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EX-31.1 - 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCa2015q2ex311cce.htm
EX-12 - RATIO OF EARNINGS TO FIXED CHARGES - COCA-COLA EUROPEAN PARTNERS US, LLCa2015q2ex12cce.htm
EX-32.2 - 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCa2015q2ex322cce.htm
EX-31.2 - 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCa2015q2ex312cce.htm
EX-32.1 - 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - COCA-COLA EUROPEAN PARTNERS US, LLCa2015q2ex321cce.htm

 
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 July 3, 2015
or 
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR
 
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34874
(Exact name of registrant as specified in its charter)
Delaware
 
27-2197395
(State of incorporation)
 
(I.R.S. Employer Identification No.)
2500 Windy Ridge Parkway
Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
678-260-3000
(Registrant’s telephone number, including area code)
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  [X]  No  [    ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [X]
  
Accelerated filer [    ]
Non-accelerated filer [    ]
  
Smaller reporting company [    ]
(Do not check if a smaller reporting company)
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [    ]  No  [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
229,085,651 Shares of $0.01 Par Value Common Stock as of July 3, 2015




COCA-COLA ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 3, 2015
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
Item 1.        
 
 
 
 
Condensed Consolidated Statements of Income for the Second Quarter and First Six Months of 2015 and 2014
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Second Quarter and First Six Months of 2015 and 2014
 
 
 
 
Condensed Consolidated Balance Sheets as of July 3, 2015 and December 31, 2014
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the First Six Months of 2015 and 2014
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


1


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

COCA-COLA ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share data)
 
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Net sales
$
1,928

 
$
2,333

 
$
3,559

 
$
4,203

Cost of sales
1,223

 
1,487

 
2,286

 
2,707

Gross profit
705

 
846

 
1,273

 
1,496

Selling, delivery, and administrative expenses
430

 
551

 
840

 
1,017

Operating income
275

 
295

 
433

 
479

Interest expense, net
31

 
30

 
61

 
58

Other nonoperating (expense) income
(1
)
 
1

 
1

 

Income before income taxes
243

 
266

 
373

 
421

Income tax expense
67

 
68

 
101

 
108

Net income
$
176

 
$
198

 
$
272

 
$
313

Basic earnings per share
$
0.76

 
$
0.80

 
$
1.17

 
$
1.24

Diluted earnings per share
$
0.75

 
$
0.78

 
$
1.15

 
$
1.22

Dividends declared per share
$
0.28

 
$
0.25

 
$
0.56

 
$
0.50

Basic weighted average shares outstanding
231

 
249

 
233

 
252

Diluted weighted average shares outstanding
235

 
254

 
237

 
257




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



2


COCA-COLA ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)
    
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Net income
$
176

 
$
198

 
$
272

 
$
313

Components of other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translations
 
 
 
 
 
 
 
    Pretax activity, net
99

 
13

 
(180
)
 
24

    Tax effect

 

 

 

Currency translations, net of tax
99

 
13

 
(180
)
 
24

Net investment hedges
 
 
 
 
 
 
 
    Pretax activity, net
(29
)
 
18

 
123

 
17

    Tax effect
10

 
(6
)
 
(43
)
 
(6
)
Net investment hedges, net of tax
(19
)
 
12

 
80

 
11

Cash flow hedges
 
 
 
 
 
 
 
    Pretax activity, net
(2
)
 
(3
)
 
(4
)
 
(6
)
    Tax effect

 

 

 
1

Cash flow hedges, net of tax
(2
)
 
(3
)
 
(4
)
 
(5
)
Pension plan adjustments
 
 
 
 
 
 
 
    Pretax activity, net
7

 
7

 
14

 
13

    Tax effect
(1
)
 
(2
)
 
(3
)
 
(3
)
Pension plan adjustments, net of tax
6

 
5

 
11

 
10

Other comprehensive income (loss), net of tax
84

 
27

 
(93
)
 
40

Comprehensive income
$
260

 
$
225

 
$
179

 
$
353




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


3


COCA-COLA ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share data)
 
 
July 3,
2015
 
December 31,
2014
ASSETS
 
 
 
Current:
 
 
 
Cash and cash equivalents
$
418

 
$
223

Trade accounts receivable, less allowances of $15 and $17, respectively
1,637

 
1,514

Amounts receivable from The Coca-Cola Company
63

 
67

Inventories
411

 
388

Other current assets
326

 
268

Total current assets
2,855

 
2,460

Property, plant, and equipment, net
2,008

 
2,101

Franchise license intangible assets, net
3,532

 
3,641

Goodwill
94

 
101

Other noncurrent assets
217

 
240

Total assets
$
8,706

 
$
8,543

LIABILITIES
 
 
 
Current:
 
 
 
Accounts payable and accrued expenses
$
1,931

 
$
1,872

Amounts payable to The Coca-Cola Company
116

 
104

Current portion of debt
772

 
632

Total current liabilities
2,819

 
2,608

Debt, less current portion
3,712

 
3,320

Other noncurrent liabilities
206

 
207

Noncurrent deferred income tax liabilities
956

 
977

Total liabilities
7,693

 
7,112

SHAREOWNERS’ EQUITY
 
 
 
Common stock, $0.01 par value – Authorized – 1,000,000,000 shares;
        Issued – 355,796,844 and 354,551,447 shares, respectively
3

 
3

Additional paid-in capital
3,996

 
3,958

Reinvested earnings
2,133

 
1,991

Accumulated other comprehensive loss
(807
)
 
(714
)
Common stock in treasury, at cost – 126,711,193 and 115,305,477 shares, respectively
(4,312
)
 
(3,807
)
Total shareowners’ equity
1,013

 
1,431

Total liabilities and shareowners’ equity
$
8,706

 
$
8,543




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



4


COCA-COLA ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
 
First Six Months
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
Net income
$
272

 
$
313

Adjustments to reconcile net income to net cash derived from operating activities:
 
 
 
Depreciation and amortization
138

 
153

Share-based compensation expense
16

 
15

Deferred income tax expense
12

 
13

Pension expense less than contributions
(5
)
 
(4
)
Net changes in assets and liabilities
(72
)
 
(277
)
Net cash derived from operating activities
361

 
213

Cash Flows from Investing Activities:
 
 
 
Capital asset investments
(183
)
 
(156
)
Capital asset disposals

 
26

       Other investing activities, net
(13
)
 

Net cash used in investing activities
(196
)
 
(130
)
Cash Flows from Financing Activities:
 
 
 
Net change in commercial paper
143

 
412

Issuances of debt
527

 
347

Payments on debt
(6
)
 
(108
)
Shares repurchased under share repurchase programs
(507
)
 
(588
)
Dividend payments on common stock
(130
)
 
(125
)
Other financing activities, net
16

 
(7
)
Net cash derived from (used in) financing activities
43

 
(69
)
Net effect of currency exchange rate changes on cash and cash equivalents
(13
)
 
(1
)
Net Change in Cash and Cash Equivalents
195

 
13

Cash and Cash Equivalents at Beginning of Period
223

 
343

Cash and Cash Equivalents at End of Period
$
418

 
$
356




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



5


COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements

NOTE 1—BUSINESS AND REPORTING POLICIES
Business
Coca-Cola Enterprises, Inc. ("CCE," "we," "our," or "us") is 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 are affected by a number of factors including, but not limited to, consumer preferences, cost to manufacture and distribute products, foreign currency exchange rates, general economic conditions, local and national laws and regulations, raw material availability, and weather patterns.
Sales of our products 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. The seasonality of our sales volume, combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Additionally, year-over-year shifts in holidays and selling days can impact our results on an interim period basis. Accordingly, our results for the second quarter and first six months of 2015 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2015.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting 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 and expense allocations) considered necessary for fair presentation have been included. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying Notes contained in our Annual Report on Form 10-K for the year ended December 31, 2014 (Form 10-K).
Our Condensed Consolidated Financial Statements include all entities that we control by ownership of a majority voting interest. All significant intercompany accounts and transactions are eliminated in consolidation.
For reporting convenience, our first three quarters close on the Friday closest to the end of the quarterly calendar period. Our fiscal year ends on December 31st. There were four additional selling days in the first quarter of 2015 versus the first quarter of 2014, and there will be four fewer selling days in the fourth quarter of 2015 versus the fourth quarter of 2014 (based upon a standard five-day selling week).
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Full
Year
2015
67

 
65

 
65

 
64

 
261

2014
63

 
65

 
65

 
68

 
261

Change
4

 

 

 
(4
)
 


NOTE 2—INVENTORIES
We value our inventories at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. The following table summarizes our inventories as of the dates presented (in millions):
 
July 3,
2015
 
December 31,
2014
Finished goods
$
262

 
$
238

Raw materials and supplies
149

 
150

Total inventories
$
411

 
$
388



6

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 



NOTE 3—PROPERTY, PLANT, AND EQUIPMENT
The following table summarizes our property, plant, and equipment as of the dates presented (in millions):
 
July 3,
2015
 
December 31,
2014
Land
$
139

 
$
147

Building and improvements
926

 
961

Machinery, equipment, and containers
1,481

 
1,476

Cold drink equipment
1,166

 
1,168

Vehicle fleet
87

 
91

Furniture, office equipment, and software
293

 
287

Property, plant, and equipment
4,092

 
4,130

Accumulated depreciation and amortization
(2,199
)
 
(2,162
)
 
1,893

 
1,968

Construction in process
115

 
133

Property, plant, and equipment, net
$
2,008

 
$
2,101


NOTE 4—ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table summarizes our accounts payable and accrued expenses as of the dates presented (in millions):
 
July 3,
2015
 
December 31,
2014
Trade accounts payable
$
561

 
$
537

Accrued customer marketing costs
688

 
656

Accrued compensation and benefits
196

 
257

Accrued taxes
195

 
172

Accrued deposits
62

 
60

Other accrued expenses
229

 
190

Accounts payable and accrued expenses
$
1,931

 
$
1,872


NOTE 5—RELATED PARTY TRANSACTIONS
Transactions with The Coca-Cola Company (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 these agreements with TCCC are modified.
The following table summarizes the transactions with TCCC that directly affected our Condensed Consolidated Statements of Income for the periods presented (in millions):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Amounts affecting net sales:
 
 
 
 
 
 
 
Fountain syrup and packaged product sales
$
4

 
$
5

 
$
7

 
$
9

Amounts affecting cost of sales:
 
 
 
 
 
 
 
Purchases of concentrate, syrup, mineral water, and juice
$
(562
)
 
$
(658
)
 
$
(1,043
)
 
$
(1,200
)
Purchases of finished products
(12
)
 
(14
)
 
(23
)
 
(24
)
Marketing support funding earned
52

 
56

 
98

 
107

Total
$
(522
)
 
$
(616
)
 
$
(968
)
 
$
(1,117
)

7

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


For additional information about our relationship with TCCC, refer to Note 3 of the Notes to Consolidated Financial Statements in our Form 10-K.

NOTE 6—DERIVATIVE FINANCIAL INSTRUMENTS
We utilize derivative financial instruments to mitigate our exposure to certain market risks associated with our ongoing operations. The primary risks that we seek to manage through the use of derivative financial instruments include currency exchange risk, commodity price risk, and interest rate risk. All derivative financial instruments are recorded at fair value on our Condensed Consolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes. While certain of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk but are not designated as hedging instruments (referred to as an “economic hedge” or “non-designated hedge”). Changes in the fair value of these non-designated hedging instruments are recognized in each reporting period in the expense line item on our Condensed Consolidated Statements of Income that is consistent with the nature of the hedged risk. We are exposed to counterparty credit risk on all of our derivative financial instruments. We have established and maintain strict counterparty credit guidelines and enter into hedges only with financial institutions that are investment grade or better. We continuously monitor our counterparty credit risk and utilize numerous counterparties to minimize our exposure to potential defaults. We do not require collateral under these agreements.
The fair value of our derivative contracts (including forwards, options, cross currency swaps, and interest rate swaps) is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions, and, therefore, our derivative contracts have been classified as Level 2. Inputs used in these standard valuation models include the applicable spot, forward, and discount rates that are current as of the valuation date. The standard valuation model for our option contracts also includes implied volatility, which is specific to individual options and is based on rates quoted from a widely used third-party resource. For more information regarding the valuation of our derivatives, refer to Note 16.

8

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


The following table summarizes the fair value of our assets and liabilities related to derivative financial instruments and the respective line items in which they were recorded on our Condensed Consolidated Balance Sheets as of the dates presented (in millions):
Hedging Instruments
 
Location – Balance Sheets
 
July 3,
2015
 
December 31,
2014
Assets:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
Foreign currency contracts(A)
 
Other current assets
 
$
106

 
$
58

Foreign currency contracts
 
Other noncurrent assets
 
3

 

Total
 
 
 
109

 
58

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
 
Other current assets
 
25

 
24

Commodity contracts
 
Other current assets
 
1

 
3

Total
 
 
 
26

 
27

Total Assets
 
 
 
$
135

 
$
85

Liabilities:
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
Foreign currency contracts(A)
 
Accounts payable and accrued expenses
 
$
55

 
$
29

Foreign currency contracts
 
Other noncurrent liabilities
 
10

 
12

Total
 
 
 
65

 
41

Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency contracts
 
Accounts payable and accrued expenses
 
28

 
22

Commodity contracts
 
Accounts payable and accrued expenses
 
11

 
8

Commodity contracts
 
Other noncurrent liabilities
 
8

 
5

Total
 
 
 
47

 
35

Total Liabilities
 
 
 
$
112

 
$
76

___________________________ 
(A) 
Amounts include the gross interest receivable or payable on our cross currency swap agreements.
Cash Flow Hedges
We use cash flow hedges to mitigate our exposure to changes in cash flows attributable to currency fluctuations associated with certain forecasted transactions, including purchases of raw materials and services denominated in non-functional currencies, the receipt of interest and principal on intercompany loans denominated in non-functional currencies, and the payment of interest and principal on debt issuances in a non-functional currency. Effective changes in the fair value of these cash flow hedging instruments are recognized in accumulated other comprehensive income (loss) (AOCI) on our Condensed Consolidated Balance Sheets. The effective changes are then recognized in the period that the forecasted purchases or payments impact earnings in the expense line item on our Condensed Consolidated Statements of Income that is consistent with the nature of the underlying hedged item. Any changes in the fair value of these cash flow hedges that are the result of ineffectiveness are recognized immediately in the expense line item on our Condensed Consolidated Statements of Income that is consistent with the nature of the underlying hedged item.
The following table summarizes our outstanding cash flow hedges as of the dates presented (all contracts denominated in a foreign currency have been converted into U.S. dollars using the period end spot rate):
 
 
July 3, 2015
 
December 31, 2014
Type
 
Notional Amount
 
Latest Maturity
 
Notional Amount
 
Latest Maturity
Foreign currency contracts
 
USD 1.2 billion
 
June 2021
 
USD 1.3 billion
 
June 2021

9

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


The following tables summarize the effect of our derivative financial instruments, net of tax, designated as cash flow hedges on our AOCI and Condensed Consolidated Statements of Income for the periods presented (in millions):
 
 
Amount of Gain (Loss) Recognized in AOCI on 
Derivative Instruments(A)
 
 
Second Quarter
 
First Six Months
Cash Flow Hedging Instruments
 
2015
 
2014
 
2015
 
2014
Foreign currency contracts
 
$
(23
)
 
$
(20
)
 
$
(17
)
 
$
(25
)
 
 
 
 
 
Amount of Gain (Loss) Reclassified from 
AOCI into Earnings(B)
 
 
 
 
Second Quarter
 
First Six Months
Cash Flow Hedging Instruments
 
Location - Statements of Income
 
2015
 
2014
 
2015
 
2014
Foreign currency contracts
 
Cost of sales
 
$
(3
)
 
$
1

 
$
(8
)
 
$
2

Foreign currency contracts(C)
 
Other nonoperating (expense) income
 
(18
)
 
(18
)
 
(5
)
 
(22
)
Total
 
 
 
$
(21
)
 
$
(17
)
 
$
(13
)
 
$
(20
)
___________________________
(A) 
The amount of ineffectiveness associated with these hedging instruments was not material.
(B) 
Over the next 12 months, deferred losses totaling $12 million are expected to be reclassified from AOCI as the forecasted transactions occur. The amounts will be recorded on our Condensed Consolidated Statements of Income in the expense line item that is consistent with the nature of the underlying hedged item.
(C) 
The gain (loss) recognized on these currency contracts is offset by the gain (loss) recognized on the remeasurement of the underlying debt instruments; therefore, there is a minimal consolidated net effect in other nonoperating (expense) income on our Condensed Consolidated Statements of Income.
Economic (Non-designated) Hedges
We periodically enter into derivative instruments that are designed to hedge various risks but are not designated as hedging instruments. These hedged risks include those related to commodity price fluctuations associated with forecasted purchases of aluminum, sugar, and vehicle fuel. At times, we also enter into other short-term non-designated hedges to mitigate our exposure to changes in cash flows attributable to currency fluctuations associated with short-term intercompany loans and certain cash equivalents denominated in non-functional currencies.
The following table summarizes our outstanding economic hedges as of the dates presented (all contracts denominated in a foreign currency have been converted into U.S. dollars using the period end spot rate):
 
 
July 3, 2015
 
December 31, 2014
Type
 
Notional Amount
 
Latest Maturity
 
Notional Amount
 
Latest Maturity
Foreign currency contracts
 
USD 540 million
 
December 2015
 
USD 222 million
 
July 2015
Commodity contracts
 
USD 195 million
 
December 2018
 
USD 125 million
 
December 2017
Changes in the fair value of outstanding economic hedges are recognized each reporting period in the expense line item on our Condensed Consolidated Statements of Income that is consistent with the nature of the hedged risk.

10

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


The following table summarizes the gains (losses) recognized from our non-designated derivative financial instruments on our Condensed Consolidated Statements of Income for the periods presented (in millions):
 
 
 
 
Second Quarter
 
First Six Months
Non-Designated Hedging Instruments
 
Location - Statements of Income
 
2015
 
2014
 
2015
 
2014
Commodity contracts
 
Cost of sales
 
$
(11
)
 
$
4

 
$
(10
)
 
$
(2
)
Commodity contracts
 
Selling, delivery, and administrative expenses
 
1

 
1

 
1

 

Foreign currency contracts
 
Other nonoperating (expense) income(A)
 
(15
)
 
(1
)
 
(28
)
 

Total
 
 
 
$
(25
)
 
$
4

 
$
(37
)
 
$
(2
)
___________________________
(A) 
The gain (loss) recognized on these currency contracts is offset by the gain (loss) recognized on the remeasurement of the underlying hedged items; therefore, there is a minimal consolidated net effect in other nonoperating (expense) income on our Condensed Consolidated Statements of Income.
Mark-to-market gains/losses related to our non-designated commodity hedges are recognized in the earnings of our Corporate segment until such time as the underlying hedged transaction affects the earnings of our Europe operating segment. In the period the underlying hedged transaction occurs, the accumulated mark-to-market gains/losses related to the hedged transaction are reclassified from the earnings of our Corporate segment into the earnings of our Europe operating segment. This treatment allows our Europe operating segment to reflect the true economic effects of the underlying hedged transaction in the period the hedged transaction occurs without experiencing the mark-to-market volatility associated with these non-designated commodity hedges.
As of July 3, 2015, our Corporate segment earnings included net mark-to-market losses on non-designated commodity hedges totaling $18 million. These amounts will be reclassified into the earnings of our Europe operating segment when the underlying hedged transactions occur. For additional information about our segment reporting, refer to Note 12.
The following table summarizes the deferred gain (loss) activity in our Corporate segment during the period presented (in millions):
Gains (Losses) Deferred at Corporate Segment(A)
 
Cost of Sales
 
SD&A
 
Total
Balance at December 31, 2014
 
$
1

 
$
(11
)
 
$
(10
)
Amounts recognized during the period and recorded in our Corporate segment, net
 
(11
)
 
1

 
(10
)
Amounts transferred from our Corporate segment to our Europe operating segment, net
 
(1
)
 
3

 
2

Balance at July 3, 2015
 
$
(11
)
 
$
(7
)
 
$
(18
)
___________________________
(A) 
Over the next 12 months, deferred losses totaling $10 million are expected to be reclassified from our Corporate segment earnings into the earnings of our Europe operating segment as the underlying hedged transactions occur.
Net Investment Hedges
We have entered into currency forwards, options, and foreign currency denominated borrowings designated as net investment hedges of our foreign subsidiaries. Changes in the fair value of these hedges resulting from currency exchange rate changes are recognized in AOCI on our Condensed Consolidated Balance Sheets to offset the change in the carrying value of the net investment being hedged. Any changes in the fair value of these hedges that are the result of ineffectiveness are recognized immediately in other nonoperating (expense) income on our Condensed Consolidated Statements of Income.

11

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


The following table summarizes our outstanding instruments designated as net investment hedges as of the dates presented:
 
 
July 3, 2015
 
December 31, 2014
Type
 
Notional Amount
 
Latest Maturity
 
Notional Amount
 
Latest Maturity
Foreign currency contracts
 
USD 525 million
 
August 2016
 
USD 250 million
 
November 2015
Foreign currency denominated debt
 
USD 2.0 billion
 
March 2030
 
USD 1.6 billion
 
May 2026
The following table summarizes the effect of our derivative financial instruments, net of tax, designated as net investment hedges on our AOCI for the periods presented (in millions):
 
 
Amount of Gain (Loss) Recognized in AOCI on 
Derivative Instruments(A)
 
 
Second Quarter
 
First Six Months
Net Investment Hedging Instruments
 
2015
 
2014
 
2015
 
2014
Foreign currency contracts
 
$
(2
)
 
$
1

 
$
15

 
$
1

Foreign currency denominated debt
 
(17
)
 
11

 
65

 
10

Total
 
$
(19
)
 
$
12

 
$
80

 
$
11

___________________________
(A) 
The amount of ineffectiveness associated with these hedging instruments was not material.

NOTE 7—DEBT
The following table summarizes our debt as of the dates presented (in millions, except rates):
 
 
July 3, 2015
 
December 31, 2014
 
Principal
Balance
 
Rates(A)
 
Principal
Balance
 
Rates(A)
U.S. dollar commercial paper
$
289

 
0.3
%
 
$
146

 
0.5
%
U.S. dollar notes due 2015-2021
1,794

 
3.1

 
1,793

 
3.1

Euro notes due 2017-2030(B)
2,380

 
2.4

 
1,987

 
2.6

Capital lease obligations(C)
21

 
n/a

 
26

 
n/a

Total debt(D)
4,484

 
 
 
3,952

 
 
Current portion of debt
(772
)
 
 
 
(632
)
 
 
Debt, less current portion
$
3,712

 
 
 
$
3,320

 
 
___________________________
(A) 
These rates represent the weighted average interest rates or effective interest rates on the balances outstanding, as adjusted for the effects of interest rate swap agreements, if applicable.
(B) 
In March 2015, we issued €500 million, 1.9 percent notes due 2030.
(C) 
These amounts represent the present value of our minimum capital lease payments.
(D) 
The total fair value of our outstanding debt, excluding capital lease obligations, was $4.6 billion and $4.2 billion at July 3, 2015 and December 31, 2014, respectively. The fair value of our debt is determined using quoted market prices for publicly traded instruments (Level 1).
Credit Facilities
We have amounts available to us for borrowing under a $1 billion multi-currency credit facility with a syndicate of eight banks. This credit facility matures in 2017 and is for general corporate purposes, including serving as a backstop to our commercial paper program and supporting our working capital needs. At July 3, 2015, our availability under this credit facility was $1 billion. Based on information currently available to us, we have no indication that the financial institutions syndicated under this facility would be unable to fulfill their commitments to us as of the date of the filing of this report.
Covenants
Our credit facility and outstanding notes contain various provisions that, among other things, require us to limit the incurrence of certain liens or encumbrances in excess of defined amounts. Additionally, our credit facility requires that we meet a minimum

12

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


interest coverage ratio. We were in compliance with these requirements as of July 3, 2015. These requirements currently are not, nor is it anticipated that they will become, restrictive to our liquidity or capital resources.
 
NOTE 8—COMMITMENTS AND CONTINGENCIES
Tax Audits
Our tax filings are subjected to audit by tax authorities in most jurisdictions in which we do business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. We believe that we have adequately provided for any assessments that could result from those proceedings where it is more likely than not that we will pay some amount.
Indemnifications
In the normal course of business, we enter into agreements that provide general indemnifications. We have not made significant indemnification payments under such agreements in the past, and we believe the likelihood of incurring such a payment obligation in the future is remote. Furthermore, we cannot reasonably estimate future potential payment obligations because we cannot predict when and under what circumstances they may be incurred. As a result, we have not recorded a liability in our Condensed Consolidated Financial Statements with respect to these general indemnifications.

NOTE 9—EMPLOYEE BENEFIT PLANS
Pension Plans
We sponsor a number of defined benefit pension plans. The following table summarizes the net periodic benefit costs of our pension plans for the periods presented (in millions):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
14

 
$
13

 
$
28

 
$
27

Interest cost
14

 
16

 
27

 
32

Expected return on plan assets
(25
)
 
(25
)
 
(49
)
 
(49
)
Amortization of net prior service cost

 
1

 

 
1

Amortization of actuarial loss
7

 
6

 
14

 
12

Total costs
$
10

 
$
11

 
$
20

 
$
23

Contributions
Contributions to our pension plans totaled $25 million and $27 million during the first six months of 2015 and 2014, respectively. The following table summarizes our projected contributions for the full year ending December 31, 2015, as well as actual contributions for the year ended December 31, 2014 (in millions):
 
Projected(A)
2015
 
Actual(A)
2014
Total pension contributions
$
55

 
$
51

___________________________
(A) 
These amounts represent only contributions made by CCE.

13

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 



NOTE 10—TAXES
Our effective tax rate was approximately 27 percent and 26 percent for the first six months of 2015 and 2014, respectively. The following table provides a reconciliation of our income tax expense at the statutory U.S. federal rate to our actual income tax expense for the periods presented (in millions):
 
First Six Months
 
2015
 
2014
U.S. federal statutory expense
$
131

 
$
147

Taxation of foreign operations, net(A)
(73
)
 
(78
)
U.S. taxation of foreign earnings, net of tax credits
32

 
35

Nondeductible items
4

 
6

Other, net
7

 
(2
)
Total provision for income taxes
$
101

 
$
108

___________________________
(A) 
Our effective tax rate reflects the benefit of having all of our operations outside of the U.S., most of which are taxed at statutory rates lower than the statutory U.S. rate, and the benefit of some income being fully or partially exempt from income taxes due to various operating and financing activities.
Repatriation of Current Year Foreign Earnings to the U.S.
During the third quarter of 2015, we expect to repatriate to the U.S. a portion of our 2015 foreign earnings to satisfy our 2015 U.S.-based cash flow needs. The amount to be repatriated to the U.S. will depend on, among other things, our actual 2015 foreign earnings and our actual 2015 U.S.-based cash flow needs. Our historical foreign earnings will continue to remain permanently reinvested, and, if we do not generate sufficient current year foreign earnings to repatriate to the U.S. in any future given year, we expect to have adequate access to capital in the U.S. to allow us to satisfy our U.S.-based cash flow needs in that year. Therefore, historical foreign earnings and future foreign earnings that are not repatriated to the U.S. will remain permanently reinvested and will be used to service our foreign operations and non-U.S. debt and to fund future acquisitions. For additional information about our undistributed foreign earnings, refer to Note 10 of the Notes to Consolidated Financial Statements in our Form 10-K.

NOTE 11—EARNINGS PER SHARE
We calculate our basic earnings per share by dividing net income by the weighted average number of shares and participating securities outstanding during the period. Our diluted earnings per share are calculated in a similar manner, but include the effect of dilutive securities. To the extent these securities are antidilutive, they are excluded from the calculation of diluted earnings per share.
The following table summarizes our basic and diluted earnings per share calculations for the periods presented (in millions, except per share data; per share data is calculated prior to rounding):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Net income
$
176

 
$
198

 
$
272

 
$
313

Basic weighted average shares outstanding
231

 
249

 
233

 
252

Effect of dilutive securities(A)
4

 
5

 
4

 
5

Diluted weighted average shares outstanding
235

 
254

 
237

 
257

Basic earnings per share
$
0.76

 
$
0.80

 
$
1.17

 
$
1.24

Diluted earnings per share
$
0.75

 
$
0.78

 
$
1.15

 
$
1.22

___________________________
(A) 
Options to purchase 7.6 million and 8.1 million shares were outstanding at July 3, 2015 and June 27, 2014, respectively. During the second quarter and first six months of 2015, options to purchase 0.8 million and 0.9 million shares, respectively, were not included in the computation of diluted earnings per share because the effect of including these options in the computation would have been antidilutive. During the second quarter and first six months of 2014, options to purchase 0.1 million and 0.8 million shares, respectively, were not included in the computation of diluted earnings per share because the effect of including these options in the computation would have been antidilutive. The dilutive impact of the remaining options outstanding in each period was included in the effect of dilutive securities.

14

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


During the second quarter and first six months of 2015, we repurchased 4.4 million and 11.3 million shares, respectively, and during the second quarter and first six months of 2014, we repurchased 6.5 million and 13.1 million shares, respectively, under our share repurchase program. Refer to Note 15.
During the first six months of 2015, we issued an aggregate of 1.0 million shares of common stock in connection with the exercise of share options with a total intrinsic value of $26.7 million.
Dividend payments on our common stock totaled $130 million and $125 million during the first six months of 2015 and 2014, respectively. In February 2015, our Board of Directors approved a $0.03 per share increase in our quarterly dividend from $0.25 per share to $0.28 per share beginning in the first quarter of 2015.

NOTE 12—OPERATING SEGMENT
We operate in one industry and have one operating segment (our Europe operating segment). This segment derives its revenues from marketing, producing, and distributing nonalcoholic beverages. No single customer accounted for more than 10 percent of our net sales during the first six months of 2015 or 2014.
Our segment operating income includes the segment’s revenue less substantially all the segment’s cost of production, distribution, and administration. We evaluate the segment’s performance based on several factors, of which net sales and operating income are the primary financial measures.
Mark-to-market gains (losses) related to our non-designated commodity hedges are recognized in the earnings of our Corporate segment until such time as the underlying hedged transaction affects the earnings of our Europe operating segment. In the period the underlying hedged transaction occurs, the accumulated mark-to-market gains (losses) related to the hedged transaction are reclassified from the earnings of our Corporate segment into the earnings of our Europe operating segment. This treatment allows our Europe operating segment to reflect the true economic effects of the underlying hedged transaction in the period the hedged transaction occurs without experiencing the mark-to-market volatility associated with these non-designated commodity hedges. For additional information about our non-designated hedges, refer to Note 6.
The following table summarizes selected segment financial information for the periods presented (in millions):
 
Europe
 
Corporate
 
Consolidated
Second Quarter 2015:
 
 
 
 
 
Net sales(A)
$
1,928

 
$

 
$
1,928

Operating income (loss)(B)
324

 
(49
)
 
275

Second Quarter 2014:
 
 
 
 
 
Net sales(A)
$
2,333

 
$

 
$
2,333

Operating income (loss)(B)
321

 
(26
)
 
295

First Six Months 2015:
 
 
 
 
 
Net sales(A)
$
3,559

 
$

 
$
3,559

Operating income (loss)(B)
514

 
(81
)
 
433

First Six Months 2014:
 
 
 
 
 
Net sales(A)
$
4,203

 
$

 
$
4,203

Operating income (loss)(B)
545

 
(66
)
 
479

___________________________

15

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


(A) 
The following table summarizes the contribution of total net sales by country as a percentage of total net sales for the periods presented:
 
First Six Months
 
2015
 
2014
Net sales:
 
 
 
Great Britain
35
%
 
32
%
France
30

 
32

Belgium
15

 
15

The Netherlands
8

 
8

Norway
7

 
7

Sweden
5

 
6

Total
100
%
 
100
%
 
(B) 
Our Corporate segment earnings include net mark-to-market losses on our non-designated commodity hedges totaling $8 million for the first six months of 2015 and net mark-to-market gains of $6 million for the first six months of 2014. As of July 3, 2015, our Corporate segment earnings included net mark-to-market losses on non-designated commodity hedges totaling $18 million. These amounts will be reclassified into the earnings of our Europe operating segment when the underlying hedged transactions occur. For additional information about our non-designated hedges, refer to Note 6.

NOTE 13—RESTRUCTURING ACTIVITIES
The following table summarizes our restructuring costs for the periods presented (in millions):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Europe (A)
$
4

 
$
54

 
$
13

 
$
62

Corporate

 

 

 

Total
$
4

 
$
54

 
$
13

 
$
62

___________________________
(A) 
During the second quarter and first six months of 2015, we incurred $4 million and $7 million, respectively, under our business transformation program. During the first six months of 2015, we incurred $6 million related to other restructuring activities.
Business Transformation Program
In 2012, we announced a business transformation program designed to improve our operating model and to create a platform for driving sustainable future growth. Through this program we have: (1) streamlined and reduced the cost structure of our finance support function, including the establishment of a new centralized shared services center; (2) restructured our sales and marketing organization to better align central and field sales and to deploy standardized channel-focused organizations within each of our territories; and (3) improved the efficiency and effectiveness of certain aspects of our operations, including activities related to our cold drink equipment.
We are substantially complete with this program, and to date our nonrecurring restructuring charges totaled $233 million, including severance, transition, consulting, accelerated depreciation, and lease termination costs. During the second quarter and first six months of 2015, we recorded nonrecurring restructuring charges under this program totaling $4 million and $7 million, respectively. During the second quarter and first six months of 2014, we recorded nonrecurring restructuring charges under this program totaling $54 million and $62 million, respectively. Substantially all nonrecurring restructuring charges related to this program are included in selling, delivery, and administrative expenses (SD&A) on our Condensed Consolidated Statements of Income.

16

COCA-COLA ENTERPRISES, INC.
Notes to Condensed Consolidated Financial Statements
 


The following table summarizes these restructuring charges for the periods presented (in millions):
 
Severance Pay
and Benefits
 
Accelerated
Depreciation(B)
 
Other(C)
 
Total
Balance at January 1, 2014(A)
$
30

 
$

 
$
12

 
$
42

Provision
26

 
7

 
48

 
81

Cash payments
(33
)
 

 
(55
)
 
(88
)
Noncash items

 
(7
)
 

 
(7
)
Balance at December 31, 2014(A)
23

 

 
5

 
28

Provision
1

 
1

 
5

 
7

Cash payments
(9
)
 

 
(5
)
 
(14
)
Noncash items

 
(1
)
 

 
(1
)
Balance at July 3, 2015(A)
$
15

 
$

 
$
5

 
$
20

___________________________
(A) 
Substantially all of the amounts are included in accounts payable and accrued expenses on our Condensed Consolidated Balance Sheets.
(B) 
Accelerated depreciation represents the difference between the depreciation expense of the asset using the original useful life and the depreciation expense of the asset under the reduced useful life due to the restructuring activity.
(C) 
During 2014, these charges primarily related to costs incurred regarding our cold drink operations, including social and other transition costs associated with the transfer of certain employees and assets to a third party.

NOTE 14—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
AOCI is comprised of net income and other adjustments, including foreign currency translation adjustments, hedges of our net investments in our foreign subsidiaries, changes in the fair value of certain derivative financial instruments qualifying as cash flow hedges, and pension plan adjustments. We do not provide income taxes on currency translation adjustments (CTA), as the historical earnings from our foreign subsidiaries are considered to be permanently reinvested. If current year earnings are repatriated, the amount to be repatriated is determined in U.S. dollars and converted to the equivalent amount of foreign currency at the time of repatriation; therefore, the repatriation of current year earnings does not have an impact on the CTA component of our AOCI balance.
The following table summarizes the change in the components of our AOCI balance for the periods presented (in millions; all amounts are presented net of tax):
 
 
Currency Translations
 
Net Investment Hedges
 
Cash Flow Hedges(A)
 
Pension Plan Adjustments(B)
 
Total
Balance at January 1, 2014
 
$
41

 
$
(54
)
 
$
(7
)
 
$
(311
)
 
$
(331
)
Other comprehensive (loss) income before reclassifications
 
(482
)
 
166

 
34

 
20

 
(262
)
Amounts reclassified from AOCI
 

 

 
(45
)
 
(76
)
 
(121
)
Net change in other comprehensive (loss) income
 
(482
)
 
166

 
(11
)
 
(56
)
 
(383
)
Balance at December 31, 2014
 
(441
)
 
112

 
(18
)
 
(367
)
 
(714
)
Other comprehensive (loss) income before reclassifications
 
(180
)
 
80

 
(17
)
 

 
(117
)
Amounts reclassified from AOCI
 

 

 
13

 
11

 
24

Net change in other comprehensive (loss) income
 
(180
)
 
80

 
(4
)
 
11

 
(93
)
Balance at July 3, 2015
 
$
(621
)
 
$
192

 
$
(22
)
 
$
(356
)
 
$
(807
)
___________________________
(A) 
For additional information about our cash flow hedges, refer to Note 6.
(B) 
For additional information about our pension plans, refer to Note 9.

NOTE 15—SHARE REPURCHASE PROGRAM
Beginning in October 2010, our Board of Directors approved a series of resolutions authorizing the repurchase of shares of our stock. Since 2010, we have repurchased $4.2 billion in outstanding shares, representing 123.7 million shares, under these resolutions. In December 2013, our Board of Directors authorized share repurchases for an aggregate price of not more than $1.0 billion. Share

17


repurchase activity under this authorization commenced during the second quarter of 2014 when the share repurchases under the previous authorization were completed. We currently have $69 million in authorized share repurchases remaining under the December 2013 resolution. In December 2014, our Board of Directors approved a resolution to authorize additional share repurchases for an aggregate price of not more than $1.0 billion.
We can repurchase shares in the open market and in privately negotiated transactions. Repurchased shares are added to treasury stock and are available for general corporate purposes, including acquisition financing and the funding of various employee benefit and compensation plans.
The following table summarizes the share repurchase activity for the periods presented (in millions, except per share data):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Number of shares repurchased
4.4

 
6.5

 
11.3

 
13.1

Weighted average purchase price per share
$
44.98

 
$
46.15

 
$
44.20

 
$
45.69

Amount of share repurchases(A)
$
200

 
$
300

 
$
500

 
$
600

___________________________
(A)
Total cash paid in the first six months of 2015 and 2014 for these share repurchases totaled $507 million and $588 million, respectively, due to the timing of settlement.
We currently expect to repurchase an additional $100 million in outstanding shares during 2015 under our share repurchase programs, subject to economic, operating, and other factors, including acquisition opportunities. In addition to market conditions, we consider alternative uses of cash and/or debt, balance sheet ratios, and shareowner returns when evaluating share repurchases. For additional information about our share repurchase program, refer to Note 15 of the Notes to Consolidated Financial Statements in our Form 10-K.

NOTE 16—FAIR VALUE MEASUREMENTS
The following tables summarize our non-pension financial assets and liabilities recorded at fair value on a recurring basis (at least annually) as of the dates presented (in millions):
 
July 3, 2015
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Derivative assets(A)
$
135

 
$

 
$
135

 
$

Derivative liabilities(A)
$
112

 
$

 
$
112

 
$

 
December 31, 2014
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Derivative assets(A)
$
85

 
$

 
$
85

 
$

Derivative liabilities(A)
$
76

 
$

 
$
76

 
$

___________________________
(A) 
We are required to report our derivative instruments at fair value. We calculate our derivative asset and liability values using a variety of valuation techniques, depending on the specific characteristics of the hedging instrument, taking into account credit risk. The fair value of our derivative contracts (including forwards, options, cross currency swaps, and interest rate swaps) is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and, therefore, our derivative contracts have been classified as Level 2. Inputs used in these standard valuation models include the applicable spot, forward, and discount rates which are current as of the valuation date. The standard valuation model for our option contracts also includes implied volatility which is specific to individual options and is based on rates quoted from a widely used third-party resource.
 

18

COCA-COLA ENTERPRISES, INC.



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Business and Basis of Presentation
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 are affected by a number of factors including, but not limited to, consumer preferences, cost to manufacture and distribute products, foreign currency exchange rates, general economic conditions, local and national laws and regulations, raw material availability, and weather patterns.
Sales of our products 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. The seasonality of our sales volume, combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Additionally, year-over-year shifts in holidays and selling days can impact our results on an interim period basis. Accordingly, our results for the second quarter and first six months of 2015 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2015.
For reporting convenience, our first three quarters close on the Friday closest to the end of the quarterly calendar period. Our fiscal year ends on December 31st. There were four additional selling days in the first quarter of 2015 versus the first quarter of 2014, and there will be four fewer selling days in the fourth quarter of 2015 versus the fourth quarter of 2014 (based upon a standard five-day selling week).
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Full
Year
2015
67

 
65

 
65

 
64

 
261

2014
63

 
65

 
65

 
68

 
261

Change
4

 

 

 
(4
)
 

Strategic Vision and 2015 Business Plan
Our strategic vision is to “be the best beverage sales and service company,” and to support this vision we are focused on three primary objectives which are to (1) lead category value growth; (2) excel at serving our customers with world-class capabilities; and (3) drive an inclusive and passionate culture. In addition to these objectives, we operate with a strong commitment to sustainability leadership and a shared vision and partnership with The Coca-Cola Company (TCCC). For more information about our transactions with TCCC, refer to Note 5 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
In alignment with our vision and objectives, our 2015 business plan is centered on strategies to navigate the realities of our operating environment, which include unfavorable macroeconomic conditions, a challenging customer environment, and shifting consumer taste and preferences. These strategies focus on leveraging our core brand portfolio, strengthening our focus on high growth brands, and continuing to promote brand and package innovation.  
Financial Results
Our net income in the second quarter of 2015 was $176 million, or $0.75 per diluted share, compared to net income of $198 million, or $0.78 per diluted share, in the second quarter of 2014. The following items included in our reported results affect the comparability of our year-over-year financial performance (the items listed below are based on defined terms and thresholds and represent all material items management considered for year-over-year comparability):
Second Quarter 2015
Charges totaling $4 million ($3 million net of tax, or $0.01 per diluted share) related to restructuring activities; and
Net mark-to-market losses totaling $10 million ($8 million net of tax, or $0.03 per diluted share) related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period.
Second Quarter 2014
Charges totaling $54 million ($36 million net of tax, or $0.14 per diluted share) related to restructuring activities; and
Net mark-to-market gains totaling $8 million ($5 million net of tax, or $0.02 per diluted share) related to non-designated commodity hedges associated with underlying transactions that relate to a different reporting period.

19

COCA-COLA ENTERPRISES, INC.


Our year-over-year financial performance during the second quarter of 2015 reflects the impact of the following significant factors:
Strong currency translation headwinds which decreased our net sales by 15.5 percent, our operating income by 19.5 percent, and our diluted earnings per share by 24.5 percent;
A continued soft consumer environment which resulted in a volume decrease of 1.0 percent;
Favorable cost trends in certain key commodities, driving bottle and can gross margin per case expansion of 2.0 percent;
Reduced restructuring expenses coupled with the impact of currency translation contributing to a 22.0 percent decline in operating expenses; and
The continuation of our share repurchase program which benefited our diluted earnings per share by $0.07.
Our operating and financial performance during the second quarter of 2015 was impacted by a soft consumer environment resulting in a 1.0 percent year-over-year decline in volume. Additionally, the weakening of the euro in relation to the U.S. dollar, which fell more than 19.0 percent year-over-year, had a significant impact on our financial performance in the second quarter of 2015.
On a territory basis, volume declined 1.0 percent in both Great Britain and continental Europe versus the second quarter of 2014. This result was driven by declines in our Coca-Cola trademark portfolio compared to strong performance in the same period of the prior year, offset partially by increased sales of our water and juice brands, particularly Capri-Sun. Our energy brands, including Monster, continued to perform well throughout our territories. During the second quarter of 2015, we continued to execute our 2015 business plan and marketing strategies to improve our long-term performance. In line with this plan, we advanced the activation of our newer brands, Coca-Cola Life, smartwater, and Finley, as well as expanded distribution of existing brands such as Capri-Sun and Monster.
Gross margin per case expanded year-over-year as our cost of sales per case decline of 3.0 percent outpaced a 1.0 percent decline in our net price per case. Our gross margin performance reflected the benefit of favorable cost trends in some of our key commodities, including aluminum, sugar, and PET (plastic). Our bottle and can net price per case decline resulted from our strategic approach to pricing in line with our 2015 plan given the current consumer and cost environment.
Operating expenses decreased $121 million during the second quarter of 2015 versus the second quarter of 2014 reflecting the impact of currency exchange rates and a reduction in restructuring expenses due to the substantial completion of our business transformation program.
Year-over-year diluted earnings per share declined 4.0 percent, including the impact of a $0.19 decrease due to currency exchange rates, offset by a $0.07 benefit from our share repurchase activity. During the second quarter of 2015 we repurchased approximately $200 million of our shares under our share repurchase program.
Looking Forward
Throughout the remainder of the year we will continue to adapt to marketplace challenges and we will continue to build on our one-brand strategy aimed at bringing a common identity to our Coca-Cola trademark portfolio and encouraging consumers to “Choose Happiness.” We also plan to maximize our presence during the upcoming 2015 Rugby World Cup in Great Britain through market-based promotion opportunities including customer programs, and interactive consumer and on-pack promotions. We are confident that by delivering against our 2015 plan we will achieve our objectives of returning to long-term growth and increasing shareowner value.

20

COCA-COLA ENTERPRISES, INC.


Operations Review
The following table summarizes our Condensed Consolidated Statements of Income as a percentage of net sales for the periods presented:
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Net sales
100.0
 %
 
100.0
%
 
100.0
%
 
100.0
%
Cost of sales
63.4

 
63.7

 
64.2

 
64.4

Gross profit
36.6

 
36.3

 
35.8

 
35.6

Selling, delivery, and administrative expenses
22.3

 
23.7

 
23.6

 
24.2

Operating income
14.3

 
12.6

 
12.2

 
11.4

Interest expense, net
1.6

 
1.2

 
1.7

 
1.4

Other nonoperating (expense) income
(0.1
)
 

 

 

Income before income taxes
12.6

 
11.4

 
10.5

 
10.0

Income tax expense
3.5

 
2.9

 
2.8

 
2.6

Net income
9.1
 %
 
8.5
%
 
7.7
%
 
7.4
%
Operating Income
The following table summarizes our operating income by segment for the periods presented (in millions; percentages rounded to the nearest 0.5 percent):
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
Europe
$
324

 
118.0
 %
 
$
321

 
109.0
 %
 
$
514

 
119.0
 %
 
$
545

 
114.0
 %
Corporate
(49
)
 
(18.0
)
 
(26
)
 
(9.0
)
 
(81
)
 
(19.0
)
 
(66
)
 
(14.0
)
Consolidated
$
275

 
100.0
 %
 
$
295

 
100.0
 %
 
$
433

 
100.0
 %
 
$
479

 
100.0
 %
During the second quarter and first six months of 2015, we generated operating income of $275 million and $433 million, respectively, compared to $295 million and $479 million in the second quarter and first six months of 2014, respectively. The following table summarizes the significant components of the year-over-year change in our operating income for the periods presented (in millions; percentages rounded to the nearest 0.5 percent):
 
Second Quarter 2015
 
First Six Months 2015
 
Amount
 
Change
Percent
of Total
 
Amount
 
Change
Percent
of Total
Changes in operating income:
 
 
 
 
 
 
 
Impact of bottle and can price-mix on gross profit
$
(20
)
 
(7.0
)%
 
$
(64
)
 
(13.5
)%
Impact of bottle and can cost-mix on gross profit
39

 
13.0

 
62

 
13.0

Impact of bottle and can volume on gross profit
(8
)
 
(2.5
)
 
(3
)
 
(0.5
)
Impact of bottle and can selling day shift on gross profit

 

 
34

 
7.0

Impact of post-mix, non-trade, and other on gross profit
3

 
1.0

 
6

 
1.5

Net mark-to-market gains related to non-designated commodity hedges
(18
)
 
(6.0
)
 
(14
)
 
(3.0
)
Net impact of restructuring charges
50

 
17.0

 
49

 
10.0

Other selling, delivery, and administrative expenses
(6
)
 
(2.0
)
 
(20
)
 
(4.0
)
Currency exchange rate changes
(58
)
 
(19.5
)
 
(95
)
 
(20.0
)
Other changes
(2
)
 
(1.0
)
 
(1
)
 

Change in operating income
$
(20
)
 
(7.0
)%
 
$
(46
)
 
(9.5
)%

21

COCA-COLA ENTERPRISES, INC.


Net Sales
Net sales decreased 17.5 percent in the second quarter of 2015 to $1.9 billion from $2.3 billion in the second quarter of 2014. Net sales decreased 15.5 percent during the first six months of 2015 to $3.6 billion from $4.2 billion in the first six months of 2014. These changes include currency exchange rate decreases of 15.5 percent and 16.0 percent when compared to the second quarter and first six months of 2014, respectively.
Net sales per case decreased 16.5 percent in the second quarter of 2015 when compared to the second quarter of 2014 and also decreased 17.0 percent in the first six months of 2015 when compared to the first six months of 2014. The following table summarizes the significant components of the year-over-year change in our net sales per case for the periods presented (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
 
Second Quarter 2015
 
First Six Months 2015
Changes in net sales per case:
 
 
 
Bottle and can net price per case
(1.0
)%
 
(1.5
)%
Bottle and can currency exchange rate changes
(15.5
)
 
(16.0
)
Post-mix, non-trade, and other

 
0.5

Change in net sales per case
(16.5
)%
 
(17.0
)%
During the second quarter of 2015, our bottle and can sales accounted for approximately 94 percent of our total net sales. Bottle and can net price per case is based on the invoice price charged to customers reduced by promotional allowances and is impacted by the price charged per package or brand, the volume generated in each package or brand, and the channels in which those packages or brands are sold. To the extent we are able to increase volume in higher-margin packages or brands that are sold through higher-margin channels, our bottle and can net pricing per case will increase without an actual increase in wholesale pricing. During the second quarter of 2015, our bottle and can net price per case declined 1.0 percent reflecting our strategic approach to pricing given the current consumer and cost environment, in line with our plan.
Volume
The following table summarizes the year-over-year change in our bottle and can volume for the periods presented, as adjusted to reflect the impact of four additional selling days in the first six months of 2015 when compared to the first six months of 2014 (rounded to the nearest 0.5 percent):
 
Second Quarter 2015
 
First Six Months 2015
Change in volume
(1.0
)%
 
2.5
 %
Impact of selling day shift(A)

 
(2.5
)
Change in volume, adjusted for selling day shift
(1.0
)%
 
 %
___________________________
(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, with the percentage change adjusted to reflect the impact of four additional selling days in the first six months of 2015 when compared to the first six months of 2014 (rounded to the nearest 0.5 percent):
 
Second Quarter
 
First Six Months
 
Change
 
2015 Percent of Total
 
2014 Percent of Total
 
Change
 
2015 Percent of Total
 
2014 Percent of Total
Coca-Cola trademark
(3.0
)%
 
67.0
%
 
68.5
%
 
(1.5
)%
 
68.0
%
 
69.0
%
Sparkling flavors and energy
0.5

 
18.0

 
18.0

 
0.5

 
17.5

 
17.5

Juices, isotonics, and other
4.0

 
11.0

 
10.0

 
3.0

 
11.0

 
10.5

Water
15.0

 
4.0

 
3.5

 
15.0

 
3.5

 
3.0

Total
(1.0
)%
 
100.0
%
 
100.0
%
 
 %
 
100.0
%
 
100.0
%
During the second quarter of 2015, volume declined 1.0 percent when compared to the second quarter of 2014. Our volume performance reflects the impact of a soft consumer environment and strong performance in the same period of the prior year. Volume declined 1.0 percent in both Great Britain and continental Europe, attributable to a decline in sparkling beverage brand sales, offset partially by strong growth in still beverage sales.

22

COCA-COLA ENTERPRISES, INC.


In the second quarter of 2015, our Coca-Cola trademark beverage brand sales declined 3.0 percent following strong performance in the same period of the prior year. Volume gains related to Coca-Cola Life and Coca-Cola Zero were offset by declines in     Coca-Cola Classic and Diet Coke/Coca-Cola light. Our sparkling flavors and energy category volume increased 0.5 percent during the second quarter of 2015, driven by continued growth in our energy portfolio, particularly Monster, which is now being distributed in all of our territories. These increases were partially offset by declines in our other sparkling flavors including Sprite and Schweppes. Juices, isotonics, and other volume increased 4.0 percent in the second quarter of 2015 driven by a double-digit increase in Capri-Sun, partially offset by declines in Minute Maid and Powerade. Sales volume of our water brands increased 15.0 percent in the second quarter of 2015, reflecting the continued expansion of smartwater in Great Britain and increased sales of Chaudfontaine in continental Europe.
During the second quarter of 2015, we continued to execute our 2015 business plan and marketing strategies to improve our long-term performance. We advanced the activation of our newer brands, Coca-Cola Life, smartwater, and Finley, as well as expanded distribution of existing brands such as Capri-Sun and Monster. Throughout the remainder of the year we will continue to adapt to marketplace challenges and we will continue to build on our one-brand strategy aimed at bringing a common identity to our     Coca-Cola trademark portfolio and encouraging consumers to “Choose Happiness.” We also plan to maximize our presence during the upcoming 2015 Rugby World Cup in Great Britain through market-based promotion opportunities including customer programs, and interactive consumer and on-pack promotions. We are confident that by delivering against our 2015 plan we will achieve our objectives of returning to long-term growth and increasing shareowner value.
Consumption
The following table summarizes our volume by consumption type for the periods presented, with the percentage change adjusted to reflect the impact of four additional selling days in the first six months of 2015 when compared to the first six months of 2014 (rounded to the nearest 0.5 percent):
 
Second Quarter
 
First Six Months
 
Change
 
2015 Percent of Total
 
2014 Percent of Total
 
Change
 
2015 Percent of Total
 
2014 Percent of Total
Future Consumption(A)
(1.5
)%
 
64.5
%
 
65.0
%
 
(0.5
)%
 
64.5
%
 
65.0
%
Immediate Consumption(B)

 
35.5

 
35.0

 
0.5

 
35.5