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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 1, 1994
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.)
One Coca-Cola Plaza, N.W., Atlanta, Georgia 30313
(Address of principal executive offices) (Zip Code)
404-676-2100
(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.
130,437,466 Shares of $1 Par Value Common Stock as of August 10, 1994
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<PAGE>
COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JULY 1, 1994
INDEX
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Page
----
Part I - Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters ended July 1, 1994 and
July 2, 1993. . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations
for the Six Months ended July 1, 1994 and
July 2, 1993. . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets as of
July 1, 1994 and December 31, 1993. . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows
for the Six Months ended July 1, 1994 and
July 2, 1993. . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . 6
Part I - Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 11
Part II - Item 1. Legal Proceedings . . . . . . . . . . . . . 15
Part II - Item 6. Exhibits and Reports on Form 8-K . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Quarter ended
-------------------
July 1, July 2,
1994 1993
------- -------
Net Operating Revenues. . . . . . . . . . . . . $ 1,610 $ 1,448
Cost of sales . . . . . . . . . . . . . . . . . 987 892
------- -------
Gross Profit. . . . . . . . . . . . . . . . . . 623 556
Selling, general and administrative expenses. . 473 423
------- -------
Operating Income. . . . . . . . . . . . . . . . 150 133
Interest expense, net . . . . . . . . . . . . . 77 81
------- -------
Income Before Income Taxes. . . . . . . . . . . 73 52
Income tax expense. . . . . . . . . . . . . . . 35 36
------- -------
Net Income. . . . . . . . . . . . . . . . . . . 38 16
Preferred stock dividend requirements . . . . . - -
------- -------
Net Income Applicable To Common Share Owners. . $ 38 $ 16
======= =======
Average Common Shares Outstanding . . . . . . . 130 130
======= =======
Net Income Per Common Share . . . . . . . . . . $ 0.29 $ 0.13
======= =======
Dividends Per Common Share. . . . . . . . . . . $0.0125 $0.0125
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 1 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Six Months ended
-------------------
July 1, July 2,
1994 1993
------- -------
Net Operating Revenues. . . . . . . . . . . . . $2,929 $2,656
Cost of sales . . . . . . . . . . . . . . . . . 1,786 1,623
------ ------
Gross Profit. . . . . . . . . . . . . . . . . . 1,143 1,033
Selling, general and administrative expenses. . 924 831
------ ------
Operating Income. . . . . . . . . . . . . . . . 219 202
Interest expense, net . . . . . . . . . . . . . 157 164
Other nonoperating deductions, net. . . . . . . 2 1
------ ------
Income Before Income Taxes. . . . . . . . . . . 60 37
Income tax expense. . . . . . . . . . . . . . . 28 25
------ ------
Net Income. . . . . . . . . . . . . . . . . . . 32 12
Preferred stock dividend requirements . . . . . 1 -
------ ------
Net Income Applicable To Common Share Owners. . $ 31 $ 12
====== ======
Average Common Shares Outstanding . . . . . . . 130 130
====== ======
Net Income Per Common Share . . . . . . . . . . $ 0.24 $ 0.09
====== ======
Dividends Per Common Share. . . . . . . . . . . $0.025 $0.025
====== ======
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
July 1, December 31,
ASSETS 1994 1993
--------- ------------
(Unaudited)
CURRENT
Cash and cash equivalents, at cost
(approximates market) . . . . . . . . . . . $ 104 $ 11
Trade accounts receivable, less allowances
of $31 and $33, respectively. . . . . . . . 547 442
Inventories:
Finished goods. . . . . . . . . . . . . . . 169 134
Raw materials . . . . . . . . . . . . . . . 57 48
Other . . . . . . . . . . . . . . . . . . . 24 18
------ ------
250 200
Prepaid expenses and other assets . . . . . . 82 93
------ ------
Total Current Assets. . . . . . . . . . . . . 983 746
PROPERTY, PLANT AND EQUIPMENT
Land. . . . . . . . . . . . . . . . . . . . . 163 163
Buildings and improvements. . . . . . . . . . 635 622
Machinery and equipment . . . . . . . . . . . 2,254 2,132
------ ------
3,052 2,917
Less allowances for depreciation. . . . . . . 1,232 1,121
------ ------
1,820 1,796
Construction in progress. . . . . . . . . . . 123 94
------ ------
1,943 1,890
FRANCHISE AND OTHER NONCURRENT ASSETS . . . . . 6,015 6,046
------ ------
$8,941 $8,682
====== ======
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
July 1, December 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1994 1993
--------- ------------
(Unaudited)
CURRENT
Accounts payable and accrued expenses . . . . $ 871 $ 699
Current maturities of long-term debt. . . . . 562 308
------ ------
Total Current Liabilities . . . . . . . . . . 1,433 1,007
LONG-TERM DEBT. . . . . . . . . . . . . . . . . 3,809 4,083
DEFERRED INCOME TAXES . . . . . . . . . . . . . 1,859 1,831
OTHER LONG-TERM OBLIGATIONS . . . . . . . . . . 524 501
SHARE-OWNERS' EQUITY
Preferred stock, $35 stated value;
Authorized and issued - 1,000,000 shares. . 29 29
Common stock, $1 par value; Authorized -
500,000,000 shares; Issued - 143,448,098
and 142,182,183 shares, respectively. . . . 143 142
Paid-in capital . . . . . . . . . . . . . . . 1,290 1,280
Reinvested earnings . . . . . . . . . . . . . 37 9
Cumulative translation adjustment . . . . . . 14 (3)
Common stock in treasury, at cost
(13,011,698 and 13,004,598 shares,
respectively) . . . . . . . . . . . . . . (197) (197)
------ ------
1,316 1,260
------ ------
$8,941 $8,682
====== ======
- 4 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Six Months ended
------------------
July 1, July 2,
1994 1993
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . $ 32 $ 12
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . 138 118
Amortization. . . . . . . . . . . . . . . . 89 81
Deferred income taxes . . . . . . . . . . . 26 21
Changes in current assets and
current liabilities . . . . . . . . . . . 34 (64)
Other nonoperating cash flows . . . . . . . 3 12
----- -----
Net cash provided by operating activities . . . 322 180
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . (197) (137)
Proceeds from the sale of property,
plant and equipment . . . . . . . . . . . . . 9 11
Acquisitions of and investments in businesses . (7) (264)
----- -----
Net cash used for investing activities. . . . . (195) (390)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of debt. . . . . . . 243 530
Payments on debt. . . . . . . . . . . . . . . . (265) (314)
Dividends on common stock . . . . . . . . . . . (3) (3)
Proceeds from the issuance of common stock. . . 9 -
Purchase of treasury stock. . . . . . . . . . . - (6)
Other financing activities. . . . . . . . . . . (18) -
----- -----
Net cash provided by (used for) financing
activities. . . . . . . . . . . . . . . . . . (34) 207
----- -----
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS DURING THE PERIOD. . . . . . 93 (3)
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . 11 6
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . $ 104 $ 3
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements
include the accounts of Coca-Cola Enterprises Inc. (the "Company") and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial reporting
and with the instructions to Form 10-Q and Article 10 of Regulation S-X as
promulgated by the Securities and Exchange Commission. Such financial
statements do not include all disclosures required by generally accepted
accounting principles for annual financial statement reporting purposes.
However, there has been no material change in the information disclosed in
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, except as
disclosed herein. Accordingly, the information contained herein should be
read in conjunction with the consolidated financial statements and related
disclosures contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993. The accompanying financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the interim
periods presented.
Note B - Seasonality of Business
- --------------------------------
The results of normal business operations for the interim periods covered
by this report are not necessarily indicative of the results expected for
the full year due to the seasonality of the Company's business. Unit sales
of the Company's products are generally greater in the second and third
quarters due to seasonal factors.
Note C - Acquisitions
- ---------------------
On June 30, 1993, the Company acquired the stock of (i) Coca-Cola Beverages
Nederland B.V.; (ii) Roddy Coca-Cola Bottling Company, Inc.; and (iii)
Coca-Cola Bottling Company of Johnson City (collectively the
"acquisition"). The results of operations of these acquired companies are
included in the consolidated statements of operations of the Company as of
the beginning of the third quarter of 1993.
- 6 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note C - Acquisitions (continued)
- ---------------------------------
The following unaudited pro forma results of operations reflect certain
reclassifications to conform to the Company's basis of presentation and
assume the acquisition occurred as of January 1, 1993 (in millions except
per share amounts):
Six Months ended
July 2, 1993
----------------
Net Operating Revenues . . . . . . . . . . . . $2,859
Cost of sales. . . . . . . . . . . . . . . . . 1,786
------
Gross Profit . . . . . . . . . . . . . . . . . 1,073
Selling, general and administrative expenses . 865
------
Operating Income . . . . . . . . . . . . . . . 208
Interest expense, net. . . . . . . . . . . . . 169
Other nonoperating deductions, net . . . . . . 1
------
Income Before Income Taxes . . . . . . . . . . 38
Income tax expense . . . . . . . . . . . . . . 26
------
Net Income . . . . . . . . . . . . . . . . . . $ 12
======
Average Common Shares Outstanding. . . . . . . 130
======
Net Income Per Common Share. . . . . . . . . . $ 0.09
======
Depreciation . . . . . . . . . . . . . . . . . $ 130
======
Amortization . . . . . . . . . . . . . . . . . $ 88
======
The foregoing reflects certain pro forma adjustments to give effect to
(i) interest expense on acquisition financing through issuance of
commercial paper at an interest rate of 3.1% for the preacquisition period
of 1993; (ii) repayment of assumed debt; (iii) amortization of the
franchise assets acquired in the acquisition; and (iv) the income tax
effect of such pro forma adjustments.
- 7 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note D - Inventories
- --------------------
In the second quarter of 1994, the Company changed to the first-in, first-
out (FIFO) method of accounting for inventories from the last-in, first-out
(LIFO) method as the principal method of accounting for inventories. The
change did not have a significant impact on results of operations in the
second quarter and it is anticipated that the change will not have a
material effect on results of operations for full-year 1994 and future
periods. Inventory costs did not differ significantly under the LIFO
method when compared to the FIFO method prior to this change. The FIFO
method is the predominant accounting method within the Company's industry.
The LIFO reserve at December 31, 1993, included in Other Inventories in the
condensed consolidated balance sheet, approximated $2 million.
Note E - Long-Term Debt
- -----------------------
Long-term debt including current maturities consists of the following (in
millions):
July 1, December 31,
1994 1993
------- ------------
Commercial Paper . . . . . . . . . . . . . $ 757 $ 522
8.20% Notes, due 1994. . . . . . . . . . . 243 243
8.35% Notes, due 1995. . . . . . . . . . . 250 250
6.50% and 7.875% Notes, due 1997 . . . . . 300 550
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
8.00% and 8.50% Debentures, due 2022 . . . 1,000 1,000
6.75% Debentures, due 2023 . . . . . . . . 250 250
Other long-term obligations. . . . . . . . 217 222
------ ------
$4,371 $4,391
====== ======
Maturities of long-term debt for the five twelve-month periods subsequent
to July 1, 1994 are as follows: 1995 - $562 million; 1996 - $771 million;
1997 - $29 million; 1998 - $311 million; and 1999 - $4 million.
The Company's commercial paper program is supported by a revolving bank
credit agreement maturing in April 1996 and two short-term credit
facilities aggregating $1.2 billion. There are no borrowings outstanding
under these agreements; however, under the commercial paper program
supported by these agreements, an aggregate $757 million was outstanding at
July 1, 1994. The weighted average interest rate of borrowings under the
commercial paper program at July 1, 1994 approximated 4.5% per annum.
- 8 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note F - Income Taxes
- ---------------------
In August 1993, the Omnibus Budget Reconciliation Act was signed into law.
The Company was affected principally by the increase in the corporate
marginal income tax rate from 34% to 35%. The Company's effective tax
rates for the first six months of 1994 and 1993 were approximately 48% and
69%, respectively.
A reconciliation of the effective income tax provision at the statutory
federal rate to the Company's actual income tax provision follows (in
millions):
Six Months ended
----------------
July 1, July 2,
1994 1993
------- -------
Statutory provision (35% and 34%, respectively) $ 21 $ 13
State provision - net of federal effect . . . 6 8
Nondeductible items . . . . . . . . . . . . . 1 1
Other, net. . . . . . . . . . . . . . . . . . - 3
--- ----
$28 $ 25
=== ====
Note G - Stock Options and Other Stock Plans
- --------------------------------------------
The Company's 1994 Stock Option Plan (the "1994 Plan"), adopted during the
first quarter of 1994, provides for awards to certain officers and key
employees of the Company. The plan provides that options for up to two
million shares of the Company's common stock may be granted. Options
awarded under the 1994 Plan (i) are generally granted at prices which
equate to or are above fair market value on date of grant; (ii) vest
ratably over a three year period; and (iii) expire ten years from the date
of grant. For certain senior executives receiving awards under the 1994
Plan, the options are performance-vested and become exercisable solely upon
attainment of certain increases in the market price of the Company's common
stock within five years from the date of grant.
During the second quarter of 1994, options to acquire 1,607,800 common
shares were issued under the 1994 Plan. The option price for such awards
was (i) $17.6875 with respect to 525,500 awards, representing fair market
value on the date of grant; (ii) $21.225 with respect to 374,300 awards,
representing a 20% premium over fair market value on the date of grant; and
(iii) $17.6875 with respect to 708,000 performance-vested options,
representing fair market value on the date of grant.
- 9 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note G - Stock Options and Other Stock Plans (continued)
- --------------------------------------------------------
An aggregate 580,915 shares of common stock have been issued during the
first six months of 1994 primarily as a result of the exercise of stock
options under the Company's 1991 Stock Option Plan, 1990 Management Stock
Option Plan and 1986 Stock Option Plan.
The Company's 1992 Restricted Stock Award Plan (the "1992 Plan") was
amended and restated effective as of February 7, 1994 with respect to
awards after that date. Upon attainment of certain increases in the market
price of the Company's common stock within five years from the date of
grant, ownership restrictions on the common stock will be removed. The
Company has reserved a total of 725,000 shares of common stock of the
Company for issuance in connection with awards granted under the amended
plan. During the second quarter of 1994, an aggregate 685,000 shares of
common stock were awarded under the amended plan. An aggregate 7,000
restricted shares issued under the 1992 Plan were forfeited during the
second quarter and returned to treasury.
Note H - Contingencies
- ----------------------
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by law
or contract. Generally, the Company is self-insured for certain expected
losses related primarily to workers' compensation, physical loss to
property, business interruption resulting from such loss and comprehensive
general, product and vehicle liability. Provisions for losses expected
under these programs are recorded based upon the Company's estimates of the
aggregate liability for claims incurred. Such estimates utilize certain
actuarial assumptions followed in the insurance industry. The Company has
provided letters of credit aggregating approximately $82 million primarily
in connection with self-insurance programs.
The Company is obligated to guarantee payment of as much as $152 million of
indebtedness owed by a manufacturing cooperative which serves as a supplier
of certain packaging used in the Company's manufacturing process. The
cooperative currently has outstanding approximately $60 million of
indebtedness which is guaranteed by the Company.
Federal, state and local laws govern the Company's operation of underground
fuel storage tanks and the required removal, replacement or modification of
such tanks to satisfy regulations which go into effect in varying stages
through 1998. The Company has completed the majority of its multi-year
program for remediation of environmental contamination related to
underground fuel storage tanks. Completion of the Company's remediation
program is not expected to have a material adverse effect on the Company's
financial position or results of operations.
- 10 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations
- ---------------------------------------------
OPERATING RESULTS
Business Strategy
- -----------------
We can best achieve our goal of enhancing share-owner value by increasing
long-term operating cash flows through profitable increases in sales
volume. Such increases are obtained through the balancing of growth in
case sales with optimal profit margins and sustainable increases in market
share. We attempt to increase our share of liquid nonalcoholic refreshment
sales and per capita consumption of our products through the development of
innovative marketing programs, improved execution at the local level and
new product introductions.
Careful consideration is given to all the potential uses of our long-term
operating cash flows, including strategic acquisition opportunities. We
are interested in continuing both international and domestic expansion
given the right opportunities and provided they grow share-owner value over
the long term.
Revenues, Pricing and Volume
- ----------------------------
Net operating revenues for the second quarter of 1994 increased
approximately 11% over the same period of 1993, resulting from an
approximate 11% increase in bottle/can physical case sales volume and an
approximate 1% increase in net pricing. Net operating revenues for the
first six months of 1994 increased approximately 10% over the same period
of 1993, resulting from an approximate 10% increase in bottle/can physical
case sales volume and an approximate 1/2% increase in net pricing.
Net operating revenues for the second quarter of 1994, adjusted for the
effect of significant acquisitions, increased approximately 3% over the
same period of 1993, resulting from an approximate 3 1/2% increase in
comparable bottle/can physical case sales volume, coupled with an
approximate 1% increase in comparable net pricing. Comparable net
operating revenues for the first six months of 1994 increased approximately
2% over the same period of 1993, resulting from an approximate 3% increase
in comparable bottle/can physical case sales volume and an approximate 1/2%
increase in comparable net pricing.
We continue to expect comparable bottle/can physical case volume growth for
full-year 1994 to exceed our 1993 full-year growth rate of 2%. Our ability
to sustain increases in net pricing for the remainder of 1994 may be
difficult due to the competitive environment and the significant increases
in net pricing we achieved during the second half of 1993.
- 11 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
Revenues Pricing and Volume (continued)
- ---------------------------------------
Fountain sales volume increased for the second quarter and first six months
of 1994 by approximately 7% and 8 1/2%, respectively, over the same periods
of 1993, and approximately 3% and 4 1/2%, respectively, on a comparable
basis. This increase in fountain sales does not have a significant impact
on our operating results as operating margins on fountain sales are
relatively low.
Cost of Sales
- -------------
Cost of sales per physical case for the second quarter and first six months
of 1994 (excluding fountain sales) increased approximately 1% and 1/2%,
respectively, as compared to the same periods of 1993. Excluding
international operations, which were acquired in 1993 and have a higher
cost per unit, cost of sales per physical case for the second quarter and
first six months of 1994 decreased approximately 1/2% and 1%, respectively,
as compared to the same periods of 1993. This decrease reflects favorable
packaging costs which more than offset increases in ingredient costs.
However, we anticipate that cost of sales per unit for the second half of
1994 will be the same as or slightly higher than the same prior year period
due to concentrate and sweetener price increases and the effect of certain
new products and packages.
In the second quarter of 1994, the Company changed to the FIFO method of
accounting from the LIFO method of accounting as the principal method of
accounting for inventories. The change did not have a significant impact
on results of operations in the second quarter and we believe the change
will not have a material effect on results of operations for full-year 1994
and future periods.
The LIFO method of accounting, as compared to the FIFO method of accounting
is not a significant accounting policy of the Company because the
difference between the two methods is not material to the results of
operations or the trend of earnings. The Company's inventory turns over
many times annually and a majority of the Company's products have shelf
life restrictions. As a result, the LIFO method of accounting is counter-
intuitive to the Company's operations. FIFO is the predominant accounting
method of other companies within the industry.
- 12 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased approximately
11 1/2% and 11%, respectively, during the second quarter and first six
months of 1994 as compared to the same periods in 1993, principally as a
result of increased case sales volume during the period and the effect of
acquisitions. Selling, general and administrative expenses increased as a
percent of sales in the second quarter and first six months of 1994 from
approximately 29.2% and 31.3%, respectively, to 29.4% and 31.6%,
respectively, as compared to the same periods of 1993. These increases are
primarily a result of increases in advertising and other general
administrative expenses.
Operating Income, Earnings Per Share and Cash Operating Profit
- --------------------------------------------------------------
In the second quarter of 1994, we were able to achieve volume and net price
increases and reduce domestic cost of wholesale sales per case, generating
favorable operating profit performance. This performance is evidenced by
an increase in operating income of approximately 13% and 8% for the second
quarter and first six months of 1994, respectively, as compared to the same
periods in 1993. Comparable operating income increased approximately 10%
and 5% for the second quarter and first six months of 1994, respectively,
as compared to the same prior-year periods.
Our favorable operating performance, combined with reduced net interest
costs and a lower effective tax rate, resulted in an increase in actual and
comparable net income per common share of approximately 123% and 167% for
the second quarter and first six months of 1994, respectively, over the
same periods of 1993.
Comparable cash operating profit (operating income before the deduction for
depreciation and amortization), increased approximately 7% and 5% in the
second quarter and first six months of 1994, respectively, over the same
periods of 1993. We continue to expect growth in comparable cash operating
profit for full-year 1994 of approximately 8% given the current operating
and competitive environment.
Interest Expense
- ----------------
The decrease in interest expense reflects the lower weighted average
borrowing rate of approximately 7.2% for the first six months of 1994 as
compared to 7.8% for the first six months of 1993, and the decreased net
debt balance as compared to 1993. Net interest expense for full-year 1994
should not be appreciably different from 1993.
- 13 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
Income Taxes
- ------------
In August 1993, the Omnibus Budget Reconciliation Act was signed into law.
The Company was affected primarily by the increase in the corporate
marginal income tax rate from 34% to 35%.
The Company's effective tax rates for the first six months of 1994 and 1993
were approximately 48% and 69%, respectively. The change in the effective
tax rate between the periods is principally the result of increased full-
year earnings expectations for 1994 as compared to annual expectations for
1993 contemplated at the end of the first six months of 1993.
FINANCIAL POSITION
The increase in cash and cash equivalents during the second quarter of 1994
reflects additional borrowings under the commercial paper program in
anticipation of the payoff of the 8.20% Notes due 1994, which occurred on
July 18, 1994. The increase in accounts receivable, inventories, and
accounts payable and accrued expenses, reflects the results of the seasonal
activity of our business. The change in the cumulative translation
adjustment results from the decrease in the value of the dollar against the
Dutch florin, primarily during the second quarter of 1994.
Our commercial paper program is supported by a revolving bank credit
agreement maturing in April 1996 and two short-term credit facilities
aggregating $1.2 billion. There are no borrowings outstanding under these
agreements; however, under the commercial paper program supported by these
agreements, an aggregate $757 million was outstanding at July 1, 1994.
The Company is a party to litigation surrounding the constitutionality of a
Michigan statute requiring bottlers to pay unclaimed container deposits to
the state. The statute, previously found to be unconstitutional by a lower
court ruling, was found to be constitutional by the Michigan Court of
Appeals on August 1, 1994. The Company, in conjunction with other bottlers
doing business in Michigan, is currently evaluating alternatives for
responding to the appeals court decision. The Company has a contingent
liability for unclaimed container deposits from the effective date of the
statute to June 30, 1994 of approximately $12.5 million. The ultimate
outcome of the litigation is not expected to have a material impact on the
financial condition of the Company as the Company has adequately provided
for any assessments for unclaimed container deposits in Michigan.
In the past seven years the Company has acquired numerous bottlers for an
aggregate purchase price of approximately $5.6 billion, resulting in a high
level of financial leverage. Our capital structure, combined with our cash
flow streams, however, allow us to maintain a high degree of financial
flexibility.
- 14 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
FINANCIAL POSITION (continued)
- ------------------------------
In addition to operating cash flows, our external 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. We
believe that adequate resources are available to satisfy our capital
expenditure and acquisition programs, and to satisfy scheduled maturities
of debt obligations. We anticipate that capital expenditures will
approximate $375 million to $425 million for full-year 1994.
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings
- --------------------------
On August 1, 1994, the Michigan Court of Appeals affirmed the
constitutionality of a Michigan statute requiring bottlers to pay unclaimed
container deposits to the state, effective as of January 1, 1990, and
ordered the dissolution of an existing injunction against enforcement of
the statute. The ruling of a lower court which had held portions of the
statute unconstitutional, and the subsequent appeal of that ruling by
Michigan, were reported in the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1993. No decision has yet been made
concerning an appeal to the Supreme Court of Michigan; a timely appeal to
that court will stay the enforcement of the statute, unless otherwise
ordered by the court.
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 Filed Herewith
computations of ratios
18 Letter regarding change Filed Herewith
in accounting principle
for inventories
- 15 -
<PAGE>
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(b) Reports on Form 8-K:
During the second quarter of 1994, the Company filed the following current
report on Form 8-K:
Date of Report Description
- ---------------- --------------------------------------
April 18, 1994 Condensed Consolidated Statements of
Operations (unaudited) of the Company,
reporting financial results for the
first quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COCA-COLA ENTERPRISES INC.
(Registrant)
Date: August 10, 1994 /s/ JOHN R. ALM
---------------------------
John R. Alm
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
Date: August 10, 1994 /s/ BERNICE H. WINTER
---------------------------
Bernice H. Winter
Vice President and Controller
(Principal Accounting Officer)
- 16 -
<PAGE>
COCA-COLA ENTERPRISES INC. Exhibit 12
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In millions except ratios)
Quarter ended Six Months ended
---------------- ----------------
July 1, July 2, July 1, July 2,
1994 1993 1994 1993
------- ------- ------- -------
Computation of Earnings:
Earnings from continuing operations
before income taxes. . . . . . . . . . $ 73 $ 52 $ 60 $ 37
Add:
Interest expense . . . . . . . . . . . 77 82 159 166
Amortization of debt
premium/discount and expenses. . . . 1 1 1 1
Interest portion of rent expense . . . 2 2 5 4
---- ---- ---- ----
Earnings as Adjusted . . . . . . . . . . . $153 $137 $225 $208
==== ==== ==== ====
Computation of Fixed Charges:
Interest expense . . . . . . . . . . . . $ 77 $ 82 $159 $166
Capitalized interest . . . . . . . . . . 1 - 1 -
Amortization of debt
premium/discount and expenses. . . . . 1 1 1 1
Interest portion of rent expense . . . . 2 2 5 4
---- ---- ---- ----
Fixed Charges. . . . . . . . . . . . . . . 81 85 166 171
Preferred stock dividends (a). . . . . . 1 - 2 -
---- ---- ---- ----
Combined Fixed Charges and Preferred
Stock Dividends. . . . . . . . . . . . . $ 82 $ 85 $168 $171
==== ==== ==== ====
Ratio of Earnings to Fixed Charges . . . . 1.89 1.61 1.36 1.22
==== ==== ==== ====
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends. . 1.87 1.61 1.34 1.22
==== ==== ==== ====
(a) Preferred stock dividends have been increased to an amount representing
the pretax earnings which would be required to cover such dividend
requirements.
August 2, 1994
Mr. John R. Alm
Senior Vice President and
Chief Financial Officer
Coca-Cola Enterprises Inc.
Atlanta, Georgia
Dear Sir:
Note D of the Notes to Condensed Consolidated Financial Statements
of Coca-Cola Enterprises Inc. included in its Quarterly Report on
Form 10-Q for the quarter ended July 1, 1994, describes a change in
the method of accounting for inventories from the last-in, first-
out ("LIFO") method to the first-in, first-out ("FIFO") method.
You have advised us that you believe the change is to a preferable
method in your circumstances because: (1) it will enhance the
comparability of the Company's financial statements by changing to
the predominant method utilized in the industry and to the
principal method of the Company's largest shareholder; (2)
differences between the results under LIFO or FIFO accounting
methods are not material to the historical results of operations of
the Company, and the differences are not expected to be material in
the future based on the manner in which the Company currently
operates; and (3) the change to FIFO will allow the Company to
reduce the costs incurred in administering the current LIFO system
and avoid the expenditure of future costs to design and implement
a LIFO cost accounting system in connection with the current
modification and upgrade of the Company's management information
system.
There are no authoritative criteria for determining a "preferable"
method of costing inventories based on the particular
circumstances; however, we conclude that the change in the method
of accounting for inventories from LIFO to FIFO is an acceptable
alternative method which, based on your business judgment to make
this change for the reasons cited above, is preferable in your
circumstances. We have not conducted an audit in accordance with
generally accepted auditing standards of any financial statements
of the Company as of any date or for any period subsequent to
December 31, 1993, and therefore we do not express any opinion on
any financial statements of Coca-Cola Enterprises Inc. subsequent
to that date.
Very truly yours,
Ernst & Young LLP /S/
<PAGE>
