===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 27, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-09300
COCA-COLA ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0503352
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Windy Ridge Parkway, Suite 700
Atlanta, Georgia 30339
(Address of principal executive offices) (Zip Code)
770-989-3000
(Registrant's telephone number, including area code)
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock.
125,359,532 Shares of $1 Par Value Common Stock as of November 4, 1996
============================================================================
<PAGE>
COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 27, 1996
INDEX
Page
----
Part I - Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters ended September 27, 1996 and
September 29, 1995................................... 1
Condensed Consolidated Statements of Operations
for the Nine Months ended September 27, 1996
and September 29, 1995............................... 2
Condensed Consolidated Balance Sheets as of
September 27, 1996 and December 31, 1995............. 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 27, 1996
and September 29, 1995............................... 5
Notes to Condensed Consolidated Financial Statements... 6
Part I - Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................ 15
Part II - Item 1. Legal Proceedings......................... 23
Part II - Item 6. Exhibits and Reports on Form 8-K.......... 23
Signatures.................................................. 25
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Quarter ended
-----------------------------
September 27, September 29,
1996 1995
------------- -------------
Net Operating Revenues.................. $ 2,187 $ 1,841
Cost of sales........................... 1,363 1,183
------- -------
Gross Profit............................ 824 658
Selling, general and administrative
expenses.............................. 667 513
------- -------
Operating Income........................ 157 145
Interest expense, net................... 90 82
Other nonoperating deductions, net...... 1 -
------- -------
Income Before Income Taxes.............. 66 63
Income tax expense...................... 27 27
------- -------
Net Income.............................. 39 36
Preferred stock dividends............... 2 1
------- -------
Net Income Applicable to Common Share
Owners................................ $ 37 $ 35
======= =======
Average Common Shares Outstanding....... 124 129
======= =======
Net Income Per Share Applicable to
Common Share Owners................... $ 0.29 $ 0.27
======= =======
Dividends Per Share Applicable to
Common Share Owners................... $ 0.025 $0.0125
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 1 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Nine months ended
-------------------------------
September 27, September 29,
1996 1995
------------- -------------
Net Operating Revenues.................. $ 5,803 $ 5,130
Cost of sales........................... 3,586 3,237
------- -------
Gross Profit............................ 2,217 1,893
Selling, general and administrative
expenses.............................. 1,784 1,505
------- -------
Operating Income........................ 433 388
Interest expense, net................... 253 244
Other nonoperating deductions, net...... 1 3
Gain from sale of interest in bottling
operation............................. - 9
------- -------
Income Before Income Taxes.............. 179 150
Income tax expense...................... 74 65
------- -------
Net Income.............................. 105 85
Preferred stock dividends............... 6 2
------- -------
Net Income Applicable to Common Share
Owners................................ $ 99 $ 83
======= =======
Average Common Shares Outstanding....... 125 129
======= =======
Net Income Per Share Applicable to
Common Share Owners................... $ 0.79 $ 0.64
======= =======
Dividends Per Share Applicable to
Common Share Owners................... $ 0.075 $0.0375
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
September 27, December 31,
ASSETS 1996 1995
------------- ------------
(Unaudited)
Current
Cash and cash equivalents, at cost... $ 26 $ 8
Trade accounts receivable, less
reserves of $42 and $33,
respectively....................... 730 510
Inventories:
Finished goods..................... 270 151
Raw materials and supplies......... 104 74
------- -------
374 225
Current deferred income tax assets... 130 130
Prepaid expenses and other current
assets............................. 164 109
------- -------
Total Current Assets................. 1,424 982
Property, Plant and Equipment
Land................................. 208 182
Buildings and improvements........... 862 700
Machinery and equipment.............. 3,448 2,774
------- -------
4,518 3,656
Less allowances for depreciation..... 1,812 1,587
------- -------
2,706 2,069
Construction in progress............. 108 89
------- -------
2,814 2,158
Franchise and Other Noncurrent Assets.. 7,139 5,924
------- -------
$11,377 $ 9,064
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
September 27, December 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1996 1995
------------- ------------
(Unaudited)
Current
Accounts payable and accrued
expenses............................ $ 1,299 $ 796
Current maturities of long-term debt.. 782 63
------- -------
Total Current Liabilities............. 2,081 859
Long-Term Debt.......................... 4,645 4,138
Retirement and Insurance Programs
and Other Long-Term Obligations....... 664 600
Deferred Income Taxes................... 2,460 2,032
Share-Owners' Equity
Preferred Stock....................... 132 30
Common stock, $1 par value --
Authorized - 500,000,000 shares;
Issued - 146,659,581 and 145,094,936
shares, respectively................ 147 145
Paid-in capital....................... 1,408 1,346
Reinvested earnings................... 233 144
Cumulative effect of currency
translations........................ 30 38
Common stock in treasury, at cost
(21,343,215 and 16,543,458 shares,
respectively)...................... (423) (268)
------- -------
1,527 1,435
------- -------
$11,377 $ 9,064
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Nine months ended
-----------------------------
September 27, September 29,
1996 1995
------------- -------------
Cash Flows From Operating Activities
Net income............................... $ 105 $ 85
Adjustments to derive net cash provided
by operating activities:
Depreciation...................... 279 235
Amortization...................... 173 140
Deferred income tax provision..... 5 40
Gain from sale of ownership
interest in bottling operation... - (9)
Net changes in current assets and
current liabilities............. 113 (56)
Additional nonoperating cash
flows........................... 26 5
------ ------
Cash derived from operating activities... 701 440
Cash Flows From Investing Activities
Capital expenditures..................... (456) (397)
Fixed asset dispositions................. 15 11
Cash investments in bottling and other
businesses, net........................ (681) (148)
Sale of ownership interest in bottling
operations............................. - 17
Additional investing activities.......... - 3
------ ------
Net cash used in investing activities.... (1,122) (514)
Cash Flows From Financing Activities
Issuance of debt......................... 768 368
Settlements of debt obligations.......... (141) (276)
Cash dividend payments on common and
preferred stock........................ (9) (4)
Exercise of employee stock options....... 7 8
Stock purchases for treasury............. (183) (37)
Additional financing activities.......... (4) (7)
------ ------
Net cash derived from financing activities 439 52
------ ------
Net Increase (Decrease) in Cash and
Cash Equivalents....................... 18 (22)
Cash and cash equivalents at beginning
of period............................ 8 22
------ ------
Cash and Cash Equivalents at End of Period $ 26 $ -
====== ======
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles (GAAP) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included.
For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
Note B - Seasonality of Business
Operating results for the third quarter and nine months ended
September 27, 1996 are not indicative of results that may be expected
for the year ended December 31, 1996 primarily due to the seasonality
of the Company's business. This seasonality results from a
combination of higher unit sales of the Company's products in the
second and third quarters versus the first and fourth quarters of the
year and the methods of accounting for costs such as depreciation,
amortization, and interest expense which are not significantly
impacted by the seasonality of the business. The Company's recent and
pending acquisitions in Europe accentuate this further because of a
more pronounced unit sales seasonality.
Note C - Acquisitions and Divestitures
Upon acquisition of franchised bottling operations, the Company
obtains the right to market, distribute, and produce beverage products
of franchisers, primarily The Coca-Cola Company, in specified
territories. All business combinations have been accounted for as
purchases and, accordingly, the results of operations of acquired
companies are included in the Company's consolidated statements of
operations from the date of acquisition. In addition, the assets and
liabilities of acquired companies are included in the Company's
consolidated balance sheets at their estimated fair values on the date
of acquisition. The Company's acquisition activity for 1996 and 1995
is summarized below.
Completed Transactions
On August 12, 1996, the Company acquired Coca-Cola Bottling Company
West, Inc. and a related company, Grand Forks Coca-Cola Bottling Co.,
(collectively, "Coke West") for a transaction value (purchase price
and assumed debt) of approximately $158 million. Coke West operates
franchise territories in portions of Montana, Wyoming, North Dakota,
South Dakota, and Minnesota.
- 6 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note C - Acquisitions and Divestitures (continued)
On July 26, 1996, the Company acquired The Coca-Cola Company's
bottling and canning operations in France and Belgium for a
transaction value (purchase price and assumed debt) of approximately
$915 million. These franchise territories encompass most of France
and all of Belgium. The entities acquired were Coca-Cola Beverages
S.A. (French bottler), Coca-Cola Production S.A. (French canner), and
S.A. Beverage Sales Holding N.V. (owner of the Belgian bottler).
In February 1996, the Company acquired all issued and outstanding
shares of stock of Ouachita Coca-Cola Bottling Company, Inc.
("Ouachita") for a transaction value (purchase price and issued and
assumed debt) of approximately $313 million. The purchase price was
paid through a combination of cash, 26,311 shares of the Company's
common stock from treasury, and two types of convertible preferred
stock (refer to Note E) as selected by individual Ouachita share
owners. Ouachita operates in portions of Arkansas, Louisiana, and
Mississippi.
In January 1995, the Company acquired all the issued and outstanding
shares of stock of Wichita Coca-Cola Bottling Company, Inc.
("Wichita") for a purchase price of $157 million in cash. Also in
January 1995, the Company sold its 50% ownership interest in The Coca-
Cola Bottling Company of the Mid South ("Mid South") to Ouachita for
$17 million. This sale resulted in a pre-tax gain of $9 million ($0.04
per common share after taxes). The Company's interest in Mid South
was reacquired through the Ouachita acquisition in February 1996.
The following table summarizes unaudited pro forma financial
information of the Company as if the completed acquisitions discussed
above were effective January 1, 1995. The pro forma financial
information reflects adjustments for: (i) the repayment of assumed
debt, (ii) financing of the transactions at a rate of 7.5%, (iii)
amortization of the value of the acquired franchise assets over 40
years, (iv) contractual changes to the business of certain of the
acquired companies, and (v) the income tax effect of the foregoing
(in millions except per share data):
Nine months ended
----------------------------
September 27, September 29,
1996 1995
------------- -------------
Net operating revenues............ $6,658 $6,315
====== ======
Net income applicable to common
share owners.................... $ 96 $ 85
====== ======
Net income per common share....... $ 0.77 $ 0.66
====== ======
- 7 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note C - Acquisitions and Divestitures (continued)
Pending Transaction
On August 9, 1996, the Company signed an agreement to purchase
Coca-Cola & Schweppes Beverages Limited ("CCSB") from The Coca-Cola
Company and Cadbury Schweppes plc for an aggregate transaction value
(purchase price, assumed debt, and other long-term obligations) of
approximately 1.2 billion British pounds. CCSB produces and
distributes beverage products of The Coca-Cola Company and Cadbury
Schweppes plc in England, Scotland, and Wales. CCSB will enter into
long-term contracts to continue to produce and distribute products of
both The Coca-Cola Company and Cadbury Schweppes plc in the acquired
territories.
On September 13, 1996, the European Commission (the "Commission")
announced it was opening a second phase investigation of the CCSB
acquisition under merger regulations of the common market. The
Commission has until January 29, 1997 to make a final decision. The
Company believes that the Commission's Merger Task Force will issue
a Statement of Objections to the proposed acquisition before the end
of November 1996, to which the Company and the other parties to the
proposed acquisition will respond. The Statement of Objections could,
under some circumstances, result in modifications to the terms of the
transaction to resolve issues raised by the staff, but the Company is
unable to predict what effect they may have upon the proposed
transaction. However, the Company remains confident that the
transaction will ultimately be approved and completed.
The preceding completed and pending acquisitions were, or will be,
initially financed through short-term bank borrowings and commercial
paper. The Company refinances portions of these short-term borrowings
on a long-term basis as market opportunities arise. With respect to
international acquisitions, the Company has financed, or intends to
finance, the acquisitions in local currency (or alternatively to
execute currency swaps) to eliminate exposure to fluctuating
currencies on the Company's acquisition cost.
- 8 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note D - Long-Term Debt
Long-term debt, including current maturities, consists of the following
(in millions):
September 27, December 31,
1996 1995
------------- ------------
Commercial Paper:
Amounts designated under foreign
currency swaps.................. $ 428 $ -
Other commercial paper............ 1,117 777
------- -------
1,545 777
Foreign denominated bank loans...... 423 -
6.50% Notes, due 1997............... 300 300
7.00% Notes, due 1999............... 200 200
7.875% Notes, due 2002.............. 500 500
8.00% Notes, due 2005............... 250 250
8.50% Debentures, due 2012.......... 250 250
8.75% Debentures, due 2017.......... 142 154
8.35% Zero Coupon Notes, due 2020
(net of unamortized discount of
$1,655)........................... 278 261
8.00% and 8.50% Debentures, due
2022.............................. 1,000 1,000
6.75% Debentures, due 2023.......... 250 250
Additional debt..................... 289 259
------- -------
$ 5,427 $ 4,201
======= =======
The Company's commercial paper program is supported by a $1 billion
revolving bank credit agreement maturing in December 1999 and $1
billion of short-term credit facilities. An aggregate $1.5 billion of
commercial paper supported by these agreements was outstanding at
September 27, 1996. The weighted average interest rate of borrowings
under the commercial paper program at September 27, 1996 was 5.5% per
annum.
The Company has swapped approximately $428 million of its commercial
paper borrowings to French francs and Belgian francs. The currency
swaps exchanged U.S. dollars into 1.8 million French francs and 2.1
billion Belgian francs. The Company intends to renew these 30-day
swap agreements as they expire.
- 9 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note D - Long-Term Debt (continued)
The Company's foreign denominated bank loans represent credit
facilities aggregating $627 million available with French and Belgian
banks. Loans under these facilities are for renewable periods not to
exceed 12 months. The weighted average interest rate of borrowings
under these credit facilities at September 27, 1996 was 3.6%.
In October 1996, the Company issued $300 million of 7% debentures due
October 1, 2026 and $300 million of 6.7% debentures due October 15,
2036. Holders of the debentures may require the Company to repurchase
all or a portion of the debentures after ten and seven years,
respectively. The funds from these debentures were used to refinance
commercial paper. After these debt issues, the Company has available
for issuance an additional $921 million in debt securities under a
shelf registration statement with the Securities and Exchange
Commission.
Aggregate maturities of long-term debt for the five twelve-month
periods subsequent to September 27, 1996 are as follows: 1997 - $782
million; 1998 - $310 million; 1999 - $7 million; 2000 - $1,206
million; and 2001 - $3 million.
Note E - Preferred Stock
The Company issued 929,635 of 1,110,000 authorized shares of voting
convertible preferred stock, Ouachita Series A ("Series A"), and
issued 95,955 of 350,000 authorized shares of voting convertible
preferred stock, Ouachita Series B ("Series B"), to facilitate the
acquisition of Ouachita in February 1996. Series A and Series B each
have stated values of $150 per share and convert to common stock no
later than two years from date of issuance under specific conversion
ratios applicable independently to each series. Series A pays
quarterly dividends equaling 4% annually. Series B does not pay
dividends. During the third quarter of 1996, 54,095 shares of Series
A preferred stock were converted into 236,382 shares of common stock.
During the second and third quarters of 1996, 95,938 shares of Series
B preferred stock were converted into 555,027 shares of common stock.
The increase to paid-in capital resulting from the difference between
the recorded value of the converted preferred stock and the cost of
treasury stock issued was approximately $10 million.
The Company issued 1,000,000 shares of nonvoting convertible preferred
stock with a stated value of $35 per share to facilitate the 1993
acquisition of the Coca-Cola Bottling Company of Northeast Arkansas,
Inc. During the third quarter of 1996, all outstanding shares of this
preferred stock issue were converted into 1,000,000 shares of common
stock. The increase to paid-in capital resulting from the difference
between the recorded value of the converted preferred stock and the
cost of treasury stock issued was approximately $14 million.
- 10 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note F - Income Taxes
The Company's effective tax rates for the first nine months of 1996
and 1995 were 41% and 43%, respectively. The decrease in the 1996
effective tax rate in the third quarter, from 42% for the first six
months to 41% for the first nine months, primarily results from
lower income tax rates applicable to the combined French and
Belgian operations. A reconciliation of the income tax provision
at the statutory federal rate to the Company's actual income tax
provision follows (in millions):
Nine months ended
------------------------------
September 27, September 29,
1996 1995
------------- -------------
Statutory expense - 35%........... $ 62 $ 53
State expense, net of federal
benefit......................... 11 10
Foreign benefit................... (1) -
Other, net........................ 2 2
---- ----
$ 74 $ 65
==== ====
Note G - Stock Options and Other Stock Plans
An aggregate 152,728 and 479,645 shares of common stock were issued
during the third quarter and first nine months of 1996, respectively,
from the exercise of stock options under the Company's various stock
option plans.
The Company's 1996 stock option awards included performance-vested
options granted to certain senior executives and service-vested
options for other executives and management employees. All options
were granted at an exercise price equal to the fair market value on
grant date and expire ten years from the date of grant. Performance-
vested options vest solely upon attainment of certain increases in the
Company's common stock within five years from the date of grant. At
September 27, 1996, an aggregate 256,720 shares are exercisable under
performance-vested option awards. Service-vested options vest ratably
over a three-year period. An aggregate 1,283,600 performance-vested
options and 636,700 service-vested options with an option price of
$27.06 were granted in the first quarter of 1996.
- 11 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note G - Stock Options and Other Stock Plans (continued)
In the first quarter of 1996, the Company made grants of 1,085,000
shares of common stock to certain key senior executives of the Company
under the 1996 restricted stock awards program. The 1996 stock awards
vest only upon attainment of stated increases in the market price of
the Company's common stock within five years from the date of grant
and continued employment for a period of up to five years after the
performance criteria is met. In third-quarter 1996, the stock
performance criteria for 217,000 shares awarded under this grant was
achieved. These stock awards were multiple-year awards, therefore,
these executives will not receive restricted stock awards in 1997.
An aggregate 42,710 restricted shares, awarded under various
restricted stock award plans of the Company, were forfeited during the
first nine months of 1996 and returned to treasury stock.
Note H - Share Repurchase Program
The Company repurchased 6,578,300 shares of common stock during the
first nine months of 1996, completing its August 1994 10 million share
repurchase program. The aggregate cost of these repurchased shares
was $183 million. On April 11, 1996, the Board of Directors approved
an additional share repurchase program for up to 10 million shares of
the Company's common stock. There have been no repurchases under this
program.
Note I - Geographic Segment Information
The Company operates in principally one industry segment; the
marketing, distribution, and production of bottle and can beverage
products. On September 27, 1996, the Company operated in 41 states,
the District of Columbia, the U.S. Virgin Islands, and the Islands
of Tortola and Grand Cayman (collectively referred to as "Domestic"
territories), and the Netherlands, France, and Belgium (collectively
referred to as "European" territories).
- 12 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note I - Geographic Segment Information (continued)
Prior to the third quarter 1996 French and Belgian acquisition, the
Company's operations in geographic areas outside the United States
were not significant. There were no material amounts of sales or
transfers among geographic areas and no material amounts of United
States export sales. Selected information by geographic territory as
of and for the nine months ended September 27, 1996 follows (in
millions):
Domestic European(a) Combined
-------- ----------- --------
Net operating revenues $5,340 $ 463 $ 5,803
Operating income (b) $ 355 $ 78 $ 433
Identifiable assets $9,554(c) $1,823 $11,377
Capital expenditures $ 423 $ 33 $ 456
Depreciation and
amortization $ 418 $ 34 $ 452
(a) European information presented includes short periods for
entities acquired in 1996 and, therefore, is not indicative
of full year results.
(b) Domestic operating income is net of corporate expenses.
European operations have not been reduced by corporate overhead
allocations.
(c) Includes approximately $307 million of certain corporate
assets maintained for general purposes, principally cash and
cash equivalents, fixed assets, deferred taxes, and other
deferred costs.
Note J - Contingencies
The Company purchases substantially all of its PET (plastic) bottles
from manufacturing cooperatives and other entities involved in the
manufacture of plastic bottles. The Company has guaranteed payment of
up to $243 million of indebtedness owed by these manufacturing
cooperatives to third parties. At September 27, 1996, these
cooperatives had $157 million of indebtedness guaranteed by the
Company. The Company has also provided letters of credit principally
in connection with self-insurance programs aggregating $102 million.
The Company incurs costs for the required removal, replacement, or
modification of underground fuel storage tanks, along with any
required soil and groundwater remediation resulting from leaking
tanks. Ongoing environmental compliance costs, including routine
maintenance, monitoring, and similar costs, are not significant. The
Company also incurs costs on other environmental programs encompassing
materials discharge and waste water treatment. The Company believes
any amount it may be required to pay in excess of amounts provided for
these costs would not have a material adverse impact on its financial
position, cash flows, or results of operations.
- 13 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note J - Contingencies (continued)
The Company has been named as a potentially responsible party ("PRP")
for the costs of remediation of hazardous waste at certain federal and
state Superfund sites. The Company believes that any ultimate
Superfund liability under these PRP designations will not have a
material adverse effect on its financial position, cash flows, or
results of operations. At September 27, 1996, there were five federal
sites for which the Company's involvement or liability as a PRP was
unresolved. In addition, there were 17 other federal and six state
sites for which it has been concluded that the Company either had no
responsibility, the ultimate liability amounts would be less than
$100,000, or payments made to date by the Company would be sufficient
to satisfy all liability of the Company. Under current law, the
Company's liability for clean-up of Superfund sites may be joint
and several with other PRPs regardless of the extent of the Company's
use in relation to other users. As to any site where the Company
may be liable, the Company has determined that there are other PRPs
who are financially solvent as well, and that any hazardous waste
deposited by the Company is minimal when compared to amounts
deposited by financially solvent PRPs.
In the first quarter of 1996, the Company received a settlement
totaling $10 million ($0.05 per common share after taxes) from claims
against certain suppliers. The amount of the settlement award is
included as a reduction of cost of sales.
- 14 -
<PAGE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
BUSINESS STRATEGY
Summary
To ensure a continued focus on building share owner value, we have
clearly defined our objectives and strategies. Our primary operating
objective is to increase long-term operating cash flows through
profitable increases in sales volume. We plan to achieve our operating
objective through the continued implementation and execution of the
following strategies:
- Creating and executing innovative and superior marketing
programs at the local level.
- Balancing volume growth with improved margins and
sustainable increases in market share.
- Developing profitable business partnerships with our
customers.
- Increasing our investment in high-profit, high-volume
distribution channels.
- Providing financial incentives to our employees which
increase their focus on enhancing share owner value.
- Integrating our significant international and domestic
acquisitions.
Our primary financial objective is to deliver a superior investment
return to our share owners. We plan to achieve this objective through
the continued implementation and execution of the following
strategies:
- Maintaining a capital structure which maximizes our
financial flexibility, given current investment
opportunities.
- Identifying and acquiring territories that will result
in long-term value.
- Allocating resources appropriately between capital
expenditures, infrastructure investment, share
repurchases, acquisitions, and debt repayment.
INTERNATIONAL EXPANSION AND OTHER ACQUISITIONS
Increasing our presence in high-growth, high-potential international
markets is one of our strategies to achieve the Company's primary goal
of enhancing share owner value. We believe our local market driven
operating philosophy and our decentralized operating structure are
transportable outside the United States. Our pending acquisition in
Great Britain, combined with our current operations in the
Netherlands, France, Belgium, and the United States, enhances our
position as a leader in the worldwide liquid nonalcoholic refreshment
business. The Company's completed and pending acquisition activity for
1996 is summarized below.
- 15 -
<PAGE>
Completed Transactions
On July 26, 1996, we acquired The Coca-Cola Company's bottling and
canning operations in France and Belgium for a transaction value
(purchase price and assumed debt) of approximately $915 million.
These franchise territories encompass most of France and all of
Belgium. The entities acquired were Coca-Cola Beverages S.A. (French
bottler), Coca-Cola Production S.A. (French canner), and S.A. Beverage
Sales Holding N.V. (owner of the Belgian bottler). In 1995, the
French bottler sold 158 million unit cases and the Belgian bottler
sold 94 million unit cases. On a pro forma basis, net operating
revenues for 1995 were approximately $1.2 billion.
Additionally, on August 12, 1996, we acquired Coca-Cola Bottling
Company West, Inc. and a related company, Grand Forks Coca-Cola
Bottling Co. (collectively "Coke West"), and in February 1996, we
acquired Ouachita Coca-Cola Bottling Company, Inc. ("Ouachita").
Coke West operates franchise territories in portions of Montana,
Wyoming, North Dakota, South Dakota, and Minnesota, while Ouachita
operates in portions of Arkansas, Louisiana, and Mississippi. In
1995, Coke West generated pro forma net operating revenues of
$112 million on case sales of 23 million unit cases and Ouachita
generated pro forma net operating revenues of approximately $172
million on case sales of 42 million unit cases.
Pending Transactions
On August 9, 1996, the Company signed an agreement to purchase
Coca-Cola & Schweppes Beverages Limited ("CCSB") from The Coca-Cola
Company and Cadbury Schweppes plc for an aggregate transaction value
(purchase price, assumed debt, and other long-term obligations) of
approximately 1.2 billion British pounds. CCSB produces and
distributes beverage products of The Coca-Cola Company and Cadbury
Schweppes plc in England, Scotland, and Wales.
On September 13, 1996, the European Commission (the "Commission")
announced a second phase investigation of this proposed transaction
under merger regulations of the common market. The Commission has
until January 29, 1997 to make a final decision. The Company believes
that the Commission's Merger Task Force will issue a Statement of
Objections to the proposed acquisition before the end of November 1996,
to which the Company and the other parties to the proposed acquisition
will respond. The Statement of Objections could, under some circum-
stances, result in modifications to the terms of the transaction to
resolve issues raised by the staff, but, the Company is unable to
predict what effect they may have upon the proposed transaction.
However, the Company remains confident that the transaction will
ultimately be approved and completed.
On November 6, 1996, the Company announced that it has ended
negotiations to acquire Nora Beverages, Inc. The Company expects to
continue distributing Naya products under existing distribution
arrangements. The Company had been in discussions with Nora's
majority share owner since the signing of a letter of intent on
July 17, 1996.
- 16 -
<PAGE>
OPERATIONS REVIEW
Overview
The most meaningful comparison of operating results adjusts for the
impact of acquisitions and excludes one-time items. Accordingly,
"comparable" results in the following discussions represent the
following:
* 1996 operating results adjusted (i) to exclude the impact of
the French and Belgian acquisition, and (ii) to exclude
the favorable claims settlement in first-quarter 1996.
* 1995 operating results adjusted (i) to include the pro forma
impact of the Coke West and Ouachita acquisitions, as if the
acquisitions occurred in the same period of 1995 as compared
to 1996, and (ii) to exclude a gain from the sale of The
Coca-Cola Bottling Company of the Mid South in first-quarter
1995.
Comparable cash operating profit margins expanded or remained stable
during the third quarter and first nine months of 1996 when compared
to the same periods of 1995. These results reflect strong, broad-
based volume growth, higher net revenues per case, decreased cost of
sales per case, and a lower effective tax rate. Third-quarter
reported 1996 net income per common share of $0.29 increased 7% over
third-quarter reported 1995 net income per common share of $0.27.
The results of the French and Belgian acquisition did not materially
affect reported third-quarter 1996 net income, however, these
acquisitions are expected to be dilutive to fourth quarter reported
earnings by approximately $0.05 per common share.
Cash Operating Profit
Comparable cash operating profit (operating income before deductions
for depreciation and amortization expense and after adjustments for
acquisitions and nonrecurrring items) is one of the key standards by
which management measures the Company's operating performance. This
measure is provided as a supplement to, and not as an alternative to,
operating income as an indicator of operating performance, and cash
flows from operating activities as a measure of liquidity, each as
determined in accordance with generally accepted accounting
principles.
Depreciation is the expense associated with capital asset costs
recognized over the estimated period of benefit. Amortization is
comprised principally of expense associated with deferred costs on
acquisition franchise assets, non-cash unearned equity compensation on
executive and management incentive plans, capitalized leases and
leasehold improvements, and intangible assets associated with cash
payments being recognized over the anticipated period of benefit.
- 17 -
<PAGE>
Reported and comparable cash operating profit for the third quarter of
1996 increased 19% and 9%, respectively, over the third quarter of
1995. Reported and comparable cash operating profit for the first
nine months of 1996 increased 16% and 9%, respectively, over the same
prior-year period. We expect our comparable and reported cash
operating profit growth to be at least 9% and 15%, respectively, for
full-year 1996.
Net Operating Revenues -- Volume and Price
Third-quarter and nine-month 1996 reported net operating revenues
increased 19% and 13%, respectively, over the same prior-year periods.
Reported third-quarter 1996 revenue growth resulted from the revenues
of third-quarter 1996 acquisitions as reflected in the increase in
reported bottle and can volume of 15% and an increase in reported net
revenues per case of 4%.
Nine-month 1996 physical case bottle and can volume exceeded reported
nine-month 1995 results by 11.5% and nine-month 1996 bottle and can
net revenues per case exceeded the same prior-year period by 2.5%.
Net revenues per case growth is primarily a result of favorable
product, package, and channel mix trends.
"Constant territory" physical case volume is defined as prior-year
results adjusted to include volume of all acquired companies for the
same periods in 1995 as those that the entities were owned in 1996.
Constant territory third-quarter 1996 bottle and can physical case
volume increased 3.5% from third-quarter 1995; resulting from a 4.5%
domestic increase, net of a 6.5% international decrease. The decrease
in international constant territory volume primarily reflects the wet
and cold summer weather conditions in Europe during 1996 as compared
to the hot and dry summer conditions of 1995. The nine-month constant
territory bottle and can physical case volume increased 6% over the
nine-month 1995 volume resulting from a domestic growth of 6.5%
and a decline in international volume of 1%.
Cost of Sales
The relationships of reported cost of sales per case comparisons are
significantly impacted by the French and Belgian acquisition in the
third quarter of 1996. Excluding foreign operations, domestic bottle
and can cost of sales per case decreased by 3% and 1/2%, respectively,
in the third quarter and first nine months of 1996 from the same
prior-year periods, primarily a result of favorable packaging costs.
Including foreign operations, third-quarter 1996 reported bottle and
can cost of sales per case increased 1% from third-quarter 1995 and
nine-month 1996 reported bottle and can cost of sales per case
increased from nine-month 1995 levels by 1/2%.
- 18 -
<PAGE>
Selling, General and Administrative Expenses
Reported selling, general and administrative expenses increased 30%
and 19%, respectively, in the third quarter and first nine months of
1996, as compared to the same periods in 1995. Reported third-quarter
increases in selling, general, and administrative expenses are
impacted by third-quarter 1996 acquisitions. Selling, general and
administrative expenses as a percent of net operating revenues
increased from 28% of revenues in the third quarter of 1995 to 30% of
revenues in the third quarter of 1996; and from 29% of revenues in the
first nine months of 1995 to 31% of revenues in the first nine months
of 1996. This increase partially results from incremental stock-
performance related compensation and benefits expenses of
approximately $19 million. The $19 million incremental expense
results from the Company's performance-based restricted stock and
stock option plans primarily due to the Company's 70% year to date
1996 stock price growth, including a 32% third-quarter increase.
Of the $19 million incremental selling, general, and administrative
expenses, $11 million represents non-cash amortization which has
no impact on cash operating profit or cash flows. The remaining
$8 million is a reduction in cash operating profit. Currently, we
are evaluating financial tools to minimize future expenses associated
with these plans.
Interest Expense
Third-quarter and nine-month net interest expense increased from 1995
levels by 10% and 4%, respectively, reflecting higher average debt
balances due to the 1996 acquisitions. Given the current rate
environment, we anticipate that net interest expense will increase
approximately 10% for full-year 1996 when compared to 1995 due to
higher debt balances resulting from the Ouachita, Coke West, and
French and Belgian acquisitions along with share repurchase activity.
The weighted average interest rate for the first nine months of 1996
was 7.3% compared to 7.5% for the same period in 1995.
Income Taxes
The Company's effective tax rate for the first nine months of 1996 was
41% as compared to 43% for the same period in 1995. The decrease in
the 1996 effective tax rate is primarily a result of lower income
taxes on the French and Belgian combined operations and expectations
for higher full-year pre-tax earnings in 1996 when compared to
expectations in third-quarter 1995. Inclusion of the French and
Belgian combined operations for a full year in 1997 may further reduce
the effective tax rate dependent upon the actual results of these
entities as compared to the results of the remainder of the Company.
- 19 -
<PAGE>
CASH FLOW AND LIQUIDITY REVIEW
Capital Resources
Our sources of capital include, but are not limited to, the issuance
of public or private placement debt, bank borrowings, and the issuance
of equity securities. In addition to our operating cash flows, we
believe that adequate long-term and short-term capital resources are
available to satisfy our capital expenditure, acquisition, and share
repurchase programs, along with scheduled debt maturities, interest
payments, income tax obligations, and share owner dividends.
Long-term Capital Resources: In October 1996, the Company issued $300
million of 7% debentures due October 1, 2026 and $300 million of 6.7%
debentures due October 15, 2036. Holders of the debentures may
require the Company to repurchase all or a portion of the debentures
after ten and seven years, respectively. After these debt issues, we
have available for issuance an additional $921 million in debt
securities under a shelf registration statement with the Securities
and Exchange Commission. We are in the process of evaluating various
long-term financing alternatives that are available to us in the debt
and equity securities markets.
Short-term Capital Resources: We satisfy seasonal working capital
needs and other financing requirements with short-term borrowings
under our commercial paper program and bank borrowings. Our
commercial paper program is supported by a $1 billion revolving bank
credit agreement maturing in December 1999 along with short-term
credit facilities totaling $1 billion. An aggregate $1.5 billion of
commercial paper borrowings supported by these agreements was
outstanding at September 27, 1996. The Company intends to refinance a
portion of its commercial paper borrowings on a long-term basis. In
addition to commercial paper, we also have additional availability for
short-term financings through bank borrowings and the debt securities
markets.
We anticipate that the pending acquisition will be initially financed
through a combination of short-term bank borrowings and the issuance
of commercial paper. The Company refinances portions of its short-
term borrowings on a long-term basis as market opportunities arise.
With respect to international acquisitions, the Company has financed,
or intends to finance, all of the acquisition cost in the local
currency of each respective company, or alternatively, to execute
foreign currency swaps on U.S. dollar financings to eliminate
exposure to fluctuating currencies on the Company's initial
acquisition cost. In the forseeable future, management intends
to reinvest cash flows from international operations in those
operations and, therefore, has elected not to hedge the accounting
translation risk of future cash flows.
- 20 -
<PAGE>
Summary of Cash Activities
Cash and cash equivalents increased $18 million during the first nine
months of 1996. Our principal sources of cash consisted of those
provided from operations of $701 million, and the issuance of debt
aggregating $768 million. Our primary uses of cash were capital
expenditures totaling $456 million, share repurchases aggregating $183
million, and the acquisitions of Ouachita, Coke West, and the French
and Belgian bottlers for a cash cost, net of assumed debt, of $681
million.
Operating Activities: Net cash derived from operating activities
increased in the first nine months of 1996 when compared to the first
nine months of 1995 primarily due to our operating performance. The
higher depreciation expense in 1996 results from the effects of
increased capital spending and 1996 acquisitions. Increased
amortization expense primarily reflects increased franchise
amortization from acquisitions and accelerated amortization of stock
performance-based employee benefit plan costs.
Investing Activities: Our capital asset investments increased when
compared to the first nine months of 1995. We continue to expect full-
year 1996 capital expenditures to be approximately $650 million for
owned operations at the end of third-quarter 1996. If the
acquisition of CCSB is finalized prior to the end of 1996, this
acquisition is not expected to have a significant impact on 1996
capital expenditures.
Since inception, the Company has spent approximately $8 billion to
acquire bottling operations. The Company has a pending acquisition
totaling an estimated $2 billion. We will continue to acquire
domestic and international bottling operations under a disciplined
acquisition strategy of only acquiring businesses which offer us
opportunities to implement our operating strategies, achieve our
desired rates of return, and increase share owner value over the
long-term.
Financing Activities: During the first six months of 1996, we
repurchased 6,578,300 shares of common stock for a total cost of $183
million, completing our August 1994 share repurchase program. On
April 11, 1996, the Board of Directors approved a new 10 million share
common stock repurchase program. There have been no repurchases under
this new program. The timing of share repurchases are dependent upon
a balancing of cash resource uses and market conditions. Repurchased
shares will be available for general corporate purposes including
acquisition financing and the funding of employee benefit plans.
- 21 -
<PAGE>
FINANCIAL POSITION
Trade accounts receivable, inventories, and accounts payable and
accrued expenses at September 27, 1996 increased from December 31,
1995 principally because of the seasonal nature of our business. The
increase in franchise and deferred income taxes results from the
acquisitions of the Ouachita, Coke West, and French and Belgian
bottlers. The increase in property, plant and equipment results
primarily from capital expenditures in the first nine months of 1996
and the acquisitions of the Ouachita, Coke West, and French and
Belgian bottlers. The increase in long-term debt results from
acquisitions along with share repurchases in first-quarter 1996. The
decrease in the cumulative translation adjustment results from an
increase in the value of the dollar against the Dutch florin and the
results of the France and Belgium currency translation in third-
quarter 1996.
- 22 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
On September 13, 1996, the European Commission (the "Commission")
announced that it was opening a second phase investigation of the
Company's proposed acquisition of CCSB, under the merger regulations
of the common market. The Commission has until January 29, 1997 to
make a final decision. The Company believes that the Commission's
Merger Task Force will issue a Statement of Objections to the proposed
acquisition before the end of November 1996, to which the Company
and the other parties to the proposed acquisition will respond. The
Statement of Objections could, under some circumstances, result in
modifications to the terms of the transaction to resolve issues raised
by the staff, but, the Company is unable to predict what effect they
may have upon the proposed transaction. However, the Company remains
confident that the transaction will ultimately be approved and
completed.
In October 1996, the Environmental Protection Agency named Florida
Coca-Cola Bottling Company ("Florida CCBC") as one of the 20
potentially responsible parties to conduct the cleanup of the Wingate
Road Incinerator Landfill, a former municipal waste disposal site (and
now Federal Superfund site) in Fort Lauderdale, Florida. The total
investigative and clean-up costs have been estimated at $18 million.
Based on Florida CCBC's volume of waste allegedly contributed to the
site, it could be assessed with a share of the clean-up costs,
estimated to be approximately $200,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation
S-K):
Exhibit Incorporated by Reference
Number Description or Filed Herewith
- ------- --------------------------------- -------------------------
12 Statements regarding computations Filed Herewith
of ratios
27 Financial Data Schedule Filed Herewith
- 23 -
<PAGE>
(b) Reports on Form 8-K:
During the third quarter of 1996, the Company filed the following
current reports on Form 8-K:
Date of Report Description
- -------------- --------------------------------------------------
July 16, 1996 Condensed Consolidated Statements of Operations
(unaudited) of the Company, filed on July 17,
1996, reporting financial results for the second
quarter of 1996
July 17, 1996 Press release announcing the signing of a letter
of intent to acquire Nora Beverages, Inc.
July 26, 1996 Press release announcing the completion of the
acquisition of bottling and canning operations in
France and Belgium
July 26, 1996 Amendment to item 7 of 8-K dated July 26, 1996,
filed on August 12, 1996, to include financial
statements of businesses acquired and pro forma
financial information
September 25, 1996 Filing of underwriting agreement dated September
25, 1996 among registrant and Morgan Stanley &
Lehman Brothers and form of the debentures
- 24 -
<PAGE>
SIGNATURES
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, thereunto duly authorized.
COCA-COLA ENTERPRISES INC.
(Registrant)
Date: November 12, 1996 /s/John R. Alm
-----------------------------
John R. Alm
Senior Vice President and
Chief Financial Officer
Date: November 12, 1996 /s/ O. Michael Whigham
------------------------------
O. Michael Whigham
Vice President and Controller
(Principal Accounting Officer)
- 25 -
COCA-COLA ENTERPRISES INC. Exhibit 12
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In millions except ratios)
Quarter ended Nine Months ended
------------------- -------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
--------- --------- --------- ---------
Computation of Earnings:
Earnings from continuing
operations before
income taxes............ $ 66 $ 63 $179 $150
Add:
Interest expense........ 83 78 238 242
Amortization of capitalized
interest............... - - 1 1
Amortization of debt
premium/discount and
expenses............... 8 5 17 6
Interest portion of rent
expense................ 4 2 8 7
---- ---- ---- ----
Earnings as Adjusted......... $161 $148 $443 $406
==== ==== ==== ====
Computation of Fixed Charges:
Interest expense........... $ 83 $ 78 $238 $242
Capitalized interest....... - 1 1 3
Amortization of debt
premium/discount and
expenses................. 8 5 17 6
Interest portion of rent
expense.................. 4 2 8 7
---- ---- ---- ----
Fixed Charges................ 95 86 264 258
Preferred stock dividends (a) 3 1 10 2
---- ---- ---- ----
Combined Fixed Charges and
Preferred Stock Dividends.. $ 98 $ 87 $274 $260
==== ==== ==== ====
Ratio of Earnings to Fixed
Charges (b)................ 1.69 1.72 1.67 1.57
==== ==== ==== ====
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends (b)........ 1.63 1.70 1.61 1.56
==== ==== ==== ====
(a) Preferred stock dividends have been increased to an amount representing
the pretax earnings which would be required to cover such dividend
requirements.
(b) Ratio calculated prior to rounding to millions.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE FILER FOR THE PERIOD ENDED
SEPTEMBER 27, 1996 INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 27, 1996 (COMMISSION FILE NO. 001-9300) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000804055
<NAME> COCA-COLA ENTERPRISES
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 772
<ALLOWANCES> 42
<INVENTORY> 374
<CURRENT-ASSETS> 1,424
<PP&E> 4,626
<DEPRECIATION> 1,812
<TOTAL-ASSETS> 11,377
<CURRENT-LIABILITIES> 2,081
<BONDS> 4,645
0
132
<COMMON> 147
<OTHER-SE> 1,248
<TOTAL-LIABILITY-AND-EQUITY> 11,377
<SALES> 5,803
<TOTAL-REVENUES> 5,803
<CGS> 3,586
<TOTAL-COSTS> 3,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 179
<INCOME-TAX> 74
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
