positive brand image with customers and consumers. Product quality issues (real or perceived) or allegations of product contamination (even if false or unfounded) could tarnish the image of the affected brands and cause customers and consumers to choose other products. We could be required to recall products if they become or are perceived to have become contaminated or are damaged or mislabeled, and also may be liable if the consumption of our products causes injury or illness. A significant product liability or other product-related legal judgment against us or a widespread recall of our products could negatively impact our brand image and financial results.
 
Additionally, adverse publicity surrounding health and well-being concerns, water usage, customer disputes, labor relations, product ingredients, and the like could negatively affect our overall reputation and our products’ acceptance by our customers and consumers, even when the publicity results from actions occurring outside our territory or control. Similarly, if product quality-related issues arise from products not manufactured by us but imported into our territories, our reputation and consumer goodwill could be damaged.
 
Furthermore, through the increased use of social media, individuals and non-governmental organizations (NGOs) have the ability to disseminate their opinions regarding the safety or healthiness of our products to an increasing wider audience at a faster pace. Our failure to effectively respond to any negative opinions in a timely manner can harm the perception of our brands and damage our reputation, regardless of the validity of the statements.

Our sales can be adversely impacted by the instability of the general economy.
 
Unfavorable changes in general economic conditions, such as a recession or prolonged economic slowdown in the territories in which we do business, may reduce the demand for certain products and otherwise adversely affect our sales. For example, economic forces may cause consumers to purchase more private-label brands, which are generally sold at prices lower than our products, or to defer or forgo purchases of beverages altogether. Additionally, consumers who do purchase our products may choose to shift away from purchasing higher-margin products and packages. Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of uncollectability of certain accounts. Each of these factors could adversely affect our revenue, price realization, gross margins, and/or our overall financial condition and operating results.
 
Additionally, there are ongoing concerns regarding the debt burden of certain European countries and their ability to meet their future financial obligations, which have resulted in downgrades of the debt ratings for these countries. These sovereign debt concerns, whether real or perceived, could result in a recession, prolonged economic slowdown, or otherwise negatively impact the general stability of the economies in certain territories in which we operate. In more severe cases, this could result in a limitation on the availability of capital, which would restrict our liquidity and negatively impact our financial results.
 
Changes in the marketplace, including changes in our relationships with large customers, may adversely impact our financial results.
 
We operate in the highly competitive nonalcoholic beverage industry and face strong competition from other general and specialty beverage companies. Our ability to grow or maintain our market share or gross margins may be limited by the actions of our competitors, who may have lower costs and, thus, advantages in setting their prices. Further, a significant amount of our volume is sold through large retail chains, including supermarkets and wholesalers. These chains are becoming more consolidated and, at times, may seek to use their purchasing power to improve their profitability through lower prices, increased emphasis on generic and other private-label brands, and increased promotional programs. Our response to continued competitor and customer consolidations and marketplace competition may result in lower than expected net pricing of our products. Additionally, hard- discount retailers continue to challenge traditional retail outlets, which can increase the pressure on our customer relationships. These factors, as well as others, could have a negative impact on the availability of our products, as well as our profitability.
 

12



In addition, at times, a customer may choose to temporarily stop selling certain of our products as a result of a dispute we may be having with that customer. A dispute with a large customer that chooses not to sell certain of our products for a prolonged period of time may adversely affect our sales volume and/or financial results.
 
Adverse weather conditions could limit the demand for our products.
 
Our sales are significantly influenced by weather conditions in the markets in which we operate. In particular, due to the seasonality of our business, cold or wet weather during the summer months may have a negative impact on the demand for our products and contribute to lower sales, which could have an adverse effect on our financial results.
 
Changes in currency exchange rates could significantly impact our financial results and ultimately hinder our competitiveness in the marketplace.
 
We are exposed to significant currency exchange rate risk, including uncertainties related to the monetary policies of the European Central Bank, since all of our revenues and substantially all of our expenses are derived from operations conducted outside the U.S. in the local currency of the countries in which we do business. For purposes of financial reporting, the local currency results are translated into U.S. dollars based on currency exchange rates prevailing during the reporting period. During times of a strengthening U.S. dollar, our reported net sales and operating income is reduced because the local currency will translate into fewer U.S. dollars. During periods of local economic crises or general economic softness, foreign currencies may weaken significantly against the U.S. dollar, thereby reducing our margins as reported in U.S. dollars. Actions to recover margins may result in lower volume and a weaker competitive position.
 
Additionally, there are concerns regarding the short- and long-term stability of the euro and its ability to serve as a single currency for a number of individual countries. These concerns could lead individual countries to revert, or threaten to revert, to their former local currencies, which could lead to the full or partial dissolution of the euro. Should this occur, the assets we hold in a country that reintroduces its local currency could be significantly devalued. Furthermore, the full or partial dissolution of the euro could cause significant volatility and disruption to the global economy, which could impact our financial results, including our ability to access capital at acceptable financing costs, if at all; the availability of supplies and materials; and the demand for our products. Finally, if it were necessary for us to conduct our business in additional currencies, we would be subjected to additional earnings volatility as amounts in these currencies are translated into U.S. dollars.
 
Increases in costs, a limitation, or lower than expected quality, of our supplies of raw materials could hurt our financial results.

If there are increases in the costs of raw materials, ingredients, or packaging materials, such as aluminum, steel, sugar, PET (plastic), fuel, or other items, and we are unable to pass the increased costs on to our customers in the form of higher prices, our financial results could be adversely affected. Additionally, we use supplier-pricing agreements and, at times, derivative financial instruments to manage the volatility and market risk with respect to certain commodities. Generally, these hedging instruments establish the purchase price for these commodities in advance of the time of delivery. As such, it is possible that these hedging instruments may lock us into prices that are ultimately greater than the actual market price at the time of delivery.
 
Certain of our suppliers could restrict our ability to hedge prices through supplier agreements. As a result, we could enter into non-designated commodity hedges, which could expose us to additional earnings volatility with respect to the purchase of these commodities.
 
If suppliers of raw materials, ingredients, packaging materials, or other cost items are affected by strikes, weather conditions, speculation, abnormally high demand, governmental controls, new taxes, national emergencies, natural disasters, insolvency, or other events, and we are unable to obtain the materials from an alternate source, our cost of sales, net sales, and ability to manufacture and distribute product could be adversely affected.
 
Additionally, lower than expected quality of delivered raw materials, ingredients, packaging materials, or finished goods could lead to a disruption in our operations as we seek to substitute these items for ones that conform to our established standards or if we are required to replace under-performing suppliers.
 
We may be affected by the impact of global issues such as water scarcity and climate change, including the legal, regulatory, or market responses to such issues.
 
Water, which is the primary ingredient in all of our products, is vital to our manufacturing processes and is needed to produce the agricultural ingredients that are essential to our business. While water is generally regarded as abundant in Europe, it is a limited resource in many parts of the world, affected by overexploitation, growing population, increasing demand for food products, increasing pollution, poor management, and the effects of climate change. Water scarcity and deterioration in the quality of available

13



water sources in our territories, or our supply chain, even if temporary, may result in increased production costs or capacity constraints, which could adversely affect our ability to produce and sell our beverages and increase our costs.
 
Additionally, there is increasing concern that gradual rises in global average temperatures due to increased concentrations of greenhouse gases (GHG) in the atmosphere are linked to increasing future risks of changing weather patterns and extreme weather conditions around the world. Climate change may also exacerbate water scarcity and cause a further deterioration of water quality in affected regions. Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit the availability or increase the cost of key raw materials we use to produce our products. Additionally, increased frequency of extreme weather events such as storms or floods in our territories could have adverse impacts on our facilities and distribution network, leading to an increased risk of business disruption.
 
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting GHG emissions. The territories in which we operate have in place a variety of GHG emissions reporting requirements, and some have voluntary emissions reduction covenants in which we participate. Furthermore, climate laws that directly or indirectly affect our production, distribution, packaging, cost of raw materials, fuel, ingredients, and water could all impact our financial results.
 
As part of our commitment to Corporate Responsibility and Sustainability (CRS), we have calculated the carbon footprint of our operations in each country where we do business and set a public goal to reduce the carbon footprint of the drinks we produce by one-third by 2020. This commitment and the expectations of our stakeholders and regulatory bodies necessitate our investment in technologies that improve the energy efficiency and reduce the carbon emissions of our business operations. In general, the cost of these types of investments is greater than investments in less energy efficient technologies, and the period before investment return is often longer. Although we believe these investments will provide long-term financial and reputational benefits, there is a risk that we may not achieve our desired returns.
 
Our business is vulnerable to products being imported from outside our territories, which adversely affects our sales.
 
Our territories are susceptible to the import of products manufactured by bottlers outside our territories where prices and costs are lower. During 2014, we estimate the gross profit of our business was negatively impacted by approximately $40 million to $45 million due to products imported into our territories. In the case of such imports from members of the EEA, we are generally prohibited from taking actions to stop such imports.
 
Changes in interest rates or our debt rating could harm our financial results and financial position.
 
We are subject to increases in interest rates and changes in our debt rating that could have a material adverse effect on our interest costs and financing sources. Our debt rating can be materially influenced by a number of factors, including, but not limited to, our financial performance, acquisitions, investment decisions (including share repurchases), and capital management activities of TCCC and/or changes in the debt rating of TCCC.
 
If we are unable to maintain labor bargaining agreements on satisfactory terms, if we experience employee strikes or work stoppages, or if changes are made to employment laws or regulations, our financial results could be negatively impacted.
 
The majority of our employees are covered by collectively bargained labor agreements, most of which do not expire. However, wage rates must be renegotiated at various dates through 2016. The inability to renegotiate agreements on satisfactory terms could result in work interruptions or stoppages, which could adversely affect our financial results. The terms and conditions of existing or renegotiated agreements could also increase our cost or otherwise affect our ability to fully implement changes to increase the effectiveness of our operations.
 
We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring and outsourcing programs.
 
We have implemented, and plan to continue to implement, restructuring programs to support key strategic initiatives designed to maintain long-term sustainable growth, such as our business transformation program (refer to Note 14 of the Notes to Consolidated Financial Statements in this report). These programs are intended to enhance our operating effectiveness and efficiency and to reduce our costs. We cannot guarantee that we will achieve or sustain the targeted benefits under these programs, or that the benefits, even if achieved, will be adequate to meet our long-term growth expectations. Additionally, if we cannot successfully resolve consultations with employee representatives (e.g., works council, trade unions) related to key elements of these programs, such as employee job reductions, this may have an adverse impact on our business.
 
We have outsourced certain financial transaction-processing and information technology services to third-party providers. We may outsource other activities in the future to achieve further efficiencies and cost savings. If the third-party providers do not supply the level of service expected with our outsourcing initiatives, we may incur additional costs to correct the errors and may not

14



achieve the level of cost savings originally expected. Disruptions in transaction processing or information technology services due to the ineffectiveness of our third-party providers could result in inefficiencies within other business processes.

Additional taxes levied on us could harm our financial results.
 
Our tax filings for various periods in the jurisdictions in which we do business may be subjected to audit by the relevant tax authorities. These audits may result in assessments of additional taxes that could impact our financial results, including interest and penalties, that are subsequently resolved with the authorities or potentially through the courts.
 
Changes in tax laws, regulations, related interpretations, and tax accounting standards in the U.S. and other countries in which we operate may adversely affect our financial results. For example, in recent years there have been legislative proposals to reform U.S. taxation of foreign earnings which could have a material adverse effect on our financial results by subjecting a significant portion of our earnings to incremental U.S. taxation and/or by delaying or permanently deferring certain deductions otherwise currently allowed in calculating our U.S. tax liabilities.
 
Increases in the cost of employee benefits, including pension retirement benefits, could impact our financial results and cash flow.
 
Unfavorable changes in the cost of our employee benefits, including pension retirement benefits, could materially impact our financial results and cash flow. We sponsor a number of defined benefit pension plans in the territories in which we operate. Estimates of the amount and timing of our future funding obligations for defined benefit pension plans are based upon various assumptions, including discount rates, mortality assumptions, and long-term asset returns. In addition, the amount and timing of pension funding can be influenced by funding requirements, negotiations with the pension trustee boards, or the action of other governing bodies.
 
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
 
We are exposed to the risk of default by, or failure of, counterparty financial institutions with whom we do business. This risk may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover amounts owed from or held in accounts with such counterparty may be limited. In the event of default by or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.
 
The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our brand image, all of which could negatively impact our financial results.
 
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our data or information systems. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced to a third-party provider. Our three primary risks that could result from the occurrence of a cyber incident include operational interruption, damage to our brand image, and private data exposure.
 
Technology failures could disrupt our operations and negatively impact our financial results.
 
We rely extensively on information technology systems to process, transmit, store, and protect electronic information. For example, our production and distribution facilities and our inventory management processes utilize information technology to maximize efficiencies and minimize costs. Furthermore, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology. Our information technology systems, some of which have been outsourced to third-party providers, may be vulnerable to a variety of interruptions due to events that may be beyond our control or that of our third-party providers, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, additional security issues, and other technology failures. Our technology and information security processes and disaster recovery plans may not be adequate or implemented properly to ensure that our operations are not disrupted. In addition, a miscalculation of the level of investment needed to ensure our technology solutions are current as technology advances and evolves could result in disruptions in our business should the software, hardware, or maintenance of such items become obsolete. Furthermore, when we implement new systems and/or upgrade existing system modules (e.g., SAP modules), there is a risk our business may be temporarily disrupted during the period of implementation.
 

15



Our business is focused geographically in Western Europe, which may limit investor interest in our common stock.
 
Because we are geographically focused in Western Europe, our stock may not be followed as closely by U.S. investors and analysts. If there is only a limited following by market analysts in the U.S. or the investment community in the U.S., the amount of market activity in our common stock may be reduced, making it more difficult to sell our shares. If shareowners decide to sell all or some of their shares, or the market perceives that these sales could occur, the trading value of our shares may decline.
 
Legal judgments obtained, or claims made, against our vendors or suppliers could impact their ability to provide us with agreed upon products and services, which could negatively impact our business and financial results.
 
Many of our outside vendors supply us with services, information, processes, software, or other deliverables that rely on certain intellectual property rights or other proprietary information. To the extent these vendors face legal claims brought by other third parties challenging those rights or information, our vendors could be required to pay significant settlements or even discontinue use of the deliverables furnished to us. These outcomes could require us to change vendors or develop replacement solutions, which could result in significant inefficiencies within our business or higher costs and ultimately could negatively impact our financial results.

Global or regional catastrophic events could impact our financial results.
 
Our business can be affected by large-scale terrorist acts, especially those directed against our territories or other major industrialized countries, the outbreak or escalation of armed hostilities, major natural disasters, or widespread outbreaks of infectious disease. Such events in the geographic regions in which we do business, or in the geographic regions from which our inputs are supplied, could have a material impact on our sales volume, cost of sales, earnings, and overall financial results.
 
Miscalculation of our need for infrastructure investment could impact our financial results.
 
Actual requirements of our infrastructure investments, including cold-drink equipment and production equipment, may differ from our projections with respect to volume growth or product demands. Our infrastructure investments are generally long-term in nature and, therefore, it is possible that investments made today may not generate the expected return due to future changes in the marketplace. Significant changes from our expected need for and/or returns on these infrastructure investments could adversely affect our financial results.

Provisions in our product licensing and bottling agreements with TCCC and in our organizational documents could delay or prevent a change in control of CCE, which could adversely affect the price of our common stock.
 
Provisions in our product licensing and bottling agreements with TCCC, which require us to obtain TCCC’s consent to transfer the business to another person, could delay or prevent an unsolicited change in control of CCE. These provisions may also have the effect of making it more difficult for third parties to replace our current management without the consent of our Board of Directors.
 
In addition, the provisions in our certificate of incorporation and bylaws could delay or prevent an unsolicited change in control of CCE. These provisions include:
The availability of authorized shares of preferred stock for issuance from time to time and the determination of rights, powers, and preferences of the preferred stock at the discretion of the CCE Board of Directors without the approval of our shareowners;
The requirement of a meeting of shareowners to approve all actions to be taken by the shareowners;
Requirements for advance notice for raising business or making nominations at shareowners' meetings; and
Limitations on the minimum and maximum number of directors that constitute the CCE Board of Directors.
Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15 percent or more of our outstanding common stock.
 
If the Merger or certain structuring steps Legacy CCE took prior to the Merger are determined to be taxable, CCE could be subject to a material amount of taxes. We may also be subject to other liabilities or indemnification obligations under the Tax Sharing Agreement with TCCC that are greater than anticipated.
 
In the Merger, the exchange of the consideration for our stock was intended to qualify as a tax-free transaction to us. In addition, an internal restructuring undertaken prior to the Merger was also intended to qualify as a tax-free transaction. There can be no

16



assurance, however, that these transactions qualify for tax-free treatment. If either transaction does not qualify for tax-free treatment, our resulting tax liability may be substantial.
 
Also, we agreed under a Tax Sharing Agreement to indemnify TCCC and its affiliates from and against certain taxes. We have also agreed to pay TCCC, in certain situations, the difference (if any) between the amount of certain tax benefits intended to be available and the amount of such benefits actually available to Legacy CCE as determined for U.S. federal income tax purposes. If such liabilities or indemnification obligations are larger than anticipated, our financial condition could be materially and adversely affected.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2.
PROPERTIES
 
Our principal properties include our production facilities, sales and distribution centers, European business unit headquarter offices and shared service center, and corporate offices.
 
The following summarizes the number of production and distribution facilities by country as of December 31, 2014:
 
 
 
Great Britain
France
Belgium
The Netherlands
Norway
Sweden
Total
Production facilities(A)
 
 
 
 
 
 
 
 
Leased
1






1

 
Owned
5

5

3

1

1

1

16

 
Total
6

5

3

1

1

1

17

Sales and/or distribution facilities
 
 
 
 
 
 
 
Leased
7

3

4

1

15

5

35

 
Owned
8





1

9

 
Total
15

3

4

1

15

6

44

___________________________
(A) 
All production facilities are combination production and warehouse facilities.
 
Our principal properties cover approximately 10 million square feet in the aggregate. We believe that our facilities are adequately utilized and sufficient to meet our present operating needs.
 
At December 31, 2014, we operated approximately 5,000 vehicles of various types, the majority of which are leased. We also owned approximately 550,000 pieces of cold-drink equipment, principally coolers and vending machines.
 

17



ITEM 3.
LEGAL PROCEEDINGS
 
Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.
 
ITEM 4.
MINE SAFETY DISCLOSURES
 
Not applicable.
 

18



PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Listed and Traded (under the symbol CCE): New York Stock Exchange (NYSE) (Principal)
                              NYSE Euronext Paris (Secondary)
 
Common shareowners of record as of January 30, 2015: 12,165
 
STOCK PRICES
 
2014
High
 
Low
Fourth Quarter
$
45.57

 
$
39.05

Third Quarter
50.00

 
44.46

Second Quarter
48.13

 
43.96

First Quarter
47.98

 
42.07

 
 
 
 
2013
High
 
Low
Fourth Quarter
$
44.36

 
$
39.49

Third Quarter
41.48

 
34.57

Second Quarter
39.40

 
33.81

First Quarter
37.37

 
32.01


DIVIDENDS
 
Our dividends are declared at the discretion of our Board of Directors. In February 2014, our Board of Directors approved an increase in our quarterly dividend from $0.20 per share to $0.25 per share beginning in the first quarter of 2014, and in February 2015, our Board of Directors approved an increase in our quarterly dividend from $0.25 per share to $0.28 per share beginning in the first quarter of 2015. 


19



SHARE PERFORMANCE
 
Comparison of Five-Year Cumulative Total Return

Date
 
Coca-Cola
Enterprises, Inc.
 
S&P 500
Comp
 
Peer Group
                  10/04/2010(A)
 
100.00
 
100.00
 
100.00
12/31/2010
 
116.99
 
108.18
 
105.88
12/31/2011
 
119.98
 
113.50
 
113.23
12/31/2012
 
151.02
 
131.66
 
122.35
12/31/2013
 
214.50
 
174.26
 
145.81
12/31/2014
 
219.63
 
198.11
 
162.48
___________________________
(A)
Immediately following the Merger, 339,064,025 shares of our common stock, par value $0.01 per share, were issued and outstanding. Our stock began trading on the NYSE on October 4, 2010, and is listed under the symbol “CCE.” Beginning in the second quarter of 2011, we also launched a listing of our shares in France, traded on the NYSE Euronext Paris.
 
The graph shows the cumulative total return to our shareowners beginning October 4, 2010, the day our shares began trading on the NYSE, through December 31, 2010 and for the years ended December 31, 2011, 2012, 2013, and 2014, in comparison to the cumulative returns of the S&P 500 Composite Index and to an index of peer group companies we selected. The peer group consists of TCCC, PepsiCo, Inc., Coca-Cola Hellenic, Dr Pepper Snapple Group, and Britvic plc. The graph assumes $100 invested on October 4, 2010, in our common stock and in each index, with the subsequent reinvestment of dividends on a quarterly basis.
 

20



SHARE REPURCHASES
 
The following table presents information about repurchases of Coca-Cola Enterprises, Inc. common stock made by us during the fourth quarter of 2014 (in millions, except average price per share):
 
Period
 
Total Number of
Shares (or Units)
Purchased(A)
 
Average
Price Paid
per Share
(or Unit)
 
Total Number of
Shares (or
Units) Purchased
As Part of Publicly
Announced Plans or
Programs(B)
 
Maximum Number or
Approximate Dollar
Value of Shares (or
Units) That May
Yet Be Purchased
Under the Plans
or Programs(B)
September 27, 2014 through October 24, 2014
 
 
$

 
 
$
694.0

October 25, 2014 through November 21, 2014
 
0.6
 
42.96

 
0.6
 
669.0

November 22, 2014 through December 31, 2014
 
2.3
 
44.06

 
2.3
 
1,569.0

Total
 
2.9
 
43.82

 
2.9
 
1,569.0

___________________________
(A) 
Shares repurchased were primarily attributable to shares purchased under our publicly announced share repurchase program and were purchased in open-market transactions.
(B) 
In December 2013, our Board of Directors authorized share repurchases for an aggregate price of not more than $1.0 billion. Share repurchase activity under this authorization commenced during the second quarter of 2014. As of December 31, 2014, we had the remaining authorization to repurchase up to $569 million of shares of our common stock under this resolution. In December 2014, our Board of Directors approved a resolution to authorize additional share repurchases for an aggregate price of not more than $1.0 billion. Since 2010, we have repurchased $3.7 billion in outstanding shares, representing 112.4 million shares, under our approved share repurchase programs.
 
 

21



ITEM 6.
SELECTED FINANCIAL DATA
 
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements, and the Notes to Consolidated Financial Statements in this report.
 
 
For the Years Ended December 31,
(in millions, except per share data)
 
2014(B)
 
2013(C)
 
2012(D)
 
2011(E)
 
2010(A)(F)
OPERATIONS SUMMARY
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
8,264

 
$
8,212

 
$
8,062

 
$
8,284

 
$
6,714

Cost of sales
 
5,291

 
5,350

 
5,162

 
5,254

 
4,234

Gross profit
 
2,973

 
2,862

 
2,900

 
3,030

 
2,480

Selling, delivery, and administrative expenses
 
1,954

 
1,948

 
1,972

 
1,997

 
1,670

Operating income
 
1,019

 
914

 
928

 
1,033

 
810

Interest expense
 
119

 
103

 
94

 
85

 
63

Other nonoperating (expense) income
 
(7
)
 
(6
)
 
3

 
(3
)
 
(1
)
Income before income taxes
 
893

 
805

 
837

 
945

 
746

Income tax expense
 
230

 
138

 
160

 
196

 
122

Net income
 
$
663

 
$
667

 
$
677

 
$
749

 
$
624

WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
 
 
 
 
 
 
Basic
 
247

 
268

 
294

 
319

 
339

Diluted
 
252

 
273

 
301

 
327

 
340

PER SHARE DATA
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
2.68

 
$
2.49

 
$
2.30

 
$
2.35

 
$
1.84

Diluted earnings per share
 
2.63

 
2.44

 
2.25

 
2.29

 
1.83

Dividends declared per share
 
1.00

 
0.80

 
0.64

 
0.51

 
0.12

Closing stock price
 
44.22

 
44.13

 
31.73

 
25.78

 
25.03

YEAR-END FINANCIAL POSITION
 
 
 
 
 
 
 
 
 
 
Property, plant, and equipment, net
 
$
2,101

 
$
2,353

 
$
2,322

 
$
2,230

 
$
2,220

Franchise license intangible assets, net
 
3,641

 
4,004

 
3,923

 
3,771

 
3,828

Total assets
 
8,543

 
9,525

 
9,510

 
9,094

 
8,596

Total debt
 
3,952

 
3,837

 
3,466

 
3,012

 
2,286

Total shareowners' equity
 
1,431

 
2,280

 
2,693

 
2,899

 
3,143

___________________________
(A) 
Prior to the Merger, our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles on a “carve-out” basis from Legacy CCE’s Consolidated Financial Statements using the historical results of operations, cash flows, assets, and liabilities attributable to the legal entities that comprised CCE at the effective date of the Merger. These legal entities include all entities that were previously part of Legacy CCE’s Europe operating segment. Accordingly, our historical financial information included in this report does not necessarily reflect what our results of operations, cash flows, and financial position would have been had we been operating as an independent company prior to the Merger.
Also prior to the Merger, our Consolidated Financial Statements included an allocation of certain corporate expenses related to services provided to us by Legacy CCE. These expenses included the cost of executive oversight, information technology, legal, treasury, risk management, human resources, accounting and reporting, investor relations, public relations, internal audit, and certain global restructuring projects. The cost of these services was allocated to us based on specific identification when possible or, when the expenses were determined to be global in nature, based on the percentage of our relative sales volume to total Legacy CCE sales volume for the applicable periods. We believe these allocations are a reasonable representation of the cost incurred for the services provided. However, these allocations are not necessarily indicative of the actual expenses that we would have incurred had we been operating as an independent company prior to the Merger.

22



The bottling operations in Norway and Sweden were acquired from TCCC on October 2, 2010. This acquisition was included in our Consolidated Financial Statements beginning in the fourth quarter of 2010. Additionally, the following items included in our reported results affected the comparability of our year-over-year financial results (the items listed below are based on defined terms and thresholds and represent all material items management considered for year-over-year comparability; amounts prior to the Merger include only items related to Legacy CCE’s Europe operating segment).
(B) 
Our 2014 net income included the following items of significance: (1) charges totaling $81 million related to restructuring activities; (2) net mark-to-market gains totaling $2 million related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period; (3) charges totaling $10 million related to the impairment of our investment in our recycling joint venture in Great Britain; and (4) net tax items totaling $6 million principally related to the tax impact on the cumulative nonrecurring items for the year.
(C) 
Our 2013 net income included the following items of significance: (1) charges totaling $120 million related to restructuring activities; (2) net mark-to-market losses totaling $7 million related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period; (3) charges totaling $5 million related to post-Merger changes in certain underlying tax matters covered by our indemnification to TCCC for periods prior to the Merger; and (4) a net deferred tax benefit of $71 million due to the enactment of a corporate income tax rate reduction in the United Kingdom.
(D) 
Our 2012 net income included the following items of significance: (1) charges totaling $85 million related to restructuring activities; (2) net mark-to-market losses totaling $4 million related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period; and (3) a net deferred tax benefit of $62 million due to the enactment of corporate income tax rate reductions in the United Kingdom and Sweden, partially offset by the impact of a corporate income tax law change in Belgium.
(E) 
Our 2011 net income included the following items of significance: (1) charges totaling $19 million related to restructuring activities; (2) net mark-to-market losses totaling $3 million related to non-designated commodity hedges associated with underlying transactions that related to a different reporting period; (3) charges totaling $5 million related to post-Merger changes in certain underlying tax matters covered by our indemnification to TCCC for periods prior to the Merger; and (4) a deferred tax benefit of $53 million due to the enactment of a corporate income tax rate reduction in the United Kingdom.
(F) 
Our 2010 net income included the following items of significance: (1) charges totaling $14 million related to restructuring activities; (2) net mark-to-market losses totaling $8 million related to non-designated commodity hedges associated with underlying transactions that related to a different reporting period; (3) transaction-related costs totaling $8 million; and (4) a deferred tax benefit of $25 million due to the enactment of a corporate income tax rate reduction in the United Kingdom.
 

23



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements contained in this report.
 
Overview
 
Business

We market, produce, and distribute non-alcoholic beverages to customers and consumers through licensed territory agreements in Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden. We operate in the highly competitive beverage industry and face strong competition from other general and specialty beverage companies. Our financial results are affected by a number of factors, including, but not limited to, consumer preferences, cost to manufacture and distribute products, foreign currency exchange rates, general economic conditions, local and national laws and regulations, raw material availability, and weather patterns.
 
Sales of our products are seasonal, with the second and third calendar quarters accounting for higher unit sales of products than the first and fourth quarters. In a typical year, we earn more than 60 percent of our annual operating income during the second and third quarters of the year. The seasonality of our sales volume, combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Additionally, year-over-year shifts in holidays, selling days, and weather patterns, particularly cold or wet weather during the summer months, can impact our results on an annual or quarterly basis.
 
Basis of Presentation

Our fiscal year ends on December 31. For interim quarterly reporting convenience, our first three quarters close on the Friday closest to the end of the quarterly calendar period. There were the same number of selling days in 2014, 2013, and 2012 (based upon a standard five-day selling week).
The following table summarizes the number of selling days by quarter for the years ended December 31, 2014, 2013, and 2012 (based on a standard five-day selling week):
 
First
Quarter    
 
Second
Quarter    
 
Third
Quarter    
 
Fourth
Quarter    
 
Full
Year    
2014
63
 
65
 
65
 
68
 
261
2013
64
 
65
 
65
 
67
 
261
2012
65
 
65
 
65
 
66
 
261
 
Strategic Vision
 
Our strategic vision is to “be the best beverage sales and service company, and to achieve this aspiration, we look to our operating framework to serve as our compass to steer our priorities, actions, and behaviors. Our operating framework was originally established in 2006 and refreshed in 2014 to adapt to the changing markets and communities in which we operate and the dynamic customer and consumer landscape. To enable us to best serve our stakeholders and achieve our vision, we enhanced our operating framework to include a new mission statement and a more targeted set of primary objectives.
 
Mission Statement: Delight our consumers and drive growth for our customers while proudly supporting our communities every day.
 
Primary Objectives:

1. Lead category value growth;
2. Excel at serving our customers with world-class capabilities; and
3. Drive an inclusive and passionate culture.
 
To deliver on our first objective, to lead category value growth, we must focus our efforts on identifying growth opportunities and leveraging our system capabilities to create a sustainable competitive advantage. This entails offering a range of premium but affordable brands, executing world-class consumer and shopper marketing programs, and making our brands an important and intrinsic part of our customers’ own growth strategies.

24




To achieve our second primary objective, to excel at serving our customers with world-class capabilities, we must place a renewed emphasis on building mutually beneficial relationships and continuously strengthen our execution. This requires a focus on fostering and sustaining productive relationships with customers, developing joint operating plans, gaining a deep understanding of our customers’ needs and expectations, and delivering executional excellence every day. Also, identifying the most critical organizational capabilities needed for success, and investing in assets, innovation, safety practices, process standardization and technology to further develop them, is important to achieve our objective.
 
To accomplish our third primary objective, to drive an inclusive and passionate culture, we must concentrate on building an environment that harnesses the individual and collective potential of our people to consistently serve our customers and win in the marketplace. To create such an environment, we must ensure we have a compelling place for employees to work that fosters inclusion, collaboration and connection, and values diversity of perspectives and experiences.
 
Our operating framework is focused on consumers, customers, and communities, and by accomplishing our primary objectives, we will be well-positioned to achieve consistent long-term profitable growth. Alongside our primary objectives, the operating framework is supported by foundational elements critical to achieving our vision and mission; these are sustainability leadership and winning together with TCCC.

Sustainability Leadership
 
A fundamental part of reaching our long-term objectives is our commitment to Corporate Responsibility and Sustainability (CRS). We have embedded CRS in our business strategy as a key part of our operating framework and we continue to invest across our territories to incorporate our CRS principles into our business.
 
We face rising expectations to be a more sustainable company. We want to meet or exceed these expectations and take this responsibility seriously. Our goal is to be the CRS leader within our industry and, with input from key stakeholders, we developed a sustainability plan (“Deliver for Today, Inspire for Tomorrow”) in 2011. This plan includes sustainability commitments and targets across all areas of our business, including energy and climate change, sustainable packaging and recycling, water stewardship, product portfolio, active healthy living, community, and workplace.
 
In 2014, we continued our strong carbon reduction performance across our commitment areas, particularly in transportation and distribution and cold-drink equipment. We also continued to deliver against our water efficiency targets across our operations. We hosted our second sustainability summit, focusing on innovation, the future of sustainability, and the societal role of business to combine profit and purpose. We continued to develop new collaborative partnerships to drive sustainability, including partnering with key customers on recycling programs and participating in forums to generate ideas on how to encourage recycling in the home. We also developed award-winning programs to improve diversity and inclusion within our business, and continued to expand our community investment programs to focus on active and healthy living and youth development programs.
 
Moving forward, we are evolving our sustainability plan and will be updating our commitments, targets and focus areas. We will continue to publish progress against this plan in an annual CRS report and on our corporate website, http://www.cokecce.com.

Winning Together With TCCC

We are TCCC’s strategic bottling partner in Western Europe and one of the world’s largest independent Coca-Cola bottlers. While we are two independent companies, we are dependent upon each other for our individual and collective success. For this reason, we understand winning requires us to act with a common vision, one that includes clearly aligned growth targets, common priorities, and a commitment to execute seamlessly together. Our shared vision requires aligned commitments to continuously develop our brands, assets, and capabilities to maximize performance and value, while simultaneously supporting the other party.
 
2014 Key Accomplishments

During 2014, we continued to generate strong cash flows, return cash to shareowners, and drive shareowner value, despite facing persistent macroeconomic and marketplace challenges. The following highlights some of our primary achievements in 2014:
 
Successfully delivered key marketing initiatives and programs surrounding the 2014 FIFA World Cup and our “Share a Coke” campaign;
Introduced three new beverages to our markets which garnered favorable consumer responses: (1) Coca-Cola Life in Great Britain and Sweden; (2) Finley, an adult sparkling nonalcoholic beverage, in France and Belgium; and (3) smartwater in Great Britain;

25



Substantially completed our business transformation program, whereby we improved the efficiency and effectiveness of our back office functions and further aligned our operating structure with the conditions we face in the marketplace;
Ranked as the world's 26th most sustainable company according to a leading CRS publication, representing the only beverage company included in the Global 100;
Repurchased $925 million of shares under our share repurchase program, bringing the total value of shares repurchased since October 2010 to approximately $3.7 billion; and
Increased our quarterly dividend from $0.20 per share to $0.25 per share, representing the seventh consecutive year of dividend increases.
 
Financial Summary
 
Our financial performance during 2014 reflects the following significant factors:
General macroeconomic softness across our territories and a challenging customer, consumer, and competitor landscape;
Essentially flat volume performance, driven by lower sales of our sparkling beverages, offset by volume gains in our still portfolio;
Bottle and can net price per case decline of 0.5 percent reflecting the cost of our increased promotional activity in light of current marketplace dynamics, partially offset by modest rate increases;
Bottle and can cost of sales per case decline of 1.0 percent resulting from favorable cost trends in some of our key commodities, and mix-shifts into lower cost packages;
Increased underlying operating expenses driven by expanded promotional activity in Great Britain and marketplace initiatives to support the 2014 FIFA World Cup, partially offset by the realization of cost savings associated with our restructuring initiatives;
Favorable currency exchange rate changes which increased operating income by approximately 2.5 percent ($0.06 per diluted share); and
Continuation of our share repurchase program, which increased diluted earnings per share in 2014 by approximately 8.0 percent ($0.21 per diluted share) compared to 2013.
 
Financial Results
 
Our net income in 2014 was $663 million, or $2.63 per diluted share, compared to net income in 2013 of $667 million, or $2.44 per diluted share. The following items included in our reported results affect the comparability of our year-over-year financial results (the items listed below are based on defined terms and thresholds and represent all material items management considered for year-over-year comparability):
 
2014
Charges totaling $81 million ($55 million net of tax, or $0.22 per diluted share) related to restructuring activities;
Net mark-to-market gains totaling $2 million ($1 million net of tax) related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period;
Charges totaling $10 million ($8 million net of tax, or $0.03 per diluted share) related to the impairment of our investment in our recycling joint venture in Great Britain; and
Net tax items totaling $6 million ($0.03 per diluted share) principally related to the tax impact on the cumulative nonrecurring items for the year.
2013
Charges totaling $120 million ($83 million net of tax, or $0.30 per diluted share) related to restructuring activities;
Net mark-to-market losses totaling $7 million ($5 million net of tax, or $0.02 per diluted share) related to non-designated commodity hedges associated with underlying transactions that related to a different reporting period;
Charges totaling $5 million ($3 million net of tax, or $0.01 per diluted share) related to post-Merger changes in certain underlying tax matters covered by our Tax Sharing Agreement with TCCC for periods prior to the Merger; and
A net deferred tax benefit of $71 million ($0.26 per diluted share) due to the enactment of a corporate income tax rate reduction in the United Kingdom.

26



Volume and Net Sales
 
Our overall volume performance was essentially flat, reflecting a decrease in sparkling beverage sales, offset by volume increases in certain still beverages, particularly our water brands. Our bottle and can net price per case declined 0.5 percent compared to the prior year driven by increased promotional activity to adapt to the current marketplace dynamics, and the impact of negative mix-shifts into multi-serve packages.
 
Cost of Sales
 
Our 2014 bottle and can cost per case declined 1.0 percent, reflecting the benefit associated with mix-shifts into lower-cost packages, particularly cans, and benefits from favorable cost trends in some of our key inputs, principally sugar and PET (plastic). While we have experienced these recent favorable trends, we continue to execute our risk management strategy through the use of supplier agreements and hedging instruments designed to mitigate our exposure to commodity price volatility.
 
Operating Expenses
 
Our operating expenses increased 0.5 percent in 2014 when compared to 2013, primarily related to expanded promotional activity in Great Britain in response to marketplace conditions and marketing initiatives to support the 2014 FIFA World Cup. This increase was partially offset by currency exchange rate changes, the realization of cost savings associated with efforts under our restructuring programs, and a decline in expenses incurred related to our business transformation program as we approached its completion.
 
Earnings Per Share
 
Our diluted earnings per share benefited from operating income growth of 11.5 percent and the impact of share repurchase activity, which increased diluted earnings per share year-over-year by approximately 8.0 percent. During 2014, we repurchased approximately $925 million of our shares under our share repurchase program. Through these programs we have repurchased approximately $3.7 billion of our shares since October 2010.
 
Looking Forward
 
Our 2015 business plan is designed to enable us to navigate the new realities we face, including unfavorable macroeconomic conditions, a challenging customer environment, and shifting consumer tastes and preferences. We are focused on creating long-term shareowner value by innovating in every area of our business, and as such our 2015 plans are centered on leveraging our core brand portfolio, strengthening our focus on high growth brands, and continuing to promote brand and package innovation.
 
In order to build on the popularity of our core brands and drive our objective of leading category value growth, we will work closely with TCCC to enhance each aspect of our connection with our customers and consumers. We will invest in targeted programs to further increase our presence in the marketplace. We will also launch specific brand initiatives designed to strengthen support of our individual core brands, such as Coca-Cola Zero, Fanta, and Sprite, while expanding the presence of new products, including Coca-Cola Life, smartwater, and Finley, into additional territories. We will continue to build our partnership with Monster to accelerate growth in our energy brands. We will capitalize on key marketing initiatives, including the Rugby World Cup which will take place in Great Britain in the fall of 2015. We have developed specific marketing plans to maximize our support of the event.
 
Our 2015 marketplace strategy reflects a broad approach that encompasses both the home and cold channels. For example, in the home channel we will implement a price and package diversification strategy that includes new price-specific programs for large PET (plastic), new multi-packs offering additional consumer value, and smaller PET (plastic) packages and multi-pack cans. In cold channels, we will focus on increasing the visibility of our products in outlets and enhancing our presence with consumers. This includes more store-front coolers, new vending fronts, and more focused activation outlet by outlet. We are also working across all channels to enhance our online presence in the rapidly growing category of digital sales.
 
In line with our objective of excelling at serving our customers, we will continue to maximize our effectiveness by providing customers with world-class service to enable us to win together. We will operate under a broad program that will focus on a combination of category planning, shopper insight, and efficiency within our supply chain.
 
We are confident in our ability to deliver long-term shareowner value and these programs and initiatives serve as the foundation of our work to return to sustained operating growth.
 

27



Operations Review
 
The following table summarizes our Consolidated Statements of Income as a percentage of net sales for the periods presented:
 
 
2014
 
2013
 
2012
Net sales
100.0
 %
 
100.0
 %
 
100.0
%
Cost of sales
64.0

 
65.1

 
64.0

Gross profit
36.0

 
34.9

 
36.0

Selling, delivery, and administrative expenses
23.7

 
23.7

 
24.5

Operating income
12.3

 
11.2

 
11.5

Interest expense
1.4

 
1.3

 
1.1

Other nonoperating (expense) income
(0.1
)
 
(0.1
)
 

Income before income taxes
10.8

 
9.8

 
10.4

Income tax expense
2.8

 
1.7

 
2.0

Net income
8.0
 %
 
8.1
 %
 
8.4
%

Operating Income
 
The following table summarizes our operating income by segment for the periods presented (in millions; percentages rounded to the nearest 0.5 percent):
 
 
2014
 
2013
 
2012
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
Europe
$
1,151

 
113.0
 %
 
$
1,063

 
116.5
 %
 
$
1,073

 
115.5
 %
Corporate
(132
)
 
(13.0
)
 
(149
)
 
(16.5
)
 
(145
)
 
(15.5
)
Consolidated
$
1,019

 
100.0
 %
 
$
914

 
100.0
 %
 
$
928

 
100.0
 %
 
During 2014, our operating income increased 11.5 percent to $1.0 billion. The following table summarizes the significant components of the change in our operating income for the periods presented (in millions; percentages rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013
 
2013 Versus 2012
 
Amount
 
Change
Percent
of Total
 
Amount
 
Change
Percent
of Total
Changes in operating income:
 
 
 
 
 
 
 
Impact of bottle and can price-mix on gross profit
$
(9
)
 
(1.0
)%
 
$
15

 
1.5
 %
Impact of bottle and can cost-mix on gross profit
56

 
6.0

 
(92
)
 
(10.0
)
Impact of bottle and can volume on gross profit

 

 
6

 
0.5

Other selling, delivery, and administrative expenses
(16
)
 
(2.0
)
 
82

 
9.0

Net mark-to-market gains on non-designated commodity hedges
9

 
1.0

 
(3
)
 

Restructuring charges
39

 
4.5

 
(35
)
 
(4.0
)
Tax Sharing Agreement indemnification changes
5

 
0.5

 
(5
)
 
(0.5
)
Currency exchange rate changes
24

 
2.5

 
17

 
2.0

Other changes
(3
)
 

 
1

 

Change in operating income
$
105

 
11.5
 %
 
$
(14
)
 
(1.5
)%
 

28



Net Sales
 
Net sales increased 0.5 percent in 2014 to $8.3 billion from $8.2 billion in 2013. This change included a 1.0 percent increase due to favorable currency exchange rate changes, and reflects essentially flat volume and a 0.5 percent decline in bottle and can net pricing per case versus the prior year. Our net sales performance reflects challenging marketplace dynamics, including a difficult retail environment and an increasingly competitive landscape.
 
Net sales increased 2.0 percent in 2013 to $8.2 billion from $8.1 billion in 2012. This change included a 1.5 percent increase due to favorable currency exchange rate changes, and reflected essentially flat volume and bottle and can net pricing per case versus the prior year. Our net sales performance reflected a difficult customer environment, particularly in Great Britain, and the residual impact of a French excise tax increase on the sale of sparkling and still beverages, particularly early in the year.
 
The following table summarizes the significant components of the change in our net sales per case for the periods presented (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
 
 
2014 Versus 2013
 
2013 Versus 2012
Changes in net sales per case:
 
 
 
Bottle and can net price per case
(0.5
)%
 
%
Bottle and can currency exchange rate changes
1.0

 
1.5

Change in net sales per case
0.5
 %
 
1.5
%

Our bottle and can sales accounted for approximately 94 percent of our total net sales during 2014. Bottle and can net price per case is based on the invoice price charged to customers reduced by promotional allowances, and is impacted by the price charged per package or brand, the volume generated in each package or brand, and the channels in which those packages or brands are sold. To the extent we are able to increase volume in higher-margin packages or brands that are sold through higher-margin channels, our bottle and can net pricing per case will increase without an actual increase in wholesale pricing. During 2014, our bottle and can net price per case declined 0.5 percent versus the prior year as a result of increased promotional activity to respond to the current marketplace challenges and negative mix-shifts into multi-serve packages, offset partially by modest rate increases. During 2013, our bottle and can net price per case reflected a modest approach to pricing given the difficult retail environment and negative mix-shifts into multi-serve packages.
 
We participate in various programs and arrangements with customers designed to increase the sale of our products. The costs of these various programs, included as a reduction in net sales, totaled $1.1 billion, $1.1 billion, and $1.0 billion in 2014, 2013, and 2012, respectively. These amounts included out-of-period accrual reductions related to estimates for prior year programs of $46 million, $31 million, and $34 million in 2014, 2013, and 2012, respectively.
 
Volume
 
The following table summarizes the change in our bottle and can volume for the periods presented (selling days were the same in all years presented; rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013
 
2013 Versus 2012
Change in volume
%
 
%


29



Brands
 
The following table summarizes our bottle and can volume by major brand category for the periods presented (selling days were the same in all years presented; rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013 Change
 
2014
Percent
of Total
 
2013 Versus 2012 Change
 
2013
Percent
of Total
Coca-Cola trademark
 %
 
69.0
%
 
0.5
 %
 
69.0
%
Sparkling flavors and energy
(2.0
)
 
17.5

 
1.0

 
18.0

Juices, isotonics, and other

 
10.0

 
(2.5
)
 
10.0

Water
5.5

 
3.5

 
(3.0
)
 
3.0

Total
 %
 
100.0
%
 
 %
 
100.0
%
  
2014 Versus 2013
 
Our 2014 volume remained essentially flat, reflecting a decrease in sparkling beverage sales of 0.5 percent, offset by an increase in still beverage sales of 1.5 percent. The decrease in our sparkling beverage sales primarily resulted from declines in our Sprite, Fanta, and Schweppes brands. Our still beverage performance was driven by growth in our water brands across our territories.
 
During 2014, our Coca-Cola trademark volume remained essentially flat. This performance was driven by volume declines in Coca-Cola and Diet Coke/Coca-Cola light of 1.0 percent and 5.5 percent, respectively, offset by volume gains in Coca-Cola Zero of 11.0 percent. Our sparkling flavors and energy volume declined 2.0 percent during 2014, reflecting declines in Sprite, Fanta, and Schweppes. These declines were partially offset by continued strength in our energy portfolio, growing 6.5 percent year-over-year led by Monster and Relentless. Juices, isotonics, and other volume remained flat reflecting continued strong growth in Nestea, offset by significant declines in Ocean Spray as a result of the termination of our agreement in Great Britain in early 2014. We also experienced a 5.5 percent increase in sales of our water brands, primarily driven by Chaudfontaine in continental Europe and the introduction of smartwater in Great Britain.
 
On a territory basis, continental Europe (including Norway and Sweden) volume grew 0.5 percent during 2014, offset by a volume decrease of 0.5 percent in Great Britain. The performance of our continental Europe territories reflected flat volume performance of our Coca-Cola trademark portfolio. Sparkling flavors and energy sales grew 0.5 percent. Sales of juices, isotonics, and other brands increased 0.5 percent in continental Europe, as increases in Capri-Sun and Nestea were partially offset by declines in sports drinks. In Great Britain, our volume declines were driven by a decrease in sales of sparkling beverage brands, partially offset by growth in still beverage brands. The decline in sparkling beverages was driven by a 3.5 percent reduction in the sales of other sparkling flavors, including Sprite and Schweppes. The increase in still beverage sales was primarily driven by double-digit growth in our water brands, which benefited from the introduction of smartwater in Great Britain in 2014, partially offset by a 0.5 percent decrease in our juices, isotonics, and other category led by declines in sales of Ocean Spray, as a result of the termination of our agreement in Great Britain in early 2014, and Powerade.
 
2013 Versus 2012
 
Our 2013 volume results were essentially flat, reflecting an increase in sparkling beverage sales of 0.5 percent, offset by a decline in still beverage sales of 3.0 percent. The increase in our sparkling beverage sales primarily resulted from solid growth in our trademark Coca-Cola beverages reflecting the successful execution of our “Share a Coke” campaign. Our still beverage performance was reflective of strong prior year growth hurdles.
 
During 2013, our Coca-Cola trademark volume increased 0.5 percent. This growth was driven by volume gains in Coca-Cola Zero of 15.0 percent, partially offset by volume declines in Coca-Cola and Diet Coke/Coca-Cola light of 0.5 percent and 5.5 percent, respectively. Our sparkling flavors and energy volume increased 1.0 percent during 2013, reflecting a 12.0 percent increase in energy brands and 2.0 percent increase in Fanta, partially offset by declines in Sprite and Dr Pepper, which had strong prior year growth. Juices, isotonics, and other volume decreased 2.5 percent, reflecting lower sales of our sports drinks such as Powerade, and juice drink brands, principally Ocean Spray and Minute Maid. These declines were partially offset by the solid performance of Capri-Sun, up 3.5 percent, and our newly reformulated Nestea, up 6.0 percent. We also experienced a 3.0 percent decline in sales of our water brands, primarily driven by Schweppes Abbey Well in Great Britain.
 
Continental Europe (including Norway and Sweden) experienced a volume decline of 0.5 percent during 2013, offset by a volume increase of 1.0 percent in Great Britain. The performance of our continental Europe territories reflected a 0.5 percent decrease in the sales of Coca-Cola trademark products, including Coca-Cola and Diet Coke/Coca-Cola light, and a 1.0 percent decrease in

30



the sales of other sparkling flavors, including Sprite and Schweppes. These declines were partially offset by the continued strong performance of Coca-Cola Zero which led the performance of our sparkling category in 2013. Sales of juices, isotonics, and other brands declined 0.5 percent in continental Europe, as declines in sports drinks were partially offset by volume gains in Capri-Sun and Nestea. In Great Britain, our volume performance was driven by increases in our sparkling portfolio of 2.5 percent, partially offset by declines in our still portfolio of 7.0 percent. The performance of our sparkling brands was led by continued strong growth of Coca-Cola Zero, as well as a significant increase in sales of other Coca-Cola flavors, such as Cherry Coke. Sales of our juices, isotonics, and other beverage brands declined by 5.0 percent, driven by Powerade and Ocean Spray. Sales of our water brands also declined in Great Britain as we faced prior year hurdles in Schweppes Abbey Well as a result of strong activation for the 2012 London Olympic Games.
 
Consumption
 
The following table summarizes the change in volume by consumption type for the periods presented (selling days were the same in all years presented; rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013 Change
 
2014
Percent
of Total
 
2013 Versus 2012 Change
 
2013
Percent
of Total
Multi-serve(A)
0.5
 %
 
59.0
%
 
2.0
 %
 
58.5
%
Single-serve(B)
(0.5
)
 
41.0

 
(2.5
)
 
41.5

Total
 %
 
100.0
%
 
 %
 
100.0
%
___________________________
(A) 
Multi-serve packages include containers that are typically greater than one liter, purchased by consumers in multi-packs in take-home channels at ambient temperatures, and are intended for consumption in the future.
(B) 
Single-serve packages include containers that are typically one liter or less, purchased by consumers as a single bottle or can in cold-drink channels at chilled temperatures, and intended for consumption shortly after purchase.
 
Packages
 
Our products are available in a variety of package types and sizes (single-serve and multi-serve) including, but not limited to, aluminum and steel cans, glass, PET (plastic) and aluminum bottles, pouches, and bag-in-box for fountain use. The following table summarizes our volume results by major package category for the periods presented (selling days were the same in all years presented; rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013 Change
 
2014
Percent
of Total
 
2013 Versus 2012 Change
 
2013
Percent
of Total
PET (plastic)
(2.5
)%
 
43.0
%
 
 %
 
44.5
%
Cans
2.5

 
41.5

 
1.0

 
40.0

Glass and other
1.5

 
15.5

 
(1.5
)
 
15.5

Total
 %
 
100.0
%
 
 %
 
100.0
%
 
Cost of Sales
 
Cost of sales decreased 1.0 percent in 2014 to $5.3 billion as compared to the prior year. This change included a 1.0 percent increase due to currency exchange rate changes.
 
Cost of sales increased 3.5 percent in 2013 to $5.4 billion as compared to the prior year. This change included a 1.5 percent increase due to currency exchange rate changes.
 

31



The following table summarizes the significant components of the change in our cost of sales per case for the periods presented (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
 
 
2014 Versus 2013
 
2013 Versus 2012
Changes in cost of sales per case:
 
 
 
Bottle and can ingredient and packaging costs
(1.0
)%
 
2.0
%
Bottle and can currency exchange rate changes
1.0

 
1.5

       Post-mix, non-trade, and other
(1.0
)
 

Change in cost of sales per case
(1.0
)%
 
3.5
%
 
Our 2014 bottle and can ingredient and packaging costs per case decreased 1.0 percent. This decline reflects mix-shifts into lower cost packages and benefits from favorable cost trends in some of our key inputs, principally sugar and PET (plastic). While we have experienced these recent favorable trends, we continue to execute our risk management strategy through the use of supplier agreements and hedging instruments designed to mitigate our exposure to commodity price volatility.
 
Our 2013 bottle and can ingredient and packaging costs per case increased 2.0 percent reflecting year-over-year cost increases.

Selling, Delivery, and Administrative Expenses
 
Selling, delivery, and administrative (SD&A) expenses increased 0.5 percent to $2.0 billion in 2014. The following table summarizes the significant components of the change in our SD&A expenses for the periods presented (in millions; percentages rounded to the nearest 0.5 percent):
 
 
2014 Versus 2013
 
2013 Versus 2012
 
Amount
 
Change
Percent
of Total
 
Amount
 
Change
Percent
of Total
Changes in SD&A expenses:
 
 
 
 
 
 
 
General and administrative expenses
$
13

 
0.5
 %
 
$
(22
)
 
(1.0
)%
Selling and marketing expenses
24

 
1.5

 
(10
)
 
(0.5
)
Delivery and merchandising expenses
(12
)
 
(0.5
)
 
(25
)
 
(1.5
)
Warehousing expenses
(11
)
 
(0.5
)
 
(17
)
 
(1.0
)
Depreciation and amortization

 

 
(12
)
 
(0.5
)
Net mark-to-market losses on non-designated commodity hedges
11

 
0.5

 
(2
)
 

Restructuring charges
(34
)
 
(1.5
)
 
30

 
1.5

Tax Sharing Agreement indemnification changes
(5
)
 
(0.5
)
 
5

 
0.5

Currency exchange rate changes
18

 
1.0

 
25

 
1.5

Other changes
2

 

 
4

 

Change in SD&A expenses
$
6

 
0.5
 %
 
$
(24
)
 
(1.0
)%
 
The increase in our SD&A expenses in 2014 when compared to 2013 relates to our efforts to expand promotional activity in Great Britain to respond to marketplace dynamics and marketing initiatives to support the 2014 FIFA World Cup, as well as currency exchange rate changes. These increases are partially offset by the realization of cost savings associated with efforts under our restructuring programs, and a decline in expenses incurred related to our business transformation program as we approached its completion.

The decrease in our SD&A expenses in 2013 when compared to 2012 reflected the benefits of our Norway business optimization program, which drove a decrease in our delivery and warehousing expenses, enhanced operating efficiency driven by initiatives under our business transformation program, and ongoing expense control initiatives. These decreases were partially offset by a $30 million increase in restructuring expenses and a $25 million increase related to currency exchange rate changes.

32



 
Business Transformation Program

In 2012, we announced a business transformation program designed to improve our operating model and create a platform for driving sustainable future growth. Through this program we have: (1) streamlined and reduced the cost structure of our finance support function, including the establishment of a centralized shared services center; (2) restructured our sales and marketing organization to better align central and field sales, and deployed standardized channel-focused organizations within each of our territories; and (3) improved the efficiency and effectiveness of certain aspects of our operations, including activities related to our cold-drink equipment.
 
We are substantially complete with this program as of December 31, 2014, and our nonrecurring restructuring charges totaled $226 million, including severance, transition, consulting, accelerated depreciation, and lease termination costs. During the years ended December 31, 2014, 2013, and 2012, we recorded nonrecurring restructuring charges under this program totaling $81 million, $99 million, and $46 million, respectively. Substantially all nonrecurring restructuring charges related to this program are included in SD&A on our Consolidated Statements of Income. Refer to Note 14 of the Notes to Consolidated Financial Statements.
 
Under this program, including non-restructuring related business process improvement initiatives, we expect to generate ongoing annualized cost savings of approximately $110 million by 2015, some of which we expect to reinvest into the business.
 
Interest Expense
 
Interest expense, net totaled $119 million, $103 million, and $94 million in 2014, 2013, and 2012, respectively. The following tables summarize the primary items impacting our interest expense during the periods presented (in millions):
 
Debt 
 
2014
 
2013
 
2012
Average outstanding debt balance
$
4,231

 
$
3,706

 
$
3,226

Weighted average cost of debt
2.8
%
 
2.8
%
 
2.8
%
Fixed-rate debt (% of portfolio)
96
%
 
97
%
 
86
%
Floating-rate debt (% of portfolio)
4
%
 
3
%
 
14
%
 
Other Nonoperating (Expense) Income
 
Other nonoperating expense totaled $7 million and $6 million in 2014 and 2013, respectively. Other nonoperating income totaled $3 million in 2012. Our other nonoperating expense principally included gains and losses on transactions denominated in a currency other than the functional currency of a particular legal entity. In 2014, our other nonoperating expense also includes charges related to the impairment of our investment in our recycling joint venture in Great Britain.

Income Tax Expense
 
In 2014, our effective tax rate was 26.0 percent. Our 2014 effective tax rate reflected the U.S. tax impact associated with repatriating to the U.S. $450 million of our 2014 foreign earnings (refer to Note 10 of the Notes to Consolidated Financial Statements). 

In 2013, our effective tax rate was 17.0 percent. This rate included a net deferred tax benefit of $71 million (an approximate 9 percentage point decrease in the effective tax rate) due to the enactment of a corporate income tax rate reduction in the United Kingdom. Our 2013 effective tax rate also reflected the U.S. tax impact associated with repatriating to the U.S. $450 million of our 2013 foreign earnings.

In 2012, our effective tax rate was 19.0 percent. This rate included a net deferred tax benefit of $62 million (an approximate 7 percentage point decrease in the effective tax rate) due to the enactment of corporate income tax rate reductions in the United Kingdom and Sweden, partially offset by the impact of a tax law change in Belgium. Our 2012 effective tax rate also reflected the U.S. tax impact associated with repatriating to the U.S. $450 million of our 2012 foreign earnings.
 

33



Cash Flow and Liquidity Review
 
Liquidity and Capital Resources

Our sources of capital include, but are not limited to, cash flows from operations, public and private issuances of debt and equity securities, and bank borrowings. We believe our operating cash flow, cash on hand, and available short-term and long-term capital resources are sufficient to fund our working capital requirements, scheduled debt payments, interest payments, capital expenditures, benefit plan contributions, income tax obligations, dividends to our shareowners, any contemplated acquisitions, and share repurchases for the foreseeable future. We continually assess the counterparties and instruments we use to hold our cash and cash equivalents, with a focus on preservation of capital and liquidity. Based on information currently available, we do not believe we are at significant risk of default by our counterparties.
 
We have amounts available to us for borrowing under a $1.0 billion multi-currency credit facility with a syndicate of eight banks. This credit facility matures in 2017 and is for general corporate purposes, including serving as a backstop to our commercial paper program and supporting our working capital needs. At December 31, 2014, we had no amount drawn under this credit facility. Based on information currently available to us, we have no indication that the financial institutions participating in this facility would be unable to fulfill their commitments to us as of the date of the filing of this report.
 
We satisfy seasonal working capital needs and other financing requirements with operating cash flow, cash on hand, short-term borrowings under our commercial paper program, bank borrowings, and our line of credit. At December 31, 2014, we had $632 million in debt maturities in the next 12 months, including $146 million in commercial paper. In addition to using operating cash flow and cash on hand, we may repay our short-term obligations by issuing more debt, which may take the form of commercial paper and/or long-term debt.
 
Beginning in October 2010, our Board of Directors has approved a series of resolutions authorizing the repurchase of shares of our stock. Since 2010, we have repurchased $3.7 billion in outstanding shares, representing 112.4 million shares, under these resolutions. In December 2013, our Board of Directors authorized additional share repurchases for an aggregate price of not more than $1.0 billion. Share repurchase activity under this authorization commenced during the second quarter of 2014 when the share repurchases under the previous authorization were completed. During 2014, we repurchased $925 million in outstanding shares, representing 20.2 million shares at an average price of $45.79 per share. We currently have $569 million in authorized share repurchases remaining under the December 2013 resolution. In December 2014, our Board of Directors approved a resolution to authorize additional share repurchases for an aggregate price of not more than $1.0 billion.

We currently expect to repurchase approximately $600 million in outstanding shares during 2015 under our share repurchase programs, subject to economic, operating, and other factors, including acquisition opportunities. For additional information about our share repurchase programs, refer to Note 15 of the Notes to Consolidated Financial Statements.
 
During the third quarter of 2014, we repatriated to the U.S. $450 million of our 2014 foreign earnings for the payment of dividends, share repurchases, interest on U.S.-issued debt, salaries for U.S.-based employees, and other corporate-level operations in the U.S. Our historical foreign earnings, including our 2014 foreign earnings that were not repatriated in 2014, will continue to remain permanently reinvested, and, if we do not generate sufficient current year foreign earnings to repatriate to the U.S. in any future given year, we expect to have adequate access to capital in the U.S. to allow us to satisfy our U.S.-based cash flow needs in that year. Therefore, historical foreign earnings and future foreign earnings that are not repatriated to the U.S. will remain permanently reinvested and will be used to service our foreign operations, non-U.S. debt, and to fund future acquisitions. During 2015, we expect to repatriate a portion of our 2015 foreign earnings to satisfy our 2015 U.S.-based cash flow needs. The amount to be repatriated to the U.S. will depend on, among other things, our actual 2015 foreign earnings and our actual 2015 U.S.-based cash flow needs. For additional information about repatriation of foreign earnings, refer to Note 10 of the Notes to Consolidated Financial Statements.
 
At December 31, 2014, substantially all of the cash and cash equivalents recorded on our Consolidated Balance Sheets was held by consolidated entities that are located outside the U.S. Our disclosure of cash and cash equivalents held by consolidated entities located outside the U.S. is not meant to imply the cash will be repatriated to the U.S. at a future date. Any future repatriation of foreign earnings to the U.S. will be based on actual U.S.-based cash flow needs and actual foreign entity cash available at the time of the repatriation.
 
During 2014, we paid dividends of $246 million. In February 2014, our Board of Directors approved an increase in our quarterly dividend from $0.20 per share to $0.25 per share beginning in the first quarter of 2014, and in February 2015, our Board of Directors approved an increase in our quarterly dividend from $0.25 per share to $0.28 per share beginning in the first quarter of 2015. As a result, we expect our cash paid for dividends to increase approximately $15 million in 2015 compared to 2014, subject to the actual number of shares outstanding as of our dividend declaration dates.

34



 
Credit Ratings and Covenants

Our credit ratings are periodically reviewed by rating agencies. Currently, our long-term ratings from Moody’s, Standard & Poor’s (S&P), and Fitch are A3, BBB+, and BBB+, respectively. Our ratings outlook from Moody’s and Fitch are stable and S&P is negative. Changes in our operating results, cash flows, or financial position could impact the ratings assigned by the various rating agencies. Our credit rating can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions, and capital management activities of TCCC, and/or changes in the credit rating of TCCC. Should our credit ratings be adjusted downward, we may incur higher costs to borrow, which could have a material impact on our financial condition and results of operations.
 
Our credit facility and outstanding third-party notes contain various provisions that, among other things, require us to limit the incurrence of certain liens or encumbrances in excess of defined amounts. Additionally, our credit facility requires that our net debt to total capital ratio does not exceed a defined amount. We were in compliance with these requirements as of December 31, 2014. These requirements currently are not, nor is it anticipated that they will become, restrictive to our liquidity or capital resources.
 
Summary of Cash Activities
 
2014
 
During 2014, our primary sources of cash included (1) $982 million from operating activities, net of cash payments related to restructuring programs of $88 million and contributions to our defined benefit pension plans of $51 million; (2) proceeds of $347 million from the issuances of debt; and (3) net issuances of commercial paper of $146 million. Our primary uses of cash were (1) cash payments totaling $912 million for shares repurchased under our share repurchase program; (2) capital asset investments totaling $332 million; (3) dividend payments on common stock of $246 million; and (4) payments on debt of $114 million, primarily resulting from the maturing of $100 million notes.
 
2013
 
During 2013, our primary sources of cash included (1) $833 million from operating activities, net of cash payments related to restructuring programs of $117 million and contributions to our defined benefit pension plans of $72 million; and (2) proceeds of $931 million from the issuances of debt. Our primary uses of cash were (1) cash payments totaling $1.0 billion for shares repurchased under our share repurchase program; (2) payments on debt of $623 million, primarily resulting from the maturing of our Swiss franc (CHF) 200 million notes and our $400 million notes; (3) capital asset investments totaling $313 million; and (4) dividend payments on common stock of $213 million.
 
2012
 
During 2012, our primary sources of cash included (1) $947 million from operating activities, net of cash payments related to contributions to our defined benefit pension plans of $121 million; and (2) proceeds of $430 million from the issuances of debt. Our primary uses of cash were (1) cash payments totaling $780 million for shares repurchased under our share repurchase program; (2) capital asset investments totaling $378 million; and (3) dividend payments on common stock of $187 million.
 
Operating Activities
 
2014 Versus 2013
 
Our net cash derived from operating activities totaled $982 million in 2014 versus $833 million in 2013. This change reflected our improved year-over-year operating income performance, a $29 million decrease in cash payments under our restructuring programs, and a $21 million decrease in the amount of contributions made to our defined benefit plans.
 
2013 Versus 2012
 
Our net cash derived from operating activities totaled $833 million in 2013 versus $947 million in 2012. This change reflected a $111 million increase in cash payments under our restructuring programs, offset partially by a $49 million decrease in the amount of contributions made to our defined benefit plans.
 

35



Investing Activities
 
Capital asset investments represent a principal use of cash for our investing activities. During 2015, we expect our capital expenditures to approximate $325 million and to be invested in similar asset categories as those listed in the table below. The following table summarizes our capital asset investments for the periods presented (in millions):
 
 
2014
 
2013
 
2012
Supply chain infrastructure
$
187

 
$
190

 
$
221

Cold-drink equipment
101

 
73

 
104

Information technology
37

 
35

 
36

Fleet and other
7

 
15

 
17

Total capital asset investments
$
332

 
$
313

 
$
378

 
During 2014, our investing activities also included $27 million in capital asset disposals, driven, in part, by our business transformation program. Additionally, investing activities for 2014 included the receipt of $21 million from the settlement of net investment hedges. During 2013, our investing activities included the payment of $21 million from the settlement of net investment hedges.
 
Financing Activities
 
Our net cash used in financing activities totaled $789 million and $896 million in 2014 and 2013, respectively. The following table summarizes our financing activities related to the issuances of and payments on debt for the period presented (in millions):
 
Issuances of Debt
 
Maturity Date
 
Rate    
 
2014
 
2013
€250 million notes
 
May 2026
 
2.8%
 
$
347

 
$

€350 million notes
 
May 2025
 
2.4%
 

 
459

€350 million notes
 
November 2023
 
2.6%
 

 
472

Total issuances of debt
 
 
 
 
 
$
347

 
$
931

 
 
 
 
 
 
 
 
 
Payments on Debt
 
Maturity Date
 
Rate(A)
 
2014
 
2013
$100 million notes
 
February 2014
 
 
$
(100
)
 
$

CHF 200 notes
 
March 2013
 
3.8%
 

 
(211
)
$400 million notes
 
November 2013
 
1.1%
 

 
(400
)
Other payments, net
 
 
 
(14
)
 
(12
)
Total payments on debt
 
 
 
 
 
$
(114
)
 
$
(623
)
___________________________
(A) 
The $100 million notes carried a variable interest rate at three-month USD LIBOR plus 30 basis points. At maturity the effective rate on these notes was 0.5 percent.

Our financing activities during 2014 and 2013 also included cash payments of $0.9 billion and $1.0 billion for share repurchases, respectively. We currently expect to purchase approximately $600 million in outstanding shares during 2015.
 
During 2014, we paid dividends of $246 million. In February 2014, our Board of Directors approved an increase in our quarterly dividend from $0.20 per share to $0.25 per share beginning in the first quarter of 2014. In February 2015, our Board of Directors approved an increase in our quarterly dividend from $0.25 per share to $0.28 per share beginning in the first quarter of 2015. As a result, we expect our cash paid for dividends to increase approximately $15 million in 2015 compared to 2014, subject to the actual number of shares outstanding as of our dividend declaration dates.
 

36



Financial Position
 
The following table illustrates selected changes in our consolidated balance sheets (in millions), as discussed below:
December 31,
 
2014
 
2013
 
Increase (Decrease)
 
Percent Change
Trade accounts receivable
 
$
1,514

 
$
1,515

 
$
(1
)
 
 %
Inventories
 
388

 
452

 
(64
)
 
(14.0
)
Other current assets
 
268

 
169

 
99

 
(58.5
)
Franchise license intangible assets, net
 
3,641

 
4,004

 
(363
)
 
(9.0
)
Goodwill
 
101

 
124

 
(23
)
 
(18.5
)
Other noncurrent assets
 
240

 
476

 
(236
)
 
(49.5
)
Accounts payable and accrued expenses
 
1,872

 
1,939

 
(67
)
 
(3.5
)
Current portion of debt
 
632

 
111

 
521

 
469.5

Debt, less current portion
 
3,320

 
3,726

 
(406
)
 
(11.0
)
Other noncurrent liabilities
 
207

 
221

 
(14
)
 
(6.5
)
Common stock in treasury, at cost
 
(3,807
)
 
(2,868
)
 
(939
)
 
32.5

  
Trade accounts receivable, net decreased $1 million, driven by increased sales volume late in 2014, offset by currency exchange rate changes.
 
Inventories decreased $64 million, due to currency exchange rate changes and the impact of incremental purchase of certain raw materials in the latter part of the fourth quarter of 2013.
 
Other current assets increased $99 million, driven by an increase in current deferred income tax assets (refer to Note 10 of the Notes to Consolidated Financial Statements) and an increase in certain derivative assets (refer to Note 5 of the Notes to Consolidated Financial Statements), partially offset by currency exchange rate changes.
 
Franchise license intangible assets, net and goodwill decreased $386 million, due to the effect of currency exchange rate changes. For additional information about our franchise license intangible assets and goodwill, refer to Note 2 of the Notes to Consolidated Financial Statements.
 
Other noncurrent assets decreased $236 million, driven by declines in noncurrent deferred income tax assets (refer to Note 10 of the Notes to Consolidated Financial Statements), declines in noncurrent assets related to our defined benefit pension plans (refer to Note 9 of the Notes to Consolidated Financial Statements), and currency exchange rate changes.
 
Accounts payable and accrued expenses decreased $67 million, driven by currency exchange rate changes, and a decrease in accrued compensation due to the timing of certain severance payments under our business transformation program, and the payment of certain incentive compensation amounts. These decreases were partially offset by an increase in accounts payable due to the timing of payments and an increase in accrued expenses related to our customer marketing programs in Great Britain, primarily resulting from changes in program levels and timing of payments.
 
Current portion of debt increased $521 million, primarily driven by our $475 million, 2.1 percent notes due September 2015, which became current in the third quarter of 2014, and net issuances of commercial paper of $146 million. These increases were partially offset by the repayment of our $100 million floating rate notes at maturity in February 2014. For additional information about our debt, refer to Note 6 of the Notes to Consolidated Financial Statements.
 
Debt, less current portion decreased $406 million, primarily driven by our $475 million, 2.1 percent notes due September 2015, which became current in the third quarter of 2014, as well as currency exchange rate changes. These decreases were partially offset by the issuance in May 2014 of €250 million, 2.8 percent notes due 2026. For additional information about our debt, refer to Note 6 of the Notes to Consolidated Financial Statements.
 
Other noncurrent liabilities decreased $14 million, primarily attributable to currency exchange rate changes and a decrease in certain derivative liabilities (refer to Note 5 of the Notes to Consolidated Financial Statements), partially offset by an increase in noncurrent liabilities related to our defined benefit pension plans (refer to Note 9 of the Notes to Consolidated Financial Statements).
 

37



Common stock in treasury, at cost increased $939 million, primarily driven by our repurchase of $925 million in outstanding shares during 2014 under our share repurchase programs (refer to Note 15 of the Notes to Consolidated Financial Statements). The remaining difference represents shares withheld for taxes upon the vesting of employee share-based payment awards.
 
Contractual Obligations
 
The following table summarizes our significant contractual obligations as of December 31, 2014 (in millions):
 
 
 
Payments Due by Period
Contractual Obligations
 
Total
 
Less
Than
1 Year
 
1 to 3
Years
 
3 to 5
Years
 
More
Than 5
Years
Debt, excluding capital leases(A)
 
$
3,926

 
$
621

 
$
673

 
$
420

 
$
2,212

Interest obligations(B)
 
639

 
103

 
182

 
155

 
199

Purchase agreements(C)
 
360

 
85

 
150

 
100

 
25

Operating leases(D)
 
277

 
55

 
84

 
52

 
86

Other purchase obligations(E)
 
143

 
143

 

 

 

Capital lease obligations(F)
 
29

 
11

 
11

 
5

 
2

Total contractual obligations
 
$
5,374

 
$
1,018

 
$
1,100

 
$
732

 
$
2,524

___________________________
(A) 
These amounts represent our scheduled debt maturities, excluding capital leases. For additional information about our debt, refer to Note 6 of the Notes to Consolidated Financial Statements.
(B) 
These amounts represent estimated interest payments related to our long-term debt obligations, excluding capital leases. For fixed-rate debt, we have calculated interest based on the applicable rates and payment dates for each individual debt instrument. For variable-rate debt, we have estimated interest using the forward interest rate curve. At December 31, 2014, approximately 96 percent of our debt portfolio was fixed-rate debt and 4 percent was floating-rate debt.
(C) 
These amounts represent noncancelable purchase agreements with various suppliers that are enforceable and legally binding, and that specify a fixed or minimum quantity that we must purchase. All purchases made under these agreements are subject to standard quality and performance criteria. We have excluded amounts related to supply agreements with requirements to purchase a certain percentage of our future raw material needs from a specific supplier, since such agreements do not specify a fixed or minimum quantity requirement.
(D) 
These amounts represent our minimum operating lease payments due under noncancelable operating leases with initial or remaining lease terms in excess of one year as of December 31, 2014. Income associated with sublease arrangements is not significant. For additional information about our operating leases, refer to Note 7 of the Notes to Consolidated Financial Statements.
(E) 
These amounts represent outstanding purchase obligations primarily related to commodity purchases and capital expenditures.
(F) 
These amounts represent our minimum capital lease payments (including amounts representing interest). For additional information about our capital leases, refer to Note 6 of the Notes to Consolidated Financial Statements.
 
Benefit Plan Contributions
 
The following table summarizes the contributions made to our defined benefit pension plans for the years ended December 31, 2014 and 2013, as well as our projected contributions for the year ending December 31, 2015 (in millions):
 
 
Actual(A)
 
Projected(A)
 
2014
 
2013
 
2015
Pension contributions
$
51

 
$
72

 
$
55

___________________________
(A) 
These amounts represent only contributions made by CCE. We fund our pension plans at a level to maintain, within established guidelines, the appropriate funded status for each country. During 2013, we contributed incremental amounts totaling $15 million to our Great Britain defined benefit pension plan to improve the funded status of this plan.
 
For additional information about our pension plans, refer to Note 9 of the Notes to Consolidated Financial Statements.

38



 
Critical Accounting Policies
 
We make judgments and estimates with underlying assumptions when applying accounting principles to prepare our Consolidated Financial Statements. Certain critical accounting policies requiring significant judgments, estimates, and assumptions are detailed in this section. We consider an accounting estimate to be critical if (1) it requires assumptions to be made that are uncertain at the time the estimate is made and (2) changes to the estimate or different estimates that could have reasonably been used would have materially changed our Consolidated Financial Statements. The development and selection of these critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.
 
We believe the current assumptions and other considerations used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, should our actual experience differ from these assumptions and other considerations used in estimating these amounts, the impact of these differences could have a material impact on our Consolidated Financial Statements.
 
Permanent Reinvestment of Foreign Earnings
 
We had approximately $1.8 billion in cumulative undistributed foreign historical earnings as of December 31, 2014. These historical earnings are exclusive of amounts that would result in little or no tax under current tax laws if remitted in the future. The historical earnings from our foreign subsidiaries are considered to be permanently reinvested and, accordingly, no provision for U.S. federal and state income taxes has been made in our Consolidated Financial Statements. A distribution of these foreign historical earnings to the U.S. in the form of dividends, or otherwise, would subject us to U.S. income taxes, as adjusted for foreign tax credits, and withholding taxes payable to the various foreign countries. Determination of the amount of any unrecognized deferred income tax liability on these undistributed earnings is not practicable.
 
During the third quarter of 2014, we repatriated to the U.S. $450 million of our 2014 foreign earnings for the payment of dividends, share repurchases, interest on U.S.-issued debt, salaries for U.S.-based employees, and other corporate-level operations in the U.S. Our historical foreign earnings, including our 2014 foreign earnings that were not repatriated in 2014, will continue to remain permanently reinvested, and, if we do not generate sufficient current year foreign earnings to repatriate to the U.S. in any future given year, we expect to have adequate access to capital in the U.S. to allow us to satisfy our U.S.-based cash flow needs in that year. Therefore, historical foreign earnings and future foreign earnings that are not repatriated to the U.S. will remain permanently reinvested and will be used to service our foreign operations, non-U.S. debt, and to fund future acquisitions. In December 2013, we repatriated to the U.S. $450 million of our 2013 foreign earnings, for the payment of dividends, share repurchases, interest on U.S.-issued debt, salaries for U.S.-based employees, and other corporate-level operations in the U.S.
 
The following table illustrates the hypothetical U.S. taxes that we would be subjected to if the entire amount of our permanently reinvested foreign earnings as of December 31, 2014 were repatriated to the U.S. (in millions):
 
Incremental U.S. Tax Percentage(A)
 
Incremental U.S. Taxes(B)
  5 percent
 
$
90

10 percent
 
180

15 percent
 
270

20 percent
 
360

___________________________
(A) 
These percentages are not based on any specific facts or circumstances, but instead were selected for illustrative purposes only. Each rate represents the hypothetical incremental U.S. tax assessed on earnings from a foreign jurisdiction upon repatriation to the U.S.
(B) 
Amounts are derived by multiplying the hypothetical incremental U.S. tax percentages by our cumulative undistributed permanently reinvested foreign earnings as of December 31, 2014.
 
Pension Plan Valuation
 
We sponsor a number of defined benefit pension plans covering substantially all of our employees. Several critical assumptions are made in valuing our pension plan assets and liabilities and related pension expense. We believe the most critical of these assumptions are the discount rate, salary rate of inflation, and expected long-term return on assets (EROA). Other assumptions we make are related to employee demographic factors such as mortality rates, retirement patterns, and turnover rates.
 
We determine the discount rate primarily by reference to rates of high-quality, long-term corporate bonds that mature in a pattern similar to the expected payments to be made under the plans. Decreasing our discount rate (4.4 percent for the year ended

39



December 31, 2014 for pension expense and 3.5 percent as of December 31, 2014 for our projected benefit obligation (PBO)) by 0.5 percent would have increased our 2014 pension expense by approximately $12 million and our PBO by approximately $185 million.
 
We determine the salary rate of inflation by considering the following factors: (1) expected long-term price inflation; (2) allowance for merit and promotion increases; (3) prior years’ actual experience; and (4) any known short-term actions. Increasing our salary rate of inflation (3.5 percent for the year ended December 31, 2014 for pension expense and 3.2 percent as of December 31, 2014 for our PBO) by 0.5 percent would have increased our 2014 pension expense by approximately $5 million and our PBO by approximately $70 million.
 
The EROA is based on long-term expectations given current investment objectives and historical results. We utilize a combination of active and passive fund management of pension plan assets in order to maximize plan asset returns within established risk parameters. We periodically revise asset allocations, where appropriate, to improve returns and manage risk. Decreasing the EROA (6.9 percent for the year ended December 31, 2014) by 0.5 percent would have increased our pension expense in 2014 by approximately $2 million.
 
We utilize the five-year asset smoothing technique to recognize market gains and losses for 92 percent of our pension plan assets.
 
As a result of changes in discount rates, asset performance, and other assumption changes, our net losses deferred in accumulated other comprehensive income (AOCI) have increased in recent years. As of December 31, 2014, our net losses totaled $446 million, of which $28 million will be amortized in 2015 as a component of our 2015 net periodic benefit cost.
 
For additional information about our pension plans, refer to Note 9 of the Notes to Consolidated Financial Statements.
 
Customer Marketing Programs and Sales Incentives
 
We participate in various programs and arrangements with customers designed to increase the sale of our products. Among the programs are arrangements under which allowances can be earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programs. Coupon programs are also developed on a customer- and territory-specific basis with the intent of increasing sales by all customers. We believe our participation in these programs is essential to ensuring volume and revenue growth in the competitive marketplace. The costs of all these various programs, included as a reduction in net sales, totaled $1.1 billion, $1.1 billion, and $1.0 billion in 2014, 2013, and 2012, respectively.
 
Under customer programs and arrangements that require sales incentives to be paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, we accrue the estimated amount to be paid based on the program’s contractual terms, expected customer performance, and/or estimated sales volume. Our accrued marketing costs were $656 million, $625 million, and $555 million as of December 31, 2014, 2013, and 2012, respectively. These estimates are determined using historical customer experience and other factors, which sometimes require significant judgment. In part due to the length of time necessary to obtain relevant data from our customers, actual amounts paid can differ from these estimates. During the years ended December 31, 2014, 2013, and 2012, we recorded out-of-period accrual reductions related to estimates for prior year programs of $46 million, $31 million, and $34 million, respectively.
 
Contingencies
 
For information about our contingencies, refer to Note 8 of the Notes to Consolidated Financial Statements.
 
Workforce
 
At December 31, 2014, we had approximately 11,650 employees, of which approximately 150 were located in the U.S. A majority of our employees in Europe are covered by collectively bargained labor agreements, most of which do not expire. However, wage rates must be renegotiated at various dates through 2016. We believe that we will be able to renegotiate wage rates with satisfactory terms.
 
Off-Balance Sheet Arrangements
 
Not applicable.
 

40



ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
Interest Rate, Currency, and Commodity Price Risk Management
 
Interest Rates
 
Interest rate risk is present with both our fixed-rate and floating-rate debt. Interest rate swap agreements and other risk management instruments are used, at times, to manage our fixed/floating debt portfolio. At December 31, 2014, approximately 96 percent of our debt portfolio was comprised of fixed-rate debt and 4 percent was floating-rate debt. We estimate that a 1 percent change in market interest rates as of December 31, 2014 would change the fair value of our fixed-rate debt outstanding as of December 31, 2014 by approximately $325 million.
 
We also estimate that a 1 percent change in the interest costs of our floating-rate debt outstanding as of December 31, 2014 would change interest expense on an annual basis by approximately $1 million. This amount is determined by calculating the effect of a hypothetical interest rate change on our floating-rate debt after giving consideration to our interest rate swap agreements and other risk management instruments. This estimate does not include the effects of other actions to mitigate this risk or changes in our financial structure.
 
Currency Exchange Rates
 
We operate primarily in Western Europe. As such, we are exposed to translation risk because our operations are in local currency and must be translated into U.S. dollars. As currency exchange rates fluctuate, translation of our Consolidated Statements of Income into U.S. dollars affects the comparability of revenues, expenses, operating income, and diluted earnings per share between years. We estimate that a 10 percent unidirectional change in currency exchange rates would have changed our operating income for the year ended December 31, 2014 by approximately $115 million.
 
Commodity Price Risk
 
The competitive marketplace in which we operate may limit our ability to recover increased costs through higher prices. As such, we are subject to market risk with respect to commodity price fluctuations principally related to our purchases of aluminum, steel, PET (plastic), sugar, and vehicle fuel. When possible, we manage our exposure to this risk primarily through the use of supplier pricing agreements, which enable us to establish the purchase price for certain commodities. We also, at times, use derivative financial instruments to manage our exposure to this risk. Including the effect of pricing agreements and other hedging instruments entered into to date, we estimate that a 10 percent increase in the market price of these commodities over the current market prices would increase our cost of sales during the next 12 months by approximately $10 million. This amount does not include the potential impact of changes in the conversion costs associated with these commodities.
 
Certain of our suppliers restrict our ability to hedge prices through supplier agreements. As a result, at times, we enter into non-designated commodity hedging programs. Based on the fair value of our non-designated commodity hedges outstanding as of December 31, 2014, we estimate that a 10 percent change in market prices would change the fair value of our non-designated commodity hedges by approximately $10 million. For additional information about our derivative financial instruments, refer to Note 5 of the Notes to Consolidated Financial Statements.
 

41



ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Report of Management
 
Management’s Responsibility for the Financial Statements
 
Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles and reflect management’s judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.
 
Internal Control over Financial Reporting
 
Management is also responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
 
In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2014. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of December 31, 2014. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2014.
 
Audit Committee’s Responsibility
 
The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting, and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of our independent registered public accounting firm and approves decisions regarding the appointment or removal of our Vice President of Internal Audit. It meets periodically with management, the independent registered public accounting firm, and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting, and auditing procedures of the Company, in addition to reviewing the Company’s financial reports. Our independent registered public accounting firm and our internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.
 
/S/    JOHN F. BROCK
Chairman and Chief Executive Officer
 
/S/    MANIK H. JHANGIANI
Senior Vice President and Chief Financial Officer
 
/S/    SUZANNE D. PATTERSON  
Vice President, Controller and Chief Accounting Officer
 
Atlanta, Georgia
February 12, 2015

42



Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Shareowners of Coca-Cola Enterprises, Inc.
 
We have audited the accompanying consolidated balance sheets of Coca-Cola Enterprises, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareowners’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coca-Cola Enterprises, Inc. at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Coca-Cola Enterprises, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 12, 2015 expressed an unqualified opinion thereon.
 
/s/ Ernst & Young LLP
 
Atlanta, Georgia
February 12, 2015

43



Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
 
The Board of Directors and Shareowners of Coca-Cola Enterprises, Inc.
 
We have audited Coca-Cola Enterprises, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Coca-Cola Enterprises, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the Internal Control over Financial Reporting section of the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Coca-Cola Enterprises, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Coca-Cola Enterprises, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareowners’ equity, and cash flows for each of the three years in the period ended December 31, 2014 of Coca-Cola Enterprises, Inc. and our report dated February 12, 2015 expressed an unqualified opinion thereon.
 
/s/ Ernst & Young LLP
 
Atlanta, Georgia
February 12, 2015


44



COCA-COLA ENTERPRISES, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
Year Ended December 31,
(in millions, except per share data)
 
2014
 
2013
 
2012
Net sales
 
$
8,264

 
$
8,212

 
$
8,062

Cost of sales
 
5,291

 
5,350

 
5,162

Gross profit
 
2,973

 
2,862

 
2,900

Selling, delivery, and administrative expenses
 
1,954

 
1,948

 
1,972

Operating income
 
1,019

 
914

 
928

Interest expense, net
 
119

 
103

 
94

Other nonoperating (expense) income
 
(7
)
 
(6
)
 
3

Income before income taxes
 
893

 
805

 
837

Income tax expense
 
230

 
138

 
160

Net income
 
$
663

 
$
667

 
$
677

Basic earnings per share
 
$
2.68

 
$
2.49

 
$
2.30

Diluted earnings per share
 
$
2.63

 
$
2.44

 
$
2.25

Dividends declared per share
 
$
1.00

 
$
0.80

 
$
0.64

Basic weighted average shares outstanding
 
247

 
268

 
294

Diluted weighted average shares outstanding
 
252

 
273

 
301

 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



45



COCA-COLA ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
 
Year Ended December 31,
(in millions)
 
2014
 
2013
 
2012
Net income
 
$
663

 
$
667

 
$
677

Components of other comprehensive (loss) income:
 
 
 
 
 
 
Currency translations
 
 
 
 
 
 
    Pretax activity, net
 
(482
)
 
82

 
175

    Tax effect
 

 

 

Currency translations, net of tax
 
(482
)
 
82

 
175

Net investment hedges
 
 
 
 
 
 
    Pretax activity, net
 
256

 
(61
)
 
(45
)
    Tax effect
 
(90
)
 
21

 
16

Net investment hedges, net of tax
 
166

 
(40
)
 
(29
)
Cash flow hedges
 
 
 
 
 
 
    Pretax activity, net
 
(15
)
 
21

 
(11