Add
CCE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CCE > SEC Filings for CCE > Form 10-Q on 29-Apr-2011 | All Recent SEC Filings |
29-Apr-2011
Quarterly Report
Overview
Organization
On October 2, 2010, Coca-Cola Enterprises Inc. (Legacy CCE) completed a Merger with The Coca-Cola Company (TCCC) and separated its European operations, Coca-Cola Enterprises (Canada) Bottling Finance Company, and a related portion of its Corporate segment into a new legal entity which was renamed Coca-Cola Enterprises, Inc. ("CCE," "we," "our," or "us") at the time of the Merger. For additional information about the Merger and the Merger Agreement (the Agreement), refer to Note 1 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
Business
We are a marketer, producer, and distributor of nonalcoholic beverages. We market, produce, and distribute our products to customers and consumers through licensed territory agreements in Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden. We operate in the highly competitive beverage industry and face strong competition from other general and specialty beverage companies. Our financial results, like those of other beverage companies, are affected by a number of factors including, but not limited to, cost to manufacture and distribute products, general economic conditions, consumer preferences, local and national laws and regulations, availability of raw materials, and weather patterns.
Sales of our products tend to be seasonal, with the second and third quarters accounting for higher unit sales of our products than the first and fourth quarters. In a typical year, we earn more than 60 percent of our annual operating income during the second and third quarters of the year. The seasonality of our sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Accordingly, our results for the first quarter of 2011 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2011.
Relationship with TCCC
We are a marketer, producer, and distributor principally of products of TCCC with greater than 90 percent of our sales volume consisting of sales of TCCC products. Our license arrangements with TCCC are governed by product licensing agreements. From time to time, the terms and conditions of programs with TCCC are modified. Our financial results are greatly impacted by our relationship with TCCC. For additional information about our transactions with TCCC, refer to Note 4 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
Basis of Presentation
Prior to the Merger, our Condensed Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles on a "carve-out" basis from Legacy CCE's Condensed Consolidated Financial Statements using the historical results of operations, assets, and liabilities attributable to the legal entities that comprised CCE at the effective date of the Merger. These legal entities include all that were previously part of Legacy CCE's Europe operating segment, as well as Coca-Cola Enterprises (Canada) Bottling Finance Company. All significant intercompany accounts and transactions between the legal entities that comprise CCE have been eliminated.
Prior to the Merger, our Condensed Consolidated Financial Statements also included an allocation of certain corporate expenses related to services provided to us by Legacy CCE. These expenses included the cost of executive oversight, information technology, legal, treasury, risk management, human resources, accounting and reporting, investor relations, public relations, internal audit, and certain global restructuring projects. The cost of these services was allocated to us based on specific identification when possible or, when the expenses were determined to be global in nature, based on the percentage of our relative sales volume to total Legacy CCE sales volume for the applicable periods. We believe these allocations are a reasonable representation of the cost incurred for the services provided; however, these allocations are not necessarily indicative of the actual expenses that we would have incurred had we been operating as an independent company prior to the Merger (refer to Note 4 of the Condensed Consolidated Financial Statements in this Form 10-Q).
Following the Merger, our Condensed Consolidated Financial Statements include all entities that we control by ownership of a majority voting interest, including the bottling operations in Norway and Sweden beginning with the fourth quarter of 2010.
Beginning in the first quarter of 2011, certain information technology-related expenses incurred in Europe that were previously reported in our Corporate segment are now reported in our Europe operating segment. These expenses totaled $12 million and $11 million during the first quarter of 2011 and 2010, respectively. To provide comparability, we have recast our first quarter of 2010 segment reporting to reflect the movement of these expenses. For additional information about the segment measurement change, refer to Note 12 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
Financial Results
Our net income in the first quarter of 2011 was $106 million or $0.31 per diluted common share, compared to net income of $120 million or $0.35 per common share in the first quarter of 2010. In addition to the items noted previously regarding the preparation of our Condensed Consolidated Financial Statements prior to the Merger, the following items included in our reported results affected the comparability of our year-over-year financial results (amounts prior to the Merger only include items related to Legacy CCE's Europe operating segment):
First Quarter 2011
• Charges totaling $14 million related to restructuring activities to harmonize our plant operations and streamline our cooler services business; and
• Net mark-to-market gains totaling $5 million related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period.
First Quarter 2010
• A $2 million charge related to restructuring activities; and
• Net mark-to-market gains totaling $4 million related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period.
Financial Summary
Our financial performance during the first quarter of 2011 reflects the impact of the following significant factors:
• Solid revenue growth driven by strong volume and marketplace execution;
• Volume growth for both our sparkling and still beverage portfolios, including strong performance of our Coca-Cola trademark brands;
• Moderate cost of sales increase reflecting the benefit of current supplier agreements and hedging instruments which provided us with lower than market prices for a significant portion of our commodity purchases; and
• Increased year-over-year corporate expenses due to the inclusion of corporate expenses on a stand-alone basis beginning in the fourth quarter of 2010 versus allocated expenses prior to the Merger.
During the first quarter of 2011, we delivered solid operating results driven by strong volume growth of 5.0 percent and pricing growth of 1.5 percent. Solid marketplace execution, planned promotional activities, strong performance of our Coca-Cola trademark beverages, and continued benefit of our enhanced still beverage portfolio were the primary drivers of our volume performance. Our continental European territories had volume growth of 4.5 percent, driven by increased sales of still beverages and waters, including Capri Sun and Chaudfontaine mineral water, as well as the continued growth of our Coca-Cola trademark brands, especially
Coca-Cola Zero. Our volume in Great Britain increased 6.5 percent, driven by strong performance of sparkling flavors and energy brands including Sprite, Fanta, Dr Pepper, and Monster, as well as higher sales of still beverages, especially Ocean Spray products. In addition to volume growth, our performance during the first quarter of 2011 reflects a moderate cost of sales increase, and increased year-over-year corporate expenses due to the inclusion of all corporate expenses on a stand-alone basis beginning in the fourth quarter of 2010 versus allocated Legacy CCE expenses prior to the Merger.
COCA-COLA ENTERPRISES, INC.
Operations Review
The following table summarizes our Condensed Consolidated Statements of
Operations data as a percentage of net operating revenues for the periods
presented:
First Quarter
2011 2010
Net operating revenues 100.0 % 100.0 %
Cost of sales 64.2 63.7
Gross profit 35.8 36.3
Selling, delivery, and administrative expenses 27.0 25.2
Operating income 8.8 11.1
Interest expense, net 1.0 1.1
Other nonoperating expense, net 0.0 (0.3 )
Income before income taxes 7.8 9.7
Income tax expense 2.1 1.7
Net income 5.7 % 8.0 %
|
Operating Income
The following table summarizes our operating income by segment for the periods
presented, as adjusted to reflect the segment measurement change that occurred
in the first quarter of 2011 (in millions; percentages rounded to the nearest
0.5 percent):
First Quarter
2011 2010(A)
Percent Percent
Amount of Total Amount of Total
Europe $ 200 122.0 % $ 190 114.0 %
Corporate (36 ) (22.0 ) (23 ) (14.0 )
Combined $ 164 100.0 % $ 167 100.0 %
|
(A) Beginning in the first quarter of 2011, certain information technology-related expenses incurred in Europe that were previously reported in our Corporate segment are now reported in our Europe operating segment. These expenses totaled $12 million and $11 million during the first quarter of 2011 and 2010, respectively. To provide comparability, we have recast our first quarter of 2010 segment reporting to reflect the movement of these expenses. The segment measurement change did not impact our consolidated operating income for any period. For additional information about the segment measurement change, refer to Note 12 of the Condensed Consolidated Financial Statements in this Form 10-Q.
Our operating income decreased $3 million in the first quarter of 2011 to $164 million from $167 million in the first quarter of 2010. The following table summarizes the significant components of the change in our first quarter of 2011 operating income (in millions; percentages rounded to the nearest 0.5 percent):
Change
Percent
Amount of Total
Changes in operating income:
Impact of bottle and can price and mix on gross profit $ 23 13.5 %
Impact of bottle and can cost and mix on gross profit (22 ) (13.0 )
Impact of bottle and can volume on gross profit 27 16.0
Impact of bottle and can selling day shift on gross
profit (7 ) (4.0 )
Impact of post mix, non-trade, and other on gross
profit 2 1.0
Impact of acquired bottlers in Norway and Sweden 9 5.5
Other selling, delivery, and administrative expenses (64 ) (38.5 )
Net impact of allocated expenses from Legacy CCE 38 23.0
Net mark-to-market gains related to non-designated
commodity hedges 1 0.5
Net impact of restructuring charges (13 ) (8.0 )
Currency exchange rate changes 3 2.0
Change in operating income $ (3 ) (2.0 )%
|
Net Operating Revenues
Net operating revenues increased 22.5 percent in the first quarter of 2011 to $1.8 billion, including a 2.0 percent increase due to currency exchange rate changes. This change also included a 16.0 percent increase due to incremental revenues from the bottling operations in Norway and Sweden acquired during the fourth quarter of 2010 (which includes the impact of Norway's high percentage of excise taxes recorded on a gross basis relative to net operating revenues).
Net operating revenues per case increased 2.5 percent in the first quarter of 2011 versus the first quarter of 2010. The following table summarizes the significant components of the change in our first quarter of 2011 net operating revenues per case, as adjusted to reflect the impact of the acquired bottling operations in Norway and Sweden as if they were acquired on January 1, 2010 (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
First Quarter
2011
Changes in net operating revenues per case:
Bottle and can net price per case 1.5 %
Bottle and can currency exchange rate change 1.5
Post mix, non-trade, and other (0.5 )
Change in net operating revenue per case 2.5 %
|
During the first quarter of 2011, our bottle and can sales accounted for approximately 95 percent of our total net operating revenues. Bottle and can net price per case is based on the invoice price charged to customers reduced by promotional allowances and is impacted by the price charged per package or brand, the volume generated in each package or brand, and the channels in which those packages or brands are sold. Our bottle and can net price per case during the first quarter of 2011 reflects a moderate rate increase offset partially by planned promotional activity, particularly in Great Britain.
Volume
The following table summarizes the change in our first quarter of 2011 bottle and can volume versus the first quarter of 2010, as adjusted to reflect the impact of one less selling day in the first quarter of 2011 versus the first quarter of 2010 and the impact of the acquired bottling operations in Norway and Sweden as if they were acquired on January 1, 2010 (rounded to the nearest 0.5 percent):
First Quarter 2011
Change in volume 4.0 %
Impact of selling day shift(A) 1.0
Change in volume, adjusted for selling day shift 5.0 %
|
(A) Represents the impact of changes in selling days between periods (based upon a standard five-day selling week).
Brands
The following table summarizes our bottle and can volume results by major brand
category for the periods presented, as adjusted to reflect the impact of one
less selling day in the first quarter of 2011 versus the first quarter of 2010
and the impact of the acquired bottling operations in Norway and Sweden as if
they were acquired on January 1, 2010 (rounded to the nearest 0.5 percent):
First Quarter
2011 Percent 2010 Percent
Change of Total of Total
Coca-Cola trademark 3.0 % 69.0 % 71.0 %
Sparkling flavors and energy 6.5 17.0 16.5
Juices, isotonics, and other 18.0 11.0 9.5
Water 3.5 3.0 3.0
Total 5.0 % 100.0 % 100.0 %
|
During the first quarter of 2011, we achieved volume growth of 5.0 percent versus the first quarter of 2010. Our volume performance reflects growth in both sparkling and still beverages, which grew 4.0 percent and 14.5 percent, respectively. Both continental Europe and Great Britain experienced volume gains during the first quarter of 2011, with sales volume increasing 4.5 percent and 6.5 percent, respectively. These increases were primarily attributable to solid marketplace execution, planned promotional activity, particularly in Great Britain, and the continued success of our sparkling and energy beverage brands, including Sprite, Fanta, Dr Pepper, and Monster, as well as the continued growth of our Coca-Cola trademark brands, especially Coca-Cola Zero. Our volume also benefited from our enhanced still beverage and water portfolio during the first quarter of 2011, including growth in Capri Sun, Ocean Spray, and Chaudfontaine mineral water.
Our Coca-Cola trademark product volume increased 3.0 percent in the first quarter of 2011 as compared to the first quarter of 2010. This increase was driven by a greater than 25 percent increase in the sale of Coca-Cola Zero and a 2.0 percent increase in the sale of Coca-Cola, offset partially by a 2.0 percent decline in the sale of Diet Coke/Coca-Cola light. Sparkling flavors and energy volume increased 6.5 percent during the first quarter of 2011, reflecting higher sales of several sparkling beverage products, including Sprite, Dr Pepper, Fanta, and Monster. Juices, isotonics, and other volume increased 18.0 percent in the first quarter of 2011, reflecting a 25.5 percent increase in sales of Capri Sun products, which were introduced in Belgium and the Netherlands in early 2010. The increase also reflects significant volume gains for POWERade and Ocean Spray products. Sales volume of our water brands increased 3.5 percent in the first quarter of 2011, reflecting increased sales of Chaudfontaine mineral water.
COCA-COLA ENTERPRISES, INC.
Consumption
The following table summarizes our volume results by consumption type for the
periods presented, as adjusted to reflect the impact of one less selling day in
the first quarter of 2011 versus the first quarter of 2010 and the impact of the
acquired bottling operations in Norway and Sweden as if they were acquired on
January 1, 2010 (rounded to the nearest 0.5 percent):
First Quarter
2011 Percent 2010 Percent
Change of Total of Total
Multi-serve(A) 6.5 % 58.5 % 57.5 %
Single-serve(B) 3.5 41.5 42.5
Total 5.0 % 100.0 % 100.0 %
|
(A) Multi-serve packages include containers that are typically greater than one liter, purchased by consumers in multi-packs in take-home channels at ambient temperatures, and are consumed in the future.
(B) Single-serve packages include containers that are typically one liter or less, purchased by consumers as a single bottle or can in cold drink channels at chilled temperatures, and consumed shortly after purchase.
Packages
The following table summarizes our volume results by packaging category for the
periods presented, as adjusted to reflect the impact of one less selling day in
the first quarter of 2011 versus the first quarter of 2010 and the impact of the
acquired bottling operations in Norway and Sweden as if they were acquired on
January 1, 2010 (rounded to the nearest 0.5 percent):
First Quarter
2011 Percent 2010 Percent
Change of Total of Total
Cans 10.0 % 39.5 % 37.5 %
PET (plastic) (0.5 ) 45.0 47.5
Glass and other 10.0 15.5 15.0
Total 5.0 % 100.0 % 100.0 %
|
Cost of Sales
Cost of sales increased 23.0 percent in the first quarter of 2011 to $1.2 billion, including a 2.0 percent increase due to currency exchange rate changes. This change also included a 15.5 percent increase due to incremental costs from the bottling operations of Norway and Sweden acquired during the fourth quarter of 2010 (which includes the impact of Norway's high percentage of excise taxes recorded on a gross basis relative to cost of sales). The following table summarizes the significant components of the change in our first quarter of 2011 cost of sales per case, as adjusted to reflect the impact of the acquired bottling operations in Norway and Sweden as if they were acquired on January 1, 2010 (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
First Quarter 2011
Changes in cost of sales per case:
Bottle and can ingredient and packaging costs 1.5 %
Bottle and can currency exchange rate changes 2.0
Change in cost of sales per case 3.5 %
|
Our bottle and can ingredient and packaging costs increased moderately year-over-year reflecting the benefit of current supplier agreements and hedging instruments. Although the market prices for certain key raw materials increased year-over-year, our exposure to these increases is mitigated by our current supplier agreements and hedging instruments which provide us with lower than market prices for a significant portion of our planned commodity purchases through the end of 2011.
Selling, Delivery, and Administrative Expenses
SD&A expenses increased $117 million, or 31.0 percent, in the first quarter of 2011 to $497 million. This change included a 20.0 percent increase due to incremental expenses from the bottling operations in Norway and Sweden acquired during the fourth quarter of 2010 and a 1.5 percent increase due to currency exchange rate changes. The following table summarizes the significant components of the change in our first quarter of 2011 SD&A expenses (in millions; percentages rounded to the nearest 0.5 percent):
Change
Percent
Amount of Total
Changes in SD&A expenses:
General and administrative expenses $ 53 14.0 %
Selling and marketing expenses 12 3.0
Delivery and merchandising expenses (6 ) (1.5 )
Impact of acquired bottlers in Norway and Sweden 75 20.0
Net impact of allocated expenses from Legacy CCE (38 ) (10.0 )
Net mark-to-market losses related to non-designated
commodity hedges (3 ) (1.0 )
Net impact of restructuring charges 13 3.5
Currency exchange rate changes 6 1.5
Other 5 1.5
Change in SD&A expenses $ 117 31.0 %
|
SD&A expenses as a percentage of net operating revenues was 27.0 percent and 25.2 percent in the first quarter of 2011 and 2010, respectively. Our SD&A expenses in the first quarter of 2011 reflect the impact of (1) additional expenses totaling $75 million related to the acquired bottlers in Norway and Sweden; (2) a net year-over-year increase in corporate expenses due to the inclusion of our actual corporate expenses on a stand-alone basis beginning in the fourth quarter of 2010 versus an allocation of corporate expenses from Legacy CCE prior to the Merger; and (3) increased restructuring costs.
Interest Expense, Net
Interest expense, net-third party increased $14 million in the first quarter of 2011 to $19 million from $5 million in the first quarter of 2010. Interest expense, net- Coca-Cola Enterprises Inc. totaled $12 million during the first quarter of 2010. The following tables summarize the primary items that impacted our interest expense for the periods presented ($ in millions):
Third party debt
First Quarter
2011 2010
Average outstanding debt balance $ 2,421 $ 826
Weighted average cost of debt 2.9 % 2.0 %
Fixed-rate debt (% of portfolio) 96 % 28 %
Floating-rate debt (% of portfolio) 4 % 72 %
|
Amounts due to Coca-Cola Enterprises Inc.
First Quarter
2011 2010
Average outstanding debt balance n/a $ 1,008
. . .
|
|
|