===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 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.
130,346,684 Shares of $1 Par Value Common Stock as of November 7, 1994
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COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
INDEX
Page
----
Part I - Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters ended September 30, 1994 and
October 1, 1993 . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations
for the Nine Months ended September 30, 1994 and
October 1, 1993 . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets as of
September 30, 1994 and December 31, 1993. . . . . . . 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1994 and
October 1, 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. . . . . . 12
Part II - Item 1. Legal Proceedings . . . . . . . . . . . . . 16
Part II - Item 6. Exhibits and Reports on Form 8-K. . . . . . 16
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements (unaudited)
- -----------------------------------------
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions except per share data)
Quarter ended
-------------------------
September 30, October 1,
1994 1993
------------- ----------
Net Operating Revenues. . . . . . . . . . . . . $ 1,595 $ 1,487
Cost of sales . . . . . . . . . . . . . . . . . 994 946
------- -------
Gross Profit. . . . . . . . . . . . . . . . . . 601 541
Selling, general and administrative expenses. . 475 440
------- -------
Operating Income. . . . . . . . . . . . . . . . 126 101
Interest expense, net . . . . . . . . . . . . . 76 82
Other nonoperating deductions, net. . . . . . . - 1
------- -------
Income Before Income Taxes. . . . . . . . . . . 50 18
Income taxes:
Expense excluding rate change . . . . . . . . 24 8
Rate change - federal . . . . . . . . . . . . - 40
------- -------
Net Income (Loss) . . . . . . . . . . . . . . . 26 (30)
Preferred stock dividend requirements . . . . . 1 -
------- -------
Net Income (Loss) Applicable to Common
Share Owners. . . . . . . . . . . . . . . . . $ 25 $ (30)
======= =======
Average Common Shares Outstanding . . . . . . . 130 129
======= =======
Net Income (Loss) Per Common Share . . . . . . $ 0.19 $ (0.23)
======= =======
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)
Nine Months ended
-------------------------
September 30, October 1,
1994 1993
------------- ----------
Net Operating Revenues. . . . . . . . . . . . . $ 4,524 $ 4,143
Cost of sales . . . . . . . . . . . . . . . . . 2,780 2,569
------- -------
Gross Profit. . . . . . . . . . . . . . . . . . 1,744 1,574
Selling, general and administrative expenses. . 1,399 1,271
------- -------
Operating Income. . . . . . . . . . . . . . . . 345 303
Interest expense, net . . . . . . . . . . . . . 233 246
Other nonoperating deductions, net. . . . . . . 2 1
------- -------
Income Before Income Taxes. . . . . . . . . . . 110 56
Income taxes:
Expense excluding rate change . . . . . . . . 52 34
Rate change - federal . . . . . . . . . . . . - 40
------- -------
Net Income (Loss) . . . . . . . . . . . . . . . 58 (18)
Preferred stock dividend requirements . . . . . 2 -
------- -------
Net Income (Loss) Applicable to Common
Share Owners. . . . . . . . . . . . . . . . . $ 56 $ (18)
======= =======
Average Common Shares Outstanding . . . . . . . 130 130
======= =======
Net Income (Loss) Per Common Share . . . . . . $ 0.43 $ (0.14)
======= =======
Dividends Per Common Share. . . . . . . . . . . $0.0375 $0.0375
======= =======
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
September 30, December 31,
ASSETS 1994 1993
------------- ------------
(Unaudited)
CURRENT
Cash and cash equivalents . . . . . . . . . $ 69 $ 11
Trade accounts receivable, less allowances
of $34 and $33, respectively. . . . . . . 445 442
Inventories:
Finished goods. . . . . . . . . . . . . . 179 134
Raw materials . . . . . . . . . . . . . . 55 48
Other . . . . . . . . . . . . . . . . . . 21 18
------ ------
255 200
Prepaid expenses and other assets . . . . . 85 93
------ ------
Total Current Assets. . . . . . . . . . . . 854 746
PROPERTY, PLANT AND EQUIPMENT
Land. . . . . . . . . . . . . . . . . . . . 162 163
Buildings and improvements. . . . . . . . . 652 622
Machinery and equipment . . . . . . . . . . 2,303 2,132
------ ------
3,117 2,917
Less allowances for depreciation. . . . . . 1,295 1,121
------ ------
1,822 1,796
Construction in progress. . . . . . . . . . 111 94
------ ------
1,933 1,890
FRANCHISE AND OTHER NONCURRENT ASSETS . . . . 5,994 6,046
------ ------
$8,781 $8,682
====== ======
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions except share data)
September 30, December 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1994 1993
------------- ------------
(Unaudited)
CURRENT
Accounts payable and accrued expenses . . . $ 779 $ 699
Current maturities of long-term debt. . . . 324 308
------ ------
Total Current Liabilities . . . . . . . . . 1,103 1,007
LONG-TERM DEBT. . . . . . . . . . . . . . . . 3,915 4,083
DEFERRED INCOME TAXES . . . . . . . . . . . . 1,886 1,831
OTHER LONG-TERM OBLIGATIONS . . . . . . . . . 530 501
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 - 143,670,083
and 142,182,183 shares, respectively. . . 144 142
Paid-in capital . . . . . . . . . . . . . . 1,296 1,280
Reinvested earnings . . . . . . . . . . . . 60 9
Cumulative translation adjustment . . . . . 21 (3)
Common stock in treasury, at cost
(13,290,998 and 13,004,598 common shares,
respectively) . . . . . . . . . . . . . . (203) (197)
------ ------
1,347 1,260
------ ------
$8,781 $8,682
====== ======
- 4 -
<PAGE>
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Nine Months ended
-------------------------
September 30, October 1,
1994 1993
------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . $ 58 $ (18)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . 209 186
Amortization. . . . . . . . . . . . . . . . 134 125
Deferred income taxes . . . . . . . . . . . 48 68
Net changes in current assets and
current liabilities . . . . . . . . . . . 42 (41)
Other nonoperating cash flows . . . . . . . (5) 14
----- -----
Net cash provided by operating activities . . . 486 334
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . (254) (249)
Proceeds from the sale of property,
plant and equipment . . . . . . . . . . . . . 13 17
Acquisitions of and investments in businesses . (12) (264)
----- -----
Net cash used for investing activities. . . . . (253) (496)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of debt. . . . . . . 385 581
Payments on debt. . . . . . . . . . . . . . . . (540) (403)
Dividends on common stock . . . . . . . . . . . (5) (5)
Proceeds from the issuance of common stock. . . 12 2
Purchases of treasury stock . . . . . . . . . . (4) (17)
Other financing activities. . . . . . . . . . . (23) -
----- -----
Net cash (used for) provided by financing
activities. . . . . . . . . . . . . . . . . . (175) 158
----- -----
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS DURING THE PERIOD. . . . . . 58 (4)
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . 11 6
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . $ 69 $ 2
===== =====
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Coca-Cola Enterprises Inc. annual report
on Form 10-K for the year ended December 31, 1993.
Note B - Seasonality of Business
- --------------------------------
Operating results for the three and nine-month periods ended September 30,
1994 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1994, primarily 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 - 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 will not have a material effect on results of operations
for full-year 1994 and future periods. Inventory costs would not have
differed 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, included in Other Inventories in the condensed
consolidated balance sheet at December 31, 1993, approximated $2 million.
Note D - 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 D - 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):
Nine Months ended
October 1, 1993
-----------------
Net Operating Revenues . . . . . . . . . . . . $4,346
Cost of sales. . . . . . . . . . . . . . . . . 2,732
------
Gross Profit . . . . . . . . . . . . . . . . . 1,614
Selling, general and administrative expenses . 1,305
------
Operating Income . . . . . . . . . . . . . . . 309
Interest expense, net. . . . . . . . . . . . . 251
Other nonoperating deductions, net . . . . . . 2
------
Income Before Income Taxes . . . . . . . . . . 56
Income tax expense . . . . . . . . . . . . . . 74
------
Net Income . . . . . . . . . . . . . . . . . . $ (18)
======
Average Common Shares Outstanding. . . . . . . 130
======
Net Income Per Common Share. . . . . . . . . . $(0.14)
======
Depreciation . . . . . . . . . . . . . . . . . $ 198
======
Amortization . . . . . . . . . . . . . . . . . $ 132
======
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 - Acquisitions (continued)
- ---------------------------------
On November 1, 1994, the Company announced the signing of a non-binding
letter of intent to acquire the bottling operations of the Wichita
Coca-Cola Bottling Company ("Wichita") for approximately $150 million in
cash and debt. The Wichita bottling operations are located in sections of
Colorado, Kansas, Missouri and Nebraska. The proposed transaction is
subject to negotiation of a definitive purchase agreement, among other
things, and is expected to close in early 1995.
Note E - Long-Term Debt
- -----------------------
Long-term debt including current maturities consists of the following (in
millions):
September 30, December 31,
1994 1993
------------- ------------
Commercial Paper . . . . . . . . . . . . . $ 847 $ 522
8.20% Notes, due 1994. . . . . . . . . . . - 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. . . . . . . . 238 222
------ ------
$4,239 $4,391
====== ======
Maturities of long-term debt for the five twelve-month periods subsequent
to September 30, 1994 are as follows: 1995 - $324 million; 1996 - $876
million; 1997 - $11 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 $847 million was outstanding at
September 30, 1994. The weighted average interest rate of borrowings under
the commercial paper program at September 30, 1994 was 4.9% per annum.
- 8 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note F - Income Taxes
- ---------------------
A reconciliation of the income tax provision at the statutory federal rate
to the Company's actual income tax provision follows (in millions):
Nine Months ended
-------------------------
September 30, October 1,
1994 1993
------------- ----------
Statutory provision (34% through
August 10, 1993, 35% thereafter). . . . . . $ 38 $ 20
Effect of federal rate change on
deferred tax balances . . . . . . . . . . . - 40
State provision - net of federal effect . . . 10 9
Nondeductible items . . . . . . . . . . . . . 3 2
Other, net. . . . . . . . . . . . . . . . . . 1 3
---- ----
$ 52 $ 74
==== ====
The Omnibus Budget Reconciliation Act was signed into law in August 1993.
The Company was principally affected by an increase to the corporate
marginal income tax rate from 34% to 35%. The Company's deferred income
taxes were adjusted during the third quarter of 1993 to reflect the effect
of the new rate, resulting in a one-time charge of approximately $40
million ($0.31 per share).
The Company's effective tax rates for the first nine months of 1994 and
1993 were 48% and 61% (excluding the effect of the federal rate change),
respectively.
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. Generally,
options awarded under the 1994 Plan (i) are 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.
- 9 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note G - Stock Options and Other Stock Plans (continued)
- --------------------------------------------------------
Through the third quarter of 1994, options to acquire 1,608,700 common
shares were issued under the 1994 Plan. The option price for such awards
was (i) $17.6875 with respect to 526,400 option shares, representing fair
market value on date of grant; (ii) $21.225 with respect to 374,300 option
shares, representing a 20% premium over fair market value on date of grant;
and (iii) $17.6875 with respect to 708,000 performance-vested option
shares, representing fair market value on date of grant.
An aggregate 802,900 shares of common stock have been issued during the
first nine months of 1994 primarily as a result of exercises 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 was amended and restated
effective February 7, 1994 (the "Amended 1992 Plan"). Awards under the
Amended 1992 Plan vest only upon attainment of certain increases in the
market price of the Company's common stock within five years from the date
of grant, in which event the ownership restrictions on the shares are
removed. 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 1992 Plan. Through the third quarter of 1994, an aggregate
685,000 shares of common stock were awarded under the Amended 1992 Plan.
An aggregate 42,100 restricted shares issued under the 1992 Restricted
Stock Award Plan (prior to its amendment) have been forfeited during 1994
and returned to treasury.
Note H - Share Repurchase Program
- ---------------------------------
In August 1994, the Company announced a stock repurchase program under
which the Company intends to repurchase up to 10 million shares of common
stock. Repurchased shares are added to treasury stock and are available
for general corporate purposes including the funding of various employee
benefits and compensation plans through a grantor trust arrangement (see
Note I).
The amount of shares repurchased and the length of time required to
repurchase such shares will depend on the Company's level of capital
expenditures, acquisition opportunities, other alternate uses of free cash
flow and market conditions. As of September 30, 1994, the Company had
repurchased 244,300 shares of common stock under the program for an
aggregate cost of approximately $4.4 million.
- 10 -
<PAGE>
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note I - Grantor Trust
- ----------------------
On October 18, 1994, the Company's Board of Directors approved the
establishment of a flexible employee grantor trust to fund future stock-
related compensation and benefit obligations including, but not limited to,
a savings investment plan, restricted stock awards, stock option exercises,
and certain other benefit plans.
Note J - Contingencies
- ----------------------
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. The Company has provided letters of credit aggregating
approximately $90 million principally as a result of these self-insurance
programs.
As of the date of this report, the Company has guaranteed payment of up to
$195 million of indebtedness owed by a manufacturer supplying certain
packaging used in the Company's manufacturing process; at October 1, 1994,
this manufacturer had approximately $79 million of indebtedness outstanding
guaranteed by the Company. The Company anticipates entering into a similar
guarantee of up to $45 million for another such manufacturer during the
fourth quarter of 1994.
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 effect on the Company's
financial position or results of operations.
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 Michigan Soft Drink Association has applied
to the Supreme Court of Michigan for leave to appeal the decision of the
Michigan Court of Appeals. The ultimate outcome of the litigation is not
expected to have a material effect on the Company's financial position or
results of operations.
- 11 -
<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. Increases in long-term operating cash flows 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 third quarter and first nine months of 1994
increased approximately 7% and 9%, respectively, over the same periods of
1993. These increases resulted primarily from an approximate 7 1/2% and 9%
increase in bottle/can physical case sales volume for the third quarter and
first nine months of 1994, respectively, as compared to the same prior year
periods. Net revenues per case remained flat for the third quarter and
first nine months of 1994 as compared to the same periods of 1993.
On a constant territory basis, net operating revenues for the first nine
months of 1994 increased approximately 4% over the same prior year period.
This increase resulted primarily from an approximate 4% increase in
bottle/can physical case sales volume for the first nine months of 1994.
We continue to expect constant territory bottle/can physical case sales
volume growth for full-year 1994 to exceed our 1993 full-year growth rate
of 2%.
Cost of Sales
- -------------
Favorable packaging trends have continued to offset ingredient cost
increases. As a result, domestic cost of wholesale sales per physical case
for the third quarter and first nine months of 1994 decreased
approximately 1% as compared to the same periods in 1993. Based upon
current market conditions, we anticipate materials cost increases in fiscal
1995. However, the effect on results of operations is not currently
predictable because of the dependence on market conditions.
- 12 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
Cost of Sales (continued)
- -------------------------
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 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 also the predominant accounting method of
other companies within the industry.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased approximately
8% and 10%, respectively, during the third quarter and first nine 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
slightly as a percent of sales in the third quarter and first nine months
of 1994 from 29.6% and 30.7%, respectively, to 29.8% and 30.9%,
respectively, as compared to the same periods in 1993.
Operating Income, Earnings Per Share and Cash Operating Profit
- --------------------------------------------------------------
In the third quarter of 1994, we were able to achieve increases in net
revenues and reduce the cost of wholesale sales per case, generating
favorable operating profit performance. This performance is evidenced by
an increase in operating income of approximately 25% and 14% for the third
quarter and first nine months of 1994, respectively, as compared to the
same periods in 1993. Constant territory operating income increased
approximately 12% for the first nine months of 1994, as compared to the
same prior-year period.
Our favorable operating performance, combined with reduced net interest
expense and a lower effective tax rate, resulted in an increase in
comparable net income per common share of approximately 143% and 154% for
the third quarter and first nine months of 1994, respectively, as compared
to the same periods in 1993 (excluding the effect of the one-time income
tax charge of $40 million, or $0.31 per share, in the third quarter of
1993).
- 13 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
Operating Income, Earnings Per Share and Cash Operating Profit (continued)
- --------------------------------------------------------------------------
Cash operating profit (operating income before the deductions for
depreciation and amortization), increased approximately 14% and 12% in the
third quarter and first nine months of 1994, respectively, over the same
periods of 1993. On a constant territory basis, cash operating profit
increased approximately 8% for the first nine months of 1994 as compared to
the same prior year period. We continue to expect growth in constant
territory cash operating profit for full-year 1994 of approximately 8%
assuming no significant changes in the current operating and competitive
environment.
Interest Expense
- ----------------
The decrease in interest expense reflects the lower weighted average
borrowing rate of 7.2% for the first nine months of 1994 as compared to
7.7% for the first nine months of 1993, and the decreased debt balance as
compared to 1993. We anticipate that the weighted average borrowing rate
for full-year 1994 will not be appreciably different from the nine-month
1994 rate of 7.2%.
Income Taxes
- ------------
The Company's effective tax rates for the first nine months of 1994 and
1993 were approximately 48% and 61% (excluding the $40 million one-time
charge discussed below), 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 third quarter of 1993.
The Omnibus Budget Reconciliation Act was signed into law in August 1993.
One of the provisions of the law increased the corporate marginal income
tax rate from 34% to 35%. The Company's deferred income taxes were
adjusted in the third quarter of 1993 to reflect the effect of the new
rate, resulting in a one-time charge of approximately $40 million ($0.31
per share).
FINANCIAL POSITION
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 during
1994.
- 14 -
<PAGE>
Part I. Financial Information
- ------------------------------
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations (continued)
- ---------------------------------------------------------
FINANCIAL POSITION (continued)
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 $847 million was outstanding at September 30,
1994.
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.
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, acquisition, and share repurchase programs, and to satisfy
scheduled maturities of debt obligations.
We anticipate that capital expenditures will approximate $350 million to
$400 million for full-year 1994.
On November 1, 1994, we announced the signing of a non-binding letter of
intent to acquire the bottling operations of the Wichita
Coca-Cola Bottling Company ("Wichita") for approximately $150 million in
cash and debt. The Wichita bottling operations are located in sections of
Colorado, Kansas, Missouri and Nebraska. The proposed transaction is
subject to negotiation of a definitive purchase agreement, among other
things, and is expected to close in early 1995.
In August 1994, the Company announced a stock repurchase program under
which the Company intends to repurchase up to 10 million shares of common
stock. Repurchased shares are added to treasury stock and are available
for general corporate purposes including the funding of various employee
benefits and compensation plans through a grantor trust arrangement (see
Note I to the condensed consolidated financial statements).
The amount of shares repurchased and the length of time required to
repurchase such shares will depend on the Company's level of capital
expenditures, acquisition opportunities, other alternate uses of free cash
flow and market conditions. As of September 30, 1994, the Company had
repurchased 244,300 shares of common stock under the program for an
aggregate cost of approximately $4.4 million.
- 15 -
<PAGE>
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings
- -------------------------
The Company or its subsidiaries have been notified that they could be
designated as potentially responsible parties at state-designated
contaminated sites in Jamestown, North Carolina and St. Paul, Minnesota,
and at a federal "Superfund" site in Andover, Minnesota. The Company is
investigating the nature and extent of any materials which may have been
delivered to the Jamestown and St. Paul sites and is not now in a position
to determine whether any liability for remediation exists. The claim against
the Company for remediation of the Andover, Minnesota site is approximately
$100,000; however, if this site is a "qualified landfill" under Minnesota
law, the entire costs of remediation may be paid by the state without
contribution from any potentially responsible party.
Two matters reported in the Company's annual report on Form 10-K for its
fiscal year ended December 13, 1993 have been settled. In March 1994, the
Company settled its entire liability relating to the Commercial Oil
Services site near Columbus, Ohio upon payment of approximately $2,400. In
November 1994, the Company paid approximately $150,000 as its portion of
the estimated remediation costs of the Arrowhead site, near Duluth,
Minnesota. If the ultimate remediation costs for the Arrowhead site exceed
the estimated amount, the Company will be responsible for its proportionate
share of the excess; however, the Company believes that the remediation can
be accomplished within the estimated amount.
An application to leave to appeal has been filed by the Michigan Soft Drink
Association with the Supreme Court of Michigan in the litigation
surrounding a Michigan statute requiring forfeiture of unclaimed container
deposits. This litigation was reported in the Company's quarterly report
of Form 10-Q for the quarter ended April 1, 1994. The matter is discussed
in Note J to the condensed consolidated financial statement in this report.
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit Incorporated by Reference
Number Description or Filed Herewith
------- ------------------------ -------------------------
12 Statements regarding
computations of ratios Filed Herewith
27 Financial Data Schedule Filed Herewith
- 16 -
<PAGE>
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K (continued)
- -----------------------------------------------------
(b) Reports on Form 8-K:
During the third quarter of 1994, the Company filed the following current
report on Form 8-K:
Date of Report Description
- ---------------- -----------------------------------------------------
July 19, 1994 Condensed Consolidated Statements of Operations
(unaudited) of the Company, filed on August 5, 1994,
reporting financial results for the second quarter
and first six months 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: November 7, 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: November 7, 1994 /s/ Bernice H. Winter
---------------------------
Bernice H. Winter
Vice President and Controller
(Principal Accounting Officer)
- 17 -
<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 Nine Months ended
------------------ ------------------
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
--------- ------- --------- -------
Computation of Earnings:
Earnings from continuing operations
before income taxes. . . . . . . . $ 50 $ 18 $110 $ 56
Add:
Interest expense . . . . . . . . . 77 83 235 249
Amortization of capitalized
interest . . . . . . . . . . . . - - 1 1
Amortization of debt
premium/discount and expenses. . 1 1 2 2
Interest portion of rent expense . 2 2 7 6
---- ---- ---- ----
Earnings as Adjusted . . . . . . . . . $130 $104 $355 $314
==== ==== ==== ====
Computation of Fixed Charges:
Interest expense . . . . . . . . . . $ 77 $ 83 $235 $249
Capitalized interest . . . . . . . . 1 - 2 1
Amortization of debt
premium/discount and expenses. . . 1 1 2 2
Interest portion of rent expense . . 2 2 7 6
---- ---- ---- ----
Fixed Charges. . . . . . . . . . . . . 81 86 246 258
Preferred stock dividends (a). . . . 1 - 3 -
---- ---- ---- ----
Combined Fixed Charges and Preferred
Stock Dividends. . . . . . . . . . . $ 82 $ 86 $249 $258
==== ==== ==== ====
Ratio of Earnings to Fixed Charges . . 1.60 1.21 1.44 1.21
==== ==== ==== ====
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends. . . . . . . . . . . . . . 1.59 1.21 1.43 1.21
==== ==== ==== ====
(a) Preferred stock dividends have been increased to an amount representing
the pretax earnings which would be required to cover such dividend
requirements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE FILER FOR THE PERIOD ENDED
SEPTEMBER 30, 1994 INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1994 (COMMISSION FILE NO. 001-09300) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000804055
<NAME> COCA-COLA ENTERPRISES
<MULTIPLIER> 1,000,000
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> SEP-30-1994
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