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 September 28, 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 November 7, 1997:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,807,356 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
September 28, September 29,
1997 1996
(In thousands, except per share data)
Sales - domestic and international $ 593,953 $ 557,177
Less: beer excise taxes (104,254) (101,227)
Net sales 489,699 455,950
Costs and expenses:
Cost of goods sold 298,769 291,094
Marketing, general and administrative 155,273 134,743
Research and project development 3,998 3,124
Special (credit) charge - net -- (6,712)
Total operating expenses 458,040 422,249
Operating income 31,659 33,701
Other income (expense) - net (519) (1,503)
Income before income taxes 31,140 32,198
Income tax expense 13,701 13,523
Net income $ 17,439 $ 18,675
Net income per common share $ 0.47 $ 0.49
Weighted average number of outstanding
common shares 37,077 38,018
Cash dividends declared and paid per
common share $ 0.150 $ 0.125
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirty-nine weeks ended
September 28, September 29,
1997 1996
(In thousands, except per share data)
Sales - domestic and international $ 1,707,422 $ 1,625,463
Less: beer excise taxes (297,902) (292,750)
Net sales 1,409,520 1,332,713
Costs and expenses:
Cost of goods sold 854,599 863,846
Marketing, general and administrative 436,878 386,874
Research and project development 10,374 8,764
Special (credit) charge - net (31,517) (1,512)
Total operating expenses 1,270,334 1,257,972
Operating income 139,186 74,741
Other income (expense) - net (2,576) (6,700)
Income before income taxes 136,610 68,041
Income tax expense 60,108 28,577
Net income $ 76,502 $ 39,464
Net income per common share $ 2.05 $ 1.04
Weighted average number of outstanding
common shares 37,394 38,014
Cash dividends declared and paid per
common share $ 0.400 $ 0.375
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, December 29,
1997 1996
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 143,183 $ 110,905
Accounts and notes receivable, net 140,362 114,343
Inventories:
Finished 44,962 43,477
In process 22,814 23,157
Raw materials 33,404 40,737
Packaging materials 5,659 13,699
Total inventories 106,839 121,070
Other assets 171,378 70,324
Total current assets 561,762 416,642
Properties, at cost, less accumulated
depreciation, depletion and amortization
of $1,394,622 in 1997 and $1,313,709
in 1996 737,565 814,102
Other assets 117,805 131,792
Total assets $ 1,417,132 $ 1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, December 29,
1997 1996
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 129,363 $ 123,120
Accrued expenses and other liabilities 188,339 152,328
Current portion of long-term debt 27,500 17,000
Total current liabilities 345,202 292,448
Long-term debt 145,000 176,000
Deferred tax liability 76,482 76,083
Other long-term liabilities 103,464 102,518
Total liabilities 670,148 647,049
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: 35,795,425 in
1997 and 36,662,404 in 1996) 8,523 8,729
Total capital stock 9,783 9,989
Paid-in capital 5,333 31,436
Retained earnings 733,507 671,972
Foreign currency translation adjustment (1,639) 2,090
Total shareholders' equity 746,984 715,487
Total liabilities and shareholders' equity $ 1,417,132 $ 1,362,536
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirty-nine weeks ended
September 28, September 29,
1997 1996
(In thousands)
Cash flows from operating activities:
Net income $ 76,502 $ 39,464
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net earnings of joint ventures (13,979) (8,733)
Reserve for joint venture investment 21,978 --
Depreciation and amortization 88,263 90,609
Loss on sale or abandonment of
properties and intangibles 5,586 8,145
Impairment charge 10,595 --
Deferred income taxes (12,204) (1,921)
Change in current assets and current
liabilities 33,251 (173)
Net cash provided by
operating activities 209,992 127,391
Cash flows from investing activities:
Purchases of investments (121,289) --
Sales and maturities of investments 27,253 --
Additions to properties and intangible
assets (35,563) (46,276)
Proceeds from sale of properties and
intangibles 2,994 7,864
Other 7,367 462
Net cash used in investing activities (119,238) (37,950)
Cash flows from financing activities:
Purchases of stock (27,417) (2,950)
Dividends paid (14,967) (14,245)
Payment of current portion of long-term debt (20,500) (36,000)
Other 5,334 459
Net cash used in financing activities (57,550) (52,736)
Cash and cash equivalents:
Net increase in cash and cash equivalents 33,204 36,705
Effect of exchange rate changes on
cash and cash equivalents (926) (235)
Balance at beginning of year 110,905 32,386
Balance at end of quarter $ 143,183 $ 68,856
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 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 September 28, 1997, and the results of its operations for the
thirteen and thirty-nine weeks ended September 28, 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 nine
months ended September 28, 1997, and September 29, 1996, was
$11,907,000 and $13,792,000, respectively. Cash paid for income
taxes for the nine months ended September 28, 1997, and September
29, 1996, was $48,516,000 and $8,255,000, respectively. During
the nine-month period ended September 28, 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 nine months ended September 28,
1997, and September 29, 1996, the Company's pro forma basic and diluted
earnings per share would have been as follows:
Thirteen weeks ended Thirty-nine weeks ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
Basic $0.47 $0.49 $2.05 $1.04
Diluted $0.46 $0.49 $2.01 $1.03
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.
Beginning in April 1997, Jinro Limited, a publicly-traded subsidiary of
Jinro Group, missed debt payments and began attempting to restructure. In
response to its financial difficulties and those of its subsidiaries, Jinro
Group has been working with its creditors and the government to restructure
its debts and has been 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 expected 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.
5. YEAR 2000
As the year 2000 approaches, ACC recognizes the need to ensure
its operations will not be adversely impacted by Year 2000
software failures. The Company is addressing this issue to ensure
the availability and integrity of its financial systems and the
reliability of its operational systems. ACC has established
processes for evaluating and managing the risks and costs
associated with this problem. The Company has and will continue
to make certain investments in its software systems and
applications to ensure that it is Year 2000 compliant. The
financial impact to ACC is anticipated to range from approximately
$10 to $20 million for each of fiscal years 1998 and 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Special (Credit) Charge
For the nine months ended September 28, 1997, ACC recorded a net
special credit of $31.5 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
$3.2 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.
For the three months ended September 29, 1996, the Company
recorded a net special credit of $6.7 million, which consists of
the following: a $4.8-million payment from Molson for underpaid
royalties, net of related legal expenses; and a $1.9-million gain
related to the 1995 curtailment of certain postretirement benefits.
For the nine months ended September 29, 1996, ACC recorded a net
special credit of $1.5 million, which is attributable to the $6.7-
million net special credit discussed above, offset in part by
$5.2 million related to the cost of 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 the net
special credit are summarized below:
Thirteen weeks ended Thirty-nine weeks ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
(In thousands, except per share data)
Operating income:
As reported $31,659 $33,701 $139,186 $74,741
Excluding special items N/A 26,989 107,669 73,229
Net income:
As reported 17,439 18,675 76,502 39,464
Excluding special items N/A 14,596 62,550 38,545
Earnings per share:
As reported $ 0.47 $0.49 $2.05 $1.04
Excluding special items N/A $0.38 $1.67 $1.01
N/A - Not applicable (no special items recorded during this period).
Consolidated Results of Continuing Operations
Sales and volume - ACC reported net sales of $489.7 million and
$1,409.5 million for the three and nine months ended September
28, 1997, respectively, representing increases of 7.4% and 5.8%
over the same periods of 1996. Net sales for both these periods
of 1997 were impacted favorably by higher domestic and export
volume, net price increases, lower excise taxes because of
proportionally more export sales and increased Canadian income
under an interim agreement with Molson. These factors were
partially offset by unfavorable package mix experienced during
the nine months ended September 28, 1997.
Gross profit - Gross profit for the three months ended September
28, 1997, rose 15.8% to $190.9 million over this same period of
1996, while gross profit for the nine months ended September 28,
1997, rose 18.4% to $554.9 million compared to the same period of
1996. As a percentage of net sales, gross profit increased to
39.0% and 39.4% in the thirteen and thirty-nine weeks ended
September 28, 1997, respectively, from 36.2% and 35.2% 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 per barrel. Cost of goods sold per barrel
decreased to $53.92 and $53.94 for the three and nine months
ended September 28, 1997, respectively, from $54.34 and $56.03
for the same periods of 1996. These decreases were primarily
attributable to higher joint venture income, which results in
lower packaging costs, and improved efficiencies in operations.
These positive factors were offset in part by costs associated
with recalling certain products and the writing off of various
assets in the third quarter of 1997.
Operating income - Operating income, excluding special items, was
$31.7 million and $107.7 million for the three and nine months
ended September 28, 1997, respectively, compared to $27.0 million
and $73.2 million for the same periods a year earlier. These
increases were primarily due to the increases in gross profit
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
thirteen and thirty-nine weeks ended September 28, 1997, declined
65.5% and 61.2%, 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 rate for the three and
nine months ended September 28, 1997, excluding special items, was 44% and
40.5%, respectively, compared to 42% for both these periods of 1996.
Net income - Net earnings for the thirteen and thirty-nine weeks
ended September 28, 1997, were $17.4 million, or $0.47 per share,
and $62.6 million, or $1.67 per share, respectively. This
compares to net earnings, excluding special items, of $14.6
million, or $0.38 per share, and $38.5 million, or $1.01 per
share, for the thirteen and thirty-nine weeks ended September 29, 1996.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash
provided by operating activities and external borrowings. As of
September 28, 1997, ACC had working capital of $216.6 million,
and its net cash position was $143.2 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 $210.0 million for the nine months ended September 28, 1997,
compared to $127.4 million for the same period a year earlier.
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 inventories. These
cash inflows from operating activities were offset partially by
increases in the changes in accounts and notes receivable and
other assets. The increases in the changes in accounts payable
and accrued expenses and other liabilities for the nine months
ended September 28, 1997, from the same period a year earlier
were primarily attributable to volume increases, higher reserves
for employee incentives and a timing difference in excise tax
payments. The decrease in the change in inventories was due to
the transfer of packaging materials to certain CBC joint
ventures. Accounts and notes receivable increased for the nine-
month period ended September 28, 1997, primarily due to net price
increases and because CBC shipped more beer by truck, rather than
by railcar, due to certain performance problems with one of its
rail suppliers. This situation extended CBC's collection period
by approximately one to two days compared to the same period of
1996. The increase in the change in other assets for the first
nine months of 1997 was attributable to the timing of such expenditures.
Investing activities - During the nine months ended September 28,
1997, ACC spent $119.2 million on investing activities compared
to $38.0 million for the nine months ended September 29, 1996.
The Company purchased $121.3 million in cash investments during
the first nine months of 1997 as a result of its improved cash
position. During this same period of 1997, approximately $27.3
million of cash investments matured or were sold. Capital
expenditures decreased to $35.6 million for the thirty-nine weeks
ended September 28, 1997, from $46.3 million a year earlier.
Capital expenditures for the first nine months of 1997 focused on
information systems and upgrades and other efficiency-
improvements to Golden-based facilities. Proceeds from the sales
of properties and intangibles decreased to $3.0 million for the
nine-month period ended September 28, 1997, from $7.9 million a
year earlier due to fewer sales of such items.
Financing activities - ACC spent $57.6 million on financing
activities during the nine months ended September 28, 1997, primarily
on purchases of Class B common stock for $27.4 million, dividend payments
of $15.0 million and principal payments on its debt of $20.5 million.
These cash outflows were offset in part by approximately $5.0 million of
cash received under a short-term line of credit.
Outlook
Results for the first nine months 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 early in 1997. However, several
key markets are experiencing some aggressive discounting and value-pack
activity. The Company cannot predict the degree to which pricing will
be eroded by value-packing or discounting or the impact that higher
prices will have on total volume or sales mix. The Company also cannot
predict how long it will continue to ship more beer by truck, rather than
by railcar, thereby continuing the lengthening of its collection period by
approximately one to two days.
Income from the Canadian business may be impacted by the same type of
pronounced seasonality experienced in the first quarter of 1997 and will
depend on whether the previously-announced contingent agreement with Molson
is finalized during the fourth quarter of 1997.
Trends for the first nine months of 1997 indicate that packaging
costs and other cost of goods sold are likely to be flat or up
slightly for the rest of the year. Marketing expenses in 1997 are
expected to be higher than in 1996 because of the Company's
continued investments behind its core beer brands.
Total annual net interest expense in 1997 is expected to be lower
than in 1996 because of the increased investment activity and
related interest income due to the Company's improved cash
position and because of lower debt levels and related interest expense.
The effective tax rate for fiscal year 1997 is expected to be
approximately 44%.
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
None for the quarter ended September 28, 1997.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None for the quarter ended September 28, 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,
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000024545
<NAME> ADOLPH COORS COMPANY
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 143183
<SECURITIES> 0
<RECEIVABLES> 140362
<ALLOWANCES> 0
<INVENTORY> 106839
<CURRENT-ASSETS> 561762
<PP&E> 737565
<DEPRECIATION> 0
<TOTAL-ASSETS> 1417132
<CURRENT-LIABILITIES> 345202
<BONDS> 145000
0
0
<COMMON> 1260
<OTHER-SE> 745724
<TOTAL-LIABILITY-AND-EQUITY> 1417132
<SALES> 1409520
<TOTAL-REVENUES> 1409520
<CGS> 854599
<TOTAL-COSTS> 1270334
<OTHER-EXPENSES> 2576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 136610
<INCOME-TAX> 60108
<INCOME-CONTINUING> 76502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76502
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>
