U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-8251
ADOLPH COORS COMPANY
(Exact name of registrant as specified in its charter)
COLORADO 84-0178360
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Golden, Colorado 80401
(Address of principal executive offices) (Zip Code)
303-279-6565
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock (non-voting), no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: All voting shares are held by
Adolph Coors, Jr. Trust.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of August 8, 1997:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,786,833 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
June 29, June 30,
1997 1996
(In thousands, except per share data)
Sales - domestic and international $630,094 $616,916
Less: beer excise taxes (109,268) (111,824)
Net sales 520,826 505,092
Costs and expenses:
Cost of goods sold 300,663 308,333
Marketing, general and administrative 156,307 144,719
Research and project development 3,560 3,277
Special (credit) charge - net (32,515) 5,200
Total operating expenses 428,015 461,529
Operating income 92,811 43,563
Other income (expense) - net (977) (2,613)
Income before income taxes 91,834 40,950
Income tax expense (40,816) (17,154)
Net income $ 51,018 $ 23,796
Net income per common share $ 1.36 $ 0.63
Weighted average number of outstanding
common shares 37,392 38,013
Cash dividends declared and paid per
common share $ 0.125 $ 0.125
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Twenty-six weeks ended
June 29, June 30,
1997 1996
(In thousands, except per share data)
Sales - domestic and international $1,113,469 $1,068,286
Less: beer excise taxes (193,648) (191,523)
Net sales 919,821 876,763
Costs and expenses:
Cost of goods sold 555,830 572,752
Marketing, general and administrative 281,605 252,131
Research and project development 6,376 5,640
Special (credit) charge - net (31,517) 5,200
Total operating expenses 812,294 835,723
Operating income 107,527 41,040
Other income (expense) - net (2,057) (5,197)
Income before income taxes 105,470 35,843
Income tax expense (46,407) (15,054)
Net income $ 59,063 $ 20,789
Net income per common share $ 1.57 $ 0.55
Weighted average number of outstanding
common shares 37,552 38,013
Cash dividends declared and paid per
common share $ 0.250 $ 0.250
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, December 29,
1997 1996
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 178,501 $ 110,905
Accounts and notes receivable, net 167,048 114,343
Inventories:
Finished 47,415 43,477
In process 27,383 23,157
Raw materials 14,791 40,737
Packaging materials 8,426 13,699
Total inventories 98,015 121,070
Other assets 96,817 70,324
Total current assets 540,381 416,642
Properties, at cost, less accumulated
depreciation and amortization of $1,359,117
in 1997 and $1,313,709 in 1996 758,123 814,102
Other assets 116,667 131,792
Total assets $ 1,415,171 $ 1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, December 29,
1997 1996
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 128,272 $ 123,120
Accrued expenses and other liabilities 195,373 152,328
Current portion of long-term debt 31,000 17,000
Total current liabilities 354,645 292,448
Long-term debt 145,000 176,000
Deferred tax liability 69,761 76,083
Other long-term liabilities 106,019 102,518
Total liabilities 675,425 647,049
Shareholders' equity:
Capital stock:
Preferred stock, non-voting, $1 par
value (authorized: 25,000,000 shares;
issued: none) -- --
Class A common stock, voting, $1 par value
(authorized and issued: 1,260,000 shares) 1,260 1,260
Class B common stock, non-voting, no par
value, $0.24 stated value (authorized:
100,000,000 shares; issued: 35,883,833 in
1997 and 36,662,404 in 1996) 8,544 8,729
Total capital stock 9,804 9,989
Paid-in capital 9,700 31,436
Retained earnings 721,626 671,972
Foreign currency translation adjustment (1,384) 2,090
Total shareholders' equity 739,746 715,487
Total liabilities and shareholders' equity $ 1,415,171 $ 1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-six weeks ended
June 29, June 30,
1997 1996
(In thousands)
Cash flows from operating activities:
Net income $ 59,063 $ 20,789
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net earnings of joint ventures (9,590) (6,095)
Reserve for joint venture investment 22,378 --
Depreciation and amortization 59,163 59,387
Loss on sale or abandonment of
properties and intangibles 3,752 8,829
Impairment charge 10,595 --
Deferred income taxes (6,304) (2,687)
Change in current assets and current
liabilities 29,586 (5,979)
Net cash provided by operating
activities 168,643 74,244
Cash flows from investing activities:
Purchases of short-term investments (33,861) --
Additions to properties and intangible
assets (22,414) (32,389)
Proceeds from sale of properties and
intangibles 2,479 1,866
Other (145) 6,351
Net cash used in investing activities (53,941) (24,172)
Cash flows from financing activities:
Purchases of stock (23,029) (26)
Issuances of stock under stock plans 316 261
Dividends paid (9,409) (9,502)
Payment of current portion of long-term debt (14,000) (31,000)
Net cash used in financing activities (46,122) (40,267)
Cash and cash equivalents:
Net increase in cash and cash equivalents 68,580 9,805
Effect of exchange rate changes on
cash and cash equivalents (984) (1,632)
Balance at beginning of year 110,905 32,386
Balance at end of quarter $ 178,501 $ 40,559
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 29, 1997
1. BUSINESS
Founded in 1873 and incorporated in Colorado in 1913, Adolph
Coors Company (ACC or the Company) is the holding company for
Coors Brewing Company (CBC), the third-largest U.S. brewer.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements - In the opinion of
management, the accompanying unaudited financial statements reflect
all adjustments, consisting only of normal recurring accruals, which
are necessary for a fair presentation of the financial position of the
Company at June 29, 1997, and the results of its operations for the
thirteen and twenty-six weeks ended June 29, 1997. The accompanying
financial statements include the accounts of ACC, CBC and the
majority-owned and controlled domestic and foreign subsidiaries of
both ACC and CBC. All significant intercompany transactions and balances
have been eliminated in consolidation. These financial statements should
be read in conjunction with the notes to the consolidated financial
statements contained in the Company's Form 10-K for the year
ended December 29, 1996.
Statements of cash flows - Cash paid for interest for the six
months ended June 29, 1997, and June 30, 1996, was $8,342,000 and
$10,240,000, respectively. Cash paid for income taxes for the six
months ended June 29, 1997, and June 30, 1996, was $12,619,000
and $541,000, respectively. During the six-month period ended
June 29, 1997, ACC issued $792,000 in restricted common stock
under its management incentive program.
Reclassifications - Certain reclassifications have been made to
the 1996 financial statements to conform with the 1997 presentation.
Accounting changes - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (FAS 128). FAS 128 changes
the computation, presentation and disclosure requirements of
earnings (loss) per share that have previously been followed by
the Company. FAS 128 is effective for years ending after December
15, 1997, and early adoption is not permissible. If the
provisions of FAS 128 were adopted for the three and six months
ended June 29, 1997, and June 30, 1996, the Company's pro forma
basic and diluted earnings per share would have been as follows:
Three months Three months Six months Six months
ended ended ended ended
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
Basic $1.37 $0.63 $1.58 $0.55
Diluted $1.34 $0.62 $1.56 $0.54
3. JINRO-COORS BREWING COMPANY
CBC invested approximately $22 million in Jinro-Coors Brewing Company (JCBC)
in 1992 for a 33% interest. This investment includes a put option and is
exercisable by CBC through March 1999. The put option entitles CBC to
require Jinro Limited (the 67% owner of JCBC) to purchase CBC's investment
at the greater of cost or market value (both measured in Korean Won). JCBC
achieved positive operating income in 1996 but has not yet been profitable
due to debt service costs.
In April 1997, Jinro Limited, a publicly-traded subsidiary of
Jinro Group, missed a debt payment. In response to its financial
difficulties and those of its subsidiaries, Jinro Group is
working with its creditors and the government to restructure its
debts and is in the process of selling real estate and merging
and/or selling businesses. The financial difficulties of Jinro
Limited, the guarantor of the put option discussed above, call
into question the recoverability of CBC's investment in JCBC. As
such, during the second quarter of 1997, CBC fully reserved for
its investment in JCBC. This reserve has been classified as a
special charge in the accompanying statements of income.
4. COORS BREWING IBERICA, S.A.
In March 1994, CBC, through its subsidiary, Coors Brewing
Iberica, S.A. (Coors Iberica), purchased a 500,000-hectoliter
brewery in Zaragoza, Spain. CBC's total investment in Spain
exceeds $50 million, which includes the initial purchase price
and funding of operating and marketing expenditures.
Coors Iberica has recently addressed certain capacity issues at
its brewery as well as certain employment matters. Coors Iberica
negotiated severance terms with labor unions during the second
quarter of 1997, which prompted CBC management to update its
evaluation of the recoverability of Coors Iberica's long-lived
assets and related goodwill. Certain of these assets were deemed
impaired in light of future, undiscounted cash flows. During the
second quarter of 1997, CBC recorded an impairment charge of
approximately $10.6 million and severance costs of approximately
$3.8 million, which have been classified as special charges in
the accompanying statements of income. The impairment charge
represents a reduction of the carrying amounts of the impaired
assets to their estimated fair market values, which were
determined with the aid of an independent, third-party appraisal.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special (Credit) Charge
In the second quarter of 1997, ACC recorded a net special credit
of $32.5 million, which is composed of the following items: a
$71.5-million payment from Molson Breweries (Molson) to settle
legal disputes with CBC, less approximately $2.2 million in
related legal expenses; a $22.4-million reserve related to the
recoverability of CBC's investment in JCBC; and a $14.4-million
charge related to CBC's brewery in Zaragoza, Spain, for the
impairment of certain long-lived assets and goodwill and for
severance costs for a limited workforce reduction.
In the second quarter of 1996, the Company recorded a special charge
of $5.2 million related to the cost of ongoing legal proceedings with
Molson and affiliates and the severance component of restructuring
CBC's engineering and construction operations.
The Company's operating results including and excluding these
special items is summarized as follows:
Thirteen weeks ended Twenty-six weeks ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
(In thousands, except per share data)
Operating income:
As reported $92,811 $43,563 $107,527 $41,040
Excluding special items 60,296 48,763 76,010 46,240
Net income:
As reported 51,018 23,796 59,063 20,789
Excluding special items 36,456 26,956 45,111 23,949
Earnings per share:
As reported $ 1.36 $0.63 $1.57 $0.55
Excluding special items $ 0.97 $0.71 $1.20 $0.63
Consolidated Results of Continuing Operations
Sales and volume - ACC reported net sales of $520.8 million and
$919.8 million for the second quarter and first half of 1997,
respectively, representing increases of 3.1% and 4.9% over the
same periods of 1996. Net sales for the three months ended June
29, 1997, were impacted favorably by net price increases; higher
export sales, which generate greater net revenue per barrel than
domestic volume; and increased Canadian income under an interim
agreement with Molson. For the second quarter of 1997, these
positive factors were offset in part by unfavorable brand and
package mixes. Net sales for the six months ended June 29, 1997,
were impacted favorably by higher domestic and export volume, net
price increases, lower excise taxes because of higher export
sales, and increased Canadian income. These factors were
partially offset in the first half of 1997 by unfavorable package mix.
Gross profit - Gross profit in the second quarter of 1997 rose
11.9% to $220.2 million over the second quarter of 1996, while
gross profit in the first half of 1997 rose 19.7% to $364.0
million compared to the same period of 1996. As a percentage of
net sales, gross profit increased to 42.3% and 39.6% in the
second quarter and first half of 1997, respectively, from 39.0%
and 34.7% for the same periods a year earlier. These improvements
were attributable to the increases in net sales, as discussed
above, and decreases in cost of goods sold of 2.5% in the second
quarter of 1997 and 3.0% in the first half of 1997. Cost of goods
sold decreased primarily because of lower packaging material
costs and improved efficiencies in operations. These positive
factors were offset in part by unfavorable brand and package mixes.
Operating income - Operating income, excluding special items, was
$60.3 million and $76.0 million for the second quarter and first
half of 1997, respectively, compared to $48.8 million and $46.2
million for the same periods a year earlier. These increases were
primarily due to the increases in gross profit, as discussed
above, offset in part by increases in marketing, general and
administrative expenses and by slight increases in research and
project development costs. Marketing, general and administrative
expenses rose because of greater advertising spending and higher
reserves for employee incentives. Research and project
development costs increased because of expenditures for certain
production support and information technology projects.
Non-operating expenses - Net non-operating expenses for the
second quarter and first half of 1997 declined 62.6% and 60.4%,
respectively, from the same periods of 1996 primarily because of
reductions in net interest expense. The decrease in net interest
expense in 1997 compared to 1996 was attributable to lower
outstanding principal balances of ACC's medium-term notes and
increased interest income. These factors were offset by a
decrease in capitalized interest due to fewer capital projects.
Effective tax rate - The consolidated effective tax rates for the
second quarter and first half of 1997, excluding special items, were 38.5%
and 39.0%, respectively, compared to 41.6% for both these periods of 1996.
Net income - Net earnings for the second quarter and first half
of 1997, excluding special items, were $36.5 million, or $0.97
per share, and $45.1 million, or $1.20 per share, respectively.
This compares to net earnings, excluding special items, of $27.0
million, or $0.71 per share, and $23.9 million, or $0.63 per
share, respectively, for the second quarter and first half of 1996.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash
provided by operating activities and external borrowings. As of
June 29, 1997, ACC had working capital of $185.7 million, and its
net cash position was $178.5 million compared to $110.9 million
as of December 29, 1996. The Company believes that cash flows
from operations and short-term borrowings will be sufficient to
meet its ongoing operating requirements, scheduled principal and
interest payments on indebtedness, dividend payments, anticipated
capital expenditures and potential repurchases of its common
stock under the previously-announced stock repurchase plan.
Operating activities - Net cash provided by operating activities
was $168.6 million for the first half of 1997 compared to $74.2
million for the first half of 1996. The increase in cash provided
by operating activities was attributable to an increase in net
income, increases in the changes in accounts payable and accrued
expenses and other liabilities and a decrease in the change in
other assets. These cash inflows from operating activities were
offset partially by increases in the change in accounts and notes
receivable and inventories. The increases in the changes in
accounts payable and accrued expenses and other liabilities for
the six-month period ended June 29, 1997, from the same period a
year earlier were primarily attributable to volume increases and
an increase in accrued taxes related to the Company's settlement
with Molson. The decrease in the change in other assets was due
to a reduction in prepaid advertising, primarily due to the
timing of such expenditures. Accounts and notes receivable
increased for the six-month period ended June 29, 1997, over the
six-month period ended June 30, 1996, primarily because sales
were lower during the last 12 to 16 days of 1996 than during the
same period of 1995; CBC's credit terms to its distributors are
generally 12 to 16 days. The increase in inventories for the
first half of 1997 compared to the same period a year earlier was
attributable to reduced inventory levels at December 29, 1996,
when compared to such levels at December 31, 1995, because of the
Company's plant shut-down at the end of 1996 (which did not occur
in 1995). In addition, there were reductions in finished goods
resulting from an increase in the amount of inventory shipped
directly to distributors compared to the prior year.
Investing activities - During the first six months of 1997, ACC
spent $53.9 million on investing activities compared to $24.2
million for the first six months of 1996. The Company purchased
$33.9 million in short-term cash investments during the first
half of 1997 as a result of its improved cash position. Capital
expenditures decreased to $22.4 million for the six months ended
June 29, 1997, from $32.4 million a year earlier. Capital expenditures
for the first half of 1997 focused on information systems and upgrades
and other efficiency-improvements to Golden-based facilities.
Financing activities - ACC spent $46.1 million on financing activities
during the six months ended June 29, 1997, primarily on purchases of
Class B common stock for $23.0 million, dividend payments of $9.4 million
and principal payments on its debt of $14.0 million.
Outlook - Results for the first half of 1997 benefited from
favorable comparisons in domestic and export volume and certain
improved efficiencies in operations. The Company cannot predict
the degree to which volume trends will continue.
Consistent with industry pricing trends, the Company raised prices
in most of its U.S. markets in the first half of 1997. However, several
key markets are experiencing some aggressive value-pack and pricing
activity. The Company cannot predict the degree to which pricing will
be eroded by value-packing, discounting or the impact that higher prices
will have on total volume or sales mix.
The Company expects its interim agreement with Molson to be in
place at least through the end of the third quarter of 1997.
After that, income from the Canadian business will depend on
whether the previously-announced contingent agreement is finalized.
Trends for the first half of 1997 indicate that packaging costs
are likely to be flat for the rest of the year. Movement in spot
prime aluminum between now and the end of the third quarter of
1997 could change these trends.
Total annual net interest expense in 1997 is expected to be lower
than in 1996 because of the increased investment activity and
interest income because of the Company's improved cash position.
Cautionary statement - The "Outlook" section of this report
contains "forward-looking statements" within the meaning of the
federal securities laws. These statements are subject to risks
and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements.
The most important factors that could influence the achievement
of these goals - and cause actual results to differ materially
from those expressed in forward-looking statements - include, but
are not limited to, the following:
- the failure to obtain all required consents to the previously
disclosed conditional partnership arrangement with The Molson
Companies Limited and Foster's Brewing Group;
- the potential erosion of recent price increases through
discounting or a higher proportion of sales in value-packs;
- a potential shift in consumer preferences toward lower- priced
products in response to price increases;
- a potential shift in consumer preferences away from the
premium light beer category, including Coors Light;
- increases in the cost of aluminum, paper packaging and
other raw materials;
- the Company's inability to reduce manufacturing, freight
and overhead costs to more competitive levels;
- changes in significant government regulations affecting
environmental compliance, income taxes and advertising or
other marketing efforts for the Company's products;
- increases in federal or state beer excise taxes;
- increases in rail transportation rates or interruptions of
rail service;
- potential impact of industry consolidation; and
- risks associated with investment and operations in foreign
countries, including those related to foreign regulatory
requirements; exchange rate fluctuations; and local political,
social and economic factors.
These and other risks and uncertainties affecting the Company are
discussed in greater detail in the Company's 1996 Form 10-K filed
with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See the Company's Form 10-Q for the quarter ended March 30, 1997,
for a discussion of CBC's April 16, 1997, settlement of legal disputes
involving Molson Breweries and its affiliates and its U.S. litigation
with Miller Brewing Company.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K dated April 30, 1997 was submitted announcing the
settlement of all legal disputes between CBC and the Molson Breweries and
related parties (Molson Breweries). Plans for a new partnership were
also disclosed to manage Coors brands in Canada. Please see Form 8-K
filed on April 30, 1997. Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ADOLPH COORS COMPANY
By /s/ Timothy V. Wolf
Timothy V. Wolf
Vice President and
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
August 13, 1997
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