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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 April 2, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-09300
COCA-COLA ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-0503352
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 WINDY RIDGE PARKWAY, SUITE 700
ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
770-989-3000
(Registrant's telephone number, including area code)
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
424,460,922 SHARES OF $1 PAR VALUE COMMON STOCK AS OF MAY 7, 1999
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COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED APRIL 2, 1999
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Quarters
ended April 2, 1999 and April 3, 1998........................... 1
Condensed Consolidated Balance Sheets as of April 2, 1999
and December 31, 1998........................................... 2
Condensed Consolidated Statements of Cash Flows for the Quarters
ended April 2, 1999 and April 3, 1998........................... 4
Notes to Condensed Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............... 19
Item 6. Exhibits and Reports on Form 8-K.................................. 20
Signatures................................................................ 21
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED
---------------------------
APRIL 2, APRIL 3,
1999 1998
------------ ------------
NET OPERATING REVENUES ......................... $3,269 $2,958
Cost of sales .................................. 2,043 1,876
------ ------
GROSS PROFIT ................................... 1,226 1,082
Selling, delivery, and administrative
expenses ..................................... 1,131 993
------ ------
OPERATING INCOME ............................... 95 89
Interest expense, net .......................... 187 168
Other nonoperating (income) expense, net ....... (1) --
------ ------
LOSS BEFORE INCOME TAXES ....................... (91) (79)
Income tax benefit ............................. (30) (28)
------ ------
NET LOSS ....................................... (61) (51)
Preferred stock dividends ...................... 1 --
------ ------
NET LOSS APPLICABLE TO COMMON SHARE OWNERS ..... $ (62) $ (51)
====== ======
BASIC AND DILUTED NET LOSS PER SHARE APPLICABLE
TO COMMON SHARE OWNERS ....................... $(0.15) $(0.13)
====== ======
DIVIDENDS PER SHARE APPLICABLE TO COMMON SHARE
OWNERS ....................................... $ 0.04 $0.025
====== ======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
APRIL 2, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
(Unaudited)
CURRENT
Cash and cash investments, at cost
approximating market ........................ $ 88 $ 68
Trade accounts receivable, less reserves ......
of $60 and $57 million, respectively ........ 1,325 1,337
Inventories:
Finished goods .............................. 401 373
Raw materials and supplies .................. 206 170
------- -------
607 543
Prepaid expenses and other current assets ..... 372 337
------- -------
Total Current Assets ...................... 2,392 2,285
PROPERTY, PLANT, AND EQUIPMENT
Land .......................................... 354 349
Buildings and improvements .................... 1,244 1,237
Machinery and equipment ....................... 6,269 6,068
------- -------
7,867 7,654
Less allowances for depreciation .............. 3,026 2,956
------- -------
4,841 4,698
Construction in progress ...................... 226 193
------- -------
Net Property, Plant, and Equipment .......... 5,067 4,891
FRANCHISES AND OTHER NONCURRENT ASSETS, NET ..... 14,706 13,956
------- -------
$22,165 $21,132
======= =======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
APRIL 2, DECEMBER 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1999 1998
------------ ------------
(Unaudited)
CURRENT
Accounts payable and accrued expenses ....... $ 2,046 $ 2,257
Current portion of long-term debt ........... 1,448 1,140
------- -------
Total Current Liabilities ................ 3,494 3,397
LONG-TERM DEBT, LESS CURRENT MATURITIES ....... 9,743 9,605
RETIREMENT AND INSURANCE PROGRAMS AND OTHER
LONG-TERM OBLIGATIONS ....................... 981 977
LONG-TERM DEFERRED INCOME TAX LIABILITIES ..... 5,002 4,715
SHARE-OWNERS' EQUITY
Preferred stock ............................. 49 49
Common stock, $1 par value - Authorized -
1,000,000,000 shares; Issued - 447,167,208
and 446,319,946 shares, respectively ...... 447 446
Additional paid-in capital .................. 2,634 2,190
Reinvested earnings ......................... 379 458
Accumulated other comprehensive income
(loss) .................................... (29) (2)
Common stock in treasury, at cost (23,272,567
and 44,865,214 shares, respectively) ...... (535) (703)
------- -------
Total Share-Owners' Equity ................ 2,945 2,438
------- -------
$22,165 $21,132
======= =======
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
QUARTER ENDED
---------------------------
APRIL 2, APRIL 3,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ..................................... $ (61) $ (51)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation ............................. 211 165
Amortization ............................. 111 90
Deferred income tax benefit .............. (43) (55)
Net changes in current assets and
current liabilities .................... (334) (209)
Other .................................... 31 21
------- -------
Net cash used in operating activities ........ (85) (39)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in capital assets ................ (235) (346)
Fixed asset disposals ........................ 3 2
Cash investments in bottling operations,
net of cash acquired ....................... (8) (166)
Other investing activities ................... (22) (46)
------- -------
Net cash used in investing activities ........ (262) (556)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in commercial paper ............. 304 335
Issuance of long-term debt ................... 432 1,840
Payments on long-term debt ................... (433) (1,592)
Stock purchases for treasury ................. (1) (50)
Cash dividend payments on common and
preferred stock ............................ (18) (10)
Exercise of employee stock options ........... 14 9
Additional financing activities .............. 69 34
------- -------
Net cash derived from financing
activities ................................. 367 566
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
INVESTMENTS .................................. 20 (29)
Cash and cash investments at beginning
of period .................................. 68 45
------- -------
CASH AND CASH INVESTMENTS AT END OF PERIOD ..... $ 88 $ 16
======= =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITIES
Investments in bottling operations:
Fair value of assets acquired ............ $ 1,134 $ 186
Debt issued and assumed .................. (418) (17)
Other liabilities assumed ................ (112) (3)
Equity issued ............................ (596) --
------- -------
Cash paid, net of cash acquired .......... $ 8 $ 166
======= =======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) 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 GAAP for complete financial statements. In the opinion of
management, all adjustments consisting of normal recurring accruals considered
necessary for a fair presentation have been included. Certain amounts in the
Condensed Consolidated Statements of Cash Flows have been reclassified to
conform to 1999 classifications. For further information, refer to the
consolidated financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE B - SEASONALITY OF BUSINESS
Operating results for the first quarter ended April 2, 1999 are not indicative
of results that may be expected for the year ending December 31, 1999 because of
business seasonality. This seasonality results from a combination of higher unit
sales of the Company's products in the second and third quarters versus the
first and fourth quarters of the year and the methods of accounting for fixed
costs such as depreciation, amortization, and interest expense which are not
significantly impacted by business seasonality. In addition, the first quarter
of 1999 includes one less selling day than the first quarter of 1998,
influencing period comparisons.
NOTE C - ACQUISITIONS
In the first quarter of 1999 the Company completed the following seven
acquisitions for an aggregate purchase price of approximately $630 million and
announced its intent to purchase two additional bottling operations:
Completed
- Cameron Coca-Cola Bottling Company, Inc., operating in Pittsburgh,
Pennsylvania, and portions of Ohio and West Virginia,
- Bryan Coca-Cola Bottling Company, operating in eastern Texas,
- The Coca-Cola, Dr Pepper Bottling Company of Albuquerque, operating in
western New Mexico,
- Nacogdoches Coca-Cola Bottling Company, operating in eastern Texas,
- Sulphur Springs Coca-Cola Bottling Company, operating in eastern Texas,
- Montgomery Coca-Cola Bottling Company, Inc., operating in Alabama, and
- Perryton Coca-Cola Bottling Company, Inc., operating in the panhandles
of Texas and Oklahoma.
Pending
- Sud Boissons S.A. and Societe Boissons Gazeuses de la Cote d'Azur,
operating in southern France.
-5-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - ACQUISITIONS (CONTINUED)
The completed acquisitions were funded through a combination of cash, assumed
debt, and shares of the Company's common stock from treasury. The purchase
method of accounting has been used for these acquisitions, and accordingly, the
results of operations of the acquired companies are included in the Company's
condensed consolidated statements of operations beginning on or near the dates
of acquisition. In addition, the assets and liabilities of companies acquired
are included in the Company's condensed consolidated balance sheet at the
preliminary estimates of their fair values on the dates of acquisition.
NOTE D - LONG-TERM DEBT
Long-term debt balances, including current maturities, are adjusted for the
effects of interest rate and currency swap agreements (in millions):
APRIL 2, DECEMBER 31,
1999 1998
------------ ------------
U.S. commercial paper (weighted
average rate of 4.5%)(A) .......... $ 1,875 $ 1,572
Canadian dollar commercial paper
(weighted average rates of 5.2% and
5.1%) ............................. 694 626
Canadian dollar notes payable
(weighted average rate of 5.7%)(B). 334 --
Notes due 1999 - 2037 (weighted
average rate of 6.8%) ............. 2,150 2,150
Debentures due 2012 - 2098 (weighted
average rate of 7.4%) ............. 3,800 3,800
8.35% zero coupon notes due 2020 (net
of unamortized discount of $1,591
and $1,598, respectively) ......... 341 334
Euro notes due 2002 - 2011 (weighted
average rate of 7.2%) ............. 1,179 1,199
Various foreign currency debt ....... 582 869
Additional debt ..................... 230 178
------- -------
Long-term debt including effect of
net asset positions of currency
swaps ........................... 11,185 10,728
Net asset positions of currency
swap agreements(C) .............. 6 17
------- -------
$11,191 $10,745
======= =======
Aggregate maturities of long-term debt for the five twelve-month periods
subsequent to April 2, 1999 are as follows (in millions): 2000 - $1,448; 2001 -
$637; 2002 - $2,310; 2003 - $794; and 2004 - $554.
-6-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - LONG-TERM DEBT (CONTINUED)
(A) At April 2, 1999 and December 31, 1998, $1,281 million and $1,352 million
of the Company's U.S. commercial paper had been effectively exchanged into
non-U.S. dollar obligations through currency swap arrangements. These
currency swap arrangements provide for the exchange of U.S. dollars into
Belgian francs, Canadian dollars, French francs, Dutch florins, and British
pounds sterling and also provide for the periodic exchange of interest
payments. The Company intends to renew these short-term currency swap
arrangements as they expire. These currency swap arrangements hedge
investments in international subsidiaries.
(B) During the first quarter of 1999 the Company issued $234 million of 5.65%
Notes due 2004 and $100 million of 5.85% Notes due 2009 under a Canadian
Medium Term Note Program.
(C) The net asset positions of currency swap agreements are included in the
balance sheet as assets.
The Company has domestic and international credit facilities to support its
commercial paper programs and other borrowings as needed. At April 2, 1999 and
December 31, 1998, the Company had $387 million and $687 million, respectively,
of short-term borrowings outstanding under these credit facilities. At April 2,
1999 and December 31, 1998, the Company has approximately $4.0 billion and $3.8
billion, respectively, of amounts available under domestic and international
credit facilities.
At April 2, 1999 and December 31, 1998, approximately $2.2 billion and $2.4
billion, respectively, of borrowings due in the next 12 months was classified as
maturing after one year due to the Company's intent and ability through its
credit facilities to refinance these borrowings on a long-term basis.
At April 2, 1999 and December 31, 1998, the Company had available for issuance
approximately $3.0 billion in registered debt securities under a registration
statement with the Securities and Exchange Commission. At April 2, 1999 and
December 31, 1998, the Company had available for issuance approximately $1.8
billion and $1.3 billion, respectively, in debt securities under a Euro Medium
Term Note Program and approximately $1.0 billion at April 2, 1999 available for
issuance under a Canadian Medium Term Note Program.
The credit facilities and outstanding notes and debentures contain various
provisions which, among other things, require the Company to maintain a defined
leverage ratio and limit the incurrence of certain liens or encumbrances in
excess of defined amounts. These requirements currently are not, and it is not
anticipated they will become, restrictive on the Company's liquidity or capital
resources.
-7-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - INCOME TAXES
The Company's effective tax rates for the first quarters of 1999 and 1998 were
33% and 36%, respectively. A reconciliation of the income tax provision at the
statutory federal rate to the Company's actual income tax provision follows (in
millions):
QUARTER ENDED
---------------------------
APRIL 2, APRIL 3,
1999 1998
------------ ------------
U.S. federal statutory benefit ....... $(32) $(28)
State expense, net of federal
benefit ............................ 1 --
Taxation of European and Canadian
operations, net .................... 10 5
Valuation allowance provision ........ (4) (2)
Nondeductible items .................. (3) (2)
Other, net ........................... (2) (1)
---- ----
$(30) $(28)
==== ====
NOTE F - STOCK-BASED COMPENSATION PLANS
Approximately 800 thousand shares of common stock were issued during the first
quarter of 1999 from the exercise of stock options.
During first-quarter 1999, the Company granted approximately 6.3 million
service-vested stock options to certain executive and management level employees
and non-employee officers and members of the Board of Directors. These options
vest over a period of up to nine years and expire ten years from the date of
grant. Certain option grants contain provisions that allow for accelerated
vesting if various stock performance criteria are met. Of the total options
granted, 3.3 million were granted at an exercise price equal to the fair market
value of the stock on the grant date, and 3.0 million were premium-priced
options.
NOTE G - PREFERRED STOCK
In connection with the June 1998 acquisition of The Coca-Cola Bottling Company
of Bellingham and the August 1998 acquisition of Great Plains Bottlers and
Canners, Inc., the Company issued 96,900 of 120,000 shares of $1 par value
voting convertible preferred stock authorized ("Bellingham series") and issued
392,464 of 450,000 shares of $1 par value voting convertible preferred stock
authorized ("Great Plains series"). The Bellingham series pays quarterly
dividends equaling 4% annually and the Great Plains series pays quarterly
dividends equaling 8% annually. Both series have stated values of $100 per share
and the holders have the option to convert each share into a number of shares of
the Company's common stock based on the stated value divided by a defined
conversion date price, which approximates the average closing sales price per
share at date of conversion. The Bellingham series must be converted no later
than June 30, 2001 and the Great Plains series must be converted no later than
August 7, 2003. As of April 2, 1999, no shares of either series have been
converted.
-8-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE H - COMPREHENSIVE INCOME (LOSS)
The following table (in millions) presents a reconciliation of comprehensive
income (loss), comprised of net income and other adjustments to comprehensive
income. Other adjustments to comprehensive income may include minimum pension
liability adjustments and currency items such as foreign currency translation
adjustments and hedges of net investments in international subsidiaries. The
Company provides income taxes on its currency items, except for income taxes on
the impact of currency translations, as earnings from international subsidiaries
are considered to be indefinitely reinvested.
QUARTER ENDED
---------------------------
APRIL 2, APRIL 3,
1999 1998
------------ ------------
Net loss .............................. $(61) $(51)
Currency items, including
tax effects of hedges ............... (27) (20)
---- ----
Comprehensive income (loss) ........... $(88) $(71)
==== ====
NOTE I - EARNINGS PER SHARE
The following table (in millions except per share data; per share data is
calculated prior to rounding to millions) presents information concerning basic
and diluted earnings per share. Because of the loss in each period, diluted loss
per share equals basic loss per share.
QUARTER ENDED
---------------------------
APRIL 2, APRIL 3,
1999 1998
------------ ------------
Net loss............................... $ (61) $ (51)
Preferred stock dividends.............. 1 --
------ ------
Net loss applicable to common
share owners......................... $ (62) $ (51)
====== ======
Basic and diluted average common
shares outstanding................... 423 387
====== ======
Basic and diluted net loss per share
applicable to common share owners.... $(0.15) $(0.13)
====== ======
-9-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE J - GEOGRAPHIC OPERATING INFORMATION
The Company operates in one industry: the marketing, distribution, and
production of bottle and can liquid nonalcoholic refreshments. On April 2, 1999,
the Company operated in 46 states in the United States, the District of
Columbia, and in the 10 provinces of Canada (collectively referred to as the
"North American" territories), and in Belgium, Great Britain, Luxembourg, the
Netherlands, and most of France (collectively referred to as the "European"
territories).
The following presents net operating revenues for the quarters ended April 2,
1999 and April 3, 1998 and long-lived assets as of April 2, 1999 and December
31, 1998 by geographic territory (in millions):
1999 1998
--------------------- ---------------------
NET (A) LONG- NET (A) LONG-
OPERATING LIVED OPERATING LIVED
REVENUES ASSETS REVENUES ASSETS
--------- --------- --------- ---------
North American ... $ 2,429 $15,177 $ 2,187 $14,121
European ......... 840 4,596 771 4,726
------- ------- ------- -------
Consolidated ..... 3,269 $19,773 $ 2,958 $18,847
======= ======= ======= =======
(A) Net operating revenues include the results of companies
acquired beginning near or after the dates of acquisition.
Therefore, reported information is not indicative of
full-year results for periods presented.
The Company has no material amounts of sales or transfers between its North
American and European territories and no significant United States export sales.
NOTE K - CONTINGENCIES
In North America, the Company purchases PET (plastic) bottles from manufacturing
cooperatives. The Company has guaranteed payment of up to $254 million of
indebtedness owed by these manufacturing cooperatives to third parties. At April
2, 1999, these cooperatives had approximately $137 million of indebtedness
guaranteed by the Company. The Company has also issued letters of credit
aggregating approximately $123 million primarily under self-insurance programs.
The Company is a defendant in various matters of litigation generally arising
out of the normal course of business. Although it is difficult to predict the
ultimate outcome of these cases, management believes, based on discussion with
counsel, that any ultimate liability would not materially affect the Company's
financial position, results of operations, or liquidity.
-10-
<PAGE> 13
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS BUSINESS SUMMARY
Coca-Cola Enterprises Inc. ("the Company") is the world's largest marketer,
distributor, and producer of products of The Coca-Cola Company. The Company also
distributes other beverage brands in select markets. The Company sells bottled
and canned liquid nonalcoholic refreshments in the United States and Canada
through franchise territories in 46 states of the United States, the District of
Columbia, and in the 10 provinces of Canada. We also operate in portions of
Europe, including Belgium, France, Great Britain, Luxembourg, and the
Netherlands.
Management's Discussion and Analysis should be read in conjunction with the
Company's consolidated financial statements and the accompanying footnotes along
with the cautionary statements at the end of this section.
RESULTS OF OPERATIONS
OVERVIEW
Consolidated cash operating profit, or net income before deducting interest,
taxes, depreciation, amortization, and other nonoperating expenses, reached $417
million in the first quarter of 1999, 21% ahead of reported first-quarter 1998
results, and 11% above comparable first-quarter 1998 performance. The
combination of realized price increases and moderate volume growth contributed
to the first-quarter 1999 performance. We continue to anticipate a 12%
comparable cash operating profit growth for full-year 1999.
Management's primary objective is to deliver a superior investment return to our
share owners through consistent increases in long-term operating cash flows and
profitable increases in sales volume. Our strong brand portfolio combined with
our emphasis on local market execution and infrastructure investments drive our
consistent long-term growth.
In line with our objective, we manage the volume, net revenues, and cost aspects
of our business to maximize profitability while effectively integrating newly
acquired territories to ensure consistent long-term growth. During the first
quarter of 1999 the Company implemented various pricing initiatives and
continued to leverage the infrastructure investments made over the last several
years. Additionally, we have continued the integration and expansion of our
operations in North America and Europe. In the first quarter of 1999, we
acquired seven North American Coca-Cola bottling operations and announced our
intent to acquire two bottling operations in the south of France.
-11-
<PAGE> 14
Management believes, due to the Company's significant acquisition activity in
1998 and 1999, comparable results are better indicators of current operating
trends. Comparable operating results are determined by adjusting reported 1998
performance to include results of significant 1998 and 1999 bottling territory
acquisitions for the same periods as reported in 1999. In addition to comparison
adjustments for acquisitions, 1998 volume information has been adjusted for one
less selling day in first quarter 1999.
Information included in Management's Discussion and Analysis summarize changes
in key operating information on a reported and comparable basis for the first
quarter of 1999.
CASH OPERATING PROFIT (COP)
In the opinion of management, COP is one of the key standards for measuring our
operating performance. COP is used by management as an additional indicator of
operating performance and not as a replacement of measures such as cash flows
from operating activities and operating income as defined and required by
generally accepted accounting principles.
The reported COP growth rate of 21% is affected by the significant number of
acquisitions completed in 1998 and 1999. Adjusting for these acquisitions,
comparable COP growth was 11% for the first quarter of 1999. Currency exchange
rates did not have a material impact on first-quarter 1999 results.
VOLUME
Volume results were driven by growth in brands of The Coca-Cola Company with our
strongest growth in Sprite, Coke light/diet Coke, Fanta, and the Company's
noncarbonated brand portfolio.
FIRST-QUARTER 1999
--------------------------
REPORTED COMPARABLE
CHANGE CHANGE
----------- ------------
Physical Case Bottle and Can Volume:
Consolidated ........................ 5% 1%
North American Territories .......... 8% 1%
European Territories ................ (2)% 2%
The first-quarter 1999 North American volume performance, representing 78% of
total physical case volume, reflects the impact of the Company's efforts to
increase prices in the take home segments of our business. The European growth
is on top of the 14% European growth experienced in the first quarter of 1998.
Our European operations represented 22% of the total physical case volume
reported in first- quarter 1999 compared to 24% of the reported volume in
first-quarter 1998. The first-quarter 1999 volume contribution from the European
territories is lower than first-quarter 1998 because of the many North American
operations acquired in mid-1998 and early 1999.
-12-
<PAGE> 15
NET OPERATING REVENUES AND COST OF SALES
The Company's first-quarter 1999 net operating revenues exceeded $3.2 billion,
reflecting the impact of the Company's significant 1998 and 1999 acquisitions
combined with revenue growth in existing territories. In the first quarter of
1999, approximately 74% of total revenues were produced by our operations in
North America with the remaining 26% generated by our European group.
FIRST-QUARTER 1999
--------------------------
REPORTED COMPARABLE
CHANGE CHANGE
----------- ------------
Net Revenues Per Case ................. 4.5% 3%
Cost of Sales Per Case ................ 2.5% 1.5%
The net revenues per case growth in the first quarter of 1999 reflected our
achieved higher pricing and favorable product, package, and channel mix shifts.
Favorable packaging costs were offset by the higher ingredient costs resulting
in the 1.5% comparable increase in cost of sales per case.
PER SHARE DATA
In first-quarter 1999, the Company generated basic and diluted net loss from
operations of $0.15 per common share as compared to the first quarter of 1998
net loss of $0.13 per common share. This change is primarily due to the
incremental fixed costs such as depreciation, amortization, and interest expense
related to our increased capital expenditures, our 1998 share repurchase program
and the 1998 and 1999 acquisitions. Additionally, the Company issued
approximately 22 million shares of common stock in connection with its 1999
acquisitions.
SELLING, DELIVERY, AND ADMINISTRATIVE EXPENSES
In first-quarter 1999 consolidated selling, delivery, and administrative
expenses as a percent of net operating revenues increased to 34.6% from first
quarter 1998 results of 33.6%. The increase is primarily the result of
depreciation and amortization expenses related to our increased capital spending
and investments in bottling operations.
INTEREST EXPENSE
First-quarter 1999 net interest expense increased from reported first-quarter
1998 levels due to higher average debt balances resulting from the Company's
1998 capital spending plan and share repurchase programs. The weighted average
interest rate for first-quarter 1999 was 6.7% compared to 7.1% and 6.9% for
first-quarter and full-year 1998, respectively.
INCOME TAX BENEFIT
The Company's effective tax rates for the first quarter of 1999 and 1998 were
33% and 36%, respectively. The effective tax rate for full-year 1998 was 33%.
The Company's first-quarter 1999 effective tax rate reflects the expected full
year 1999 pretax earnings combined with the beneficial tax impact of certain
international operations.
-13-
<PAGE> 16
CASH FLOW AND LIQUIDITY REVIEW
CAPITAL RESOURCES
Our sources of capital include, but are not limited to, cash flows from
operations, the issuance of public or private placement debt, bank borrowings,
and the issuance of equity securities. We believe that short-term and long-term
capital resources available to us are sufficient to fund our capital expenditure
and working capital requirements, scheduled debt payments, interest and income
tax obligations, dividends to our share owners, acquisitions, and share
repurchases.
For long-term financing needs, we have available approximately $3.0 billion in
registered debt securities for issuance under a registration statement with the
Securities and Exchange Commission, $1.8 billion in debt securities under a
European Medium Term Note Program, and an additional $1.0 billion in debt
securities under a Canadian Medium Term Note Program.
We satisfy seasonal working capital needs and other financing requirements with
bank borrowings and short-term borrowings under our commercial paper program and
other credit facilities. At April 2, 1999, we had approximately $387 million
outstanding under credit facilities, with an additional $4.0 billion available
for future borrowings. We intend to continue refinancing borrowings under our
commercial paper program and our short-term credit facilities with longer-term
fixed and floating rate financings. At the end of first-quarter 1999, the
Company's debt portfolio was 73% fixed rate debt and 27% floating rate debt.
SUMMARY OF CASH ACTIVITIES
Cash and cash investments increased $20 million during first-quarter 1999 from
net cash transactions. Our primary uses of cash were for operations of
approximately $85 million, capital expenditures totaling $235 million, and
long-term debt payments totaling $433 million. Our primary source of cash for
first-quarter 1999 was proceeds from the increase in commercial paper and the
issuance of long-term debt aggregating $736 million.
Operating Activities: Operating activities resulted in a net cash use of $85
million during first-quarter 1999. The higher depreciation and amortization
expense in 1999 results from the effects of increased capital spending and the
effects of the 1998 and 1999 acquisitions.
Investing Activities: Net cash used in investing activities results from the
Company's continued capital investments. The Company continues to expect
full-year 1999 capital expenditures to be approximately $1.6 to $1.7 billion,
excluding any effects from the pending acquisitions of two French bottlers.
Financing Activities: The Company continues to refinance portions of its
short-term borrowings with longer-term fixed and floating rate debt. In
first-quarter 1999, the Company issued $432 million in notes and debentures.
FINANCIAL CONDITION
The increase in property, plant, and equipment results from capital expenditures
of approximately $235 million in first-quarter 1999 and the 1999 acquisitions.
The increase in long-term debt is primarily a result of the financing of our
capital expenditures and assumed debt related to our 1999 acquisitions.
-14-
<PAGE> 17
In first-quarter 1999 activities in currency markets resulted in a $27 million
reduction to the Company's comprehensive income. As currency exchange rates
fluctuate, translation of the statements of operations for our international
businesses into U.S.
dollars will affect the comparability of revenues and expenses between periods.
KNOWN TRENDS AND UNCERTAINTIES
YEAR 2000 COMPLIANCE
Our Year 2000 strategic plan identifies initiatives necessary to minimize
failures of electronic systems to process date sensitive information in the Year
2000 and beyond. Our plan is subdivided into six functional areas of the
Company: Sales/Marketing, Human Resources, Cold Drink, Finance, Operations, and
Corporate. These functional areas encompass both information technology (IT)
systems such as our financial and inventory applications and non-IT systems such
as production plant systems. Each functional area plan details specific tasks
needed to identify and inventory Year 2000 issues, taking them through
assessment, remediation, testing, certification, and implementation. Projects
are in various stages of completion. We estimate that approximately 85% of the
overall Year 2000 identified issues have been corrected.
As a result of the numerous systems used by companies that we have acquired in
recent years and also due to technological enhancements, we have had an ongoing
information systems development plan with scheduled replacements throughout the
organization. Year 2000 compliance is a result of our development and
standardization plans. We have delayed certain IT projects in order to reassign
Company resources to the Year 2000 strategic plan. Delayed projects primarily
involve IT system enhancements, which are not critical to our business.
An important step in our strategic plan is the coordination of Year 2000
readiness with third parties. We are communicating with our significant
suppliers and customers to determine the extent to which the Company and its
interface systems are vulnerable if a customer, supplier, or a third party fails
to resolve its Year 2000 issues. In the third quarter of 1998, we identified two
raw materials/packaging suppliers that appeared to be having difficulty
achieving Year 2000 readiness. As a result of follow-up efforts during the
fourth quarter of 1998, we believe significant progress has been made by both
suppliers to inventory, assess, and remediate Year 2000 problems. We will
continue to work with these and all other critical trading partners to
understand the associated risks and develop contingency plans, as appropriate.
We continue to plan for business continuity through strategies calling for
increasing our inventories at the end of 1999, as well as developing plans to
operate manually, if necessary. These plans serve to ensure we can continue to
meet our customers' needs for products in the most efficient manner as well as
to ensure critical operations can continue to operate effectively. In early
April 1999 we conducted Business Continuity Planning workshops with business
area representatives resulting in the preliminary development of critical
process continuity plans. We expect these plans to be finalized by the end of
the second quarter of 1999 and implemented, throughout all of the Company's
operations, by the end of the third quarter of 1999.
-15-
<PAGE> 18
The following table lists significant systems and our projected completion dates
with respect to Year 2000 readiness:
NORTH
AMERICAN EUROPEAN
------------ ------------
1999
--------------------------
Revenue, billing, and accounts receivable .... Completed 3rd Qtr. (1)
Order entry and fulfillment................... 3rd Qtr. 3rd Qtr. (1)
Inventory and cost accounting................. 3rd Qtr. 3rd Qtr. (1)
Accounts payable and purchasing............... Completed 2nd Qtr.
Payroll....................................... Completed(2) 2nd Qtr. (2)
General ledger................................ Completed 2nd Qtr.
Production processing......................... 3rd Qtr. (3) 3rd Qtr. (3)
Electronic commerce (EDI)..................... 3rd Qtr. 3rd Qtr.
Other non-IT systems.......................... 2nd Qtr. 2nd Qtr.
(1) We extended the timeline for the completion of projects in France,
primarily because of the number of local systems and complexity
of integration. We are reasonably sure these Year 2000 enabled
applications in France will be implemented in September 1999. All other
European systems will be complete in the second quarter of 1999.
(2) The significant payroll systems for North America have been completed
and for Europe are on schedule to be completed in the second quarter of
1999. The upgrade of electronic time clocks in North America and Europe
will be completed in second-quarter and third-quarter 1999,
respectively.
(3) The implementation of production processing systems has been delayed,
primarily because of the longer than expected leadtimes required for
replacement parts and equipment from manufacturers. Additionally,
challenges in scheduling manufacturer representative technical
personnel to perform specific work have caused some delays.
In addition, we will be performing business unit systems integration testing
throughout the second, third, and fourth quarters of 1999 to provide additional
assurance and confidence in the Year 2000 work performed.
We have incurred approximately $25 million to date in the implementation of our
Year 2000 strategic plan for both IT and non-IT systems of which $7 million has
been capitalized. The total cost through completion of our Year 2000 plan is
estimated to be in the range of $33 to $38 million. Plan costs have been
budgeted in either our regular operating budget or our capital expenditures
budget. Our projected costs are based on management's best estimates and actual
results could differ as the plan continues to be implemented.
We believe necessary modifications and replacements of our critical IT and
non-IT systems will be completed in a timely manner. If for any reason our
critical service providers, suppliers, or customers are unable to resolve their
Year 2000 issues, such matters could have a material impact on the Company's
results of operations. Specifically, the absence of Year 2000 readiness by raw
materials/packaging suppliers could impact the availability and expected costs
of raw materials.
-16-
<PAGE> 19
EURO CURRENCY CONVERSIONS
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between existing currencies and the European Union's
common currency ("euro"). The Company conducts business in several of the member
countries. The transition period for the introduction of the euro will be
between January 1, 1999, and June 30, 2002.
The euro conversion may have long-term competitive pricing implications by
creating cross-border product price transparency among the countries of the
European Union. We have begun to implement and adjust our pricing and marketing
initiatives to ensure we remain competitive in the broader European market.
We have also established a multifunctional task force engaged to address the
issues involved with the introduction of the euro. The issues facing the Company
include converting information technology systems, adapting business processes
and equipment such as vending machines, reassessing currency risk, and
processing tax and accounting records. Additionally, the Company is at risk to
the extent its principal European suppliers and customers are unable to deal
effectively with the impact of the euro conversion.
Based upon progress to date, the Company believes use of the euro will not have
a significant impact on the manner in which it conducts business or processes
its business and accounting records. However, due to the numerous uncertainties,
we cannot reasonably estimate the long-term effects one common currency may have
on pricing and costs, or the resulting impact, if any, on financial condition or
results of operations.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," in June 1998. This statement
requires that all derivatives be recorded at fair market values on the balance
sheet and establishes new accounting rules for hedging instruments. SFAS No. 133
is effective for fiscal years beginning after June 15, 1999; early adoption is
allowed. The Company is conducting an evaluation of hedging policies and
strategies for existing derivatives and any future derivative transactions.
Those decisions will impact derivative financial contracts at December 31, 1999
and the amount, if any, of the cumulative effect from the change in accounting
principle at date of adoption on net income and other comprehensive income as
well as the effects on the future operating results or financial position of the
Company.
-17-
<PAGE> 20
CAUTIONARY STATEMENTS
Certain expectations and projections regarding future performance of the Company
referenced in this report are forward-looking statements. These expectations and
projections are based on currently available competitive, financial, and
economic data, along with the Company's operating plans and are subject to
future events and uncertainties. Among the events and uncertainties which could
adversely affect future periods are lower than expected net pricing resulting
from increased marketplace competition, material changes in levels of funding
historically provided under various programs with The Coca-Cola Company, or our
inability to meet performance requirements for expected levels of marketing
support payments from The Coca-Cola Company, material changes from expectations
in the cost of raw materials and ingredients, an inability to achieve the
expected timing for returns on cold drink equipment and employee infrastructure
expenditures, an inability to meet projections for performance in newly acquired
territories, unexpected costs associated with Year 2000 compliance or the
business risk associated with Year 2000 noncompliance by customers and/or
suppliers, unexpected costs or effect on European sales associated with
conversion to the common European currency (the euro), and unfavorable interest
rate and currency fluctuations. We caution readers that in addition to the above
cautionary statements, all forward-looking statements contained herein should be
read in conjunction with the detailed cautionary statements found on page 19 of
the Company's Annual Report for the fiscal year ended December 31, 1998.
-18-
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1999 The Coca-Cola Bottling Company of Memphis, Tennessee ("CCBC
of Memphis"), a subsidiary of the Company, paid approximately $168,000 as its
portion of estimated remediation costs under a CERCLA Section 106 Order issued
by the Environmental Protection Agency ("EPA") with respect to the South 8th
Street Landfill site in West Memphis, Arkansas and the Gurley Pit Superfund site
in Edmondson, Arkansas. The potentially responsible parties ("PRPs"), including
CCBC of Memphis, are still negotiating with the EPA for a Consent Decree that
might provide for more favorable settlement terms for the PRPs.
In January 1999, BCI Coca-Cola Bottling Company of Los Angeles ("BCICCBC"), a
subsidiary of the Company, was named a PRP in connection with the remediation of
the Casmalia Superfund site in Santa Barbara, California. BCICCBC cannot yet
determine whether it will incur liability at this site and, if so, whether such
liability would be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of share owners was held on Friday, April 23, 1999 in
Wilmington, Delaware at which the following matters were submitted to a vote of
the share owners of the Company:
(a) Votes cast for or withheld regarding the election/re-election of Directors
for terms expiring in:
FOR WITHHELD
----------- ----------
2001
----
James E. Chestnut....................... 382,306,394 7,636,192
2002
----
John L. Clendenin....................... 382,984,961 6,957,625
Joseph R. Gladden, Jr................... 383,253,104 6,689,482
John E. Jacob........................... 383,263,043 6,679,543
Summerfield K. Johnston, Jr............. 383,258,420 6,684,166
Robert A. Keller........................ 382,521,443 7,421,143
Additional Directors, whose terms of office as Directors continued after
the meeting, are as follows:
TERM EXPIRING IN 2000 TERM EXPIRING IN 2001
--------------------- ---------------------
Howard G. Buffett J. Trevor Eyton
Johnnetta B. Cole L. Phillip Humann
Claus M. Halle Scott L. Probasco, Jr.
Jean-Claude Killy
Henry A. Schimberg
-19-
<PAGE> 22
(b) Votes cast for or against, and the number of abstentions and broker
non-votes for each other proposal brought before the meeting are as
follows:
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
- -------------------------- ----------- ----------- --------- ----------
Approval of the 1999 Stock
Option Plan ............ 330,481,953 53,823,086 5,637,547 --
Approval of the Long-Term
Incentive Plan.......... 353,335,753 11,216,248 5,715,125 19,675,460
Approval of the Executive
Management Incentive
Plan ................... 351,744,290 12,642,168 5,880,668 19,675,460
Ratification of the
Appointment of
Independent Auditors ... 382,466,336 1,334,740 6,141,510 --
Share-owner's proposal
to create an independent
nominating committee ... 49,160,209 311,370,023 9,736,894 19,675,460
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
- ------- ---------------------------------------- ----------------------------
3 Bylaws of Coca-Cola Enterprises Inc. Exhibit 4.2 to the Company's
as amended through April 23, 1999 Registration Statement on
Form S-8, No. 333-77801
12 Statements regarding computations of
ratios Filed Herewith
27 Financial Data Schedule for
the quarter ended April 2, 1999 Filed Herewith
(b) Reports on Form 8-K:
During first-quarter 1999 the Company filed the following current reports on
Form 8-K:
DATE OF REPORT DESCRIPTION
- ----------------- ------------------------------------------------------------
October 28, 1998 Terms agreement, filed February 8, 1999, relating to the
offer and sale of the Company's 5.75% Notes Due 2008.
January 19, 1999 Reporting fourth-quarter and full-year 1998 results of
operations and a summary of key financial results filed
January 22, 1999.
-20-
<PAGE> 23
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: May 11, 1999 /s/ Patrick J. Mannelly
--------------------------------------------
Patrick J. Mannelly
Vice President and Chief Financial Officer
Date: May 11, 1999 /s/ Michael P. Coghlan
--------------------------------------------
Michael P. Coghlan
Vice President, Controller and
Principal Accounting Officer
-21-
<PAGE> 1
COCA-COLA ENTERPRISES INC. EXHIBIT 12
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN MILLIONS EXCEPT RATIOS)
QUARTER ENDED
---------------------
APRIL 2, APRIL 3,
1999 1998
--------- ---------
Computation of Earnings:
Loss from continuing operations
before income taxes............................. $(91) $(79)
Add:
Interest expense................................ 182 174
Amortization of debt premium/discount and
expenses...................................... 7 7
Interest portion of rent expense................ 7 6
---- ----
Earnings as Adjusted................................ $105 $108
==== ====
Computation of Fixed Charges:
Interest expense.................................. $182 $174
Capitalized interest.............................. 1 1
Amortization of debt premium/discount and
expenses........................................ 7 7
Interest portion of rent expense.................. 7 6
---- ----
Fixed Charges....................................... 197 188
Preferred stock dividends(a)...................... 1 --
---- ----
Combined Fixed Charges and Preferred Stock
Dividends......................................... $198 $188
==== ====
Ratio of Earnings to Fixed Charges.................. (b) (c)
==== ====
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends......................... (b) (c)
==== ====
(a) Preferred stock dividends have been increased to an amount representing
the pretax earnings which would be required to cover such dividend
requirements.
(b) Earnings for April 2, 1999 were insufficient to cover fixed charges and
combined fixed charges and preferred stock dividends by $92 million and
$93 million, respectively.
(c) Earnings for April 3, 1998 were insufficient to cover fixed charges and
combined fixed charges and preferred stock dividends by $80 million.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 2,
1999 (COMMISSION FILE NO. 001-9300) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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