<PAGE> 1
[COCA-COLA ENTERPRISES INC. LOGO]
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 29, 2000
FILED PURSUANT TO SECTION 13
OF THE
SECURITIES EXCHANGE ACT OF 1934
<PAGE> 2
================================================================================
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 September 29, 2000
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. LOGO]
(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.
417,819,516 SHARES OF $1 PAR VALUE COMMON STOCK AS OF NOVEMBER 3, 2000
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COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 29, 2000
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the Quarters
ended September 29, 2000 and October 1, 1999..................... 1
Condensed Consolidated Statements of Income for the Nine Months
ended September 29, 2000 and October 1, 1999..................... 2
Condensed Consolidated Balance Sheets as of September 29, 2000
and December 31, 1999............................................ 3
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 29, 2000 and October 1, 1999..................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 20
Signatures................................................................. 21
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED
--------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
------------- ----------
NET OPERATING REVENUES ........................... $3,868 $3,831
Cost of sales .................................... 2,368 2,360
------ ------
GROSS PROFIT ..................................... 1,500 1,471
Selling, delivery, and administrative expenses ... 1,105 1,130
------ ------
OPERATING INCOME ................................. 395 341
Interest expense, net ............................ 197 186
------ ------
INCOME BEFORE INCOME TAXES ....................... 198 155
Income tax expense ............................... 67 51
------ ------
NET INCOME ....................................... 131 104
Preferred stock dividends ........................ 1 1
------ ------
NET INCOME APPLICABLE TO COMMON SHAREOWNERS ...... $ 130 $ 103
====== ======
BASIC NET INCOME PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.31 $ 0.24
====== ======
DILUTED NET INCOME PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.30 $ 0.24
====== ======
DIVIDENDS PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.04 $ 0.04
====== ======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN MILLIONS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
---------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
------------- ----------
NET OPERATING REVENUES ........................... $11,189 $10,897
Cost of sales .................................... 6,863 6,836
------- -------
GROSS PROFIT ..................................... 4,326 4,061
Selling, delivery, and administrative expenses ... 3,399 3,388
------- -------
OPERATING INCOME ................................. 927 673
Interest expense, net ............................ 593 559
------- -------
INCOME BEFORE INCOME TAXES ....................... 334 114
Income tax expense ............................... 113 37
------- -------
NET INCOME ....................................... 221 77
Preferred stock dividends ........................ 3 3
------- -------
NET INCOME APPLICABLE TO COMMON SHAREOWNERS ...... $ 218 $ 74
======= =======
BASIC NET INCOME PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.52 $ 0.18
======= =======
DILUTED NET INCOME PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.51 $ 0.17
======= =======
DIVIDENDS PER SHARE APPLICABLE TO COMMON
SHAREOWNERS ..................................... $ 0.12 $ 0.12
======= =======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
SEPTEMBER 29, DECEMBER 31,
ASSETS 2000 1999
------------- ------------
(Unaudited)
CURRENT
Cash and cash investments, at cost
approximating market ........................ $ 165 $ 141
Trade accounts receivable, less allowance
reserves of $64 and $62, respectively ....... 1,364 1,347
Inventories:
Finished goods .............................. 439 403
Raw materials and supplies .................. 215 266
------- -------
654 669
Prepaid expenses and other current assets ..... 545 424
------- -------
Total Current Assets ........................ 2,728 2,581
PROPERTY, PLANT, AND EQUIPMENT
Land .......................................... 367 359
Buildings and improvements .................... 1,430 1,371
Machinery and equipment ....................... 7,582 7,210
------- -------
9,379 8,940
Less allowances for depreciation .............. 3,966 3,595
------- -------
5,413 5,345
Construction in progress ...................... 159 249
------- -------
Net Property, Plant, and Equipment .......... 5,572 5,594
FRANCHISES AND OTHER NONCURRENT ASSETS, NET ..... 13,955 14,555
------- -------
$22,255 $22,730
======= =======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
SEPTEMBER 29, DECEMBER 31,
LIABILITIES AND SHAREOWNERS' EQUITY 2000 1999
------------- ------------
(Unaudited)
CURRENT
Accounts payable and accrued expenses ......... $ 2,146 $ 2,389
Current portion of long-term debt ............. 1,401 1,225
------- -------
Total Current Liabilities ................... 3,547 3,614
LONG-TERM DEBT, LESS CURRENT MATURITIES ......... 9,924 10,153
RETIREMENT AND INSURANCE PROGRAMS AND OTHER
LONG-TERM OBLIGATIONS ......................... 1,053 1,088
LONG-TERM DEFERRED INCOME TAX LIABILITIES ....... 4,846 4,951
SHAREOWNERS' EQUITY
Preferred stock ............................... 44 47
Common stock, $1 par value - Authorized -
1,000,000,000 shares; Issued - 449,465,816
and 448,467,105 shares, respectively ........ 449 448
Additional paid-in capital .................... 2,662 2,667
Reinvested earnings ........................... 614 447
Accumulated other comprehensive income
(loss) ...................................... (174) (74)
Common stock in treasury, at cost -
31,661,536 and 27,149,854 shares,
respectively ................................ (710) (611)
------- -------
Total Shareowners' Equity ................... 2,885 2,924
------- -------
$22,255 $22,730
======= =======
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
NINE MONTHS ENDED
--------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................... $ 221 $ 77
Adjustments to reconcile net income to net
cash derived from operating activities:
Depreciation .................................. 603 663
Amortization .................................. 340 335
Deferred income tax expense (benefit) ......... 30 (32)
Net changes in current assets and
current liabilities ......................... (454) (317)
Other ......................................... 18 71
----- -------
Net cash derived from operating activities ...... 758 797
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in capital assets ................... (693) (942)
Fixed asset disposals ........................... 29 5
Cash investments in bottling operations,
net of cash acquired .......................... (54) (111)
Other investing activities ...................... (40) (115)
----- -------
Net cash used in investing activities ........... (758) (1,163)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in commercial paper ................ 82 154
Issuance of long-term debt ...................... 704 1,255
Payments on long-term debt ...................... (699) (1,086)
Stock purchases for treasury .................... (124) (1)
Cash dividend payments on common and
preferred stock ............................... (37) (54)
Exercise of employee stock options .............. 7 29
Cash received on currency hedges ................ 91 95
----- -------
Net cash derived from financing activities ...... 24 392
----- -------
NET INCREASE IN CASH AND CASH INVESTMENTS ......... 24 26
Cash and cash investments at beginning of
period ........................................ 141 68
----- -------
CASH AND CASH INVESTMENTS AT END OF PERIOD ........ $ 165 $ 94
===== =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITIES
Investments in bottling operations:
Fair value of assets acquired ................. $ 54 $ 1,311
Debt issued and assumed ....................... -- (115)
Other liabilities assumed ..................... -- (485)
Equity issued ................................. -- (600)
----- -------
Cash paid, net of cash acquired ............... $ 54 $ 111
===== =======
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 accounting principles generally accepted in the
United States (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. For further information, refer to the consolidated financial
statements and footnotes included in the Coca-Cola Enterprises Inc. ("the
Company") Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE B - SEASONALITY OF BUSINESS
Operating results for the third quarter and nine months ended September 29, 2000
are not indicative of results that may be expected for the year ending December
31, 2000 because of business seasonality. Business 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 nine months of 2000 include one less selling day than the
first nine months of 1999, affecting period comparisons.
NOTE C - PROPERTY, PLANT, AND EQUIPMENT
Effective January 1, 2000, the Company prospectively revised the estimated
useful lives and residual values of certain fixed assets based on the results of
a comprehensive analysis completed in late 1999 of the Company's historical
fixed asset experience. This historical experience consisted primarily of
various programs designed to improve asset management and enhance functionality.
Specifically, the Company implemented operational systems to track and monitor
assets, structured maintenance and refurbishment programs, and enhanced purchase
specification requirements. The study confirmed that these programs have
extended the useful lives of certain fixed assets, principally vehicles and cold
drink equipment, and increased the value of certain assets upon disposition.
These changes in accounting estimates generally result in certain of the
Company's operating assets being depreciated over longer useful lives, although
the Company's asset life ranges generally did not change.
The impact of the changes in estimates was to decrease depreciation expense
during the three and nine month periods ended September 29, 2000 by
approximately $42 million or $0.06 per share and $118 million or $0.17 per share
after taxes, respectively. The revisions will decrease depreciation expense for
full-year 2000 by approximately $161 million.
-6-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - NONRECURRING COSTS
In the second quarter of 2000, the Company recorded a $12 million nonrecurring
charge related to the restructuring of operations in Great Britain. Once
complete, the restructuring will entail the elimination of approximately 300
administrative and managerial positions. The charge was included in selling,
delivery, and administrative expenses. As of September 29, 2000, all but 44
positions had been eliminated and $6.8 million of the $12 million had been paid.
In June 1999, the Company recalled product in certain parts of Europe. The
Company incurred approximately $103 million of nonrecurring costs in connection
with the recall, of which approximately $91 million was expensed in cost of
sales with the remaining amount included in selling, delivery, and
administrative expenses. In third-quarter 2000, the Company realized $20 million
of insurance proceeds related to the recall loss. This insurance recovery has
been included as an offset in selling, delivery, and administrative expenses.
The Company is continuing discussions with its insurers to potentially recover
additional amounts.
NOTE E - LONG-TERM DEBT
Long-term debt balances, with current maturities, summarized below are adjusted
for the effects of interest rate and currency swap agreements (in millions):
SEPTEMBER 29, DECEMBER 31,
2000 1999
------------- ------------
U.S. commercial paper (weighted average
rates of 6.2% and 4.8%)(A) .................... $ 1,944 $ 1,737
Canadian dollar commercial paper (weighted
average rates of 6.0% and 5.3%) ............... 382 509
Debentures due 2012 - 2098 (weighted average
rate of 7.4%) ................................. 3,800 3,800
Notes due 2001 - 2037 (weighted average
rates of 6.9% and 6.8%)(B) .................... 2,115 2,250
Euro notes due 2002 - 2021 (weighted average
rates of 6.5% and 6.7%)(C) .................... 1,846 1,722
Canadian dollar notes due 2002 - 2009
(weighted average rates of 6.0% and
5.9%)(D) ..................................... 640 460
8.35% zero coupon notes due 2020 (net of
unamortized discount of $504 and $1,570,
respectively) (E) ............................ 126 362
Various foreign currency debt ................... 324 326
Additional debt ................................. 119 212
------- -------
Long-term debt including effect of net
asset positions of currency swaps ........... 11,296 11,378
Net asset positions of currency swap
agreements(F) ............................... 29 --
------- -------
$11,325 $11,378
======= =======
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - LONG-TERM DEBT (CONTINUED)
(A) At September 29, 2000 and December 31, 1999, $780 million and $1,154
million, respectively, 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 euros, Canadian dollars, and British pounds
sterling and also provide for the periodic exchange of interest payments.
These currency swap arrangements hedge net investments in international
subsidiaries.
(B) In March 2000, approximately $135 million of 5.71% 40 year notes maturing
in 2037 were retired under a put option feature.
(C) During the first nine months of 2000, the Company issued $288 million of
5.875% notes due 2007 under its Euro Medium Term Note Program.
(D) During the first nine months of 2000, the Company issued $186 million in
notes due 2002 with a weighted average interest rate of 6.29% under its
Canadian Medium Term Note Program.
(E) In June 2000, zero coupon notes with a face value of approximately $1.3
billion were retired under a one-time put option feature. Cash paid by the
Company totaled approximately $254 million.
(F) The net asset positions of currency swap agreements are included in the
balance sheet as assets.
Aggregate maturities of long-term debt for the five twelve-month periods
subsequent to September 29, 2000 are as follows (in millions): 2001 - $1,401;
2002 - $2,672; 2003 - $659; 2004 - $748; and 2005 - $10.
The Company has domestic and international credit facilities to support its
commercial paper programs and other borrowings as needed. At September 29, 2000
and December 31, 1999, the Company had $162 million and $157 million,
respectively, of short-term borrowings outstanding under these credit
facilities.
At September 29, 2000 and December 31, 1999, the Company had $3.6 billion and
$3.9 billion, respectively, of amounts available under domestic and
international credit facilities. At September 29, 2000 and December 31, 1999,
$1.9 billion and $2 billion, respectively, of borrowings due in the next 12
months were 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 September 29, 2000 and December 31, 1999, the Company had available for
issuance $2.7 billion in registered debt securities under a registration
statement with the Securities and Exchange Commission. At September 29, 2000 and
December 31, 1999, the Company had available for issuance approximately $1
billion and $1.3 billion, respectively, in debt securities under a Euro Medium
Term Note Program and at September 29, 2000 and December 31, 1999, the Company
had $0.7 billion and $0.9 billion, respectively, available for issuance under a
Canadian Medium Term Note Program.
Credit facilities, notes and debentures contain varying 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 covenants currently are not, and it is not anticipated they will become,
restrictive on the Company's liquidity or capital resources.
-8-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - LONG-TERM DEBT (CONTINUED)
On October 30, 2000, the Company issued approximately $36 million in zero coupon
notes due October 31, 2001 with an offering yield of 6.07% under its Canadian
Medium Term Note Program. In addition, the Company plans to issue approximately
$211 million in floating rate notes due 2002 and approximately $57 million in
floating rate notes due 2001 under its Euro Medium Term Note Program. The
interest rate on the Euro notes due 2002 is the three month Euribor plus
12.5 basis points and the interest rate on the Euro notes due 2001 is the three
month Sterling LIBOR plus 9 basis points. The Euro issues are expected to
settle in November 2000. The Company plans to use proceeds from these issues to
retire short-term commercial paper.
NOTE F - ACQUISITIONS
In the first nine months of 2000, the Company completed the following
acquisitions in the United States and Canada for an aggregate purchase price of
approximately $54 million:
- Longview Coca-Cola Bottling Company, operating in East Texas,
- Columbia Beverages Ltd., operating in Canada,
- Substantially all of the Coca-Cola bottling operations in Ohio and
Kentucky formerly owned by Coca-Cola Bottling Co. Consolidated, and
- Vermilion Beverages Ltd., operating in Canada.
The purchase method of accounting has been used for all acquisitions.
NOTE G - INCOME TAXES
The Company's effective tax rates for the first nine months of 2000 and 1999
were 34% and 33%, respectively. 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 29, OCTOBER 1,
2000 1999
------------- ----------
U.S. federal statutory expense ................... $117 $ 40
State expense (benefit), net of federal
(benefit) expense .............................. 7 (3)
Taxation of European and Canadian
operations, net ................................ (20) (19)
Valuation allowance provision .................... 1 10
Nondeductible items .............................. 7 8
Other, net ....................................... 1 1
---- ----
$113 $ 37
==== ====
NOTE H - STOCK-BASED COMPENSATION PLANS
The Company granted approximately 1.2 million service-vested stock options to
certain executive and management level employees and non-employee officers
during the first nine months of 2000. These options vest over a period of up to
six years and expire ten years from the date of grant. Of the total options
granted, 0.8 million were granted at an exercise price equal to the fair market
value of the stock on the grant date, and 0.4 million were granted at exercise
prices in excess of fair market value.
An aggregate of 1 million shares of common stock were issued during the first
nine months of 2000 from the exercise of stock options.
-9-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - PREFERRED STOCK
In connection with the acquisition of The Coca-Cola Bottling Company of
Bellingham and the acquisition of Great Plains Bottlers and Canners, Inc., the
Company issued 96,900 shares of $1 par value voting convertible preferred stock
("Bellingham series") and issued 401,474 shares of $1 par value voting
convertible preferred stock ("Great Plains series"). 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 September 29, 2000, 26,900 shares
of Bellingham series have been converted into 122,636 shares of common stock and
35,000 shares of Great Plains series have been converted into 154,778 shares of
common stock from treasury.
NOTE J - SHARE REPURCHASES
Under the April 1996 share repurchase program authorizing the repurchase of up
to 30 million shares, the Company can repurchase shares in the open market and
in privately negotiated transactions. In the first nine months of 2000, the
Company repurchased and settled approximately 6.6 million shares of common stock
for an aggregate cost of approximately $124 million. The Company has repurchased
a total of 26.3 million shares under the program. In October 2000, the Company's
Board of Directors authorized the repurchase of up to an additional 30 million
shares.
Management considers market conditions and alternative uses of cash and/or debt,
balance sheet ratios, and shareowner returns when evaluating share repurchases.
Repurchased shares are added to treasury stock and are available for general
corporate purposes including acquisition financing and the funding of various
employee benefit and compensation plans.
NOTE K - COMPREHENSIVE INCOME
The following table (in millions) presents a reconciliation of comprehensive
income, comprised of net income and other adjustments. Other adjustments to
comprehensive income may include minimum pension liability adjustments, currency
items such as foreign currency translation adjustments and hedges of net
investments in international subsidiaries, and unrealized gains and losses on
certain investments in debt and equity securities. The Company provides income
taxes on 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 NINE MONTHS ENDED
------------------------ ------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
2000 1999 2000 1999
------------- ---------- ------------- ----------
Net income ............. $131 $104 $221 $ 77
Currency items,
including tax effects
of hedges ............. (3) (5) (98) (64)
Unrealized loss on
securities, net of
tax ................... (1) -- (2) --
---- ---- ---- ----
Comprehensive income ... $127 $ 99 $121 $ 13
==== ==== ==== ====
-10-
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COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE L - EARNINGS PER SHARE
The following table presents information concerning basic and diluted earnings
per share (in millions except per share data; per share data is calculated prior
to rounding to millions).
QUARTER ENDED NINE MONTHS ENDED
-------------------------- -------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
2000 1999 2000 1999
------------- ---------- ------------- ----------
Net income ............. $ 131 $ 104 $ 221 $ 77
Preferred stock
dividends ............. 1 1 3 3
------ ------ ------ ------
Basic and diluted net
income applicable to
common shareowners .... $ 130 $ 103 $ 218 $ 74
====== ====== ====== ======
Basic average common
shares outstanding .... 418 426 419 425
Effect of dilutive
securities:
Stock compensation
awards ............... 9 11 10 11
------ ------ ------ ------
Diluted average common
shares outstanding ... 427 437 429 436
====== ====== ====== ======
Basic net income per
share applicable to
common shareowners .... $ 0.31 $ 0.24 $ 0.52 $ 0.18
====== ====== ====== ======
Diluted net income per
share applicable to
common shareowners .... $ 0.30 $ 0.24 $ 0.51 $ 0.17
====== ====== ====== ======
NOTE M - GEOGRAPHIC OPERATING INFORMATION
The Company operates in one industry: the marketing, distribution, and
production of liquid nonalcoholic refreshments. On September 29, 2000, 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, continental France, Great Britain,
Luxembourg, Monaco, and the Netherlands (collectively referred to as the
"European" territories).
The following presents net operating revenues for the nine months ended
September 29, 2000 and October 1, 1999 and long-lived assets as of September 29,
2000 and December 31, 1999 by geographic territory (in millions):
2000 1999
------------------------ ------------------------
NET LONG- NET LONG-
OPERATING LIVED OPERATING LIVED
REVENUES (A) ASSETS REVENUES (A) ASSETS
------------ --------- ------------ ---------
North American ..... $ 8,491 $15,260 $ 8,118 $15,430
European ........... 2,698 4,267 2,779 4,719
------- ------- ------- -------
Consolidated ....... $11,189 $19,527 $10,897 $20,149
======= ======= ======= =======
(A) Because of acquisitions and business seasonality, reported
results may not be 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.
-11-
<PAGE> 15
COCA-COLA ENTERPRISES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE N - COMMITMENTS AND CONTINGENCIES
In North America, the Company purchases PET (plastic) bottles from manufacturing
cooperatives. The Company has guaranteed payment of up to $262 million of
indebtedness owed by these manufacturing cooperatives to third parties. At
September 29, 2000, these cooperatives had approximately $168 million of
indebtedness guaranteed by the Company. In addition, the Company has issued
letters of credit principally under self-insurance programs aggregating
approximately $183 million.
The Company's bottler in Canada, acquired in 1997, is being audited for the
years 1990 through 1997 by the Canadian Customs and Revenue Agency. The
authorities have raised issues that could result in an assessment of additional
taxes. The bottler believes it has substantial defenses to the issues being
raised. However, it is too early to predict the final outcome of this matter. If
an assessment were made, the authorities by law could require as much as
one-half of any amount assessed to become immediately due and payable while the
bottler pursues an appeal.
The Company's bottler in California is involved in a lawsuit by current and
former employees concerning principally California wage and hour issues. The
Company is unable to predict the amount of any costs under this case or the
final outcome.
The Company is a defendant in various other matters of litigation arising out of
the normal course of business. Although it is difficult to predict the ultimate
outcome of these cases, management believes, based on discussions with counsel,
that any ultimate liability would not materially affect the Company's financial
position, results of operations, or liquidity.
-12-
<PAGE> 16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS SUMMARY AND OBJECTIVES
The Company is the world's largest marketer, producer, and distributor of
products of The Coca-Cola Company. The Company also distributes other beverage
brands in select markets. The Company operates in parts of 46 states in the
United States, all 10 provinces of Canada, and in portions of Europe, including
Belgium, continental France, Great Britain, Luxembourg, Monaco, and the
Netherlands.
Our primary objective is to deliver a superior investment return to our
shareowners through sustainable, profitable, long-term per capita consumption
growth. Our continued growth is dependent on the strength of our brands, the
success of our marketing and executional efforts, and consumer confidence in our
products.
Developing profitable business alliances with our customers and the communities
in which we do business is one of our key strategies. Our initiatives for the
remainder of 2000 include maintaining margin enhancements for the Company and
our customers and sustainable increases in volume across all channels with
specific focus on channels, products, and packages yielding higher margins. We
continue to enhance profitability and achieve volume growth in the higher margin
immediate consumption channels of our business and have made good progress in
improving the overall profitability of the future consumption channels of our
business.
By building on existing relationships and developing new partnerships, we will
continue to build brand equity and deliver value to our customers and our
shareowners. We have succeeded in establishing more profitable pricing in future
consumption channels in North America and successfully recovered from the
product recall in Europe through effective marketing programs and the
exceptional efforts of our employees.
OUTLOOK
For the remainder of 2000, we anticipate improved North American volume
performance as we benefit from the extensive fall promotional activities of The
Coca-Cola Company, and from our own local brand building initiatives. These
programs, combined with market-based management of our price realization
efforts, should enable us to achieve positive fourth-quarter North American
volume growth and full-year North American volume that is down less than
1 percent compared to prior year results.
In Europe, our underlying business remains strong and we continue to expect 4 to
6 percent volume growth for the full year. Market conditions in Great Britain,
where the pound sterling has appreciated significantly versus the euro since the
beginning of 1999, have resulted in alternative sourcing options for our
customers within certain distribution channels. These conditions are causing
significant pricing pressure on our operations in Great Britain. However,
pricing initiatives are being used to stabilize volume and will continue while
these conditions persist. It is unclear when or if these conditions will
reverse.
Based upon the North American and European volume projections, we expect
consolidated full-year volume to be flat to up slightly versus prior year
results. We expect full-year cash operating profit to approximate $2.4 billion.
Including the impact of currency translations at current levels and excluding
nonrecurring items, diluted net income per common share for full-year 2000 is
expected to approximate $0.50 per diluted common share. Operating free cash flow
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<PAGE> 17
(cash operating profit less cash paid for capital expenditures, taxes, interest,
and dividends) for 2000 is expected to remain at the previously announced level
of approximately $200 million as the Company reduces total capital spending
to approximately $1.2 billion for the year.
Our profit growth projection reflects increased growth and profitability in the
cold drink channel impacted by infrastructure development programs jointly
developed and executed with The Coca-Cola Company. Funding from The Coca-Cola
Company for these programs will decrease by approximately $100 million for 2000
when compared to 1999, with future annual decreases anticipated through 2003.
The actual amount of funding will depend on programs that may be developed
during these periods.
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, was $711
million for the third quarter, 5 percent over reported third-quarter 1999
results of $680 million. Third-quarter 2000 results include $20 million in
nonrecurring insurance proceeds related to the 1999 Belgian product recall.
Excluding the effects of these proceeds, our third quarter cash operating profit
was $691 million, approximately 2 percent higher than third-quarter 1999.
Third-quarter 2000 operating income totaled $395 million, representing an
increase of $54 million above reported third-quarter 1999 results. Excluding the
impact of the insurance proceeds, operating income would have increased 10
percent for the quarter. Operating income would have been $42 million less had
the revisions adopted earlier this year to the depreciable lives of certain
equipment categories not been made.
Cash operating profit ("COP") is used as an 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 GAAP. COP is similar
to EBITDA (earnings before interest, taxes, depreciation, and amortization), a
financial measure of the investment community.
NET OPERATING REVENUES AND COST OF SALES
The Company's third-quarter 2000 net operating revenues increased 3 percent,
excluding the impact of foreign currency translations, to approximately $3.9
billion. This growth reflects the impact of price increases as well as increased
volume in Europe offset by the Company's volume performance in North America.
Nine-month 2000 net operating revenues increased 5 percent, excluding the impact
of foreign currency translations, to approximately $11.2 billion. For the first
nine months of 2000, North America represented 76 percent of total revenues
while Europe contributed the remaining 24 percent.
Excluding the impact of currency translations, net revenues per physical case to
retailers (bottle and can) grew 5 percent for third-quarter 2000 and for the
first nine months of 2000. The third-quarter 2000 increase of 5 percent is
comprised of a 6 percent increase in North America and a slight decrease in
Europe. Net revenues per case to retailers (bottle and can) growth throughout
the third quarter reflected our higher pricing and favorable product, package,
and channel mix shifts, partially offset by pricing pressures in Great Britain.
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<PAGE> 18
Cost of sales per physical case (bottle and can) increased 4 percent from the
third quarter of 1999 to the third quarter of 2000 and increased 5 percent for
the first nine months of 2000, excluding the impact of foreign currency
translations. Third-quarter 2000 cost of sales comparisons were impacted by
increases in concentrate costs combined with smaller increases than anticipated
in certain sweetener and packaging costs. We expect a weighted average increase
in concentrate costs for full-year 2000 of approximately 5 percent and an
increase in cost of sales per case for full-year 2000 of approximately 5
percent, excluding the impact of foreign currency translations and nonrecurring
charges.
VOLUME
Volume comparisons for 2000 are impacted by our pricing initiatives in North
America as well as one less selling day in the first nine months of 2000.
Comparable volume results below adjust for one less selling day in the first
nine months of 2000 and for the impact of acquisitions.
----------------------------------------------------------------------------
THIRD-QUARTER 2000 NINE-MONTHS 2000
--------------------- ---------------------
REPORTED COMPARABLE REPORTED COMPARABLE
CHANGE CHANGE CHANGE CHANGE
-------- ---------- -------- ----------
Physical Case Bottle and Can
Volume:
Consolidated (1.5)% (1.5)% Flat Flat
North American Territories (1.5)% (1.5)% (2)% (1.5)%
European Territories (1)% (1.5)% 5.5 % 4.5 %
----------------------------------------------------------------------------
North America represented 76 percent of total physical case volume in
third-quarter 2000 and 78 percent in the first nine months of 2000, with Europe
contributing the remaining amounts. Third-quarter 2000 North American volume
performance reflects the impacts of a 5 percent volume increase in cold drink
channels and a 2 percent volume decrease in future consumption channels.
The third-quarter 2000 European reported volume performance comparisons must be
viewed with consideration of the pipeline refill activity that followed the June
1999 product recall. Volume growth rates in Belgium and the Netherlands for 2000
were negatively impacted by this activity. Strong growth continued in France,
where volume increased 7 percent in the third quarter of 2000.
PER SHARE DATA
In the third quarter of 2000, our net income applicable to common shareowners
was $0.30 per diluted common share, including $0.03 for recall insurance
proceeds, compared to $0.24 per diluted common share in the third quarter of
1999. Depreciation expense for third-quarter 2000 would have been approximately
$42 million higher ($0.06 per share after taxes), and depreciation expense for
the first nine months of 2000 would have been approximately $118 million higher
($0.17 per share after taxes) had the revisions to depreciable lives of certain
classes of fixed assets and vehicle salvage values for 2000 not been made.
SELLING, DELIVERY, AND ADMINISTRATIVE EXPENSES
In third-quarter 2000, consolidated selling, delivery, and administrative
expenses (excluding the insurance proceeds) as a percentage of net operating
revenues declined slightly to 29.1% from third-quarter 1999 results of 29.5%.
This decline was principally impacted by lower depreciation expense as a
result of our revisions to depreciable lives and vehicle salvage values.
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<PAGE> 19
INTEREST EXPENSE
Third-quarter and year-to-date 2000 net interest expense increased from reported
1999 levels due to higher average debt balances, a result of the Company's
capital spending and share repurchase programs. The weighted average interest
rate for the third quarter and first nine months of 2000 was 6.8 percent,
compared to 6.5 percent and 6.6 percent, respectively, in the third quarter and
first nine months of 1999.
INCOME TAXES
The Company's effective tax rates for the first nine months of 2000 and 1999
were 34 percent and 33 percent, respectively. The effective tax rate for
full-year 1999 was 33 percent. The Company's third-quarter 2000 effective tax
rate is based on the expected full-year 2000 pretax earnings and impacted by the
beneficial tax impact of certain international operations.
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 available short-term and
long-term capital resources are sufficient to fund our capital expenditure and
working capital requirements, scheduled debt payments, interest and income tax
obligations, dividends to our shareowners, acquisitions, and share repurchases.
For long-term financing needs, we had available at September 29, 2000 (i) $2.7
billion in registered debt securities for issuance under a registration
statement with the Securities and Exchange Commission, (ii) $1 billion in debt
securities under a Euro Medium Term Note Program, and (iii) an additional $0.7
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 September 29, 2000, we had $162 million outstanding
under these credit facilities, with an additional $3.6 billion available for
future borrowings. We intend to continue refinancing borrowings under our
commercial paper programs and our short-term credit facilities with longer-term
fixed and floating rate financings. At the end of third-quarter 2000, the
Company's debt portfolio was 75 percent fixed rate debt and 25 percent floating
rate debt.
On October 30, 2000, the Company issued approximately $36 million in zero coupon
notes due October 31, 2001 with an offering yield of 6.07% under its Canadian
Medium Term Note Program. In addition, the Company plans to issue approximately
$211 million in floating rate notes due 2002 and approximately $57 million in
floating rate notes due 2001 under its Euro Medium Term Note Program. The
interest rate on the Euro notes due 2002 is the three month Euribor plus
12.5 basis points and the interest rate on the Euro notes due 2001 is the three
month Sterling LIBOR plus 9 basis points. The Euro issues are expected to
settle in November 2000. The Company plans to use proceeds from these issues to
retire short-term commercial paper.
SUMMARY OF CASH ACTIVITIES
Cash and cash investments increased $24 million during the first nine months of
2000 from net cash transactions. Our primary uses of cash during the first nine
months of 2000 were capital expenditures totaling $693 million, long-term debt
payments totaling $699 million and stock purchases for treasury of $124 million.
Our primary sources of cash for the first nine months of 2000 were proceeds from
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<PAGE> 20
the increase in commercial paper and the issuance of long-term debt aggregating
$786 million and proceeds from our operations of approximately $758 million,
net of working capital requirements of $454 million.
Operating Activities: Operating activities resulted in $758 million of net cash
provided during the first nine months of 2000 compared to $797 million in the
first nine months of 1999.
Investing Activities: Net cash used in investing activities resulted primarily
from our continued capital investments. We expect full-year 2000 capital
expenditures to be approximately $1.2 billion.
Financing Activities: The Company continued to refinance portions of its
short-term borrowings with longer-term fixed and floating rate debt. In the
first nine months of 2000, the Company issued $288 million in notes under its
Euro Medium Term Note Program and $186 million under its Canadian Medium
Term Note Program.
FINANCIAL CONDITION
The decrease in net property, plant, and equipment resulted from the impact of
foreign currency translation and depreciation costs net of capital expenditures.
The decrease in long-term debt primarily resulted from the favorable impact of
debt payments and foreign currency translation, partially offset by the
financing of our capital expenditures and working capital needs.
In the first nine months of 2000, activities in currency markets resulted in a
loss in comprehensive income of $98 million. As currency exchange rates
fluctuate, translation of the statements of operations for our international
businesses into U.S. dollars affects the comparability of revenues and expenses
between periods.
KNOWN TRENDS AND UNCERTAINTIES
NONRECURRING PRODUCT RECALL COSTS
In June 1999, the Company recalled product in certain parts of Europe. The
Company incurred approximately $103 million of nonrecurring costs in connection
with the recall, of which approximately $91 million was expensed in cost of
sales with the remaining amount included in selling, delivery, and
administrative expenses. In third-quarter 2000, the Company realized $20 million
of insurance proceeds related to the recall loss. This insurance recovery has
been included as an offset in selling, delivery, and administrative expenses.
The Company is continuing discussions with its insurers to potentially recover
additional amounts.
EURO CURRENCY CONVERSIONS
On January 1, 1999, 11 of the 15 Member States 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 these
Member States, and in one (the United Kingdom) that chose not to participate.
The transition period for the introduction of the euro for the participating
countries is January 1, 1999, through January 1, 2002, and by July 1, 2002, all
national currencies for the participating countries will be replaced by the
euro.
We have 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.
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<PAGE> 21
The Company is in the process of identifying all material risks related to, and
is developing an implementation plan for, the conversion to the euro. The
following table lists certain milestones identified and their projected
completion dates with respect to the euro conversion.
MILESTONES KEY DATES
-------------------------------------------- -----------------
Business requirements gathering Completed
Strategy design and schedule Completed
Development of strategies Completed
Implementation of strategies 4th Qtr. 2000
Begin managing business operations in euro 1st Qtr. 2001
Vending machines ready for euro coinage 4th Qtr. 2001
Finalize local currency conversions 2nd Qtr. 2002
As of September 29, 2000, the Company had incurred and expensed approximately $7
million in costs associated with this conversion process. The Company estimates
the total cost to complete this project will be in the range of $25 million to
$35 million, and approximately 70% of these costs will be capitalized. These
costs represent principal projects to be undertaken to ensure a smooth
conversion. Our business resources currently available are sufficient to meet
the requirements needed to complete the euro initiative. The euro system
activities will be a key part of our ongoing systems standardization process.
Total information technology (IT) spending in Europe for 2000 is expected to
approximate 1999 IT spending levels.
The euro conversion may have long-term pricing implications by enhancing
cross-border product price transparency among the participating countries of the
European Union and by changing established local currency price points. We are
continuing to assess our pricing and marketing strategies to ensure we remain
competitive locally and in the broader European market. However, we cannot
reasonably predict the long-term effects a common currency may have on pricing
and costs or the resulting impact, if any, on financial condition or results of
operations. Additionally, the Company may be at risk to the extent third parties
are unable to deal effectively with the impact of the euro conversion, which in
turn could impact Company operations.
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
accounting records. However, due to numerous uncertainties we cannot be assured
that all issues related to the euro conversion have been identified and that any
additional issues would not have a material effect on the Company's operations
or financial condition.
TAX CONTINGENCY
The Company's bottler in Canada, acquired in 1997, is being audited for the
years 1990 through 1997 by the Canadian Customs and Revenue Agency. The
authorities have raised issues that could result in an assessment of additional
taxes. The bottler believes it has substantial defenses to the issues being
raised. However, it is too early to predict the final outcome of this matter. If
an assessment were made, the authorities by law could require as much as
one-half of any amount assessed to become immediately due and payable while the
bottler pursues an appeal.
LITIGATION CONTINGENCY
In June 2000, the Company and The Coca-Cola Company were found by a Texas jury
to be jointly liable in the amount of a combined total of $15.3 million to five
of the nine plaintiffs, each of which is a distributor of competing beverage
-18-
<PAGE> 22
products. These distributors had sued alleging that the Company and The
Coca-Cola Company engaged in unfair marketing practices. The complaint of
the four remaining plaintiffs is in discovery and has not yet gone to trial.
The Company is appealing the decision and believes there are substantial
grounds for appeal. It is impossible to predict the final outcome of the
Company's appeals in this matter or the ultimate costs under all of the
complaints.
The Company's bottler in California is involved in a lawsuit by current and
former employees concerning principally California wage and hour issues. We
are unable to predict the amount of any costs under this case or the final
outcome.
ACCOUNTING DEVELOPMENTS
Financial Accounting Standards Board ("FASB") statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133," are effective for fiscal years
beginning after June 15, 2000, fiscal year 2001 for the Company. The Company has
conducted evaluations of hedging policies and strategies for existing and
anticipated future derivative transactions. Adoption of these statements will
not have a significant effect on the Company's financial statements other than
recognition of derivative assets and liabilities on the balance sheet with
market value adjustments recognized in other comprehensive income.
In September 1999, the FASB issued an exposure draft that would amend APB
Opinion No. 16, "Business Combinations," and supersede APB Opinion No. 17,
"Intangible Assets." This exposure draft proposes to modify the method of
accounting for business combinations and addresses the accounting for intangible
assets. The Company is examining the effects these proposed changes may have on
the operating results and the financial statements of the Company.
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 volume resulting from
efforts to improve pricing in the future consumption channels of our business,
an inability to meet performance requirements for expected levels of marketing
support payments from The Coca-Cola Company, material changes from expectations
in the costs of raw materials and ingredients, an inability to achieve the
expected timing for returns on cold drink equipment and employee infrastructure
expenditures, uncertainty of expected reimbursements from insurance and/or third
parties relating to the second-quarter 1999 European recall costs, an inability
to meet projections for performance in newly acquired territories, potential
assessment of additional taxes resulting from audits conducted by the Canadian
Customs and Revenue Agency, 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 48 of the Company's Annual Report for the fiscal year
ended December 31, 1999.
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<PAGE> 23
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):
INCORPORATED BY
EXHIBIT REFERENCE OR
NUMBER DESCRIPTION FILED HEREWITH
--------- ------------------------------------------------ --------------
12 Statements regarding computations of ratios Filed Herewith
27 Financial Data Schedule for the quarter and nine Filed Herewith
months ended September 29, 2000
(b) Reports on Form 8-K:
During third-quarter 2000, the Company filed the following current reports on
Form 8-K:
DATE OF REPORT DESCRIPTION
---------------- --------------------------------------------------------------
July 18, 2000 Condensed Consolidated Statements of Operations and Balance
Sheet (unaudited) of the Company, reporting results of
operations and financial position for the second quarter of
2000. Report filed on July 24, 2000.
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<PAGE> 24
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 3, 2000 /s/ Patrick J. Mannelly
------------------------------
Patrick J. Mannelly
Senior Vice President and
Chief Financial Officer
Date: November 3, 2000 /s/ Michael P. Coghlan
------------------------------
Michael P. Coghlan
Vice President, Controller and
Principal Accounting Officer
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