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 June 28, 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.
123,969,609 Shares of $1 Par Value Common Stock as of August 6, 1996
<PAGE>
COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 28, 1996
INDEX Page
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Part I - Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters ended June 28, 1996 and
June 30, 1995..................................... 1
Condensed Consolidated Statements of Operations
for the Six Months ended June 28, 1996 and
June 30, 1995..................................... 2
Condensed Consolidated Balance Sheets as of
June 28, 1996 and December 31, 1995............... 3
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 28, 1996 and
June 30, 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....................................... 12
Part II - Item 6. Exhibits and Reports on Form 8-K.... 17
Signatures............................................ 18
<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
------------------------
June 28, June 30,
1996 1995
-------- --------
Net Operating Revenues................... $ 2,016 $ 1,827
Cost of sales............................ 1,253 1,153
-------- --------
Gross Profit............................. 763 674
Selling, general and administrative
expenses............................... 578 507
-------- --------
Operating Income......................... 185 167
Interest expense, net.................... 84 82
Other nonoperating deductions, net....... - 3
-------- --------
Income Before Income Taxes............... 101 82
Income tax expense....................... 42 36
-------- --------
Net Income............................... 59 46
Preferred stock dividends................ 2 -
-------- --------
Net Income Applicable to Common
Share Owners........................... $ 57 $ 46
======== ========
Average Common Shares Outstanding........ 123 130
======== ========
Net Income Per Share Applicable to
Common Share Owners.................... $ 0.46 $ 0.35
======== ========
Dividends Per Share Applicable to
Common Share Owners.................... $ 0.025 $ 0.0125
======== ========
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Six Months ended
----------------------
June 28, June 30,
1996 1995
-------- --------
Net Operating Revenues....................... $ 3,616 $ 3,289
Cost of sales................................ 2,223 2,054
-------- --------
Gross Profit................................. 1,393 1,235
Selling, general and administrative
expenses................................... 1,117 992
-------- --------
Operating Income............................. 276 243
Interest expense, net........................ 163 162
Other nonoperating deductions, net........... - 3
Gain from sale of interest in bottling
operation.................................. - 9
-------- --------
Income Before Income Taxes................... 113 87
Income tax expense........................... 47 38
-------- --------
Net Income................................... 66 49
Preferred stock dividends.................... 4 1
-------- --------
Net Income Applicable to Common Share Owners $ 62 $ 48
======== ========
Average Common Shares Outstanding............ 125 129
======== ========
Net Income Per Share Applicable to Common
Share Owners............................... $ 0.50 $ 0.37
======== ========
Dividends Per Share Applicable to Common
Share Owners............................... $ 0.05 $ 0.025
======== ========
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
June 28, December 31,
ASSETS 1996 1995
-------- ------------
(Unaudited)
Current
Cash and cash equivalents, at cost......... $ 24 $ 8
Trade accounts receivable, less
reserves of $35 and $33, respectively.... 606 510
Inventories:
Finished goods........................... 207 151
Raw materials and supplies............... 99 74
-------- --------
306 225
Current deferred income taxes.............. 130 130
Prepaid expenses and other current assets.. 119 109
-------- --------
Total Current Assets....................... 1,185 982
Property, Plant and Equipment
Land....................................... 188 182
Buildings and improvements................. 729 700
Machinery and equipment.................... 3,053 2,774
-------- --------
3,970 3,656
Less allowances for depreciation........... 1,736 1,587
-------- --------
2,234 2,069
Construction in progress................... 119 89
-------- --------
2,353 2,158
Franchise and Other Noncurrent Assets........ 6,318 5,924
-------- --------
$ 9,856 $ 9,064
======== ========
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
June 28, December 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1996 1995
-------- ------------
(Unaudited)
Current
Accounts payable and accrued expenses..... $ 1,015 $ 796
Current maturities of long-term debt...... 144 63
-------- --------
Total Current Liabilities................. 1,159 859
Long-Term Debt.............................. 4,362 4,138
Retirement and Insurance Programs and
Other Long-Term Obligations............... 643 600
Deferred Income Taxes....................... 2,224 2,032
Share-Owners' Equity
Preferred stock 173 30
Common stock, $1 par value --
Authorized - 500,000,000 shares; Issued -
146,506,853 and 145,094,936 shares,
respectively............................ 147 145
Paid-in capital........................... 1,370 1,346
Reinvested earnings....................... 199 144
Cumulative effect of currency
translations............................ 24 38
Common stock in treasury, at cost
(22,726,911 and 16,543,458 shares,
respectively)........................... (445) (268)
-------- --------
1,468 1,435
-------- --------
$ 9,856 $ 9,064
======== ========
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Six Months ended
-----------------------
June 28, June 30,
1996 1995
-------- --------
Cash Flows From Operating Activities
Net income................................ $ 66 $ 49
Adjustments to derive net cash provided
by operating activities:
Depreciation............................ 176 155
Amortization............................ 107 93
Deferred income tax provision........... 10 22
Gain from sale of ownership interest in
bottling operation.................... - (9)
Net changes in current assets and current
liabilities........................... 41 (42)
Additional nonoperating cash flows...... 18 5
-------- --------
Net cash provided by operating activities. 418 273
Cash Flows From Investing Activities
Capital expenditures...................... (350) (286)
Fixed asset dispositions.................. 6 7
Investments in bottling and other
businesses, net of cash acquired........ (144) (148)
Sale of ownership interest in bottling
operations.............................. - 17
Additional investing activities........... - 6
-------- --------
Net cash used in investing activities..... (488) (404)
Cash Flows From Financing Activities
Issuance of debt.......................... 315 426
Settlements of debt obligations........... (39) (263)
Cash dividend payments on common and
preferred stock......................... (6) (2)
Exercise of employee stock options........ 5 6
Stock purchases for treasury.............. (183) (9)
Additional financing activities........... (6) (7)
-------- --------
Net cash provided by financing activities 86 151
-------- --------
Net Increase in Cash and Cash Equivalents... 16 20
Cash and cash equivalents at beginning
of period............................... 8 22
-------- --------
Cash and Cash Equivalents at End of Period $ 24 $ 42
======== ========
See Notes to Condensed Consolidated Financial Statements.
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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
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 generally accepted accounting
principles (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 Coca-Cola Enterprises Inc. annual report on
Form 10-K, for the year ended December 31, 1995.
Note B - Seasonality of Business
Operating results for the second quarter and first six months ended
June 28, 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. Unit sales of the Company's products are greater
in the second and third quarters due to seasonal factors.
Note C - Acquisitions and Divestitures
In February 1996, the Company acquired all the issued and outstanding
shares of stock of the Ouachita Coca-Cola Bottling Company, Inc.
("Ouachita") for a total transaction value (purchase price and issued
and assumed debt) of approximately $313 million. The purchase price
was paid in a combination of cash, 26,311 shares of the Company's common
stock from treasury, and two types of convertible preferred stock as
selected by individual Ouachita share owners. The acquisition was accounted
for using the purchase method of accounting.
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 include most of France and all of the
population of Belgium. The operations acquired include 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).
The acquisition was accounted for using the purchase method of accounting.
- 6 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note C - Acquisitions and Divestitures (continued)
In January 1995, the Company acquired all the issued and outstanding
shares of stock of the 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 as a
result of the Ouachita acquisition. The acquisition was accounted for
using the purchase method of accounting.
Pending Transactions: On May 28, 1996, the Company announced the signing
of letters of intent to acquire 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 in franchise territories
in portions of Montana, Wyoming, North Dakota, South Dakota, and Minnesota.
On June 4, 1996, the Company announced the signing of letters of intent
to purchase Coca-Cola & Schweppes Beverages Limited ("CCSB") from
The Coca-Cola Company (holder of 49%) and Cadbury Schweppes plc (holder of
51%) for a transaction value (purchase price, assumed debt, and other
long-term obligations) of approximately $1.9 billion, based on current
exchange rates. CCSB produces products of The Coca-Cola Company and
Cadbury Schweppes for distribution in England, Scotland, Wales, and the
Isle of Man. CCSB will enter into long-term contracts to continue to
produce and distribute products of both The Coca-Cola Company and
Cadbury Schweppes in the acquired territories.
On July 17, 1996, the Company announced the signing of a letter of intent
with the majority shareholder to acquire Nora Beverages Inc. ("Nora") for
a transaction value (purchase price and assumed debt) of approximately
$117 million, based on current exchange rates. Nora is located in Canada
and produces a bottled spring water sold under the trade name NAYA. In
addition to debt financing of the transaction, the Company plans to
issue shares of its common stock from treasury at the election of
individual Nora share owners.
The completed and pending acquisitions discussed above have been or will be
initially financed through short-term bank borrowings and the issuance of
commercial paper. The Company will refinance a portion of these short-term
borrowings on a long-term basis. With respect to international acquisitions,
the Company intends to finance all of the acquisition cost in the local
currency of each respective acquired company or in U.S dollars swapped
into local currency. The pending acquisition transactions are subject
to negotiation of definitive purchase agreements and, with respect to
the CCSB transaction, approval by regulatory authorities. It is
anticipated that all pending transactions will close during the third
quarter of 1996.
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<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):
June 28, December 31,
1996 1995
-------- ------------
Commercial Paper............................ $ 1,092 $ 777
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.................. 154 154
8.35% Zero Coupon Notes, due 2020 (net of
unamortized discount of $1,661)........... 272 261
8.00% and 8.50% Debentures, due 2022........ 1,000 1,000
6.75% Debentures, due 2023.................. 250 250
Additional debt............................. 238 259
------- -------
$ 4,506 $ 4,201
======= =======
Excluding debt resulting from the France/Belgium acquisition subsequent to
June 28, 1996, and all other pending acquisition transactions (refer to
Note C), aggregate maturities of long-term debt for the five twelve-month
periods subsequent to June 28, 1996 are as follows: 1997 - $144 million;
1998 - $311 million; 1999 - $7 million; 2000 - $1,203 million; and 2001 -
$3 million.
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 $1.1 billion of commercial paper supported
by these agreements was outstanding at June 28, 1996. The weighted average
interest rate of borrowings under the commercial paper program at June 28,
1996 was 5.4% per annum. Subsequent to June 28, 1996, commercial paper
borrowings outstanding and short-term bank borrowings increased by
approximately $915 million as a result of the acquisition of bottling and
canning operations in France and Belgium (refer to Note C).
Note E - Preferred Stock
In connection with the acquisition of Ouachita in February 1996, the Company
authorized 1,110,000 shares and issued 923,413 shares of voting convertible
preferred stock, Ouachita Series A ("Series A") and authorized 350,000
shares and issued 95,880 shares of voting convertible preferred stock,
Ouachita Series B ("Series B"). Series A has a stated value of $150
- 8 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note E - Preferred Stock (continued)
per share and pays quarterly cumulative dividends of 4% per year. Series B
has a stated value of $150 per share and pays no dividend. The Series A and
Series B shares convert to common stock no later than two years from date of
issuance based on specific conversion ratios applicable independently to
each series. During the second quarter of 1996, 69,945 shares of Series B
preferred stock were converted into 411,246 shares of common stock. The
difference between the value of the preferred stock converted and the
treasury stock issued was $4 million which increased paid-in capital.
The Company called all 1,000,000 shares of outstanding $35 stated value
Northeast Arkansas Convertible Preferred Stock. Holders of the preferred
shares have until August 30, 1996 to convert their shares to common stock of
the Company, on a one-for-one basis, or receive the stated value of the
preferred shares in cash.
Note F - Income Taxes
The Company's effective tax rates for the first six months of 1996 and
1995 were 42% and 44%, respectively. The decrease in the 1996 effective
tax rate primarily reflects expectations for higher full-year pre-tax
earnings in 1996 when compared to expectations in second-quarter 1995.
A reconciliation of the income tax provision at the statutory federal
rate to the Company's actual income tax provision follows (in millions):
Six Months ended
------------------------
June 28, June 30,
1996 1995
-------- --------
Statutory expense - 35%..................... $ 39 $ 30
State expense, net of federal............... 6 6
Other, net.................................. 2 2
-------- --------
$ 47 $ 38
======== ========
Note G - Stock Options and Other Stock Plans
The Company's 1996 stock option awards provide for performance-vested
options granted to the chief executive officer and certain senior
executives, and service-vested options for certain executives and other
management employees. All options are granted at an exercise price of
100% of the fair market value on grant date and expire ten years from
the date of grant.
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<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note G - Stock Options and Other Stock Plans (continued)
Performance-vested options vest solely upon attainment of certain increases
in the Company's common stock within five years from the date of grant.
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.
Additionally, an aggregate 56,494 and 326,917 shares of common stock were
issued during the second quarter and first six months of 1996, respectively,
as a result of the exercise of stock options under the Company's various
stock option plans.
The Company's 1996 restricted stock awards provide for awards to certain key
executives of the Company. 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, in which event the ownership restrictions
on the shares are removed. In the first quarter of 1996, an aggregate
1,085,000 shares of common stock were awarded under the 1996 restricted
stock awards program. Stock awards issued in April 1996 were one-time
awards representing three years of grants, and the executives will not
receive restricted stock in 1997 or 1998 under the 1996 plan. Additionally,
an aggregate 42,710 restricted shares, which had been awarded under various
restricted stock award plans of the Company, were forfeited during the first
six months of 1996 and returned to treasury stock.
Note H - Share Repurchase Program
The Company repurchased 2,095,900 and 6,578,300 shares of common stock
during the second quarter and first six months of 1996, respectively,
for an aggregate cost of $65 million and $183 million, respectively,
completing its August 1994 10 million share repurchase program. On
April 11, 1996, the Board of Directors approved a new share repurchase
program authorizing the repurchase of up to 10 million shares of the
Company's common stock. There have been no repurchases under the new share
repurchase program.
Note I - Contingencies
The Company purchases substantially all of its PET (plastic) bottles
from certain bottling cooperatives and other entities involved in the
manufacture of plastic bottles. The Company has guaranteed payment of
up to $240 million of indebtedness owed by these bottling cooperatives
to third parties. At June 28, 1996, these manufacturers had $156 million
of indebtedness outstanding guaranteed by the Company. In addition, the
Company has provided letters of credit aggregating $97 million primarily
in connection with self-insurance programs.
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<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note I - Contingencies (continued)
The Company incurs costs for the required removal, replacement, or
modification of underground fuel storage tanks, and 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 covering the discharge of materials and waste
water treatment. The Company believes that any amount it may be required
to pay in excess of amounts previously funded or accrued as an expense
would not have a material adverse effect on its financial position, cash
flows, or results of operations.
The Company has been named as a potentially responsible party ("PRP") for
the costs of remediation of hazardous waste at federal or state Superfund
sites. The Company believes that any ultimate Superfund liability will
not have a material adverse effect on its financial position, cash flows,
or results of operations. At June 28, 1996, there were four 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 was awarded a settlement of
$10 million ($0.05 per common share after taxes) from claims against
certain suppliers. The amount of the settlement award is included
in cost of sales.
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<PAGE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
OPERATIONS REVIEW
Business Strategy
To ensure a continued focus on building share-owner value, we have clearly
defined operating and financial 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 such as cold drink.
* Providing financial incentives to our employees which increase
their focus on enhancing share-owner value.
* Integrating our significant domestic and international acquisitions.
Our primary financial objective is to deliver a superior return on investment
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 result in
long-term value.
* Allocating resources appropriately between capital expenditures,
infrastructure investment, share repurchases, acquisitions, and
debt repayment.
- 12 -
<PAGE>
Operations Overview
In the opinion of management, 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 (i) adjusted for the impact of the
Ouachita acquisition which occurred in first-quarter 1996
(refer to Note C), and (ii) excluding the favorable claims
settlement in first-quarter 1996 (refer to Note I).
* 1995 operating results (i) adjusted for the impact of the
Wichita acquisition which occurred in first-quarter 1995
(refer to Note C), and (ii) excluding the gain from sale of
Mid South in first-quarter 1995 (refer to Note C).
Comparable gross profit, operating income, net income and cash operating
profit margins expanded or remained stable during the second quarter and
first six months of 1996 compared to the same periods of 1995. These
results reflect strong, broad-based volume growth, higher net revenues per
case, stable costs, and a lower effective tax rate. Second-quarter 1996 net
income per common share of $0.46 increased 31% over second-quarter 1995
net income per common share of $0.35. Comparable six-month 1996 net income
per common share of $0.45 increased 36% over six-month 1995 net income
per common share of $0.33.
Cash Operating Profit
Cash operating profit (operating income before reductions for depreciation
and amortization expense) is one of the key standards by which management
measures the Company's operating performance. This measure is provided as
a supplement, not 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. Actual and comparable cash operating
profit for the second quarter of 1996 increased 13% and 10%, respectively,
over the second quarter of 1995. Actual and comparable cash operating
profit for the first six months of 1996 increased 14% and 9%, respectively,
over the same prior-year period. Based on our operating performance during
the first half of 1996, we have increased our cash operating profit growth
projection to at least 9% for full-year 1996.
Net Operating Revenues -- Volume and Price
Second-quarter 1996 actual and comparable net operating revenues increased
10% and 8%, respectively, over the same prior-year periods. Second-quarter
1996 physical case bottle/can volume exceeded reported and constant territory
second-quarter 1995 results by 9% and 6 1/2%, respectively. Second-quarter
1996 volume growth outpaced prior-year results despite the shift in heavy
Fourth of July sales from the second quarter in 1995 to the third quarter
in 1996, and the 4 1/2% constant territory growth rate experienced in the
second quarter of 1995.
- 13 -
<PAGE>
Net Operating Revenues -- Volume and Price (continued)
Six-month 1996 actual and comparable net operating revenues increased 10%
and 8%, respectively, over the same prior-year periods. Six-month 1996
physical case bottle/can volume exceeded reported and constant territory
six-month 1995 results by 9 1/2% and 7 1/2%, respectively.
Second-quarter and six-month 1996 volume performance primarily reflects
strong, broad-based carbonated brand performance by Coca-Cola classic and
Sprite. Sprite volume growth continues to outpace all other major domestic
carbonated beverages. Second-quarter and six-month 1996 bottle/can net
revenues per case both exceeded prior-year periods by 1 1/2%. Net
revenues per case growth resulted from price increases and favorable
product, package, and channel mix trends.
Cost of Sales
Second-quarter 1996 bottle/can cost of sales per case decreased 1/2% from
second-quarter 1995 reflecting favorable packaging cost trends. Six-month
1996 bottle/can cost of sales per case increased from six-month 1995 levels
by 1/2%, excluding the favorable first-quarter 1996 supplier settlement.
Selling, General and Administrative Expenses
Comparable selling, general and administrative expenses increased 11% in
the second quarter and first six months of 1996, as compared to the same
periods in 1995. This increase results primarily from increased selling
and delivery infrastructure investments. Selling, general and administrative
expenses as a percent of sales increased from 27.8% of sales in the second
quarter of 1995 to 28.7% of sales in the second quarter of 1996; and from
30.1% of sales in the first six months of 1995 to 30.9% of sales in the
first six months of 1996.
Interest Expense
Given the current rate environment, we anticipate that net interest expense
will increase approximately 15% to 17% for full-year 1996 compared to 1995
due to a higher debt balance resulting from the Ouachita acquisition, the
France/Belgium acquisition, and share repurchase activity during the first
six months of 1996. The pending acquisitions of CCSB, Coke West, and Nora
are expected to increase interest expense further, the amount of which is
dependent upon actual closing dates and financing options. The weighted
average interest rate for the first six months of 1996 was 7.5% compared
to 7.4% for the same period of 1995.
Income Taxes
The Company's effective tax rate for the first six months of 1996 was 42%
compared to 44% for the same period of 1995. The decrease in the 1996
effective tax rate primarily reflects expectations for higher full-year
pre-tax earnings in 1996 when compared to expectations in second-quarter
1995.
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<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, in addition to scheduled debt maturities, interest payments,
income tax obligations, and share-owner dividends.
Long-term Capital Resources: We have available for issuance $1.5 billion
in debt securities under a shelf registration statement with the Securities
and Exchange Commission. We are in the process of investigating various
long-term financing alternatives which are available to us in the equity and
debt 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. Our 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 $1.1 billion
of commercial paper borrowings supported by these agreements was outstanding
at June 28, 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 financing
through bank borrowings and debt securities markets. Subsequent to June 28,
1996, commercial paper borrowings outstanding and short-term bank borrowings
increased by approximately $915 million as a result of the acquisition of
bottling and canning operations in France and Belgium (refer to Note C).
Summary of Cash Activities
Cash and cash equivalents increased $16 million during the first six months
of 1996 compared to the first six months of 1995. Our principal sources
of cash consisted of those provided from operations of $418 million and
the issuance of debt aggregating $315 million. Our primary uses of cash
were capital expenditures totaling $350 million, share repurchases
aggregating $183 million, and the acquisition of Ouachita for a cash
cost of $144 million (net of cash acquired).
Operating Activities: Net cash provided by operating activities increased
in the first six months of 1996 when compared to the first six months of
1995 primarily as a result of our operating performance. The higher
depreciation expense in 1996 results from the effects of increased capital
spending and the acquisition of Ouachita during the first quarter of 1996.
Increased amortization primarily reflects increased franchise amortization
as a result of acquisitions and increased amortization of performance-based
restricted stock and stock options resulting from additional awards during
the first quarter of 1996. Net changes in current assets and current
liabilities also increased cash provided by operating activities.
- 15 -
<PAGE>
Investing Activities: Our capital expenditures investment increased when
compared to the first six months of 1995. We continue to expect full-year
1996 capital expenditures to be approximately $550 million for operations
existing at the end of second-quarter 1996. The acquisition in France and
Belgium and pending acquisitions in Great Britain and the United States will
add an estimated $80 million to $100 million to 1996 capital spending,
depending on the acquisition closing dates.
In January 1995, the Company acquired all the issued and outstanding shares
of stock of Wichita for a purchase price of $157 million in cash. In
February 1996, the Company acquired all the issued and outstanding shares
of stock of Ouachita for a total transaction value of $313 million. The
purchase price for Ouachita was paid in a combination of $148 million in
cash, 26,311 shares of the Company's common stock from treasury, and two
types of convertible preferred stock. During the second quarter of 1996,
69,945 shares of Ouachita preferred stock were converted into 411,246
shares of common stock. The difference between the value of the preferred
stock converted and the treasury stock issued was $4 million which
increased paid-in capital. On July 26, 1996, the Company acquired
The Coca-Cola Company's bottling and canning operations in France and
Belgium for a transaction value of $915 million.
Since inception, the Company has acquired bottling companies for an
aggregate purchase price of approximately $7 billion. Our sources of
capital allow us to maintain flexibility to make acquisitions that offer us
opportunities to implement our operating strategies to achieve an acceptable
rate of return. We will purchase additional domestic and international
bottling operations when such acquisitions are expected to increase
long-term share-owner value.
Pending Transactions (see Note C): On May 28, 1996, the Company announced
the signing of letters of intent to acquire Coke West for a transaction
value of approximately $158 million. On June 4, 1996, the Company announced
the signing of letters of intent to purchase CCSB from The Coca-Cola Company
(holder of 49%) and Cadbury Schweppes plc (holder of 51%) for a transaction
value of approximately $1.9 billion, based on current exchange rates. CCSB
will enter into long-term contracts to continue to produce and distribute
products of both The Coca-Cola Company and Cadbury Schweppes in the acquired
territories. On July 17, 1996, the Company announced the signing of a
letter of intent to acquire Nora for a transaction value of approximately
$117 million, based on current exchange rates.
The completed and pending acquisitions discussed above have been or will
be initially financed through short-term bank borrowings and the issuance
of commercial paper. The Company will refinance short-term borrowings
on a long-term basis. With respect to international acquisitions, the
Company intends to finance all of the acquisition cost in the local
currency of each respective acquired company or in U.S. dollars swapped into
local currency. The pending acquisition transactions are subject to
negotiation of definitive purchase agreements and, with respect to the
CCSB transaction, approval by regulatory authorities. It is anticipated
that all pending transactions will close during the third quarter of 1996.
- 16 -
<PAGE>
Investing Activities (continued):
Had the acquisitions of the French and Belgian operations, CCSB, Coke West
and Nora happened at the beginning of 1995, approximately 30% of the
Company's equivalent case sales and net revenues during the 1995 fiscal year
would have been derived from outside the United States.
Financing Activities: During the first six months of 1996, we repurchased
6,578,300 shares of our common stock for a total cost of $183 million.
On April 11, 1996, the Board of Directors approved a new 10 million share
common stock repurchase program. Shares will be repurchased based on
prevailing market conditions in open market and privately negotiated
transactions. Repurchased shares will be available for general corporate
purposes including acquisition financing and the funding of various
employee benefits and compensation plans. There have been no repurchases
under the new share repurchase program.
FINANCIAL POSITION
Trade accounts receivable, inventories, and accounts payable and accrued
expenses at June 28, 1996, increased from December 31, 1995 primarily
as a result of the seasonal nature of our business. The increase in
franchise and deferred income taxes results from the acquisition of
Ouachita. The increase in property, plant and equipment results from
capital expenditures in the first six months of 1996 and the acquisition
of Ouachita. The increase in long-term debt results from financing the
Ouachita acquisition and share repurchases. The decrease in the cumulative
translation adjustment results from an increase in the value of the dollar
against the Dutch florin during the first six months of 1996.
Part II. Other Information
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
- 17 -
<PAGE>
(b) Reports on Form 8-K:
Date of Report Description
- -------------- -------------------------------------------------------
April 11, 1996 Press release announcing approval of a 10 million share
common stock repurchase program
April 16, 1996 Condensed Consolidated Statements of Operations
(unaudited) of the Company, filed on April 18, 1996,
reporting financial results for the first quarter of 1996
May 13, 1996 Press release announcing the signing of letters of
intent to purchase bottling operations in France and
Belgium
May 28, 1996 Press release announcing the signing of letters of
intent to purchase Coca-Cola Bottling Company West,
Inc. and Grand Forks Coca-Cola Bottling Co.
June 4, 1996 Press release announcing the signing of letters of
intent to purchase bottling operations in the United
Kingdom
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)
/s/ JOHN R. ALM
Date: August 6, 1996 -----------------------------
John R. Alm
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant
and as Principal Financial
Officer)
/S/ BERNICE H. WINTER
Date: August 6, 1996 -----------------------------
Bernice H. Winter
Vice President and Controller
(Principal Accounting Officer)
- 18 -
<PAGE>
<TABLE>
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)
<CAPTION>
Quarter ended Six Months ended
------------------ ------------------
June 28, June 29, June 28, June 29,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Computation of Earnings:
Earnings from continuing operations
before income taxes. . . . . . . . . . $ 101 $ 82 $ 113 $ 87
Add:
Interest expense . . . . . . . . . . . 81 83 155 165
Amortization of capitalized
interest . . . . . . . . . . . . . . - - 1 1
Amortization of debt
premium/discount and expenses. . . . 4 1 9 1
Interest portion of rent expense . . . 2 3 4 5
---- ---- ---- ----
Earnings as Adjusted . . . . . . . . . . . $188 $169 $282 $259
==== ==== ==== ====
Computation of Fixed Charges:
Interest expense . . . . . . . . . . . . $ 81 $ 83 $155 $165
Capitalized interest . . . . . . . . . . 1 1 1 2
Amortization of debt
premium/discount and expenses. . . . . 3 1 9 1
Interest portion of rent expense . . . . 2 3 4 5
---- ---- ---- ----
Fixed Charges. . . . . . . . . . . . . . . 87 88 169 173
Preferred stock dividends (a). . . . . . 5 1 7 2
---- ---- ---- ----
Combined Fixed Charges and Preferred
Stock Dividends. . . . . . . . . . . . . $ 92 $ 89 $176 $175
==== ==== ==== ====
Ratio of Earnings to Fixed Charges (b) . . 2.15 1.92 1.67 1.50
==== ==== ==== ====
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends (b) 2.05 1.90 1.60 1.48
==== ==== ==== ====
(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>
<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
JUNE 28, 1996 INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 28, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 641
<ALLOWANCES> 35
<INVENTORY> 306
<CURRENT-ASSETS> 1185
<PP&E> 4089
<DEPRECIATION> 1736
<TOTAL-ASSETS> 9856
<CURRENT-LIABILITIES> 1159
<BONDS> 4362
0
173
<COMMON> 147
<OTHER-SE> 1148
<TOTAL-LIABILITY-AND-EQUITY> 9856
<SALES> 3616
<TOTAL-REVENUES> 3616
<CGS> 2223
<TOTAL-COSTS> 2223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> 113
<INCOME-TAX> 47
<INCOME-CONTINUING> 66
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
