Form 8-K COCA-COLA ENTERPRISES, For: May 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 2016
COCA-COLA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-34874 | 27-2197395 | ||
(State or other jurisdiction of incorporation) |
(Commission File No.) |
(IRS Employer Identification No.) |
2500 Windy Ridge Parkway, Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
(678) 260-3000
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. | Regulation FD Disclosure. |
Management of the Coca-Cola Enterprises, Inc. (CCE, White or the Company) posted a presentation for investors on May 25, 2016. A copy of the presentation materials is included as Exhibit 99.1 to this Current Report on Form 8-K. The presentation includes information related to the combination of the businesses of the Company, Coca-Cola Iberian Partners, S.A.U. (CCIP), and Coca-Cola Erfrischungsgetränke GmbH (Black), a wholly owned subsidiary of The Coca-Cola Company (TCCC), including certain pro forma financial information prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (IFRS EU).
Certain pro forma financial information that is included in the presentation is contained in the unaudited pro forma condensed combined financial information included as Exhibit 99.2 to this Current Report on Form 8-K, which information is included in the European prospectus related to the listing of the ordinary shares of Coca-Cola European Partners plc (CCEP or Orange) on exchanges within the European Union.
The information in this Item 7.01 of this Current Report on Form 8-K and Exhibit 99.1 and Exhibit 99.2 attached hereto shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained in this Item 7.01, the presentation attached as Exhibit 99.1 and the financial statements attached as Exhibit 99.2 to this Current Report shall not be incorporated by reference into any filing with the SEC made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits
EXHIBIT NUMBER |
DESCRIPTION | |
99.1 | Company Slide Presentation | |
99.2 | Unaudited Pro Forma Condensed Combined Financial Information of Orange |
FORWARD-LOOKING STATEMENTS
This communication may contain statements, estimates or projections that constitute forward-looking statements as defined under U.S. federal securities laws. Generally, the words believe, expect, intend, estimate, anticipate, project, plan, seek, may, could, would, should, might, will, forecast, outlook, guidance, possible, potential, predict and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from TCCCs, CCEs or CCEPs historical experience and their respective present expectations or projections, including expectations or projections with respect to the transaction. These risks include, but are not limited to, obesity concerns; water scarcity and poor quality; evolving consumer preferences; increased competition and capabilities in the marketplace; product safety and quality concerns; perceived negative health consequences of certain ingredients, such as non-nutritive sweeteners and biotechnology-derived substances, and of other substances present in their beverage products or packaging materials; increased demand for food products and decreased agricultural productivity; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging or developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with their partners; a deterioration in their partners financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States or in other tax jurisdictions; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the availability of their respective products; an inability to protect their respective information systems against service interruption, misappropriation of data or breaches of security; unfavorable general economic or political conditions in the United States, Europe or elsewhere; litigation or legal proceedings; adverse weather conditions; climate change; damage to their respective brand images and corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to their respective products or business operations; changes in accounting standards; an inability to achieve their respective overall long-term growth objectives; deterioration of global credit market conditions; default by or failure of one or more of their respective counterparty financial institutions; an inability to timely implement their previously announced actions to reinvigorate growth, or to realize the
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economic benefits they anticipate from these actions; failure to realize a significant portion of the anticipated benefits of their respective strategic relationships, including (without limitation) TCCCs relationship with Keurig Green Mountain, Inc. and Monster Beverage Corporation; an inability to renew collective bargaining agreements on satisfactory terms, or they or their respective partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer plan withdrawal liabilities in the future; an inability to successfully manage the possible negative consequences of their respective productivity initiatives; global or regional catastrophic events; risks and uncertainties relating to the transaction, including the risk that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, which could result in additional demands on TCCCs or CCEPs resources, systems, procedures and controls, disruption of its ongoing business and diversion of managements attention from other business concerns, the possibility that certain assumptions with respect to CCEP or the transaction could prove to be inaccurate, the failure to receive, delays in the receipt of, or unacceptable or burdensome conditions imposed in connection with, all required regulatory approvals and the satisfaction of the closing conditions to the transaction, the potential failure to retain key employees of CCE, CCIP or Black as a result of the proposed transaction or during integration of the businesses and disruptions resulting from the proposed transaction, making it more difficult to maintain business relationships; and other risks discussed in TCCCs and CCEs filings with the Securities and Exchange Commission (the SEC), including their respective Annual Reports on Form 10-K for the year ended December 31, 2015, subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which filings are available from the SEC, and the registration statement on Form F-4, file number 333-208556, that includes a proxy statement of CCE and a prospectus of CCEP, which was filed with the SEC by CCEP. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. None of TCCC, CCE, CCIP or CCEP undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. None of TCCC, CCE, CCIP or CCEP assumes responsibility for the accuracy and completeness of any forward-looking statements. Any or all of the forward-looking statements contained in this filing and in any other of their respective public statements may prove to be incorrect.
Non-GAAP Financial Measures
The presentation included in Exhibit 99.1 hereto contains non-GAAP financial measures. These non-GAAP measures are provided to allow investors to more clearly evaluate the operating performance and business trends of CCE, CCIP and Black. Management uses these non-GAAP measures to review results excluding items that are not necessarily indicative of ongoing results. The adjusted items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
COCA-COLA ENTERPRISES, INC. | ||||||
(Registrant)
| ||||||
Date: May 25, 2016 | By: | /s/ Suzanne N. Forlidas | ||||
Name: | Suzanne N. Forlidas | |||||
Title: | Vice President and Secretary |
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EXHIBIT LIST
EXHIBIT NUMBER |
DESCRIPTION | |
99.1 | Company Slide Presentation | |
99.2 | Unaudited Pro Forma Condensed Combined Financial Information of Orange |
May 25, 2016 Exhibit 99.1
Forward-Looking Statements This communication may contain statements, estimates or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “plan,” “seek,” “may,” “could,” “would,” “should,” “might,” “will,” “forecast,” “outlook,” “guidance,” “possible,” “potential,” “predict” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The Coca-Cola Company’s (“KO”), Coca-Cola Enterprises, Inc.’s (“CCE”) or Coca-Cola European Partners Limited’s (“CCEP”) historical experience and their respective present expectations or projections, including expectations or projections with respect to the transaction. These risks include, but are not limited to, obesity concerns; water scarcity and poor quality; evolving consumer preferences; increased competition and capabilities in the marketplace; product safety and quality concerns; perceived negative health consequences of certain ingredients, such as non-nutritive sweeteners and biotechnology-derived substances, and of other substances present in their beverage products or packaging materials; increased demand for food products and decreased agricultural productivity; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging or developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with their partners; a deterioration in their partners’ financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States or in other tax jurisdictions; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the availability of their respective products; an inability to protect their respective information systems against service interruption, misappropriation of data or breaches of security; unfavorable general economic or political conditions in the United States, Europe or elsewhere; litigation or legal proceedings; adverse weather conditions; climate change; damage to their respective brand images and corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to their respective products or business operations; changes in accounting standards; an inability to achieve their respective overall long-term growth objectives; deterioration of global credit market conditions; default by or failure of one or more of their respective counterparty financial institutions; an inability to timely implement their previously announced actions to reinvigorate growth, or to realize the economic benefits they anticipate from these actions; failure to realize a significant portion of the anticipated benefits of their respective strategic relationships, including (without limitation) KO’s relationship with Keurig Green Mountain, Inc. and Monster Beverage Corporation; an inability to renew collective bargaining agreements on satisfactory terms, or they or their respective partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer plan withdrawal liabilities in the future; an inability to successfully manage the possible negative consequences of their respective productivity initiatives; global or regional catastrophic events; risks and uncertainties relating to the transaction, including the risk that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, which could result in additional demands on KO’s or CCEP’s resources, systems, procedures and controls, disruption of its ongoing business and diversion of management’s attention from other business concerns, the possibility that certain assumptions with respect to CCEP or the transaction could prove to be inaccurate, the failure to receive, delays in the receipt of, or unacceptable or burdensome conditions imposed in connection with, all required regulatory approvals and the satisfaction of the closing conditions to the transaction, the potential failure to retain key employees of CCE, Coca-Cola Iberian Partners, S.A.U. (“CCIP”) or Coca-Cola Erfrischungsgetränke GmbH (“CCEG”) as a result of the proposed transaction or during integration of the businesses and disruptions resulting from the proposed transaction, making it more difficult to maintain business relationships; and other risks discussed in KO’s and CCE’s filings with the Securities and Exchange Commission (the “SEC”), including their respective Annual Reports on Form 10-K for the year ended December 31, 2015, subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which filings are available from the SEC, and the registration statement on Form F-4, file number 333-208556, that includes a proxy statement of CCE and a prospectus of CCEP, which was filed with the SEC by CCEP. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. None of KO, CCE, CCIP or CCEP undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. None of KO, CCE, CCIP or CCEP assumes responsibility for the accuracy and completeness of any forward-looking statements. Any or all of the forward-looking statements contained in this filing and in any other of their respective public statements may prove to be incorrect.
No Profit Forecast No Profit Forecast No statement in this announcement is intended to constitute a profit forecast for any period, nor should any statements be interpreted to mean that revenues, EBITDA, earnings per share or any other metric will necessarily be greater or less than those for the relevant preceding financial periods for CCE, CCIP, CCEG or CCEP, as appropriate. No statement in this announcement constitutes an asset valuation. Subject to its legal and regulatory obligations, neither CCEP, nor any of its agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the statements contained in this document to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. In no circumstances shall the provision of this document imply that no negative change may occur in the business of CCE, CCIP, CCEG or CCEP, as appropriate, after the date of provision of this document, or any date of amendment and/or addition thereto.
EU Prospectus Directive Disclosures/ Non-GAAP Financial Measures This document is not a prospectus for the purposes of the Prospectus Directive. A prospectus prepared pursuant to the Prospectus Directive is intended to be published, which, when published, will be available from CCEP at its registered office. Investors should not subscribe for any securities referred to in this document except on the basis of information contained in the prospectus. The expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including Directive 2010/73/EU, to the extent implemented in any relevant Member State) and includes any relevant implementing measure in the relevant Member State. Any offer of securities to the public that may be deemed to be made pursuant to this communication in any member states of the European Economic Area (“EEA Member States”) that has implemented the Prospectus Directive is addressed solely to qualified investors (within the meaning of the Prospectus Directive) in that Member State. The information contained in this document is directed solely at persons (1) outside the United Kingdom, (2) within the United Kingdom (i) having professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Market Act (Financial Promotion) Order 2005 (the “Order”) and (ii) to persons of a kind described in Article 49(2) (a) to (d) of the Order and (3) in EEA Member States to persons who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive (all such persons together being referred to as “Relevant Persons”). Any investment activity to which this document relates is only available to, and will only be engaged in with, Relevant Persons. This document and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person. Persons who are not Relevant Persons must not rely on or act upon the information contained in this document. This document is not intended to form the basis of any investment activity or decision and does not constitute, may not be construed as, or form part of, an offer to sell or issue, or a solicitation of an offer or invitation to purchase or subscribe for, any securities or other interests in CCEP or any other investments of any description, a recommendation regarding the issue or the provision of investment advice by any party. No information set out in this document or referred to herein is intended to form the basis of any contract of sale, investment decision or any decision to purchase securities in CCEP. No reliance may be placed for any purposes whatsoever on this document (including, without limitation, any illustrative modeling information contained herein), or its completeness. This document should not form the basis of any investment decision and the contents do not constitute advice relating to legal, taxation or investment matters on which recipients of this document must always consult their own independent professional advisers on the merits and risks involved. Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. These non-GAAP measures are provided to allow investors to more clearly evaluate the operating performance and business trends of CCE, CCIP, and CCEG. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
Key Merger Highlights Combines operations of CCE, Iberian, and German bottlers into a new Western European bottler, CCEP ~€11 billion in pro forma 2015 net sales ~€1.8 billion in pro forma 2015 EBITDA2 Serving over 300 million consumers Selling, producing, and delivering ~2.5 billion unit cases in 2015 Listings on the Euronext Amsterdam, NYSE, Euronext London, and Spanish stock exchanges Source: Form F-4; European Prospectus 1Owned by controlling indirect shareowner of CCIP; to be owned by CCEP or a CCEP subsidiary after the transaction 2Refer to slide 16 and slide 17 Norway Sweden Netherlands Germany France Great Britain Iceland1 Spain Portugal Andorra Luxembourg Monaco Belgium The world’s largest independent Coca-Cola bottler based on net sales
The Right Merger, At The Right Time New level of partnership with The Coca-Cola Company (TCCC) and a shared vision to drive growth Shared best practices to drive efficiency and enhance commercial effectiveness Solid platform for value creation Leverage scale and realize synergy benefits to improve operating model A winning combination
Significant Opportunities for Profitable Growth Grow CCEP’s share in ~€50B still segments1 Connect with more customers, more often Drive value growth in ~€45B sparkling segments1 Increase efficiency and effectiveness of ~€6.6B COGS and ~€2.9B SD&A annual spend2 Increase return on annual capex investment Realize synergies of creating CCEP 12015 Euromonitor; rounded 2European Prospectus, pro forma, including items impacting comparability; SD&A includes selling and distribution expenses and general and administrative expenses
Topline Growth Supply Chain Operating Expense Shared vision between TCCC and CCEP to drive growth in Western Europe Enhanced commercial partnerships Scale and speed to win in new segments (e.g. stills) Compelling Integration Benefits Increased efficiency and effectiveness of manufacturing and warehouse operations Procurement savings opportunities Shared core support functions across the new company Reduced management team duplication Adjust required headquarters facilities Expected annual run-rate pre-tax savings in a range of €315-€340m within 3 years of closing Savings exclude net sales growth synergies; rounded
Financial Approach Maintain optimal capital structure Pursue disciplined investment Grow Free Cash Flow Deliver shareowner value A continued focus on driving strong financial returns and shareowner value
Outlook Near To Mid-Term: FMCG operating environment to remain challenging Operating Income growth driven primarily by synergies FY16 Net Sales expected to grow in a modest low single-digit range1 Mid To Long-Term: Invest for profitable topline growth Invest in restructuring to capture synergies Plan to achieve long-term objectives Focused on both near-term and long-term financial objectives 1Comparable and currency neutral
Transaction Update EU Commission clearance received ✓ Closing is expected to occur on or about May 28, 2016 CCE shareowner’s vote to approve the transaction obtained ✓ Approval of EU prospectus received ✓
A Responsible & Sustainable Business Internal reports CCEP is expected to adopt CCE’s commitment to sustainability History of community involvement and investment 2015 Dow Jones Sustainability Index ~90% of our drinks are produced and marketed locally Strong alignment with TCCC
Summary & Key Takeaways Creating the leading independent Coca-Cola bottler and a major European consumer packaged goods company A compelling business combination A unique opportunity for profitable growth Realistic about the consumer environment A commitment to driving shareowner value
May 25, 2016 Appendix – IFRS and U.S. GAAP Condensed Income Statements
Comparable Financials1 In millions $ € Net Sales $ 12,185 € 10,976 Operating Profit $ 1,605 € 1,408 EBITDA2 $ 2,046 € 1,825 Diluted EPS3 $ 1.98 € 1.75 Net Debt to EBITDA4 3.5x CCEP 2015 Select Financial Data 1Refer to slide 16-17 and slide 21-22 for further details 2EBITDA is comparable Operating Profit plus comparable depreciation and amortization, and includes pro forma adjustments which impact depreciation and amortization; CCE 2015 10K, CCIP and CCEG per the F-4 filed on March 14, 2016 3Based on 489M diluted weighted average shares outstanding 4Refer to CCEP EUP Unaudited Pro Formas (Gross debt €6,750M less Cash €361M = Net Debt €6,389M) Historical Financial Notes1 $ € Financial Basis U.S. GAAP $ IFRS € Depreciation & Amortization Preliminary valuation of Inventory, PP&E, Intangibles - to be revised; impacts Cost of Sales and SD&A Transaction Costs Eliminates historic transaction costs in pro forma Includes historic and estimated future transaction costs in pro forma Transaction costs have been adjusted out for comparable financials Weighted average cost of debt ~2.7% based on new debt pre-financing estimate ~2.4% based on new debt financing estimate Income Tax Rate Derived from historical actuals; pro forma adjustments based on a blended statutory rate based on net sales mix
CCEP – FY15 EUR (€) Presentation Title Unaudited pro forma condensed combined income statement – IFRS See footnotes on slide 17 Pro forma adjustments4 Items impacting comparability FY15 Financials (in millions, except EPS) CCEP historical U.S. GAAP1 IFRS adjustments2 CCEP historical IFRS CCEP historical IFRS3 Change in depreciation from revaluation of PP&E Cost of sales from inventory step-up Additional Combination-related expenses to be incurred Additional interest expense from debt financing Acquisition accounting CCEP pro forma Mark-to-market effects5 Restructuring charges6 Total Combination-related expenses7 Inventory step-up costs8 Gain on property sale9 Net tax items10 Total items impacting comparability CCEP comparable11 Net sales $ 12,185 $ - $ 12,185 € 10,976 € - € - € - € - € - € 10,976 € - € - € - € - € - € - € - € 10,976 Cost of sales 7,397 1 7,398 6,663 (17) 72 - - 55 6,718 (18) - - (72) - - (90) 6,628 Gross profit 4,788 (1) 4,787 4,313 17 (72) - - (55) 4,258 18 - - 72 - - 90 4,348 Selling and distribution expense 2,376 6 2,382 2,145 (17) - - - (17) 2,128 (7) (383) - - 9 - (381) 1,747 General and administrative expense 1,384 15 1,399 1,260 (7) - 119 - 112 1,372 - - (179) - - - (179) 1,193 Operating profit 1,028 (22) 1,006 908 41 (72) (119) - (150) 758 25 383 179 72 (9) - 650 1,408 Finance income (28) (2) (30) (27) - - - - - (27) - - - - - - - (27) Finance costs 148 10 158 142 - - - 46 46 188 - - - - - - - 188 Total finance costs, net 120 8 128 115 - - - 46 46 161 - - - - - - - 161 Other nonoperating expense 10 - 10 10 - - - - - 10 - - - - - - - 10 Profit before income taxes 898 (30) 868 783 41 (72) (119) (46) (196) 587 25 383 179 72 (9) - 650 1,237 Income tax expense (benefit) 230 (2) 228 205 12 (21) (34) (13) (56) 149 8 113 51 20 (3) 43 232 381 Profit for the year $ 668 $ (28) $ 640 € 578 € 29 € (51) € (85) € (33) € (140) € 438 € 17 € 270 € 128 € 52 € (6) € (43) € 418 € 856 Margins: Gross 39.6% Operating 12.8% Diluted weighted average shares outstanding 489 489 Diluted EPS € 0.90 € 1.75 Operating Profit € 758 € 1,408 Depreciation & Amortization 417 417 EBITDA € 1,175 € 1,825
CCEP – FY15 EUR (€) Presentation Title Unaudited pro forma condensed combined income statement – IFRS Source: Unaudited pro forma condensed combined financial information of CCEP for the year ended December 31, 2015 in the European Prospectus published on May 25, 2016 (“CCEP EUP Unaudited Pro Formas”) 1Derived by combining CCE, CCIP, and CCEG historical financial information presented in the unaudited pro forma condensed combined financial information of CCEP for the year ended December 31, 2015 in the CCEP registration statement on Form F-4 filed on April 11, 2016 (“CCEP F-4 Unaudited Pro Formas”). For purposes of financial reporting, the local currency results were translated into USD using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€, 1.5291 $/£, 0.1240 $/NOK and 0.1185 $/SEK for CCE, 1.1111 $/€ for CCEG, and 1.1102 $/€ for CCIP as stated in the F-4. 2Refer to Note 5 and Note 7 of the CCEP EUP Unaudited Pro Formas for more information on the IRFS adjustments for CCE and CCEG, respectively. 3Amounts translated to EUR from USD using a simple 2015 annual average of 1.1102 $/€. 4Refer to Note 8 of the CCEP EUP Unaudited Pro Formas for a description of adjustments which are prepared under IFRS 3 “Business Combinations” under IFRS and Annex II of the Prospectus Directive Regulation. 5Amounts represent the net out-of-period mark-to-market impact of non-designated commodity hedges. 6Amounts represent nonrecurring restructuring charges. 7Amounts represent expenses associated with the pending merger with CCE, CCIP, and CCEG as described in Note 8 of the CCEP EUP Unaudited Pro Formas. 8Amounts represent cost of sales impact from preliminary inventory step-up as described in Note 8 of the CCEP EUP Unaudited Pro Formas. 9Amounts represent gains associated with the sale of a distribution facility in Great Britain. 10Amounts represent the deferred tax impact related to income tax rate or law changes in the United Kingdom and Norway. 11CCEP comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Items impacting comparability are derived from the Operating and Financial Review (“OFR”) for CCIP and CCEG in the European Prospectus, CCEP EUP Unaudited Pro Formas, and CCE FY15 earnings release issued on February 11, 2016. Note: For purposes of financial reporting, the USD results were translated into EUR using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€.
CCE Financial Highlights (€) Presentation Title IFRS, EUR Source: CCEP EUP Unaudited Pro Formas 1CCE historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 5 of the CCEP EUP Unaudited Pro Formas for more information on the IRFS adjustments. 3Amounts translated to EUR from USD using a simple 2015 annual average of 1.1102 $/€. 4Refer to Note 8 of the CCEP EUP Unaudited Pro Formas. 5Items impacting comparability include the net out-of-period mark-to-market impact of non-designated commodity hedges of (€18M) and (€7M), nonrecurring restructuring charges of (€18M), total Combination-related expenses of (€126), and gains associated with the sale of a distribution facility in Great Britain of €9M. Amounts translated to EUR from USD using a simple 2015 annual average of 1.1102 $/€. Amounts are sourced from CCE FY15 earnings release issued on February 11, 2016. 6CCE comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the USD results were translated into EUR using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€. Pro forma adjustments4 Items impacting comparability5 FY15 Financials (in millions) CCE historical U.S. GAAP1 IFRS adjustments2 CCE historical IFRS CCE historical IFRS3 Change in depreciation from revaluation of PP&E Cost of sales from inventory step-up Additional Combination-related expenses to be incurred Additional interest expense from debt financing Acquisition accounting CCE pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Inventory step-up costs Gain on property sale Net tax items Total items impacting comparability CCE comparable6 Net sales $ 7,011 $ - $ 7,011 € 6,315 € - € - € - € - € - € 6,315 € - € - € - € - € - € - € - € 6,315 Cost of sales 4,441 6 4,447 4,005 - - - - - 4,005 (18) - - - - - (18) 3,987 Gross profit 2,570 (6) 2,564 2,310 - - - - - 2,310 18 - - - - - 18 2,328 Selling and distribution expense 1,015 5 1,020 919 - - - - - 919 (7) (18) - - 9 - (16) 903 General and administrative expense 689 12 701 631 - - 85 - 85 716 - - (126) - - - (126) 590 Operating profit $ 866 $ (23) $ 843 € 760 € - € - € (85) € - € (85) € 675 € 25 € 18 € 126 € - € (9) € - € 160 € 835 Margins: Gross 36.9% Operating 13.2%
CCIP Financial Highlights (€) Presentation Title IFRS, EUR Source: CCEP EUP Unaudited Pro Formas 1CCIP historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 6 of the CCEP EUP Unaudited Pro Formas. 3Refer to Note 8 of the CCEP EUP Unaudited Pro Formas. 4Items impacting comparability include restructuring charges of (€82M), total Combination-related expenses of (€48M), and inventory step-up costs of (€51M). Amounts are sourced from CCIP OFR in the European Prospectus and Note 8 of the CCEP EUP Unaudited Pro Formas. 5CCIP comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the USD results were translated into EUR using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€. Pro forma adjustments3 Items impacting comparability4 FY15 Financials (in millions) CCIP historical U.S. GAAP1 IFRS adjustments CCIP historical IFRS CCIP historical IFRS2 Change in depreciation from revaluation of PP&E Cost of sales from inventory step-up Additional Combination-related expenses to be incurred Additional interest expense from debt financing Acquisition accounting CCIP pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Inventory step-up costs Gain on property sale Net tax items Total items impacting comparability CCIP comparable5 Net sales $ 2,753 $ - $ 2,753 € 2,480 € - € - € - € - € - € 2,480 € - € - € - € - € - € - € - € 2,480 Cost of sales 1,560 - 1,560 1,405 (9) 51 - - 42 1,447 - - - (51) - - (51) 1,396 Gross profit 1,193 - 1,193 1,075 9 (51) - - (42) 1,033 - - - 51 - - 51 1,084 Selling and distribution expense 762 - 762 686 (9) - - - (9) 677 - (82) - - - - (82) 595 General and administrative expense 133 - 133 120 (4) - 31 - 27 147 - - (48) - - - (48) 99 Operating profit $ 298 $ - $ 298 € 269 € 22 € (51) € (31) € - € (60) € 209 € - € 82 € 48 € 51 € - € - € 181 € 390 Margins: Gross 43.7% Operating 15.7%
CCEG Financial Highlights (€) Presentation Title IFRS, EUR Source: CCEP EUP Unaudited Pro Formas 1CCEG historical financial information presented in the CCEP F-4 Unaudited Pro Formas 2Refer to Note 7 of the CCEP EUP Unaudited Pro Formas for more information on the IRFS adjustments. 3Amounts translated to EUR from USD using a simple 2015 annual average of 1.1102 $/€. 4Refer to Note 8 of the CCEP EUP Unaudited Pro Formas. 5Items impacting comparability include restructuring charges of (€283M), total Combination-related expenses of (€5M), and inventory step-up costs of (€21M). Amounts translated to EUR from USD using a simple 2015 annual average of 1.1102 $/€. Amounts are sourced from CCEG OFR in the European Prospectus and Note 8 of the CCEP EUP Unaudited Pro Formas. 6CCEG comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the USD results were translated into EUR using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€. Pro forma adjustments4 Items impacting comparability5 FY15 Financials (in millions) CCEG historical U.S. GAAP1 IFRS adjustments2 CCEG historical IFRS CCEG historical IFRS3 Change in depreciation from revaluation of PP&E Cost of sales from inventory step-up Additional Combination-related expenses to be incurred Additional interest expense from debt financing Acquisition accounting CCEG pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Inventory step-up costs Gain on property sale Net tax items Total items impacting comparability CCEG comparable6 Net sales $ 2,421 $ - $ 2,421 € 2,181 € - € - € - € - € - € 2,181 € - € - € - € - € - € - € - € 2,181 Cost of sales 1,396 (5) 1,391 1,253 (8) 21 - - 13 1,266 - - - (21) - - (21) 1,245 Gross profit 1,025 5 1,030 928 8 (21) - - (13) 915 - - - 21 - - 21 936 Selling and distribution expense 599 1 600 540 (8) - - - (8) 532 - (283) - - - - (283) 249 General and administrative expense 562 3 565 509 (3) - 3 - - 509 - - (5) - - - (5) 504 Operating profit $ (136) $ 1 $ (135) € (121) € 19 € (21) € (3) € - € (5) € (126) € - € 283 € 5 € 21 € - € - € 309 € 183 Margins: Gross 42.9% Operating 8.4%
CCEP – FY15 USD ($) Presentation Title Unaudited pro forma condensed combined income statement – U.S. GAAP See footnotes on slide 22 Pro forma adjustments2 Items impacting comparability FY15 Financials (in millions, except EPS) CCEP historical U.S. GAAP1 Depreciation from step-up in PP&E Removal of historical Combination-related expenses Additional interest expense from debt financing Total pro forma adjustments CCEP pro forma Mark-to-market effects3 Restructuring charges4 Total Combination-related expenses5 Gain on property sale6 Net tax items7 Total items impacting comparability CCEP comparable8 Net sales $ 12,185 $ - $ - $ - $ - $ 12,185 $ - $ - $ - $ - $ - $ - $ 12,185 Cost of sales 7,397 (27) - - (27) 7,370 (20) - - - - (20) 7,350 Gross profit 4,788 27 - - 27 4,815 20 - - - - 20 4,835 Selling and distribution expense 2,376 (41) - - (41) 2,335 (8) (425) - 10 - (423) 1,912 General and administrative expense 1,384 - (66) - (66) 1,318 - - - - - - 1,318 Operating profit 1,028 68 66 - 134 1,162 28 425 - (10) - 443 1,605 Finance income (28) - - - - (28) - - - - - - (28) Finance costs 148 - - 81 81 229 - - - - - - 229 Total finance costs, net 120 - - 81 81 201 - - - - - - 201 Other nonoperating expense 10 - - - - 10 - - - - - - 10 Profit before income taxes 898 68 66 (81) 53 951 28 425 - (10) - 443 1,394 Income tax expense (benefit) 230 19 19 (23) 15 245 9 125 - (3) 48 179 424 Profit for the year $ 668 $ 49 $ 47 $ (58) $ 38 $ 706 $ 19 $ 300 $ - $ (7) $ (48) $ 264 $ 970 Margins: Gross 39.7% Operating 13.2% Diluted weighted average shares outstanding 489 489 Diluted EPS $ 1.44 $ 1.98 Operating Profit $ 1,162 $ 1,605 Depreciation & Amortization 441 441 EBITDA $ 1,603 $ 2,046
CCEP – FY15 USD ($) Presentation Title Unaudited pro forma condensed combined income statement – U.S. GAAP Source: Unaudited pro forma condensed combined financial information of CCEP for the year ended December 31, 2015 in the CCEP registration statement on Form F-4 filed on April 11, 2016 (“CCEP F-4 Unaudited Pro Formas”) 1Derived by combining CCE, CCIP, and CCEG historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 7 to the CCEP F-4 Unaudited Pro Formas for a description of adjustments which are prepared under Accounting Standards Codification 805 “Business Combinations” under U.S. GAAP and Article 11 of Regulation S-X. 3Amounts represent the net out-of-period mark-to-market impact of non-designated commodity hedges. 4Amounts represent nonrecurring restructuring charges. 5Amounts represent expenses associated with the pending merger with CCE, CCIP, and CCEG. 6Amounts represent gains associated with the sale of a distribution facility in Great Britain. 7Amounts represent the deferred tax impact related to income tax rate or law changes in the United Kingdom and Norway. 8CCEP comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Items impacting comparability derived from the MD&A for CCIP and from the MD&A for CCEG in the F-4, and CCE FY15 earnings release issued on February 11, 2016. Note: For purposes of financial reporting, the local currency results were translated into USD using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€, 1.5291 $/£, 0.1240 $/NOK and 0.1185 $/SEK for CCE, 1.1111 $/€ for CCEG, and 1.1102 $/€ for CCIP as stated in the F-4.
CCE Financial Highlights ($) Presentation Title U.S. GAAP, USD Source: CCEP F-4 Unaudited Pro Formas 1CCE historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 7 of the CCEP F-4 Unaudited Pro Formas for a description of adjustments. 3Items impacting comparability include the net out-of-period mark-to-market impact of non-designated commodity hedges of ($20M) and ($8M), nonrecurring restructuring charges of ($20M), and gains associated with the sale of a distribution facility in Great Britain of $10M. Amounts are sourced from CCE FY15 earnings release issued on February 11, 2016. 4CCE comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the local currency results were translated into USD using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€, 1.5291 $/£, 0.1240 $/NOK and 0.1185 $/SEK. Pro forma adjustments2 Items impacting comparability3 FY15 Financials (in millions) CCE historical U.S. GAAP1 Depreciation from step-up in PP&E Removal of historical Combination-related expenses Additional interest expense from debt financing Total pro forma adjustments CCE pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Gain on property sale Net tax items Total items impacting comparability CCE comparable4 Net sales $ 7,011 $ - $ - $ - $ - $ 7,011 $ - $ - $ - $ - $ - $ - $ 7,011 Cost of sales 4,441 - - - - 4,441 (20) - - - - (20) 4,421 Gross profit 2,570 - - - - 2,570 20 - - - - 20 2,590 Selling and distribution expense 1,015 - - - - 1,015 (8) (20) - 10 - (18) 997 General and administrative expense 689 - (45) - (45) 644 - - - - - - 644 Operating profit $ 866 $ - $ 45 $ - $ 45 $ 911 $ 28 $ 20 $ - $ (10) $ - $ 38 $ 949 Margins: Gross 36.9% Operating 13.5%
CCIP Financial Highlights ($) Presentation Title U.S. GAAP, USD Source: CCEP F-4 Unaudited Pro Formas 1CCIP historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 7 of the CCEP F-4 Unaudited Pro Formas for a description of adjustments. 3Items impacting comparability include restructuring charges of (€82M) translated to ($91M). Amount is sourced from CCIP MD&A. 4CCIP comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the EUR results were translated into USD using currency exchange rates prevailing during the reporting period. A simple 2015 annual average approximates 1.1102 $/€. Pro forma adjustments2 Items impacting comparability3 FY15 Financials (in millions) CCIP historical U.S. GAAP1 Depreciation from step-up in PP&E Removal of historical Combination-related expenses Additional interest expense from debt financing Total pro forma adjustments CCIP pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Gain on property sale Net tax items Total items impacting comparability CCIP comparable4 Net sales $ 2,753 $ - $ - $ - $ - $ 2,753 $ - $ - $ - $ - $ - $ - $ 2,753 Cost of sales 1,560 (13) - - (13) 1,547 - - - - - - 1,547 Gross profit 1,193 13 - - 13 1,206 - - - - - - 1,206 Selling and distribution expense 762 (20) - - (20) 742 - (91) - - - (91) 651 General and administrative expense 133 - (19) - (19) 114 - - - - - - 114 Operating profit $ 298 $ 33 $ 19 $ - $ 52 $ 350 $ - $ 91 $ - $ - $ - $ 91 $ 441 Margins: Gross 43.8% Operating 16.0%
CCEG Financial Highlights ($) Presentation Title U.S. GAAP, USD Source: CCEP F-4 Unaudited Pro Formas 1CCEG historical financial information presented in the CCEP F-4 Unaudited Pro Formas. 2Refer to Note 7 of the CCEP F-4 Unaudited Pro Formas for a description of adjustments. 3Items impacting comparability include ($314M) of restructuring charges. Amount is sourced from CCEG MD&A. 4CCEG comparable is a non-GAAP measure; these non-GAAP measures are provided to allow investors to more clearly evaluate our operating performance and business trends. Management uses this information to review results excluding items that are not necessarily indicative of ongoing results. The adjusting items are based on established defined terms and thresholds and represent all material items management considered for year-over-year comparability. Note: For purposes of financial reporting, the local currency results were translated into USD using currency exchange rates prevailing during the reporting period. A simple 2015 average approximates 1.1111 $/€. Pro forma adjustments2 Items impacting comparability3 FY15 Financials (in millions) CCEG historical U.S. GAAP1 Depreciation from step-up in PP&E Removal of historical Combination-related expenses Additional interest expense from debt financing Total pro forma adjustments CCEG pro forma Mark-to-market effects Restructuring charges Total Combination-related expenses Gain on property sale Net tax items Total items impacting comparability CCEG comparable4 Net sales $ 2,421 $ - $ - $ - $ - $ 2,421 $ - $ - $ - $ - $ - $ - $ 2,421 Cost of sales 1,396 (14) - - (14) 1,382 - - - - - - 1,382 Gross profit 1,025 14 - - 14 1,039 - - - - - - 1,039 Selling and distribution expense 599 (21) - - (21) 578 - (314) - - - (314) 264 General and administrative expense 562 - (2) - (2) 560 - - - - - - 560 Operating profit $ (136) $ 35 $ 2 $ - $ 37 $ (99) $ - $ 314 $ - $ - $ - $ 314 $ 215 Margins: Gross 42.9% Operating 8.9%
Exhibit 99.2
The unaudited pro forma condensed combined financial information provided below has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (IFRS EU) and has been included in the European prospectus related to the listing of the ordinary shares of Coca-Cola European Partners plc (CCEP or Orange) on exchanges in the European Union in connection with the combination of the businesses of CCE, Coca-Cola Iberian Partners, S.A.U. (Olive), and Coca-Cola Erfrischungsgetränke GmbH (Black), a wholly owned subsidiary of The Coca-Cola Company (TCCC).
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ORANGE
The unaudited pro forma condensed combined statement of net assets as of 31 December 2015, the unaudited pro forma condensed combined income statement for the year ended 31 December 2015 and the related notes thereto set out in this Unaudited Pro Forma Condensed Combined Financial Information of Orange (together the Unaudited Pro Forma Condensed Combined Financial Information) have been prepared on the basis of the notes set out below to illustrate the effects of (1) the Combination and (2) the Debt Financing resulting from the incurrence of indebtedness by Orange in the amount of 3.2 billion in connection with the financing of the Cash Consideration (the Debt Financing and, together with the Combination, the Transactions).
The Unaudited Pro Forma Condensed Combined Financial Information has been prepared in accordance with Annex II of the Prospectus Directive Regulation. It is presented in millions of Euros and in a manner consistent with the accounting policies to be adopted by Orange, as outlined in Note 9, when preparing its audited consolidated financial statements for the year ending 31 December 2016. The historical audited consolidated financial information of White and Black is prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and presented in U.S. dollars. Historical data of White and Black reflected in the Unaudited Pro Forma Condensed Combined Financial Information, therefore, was derived from the audited consolidated financial statements of White and Black prepared in accordance with U.S. GAAP and has been adjusted to IFRS EU to be adopted by Orange and translated into Euros. Historical data of Olive reflected in the Unaudited Pro Forma Condensed Combined Financial Information was derived from the audited consolidated financial statements of Olive prepared in accordance with IFRS as issued by the International Accounting Standards Board (IFRS IASB) and presented in Euros and has been adjusted to IFRS EU to be adopted by Orange. For purposes of the Unaudited Pro Forma Condensed Combined Financial Information, Orange has elected to present a statement of net assets. Orange intends to present a full balance sheet when preparing its audited consolidated financial statements for the year ending 31 December 2016.
The Unaudited Pro Forma Condensed Combined Financial Information does not constitute financial statements within the meaning of section 434 of the Companies Act 2006.
Introduction
The Unaudited Pro Forma Condensed Combined Financial Information has been prepared in order to illustrate the effects of the Transactions on the financial position and results of operations of Orange. On 6 August 2015, Orange, White, Coca-Cola European Partners Holdings US, Inc. (US HoldCo) and Orange Merge Co LLC (MergeCo) entered into the Merger Agreement and White, Orange, MergeCo, US HoldCo, European Refreshments (Red 1), Coca-Cola Gesellschaft mit beschränkter Haftung (Red 2) and Vivaqa Beteiligungs GmbH & Co. KG (Red 3 and, together with Red 1 and Red 2, Red) and Olive entered into the Master Agreement. At the Completion, White, Olive Partners, S.A. (Olive HoldCo) and Red will combine their NARTD beverage bottling businesses in western Europe by combining White, Olive and Black through the Olive Contribution, the Black Contribution and the Merger. Based on the terms of the Combination, White, Olive and Black will converge under the common control of Orange, a newly incorporated company based in the United Kingdom, which will be listed on the NYSE, the ASE and the Spanish Stock Exchanges and listed and admitted to trading on Euronext London and Euronext Amsterdam, in each case under the symbol CCE.
The Unaudited Pro Forma Condensed Combined Financial Information is based on information and assumptions that Orange believes are reasonable, including assumptions regarding the terms of the Combination. The Unaudited Pro Forma Condensed Combined Financial Information has been prepared for illustrative purposes only and because of its nature, addresses a hypothetical situation. It does not intend to represent what Oranges financial position or results of operations actually would have been if the Transactions had been completed on the dates indicated, nor does it intend to represent, predict or estimate the results of operations for any future period or financial position at any future date. In addition, the Unaudited Pro Forma Condensed Combined Financial Information does not reflect ongoing cost savings that Orange expects to achieve as a result of the Combination or the costs necessary to achieve these cost savings or synergies.
The unaudited pro forma condensed combined statement of net assets as of 31 December 2015 gives effect to the Transactions as if they had occurred on 31 December 2015. The unaudited pro forma condensed combined income statement for the year ended 31 December 2015 is presented as if the Transactions had taken place on 1 January 2015. In particular, as pro forma information is prepared to illustrate retrospectively the effects of transactions that will occur in the future, there are limitations that are inherent to the nature of pro forma information. As such, had the Transactions taken place on the dates assumed above, the actual effects would not necessarily have been the same as those presented in the Unaudited Pro Forma Condensed Combined Financial Information.
The Unaudited Pro Forma Condensed Combined Financial Information excludes the impact of the acquisition of Vifilfell hf. from Cobega for no more than 35 million, which is expected to occur shortly after the Completion but is not expected to have a significant impact on the Combination, the statement of net assets, or the income statement of Orange.
Unaudited Pro Forma Condensed Combined Financial Information
This section presents the unaudited pro forma condensed combined statement of net assets as of 31 December 2015, the unaudited pro forma condensed combined income statement for the year ended 31 December 2015 and the related explanatory notes.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF NET ASSETS OF ORANGE
AS OF 31 DECEMBER 2015
( in millions)
Historical IFRS EU | ||||||||||||||||||||||
White Reclassified and Adjusted (Note 1) |
Olive Reclassified (Note 2) |
Black Reclassified and Adjusted (Note 3) |
Acquisition Accounting (Note 4) |
Orange Pro Forma |
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ASSETS |
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Non-current: |
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Intangible assets, net |
| 3,186 | | 26 | | 500 | | 7,136 | (A) | | 10,848 | |||||||||||
Goodwill |
81 | 816 | 742 | 1,752 | (B) | 3,391 | ||||||||||||||||
Property, plant and equipment, net |
1,708 | 656 | 1,087 | 705 | (C) | 4,156 | ||||||||||||||||
Non-current derivative assets |
22 | | | | 22 | |||||||||||||||||
Deferred tax assets |
81 | 90 | | | 171 | |||||||||||||||||
Other non-current assets |
35 | 4 | 9 | | 48 | |||||||||||||||||
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|
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Total non-current assets |
5,113 | 1,592 | 2,338 | 9,593 | 18,636 | |||||||||||||||||
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Current: |
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Current derivative assets |
19 | | | | 19 | |||||||||||||||||
Current tax assets |
14 | 144 | 16 | | 174 | |||||||||||||||||
Inventories |
370 | 144 | 169 | 72 | (D) | 755 | ||||||||||||||||
Amounts receivable from TCCC |
52 | 8 | 35 | | 95 | |||||||||||||||||
Trade accounts receivable, net |
1,210 | 380 | 374 | | 1,964 | |||||||||||||||||
Cash and cash equivalents |
157 | 214 | 118 | (128 | ) | (E) | 361 | |||||||||||||||
Assets classified as held for distribution to shareholder |
| 107 | | (107 | ) | (F) | | |||||||||||||||
Other current assets |
61 | 54 | 41 | | 156 | |||||||||||||||||
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Total current assets |
1,883 | 1,051 | 753 | (163 | ) | 3,524 | ||||||||||||||||
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Total assets |
| 6,996 | | 2,643 | | 3,091 | | 9,430 | | 22,160 | ||||||||||||
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LIABILITIES |
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Non-current: |
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Borrowings, less current portion |
| 3,122 | | 31 | | 108 | | 3,054 | (G) | | 6,315 | |||||||||||
Employee benefit liabilities |
148 | | 99 | | 247 | |||||||||||||||||
Non-current provisions |
14 | 12 | | | 26 | |||||||||||||||||
Non-current derivative liabilities |
21 | | | | 21 | |||||||||||||||||
Deferred tax liabilities |
768 | 32 | 47 | 2,222 | (H) | 3,069 | ||||||||||||||||
Other non-current liabilities |
52 | | 4 | 5 | (I) | 61 | ||||||||||||||||
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Total non-current liabilities |
4,125 | 75 | 258 | 5,281 | 9,739 | |||||||||||||||||
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Current: |
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Current portion of borrowings |
418 | 5 | 74 | (62 | ) | (G) | 435 | |||||||||||||||
Current provisions |
536 | | 199 | | 735 | |||||||||||||||||
Current derivative liabilities |
46 | | | | 46 | |||||||||||||||||
Current tax liabilities |
44 | 32 | 1 | | 77 | |||||||||||||||||
Amounts payable to TCCC |
94 | 17 | 73 | 73 | (J) | 257 | ||||||||||||||||
Trade and other payables |
866 | 386 | 431 | 20 | (K) | 1,703 | ||||||||||||||||
Liabilities classified as held for distribution to shareholder |
| 16 | | (16 | ) | (F) | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
2,004 | 456 | 778 | 15 | 3,253 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
6,129 | 531 | 1,036 | 5,296 | 12,992 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
NET ASSETS |
| 867 | | 2,112 | | 2,055 | | 4,134 | | 9,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
3
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF NET
ASSETS OF ORANGE
NOTE 1 WHITES RECLASSIFIED AND ADJUSTED STATEMENT OF NET ASSETS
The Unaudited Pro Forma Condensed Combined Financial Information includes information of White that was derived from the historical audited consolidated financial statements as of and for the year ended 31 December 2015 prepared in accordance with U.S. GAAP, contained in its Annual Report on Form 10-K for the year ended 31 December 2015, which has been filed by CCE with the SEC. The historical audited consolidated balance sheet has been adjusted to (1) present Whites balance sheet as a statement of net assets, (2) align with the presentation format to be adopted by Orange, (3) reflect Whites historical audited consolidated balance sheet on a basis consistent with the accounting policies to be adopted by Orange under IFRS EU and (4) translate from U.S. Dollars to Euros, which will be the presentation currency of Orange. For the purpose of adjusting Whites financial information from U.S. GAAP to IFRS EU, White has adopted IFRS EU with a transition date of 1 January 2014 (Transition Date). The order of the line items in the table below presents Whites historical audited consolidated balance sheet prepared in accordance with U.S. GAAP, which differs from the order of line items of Oranges unaudited pro forma condensed combined statement of net assets under IFRS EU. The reconciliation is as follows (which is unaudited, in millions):
Whites U.S. GAAP Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) USD ($) |
Line Item Reclassifications Under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Whites IFRS EU Reclassified and Adjusted Statement of Net Assets USD ($) |
Whites IFRS EU Reclassified and Adjusted Statement of Net Assets(A) EUR () |
|||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 170 | $ | | $ | | $ | 170 | | 157 | ||||||||||||||
Trade accounts receivable, less allowances |
1,314 | (1,314 | ) | | | | ||||||||||||||||||
Trade accounts receivable, net |
| 1,314 | | 1,314 | 1,210 | |||||||||||||||||||
Amounts receivable from TCCC |
56 | | | 56 | 52 | |||||||||||||||||||
Inventories |
336 | | 66 | (D) | 402 | 370 | ||||||||||||||||||
Other current assets |
170 | (39 | ) | (65 | ) | (D)(F)(H) | 66 | 61 | ||||||||||||||||
Current derivative assets |
| 23 | (2 | ) | (E) | 21 | 19 | |||||||||||||||||
Current tax assets |
| 16 | | 16 | 14 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
2,046 | | (1 | ) | 2,045 | 1,883 | ||||||||||||||||||
Non-current: |
||||||||||||||||||||||||
Property, plant and equipment, net |
1,920 | | (65 | ) | (G) | 1,855 | 1,708 | |||||||||||||||||
Franchise license intangible assets, net |
3,383 | (3,383 | ) | | | | ||||||||||||||||||
Intangible assets, net |
| 3,383 | 65 | (G) | 3,461 | 3,186 | ||||||||||||||||||
13 | (C) |
4
Whites U.S. GAAP Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) USD ($) |
Line Item Reclassifications Under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Whites IFRS EU Reclassified and Adjusted Statement of Net Assets USD ($) |
Whites IFRS EU Reclassified and Adjusted Statement of Net Assets(A) EUR () |
|||||||||||||||||||
Goodwill |
88 | | | 88 | 81 | |||||||||||||||||||
Other noncurrent assets |
174 | (174 | ) | | | | ||||||||||||||||||
Non-current derivative assets |
| 24 | | 24 | 22 | |||||||||||||||||||
Deferred tax assets |
| 46 | 42 | (H)(I) | 88 | 81 | ||||||||||||||||||
Other non-current assets |
| 104 | (53 | ) | (D)(K) | 38 | 35 | |||||||||||||||||
(13 | ) | (C) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total non-current assets |
5,565 | | (11 | ) | 5,554 | 5,113 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 7,611 | $ | | $ | (12 | ) | $ | 7,599 | | 6,996 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES |
||||||||||||||||||||||||
Current: |
||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 1,601 | $ | (1,601 | ) | $ | | $ | | | | |||||||||||||
Trade and other payables |
| 919 | 22 | (J)(L) | 941 | 866 | ||||||||||||||||||
Current provisions |
| 582 | | 582 | 536 | |||||||||||||||||||
Current derivative liabilities |
| 52 | (2 | ) | (E) | 50 | 46 | |||||||||||||||||
Current tax liabilities |
| 48 | | 48 | 44 | |||||||||||||||||||
Amounts payable to TCCC |
102 | | | 102 | 94 | |||||||||||||||||||
Current portion of debt |
454 | (454 | ) | | | | ||||||||||||||||||
Current portion of borrowings |
| 454 | | 454 | 418 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
2,157 | | 20 | 2,177 | 2,004 | |||||||||||||||||||
Non-current: |
||||||||||||||||||||||||
Debt, less current portion |
3,407 | (3,407 | ) | | | | ||||||||||||||||||
Borrowings, less current portion |
| 3,407 | (16 | ) | (K) | 3,391 | 3,122 | |||||||||||||||||
Other noncurrent liabilities |
236 | (180 | ) | | 56 | 52 | ||||||||||||||||||
Employee benefit liabilities |
| 142 | 19 | (L) | 161 | 148 | ||||||||||||||||||
Non-current provisions |
| 15 | | 15 | 14 | |||||||||||||||||||
Non-current derivative liabilities |
| 23 | | 23 | 21 | |||||||||||||||||||
Noncurrent deferred income tax liabilities |
854 | (854 | ) | | | | ||||||||||||||||||
Deferred tax liabilities |
| 854 | (20 | ) | (H)(I) | 834 | 768 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total non-current liabilities |
4,497 | | (17 | ) | 4,480 | 4,125 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
6,654 | | 3 | 6,657 | 6,129 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
NET ASSETS |
$ | 957 | $ | | $ | (15 | ) | $ | 942 | | 867 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
(A) | Conversion rates The historical financial information of White has been translated from U.S. Dollars to Euros at the exchange rate at 31 December 2015 of 0.9206. |
(B) | Certain line items of Whites historical audited consolidated balance sheet prepared under U.S. GAAP have been reclassified to be presented in conformity with Oranges financial statement presentation. |
5
The following reclassification was made to align the accounting policies of White to the accounting policies of Orange:
(C) | Customer relationships - Adjustment reflects a reclassification of US$13 million of customer relationships from other non-current assets to intangible assets. |
The following adjustments represent the differences between U.S. GAAP and IFRS EU to present Whites historical audited consolidated balance sheet in accordance with IFRS EU:
(D) | Spare parts - Adjustment reflects the reclassification of US$29 million of spare parts from other current assets and US$37 million of spare parts from other non-current assets to inventories as of 31 December 2015. |
(E) | Cross-currency swaps - Under U.S. GAAP, interest on cross-currency swap agreements is presented on a gross basis. Under IFRS EU, interest on these instruments is presented on a net basis. This adjustment reduces current derivative assets and liabilities by US$2 million each as of 31 December 2015. |
(F) | Prepaid taxes - Adjustment reflects a US$1 million decrease to other current assets to remove certain prepaid taxes that are immediately expensed under IFRS EU as of 31 December 2015. |
(G) | Software - Adjustment reflects the reclassification of US$65 million in software from property, plant and equipment, net (PP&E) to intangible assets, net as of 31 December 2015. |
(H) | Deferred tax assets and liabilities classification - Under U.S. GAAP, deferred tax assets and liabilities must be classified on the balance sheet as current and non-current, consistent with the classification of the related asset or liability. Under IFRS EU, deferred tax assets and liabilities are classified on the balance sheet as non-current. This adjustment reflects the reclassification of US$35 million from other current assets as an increase to deferred tax assets of US$19 million and a decrease to deferred tax liabilities of US$16 million as of 31 December 2015, based on the relevant tax jurisdictions in which White operates. White had no current deferred tax liabilities recorded within its historical U.S. GAAP balance sheet as of 31 December 2015. |
(I) | Valuation of deferred taxes - With respect to Whites deferred tax position, under IFRS EU (1) certain of Whites historical U.S. GAAP assets and liabilities are not recognised as a temporary difference; (2) deferred taxes on share-based payment awards are valued based on changes in an awards intrinsic value rather than its grant date fair value and (3) deferred taxes on defined benefit pension plans are based on different actuarial valuations than U.S. GAAP. |
The net impact of these differences results in an increase of US$23 million to deferred tax assets and a decrease of US$4 million to deferred tax liabilities as of 31 December 2015.
(J) | Share-based compensation plans - Under U.S. GAAP, share-based payment awards subject to a net settlement arrangement are classified as equity-settled if the amount withheld does not exceed the minimum statutory withholding. Under IFRS EU, awards with a net settlement arrangement must be bifurcated between equity-settled and cash-settled, with the portion of an award withheld for taxes treated as cash-settled. This adjustment reflects an increase to trade and other payables of US$25 million as of 31 December 2015. |
(K) | Debt issuance costs - Under U.S. GAAP, debt issuance costs are presented on the balance sheet on a gross basis separate from the underlying debt instrument; however under IFRS EU these costs are presented on a net basis and reduce the carrying value of the debt instrument. This adjustment reflects a reclassification of US$16 million of debt issuance costs from other non-current assets to borrowings, less current portion as of 31 December 2015. |
(L) | Defined benefit pension plans - With respect to defined benefit pension plans, under U.S. GAAP (1) actuarial gains and losses and prior service cost are initially deferred in equity and subsequently recognised as part of net periodic benefit cost; (2) discount rates are calculated using high-quality corporate bond yields; (3) interest cost is determined using the discount rate; (4) expected return on assets is judgmental and estimated |
6
based on asset allocation and expected performance over time and (5) contribution taxes are not included in the calculation of the defined benefit obligation. Under IFRS EU, (1) actuarial gains and losses are permanently deferred in equity; (2) discount rates are calculated using government bond yields; (3) net interest cost (including return on assets) is based on market yields of high-quality long-term corporate bonds; (4) prior service costs are immediately recognised in net periodic benefit cost and (5) taxes payable by the plan on contributions are included in the calculation of the defined benefit obligation. Further, White elected as part of its IFRS EU adoption to reset to zero all pension adjustments deferred in reserves at Whites Transition Date as allowed under IFRS 1. |
The net impact of these differences resulted in an increase of US$16 million to employee benefit liabilities as of 31 December 2015. Additionally, US$3 million was reclassified from trade and other payables to employee benefit liabilities as of 31 December 2015.
7
NOTE 2 OLIVES RECLASSIFIED STATEMENT OF NET ASSETS
The Unaudited Pro Forma Condensed Combined Financial Information includes information of Olive that was derived from the historical audited consolidated financial statements as of and for the year ended 31 December 2015 prepared in accordance with IFRS IASB. The historical audited consolidated balance sheet has been adjusted to present Olives balance sheet as a statement of net assets and to align with the presentation format and the accounting policies to be adopted by Orange. The reconciliation is as follows (which is unaudited, in millions):
Olives IFRS IASB Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) EUR () |
Line Item Reclassifications under Oranges Presentation(A) EUR () |
Accounting Policy Alignment Reclassifications EUR () |
Olives IFRS EU Reclassified Statement of Net Assets EUR () |
||||||||||||||
ASSETS |
||||||||||||||||||
Non-current: |
||||||||||||||||||
Goodwill |
| 816 | | | | | | 816 | ||||||||||
Intangible assets |
26 | | | 26 | ||||||||||||||
Property, plant and equipment |
652 | 2 | 2 | (B) | 656 | |||||||||||||
Investment properties |
2 | (2 | ) | | | |||||||||||||
Non-current investments |
4 | (4 | ) | | | |||||||||||||
Other non-current assets |
| 4 | | 4 | ||||||||||||||
Deferred tax assets |
90 | | | 90 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total non-current assets |
1,590 | | 2 | 1,592 | ||||||||||||||
Current: |
||||||||||||||||||
Inventories |
144 | | | 144 | ||||||||||||||
Trade and other receivables |
532 | (532 | ) | | | |||||||||||||
Trade accounts receivable, net |
| 380 | | 380 | ||||||||||||||
Current tax assets |
| 144 | | 144 | ||||||||||||||
Amounts receivable from TCCC |
| 8 | | 8 | ||||||||||||||
Cash and cash equivalents |
214 | | | 214 | ||||||||||||||
Current investments |
52 | (52 | ) | | | |||||||||||||
Prepayments for current assets |
2 | (2 | ) | | | |||||||||||||
Assets classified as held for distribution to shareholder |
107 | | | 107 | ||||||||||||||
Other current assets |
| 54 | | 54 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1,051 | | | 1,051 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
| 2,641 | | | | 2 | | 2,643 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES |
||||||||||||||||||
Non-current: |
||||||||||||||||||
Non-current provisions |
| 12 | | | | | | 12 | ||||||||||
Interest-bearing loans and borrowings |
31 | (31 | ) | | | |||||||||||||
Borrowings, less current portion |
| 31 | | 31 | ||||||||||||||
Deferred tax liabilities |
32 | | | 32 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total non-current liabilities |
75 | | | 75 |
8
Olives IFRS IASB Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) EUR () |
Line Item Reclassifications under Oranges Presentation(A) EUR () |
Accounting Policy Alignment Reclassifications EUR () |
Olives IFRS EU Reclassified Statement of Net Assets EUR () |
||||||||||||
Current: |
||||||||||||||||
Interest-bearing loans and borrowings |
5 | (5 | ) | | | |||||||||||
Current portion of borrowings |
| 5 | | 5 | ||||||||||||
Trade and other payables |
434 | (48 | ) | | 386 | |||||||||||
Current tax liabilities |
| 32 | | 32 | ||||||||||||
Current accruals |
1 | (1 | ) | | | |||||||||||
Amounts payable to TCCC |
| 17 | | 17 | ||||||||||||
Liabilities classified as held for distribution to shareholder |
16 | | | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
456 | | | 456 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
531 | | | 531 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
NET ASSETS |
| 2,110 | | | | 2 | | 2,112 | ||||||||
|
|
|
|
|
|
|
|
(A) | Olives historical audited consolidated balance sheet presented in accordance with IFRS IASB has been adjusted to conform to Oranges financial statement presentation. |
(B) | Accumulated depreciation - Adjustment reflects an increase to PP&E of 2 million as a result of aligning depreciation methods from the declining balance method to the straight-line method for certain items of machinery and equipment. |
9
NOTE 3 BLACKS RECLASSIFIED AND ADJUSTED STATEMENT OF NET ASSETS
The Unaudited Pro Forma Condensed Combined Financial Information includes information of Black that was derived from the historical audited consolidated financial statements as of and for the year ended 31 December 2015 prepared in accordance with U.S. GAAP. The historical audited consolidated balance sheet has been adjusted to (1) present Blacks balance sheet as a statement of net assets, (2) align with the presentation format to be adopted by Orange, (3) reflect Blacks historical audited consolidated balance sheet on a basis consistent with the accounting policies to be adopted by Orange under IFRS EU and (4) translate from U.S. Dollars to Euros, which will be the presentation currency of Orange. Black has adopted IFRS EU with a transition date of 1 January 2015. The order of the line items in the table below presents Blacks historical audited consolidated balance sheet prepared in accordance with U.S. GAAP, which differs from the order of line items of Oranges unaudited pro forma condensed combined statement of net assets under IFRS EU. The reconciliation is as follows (which is unaudited, in millions):
Blacks U.S. GAAP Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) USD ($) |
Line Item Reclassifications under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Blacks IFRS EU Reclassified and Adjusted Statement of Net Assets USD ($) |
Blacks IFRS EU Reclassified and Adjusted Statement of Net Assets(A) EUR () |
|||||||||||||||||
ASSETS |
||||||||||||||||||||||
Current: |
||||||||||||||||||||||
Cash and cash equivalents |
$ | 128 | $ | | $ | | $ | 128 | | 118 | ||||||||||||
Trade accounts receivable, less allowances |
406 | (406 | ) | | | | ||||||||||||||||
Trade accounts receivable, net |
| 406 | | 406 | 374 | |||||||||||||||||
Amounts receivable from related parties |
38 | (38 | ) | | | | ||||||||||||||||
Amounts receivable from TCCC |
| 38 | | 38 | 35 | |||||||||||||||||
Inventories |
158 | | 26 | (C) | 184 | 169 | ||||||||||||||||
Prepaid expenses and other assets |
97 | (97 | ) | | | | ||||||||||||||||
Other current assets |
| 80 | (36 | ) | (D)(H) | 44 | 41 | |||||||||||||||
Current tax assets |
| 17 | | 17 | 16 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
827 | | (10 | ) | 817 | 753 | ||||||||||||||||
Non-current: |
||||||||||||||||||||||
Property, plant and equipment, net |
1,470 | | (289 | ) | (C)(F)(G)(H) | 1,181 | 1,087 | |||||||||||||||
Franchise license intangible assets, net |
395 | (395 | ) | | | | ||||||||||||||||
Definite-lived intangibles |
10 | (10 | ) | | | | ||||||||||||||||
Intangible assets, net |
| 405 | 138 | (F) | 543 | 500 | ||||||||||||||||
Goodwill |
806 | | | 806 | 742 | |||||||||||||||||
Other assets |
20 | (20 | ) | | | | ||||||||||||||||
Other non-current assets |
| 20 | (10 | ) | (I) | 10 | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-current assets |
2,701 | | (161 | ) | 2,540 | 2,338 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 3,528 | $ | | $ | (171 | ) | $ | 3,357 | | 3,091 | |||||||||||
|
|
|
|
|
|
|
|
|
|
10
Blacks U.S. GAAP Statement of Net Assets Line Items |
As of 31 December 2015 (Audited) USD ($) |
Line Item Reclassifications under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Blacks IFRS EU Reclassified and Adjusted Statement of Net Assets USD ($) |
Blacks IFRS EU Reclassified and Adjusted Statement of Net Assets(A) EUR () |
|||||||||||||||||
LIABILITIES |
||||||||||||||||||||||
Current: |
||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 687 | $ | (687 | ) | $ | | $ | | | | |||||||||||
Trade and other payables |
| 470 | (1 | ) | (D) | 469 | 431 | |||||||||||||||
Current provisions |
| 216 | | 216 | 199 | |||||||||||||||||
Current tax liabilities |
| 1 | | 1 | 1 | |||||||||||||||||
Amounts payable to related parties |
79 | (79 | ) | | | | ||||||||||||||||
Amounts payable to TCCC |
| 79 | | 79 | 73 | |||||||||||||||||
Loans payable to related parties |
67 | (67 | ) | | | | ||||||||||||||||
Capital lease obligations |
13 | (13 | ) | | | | ||||||||||||||||
Current portion of borrowings |
| 80 | | 80 | 74 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
846 | | (1 | ) | 845 | 778 | ||||||||||||||||
Loans payable to related parties |
87 | (87 | ) | | | | ||||||||||||||||
Capital lease obligations |
39 | (39 | ) | | | | ||||||||||||||||
Borrowings, less current portion |
| 126 | (9 | ) | (J) | 117 | 108 | |||||||||||||||
Other liabilities |
112 | (112 | ) | | | | ||||||||||||||||
Employee benefit plans |
| 108 | | 108 | 99 | |||||||||||||||||
Other non-current liabilities |
| 4 | | 4 | 4 | |||||||||||||||||
Deferred income taxes |
167 | (167 | ) | | | | ||||||||||||||||
Deferred tax liabilities |
| 167 | (116 | ) | (D)(E) | 51 | 47 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-current liabilities |
405 | | (125 | ) | 280 | 258 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,251 | | (126 | ) | 1,125 | 1,036 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
NET ASSETS |
$ | 2,277 | $ | | $ | (45 | ) | $ | 2,232 | | 2,055 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(A) | Conversion rates - The historical financial information of Black has been translated from U.S. Dollars to Euros at the exchange rate at 31 December 2015 of 0.9206. |
(B) | Certain line items of Blacks historical audited consolidated balance sheet prepared under U.S. GAAP have been reclassified to be presented in conformity with Oranges financial statement presentation. |
The following adjustments represent the differences between U.S. GAAP and IFRS EU to present Blacks historical audited consolidated balance sheet in accordance with IFRS EU:
(C) | Spare parts - Adjustment reflects the reclassification of spare parts of US$26 million from PP&E to inventories as of 31 December 2015. |
(D) | Deferred tax assets and liabilities classification - Under U.S. GAAP, deferred tax assets and liabilities must be classified on the balance sheet as current and noncurrent, consistent with the classification of the related |
11
asset or liability. Under IFRS EU, deferred tax assets and liabilities are classified on the balance sheet as noncurrent. This adjustment reflects (1) a reclassification of US$12 million from other current assets to deferred tax liabilities and (2) a reclassification of US$1 million from trade and other payables to deferred tax liabilities as of 31 December 2015, based on the relevant tax jurisdictions in which Black operates. |
(E) | Valuation of deferred taxes - With respect to Blacks deferred tax position, under IFRS EU (1) certain of Blacks historical U.S. GAAP loss carryforwards and valuation allowances are not recognised; (2) deferred taxes on PP&E are based on different capitalised amounts and (3) deferred taxes on defined benefit pension plans are based on different actuarial valuations than U.S. GAAP. The net impact of these differences results in a decrease to deferred tax liabilities of US$105 million. |
(F) | Software - Adjustment reflects the reclassification of US$138 million in software from PP&E to intangible assets, net as of 31 December 2015. |
(G) | Immediate expensing of merchandising assets - Under U.S. GAAP, point of sale merchandising assets provided to vendors in connection with marketing agreements and supply contracts are capitalised within PP&E and depreciated over their useful lives. Under IFRS EU, such assets are immediately recognised within the income statement upon transfer of the assets. This reduction to PP&E of US$6 million reflects the cumulative impact to PP&E to write off assets capitalised under U.S. GAAP as of 31 December 2015. |
(H) | Incremental depreciation - Certain of Blacks bottle and case assets included within other current assets meet the definition of PP&E under IFRS EU, resulting in a decrease to other current assets of US$24 million and a reduction to PP&E of US$112 million. Further, additional indirect assets used in the production process are subject to depreciation under IFRS EU, resulting in a reduction to PP&E of US$7 million as of 31 December 2015. |
(I) | Defined benefit pension plans - Under IFRS EU, there are limits on the amount of defined benefit pension plan assets recognised in the balance sheet; there are no such limits under U.S. GAAP. Based on this asset ceiling, this adjustment reflects the removal of Blacks overfunded positions in its defined benefit pension plans, resulting in decreases to other non-current assets of US$10 million as of 31 December 2015. |
(J) | Non-interest bearing loan - Under IFRS EU, Blacks non-interest bearing loan from a wholly owned subsidiary of TCCC is to be recorded at fair value and amortised using the effective interest method. No amortisation is recorded under U.S. GAAP. As a result, the adjustment reflects a decrease to borrowings, less current portion of US$9 million as of 31 December 2015. |
12
NOTE 4 ACQUISITION ACCOUNTING STATEMENT OF NET ASSETS
The Combination is reflected in the Unaudited Pro Forma Condensed Combined Financial Information as being accounted for under the acquisition method in accordance with IFRS 3, Business Combinations, with White treated as the accounting acquirer. In the unaudited pro forma condensed combined statement of net assets, the consideration was allocated between the assets acquired and liabilities assumed of Olive and Black based on a preliminary estimate of their fair value. These preliminary estimates are based on key assumptions related to the Combination and have been developed using publicly disclosed information for other mergers or acquisitions in the industry, Whites historical experience, data available in the public domain and Whites due diligence review of the businesses of Olive and Black. The difference between the amount paid and the fair value of the assets and liabilities of Olive and Black will be recorded as goodwill. A preliminary allocation of the consideration to the assets acquired and liabilities assumed has been made for the purposes of the Unaudited Pro Forma Condensed Combined Financial Information. The final valuation to be carried out by Orange could result in significant differences between those used for the preliminary estimate of fair values included in the Unaudited Pro Forma Condensed Combined Financial Information and the final results. Certain executive officers of White are eligible to receive severance benefits pursuant to his or her employment agreement or a severance plan if the executives employment is involuntarily terminated without cause or, within two years of a change of control of White, the executive voluntarily terminates his or her employment for good reason. The impact of any such severance will be recognised by Orange as a post-combination expense.
Determination of the consideration for purposes of the Unaudited Pro Forma Condensed Combined Financial Information
At the effective time of the Combination, each share of White Common Stock issued and outstanding immediately prior to the Combination will be cancelled and converted into the right to receive (1) US$14.50 in cash, without interest and (2) one Orange share. At the Completion, on a fully-diluted basis, White Shareholders will receive approximately 48% of the Orange Shares, Olive HoldCo will receive approximately 34% of the Orange Shares and Red will receive approximately 18% of the Orange Shares. These allocations may be adjusted to (1) increase the percentage ownership of Olive HoldCo and Red to account for the exercise and perfection of any appraisal rights by White Shareholders and (2) decrease or increase White Shareholders, Olive HoldCo, or Reds ownership percentage, if required, as a result of the net financial position of each of White, Olive and Black. Based upon the most recent financial information available for each of White, Olive and Black, no adjustment to the equity allocation percentages is expected as a result of the net financial position computation, and therefore, the Unaudited Pro Forma Condensed Combined Financial Information does not reflect any related adjustments.
For purposes of the Unaudited Pro Forma Condensed Combined Financial Information, the preliminary estimate of the total consideration transferred is based on (1) the outstanding shares of White Common Stock on 31 December 2015, (2) the closing price of White Common Stock of 45.19 (US$50.70 converted to Euros at an exchange rate of 0.8914) on 20 May 2016 (the latest practicable date used for preparation of the Unaudited Pro Forma Condensed Combined Financial Information, herein referred to as the Valuation Date) and (3) the number of Orange Shares to be issued to Olive HoldCo and Red based on the allocations of 34% and 18% respectively. Using the assumptions above, the total consideration would be approximately 11.4 billion. Changes in the price of White Common Stock and foreign currency rates could result in material differences in the consideration amount and therefore impact the related accounting for the Combination. The amount of total consideration presented in the Unaudited Pro Forma Condensed Combined Financial Information is not necessarily indicative of the actual consideration that will be transferred in the Combination to Olive HoldCo and Red.
Based on the above information, the consideration for the purposes of the Unaudited Pro Forma Condensed Combined Financial Information is determined as follows (in millions, except per share data):
Olive HoldCo | Red | Total | ||||||||||
Orange Shares issued (rounded) |
166 | 88 | 254 | |||||||||
White Common Stock price as of the Valuation Date |
| 45.19 | | 45.19 | | 45.19 | ||||||
|
|
|
|
|
|
|||||||
Total estimated consideration transferred |
| 7,484 | | 3,962 | | 11,446 | ||||||
|
|
|
|
|
|
13
The following is a summary of the preliminary estimated fair values of the net assets acquired (in millions):
Olive | Black | Total | ||||||||||
Intangible assets, net |
| 5,276 | | 2,386 | | 7,662 | ||||||
Goodwill |
2,343 | 967 | 3,310 | |||||||||
Property, plant and equipment |
1,000 | 1,448 | 2,448 | |||||||||
Deferred tax assets |
90 | | 90 | |||||||||
Other non-current assets |
4 | 9 | 13 | |||||||||
Current tax assets |
144 | 16 | 160 | |||||||||
Inventories |
195 | 190 | 385 | |||||||||
Amounts receivable from TCCC |
8 | 35 | 43 | |||||||||
Trade accounts receivable, net |
380 | 374 | 754 | |||||||||
Cash and cash equivalents |
114 | 118 | 232 | |||||||||
Other current assets |
54 | 41 | 95 | |||||||||
|
|
|
|
|
|
|||||||
Total assets acquired |
9,608 | 5,584 | 15,192 | |||||||||
Borrowings, less current portion |
(31 | ) | (36 | ) | (67 | ) | ||||||
Employee benefit liabilities |
| (99 | ) | (99 | ) | |||||||
Non-current provisions |
(12 | ) | | (12 | ) | |||||||
Deferred tax liabilities |
(1,641 | ) | (694 | ) | (2,335 | ) | ||||||
Other non-current liabilities |
| (4 | ) | (4 | ) | |||||||
Current portion of borrowings |
(5 | ) | (12 | ) | (17 | ) | ||||||
Current provisions |
| (199 | ) | (199 | ) | |||||||
Current tax liabilities |
(32 | ) | (1 | ) | (33 | ) | ||||||
Amounts payable to TCCC |
(17 | ) | (146 | ) | (163 | ) | ||||||
Trade and other payables |
(386 | ) | (431 | ) | (817 | ) | ||||||
|
|
|
|
|
|
|||||||
Total liabilities assumed |
(2,124 | ) | (1,622 | ) | (3,746 | ) | ||||||
|
|
|
|
|
|
|||||||
Total estimated consideration transferred |
| 7,484 | | 3,962 | | 11,446 | ||||||
|
|
|
|
|
|
The preliminary allocation has been made based on limited access to information. Orange will not have sufficient information to make final allocations until after the Completion.
The final determination of the accounting for the Combination is anticipated to be completed as soon as practicable after the Completion. Orange anticipates that the valuations of the assets acquired and liabilities assumed in the Combination will include, but not be limited to, inventory, PP&E and intangible assets. The valuations will consist of physical appraisals, discounted cash flow analyses or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.
The final consideration and amounts allocated to assets acquired and liabilities assumed in the Combination could differ materially from the preliminary amounts presented in the Unaudited Pro Forma Condensed Combined Financial Information. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the Combination from those preliminary valuations presented in the Unaudited Pro Forma Condensed Combined Financial Information would result in a euro-for-euro increase in the amount of goodwill that will result from the Combination. In addition, if the value of the assets acquired is higher than the preliminary indication, it may result in higher amortisation and depreciation expense than is presented in the Unaudited Pro Forma Condensed Combined Financial Information.
14
The acquisition accounting adjustments included in the unaudited pro forma condensed combined statement of net assets related to the Transactions are as follows:
(A) | Intangible assets Adjustment reflects the preliminary fair value related to identifiable intangible assets acquired in the Combination as follows (in millions): |
Olive | Black | Total | ||||||||||
Total estimated preliminary fair value of intangible assets |
| 5,276 | | 2,386 | | 7,662 | ||||||
Less: Book value of intangible assets, net |
(26 | ) | (500 | ) | (526 | ) | ||||||
|
|
|
|
|
|
|||||||
Pro forma adjustment to intangible assets |
| 5,250 | | 1,886 | | 7,136 | ||||||
|
|
|
|
|
|
The preliminary estimates of the intangible assets acquired are based on key assumptions and have been developed using publicly disclosed information for other acquisitions in the industry, Whites historical experience, data that were available in the public domain and Whites due diligence review of the businesses of Olive and Black. These estimates will be finalised following Completion and additional values, if any, assigned to customer relationships or other identifiable intangible assets acquired of Olive and Black will be quantified.
The franchise intangible assets were valued using an income approach (discounted cash flow analysis) assuming a 99 percent probability of renewal and a discount rate equal to the implied internal rate of return for the Combination plus 50 basis points. While the agreements related to franchise intangible assets contain no automatic right of renewal, Orange believes that the interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by non-renewals ensure that these agreements will continue to be renewed and, therefore, are essentially perpetual. After evaluating the contractual provisions of the bottling agreements, the mutually beneficial relationship with TCCC and history of renewals, Orange has assigned indefinite lives to all such franchise intangible assets.
Until Completion, White, Olive and Black are limited in their ability to share competitively sensitive information with each other; therefore, for purposes of the Unaudited Pro Forma Condensed Combined Financial Information it is assumed that the book value of Blacks customer relationships, software and other definite-lived intangible assets of 136 million approximates fair value, and the book value of Olives software of 26 million approximates fair value. As of 31 December 2015, Olive did not have any customer relationships recorded in its historical audited consolidated balance sheet. The estimated fair value of customer relationships, software and other definite-lived intangible assets is expected to be amortised on a straight-line basis over the estimated useful lives; the estimated useful lives reflect the periods over which the assets are expected to provide material economic benefit.
(B) | Goodwill Adjustment reflects the preliminary adjustment to goodwill as a result of the Combination. Goodwill represents the excess of the consideration transferred over the preliminary fair value of the assets acquired and liabilities assumed. The goodwill is attributable to the expected synergies of the combined business operations, new growth opportunities and workforce. The goodwill is not expected to be deductible for tax purposes. The preliminary pro forma adjustment to goodwill is calculated as follows (in millions): |
Olive | Black | Total | ||||||||||
Total estimated consideration transferred |
| 7,484 | | 3,962 | | 11,446 | ||||||
Less: Fair value of net assets to be acquired |
(5,141 | ) | (2,995 | ) | (8,136 | ) | ||||||
|
|
|
|
|
|
|||||||
Total estimated goodwill |
2,343 | 967 | 3,310 | |||||||||
Less: Book value of existing goodwill |
(816 | ) | (742 | ) | (1,558 | ) | ||||||
|
|
|
|
|
|
|||||||
Pro forma adjustment to goodwill |
| 1,527 | | 225 | | 1,752 | ||||||
|
|
|
|
|
|
15
(C) | PP&E Adjustment reflects the preliminary fair value of PP&E acquired in the Combination as follows (in millions): |
Olive | Black | Total | ||||||||||
Total estimated preliminary fair value of PP&E |
| 1,000 | | 1,448 | | 2,448 | ||||||
Less: Book value of PP&E |
(656 | ) | (1,087 | ) | (1,743 | ) | ||||||
|
|
|
|
|
|
|||||||
Pro forma adjustment to PP&E |
| 344 | | 361 | | 705 | ||||||
|
|
|
|
|
|
(D) | Inventories Adjustment reflects the preliminary estimated fair value adjustment of 72 million (51 million for Olive and 21 million for Black) to inventory acquired in the Combination. As the raw materials inventory was assumed to be at market value, the preliminary adjustment is related to work-in-process and finished goods inventory. The preliminary fair value for work-in-process inventory considered costs to complete inventory and estimated profit on these costs. The preliminary fair value for finished goods inventory was based on an analysis of estimated future selling prices, costs of selling effort and profit on selling effort. |
(E) | Cash and cash equivalents Adjustment reflects the preliminary net adjustment to cash and cash equivalents in connection with the Transactions (in millions): |
Proceeds from the new Orange Debt Financing(1) |
| 3,200 | ||
Cash Consideration paid to White Shareholders(2) |
(3,035 | ) | ||
Payment of Transaction-related expenses(3) |
(193 | ) | ||
Dividend payment to Olive shareholder(4) |
(100 | ) | ||
|
|
|||
Pro forma adjustment to cash and cash equivalents |
| (128 | ) | |
|
|
(1) | Increase in cash resulting from the Debt Financing by Orange of an estimated 3.2 billion; |
(2) | Decrease in cash related to the cash payment of US$14.50 per share to White Shareholders based on 227 million outstanding shares of White Common Stock as of 31 December 2015; |
(3) | Decrease in cash related to the estimated Transaction-related expenses of 193 million, consisting of financing fees of 74 million, which will be capitalised, and advisory costs of 119 million expected to be expensed as incurred and |
(4) | Decrease in cash resulting from the dividend payment of 100 million to the Olive Shareholder on 29 April 2016 in connection with certain conditions being met in accordance with the Master Agreement. However, the Unaudited Pro Forma Condensed Combined Financial Information excludes the impact of the payment of 63 million of dividends declared to White Shareholders subsequent to 31 December 2015 as the payment is not directly attributable to the Transaction. |
(F) | Assets and liabilities classified as held for distribution to shareholder Adjustment reflects the removal of 107 million of certain non-core assets and 16 million of liabilities related to the non-core assets owned by Olives subsidiaries that will not be contributed as part of the Combination per the Olive Framework Agreement. The results of operations associated with the non-core assets that will be kept by Olive HoldCo were not adjusted in the unaudited pro forma condensed combined income statement because the impact is not significant. |
16
(G) | Borrowings Adjustment reflects the preliminary net adjustment to borrowings in connection with the Transactions (in millions): |
Non-current | Current | |||||||
Proceeds from new Orange Debt Financing(1) |
| 3,200 | | | ||||
Less: Financing fees(2) |
(74 | ) | | |||||
Less: Repayment of a portion of Blacks borrowings(3) |
| (61 | ) | |||||
Less: Reclassification of borrowings to amounts payable to TCCC(4) |
(72 | ) | (1 | ) | ||||
|
|
|
|
|||||
Pro forma adjustment to borrowings |
| 3,054 | | (62 | ) | |||
|
|
|
|
(1) | As described in the Introduction, Orange will finance the Cash Consideration using a combination of cash on hand and the Debt Financing. The total amount of funds to be financed and used in the transaction is approximately 3.2 billion, consisting of a term loan for 1.0 billion and a eurobond offering for 2.2 billion, which together will have a weighted average interest rate of 1.0%. Refer to Note 8(D) for additional information regarding pro forma finance costs. |
(2) | The estimate of financing fees of 74 million related to the Debt Financing of 3.2 billion is capitalised on the unaudited pro forma condensed combined statement of net assets and amortised over the life of the underlying borrowing. For purposes of this Unaudited Pro Forma Condensed Combined Financial Information, Orange has assumed that financing fees will approximate 2.3% of the total proceeds from the Debt Financing. The estimate of financing fees is preliminary and could materially change based on the finalisation of these fees. |
(3) | A portion of Blacks existing borrowings will be repaid through a capital contribution from TCCC prior to the Completion, resulting in a reduction of 61 million to current portion of borrowings. |
(4) | Orange will assume Blacks remaining debt obligation to a wholly-owned subsidiary of TCCC of 73 million (of which 72 million is non-current and 1 million is current). This amount is expected to be paid as soon as practicable following the Completion; therefore, these amounts are reclassified to amounts payable to TCCC within the unaudited pro forma condensed combined statement of net assets. Orange will also assume Blacks capital lease obligations of 48 million (of which 36 million is non-current and 12 million is current and Olives capital lease obligations and other financial liabilities of 36 million (of which 31 million is non-current and 5 million is current). |
After giving effect to the Debt Financing and the repayment and reclassification of Blacks existing borrowings, Oranges total pro forma indebtedness is 6.8 billion and is comprised of the following (in millions):
Non-current | Current | Total | ||||||||||
Proceeds from new Orange Debt Financing |
| 3,200 | | | | 3,200 | ||||||
Existing White indebtedness |
3,122 | 418 | 3,540 | |||||||||
Existing Olive indebtedness |
31 | 5 | 36 | |||||||||
Existing Black indebtedness |
108 | 74 | 182 | |||||||||
Less: Repayment of existing Black indebtedness (excluding capital lease obligations assumed by Orange) |
| (61 | ) | (61 | ) | |||||||
Less: Reclassification of outstanding Black indebtedness to amounts payable to TCCC |
(72 | ) | (1 | ) | (73 | ) | ||||||
Less: Financing fees capitalised |
(74 | ) | | (74 | ) | |||||||
|
|
|
|
|
|
|||||||
Total pro forma indebtedness of Orange |
| 6,315 | | 435 | | 6,750 | ||||||
|
|
|
|
|
|
17
(H) | Deferred tax liabilities Deferred tax has been estimated based on a tax rate of 28.5%, which approximates a blended statutory tax rate, based on revenue mix, for the tax jurisdictions where the assets acquired and liabilities assumed reside. The effective tax rate of Orange could be materially different from the rate presented in this Unaudited Pro Forma Condensed Combined Financial Information. This adjustment reflects the deferred income tax effects of the preliminary pro forma adjustments made to the unaudited pro forma condensed combined balance sheet, primarily as indicated in the table below (in millions): |
Adjustment to asset acquired |
Deferred tax liability |
|||||||
Estimated fair value adjustment to: |
||||||||
Olive |
||||||||
Intangible assets |
| 5,250 | | 1,496 | ||||
PP&E |
344 | 98 | ||||||
Inventory |
51 | 15 | ||||||
Black |
||||||||
Intangible assets |
1,886 | 538 | ||||||
PP&E |
361 | 103 | ||||||
Inventory |
21 | 6 | ||||||
Estimated tax impact of fees and expenses incurred in connection with the Combination |
(34 | ) | ||||||
|
|
|||||||
Deferred tax liabilities related to estimated fair value adjustments |
| 2,222 | ||||||
|
|
(I) | Other non-current liabilities Adjustment of 5 million reflects the non-current portion of the US$14.50 per share for 1.4 million White Stock Units expected to vest beyond one year. |
Each White Stock Unit that is outstanding immediately prior to the effective time of the Merger will be replaced with one Orange Stock Unit and a credit of US$14.50 for each such unit to the account of the holders. All such Orange Stock Units, including the applicable cash credit, will be subject to terms, vesting conditions and other conditions that are the same as were applicable to the White Stock Units immediately prior to the effective time of the Merger, including, with respect to the underlying Orange Shares, an entitlement to the same value of cash dividend equivalents, whether accrued prior to or after the effective time of the Merger. The conversions of White Options and White Stock Units are not expected to result in incremental value to the share/option holders.
(J) | Amounts payable to TCCC Adjustment reflects the reclassification of Blacks remaining debt obligation assumed by Orange of 73 million from borrowings, less current portion of 72 million and current portion of borrowings of 1 million to amounts payable to TCCC as described in Note 4(G) above. The total balance is expected to be paid as soon as practicable following the Completion. |
(K) | Trade and other payables Adjustment reflects the 20 million credit of US$14.50 per share for 1.6 million White Stock Units that are expected to vest within one year as described in Note 4(I). |
18
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT OF ORANGE FOR
THE YEAR ENDED 31 DECEMBER 2015
( in millions)
Historical IFRS EU | ||||||||||||||||||||||
White Reclassified and Adjusted (Note 5) |
Olive Reclassified (Note 6) |
Black Reclassified and Adjusted (Note 7) |
Acquisition Accounting (Note 8) |
Orange Pro Forma |
||||||||||||||||||
Net sales |
| 6,315 | | 2,480 | | 2,181 | | | | 10,976 | ||||||||||||
Cost of sales |
4,005 | 1,405 | 1,253 | 55 | (A)(B) | 6,718 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
2,310 | 1,075 | 928 | (55 | ) | 4,258 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and distribution expenses |
919 | 686 | 540 | (17 | ) | (A) | 2,128 | |||||||||||||||
General and administrative expenses |
631 | 120 | 509 | 112 | (A)(C) | 1,372 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit (loss) |
760 | 269 | (121 | ) | (150 | ) | 758 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Finance income |
(24 | ) | (3 | ) | | | (27 | ) | ||||||||||||||
Finance costs |
133 | 2 | 7 | 46 | (D) | 188 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total finance costs (income), net |
109 | (1 | ) | 7 | 46 | 161 | ||||||||||||||||
Other nonoperating expense |
4 | 3 | 3 | | 10 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Profit (loss) before income taxes |
647 | 267 | (131 | ) | (196 | ) | 587 | |||||||||||||||
Income tax expense (benefit) |
132 | 77 | (4 | ) | (56 | ) | (E) | 149 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Profit (loss) for the year |
| 515 | | 190 | | (127 | ) | | (140 | ) | | 438 | ||||||||||
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19
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT OF
ORANGE
NOTE 5 WHITES RECLASSIFIED AND ADJUSTED INCOME STATEMENT
The historical audited consolidated income statement of White has been adjusted to (1) align with the presentation format to be adopted by Orange, (2) reflect Whites historical audited consolidated income statement on a basis consistent with the accounting policies to be adopted by Orange under IFRS EU and (3) translate from U.S. Dollars to Euros, which will be the presentation currency of Orange. The order of the line items in the table below presents Whites historical audited consolidated income statement prepared in accordance with U.S. GAAP, which differs from the order of line items of Oranges unaudited pro forma condensed combined income statement under IFRS EU. The reconciliation is as follows (which is unaudited, in millions):
Whites U.S. GAAP Income Statement Line Items |
For the year ended 31 December 2015 (Audited) USD ($) |
Line
Item Reclassifications Under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Whites IFRS EU Reclassified and Adjusted Income Statement USD ($) |
Whites IFRS EU Reclassified and Adjusted Income Statement(A) EUR () |
|||||||||||||||||
Net sales |
$ | 7,011 | $ | | $ | | $ | 7,011 | | 6,315 | ||||||||||||
Cost of sales |
4,441 | | 6 | (C) | 4,447 | 4,005 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Gross profit |
2,570 | | (6 | ) | 2,564 | 2,310 | ||||||||||||||||
Selling, delivery and administrative expenses |
1,704 | (1,704 | ) | | | | ||||||||||||||||
Selling and distribution expenses |
| 1,015 | 5 | (C) | 1,020 | 919 | ||||||||||||||||
General and administrative expenses |
| 689 | 12 | (C)(E) | 701 | 631 | ||||||||||||||||
|
|
|||||||||||||||||||||
Operating income |
866 | (866 | ) | | | | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Operating profit |
| 866 | (23 | ) | 843 | 760 | ||||||||||||||||
Interest expense, net |
118 | (118 | ) | | | | ||||||||||||||||
Finance income |
| (25 | ) | (2 | ) | (C) | (27 | ) | (24 | ) | ||||||||||||
Finance costs |
| 143 | 5 | (C)(D) | 148 | 133 | ||||||||||||||||
Other nonoperating expense |
(4 | ) | | | 4 | 4 | ||||||||||||||||
|
|
|||||||||||||||||||||
Income before income taxes |
744 | (744 | ) | | | | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Profit before income tax |
| 744 | (26 | ) | 718 | 647 | ||||||||||||||||
Income tax expense |
148 | | (1 | ) | (F) | 147 | 132 | |||||||||||||||
|
|
|||||||||||||||||||||
Net income |
596 | (596 | ) | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Profit for the year |
$ | | $ | 596 | $ | (25 | ) | $ | 571 | | 515 | |||||||||||
|
|
|
|
|
|
|
|
(A) | Conversion rates The historical financial information of White has been translated from U.S. Dollars to Euros at the average exchange rate for the year ended 31 December 2015 of 0.9007. |
20
(B) | Certain line items of Whites historical audited consolidated income statement prepared under U.S. GAAP have been reclassified to be presented in conformity with Oranges financial statement presentation. |
The following adjustments represent the differences identified between U.S. GAAP and IFRS EU to present Whites historical audited consolidated income statement in accordance with IFRS EU:
(C) | Defined benefit pension plans - As noted in Note 1(L), IFRS EU differs from U.S. GAAP with respect to the recognition of actuarial gains and losses and prior service costs, the calculation of the discount rate for the defined benefit obligation, the calculation of net interest cost and the recognition of contribution taxes. Additionally, Orange has elected to present interest costs on defined benefit plans within finance costs/finance income as allowable under IFRS EU. The impact of these differences to Whites reclassified and adjusted income statement for the year ended 31 December 2015 was an increase to cost of sales of US$6 million, an increase to selling and distribution expenses of US$5 million, an increase to general and administrative expense of US$9 million, an increase to finance income of US$2 million and an increase to finance costs of US$2 million. |
(D) | Options designated as hedging instruments - Increase of US$3 million to finance costs reflects the impact of separating the intrinsic value and time value of options designated as hedging instruments for the year ended 31 December 2015. |
(E) | Share-based compensation plans - Adjustment reflects the additional compensation cost of US$3 million as a result of separating the share-based payment awards between equity- and cash-settled components under IFRS EU for the year ended 31 December 2015. |
(F) | Income tax expense - The total changes in Whites tax position from the adjustments between U.S. GAAP and IFRS EU resulted in a decrease to income tax expense of US$1 million. |
21
NOTE 6 OLIVES RECLASSIFIED INCOME STATEMENT
The historical audited consolidated income statement of Olive has been adjusted to align with the presentation format and the accounting policies to be adopted by Orange. The reconciliation is as follows (which is unaudited, in millions):
Olives IFRS IASB Income Statement Line Items |
For the year ended 31 December 2015 (Audited) EUR () |
Line
Item Reclassifications under Oranges Presentation(A) EUR () |
Accounting Policy Alignment Reclassifications EUR () |
Olives IFRS EU Reclassified Income Statement EUR () |
||||||||||||||||
Revenue |
| 2,920 | | (2,920 | ) | | | | | |||||||||||
Net sales |
| 2,920 | (440 | ) | (C) | 2,480 | ||||||||||||||
Changes in inventories of finished goods and work in progress |
(14 | ) | 14 | | | |||||||||||||||
Own work capitalised |
3 | (3 | ) | | | |||||||||||||||
Supplies |
(1,186 | ) | 1,186 | | | |||||||||||||||
Cost of sales |
| 1,455 | (B) | (50 | ) | (C)(D)(E) | 1,405 | |||||||||||||
|
|
|
|
|||||||||||||||||
Gross profit |
| 1,465 | (390 | ) | 1,075 | |||||||||||||||
Other operating income |
30 | (30 | ) | | | |||||||||||||||
Personnel expenses |
(336 | ) | 336 | | | |||||||||||||||
Other operating expenses |
(1,041 | ) | 1,041 | | | |||||||||||||||
Amortisation and depreciation |
(93 | ) | 93 | | | |||||||||||||||
Non-financial and other capital grants |
3 | (3 | ) | | | |||||||||||||||
Impairment and gains/(losses) on disposal of property, plant and equipment |
(14 | ) | 14 | | | |||||||||||||||
Other income and expenses |
(5 | ) | 5 | | | |||||||||||||||
Selling and distribution expenses |
| 1,078 | (B) | (392 | ) | (C)(E)(F) | 686 | |||||||||||||
General and administrative expenses |
| 120 | (B) | | 120 | |||||||||||||||
|
|
|||||||||||||||||||
Results from operating activities |
267 | (267 | ) | | | |||||||||||||||
|
|
|
|
|||||||||||||||||
Operating profit |
| 267 | 2 | 269 | ||||||||||||||||
Finance income |
3 | | | (3 | ) | |||||||||||||||
Finance expenses |
(2 | ) | 2 | | | |||||||||||||||
Finance costs |
| (2 | ) | | 2 | |||||||||||||||
Other non-operating expense |
| | 3 | (F) | 3 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Profit before tax |
268 | | (1 | ) | 267 | |||||||||||||||
Income tax expense/(income) |
(77 | ) | | | 77 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net profit |
191 | (191 | ) | | | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Profit for the year |
| | | 191 | | (1 | ) | | 190 | |||||||||||
|
|
|
|
|
|
(A) | Olives historical audited consolidated income statement presented in accordance with IFRS IASB has been adjusted to conform to Oranges financial statement presentation. |
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(B) | Adjustments reflect the reclassification of income statement line items presented in Olives historical audited consolidated financial statements by nature to align to Oranges income statement presentation by function. The adjustments to reclassify various income statement line items to cost of sales, selling and distribution expense and general and administrative expense to align with Oranges income statement presentation were determined by identifying the function of the expense included in the historical audited consolidated income statement of Olive by nature. The reclassifications are as follows (in millions): |
For the year ended 31 December 2015 |
Total Olive Historical IFRS (as reported) |
Reclassified to: | ||||||||||||||
Cost of sales | Selling and distribution expense |
General and administrative expense |
||||||||||||||
Changes in inventories of finished goods and work in progress |
| (14 | ) | | 14 | | | | | |||||||
Own work capitalised |
3 | | | (3 | ) | |||||||||||
Supplies |
(1,186 | ) | 1,173 | 13 | | |||||||||||
Other operating income |
30 | | (27 | ) | (3 | ) | ||||||||||
Personnel expenses |
(336 | ) | 97 | 204 | 35 | |||||||||||
Other operating expenses |
(1,041 | ) | 106 | 857 | 78 | |||||||||||
Amortization and depreciation |
(93 | ) | 65 | 15 | 13 | |||||||||||
Non-financial and other capital grants |
3 | | (3 | ) | | |||||||||||
Impairment and gains/(losses) on disposal of property, plant and equipment |
(14 | ) | | 14 | | |||||||||||
Other income and expenses |
(5 | ) | | 5 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
| (2,653 | ) | | 1,455 | | 1,078 | | 120 | |||||||
|
|
|
|
|
|
|
|
(C) | Customer Marketing Programs Reclassification - Olive historically presents certain consideration given to customers as costs incurred. As described within Note 9, the costs of such programs are included as a reduction in net sales under Orange accounting policies. The accounting policy alignment adjustment reflects the reclassification of 29 million of cost of sales and 411 million of selling and distribution expense to net sales for a total reduction of 440 million. |
(D) | Depreciation expense - Adjustment reflects an increase to cost of sales of 1 million for the year ended 31 December 2015 as a result of aligning depreciation methods from the declining balance to the straight-line method for certain items of machinery and equipment. |
(E) | Reimbursements from TCCC - Olive historically presents certain marketing reimbursements received from TCCC as other operating income. As described within Note 9, payments from TCCC for such services are included as a reduction to cost of sales. The accounting policy alignment adjustment reflects the reclassification of 22 million related to the marketing reimbursements received from TCCC from selling and distribution expense to cost of sales for the year ended 31 December 2015. |
(F) | Other non-operating expense (income) - Adjustment reflects the reclassification of 3 million of non-financial capital grants and other income and expenses from selling and distribution expense to other non-operating expense (income) for the year ended 31 December 2015. |
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NOTE 7 BLACKS RECLASSIFIED AND ADJUSTED INCOME STATEMENT
The historical audited consolidated income statement of Black has been adjusted to (1) align with the presentation format to be adopted by Orange, (2) reflect Blacks historical audited consolidated income statement on a basis consistent with the accounting policies to be adopted by Orange under IFRS EU and (3) translate from U.S. Dollars to Euros, which will be the presentation currency of Orange. The order of the line items in the table below presents Blacks historical audited consolidated income statement prepared in accordance with U.S. GAAP, which differs from the order of line items of Oranges unaudited pro forma condensed combined income statement under IFRS EU. The reconciliation is as follows (which is unaudited, in millions):
Blacks U.S. GAAP Income Statement Line Items |
For the year ended 31 December 2015 (Audited) USD ($) |
Line
Item Reclassifications Under Oranges Presentation(B) USD ($) |
IFRS EU Accounting Adjustments and Reclassifications USD ($) |
Blacks IFRS EU Reclassified and Adjusted Income Statement USD ($) |
Blacks IFRS EU Reclassified and Adjusted Income Statement(A) EUR () |
|||||||||||||||||
Net operating revenues |
$ | 2,421 | $ | (2,421 | ) | $ | | $ | | | | |||||||||||
Net sales |
| 2,421 | | 2,421 | 2,181 | |||||||||||||||||
Cost of goods sold |
1,396 | (1,396 | ) | | | | ||||||||||||||||
Cost of sales |
| 1,396 | (5 | ) | (C) | 1,391 | 1,253 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Gross profit |
1,025 | | 5 | 1,030 | 928 | |||||||||||||||||
Selling, general and administrative expenses |
1,161 | (1,161 | ) | | | | ||||||||||||||||
Selling and distribution expenses |
| 599 | 1 | (C) | 600 | 540 | ||||||||||||||||
General and administrative expenses |
| 562 | 3 | (D)(E) | 565 | 509 | ||||||||||||||||
|
|
|||||||||||||||||||||
Operating income (loss) |
(136 | ) | 136 | | | | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Operating profit (loss) |
| (136 | ) | 1 | (135 | ) | (121 | ) | ||||||||||||||
Interest expense |
3 | (3 | ) | | | | ||||||||||||||||
Finance costs |
| 3 | 5 | (F) | 8 | 7 | ||||||||||||||||
Other income (loss) net |
(3 | ) | 3 | | | | ||||||||||||||||
Other nonoperating expense |
| 3 | | 3 | 3 | |||||||||||||||||
|
|
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Income (loss) before income taxes |
(142 | ) | 142 | | | | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
Profit (loss) before income tax |
| (142 | ) | (4 | ) | (146 | ) | (131 | ) | |||||||||||||
Income tax expense (benefit) |
(3 | ) | | (1 | ) | (G) | (4 | ) | (4 | ) | ||||||||||||
|
|
|||||||||||||||||||||
Consolidated net income (loss) |
(139 | ) | 139 | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Profit (loss) for the year |
$ | | $ | (139 | ) | $ | (3 | ) | $ | (142 | ) | | (127 | ) | ||||||||
|
|
|
|
|
|
|
|
(A) | Conversion rates The historical financial information of Black has been translated from U.S. Dollars to Euros at the average exchange rate for the year ended 31 December 2015 of 0.9007. |
(B) | Certain line items of Blacks historical audited consolidated income statement prepared under U.S. GAAP have been reclassified to be presented in conformity with Oranges financial statement presentation. |
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The following adjustments represent the differences identified between U.S. GAAP and IFRS EU to present Blacks historical audited consolidated income statement under IFRS EU:
(C) | Depreciation expense - Adjustment reflects a decrease to cost of sales of US$5 million and an increase to selling and delivery expenses of US$1 million based on adjustments to Blacks PP&E as described in Note 3 above. |
(D) | Pensions - Adjustment reflects an increase to general and administrative expense of US$4 million related to additional net periodic benefit cost as a result of the defined benefit pension plan asset ceiling for the year ended 31 December 2015. |
(E) | Provisions - Adjustment reflects a decrease to general and administrative expense of US$1 million related to a higher interest rate used to discount expected future payments of provisions under IFRS EU as of 31 December 2015. |
(F) | Non-interest bearing loan - Adjustment reflects an increase to finance costs of US$5 million resulting from the application of the effective interest rate method on Blacks non-interest bearing loan from a wholly owned subsidiary of TCCC. |
(G) | Deferred tax benefit - Adjustment reflects a decrease of US$1 million to income tax expense resulting from the limitations to valuation allowances and certain loss carry forwards under IFRS EU. |
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NOTE 8 ACQUISITION ACCOUNTING INCOME STATEMENT
The acquisition accounting adjustments included in the unaudited pro forma condensed combined income statement related to the Transactions are as follows:
(A) | Fair value adjustment to PP&E The preliminary fair value of PP&E acquired in the Combination results in a decrease to depreciation expense. The depreciation expense has been estimated based upon the nature of activities associated with the PP&E acquired, and the pro forma adjustment to depreciation expense is as follows (in millions, except useful life data): |
Estimated weighted average useful life (years) |
Preliminary fair value |
Depreciation expense for the year ended 31 December 2015 |
||||||||
PP&E |
16-18 | | 2,448 | | 151 | |||||
Less: Olive historical depreciation expense |
(85 | ) | ||||||||
Less: Black historical depreciation expense |
(107 | ) | ||||||||
|
|
|||||||||
Pro forma adjustment to depreciation expense |
| (41 | ) | |||||||
|
|
The total change in depreciation expense is allocated to the relevant income statement line items and is based on Whites historical depreciation classification under IFRS EU, resulting in decreases to cost of sales, selling and distribution expenses and general and administrative expenses of 17 million, 17 million and 7 million, respectively, for the year ended 31 December 2015.
(B) | Fair value adjustment to inventories Adjustment reflects an increase to cost of sales of 72 million as a result of the preliminary increase in the fair value of inventory acquired in the Combination, which will not have a continuing impact on the income statement of Orange. |
(C) | Combination-related expenses Adjustment reflects an increase of 119 million for the additional Combination-related expenses expected to be incurred by White, Olive and Black of 85 million, 31 million and 3 million, respectively. In addition to the 119 million, for the year ended 31 December 2015, White, Olive and Black incurred Combination-related expenses of 41 million, 17 million and 2 million, respectively, as reflected in the historical audited consolidated income statements. These Combination-related expenses will not have a continuing impact on the income statement of Orange. |
(D) | Finance costs As discussed in Note 4(G), Orange will finance the Cash Consideration using a combination of cash on hand and the Debt Financing. |
26
The pro forma adjustment to finance costs reflects the additional finance costs that would have been incurred during the historical period presented assuming the Debt Financing had occurred as of 1 January 2015. The pro forma adjustment to finance costs for the Debt Financing is as follows (in millions, except interest rate):
Composition of new borrowings and related finance costs |
Weighted Average Interest Rate |
Borrowings | Finance costs for the year ended 31 December 2015 |
|||||||
Orange Debt Financing |
1.0% | | 3,200 | | 32 | |||||
Amortisation of new debt issuance costs |
20 | |||||||||
|
|
|||||||||
Total interest on new Debt Financing |
52 | |||||||||
Less: Black historical finance costs(1) |
(6 | ) | ||||||||
|
|
|||||||||
Pro forma adjustment to finance costs |
| 46 | ||||||||
|
|
(1) | Blacks historical finance costs excludes 1 million of finance costs related to capital lease obligations, which will be assumed by Orange. |
(E) | Income tax expense (benefit) Adjustment reflects the income tax impact of the pro forma adjustments made to the unaudited pro forma condensed combined income statement, whereby Orange estimated the tax rate at 28.5%, which approximates a blended statutory tax rate, based on revenue mix, for the tax jurisdictions where the certain assets acquired and liabilities assumed reside. The effective tax rate of Orange could be materially different from the rate presented in this Unaudited Pro Forma Condensed Combined Financial Information. |
27
NOTE 9 - SIGNIFICANT ACCOUNTING POLICIES TO BE ADOPTED BY ORANGE
The following is a summary of the significant accounting policies to be adopted by Orange in preparing its consolidated financial statements for the year ending 31 December 2016:
Basis of Presentation and Consolidation
The consolidated financial statements of Orange are prepared in accordance with IFRS EU.
Oranges consolidated financial statements include all entities that Orange controls. Orange controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
All significant intercompany accounts and transactions are eliminated in consolidation. Oranges fiscal year ends on 31 December.
Use of Estimates
The consolidated financial statements include estimates and assumptions made by management that affect reported amounts. Actual results could differ materially from those estimates.
Net Sales
Orange recognises net sales when all of the following conditions are met: (1) the amount of revenue can be reliably measured; (2) it is probable that future economic benefits will flow to Orange; (3) the significant risks and rewards of ownership of the products have passed to the buyer, usually on delivery of the goods; (4) Orange retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold and (5) the costs incurred or to be incurred in respect of the transaction can be measured reliably. For product sales, these conditions generally occur when the products are delivered to or picked up by customers and, in the case of full-service vending, when cash is collected from vending machines. Revenue is stated net of sales discounts and marketing and promotional incentives paid to customers.
Orange records value added taxes (VAT) on a net basis (i.e., excluded from net sales) and records excise taxes and taxes on packaging on a gross basis (i.e., included in net sales).
Customer Marketing Programs and Sales Incentives
Orange participates in various programs and arrangements with customers designed to increase the sale of its products. Among these programs are arrangements under which allowances can be earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programs.
Under customer programs and arrangements that require sales incentives to be paid in advance, Orange amortises the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, Orange accrues the estimated amount to be paid based on the programs contractual terms, expected customer performance and/or estimated sales volume.
28
Franchisor Support Arrangements
Orange participates in various funding programs supported by TCCC or other franchisors or licensors (as applicable) whereby Orange receives funds from its franchisors or licensors (as applicable) to support customer marketing programs or other arrangements that promote the sale of the franchisors or licensors (as applicable) products. Under these programs, certain costs incurred by Orange are reimbursed by the applicable franchisor or licensor. Payments from TCCC and other franchisors or licensors (as applicable) for marketing programs and other similar arrangements to promote the sale of products are classified as a reduction in cost of sales, unless Orange can overcome the presumption that the payment is a reduction in the price of the franchisors or licensors (as applicable) products. Payments for marketing programs are recognised as product is sold.
Shipping and Handling Costs
Shipping and handling costs related to the movement of finished goods from Oranges manufacturing locations to its sales distribution centres are included in cost of sales on the consolidated income statement. Shipping and handling costs incurred to move finished goods from Oranges sales distribution centres to customer locations are included in selling and distribution expenses on the consolidated income statement. Customers do not pay Orange separately for these shipping and handling costs.
Share-Based Compensation
Orange recognises compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest. For awards not subject to performance conditions, this expense is generally recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award. If an award is subject to performance conditions, Orange recognises expense when it becomes probable that the performance related to the share-based payment awards is recorded in general and administrative expenses. Orange determines the grant-date fair value of its share-based payment awards for each separately vesting tranche using a Black-Scholes model, unless the awards are subject to market conditions, in which case Orange uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved.
Earnings Per Share
Orange calculates its basic earnings per share by dividing profit for the year by the weighted average number of shares and participating securities outstanding during the period. Oranges diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of diluted earnings per share. Share-based payment awards that are contingently issuable upon the achievement of a specified market or performance condition are included in Oranges diluted earnings per share calculation in the period in which the condition is satisfied.
Cash and Cash Equivalents
Oranges cash and cash equivalents include cash and short-term, highly liquid investments with maturity dates of less than three months when acquired that are readily convertible to cash and which are subject to an insignificant risk of changes in value. Orange continually assesses the counterparties and instruments used to hold cash and cash equivalents, with a focus on preservation of capital and liquidity. Bank overdrafts are classified as current portion of borrowings in the consolidated balance sheet.
29
Trade Accounts Receivable
Orange sells its products to retailers, wholesalers and other customers and extends credit, generally without requiring collateral, based on its evaluation of the customers financial condition. While Orange has a concentration of credit risk in the retail sector, management believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, their type, geographic location, size and beverage channel. Collections of Oranges receivables are dependent on each individual customers financial condition and sales adjustments granted after the balance sheet date.
Orange carries its trade accounts receivable at net realisable value. Trade accounts receivable terms vary but typically have terms from 30 to 60 days and do not bear interest. Recoverability of trade accounts receivable is reviewed on an ongoing basis. The carrying amount of trade accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Orange also carries credit insurance on a portion of its accounts receivable balance.
Inventories
Orange values its inventories at the lower of cost or net realisable value, and cost is determined using the first-in, first-out (FIFO) method. Inventories consist of raw materials and supplies (primarily including concentrate, other ingredients and packaging) and finished goods, which also include direct labour and indirect production and overhead costs. Cost includes all costs incurred to bring inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to complete and sell the inventory.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Major property additions, replacements and betterments are capitalised, whilst maintenance and repairs that do not extend the useful life of an asset or add new functionality are expensed as incurred. Land is not depreciated, as it is considered to have an indefinite life. For all other property, plant and equipment, depreciation is recorded using the straight-line method over their respective estimated useful lives.
Gains or losses arising on the disposal or retirement of an asset are determined as the difference between the carrying amount of the asset and any proceeds from its sale. Major refurbishment costs are capitalised as part of total acquisition cost. Routine maintenance and repair costs are expensed as incurred. Leasehold improvements are amortised using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement.
Orange assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, Orange performs an impairment test to estimate the potential loss of value that may reduce the recoverable amount of the asset to below its carrying amount. Useful lives and residual amounts are reviewed annually and adjustments are made prospectively as required.
For property, plant and equipment, Orange assesses annually whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, a previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment loss was recognised, and only up to the recoverable amount or the original carrying amount net of depreciation that would have been incurred had no impairment losses been recognised.
30
Intangible Assets
Intangible assets are measured initially at cost of acquisition or production. After initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment.
Orange capitalises certain development costs associated with internally developed software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project. Capitalised costs for software integral to related hardware is included within property, plant and equipment. When capitalised software is not integral to related hardware it is treated as an intangible asset. Costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as incurred.
Franchise agreements contain performance requirements and convey to us the rights to distribute and sell products of the licensor within specified territories. Franchise intangible assets are assigned indefinite lives and are therefore not amortised, but are tested for impairment at the cash-generating unit level annually or more frequently if events or changes in circumstances indicate that it might be impaired. For definite lived intangible assets, amortization is recorded using the straight-line method over their respective estimated useful lives. Definite lived intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
For intangible assets, Orange assesses annually whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, a previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment loss was recognised, and only up to the recoverable amount or the original carrying amount net of depreciation that would have been incurred had no impairment losses been recognised.
Business Combinations and Goodwill
Business acquisitions are accounted for using the acquisition method at the acquisition date, which is the date on which control is transferred to Orange.
The cost of acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business acquisition, Orange measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition related costs are expensed as incurred.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in the consolidated income statement. Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Impairment losses relating to goodwill cannot be reversed in future periods.
Provisions
Provisions are recognised when Orange has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When some or all of a provision is expected to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated income statement.
31
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Taxes
Income tax is determined by using the comprehensive balance sheet method of accounting for income taxes which recognises current and future tax consequences of transactions and events, and future tax consequences of future recovery or settlement of the carrying amount of Orange and its subsidiaries assets and liabilities.
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be paid to or recovered from taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where Orange and/or its subsidiaries operate.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is determined by identifying the temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except:
| When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or |
| In respect of taxable temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled by Orange and/or its subsidiaries and it is probable that the temporary differences will not reverse in the foreseeable future. |
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
| When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or |
| In respect of deductible temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. |
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
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Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Foreign Currency Translation
For the unaudited pro forma financial statements as presented above, the IFRS EU reclassified and adjusted balance sheets and income statements of White and Black are translated from U.S. Dollars into Oranges Euro presentation currency using currency exchange rates in effect at the end of reporting period and at average annual currency exchange rates, respectively.
The foreign currency translation accounting policy to be adopted by Orange in preparing its financial statements for the year ending 31 December 2016 is as follows: The assets and liabilities of Oranges foreign operations are translated from local currencies into Oranges Euro reporting currency at currency exchange rates in effect at the end of each reporting period. Gains and losses from the translation of Oranges results are included in reserves in the consolidated balance sheet. Revenues and expenses are translated at average monthly currency exchange rates. Gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in other nonoperating expense (income) on the consolidated income statement.
Fair Value Measurements
The fair values of Oranges cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature. The fair values of Oranges debt instruments are estimated based on debt with similar maturities and credit quality and current market interest rates. The estimated fair values of Oranges derivative instruments are calculated based on market rates to settle the instruments. These values represent the estimated amounts Orange would receive upon sale or pay upon transfer, taking into consideration current market rates and credit risk.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Level 1 - Quoted prices in active markets for identical assets or liabilities; |
| Level 2 - Observable inputs other than quoted prices included in Level 1. Orange values assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data; or |
| Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
Derivative Financial Instruments
Orange utilizes derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations. The primary risks that Orange seeks to manage through the use of derivative financial instruments
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include currency exchange risk, commodity price risk and interest rate risk. All derivative financial instruments are recorded at fair value on the consolidated balance sheets. Orange does not use derivative financial instruments for trading or speculative purposes. While certain of Oranges derivative instruments are designated as hedging instruments, it also enters into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments (referred to as an economic hedge or non-designated hedges). Changes in the fair value of these non-designated hedging instruments are recognised in the expense line item on the consolidated income statement that is consistent with the nature of the hedged risk. Orange is exposed to counterparty credit risk on all of its derivative financial instruments. Orange has established and maintained strict counterparty credit guidelines and entered into hedges only with financial institutions that are investment grade or better. Orange continuously monitors counterparty credit risk and utilizes numerous counterparties to minimize its exposure to potential defaults. Orange does not require collateral under these agreements.
Employee Benefit Plans
Orange operates a number of defined benefit and defined contribution pension plans in its territories. The defined benefit plans are made up of both funded and unfunded pension plans. The assets of funded plans are generally held in separate trustee administered funds and are financed by payments from employees and/or Orange. The cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. All remeasurements of Oranges defined benefit obligation such as actuarial gains and losses and return on plan assets are recognised directly in reserves. Orange presents service costs within cost of sales, selling and distribution expenses and general and administrative expenses in the consolidated income statement. Prior service costs are recognised immediately within cost of sales, selling and distribution expenses and general and administrative expenses in the consolidated income statement. Net interest cost is presented within finance costs or finance income, as applicable, in the consolidated income statement. The projected benefit obligation recognised in the consolidated balance sheet represents the present value of the defined benefit obligation as of the end of each reporting period.
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