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 March 30, 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 May 8, 1997:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 36,116,116 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Thirteen weeks ended
March 30, March 31,
1997 1996
(In thousands, except per share data)
Sales - domestic and international $ 483,375 $ 451,370
Less beer excise taxes (84,380) (79,699)
Net sales 398,995 371,671
Costs and expenses:
Cost of goods sold 255,167 264,419
Marketing, general and administrative 125,298 107,412
Research and project development 2,816 2,363
Special charge 998 --
Total operating expenses 384,279 374,194
Operating income (loss) 14,716 (2,523)
Other expense - net (1,080) (2,584)
Income (loss) before income taxes 13,636 (5,107)
Income tax expense (benefit) 5,591 (2,100)
Net income (loss) $ 8,045 $ (3,007)
Net income (loss) per common share $ 0.21 $ (0.08)
Weighted average number of outstanding
common shares 37,782 38,012
Cash dividends declared and paid per
common share $ 0.125 $ 0.125
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, December 29,
1997 1996
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 106,245 $ 110,905
Accounts and notes receivable, net 118,537 114,343
Inventories:
Finished 40,959 43,477
In process 29,624 23,157
Raw materials 29,028 40,737
Packaging materials 12,872 13,699
Total inventories 112,483 121,070
Other assets 86,258 70,324
Total current assets 423,523 416,642
Properties, at cost, less accumulated
depreciation, depletion and amortization
of $1,334,234 in 1997 and $1,313,709
in 1996 791,772 814,102
Other assets 136,449 131,792
Total assets $1,351,744 $1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, December 29,
1997 1996
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 121,210 $ 123,120
Accrued expenses and other liabilities 155,533 152,328
Current portion of long-term debt 17,000 17,000
Total current liabilities 293,743 292,448
Long-term debt 176,000 176,000
Deferred tax liability 75,412 76,083
Other long-term liabilities 102,116 102,518
Total liabilities 647,271 647,049
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: 36,141,116
in 1997 and 36,662,404 in 1996) 8,605 8,729
Total capital stock 9,865 9,989
Paid-in capital 20,020 31,436
Retained earnings 675,271 671,972
Foreign currency translation adjustment (683) 2,090
Total shareholders' equity 704,473 715,487
Total liabilities and shareholders' equity $1,351,744 $1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirteen weeks ended
March 30, March 31,
1997 1996
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 8,045 $ (3,007)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in net earnings of joint ventures (5,027) (2,386)
Depreciation, depletion and
amortization 30,281 28,905
Deferred income taxes (661) (726)
Loss on sale or abandonment
of properties and intangibles 799 1,528
Change in current assets and current
liabilities 11,144 (18,437)
Other -- (1,886)
Net cash provided by
operating activities 44,581 3,991
Cash flows from investing activities:
Purchases of short-term investments (20,393) --
Additions to properties and intangible
assets (11,921) (20,459)
Proceeds from sale of properties
and intangibles 543 1,523
Other 559 3,815
Net cash used in investing
activities (31,212) (15,121)
Cash flows from financing activities:
Purchases of stock (12,279) --
Issuances of stock under stock plans -- 287
Dividends paid (4,746) (4,751)
Net cash used in
financing activities (17,025) (4,464)
Cash and cash equivalents:
Net decrease in cash and cash equivalents (3,656) (15,594)
Effect of exchange rate changes on
cash and cash equivalents (1,004) (547)
Balance at beginning of year 110,905 32,386
Balance at end of quarter $ 106,245 $ 16,245
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 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 March 30, 1997,
and the results of its operations for the three months ended March 30,
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 first
quarter of 1997 and 1996 was $4,145,000 and $4,123,000, respectively.
During the first quarter of 1997, ACC issued $739,000 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. Adoption of FAS 128 is not
expected to have a material impact on the Company's earnings per share.
3. JINRO-COORS BREWING COMPANY
CBC invested approximately $22 million in Jinro-Coors Brewing Company
(JCBC) in 1992 for a 33% interest. At that time and thereafter, CBC has
accounted for this investment under the cost basis of accounting given that
CBC does not have the ability to exercise significant influence over JCBC
and that CBC's investment in JCBC is considered temporary. This investment
includes a put option, which is held for other than trading purposes, 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. CBC management is closely
monitoring this situation and assessing the impact, if any, on CBC's
investment in JCBC.
4. COORS BREWING IBERICA, S.A.
In March 1994, 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 operating and marketing expenditures.
Coors Iberica is currently addressing certain capacity issues at its
brewery and is meeting with labor unions over certain employment matters.
CBC management is closely monitoring this situation and assessing the
impact, if any, on CBC's investment and future plans in Zaragoza.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special charge - During the first quarter of 1997, ACC recorded a
special charge of approximately $1 million for ongoing legal proceedings
with Molson Breweries of Canada Limited (Molson). The Company's operating
results including and excluding this special charge are summarized below:
For the quarter ended
March 30, March 31,
1997 1996
(In thousands, except per share data)
Operating income (loss):
As reported $14,716 $(2,523)
Excluding special charge 15,714 N/A
Net income (loss):
As reported 8,045 (3,007)
Excluding special charge 8,655 N/A
Earnings (loss) per share:
As reported $0.21 $(0.08)
Excluding special charge $0.23 N/A
Sales and volume - For the first quarter of 1997, ACC reported net sales
of $399.0 million, a 7.4% increase over the first quarter of 1996. The
increase in net sales was due primarily to a 5.1% increase in unit volume;
CBC sold 4,489,000 barrels of malt beverages in the first quarter of 1997,
compared to sales of 4,273,000 barrels in the first quarter of 1996. Net
sales for the three months ended March 30, 1997 were also 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. These positive factors were offset
in part by unfavorable brand and package mixes and freight charges.
Gross profit - Gross profit in the first quarter of 1997 rose 34.1% to
$143.8 million from the first quarter of 1996. As a percentage of net
sales, gross profit increased to 36.0% in the first quarter of 1997
from 28.9% a year earlier. This increase was attributable to a 7.4%
increase in net sales, as discussed above, and a 3.5% decrease in cost
of goods sold. Cost of goods sold decreased due to lower packaging
material costs, including those costs used to price aluminum inventories;
improved joint venture income, which results in lower packaging costs,
and certain improved efficiencies in operations, specifically in
reductions in write-offs of packaging supplies.
Operating income - Operating income, excluding the special charge, was
$15.7 million for the three months ended March 30, 1997, compared to an
operating loss of $2.5 million for a year earlier. This increase was
primarily due to an increase in gross profit, as discussed above, offset
partially by an increase in marketing, general and administrative
expenses and research and project development costs. Marketing, general
and administrative expenses rose due to greater advertising spending,
volume increases and higher reserves for management incentives. Research and
project development costs increased due to the timing of such expenditures.
Non-operating expenses - Net non-operating expenses for the first
quarter of 1997 declined 58.2% from the first quarter of 1996
because of a 204.8% increase in net miscellaneous income and a
23.6% decrease in net interest expense. Reductions in
miscellaneous legal expenses caused the increase in net
miscellaneous income. The decrease in net interest expense was
attributable to an increase in interest income due to increased
investing activities, a decrease in interest expense because of
lower outstanding principal balances of ACC's medium-term notes.
These factors were offset by a decrease in capitalized interest
due to a decrease in the number of capital projects.
Effective tax rate - The consolidated effective tax rate for the
three months ended March 30, 1997, excluding the special charge,
was 40.9% compared to 41.1% for the same period in 1996.
Net income - The consolidated net income for the first quarter of 1997,
excluding the special charge, was $8.7 million, or $0.23 per share,
compared to a net loss of $3.0 million, or $0.08 per share loss, for the
first quarter of 1996.
Liquidity - The Company's primary sources of liquidity are cash
provided by operating activities and external borrowings. As of
March 30, 1997, ACC had working capital of $129.8 million, and
its net cash position was $106.2 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
$44.6 million for the first quarter of 1997 compared to $4.0 million for
the first quarter of 1996. This increase in cash provided by operating
activities was attributable to increases in net income, as previously
discussed, and in accrued expenses and other liabilities and decreases
in inventories and other assets. Accrued expenses and other liabilities
increased because of an increase in property and excise taxes, which was
offset, in part, by a decline in accrued salaries resulting from the
Company's funding of its pension fund. Inventories decreased primarily due
to a reduction in raw materials. Partially offsetting these increases in
operating cash flows were an increase in accounts and notes receivable
along with a small decrease (relative to significant decreases in the first
quarter of 1996) in accounts payable. Accounts and notes receivable
increased in response to the increase in sales volume, while the decrease
in accounts payable was attributable to the timing of vendor payments.
Investing activities - During the first quarter of 1997, ACC spent $31.2
million on investing activities compared to $15.1 million for the first
quarter of 1996. The Company purchased $20.4 million in short-term
investments during the first quarter of 1997 as a result of its improved
cash position. Capital expenditures decreased to $11.9 million for the three
months ended March 30, 1997, from $20.5 million a year earlier. Capital
expenditures for the first quarter of 1997 focused on information systems
and upgrades and other efficiency-improvements to Golden-based facilities.
Financing activities - ACC spent $17.0 million on financing activities
during the first quarter of 1997 due to purchases of Class B common
stock for $12.3 million and dividend payments of $4.7 million.
Outlook - The first quarter, with historically lower volume, has
not generally been a good indicator of annual results. The second
and third quarters, which include the peak summer volume months,
traditionally generate the greatest share of the Company's annual
operating income. Results for the first quarter of 1997, however,
benefited from relatively favorable comparisons in volume and
packaging materials costs. Additional benefit from these factors
is not expected for the remainder of 1997.
Consistent with industry pricing trends, the Company raised prices in
approximately 80% of its U.S. markets in the first quarter of 1997.
However, several key markets are experiencing some aggressive multi-pack
and pricing activity. The Company cannot predict the degree to which
pricing will be eroded by multi-packing, discounting or the impact that
higher prices will have on total volume or consumers trading down to
lower-margin products.
The Company expects its interim agreement with Molson, which, when compared
to the previous license agreement, added $3.1 million more to pretax results
in the first quarter of 1997, to be in place at least through the end of the
second quarter of 1997. After that, income from the Canadian business will
depend on the ultimate nature of the Company's arrangement in Canada.
Trends early in 1997 indicate that packaging and aluminum costs
will be flat for the rest of the year. Movement in spot prime aluminum
between now and 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 with 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 inability of the Company and its distributors to develop and
execute effective marketing and sales strategies for Coors products;
- 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 multi-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
On April 16, 1997, CBC settled all of its legal disputes involving Molson
Breweries and its affiliates and its U.S. litigation with Miller Brewing
Company. Under terms of the settlement, Molson Breweries has paid ACC
$71.5 million. This settlement ends all legal proceedings regarding
Molson's breach of a 1985 license agreement to produce and market Coors
products in Canada. The amount, net of certain related legal expenses,
will be included in ACC's second quarter results.
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K
None.
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)
May 14, 1997
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