<PAGE> 1
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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 September 26, 1997
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.
386,270,533 SHARES OF $1 PAR VALUE COMMON STOCK AS OF NOVEMBER 3, 1997
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COCA-COLA ENTERPRISES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 26, 1997
INDEX
Page
----
Part I - Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
Quarters ended September 26, 1997 and September 27, 1996.. 1
Condensed Consolidated Statements of Income for the Nine
Months ended September 26, 1997 and September 27, 1996.... 2
Condensed Consolidated Balance Sheets as of September 26,
1997 and December 31, 1996................................ 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 26, 1997 and September 27, 1996.... 5
Notes to Condensed Consolidated Financial Statements......... 6
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 14
Part II - Item 1. Legal Proceedings.................................. 22
Part II - Item 6. Exhibits and Reports on Form 8-K................... 23
Signatures................................................................ 24
<PAGE> 3
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 26, SEPTEMBER 27,
1997 1996
------------- -------------
NET OPERATING REVENUES ........................... $3,183 $2,187
Cost of sales .................................... 2,017 1,363
------ ------
GROSS PROFIT ..................................... 1,166 824
Selling, delivery, and administrative expenses ... 939 667
------ ------
OPERATING INCOME ................................. 227 157
Interest expense, net ............................ 143 90
Other nonoperating expenses, net ................. - 1
------ ------
INCOME BEFORE INCOME TAXES ....................... 84 66
Income tax expense before rate change benefit .... 30 27
Income tax rate change benefit ................... (58) -
------ ------
NET INCOME ....................................... 112 39
Preferred stock dividends ........................ - 2
------ ------
NET INCOME APPLICABLE TO COMMON SHARE OWNERS ..... $ 112 $ 37
====== ======
AVERAGE COMMON SHARES OUTSTANDING ................ 386 373
====== ======
NET INCOME PER SHARE APPLICABLE TO COMMON SHARE
OWNERS ......................................... $ 0.29 $ 0.10
====== ======
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 26, SEPTEMBER 27,
1997 1996
------------- -------------
NET OPERATING REVENUES .......................... $8,229 $5,803
Cost of sales ................................... 5,179 3,586
------ ------
GROSS PROFIT .................................... 3,050 2,217
Selling, delivery, and administrative expenses .. 2,455 1,784
------ ------
OPERATING INCOME ................................ 595 433
Interest expense, net ........................... 377 253
Other nonoperating expenses, net ................ 6 1
------ ------
INCOME BEFORE INCOME TAXES ...................... 212 179
Income tax expense before rate change benefit ... 80 74
Income tax rate change benefit .................. (58) -
------ ------
NET INCOME ...................................... 190 105
Preferred stock dividends ....................... 2 6
------ ------
NET INCOME APPLICABLE TO COMMON SHARE OWNERS .... $ 188 $ 99
====== ======
AVERAGE COMMON SHARES OUTSTANDING ............... 382 374
====== ======
NET INCOME PER SHARE APPLICABLE TO COMMON SHARE
OWNERS ........................................ $ 0.49 $ 0.26
====== ======
See Notes to Condensed Consolidated Financial Statements.
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
SEPTEMBER 26, DECEMBER 31,
ASSETS 1997 1996
------------- -------------
(Unaudited)
CURRENT
Cash and cash investments, at cost
approximating market ....................... $ 59 $ 47
Trade accounts receivable, less reserves
of $59 and $45 million, respectively ....... 1,128 668
Inventories:
Finished goods ............................. 348 221
Raw materials and supplies ................. 153 96
------- -------
501 317
Current deferred income tax assets ........... 148 140
Prepaid expenses and other current assets .... 217 147
------- -------
Total Current Assets ..................... 2,053 1,319
PROPERTY, PLANT, AND EQUIPMENT
Land ......................................... 294 213
Buildings and improvements ................... 1,056 860
Machinery and equipment ...................... 4,419 3,558
------- -------
5,769 4,631
Less allowances for depreciation ............. 2,203 1,881
------- -------
3,566 2,750
Construction in progress ..................... 121 62
------- -------
Net Property, Plant, and Equipment ......... 3,687 2,812
FRANCHISES AND OTHER NONCURRENT ASSETS, NET ..... 11,732 7,103
------- -------
$17,472 $11,234
======= =======
- 3 -
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
SEPTEMBER 26, DECEMBER 31,
LIABILITIES AND SHARE-OWNERS' EQUITY 1997 1996
------------- -------------
(Unaudited)
CURRENT
Accounts payable and accrued expenses .......... $ 2,070 $ 1,199
Current portion of long-term debt .............. 1,571 491
------- -------
Total Current Liabilities .................. 3,641 1,690
LONG-TERM DEBT, LESS CURRENT MATURITIES ........... 7,108 4,814
RETIREMENT AND INSURANCE PROGRAMS AND OTHER
LONG-TERM OBLIGATIONS .......................... 890 699
LONG-TERM DEFERRED INCOME TAX LIABILITIES ......... 4,070 2,481
SHARE-OWNERS' EQUITY
Preferred stock ................................ - 134
Common stock, $1 par value -
Authorized - 1,000,000,000 and 500,000,000
shares respectively;
Issued - 442,511,347 and 146,763,463 shares,
respectively ................................ 442 147
Additional paid-in capital ..................... 1,353 1,434
Reinvested earnings ............................ 403 237
Cumulative effect of currency translations ..... (52) 21
Common stock in treasury, at cost
(56,418,084 and 21,328,590 shares,
respectively) ............................... (383) (423)
------- -------
Total Share-Owners' Equity ................. 1,763 1,550
------- -------
$17,472 $11,234
======= =======
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COCA-COLA ENTERPRISES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................... $ 190 $ 105
Adjustments to reconcile net income to net
cash derived from operating activities:
Depreciation .............................. 402 279
Amortization .............................. 288 173
Deferred income tax provision (benefit) ... (85) 5
Net changes in current assets and current
liabilities ............................. (196) 113
Additional nonoperating cash flows ........ 60 26
------- -------
Net cash derived from operating activities .... 659 701
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets ..................... (659) (456)
Fixed asset sales ............................. 16 15
Cash investments in bottling businesses,
net of cash acquired ........................ (1,986) (681)
------- -------
Net cash used in investing activities ......... (2,629) (1,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt .................... 3,258 768
Payments on long-term debt .................... (1,267) (141)
Cash dividend payments on common and
preferred stock ............................. (14) (9)
Exercise of employee stock options ............ 10 7
Stock purchases for treasury .................. - (183)
Additional financing activities ............... (5) (3)
------- -------
Net cash derived from financing activities .... 1,982 439
------- -------
NET INCREASE IN CASH AND CASH INVESTMENTS ........ 12 18
Cash and cash investments at beginning
of period ................................... 47 8
------- -------
CASH AND CASH INVESTMENTS AT END OF PERIOD ....... $ 59 $ 26
======= =======
SUPPLEMENTAL NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisitions:
Fair value of assets acquired ............... $ 6,167 $ 2,292
Debt issued and assumed ..................... (1,620) (586)
Other liabilities assumed ................... (2,561) (871)
Equity issued ............................... - (154)
------- -------
Cash paid, net of cash acquired ............. $ 1,986 $ 681
======= =======
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. 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, 1996.
NOTE B - SEASONALITY OF BUSINESS
Operating results for the third quarter and nine months ended September 26, 1997
are not indicative of results that may be expected for the year ending December
31, 1997 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.
NOTE C - ACQUISITIONS
On February 10, 1997, the Company purchased Amalgamated Beverages Great Britain
Limited (ABGB) from The Coca-Cola Company and Cadbury Schweppes plc for an
aggregate transaction value (purchase price, assumed debt, and other long-term
obligations) of approximately $2 billion. Coca-Cola & Schweppes Beverages
Limited (CCSB), a wholly-owned subsidiary of ABGB, produces and distributes
beverage products of The Coca-Cola Company and Cadbury Schweppes plc in Great
Britain. CCSB has entered into long-term contracts to continue to produce and
distribute products of both The Coca-Cola Company and Cadbury Schweppes plc in
Great Britain.
On August 7, 1997, the Company acquired The Coca-Cola Company's 48% interest in
Coca-Cola Beverages Ltd. (Coke Canada) and increased its ownership interest in
The Coca-Cola Bottling Company of New York, Inc. (Coke New York) to 53% by
acquiring The Coca-Cola Company's 49% interest in Coke New York. In September
1997 the Company acquired the remaining shares of Coke Canada held by the
public. The Company is seeking to acquire the remaining shares of Coke New York
currently held by private investors.
The total transaction value (purchase price, acquired debt, and preferred stock)
for all ownership interests in Coke New York and Coke Canada is estimated to
approximate $1.69 billion including the anticipated cost of the remaining Coke
New York shares. The Company has financed the acquisition through the issuance
of debt. It is anticipated that all aspects of the transaction will close by the
end of 1997.
Coke Canada operates in parts of all 10 Canadian provinces. Coke New York
operates in the New York metropolitan area, certain other areas in the state of
New York, and in parts of Connecticut, Massachusetts, New Hampshire, New Jersey,
and Vermont.
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<PAGE> 9
Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE C - ACQUISITIONS (CONTINUED)
The following table summarizes unaudited pro forma financial information of the
Company as if the 1996 and 1997 acquisitions of S.A. Beverage Sales Holding
N.V., Coca-Cola Enterprises S.A. (formerly known as Coca-Cola Beverages S.A.),
Coca-Cola Production S.A., Ouachita Coca-Cola Bottling Company, Inc. (Ouachita),
Coca-Cola Bottling Company West, Inc., Grand Forks Coca-Cola Bottling Company,
ABGB, Coke Canada, and Coke New York, were completed effective January 1, 1996.
The unaudited pro forma financial information reflects adjustments for: (i) the
repayment of certain assumed debt, (ii) financing of the transactions at an
estimated financing cost for each acquisition, (iii) amortization of the value
of the acquired franchise assets over 40 years, (iv) contractual changes to the
business of certain of the acquired companies, and (v) income tax effects of the
foregoing (in millions except per share data):
QUARTER ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
NET OPERATING
REVENUES $3,327 $3,134 $9,328 $8,973
Cost of sales 2,112 1,978 5,893 5,672
------ ------ ------ ------
GROSS PROFIT 1,215 1,156 3,435 3,301
Selling, delivery,
and
administrative
expenses 989 958 2,847 2,755
------ ------ ------ ------
OPERATING INCOME 226 198 588 546
Interest expense,
net 153 168 456 508
Other nonoperating
expense
(income), net 8 1 8 (1)
------ ------ ------ ------
INCOME BEFORE
INCOME TAXES 65 29 124 39
Income tax expense
before rate
change benefit 22 15 46 17
Income tax rate
change benefit (58) - (58) -
------ ------ ------ ------
NET INCOME 101 14 136 22
Preferred stock
dividends - 2 2 8
------ ------ ------ ------
PRO FORMA NET
INCOME APPLICABLE
TO COMMON SHARE
OWNERS $ 101 $ 12 $ 134 $ 14
====== ====== ====== ======
PRO FORMA NET
INCOME PER SHARE
APPLICABLE TO
COMMON SHARE
OWNERS $ 0.26 $ 0.03 $ 0.35 $ 0.04
====== ====== ====== ======
OTHER PRO FORMA
OPERATING DATA:
Depreciation $ 147 $ 140 $ 451 $ 411
Amortization 122 100 334 284
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Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE C - ACQUISITIONS (CONTINUED)
Pending Transaction - On July 21, 1997, the Company announced the signing of a
letter of understanding to acquire the Coca-Cola bottling operations in
Luxembourg. The Company is acquiring the exclusive rights to manufacture and
distribute products of The Coca-Cola Company in this territory for a transaction
value (purchase price and acquired debt, net of cash acquired) of approximately
$20 million. The proposed transaction is subject to certain conditions including
negotiation of a definitive purchase agreement, and approval by regulatory
agencies. The Company intends to finance the acquisition through the issuance of
debt. The transaction is expected to close in early 1998.
NOTE D - LONG-TERM DEBT
Long-term debt including current maturities consists of the following (in
millions):
SEPTEMBER 26, DECEMBER 31,
1997 1996
------------- -------------
Commercial Paper, weighted average interest rate
of 5.5% ......................................... $ 562 $ 648
British pound sterling loans payable, weighted
average interest rate of 6.9% ................... 1,702 -
Canadian dollar loans payable, weighted average
interest rate of 4% ............................. 902 -
6.50% Notes due 1997 ............................... 300 300
7.00% Notes due 1999 ............................... 200 200
6.375% Notes due 2001 .............................. 250 -
7.875% Notes due 2002 .............................. 500 500
6.625% Notes due 2004 .............................. 200 -
8.00% Notes due 2005 ............................... 250 250
8.50% Debentures due 2012 .......................... 250 250
8.75% Debentures due 2017 .......................... - 142
7.125% Debentures due 2017 ......................... 300 -
8.35% Zero Coupon Notes due 2020
(net of unamortized discount of
$1,631 and $1,649, respectively) ................ 301 283
8.00% and 8.50% Debentures due 2022 ................ 1,000 1,000
6.75% Debentures due 2023 .......................... 250 250
6.95% and 7.00% Debentures due 2026 ................ 550 550
6.70% Debentures due 2036 .......................... 300 300
5.71% Notes due 2037 ............................... 150 -
Additional debt .................................... 712 632
------ ------
$8,679 $5,305
====== ======
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Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE D - LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt for the five twelve-month periods
subsequent to September 26, 1997 are as follows (in millions): 1998 - $1,571;
1999 - $67; 2000 - $205; 2001 - $255; and 2002 - $2,001.
At September 26, 1997, the Company's outstanding commercial paper and
approximately $938 million of the outstanding British pound sterling loans are
supported by a $1.5 billion long-term multicurrency revolving bank credit
agreement maturing in November 2001 and have been classified as maturing after
one year. The Company's loans denominated in Canadian dollars represent amounts
outstanding under annually revolving credit facilities with a total amount
available of up to $1,070 million. Because the Company has the option to convert
these credit facilities to a five-year term loan, amounts outstanding have been
classified as maturing after one year.
The Company has executed foreign currency swap agreements on its commercial
paper borrowings and intends to renew these short-term foreign currency swap
agreements as they expire.
At September 26, 1997 and December 31, 1996, the Company had approximately $337
million and $370 million, respectively, outstanding under various short-term
credit facilities. At September 26, 1997 and December 31, 1996, the Company had
$1,549 million and $736 million, respectively, available under these short-term
credit facilities.
At September 26, 1997, the Company had available for issuance approximately $2.3
billion in registered debt securities under a registration statement with the
Securities and Exchange Commission. On September 25, 1997, the Company
registered debt securities of $2.5 billion under a European Medium Term Note
Program with the Luxembourg Stock Exchange; on September 30, 1997 the Company
issued $500 million in 6.625% Notes due September 30, 2002 under this program.
On April 1, 1997, the Company redeemed the 8.75% Debentures due April 1, 2017
aggregating $142 million. Early redemption costs of $6 million were included in
results of operations as an other nonoperating expense in first-quarter 1997.
In March 1997 the Company issued $150 million of 5.71% Notes due March 18, 2037.
Holders of these notes may require the Company to repay the notes after one year
and each anniversary date thereafter. Additionally, in July 1997 the Company
issued (i) $250 million of 6.375% Notes due August 1, 2001, (ii) $200 million of
6.625% Notes due August 1, 2004, and (iii) $300 million of 7.125% Debentures due
August 1, 2017.
The multicurrency revolving bank credit agreement and the 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.
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Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE E - PREFERRED STOCK
In 1996 the Company issued two types of shares of convertible preferred stock as
consideration in the Ouachita acquisition. During the first six months of 1997,
holders of Series A preferred stock converted 881,014 shares into 2,525,064
shares of common stock, completing the conversion of all issued shares of Series
A preferred stock into 2,768,324 shares of common stock. In the first quarter of
1997, holders of Series B preferred stock converted 17 shares into 56 shares of
common stock, completing the conversion of all issued shares of Series B
preferred stock into 555,083 shares of common stock. As a result of these
conversions, additional paid-in capital increased by approximately $95 million
and treasury stock decreased by approximately $40 million.
NOTE F - INCOME TAXES
The Company's effective tax rates for the first nine months of 1997 and 1996
were 38% and 41%, respectively. A reconciliation of the income tax provision at
the statutory federal rate to the Company's actual income tax provision, before
the impact of the United Kingdom income tax rate change discussed below, follows
(in millions):
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
U.S. Federal statutory expense - 35% ............. $74 $62
State expense, net of federal benefit ............ 18 11
Taxation of international operations, net ........ (16) (1)
Other, net ....................................... 4 2
--- ---
$80 $74
=== ===
On July 31, 1997, the United Kingdom's income tax rate was reduced from 33% to
31% retroactive to April 1, 1997. This rate change reduced deferred tax
liabilities associated with the Company's United Kingdom operations by
approximately $58 million. This deferred tax liability reduction was recognized
as a credit to income tax expense ($0.15 per common share) in the third quarter
of 1997.
NOTE G - STOCK-BASED COMPENSATION PLANS
An aggregate 626,000 and 1,720,000 shares of common stock were issued during the
third quarter and first nine months of 1997, respectively, from the exercise of
stock options.
During 1997 the Company granted 3,775,000 performance-based stock options and
2,091,000 service-based stock options to certain executive and management level
employees. All options were granted at an exercise price equal to the fair
market value of the stock on the grant date and expire ten years from the date
of grant. Performance-based options vest either solely upon attainment of
specified increases in the Company's common stock within five years from the
- 10 -
<PAGE> 13
Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE G - STOCK-BASED COMPENSATION PLANS (CONTINUED)
date of grant or, in certain cases, after a period of continued employment for
up to three years after the stock performance criterion has been met.
Service-based options vest ratably over a three-year period.
Additionally in 1997, the Company made grants of 7,500 stock options to each
non-employee member of the Board of Directors. These stock options vest solely
upon attainment of specified increases in the market value of the Company's
common stock within five years from the date of grant.
Also in 1997, the Company made grants of 405,000 shares of restricted common
stock to certain executive officers of the Company. These awards vest generally
only upon attainment of specified increases in the market price of the Company's
common stock within five years from the date of grant and after continued
employment for a period of up to five years after the stock performance
criterion has been met.
As of the end of the third quarter of 1997, the stock performance criterion had
been achieved for 2,908,000 of the 1997 performance-based stock options and for
324,000 of the 1997 restricted stock awards. All stock performance criterion for
outstanding 1996 performance stock options and 1996 restricted stock awards had
been achieved as of September 26, 1997.
NOTE H - EARNINGS PER SHARE
On April 21, 1997, the Company's share owners approved an amendment to the
Company's certificate of incorporation to increase authorized common shares from
500 million to 1 billion and to effect a 3-for-1 stock split with no change in
par values, effective for share owners of record on May 1, 1997. To reflect the
split, common stock was increased and additional paid-in capital was decreased
by $295 million. For periods prior to the effective date of the stock split,
outstanding shares and per share data contained in this report, except for
dividends per share, have been restated to reflect the impact of the split.
In the first quarter of 1997, dividends in the amount of $0.025 per common share
were declared for share owners of record on April 1, 1997. After the 3-for-1
stock split, quarterly dividends for share owners of record on July 1, 1997 and
October 1, 1997 were also declared in the amount of $0.025 per common share.
Dividends are at the discretion of the Company's Board of Directors.
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share"
is effective for full-year 1997 and subsequent periods. SFAS No. 128 modifies
the method for calculations of net income per share applicable to common share
owners and also requires a reconciliation between basic and diluted per share
amounts. Early adoption of the statement prior to the end of 1997 is not
allowed.
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<PAGE> 14
Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE H - EARNINGS PER SHARE (CONTINUED)
The following table (in millions except per share data) presents the effect of
SFAS No. 128 as if this statement were adopted for the periods presented in this
report:
QUARTER ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
NET INCOME ...... $ 112 $ 39 $ 190 $ 105
Preferred
stock
dividends .... - 2 2 6
----- ----- ----- -----
BASIC AND
DILUTED
NET INCOME
APPLICABLE
TO COMMON
SHARE
OWNERS ....... $ 112 $ 37 $ 188 $ 99
===== ===== ===== =====
BASIC AVERAGE
COMMON
SHARES
OUTSTANDING .. 386 371 382 372
===== ===== ===== =====
BASIC NET
INCOME
PER SHARE
APPLICABLE
TO COMMON
SHARE
OWNERS ....... $0.29 $0.10 $0.49 $0.26
===== ===== ===== =====
EFFECT OF
DILUTIVE
SECURITIES:
Stock
Compensation
Awards ...... 13 8 12 7
----- ----- ----- -----
DILUTED AVERAGE
COMMON
SHARES
OUTSTANDING .. 399 379 394 379
===== ===== ===== =====
DILUTED NET
INCOME PER
SHARE
APPLICABLE
TO COMMON
SHARE
OWNERS ....... $0.28 $0.10 $0.48 $0.26
===== ===== ===== =====
NOTE I - GEOGRAPHIC OPERATING INFORMATION
The Company operates in one industry: the marketing, distribution, and
production of bottle and can nonalcoholic refreshments. On September 26, 1997,
the Company operated in parts of 44 states of the United States, the District of
Columbia, and in parts of all 10 provinces of Canada (referred to as the "North
American" territories), and in Belgium, Great Britain, most of France, and the
Netherlands (collectively referred to as the "European" territories).
The following presents net operating revenues for the nine months ended
September 26, 1997 and long-lived assets as of September 26, 1997 by geographic
territory (in millions):
NORTH
AMERICAN* EUROPEAN** CONSOLIDATED
------------ ------------ ------------
Net operating revenues ........... $ 5,944 $ 2,285 $ 8,229
======= ======= =======
Long-lived assets ................ $11,177 $ 4,242 $15,419
======= ======= =======
* North American information presented above includes short
periods for for the New York and Canadian bottlers acquired in
the third quarter of 1997 and, therefore, is not indicative of
full-year results.
** European information presented includes short periods for the
British British bottler acquired in February 1997 and,
therefore, is not indicative of full-year results.
The Company has no significant amount of sales or transfers between our North
American and European territories and no significant amount of United States
export sales.
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<PAGE> 15
Coca-Cola Enterprises Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE J - CONTINGENCIES
In North America the Company purchases PET (plastic) bottles from manufacturing
cooperatives involved in the manufacture of plastic bottles. The Company has
guaranteed payment of up to $278 million of indebtedness owed by these
manufacturing cooperatives to third parties. At September 26, 1997, these
cooperatives had approximately $125 million of indebtedness guaranteed by the
Company. The Company has also issued letters of credit aggregating $114 million
under self-insurance programs.
The Company has been named as a potentially responsible party (PRP) for the
costs of hazardous waste remediation at certain federal and state Superfund
sites. Under current law, the Company's liability for clean-up of Superfund
sites may be joint and several with other PRPs and without regard to the
Company's use in relation to other users. As to any site where the Company may
be liable, the Company has determined there are other PRPs who are financially
solvent as well, and that any hazardous waste deposited by the Company is
minimal when compared to amounts deposited by financially solvent PRPs. The
Company believes any ultimate liability under these PRP designations will not
have a materially adverse effect on its financial position, cash flows, or
results of operations.
At September 26, 1997, there were six federal sites and two state sites for
which the Company's involvement or liability as a PRP was unresolved. In
addition, there were 16 other federal and seven state sites at which it had been
concluded the Company either had no responsibility, the ultimate liability
amounts would be less than $100,000 or payments made to date by the Company
would be sufficient to satisfy all liability of the Company.
- 13 -
<PAGE> 16
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 bottled and canned liquid nonalcoholic refreshment.
The Company distributes more than 65% of The Coca-Cola Company's bottle and can
product sales in North America through franchise territories in parts of 44
states in the United States, the District of Columbia, and parts of all 10
provinces in Canada. We are also the sole licensed bottler for products of The
Coca-Cola Company in Belgium, Great Britain, the Netherlands, and most of
France. We have also signed a letter of understanding to acquire the Coca-Cola
bottling operations in Luxembourg in early 1998.
BUSINESS OBJECTIVES AND STRATEGIES
To ensure a continued focus on building share-owner value, we have defined the
following objectives and strategies.
Our primary operating objective is to increase long-term operating cash flows
through profitable increases in sales volume. We plan to achieve our operating
objective through the continued execution of the following key strategies:
- Creating and executing innovative and superior marketing
programs at the local level.
- Balancing volume growth with improved margins and sustainable
increases in market share.
- Developing profitable business partnerships with our
customers.
- Integrating our international and North American acquisitions
to capitalize on opportunities in various markets and
channels.
- Structuring our compensation plans to help focus our employees
on enhancing share-owner value.
Our primary financial objective is to deliver a superior investment return to
our share owners. We strive to achieve this objective through the continued
implementation and execution of the following key strategies:
- Allocating resources appropriately between capital
expenditures, investment in personnel and infrastructure,
acquisitions, share repurchases, and debt repayment.
- Maintaining a capital structure which maximizes our financial
flexibility, given current investment opportunities.
- Continuing to evaluate acquisition opportunities that will
result in long-term value.
- 14 -
<PAGE> 17
OPERATIONS REVIEW
OVERVIEW
Consolidated cash operating profit, or net income before deducting interest,
taxes, depreciation, amortization, and other nonoperating expenses, reached $487
million in the third quarter of 1997, 50% ahead of reported third-quarter 1996
results, and 18% above comparable third-quarter 1996 performance.
European third-quarter 1997 volume growth increased 15%, generating strong cash
operating profit growth. In addition to favorable European results, strong
United States volume increases and lower selling, delivery, and administrative
expenses as a percent of revenues contributed to third-quarter 1997 cash
operating profit performance.
Consistent with our financial objective to produce additional long-term value
for our share owners, we recently acquired ownership interests in bottling
operations in New York and Canada and have announced our intent to acquire
bottling operations in Luxembourg. We continue to invest in our operations
to expand our geographic, product, package, and channel diversity and to
capitalize on opportunities. In 1997 this diversity has been a key factor in
our ability to deliver consistent growth especially given the highly
competitive pricing environment in the United States. With more than 30% of
our business currently outside the United States, we believe our ability to
manage our expanding portfolio of diverse operations creates a significant
competitive advantage and accelerates our long-term growth potential.
OPERATING PERFORMANCE
Comparable Results - Because of the Company's significant acquisition activity
in 1996 and 1997, we believe comparable operating results are better indicators
of current operating trends. Comparable operating results as presented in this
discussion are determined by adjusting:
- 1996 results to (i) include results of significant
acquisitions for the same periods included in 1997 reported
results, and (ii) exclude the first-quarter 1996 favorable
suppler settlement.
- 1997 results to exclude the first-quarter 1997 charge for the
early redemption of debentures.
CASH OPERATING PROFIT
In the opinion of management, cash operating profit is one of the key standards
for measuring our operating performance. Cash operating profit is used to
supplement operating income as an indicator of operating performance and cash
flows from operating activities as a measure of liquidity, and not as an
alternative to measures defined and required by generally accepted accounting
principles.
To determine comparable cash operating profit growth rates, 1996 and 1997
reported results were adjusted as described above and were also adjusted to
exclude 1997 reported results from our recent 1997 acquisitions of Coke Canada
and Coke New York since these territories were not operated by the Company for
the entire period.
- 15 -
<PAGE> 18
The tables below summarize changes in key operating information on a reported
and comparable basis for the third quarter of 1997 and the first nine months of
1997.
THIRD-QUARTER 1997 NINE-MONTHS 1997
----------------------- -----------------------
REPORTED COMPARABLE REPORTED COMPARABLE
CHANGE CHANGE CHANGE CHANGE
---------- ---------- ---------- ----------
Cash Operating Profit:
Consolidated 50% 18% 45% 12%
Currency-neutral 19% 13%
Reported cash operating profit growth for both the third quarter and first nine
months of 1997 reflects the effect of our significant acquisitions made in 1996
and 1997. Our strong third-quarter 1997 comparable performance was led by our
European group and partially caused by the particularly weak performance in
those territories during the third quarter of 1996.
While fourth-quarter 1997 comparable cash operating profit growth is expected to
be below our year-to-date performance because of the strong Company-wide
performance experienced in the fourth quarter of 1996, our performance in the
third quarter of 1997 leads us to believe that our full-year 1997 growth in
comparable cash operating profit will approximate 10%. Our initial 1998 target
is for 10% comparable cash operating profit growth including the impact of our
recent acquisitions of the New York and Canadian bottling operations.
VOLUME
To determine comparable volume information, 1996 and 1997 reported results were
adjusted for common fiscal periods in addition to comparison adjustments for
acquisitions as described above.
THIRD-QUARTER 1997 NINE-MONTHS 1997
----------------------- -----------------------
REPORTED COMPARABLE REPORTED COMPARABLE
CHANGE CHANGE CHANGE CHANGE
---------- ---------- ---------- ----------
Physical Case Bottle and
Can Volume:
Consolidated 45% 9% 39% 7%
North American
Territories 7% 6%
European Territories 15% 8%
Reported volume growth for both the third quarter and first nine months of 1997
reflects the effects of our significant acquisitions made in 1996 and 1997. As
expected, comparable third-quarter 1997 volume growth accelerated significantly
from second-quarter 1997 performance partially because of the impact of
decreases experienced in prior year volume growth in Europe.
Volume growth in both third-quarter and year-to-date 1997 was impacted by strong
performance in brands of The Coca-Cola Company with particularly strong
increases in Coca-Cola classic, Sprite, Surge, and Cool from Nestea.
Our European operations comprised 25% of the total physical case volume reported
in both the third quarter and first nine months of 1997 as compared to 11% and
7% of the reported volume in third-quarter and year-to-date 1996, respectively.
For full-year 1997 we expect our growth in the United States will be
substantially ahead of industry growth and that our European volume growth will
outpace North American growth.
- 16 -
<PAGE> 19
NET OPERATING REVENUES AND COST OF SALES
THIRD-QUARTER 1997 NINE-MONTHS 1997
----------------------- -----------------------
REPORTED COMPARABLE REPORTED COMPARABLE
CHANGE CHANGE CHANGE CHANGE
---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------
Net Operating Revenues 46 % 6 % 42% 4 %
- -----------------------------------------------------------------------------
Net Revenues Per Case
(Bottle and Can) (.5)% (2.5)% 1.5% (2.5)%
- -----------------------------------------------------------------------------
Cost of Sales Per Case
(Bottle and Can) 2 % (1.5)% 4% (2)%
- -----------------------------------------------------------------------------
For third-quarter and nine-months 1997 approximately 72% of total revenues were
produced in North America with the remaining 28% generated in Europe.
An unfavorable effect from currency translations contributed one and one-half
percentage points to the comparable quarterly and year-to-date decreases in net
revenues per case. The further decline in comparable 1997 net revenues per case
is a reflection of the continued highly competitive pricing environment in North
America. Although domestic third-quarter 1997 net revenues per case did improve
by almost 1% from second-quarter 1997 levels, the increase in net revenues per
case experienced in the third quarter of 1996 made it difficult to produce
additional increases.
Unfavorable changes in currency exchange rates contributed approximately one and
one-half percentage points to the comparable quarterly and year-to-date decline
in cost of sales per case. The further decreases in comparable cost of sales per
case for the first nine months of 1997 results from cost decreases in plastic
and aluminum packaging and high fructose corn syrup that more than offset
concentrate cost increases from concentrate suppliers.
EARNINGS PER SHARE
At the April 21, 1997 annual meeting of share owners, a 3-for-1 stock split was
approved for share owners of record on May 1, 1997 and authorized common shares
were increased from 500 million to 1 billion.
In third-quarter 1997 the Company generated net earnings from operations of
$0.29 per common share as compared to reported third-quarter 1996 earnings of
$0.10 per common share and comparable third-quarter 1997 earnings of $0.06 per
common share, after adjusting for the 1997 3-for-1 stock split. The growth in
comparable third-quarter net earnings per share results from our strong
operating performance combined with lower net interest expense and a lower
effective tax rate.
Third-quarter 1997 earnings per share includes: (i) a one-time tax benefit
resulting from the reduction in the United Kingdom's corporate tax rate, (ii)
incremental stock compensation expenses due to the performance of the Company's
stock value, and (iii) dilution from the newly acquired New York and Canadian
bottling operations. When we exclude the one-time United Kingdom tax benefit,
third-quarter net income per share was $0.14 per common share. Our operating
performance in the third quarter of 1997 more than offset the dilutive effect of
the recent acquisitions and the incremental stock compensation expenses.
- 17 -
<PAGE> 20
In the first nine months of 1997, the Company produced net earnings from
operations of $0.49 per common share compared to reported year-to-date 1996
results, adjusted for the 3-for-1 stock split, of $0.26 per common share.
Excluding one-time items, year-to-date 1997 earnings per common share was $0.35
and nine-month 1996 comparable earnings per common share was $0.22. One-time
items reported in year-to-date 1997 and 1996 net income per common share
include: (i) the third-quarter 1997 one-time tax benefit ($0.15 per common
share), (ii) a first-quarter 1997 one-time charge of $6 million ($0.01 per
common share after tax) for the redemption of $142 million in 8.75% Debentures
due 2017, and (iii) a first-quarter 1996 one-time favorable supplier settlement
($0.01 per common share after tax).
We do not believe currency exchange rates will have a significant impact on our
reported full-year 1997 earnings per share. Our currency risk is principally
limited to translation risk because we reinvest cash flows from international
operations back into those local operations or use them to reduce local
indebtedness. Additionally, we have financed substantially all of the cost of
our international acquisitions with currency-hedged debt or foreign-denominated
debt to hedge our investments in international operations and to limit our
translation risk exposure.
SELLING, DELIVERY, AND ADMINISTRATIVE
In third-quarter and first nine-months of 1997, consolidated selling, delivery,
and administrative expenses as a percentage of net operating revenues declined
slightly from comparable 1996 results despite significantly higher amortization
expenses on executive stock compensation plans. The decrease in selling,
delivery, and administrative expenses as a percent of net operating revenues was
primarily attributable to lower advertising and administrative costs.
INTEREST EXPENSE
Third-quarter 1997 net interest expense was $143 million as compared to $152
million in comparable third-quarter 1996 results. Comparable 1996 results
include estimated financing costs for our 1996 and 1997 acquisitions. The
difference between reported and comparable net interest expense is primarily due
to the weighted average cost of debt for third-quarter 1997 being lower than
rates used in computing comparable third-quarter 1996 results.
The weighted average interest rate for the third quarter of 1997 was 7.1%
compared to 7.2% for reported full-year 1996 and 7.0% for reported third-quarter
1996. The year-to-date 1997 weighted average interest rate was 6.9% compared to
7.3% for reported nine-months 1996.
INCOME TAX EXPENSE
On July 31, 1997, the United Kingdom's income tax rate was reduced from 33% to
31% retroactive to April 1, 1997. This rate change reduced deferred tax
liabilities associated with the Company's United Kingdom operations by
approximately $58 million. This deferred tax liability reduction was recognized
as a credit to income tax expense ($0.15 per common share) in the third quarter
of 1997.
Excluding this one-time tax benefit, the Company's effective tax rate for the
first nine months of 1997 was 38%, below the nine-month 1996 effective tax rate
of 41% and the six-month 1997 effective tax rate of 39%. The reduction in the
Company's effective tax rate results from the effect of our expanded operations
in Europe combined with expectations for full-year 1997 pretax profits and the
change in the United Kingdom's corporate income tax rate.
- 18 -
<PAGE> 21
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 more than 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
plans for share repurchases.
For long-term financing needs, we have available approximately $2.3 billion in
debt securities for issuance under a registration statement with the Securities
and Exchange Commission and $2 billion in debt securities under a European
Medium Term Note Program registered with the Luxembourg Stock Exchange. 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. We have a total amount available of up to $4.46 billion
under various credit facilities of which $2.25 billion remains available for
future use. The Company intends to continue to refinance borrowings under its
commercial paper program and its short-term credit facilities with longer-term
fixed and floating rate financings.
SUMMARY OF CASH ACTIVITIES
Cash and cash investments increased $12 million during the first nine months of
1997. Our principal sources of cash consisted of those provided by operations of
$659 million and proceeds from the issuance of debt aggregating $3.3 billion.
Our primary uses of cash were for acquisitions of bottling businesses for
approximately $2 billion, long-term debt payments totaling $1.3 billion, and
capital expenditures totaling $659 million.
Operating Activities: Operating activities provided $659 million of net cash in
comparison to $701 million provided by operations in third-quarter 1996. The
higher depreciation expense in 1997 results from the effects of increased
capital spending and the effects of the 1996 and 1997 acquisitions. Increased
amortization reflects increased franchise amortization as a result of
acquisitions and increased amortization of unearned compensation on
performance-based restricted stock and stock option grants.
Investing Activities: Consistent with the increase in our first-half 1997
capital expenditures, the Company continues to expect full-year 1997 capital
expenditures to exceed full-year 1996 capital expenditures. Full-year 1997
capital expenditures are expected to be between $800 million and $900 million.
This increase is primarily attributable to the capital investments made by our
international operations.
Financing Activities: On August 7, 1997, the Company acquired The Coca-Cola
Company's 48% interest in Coca-Cola Beverages Ltd. (Coke Canada) and its 49%
interest in The Coca-Cola Bottling Company of New York, Inc. (Coke New York). In
September 1997 the Company acquired the remaining shares of Coke Canada (52%)
held by the public. Additionally, in February 1997 the Company purchased the
Great Britain bottler. The net cash used during the first nine months of 1997
for purchasing ownership interests in bottling operations was $1,986 million.
- 19 -
<PAGE> 22
These acquisitions were initially financed through a combination of sellers'
notes, public debt securities, and bank borrowings. The Company has or expects
to refinance portions of these borrowings with longer-term fixed and floating
rate financings.
In the first quarter of 1997, the Company issued $150 million of 5.71% Notes due
March 18, 2037. Holders of these notes may require the Company to repay the
notes after one year and every year thereafter.
In the third quarter of 1997, the Company issued: (i) $250 million of 6.375%
Notes due August 1, 2001, (ii) $200 million of 6.625% Notes due August 1, 2004,
and (iii) $300 million of 7.125% Debentures due August 1, 2017.
On September 25, 1997, the Company registered debt securities of $2.5 billion
under a European Medium Term Note Program with the Luxembourg Stock Exchange and
on September 30, 1997 the Company issued $500 million in 6.625% Notes due
September 30, 2002 under this program.
FINANCIAL POSITION REVIEW
Overall, the Company's increase in total assets and total liabilities from
December 31, 1996 to September 26, 1997 is primarily attributable to the
acquisitions of the British, Canadian, and New York bottlers. The increase in
franchises and other noncurrent assets is also a direct result of the franchise
asset acquired in these acquisitions. The increase in property, plant, and
equipment results from capital expenditures of approximately $659 million in the
first nine months of 1997 and the British, Canadian, and New York bottler
acquisitions. The increase in long-term debt and the increase in deferred income
taxes also results from these acquisitions. As a result of the 3-for-1 stock
split, common stock was adjusted to stated par value by an increase to common
stock and a decrease to additional paid-in capital of $295 million.
Activities in currency markets resulted in a decrease in the cumulative
translation adjustment of $73 million in the first nine months of 1997. As
currency exchange rates fluctuate, translation of the statements of income for
our international businesses into U.S. dollars will affect the comparability of
revenues and expenses between periods. For the majority of 1996, the Company
operated primarily in U.S. dollars and the Dutch florin and in 1997 the Company
operates in a multicurrency environment.
KNOWN TRENDS AND UNCERTAINTIES
YEAR 2000 COMPUTER CONVERSION
The Company is in process of identifying the business issues associated with the
year 2000 that may directly impact information systems. Many information system
applications process dates in application software and data files by utilizing
two digits for the year of a transaction rather than a full four digits. Most of
these systems do not incorporate specific logic for addressing dates in the year
2000. Information systems and other control systems/processes that do not
operate on a four digit logic may not operate appropriately.
We have identified a team of professionals with the responsibility for
addressing information systems business issues associated with the year 2000.
This team includes Company employees and individuals outside the Company with
appropriate professional experience. We have not quantified the anticipated
costs of this project or our exposure for any contingencies associated with
implementation issues.
- 20 -
<PAGE> 23
ACCOUNTING DEVELOPMENTS
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", was issued during the first quarter of 1997 and is effective for the
year ending December 31, 1997. Earlier application of the statement is not
permitted. The statement modifies the method of calculating net income per share
applicable to common share owners and also requires a reconciliation in the
footnotes to the financial statements between basic and diluted per-share
amounts. This statement is not expected to have a material impact on the
Company's net income per share applicable to common share owners.
In June 1997 the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" effective for fiscal years beginning after
December 15, 1997 with early adoption allowed. This statement requires that
companies present information on comprehensive income in a financial statement.
Comprehensive income includes net income and other items such as currency
translation adjustments. The Company is in the process of evaluating the methods
for adoption of this statement. This statement is not expected to have a
material impact on the Company's financial statements.
In June 1997 the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" effective beginning in fiscal year 1998
with early adoption allowed. This statement requires public business enterprises
to report financial and descriptive information about reportable operating
segments and certain geographic information. The adoption of SFAS No. 131 did
not have a material impact on the Company. The Company operates in one
reportable segment: the marketing, distribution, and production of bottle and
can nonalcoholic refreshments.
CAUTIONARY STATEMENTS
Certain expectations and projections regarding future performance of the Company
referenced in this report are forward-looking statements involving risks and
uncertainties. 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 1997 results are
lower-than-expected net pricing resulting from marketplace competition, an
inability to meet performance requirements for expected levels of marketing
support payments from our franchise companies, 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 expenditures, an
inability to meet projections for performance in newly acquired territories, 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 27 of the Company's annual report on Form 10-K for the
year ended December 31, 1996.
- 21 -
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1997 BCI Coca-Cola Bottling Company of Los Angeles (BCI), a
subsidiary of the Company, received notice from the Environmental Protection
Agency (EPA) of a final remedy of the Operating Industries, Inc. "Superfund"
site at Monterey Park, California. The estimated cost of the Final Remedy is
approximately $217 million. BCI was named a Potentially Responsible Party (PRP)
with respect to this site in 1987 and had paid approximately $300,000 toward the
remediation efforts through 1991, when the last communication from the EPA was
received. There are approximately 280 PRPs at this site, and the Company is
unable to determine what BCI's ultimate liability might be under the Final
Remedy. In the earlier remediation efforts at this site, BCI participated in
.075% of the costs, based upon its allocated percentage of volume of waste
contributed to the site.
In September 1997 BCI's Tempe, Arizona facility received two administrative
orders from the City of Tempe imposing fines and penalties of approximately
$155,000 for the discharge of waste water violating pH regulations and for BCI's
failure to meet a compliance deadline for the installation of a pH effluent
pretreatment system. BCI has begun negotiations with the City of Tempe to reduce
the amount of the sanctions and intends to seek administrative or judicial
review if negotiations are unsuccessful.
- 22 -
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit Incorporated by Reference
Number Description or Filed Herewith
- ------- -------------------------------------------- ---------------------------
12 Statements regarding computations of ratios Filed Herewith
27 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K:
During third-quarter 1997, the Company filed the following current reports on
Form 8-K:
Date of Report Description
- ------------------ -----------------------------------------------------------
July 15, 1997 Condensed Consolidated Statements of Operations and
Balance Sheet (unaudited) of the Company, filed on July
21, 1997, reporting results of operations and
financial position for the second quarter of 1997.
July 22, 1997 Press release announcing the signing of a letter of
understanding to acquire the Coca-Cola bottling operations
in Luxembourg filed July 22, 1997.
July 22, 1997 Amendment, filed July 22, 1997, to Exhibit 3, Articles of
Incorporation, originally filed in connection with the
Form 10-Q of the first quarter of 1997.
July 22, 1997 Terms agreement, filed July 29, 1997, form of 6.375%
Notes due August 1, 2001, form of 6.625% Notes due August
1, 2004, and form of 7.125% Debentures due August 1,
2017.
August 1, 1997 Press release announcing the Company's intention to
increase the offer for the publicly held shares of
Coca-Cola Beverages Ltd. from Canadian $19.50 to Canadian
$22.00 per share.
August 7, 1997 Press release announcing the Company's purchase of the
Coca-Cola Company's ownership interest in Coca-Cola
Beverages Ltd. and The Coca-Cola Bottling Company of New
York, Inc., expected increase in noncash stock
compensation expenses, and recognition of a one-time tax
benefit due to a change in United Kingdom's tax rates.
- 23 -
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COCA-COLA ENTERPRISES INC.
(Registrant)
Date: November 7, 1997 /s/ John R. Alm
---------------
John R. Alm
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
Date: November 7, 1997 /s/ O. Michael Whigham
----------------------
O. Michael Whigham
Vice President, Controller and
Chief Accounting Officer
- 24 -
<PAGE> 1
COCA-COLA ENTERPRISES INC. EXHIBIT 12
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In millions except ratios)
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
----------------------------- -----------------------------
Sept 26, Sept 27, Sept 26, Sept 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computation of Earnings:
Earnings from continuing
operations before
income taxes .......... $ 84 $ 66 $ 212 $ 179
Add:
Interest expense ...... 142 83 373 238
Amortization of
capitalized interest - - 1 1
Amortization of debt
premium/discount
and expenses ....... 6 8 18 17
Interest portion of
rent expense ....... 8 4 19 8
----- ----- ----- -----
Earnings as Adjusted .......... $ 240 $ 161 $ 623 $ 443
===== ===== ===== =====
Computation of Fixed Charges:
Interest expense .......... $ 142 $ 83 $ 373 $ 238
Capitalized interest ...... 1 - 1 1
Amortization of debt
premium/discount and
expenses .............. 6 8 18 17
Interest portion of rent
expense ............... 8 4 19 8
----- ----- ----- -----
Fixed Charges ................. 157 95 411 264
Preferred stock
dividends (a) ......... - 3 3 10
----- ----- ----- -----
Combined Fixed Charges and
Preferred Stock
Dividends................ $ 157 $ 98 $ 414 $ 274
===== ===== ===== =====
Ratio of Earnings to Fixed
Charges (b) ............. $1.54 1.69 $1.52 1.67
===== ===== ===== =====
Ratio of Earnings to Combined
Fixed Charges and
Preferred Stock
Dividends (b) ........... 1.54 1.63 1.51 1.61
===== ===== ===== =====
</TABLE>
(a) Preferred stock dividends have been increased to an amount representing
the pretax earnings which would be required to cover such dividend
requirements.
(b) Ratios were calculated prior to rounding to millions.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE FILER FOR THE PERIOD ENDED SEPTEMBER 26,
1997 INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 26, 1997 (COMMISSION FILE NO. 001-9300) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 1,187
<ALLOWANCES> 59
<INVENTORY> 501
<CURRENT-ASSETS> 2,053
<PP&E> 5,890
<DEPRECIATION> 2,203
<TOTAL-ASSETS> 17,472
<CURRENT-LIABILITIES> 3,641
<BONDS> 7,108
0
0
<COMMON> 442
<OTHER-SE> 1,320
<TOTAL-LIABILITY-AND-EQUITY> 17,472
<SALES> 8,229
<TOTAL-REVENUES> 8,229
<CGS> 5,179
<TOTAL-COSTS> 5,179
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 377
<INCOME-PRETAX> 212
<INCOME-TAX> 22
<INCOME-CONTINUING> 190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190
<EPS-PRIMARY> 0.49 <F1>
<EPS-DILUTED> 0.49
<FN>
<F1> ON APRIL 21, 1997, THE COMPANY'S SHARE OWNERS APPROVED A 3-FOR-1 STOCK
SPLIT EFFECTIVE FOR SHARE OWNERS OF RECORD ON MAY 1, 1997. FINANCIAL
DATA SCHEDULES PRIOR TO THE FIRST QUARTER ENDED MARCH 28, 1997 HAVE NOT
BEEN RESTATED.
</FN>
</TABLE>
