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 27, 1998
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 4, 1998:
Class A Common Stock - 1,260,000 shares
Class B Common Stock - 35,321,732 shares
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
September 27, September 28,
1998 1997
(In thousands, except per share data)
Sales - domestic and international $602,690 $593,745
Less: beer excise taxes 103,330 104,254
Net sales 499,360 489,491
Cost of goods sold 309,482 302,158
Gross profit 189,878 187,333
Marketing, general and administrative 156,869 155,506
Special charge 19,395 --
Operating income 13,614 31,827
Other (income) expense - net (1,273) 687
Income before income taxes 14,887 31,140
Income tax expense 5,806 13,701
Net income 9,081 17,439
Other comprehensive (income) expense, net of tax:
Foreign currency translation adjustments (2,135) 255
Unrealized gain on available-for-sale
securities (58) --
Comprehensive income $ 11,274 $ 17,184
Net income per common share - basic $ 0.25 $ 0.47
Net income per common share - diluted $ 0.24 $ 0.46
Weighted average number of outstanding
common shares - basic 36,218 36,989
Weighted average number of outstanding
common shares - diluted 37,474 38,106
Cash dividends declared and paid per
common share $ 0.15 $ 0.15
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirty-nine weeks ended
September 27, September 28,
1998 1997
(In thousands, except per share data)
Sales - domestic and international $1,758,597 $1,706,759
Less: beer excise taxes 303,148 297,902
Net sales 1,455,449 1,408,857
Cost of goods sold 880,756 861,492
Gross profit 574,693 547,365
Marketing, general and administrative 462,035 440,470
Special charge (credit) 19,395 (31,517)
Operating income 93,263 138,412
Other (income) expense - net (2,483) 1,802
Income before income taxes 95,746 136,610
Income tax expense 37,341 60,108
Net income 58,405 76,502
Other comprehensive (income) expense, net of tax:
Foreign currency translation adjustments (1,268) 3,729
Unrealized gain on available-for-sale
securities (262) --
Comprehensive income $ 59,935 $ 72,773
Net income per common share - basic $ 1.61 $ 2.05
Net income per common share - diluted $ 1.56 $ 2.01
Weighted average number of outstanding
common shares - basic 36,265 37,312
Weighted average number of outstanding
common shares - diluted 37,403 38,064
Cash dividends declared and paid per
common share $ 0.45 $ 0.40
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, December 28,
1998 1997
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 197,195 $ 168,875
Short-term marketable investments 49,543 42,163
Accounts and notes receivable, net 138,165 124,485
Inventories:
Finished 36,120 44,729
In process 23,679 20,119
Raw materials 31,972 35,654
Packaging materials 5,702 5,977
Total inventories 97,473 106,479
Other assets 63,102 75,192
Total current assets 545,478 517,194
Properties, at cost and net 707,483 733,117
Long-term marketable investments 39,356 47,100
Other assets 125,130 114,672
Total assets $ 1,417,447 $ 1,412,083
See notes to consolidated financial statements. (Continued)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, December 28,
1998 1997
(In thousands)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 136,563 $ 131,936
Accrued expenses and other liabilities 205,975 199,710
Current portion of long-term debt 40,000 27,500
Total current liabilities 382,538 359,146
Long-term debt 105,000 145,000
Deferred tax liability 69,354 76,219
Other long-term liabilities 95,024 95,150
Total liabilities 651,916 675,515
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: 35,219,010 in
1998 and 35,599,356 in 1997) 8,385 8,476
Total capital stock 9,645 9,736
Paid-in capital 5,484 --
Retained earnings 752,668 730,628
Accumulated other comprehensive income (2,266) (3,796)
Total shareholders' equity 765,531 736,568
Total liabilities and shareholders' equity $ 1,417,447 $ 1,412,083
See notes to consolidated financial statements. (Concluded)
ADOLPH COORS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine weeks ended
September 27, September 28,
1998 1997
(In thousands)
Cash flows from operating activities:
Net income $ 58,405 $ 76,502
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net earnings of joint ventures (27,012) (13,979)
Reserve for severance 17,176 --
Reserve for joint venture investment -- 21,978
Depreciation and amortization 86,668 88,263
Loss on sale or abandonment of
properties 4,636 5,586
Impairment charge 2,219 10,595
Deferred income taxes (6,909) (12,204)
Change in current assets and current
liabilities 1,733 33,251
Net cash provided by operating
activities 136,916 209,992
Cash flows from investing activities:
Purchases of investments (49,193) (121,289)
Sales and maturities of investments 49,820 27,253
Capital expenditures (62,418) (35,563)
Proceeds from sales of properties 2,079 2,994
Distributions from joint ventures 13,219 13,250
Other (163) (5,883)
Net cash used in investing activities (46,656) (119,238)
Cash flows from financing activities:
Issuances of stock under stock plans 6,481 17,829
Purchases of stock (26,912) (45,246)
Dividends paid (16,376) (14,967)
Payment of current portion of long-term debt (27,500) (20,500)
Other 2,131 5,334
Net cash used in financing activities (62,176) (57,550)
Cash and cash equivalents:
Net increase in cash and cash equivalents 28,084 33,204
Effect of exchange rate changes on
cash and cash equivalents 236 (926)
Balance at beginning of year 168,875 110,905
Balance at end of quarter $ 197,195 $ 143,183
See notes to consolidated financial statements.
ADOLPH COORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
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 27, 1998,
and the results of its operations for the 13 and 39 weeks ended September
27, 1998. 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 28, 1997.
Statements of cash flows - Cash paid for interest for the nine
months ended September 27, 1998, and September 28, 1997, was
$11.1 million and $11.9 million, respectively. Cash paid for
income taxes for the nine months ended September 27, 1998, and
September 28, 1997, was $34.2 million and $48.5 million,
respectively. During the nine-month periods ended September 27,
1998, and September 28, 1997, ACC issued restricted common stock
under its management incentive program resulting in non-cash
increases to the equity accounts of $2.5 million and $0.8
million, respectively. Also during the nine-month periods ended
September 27, 1998, and September 28, 1997, equity was increased
by the non-cash tax effects of the issuances of stock under the
Company's stock plans of $3.3 million and $3.8 million, respectively.
Reclassifications - Certain reclassifications have been made to
the 1997 financial statements to conform with the 1998 presentation.
3. SPECIAL CHARGE
During the third quarter of 1998, the Company undertook a restructuring of
its operations, which included a voluntary severance program involving its
production work force and severance costs for a small number of salaried
employees. Approximately 200 production employees accepted severance packages
under the voluntary program. Total severance and related costs were $17.2
million, which are included in the special charge on the Company's
consolidated statement of income. Approximately 80% of these costs are expected
to be paid out during fiscal 1998. Also included in this special charge is a
$2.2 million impairment related to long-lived assets at one of the Company's
distributorships. These long-lived assets were considered impaired in light
of both historical losses and expected future, undiscounted cash flows. The
impairment charge represented a reduction of the carrying amounts of the
impaired assets to their estimated fair market values, which were determined
using a discounted cash flow model.
4. COMMITMENTS AND CONTINGENCIES
In July 1998, the Company announced a long-term sponsorship and
promotion agreement with the owners of the Pepsi Center, an arena under
construction in Denver, Colorado, which will be the future home of the city's
professional hockey and men's basketball teams. With the addition of this
agreement, the Company's total commitments for advertising and promotions at
sports arenas, stadiums and other venues and events are approximately $97
million over the next 10 years.
5. EARNINGS PER SHARE (EPS)
Basic and diluted net income per common share were arrived at
using the calculations outlined below:
Thirteen weeks ended Thirty-nine weeks ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
(In thousands, except per share data)
Net income available to
common shareholders $ 9,081 $17,439 $58,405 $76,502
Weighted average shares
for basic EPS 36,218 36,989 36,265 37,312
Basic EPS $0.25 $0.47 $1.61 $2.05
Effect of dilutive securities:
Stock options 1,125 1,026 1,013 667
Contingent shares not included
in shares outstanding
for basic EPS 131 91 125 85
Weighted average shares
for diluted EPS 37,474 38,106 37,403 38,064
Diluted EPS $0.24 $0.46 $1.56 $2.01
The dilutive effects of stock options were determined by applying
the treasury stock method, assuming the Company were to purchase
common shares with the proceeds from stock option exercises.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Charge (Credit)
During the third quarter of 1998, the Company recorded a special charge
totaling $19.4 million, which is composed of a $17.2 million charge primarily
related to a voluntary severance program for production workers and severance
costs for a small number of salaried employees, as well as a $2.2 million
charge related to the impairment of certain long-lived assets at one of its
distributorships. 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 of Canada, Ltd. (Molson Breweries) to
settle legal disputes with ACC, less approximately $2.2 million in related
legal expenses; a $22.4 million reserve related to the recoverability of CBC's
investment in Jinro-Coors Brewing Company (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.
The Company's operating results including and excluding these
special items is summarized as follows:
Thirteen weeks ended Thirty-nine weeks ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
(In thousands, except per share data)
Operating income:
As reported $13,614 $31,827 $93,263 $138,412
Excluding special items 33,009 31,827 112,658 106,895
Net income:
As reported 9,081 17,439 58,405 76,502
Excluding special items 20,912 17,439 70,236 62,550
Earnings per share:
As reported - basic $0.25 $0.47 $1.61 $2.05
- diluted $0.24 $0.46 $1.56 $2.01
Excluding special items
- basic $0.58 $0.47 $1.94 $1.68
- diluted $0.56 $0.46 $1.88 $1.64
Consolidated Results of Continuing Operations (Excluding Special Items)
Sales and volume - ACC reported net sales of $499.4 million and $1,455.4
million for the three and nine months ended September 27, 1998, respectively,
representing increases of 2.0% and 3.3% over the same periods of 1997. Net
sales for the three months ended September 27, 1998, were impacted favorably
by a unit volume increase of 0.5%; CBC sold 5,570,000 barrels of malt
beverages in the third quarter of 1998 compared to sales of 5,541,000 barrels
in the third quarter of 1997. Net sales for the three months ended
September 27, 1998, were also impacted favorably by higher export sales,
which generate greater net revenue per barrel than domestic volume, and by
slightly better domestic gross realizations per barrel. These positive factors
were partially offset by lower Canadian income as a result of the new
partnership agreement between a subsidiary of ACC and The Molson Companies,
Ltd. (Molson Companies), which yields less income to ACC than the interim
agreement that was in effect during 1997. Net sales for the nine months ended
September 27, 1998, were impacted by essentially these same factors, except for
domestic realizations per barrel, which were approximately unchanged year
over year, with unit volume up 2.9% over the same period of 1997.
Gross profit - Gross profit in the third quarter of 1998 rose 1.4% to $189.9
million over the third quarter of 1997, while gross profit in the first nine
months of 1998 rose 5.0% to $574.7 million, compared to the same period of
1997. As a percentage of net sales, gross profit decreased to 38.0% from
38.3% in the three months ended September 27, 1998, and increased to 39.5%
from 38.9% in the nine-month period then ended. The decrease in 1998's third
quarter gross profit percentage from 1997's rate was due to increased cost of
goods sold primarily because of lower production levels, due in part to the
increased production and distributor inventory build late in the second
quarter of 1998. Higher packaging costs also contributed to this increase in
cost of goods sold. The year-to-date improvement in gross margin percentage
resulted primarily from increased sales, as discussed above, partially offset
by a smaller increase versus the prior year in cost of goods sold. Cost of
goods increased as a result of higher sales volume and higher packaging costs,
offset by the favorable impacts of increased absorption of costs as a result of
higher production levels and distribution and shipping efficiencies.
Operating income - Operating income was $33.0 million and $112.7 million
for the three and nine months ended September 27, 1998, respectively,
compared to $31.8 million and $106.9 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. Marketing, general and administrative expenses rose in
the third quarter of 1998 primarily due to higher costs for Year 2000 systems
remediation. Year-to-date costs increased due to greater spending for
advertising and higher Year 2000 costs.
Non-operating income and expense - Net non-operating income for the three and
nine months ended September 27, 1998, improved from the same periods of
1997 primarily because of reductions in net interest expense. The decrease in
net interest expense in 1998 compared to 1997 was attributable to lower
outstanding principal balances of ACC's medium-term notes, increased interest
income as a result of higher cash and investment balances and higher
capitalized interest as a result of increased capital spending levels. The
favorable impact of net interest expense was partially offset by lower royalty
income.
Effective tax rate - The consolidated effective tax rate for the 13-week
period of 1998 was 39.0% versus 44.0% in 1997. The 1997 rate exceeded the
1998 rate because of the effects of certain foreign investments. The year-to-
date effective tax rate for 1998 was 39.0% versus 40.5% in 1997, with the
difference due to the factor cited previously.
Net income - Net earnings for the three and nine months ended September 27,
1998, were $20.9 million, or $0.58 per basic share ($0.56 per diluted share),
and $70.2 million, or $1.94 per basic share ($1.88 per diluted share),
respectively. This compares to net earnings of $17.4 million, or $0.47 per
basic share ($0.46 per diluted share), and $62.6 million, or $1.68 per basic
share ($1.64 per diluted share), respectively, for the three and nine months
ended September 28, 1997.
Liquidity and Capital Resources
Liquidity - The Company's primary sources of liquidity are cash provided by
operating activities and external borrowings. As of September 27, 1998, ACC
had working capital of $162.9 million, and its net cash position was $197.2
million compared to $168.9 million as of December 28, 1997. In addition to its
cash resources, ACC had short-term, highly liquid investments of $49.5
million as of September 27, 1998, compared to $42.2 million as of December 28,
1997. ACC also had $39.4 million of marketable securities with maturities
exceeding one year as of September 27, 1998, compared to $47.1 million as of
December 28, 1997. 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 near-term 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 $136.9 million for the nine months ended September 27, 1998,
compared to $210.0 million for the same period of 1997. Cash flow
from operating activities in the first 39 weeks of 1997 included
approximately $68 million (net of certain withholdings) related
to a payment in settlement of a dispute with Molson Breweries.
Investing activities - During the first nine months of 1998, ACC spent $46.7
million on net investing activities compared to $119.2 million for the first
nine months of 1997. The net impact of ACC's marketable investment activities
was a cash inflow of $0.6 million during the first nine months of 1998,
compared to an outflow of $94.0 million during the same period of 1997. The
significant investment activity during 1997 resulted primarily from the cash
received as a result of the Molson Breweries settlement mentioned above.
Capital expenditures increased to $62.4 million for the nine months ended
September 27, 1998, from $35.6 million a year earlier.
Financing activities - ACC spent $62.2 million on financing
activities during the nine months ended September 27, 1998,
compared to $57.6 million in 1997. Cash was used for similar
purposes in both 1998 and 1997. The 1998 uses were primarily for
purchases of $24.9 million of Class B common stock under the
stock repurchase program, dividend payments of $16.4 million and
principal payments on its debt of $27.5 million.
Cautionary Statement Pursuant to Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements may include, among
others, statements concerning the Company's outlook for 1998; overall volume
trends; pricing trends and industry forces; cost reduction strategies and
their results; the Company's expectations for funding its 1998 capital
expenditures and operations; the Company's expectations for funding work on
computer software to make it compliant with Year 2000; and other statements
of expectations, beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical
facts. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in
or implied by the statements.
To improve its financial performance, the Company must grow premium beverage
volume, achieve modest price increases for its products and reduce its
overall cost structure. The most important factors that could influence the
achievement of these goals -- and cause actual results to differ materially
from those expressed in the 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 potential erosion of sales revenues through discounting or a higher
proportion of sales in value-packs;
- - a potential shift in consumer preferences toward lower-priced products;
- - a potential shift in consumer preferences away from the premium light beer
category, including Coors Light;
- - the intensely competitive, slow-growth nature of the beer industry;
- - demographic trends and social attitudes that can reduce beer sales;
- - the continued growth in the popularity of imports and other specialty beers;
- - 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 laws and government regulations affecting
environmental compliance and income taxes;
- - the inability to achieve targeted improvements in CBC's distribution system;
- - the imposition of restrictions on advertising (e.g., media, outdoor ads or
sponsorships);
- - labor issues, including union activities that could require a substantial
increase in cost of goods sold or lead to a strike;
- - significant increases in federal, state or local beer or other excise taxes;
- - increases in rail transportation rates or interruptions of rail service;
- - the potential impact of industry consolidation;
- - risks associated with investments and operations in foreign countries,
including those related to foreign regulatory requirements; exchange rate
fluctuations and local political, social and economic factors;
- - increases in the estimated costs of the Year 2000 project; and
- - the risk that computer systems of the Company or its significant suppliers
or customers may not be Year 2000 compliant.
These and other risks and uncertainties affecting the Company are
discussed in greater detail in the Company's 1997 Form 10-K filed
with the Securities and Exchange Commission.
Outlook
The Company's performance in the first nine months of 1998 benefited from
domestic and export volume gains, which are expected to continue throughout
1998. While the industry's pricing environment continues to be extremely
competitive, management believes some improvements in gross realizations per
barrel may occur.
Income from the Company's Canadian business is expected to be 25%
to 30% lower per barrel in 1998 than in 1997, based on 1998 plans
for sales and marketing investments. Revenue received under the
Company's interim agreement with Molson Breweries, which expired
at year-end 1997, provided higher earnings per barrel than those
expected as a result of the partnership with Molson Companies. On
the other hand, the partners of the Coors Canada Partnership see
considerable growth potential for Coors products in Canada in the future.
For fiscal year 1998, packaging costs are expected to be up slightly, with
commodities, fixed costs and freight costs expected to be down slightly.
Significant changes in market prices for these items could alter this outlook.
CBC continues to pursue improvements in its operations and technology
functions to achieve cost reductions over time.
The Company expects to benefit from lower labor costs as a result
of its restructuring efforts beginning in 1999. The restructuring
is expected to have a payback period of about two years.
Advertising and other general and administrative costs are
expected to increase but at a lower rate than in 1997. This plan
could change as management continues to monitor CBC's market
opportunities and to invest behind its brands and sales efforts accordingly.
See the item titled Year 2000 under Contingencies below for a
discussion of the expected financial impact of this issue.
Net interest should continue its favorable trends based on CBC's more
favorable cash position and its lower outstanding debt relative to its 1997
financial position. However, improvements year-over-year in interest income
should flatten later in the year as cash balances become more comparable, as
the impact of the Molson Breweries award received late in the second quarter of
1997 becomes less significant in year-over-year comparisons. Net interest
could be less favorable than expected if the Company invests a substantial
portion of its cash balances in non-interest-bearing assets with longer-term
returns. Also, cash may be used to repurchase additional outstanding common
stock as approved by the ACC board of directors in November 1997.
The effective tax rate for the rest of 1998 is not expected to
differ significantly from the rate applied to income during the
first nine months of the year. The level and mix of pretax income
for 1998 could affect the actual rate for the year.
In 1998, CBC has planned capital expenditures (including contributions to its
container joint ventures for capital improvements, which will be recorded on
the books of the joint ventures) in the range of $85 to $95 million. In
addition to CBC's 1998 planned capital expenditures, incremental strategic
investments will be considered on a case-by-case basis.
CONTINGENCIES
Year 2000 - Some computers, software and other equipment include programming
code in which calendar year data is abbreviated to only two digits. As a
result of this design decision, some of these systems could fail to operate
or fail to produce correct results if `00' is interpreted to mean 1900,
rather than 2000. These problems are widely expected to increase in frequency
and severity as the Year 2000 approaches.
ACC recognizes the need to ensure that 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 the Year 2000
problem. This project has two major elements -- Application Remediation and
Extended Enterprise (third-party suppliers, customers and others).
As of September 27, 1998, the Application Remediation element is on schedule,
with 66% of the analysis completed, 46% of the remediation completed and 12%
of the testing completed. Remediation of systems considered critical to ACC's
business is expected to be completed by June 1999, and remediation of non-
critical systems is planned to be completed by September 1999. Contingency
planning for Application Remediation began in October 1998.
The Extended Enterprise element consists of the evaluation of
third-party suppliers, customers, joint venture partners,
transportation carriers and others. Detailed evaluations of the
most critical third parties have been initiated. Contingency
planning for the Extended Enterprise began in October 1998.
The Company has made and will continue to make certain investments in its
information systems and applications to ensure that they are Year 2000
compliant. These investments also include hardware and operating systems
software, which are generally on schedule and are expected to be completed by
June 1999. The financial impact to ACC is anticipated to be approximately $20
million for 1998 and in the range of $10 to $15 million for 1999. The total
amount expended on the Year 2000 project through September 27, 1998, was
approximately $16 million.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, customers
and others, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on its results
of operations, liquidity or financial condition. The Year 2000 project is
expected to significantly reduce ACC's level of uncertainty about the Year
2000 problem and, in particular, about the Year 2000 readiness of its
Extended Enterprise.
Labor issues - The United Auto Workers (UAW) has been engaged in an effort to
organize and represent employees at the Golden brewery. Hearings were held
with the National Labor Relations Board (NLRB) to determine whether the UAW's
organizing efforts could take place only in the Company's brewing unit or in
the Company's larger, integrated unit of brewery, can manufacturing, end
manufacturing and glass manufacturing. The larger, integrated unit is the
recognized unit in an existing agreement with the AFL-CIO, with whom the UAW
is affiliated.
On June 5, 1998, the Regional Director of the NLRB upheld the Company's
position that Coors is an integrated unit. As a result, the current UAW
petition for election was dismissed. The UAW appealed the Regional Director's
decision in early June of 1998 and the Company responded by filing an appeal
objection.
The Company anticipates a decision on the UAW's appeal from the
NLRB during the fourth quarter of 1998.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments
and Hedging Activities (FAS 133). FAS 133 requires all derivatives be
recognized as either assets or liabilities in the statement of financial
position and requires that those assets and liabilities be measured at fair
value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and its resulting designation. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Early application of all provisions of this statement is permitted but
only as of the beginning of any fiscal quarter beginning after issuance of the
statement. Adoption of FAS 133 is not expected to have a significant impact
on the Company's financial position or results of operations. The Company
currently plans to adopt FAS 133 beginning with the first quarter of fiscal
year 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No significant legal proceedings.
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 August 14, 1998, was filed announcing plans
for a Voluntary Severance Program for approximately 200 hourly employees
at Coors Brewing Company's Golden facility. See further discussion in
Item 1 Financial Statements of this filing.
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)
November 12, 1998
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