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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 01-09300
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LOGO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0503352
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2500 WINDY RIDGE PARKWAY, ATLANTA, GEORGIA 30339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(770) 989-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1.00 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of Common Stock held by nonaffiliates of the
registrant as of February 20, 1998 was $6,036,929,290.
There were 387,003,367 shares of Common Stock outstanding as of February 20,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Share Owners for the year
ended December 31, 1997, are incorporated by reference in Parts II and IV.
Portions of the registrant's Proxy Statement for the Annual Meeting of Share
Owners to be held on April 17, 1998 are incorporated by reference in Part III
hereof.
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS...................................................... 1
Introduction.................................................. 1
Relationship With The Coca-Cola Company....................... 1
Acquisitions.................................................. 2
Territories................................................... 3
Products...................................................... 4
Marketing..................................................... 4
Raw Materials................................................. 5
North American Beverage Agreements............................ 5
European Beverage Agreements.................................. 10
Competition................................................... 12
Employees..................................................... 12
Governmental Regulation....................................... 13
Financial Information on Industry Segments and Geographic
Areas......................................................... 15
ITEM 2. PROPERTIES.................................................... 15
ITEM 3. LEGAL PROCEEDINGS............................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 17
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY............................. 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................... 19
ITEM 6. SELECTED FINANCIAL DATA....................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 20
ITEM 11. EXECUTIVE COMPENSATION........................................ 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K...................................................... 21
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is the world's largest marketer, distributor and producer of
bottled and canned beverages of The Coca-Cola Company.
The Company was incorporated in 1944 under the laws of Delaware as a wholly
owned subsidiary of The Coca-Cola Company and became a public company in 1986.
At December 31, 1997, The Coca-Cola Company owned approximately 44% of the
Company's common stock.
The Company's bottling territories in North America and in Europe contained
approximately 338 million people. The Company estimates that within its
territories 3.4 billion equivalent cases (192 ounces of finished beverage
product) were sold in 1997; 89% of this volume consisted of beverages produced
and sold under licenses from The Coca-Cola Company.
The Company's Coca-Cola bottling rights within the United States are
perpetual; elsewhere, bottling rights have stated expiration dates. (See
"North American Beverage Agreements" and "European Beverage Agreements.")
References in this report to the "Company" include Coca-Cola Enterprises
Inc., and its subsidiaries and divisions, unless the context requires
otherwise. Population and sales data include bottling franchises acquired
through January 31, 1998 as if they had been acquired January 1, 1997.
RELATIONSHIP WITH THE COCA-COLA COMPANY
The Coca-Cola Company is the Company's largest share owner. Three directors
of the Company are executive officers or former executive officers of The
Coca-Cola Company.
The Company and The Coca-Cola Company are parties to a number of significant
transactions and agreements incident to their respective businesses and may
enter into additional material transactions and agreements in the future.
The Company conducts its business primarily under agreements with The
Coca-Cola Company. These agreements give the Company the exclusive right to
market, distribute, and produce beverage products of The Coca-Cola Company in
authorized containers in specified territories. These agreements provide The
Coca-Cola Company with the ability, in its sole discretion, to establish
prices, terms of payment, and other terms and conditions for the purchase of
concentrates and syrups from The Coca-Cola Company. See "North American
Beverage Agreements" and "European Beverage Agreements" below. Other
significant transactions and agreements include acquisition of bottling
territories, arrangements for cooperative marketing, advertising expenditures,
and purchases of sweeteners.
Since 1979, The Coca-Cola Company has assisted in the transfer of ownership
or financial restructuring of a majority of its United States bottler
operations and has assisted in similar transfers of bottlers operating outside
the United States. Certain bottlers and interests therein have been acquired
by The Coca-Cola Company, and certain of those have been sold to bottlers,
including the Company, which are believed by management of The Coca-Cola
Company to be the best suited to manage and develop these acquired operations.
The Coca-Cola Company has advised the Company that it may continue this
reorganization of its bottler system. See "Acquisitions" below and "Certain
Relationships and Related Transactions--Agreements and Transactions with The
Coca-Cola Company" in the Company's Proxy Statement for the Annual Meeting of
Share Owners to be held April 17, 1998 (the "Company's 1998 Proxy Statement"),
which information is incorporated by reference into Item 13 of this report.
ACQUISITIONS
On February 10, 1997, the Company acquired Coca-Cola & Schweppes Beverages
Limited, the bottler for all of Great Britain, for a transaction value
(purchase price, assumed debt and other long-term obligations) of
approximately 1.2 billion pounds sterling, or approximately $2 billion.
On August 7, 1997, the Company acquired The Coca-Cola Company's interest in
Coca-Cola Beverages Ltd. ("CCB"), the bottler for substantially all the
population of Canada. On September 11, 1997, the Company completed its
acquisition of shares of CCB held by the public share owners.
On August 7, 1997, the Company acquired The Coca-Cola Company's interest in
The Coca-Cola Bottling Company of New York, Inc. ("KONY"), the bottler serving
New York City, and certain other areas of New York, Connecticut,
Massachusetts, New Hampshire, New Jersey and Vermont. On January 5, 1998, the
Company completed its acquisition of KONY by acquiring the shares from the
remaining minority share owners.
The aggregate transaction value of the CCB and KONY acquisitions (purchase
price, acquired debt and KONY preferred stock) was approximately $1.7 billion.
The total cost of all of the Company's acquisitions since reorganization in
1986 through the date of this report is $10.9 billion including assumed and
issued debt where applicable. The Company intends to acquire only bottling
businesses offering the Company the ability to produce long-term share-owner
value.
2
TERRITORIES
The Company's bottling territories in North America are located in 44 states
of the United States, the District of Columbia and all ten provinces of Canada.
At December 31, 1997, these territories contained approximately 201 million
people, representing approximately 64% of the population of the United States
and 94% of the population of Canada.
[map of North American territory]
The bottling territories for the Company's European operations consist of
Great Britain, Belgium, Luxembourg, the Netherlands, and most of France. The
aggregate population of these territories was approximately 137 million people
at December 31, 1997.
[map of European territory]
3
PRODUCTS
Within its North American territories the Company markets, distributes and
produces beverage products of The Coca-Cola Company or its subsidiaries; these
products include Coca-Cola classic, caffeine free Coca-Cola classic, diet
Coke, caffeine free diet Coke, Sprite, diet Sprite, Cherry Coke, diet Cherry
Coke, Barq's, Citra, Fanta, Fresca, Fruitopia, Hi-C fruit drinks, Mello Yello,
Minute Maid and diet Minute Maid soft drinks, Minute Maid juices, Mr. PiBB,
POWERaDE, SURGE and TAB. Additionally, the Company markets, distributes and
produces (or obtains from authorized producers) Nestea products, under license
from Coca-Cola Nestle Refreshments Company, USA, and various noncola beverage
products under the trademarks of companies other than The Coca-Cola Company.
Substantially all of the beverages bearing the trademark "Coca-Cola" or "Coke"
(the "Coca-Cola Trademark Beverages") are available throughout the Company's
North American territories and major fountain accounts.
Other products marketed and distributed by the Company in select North
American markets include: Canada Dry, Dr Pepper, Diet Dr Pepper, Evian,
Mendota Springs, NAYA, Nestea, Cool from Nestea, diet Nestea, Schweppes,
Seagrams and Squirt.
Major products of The Coca-Cola Company and other companies marketed and
distributed by the Company in its international territories include Aquarius,
Buxton Mineral Water, caffeine free Coca-Cola, caffeine free Coca-Cola light,
Canada Dry, Capri Sun, Cherry Coke, Coca-Cola, Coca-Cola light, caffeine free
diet Coke, diet Coke, Dr Pepper, Fanta, Five Alive, Kia-Ora, Lilt, Malvern
Waters, Minute Maid juices, Nestea, Oasis, Perrier Mineral Water, Schweppes,
Sprite, Sprite light and Vittel Water.
The Coca-Cola Company and other companies manufacture syrups and
concentrates, and in some cases the finished product, for sale to bottlers
and, in some territories to fountain wholesalers. The Company's bottling and
canning operations combine the syrup or concentrate with sweetener and
carbonated water, and package the finished product in authorized containers
for sale and direct store delivery to wholesalers and/or retailers, depending
on the territory. See "Marketing" and "Raw Materials" below.
Approximately 74% of the Company's North American equivalent case sales in
1997 (excluding post-mix) represented caloric products and the balance
represented low-calorie products. "Post-mix" (sometimes called fountain syrup)
is syrup which is mixed with water and carbon dioxide at the time it is being
dispensed into open containers, such as cups, for immediate consumption.
MARKETING
The Company sells its products in a variety of packages authorized by The
Coca-Cola Company and other companies. In 1997, domestic and international
equivalent case sales of the Company, excluding post-mix syrup sales, were
packaged approximately 48% in cans, 47% in other nonrefillable packaging, 4%
in refillable containers, and 1% in pre-mix containers. Post-mix syrup
accounted for approximately 13% of the Company's equivalent case sales in
1997.
The Company relies extensively on advertising and sales promotion in the
marketing of its products. The Coca-Cola Company and the other beverage
companies that supply concentrates, syrups, and finished products to the
Company make substantial advertising expenditures in all major media to
promote sales in the local areas served by the Company. The Company also
benefits from national advertising programs conducted by The Coca-Cola Company
and other beverage companies. Certain of the marketing expenditures by The
Coca-Cola Company and other beverage companies are made pursuant to annual
arrangements. Although The Coca-Cola Company has advised the Company that it
intends to continue to provide marketing support in 1998, it is not obligated
to do so under either the domestic or international beverage agreements,
except as otherwise specifically committed. See "North American Beverage
Agreements" and "European Beverage Agreements" below.
Sales of the Company's products are seasonal, with the second and third
calendar quarters accounting for higher sales volumes than the first and
fourth quarters. The bottling territories in Europe have more volatile sales
volumes because of the higher sensitivity of European consumption to weather
conditions.
4
RAW MATERIALS
In addition to concentrates, sweeteners, and finished product, the Company
purchases carbon dioxide, glass and plastic bottles, cans, closures, post-mix
packaging (such as plastic bags in cardboard boxes), and other packaging
materials. The Company generally purchases its raw materials, other than
concentrates, syrups, and sweeteners, from multiple suppliers. The beverage
agreements with The Coca-Cola Company provide that, with respect to the
products of The Coca-Cola Company, all authorized containers, closures, cases,
cartons, and other packages and labels must be purchased from manufacturers
approved by The Coca-Cola Company.
High fructose corn syrup currently is the principal sweetener used by the
Company in the United States and Canada for beverage products, other than low-
calorie products, of The Coca-Cola Company, although sugar is widely used as a
sweetener in Canada as well. The Company and The Coca-Cola Company have
entered into arrangements for the purchase by the Company from The Coca-Cola
Company of substantially all of the Company's 1998-2002 requirements for
sweeteners in the United States. See "Certain Relationships and Related
Transactions--Agreements and Transactions with The Coca-Cola Company--
Sweetener Requirements Agreement" in the Company's 1998 Proxy Statement, which
information is incorporated by reference into Item 13 hereof. The Company does
not separately purchase low-calorie sweeteners because sweeteners for low-
calorie beverage products of The Coca-Cola Company are contained in the syrup
or concentrate purchased by the Company from The Coca-Cola Company. In Europe,
the principal sweetener is sugar from sugar beets, purchased from multiple
suppliers.
The Company currently purchases its requirements for plastic bottles in the
United States from manufacturers jointly owned by it and other Coca-Cola
bottlers. Management of the Company believes that ownership interests in
certain suppliers and the self-manufacture of certain packages serve to reduce
or manage costs. In Canada a merchant supplier is used. In Europe, the Company
produces most of its plastic bottle requirements using preforms purchased from
various merchant suppliers.
There are no materials or supplies used by the Company which are currently
in short supply, although the supply of specific materials could be adversely
affected by strikes, weather conditions, governmental controls, or national
emergencies.
NORTH AMERICAN BEVERAGE AGREEMENTS
Domestic Carbonated Beverage Agreements in the United States with The
Coca-Cola Company
The Company purchases concentrate and syrup from The Coca-Cola Company and
produces, markets and distributes its principal liquid nonalcoholic
refreshment products within the United States under two basic forms of
carbonated beverage agreements with The Coca-Cola Company: beverage agreements
that cover the Coca-Cola Trademark Beverages (the "Cola Beverage Agreements")
and beverage agreements that cover other carbonated beverages of The Coca-Cola
Company (the "Allied Beverages" and "Allied Beverage Agreements") (herein
referred to collectively as the "Domestic Carbonated Beverage Agreements").
See "Introduction" and "Products" above. The Company and each of its bottling
company subsidiaries are parties to one or more separate Cola Beverage
Agreements and to various Allied Beverage Agreements. In this section, unless
the context indicates otherwise, a reference to the Company refers to the
legal entity in the United States that is a party to the beverage agreements
with The Coca-Cola Company.
Pricing. Pursuant to the Domestic Carbonated Beverage Agreements, The
Coca-Cola Company establishes the prices charged to the Company for
concentrates and syrups for Coca-Cola Trademark Beverages and Allied
Beverages. The Company expects that net prices charged by The Coca-Cola
Company in 1998 for syrup and concentrates will increase approximately 3.4% as
compared to 1997 prices. The Coca-Cola Company has no rights under the
Domestic Carbonated Beverage Agreements to establish the resale prices at
which the Company sells its products.
5
Cola Beverage Agreements in the United States with The Coca-Cola Company
Exclusivity. The Cola Beverage Agreements provide that the Company will
purchase its entire requirements of concentrates and syrups for Coca-Cola
Trademark Beverages from The Coca-Cola Company at prices, terms of payment,
and other terms and conditions of supply, as determined from time to time by
The Coca-Cola Company in its sole discretion. The Company has the exclusive
right to distribute Coca-Cola Trademark Beverages for sale in authorized
containers within its territories. The Coca-Cola Company may determine, from
time to time in its sole discretion, what types of containers to authorize for
use with products of The Coca-Cola Company.
Transshipping. The Company may not sell Coca-Cola Trademark Beverages
outside its territories.
Company Obligations. The Company is obligated to maintain such plant and
equipment, staff, and distribution and vending facilities as are capable of
manufacturing, packaging, and distributing Coca-Cola Trademark Beverages in
accordance with the Cola Beverage Agreements and in sufficient quantities to
satisfy fully the demand for these beverages in its territories; to undertake
adequate quality control measures prescribed by The Coca-Cola Company; to
develop and to stimulate the demand for Coca-Cola Trademark Beverages in those
territories; to use all approved means, and spend such funds on advertising
and other forms of marketing, as may be reasonably required to satisfy that
objective; and to maintain such sound financial capacity as may be reasonably
necessary to assure performance by the Company of its obligations to The
Coca-Cola Company. The Company is required to meet annually with The Coca-Cola
Company to present its marketing, management, and advertising plans with
respect to the Coca-Cola Trademark Beverages for the year, including financial
plans showing that the Company has the consolidated financial capacity to
perform its duties and obligations to The Coca-Cola Company. The Coca-Cola
Company may not unreasonably withhold approval of such plans. If the Company
carries out its plans in all material respects, it will be deemed to have
satisfied its obligations to develop, stimulate, and satisfy fully the demand
for the Coca-Cola Trademark Beverages and to maintain the requisite financial
capacity. Failure to carry out such plans in all material respects would
constitute an event of default that, if not cured or waived by The Coca-Cola
Company within 120 days of notice of the failure, would give The Coca-Cola
Company the right to terminate the Cola Beverage Agreements. If the Company at
any time fails to carry out a plan in all material respects in any geographic
segment of its territory, and if such failure is not cured within six months
after notice of the failure, The Coca-Cola Company may reduce the territory
covered by that Cola Beverage Agreement by eliminating the portion of the
territory in which such failure has occurred.
Acquisition of Other Bottlers. If the Company acquires control, directly or
indirectly, of any bottler of Coca-Cola Trademark Beverages in the United
States, or any party controlling a bottler of Coca-Cola Trademark Beverages in
the United States, the Company must cause the acquired bottler to amend its
agreement for the Coca-Cola Trademark Beverages to conform to the terms of the
Cola Beverage Agreements described above.
Term and Termination. The domestic Cola Beverage Agreements are perpetual,
but they are subject to termination by The Coca-Cola Company upon the
occurrence of an event of default by the Company. Events of default with
respect to each Cola Beverage Agreement include: (i) production or sale of any
cola product not authorized by The Coca-Cola Company; (ii) insolvency,
bankruptcy, dissolution, receivership, or the like; (iii) any disposition by
the Company of any voting securities of any bottling company without the
consent of The Coca-Cola Company; and (iv) any material breach of any
obligation of the Company under that Cola Beverage Agreement that remains
uncured for 120 days after notice by The Coca-Cola Company. If any Cola
Beverage Agreement is terminated because of an event of default, The Coca-Cola
Company has the right to terminate all other Cola Beverage Agreements held by
the Company.
In addition, each Cola Beverage Agreement held by the Company provides that
The Coca-Cola Company has the right to terminate that Cola Beverage Agreement
if a person or affiliated group (with specified exceptions) acquires or
obtains any contract, option, conversion privilege, or other right to acquire,
directly or indirectly, beneficial ownership of more than 10% of any class or
series of voting securities of the Company. However, The Coca-Cola Company has
agreed with the Company that this provision will not apply with respect to the
ownership of any class or series of voting securities of the Company, although
it would apply to the voting securities of each bottling company subsidiary.
6
The provisions of the Cola Beverage Agreements which make it an event of
default to dispose of any Cola Beverage Agreement or voting securities of any
bottling company subsidiary without the consent of The Coca-Cola Company and
which prohibit the assignment or transfer of the Cola Beverage Agreements are
designed to preclude any person not acceptable to The Coca-Cola Company from
obtaining an assignment of a Cola Beverage Agreement or from acquiring any
voting securities of the Company's bottling subsidiaries. These provisions
prevent the Company from selling or transferring any of its interest in any
bottling operations without the consent of The Coca-Cola Company. These
provisions may also make it impossible for the Company to benefit from certain
transactions, such as mergers or acquisitions, involving any of the bottling
operations that might be beneficial to the Company and its share owners but
which are not acceptable to The Coca-Cola Company.
Allied Beverage Agreements in the United States with The Coca-Cola Company
The Allied Beverages are beverages of The Coca-Cola Company and its
subsidiaries which are neither Coca-Cola Trademark Beverages nor (except for
Hi-C fruit drinks) noncarbonated beverages. The Allied Beverage Agreements
contain provisions that are similar to those of the Cola Beverage Agreements
with respect to pricing, transshipping, authorized containers, planning,
quality control, transfer restrictions, and related matters but have certain
significant differences from the Cola Beverage Agreements.
Exclusivity. Under the Allied Beverage Agreements, the Company has exclusive
rights to distribute the Allied Beverages in authorized containers in
specified territories. Like the Cola Beverage Agreements, the Company has
advertising, marketing, and promotional obligations, but, for some brands,
without restriction as to the marketing of products with similar flavors as
long as there is no manufacturing or handling of other products that would
imitate, infringe upon, or cause confusion with, the products of The Coca-Cola
Company. The Coca-Cola Company has the right to discontinue any or all Allied
Beverages, and the Company has a right, but not an obligation, under each of
the Allied Beverage Agreements (except under the Allied Beverage Agreements
for Hi-C fruit drinks and carbonated Minute Maid beverages) to elect to market
any new beverage introduced by The Coca-Cola Company under the trademarks
covered by the respective Allied Beverage Agreements.
Term and Termination. Each Allied Beverage Agreement has a term of ten or
fifteen years and is renewable by the Company for an additional ten or fifteen
years at the end of each term. The initial term for many of the Company's
Allied Beverage Agreements expired in 1996 and substantially all were renewed.
The Company intends to renew substantially all the Allied Beverage Agreements
as they expire. The Allied Beverage Agreements are subject to termination in
the event of default by the Company. The Coca-Cola Company may terminate an
Allied Beverage Agreement in the event of: (i) insolvency, bankruptcy,
dissolution, receivership, or the like; (ii) termination of the Cola Beverage
Agreement of the Company by either party for any reason; or (iii) any material
breach of any obligation of the Company under the Allied Beverage Agreement
that remains uncured after required prior notice by The Coca-Cola Company.
Supplementary Agreement in the United States with The Coca-Cola Company
In addition to the Domestic Carbonated Beverage Agreements, the Company is a
party to a supplementary agreement (the "Supplementary Agreement") with The
Coca-Cola Company regarding the exercise by The Coca-Cola Company of its
rights under the Domestic Carbonated Beverage Agreements. Pursuant to the
Supplementary Agreement, The Coca-Cola Company has agreed to exercise good
faith and fair dealing under the Domestic Carbonated Beverage Agreements;
offer marketing support and exercise its rights under the Domestic Carbonated
Beverage Agreements in a manner consistent with its dealings with comparable
bottlers; offer to the Company any material written amendment to such Domestic
Carbonated Beverage Agreements which it offers to any other bottler; and,
subject to certain limitations, sell syrups and concentrates to the Company in
the United States at prices not greater than those charged to other bottlers
which are parties to agreements substantially similar to the Domestic
Carbonated Beverage Agreements. The Supplementary Agreement provides for a
term expiring on March 15, 1999 and may be terminated by The Coca-Cola Company
upon 30 days' notice in the event that The Coca-Cola Company should cease to
own more than 40% of the Company's outstanding common stock.
7
Noncarbonated Beverage Agreements in the United States with The Coca-Cola
Company
The Company purchases certain noncarbonated beverages such as isotonics,
teas, and fruit drinks in finished form from The Coca-Cola Company, or its
designees and joint ventures, pursuant to the terms of marketing and
distribution agreements (the "Noncarbonated Beverage Agreements"). The
Noncarbonated Beverage Agreements contain provisions that are similar to the
Domestic Carbonated Beverage Agreements with respect to authorized containers,
planning, quality control, transfer restrictions and related matters but have
certain significant differences therefrom.
Exclusivity. First, the Company does not manufacture some of the
noncarbonated beverages. Also, unlike the Cola Beverage Agreements, which
grant the Company exclusivity in the distribution of the covered beverages in
the territory, the Noncarbonated Beverage Agreements grant exclusivity but
permit The Coca-Cola Company to test market noncarbonated beverage products in
the territory, subject to the Company's right of first refusal to do so, and
to sell noncarbonated beverages to commissaries for delivery to retail outlets
in the territory where noncarbonated beverages are consumed on-premise, such
as restaurants. The Coca-Cola Company must pay the Company certain fees for
lost volume, delivery, and taxes in the event of such commissary sales. Under
the Noncarbonated Beverage Agreements, the Company may not sell other
beverages in the same product category.
Pricing. The Coca-Cola Company, in its sole discretion, establishes the
pricing the Company must pay for noncarbonated beverages but has agreed, under
certain circumstances, to give the Company the benefit of more favorable
pricing if offered to other Coca-Cola bottlers.
Term. Each of the Noncarbonated Beverage Agreements has a term of ten years
and is renewable by the Company for an additional ten years at the end of each
term. The initial term for most of the Noncarbonated Beverage Agreements for
POWERaDE will expire in 2004, and for Nestea, Fruitopia and Minute Maid juices
and juice drinks will expire in 2007.
Marketing Support in the United States from The Coca-Cola Company
The Coca-Cola Company has no obligation under the Domestic Carbonated
Beverage Agreements and Noncarbonated Beverage Agreements to participate with
the Company in expenditures for advertising and marketing, but it may, in its
discretion, contribute to such expenditures and undertake independent
advertising and marketing activities, as well as cooperative advertising and
sales promotion programs, that would require the cooperation and support of
the Company, and has advised the Company that it intends to continue to
provide various forms of marketing support in 1998 at a comparable level of
support as that provided in 1997. Also, in connection with the Company's
acquisition of The Coca-Cola Bottling Company of New York, Inc., The Coca-Cola
Company has agreed to pay a certain amount of marketing funds over the first
five years after acquisition plus additional payments based upon sales in the
acquired territory of carbonated soft drink products of The Coca-Cola Company.
Post-Mix Sales and Marketing Agreements in the United States with The
Coca-Cola Company
The Company has in the past sold and delivered the post-mix products of The
Coca-Cola Company pursuant to one-year post-mix distributorship appointments;
in 1998, the Company signed a five-year distributorship ending on December 31,
2002. In 1997, the Company sold and/or delivered such post-mix products in all
of its major territories in the United States. Under the terms of the
appointment, the Company is authorized to distribute such syrups to retailers
for dispensing to consumers within the United States. The appointment is
terminable by either party without cause upon ten days' written notice. Unlike
the Domestic Carbonated Beverage Agreements, there is no exclusive territory,
and the Company faces competition not only from sellers of other post-mix
syrups but from other sellers of post-mix syrups of The Coca-Cola Company
(including The Coca-Cola Company). Depending on the territory, the Company is
involved in the sale, distribution, and marketing of post-mix syrups in
differing degrees. In some territories, the Company sells syrup on its own
behalf,
8
but the primary responsibility for marketing lies with The Coca-Cola Company.
In other territories, the Company is responsible for marketing post-mix syrup
to certain segments of the business. See "Certain Relationships and Related
Transactions--Agreements and Transactions with The Coca-Cola Company--Sales of
Syrups, Bottle and Can Products and Agency Billing and Delivery Arrangements"
in the Company's 1998 Proxy Statement, which information is incorporated by
reference into Item 13 hereof.
Beverage Agreements in the United States with Other Licensors
The beverage agreements in the United States between the Company and other
licensors of beverage products and syrups contain restrictions generally
similar in effect to those in the Domestic Carbonated Beverage Agreements as
to trade names, approved bottles, cans and labels, sale of imitations, and
cause for termination. Those agreements generally give those licensors the
unilateral right to change the prices for their products and syrups at any
time in their sole discretion. Some of these beverage agreements have limited
terms of appointment and, in most instances, prohibit the Company from dealing
in products with similar flavors in certain territories. The agreements with
subsidiaries of Cadbury Schweppes plc, which represented in 1997 approximately
7% of the beverages sold by the Company in the United States and the
Caribbean, provide that the parties will give each other at least one year's
notice prior to terminating the agreement for any brand, and pay certain fees
in some circumstances. Also, the Company agreed that it would not cease
distributing Dr Pepper brand products prior to December 31, 2005 or Canada
Dry, Schweppes, Sunkist or Squirt brand products prior to December 31, 2001.
The termination provisions for Dr Pepper renew for five-year periods; those
for the other Cadbury brands renew for three-year periods.
Canadian Beverage Agreements with The Coca-Cola Company
CCB, the Company's bottler in Canada, sells, distributes and produces
Coca-Cola Trademark Beverages, Allied Beverages and noncarbonated beverages of
The Coca-Cola Company and Coca-Cola Ltd., an affiliate of The Coca-Cola
Company ("Coca-Cola Beverage Products") in its territories pursuant to license
agreements and arrangements with Coca-Cola Ltd., and in certain cases, with
The Coca-Cola Company ("Canadian Beverage Agreements"). The Canadian Beverage
Agreements are similar to the Domestic Carbonated Beverage Agreements with
respect to authorized containers, planning, quality control, transshipping,
transfer restrictions, termination and related matters but have certain
significant differences therefrom.
Exclusivity. The Canadian Beverage Agreement for Coca-Cola Trademark
Beverages gives CCB the exclusive right to distribute Coca-Cola Trademark
Beverages in its territories in bottles authorized by Coca-Cola Ltd. CCB also
is authorized on a nonexclusive basis to sell, distribute and produce canned,
pre-mix and post-mix Coca-Cola Trademark Beverages in such territories. At
present, there are no other authorized producers or distributors of canned,
pre-mix or post-mix Coca-Cola Trademark Beverages in CCB's territories and CCB
has been advised by Coca-Cola Ltd. that there are no present intentions to
authorize any such producers or distributors in the future. In general, the
Canadian Beverage Agreement for Coca-Cola Trademark Beverages prohibits CCB
from producing or distributing beverages other than the Coca-Cola Trademark
Beverages unless Coca-Cola Ltd. has given CCB notice that it approves the
production and distribution of such beverages.
Pricing. An affiliate of The Coca-Cola Company supplies the concentrates for
the Coca-Cola Trademark Beverages and may establish and revise at any time the
price of concentrates, the payment terms and the other terms and conditions
under which CCB purchases concentrates for the Coca-Cola Trademark Beverages.
The Company expects that net prices charged in 1998 for concentrates will be
approximately equivalent to 1997 prices. Unlike other beverage agreements in
other parts of the world, Coca-Cola Ltd. may, in its sole discretion,
establish maximum prices at which the Coca-Cola Trademark Beverages may be
sold by CCB to its retailers. Coca-Cola Ltd. may also establish maximum retail
prices for such beverages, and CCB is required to use its best efforts to
maintain such maximum retail prices. CCB may not require a deposit on any
container used by it for the sale of the Coca-Cola Trademark Beverages unless
it is required by law or approved by Coca-Cola Ltd. and, if a deposit is
required, such deposit may not exceed the greater of the minimum deposit
required by law or the deposit approved by Coca-Cola Ltd.
9
Term. The Canadian Beverage Agreement for Coca-Cola Trademark Beverages
expire on July 28, 2007, with provisions to renew for two additional terms of
ten years each, provided generally that CCB has complied with and continues to
be capable of complying with their provisions. CCB's authorizations to sell,
distribute and produce, pre-mix and post-mix Coca-Cola Trademark Beverages may
be terminated by either party on ninety days' notice.
Marketing Support. Coca-Cola Ltd. has no obligation under the Canadian
Beverage Agreements to participate with CCB in expenditures for advertising
and marketing, but it may, in its discretion, contribute to such expenditures
and undertake independent advertising and marketing activities, as well as
cooperative advertising and sales promotion programs, that would require the
cooperation and support of the Company, and has advised the Company that it
intends to continue to provide various forms of marketing support in 1998 at a
comparable level of support as that provided in 1997. Additionally, The
Coca-Cola Company has agreed to pay a certain amount of marketing funds over
the first five years after the acquisition of CCB by the Company.
Other Coca-Cola Beverage Products. The license agreements and arrangements
of CCB with Coca-Cola Ltd., and in certain cases, with The Coca-Cola Company,
for the Coca-Cola Beverage Products other than Coca-Cola Trademark Beverages
are on terms generally similar to those contained in the license agreement in
respect of the Coca-Cola Trademark Beverages.
Beverage Agreements in Canada with Other Licensors
CCB has several signed license agreements with other licensors, including:
license agreements with subsidiaries of Cadbury Schweppes plc having terms
expiring in July 2002 and December 2036, each being renewable for successive
five-year terms until terminated by either party. These beverage agreements
generally give CCB the exclusive right to produce and distribute authorized
beverages in authorized packaging in specified territories. These beverage
agreements also generally provide flexible pricing for the licensors, and in
many instances, prohibit CCB from dealing in beverages confusing with, or
imitative of, the authorized beverages. These agreements contain restrictions
generally similar in effect to those in the Canadian Beverage Agreements as to
the use of trademarks, approved bottles, cans and labels, sales of imitations
and cause for termination.
EUROPEAN BEVERAGE AGREEMENTS
European Beverage Agreements with The Coca-Cola Company
The Company's bottlers in the Netherlands, Belgium and France (collectively
the "Company Continental Bottlers") and the Company's bottlers in Great
Britain and Luxembourg (which together with the Company Continental Bottlers
are collectively called the "Company European Bottlers"), operate in their
respective territories under agreements with The Coca-Cola Company and The
Coca-Cola Export Corporation, dated July 26, 1996 for the Company Continental
Bottlers, February 10, 1997 for the British bottler and January 30, 1998 for
the Luxembourg bottler (the "European Beverage Agreements"); these agreements
have certain significant differences from the beverage agreements described
above. The Company believes that the European Beverage Agreements are
substantially similar to other agreements between The Coca-Cola Company and
other European bottlers of Coca-Cola Trademark Beverages and Allied Beverages.
Exclusivity. Subject to the European Supplemental Agreement, described below
in this report, and certain minor exceptions, the Company European Bottlers
have the exclusive rights granted by The Coca-Cola Company in their
territories to sell the beverages covered by their respective European
Beverage Agreements in glass bottles, plastic bottles and/or cans. The covered
beverages include Coca-Cola Trademark Beverages, Allied Beverages,
noncarbonated beverages and certain beverages not sold in the United States.
See "Products" above. The Coca-Cola Company has retained the rights to produce
and sell, or authorize third parties to produce and sell, the beverages in any
other manner or form within the territories. The Coca-Cola Company has further
granted certain Company European Bottlers a nonexclusive authorization to
package and sell post-mix and/or pre-mix beverages in their territories.
10
Transshipping. The Company European Bottlers are prohibited from making
sales of the beverages outside of their territories, or to anyone intending to
resell the beverages outside their territories, without the consent of The
Coca-Cola Company, except for sales arising out of an order from a customer in
another Member State of the European Union or for export to another such
Member State. The European Beverage Agreements also contemplate that there may
be instances in which large or special buyers have operations transcending the
boundaries of the territories, and in furtherance of this, the Company
European Bottlers and The Coca-Cola Company are cooperating in sales to such
buyers.
Pricing. The European Beverage Agreements provide that the sales of beverage
base and other goods to the Company European Bottlers are at prices which are
set from time to time by The Coca-Cola Company. The Company expects that net
prices charged in 1998 by The Coca-Cola Company for syrup, concentrate, and
other goods will increase approximately 4.3% over 1997 prices.
Term and Termination. The European Beverage Agreements expire July 26, 2006
for the Company Continental Bottlers, February 10, 2007 for the British
bottler and January 30, 2008 for the Luxembourg bottler, unless terminated
earlier as provided therein. If the European Bottlers have fully complied with
the agreements during the initial term, are "capable of the continued
promotion, development, and exploitation of the full potential of the
business" and request an extension of the agreement, an additional ten-year
term may be granted at the sole discretion of The Coca-Cola Company. The Coca-
Cola Company is given the right to terminate the European Beverage Agreements
before the expiration of the stated term upon the insolvency, bankruptcy,
nationalization, or similar condition of the Company European Bottlers or the
occurrence of a default under the European Beverage Agreements which is not
remedied within 60 days of notice of the default being given by The Coca-Cola
Company. The European Beverage Agreements may be terminated by either party in
the event foreign exchange is unavailable or local laws prevent performance.
The post-mix and pre-mix authorizations are terminable by either party with 90
days' prior notice.
European Supplemental Agreement with The Coca-Cola Company
In addition to the European Beverage Agreements described above, the Company
Continental Bottlers, The Coca-Cola Company and The Coca-Cola Export
Corporation are parties to a supplemental agreement (the "European
Supplemental Agreement") with regard to the Company Continental Bottlers'
rights pursuant to the European Beverage Agreements. The European Supplemental
Agreement permits the Company Continental Bottlers to prepare, package,
distribute and sell the beverages covered by any of the Company Continental
Bottlers' European Beverage Agreements in any other territory of another
Company Continental Bottler, provided that the Company and The Coca-Cola
Company shall have reached agreement upon a business plan for such beverages.
The European Supplemental Agreement may be terminated, either in whole or in
part by territory, by The Coca-Cola Company at any time with 90 days' prior
written notice. The British and Luxembourg bottlers are not parties to the
European Supplemental Agreement, but The Coca-Cola Company has committed to
enter into a similar arrangement with them.
Marketing Support in Europe from The Coca-Cola Company
While The Coca-Cola Company has no commitment under the European Beverage
Agreements to provide marketing support, it has agreed with the Company to
provide certain specified assistance for limited periods of time in connection
with the Company's acquisitions of the bottlers in Belgium, France and Great
Britain. With respect to the bottlers in Belgium and France, the Company and
The Coca-Cola Company have developed a business plan through the year 2000, to
be supplemented with agreed annual plans, under which the Company will receive
set levels of funds to support the marketing of Coca-Cola brands; the Company
is obligated to cause the French bottler to spend marketing funds in support
of the Coca-Cola brands, the amounts of the expenditures to increase as case
volume increases. With respect to the bottler in Great Britain, a business
plan has been developed by agreement of the Company and The Coca-Cola Company
through the year 2002, to be supplemented with agreed annual plans. The Coca-
Cola Company has committed to a minimum level of annual support throughout the
period of the business plan to fund marketing programs for Coca-Cola brands,
and to make transition support payments in agreed amounts for 1998 and 1999 to
fund customer and consumer
11
programs designed to enhance the marketing and sale of Coca-Cola brands. The
Coca-Cola Company has provided substantial marketing support in the past to
the Company's bottler in the Netherlands, and the Company expects that
increased support will be provided in 1998, as a recognition of increased
sales.
Beverage Agreements in Europe with Other Licensors
The beverage agreements between the Company and other licensors of beverage
products and syrups generally give those licensors the unilateral right to
change the prices for their products and syrups at any time in their sole
discretion. Some of these beverage agreements have limited terms of
appointment and, in most instances, prohibit the Company from dealing in
products with similar flavors. Those agreements contain restrictions generally
similar in effect to those in the European Beverage Agreements as to trade
names, approved bottles, cans and labels, sale of imitations, planning, and
cause for termination. As a condition to Cadbury Schweppes plc's sale of its
51% interest in the British bottler to the Company in February 1997, the
Company entered into agreements concerning certain aspects of the Cadbury
Schweppes products distributed by the British bottler. These agreements impose
obligations upon the Company with respect to the marketing, sale and
distribution of Cadbury Schweppes products within the British bottler's
territory. These agreements further require the British bottler to achieve
certain agreed growth rates for Cadbury Schweppes brands and grant certain
rights and remedies to Cadbury Schweppes if these rates are not met. These
agreements also place some limitations upon the British bottler's ability to
discontinue Cadbury Schweppes brands, and recognize the exclusivity of certain
Cadbury Schweppes brands in their respective flavor categories. The British
bottler is given the first right to any new Cadbury Schweppes brands
introduced in the territory. These agreements run through 2012 and are
automatically renewed for a ten-year term thereafter unless terminated by
either party.
COMPETITION
The liquid nonalcoholic refreshment business is highly competitive.
Competition exists among all beverages, including soft drinks, isotonics, tea,
tea drinks, juices, juice drinks, coffee, coffee drinks, water, beer, wine,
wine coolers, milk and milk drinks, and bottled waters. Competitors in this
business include bottlers and distributors of beverages marketed and
advertised at international, national, regional and local levels, as well as
chain store and private label beverages. Information on sales in the liquid
nonalcoholic refreshment business is not readily available. In the carbonated
soft drink segment of the liquid nonalcoholic refreshment business, however,
the Company estimates that in 1997 the products of The Coca-Cola Company
represented approximately 38% of total food store and petroleum outlet
carbonated soft drink sales in all United States territories in which the
Company operates, and that those of PepsiCo, Inc. represented approximately
32%. The Company also estimates that in each of its United States territories,
between 60% and 80% of food store and petroleum outlet carbonated soft drink
sales are accounted for by the Company and its major carbonated soft drinks
competitor, which in most territories is the bottler of the soft drink
products of PepsiCo, Inc.
Brand recognition and pricing are significant factors affecting the
Company's competitive position, and the consumer and customer goodwill
associated with the trademarks of its products are the most favorable factor
for the Company. Other competitive factors among beverage distributors include
marketing, distribution methods, service to the trade, and the management of
sales promotion activities. Vending machine sales, packaging changes and
relationships with fountain customers are also competitive factors. The
introductions of new products and packages have been major competitive
elements in the liquid nonalcoholic refreshment industry.
EMPLOYEES
At February 10, 1998, the Company had approximately 56,000 employees. At the
end of 1997, approximately 8,000 of these employees were in Europe, where the
Company added over 400 people during the year because of increased commercial
activity. The Company is a party to 148 collective bargaining agreements
covering approximately 11,300 of its North American employees. These
collective bargaining agreements expire at various dates through 2004. The
Company has no reason to believe that it will be unable to renegotiate any of
these agreements on satisfactory terms. On February 27, 1998, the Company
agreed with its European employee representatives to establish a European
Works Council. Management of the Company believes that the Company's relations
with its employees are generally good.
12
GOVERNMENTAL REGULATION
Packaging
Anti-litter measures have been enacted in the United States in California,
Connecticut, Delaware, Iowa, Maine, Massachusetts, Michigan, New York, Oregon,
Vermont and the City of Columbia, Missouri, some of which prohibit the sale of
certain beverages, whether in refillable or nonrefillable containers, unless a
deposit is charged by the retailer for the container. The retailer or
redemption center refunds all or some of the deposit to the customer upon the
return of the container. The containers are then returned to the bottler,
which, in most jurisdictions, must pay the refund and, in certain others, must
also pay a handling fee. In California, a levy is imposed on beverage
containers to fund a waste recovery system. In the past, similar legislation
has been proposed but not adopted elsewhere, although the Company anticipates
that additional jurisdictions may enact such laws. Massachusetts requires the
creation of a deposit transaction fund by bottlers and the payment to the
state of balances in that fund that exceed three months of deposits received,
net of deposits repaid to customers and interest earned. Michigan also has a
statute requiring bottlers to pay to the state unclaimed container deposits.
In Canada, soft drink containers are subject to waste management measures in
each of the ten provinces. Four provinces have forced deposit schemes and
three have half-back deposit systems whereby a deposit is collected from the
consumer and one-half of the deposit amount is returned upon redemption. In
one province a levy is imposed on beverage containers to fund a multi-material
recovery system. Prince Edward Island requires all soft drink beverages to be
sold in refillable containers, and regulations in Ontario require that sales
by a bottler of soft drink beverages in refillable containers must meet a
minimum percentage of total sales of soft drink beverages by such bottler in
refillable and nonrefillable containers within that bottler's sales areas.
The European Commission has issued a packaging and packing waste directive
which is in the process of being incorporated into the national legislation of
the Member States. This will result in targets being set for the recovery and
recycling of household, commercial and industrial packaging waste and impose
substantial responsibilities upon bottlers and retailers for implementation.
The Company has taken actions to mitigate the adverse effects resulting from
legislation concerning deposits, restrictive packaging, and escheat of
unclaimed deposits which impose additional costs on the Company. The Company
is unable to quantify the impact on current and future operations which may
result from such legislation if enacted in the future, but the impact of any
such legislation could be significant if widely enacted.
Excise and Value Added Taxes
Excise taxes on sales of soft drinks have been in place in various states in
the United States for several years. The states in which the Company operates
currently imposing such taxes are Arkansas, North Carolina, and Tennessee. In
addition, the state of New York and one local jurisdiction in which the
Company operates, Honolulu, Hawaii, have imposed a special tax on
nonrefillable soft drink containers. To the knowledge of management of the
Company, no similar legislation has been enacted in any other markets served
by the Company. Proposals have been introduced in certain states and
localities that would impose a special tax on beverages sold in nonrefillable
containers as a means of encouraging the use of refillable containers.
Management of the Company is unable to predict, however, whether such
additional legislation will be adopted.
Value added tax on soft drinks varies widely in the Company's bottling
territories within Canada and the European Community, ranging from 3% to 21%.
In addition, excise taxes on sales of soft drinks are in place in Belgium,
France and the Netherlands. The existence and level of this indirect taxation
on the sale of soft drinks is now a matter of legal and public debate given
the need for further tax harmonization within the European Community.
California Legislation
A California law requires that any person who exposes another to a
carcinogen or a reproductive toxicant must provide a warning to that effect.
Because the law does not define quantitative thresholds below which a
13
warning is not required, virtually all manufacturers of food products are
confronted with the possibility of having to provide warnings due to the
presence of trace amounts of defined substances. Regulations implementing the
law exempt manufacturers from providing the required warning if it can be
demonstrated that the defined substances occur naturally in the product or are
present in municipal water used to manufacture the product. The Company has
assessed the impact of the law and its implementing regulations on the
Company's beverage products and has concluded that none of the Company's
products currently requires a warning under the law. The Company cannot
predict whether or to what extent food industry efforts to minimize the law's
impact on food products will succeed, neither can the Company predict what
impact, either in terms of direct costs or diminished sales, imposition of the
law may have.
Underground Storage Tanks and Other Environmental Regulations
Substantially all of the facilities of the Company are subject to laws and
regulations dealing with above-ground and underground fuel storage tanks and
the discharge of materials into the environment. Compliance with these
provisions has not had, and the Company does not expect such compliance to
have, any material effect upon the capital expenditures, net income, financial
condition, or competitive position of the Company. The Company's beverage
manufacturing operations do not use or generate a significant amount of toxic
or hazardous substances. Management believes that its current practices and
procedures for the control and disposition of such wastes comply with
applicable law. In the United States, the Company has been named as a
potentially responsible party in connection with certain landfill sites where
the Company may have been a de minimis contributor. Under current law, the
Company's liability for cleanup costs may be joint and several with other
users of such sites, regardless of the extent of the Company's use in relation
to other users. However, in the opinion of management of the Company, the
potential liability of the Company in connection with such activity is not
significant and will not have a materially adverse effect on the financial
condition or results of operations of the Company.
Several underground fuel storage tanks used by the Company may be found to
be in noncompliance with applicable federal and state requirements for the
continued maintenance and use of such tanks. The Company has adopted a plan
for the testing, removal, replacement, and repair, if necessary, of
underground fuel storage tanks at Company bottlers in North America and
remediation of their sites, if necessary and, to a lesser extent, the
abatement of the discharge of pollutants, upgrading water treatment
facilities, and remediating friable asbestos, at various Company facilities.
The Company spent approximately $8 million in 1997 pursuant to this plan, and
the Company estimates it will spend approximately $14 million in 1998 and $13
million in 1999 pursuant to this plan. In the opinion of management of the
Company, any liabilities associated with the items covered by such plan will
not have a materially adverse effect on the financial condition or results of
operations of the Company.
Trade Regulation
The business of the Company, as the exclusive manufacturer and distributor
of bottled and canned beverage products of The Coca-Cola Company and other
manufacturers within specified geographic territories, is subject to antitrust
laws of general applicability. Under the United States' Soft Drink Interbrand
Competition Act, the exercise and enforcement of an exclusive contractual
right to manufacture, distribute, and sell a soft drink product in a
geographic territory is presumptively lawful if the soft drink product is in
substantial and effective interbrand competition with other products of the
same class in the market. Management of the Company believes that there is
such substantial and effective competition in each of the exclusive geographic
territories in the United States in which the Company operates.
The Treaty of Rome, which established the European Community, precludes
restrictions of the free movement of goods within the Member States. As a
result, unlike the Company's Domestic Carbonated Beverage Agreements, the
European Beverage Agreements do not grant the Company exclusive bottling
territories. Therefore, other European Union and/or European Economic Area
suppliers of the beverages produced by the Company can, in response to
unsolicited orders, sell such products in the Company's European Community
territories. See "European Beverage Agreements."
14
Miscellaneous Regulations
The production, distribution, and sale of many of the Company's products are
subject to the Federal Food, Drug, and Cosmetic Act; the Occupational Safety
and Health Act; the Lanham Act; various federal, state, provincial and local
environmental statutes and regulations; and various other federal, state,
provincial and local statutes in the United States, Canada and Europe
regulating the production, packaging, sale, safety, advertising, labeling, and
ingredients of such products.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
For financial information on industry segments and operations in geographic
areas, see Note 16 to the Company's Consolidated Financial Statements, found
on page 42 of the Annual Report to Share Owners for the year ended December
31, 1997, which is incorporated into this report by reference.
ITEM 2. PROPERTIES
The principal properties of the Company include the executive offices,
production facilities, distribution facilities, administrative offices, and
service centers. At February 28, 1998, the Company operated 72 beverage
production facilities, 34 of which are solely production facilities and 38 of
which are combination production/distribution facilities, and also operated
323 principal distribution facilities. The Company owns 67 of its production
facilities and 238 of its principal distribution facilities, and leases the
others. In the aggregate, the Company's owned and leased facilities cover
approximately 34.6 million square feet. Management of the Company believes
that its production and distribution facilities are generally sufficient to
meet present operating needs.
One of the facilities owned by the Company is subject to a lien to secure
indebtedness in an aggregate principal amount of approximately $2 million at
December 31, 1997. Excluding expenditures for bottler acquisitions, the
Company's capital expenditures in 1997 were approximately $967 million.
At February 9, 1998, the Company owned and operated approximately 41,680
vehicles of all types used in the sale, production and distribution of its
products and over 1.6 million coolers, beverage dispensers and vending
machines.
ITEM 3. LEGAL PROCEEDINGS
The Company and several of its bottling subsidiaries or divisions in the
United States have been named as potentially responsible parties ("PRPs") at
several federal and state "Superfund" sites. In 1987, BCI Coca-Cola Bottling
Company of Los Angeles ("CCBCLA") was named by the Environmental Protection
Agency ("EPA") as a PRP at the Operating Industries, Inc. ("OII") site at
Monterey Park, California. As of 1991, CCBCLA had contributed approximately
$300,000 toward the remediation efforts. After 1991, CCBCLA had no further
communications from the EPA until October 1997 when CCBCLA received notice
from the EPA that a "Final Remedy" for the site had been chosen with an
estimated cost (in addition to what had already been spent) of approximately
$217 million (including an estimated $52 million for EPA's past and future
oversight costs), and which is expected to take 30 years to complete. There
are approximately 280 PRPs at this site. CCBCLA's monetary participation in
prior remediation activities at the OII site was based upon its allocated
percentage of volume of waste contributed to the site, which was 0.075%. Based
upon this percentage and the estimated costs, CCBCLA's share of the Final
Remedy should be about $162,750. In 1992, Florida Coca-Cola Bottling Company
("Florida CCBC") was named as a PRP at the Peak Oil site in Tampa, Florida,
formerly the location of a refiner of used motor oil. Following an internal
investigation and lengthy negotiations with the PRP Group, Florida CCBC agreed
to accept liability for approximately 32,000 gallons of used oil, representing
approximately 1.6% of the total amount. With total remediation costs estimated
at up to $18 million, Florida CCBC's ultimate liability could reach $300,000.
In 1992, The Coca-Cola Bottling Company of Memphis, Tenn. ("CCBC Memphis") was
named as a PRP with respect to the South 8th Street landfill site (a/k/a West
Memphis landfill) in West Memphis,
15
Arkansas, which is alleged to have been used in the 1950s and 1960s as a dump
site for the by-products from the reprocessing of used motor oil. Total
cleanup for the site has been estimated at up to $45 million. CCBC Memphis
conducted an internal investigation of this matter and determined that some of
its waste oil may have been taken to the South 8th Street landfill. However,
neither the specific volume of waste oil that may have been generated by CCBC
Memphis, nor its percentage of the whole relative to other PRPs has yet been
determined. Accordingly, CCBC Memphis cannot yet estimate the amount of its
ultimate liability. In 1994, the Company was named as a PRP at the Waste
Disposal Engineering site in Andover, Minnesota, a former landfill. The claim
against the Company is approximately $110,000; however, if this site is a
"qualified landfill" under Minnesota law, the entire cost of remediation may
be paid by the state without contribution from any PRP. In 1994, Florida CCBC
was named as a PRP at the Petroleum Products Corporation site in Pembroke
Park, Florida, the former location of a used oil recycling facility. Total
cleanup for the site has been estimated at up to $100 million. Florida CCBC
conducted an internal investigation of this matter and determined that some of
its waste oil may have been taken to the site. However, neither the specific
volume of waste oil that may have been generated by Florida CCBC, nor its
percentage of the whole relative to other PRPs, has yet been determined.
Accordingly, Florida CCBC cannot yet estimate the amount of its ultimate
liability. In September 1996, the Cincinnati, Ohio facility of Johnston Coca-
Cola Bottling Group, Inc. ("Johnston CCBG") received a notice stating that 113
violations of the pH limits of the facility's wastewater discharge had been
detected between November 1994 and April 1996, and that the unpermitted
discharges had caused structural damage to the municipal wastewater collection
system. Accordingly, it is proposed that Johnston CCBG pay a permit violation
penalty in the amount of $16,900, reimburse certain investigative costs of
$19,370, and pay the estimated sewer replacement cost of $369,000. Johnston
CCBG is currently negotiating for a reduction in these costs. In September
1997, CCBLA's Tempe, Arizona facility received two administrative orders from
the City of Tempe totaling $154,357 for failure to meet a compliance deadline
for completion of the installation of a pH effluent pretreatment system and
for pH violations of the facility's wastewater permit limitations that
occurred during the period January-April 1997. CCBCLA has begun informal
settlement negotiations with the City of Tempe. If the matter is not resolved
informally, CCBCLA may seek administrative and/or judicial review to contest
the severity of these penalties. The Company or its bottling subsidiaries have
been named as PRPs at seventeen other federal and seven other state
"Superfund" sites where management of the Company has concluded either
(i) that the Company will have no further liability because there was no
responsibility for having deposited hazardous waste; (ii) that payments made
to date would be sufficient to satisfy all liability; or (iii) that the
Company's ultimate liability, if any, for such site would be less than
$100,000.
In an action commenced in December 1996, the Quebec Recycling Authority
alleged that the Company's bottler in Canada, CCB, is in violation of a 1992
industry agreement relating to the remittance of deposits on soft drink
containers. The amount claimed is approximately CDN $650,000, plus interest,
and is based on a claim for deposits on certain containers of soft drink
beverages produced by CCB in the Province of Quebec during the calendar years
1993 and 1994, regardless of where such containers were actually distributed
and sold by CCB. CCB did not remit any deposit amount for cans of soft drink
beverage which were produced by CCB in the Province of Quebec but distributed
and sold by CCB outside the Province during those years. CCB has denied any
liability in this matter and the claim is being vigorously defended.
The Ontario Environmental Protection Act and Regulations provide that sales
by a bottler of soft drink beverages in refillable containers must meet a
minimum percentage of total sales of soft drink beverages by such bottler in
refillable and nonrefillable containers within that bottler's sales areas. In
September 1996, CCB was charged in a private prosecution for failing to meet
these requirements. In December 1996, the Attorney General for Ontario
intervened in this matter and withdrew the charge. An application for judicial
review of the withdrawal and of the decision of the presiding justice of the
peace has been dismissed; however, a notice of appeal has been filed.
In August 1995, the European Commission (the "Commission") charged that
certain marketing rebates associated with the fountain business of the
Company's French bottler, Coca-Cola Entreprise S.A. ("CCESA"), constituted an
abuse of a dominant position in a "cola market" in France in violation of
Article 86 of the Treaty of Rome. The case arose from an investigation
commenced in 1993 at the behest of a competitor of CCESA. In
16
July 1996, CCESA responded, denying that there was a "cola market" or that it
was dominant or that the practices complained of were abusive. If the
Commission maintains its initial conclusions, certain marketing practices may
have to be amended, and there is the possibility that penalties could be
imposed. The proceedings are being defended by The Coca-Cola Company, which is
obligated to indemnify CCESA and the Company for defense costs, fines and
penalties.
In November 1996, a complaint was filed with the Commission against the
Company's bottler in Great Britain, Coca-Cola & Schweppes Beverages Limited
("CCSB"), alleging that certain practices of CCSB constituted an abuse of an
alleged dominant position in a "carbonated soft drink market" in Great
Britain, in violation of Article 86 of the Treaty of Rome. The complaint,
which was filed by a competitor, complained specifically of CCSB's program of
annual rebates based on increased sales, alleged exclusive arrangements for
vending and dispensing equipment, and pricing policies. As part of obtaining
approval of its acquisition of Amalgamated Beverages Great Britain Limited
("ABGB") (see next paragraph), the parent of CCSB, the Company agreed in
February 1997 to undertakings with the Commission which modified certain of
CCSB's commercial practices, including the annual rebates criticized by the
complainant. Moreover, in March 1997, the Company responded to the complaint
and continues to cooperate with the Commission in its investigation, which
remains active. The Company believes the complaint is without merit.
On January 22, 1997, the Commission cleared the Company's acquisition of
ABGB, which was a joint venture owned 51% by Cadbury Schweppes plc and 49% by
The Coca-Cola Company. The Commission concluded that although The Coca-Cola
Company could exercise decisive influence over the Company and that ABGB was
dominant in a "cola market" in Great Britain, under the Merger Regulation the
acquisition had to be cleared because it would not strengthen that dominant
position. As a consequence of the decision certain commercial practices are
likely to be affected by restrictions generally imposed on companies found to
be in a dominant market position. In addition, the Company agreed to an
undertaking that restricts specific commercial practices with certain of
CCSB's customers in Great Britain. In April 1997, the Company filed an
application seeking the annulment of the Commission's conclusions regarding
control, the existence of a "cola market" and that CCSB is dominant, all of
which the Company believes are not supported by the facts or the law. The
Coca-Cola Company filed a similar application at the same time.
On January 27, 1997, the French Competition Council (the "Council")
concluded its investigation of CCESA by finding that certain practices of
CCESA constituted an abuse of a dominant position in what is defined as the
French cola market. CCESA was fined 10 million French francs. On February 27,
1997, CCESA filed an appeal of the Council's findings, which CCESA feels are
not supported by the facts or the law. In addition to the fine, CCESA may have
to modify certain of its practices regarding the provision of post-mix
machines to certain customers, and other commercial practices are likely to be
affected by restrictions generally imposed upon companies found to be in a
dominant market position. The proceedings are being defended by The Coca-Cola
Company, which is obligated to indemnify CCESA and the Company for defense
costs, fines and penalties.
There are various other lawsuits and claims pending against the Company.
Included among such litigation are claims for injury to persons or property.
Management of the Company believes that such claims are covered by insurance
with financially responsible carriers or adequate provisions for losses have
been recognized by the Company in its consolidated financial statements. In
the opinion of management of the Company, the losses that might result from
such litigation will not have a materially adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information as of March 1, 1998 regarding the executive
officers of the Company:
PRINCIPAL OCCUPATION DURING THE PAST
NAME AGE FIVE YEARS
--------------------------------- --- ---------------------------------------
Summerfield K. Johnston, Jr. .... 65 Mr. Johnston has been Chairman of the
Board of Directors and Chief Executive
Officer since October 1997. He was Vice
Chairman of the Board and Chief
Executive Officer of the Company from
December 1991 to October 1997.
Henry A. Schimberg............... 64 Mr. Schimberg has been President, Chief
Operating Officer, and a director of
the Company since December 1991.
John R. Alm...................... 52 Mr. Alm has been Executive Vice
President and Chief Financial Officer
since October 1997. He was Senior
Vice President and Chief Financial
Officer of the Company from December
1991 to October 1997.
Margaret F. Carton............... 40 Ms. Carton has been Vice President,
Investor Relations and Planning since
October 1996. She served as Director,
Investor Relations from 1990 to October
1996.
John H. Downs, Jr. .............. 41 Mr. Downs has been Vice President,
Public Affairs of the Company since
1989.
Norman P. Findley III............ 53 Mr. Findley has been Senior Vice
President of the Company since December
1995 and European Group President since
July 1996. He was Vice President,
Domestic and International Marketing
from July 1993 to December 1995. From
1989 to July 1993 he served as Vice
President, Marketing of the Company.
Summerfield K. Johnston III...... 44 Mr. Johnston has been Senior Vice
President of the Company since December
1995 and Eastern North America Group
President since July 1996. He was Vice
President, Regional Operations from
July 1993 to December 1995. He was
Vice President and General Manager,
West Central Region from December 1992
to July 1993. He served as Vice
President, Human Resources of the
Company from February 1992 to December
1992.
Lowry F. Kline................... 57 Mr. Kline has been Executive Vice
President and General Counsel since
October 1997. He was Senior Vice
President from February 1996 to October
1997, and General Counsel of the
Company since December 1991. He was a
partner in the law firm of Miller &
Martin, Chattanooga, Tennessee, from
1970 until 1996.
Vicki R. Palmer.................. 44 Ms. Palmer has been Vice President and
Treasurer of the Company since December
1993. She was Treasurer of the Company
from February 1992 to December 1993.
18
PRINCIPAL OCCUPATION DURING THE PAST
NAME AGE FIVE YEARS
--------------------------------- --- ---------------------------------------
Gary P. Schroeder................ 52 Mr. Schroeder has been Senior Vice
President of the Company and Western
North America Group President since
July 1996. He was Vice President,
Regional Operations of the Company from
December 1994 to July 1996. He was
Regional Vice President, General
Manager of the Southwest Region from
January 1992 to December 1994.
G. David Van Houten, Jr.......... 48 Mr. Van Houten has been Senior Vice
President of the Company since December
1995 and Central North America Group
President since July 1996. He was Vice
President, Regional Operations of the
Company from July 1993 to December 1995
and he was Regional Vice President and
General Manager, Texas Region from 1992
to 1993.
O. Michael Whigham............... 47 Mr. Whigham has been Vice President,
Controller and Principal Accounting
Officer of the Company since October
1996. He was Region Vice President of
Finance for the Atlanta Region of the
Company from 1992 to 1996 and served as
Director of Internal Audit from 1987 to
1992.
Summerfield K. Johnston, Jr. is the father of Summerfield K. Johnston III.
The officers of the Company are elected annually by the Board of Directors
for terms of one year or until their successors are elected and qualified,
subject to removal by the Board of Directors at any time.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LISTED AND TRADED: New York Stock Exchange
TRADED: Boston, Chicago, Cincinnati,
Pacific, and Philadelphia Exchanges
Common stock owners of record as of February 20, 1998: 15,268
STOCK PRICES*
1997 HIGH LOW
---- -------- --------
Fourth Quarter........................................... 36 25 1/2
Third Quarter............................................ 31 5/8 22 1/4
Second Quarter........................................... 23 5/8 18 1/32
First Quarter............................................ 22 15 23/32
1996 HIGH LOW
---- -------- --------
Fourth Quarter........................................... 16 3/8 14 1/32
Third Quarter............................................ 15 13/32 11 11/32
Second Quarter........................................... 11 7/8 9 7/32
First Quarter............................................ 10 17/32 8
- --------
* During the second quarter of 1997, the Company's common stock split 3-for-
1. All stock prices prior to second quarter 1997 are split-adjusted.
19
DIVIDENDS
Quarterly dividends in the amount of $0.025 per share were paid during
fiscal year 1997. The dividend rate per share remained constant after the
stock split.
ITEM 6.SELECTED FINANCIAL DATA
"Selected Financial Data" for the years 1988 through 1997, on pages 46 and
47 of the Company's Annual Report to Share Owners for the year ended December
31, 1997 is incorporated into this report by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Financial Review" on pages 18 through 29 of the Company's
Annual Report to Share Owners for the year ended December 31, 1997 is
incorporated into this report by reference.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
"Management's Financial Review--Interest Rate and Currency Risk Management"
on pages 24 and 27 of the Company's Annual Report to Share Owners for the year
ended December 31, 1997 is incorporated into this report by reference.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries are incorporated into this report by reference to the Company's
Annual Report to Share Owners for the year ended December 31, 1997, at the
pages indicated:
Consolidated Statements of Income-Years ended December 31, 1997, 1996 and
1995 (page 21)
Consolidated Statements of Cash Flows-Years ended December 31, 1997, 1996
and 1995 (page 23)
Consolidated Balance Sheets-December 31, 1997 and 1996 (page 25)
Consolidated Statements of Share-Owners' Equity-Years ended December 31,
1997, 1996 and 1995 (page 26)
Notes to Consolidated Financial Statements (pages 30-44)
"Quarterly Financial Information," on page 44 of the Company's Annual
Report to Share Owners is incorporated into this report by reference.
Report of Independent Auditors (page 45)
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is set forth under the
caption "Election of Directors--Information Concerning Directors" on pages 4
through 6 of the Company's 1998 Proxy Statement. Such information is
incorporated into this report by reference. Information relating to the
executive officers of the Company is set forth at Item 4(A) of this report
under the caption "Executive Officers of the Company." Information relating to
compliance with the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, by the Company's executive officers and
directors, persons who own more than ten percent of the Company's common stock
and their affiliates who are required to comply with such reporting
requirements is set forth in "Election of Directors--Section 16(a) Beneficial
Ownership Reporting Compliance" on pages 11 and 12 of the Company's 1998 Proxy
Statement. Such information is incorporated into this report by reference.
20
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Director compensation is set forth under the caption
"Election of Directors--Compensation of Directors" on pages 8 and 9 of the
Company's 1998 Proxy Statement, and information relating to executive
compensation is set forth under the caption "Executive Compensation" on pages
12 through 21 of the Company's 1998 Proxy Statement. Such information is
incorporated into this report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of the Company's common stock by certain
persons is set forth under the captions "Voting--Principal Share Owners" and
"Election of Directors--Security Ownership of Directors and Officers" on page
2 and pages 9 through 11, respectively, of the Company's 1998 Proxy Statement.
Such information is incorporated into this report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain transactions between the Company, The
Coca-Cola Company and their affiliates and certain other persons is set forth
under the caption "Certain Relationships and Related Transactions" on pages 21
through 24 of the 1998 Proxy Statement. Such information is incorporated into
this report by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) Financial Statements. The following consolidated financial
statements of the Company and subsidiaries, included in the Company's Annual
Report to Share Owners for the year ended December 31, 1997, are incorporated
by reference into Part II, Item 8 of this report:
Consolidated Statements of Income--Years ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Cash Flows--Years ended December 31, 1997,
1996 and 1995.
Consolidated Balance Sheets--December 31, 1997 and 1996.
Consolidated Statements of Share-Owners' Equity--Years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(2) Financial Statement Schedules. The following financial statement
schedule of the Company and its subsidiaries is included in this report on the
page indicated:
PAGE
----
Report of Independent Auditors........................................... F-2
Schedule II-- Valuation and Qualifying Accounts for the fiscal years
ended December 31, 1997, 1996 and 1995................... F-3
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted either
because they are not required under the related instructions or because they
are inapplicable.
21
(3) Exhibits.
INCORPORATED BY REFERENCE OR
FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY,
AND ANNUAL REPORTS ARE
FILED WITH THE SECURITIES AND
EXHIBIT EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
--------- --------------------------------- --------------------------------
2.1-- Stock Purchase Agreement by and Exhibit 2 to the Company's
among The Coca-Cola Export Current Report on Form 8-K
Corporation and Varoise de (Date of Report: July 26, 1996).
Concentres, S.A., Barlan Inc.,
Beverage Products Limited,
Bottling Holdings (International)
Inc., The Coca-Cola Company, and
Coca-Cola Enterprises, dated as
of July 26, 1996.
2.2-- Agreement between Cadbury Exhibit 2.1, 2.2, 2.3 and 2.4 to
Schweppes Public Limited Company, the Company's Current
Coca-Cola Holdings (United Report on Form 8-K (Date of
Kingdom) Limited, The Coca-Cola Report: February 10, 1997).
Company, Bottling Holdings (Great
Britain) Limited, and Coca-Cola
Enterprises, dated August 9,
1996, as amended by amendments
dated November 29, 1996, December
16, 1996 and January 29, 1997.
2.3-- Stock Purchase Agreement among Exhibit 2.1 to the Company's
The Coca-Cola Bottling Company of Current Report on
the Northeast, Bottling Form 8-K (Date of Report: August
Investment Holdings, Inc., 7, 1997).
Coca-Cola Enterprises and The
Coca-Cola Company, dated as of
August 7, 1997.
2.4-- Stock Purchase Agreement among Exhibit 2.2 to the Company's
Enterprises KOC Acquisition Current Report on
Company Ltd, Coca-Cola Ltd., Form 8-K (Date of Report: August
Coca-Cola Enterprises and The 7, 1997).
Coca-Cola Company, dated as of
August 7, 1997.
2.5-- Stock Purchase Memorandum between Exhibit 2.3 to the Company's
George D. Overend and The Current Report on
Coca-Cola Bottling Company of the Form 8-K (Date of Report: August
Northeast, dated as of August 7, 7, 1997).
1997.
2.6-- Stock Purchase Agreement dated as Exhibit 2.1 to the Company's
of December 19, 1997 between The Current Report on
Prudential Insurance Company of Form 8-K (Date of Report:
America and The Coca-Cola January 5, 1998).
Bottling Company of the
Northeast.
2.7-- Stock Purchase Agreement dated as Exhibit 2.2 to the Company's
of December 19, 1997 between Current Report on
Aetna Life Insurance Company and Form 8-K (Date of Report:
The Coca-Cola Bottling Company of January 5, 1998).
the Northeast.
2.8-- Stock Purchase Agreement dated as Exhibit 2.3 to the Company's
of December 18, 1997 between The Current Report on
Northwestern Mutual Life Form 8-K (Date of Report:
Insurance Company and The January 5, 1998).
Coca-Cola Bottling Company of the
Northeast.
22
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- ---------------------------------------------------------
2.9-- Stock Purchase Agreement Exhibit 2.4 to the Company's Current Report on
dated as of December 31, Form 8-K (Date of Report: January 5, 1998).
1997 between Smith Barney
Inc., IRA Rollover Custodian
for William H. Cosby, Jr.
and The Coca-Cola Bottling
Company of the Northeast.
3-- Restated Certificate of Exhibit 3 to the Company's Current Report on
Incorporation of Coca-Cola Form 8-K (Date of Report: July 22, 1997).
Enterprises (restated as of
April 15, 1992) as amended
by Certificate of Amendment
dated April 21, 1997.
3.2-- Bylaws of Coca-Cola Exhibit 3.2 to the Company's Annual Report on
Enterprises, as amended Form 10-K for the fiscal year ended December 31, 1995.
through February 20, 1996.
4.1-- Indenture dated as of July Exhibit 4.1 to the Company's Current Report on
30, 1991, together with the Form 8-K (Date of Report: July 30, 1991);
First Supplemental Indenture Exhibit 4.01 to the Company's Current Report on
thereto dated January 29, Form 8-K (Date of Report: January 29, 1992);
1992, between Coca-Cola Exhibit 4.02 to the Company's Current Report on
Enterprises and The Chase Form 8-K (Date of Report: January 29, 1992);
Manhattan Bank, formerly Exhibit 4.01 to the Company's Current Report on
known as Chemical Bank Form 8-K (Date of Report: September 8, 1992);
(successor by merger to Exhibits 4.01 and 4.02 to the Company's Current Report on
Manufacturers Hanover Trust Form 8-K (Date of Report: November 12, 1992);
Company), as Trustee, with Exhibit 4.01 to the Company's Current Report on
regard to certain unsecured Form 8-K (Date of Report: January 4, 1993);
and unfunded debt securities Exhibit 4.02 to the Company's Current Report on
of Coca-Cola Enterprises, Form 8-K (Date of Report: September 15, 1993), :
and forms of notes and Exhibit 4.01 to the Company's Current Report on
debentures issued Form 8-K (Date of Report: September 25, 1996):
thereunder. Exhibit 4.01 to the Company's Current Report on
Form 8-K (Date of Report: October 3, 1996):
Exhibit 4.01 to the Company's Current Report on
Form 8-K (Date of Report: November 19, 1996).
Exhibit 4.1 to the Company's Current Report on
Form 8-K (Date of Report: July 22, 1997);
Exhibit 4.2 to the Company's Current Report on
Form 8-K (Date of Report: July 22, 1997);
Exhibit 4.3 to the Company's Current Report on
Form 8-K (Date of Report: July 22, 1997);
Exhibit 4.4 to the Company's Current Report on
Form 8-K (Date of Report: July 22, 1997);
Exhibit 4.01 to the Company's Current Report on
Form 8-K (Date of Report: December 2, 1997);
Exhibit 4.01 to the Company's Current Report on
Form 8-K (Date of Report: January 6, 1998).
23
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- ------------------------------------------------------
4.2-- Medium-Term Notes Issuing Exhibit 4.2 to the Company's Annual Report on
and Paying Agency Agreement Form 10-K for the fiscal year ended December 31, 1994.
dated as of October 24,
1994, between Coca-Cola
Enterprises and The Chase
Manhattan Bank formerly
known as Chemical Bank, as
issuing and paying agent,
including as Exhibit B
thereto the form of Medium-
Term Note issuable
thereunder.
4.3-- Indenture dated as of Exhibit 4.01 to the Company's Current Report on
November 15, 1989 between Form 8-K (Date of Report: December 12, 1989);
Coca-Cola Enterprises and Exhibit 4.4(a) to the Company's Annual Report on
Bankers Trust Company, as Form 10-K for the fiscal year ended December 29, 1989;
Trustee, with regard to Exhibit 4.4(b) to the Company's Annual Report on
certain unsecured and Form 10-K for the fiscal year ended December 29, 1989.
unsubordinated debt
securities of Coca-Cola
Enterprises, and forms of
Fixed Rate Medium Term Note
and Floating Rate Medium
Term Note, each issuable
commencing December 18, 1989
pursuant to the above-
referenced Indenture.
4.4-- Five Year Credit Agreement Exhibit 4.4 to the Company Annual Report on
dated as of November 4, 1996 Form 10-K for the fiscal year ended December 31, 1996.
(the "1996 Credit Agreement")
among Coca-Cola Enterprises;
Bottling Holdings (Great
Britain) Limited; Citibank
International PLC; Citibank,
N.A., ABN AMRO Bank N.V.,
Atlanta Agency; Bank of
America NT&SA; Bank Brussels
Lambert, New York Branch;
CIBC Inc.; Commerzbank AG;
The Dai-Ichi Kangyo Bank,
Ltd., Atlanta Agency;
Deutsche Bank A.G., New York
and/or Cayman Islands
Branches; The First National
Bank of Chicago; Kredietbank
N.V., Grand Cayman Branch;
Midland Bank PLC;
Nationsbank, N.A.; The
Northern Trust Company;
Societe Generale; SunTrust
Bank, Atlanta; Swiss Bank
Corporation, New York
Branch; Texas Commerce Bank,
National Association; Union
Bank of Switzerland, New
York Branch; Wachovia Bank
of Georgia, N.A.
24
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- -------------------------------------------------------
4.5-- Amendment No. 1 to the 1996 Filed herewith.
Credit Agreement, dated as
of September 9, 1997.
4.6-- Programme Agreement dated Filed herewith.
25th September 1997 in
respect of a U.S.
$ 2,500,000,000 Euro Medium
Term Note Programme, between
and among Coca-Cola
Enterprises, as issuer and
guarantor, Coca-Cola
Enterprises Great Britain
plc, as issuer, and ABN AMRO
Bank N.V., Banque Lehman
Brothers, Banque Nationale
de Paris, Citibank
International plc, Credit
Suisse First Boston (Europe)
Limited, Deutsche Bank AG
London, Lehman Brothers
International (Europe),
Midland Bank plc, Morgan
Stanley & Co. International
Limited, Salomon Brothers
International Limited,
Societe General and UBS
Limited, as Dealers.
Certain instruments which define the rights of holders of long-term
debt of the Company and its subsidiaries are not being filed
because the total amount of securities authorized under each such
instrument does not exceed 10% of the total consolidated assets of
the Company and its subsidiaries. The Company and its subsidiaries
hereby agree to furnish a copy of each such instrument to the
Commission upon request.
10.1-- 1986 Stock Option Plan of Exhibit 10.1 to the Company's Annual Report on
Coca-Cola Enterprises, as Form 10-K for the fiscal year ended December 31, 1991.
amended through February 12,
1991.*
10.2-- Form of Stock Option Exhibit 10.5 to the Company's Registration Statement on
Agreement between Coca-Cola Form S-1, No. 33-9447.
Enterprises and certain of
its officers.*
10.3-- Coca-Cola Enterprises 1991 Exhibit 10.11 to the Company's Annual Report on
Stock Option Plan, as Form 10-K for the fiscal year ended December 31, 1992.
amended and restated through
February 18, 1992.*
10.4-- Coca-Cola Enterprises 1994 Exhibit 4.3 to the Company's Registration Statement on
Stock Option Plan.* Form S-8, No. 33-53221.
10.5-- Coca-Cola Enterprises 1995 Exhibit 4.3 to the Company's Registration Statement on
Stock Option Plan.* Form S-8, No. 33-58699.
10.6-- Coca-Cola Enterprises 1992 Exhibit 4.3 to the Company's Registration Statement on
Restricted Stock Award Plan Form S-8, No. 33-53219.
(as amended and restated
effective February 7, 1994).*
25
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- ------------------------------------------------------
10.7-- Coca-Cola Enterprises Exhibit 10.8 to the Company's Annual Report on
Restricted Stock Award Tax Form 10-K for the fiscal year ended December 31, 1995.
Withholding Agreement.*
10.8-- 1995 Phantom Stock Award Exhibit 10.9 to the Company's Annual Report on
Plan.* Form 10-K for the fiscal year ended December 31, 1995.
10.9-- Coca-Cola Enterprises 1995 Exhibit 10.10 to the Company's Annual Report on
Restricted Stock Award Plan Form 10-K for the fiscal year ended December 31, 1996.
(As Amended and Restated
effective January 2, 1996).*
10.10-- Coca-Cola Enterprises 1995 Exhibit 10.11 to the Company's Annual Report on
Stock Option Plan (As Form 10-K for the fiscal year ended December 31, 1996.
Amended and Restated
effective January 2, 1996).*
10.11-- Coca-Cola Enterprises 1997 Filed herewith.
Stock Option Plan.*
10.12-- Long-Term Incentive Plan (As Exhibit 10.12 to the Company's Annual Report on
Amended and Restated Form 10-K for the fiscal year ended December 31, 1996.
Effective January 1, 1996).*
10.13-- Coca-Cola Enterprises 1994- Exhibit 10.7 to the Company's Annual Report on
1996 Long-Term Incentive Form 10-K for the fiscal year ended December 31, 1994.
Plan.*
10.14-- Coca-Cola Enterprises Inc. Exhibit 10.12 to the Company's Annual Report on
Long-Term Incentive Plan Form 10-K for the fiscal year ended December 31, 1995.
(Effective January 1, 1995).*
10.15-- Coca-Cola Enterprises Inc. Filed herewith.
Long-Term Incentive Plan (As
Amended and Restated
Effective January 1, 1997).*
10.16-- Coca-Cola Enterprises Filed herewith.
Executive Management
Incentive Plan (Effective
January 1, 1997).*
10.17-- Coca-Cola Enterprises Exhibit 10.16 to the Company Annual Report on
Executive Pension Plan, Form 10-K for the fiscal year ended December 31, 1996.
Effective January 1, 1996.*
10.18-- Coca-Cola Enterprises Filed herewith.
Supplemental Pension Plan
(As Amended and Restated
Effective July 1, 1993).*
10.19-- 1991 Amendment and Exhibit 10.9 to the Company's Annual Report on
Restatement of the Coca-Cola Form 10-K for the fiscal year ended December 31, 1994.
Enterprises Supplemental
Retirement Plan (As Amended
Effective July 1, 1993).*
26
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- --------------------------------------------------------
10.20-- Form of Stock Option Exhibit 10.36 to the Company's Registration Statement on
Agreements between Coca-Cola Form S-1, No. 33-9447.
Enterprises and certain of
its directors.*
10.21-- Coca-Cola Enterprises 1988 Exhibit 10.10 to the Company's Annual Report on
Stock Appreciation Rights Form 10-K for the fiscal year ended December 31, 1991.
Plan, as amended through
February 12, 1991.*
10.22-- Amended and Restated Exhibit 10.16 to the Company's Annual Report on
Deferred Compensation Form 10-K for the fiscal year ended December 31, 1993.
Agreement between Johnston
Coca-Cola Bottling Group and
Henry A. Schimberg dated
December 16, 1991, as
amended.*
10.23-- 1993 Amendment and Exhibit 10.17 to the Company's Annual Report on
Restatement of Deferred Form 10-K for the fiscal year ended December 31, 1993.
Compensation Agreement
between Johnston Coca-Cola
Bottling Group and John R.
Alm as of April 30, 1993.*
10.24-- Retirement Plan for the Exhibit 10.33 to the Company's Annual Report on
Board of Directors of Form 10-K for the fiscal year ended December 31, 1991.
Coca-Cola Enterprises,
effective April 11, 1991.*
10.25-- Deferred Compensation Plan Exhibit 4.3 to the Company's Registration Statement
for Non-Employee Director on Form S-8, No. 333-47353.
Compensation, as amended and
restated effective January
1, 1998.*
10.26-- 1997 Director Stock Option Filed herewith.
Plan.*
10.27-- 1998 Director Stock Option Filed herewith.
Plan.*
10.28-- Tax Sharing Agreement dated Exhibit 10.1 to the Company's Registration Statement on
November 12, 1986 between Form S-1, No. 33-9447.
Coca-Cola Enterprises and
The Coca-Cola Company.
10.29-- Registration Rights Exhibit 10.3 to the Company's Registration Statement on
Agreement dated November 12, Form S-1, No. 33-9447.
1986 between Coca-Cola
Enterprises and The
Coca-Cola Company.
10.30-- Registration Rights Exhibit 10 to the Company's Current Report on
Agreement dated as of Form 8-K (Date of Report: December 18, 1991).
December 17, 1991 among
Coca-Cola Enterprises, The
Coca-Cola Company and the
share owners of Johnston
Coca-Cola Bottling Group
named therein.
10.31-- Form of Bottle Contract, as Exhibit 10.24 to the Company's Annual Report on
amended. Form 10-K for the fiscal year ended December 30, 1988.
27
INCORPORATED BY REFERENCE OR FILED HEREWITH (THE
COMPANY'S CURRENT, QUARTERLY, AND ANNUAL REPORTS ARE
EXHIBIT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
NUMBER DESCRIPTION UNDER FILE NO. 01-09300)
- ------- ---------------------------- ------------------------------------------------------
10.32-- Letter Agreement dated March Exhibit 10.23 to the Company's Annual Report on
15, 1989 between Coca-Cola Form 10-K for the fiscal year ended December 31, 1991.
Enterprises and The
Coca-Cola Company with
respect to the Bottle
Contracts, as amended by
letter agreement dated
December 18, 1991.
10.33-- Form of Tolling Agreement Exhibit 10.41 to the Company's Annual Report on
between The Coca-Cola Form 10-K for the fiscal year ended January 2, 1987.
Company and various Company
bottlers.
10.34-- Sweetener Sales Agreement-- Filed herewith.
Bottler between The
Coca-Cola Company and
various Company bottlers,
dated July 10, 1997.
10.35-- Can Supply Agreement, dated Exhibit 10.30 to the Company's Annual Report on
November 30, 1995, between Form 10-K for the fiscal year ended December 31, 1995.
American National Can
Company and Coca-Cola
Enterprises.**
10.36-- Share Repurchase Agreement Exhibit 10.44 to the Company's Annual Report on
dated January 1, 1991 Form 10-K for the fiscal year ended December 28, 1990.
between The Coca-Cola
Company and Coca-Cola
Enterprises.
10.37-- Form of International Exhibit 10.33 to the Company's Annual Report on
Bottlers Agreement. Form 10-K for the fiscal year ended December 31, 1996.
10.38-- Supplementary Agreement Exhibit 10.34 to the Company's Annual Report on
between Coca-Cola Form 10-K for the fiscal year ended December 31, 1996.
Enterprises, certain of its
international bottlers and
The Coca-Cola Company and
The Coca-Cola Export
Corporation.
12-- Statement re computation of Filed herewith.
ratios.
13-- 1997 Annual Report to Share Filed herewith.
Owners (Pages 18 to 47).
21-- Subsidiaries of the Filed herewith.
Registrant.
23-- Consent of Independent Filed herewith.
Auditors.
24-- Powers of Attorney. Filed herewith.
27-- Financial Data Schedule. Filed herewith.
- --------
* Management contracts and compensatory plans or arrangements required to be
filed as exhibits to this form pursuant to Item 14(c).
** The Company has requested confidential treatment with respect to portions
of this document.
28
(B) REPORTS ON FORM 8-K
During the fourth quarter of 1997, the Company filed the following current
reports on Form 8-K:
DATE OF REPORT DESCRIPTION
-------------- -----------
August 7, 1997 Acquisition of The Coca-Cola Company's interests in The
Coca-Cola Bottling Company of New York, Inc. and Coca-Cola
Beverages Ltd.; the anticipated benefit from a tax decrease
in Great Britain; increased non-cash expenses related to
certain performance-based stock option plans.
August 7, 1997 Election of officers; acquisition of additional interest in
The Coca-Cola Bottling Company of New York, Inc.;
acquisition of public shares of Coca-Cola Beverages Ltd.
September 26, 1997 Financial results for third quarter and first nine months
of 1997.
December 2, 1997 Terms Agreement dated as of December 2, 1997 relating to
the offer and sale of the 6.95% Debentures Due 2026 and the
Form of the Debenture.
(C) EXHIBITS
See Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Summerfield K. Johnston,
Jr.
By: _________________________________
Summerfield K. Johnston, Jr.
Chairman and Chief Executive
Officer
Date: March 13, 1998
Pursuant to requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Summerfield K. Johnston, Jr. Chairman of the Board of March 13, 1998
____________________________________ Directors and Chief
(Summerfield K. Johnston, Jr.) Executive Officer
(principal executive
officer)
/s/ John R. Alm Executive Vice President and March 13, 1998
____________________________________ Chief Financial Officer
(John R. Alm) (principal financial
officer)
/s/ O. Michael Whigham Vice President and March 13, 1998
____________________________________ Controller (principal
(O. Michael Whigham) accounting officer)
* President, Chief Operating March 13, 1998
____________________________________ Officer and a Director
(Henry A. Schimberg)
* Director March 13, 1998
____________________________________
(Howard G. Buffett)
* Director March 13, 1998
____________________________________
(John L. Clendenin)
* Director March 13, 1998
____________________________________
(Johnnetta B. Cole)
* Director March 13, 1998
____________________________________
(Joseph R. Gladden, Jr.)
30
SIGNATURE TITLE DATE
--------- ----- ----
* Director March 13, 1998
____________________________________
(Claus M. Halle)
* Director March 13, 1998
____________________________________
(L. Phillip Humann)
* Director March 13, 1998
____________________________________
(John E. Jacob)
* Director March 13, 1998
____________________________________
(Robert A. Keller)
* Director March 13, 1998
____________________________________
(Jean-Claude Killy)
* Director March 13, 1998
____________________________________
(Scott L. Probasco, Jr.)
* Director March 13, 1998
____________________________________
(Francis A. Tarkenton)
/s/ Lowry F. Kline
*By: __________________________
Lowry F. Kline
Attorney-in-Fact
31
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Auditors............................................ F-2
Schedule II--Valuation and Qualifying Accounts for the fiscal years ended
December 31, 1997, 1996 and 1995......................................... F-3
F-1
COCA-COLA ENTERPRISES INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Coca-Cola Enterprises Inc.
We have audited the consolidated financial statements of Coca-Cola
Enterprises Inc. listed in Part IV, Item 14(a)(1). Our audits also included
the financial statement schedule listed in Part IV, Item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Coca-Cola Enterprises Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 19, 1998
F-2
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COCA-COLA ENTERPRISES INC.
(IN MILLIONS)
COL. A COL. B COL. C COL. D COL. E
- ----------------------- --------- ---------------------------- ------------- ---------
ADDITIONS
----------------------------
BALANCE
AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- ---------- ----------------- ------------- ---------
FISCAL YEAR ENDED:
DECEMBER 31, 1997
Allowance for losses
on trade
accounts............ $ 45 $11 $ 14(a) $12(b) $ 58
Valuation allowance
for
deferred tax assets. 135 15 109(c) 13(d) 246
DECEMBER 31, 1996
Allowance for losses
on trade
accounts............ $ 33 $14 $ 6(a) $ 8(b) $ 45
Valuation allowance
for
deferred tax assets. 120 9 34(c) 28(d) 135
DECEMBER 31, 1995
Allowance for losses
on trade
accounts............ $ 34 $ 5 $ 3(a) $ 9(b) $ 33
Valuation allowance
for
deferred tax assets. 112 8 -- -- 120
- --------
(a) Principally represents recoveries of amounts previously charged off and, at
December 31, 1997 and 1996, allowances for losses on trade accounts of
acquired companies at date of acquisition.
(b) Charge off of uncollectible accounts.
(c) Valuation allowances for deferred tax assets of acquired companies at date
of acquisition.
(d) Write-off, reversal and expiration of certain components of the valuation
allowance for deferred tax assets.
F-3
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