<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period to
----------------- -----------------
Commission file number: 1-10064
-----------------------
DR PEPPER/SEVEN-UP COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2233365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8144 WALNUT HILL LANE
DALLAS, TEXAS 75231-4372
(Address of principal executive offices) (Zip Code)
(214) 360-7000
(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. [X] YES [ ] NO
THE NUMBER OF SHARES OF EACH CLASS OF THE REGISTRANT'S COMMON STOCK OUTSTANDING
AS OF SEPTEMBER 30, 1994 WAS AS FOLLOWS: 61,701,383 SHARES OF COMMON STOCK.
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1994 and December 31, 1993 3
Consolidated Condensed Statements of Operations
Three and nine months ended September 30, 1994
and 1993 4
Consolidated Condensed Statement of Stockholders' Deficit
Nine months ended September 30, 1994 5
Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Accounts receivable, less allowance for
doubtful accounts of $2,063 in 1994 and
$1,737 in 1993 $ 83,411 70,255
Inventories 17,019 14,550
Prepaid advertising and other current assets 18,337 18,480
Deferred income taxes 24,522 24,175
-------- --------
Total current assets 143,289 127,460
-------- --------
Property, plant and equipment, net 18,381 19,012
Intangible assets 538,317 602,860
Less accumulated amortization 121,262 111,434
-------- --------
Total intangible assets, net 417,055 491,426
-------- --------
Other assets, principally deferred debt
issuance costs, net 41,282 42,125
-------- --------
Total assets $620,007 680,023
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 18,236 25,060
Accrued expenses 74,887 84,292
Current portion of long-term debt 90,067 85,274
-------- --------
Total current liabilities 183,190 194,626
-------- --------
Long-term debt, less current portion 739,243 790,540
Deferred credits and other 17,314 28,805
Deferred income taxes 37,876 86,156
Stockholders' deficit:
Common Stock, $.01 par value, 61,707,834 shares
in 1994 and 60,796,377 shares in 1993 issued 617 608
Additional paid-in capital 415,075 406,728
Accumulated deficit (773,527) (827,672)
Foreign currency translation adjustment 219 232
Treasury stock, 6,451 shares in 1994 and 148,152
shares in 1993, at cost -- --
-------- --------
Total stockholders' deficit (357,616) (420,104)
-------- --------
Total liabilities and stockholders' deficit $620,007 680,023
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1994 and 1993
Unaudited
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
------------------------ ------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $201,928 186,921 585,058 540,226
Cost of sales 34,122 31,575 98,755 89,259
-------- -------- -------- --------
Gross profit 167,806 155,346 486,303 450,967
-------- -------- -------- --------
Operating expenses:
Marketing 103,819 94,230 296,489 272,818
General and administrative 7,871 7,843 24,187 22,199
Amortization of intangible assets 3,277 3,788 9,828 11,366
-------- -------- -------- --------
Total operating expenses 114,967 105,861 330,504 306,383
-------- -------- -------- --------
Operating profit 52,839 49,485 155,799 144,584
Other income (expense):
Interest expense (18,550) (20,222) (55,160) (65,626)
Other, net (273) (804) (1,080) (754)
-------- -------- -------- --------
Income before income taxes and
extraordinary item 34,016 28,459 99,559 78,204
Income tax expense 12,040 4,165 36,073 5,627
-------- -------- -------- --------
Income before extraordinary item 21,976 24,294 63,486 72,577
Extraordinary item - extinguishments of debt
less applicable income taxes 1,229 1,079 9,341 15,980
-------- -------- -------- --------
Net income $ 20,747 23,215 54,145 56,597
-------- -------- -------- --------
-------- -------- -------- --------
Income per common share and share
equivalents:
Income before extraordinary item $ 0.30 0.37 0.92 1.14
Extraordinary item (0.02) (0.02) (0.14) (0.25)
-------- -------- -------- --------
Net income $ 0.28 0.35 0.78 0.89
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares and share
equivalents outstanding 66,913 66,473 66,949 63,691
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Nine Months Ended September 30, 1994
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Foreign Total
Number Additional Currency Stock-
of Common Paid-In Accumulated Translation Treasury holders'
Shares Stock Capital Deficit Adjustment Stock Deficit
-------- -------- ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 60,648 $608 $406,728 $(827,672) $232 $ -- $(420,104)
Exercise of employee stock
options, including tax benefits 907 9 9,888 -- -- -- 9,897
Preferred stock redemption -- -- (1,909) -- -- -- (1,909)
Net income -- -- -- 54,145 -- -- 54,145
Other 146 -- 368 -- (13) -- 355
------ ---- -------- --------- ---- ----- ---------
Balance at September 30, 1994 61,701 $617 $415,075 $(773,527) $219 $ -- $(357,616)
------ ---- -------- --------- ---- ----- ---------
------ ---- -------- --------- ---- ----- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1994 and 1993
Unaudited
(In thousands)
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 54,145 56,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of intangibles, debt
discounts and deferred debt issuance costs 40,820 45,198
Deferred income taxes 17,416 1,314
Debt restructuring charge 1,603 7,894
Changes in assets and liabilities:
Accounts receivable (13,156) (17,336)
Inventories (2,469) (6,039)
Prepaid advertising and other assets (5,100) 4,482
Accounts payable and accrued expenses (17,868) (12,804)
Other 7,750 1,636
-------- -------
Net cash provided by operating activities 83,141 80,942
-------- -------
Cash flows from investing activities:
Capital expenditures (1,591) (1,473)
Other (697) --
-------- -------
Net cash used in investing activities (2,288) (1,473)
-------- -------
Cash flows from financing activities:
Proceeds from sale of common stock -- 305,873
Proceeds from long-term debt 207,000 194,000
Payments on long-term debt (276,335) (481,787)
Redemption of preferred stock (13,902) (98,383)
Increase in cash overdraft 139 888
Other 2,245 (60)
-------- -------
Net cash used in financing activities (80,853) (79,469)
-------- -------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
-------- -------
Cash and cash equivalents at end of period $ -- --
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1994
1. GENERAL
The accompanying consolidated condensed balance sheet as of September 30,
1994, the consolidated condensed statements of operations for the three
months and nine months ended September 30, 1994 and 1993, the consolidated
condensed statement of stockholders' deficit for the nine months ended
September 30, 1994 and the consolidated condensed statements of cash flows
for the nine months ended September 30, 1994 and 1993 are unaudited but
include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation. The results
of operations for the three months and nine months ended September 30, 1994
are not necessarily indicative of the operating results that may be
expected for the full fiscal year. These financial statements are for
interim periods and do not include all detail normally provided in annual
financial statements. They should be read in conjunction with the
consolidated financial statements of Dr Pepper/Seven-Up Companies, Inc. and
subsidiaries for the year ended December 31, 1993 included in the Company's
Annual Report on Form 10-K.
As hereinafter used, unless the context requires otherwise, the "Company"
means Dr Pepper/Seven-Up Companies, Inc. together with its direct and
indirect subsidiaries, and the "Holding Company" means Dr Pepper/Seven-Up
Companies, Inc. Dr Pepper/Seven-Up Corporation ("DP/7UP") is a direct
operating subsidiary of the Holding Company.
Income per common share and share equivalents is based on the income
applicable to the fully diluted weighted average number of shares of the
Company's common stock, par value $.01 per share ("Common Stock"),
outstanding of approximately 66,913,000 and 66,473,000 shares for the three
months ended September 30, 1994 and 1993, respectively, and 66,949,000 and
63,691,000 shares for the nine months ended September 30, 1994 and 1993,
respectively. The weighted average number of shares of Common Stock
outstanding assumes the exercise of dilutive warrants and stock options.
Income per common share and share equivalents is the same for primary and
fully diluted per share amounts.
2. INVENTORIES
Inventories consisted of the following at September 30, 1994 and
December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Finished products $ 5,421 5,362
Raw materials and supplies 11,598 9,188
------- ------
Total inventories $17,019 14,550
------- ------
------- ------
</TABLE>
7
<PAGE>
3. SUBORDINATED DEBT RETIREMENT
During the first nine months of 1994, the Company completed open market
purchases of a portion of its 11 1/2% Senior Subordinated Discount Notes
due 2002 (the "Discount Notes"). The Company borrowed $73.4 million under
its credit agreement (the "Credit Agreement") to retire $60.6 million
accreted value of the Discount Notes. In connection with these
transactions, the Company recorded an extraordinary charge of $9.3 million.
The charge reflected a write-off of a portion of the unamortized balance of
deferred debt issuance costs as well as the premium paid in excess of
accreted value, net of tax.
4. PREFERRED STOCK REDEMPTION
On July 8, 1994, DP/7UP called for redemption all of its outstanding shares
of the $1.375 Senior Exchangeable Preferred Stock of DP/7UP (the "DP/7UP
Preferred Stock"). All 1,268,174 outstanding shares were redeemed on August
31, 1994 at a redemption price of $10.9625 per share. DP/7UP used $13.9
million of Credit Agreement borrowings to effect the redemption.
5. CONTINGENCIES
(a) INTERNAL REVENUE SERVICE MATTER
The Internal Revenue Service has completed its examination of Federal
income tax returns of Dr Pepper Company ("Dr Pepper") and The Seven-Up
Company ("Seven-Up"), predecessors in interest to DP/7UP, for the
periods ended December 31, 1986, December 31, 1987 and May 19, 1988,
and of the Company for the period ended December 31, 1988. The Company
was notified of proposed IRS adjustments disallowing certain
deductions, including substantially all amortization of intangible
assets related to the 1986 acquisitions of Dr Pepper and Seven-Up.
During the second quarter of 1994, the Company accepted a global tax
settlement from the IRS with respect to certain proposed adjustments
relating to the deductibility of a portion of intangible assets. As a
result of the settlement, the Company reduced its recorded deferred
tax liabilities by approximately $65.0 million. The corresponding
effect of this adjustment to deferred tax liabilities was applied as a
reduction of intangible assets for financial reporting purposes. If
the remaining proposed IRS adjustments are sustained, in whole or in
part, the Company's net operating loss carryforwards for federal
income tax purposes would be significantly reduced. The Company is
vigorously contesting the remaining proposed adjustments. Management
of the Company believes the ultimate resolution of the remaining
proposed adjustments will not have a material adverse effect on the
Company's operating results or financial condition.
(b) STEINER LITIGATION
Sidney J. Steiner, the landlord under the Company's former lease
covering its former headquarters facilities, and Harbord Midtown, a
Texas partnership, filed suit against the Company in the 95th Judicial
District Court, Dallas County, Texas, on May 25, 1988 in connection
with the Company's move of its corporate headquarters. The landlord
has alleged that the Company breached an oral agreement to lease space
in a new office building the landlord planned to construct on such
premises. The landlord seeks to recover $470,000 in architectural fees
and other costs claimed to have been incurred as a result of such
agreement and the landlord claims to have suffered $24.0 million in
other damages as a result of the Company's alleged breach.
Additionally, on October 12, 1989, the landlord amended its complaint
in this cause of action to include allegations
8
<PAGE>
that the Company fraudulently misrepresented the existence of asbestos
in the Company's former headquarters facilities, which were purchased
by the landlord and leased back to the Company in 1985. The landlord
claims damages in excess of $4.0 million related to the additional
allegations.
The lawsuit was dismissed without prejudice pursuant to an Agreed
Order Granting Joint Motion for Non-Suit on May 18, 1992. Subsequent
to filing the lawsuit, Steiner sold the property and the claim in
litigation to a third party, who in turn later sold the property and
the claim to another party, who became a debtor in a bankruptcy
proceeding. The trustee in bankruptcy sold the claim in the lawsuit to
Canco Properties ("Canco"), San Antonio, Texas, who refiled the
lawsuit on January 29, 1993. By letter dated September 21, 1993, Canco
claimed that additional discovery and investigation resulted in an
increase in estimated damages, and now estimates their damages to be
over $31.5 million, with punitive damages in excess of $50 million in
the aggregate. On May 4, 1994, Canco amended its petition to add
claims for negligent misrepresentation and fraud based upon the
Company's alleged failure to disclose the existence of water leaks in
the building at the time the building was sold to Steiner in August
1985. The court has set a trial date of December 12, 1994.
On December 4, 1990, Steiner filed a claim with the American
Arbitration Association seeking compensation for damage allegedly
caused by the Company to its former corporate headquarters building
during the Company's occupancy of such building as tenant under a
lease agreement with Steiner. This claim was subsequently sold in the
same manner as described in the immediately preceding paragraph with
respect to the litigation and is now owned by Canco. Canco presently
seeks damages in connection with this claim in the amount of
approximately $11.5 million as well as an unspecified amount of
punitive damages and attorneys' fees. An arbitration hearing with
respect to this claim began on November 8, 1993 in Dallas, Texas;
however, due to the death of the arbitrator, a new arbitrator was
appointed. The parties conducted the arbitration hearing from June 28
through July 7, 1994. The arbitrator awarded Canco $150,000 for its
claims in the arbitration; however, because the arbitrator determined
that the Company was the prevailing party in the arbitration, the
arbitrator awarded the Company approximately $139,000 in attorneys'
fees. Therefore, the net amount paid to Canco by the Company was
approximately $11,000.
The Company believes that the claims alleged in the lawsuit are
without merit and intends to vigorously contest the allegations. The
Company further believes that the resolution of this litigation will
not have a material adverse effect on its operating results or
financial condition.
(c) OTHER LITIGATION
DP/7UP is a defendant in various other lawsuits arising out of the
ordinary conduct of its business. Management of the Company believes
the resolution of these matters will not have a material adverse
effect on the Company's operating results or financial condition.
9
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1994
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1993 AND THREE MONTHS ENDED SEPTEMBER 30,
1994 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1993
Net sales for the nine months ended September 30, 1994 increased 8% to
$585.1 million compared to $540.2 million for the nine months ended September
30, 1993. Net sales for the three months ended September 30, 1994 increased 8%
to $201.9 million compared to $186.9 million in the third quarter of 1993. The
increases were primarily the result of increased sales volume for DR PEPPER
brands over the comparable periods in 1993, as well as selected price increases.
Cost of sales for the nine months ended September 30, 1994 increased 11% to
$98.8 million compared to $89.3 million in the first nine months of 1993. Cost
of sales for the three months ended September 30, 1994 increased 8% to $34.1
million compared to $31.6 million in the third quarter of 1993. These increases
resulted from the increase in concentrate and syrup sales volume. Gross profit
as a percentage of net sales for the nine months ended September 30 decreased
from 83.5% in 1993 to 83.1% in 1994, primarily reflecting increased sales of
IBC's lower-margin finished goods and product mix.
Total operating expenses, which include marketing expense, general and
administrative expense and amortization of intangible assets, increased 8% to
$330.5 million in the first nine months of 1994 compared to $306.4 million in
the same period of the prior year. Total operating expenses for the three months
ended September 30, 1994 increased 9% to $115.0 million from $105.9 million in
the third quarter of the prior year. These increases were primarily due to
increased marketing expenses in response to improved sales volume.
As a result of the above factors, operating profit for the nine months
ended September 30, 1994 increased 8% to $155.8 million compared to $144.6
million in the first nine months of 1993. Operating profit for the three months
ended September 30, 1994 of $52.8 million was 7% higher than the $49.5 million
of operating profit earned in the third quarter of 1993.
Interest expense for the nine months ended September 30, 1994 decreased 16%
to $55.2 million compared to $65.6 million in the first nine months of 1993.
Interest expense for the three months ended September 30, 1994 decreased 8% to
$18.6 million compared to $20.2 million in the third quarter of 1993. These
decreases were principally due to the impact of the Company's deleveraging
efforts.
The increase in income tax expense in the nine and three months of 1994 as
compared to the same periods in 1993 is principally due to the utilization of
net operating loss carryforwards during 1993.
10
<PAGE>
In connection with the retirement of a portion of the Discount Notes, an
extraordinary charge of $9.3 million was recorded in the first nine months of
1994, net of a $5.0 million tax effect. The extraordinary charge reflects a
write-off of a portion of the unamortized balance of deferred debt issuance
costs as well as the premium paid in excess of the accreted value.
In connection with the Company's public offering of its Common Stock during
the first quarter of 1993, a $14.9 million extraordinary charge was recorded in
that quarter which included a write-off of a portion of the unamortized balance
of deferred debt issuance costs and the payment of premiums on the redemption of
a portion of the Discount Notes. In addition, a $1.1 million extraordinary
charge was recorded in the third quarter of 1993 reflecting a write-off of a
portion of the unamortized balance of deferred debt issuance costs related to
the Credit Agreement borrowings. The write-off was the result of repayments of
the Term Loan Facility (as hereinafter defined) in advance of scheduled
requirements.
As a result of the above factors, the Company earned $54.1 million of net
income in the first nine months of 1994 compared to $56.6 million of net income
earned in the same period in 1993. For the three months ended September 30, 1994
the Company earned $20.7 million of net income compared to $23.2 million of net
income earned in the third quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash provided by operations, together with
borrowings under DP/7UP's $150.0 million revolving facility (the "Revolving
Facility"), will be sufficient to fund its working capital requirements, capital
expenditures and principal and interest requirements described below.
The Holding Company conducts its business through DP/7UP and the primary
asset of the Holding Company is the common stock of DP/7UP. The Holding Company
has no material operations of its own. Accordingly, the Holding Company is
dependent on the cash flow of DP/7UP to meet its obligations. The Holding
Company has no material obligations other than those under the Discount Notes
and certain contingent obligations under the Holding Company's guarantee of
DP/7UP's obligations under the Credit Agreement. Accordingly, the Holding
Company is not expected to have any material need for cash until interest on the
Discount Notes becomes payable in cash on May 1, 1998. The Holding Company will
be required to make sinking fund payments equal to 25% of the then outstanding
principal amount of the Discount Notes in each of 2000 and 2001. The Discount
Notes will mature in 2002. The Credit Agreement imposes significant restrictions
on the payment of dividends and the making of loans by DP/7UP to the Holding
Company. The Credit Agreement does, however, allow DP/7UP to pay dividends to
the Holding Company in an amount necessary to make cash interest payments on the
Discount Notes, provided that such interest payments are permitted to be made at
such time in accordance with the subordination provisions relating to the
Discount Notes and so long as no payment default or bankruptcy default then
exists under the Credit Agreement with respect to the Holding Company or DP/7UP.
The indenture governing the Discount Notes also imposes limits on the payment of
dividends by the Holding Company.
The operations of DP/7UP do not require significant outlays for capital
expenditures, and its working capital requirements have historically been funded
with internally generated funds. Marketing expenditures have historically been,
and are expected to remain, the principal recurring use of funds for the
foreseeable future. Such expenditures are, to an extent, controllable by
management and are generally based on a percentage of unit sales volume.
DP/7UP's other principal use of funds in the future will be the payment of
principal and interest under the Credit Agreement and the payment of dividends
to the Holding Company for purposes of making principal and interest payments on
the Discount Notes. As of September 30, 1994, DP/7UP is required to repay the
11
<PAGE>
remaining principal of $482.5 million under its term loan facility (the "Term
Loan Facility") as follows: $42.5 million in 1994, $100.0 million in 1995,
$110.0 million in 1996, and $115.0 million in each of 1997 and 1998. The
Revolving Facility includes an amount for letters of credit in an aggregate face
amount of up to $15.0 million. At September 30, 1994, the outstanding balance of
revolving loans and the aggregate face amount of letters of credit issued under
the Revolving Facility were $83.0 million and $0.2 million, respectively. The
Revolving Facility will mature on the earlier to occur of (i) December 31, 1998
or (ii) the date on which there are no amounts outstanding under the Term Loan
Facility.
The Company's obligations under the Credit Agreement bear interest at floating
rates making the Company sensitive to changes in prevailing interest rates.
Accordingly, in order to minimize the effect of significant changes in
prevailing interest rates, and as permitted by the Credit Agreement, the
Company has from time to time entered into interest rate swap and interest
rate cap agreements. At September 30, 1994, the Company was a counterparty
to a twelve-month swap expiring December 1, 1995, based on six-month LIBOR
with a notional amount of $150 million. Interest rate cap agreements
expire annually on December 1 with notional amounts of $350 million in
1994 (capped at 5.75%) and $150 million in 1996 and 1997 (capped in a range
of 6.75% to 8.00%). Premiums for these agreements accrue to interest expense
over the life of each agreement. Any interest rate differentials to be
received or paid are recognized as adjustments to interest expense. The net
effect on interest expense from interest rate instruments was insignificant
for the three months and nine months ended September 30, 1994 and 1993.
Market risk relating to financial instruments is evaluated periodically based
on quotes from financial institutions.
The Company had working capital deficits of $39.9 million at September 30,
1994 and $67.2 million at December 31, 1993. The Company generally operates with
a working capital deficit due to its low inventory investment and because it has
a significant amount of accrued marketing expenses in current liabilities. The
deficit at September 30, 1994 was improved from the December 31, 1993 deficit by
the net increase in working capital components as a result of the timing of cash
receipts and disbursements and the seasonal nature of the business. The Company
does not believe that such deficits will have a material adverse effect on its
liquidity or operations.
The Credit Agreement contains numerous financial and operating covenants
and prohibitions that impose limitations on the Company's liquidity, including
the satisfaction of certain financial ratios and limitations on the incurrence
of additional indebtedness. Through September 30, 1994, the Company has
satisfied all required financial ratios. The indenture governing the Discount
Notes also contains covenants that impose limitations on the Company's
liquidity, including a limitation on the incurrence of additional indebtedness.
The ability of the Company to meet its debt service requirements and to comply
with the financial covenants in the Credit Agreement and the indenture will be
dependent upon future performance, which is subject to financial, economic,
competitive and other factors affecting the Holding Company and DP/7UP, many of
which are beyond their control.
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to Consolidated Condensed Financial Statements which is
hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1994.
12
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
SIGNATURE
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.
DR PEPPER/SEVEN-UP COMPANIES, INC.
Date: November 9, 1994
/s/ IRA M. ROSENSTEIN
------------------------------
Ira M. Rosenstein
Executive Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 78,400
<ALLOWANCES> 2,063
<INVENTORY> 17,019
<CURRENT-ASSETS> 143,289
<PP&E> 50,680
<DEPRECIATION> 32,299
<TOTAL-ASSETS> 620,007
<CURRENT-LIABILITIES> 183,190
<BONDS> 263,671
<COMMON> 617
0
0
<OTHER-SE> (358,233)
<TOTAL-LIABILITY-AND-EQUITY> 620,007
<SALES> 585,058
<TOTAL-REVENUES> 585,058
<CGS> 98,755
<TOTAL-COSTS> 98,755
<OTHER-EXPENSES> 330,179
<LOSS-PROVISION> 325
<INTEREST-EXPENSE> 55,160
<INCOME-PRETAX> 99,559
<INCOME-TAX> 36,073
<INCOME-CONTINUING> 63,486
<DISCONTINUED> 0
<EXTRAORDINARY> 9,341
<CHANGES> 0
<NET-INCOME> 54,145
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
