Hello and welcome to the Coca-Cola Enterprises second quarter 2007 earnings conference. At the request of the Coca-Cola Enterprises, this conference is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Thor Erickson, Director of Investor Relations. Sir, you may begin.

Thank you. And good morning, everybody. We appreciate you joining us this morning to discuss our second quarter 2007 results. Before we begin, I would like to remind you all of our cautionary statements. This call will contain forward-looking management comments and others statements reflecting our outlook for 2007 as well as future periods. These comments should be considered in conjunction with the cautionary language contained in this morning's earnings release, as well as the detailed cautionary statements found in our second quarter 10-Q. Our earnings release also contains a reconciliation of the non-GAAP comparable figures referenced during this call. A copy of this information is available on our Website at cokecce.com. This morning's prepared remarks will be made by John Brock, our CEO; and Bill Douglas, our CFO. Terry Marks, President of our North American Group, is also with us on this call this morning. Following the prepared remarks, we will open the call for your questions. Now, I'll turn the call over to John Brock.

Thanks, Thor. We're pleased to be with you today to discuss second quarter results that demonstrate progress in our work to achieve our long-term goals. In our news release this morning, we reported comparable second quarter earnings per share of $0.58 and comparable net income of $281 million, which is up 3% from the same quarter a year ago. This performance reflects the impact of a combination of factors. Importantly, it demonstrates solid execution of the business plans and the strategic initiatives that we have in place at every level in our Company. It also includes some benefit from foreign exchange. Even as we face important challenges in our business, such as the high cost in North America and a difficult market environment in Great Britain, we are making progress in reaching our goal of consistent, sustainable profit growth. Based on our results for the first half of the year, and coupled with our expectations for the remainder of 2007, we have raised our guidance for the year to a range of $1.27 to $1.32 per share on a comparable basis including currency benefits. We recognize that these results still remain below our long-term growth objectives and do not reflect the growth we believe our business will attain. However, we're seeing several positive developments in our business that give me and our leadership team even more confidence that we're on the right path in strengthening and developing CCE's business. Let me share with you a couple of examples and then I'll discuss our second quarter results in a little more detail. First of all, our restructuring efforts are on target. And ultimately, we'll accomplish our goals of creating enhanced effectiveness, improved efficiency and better customer service. Though we are still in the early days of this effort, our initial work…

Thanks, John. In the second quarter, we achieved earnings per share of $0.58, excluding $0.02 for the net impact of items affecting comparability. The primary factors driving these results were a combination of North American pricing improvement, European volume growth, as well as overall operating expense management. Operating expenses grew 2% on a reported basis, however, declined 1% on a comparable currency neutral basis. There was a positive impact on second quarter results from currency of approximately $0.02 per share. For the quarter, on a comparable basis, consolidated operating income was essentially flat, reflecting a North American operating income decline of 4.5%, affectively flat operating income in Europe and reduced corporate expenses. Revenues for the quarter grew 4%, with strong revenue growth of 10% in Europe and North American revenue growth of 1%. European volume grew 2% with flat net pricing per case, while North American volume declined 3% and net pricing per case grew 4.5% in North America. We continue to expect North American pricing growth for the year in a mid single digit range with volume down and a low single digit range. With respect to Europe, we continued to expect low single digit volume and pricing growth for the full year. Second quarter cost of goods per case increased 9.5% in North America, as we continued to face strong increases for both aluminum and sweetener. We expect that pricing for each commodity will remain high for the remainder of the year, with North American cost of goods per case increasing approximately 9% for the full year. As John said, overall, we are encouraged by the progress demonstrated by our operating performance over the first half of 2007. Based on this progress, as well as our expectations for the remainder of 2007, building in currency benefit, we have…

(Operator Instructions) Our first question comes from Bill Pecoriello with Morgan Stanley.

Good morning everybody. I have two questions. Number one, I understand that your Europe and Canadian franchise, its works, were extended by six months only and I know you're negotiating with Coke over changes in the terms and just want to know if you could point out what the terms that Coke is seek a change that you're not comfortable with?

Hi, Bill.

Hi, John.

What I would say is that the Coca-Cola Company has taken a position that it wants to put in place a new form of agreement and I would say, we believe we're entitled to extensions of the existing agreements. We believe we're confident we can resolve these points of difference and frankly, we think our -- what I would call our interdependent relationship with Coca-Cola as well as the substantial cost and disruption that, would be caused by any kind of non-renewals, mean that these contractual issues, that are between us can be resolved. I don't think we're really at a point where it would be appropriate to discuss what those items are but we remain confident as do they that we'll resolve them.

Great. My second question was when Coke mentioned, in terms of transferring Glacéau rights that bottlers would be asked in terms of reinvesting across the overall portfolio, is it too early to talk about any specific programs? Is Coke referring to new marketing programs that would be put in place that the bottlers would agree to and what kind of magnitude would we be looking at here?

I think it is too early to talk about specific programs. We're engaged in very comprehensive discussions with Coca-Cola about Glacéau. We're very interested in having the Glacéau brands in our system and our sense is certainly they are, also. And we've got to work out all of the details. I think one of the things that Glacéau, of course, will do, is give us significantly more comfort and confidence that we'll be able to achieve the long-term growth goals that we've been very clear in laying out for the markets. So, we think that as we've said all along, one of the reasons we were so keen on having our portfolio be a broader one, not so reliant on sparkling beverages is that with that kind of an approach, we would find ourselves in a very different position in terms of the kind of approach we would take with our sparkling beverage business and that would obviously be to our satisfaction and to that of the Coca-Cola Company also. So, that's a little glimpse as to where we're heading and talking but I think again, it is a bit early to talk about any specific details.

Thank you.

Thank you. We have a question from Lauren Torres from HSBC.

Good morning. Could you talk a bit more about your progress with respect to your restructuring efforts? At this point it seems like maybe you're tracking ahead of your expectations so I was just wondering if you're realizing more of these benefits earlier than you were initially expecting or should we expect to see more savings to be realized more than you initially anticipated.

I would ask Bill to tackle that question, Lauren.

Hi, Lauren. I think from a financial perspective, early days, you know, we're absolutely on track and yes, in fact, somewhat ahead of where we would have hoped we would be at this juncture. And I think that gives us a lot of confidence that the overall program will deliver at or maybe above what we had originally estimated. However, I think the big news is that very significant expansion in our portfolio with fuse and Campbell's already starting to roll into our portfolio and then the likelihood of Glacéau rolling into our portfolio in 2008, we had always said that we were going to be reinvesting some of the savings and what Terry and John and our teams are going to be doing, you know, principally over the next three months is reevaluating what reinvestments we need to make in 2008 to address this expanded portfolio. So, again, we have an absolutely more confidence today than we did three and six months ago about delivering our long-term growth objectives in '08 but to say that we're going to be banking a higher percentage of the overall restructuring savings to the bottom line in '08, I would not draw that conclusion today.

Okay. Thanks. And if could ask one more question. There have been some is headlines with respect to strikes in the U.K. If you could address that at all and any potential impact that could have on your business?

Yes, hi, Lauren. I'll address that one. It is a situation in the U.K. where we are negotiating in very good faith with our labor union partners and they are also with us. Yes, there have been some limited strikes, which we anticipated, but we have taken appropriate steps to ensure that our customer deliveries and our customer responses are unaffected and that continues to be the case. And we remain convinced, in fact, that we will not have any customer issues and we remain optimistic that we will negotiate again with unions in a satisfactory settlement in due course.

Okay. Thank you.

Thank you. We have a question from Judy Hong with Goldman Sachs.

Good morning, everyone. John, just following up on Bill's question regarding your negotiation with Coke, both the European contract as well as Glacéau, are those tied in any way or are you looking at those sort of jointly and thinking about it from a broader Company perspective where you're willing to give a little bit of concession on one to get more favorable terms than the other or are those negotiations just completely separate?

Well, I guess at the end of the day, almost all of our discussions and negotiations in relationships with the Coca-Cola Company tend to be part of a holistic overall approach. But we also often end up solving for issues on an issue-by-issue basis and I think we're doing a pretty good job at that. When I compare where we are in our overall relationship with Coca-Cola today versus a year ago, it has been a very steady and meaningful improvement for the better. And you know, the kind of changes that we were so anxious to see developing in the portfolio front I think largely because of perhaps some of the leadership changes at the Coca-Cola Company haven't materialized and while they've admitted there's still more work to do. Most notably, I would say in the tea category, nevertheless, we're really encouraged about what we see happening there. We're encouraged by the degree to which we work together on the 2007 business plan that we're executing in both Europe and North America and which reflects the rather unique raw material cost situation we found ourselves in. And again, we and the Coca-Cola Company I think work effectively to deal with some tough situations there. So, as we looked at the future, again, we're feeling pretty good about the way things have gone and while there are always issues to be worked through between a franchiser and a bottler. We believe that one by one, we're tackling these issues. So, some of them may get solved individually and some may be solved more holistically.

Okay. Then for Bill, just a clarification on your new guidance. It looks like it is up 10 cents from the prior guidance. And I guess 5 cents of that is currency. Can you talk about the rest of the increase, what is driving it? Is it the restructuring efforts coming in a little bit better? Is the tax rate for the full year a little bit lower as well? Can you just talk about the guidance for the full year?

Yes. If you -- assume that the net midpoint increase was about 10 cents, 5 cents of that would clearly be from currency. I think the other factors are roughly equal. I think the North American volume pricing algorithm has played out a little bit better than we may have expected it the beginning of the year. That would be one factor. Number two, holistically across the board, North America, Europe and corporate, we are doing a better job again holistically of managing operating expenses and that is a little bit more from our restructuring efforts but also just general benefits from a comprehensive focus on managing down operating expenses. And then lastly, there is a small, whether it’s a penny or two benefit from full year tax rate. That would round out a $0.10 variant.

Okay. So, the full year tax rate for the second half tax rate is basically same as the second quarter tax rate?

We are estimating that the full year tax rate will be between 29% and 30% in that range.

Okay. Thank you.

Thank you. We have a question from Brian Spillane with Banc of America Securities.

Hi, good morning. Just a couple of questions related to the balance sheet and cash flow. First, Bill, it looks like the total assets on your balance sheet were restated somewhere between the end of 2006 and 2007? And it’s, I guess there is a line item on here that receivables from the Coke Company. Can you give us a little bit more color on what that is?

Yes, Brian. That's just a grossing up of an item that we had previously reported on a net basis. So, as we were looking to improve our disclosure, we just broke out a previously net number. And we, do you want call back, we can give you details of that. But that's by in large what that number is.

Okay. And then when you look at the free cash flow generation, if you go back prior to this year, the last, few years prior to this, you were averaging somewhere around $750 million of free cash flow annually. And, as you start to move into an environment where you started to move into your long-term growth algorithm, given the changes you've made in terms of efficiencies, would you expect that the free cash yield or the free cash generation off for this model should improve versus what it was previously?

Modestly, but not significantly. But as we continue to grow the overall business, you know, clearly free cash flow and absolute dollars is going to increase.

Okay. And then finally, just and maybe John, if you could talk a bit about, I know uses of free cash flow, you could reevaluate capital structure and in that thinking, where do acquisitions fall now relative to maybe, when you first started. And I guess, you think through the Coca-Cola now owning a bottler in the U.S. It seems like, at some point down the road, it would make sense that the efficiency sake, that would be better run by you. So, do acquisitions potentially play a bigger role in terms of thinking about uses of free cash flow now versus maybe what you were thinking a year ago?

Yes, our view on that is I think pretty simple, Brian. If there is an acquisition opportunity out there in the bottling world, that we believe would create value, we're in a bit of a better position to consider it than we would have been a year ago or two years ago and that's a good thing. Do we have any clear acquisition opportunities that are right on the Horizon that we can talk about and the answer is no. But would we remain willing and interested, again if it created value, absolutely, whether it was in the United States or elsewhere. But, and again, the good news is we've got the flexibility now to do it if it were there but again, it is not something that we're going out of our way to find. We only want to do it if it created value and again, we've got flexibility to do it if it does.

Okay. Great, thanks guys.

Thank you. We have a question from Mark Swartzberg with Stifel Nicolaus.

Thanks operator. Good morning, everyone. Couple of questions. I guess ultimately relating to Europe. But first, Bill, anything you want to tell us about how we lay out the second half this year from a total company perspective and any impact Europe might have on performance quarter-by-quarter?

I think generally, the way the market is perceiving our quarterly performance is fairly in line with our expectation. The thing that I would highlight is last year Q3 '06 in Europe, volume was up 5.5%. So we're cycling a pretty solid quarter in Europe last year. Also, as everybody has read, weather has not been great in Europe in July particularly in Great Britain. So, you need to factor that in. But, I think generally, I think that was the way people were looking at the back half of the year anyway.

Great. And then really on that, anything unusual about Europe's profit trends in the third and fourth quarter of last year versus volume trends, meaning our volume trends are a pretty good indicator of how profits performed in that region last year?

Yes. There’s always a few anomalies but nothing of huge significance to highlight.

Great. Then lastly on this weather issue, particularly in GP, can you tell us what your volume in Europe was specifically in the month of June and specifically in the month of July to date?

I will not give specific monthly volume but I can say, if you look at our overall European volume growth of 2% that number slowed down in the month of June as the weather deteriorated. April and may were performing at a rate higher than that. And then as you would expect, the performance in July has been similar to that in the month of June.

Okay. Are we are we talking down? Or are we talking up in those periods?

The volume would have been down year-over-year in those two months.

And then what gives you comfort that, it’s not going to get worse in the month of August and September?

Well, I think one would assume at some point you're going to return back to a more normal weather pattern. The weather was normal in August and September last year. And then the promotional activity that we have in place moving in to August and September as well.

Okay. Fair enough. Thanks, Bill.

(Operator Instructions) We have a question from John Faucher with J.P. Morgan.

Yes, good morning, everyone. I apologize if I'm getting a little, parsing a little bit too much. But I want to talk a little bit about the Glacéau guidance here. In the press release and also in your commentary, you talk about contributing to the development and growth of these brands to achieve your established long-term growth objectives. And so I guess are we parsing this too much to say, it’s not going to be, significantly additive? Do you view this as a way to subsidize some of the other brands and bring your operations up to speed? I guess I don't want to over parse this in terms of what the impact is going to be. And then I guess it also leads to the question in terms of your long-term growth objectives off of what base? Do you make up for the fact that this year was down or this year was relatively flattish versus last year? So how should we look at Glacéau in the context of your long-term algorithm and what year you base that off of. And then also a little bit of color in terms of why we should look for the Glacéau impact to begin in 2008 as opposed to 2007. Is it just going to take longer to get everything settled? Thanks.

Yes. Let me comment on the first one. I'll ask Terry to comment on the second part of the question. Just in terms of our systems ability to deal with all of the various new brands and products we're dealing with. On the first one, I think the base is 2007. So, if that hasn't been clear, that should be. And going forward, again, our long-term growth objectives, we believe are very clear in terms of high single-digit earnings per share growth in '08, '09 and ' 10. We said '07 was a very unusual year because of the raw material cost. So, that is our long-term growth Al algorithm and that's what we expect to achieve. What we're seeing around Glacéau is frankly it is too early to say exactly how it’s going to layer in. But what it clearly will do for us is give us significantly increased confidence that we can meet those objectives and it will be obviously through a combination of Glacéau and our system, coupled with an ability to do some things that we might otherwise not be able to do to help our sparkling beverage business. With that, I'll ask Bill for a little further comment and then Terry can comment on our systems' ability to handle all of this.

Hi, John. I completely agree with everything that John said. If you look at all the variables that we're going to be managing in 2008, an additional variable we haven't talked a lot about today with respect to 2008 is the cost of goods environment. Clearly, in 2007, we are facing unprecedented increases in cost of goods per case. Our current estimate is up approximately 9% in North America. In 2008, cost of goods is too early to predict exactly what's going to happen. We're out in the market attempting to layer on cover for both sweetener and aluminum as we speak and we'll have a lot better feel of where we're going to land after the third quarter call in October. But just to put a little bit of color around it, while we expect at this juncture in 2008 to be more in line with historical trends, we still expect the incremental increase in cost of goods per case, '08 versus '07 to be up higher than historical trends of circa 2%. I can't tell you exactly what the numbers are going to be, but I would expect '08 cogs to be up let's call it 3.5%, 4% at this juncture. Could get better, could get a little worse. So, that's another variable that we're going to be hurdling with Glacéau restructuring and everything else. But again, all of these factors baked in, we're standing by the long-term metrics for '08.

And then finally, John, with respect to the transition of the business and the impact in '07, we have a large group of people engaging in real time with Glacéau and Coca-Cola North America to work through all of the logistics related to the transition and it’s a very complex process because it’s happening within a very short timeframe of the launch of fuse and Campbell's. And these are all products that share similar characteristics. High SKU count and relatively low velocity per skew compared to our core business. But good velocity and very profitable. So, we're being very thoughtful about the timing of transition. We're looking at what's on the plate on a market-by-market basis. And then there's just, there's always some natural disruption anytime you go through a massive change like this. So, that's why I think we're really not expecting a material beneficial impact in '07 as a result of the transition.

Okay, great. Thank you.

Okay, operator, I think we can take one more question.

Your final question comes from Robert van Brugge, Sanford Bernstein.

Good morning. Quick follow-up question to Bill, your comment about cost of goods sold, inflation for '08. Would that include your expectation for concentrated price increases or is that just based on commodity price improvement?

What I'm talking about is principally focused on commodity cost movement. And again it’s principally sweetener and aluminum.

Okay, great. And in terms of concentrate pricing, I assume you're in negotiations with the Coca-Cola Company at the moment but is their point of view that the base case is the list price for 2007? Or the list price net of the funding that you will receive this year?

Well, we are in the middle of those conversations. But I think it is fair to say that the impact that we would be looking for in our P&L would be a rational increase on a net basis.

Great. Thanks.

Okay. Thanks, everyone for joining our conference call today. Hope you have a fine day yourselves and thank you very much. Good-bye.

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